By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil
While it is probably true that no one has ever gone broke underestimating the intelligence of the public, it is also true that many who try to turn a profit from stupidity often become the victims of their own nonsense. As we have discussed previously, the fear industry that has grown up since 2008 – mainly centred on the gold market – is a manifestation of this dynamic. Their clarion call is that hyperinflation is inevitable and could happen at any moment.
We will not debunk their false claims that Quantitative Easing and other monetary easing programs will lead to hyperinflation because these programs do not contribute to aggregate demand, as we have discussed earlier on this site. Instead, we will peek behind the hyperinflationist’s mask. Although the proponents are often loud and shrill they rarely explain their reasoning in any sustained manner – probably because they don’t fully understand it themselves. However, if you are familiar with the economic theories that they hold you can reconstruct their reasoning. This is what we propose to do here together while showing that, even if we accept their reasoning, economies will not generally react to increases in demand as the hyperinflationists think they will.
Like Spinning Plates
And this just feels like spinning plates…
I’m living in cloud cuckoo land…
– Radiohead, ‘Like Spinning Plates’
Why do economists build models? This is a very good question. Personally, I’m not a fan. I think that models are misleading and somewhat silly. However, the reason some economists build them is their recognition of the limitations of human cognitive capabilities. After all, it is much easier to think about a closed system with well-defined parameters than it is to look at the complexities of the real world. This, it seems, is why some economists seem to believe that modelling is important.
When considering economists and their models I have learned an important rule of thumb: an economist’s competence is inversely proportional to their need for a model. In addition to this, we can also add that as an economist’s need for a model increases we will often find that the model they rely upon becomes substantially more restrictive, lacking in nuance and stupid.
If we apply these criteria to the Austrian economists – the group that are undoubtedly the ones who spread the hyperinflation message with the most zeal – we will quickly see that their competence levels are rather low. Although the pundits rarely talk about the model they are basing their analyses on it is one of remarkable simplicity and, not coincidentally, one that is completely lacking in nuance.
Okay, so let’s look at this model. Imagine an economy in which full employment exists in perpetuity. Every time someone loses their job the wage decreases because the unemployed worker accepts a wage cut to regain their employment with a competing employer. But, although the wage falls, prices also fall in response to the lower cost of labour – and hence the purchasing power of workers is maintained. In addition to this we must assume that factories are working right up to capacity. Every last bit of output that can be cranked from the machines is being squeezed out because, after all, why would an entrepreneur have machinery that they are not currently using? (Yes, for those of you who actually understand how factories and firms operate… I am indeed being facetious… and, for those unaware, we will see why in what follows).
As we can see, this is a very rigid system. It is perfectly balanced but, like a spinning plate, anything from the outside that might intrude will knock the system off balance and cause it to spiral out of control. Let us remember that this is not a representation of reality. It is the thought structure of a particular group of economic commentators. The fragility is not in the real world, but in the ideational constructs of these commentators. We should always keep this firmly in mind. This sort of thinking represents the mental structure of those who propound it, it does not reflect the real world.
Now, imagine that a government bureaucrat saunters in and dumps a pile of money into the economy. What happens? Well, assuming that the workers do not hoard it and instead go out and spend it, the results should be obvious. The workers will now try to buy more goods. But since the factories are operating at full capacity and the workforce is fully employed the result will be that prices begin to rise. If the government continues to pump newly printed money into the economy prices will continue to rise and both producers and consumers will begin to anticipate these rises. Thus they will begin to spend the newly printed money faster and faster until… you guessed it… hyperinflation!
We should pay attention here because it highlights a strange truth about your average right-wing libertarian economic commentator: namely, that they view a capitalist economy as being a remarkably fragile organism. Rather than being a robust machine that grinds over external disturbances, the right-wing libertarian views the system like a spinning plate: impressive to watch, beautiful even, but ultimately fickle and feeble. This, of course, is what reinforces their conservatism – because, the truth of the matter is that right-wing ideology, whenever it goes beyond crude self-interest, is almost always grounded in fear and insecurity.
The reality, however, could not be further from this. In fact, as history has shown us so many times, capitalist economies are extremely robust. They are dynamic, flexible and absorb change like no other socio-economic system. The second we move to the real world even if apply the strict implicit criteria the hyperinflationist holds to, we will see that capitalist economies have inbuilt mechanisms to absorb excess monetary demand without sparking a hyperinflation. It is to these that we now turn.
Capitalism: A Robust Machine
So, what is the reality of the situation? Well, in fact we have ample evidence of what occurs when demand outstrips supply in a capitalist economy. Most of our experience comes from wartime – especially World War II and the Korean War – but there have also been a few brief periods in history when major industrial economies were running at full employment. Before we go into detail about this, however, readers should be reminded that at the moment of writing almost every advanced industrial economy in the world is operating with significant amounts of excess capacity and unemployment. There is literally no reasonable argument that says that under these conditions higher demand would lead to inflation rather than higher employment and more goods and services being sold.
But let’s take the hyperinflationist’s model at face value. Let’s say that an economy is running at full employment and let’s say that enough money is dumped into the hands of consumers so as to increase their purchasing power by 10%. What would happen if everyone rushed out to spend this new money? Would consumers bid up the prices for goods? No. In actual fact, the first thing that we would see would be shortages. There is a myth that says that shortages cannot occur in a capitalist system. The idea behind this is that if more people go to purchase more products than there are available the price of the product will rise and the highest bidder will get it. Thus price inflation will occur rather than shortages. But this is simply not the system we live in.
One of the things I noticed when I moved from Dublin to London was that shortages are quite common in big cities. In Dublin shortages are almost unheard of. But in London it is quite common to go into your local shop – even big chain shops – and see empty shelves. This is because at higher levels of population density it becomes increasingly difficult to maintain a constant flow of stocks. For our purposes, however, we need only make clear one thing: prices do not instantly rise in the circumstances of excess monetary demand. If I walk into a shop and there is only one loaf of bread and three other hungry customers we will not engage in a bidding war. The person who gets the bread will be the person fastest at grabbing it and throwing it into their cart.
If purchasing power suddenly began outstripping supply in a full employment economy the first thing that happens would be that shortages would occur. The hyperinflationist will then say “Yes, of course, but then when the shop gets another order of goods the prices would rise”. This is simply not true. Prices in modern capitalist economies are not perfectly flexible – in fact, the vast majority of prices for manufactured goods don’t rely on supply and demand at all, they are fixed. Multiple studies over the past century have shown this beyond a shadow of a doubt.
So, how then would the suppliers respond to this new wave of demand? Well, they would increase production. “But,” the libertarian will say, “the economy is at full employment”. Yes, indeed it is – but history tells us that this does not mean that it is at full capacity. Firms do not, contrary to what silly economic models claim, operate at full capacity even in times of full employment. Firms build extra capacity into their plant – that is, excess machinery that they can activate should demand increase. The engineers that run these factories – I know some of them – are in no way stupid, they anticipate fluctuations in demand and design their factories accordingly. So, if the factory started receiving lots of new orders they would simply start paying their workers overtime and turn on the excess capacity.
Back Down to Reality
Are we claiming that there would be no effects at all on prices? No. The prices would eventually rise, but not for the reasons that the hyperinflationists might suppose. Remember we said that the increased level of production would require overtime? Well, if this were to be maintained for any significant period the firms would pass the wage costs on to consumers. Some economic theories claim that this cannot happen, but the historical record simply does not lie in this regard – this is what happens.
“Aha!” says our libertarian friend, “That’s when the hyperinflation kicks in!” Hardly. We have postulated a fairly massive shock in a full employment economy. We have assumed that enough money gets dumped into consumers’ hands as to increase demand by about 10%. Chances are that the economy would respond to this without too much disorder. Being a fairly robust machine it would likely absorb this shock quite quickly – maybe only after a few days of minor shortages. If price increases due to wage payments did occur they would happen very gradually and, because the dumping of money was a once-off event, it would only be a once-off price increase. So, this would not even be a sustained inflation and it would not trigger consumers to go mad and start emptying their bank accounts.
But also consider this once-off aspect: we have imagined a singular dumping of money that increases purchasing power by 10%. This is only a once-off increase and so, as we have said, we would only see a once-off increase in the price-level. In order for an inflation to be sustained the amount of purchasing power would have to be continuously increased despite the fact that it was causing price rises. But why would such a thing happen? Why would the government, for example, keep dumping tons of money into the economy?
Well, let’s stop for a moment. Prior to this we assumed that the 10% increase in purchasing power was for no apparent reason. But let’s be more realistic. Let’s say that the government did this in order to buy up a big handful of resources in order to build a space rocket. Fine, that makes sense. But what would motivate them to snatch up more and more resources? Historically, in Western countries, the only reason that they have ever done this was in order to facilitate full-scale war.
In wartime the government does need to snatch up most of the resources being produced in order to send them to the front. In this circumstance there is a risk of running into substantial inflation – not hyperinflation, mind you, but certainly high inflation. This is why in wartime governments impose shortages on their citizens by using ration card systems. But outside of wartime there is simply no reason to assume that the government would ever engage in any action that would threaten any very serious level of inflation – let alone hyperinflation. After all, what on earth would they be doing with all the resources they are buying up? Dumping them in the ocean? Even the most paranoid libertarian cannot believe that fairy-tale.
Conclusion
The responses I will get to this piece from the hyperinflationsts are predictable, so let’s be clear about a few things in advance. First of all, I am not advocating increasing aggregate demand by 10% in a full employment economy. This was simply a thought experiment so that we could actually think through what would happen rather than just screaming “Hyperinflation!” like a hysteric.
Secondly, it will probably be pointed out that since World War II there have been periods of sustained inflation in capitalist economies that were below full employment levels. This is true, but it was an entirely different type of inflation that was mainly due to rising oil costs which was in turn due to political turmoil in the Middle East. For some reason it is ingrained in the common/libertarian mind that all inflations are a case of too much money chasing too few goods. In fact, these inflations are very rare in modern economies and inflations are far more likely to be due to rising commodity prices. Weimar and Zimbabwe will be brought up too. These hyperinflations were due to entirely different reasons and the interested readers can read up on these here.
Thirdly, and I cannot stress this enough, the above is a thought experiment to engage with the simplified and crude model of the economy that implicitly underlies the hyperinflationist argument. This is NOT where we are today. In an economy with significant unemployment and idle capacity any increase in aggregate demand will lead to unemployed people and machines being put back to work. There is literally no rational argument to the contrary and it is only because hyperinflationists pander to the primitive, irrational and fear-ridden parts of peoples’ brains that anyone buys into the hyperinflation narrative in a time of chronic unemployment.
Finally, I would implore those that buy into these crude arguments: stop thinking with your stomachs. Yes, the hyperinflationist argument is appealing in many ways. Daily life under advanced capitalism is rather dull and many imagine that after a hyperinflation society will turn into a sort of Wild West where things get a bit more interesting; especially given their stocks of guns and gold. This is just a fantasy and if you truly are into the whole “Road Warrior” thing and find it appealing at some level then man up and move to Somalia or join the army. Oh, and if you’re making investment decisions based on the iron-clad belief that hyperinflation is coming and that you know this and the professional financial community is just blind… well… I don’t have much to say to you other than: good luck and try not to bet the house.
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Never? Interesting concept.
Rising oil costs were a result of the US default, under Bretton Woods, of August 15, 1971.
In hindsight it will all be related to that event.
Why will hyper-inflation occur? Because, as always, the people will demand it. Adam Ferguson explains it well, and is at pains to not sensationalise the issues… http://www.youtube.com/watch?v=sqffE6pDXuA
Philip Pilkington aligns himself clearly with the enablers of currency revulsion, or hyper-inflation, in this and other attempts to confuse it with inflation.
Find me two people (let alone a majority of voters) who will demand hyperinflation. How silly can you get.
A one word answer…pensions. Or for the US centric, Social Security. The recipients were lied to, but no one will admit it.
Refer to Keynes as to how many will understand it, ie, “not one man in a million” but, I venture, more than “two”.
Pensions? Paying poor old folks their pensions will cause hyperinflation!??
Your silly ideology is leading you to cruel conclusions.
As for “not one man in a million”, you do realize that theft by deflation also occurs? Or that the banks create over 90% (97% until recently) of the money supply and thus are responsible for over 90% of the price inflation?
If they were lied to, they were lied to in the exact same way as any other holder of government debt, the money owed the trust fund is the same type of obligation, never mind the obvious solution, it was used to fund the general budget therefore general taxes should be raised to pay it back (since it at the time deferred the raising of general taxes to pay the budget).
But Federal taxes are only needed if price inflation is a problem so there is not necessarily even that excuse for cheating old people out of Social Security.
My favorite historical piece on hyperinflation by Andrew Dixon White, founder of Cornell:
http://www.gutenberg.org/files/6949/6949-h/6949-h.htm
My favorite quote:
“Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time.”
Phil’s “never” is of course misplaced. Never underestimate the ability of mankind to repeat its mistakes.
You should get your terms correct. The US never defaulted. Nixon just cut the final ties to the gold standard in 1971.
Your sense of history is also flawed. Oil prices rose in the 70s due to the oil embargoes. Rather than continuing to increase as per your theory of currency revulsion they were fairly stable into the 2000s and only began their upward climb when oil markets became financialized and excess speculation really took off.
The temporary suspension of gold redemption not only rhymes but is a clear event of default under Bretton Woods. How can you fiddle with that? That is why the US Treasury values gold to this day at $42ish and that gold is in deep storage.
Inconvenient truths.
Before you get all hot and bothered about barbarous relics, do you understand the Euro? It is gold based.
Are you saying the ECB will redeem euros for gold? Did I miss something or does “gold based” mean something else?
“Into the 2000s”…ie, the launch of the Euro.
Anyhoo, I disagree they were fairly stable. Please note that Petrodollars were exchanged for gold in the 1990s, bigtime. The volume then far exceeds the volume today. That gold is gone, and is evidence that gold follows oil.
I am far more interested in a discussion of US energy independence on the reserve status of the USD than [YS: deleted ad hominem].
Fair call.
You are effectively begging the question, i.e. there must be a gold standard; therefore any attempt to do away with it is wrong. The US never defaulted because it could and did its obligations, in dollars. Your position reminds me of the Brezhnev Doctrine: Once a country becomes socialist, it must always remain socialist. You apparently have the same attitude about gold and gold standards.
You are not entitled to your own facts. Here is a graph I made of the monthly Cushing spot oil prices for the American benchmark crude West Texas Intermediate: https://research.stlouisfed.org/fred2/graph/fredgraph.png?graph_id=110777
Oil prices did not rise in 1971. They rose in 1973-74 due to the Arab oil embargo. They then rose considerably more at the end of that decade due to the Iranian Revolution and the Iran-Iraq War. They then fell back for about 15 years and begin the current and extended cycle of major increases only after the 2001 recession.
Those are the facts, not your facts, not my facts, just the facts.
The US has never defaulted, eh?
Tell me where I can redeem these then?
https://upload.wikimedia.org/wikipedia/commons/0/0a/US_$1_1928_Silver_Certificate.jpg
I’ve got a bundle…
Hey,I’ll buy ’em off ya.I’ll give you a dollar a piece.Or, if you want a dollars worth of silver,I’ll give you that.How many do you have?
Yes, silver certificates are not confederate dollars, as in useless pieces of play money, but US dollars. They are worth a dollar and will spend just fine. In fact, as collectors items, they’re probably worth a little more than a dollar, like silver dollars.
I know, I know!! It just happens I was just re-reading Adam Smith’s “The Money Game,” Vintage Books, September 1976. In Chapter 20, “If All the Half Dollars Have Disappeared, Is Something Sinister Gaining On Us?” he describes his encounter with this fear. Actually, he’s describing something he got from his friend, The Gnome of Zurich (there’s only one, the others are Gnomes of Basle or Gnomes of Geneva). Well, actually, now that I check it, Mr. Smith was reacting to a message by a Mr. James Dines, who apparently made a living from predicting hyperinflation because of the lack of gold and silver (remember this was in 1976, and this story had been around forever even then). Anyway, Mr. Smith took his nineteen silver certificates to the Federal Reserve Bank of New York. The clerk laughed and sent him to the Federal Assay Office on Old South Street. The clerk there exchanged his nineteen silver certificates for about fifteen ounces of pure silver (he says it looked like white powder) in a baggie. Why a baggie, you say? Why not? As the clerk said, “They tell us we have to give you pure silver, they don’t say we gotta give you a nice bag too.” So if you have a bunch of silver certificates and want silver you have to take them to the Government Assay Office nearest you. Oh, and then it becomes a pain in the neck to get rid of such a tiny amount of silver (or gold). You’ll end up losing money on the deal.
I just grabbed the last croissant at the station cafe to go with my coffee. I think the lady behind me also wanted it too as she said “oh, I had my beys on that too”. We smiled at each other and I asked if she’d like to have it instead. But she insisted, no, I was there first. The barista did *not* jack up the prices of the other surgery baked goods. Nor, I suspect did he rush out back to put loads more in the oven. As I walked out the lady said it must be a sign, she was dieting she would have the banana languishing in her desk when she got to the office (perhaps this is hoarding in the inflationists model ?)
I think we were all behaving very rationally. But a neoliberal economist would be just appoplectic …
I’LL GIVE YOU $1 MILLION FOR THAT CROISSANT!
It’s humorous that people are so worried about inflation in a deflationary environment. Especially when TPTB are pushing for chained CPI on the basis that if the coffee shop is out of croissants, people will buy scones instead.
Taking the temperature of my coworkers, many are worried about CPI but not asset-price inflation. Did the price of eggs and butter suddenly skyrocket and no one told me? They’re practically giving away natural gas.
Anyway, the leader of the CPI-worriers is convinced that buying houses on credit is the solution to the rampant inflation. I wish him luck with that.
Hey Phillip–Mish Shedlock is about as libertarian as you can get, but he’s been talking about deflation for as long as I can remember. Regarding that, I don’t think that generalizing is an especially constructive way of persuading libertarian-minded people that you’re their friend and that you know what’s best for them.
But anyway, you don’t mind if I use a different private currency other than the one that the private Federal Reserve bank issues to conduct my economic transactions in do you? I mean, I am perfectly fine that you have your MMT fiat currency or whatever, and for all I care you and whoever else can revel in your digital ones and zeroes from here till the collapse. Really, I don’t mind that one bit. In fact, I’m happy for you that you can take such pleasure from thinking about your ideological semiotic constructs that bare a passing resemblance to reality under certain specific and ideal conditions; it’s a facility and inclination that most people lack, and you are to be commended for it.
But I would be very much appreciative if I wasn’t forced into partaking of it as well by allowing me to pursue private alternatives to the official fiat regime–so could you please amend your theory so as to allow for competing currencies? I’d be much more kindly disposed towards your ideas if that was in there. Anyway, please consider my request seriously. Thanks a lot. Regards.
JGordon – be my guest – as long as you pay your taxes. But I think it won’t do you much good unless you find someone else to trade with.
It’s interesting that you bring up paying taxes, since that is the primary mechanism enforcing the use of the official fiat currency. Unless you are suggesting that the government should be willing to take eggs from my chickens and fruit from tangerine trees as the tax? If that’s the case I am perfectly willing to oblige, certainly.
Though I have to say that this discussion is academic anyway. It’s a practical fact that competing currencies are already on the rise, and in many parts of the world the unofficial economy that economists refuse to see is in fact larger than the official economy that economists like to measure. Even here in America. Failing to account for what is probably the majority of economic activity in the world is a serious flaw in your ideas.
http://www.spiegel.de/international/spiegel/germany-s-local-currencies-economic-cure-or-fool-s-gold-a-469875.html
“Meanwhile, in the German city of Giessen, Winrich Prenk is closing down the “Justus” project. The engineer invested more than €4,000 ($5,253) in the currency, but somehow the money refused to circulate. Now he says he’s forced to go around “collecting the play money again.”
In reality, the Justus was just too expensive. “Regional currencies always costs a fortune,” he says.”
If that is what you believe then why not just keep quiet.
Oh you are being very rude there when I went out of my way to be civil.
Just out of curiosity, are you some kind of an expert on nonofficial currencies because you spent 2 minutes goal-seeking for links on google that specifically supported your fallacious ideas? Especially when you are talking to someone who is using a growing and legal kind of alternative currency right here in the US? My, you certainly have an extraordinary opinion of your abilities.
Regional currencies can float money into the system by lining up redemption backers. These backers would receive the currency in advance based on the promise that they will back currency redemptions up to an agreed on amount.
The currency is founded in the faith that the backers will cover the redemptions if necessary. The backers thus need to be stable community members who are well known.
If the system is well run the backers should rarely have to step in.
The requirement that an actual dollar sit in a bank somewhere dedicated to a 1:1 backing is absurd.
No I wasn’t being rude – it was a genuine question. Why try to promote something if it going well (especially when it is borderline illegal – i.e can be used for tax avoidance).
But here is the key sentence from that article:
“Regional currencies are only helpful in the context of a generalized deflation, when shrinking liquidity needs to be compensated for …”
(This sounds a bit like gold by the way.) So enjoy your success while it lasts.
And I didn’t need to google for that article, I live in Germany and read the Spiegel online every day (in German – but it publishes some articles also in English).
Mish Shedlock is about as libertarian as you can get JGordon
Not really. Mish is for a gold-backed dollar which is government priviledge for special interests (gold owners and usurers). Mish is a faux-libertarian.
As to Mish: I enjoy his blog, I do think that he like other bloggers is selling controversy etc.
He is not doing his bit for charity.
Mish is sincere; sincerely wrong about gold.
But at least he has called out the hyperinflationist Austrians like Peter Schiff.
Is there really anything stopping anyone from using an alternative currency now? True there are a few tax complications (straight out barter is taxable and the tax is in dollars) but even they don’t fully prohibit it, Ithica dollars still circulate freely.
Exactly!
Truly… I offloaded my last bit of GLD today, yet still hold onto the diamonds. Funny thing… the price is a factor of monopoly control and not any dip stick market fundamentals… lol… value?
Skippy… I know.. I know… work in progress and moving to liquidate even that, although, as per conversation at sons footy practice with obligatory chit chat between parents… whats the point of it all – with out social well being… eh… for all!
JGordon: Google “Ithaca Hours”. It’s easy to start private currencies and it’s actually quite common.
They appear to need a charismatic backer. (Same thing with government currencies, really…)
“Firms build extra capacity into their plant – that is, excess machinery that they can activate should demand increase. The engineers that run these factories – I know some of them – are in no way stupid, they anticipate fluctuations in demand and design their factories accordingly. ”
Philip,
minor correction here.
I know (because I work in a machinery dependent firm) that firms have excess machinery not just to facilitate handling extra demand. (And remember that demand is not determinate but stochastic so there are also temporary demand increases.) They also have to cope with machines breaking down and needing to be reparied.
Absolutely correct! And this plays a huge role when we have inflationary pressures on the supply-side.
For example, in wartime the German’s would bomb British factories. In a full capacity world even minor damage to a factory would cause inflationary pressures. But in an excess capacity world there is some “slack”.
In peacetime, the same is true. But less extreme.
Besides which they have extra capacity because they have unused shifts (i.e. they don’t just have machines to bring online – they have offline times they can use).
Yep. And so far as I understand it this would be what is typically used in a full employment situation where demand increased. They would pay the existing workers overtime and put the machines on diffent shift patterns.
Philip,
I think the thing that gets me with the Austrian story is that they talk about calculation, but seem to forget (really if not in principal) that this is calculation under UNCERTAINTY. The stochastic nature of the calculation changes everything. Things can’t be so fine tuned, because things are so uncertain. They to need to allow for contingencies.
Yes! This is a tremendous irony because the Austrians claim that one of the key points that distinguishes their theory from the neoclassical theory is… you guessed it… uncertainty. (It’s called “Knightian uncertainty” in Austrian economic-speak). But they only take uncertainty into account when it suits them — i.e. when they, for example, are arguing against a central planner they say that it cannot deal with the uncertainty surrounding innovation etc. However, they never look at uncertainty when it would be inconvenient to them. Because then they’d start coming to Post-Keynesian conclusions and they would have to stop voting for Ron Paul and selling gold to people.
You guys are forgetting a further key point. Under conditions of large-scale production and thus oligopolistic “competition”, excess capacity is maintained, because, (aside from being relatively cheap at such scales), it forms an “arms race” deterrent: i.e. each party must be able to threaten a price war so that such price wars don’t occur, (while also deterring new entrants by the same means). Don’t forget that at high levels of capital intensity, the production supply curve slopes continuously down without any realistic point where it would curve up: i.e. with increased output average unit costs decrease and never realistically arrive at any marginal point of diminishing returns.
Yes,
good point.
Maybe all the extra capacity we have is not in areas where demand will be coming from in a few years.
This is both partly true and irrelevant. It is irrelevant because any expanding branch will need capital and we must already have the capacity available to build that capital.
Inflation has been plaguing us since Johnson’s war and Nixon’s chicanery destroyed the Bretton Woods system. The value of money has decreased by eighty percent in the past forty years, but nobody notices except for retired folk, who don’t count for anything because they are all viewed as moochers and golfers.
People think this inflation is caused by government, but it is really caused by corporate monopolies and bank lending for purposes of speculation and asset grabs.
The modern market economy is a simple ponzi scheme, and anybody who thinks it can be cured by any economist, left or right, is indulging in fantasy. Every nostrum imaginable will gore somebody’s ox, and the ultimate victims will be the working poor, because it is always easiest to steal from them.
Sigh! People really don’t understand what money is do they? Why do you think that you can save in 1973, hold the cash under a mattress and still get the same amount of goods and services produced in 2013 without having invested in anything productive? If you put the money in an interest bearing deposit account (which then the bank invests in something productive) in 1973 how would it look now?
Not as good as gold. Thank you.
Be my guest, you can eat as much of it as you like. Gold is where we spend a significant amount of resources destroying the environment in order to attract shiny, (but only moderately useful) metal, that is mainly used for purposes which cheap “money” (either paper or electronic) can do better.
Gold mining destroys the environment but I frankly have to see investing in gold as *LESS* destructive to the environment and the world than most other investments, invest in pharmaceuticals, screwed up fish dosed with hormones, invest in the oil industry, poisoned gulf, invest in house (and I do mean invest, not just buying a home), houses built to rot in ridiculous housing bubbles, invest in the goverment, the U.S. military is the biggest user of oil on the planet (not to mention it kills people). Gold is very far from the worst investment if your only criteria was the environment, a index fund of the S&P probably leaves more of the planet’s blood on your hands. Of course if you invest exclusively in green energy or something never mind.
There was hardly any “housing” bubble. There was a land price bubble. If wasn’t for the (de)recession there would be house shortage.
Even thought the total resources used and total environmental damage caused by gold are small compared to the total amount of resources and the total environment damage, it neverless deserves special condemnation because it is largely useless.
GLD is and has been – a tool – of elites – from its inception, in fact, it was the rulers in antiquity that changed – cortex injected – established its extra ordinary status with their ***Divine Powers*** from the original utility ie easily available malleable metal to make decorative objects aka art.
GLD as a – store of anything – is a mind fook, like diamonds see: monopoly w/tightly controlled distribution – if only a fraction of the total *stored – horded – amount* were to hit the market, the price would go to shite…. there’s your value lmmao…
Now if you want to get into the hole loans created deposits, which are then securitized, chopped – sliced – diced, sold back and forth, ultimately sold – back too – the originating customer as an investment and how that effects stuff… well there’s an argument worth having about value… societal value and how the 1% got where they are today.
Fetishizing an inanimate object is a form of worship… cough… religion… and that boils down to a belief… and a belief is an unsubstantiated argument… kinda like the earth is 5 – 4 thousand years old… silly and juvenile… when our species has been around hundreds of thousands of years. Hence GLD – is what it is – because of the effort to make it so, by whom and for what reasons… ahh history…
Skippy… the death of so many indigenous peoples (10s -100s of millions), War ~, Starvation ~, ecological devastation (on going imo) and all because some asshat in antiquity made a divine proclamation[!!!]
PS. So where is the – individualistic nature – of any of that?
Even as you meant it – I don’t this works.
Gold has gone up from about $100 in 1973 (it changed a lot during the year) to about $1600 in 2013 – so about 16/1 – but it costs to store Gold. Looking at charts of bond returns over that period (short term government bonds are close to term deposits – they are higher).
The attached paper which looks at the very long term (1800-1990) – Figure F is the best comparison – shows a total return to short bonds of 13700% as against a total return to gold for the same period of 42%.
http://efinance.org.cn/cn/fm/The%20Equity%20Premium%20Stock%20and%20Bond%20Returns%20since%201802.pdf
OK Gold has done much better since 1990, but historically seen, that is quite an anomaly. It is probably better explained by the extraordinarily low interest rates (negative real interest rates) as gold (having no return of its own) is really a deflation hedge – not an inflation hedge. If real interest rates rise, it can be expected to fall.
P.S. The tax rates that are appropriate for calculating the after tax returns here are not clear – and the results depend critically on the assumptions used. I think the taxes on interest are a bit anomalous, when the interest is reinvested. I believe it would be fair to tax interest only after allowing for inflation if it is reinvested. (This would be analogous to allowing depreciation on investment for public companies). The biases in investment decisions caused by the tax system are unfortunate (and the relative advantageous treatment of commodities including gold is one of them).
If you had any money you would understand that ‘investing in something productive’ is normally done by people who lack money but borrow it (through intermediaries) from those who have saved it.
These days the banking cartel simply steals it from savers, indulges in an orgy of speculative lending, enriches executives beyond the dreams of avarice, and, when the loans fail, gets its coffers replentished by the Fed. Clearly, this is a much superior system, but for who, exactly?
Things are bad enough with banks that create money without the discipline of potential failure. Those of you who believe the answer is enabling politicians to spend without borrowing on whatever strikes their fancy as socially useful will deserve exactly the world you will get when this nitwit scheme is finally put across.
There seems to be a great deal of confusion on your part.
First you hit us with the neoclassical loanable funds theory of money:
But then, immediately upon having said that, you turn around and hit us with an endogenous theory of money:
And your statement that “Those of you who believe the answer is enabling politicians to spend without borrowing on whatever strikes their fancy as socially useful” also reveals some confusion.
To begin with, all money represents a promise to pay, and therefore all money is created by an act of borrowing.
But perhaps more importantly, politicians can already spend on whatever strikes their fancy, and it being “socially useful” isn’t even part of the decision-making process. Furthermore, when something strikes their fancy, debt is no problem. Note how quickly they rammed TARP through.
So when you say we want to enable politicians to spend on whatever strikes their fancy, you’re being disengenuous, because politicans are already enabled to do that.
All money does not represent a promise to pay. Money is simply something commonly accepted in exchange. The creation of money may involve a promise to repay, but that is another issue entirely.
jake chase says:
So where did that money that is used as a medium of exchange come from to begin with? Immaculate conception?
Jake Chase says:All money does not represent a promise to pay. Money is simply something commonly accepted in exchange. The creation of money may involve a promise to repay, but that is another issue entirely.
Fiat Currency essentially represents a promise to repay government taxation, and paper currency denoted in gold or whatever represents a promise to repay said gold or whatever.
Im assuming by ‘money’ youre not referring to gold coins, which is valuable for different reasons. If youre referring exclusively to paper currency, it does indeed represent a promise to pay. Anything else, including to a limited extent gold coins, is essentially either barter or a commodity currency.
It’s known as stability. People want a stable economy and stable society to count on and plan their lives around accordingly. Endless inflation is instability. That may be okay for you because you are clever and understand these economic matters better than primitive people like myself. I’m afraid we just want something that can be relied upon. A currency being continually manipulated by criminal bankers and corrupt politicians is not the kind of stability we want.
Sigh… If the currency amount remained completely the same, with an increase in population, it would cause a liquidity crisis, because too few money would be chasing too many goods. Deflation is also instability, my friend. Inflation needs to at least keep up with population growth for the ‘stability’ you want.
No need to “sigh” on my account. If the supply of money grows at the same rate as population then shouldn’t it even out? If you have inflation then money is growing at a greater rate than population. Or is the US population increasing at 85 billion a month right now?
My take may be too simplistic for you economic masterminds but you’ll have to excuse me for just using common sense.
The thing is you have to choose your poison, unless you want to do away with money, and credit, altogether and go back to a swap and carry barter system.
So if you don’t want to go back to that, which would only be practical in some small, primitive society, then money is necessary.
So what’s the better option? Do you prefer bankers, who are accountable to no one except their bottom line, to control the creation and supply of money? Or do you prefer elected politicians, who, despite all the warts of our democracy are nevertheless ultimately accountable to the people, to control the creation and supply of money?
When you put it that way you really undermine your own position. Bankers or politicians? That’s two wrong choices. if it wasn’t wrong then we would not have this current crisis. There are more than two choices for those who prefer to look for something less corruptible.
Paul W says:
Describe one.
The Austrians talk about returning to the gold standard, which would limit how much money printing bankers and politicians could do. I do not know if that’s a viable solution, however it is an option to consider. Certainly better than the position of enduring the status quo and trying to find the lesser of two evils.
Given the corruption at the top of the global economy another idea is revolution. A system run by criminals is not sustainable, therefore run them out of power.
Personally I’d prefer to see a gold standard tried rather than violent revolution.
Paul W says:
If we believe that theory should be subordinate to some sort of empirical test, then the gold standard is not a viable solution. As Carroll Quigley explains in The Evoluton of Civilizations:
“Personally I’d prefer to see a gold standard tried rather than violent revolution.”
You do realise that we did have a gold standard, and it proved a disaster. That is why we abandoned it.
LOL! What an absurd comment. Without inflation you have a dead or dying capitalist system. Without inflation profits are impossible aggregately. Marx would call that a massive, economy wide “realization crisis”. Keynes even acknowledged this, he acknowledged Marx’s input on this but didn’t include that in the General Theory. Moderate inflation is a given in a growing economy in which the wealth is being spread relatively evenly. Yes, it can hurt the poor but the reason people in power object to it is that it hurts the bond holders, not the poor. The poor would be the drivers of inflation in a healthy, relatively equitable market economy because they would be making money and, since they have a high propensity to spend, they would spend what they earn pretty quickly. Finance doesn’t want inflation at all for numerous reasons. Their investments but also because if here is no inflation the real economy of production will collapse and they can buy what is left for pennies on the dollar.
By the way, the as Beard has said above, credit money dominates actual money. If we were serious about tackling inflation, which we aren’t nor should we be, you would have to do something about credit money creation. We would have to take the banks on and radically transform the monetary and financial system. We’d also have to give the government the power to enforce this. Libertarians, because their theories are unrealistic garbage, would be ideologically opposed to this. They aren’t serious people who know much about economic history or other economic philosophies.
Besides, IF inflation happens it will be because of credit money creation and because of the massive amounts of money we’ve given financial capital. The central bank has tools to deal with this but it won’t use the tools, neither will either crook party, because those tools undermine financial capital.
Michael Hudson has stated that all hyperinflation episodes was the result of a collapse in the exchange value of currencies. If the US dollar collapses so does the system built upon it. That IS the issue is it not, the difficulty in moving beyond the dollar denominated system?
To talk about hyperinflation now is beyond absurd anyway. We are going to be dealing with deflation for some time thanks to austerity. If we are going to freak out about something that MAY happen years from now should we not have a few dozen issues before hyperinflation? How about global warming for starters?
Now, now. Money SHOULD retain its purchasing power. That’s only justice. But what the silly Austrians want is that money should GAIN purchasing power risk-free without any effort and that’s unjust too.
Why exactly? Imagine a world in which resources are running short, so anything produced tomorrow will be more expensive than anything produced today. Then why should someone who neither consumes nor invests today (with cheaper resources) be able to consume the same goods when resources are scarcer.
Can you not see that this is not necessarily just.
Progress means that in real terms, goods should be cheaper in the future, not more expensive.
And we are not running out of resources since matter is, practically speaking, industructable. As for energy, we are close to solving that problem for the next thousand years or so, if not more.
It is truly amazing how many people don’t understand the law of entropy.
So we’re running out of material that contains high potential energy. Am I correct?
Yes but that is not all.
In order to do something useful (reduce entropy locally) we have to create more entropy somewhere else (i.e. create waste of some sort even if is only heat). It is true that we are receiving a constant free gift (because it comes from outside of our spaceship earth) of solar energy. But we are already using that more than we realise to create the food we rely on.
In principle the laws of entropy means, much as we might like to think otherwise, there is no free lunch – there will be some cost to exploiting resources somewhere. Maybe we can cope with those costs, but I wouldn’t necessarily count on it.
I don’t invest in anything productive, only the stock market ;)
The post-WWII average inflation is 3.5%. Inflation during the Bretton-Woods scheme was consistently higher than it has been over the last twenty years.
Beard- Please pick your dates more carefully. The post WWII average is strongly influenced by the high inflation of the 70’s and 80’s – after Nixon closed the gold window due to Vietnam overseas spending. The last twenty years are from 1993 and strongly influenced by the deflationary great recession. Comparing these periods is apples and oranges. Better to compare the 1950-1970 inflaton with the last 20 years.
Jim
Sorry Beard – my reply was to BenJ.
Jim
“The modern market economy is a simple ponzi scheme”
Wonderfully put. How could it be otherwise when the economy is dominated by rent collectors (pointing accusing fingers at entitlement spending is a smokescreen to disguise this reality – we are being looted).
Pitchfork time!
Jim
Philip,
it looks like you are going to get an invasion of know nothing gold bugs now.
@YS…Ad H? After all, my comment about drivel was in respect of the ideas presented, not l’homme…
So is mine.
People adapt very rapidly to inflation – lets not over think it.
My objection is to moronic politicians being encouraged to spend money. Reduce my taxes and let me choose….very simple argument with no models required.
So, you are going to build roads for us?
Where do you live that there aren’t enough roads already?
Haven’t you noticed that government spends mostly on nitwit schemes and bureaucracies that torture powerless individuals through incessant privacy invasions while pretending to make the world safer for complete idiots refusing to take the slightest precautions for the sake of their own welfare? Of course, these days, it is “everyone’s” job to raise and care for the children of those who simply churn them out without any capacity to care for them, right?
If you really looked at what government spends it money on (and you know it publishes the information) you wouldn’t write such nonesense.
If you think roads will last a hundred years or whatever without continuous upkeep you are dangerously naive.
Potholes and the like are terribly expensive, along with other forms of necessary maintenance.
Enough roads =/= adequate roads. Where do you live that the infrastructure isn’t falling completely apart? And who is doing that maintenance?
A tediously literal response. Roads need to be repaired. A decent rail system would be nice. Etc.
As for “haven’t you noticed,” the Defense Department aside, no.
Has it ever occured to you that the morons are not the politicians, they are the people who vote for them?
yes, but I came to the conclusion that the bigger moron was the one encouraging politicians to spend more money.
You don’t need some economic model to hide behind to encourage that behaviour, just a green flag…
You do understand the if then else construct? You know the basis of the IT revolution.
This encouragement to spend money (and mostly they seem at the moment to be about not spending money – even though bridges are falling down), is conditional on the economy being in a liquidity trap.
A liquidity trap…hmmm, I thought the crux of the argument was we had huge surplus capacity – which again I ask, why create more excess capacity with more government spending
A liquidity trap implies a lack of aggegate demand (it actually means that the full employment equilibrium interest rate is negative).
But I must ask you a question – you want to destroy our capacity to produce. You actually want everybody to be poorer? Just so that I understand you.
Are you in debt? If so, spending by the monetary sovereign makes it possible for you to pay it off since bank loans do not create the required interest except as more debt.
So you don’t wish people to be able to pay off their debts in aggregate?
Don’t agree – this is confusing stocks and flows. (The repayment is a flow – the debt is a stock. You can use the same unit of money many times.) There is an issue – that when the debt is retired, the stock of money falls, and has to be replenished with a new loan (or newly printed money) – but that is another issue than what you are talking about.
You can use the same unit of money many times. reason
Yes, but every time a bank reissues “money” (actually credit) it tacks on interest so the problem remains.
Also, the interest paid to banks is often relent for even more interest and so forth. And then there’s leakage into savings.
You may be trying to justify usury thinking there is no alternative to it but common stock is a private money form that requires no borrowing or lending, much less at interest. Nor does common stock money require fractional reserves and thus is not subject to bank runs.
The problem is that long ago the PTB decided on a money system that concentrates wealth and power rather than “share” them.
“Multiple studies over the past century have shown this beyond a shadow of a doubt.”
Hi Philip. Can you point out the links to these studies? My only reference for this concept is Chapter 5 of Steve Keen’s ‘Debunking Economics’.
Keen has cited the major ones. Blinder’s book is the key reference.
http://www.amazon.com/Asking-about-Prices-Understanding-Stickiness/dp/0871541211
Wage deflation / unemployment is inflation , it just affects different people.
Global trade needed to break down in 2008 as it was unsustainable ………(i.e. the bankers could no longer make a cut from this global wage / energy arbitrage).
To stop this breakdown and continue this trade pattern Europe and the west in general filled in these massive externalties by attacking domestic workers rather then accepting that their modern sugar plantations are net negative to wealth in general.
We have a breakdown crisis in operation wether or which ………call it what you will , inflation or deflation.
Thats a policy decision ………..but the underlying problems of the extreme post 1980~ globalization remains.
We will probably revert back to a pre Suez crisis world or perhaps something unpredictable will happen as the entire post war Imperium construction is manifestly absurd.
If you subtract the google , facebook stuff from economies you are left with the real shit………real goods , food and stuff.
Thats in a bad way.
A general characteristic of the west and Europe especially post 1980 / 1986 is a lack of local trade & commerce.
Look at Irish Agriculture Phillip ………..the input costs are rising………..but much worse there is static to falling cash flow.
Global petro (avoiding labour inputs) trade overpowers domestic national systems.
Output Input and Income in Irish Agriculture – Preliminary Estimate.
http://www.cso.ie/en/releasesandpublications/er/oiiap/outputinputandincomeinagriculture-preliminaryestimate2012/#.UTXS-aLwmSo
annual decrease of 12.3% in the operating surplus.
Total intermediate consumption (diesel , fertiliser , feed etc) increased by 9.0% or €438m.
Feedingstuffs increased by 22.0% or €259m ! (bad summer)
Got a lift from a sheep shearer / farmer in west Dingle……….
Things are bad.
Income (cash flow) has not increased but input costs keep rising.
The banks prefer to destroy peasant redundancy …..when this dirty deed is done they pull the rug from under decapitalized physical systems.
The peasant becomes a serf.
Its the oldest monetary trick in the book.
Almost all of the sheep farmers that run up and down hills for a living are dead.
They need a Quad these days.
No Quad (input costs) = more dead sheep in the modern world.
The basic systems are breaking down……….no doubt about it – how can you dispute this ?
I am afraid this is the reality of the situation
There’s always going to be demand for dollars, especially by the governments when their borrowing needs go parabolic. The inflation you experience will be due to exponential increases in the currency quantities, not due to loss of confidence. It’ll still feel the same though, prices going through the roof.
“…man up and move to Somalia…”
I’m so ideologically pure of spirit I’m gonna parachute in to the motherf-cker sportin’ nothing but a gold loincloth and an AK-47.
And when I land, I will shout with heartfelt joy, anarchy is freedom, and vicey versa!
Then, to test a few theories I’ve been working on, I will kill the first person I see.
Max, that made me laugh. I give you 1,000 internet points to do with as you wish.
FTW!
Perhaps, Pilkington or someone will explain what happenned in the Weimar Republic in interwar years. Many history books speak of that situation as ‘hyperinflation’.
THis guy didn’t read the piece. There was a link. Here’s more:
http://www.agorafinancial.com/richebachersociety/pdfs/RCH_0609.pdf
http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/marshall-auerback-inflation-and-hyper-inflation/
Do your homework… The Austrians have a crap grasp of history and have no clue what happened in Germany in the 20s.
Here ya go, video, audio with transcript, power point slides, the whole nine yards. Good stuff:
Marshall Auerback: Inflation and Hyper-inflation
@ the 1st Fiscal Sustainability Teach-In and Counter-Conference
George Washington University, Washington DC, April 28, 2010
http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/marshall-auerback-inflation-and-hyper-inflation/
Opps, sorry I didn’t see your link before I posted, Philip :)
My favorite explanation was written by Ed Harrison on this blog:
http://www.nakedcapitalism.com/2011/04/what-are-the-preconditions-for-hyperinflation.html
I think of hyperinflation as economic division by zero. It happens when countries have debt obligations in denominations they don’t control (typically either foreign currencies or commodities) and that exceed the productive capacity of their economy to support. Currency held by citizens of the country represents a share in what’s left over, which in this case is nothing (or less than nothing). Hence worthless money and hyperinflation.
We would probably be seeing this in Greece right now if it had its own currency but was still trying to pay a euro denominated debt. Since they are on the euro and can’t print, we are instead seeing an extreme scarcity of currency, widespread failure to pay debts, people demanding cash up front for services etc. See some of the recent links. Not hyperinflation, but just as painful for those concerned.
“I think of hyperinflation as economic division by zero.”
Interestingly enough, that’s exactly what happens in a standard Keynesian multiplier model. If the multiplier is put over zero you get hyperinflation.
I concede the Financial Survival Network crowd can be a bit “over the top” and they could be wrong about everything. Yet from their perspective, what harm does it do convincing people to stock up on gold, guns, canned food…etc? Obviously the people following their advice have funds available to invest in such things. If gold does go way down then they lose some of that investment, however they won’t be penniless and starving.
On the other hand, if Mr.Pilkington is wrong about hyperinflation then anyone who listened to him could be facing utter ruin. I commend him for his courage in convincing people to follow his line of thinking which, if wrong, could be utterly devastating. Courage of ones’ convictions is admirable.
Unfortunately, outside of these economic theories, in the real world, it is human nature to either prepare for the worst case scenario or to simply ignore the possibility anything so bad can ever happen. Savers tend to be very prudent, responsible people who will lean towards the former and err on the side of caution. This is the crowd Mr.Pilkington is preaching to, yet it’s also the crowd he’s not giving anything tangible to buy into. Just more theories which will be small consolation if things do go badly.
Your argument sounds remarkable similar to Pascal’s wager:
http://en.wikipedia.org/wiki/Pascal's_Wager
I believe in Pascal’s wager, only on the environment. For all the denialist, I would rather there be no manmade global warming and take every single precaution against it, than do too little and find out it’s real. I do think manmade global warming is real FWIW, but I think even if one was skeptical: Pascal’s wager.
The only thing wrong with Pascal’s Wager is that it is logically inconsistent with Christian thinking – which, above all, requires faith (i.e a non-rational belief) in God.
Pascal’s wager is much too rational an approach.
This doesnt sound like Pascals wager to me, because if the value of gold does not increase at the same level of inflation, they will actually be losing money.
So, if phillip is indeed right, folks could actually be saving money.
Investing in gold is not as ‘safe’ as many folks say it is.
Oh yeah, and I almost forgot to mention that the gold market is one of the easiest to manipulate.
Yep, I agree.
PaulW seems to be convinced that buying gold is a risk-free investment, that there is no cost or potential cost involved in buying gold.
Pascal was also convinced that there was no cost or potential cost to believing in God. I think it could be augued, however, that that is also a presupposition that is open to challenge.
Gold is just one aspect and not necessarily the main one. Of course you can lose money investing in gold, however in that status quo scenario you will not lose everything. With hyperinflation people can lose everything. How does one guard against that? All I’m reading here is that you don’t have to guard against it because it can’t happen. So if you people are wrong you’ll naturally send compensation to those you convinced to do nothing. Oops! you’ll be wiped out too. Cancel that idea.
Unless you are an investing genius and most people aren’t and don’t have the time to become so there is a potential cost to investing in anything, the stock market – how bubbly is that now oh and by the way how corrupt is it also?, bonds (interest rates going up), cash (not keeping up with inflation – not hyperinflation, just the ordinary type), etc.. Someone who puts all their money in gold is foolish, someone who puts some money in it is maybe no more foolish than someone putting some money in the stock market which seems at least as foolish at times.
Who is saving and how? Inflation also devalues cash so how does not buying gold save people money? I guess buying a ton of canned food is a way to save money because it’s cheaper now than it will be next month due to inflation. But that’s the position of the Financial Survival crowd. It is not what Mr.Pilkington is arguing for. I also doubt it is what you mean.
Are you responding to me, or to Paul W? Because my post was a reply to Paul W’s post, who was essentially saying that it was a good idea to buy into the aforementioned financial survival crowds gold buying hysteria.
If you thought I was replying to Pilkington, I was not. Notice how my post is indented and under Paul W’s post.
@ Massinissa
My 10:23 a.m. comment was in response to your 9:40 a.m. comment
But you will find that, viewed over millenia, the purchasing power of gold has been remarkably stable. No fiat curency has ever approached that level of stability.
Financiers can manipulate the price of the paper market, sure (and they do). But in the disaster scenario envisioned (a total breakdown of the economic system), the paper and physical market diverge completely.
Please note that I am not a gold bug. I am someone who understands that gold is neither the an all-powerful tool, nor a useless relic.
Funny how much Austrian discourse resolves to a sales patch.
http://www.thebaffler.com/past/the_long_con
… these programs do not contribute to aggregate demand …
but they do drive up asset prices of shares, property, commodities, … That does contribute to inflation. QE contributes indirectly to inflation. Never trust an economist who ignores actual evidence so that they can prioritize their theory – just about every economist on the planet falls into that category – most certainly Mr Pilkington. To cut a long story short – if you had a better model maybe you’d understand the problem. But economists building better models are part of the problem too – because economists models (unlike scientific models) are first generated in their imagination not from an understanding of facts and research.
QE DOES create inflation, but as you say, it is indirect. It is not that large of an inflation.
When you say, “Never trust an economist when…”, it may just be more simple to never trust economists. Its not actually a science anyway.
I dont see all that much evidence of Pilkington prioritizing a theory though…
QE does not, and cannot, cause inflation. Stuffing reserves onto bank balance sheets does not increase their capacity to lend, it does not increase the money supply and it does not drive up prices. To the contrary QE is deflationary because the process drains income from the private sector. The Fed sucked $500 billion out over the last five years, so exactly how does that result in a suatained rise in prices?
How does QE cause inflation? (1) By propping up worthless real estate derivatives held by banks (this artificially keeps the price of real estate orders of magnitude above where it would be had the market been allowed to do its thing); (2) by enabling banks et al to continue speculating, including on commodities, which artificially drives up the price of all commodities. These are just two that come to mind.
Agree with you Philip… except for:
“As we have discussed previously, the fear industry that has grown up since 2008 – mainly centred on the gold market – is a manifestation of this dynamic. Their clarion call is that hyperinflation is inevitable and could happen at any moment.”
I think the fear industry has been around much longer – I think it’s upward slope steepened after 9/11 – politically and economically.
Anyway, on to gold…lol
Gold is at a bubble price – reflecting fear of the monetary mechanisms that has detached from real industrial capital and ended up in un-real financial capital. Gold is a useful metal in many real products – it is useless in the fearful minds of those who squirrel it out of productive use.
Perhaps, in the psychological sense – gold is just a crude measure of fear.
It is obvious that demand is down and idle capacity is up. This imbalance in the real economy is represented by the dwindling share consumers receive of their labor…not enough income to support real economy outflow….demand
Hyperinflation? baloney…not enough demand to support that outcome… We in the USA are not under the control of another sovereign — except perhaps that we collectively believe that the property claims by the (oligarchs) are somehow legitimate in the face of their obvious conflicts with the constitution —- you know….that somehow property claims are more important than life, liberty bla bla.
Oh well, I will copy again, from Tax Facts… back from the old days of the 20’s
“Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.”
The price of gold – being inflated beyond it actual cost of production and real need in actual productive use is pure speculative cost – If you have a pile of gold…it’s only value is to sell it to someone at an inflated price before it loses value. ie: sell it to some sucker before it falls so that someone else takes the loss. It is an economic 0 sum.
“It is an economic 0 sum.”
Hi-larious! Every fiat currency in history has ultimately gone to zero (while the current ones are hurtling in that direction), and gold has been a store of value for 5,000 years.
That would be true of any durable commodity; diamonds, for example, or any number of white powders.
You’re not seriously comparing diamonds or “white powders” and gold within the context of money and/or wealth preservation, are you?
Does cocaine go bad? I’m not in the know on this, and of course it invites government and other attention. Maybe they could have more accurately compared alcohol or tins of sardines to gold, that’s a fair comparison. They also will likely keep their value.
Gold is non-perishable and is manifactured in standard unit sizes.
Of course. The dollar index is higher now than it was in 2008, after five years of “money printing” hyperinflationists get the vapors about, but any minute now all the fiat currencies in history will go to zero.
“If we apply these criteria to the Austrian economists – the group that are undoubtedly the ones who spread the hyperinflation message with the most zeal – we will quickly see that their competence levels are rather low.” ~PP
It seems to me that this sentence veers dangerously close to ad hominem attack. If he had stated it slightly more directly, “Austrian economists are incompetent,” for instance, would this be allowed to fly? I think this kind of language is troubling.
Though I am not an Austrian economist, my readings of them lead me to believe that there is some heterogeneity amongst their ranks, i.e. that lumping all Austrians together as “incompetent hyperinflationists” might well be unjustified. I know for a fact that not all Libertarians are Austrians, so the headline is definitely overly broad and would appear to display distinct cognitive bias. Libertarian = Austrian = Incompetent, seems to be the perspective here.
I’ve said it before and I’ll say it again, unless you only want to “preach to the choir,” using this type of language and tone will only hamper your ability to communicate with those on “the other side.” Any adherent of Libertarian or Austrian thought that even bothers reading past the above sentence is already going to be on the defensive, since you begin the essay by calling them incompetent. That is NOT an effective communication style (unless you’re trying to start a fight).
Next time, how about just showing us why the theorizing of hyperinflationists is incompetent, while refraining from telling us that the hyperinflationists themselves are? Just a thought.
Agreed.
Sometimes I wonder if there really is such a thing as the Austrian school. John Quiggin had a post where he challenged “Austrians” to defend their business cycle theory. The result was that various factions argued bitterly amongst themselves and never managed to explain their theory in coherent terms, while saying that JQ didn’t understand it. Well no wonder.
You overlooked the fact that a very large share of manufactured goods purchased with the increasingly inflated money supply of the USA are being produced in other countries. Your entire analogy is therefore entirely erroneous and completely misleading. Yes, the decline in the value of the US dollar in the INTERNATIONAL marketplace will indeed catch up with the decline in the confidence with which our foreign trading partners regard those dollars. As foreign manufacturing nations are ultimately compelled to come to terms in their actions with their already current recognition of the fact that the people and the policy makers of the United States of America have absolutely no intention whatsoever of maintaining the value of their currency in international trade, they will adjust. As their adjustments to that recognition begin to be reflected in their policies toward the US market and its’ currency, it will not be the beginning of a very pleasant era for the people and their policy makers in the America. It is they who have already, as you say, “bet the house”.
Serious inflation is not inevitable but it is certainly possible, and has occurred many times in the post World War II environment. Hyperinflation is much less likely to occur, but it also is possible.
I find it discouraging when the conversations about money become emotional polemics, which seems to be a recurrent theme at the extremes of both sides of the money debate. ‘Gold bugs’ are no different and no worse than the ‘paper drapers’ of MMT.
As for gold, the driver behind gold is negative real interest rates, pure and simple.
As for cases of serious inflation, one can read about it here.
http://jessescrossroadscafe.blogspot.com/2012/03/episodes-of-hyperinflation-from.html
The driver behind gold is the expectation/hope that it will be remonitized by government FIAT.
@Jesse
I look on Gold differently.
We have already lived through a hyperinflation of “assets”…….these were not really productive………..they were conduits for oil / fiat / global labour arbitrage flows.
Houses in the west is the classic example of this.
If these assets are useless which they are and yet money remains a double entry thingy then only a useless metal recognized for its monetary role in Banking type money of which the Euro is the most extreme example can square this circle.
It follows that no Euro means a collapse of Gold prices.
If the Euro continues I imagine Gold much go higher.
Chinese coal consumption went ballistic around 2002 – why is that ? …….its the euro dummies.
Look at global trade flows of real goods ………..thats all I say………its manifestly obvious.
In an episode of ‘The High Chaparral’ titled ‘Gold is where you leave it’, Big John (actor Leif Erickson), comes across miners who have trespassed his land to dig for gold. Gold, he says “fouls the land” and instructs his men to bury the mine in rubble.
His brother Buck replies, “John, you ain’t got any respect for instant riches. Gold is where you find it” Big John responds, “Gold is where you leave.” Real riches, he goes on to say, are “sinking roots and building family. Why? Because we built it, not because we found it in a hole in the ground?”
As far as I can tell, there is very little about the factor of consumer debt in any of the above. Perhaps this could be a simple explanation relating to true hyperinflation vs. price inflation. After all, in hyperinflation wages and other compensation rise in lockstep with prices. And the increases are very dramatic.
It all is quite simple. Rather than try to explain the phenomenon using economic gibberish that makes one appear more intelligent, just state that hyperinflation has never occurred in a highly indebted society. There were very few home mortgages in either Weimar Germany or Zimbabwe. Since the “banks” control the currency in the US at least, they will be loathe to having their loans repaid with nearly worthless currency. In true hyperinflation, it is not unlikely that the major portion of a home loan could be paid with a month’s pay. This is is a major reason debtors are praying for hyperinflation.
Dave,thank you for stating the obvious. As a person who has lived through the hyperinflationary episode in Eastern Europe in the mid 1990ies, I agree 100% with your point that hyperinflation does not happen in highly indebted societies.If it should happen, than all the debts will be wiped out. Unfortunately,most(but not all) savings will be wiped out,too, as it happened in Eastern Europe.
People lost their lifetime savings and the newly rich were called “credit millionaires”. You see, back in the 1990ies, regular people were not allowed to borrow. Only select few, connected to the ruling class,could borrow so they did and ,of course, they repaid their loans in worhtless currency.
Hyperinflation is a strange phenomenon and debtors are the real winners should it happen.
Are any of the economic models and theories of the past ( often refered here) applicable to the present global system and do they make account for systemic corrution of present levels, worldwide counterfake makets, manipulated financial markets, corruption of the legal systems and a global shadow banking system ?
It seems that the Wittgenstein article from the Links section should be permanently attached to any and all posts about gold buggery, and libertarianism. Arm chair theorizing without any empirical basis are the hallmarks of the various iron laws of economics, wielded with the heft of a broadsword, there is only air movement in the wake of their waving about.
One of the great lessons of hyperinflation, is supposed to Weimar Germany. But if anything is confirmed, the resource constraints of life reveal the incapacity of money alone to command economic production in the material absence of necessary inputs. Germany could not feed itself without foreign trade. It did not have enough arable land to grow enough food to feed itself. As WWI reparations stripped that defeated nation of hard currencies with which to supplement with food imports, no amount of printed Marks could make more food appear, if agriculture was inadequate to the task.
Because we of the modern world believe in the power of the paycheck and that money makes the world go round, we are shocked into existential awareness from the calm nap of civilized economics by the dramatic upheavals of having no food, no heat, no light and no amount of money capable of making them immediately appear. When the modern infrastructure of life is disabled by war, blizzards or earthquakes and the boom bust cycle of capitalism, printing money is not the economic equivalent of work, work in the fields, work in the factories, work in the cubicle, work in the classroom or the hospital… work anywhere is the productive activity and money, as currency or as capital is secondary, no more than an enabling social construct that enhances, by accounting for the product of laboring.
And 21st century technology allows us to practice accounting with digital tools, we live in the information age, not the bronze age, not the iron age and definitely, we are not any Golden Age.
I think people tend to forget that there is a very strong reason for a single currency enforced by government. In times of war both internal and external threat governments need to be able to mobilize resources and they generally tend to do this by buying them rather than commandeering them although conscription could be argued to be a mixture.
Indeed in my view it was debasement largely of silver coinage by kings and queens wishing to engage in imperialistic looting ventures that helped lead to the untrue notion that real money is only generated by private enterprise in the non-government sector which then has to be lent to government including monarchical government to top up taxes for their spending programs.
” Why do economists build models? This is a very good question. Personally, I’m not a fan. I think that models are misleading and somewhat silly. However, the reason some economists build them is their recognition of the limitations of human cognitive capabilities. After all, it is much easier to think about a closed system with well-defined parameters than it is to look at the complexities of the real world. ”
CURT: It turns out that those models help us make accurate observations of the real world. It turns out that you can’t get a job as a professional economist unless you can make them. Economics in practice is econometrics.
“If we apply these criteria to the Austrian economists – the group that are undoubtedly the ones who spread the hyperinflation message with the most zeal – we will quickly see that their competence levels are rather low. Although the pundits rarely talk about the model they are basing their analyses on it is one of remarkable simplicity and, not coincidentally, one that is completely lacking in nuance.”
CURT: Can you offer up some evidence to back up this statement? GMU’s austrian and good luck trying to get into that program. It’s graduates are in high demand. Their program is just as econometrically dense as everyone else’s.
Austrian economics incorporates the effect of monetary policy on all capital, including human, norms and planning (habituated and network knowledge). Keynesian, post Keynesian, monetary, and new monetary economics, all of which are purely quantitative, simply state that the benefits outweigh the costs.
The entire spectrum agrees with the possibility of hyperinflation, or deflation. There isn’t any debate. That’s why there hasn’t been hyperinflation, because the monetarists from all branches of the economy agree, and the government controls monetary policy to stop it.
Austrian economists hold only one belief that is counter to the mainstream, and that is that booms and busts will always exist, and that government interference in the monetary system exacerbates booms and bust, and that the cycle of booms and busts has a limit beyond which the economy becomes unrecoverable due to the accumulated effect of distortionary monetary policy.
Thats it.
Because the austrian viewpoint suggests less government interference, it attracts both libertarians and conservatives. Conservatives are mostly concerned about the impact of policy on what is called, social, or moral capital: those constraints that we have developed in order to ensure the population remains disciplined.
These people are all correct. There is some impact on social capital (norms) that will have long term economic impact. THe progressive economists and the progressive politicians argue (when they are honest) not that these negative effects don’t occur, but that they are less serious than the positive good that can be done in the interim. They say we are smart enough to solve any problem that we run up against.
Conservatives merely state that it’s all well and good, but then progressives are subjecting conservatives to high risk at their pleasure. So it’s a transfer of risk from progressives to conservatives.
I am not sure anyone understands this problem any better than I do. It’s easy to get lost in technical and philosophical detail. But the problem boils down to time preference. And that’s it. THere isn’t anything scientific about it. one side PREFERS benefit now regardless of risk and the other PREFERS benefits later in order to eschew risk. That’s it. That’s all there is to it.
• Curt Doolittle says:
Nah. Economics, from its very inception in the 18th century, has never been a descriptive endeavor, but a prescriptive one. It’s all about using “science” to lend moral and intellectual legitimacy to some preordained social and economic order.
There may be a handful of honest economists around who don’t hold out their own pet theories as sure truth, but they are few and far between, and they sure as heck don’t hail from the ranks of the Austrians. When it comes to the conviction that theory trumps empirical evidence or evidence, the Austrians take the prize.
• Curt Doolittle says:
Just more evidence of the kabuki.
• Curt Doolittle says:
So what? You think there’s some shortage of demand by the lords of capital for paid professional liars and bumsuckers?
• Curt Doolittle says:
Humans are “capital”? This dehumanization is certainly not unique to the Austrian economists, but they without a doubt rank amonst the worst in this regard.
• Curt Doolittle says:
Well, exactly! So why do the Austrians continue to run around like Chicken Little screaming “The sky is falling!” “The sky is falling!” ????
• Curt Doolittle says:
I don’t think anyone has ever accused the Austrians of being overly optimistic. Austrians are the quintessential true believers in the deterministic passive nihilism Clayton Williams urged upon women: “If rape is inevitable, it’s best to just lay back and enjoy it.”
• Curt Doolittle says:
Yep. We have to keep the little people disciplined and marching down the straight and narrow.
• Curt Doolittle says:
Nah, the progressives argue that taking from the 99% to give to the 1% is not what’s called “social, moral capital,” but what’s called theft, unfairness, and injustice, and that it threatens to bring down the entire social and economic system.
• Curt Doolittle says:
You can say that again. The conservatives love it the way it is, and will do anything to preserve the status quo. But I don’t think it’s progressives that are subjecting conservatives to the high risks they are running. The conservatives are doing this to themselves. It’s their own ruthlessness and unbridled greed that are going to bring the world crashing down upon them.
• Curt Doolittle says:
I don’t think anyone has ever accused the Austrians of being modest or uncertain in their dogmas.
“The entire spectrum agrees with the possibility of hyperinflation, or deflation. There isn’t any debate.”
LOL…
”I am not sure anyone understands this problem any better than I do. It’s easy to get lost in technical and philosophical detail. But the problem boils down to time preference. And that’s it. THere isn’t anything scientific about it. one side PREFERS benefit now regardless of risk and the other PREFERS benefits later in order to eschew risk. That’s it. That’s all there is to it.”
If you read back to the founding of neoclassical economics this was stated as a justification for profits. Capitalists are only different than workers in that they did not consume what they wanted to consume now. They became capitalists because they were prudent and saved their money whereas others, workers, spent their money and didn’t hold back consumption. The whole thing is absurd. First off, the majority of wealth is inherited, which has nothing to do with holding back consumption. Also, in capitalism the richest all, without exception, get as rich as they are by monopolizing the work of others or by creating fictitious capital within the financial system. Why does Bill Gates refrain from consuming all his money? It isn’t possible. He couldn’t spend all his money if he tried. Why does a poor worker spend all his money? He or she has to eat, clothe themselves, to get to work and so on. We have to pretend that consumption is a choice when it really is only a choice when you have more than you need. THEN it becomes a choice. Few in the world today have this luxury.
“The entire spectrum agrees with the possibility of hyperinflation, or deflation. There isn’t any debate. That’s why there hasn’t been hyperinflation, because the monetarists from all branches of the economy agree, and the government controls monetary policy to stop it.”
For one, the hyperinflation of Germany wouldn’t have happened without the extreme debt piled on the country after WWI. Besides that, the hyperinflation happened under an ENTIRELY privatized central bank. The central bank was given “independence”, meaning independent from democracy. On the one hand had to pay the un-payable debt Germany had to pay after WWI and on the other it was under the sway of financiers.
If you want to tackle inflation you have to tackle private credit creation by financial capitalists. If you want to explain, Mr. Libertarian, how that happens without governmental intervention (in reality, not in theory) then have at it. There is no realistic way to deal with inflation if you don’t deal with private credit creation.
Also, it isn’t accurate to say that deflation is a given to all economists. Ricardo and his followers thereafter said that gluts in the economy were and are impossible. The market , free of governmental intervention, will make it so that gluts don’t occur. As Steve Keen has also pointed out, the neoclassical economists have ignored PRIVATE debt and they said that financial crisis were impossible in their models.
I have no time for Austrian economics though. Never been put into place, ever. Austrian economics will never be put into place either. It is a reality less, utopian philosophy that has nothing to add to the real world.
Dumping 10% additional currency into an economy and then waiting for either hyperinflation or shortages assumes that the new dollars would be chasing the same goods only at a greater quantity. This is not the case. Consumers would not increase their spending on food, rent, or fuel since they would not necessarily need more of these. Instead they would increase spending on things such as medical care, luxury items, purchase of a permanent residence or even save for retirement (nothing to inflate there). So how would they react if there was a shortage of these items? Well, it would depend.
A shortage of Xboxes would not be viewed by the consumer as a critical shortage and they would either find an alternative or wait out the shortage (we see this every Christmas for new products in this vein)
A shortage of permanent residences to purchase could result in inflation, as we saw with the huge housing bubble. Now we do know that in that inflationary process there were other factors at work. The shortage and inflation were not due to lack of supply so much as we had too many (idle) dollars *cough* greedy investors *cough* chasing to few ‘goods’ – Mortgage Backed Securities, so they were creating their own demand.
Say there were a shortage of fuel. Consumers would still need to heat their homes and get to work so they would look for alternatives or use less; ie bicycle to work, install solar panels, purchase a more fuel efficient car, etc.
So in other words, the hyper-inflationist is either selling fear for profit, as you point out, or they are incredibly stupid when it comes to understanding our economy.
That’s an interesting economic model you have there.
Phillip, While I appreciate your taking this issue on and I consider you to be quite bright and more likely to be proven correct than the Misesians, your argument, as presented, is only just above theirs, which as you note are based on strict adherence to dogma and fear. Your assumptions as regards their positions create a strawman, that you then hack to pieces. That is, I don’t believe the austerity-hawk Austrians I have read necessarily believe that The risks from expansionary monetary and fiscal policies lead to inflation or hyperinflation, or that those risks require total labor participation, etc.. Their fears are that by incurring increasingly larger debts places the nation’s ability to repay its debts at risk. That risk would, assuming a market sensitive to risk (somewhat colored by QE), tend to cause the cost of credit to rise. Then, the argument goes, as the cost of credit increases, a larger and larger fraction of GDP would go to paying the interest on the debt. As larger and larger fractions of productivity go to paying debt, less, not more, would be available for outright consumption – with the result being deflation, not inflation, and a lowered standard of living.
But, there are other reasons to be concerned about expansionary monetary policy in a stagnant economy – bubbles. Currently, the NY Fed is purchasing some $80 billion of drecky securities at parr every month. That is, it is recapitalizing the financial sector. Yet, with low wages, high unemployment, and lagging sales, there is weak demand for credit. So – where is the Fed’s money going? Nowhere. It is merely moving from one side of the Fed’s ledger to the other – the big bank’s side. And with that money, the banks are creating one hell of a stock market bubble. I suspect that you and Yves would not support this largesse either. But please note; those large financial institutions currently stuffing the NY Fed with dreck are also primary dealers who benefit for UST sales. It is hard not to notice that the primary beneficiaries of expansionary monetary policy in the U.S. are large financial institutions – currently, the fastest growing sector of the U.S. economy.
I happen to think there is a limit to the devaluation of the dollar our major trade partners are willing to absorb without increasing the price of their products/commodities. As commodities such as oil and products like cars increase in price with stagnant or declining wages, individual consumers are losing ground. Perhaps it would be useful for you to discuss this reality rather than your unspoken assumption that it ends up in consumer’s pockets.
So, into this cauldron come the Keynesians and MMTers. Good luck with that. BTW – I happen to share some of the Misesians’ fears, but entirely from an egalitarian perspective. Too much of this money is ending up in the hands (and pockets) of the financial elite. The financial elite are also this nation’s power elite and handing them more money is the functional equivalent of giving them more power. Some Misesian true believers look on government deficit spending and see nothing but a FSA taking their hard-earned cash. I look upon expansionist policies under the current Fed-centric regime as handing the financial elite more power with which to torment and exclude the rest of us. Perhaps the argument we should be having isn’t Keynesian Capitalism v. Misesian Capitalism, but social democracy v. fascism.
So in theory Gold is a bad financial decision. Since you are so much more intelligent than I, please inform me how governments plan to get out of this highly leveraged system without any damage. Feel free to use words like “unfunded liabilities” and figures from usdebtclock.org.
Now that is out of the way, I have a much bigger bone to pick with you.
Regardless of whether gold is a good or horrible investment, it seems you spend most of your time making people who buy gold are simply right-winged libertarian idiots. Becasue you put so much effort into the “people who buy gold are idiots therefore gold is a stupid investment” makes me much more inclined to just ignore everything you are saying.
I vote for the “Greens” party in Australia. They are by far the most left wing party around. I’m happy to pay my taxes because I want our transport system to be better and I have benefited from many social programs that helped me get through my studies. However, I still am a personal libertarian. I think government should take a big step back from peoples lives. Let gay people marry. Stop the endless wars. Even though I am on the far left, I would not be unhappy for a pure libertarian to be in power. A libertarian would reinstate many personal liberties, get rid of some of the dead wood in government that slows everything down, stop the wars, and hopefully reduce the reliance of debt on a nation to get by. It might also go against many of my personal beliefs to, but so does the current government. At least a libertarian would fix some of these things instead of perpetuating the cycle.
I do not think Ben Bernanke is an idiot. And when I buy gold, I do not feel like I am betting against one of the most accomplished economists. Bernanke certainly knows what he is doing and is significantly smarter than I am, it’s just that I don’t trust him.
Economics shouldn’t be this hard. You shouldn’t need to be a genius like Bernanke to understand the system. The reason why regular people buy gold that they see a system reliant on endless debt. It’s terrifying. Give me a road map on how the western world is going to get through this crisis in the long run and I’ll sell my gold. Is it really a matter of it only being a problem for the next generation? I don’t feel guys like Bernanke are in power to run this system, I think he’s in power to keep it a float for as long as possible. He’s doing an amazing job too and I credit him. The problem is, the system he is protecting is broke, and only benefits the very rich. This is why I hold him in such disdain.
My personal reason for buying gold is that I think Australian property prices are too high. The reliance on a massive Chinese building boom has propped up prices for a very long time, and any hiccup in Chinese spending would have a massive effect here (have you seen their empty cities?). Since I work in the industry, I would lose my job, and be left with a huge debt to pay off in the process. Instead I’m saving my money, putting it elsewhere and waiting to see how the market goes. This doesn’t have to be gold, but I’ve made more money from it than any other idea I’ve had from it (so far, if it goes down a couple more hundred and doesn’t bounce back then maybe a high interest account would have been better.)
So far I haven’t been wrong. Gold has steadily gone up but admittedly is suffering badly at the moment. Housing has been trending down. I don’t think I’m a right winged idiot for doing this, admittedly my degree is not in economics, but from the outside it really just looks like you guys have no idea what you are doing apart from keeping the system afloat and are investing for instant gains and returns. I’m not looking to make money next week, I just want my wealth protected.
Since you are so much more intelligent than I, please inform me how governments plan to get out of this highly leveraged system without any damage. Tom
What? You think money has to be dug out of the ground?
The solution is simple and just:
1) Ban further credit creation.
2) Send equal “restitution checks” of new fiat to every American metered out over time to just replace existing credit as it is repaid. Continue at least until all deposits are 100% backed by reserves.
Reserves of what[?], loans[?], liquid assets DTD valuation[
s[?] future expectations[?] Securititzation’s multi headed offspring[???], in this environment[!!!].
Once trust is lost thingy~
@Tom, Are talking about the government of the people and for the people or the one beholden to a special few. Its just an institution, its the people that staff it, that make it actionable, agency problem… eh.
Btw GLD is only a store of fear… and who plays – that fiddle – the best… hint.
Skippy… Hell if the climate – weather keeps this marry go round of destruction up… GLD et al will be the last of our problems…
Reserves of what[?], skippy
New fiat, created without borrowing by the US Federal Government.
The banking cartel has used its credit creating power to drive the population into debt (and cheat non-debtors via negative real interest rates); the US government can use its fiat creating power to free them (and compensate non-debtors for theft).
Well put Tom. One faces the same dilemma in Canada. With household debt so high real estate isn’t safe. Unless you have access to inside information the stock market looks iffy. All that cash in the savings accounts loses value each day and who knows what happens to it if there is a global banking crisis. Granted 90% of Canadians are living in debt but for the 10% fortunate enough to save money it is a problem deciding what to do to protect that saving.
I enjoy reading the posts at NC and the comment section, however every time Mr.Pilkington and Company declare war on the Austrians they fail to any constructive alternatives for goldbugs to switch to. We’ve a economic system run by a criminal class which continues to enrich themselves at the expense of everyone else. One would hope this is not sustainable. Until we find something better do we have no choice but to play the role of innocent victims? Perhaps i am wrong but that seems to be one of the messages coming from NC. At least someone like Max Keiser calls for people to buy silver and break JP Morgan. Perhaps that’s naive but at least he offers a glimmer of hope that we aren’t helpless and can do something to protect ourselves and undermine the powers that be. I’d love to read something positive like that from Mr.Pilkington. I suppose he is being positive by saying we won’t have hyperinflation and won’t have an economic collapse. Plus I appreciate his message not to trust everything the gold salesmen tell you. Yet with a gang of crooks running the whole thing the situation isn’t exactly a “don’t worry, be happy” moment.
The message which most stands out is that the Austrians don’t understand economics. Meanwhile the Austrians are saying Pilkington and friends don’t understand economics either. They can’t both be wrong but they can both be right.
“They can’t both be wrong but they can both be right.”
Why can’t they both be wrong. (After all that is the normal state of affairs.)
Pilkington disappoints here. He’s attacking a straw man.
1. Hyperinflation has not occurred, but we are suffering from a steady grinding price inflation in the mid single digits.
2. We are having a tough time dealing with this real inflation problem of ours, since the authorities in most Western countries are systematically lying about inflation numbers.
3. They have means, motive and opportunity to do such systematic lying. The motivation for Western gov’ts to officially understate inflation rates are obvious: reduce the real value of all indexed payments to pensioners and workers, make GDP growth look better, and justify continued loose money policy–which is exploited by the capitalist class because of the series of lucrative asset bubbles which have resulted.
4. Price inflation in our time has a very significant class diffential effect. The items most consumed by the poorest are the things tending to rise in price, while some luxuries have been stable or declining in price. Expensive organic food, sophisticated tech gadgets, nannies and gardeners have never been cheaper to buy. Wealthy people ask, “Inflation? What inflation?” Meanwhile typical mainstream supermarket fare has soared in price during the past decade.
5. One wonders how steady, grinding price inflation can be sustained when working class wages have been stagnant or declining. The answer is right in front of our noses: ever-mounting debts for the masses. e.g. the explosion of education costs has been met by students assuming huge debt loads which are legally difficult to escape.
6. One should not forget that one of the things which undermined labour unionism, during the 1970’s period of high inflation, was the constant need to fight, grieve, and strike for wages to simply keep up with the inflation. The constant labour unrest, all made necessary simply to keep up with inflation, discredited unions in pubilc opinion, and exhausted the zeal of the union membership themselves.
7. Therefore the Left makes a huge political blunder in endorsing loose money policy. The Left, in today’s context in the Western world, ought to advocate hard money and consumer price stability.
May I ask where the “grinding price inflation” you repeat over and over is being found?
Because it’s sure not showing up in any of the data on inflation.
I have the feeling you don’t know what “inflation” means. The problem is not “inflation” it is falling real wages. Identifying the problem is half the battle in finding a solution.
Frankly, I believe inflation will come… and we don’t need hyperinflation to cause havoc on household finances.
I believe our monetary policies, increasingly misallocating capital are making us lazier by the day, reducing productivity. This always leads to inflation unless we stop printing.
When the next slowdown comes around, they won’t have rates to cut. I am convinced this will trigger many bankruptcies and huge M&A activity. Capacity will shrink.
I am also convinced that all the excess capacity we have is in the wrong areas for the coming demand.
Inflation might take a couple of years but it will come. Capital markets are too big for the size of GDP.
BTW, why do inflationists always get ridiculed and lumped in with the hyperinflationists.
“We will not debunk their false claims that Quantitative Easing and other monetary easing programs will lead to hyperinflation because these programs do not contribute to aggregate demand…”
Well, something is propping up the OTC derivatives market. And that thing positively cannot blow. As such, then, blown out of the water stands to become your claim that aggregate demand has anything to do with hyperinflationary dynamics. As the Weimar experience amply demonstrated, hyperinflation is not a monetary phenomenon, rather it is physical, precipitating economic shutdown, which in fact is the very thing in the post-2008 period hitting the oil refining business, for example, with increasing frequency. Likewise, this same effect continues hitting the financial economy, whose shutdown continues to this day. Eventually the point will be reached when monetary aggregates continue accelerating, while financial and physical aggregates will further accelerate their current collapse begun in earnest in 2008. As central bank commitments today existing at the London-New York heart of the derivatives Ponzi scheme are not likely to be in any way altered–rather only endlessly redoubled–eventually economic shutdown will reach a point of no return wherein given the flood of liquidity and a desperate need to sustain the illusion of its efficacy, the deluge inescapably will become intimately understood by the common man. Just how gold will do in that climate, I cannot say. It may prove a serious underperformer, as its market is not nearly as deep and liquid as that for other financial assets. At the peak of parabolically increasing hyperinflation whose effect over the past several decades largely has been hidden in both the OTC derivatives market and a securitized trash heap it facilitates, even deep and liquid markets will fail to provide opportunities to stay ahead of the devastation. You’re way too early thinking now is the time to pat yourself on the back.
One must be careful not to confuse ‘value-added’ products like computer chips & software, fashion accessories, etc., which are deflationary over time, with raw materials, which can’t be willed or re-allocated into existence.
The building blocks of our economy have been increasing rapidly in price since 2000 (and before); we’re just one crop disaster away from world wide food riots. This sort of thing can happen even as well-fed Americans and Europeans marvel at the latest crop of smart-phones which are cheaper and better than ever.
Meanwhile, there are externalities which are not accounted for in Pilkington’s rosy picture of a system with perpetually affordable inputs and finished products. Pollution and other forms of environmental devastation are currently accepted as the price we must pay for the global economy.
The toll must be paid, nothing is free.
All that said, hyperinflationist fantasies usually involve some vision of self-empowerment through forward-looking investments that are centered on the physical (real estate; gold; etc) rather than on paper promises, which it is understood will be repudiated. A real world wide hyperinflationary blowout would break a lot of promises, not just the ones on currency notes, and I don’t think most hyperinflationists are prepared to live like Warlords.
Much better to invest in strengthening and re-localizing your local community, than in gold bars.
can you recommend any academic works that investigate inflation episodes in depth and come to analytic conclusions regarding drivers of inflation?
are there any notable economists who have really dug into the issue of inflation from all angles?
Lots of cases in South America… interestingly, a large weight of the population gets kicked out of the economy and inflation still roars ahead… something many Americans don’t grasp when they say they can’t get inflation because wages are not going up.
Firstly I’d like to thank Phil for another interesting and thought provoking post.
I’m an economics undergrad at a university in the UK so please humour me if you will!
I’m completely in agreement and found really interesting what Phil said re models. Despite what is taught I see the reality that models are clunky and really cannot capture the complexity of the real world. Thus anyone who relies completely on them is going to make huge mistakes!
I was at a debate lately about the gold standard and a few questions sprung up in my head about the gold standard and inflation and I was hoping someone would be able to offer some opinions on here? So firstly I’d like to make clear that I completely reject the idea of hyperinflation occurring in a fiat money system. Wage inflation does interest me though, although many have attributed the wage increases which have accrued to high earners since the 70’s as unequal distribution of productivity gains could it not be a consequence of fiat money and leaving the gold standard instead, as inflation doesn’t occur evenly over the entire economy?
The other thing that strikes me about the gold standard debate is that opponents often argue that we need to increase the money supply in order to achieve growth, but then how did growth occur when we were on the gold standard before? Were central banks constantly increasing gold stocks?
Sorry if any of my questions are stupid. Would be nice to get a few opinions though if anyone would be kind enough to offer them
And thanks again Phil. Super post :)!
“The other thing that strikes me about the gold standard debate is that opponents often argue that we need to increase the money supply in order to achieve growth, but then how did growth occur when we were on the gold standard before? Were central banks constantly increasing gold stocks?”
This is a fantastically interesting question. All the data that I’ve seen suggests that the gold standard does NOT prevent the money supply from growing and shrinking. For example, have a look at this data (I can’t vouch for it, but it looks okay to me…):
http://www.econdataus.com/cpi_m2.html
The money supply clearly is able to grow even under the gold standard and Bretton Woods. Why? I’m not sure. I’m notvery familiar with pre-1971 monetary operations but I strongly suspect that the gold standard does not have the effect that its proponants think that it does. I think that money remains endogenous no matter what institutional controls are put in place.
I again suspect that this is because the Fed were, despite the gold standard, targetting interest rates in these years. Given that they were able to maintain control over them we can only assume that they were accomodating money demand. More investigation is needed, but the facts appear to be what they are: the gold standard does not constrain money growth.
Anyway, even if it did, the velocity of money would just speed up in response to changes in national income. People would just spend the existing money faster and economise on their cash holdings. In short: the gold standard probably does very little except, from time to time, spook governments into easing off on fiscal expansions.
“The other thing that strikes me about the gold standard debate is that opponents often argue that we need to increase the money supply in order to achieve growth, but then how did growth occur when we were on the gold standard before? Were central banks constantly increasing gold stocks?”
Funny you should ask since I actually had a friendly debate yesterday over the gold standard in an era of free banking. An important point to keep in mind is that there are several versions of a gold standard that have existed.
In the Free Banking example of the 19th century, there was no central banks. Private banks held gold as reserves but lent out bank notes that were redeemable for either gold or another bank’s notes. The private banks would use clearing houses to settle payments in another bank’s notes and frequently accepted bank notes instead of gold as payment (due to repeated games). During this period banks lent out money in excess of their gold reserves based on demand. (An important note is that banks were effectively full liability partnerships and apparently bankruptcy laws did not really permit default.)
Turning to the gold standard with central banks, private banks were often still allowed to issue loans in excess of their reserves. The idea of the gold standard was to prevent individual banks from lending in excess of each other. Any banks that lent in excess of reserves could have a successful run against it (if notes promised gold on demand, which was not always the case). Therefore a bank that lent far more than its counterparts was more likely to experience deposit withdrawals. As the Currency School of the 19th century noted, it was still possible for the private banking system to excessively expand lending, in concert, and thereby create a boom/bust cycle (Hayek accepted this view). The burden of the CBs was determining how to prevent bank runs without expanding reserve notes to a degree that would either cause an outflow of gold from the country and/or force the govt to revalue its currency.
Depending on the specific legal restrictions in place, the gold standard does not prevent a growth of the money supply in excess of gold stocks. The gold standard can limit the degree of that expansion by raising the risk of bank runs. Whether or not the vast reduction in lending would be positive is, I believe, a question that is at least open for debate. IMO the benefits of increases in lending under a fiat system far outweigh the costs (inflation, larger defaults, etc).
I. –RESPONSE TO CRITICISMS–
1) “First off, the majority of wealth is inherited [so saving and investing is not available to all]”
According to a study of Federal Reserve data conducted by NYU professor Edward Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of their holdings. THis matches the work done on the study of Millionaires, which states that something on the order of 90-94% of people with balance sheet wealth of 2M or more made all the money themselves. I have seen no contrary information, ever, except where the state grants special limited monopolies to individuals. That is how most errant wealth is created. We call this corporatism : state capitalism. It is not “capitalism” private capitalism. The market does not award privileges under non-governmental circumstances. The reason that many large companies can ignore consumers is that they have absurd access to credit through stock markets, or through banking relationships, because they are stable and ‘safe’ bets. In this sense, the market for money does provide large businesses with the ability to poorly serve consumers at times. But the evidence is that this cannot persist for more than a few years. There isn’t any evidence to the contrary. It’s almost impossible to stay in the fortune 50 very long, and it’s pretty hard to just stay in the fortune 500. Businesses are organizations that function as machines, that are optimized to serve a particular state of affairs that exists in the world. And as they get larger they attract rent-seekers (employees who don’t do much really) and people with highly specialized knowledge of that ‘machine’ (bureaucracy). Those employees (do what?)
2) “Few in the world today have this luxury [to save and consume].”
Actually, vastly more people have both the ability to consume production goods, as well as join the ranks of the wealthy (all income produced solely from investments) than at any time in history either numerically or as a percentage. THis is BECAUSE of capitalism (property rights, credit, contract and the common law). That’s why the world has abandoned central control and moved to the political spectrum between corporatism (protestant Christendom), or oligarchical control (russian and china), because without economic calculation there can be no incentives for individuals to act to produce, and no means for them to act to produce in concert. Capitalism IS a form of direction. Credit IS a kind of lawmaking. It’s just the BEST form of direction and lawmaking because individuals do not require direct supervision. And any group that does NOT adopt capitalism on the oligarchical to corporatist spectrum, will lose the price competition for the world’s resources.
That is a very dense paragraph. I hope it is accessible to others.) But it is the argument why capitalism is NECESSARY. Even if classical liberal Anglo-American individualism, Hoppiean private government, and anarchic capitalism are not necessary, or even economically competitive. Just as socialism is not economically survivable, Private government and anarchic capitalism present ideal models that we use to understand our ambitions and limits to our economic strategies and tactics.
3) ” … Ricardo and his followers thereafter said that gluts in the economy were and are impossible. …. ”
Um. Quoting Ricardo would be good, if you understood what he meant. :) Gluts in GOODS in an evenly rotating economy are beneficial in that they inform producers through reduced prices to change what they produce. As such, they stop production while the built-up inventory is consumed at new market prices. But in, for example, the Chinese and soviet economies, gluts were the NORM, while people froze and starved because no pricing system informed producers (the bureaucracy) that there was not enough demand. Albiet, there was employment for all, there were not goods for all. (Although, here in the post soviet block, an awful lot of people ‘at the bottom’ long for a return to the certainty of Soviet times.)
4) “If you want to tackle inflation you have to tackle private credit creation by financial capitalists. If you want to explain, Mr. Libertarian, how that happens without governmental intervention (in reality, not in theory) then have at it. There is no realistic way to deal with inflation if you don’t deal with private credit creation.”
This is logically contrary to the rest of your statements. Money is a producer good like any other. It is subject to pricing constraints in the market like any other good. And as a commodity good desired by all, like oil, it is extraordinarily sensitive to prices. This is why there is a limit to monetary policy, and governments must resort to fiscal policy (spending). Because money IS subject to producer goods.
5) “Austrian economics will never be put into place….”
This is an illogical statement. You may mean ‘anarchism’ or ‘private government’ will not likely be adopted outside of small groups. You may mean that the Anarchic movements rely on austrian economics for their arguments. But Austrian Economics cannot be ‘in place’ because it is merely a school of thought.
Further, the Austrian school of though suggests that a) socialism and communism are not POSSIBLE (True), b) fiscal and monetary policy increase the scope and duration of booms and busts (True). c) Fiat money tends to fund an expansive and predatory bureaucracy (True), d) and fiat money was invented to finance wars, and simply exacerbates war-making (True). The growth of bureaucracy and the military are not moral criticisms but a statement about misallocation of human, social, resource and monetary capital.
On the other side, (e) fiat money is the means by which a state can perform as the insurer of last resort, and that appears to be a ‘good’ thing, even if offset by increased risk taking and therefore involuntary transfer from risk avoiders to risk takers. That is the limit to the Austrian criticism of monetary policy.
Modern monetary theory represents a complete break from both these models. But we are unable to determine without actually subjecting an economy to experimentation, whether the knowledge and incentive to manage resources would be negatively impacted, nor whether (as some argue) it would simply result rapid inflation.
II. — SUMMARY —
You are confused.
i) AUSTRIAN ECONOMICS: Austrian Economics is a set of theories. I’ve outlined those theories. And those theories have proven to be true. They have proven to be true because conservatives (aristocratic christians) have a more accurate understanding of human nature than do progressives. (We can prove this now that we have enough data.)
These theories, as I stated in my first comment above, reflect different perceptions of risk and reward between two categories of people with different preferences. These preferences are not ‘truths’ but only preferences. These preferences loosely reflect the reproductive strategies of their holders. (Which I’ve written about quite a bit.)
ii) PRAXEOLOGY: Praxeology is a methodology for testing whether any set of goals consist of actions that contain logical incentives. Praxeology as originally conceived is flawed because it does not account for opportunity costs and our desire to by rights and opportunities by contributions to the commons. (That is a technical criticism that only a few will understand.) This is because the author of praxeology was too enamored of money, manufacturing and commodities and too ignorant of politics. But if opportunity costs and the commons are included praxeology survives as the only means of testing whether our goals indeed will be pursued by the incentives that we are using.
iii) THOUGHT MODELS: The Classical liberal (limited government), Private Government (monarchies under the common law), and anarcho capitalist movements are thought experiments. These thought experiments help us explore sets of ideas in order to come up with new solutions to the evolving problem of human cooperation that we call ‘government’ – that set of institutions that allow us to concentrate our capital and efforts into commons that would be privatized if it were not for the institution of government that prohibits that privatization.
This anarchic movement has produced a number of innovations, the most important of which is to demonstrate that government per se is not the problem, but bureaucracy and lawmaking are. A government that has one institution acting as an insurer. Another as facilitator of contracts, and borrower. Another as a judiciary, is pretty simple government. And effectively has no employees. THis solves most of the problems of government. And it is an innovation provided by those people who recognized the corporeal ‘state’ as a slow road to totalitarianism, and wanted to find an alternative. It worked. It only took a century. Which in the history of thought isn’t very long.
iv) CONSERVATISM: conservatism is what remains of aristocratic egalitarian manorialism – the western model throughout most of its history. This model allowed an aristocratic minority over a population that was a poor minority (the west) to keep a wealthier majority (the east) at bay through the use of technology (the horse, bronze and the wheel), and mixed cavalry and infantry tactics. The expense of these technologies and the use of these tactics made it impossible to concentrate political power into an eastern model dictatorship. The need to negotiate strategy and tactics led to debate, reason, and eventually logic and science. Greece had just about started the industrial revolution when overextended and fell. Over the following millenium, Europe adopted roman law, matured into manorialism, and the church outlawed cousin marriage and gave women property rights in order to weaken the property interests of the large land holders. The need to constrain the warriors resulted in the codes of chivalry which had the side effect of providing a means of status achievement through service rather than just through conflict. The defense of the church was a continuation of the separation of powers ethic of the indo europeans. The protestant revolution against the church and in favor of a personal god which further individualized self conceptualization against distant forces. And the kings supported that ideology in order to keep the tax money going to the church. These events resulted in the creation of the unique northern european culture, and civic society, that we think of as the protestant ethic. The rise of merchants first in Italy, then on the western seaboard, particularly in the low countries and England, led to teh wealth needed to colonize under the first corporate state – mercantilism. Then as merchants gained more wealth than land holders, that ethic had to change once again.
v) LIBERTARIANISM is aristocratic egalitarianism divorced from manorialism. In other words, the norms and institutions that were necessary in an agrarian society. Landholding for any people is a high cost activity. We must constantly contribute to the commons and to taxes to do it. But libertarianism is a trader’s philosophy. It says that consent and tradition are not as useful in guiding human action as is the market. (This is wrong by the way.) Libertarianism then is just commercial aristocratic egalitarianism. Just as hinduism is a reformation of Zoroastrianism, and buddhism a reformation of hinduism, classical liberalism (american conservatism) is a reformation on aristocratic egalitarian manorialism, and libertarianism is a reformation of classical liberalism. I think it is a dead end, because the commercial sector will always represent a small portion of any industrialized society. Most people have jobs in either the private or public sector – they don’t play in the market except as consumers. And so there are too few people who have libertarian incentives because of that.
Some of us are trying to figure out what comes next, because we are pretty certain that the introduction of women first, and people from non-aristocratic cultures, will create too much rent seeking and bureaucracy to maintain our historically competitive set of institutions.
Only time will tell if we succeed.
Curt Doolittle
The Propertarian Institute
LIBERTARIANISM is aristocratic egalitarianism – Curt
Thanks for being honest about the heredity thingy and the obligatory eugenics that is affixed with it.
Skippy… what size – pitch fork – would correctly span your girth?
“Thanks for being honest about the heredity thingy and the obligatory eugenics that is affixed with it.”
Heredity was retained in monarchies as a peaceful means of transitioning power, not because the monarchy could hold power. Heredity was broken in general, at least above the hanjal line, by the church’s forbidding cousin marriage out to as many as nine generations, and granting women property rights. This broke teh property cycle. It also had the side effect of creating the high trust society and causing outbreeding to valuable limits. (The reasons for corruption in the rest of the world is largely the institutional inability to alter these familial relations.)
Just to pour gasoline on your criticism: I’m pretty honest about the fact following the masculine breeding strategy is eugenic, and the female strategy dysgenic – at least under redistributive capitalism. This is an observation not a preference. Although, it does appear that Pareto’s rule requires enough of the population possess IQ’s of what we consider to be about 105-106, to establish what we consider commercial norms. this is because it’s at about that level we begin to be able to articulate abstractions. How we choose to govern, and how we prefer to govern, is different from the consequences of that governance, and our preference for or against those consequences.
Cheers
“Thanks for being honest about the heredity thingy and the obligatory eugenics that is affixed with it.”
Heredity was retained in monarchies as a peaceful means of transitioning power, not because the monarchy could hold power. Heredity was broken in general, at least above the hanjal line, by the church’s forbidding cousin marriage out to as many as nine generations, and granting women property rights. This broke teh property cycle. It also had the side effect of creating the high trust society and causing outbreeding to valuable limits. (The reasons for corruption in the rest of the world is largely the institutional inability to alter these familial relations.)
Just to pour gasoline on your criticism: I’m pretty honest about the fact following the masculine breeding strategy is eugenic, and the female strategy dysgenic – at least under redistributive capitalism. This is an observation not a preference. Although, it does appear that Pareto’s rule requires enough of the population possess IQ’s of what we consider to be about 105-106, to establish what we consider commercial norms. this is because it’s at about that level we begin to be able to articulate abstractions. How we choose to govern, and how we prefer to govern, is different from the consequences of that governance, and our preference for or against those consequences.
Cheers
“Austrian Economics is a set of theories. I’ve outlined those theories. And those theories have proven to be true. They have proven to be true because conservatives (aristocratic christians) have a more accurate understanding of human nature than do progressives. (We can prove this now that we have enough data.)”
More LOL. Keep it coming, Curt. Keep it coming.
Curt should really stop drinking.
This is a dead give away
”
Praxeology is a methodology for testing whether any set of goals consist of actions that contain logical incentives. Praxeology as originally conceived is flawed because it does not account for opportunity costs and our desire to by rights and opportunities by contributions to the commons. (That is a technical criticism that only a few will understand.)”
Few will understand – mostly because of the logical inconsistency (goals consisting of actions?) and grammatical errors!
Praexology = tautologies + word salad.
And some people think Jim Jones was a nutter…
I’m not surprised that few will understand that incoherent gobbledygook. What worries me is that the people who claim to understand that. I suppose it sounds impressive after 3 or 4 bourbons.
Ridicule is not an argument, nor is grammatical criticism. It is acknowledgement of a failure to put forth an argument. :)
Helpful Advice:
http://www.propertarianism.com/menu/tools-and-techniques-for-political-debate/
Incoming copy and paste…
Von Mises writes that action axiom is the basis of all praxeology, and it is the basic proposition that all specimens of the species Homo sapiens, the homo agens, purposefully utilize means over a period of time in order to achieve desired ends. In his magnum opus Human Action, Von Mises defined “action” in the sense of the action axiom by elucidating:[14]
Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.
Von Mises argues that praxeology is not concerned with the individual’s definition of end satisfaction, just the way he sought that satisfaction and that individual’s increase of their satisfaction by removing sources of dissatisfaction or “uneasiness”. In his theory, an acting man is defined as one capable of voluntary and conscious behaviour—to be otherwise would be to make one a mere creature who simply reacts to stimuli by instinct. Similarly, an acting man must have a source of dissatisfaction which he believes can be changed, otherwise he cannot act.
Von Mises writes that economics, the study of human choice under conditions of scarcity, can be treated as a specialization of praxeology, the study of all human action. Like other members of the Austrian School, von Mises rejected the standard scientific approach of relying upon empirical observation in the study of economics, and instead, favored the use of logical analysis, a logic which is influenced by Immanuel Kant’s analytic–synthetic distinction. Von Mises writes that the empirical methods used in the natural sciences cannot be applied to the social sciences because the principle of induction does not apply. In essence, he believed that a theory constructed to predict how humans will act (what ends they will seek) in a “complex” situation could not arise from studying how they acted in “simple” situations. Furthermore, there are limits to how much can be learned from even a “simple situation”. As a criticism to empirical studies seeking to find justification in the economic action of individuals, von Mises proposed that only the human actor knows the ends toward which he acts.
Another conclusion that von Mises reached was that decisions are made on an ordinal basis. That is, it is impossible to carry out more than one action at once, the conscious mind being capable of only one decision at a time—even if those decisions can be made in rapid order. Thus man will act to remove the most pressing source of dissatisfaction first and then move to the next most pressing source of dissatisfaction. Additionally, von Mises dismissed the notion that subjective values could be calculated mathematically; man can not treat his values with cardinal numbers, e.g., “I prefer owning a television 2.5 times as much as owning a DVD player.” As a person satisfies his first most important goal and after that his second most important goal, then his second most important goal is always less important than his first most important goal. Thus, the satisfaction, or utility, that he derives from every further goal attained is less than that from the preceding goal. This assumes, of course, that the goals are independent, which is not always the case—for example, acquiring the television may enable one to pursue the goal of watching a documentary on biology, which may make one decide to study biology, which opens the goal of writing a research paper, and so on. In human society, many actions will be trading activities where one person regards a possession of another person as more desirable than one of his own possessions, and the other person has a similar higher regard for his colleague’s possession than he does for his own. This assertion modifies the classical economic view about exchange, which posits that individuals exchange goods and services that they both appraise as being equal in value. This subject of praxeology is known as catallactics. – wiki
Skip here… O’tay… out of all that bum cavity inspection it all boils down too catallactics see:
Catallactics is the praxeological theory of the way the free market system reaches exchange ratios and prices. It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices. It explains prices as they are and not as they should be. The laws of catallactics are not value judgments, but aim to be exact, objective and of universal validity. It was first used extensively by the Austrian School economist Ludwig von Mises.[citation needed]
Friedrich Hayek used the term catallaxy to describe “the order brought about by the mutual adjustment of many individual economies in a market.”[1]
He was dissatisfied with the usage of the word “economy” because its Greek root, which translates as “household management”, implies that economic agents in a market economy possess shared goals. Hayek derived the word “Catallaxy” (Hayek’s suggested Greek construction would be rendered καταλλαξία) from the Greek verb katallasso (καταλλάσσω) which meant not only “to exchange” but also “to admit in the community” and “to change from enemy into friend.”[2]
According to Mises (Human Action, page 3) and Hayek[3] it was Richard Whately who coined the term “catallactics”. Whately’s Introductory Lectures on Political Economy (1831) reads:[4]
It is with a view to put you on your guard against prejudices thus created, (and you will meet probably with many instances of persons influenced by them,) that I have stated my objections to the name of Political-Economy. It is now, I conceive, too late to think of changing it. A. Smith, indeed, has designated his work a treatise on the “Wealth of Nations;” but this supplies a name only for the subject-matter, not for the science itself. The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the “Science of Exchanges.”
Also, in a footnote to these sentences, he continues:
It is perhaps hardly necessary to observe, that I do not pretend to have classical authority for this use of the word Catallactics; nor do I deem it necessary to make any apology for using it without such authority. It would be thought, I conceive, an absurd pedantry to find fault with such words as “thermometer,” “telescope,” “pneumatics,” “hydraulics,” “geology,” &c. on the ground that classical Greek writers have not employed them, or have taken them in a different sense. In the present instance, however, I am not sure that, if Aristotle had had occasion to express my meaning, he would not have used the very same word. In fact I may say he has used another part of the same verb in the sense of “exchanging;” (for the Verbals in are, to all practical purposes, to be regarded as parts of the verbs they are formed from) in the third book of the Nicom. Ethics he speaks of men who hold their lives so cheap, that they risked them in exchange for the most trifling gain []. The employment of this and kindred words in the sense of “reconcilement,” is evidently secondary, reconciliation being commonly effected by a compensation; something accepted as an equivalent for loss or injury. – wiki
Skippy… Burning bushes… shezzzz.
Read more at http://www.nakedcapitalism.com/2013/02/philip-pilkington-kill-the-king-why-are-we-so-scared-of-fiat-money.html#5ATZHgvOuBSzw3rb.99
Skippy… I will be short and sweet about this matter… he pulled all that thunkit… out of his mental sphincter… a dogs breakfast… constantly consumed… by his acolytes.
The ungrammatical sentence (a series of prepositional clauses without any verbs) was awful, not because it was ungrammatical, but because it was imcomprehensible. There is no way I can argue against something that is completely garbled.
Is there an argument here somewhere…. Looking….. Looking……
Nope. OK. Just had to be sure I wasn’t missing something.
Cheers.
Sure, I ‘ll make it simple Curt…
If your going to use metrics like IQ, its best to understand them first… HINT[!!!] early environmental conditions are more important than heredity.
http://en.wikipedia.org/wiki/Intelligence_quotient
Skippy… Neoliberalism is pretty much based on breeding, so the – non-scientific – approach… saying stuff, pretty much refutes a core foundational axiom. BTW the IQ metric is constantly under revision as our scientific knowledge grows, yet, it is still a means test against the larger population n. Watch out for environmental toxicity… cough neurotoxins… that can really mess with your model!
Skippy,
Please refer me to the data that supports your (ideological) position.
1) Early childhood AFFECTS IQ, in that it can harm development.Even given ‘perfect’ conditions, this means that hereditary differences will express themselves.It is not MORE important that heredity, since it is dependent upon heredity.
2) Our current understanding is that the genetic composition of intelligence is complex and determined by a concert of gene expressions. We do know that unless breeding is cautiously pursued that it regresses toward the mean.
3) The current consensus in research is whether genes express 60% on the low side or 80% on the high side, of intelligence. Conservatives argue higher, progressives lower. Opinions on this matter are generally an indicator of political affiliation not evidence.
4) The Flynn Effect appears to be the impact on practical intelligence as scientific knowledge spreads and becomes pervasive symbolism in life. However, like early childhood nutrition, all other things being equal, genetic differences remain constant.
5) As Bryan Caplan’s new book will soon show, we learn little if anything of value in college. American universities perform a sorting function that we use as signaling. This sorting function essentially sorts us by IQ – although, like Anna Karenina’s family, and the domestication of animals, any one of a series of behavioral or environmental factors can inhibit the utility of that IQ to the individual.
6) As such, societies sort by IQ, and this data is fairly clear throughout history although it was first documented in some form by Pareto – which is where the 80/20 principle comes from: that 80% of assets are held by 20% of the population everywhere at all times. This appears to be shifting further as value of the ability to express ideas over 106, and perform calculations over 115, seems to retain value as the value of labor and clerical work loses value due to automation and outsourcing of jobs to the developing world.
6) Because the left, especially the feminists, has made this subject taboo, research into intelligence, race and genetics has moved largely either to china where it is considered both obvious and valuable, or is being conducted indirectly here in the west. Flynn is now seriously ill and is unlikely to continue. But research continues elsewhere.
7) Pinker’s book, The Blank Slate: The Modern Denial Of Human Nature was the first substantial intellectual effort by an authority to undermine the progressive mythos. Although Hayek did state that the mysticism of the left, created by Marx and Freud, would be eventually discredited, most of us did not think it would happen in our lifetimes. And we are somewhat surprised that the rate of progress in the research.
Enough for now.
Cheers
“Skippy,
Please refer me to the data that supports your (ideological) position.” – Curt
Hint to yourself, myself does not utilize, nor seek, apply any isms or ologys as optics when viewing data and as new data – discovery is always coming in, it behooves the observer to distance themselves from such narrow minded buffoonery.
Although in your case…
You evoke Bryan Caplan, a guy that is a pure bias seeking – unadulterated ideologist – communal cultist.
The concept known as rational irrationality was popularized by economist Bryan Caplan in 2001 to reconcile the widespread existence of irrational behavior (particularly in the realms of religion and politics) with the assumption of rationality made by mainstream economics and game theory.[1][2] The theory, along with its implications for democracy, was expanded upon by Caplan in his book The Myth of the Rational Voter.
Influences: Donald Wittman, Ayn Rand, David D. Friedman, Murray Rothbard, Tyler Cowen, Gordon Tullock
Contributions: Rational Irrationality
IE. Rational Irrationality, now here’s a great example of Bernard and Skinners handy work gone horribly wrong. In America more than any other country children are attacked from birth by advertising messaging, a fact, it is a form of high level psychological grooming aimed at controlling their minds for profit and not developing critical thinking skills.
Lets not even get into see: ethical intuitionist philosopher Michael Huemer attempted buttressing.
The original purpose of the concept was to explain how (allegedly) detrimental policies could be implemented in a democracy, and unlike conventional public choice theory, Caplan posited that bad policies were selected by voters themselves. The theory has also been embraced by the ethical intuitionist philosopher Michael Huemer as an explanation for irrationality in politics.[3][4] The theory has also been applied to explain religious belief.[5] – wiki
The result was delete. –Ezeu 00:11, 4 November 2006 (UTC)
[edit]Michael Huemer
Associate professor; the article makes strong claims of notability which I’m unable to confirm. An ISI citation search puts his most-cited paper at 15 citations. Everything else is in the single digits. ~ trialsanderrors 20:00, 24 October 2006 (UTC)
delete however there are a ton of these almost but not quite notable in the category Objectivism scholars in wikipedia. this guy might be one of the more notable ones, but does not meat WP:PROF as best as i can tell. –Buridan 00:39, 25 October 2006 (UTC)
AFD relisted to generate a more thorough discussion so that consensus may be reached.
Please add new discussions below this notice. Thanks, Trialsanderrors 00:30, 3 November 2006 (UTC)
Keep Associate professor at a major university, with numerous publications in scholarly journals, plus scholarly books. Seems adequate notablitity for a professor. If the artical gets deleted, I hope he remains philosophical about it and keeps editing Wikipedia. Edison 00:28, 3 November 2006 (UTC)
Delete no notable (WP:BIO) and created by subject (WP:COI). Cbrown1023 00:53, 3 November 2006 (UTC)
Delete as subject is borderline in terms of notability and his creation of the page seems to violate (WP:COI). –Giddytrace 04:06, 3 November 2006 (UTC)
Delete per above. –Kf4bdy talk contribs 07:51, 3 November 2006 (UTC)
Delete: a normal—i.e. non-notable—academic who’s done some good work, but isn’t a major name in his field. Sam Clark 10:20, 3 November 2006 (UTC)
Delete appears to fail the professor test. Worthy, I’m sure, but I can’t find enough reliable secondary sources to ensure neutrality in the article, which is especially necessary since the subject has been involved in writing it. Guy 13:51, 3 November 2006 (UTC)
Delete, it fails Wikipedia:Notability (academics) — lucasbfr talk 21:39, 3 November 2006 (UTC)
LOL@ hamfisted hijinks
FYI there is no such thing as RACE[s, we are the Human Species as per your utterance:
“6) Because the left, especially the feminists, has made this subject taboo, research into intelligence, race and genetics has moved largely either to china where it is considered both obvious and valuable, or is being conducted indirectly here in the west. Flynn is now seriously ill and is unlikely to continue. But research continues elsewhere.” – Curt
You might try…
Race is a classification system used to categorize humans into large and distinct populations or groups by anatomical, cultural, ethnic, genetic, geographical, historical, linguistic, religious, or social affiliation. First used to denote national affiliations, the term began to be used to relate to physical traits in the 17th century. In the early 20th century the term was often used, in a taxonomic sense, to denote genetically differentiated human populations defined by phenotype.[1][2][3]
While biologists sometimes use the concept of race to make distinctions among fuzzy sets of traits, others in the scientific community suggest that the idea of race often is used[4] in a naive[5] or simplistic way, i.e. that among humans, race has no taxonomic significance: all living humans belong to the same species, Homo sapiens and subspecies, Homo sapiens sapiens.[6][7]
Social conceptions and groupings of races vary over time, involving folk taxonomies [8] that define essential types of individuals based on perceived traits. Scientists consider biological essentialism obsolete,[9] and generally discourage racial explanations for collective differentiation in both physical and behavioral traits.[5][10][11][12][13]
Since the second half of the 20th century the associations of race with the ideologies and theories that grew out of the work of 19th-century anthropologists and physiologists has led to the use of the word race itself becoming problematic. Although still used in general contexts, it is now often replaced by other words which are less ambiguous and emotionally charged, such as populations, people(s), ethnic groups or communities depending on context.[14][15] – wiki
For the biblical we have It is interesting to note that the above definition infers that the term is a loose one and that modern science is replacing it with another definition which is, essentially, that “race is determined by physical characteristics”. Traditionally biblical scholars have concluded that the three races were the progeny of Noah’s three sons, Shem, Japheth and Ham.
Japheth is the father of the Caucasian race; Shem of the Mongoloid race; and Ham of the Negroid race. Some have interpreted Noah’s prophecies of his sons in Genesis 9 to be the Scriptural basis for discrimination of one race against another. Particularly, the supposed curse on Ham’s son, Canaan, was purported to be Biblical support for Negro slavery.
http://www.bible-truth.org/race.htm
Better yet….
ORIGIN OF THE IDEA OF RACE
by Audrey Smedley
Anthropology Newsletter, November 1997
Contemporary scholars agree that “race” was a recent invention and that it was essentially a folk idea, not a product of scientific research and discovery. This is not new to anthropologists. Since the 1940s when Ashley Montagu argued against the use of the term “race” in science, a growing number of scholars in many disciplines have declared that the real meaning of race in American society has to do with social realities, quite distinct from physical variations in the human species. I argue that race was institutionalized beginning in the 18th century as a worldview, a set of culturally created attitudes and beliefs about human group differences.
Slavery and the Coming of Africans
Race and its ideology about human differences arose out of the context of African slavery. But many peoples throughout history have been enslaved without the imposition of racial ideology. When we look at 17th century colonial America before the enactment of laws legitimizing slavery only for Africans and their descendants (after 1660), several facts become clear.
1). The first people that the English tried to enslave and place on plantations were the Irish with whom they had had hostile relations since the 13th century.
2) Some Englishmen had proposed laws enslaving the poor in England and in the colonies to force them to work indefinitely.
3) Most of the slaves on English plantations in Barbados and Jamaica were Irish and Indians.
4) Many historians point out that African servants and bonded indentured white servants were treated much the same way. They often joined together, as in the case of Bacon’s Rebellion (1676) to oppose the strict and oppressive laws of the colonial government.
In the latter part of the 17th century the demand for labor grew enormously. It had become clear that neither Irishmen nor Indians made good slaves. More than that, the real threats to social order were the poor freed whites who demanded lands and privileges that the upper class colonial governments refused. Some colonial leaders argued that turning to African labor provided a buffer against the masses of poor whites.
Until the 18th century the image of Africans was generally positive. They were farmers and cattle-breeders; they had industries, arts and crafts, governments and commerce. In addition, Africans had immunities to Old World diseases. They were better laborers and they had nowhere to escape to once transplanted to the New World. The colonists themselves came to believe that they could not survive without Africans.
When some Englishmen entered slave trading directly, it became clear that many of the English public had misgivings about slave-trading and re-creating slavery on English soil. It was an era when the ideals of equality, justice, democracy, and human rights were becoming dominant features of Western political philosophy. Those involved in the trade rationalized their actions by arguing that the Africans were heathens after all, and it was a Christian duty to save their souls. By the early part of the 18th century, the institution was fully established for Africans and their descendants. Large numbers of slaves flooded the southern colonies and even some northern ones. Sometimes they outnumbered whites, and the laws governing slavery became increasingly harsher.
http://www.pbs.org/race/000_About/002_04-background-02-09.htm
Skippy… Anywho… anybody with a modicum of history and science understands who – you are – and – what mob – you belong too. Also, the thin veneer of civility that you – try – and cloak yourselves with is the most egregious effrontery, it makes the blood boil with hate, for the Dickinson platitudes about wealth as virtuous… cough… vulturous standards to be codified.
PS. See you in hell…
Interesting. So your argument is linguistic? Apparently, you’re implying that words are synonymous with belief (mysticism) rather than descriptions of observations of human actions. (science)? :)
Kind of funny that you quote Audrey Smedley who is a sixties and seventies era minor academic – an anthropologist at that – instead of an economist who measures human activity using the data that we have today. The idea of extended tribes, or collections of tribes, consisting of people with genetic, cultural and linguistic similarities is pervasive throughout history. Race is a description of aggregates that evolved as a concept, like all concepts – when it had descriptive utility, under the advent of maritime empires. But even if skin color was not material, religion, family structure, language, cultural myths and values, as well as rituals and status signals are material.
Races exist because people ACT as they exist, whether we invent a term for recognizing this activity or whether we ignore that activity. Members of races demonstrate a preference to reproduce, wed, socialize, group in geographic proximity, shop at the same stores, and work within their group, except at the margins. The reason for this is that signaling and commonality of experience and preference is cheaper within group than without of the group. And since the human accounting system is signaling, we are very sensitive to signals. Further, people VOTE by race and gender consistently. (See Pew) Data is data is data.
We westerners broke both family and tribal bonds, because the church intervened in our marriage and mating practices. So we outbred sufficiently that we considered (at last in northern Europe) everyone to be extended family. Thus providing us the ‘trick’ of allowing us to treat everyone as extended family, and to build the high trust society. Most of the rest of the world, outside of the W.I.E.R.D. countries (Western, Educated, Industrialized, Rich and Democratic )
Caplan also wrote “Myth of the rational voter”, and is currently working on a new book on education suggesting it’s largely signaling and sorting – which various scholars, including Sowell have argued for decades.
I want to solve the problem of politics. That is, how we create political systems that tolerate exclusive objectives in heterogeneous polities. Because people in heterogenous polities of any scale, have an advantage in trade policy, but are at a disadvantage in redistributive policy, and political consensus building. It is not mysterious why white americans object to redistribution, to other races, cultures, and religions, even if its economically valuable. Any more than it is mysterious why germans wont’ redistribute to the club med countries, even if it’s in their economic interest. That’s because they see the actions of others as immoral. (See Haidt).
But I suspect you’re not up for that level of discourse. :) So you’re welcome to keep your name calling, and innumerate arguments to yourself, and instead, understand that we have a tidal change in progress against the progressive illusion of universally egalitarian man.
Cheers
Hyperinflation is really a number of positive feedback loops that usually lead to the death of the currency. First note that it only seems to happen when governments have debt over 80% of GNP and a deficit that is 40% of their spending (50% would be spending twice what they get in taxes). The key feedback loop seems to be that as people are less willing to fund government debt the central bank buys more with new money so that the government has enough money to operate. But the more the central bank buys, the less anyone else wants to, as the value of money will be going down. This can spiral out of control.
I have a Hyperinflation FAQ that I welcome feedback on:
http://howfiatdies.blogspot.com/2012/10/faq-for-hyperinflation-skeptics.html
I figured out a while back that in our current economy, gold is a *leading* indicator of economic and political trouble.
*Leading*.
Once the trouble actually comes, gold crashes hard. Perhaps as all those goldbugs try to buy food with their gold and discover that nobody wants it.
Well, if the would-be trader had a gun along with his gold, people would for sure take his gold and hand over some food. Hilariously proving MMT’s parable of “How to turn litter into money,” except with something a little heavier and harder to carry around than scraps of paper.
[Cue Alberich’s leitmotif, accompanied by cries of No! No!
Gold is a commodity, like money, or oil. The difference is that while oil, money and gold are always in demand, governments print credit money, destroying whatever money you have in account, and governments take a long time to act, giving the private sector time to move capital. So we fly to gold, (or swiss francs for that matter) or to commodities (like oil and gas futures) which then increases the price of those commodities and decreases the value of the existing currencies.
Gold is rare, valued by everyone, and very hard to get out of the ground, so it is less vulnerable to ‘destruction’ of it’s purchasing power by governments who have overextended their debts, and then ‘print’ more money.
But, since there are flights to commodities such as gold, this causes a decrease in the value of the purchasing power of the original currency or commodity, and at some point, people take money from the higher priced commodity and purchase the new lower priced commodity.
(I made quite a bit of money riding the dollar then the euro, and then the swiss franc and the hong kong dollar.)