Patricia Aas1/ Fine. Milton Friedmans: The Optimum Quantity of Money
For the record: It is my opinion that this man should've stood trial for crimes against humanity.
2/ Introduction: He states that when examining the optimum quantity of money one will also examine
1. the optimum behavior of the price level
2. the optimum rate of interest
3. the optimum stock of capital
4. the optimum structure of capital
1. the optimum behavior of the price level
2. the optimum rate of interest
3. the optimum stock of capital
4. the optimum structure of capital
3/ Part 1: "Hypothetical Simple Society"
1. Constant population (the beings are either immortal or represent a lineage) (??!!?)
2. given tastes
3. fixed volume of physical resources
4. "a given state of the arts" (?)
5. "The society, though stationary, is not static." (?)
6. Competition reigns (surprised face)
7. Capital goods are infinitely durable, cannot be reproduced, used up or damaged
8. Capital goods are owned, but cannot be bought or sold
9. No lending or borrowing
10. "The only exchange is of services for money or money for services or services for services"
11. prices can change freely
12. all money is fiat (dollars)
13. There are 1000$
1. Constant population (the beings are either immortal or represent a lineage) (??!!?)
2. given tastes
3. fixed volume of physical resources
4. "a given state of the arts" (?)
5. "The society, though stationary, is not static." (?)
6. Competition reigns (surprised face)
7. Capital goods are infinitely durable, cannot be reproduced, used up or damaged
8. Capital goods are owned, but cannot be bought or sold
9. No lending or borrowing
10. "The only exchange is of services for money or money for services or services for services"
11. prices can change freely
12. all money is fiat (dollars)
13. There are 1000$
4/ Part 2: "Initial equilibrium position"
Our society has somehow reached some sort of "equilibrium".
We start with ""why have money?"
Basically to pay for stuff or save, and then he decides that on average people will "hold" is 1/10 of a years income.
Our society has somehow reached some sort of "equilibrium".
We start with ""why have money?"
Basically to pay for stuff or save, and then he decides that on average people will "hold" is 1/10 of a years income.
5/ Part 3: "Effect of Once-and-for-all change in the nominal quantity of money"
A helicopter drops 1000$ on the society (for real it says that)
Everyone thinks this is a freak one-off event
By yet another freak accident, everyone gets exactly the amount they had before, effectively doubling their money.
He now assumes they will all spend it
"The assumption that he was in a stable equilibrium position before means that he will now want to raise his consumption and reduce his cash balances until they are back at the former level" (this guy is a trip)
They can only trade with each other. So when one spends another gains (which tbh should cause that person to need to spend more which would cause someone else to get more and they'll all just go nuts in some messed up infinite loop?)
Basically he just draws the conclusion that "obviously" prices will double.
6/ Part 3: Cont: "Effect of Once-and-for-all change in the nominal quantity of money"
We will now assume what each person got is random.
ROFL they will all spend what they got and return to their happy equilibrium (Don't ask me I'm just reading)
Prices double
(for real I don't know)
Everyone wants to spend all their extra money, but some people picked up less than what they had before and since prices doubled they now have less money than before.
The rich will spend more and work less, the poor will spend less and work more.🤷♀️
We will now assume what each person got is random.
ROFL they will all spend what they got and return to their happy equilibrium (Don't ask me I'm just reading)
Prices double
(for real I don't know)
Everyone wants to spend all their extra money, but some people picked up less than what they had before and since prices doubled they now have less money than before.
The rich will spend more and work less, the poor will spend less and work more.🤷♀️
7/ Part 4: "Basic Principles Illustrated"
He seems to think that this was a useful exercise proving that the value of the money in the world is static or something. This is a very silly section. So 2000$ now is the same as 1000$ before because everyone has a drive towards their equilibrium of cash. Poor folks just like being poor.
He seems to think that this was a useful exercise proving that the value of the money in the world is static or something. This is a very silly section. So 2000$ now is the same as 1000$ before because everyone has a drive towards their equilibrium of cash. Poor folks just like being poor.
8/ Part 5: "Effect of a continuous increase in quantity of money"
New scenario: "Money rains down from heaven at a rate that produces a steady increase in the quantity of money, let us say, of 10% per year."
And of course (?????) prices increase by the same amount annually.
This part is hard to understand, but I think he's saying that you will spend more because you know your money will be worth less over time?
Dear lord, if our main character got half his money destroyed he would just consume less to fill up his bank account to the equilibrium level again. He'll be happy to do it.
I don't know, something about the fact that he knows the helicopter will come makes him use 1 dollar and 10 cent, apparently this is so obvious we'd all do it, but I don't even understand the text.
Prices increase by 10% per year and he's decreasing his holdings to 1/12th of his yearly income... For reasons?
Oh wait I missed a bit: prices rise because people think prices will rise?
bbl
chinmay 🐋