To be clear, I wasn’t critiquing what you were saying. I was only highlighting what you were alluding to because many people conflate the desire to hold additional cash balances with the demand for future goods. This error often leads to major confusion.
Okay so I’ll highlight some of the main differences between Rothnard’s monetary framework and the traditional Austrian (Wicksell-Mises-Hayek) monetary framework.
- (a) Rothbard
- (b) Traditional Wicksell-Mises-Hayek
(a) Two different definitions of inflation: (1) an expansion in the supply of money, and (2) an expansion in the supply of money beyond the available supply of gold. Any supply of money is sufficient.
(b) Inflation is defined as an expansion in the supply of money beyond the demand for money. At any given price level, the supply of money may be “insufficient” (will yield monetary disequilibrium).
(a) Deflation is always a beneficial and natural mechanism which either (a) corrects malinvestments caused by an inflationary period which preceded it, or (b) represents natural and sustainable economic growth.
(b) Deflation may represent a disequilibrium condition when either the supply of money rises above the demand for money and/or the demand for money rises above the supply of money (again, monetary disequilibrium). Monetary disequilibrium will yield disequilibrium in the loan market (money rate of interest will exceed the natural rate of interest), and cause certain distortions/imbalances until it is corrected (this position is explicit in Hayek and Wicksell’s work, but only implicit in Mises’ work. Hayek referred to this condition as “secondary phenomena”, and Wicksell referred to it as a “rot”).
(a) Fractional reserve banking always yields one form of inter-temporal disequilibrium (when the money rate of interest is suppressed below the natural rate) because the banks expand the supply of money beyond the amount that has been entrusted to them on the part of the public in the form of savings.
(b) Endogenous monetary expansion is not problematic, and is in fact stabilizing, if the newly created sums are used to satiate changes in the demand for cash holdings, and not used for additional investment/consumption. Additionally, there are organic mechanisms within the banking system which prevents systematic expansion in the supply of money beyond the demand for money.
In short, Rothbardian’s don’t deny that there’s a demand for money, but they seem to ignore some of the implications of this phenomena, and I believe this is what’s causing Murphy’s confusion.