Economics Questions

Re: Defining Inflation

nirgrahamUK — Fri, 12 Jun 2009 03:03:07 GMT

well, the neoclassicals routinely use opportunity cost incorrectly and in an accounting sense, but so long as you are being subjective etc keep on keeping on.

Re: Defining Inflation

JAlanKatz — Fri, 12 Jun 2009 02:56:02 GMT

nirgrahamUK:
its oppportunity cost, or rather an imagined cost. it is not a real cost. it may be psychologically real. but has not reality in terms of accounting.

Agreed, it is not an accounting cost. It is, though, an economic cost. Opportunity cost is not imagined cost - it is the definition of cost in economics.

Re: Defining Inflation

nirgrahamUK — Fri, 12 Jun 2009 02:49:58 GMT

its oppportunity cost, or rather an imagined cost. it is not a real cost. it may be psychologically real. but has not reality in terms of accounting.

Re: Defining Inflation

JAlanKatz — Fri, 12 Jun 2009 02:47:29 GMT

Juan:
Has the link been posted in this thread ? I can't seem to find it.

No.

Juan:
I suppose that's one of the reasons to want to acquire money. The other reason being, to use money as medium of exchange.

I'm not sure what you mean. Here's what I mean: I have a certain income potential - that is, the amount I can make if I worked all the time. I subtract from that my "spending" on leisure - that is, the money I could be making if I didn't have leisure time. What's left is my actual income. Of that, some is spent, and some is kept. My demand for money, in my terminology, is the proportion that I save out of what I earn.

Juan:
Well, I wouldn't say that not-earning is the same thing as spending, if that's what you mean ?

Leisure is a good, and has a cost. That cost is the money I didn't earn during that leisure time. It simplifies analysis to treat this as spending.

Re: Defining Inflation

Juan — Thu, 11 Jun 2009 21:14:28 GMT

JAlanKatz:
Similarly, my entering the market demanding money (that is, offering goods and services) doesn't imply that money has to be produced, my demand can be met out of other people's stocks of money.

I see that. I do admit it's okay to use "demand for money" in that case.

See Garrison's slide show which presents it in terms of money.

Has the link been posted in this thread ? I can't seem to find it.

By demand for money, I mean the desire to hold money, as opposed to spending it.

I suppose that's one of the reasons to want to acquire money. The other reason being, to use money as medium of exchange.

Since leisure is a good, if a person spends time not earning money, I consider this spending money on leisure.

Well, I wouldn't say that not-earning is the same thing as spending, if that's what you mean ?

Re: Defining Inflation

JAlanKatz — Thu, 11 Jun 2009 15:53:38 GMT

Juan:
what you mean. Potatoes don't need to be produced ? They can just be created ex-nihilo ? =P

Ok, I didn't phrase that well. What I meant was that the plain fact that I enter the market demanding potatoes doesn't mean that potatoes have to be produced at present to meet my demand. My demand can be met out of already existing potato stocks. We can pass around the (hot) potatoes. Similarly, my entering the market demanding money (that is, offering goods and services) doesn't imply that money has to be produced, my demand can be met out of other people's stocks of money.

Juan:
'Real' growth occurs when there's more production than consumption - it's almost a truism. I'm not sure how demand for money enters the picture tho. I'm not sure we're using a consistent definition for demand for money either...

See Garrison's slide show which presents it in terms of money. By demand for money, I mean the desire to hold money, as opposed to spending it (Since leisure is a good, if a person spends time not earning money, I consider this spending money on leisure.)

Re: Defining Inflation

scineram — Thu, 11 Jun 2009 11:16:23 GMT

What is the demand for coffee? Why cannot the demand for money defines similarly?

Re: Defining Inflation

onebornfree — Thu, 11 Jun 2009 05:06:58 GMT

Juan:
But you believe that there can be no demand for money, correct?
I believe the term is ill defined and especially confusing in the context I quoted.

I agree, it is hard to come up with good definitions - however, one of my points has been that putting a lot of thought into trying to define what the demand for money actually is is irrelevant in the end [despite the fact that LVM gives 2 definitions- both narrow and broad, in The Theory of Money and Credit], simply because the real world value[price] of money fluctuates, so obviously money , like anything else, is subject to the law of supply and demand, therefor it is logically consistent to conclude that a demand for money [however defined] is a reality, regardless of lack of ability to accurately define it. All we need to know is that it is there, and it is an important factor in determining the outcome of the market price of money- no less important than supply.

Which means that the price [value] of money is _not_ determined by supply alone , as many here appear to believe, but that the final price[value] of money in the market place [ ie whether it is worth more, or less than it was worth previously] is always, and as with anything else, the final outcome of the interaction between the two factors of supply and demand [however defined], or lack thereof. Not just one factor [supply]

Money changes relative value all the time, _therefor_ a demand for money must exist- to make up the other necessary half of the price equation, regardless of our failure to accurately define it.

Re: Defining Inflation

Juan — Thu, 11 Jun 2009 04:24:57 GMT

But you believe that there can be no demand for money, correct?

I believe the term is ill defined and especially confusing in the context I quoted.

Re: Defining Inflation

onebornfree — Thu, 11 Jun 2009 04:19:23 GMT

Juan:
onebornfree:
Is it your contention that money [currency, fiduciary media] and its production are somehow not subject to the economic law that governs final price [value] ?
That question is rather broad. I agree that supply and demand ultimately determine the price of all goods in terms of money...or the price of money in terms of goods if you will. But that principle doesn't tell you what the 'correct' definition of inflation is.

But you believe that there can be no demand for money, correct?

As for a satisfactory definition of money, see my new thread:"Inflation - A Better Definition?"

Re: Defining Inflation

Juan — Thu, 11 Jun 2009 04:18:34 GMT

JAlanKatz:

Juan:
You could sum all the sales of potatoes in a day and say : the demand for potatoes today was 1000 pounds and the demand for dollars to pay for those potatoes was $1000. Does that means there's an abstract demand for money of $1000 and that $1000 need to be produced the same way the potatoes were produced ? Of course not.
But there's no requirement that the potatoes be produced either.

Not sure what you mean. Potatoes don't need to be produced ? They can just be created ex-nihilo ? =P

There can be demand for money without implying that there's a demand for newly produced money.

Agreed - I acknowledged that (usage of the word) at the beginning of the post you partially quoted.

For instance, in the ABCT, what do we mean when we talk about real growth being increased by people saving more and spending less? Don't we just mean more demand for money, which becomes more supply of investment capital?

'Real' growth occurs when there's more production than consumption - it's almost a truism. I'm not sure how demand for money enters the picture tho. I'm not sure we're using a consistent definition for demand for money either...

Re: Defining Inflation

Juan — Thu, 11 Jun 2009 03:42:15 GMT

onebornfree:
Is it your contention that money [currency, fiduciary media] and its production are somehow not subject to the economic law that governs final price [value] ?

That question is rather broad. I agree that supply and demand ultimately determine the price of all goods in terms of money...or the price of money in terms of goods if you will. But that principle doesn't tell you what the 'correct' definition of inflation is.

Re: Defining Inflation

Juan — Thu, 11 Jun 2009 03:37:37 GMT

it is my contention that this

scineram:
inflation : Increasing the supply of money beyond demand. Horwitz, Garrison and others.

is wrong. I've just taken a look at some of the pertinent sections in HA and didn't find them that helpful either...

Re: Defining Inflation

onebornfree — Thu, 11 Jun 2009 03:05:24 GMT

Juan:
Wasn't "Theory of Money and Credit" superseded by Human Action ? Maybe you can make your points yourself - or at least quote HA ?

Is it your contention that money [currency, fiduciary media] and its production are somehow not subject to the economic law that governs final price [value] ?

Re: Defining Inflation

Harry Felker — Thu, 11 Jun 2009 02:38:54 GMT

Juan:
In this case he's being paid in token money. He could also be paid in commodity money - both are media of exchange - token money is not very 'stable' tho...

I understand this...

Juan:
But we were not discussing barter/direct exchange ?

I am stating why he would rather use a media of exchange not barter...