confusion about austrian economics

[afterzir]

I just listened to some videos at mises . org about counterfeiting/inflation

and they used the following logic:

 

Say a gov't person creates(prints) money.  That gov't person has two options ~

a) distribute the money proportionally (angel Gabriel / dropping money from a blimp - are the examples used)

    They explain that this is trivial (nothing changes in a meaningful way).

b) distribute the money disproportionately (gov't giving money to its cronies and letting that money slowly trickle into the economy at large - is used as the example) They explain that the people who receive the money first get all the benefit and the rest get what amounts to a 'hidden tax' (especially those who are last to touch the new money).

 

This is their argument against gov't printing money.  

However, doesn't this logic apply to any printer of money (i.e. the distribution will either be trivial or a hidden tax)?

I'm kind of confused, since it looks like this argument can be extended to printing money in general. (aside: they also argue that inflation is akin to counterfeiting) 

 

In a recent video, Molyneaux described inflation as the overprinting of money. So, how do you know how much is too much?

 

(I typed 'counterfeit into mises.org and the first three entries [one from Walter Block, and one from Rothbard]

are the videos I'm referring to, in case anyone wants to watch them)

 

Thanks

(I wish I could have written a shorter post)

 

 

[D-Rex Naptime]

I think the mises criticism only applies to a government monopoly of money. If we have competing currencies within any nation, the competitive forces would lead to prudent financial practices and thwart inflation, as you would want your currency to be too devalued compared to others.

*wouldn't want your currency....

[Pepin]

I'm having a little difficulty in understanding what the issue is exactly, but if the crux is if any printing of the money will lead to a devaluation of the currency, then the answer is yes. This is for the basic reason of supply and demand, in that as the supply of a good increases, the value decreases.

 

From an Austrian point of view, there is no moral judgement about inflating the money supply, just the prediction that the value of money will decrease and those who get the money first will have an advantage.

 

From a libertarian point of view, the act is immoral because it is a government enforced monopoly which is doing the printing. The people cannot use another money, and they have no ability to control the money supply. Essentially, it is tax on the poor.. There wouldn't be much issue if people had a choice in currency, there might be good arguments as to why you shouldn't choose an issuer that inflates their money supply, but it is consumer choice.

 

As a example, there is digital currency called Nubits which aims to peg its value to the dollar. it does this by inflating and deflating the money supply when needed. There is no moral issue with this because the consumers are well aware of that aspect, it is actually why they are using the currency, and because they are voluntarily choosing to use that currency.

[Jer]

This is their argument against gov't printing money.  

However, doesn't this logic apply to any printer of money (i.e. the distribution will either be trivial or a hidden tax)?

I'm kind of confused, since it looks like this argument can be extended to printing money in general. (aside: they also argue that inflation is akin to counterfeiting) 

 

In a recent video, Molyneaux described inflation as the overprinting of money. So, how do you know how much is too much?

 

(I typed 'counterfeit into mises.org and the first three entries [one from Walter Block, and one from Rothbard]

are the videos I'm referring to, in case anyone wants to watch them)

 

Thanks

(I wish I could have written a shorter post)

Stefan often criticizes the argument from efficiency that is very common among political libertarians and says the moral argument is preferable because people are generally willing to sacrifice a few dollars to do the moral thing.

 

i.e. Minimum wage is bad because it eliminates low skilled jobs (efficiency) versus minimum wage is bad because it makes voluntary, consensual contracts illegal if the numbers aren't preapproved by the state (morality).

[wdiaz03]

....

This is their argument against gov't printing money.  

However, doesn't this logic apply to any printer of money (i.e. the distribution will either be trivial or a hidden tax)?

I'm kind of confused, since it looks like this argument can be extended to printing money in general. (aside: they also argue that inflation is akin to counterfeiting) 

 

In a recent video, Molyneaux described inflation as the overprinting of money. So, how do you know how much is too much?

 

(I typed 'counterfeit into mises.org and the first three entries [one from Walter Block, and one from Rothbard]

are the videos I'm referring to, in case anyone wants to watch them)

 

Thanks

(I wish I could have written a shorter post)

 

As I understand it, Yes. it applies to any printer of money. I like to think of it as the relationship between the goods in an economy and the money supply.

If the money supply is increasing in relation to the amount of goods then more money will be chasing each individual good and the price of those goods will go up.

If each person receives the money then it is a wash, prices went up but they have the same proportion of money to buy those goods.

 

It doesn't matter who prints it.

 

They argue its counterfeiting because it i exactly the same to the overall result as if I start printing dollars at home, even if I can produce the exact replica of a dollar bill. because that money once in the economy devalues every other dollar out there. They are more out them now chasing the same goods.

 

How much is too much? Depends on what the expected outcome is.

 

if the printer can tell how much the economy is growing or shrinking and increase or reduce the money supply accordingly then prices would not change.

 

Some Austrians would argue that if the money supply was pegged to a good (say gold) that rate of new gold mined is small and stable, So this would avoid wild price fluctuations. Prices would likely decrease over time because the economy is likely to grow faster (more goods produced) than the supply of gold increases. But this increased value applies to all the gold, so all holders benefit equally. Sellers would have a good idea about the stable depression so they would price their goods accordingly as well.

 

Hope that helps.

[Libertus]

Say a gov't person creates(prints) money.  That gov't person has two options ~

a) distribute the money proportionally (angel Gabriel / dropping money from a blimp - are the examples used)

    They explain that this is trivial (nothing changes in a meaningful way).

They are wrong. In any economy, there are debtors and creditors. When the money supply is being watered down, by more money creation, that would benefit debtors and punish creditors. How can they say nothing changes ("in a meaningful way", whatever).

[wdiaz03]

They are wrong. In any economy, there are debtors and creditors. When the money supply is being watered down, by more money creation, that would benefit debtors and punish creditors. How can they say nothing changes ("in a meaningful way", whatever).

 

I can see where you are correct, Unless there is prior knowledge of the money creation and creditors include that factor on the terms of the loan. For Example if the increase in the money supply is stable and known, then creditors will factor that the amount of money they will get back from the debtors at time x would be devalued by y and hence will factor that in. I believe this is what the Austrians mean, I cannot imagine they would miss this point that you bring up.

I just listened to some videos at mises . org about counterfeiting/inflation

...

 

In a recent video, Molyneaux described inflation as the overprinting of money. So, how do you know how much is too much?

 

...

 

How much is too much depends on the desired outcome. If you wanted prices to remain constant then you have to keep increase the money supply increasing or decreasing relative the the goods produced in the economy.

 

If you had your money pegged to a commodity like gold, and the gold was being mined faster than the economy then you wuld see prices go up. etc.

 

Does this help? do you have any other questions or need any more clarification?

[Jer]

 

How much is too much depends on the desired outcome. If you wanted prices to remain constant then you have to keep increase the money supply increasing or decreasing relative the the goods produced in the economy.

If the desired outcome is a society with respect for property rights I would suggest that any amount of theft is too much.

[wdiaz03]

If the desired outcome is a society with respect for property rights I would suggest that any amount of theft is too much.

 

Could not agree more!

 

There are good arguments that there is no need to have fix prices, any mingling with the money supply just results in never hitting the desired target and causing more harm than good.

As long as the money supply is pegged to a stable commodity the rate of creation is stable and predictable, all that the market needs to set the future price.

[labmath2]

There is still the issue of distribution. If money supply is pegged to gold, when more is printed, how is it distributed?

[AncapFTW]

There is still the issue of distribution. If money supply is pegged to gold, when more is printed, how is it distributed?

It goes to whoever is willing to trade gold to the holder for it.

[apples and grapes]

To my understanding the argument works the following;

When you increase the supply of what Mises would call Fiduciary Media (or what we bundle as 'Money' today) at 100% distributed proportionately throughout all those who use the medium, nothing changes. Instead of purchasing an apple for $1, you purchase it at $2. Each unit of the particular fiduciary media (hereafter we'll call this 'currency) will fetch you less but that's okay because the about of unit you have makes up for it, ergo the value of the money the currency represents has not changed.

With this knowledge, we can now examine the effects of when distribution of the increase is not proportionate, a more realistic circumstance. 

Were we to increase our units of currency by 100%, but then only give the new units of the currency to 10% of those who use it, we then would see a change in the value of the money. The new money would be pumped into the system of exchange by only that 10% of people, while the other 90% remain with the amount of units they had before. This disproportion will create a lag in which it will take some time for the market to correct for the 100% increase, and this lag is the incentive for the 10% to get this disproportionate increase in currency units, but let's presume (to keep things simple) there is no lag between the increase in currency units and the change in value of the money. The 10% can now buy their apple at $2, but that doesn't bother them because they hold vastly more units of the currency. The 90% now have to buy there $2 apple but since they still only hold the same amount of units of currency, they find there units to have dropped 100% in value. 

These are examples of  imaginary constructs, or static analysis which economists use to determine truths about economic phenomena where experimentation cannot be done. We can deduce from these analyses the following law; Ceteris paribus, if you increase the amount of unit of currency, the value of the money the currency represents will either stay the same or fall. It is by equal proportionality of the increase in units that the Austrians can explain how money value can remain the same when an increase of the unit of currency takes place. And where there is a disproportion in this increase, the value falls.

This is equally true for State money and private money. The difference is that the State holds a monopoly on the money supply which you are forced to use (legal tender laws, need to pay taxes in it etc), while private money holds no such monopoly. In the hypothetical wherein the State increases the units of currency which is then distributed disproportionately, money value goes down, but because they hold a monopoly, we must just grit our teeth and except the devaluing of our money. Were a private currency to do the same, people would just move out of that currency (they would still have lost money, but hopefully they'd now be more cautious and move to a money whose supplier won't pull the same trick, perhaps by contract). 

So while this is a problem for the 90% under the Statist paradigm, it would not be as much so in a state of freedom wherein people can simply move out of the devalued money. 

When Stef says that inflation is a result of 'overprinting', I would presume it is shorthand for this state of an increase in currency units which is disproportional in distribution to the users of the currency. If not, then he is incorrect in saying it. If that's the case, it doesn't really matter all that much since it is the same shorthand used by many Austrians when describing inflation. The reason for this is that the first instance where units are increased by 100% but the new units are distributed equally won't occur. To be more precise it could occur, but would be very rare. It would cost quite a lot to perform this increase, and it would service nothing. It would be detrimental to someone trying to make a profit (investing resources in an act which will change nothing about the value of the product), and would only be performed if the supplier wanted to perform the action for the actions sake (an act which is fine praxeologically, but would be punished in the free-market as not being consumer driven).

I hope this wasn't too long, and may possibly clear some things up 

[Libertus]

I can see where you are correct, Unless there is prior knowledge of the money creation and creditors include that factor on the terms of the loan.

 

Sure, if every person knew exactly how much money would be created, and when, at any time in the future, be it 10 or 60 years, sure, the amount of inflation would be factored in the price of the loan (interest). But why start off with a complete counter factual, impossible premise?