[quote]Oleena wrote:
LIFTICVSMAXIMVS wrote:
Oleena wrote:
Do you know what I meant by market equillibrium? How would you define market equillibrium? Let’s start there, because I have a suspicion that you misinterpretted all of what I just said.
No. I do not. Market equilibrium is just an imaginary construction that economists use to analyze activities from a starting point. There really is no such thing. It is a tool only.
Economists like to say that the market tends toward equilibrium but never really achieves it.
I didn’t mean that it actually existed, I was just wondering if you were familiar with the concept.
To summarize why I brought it up- while PERFECT market equillibrium is non existant, there wouldn’t point to even using medium of exchange if the price of an item wasn’t indicative of how many people were trying to get ahold of the item compared to how much of the item was currently available. The less of the item that’s avaible compared to the amount of people who are trying to get ahold of it- the higher the price will be. Eventually, though, more sellers will come into the market and start capitalizing on the sales, so more will be available, and the price will drop.
Now, imagine that somewhere people start “cheating” and making fake copies of the medium of exchange. No one catches them at this right away, and even if they did, there would be no way of enforcing punishment. They start spending their fake money to buy more luxury goods. This happens to the point where many more luxury goods are produced than the actual value in the market can consume.
More people learn how to reproduce the money, and it starts loosing value quickly, but not before it is used to buy goods in a much different fashion than it would if it was limited and the people using it actually had to budget. Sellers are switching markets and changing the amount of goods they produce all over the place. Infact, they start over-producing because people are overbuying with fake money, but no one can see the whole picture.
The medium of exchange looses value, and to make a long story short the market suffers for a while because it’s produced too many goods for the actual amount of value (and by that I mean work contributed to) in the market to buy.
If this process happens too many times the market will become very inefficient at meeting the actual needs of the population because it isn’t being told the right thing.
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Ok, we’re on the same page except your conclusion is incorrect. If the currency is devalued there will be fewer goods produced while consumption is increased. It is this that effectively raises prices (what people incorrectly call inflation). If the money supply is increased before the supply of goods it will lead to demand outstripping supply. When producers go to restock supply prices will be bid up do to the (artificial) increase in demand. If the money supply increases while supply is increased prices would overall stay the same. If however, the money supply stays the same and production increases prices will fall.
It is my assertion that this latter circumstance is the most preferable to the two former because our money would actually be a store of value (any money we save would end up being worth more when we actually decide to spend it). There is no natural, necessary reason why money should ever lose its value. This is why capitalism provides the best possible material quality of life for the most people – because when people are productive and free to trade, more goods and services are brought into existence and every one is better off as a result of their money having more purchasing power.
I would wager that if there were competition between currencies (i.e., private coinage) what you describe would have little probability of happening to a wide spread degree. Actually, what you describe is precisely the problem with (actual) inflation by the Fed and why we need competition in currency.
And to get back to the original subject of this thread, money is the key to hegemony. Who ever controls the money controls our freedom – and there can be no real freedom without economic freedom.
