In a dark hour of Mises’s life, there was a glimmer of light: an invitation from New York University to speak about the contributions he had made to economic thought. The address was given in 1940, nine years before Human Action appeared on the scene. Here he speaks of his earlier work on money, method, socialism, fascism, and the business cycle. He also discusses how much he owes to the American tradition of economic thought. The essay appears online for the first time on Mises.org. FULL ARTICLE
Source link: http://blog.mises.org/4230/my-contributions-to-economic-theory/
My Contributions to Economic Theory
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“Because everybody wishes to have a certain amount of cash, sometimes more, sometimes less, there is a demand for money.”
When Mises wrote this, 90% of all transactions were cash, credit cards had not been invented, and the only consumer loans were mortgages.
These days 90% of all transactions are electronic and most of us can create new money out of nothing by the use of plastic. We are living in a different world with different rules.
“. . .These days 90% of all transactions are electronic and most of us can create new money out of nothing by the use of plastic. We are living in a different world with different rules.”
Very true though I’d like the source for the percentage figure.
The first PERSONAL rule for returning to a sane money system should be to destroy all credit cards and pay the balances ASAP.
Hmmmm. Can a truly convicted Austrian pay with plastic?
“The first PERSONAL rule for returning to a sane money system should be to destroy all credit cards and pay the balances ASAP”
That’s a bit drastic. There is time advantage to be gained by sliding a credit card at a gas station. Carrying a sack of gold coins seems abit absurd.
Why not just have cash embedded with gold dust?
Why not have credit card purchases backed by gold?
A truly convicted Austrian can pay with anything backed by a commodity.
J.D.:
“The first PERSONAL rule for returning to a sane money system should be to destroy all credit cards and pay the balances ASAP.”
I hope the second rule isn’t to sell our houses and pay back our mortgages.
And the third personal rule, i hope, is not to stop using dollars and go back to barter.
The biggest problem with our money is in fact that the FED controls it and the FED has taken it from its commodity basis. Individuals without control of the FED cannot change this.
money is not backed right now by what we consider as hard stuff, so really, the whole system depends on teh whim of the fed, an institution of centralized control
MLS,
“That’s a bit drastic. There is time advantage to be gained by sliding a credit card at a gas station. Carrying a sack of gold coins seems abit absurd.”
Assuming you drive other than an SUV, it would be a very small sack and having once carried enough gold to feel the weight I can tell you it did not feel at all absurd.
“Why not just have cash embedded with gold dust?”
FRN’s? Clear plastic coins with an identifying color streak and specific amounts of gold, likely in grams, would work.
“Why not have credit card purchases backed by gold?”
Seems a contradiction in terms.
“A truly convicted Austrian can pay with anything backed by a commodity.”
You are correct. Are credit cards backed by a commodity?
Paul,
Sorry for the delay. Needing a Postal Money Order to accompany an order to MisesShop (several VHS copies of Money, Banking and the Federal Reserve), I WALKED to the post office and back.
“I hope the second rule isn’t to sell our houses and pay back our mortgages.”
Nope, I deal with mortgages in PERSONAL Rule No. 3. PERSONAL Rule No. 2 is: Eliminate car payments with a sub-rule to drive the car, as infrequently as possible, until it is consumed then replace it with something very economical.
“And the third personal rule, i hope, is not to stop using dollars and go back to barter.”
Nope, Rule No. 3 is Get the Mortgage paid off and think very carefully before making yourself liable for more and larger house payments.
I have more PERSONNAL Rules which I will provide if you contact me via the link below.
“The biggest problem with our money is in fact that the FED controls it and the FED has taken it from its commodity basis. Individuals without control of the FED cannot change this.”
No serious, informed person believes the FED is anything but evil.
However, The biggest problem with money, period, is that it only does what it is supposed to do — free us from if constant barter — if it is not hoarded. If it IS hoarded, and the power it gives leads to hoarding, commerce must slowly grind to a halt if the supply cannot be expanded.
FRN’s and bank digits are easier than digging gold from the ground and it is possible to hoard them because there is always more where they came from.
“Why not have credit card purchases backed by gold?”
THAT is the future of money and the ultimate privatization:http://www.cipe.org/publications/fs/ert/e32/e32_02.htm. And as the fraud of government fiat currencies comes undone, as it must, the future will be at hand.
I don’t see any problem with having every credit(card) transaction backed by a 100% gold, this way we have the convenience of a creditcard and the financial security of a 100% gold standard. It would definitely be, as David White noted, the way of the future.
Where would the credit card backing gold be?
Prior to a couple of questionably motivated Executive orders in 1933, US citizens didn’t see any problem with keeping gold in safe deposit boxes or their pockets.
Hi J.D.:
I like your personal rules, but following them solves perhaps some personal finance issues, and our lazy sedentary lifestyle, but doesn’t address our currency problems.
If the biggest problem with money was that it only does what it is supposed to do — free us from constant barter, then i would argue there is hardly a problem with money at all. (If only the biggest problem with me was that i only do what i’m supposed to do.)
The problem with our money is that someone keeps buying bonds on the open market with money that until then didn’t even exist, compounded by someone else’s further lending out more money that until they lent it out, also didn’t exist.
I also disagree with you that hoarding is an issue. The person using the term hoarding means that he thinks that some other individual’s level of cash holdings is at too high of a level. However, the correct level of anyone’s cash holding is a purely subjective question and so there is no such thing as a too high level of cash holding. Therefore hoarding is a term for an imaginary and unrealized situation.
If people’s propensity to hold cash (hoard) increased, it would have the same effect as a reduction in the supply of money which would be to increase its purchasing power and hence result in a general decrease in prices. There is no Austrian argument that this would grind commerce to a halt, it just means the dollar values of exchange would be reduced. This is no issue at all.
In fact, practically the entire justification for the FED’s existence is based in one way or another on the supposed problem of a money supply that does not keep up (increase) with production or on some hoarding or “detrimental deflation” argument. Neither are valid.
I’m with you all that it would be best to be on a gold standard. But i’m curious, has anyone yet answered Rothbard’s contention that the only way back to gold is for the government to put the dollar back onto a real gold basis? I don’t think anyone has, and until this is done, i will remain highly dubious of the merit of discussions of gold based plastic, paper, or real gold coins as a form of money (that’s currency, common media of exchange) in any near or distant future.
Paul,
Who knows exactly how it will play out. But as the collapse of government fiat currencies is inevitable (economic reality can only be postponed for so long, after all), it won’t be a matter of ours or any other government going back to the gold standard. Rather, it will be a matter of governments giving up central banking once and for all, as society returns to free banking, only with the sophistication that the Internet, Smartcards, encryption, etc., will provide.
In the end, the state will be defeated by these and other technological advances over which it will ultimately have no control.
Hi David:
If you were correct, it would be quite alright with me. But currencies have collapsed before and what you are predicting did not take place. Germany has been on two fiat paper currencies since the total collapse of the Mark in the 1920′s, and very few do business over there in terms of commodity weights or measures.
What i’m driving at is that Rothbard gave what i consider to be a pretty sound argument of why what you are claiming is not possible. That doesn’t mean he’s right, of course. It just means i don’t think your conclusion has been supported so far, by reference to economic theory, such as for instance, the regression theorem.
As far as i know, there has not been a paper published on mises.org, or otherwise that thoroughly (not half-heartedly) refutes Rothbard’s refutation of your and many other’s contention that the market can eventually out-compete the government controlled dollar.
I would sincerely love to see such a discussion, but i am presently more than ever convinced that Rothbard is correct and that no such argument can correctly be made.
Paul,
You are right, of course, about the past. As for Rothbard, he concluded “The Case for a Genuine Gold Dollar” — http://mises.org/rothbard/genuine.asp — as follows:
“At any rate, whichever of the last two paths [back to the gold standard] is chosen, money and banking would at last be separated from the state, and new currencies, whether ‘Hayeks’ or ‘ducats,’ would be free to compete on the market with the gold dollar. I would not advise anyone, however, to bet their life savings on any of these proposed new currencies getting anywhere in this competitive race.”
Yes, Gresham’s Law has prevailed up to now, but as now is a time of galloping advances in communication and related technologies, that stands to change. Indeed, as the American welfare-warfare state reaches the limits to which its monopoly money can support it — i.e., as “Western liberal democracy” is exposed as a sham — the issue of money and the state can be raised as never before. And were this collapse to initiate a devolution of power back to the individual states (as I fervently hope it will), Gresham’s Law could well meet its end in private, gold-backed digital currencies, such that good money would drive out bad once and for all — and put the state on the run in the process.
First, Off hand I don’t know the source of information that 90% of financial exchanges are electronic, 8% are private paper such as checks, and 2% cash money but it is true in my household.
In the bad old days it felt good to get a paycheck in cash hand have a fat wallet for one day but I havn’t received a pay check for 20 years because of direct electronic deposite. These days, only children, narctics distributers, and the Mafia (and politial bribers) have an extensive use of cash.
Second, people have forgotten that cash money was invented as a convenience. It was not commanded by God. Cash money is no longer convenient except to buy a newspaper or a cheap meal.
Third, the govt manipulation of our money mostly effects people living in the USofA. The International situation is controlled by the commodities markets including the currency exchanges.
A story in the latest “Time” magazine wonders if “group think” more accurately evaluates trends than technical analsyis.
The only reasons that credit cards are as convenient as they are are that: the transaction costs are externalised (merchants are forbidden to load them onto credit card users’ prices, so cash payers bear them too); and the benefits of anonymity will still apply to credit cards for so long as using anonymous cash remains realistic (but you wait to see what other burdens will get piled onto them once they really don’t have an opt out method).
Even now, with credit cards being given the benefits of anonymity, they still wouldn’t be worth it for a lot of transactions that could be done cheaper by cash or cheque if only credit cards had user pays for transaction costs.
Paper transfer is much more expensive than electronic transfer. The bank’s savings on the lack of float probably is more than the cost of the computers.
In Washington State ARCO charges an extra 40 or 50 cents to credit card users.
Here in Australia the law was recently changed to allow charges to be passed to credit card users rather than spread, but there hasn’t been much uptake yet.
But the issue that electronic transactions are cheaper than handling cash is rather missing the point. It’s only cheaper in general for the banks. Unless there are distortions, it would make much more sense for a great many transactions to bypass banks entirely – as they did in the days of cash wages. But the banks have gone rent seeking and influenced regulations and practices so that people more or less have to go via banks to access their own money.
Here in Australia employers find it hard to comply with tax and wage laws unless they computerise, which gives them an incentive to keep their transactions electronic all through since they have sunk cost thrust upon all of them (even small businesses with cash takings with much less natural demand for it), and social security is required to be paid via banks. That means that both the employed and the unemployed are forced into the banking system, and the banks do not compete on this point.
Result: bait and switch, with the banks telling you you have a choice between cheaper electronic transactions and more expensive paper ones, leaving out the fact that they are deliberately downsizing clerical staff (which contributes to paper transactions’ costs), and they don’t let you see that there used to be that third alternative of not going near a bank at all for everyday purposes. It’s not your cost when you avoid banks, it’s theirs – so they have fenced you in to push it all on you.
My point is that private, gold-backed digital currencies and encrypted Smartcards will eventually put an end to banking as we know it, as fiat currencies collapse under their own weightlessness.
Very refreshing to see people waking up to the ideas I invented over a decade ago.
Before I had ever heard of the Austrians who introduced to our “modern” age the theories of sound specie (having themselves gleaned their wisdom from the minds of previous sages), I brought forth in 1994 the world’s very first metal-backed e-currency as a cornerstone of my revolutionary business plan (“revolutionary” being more than just a buzzword for this particular idea).
Banksters shunned me, of course, and I have since come to know poverty and hunger.
Well, at least the small intellects of the fractional reserve clique will be able to pretend that they created investment wisdom out of thin air, as billions upon billions of helicopter-dropped fiat notes get channeled toward paper assets to cover a duplicitous fiscal retreat. Bankrupt the system to save the reputation of the disreputable–that about sums up our present course.
P.M., if you examine the cost to the business operator of:
1: Time for each teller to “make change”
2: Time for the manager(s) to audit the registers
3: Time for the manager to count, assemble, confirm and make the cash deposit(s)
4: Security for cash storage/delivery
5: Time for the managers to respond to cashere’s requests for change through the days
I think you will find that the cost of operating a credit/debit card input terminal and its transaction overhead to be very competitive with cash.
That doesn’t even consider the convenience to the buyer of not having to have cash on them, counting their change, carrying their change, dealing with excess coins, the time it takes to visit the ATM on the way to a store for something important, etc.
Mr. White is correct, except for one factor: government. Government *wants* to track people, and electronic transfers are inherently traceable in order to be confirmed. So even something as simple as “Card 395 was used [here] at 3pm for $45.73″ and “Card 395 was used [here] at 3:45pm for $3.78″ means that the card and therefore the person carrying it is indeed being tracked.
So while there are some conceptual methods for anonymous e-cash, such as having each and every penny signed, even that penny must then be tracked. Otherwise, it could be used in several places constituting fraud, or counterfeiting.
I don’t like to be tracked, I doubt that anyone who would read this weblog would like to be tracked. I don’t see a way away from it without carrying the feduciary medium (FRN or coin) around itself. That said, the “pre-paid Gold Card” is my preferred method for future stuff. Pre-paid so there’s no “expansion of the money supply”, gold so it’s as hard a currency as we can get. No different than a fungable money order.
As the reputations of digital currency firms establish themselves (via independent audits that confirm the gold is being held in 100% reserve), the industry will expand, all the quicker as government fiat currencies collapse under their own weightlessness. Governments will be threatened accordingly, of course, since this will severely limit their ability to fund their welfare programs (no inflation, plus you can’t tax what you can’t find) and ultimately jeopardize their very existence, the only question being when this political armegeddon arrives.
My guess is within the next decade but surely no later than 2025.
In denying the distinction in NATURE between capital and income, Mises goes on to suggest that there is in nature a distinction between producer and consumer goods. There is NO such distinction in nature – as in the case of capital vis a vis income, the distinction between consumer’s and producer’s goods lies entirely in human intentions, which may change before, during, and/or after the production of any particular good.
As Mises suggests, different COMMODITIES obviously DO exist in nature, and like the elements, become even more profuse and differentiated under the hand of man.
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