Resume Buku 1

 The Purchasing Power of Money, its Determination and Relation to Credit, Interest and Crises by Irving Fisher

The discussion of this book starts from chapter I regarding Primary Definitions. In this section, Economics is defined as economics as the science of wealth, which is the material objects owned by humans. Wealth is characterized by two important attributes: existence material and mastery. Wealth is categorized into three main types: real property, commodities, and people, with special emphasis on money as a common commodity received in exchange. It is explained that value is the price of an item multiplied by j the number. This leads to a discussion of property rights, which are rights over the benefits of wealth, and how these rights can be measured in abstract units. Difference between property rights and certificates of those rights are also highlighted, with the certificate being written evidence of these rights. Next, the relationship between wealth, property and benefits is explained over time, distinguishing between stock (the amount on hand at a certain time) and flow (the amount produced, consumed, transported, or exchanged over a period of time). This difference applied to concepts such as capital and income, with capital being a stock of goods and income becomes the flow of benefits from that capital. 

The next discussion relates to the concept of the purchasing power of money in relation to the equation of exchange, which is a basic principle in economics. This principle is important for understand how changes in the money supply, its speed of circulation, and volume the trade affects the price level and, consequently, the purchasing power of money. The explanation explains that the purchasing power of money is determined by the amount of other goods it can buy with a certain amount of money, which is inversely proportional to the price level. This relationship is reflected in the equation of exchange, which states that the total amount of money exchanged with charcoal in an economy is equal to the total value of the goods. This equation is a mathematical representation of the quantity theory of money, which highlights that inflation is directly proportional with changes in the money supply and that the demand for money has two components: pa request to use in a transaction and a request to save money for its liquidity. 

Next the author explains the nature of bank deposit currency, or circulating credit, and pits influence on the equation of exchange, which in turn affects purchasing power. It is said that essentially the concept of bank deposits is a creditor's claim against a bank, which allows them to withdraw a certain amount of money on demand. it is emphasized that bank checks, which are certificates of the right to withdraw bank deposits, bis not the currency itself but represents the currency. The explanation is further explore banking mechanisms, including the transfer of bank deposits by check, the concept of "credit bcirculated," and the role of banks in providing loans and managing deposits. In this section jalso described the dual nature of banking operations, distinguishing between two types of currency: 

bank notes, which are considered money, and bank deposits, which are not money but bserves as a substitute. This distinction is important for understanding the classification of goods broader into three categories: money, currency deposits (or deposits), and all goods other. There is a relationship between the amount of money in circulation (M) and the amount of bank deposits (M'), highlighting that changes in M ​​require proportional changes in M' to maintain a stable ratio. 

To continue the discussion in this section, we will discuss the impact of bank deposits to the amount of money in circulation during the transition period. This chapter emphasizes that during a normal ratio is maintained between bank deposits and money in circulation, the presence of deposits bank does not interfere with the effect of money on prices. It was emphasized that changes in Trading speed has a consistent impact on price, regardless of whether deposits are made bank was included in the analysis. During the transition period, the relationship between money and deposits not stiff. The dynamic nature of the exchange mechanism, where each disturbance in one parts of the system affect all components during the transition period. Next, it is discussed how sudden changes in the quantity of money can cause price oscillations before there ended up doubling the price and adjusting the interest rate as a response on price movements and the consequences of interest rate behavior on economic stability during the transition period. 

In this section the author focuses on the indirect influence on purchasing power, with a focus pthere are factors that influence price levels through trading volume, speed circulation of money and deposits, as well as the amount of money and deposits. This influence acts as Intermediaries that influence prices indirectly, with various external factors that influence prices through these primary influences. This section aims to identify and discuss the main outside influences that affect trading volume and then influence the price level. In addition, it is explained how the number increases money or bank deposits, together with the speed of their circulation, affect the price level. It emphasizes that the introduction of bank deposits tends to increase prices, causing the process of tracking the influence of the amount of money on general prices becomes more complex. Expanding the monetary circulation equation to include deposit circulation complicates things The direct influence that the quantity of money has on prices makes the analysis possible more complicated and challenging. This chapter also discusses the interaction between outstanding and potential credit their effect on the equation of exchange, adding a layer of complexity to the understanding about the dynamics of purchasing power during the transition period. 

Still a continuation of the explanation from the previous chapter, this chapter will discuss influence indirectly to the amount of money (M) in the exchange equation. This discusses external factors that influence the amount of money, such as interest rates and crises, and bhow does this influence the volume of trade, the speed of money circulation and deposits, as well as the amount of deposits. This chapter categorizes these external influences that influence jamounts of money and emphasize their role in shaping overall purchasing power dynamics during the transition period. In addition, Chapter VI highlights the complexity of the monetary system with examine how external factors influence the amount of money and thereby impact it price. This emphasizes the importance of understanding indirect influences on the amount of money to understand the broader implications for purchasing power dynamics and economic stability. By investigating the main influences from outside that influence the amount of money inside equivalent of exchange, this chapter provides valuable insight into the complex relationship between The various factors that shape the monetary system and their impact on prices. 

This section illustrates the influence of the monetary system, specifically focusing on concepts Gresham's law, on the purchasing power of money. Gresham's Law states “bad money will replace good money," which in practice means that cheaper money will replace more expensive money. This principle has its roots in the historical use of precious metals as currency, where cheaper metals would be preferred for transactions, thereby dominating over more expensive metals. The explanation further explores the implications of Gresham's Law for bimetallicity, a monetary system that involves the use of two metals (for example, gold and silver) as the basis of a country's currency. It discusses how bimetallicity can function in some circumstances but in no other way, highlights the challenges and limitations of this system, including the operation of Gresham's Law, which can lead to the dominance of cheaper metals and the eventual monometallization of the system. The explanation also touches on the historical and practical aspects of bimetallics, including their failures and the reasons behind them, such as operation Gresham's Law, speculation, and the difficulty in keeping the market rate equal to the garden ratio. Despite its ultimate failure, the bimetallic legacy remains valuable for understanding the evolution of monetary systems and the dynamics of currency values ​​and purchasing power. In addition, there is the concept of “limping standards”which appears as results of the transition from bimetallic to monometallic standards, particularly focused on the United States and France. Bimetallic is a system in which both gold and silver are used as legal tender, practiced in many countries, including France and America Union, until finally it was abandoned on a large scale. The explanation is exploratory the historical and economic implications of this transition, highlighting how printing presses closed for one of the metals (usually silver) causes a situation where the coin is left over from the metal It remains in circulation along with other metals (gold), despite additional amounts of metal those excluded were minted coins. This situation results in differences in value between the metals raw materials and coins of excluded metals, with such coins being overvalued. It is argued that there is potential for irredeemable banknotes to circulate alongside money it's different if the quantity is limited and not too unpopular, as well as the concept of a gold exchange standard as a partial solution to maintain parity with gold without the need to own gold in circulation. Historical examples are given, such as the case of France and the Latin Union, illustrates the complexities and challenges in maintaining bimetallic standards or impotent in practice. 

The next section explains the Quantity Theory of Money (QTM), which states that the general price level of goods and services in an economy is directly proportional with the money supply, assuming the real level of output and the velocity of money circulation are constant. This theory is represented in the equation MV=PT, where M represents the money supply, V is velocity of money circulation (how fast money circulates in the economy), P is the price level average, and T is the transaction volume. QTM propositions that prices vary with money only applies when comparing two imaginary periods in which prices are fixed or moving at the same speed. During the transition period, an increase in the money supply (M) can cause effects not only on prices but also on all other magnitudes within pexchange equivalents, including deposits (M'), speed of money circulation (V and V'), and trading volume (Q'). The velocity of circulation of money (V and V') can move in different directions bresistance during times of panic, causing stockpiling and a decrease in circulation speed Money. An increase in the money supply during a period of rising prices can stimulate trading volume (Q'), while a decrease in M ​​can cause the opposite effect, reducing trading volume and speed of money circulation. The explanation also discusses effects pchanges in deposits (M') and velocity (V and V') of money supply and prices, stressed that these changes could have a significant impact on the economy. Fischer said that by strengthening the validity of QTM, it states that variations in money (M) produces a normally proportional change in price, but admits bthat this relationship is not absolute during the transition period. Fisher introduced the concept of "price index" as a practical necessity resulting from dispersion price. This price index simplifies the statistical study of general price movements with turns the right side of the exchange equation, which consists of thousands of terms, into one single term. The reciprocal of this price index indicates the purchasing power of money. Explanation It also describes price variability, price adjustments to changes psupply of money, and the impact of legal and customary restrictions on price adjustments. It is explained that there are three main reasons for depression, namely: many prices are limited by previous contracts, legal restrictions, or customary practices, which limit their abilities to adjust freely in response to market forces. Some prices are close related to the value of the money metal (gold or silver), which can influence their movement. Each individual price is subject to unique variations influenced by offer conditions and phis specific request. So as to summarize the general movement of prices and trading in one figure, the concept of price index (P) for price and trade index (T) for trading volume introduced. The last few sections of this paper focus on the concept of index numbers for purchasing power, Fisher explores the complexity and diversity of index numbers, highlighting its possibilities unlimited in its forms and the importance of choosing the right elements for each purpose Specific. He emphasized the need for index numbers to be adaptable for various purposes, e.g measure capital, income, or the general level of prices. Fisher also discussed internal challenges building index numbers that accurately reflect changes in the purchasing power of money, considering the complex interaction of various economic factors. 

Fisher introduced the idea of ​​using a base year to compare prices from different years, suggests bthat the best base year for each year is the previous year. This approach allows a more accurate comparison of price changes over time, because avoids inaccuracies that might be introduced by using a base year remains that may be too far removed from the years of interest. He also discusses its importance choosing the right price to include in the index figure, depending on the purpose of the figure the index. For example, when measuring changes in the general level of capital goods prices, index figures should relate only to prices and quantities of capital goods, excluding capital goods jlabor demand and the rent paid for its use. This section also suggests bthat wholesale prices are the most suitable choice for index numbers because they are more reflects the prices that consumers and businesses face every day. Besides that, pexplanations provide detailed analysis of the relative importance of different types of transactions in economics, such as real estate transactions, securities transactions, and wages, with argument that this does not significantly affect the overall price level and by therefore it does not need to be included in the index. It also discusses usage implications median as an index number for prices, implying that this is a method that practical and effective for general purposes. 

Referensi: 

The Purchasing Power of Money, its Determination and Relation to Credit, Interest and Crises, by             Irving Fisher, assisted by Harry G. Brown (New York: Macmillan, 1922). New and Revised Edition.