The Conservative Case for QE2, Or, Why I Still Will Not Be an Austrian.

[Smiling_Dave]

Of course he’s misrepresenting my position. This guy is totally lost. For some reason he believes that I support government printing money, and that I’m unaware of the fact that inflation is solely caused by an expansion in the supply of money beyond the demand for money (I reject cost-push theories of inflation and/or other endogenous explanations).

No I’m not. here are a few Esuric gems, from this thread alone:

1. Bernanke is paying interest on reserves and is therefore intentionally preventing the expansion of the monetary aggregates (in the short run) which, if allowed to expand, would easily satiate the demand for money as money (and then some).

Translation. That fool bernanke is not printing enough money.

2. “When someone engages in printing money. prices will certainly adjust. The problem is, we know which way they will adjust. Up”

This is not the problem at all. In fact, general price inflation is essentially irrelevant [except for raising interst rates. In a non existent world bla bla]

Translation: Price inflation is no problem at all. Long live Zimbabwe.

3. " those engaged in futile and hopeless attempts
to fight the inevitable consequences of inflation-the rise in prices-are
disguising their endeavors as a fight against inflation. While merely fight-
ing symptoms, they pretend to fight the root causes of the evil." [Mises in HA]

It’s not the case that inflation “increases prices and that’s bad,” nor is it the case that “deflation lowers price and that’s good.”

Translation. Inflation either does not increase prices, or else it does but thats fine, Mises be damned.

4. The mainstream focuses on a few and relatively unessential effects of inflation

Inflation may raise prices, but who cares. leave that to the mainstream to worry about.

5. Either way, the fact that prices (tend to) adjust upwards (as a result of inflation) is the most insignificant problem.

What Zimbabwe and the Weimar Republic and Argentina and others experienced an insignifacnt problem. Mises called it evil, I call it insignificant.

6. "When someone engages in printing money. prices will certainly adjust. The problem is, we know which way they will adjust. Up.’

is incorrect from an Austrian point-of-view.

Translation: Printing money does not cause rising prices.

7. MET’s don’t support the government printing money. They oppose central banks, i.e., monetary central planning, and favor a free-banking system (a free market in banking).

Translation; But of course we must “fight deflation” [see earlier posts of his]. So as long as the decentralized banks print the money, that’s fine.

[AdrianHealey]

Reming me never to hire you as a translator.

[Smiling_Dave]

As I’ve mentioned in my original response to you, i originally assumed an economy consisting of a single phase of production. There are no inputs.

Wow, just wow. There are no inputs. So television sets are being produced from nothing. And you consider this to have relevance to reality somehow. You can “prove” from such a model that every business will walways succeed. There are no inputs, no costs, and only profits. No economist has ever constructed so absurd a model.

Either way, if we assume an economy consisting of multiple phase of production (a structure of production), a higher demand for money, which elevates the market rate of interest above the natural rate, would make it so that the prices of final outputs would all faster than the prices of inputs, because the structure of production is either contracting, or not expanding enough to restore profitability (as is the case when there’s a higher rate of savings).

Says you. In any case, historically people don’t hide money under the matress, [especially in inflationary times] so you have nothing to worry about.

[Autolykos]

@Esuric

It’s not. It’s entirely irrelevant, but if I had to categorize them, I would say that they’re future goods (since they are claims to future goods, i.e., capital goods).

I’m sorry but how is it irrelevant? If you’re categorizing them as future goods, then wouldn’t that imply a fourth category of economic goods? Or am I missing something here?

@Esuric

As I’ve mentioned in my original response to you, i originally assumed an economy consisting of a single phase of production. There are no inputs. Either way, if we assume an economy consisting of multiple phase of production (a structure of production), a higher demand for money, which elevates the market rate of interest above the natural rate, would make it so that the prices of final outputs would [fall] faster than the prices of inputs, because the structure of production is either contracting, or not expanding enough to restore profitability (as is the case when there’s a higher rate of savings).

Fair enough with your original example. But wouldn’t a higher demand for money mean a lower demand for loanable funds? I’m not saying that lower demand would perfectly match the lower supply, of course.

@Esuric

You don’t see a problem with a contraction in total output and lower wage rates (society becoming poorer)? Okay.

How does society become poorer when the structure of production adjusts to changes in monetary demand? That would seem to imply a kind of “market failure” on the part of those who now have higher demand for money. Is the idea that they don’t realize the consequences of this higher demand?

@Esuric

Of course. You can restore real cash balances by allowing prices to adjust (fall), but, as I’ve mentioned, this can be problematic (uneven adjustments, certain lags, etc).

Do you consider it problematic whenever a business folds? Or when a debtor defaults on his debt?

@Esuric

This is an interesting question. Personally, I believe that the demand for money only truly rises by any significant degree during a recession, i.e., a period of extreme uncertainty (people tend to demand liquidity, the safest asset, during such circumstances). Severe monetary disequilibrium, when the demand for money rises above the supply of money (this is merely one type of monetary disequilibrium, of course), is a potential consequence of a recession. During “normal times,” the demand for money is fairly stable as transactions are routinized.

My understanding is that financial panics happened due to one or more banks being exposed as insolvent. People understandably ran to the bank(s) to hopefully get their actual money back while they still could. I wouldn’t call this “excessive demand for money”, I’d call it people realizing that there’s not as much money as they had been led to believe. In other words, financial panics and recessions are caused by the unraveling of systemic fraud.

@Esuric

Why would you say that? They’re not demand goods in the future; they’re demanding liquidity.

Maybe I don’t see the difference, then. From what I can tell, a person saving up money either in a bank or under his mattress is doing so for a reason. If he’s saving up to buy a new car, for example, then his demand for liquidity is also a demand for goods in the future (namely, the car).

@Esuric

@Autolykos

Does it really matter whether they put that money in bank savings accounts or under their mattresses? If so, why?

Yes, and I’ve already explained why.

Then I’m sorry, but I don’t quite understand your explanation. Are you actually interested in helping me understand it? Or are you actually conversing with other people through me?

[DD5]

@Esuric

Of course. You can restore real cash balances by allowing prices to adjust (fall), but, as I’ve mentioned, this can be problematic (uneven adjustments, certain lags, etc).

uneven adjustments, lags, etc… simply means money is not neutral, by definition.

That money is not neutral is not a problem, but simply in the nature of money and how it functions.

Now, what you are implying (or even proposing) is something that is a totally self-contradictory idea. A neutral money of some form. How else do you plan to battle this alleged problem of “uneven adjustments, lags,et…” and I’ll even add to that - “complete price revolution” (Mises), without embarking on the idea of neutral money?

I’m sorry but you cannot offset a deflationary effect by an equal inflationary effect. The forces do not cancel each other out, but are compounded!

[filc]

@DD5, & Smiling Dave

To suggest that non-market driven changes in the money supply only harm things in one direction(inflationary) is to ignore the entire Austrian position on capital theory and interest as it pertains to catallictics and economic calculation.

You guys have some more reading up to do imho. I won’t go down the argumentative road with you DD5. You already proved your inability to reason with me months ago when you stubbornly refused to admit that the Hayekian explanation of economic calculation offered different but equally valid insights from the Misesian explanation. Conflating the two as one, and ignoring the individual beneficial points of each. I have an expectation of you out of observation, which I expect will be upheld, that you take issue with being incorrect, and relish in being right all of the time. Even when the error will cause great harm in your cognitive understanding of Austrian Concepts.

It is a common practice to google search, and PDF search quotes from various Austrian Economists in an effort to refute one’s argument on these forums. The error arrives when this practice is done by one who is not knowledgable in the Austrian position, therefore taking every quote out of context, in hopes that it will serve their argument best. Like Smiling Dave forgetting the points I posted above.

P.S. IDK who is saying that money is netral. You guys are building a whole army of strawmen(and tbh just putting alot of words in our mouths), likely due to mis-understanding, that I haven’t the energy to run around and tackle them all.

[Esuric]

I’m sorry but you cannot offset a deflationary effect by an equal inflationary effect. The forces do not cancel each other out, but are compounded!

It’s not inflation, by definition. Inflation is defined, by everyone but Rothbard and Keynes, as an expansion in the supply of money (in the broader sense) beyond the demand for money. Inter-temporal equilibrium is contingent upon monetary equilibrium.

Now, what you are implying (or even proposing) is something that is a totally self-contradictory idea. A neutral money of some form.

I don’t believe that money can ever be made neutral, or that the economy can ever reach and sustain general equilibrium, and I haven’t proposed anything. You keep trying to turn this into a debate about free banking but my argument, which you’ve completely ignored (you haven’t explicitly addressed anything in my OP to Autolykos), deals exclusively with the effects of monetary disequilibrium. You need to acknowledge that such a condition exists before we can talk about ways to ease it, but I’m not really interested in have that debate.

Again, I merely wanted to explain the effects of such a condition, that there is a demand for money, that the market rate of interest can rise above the natural rate (which has very real consequences), and that it’s not true that any supply of money is optimal. This is what I’m interested in (pure theory), much more so than potential prescriptive remedies.

[DD5]

@filc

To deny that non-market driven changes in the money supply only harm things in one direction(inflationary) is to deny the entire Austrian position on capital theory and interest.

If you’re going to make such an outrageous accusation about my position, which is nowhere to be found on this thread, or anywhere probably on this forum history, then I might as well accuse you of dishonesty or extreme laziness on your part.

[filc]

@DD5

If you’re going to make such an outrageous accusation about my position, which is nowhere to be found on this thread, or anywhere probably on this forum history, then I might as well accuse you of dishonesty or extreme laziness on your part.

It is lazyness. Because your responding to me in argumentation, of which I don’t know why. Because based on what you’ev wrote, you have nothing to disagree with. The point is you like to argue, where there is no argument to be had.

Which comes back to my point. I’ve no time or energy to even remotely try and reason with you. Your issue is with yourself, and the unhealthy need to be right, all of the time.

[filc]

@Esuric

I don’t believe that money can ever be made neutral,

Because what is being practiced here is strawman creation. An attempt to trick the opponent into an argument that they don’t even themselves agree with. Putting words in one’s mouth is DD5’s expertise. I never read this out of your position, and I don’t know how he did. So I can only conclude that he is:

A) He is confused or

B) He wants to argue and is trying to fabricate ways to display his haughtiness.

This is why I won’t pretend the notion of continuing any type of intelligent conversation with him. This is now the second time I’ve had to do this with him. It’s sad because there is no reason for him to really be in disagreement with us.(Or at least me)

[Smiling_Dave]

filc,

How is non market driven deflation done? Tossing big piles of paper money in the incinerator? Is that what you guys are talking about?

Esuric was talking about a market driven decision. People decide they want to spend less. He also decided he can read minds and know if they are doing it to save for later, or out of sheer cussednes. In any case it is a market driven decision on their part, and not made by aliens from outer space, but by market participants of their own free will.

I can read oceans of Mises and Rothbard and others and never see what Esuric claimed. He himself admits he got his stuff only from misunderstanding Hayek.

[DD5]

@Esuric

I’m sorry but you cannot offset a deflationary effect by an equal inflationary effect. The forces do not cancel each other out, but are compounded!

It’s not inflation, by definition. Inflation is defined, by everyone

Who cares what the definition of inflation is. It’s not the point. The point is the idea of offsetting any increase in cash holdings by injecting an equivalent amount money. Who cares what you call it.

@Esuric

deals exclusively with the effects of monetary disequilibrium.

I am also only talking about monetary equilibrium/disequilibrium.

@Esuric

Again, I merely wanted to explain the effects of such a condition, that there is a demand for money, that the market rate of interest can rise above the natural rate (which has very real consequences), and that it’s not true that any supply of money is optimal. This is what I’m interested in (pure theory), much more so than prescriptive remedies.

Because you equivocate the concept of disequilibrium with the concept of distortion. That cannot be. The two are equivalent only in the unique case when the economist intentionally assumes for simplicity of analysis that equilibrium is the present desirable state of the market, so that any divergence from this equilibrium resting point must now represent some exogenous [undesirable] force, and therefore, a distorting element on the market.

[Esuric]

How is non market driven deflation done? Tossing big piles of paper money in the incinerator? Is that what you guys are talking about?

When the demand for money rises but is not satiated by an expansion in the supply of money in the broader sense because there isn’t actual competition within the banking system due to government cartelization, extreme regulation, and monetary central planning.

Esuric was talking about a market driven decision. People decide they want to spend less.

First, it’s not that they “want to spend less,” but rather demand additional real money balances. Next, and as I’ve already mentioned, the banking system cannot respond to this elevated demand for money (by creating fiduciary media) because of arbitrary government interventions.

Either way, this is not what I want to talk about. The fact that your reading comprehension, or lack thereof, and your ignorance of economics in general, prevents you from understanding my theoretical arguments has proven to be a major distraction.

I can read oceans of Mises and Rothbard and others and never see what Esuric claimed.

No you haven’t, and you have completely misunderstood what little you have read. I suggest you read Mises’ Theory of Money and Credit, especially chapter 17.

@Mises

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… 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 circulation pari passu with the variations in the demand for money, so far as the lack of a uniform procedure makes it impossible for them to follow and independent interest policy. But in doing so, they help to stabilize the objective exchange value of money. To this extent, therefore, the theory of the elasticity of the circulation of fiduciary media is correct; it has rightly apprehended one of the phenomena of the market, even if it has also completely misapprehended its cause (pp. 347).

[filc]

@Smiling Dave

How is non market driven deflation done? Tossing big piles of paper money in the incinerator? Is that what you guys are talking about?

Your missing the point.

Do you agree, or disagree, that radical changes in the ratio from goods and services to the money that represents that supply of goods and services, must necessarily cause adjustments in calculation. And that if done too quickly, or done in such away that it does not properly represent the available supply of goods and services available on the market, you will likely have mal-investment.

Obviously cash-induced deflation is much more difficult to concert amongst a cartel of banks, it’s also not infinite, where as inflationary expansion can be. But thats beside the point. The point is that the structure of production, and the ratio of goods and services represented as represented in money-prices is being mis-represented. It doesn’t matter in which way the mis-representation occurs.

If a central authority tries to hold interest rates high during a period that consumer are more thrifty, there will be mis-allocations in resources. The same applies when the fed tries to hold interest rates low, during a period when consumers are less thrifty. Obviously the problems they cause are not identical, the point I am making is that problems are caused.

The point I made, and have been making, is that you presented an oversimplification of the problem, and a mis-understanding of the ABCT, when you just ad-hoc claim that inflation is evil end of story, period.

[Autolykos]

Esuric, did you miss my last post in this thread?

@Esuric

First, it’s not that they “want to spend less,” but rather demand additional real money balances.

I’m sorry, but really, what is the difference here? Maybe you’re talking about investors and I’m (along with Smiling Dave and DD5) talking about wage-earners? As far as I can tell, if someone wants a higher real-money balance, he will spend less of his income.

[DD5]

@filc

Because what is being practiced here is strawman creation. An attempt to trick the opponent into an argument that they don’t even themselves agree with. Putting words in one’s mouth is DD5’s expertise. I never read this out of your position, and I don’t know how he did. So I can only conclude that he is:

What you and many others here don’t want to accept is that there is often a difference between the positions people claim to be holding (usually in all sincerity) and the arguments and theories they expound in defense of those claims. The two can be (and are often) incompatible. For example, it would be a non-sequitur to claim that you are not ignoring microeconomic effects simply because you tittled your book “micro-foundations, an Austrian perspective …”

You have yet to show us here where a strawman has been set up (by me). I don’t care about what you or anybody formally declare to believe in. I only care about the logical reasoning behind your arguments.

[filc]

@DD5,

Don’t repeat my argument to you, back to me.

Thanks.

[DD5]

@Esuric

No you haven’t, and you have completely misunderstood what little you have read. I suggest you read Mises’ Theory of Money and Credit, especially chapter 17.

And I am by now convinced that this is almost the only thing you’re apparently familiar with by Mises.

[DD5]

@filc

@DD5,

Don’t repeat my argument to you, back to me.

Thanks.

Resorting to such Argumentum Ad Hominem is only hurting your credibility,

[Esuric]

@Autolykos

Esuric, did you miss my last post in this thread?

I refuse to repeat myself on this forum. If you don’t understand my arguments, then that’s your problem. People think that they’re somehow entitled to an education.

@DD5

And I am by now convinced that this is almost the only thing you’re apparently familiar with by Mises.

awesome.