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Money, Monopoly &
Market Intervention
Robert P. Murphy
Mises Academy
October 26, 2011
Lecture 4: 2nd
Third of Chapter 11 o...
2nd
Third of
Chapter 11 of MES
1. Speculative Demand for
Money
2. Clearing / Credit
3. “Keynesian Cross”
4. “Money Illusio...
I. Speculative Demand for
Money
“self-correcting,
not self-fulfilling”
II. Clearing/Credit
Transactions
III. “Keynesian Cross”
IV. “Money Illusion”
V. Hoarding: No Necessary
Effect on Interest Rates
If people increase their desired cash
balances, they can accomplish thi...
VI. Keynesians on
Money & Interest
Keynes argued that people have
“liquidity preference,” meaning they’d
prefer to hold ca...
VII. Purchasing Power Component of
Contractual Interest Rate?
Standard view from Irving Fisher says
market interest rate c...
VIII. Banks: Money Warehouses and
Credit Intermediaries
A. 100% Reserve Bank’s
Balance Sheet
B. Fractional Reserve Bank’s
Balance Sheet
IX. “Cost of Living” By Region
“Law of One Price” applies to
money as to other commodities,
meaning a uniform PPM across
r...
X. Purchasing Power Parity
In equilibrium, different moneys
will trade against each other so as
to equalize their purchasi...
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Money, Monopoly, and Market Intervention, Lecture 4 with Robert Murphy - Mises Academy

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Money, Monopoly, and Market Intervention, Lecture 4 with Robert Murphy - Mises Academy

  1. 1. Money, Monopoly & Market Intervention Robert P. Murphy Mises Academy October 26, 2011 Lecture 4: 2nd Third of Chapter 11 of Man, Economy, and State
  2. 2. 2nd Third of Chapter 11 of MES 1. Speculative Demand for Money 2. Clearing / Credit 3. “Keynesian Cross” 4. “Money Illusion” 5. Hoarding & Interest Rates VI. Keynesians on Money & Interest VII. Purchasing Power Component in Interest? VIII. Banks IX. “Cost of Living” X. Purchasing Power Parity
  3. 3. I. Speculative Demand for Money “self-correcting, not self-fulfilling”
  4. 4. II. Clearing/Credit Transactions
  5. 5. III. “Keynesian Cross”
  6. 6. IV. “Money Illusion”
  7. 7. V. Hoarding: No Necessary Effect on Interest Rates If people increase their desired cash balances, they can accomplish this through a reduction in consumption or investment spending.
  8. 8. VI. Keynesians on Money & Interest Keynes argued that people have “liquidity preference,” meaning they’d prefer to hold cash rather than risky bonds/stocks. Yet higher the interest rate, higher the “penalty” on holding wealth in form of cash. So, other things equal, Keynesians say lower interest rates higher demand to hold money.
  9. 9. VII. Purchasing Power Component of Contractual Interest Rate? Standard view from Irving Fisher says market interest rate contains a component to allow for changes in PPM. But Rothbard argues that if change is expected, then it won’t be handled in loan contracts—it will show up already in today’s PPM!
  10. 10. VIII. Banks: Money Warehouses and Credit Intermediaries
  11. 11. A. 100% Reserve Bank’s Balance Sheet
  12. 12. B. Fractional Reserve Bank’s Balance Sheet
  13. 13. IX. “Cost of Living” By Region “Law of One Price” applies to money as to other commodities, meaning a uniform PPM across regions. What about Manhattan vs. Boise??
  14. 14. X. Purchasing Power Parity In equilibrium, different moneys will trade against each other so as to equalize their purchasing powers (at least among tradable goods?). E.g. if barrel of oil trades for 100 euros or $120, then one euro trades for $1.20.

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