Private Supply of Money I believe gives you a taste of his work.
But notice that supply of coins/coinage is not the same thing as supply/production of money.
In this case he’s being paid in token money. He could also be paid in commodity money - both are media of exchange - token money is not very ‘stable’ tho…
But we were not discussing barter/direct exchange ?
Well, it never needs to be produced. My point is : inflationists saying that the supply of money must match the ‘demand’ for money are just using a sophism to justify inflation. Also, they seem to be adept at doublethink : government inflation bad, private inflation good.
Hm…Could be…but…
I’m not really sure it can be modeled that easily. Giving the money to consumers (A) would ‘encourage’ production, temporarily patch unemployment problems and raise prices - typically keynesian.
Giving the money to producers (C) would theoretically subsidize production, but the producers could just pocket the subsidies no ?
If the money given to producers is used to buy factors of production those prices will go up. That’s just a different sort of misallocation. In this case you get cheaper potatoes, but other things become more expensive.
As I have hinted before, you both really need to take a close hard look at LVM’s “Theory of Money and Credit”, particularly chapter 8: “The Determinants of the Objective Exchange Value, or Purchasing Power, of Money”,
subsection 6: “Fluctuations in the Objective Exchange Value of Money Evoked by Changes in the Ratio Between the Supply of Money and the Demand for It” [emphasis added] .
A quote from chapter 8**: “The demand for money and its relations to the stock of money form the starting point for an explanation of fluctuations in the objective exchange value of money. Not to understand the nature of the demand for money is to fail at the very outset of any attempt to grapple with the problem of variations in the value of money.”**[taken from sub-section 7 **“**The Stock of Money and the Demand for Money”]
See also: chapter 17 "Fiduciary Media and the Demand for Money"
Has anyone run into a Keynesian who defines inflation merely as the increase in nomial prices…?
Wasn’t “Theory of Money and Credit” superseded by Human Action ? Maybe you can make your points yourself - or at least quote HA ?
But there’s no requirement that the potatoes be produced either. Consider 1968 Ford Mustangs, or something similar - similar in that it cannot be produced. Is it meaningless to talk about demand for it? Over time, supply will decrease as the cars wear out, yet the price will not uniformly increase. Various other events, availability of complementary and substitute goods, and so on, will affect how many people desire to have a 1968 Ford Mustang, and furthermore what portion of those people have an effective demand - that is, are willing to go out and spend money on it. That latter factor will determine the quantity demanded. So why would you limit the use of the “demand” concept to cases where we produce the item? There can be demand for money without implying that there’s a demand for newly produced money.
It would seem to explain certain parts of the business cycle. For instance, in the ABCT, what do we mean when we talk about real growth being increased by people saving more and spending less? Don’t we just mean more demand for money, which becomes more supply of investment capital?
I understand this…
I am stating why he would rather use a media of exchange not barter…
Is it your contention that money [currency, fiduciary media] and its production are somehow not subject to the economic law that governs final price [value] ?
it is my contention that this
is wrong. I’ve just taken a look at some of the pertinent sections in HA and didn’t find them that helpful either…
That question is rather broad. I agree that supply and demand ultimately determine the price of all goods in terms of money…or the price of money in terms of goods if you will. But that principle doesn’t tell you what the ‘correct’ definition of inflation is.
Not sure what you mean. Potatoes don’t need to be produced ? They can just be created ex-nihilo ? =P
Agreed - I acknowledged that (usage of the word) at the beginning of the post you partially quoted.
‘Real’ growth occurs when there’s more production than consumption - it’s almost a truism. I’m not sure how demand for money enters the picture tho. I’m not sure we’re using a consistent definition for demand for money either…
But you believe that there can be no demand for money, correct?
As for a satisfactory definition of money, see my new thread:“Inflation - A Better Definition?”
I believe the term is ill defined and especially confusing in the context I quoted.
I agree, it is hard to come up with good definitions - however, one of my points has been that putting a lot of thought into trying to define what the demand for money actually is is irrelevant in the end [despite the fact that LVM gives 2 definitions- both narrow and broad, in The Theory of Money and Credit], simply because the real world value[price] of money fluctuates, so obviously money , like anything else, is subject to the law of supply and demand, therefor it is logically consistent to conclude that a demand for money [however defined] is a reality, regardless of lack of ability to accurately define it. All we need to know is that it is there, and it is an important factor in determining the outcome of the market price of money- no less important than supply.
Which means that the price [value] of money is not determined by supply alone , as many here appear to believe, but that the final price[value] of money in the market place [ ie whether it is worth more, or less than it was worth previously] is always, and as with anything else, the final outcome of the interaction between the two factors of supply and demand [however defined], or lack thereof. Not just one factor [supply]
Money changes relative value all the time, therefor a demand for money must exist- to make up the other necessary half of the price equation, regardless of our failure to accurately define it.
What is the demand for coffee? Why cannot the demand for money defines similarly?
Ok, I didn’t phrase that well. What I meant was that the plain fact that I enter the market demanding potatoes doesn’t mean that potatoes have to be produced at present to meet my demand. My demand can be met out of already existing potato stocks. We can pass around the (hot) potatoes. Similarly, my entering the market demanding money (that is, offering goods and services) doesn’t imply that money has to be produced, my demand can be met out of other people’s stocks of money.
See Garrison’s slide show which presents it in terms of money. By demand for money, I mean the desire to hold money, as opposed to spending it (Since leisure is a good, if a person spends time not earning money, I consider this spending money on leisure.)
I see that. I do admit it’s okay to use “demand for money” in that case.
Has the link been posted in this thread ? I can’t seem to find it.
I suppose that’s one of the reasons to want to acquire money. The other reason being, to use money as medium of exchange.
Well, I wouldn’t say that not-earning is the same thing as spending, if that’s what you mean ?
No.
I’m not sure what you mean. Here’s what I mean: I have a certain income potential - that is, the amount I can make if I worked all the time. I subtract from that my “spending” on leisure - that is, the money I could be making if I didn’t have leisure time. What’s left is my actual income. Of that, some is spent, and some is kept. My demand for money, in my terminology, is the proportion that I save out of what I earn.
Leisure is a good, and has a cost. That cost is the money I didn’t earn during that leisure time. It simplifies analysis to treat this as spending.
its oppportunity cost, or rather an imagined cost. it is not a real cost. it may be psychologically real. but has not reality in terms of accounting.