Money, Monopoly & Market Intervention

Robert P. MurphyMises Academy

October 19, 2011

Lecture 3: 1st Third of Chapter 11 of Man, Economy, and State

1st Third ofChapter 11 of MES

1. Google Graph Fail!2. Intellectual Property

3. Supply & Demand for MoneyA. Price an Array……

IV. Changes in Supply & Demand

V. Important Law!

I. Google Graph Fail!

II. Intellectual Property

III. Supply & Demand for Money

A. “Price” of Money an Array

B. Use “Total Demand-Stock” Framework for Money

●Everybody exchanges with money.

●New production relatively small compared to existing stock.

C. Downward Sloping Exchange-Demand Curve for Money

●“Vertical” demand curves in most product markets—well, a little confusing (RPM).

●Falling demand curve in labor markets.

●Combine the two to get overall falling demand curve for money, but we are here talking about exchange demand, not speculative demand.

D. Reservation Demand for Money

After acquiring (“buying”) money in the pre-income phase, in the post-income phase a person must allocate money to three possible uses:

1.Consumption spending2. Investment spending3.Add to cash balance

E. Demand for Cash Balances Also Downward-Sloping

People hold cash balances in order to complete future purchases of real goods and services. If the PPM goes up, then people will (try to) spend some of their cash away. If the PPM goes down, then they will (try to) acquire larger cash balances.

F. Bad Metaphor

Rothbard warns not to think of money as “in circulation” as opposed to “in idle hoards.” At any time, all money in the community is in someone’s cash balance. Money provides a service even when it it “merely” being held.

G. Graphical Analysis

IV. Changes in Supply/Demand

� Changes in Supply/Demand

V. Important Law!

Money (qua money) is valued solely because of its purchasing power. Therefore…

Any stock of money (once prices adjust) confers the maximum social benefit. There is no social gain from an increase in stock of money. This is NOT the case with any other good or service.