James Wilson's Epistle

[Michael Brun]

I for one find the letter very nice.  As for the e-list here, there
generally is a mixture of political economy/finance correspondence with
cultural politics correspondence, and that mixture is intentional.  We all
have a lot to learn, and not just about one subject!  The culture, politics
and trends of the modern day cannot be accounted for by economists or movie
critics alone.  Like it or not, they need one another's help, and that of
many others besides!

One comment on the text: 


>"If and when there’s a sudden loss of confidence, then all the players will
>rush to cash in their chips at the same time to purchase real goods and
>services. As if 72 people all tried to sit down in the same chair."

Here it is important to distinguish stocks from flows.  If the volume of
transactions in the money markets exceed those in the "real" market by 72
to 1, does that mean that there are really 72 chips in the money market for
every one in the real market?  This is a complicated question.  If the
velocity of money--the rate at which it changes hands--is the same in both
sectors, then the answer would be yes.  However, the velocities are
probably not the same.  Indeed--and here someone who knows more than I
should intervene--with computerized trading and so forth it is likely the
velocity in the money market is much greater than in the real market.  The
chip that limps around in the real market really whizzes when it gets into
the money market.  If, for example, chips change hands ten times in the
money market for every one time they do so in the real market, then the
actual chip ratio between money and real markets would be only 7:1.  That
may still be an impressive ratio, but also impressively different from what
we imagine it to be looking only at total amount of transactions.

Michael Brun