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Source link: http://archive.mises.org/7537/capital-its-so-easy-to-infuse-it/

Capital: It’s so easy to infuse it!

December 13, 2007 by

NYT:

A day after the Federal Reserve disappointed investors with a modest cut in interest rates, central banks in North America and Europe on Wednesday announced the most aggressive infusion of capital into the banking system since the terrorist attacks of September 2001.

And it makes you wonder why they don’t do a one-time zillion dollar infusion of “capital” and make the whole world wealthy forever.

{ 11 comments }

David White December 13, 2007 at 8:56 am

We are in the endgame of The Great Fiat Fraud — i.e., the world’s 36-year experiment in media of exchange unbacked by any good. Which is to say, an experiment to see if the world economy could be run without real money.

It could. But only in the way that a vacuum can be created to defy gravity — i.e., artificially, and at an unsustainable cost.

cpmarch December 13, 2007 at 9:01 am

Good question, Jeffrey. I’m not sure of the answer, but I think it might be related to why they don’t raise the minimum wage to $1,000,000 per hour. Seems like I remember hearing something about “fundamental laws of existence”, whatever that means.

Roman December 13, 2007 at 11:18 am

It’s mind-boggling how readily history repeats itself, and so few notice. Perhaps it’s because the regime calls it “liquidity”, and not simply debt, or old-fashioned money supply. Is that all it takes now to fool the sheeple, a simple change in terminology?

Yancey Ward December 13, 2007 at 1:15 pm

Jeffrey,

Come on, be serious! A “zillion” is a completely fictitious number.

I think a quintillion should suffice.

Artisan December 13, 2007 at 2:37 pm

In another blog it has been argued that a stable monetary mass would necessary lead to a long term recession because the human demography is growing (pace?). Since population is growing you could argue that the productive power naturally rises… but the trading tool remains too scarce.

Is this fact addressed by Rothbard or Mises somewhere?

Ben December 13, 2007 at 5:26 pm

Hoo boy… short sellers are salivating, I can assure you. It’s all a matter of timing, though…

Koen Deconinck December 13, 2007 at 6:34 pm

@ Artisan:

If I understand the argument correctly, it amounts to this:
- the population grows;
- therefore, total production grows;
- the monetary stock does not grow (e.g. with a gold standard)
- thus, there will be a recession.

We don’t really need the first assumption. Even without a growing population, total production might grow.

So, the question becomes: is it a problem if total output grows, while the monetary stock remains the same?

The answer is negative, and it has indeed been argued by both Mises and Rothbard.

I believe that this argument is based on the widespread fear of ‘deflation’: ever-falling prices which would make people stop spending their money and thus would push the economy in a slump.

In fact, there are two kinds of ‘deflation’. One is what Austrians would refer to as the only real kind of deflation: a decline in the total money stock. (Originally, the words ‘inflation’ and ‘deflation’ were only used for changes in the money supply.)
Now, if the money supply declines, say, by half, then total spending in the economy is seriously crippled. It takes a while for prices and wages to readjust to this new amount of money – in order to reach a new equilibrium, all prices and wages should be cut in half as well.
But if you are running an enterprise, you have purchased labor services and other inputs when prices were high, and now you’re suddenly forced to sell them at a much lower price. This is the mechanism that is responsible for enterprises going bankrupt when the money stock declines.

On the other hand, consider what is happening in a healthy, expanding economy. An enterpreneur discovers a new method of production, which is much more efficient. He is able to produce, say, twice as many shoes with the same amount of labor and inputs. In that case, he can afford to cut prices by half. He will still make a profit. In this scenario, prices only decline because producing goods has effectively become cheaper. That’s not a big deal.

So, there is no reason for the economy to become permanently depressed just because output is expanding.

I hope that this answers your question.

Paul Marks December 13, 2007 at 6:36 pm

Artisan.

If the amount of money does not increase then prices will tend to fall – if production increases (due to investment over time and finding better ways to do things). There have been rising living standards during many periods of falling prices – for example the late 19th century.

Population rising or falling may have all sorts of economic conseqences – depending on the situation and on how much population is rising or falling and over what time period.

However, minting more coins, printing more notes, or producing more money via book keeping tricks will not help with any negative consequences of the rise or fall of the population.

Dan Webb December 13, 2007 at 7:44 pm

Yancey,

I believe the term you’re looking for is obsquamatillion:

http://www.freecannon.com/McDuckCapitalism.htm

Yancey Ward December 14, 2007 at 9:02 am

Dan,

Thanks for the link! It just goes to show that people in hollywood were economically literate at one time.

鲜花 December 20, 2007 at 1:26 am

thanks

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