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

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Chapter 11: Money and Its Purchasing Power 149 Notable Contributions • Rothbard’s critique of the Fisher relation (which equates the nominal interest rate with the real rate plus a purchasing power component) is quite unorthodox yet irresistible. • The discussion of free coinage and 100-percent reserve banking (pp. 799–811) anticipate much of the modern Austro-libertarian literature. • Rothbard’s critiques of Fisher’s equation of exchange (pp. 831–42), and various Keynesian concepts (pp. 859–68) are simply brilliant, and should put to rest the frequent allegation that Austrians are incapable of mathematical reasoning.
150 Study Guide to Man, Economy, and State with Power and Market Technical Matters 1. When Rothbard decomposes the total demand for money into the “exchange demand” and the “reservation demand” (p. 756), the former technically includes the nonmonetary demand for the money commodity (p. 760). For example, someone who sells labor services in order to acquire gold for use as fillings in his teeth would be exerting an “exchange demand” for money, even though this person does not intend to use the acquired gold as a medium of exchange. 2. In Keynes’s view, the demand for money is a downward sloping function of the nominal interest rate, not the PPM. The idea is that the opportunity cost of holding cash (as opposed to investing the money in a bond, for example) rises with the nominal interest rate: At 10 percent holding a $10 bill means forfeiting $1 in future cash, whereas at 20 percent the decision costs $2 in forgone future money. Austrians reject this explanation because (1) the (pure) interest rate is determined by time preferences and (2) the true opportunity cost of holding money is not simply (the value of) a bond but (the value of) all other goods and services that could have been purchased with the cash. 3. The reductio ad absurdum on p. 839 may have lost the reader. Rothbard arrives at the middle fraction (which has “(hats) (pounds of sugar)” in the denominator) by adding the two fractions at the top of the page. But the reader must recall from algebra that in order to add two fractions, a common denominator is
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STUDY GUIDE TO MAN, ECONOMY, AND ST
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STUDY GUIDE TO MAN, ECONOMY, AND ST
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CONTENTS INTRODUCTION . . . . . . .
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In June of 2004, I became convinced
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Introduction ix appropriate, I have
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Chapter Summary In a money economy,
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Chapter 4: Prices and Consumption 4
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Chapter Summary In the evenly rotat
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Chapter 6: Production: The Rate of
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Chapter Summary This chapter explai
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Chapter 7: Production: General Pric
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Chapter Summary Entrepreneurial pro
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Chapter 8: Production: Entrepreneur
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Chapter 8: Production: Entrepreneur
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Chapter Summary Society is composed
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Chapter 4: Binary Intervention: Tax
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Chapter Summary There has been litt
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Apriorism, 1, 9 Ability-to-pay prin
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Index 251 Equilibrium, 47, 104 macr
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Index 253 Medium of exchange, 27, 3
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Index 255 See also Economy, Evenly
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