Thursday, July 14, 2011

Don Boudreaux skips a step of analysis

Overlooking the important question of to what extent should consumption patterns, and patterns and techniques of production, in the “real” economy change as a result of people’s increased demand for money, we can nevertheless reasonably conclude that, ceteris paribus, a simple taste-driven increase in the demand for money does not imply that patterns of resource allocation, production plans, and consumption plans are seriously out of whack. Cafe Hayek

I like his post on discussing the concept of deficient demand and monetary stimulus (he thinks it doesn't work) But please address the question of how an aggregate demand for money can occur system wide without some distortionary flow being the cause.

We have to posit some psychology effect causing us to hold money, a psychological effect lasting long enough to even consider monetary stimulus.

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