I visit the site American Thinker frequently; some of the writers seem to have Austrian influences. I read a piece today, and came across these comments:
Posted by: Jake Peachey
Nov 23, 08:09 AM
In a Robinson Crusoe economic environment where all needs are met through hunting, gathering and subsistence farming, the accumulation of money or gold is utterly useless for personal needs because you can’t eat it, use it for clothe, shelter or fuel. But our economic environment is 180 degree opposite, a trading economy. Most of us live entirely by trade. Very few if any of you readers have a cow, chickens, and a large garden in your backyard with attached woodland that provided the materials for shelter and fuel. In a trading economy, the participants in the marketplace ascribe value to things for the purpose of trade. This value is a concept, or an attribute, that exists only in the imagination of the mind. And nothing, absolutely nothing in the economic sense, for the purpose of trade, has inherent value. Conversely anything, tangible or intangible, that the marketplace participants ascribe value, for the purpose of trade, becomes an asset. If you want to argue with the participants in the marketplace, place your bets. About five years ago Warren Buffett did so by shorting the dollar because he saw rising trade deficits paid for by outflowing dollars. He expected the dollar to fall. But the global marketplace participants did not agree, because they were trading specifically to acquire the dollar. With global economic expansion and the dollar being global currency there was a rising need for more liquidity for trade. Developing countries needed more dollars for reserve currency, thus Warren Buffett got the drubbing he deserved----$600 billion.
Austrian economics goes wrong by making a useless and misleading distinction between assets to which participants in the marketplace ascribe value, because you cannot qualify value because of the types of things that the trading economy ascribes value. In a trading economy value is the same value whether it is ascribed to gold, oil, food or a piece of paper with George Washington’s image on it.
Next:
Posted by: tradguy
Nov 23, 11:21 AM
You wrote: "So take these two concepts – run surpluses and like begets like – and mingle them. The product is cargo-cult Keynesianism – the notion, promoted by such witch doctors as Benjamin Bernanke and Paul Krugman, that if you print or otherwise create vast amounts of false money, then the real money (like attracted to like!) will return to the economy, like cans of Spam magically winging their way toward remote Pacific islands. "
Huh? False money and real money. What does this mean? There is no such distinction. Money is money. In a country with an open economy and floating exchange rates, it’s an asset whose value fluctuates based on interest rates, which are influenced by the quantity of money available for transactions.
Vast amounts of false money? What is that? The amount of money in QE2 is less than 5% of GDP. How is that vast?
The real problem with the economy is too much Federal Spending, mostly in the form of entitlements. Entitlement programs such as SS and Medicare need to be reformed. Additionally, the tax system does not tax a broad enough base. The solution to the latter problem is the replacement of an income tax with a consumption tax.
First, however, Congress must put its fiscal house in order. It must cut the budget so that it spends no more than 18% of GDP and it must revamp the tax system.
Be glad that the Fed has the QE2 program. At least, in a small way, it is buying the US more time to solve its fiscal problems.
Posted by: tradguy Nov 23, 11:27 AM |
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gsm wrote “An amendment that either abolishes the Fed or at the very least backs the dollar with precious metals so that out of control money creation is stopped.”
If you went back to backed money, you would cause a Depression that would make the 1929 look like a Recession. Backed money is one of the reasons for the Great Depression. Between the Wars, many countries returned to the gold standard system, which caused a contraction of the money supply and the Depression.
Why would we want to go back to something that did not work?
First, Jake Peachey seems to contradict himself and his comments make no sense.
Second, where does tradguy get his belief that the gold standard caused the GD? Is this the monetarist view? I am having trouble understanding these people.
The article they commented on is here.