View Full Version : 'Austrian' School of Economics on the rise ...
Eric Stoner
01-19-2010, 08:42 AM
^^^ I'm in essential agreement with you about controlling the rate of growth in the money supply and protecting the soundness of the dollar.
One proposal while imperfect would go a long way toward restoring monetary stability. Tie the value of the dollar to the price of gold. While not a gold standard per se it would assure rational valuation of the currency.
I still like FRIEDMAN'S idea best of all : Abolish the Fed and replace it with a computer programmed to generate that amount of money to give us slow, steady and stable monetary growth.
One reason that Wall St. seems to benefit more than Main Street is that the major banks sit on the boards of the regional Federal Reserve Banks.
Melonie
01-19-2010, 03:46 PM
here's a well worth reading Austrian view on taxes ...
"Peter doesn't know the half of it - Part 1"
(snip)"Quite simply, the U.S. government is spending itself silly. And by the looks of it, the Obama administration and this Congress, with their endless spending plans, are set to put this spending machine into overdrive.
So then, how will the U.S. government pay for all this spending? Can the government foot the bill?
To answer these questions, it will be helpful to first understand how U.S. government spending got so big, and in so doing, set the stage for understanding why it will be impossible, unless policies change, for the government to foot that bill.
The U.S. government has NO money. It takes money from Peter to spend it on Paul. It takes money from Peter, whether Peter likes it or not, whether Peter receives something of value from the exchange or not. It’s called a tax. And the simple fact is government spending ALWAYS means government taxes.
Tell me something I don’t know, you say. Well, yes and no, for here’s where it gets a bit tricky.
Besides the ever constant cry for more government spending in support of Paul, it’s the way in which the government taxes Peter that allows the government to spend so much on Paul. Lay the bill bare and its likely Peter throws a fit. But mask Paul’s true cost and maybe Peter will be, shall we say, more willing to support the government’s desire to spend money on Paul.
The U.S. government taxes Peter in 3 different ways:
- Tax Peter now
- Tax Peter later
- Tax Peter don’t tell him
Tax Peter now. This is the easy one for Peter to figure out. These are the kind of taxes that are taken right out of Peter’s pocket, right in front of his eyes – taxes like income and capital gains taxes, social security and medicare taxes – the ones on his IRS forms. The government has a more soothing name for these taxes. They call them receipts. Peter knows better. And so do politicians. They know that if they abuse this tax venue it will likely get them thrown out of office.
Tax Peter later. This one is a bit harder for Peter to figure out, and as a result, a tax venue the politicians really like. This is the U.S. treasury entering the capital markets and borrowing from the savers of the world, to fund the government’s spending. This is treasury bills, notes and bonds. Problem is this is nothing more than taxes deferred, and to add insult to injury, taxes with interest. Peter’s kids will have to pay these taxes. So maybe, the politicians think, Peter won’t notice, or at least they hope he won’t notice, until they’re out of office. The government has a soft sounding name for these taxes too. They call it borrowing.
And finally, every politician’s favorite tax, Tax Peter don’t tell him. This is the hardest tax venue for Peter to figure out, and a subset of Tax Peter later, I mean borrowing. This is the Federal Reserve entering the capital markets and buying those treasury bills, notes and bonds with money printed out of thin air, through a check the Federal Reserve writes on itself, so that the U.S. government can in turn take that money and spend it on Paul. The government doesn’t have a name for these taxes, because they don’t want to talk about them. We Austrians, we call these taxes the inflation tax.
Why, you ask, is printing money a tax on Peter? How is this taking money from Peter to spend it on Paul?
Here’s why and how.
As the first recipient of this newly printed money, it appears that Paul is getting something for nothing. He gets unemployment benefits to buy food and clothes, subsidized medical care for his wife and free college educations for his kids. Paul gets all this without having to do a thing in return, without having to produce anything. He gets all this solely because he’s on the receiving end of the Federal Reserve’s printing press. And the best part about it – it appears he’s getting all this without a dime from Peter.
And that’s exactly what our politician friends are hoping you think. This, however, is only part one of the story.
Before long, because of Paul’s spending, this newly printed money makes it way into the hands of Peter. Armed with this new purchasing power, Peter is now in a position to bid for these goods and services, right along with Paul. The effect of this competitive bidding is to drive the prices of all these goods and services up – the prices of food, clothing, medical care and college educations. The rise in the prices of these goods and services is slow at first, but as the newly printed money makes its way into the hands of more and more Peters, the prices of these goods and services rise to the full extent of the newly printed money.
For sure, in the end, everyone gets the same goods and services at the higher prices. But as the first recipient of the newly printed money, Paul, for as long as it takes for the newly printed money to make its way into the hands of Peter, gets to buy these goods and services at the lower prices, in exchange for nothing. Peter, on the other hand, gets nothing but higher prices.
Thus, Paul gets to steal purchasing power from Peter. And it occurs without Peter even knowing it. That’s why politicians love the inflation tax. They get to hand out candy to Paul, all the while telling Peter, as well as Paul that the candy is free.
We Austrians can’t think of a more sinister tax. Not only does printing money steal purchasing power from Peter for the benefit of Paul and produce higher prices, but when pursued without limit, it will eventually reduce the value of that money to zero, and with it, the hard earned savings of anyone holding that money."(snip)
Hopper
01-19-2010, 06:30 PM
^^^ I'm in essential agreement with you about controlling the rate of growth in the money supply and protecting the soundness of the dollar.
I don't wish the government to control it the rate of growth of the money. The free market is the most natural, reliable and the only honest means of regulation.
We all want to protect the soundness of the dollar - the disagreement is over how it is done.
One proposal while imperfect would go a long way toward restoring monetary stability. Tie the value of the dollar to the price of gold. While not a gold standard per se it would assure rational valuation of the currency.
It is meaningless to tie the dollar to the PRICE of gold, since the price of anything is merely the number of dollars which it equals in value. The value of dollars themselves is not fixed, as we all know.
The best way to tie the dollar to gold would be for dollar coins to be made of whatever precious metal is practical. This would bear a relation to gold simply in terms of the exchange values of the two metals.
Notes could be issued, but these notes would be simply a receipt for a given amount of gold (or other commodities) held in deposit which could be used as a convenient means of exchanging gold in deposits. They would not be a standard currency with it's own intrinsic value - certainly not one set by the government.
I still like FRIEDMAN'S idea best of all : Abolish the Fed and replace it with a computer programmed to generate that amount of money to give us slow, steady and stable monetary growth.
Problem with that is that someone has to write a program which can manage the economy of an entire nation. It's the same as people in governemnt doing it directly except supposedly less liable to abuse. Regulation of the economy even with good intentions has been proven harmful time after time.
One reason that Wall St. seems to benefit more than Main Street is that the major banks sit on the boards of the regional Federal Reserve Banks.
You think?
It's not the only reason though. Just the fact of central banking being a form of social control makes it liable to enormous abuse.
Eric Stoner
01-20-2010, 08:30 AM
Wait a minute ! The whole problem with the Federal Reserve afaic is Humphey- Hawkins which mandates that the Fed promote full employment i.e. "manage the economy". I don't want the Fed doing that or trying to do that. I want it to go back to its original mandate and stick to it: Be the lender of last resort; regulate the banking system to promote solvency and security and maintain the value of the currency.
The computer program Friedman proposed would strictly control the money supply. It would issue that amount of money necessary for us to have slow, steady and stable economic growth. In other words there would be no more finagling and futzing with interest rates. Interest rates would be set by the market.
You propose a gold standard. I would argue that it is impractical, unwise and unnecesary.
It's impractical because of the incredible expense involved of reorienting the entire world economy back to metal based currencies. Unless you could somehow get everyone to agree to set a world price for gold and ban private sales and trading. Good luck ! Not to mention
requiring the U.S. Government to spend trillions to buy enough gold to even partially back all the money in circulation. And then you want everyone to carry around gold coins ???
In addition to the practical problems, it is unwise based on economic and monetary history. Inter alia it would require that world trade be conducted in gold and not just supply and demand. You might want to review the history of the Great Depression and how the gold standard contributed to same. Some argue that it wasn't the gold standard per se but government and Fed policy related to the gold standard and the constrictions placed on both in trying to react to a banking crisis while trying to adhere to a gold standard.
It's also unwise because the value of our currency would depend on the price of gold. If the gold supply goes up, the price could go down or vice versa and then you add in all the vagaries of fluctuating demand for a metal and you could have economic chaos.
A gold standard is not necessary if we restore fiscal and monetary sanity. I grant you it's a big "IF". All we need to do is return to the days of Volcker and Reagan when we controlled both the money supply and the rate of growth of Federal spending. Remember ? We had economic growth, low unemployment, low inflation and a strong dollar.
Hopper
01-20-2010, 08:17 PM
Wait a minute ! The whole problem with the Federal Reserve afaic is Humphey- Hawkins which mandates that the Fed promote full employment i.e. "manage the economy". I don't want the Fed doing that or trying to do that. I want it to go back to its original mandate and stick to it: Be the lender of last resort; regulate the banking system to promote solvency and security and maintain the value of the currency.
That original mandate was just a foot in the door for what came later. The people behind the enactment of the Fed intended to add all the other things (which they nonetheless swore up and down to the people that they would not) later on. What you want is irrelevant - what the government wants is what counts. They have the power, because you gave it to them. If you build them a central bank, they will use it as they please and you will get no say in it.
There is no reason why banking should be regulated. Has the Fed improved solvency? No - fractional reserve banking (necessary for issuing money independently of the economy) has created runaway insolvency. It has allowed bigger abuses by banks than are even possible in a free market system. It has allowed robbery - by the banks - on a grand scale.
In fact, all government regulation of any industry ever does is give the wealthiest companies in that industry a foothold in government for arranging that industry according to their own interests.
The computer program Friedman proposed would strictly control the money supply. It would issue that amount of money necessary for us to have slow, steady and stable economic growth. In other words there would be no more finagling and futzing with interest rates. Interest rates would be set by the market.
So the computer sets the money supply and the market sets the interest rates? Why can't the market set the money supply? All money is - or should be - is a medium of exchange for actual wealth. So all that fiddling with the money supply achieves is alterration of the amount of money in circulation - up or down - relative to the amount of actual material wealth it should correspond to. What is the use of that?
What is the effect of a little alterration of the money supply? Sooner or later, we start hearing that a little regulation only has a little effect (of course) and that is not "enough" - what we really need a lot.
We can have stable economic growth without regulation of the money supply. With regulation, there has yet been no real stability or growth.
History shows that whenever any government has controlled the supply or value of the currency, it has been in the interests of special groups has unfairly penalised other groups. Even with the best of intentions this is unavoidable.
You propose a gold standard. I would argue that it is impractical, unwise and unnecesary.
It's impractical because of the incredible expense involved of reorienting the entire world economy back to metal based currencies.
Not nearly as expensive as the Federal Reserve System and it's historical consequences. Have you any idea of the massive amount of wealth this system has robbed the people of?
Unless you could somehow get everyone to agree to set a world price for gold and ban private sales and trading. Good luck ! Not to mention requiring the U.S. Government to spend trillions to buy enough gold to even partially back all the money in circulation. And then you want everyone to carry around gold coins ???
The whole point of a free market is that prices are not fixed. The value of gold changes and with it the value of any currency based on it. So what?
The government properly has only as much gold as corresponds to the treasury's balance. Why must the government hold an amount of gold equivalent to the total wealth of private citizens? Why can't the people back their money with their own wealth? Isn't that all money is - a way to exchange your own wealth? I am not proposing the currency be "backed" by the government treasury, but by gold itself, or some other precious metal, most of which would be in the hands of private individuals.
All the government may need to do is set the standard for minting of coins. The government doesn't even have to do the actual minting. It certainly doesn't have to supply the metal for the coins.
I did not say we should have gold coins. A gold dollar coin would be too small to handle. We could have coins made of other precious metals. Then the value of the currency would be directly tied to that particular metal.
There would also be notes issued as receipts for deposits of gold and other precious metals which could be traded. That's the way we trade anything big and heavy, like real estate and buildings.
In addition to the practical problems, it is unwise based on economic and monetary history. Inter alia it would require that world trade be conducted in gold and not just supply and demand.
I don't care how the world trades, only how my own country trades. When the founders of the United States established a free market system, they were not hindered by what the rest of the world was doing at the time. It actually made the U.S. wealthier than other countries. The whole point of establishing that system was that they wanted a different one - one that would work. That is what is meant by "national independence".
It is the same as at the individual level. You don't need to adopt foolish financial practises just because many other people do.
You might want to review the history of the Great Depression and how the gold standard contributed to same. Some argue that it wasn't the gold standard per se but government and Fed policy related to the gold standard and the constrictions placed on both in trying to react to a banking crisis while trying to adhere to a gold standard.
Yes, government - including Fed - policy, not gold or the free market. And that banking crisis the Fed was "reacting to" was created in the first place by the Fed's own meddling with the banking industry and the currency, as well as bidding on the stock market by those wealthy few with inside knowledge of what the Fed was doing.
It's also unwise because the value of our currency would depend on the price of gold. If the gold supply goes up, the price could go down or vice versa and then you add in all the vagaries of fluctuating demand for a metal and you could have economic chaos.
That is not economic chaos, that is the normal working of a free market. Supply and demand regulate prices and consumption. Prices of anything simply reflect the honest value of something according to those two factors. It sounds like you want to manage the economy, which is precisely what you said above is what the Fed should not be allowed to do.
Does the gold supply really go up and down that wildly? If so, then in order to counter that, you would have to alter the money supply wildly. Wouldn't that be just as dangerous? You are just fluctuating one thing in order to stop the fluctuation of another thing. And when you fluctuate the money supply, you cause a fluctuation in the value of the unit of currency, which you say is the problem of basing the currency on gold.
BTW - you must recognise the difference between price and value. Price is the number of units of currency which something is bought/sold for. Value is the amount of one commodity exchangeable for another. Money is itself a commodity (just the one which happens to be the medium of exchange for other commodities) with it's own exchange value. Therefore the price of any commodity (the number of units of currency it exchanges for) changes with (among other things) the exchange value of the currency itself. I.E. when the value of the currency goes up or down, the amount of units exchangeable for a given commodity (its price) goes down or up respectively.
A gold standard is not necessary if we restore fiscal and monetary sanity. I grant you it's a big "IF". All we need to do is return to the days of Volcker and Reagan when we controlled both the money supply and the rate of growth of Federal spending. Remember ? We had economic growth, low unemployment, low inflation and a strong dollar.
It's not even an "if".
You've got that the wrong way around. Government control of banking and money is not necessary if we restore the free market, which in turn will naturally restore fiscal and monetary sanity. In fact, it is the only way - government control of finance and money will never be sane. I think it is merely what you prefer, for some reason you have not stated.
Under Reagan, spending and taxes went up; and he installed a lot of socialist legislation. All his supposed free market restraints on government were a disguise. Let's not return there.
http://www.google.com/custom?sa=Search&cof=LW%3A500%3BL%3Ahttp%3A%2F%2Fwww.lewrockwell.co m%2Flewroc1a.gif%3BLH%3A93%3BAH%3Acenter%3BAWFID%3 A65dad07a461e3427%3B&domains=lewrockwell.com&q=reagan&sitesearch=lewrockwell.com
http://search.mises.org/search?q=reagan&site=default_collection
Melonie
01-21-2010, 03:52 AM
another new tidbit - the Austrian view of inflation / deflation ...
(snip)WHERE DEFLATIONISTS ALWAYS GO WRONG
The deflationists confuse asset prices with consumer prices. It's that simple. They look at this or that asset market bubble and conclude:
"The debt load is too high. Debtors will default. This will cause massive corporate failures and layoffs. This will cause a fall in consumer prices. The Federal Reserve will not be able to reverse this by lowering interest rates. No one will borrow, even at 0%."
They believe that low interest rates led to the debt build-up, but even lower rates somehow will not sustain it. The price of capital can fall to zero, their analysis necessarily implies. Still, no one will borrow.
Sound familiar? It should. This was the view of John Maynard Keynes in his book, The General Theory of Employment, Interest, and Money (1936). He believed that the national government should borrow on its good credit and spend the money into circulation. Private firms would not borrow and spend, even at zero percent per annum. So, the government must intervene.
The difference between today's hard-money deflationists and Keynesian deflationists is that Keynesian deflationists do not think the government, when funded by the central bank, is incapable of getting the economy out of its otherwise permanent depression. Their policy prescription: "Borrow and borrow; spend and spend; print and print."
The hard-money deflationists are theoretical Keynesians who think they are Austrians. This is bizarre. John Exter, the central banker and Citibank economist, began this tradition. It continues.
Beginning with a false view of capital – "at zero price, there is greater supply than demand" – the hard-money deflationists write that the Federal Reserve is powerless to get commercial banks to lend. They ignore the obvious: the FED can impose fees for commercial banks' excess reserves. That will get them lending.
There is no shortage of borrowers. If this were not the case, then the commercial bond rate would be at 0% today: no borrowers at any price. It's at 6%.
The deflationists do not believe that the rate of interest clears the capital markets at rates above 0%. They think there will be no demand for loans at 0%. It should be clear that they do not understand the capital markets in a world where central banks can and do buy corporate debt. There is corporate debt for sale. They do not understand that money, once created, continues to be spent.
Imputed prices for specific goods rise and fall. Imputed prices for dreams – capital markets – can and do rise and fall wildly. Imputed prices for consumer goods on supermarket shelves rarely fall. A few may. Most don't. Why not? Because the money supply keeps rising.
Pricing in consumer goods markets that have high turnover is in principle the same as pricing in capital goods' markets. Individuals impute prices based on expected income generated by the assets. But when hardly anyone sells assets in any given week or month, as is the case with stocks and bonds, expectations can produce bubbles that pop. In contrast, when supermarket shelves get cleaned out every three days, expectations do not produce bubbles. Consumer prices rise comparably to the increase in M1 in the United States and M2 in Japan.
Deflationists confuse money with dreams. That is, they confuse money in a bank account with imputed prices in a capital market – a market in which the latest price of one small sale is imputed to the entire asset's market capitalization.
Meanwhile, back at the supermarket, prices are slowly rising in the United States and slowly falling in Japan.
There is no mass deflation. There is surely no hyperdeflation. In the United States, there is price inflation. December 2008 to December 2009, the CPI rose by 2.7%. The Median CPI rose by 1.1%. For yet another year, the deflationists' prediction has been proven wrong.
Will they predict more price deflation? Of course. If the evidence from 1956–2009 does not persuade them, we should not expect a change of view. They operate with a false view of consumer goods pricing and a false view of money. Why should the behavior of the consumer price index – upward – deflect them?
When they believe it, they will see it. They do not yet believe it – "it" being the Austrian theory of the business cycle. So, they do not see it – "it" being rising consumer prices in 2010."(snip)
from
Eric Stoner
01-21-2010, 09:15 AM
That original mandate was just a foot in the door for what came later. The people behind the enactment of the Fed intended to add all the other things (which they nonetheless swore up and down to the people that they would not) later on. What you want is irrelevant - what the government wants is what counts. They have the power, because you gave it to them. If you build them a central bank, they will use it as they please and you will get no say in it.
There is no reason why banking should be regulated. Has the Fed improved solvency? No - fractional reserve banking (necessary for issuing money independently of the economy) has created runaway insolvency. It has allowed bigger abuses by banks than are even possible in a free market system. It has allowed robbery - by the banks - on a grand scale.
In fact, all government regulation of any industry ever does is give the wealthiest companies in that industry a foothold in government for arranging that industry according to their own interests.
So the computer sets the money supply and the market sets the interest rates? Why can't the market set the money supply? All money is - or should be - is a medium of exchange for actual wealth. So all that fiddling with the money supply achieves is alterration of the amount of money in circulation - up or down - relative to the amount of actual material wealth it should correspond to. What is the use of that?
What is the effect of a little alterration of the money supply? Sooner or later, we start hearing that a little regulation only has a little effect (of course) and that is not "enough" - what we really need a lot.
We can have stable economic growth without regulation of the money supply. With regulation, there has yet been no real stability or growth.
History shows that whenever any government has controlled the supply or value of the currency, it has been in the interests of special groups has unfairly penalised other groups. Even with the best of intentions this is unavoidable.
Not nearly as expensive as the Federal Reserve System and it's historical consequences. Have you any idea of the massive amount of wealth this system has robbed the people of?
The whole point of a free market is that prices are not fixed. The value of gold changes and with it the value of any currency based on it. So what?
The government properly has only as much gold as corresponds to the treasury's balance. Why must the government hold an amount of gold equivalent to the total wealth of private citizens? Why can't the people back their money with their own wealth? Isn't that all money is - a way to exchange your own wealth? I am not proposing the currency be "backed" by the government treasury, but by gold itself, or some other precious metal, most of which would be in the hands of private individuals.
All the government may need to do is set the standard for minting of coins. The government doesn't even have to do the actual minting. It certainly doesn't have to supply the metal for the coins.
I did not say we should have gold coins. A gold dollar coin would be too small to handle. We could have coins made of other precious metals. Then the value of the currency would be directly tied to that particular metal.
There would also be notes issued as receipts for deposits of gold and other precious metals which could be traded. That's the way we trade anything big and heavy, like real estate and buildings.
I don't care how the world trades, only how my own country trades. When the founders of the United States established a free market system, they were not hindered by what the rest of the world was doing at the time. It actually made the U.S. wealthier than other countries. The whole point of establishing that system was that they wanted a different one - one that would work. That is what is meant by "national independence".
It is the same as at the individual level. You don't need to adopt foolish financial practises just because many other people do.
Yes, government - including Fed - policy, not gold or the free market. And that banking crisis the Fed was "reacting to" was created in the first place by the Fed's own meddling with the banking industry and the currency, as well as bidding on the stock market by those wealthy few with inside knowledge of what the Fed was doing.
That is not economic chaos, that is the normal working of a free market. Supply and demand regulate prices and consumption. Prices of anything simply reflect the honest value of something according to those two factors. It sounds like you want to manage the economy, which is precisely what you said above is what the Fed should not be allowed to do.
Does the gold supply really go up and down that wildly? If so, then in order to counter that, you would have to alter the money supply wildly. Wouldn't that be just as dangerous? You are just fluctuating one thing in order to stop the fluctuation of another thing. And when you fluctuate the money supply, you cause a fluctuation in the value of the unit of currency, which you say is the problem of basing the currency on gold.
BTW - you must recognise the difference between price and value. Price is the number of units of currency which something is bought/sold for. Value is the amount of one commodity exchangeable for another. Money is itself a commodity (just the one which happens to be the medium of exchange for other commodities) with it's own exchange value. Therefore the price of any commodity (the number of units of currency it exchanges for) changes with (among other things) the exchange value of the currency itself. I.E. when the value of the currency goes up or down, the amount of units exchangeable for a given commodity (its price) goes down or up respectively.
It's not even an "if".
You've got that the wrong way around. Government control of banking and money is not necessary if we restore the free market, which in turn will naturally restore fiscal and monetary sanity. In fact, it is the only way - government control of finance and money will never be sane. I think it is merely what you prefer, for some reason you have not stated.
Under Reagan, spending and taxes went up; and he installed a lot of socialist legislation. All his supposed free market restraints on government were a disguise. Let's not return there.
http://www.google.com/custom?sa=Search&cof=LW%3A500%3BL%3Ahttp%3A%2F%2Fwww.lewrockwell.co m%2Flewroc1a.gif%3BLH%3A93%3BAH%3Acenter%3BAWFID%3 A65dad07a461e3427%3B&domains=lewrockwell.com&q=reagan&sitesearch=lewrockwell.com
http://search.mises.org/search?q=reagan&site=default_collection
I'm sorry but you are going from the impractical to the utopian. You are apparently arguing for a return to a 19th Century Pre- Fed mercantile economy. That will NOT happen. Americans are too wedded to quasi-socialism i.e. Social Security; Medicare and other entitlements. Our banking system is dependent on borrowing and risk. You are confusing their own excesses with government policies like the CRA. Add in Fannie, Freddie and the HRA buying up and/or guaranteeing low quality mortgages and you've got our current mess.
Why not just get the government OUT of the mortgage business ?
I don't know if you understand what the "money supply" is. To avoid even more eyes glazing over than we've already caused, I'll just focus on the Fed and its printing presses which directly affects M1. Friedman's proposed computer program would directly govern how much money the Fed could produce i.e. how many Franklins, Grants, Jacksons, Hamiltons, Lincolns and Washingtons.( Oops I almost forgot the 2 dollar bill ) and Jeffersons. It would do it primarily to allow for population growth. You wouldn't want a static supply of money with an expanding population, would you ? You'd also want it to expand to permit economic growth, wouldn't you ? Otherwise you'd just be continuously re-slicing the same size economic pie.
You may disagree but I've got history on my side both in this country and elsewhere like in Germany and Switzerland. Careful control of the money suppply and promoting it's slow and stable growth inevitably leads to low inflation AND economic growth.
You say you don't care "how the world trades". Only how your country trades. Are you serious ? Are you seriously arguing for economic, monetary and trade policies in a vacuum ? Again, if you review world trade Pre- W.W. I , during W.W. I and post W.W.I the world's great economies and their mindless adherence to a gold standard directly led to the Great Depression. There's even an argument that it directly contributed to U.S. involvement in an otherwise entirely European WAR !
Let me tell you a quick story about tying a country's currency to the value of a metal. Back in the early 80's I made a small fortune by taking several trips to Central America and buying up 40 to 50 pounds of silver coins at a time. I got the advantage of A. the depressed value of local currency vs. the dollar and B. the soaring price of silver. When I returned to the U.S. I declared my coins to Customs based on their dollar value, paid a modest duty, sold them as scrap silver and made a big profit. The point is that making our money's value dependent on the value of metals like silver and gold AND subject to the vagaries of currency markets would be very disruptive to both our imports and exports.
While Reagan was not perfect and tolerated deficits that were too large, I'd still love to return to those halcyon days. Low taxes, controlled growth of Federal spending ( please compare the rate of growth of the Federal budget then to now ), low inflation, low unemployment ( especially in his second term ), a sound dollar and healthy economic growth. It wasn't Reagan's fault that Congress insisted on spending too much money.
Lastly if you read the Constitution, the Federal government has the DUTY to coin money and set the value thereof. It's their job to maintain the value of the currency. Whether it was wise to turn that function over to the Federal Reserve is a fair question. It's one reason why I'd prefer to abolish the Fed.
Hopper
01-22-2010, 07:22 AM
I'm sorry but you are going from the impractical to the utopian.
The belief that the government can manage everything is utopian. I don't believe the free market is utopian - it is just a lot better than having it managed by bureaucrats.
You are apparently arguing for a return to a 19th Century Pre- Fed mercantile economy. That will NOT happen. Americans are too wedded to quasi-socialism i.e. Social Security; Medicare and other entitlements.
Mercantilism is not free market. How you got mercantilism from what I just said, or anything I said, I just don't know.
Lincoln imposed a mercantilist system on the U.S, but that was not the original U.S. system. Europe had been mercantilist for two centuries prior to that. So all Lincoln did was return to European mercantilism, from free market, the original U.S. system. Lincoln printed a lot of excess paper money.
Mercantilism is essentially the same as socialism and therefore similar or identical to what the U.S. is now. Yes, it based the currency on state gold reserves, but I am not advocating that. It required a central bank, which the Fed is the latest version of. Those central banks did the same thing the Fed does: issue money far in excess of those gold reserves or gold anywhere else in the country.
Our banking system is dependent on borrowing and risk. You are confusing their own excesses with government policies like the CRA. Add in Fannie, Freddie and the HRA buying up and/or guaranteeing low quality mortgages and you've got our current mess.
You don't need a central bank to have borrowing and risk. However, at times when central banking was not in use, or excessive use, in the U.S., the trend was for businesses to be started on savings rather than borrowing. Central banking encourages borrowing (and lending) and punishes savings. So the main reason our banking system is based on borrowing and risk is government policies.
How can I be confusing private banking excesses with government policies if the two are inseperable? You are choosing to ignore government policies and recognise only private excesses as the cause of the problem. The government policies were what allowed and encouraged those excesses. If the government allows banks to make loans with money created from nothing, you have to expect banks and borrowers to be less responsible in their own policies.
Why not just get the government OUT of the mortgage business ?
Why not get the government out of everything?
I don't know if you understand what the "money supply" is. To avoid even more eyes glazing over than we've already caused, I'll just focus on the Fed and its printing presses which directly affects M1. Friedman's proposed computer program would directly govern how much money the Fed could produce i.e. how many Franklins, Grants, Jacksons, Hamiltons, Lincolns and Washingtons.( Oops I almost forgot the 2 dollar bill ) and Jeffersons.
You apparently don't understand what money is. Paper is intrinsically good for only one thing. It has purchasing power only because the law declares it. Under poor economic circumstances, even the law cannot maintain the value of paper money if it is backed by nothing else. Real money is based on real wealth, and has intrinsic value of it's own, or at least stands for something which does.
My posts don't cause people's eyes to glaze over. My ideas are straight-forward, clear, simple, logical and no-nonsense. It's those who defend government intervention who must resort to tediouis and opaque verbal contortions. My ideas are illuminating, exciting, liberatiing, an exhilarating rush of libertarianism. What the world needs is ten-thousand more people like me all speaking.
It would do it primarily to allow for population growth. You wouldn't want a static supply of money with an expanding population, would you ? You'd also want it to expand to permit economic growth, wouldn't you ? Otherwise you'd just be continuously re-slicing the same size economic pie.
So before the miracle of the Federal Reserve System, the money supply could not keep up with population growth? I didn't know.
You have lost sight of where money comes from and what it is used for. First came material wealth, then came a medium with which to trade it. Wealth comes from production, the labour of individuals. The greater the population, the more production. It's not like the new arrivals sit on both hands while the previous generation produce for them. All money does is make it more convenient to trade everything which is produced.
So the economic pie doesn't stay the same size, it grows with population, and whatever the medium of exchange is (gold, silver, coffee beans) grows with it, becasuse it's production increases along with everything else.
You may disagree but I've got history on my side both in this country and elsewhere like in Germany and Switzerland. Careful control of the money suppply and promoting it's slow and stable growth inevitably leads to low inflation AND economic growth.
I pointed out earlier that along with control of the money supply, heavy income tax is required to check inflation. And control of the money supply has not been careful. We would have had more economic growth without them. Inflation is a hidden tax, and the worst kind, since it punishes savings and hits the most productive people the hardest. Together with the income tax, it is a hindrance to economic growth - by which I assume you mean individual prosperity.
You say you don't care "how the world trades". Only how your country trades. Are you serious ? Are you seriously arguing for economic, monetary and trade policies in a vacuum ?
Of course one's own country should not ignore the econimic practices of other countries, but that does not mean it should adopt the same practices. It should adopt the best practices.
Again, if you review world trade Pre- W.W. I , during W.W. I and post W.W.I the world's great economies and their mindless adherence to a gold standard directly led to the Great Depression. There's even an argument that it directly contributed to U.S. involvement in an otherwise entirely European WAR !
Why blame the gold standard when the Fed and central banks in other countries, along with numerous other socialist policies, were at work? The gold standard did not operate in a vacuum.
The Fed created the Depression with it's manipulation of the money supply and accompanying disinformation of the public.
I don't advocate a gold standard as such. A gold standard involves fixing the value of coins made from (say) silver in relation to the value of gold. That is artificial - it is government intervention. It also requres fixing the exchange value of coins between countries on the gold standard. Or fixing the sale price of gold. And the meddling doesn't stop there. Meddling leads to more meddling to compensate for that meddling, and because a little meddling never fixes anything.
This is not free market. Throughout history, governments have always tinkered with their coin currency. It is one of the things Adam Smith spent most of his time denouncing. So even having currency made from precious metals did not exclude government regulation of it.
Let me tell you a quick story about tying a country's currency to the value of a metal. Back in the early 80's I made a small fortune by taking several trips to Central America and buying up 40 to 50 pounds of silver coins at a time. I got the advantage of A. the depressed value of local currency vs. the dollar and B. the soaring price of silver. When I returned to the U.S. I declared my coins to Customs based on their dollar value, paid a modest duty, sold them as scrap silver and made a big profit. The point is that making our money's value dependent on the value of metals like silver and gold AND subject to the vagaries of currency markets would be very disruptive to both our imports and exports.
I don't see why changes in the value of a commodity or it's variation between countries is a disruption. It is a fact of life. You can't regulate it away and there is no reason why we should want to.
While Reagan was not perfect and tolerated deficits that were too large, I'd still love to return to those halcyon days. Low taxes, controlled growth of Federal spending ( please compare the rate of growth of the Federal budget then to now ), low inflation, low unemployment ( especially in his second term ), a sound dollar and healthy economic growth. It wasn't Reagan's fault that Congress insisted on spending too much money.
The Republican party has been socialist from it's beginning and from well before the Democratic party went socialist (under Wilson and FDR). Reagan ws no exception. Before he became Governor of California, he was eye-deep in communist front organisations. His policies as Governor and then Presitdent reflect that ideology. His conservatism was merely cosmetic, a ruse. This has been true of almost every Republican administration before and since. I told you about Lincoln - the first Republican President.
Lastly if you read the Constitution, the Federal government has the DUTY to coin money and set the value thereof. It's their job to maintain the value of the currency. Whether it was wise to turn that function over to the Federal Reserve is a fair question. It's one reason why I'd prefer to abolish the Fed.
Let's read it:
In Article 1 Section 8: "The Congress shall have the Power...To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"
Regulating the value of the coin is not the same as regulating the supply of it. Regulating the value of the coins means regulating it's weight and composition, which are what determine it's value. That is not "setting" the value to whatever the government decides it should me by varying it's supply. Regulating foreign coins is the same thing: ensuring the honest value of coins introduced from abroad.
Note that the second sentence is about weights and measures, which are what are used to determine the weight and composition of the coins. Note also that it says "to coin money", i.e. to make money from metal, not paper and ink. It certainly says nothing about issuing paper money not based on precious metal or some other type of real wealth.
It says Congress has the power, not the duty, to coin money and regulate it's value - i.e. it is not obliged to, it merely may if the people so decide. Remember, the people properly control Congress.
Eric Stoner
01-22-2010, 09:11 AM
If this were close to your ( and to a lesser extent my ) idea of a "perfect" world, then your views would hold greater sway than they currently do. I don't know of any country that currently uses the system you advocate. I don't know of any country that ever really did. It wasn't the U.S. Hamilton invented the National Debt. Jackson let the Bank of the U.S. die.
We came closest, I suppose, when Coolidge was President.
Your arguments are based on how things ought to be based on the Constitution. I agree with you. That's how they ought to be. That's not how they really are and as a practical realist I just don't see it as being politically possible to restore things to what you and I would argue is proper Constitutional conformity. Btw, you have continually confused my cautionary injections of reality with philosophical disagreement.
Hopper
01-24-2010, 04:37 AM
If this were close to your ( and to a lesser extent my ) idea of a "perfect" world, then your views would hold greater sway than they currently do.
I don't believe a perfect world is possible. I just believe that government is an unnecessary source of great evils. I am for advancement. The free market and libertarian society is an advancement in politics and economics, just like advances in science and technology. I am not for a perfect world, I am for a better world.
Whether or not my views hold sway depends only on how many people are actually aware of them. They are perfectly reasonable and practical ideas. The only "impractical" thing about them is that they are not widely known enough.
That is a difficulty, but the alternative is much more difficult: forgo liberty and prosperity, and eventually endure slavery, hardship and poverty. To not make the attempt is to lay down and die.
I don't know of any country that currently uses the system you advocate. I don't know of any country that ever really did. It wasn't the U.S. Hamilton invented the National Debt. Jackson let the Bank of the U.S. die.
We came closest, I suppose, when Coolidge was President.
Would you jump off of a cliff if everyone else was doing it? No country was using it when the founders of the U.S. were planning to use it either. Someone has to do it first. That's what politicians say when they want to impose some policy of their own - "America should lead the way".
True not all the founders of the U.S.were for full free market. Jackson did the right thing when he opposed the (central) Bank of the U.S. The reason the U.S. didn't stick to free market was not any problme with free market, it was the tendency of vested interests and old ideas to drag society backwards.
Your arguments are based on how things ought to be based on the Constitution. I agree with you. That's how they ought to be. That's not how they really are and as a practical realist I just don't see it as being politically possible to restore things to what you and I would argue is proper Constitutional conformity.
Then why have a Constitution based on how things ought to be? You can't base a country on impractical ideas. The founders thought the Constitution was practical. It was based on nothing if not practical ideas. Things weren't working out with statism in Europe becase that was impractical.
They devised the democratic system of elections to make it "politically possible" to make the government conform to the Constitution. Can you think of any other use for it? If not, then the practical thing would be to scrap that too. No use fooling ourselves.
If we base our politics on compromise, then logically we have to compromise on the compromise, then compromise on that and so on until the governemnt and big business have it all their way - socialism.
In fact, that is what the U.S. has actually been doing for some decades now, and socialism is where we are headed.
Btw, you have continually confused my cautionary injections of reality with philosophical disagreement.
Some of your cautions seemed to be based on lack of knowledge of the principles involved.
You have a choice: Start talking to people about principles or forever shut up. Wittering about compromise will do no good. That's what the elites want you to do. Why don't you stand over here with the men and talk about real American principles?
Melonie
01-24-2010, 08:43 PM
Austrian School of Economics Vindicated Big Time ...
(snip)"How an American Recession Vindicated the Austrian School of Economics
by Gerard Jackson
One thing is absolutely clear. America's political class and the economic commentariat have learnt precisely nothing from previous recessions. After each recession we get the same old thing: an incessant call for Keynesian nostrums, a cry for greater regulation, and the usual claim that greed-driven markets cause the boom and bust. Even those few who decry Keynesian policies and call for tax cuts have no real answer for those who charge the market with being inherently unstable and therefore requiring government guidance. Their only defence is to call for a steady monetary policy that will stabilise the economy, apparently oblivious to the historical fact that this policy has never prevented a boom never mind a recession.
Now the emergence of the current recession followed the same pattern as the recession that Bush 'inherited' from Clinton. I outlined in previous articles how Austrian economic analysis successfully described that process. Given the present situation and the confusion that now abounds it is necessary for us to go over old ground.
It should be patently clear to those who followed my reasoning at the time that the economic facts neatly fitted the approach of the Austrian school of economics. According to the Austrian analysis the recession would first make itself felt in the higher stages of production and then work its way down the production structure. Figures from the NAPM (National Association of Purchasing Management) in the middle 2000 gave considerable support to this view. The pattern clearly fitted the Austrian view.
The NAPM Index showed that manufacturing had contracted for the ninth month in a row. Moreover, manufacturers accelerated the liquidation of inventories in April 2000, bringing the Inventories Index down from 44.2 per cent in March to 39.6 per cent in May 2001. In late 2001 another NAPM report showed that economic activity in the manufacturing sector had fallen for the 15th consecutive month in October. Leaving no room for Keynesian Pollyanna's to find a chink of light, it also revealed that the overall economy had ground to a halt. But what is of the strictest importance about both NAPM manufacturing findings is that they narrowed the beginning of the recession down to about the middle of 2000. (Well guess who was the then-president?)*
Now the index registered employment as negative from January 2001. The meaning of this was brought home when it was reported that 223,000 jobs were lost in May 2001, the biggest drop in ten years, raising the US April unemployment rate to 4.5 per cent. This was on top of a loss of 53,000 jobs in April. (Note the rate at which the jobless increased. As an aside, also note how the ever so honourable leftist media blames Bush for the job losses).
Meanwhile, average hourly earnings rose 0.4 percent in April after a 0.4 percent increase in the previous month. There was nothing unusual here. The classical economists also observed that there was a tendency for wages to continue rising in the last phase of a boom. Eventually the recession struck at the rest of the economy, including services, but to a lesser degree. In early May the NAPM revealed that its non-manufacturing index had dropped three points in April to 47.1. This was the lowest monthly reading in the survey's four-year history, making it a 14 point fall since December 2000.
What is particularly interesting is that the NAPM survey's indicated a general contraction. So what happened to the first quarter of 2001's annualised growth rate of 2 per cent? It was never there. The actual figure for the quarter was 0.5 per cent. As others pointed out at the time, most of the 2 per cent figure came from an improved trade deficit, without which growth would have been negligible. In addition, if other government inflation figures had been used GDP would have been negative, which means the deflator was running ahead of GDP. In other words, the economy was contracting and not growing. (This should alert readers to the danger of relying entirely on GDP figures.)
Some feared the worst and drew dismal comparisons with the Japanese economy. Others argued that the US economy is more sensitive to interest rate cuts. But this is to say no more than the American economy is more flexible than the Japanese economy and that American governments, unlike the Japanese, have been willing to allow the necessary, or at least many, economic liquidations to take place. (Unfortunately Obama has changed tack.) Debt, like overvalued shares, was not quite the problem that many commentators thought it would be. The real problem was not debt but the process by which massive debts are incurred. Unless this problem is dealt with more recessions, bubbles and market crashes are guaranteed. (This is exactly what happened.)
That the lesson was not being learned at the time, and still hasn't, was made clear by Robert McTeer of the Dallas Fed who encouraged people not to save but to keep on spending. (This is the kind of dangerous Keynesian nonsense that still has some people making the Keynesian argument that Japan's problem is that it saves too much.) What better way to keep people spending than supplying them with oodles of cheap credit? But the time comes when the discoordinating effects of the cheap money policy can no longer be avoided. This is the situation today."(snip)
from