First Revelation: There is no such thing as a Money MultiplierIn economics there is a Keynesian craze called the money multiplier and this device even has its own formula and everything. This popular Keynesian theory and its corresponding equation are flat out wrong and incorrect. Afterall, the value of money can't be multiplied. (Proof: MV=PQ). This factoid alone is so simple and yet proves the money multiplier false beyond any reasonable doubt! These poor economists can try to print money all day and they will never add any value, they will merely redistribute the wealth from one group to another. This would explain many of the fallacies which exist in Keynesian economics. So if money can’t be multiplied then what are we really talking about here?
Second Revelation: Behold, The Wealth MultiplierThe truth is that only WEALTH can multiply. The "money multiplier" should have always been named the "wealth multiplier". Wealth can not come out of a printing press, but rather it must be created through the vexing of the human mind. This thought may be revolutionary, but it can not be denied. There is simply no argument against it.Sadly calling the wealth multiplier the money multiplier is convenient for leaving the door open to many monetary policies that are both ill-conceived and based on bad economic policies. This fallacy also allows for government to obtain more power under this pretense. But there simply is no such thing as a money multiplier, there is only a wealth multiplier.
Third Revelation: The Dead Weight Loss MultiplierOnce you understand that wealth multiplies we can move on to an even more advanced revelation, the dead weight loss multiplier. Afterall, there must be an inverse to the wealth multiplier. Think of dead weight loss as all potential gains not realized. The dead weight loss multiplier is the revelation that these lost potential gains start to multiply on top of one another. Let’s use the example of a bad public policy which creates a lesser deterrent on theft. Then let’s say a young adult steals a baseball card from a store clerk. That act of theft being the initial dead weight loss. However, when the store clerk finds out, runs after, and beats the young adult to get it back that would be the multiplication of the dead weight loss. Initially only one player was harmed and it was of a material nature, later both were harmed and made worse off. The young adult has now been physically harmed and emotionally harmed; the clerk has now been made emotionally upset, perhaps he re-sprained an ankle injury running after the kid and depending on the laws may have a lawsuit upcoming. Multiplication includes any emotional damage, physical harm, time lost getting the card back, ect.. The initial dead weight loss is often little compared to the actual multiplication that occurs later.The dead weight loss multiplier has important effects and implications on society. As seen in my previous example, bad economic policies not just cause initial dead weight loss, but also cause harmful dead weight loss multiplication. The importance of the dead weight loss multiplier and its relation to public choice will be discussed further in a later post.
~words are merely the beginning of thought, but never the end of it
Note: Even if Keynesian economists were to argue the existence of a "very temporary" money multiplier effect they must admit that what they should be discussing is the "wealth multiplier".
You are conflating different concepts here. The money multiplier has to do with monetary expansion under a fractional reserve system. No one, as far as I know, denies this concept. It's just showing how new money is created for a given reserve requirement.
In terms of the effects of a change in spending, Keynesians just refer to a multiplier, but that is something different. Non-Keynesian mainstream economists have argued against this concept (for example Robert Barro).
Right, MV=PQ is the formula for the quantity theory of money, which de Soto critiques in his book. The money multiplier is m = 1/R, where R is the reserve requirement. de Soto provides a much better formula for expansion of the money supply under fractional reserve banking
Rooster: You are conflating different concepts here. The money multiplier has to do with monetary expansion under a fractional reserve system. No one, as far as I know, denies this concept. It's just showing how new money is created for a given reserve requirement.
If I am confusing the terms it is because they are confusing the terms. The term "money multiplier" has become almost synonymous with the meaning of "the multiplier", which is really the "wealth multiplier". Often the delusion is that there is only the former which creates the latter. But Keynesians don't recognize the latter for what it really is, of course, the "WEALTH" multiplier. To refer to it as an unnamed multiplier is to confuse the subject matter, which of course is what John Maynard Keynes did a lot.
Rooster: In terms of the effects of a change in spending, Keynesians just refer to a multiplier, but that is something different. Non-Keynesian mainstream economists have argued against this concept (for example Robert Barro).
Keynesians use the concept of the money multiplier to argue that an increase in spending causes wealth. This is untrue. Spending is a neutral idea, it does not create nor destroy wealth.
Also because spending does not create wealth it is merely a subtopic on the subject of wealth multiplication. At best Keynesians can argue that the money multiplier is a subset of the wealth multiplier.
I would argue that the money multiplier is so egregious that it results in dead weight loss multiplication (opposite of wealth creation). Therefore I would also argue that the money multiplier is a subset topic of dead weight loss multiplication. Of course this whole subject matter got confused by John Maynard Keynes when he refused to recognize and name the "wealth" multiplier by its proper name...
Brian: The term "money multiplier" has become almost synonymous with the meaning of "the multiplier", which is really the "wealth multiplier".
The term "money multiplier" has become almost synonymous with the meaning of "the multiplier", which is really the "wealth multiplier".
Who told you this? It's simply not true.
Brian:At best Keynesians can argue that the money multiplier is a subset of the wealth multiplier.
Brian: Therefore I would also argue that the money multiplier is a subset topic of dead weight loss multiplication.
Sorry but neither of these statements make sense. No offense, but you don't understand what you're trying to criticize. There are many problems with Keynesian economics, but confusing the two multipliers is not one of them -- it is obvious from the context what any economist is talking about. They are completely different. Read Robert Murphy, he knows his stuff and offers a cogent critique.
Edit: Let me clarify, the money multiplier is not a Keynesian concept.
Rooster: Who told you this? It's simply not true.
Some economists, the media, and non-economists get this money multiplying concept confused all the time. Again this is because "the multiplier" as you refer to it, should be renamed to the "wealth multiplier". Not only is this the correct term and more accurate, but it will lead to people being able to better understand the concept. I think Keynesians are able to hide behind "the multiplier" as if monetary policy somehow leads to "multiplication". I mean seriously, multiplication of what?? Wealth multiplication, obviously.
Summary: people will better be able to see the truth behind this subject after "the multiplier" is given its true name, the "wealth multiplier".
Rooster: Brian:At best Keynesians can argue that the money multiplier is a subset of the wealth multiplier. Brian: Therefore I would also argue that the money multiplier is a subset topic of dead weight loss multiplication. Sorry but neither of these statements make sense.
Sorry but neither of these statements make sense.
To rephrase the first sentence to perhaps be more clear, "At best Keynesians can argue that the money multiplier is something which leads to wealth multiplication. Hence, it would be a division within the concept of wealth multiplication." As I said I would argue it is really a division or another concept within dead weight loss multiplication. I hope that helps.
To the point though, do you not agree that "the multiplier" is really the "wealth multiplier"? If you don't agree with me then that is something which we will have to disagree on. Although I would love to hear an actual valid argument why "the" multiplier is NOT the "wealth multiplier". Because there is no such argument that can be made.