Thread by @Zero_Analyticz

Ludwig Von Mises The Quantity Theory 🧵 1:

The value of money originates partly (or chiefly) from its monetary function. In this he attacks Laughlin's theory which failed to account for the special characteristics of money.

Laughlin treated money as a paper that...
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https://twitter.com/Zero_Analyticz/status/1879854921157390805

...has value (especially the Rupee (between 1893 and 1899), and the Russian Rouble as token money convertible into gold and having it's value based on that possibility.

In this way he compares paper money to shares of concern, not currently paying any dividends...
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but whose shares have a" certain exchange-value, because of the possibility of future dividends".

Laughlin further claims that the "fluctuations in the exchange-value of such paper money are consequently based upon the varying prospects of its ultimate conversion "
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Mises points out the error in this (as well as other earlier quantity theories), in an actual example where the Austrian National Bank from 1859 onwards was freed off it's obligations to convert its notes to silver on demand without one...
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...knowing when notes issues in 1866 would be redeemed.

Laughlin found the value based at first in the prospects that it would be converted to Silver and then later on in to Gold.

The inadmissibility of this argument as demonstrated in year chosen at random...
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...where Austrian Government bonds were quoted in the exchange at an average rate of 4.19% below par.

These bonds were not redeemable in the same way the non interest bearing currency notes where also not redeemable but the interest in the bonds were payable...
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...in these currency notes.

The question now arises on how government bonds valued at near 5 percent could be valued higher than the non interest (credit) money counterpart (currency notes).

The answer to that question is because the currency notes...
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...were indeed a common acceptable media of exchange and so besides the value they possessed as claims against the state, they also possessed value as money.

For as mere claims, it is impossible for them to have a higher value than the notes (fixed sum)...
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...which they represent upon redemption, if indeed the values of these notes are derived from the expectations of a redemption (in gold or silver).

This is the problem of Laughlin's Money Theory, as it is clear from Mises' illustration...
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...that the monetary function also plays an important role in its valuation.

It also follows that since money has an objective exchange-value, the supply and demand for money would play a role in its exchange-ratios with other economic goods.
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When the determinants of exchange-ratios between economic goods were first inquired into, attention was early devoted to "the available quantity of a good in relation to another."

So the price of that good increases with a decreased supply, and vice-versa.
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And this applies to money's exchange ratios with other goods.

It is also, yet another self-contradictory statement by Mises. For if prices are affected by market conditions, the subjective valuation of a consumer won't matter if the good becomes scarce,....
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...he would pay more for it than he is willing to, as long as his need for it hasn't totally diminished. Just as I'm telling case of prices increasing with money supply.

It is also not a necessary condition that his use for it increases, as long as it isn't reduced.

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