Opinion from a Libertarian ViewPoint

Posts Tagged ‘inflation’

Watch “Separate Money and the State” on YouTube

Posted by M. C. on November 30, 2022

“Not worth a Contunental” described in the first 5 minutes.

Great explanation of why going off the gold standard enables inflation later on in the presentation.

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Watch “The Battle Between Deflation and Inflation” on YouTube

Posted by M. C. on November 26, 2022

Former Congressman Ron Paul gave the seventh talk in our online conference “End Inflation and End the Fed.”

Former Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency. While in Congress, he was known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives, never voting for legislation unless the proposed measure was expressly authorized by the Constitution.

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Inflation Is Not Price Increases. Inflation Causes Price Increases.

Posted by M. C. on November 19, 2022

Inflation is not about a general increase in prices; it is about increases in the money supply. Consequently, to find out the status of inflation, there is no need for various price indices; all that required is to pay attention to the money supply’s growth rate.

Frank Shostak

Why is inflation regarded as bad news? What kind of damage does it do? Popular commentators maintain that inflation causes speculative buying, which generates waste. Inflation, it is maintained, also erodes the real incomes of pensioners and low-income earners and causes a misallocation of resources.

Despite all these assertions regarding the side effects of inflation, the popular way of thinking cannot tell us what causes all these bad effects. Why should a general rise in prices hurt some groups of people and not others? Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Moreover, if inflation is just a rise in prices, surely it is possible to offset its effects by adjusting everybody’s incomes in the economy in accordance with this general price increase.

Why Price Indices Cannot Establish the Status of Inflation

Despite its popularity, the idea of a consumer price index (CPI) is flawed. It is based on the view that it is possible to establish an average of prices of goods and services, which is not possible.

Suppose two transactions were conducted. In the first transaction, one loaf of bread is exchanged for $2. In the second transaction, one liter of milk is exchanged for $1. The price, or the rate of exchange, in the first transaction is $2/one loaf of bread. The price in the second transaction is $1/one liter of milk. In order to calculate the average price, we must add these two ratios and divide them by two; however, it is conceptually meaningless to add $2/one loaf of bread to $1/one liter of milk.

On this Murray N. Rothbard wrote:

Thus, any concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is therefore meaningless and illegitimate. Even pounds of sugar and pounds of butter cannot be added together, because they are two different goods and their valuation is completely different.

Defining Inflation

Historically, inflation occurred when a country’s ruler such as the king would force his citizens to give him all their gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with another metal and return diluted gold coins to the citizens.

Because of the dilution of the gold coins, the ruler could now mint more coins and pocket for his own use the extra coins minted. What was now passing as a pure gold coin was in fact a gold alloy coin. The increase in the number of coins brought about by this debasement of gold coins is what inflation is all about.

It follows then that the subject matter of inflation is embezzlement. On this Ludwig von Mises wrote:

To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call “inflation” the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase. They put the responsibility for the rising cost of living on business.

According to Ayn Rand:

Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist government.

When inflation is seen as a general rise in prices, then anything that contributes to price increases is called inflationary. It is no longer the central bank and fractional-reserve banking that are the sources of inflation, but rather various other causes. In this framework, not only does the central bank have nothing to do with inflation, but on the contrary, the bank is regarded as an inflation fighter.

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Doug Casey on How Inflation Destroys Civilization… and What You Can Do About It

Posted by M. C. on November 17, 2022

Doug Casey: I’ve always been a hard-money person, a gold bug. Gold is money in its most basic form. Only a fool trusts a government with money, especially when the writing on the wall is so clear.

by Doug Casey

International Man: According to a recent Newsweek poll, 63% of Americans “strongly support” new government stimulus checks to combat inflation.

In other words, let’s fight the effects of money printing by doing even more money printing.

What’s your take on this?

Doug Casey: The nature of the US has been transformed. Americans have come to see the government as a cornucopia that can kiss everything and make it better—especially since the bailouts of the Biden Administration.

That attitude has become a cultural value and very hard to change. “Panem et circenses,” as the Romans said, has become necessary for both the government and its subjects. Remember that the prime directive of any entity—whether it’s an amoeba, an individual, a corporation, or a government—is to survive. The present government can’t survive without supporting more than half the population, which has become parasites. But the government itself is the biggest parasite of all. Can parasites live on each other forever? No. To use an overly fashionable word, it’s “unsustainable.”

Where will the US government get the money it needs to survive? It can no longer even remotely survive on its tax receipts; deficits of one to two trillion per year lie ahead for the indefinite future. It can no longer borrow adequate amounts from either American citizens or foreign governments—just rolling over the $32 trillion of existing debt, forget about trillions of new debt, at anything near current interest rates is hard enough. So there’s no alternative left for them but to print more money. And print they will (electronically, of course). The thousands of “economists” at the Federal Reserve and the Treasury Department have no more of a grip on sound economics than government economists in Argentina or Zimbabwe.

Disaster is absolutely written into the government’s DNA at this point. There’s no realistic way out.

International Man: As many Americans are now realizing, inflation has a way of perpetuating itself. However, many countries have been down this path before.

For example, Argentina has infamously been trapped in a perpetual cycle of hyperinflation and socialism from which it cannot escape.

Is the US now entering that same inescapable cycle?

Doug Casey: Money printing makes you think that you’re getting something for nothing. It’s dishonest, criminal actually, and leads to a moral collapse. It causes a war of all against all, as everyone in the country attempts to get his share of government money—which is to say, stolen money—before the next guy. It’s hard to see how you break the cycle short of defaulting on the national debt, cutting government spending very radically, disengaging from foreign wars, eliminating regulations wholesale, and replacing paper with gold as the national currency, among other things.

If those things happened, the economy would boom after a short albeit extremely deep adjustment. But the chances of all that happening are about zero. What we’ll likely get is a long-lasting and dismal depression overlaid with a police state and general chaos.

The US became the world’s freest and most prosperous country because it was a middle-class society. Middle-class people tend to be conservative, self-sufficient, and family-oriented. They’re future-oriented workers and savers. The problem is that the US middle class is being squeezed, as Lenin predicted, between the millstones of taxation and inflation. They’re being wiped out.

What’s left are the upper and lower classes. Very wealthy politically-connected types live in enclaves far above the plebs, viewing themselves as masters of the universe. These wannabe globalists essentially despise American values and traditions. Meanwhile, the lower classes basically live hand to mouth, assisted by numerous types of welfare. They think they can vote for a living. For that reason, I expect a Guaranteed Annual Income to be a major theme in the ’24 elections. “Something for nothing” will become official policy.

International Man: Historically, the government has fought the effects of excessive money printing by raising interest rates.

Today, however, the government’s debt load is much higher than in the past.

If interest rates were to rise to the level needed to combat today’s rising prices, it could bankrupt the US government—and everyone else.

What is going on here?

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“Retirees’ Re-Entering the Labor Market Isn’t ‘Good for the Economy’; There’s more to wealth than work.”

Posted by M. C. on November 14, 2022

Luis Rivera

By Walter E. Block

Retirees’ Re-Entering the Labor Market Isn’t ‘Good for the Economy’; There’s more to wealth than work

Does inflation increase wealth? That is the contention of some economists and business journalists who should know better. Inflation has a silver lining for economic welfare, they claim, or price increases are good for the economy as a whole.

The argument in a nutshell is that inflation induces newly impoverished retirees back into the labor force. Their work increases gross domestic product, and we will all benefit from the increased goods and services it creates. So too for those who put off retirement, unable to afford it because of inflation.

It is true the inflation makes people on fixed incomes poorer, and that some people respond by going back to work. But does that really help the economy?

No. It boosts the GDP and its growth prospects, but it hardly amounts to an overall economic benefit. Economics 101 teaches that there is such a thing as a labor-leisure dichotomy. Why don’t people seek to work all the time? Because they value the leisure they would thereby forgo more highly than the additional money they could earn. Most people are reasonably happy with 40-hour weeks and a vacation of one month a year or so. But GDP would be higher if they labored 80 hours on a week and took no holiday at all. The prospects for economic growth would also increase.

Would the average person be happier, and would it help the economy, if people were compelled to work that much more merely to boost GDP? Of course not. Most people would be miserable with 80-hour workweeks, and economic conditions would be worse, not better.

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The Scariest Thing On Halloween – Inflation

Posted by M. C. on October 31, 2022

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Like Christmas and Columbus Day, the left refuse to let a holiday go by without whining and this year once again the war on Halloween continues.

Likely at the insistence of some new school administrator fresh out of a graduate program in women’s studies or whatever, The Daily Bell’s Ben Bartbee reports that “Lower Merion School District cancels Halloween parades over safety, inclusivity concerns,” sacrificing a 50-year tradition at the altar of Social Justice.

Halloween stuff in Lower Merion School District is now replaced with some vague, sterilized abomination called “fall-themed activities,” which are sure to suck the souls out of the schoolchildren.

But it gets better, as Bartbee notes, this year, Buzzfeed has issued a fatwa against Jeffrey Dahmer costumes in its public service denouncement: “Planning On Dressing Up As Jeffrey Dahmer For Halloween This Year? Don’t“:

“eBay has banned the sale of costumes inspired by the serial killer Jeffrey Dahmer in the run-up to Halloween for violating its policy.. Dahmer killed 17 people, predominantly Black men and boys… The company policy states that sellers are banned from listing items that ‘promote or glorify violence’ or are associated with violent individuals, the acts for which they gained notoriety, or crime scenes from the past 100 years.”

At a minimum, half of all Halloween costumes could be construed as “glorifying violence.” That’s how Halloween works – it’s about exorcising terror, and depravity, and everything unholy (in the Christian adaption, before All Saints Day).

In all reality, Jeffrey Dahmer costumes would’ve garnered much less scrutiny if not for two crucial features of his victims: homosexuality and racial diversity. Via Out Magazine:

“Dressing as this real-life killer who tortured and murdered 17 men and boys (many of whom are Black and gay) is… actually a pretty awful idea.”

The whataboutism does get tiresome. But as a matter for the record, we all know that a costume of a serial killer who killed and ate white people would enjoy fairer treatment among the activist community.

But, finally, and perhaps most terrifying for the average American parent, thanks to Washington’s excesses, Halloween is more expensive this year than ever before – thanks to inflation.

See the rest here

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Watch “Crack Up Boom? Has The Fed Lost Control Of Inflation?” on YouTube

Posted by M. C. on October 14, 2022

Markets always have the final say. They ultimately overrule the incessant schemes of politicians and central bankers. There are no man-made “policies” that have the capability of revoking economic laws. There are no shortcuts, loopholes, or free lunches. “Narratives” get squashed by the truth. Free Markets and Sound Money are the truth. We’d be wise to return to both of them.

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The People Who Engineered Record Inflation Want To Control Cryptocurrency

Posted by M. C. on October 5, 2022

The Federal Reserve’s most important payment system, FedACH, which processes over 50 million transactions per day, still takes 2-3 days for payments to clear. It’s so outdated, it’s as if they’re still sending satchels full of cash via Pony Express.

It’s also ridiculous that the people who have failed in every possible aspect of their responsibility think that they’re qualified to administer a brand new financial system.

These Central Banks failed to anticipate inflation. They failed to recognize it. They failed to do anything about it for more than a year. And now they’re hellbent on causing a recession.

They’ve pretty much been a complete disaster. Yet now they want to be in charge of crypto too. Are these people serious??

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WEDNESDAY, OCT 05, 2022 – 06:30 AM

Authored by Simon Black via,

On the First of May in the year 1716, a swashbuckling Scottish entrepreneur was making this pitch of his lifetime to the head of the French government in Paris.

The entrepreneur’s name was John Law. By all accounts he was incredibly charismatic and had a flamboyant, larger than life personality. He was something like Adam Neumann, formerly of WeWork… the kind of person who could talk anyone into anything.

And John Law’s pitch that day was to launch an entirely new financial system.

King Louis XIV had just died eight months before, leaving France in terrible financial ruin. Decades of endless wars, palaces, and profligate spending had bankrupted the French government.

The situation was so dire, in fact, that there was hardly any gold left in the French treasury. So the new head regent of the government, Duke Philippe II of Orleans, was desperate for a solution.

Law made him a bold proposal: the Duke would provide Law with a special banking license. And in exchange, Law would create a new system of paper money that would bring more gold into France and help pay off the crippling national debt.

Philippe agreed. And, only a few weeks later, John Law’s new Banque Generale Privee was in business.

It turned out that people loved the idea of paper money. And within a year, his paper bank notes were circulating widely throughout the French economy, and the government even accepted them for tax payments.

Law made his paper money even more valuable in late 1717, after he had taken control of the Mississippi Company.

The French Mississippi Company was something like the Dutch East India Company; it was a private enterprise that had received a royal monopoly over all the land and resources in France’s American colonies.

Almost immediately after securing rights to the monopoly, Law offered shares of the Mississippi Company to the public; it was like a giant IPO.

But Law sweetened the deal by allowing people to pay up to 75% of the share price using his bank’s paper money.

The Mississippi Company IPO was a smashing success. It was so popular that Law was offered bribes, sex, and political favors from French nobles in exchange for the opportunity to buy a few extra shares.

The famous philosopher Voltaire was eye witness to this, and wrote, “I myself saw him pass through the galleries of the Palais-Royal followed by dukes and peers, Marshalls of France, bishops of the Church.”

And at first the share price soared. Bear in mind the Mississippi Company had zero activity. Hardly anyone was living in France’s southern colonies in America, and there was virtually no trade or commerce going on.

The government even tried deporting criminals to America, trying to increase the population of the colonies. They offered hundreds of acres of land for free to anyone who would go. Yet economic activity still failed to transpire.

Eventually the French public realized the truth; there would be no gold, no gems, and no riches coming from the Mississippi Company. And the stock price began to quickly collapse.

Law tried to prop up the stock price by creating more paper money (backed by absolutely nothing), and using that new money to buy shares of the Mississippi Company.

But all he ended up doing was creating inflation; with so much new paper money circulating in the economy, prices everywhere rose.

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Do People Accept Money Because Government Endorses It?

Posted by M. C. on September 24, 2022

Money must emerge as a commodity because something can be demanded as a medium of exchange only if it has a pre-existing barter demand.

Frank Shostak

Demand for goods arises because of perceived benefits. For instance, individuals demand food because it nourishes them. This is not so, however, about pieces of paper we call money, so why do we accept them?

According to Plato and Aristotle, the acceptance of money is a historical fact endorsed by government decree. It is government decree, so it is argued, that makes a particular thing accepted as the general medium of the exchange. Carl Menger, however, doubted the soundness of that view, writing:

An event of such high and universal significance and of notoriety so inevitable, as the establishment by law or convention of a universal medium of exchange, would certainly have been retained in the memory of man, the more certainly inasmuch as it would have had to be performed in a great number of places. Yet no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money.

Why Conventional Demand—Supply Analysis Fails to Explain the Price of Money

How does something the government proclaims become the medium of the exchange, acquiring value? We know that the price of a good is the result of the interaction between demand and supply. From this, we could reach a conclusion that the price of money is also set by the laws of demand and supply.

While demand for goods emerges because of perceived benefits, people demand money because of its purchasing power with respect to various goods. The demand for money depends upon the purchasing power of money while the purchasing power of money depends on the demand for money.

We are caught in a circular trap. (The demand for money is dependent on its purchasing power while the purchasing power is dependent for a given supply on the demand for money). The circularity seems to vindicate the view that the acceptance of money is the result of the government decree.

Mises Supports Menger’s Insight

Ludwig von Mises’s regression theorem supports Menger’s insights. Mises not only solved the money circularity problem, but he also confirmed Carl Menger’s view that money didn’t come from a government decree.

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The Fed’s “Full Employment” Mandate Is a Mandate for Inflation

Posted by M. C. on September 21, 2022

Over time, repeated referenced to “the dual mandate” were really just calls for continued activist monetary policy and even for the wildly experimental “unconventional monetary policy” employed after 2008. 

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Ryan McMaken

In recent years, Congress has attempted to add various new mandates to the Federal Reserve’s mission. In 2020, Democrats introduced the “Federal Reserve Racial and Economic Equity Act.”  Then, in 2021, pundits and politicians were telling us that it’s the Fed’s job to “combat climate change.” These are just the latest efforts to use the enormously powerful central bank to achieve political ends to the liking of elected officials.

This is a helpful reminder, of course, that the Fed is not independent from politics. The Federal Reserve has never been politically independent, and it certainly isn’t so now. Fed independence is a fairy tale academic economists like to tell their students. The debate over new mandates has also highlighted the fact the Fed already has no fewer than three mandates explicitly written into law: moderate long term interest rates, maximum employment, and stable prices

In practice, however, the Fed has only two mandates because the Fed is so limited in what it can do to target long term interest rates in a global marketplace. This has led to what is now a de facto “dual mandate.” 

This dual mandate is now all about maximizing employment while also maintaining “stable prices.” What this all means is never precisely spelled out in policy or law. It also changes over time. zero-percent CPI inflation was once the goal. Now the goal is the arbitrary two-percent standard. Similarly, what is meant by “maximum employment” is subject to the arbitrary definition of “full employment.”

In any case, it has been the view of central bankers for decades that one of the easiest ways to “maximize” employment is to embrace accommodative monetary policy. This, however, works counter to the mandate of stable prices by inflating the money supply. This leads to price inflation in the medium to long term. 

So, the two mandates are essentially at odds. So which half of the mandate to focus on or emphasize? That’s up to the Fed. 

In practice, however, experience suggests that the Fed tends strongly toward embracing the “maximum employment” side of the equation. Time and time again, central bankers have chosen to downplay the stable-prices mandate and embrace expansive monetary policy. 

How the Fed Favors Maximum Employment 

As a de facto instrument of the federal government, Federal Reserve policy tends to focus on what the federal government focuses on. So, the Fed was moved in the direction of greater focus on employment with the passage of the Employment Act of 1946. The Act stated

The Congress hereby declares that it is the continuing policy and responsibility of the federal government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy with the assistance and cooperation of industry, agriculture, labor, and state and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free and competitive enterprise and the general welfare, conditions under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power.

Although highly controversial at the time, the belief that the federal government ought to intervene to maximize employment—whether through fiscal or monetary policy—became well accepted over time. In terms of Fed policy following the adoption of the act, Allan Meltzer—author of a huge history of the Federal Reserve—concludes that “Interpretations of the 1946 Employment Act usually emphasized primacy of full employment.” In other words, the bias was in favor of easy money and intervention designed to stimulate the economy so as to ensure higher employment numbers. 

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