quarta-feira, 11 de julho de 2007

"Micro and macro are not mysteriously separate worlds"

"When economics students read textbooks, they learn; in the “micro” sections, how prices of specificgoods are determined by supply and demand. But when they get to the “macro” chapters, lo and behold! supply and demand built on individual persons and their choices disappear, and they hear instead of suchmysterious and ill-defined concepts as velocity of circulation, total transactions, and gross national product. Where are the supply-and-demand concepts when it comes to overall prices?In truth, overall prices are determined by similar supply-and-demand forces that determine the pricesof individual products. Let us reconsider the concept of price. (...)

So prices, overall, can change for only two reasons: If the supply of money increases, prices will rise; ifthe supply falls, prices will fall. If the demand for money increases, prices will fall (PPM rises); if the demandfor money declines, prices will rise (PPM falls.) The purchasing power of the dollar varies inversely with thes upply of dollars, and directly with the demand. Overall prices are determined by the same supply-and-demand forces we are all familiar with in individual prices. Micro and macro are not mysteriously separate worlds; they are both plain economics and governed by the same laws." The Mystery of Banking, Murray N. Rothbard

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