Bloomberg runs a long and interesting report this morning on the disarray that Chicago school economists find themselves in as a result of the current financial crisis.
The article explains that “For half a century, Chicago’s hands-off principles have permeated financial thinking and shaped global markets.” But today, “once ascendant free-market acolytes are finding themselves in an unusual role: They’re battling a wave of government intervention more sweeping than any since the Great Depression as the U.S. struggles with the worst recession in seven decades.” So much so that many Chicagoites are now rediscovering the virtues of government regulation and bailouts and are parting with their “free-market” colleagues. Or is this really what’s going on?
The piece begins with the story of economics professor John Cochrane, who was so infuriated by Henry Paulson’s first $700-billion bailout proposal in September that he launched a petition attacking it that eventually collected the signatures of 230 economists from across the U.S.
Cochrane explains that “a rash of bailouts will expand government and kill entrepreneurship.” True enough. But that’s the “fiscal stimulus” aspect of all the government intervention that has been taking place for the past couple of months. What about the “monetary stimulus” side of it? That’s where the free-market principles go out the window in typical Chicago fashion:
Cochrane says he was encouraged by the Fed’s Dec. 16 rate cut and its plan to buy mortgage-backed securities, saying these moves will help unfreeze capital markets.
“This is exactly the right thing for a central bank to be doing in the midst of a credit crunch,” he says.
So, from the perspective of what we could call the “right wing” of the Chicago school, it’s bad economics when the executive and legislative branches of the governement throw money at failing sectors. But when it’s bureaucrats from a governement monetary planning agency who do it with counterfeit money, no problem, that’s the right free-market thing to do!
This stance is not very surprising of course, considering that Milton Friedman supported government control over money (albeit under the helm of the Treasury instead of the Fed, which he wanted abolished) and inflationary policies (he wanted a stable and modest increase of fiat money in normal times, and big increases during periods of crisis).
That’s still too much free market for some Chicagoites who now find themselves on the “left wing” of the school. Robert Lucas, who
won a Nobel in 1995 for a theory that argued against governments trying to fine-tune consumer demand, says deregulation may have gone too far.
Depression-era laws that separated commercial and investment banks helped depositors decide if they wanted secure accounts or riskier investments. Today, without these distinctions, people can’t be sure if their investments, or those of their customers, are safe.
“I’m changing my views on bank regulation every week,” Lucas, 71, says. “It was an area I saw as under control. Now I don’t believe that.”
Let’s ignore the fact that a 71-year-old economist who won the Nobel Prize can still change his views every week on bank regulation. One would think he would have found a stable theoretical framework to think this through by this time―monetarism has obviously not been very helpful. Note instead the interesting reason he gives for his new scepticism: when they put their money in a bank, depositors cannot know if their money is in a secure account or in a risky investment.
Isn’t this one of the fundamental problems with the current banking system, that is, fractional reserves? You think your money is there and you can retrieve it at any time, but the bank only keeps a fraction of it in its vaults and has lent most of it to someone else. Austrians and others before them have been saying for centuries that this was a sort of fraud that led to unsustainable leveraging and to booms and busts. Mr. Lucas is right to see that there is something wrong here. He just hasn’t found a good explanation of why and what should be done about it, and so he adopts the default position of confused free-marketeers, which is that more regulation must be the answer.
The article tells us about another left-wing Chicagoite, Douglas Diamond, who refused to sign the petition against Paulson’s bailout because he believes governments have no choice but to provide safety nets for banks and tougher oversight. Again, the explanation given by the finance professor for parting with his colleagues is quite interesting:
Diamond began studying bank failures when he was a doctoral student at Yale in the 1970s. The 1963 book that Friedman wrote with Anna Schwartz, “A Monetary History of the United States, 1867- 1960,” provided the foundation. A copy, held together by Scotch tape, sits on Diamond’s desk, even though he concluded at Yale that a main premise was wrong.
Diamond rejects Friedman’s view that banks failed in the 1930s because the U.S. money supply contracted as panicky Americans started hoarding cash and the Fed reacted too slowly. Diamond sees the money supply as less significant than Friedman did.
Banks failed, he says, because their assets weren’t readily converted into the cash that depositors were demanding.
Is it just me or do I see a pattern here? There is no explicit mention of it, but just like Mr. Lucas, Mr. Diamond seems to have realized that the fractional reserve system (that’s what the last sentence is referring to) is a crucial part of the problem. His solution however (if his views are correctly reported in the article) is to have governments impose even more regulation on the banking system and to intervene to save it when it is on the verge of collapse. When it’s precisely because governments control the monetary system, condone banking fraud and constantly save banks from the consequences of their fraudulent practices that we have this problem.
Chicago school economics is in such a mess that it’s hard to decide who we, as Austrians, should sympathize with: the inflationists who are still claiming to defend free-market principles, or those going over all the way to the interventionist side but who may be doing it on the basis of a legitimate preoccupation with the fractional reserve system.
One can’t help but agree with arch-Keynesian James Galbraith, who is quoted in this article as saying that “The inability of Friedman’s successors to say anything useful about what’s happening in financial markets today means their influence is finished.”
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fundamentalist:
In your response to David (above) you err somewhat in your defintion (presented as the “Austrian” view or definition of “capital.”
You state that inventories of produced goods are not capital. And, further, you state (separately) that money is not capital.
Neither is a true statement of the Austrian view (as expounded by Mises). At best, both are partially-true statements requiring further elaboration for understanding. I present the correct view following for however it may clarify your thinking or use in discussion.
The term “capital” denotes that which is intended for use in a process resulting in the production of a good (or service). Inventories of finished goods are, in this sense, not capital, as you have noted. But the same stocks of finished goods earmarked for consumption through some period during which their consumption aids a productive process–is capital. Money in one’s pocket or even in one’s personal bank account is not capital. But the same amount of money in the account of a firm engaged in production (whether of goods or services) is, indeed capital; and that money is capital whether it is owned outright by its possessor or is, in fact, wholly borrowed (and, following such intended use, both borrower and lender are “capitalists,” as it is the clear intention of each that the sum in question be used in a specific productive process. Thus, also, a printing press at its manufacturer’s plant is not capital to that firm but will be to the publishing house to whom it is delivered.
The function of capital is to enhance production, either by producing more or better goods in the same span of time, or the same amount of at least the same quality of goods in a shorter period. They (capital goods, including money intended for such use0 are always means intended to increase the productivity of labor. Whatever may be the productive goal, it becomes nearer through the employment of capital (though, whether investment will “pay” or not must be determined by entrepreneurial analysis of the individual case).
This discussion thread has wandered substantially from its original focus on the “Chicago School” and in what consists the principal difference between that school and our own, the Austrian, which developed in almost straight-line fashion from Menger, through Bohm-Bawerk, to Mises.
In my own view, the essential difference between the two lies not so much in differences in their respective economic theories but, rather, in their fundamentally divergent views on the subject of human liberty (and the theoretical differences are ultimately traceable to this divergence).
Both men promoted the ideal of free markets and that authoritarian interference in market freedom was economically unsound and ultimately destructive, not only of prosperity but of freedom itself. The “schools” of each attracted adherents interested as much in the ideas of greater freedom as in anything specifically related to economic
science..
I read Mises’ HUMAN ACTION first–in 1972; it was my introduction to economics of any kind. Because it took years (and many re-readings) to internalize, I read little else. This is by way of explaining that I’ve never read anything by Friedman and so cannot critique any of whatever may have been his arguments on various economic subtopics. Regardless, I feel fully qualified to reject a main thrust of Friedman and the Chicago School: their claim to champion freedom.
At its core, the difference is that Mises (and those of the Austrian School) go “all the way” in extending economic liberty to everyone; we wish there to be no “control” of economic affairs by coercive authority and insist, on the basis of theoretical understanding, that nearly all such instances lead inexorably to failure of the control;;;and worse.
I characterize the Chicago School as subscribing to a view in which is promoted a widespread relinquishment of most of all the more obvious forms of coercive control as long as ONE “master control” is maintained–the quantity of money—and that such control be in the hands of either Friedman or one of his Chicago School acolytes. I’d call it “an iron grip in a velvet glove.” Like other methods in the toolkits of social engineers and regardless of whether it’s effective for some particular period, it’s still a step (and a major one) along the “road to serfdom.” And I simply cannot buy that a smart guy like Friedman didn’t understand that all just every bit as well as you and I.
to brian macker:
thanks for the comments on capital.
as for your other comments: first, i don’t purport to stand for anyone’s views but my own, so i’m not going to be drawn into why some people may hate libertarian ideas. second: “responsibilitarianism” requires that “we” define rules that separate moderate (harmless) from immoderate (socially destructive) indulgence in vices like gambling and drugs. but how do “we” establish these limits? a non-drinker can become obnoxious after one beer, an alcoholic may be perfectly harmless (in a social sense) after a dozen beers. arbitrary limits don’t work, and are going to push some into the black markets that “our” rules would create.
third, your credo seems to imply that not performing acts of human kindness should be criminalized. so the good samaritan wouldn’t really be good, he’d be fearful of sanction. i really don’t think there needs to be law protecting babies drowning in buckets (the rescue would be costless, anyway. where are the parents?). if i follow your line of thinking, what about prosecuting me if a don’t jump in the surf (putting myself at risk) to rescue a perfect stranger? should i be forced to house the homeless?
if property rights are not black and white, everything collapses back into a game of proving who’s in greater need. it’s a slippery slope.
finally, your mean-bugger with the private wharf would be probably guilty of breach of contract (implicit in the invitation to swim off the wharf is the expectation that a safe exit will be provided, otherwise it’s wilful entrapment).
apologies to gene berman for the tangent.
“third, your credo seems to imply that not performing acts of human kindness should be criminalized.”
Nonsense.
“the rescue would be costless, anyway. where are the parents?”
Yes, the rescue would be costless. What’s your point? Perhaps the parents just died in a car accident, what’s that matter?
“if i follow your line of thinking, what about prosecuting me if a don’t jump in the surf (putting myself at risk) to rescue a perfect stranger?”
I already indicated that one criteria is that the act not endanger the rescuer. It’s one thing not to jump in the surf and quite another think to walk away without summoning help.
“should i be forced to house the homeless?”
Of course not. It doesn’t meet the criteria. There is no immanent danger, it is clear that that the homeless have no intention of repaying anyone. Remember there is a requirement for repayment. They would soon be in jail for not repaying the last guy who had to take them in on a freezing night.
“if property rights are not black and white, everything collapses back into a game of proving who’s in greater need. it’s a slippery slope.”
Slippery slope is a fallacious way to argue. You think people are going to start getting themselves lost in order to starve just so they can break into your cabin, and then be forced to repay you? Are you aware that mountain climbers already are forced to pay for helicopter rescues that are provided for them. I don’t see them purposely putting themselves into emergency situations just to get free helicopter rides.
“implicit in the invitation to swim off the wharf is the expectation that a safe exit will be provided, otherwise it’s wilful entrapment”
Well the same argument could be used against absolute property rights, using the slippery slope principle. Wouldn’t it also be willful entrapment to start selling water to someone and then cut it off when they are in most need of it.
The first example of the nasty wharf owner was not a matter of entrapment. He was just mean.
Besides much of this was already settled in common law and there was an established right to break into a cabin to save ones life. So property rights aren’t absolute to begin with by the cherish libertarian common law.
I stand by my understanding of real bills doctrine. It’s about printing up fresh cash to divert capital from the true owners into their own schemes. It imagines that this printing of new money will somehow lead to prosperity, which is wrong. It will lead to the business cycle.
I don’t see why having bad assumptions saves them from my accusation. If you are stupid enough to assume from the start that printing new money will lead to prosperity then it doesn’t matter how self consistent the rest of your theory is. Your theory is still based on the idea that printing new money makes people richer.
Gene,
You state that:
I think this is mostly correct but is too restrictive.
In my example of the fisherman saving up fish. Well he could have used the saved fish to feed himself while producing some other goods which in no way were intended to increase productivity.
For example, he may have used the fish to feed himself while collecting materials and building a beautiful present for his wife. The fish is still a capital good in this case. While the present would be a consumptive good. There is nothing that increases productivity in this case, unlike my example of building a net.
He’s converted his capital, the fish, into a consumptive good, the present. Without the saving of the fish he could not have produced the present. Just like he could not have produced the net without the savings.
Newson,
… and remember that if welfare recipients were required to repay they would soon be kicked off the dole when it became clear they couldn’t. They would then have to rely on charity. Which is NOT covered by the criteria I had in mind.
You seem to be ignoring the very clear criteria that I had expressed. There are further criteria I hadn’t but they are not needed to dispose of your objections.
Macker – if I get the gist of what poor ol’ Mike Sproul has been talking about the RBD (and probably don’t) – but I believe he was trying to assert that the RBD tries to go towards making ‘true’ money. ‘True’ money is what I would define as where money is merely a measure/store of values allowing people to be able to create, rate and trade good & services over time. But you & friends would point out that a hollow credit system can’t last because there those who instead would deliberately create more money without any correlation to the good & services causing them to get immediate purchasing power and others pick up the cost and generally destroy the ability to rate the value of goods & services to each other.
The inevitable answer has been gold weights. Since you can’t trust people who will inflate their way to unearned you pick a substance which happens to roughly match the quantity of the good & services yet cannot be created out of thin air. Alchemists represent the desire to (hyper)inflate and seize wealth without earning however we can gloat that no one can magically mine enough gold to serious inflate the exist gold stock. Simple, no?
to brian macker:
the slippery slope in “responibilitarianism” is the necessity for the state to lay down and enforce these measures (be it gambling, drugs, turning one’s back on preventable emergencies where there exists no nexus between the parties).
i don’t think starving-hiker is within his rights to break into an occupied hut, though it’s perfectly understandable he may do so. he would make the decision that a charge of trespass and theft under threat of violence was a lesser of two evils to starvation. but the cabin owner may not be wrong in shooting to repel the invasion, these details would weigh in the sentencing part of the trial. maybe the hut-owner was a frail, scared type who’d been assaulted before and the hiker a robust sort. who knows?
sorry, i read the wharf/drowning guy example wrong, and there’s no entrapment. the drowning guy would be guilty of trespass, but that doesn’t justify curmudgeon having him drown (i mentioned that there exists in most legal codes the requirement that reaction not be disproportionate to the offense.) wharf owner probably would go down on a manslaughter charge.
Brian Macker:
A bit bleary-eyed, eh? You’re just not recognizing what you’ve described as an instance of what we’re talking about.
In putting aside the fish to underpin his need during the production period of the ol’ gal’s present, he’s creating a “capital account.” Without the fish, he can’t produce the present at all or can only produce an alternative or inferior version: the “capital” brings the goal nearer: into the time-span of his ability to survive. Even the profit can be well approximated: it’s the difference in value between the present and whatever would have been the substitute reduced by the difference in price between that of the fish minus that of whatever it were he would have eaten in the interim (or their sum if the fish was in addition to rather than substituted for original diet).. Actually, your example, though not of a “business,” and certainly of a primitive level, contains all the major features of a capitalist venture, including the feature of “risk” (that he might not “get any” anyway).
I think the only reason you didn’t see that staring you in the face is the feature that he was doing it for his own account rather than selling or trading it away. The same sort of capital-aware thinking can be seen, even though on the same primitive level, when one hires someone to mow his lawn so he can do something more valuable (to himself or others) or buys a better lawnmower so that either he or an otherwise unspecialized laborer can do his lawn more efficiently (reduced time-cost) while he goes fishing (for more capital, of course, he tells his wife), so he’s happy and the gardener finishes the lawn even faster than expected (which, curiously enough, makes the gardener and the gal happier than the economically unlearned might otherwise even suspect).
Now, if he’d just had a little lower “time preference,” he could have insured against the perceived risk by taking his wife along fishing. I know that’s a tough row to hoe but he could have offset such disutility by getting the ho to row, catching mo’ to pay for the next mow, and waiting till later to plow the furrow.
And, if you disapprove of all the gardening/farming metaphors, well, what else is a meadowfor?
Gene: “Money in one’s pocket or even in one’s personal bank account is not capital. But the same amount of money in the account of a firm engaged in production (whether of goods or services) is, indeed capital”
It seems to me that your point contradicts what Mises said. Quoted in a Gary North article…
http://www.lewrockwell.com/north/north84.html
…and directly from Part 1, Chapter 5 of Theory of Money and Credit…
http://www.econlib.org/library/Mises/msT2.html#Part I,Ch.5
…Mises says that:
“What prevents us nevertheless from reckoning money among these “distribution goods” and so among production goods (and incidentally the same objection applies to its inclusion among consumption goods) is the following consideration. The loss of a consumption good or production good results in a loss of human satisfaction; it makes mankind poorer. The gain of such a good results in an improvement of the human economic position; it makes mankind richer. The same cannot be said of the loss or gain of money. Both changes in the available quantity of production goods or consumption goods and changes in the available quantity of money involve changes in values; but whereas the changes in the value of the production goods and consumption goods do not mitigate the loss or reduce the gain of satisfaction resulting from the changes in their quantity, the changes in the value of money are accommodated in such a way to the demand for it that, despite increases or decreases in its quantity, the economic position of mankind remains the same. An increase in the quantity of money can no more increase the welfare of the members of a community, than a diminution of it can decrease their welfare. Regarded from this point of view, those goods that are employed as money are indeed what Adam Smith called them, “dead stock, which . . . produces nothing”
So according to Mises, money is not capital, even if it is held by businesses. He created three separate categories for things: consumer goods, capital goods, and money. I’m not sure what the other Austrians had to say on this point though, or indeed what Mises thought in later life.
jp, thanks for the Mises quote. I have bee reading Hayek mostly lately and he makes the same distinction. Money can’t produce any other good, so it’s not capital. But cash can be quickly converted to capital. This is another area in which accounting terminology thwarts efforts at understanding economics.
jp (and fundamentalist):
I’m convinced that Mises is correct in all such matters and, further, that were my own view found to diverge from that taught by Mises, I’d consider myself in error and try to determine the source of that error in order to return to the correct view.
In writing the comment preceding, I attempted to synopsize Mises’ explanatory passages (and to inject a bit of entertainment).
In reconsideration, however, I simply read the chapter (above-cited, from THEORY OF MONEY AND CREDIT); when finished the dozen pages or less and yet still confident that I had “relayed” Mises
thought faithfully and accurately, I could come to only one, inescapable opinion: that jp had not read the chapter. And that is because Mises explains the matter in almost precisely the same way as had I, though starting from a different angle.
Try it. Reading the whole thing, that is.
Well, opinions will always differ.
Walter Bock thinks money is a capital good. See this pdf:
http://mises.org/pdf/asc/2003/asc9barnett.pdf
Money: Capital Good, Consumers’ Good, or (Media of) Exchange Good?
Brian Macker wrote “I stand by my understanding of real bills doctrine. It’s about printing up fresh cash to divert capital from the true owners into their own schemes. It imagines that this printing of new money will somehow lead to prosperity, which is wrong. It will lead to the business cycle.”
That understanding is wrong. It’s not about “printing up fresh cash to divert capital from the true owners into their own schemes”, that’s just how it works out. What it’s about, which is not what happens, is printing up fresh cash to divert otherwise unused resources into productive activity. It wrongly assumes that the resources aren’t otherwise employed.
“I don’t see why having bad assumptions saves them from my accusation. If you are stupid enough to assume from the start that printing new money will lead to prosperity then it doesn’t matter how self consistent the rest of your theory is. Your theory is still based on the idea that printing new money makes people richer.”
That is a 100% correct criticism of many politicians – but an utterly incorrect characterisation of Real Bills Doctrine. Never, not once, do its genuine advocates assume “that printing new money will lead to prosperity”. What they assume, wrongly, is that there are unused resources around and that they can identify productive uses for those. They reason, correctly, that printing new money and using it only on those productive areas on the right time scale would work out. But they are never so idiotic as to think that it’s just the printing new money; they are well aware that just doing that gets you nowhere constructive, they intend to catch what they throw up in the air with those new productive uses. Of course, as soon as it seems to be working, people who don’t understand what they are aiming at come along and just print money for whatever they think is worthy, which confuses observers into thinking that those people are talking Real Bills Doctrine – and it all goes wrong even quicker than the authentic sort.
P. M. Lawrence:
Yes–I think your explanation is as good as I’ve seen and about as concise as possible.
What I’d thought before (the explanations for which are far more involved but come down to nothing more than you’ve said) is that the general credit market as now extant is just the natural development of the desire to reduce the obstacle presented by the interest rate for projects—whether new or merely extensions of existing—whose prospects seem marginal at the prevailing rate. In the examples used by Dr. Fekete, they’re businesses where the product goes through some origin-to-consumer cycle in three months’ time. But, in practice, all the production in the world could get pressed into 3-month categories of origin-to-consumer segments if that was what was necessary to qualify for the funds. That even sounds like what for years was called the “money market” in which somewhat higher rates were paid for funds not specifically collateralized–by firms of all sizes up to the largest. It was a simple fact that such loans were routinely “rolled over” when desired unless some untoward event affected the firms creditworthiness.
And that, it seemed to me, was merely the working out in practice of the RBD.
The RBD folks also make assumptions about the time-tested reliability of such things as the producing firm, the client firm or customers, the constancy of demand for precisely what’s being produced and the prices for which it certainly can all be sold, the continuance of the same competitive arena, etc. which are all at least problematic.
I don’t know whehter I was making valid similes or not–but that’s what went through my mind when I considered the matter.
jp:
Your reply is a cop-out. The question is: just WHOSE opinions differed. Originally, you maintained that mine differed from that of Mises. So, expecting that the reference you cited might, somehow, support your contention (that my understanding of the proper categorization of money differed from that of Mises), I read the very chapter you cited, from which it was apparent that my own interpretation is exactly that of Mises (and further, that any otherwise-understanding had to have been based on reading some short fragment of the cited piece) and so pointed that out to you as an aid to the reformulation of your own thinking.
And now–opinions differ? Whose? Mine and Mises?
Or yours and Mises? You haven’t explained that, either briefly or in detail.
Gil,
“But you & friends would point out that a hollow credit system can’t last because there those who instead would deliberately create more money without any correlation to the good & services causing them to get immediate purchasing power and others pick up the cost and generally destroy the ability to rate the value of goods & services to each other.”
You’re still not getting the point. There can be no correlation to goods and services to money once you start counting goods and services as money. It’s a runaway process, not because we cannot control our greed. It’s runaway because the commodity money to goods ratio, prices, are disturbed by the printing of the banknotes. The process raises the very prices that are suppose to be used to measure when to back off the monetary expansion.
You have to understand that goods don’t have intrinsic prices. Prices are determined by the amount of money in circulation. As you up the amount in circulation the prices increase on the margin, which makes your entire portfolio of backing assets look more valuable, so you print more money.
The overproduction of banknotes isn’t due to “those who instead would deliberately create more money without any correlation to the good & services”. It’s due to the use of prices as the mechanism for determining that correlation. You can’t do that.
The very production of the extra banknotes gives you an additional positive price feedback that, using the rules, allows even more banknotes to be produced.
The RBD doesn’t work regardless of human greed.
Gene,
You are assuming that the present cannot be produced with equal quality and with equal time in a piecemeal fashion. Which isn’t necessarily true.
The total time the present takes to make may be a week. It might be that saving up one days worth of fish on seven separate occasions to work on the present is just as efficient as saving up a weeks worth of fish and working on it all at once.
Doing it either way is no shorter than the other. If it takes four days to save up a days worth of fish then both methods take 7 weeks before the present is delivered.
In both cases the saved fish is capital. I might decide on the second method because I know my wife is going to be visiting her mother that week. My decision may not be based on increased efficiency of production, or shortening of time, but on some other factor.
The fish still counts as capital, even if it doesn’t increase my production or shorten the time before I get the good.
Of course, if someone gives me the weeks worth of fish that will shorten my production time, since I will not have to save, but the same could be said if they gave me the present directly. It doesn’t really shorten production time.
Of course, no one saves up to produce something in a way that takes longer. I was just pointing out that the equation isn’t strictly (x
So they are not trying to prosper by “divert[ing] otherwise unused resources into productive activity?” What are they trying to do? Make things worse?
Brian Macker again quotes me ‘Never, not once, do its genuine advocates assume “that printing new money will lead to prosperity” and misses the point, ‘So they are not trying to prosper by “divert[ing] otherwise unused resources into productive activity?” What are they trying to do? Make things worse?’
Watch closely. If someone takes a gold coin and goes out and buys a pig in a poke, he might – just might – get a pig. He is more likely to get dudded. But if he takes a gold coin and goes out and buys a coat with it, he ends up with something for it.
In the same way, the Real Bills advocates do not think that those two activities I described are the same thing. Both involve printing money, yes, just as both the gold coin purchases involved parting with a gold coin. But in each pair of examples, the former activity doesn’t give the buyer anything but the latter does. It’s not just where the money comes from that’s significant, it’s also what’s done with it. The advocates’ error is in thinking that they can actually hit what they are aiming at, Brian Macker’s error is in thinking that because they can’t, they aren’t aiming – that all printing money is the same in principle, because it practically always leads to similar poor outcomes. So he is throwing away his chance to know the enemy, which means that if it ever comes along in a new form he might not recognise it until too late.
I think PML and I are on the same page Macker. By your line of thinking if gold coins were the money in a idyllic village then gold mining and outsiders bringing in gold would both be forbidden because they’re essentially inflating the money supply. Theoretically, the gold miner is inflating since he would only mine gold if he ended up with more purchasing power than what he expended to mine it which ultimately is his profit. However if outsiders bring goods & services equal to the gold coins they bring with them then prices should stay the same as the ratio of ‘gold chasing goods & services’ would be roughly the same.
However, the alchemists who sought to turn worthless materials into gold were chasing the allure of DIY buying power with no goods or services to back it up thereby setting the stage for hyperinflation. The fact gold atoms can’t be profitably tranmuted show that a gold weights economy could not suffer from hyperinflation (except through blatant theft or cheap space mining).
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