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.The new money hits the economy at specific points of entry, as opposedto increasing equally the demand for all goods, services and factors of produc-tion.In our economy, money is generally created by the expansion of bankcredit: the central bank purchases securities from the banks, which conse-quently have more money to lend, which translates into higher bank depositsfrom the borrowers and their suppliers.The money originally lent will goto business investments or the purchase of consumer goods, usually durablegoods.The prices of the capital goods (machines, equipment, land) or thedurable goods that are hit first will increase.The new money will slowly per-colate through the economy, but the process will take time.5 The differentialveConnect - 2011-04-01impact of money creation on prices has major consequences.Relative priceschange: the prices of the goods first affected will rise more than other prices.algraCapital goods and durable consumer goods (houses, for instance) will showh - Phigher price increases, while ordinary consumption goods will be less affected.Profits will increase more in the first categories of goods than in the second,leading to a relatively larger increase in the quantity supplied of the former.Thus, inflation changes the structure of production, as opposed to simplylifting all prices and all quantities in the same proportion.As inflation dis-torts relative prices, false information is transmitted to producers.They areled to believe that the production of more capital goods (more investment)and more durable goods, relative to ordinary consumption goods, is needed.Austrian economics brings the coordination function of relative prices to theveconnect.com - licensed to ETH Zuericforefront of the analysis.One price will be especially distorted and will send the most misleading.palgrasignals: the interest rate.(Here, I disregard the term structure of interest ratesin order to simplify the exposition.) The interest rate is the price of savingsom wwwand investment, which brings into equilibrium the supply and the demandof loanable funds.The rate of interest is not, as in Keynesian theory, merelythe price of money, for the price of money is the goods that are exchanged formoney.The rate of interest can certainly influence the demand for money inyright material frthe short run as people want to hold less of it if the interest they can get onCopsecurities is higher, and mutatis mutandis in the opposite case; but the first roleplayed by the rate of interest remains to serve as the price of loanable fundsin the saving-investment market.6 In Austrian economic theory, the rate ofinterest is primarily the price of credit, not the price of money.An increasedsupply of money translates into a higher supply of credit, which pushes therate of interest down on the market for loanable funds.While consumerswant as many consumer goods as before, cheap interest rates lead to relatively10.1057/9780230118478 - Somebody in Charge, Pierre LemieuxFebruary 4, 201119:40MAC-US/CHARGEPage-1249780230112698_08_ch06Monetary Meddling●125more investment and, thus, fewer consumption goods—or, alternatively, tomore goods to be consumed in the future and fewer now.The misallocation of resources comes from the fact that the time prefer-ence rate of consumers (the rate at which they are willing to substitute futureto actual consumption) hasn’t changed, and that the increased allocation ofresources to investment is not in accord with the time preferences of con-sumers.The increased savings represented by the new credit are artificial.Consumers don’t actually want to save more; in fact, they will want to saveless after the rate of interest has dropped.But more goods will be producedfor the future through the increase in investment.“[A]n interest rate sub-stantially influenced by extra-market forces,” writes Garrison, “will lead to anintertemporal misallocation of resources.” The focus of Austrian theory, heexplains, “is on the misallocation of resources during the period of artificiallyveConnect - 2011-04-01cheap credit”.Alternatively, “[t]he avoidance of such misallocations requiresthe interest rate to tell the truth about intertemporal preferences”.7algraContemporary Austrian economist Bob Higgs emphasizes that the prob-h - Plem of money inflation and the accompanying drop in interest rate does not(or does not mainly) lie in overinvestment, but in malinvestment.8 Producersnot only invest more in capital goods, they also skew their investment planstoward capital goods more removed from consumer goods in the structure ofcapital.The “structure of capital” is the network of capital goods necessary toproduce, say, a steel hammer—from the iron ore mine to the smelter to thesteel-making plant and to the hammer manufacturing plant.In our pencilexample of Chapter 1, the structure of capital includes the land, buildings and machines required by the pencil manufacturer, plus the land, buildingsveconnect.com - licensed to ETH Zuericand machines required to produce wood and graphite, as well as the land,buildings and machines required to produce these buildings and machines,.palgraand up the timeline.A lower rate of interest produces a lengthening of thecapital structure: it becomes profitable to invest farther from the steel or theom wwwpencil, in order to assure the production of these goods in the more distantfuture.O’Driscoll and Shenoy summarize the two contributions of Austrianeconomics to monetary theory:yright material frCopFirst, it emphasizes the role of money in the pricing process and incorporatesmoney.into the determination of relative prices.Second, it analyzes theeffect of such money-induced relative price changes on the time structure ofproduction, that is, the capital structure.9In this perspective, a recession is simply the necessary correction of themisallocation of resources caused by the false price signals that the monetary10 [ Pobierz całość w formacie PDF ]
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.The new money hits the economy at specific points of entry, as opposedto increasing equally the demand for all goods, services and factors of produc-tion.In our economy, money is generally created by the expansion of bankcredit: the central bank purchases securities from the banks, which conse-quently have more money to lend, which translates into higher bank depositsfrom the borrowers and their suppliers.The money originally lent will goto business investments or the purchase of consumer goods, usually durablegoods.The prices of the capital goods (machines, equipment, land) or thedurable goods that are hit first will increase.The new money will slowly per-colate through the economy, but the process will take time.5 The differentialveConnect - 2011-04-01impact of money creation on prices has major consequences.Relative priceschange: the prices of the goods first affected will rise more than other prices.algraCapital goods and durable consumer goods (houses, for instance) will showh - Phigher price increases, while ordinary consumption goods will be less affected.Profits will increase more in the first categories of goods than in the second,leading to a relatively larger increase in the quantity supplied of the former.Thus, inflation changes the structure of production, as opposed to simplylifting all prices and all quantities in the same proportion.As inflation dis-torts relative prices, false information is transmitted to producers.They areled to believe that the production of more capital goods (more investment)and more durable goods, relative to ordinary consumption goods, is needed.Austrian economics brings the coordination function of relative prices to theveconnect.com - licensed to ETH Zuericforefront of the analysis.One price will be especially distorted and will send the most misleading.palgrasignals: the interest rate.(Here, I disregard the term structure of interest ratesin order to simplify the exposition.) The interest rate is the price of savingsom wwwand investment, which brings into equilibrium the supply and the demandof loanable funds.The rate of interest is not, as in Keynesian theory, merelythe price of money, for the price of money is the goods that are exchanged formoney.The rate of interest can certainly influence the demand for money inyright material frthe short run as people want to hold less of it if the interest they can get onCopsecurities is higher, and mutatis mutandis in the opposite case; but the first roleplayed by the rate of interest remains to serve as the price of loanable fundsin the saving-investment market.6 In Austrian economic theory, the rate ofinterest is primarily the price of credit, not the price of money.An increasedsupply of money translates into a higher supply of credit, which pushes therate of interest down on the market for loanable funds.While consumerswant as many consumer goods as before, cheap interest rates lead to relatively10.1057/9780230118478 - Somebody in Charge, Pierre LemieuxFebruary 4, 201119:40MAC-US/CHARGEPage-1249780230112698_08_ch06Monetary Meddling●125more investment and, thus, fewer consumption goods—or, alternatively, tomore goods to be consumed in the future and fewer now.The misallocation of resources comes from the fact that the time prefer-ence rate of consumers (the rate at which they are willing to substitute futureto actual consumption) hasn’t changed, and that the increased allocation ofresources to investment is not in accord with the time preferences of con-sumers.The increased savings represented by the new credit are artificial.Consumers don’t actually want to save more; in fact, they will want to saveless after the rate of interest has dropped.But more goods will be producedfor the future through the increase in investment.“[A]n interest rate sub-stantially influenced by extra-market forces,” writes Garrison, “will lead to anintertemporal misallocation of resources.” The focus of Austrian theory, heexplains, “is on the misallocation of resources during the period of artificiallyveConnect - 2011-04-01cheap credit”.Alternatively, “[t]he avoidance of such misallocations requiresthe interest rate to tell the truth about intertemporal preferences”.7algraContemporary Austrian economist Bob Higgs emphasizes that the prob-h - Plem of money inflation and the accompanying drop in interest rate does not(or does not mainly) lie in overinvestment, but in malinvestment.8 Producersnot only invest more in capital goods, they also skew their investment planstoward capital goods more removed from consumer goods in the structure ofcapital.The “structure of capital” is the network of capital goods necessary toproduce, say, a steel hammer—from the iron ore mine to the smelter to thesteel-making plant and to the hammer manufacturing plant.In our pencilexample of Chapter 1, the structure of capital includes the land, buildings and machines required by the pencil manufacturer, plus the land, buildingsveconnect.com - licensed to ETH Zuericand machines required to produce wood and graphite, as well as the land,buildings and machines required to produce these buildings and machines,.palgraand up the timeline.A lower rate of interest produces a lengthening of thecapital structure: it becomes profitable to invest farther from the steel or theom wwwpencil, in order to assure the production of these goods in the more distantfuture.O’Driscoll and Shenoy summarize the two contributions of Austrianeconomics to monetary theory:yright material frCopFirst, it emphasizes the role of money in the pricing process and incorporatesmoney.into the determination of relative prices.Second, it analyzes theeffect of such money-induced relative price changes on the time structure ofproduction, that is, the capital structure.9In this perspective, a recession is simply the necessary correction of themisallocation of resources caused by the false price signals that the monetary10 [ Pobierz całość w formacie PDF ]