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

Chapter 11: Money and Its Purchasing Power 137
Chapter Outline
1. Introduction
Earlier chapters dealt with the emergence of money out of
barter, and the formation of money prices. In the present chapter
we analyze the impact changes in the money relation have
upon the (unhampered) market.
2. The Money Relation: The Demand for and the
Supply of Money
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.”
The total demand for money consists of (1) the exchange
demand for money (by sellers of all other goods who wish to
purchase money) and (2) the reservation demand (by those who
already hold money). As with all goods, the demand curve for
money is downward sloping: as the PPM falls, people will
demand a greater quantity of the money commodity.
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.”
The supply of money at any given time is a vertical line;
regardless of the PPM, there are just so many units of money in
the economy. (Remember that we are using the total demand/
total stock analysis.) The equilibrium PPM is then determined