The Monetary Economics of Thurston Howell III

DLWormwood writes "In what has to be the Strangest... Essay... Ever... The libertarian Ludwig von Mises Institute website has posted an essay which goes way too in-depth over the topic of why the castaways of Gilligan's Island used Thurston Howell III's 'worthless paper' instead of gold or seashells."

Comments

I smelt a slashdotting coming...

[djsmiley]

So here is some caches...

http://216.239.59.104/search?q=cache:f9Bdhed8_h8J: www.mises.org/+&hl=en

http://216.239.59.104/search?q=cache:8-dfbA5SWVwJ: www.tvtome.com/GilligansIsland/+&hl=en

Also i have to say this is a rather strange artical. I've taken a quick look at it and if im honest, im totally lost!.

P.S. Sorry for the untidy formatting, its late at night.

Re:I liked it, but...

[Nick of NSTime]

Within the science of economics, fiat means "having no intrinsic value." So fiat money is paper currency that has no intrinsic value because it is simply representative of something of value. The paper itself has no value. Contrast that with gold coins, which have an intrinsic value outside of the currency (its value in gold).

The word fiat, IIRC, comes from the Italian word for "in faith." You're taking it on faith that the $20 bill you slap into a stripper's t-back, for example, is actually worth $20, even though you will never see the gold that backs up that $20 bill.

Re:Science?

[Nick of NSTime]

Economics is one of the social sciences. Given the amount of math one has to take to earn a BSc in Economics, it deserves its status as a branch of science!

Re:I liked it, but...

[Anonymous Coward]

Acutally, fiat is straight from Latin, where it means "let it be." Fiat money is used as money because of governmental decree (or fiat), as opposed to commodity money (e.g. gold) which arises from the market.

Re:Mises Institute rails against fiat abuses

[ElForesto]

I'm in agreement with you. After all, the 1913 Webster's dictionary defined a dollar thusly (a definition created in 1792 with the creation of the US Coinage Act, I believe): 1. (a) A silver coin of the United States containing 371.25 grains of silver and 41.25 grains of alloy, that is, having a total weight of 412.5 grains. Previous to 1837 the silver dollar had a larger amount of alloy, but only the same amount of silver as now, the total weight being 416 grains.

Re:Mises Institute rails against fiat abuses

[PaulBu]

What is interesting is that younger Greenspan was quite a passionate advocate of the gold standard, see, e.g., his essay in this book (scroll down couple pages to the TOC).

I was always wondering how could he take his current job... ;-)

Paul B.

Re:Gilligan's Island is a "hook", not the contents

[ahdeoz]

The whole point of government backed "fiat" money (which was completely missed in the article) is that the supply of money is regulated. Current dollars represent an amount of previous dollars, which represented an amount of gold, which represented an amount of coconuts, which were bartered for fish for cream pies once upon a time. The "fiat" is there to primarily to prevent counterfitting to make sure that the supply remains fairly constant (though gradually increasing over time as more wealth is "created.) The money exchange market (and the market in general, i.e., the price of goods and services, and especially loan interest rates) act as checks that the declared value does not exceed the actual value in previous commodities. Dinars doubled in value because there was a fixed amount (as long as counterfitting did not occur -- which is why it could only continue for a short time) and the quantity of dollars in circulation was rapidly increasing. The "post-fiat" dinars were still directly tied to the dollar (gold) standard but there was a massive influx of gold (greenbacks) at the time, resulting in inflation.

Re:I liked it, but...

[ahdeoz]

no, within the science of economics fiat means "having value determined by: authorization, command, decree, dictate, dictum, edict, endorsement, mandate, ordinance, permission, precept, proclamation, sanction, ukase, warrant" The word fiat comes from the Latin meaning "let it be done" -- borrowed directly from Genesis in the Bible "fiat lux" = "let there be light"

what about soldiers buying old dinars?

[spook brat]

When I was there the main use I saw for the dinar was selling them to GIs who wanted souvenirs. I figured the rise in price was due to the Iraqis learning what passed as an acceptable price, as well as the Gis realizing that the supply of good-quality bills was diminishing (ie. fixed demand but dwindling supply).

When I left people in the shops were still selling large quantites of former regime currency for prices ranging from $1 per bill to $20 for a bundle of identical bills. There's a good chance I just wasn't in touch with the local economy, but when the locals are consistently selling their old bills for loose change over the course of a year I have trouble seeing their dead currency as picking up value.

Re:Good timing

[Malor]

I just remembered the name for taxation through debasement: segniorage. No wonder I couldn't think of it. Not a common word anymore.

Re:Good timing

[jdavidb]

Basically, the government is forcing you to accept the US Dollar at gunpoint. If you do not, they can arrest you. (seriously, they can!)

I'm at least as anti-fiat money as yourself (being an anarcho-capitalist, I do not believe the government should engage in any decrees of value for any item; means of exchange can be developed by the free market), but you are actually wrong on this point. Nobody is required to accept the US Dollar. Unlike taxes, you will not be shot for refusing to particpate. :)

This is actually a common misunderstanding arising from the phrase legal tender. Check out that link and you'll find the following:

There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise.

Read Mises and Rothbard

[dh003i]

It is impossible to do experiments in the social sciences, because there are always numerous variables which you cannot control. You also don't understand the nature of reasoning from a priori axioms. We don't need empirical evidence to know that a priori axioms are true. Mises correctly states that all economics follows from the action axiom (and other axioms and postulates): The action axiom states that man acts. Expanding upon this, man acts using various ends to obtain various means, so as to ease and unease felt. You cannot dispute this axiom, for attempting to dispute it is in fact an action itself.

Your reasoning is positivist, which is debunked junk. Positivism states that we can only know something is true if we have empirical verification, and that everything else is meaningless. This is inherently self-contradictory, for that very statement can only be taken as an a priori axiom. Except, according to positivists, a priori axioms are meaningless tautologies. So, the question is, how do we know that that positivist statement is in fact true? We haven't verified it by experiments, so according to its own declaration, it is a meaningless tautology.

Austrian economists start from self-evident a priori axioms. These axioms do not need to be empirically verified. Indeed, they cannot be falsified empirically, and can only be illustrated. You cannot falsify the action axiom. You can only illustrate it (indeed, everything you do is an illustration of the action axiom).

" What makes these axioms self-evident?... They are self-evident because one cannot deny their truth without self-contradiction; that is, in attempting to deny them one would actually, implicitly, admit their truth." -- Hoppe, Hans-Herman

I would suggest reading the following papers:

• Social Sciences and Natural Sciences. Mises, Ludwig von.

• What is Austrian Economics? Mises.org

• Economic Science and the Austrian Method. Hoppe, Hans-Herman.

• Realism and Abstraction in Economics: Aristotle and Mises versus Friedman. Long, Roderick.

  Praxeology and Understanding. Selgin, George.

  In Defense of "Extreme Apriorism". Rothbard, Murray.

If you want to read more on Austrian economics, the best introduction is Man, Economy, and State with Power and Market. Rothbard, Murray. (MES). Man, Economy, and State with Power and Market was Rothbard's treatise on economics, also intended to be a textbook for introducing students to Austrian economics. Mises, Rothbard's mentor, wrote the great treatise on economics simply called Human Action. Mises, Ludwig von. (HA). Human Action is an extremely important treatise, although it is not as easily understandable as Rothbard's treatise. Rothbard, in his treatise, assumes that readers have much of the knowledge in Human Action, so reading MES is not a substitute for reading Human Action; however, Rothbard corrects Mises on a couple of issues (like monopoly) and expands upon Mises' analysis, exploring new categories.

Re:Ob. Gilligan's Island hell metaphor

[bobobobo]

Whoops, I meant the Skipper represents both Wrath and Gluttony. Avarice is synonymous with greed. I just kinda paraphrased it without checking.