Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Regression Theorem: The Regression Theorem, developed by Ludwig von Mises, explains the origin of money's value. It states that money derives its current purchasing power from its historical use as a medium of exchange, which traces back to its initial value in barter as a commodity. This backward-looking logic underpins the acceptability of money in economic systems._____________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. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Ludwig von Mises on Regression Theorem - Dictionary of Arguments
Rothbard IV 59 Regression Theorem/Money/Austrian School/Menger/Mises/Rothbard: Mises built on Menger's logical-historical account of the origin of money out of barter, and demonstrated logically that money can only originate in that way. In doing so, he solved the problem of the circular explanation of the utility of money. Specifically, the problem of the circle is that, at any given time, say DayN, the value (purchasing power) of money on that Day is determined by two entities: the Supply of MoneyN and the demand for Money - which itself depends on a pre-existing Purchasing Power on DayN-1. Solution: Mises broke out of this circle precisely by understanding and grasping the time dimension of the problem. For the circle on any given day is broken by the fact that the Demand for Money on that day is dependent on a previous day's purchasing power, and hence on a previous day's demand for money. But haven't we broken out of the circle only to land ourselves in an infinite regress backward in time, with each day's Rothbard IV 60 purchasing power resting on today's demand for money, in turn dependent on the previous day's purchasing power, in turn determined by the previous day's demand, etc.? It is no help to escape circular reasoning only to land in a regress of causes that can never be closed. Rothbard: But the brilliance of Mises's solution is that the logical regress backward in time is not infinite: it closes precisely at the point in time when money is a useful non-monetary commodity in a system of barter. In short, say that Day 1 is the first moment that a commodity is used as a medium of indirect exchange (to simplify: as a "money"), while the previous Day 0 is the last day that commodity, say gold, was used only as a direct good in a system ofbarter. In that case, the causal chain of any day's value of money, say Dayw, goes back logically in time, to Dayl, and then goes back to Dayo. In short, the demand for gold on Day 1 depends on the purchasing power of gold on Day 0. But then the regress backward stops, since the demand for gold on Day 0 consists only of its direct value in consumption, and hence does not include a historical component, i.e., the existence of prices for gold on the previous day, Day 1. Cf. >Regress/Philosophical theories. In addition to closing the determinants of the value or purchasing power of money and thereby solving the Austrian Circle, Mises's demonstration showed that, unlike other goods, the determinants of the value of money include an important historical dimension. The Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money/Mises/Rothbard: money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists. Money can only emerge, "organically" so to speak, out of the market.(1) RothbardVsHayek: comprehension of Mises's Regression Theorem would spare us numerous impossible schemes, some proffered by Austrians or quasi-Austrians, to create new moneys or currency units out of thin air: such as F.A. Hayek's proposed "ducat," or plans to separate units of account from media of exchange. 1. The presentation of the Regression Theorem is in Ludwig von Mises, The Theory of Money and credit, 3rd ed. (New Haven, Conn.: Yale University Press, 1953), pp. 108-23. Mises later answered critics of the theorem in his Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 405—13. For a reply to more recent critics, Gilbert and Patinkin, see Rothbard, Toward a Reconstruction, p. 13, and Rothbard, Man, Economy and State (Princeton, N.J.: D. Van Nostrand, 1962), I, pp. 231-3 7, and esp. p. 448. Also see Rothbard, "The Austrian Theory of Money" in Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976), p. 170. For the most recent discussion of the Regression Theorem, including a reply to Moss's critique of Mises, see James Rolph Edwards, The Economist of the Country: Ludwig von Mises in the History of Monetary Thought (New York: Carlton Press, 1985), pp. 49-67._____________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. |
EconMises I Ludwig von Mises Die Gemeinwirtschaft Jena 1922 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 |
||
> Counter arguments against Mises
> Counter arguments in relation to Regression Theorem
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
