Topic: Money

Quotes

Armen Alchian, “Why Money?” (1977)

• It is a general prevalence of double coincidence of information rather than wants by both parties that would avoid the use of money.#

Axel Leijonhufvud, “Whatever Happened to Keynesian Economics?” (1986)

• Under quantity control, the monetary authorities fix the quantity of money and allow the markets to determine the corresponding equilibrium level of nominal prices. Under convertibility, the government fixes the nominal price of gold (for example) and leaves it to the banks and their customers to determine the corresponding equilibrium stocks of money and other liquid assets. From the standpoint of the government, the first is a “quantity-fixing, price-taking” and the second a “price-fixing, quantity-taking” strategy.#

Barry Eichengreen, Golden Fetters (1992)

• The credibility of the authorities’ commitment to gold proved more elusive than Hawtrey supposed. Britain, for example, was unable to resist a speculative crisis in 1931 despite restoring sterling’s prewar parity. France, in contrast, remained securely on gold even though it stabilized the franc at a depreciated level. Restoring the prewar parity was neither necessary not sufficient for the “preservation of public good faith”. The credibility the public vested in the official commitment to gold depended rather on political priorities and the political institutions adopted to facilitate their pursuit. Of the determinants of those priorities, the very experience with inflation and stabilization in the 1920s was surely the most important. Where stabilization was successfully achieved only at the conclusion of a contentious and politically exhausting fiscal war of attrition, political leaders and electors were willing to go to extraordinary lengths to prevent a replay of the conflict. They sought to retain the gold standard, the symbol of fiscal compromise, at any cost. Ironically, it was precisely those countries that returned to gold at devalued parity following a long, politically disruptive inflation that displayed the firmest resolve to defend the gold standard when it again came under attack.#
• In countries where the elasticity of bank money was lower, adjustment [to balance of payments equilibrium] might still require substantial gold movements. In the United States, for instance, where the currency supply was notoriously inelastic, large gold inflows and outflows regularly occurred not just over the cycle but across the seasons.#

Benjamin Anderson, The Value of Money (1917)

• The development of money, while it adds to the saleability of the money-commodity, also adds to the saleability of other goods.#Quoted in Randall Kroszner, “On The Microfoundations of Money” (1990)
• The money economy has made barter easier rather than harder. . . . The feature of the money economy which has thus refined and improved barter is the standard of value (common measure of value) function of money. This standard of value function, be it noted, makes no call on money itself, necessarily. The medium of exchange and ‘bearer of options’ functions of money are the chief sources of such addition to the value of money as come from money use. But the fact that goods have money-prices, which can be compared with one another quite easily, in objective terms, makes barter, and barter equivalents, a highly convenient and very important feature of the most developed commercial system.#Quoted in Randall Kroszner, “On The Microfoundations of Money” (1990)

Benjamin Klein, “The Competitive Supply of Money” (1974)

• If confidence for fiduciary [fiat] money costs as much to produce as the commodity, the social savings [from replacing commodity-money backed liabilities with fiat money] would be zero.#Quoted in George Selgin, The Theory of Free Banking (1988)

Carl Menger, “On The Origin of Money” (1892)

• it is an error in economics, as prevalent as it is patent, that all commodities, at a definite point of time and in a given market, may be assumed to stand to each other in a definite relation of exchange, in other words, may be mutually exchanged in definite quantities at will. . . . The most cursory observation of market phenomena teaches us that it does not lie within our power, when we have bought an article for a certain price, to sell it again forthwith at the same price.#

Charles Franklin Dunbar, “The National Banking System” (1897)

• Experience has shown that we can rely upon no principle or policy as a safeguard against the caprice or the temptation, which at intervals must surely beset any legislative body having control of the direct issue of paper.#
• The banking history of the United States has been for the most part a succession of catastrophic changes rather than a process of steady growth.#
• That a currency may be responsive to demand, it is necessary that the forces, tending respectively to expand or to restrict, should be forces at work in the daily business of the bank, where it is brought into contact with the community by the stream of loans, deposits, and payments.#

Clark Warburton, “Co-ordination of Monetary, Bank Supervisory, and Loan Agencies of the Federal Government” (1950)

• Flexibility (elasticity) in currency—not in total bank credit—was the aim of the founders of the Federal Reserve System, and this flexibility was desired as a means of producing stability in total bank credit by providing stability in bank reserves.#Quoted in Milton Friedman, A Monetary History of the United States, 1867-1960 (1963)

David Laidler, “Georg Simmel’s Philosophy of Money: A Review Article for Economists” (1980)

• If we take the view that money is best understood “as if” it were one among a complex of social institutions, then we would expect the consequences of anticipated inflation to be not just an increase in the consumption of shoe leather, but an adaptation of the social order away from money and markets towards a greater reliance on one form or another of command organization. That would inevitably involve an increase in the dependence of individuals upon other “specific personalities,” and hence a diminution of freedom.#

F.A. Hayek, Monetary Theory and the Trade Cycle (1933)

• The rate of interest at which, in an expanding economy, the amount of new money entering circulation is just sufficient to keep the price-level stable, is always lower than the rate which would keep the amount of available loan-capital equal to the amount simultaneously saved by the public: and thus, despite the stability of the price-level, it makes possible a development leading away from the equilibrium position.#Quoted in Lawrence White, The Clash of Economic Ideas (2012)

F.A. Hayek, Monetary Nationalism and International Stability (1937)

• The effects of keeping the quantity of money in a region or country constant when under an international monetary system it would decrease are essentially inflationary, while to keep it constant if under an international system it would increase at the expense of other countries would have effects similar to an absolute deflation.#
• Without stability of exchange rates it is vain to hope for any reduction of trade barriers.#

F.A. Hayek, The Road to Serfdom (1945)

• Strictly speaking, there is no “economic motive” but only economic factors conditioning our striving for other ends. . . . If we strive for money, it is because it offers us the widest choice in enjoying the fruits of our efforts. Because in modern society it is through the limitation of our money incomes that we are made to feel the restrictions which our relative poverty still imposes upon us, many have come to hate money as the symbol of these restrictions. But this is to mistake for the cause the medium through which a force makes itself felt. It would be much truer to say that money is one of the greatest instruments of freedom ever invented by man.#

F.A. Hayek, Liberalism (1973)

• The endeavours to prolong the prosperity and to secure full employment by means of the expansion of money and credit, in the end created a worldwide inflationary development to which employment so adjusted itself that inflation could not be discontinued without producing extensive unemployment.#

F.A. Hayek, Denationalisation of Money (1976)

• As regards Professor Friedman’s proposal of a legal limit on the rate at which a monopolistic issuer of money was to be allowed to increase the quantity in circulation, I can only say that I would not like to see what would happen if under such a provision it ever became known that the amount of cash in circulation was approaching the upper limit and that therefore a need for increased liquidity could not be met.#Quoted in Lawrence White, Competition and Currency (1989)

F.A. Hayek, “A Free-Market Monetary System” (1977)

• The monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money.#

Georg Simmel, The Philosophy of Money (1907)

• If the profit from debasement of the coinage had not been contingent upon the size of the area, the chaos of coins in Germany would have been much worse, because of the terrible frivolity with which the privilege of coinage was granted to every monastery and every small town.#
• Just as my thoughts must take the form of a universally understood language so that I can attain my practical ends in this roundabout way, so must my activities and possessions take the form of money value in order to serve my more remote purposes.#Quoted in Steven Horwitz, “Monetary Exchange as an Extra-Linguistic Social Communication Process” (1992)
• Metal money stands on an equal basis with paper money as a result of the growing psychological indifference to its value as metal.#
• The functional value of money exceeds its value as a substance the more extensive and diversified are the services it performs and the more rapidly it circulates.#
• Although, in principle, the exchange function of money could be accomplished by mere token money, no human power could provide a sufficient guarantee against possible misuse. The functions of exchange and reckoning obviously depend upon a limitation of the quantity of money, upon its ‘scarcity’, as the expression goes.#
• The lending of money divides its activity into two parts and increases enormously the product of its economic energy. But the intellectual abstraction on which this process rests can attain its results only in a firmly established and civilized social order, in which it is possible to lend money with relative security and to base economic activity on this partial function of money.#
• If we suppose that the usefulness of money is the reason for its acceptance, its material value may be regarded as a pledge for that usefulness.#
• The growing certainty that coin will be accepted at its face value makes possible a diminution in the intrinsic value of the metal content without altering the total value.#
• The fixed residences of princes, which require centralization, are possible only with the emergence of money taxes, for taxes paid in kind cannot be transported and they are appropriate only to a wandering court which consumes them as it goes. It is in the same spirit that modern tax policy tends to leave taxes on real property to local authorities, and to reserve income tax for the state. By focusing the tax demands of the central power upon the money income of the individual, it grasps precisely the kind of property with which it has the closest relation. #
• Credit and cash do not simply replace each other, but that each produces a more lively activity of the other#
• The more precise the form in which money renders its services, the smaller is the quantity of money required and the more easily can its place be taken by a more rapid circulation.#
• Money is perhaps the clearest expression and demonstration of the fact that man is a ‘tool-making’ animal, which, however, is itself connected with the fact that man is a ‘purposive’ animal.#
• Because the wealth of the Jews consisted of money, they became a particularly sought-after and profitable object of exploitation, for no other possessions can be expropriated as easily, simply and without loss. . . . The same specific character of money as lacking in any specific determinacy which made it the most suitable and the least refusable source of income for the Jews in their position as pariahs, also made it the most convenient and direct incentive for exploiting them.#
• Money that has become an ultimate purpose does not tolerate the co-ordinated definite values even of those goods that are of a non-economic nature. Money is not content with being just another final purpose of life alongside wisdom and art, personal significance and strength, beauty and love; but in so far as money does adopt this position it gains the power to reduce the other purposes to the level of means. . . . To insist on keeping them as if they were incomparable values must appear stupid as long as one can get them back for money at any time, and above all as long as the precise expressibility of their monetary value has robbed them of their existing individual significance and their significance outside the purely indifferent economy.#
• Money, as an intermediate link between man and thing, enables man to have, as it were, an abstract existence, a freedom from direct concern with things and from a direct relationship to them, without which our inner nature would not have the same chances of development. If modern man can, under favourable circumstances, secure an island of subjectivity, a secret, closed-off sphere of privacy—not in the social but in a deeper metaphysical sense—for his most personal existence, which to some extent compensates for the religious style of life of former times, then this is due to the fact that money relieves us to an ever-increasing extent of direct contact with things, while at the same time making it infinitely easier for us to dominate them and select from them what we require.#

George Selgin, The Theory of Free Banking (1988)

• Offsetting price changes due to changes in productive efficiency would not preserve monetary equilibrium.#
• It is perfectly possible that fiduciary media may arise from loans or investments involving transfer credit only [as opposed to created credit]. The expansion of bank liabilities may represent a response to greater abstinence by money holders and, hence, to a fall in the “natural” rate of interest.#
• A general increase in the demand for inside money is equivalent to a general decline in the rate of turnover of inside money.#
• Relative inflation does not reveal itself in a rising consumer price index, although it does result in an upward movement in the prices of factors of production.#
• Competition in the supply of base money is no less desirable than competition in the supply of bank liabilities, including bank notes, redeemable in base money.#
• Bank borrowers generally acquire money balances only to spend them immediately on goods and services. The demand for money, properly understood, refers to the desire to hold money as part of a financial portfolio. A bank borrower contributes no more to the demand for money than a ticket agent contributes to the demand for plays and concerts; only holders of money or actual occupants of concert seats contribute to demand.#
• The aggregate demand to hold balances of inside money is a reflection of the public’s willingness to supply loanable funds through the banks whose liabilities are held. To hold inside money is to engage in voluntary saving. As George Clayton notes, whoever elects to hold bank liabilities received in exchange for goods or services “is abstaining from the consumption of goods and services to which he is entitled. Such saving by holding money embraces not merely the hoarding of money for fairly long periods by particular individuals but also the collective effect of the holding of money for quite short periods by a succession of individuals.”#
• When the expansion or contraction of bank liabilities proceeds in such a way as to be at all times in agreement with changing demands for inside money, the quantity of real capital funds supplied to borrowers by the banks is equal to the quantity voluntarily offered to the banks by the public. Under these conditions, banks are simply intermediaries of loanable funds. Thus a direct connection exists between the conditions for equilibrium in the market for balances of inside money and those for equilibrium in the market for loanable funds. #
• Many past and present American monetarists would probably agree with the theoretical views [that money supply should counteract changes in velocity]. Their preference for other policies—for price-level stabilization or a fixed money growth rate rule—stems, not from any theoretical disagreement, but from their view that these policies provide the best achievable approximation to the ideal of a truly demand-elastic money supply.#
• Precisely what Mises means by commodity credit is not clear. If the phrase refers to bank issues backed 100 percent by reserves of commodity money (which would make it the complement of what Mises calls “fiduciary” or “circulation” credit) then it does not refer to a form of credit at all. A bank holding 100 percent reserves against all of its liabilities is not a credit-granting institution, but a warehouse.#

George Selgin, “Bank Lending ‘Manias’ in Theory and History” (1992)

• Historical banking booms have typically involved falling rather than rising rates of interest until their final stages. This means that banking booms have usually been driven, not by changes in the demand for credit, but by rightward shifts in bank credit supply schedules.#

George Selgin, “The Rise and Fall of the Gold Standard in the United States” (2012)

• [A] gold standard can be genuine without being “pure,” that is, despite the presence of paper money (or spendable bank deposits) backed by assets apart from gold itself.#
• Hume’s price-specie-flow mechanism will operate only if nations’ price levels differ enough to move exchange rates beyond the so-called “gold export” points, reflecting transport and other costs associated with importing goods from abroad. In practice, however, disequilibrium seldom developed to the point of triggering it under the classical gold standard. Instead, so long as gold convertibility commitments remained credible, speculators had reason to buy currencies as they depreciated in the foreign exchange market, and to sell them as they appreciated. Capital movements thus served to keep exchange rates from varying beyond the gold points, making actual gold transfers largely unnecessary.#

George Selgin, “Synthetic Commodity Money” (2013)

• Monopolistic provision is thus a necessary condition for fiat money to command a positive value in equilibrium, and thereby potentially serve as the foundation for macroeconomic stability. But monopolistic provision is not sufficient, for a profit-maximizing monopoly supplier of fiat currency would also find it profitable to expand the nominal stock of such money at a rate far in excess of that required to preserve its purchasing power. For this reason, the scarcity of fiat money must be contrived, not merely by monopolizing its production, but by having the monopoly producer supply a less-than profit-maximizing quantity.#
• The distinction between discretionary and rule-based fiat-money regime is largely hypothetical, and has been so precisely because the existence of fiat money presupposes that of a monetary authority that, being materially capable of actively managing its quantity, is bound to be tempted to make use of that capacity.#

Gerald O'Driscoll, The Economics of Time and Ignorance (1985)

• The marginal utility of money depends on its exchange value, the reverse of the ordinary relationship for goods.#

Giulio Gallarotti, The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880-1914 (1995)

• Not only can we say that the Bank [of England] did not manage the international monetary system, but it is questionable whether it even managed the British monetary system.#Quoted in George Selgin, “The Rise and Fall of the Gold Standard in the United States” (2012)

Jacob Frenkel, “Purchasing Power Parity: Doctrinal Perspective and Evidence from the 1920s” (1978)

• Those who advocate the use of traded good prices [in bringing about purchasing power parity] emphasize the role of commodity arbitrage as the mechanism which governs the relationship between prices and the exchange rate, while those who advocate the broader price index emphasize the role of equilibrium in asset markets as a major factor governing the relationship between prices and the exchange rate. #
• This pattern of ‘causality’ [that exchange rates granger-cause prices, rather than vice versa] is consistent with the hypothesis that speeds of adjustment in asset markets exceed those in the commodity markets. Thus, to the extent that exchange rates and commodity prices are influenced by common factors, the differential speed of adjustment may yield the observed pattern of ‘causality’.#
• The relationship embodied in the traditional formulations of [purchasing power parity] should not be viewed as a theory of the determination of exchange rates. Rather, it describes an equilibrium relationship between two endogenous variables. As such, the PPP relationship should be viewed as a short-cut rather than a substitute for a complete model of the determination of prices and exchange rates. #

Jacob Frenkel, “Flexible Exchange Rates, Prices, and the Role of “News”: Lessons from the 1970s” (1981)

• The reversal of the relation between the U.S. interest and the external value of the dollar which has taken place since mid 1979, indicates that currently the prime cause for fluctuations in U.S. interest rates is not variations in inflationary expectations but rather variations in the real rate of interest which are occasioned by large U.S. budget deficit.#
• To some extent the overall poor performance of the purchasing power parities doctrine is specific to the 1970s. During the floating rates period of the 1920s, the doctrine seems to have been much more reliable.#

James Buchanan, Public Principles of Public Debt: A Defense and Restatement (1958)

• Instead of serving as a substitute for money creation, debt issue should, fundamentally, be viewed as its opposite. The sale of government securities bearing positive interest returns is necessary only if some reduction in the purchasing power of private individuals and institutions is needed and if the process of sale accomplishes this reduction.#

Jeffrey Frankel, “Empirical Research on Nominal Exchange Rates” (1995)

• Positive U.S. money surprises [in the early 1980s] were associated with appreciations of the dollar at the same time that they were associated with increases in interest rates, leading the authors to conclude that: (1) during this period the Federal Reserve was expected to correct any deviations of the money supply from its target path; and (2) expectations of monetary contraction tend to raise real interest rates and cause the currency to appreciate . . . [But] the money announcements lost much of their impact later in the 1980s, after the Fed began to put less emphasis on its M1 targets.#
• No macroeconomic variable other than the exchange rate demonstrates regime-varying volatility.#
• Expectations can be described as stabilizing when the effect of an appreciation today – relative to some long-run path or mean – is to induce market participants to forecast depreciation in the future. . . . Expectations can be described as destabilizing, on the other hand, when the effect of an appreciation is to induce market participants to forecast more appreciation in the future.#

Jeffrey Hummel, “Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner” (2011)

• A bank panic that causes a drastic decrease in such measures of money as M2 and M1 stems from an increased demand for currency and reserves, the two forms of base money. In this case, a fall in the broader money stock and a fall in the velocity of the monetary base are exactly the same thing, and they become alternative ways of describing what happened during the Great Depression. . . . Thus, whether we label a particular decline in aggregate demand a monetary shock or a velocity shock can depend on how broadly or narrowly we define the money stock. #

John Hicks, The Crisis in Keynesian Economics (1974)

• Liquidity is not a property of a single choice; it is a matter of a sequence of choices, a related sequence. It is concerned with the passage from the known to the unknown—with the knowledge that if we wait we can have more knowledge.#Quoted in Gerald O'Driscoll, The Economics of Time and Ignorance (1985)

Joseph Ostroy, “The Transactions Role of Money” (1990)

• The transactions role of money cannot be separated from its function as a store of value. If after the sale of one commodity for money, but before the purchase of another commodity with it, money perished, it could hardly serve as a medium separating purchase from sale. #
• In an exchange economy, putting money, even real money balances, into the utility function is an unreliable choice-theoretic short cut for modelling the transactions role of money.#

Kevin Dowd, The Experience of Free Banking (1992)

• Price-level changes depended primarily on the monetary standard . . . rather than on the regulatory regime under which the banking system operated#

Kevin Dowd, “Currency Competition, Network Externalities, and Switching Costs” (1993)

• It seems to be a well-established ‘stylised fact’ that a currency has to perform very poorly indeed – to be more precise, it must inflate very rapidly – to induce its widespread abandonment in favour of some other currency. A related ‘stylised fact’ is that though it is reduced, the demand for a currency is often still quite substantial even when it hyperinflates. . . . If rapid inflations produce only limited substitution towards other currencies, the monetary authorities can ‘get away’ with a great deal of monetary ‘misbehaviour’ before the loss of market share to competing currencies poses any significant problem.#
• Traditional welfare analyses of inflation might be misplaced because they typically use a representative agent approach that ignores the network externalities involved in the use of a particular currency. . . . [T]raditional welfare triangles of the economic costs of inflation then give way to welfare rectangles that could be much larger, and we might at last be able to explain why the ‘established’ welfare losses of inflation are so low and yet most monetary economists continue to treat inflation as a serious problem. Network externalities might be the key to the economic costs of inflation.#

L Randall Wray, “The Credit Money, State Money, and Endogenous Money Approaches: A Survey and Attempted Integration” (2004)

• It has long been speculated that money predates writing because the earliest examples of writing appear to be records of monetary debts—meaning that the closely intertwined chronology of the development of writing and money will make it impossible to find a written history.#

Lawrence White, Competition and Currency (1989)

• The rules-discretion conundrum presupposes the existence of a monetary authority whose behavior must be either dangerously inflexible or dangerously flexible. An evident means of resolving this dilemma is to cultivate a monetary system not under the rule of a central authority.#
• Bank note producers did not gain a foothold in the currency industry until they could produce trustworthy currency cheaply enough in competition with specie.#
• The question of a natural monopoly in the production of money is distinct from the question of an inherent market tendency toward convergence on a single monetary standard. . . . That all coins are manufactured of like metals in like weights, and that all notes and deposits are redeemable for standard coin, no more indicates a natural monopoly in money production than that the standardization of brick composition and size indicates a natural monopoly in brick production.#
• From a subjectivist perspective, it is clear that the defining set of attributes of money is to be sought in the role that money plays (and alone plays) in the plans of individual economic agents. This immediately rules out approaches that focus on the statistical behavior of an aggregate as the essential criterion for deciding whether components of that aggregate ought to be considered money. Moneyness is a property conferred an item by individuals’ plans, not by the econometric performance of an aggregate containing that item relative to an aggregate omitting it.#

Lawrence White, Free Banking in Britain (1995)

• The larger the share of total circulation and deposits supplied by the expanding banks, the greater will be the role of the relatively disruptive process of external drain in bringing the expansion to an end.#
• If Scottish banks did not hold Bank of England liabilities, or deposits at London banks (which in turn held Bank of England liabilities) as reserves, then the Scottish money stock was not specifically geared to the quality of Bank of England liabilities. In the long run, Scotland’s money stock was determined by the quantity of money demanded at the given purchasing power of the monetary unit. The purchasing power of the monetary unit was in turn determined by global supply and demand for gold.#
• Imports and exports of gold bullion were not necessarily analogous to imports and exports of specie under a purely metallic currency. Gold bullion has non-monetary uses, so that some imports of bullion would not naturally affect the money stock. For the Bank of England to link its issues to international bullion movements would result in its over-issuing while gold flowed in, creating a boom, and later over-contracting when gold flowed out, creating a recessionary panic.#
• Linking the volume of money to a nominal magnitude such as the nominal quantity of bills offered for discount, itself a consequence of the volume of money via the price level, left the volume of money and the price level indeterminate.#
• The type of transactions by which notes are put into circulation is irrelevant to the question of whether the stock of notes is excessive.#
• [The currency school’s] proposed rule for regulating the volume of a mixed currency would accomplish their stated aim of keeping the value of the monetary unit the same under a mixed currency as it would be under a purely metallic currency only under the supposition that the velocities of bank notes and specie were identical. #

Lawrence White, The Clash of Economic Ideas (2012)

• The quantity theory is not the right theory for analyzing endogenous changes in M and P brought about by a shift in the world supply or demand curves for silver or gold.#
• The quantity theory of money assumes a vertical supply curve for money units, whereas the supply of silver is upward sloping.#

Leland Yeager, “The Significance of Monetary Disequilibrium” (1986)

• Any particular output thus constitutes demand, either at once or eventually, for other (noncompeting) outputs. Since supply constitutes demand in that sense, any apparent problem of general deficiency of demand traces to impediments to exchange, which discourage producing goods to be exchanged. #
• Price changes tend to correct or forestall the monetary disequilibrium but do not and cannot occur promptly and completely enough to absorb the entire impact of the monetary change and so avoid quantity changes.#
• One cannot consistently both suppose that the price system is a communication mechanism—a device for mobilizing and coordinating knowledge dispersed in millions of separate minds—and also suppose that people already have the knowledge that the system is working to convey.#
• One of the market system’s virtues is that it does not require or impose collective decisions. The dispersion of knowledge and the fact that certain kinds of knowledge can be used effectively only through decentralized decisions coordinated through markets and prices—rather than coordinated in some magically direct way—is one of the hard facts of reality. It forms part of the reason why monetary disturbances can be so pervasively disruptive: they overtax the knowledge-mobilizing and signaling processes of the market.#
• The very fact that no one sees himself as having any appreciable influence over the value of the money unit helps explain the sluggishness of the pressures working to correct a disequilibrium value.#

Ludwig Lachmann, Capital and Its Structure (1956)

• Money is largely, so to speak, a capital good ‘by proxy’. It symbolizes, at the initiation of the plan, those current services we shall need later on but which, owing to their ‘current’ character, we cannot store until we need them. We store the money instead.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)

Ludwig Von Mises, Human Action (1949)

• The money equivalents as used in acting and in economic calculation are money prices, i.e., exchange ratios between money and other goods and services. The prices are not measured in money; they consist in money. Prices are either prices of the past or expected prices of the future. A price is necessarily a historical fact either of the past of the future. There is nothing in prices which permits one to liken them to the measurement of physical and chemical phenomena.#
• Issuing money-certificates is a ruinous business if not connected with issuing fiduciary media.#
• A slight although continuous pressure on the gross market rate of interest as originating from a continuous increase in the quantity of gold, and also from a slight increase in the quantity of fiduciary media, which is not overdone and intensified by purposeful easy money policy, can be counterpoised by the forces of readjustment and accommodation inherent in the market economy. The adaptability of business not purposefully sabotaged by forces extraneous to the market is powerful enough to offset the effects which such slight disturbances of the loan market can possibly bring about.#

Ludwig Von Mises, The Theory of Money and Credit (1953)

• The development of the clearing system and of fiduciary media has at least kept pace with the potential increase of the demand for money brought about by the extension of the money economy, so that the tremendous increase in the exchange value of money, which otherwise would have occurred as a consequence of the extension of the use of money, has been completely avoided.#Quoted in Lawrence White, The Theory of Monetary Institutions (1999)
• It is a display of considerable naiveté to recommend openly a monetary system that can work only if its essential features are ignored by the public.#Quoted in Gerald O'Driscoll, The Economics of Time and Ignorance (1985)

Mark Taylor, “The Economics of Exchange Rates” (1995)

• A credible target zone is stabilizing in the sense that the range of variation in the exchange rate will be smaller, for any given range of variation in the fundamentals, than under a free float.#

Max Weber, The Protestant Ethic and the Spirit of Capitalism (1905)

• The universal reign of absolute unscrupulousness in the pursuit of selfish interests by the making of money has been a specific characteristic of precisely those countries whose bourgeois-capitalistic development, measured according to Occidental standards, has remained backward.#

Milton Friedman, A Program for Monetary Stability (1960)

• So long as the fiduciary [fiat] currency has a market value greater than its cost of production… any individual issuer has an incentive to issue additional amounts. A fiduciary currency would thus probably tend through increased issue to degenerate into a commodity currency – into a literal paper standard – there being no stable equilibrium price level short of that at which the money value of currency is no greater than that of the paper it contains.#Quoted in George Selgin, “Synthetic Commodity Money” (2013)

Milton Friedman, A Monetary History of the United States, 1867-1960 (1963)

• The distinction [between demand deposits and time deposits] became of major importance to banks (and so reliable data became available on a continuous basis for the two categories separately) only after 1914, when the Federal Reserve Act introduced differential requirements for demand and time deposits.#
• Though national bank notes were nominally liabilities of the banks that issued them, in effect they were indirect liabilities of the federal government thanks to both the required government bond security and the conditions for their redemption.#
• The existence of two kinds of money would presumably increase, other things being the same, the money balances people would want to hold, i.e., would tend to make the velocity of the combined money total lower than if all elements of the money stock were perfect substitutes. #
• The sharp rise in the stock of money from 1868 to 1872 was primarily a consequence of the spread of deposit banking#
• Silver agitation had its major economic impact through this effect on expectations rather than through the direct contribution that silver purchases made to the expansion of the money stock.#
• The Federal Reserve System therefore began operations with no effective legislative criterion for determining the total stock of money.#
• For every dollar created by the government, several dollars can be created by the banking system, since only part of the extra dollars of high-powered money go into circulation, and part go into bank reserves. In effect, as it were, the government engages in a sharing arrangement with the banking system whereby the two divide between them the amount the public is willing to lend at zero interest rate (or in the case of deposits bearing interest, at an interest rate below that on other types of loans) and also the proceeds of the implicit tax on money balances involved in a price rise. The sharing formula, Le., the number of dollars the banking system can create per dollar created by the government, depends on the banks’ reserve ratio (in terms of high-powered money) and the public’s deposit-currency ratio. The public’s shift to currency reduces the share of the banking system and increases the share of the government, which thereby acquires resources with less of an increase in the money stock.#
• In retrospect, it probably would have been better either to have permitted the gold-standard rules to operate fully, once something like an international gold standard was adopted, or to have replaced them completely by an alternative criterion. The compromise of disregarding minor movements but reacting to major ones may have promoted stability during the twenties but, if so, only at the cost of great instability at either end of the decade. The result was that the policy, as carried out, achieved neither the internal objective of domestic stability nor· the external objective of a stable international gold standard.#
• The difficulties giving rise to financial panics in earlier periods resulted much less from the absence of elasticity in the total stock of money than from the absence of interconvertibility of deposits and currency.#
• Perhaps the best description of the role of gold in the United States since 1934 is that, rather than being the basis of the monetary system, it is a commodity whose price is officially supported in the same way as the price of wheat, for example, has been under various agricultural programs. The major differences are that the support price for agricultural products is paid only to domestic producers, the gold-support price to foreign as well as domestic; the agricultural products accumulated are freely sold at the support prices to anyone, the gold only to certain foreign purchasers and not to any domestic ones. In consequence, the gold program has set a floor under the world price of gold in terms of dollars.#
• The tax on money balances implicit in inflationary money creation was a much more productive tax in World War II than in World War I, because of the lower velocity prevailing during World War II than during World War I (Table 24, line 3). Money balances averaged 45 per cent of one year’s national income in 1914-20, 69 per cent in 1939-48. A 1 per cent tax on money balances—if we ignore the reflex influence of the tax on the amount of money balances held—therefore yielded 0.45 per cent of a year’s national income in World War I, 0.69 per cent, or about 1 times as much, in World War II.#
• Failure has marked every attempt we know of to find a systematic relation between the quantity of money demanded in the United States and either the current rate of change in commodity prices or a weighted average of the past rates of change in prices, taken as an estimate of the rate of change expected to prevail in the future. Yet Cagan has found a close relation for other countries for periods marked by substantial price movements. The most plausible reason for the difference, in our view, is the small size of price changes in the United States except in wartime periods. . . . The looked-for effect may have been too small in magnitude to be revealed by such blunt tools as multiple correlation analysis and the simple expectational model involved in taking a weighted average of past occurrences as an indicator of the future.#

Milton Friedman, The Optimum Quantity of Money (1968)

• Real cash balances are at least in part a factor of production. To take a trivial example, a retailer can economize on his average cash balances by hiring an errand boy to go to the bank on the corner to get change for large bills tendered by customers. Then it costs ten cents per dollar per year to hold an extra dollar of cash, there will be a greater incentive to hire that errand boy, that is, to substitute other productive resources for cash. This will mean both a reduction in the real flow of services from the given productive resources and a change in the structure of production, since different productive activities may differ in cash-intensity, just as they differ in labor- or land-intensity.#

Milton Friedman, “Monetary Policy: Theory and Practice” (1982)

• Were it feasible for the Federal Reserve to adopt and achieve a target interest rate, it is inconceivable that the prime rate would ever have risen to over 20 percent. In principle, given sufficient knowledge about market behavior, it is possible to use money market instruments to achieve monetary aggregate targets. However, experience has demonstrated that monetary authorities are in practice unable to achieve in this way the degree of control over monetary aggregates that seems hypothetically possible. #
• Short-term swings in monetary growth do no great harm if they are not only actually reversed but also widely expected to be reversed.#
• The conduct of monetary policy does not require that the Federal Reserve System have any member banks. . . . The latter requires simply that the monetary authority have a monopoly on the printing press or its equivalent to control the total amount of high-powered or base money. Control over the base exerts about as much influence on nonmember commercial banks as on member banks, on thrift institutions as on commercial banks, and so on in unending circle.#

Nigel Dodd, The Social Life of Money (2014)

• The growth of a market in children’s life insurance was shaped by changes in the way that children themselves were valued: these began as a means of giving the “sacred” child a proper burial, later becoming a means of investing in their future education. Neither life not children’s insurance was a straightforward case of commodification or an instance of the encroachment of market values into terrain whose moral fabric they immediately destroyed.#

Perry Mehrling, “What Is Monetary Economics About?” (2000)

• Even though in principle the gold standard central banker stood ready to buy and sell gold at a fixed price, swelling or depleting his gold reserve depending on the balance of demand and supply, in practice he operated by manipulating the discount rate in order to obviate the need for substantial gold flows.#
• Although the exchange rate and the price level are both prices of money, they are very different kinds of prices. Central banks could and did try to fix exchange rates by standing ready to buy and sell gold, but never could they or did they try to fix the price level by standing reading to buy and sell the relevant basket of commodities. #

Perry Mehrling, “The Inherent Hierarchy of Money” (2012)

• What counts as money and what counts as credit depends on your point of view, which is to say that it depends on where in the hierarchy you are standing. . . . Best therefore not to reify the concepts of money and credit, and to rest instead with the more general idea that the system is hierarchical in character.#
• From the point of view of the [monetary] system as a whole, every liability is someone else’s asset. That means that the entire pyramid would disappear if we consolidated balance sheets, as most standard aggregative macro models do, to one extent or another. . . . By contrast, . . . important macroeconomic variables, such as interest rates and GDP, are affected both by the gross quantity of inside credit and also by who is issuing it and who is holding it, which is to say by the precise location of that inside credit within the hierarchy of money and credit.#
• In the expansion phase, the qualitative difference between credit and money becomes attenuated; credit expands while the hierarchy flattens. In the contraction phase, the distinction between more money-like and less money-like forms of credit is re-established; credit contracts while the hierarchy steepens.#
• Credit is a promise to pay money, and relaxation today comes at the price of a greater constraint some time in the future. The important point is that the system involves at all times a balance between discipline and elasticity, with sometimes one and sometimes the other aspect serving as the more dominant feature. #
• The prices in the simple hierarchy are three: the exchange rate (the price of money in terms of gold), par (the price of deposits in terms of currency), and the rate of interest (the price of securities in terms of deposits or currency, assuming par). These prices are the quantitative link between layers of qualitatively differentiated assets.#
• The whole point of deposit par is that it is a price that does not change, and under a fixed exchange rate system the same is true internationally. The banking system thus is especially vulnerable whenever the hierarchy steepens because it is bound to defend a fixed price between layers of an increasingly differentiated hierarchy.#

Peter Boettke, “The New Comparative Political Economy” (2005)

• Privatization without price liberalization, or price liberalization without tight monetary policy, or deregulation without fiscal restraint, would all result in outcomes even less desirable than the current system.#

Peter Boettke, “Introduction to Handbook on Contemporary Austrian Economics” (2010)

• Since money is the link for almost all transactions in a modern economy, monetary distortions affect those transactions. The goal of monetary policy, therefore, should be to minimize these monetary distortions, precisely because money is nonneutral.#

Randall Kroszner, “On The Microfoundations of Money” (1990)

• The desire to isolate the essence of money led to an excessive emphasis on cleanly demarcating it from other goods, even though this impulse ran contrary to the role of relative marketability in the theory of the origin of money. Money is then distinguished from other commodities by being not simply the most marketable good but my being ‘absolutely’ marketable. The special property of ‘perfect’ saleability comes to define money itself. The initial criterion that identified money’s saleability relative to other goods gave way to a strict zero-one distinction that has hindered the investigation of the evolution processes that could result in the separation of the media of exchange from the accounting unit. The achievement of perfect saleability thus becomes the final stage in monetary evolution. Categorizing money in this way obscures the very important observation that even in a monetary economy some items are easier to ‘turn over’ than others (that is, goods may be placed on a continuum from least to most saleable).#
• Drawing on this analogy with Mises’ account, we might characterize this explanation of the further evolution towards separation and refined barter as a ‘progression theorem’. Thus, a decentralized decision-making process can explain, first, the emergence of a ‘money’ combining both the unit of account and medium of exchange to overcome the inconveniences of ‘crude’ barter, and, second, the separation of functions as ‘money’ enhances the saleability of other goods.#

Richard Timberlake, “The Significance of Unaccounted Currencies” (1981)

• If [unaccounted currencies] were more than trivial in quantitative terms, it would help to explain the decline in the measured velocity of money during the nineteenth century. For if the stock of accounted money were supplemented by an unperceived quantum of unaccounted money, measured velocity – money income divided by the stock of accounted money – would be higher than the true velocity of money. As unaccounted money gradually was replaced by accounted money, the measured velocity of circulation would fall.#
• The general and rapid rise in prices in 1862 due to the first issue of greenbacks during the Civil War was perhaps the most acute example of government-inspired paper money inflation and suspension [in the pre-Fed U.S.]. Commodity values of most metallic coins rose sharply above their monetary values, and coins then went out of circulation, leaving the North’s economy with almost no currency denominations below $5. . . . After 1865, private coinage as well as issues of state bank notes were effectively prohibited. But government coinage of fractional currency was still inadequate until after 1880.#
• The key to an equilibrium in a laissez-faire monetary system is the understanding that private money would have to be accepted as well as issued, just as privately produced shoes or bankchecks would have to be demanded as well as supplied.#

Robert Barro, “United States Inflation and the Choice of Monetary Standard” (1982)

• Telling the Federal Reserve to select substantially different values – usually lower values – for monetary growth seems similar to urging firms and households to choose different numbers for prices, unemployment, production, and so on. As in the private sector, it is reasonable to view the Fed’s monetary decisions as emerging from a given structure of constraints and rewards.#Quoted in Lawrence White, Competition and Currency (1989)

Robert Clower, “On The Origin of Monetary Exchange” (1995)

• We know of no society historically in which “money” and “markets” did not coexist: in common parlance the term “money” has always meant objects that are routinely treated as acceptable means of payment by marketors. In the last century, money was often described by economists as a “veil,” because it was thought to mask the “true” nature of trade, which was thought “really” to consist in “the exchange of commodities for commodities”; but that view obscures a more important truth: in every civilized community for more than three centuries specialized media of exchange have served to enable private marketors efficiently to coordinate individual economic activities over an ever-wider diversity of areas of economic and geographical experience.#

Steven Horwitz, “Monetary Calculation and Mises’ Critique of Planning” (1998)

• Economic calculation is only necessary in a world where capital goods are understood to be heterogeneous and only possible where those heterogeneous capital goods are privately owned and exchanged for money in a genuine market.#
• Regimes that avoid inflation and deflation are to be desired not just because they stabilize the aggregate price level and ease the expectational burden on actors, but because they prevent socially unnecessary disturbances to individual money prices that undermine their ability to serve as knowledge providers in disequilibrium.#

Steven Horwitz, Microfoundations and Macroeconomics (2000)

• In a world where money was absent, the kinds of intertemporal exchanges we see in a monetary economy, not to mention the very capital goods that are the ultimate objects of those exchanges, would simply not exist. Conducting such a thought experiment seems to assume that the introduction of money would not change the (intertemporal) structure of the economic system. In other words, the system with money would look essentially like the system without it. This seems fundamentally at odds with an Austrian theoretical perspective that views the monetary economy as fundamentally different from a barter world. The existence of money enables the kind of calculative behavior that characterizes successful economic action and would be absent in any ‘realistic’ barter economy. Whatever validity there might be to the intuition behind the idea of the natural rate, from an Austrian perspective it should not be grounded in a money-barter comparison.#
• In Keynesian models, any excess supply of money that finds its way into the hands of consumers will be put into the bond market, driving up bond prices and driving down interest rates.#
• The assumption in most textbook Keynesian models of a fixed price level, or of a one-commodity world, is completely consistent with Keynesian treatments of the money- interest relationship. If the results of monetary excesses and deficiencies are all borne by the interest rate, where can one fit in the price level? Conversely, if one assumes the price level is fixed, then the adjustments to monetary disequilibria must take place through some other variable. #
• Forced savings are the forced reduction in the purchasing power of non-recipients of excess supplies of money.#
• We can talk of money’s ‘income velocity’, which refers to the demand to hold money relative to income, and we can talk of the ‘demand for money’ in the sense of the absolute amount of money people hold.#
• By rigidly tying the quantity of money in use to the costs of producing specie, rather than the demand to hold money, 100 percent reserve banking uses signals from another market to guide the production of money, rather than relying on signals that could be provided about the demand for what they are producing in their own market. #

T.E. Gregory, The Gold Standard and its Future (1935)

• The only intelligible meaning to be assigned to the phrase ‘the international gold standard’ is the simultaneous presence, in a group of countries, of arrangements by which, in each of them, gold is convertible at a fixed rate into the local currency and the local currency into gold, and by which gold movements from any one of these areas to any of the others are freely permitted by all of them.#Quoted in George Selgin, “The Rise and Fall of the Gold Standard in the United States” (2012)

W.H. Hutt, The Theory of Idle Resources (1939)

• The recognition of certain deficiencies in an existing regime may lead us to suppose that the right system of money, if we could only find it, would automatically correct the results of the refusal to make otherwise desirable adjustments in many spheres.#
• Both in the practical selection of monetary policies under political systems dominated by ‘pressure groups’, and in the less tangible psychological influences determining typical preference for or tolerance of inflationary theories, the distributive effects have subconsciously loomed more important than the productive.#
• Regrettable idleness, like other forms of ‘waste’, seems to be the product of arrangements which allow private interest to triumph over social interest. It arises, in other words, because our laws permit competition to be restricted. Hence, no improvement of the monetary system alone is capable of eliminating causes of idleness whilst other existing institutions remain.#

Wesley Mitchell, “The Role of Money in Economic History” (1944)

• When money is introduced into the dealings of men, it enlarges their freedom. . . . By virtue of its generalized purchasing power, money emancipates its users from numberless restrictions upon what they do and what they get. As a society learns to use money confidently, it gradually abandons restrictions upon the places people shall live, the occupations they shall follow, the circles they shall serve, the prices they shall charge, and the goods they can buy. Its citizens have both a formal and a genuine freedom in these respects wider than is possible under an organization in which services and commodities are bartered. Adam Smith’s “obvious and simple system of natural liberty” seems obvious and natural only to denizens of a money economy.#Quoted in Axel Leijonhufvud, “Costs and Consequences of Inflation” (1975)

Yuval Harari, Sapiens (2014)

• History’s first known money – Sumerian barley money – appeared in Sumer around 3000 BC, at the same time and place, and under the same circumstances, in which writing appeared. Just as writing developed to answer the needs of intensifying administrative activities, so barley money developed to answer the needs of intensifying economic activities.#
• Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised.#