For many people on the right, value is something handed down from on high It should be measured in terms of eternal standards, mainly gold; I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn’t kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.In other words, the supposed "greatest" economist in the world cannot even articulate an Austrian theory of value without slipping into insults, caricatures, and straw men. Actually, Austrians believe that value is subjective and depends upon what individuals are willing to give up in order to obtain something.
And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn’t tied to gold is a kind of theft, not to mention blasphemy.
For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes. It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments — and they are always up for reconsideration when circumstances change. (Emphasis mine)
Now, we do believe that laws of economics are immutable because they are based upon human action. Is Krugman about to say that the Law of Marginal Utility, the Law of Scarcity, and Opportunity Cost are nothing but mere human constructs that can be changed at the whim of a legislature or a president? Does the Law of Demand hold only when Krugman wants it to do so?
Austrians have favored gold as money not for any "religious" reasons, but rather because over time gold supplies are not easily manipulated, which means governments find it harder to debase the money that people are holding. Now, according to Krugman, this makes me "anti-Enlightenment" because I don't think that one group of people should be able to use covert means to take property from one person and give it to someone else who is politically-favored.
Let's face it. That is exactly what inflation does: it transfers wealth. Krugman can write about "better outcomes" all he wants, but he really is saying that it is better for government agents to have the power at any time to make political decisions that will negatively affect the property and monetary holdings of individuals. Furthermore, when Krugman declares that money "should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes," he really means "adjusted" in just one way: expansion of the amount of money in circulation. After all, there can be nothing worse than deflation, at least in the Krugman-Keynesian view.
I would like to turn toward Krugman's insults toward those who do favor gold. I first link readers to what Carl Menger wrote about money in his 1871 Principles of Economics:
Money is not the product of an agreement on the part of economizing men nor the product of legislative acts. No one invented it. As economizing individuals in social situations became increasingly aware of their economic interest, they everywhere attained the simple knowledge that surrendering less saleable commodities for others of greater saleability brings them substantially closer to the attainment of their specific economic purposes. Thus, with the progressive development of social economy, money came to exist in numerous centers of civilization independently. But precisely because money is a natural product of human economy, the specific forms in which it has appeared were everywhere and at all times the result of specific and changing economic situations. Among the same people at different times, and among different peoples at the same time, different goods have attained the special position in trade described above.There is nothing "anti-Enlightenment" in that paragraph, or in Menger's entire section on money. So, let us turn to Rothbard, since he was much more libertarian than Menger or Ludwig von Mises, to see if he writes from a religiously-mystical viewpoint:
A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world's most important tasks. So often have people talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a "claim on society"; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity, and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc. Like all commodities, its "price" is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. (People "buy" money by selling their goods and services for it, just as they "sell" money when they buy goods and services.)In fact, the Austrians have not written about money or gold in any sort of mystical way, as Krugman claims. Yes, they have said that inflation does involve a form of "theft," since government is using it to quietly transfer wealth from one group of people to another, but claiming simultaneously that it is not engaging in such activity. I suspect that if I entered Paul Krugman's house and took some of his possessions without his permission, he also might accuse me of "theft," even if I vociferously protested by claiming that I was simply engaging in an act of "social justice," since he is wealthier than I am.
Of course, Krugman ends with his usual insults posing as an intellectual contribution to monetary theory:
And I do find myself thinking a lot about Keynes’s description of the gold standard as a “barbarous relic”; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy — and why not? After all, they hate the Enlightenment on all fronts.
The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias.
I'm not sure which of the "Enlightenment" figures advocated inflation, including Jeremy Bentham. However, Bentham did call for governments to arrest and imprison people who "might" commit crimes one day, and he favored the surveillance society that we have today. Certainly, the all-encompassing State is a product of post-Enlightenment thinking.
However, when one points out that people are hurt by inflation, and that inflation over time distorts the structure of production and wreaks havoc on an economy, then according to Krugman, those people are wrong because someone before the Enlightenment might have believed the same thing.
Furthermore, Krugman is claiming, apparently, that all systems of thought and all writings and laws produced before the Enlightenment were wrong. Does that include laws against theft and murder? Does that mean Aristotle and Plato were idiots? Who knows. After all, we are not having a "rational discussion," since Krugman now is claiming that any system of thought produced before the Enlightenment automatically is wrong. Somehow, I think that is an irrational way of looking at things.
The big howler for me is Krugman unfurling such a sweeping, and false, generalaztion about his ideological opponents with, "After all, they hate the Enlightenment on all fronts," and in the same breath spews this vacuous throwaway line of condescenscion - "The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias." - as if he occupies some moral and intellectual high ground.
I'm constantly amazed at how some people are able to get away with hurling snide insults with nothing of substance to back it up and then bellow about their "moral superiority" (or at least the inferiority of others) and still have hordes of people hang on their every word as if they're some kind of sage or prophet.
Any other person displaying this much hackery would be readily dismissed as a frothing-at-the-mouth lunatic in need of psychological training, but unfortunately this statist zealot has somehow fomented a fairly broad and obsequious fanbase (thus making him "popular"), has received just enough accolade in winning a Nobel (thus making him "serious" and "accomplished"), and the NYT and Princeton University give him enough of a bully pulpit to perpetuate that ruse, that he simply can't be ignored. It would be funny if it weren't so sad.
Krugman's understanding of history is "not worth a Continental".
The traditionally accepted period of history known as "The Enlightenment" was 1650 to 1800, during which time silver was the primary currency standard and gold was the secondary standard. There were experiments with unbacked paper money at the time but they all quickly disintegrated.
The Chinese invented paper money a thousand years ago, but never stuck with it for long... generally preferring silver.
Playing political games with the currency is very bad. Short term gain for long term pain sums it up. Particularly noxious is an entrenched leisure class making laws about money to maintain their lifestyles. The ultimate cause of the paper money collapse in Eighteenth century France was the aristocracy living beyond its means. Huge option packages for corporate executives come to mind. Dumping gold reserves to artificially bolster a currency on the exchange markets is a definite possibility under this category.
" Furthermore, Krugman is claiming, apparently, that all systems of thought and all writings and laws produced before the Enlightenment were wrong. Does that include laws against theft and murder? Does that mean Aristotle and Plato were idiots? Who knows. After all, we are not having a "rational discussion," since Krugman now is claiming that any system of thought produced before the Enlightenment automatically is wrong. Somehow, I think that is an irrational way of looking at things."
I read your blog almos every day, as it seems to be the only specifically anti-Krugman blog of any quality around... I appreciate your counter arguments and find you non-partisan and principled views refreshing...
But it is hard at times to go through a post of yours without face-palming to paragraphs like the above... I'm sure you don't believe Krugman is really anti-Arithmetic or something, so what is your point? I know hyperbole, but this is just baffling...
Just leaving my "customer" feedback...
Krugman is claiming that the reason gold should not be money is that it is "pre-Enlightenment," or at least that is one of the reasons that gold should be discredited.
My point is that a lot of things are pre-Enlightenment, including Plato and Aristotle, so if Krugman wants to use that argument against gold, then he has to use it elsewhere.
Notice that Krugman is claiming that fiat money is morally and economically superior to something like gold because "modern" people prefer fiat money. His views have nothing to do with economics; instead, they are part of his overall worldview that he and like-minded people are intellectually and morally superior to everyone else.
I've seen a lot of conflict even in the libertarian community about having a gold standard. Why would a gold standard prove to be more beneficial than fiat currency and isn't it an excuse to rationalize stealing gold and other commodities from the people themselves? Would you also have the market determine what kind of currency should be used or would you force the gold standard on those who do not wish to use it?
I understand inflation transfers wealth, but does't deflation also transfer wealth? From borrowers to lenders? Could deflation depress the 'entrepreneurial spirit?'
"Would you also have the market determine what kind of currency should be used or would you force the gold standard on those who do not wish to use it?"
The former. Hope that answers your other questions as well.
"The former. Hope that answers your other questions as well."
Thanks Bala. That's exactly what I was thinking.
Any thoughts on the "trillion-dollar coin" idea Krugman has come to endorse?
If no legislation existed pertaining to money, no political institution formed to "create" money, gold would become the standard medium of exchange across the world with some silver thrown in for small change.
No coercion or compulsion would be required for this to happen. No one would lose their gold.
The opposite happens when fiat money is legislated into existence. See Nixon Shock.
The market has no compulsion or coercion. You can use fish to trade if you wish! But you can't make someone else take your fish!
Does anyone know what type of economics Jack Lew believes in?
Hey maybe those space aliens that Krugman wanted us to spend and mobilize against will come down and buy all his trillon dollar coins. Problem solved
I'm sure that Jack Lew will be yet another yes man for Obama. These people really believe that we can pull rabbits out of the hat forever.
Krugman is wrong to say that it is not an "inflationary exercise in printing money" as the assets sold by the Fed in his explanation would no longer be performing the role of retiring base money.
woops wrong post . That was for the Jan 11 post
(1) "Let's face it. That is exactly what inflation does: it transfers wealth. "
And deflation must also transfer wealth, being a form of robbery of debtors, but Austrians like Rothbard see nothing wrong with perpetual deflation (supposedly the "natural state of economy"). Moreover, debt deflation wrecks economies.
That is the ridiculous contradiction that Austrians like you have never explained. You scream about inflation allegedly causing theft, but theft by deflation is just great.
(2) You cite Menger. In fact, Menger's views on money's origins changed. Even by 1892 he was willing you concede this:
“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2, p. 250).
By 1909, he goes even further:
"Like other social institutions, the institution of intermediaries of exchange, which serves the common good in the fullest sense of the term, may, as I shall explain later, emerge or be promoted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation."
Menger, C. 2002 . “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems. Edward Elgar, Cheltenham, UK. p. .
Bu naturally you're too ignorant to mention this.
The fact that deflation increases the burden on the debtor is not inherant in deflation, it is feature of the way the loan contract is written.
A measure of deflation can form part of a debt and loan contract. Danish motgages have a feature that works a bit like that. As would a fully idexed linked, plus and minus, savings product.
"And deflation must also transfer wealth, being a form of robbery of debtors,"
This is the most mind-blowingly idiotic statement that could ever be made. The simple difference between inflation of a fiat currency and deflation in a free-market in money is that the former is caused by particular human agents with the intent of enriching themselves by using the monopoly given by the State while the latter is a normal market phenomenon where no particular people are benefiting while being protected from competition by a gang of thugs. And then, the Genius makes this statement ....
"Moreover, debt deflation wrecks economies."
It takes a phenomenal idiot to miss the simple point that debt deflation is a problem that occurs in an economy where huge amount of debt has been piled on through credit expansion backed by monetary inflation where the credit expansion would never have happened had the prior inflation not happened. Even in the case of debt deflation, therefore, it is the inflation that is to blame and not the deflation.
That, to anyone with anything more than a pea-sized brain, should be enough to understand why this...
"but Austrians like Rothbard see nothing wrong with perpetual deflation (supposedly the "natural state of economy")"
is quite reasonable.
LK, you really should quit making economic arguments and should stick to economic chronicling.
Krugman " Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes" End quote
the use of money in an exchange is deferred barter , there must then be a product to complete the exchange.
"but Austrians like Rothbard see nothing wrong with perpetual deflation (supposedly the "natural state of economy""
Yes, a continual increase in purchasing power, OH THE HUMANITY!
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