Contemplating the grotesque potential side effects of bioethanol subsidies in the world’s most developed economies is almost unbearable. While everyone is affected by higher food prices, for some people they mean only giving up a new pair of shoes or a night out. For others, however, the more costly food puts their very subsistence into question. No doubt, the politicians who came up with the idea of subsidizing the diversion of grain to the production of bioethanol did not intend to starve the world’s poorest people; but the fact that the consequences were unintended does not absolve them of responsibility. FULL ARTICLE
Source link: http://blog.mises.org/8150/how-the-worlds-richest-governments-starve-the-worlds-poorest-people/
How the World’s Richest Governments Starve the World’s Poorest People
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Mike Sproul will have you guys chasing your tails if you let him frame the argument in terms of the backing for money. Keep in mind that what backs money is not important. What’s important is whether what backs money will control the quantity of new money issued. If sea shells could do the job, then they would be as good for backing money as is gold. The issue is quantity, not quality of backing.
Mike drags out his stock market analogy again for the hundredth time. But stocks act just like money with regard to quantity issued. If all companies on a stock exchange increase their issue of stocks by 10%, I can guarantee you that the value of all stocks will decline by close to 10%. For proof, look at the analysts who track the volume of new issues and its effects on prices.
Of course, Mike will come back with his standard reply that is GM issues one or ten shares of stock the value of each will be the same as the old stock because they’re backed by assets of the company. But as I have repeatedly written in response, neither will the increase of a dollar or ten dollars in the money supply affect the value of money. Small changes in the volume of anything doesn’t affect its value. But a threshhold exists beyond which an increase in volume will affect the value of stocks and money.
Oh, and Mike will respond to the quantity issue by writing that money is a special kind of asset that is exempt from the rules of quantity that governs every other asset or good. Why money is exempt from the laws of economics he doesn’t say. But if any of you buy that, I have a bridge I’d like to sell you.
I’ve been through this debate with Mike many times. I could script it for you if you like.
I continue to see very shallow and superficial analysis on most issues by analists/collaborators of the Mises Institute. The production of ethanol ex-corn (or other cereals) does have an impact on food prices, but why it is being pursued by most governments is the key factor. No way to find the correct answer without entering a discussion on the agenda of the ruling elite. It is just a small part of a much broader topic.
If you can´t stand the heat, get out of the kitchen
Manuel
Newson:
“disclaimers, caveat emptor etc. by frb banks are no defense, anymore than any other illecit act can be subject to contract law..”
If I carry 1 oz of silver in my pocket, there’s a 99.7% chance that it will be there tomorrow. If I deposit it in a 100% reserve bank, there’s a 99.8% chance it will be there tomorrow. If I deposit it in a fractional reserve bank, there’s a 99.9% chance it will be there tomorrow, and the FRB bank pays interest. There is nothing illicit about FRB banking. Quantity theorists object that FRB banking increases the money supply and thereby causes inflation, thereby defrauding dollar holders. But on real bills principles, the FRB bank’s assets rise in step with its issue of money, while the central bank’s assets and liabilities are unaffected by the private bank’s actions. So there is no inflation and no fraud.
PM Lawrence:
“bait and switch, trying to slip bonds in with the other comparatively safe stuff;”
Money can be backed with anything of value, be it land, bonds, or lottery tickets. The physical form of the asset is irrelevant. Value alone matters.
“The Real Bills Doctrine only accepts backing by a certain sort – Real Bills.”
Whether a bill is real or not is irrelevant. A carpenter’s IOU can back money just as well as a gambler’s IOU. The notion that money should be backed only with carpenters’ IOU’s is a corruption of the doctrine. I can find many critics of the real bills doctrine who held that view. I find hardly any prominent real bills adherents who ever held that view.
” Indeed, it would be able to switch from bullion to fiat and make a gain, exporting inflation by selling off its bullion.”
Suppose a government has one asset: 100 oz of silver, and one liability: 100 paper dollars. Its net worth is then zero. If the government sells 100 oz for a building worth 100 oz, then the paper dollars that used to be backed by bullion are now backed by the building, and the dollar holds its value. If that building gives the government the ability to collect taxes, so that $50 of taxes receivable appears on the asset side of the balance sheet, then the government’s net worth rises to $50. The government could then print another $50, and spend it digging a hole and filling it in. Now net worth is zero, but the government has a 100 oz building, plus $50 taxes receivable, as backing for $150, so there is still no inflation. Once net worth has been burned up, any additional money spent on holes would now be inflationary.
“Some of the underlying assets don’t turn up to retire the bills, and the issuers are tempted to understate the risk and not factor in a risk premium.”
That’s ordinary market risk, and it no more justifies regulations on banking than stock market risk justifies regulations on the stock market.
Mike Sproul, you cannot argue that something else is “better” than the original as an argument that it is the original. It wouldn’t work even if the something else really was better. What real bills are is a matter of definition, and so on. As I said, you are trying to steal the language; it looks like an attempt at a bait and switch.
PM Lawrence:
So change the name of my theory of money from ‘real bills doctrine’ to ‘backing theory’. According to said theory, there is no such thing as fiat money.
mike sproul says:
“If I carry 1 oz of silver in my pocket, there’s a 99.7% chance that it will be there tomorrow. If I deposit it in a 100% reserve bank, there’s a 99.8% chance it will be there tomorrow. If I deposit it in a fractional reserve bank, there’s a 99.9% chance it will be there tomorrow, and the FRB bank pays interest. There is nothing illicit about FRB banking. Quantity theorists object that FRB banking increases the money supply and thereby causes inflation, thereby defrauding dollar holders.”
all three scenarios involve theft or fraud. the first two involve abuses of perfectly feasible and legitimate savings methods – holding of specie, and deposits that at all times are covered for potential withdrawal. frb means that inevitably someone will lose money if/when a sufficient number of withdrawals occurs.
mike sproul:
“So change the name of my theory of money from ‘real bills doctrine’ to ‘backing theory’. According to said theory, there is no such thing as fiat money.”
like pm lawrence, i believe you are confusing “fiat” with unbacked. if there were no legal tender laws, the usd would cease to be a fiat currency.
Hey, Newson, I am not making that confusion. In fact, I gave a link to the wikipedia article on fiat currency, which describes how a fiat currency is backed. (The key feature is that its backing is dependent on sustained and suitable government action.)
Mike Sproul, I already covered what the difference is when a currency is only backed by government actions. For a wise, strong government, the result is much the same as a bullion currency or similar that forces a weak and/or foolish government to stay on the straight and narrow. The difference only manifests itself in the hands of a weak and/or foolish government that succumbs to temptation and lets the currency degrade. If you think that can never or will never happen, come right out and say so. Don’t look now, but there are even some people around who think it has been happening to the US$ all along and has got worse recently.
to pm lawrence:
re-reading my sentence, i see it can be taken in that way. it would have been better thus:
“i, like pm lawrence, believe you are confusing “fiat” with unbacked.”
of course you’re right, fiat is completely unambiguous in meaning.
Actually, I would not say that the pushers of government intervention in biofuels do not intend to starve countless people. They have killed so many already that they probably would not shrink away from killing more innocents because of their idiocy. We already know how environmentalists feel about human life; take Ted Turner’s comments on how he wants to curb the population to 5% of its current status. And, while they receive their jollies through famine, they also get a chance to expand empire by taking advantage of the misery of others by using that as an excuse for interventions in other countries for the benefit of political cronies and more burdens on the domestic population. They would most likely jump at the chance at causing death if it gets them what they want.
Newson:
“you are confusing “fiat” with unbacked. if there were no legal tender laws, the usd would cease to be a fiat currency.”
A declaration of legal tender is ineffective without force or other resources to back it up. The US dollar has value because the fed holds bonds and gold as backing for the dollar, and the fed stands ready to use those bonds (and, potentially, the gold) to buy back its dollars. Acceptability for taxes can also give a currency value, but in the case of the dollar that would be a needless duplication of the backing already provided by the fed.
Textbook monetary theory says that the dollar has value not because of backing, not because of legal tender, not because of taxes, but only because the fed limits the supply of money, and people demand that money for liquidity purposes. The RBD is at odds with this theory, and it sounds like your tax acceptability theory is too.
The thing I don’t get is: Why don’t you and PM Lawrence see the equivalence of backing a currency with gold, bonds, or ‘taxes receivable’. In all cases, the money is backed by something of value, and in all cases, the value of the money is equal to the value of its backing, so that if backing rises in step with the money issued, there will be no inflation even though the money supply has increased.
The thing you don’t get, Mike Sproul, is what we’ve spelled out that makes it different. Look at my last two posts, and you will see – or would, if you didn’t have a blind spot – that the crucial difference lies in whether the backing is independent of governments doing the right thing. Quite simply, nothing keeps a fiat currency honest because nothing keeps its issuer honest.
You’re doing the “beautiful plumage” thing with your own personal dead parrot. You don’t see that your construct has nothing holding it together at the “if” in “…if backing rises in step with the money issued, there will be no inflation even though the money supply has increased”, and you also don’t see that we weren’t complaining about inflation as such but about wealth transfers (to the issuers and those close to them – theft, unless they are consented to). Even if backing increased and inflation was held off by it, that would still be a bad thing because that means further taxes are transferred to the government. So, regardless of inflation, when a government issues more fiat currency it gets a wealth transfer; providing more backing to match doesn’t change that, it only changes who pays and how.
mike sproul says:
“The thing I don’t get is: Why don’t you and PM Lawrence see the equivalence of backing a currency with gold, bonds, or ‘taxes receivable.”
for my part, the important quality about gold is its essentially stable stock. this more or less fixed quantity allows less distortion in comparing different products and services, and also decisions across differing time periods, too.
all other backing can be increased at the stroke of a pen.
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