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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: GraceZ who wrote (17072)2/10/2004 3:19:09 PM
From: Elroy JetsonRead Replies (2) of 306849
 
This is bit is a little abstract, but money is a social construction - about as abstract as it gets.

The Austrian school says that Capital at any point in time is fixed, regardless of how many paper certificates you divide it into. Pretty obvious really.

Milton Friedman's school of Monetarism says you can print more money to brighten up an economy with too much debt. Here, you'll see why many economist snidely refer to Monetarists as just Keynesian's with funny name.

Now Friedman well knows that increasing the money supply doesn't actually increase Capital. But the extra money makes people think they have more Capital, so it tends to trick them into spending - so Monetarism is simply a disguised form of Keynesian stimulation.

By making someone think their house is worth twice as much Capital, you can trick them into borrowing half the value of their house and spending it. If the price of their house had remained the same you would be very unlikely to get them to spend half their house to help pump up incomes. But if you double the money supply, the price of their house doubles - so they mistakenly think they have twice as much capital, when it's actually still just one house.
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