Economics Questions

Re: Does money printing (even when hoarded) always raise prices?

nirgrahamUK — Tue, 05 Apr 2011 19:25:33 GMT

I'm curious which invention the fella uses to distinguish regular money from QE money ?

Re: Does money printing (even when hoarded) always raise prices?

Prime — Tue, 05 Apr 2011 19:19:32 GMT

Xahrx, in my example the only money that is hoarded is what came from the printing press. He is not hoarding the money from his wages. In actuallity, it's as if the counterfeit money didn't even exist (except for in the mind of the hoarder). The OP's original point that printing money and then hoarding said money would increase the net price of wages. I think I have provided an example where there is no net gain.

Re: Does money printing (even when hoarded) always raise prices?

xahrx — Tue, 05 Apr 2011 15:24:09 GMT

Remember, as an extreme hoader, he wants money to simply have money. Once more this calls into question the definition of hoarding. If hoardeers are literally never going to spend that money, then their actions lower prices. If they are merely extreme savers and will eventually spend that money on necessities like food and shelter, and eventually will it to heirs who spend it, then the operative function of that money will be to raise prices in the long term assuming it's printed money he's hoarding.

Re: Does money printing (even when hoarded) always raise prices?

Prime — Tue, 05 Apr 2011 08:24:48 GMT

Lets say I have a machine that can print dollars. I print 10 million bucks and then shove it all under my mattress. Here is my line of thinking:

A) According to your theory, I now value money less, and as such I demand more dollars for my labor.

B) My emplyer X decides to give me a substantial raise to compensate for my new demands. (If X declines no prices have risen)

C) X now has a decrease in profits and cannot afford to build a new factory.

D) The construction builder, who would have built the factory, is now unemployed.

E) This increases the supply of available labor, and as a result, decreases wages for everyone else.

F) There is no net increase in prices. My raise came at the expense of lower wages for everyone else

Re: Does money printing (even when hoarded) always raise prices?

Maurizio Colucci — Tue, 05 Apr 2011 06:59:18 GMT

@prime

"to work the same amount of time as before, he will ask for more money than he did before"

Is this true? Do all lottery winners who choose to continue working at their jobs always demand a raise?

Good point. I realize my statement is poorly phrased. What I meant is: for any given amount of time T, the minimum amount of money they require to work for T hours will increase. (In other words, their supply curve of labour will shift.) This does not imply that they will ask for a raise or quit, because their current wage could already be greater than the new minimum wage that they require (after the shift).

However, the fact alone that their supply curve of labour has shifted seems to me enough to conclude that price of labour will increase, so I think my point still stands.

Re: Does money printing (even when hoarded) always raise prices?

Clayton — Tue, 05 Apr 2011 00:32:16 GMT

What BlackNumero said with the slight caveat that in a natural money economy, there is a connection between interest rates and changes in the money supply, as Hulsmann explains here.

Clayton -

Re: Does money printing (even when hoarded) always raise prices?

Prime — Tue, 05 Apr 2011 00:02:28 GMT

"to work the same amount of time as before, he will ask for more money than he did before "

Is this true? Do all lottery winners who choose to continue working at their jobs always demand a raise?

Re: Does money printing (even when hoarded) always raise prices?

BlackNumero — Mon, 04 Apr 2011 23:32:26 GMT

Increasing the money supply does not ever apodictically raise prices. Only ceteris paribus, an increase in the money supply with raise prices.An a priori theory that states an increase in the supply of money will always, regardless of the demand for money raise prices is akin to saying an increase in the demand for apples, will always regardless of shifts in supply raise its price.

There are two demands for money, exchange demand and reservation demand. Exchange demand is the pre income demand for money, it occurs when an actor is going to sell his supply of goods/labor services. This is another way of representing supply curves for goods. Reservation demand is the more commonly understood demand for money, it is the post income demand and occurs when an actor decides to allocate his money stock he earned in previous exchanges. It is hoarding.

If there is an increase in the money supply, then ceteris paribus prices will rise, this however can be counteracted with an increase in hoarding (as you mention above). If hoarding increases exactly enough, or if all agents just hoard the money and it never gets spent, then the price of money will not change and only its quantity will. If the price does not change, then the overall level of prices have not changed. And labor services certainly does not need to change as well.

An increase in hoarding occurs precisely because there is a shift in value scales and money is valued more highly now, post income. The demand for goods has decreased, but the supply curves remain constant. Additional units of money are always valued more lowly, but this does not mean actors will decrease their labor supply. With the increase in the money supply, the actors have hoarded it. The still will be supplying the same amount of labor services, ceteris paribus, to buy the goods they bought before the hoarding. Meaning that unless their exchange demand has decreased, they will still continue to have the same labor curve. If your idea were always true, than an increase in the reservation demand for money would always be followed by a decrease in the exchange demand for money, and demand for money would never change.

Re: Does money printing (even when hoarded) always raise prices?

Clayton — Mon, 04 Apr 2011 19:38:52 GMT

Well, people save money for disasters, sure, but they don't save money for disasters that never happen.

Clayton -

Re: Does money printing (even when hoarded) always raise prices?

Mon, 04 Apr 2011 19:34:20 GMT

Maurizio Colucci:

as the hoarder would be effectively contracting the money supply.

but he would ask for more money to sell his services...

There's no reason to assume that. Why would the supply curve for labor shift as a result of an increase cash holding? All the horder does is reduce his present consumption.

Maurizio Colucci:

But do you think this holds even if the new money is never spent? i.e. hoarded indefinitely? Why

The point has been made already that its illogical to hord indefinately. But if that were the case they overall price level would be at a permanently lower level. Until he finally decides to spend it, of course, then it would go back up.

Re: Does money printing (even when hoarded) always raise prices?

Maurizio Colucci — Mon, 04 Apr 2011 18:30:22 GMT

Why would anyone (let alone everyone) ever indefinitely hoard money? The only purpose of acquiring money in the first place is so that it can be spent at some future time.

Good point. I don't know. Maybe to face a disaster that never happens. :)

Re: Does money printing (even when hoarded) always raise prices?

Maurizio Colucci — Mon, 04 Apr 2011 18:27:29 GMT

@xahrx

One, why would he charge more for his services ?

because he is now richer, so money is worth less to him, i.e. leisure is worth more.

Two, why would people necessarily pay more for his services?

they don't need to. All I am trying to prove is that his supply curve has shifted left. At each price, he is offering fewer hours of his services than before. So the price increases, even if demand for his services is constant.

Three, the hoarder is in a state of barter; he's taking money not to buy stuff but just to have. There's no reason for him to charge more merely based on this fact alone.

I think there is. When you have more of X, the value of an additional unit of X to you decreases. This means that getting one more X is now less attractive to you. So you will offer less than before in exchange for X. But this means you are charging more.

Re: Does money printing (even when hoarded) always raise prices?

Clayton — Mon, 04 Apr 2011 18:12:42 GMT

Maurizio Colucci:

@Chris Pacia

The only thing you can say is that money printing in the face of an increased demand for money (hoarding) will make prices higher than they otherwise would have been.

But do you think this holds even if the new money is never spent? i.e. hoarded indefinitely? Why?

Why would anyone (let alone everyone) ever indefinitely hoard money? The only purpose of acquiring money in the first place is so that it can be spent at some future time.

Clayton -

Re: Does money printing (even when hoarded) always raise prices?

xahrx — Mon, 04 Apr 2011 18:09:05 GMT

"What I am arguing is that, even in that case, prices would not go down. (because the price of that person's services would go up.) If you think my point is wrong (which it probably is), could you please explain why."

I know what you're saying, I'm saying it's wrong. One, why would he charge more for his services unbless his preferences have changed? Two, why would people necessarily pay more for his services? To be in a position to charge more people must be willing and able to pay more. Three, the hoarder is in a state of barter; he's taking money not to buy stuff but just to have. There's no reason for him to charge more merely based on this fact alone.

What you are trying to say would only be correct with a bunch of ceteris paribi included and then only in relative terms; ie prices would be higher than they otherwise would have been. But there is no way that I can see to prove a priori that prices will increase nominally because it isn't the case.

Re: Does money printing (even when hoarded) always raise prices?

Maurizio Colucci — Mon, 04 Apr 2011 17:35:46 GMT

@Chris Pacia

The only thing you can say is that money printing in the face of an increased demand for money (hoarding) will make prices higher than they otherwise would have been.

But do you think this holds even if the new money is never spent? i.e. hoarded indefinitely? Why?