Introduction: The Contextual Setting

1. Economics and the division of labor—definition of subject in Chapter 1 of Capitalism.
2. The division of labor and the productivity of labor—how the division of labor is essential for a high and rising productivity of labor—Chapter 4 of Capitalism.
3. Wealth and natural resources—why production not limited by lack of natural resources—Chapter 3 of Capitalism.
4. Dependence of the division of labor on the institutions of capitalism, including the price system—Chapters 5–8.
5. Influence of the division of labor on the institutions of capitalism—Chapter 9.
6. Much of this course picks up from Chapter 2—“The Role of Wealth in Human Life”: limitless need and desire for wealth; natural resources no obstacle; the problem is how to go on raising the productivity of labor. Division of labor and capitalism the on-going solution to this problem, which is called “the economic problem.”

II. The Division of Labor and Money

A. Specific dependence of the division of labor on money

1. Problems of double coincidence of wants—money radically widens possibilities of exchange and thus division of labor.

2. Money and economic calculations and comparisons—of methods, products, industries, and jobs—allows existence of price system and its coordinating functions with respect to the division of labor, as described in Chapter 5.

B. Money Making and the Concept of Productive Activity

1. The need to earn money to participate in the division of labor; earning money thus an essential aspect of productive activity in a division of labor economy. The vital distinction between the labor of an unpaid housewife and a paid housekeeper.
2. The purpose of money making or not money making as the distinction between production and consumption.

a. Consumptive production—consumers' physically productive activity versus that of business
b. Productive expenditure and consumption expenditure
c. Capital goods and consumers' goods
d. Classification of capital goods and consumers' goods not based on physical characteristics—machines that are consumers' goods
e. Producers' labor and consumers' labor
f. Why government a consumer
g. Producers' loans and consumers' loans; nature of government borrowing

3. The concepts of imputed income and opportunity cost.

a. Fictional incomes and costs based on the idea that the saving of an expense is an income and the absence of an income is a cost. They require the introduction of counterbalancing fictional costs and incomes. E.g., the fictional income of the homeowner and his fictional cost. Fictional housewives' income. The “income” of not having cancer.
b. “Opportunity cost”: the successful businessman who runs at a loss; the “gains” of closing down your research department and reducing the alternative opportunities open to you. When to buy a yacht or jump from a skyscraper.

III. Money and Spending

A. The Quantity Theory of Money: the Formula of M₁ and Velocity

1. How more M raises D: the gold mining case and the social security case
2. The quantity theory of money as the explanation of rising prices
3. Fiat money versus commodity money; the increase in fiat money and spending versus the increase in the production of goods
4. Virtual impossibility of inflation problem with gold and silver; even now, prices calculated in gold and silver coins show no rise

B. The Origin and Evolution of Money and the Contemporary Monetary System

1. How rational self-interest led to the development of money out of barter
2. How it led to the selection of gold and silver as money.
3. How paper (including checkbook) money came into being.
4. Government and the demonetization of the precious metals: the Civil War, the National Bank Act, the Federal Reserve System, World War I (including the Federal Reserve and the pyramiding of gold reserves), the New Deal, the final break with gold in the 1960s.
5. Inflation and the potential spontaneous remonetization of the precious metals.
6. Recent change in the composition of the money supply and the deficiency of the weekly reported M₁ statistics

C. The Monetary System and Banking

1. Standard money—commodity money or fiat money.
2. The monetary base.
3. Fiduciary media: transferable claims to standard money, payable on demand, and accepted in commerce as the equivalent of standard money, but for which no standard money actually exists.
4. How fiduciary media are created.
5. Fractional-reserve banking and 100%-reserve banking.
6. Limits to the private issuance of fiduciary media: the clearing difficulties of more rapidly expanding banks; the public's demand for standard money.
7. Governmental encouragement of fiduciary media.

a. Expanding the amount of reserves—fiat money reserves and central banking.
b. Making reserves more potent: expanding reserves—overcoming the problems of the clearing, and of the public's demand for currency. Rediscounting, deposit insurance, bank examinations, restrictions on bank competition, payments suspensions.

8. Contemporary money creation: open market operations.

Open market operations and deficits.

D. The Quantity of Money and the Demand for Money

1. Velocity as the reflection of the demand for money for holding.
2. General factors affecting the demand for money for holding—security of property and complexity of production.
3. Changes in the quantity of money as the cause of changes in the demand for money and thus the velocity of money.

a. The effect of credit expansion on the prospects for borrowing.
b. The ability to substitute other assets for cash holdings.
c. The anticipation of higher prices.
d. The effect of more money on the rate of interest, which, after a temporary drop, is to raise the rate of profit and thus to increase the demand for and reduce the supply of loanable funds.

E. The Demand for Money and the “Balance of Payments” Doctrine: A Critique

1. The meaning of the balance of trade and payments.
2. Historical origins of the concepts (Mercantilism) and notion of what is a “favorable” or “unfavorable” balance.
3. The concepts under a system of fiat money—no loss in an outflow of fiat currency.
4. Mainly fictional nature of the outflows.
5. Foreign investment as the source of an “unfavorable” balance of trade.
6. The balance under a precious metal or other world-wide standard.

a. Principle governing the distribution of precious metal money among the various countries.
b. Why gold mining countries export gold.
c. The tendency of the balance toward balance.
d. sufficiency of precious metal money to transact commerce—loss of precious metals due to not enough production of goods; potential destructive role of labor unions

7. Inflation as the cause of a gold or other reserve outflow.
8. Error of blaming the citizens.

Spending abroad does not cause a money outflow if the citizens have a demand for the money.

F. An Invariable Money

1. Variations in prices from the side of money and the side of goods.
2. The need to isolate
3. The contribution of invariable money to economic theory.