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. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Money Supply - Dictionary of Arguments
Rothbard III 765 Money supply/Rothbard: An increase in the supply of money confers no social benefit whatever; it simply benefits some at the expense of others, as will be detailed further below. Similarly, a decrease in the money stock involves no social loss. For money is used only for its purchasing power in exchange, and an increase in the money stock simply dilutes the purchasing power of each monetary unit. Conversely, a fall in the money stock increases the purchasing power of each unit. >Demand for money/Rothbard, >Money/Rothbard. Money supply David Hume: David Hume's famous example provides a highly oversimplified View of the effect of changes in the stock of money, but in the present context it is a valid illustration of the absurdity of the belief that an increased money supply can confer a social benefit or relieve any economic scarcity. Consider the magical situation where every man awakens one morning to find that his monetary assets have doubled. Has the wealth, or the real income, of society doubled? Certainly not. In fact, the real income - the actual goods and services supplied - remains unchanged. What has changed is simply the monetary unit, which has been diluted, and the purchasing power of the monetary unit will fall enough (i.e., prices of goods will rise) to bring the new money relation into equilibrium. Rothbard III 766 Economic law: One of the most important economic laws, therefore, is: Every supply of money is always utilized to its maximum extent, and hence no social utility can be conferred by increasing the supply of money. Gold/Rothbard: Some writers have inferred from this law that any factors devoted to gold mining are being used unproductively, because an increased supply of money does not confer a social benefit. They deduce from this that the government should restrict the amount of gold mining. RothbardVs: These critics fail to realize, however, that gold, the money-commodity, is used not only as money but also for nonmonetary purposes, either in consumption or in production. Hence, an increase in the supply of gold, although conferring no monetary benefit, does confer a social benefit by increasing the supply of gold for direct use. Rothbard III 765 Money supply David Hume/Rothbard: David Hume's famous example provides a highly oversimplified View of the effect of changes in the stock of money, but in the present context it is a valid illustration of the absurdity of the belief that an increased money supply can confer a social benefit or relieve any economic scarcity. Consider the magical situation where every man awakens one morning to find that his monetary assets have doubled. Has the wealth, or the real income, of society doubled? Certainly not. In fact, the real income - the actual goods and services supplied - remains unchanged. What has changed is simply the monetary unit, which has been diluted, and the purchasing power of the monetary unit will fall enough (i.e., prices of goods will rise) to bring the new money relation into equilibrium. >Money supply/Rothbard, >Demand for money/Rothbard, >Money/Rothbard. Rothbard III 802 Money supply/total stock/society/Rothbard: E.g., (…) if spurious warehouse receipts are printed, evidences of goods are issued and sold or loaned without any such goods being in existence. >Goods, >Stock keeping. Money: Money is the good most susceptible to these practices. For money (…) is generally not used directly at all, but only for exchanges. It is, furthermore, a widely homogeneous good, and therefore one ounce of gold is interchangeable with any other. Banks: Since it is convenient to transfer paper in exchange rather than carry gold, money warehouses (or banks) that build up public confidence will find that few People redeem their certificates. The banks will be particularly subject to the temptation to commit fraud and issue pseudo money certificates to circulate side by side with genuine money certificates as acceptable money-substitutes. Homogeneity: The fact that money is a homogeneous good means that people do not care whether the money they redeem is the original money they deposited. This makes bank frauds easier to accomplish. >Fraud/Rothbard, >Free Market/Rothbard, >Banks/Rothbard. Rothbard III 804 Money-substitutes: Since money-substitutes exchange as money on the market, we must consider them as part of the supply of money. It then becomes necessary to distinguish between money (in the broader sense) - the common medium of exchange - and money proper. Money proper: Money proper is the ultimate medium of exchange or standard money - here the money commodity - while the supply of money (in a broader sense) includes all the standard money plus the money-substitutes that are held in individuals' cash balances. In the cases cited above, gold was the money proper or standard money, while the receipts - the demand claims to gold - were the money-substitutes. Rothbard III 805 Money supply: Thus, the total supply of money is composed of the following elements: supply of money proper outside reserves + supply of money certificates + supply of uncovered money-substitutes. >Money substitutes/Rothbard. Certificates: The supply of money certificates has no effect on the size of the supply of money; an increase in this factor only decreases the Size of the first factor. The supply of money proper and the factors determining its Size have already been discussed. It depends on annual production compared to annual wear and tear, and thus, on the unhampered market, the supply of money-proper changes only slowly. >Banks/Rothbard, >Free market/Rothbard, >Monetization of debt/Rothbard, >Bank Reserve/Rothbard, >Money market/Rothbard. Rothbard III 997 Money supply/inflation/Rothbard: Investments: (…) bank credit expansion cannot increase capital investment by one iota. Investment can still come only from savings. Equilibrium: It should not be surprising that the market tends to revert to its preferred ratios. The same process (…) takes place in all prices after a change in the money stock. Increased money always begins in one area of the economy, raising prices there, and filters and diffuses eventually over the whole economy, which then roughly returns to an equilibrium pattern conforming to the value of the money. If the market then tends to return to its preferred price-ratios after a change in the money supply, it should be evident that this includes a return to its preferred saving-investment ratio, reflecting social time preferences. >Time preference/Rothbard, >Savings/Rothbard, >Inflation/Rothbard, >Credit expansion/Rothbard._____________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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