As Brian Micklethwait informed us ahead of time, Detlev Schlichter appeared on the BBC Radio 4 programme Start The Week on Monday. A podcast of the programme can be downloaded. Remember that all of this is being talked about on the BBC, on Radio 4, which I imagine is listened to by lots of Guardian and Independent readers. Austrian economics is now Being Talked About, as Brian might point out.
The programme opens with Economist columnist Philip Coggan talking about the supposed conflict between money as a store of value and money as a medium of exchange. Creditors will always want a fixed supply of money and debtors will want an expanding supply of money, and this seems true enough, up to a point. Coggan goes on to point out that the biggest debtor is government and governments have always been very keen on expanding the money supply. He also explains how banks’ interests are aligned with the governments because the expanding money supply props up asset prices. There is no way out except by defaulting or inflation.
Angela Knight of the British Bankers Association is worried about more immediate matters like tomorrow and the Eurozone crisis.
Detlev Schlichter is up next. He says that paper money systems have been tried throughout history and have always failed; have always been implemented to fund the state. The failure mode is either a return to commodity money or hyperinflation. He clarifies Coggan’s point about conflict between debtors and creditors by pointing out that in a voluntary contract both expect to benefit. They would both like a means to honour that contract with money that they can trust. This makes sense because if debtors routinely get the expanding money supply they want, this ultimately will get factored into the price of the loan.
Coggan says that the trouble with the gold standard is that it imposes more austerity on governments than the voters will stand. I think Schlichter agrees, which is why he is predicting hyperinflation.
Maurice Glasman says that capitalism requires ‘exploitation’ of humans and their environment and short term returns. Detlev is ignoring the imbalance of power between the debtor and creditor. After that I couldn’t follow what he was on about.
Schlichter responds to Marr’s questions by saying that expanding money supply is right now being done to stimulate the economy rather than just to fund governments. Furthermore he is not suggesting that we walk around with little sacks of gold; payment technologies do not depend on state fiat currency. The BBC listeners are reminded that money is not backed by gold and that it’s just an invention of the state. Schlichter advocates removing the state entirely from money. Consumers should control what is produced in the economy by sending price signals, but this does not work because of the expanding money supply. If we went back to gold, as has been done before in Britain, markets would correct. Andrew Marr is incredulous: interest rates shooting up!? In this day and age? Yes, says Schlichter, calmly, it is essential that savings and investments are coordinated by interest rates.
Philip Coggan says going back to gold is possible but very unlikely, but could arise from complete collapse of the system, Zimbabwe-style, but this is not imminent in the next two or three years. Schlichter agrees that politicians are unlikely to take that decision. Over the last 40 years, since the whole world has been on paper money, we have had unprecedented money expansion and, surprise surprise, the whole world is in a mess. If we suddenly went back to hard money now it would cause a sharp correction and a recession. So Politicians will avoid this and in so doing cause a worse outcome.
Angela Knight is asked whether bankers are failing savers by getting into league with the government and she avoids the question, but agrees that banks should not be protected and should be allowed to fail. But there are a lot of Buts that I didn’t follow.
Philip Coggan says bankers have become so important because of the credit money expansion of the last 40 years. For some reason he brings international trade into the conversation. Knight starts waffling about ATM machines and the disruption to people’s lives that a move to gold would entail. Schlichter says that gold works fine in an international economy (after all, gold is gold wherever you are). When he talks about disruption he is talking about the correction of the accumulated imbalances in the economy. It’s clear he doesn’t know what Knight is on about, either.
Maurice Glasman makes a distinction between… oh I give up. The man is completely incomprehensible.
Coggan and Knight dignify him far too much by conversing on his terms, which wastes most of the last 15 minutes of the programme. Schlichter disagrees with him completely and gets in a point about how Germany’s success after WWII is a result of its relatively hard currency which encourages savings and avoids asset bubbles.
So there we have it. Coggan and Schlichter have their differences but would have appeared very close to each other to the BBC listeners. Knight didn’t really say anything, and Glasman was the token lefty who only other committed lefties would have been cheering along with. All in all not a bad day for the spreading of Austrian ideas.
Why don’t small-government libertarians adopt Gold as ‘our’ colour? It would be a constant reminder of our desire for a gold standard (though any metal-backed money will do) and it is not being used by other movements!
I don’t know about ‘small-government’ libertarians, but zero-government libertarians have used gold before to represent themselves, particularly the gold-and-black anarchist flag liked by one of my favourite such men, Robert Le Fevre.
http://en.wikipedia.org/wiki/Anarcho-capitalist_symbolism(Link)
Nice play-by-play, Rob. If Detlev posts it on his site I might give it a listen.
FYI, Andy, the link in your comment is currently blacked out by Wikipedia’s 24-hour Internet boycott in protest of SOPA and PIPA. Good for them! I can wait a day to read the article.
I agree, Laird.
IOW, Germany owes its post-WWII success to the Weimar Republic?:-| We humans do like to learn our lessons the hard way, don’t we.
I don’t understand the gold thing. It doesn’t make any sense. Gold is a commodity needed for many technological
advances for a start, it is used increasingly in industry.
In future maybe we will even be able to fabricate gold, maybe in a 3d printing machine 🙂
It is much easier to just say we have xxxxx paper money and it cannot be printed more or can only be by the growth level minus debt. That will make people know the reasons. Not just some totem thing.
Schlichter deals with the simultaneous use of the money commodity in industry. I don’t recall the exact argument, but it ends up being irrelevant. I can imagine the purchasing power of gold getting so high that you can buy, say, a car for the same price as the gold plating on a connector, but it seems that cars would then be almost free so we probably wouldn’t be to worried.
More importantly is that you can say you will never print any more paper money but who will trust you? The advantage of gold is that nobody can just print it.
You might be able to make things from gold using a 3D printer, but you can’t make gold from other things because it is an element. Someone might find gold on the moon though. Then you would get some inflation.
It doesn’t have to be gold. It just has to be verifiable, divisible and fairly fixed in quantity. I like the idea of some mathematically unbreakable cryptographic digital currency.
Yes Rob – but that digital currency will need to be convertible into some physical form to mediate face-to-face exchanges; I can’t go up into the hills and buy mangos from the octogenarians who only speak Hoklo with mere bitcoin on my HTC.
An excellent summary. I thought Glasman made a fool of himself waffling on about worker involvement in Germany when there was a German right there in front of him.
Mike, that’s just like people complaining that a switch to gold would make money difficult to carry around. The payment technologies can be separated from base money.
If the octogenarians don’t take VISA, just issue paper notes backed by bitcoins (or whatever).
I did say that the actual metal which backs the currency is not as important as having something we can trust to back it up- not the promises of governments! And I think that gold and Silver could be the colours of minarchists like myself.
What a bunch of backwards looking dark ageians you lot all are.
Very soon money will be privatized. Again.
Whose signature on a debt instrument do you trust more, some government flunky-politico, or, say, Anton Fugger, or a Rothschild or an upright and incorruptible Scot merchant banker? How about a ‘bank note’ issued by MasterCard or Visa, as opposed to the Euro?
Don’t make me larff, the bankers are well dressed hoodlums but at least they are not stupid, like politicians, and the bankers self interest requires they do their very best to ensure the quality of their paper.
Politicians have a reverse incentive. The more they debase the paper money by insane spending to curry favour, the better off they are. Even when a currency collapses the majority of them do very well under the new currency regime, whatever it may be, so long as it is government based.
I can answer one of your questions Rob.
Lord Glasman was NOT going on about an inbalance between debters and creditors (the “balance” stuff that the man from the Economist magazine was pointing in the direction of – a line of argument that leads goverments to seek “stable prices”, not understanding that “inflation” is the inflation of the money supply REGARDLESS of whether prices in the shops are going up or not, the tragic error of the late 1920s under Ben Strong and the 1990s and 2000’s und Alan Greenspan). What Lord G. was going on about was a supposed “imbalance” between employers and employees WITHIN A FIRM.
“What has that got to do with the argument Paul”.
Nothing at all Rob – it is just what Lord G. always goes on about (regardless of what the discussion is supposed to be about).
Actually Lord G. said that the Austrian School makes good points “on a macro level” (i.e. about monetary policy?), before getting back to his main areas of interest….
How employees are treated badly by overpaid managers – and how Germany is wonderful because there is a smaller income gap between managers and workers and because everyone needs a special qualification to do anything “it is a status economy not a contractual economy” he said (not very accurate – and not a good thing if it was accurate).
He also talked about German banks were good because they were small.
Actually there are big German banks also (full of bad debts) – but do not confuse him with too much information.
Actually Lord G. might have been on to something if he had stressed the importance of craftmanship in Germany – and also the importance of FAMILY FIRMS (due to inheritance tax, and so on, not destroying these firms in Germany – although the vampire Warren Buffet has long pressed for that to change).
It still would not have been relevant to the conversation (which was supposed to be about monetary policy) – but he would have been on to something.
As for the actual discussion…..
My principle problem with the discussion is that people still have not been fully warned of what is comming (D. Schlichter did not have much time – and he is much too civilized to speak in the way I would have anyway).
There are bugger savings (thanks to government low interest rate policy) and this economis is just one great big credit bubble.
And when the credit bubble finally does go (oh no – the last three years have not really seen a correction) it will take the Welfare State (and so on) with it.
The left will interpret this as a “crises of capitalism” (what the dear Marxists over at the “business newspaper”, the Financial Times, have been saying every other day for ages) and will make a bid for total power.
It may not be formal Marxism – it may be the “German form of Socialism” (before this “War Socialism” was renamed “National Socialism”) of the latter part of the First World War and the 1930s.
Under this many companies would remain nominally private property – but “owners” would not really be in control of them (notice how “Progressives” celebrate the “modern division between ownership and control”) and they would not even be able to sell their shares – in a way that would change the management (or the basic policies of the organization).
“Paranoid fantasy Paul”.
Actually I am more-or-less (I am translating into English) quoting from a speech made by Ed Miliband (the son of Ralph Miliband) only a couple of days ago.
@Rob
Yes, but the point is government control. Right now, alternative Bitcoin exchanges can be opened up anywhere else with relative ease if the government decides to regulate or intimidate the people who run an existing exchange. Paper notes backed by Bitcoin mean physical hardware (and not just a HP printer in somebody’s flat); a printing press cannot be so easily transferred or replaced under threat of government control.
This is a real problem.