In Rothbards "America's Great Depression", he makes the assertion that:
"The demand for money is completely unrelated to the time-preferences people might adopt." Pg 40. "Keynesian Criticisms of the Theory."
I am having difficulty understanding this. Is it not true that when a persons demand for cash holdings or savings increase - does it not follow that their time-preferences increase as well from a lower time preference to a higher one?
He next gives an example as evidence:
"Increased hoarding, therefore, could just as easily come out of reduced consumption as out of reduced investment."
I also can't "connect the dots" from his assertion to the evidence he supplies. Anybody?
EDIT: The example given may be better understood within the context of the chapter.
EDIT: Need to think about it more.
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It's easy to refute an argument if you first misrepresent it. William Keizer
Dustin Jussila: "Increased hoarding, therefore, could just as easily come out of reduced consumption as out of reduced investment." I also can't "connect the dots" from his assertion to the evidence he supplies. Anybody?
He is simply laying out for you the the only possible logical combinations by which one can increase his cash holdings by reducing spendings.
"The demand for money is completely unrelated to the time-preferences people might adopt." Pg 40. "Keynesian Criticisms of the Theory." I am having difficulty understanding this. Is it not true that when a persons demand for cash holdings or savings increase - does it not follow that their time-preferences increase as well from a lower time preference to a higher one? He next gives an example as evidence: "Increased hoarding, therefore, could just as easily come out of reduced consumption as out of reduced investment."
An increased demand for cash holdings on its own would represent an increase in time preference--more cash now as opposed to later. But that demand might be satisfied by a reduced consumption which we would call a lowering of time preference. In the larger context, it would make no sense to say that I stopped going out to lunch because I wanted to hold more cash and call that a higher time preference.
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Dustin Jussila:He next gives an example as evidence: "Increased hoarding, therefore, could just as easily come out of reduced consumption as out of reduced investment."
Here's my take. If time preference is strictly refering to the time of consumption (highTP = consumption now; lowTP = consumption later), as it IMHO should be, then increased demand for money (increased hoarding) "could just as easily come out of reduced consumption as out of reduced investment". If it comes from the former then it does affect time preference. If it comes from the latter then it doesn't. The latter part destroys any direct relationship between the former (consumption) and the time preference.