Does it make sense that a fall in prices should actually cause people to postpone buying goods? To maintain their life and wellbeing individuals must live at present. FULL ARTICLE
Source link: http://archive.mises.org/10819/does-deflation-pose-a-threat-to-the-us-economy/
Does Deflation Pose a Threat to the US Economy?
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Very interesting article. I actually read another story at http://www.goldalert.com (it is titled “Gold Price Up, Dollar Down – Does it Really Matter?”, on the left side of the page) that discusses many of the same issues that you bring up, and comes to a similar conclusion, that deflation does not pose a nearly as large of a threat as the government’s policies to prevent it. This article also examines the relationship between the gold price and the dollar, and provides a good summation on the Federal Reserve’s monetary policies.
Blech! It’s the same Libertarian bilge. One might as well presume if a Libertarian see a widget for $3 and another for $6 the Libertarian would presume the $3 one is better because it represents a double widget production ability that allows the producer to make widgets at half the cost of their competitor thus allowing them to sell the widget at half the price of their competitor. Never mind the $3 dollar widget might be half the quality of the $6 widget.
In reality, when deflation causes the money to be more valuable it also means the money is harder to get. So people might be happy when their money buys more but don’t like it when they get paid less. Likewise people like the prices of everything they see in catalogues from fifty years ago but don’t like the wages and salary people were making. Alternatively people like deflation because their savings are growing but their mortgages and credit card debt is becoming increasingly harder to pay off.
Gil, just because somebody produces a subpar product doesn’t make him evil. If I need a widget and can’t afford $6, should I be forced to make do just because it doesn’t meet your criteria?
Great article!
And Gil. Huh?
The article makes it a point to analyze the effects of monetary inflation as opposed to simple price increases and decreases. As has been mentioned a billion times on this site, monetary inflation leads to malinvestment. The inevitable broader price increases are a symptom as the money leaks out into the broader economy.
My take on “deflation”… people like dropping prices. If you are forced to declare bankruptcy, your decreasing pool of money goes further to sustaining a modest standard of living. Once you kick the debt habit, dropping prices makes it easier to save. And you are rewarded, rather than penalized, for saving with lower future prices. Your income may drop but you generally are paid with yesterday’s dollars, which were earned at a higher price level, meaning you are also just a little ahead of the game; with rising prices and inflationary pressure, your are always behind the curve.
Dear Mr. Shostak,
Some deflationists argue deflation is the fall in money and credit.
Even though the money supply is expanding, credit is being destroyed at a faster rate than it is being replaced.
Debt is shrinking in the private sector and shadow banking sector – OTC are being deleveraged.
Could you explain why in your article Credit is not considered part of the money supply?
Thanks
I don’t think credit destruction can be avoided as it is a symptom of the boom/bust. The bad loans go unpaid and the poorly capitalized banks hold off on making more loans until their balance sheets improve. That is the inevitable consequence of inflation and malinvestment. The credit should not have been extended in the first place. The longer they “print” money for the bad players, the longer it takes for the balance sheets to improve because the FED/gov is just propping up the bad players (and taxing good banks in the process). The bad players need to fail so the credit creating process can go to those that kept level heads through the boom. (Credit extended as a result of real savings is the goal.)
Since credit contraction can’t be avoided, I’m not sure how it would fit into his analysis. All that really matters is that the monetary policy continues to divert money away from productive endeavors and when the fundamentals do fall in line, there will be more money in the supply than there should be, aggravating price inflation.
(GM seems to be a great example. It was losing jobs and market share, and staying afloat with easy money through its financing wing. When things went bust, they failed. Then the gov extended it money directly, and it still failed. Their market share could well continue to decline, and jobs continue to be lost… do you keep throwing fresh money at them? They are not credit worthy, so a drop in available credit is irrelevant. As long as they are getting credit from someplace, they are competing with more credit worthy market participants and dragging on the creation of real savings, from which future credit is created.)
PS: Like I have anything to add that you guys and gals don’t already know.
@Todd Dusanj
Credit is not money, it the absence of money. Money is the Real Value of goods and services that are made available, now, by real creative human process.
Credit is a risk venture on the future of that creativity and production. The future is un-real and unknown until it is experienced. So the Credit has no intrinsic value until it is replaced with real production and creative effort, now, and in the past.
Until that real creativity is experienced, lived, done, the credit has no value, only the a representation of the potential for value.
Money happens when the creativity and production are actualized in real experience, real events, real goods, and real services. Money supply, is the current real production of the entire economy of individuals. Credit does not add to this production, unless it is backed by 100% reserves of stored past production.
Fiat “money” is valueless currency. Creating more of it does not create more wealth. It just increases the ordinal value needed to make an exchange of value that is on par with what would have been exchanged prior to the creation of more currency.
Fiat “money” has no store of value, and also no unit of measure. It has a temporal deficiency in this regard. The value of the currency is measured by the goods and services it trades for today. That is today’s measurement. What it is measured at tomorrow may differ. But goods, say a six pack of beer, has the same relative value to you today as it had yesterday, and quite likely a similar value to what it had 10 years ago. The evaluation, in human terms, is objective only to the purchaser and the seller. The ordinal value of the currency is relevant to that exchange only in that moment, when both objective evaluations reach agreement. That is the moment that the seller and purchaser establish, for the moment, an actual value for the currency.
As you can see, the ability of the fiat currency to store value is non-existent. It loses value as more of it is created. Credit that is based on paper rather than the store of value in intrinsic value commodity, is simply a further expansion of the currency supply, not the money supply.
An expansion in the money supply comes about from either increases in production and/or efficiency, increases in Labor force and/or efficiency, or decreases in consumer demand. These types of expansion in real value lead to decreases in the comparative intrinsic value of the product or service versus the currency used. In other words the prices drop.
Increases in currency count, which is brought about by printing up more currency, create a rise in the comparative intrinsic value of the product or service versus the currency used. In other words the prices increase.
Gil,
To your point about: “mortgages and credit card debt is becoming increasingly harder to pay off”
Could it be that mortgage and credit card debt held by banks are in fact the non-performing / non-productive activities that Frank is mentioning? If this is the case, (which should be obvious), then allowing banks who undertook these activities to go belly up would in fact be required to provide a ground work for sustainable future growth.
The question is: Is this bad for people who have excessive debt?
In my opinion, this should be the best thing that could happen to debtors with excessive mortgage and credit card obligations. As the over leveraged banks fail, they have to sell their assets (mortgage and credit card debt) at fire sale prices to new owners who then have a huge incentive to keep those debtors current on their new, high profit cash flows. These incentives translate into the very things that homeowners have been and are asking for: loan modifications, balance or payment reductions, etc… (Note: Securitization makes this process more difficult but not impossible – desecuritizing positions could be added to the job market!)
Federal Reserve inflation to prevent falling prices in housing (or in the general market) prevents these very things from happening. This is because the mechanism they are using – fixing the banks balance sheets with free money loans – prevents their bankruptcy and the subsequent required selling of assets to raise capital.
To your other point about “So people might be happy when their money buys more but don’t like it when they get paid less.”
What if getting paid less in the future allows you to buy more then because the future price structure is more in your favor as a wealth generator? Are you sure that this out of the realm of possibilities?
Keynes notes that “during a boom the popular estimation of [risk] is apt to become unusually and imprudently low,” while during a bust the “animal spirits” of entrepreneurs droop.
You cannot measure imprudence or the amount of droop in entrepreneurs’ animal spirits. If you cannot measure something then how can you come up with the amount of counteraction required to correct the problem? There is no formula which tells you, “print $100B for every inch of droop detected.”
Since you cannot measure either the magnitude of the problem nor can you measure the amount of improvement to animal spirits supposedly caused by your printing press, it means that you are simply throwing a randomly-calculated amount of money out the window and hoping it will transform the pessimistic attitudes of the recipients – at best. At worst, the stimulus is nothing but a crooked payoff scheme to one’s cronies.
Someone should show Posner the chart for auto sales that I just saw, which shows the spike and then immediate dropoff associated with the beginning and end of the “anti-drooping” stimulus. So much for the theory of Keynesianism. So much for the practice.
Frank asked me to post my e-mail here. I copied it below:
Hi Frank,
As always, I enjoyed reading your latest at mises.org. I agree with the premise of your article that deflation does not pose a ‘threat’ to the economy per se. Falling prices are a good thing, as you mention. Moreover, prices must eventually revert to a level commensurate with voluntary savings. Forced savings seem to work for a time to support prices – until they don’t anymore.
I would like your take on another faction of the ‘deflationist’ camp. Those that suggest that because credit has acted increasingly as money, a collapse in credit has the same (or similar) effects as a collapse in the money supply. If people do not have access to credit, or cannot use their debt instruments (ARS, for example) as collateral to buy assets, then prices will naturally fall as a result. Therefore, it follows, the economy will fall into a deflationary spiral until it finds a level which can be supported by voluntary savings and accumulated wealth. It will then, and only then, begin to grow again legitimately.
This is essentially the polar opposite of the hyperinflationary outcome posed by most Austrians. A result of nothing more than including credit as part of the money supply (something that is a relatively new phenomenon)
To me, it all comes down to the question of, “what is money?” Do individuals and corporations act based on what is considered legal tender by the government? Or do they act based on what they believe others will accept in indirect exchange. If it is the former, then ‘money printing’ is sure to have inflationary effects on the economy (rising prices, expansion, malinvestment, etc). But if it is the latter, then there is no possible way to quantify how much “money” there is at any one point, due to the rapidly changing nature of what people consider as money. It would be likely, however, as we have seen in the last year, that this changing nature of what constitutes money would be very deflationary and thus beneficial to the economy that requires such a ‘cleansing’ of malinvestment.
I would appreciate your thoughts.
Kind Regards,
I’m hoping Mr. Shostak replies to Matt Stiles’ email/post. I’ve yet to find my footing in this inflation vs. deflation debate among Austrians and goldbugs.
considering the very well written post by Deefburger,
it seems like the fed cant increase the money supply at all. it can only manipulate currency supply.
if that is indeed the austrian view,then,deflation rather than hyperinfaltion(currency crisis) seems to be the future in the US.in the rest of the world,there will be asset inflation -especially in those places(emerging markets) where debt is still low and
economic growth is still in +Ve territory.this will,like japan,be financed by a carry trade based on USD
Hyperinflation occurs when the currency supply grows faster than the money supply. This is basically over printing of new currency, causing the relative value of the currency to fall faster than the supply of goods and services can increase.
There is a delay between the issuance of new currency and the response in the market to it’s presence. The Fed bailout money wasn’t money, it was currency, new currency. The banks are using this to “cook” their own books, so their balance sheets look better, and they are also keeping this currency out of circulation by failing to “loan” it out.
Loaning this unvalued currency places it in circulation, and therefore in the control of market forces. The market will respond eventually with higher prices. If all the bailout currency that was printed were to find it’s way into the market, there would certainly be hyperinflation. Remember that the ordinal value of a price is a direct reflection of the total ordinal presence of currency as perceived by the market players at the time. The price will rise according to the availability of ordinals to trade in an intrinsic value exchange.
The sudden influx of large amounts of currency into the system creates a “boom” as the numeric price values go up in response. The tendency of a large movement in one direction or the other is to have inertia, such that once the break even point is reached between actual productive value (money supply) and currency availability, the tendency is to keep going. This will eventually exhaust the capacity of the true money supply, and the crash then happens as the market prices fall back toward the actual break-even point where price reflects more accurately the ratio of real productive value (money) and currency.
The defaltion that follows such a crash is likely to exhibit the same inertia going down, that was exhibited going up. Printing more currency, bailing out banks and failed institutions, in an attempt to manipulate the corrections is a waste of time and effort at the very least, and a recipe for more distortion, booms and busts.
This disparity between currency and money didn’t exist until the currency was de-coupled from an intrinsic value commodity that gave the currency a true measure of relative stable value. But you can’t print that kind of currency without some actual commodity held for it to represent. This makes it difficult to use for political gain.
De-coupling the currency from value makes printing easier, but the effects are larger swings in the market pricing as the balance point is sought. Bigger booms, and bigger busts ensue.
Collapsing credit in itself is not deflationary. In other words, credit destruction does not directly result in a contraction of the money supply.
Suppose a bank makes a 100 dollar loan. The borrower spends the 100 dollars on goods and the money moves into the economic system. Now suppose the borrower later defaults on the loan. The bank cannot pull that money out of the economic system. That money is part of some other person’s cash balance. Instead, the Equity portion of the bank’s balance sheet is impaired. In short, credit destruction destroys equity, not money.
Its true that the impairment of the bank’s equity will limit the bank’s future ability to make loans. This might mean fewer loans (less money creation) going forward.
Remember: credit destruction impairs bank equity; it does not directly affect the money supply.
The problem with identifying deflation after a bubble burst is that the definition is somewhat circular. People do not want to accept that the house prices or stock prices produced by the monetary policy were, in fact, artificial. They are still waiting for things to return to pre-bubble-burst levels. However, many also subscribe to the illusion that commodity prices are being driven up above their “normal level”, whatever that is, by speculators. And conversely, that the dollar is being driven down by speculators.
I think deefburger is right. Buying on credit is different to buying from savings. However, because the credit from the FED is legal tender, it can crowd out money from real savings. The fact is that, without credit, very few people would be able to buy a car or house. So when credit contracts, new car sales and new cars built have to go down. People can’t sell their houses if there are no loans available for most potential buyers.
That being said deflation, like inflation is a symptom. The underlying cause is the manipulation of the money supply ( by which I mean U1 U3 U6 etc) by the Fed. The Fed’s monetary policy has been inflationary – they have debased the currency in the same way that Kings in the past clipped pieces off of gold coins.
@Anonymous
Precisely. the loss in equity to the bank was in the loss of real value that might have been brought back to the bank that issued the “loan” currency. The credit was a gamble on the future real productive capacity of the borrower.
The real estate problem was brought about by the boom inertia of housing prices surpassing the real intrinsic value of the houses. Intrinsic value commodities only appear to increase in value relative to an unmeasurable currency standard of value, such as fractional reserve or no reserve fiat currency with no monetary base. Without the ability to actually measure with the currency, there can be no accurate estimation of intrinsic value relative to that measurement.
The banks secured the assets for the loans in the houses that the loans were for, but they evaluated the value of those assets against the market prices, which are fluctuating because there is no one to one comparison of intrinsic value (house) to intrinsic value (currency). The currency has no intrinsic value and so is unsuitable as a unit of measure.
Had the houses been evaluated by the banks relative to gold or silver, then they would have been able to see the inflated price values that were being asked for the properties, and would have known not to issue the loans and take on those houses at those prices. Historically, the intrinsic value of a three bedroom home is about equal to 280oz of gold. If the Price of gold is X currency / oz and the price of the house is Y currency, and that the conversion yields a price / oz that is greater than the historic norm, the house is over valued.
I want to follow up on my last post. The intrinsic value of gold or silver, like beer, is relatively stable in personal objective evaluation over time. The spot price for those commodities, at the time of the purchace/loan is a measure of the intrinsic value to currency price, again, at that time. As such, it gives a conversion factor for the estimation of value in that currency, at that time. This corrects the temporal problem of the baseless currency. It eliminates the time factor when comparing value.
The value does change somewhat over time, relative to the conversion factor, but the margin of error in the calculation is much much less because the inflationary forces, that act over time on the currency are eliminated for the most part.
Instead, what is then compared, is the current intrinsic value of the reference, say the gold, silver or beer, to the intrinsic value of the commodity in question, say, the house. The currency is removed from the equation by the conversion.
First you convert over time to establish a comparative base line norm by converting for each small time period against the price of the base commodity in that same period. Then you measure your current spot price on your base with your current spot price on your evaluated commodity, and compare to the historical record you created in step one. By doing this you eliminate the currency and it’s relative magnitude and replace it with intrinsic value measurements that should have been a part of the currency but weren’t. The only variables left are the relative intrinsic values that individuals in the markets in those time periods evaluated.
If you want to watch inflation happen, watch the prices of intrinsic value, stable commodities, such as the monetary metals, and real estate averages compared to those monetary metals. If you track the prices of anything in this way, you will see what the market sees as the value of the currencies, as well as the distortions that occur in boom-bust cycles for a given market.
Fascinating.
It makes me sick thinking about all the great questions I could have asked my Econ teachers when they were teaching me the false definitions of inflation and deflation.
So much for my undergrad degree.
The only thing that really matter is purchasing power and the comes from greater productivity – inflation or deflation doesn’t really matter. If you have more purchasing power for your labour then you can save and pay off your loans. Deflation only helps you save more. Inflation only helps you pay off your loan easier. Increasing purchasing power lets you do both.
^^. looks like you are confusing wealth with purchasing power. the purchasing power of the currency is affected by inflation and deflation.
what you seem to be saying is that producing more goods/services with lesser input (ie more productivity) alone matters -true. what about those who are retired and have no other income. inflation eats away their meagre savings. inflationism destroys those who it pretends to protect.
I don’t think it’s consistent to say that deflation is caused by unproductive sectors of the economy being repurposed. Freeing the capital and resources that used to go into it would have a pseudo-inflationary effect as markets react to new potential buyers.
I also think there is a useful distinction between benign and pathological deflation, the former caused by increases in efficiency and the latter caused by contractions in the money supply or, in the case of pseudo-deflation, consumers avoiding purchases.
Benign deflation is usually accompanied by a corresponding increase in demand, while pathological deflation is accompanied by a fall in demand. To conflate the two situations is to misrepresent the ideas justifying a deflation-fighting policy. It’s like conflating the fire in a steam engine with a burning house.
I don’t think pathological deflation has the potential to slide into a complete halt in spending. As was mentioned, people have to spend, regardless of the monetary situation. Still, it isn’t a boon by any means. For those with a high debt-to-asset ratio, it’s pretty nasty. Potential borrowers tend to stand by until demand picks up. Cost-efficiency can lose out to price in consumer decision-making.
Wow. Why is it so hard for people to understand the source of real value, real money? We seem to be fixated on Price.
Price is not a measure of value of the item for sale. It is a measure of the value of the currency against the “standard” of the value of the thing that is for sale.
The currency, unless it has intrinsic value of it’s own, such as beer, rice, gold, silver, has no value of it’s own, and so no means to compare it with something of real value. If the currency is backed by debt, then it’s even less valuable, because it represents risk, future value, and is essencially a vacuum of value until the bottle is filled with human effort and creativity.
We talk in terms of price, currency and value, but when we say value in this context we are talking about an ordinal value. What that means is a counting number, not a measurement. It’s like saying I have 3 peices of steel instead of saying I have 3 tons of steel or 3 pounds of steel.
3 pieces is an ordinal value, a count.
3 tons or 3 pounds is a measurement value, in this case of weight.
3 peices is meaningless unless you know something specific about the pieces, such as the weight.
Prior to the demise of Bretton-Woods, the dollar had weight value assigned by gold. Approx $35/oz AU. When the gold standard was removed, it also removed the intrinsic value measurment, and reduced the dollar to an ordinal, a counter, instead of a representation of actual value, weight of gold.
Before this happened, price had meaning as a real value measurement. Since then, we are still taught that measuring in dollars is fine. But now we are building skyscrapers of financial institutions and watching them collapse, and we sit there scratching our heads wondering how something that big came falling down, when we know we’re very good at building. What we did was we replaced the steel measuring tapes we had been using in the past with great success, with a rubber band measuring tape, and built the largest “leaning towers” in history.
Why are we surprised by this? Because we think the dollar is the measure, still! And just because it says so on the box.
When the intrinsic value of the currency was removed, the currency ceased to be a carrier of money value. It’s hard to imagine, but all the value you have in the bank, in your wallet and in your retirement account is only numbers. The real value you have is in your abilities, and hard assets and your Life and Liberty.
If you try to measure the value of an economy in dollars by looking at m1 m2 and m3, you will see that there are debt currencies mixed up with commodities, production, and other human value real money. You can’t get a clear picture, because you are measuring with a variable, not a unit. The dollar is not a unit, it’s a counter, a token.
inches are units. ounces are units. acres are units.
Dollars, Euros, Yen are tokens.
The difference is in what they are over time. Units remain stable over time. Tokens are variable over time. They are “pieces of” something, not a measurement, but a count. They are assigned a value at the time they are used. The value of that assignment is only valid as a measurement AT THAT TIME and no other.
Look at the implications of this fact. You can’t know as much about what is real in the economy because all of your financial reports, statements, analysis, bank accounts, books, formulas, and prices are in variable terms!!!!
How can you project value into the future if you can’t rely on it being what it was in the past?
Money is not created by banks. Tokens are created by banks.
Currencies do not measure Value, they count.
Currencies do not hold value, they count.
(Unless they are 100% reserve, or actual intrinsic value commodities, such as beer or gold)
Value is measured by YOU.
Value is created by YOU.
Value is weighed by YOU.
Money is created by YOU.
You are the measure of your world. That is your own objective measurement. It’s the only one that counts in the end. That is Human Value.
Price is nothing but a count. Today I have Three!!! Whoopie!
deefburger,
ok i get what money is -real goods/services.
currency is something used to count money ,then.
what about credit?.how does it exist in the free market.and how does it get distorted in the fiat (unbacked) world.
we currently have increasing supply of currency and decreasing credit.the currency comes from the central bank. how about the credit ..did it come from the market players? would it have come without the central bank (isnt that the post keynesian view).
is the central bank important for credit?
how does the credit crunch interact with the currency increase (i am avoiding words like in/de flation). what is the result? lower prices?higher prices?.higher asset values?which effect dominates? the credit crunch or the currency boom?
i think i’ve learnt more from you than shostak.thanks!
I have to say, Deefburger is one of the most articulate and intelligent people I’ve run across in my education of Austrian economics. Myself only being a student for about a year and a half, I value input from people like you.
So, thank you for expressing and explaining your knowledge in a way that is understandable without getting frustrated or impatient with those that “don’t get it”. It’s very much appreciated!
What deefburger writes is excellent if you untangle the confusion between money and wealth. Money is a medium of exchange. Wealth is the output of goods and services created every year. The Bastiat collection on this site has a good article that distinguishes between money and wealth. Money is not wealth.
Even if you limit money to only gold, credit acts like money and has the same effect as money. An increase in credit will cause prices to rise AOTBE (all other things being equal) and a decline in credit will cause prices to fall AOTBE.
There is also some confusion in the media over the definition of inflation/deflation. The commonly accepted definition is a rise/fall in prices. Austrians often insist on the old definition of a rise/fall in the money supply. If you accept the price definition, then a decline in credit will cause deflation even if it doesn’t cause a decline in currency or the amount of gold available. That’s why some definitions of money include credit; it acts like money.
Price deflation is hard on people who borrowed money during the price inflation, but that doesn’t mean the government has an obligation to protect or subsidize borrowers and lenders in periods of price deflation. Price inflation hurts more people, and more vulnerable people such as the poor and elderly, than does price deflation, but the government couldn’t care less about those people.
@pravin
Ok, credit. When you go to the bank to get a loan, credit, what you get and how you get it depends on the bank.
If the bank is a full reserve bank, then the credit is a real value, that they already posses, being handed to you for a time, and they are trusting you will return it, plus a little extra, the interest. The bank gets a repayment contract and the deed of the property as collateral.
If the bank is a fractional reserve bank, or the central bank, then they are “creating” a value on your account (a number value) with the same requisite contract to pay. Not re-pay, but pay. You see, that “money” did not exist prior to the contract!
And they also have the colateral deed.
This is an act of currency creation. What the credit crunch is, is the bank’s uncertainty as to the viability of it’s contracts, new and existing.
Previously the boom created investments into properties, securing loans that were overvalued, so the future potential to re-coup the difference in price versus actual value is poor. They don’t want their balance sheets to show loans that are greater than the assets securing those loans. Also, with the reduction of prices that accompanies the correction, comes the unpalatable realisation of over extension on the asset to loan sheet.
They won’t “create” more paper unless they can be assured that the paper is worth LESS than the assets now, and worth more than the assets in the future as the interest and payments accumulate.
The payments are real value created by the borrower.
What are the assets? First off, the contracts are legally enforceable, but not worth anything if the borrower cannot produce real value to fulfil it.
Second, the tangible assets, such as houses and cars, are losing ordinal value in the pricing every day, and so they don’t want to create more paper, based on a downward variable value, only to have it go belly up on the balance sheet in a few months, before the interest and payments represented by the contract have been realised.
The opposite is true when there is a boom. The ordinal pricing of the assets is increasing, so the more of those assets that wind up on the balance sheet, the better. As long as the interest rate is higher than the inflation rate over the period of the loan, the bank’s balance sheet will show a net profit.
The problem is knowing when to stop drinking.
This “floating value” currency is used as a measure even within the banks. They have just as much trouble predicting future value as you do as a result. They are using the same rubber tape measure and getting the same screwed up results over time as you and me.
This creates an atmosphere of uncertainty in future gains or loses. It has nothing whatsoever to do with “animal spirits”. It has to do with estimates of future value, and how much those estimates can be relied upon.
With more uncertainty, comes less credit.
@flicmod – Thank You for the kind words. You are welcome.
@Fundamentalist – Hello! I really enjoyed our argument on natural law. REALLY. You are cordial and intelligent and you gave me a great deal to think about. Thank You.
Deefburger: “It has nothing whatsoever to do with “animal spirits”.
Exactly! One of the dumbest things Keynes ever wrote (though it’s hard to choose among the thousands) was that business investment is driven by animal spirits. Animal spirits had nothing to do with investing. Entrepreneurs are highly calculating people. Those driven by animal spirits go broke very quickly. Only the best who can see the future relatively well survive.
“Only the best who can see the future relatively well survive.”
Yup. hence the need for accurate value measurment!
“What deefburger writes is excellent if you untangle the confusion between money and wealth. Money is a medium of exchange. Wealth is the output of goods and services created every year.”
I agree with you except I call “money” what you call “wealth”, and I call “currency” what you call “money”.
Other than that, I agree with you.
Perhaps I’ll just refer to “wealth” as “wealth”, “currency” as “currency” and leave money out of it altogether!
Gold is a Special case. In fact all the monetary metals. Gold has as an intrinsic value, the continued presence of it over time. Gold is very non-reactive chemically, so it just sits there. It remains very very stable over time. This is it’s most valuable intrinsic value. Second, I would say is it’s frangibility.
These two or three properties make it an excelent store of human value. The first, gives it longevity, the second, the ability to cut it and recombine it with impunity. The weight will remain stable over time, and the frangibility combined with low melting point and low corrosive reaction make it perfect for creating money that lasts in value.
2000 years can pass and the gold remains the same. Measure value with that.
“Perhaps I’ll just refer to “wealth” as “wealth”, “currency” as “currency” and leave money out of it altogether!”
I’m going to start using these terms now too.
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