Saturday, March 27, 2010

Why Money Doesn't Matter

Why Money Doesn't Matter
by Alex Merced

If you spend enough time reading and listening to the media at put out by the Mises Institute it becomes quite apparent that the supply of money doesn't change anything fundamentally in the economy. The market always adjust prices in the economy to the supply and demand of goods, so money being a good like anything else will adjust it's prices when the supply of it changes but nothing has fundamentally changed. The way we subjectively value all our goods and services haven't changed, all that has changed is how we value it relative to the changing money supply.

Although prices don't change immediately with any change in supply in demand, a period of price discovery must occur. During this period through trial and error of human action people will overvalue and undervalue goods and services in the search for the “market price” of money and the goods and services relative to it. When this market price is found the overall subjective value of things will not have fundamentally changed, although this allows an opportunity for arbitrage. Arbitrage is the act of taking advantage of over or under evaluations in market prices. Those who best take advantage of this are those who get the new supply of money first or understand this process, cause they have the best knowledge of the undervaluation currently in the economy before prices adjust. This arbitrage of those in the know is the effect that economist feel can benefit or hinder the economy, and they advocate a ever changing money supply to keep this state of arbitrage constant to never let the true “market price” of money and goods be found.

How would prices eventually adjust?

If the money supply increases: If the money supply (inflation) then initially all goods and services are undervalued relative to money, so then a consumption binge occurs which pushes prices up to the market price. Some people may still advocate this course of action cause it'll devalue one money versus another money increasing the purchasing power of the second money to buy goods denominated in the first money, which is temporarily the case during the adjustment. Another consideration though for those using the second money is that while the purchasing power for consumers has increased so has the purchasing power of producers in that money which means that domestic goods in that currency will be cheaper to produce offsetting the increase in the value of the currency overtime. To truly have a sustainable increase in transactions between currencies one must have a true competitive advantage in the goods and services they offer.

If the money supply decreases: If the money supply decreases (deflation) then initially all goods and services are overvalued relative to money, so then some people will prefer to sell assets to take advantage of the overvaluation which will push prices down to the market price. Once again is argued to have a negative consequence between different currencies cause as the first currency increases in value other currencies will depreciate relatively. Only looking at consumer purchasing power it seems that it'd be expensive for foreign consumers to buy domestic goods, although we often forget the purchasing power of domestic produces increases which will lower the price of their goods offsetting the increase in value. So after the adjustment once again a country with a true competitive adjustment will always succeed.

If the money supply is constant: If the money supply is constant then there is no adjustment, instead things are always priced relatively to supply and demand versus a known money supply. If prices want to go higher then the money supply can handle, then prices of the supply chain will be pushed down to operate in the current supply of money, always relative to the changing subjective values of people.

Sunday, March 21, 2010

Petition to Amend the Constitution to Clarify the Commerce Power of Government

Please sign this petition here

Here's the Text of the Petition:

"We, the undersigned, are asking that you, United States of America, Amend the constitution to clarify the power set out by the Commerce clause in Article 1 Section 8 (8.3).

Currently this clause has been used as a tool to expand the powers of government far beyond the intention of the founding fathers. These new unintended powers have stretched into the most important parts of a free country such our education and healthcare. These sweeping powers have come at a costly price of rising taxes and a growing debt which threatens the freedoms and prosperity of the nation. TO curtail this growth an amendment that is something along the lines of the following is advocated:

"The Legislative Branches power to regulate commerce is limited to the removing of barriers to trade interstate and international to protect the freedom and right to trade freely in and with the US. This power is not to be used to create barriers or controls on commerce or to justify military action against other nations."

Thank you for your time.

- Alex Merced

Taxation without Representation

Friday, March 19, 2010

Wednesday, March 17, 2010

How to Win Hearts and Minds

If you like and believe in the benefits of Liberty and it's economics effects as prescribed by Austrian Economics, you'll find that sometimes people will challenge your views. One thing we must avoid in engaging debate is telling people what is right, but show them how to get to our conclusion. To achieve this one must fully understand the logical path to get to these conclusions, or planting the seed to change ones mind will be very difficult. This is the method I used in my book, methodically going step by step rebuilding the Austrian framework for someone who's never heard it or any economic framework before.

Other Tactics:

- Don't tell people they are wrong, challenge them with questions

- Point out the holes in their knowledge so they are made curious to fill them

- Never assume or give the impression you assume your knowledge is complete

- Show how their values are consistent with your conclusions (being a valueless theory, it's easy to show how any value set benefits from a valueless economic framework)

So again, the goal is not to win debates but to raise questions that'll plant the seed that may grow into a pursuit of knowledge in someone. Although, sometimes it's fun and therapeutic to rant and rave about those crazy keynesians.

- Alex Merced


Founder of this blog is Alex Merced - Contact him at

Endorsed Candidates: Rand Paul (KY - Senate), Clint Didier (WA - Senate), John Dennis (CA - Congress)

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