Trouble with the equation of exchange.

[DSGE]

Velocity of M1 Money Stock (M1V) - FRED - St. Louis Fed

USD are employed, to "lubricate" economic transactions, about half-a-dozen times per year:

US MB ~= $2T
US GDP ~= $15T/yr.
V ~= GDP/MB ~= 8/yr.​

Not sure what the point is...

 

[editec]

So the equation of exchange is just an identity. We can't get anything useful out of an identity. First off let's write it in terms of growth rates rather than levels, so MV=PY => %M + %V = %P + %Y. We have to add some rules to make it interesting. The first and most obvious being that Y returns to its natural rate in the long run, it's long run growth rate being the trend growth in productivity + trend growth in population. Say about 3%. Next we ask what measure of money we should pick for M. Friedman liked to use M2 because M2 did something cool. I can't find it now, but I recall seeing Friedman showing that the long run demand for money when money is measured as M2 is stable. So the velocity of M2 is stable, hence %V = 0. So the only things left to vary are M and P, which gives you the conclusion that inflation (%P) is everywhere and always a monetary phenomenon.

I'm a tad confused by the embolden statement above.

More than a tad confused , really. Perhaps I don't understand the meaning of it.

It seems to suggest that the demand (velocity?) for M2 is by nature stable?

Why would that be?

Is the demand for cash or it's close equivalents truly STABLE, after say, a massive natural disaster>

I don't think so.

Perhaps I'm entirely missing the point here, but it seems to me that the demand for cash can change due to events outside the world of monetary manipulation by a central bank.

What am I missing here?

 

[editec]

But, by all means, if anyone can tell me how M_flow increases without the requirement of credit, I'm dying to know. There is no magic here, no complicated annuity expressions. CDSs, derivatives, straddles and swaps, MBS, stock, T-bills, whatever, is just moving back and forth between savings and credit accounts. An IPO moves money from one guys savings to a companies savings in trade for a contract of repayment and dividends. That is great. But it's just another, out of a savings and into the flow. Sure, some company makes a business loan which increases their savings that then pays for intermediate capital equipment that then creates a new product stream for Q. But, that loan gets paid back and it doens't permanently increase M_flow.

SPAIN's economy post the discover and rape of the AmerIndians, might be a good example of that phemonema, no?

No expansion of credit (with fiat dollars) was necessary for Spain to undergo a massive inflationary period of the Money supply, true?

In fact, didn't that massive infusion of gold (coupled with Spain deciding to become the defender of Christendom) cause Spain's internal economy to go into centuries of decline?

All that FREE GOLD that the Spainish elite classes got, caused Spain to stop being a truly productive nation.

The inflation of the M supply crushed the working classes, and the overreach of the Spainish foreign policies eventually caused the state to go bankrupt, too.

What this really show us is that on a MACRO level FREE money is NOT really free. Free money, in this case, free gold, acted like an amphetimine on the natural economy. It produced nothing of lasting worth.

It fostered a LOT of useless economic activity, but it also caused a gradual reduction in national production.

 

[DSGE]

So the equation of exchange is just an identity. We can't get anything useful out of an identity. First off let's write it in terms of growth rates rather than levels, so MV=PY => %M + %V = %P + %Y. We have to add some rules to make it interesting. The first and most obvious being that Y returns to its natural rate in the long run, it's long run growth rate being the trend growth in productivity + trend growth in population. Say about 3%. Next we ask what measure of money we should pick for M. Friedman liked to use M2 because M2 did something cool. I can't find it now, but I recall seeing Friedman showing that the long run demand for money when money is measured as M2 is stable. So the velocity of M2 is stable, hence %V = 0. So the only things left to vary are M and P, which gives you the conclusion that inflation (%P) is everywhere and always a monetary phenomenon.

I'm a tad confused by the embolden statement above.

More than a tad confused , really. Perhaps I don't understand the meaning of it.

It seems to suggest that the demand (velocity?) for M2 is by nature stable?

Why would that be?

Is the demand for cash or it's close equivalents truly STABLE, after say, a massive natural disaster>

I don't think so.

Perhaps I'm entirely missing the point here, but it seems to me that the demand for cash can change due to events outside the world of monetary manipulation by a central bank.

What am I missing here?

You're not missing anything. In the short run, in response to a natural disaster or fear of a recession or any reason, the demand for money can change. It's just that over a long time period it gravitates to some constant value (kind of like how the exchange rate can change dramatically in the short run but in the long run it returns to purchasing power parity). So if I double the money supply and leave it at that size permanently, that doesn't tell me much about prices in 6 months since I don't know what money demand will be. But if I look into the future several years, doubling the money supply approximately doubles the price level.

 

[Widdekind]

how M_flow increases without the requirement of credit... out of a savings and into the flow.

...massive infusion of gold

...All that FREE GOLD

...The inflation of the M supply

(i do not have access to a drawing program)

The EoX describes Money-flows [$/yr.]; accumulated aggregate Savings is a Money-stock [$]. The former describes the "blood-sugar-flow" through the economy; the latter resembles "fat-stores". Denoting dynamic "flows" with single-brackets [], and denoting static "stocks" with double-square-brackets [[]], circulating Money, can be de-circulated, as Savings; ergo the rate of Savings (S) equals the time-rate-of-change (d/dt) of the stock of accumulated Savings (MS):

[[MS]] <-----------> [MV = PQ = GDP = C + S + T]

dMS/dt = S​

Savings stock does not enter the "stream of spending". But Savings stock can be re-circulated; ergo "de-Savings" (re-circulation of squirreled-away Money) is a means of "self-financing" an increase in "flowing" Money (reaching under the mattress for stashed cash), without use of Credit (borrowing from banks) ?

The Spanish acquisition, of large amounts of specie, economically resembles to "finding buried treasure" (somebody else's accumulated Savings stock), and then "de-Saving" (spending) the same.

 

[Widdekind]

Not sure what the point is...

trying to learn ?

only the Monetary Base (MB) excludes effects of Fractional-Reserve banking (?); what is the Base Velocity (VB) ?

nominal GDP [$/quarter] / nominal MB [$] = nominal VB [transactions / quarter]

from c.1984 to c.2008, nominal VB decreased 25% (20 to 15), before plummeting another 50% (to 5); US MB is "decelerating":

 

[Widdekind]

Money-Velocity (V) is the ratio of a Money-flow (GDP) [$/time] to a Money-stock (M) [$]

Money-Velocity resembles GDP-per-capita, representing "GDP per spendable dollar", i.e. "how much of National Income was 'lubricated' by each spendable dollar'

naively, the most seemingly-reasonable Money-Velocity is VZM = GDP / MZM, i.e. "GDP per demandable dollar of 'zero maturity'", simplistically including cash + demand Deposits (physical Money + cyber Money):

MZM embodies both physical & cyber Money, which 'lubricates' transactions, in our mixed physical & cyber economy. Decreasing VZM implies that the total supply of physico-cyber "cyborg" Money has expanded even faster than GDP, so that individual "cyborg Dollars" are "working half as hard" to "lubricate" National Income / Expenditures. At present, "cyborg Dollars" generate $1.50 of GDP per quarter, i.e. are involved in one-and-a-half transactions per season (approximately once per 10 weeks).

 

[Widdekind]

humanity is partitioned into six (6) categories, by size (x3)

• persons ("individuals")
• corporations ("families, clans, tribes")
• Governments ("nations")

and by nationality

• domestic
• foreign

all economic entities are assigned "guardian accountants (GAs)", who account their hosts' incomes (I) & expenditures (outflows, O):

" Y = GDP "

" Y + M = C+I+G + X "

I + M = O + X

I + M
I = IC + IK + IG
= incomes to (borrowings, Tax-receipts by) domestic persons, corporations, Governments
M = MC + MK + MG
= incomes to (borrowings, Tax-receipts by) foreign persons, corporations, Governments

O + X
O = C + K + G
= outflows from (lendings, re-payments, Tax-payments by) domestic persons, corporations, Governments
X = XC + XK + XG
= outflows from (lendings, re-payments, Tax-payments by) foreign persons, corporations, Governments

(I+M) - (O+X) = net Savings [$/time]
= net rate of de-circulation (re-circulation) of currency, out of (into) Money-flows, into (out of) Money-stocks
= 0 "in long-term", "in equilibrium"​

what about borrowings ("pseudo-incomes"), lending & re-payings ("pseudo-expenditures") ?? what about bribes ("pseudo-services") ?? what about stocks, they are assets, i.e. "goods", representing (partial) ownership, of businesses, i.e. "Kapital goods" ("i own the front axle & bumper of that monster-dump-truck") ?? if some person owns P% of some corporation, then does P% of that corporation's incomes & outflows (net profits) account to that person ?? can persons own "shares" of Governments ?? naively, groups are "legal gangs" with "group identities".

 

[DSGE]

How did you arrive at I + M = O + X? Why are you disaggregating I,M,X and O? You don't end up using them for anything, but it does introduce the confusing subscripts that C = persons, K = corporations and G = governments. What's the motivation behind this? I don't understand what... thing... you're trying to think about. Need a little bit of explanation in english sentences, not just notation. I just can't follow what's happening at all.

 

[Widdekind]

you have 6 kinds of "economic entities", (Foreign, Domestic) x (person, corporation, Government). Each of those 6 categories has an "income" & "outflow", for a total of 6x2=12 Money-flows to account.

flows can be accounted by categories ("foreign Governments to domestic corporations" = foreign-hired contractors)

vaguely, Y+M + C+I+G + X "mixes & matches" and confuses me

 

[DSGE]

vaguely, Y+M + C+I+G + X "mixes & matches" and confuses me

What?

 

[Widdekind]

to my mind, focusing on "economic entities" (F,D x p,c,G), and the Money-flows from-and-to them (Fp --> Dc), makes more sense, than focusing on the specific "things" transacted (Consumer goods, Capital goods).

sometimes, Y+M=C+I+G+X focuses on the "who" (e.g. G,X); other times focuses on the "what" (C,I); such seems inconsistent. Cp. Vasily Leontief's "input-output" theory of economics

if "economic agents" who accumulate Money (Revenues > Expenses) generally "save" into the banking system; then what happens when banks themselves are Profitable ?? do banks "save" earnings into themselves ??

 

[itfitzme]

Money-Velocity (V) is the ratio of a Money-flow (GDP) [$/time] to a Money-stock (M) [$]

Money-Velocity resembles GDP-per-capita, representing "GDP per spendable dollar", i.e. "how much of National Income was 'lubricated' by each spendable dollar'

naively, the most seemingly-reasonable Money-Velocity is VZM = GDP / MZM, i.e. "GDP per demandable dollar of 'zero maturity'", simplistically including cash + demand Deposits (physical Money + cyber Money):

MZM embodies both physical & cyber Money, which 'lubricates' transactions, in our mixed physical & cyber economy. Decreasing VZM implies that the total supply of physico-cyber "cyborg" Money has expanded even faster than GDP, so that individual "cyborg Dollars" are "working half as hard" to "lubricate" National Income / Expenditures. At present, "cyborg Dollars" generate $1.50 of GDP per quarter, i.e. are involved in one-and-a-half transactions per season (approximately once per 10 weeks).

Care should be taken in not over interpreting the meaning of MzM, M2, and M1. The money in the flow, the MV that is the physical accounting of PQ, and the electronic accounting of it, is associated with the of the Federal Reserve measures but is not strictly any of these. The Federal Reserve measures are simply proxies to the monetary flow. There are complex processes in the movement of money between money stocks. The "velocities" (appropriately frequencies) of these money stocks is not the frequency of usage of the money in the flow. It is a combination of the flow and that stock.

Somewhere in the thread, DSGE does a good Mb, and the actual flow of money are not equivalent. Yet, they are correlated and in that correlation they are identical. Strictly, V_flow/|V_flow|*(#f) = V1/|V1|*(#1)= V2/|V2|*(#2)= Vb/|Vb|*(#b)= Vz/|Vz|*(#z) and as such, they can be used to gauge each other. (That is precise but I have hedged it as # may be equal to one and there may be an error term "+e")

Basically, as Mb*Vb = M1*V1 , then Mb = M1 * (V1/Vb). The way that the Vs are used are as a conversion factor, lacking any other method of measuring them independently.

It leads to the issue of the liquidity trap, when the forces that move money stock from one place to the flow are high. The very fact that the term "liquidity trap" exists speaks to the difference. The actual velocity of money as it moves between M2 and M1 may be significantly different then the actual flow velocity of the POS machines.

Basically, there are more unknowns then equations.

 

[itfitzme]

to my mind, focusing on "economic entities" (F,D x p,c,G), and the Money-flows from-and-to them (Fp --> Dc), makes more sense, than focusing on the specific "things" transacted (Consumer goods, Capital goods).

sometimes, Y+M=C+I+G+X focuses on the "who" (e.g. G,X); other times focuses on the "what" (C,I); such seems inconsistent. Cp. Vasily Leontief's "input-output" theory of economics

if "economic agents" who accumulate Money (Revenues > Expenses) generally "save" into the banking system; then what happens when banks themselves are Profitable ?? do banks "save" earnings into themselves ??

"what happens when banks themselves are Profitable ?? do banks "save" earnings into themselves ??"

That is funny.

But seriously, it's a good question.

"economic entities" (F,D x p,c,G)"

"F"? "D x p"? "c" ? out of context, I'm not sure what those are. It's not triggering anything.


I run into problems, straight out of the box, in trying to attack the problem as a straight up flow issue.

Clearly, MV = GDP = PQ = PQ_1 + PQ_all else.... It is a huge unrestrained equation with (7.7million + 360 million) - 1 degrees of freedom where each PQ is internally constrained by the specific market factors. As well, there are interactions between markets such that one PQ affects other PQs vertically. And, on the consumer demand side, each individuals income is affected the by the wages for the particular business. Then, all of it is tied together, all the PQ, by the consumer divvying up his wallet among goods.

If that isn't bad enough, there is this problem that my savings becomes someone elses debt. M2 is increased by my savings while M1 is decreased. Yet, someone else then borrows against it to increase M1 again. So now, as money becomes a representation of some other money, it isn't possible to simply count the species. Perhaps there is some theory that solves this issue for me, but I don't know it and haven't realized it.

What is clear, having studies physics and engineering, is that often a problem is intractable from the perspective of actually counting the physical objects and relating them as they move over time. Physics dynamics presents some good examples where the physical equations of distance, velocity, acceleration, and time are intractable. But when the appropriate boundary conditions are applied, and the system is described in terms of potential energy and actual energy, then the solution becomes simple. As a ball rolls down a hill, starting from rest at the top, and ending at the bottom speeding away, ignoring everything in between makes the problem simple. The potential energy at the top is completely converted to kinetic energy at the bottom. From that, final velocity is determined. It matters not what the shape of the hill is or the details of velocity and acceleration in between.

The history of physics is just this. Some problem has remained unsolved for decades until someone recognized the necessary set up that would solve the problem.

When taking a college curriculum, the system is set up to present all the solutions in an orderly manner, knowledge building on knowledge. Digging through Wiki and other sources is just frought with problems. The instructors have learned what the path should be and know where it is going to. All I needed to do was trust them as they tell me exactly what to pay attention to. With Wiki, I've go no clue what to pay attention to first. And while I have tried to work backwards, seeing if I could follow the path to the more fundamental information, there is some problem that arrises of which I have yet to figure out.

The only hope is to keep picking up bits and pieces, makng sure that they are clean and clear, then collecting them until they start coming together.

 

[itfitzme]

how M_flow increases without the requirement of

credit... out of a savings and into the flow.

...massive infusion of gold

...All that FREE GOLD

...The inflation of the M supply

(i do not have access to a drawing program)

The EoX describes Money-flows [$/yr.]; accumulated aggregate Savings is a Money-stock [$]. The former describes

the "blood-sugar-flow" through the economy; the latter resembles "fat-stores". Denoting dynamic "flows" with

single-brackets [], and denoting static "stocks" with double-square-brackets [[]], circulating Money, can be

de-circulated, as Savings; ergo the rate of Savings (S) equals the time-rate-of-change (d/dt) of the stock

of accumulated Savings (MS):

[[MS]] <-----------> [MV = PQ = GDP = C + S + T]

dMS/dt = S​

Savings stock does not enter the "stream of spending". But Savings stock can be re-circulated; ergo

"de-Savings" (re-circulation of squirreled-away Money) is a means of "self-financing" an increase in "flowing"

Money (reaching under the mattress for stashed cash), without use of Credit (borrowing from banks) ?

The Spanish acquisition, of large amounts of specie, economically resembles to "finding buried treasure" (somebody

else's accumulated Savings stock), and then "de-Saving" (spending) the same.

At the risk of being a smart ass... I have a box of analog programs called pencils, pens and paper. When in

doubt, draw it out. Go outside and draw them in the dirt if you must. Lincoln is said to have done it with

charcoal from the fireplace and worked on the back of a shovel. (did he have to turn in the shovel at school?)

If your really patient, or really smart, do it in your head until you have it memorized. If you can pull that

off, I will bow to your cerebral-ness.

If your really patient, you can do it like they did back in the day of usenet.

……------------------……………………………………………………………………………
……|…………………|……………………………………………………………………………
……|…Bank…………|……………………………………………………………………………
……|…………………|……………………………………………………………………………
……|…………………|……………………………………………………………………………
……-------------------…………………………………………………………………………
……………|……………………………………………………………………………………
……………|……………………………………………………………………………………
……………|……………………………………………………………………………………
……………\/……………………………………………………………………………………
……------------------…………………………………………………………………………
……|……………………|……………………………………………………………………………
……|…Firm……………|……………………………………………………………………………
……|……………………|……………………………………………………………………………
……|……………………|……………………………………………………………………………
……-------------------

Buck up, dude.

 

[itfitzme]

But, by all means, if anyone can tell me how M_flow increases without the requirement of credit, I'm dying to know. There is no magic here, no complicated annuity expressions. CDSs, derivatives, straddles and swaps, MBS, stock, T-bills, whatever, is just moving back and forth between savings and credit accounts. An IPO moves money from one guys savings to a companies savings in trade for a contract of repayment and dividends. That is great. But it's just another, out of a savings and into the flow. Sure, some company makes a business loan which increases their savings that then pays for intermediate capital equipment that then creates a new product stream for Q. But, that loan gets paid back and it doens't permanently increase M_flow.

SPAIN's economy post the discover and rape of the AmerIndians, might be a good example of that phemonema, no?

No expansion of credit (with fiat dollars) was necessary for Spain to undergo a massive inflationary period of the Money supply, true?

In fact, didn't that massive infusion of gold (coupled with Spain deciding to become the defender of Christendom) cause Spain's internal economy to go into centuries of decline?

All that FREE GOLD that the Spainish elite classes got, caused Spain to stop being a truly productive nation.

The inflation of the M supply crushed the working classes, and the overreach of the Spainish foreign policies eventually caused the state to go bankrupt, too.

What this really show us is that on a MACRO level FREE money is NOT really free. Free money, in this case, free gold, acted like an amphetimine on the natural economy. It produced nothing of lasting worth.

It fostered a LOT of useless economic activity, but it also caused a gradual reduction in national production.

Yeah, yeah, yeah..... Somewhere up there, I mention the old days when you could dig up gold, take it to the state mint, and coin new money.

But what i was after is now, since we have ended that process.

In another thread, we finally got it out of DSGE. It is something like "money is created endogenously through the fractional reserve banking system as new loans stimulate growth". the simple anwser is that money is created through debt and maintained through the constant renewal of debt.


"free gold, acted like an amphetimine on the natural economy."

MV=PQ and increasing M can increase P or Q or both, depending on what the state of resources and demand are.

 

[itfitzme]

So the equation of exchange is just an identity. We can't get anything useful out of an identity. First off let's write it in terms of growth rates rather than levels, so MV=PY => %M + %V = %P + %Y. We have to add some rules to make it interesting. The first and most obvious being that Y returns to its natural rate in the long run, it's long run growth rate being the trend growth in productivity + trend growth in population. Say about 3%. Next we ask what measure of money we should pick for M. Friedman liked to use M2 because M2 did something cool. I can't find it now, but I recall seeing Friedman showing that the long run demand for money when money is measured as M2 is stable. So the velocity of M2 is stable, hence %V = 0. So the only things left to vary are M and P, which gives you the conclusion that inflation (%P) is everywhere and always a monetary phenomenon.

I'm a tad confused by the embolden statement above.

More than a tad confused , really. Perhaps I don't understand the meaning of it.

It seems to suggest that the demand (velocity?) for M2 is by nature stable?

Why would that be?

Is the demand for cash or it's close equivalents truly STABLE, after say, a massive natural disaster>

I don't think so.

Perhaps I'm entirely missing the point here, but it seems to me that the demand for cash can change due to events outside the world of monetary manipulation by a central bank.

What am I missing here?

There is an approximation that M is stable, but in the measures, it isn't quite. If the approximation is dependent upon accepting some level of variance then considering it as stable, I am not sure. Perhaps it is a reasonable long run approximation. I'm still not sure.

The reality is that M2 is not perfectly stable but taking it as stable is a useful. And, in the long run, we cannot help but understand that the electronic POS system has fundamentally changes the linear velocity and with that, unless it can be determines, we have to assume that the frequency (velocity of money) has changed.

There is also a particular economist that started the idea of MV=PQ as being tautological. It isn't. I would have to read what he wrote to get the context. By comparison to the body of physics identities, either it isn't or all of physics is. After all, the summation of forces in a body is the sum of the individual masses and accelerations. That identity leads to all sorts of wonderful things because force is not the same thing as mass times acceleration. Just as M V is not the same thing as the sum of the pqs. The same can be said of calculating energies and equating them.

That MV=PY => %M + %V = %P + %Y is excellent and, in fact, much of economics is most interested in the change anyways.

And, while I haven't detailed the exact steps, or ferreted out some of the short run issues, I have no doubt that he is correct given the long run qualification and his assessment of it's "cool-ocity". (It's a math thing. And anyone who is willing to scribble it out on paper then scan it in is work his weight in salt.)

It might help to know that the history of mathematical modeling of nature has progressed on finding a way to neglect some confounding issue. The sin(.01) ~ .01 A random variable can be assumed to be zero. For small values of x, c + x + x^2 goes to c + x because .01^2 equals .001 compared to the .01. Science is full of "tricks" like that. Every time a professor would do a trick like that, the entire class would start commenting. For all practical purposes, it was an uproar, as students go.

So, as a first order approximation, I am sure it is all correct. It all has to be taken as a whole as the whole gives the context.

 

[Widdekind]

...the old days when you could dig up gold, take it to the state mint, and coin new money... [Today] "money is created endogenously through the fractional reserve banking system as new loans stimulate growth". the simple anwser is that money is created through debt and maintained through the constant renewal of debt

if the Money-supply is constant, then all the gains, made by profiting economic entities, must match losses, incurred by other unprofiting economic entities; every positive cash-flow must offset other negative cash-flows

in a Classical Roman style economy, (the sum of) all negative cash-flows must be offset, by infusions of freshly minted new Money (e.g. from mines, from plunder); otherwise, the unprofiting could not disburse enough excess currency, out into their economy, to account, for all of the gains of those profiting. Patronage networks, whereby "wealthy businessmen & victorious generals" showered the Roman masses with free wealth, free food, and remission of debts (in exchange for continuing political support), kept the Roman economy functioning (and expanding) for several centuries

by "Banking wizardry", the Federal Reserve "economically simulates" the (economic effects of) mines & plunder, to increase the US Money-supply, for the same reasons, i.e. to "gift" negative cash-flows with sufficient funds, to then flow from the unprofiting, further into the economic "streams of spending", until ultimately finding their way into the awaiting pockets, of the profiting, as their gains, in that accounting period

an economy can be likened to a body; the circulating currency to (oxygen & sugar bearing) blood. If the "total blood supply" is constant, than any blood pooling in one organ ("liver") must be draining from other organs ("kidneys"). That circulatory system only functions, if connected to an external "blood-bag", which can inject "new blood" back into draining organs ("kidneys"), from whom blood is then extracted, to eventually pool in swelling organs ("liver").

a banking system, viewed as a vehicle of transferring payments-flows, acts like a shunt ("dialysis-machine"), which extracts excess blood, from swelling organs ("liver"), and then re-routes blood, back towards draining organs ("kidneys"). Banking systems which charged no interest could (theoretically) enable economies to function on a constant supply of "blood"; Marxist "from each according to ability, to each according to need" also attempts to address similar issues. In a "strange sort of self-reference", in economies with banking-systems (and/or transfer payments), the gains of the profiting become loans to cover the losses of the unprofiting, by which they can then pay their obligations to the profiting, who thereby gain (in the first place). I.e. "the kidneys can only drain into the liver, because the liver drains through the dialysis-machine, back into the kidneys" (without which the whole system gradually grinds to a halt).

functioning economies seemingly need "some system(s)" whereby inevitable positive cash-flows, by "winners", can be matched to inevitable negative cash-flows, by "losers". Historic examples, of such attempts, have appealed variously to "virtue" and to "vice", and include "altruism", "charity", "alms"; "venture-capital" & "micro-loans"; Marxist transfer-payments; banking systems.

if inevitable "losers" were allowed, to make up their losses, with "privately created wealth", e.g. Labor ("community service hours", de facto "debtors-prison work gangs"); then "new wealth" offsetting negative cash-flows could "lubricate" economies, without resort to Government monetary policy. Perhaps debtors could enroll in local Government community-service programs; part-time & non-essential work could be reserved for "debtors' duties", so that local Tax dollars could go to those needing to offset otherwise-negative cash-flows.

 

[DSGE]

...the old days when you could dig up gold, take it to the state mint, and coin new money... [Today] "money is created endogenously through the fractional reserve banking system as new loans stimulate growth". the simple anwser is that money is created through debt and maintained through the constant renewal of debt

if the Money-supply is constant, then all the gains, made by profiting economic entities, must match losses, incurred by other unprofiting economic entities; every positive cash-flow must offset other negative cash-flows

Minor correction, that should be "if nominal spending is constant" rather than "money supply". The are the same if velocity is constant.

 

[Widdekind]

M2 is increased by my savings while M1 is decreased. Yet, someone else then borrows against it to increase M1 again.

according to Wikipedia, M2 includes all forms of "Money" included in M1, plus longer-term savings Deposits. If so, then any transfer of "Money" affecting M1 automatically affects M2 in the same way. You may be employing the word "M1" to mean "checking Deposits", and "M2" to mean "saving Deposits". Technically, one would need to define "dM1 = M1-M0 = checking Deposits", and "dM2 = M2-M1 = savings Deposits".