Economics Dictionary of ArgumentsHome
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| Money supply: Money supply refers to the total amount of money in circulation within an economy at a given time. It includes physical currency, such as coins and notes, along with demand deposits and other liquid assets. Central banks regulate money supply to influence economic conditions and manage inflation. See also Money, Monetarism, Demand for money, Inflation, Central bank._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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John Stuart Mill on Money Supply - Dictionary of Arguments
Rothbard II 251 Money supply/currency/John Stuart Mill/Rothbard: Like so many others, Mill was first moved to turn his attention to banking and business cycles by the economic and financial crisis of 1825-26. But in contrast to many others, he abandoned instead of extending his basic Ricardianism in this area.(1) Instead of seeing the new phenomenon of business cycles as created by monetary disturbances, he saw them as caused by waves of 'speculation', presumably generated by over-optimism. Money and banks were purely passive respondents to fluctuations in the economy. From this there followed his conclusion that movements in the money supply, at least under a gold standard, had no effect on prices or trade. Within the framework of a gold standard, prices rose first, dragging the money supply upwards, and later fell, pulling the money supply down. Rothbard: How could Mill square this odd doctrine with his overall Ricardianism and its thesis of the influence of the supply of money upon its value? He did so by an ingenious, though bizarre and fallacious, theory of what constitutes the supply of money. The money supply was made up, not only of coin, notes and demand deposits, Mill opined, but also of the 'credit-worthiness' of every member of the public. When a bank made Ioans to some member of the public, then, it might increase notes or deposits outstanding, but that increase is exactly compensated by a decrease in the 'credit-worthiness' of the borrowing citizens. Therefore, when banks lend money to individuals and businesses, the money supply does not increase at all. On the contrary, when banks purchase government securities or finance its deficit, they add directly to the total money supply by the same amount. In fact, they even add to the money supply when they lend to private citizens beyond the degree of their genuine credit-worthiness. Rothbard: How is such 'credit-worthiness' to be determined? By banks confining their Ioans to sound borrowers, and to the discounting of 'real bills', that are short-term, matched by inventories of goods in process, and are therefore self-liquidating in a short period of time. Bank credit then happily follows the 'needs oftrade' upwards or downwards, and cannot raise prices. While completely fallacious, Mill's theory at least had the merit of providing some plausible, logical explanation for the banking school creed -one that was scarcely matched by any of his colleagues. Furthermore, Mill's doctrine provided a good reason for his devotion to the gold standard, and for his bullionist denunciation of inconvertible fiat money. >Bullionism, >Gold standard. 1. Morris Perlman has pointed out that James Mill, in a book review in 1808, developed an extreme version of the real bills banking school doctrine. In that case, James Mill was never a Ricardian in this area, and John Stuart may have been exercising his filio-pietism in bringing back his father's monetary views, as well as Ricardianism in the rest of economics. Morris Perlman, 'Adam Smith and the Paternity of the Real Bills Doctrine', History ofPolitical Economy, 21 (Spring 1989), pp. 88-90._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Mill I John St. Mill A System of Logic, Ratiocinative and Inductive, London 1843 German Edition: Von Namen, aus: A System of Logic, London 1843 In Eigennamen, Ursula Wolf, Frankfurt/M. 1993 Mill II J. St. Mill Utilitarianism: 1st (First) Edition Oxford 1998 Mill Ja I James Mill Commerce Defended: An Answer to the Arguments by which Mr. Spence, Mr. Cobbett, and Others, Have Attempted to Prove that Commerce is Not a Source of National Wealth 1808 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Mill
> Counter arguments in relation to Money Supply
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