Study Guide to Man, Economy, and State with Power and Market

Chapter Summary
Like all goods, the price of money is determined by the
interaction between supply and demand. Money is unique in
that its “price” is not a single number—in this sense the price of
an ounce of gold would always be one (oz. gold). Rather, the
price of a unit of money is an entire vector of the money commodity’s
exchange ratios with units of every other good and
service available on the market. The purchasing power of
money (PPM) is thus its “price.” At any given time, all units of
money are in someone’s possession, i.e., comprise part of someone’s
cash balance. There is no such thing as money “in circulation.”
Thus it is arbitrary to denounce “hoarding.”
If the demand for money increases, this means that people
wish to hold a stock of money balances higher than the actual
stock in existence. This “shortage” of money balances can be
eliminated through a rise in the PPM of money. A similar analysis
holds for a drop in the demand for money. If the total stock
of money changes, the PPM also adjusts until the quantity
demanded of money equals the size of the new stock. The total
stock of money increases with mining, etc., but decreases
through wear and tear, and as the money commodity is devoted
to industrial or consumption purposes.
Money is useful only insofar as it possesses purchasing power.
Other things equal, it is always better to have more producer or
135
CHAPTER 11
MONEY AND ITS PURCHASING POWER