von Mises and money

["Roger Koppl" <KOPPL@xxxxxxxxxxxxxxx>]

For those who are interested, here is an edited message I got from
George Selgin on Mises's regression theorem.  Note his JMCB article
was Nov. 1994.

RK


I was surprised to see
that you favored Patinkin over Mises.  Patinkin's solution, as you
indicate, is quite static: a purely logical "solution" to the problem of
defining a monetary equilibrium.  As such it is quite sound, but it doesn't
at all address the issue Mises was concerned with, which was to explain
the *process* by which such an equilibrium might be achieved in the
real world.  Agents subjective expectations play no role in Patinkin's
analysis: it is simply assumed that they "know" the logical solution
Patinkin describes, and act accordingly.  But expectations might just as
well lead people to refuse mere "bits of paper" altogether, landing them in
the corner "nonmonetary" equilibrium.  Indeed, the latter is just what one
might expect in a situation were people in a barter economy are just given
sums of paper money and told, "O.K.; this is money, so go ahead and trade
with it."

What Mises in effect offers is a story of how adaptive expectations can
lead to a fiat monetary equilibrium provided you start out with a commodity
link.  I think Mises probably would have had no problem with Patinkin's
"solution," except to note that it did not solve the practical problem he
was concerned with.  Patinkin, on the other hand, simply did not appreciate
the practical issue Mises was addressing.  I think that, in the light of
Post-Patinkin understanding of the crucial role of expectations in monetary
theory, Mises actually seems more "modern" than Patinkin.  Anyway,
that'swhy I would "choose" Mises over Patinkin if I had to.

In my paper (Actually November 1994--how time flies!) I cite a number of
other works on this issue, including one by Kirzner which gets right to the
heart of things.

George


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Roger Koppl
Associate Professor
Economics and Finance
Fairleigh Dickinson University
Madison, NJ 07940
USA

Internet: Koppl@xxxxxxxxxxxxxxx
Phone:  (201) 443-8846
Fax: (201) 443-8804
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