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Learning About Real-World Economies Through Game Economies
Reuters has a report about research being done on the in-game economies of MMOs like EverQuest II and World of Warcraft to better understand much larger economic situations in the real world. The games are used as case studies where researchers can do controlled experiments that they couldn't necessarily attempt if real money or goods were involved.
"After studying 314 million transactions within the fantasy world of Norrath in EverQuest II, including trading in-game goods like armor, shields, leather, herbs and food, the researchers were able to calculate the GDP of one of the game servers (the back-end computer that hosts thousands of players in one world). As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months. 'We have seen that kind of volatility during times of war and in developing nations in the real world,' said [Dmitri Williams, assistant professor at the USC Annenberg School for Communication]. 'Our own economy has turned out to be less stable than we'd all assumed.'"
In the real world you don't have unlimited resources. In the real world you can't release an expansion and suddenly introduce new products to replace everything someone owns. Studying in game economics can be useful as an exercise or example of how some economic principles work, but collecting data from MMO's and then trying to use that information to explain how the real world works?
While I myself enjoy playing the MMO economy micro-game, they are far too simple to really map anything close to the real world. Or at least I should say WoW's is. Some of the less popular MMO's have very realistic economies involving business entities, more niche goods, and even a kind of country proxy.
The examples of what the researchers have discovered also strike me as academically uninteresting (even obvious) and make me wonder if this is an excuse to play some games at work....
Should we be joining MMOs like these to help science? I, for one, would join to help the research but that would probably taint the results.
Right... as if someone with knowledge of real world economics could actually be put in a place of authority.
The problem with that idea is that the game economy is built with assumptions in mind. These assumptions will generally be based on theoretical economic models. So generally all you achieve with such experiments is confirm your built in beliefs. Chicken, egg anyone?
A similar claim was made about SimCity when it was big, that it would teach about urban planning, but it had so many assumptions built in to be worse than useless.
These experiments are not as useful nor controlled as you may think. Let me break down into some experiment design principles here:
#1 You can only generalize to the population studied
--Thus your demographics will be that of a more computer savvy user, with leisure time. This is NOT a representative sample of a normal population. When using regression methods you will get a homogenous result only from 'game performers'. These experiments are not valid unless you can prove that there is no purposeful difference between this population and the general population.
--It still can provide interesting insights, but any quantified data must be taken with a grain of salt
--The population may have one net effect, but perhaps a different type of agent/actor would have an OPPOSITE or equalizing effect (games are an artificial setting)
#2 Process defined by agency
--Here the markets are designed by an all-seeing game developer. I don't know about you, but many MMO's I have participated in had lackluster markets due to poor UI or the mere fact that it is a new market.
--Product innovations are limited or non existent, and users cannot refine markets based on their experiences. These days the most interesting economic studies are looking at PROCESS which is understood much less than outcome. Neo-classical economic theory does a great job at explaining outcome, but is horrid at process. That is why many market failures are not forecasted, but instead studied post-mortem.
And the ridiculous idea that every Orc has a right to a home is what lead to this bubble.
You can learn tons from games. Yesterday was explaining that when the taxes get rolled into the free parking kitty, money doesn't leave the system- it only gets redistrubuted leading to massive inflation from passing go. Also was explaining dice statistics and why it was better to build a house on this square versus that square based on the two people 5-7 spaces away.
Right... as if someone with knowledge of real world economics could actually be put in a place of authority.
My thought was something like this. Specifically, from the summary:
Well let's see now. We have fiat currency instead of representative currency (an example of which is the gold standard). Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?
The real joke, though it's not a funny joke, is that this system as we know it came from the Great Depression. Its purpose was to ensure that such depressions would not happen again. By that I mean, this is how it was sold to the public. Isn't this typical, that an undesirable system that would not otherwise be accepted is proposed during a time of crisis and becomes entrenched? It's not like we have never seen that pattern before...
It is a miracle that curiosity survives formal education. - Einstein
I suspect we could learn more if the game used real money rather than monopoly money.
I agree with your point; on one hand, there are a lot of data that can be collected from the economies of video games. The challenge, as you mentioned, is making that data relevant outside of the realm of that video game (or of video games, in general). I agree that the games probably can't be valid models of real economies (or cities, etc.).
That said, I'd not be surprised if they could extract useful behavioral information out of the data. Not information about how the economy works, but rather how people act when faced with various economic events and circumstances. Players could probably be mapped to social and regional demographics by qualities such as their characters' net values, activity, and primary sources of income. Patches, updates, and expansions can be mapped to technological breakthroughs and innovations, and resource scarcity and overfarming can be mapped to depressions or natural disasters.
There are plenty of real-world economic events that might be mapped and studied to research how the players in various "classes" react, such as:
To me, the practice seems legit (if done carefully), although I doubt any results are particularly useful by themselves.
Economics is as much a real science as MMOs have real economies.
As someone else said, many of the basics of those in-game economies are designed by economists and mathematicians. Of course they'll reflect economic theory.
If he explores all forms and substances Straight homeward to their symbol-essences; He shall not die.
Who the hell is we, and who is listening to someone so clueless in the first place?
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That's the point.
In RL governments can act and do something about the economy, make laws, bail banks... but all the bribes, the people in key position, the network of friends, will always allow the banks to be essentially free (eg. leveraging and taking more risk), and basically all the good words that are being spent now on the banking sectors will just be words.
Instead in a MMO everything is under control.
Too much gold?
Increase repair price/decrease loot, etc etc.... well add new taxes. If RL governments do so banks will move offshore or in other countries where taxes are acceptable (to their standard...).
The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.
In an MMO you just go grind and magically you get money. Then you have sinks like the gear/enchantments/etc etc.
Again, saying that governments had to bail the banks doesn't mean that the economy is controlled; btw in MMOGs you totally lack the investment part of the capitalistic economy; you can only throw away your money on some item that will become useless in 2~6 months, you can't use your money to make more money*
* practially you can....if you have some in game cash you can briefly get the monopoly of some kind of commodity (eg. reagents) and put the price you want; I've done it a couple of times in WoW...I invested 5k in one particular reagent, managed to get 6k in some hrs...
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+1 Sadbuttrue
"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"
The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT. Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.
The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.
Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.
Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.
Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.
Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.
for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail?
There is nothing unsustainable about it. The X dollars in circulation just have to circulate fast enough. If fractional reserve banking has a flaw, it is the same thing that is its main advantage, and that is that it adepts to the demands of the economy. It amplifies both good and bad intentions of making use of money.
In the last 30 years there has been a lot of bad intentions going on, building on bubble after bubble. But blaming it on FRB is just plain wrong. There are real things in the economy that are unsustainable. Having the debt levels rise faster than the income levels would be one such thing. Having the lower and middle class owning a lesser and lesser percentage of the wealth would be another. And it isn't difficult to find more examples.
Having said all that, there are of course faults in how FRB is implemented in the US. There is for example no reason why a government should need to get in debt just to create money. That has nothing to do with the basic idea of FRB. Having a private institution running the money supply is another very stupid idea. Finally, you need regulators and law makers who generally aren't corrupt to ensure that the FRB system isn't abused. And that last thing is something that doesn't exist in the US right now, or most banks would have been shut down already, just by looking at their balance sheets. The only thing keeping the banks alive is corruption.
is that this system as we know it came from the Great Depression
Yes and no. The system today mostly has its origin in the 1980s. It may look similar to the old system, but all safeguards and general ideas of sanity has been removed as an ongoing process to promote "modern" capitalistic principles. The idea of balance has been totally abandoned and instead the concept that anything is right as long as it produces higher numbers has been promoted.
"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"
The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT.
Lol! I guess you know better, and we should trust you instead? As well as all the people claiming they know how to "run" an economy but somehow keep getting proven wrong.
Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.
Not sure what "ideology" you think the "austiran"[sic] economists are espousing. More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.
The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.
Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.
Interesting theory. Should I subscribe to your newsletter?
I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better? Even if what you say is true, it doesn't explain why at times (like today, and the Great Depression) nearly all industries are faced with contraction at the same time, and all of them shed jobs, instead of just one or a few sectors. Austrian theory explains this very well.
Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.
But it's exactly the Fed and central banking policies that interferes with that process. By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.
Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.
Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.
I don't know where you got this idea. Inflation is
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
You say that it is sustainable, please elaborate. Because unless you're ignoring the presence of interest rates, the money owed will always exceed money existing. This ends with people or businesses going bankrupt unless there is perpetual growth, which is also unsustainable.
Dear Parent, I presume you understand the fractional reserve system so you can skip down to paragraph 4 whilst I provide an Economics 101 refresher for the gallery (and this really is first-semester stuff; I taught it earlier this year):
You and all your friends deposit money at the bank. The bank holds a fraction of the money in reserve (hence the name), at minimum the amount the law specifies, usually plus some amount X. We'll come back to this. The rest of the money it lends to people who want to borrow it; they pay interest, you get interest, the bank takes a cut, hooray.
These borrowers spend the money, and the people who get it stick some of it back into the bank, where the cycle starts afresh. It depends on how much money the bank holds in reserve and how much the populace deposits but, yes, usually there is more debt around than originally produced currency.
Now, you claim that this is a Bad Thing (TM). You don't state why. Presumably you are relying on the intuitive logic that having more debt than official assets can't be good. That intuition relies on the following crucial point: having more debts than assets is only a problem when people try and collect on their debts. Amazingly, this very rarely happens.
You have the absolute right to go to the bank and demand your money, in bar. All of it. Buy who does that? Practically no-one. You ask for a portion of it; some here, some there, more at Christmastime and during the holidays. So long as the banks have enough money to give everyone what they want – and this is the amount X from above – holding the rest of it would just be inefficient, since none of the depositors want it and there are plenty of borrowers who can do productive things with it. Fact: if the banks decided to hold more money in reserve, the government/central bank would simply create more 'original' dollars until the effective level of money is back where it was.
The fractional reserve system does have its problems. But the problems lie in deciding how high the reserves should be – too low, and when people do decide they want their money everything comes crashing down (e.g. AIG). Too high, and businesses can't borrow money and productive potential lies wasted (e.g. the current situation in much of Europe and the US). But the system is not inherently flawed. If the right level of reserves are held – and this is usually the case – the system provides a much more flexible and efficient supply of money than a representative currency.
Antiquis temporibus, nati tibi similes in rupibus ventosissimis exponebantur ad necem.
We have fiat currency instead of representative currency (an example of which is the gold standard).
The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.
Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt.
I thought it was actually that there was X-Y debt.
The real joke, though it's not a funny joke, is that this system as we know it came from the Great Depression. Its purpose was to ensure that such depressions would not happen again. By that I mean, this is how it was sold to the public. Isn't this typical, that an undesirable system that would not otherwise be accepted is proposed during a time of crisis and becomes entrenched? It's not like we have never seen that pattern before...
Which parts exactly came from the great depression? I seem to recall fractional-reserve banking being a bit older than that.
In MMOs, everyone is "employed" or capable to make money (not to get rich, but still to participate actively in the economy) by themselves. Things like food or where to live are not big problems, neither is maintaining a family usually. And there aren't laws (like patents) giving individuals virtual monopolies.
But still there is commerce there, sharing several of the rules of with the real world one and behaving in good part like it.
More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.
Somehow, I feel like I look at a post that was written three years ago.
xkcd is not in the sudoers file. This incident will be reported.
"As real as real? Macroeconomic behavior in a large-scale virtual world" (links to the abstract with option to download)
Antiquis temporibus, nati tibi similes in rupibus ventosissimis exponebantur ad necem.
Why not look at the Eve online economy? The Eve system is a lot more flexible, largely player driven and a LOT more players involved. This should more accurately model real economies.
Then of course, eve have already had a lot of attention for this reason, so perhaps they wanted to do a more novel study.
the thing I don't understand about money is, why don't more people make it? there's no law against creation of local currencies. some cities do have them. fortaleza, brazil, has a community with a currency called "palma", switzerland has the WIR bank, ithaca has the hour... it's problably the best way for a community to change, develop and become self-sustained. economically, ecologically, and in other ways. money is, in reality, just a contract, a document - shows that if you help someone, give something, someone else will help you, give to you. as long as the contract works... who cares who filled it out, printed the form, bill, wrote the software, or if it's electronic, paper, or just a paper ledger. the only hard part is creating a community that realizes it's in their best interest to run their own economic system. open-source software could perhaps benefit from adoping something similar for rewarding programmers more.
Build your own energy sources from scratch. http://otherpower.com/
Now, whatever one may think about the post you are quoting...he certainly is right in saying that Austrian economists are *very* dogmatic people. Austria is a deeply "social-capitalist" (read: Socialism Light) country, we have no political or otherwise opposition (all our parties are either socialist or nationalsocialist, with the exception of the Young Liberals which only ran for the EU elections and got almost no votes because they couldn't afford an election campaign) to that dogma here, and it likely will stay in place for a long time.
A good education is a bit like a STD - it makes you unsuitable for a lot of jobs and gives you a desire to spread it.
Any researcher worth its salt will have to first and foremost look at EVE Online's economy. The game is driven by its economy, not the other way around.
They you can look at toys like WoW or Everquest, if you want a simpler model.
Um, well, the "Austrian School of Economics" has its origins with St. Thomas Aquinas in Spain, and doesn't really have anything to do with Austria and its government or politics.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
Interesting theory. Should I subscribe to your newsletter? I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better?
The problem is that money as a store of value is problematicc because people can't just wait forever for food/electricity/clothes/housing, an austrian run economy would quickly devolve into one where there would revolution I have no doubt, because they'd be forced to realize the world is a physical place and their theories of human action break under constraints of physics and physical systems and their transformation.
Any theory that does not account for how the world actually is physically integrated into the economy is laughably naive.
But it's exactly the Fed and central banking policies that interferes with that process.
But you're missing my point, the instability would not go away! You're missing the physical aspects of the economy, if x amount of people are umemployed for Y time and their money is quickly depleting, you can't have that happen to a huge population without huge political discontent and in the worse case scenario revolution.
Everyone (anyone who is anti-fed) assumes that moving back to a gold standard or some other currency is going to fix thing - it is not, you're just trading one set of policies for another, the fundamental problem of specialized society connected by interlocking and highly unstable trade networks, and technological displacement is still there.
By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.
Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not. People are the cause of bubbles not anything else, and because we live in a specialized society the effects of too many people failing at once is transmitted through the whole system and that means I get fucked for someone elses stupid economic decisions, austrians take a hyper individualistic view of the economy that is simply not real. Group of persons actions A far away from me can economically have negative effects on me without my consent.
Theit whole big push of "no initiation of force" is a farce, since monetary systems require the initiation of force else you would have rampant counterfeiting.
I don't know where you got this idea. Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining. And all this mis-allocation of resources is caused by central planners like the Fed sending the wrong signals to investors and consumers.
No there are different kinds of inflation, this is the whole problem to begin with. Once someone is taught somethign about economics by people they admire, or they are ideas they fancy. They are usually never willing to question it because that's what they've been taught. Inflation occurs for many reasons.
I'm not a big believer in economists understanding of inflation because the physics of how economies physically work. Once you stop thinking in terms of theory and in temrs of observable physical systems you come to understand money is a political conveneience to distribute debt and obligation, since money itself is a double edged sword as a medium of exchange.
Now I'm not saying I have all the answers, but I do know that the way we currently think about money and how we calculate the allocation of resources and obligations in society has
You say that it is sustainable, please elaborate. Because unless you're ignoring the presence of interest rates, the money owed will always exceed money existing. This ends with people or businesses going bankrupt unless there is perpetual growth
This is basic economics, and has little to do with FRB. But anyway, the answer is that money circulates. As long as those who lent out money uses the interest they collect to buy stuff from those in debt, everything remains balanced. Theoretically I can pay back a $100 loan with a single dollar bill, as long as I pay it back $1 at a time, and the one I pay it back to keeps buying stuff from me.
Of course, the real problem here is that borrowing to consume is bad as you won't have anything that the borrower will want to buy after you consumed, so you won't be able to pay him back. Borrowing to buy something at bubble prices is also bad for the same reason. You won't be able to pay back what you borrowed.
Borrowing is best done on actual stuff that increases productivity. Specifically, when the interest on the loan is less than the productivity increase. In that case both parties of the transaction profit by getting part of the productivity increase.
I can agree with the way fractional banking works in the private sector. I don't think a bank should be regulated on how much money it holds in reserve. Instead, it should have to tell it's customers how much is held in reserve, then let the people decide if they want this bank or that bank. If there is a run on a bank, guess you learned your lesson the hard way.
The problem I have is that the FED doubled the money supply in a year. If that gets into the economy at large you will have to pay $10 for your average McDonalds meal. Most people will be confused and start some stupid campaign to have price fixing in fast food 'for the poor folk'. The whole time very few will realize who actually stole the value of the dollar.
Money is the root of all evil?
The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.
people of Zimbabwe beg to differ http://www.youtube.com/watch?v=7ubJp6rmUYM
Is there actually a "right" level of reserves that can withstand crises, though? Crises feed on themselves, and bank runs have happened throughout history. If people are really convinced that the financial system is going down, everyone will demand all their money, so the only safe level of reserves is damn near 100%. This can be mitigated somewhat if government props up the banking system, e.g. through deposit insurance, but it doesn't fix itself.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Unfortunately, pegging the money value to an arbitrary mineral isn't it.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
It IS outsourcing.
Right on for inflation. And the in-game inflation can be easily explained: It's too cheap to mine gold.
That's a pretty long-winded way of saying you don't understand economics. But at least it's a good starting point.
You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now. Maybe some day we could transition to something like the "reputation system" envisioned in Accelerando, but we have to work with what we have to work with now.
The arguments you make point to Austrian economics working better than anything out of Keynesian, as it is closer to following physical assets than the artificially controlled fiat money that Keynesians prefer. Yes, even with real assets being used as a medium of exchange, there will be bubbles and busts, but they will be very much limited to specific industries or companies, rather than across the entire economy like happens now. But that's because entrepreneurs have to make guesses about the future - it can't be predicted in any deterministic way, since it involves human behavior. But it's a better system than letting a few central planners make those guesses for everyone, because they can never be as accurate as millions of people making their own guesses based on experience and self-interest.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
You managed to have a bit of observational sanity. However, you would be better off rejecting monetarist theory. Try this. The physical economy is deflating, the money supply is hyper-inflating. Debt is increasing faster than money. So, big crash.
The historical analogy is to Wiemar Republic 1923. So we will have a blowout this year, perhaps as early as this month. Reasonable people differ on how bad it will be. This month I am looking at the October 19th to October 25th period specifically.
Anyway, at times I have favored Glass-Steigel approaches and I think you would have also. These would have been good say as late as 2007. Now they would be a joke.
The X dollars in circulation just have to circulate fast enough.
...building on bubble after bubble. But blaming it on FRB is just plain wrong.
I think you're confusing cause and effect. For example, in hyperinflation, it's true that people will tend to spend their depreciating money very quickly. However, the currency is not losing value because people are spending their money quickly; the currency is losing value because the government is rapidly expanding the money supply.
Why do you think we had deflation during most of the 19th century? Because people spent their money slower and slower? No, it was because the money supply was relatively stable, while the number of goods rose.
Did you ever notice that bubbles tend to grow when the fractional reserve banks are quickly expanding the money supply, and bubbles tend to pop when the rapid expansion finally slows or stops? There certainly seems to be a connection.
What blows my mind is how liberals often act like the Great Depression somehow vindicated their case against the unregulated free market. The reality is that the Austrian economists were vindicated. They said, "Don't inflate the money supply." But, of course, that's what the Fed and the FRBs did during the 1920's, and a bubble grew. The Austrians said, "Do nothing. Let the economy fix itself." But, unlike in previous panics, Hoover did not listen. He intervened, and the economy grew worse. Then Roosevelt intervened even more, and things got so bad that we now call it the Great Depression. And then there was WW2, which further devastated the economy. Finally, when the government lifted the war-time price controls, prosperity returned.
But now, Hoover is remembered as a non-interventionist, when he in fact intervened more than any president before him. Perhaps Bush will be remembered as a non-interventionist as well, because, just as Hoover did not intervene as much as Roosevelt, Bush did not intervene as much as Obama.
Here we are in the 21st century, and we still haven't learned out lessons. Look at what the Fed has done to the monetary base since October. That's a ticking time bomb. Also, we were told that if we didn't pass the stimulus, unemployment would go all the way to 9%. Well, we passed the stimulus, and now unemployment is 9.8% and still climbing! We've increased the minimum wage (i.e. made low-paying jobs illegal), extended unemployment insurance (i.e. took money from employers and used it to pay people to stay unemployed) and now teenage unemployment is over 20%. Isn't fucking with the economy fun?
Christ. Hopefully, when we start getting 1970's style stagflation, people will finally wake up and the pendulum will swing back towards the free market. But I'm not holding my breath.
There is, but unfortunately it's not the same level that's "right" for the non-crisis time. Ideally the financial sector would see the crises (or rather, the change in demand for or supply of reserves) coming and adjust, but that obviously doesn't happen when external shocks occur.
Antiquis temporibus, nati tibi similes in rupibus ventosissimis exponebantur ad necem.
Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not.
removing FED would work much better than what we have now. In 19th century the US economy was stable and after FED creation in 1913 we had several serious recessions.
Bubbles happen because there is fast, steady influx of new players who want to profit quickly - you only have to put some cash on the table to enter the game and 2 years later you get guaranteed +50% in return. Where do players get their money to enter from? They take loans. If there was a limited money pool and no central planning, interest rate would instantly shoot through the roof thanks to free market forces (when people compete for money from banks, interest rate raises). In such scenario the forming bubble meets its pin of doom much quicker because people are discouraged when IR starts to match projected profits. When you keep the rate of 1% for years no matter what (like the FED did), don't be surprised that everybody and his dog enters the game - after all money is almost free and almost guaranteed to pay for itself... until the supply of suckers runs out and the whole Ponzi scheme collapses.
What we had recently was a whole economic growth for a decade or even longer built upon bubbles of nasdaq, housing market and whatnot. GDP growth had nothing to do with productivity and other such worthless qualities, it was all hot air in the financial world playing with big virtual numbers. Such scenario would never happen with free market rules being the only ones defining the game.
Whole situation with central banks micromanaging the economy is like meddling with the ecosystem. You may think you can somehow make it 'better', but you just can't do it right - unintended consequences of your actions will always bite you in the ass. The system will find it's equilibrium by itself
Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining.
Prices depend on the velocity of money, too. If everyone decides to hang on to their money more tightly, so that each piece of it changes hands half as often, say, then the amount of money in the system can be increased without causing inflation. Making it impossible to adjust your money supply (which is all the gold standard really achieves) doesn't eliminate inflation and deflation, it just removes a potentially valuable policy response to changes in things like consumer confidence and the savings rate. That's why economies that took longer to leave the gold standard took longer to come out of the great depression - they couldn't respond to the fall in the velocity of money by creating more.
You also shouldn't just assume that inflation is always and necessarily evil. Especially not in the presence of price and wage stickiness - in some areas of some economies it's as near to impossible as makes no difference to reduce wages in nominal terms. A low level of inflation is quite possibly a good thing.
You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now
All tangential discussions of the value of money aside, I believe the studies will point out two things:
(1) That it's quite possible to get a grant to play computer games (disclosure: level 80 characters here, plural, think it's a good idea ;P);
(2) People may become aware that money exists primarily as numbers registered in one of a number of accounting systems, and nowhere else. If you think about it, most MMORPG's have a hierarchical system of banks and a means for transferring numbers (call it "gold pieces" or "plat" or "lindens", it's still decimal currency) from one account to another.
(3) Most game EULA's specifically forbid trading in-game items for real-world (!) valuta, presumably to make it more attractive and to keep the tax people away;
(4) ...???
Do not mock my vision of impractical footwear
the money supply is hyper-inflating
The money supply is hyper inflating? M1 yes, but not everything else that is used as money. Printed money is up a lot as the federal reserve is trying to compensate the loss in debt and asset money (which they can't without really causing hyperinflation. But that money is mainly sitting in bank vaults so far, acting as little but deleveraging money.
If it actually started getting out to the population, then we could start seeing inflation. But as companies aren't borrowing, and consumers aren't borrowing, and banks aren't lending, the only way that will happen is through the government. Well, make that the federal government, because the states are broke also.
There is simply no demand to buy anything as everyone is trying to get out of their debts at the same time. When demand is lower than supply, prices go down, not up. You can't just force people and companies to start buying stuff when they don't want to.
There are real things in the economy that are unsustainable. Having the debt levels rise faster than the income levels would be one such thing. Having the lower and middle class owning a lesser and lesser percentage of the wealth would be another.
Fractional reserve banking by definition causes debt levels to rise faster than income levels since it is ultimately income which provides the reserve which is only a fraction of the lending. Allowing banks to create chequebook money out of nothing and lend it out at usury causes a transfer of wealth to them from the lower and middle classes. The problems you cite are intrinsic to FRB. They are features, not bugs, remember the banks came up with this fraudulent system to benefit themselves, not their customers.
Finally, you need regulators and law makers who generally aren't corrupt to ensure that the FRB system isn't abused.
Ok, let's implement fractional reserve banking AFTER you find out how to ensure a constant supply of regulators and law makers who generally aren't corrupt.
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The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.
It does, however, have good decorative value with substantial social and reproductive benefits for those who bestow such decorative pieces wisely.
for every X dollars in circulation there is always X+Y debt.
I thought it was actually that there was X-Y debt.
A common misconception. Debt is the basis for most of our currency supply, that's why loan defaults cause deflation. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the money supply expands by the size of the loan.
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I think you're confusing cause and effect. For example, in hyperinflation, it's true that people will tend to spend their depreciating money very quickly. However, the currency is not losing value because people are spending their money quickly; the currency is losing value because the government is rapidly expanding the money supply.
Inflation: Supply decrease, demand increase, money supply on main street increase
Deflation: Supply increase, demand decrease, money supply on main street decrease
Did you ever notice that bubbles tend to grow when the fractional reserve banks are quickly expanding the money supply, and bubbles tend to pop when the rapid expansion finally slows or stops? There certainly seems to be a connection.
Cause and Effect. Why is the fractional reserve banks expanding money supply. Simple, because there is demand.
They said, "Don't inflate the money supply."
The M1 supply has always lagged behind the market, not the other way around. But austrian economists are just as little interested in facts as the keynesian economists.
" But, unlike in previous panics, Hoover did not listen. He intervened, and the economy grew worse. Then Roosevelt intervened even more, and things got so bad that we now call it the Great Depression. And then there was WW2, which further devastated the economy. Finally, when the government lifted the war-time price controls, prosperity returned.
Talk about rewriting history.
But now, Hoover is remembered as a non-interventionist, when he in fact intervened more than any president before him. Perhaps Bush will be remembered as a non-interventionist as well, because, just as Hoover did not intervene as much as Roosevelt, Bush did not intervene as much as Obama.
No, Obama would be Hoover. He is intervening, but in all the wrong ways. Just like Hoover. And he probably thinks the worst is over. You can't fix the problem until you face reality. And most people haven't faced reality yet.
Here we are in the 21st century, and we still haven't learned out lessons. Look at what the Fed has done to the monetary base since October. That's a ticking time bomb.
Yeah, just like it was when Japan did the same. Or to take your favorite example, the US during the great depression. Of course, this time they have added quite a big and quite quickly. But it won't help.
Also, we were told that if we didn't pass the stimulus, unemployment would go all the way to 9%. Well, we passed the stimulus, and now unemployment is 9.8% and still climbing! We've increased the minimum wage (i.e. made low-paying jobs illegal), extended unemployment insurance (i.e. took money from employers and used it to pay people to stay unemployed) and now teenage unemployment is over 20%. Isn't fucking with the economy fun?
Fucking with the economy? During the 90s and 00s, the economy had the least regulation since the great depression. Reagan and the following presidents all saw to that. The Austrians got what they wanted. Of course, they forgot to include the corruption that comes with it. They always do, because Austrians economy is like a game economy. Totally unrealistic when actually implemented in reality.
Fractional reserve banking by definition causes debt levels to rise faster than income levels since it is ultimately income which provides the reserve which is only a fraction of the lending. Allowing banks to create chequebook money out of nothing and lend it out at usury causes a transfer of wealth to them from the lower and middle classes.
Bullshit, bullshit and bullshit.
The reserve is a multiplier of the base money supply which varies depending on the current economy's demand for money. The multiplier also has a cap which is dependent on the reserve ratio, but it rarely comes into play, as it is the demand of the economy that dictates everything, and not the other way around. Banks can at most be more or less leisurely with how they lend out money, and as such what risks they take. But that is it.
Btw, It is only in the last 30 years with consumer borrowing that debt has gone out of control, and not in every country. And that has little to do with FRB, and more to do with insanity of everyone involved. Consumption debt is bad, plain and simply.
But they aren't creating money out of nothing. They are lending out the same money you deposited. No different than if I have borrow 100 dollars from you and lend it to my friend. Of course, I did it without keeping any reserves at all. If you deposit money into an account, then you should be aware of that. Otherwise you truly are an idiot. Because, how else did you think the banks created that interest. It wasn't by letting your money sit in the bank vault was it.
Oh, and if you think the constant inflation through the 20th century has anything to do with FRB, then you are wrong. Constant inflation is about the government using fiat money to tax people. Nothing more, nothing less. Over time 2% tax a year does add its toll, so it looks like a huge degradation of worth in money. But compared to the total tax pressure, it is actually not that big of a tax.
Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining.
Prices depend on the velocity of money, too. If everyone decides to hang on to their money more tightly, so that each piece of it changes hands half as often, say, then the amount of money in the system can be increased without causing inflation. Making it impossible to adjust your money supply (which is all the gold standard really achieves) doesn't eliminate inflation and deflation, it just removes a potentially valuable policy response to changes in things like consumer confidence and the savings rate.
Here, you are just talking about some of the mechanisms of inflation. A better way to describe it is the amount of capital in the system. If, as you suggest, the response to reduced spending is for a central planner to increase the amount of fake money, then prices are propped up when they should naturally be falling. Eventually this will catch up with you when people start spending, and you'll have to raise interest rates and inflation will take off.
This "potentially valuable policy response" that you advocate is simply a way to interfere with the ability of people to make rational decisions about spending and saving, and prevent any corrections in resource allocation from occurring where they should.
That's why economies that took longer to leave the gold standard took longer to come out of the great depression - they couldn't respond to the fall in the velocity of money by creating more.
I'm afraid you've been misinformed. The US was one of the last economies to recover from the Great Depression, precisely due to the application of the policies you favor. They didn't "go off the gold standard" at all until 1971. Rather, FDR confiscated all the gold, then decided the US dollar was worth about 1/2 of the amount of gold it was worth before. Huge inflation of the money supply. None of this worked - unemployment in the US remained about 18% until WWII.
You also shouldn't just assume that inflation is always and necessarily evil. Especially not in the presence of price and wage stickiness - in some areas of some economies it's as near to impossible as makes no difference to reduce wages in nominal terms. A low level of inflation is quite possibly a good thing.
Yes, you are correct. But inflation should be driven by the resources available, demand for various goods, and the level of labor available, not by some central planning facility trying to manage everybody's decision-making. The natural level of inflation in a gold-backed monetary system is about 3%, as that's the typical amount of gold entering the economy each year. But that's mitigated since the practice of mining, refining, and distributing gold is real work, actual effort that provides value and jobs.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
Fucking with the economy? During the 90s and 00s, the economy had the least regulation since the great depression. Reagan and the following presidents all saw to that. The Austrians got what they wanted. Of course, they forgot to include the corruption that comes with it. They always do, because Austrians economy is like a game economy. Totally unrealistic when actually implemented in reality.
No, Austrians didn't get what they wanted - interest rate was not decided by the free market forces but by arbitrary decisions of the FED. When people rapidly get loans in ridiculous amounts, it should end up quickly raising interest rate to the 2-digit range, yet it was kept near 0 because it stimulated the economy, kept that frightening R-thing at bay and produced nice GDP growth numbers - debt driven consumer spending is so good and financial institutions leveraged 50:1 have ridiculously high profits to show to their shareholders. Politicians are happy, voters are happy, disaster is around the corner. Meddling with interest rates in a way FED did is anything but Austrian economists' wish.
He notes, for example, that changes in M2 are preceeding changes in M0 (which by itself invalidates Austrian theory, by the way).
No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.
But not always the debt is unsustainable - if you have real growth, then growth in debt can be sustainable. That's the basic advantage of FRB with respect to gold standard - unlike gold standard, FRB can adapt money supply to finance real growth.
And how do you determine what is "real growth"? We had lots of growth during the dot-com boom, financed by cheap debt. Yet, it couldn't be sustained. I wonder why? Keen (and Minsky) don't seem to be able to explain this. They continue to proposed the same policies that failed then, and are failing now.
With gold standard, it pays off to hold on money during real growth, because money increase value, and it means nobody wants to invest.
Actually, the opposite is true. You don't get "growth" by holding onto money, even if it's gold. Even on a gold standard some inflation occurs. The only way to increase your saving (or keep it from losing value to inflation over the long term) is to invest that money in some value-creating enterprise.
But they are both inherently unstable, because the debts can grow even if there is no corresponding real growth.
Exactly. Especially when, for instance, the Fed keeps interest rates artificially low, creates a housing bubble, and people borrow money against and artificially inflated home value. If the interest rates were allowed to go up in response to the reduced savings, the bubble would not grow so large and the adjustment would be short and easy to deal with, instead of creating a global crises like this one did.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
"That's a pretty long-winded way of saying you don't understand economics. But at least it's a good starting point."
This is exactly why I don't talk about economics, you exemplify my point:
"Most people are way too narrowminded to entertain thoughts that don't speak their language or to their master conceptions or theories they fancy, thats what I hate about not just austrians, but all economists."
You think I don't understand but that's simply not the case. No man has a monopoly on the truth and there are many different paths to it and ways it is expressed, you dislike the way I express my factual observations so you accuse me of not understanding economics. This is EXACTLY why I often avoid such discussions. People tend to pre-decide their positions and then look for reasons to support those positions, and if someone disagree's the accuse that person of not understanding economics, it's 100% bs though I'm sorry to say.
This is exactly why debate is most fruitless since it has been precided by the a group of persons what is or is not, so there is no room for discourse.
for every X dollars in circulation there is always X+Y debt.
I thought it was actually that there was X-Y debt.
A common misconception. Debt is the basis for most of our currency supply, that's why loan defaults cause deflation. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the money supply expands by the size of the loan.
But if everyone defaulted on all their loans, you're saying we'd end up with a negative money supply, rather than just a very small positive one?
This is a good monetarist argument, but I find it hard to make predictions about reality based on something that is not real. The fundamental issue in economics is the nature of wealth. People early on tried land and gold. Here I am being a little cynical, but I think it fair to say the Soviet Union tried the sweat of the worker. Now the question is deliberately obscured as inconvenient.
I claim the monetarists says wealth is money. Gambling money, farm money, all the same. But we know the Weimar Republic had plenty of money. We have plenty of money. Sort of adapting to your view, I claim that at the present time, adding money to M1 increases non-productive sinkholes by more than the addition, thus even the hyper-inflation of M1 simply makes the matter worse. The debts cannot be paid.
The multiplier also has a cap which is dependent on the reserve ratio, but it rarely comes into play, as it is the demand of the economy that dictates everything, and not the other way around.
Control of interest rates (the price of loans) is used to influence demand up or down as seen fit by the central banks. That's the point of them and openly acknowledged so I don't see how anyone could dispute this.
But they aren't creating money out of nothing. They are lending out the same money you deposited.
If they are lending out my money, why doesn't my available balance go down when someone takes out a loan? Clearly it is not the same money, it can not simultaneously be available to me and the borrower. Think about it, many people have a mortgage on their house, very few people have enough savings to loan enough to buy a house. If they are just loaning out deposits then for every person who takes out a $250,000 loan for their house you need other people with net savings (savings - loans) of $250,000. Do you really think that for every person with a $250,000 loan there are 10 with no debt and $25,000 in savings? Where are they?
What about loan defaults causing deflation, how is that? If the loan money was existing money none of it would disappear on default (no deflation), the borrower would be bankrupt, the lender would lose money but the money itself would still be in circulation. Don't take my word for it though, check what the Federal Reserve Bank of Chicago has to say: http://www.chicagofed.org/publications/fedcentralbank/fedcentralbank.pdf
To achieve this goal, the Fed works to control money at its source by affecting the ability of financial institutions to "create" checkbook money through loans or investments.
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No man has a monopoly on the truth and there are many different paths to it and ways it is expressed, you dislike the way I express my factual observations so you accuse me of not understanding economics.
I didn't accuse you of that, you stated it yourself. And I pointed out that it's a good starting point, because no one person or small group can understand macro economics well enough to be able to plan and manage it. Which is the point.
If I didn't response to some of your points that you felt were relevant, it's because I didn't understand your basis or point you were trying to make. Yes, there are many "ways it may be expressed", etc., but you have to find some common ground that allows you to communicate with someone else. That's great that you have some unique "view of truth" and "way of expressing" it, but the hard part is finding a way to communicate it with someone else.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
But if everyone defaulted on all their loans, you're saying we'd end up with a negative money supply, rather than just a very small positive one?
No:
(X+Y)-Y=X
even if Y>X
For clarification on this check what the Federal Reserve Bank of Chicago has to say: http://www.chicagofed.org/publications/fedcentralbank/fedcentralbank.pdf
To achieve this goal, the Fed works to control money at its source by affecting the ability of financial institutions to "create" checkbook money through loans or investments.
If the Fed confirms that financial institutions create money through loans can I stop having this debate with people over whether this is actually so? Here is the frightening reality: most people in our society are trading their time and services for something they have no clue as to the origin or real value - dollars. This is a site that represents a higher level of education than most and look at the threads on this topic, you will find an appalling level of ignorance regarding a good we spend a great deal of effort obtaining.
http://marriedmansexlife.com/
No doubt about it. I may have misconstrued your post and I apologize for that but I've had discussions with people with such people directly and they are often very immune to any kind of dialogue.
Thank you for the interesting reply.
The study would be useful, only if we printed our money without any regard to the amount of it. That is the basic problem there, there can be no lack of credit in virtual economies, while we know there can be one in the real world.
Next, you have to transform most entities in the virtual world into entities in real one. Because, you will never have a raw diamond more expensive, than a well crafted diamond jewel in real life. Yet, in WoW it is usual to have items that are found raw more expensive, than those that are crafted.
Yeah, uh, you kind of miss the point here. Rothbard, "Fractional-Reserve Banking" and "Anatomy of the Bank Run", game over, you lose.
The problem with FRB: it constitutes fraud. While I maintain that this statement is prima-facie obvious, I have the feeling that it will escape some portion of the crowd, so we'll try a thought-experiment.
"Fractional reserve" banking says that for every, say, $1000 of demand deposits (ex. checking accounts), the bank need only keep some fraction available at any time, on the theory that not all $1000 will be demanded at once. Yes, that's sort-of true - statistically, most of the time, most people will be content to leave it in the bank, and only call it out as-needed. Most of these calls for money will, in turn, be deposited in another bank, thereby adding an extra level of "protection": inter-bank transfers can be "batched" and resolved on different time scales than the demand-deposit processing (e.g. accounts squared at end-of-day, end-of-week, whatever).
However, what the bank is saying when you deposit money in a demand-deposit account - "your money is available for withdrawal at any time of your choosing" - is, literally, not true. *Your* money has disappeared into someone else's pocket, in that it has been loaned out to some other party as soon as it hits the bank. This is not a "theoretical" untruth - it is a real untruth, in that at all times, the bank is illiquid, i.e. does not possess sufficient capital to redeem all its demand-deposit accounts on actual demand. This is what is referred to in any other instance as "constructive fraud". It is useful to compare this to the eponymous Ponzi scheme, where the fraud consists of there being no actual capital or investment to satisfy the promised payout schedule to current investors, requiring that new investors be found to service existing obligations.
This is not the worst feature of fractional-reserve banking, though. FRB is the gateway for the money multiplier and hence inflation; a bank with a reserve requirement of 5% (larger than the current reserve requirements, note; I believe they're hovering at less than 1%) can, with a deposit of $1000, immediately turn around and loan out $950 of that money. This functionally doubles the amount of money in the economy ($1000 of "fantasy" money, and $950 of "actual" money floating around). That $950 typically gets deposited in *another* fractional-reserve bank, almost invariably with the same reserve ratio (set by the central bank, and reinforced by consumer preferences; ceteris paribus, a higher reserve ratio implies lower interest rates on deposits, providing customers incentive to move their deposits to another bank), at which point the cycle starts again ($950 in "fantasy" money, of which $47.50 is kept on-hand, and the remaining $902.50 lent out). This multiplies that original $1000 of "real" money to something like $20,000 in terms of its real economic effect. SUPRISE INFLATIONSECKS LOL. Then, when you start printing up more money (cue the Fed) and tweaking reserve ratios (cue the Fed again), you wind up with - wait for it - more inflation. Inflation has well-known and universally-observed destructive effects, penalizing saving and encouraging increasing amounts of debt, since debt is paid off with future money that is worth less than the original loan. How's that working out for us so far?
(Side note: it is instructive to note the identity between fiat currency and counterfeit, with the only difference being the identity of the printer of money.)
Austrian economic theory consists of the "duh no-shit" observation that this has an effect on the economy - inflation makes money cheaper to obtain (hey, they print it for nothing!), thereby making marginal enterprises "profitable" under inflationary conditions. This produces the "boom". When those conditions cease - there is an lower bound on the worthlessness of fiat currency, beyond which it is not used except as kindling - all of those bad ideas *come home to roost*, with the acc
I am Chaos. I am alive, and I tell you that you are Free. -Eris
If the Fed confirms that financial institutions create money through loans can I stop having this debate with people over whether this is actually so?
Um, I know they create money that way. But the amount of money created is the same as the amount of debt created, not less. So the question is where the initial money comes from... which I think is the government printing bills or the electronic equivalent, and I don't think these involve debt. They certainly don't involve more debt than the amount of money produced.
...looking at your earlier reply, "Debt is the basis for most of our currency supply, that's why loan defaults cause deflation.", I think we're saying the same thing: creating a certain amount of debt creates an equal amount of money, but there is a little bit more money than debt.
Um, I know they create money that way. But the amount of money created is the same as the amount of debt created, not less. So the question is where the initial money comes from... which I think is the government printing bills or the electronic equivalent, and I don't think these involve debt. They certainly don't involve more debt than the amount of money produced.
Then what we have is not a misunderstanding of the concepts involved but an unclear explanation on my part. I (and I assume causality, who you originally replied to) was referring to the printed money as "money" or X and the checkbook money as "debt" or Y. So debt will be only a portion of the total money supply but is always much larger than the supply of printed money. In fact, just the interest on Y can be larger than X. I assume that this is what causality was referring to as it means we have a mathematical requirement of a constantly expanding money supply to repay the debt. This can either be in proportion to the goods and services produced, requiring an infinitely expanding use of resources, or through price inflation.
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Here, you are just talking about some of the mechanisms of inflation. A better way to describe it is the amount of capital in the system.
Capital is something you can use to create a stream of (real) goods and services - a factory, a shop, a train, a house. You can't (directly) change the amount of capital there is in an economy by creating and destroying money. Money is, in essence, no more than an assignment of abstract numbers to people. It's pure information.
If, as you suggest, the response to reduced spending is for a central planner to increase the amount of fake money, then prices are propped up when they should naturally be falling.
Firstly, why should they be falling? What does having the price of everything fall or rise achieve that an increase in the money supply with constant prices does not?
Secondly, price falls are a very difficult process to a point where this process doesn't really work. This is really the nub of it, if prices were not sticky the gold standard would work. Workers and unions defend wages, firms may need their input prices to fall before they can fully reduce their output prices, competitors wait for someone else to move first, homeowners hold out for house prices which are months or years out of date, etc. Prices stay high for months or years and resources get underused, including labour. If everyone could agree to reduce their prices together there'd be no problem, but it's a coordination nightmare compounded by money illusion. Why bother when the state can adjust the money supply? It's like changing the clocks to do daylight saving....we /could/ have the same effect by all agreeing to adjust all of our schedules, opening times, etc. all at once on the same day whilst keeping the time the same. But it's much easier to change the defined time of day.
Eventually this will catch up with you when people start spending, and you'll have to raise interest rates and inflation will take off.
Which is just saying that the other side of increasing the supply when the velocity of money falls is that you have to reduce it again when it rises. That can be done. It won't be done perfectly, I'm sure, so there'll be too little or too much inflation; but that doesn't mean that a fixed money supply is better.
This "potentially valuable policy response" that you advocate is simply a way to interfere with the ability of people to make rational decisions about spending and saving, and prevent any corrections in resource allocation from occurring where they should.
The policy response is a response to irrational decision making. I'm sure that amongst the 25% unemployed in the depression there were butchers who wanted bread, bakers who wanted meat, farmers who wanted tractors, engineers who wanted corn, etc. There must have been many valuable trades which just didn't happen because the normal economic decision making systems were broken. Even if the individual spending and saving decisions were rational the systemic decisions were not, and there was clearly nothing even approaching a correct resource allocation.
Yes, you are correct. But inflation should be driven by the resources available, demand for various goods, and the level of labor available, not by some central planning facility trying to manage everybody's decision-making.
Why should it be driven by those things? Relative prices should (in the absence of specific market failures, etc, of course), but why the absolute price level? It's only an arbitrary number, it doesn't represent anything. And managing certain aspects of the decision making in a system-wide way is the whole point. Sometimes the system makes utterly terrible and tragic decisions even as individuals act rationally. It's foolish not to mitigate this.
The natural level of inflation in a gold-backed monetary
Firstly, why should they be falling? What does having the price of everything fall or rise achieve that an increase in the money supply with constant prices does not?
Well, your premise was that you could increase the money supply without inflation when "everyone decides to hang on to their money more tightly". The response that should be to drop prices, so people will buy more. Not sure what else you were referring to - if people are holding on to money, they are not buying goods, yes? So maybe because prices are too high?
Secondly, price falls are a very difficult process to a point where this process doesn't really work. This is really the nub of it, if prices were not sticky the gold standard would work. Workers and unions defend wages, firms may need their input prices to fall before they can fully reduce their output prices, competitors wait for someone else to move first, homeowners hold out for house prices which are months or years out of date, etc. Prices stay high for months or years and resources get underused, including labour. If everyone could agree to reduce their prices together there'd be no problem, but it's a coordination nightmare compounded by money illusion. Why bother when the state can adjust the money supply? It's like changing the clocks to do daylight saving....we /could/ have the same effect by all agreeing to adjust all of our schedules, opening times, etc. all at once on the same day whilst keeping the time the same. But it's much easier to change the defined time of day.
You're making a preconceived assumption that everything has to be centrally planned. BTW: when industries do this it's considered price-fixing and is illegal. Somehow government or the Fed should do it instead? Why not just let the prices correct themselves. If people aren't buying buggy whips, maybe the buggy whip factory should just shut down. If people aren't buying much wheat, farms should cut back on production. If a labour union won't allow a business to lower wages or layoff workers even when people are buying less of their product, the company should go out of business. Yes, that means some will go through hard times. But that's better than putting everybody through hard times to keep a business going that is doomed to failure anyway.
Which is just saying that the other side of increasing the supply when the velocity of money falls is that you have to reduce it again when it rises. That can be done. It won't be done perfectly, I'm sure, so there'll be too little or too much inflation; but that doesn't mean that a fixed money supply is better.
Whether it's a fixed money supply or not is not the issue. The issue is that millions of people are better at deciding where that level should be is orders of magnitude better than letting a small group make that guess. They are far more likely to be wrong.
The policy response is a response to irrational decision making.
No it's not. It's a response to its own prior poor policy decisions
I'm sure that amongst the 25% unemployed in the depression there were butchers who wanted bread, bakers who wanted meat, farmers who wanted tractors, engineers who wanted corn, etc. There must have been many valuable trades which just didn't happen because the normal economic decision making systems were broken.
Yes, they were. Broken by poor policy decisions. For instance - food prices under FDR were considered (by farmers) too low, so the policy response was to destroy crops and pay farmers to not grow food. Yea, well... it worked to raise food prices, but how did that really help anybody else?
Why should it be driven by those things? Relative prices should (in the absence of specific market failures, etc, of course), but why the absolute price level?
Because that's how rational resource allocation occurs. If a loaf of brea
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
There are two ways in which people can deal with one another. Money, or guns. Any person who claims to hate money makes his preference abundantly clear.
Spoken like someone who really can't back up what he says with either logical or factual analysis.
In addition to that, I would add that money that is held in a savings account under a gold standard is loaned out. Even if the person who had wealth were to take their money and put it in a safe for a hundred years, it is still doing good. It makes all the other gold held by every other person more valuable, as he has reduced supply. He has pumped power into the economy in exchange for nothing, or at least a highly delayed reward.
In a fiat system, on the other hand, that money that is hoarded away is simply reallocated to the government and used to kill people. Seriously, the reason central banking was first initiated was so that wars could be fought without imposing demoralizing taxes on the people (the taxes were, and are, invisible, in the form of inflation), and were delayed enough so that people couldn't connect the dots. After all, why should a war that ended three years ago be causing the cost of bread to double today?
That's great, except for the fact that the fed burns (literally) the money that it gets in order to fight inflation. It doesn't continue circulating.
Why do you think we have such a huge national debt? How on earth could Americans have accumulated on average $200K+ in debt individually over the last thirty years?
If you think that's sustainable, I have a few bridges I'd like to sell you.
The system you described is classical fractional reserve banking. Understand, however, that we no longer operate under that system (why it is still called fractional reserve banking is beyond me). Rather, for the vast majority of transactions, there is no reserve requirement. That's right, THE BANKS CAN GIVE OUT AS MUCH MONEY AS THEY WANT, REGARDLESS OF RESERVES. This is what people are referring to as "printing money", although that takes other forms as well, mainly with the Fed printing money to buy treasuries or other debt.
I would advise anyone reading this to buy gold and silver. Those green things in your wallet aren't going to be worth the paper they're printed on soon. I can't say when exactly, but I would give it less than five years, and al little as three months (the dollar is declining as we speak).
... of Russian Roulette.
In Soviet Russia, economy plays you!
Have gnu, will travel.
>If that gets into the economy at large you will have to pay $10 for your average McDonalds meal.
Don't they already come in at $6 or $7 ?
-fb Everything not expressly forbidden is now mandatory.
>Here is the frightening reality: most people in our society are trading their time and services for something they have no clue as to the origin or
>real value - dollars.
It's even scarier when you realize that the same people would be hard pressed to try to identify any preferable basis for barter.
-fb Everything not expressly forbidden is now mandatory.
I'm surprised there's no discussion about the Linden Dollar (Second Life currency) which has a full-fledged external exchange. There have been quarters where the LindenX outperformed the Dow.
Of course, I do everything in SL Creative Commons gratis or for barter, but there are only a handful of players who seem to understand why I don't like the in-world economic idiom being "the Dollar." I think people who can conceive of an economic system that involves anything besides "shopping" and "paying retail" are scarce.
-fb Everything not expressly forbidden is now mandatory.
No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.
I don't think they knew, at least at the beginning of the crisis. It wasn't obvious at all. Anyway, your statement makes any statement about economics irrefutable, because we can always argue "they knew the government will do this and that". I think you would have to come up with proof that they knew that (for example, internal communication among banks) for me to believe this.
And how do you determine what is "real growth"? We had lots of growth during the dot-com boom, financed by cheap debt. Yet, it couldn't be sustained. I wonder why? Keen (and Minsky) don't seem to be able to explain this. They continue to proposed the same policies that failed then, and are failing now.
You can't determine that - that's whole point of investing. But the point is, real growth does exist - we have advances in manufacturing and society. Albeit it isn't 3% per year like GDP shows.
Actually, the opposite is true. You don't get "growth" by holding onto money, even if it's gold. Even on a gold standard some inflation occurs. The only way to increase your saving (or keep it from losing value to inflation over the long term) is to invest that money in some value-creating enterprise.
Well, if you are saying that you get inflation under either system, what's the difference? Ideally, you want to increase money supply to match the real growth (which is tricky, because you don't know what it is). If you don't supply enough money, the value of money not invested will grow by itself. If you supply too much, you will get inflation. The gold standard fails with the first situation, and the FRB may fail with the second. Do you also realize that the gold standard is a limit case of FRB (when the fraction is 1)?
Exactly. Especially when, for instance, the Fed keeps interest rates artificially low, creates a housing bubble, and people borrow money against and artificially inflated home value. If the interest rates were allowed to go up in response to the reduced savings, the bubble would not grow so large and the adjustment would be short and easy to deal with, instead of creating a global crises like this one did.
So you agree with me that the real problem has nothing to do with FRB, but rather with lending (with interest) in itself?
That's a pretty long-winded way of saying you're an "Austrian" religious zealot.
Fuck systemd. Fuck Redhat. Fuck Soylent, too. Wait, scratch the last one.
If THE BANKS CAN GIVE OUT AS MUCH MONEY AS THEY WANT, why was the biggest short term problem with the recent crisis, that banks could not borrow money from other banks*? If they could just give out money they would not have any need to borrow.
And I admit i don't know how the USA bank system work, but banks in the rest of the world can't lend money they don't have so if the bank want to lend me 1$ it need to either have a person who have 1$ on his account, or the bank need to borrow 1$ from an other bank**
With fraction, i think you may be talking about the 8% rule which govern the ratio between the maximum allowed lending and the banks capital (It does in no way allow the bank to lend 10 times the customers deposit)***
Funny fact: the ratio between ingoing and outgoing money in Denmarks largest bank(Only talking about its danish branch, they did some insane things is other countries) is really close to 1:1 meaning that all the money they lend out, are money they got because other of their customers deposited them there.
*The inter-bank marked froze, because each bank suddently were unable to determine how risky borowing money to an other bank was.
**And this was what almost stopped, when the crisis hit. And no the national bank/federal reserve don't just lend out money long term(Normal limit is 14 days) to any bank that ask. If they did there would be no bank crisis.
***The banks capital is money that the bank own(Not money customers have deposited in the bank). The banks capital can come from either investors in the bank(That's how you start a new bank), or from profit from the previous years.
> There are two ways in which people can deal with one another. Money, or guns.
Spoken like a true virgin slashdotter.
Well let's see now. We have fiat currency instead of representative currency (an example of which is the gold standard). Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?
Interesting thought - I think I agree (if I have understood what you are saying correctly). But isn't indebtedness at the very basis of Capitalism, at least as we know it? To me at least, it seems that "growth" is the central theme in Capitalism, and the idea that one can somehow "create wealth" is put forward as a fundamental truth; but it always presupposes the existence of unlimited resources that we can "borrow" from. I say "borrow" because these resources are in reality not unlimited, but have been laid down by natural processes over a long time - at some point they will run out, and we will have to "pay back" our debt, in a sense. Future generations will have to pay for our lack of concern.
Capitalism as it is known now, will never be sustainable, because sustainable means, in the long run, zero growth.
I very much doubt that online games can ever provide any decent economic modelling. The things that make most people risk-averse in the real world are largely mitigated online.
It may be terrible to lose your character or his equipment in the MMORPG universe, but you'd have to be pretty far gone in order to feel the same way about that as you would about losing your job / house / car.
But isn't indebtedness at the very basis of Capitalism, at least as we know it?
Indebtedness is the basis of pretty much any system involving money. (Capitalism is different, I don't think there's any reason why you couldn't have capitalism without money). Suppose I, say, wash your car and you give me $10. What does that $10 represent? The fact that I've done something for the rest of the economy and it hasn't yet returned the favour. ie, my ownership of it represents a debt, in a very plain and old fashioned way. Since the whole point of money is to represent debts of this sort I don't think you should be scared that money is constituted as debt. It's getting the amounts wrong - people getting in to obligations they can't keep - that's the potential problem, not that money represents debt.
Capitalism as it is known now, will never be sustainable, because sustainable means, in the long run, zero growth.
Economic growth doesn't equate to the exploitation of more and more resources, or the creation of more and more physical stuff (although doing so can cause growth). Economic growth means growth in the value that we all extract from our economic activity. Doing more and better things with fewer resources represents growth, just as much as doing more by using more resources does. Obviously the heat death of the universe will get in the way eventually, but there's no reason in principle that the economy can't go on creating more and more value for a very long time.
(That's not necessarily the right thing, of course. It's conceivable that less value but more leisure time for everyone would turn out better, for example).
No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.
I don't think they knew, at least at the beginning of the crisis. It wasn't obvious at all.
So, you've never heard of the "Greenspan put"? The bankers and Wall Street certainly have.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
And what backing do you propose? Gold? Largely artificial value. When someone finds a new gold vein, you suddenly have devaluation of the currency, because the supply increases, but you have much worse problems than that. The big one is that there is no incentive to spend.
Lots of posters in this thread seem to thing that inflation is bad, but in limited amounts inflation is essential for an economy working on existing principles. Money is used for two things; as a medium of exchange and as a store of wealth. It is good at the former and incredibly bad at the latter. Inflation encourages people to use it as the former because it does not hold its value. With currency that holds its value (or, worse, increases in value over time), there is no reason for people with money to trade it for things. With money that loses value, when you have money you want to get rid of it quickly in exchange for things that have actual value. These are typically things like shares in a company that produces things. Most people don't buy these directly, they put the money in a bank that invests it on their behalf (and skims a percentage off the top).
Which brings up the next point: We already have several parallel currencies within the same economic system. There is no conceptual difference between shares in a company and shares in a government (a.k.a. currency) other than that there are laws requiring the latter to be accepted for settling debts. Lots of people accept shares as part payment for their work though, because (as always, when talking about economics) it's a matter of trust: Do you trust the organisation issuing the currency?
One of the interesting (and not widely publicised) side effects of a bit of EU legislation passed last year, by the way, is that it dramatically simplifies the legal issues in creating and using new currencies. The logical conclusion of our current system is for every individual in the world to issue currency backed by their own reputation.
I am TheRaven on Soylent News
wow doesnt have any real economy or crafting. its all related to 0.001% chance drops from some mob bosses. and some utility craftables heavily traded.
Read radical news here
This guy must be a member of the Guild Wars Guru forums.
Repeat after me: An economy with infinitely respawning resources can NOT model a real-world economy.
You ask for a portion of it; some here, some there, more at Christmastime and during the holidays. So long as the banks have enough money to give everyone what they want
From what I understand of banking, please correct me if I'm wrong, is that if the bank makes bad investments, then it won't have the money to give everyone what they want at times of high demand, like Christmas. And yes, this is a unlikely situation; however, financial institutions believe they can take a higher level of risk because the FDIC ensures that even if the banks majorly screws up its investments, the depositors will be covered. But the FDIC is kind of doing the same thing to the banks, they don't actually have enough money to pay for every depositor up to $250,000; but they are betting that not all the banks will fail at once. The system is inherently flawed, but they are just counting on the probability of the flaw manifesting being improbable. So, the system is usually safe, and usually flexible, but an unlucky turn of events, and some bankers placing the wrong bet causes a chain reaction that puts a severe crack in the system. And it comes back to banks getting greedy with their drive for capital gains, rather than taking a more moderate approach to investing our money, because they know, ultimately, that they won't bear the responsibility for the losses.
What? That is absolutely, preposterously false.
The 19th century economy in the US was cyclical, just as today's economy is. But the recessions were much deeper than what we've had in the 20th and 21st centuries (though for the current recession, we'll need to see how bad it gets before passing judgment).
You need to read some economic history, and stop reading (and believing!) what random people have been spouting on slashdot and other places.
The recessions of the 19th century were actually much more severe than the recessions of the 20th century... the literature is quite clear on this.
I'm not sure where you get your information from... but it's obviously not a valid source.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
No they didn't. Citation needed, bady.
Every source I could find has the money supply increasing, but nowhere could I find record of it doubling.
Who stole the value of their dollar? Seriously? How about this scenario... the fed fails to act. Banking loans dry up. More businesses fail, and people lose their jobs. Would you claim that the fed stole their jobs?
What you should be angry about are the people whose actions have devalued a person's output. Some people think these people are the multimillionaire bankers (and partly, I agree). Some people think that these people are the multimillionaire heads of corporations (and partly, I agree). Some people think that these people are those that offshore jobs (on this one, I have mixed feelings).
But in no way does inflation "steal" money from you. Look at it this way... by withholding your cash out of the economy, you are "stealing" money from people who could put that wealth to good use (and pay you a decent return). Please don't use the word "stealing" wrt inflation. It's just inaccurate, and leaves the door open to ridiculous claims from all sides.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
In answer to your question, it was because they were afraid of defaults, which they are still liable for...sort of. What has happened is that we have gotten into a situation where the "too-big to fail" banks are able to lend, but only because of implicit baking from the government. The thing is, they don't because they know they will lose money in such transactions (even if the losses are backstopped--they don't get bonuses). It is better for them to take advantage of the interest that the Fed is paying them to not lend money (how much sense does that make?) by leaving reserves on deposit with the Federal Reserve. Why do you think excess reserves have risen by a factor of 1000 or more?
If you don't believe me, here it is from the horse's mouth.
In addition, the money that has been given to US banks in the form of zero interest loans has been finding its way into the stock market. This is bourn out by the evidence, ie the cash value of stocks purchased has not been accompanied by a decline in purchasing power in money market funds, which is always the case when a rally is from people moving money into the market rather than the market simply being an outlet for inflation.
"Spoken like someone who really can't back up what he says with either logical or factual analysis."
Nonsense your response PROVES you've pre-decided what you think it is you know so discussing anything with you would be a waste of my time.
You have to understand that the concepts people hold consciously or unconsciously determine what the deem is true or false, when there are errors in those concepts and the people themselves are unable or unwilling to see those errors then you cannot ever have discourse with such people.
Your comment just proves my point 100% you have already pre-decided what's true therefore anything that goes against what you were taught you reject, and hence you resort to insults rather then addressing the points I made.
So, you've never heard of the "Greenspan put"? The bankers and Wall Street certainly have.
Tell that to Icelandic banks, for instance. I believe stupidity was first, then came "Greenspan put" to save their asses. By the way, you are ignoring whole 19th century if you believe bankers are not stupid enough to participate in Ponzi schemes.
Well, your premise was that you could increase the money supply without inflation when "everyone decides to hang on to their money more tightly". The response that should be to drop prices, so people will buy more. Not sure what else you were referring to - if people are holding on to money, they are not buying goods, yes? So maybe because prices are too high?
Yes. Precisely my point is that prices do not drop when they ought to. Contracts and mortgages lock people in to prices, people suffer from money illusion or haven't noticed yet that the price level is falling and so don't realize or don't believe that their real income isn't falling, etc. The adjustment is protracted and difficult and slow, and people hold on to their money even tighter when they see that it'll be worth more in a year. In the mean time prices stay too high, demand too low and there is unemployment. If prices did just drop as you are hoping they would then there wouldn't be a recession for us to worry about in the first place.
You're making a preconceived assumption that everything has to be centrally planned. BTW: when industries do this it's considered price-fixing and is illegal. Somehow government or the Fed should do it instead?
Yes, central banks and governments should involve themselves in the money supply. They should do it because it has the potentially to alleviate enormous levels of suffering and make life better, which is the whole purpose of the economy and the government. They should not, of course, involve themselves in relative prices without a further reason. Just the overall price level.
Why not just let the prices correct themselves. If people aren't buying buggy whips, maybe the buggy whip factory should just shut down. If people aren't buying much wheat, farms should cut back on production. If a labour union won't allow a business to lower wages or layoff workers even when people are buying less of their product, the company should go out of business. Yes, that means some will go through hard times. But that's better than putting everybody through hard times to keep a business going that is doomed to failure anyway.
Why is the business doomed to failure anyway? People want the wheat, the wheat farmers want things that those who want the wheat could produce. The problem is that the economy is not letting that exchange happen....destroying your physical infrastructure is not an appropriate response to a breakdown of the control mechanism. Fix the control mechanism instead.
Whether it's a fixed money supply or not is not the issue. The issue is that millions of people are better at deciding where that level should be is orders of magnitude better than letting a small group make that guess. They are far more likely to be wrong.
Millions of people are not deciding where the price level should be. Millions of people are making billions of little decisions about what to buy, what to sell, and so on. The price level emerges from the interaction of all of these people. Even if all of these millions agree they want the price level to fall by 40% that doesn't mean 40% falls will be the result of their interactions. And you most definitely don't want to be the only person to cut your price level by 40%, and then go out of business because you can't pay your ten year farm lease which hasn't changed. That farm lease price will fall sooner or later, once enough farmers have gone bust and enough land and people left idle. But that really is doing it the hard way.
The prices do fall, eventually. They fall because people are gradually, a few people at a time, forced in to it by unemployment, bankruptcy, hardship and misery. It involves huge waste of resources while this happens - labour is unused, houses are left empty, companies and their capital are destroyed. The process of price adjustment you're asking for is the recession.
Yes
Bernanke, is that you?
No, people do not need buggy whips, and you're wasting resources by keeping that business going. And wheat won't last forever. If there's too much to be eaten you're just wasting resources by inflating the price artificially.
Sorry, but your pie-in-the-sky "we can fix the economy by fiddling with the money supply" is exactly the problem we are facing right now. Instead of the short-term, limited recession that you fear so much, we have an all-out crisis almost as bad as the Great Depression (which was also created and prolonged by exactly the kind of fiddling you espouse).
Please get out of the way, and stop doing this to us.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
No, you're looking for excuses. Try using logic and making an argument rather than waving your hands around and saying "Oh, you'll never get it, but I'm right, I swear!" Your arguments were long, rambling, and incoherent to the point that I couldn't even understand what you were saying.
Try again.
You proved my point again. You claim that I haven't made a rational argument, yet you've made no counter claim, so what exactly do you have a problem with? Otherwise I can't address your claim. "You haven't made a rational argument" and saying "I'm just waving my hands" is not a response, it is you who's chickening out. If I made a mistake somewhere it has to exist by definition to say "all of it is a mistake" means you have to go through what I said and address it point by point otherwise: There are only two options 1) You don't have a clue as to what I said so you can't make a claim that it wasn't rational, because you couldn't even grasp it to begin with 2) you are too intellectually lazy to address my points because you might find something uncomfortable with the current view of the world you hold.
Either way I know you're immune from other viewpoints so as I said before it would be pointless to discuss this further with you unless you take an honest stab at it.
I didn't say steal money, I said stole the value. That's what happens when money is created. The people who create the money get to use it at full value, while every one of us is left in the lurch when all that extra money hits the consumers. And this all seems justified to you because it has created "stability in the market"? I don't see this stability. And if the FED was powerful enough to prevent instability, then why didn't it? Oh so it didn't have enough power so it should have more now... I know those aren't your words, but that is what too many people are thinking.
Here's your source btw.
Money is the root of all evil?
Economic growth means growth in the value that we all extract from our economic activity
But where does the value come from? Ultimately from the efforts somebody puts in to them - ie. the use of limited resources. "Doing more with fewer resources" only means shifting the focus to using some other resources instead - if not oil, then wind or sunlight, with potentially harmful consequences for the environment. Of course, one can say that life itself is not sustainable in the log (very long) run; but if we contemplate what stable ecosystems there are in the world, we will see that they are stable because averaged over time, there are only very few changes in population sizes - ie. effectively zero growth.
But where does the value come from? Ultimately from the efforts somebody puts in to them - ie. the use of limited resources. "Doing more with fewer resources" only means shifting the focus to using some other resources instead - if not oil, then wind or sunlight, with potentially harmful consequences for the environment.
No, it doesn't. Moving 10000 tons of iron ore can be done with fewer resource now then 30 years ago. The same level of resources used to make a TV 15 years ago can make a better one today. Power generation is more efficient, we have better insulation materials for buildings, we have the capacity to make more efficient computers that can do much more than 20 years ago, someone has invented the post-it note, etc.
I'm not saying that we are doing more with less. We're undoubtedly doing more with more. I'm saying that technological progress, improvements in management and manufacturing techniques, scale through reduced trade barriers, capital accumulation, knowledge and skill diffusion and so on mean that even if we stopped increasing our overall resource use today we could still continue to increase economic output. It'd be a lower rate of growth, but it wouldn't be zero.
The Monetary base != the money supply.
Your citation does not mean what you think it means.
The rest of your argument relies upon the notion that money is an absolute store of wealth. It is not, and should not be considered as such.
If you don't like the fact that inflation devalues your currency, you can easily avoid this problem by not storing your wealth in currency.
The real problem with inflation (from a common-man standpoint) is when we have price inflation without corresponding wage inflation. Usually this is a necessary market correction, and while painful to some, is necessary. Sucks to be on the down end of it, but people also need to realize all the benefits they got from the economic system. But I think I know where you're coming from, and no amount of analysis or discussion will get you to change your mind that inflation is stealing from you.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
I don't even care about your argument. You're using any response that takes a dim view of your arguments as reason not to continue. You're a weak willed individual.
And you can't make an argument against a non-rational argument, save to say that it isn't rational.
As an example, which you have begged for, take this:
"The problem is that money as a store of value is problematicc because people can't just wait forever for food/electricity/clothes/housing,"
I have no idea what the hell you are talking about here. Money is supposed to be a store of value, what does that have to do with waiting in order to exchange goods for services? The implied alternative is money that is not a store of value, in which case, money has no value, so nothing can be traded for money.
" an austrian run economy would quickly devolve into one where there would revolution I have no doubt, because they'd be forced to realize the world is a physical place and their theories of human action break under constraints of physics and physical systems and their transformation."
This is a hand-waving argument. Further, Keyensianism is the model that doesn't take physical reality into consideration. If it did, they would have realized that their model was completely wrong when stagflation occurred in the 70's, and even that was supposedly impossible (but one which was predicted by the Austrians).
"Any theory that does not account for how the world actually is physically integrated into the economy is laughably naive."
What the hell is this even saying? How should one account for a physical thing being integrated into an abstract concept? You might as well say that physics is out the window because it doesn't take "love" into account. Now, more examples:
"Theit whole big push of "no initiation of force" is a farce, since monetary systems require the initiation of force else you would have rampant counterfeiting."
You can't counterfeit gold, dummy. That's why it has been used as currency for 6000+ years. Further, a free market would select for the most secure currency, as easily counterfeited currencies would all rapidly lose their value. This is an extension of evolutionary theory. How's that for real world integration?
"I look at systems and how systems physically function, I do not start from theoretical propositions I will sit around and observe how people and systems behave"
Wow, you must be an Austrian economist, because that's what they do. That is why they have been able to predict every major depression that has occurred since their school of thought was founded years in advance.
and imagine an invisible line of monetary values flowing around like electricity around society
Imagination is right. You don't even know what money really is (it is representative of production, not just a means of exchange--this is why paper can't function as money without backing).
"to understand how money acts as a kind of matter and energy accounting system that has properties similar to thermodynamic systems.
More handwaving. I wonder if you imagine yourself as Neo, who sees the world as code?
I've done a lot of my own original research into this topic because it interests me and I know economists simply are not technically sophisticated enough in other sciences to see their own errors since it requires cross discplinary understanding to even begin to approach some of the things I've observed and have been working on in my spare time.
Sure, in your spare time you've overcome more than a century of thought by geniuses such as Ludwig von Mises, Murrey Rothbard, an Friedrick Hayak, not to mention the thousands of others who have spent their lives analyzing and interpreting (correctly) economic data, and predicting (correctly) the implications of that data. Surely, all should get down on their knees, for surely the second coming has arrived, and God again walks on the Earth...a
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