Money, Monopoly & Market Intervention

Robert P. MurphyMises Academy

November 2, 2011

Lecture 5: 3rd Third of Chapter 11 of Man, Economy, and State

3rd Third ofChapter 11 of MES

1. Equation of Exchange2. Money Not a Yardstick

3. “Stabilization”

IV. Biz Cycle Facts

V. Multiplier Take-Down

VI. Accelerator Take-Down

I. Equation of Exchange

MV = PT

or

MV = PQ

� “V” Worse than Others

Even though P and T are nonsense, at least they are independent concepts to be plugged into the equation. Not so with V.

II. Money Not a Yardstick

Deep Mises quote:

Prices aren’t measured in money, they consist in money.

III. “Stabilization”

Single indices of PPM arbitrary.

Why try to counteract market moves in PPM?

Austrians wary of term “price level.”

�Fisher Idea FailedDuring 1920s

IV. Biz Cycle Facts

●Boom then bust primarily in capital goods sectors

●Rising prices during boom then falling prices

●Apparent prosperity giving way to “excess capacity” including high unemployment

●Cluster of errors

V. Multiplier Take-Down

Social Income = Consumption + Investment

Assume Consumption = 0.8 x Income

Income = 0.8(Income) + Investment0.2(Income) = InvestmentIncome = 5(Investment)

� Multiplier (cont’d)

Social Income = Income of Reader + Income of Everybody Else

Note that Income of Everyone Else = 0.99999 x Social Income

Social Income = Income of Reader + 0.99999(Social Income)

0.00001(Social Income) = Income of ReaderSocial Income = 100,000(Income of Reader)

VI. Accelerator Take-Down

●Hutt pointed out crucial time element in standard Keynesian story.

●Rothbard asks, why would businesspeople be so mechanical and dumb?