Download Money and Banking - Banking - Lecture Slides and more Slides Banking and Finance in PDF only on Docsity! Mises on Money & Banking Docsity.com Function(s) of Money, Measuring Value I. Course Description II. Origin of Money A. Not “invented” B. Menger’s theory III. Function vs. Functions of Money IV. Objective Theory of Value V. Modern Subjective Theory A. No Equality of Value B. Objective Prices, Subjective Valuations C. Ordinal vs. Cardinal Ranking VI. Does Money “Measure” Prices? Docsity.com B. Menger’s Theory of Origin of Money Docsity.com 1. Limitations of Direct Exchange Docsity.com 2. Liquidity or “Saleability” Docsity.com 5. Qualities (not Definition!) of a Good Medium of Exchange • Divisible • Durable • Convenient market value by weight • Homogeneous, identifiable units • Easy to transport Docsity.com III. The Function vs. Functions of Money Mises argues that the function of money is to serve as a medium of exchange. This subsumes other typical functions touted by other economists, such as: • Store of value • Standard of deferred payments • Unit of account Docsity.com IV. Objective Theory of Value (e.g. Labor Theory) Adam Smith David Ricardo Karl Marx Docsity.com B. Subjective Valuations Objective Prices Mises’ e.g. (top of p. 40): Suppose Adam has 3 pears, while Bob has 2 apples. Adam would prefer to have 2 apples to his own 3 pears, while Bob would prefer to have 3 pears to his own 2 apples. Thus they trade (just like the girls at lunch on the previous slide). There is no “equality” of valuation; each guy values the other guy’s stuff more than his own. Even so, now the market price of 1 apple is precisely 1.5 pears (or price of a pear is two-thirds of an apple). Docsity.com C. Ordinal vs. Cardinal Examples of cardinal numbers: 1, 325.33, pi Examples of ordinal numbers: 1st, 4th, 26th Subjective value theorist uses concept of “preferences” to explain acts of exchange. Thus valuation and preferences are always ordinal rankings, not cardinal measurements of “utility” intensity. Analogy: We can rank our friends. It makes sense to say, “Sally is a better friend than John.” It doesn’t make sense to say, “I attribute 13% more friendship units to Sally than to John.” Docsity.com VI. Does Money “Measure” Prices? No, not really. Mises says prices consist in money; money doesn’t really “measure” prices. Docsity.com
