Reply To: Some questions


Well, that’s what the author claims. But I don’t see why it must be so. Time preference determines the price spread between output and input prices. The demand for and supply of money determine the PPM overall. The two are not related in any logically necessary fashion. The author assumes that when the rate of return in money production is increasing from increasing money demand that the rate of return in other lines has stayed the same. In fact, the rate of return must be falling in lines of production in which demand has gone down to allow the increase demand for money. People satisfy their increased demand for money by reducing their demand for, and increasing their supply of, other goods.

In other words, the rising rate of return in money production is balanced by a falling rate of return in other lines so that when the reallocation of resources is finished, the rate of return is the same as it was before money demand increased and demand for other goods declined. As long as time preferences don’t change during the process, the rate of return overall will not change. The only difference between this case and the case of demand shifts between goods other than money, like landline and cell phones, is that in this case the PPM also changes during the adjustment process.