"Suppose now that $80 million in gold is deposited in deposit banks, and the warehouse receipts are now used as proxies, as substitutes, for gold. In the meanwhile, $20 million in gold coin
and bullion are left outside the banks in circulation. In this case, the total money supply is still $100 million, except that now the money in circulation consists of $20 million in gold coin and $80
million in gold certificates standing in for the actual $80 million of gold in bank vaults. Deposit banking, when the banks really act as genuine money warehouses, is still eminently productive and
if there is no difference why is inflation called a disease and an ill by so many ant the lrc and mises sites? are they all wrong?
if gold/cash is retired to a vault while corresponding paper substitutes circulate…how isnt that different than if a small portion of gold/cash is retires to a vault while excess claims to gold/cash circulate beyond what is actually there?
“To say the same thing in different words, there was full, 100 percent standard-money backing for $42.7 billion of deposits, and no standard-money backing whatever for $6065.5 billion of deposits, which latter constituted fiduciary (a claim on something?) media.”
The quantity of fiduciary media in existence at any time represents the cumulative total of all of the credit expansion that has taken place in the country’s money supply up to that time. It represents the sum of all of the loans and investments that the banking system has made based on the foundation of the creation of money out of thin air.
substitute "put in the place of another; "
if a cash is circulating and i put away the cash use use the cash-note…that sounds like a substitute.
but bank credit (called/counted in dollars) seems to be its own animal…bursting forth at the whim of banks cash collections.
but how do 6 trillion fiduciary claims substitute for 42 million somethings…
has it actually lowered prices here: “when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s.”
The difference is that credit is temporary. Suppose there a total of 1,000 bills chasing 50 burgers in our fictional example. So the price is $20 like you said. If the fed prints 1,000 there are now 2,000 bills permanently chasing burgers so the price will go up to $40, permanently. However it’s different if the fed LOANS 1,000. At first there will be 2,000 bills chasing burgers driving the price up to $40. But after the money is spent the person receiving the loan is now in DEBT. Therefore they actually now have less money to chase burgers than they did BEFORE the loan. So now there are actually less than 1,000 bills chasing burgers so the price will actually drop to BELOW $20.
Another way to look at it is that credit can only influence prices for so long and then debt starts to reduce the initial effect of the credit.
This has me confused. Prices haven’t risen in Japan because the monetary base in the US almost tripled? Mind explaining how that relates to Japan in any way, shape, or form?
maybe they are trying to contrast or question as to why prices rose (if they did) in the us with super-inflation and probobly should have (according to some theories) in japan, but didnt…if thats true.
i still have to wonder if toyotas have increased in price…in every currency?
I agree that Robert Murphy’s explanation is not that great, and seems to be more of a conjecture than anything else, but what he is basically saying is that the ~8% average growth rate of the Japanese money supply has not led to inflation because growth in productivity. I’m not sure if that really explains it, given that I doubt that the Japanese have been growing at an annual rate of 8% productivity-wise. However, the U.S. monetary base has tripled within the year, which is why we’re experience price inflation, currently (still relatively low, but bound to increase).
Paul Krugman’s argument that Robert Murphy links to is also particularly weak, I think. I believe that he thinks that the United States is also currently in a liquidity trap. But, the truth is that investment banks have been lending their inflated reserves to clients investing in the stock market and commodities. I believe the same occured, and is occuring, in Japan. The case might be that while there is general deflation, there is certainly certain goods and services which prices are increasing relative to the others. In the United States it just so happens that the price of certain commodities and securities have increased so much that they drag CPI upwards, instead of allowing the deflation of price of other products drag CPI downwards.
but if japan hasnt experienced price-inflation amidst monetary/credit inflation (the 8.4% per year mentioned earlier) has the us really experienced price-inflation if –
"…when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s. " (from a sep 2009 article)
You missed my point. The CPI is an average price rating. Some goods have decreased in price, others have increased. If the price of one good rises faster than the price of another decreases, then the average CPI between the two has increased. The Japanese situation can be explained by two hypothesis, as far as I know: 1. Productivity has decreased, offsetting increases in the money supply & 2. the prices of goods which are rising are not rising faster than the deflating prices of others.
if there was a point. i am not familiar with the cpi as an average of something. i thought it was an observation of a collection of goods and statisticians somewhere calculated the price increases of the various goods and figured if the collection of goods price increased or decreased realtive to wage data calculations.
why would a cpi compare one good to another good. of 10 goods to a differnt 10 goods and call that price inflation or deflation?
"…when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s. " (from a sep 2009 article)
“One of the most common arguments I’ve heard against rising prices in the US is that Japan hasn’t had rising prices despite keeping interest rates low for an extended period.”
is that an argument?
the poster said that money supply in the us has nearly tripled since some point in time and japan hasnt increased money supply…credit i am not sure about.
“when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s.”
so aparently prices didnt increase in the us with a tripling of the money supply…for some items…that seem vital.
and prices according to a japanese
“A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation).[1] It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer…”
New wage data indicate what you might have suspected. Average wages are not keeping up with the cost of living. This has given rise to claims that we live in the first sustained period of economic growth that has failed to offer a similarly sustained increase in real wages. Indeed, wages have declined in real terms by 2 percent in the last three years.
By the way you described it, it’s an average of the price of a basket of goods. Within that basket of goods, the relative price of goods can either have decreased or increased (individually).
Um, it doesn’t. You missed my point. The way that price deflation in Japan is found is through CPI. The CPI could have decreased, but specific goods within that basket of goods could have increased in price, even though the average went down. Monetary inflation affects relative prices.
I already addressed this. The CPI of the USA has gone up for the past two quarters. But, this is an average price level. It was driven mostly by the increase in cost of a number of commodities (such as petroleum). For most goods, prices decreased.
“One of the most common arguments I’ve heard against rising prices in the US is that Japan hasn’t had rising prices despite keeping interest rates low for an extended period.”
that doesnt sound like an argument to me.
i dont know if fuel prices had that much to do with increasing cpi with or without the fuel component.
And when the price of crude doubles–rising from, say, $28 a barrel to $56–the price of the average mile rises only 10% to 15%. That just isn’t enough to impel most of us to change our behavior very much.
so when m2 in 2000 was at 4.6 trillion and is now 8.5 trillion…the price inflation (leaving out petroleum) should leave wage increases in the dust…when?
No, it will affect the prices of the goods the money is chasing. That is why, today, while some goods are decreasing in price, there is still price inflation in commodities and in the stock market (money is being lent out by investment banks). One of the problems with credit expansion is changes in the relative prices of capital-goods; as I explained in a previous post, this is the source of malinvestment.