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ANALYTICAL TABLE OF CONTENTS
PART I. THE VALUE OF MONEY AND THE GENERAL THEORY
OF VALUE
CHAPTER 1
ECONOMIC VALUE
- Problem of value of money special case of general theory of
value; present chapter concerned with general theory
- Formal and logical aspects of value: value as quality; value
as quantity; value and wealth
- Absolute vs. relative conceptions of value: value of money vs.
"reciprocal of price-level"; value prior to exchange;
value and exchangeability; do prices correctly express values?
- Doctrine so far in accord with main current of economic opinion
- Causal theory of value new: marginal utility, labor, theory,
etc., rejected
- Social explanation required: "individual" a social
product, both in history of individual and in history of race
- And above individual impersonal psychic forces, law, public
opinion, morality, economic values
- Three types of theory have dealt with these: theory of extra-human
objective forces; extreme individualism; social value theory
- Illustrated in jurisprudence, ethics, and economic theory
- Law, morals, and economic values generically alike but have
differenti
- But not differentiated on basis of states of consciousness of
individual immediately moved by them, because many minds in organic
interplay involved
- Economic social value (a) of consumers' goods and services:
"utility" and scarcity; "marginal utility":
social explanation of marginal utility; marginal utilities the
conscious focus of economic values of consumers' goods, but only
minor part of these values; individuals, classes and institutions
heavily weighted by legal, moral, and other social values, in
power over economic values of consumers' goods
- Economic social value (b) of labor, land, stocks, bonds, "good
will," etc.; based only in part on values of con sumers'
goods; partially independent, directly influenced by contagion,
and centers of power and prestige
- Pragmatic character of theory
- Relation of social values to individual values
CHAPTER II
SUPPLY AND DEMAND, AND THE VALUE OF MONEY
- Hiatus between general theory of value and theory of value of
money
- Partly because former has been developed by different writers
from those who have developed latter
- But chiefly because supply and demand, cost of production, etc.,
assume fixed value of money, and are theories of price, rather
than value
- Supply and demand useful but superficial formula, common property
of many value theories
- Crude and unanalyzed in Smith and Ricardo; first made precise
by J. S. Mill, who gives essentials of modern doctrine
- Böhm-Bawerk's pseudo-psychology spoils Mill's clean-cut doctrine
- Supply and demand assumes fixed value of money-unit, and hence
inapplicable to money itself
- But supply and demand does not assume fixed price-level
- Cairnes vs. Mill
- Mill's unsuccessful effort to apply supply and demand to money
- Walker's attempt
- Supply and demand in the "money market"
CHAPTER III
COST OF PRODUCTION AND THE VALUE OF MONEY
- Types of cost theory: modern cost doctrine is "money costs"
doctrine, and inapplicable to value of money
- Labor cost: Smith; Ricardo; Ricardo's confession of failure;
"real costs" in Senior and Cairnes; Mill's "money-outlay"
cost doctrine, and Cairnes' criticism; but "money-cost"
has survived
- Because "real cost" doctrine does not square with
facts
- "Money-cost" of producing money-metal
- Austrian cost doctrine runs still in money terms, assuming value,
money, and fixed value of money
- "Negative social values" as "real costs"
CHAPTER IV
THE CAPITALIZATION THEORY AND THE VALUE OF MONEY
- Money as "capital good," and "money-rates"
as rentals
- Capitalization theory; formula; capital value passive resultant
of annual income and rate of discount
- But in case of money, rental and rate of discount not independent
variables
- And in case of money, capital value not passive shadow, but
active cause of income
- Capitalization theory assumes money, and fixed value of Money
- Assumed fixed value of money absolute, and not relative
- Capitalization theory, in current formulation, inapplicable
to value of money
CHAPTER V
MARGINAL UTILITY AND THE VALUE OF MONEY
- Marginal utility theory usually thinly disguised version of
supply and demand, and hence inapplicable to money
- View that money is unique in having no utility per se
- Marginal utility and "commodity theory" of money-value
- Quantity theorists and marginal utility of money
- Money an instrumental good, and marginal utility no less applicable
here than elsewhere; marginal utility invalid as general theory
of value, hence invalid when applied to money
- Wieser's theory of value of money
- A circle in reasoning
- Schumpeter's similar circle
- But Schumpeter's general utility theory, though inapplicable
to value of money, in form avoids a causal circle
- Schumpeter's conspectus; different from Böhm-Bawerk and most
utility theorists
- Defects and limitations of Schumpeter's general theory
- Schumpeter's substitutes for social value concept
- Von Mises sees circle of Wieser and Schumpeter
- Seeks to avoid it by construing utility theory as historical,
instead of static, theory
- But this departs from fundamentals of utility theory; other
difficulties
- Kinley's doctrine
- General criticism of utility theory
- Davenport, Wicksteed, Fisher, Perry
PART II. THE QUANTITY THEORY
CHAPTER VI
THE QUANTITY THEORY OF PRICES. INTRODUCTION
- Preliminary statement of quantity theory, and of critical theses
to be developed in following chapters. Virtually every contention
and every assumption of quantity theory to be challenged
CHAPTER VII
DODO-BONES
- Quantity theory doctrine that valueless objects can serve as
money; Nicholson's assumption: money made of dodo-bones
- Fisher's view also
- And Ricardo's
- Will dodo-bones circulate? Dodo-bones and poker chips; circular
reasoning
- Both medium of exchange ;and standard of value must be valuable
- Is inconvertible paper an exception?
- Doctrine that money gives legal claim to things in general
- Kemmerer's assumptions; money made of commodity, once valuable,
now used only as money
- Commodity theory requires present commodity value
- Historical vs. cross-section view: possibility that such money
would circulate
- Value not tied up with marginal utility or commodities: social
value theory; derived values often become independent, of original
presuppositions, in economic as well as legal and moral spheres
- But this no basis for quantity theory: social psychology, not
mechanics
- "Banker's psychology" vs. psychology of blind habit:
India, Austria, United States; monetary phenomena of war times;
"credit theory" of Greenbacks
- Question-begging definitions
- Assumptions of quantity theory: blind habit and fluid prices
- Extreme commodity theory denies that money-use adds to value
of money; usually not true; analysis of money functions
- Hypothetical case in which whole value of money comes from commodity
value
- Money must have value apart from monetary employments, but,
"in general, gains additional value from employment as money
CHAPTER VIII
THE "EQUATION OF EXCHANGE"
- Fisher leading, most consistent, most uncompromising quantity
theorist: wide acceptance of his views
- Taussig vs. Fisher
- Fisher and dodo-bone doctrine: logical part of quantity theory;
Fisher's value concept
- "Equation of exchange": analysis of Fisher's version,
typical of all
- In what sense equality between two sides of equation? Meaning
of "T"
- No "goods side" to equation; both sides sums of money;
equal because identical; equation meaningless
- All factors in equation highly abstract
- "P" and "T" cannot both be given independent
definitions: P defined as weighted average, with T in denominator;
and must be changed from year to year, as elements in T change,
even though no prices change
- This makes circular theory: problem defined in terms of explanation
- Causal theory associated with equation of exchange
- Equation amplified to include credit; not acceptable to Nicholson
or Walker, and caricature of conditions in Germany and France
- Book-credit, bills of exchange, etc., excluded
- Why a one-year period?
CHAPTER IX
THE VOLUME OF MONEY AND THE VOLUME OF CREDIT
- Mill thought credit acts on prices like money, and that this
reduces quantity theory tendency to indeterminate degree; Fisher
holds volume of money in circulation governs volume of credit,
so that quantity theory stands
- Fisher's arguments for fixed ratio, money to bank-deposits
- Argument a non-sequitur, even if contentions true
- Contentions untrue: no fixed ratio between reserves and deposits,
or reserves and demand liabilities, either in America or Europe
- Taussig's views; virtually surrender of quantity theory in modern
conditions
- Bulk of quantity theorists in between Fisher and Taussig, but
nearer to Fisher's view than to Taussigs
CHAPTER X
"NORMAL" VS. "TRANSITIONAL" TENDENCIES
- Quantity theory qualified by distinction between "normal"
and "transitional" effects of change in quantity of
money, etc
- Meaning of distinction, and extent of qualification hard to
determine: is "normal period" real period in time? How
long is "transitional period"? Is it realistic, or hypothetical?
Is equation of exchange realistic? Concrete vs. hypothetical price-levels
- Legitimate and illegitimate abstraction
- Causation and temporal order
- Fisher admits very slight qualification of "normal theory"
- Mill's quantity theory "short run" theory; Taussig's
"long run" theory; radically different logic in the
two
- Fisher's theory sometimes "long run" and sometimes
"short run"
CHAPTER XI
BARTER
- Quantity theory spoiled if resort to barter possible and important
- Extent of barter and other flexible substitutes for money and
bank-credit; simple barter; different methods of corporate consolidations;
flexibility, with state of money-market; clearing-house arrangements
in speculative exchanges; offsetting book-credits
- Barter made easier under money economy, by measure of value
function of money
- Bills of exchange; foreign trade
CHAPTER XII
VELOCITY OF CIRCULATION
- Velocity conceived by quantity theory as causal entity, independent
of quantity of money and prices; necessary assumption for law
of proportionality
- "Coin-transfer" vs. "person-turnover" concepts
- Velocity really non-essential by-product, meaningless average
- Doctrine that velocity independent of money; habit and convenience;
hoarding; hoarding by banks
- Velocity and volume of trade; vary together
- Value of money causally governs velocity
CHAPTER XIII
THE VOLUME OF MONEY AND THE VOLUME OF TRADE-TRADE AND SPECULATION
- Quantity theory doctrine that volume of trade, and volume of
money (and credit), are independent; trade goverened by physical
and technical conditions, not money
- View that quantity of money vitally affects production and trade
- Walker, Sombart, Withers, Price, Holt
- Increase of money increases trade, even on static theory: increase
of money increase of capital; lowered margin in exchanges; money-rates
and interest; money tool of exchange; elasticity of demand for
money-service; in Arizona and New York City
- Trade distinguished from production and from stock
- Trade chiefly speculation; Fisher's $387,000,000,000 of trade
in U.S. in 1909 analyzed; index of variation in trade; figure
based on Kinley's returns from 12,000 banks; double-counting
- Figure largely represents speculation; statistics of total wealth
of U.S.; small role of wholesale and retail deposits; "all
other deposits" bunched in speculative centers, especially
New York; trifling "deposits" in country banks; evidence
of bank-clearings: clearings and stock speculation; clearings
and ordinary business
- Measurement of "ordinary trade"
- Volume of stock speculation
- Commodity speculation
- Unorganized speculation
- Bill and note speculation
- Fisher's and Kemmerer's indicia of trade variation wholly misleading
- Production waits on trade; selling costs vs. "cost of production";
"good will"; are banks useless?
- "Normal vs. transitional": statics vs. dynamics; money
and credit make static assumptions possible; very little trade
in "normal equilibrium" or static state; volume of trade
depends on transitions and dynamic changes; functional theory
of money and credit must be dynamic theory; abstraction from money
by static theory; no static theory of money and credit possible;
quantity theory misses whole point of money-functions
APPENDIX TO CHAPTER XIII
THE RELATION OF FOREIGN TO DOMESTIC TRADE IN THE UNITED STATES
- Ambiguity of "domestic trade": figures comparable
with export and import figures cannot include turnovers; net income
of United States, minus imports on retail basis, counted as domestic
trade; exports on retail basis counted as foreign trade; net income
for 1910; index of variation for other years; cautions and qualifications;
ratio of foreign to domestic trade, 1890-1916.
CHAPTER XIV
THE VOLUME OF TRADE AND THEVOLUME OF MONEY AND CREDIT
- Interdependence of trade, and money (and credit); increasing
trade causes increase of money and credit
- Quantity theory doctrine: Fisher vs. Laughlin
- Quantity theory has no explanation of elastic bank credit: "Currency
Theory" of deposits
- Loans and deposits
- Bills of exchange
- Summary of quantity theory doctrine
CHAPTER XV
THE QUANTITY THEORY: THE "PASSIVENESS OF PRICES"
- Heart of quantity theory: price-level cannot change without
prior change in money, deposits, trade, or velocities: independently
rising price-level, unable to alter trade or velocities, would
drive money away, and so be unable to sustain itself, individual
prices can rise independently, but other prices must fall to compensate
- Criticism: argument impressive only because it assumes an uncaused
rise in general price-level; when causes assigned, prices can
independently rise, compelling modification in other factors in
"equation of exchange"; "transitional" and
"normal" effects: instances
- Quantity theory conflicts with supply and demand: supply and
demand holds good: particular prices and price-level
- Generalization of conflict to include cost of production, capitalization
theory, imputation theory
- Capitalization theory vs. quantity theory; different psychological
assumptions of the two theories
- Cost of production vs. quantity theory; money-income vs. quantity
of money
- Quantity theory false, granting all its assumptions
- Doctrine that price-level independent of particular prices,
and presupposed by them, false; absolute value of money, not price-level,
presupposed; price-level may change with value of money constant,
through changes in absolute values of goods
CHAPTER XVI
THE QUANTITY THEORY AND INTERNATIONAL GOLD MOVEMENTS
- Quantity theory holds that gold movements depend on price-levels;
but price-level mere average, cause of nothing
- Some prices, rising, tend to repel gold, but most prices have
no such effect
- Some prices, rising, bring in gold
- Gold movements and money-rates
CHAPTER XVII
THE QUANTITY THEORY VS. GRESHAM'S LAW
CHAPTER XVIII
THE QUANTITY THEORY AND "WORLD PRICES"
- Types of quantity theory: world's volume of gold vs. quantity
of money in given country; standard vs. token money; abandonment
of dodo-bone theory and "equation of exchange"
- Credit does not rest on money: measure of values vs. reserves;
loans and wealth; value of money vs. price-level
- Loose relation of reserves and credit in world as whole; no
proportionality of quantity of gold to value of gold; no quantity
theory needed to assert that value of gold related to its quantity
CHAPTER XIX
STATISTICAL DEMONSTRATIONS OF THE QUANTITY THEORY-THE REDISCOVERY
OF A BURIED CITY
- Criticism of quantity theory statistics yields constructive
conclusions; Mitchell and Greenbacks; Kemmerer's and Fisher's
statistics of "equation of exchange"; Kem- merer's criticism
of earlier statistics
- Kemmerer's and Fisher's figures all wrong except for volume
of money and deposits, and prices in base year; if cor- rect,
would not prove quantity theory
- Fisher's statistics, resting on Kemmerer's, chiefly studied:
their relation to Kinley's "deposits" figures
- M'V'calculated: error's in calculation; New York very incom-
plete in Kinley's figures; private banks and trust com- panies;
clearings and "deposits," in New York and outside; "total
transactions" and clearings; Fisher exag- gerates country
checks by at least 116 billions, for 1909; major part of all "check
deposits" in New York City
- New York as "clearing house" for United States: extent
of, and influence of on New York clearings, much overesti- mated;
bulk of New York clearings and New York "deposits" grow
out of New York business
- Index of variation for M'V' wrongly weighted; V' wrongly calculated
for all years; which upsets calculation of V
- Volume of trade: greatly exaggerated by bank transactions, which
include vast deal of duplications in checks, loans and repayments,
etc.
- Fisher's reply; undercounting offsets overcounting
- Main items of undercounting in clearing houses of specula- tive
exchanges; measurement of, in New York Stock Exchange, and Chicago
Board of Trade; swamped by call loan transactions, which exceed
security sales
- Price-indexes of Kemmerer and Fisher, dominated by whole- sale
prices, have no relevance to their "equations of ex- change"
- In general, their figures bury speculation and New York City
PART III. THE VALUE OF MONEY
CHAPTER XX
RECAPITULATION OF POSITIVE DOCTRINE
- Recapitulation of constructive theses of Parts I and II, and
program of Parts III and IV
CHAPTER XXI
THE ORIGIN OF MONEY, AND THE VALUE OF GOLD
- Problem stated
- Value vs. saleability: degrees of saleability; theory of saleabil-
ity; "buying price" vs. "selling price"; indirect
exchange in barter economy; development of commodity of supe-
rior saleability into money
- Money never unique
- Origin of gold money ornament: store of value; social pres-
tige of prodigality and of ornament; love of approbation, sex-impulse,
and competitive display; elastic value-curve of gold; industrial
employments of gold
- Distribution of wealth and power, and value of gold
CHAPTER XXII
THE FUNCTIONS OF MONEY AND THE VALUE OF MONEY
- Classification
- Measure of values (standard of value) distinguished from medium
of exchange; former does not add value to money metal, latter
does
- Reserve function
- Money as "bearer of options"; distinguished from store
of value; the dynamic function of money par excellence; ex- planation
of low rates on call loans, and short loans, and low yield of
high grade bonds, which share "bearer of options" function;
"pure rate" of interest vs. "money rates":
Austria; the New York money market
- Legal tender; the Staatliche Theorie
- Standard of deferred payments; which functions add to value
of money metal?
- Relation of money rates to capital value of money
- Agio when coinage is restricted: India vs. Western World
- Equilibrium of gold in arts and gold as money: difficulties
of marginal analysis; the money-market phenomena
CHAPTER XXIII
CREDIT
- Analysis rather than definition: "futurity" not essence
of credit; credit part of general value system; stocks as credit
instruments; juridical and accounting phases
- Confidence; involved in general value phenomena as well as credit;
social psychology of confidence; contagions; in- fluence of centers
of prestige; nothing unique in credit; selling vs. borrowing
- Definition of credit; credit vs. credit transaction; credit
and exchange; bulk of credit grows out of dynamic condi- tions
- Functions of credit; increasing saleability of non-pecuniary
wealth; corporate organization; limits of credit expan- sion
- Consideration of objections: that personal loans do not rest
on wealth; public loans; that value behind loan would not exist
if loan were not made
- Schumpeter's "heresies"; his view of the function
of the banker: "dynamic credit"; America vs. Continental
Europe
- Peculiarities and functions of bank credit; technique of banking:
capital; assets; reserves; "liquidity"; money market
CHAPTER XXIV
CREDIT-BANK ASSETS AND BANK RESERVES
- Traditional view that liquid commercial loans normal and dominant
type of bank asset disproved; cannot exceed 11½ per cent of assets
of American banks; analysis of bank assets: "other loans
and discounts"; stock col- lateral loans; loans on "other
collateral security"; stocks and bonds held by banks; classes
of banks; va- rious combinations; excluding real estate loans,
more than half of credit extended by State and national banks
and trust companies is to stock market; rapid development of stock
collateral loans: New York; Europe
- Activity of different types of loans: banking assets get liquidity
chiefly from stock market, and from produce speculators
- Credit extended to Wall Street not at expense of ordinary commerce;
country banks and Wall Street
- Federal Reserve Banks should rediscount stock collateral loans;
"Money Trust" a trust in financing corporations, not
ordinary commerce; panics and Federal Reserve System
- Quantity theory, putting all exchanges on a par, grotesque:
volume of trade and prices in the stock market
- Direct and indirect financing of corporations by banks; "margin
dealer" as "banker"
- Adam Smith's view of banker's functions, and of safe bank loans
- Correct on basis of facts of his day, but corporate organiza-
tion and organized stock market have made smelting house as liquid
as consumers' goods
- Division of labor in banking: America vs. Germany
- Agriculture in money market
- Reserve problem: special case of problem of liquid assets; many
flexible substitutes for cash
- Causal relation runs from deposits to reserves; gold produc-
tion and reserve-ratio
- No static law or "normal ratio" possible; reserve
function entirely dynamic function; reserve not needed in "static
state"; illustrated by London money market; "ideal credit
economy"
PART IV. THE RECONCILIATION OF STATICS AND DYNAMICS
CHAPTER XXV
THE RECONCILIATION OF STATICS AND DYNAMICS
- Theory of money as focus of general economic theory, exhibiting
interdependence of doctrines; basis of further unification of
statics and dynamics in higher synthesis
- Statics vs. dynamics, normal vs. transitional, and related con-
trasts; illustrates; divergent lines of doctrine: tariffs, wars,
overproduction, extravagance, etc.
- Statics quantitative; dynamics qualitative
- Statics and dynamics both abstract
- Dynamics and "friction"
- "Theory of prosperity: and dynamics
- Statics and cross-section analysis; statics as price-theory;
dynamics as value-theory
- Generalization of statics: price-theory applied to dynamic phenomena:
capitalization; costs; "taxonomy;" "discounting"
dynamic changes; money the static measuring-rod: wide scope of
money-measure; measurement of non-economic values
- Generalization of dynamics: all values, whether of wheat or
"good will," have social psychological explanation;
technological and biological factors, and the static equilibrium;
business cycles
- Business man vs. economic theorist, and value-theory; manipulation
of values and prices
- Statics and time
- Immaterial capital
- Statics and dynamics have not different subject-matter
- Equilibrium of all social values: statics and dynamics of the
law: social forces and social control
- Summary of Part IV
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