Animal Spirits and the Velocity of Money.



Which came first the "animal spirits"or the reduction in aggregate demand? If we held on to our money, whether or not, we had perceived a threat to our future cash flows; would we create the kind of atmosphere likely to persuade others to spend? Does my observation to others concerning slowing turn over at Nieman Marcus or Chili's make it worse?



I propose that Keynes' "animal spirits" might be rational rather than irrational. He defined it as the result of a spontaious urge as opposed to quantitativly reasoned. Perhaps yours (and my), tales of business woe are valid knowledge inputs?

Velocity can be as important as money supply in determining economic activity and the aggregate multiplier. If citizens feel constrained to hold their monies it matters less what the state of the money supply is. I also ponder the role of inflation in adding employment to the economy. I don't mean to belittle Okuns law, but the reason it works is the asymmetrical information. The asymmetry involved in finding extra money in your, or your business's bank account. If you knew it was inflation, rather than your business acumen, you wouldn't spend or hire. I guess that is why Okun can't be exploited.