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Money Velocity and Prices
MONEY VELOCITY AND PRICES The yearly growth rate of US AMS jumped to almost 80% by February 2021 (see chart). Given such massive increase in money supply, it is tempting to suggest that this lays the foundation for an explosive increase in the annual growth of prices of goods and services sometime in the future […]
Gold Standard and Boom Bust Cycles
GOLD STANDARD AND BOOM BUST CYCLES According to the Austrian Business Cycle Theory (ABCT), the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. It is held that the major cause for this deviation is increases in the money supply. Based […]
Relation Between Inflation and Deflation
RELATION BETWEEN INFLATION AND DEFLATION For most commentators inflation is about persistent increases in the prices of goods and services. However, is this the case? For example, the definition of human action is not that people are engaged in all sorts of activities as such, but that they are engaged in purposeful activities–purpose gives rise […]
Monetary Pumping and Resources
MONETARY PUMPING AND IDLE RESOURCES As a result of the recent strong stimulatory policies employed by the US government and the Fed, most commentators are of the view that the risk of a deepening slump in the US economy on account of the COVID-19 pandemic has now receded. Some other commentators are not so certain […]
The IMF Chief Economist Sees a Threat to World Economies From a Liquidity Trap
THE IMF CHIEF ECONOMIST SEES A THREAT TO WORLD ECONOMIES FROM A LIQUIDITY TRAP In the Financial Times from November 2 2020, the IMF chief economist Gita Gopinath suggested that world economies at present are likely to be in a global liquidity trap. Gopinath has reached this conclusion because the yearly growth rate of the […]
Can Constant Money Growth Rule Prevent Boom-Bust Cycles?
CAN CONSTANT MONEY GROWTH RULE PREVENT BOOM-BUST CYCLES? According to the Nobel Laureate in Economics, Milton Friedman, the key cause of the business cycles is the fluctuations in the growth rate of money supply. Friedman held that what is required for the elimination of these cycles is for central bank policy makers to aim at […]
Can An Increase In the Demand For Money Neutralize the Effect of a Corresponding Increase in Money Supply?
CAN AN INCREASE IN THE DEMAND FOR MONEY NEUTRALIZE THE EFFECT OF A CORRESPONDING INCREASE IN MONEY SUPPLY? According to popular thinking, not every increase in the supply of money will have an effect on the production of goods. For instance, if an increase in the supply is matched by a corresponding increase in the […]
How the GDP Framework Creates the Illusion That By Means of Money Pumping the Central Bank Can Grow an Economy
HOW THE GDP FRAMEWORK CREATES THE ILLUSION THAT BY MEANS OF MONEY PUMPING THE CENTRAL BANK CAN GROW AN ECONOMY In response to a weakening in the yearly growth rate of key economic indicators such as industrial production and real gross domestic product (GDP) some commentators have raised the alarm of the possibility of a […]
How Fractional Reserve Banking Contributes to Increases in Money Supply
HOW FRACTIONAL RESERVE BANKING CONTRIBUTES TO INCREASES IN MONEY SUPPLY Some commentators consider fractional reserve banking as a major vehicle for the expansion in the money supply growth rate. What is the nature of this vehicle? We suggest that fractional reserve banking arises because banks legally are permitted to use money placed with them in […]
Can Expectations Undo the Validity of the Mises’s Business Cycle Theory?
CAN EXPECTATIONS UNDO THE VALIDITY OF THE MISES’S BUSINESS CYCLE THEORY? According to Ludwig von Mises’s Austrian Business Cycle Theory (ABCT), the artificial lowering of interest rates by the central bank leads to a misallocation of resources due to the fact that businesses undertake various capital projects that prior to the lowering of interest rates […]
Should the Fed Tamper With the Quantity of Money?
SHOULD THE FED TAMPER WITH THE QUANTITY OF MONEY? Most economists are of the view that a growing economy requires a growing money stock, because economic growth gives rise to a greater demand for money, which must be accommodated. Failing to do so, it is maintained, will lead to a decline in the prices of […]
The Problem With Modern Monetary Theory
THE PROBLEM WITH MODERN MONETARY THEORY According to the Modern Money Theory (MMT), money is a thing that the State decides upon. Following the ideas of the German economist, Georg Knapp, the MMT simply regards money as a token. For instance, when an individual places a coat in the cloakroom of a theatre, he receives […]
Changes in Government Deposits and Money Supply
CHANGES IN GOVERNMENT DEPOSITS AND MONEY SUPPLY The US debt ceiling suspension, signed in February 2018, expires at the beginning of March this year. Some commentators are of the view that the US Treasury must carry out special measures if it expects a delay in raising the debt ceiling in March. The Treasury would have […]
Importance of Model Building in Economics
IMPORTANCE OF MODEL BUILDING IN ECONOMICS In the natural sciences, a laboratory experiment can isolate various elements and their movements. There is no equivalent in the discipline of economics. The employment of model building is an attempt to produce a laboratory where controlled experiments can be conducted. The idea of having such a laboratory is […]
Tax Cuts Without Reducing Government Outlays Is Not Possible
TAX CUTS WITHOUT REDUCING GOVERNMENT OUTLAYS IS NOT POSSIBLE According to many economic experts and commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, is going to place more money in consumer’s pockets thereby setting in motion an economic growth. This way of […]
