I think that’s a false analogy. You defined “deflation” as “general lowering of the price level”. Then you say that it can’t be measured. Yet given the word “lowering” and the phrase “price level”, I’d say you’re referring to an inherently quantitative phenomenon. Utility isn’t. So I think you’re comparing apples to oranges.
While I must insist that the analogy is not so far off. Assume that I, if given a free choice whether to purchase Modern Warfare or SimCity I’d choose the former. Now some law that bans the game due to violence or something comes out, and I must purchase SimCity or nothing, and I do. Wouldn’t we say that my utility went down, was lowered, by this law? Yet we would be fools to try to measure by how much my utility has fallen. We just know it did. We can think of other examples where we can’t even know whether one’s utility fell or rose, yet we might have ‘a hunch’.
This is precisely the issue with deflation as I use the term: we could feel it’s there, but we cannot be sure, and we sure as hell cannot measure it. Of course, this cannot stop an enterprising bank owner designing an index for his fiat currency to find the best proxy he can, just as the price mechanism give sus the best proxy to understanding (kind of quantifying even) utility.
I suspect we have an issue here with the definition of “utility”. Here’s the Austrian-school definition (taken from the Mises Wiki):
On the other hand, here’s the mainstream definition (taken from Wikipedia):
So it sounds to me like you’re using the mainstream definition of “utility”, while I’m using the Austrian-school definition. Neither definition is “better” than the other, and neither is the “correct” one. They’re just different from each other.
Now with this in mind, Mises, Rothbard, and others in the Austrian school of economics repeatedly point out that what they call “utility” can’t be measured. Additionally, what they mean by “measurement” is “a way to objectively quantify something”. Quantity, for them, is necessarily cardinal in nature. Utility, however, is ordinal. Now I think one could say that utility (again, defined according to the Austrian school of economics) can be “measured” very loosely, in the sense of observing human action and inferring where different goods and services lie on individuals’ preference scales, but that would necessarily involve using a different definition of “measurement” from the one used by Mises, Rothbard, et al. Utility remains a non-quantitative phenomenon.
In your example, where Modern Warfare is not allowed to be sold, I would say that you were still able to satisfy your felt uneasiness, but with a good that ranked lower on your preference scale (SimCity). But again, my point was really about the inherent quantitativeness of your definition of “deflation”. In hindsight, I don’t think I should’ve separated “lowering” from “price level”, because the latter qualifies the former. It’s “price level” that’s the inherently quantitative thing, so any lowering or raising of it must also be quantitative - and thus measurable. Sorry for any confusion that I caused there.
Autolykos,
Of course utility cannot be measured as a matter of principle, that is why I brought up the price mechanism only as a proxy, not as some imperfect way of measuring utility: it’s just a proxy that works better than other proxies. And we must see that with no such proxy, with no way to built a system that ‘generally’ ‘tends’ to ‘increase’ ‘general’ ‘utility’ (all to be used very cautiously and certainly not literally), economics would be of little or no use: in a socialist commonwealth economists have nothing to do. So, though utility is not inherently quantifiable, for all practical purposes we must treat it as such, else the whole exercise of economics is futile.
Now, the price level (or its inverse, the purchasing power) may be a inherently quantitative notion (I’m not sure about that, but anyway) but it likewise cannot be measured. And like with utility, our only hope if we are to have any use for the term in real life is to find a suitable proxy to measure it (indexes, etc.).
So, both are immeasurable as matter of principle (utility inherently, purchasing power due to the nature of money), but if either is to be useful in practice it must be quantified by proxy.
PS: we could then discuss how the existence of more than one medium of exchange would allow us to measure their purchasing powers quite easily, making the price level quantifiable, but perhaps for another thread.)
As far as I can tell, I never claimed that you brought up the price mechanism as an imperfect way of measuring utility. Where do you think I did that? Or am I not understanding your point here?
Then as far as I can tell (once again), the whole exercise of Austrian-school economics is futile. Mises, Rothbard, Hoppe, et al. - to the best of my knowledge, at least - do not treat utility as inherently quantifiable whatsoever - not for practical purposes or for any other reason. Mainstream economics does, if only to make the math easier.
How are you unsure about whether whether “price level” and “purchasing power” are inherently quantitative notions? If something is inherently quantitative, then it can indeed be measured - at least in theory.
I’m assuming that, by “as a matter of principle”, you mean the same thing as “inherently”. So can you explain how the nature of money makes purchasing power inherently immeasurable? And what is the proxy to be used in quantifying purchasing power?
How does the existence of multiple media of exchange allow one to measure their purchasing powers “quite easily”?
You will allow me to back down because I feel the discussion, though interesting in itself, is not very pertinent in the thread. Let me, than, restate my original reply without using utility for the analogy:
Psychic profit cannot be measured either, yet we do not say it doesn’t exist on that account.
Perhaps this analogy is somewhat more suitable.
I’m sorry but I don’t think it is. This appears to be the Austrian-school definition of “psychic profit and loss” (sorry, you’ll have to scroll down quite a bit on the page):
We can see, based on this definition, that the Austrian school of economics also does not consider “psychic profit and loss” to be a quantitative concept. Indeed, it considers it to be the exact opposite.
On the other hand, you haven’t answered any of the questions I asked in my last post. None of them are contingent on any comparison between “price level” and “utility” - or, for that matter, between “price level” and “psychic profit” or anything else. Rather, they all support my contention that “price level” simply seems to be inherently quantitative, and thus any lowering or raising of it seems to be inherently quantitative also.
That’s what Commodity Index ETFs are. If none of **these **are to your liking, create your own and start selling them yourself. Then abolish legal tender laws and capital gains taxes and you got yourself a bunch of “currency notes” which can be freely exchanged for anything else on the market.
I think you are right. ETFs seem to be the Hayekian fiat indeed! Can’t wait to see ETFs and gold duking it out in a free monetary market.
Autolykos, if I miss some important point you made in the reply please let me now, for I’ll not be answering to all of them (fear of 10+ replies posts).
Since money is the unit of accounting, than all prices are quoted in terms of money, which means that the price of money itself is inherently immeasurable.
What is the proxy? I do not see how an answer can be given by theory alone. Only by trying different methods in the market one can discover progressively better proxies. I myself would go with indexes, but, hey, who knows?
Simple, if both gold and silver are generally accepted media of exchange (and thus accounting units), than the price of gold can be usefully quoted in terms of silver, and vice versa. If only gold was a generally accepted medium of exchange, than its price could sure be quoted in terms of any good or service, but the usefulness of such a ‘price’ would be dubious.
Now, I concede that nether utility nor psychic profit are ‘inherently’ quantitative, and the analogies served only to derail the discussion. So, if I understand correctly what you where saying was that as long as we cannot measure the price of money, than the idea of a change in such a price is ludicrous or at least uselless?
It’s probably impossible to return to a gold standard on government-issued money for the same reason it’s impossible for an empty warehouse to fulfil orders. The funny thing is, most people are incredulous when you tell them the dollar is not actually backed by gold - “what about all that gold in Fort Knox?” they say. The only thing it’s backed by is “the full faith and credit of the United States government” (which is to say, nothing at all).
BTW, Gary North has a great analysis of government “gold standards” here: Two Kinds of Gold Standards.