[This article is part of the Understanding Money Mechanics series, by Robert P. Murphy. The series will be published as a book in late 2020.]

In his January 10 interview on Bloomberg TV, former US Treasury secretary Larry Summers expressed concern that despite the aggressive lowering of interest rates by major central banks, economic activity does not appear to be responding.

Summers suggested that something is not quite right. He is of the view that the Alvin Hansen’s secular stagnation theory might explain the present economic climate.

In the popular way of thinking, people are characterized as if a scale of preferences is hardwired in their heads. Regardless of anything else, this scale remains the same all the time. This thinking does not characterize human beings but robots. The humanoid robot chooses goods because the valuation scale has told him to. The valuation scale somehow knows which good offers the best utility without letting us know how it knows that.

In the last decade, the combination of virulent asset price inflation and low reported consumer price inflation crippled sound money as a political force in the US and globally. In the new decade, a different balance between monetary inflation’s “terrible twins” — asset inflation and goods inflation — will create an opportunity for that force to regain strength. Crucial, however, will be how sound money advocacy evolves in the world of ideas and its success in forming an alliance with other causes that could win elections.

In 1971, Isaac Asimov wrote an extraordinary novel, The Gods Themselves, about a machine that generates unlimited energy for free, defying the fundamental economic principle known as scarcity. It is later learned that the Electron Pump is originating from a hole in space that connects parallel universes. Doomsday is nigh as it is discovered that galaxies will soon be destroyed and that the sun will metastasize into a supernova.

Monetary affairs have always been subject to government intervention of one kind or another. In ancient times, these interventions were made to raise funds for public spending; by debasing the coinage, kings and other rulers could raise taxes without having to abide by constitutional rules and without raising popular anger at their spending.

[From Power and Market, chapter 3.]

[This article is excerpted from chapter 14 of Human Action.]