Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Purchasing power: Purchasing power in economics refers to the ability of an individual or entity to buy goods and services based on their income or wealth, relative to prices in the market. It is influenced by factors like inflation, wages, and currency strength. A decrease in purchasing power means the same amount of money buys fewer goods or services. See also Money, Exchange rates, Comparability._____________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 |
|---|---|---|---|
|
Murray N. Rothbard on Purchasing Power - Dictionary of Arguments
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) >Money/Rothbard, >Price/Rothbard. Rothbard III 300 Purchasing power/Rothbard: (…) it does not, as we perhaps might think, give any exact indication of the amount of services that each individual obtains purely from exchangeable consumers’ goods. An income of 50 ounces of gold in one year may not, and most likely will not, mean the same to him in terms of services from exchangeable goods as an income of 50 ounces in some other year. The purchasing power of money in terms of all other commodities is continually changing, and there is no way to measure such changes. >Income/Rothbard, >Allocation/Rothbard. Problem: (…) as historians rather than economists, we can make imprecise judgments comparing the “real” income rather than the monetary income between periods. Thus, if Jones received 1,000 ounces of income in one year and 1,200 in the next, and prices generally rose during the year, Jones’ “real income” in terms of goods purchasable by the money has risen considerably less than the nominal monetary increase or perhaps fallen. However (…) there is no precise method of measuring or even identifying the purchasing power of money and its changes. >Marginal utility of money/Rothbard. Rothbard III 314 [The] power of the monetary unit to purchase quantities of various goods is called the purchasing power of the monetary unit. This purchasing power of money consists of the array of all the given money prices on the market at any particular time, considered in terms of the prices of goods per unit of money. Regression theorem: (…) today's purchasing power of the monetary unit is determined by today’s marginal utilities of money and of goods, expressed in demand schedules, while today’s marginal utility of money is directly dependent on yesterday’s purchasing power of money. >Regression theorem. Rothbard III 762 Purchasing power/Rothbard: The purchasing power of money is (…) determined by two factors: the total demand schedule for money to hold and the stock of money in existence. >Demand for money/Rothbard. At the previous equilibrium PPM (purchasing power of money) point, (…) the demand for money now exceeds the stock available (…). The bids push the PPM upwards until it reaches the equilibrium point (…). The converse will be true for a shift of the total demand curve leftward - a decline in the total demand schedule. Then, the PPM will fall accordingly. Rothbard III 763 Equilibirum: Money will be sold at a lower PPM to induce people to hold it, and the PPM will fall until it reaches a new equilibrium point (…). At the new stock level there is an excess of stock, (…) over the total demand for money. Money will be sold at a Iower PPM to induce people to hold it, and the PPM will fall until it reaches a new equilibrium point (…). Conversely, if the stock of money is decreased, there will be an excess of demand for money at the existing PPM, and the PPM will rise until the new equilibrium point is reached. The effect of the quantity of money on its exchange-value is thus simply set forth in our analysis (…) The absurdity of classifying monetary theories into mutually exclusive divisions (such as "supply and demand theory," "quantity theory," "cash balance theory," "commodity theory," "income and expenditure theory") should now be evident.(2) For all these elements are found in this analysis. Money is a commodity; its supply or quantity is important in determining its exchange-value; demand for money for the cash balance is also important for this purpose; and the analysis can be applied to income and expenditure situations. >Quantity theory. Rothbard III 813 Purchasing power/Rothbard: (…) an increase in the stock of money leads to a fall in the PPM and a decrease in the stock of money leads to a rise in the PPM. However, there is no simple and uneventful rise and fall in the PPM. For a change in the stock of money is not automatically simultaneous. New money enters the system at some specific point and then becomes diffused in this way throughout the economy. The individuals who receive the new money first are the greatest gainers from the increased money; those who receive it last are the greatest losers, since all their buying prices have increased before their selling prices. >Buying price/Rothbard, >Selling price/Rothbard, >Price/Rothbard. Gains and losses: Monetarily, it is clear that the gains of the approximate first half of the recipients of new money are exactly counterbalanced by the losses of the second half. Conversely, if money should somehow disappear from the system, say through wear and tear or through being misplaced, the initial loser cuts his spending and suffers most, while the last Who feel the impact of a decreased money supply gain the most. For a decrease in the money supply results in losses for the first owners, Who suffer a cut in selling price before their buying prices are Iowered, and gains for the last, Who see their buying prices fall before their income is cut.(3) >Equilibrium/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. A typical such classification can be found in Lester V. Chandler, An Introduction to Monetary Theory (New York: Harper & Bros., 1940). 3. See Mises, Theory of Money and Credit, New Haven, Conn.: Yale University Press, 1953 and 1957. Reprinted by Liberty Fund, 1995. pp. 131 - 45._____________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 |
||
> Counter arguments against Rothbard
> Counter arguments in relation to Purchasing Power
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
