The Conservative Case for QE2, Or, Why I Still Will Not Be an Austrian.

[filc]

@Smiling Dave,

You were quoting Mises to try and refute Esuric, which is silly because he is correct, and you were mistkaken in this case. Furthermore you are missing a key tenant in the understanding of the ABCT, which would lead me to believe that your understanding of it is less then bragged about. Mainly, that changes in the supply of money effect prices unevenly.

And since you were trying to quote Mises, I will do the same and ask you to go back and read the chapters suggested.

Chapter XVII Indirect Exchange

• Section 4 - The determination of the purchasing power of money
• Section 6, Cash induced and goods induced changes in purchasing power

Chapter XX - Interest, Credit Expansion and Trade Cucles

• Section 6 - The gross market rate of interest as affected by inflation and credit expansion.

Chapter XVII Section 4

@HA

The main fault of the old quantity theory as well as the mathematical economists’ equation of exchange is that they have ignored this fundamental issue. Changes in the supply of money must bring about changes in other data too. The market system before and after the inflow or outflow of a quantity of money is not merely changed in that the cash holdings of the individuals and prices have increased or decreased. There have been effected also changes in the reciprocal exchange ratios between the various commodities and services which, if one wants to resort to metaphors, are more adequately described by the image of price revolution than by the misleading figure of an elevation or a sinking of the “price level.”

@HA

But even in setting aside all these things, we must never forget that changes in the quantity of money affect prices in an uneven way. It depends on the data of each particular case at what moment and to what extent the prices of the various commodities and services are affected. In the course of a monetary expansion (inflation) the first reaction is not only that the prices of some of them rise more quickly and more steeply than others. It may also occur that some fall at first as they are for the most part demanded by those groups whose interests are hurt.

Chapter XX Section 6

@HA

The essence of monetary theory is the cognition that cash-induced changes in the money relation affect the various prices, wage rates, and interest rates neither at the same time nor to the same extent. If this unevenness were absent, money would be neutral; changes in the money relation would not affect the structure of business, the size and direction of production in the various branches of industry, consumption, and the wealth and income of the various strata of the population.

Obviously there is much more. You must have missed these sections, or disagreed with them.

economists’ equation of exchange is that they have ignored this fundamental
issue. Changes in the supply of money must bring about changes in other
data too. The market system before and after the inflow or outflow of a
quantity of money is not merely changed in that the cash holdings of the
individuals and prices have increased or decreased. There have been effected
also changes in the reciprocal exchange ratios between the various commodities and services which, if one wants to resort to metaphors, are more
adequately described by the image of price revolution than by the misleading
figure of an elevation or a sinking of the “price level.”
economists’ equation of exchange is that they have ignored this fundamental
issue. Changes in the supply of money must bring about changes in other
data too. The market system before and after the inflow or outflow of a
quantity of money is not merely changed in that the cash holdings of the
individuals and prices have increased or decreased. There have been effected
also changes in the reciprocal exchange ratios between the various commodities and services which, if one wants to resort to metaphors, are more
adequately described by the image of price revolution than by the misleading
figure of an elevation or a sinking of the “price level.”
economists’ equation of exchange is that they have ignored this fundamental
issue. Changes in the supply of money must bring about changes in other
data too. The market system before and after the inflow or outflow of a
quantity of money is not merely changed in that the cash holdings of the
individuals and prices have increased or decreased. There have been effected
also changes in the reciprocal exchange ratios between the various commodities and services which, if one wants to resort to metaphors, are more
adequately described by the image of price revolution than by the misleading
figure of an elevation or a sinking of the “price level.”