Dave, I don’t know much about your history with Esuric in other debates, but with regard to this discussion in particular it seems to be you who have started the degradation of the dialogue, both by being the first person to be disrespectful (with your “Don’t be silly” comment) and by being the first person to misunderstand the other’s position.
You said,
“Don’t make Esuric’s incredible mistake of thinking that they also said or implied that money printing does not cause price rises, or that rising prices caused only by money printing are not an evil.”
Your above misunderstanding could have been easily prevented by just reading the following previous statement by Esuric carefully and in context.
“The mainstream focuses on a few and relatively unessential effects of inflation, such as inflationary expectations, menu costs, shoe leather costs, and arbitrary redistribution of wealth (from creditors to debtors), while the Austrians tend to focus on the effects that inflation has on the relative structure of prices (Austrians don’t deny that the other effects exist).”
Esuric is clearly not denying that monetary expansion causes price increases. If the thought that someone as well-informed as Esuric entirely denies the quantity theory of money even crossed your mind, that should have been a clue that you are at least possibly misinterpreting him, and should look more closely at the matter.
Neither is he saying that any such price rises would be harmless. Yes, he also said that the “other effects” weren’t really “the problem”. But the context of this whole conversation is the business cycle. He’s making the insight that, with regard to the business cycle, the problem that causes intertemporal malinvestment is not a general rise in prices, but the distortion in relative prices.
Mises borrowed from Wicksell the idea that the banks rate of interest (subject to monetary manipulation) may diverge from the natural rate of interest (that rate which excludes all monetary influences and is consistant with consumers’ time preferences).
This is the part that doesn’t make sense to me. When we’re talking about people demanding, “additional real money balances”, we’re talking about demanding more purchasing power, right? But how can wanting more purchasing power be “satiated by an expansion in the supply of money” when expanding the supply of money does not expand total purchasing power, since at any given moment, there is a definite stock of commodities (that which one can have the power to purchase) in the market, and therefore there is a fixed, definite amount of purchasing power to go around?
When there is an increase/decrease in the money stock, and the demand for purchasing power remains the same, there will be an increase/decrease in the general market demand for the monetary unit (nominal cash balances). And that can be satiated by dishoarding/hoarding, while purchasing power/real cash balances remain the same. An increase/decrease in an individual’s demand for purchasing power itself (real cash balances) can be satiated by liquidating/building up assets. But an increase/decrease in the whole market’s demand for purchasing power cannot be satiated in this way. What could it possibly mean for an entire market to “liquidate” its assets? Everyone sells their stuff. But to whom? Each other? That clearly would not increase the market’s total purchasing power in the way that an individual liquidating his assets does so for him.
The exchange-facilitated productive process across time is not a zero-sum game, but atering real cash balances, in any given snapshot in time, is. To repeat, at any point in time, there is a definite stock of commodities (more production would mean you’re not talking about a snapshot in time anymore), and therefore a fixed amount of purchasing power. So at any point in time, one person can only increase his aliquot of the goods and services he can command with his cash balance (in other words sell assets in exchange for purchasing power) if other people decrease their aliquot (in other words, buy assets in exchange for purchasing power) to the same extent.
Thanks for that, Danny. Rothbard is spot-on, of course. I suppose the only useful distinction to make here is between money that is part of the supply of loanable funds and money that is not.
Regarding higher demand for money (i.e. higher demand for cash balances), could it be said that it’s motivated by a rise in time preference?
Horwitz says this about monetary disequilibrium characterized by excessive demand:
(Emphasis added) “Simply put, it means that people’s demand to hold real money balances at the current price level is in excess of the supply of such balances. Hence, an excess demand for money.”
“Real money (cash) balance” is just another way of saying “purchasing power”. So, by talking about a “real cash balance disequilibrium” characterized by “excessive demand”, he can only be saying that the quantity of purchasing power demanded exceeds the quantity of purchasing power supplied. But, you can’t meaningfully call a greater QD for purchasing power than the QS of purchasing power a “disequilibrium”, because a “disequilibrium” refers to a situation in which, given a certain stock of goods, more mutually beneficial exchanges could have occurred than really did occur. That is obviously not the case here, because more total purchasing power can only be brought to market through more production, and thus a greater stock of that which can be purchased; and then you would no longer be talking about the same given stock of goods. And as I argued in my last post, fiduciary media would not help at all, because it cannot create any more purchasing power than existed without it, because total purchasing power on the market is fixed for any given definite stock of commodities.
The question makes sense. If you make what you think are “shoes”, and no one accepts them as such, then they won’t be shoes either. Shoes are no different from money or anything else freely traded in the market. I don’t have to open a bank in order to start issuing claims to my gold stored in my basement. And I bet you that such “non-bank” money would be accepted by the free market as much sounder than the paper issued by some 10% reserve “bank”.
And stop “educating” me and everyone else in this thread about ABCT. The discussion in this thread is not about what causes the business cycle, but whether adjusting the money supply (i.e. printing money by government or “free but sound” banks) has ANY benefit whatsoever toward alleviating the effects from the bust.
Tentative in one area does not mean in all areas. I have stated logical arguments for all my claims, backed them up with quotes from Mises and other respected Austrians. I have caught him out often. He always responds to my arguments and proofs with evasiveness, ad hominems, or ostrich like ingoring. So he is not that bright IMHO.
Remember your warning to Esuric? That offensive manner of his is typical, especially to me. He deserves to be treated in kind. Of course my “aggressive swagger” did not include personal attacks on his character and intelligence, merely expressing abit of joy that i am right and he is wrong yet again.
So you started the discussion with me as a bait, not in the interest of examining the topic? For you offered no reply to the actual content of the post.
yes, in this thread I made that comment first. But we go back a ways.
The OP was not about the business cycle. In fact, not a word was mentioned of the business cycle when he posted. It is not the context of this conversation at all. Certainly scineram’s post and my reply to it, which set Esuric off, were not discussing the business cycle. He made a bald statement that rising prices weren’t really the problem. Ever. If he meant what you iumpute to him, he could have sent off a one liner “Guys I’m talking about the effect of proce rises on the ABC, not on the economy as a whole.” Instead he tells us Bettina Greaves is a liar, and Mises is wrong, and that he can’t find half the quotes.
I mad a simple statement, that inflation makes prices go up. It’s a simple fact. That book of Mises says the same thing dozens of times.
What did he see in my simple statement that set him off? That I didn’t write a book with all the qualifications?
My impression of Esuric is that he read a lot of books, but is weak on common sense. In fact he expressed disdain for it. I think he’ll get in big trouble as an economist with that atitude.
If the bottom line here is that everyone agrees that inflation makes prices go up, and it’s a huge problem, I’m fine with that. All’s well that ends well.
Of course I still disagree with the notion that deflation can set off a business cycle, or that Mises was wrong when he said that whatever amount of money there is is just fine [except perhaps when gold is money, which is what he’s talking about in TMC].
Oops, I forgot my own policy. Okay, any further discussion about who is being rude to whom needs to only happen in this thread in the Member Issues forum henceforth. Like I say in the OP there, so that we can generate more light than heat regarding this important and fascinating topic, I encourage people to focus on discussing the topic with people they don’t find intolerably aggravating.
I think the MET crowd would claim that more mutually beneficial exchanges could indeed have occurred – namely, more liquidation of assets could have occurred. Of course, this ignores your essential point of “given a certain stock of goods”, as what the MET crowd envisions necessarily leads to a contradiction. For more assets to be liquidated than actually were, more real money would have to exist than actually did.
To put it more bluntly, the MET seems to be an attempt to rationalize the notion that, in a recession, no one should be left “holding the bag”.
Demand for money is time neutral. Esuric is correct in this respect, however, he fails to realize that changes in cash balances can (and are) accompanied by changes in other relative preferences between the vendible goods and services, and of course between present goods and future goods, i.e., time preference.
Edit: There is the “price revolution” that Mises refers to. MET theorists think they can eliminate such “price revolutions” by the spurious idea of stabilizing MV.
Does the following excerpt from Human Action refute or support the idea that demand for money is time-neutral? I’d say the former, but I could be wrong.
No, there is nothing that refutes it. On the contrary: 'He who buys, buys for future consumption and production. "
Therefore, one enlarges his cash holdings by restricting his purchases of both present and future goods. If his restriction does not alter his previous proportion in his allocation between present and future goods, time preference is not altered on account of his increase in cash holdings.
But if for example, he increases his cash balance by restricting his spending on present goods more then on future goods, then his cash holdings is accompanied by a fall in time preference. And there is obviously another 3rd possibility. But you see, demand form money is indeed time neutral.
However, all future points in time are not created equal. Otherwise, time preference would not exist.
Praxeologically speaking, actions reveal preferences. So his action to reduce spending more on present goods than on future goods reveals a decreased time preference. Correspondingly, his action to reduce spending more on future goods than on present goods reveals an increased time preference. Therefore, it would seem that demand for money is not time-neutral.
And this preference for increasing one’s cash balance is time neutral as I have shown when the reduction in spending affects both present and future goods so that the final state of allocation between the two remains unchanged. The preference for the amount of cash blance is independent from time preference. One can occur without affecting the other. That’s what is meant by time neutral.
Especially if you’ve already addressed my objections beforehand, I don’t expect you to respond to my last 2 posts about monetary disequilibrium, but can you let me know whether (A) you have indeed already addressed them, (B) you think I’m fundamentally confused or (C) you think I have a point? Thanks.
