The rise in stock prices or any other good denominated in paper currency may not say much about the real value of your investments. You may have invested your money — in any venture — and be thinking that you are making a nice profit when in fact you are suffering huge losses. FULL ARTICLE by Rod Rojas
Source link: http://archive.mises.org/15866/inflation-and-the-value-of-gold-explained/
Inflation and the Value of Gold Explained
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One of the reasons gold’s dollar price is bullish and arcing toward $1500 is that more and more people are demanding gold for its monetary function as a store of value, which is one of every desirable form of money’s attributes, and one that fiat currencies woefully lack.
As I always say when the subject of gold is raised: BitCoins.
BitCoins are a cryptocurrency with predictable and finite inflation.
They (or something like them), seems to me, better than gold as a currency. They have no intrinsic value as, being virtual, they can’t be used to make into shiny earings.
As it happens, I’m not sure I like some of the technical aspects of bitcoins, but that is a secondary consideration — assume you have a perfect virtual currency — would that suit you more or less than gold?
I think a perfect virtual currency will be better than gold. My definition of perfect includes that it’s free of any possible interference, including digital manipulation, that it cannot be stolen and storage and transactions are free. It will probably be impossible to defend against physical extortion to surrender your digital purse and password. If it is anonymous like Bitcoin, it will most likely be outlawed by governments, who can crackdown on the necessary final connection to the real world e.g. postal service or bank transfer or a secret meeting.
There will eventually be 21 million bitcoins, so with a current money supply of about 10 trillion USD, that would make a ratio of ~470000. The current market rate is ~1, so it looks like speculators give it only a small chance to succeed and become as universally accepted as the US dollar.
Surely being that BitCoins only represent the value of the goods traded in them, it is silly to say that because they are currently ~1 that they won’t be a success? They were 0.01 two years ago.
Your requirements for perfection:
– Free of interference … as far as I can tell BitCoins gain that property from the fact that the transaction chain is kept by every node in the server pool. That means to subvert them you have to subvert many many nodes. As they become more successful, there are more nodes to subvert.
– Cannot be stolen … it’s possible to steal BitCoins if your digital wallet is stolen. However, I believe there is mitigation: the wallet is protected by a password, so the thief must spend time brute-forcing your wallet before they can be stolen. It is perfectly feasible to backup your wallet. Therefore there is nothing to stop you, when your wallet is stolen, strolling to your backup copy of your wallet and simply exchanging every BitCoin in it one for one. The BitCoins in the thief’s copy of your wallet is then worthless.
– Free storage and free transactions … why? Storage is always going to be a non-zero number of bytes, and that non-zero number of bytes must be purchased. It’s such a small cost that it hardly seems worth worrying about it. Free transactions … they can be free in principle, but from what I can see, the speed with which your transaction is confirmed by other nodes in the BitCoin network can be enhanced if you offer a transaction fee. I assume the market will sort out what that fee will be. I can’t imagine it will be large.
– Anonymity … hard cash is already anonymous. Is this really as big a problem as you think?
– Outlawed by government … this is definitely a problem. As with all currency issues, it is the government who throw the spanner in the works. Rather than have a government mandate a particular currency, I would personally prefer a free market of currencies. Including gold and BitCoins (or similar).
I’ve come across as a bit of BitCoin zealot. I’m not, I don’t own any. I am fascinated by the idea of a virtual currency though — they seem to have at least all the advantages of gold, and perhaps fewer of the disadvantages.
The only real downside of slow inflation is stop savers engaging in bona-fide time-travelling of their savings. In other words, apparently some man in the year 1800 should able to give his descendents in the year 2000 his savings with no loss in purchasing power. For anything else, slow inflation may as well be a flat tax. Since most people have both savings and debt the loss of saving is made up by your debt being worth less.
Similarly, I would agree a person doesn’t spend the equivalent of a gold coin to attend a toga party in traditional costume. Nor does anyone want to buy ye olde style clothes using traditional methods such the strengthening the fabric by someone stomping on it in a tub of stale urine.
“Since most people have both savings and debt the loss of saving is made up by your debt being worth less.” This is a rather peculiar fashion in which to view inflation’s wealth transfer, simply because it lacks any quantitative insight. Specifically, your statement is only applicable to those who have a roughly zero net worth and who achieve that position by having equal amounts of assets and debt.
Furthermore, your view that slow inflation has only one real downside (devaluation of wealth transferred over time) shows a remarkable disregard for the productive capacity of capital over time. The damage of inflation is far worse than you describe, for wealth is created when capital is used to fund entrepreneurial endeavors that expand factors of production *over time*. Inflation not only devalues savings, but it distorts the natural interest rate resulting in malinvestment. Inflation, even slow, is not the benign creature you describe. It is a rampaging beast bent upon destroying not just the future wealth of capital holders, but of all people who stand to gain by use of that capital.
I’ve always known about this problem but it was nice to FINALLY see a chart that expresses it.
Does anyone have a way to produce one of those DOW/Gold charts on the fly so I can do, say, STOCKX/Gold, or STOCKY/STOCKX, etc?
Will: Try http://stockcharts.com and graph $INDU:$GOLD, or $INDU:$COPPER, etc …
Generally, a nice prejudice-exploding article, but:
“Let’s look at gold priced in ounces of silver; this is a historical chart. Look at how erratic the price of gold becomes in the 20th century with the appearance of central banking.”
Hmm.. something fishy is going on here. We can’t ‘see’ how ‘erratic’ (by what standard?) it was before 1853 because of the previous favorite central planning tool of choice: bimetallism.. The Gold/Silver ratio could have been completely off you chart, we don’t know.. Central planning in the monetary sphere has been a constant pain in our asses..
Nice chart, comparing Dow to gold. Since most people are programmed to not understand gold or to fear or dismiss it, perhaps it would also be useful to produce charts comparing the Dow to more pedestrian commodities like oil, wheat and copper.
“… if you were thrown in the middle of the desert, a pile of money wouldn’t do you any good.” Frankly, my dear, neither would a pile of gold.
I think Mr Rojas was talking about money in general, including gold. At least that’s how I understood it.
At least in that situation, your gold will still be in the exact same state was in a week after you started. This is contrasted with, say, bread.
“In the desert” can mean a lot of things. It’s too loose of a question. If a trading caravan goes right by you, then that gold could be very useful.
I think a better question is this: If a super powerful race of aliens landed and they gave us a choice: 1) give us all your money, or 2) give us all your stuff other than money, which would be the better choice?
Tim
He means that money is not what an individual requires for the sustenance of life or even for well-being. One seeks goods and services for those purposes. The “desert” scenario is intended to call this to mind.
Money is employed as a store of value for trading and/or saving purposes. It is not an end in itself. When bits of coloured paper based upon nothing more than arbitrary promises of bureaucrats, politicians and central bankers (all of whom promise to respect you in the morning) are used as money and everyone is forced to use them (a monopoly of fiat money) and everyone is forced to record their accounts and tax calculations as quantities of said paper bits, then it is only a matter of time before those bureaucrats, politicians and central bankers act in concert to perpetrate criminal fraud against everyone else. They do this to enrich themselves, to attain power and influence and out of low cunning. Inflation initiated by the bureaucrats, politicians and central bankers is the result. The value of the fiat money is debased, in a manner that is in their favour and against yours. It happens slow enough in the early stages but it accelerates apace. This can be prevented by the simple expedient of reqiring the bits of paper to be 100% backed by a real entity. In other words the holder of the piece of paper can redeem the paper for a real object or physical entity. The attributes of gold make it readily employable for the purpose.
Now obviously if you were in the notional desert, then even gold backed money would not be all that helpful, as you can’t drink it and it isn’t worthwhile eating. What you require is access to various goods and services in order to sustain life and attain your goals. Hold that in mind for a minute.
Money is important to you in that you can employ it for storing value, for savings, for trading in order to acquire goods and services. You are not acquiring money as an end in itself but rather for specific purposes. Those purposes are for the sustenance of your life and the attainment of your goals. Hold that in mind for a minute as well.
The point of the essay (or, at least one of them) is that fiat money is based upon a criminal fraud that is experienced as inflation. Fiat money inflation reduces the quantity of goods and services you can acquire through honest means. It even eliminates the possiblity of you acquiring some of them. It allows a stealthy extraction of your productive output regardless of your consent and without voluntary trade or equivalent exchange in return for what is stolen. It means that your ability to store value, to trade and to save, are being eroded in spite of your wellbeing (directly against it in reality). In other words fiat money and its attribute of inflation acts against the sustenance of your life and against your goals. That IS a problem. It’s real bad if you don’t live in a desert (or on an island).
Sione
Sione
You might as well complain that with gold money you’re giving inflation-power to gold mining countries such as South Africa and Australia. Gold miners would have no qualms flooding the market with as much counterfeit money as they can mine:
http://upload.wikimedia.org/wikipedia/commons/6/60/World_production_gold2.jpg
And can they double the world’s stock of aboveground gold in a year? Not very likely.
The gold chart is still eerily like a dollar chart where modern day gold miners are pouring gold faster into the system than the counterparts a century ago.
That chart you posted is meaningless when not juxtaposed against the total world stock and % growth. It doesn’t look “eerily like a dollar chart” because the two charts are not standardized along the same requirements. With the magic of changing the graph interval, I can make that line flat and I can make that line look like it’s armageddon.
Here’s a reference – there are currently 140,000 tons of gold above ground. The gold production at peak is 1.7% growth. The physical dollar growth in the US has averaged 20% over the past 3 years. How is that even remotely similar?
Exactly, J. Murray. There’s no way they can mine enough gold to get anywhere near how quickly the Treasury department can print more paper, even if all gold mined were converted to monetary uses. Any inflation in gold or gold-based money would necessarily be quite limited. This doesn’t make gold the perfect money–just better than our current, debt-based fiat money.
Still gold miners will become the inflationists/counterfeiters if gold money is used.
But above all, gold has value because people want it and because it is scarce. It is that simple. Rod Rojas
No. Not quite. Gold is rising in value because of its prospect of being remonetized by government fiat (irony intended). In that case, those with gold-hoards would obtain a huge-windfall; (up to $27,000/oz?) in the “hated” but always accepted fiat.
Nice article though, otherwise.
The remonetization of gold is due to its desirability as money, this desirability has always been there, with or without government fiat. If the gov. remonetizes gold, it would only be putting into legislation what humanity figured out on its own thousands of years ago.
So gold does indeed have value because people want it, regardless of gov fiat. Try using using an old Italian lira bill (from before the Euro came) to pay for something, they are worthless, now try the same thing with gold and watch the difference.
So gold does indeed have value because people want it, regardless of gov fiat. Joy
Fine. Then gold should have no problem serving as a purely private money form, should it? But if gold is remonetized, (may God forbid) then a great deal of its value would come from that privilege, wouldn’t it? And other forms of private money, such as common stock, would be relatively disadvantaged, would they not? And since PMs require usury and common stock does not then it would be government privilege for usury, would it not?
It’s time to grow up wrt money. F.A. Hayek advocated alternative private currencies. That should include ALL forms of private money not just those that require PMs and usury. And as long as we have government, it should only recognize its own fiat as money otherwise it favors some particular private money form.
If we have liberty in private money creation, then people could use gold, silver or whatever for private transactions. However, if PMs are remonetized then we have simply exchanged one form of tyranny for another.
everything you said is correct, however, your first comment you wrote “no, not quite”.
anything that has value, has value because people want it, whether it is natural or by gov fiat. Even paper currencies, because in spite of gov decree, currencies can become worthless if nobody wants them (usually after hyperinflation).
The problem with government fiat is that it is de facto legal tender for private debts too. If its fiat were only legal tender for government debts, then government would have to spend carefully else its money would lose value without (unpopular) tax increases. In fact, government overspending wrt a fixed taxation level would make paying taxes EASIER for the private sector since fiat would be cheaper wrt private currencies. It would be government workers, SS recipients, etc who would be keen for the government to spend wisely. Notice the role reversal: The government would police itself wrt wasteful spending.
Of course it is not just legal tender laws for private debts that must be repealed. The income tax and the capital gains tax should be repealed too. In fact, any law that allows the government to tax via the stealth inflation tax should be abolished.
PMs may or MAY NOT be better than the current system. One thing is certain though, optimal money solutions will require liberty. How could it be otherwise?
Joy
“everything you said is correct”
Not so. Stick to your guns. He’s conceded the argument already.
Consider as an example of what you’v'e been debating against such nonsense as this, “And since PMs require usury and common stock does not then it would be government privilege for usury, would it not?” This is nothing new as he’s made similar implication and claim before and it’s been refuted. His position is that precious metals necessarily require usury to be employed as specie and therefore he should be allowed to create his “common stock” money out of thin air. Think on that. How could it be correct?
Understand that Beard is a money crank. His ideal is for huge bouts of inflation to supposedly bail out damn near everything (he calls this “restitution”). His funny money is nothing more than the printing of lots of paper based on arbitrary promises made by whoever chooses to make them.
Anyway, he’s completely conceded your and Rojas’ position regarding gold and the reason for its value so there’s no need to concede that his remaining delusions have validity. What he writes is not correct as the majority of his economic thinking is dead wrong. You’re dealing with a guy whose initial premise are false. The rest of his “economics” is shot through with error and falsity starting from there.
Sione
Frankly, I am just happy to hear someone addressing what all this “print money like there’s no tomorrow” policy of the Federal Reserve actually hurts a large amount of people due to wages not keeping up with inflation.
I think there’s been an inflation of the SAT scores, Ben Bernanke’s 1600 doesn’t seem to mean as much as it once did.
It’s a shame that every time Ron Paul asks him if there’s anything at all which might convince him he is wrong about his monetary policy, Barney Frank shouts “times up”.
There has been an inflation, a perfect score is now 2400, so Ben only managed a 66%.
It’s not exports that lead to economic growth but capital accumulation. Currently the US is outsourcing capital to countries that print new money out of thin air faster then the US so that based on paper exchange rates foreign labor is cheaper. Because the US is trading the cow for the milk, real wages are declining because we are losing capital due to monetary disortions. Remember capital is the material means of production; and is the only way to increase real wages because more capital per worker means there is more production per worker taking place.
While countries like the Japan, Germany and China are creating new money out of thin air to fund production, the US is creating new money out of thin air to fund the outsourcing of US factories, jobs, technology transfers to China, military bases abroad and artificial consumption with debt. Not a policy for growth. The only time increased exports could lead to economic growth is if it increases the amount of capital per worker. This is not the case because US multinationals are outsourcing capital to use it with foreign labor that’s cheaper based on exchange rates due to foreign central banks creating new money out of thin air faster then the US. As a country the US is exporting captial to import consumer. Once again, trading the cow for the milk is not a policy for growth but a policy for economic shrinkage.
It’s not exports that lead to economic growth but capital accumulation. Currently the US is outsourcing capital to countries that print new money out of thin air faster then the US so that based on paper exchange rates foreign labor is cheaper to employ with US technology. Because the US is trading the cow for the milk, real wages are declining because we are losing capital due to monetary disortions. Remember capital is the material means of production; and is the only way to increase real wages because more capital per worker means there is more production per worker taking place.
While countries like Japan, Germany and China are creating new money out of thin air to fund production, the US is creating new money out of thin air to fund the outsourcing of US factories, jobs, technology transfers to China, military bases abroad and artificial consumption with debt. Not a policy for growth. The only time increased exports could lead to economic growth is if it increases imports of hight technology that leads to workers using more capital per worker. This is currently not the case because US multinationals are outsourcing US capital that US taxpayers paid for to use it with foreign labor that’s cheaper based on exchange rates due to foreign central banks creating new money out of thin air faster then the US. As a country the US is exporting captial to import consumer goods. Once again, trading the cow for the milk is not a policy for growth but a policy for economic shrinkage.
There can never be any sort of free trade when there is a fiat monetary system. A foreign trade competitor only has to create new money out of thin air faster to make their labor and exports artifically cheaper. Additionally, fiat money allows foreign trade competitors to dump products overseas below cost. So if it costs 2K to make a product for example, a foreign trade competitor can sell it below cost at 1K for instance because the trade competitors central bank will create new money out of thin air to cover the difference between cost to make and price sold below cost abroad. Trade in a lot of instance has turned into a money printing out of thin air game today.
I don’t worry about other countries printing money (and putting up tariff barriers) because:
1) They’re basically giving shit away for free
When money was tied to gold, this was “felt” when trade balances were settled by shipments of gold. What is of note here is that it doesn’t have to be gold, it can be any commodity.
Nowadays, that money is no longer tied to gold, that commodity is electronics or agriculture or cars or whatever it is they produce and are giving away.
2) They’re making themselves poorer
This should be obvious
Remember the US is outsourcing the capital to make the products overseas as well as allowing the transfer of ownership of US companies to foreigners who then eventually transfer the capital overseas too. Because the US runs trade deficits, the deficit has to be made up either with debt, transfer of jobs, factories, technology or ownership of US companies. There is never any free lunch in trade. That’s why it doesn’t matter if exports increase if imports increase more.
So actually it’s the US getting poorer. That’s why Americans have had to use credit to supplement their wages because the outsourcing of capital has lowered wages more than the price decrease in some products made overseas in countries that manipulate their currencies. Exporting the cow for the milk which is what the US is currently doing is not a policy for growth.
we are doing the same though. If they were printing and we weren’t it would be a different story.
Yes all countries create money today. However, countries like Japan, Germany, and China are creating new money to fund production to increase their supply of capital while the US is creating money to fund the outsourcing of US jobs, factories, technology transfers abroad, military bases abroad and artificial consumption with debt. Increasing exports is not what causes econonomic growth. Only if increased exports paid for more imports of high technology goods that led to there being more capital per worker could it help lead to economic growth. Remember economic growth is capital accumulation in which capital is the material means of production. Increased exports yes may lead to increased revenues but increased revenues is not the same thing as capital accumulation.
That’s not only not obvious, it isn’t even true in general. To see why, see how that reasoning also applies to cut throat competition, that gives consumers a better deal right up until it has established a monopoly. You should also ask just what will happen after other countries hold the whip hand, if they then stop offering the same sort of deal as they are now.
One of the best posts I’ve ever read on Mises.org!
One of the easiest to understand explanations I have come across, regarding monetary inflation.
For those requiring a more detailed explanation, there’s Palyi.
http://mises.org/books/inflation_primer_palyi.pdf
Currently wrapping up Ron Paul’s “The Case for Gold” and I highly recommend it to everyone. The information is top-notch and every aspect of the gold standard is covered (history, common theories, possible issues).
Hear, hear! I second that.
Anyway, he’s completely conceded your and Rojas’ position regarding gold and the reason for its value so there’s no need to concede that his remaining delusions have validity. Sione
I insist on true liberty in private money creation. If you oppose that then your are for tyranny. Are you?
But if we had true liberty in private money creation then I predict that the following would be shown to be obsolete by the free market:
1) PMs as money.
2) Fractional reserves.
3) usury.
But if the shiny metal worshipers try to force the rest of us to use them as money, then they should be denounced as fascists.
What’s the matter, Sione? Afraid of the free market? Afraid it will reveal you are mistaken about PMs? About usury itself?
This banking crisis is too critical to be wasted on a reactionary return to PMs. Liberty is the solution to our problem not a different form of tyranny.
Choose Austrians. Liberty or shiny metals.
Ahh, I remember just a few years ago in the early 90′s when I could fill up my tank for under $25, cigs cost $2.50 at the gas station and a great pizza with everything on it cost $15. And I was making a ton more money than I am now. If only I became that rich, greedy,Wall STreeT banker like I should have been. {{sigh}}
OK, I’m through crying now..
Great article.
If you want to hedge the depreciation of the dollar with precious commodities, I would go long gold rather than silver. Silver is at all time high against Gold. If you are long gold you would have the tailwind at your back rather than facing the headwind.
Silver Update
Shifting resources does lead to increased capital when the shift is guided by the market. Here the shift is decided by those who don’t know all the costs involved, and who don’t even own the capital to begin with, hence they make things worse.
only if the shift actually increases production, but not by itself. The shifting alone doesn’t accomplish that.
Sione @ “Now obviously if you were in the notional desert, then even gold backed money would not be all that helpful, as you can’t drink it and it isn’t worthwhile eating. What you require is access to various goods and services in order to sustain life and attain your goals. Hold that in mind for a minute.”
Sione, allow me to borrow your impeccable logic and apply it to the current unrest in the Middle East, and apply it as well to the absolutely idiotic notion that this country ought not be “dependent” on “foreign oil,” which political idiots have used as justification not only for hegemonic foreign policies but as well for cockamamie schemes for government to spend truckloads of OPM (sounds like opium, is equally addicting, stands for other people’s money) to develop “alternative” energy sources such as corn ethanol, purportedly for the benefit of “the people,” but in fact for the benefit of ADM Corporation.
Let us say the al-Quaeda headed by Osama bin Laden takes control of Saudi Arabia and makes him Chief Sheik. So what? Would Osama use Saudi oil to blackmail the US into surrendering its hegemonic foreign policies, which was his stated purpose in creating Al-Queada and attackiing the World Trade Center and Pentagon in the first place? Ending such policies would be a good, libertarians would agree, although it would drive conservatives off the deep end. But how would he do it, since the US economy is the only engine that consumes sufficient oil to satisfy Saudi’s output. Would he keep the oil there in the desert and allow Saudi citizens to drink as much of it as they wanted? Nuff said.
As for the comments of F.Beard, you, Sione, nailed him to his own cross (not of gold). Not only is he a monetary crank, but his absurd monetary theory calling for government and private money is predicated upon his biblical-religious beliefs (unstated here but mentioned elsewhere in this forum) that “usury” is evil, combined with his completely erroneous interpretation of the passage in the Gospels of Matthew, Mark and Luke wherein Jesus told some idiots who were trying to “trap him in speech,” “give Caesar what is Caesar’s but give God what is God’s.” Since Jesus said this after having been show a Roman coin, poor Beard interpreted this to mean that Jesus was recommending the use of government money to pay taxes and private money for private transaction. Poor fellow, he doesn’t realize that Jesu’s answer was his brilliant way of bamboozling the idiots who were trying to trap him. When Jesus said “give Caesar what is Caesar, and God what is God’s” Jesus knew that his listeners knew that the Torah says in at least five different passages that “the earth and everything in it is the Lord’s,” which obviously leaves nothing whatsoever to give to poor old Caesar. And since the original question his adversaries had asked Jesus was whether or not they should pay Caesar’s tax, his answer, “give Caesar what is his,” meant give Caesar nothing because nothing belongs to Caesar. In other words, Jesus said “do not pay Caesar’s tax.” Beard’s silly notion that Jesus was calling for the creation of government and private money is one of the crankiest monetary-crank theories ever concocted. Beard’s pretense of “insist(ing) on true liberty in private money creation” is bogus. If he honestly desired liberty, he would be calling for an end to taxes and government as the way to attain freedom in money and monetary affairs instead of concocting schemes to keep both of those insidious devices operating and oppressing liberty. Jesus’ answer successfully befuddled his deceitful adversaries, unfortunately it befuddled Beard and other commentators as well.
But stay tuned, there will be other crank theories as long as there is money, and they will be brought here to test them.
If he honestly desired liberty, he would be calling for an end to taxes and government as the way to attain freedom in money and monetary affairs instead of concocting schemes to keep both of those insidious devices operating and oppressing liberty. Ned Netterville
You had best not desire the end of government or else it will not be able to recognize your favorite shiny metals as money.
Some of you gold-bugs are hypocrites. While claiming that gold is some how intrinsically “money” you nevertheless insist that government recognize it as such. But as soon as government does recognize gold as money then it certainly becomes so! The same process would work with any scarce commodity including my toenail clippings. Hypocrites!
And since PMs require usury, government privilege for PMs is government privilege for usury.
But if you silly gold-bugs have your way it will be a temporary victory at best. Having refused true reform, the new gold standard will probably be replaced with some thing even worse that what we presently have. That will be your fault, not mine.
I am to shrink governemnt while some of you wish to co-opt it for private gain.
Ned
A while ago I was informed of an interesting analysis of oil costs (I since managed to lose the site address and would dearly like to locate it again if anyone has it). It concluded that the presence of the US Navy in the Mid-East region contributed significantly to a raising in the market price of oil. The point made was that in the absence of a US military presence, the operators/contractors/owners of the oil wells, refineries and the like would continue to extract, refine, enable export and sale of oil. This would be in their own interests obviously enough and in the interests of the regional governments as well (interesting to see what evolved across the Mid-East in a non-intervention scenario). What caught my attention was the anticipation that the price would settle around US$5/barrel.
Paraphrasing Screamin’ Sam, “You can’t eat oil in the desert.” Can’t drink it either… Looks like it’s gotta be sold for that which does sustain life… Ah, the wonders of trade! One can hear the chicken-hawks drawing breath to begin their squawking already!
–
What I dislike about Beard (apart from the bigotry and racism) is the continued reluctance to consider anything which contradicts his position or illuminates his ignorance (OK, I dislike his willful ignorance and dishonesty also)- objectionable how he selectively quotes, ignores context and twists meaning to suit his own agenda. He has a position and it is set in concrete, regardless of being demonstrated as erroneous or immoral. I’ve previously recommended to him that he create his own website where he can outline his “economics” such that they might be and promote them to anyone who is interested. Hi-jacking the VMI site for the purpose is not on.
–
The book, “Non-violence” by Kurlansky, you recomended a while back turned out to be pure gold. Well worth getting hold of it. While I am not a religious man the description of Jesus’ and his message, though only briefly mentioned, struck me as vitally important. Likely a good start for someone who is seriously interested.
BTW did you notice the list of cited articles, books etc that Kurlansky includes? I’ve made a start getting some of them already (look what you have wrought- the further dissemation of a dangerous idea).
Thanks
Sione
@F.Beard “Some of you gold-bugs are hypocrites. While claiming that gold is some how intrinsically “money” you nevertheless insist that government recognize it as such. But as soon as government does recognize gold as money then it certainly becomes so! The same process would work with any scarce commodity including my toenail clippings. Hypocrites!”
Beard you are slandering the vast majority of the bloggers here a Mises who stand four square behind the proposition that only the market, free from government intervention, can and should rightfully determine what is and what is not money. Most Misians came lo that conclusion and advocated it long before you did, probably, at least in my case, when you were still wearing diapers or earlier. So please stop pretending that a free market in money it is something you support and Misians don’t because that is a blatant lie.
Beard @ “I am to shrink governemnt (sic) while some of you wish to co-opt it for private gain.”
Prove it! Most if not all Misians want to get rid of government entirely, whereas you want to keep it and allow it to collect taxes. And keeping it, you will live with whatever money your government (viz., your god) tells you you can use, just as it does now. So, please, make the leap. Come over here with those many Misians who, like Murray Rothbard, believe government must go if freedom is to prevail. Renounce slandering and lying and become a disciple of Jesus, Mises and Rothbard.
Gospel of our Lord Jesus Christ according to Matthew, Chapter 25, Verse 27, New International Version Bible (The words are those of Jesus telling the Parable of the Talents): “Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.”
Gospel of our Lord Jesus Christ according to Luke, Chapter 19,Verse 23, New International Version Bible (The words are those of Jesus telling the Parable of the Minas): “Why then didn’t you put my money on deposit, so that when I came back, I could have collected it with interest?”
While that’s usually how things work out, there are special cases that aren’t like that. Sometimes there are other market imperfections around already, often created by governments. When this happens, and a subsidy – or a tax – pushes the other way, that actually improves things, even allowing for the burden of any taxes funding the subsidies; that is called “Pigovian”. Under those circumstances, shifting resources that way does lead to increased capital, indirectly, because the resources end up in more productive activities than the distorted ones they were in before. Of course, that’s not the way to bet, sight unseen, and there are usually (not always) still better ways of undoing the harm – but it can happen.
if you think that government bureaucrats can find “market imperfections” that increase capital before the entrepreneurs do, then I am not sure I can write anything that will be useful to you.
Entrepreneurs are a very efficient bunch, the bad ones are weeded out instantly by their own losses -unlike gov officials- and the mistakes they make are usually caused by governmental intervention in the first place.
No, that’s not why you can’t write anything that will be useful to me (or anyone else) on this topic. It’s because you don’t know what you are talking about.
A market imperfection isn’t a market opportunity, something that an entrepreneur can find and exploit, so making more where there was less. It’s where something screwed up the market, so it’s not working properly any more, e.g. high mandated minimum wages and other regulatory burdens. When entrepreneurs find those, they don’t fix them (because they can’t), they respond by making the best of a bad job – worse than the right outcome would have been without the distortion caused by the market imperfections. The market imperfections never increase capital at all – but getting rid of them can. But entrepreneurs can’t do that, because they aren’t in a position to.
Did you even notice the part where I put “[s]ometimes there are other market imperfections around already, often created by governments [emphasis added]“? You are actually endorsing my position.
I think this is just a big semantic misunderstanding. What you call a “market imperfection” is not a market imperfection at all but a government created problem. Do a google search for market imperfection and you will see that it is equated with “market failure”. If you had said “governmental screw-up” or something like that, which is what you are actually talking about, people could understand you.
But then people would be understanding wrong, because I am actually talking about a wider set of things:-
- Market imperfections are not equated with market failures. Market failures are indeed market imperfections, though rarer than market imperfections caused by governments (at any rate in our time and place). But the latter sort are still market imperfections. There are other kinds too, e.g. right now Somali pirates are distorting international trade.
- I was talking about any sort of market imperfection, not just the government ones.
- When there is a market failure, entrepreneurs can’t fix things by their own actions. If they could, there wouldn’t be a failure, by definition.
- That is why outright market failures are rare. But they are not impossible, so it would be wrong only to consider distortions caused by governments.
the market is made up of voluntary trades between individuals. Somali pirates are violent criminals and governmental regulation is enforced by coercion: these have nothing to do with the market. I did not understand wrong, you are using the term where it does not belong. Crime and coercion are not voluntary exchanges so they have nothing to do with the “market”.
“- When there is a market failure, entrepreneurs can’t fix things by their own actions. If they could, there wouldn’t be a failure, by definition.”
so we need our all knowing masters to fix it for us? with “government failure” at a 100% rate that seems like a failed idea.
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