Economics Dictionary of ArgumentsHome
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| Money: Money in economics is anything that is generally accepted as a medium of exchange. It is used to buy and sell goods and services, and to store value. See also Markets, Economy._____________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. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Money - Dictionary of Arguments
Rothbard III 192 Money/Rothbard: The establishment of a money on the market enormously increases the scope for specialization and division of labor, immensely widens the market for every product (…). Production: Intricate and remote stages of production are now possible, and specialization can extend to every part of a production process as well as to the type of good produced. Direct exchange/production/RothbardVsTradition: (…) it is a mistake on the part of many writers who wish to set forth the doctrines of modern economics to analyze direct exchange only and then to insert money somewhere at the end of the analysis, considering the task finished. Rothbard III 193 On the contrary, the analysis of direct exchange is useful only as an introductory aid to the analysis of a society of indirect exchange; direct exchange would leave very little scope for the market or for production. Market: (…) nearly all exchanges are made against money, and money impresses its stamp upon the entire economic system. Producers of consumers’ goods as well as owners of durable consumers’ goods, owners of capital goods, and sellers of labor services, all sell their goods against money and purchase with money the factors that they need. Rothbard III 195 Monetary unit: (…) every good is “in supply” if it can be divided into units, each of which is homogeneous with every other. The money commodity is no exception to this rule. The most universally traded commodity in the community, it is bought and sold always in terms of units of its weight. It is clear that the size of the unit of the money commodity chosen for any transaction is irrelevant for economic analysis and is purely a matter of convenience for the various parties. Rothbard III 196 Unification: … ((s) for unification) the names of the monetary units … ((s) can be] in terms of universally acceptable units of weight. Rothbard III 199 Free market/trade: On the unhampered market of a money economy, producers of commodities and services sell their goods for the money commodity, then use the money acquired to buy other desired goods. Money production/gold: Money is acquired in this way by all except the producers of the original gold on the market—those who mined and marketed it. However, the production of the money commodity, as with all other valuable commodities, itself requires the use of land, labor, and capital goods, and these must be paid for by the use of money. The gold miner, then, receives no money by gift, but must actively find and produce gold to acquire his money. >Goods/Rothbard, >Consumer goods/Rothbard, >Capital goods/Rothbard, >Investments/Rothbard, >Trade, >Exchange/Rothbard, >Free market/Rothbard, >Service/Rothbard. Rothbard III 203 Money/society/community: Let us assume for purposes of simplification that the total stock of the money commodity in the community has remained unchanged over the period. (This is not an unrealistic assumption, since newly mined gold is small compared to the existing stock.) Now it is obvious that, like all valuable property, all money must, at any point in time, be owned by someone. At any point in time, the sum of the cash holdings of all individuals is equal to the total stock of money in the community. >Cash balance/Rothbard. Rothbard III 217 Marginal utility/money: The marginal utility of money income will tend to decline as more money is acquired, since money is a good. In so far as money is desired for the purchase of consumers’ goods, an “ounce-worth” of consumers’ goods will also decline in utility as new ounces are acquired. Rothbard III 235 Money/Rothbard: Many writers have erred in believing that money can somehow be abstracted from the formation of money prices and that analysis can accurately describe affairs “as if” exchanges really took place by way of barter. With money and money prices pervading all exchanges, there can be no abstraction from money in analyzing the formation of prices in an economy of indirect exchange. >Price/Rothbard, >Indirect exchange/Rothbard. Market: Just as in the case of direct exchange, there will always be a tendency on the market for one money price to be established for each good. (…) the determinants are the individual value scales, expressed through demand and supply schedules. Rothbard III 237 Purchasing power/Rothbard: For every good except money, then, the purchasing power of its unit is identical to the money price that it can obtain on the market. What is the purchasing power of the monetary unit? Obviously, the purchasing power of, e.g., an ounce of gold can be considered only in relation to all the goods that the ounce could purchase or help to purchase. The purchasing power of the monetary unit consists of an array of all the particular goods-prices in the society in terms of the unit.(1) It is evident that the money commodity and the determinants of its purchasing power introduce a complication in the demand and supply schedules of barter conditions, since the demand and supply situation for money is a unique one. >Price/Rothbard, >Money supply/Rothbard, >Demand for money/Rothbard. Rothbard III 265 Money/Rothbard: E.g., Oppertunity cost: It should be noted that since this cost refers to a decision on a marginal unit, of whatever size, this is also the “marginal cost” of the decision. This cost is subjective and is ranked on the individual’s value scale. Rothbard III 267 It might be thought, and many writers have assumed, that money has here performed the function of measuring and rendering comparable the utilities of the different individuals. It has, however, done nothing of the sort. The marginal utility of money differs from person to person, just as does the marginal utility of any other good. The fact that an ounce of money can buy various goods on the market and that such opportunities may be open to all does not give us any information about the ways in which various people will rank these different combinations of goods. There is no measuring or comparability in the field of values or ranks. Money permits only prices to be comparable, by establishing money prices for every good. Money regression: To determine the price of a good, we analyze the market-demand schedule for the good; this in turn depends on the individual demand schedules; these in their turn are determined by the individuals’ value rankings of units of the good and units of money as given by the various alternative uses of money; yet the latter latter alternatives depend in turn on given prices of the other goods. Rothbard III 268 A hypothetical demand for eggs must assume as given some money price for butter, clothes, etc. But how, then, can value scales and utilities be used to explain the formation of money prices, when these value scales and utilities themselves depend upon the existence of money prices? It is obvious that this vitally important problem of circularity (X depends on Y, while Y depends on X) exists not only in regard to decisions by consumers but also in regard to any exchange decision in the money economy. (…) the marginal utility of addition of money to the seller of the stock is based on its already being money and its ready command of other goods that the seller will buy - consumers’ goods and factors of production alike. The seller’s marginal utility therefore also depends on the previous existence of money prices for the various goods in the economy. >Regression theorem. Similarly, for the laborer, landowner, investor, or owner of a capital good: in selling his services or goods, money has a marginal utility of addition, which is a necessary prior condition to his decision to sell the goods and therefore a determinant in his supply curve of the good for money. And yet this marginal utility always depends on there being a previous array of money prices in existence. Rothbard III 269 Solution/Mises/Rothbard: The solution of this crucial problem of circularity has been provided by Professor Ludwig von Mises, in his notable theory of the money regression.(1) The theory of money regression may be explained by examining the period of time that is being considered in each part of our analysis. Let us define a “day” as the period of time just sufficient to determine the market prices of every good in the society. On day X, then, the money price of each good is determined by the interactions of the supply and demand schedules of money and the good by the buyers and sellers on that day. Each buyer and seller ranks money and the given good in accordance with the relative marginal utility of the two to him. Therefore, a money price at the end of day X is determined by the marginal utilities of money and the good as they existed at the beginning of day X. But the marginal utility of money is based (…) on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. Therefore, the price of a good on day X is determined by the marginal utility of the good on day X and the marginal utility of money on day X, which last in turn depends on the prices of goods on day X – 1. The economic analysis of money prices is therefore not circular. >Circularity/Philosophical theories. Rothbard III 756 Money/Rothbard: Money is a commodity that serves as a general medium of exchange; its exchanges therefore permeate the economic system. Like all commodities, it has a market demand and a market supply, although its special situation lends it many unique features. „Price“ of money: (…) its "price" has no unique expression on the market. Other commodities are all expressible in terms of units of money and therefore have uniquely identifiable prices. The money commodity, however, can be expressed only by an array of all the other commodities, i.e., all the goods and services that money can buy on the market. Measuring: This array has no uniquely expressible unit, and, (…) changes in the array cannot be measured. Yet the concept of the "price" or the "value" of money, or the "purchasing power of the monetary unit," is no less real and important for all that. Exchange value: It simply must be borne in mind that, (…) there is no single "price level" or measurable unit by which the value-array of money can be expressed. This exchange-value of money also takes on peculiar importance because, unlike other commodities, the prime purpose of the money commodity is to be exchanged, now or in the future, for directly consumable or productive commodities. >Demand for money/Rothbard, >Money supply/Rothbard, >Currency in circulation/Rothbard, >Purchasing power/Rothbard. Rothbard III 817 Money/Rothbard: (…) money can never be neutral. One set of conditions tending to raise the PPM can never precisely offset another set of factors tending to Iower it. >Economy/Rothbard, >Money market/Rothbard. Thus, suppose that an increase in the stock of goods tends to raise the PPM, while at the same time, an increase in the money supply tends to Iower it. One change can never offset the other; for one change will Iower one set of prices more than others, while the other will raise a different set within the whole array of prices. >Price/Rothbard. 1. Many writers interpret the “purchasing power of the monetary unit” as being some sort of “price level,” a measurable entity consisting of some sort of average of “all goods combined.” The major classical economists did not take this fallacious position: When they speak of the value of money or of the level of prices without explicit qualification, they mean the array of prices, of both commodities and services, in all its particularity and without conscious implication of any kind of statistical average. (Jacob Viner, Studies in the Theory of International Trade [New York: Harper & Bros., 1937], p. 314) Also cf. Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 1094. 2. See Mises, Theory of Money and Credit, New Haven, Conn.: Yale University Press, 1953 and 1957. Reprinted by Liberty Fund, 1995. pp. 97-123 , and Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 405-08. Also see Schumpeter, History of Economic Analysis, New York: Oxford University Press, [1954] 1996. p. 1090. This problem obstructed the development of economic science until Mises provided the solution. Failure to solve it led many economists to despair of ever constructing a satisfactory economic analysis of money prices. They were led to abandon fundamental analysis of money prices and to separate completely the prices of goods from their money components. In this fallacious course, they assumed that individual prices are determined wholly as in barter, without money components, while the supply of and the demand for money determined an imaginary figment called the "general price level." Economists began to specialize separately in the "theory of price," which completely abstracted from money in its real functions, and a "theory of money," which abstracted from individual prices and dealt solely with a mythical "price level." The former were solely preoccupied with a particular price and its determinants; the latter solely with the "economy as a whole" without relation to the individual components - called "microeconomics" and "macroeconomics" respectively. Actually, such fallacious premises led inevitably to erroneous conclusions. It is certainly legitimate and necessary for economics, in working out an analysis of reality, to isolate different segments for concentration as the analysis proceeds; but it is not legitimate to falsify reality in this separation, so that the final analysis does not present a correct picture of the individual parts and their interrelations._____________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. If a German edition is specified, the page numbers refer to this edition. |
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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