Tuesday, November 23, 2010

Understanding Inflation Advocates

Understanding Inflation Advocates by Alex Merced

 There are two fundamental questions that come up people discuss monetary policy, and peoples views on these two questions which shape what they think policy should be. These questions are:

- Do you expect inflation or deflation as tomorrows problem?

- Do you prefer inflation or deflation?

 In terms of these two questions I expect price inflation down the line from the inflation of the money supply which we've seen primarily in bank reserves which I believe has grown beyond the ability for the fed to absorb later on so it's essentially racecar that's revving it's engine before a big race. While I think all manipulations of the money supply have an effect of causing mal-investments in the economy by creating shortages and surpluses of money, if I had to say which is the lesser of two evils I would say deflation. Jorg Guido Hulsmann makes a great case for deflation in his book, Deflation and Liberty.

 Although how about the people who prefer inflation, to Austrians such as myself it may seem bizzarre that someone may genuinely think that devaluing peoples savings, and destroying the purchasing power of people on fixed incomes can somehow be good policy. So I thought I'd take a moment to explain some of the inflationists thought process as I understand it.

Why does Price Stability really mean predictable inflation?

 Last I checked stability meant constant, so price stability to me would initially mean constant nominal prices but in the world of monetary policy it really means low predictable inflation, generally from 2-4%. Why someone would think this is good policy is primarily psycological. The idea is to create an environment where people feel wealthy cause they think their assets are constantly increasing in value, but really the value generally is constant but it just appears different priced relative to a larger money supply. This approach has some merit to it, but it's based on manipulating the misinformation of peoples views on price increases. As people learn and understand inflation on a larger scale, this should quickly lose any effectiveness as we've seen as people have become more knowledgable in economics the last few years.

 This psycological factor is really just a function of the accuracy of peoples education, the 1870s were arguably the most robust period of growth in US history yet it was a period of deflation and generally referred to as the Long Depression. The problem is if people see their assets dropping in nominal prices but don't equate that with increasing purchasing power this can have negative psycological effect, but this only makes the argument for better economic education because growth occured in the 1870s even though people felt negative about their asset values in this era.

 There are different ways for deflation and inflation of prices or money supply to occur (depending on which definition your using) which lead to different phenomena. Although the best way to refute someones views on an issue and open them up to yours is to show you understand and empathize with their view more than they do. Knowledge is power, Creativity is power manifest.

Sunday, November 14, 2010

Liberty: The Soul of New York

Liberty: The Soul of New York by Alex Merced

Many don't the associate New York as a bastion of liberty, with it's vast state controls over wages and rents, and it's cumbersome taxes and regulations on local business. No one thinks of New York as a home of freedom when it's the home of most detrimental of Federal Reserve District Banks, the New York Branch which carries out the asset purchases that destroy our currency and prosperity as it diminishes away. New York is often considered a shadow of the land that was once this nations capital as business flees to greener pastures domestic and abroad, although it wasn't always this way. New York has been the home of many of the greatest individuals in American history who've done a lot to further the cause of Liberty, Peace, and Sound money. New York was home to the greatest U.S. president (Martin Van Buren), and the greatest economist (Murray N. Rothbard).

The Little Magician - Martin Van Buren

Most presidents revered in history are those who against the principles of Liberty and Small government grew the power of the executive branch and breeded conflict into war, Martin Van Buren was none of these things often charachterized as weak by historians. In my view, his willingness to seek peace and stick to principles was his greatest strength. As Andrew Jacsons vice president he helped prevent a conflict with france, and then avoided two more conflicts with Mexico and Britain as president. While someones nationalists senses may say Van buren should of entered these conflicts, the preservation of life that occurs from his willingness to take pause and clarity is something we must appreciate.

While the economy entered a massively painful restructuring from Andrew Jackson rejecting to renew the charter of the Second US Bank, instead of preventing this restructuring Martin Van Buren finished the work towards free banking that Andrew Jackson began. His willingness to allow the needed corrections to occur to have a sustainable economic environment is possibly his greatest achievement, leading to multiple periods of Growth AND Deflation (late 1830s-early 1840s and the 1870s). While no good deed goes unpunished, Van Buren was not re-elected even being rejected by his former president, Andrew Jackson, for his unwillingness to spill american blood to annex Texas. He later on joined the abolitionist party, The Free Soil Party, in which he later carried on a nother failed bid for the presidency.

The Greatest Economist - Murray N. Rothbard

Murray N. Rothbard who was born and raised in the Bronx, is one of the most influential economist in the last century. While he may not be as revered by establishment economist as such enemies to liberty like John Maynard Keyenes, Rothbard was instrumental in the revival Misesian Austrian Economics most pivotal was his treatise on the topic, "Man, Economy, and State". To this day, in his short life the amoung of work done in economic thoughts, history, theory, and more dwarfs what most eonomists accomplish in a lifetime. He leaves behind a veritable library of work for the Liberty minded fellow to strengthen their convictions and sharpen their arguments to a free world.


Founder of this blog is Alex Merced - Contact him at alexmerced@alexmerced.com

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