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On the Money Supply definition Issue

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02/01/2008

I tried to post this as a reply to the criticism of my criticism of Frank Shostak's money supply definition that the person calling himself Newson posted under Frank's most recent article. It strangely disappeared so that's why it's posted under a new post (slightly reformulated since it is a new post rather than a comment under a post): First of all, I am not the only Austrian economist who thinks that Shostak's definition of the supply of money is too narrow. None other than Murray Rothbard argued for a broader definition, and argued against Shostak's view that for example savings deposits shouldn't be considered money. http://mises.org/rothbard/austrianmoneysupply.pdf

As for Mark Humphrey's argument ("For example, shares in a money market mutual fund are an investment acquired by the owner in exchange for money.") about how setting Money Market accounts involve giving up cash, I find that argument to be very strange. Any bank account holding means giving up cash, so that argument would leave us with a ultra-narrow money supply definition where only cash (as in notes and coins) would be money. And the argument about potential losses is also strange considering that 1) such losses virtually never occurs 2) There's no guarantee that holders of notes and coins won't lose their money due to physical destruction 3) Even if there was such a distinction it wouldn't be relevant as there's nothing about the essentialist definition of money that mentions this issue. The key factor to consider regarding what is and what isn't money is whether or not it can be used as a means of payment in a similar manner as cash. If it can-it is money, if it can't isn't. That is why MZM is the best definition of money. As for Eric Lansing's argument. that claim Shostak's unspecified definition correlate in some unspecified way better with some unspecified economic indicator without explaining why this unspecified correlation is relevant. Even setting aside the very un-Austrian nature of this argument ( While Shostak and Rothbard (and I) disagrees about how money should be defined, all agree that correlation to some economic aggregate isn't a valid way to settle the issue), any inductive empirical claim must meet some minimum quality standards that his argument certainly didn't meet. Including 1) How the variables are defined 2) Why the alleged relationship if real is relevant 3) In what way they correlate and with what timelag 4) Which source back up that claim. If and when Eric or some one else is able to answer that, please return to this debate.

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