What exactly is the "Austrian" analysis of reflation? Or, why shouldn't money be kept in a state of equilibrium - even if that means increasing the money supply?
Anton Sugar: krazy kaju: To a very, very, minor extent. Most banks only keep 10% reserves for their irregular deposits. They essentially create money out of thin air. No, no, no. It isn't about "the reserves" it's about the nature of the banks. A deposit is seen as an investment on the part of the depositor. The depositor knows he cannot withdraw all his money at the same time and in return he earns an interest rate for lending this money. If he wanted the bank to be incapable of actually getting to his money, he could always file for a safety deposit box. Why do you think people consider interest rates on their accounts when choosing banks? krazy kaju: If you agree with free and full reserve banking, what's the dealio? I don't really "agree" with full reserve banking. I think it's an inefficient idea and one that should really be put away. Then again it really is a misnomer. Most people know they won't be able to go to the bank and just get their money. They know their are limitations to how much they can withdraw and they accept that contradict in return for interest payments on their cash.
krazy kaju: To a very, very, minor extent. Most banks only keep 10% reserves for their irregular deposits. They essentially create money out of thin air.
To a very, very, minor extent. Most banks only keep 10% reserves for their irregular deposits. They essentially create money out of thin air.
No, no, no. It isn't about "the reserves" it's about the nature of the banks. A deposit is seen as an investment on the part of the depositor. The depositor knows he cannot withdraw all his money at the same time and in return he earns an interest rate for lending this money.
If he wanted the bank to be incapable of actually getting to his money, he could always file for a safety deposit box.
Why do you think people consider interest rates on their accounts when choosing banks?
krazy kaju: If you agree with free and full reserve banking, what's the dealio?
If you agree with free and full reserve banking, what's the dealio?
I don't really "agree" with full reserve banking. I think it's an inefficient idea and one that should really be put away. Then again it really is a misnomer. Most people know they won't be able to go to the bank and just get their money. They know their are limitations to how much they can withdraw and they accept that contradict in return for interest payments on their cash.
People have little other choice - they can't make legally enforceable contracts in gold, for example, and even if they could they would be taxed at capital gains taxes every time they sold and made a 'profit' because the value of dollars has gone down.
Full reserve banking doesn't mean 0 lending, it just means that there is a difference between 100% reserve demand deposits and time deposits which are lent out for the period of time agreed upon in exchange for interest.Truly do away with legal tender laws, though, and the dollar would quickly become worthless anyway.
The best argument for 100% reserve backed demand deposits is Jesus Huerta de Soto, in Money, Bank Credit, and Economic Cycles - I'd highly recommend you read through the entire work for a full understanding of these issues, from all perspectives (he digs deep into all monetary theories, not just ABCT)
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Wren: Anton Sugar: Have you ever heard of Real Business Cycle theory? I have but a "real shock" is still pretty vague. I see you mentioned a natural disaster and I was going to jokingly say, "what like an asteroid hitting the earth?" earlier but thought it would seem insulting so I decided not to. My understanding is that techonological andvances can also be considered "shocks," as well as probably other things so I wanted to know what you had in mind, given that I already thought you were alluding the RBCT. Hell, even natural disasters are vague, since there are a variety of them. Anyway, the fundamental problem here is still what happens when the demand for money exceeds its supply and my answer is it depends on the circumstance/context. If we're talking about non-corrective reasons for deflation, I do believe the money supply should be increased, but only with a regime of "hard" money and non-centralized banking structure. I think there should/would be checks on both inflation and deflation as krazy kaju expounded on, so monetary equilibrium in that case is not much of a problem IMO. It's in our current unfree market situation were these issues become sloppy.
Anton Sugar: Have you ever heard of Real Business Cycle theory?
Have you ever heard of Real Business Cycle theory?
I have but a "real shock" is still pretty vague. I see you mentioned a natural disaster and I was going to jokingly say, "what like an asteroid hitting the earth?" earlier but thought it would seem insulting so I decided not to. My understanding is that techonological andvances can also be considered "shocks," as well as probably other things so I wanted to know what you had in mind, given that I already thought you were alluding the RBCT. Hell, even natural disasters are vague, since there are a variety of them. Anyway, the fundamental problem here is still what happens when the demand for money exceeds its supply and my answer is it depends on the circumstance/context. If we're talking about non-corrective reasons for deflation, I do believe the money supply should be increased, but only with a regime of "hard" money and non-centralized banking structure. I think there should/would be checks on both inflation and deflation as krazy kaju expounded on, so monetary equilibrium in that case is not much of a problem IMO. It's in our current unfree market situation were these issues become sloppy.
You don't think that the free market could adequately regulate monetary equilibrium?
The problem with hard currency, in this case, is that adjustments take time. You don't just mine gold in a second, after all. You can, however, increase the supply of money when it reaches disequilibrium with more money tickets.
Anton Sugar:The problem with hard currency, in this case, is that adjustments take time. You don't just mine gold in a second, after all. You can, however, increase the supply of money when it reaches disequilibrium with more money tickets.
It still takes time for the money to filter out through the economy and doesn't equally reach everybody.
The people who get it first, before it drives prices up, benefit at the expense of those who get it later or not at all.
Instead of having gradually falling prices (we're not talking about a bust cycle here but just your everyday specie) where technology or oversupply causes 'deflation' you end up with a system where prices always rise (mostly--because there is still technological innovation and oversupply that pushes prices down faster than monetary inflation) and one group of people benefit at the expense of all the others.
Lovely plan...if you're the one who gets to print up the money.
Wasn't Schumpeter's fatal flaw something about 'shocks' happening at random intervals and overlapping each other so a 'Walrusian equilibrium box' could never exist for the economy to break out of or some such? He had the four stages of 'shocks' IIRC with the assumption that each cycle would always effect the economy in the same way and cycle through at a steady pace while never overlapping.
Who knows, I remember reading the Austrian analysis on 'Schumpeter's Box' a while back.
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Anton Sugar: You don't think that the free market could adequately regulate monetary equilibrium?
I do think it can. Personally I don't think monetary equilibrium/disequilibrium would be much of a problem except in extraordinary circumstances, but I'm really not trying to focus on that.
In case of emergency and sudden rise of demand for currency, one can issue his own currency backed by whatever one wants. In fact, you don't even need emergency to do that. Sure, a currency backed by gold is... well, as good as gold, but a currency backed by, say, Wal-Mart (think gift certificates) is not bad either. Any marketable, divisible, non-perishable good can serve as money. Sure, gold & silver are ideal money, but even a currency not backed by precious metals can be competitive on the market if you throw in some bonus to make up for lack of metal backing.
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