Response to “Comment on Johnson’s creating dimensional stock-flow inconsistency in Binswanger’s model”

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Notes

1 This discontinued database can be found here: http://stats.oecd.org/Index.aspx?DataSetCode=BPF1.

2 Binswanger (2015, p. 659) underscores the real-world significance of growth imperative models by noting their connection to contemporary issues, for example, environmentally sustainable growth and current debate on secular stagnation. For him, these models are “much more than a purely academic exercise.” The present response, the substance of which is to demonstrate that loans are stocks (quite apart from any real-world considerations on the matter), leaves me less confident than Binswanger as to the nature of this exercise; that well-regarded and knowledgeable writers repudiate real-world accounting practice, even less so.

3 From the transactions-flow matrix in the appendix, by vertically solving for bank profits, ΠB, in the current and capital account, and setting them equal to one another yields the identity.

4 By assuming the principal of last period’s loan is repaid in the current period, Gilányi makes explicit one of two informally proposed assumptions by Binswanger on loan repayment. In addition to proposing that firms payback loans in the following period, Binswanger (2009, p. 715; 2015, p. 654) also considers a situation in which loans are continually rolled over. But, neither assumption is included, in any formal sense, in his models.

5 In previous specifications, depending on parameter constellations, banks receive interest payments because (a) loan repayment is not modeled; and (b) business profits could exceed their non-interest costs due to the added demand from the banking sector’s wage-bill.

6 By introducing intraperiod lending in his recapitulation of Binswanger (2015), Gilányi implicitly attributes the idea to Binswanger. No textual evidence supports this attribution. Intraperiod lending, the formalization of loan repayments, and an endogenous interest rate (a parameter in all other specifications), are supplements of Gilányi’s creation.

7 In his words: “Johnson compares the minimal growth rate obtained from Gilányi’s money stock equation, where L is FL with the minimal growth rated obtained from his model where the variable L is SL”.

8 For reasons already given, this is an implausible assumption for Gilányi since he assumes last period’s principal equals current bank income.

9 It defies logic, and even common sense, for one to posit an assumption only to use it as both foundation and target of their criticism.

10 Gilányi's postmodern approach to mathematical notation raises questions. For example, if the reader’s ability to trust notation is compromised, on what grounds should other mathematical arguments be trusted?

11 In a paper on Marxian crisis theory, Georgescu-Roegen expressed similar remarks, stating, “[a]s long as the letters…stand for measurable material concepts and not for some Hegelian ideals, l and dl/dt cannot be added, any more than can total and average cost, for instance. I hope to be forgiven for stressing an elementary point that has been, as we know, the source of many economic fallacies” (Georgescu-Roegen, 1960, p. 229).

12 Richters and Siemoneit (2017, p. 121) likewise addressed this point.