__________________________________________________________________ William Barnett II and Walter E . Block Reply to Curott on the Market for Money We are extremely grateful to Curott ( 2010 ) for his excellent and insightful response to our paper ( Barnett and Block , 2009 ). His “ comment ” shows evidence of careful reading and great creativity . He does us great honor by subjecting our article to his critical scrutiny . Nevertheless , we cannot quite see our way clear to agreeing with him , at least in his attempted refutation of our main thesis . Perhaps in any follow-up he cares to write in response to our present rejoinder , he can further educate us in these matters of macroeconomics . Let us begin our analysis with the very last sentence of Curott ( 2010 , 70 ): “ There is a market price for money , and it is determined by supply and demand .” Well , if so , what then is the price for money ? Is it 3 . 5 utils ? Maybe it is one gold ounce ? Or , perhaps , the price of money is the number 19 . 5 , with no dimensions at all ? Can the price of money be determined by a perusal of the statistical pages of the Wall Street Journal ? If so , we beg to be directed by Curott to the exact amount of , well , of whatever , that constitutes . To be very succinct about this , we , the present authors , want to buy some “ money ,” and want to know its price . In that way , we can determine if we can afford to purchase some money . Now , of course , it would not be a proper answer on Curott ’ s part to assert that the price of 1 . 00 USD is equivalent to 1 . 20 CAD , nor , yet , to 0 . 8 EUR . This sort of thing is well known . But note that these do not constitute “ a market price ” but rather two market prices , a distinction that does in fact encompass a fundamental difference . No , we seek something far different from this author : we ask that he make good on his claim that “ There is a market price for money , and it is determined by supply and demand .” It is all well and good to draw a supply and demand diagram on the blackboard , 1 to label the vertical axis “ price of money ,” 2 and the horizontal axis “ quantity of money .” Then to be sure , it cannot be denied , the supply and demand curve , if they are drawn upward and downward sloping , respectively , will meet somewhere in the upper right hand quadrant . Then , a line segment can be drawn from the intersection to the vertical axis , and — viola !— we will have generated a “ price of money .” 1 For a critique of supply and demand analysis , see Barnett and Block ( 2010 ). 2 Or some variant thereof — e . g ., for mainstreamers , “ the ” interest rate , i , or for orthodox Austrians , the “ purchasing power of money ” ( PPM ). William Barnett II is Chase Bank Distinguished Professor of International Business and Professor of Economics , and Walter Block is Harold E . Wirth Eminent Scholar and Professor of Economics , both at the College of Business Administration , Loyola University , New Orleans . Laissez-Faire , No . 33 ( Sept 2010 ): 2-11

__________________________________________________________________ But this sort of thing simply will not do , for it will leave undetermined the dimensions 3 of the so-called price of money . Unhappily , Curott vouchsafes us no specific answer to this vital question . It is to be hoped that in any follow-up article he writes on this subject , he will attempt to make good this oversight , even though this task is , literally , impossible in any meaningful sense . For as Mises ( 1998 , 218 , emphasis added ) states : “ The money equivalents as used in acting and in economic calculation are money prices , i . e ., exchange ratios between money and other goods and services . The prices are not measured in money ; they consist in money .” Now if a price is an amount of money and $ 1 . 00 exchanges for $ 1 . 00 at a bank , then the price of $ 1 . 00 is $ 1 . 00 . As we usually quote prices in terms of $ x / y , i . e ., Py = $ x / y , then P $ = $ 1 . 00 /$ 1 . 00 = 1 , and therefore the price of money is one . But surely , this is not what Curott had in mind . In contrast , were anyone to ask us , we would be happy to supply any number of prices for common , ordinary goods and services . For example , the price of a McDonald ’ s hamburger ranges from $ 2- $ 5 ; a decent pair of shoes can be had for $ 100 ; the price of mowing an ordinary sized back yard is about $ 20 . All Curott need do , to convince us of the error of our ways , would be to offer us the price of money , along these lines . Curott states 4 : “ The premise that money does not have a price expressible in units of some other single commodity is of course true . But it does not follow from this premise that money has no single price . The argument is a nonsequitur ” ( pp . 67-68 ). Curott , here , could be taken to mean that in fact money has no single price , but that we did not make the case therefor ; i . e ., we were inept , but someone else could make the case in a satisfactory way . This obviously is not what he intends . The only other meaning is that money does have a single price , but as it is not “ in units of some other single commodity ,” it must be in units of multiple commodities taken as a group . But this raises the aggregation problem , i . e ., that of making incommensurables commensurable , an impossibility . In fact , what Curott has in mind is that the price of money is the reciprocal of the price of some specific basket of goods , X ( ωixi , … , ωnxn ), where xi is good i and ωi is the weight assigned to xi in the basket X . That is , if it takes $ 100 to purchase the basket X , the price of money is PM = 0 . 01X /$ 1 . Of course , this could be expressed as an index number , but that is a trivial matter . Moreover , even in that case money has no single price ( though its multiple prices would be different from the correct ones ). That is , for each different set of weights there is a different PM . Rothbard ( 2004 , 237-38 ) states : The purchasing power of the monetary unit consists of an array of all the particular goods-prices in the society in terms of the unit . It consists of a huge array of the type above : 1 / 5 horse per ounce ; 20 barrels of fish per ounce ; 16 dozen eggs per ounce ; etc . 5 3 For an essay that focuses attention on the importance of dimensions , see Barnett ( 2004 ). 4 Hereafter , unless otherwise specified , page 5 Rothbard adds to this statement the following footnote : “ Many writers interpret the ‘ purchasing power of the monetary unit ’ as being some sort of ‘ price level ,’ a measurable entity consisting of some sort of average of ‘ all goods combined .’ The major classical references are to Curott ( 2010 ). economists did not take this fallacious posi- __________________________________________________________________ Laissez-Faire 3

__________________________________________________________________ Further , Rothbard ( 2004 , 238 ) refers to : “ … the ‘ price ’ of money … ,” specifically putting quotation marks around price . That was neither an accident nor a mistake . And , Rothbard ( 2004 , 773 ) makes clear : “ This purchasing power of money , as we shall see below , cannot be measured .” So now , if we accept Curott ’ s position , money has one price but it cannot be measured . There is one interesting price for you . The point is , a price that cannot be measured is not a price , because the essence of a price is a ( measured ) quantity of money itself . Or , to repeat , as Mises says : “ The prices are not measured in money ; they consist in money .” But , money that cannot be measured cannot be money ; it cannot serve the monetary function of facilitating trade , overcoming double coincidence of wants problems . Just image yourself , gentle reader , trying to buy something for , say $ 10 , and handing over some “ money ” ( that cannot be measured ) to the vendor , and expecting him to give you change . The seller would look at you in bafflement ; for sure , he would not turn any of his wares over to you . Curott further states : “ The price of all commodities , including money , may be expressed in terms of its exchange ratio against all other goods ” ( p . 68 ). That is simply incorrect . First , as a matter of English it is ambiguous at best , incoherent at worst . Consider the first part : “ The tion : ‘ When they speak of the value of money or of the level of prices without explicit qualification , they mean the array of prices , of both commodities and services , in all its particularity and without conscious implication of any kind of statistical average ’ ( Jacob Viner , Studies in the Theory of International Trade [ New York : Harper & Bros ., 1937 ], p . 314 ). Also cf . Joseph A . Schumpeter , History of Economic Analysis ( New York : Oxford price of all commodities , including money . … ” Now , all commodities , including money , means the totality of commodities ; i . e ., it is all encompassing . Next , consider the second part : “ … may be expressed in terms of its ratio against all other goods .” But there cannot be an exchange ratio against all other goods , as there are not , nor can there be , any other goods . To put his statement a little more rigorously : “ The ( one ) price of the set of all goods ( including money ) may be expressed as its ( one ) exchange ratio against the null set .” Notice the clear use of the initial “ The price ” and subsequent “ ratio ” ( not ratios ) each meaning one . Notice also the initial use “ all commodities , including money ” and the subsequent use of “ all other goods .” Could Curott have meant : “ The price of each commodity [ not , all commodities ], including money , may be expressed in terms of its exchange ratio against all other goods ”? But even that is incorrect . 6 For in a monetary economy the price of each good , except money , is expressed in terms of its one exchange ratio against money , not its exchange ratios against all other goods . It is only the prices of money that are expressed as exchange ratios against all other goods . Once he included money along with all other goods the meaning of the sentence became hopelessly confused , because inter alia , where prices are concerned , the positions of money , on the one hand , and that of all other goods , on the other , are totally inverted . 6 Curott ’ s statement is correct in an economy of pure barter , with no one commodity serving in the monetary role , e . g ., facilitating exchanges . But the system of pure barter is irrelevant to our present concerns , as we are University Press , 1954 ), p . 1094 .” now , perforce , discussing a monetary system . __________________________________________________________________ Laissez-Faire 4

__________________________________________________________________ Curott ( p . 68 , emphasis added ) also states : “ … the price of money itself is only expressible as the inverse of its exchange ratio in terms of all of the other goods that it can purchase .” 7 But there is , at least in the real world , no “ the price ” of money and no “ exchange ratio in terms of all other goods that it can purchase .” 8 But Curott ( p . 68 , emphasis added ) then gives the game away : After noting that “ … the price of money is only expressible as the inverse of its exchange ratio against all other goods … ,” he adds : “ This inconvenience has spurred statisticians to search for the construction of indices to express the purchasing power of money ( PPM ).” To describe statisticians ’ centuries-long efforts to develop a PPM as “ an inconvenience ” is euphemistic , at best . As Mises ( 1998 , 224 ) has 7 Mises ( 1998 [ 1949 ], 427 ) states : “ The money relation , i . e ., the relation between demand for and supply of money , uniquely determines the price structure as far as the reciprocal exchange ratio between money and the vendible commodities and services is involved .” This is the position held by Curott . But note that Mises also refers to “ … the exchange ratio between money on the one hand and the vendible commodities and services on the other … .” ( 401-02 ). That is , Mises makes the same mistake as Curott as there is in reality no single exchange rate between money and other goods . Apparently Mises commits this error because he wishes to make use of the concept of “ the ” purchasing power of money . noted , such efforts are doomed and useless as the only PPMs that are relevant are those appropriate for each individual decision maker . 9 Curott then goes on to state that : “ In the construction of any given index the relative weighting of any particular good is arbitrary . But the price that the index is constructed to measure is an objective exchange price determined by supply and demand ” ( p . 68 ). That is , any index of the PPM , the supposed price of money , is arbitrary or , to use a synonym , subjective . So , a subjective index is to be used to measure “ the ” objective exchange price ? 10 Moreover , if money has a price and if 9 “ The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place . These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred . In periods of slow alterations in the relation between the supply of and the demand for money they do not convey any information at all . In periods of inflation and consequently of sharp price changes they provide a rough image of events which every individual experiences in his daily life . A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell . She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation . If she ‘ measures ’ the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick , she is no less ‘ scientific ’ and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market ” ( Mises , 1998 , 223-24 ). 10 Mises ( 1981 [ 1912 ], 217-19 ) explains the 8 Mises ( 1981 [ 1912 ], 216 ) states : “ The objective exchange value of the monetary unit can be expressed in units of any individual commodity . Just as we are in the habit of speaking of a money price of the other exchangeable goods , so we may conversely speak of the commodity price of money , and have then as many expressions for the objective exchange value of money as there are commercial commodities exchanged for money .” problems with this . __________________________________________________________________ Laissez-Faire 5