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Money, Monopoly, and Market Intervention, Lecture 8 with Robert Murphy - Mises Academy
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Transcript of Money, Monopoly, and Market Intervention, Lecture 8 with Robert Murphy - Mises Academy
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Money, Monopoly & Market Intervention
Robert P. MurphyMises Academy
November 23, 2011
Lecture 8: 3rd Third of Chapter 12 of Man, Economy, and State
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3rd Third ofChapter 12 of MES
1. Inflation2. Inflation by Banks
3. Austrian Biz Cycle
IV. Capital Consumption
V. Government Debt
VI. Externalities
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I. Inflation
Rothbard defines as “the process of issuing money, beyond any increase in the stock of specie.”
●Means business cycle on free market (with 100% reserves) impossible.
●Not quite Mises’ definition in TOMC: Increase in quantity of money that outstrips increase in demand to hold money.
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II. Inflation by Banks
Commercial banks, not merely central bank, that cause inflation and hence biz cycle.
� Banks create money in act of lending (with less than 100% reserves), and earn interest on this new money.
� Central banks break down market’s natural barriers to low-reserve banking.
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III. Austrian Business Cycle
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Savings-Supported Economic Growth
“Before we can even ask how things might go wrong, we must first explain how they could ever go
right.” – F.A. Hayek
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For Austrians,Prices Act as Signals
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Interest Rates Are Special PricesThat Coordinate Through Time
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Interest Rate = 10%
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Interest Rate = 10%
SUPPOSEFAMILY SAVES MORE
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Interest Rate =
INTEREST RATE FALLS
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Interest Rate =
FACTORY BORROWS
MORE
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Not Just About Dollars—Physical Resources Rearranged
Year 1:
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Not Just About Dollars—Physical Resources Rearranged
Year 1:
Year 2:
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Not Just About Dollars—Physical Resources Rearranged
Year 1:
Year 2:
Year 3:
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Interest Rates Are Special PricesThat Coordinate Through Time
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But what if factory borrows more because of
FRACTIONAL RESERVE BANKING…?
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IV. Capital Consumption
●Exacerbated by inflation.●Makes boom seem truly
prosperous.●Explains why bust inevitable.
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V. Government Debt
●Inflationary? Yes and no.● If from public, then “crowding out.”●Repudiation only sensible answer.
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VI. Externalities