How Much Money Does an Economy Need?: Solving the Central by Hunter Lewis

By Hunter Lewis

What quantity of money Does an financial system want? takes a topic that almost all humans locate tough to decipher and makes it effortless to appreciate. not just effortless, yet attention-grabbing, with startling insights in each bankruptcy. This publication is mainly suggested for expert readers and public coverage makers who are looking to resolve economics if you want to make larger offerings

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Yes he simplest answer to the question posed above is that an economy should have as much money as possible. After all, why should people suffer from a lack of money? Why should money be scarce? Economist Milton Friedman has provided a useful illustration of this kind of thinking. Assume that the government decides to construct a road. Rather than levy taxes to meet the expense, public officials simply start up the printing presses and run offsome currency. T == 31 32 II How MUCH MONEY DOES AN ECONOMY NEED?

B ,,28 Invest In new)o s. In one respect at least, government spending has a decided advantage over business investment. When businesses hire new employees, the wages count as costs, costs immediately reduce profits, and lower profits generally mean less investment, at least temporarily. The employees will spend their wages, which will increase demand, but they may not spend all their wages. This should all work out, because unless something goes wrong, the business investment will in due course produce its own profit, and thus further investments.

The truth is that the boom/bust cycle which has bedeviled capitalism for centuries cannot be solved by "printing" and circulating more money, for the simple reason that monetary expansion is the cause of the cycle in the first place. This is even true if the new money does not lead immediately to inflation. This argument, which is often referred to as the Austrian or Misesian theory of the business cycle in honor of its principal progenitor, the Austrian economist Ludwig von Mises, has many facets.

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