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I think this may be the link:

https://krugman.blogs.nytimes.com/2017/10/05/the-transfer-problem-and-tax-incidence-insanely-wonkish/

MF: thanks!

I can't see any need for an interest rate in this series of thought experiments!

Maybe this lack-of-need flows from my thinking that 'interest' is identical to 'rent'. Both are payments for surrendering the privilege of use for some time period.

The only difference is that 'interest' is a monetary charge on a monetary instrument while 'rent' is monetary charge made for surrender of a physical object. Both are time-period based.

Now let's advance to the two commodity framework. A crop reduction on either commodity would force adoption of a new pattern of consumption. If both sides had rich and poor consumers, the burden of change would probably fall mostly upon the poor. It seems to me that controlling individuals on each side could agree to replace the short commodity with a oversupply in the future but we would need to add a storage component to the framework.

Once we had a storage component in our framework, we could think of an interest rate that moderated the draw-down and refill rate of that storage. The interest rate would likely be different on each side, depending upon who was storing or drawing each product. The intensity of the interest rate would serve to expand or contract the size of the rich/poor designation. After all, real changes are required to meet real supply fluctuation--promises are nothing more than promises.

We can continue and begin to think about Kapital. It seems to me that this additional component represents a wide variety of components, not a narrow class of machines. Kapital would represent knowledge, tools-in-place, local unique resources, and a whole host of social-economic interplays. Any interest charge would more clearly represent a penalty/privilege cost. I can't think of any reason why interest rates should be the same in every nation unless the do-as-your-neighbor-does syndrome is in-bedded into the economy.

Roger. There is no money in this model. There's an interest rate of 4% per year if you have to promise to repay 104 apples next year to get 100 apples this year. Sorry, but you won't get this post.

Where does the tax raised or spent go? Is debt reduced or increased? Or does it shift interpersonal consumption without affecting consumption at all? The former should shift rates, the latter possibly not.

Lord: simplest assumption is that tax revenue is redistributed as lump-sum transfer payments.

> Kapital cannot flow across borders; only the two consumption goods can flow across borders

Krugman I think would take issue with this description. In his article, he says:

>> And because markets for goods and services are still very imperfectly integrated – most of GDP isn’t tradable at all – it takes large signals, big moves in the real exchange rate, to cause significant changes in the current account balance.

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