Forum Replies Created
-
AuthorPosts
-
jmherbener
ParticipantPrior to 1940, the money stock typically contracted significantly during a bust. People move toward holding currency by cashing out their checking account balances (or, in the 19th century, redeeming bank notes). The money stock shrinks as the bank money substitutes are eliminated.
After the Second World War, the money stock typically does not contract significantly during a bust. The Fed has manged to re-inflate during the bust by expanding its purchase of securities from banks. Even with fiat money, however, it is possible for the money stock to decline during the bust. It depends on the counter-veiling causal factors at work: the Fed’s attempt to re-inflate by expanding bank reserves versus people building cash reserves.
In my reading of the article, the author (p. 305f) is not suggesting what you’re implying. He is merely saying that when a catallactic offer is made it conveys only a promise and likewise with cratic offers.
ParticipantGuido Huelsmann’s book is in print in German. The English edition will be out by the end of 2016.
For accounting book, you might ask Dr. David Rapp.
ParticipantRothbard is referring to the purchasing power of a person’s entire money holdings. For example, at first he held $1,000 and the price of gasoline was $2.00 a gallon so the PP of of his $1,000 was 500 gallons of gasoline. After being visited by Gabriel, his money holdings were $2,000 and the price of gallon of gasoline was $4.00, so the PP of his entire money holdings was still 500 gallons.
What I was referring to as the PPM was the PP of a given amount of money, say a $1,000. After being visiting by Gabriel, the PP of a $1,000 has been cut in half. (500 gallons before his visit and 250 gallons after his visit.) This is the conventional way of referring to the PPM. It refers to the set of goods a given amount of money will buy.
ParticipantFed officials often think of the macro-economy in terms of the Phillip’s Curve trade-off between unemployment and inflation. (Officially, they refer to their “dual mandate” to fight both unemployment and inflation.) When an expansion progresses to the point at which labor markets tighten, the fear of cost-push inflation arises.
Here is Janet Yellen in 2015 on Fed tightening:
http://www.federalreserve.gov/newsevents/speech/yellen20150327a.htm
ParticipantThe claim that “any amount of money is optimal” does not refer directly to the dynamic process of monetary inflation.
Suppose that people have a money stock of $6 trillion and that today they make 1 billion trades. Then, they could still make their 1 billion trades if they had, instead, $3 trillion of money stock. In this case, prices would be roughly half as high. So any amount of money is sufficient for people to make all the trades that they want to make.
An increase in the money stock, with the demand for money given, drives up prices (or what is the same thing, drives down the PPM) permanently. However, the structure of prices will first be distorted and then restored. For example, suppose the Fed prints paper money and the government spends it on corn. The price of corn will rise as will the profit of corn farmers. Eager to earn the additional profit farmers will increase their demand for inputs (workers, seed, etc.) and investors will increase their demand for assets (farm land, equipment, etc.). Producers of those inputs and assets will have greater profit and the same process will occur with their inputs and assets. Having been earned by the producers of these goods, the new money will be spent on a wider array of goods across wider number of industries. Eventually, the additional profit in the areas mentioned will disappear and the rate of return will normalize. This process does not, however, require that the PPM fall back down but only that prices adjust relative to each other.
The same is true in cases of the boom-bust cycle. During the bust, the PPM does not need to fall back down, but the structure of prices relative to each other must normalize.
ParticipantIn a given action, the person chooses the amount of a good that he believes is suitable to the attainment of his end. That amount we call the “unit of the good.” So, in your example, the unit of money is $1,000. If your vacation was the highest-valued use of $1,000 for you and you had another end that could also be satisfied with $1,000, then the second unit of $1,000 would be less highly ranked by you than the first unit of $1,000.
ParticipantThere is an unbridgeable gap between the experience of a person’s mind and the circumstances external to the mind. Laughs, tears, heart rates, neural firings, and so on are not the mind’s experience. Since the mind’s experience cannot be quantified, no quantitative correlation can exist between the mind’s experience and circumstances external to the mind.
It is possible, however, to make judgments concerning the magnitude of effects (even though they are non-quantifiable theoretically). Such is the procedure of history, as opposed to theory.
Take a look at Mises’s book, Theory and History, for a discussion of the distinction:
https://mises.org/library/theory-and-history-interpretation-social-and-economic-evolution
ParticipantThere are two theoretical issues raised by your question.
1. No units of happiness, utility, or other states of mind exist. While one can understand the meaning of the claim that $2,000 is twice $1,00, one can’t make sense of the claim that one state of mind is twice another.
2. The law of diminishing marginal utility states that the subjective value of the first unit of a good is preferred to the subjective value of the second unit of a good, and so on. So, the happiness a person attaches to the first $1,000 is higher than the happiness of the second $1,000. Twice as much money, then, would not make a person twice as happy (assuming it makes sense to say “twice as happy”).
Participant1. There seems to be some agreement on free enterprise in money and banking. Entrepreneurs should be able to attempt innovations and have them succeed or fail on the basis of the resulting profit and loss. There is sharp disagreement about what the outcome of the attempt to implement fractional-reserve, money substitutes would be. Free bankers argue that such a system will provide for adjustment of the money stock to changes in money demand while leaving the purchasing power of money stable. Misesians argue that such an attempt will result in nearly 100 percent reserves of money substitutes.
Take a look at this talk by Joe Salerno:
https://mises.org/library/economics-fractional-reserve-banking-0
2. In a free-market, commodity money would be produced by private enterprise. Just like the production of any other good, the production of money would be regulated by profit and loss. If the demand for money increased, then it would be more profitable to produce and money-commodity-producing entrepreneurs would buy more inputs to expand production. The additional production of coins would moderate their higher purchasing power and the additional demand for inputs would bid up input prices. The result would be an elimination of additional profit and an economizing movement of resources out of other goods and into commodity money production. If entrepreneurs have chosen a commodity whose supply is insufficiently expandable in the face of increased demand for money (so that problematic price deflation occurs), then they would simply chose another commodity to use as money that did not face such a problem (for example, silver instead of gold.)
The high purchasing power (in contrast to a rapidly rising purchasing power) of gold would not pose a problem. Entrepreneurs would create money substitutes that can have any denomination necessary for making transactions. For example, a check of any amount can be drafted on a person’s checking account at a bank.
Whatever the money stock happens to be, all the transactions that people desire to conduct can be consummated. If the money stock is half as large, all the transactions can be made as long as prices are half as high. If the money stock is twice as large, all the transactions can be made at prices twice as high. This insight was first advanced by David Hume.
https://mises.org/library/david-hume-and-theory-money
3. In a free market, entrepreneurs could operate profitable businesses providing assessments of financial institutions. Auditing companies, private rating agencies, etc. would spring up to accommodate consumer demand for such assessments. There are many examples of businesses that do so currently for consumer-goods markets.
Of course, rating agencies today are heavily intertwined with the state and its regulatory apparatus. For example, the state dictates what financial reports must be made and what accounting rules must be used to report asset values.
4. Banks would earn fees from customers who valued the convenience and safety of the banks’ money substitutes relative to using coins. As long as customers valued sufficiently their checking accounts relative to coins as a medium of exchange to provide revenue to the banks by paying fees that were high enough to cover the banks’ costs of producing and administering the checking accounts, then banks could profitably produce them. Customers may also value the protective storage of their coins relative to holding their coins themselves, which would be another source of fees banks could charge for 100 percent reserve, money substitutes.
Banks earn revenue from intermediating credit. They borrow funds from savers, pool them and lend them to investors. As middlemen, banks can provide valuable services to savers, such as assuming the risk of default on loans to investors and pooling funds of small savers to make larger loans with lower transactions costs. As long as savers value these services, they would be willing to accept lower (wholesale) interest rates to lend to banks that, in turn, can lend to investors at higher (retail) interest rates. If the revenue from the interest-rate differential covers the costs of providing the middleman services, then banks can be profitable.
5. It does have its merits.
https://mises.org/library/modest-proposal-end-fed-independence
He seems to suggest that it might awaken the public to the need for monetary reform since it makes the wealth transfer to the state apparent. Whereas the Fed system is opaque.
ParticipantDr. Huelsmann’s book is in print in German. The English translation should be out soon, hopefully, by the end of the year.
Similar to economics, there is a mainstream in finance dominated by mathematical formalism. Most introductory textbooks on finance, then, will present only this dominate view. Alternatives include value investing, mentioned above, and subjective investment appraisal, see the work of David J. Rapp.
In my Financial Markets and Institutions course at Grove City College, I use the textbook by Meir Kohn, Financial Institutions and Markets. He also has a textbook on Money, Banking, and Financial Markets.
ParticipantYou are quite right. Each entrepreneur will form his own anticipation of the revenue stream and the appropriate discount rate, including the particular uncertainty surrounding the line of production he is considering. There are a spectrum of interest rates throughout the economy that depend on different uncertainty associated with each line of production. Each of the interest rates within each maturity class incorporates the relevant pure rate of interest, which is uniform for all production processes in each maturity class regardless of uncertainty associated with each of them.
ParticipantYou are correct, the terms “buyer” and “seller” apply regardless of the use of money.
I suppose the reason is that none of us live in a world of barter. Also, the phrase “let the buyer beware” can be meant as a slur against entrepreneurs and commercial activity. On whether or not people were happier in times of a less developed commercial economy and its primitive division of labor, take a look at Rothbard’s article:
https://mises.org/library/freedom-inequality-primitivism-and-division-labor
ParticipantYou’re correct to note that the U.S. was never on a pure commodity standard. The various monetary regimes under the U.S. Constitution, the bimetallic standard, the classical gold standard, the gold exchange standard and so on were all influenced by government intervention, including legal privileges supporting fractional-reserve banking. This is the reason that booms and busts have occurred throughout U.S. history.
It is worth pointing out, however, that the inflationary potential of the different monetary regimes has been steadily increasing, which has been the intention of the federal government in bringing about the monetary regime transition.
ParticipantThe classical gold standard was destroyed by the belligerent governments during the First World War. The gold exchange standard of the 1920s permitted more monetary inflation by centralizing gold reserves in Great Britain and the U.S. and allowing other countries to hold pounds and dollars as reserves against their own domestic currencies. Take a look at Murray Rothbard’s book, A History of Money and Banking in the U.S.
https://mises.org/library/history-money-and-banking-united-states-colonial-era-world-war-ii
ParticipantHere is what the correlation looks like for the entire data set FRED has on the S&P 500:
The correlation is not so impressive for the entire set of data and when one doesn’t scale the S&P 500 data to make it start at the same height as the Monetary Base data in 2009.
Even though the Monetary Base skyrocketed, neither short-term nor long-term interest rates fell continuously decline from 2009-2016. So falling interest rates did not cause the stock market to boom.
https://research.stlouisfed.org/fred2/series/DCPF3M
https://research.stlouisfed.org/fred2/series/BAMLC0A1CAAAEY
Most of the Fed’s expansion of the monetary base has been absorbed by banks as excess reserves.
https://research.stlouisfed.org/fred2/series/EXCSRESNS
Apparently, The Fed’s massive expansion of the Monetary Base has resulted in some credit expansion which has been channeled by investors into the stock market (as well as housing markets and auto markets) to just the extent that we see the correlation noticed by Lara and Murphy.
-
AuthorPosts