Study Guide to the Theory of Money and Credit by Robert P. Murphy

Author:Robert P. Murphy [Robert P. Murphy]
Language: eng
Format: epub, pdf
ISBN: 978-1-61016-235-7
Publisher: Ludwig von Mises Institute
Published: 2011-11-06T16:00:00+00:00

• On page 227 Mises writes, “In all countries where inflation has been rapid, it has been observed that the decrease in the value of the money has occurred faster than the increase in its quantity.” On the following page he explains that the value of money is influenced by both supply and demand. For a modern example, suppose that the Chairman of the Federal Reserve announced that he would cause the quantity of U.S. dollars to rise by a factor of 1,000 in the course of a week. Even ignoring the step-by-step process of inflation, the end result would not simply be a general 1,000–fold rise in prices. Instead, prices (quoted in U.S. dollars) would rise by much more than that, because Americans would no longer want to hold dollars. They would no longer view the dollar as a safe currency, and would seek to replace their dollar holdings with either other currencies or perhaps the precious metals. In order to restore equilibrium, then, prices would have to rise not merely on account of the extra quantity of dollars, but also because of the sharp drop in the subjective desire to hold them.

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