Mises AcademyAustrian Econ I:

Praxeology Through Price TheoryRobert P. Murphy

Spring 2011Lecture 7

June 8

1st half Chapter 4I. Money the Common DenominatorII. Goods-Price of MoneyIII. PPM Reciprocal of Money PricesIV. Determining Money PriceV. Market Demand Schedule

VI. Seller’s Ranking VII. Divisibility VIII. Supply/Demand IX. Consumer Surplus X. Regression Theorem

I. Money the Common Denominator

In direct exchange, n goods require (n x (n-1) / 2) unique prices.

With money, n goods require n-1 unique prices.

E.g. 10 goods…Barter: 10x9 / 2 = 45 unique pricesMoney: 9 unique prices

II. The Goods-Price of Money

Has a price of…

1/15,000th of a new car,4 gumballs,½ of a pound of bananas, etc.

III. PPM Reciprocal of Prices

IV. Determining Money-Price

V. Market Demand Schedule

VI. Seller’s Value Ranking

VII. Importance of Divisibility

VIII. Supply/Demand Factors

(1) Demand for Direct Use of Good (consumption or production)

(2) Demand for Money

(For both, include reservation demand as well as exchange demand.)

IX. “Consumer Surplus”

Mainstream concept Rothbard criticizes:

X. Mises’ Regression Theorem

A. The Problems

Explaining “Price” of Money Using Subjective Value Theory seemed to involve either:

1.Circular argument

2. Infinite regress

B. Mises’ Solutions

1.Money has purchasing power today because people expect it to have PP tomorrow because they observed its PP yesterday.

2.We can stop going back in time, once we reach direct exchange.