Money. Credit. Banks. Empirical laws of money circulation (lecture notes)

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Money. Credit. Banks. Empirical laws of money circulation (lecture notes)

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Empirical laws of money circulation

Law is the connection of phenomena. This connection may be superficial or substantial. Surface relationships express empirical laws (Gresham's law, monetary rule). Internal causal relationships express essential laws (Fischer's formula, the formula for the amount of valuable money needed for circulation).

Gresham's law "Worse money drives out better money." Preference is given to money that has intrinsic value, has greater liquidity, performs the maximum number of functions, and has the greatest stability. This law is proved by the real practice of the evolution of money. For the most part, the best money goes into savings and treasures: gold, foreign currency.

Miller and Van Hoose's concept. The concept operates with two concepts: "waiting costs" and "transaction costs". Together they form the cost of circulation. The aspirations of individuals, causing the transition from one system of trade to another, lead to the evolution of monetary systems. As a result, the minimum total distribution costs are reduced, i.e. the exchange process is cheaper, the time for its implementation is reduced.

monetary rule - its essence is a proposal for the practical establishment of a connection, a quantitative relationship between the rate of issue of banknotes and the rate of economic growth in the conduct of a reasonable monetary policy in order to prevent inflation. Monetary rule: the value of the increase in the mass of money in circulation for a certain period of time should be equal to the growth rate of gross domestic product and the rate of price dynamics (inflation) for the same period: ΔM = ΔY + ΔI, (ΔM - increase in the mass of money in circulation; ΔY - GDP growth, ΔI - the rate of price dynamics (inflation)).

The problem is the most accurate fixation of the rates of price dynamics (inflation). To measure it, the price indices of Laspeyres, Paasche and Fisher are used.

Consumer price index (Laspeyres price index for measuring inflation) - built on a comparison of the basic volume of product supply.

It is believed that the consumer price index (Laspeyres price index) exaggerates the real dynamics of price growth.

The Paasche price index is based on a comparison of the current volume of supply. It is believed that the Paasche price index understates the real dynamics of price growth.

The Fisher price index is a kind of "ideal" statistic used to neutralize the errors of the consumer price index (Laspeyres price index) and the Paasche price index in quantitatively measuring price movements (inflation). It represents their geometric mean: I_Ф = √I⁰_Л I⁰_П

Author: Shevchuk D.A.

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