Monetary Equilibrium and Price Stickiness: A Rejoinder

Bagus, Philipp and Howden, David (2012): Monetary Equilibrium and Price Stickiness: A Rejoinder. Published in: Review of Austrian Economics , Vol. 3, No. 25 (2012): pp. 271-277.

Abstract

Luther and Salter argue for a regime where aggregate demand is restored by an increase in the money supply in response to an increase in the demand for money. They claim that, 1) monetary equilibrium policy prescriptions do not necessarily rely on sticky prices, 2) Cantillon effects can be neglected without consequence, 3) wealth redistributions from monetary policy are unimportant, 4) monetary disequilibrium theorists strive for a stable price level, 5) fewer price adjustments are necessary in their proposed regime, 6) savings and saving are equivalent, 7) changes in the composition of savings do not alter time preference, and, 8) in the proposed regime economic calculation is easier than in a 100 percent reserve system . All these claims are false. They furthermore misconstrue us as preferring negative quantity adjustments to positive price adjustments. This too is false.

• Item Type: MPRA Paper
• Language: English
• Keywords: sticky prices; non-neutral money; monetary equilibrium; free banking
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Bagus, P., and D. Howden. 2010a. Fractional Reserve Free Banking: Some Qibbles. Quarterly Journal of Austrian Economics 13(4): 29-55.

Bagus, P., and D. Howden. 2010b. The Term Structure of Savings, the Yeild Curve, and Maturity Mismatching. Quarterly Journal of Austrian Economics 13(3): 64-85.

Bagus, P., and D. Howden. 2011a. Monetary equilibrium and price stickiness: Causes, consequences and remedies. Review of Austrian Economics 24(4): 383-402.

Bagus, P., and D. Howden. 2011b. Unanswered Quibbles with Fractional Reserve Free Banking. Libertarian Papers 3(18): 1-24.

Bagus, P., and D. Howden. 2012. Still Unanswered Quibbles with Fractional Reserve Free Banking. Review of Austrian Economics 25(2): 159-71.

Howden, D. 2010. Knowledge shifts and the business cycle: When boom turns to bust. Review of Austrian Economics 23(2): 165-82.

Hutt, W. H. 1977. The Theory of Idle Resources, 2nd ed. Indianapolis: Liberty Fund.

Rotemberg, J. J. 1982. Sticky Prices in the United States. Journal of Political Economy 90(6): 1187-1211.

Rothbard, M. N. [1962] 2004. Man, Economy and State. Auburn, AL: Ludwig von Mises Institute.

Salerno, J. T. 2012. A Reforumlation of Austrian Business Cycle Theory in Light of the Financial Crisis. Quarterly Journal of Austrian Economics 15(1): 3-44.

Selgin, G. 1988. The Theory of Fre Banking: Money Supply Under Competitive Note Issue. Totowa, NJ: Rowman & Littlefield.

Selgin, G. 1997. Less Than Zero: The Case for a Falling Price Level in a Growing Economy. London: The Institute of Economic Affairs.

von Mises, L. 1949. Human Action – A Treatise on Economics. New Haven: Yale University Press.

von Mises, L. [1928] 2002. “Monetary Stabilization and Cyclical Policy”, On the Manipulation of Money And Credit, (trans. and eds.) B. B. Greaves, Jr., and P. L. Greaves, Jr., pp 63-179. Auburn, AL: Ludwig von Mises Institute.

Yeager, L. B. 1994. Tautologies in economics and the natural sciences. Eastern Economic Journal 20(2): 157-69.