Does anyone know of any work (either by an Austrian or non Austrian) that attempts to derive the value of money in terms of amount of some produce or an amount of hours worked. Perhaps something along the lines of, if there are X dollars in total in the society and (other things defined...) then on average each dollar will buy Y hours labour.
As an illustration, here is my own formulation: Imagine a very simple society in which there is only one commodity: sandwiches. Everyone in the land grows the ingredients for their sandwiches in their gardens. Often they will exchange sandwiches with their neighbours just for variety. There is no money in this society only barter. But then one day the king of the land says "I've just invented something I'm going to call money. It consists of metal coins called shekels. I will give everyone in the land 1000 shekels and from now on bartering is banned. All exchanges must be via the medium of exchanging shekels. What's more, nobody is allowed to eat their own sandwiches." The question now is: how many shekels will a sandwich cost? It may well be that on day one, people will not have a clue and all sorts of silly prices may get paid... but presumably over time the price will gravitate towards a certain value. What will that value be?
mickanomics:What I mean is the more general question "how much would things cost, given a currency system X, and at time T".
Does the quantity theory of money help?
mickanomics:Saying "marginal pairs" is insufficient to solve the sandwich society problem.
Because it isn't a problem. It is an arbitrary and fictional situation which doesn't reflect anything we know about man.
Again, you are using a narrative to inform your reason, instead of using reason to inform your narrative. As long as you do this, you will not be able to understand economics.
If you find something evil that wobbles, push it. - Gary North
mickanomics:Peter Schiff is forever making predictions about what people are going to do in the future, would you criticize him for that?
When Peter does that, it has nothing to do with economics, and everything to do with being a salesman.
mickanomics:For example people tend to seek food when they are hungry. Is that really a *prediction*?
Ceteris paribus, this may be true. However, good luck finding situations ceteris paribus in the real world. Your model is only useful, in so far as you can interpret fictional exercises where reality doesn't matter. In the real world, some people would eat their sandwiches regardless of the rules, rather than trade them for shekels because they would calculate the cost of non-compliance to be less than the cost of compliance. A good example of this, is smoking marijuana. It is illegal in the US, but millions of people do it. Ceteris paribus, you would model that if the King/President made a rule no smoking pot, then people would obey it. Your model fails. You might say no people will do it, your model fails. You might pick some number of people who will do it, your model fails because it is impossible for you to calculate choices for any group of people.
The Soviets and every planned society already tried what you are trying. Billions has been spent educating and researching the perfect way to model and plan human action. Mises came up with an elegant solution in praxeology. One that is very difficult to contest. You haven't demonstrated you understand it, and yet you're here, proposing the opposite of what Mises and the Austrian school generally understand about human action, which might be the most important insight that the school of thought has to offer to mainstream economics.
There has to be some atheist science forum where people will indulge you in this. Or some market investor forum where you can be a celebrity for cooking up Mickanomics. But here, it just comes off like a lot of crankery, like the colonial scrip cranks we get every few months.
If your model can't model reality, then why waste time modeling fantasy?
How is a sandwich a commodity? What do you call the things that go into making it?
You say there is no division of labor in this land? Every person, on his own plot of land, somehow:
grows his own wheat, produce his own leavening agents, raises chickens for eggs, raises cows for milk, grows the food and feed for those animals, makes his own oven, builds his own capital goods for reaping his crops and chopping wood for fire for his oven, etc, etc
And these sandwiches everyone produces aren't homogeneous (you said people traded for "variety" (even though it is somehow at the same time a commodity))? Which persons' sandwiches have more demand than others (e.g. the people who have the resources to make pbjs)? What happens to the people who have sandwiches that nobody desires? Instead of starving, can they just eat pieces of bread or cook scrambled eggs?
I don't understand the scenario.
Prashanth Perumal: Does the quantity theory of money help?
Sadly not. Interestingly, I may be able to derive the quantity theory of money from my model.
liberty student:When Peter does that, it has nothing to do with economics, and everything to do with being a salesman.
I'd love to see his response to that accusation.
liberty student:In the real world, some people would eat their sandwiches regardless of the rules, rather than trade them for shekels because they would calculate the cost of non-compliance to be less than the cost of compliance. A good example of this, is smoking marijuana. It is illegal in the US, but millions of people do it.
The only reason I made the rule about not eating your own sandwiches was because it was a quick and easy way to specify something that happens already. In most modern societies, hardly anyone consumes their own produce. So my "fantasy" of strict enforcement of this rule is in fact "close to the real world".
liberty student:The Soviets and every planned society already tried what you are trying.
Please can you give me a reference for the soviet solution to my sandwich society problem.
liberty student:There has to be some atheist science forum where people will indulge you in this. Or some market investor forum where you can be a celebrity for cooking up Mickanomics. But here, it just comes off like a lot of crankery, like the colonial scrip cranks we get every few months.
I am extremely glad I posted this thread on this forum. Finding out that LvM himself had thought deeply about pretty much my exact question and was thinking along very similar lines to my solution shows that this forum is the absolute perfect place for this discussion.
Le Master:How is a sandwich a commodity? What do you call the things that go into making it?
A sandwich is not really a commodity. Its just a convenient, quantised, model of produce.
Le Master:You say there is no division of labor in this land?
Well perhaps people specialise in certain types of sandwich... it doesn't neeeed to be sandwiches at all, it could be anything really. But I wanted something that was conveniently quantised. Just something to make the formulation of the question simpler.
mickanomics:I may be able to derive the quantity theory of money from my model.
"It has always been the prerogative of children and half-wits to point out that the emperor has no clothes. But the half-wit remains a half-wit and the emperor remains an emperor." ~Dream
mickanomics:I'd love to see his response to that accusation.
I'd like to hear your response to that statement. Do you really believe he is running for Senate because he cares about liberty? He doesn't even vote. This is going to be a boom for his business, even if he loses, because it will continue to raise his profile. That free political advertising is worth millions to his company.
Don't get me wrong, I like that he is a salesman and a successful entrepreneur. But he's not a radical libertarian, and he's not a very strong economist. What he is, is a very savvy investor. Investing and economics are not the same thing.
mickanomics:Please can you give me a reference for the soviet solution to my sandwich society problem.
They didn't have one. Which is why the Soviet Union collapsed.
mickanomics:Finding out that LvM himself had thought deeply about pretty much my exact question and was thinking along very similar lines to my solution shows that this forum is the absolute perfect place for this discussion.
I tried to follow your line of reasoning earlier in this thread and lost it. How did Mises come to the same question and solution as you did? Mises was THE PRAXEOLOGIST. Your question, in an Austrian context, is completely ridiculous. The only reason I can see why this hasn't sunk in yet for you, is that some folks continue to encourage you, thinking you might just be slow to come around, unaware of the threads you have already made for a positivistic approach to economics.
liberty student:and he's not a very strong economist.
Why was he invited to give the 2009 Henry Hazlitt Memorial Lecture at the annual Austrian Scholars Conference, Ludwig von Mises Institute, 13 March 2009?
liberty student:They didn't have one. Which is why the Soviet Union collapsed.
Perhaps they should have given me a call :-)
liberty student:How did Mises come to the same question and solution as you did?
His regression theorem is addressing the question of "the value of money" which I what my question is all about. The lines "People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power." could have been used by me almost verbatim along the way to finding my solution.
Snowflake:The leap between subjective feelings and monetary value is phenomenological. There are no general principles to shed light on here.
Why not?
Snowflake:If you actually manage to make a model that fits real life data well, your model will be placed in competition with other predictive models.
Like who's? I don't know of any at the moment (I've been too busy to follow yesterdays references... bit I certainly will). I'm sure there are plenty of economic models out there where the value of money is already anchored somehow. But I know of none where the value of money gets discovered by the model itself.
Snowflake:Take for example the equation mechanical engineers use for behavior of steam. This equation has 56 parameters. No thermodynamicist claims these parameters reflect any fundamental principles. It simply works better than the Peng Robinson etc equations of state. This 56 parameter equation exists merely because it fits the data. If you do the same with prices in a particular economy, you will do no better.
In my model, *all* the parameters will have a 1:1 correspondence with a real life phenomena, so that each one could be drawn from real life statistics.
mickanomics:In my model, *all* the parameters will have a 1:1 correspondence with a real life phenomena, so that each one could be drawn from real life statistics.
Actually, I may have to re-phrase that somewhat. My model has yet to tie up some loose ends. So perhaps I should state that I am striving toward a model in which all parameters will have a 1:1 correspondence with real life phenomena. Perhaps my mk II or mk III will get there. At the moment my model is newborn and requires some more work.
mickanomics:Why not?
mickanomics:But I know of none where the value of money gets discovered by the model itself.
LvM's missed opportunity in a nutshell: I this article it states: "It is obvious that this vitally important problem of circularity (X depends on Y, while Y depends on X) exists not only in regard to decisions by consumers but also in regard to any exchange decision in the money economy."
LvM assumed that problems in which X depends on Y and Y depends on X were insoluble and X and Y could not stabilise. But this is not always true. It depends on the nature of the relationships. Take for example X = sqrt(Y) and Y = sqrt(X), you can start with any old values for X and Y then iterate, then the numbers will converge to X=1 and Y=1. Indeed I just wrote a program in "C" to demonstrate it:
#include <stdio.h>#include <math.h>void main(){ int i; double a,b; a = 12; b = 7; for (i = 1;i < 10;i++) { a = sqrt(b); b = sqrt(a); printf("a = %.4f b = %.4f\n",a,b); }}
The output when you run the program is as follows:
a = 2.6458 b = 1.6266a = 1.2754 b = 1.1293a = 1.0627 b = 1.0309a = 1.0153 b = 1.0076a = 1.0038 b = 1.0019a = 1.0010 b = 1.0005a = 1.0002 b = 1.0001a = 1.0001 b = 1.0000a = 1.0000 b = 1.0000
LvM did not realise this phenomena and that's why his regression theory is so clumsy.
In the same article it states: "a wiping out of existing markets and knowledge of money prices would render impossible the direct re-establishment of a money economy" - I hope my example shows that this statement is in fact, not true.
emphasis on the word direct
geeez.
your sandwich game is absurd.
at game start: i have loads of sandwiches, i cant eat any since they are mine. game over
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
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