Comments (12)

• Bruce Koerber

  Did the Greeks have a word for counterfeiting?

  What would be the closest phrase describing ego-driven interventionism?

  Published: September 11, 2008 9:40 PM

• Ricardo Flores

  Here is one more article that mentions Thorton:

  http://news.goldseek.com/RickAckerman/1221137082.php

  Published: September 11, 2008 10:36 PM

• Peter

  I guess variations on κιβδηλεὑω (kibdêleuô) for counterfeit, as a verb.

  Published: September 11, 2008 10:59 PM

• Peter

  Bah. Make that κιβδηλεύω, of course (keyboarding problem...)

  Published: September 12, 2008 1:53 AM

• Dick Fox

  This is one of the worst articles I have read.

  You want a pet peeve; I'll give you a pet peeve. I hate it when people misuse the terms inflation and deflation. Even Mises stopped using the terms because they had been so distorted from their real meaning. Today you can't even talk about them because no one actually knows what they are. If the price of vegetables goes up in winter and down in summer people say they have inflation in winter and deflation in the summer. That is absurd.

  1955 was not a year of deflation so it was certainly not the last time our economy endured 365 dayes of deflation. The value of money did not change in 1955, supply increased and productivity increased.

  Contrary to popular belief the Great Depression was not a period of deflation but a period of total monetary and market disorientation. How can you have deflation when the money has virtually no meaning, gold flows are sterilized in the 1920s and paper currency is issued to satisfy demand, then in the 1930s gold is confiscated and prevented from even being used as a base for money in a contract?

  Anyone who understands Mises knows that inflation is a depreciation of money and deflation is an appreciation of money. Neither of these conditions is healthy for the economy; they always favor one economic player over another.

  It may come as a surprise to you but you can have inflation during a period when prices are increasing and you can have deflation during a period when prices are increasing. The last serious deflation we had was during the mid-1990s forcing oil prices down to or below procuction costs.

  There are those who claim that there have been fewer fluctuations in the economy since the FED was brought to life but that is because they place their faith in broad averages and aggregates with artificial definitions of recession absent adequate adjustments for actual inflation.

  Please don't fall into this same semantic trap.
  

  Published: September 12, 2008 12:36 PM

• Haas

  "Anyone who understands Mises knows that inflation is a depreciation of money and deflation is an appreciation of money. Neither of these conditions is healthy for the economy; they always favor one economic player over another."

  deflation can be good or bad while inflation is never a positive thing- obviously artificial increases in the value of paper money is not desired but i would rather have my money appreciate in value than depreciate

  Published: September 13, 2008 4:27 AM

• gene berman

  Haas:

  I think you missed Mr. Fox' point: that, in exchange, there's always "another side" and that both inflation and deflation unreasonably injure one or the other party.

  However, there is one respect in which inflation is clearly, overall, more detrimental than deflation.

  Inflation--given a sufficient amount--actually achieves its short-term purpose of lowering rates on the loan market: capital projects deemed unprofitable or marginal now appear profitable ventures. And, though it true that some of these, especially the most quickly achievable with the newly-available, more-reasonably-"priced" money may well succeed, those requiring a greater length of time to completion will encompass the rise in prices of many of the inputs necessary, making even their completion impossible (or successful operation impossible without a rise in generated income not foreseen in the original plan. Though some of the original investment may be recouped through liquidation, there are often significant expenditures for items for which there simply is no--or next to no--market. And, though such enterprise portions may sometimes be operated as "failure monopoly" they are not only losses as far as the original investment is concerned, they are also--and this is the important facet: losses to the economy as a whole, the removal of those resources--usually permanently--from the service of anyone.

  The opposite situation, the higher interest rates brought about by deflation, also cause investment rearrangement but of a less damaging sort. While it is true that some investments will not be made that would have been under conditions of "normalcy," the funds--and the resources represented--are not wasted but merely temporarily unused and unproductive, awaiting a more propitious-appearing
  time.

  Published: September 13, 2008 10:04 AM

• Dick Fox

  Gene,

  Thanks for clearing that up.

  All,

  Do not sing the praises of deflation. Because it is assumed to be less destructive than inflation its destructiveness is too often ignored or missed.

  Consider the deflation of the mid-1990s. It devastated the oil market driving producers out of the business, closing down marginal wells, and weakening the infrastructure of oil production and distribution. In large part this deflation created conditions where oil production infrastructure has been unable to keep up with the increase in demand after 2000. For example, Brazil is buying all the equipment it can for oil production but the manufacturing companies cannot keep up with demand. Lead times for equipment have been extended.

  Consider how this can happen in deflation. You are a business man and you make decisions concerning the maintenance and purchase of new equipment based on projected sales. Often equipment has a long term delivery 6, 12, even 18 months. Because of deflation from the time you order the equipment to the time of delivery you face lower sales and have to pay for your equipment with appreciated money. You are paying more than you expected to pay in real terms. The result is that you become more conservative in maintenance and expansion so that less goods are produced. As we can see with oil prices the result can actually be increasing prices as supply declines greater than inflation, even increasing prices in the midst of deflation.

  Now this is an extreme example but it did play out in the mid-1990s with oil production.

  Both inflation and deflation are destructive. Deflation does not cure inflation nor does inflation cure deflation. They each have their own unique problems. In a fiat monetary system swings of inflation and deflation are frequent as the supply of money changes injecting both inflation and deflation errors into the economy so that we experience both at the same time. This compounds the difficulty of developing fiscal policies that promote prosperity.

  Published: September 13, 2008 11:13 AM

• jason4liberty

  Fox: "Anyone who understands Mises knows that inflation is a depreciation of money and deflation is an appreciation of money."

  Wait - inflation is an increase in the supply of money or money equivalents, deflation is a decrease in the supply of money or money equivalents. Mr. Berman and Mr. Fox, it sounds like you are advocating a "stable price" philosophy - that if a carrot costs $0.30 today, it should cost $0.30 a year from now and a decade from now. If it is true that entrepreneurs become more efficient and can produce more goods at less cost (be they carrots or computers), your definition of "good" leads to the absolute necessity for monetary inflation. How otherwise could prices be maintained at a stable level?

  Who gets to choose the "correct" level? Who gets to benefit from the "first spend" of injecting the new money into the market? The desire to "maintain prices" is precisely what drove the Depression so deep, and maintained it so long! I don't trust anyone with the power to regulate a fiat currency to prevent the appreciation or depreciation of the real-goods value of money. I most certainly do not trust anyone who currently has the power and is charged with that duty - the politicians, the bankers, or the intellectuals.

  Entrepreneurs can anticipate and plan for the falling prices that will occur with sound money and progress. They and the consumer benefit from the falling prices, because the cost of the goods purchased goes down. What they can not anticipate is government intervention in the money supply and other regulation. Whether it is changes in tax law, printing new money, changing the bank reserve requirements, going to war, etc., government intervention is always a non-market force that can not be anticipated, only endured.

  Published: September 13, 2008 9:34 PM

• gene berman

  jason4liberty:

  "sounds like?" Reread, please---all descriptive, in not a single word prescriptive. Sounds to me like you read too hard.

  The essence (and the magnificence) of the money-mediated market is that it is a virtual communication---almost a "direct connection" between the minds of all participants, enabling all to know the minds of all others (or at least that portion of their thinking as expressed in action) and thus be enabled to "know" that much of the future as is shall be determined by the valuations (expressed in action) of those others.

  And, speaking of "essences," the essence of our understanding, i.e., Austrian theory, is that every change in subjective valuation of those participants--manifested in action) will have its effect on the price structure of the market: it's a perpetual
  "satisfaction-maximizer" of the entirety of peaceful cooperation in acts of exchange. By definition, there can be no acts or threats of either fraud or force (except those intended to suppress such which are embodied in law) which are not diminutions in the satisfactions the market seeks to maximize. In such light, all "monetary policy," (especially the very basic policy which legitimizes "monetary policy" itself) is akin to the surreptitious use of mind-altering drugs on market participants with the intention of rearranging signals within the system and thus the behavior of the participants.

  I might further add that changes in subjective valuation (rearrangement of priorities) are, themselves, "normal" to humans and one of the principal reasons for the evolution of media of exchange characterized by fine divisibility in the first place.

  Published: September 15, 2008 7:35 AM

• Dick Fox

  Mises in The Theory of Money and Credit

  Beyond this proposition, the quantity theory can provide us with nothing. Above all, it fails to explain the mechanism of variations in the value of money. Some of its expositors do not touch upon this question at all; the others employ an inadequate principle for dealing with it. Observation teaches us that certain relations of the kind suggested between the available stock of money and the need for money do in fact exist; the problem is to deduce these relations from the fundamental laws of value and so at last to comprehend their true significance.

  jason4liberty,

  I would suggest that you read The Theory of Money and Credit by Mises, you can find it online here. It will help you deal with your Quantity Theory of money.
  

  Published: September 16, 2008 6:15 AM

• Dick Fox

  Jason,

  Another important quote from Mises in The Theory of Money and Credit

  The reform thus consists of two measures. The first is to end inflation by setting an insurmountable barrier to any further increase in the supply of domestic money. The second is to prevent the relative deflation that the first measure will, after a certain time, bring about in terms of other currencies the supply of which is not rigidly limited in the same way. As soon as the second step has been taken, any amount of rurs can be converted into gold or dollars without any delay and any amount of gold or dollars into rurs. The agency, whatever its appellation may be, that the reform law entrusts with the performance of these exchange operations needs for technical reasons a certain small reserve of gold or dollars. But its main concern is, at least in the initial stage of its functioning, how to provide the rurs necessary for the exchange of gold or foreign currency against rurs. To enable the agency to perform this task, it has to be entitled to issue additional rurs against a full—100 percent—coverage by gold or foreign exchange bought from the public.

  Published: September 16, 2008 6:28 AM