Friday, February 11, 2011

The Great Inflationist Kneecapper

In an interview many years ago, Victor Navasky, the former editor of The Nation, described the New York Post as an entity that would "kneecap" anyone it did not like, and he did a "rat-a-tat-tat" imitation with his hands. (Not that Navasky and The Nation ever would do such a thing themselves.)

Economists at one time did not publicly kneecap each other. They hardly were (or are) angels behind the scenes, and I have been witness to some real ugliness that has transpired in economics departments, and ideology really had little or nothing to do with the infighting.

Over the years, I have been privileged to have met economists who won Nobel prizes and read their material. Some were forceful in what they wrote, and others were not, but even in their popular press columns, they never launched outright personal attacks on other economists, and when they mentioned others, they dealt with their arguments as they understood them.

I guess that Paul Krugman represents a new era in how Nobel-winning economists present themselves in public, and his column on Rep. Ron Paul's hearing on the Federal Reserve System once again crosses that line of civility and decency. (Perhaps it is better to argue that Krugman long ago crossed the line and decided just to stay there, and maybe build a mansion.)

It is perhaps ironic that Rep. William Lacy Clay, a congressman from St. Louis, launched the personal attacks (of which Krugman clearly approves) on Dr. Thomas DiLorenzo by claiming that Austrian Economics is "unscientific" because it relies upon deductive logic. As anyone who has taken a logic class knows, the ad homimen, appeal to authority, and the like fall into the category of "informal fallacies," yet, Krugman obviously likes to employ them. Clay also relied heavily upon such fallacies in his "proof" that Dr. DiLorenzo was a fraud.

Now, I always have learned that if one wishes to attack the position of another person, one first should do some fact-checking. First, Krugman's comments:
One of the hearings was called by Representative Ron Paul, a harsh critic of the Federal Reserve, who now has an oversight role over the very institution he wants abolished in favor of a return to the gold standard. Mr. Paul’s subcommittee called three witnesses, one of whom was an odd choice: Thomas DiLorenzo, a professor at Loyola University and a senior fellow at the Ludwig von Mises Institute.

What was odd about that choice? Well, Mr. DiLorenzo hasn’t actually written much about monetary policy, although he has described Fed policy — not just recently, but since the 1960s — as “legalized counterfeiting operations.” His main claim to fame, instead, is as a critic of Lincoln — he’s the author of “Lincoln Unmasked: What You’re Not Supposed to Know About Dishonest Abe” — and as a modern-day secessionist.

No, really: calls for secession run through many of Mr. DiLorenzo’s writings — for example, in his declaration that “healthcare freedom” won’t be restored until “some states begin seceding from the new American fascialistic state.” Raise the rebel flag! (Emphasis mine)
Now, here is Dr. DiLorenzo's reply:
The junior high schoolish smart aleck Paul Krugman, who writes for that well-known leftist tabloid the New York Times, wisecracks about the Ron Paul Fed hearings in his recent column where he says that I was writing about the Fed as “a legalized counterfeiting operation” as far back as the 1960s. That’s unlikely since the very first thing that I ever wrote that was published was an article for the peer-reviewed Southern Economic Journal in 1980, shortly after I finished graduate school. He must have me confused with Ludwig von Mises or Murray Rothbard. I guess all Austrians look alike to some people.
Now, why does Krugman go rabid at any criticism of Abraham Lincoln? He explains:
He (Lincoln) was, after all, the first president to institute an income tax. And he was also the first president to issue a paper currency — the “greenback” — that wasn’t backed by gold or silver.
Yes, Lincoln was a "stimulus" sort of guy, someone who liked to print money. However, if one reads through the Krugman columns, one finds that anyone critical of such an action is to be labeled...well, whatever Krugman wants to call him. A racist? Yes. An ignoramus? Yes.

So, Paul Krugman is becoming unleashed. Disagree with him on monetary policy, global warming, the current inflation situation, taxes, and whatever else and you are not simply wrong. No, you oppose all these things because you are evil. You want people to lose their jobs and be unemployed and poor forever. There is no other explanation.

51 comments:

AP Lerner said...

Once upon a time this blog was about economics...my how times have changed.

"So, Paul Krugman is becoming unleashed. Disagree with him on monetary policy, global warming, the current inflation situation, taxes, and whatever else and you are not simply wrong."

Replace Paul Krugman with Willilam Anderson in that statement and it remains just as true.

William L. Anderson said...

I can't say you are wrong, AP. I do wish to do some real econ blogs in the future. Really.

One problem is that Tom DiLorenzo and Ron Paul are friends of mine, and I really would like to see a discussion of their views, versus attempts to smear them or misrepresent their views. It is one thing for a member of Congress to do that, but quite another for an economist of Krugman's stature in the profession.

burkll13 said...

AP,
Again, it is unreasonable to expect, that on a blog strictly dedicated to answering Krugman, to expect the subject matter to be completely unrelated to what Krugman writes about. If Krugman is political, the subject matter will be political. If its Economic, then the subject matter will be economic.

AP Lerner said...

Well, if Ron Paul and Tom DiLorenzo really are your friends, then you can relay a message from a fellow American that actually understands and cares about monetary operations that when Mr. Paul goes off on incoherent tangents like this:

"We probably have pumped in $4 trillion" to the economy, he complained. "I imagine we could've given everybody 60-, 70-, maybe $100,000 - I haven't done the calculations - just give 'em the money and we would've been better off."

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/09/AR2011020905879.html

And he then he joins in on the childish name calling by calling Ben Bernanke ‘cocky’:

http://www.reuters.com/article/2011/02/10/us-usa-congress-paul-idUSTRE7190CZ20110210

then he does all of us, and himself, a disservice.

If these hearings must continue, then you should ask your friend Tom DiLorenzo to let someone with an alternative point view and better understanding of monetary operations, like Warren Mosler or Randall Wray, have there chance to speak at the dog and pony show. You want to do add value to the discussion Prof. Anderson? Then use your contacts to encourage an alternative point of view into the debate. Otherwise, these hearings will just be a waste of time and money, and just like all other Congressional hearings, an opportunity for the host to grandstand. A debate can only occur when alternative point of view is presented. And Lacy Clay does not represent that alternative view (or any logical point of view). And as far as I can tell, all DiLorenzo is going to do is agree with Paul.

Hell, introduce me to DiLorenzo. He teaches right up the street from me. I'd love for him to explain to me how the operational realities of the monetary system are not really reality

jason h said...

You don't have to watch much of Bernanke to realize 'cocky' is pretty accurate and probably not much of an insult to the self-anointed 'expert on the Great Depression.'

jason h said...

We understand how the monetary system operates, however, Ben's printing press can't conjure up more iron, coal, oil, crops, etc... into existence.

Mike Cheel said...

Just to point out, a cursory look at the Wiki on Dilorenzo shows he was born in 1954 which of course means that by the time 1960 rolled around he was 6.

http://en.wikipedia.org/wiki/Thomas_DiLorenzo

Bob Roddis said...

Why don't AP "Hut Tax" Lerner and Warren Mosler identify the nature of their economic theories? As I had believed and Taylor Conant noted, Mosler and all the Chartalists appear to base their OPINIONS upon an unstated economic theory (which is different than the so called "operational realities"):

This is another example of Mosler relying on an unstated economic theory, whose premise is that higher spending on education by government necessarily translates into higher future productivity and therefore a more prosperous economic future for everybody compared to what it otherwise might be. He presents his conclusions based off of this unstated economic theory as if they are obvious simply from observing the problems of resource allocation related to Social Security, without notifying his readers that he is in fact employing a particular theory which is not offered for consideration and scrutiny.

http://tinyurl.com/4jantnc

Further, APHTL never addresses my continuing question as to WHERE THE HELL ALL THE STUFF IS GOING TO COME FROM TO PAY ALL OF THIS DEBT.

He never explains why we must endure this criminal fiat system (even if he knows better than we do its "operational realities") and he's never explained why the study of individual human transactions (Catallactics) no longer applies in our insane bizarro world of fiat theft and criminal asset transfers.

http://en.wikipedia.org/wiki/Catallactics

APHTL expressly stated that catallactics somehow no longer matters under a fiat system. How's that possible?

BUT HE WILL NEVER RESPOND!

And turn up the volume for Lacy Clay's examination of Tom DiLorenzo:

http://www.youtube.com/watch?v=ovvGkBU6mRg

Bob Roddis said...

More Taylor Conant on Mosler having no economic theory:

This is Mosler again making arguments based upon an unstated economic theory under which he is operating and interpreting his view of economic events.

Mosler makes pains to convince his readers that he FIRST looks at the economic facts as they are and SECOND draws conclusions from them, but it is unclear how he reaches these particular conclusions without a third step, predating the FIRST, which is to consider a particular economic theory.


http://tinyurl.com/4nosagvd

Of course, drawing conclusions requires a THEORY and APHTL insists he just has facts, no theory. Amazing.

Bob Roddis said...

Wouldn’t the s**t hit the fan if Warren “Hut Tax” Mosler really were to testify? It’s not hyperbole to say that his “theories” are based upon how exciting it is when an invading English army can compel poor black African locals to work for them against their will. From Mosler’s book:

The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.

DiLorenzo's books express outrage at how the Union army raped, pillaged and murdered civilians, including slaves and free blacks. We find Mosler cheering on the British enslavement of the Africans.

AP Lerner said...

How about you explain to us all how the government attains the funds to spend if, as your THEORY claims, it must tax and/or borrow first before spending? Where did those funds come from? What is there to tax, if the government can't spend first? Think about. Which came first. The spending, or the taxing? Think real hard. It a logic question. No theory. You can't go to mises.org and copy and paste an answer to this one.

Anonymous said...

Lerner, when you say the fed doesn't have control over the money supply, is this only true in zero bound conditions, or alway?

Rick Teller said...

AP Lerner: Here is the correct order as I see it (maybe not pure Austrian or any other theory)
1. People make goods or offer services. They could barter them, but it is more convenient and efficient for a stable medium of exchange, like gold, to represent the value of their goods and services. No government was needed to establish gold as money, it just developed that way because people saw that it worked.
2. Initially, if the government wanted goods or services, it would either borrow the real money that represented what people had created, or it would tax people to get it. Money that the government borrowed or taxed was no longer available to be used by the creators of that wealth.
3. After using force to get a monopoly of coinage, the government switches to paper supposedly backed up by gold, then starts counterfeiting by producing more paper "money" than they have gold that they have taxed or borrowed. They spend those counterfeit dollars, or whatever, but it doesn't increase the supply of goods and services, it just cheats those who worked at something to earn their money.

So to answer your question of whether taxing or borrowing must happen before the government spends money, if you are talking about a government not run by thieves, the answer is yes. If you are talking about modern governments who steal from their citizens by counterfeiting what is supposed to be a stable medium of exchange, then the answer is of course no.

The fact that it is done by every central bank and government these days is indeed reality, but it is still counterfeiting and theft. Slavery was accepted for centuries, but eventually people realized it was wrong and it ended. Perhaps eventually the same realization will occur about the policies you espouse.

Michael Maier said...

AP Lerner said...

Once upon a time this blog was about economics...my how times have changed.

"So, Paul Krugman is becoming unleashed. Disagree with him on monetary policy, global warming, the current inflation situation, taxes, and whatever else and you are not simply wrong."

Replace Paul Krugman with Willilam Anderson in that statement and it remains just as true."


What an utterly moronic comment. I suppose you whine about the smell of popcorn in movie theaters as well?

Bob Roddis said...

APL:

I will freely admit that I don't understand your question. Humans have to make stuff before the donut eaters can seize it. The Jews had to have the gold fillings put in their teeth before the Nazis could pull it out. What am I missing?

I also admit that somewhere, somehow, there might really be an economic theory buried somewhere in all that MMT. Why are you hiding it? Don't be shy.

jason h said...

Don't bother Mr. Teller. We have answered AP's question before. We understand that the gov't writes checks first then balances the books later.

AP completely ignores the notion that people can't eat FRNs, can't put FRNs in their gas tank, and that ultimately stuff must be produced by someone. While the rest of us must produce and trade (actual stuff) for want we need, the gov't can just print the money an covertly confiscate the fruits of our labor.

Anonymous said...

The best way to handle Krugman is just to ignore him. The more threatened he becomes, the louder, cruder, and more exaggerated his rants will be. If you lend him credence by addressing him in a normal fashion, you elevate his status. It is best to slowly let him fade away, screaming for attention as his views are shown to be false.

Anonymous said...

AP

Maybe you missed the hearing. There was a Keynesian economist at it. In fact a few of the congressmen only directed questions to him.

I would love to hear your economic theories as well.

Bob Roddis said...

The huts had to have been built before they were subject to hut tax, right?

Anonymous said...

It has always been that Keynesians are just bratty little parasites who refuse to grow up...It is not an economic theory at all but gimme-gimme feel-goodism for the weak and lazy. Paul Krugman has the character of a little boy and therefore loves the Mommy-n-Daddy State and hates the freedom-minded adults...He is an envy-ridden runt.

Anonymous said...

Keynesian economics is not economics but a religion for the unthinking and parasitic masses. Keynes was really just a clergyman and not a rational thinking man. The people who defend Keynes are just psychologically infantile and they get incredibly "bratty" when you denounce their god Keynes...Get them angry and eventually they will cut your head off whilst chanting "Keynes...Keynes".

Eric said...

Why is Krugman painting the picture that DiLorenzo is some sort of Republican? Obviously to score political points against the right-wing, but really, it is so blatantly a lie.

So DiLorenzo supports secession. And from that, Krugman mocks the idea by suggesting to "raise that rebel flag!" Yeah, it's a good idea in principle. Out of the ordinary, sure, but his refutation is such a flippant and unsubstantiated dismissal void of any content.

burkll13 said...

"What is there to tax, if the government can't spend first? "

this is what im getting from this statement. all economic activity is derived from government action and to take that further, economic activity CANNOT happen without a prior government action.

this is what i dont get about you guys. if the dollar disappeared tomorrow, would people not still own capital? would they suddenly be unwilling to trade their production in order to consume? Economic activity happens because people choose to engage in it.

Anonymous said...

And this pathetic Paulie Krugman parasite thinks DiLorenzo is the Zombie. This Nobel twit turns into an 8 year old when he's agitated...I'm almost embarrassed for him.

Anonymous said...

Do people even buy the New York Times? I mean other than to potty-train their puppies or line bird cages.

Another Anonymous said...

Rick: The story you have told is shared by the Austrians and most of their opponents (e.g. It seems that "Lord Keynes" here believes something like it, the GHS referred to below was the early rival of the Austrians.) It is roughly the mainstream, textbook story. However, it is completely untrue. Here is Michael Hudson, an authority on ancient economies: "Examining the records of Mesopotamia and its neighbors, assyriologists have found that most records describe debt arrangements for thousands of years before coinage emerged... The line of development is just the reverse of what the German Historical School more than a century ago imagined to be the three-stage sequence from barter to a monetized economy (whose watershed occurred with the development of coinage), culminating in modern credit systems....The primordial mode of exchange was neither barter nor the use of money for on-the-spot settlement, but debt. If anything, barter appears only as the final stage of debt-ridden economies..."

Credit is the truly ancient concept. True money, transferrable credit, arose with the rise of religious institutions, states and governments. Coinage was a late concept, and never frequently used. "No government was needed to establish gold as money, it just developed that way because people saw that it worked." was true nowhere on Earth and at no time in history.

Rick Teller said...

Another Anon: I didn't mean to imply that I could identify a specific ideal society way in the past in which a government (and associated religious authorities) didn't try to steal from their subjects, the ones who produced what the powerful bosses consumed. Likewise, one would probably have to go back thousands of years, if even then, to find a society of more than trivial size that didn't run at least partially on slavery. Does that make slavery a natural and acceptable state of affairs?

That said, I have no confidence in opinions of Assyriologists trying to describe the detailed workings of a society thousands of years ago. Of course the records of the time may well have covered mostly debt and credit transactions - barter and business done with a stable medium of exchange such as gold don't need any records. Historians and certainly economists get things blatantly wrong about events fifty years ago, and we should trust some guys reading the 1/10 of 1% of cuneiform tablets that survived to make sweeping assertions about the economy at the time because...why?

And even if credit and debt were big features of that society, so? What is wrong with that? People who don't consume all they produce can lend out their savings for interest, if they so choose, so they can consume more in the future.

The problem is when governments counterfeit the currency, as the Fed is doing so diligently now, they destroy the money as a stable medium of exchange. Not overnight, it takes some time, but eventually it turns out to be a bad policy for the society however measured. And it is theft from those who have honestly worked for their money, even before the bad policy effects show up.

Tel said...

As for the "tax hut" theory, why not just call it by the correct name, which is a protection racket? One way or another, the only real commodity that government has to sell is protection: partially protection from the government itself, and partially protection from other governments and other individuals.

You pay tax, in return you don't get hurt. Whether this arrangement is counted in scraps of paper, or credits in a computer, or whatever you like makes no difference. When you accept paper money in return for your goods or labour, you are doing so in the expectation that at some future stage you (or someone you can trade with) will be in need of this government protection, so the paper money has value.

Under this system, it should be obvious that a government that spends significantly more than it takes in tax will create a surplus of paper money beyond what anyone needs to pay their protection fees, and thus inflation must occur. However, so many taxes now are linked to wages that once inflation gets round to result in higher wages, the tax automatically goes up again. Similarly, things like Capital Gains Tax also automatically increase taxes to balance against increased inflation. You buy assets expecting inflation to destroy the value of your paper money, then inflation comes along as you expected and the taxman holds hand out for the nominal "increase" in value of your assets.

Because of the way these are locked together, government spending is always balanced by tax in one shape or another -- inflation being one possible manifestation of tax, if no other tax comes instead.

I think this discussion regularly gets muddled by looking at moral issues: "Is it morally acceptable to run a protection racket?" "Is it morally acceptable to deceive people into believing they can have something for nothing?" and then trying to ignore the practical question of whether certain approaches are workable.

I doubt there is enough ethical common ground between myself and the person calling himself AP Lerner, to sensibly discuss anything at all from a purely moral standpoint.

It is however, quite sensible to discuss whether a protection racket can work from a practical viewpoint. Certainly there are many historical examples of highly successful systems based on this design. People are willing to put up with some level of subjugation in return for stability -- and in some cases (such as societies that support slavery) certain people put up with very high levels of subjugation.

Bob Roddis said...

I doubt there is enough ethical common ground between myself and the person calling himself AP Lerner, to sensibly discuss anything at all from a purely moral standpoint.

APL is completely tone deaf to and ignorant of the ethical issues surrounding funny money (and a whole lot of other issues too).

Sean O'Donnell said...

AP Lerner said:
"You want to do add value to the discussion Prof. Anderson? Then use your contacts to encourage an alternative point of view into the debate."

I'm not a PhD. I don't have a masters in anything. I don't even a have an Econ or Finance degree. I have an engineering background, and have been in jobs for 20 years where people can be killed if they're wrong, cut corners or sling bullshit. And thus I have an excellent bullshit detector. AP Lerner is full of shit.

Based on the quote above, is AP Lerner suggesting we haven't had enough representatives from the Keynesian community? These people have been shoving socialist nonsense down our throats for years? There WAS a Keynesian on the 3-man panel, and he got plenty of play.

Regular people - thanks to Bill Anderson, Ron Paul DiLorenzo, etc - are slowly figuring out that wealth cannot be obtained from a printing press; nor can jobs be created from printing money or simply by spending money. Resources are never best allocated when investment is socialized.

And rarely are losers who camp out on other peoples' blogs making half-baked comments of any real use.

Anonymous said...

Lerner is from a MMT school a thought. Closer to post-keynsians. They're an even smaller minority than Austrians and have completely different views from the New Keynsians like Krugman and Bernake. New Keynsians are closer to Friedman than Keynes.

AP Lerner said...

Working my way down on comments worth responding too:

@ Anon #1 – you said “when you say the fed doesn't have control over the money supply, is this only true in zero bound conditions, or alway?”

Always. The money multiplier is a myth.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

so the reserves the Fed creates are irrelevant to bank lending, since bank lending is never constrained by reserves. Reserve balances influence the size of bank balance sheets, but never the size. One day Austrians and neo liberal Keynesians alike will realize this and also realize we left the gold standard a long time.

(as an aside, I have asked Prof. Anderson to critique this Fed paper in the past and he has come to the conclusion it is more productive to call Krugman names than actually have an intelligent economics debate. Who can blame him after he failed at answering my question on interest rates in this post. He has given up in engaging me in debate after this disaster: http://krugman-in-wonderland.blogspot.com/2010/06/commentary-on-current-bond-rates.html)

I was anonymous in this post.

@ Rick Teller – you do realize the US is no longer on the gold standard, right?

@ Anon #2 – you said “Maybe you missed the hearing. There was a Keynesian economist at it”

Great, more neo-liberals that do not understand the monetary and banking system. I am not a Keynesian, and neither is Mosler. Keynesians and Austrians are equally ignorant to how the monetary system works.

@ burkll13 – you said: “this is what im getting from this statement. all economic activity is derived from government action and to take that further, economic activity CANNOT happen without a prior government action.”

That’s what you want to hear, but it’s not what I’m saying.

You said: “if the dollar disappeared tomorrow, would people not still own capital?”

Yes

“would they suddenly be unwilling to trade their production in order to consume?”

No.

“Economic activity happens because people choose to engage in it.”

Well said.

Now what does any of this have to do with the current monetary polcey?

@ Bob – you’re getting closer. Where do the funds come from to pay the hut tax if the government does not spend first?

@ Sean O’Donnell – I, nor Mosler, are Keynesians. If you paid attention to me, or MMT, you would know they have contributed to many of the neo-liberal myths and fundamental misunderstanding of the monetary system that Austrians believe in. The bullshit is on you.

@ Anon – you said: “Lerner is from a MMT school a thought. Closer to post-keynsians. They're an even smaller minority than Austrians and have completely different views from the New Keynsians like Krugman and Bernake. New Keynsians are closer to Friedman than Keynes. “

Bingo. Finally somebody that’s paying attention and not copy and pasting from some Austrian web site or repeating the same neo liberal nonsense

Rick Teller said...

APL: "@ Rick Teller – you do realize the US is no longer on the gold standard, right? "

Well, duh...how does that respond to anything I wrote? Try again please. Or admit that the government counterfeiting money is not different than what slavery was for thousands of years - the way nearly every society was run, but wrong nevertheless.

AP Lerner said...

FYI - Employing slaves was a choice. and if you feel so violated by using USD, then ask your employer to pay you in gold, goods, services, or some other commodity.

Or, if living in a pegged currency world is so desireable to you, move to Europe, or China.

Or, if you want to live without governmet counterfeiting, move to Somalia.

Two can play the irrelevant referance game. Except, I'm bored with it already.

Anonymous said...

I think what Lerner is saying that you can't have a discussion about monetary policy until you actually understand the monetary system in placed today. He's not trying to say it's immoral or immoral and that he necessarily approves of it (I don't now if he does. Simply that all the bickering between the Austrians and the New Keynesians is irrelevant to the problem today because the monetary system the Austrians and the New Keysians think they have isn't actually there. The confusion in the debate isn't if the fed is printing too much money or too little. It's that the monetary system where the fed is capable of doing that doesn't actually exist. When he says the government isn't revenue restrained, he isn't saying that the government should be allowed to spend all they want and no problems would result. He's saying that as an "operational fact", the government isn't revenue restrained. The government doesn't have to raise taxes and have enough bond buyers to spend money, but they usually do anyway. The government may not see it this way, but taxes only serve to restrain inflation. With the monetary system we have in place, it would be best for the government to run bigger deficits for pragmatic reasons. Just like with the "welfare state" we have in place, Ron Paul likes to restrict "freedom" by wanting to send employers who higher illegal immigrants to jail.

"Always. The money multiplier is a myth."

So is it just a coincidence that nominal GDP has been stabilized to a trend growth path of about 5% for the past 20 years since what has been refereed to the "Great Moderation"? Has nominal GDP being doing it's own thing unrelated to the Fed and government deficits have stabilized nominal gdp just by luck and coincidence? (exception with the current recession)

Anonymous said...

has nominal gdp been* doing its*

Another Anonymous said...

Rick: It is true that it takes hard work to study ancient economic history. But some things are quite clear. Metals, coins are very durable, so people understand well when they started to be used.

Gold was of zero importance in the development of money. It is much too rare. Mesopotamia (and Egypt) don't have any. The oldest coins are only around 700 BC at the earliest, and are invariably associated with states, not private mercantile transactions. Money is thousands of years older. Basically, money was created by governments/temples, not private individuals trading with each other.

People who don't consume all they produce can lend out their savings for interest, if they so choose, so they can consume more in the future. But that just was not how it happened, or could have happened. What was it that they would be saving, and then lent out?

The real point is that the whole idea of money as a commodity that could be "saved" and "lent out", that money is a thing, a commodity, is absolutely wrong. Money is a relationship between two entities, not a thing.

All money everywhere has been created by governments & bankers & private individuals "counterfeiting the currency". The "honest money" that Austrians believe in never existed.

Money is intrinsically associated with governments. When governments deficit spend, they are not necessarily "robbing" the private economy, but answering the needs of the economy for a resource it desperately needs - (base) money.

Tel said...


APL is completely tone deaf to and ignorant of the ethical issues surrounding funny money...


Obviously, but given that this was established a long time ago, what's the value in rehashing ethical principles?

More important to focus on directly measurable outcomes, such as whether employment participation in the US will pick up, how much inflation we can be expecting and how best to measure that, and how to maintain rule of law in an increasingly unaccountable system.

Getting back to the more important matter of inflation, the "hut tax" theory does not in any way result in a conclusion that inflation cannot occur. It merely states that inflation is a consequence of government spending more than it taxes -- so from a deliberately narrow minded perspective we could say the Federal Reserve is off the hook, because Congress is the fundamental source of inflation rather than the Fed.

From a broader perspective, the US federal government works as a whole, and attempting to finely allocate cause and effect among the cogs and wheels in a big machine is mostly an academic exercise -- the correct answer is "who cares?"

Having established that inflation can occur (even under APL's operational theory) we need a metric to decide whether inflation is really happening right now. I suggested food prices. As a general rule food prices are not particularly volatile, and part of government's "protection" services is to put in place a bunch of mechanisms to keep food prices from getting volatile (such as the "food stamp" system that ensures farmers keep producing even when segments of the population cannot afford to buy their output).

In as much as short-term events such as storms and bad harvests upset prices, the physical mechanisms for leveling this out are food storage and food transport. If a number of short-term event happen to accidentally correlate then you might expect a brief spike in prices, which is restored within maybe 6 months or a year. I for one totally reject that claims of multi-year worldwide poor harvests are in any way legitimate.

Australia, for example, had a bigger wheat harvest this year than last year, and we had nearly a decade of drought before that. Admittedly late season rains caused an unusually high percentage of our harvest to be downgraded to stock feed, but large numbers of stock in our region are grain fed anyhow -- it all ends up going on the dinner table sooner or later!

Bala said...

"@ Bob – you’re getting closer. Where do the funds come from to pay the hut tax if the government does not spend first?"

This is downright hilarious. Are you saying that money and funds cannot be produced on a free market where government does not spend money, that too first? So money becomes money BECAUSE government spends it first? How interesting that there are people who believe this horse manure.

AP - You couldn't have chosen a better way to make a complete joke of yourself.

Bala said...

AP - Even assuming your statement that Prof Anderson does not understand the modern monetary system, there is only one conclusion I am able to come to after perusing some basic info about capital adequacy ratios and the capital constrained nature of modern banking - It is much worse than fractional reserve banking. It creates far more humongous amounts of money according to its own whims and fancies than the FRB system does. Put that way, you are not saying that Prof. Anderson is wrong but that he does not understand the gravity of the situation.

The funny part of course is your "economics" which only people who have inverted cause and effect will call economics. It is best represented in your attempt to show that government spending it what creates funds. Thanks for making your pseudo-economic theories appear this obviously nonsensical.

Bala said...

"Once upon a time this blog was about economics...my how times have changed."

And AP NEVER discussed economics. He probably can't ever.

AP Lerner said...

I'm curious, who on this thread are students of Prof. Anderson? If so, may I suggest transferring, or finding a new major?

Bala said...

"If so, may I suggest transferring, or finding a new major?"

To whom? To you who knows no economics? If I were a student of Prof. Anderson, I wouldn't touch you with a 100 ft barge pole, leave alone a 10 foot one. Go back to your hut and contemplate how to impose your hut tax.

D said...

"FYI - Employing slaves was a choice. and if you feel so violated by using USD, then ask your employer to pay you in gold, goods, services, or some other commodity."

@AP Lerner: you really should avoid throwing bombs on websites, being a self-declared monetary genius if you don't understand simple concepts like LEGAL TENDER.

Also, it's really annoying when people invent nonsensical terminology that is not meant to relay any meaningful idea, such as 'neo-liberal'

Anonymous said...

AP Lerner is just an elitist brat who feels entitled to other people's lives. The parasite has no problem with human slavery...as long as he's the slavemaster. This is also Krugman's attitude.

Anonymous said...

If we get rid of the Government then we will all die of lack of money.

Sniff-Sniff.

Government-Lovers say the stupidest things. Like a 6 year old.

Anonymous said...

Since we all know that a "Liberal" is a bratty little parasite, can someone define what a "Neo-Liberal" is?

Anonymous said...

Forget economics. It is time for "Winning the Future" like Maobama told you to think in his little State of the Fascist State address. I guess only public school retards and neo-liberals understands what that means.

Anonymous said...

Economic bust comes when there is high employment. With our current high unemployment rate, any economic bust is now eliminated.

Anonymous said...

Public school and TV has turned the average American into a retarded psychopath. John Taylor Gatto is right.

Daniel said...

Great post. My least favorite attack against the Austrian Schools is the they-aren't-scientific-because-they-utilize-deduction thesis. I thought your counter argument was well put.