The value of money
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| The value of money |
The following pages have as their central problem the value of money. However the value of money cannot be studied successfully as an isolated problem, and to reach conclusions on this topic, it has been necessary to consider virtually the whole range of economic theory.
The general theory of value; the r61e of money in economic theory and the functions of money in economic life; the theory of the values of stocks and bonds, of "goodwill," established trade connections, trade-marks, and other "intangibles"; the theory of credit; the causes governing the volume of trade, and particularly the place of speculation in the volume of trade; the relation of "static" eco- nomic theory to "dynamic" economic theory. "Dynamic economics" is concerned with change and readjustment in economic life.
A distinctive doctrine of the present book is that the great bulk of exchanging grows out of dynamic change and that speculation, in particular, constitutes by far the major part of all trade. From this it follows that the main work of money and credit, as instruments of exchange, is done in the process of dynamic readjustment, and, consequently, that the theory of money and credit must be dynamic.
It follows, further, that a theory like the "quantity theory of money," which rests in the notions of "static equilibrium" and "normal adjustment," abstracting from the "transitional process of readjustment," touches the real problems of money and credit not at all.
Highlights of the book
General Theory of Value
- Value as quality vs. value as quantity: Is value something inherent (a quality) or something measurable (a quantity)?
- Absolute vs. relative value: The difference between the value of money itself and its relation to the price level.
- Value before exchange vs. value in exchange: Do things have value inherently, or only when traded?
- Do prices reflect values?: A critical question — are market prices accurate measures of real value?
Competing Theories
- Causal theories rejected: Marginal utility and labor theory are set aside.
- Social explanation emphasized: Value is shaped by society, not just individuals.
- Three approaches:
- Extra-human forces (like nature or divine order).
- Extreme individualism (value comes only from personal preference).
- Social value theory (value arises from collective forces like law, morality, and public opinion).
Social Value in Practice
- Consumers’ goods: Utility and scarcity matter, but social forces (law, morality, institutions) weigh heavily.
- Labor, land, stocks, goodwill: Their value isn’t just tied to consumer goods — prestige, contagion, and social influence play roles.
- Pragmatic character: The theory is practical, not purely abstract.
- Relation of social vs. individual values: Social values dominate and shape personal valuations.
Value of Money: Supply & Demand
- Gap between general value theory and money value theory: Different thinkers developed them separately.
- Supply and demand: Useful but superficial — it assumes money’s value is fixed.
- Mill’s contribution: First precise formulation of supply and demand, but flawed when applied to money.
- Böhm-Bawerk’s critique: His psychology muddied Mill’s clarity.
- Cairnes vs. Mill: Debate over whether supply and demand can explain money’s value.
- Attempts by Mill and Walker: Both tried but failed to fully apply supply and demand to money.
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