Real cash holdings effect
The real cash-holding effect is the Pigou-effect , which Don Patinkin has expanded in various respects , in which the cash-holding is treated from the utility point of view with its own marginal utility such as the consumption of goods and wealth .
A fall in the price level can cause the real cash to rise above the desired level of cash holdings, and the marginal utility of this excessive cash holding is lower than the marginal utility of additional expenditure for consumption, stocks or investments. In response, spending is increased in order to reduce real cash holdings. The real cash holding effect therefore also represents a “ full employment automatism ” assuming falling prices and wages ( deflation ).
history
With his position, Don Patinkin tried to reintegrate Keynes' criticism of classical economics into an equilibrium model. To do this he gave up Say's theorem and the neutrality of money ; Goods are not only bought by goods, but demand is influenced by monetary reasons. However, as before Keynes, the monetary influences should lead to a general equilibrium through flexible wages and prices.
Don Patinkin referred to the contradiction in neoclassical theory between the dichotomy and the quantity theory of money .
Thesis and reason
The cash on hand is either reduced by spending or increased by avoiding spending and saving until the marginal utility of the last expenditure and the last additional cash on hand are equal. This means that the real cash balance that corresponds to the desired cash position has been achieved. Don Patinkin expanded the Pigou effect above all by including not only expenditures for consumption, but also for securities and investments. In deflation, a full employment equilibrium will be achieved through increasing spending on consumption, stocks and investments.
Both changes in the nominal money supply and changes in the price level influence the real money supply. For the private sector, wealth effects result from a change in the price level only for the so-called external money, i.e. the amount of money created by the central bank and the bonds issued by the state coffers, which represent a net demand for the private sector. To the extent of the money created by commercial banks through the indebtedness of the private sector (internal money), when the price level falls, the profits of the creditors due to the increased purchasing power are offset by the corresponding losses of the debtors due to the increased real debt burden, which are canceled out in the asset balance.
Comparable concepts
What all comparable concepts have in common is that, like the Pigou effect, they claim that deflation has a stimulating effect on the economy, which in a crisis would lead to economic equilibrium and full employment again.
The real cash effect
When wealth effect (real balance effect) the real cash rises through a falling prices above or lowered by a rising price level below the desired cash balances. In the IS-LM model, lower prices result in a right shift of the LM curve and the intersection with the IS curve. The real cash effect is the basis for the effects named after Pigou, Keynes and Patinkin.
The Pigou Effect
The Pigou effect generally resembles the real cash effect in its mode of action, but particularly emphasizes the wealth effect for the holders of government bonds, for whom the falling price level creates the feeling of being wealthier. Therefore, they increase their consumer spending and thus the amount of goods demanded in an economy. Don Patinkin expanded the Pigou effect into the real cash holding effect.
The Keynes Effect
The so-called Keynes Effect comes from the Neoclassical Synthesis by John R. Hicks and is in complete contradiction to Keynes' views on the effect of deflation on the economy. It describes an effect on the demand for goods that has an indirect effect on the investment via the securities market. As a result of the excessive cash holdings (transaction and speculative cash registers) with falling prices, the demand for securities increases, so interest rates decrease and investments increase. In the IS-LM model, the IS curve shifts to the right, income and employment increase.
Individual evidence
- ^ The Real Balances Debate
- ↑ Ralph Anderegg: Fundamentals of Monetary Theory and Monetary Policy , Oldenbourg-Verlag, Munich 2007