1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/8375/how-much-money/

How Much Money?

August 5, 2008 by

How Much Money Does an Economy Need? is an outstanding guide to the essentials of monetary theory. Not content to expound his own views, Lewis carefully explains conflicting standpoints as well. Lewis does not disguise his own strong commitment to Austrian economics, but the reader of this book will understand not only this position, but its chief competitors as well. If the literate public absorbs its lessons, the book cannot fail to have a salutary effect on current economic policy. Hunter Lewis deserves congratulations for his notable achievement. FULL ARTICLE

{ 56 comments }

rtr August 20, 2008 at 2:33 pm

jp: “Therefore it would be impossible to sum every individual’s rankings, preferences etc to arrive at society’s net subjective value.”

By definition of it being a “good”, a “supply”, it is positively subjectively valued. Increasing the supply will by definition be increasing net subjective value wealth. A supply which continues to have diminishing marginal utility subjective wealth is still increasing in net wealth. The less scarce things are, the wealthier people are. All goods are by definition ranked higher than the absence of those goods.

Ireland August 20, 2008 at 3:15 pm

rtr: The price of acquiring an 11th cube in your 10 cube example is cheaper. You are better off, assuming you still subjectively value cubes, which by definition of you continuing to save them, you do.

Please explain to me, slowly, about this assumption. The “save even more” case is clear, getting more of the cubes will be easier when there’s more of them.

But did I anywhere speak about adding to the stock, or buying more cubes? No, my argument was exactly the opposite, I’ve argued the case where I’m going to unload the cubes. This additional assumption of yours is turning the argument on its head. By analyzing buying more cubes you’re following a different part of the story, one that no one here talked about.

Would you analyze the other part now, about the people who instead of buying cubes need to exchange their saved cubes for other things, in the situation where cube supply increased?

Remember, it’s not us to tell what the people want. There are those that will have to sell. Show us how these are better off.

rtr August 20, 2008 at 4:23 pm

Ireland, just start from the case of you have one unit of Good ‘A’ that you wish to exchange for some other unit of Good ‘B’. If nobody wants your Good ‘A’, you are not worse off, you are not better off, you are exactly as you were, with one unit of Good ‘A’.

Now assume you exchange one unit of Good ‘A’ for one unit of Good ‘B’. You are by definition of trade better off. You save Good ‘B’ for a period of time. Now you *wish* to trade your unit of Good ‘B’ for some other different Good ‘C’ again. If nobody wants your Good ‘B’, you are not worse off, you are not better off, you are exactly as you were, with one unit of Good ‘B’.

It is *impossible* by definition of action for you to be worse off. You will not under any circumstances trade away any unit of any Good ‘X’, unless what you receive in return is valued more than what you give away. If you feel what is offered in return for your savings in whatever Good ‘X’ form you have them, then you will by definition of subjective value not be willing to trade away your Good ‘X’.

“Wanting to do something” is a wish, not an action.

Ireland August 21, 2008 at 12:27 am

rtr: If nobody wants your Good ‘A’, you are not worse off, you are not better off, you are exactly as you were, with one unit of Good ‘A’.

As I said, you keep making stuff up, and you’re pretty competent at that. In this case the willed up thing is the case agains which we compare. Your argument says that something compared to itself is the same, which is trivially true, but then what exactly is it supposed to add to the debate remains unclear.

Here’s one more cube example, refined as to leave as little room for the evasive add-ons:

1. Let there be someone in possesion of 10 cubes. We’re not talking about how the possesion came about or anything, just pure fact of ownership. Consistency check: yes, people do own things.

2. Let’s consider the situation where this person will get rid of them. Again, the reasons why he might want to do that are beyond our speculation, just pure facts, cubes are sold as to get other goods, under the normal conditions of a sale – i.e. they’re exchanged for what someone else on the market is willing to give upon receiving 10 cubes. Consistency check: yes, people do sell and buy things.

3. Gedankenexperiment: let’s imagine two such cube sales, the only difference between them being that in one case the supply of cubes on the market is higher, all else being equal. Let’s call them “original situation” and “increased cube supply scenario”. These are the situations that we’ll be comparing when judging if someone is made better off or worse off by an increase of available cubes. Consitency check: yes, even my cat would understand what is being compared to what.

You tell us: in this situation, the seller will be able to get a better deal on the market with original or higher cube supply? He’ll get more stuff for himself in “original situation” or in “increased cube supply scenario”? In other words, he personaly will be better off in the original case, or in the case where “society is net wealthier“?

rtr August 21, 2008 at 9:14 am

Ireland: “You tell us: in this situation, the seller will be able to get a better deal on the market with original or higher cube supply? He’ll get more stuff for himself in “original situation” or in “increased cube supply scenario”? In other words, he personaly will be better off in the original case, or in the case where “society is net wealthier”?”

He’ll be able to get a better deal trading for more cubes, just as the rest of society is net wealthier because the price of cubes is lower because the supply of cubes is greater. You’re also unrealistically assuming the supply of everything else doesn’t increase, which is an assumption contrary to the division of labor production. But even in that scenario he is *still* better off. Assume the supply of cubes doubles from 100 to 200, and the supply of everything else remains constant. He still has his original 10 cubes (let’s say the original total supply of 100 cubes were “green” colored, and the new doubling of cubes are “purple” colored), and can trade those cubes for a maximum of everything else which exists PLUS 100 new “purple” cubes.

To even more clearly see how absurd your belief is, keep the supply of total cubes the same, along with your ownership of 10 cubes, and cut the supply of all other non cube goods in half. Are you richer, better off? Of course not. Your cubes can trade for half as much stuff as before, even though that represents a bigger portion of the total economic wealth “pie”. Although you would claim you are “richer”, you are in fact *poorer*. Increasing supply is *always* increasing net economic wealth, and *never* causing anyone to be worse off poorer in real terms.

Now we can clearly see that Austrian monetary theory (and all monetary theory) commits the Marxist fallacy of believing an equal shared smaller net area pie represents a greater net economic wealth area than an unequal shared “pie” which is twice as large.

To see the absurdity, yet again, from a different perspective, assume the supply of cubes again doubles, but this time you own all the cubes which exist both before and after the doubling of the cube supply. Are you merely no better off and no worse off after the supply of cubes doubles? Of course not! You are by definition richer. You have more stuff of subjective value.

There is no constant ratio of exchange between goods and services, money included, and there never has been, and never will be.

There could also be no change in the supply of cubes, but people in the future subjectively value those cubes half as much as they used to. Or there could be no change in the supply of cubes, but people subjectively value those cubes twice as much as they used to.

Your theory is such an utter contradictory fallacy, that any increase in any production of anything would be causing some person “harm”. It would be an argument for war against all surplus production and division of labor trade, an argument against competition, and an argument against freedom. It would be an argument for total individual strict isolationism. And any improvement in the material condition of man would be an act of war because somebody with more stuff is subsequently by definition richer than you and “causing” you to be poor. But that’s Marxist-Austrian Monetary Theory in a nutshell.

Assume the supply of cubes remains the same, the supply of all other goods remains the same, but a new supply of a new good called “pyramids” is introduced that is the same quantity as your cubes. Are you richer, poorer, the same? According to your twisted fallacy filled “logic” those pyramids will be stealing away market share wealth from your cubes. Less of those other goods will trade for your “cubes” as more of those other goods trade for “pyramids” instead of your “cubes”, leaving you “worse off”. And soeth concludeth another amazing post by Pharaoh rtr. :P

Thus we see a little deeper into the befuddled hate of wounded Marxist psyches to find that incorrect economic theory has twisted their minds. Who would’ve guessed even Austrian monetary theory got infected with it?

Ireland August 21, 2008 at 6:02 pm

Ok I’ve had enough. PR summed it up better than I ever could.

Here it ends, with one last sad hello to our new super star. And a big sorry to everyone else for wasting so much blogspace.

Comments on this entry are closed.

Previous post:

Next post: