So last night, in my Neo Keynesian class my teacher said deflating prices are bad because it makes the market stall, in that people are more likely to save their money so they get more "bang for their buck" and the market stops producing. And in order to provide the right incentive, a small amount of inflation is nessecary, so people are more likely to consume now rather than save.
This seems quite silly. If people are not buying products because they're afraid that they would save more if they wait, it seems to me like businesses would have to increase prices in order to make back what they spent on producing the products. And as they increased prices by the very logic of nessesary inflation, people would start buying because the deals would be going away. I mean, hell, prices in the tech industry rapidly deflate regularly but people don't seem to have trouble buying computers and things when they know it's probably going to be cheeper in a few months.
Anyways, I was just wondering if anyone had more insight.
anonnymous:Say the government bypassed the Fed and started printing silver certificates to pay its debts, at what point would it become better to hold silver certificates than Federal Reserve notes/ Also, if the government chose to do such a thing would it be inflationary and if so would it result in higher inflation than if the Fed had printed Reserve Notes?
The Fed wouldn't be able to print silver certificates willy nilly since they'd have to back it up with silver when people want to exchange the certificates for silver.
What I'm saying is that printing money isn't stealing any more than creating any good is stealing. Every good created devalues all the other goods of the same type since supply becomes higher than it otherwise would have been. In your example, silver mining would slowly depreciate the value of silver and therefore the silver standard (or silver certificates). There's nothing wrong or illegal about this and there shouldn't be anything wrong or illegal about it. In a free market, the expansion of goods outstrips the expansion of credit anyways (since precious metal mining is a relatively long process), so price deflation occurs anyways. Also, monetary expansion outside the banking industry doesn't have the same negative consequences (boom-bust cycles) as monetary expansion inside the banking industry.
All in all, I'm not justifying the Federal Reserve or any other central bank since they all impose their currencies on their citizens under the punishment of law. I disagree with that. But I also disagree calling money printing illegal. You just as well might illegalize gold mining under a gold standard because of this principle, or even the creation of any good (even perishible goods like food and clothing)!
"There is only one innate right, freedom (independence from being constrained by another's choice), insofar as it can coexist with the freedom of every other in accordance with a universal law." - Immanuel Kant
Printing money and building a house are entirely different.
If you could ban people from building new houses, then the market value of existing houses would rise. Suppose I conclude that building a new house is cheaper than buying an existing house. I build a house and this keeps housing prices in a market equilibrium.
If I build a house, that doesn't diminish your ability to utilize the house you already own. If your house is mortgaged, you may suffer if housing prices don't rise as fast as you expect. However, your house is still worth a house.
If 10% more houses are built, then there are 10% more houses. The total housing wealth of the world has increased by 10%.
If 10% more money is printed, and the supply of goods remains the same, then all existing money loses 10% of its purchasing power. The preson who printed and spent the 10% new money stole 10% of the wealth from the rest of society.
If you really believe that building a house is morally equivalent to printing new fiat money, I probably shouldn't be wasting my time writing here.
Also, mining gold is *NOT* the equivalent of printing new paper money. Under a gold standard, unless there was a discovery of a massive new gold mine, gold mining should have a negligible effect on prices.
Also: I didn't say that the Federal Reserve is illegal. I said the Federal reserve is immoral. There's a difference between "legal" and "moral". Printing new fiat money is immoral. Building houses is morally acceptable.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
fsk: Printing money and building a house are entirely different. If you could ban people from building new houses, then the market value of existing houses would rise. Suppose I conclude that building a new house is cheaper than buying an existing house. I build a house and this keeps housing prices in a market equilibrium. If I build a house, that doesn't diminish your ability to utilize the house you already own. If your house is mortgaged, you may suffer if housing prices don't rise as fast as you expect. However, your house is still worth a house. If 10% more houses are built, then there are 10% more houses. The total housing wealth of the world has increased by 10%. If 10% more money is printed, and the supply of goods remains the same, then all existing money loses 10% of its purchasing power. The preson who printed and spent the 10% new money stole 10% of the wealth from the rest of society. If you really believe that building a house is morally equivalent to printing new fiat money, I probably shouldn't be wasting my time writing here.
OK, you don't understand basic economics. Here it is:
This is a supply and demand curve
The y-axis represents price, the x-axis represents quantity. When the supply increases (moves to the right), the price decreases. When you build a house, the price of a house falls relative to the price of every other good.
When you print a unit of currency, the price of that unit of currency fall relative to every other good (yes, a currency is a good).
Wealth is not determined by quantity. Wealth is determined by the subjective values of many different people. This, in other words, is supply and demand. If supply for something is low and demand is high, the price will be high. If you expand the supply the price of every single good will fall, unless demand offsets it, in which case it still would be stealing since you stole the future values of those goods.
However, if you are a person of principle, the truly critical question is:
DO YOU BELIEVE THAT GOLD MINING SHOULD BE ILLEGAL UNDER A GOLD STANDARD?
Because under your premise that creation of credit is stealing, it should be illegal. More gold in the market devalues gold, making the certificates of a gold standard worth less than they would've been.
I don't think printing money can be considered theft, as theft is the aggressive removal of PHYSICAL property. Deflating the market value of a currency is not the physical removal of ownership.
All fiat currency is is a forced association.
banned: I don't think printing money can be considered theft, as theft is the aggressive removal of PHYSICAL property. Deflating the market value of a currency is not the physical removal of ownership. All fiat currency is is a forced association.
That is exactly the problem I have with fiat currency: it is forced upon people.
Printing presses can create new money just as mines can excavate more precious metals. In both examples, your currency devalues. The problem with fiat currency is that it is forced upon people, that there is no check against endless printing, and that monetary expansion through banks creates business cycles. It's not some abstract view that it is "stealing." The creation of any good would be "stealing" in this view.
Even in fsk's example of achieving market equilibrium by offsetting supply and demand you are stealing value because you are building your own house instead of bidding for one of the existing ones. That new house then is one more. And what happens when you move out? There will be one more house on the market forcing prices down, even if it's just a little bit.
krazy kaju: anonnymous:Say the government bypassed the Fed and started printing silver certificates to pay its debts, at what point would it become better to hold silver certificates than Federal Reserve notes/ Also, if the government chose to do such a thing would it be inflationary and if so would it result in higher inflation than if the Fed had printed Reserve Notes? The Fed wouldn't be able to print silver certificates willy nilly since they'd have to back it up with silver when people want to exchange the certificates for silver. What I'm saying is that printing money isn't stealing any more than creating any good is stealing. Every good created devalues all the other goods of the same type since supply becomes higher than it otherwise would have been. In your example, silver mining would slowly depreciate the value of silver and therefore the silver standard (or silver certificates). There's nothing wrong or illegal about this and there shouldn't be anything wrong or illegal about it. In a free market, the expansion of goods outstrips the expansion of credit anyways (since precious metal mining is a relatively long process), so price deflation occurs anyways. Also, monetary expansion outside the banking industry doesn't have the same negative consequences (boom-bust cycles) as monetary expansion inside the banking industry. All in all, I'm not justifying the Federal Reserve or any other central bank since they all impose their currencies on their citizens under the punishment of law. I disagree with that. But I also disagree calling money printing illegal. You just as well might illegalize gold mining under a gold standard because of this principle, or even the creation of any good (even perishible goods like food and clothing)!
I did not suggest the Fed print silver certificates. The premise was to replace the Reserve Note with silver certificates printed for the government by the treasury in an effort to forgo paying intrest on the debt.. As for housing, to me the most likely way for houses to depreciate in value is if there were an overproduction at price levels the potential home owner could not afford resulting in a surplus of houses thereby causing price deflation on newly built homes but minimal price deflation on existing homes which have mortages which are current. Building houses does not compare to printing money
we must resist the borg
krazy kaju: DO YOU BELIEVE THAT GOLD MINING SHOULD BE ILLEGAL UNDER A GOLD STANDARD?
There shouldn't be any law forcing people to use gold as money. If you make a gold-denominated contract, then the risk of a huge gold mine discovery should be factored into the contract. Any potential increase in the supply of physical gold is part of the risk of owning gold.
If I'm concerned that the price of gold will sharply tank, then I should use silver or something else as money.
When you bought your house, you should know that other people might build more houses, driving down the value of your house.
Under a free market, there would be a natural equilibrium for gold mining. The value of labor spent extracting gold, plus the value of gold reserves in the ground, equals the market price for gold. If gold is too expensive, people will mine more gold. If gold is too cheap, people will stop mining gold. A *REALLY* free market takes care of everything.
From 1933-1971 there was no free market for gold. Unable to sell their gold for the fair free market price, many gold mines shut down.
With fiat money, the Federal Reserve can print a $100 bill for $0.03 and immediately sell it for $100. Government violence forces me to accept this trade.
The immoral agent is the Federal Reserve and government, demanding I accept Federal Reserve Notes at face amount and banning me from using other forms of money. Similarly, if you forbid me from building houses because you're concerned about the value of your house, that's also immoral.
If there was no government violence forcing me to use Federal Reserve Notes as money, then why should I care what the Federal Reserve does? Let them print all the money they want, provided I'm not forced to use it.
fsk: There shouldn't be any law forcing people to use gold as money. If you make a gold-denominated contract, then the risk of a huge gold mine discovery should be factored into the contract. Any potential increase in the supply of physical gold is part of the risk of owning gold. If I'm concerned that the price of gold will sharply tank, then I should use silver or something else as money. When you bought your house, you should know that other people might build more houses, driving down the value of your house. Under a free market, there would be a natural equilibrium for gold mining. The value of labor spent extracting gold, plus the value of gold reserves in the ground, equals the market price for gold. If gold is too expensive, people will mine more gold. If gold is too cheap, people will stop mining gold. A *REALLY* free market takes care of everything. From 1933-1971 there was no free market for gold. Unable to sell their gold for the fair free market price, many gold mines shut down. With fiat money, the Federal Reserve can print a $100 bill for $0.03 and immediately sell it for $100. Government violence forces me to accept this trade. The immoral agent is the Federal Reserve and government, demanding I accept Federal Reserve Notes at face amount and banning me from using other forms of money. Similarly, if you forbid me from building houses because you're concerned about the value of your house, that's also immoral. If there was no government violence forcing me to use Federal Reserve Notes as money, then why should I care what the Federal Reserve does? Let them print all the money they want, provided I'm not forced to use it.
Is this how the king of strawmen admits defeat?
You exchange your productive services for money, and in the case of fiat money, you're pretty much forced to use it. Printing more of it and lowering its exchange value whilst binding your hands in being able to switch to another currency means in effect your labour now can buy less than it could before, all for the sake of the beneficiaries of the fiat money system - and there is nothing you can do about it; or precious little in the case that you're informed enough. Isn't that a form of theft, or even slavery? There are next to no avenues out of the system; as you said, it is forced association.
-Jon
I cannot be caged. I cannot be controlled. Understand this as you die, ever pathetic, ever fools.
Irenicus' Diaries.
Jon Irenicus: You exchange your productive services for money, and in the case of fiat money, you're pretty much forced to use it. Printing more of it and lowering its exchange value whilst binding your hands in being able to switch to another currency means in effect your labour now can buy less than it could before, all for the sake of the beneficiaries of the fiat money system - and there is nothing you can do about it; or precious little in the case that you're informed enough. Isn't that a form of theft, or even slavery? There are next to no avenues out of the system; as you said, it is forced association. -Jon