Esuric,
Let me congratulate you for your consistency, if not for your civility.
Yep, looks like you nailed me about Hayek. Oh well, so he thought that way, maybe. I don’t have a copy of his books, or the time to waste reading them. So I cannot double check your quotes to see if you misunderstood them and/or twisted them out of context, as you did with the Mises quotes [as I will show later in this post]. So I stand corrected, for now.
As for Mises, take a look at this from Human Action.
. The notion of "normaI credit expansion is absurd. Issuance of additional
fiduciary media, no matter what its quantity may be: always sets in motion those
changes in the price structure the description of which is the task of the theory of
the trade cycle. Of course, if the additional amount issued is not large, neither are
the inevitable effects of the expansion.
Here’s another:
The Banking School failed entirely in dealing with these problems.
It was confused by a spurious idea according to which the require-
ments of business rigidly limit the maximum amount of convertible
banknotes that a bank can issue. They did not see that the demand
of the public for credit is a magnitude dependent on the banks’
readiness to lend, and that banks which do not bother about their own
solvency are in a position to expand circulation credit by lowering
the rate of interest below the market rate. It is not true that the maxi-
mum amount which a bank can lend if it limits its lending to discount-
ing short-term bills of exchange resulting from the sale and purchase
of raw materials and half-manufactured goods, is a quantity uniquely
determined by the state of business and independent of the bank’s
policies. This quantity expands or shrinks with the lowering or rais-
ing of the rate of discount. Lowering the rate of interest is tantamount
to increasing the quantity of what is mistakenly considered as the
fair and normal requirements of business.
And from Money and Credit:
Thus it is easy to see what little justification there is for ascribing
to the clearing system the property, without affecting the objective
exchange-valueofmoney, of correcting the disparities that may arise
between the stock of money and the demand for it,
As for your quote, you little weasel, you left out what Mises considers the ONLY undesirable consequence of
the increase in the exchange value of gold dollars. And that undesirable consequence is none of the crap you and others are worried about.
It is the following: That when the price of gold gets high enough, and it is used for money, people will get out there and mine gold, diverting workers from other jobs. Also, that there will be less gold used for jewelry, and more for money. That’s it. No collapse of Western Civilaztion as we know it.
And of course, weasel, none of that passage applies to fiat money, as Mises says explicitly in another piece that you conveniently left out. And guess what, Esuric. We all live in counrtries that have fiat money.
Here is the full text of the passage you so conveniently chiseled to make it seem like you found something:
Ifmetallic money is employed, then the advantages ofa diminu-
tion of the demand for money due to the .extension of such other
meansofpayment areobvious. Infact thedevelopmentofthe clear-
ing system and of fiduciary media has at least kept pace with the
potential increase of the demand for money brought ab9’lJt by the
extension of the Money Economy, so that the 'tremendous increase
in the exchange-value of money, which otherwise would have
occurred as a consequence of the extension of the use of money,
has been completely avoided, together with its undesirable conse-
quences. Ifithadnotbeenfor this theincreasein theexchange-value
ofmoney, and so also of the monetarymetal, would have given an
increasedimpetus totheproductionofthemetal. Capital andlabour
would have been diverted from other branches ofproduction to the
production of the monetary metal. This would undoubtedly have
meant increased returns to certain individual undertakings; but the
welfare ofthe communitywould have suffered. The increase in the
stock ofprecious metals which serve monetary purposes would not
have improved the position of the individual members of the com- ~
munity, would not have increased the satisfaction oftheirwants; for
the monetary function could also have been fulfilled by a smaller
stock. And, on the other hand, a smaller quantity of economic
goods wouldhave beenavailable for the direct satisfactionofhuman
wants ifa part ofthe capital andlabour power that otherwisewould
have been used for their production had been diverted to mining
precious metals. Even apart from the diversion of production, a
decrease of prosperity would result from the fact that as a conse-
quence ofthe rise in value ofthe precious metals caused by the use
for monetary purposes the stock available for industrial employment
would decrease, since certain quantities would be transferred from
the latter employment to the former. This all becomes particularly
clear ifwe think of an economic community which does not itself
produce the precious metals, but imports them. Here the amount
of their cost is expressed by the quantity ofcommodities that must
be surrendered to foreign countries in order to obtain the supple-
mentaryquantityofmonetarymetal inexchange. Ina country that
itselfproduces thepreciousmetals, thematteris thesame inprinciple;
all that is different is the way of reckoning the loss of welfare
through the sacrifice of the other branches of production and the
preference for mining the precious metals; it is perhaps less per-
ceptible, but it is just as comprehensible in theory. Themeasure of
the additional harmdone by the diversion ofmetal tomonetaryuses
is always givenby thequantityofmetal that is withdrawnfromother
uses in favour of themonetary use.
Where fiat or credit money is employed, these reasons in favour
ofthe extension of clearing methods of payment and of the use of
fiduciarymedia do not arise.
Your second quote also is a masterpiece of misunderstanding. Mises is talking about something that does not exist in the USA, or anywhere else nowadays. He is referring to a situation where banks can compete against each other in setting the interest rate. In other words, there is no central bank with crushingly powerful methods to set the interest rate where it wants. Oddly enough, you left out the part of that Mises quote that makes that point perfectly clear. Here is the full text:
Of course, all of this is true only under the assumption that all
banks issue fiduciary media according to uniform principles, or
that there is only one bank that issues fiduciary media. A single
bank carrying on its business in competition with numerous others
is not in a position to enter upon an independent discount policy.
Ifregard to the behaviourofits competitors prevents it from further
reducing therateofinterest inbank-credit transactions, then - apart
from an extension ofits clientele - it will be able to circulate more
fiduciary media only ifthere is a demand for them even when the
rate ofinterest charged is not lower than that charged by the banks
competing with it. Thus the banks may be seen to pay a certain
amount of regard to the periodical fluctuations in the demand for
money. They increase and decrease their circulationpari passu with
thevariations inthedemandformoney, so far as thelackofa uniform
procedure makes it impossible for them to follow an independent
interest policy. But in doing so, they help to stabilize the objective
exchange-value ofmoney. To this extent, therefore, the theory of
the elasticity of the circulation offiduciary media is correct; it has
rightly apprehended one of the phenomena of the market, even if
it has also completelymisapprehended its cause.
Now for your other post:
What proof have you of this silly assertion. You are saying that if an atomic bomb blew up all the banks and all the money in them, but left all the factories alive and kicking, that the vast majority of firms in the US would fail? Why? GM still has its cars, Apple still has its Ipods. Some way would be found to sell them. There is always something that evolves as currency. Sheesh.
Of course one way to acheive the scenario you described is to listen to you and your fellow quacks and print money like there is no tomorrow. That will destroy the currency as nicely as an atomic bomb.
