I’m not economically literate enough to know how to respond to this.[:(]
"My question to you is, how do you figure out how much money to make available to society, what is that magic amount that brings about “perfectly valued asset prices” or if you will marketefficient prices. What are the forces again that are driving those prices? you have established an upper bound to asset prices, given of coursethat the monetary authority has perfect control over credit creation in privetly owned financial institutions, (you know I hope by know that they don’t have perfect control over that) they also don’t have control over Money demand as money demand responds to a variety of external shocks, (like 9/11 for example). But even though you have established an upper bound, there is a lot of room for prices to fluctuate, they could theoretically go to some lower bound.
Additionally, when you set the amount of money at some fixed amount, and set that upper bound for asset prices, but the “market” perceives that higher asset prices above the ceiling are justified by a change in the fundamentals that govern the productivity and profitability of businesses, you find yourself with the followin dilemma. the market is demanding more money to purchase asstes that are believed to be now more valuable than before, and if you don’t give that additional liquidity to the market, you will be accused of choking off growth, restraing the economic engine, denying workers the creation of more jobs, investors, increases in wealth. The market will argue that you are taking the punch bowl before the party started if you try to slow down credit creation.I don’t believe that the fed should just blindly yield, but they sure have a tough choice to be made. Is the market responding to a real change in the production possibilities frntier, or is the market demanding additional liquidity just to create a bubble. In a sense, the problem becomes, how can we differentiate an asset price increase that is founded on better fundamentals, from one that is a bubble driven by speculation?
Again, there is a cost to not responding to the demands for additional liquidity, and the cost is the opportunity cost of the growth forgone if you are wrong and the additional liquidity demand is justified by improved fundamentals (maybe as a result of some technoogical advance like the combustion engine)"
I’m trying to watch them right now, they are very very long. Do you have anything that I could read instead that would more directly answer the questions?
Rothbard’s law. Any supply of money is optimal so long as it is infinitely divisible.
Consumer demand
The free market doesn’t have a “monetary authority”. Im not really sure what you’re talking about here…
“The market is demanding more money” doesn’t even make sense. People don’t demand money they demand the stuff money buys. What he means to say is that when you increase the # of economic activities and keep the price of goods constant, you need more money. But if prices fall then there’s no problem.
The monetarists will argue this. The common man will thank you because you do not destroy his assets via inflation.
Arguments for inflation basically state that we should have more investment and consumption, so lets steal money from existing investment and consumption and that’ll boost I and C. Except people won’t know they’re being stolen from, and continue their now destructive economic behavior.
In short: “From the standpoint of the commonly shared interests of all members of society, the quantity of money is irrelevant. Any quantity of money provides all the services that indirect exchange can possibly provide, both in the long run and in the short run.”
1 dollar economy. Coke costs 10^-10 dollars. People’s assets are kept electronically. I suppose you’re still limited by the bit-count of the OS on everyone’s palm pilot, but 10^64 digits is pretty sweet.
Cut how? Cut 50% out of everyone’s bank accounts equally? Or the same way the fed does
I assume you mean the former. I would imagine that people would be kind of shocked when they woke up, but once everyone had found out the money supply had been cut so drastically prices would either be cut in half, or people could agree to print up the lost money, distributing it in the same way it had been lost.
No, we would have the greatest depression. Rothbard’s so-called “law” is nothing more than the classical’s already refuted notion of money, namely that it is neutral/a veil over the economy. Your understanding of deflation is the mainstream’s understanding of inflation. Doubling the money supply does not lead to a doubling of prices; money is a good in itself, and marginal utility is not constant.
That’s not how money works. The number on the bill is practically meaningless; it doesn’t determine its value. If that were the case, then Zimbabwe would have no problems, and monetary theory would be as simple as basic addition and subtraction. I suggest you read Mises’ Theory of Money and Credit. Rothbardian’s, for whatever reason, decide to ignore the Austrian framework when they talk about deflation.
Money is not neutral; it exerts an active influence over all economic activity and is demanded as a good in itself.
Yeah I mean if you doubled the supply of gold the economy would probably suffer. But if people had no affinity for particular amounts of currency, it wouldn’t matter.
If the angel Gabriel came and doubled everyone’s cash holdings, would all prices just double? Or would there be other effects on the economy? Money is not a claim to goods; it’s not just a ticket.
“Every increase in the quantity of money would necessarily cause an alteration in the conditions of demand, which would lead to a disparate increase in the price of the individual economic goods. Not all goods would be demanded more intensively, and not all of those that were demanded more intensively would be affected in the same degree,” Theory of Money and Credit, pp. 163.
By symmetrically i mean that you add money to all current holders of money proportionately. Gabriel style.
By asymmetrically i mean via a printing press that expands the overall money supply via particular markets, like the credit market. Or if gabriel put it all under one dude’s bed.
Maybe you already understood that. Anyway I agree with you that an increase in the supply of commodity money would mess things up. It actually might not cause a depression… say for example if a unit of currency were defined as a basket of commodities (food, housing, energy) and then increased 50%.
I don’t think that an increase in the supply of nominal-money, fiat money, or whatever matters though. Maybe you can make the point that some people will covet a certain discrete value of this money (my grandma loves 2 dollar bills), but if the market uses the money as a means, and not an end in itself, Gabriel shouldn’t be doing any damage.
There’s no real difference between them. They are both media of exchange, and serve the same function. Why is it true for commodity money but not fiat money?
