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  The Austrian School: This is the "right" money supply | Bit Updates
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The Austrian School: This is the "right" money supply

Saturday, March 10th, 2018 | bitcoin updates


Read article: Money is a good and usually characterized by divisibility and durability – we showed with Murray Rothbard in the previous article. But how many units of this money should there be according to the Austrian School? Money is not consumedThe market tends to be durable goods as a monetary unit, so the money supply does not decrease over time. The change in the money supply is relatively small and is taking place slowly. Supply and demand determine the price. More supply under constant demand means falling prices. Let's say the supply of eggs is increasing. Consumers can buy more eggs for the same amount of money. The standard of living is rising, society is experiencing a social benefit – the people are cheering. But money is different from all the other goods of an economy in one important respect: a change in the supply brings no social advantage. Consumers consume consumer goods. Consumer goods consume capital goods in their production. The monetary unit is not consumed.More monetary units ≠ more prosperityThe "price" of a monetary unit is the exchange ratio to all other goods. The price of money (the purchasing power) is, like all prices, determined by supply and demand. If the supply rises under constant demand, the purchasing power of the money falls. The English philosopher David Hume thought about the inflation of the money supply: What would happen, if the money quantity (in the wallet of each citizen) doubles overnight? People would not be twice as wealthy, even if they falsely think that way. In fact, only the money supply is diluted. If the people with the newly found budget buys goods, prices will double quickly or at least increase until demand is satisfied and no new money is offered for the existing goods. There is no "right" money supply no social advantage. Unlike other goods, money has no use in itself. The value of money lies in its exchange value for other goods. Increasing the money supply therefore means that the effectiveness of each monetary unit falls. Vice versa means a reduction in the amount of money that increases the purchasing power of a monetary unit. The Austrian School concludes that it does not matter what the money supply is, the free market adapts. It is important that the market has the choice – in the monetary unit, in the form of money and in the determination of prices. ConclusionThe "price" of the monetary unit is its purchasing power for other goods of the economy. An increased supply of money does not lead to social welfare as with other goods. Money is not consumed and benefits from the exchange value of other goods. The right amount of money does not exist – the market finds a flexible price according to supply and demand. What all this has to do with Bitcoin, you will learn in the next articles in Serie.BTC-ECHO About Alexander RoosAlexander Roos joined the BTC-ECHO team at the beginning of 2018. He has a BSc in Management, Philosophy & Economics from the Frankfurt School of Finance & Management and has written his bachelor thesis on "The Applications and Adaptation of Blockchain Technology". In decentralized cryptocurrencies, Alex sees the reinvention of money through the open market. His focus is on market principles applied in blockchain projects and privacy coins. All posts by Alexander Roos Image Source: Hutterstock_617290775: Pile of Gold Coins via Shutterstock

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