__________________________________________________________________ William Barnett II and Walter E . Block Rejoinder to Curott In this rejoinder to Curott we have decided to adopt the approach utilized by Hazlitt ( 1983 ) in his refutation of Keynes ( 1936 )— a page by page , sometimes paragraph by paragraph , and even line by line refutation — although we have not been nearly as thorough as was Hazlitt . States Curott : Barnett and Block ( 2010 ) prove beyond any reasonable doubt that money trades in every market and therefore , strictly speaking , has no market price of its own . And so every time I used the phrase “ objective exchange price ” in my comment ( Curott , 2010a ) I should have used the phrase “ purchasing power ” instead ( Curott , 2010b , 12 ). About which , a few comments . “ Strictly speaking ” is the way of science and avoids ambiguity . Let us take an example from a different context . “ Hot ” has no scientific meaning . Although many ( most ?) physicists would agree that it is hot outside in New Orleans today ( August 3 , 2010 ), they would not be speaking qua physicists . No , in their roles as scientists they would measure the thermodynamic temperature in the IS base unit kelvin ( K ) or , perhaps , in the IS derived quantity , Celsius temperature (º C ). More important for our purpose , the use of “ purchasing power ,” like “ hot ,” does not solve the problem . It , too , is nonscientific . No one knows what the purchasing power of any money is . It is , pre- sumably , some ( subjectively ) weighted average of a ( subjectively ) chosen basket of goods . But which goods ? The ones utilized by the CPI , CPE , PPI , etc ? Does this include newly produced goods only ? What of financial assets and pre-existing real goods such as office buildings and machinery , etc .? For two individuals in a Wal-Mart the ( asking ) price of the various goods is an identical and objective amount of money ; but for different such individuals , with different values , each with $ 200 in cash , the purchasing power of that $ 200 will be different . That is , unlike money prices that are objective , purchasing power is subjective . In his first footnote , our author states as follows : “ The correct choice of words is important for clearly expressing ideas . The conventional notion of a market price is an exchange ratio of a good in terms of money . Barnett and Block ( 2010 ) want to reserve the word ‘ price ’ solely for money prices .” Well , yes we do , we but see nothing improper in that , as Curott implies . In fact , in a monetary economy the only prices that matter save for a tiny number of barter transactions are money prices ( Mises , 1998 , Chap . 11 ; Rothbard , 2004 , Chap . 4 ). Curott continues : “ And since there obviously cannot be a price for any particular money enumerated in the same money , the phrase ‘ objective exchange price ’ of money is a poor choice of words to denote the purchasing power of money because it seems to imply that the objec- Laissez-Faire , No . 33 ( Sept 2010 ): 17-26

__________________________________________________________________ tive exchange price is a money price . However , it is important to note that supply and demand analysis is amenable to prices that are not money prices .” This is undoubtedly true in a barter economy , and Curott earns kudos for making this discernment . However , it is not at all the case in a monetary economy . Thus , the phrase “ objective exchange price ” is not “ a poor choice of words .” Rather , it is an incorrect one . Curott now launches into an analysis of the business cycle . He says : “ The fact that money is traded in all markets is of central importance in macroeconomics , as I discuss below , because it suggests that monetary disequilibrium can cause general unemployment ” ( p . 12 ). 1 Again , he earns points for his insight : monetary disequilibrium can indeed bring about the ( Austrian ) business cycle . But that claim is subject to three caveats . The disequilibrium must consist of excess supplies , not excess demands ; the excess supplies must arise from increases in the supplies of , not decreases in the demands for , money ; and , the new money must be injected into the credit markets — it must be lent , not spent , into existence ( Hayek , 1931 ; Mises , 1912 ). Curott ’ s next attempt at setting us straight is as follows : “ Barnett and Block ’ s ( 2009 , 2010 ) primary conclusion , that it is illegitimate to speak of a single market for money , is derived from the premise that money has a price expressed in different units for each market that it is traded in . While the premise is true , the conclusion they draw from it does not follow . Just because money has no market price of its own does not mean that it has no market purchasing power of its own ” ( p . 12 ). Were Curott to word his critique more appropriately he might have said , “ Just because money has no ONE market price of its own does not mean that it has no ONE market purchasing power of its own .” But of course it does mean precisely that . Indeed , we did not at all assert that money has no purchasing power . Very much to the contrary , if an item has no purchasing power , it can hardly constitute a money in the first place . Curott ’ s Note 2 furnishes us with more ammunition , and we quote from it : Barnett and Block ’ s conclusion that there is no aggregate supply and demand for money is based on a confusion of the two meanings of the word “ market .” Sometimes the word market is used in an ordinary language sense to denote a particular sector of the economy , such as the market for pork bellies or the market for haircuts . Other times the word market is used in a technical economics sense to denote the operation of supply and demand among an aggregate of individuals . While money trades in all sectors of the economy , it has a single aggregate supply and demand . But if money has a single aggregate supply and demand , it must have a single “ purchasing power .” We ask , and not at all for the first time , 2 what is it ? Our papers were an attempt to move economics along in a more scientific direction . Curott , unfortunately , appears as if he wants to move us backward . Keynes ( 1936 ) also used the concept of aggregate demand and supply , though his meaning was somewhat different . Curott ’ s type of analysis mimics the Keynesian type of supply and demand for money where “ the 2 If there was one question we asked Curott to 1 Hereafter all page references , unless other- answer in Barnett and Block ( 2010 ) it was wise specified , are to Curott ( 2010b ). precisely this one . __________________________________________________________________ Laissez-Faire 18

__________________________________________________________________ price of money ” is , similarly to Curott ’ s , yet another unscientific concept , i . e ., “ the interest rate .” Curott continues : “ Thus there is no single market for money in the first sense of the word , but there is a single market for money in the second , technical economics sense ” ( p . 12 , Note 2 ). Again , we ask , if there is a “ second , technical economics sense ” of “ a single market for money ,” what is the price of money therein , or , if Curott prefers , what is “ the purchasing power of money ” in that market ? We do not at all go so far as to characterize this as “ unscientific nonsense .” On the other hand , we are exceedingly disappointed that Curott has not seen fit to respond to the question we posed to him a number of times in Barnett and Block ( 2010 ). In Curott ’ s next sally , he relies on the concept of the demand for money in the aggregate . Unfortunately the concept is unscientific because of , inter alia , its ambiguity . Nothing daunted , our author defines this aggregate demand as “ the market summation of individual demands to hold a given quantity of money at different levels of the purchasing power of money , ceteris paribus ” ( p . 13 ). We hate to throw cold water on this concept , but our dissatisfaction with it is expressed as a query : How is it measured ? Sometimes , the “ devil is in the details ,” and here in the present case , unfortunately , no answer to this crucial question is forthcoming . Whereupon Curott mentions “ the market purchasing power of money ” without explaining it , and certainly not indicating how much can be purchased with a given amount of money . Our author , unfortunately , is a creative scholar , in that he is continually inventing new phrases without deigning to explain them . To wit , in this case he says : “ For the reasons explained in my comment ( Curott , 2010a ), as long as money has an anchored value that isn ’ t circular , the market purchasing power of money is determined by supply and demand ” ( p . 13 ). But what , pray tell , is that anchored value ? And to what is it anchored ? Economics would be better off if people stated precisely what they mean without the use of such undefined and uncertain metaphors . This also leaves open the question of supply and demand for what ? Of course , we know that Curott means money ; but isn ’ t one of the biggest “ markets for money ” the one where labor is traded for money ? Don ’ t most people purchase most of the money they acquire by selling their labor ? So , because , as Curott says , this aggregate demand is “ the market summation of individual demands to hold a given quantity of money at different levels of the purchasing power of money ,” shouldn ’ t this summation include the individuals ’ demands for money in the labor markets ( i . e ., their supplies of labor )? Perhaps more important , the demands for money in financial markets of all types exceed that of the demands for money in non-financial markets of all types , if for no other reason than because of the immense volume of such transactions . And yet , the weighted-average prices of labor and of financial transactions are not to our knowledge included in any calculations of the demands for , or supplies of , money . That is , should not these demands for and supplies of money be included in the “ market summation ” to arrive at “ the aggregate demand for money ” and “ the aggregate supply of money ?” Moreover , if these demands and supplies are to be summed “ at different levels of purchasing power ,” how are these different levels arrived at in the first place ? Standard economic analysis concludes that it is the interaction of the supply of , and demand for , a good that determines its price . When considering “ the __________________________________________________________________ Laissez-Faire 19

__________________________________________________________________ demand for , and the supply of , money ,” the purchasing power of money ( PPM ) is the analog of the price in other markets . Since this is the case , should not there be a definite meaning and measurement of the PPM in order that we be able to sum the individual demands for , and supplies of money in order to arrive at “ the aggregate demand and supply of money ”? This leads to circular reasoning because “ the aggregate demand and supply of money ” are themselves necessities if we are to be able to determine from their interaction the specific PPM at any point in time . Curott wants to sum , at various PPMs , the individual demands and supplies of money in order to obtain the aggregate supply and demand of and for money . However , the PPM is determined by the very same aggregate supply and demand of and for money . This is , of course , circular reasoning . That is , Curott must first know the aggregate supply and demand of and for money in order to reach the PPM . But to get there he must first be able to sum the individual demands and supplies for money at various PPMs . Alternatively , Curott needs the PPMs to get from the individual demands and supplies for money to the aggregate demands and supplies for money , but the aggregate demands and supplies for money determine the PPM . Next , Curott opines : “ In a static equilibrium , or , if one prefers , in the ‘ evenly rotating economy ,’ the purchasing power of the money commodity is subject to the law of one price ” ( p . 13 ). We note that in an ERE there is no uncertainty in the Knightian sense of the word , i . e ., in an uncertain world the future is not only unknown , it is unknowable ( Lachmann , 1976 , 1986 ). And people know that they don ’ t know . Moreover , there is no risk in the probability calculus sense of the word . Absent uncertainty and risk , money serves no purpose that some other asset does not better serve , and therefore there would be no money . So Curott ’ s point about the purchasing power of money in the ERE is meaningless as there would be no money under that assumption . ( And so , a fortiori , money would not be subject to the law of one price or of one purchasing power or of one anything else , except nonexistence .) In his Note 4 Curott states : “ Perhaps the ‘ law of one price ’ should instead be called the ‘ law of one purchasing power ’ in order to avoid confusion when it comes to money . Money has many prices , but only one purchasing power , meaning the ratios of all these other prices are fixed by supply and demand .” We cannot see our way clear to agreeing with Curott on this point . For money has many purchasing powers , as we have taken great pains to point out , in Barnett and Block ( 2009 , 2010 ), and now , again , in the present paper . But Curott is having none of this . He states : “ All of the different price ratios for a unit of money in terms of how much of each other good it can buy must have the same purchasing power because inequalities are arbitraged away ” ( p . 13 ). Let us see if we understand him correctly . He mentions “ all of the different price ratios for a unit of money in terms of how much of each other good it can buy … .” Thus if there are two goods X and Y , the price ratios thereof are so many units of X and Y , respectively , per dollar , e . g ., 2X /$ 1 and 3Y /$ 1 . Then he says that these ratios “ … must have the same purchasing power because inequalities are arbitraged away .” That may be true re relatively large stocks of homogeneous goods , but it is certainly not true insofar as very limited stocks of heterogeneous goods are concerned . Let us ignore all of the other __________________________________________________________________ Laissez-Faire 20