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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Samizdata quote of the day “To some extent the problem is too much rather than too little imagination. With fiat money, and a discretionary central bank, it’s always theoretically possible to have the money stock (or some other nominal variable) behave just like it ought to, according to whichever macroeconomic theory or model one prefers. In other words, a modern central bank is always technically capable of doing the right thing, just as a chimpanzee jumping on a keyboard is technically capable of typing-out War and Peace.”
– George Selgin, as quoted at the excellent Cafe Hayek blog.
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He’s wrong, of course. Choice of a wrong theory does not mean that something is “technically” possible. Sadly, in many cases, just a simple examination of the facts in action will show that technically, we’re all in the number 7734 handbasket.
It kind of reminds me of that old Spitting Image sketch where chancellor Lawson was demonstrating his own version of that fluidic model of the economy: “When we move this dial this way, inflation goes up. when we move it that way, inflation goes, err (indicator for inflation rises at an even faster rate)”
Which brings up another point. Does anyone remember a time when inflation was presented as something that government struggled to keep under control, as if it was some paranormal otherworldly influence that was a struggle to contain and not the direct result of the ratbags themselves?
Politicians cause inflation and wars.
It would have to be two keyboards. War & Peace is mostly in Russian but also contains quite extensive chunks of French.
I wonder how something epistemologically impossible can be technically possible.
In any case, the main reason why most economists support central banking is the same reason why most economists support state provision of education because over 95% of them are paid either by central banks, “private” banks who are members of the central bank, the state or a combination of both.
The other reason is that they can point to the fact that free banking systems did not work and all advocates of crank theories like Selgin’s can do is say oh but they weren’t free enough . I’ve seen it time and time again and all opponents of central banking have to do is say “for a deposit banking contract to be recognised in law the bank needs to maintain a 100% reserve and if people want to play around in ponzi schemes they need to clearly mark their unbacked money substitutes (with a note that says, for example, what the reserve ratio maintained by the bank is) so as not to defraud the public”. But they can’t or won’t, first, because they are bewitched by Selgin’s batty theory and, secondly, because they can’t think beyond vague slogans about liberty and paternalism long enough to think for a few minutes about contract law.
The concept of money supply is not as simple as pegging currency to a one-to-one relationship with some store of specie. Credit creates money and there are multiple measures of the money supply — M0, MB, M1, M2, M3, MZM.
Pegging currency would only limit M0, notes and currency in circulation, but the broader measures more accurately reflect the the true money supply.
The United States experienced both significant inflation and deflation prior to adopting fiat money in 1971.
Some commenters on this site blame Benjamin Strong Jr. for helping create a “credit-money bubble” in the ’20s. Likewise, the ’29-’33 U.S. deflation gave us the Great Depression. Both events occurred long before the U.S. adopted fiat money.
Bruce.
It was the credit money boom of the late 1920s that caused the bust.
If you do not understand that (if you really think the “deflation” was the problem) I suggest you read Frank Fetter’s critical exaination of Irving Fisher.
After all it was Irving (not Frank) who was astonished by the 1921 bust – and astonished again by the 1929 bust.
If you people are so “empirical” how come you keep ignoring the fact that other people’s predictions are correct and yours are wrong?
“Long before the United States had fiat money”.
I see.
So all those Dollars the banks said existed really did exist.
There was gold in the vaults – and in the Fed. Covering all those Dollars.
Nothing fiat at all……
Tell it to the Marines.
While I am waiting for the last comment to be unsmited…
Richard Thomas and G.
George Selgin is a “interesting” person.
Someone else (I wish it had been me – but it was not) asked him whether he was in favour of people and enterprises (such as banks) being allowed to “discount” all the various forms of paper the banks came out with (this was made illegal under the National Banking Acts of the 1860s in the United States – at least for the big favoured New York banks).
They did get a reply – but neither they (nor me) could understand what the reply was supposed to mean (if anything).
I asked whether banks should be held to their contracts – i.e. no “suspension of cash payments” allowed (as it was even in the 1850s – but a corrupt New York court judgement).
I got a lot of mist as a reply.
Still it was possible the man (George Selgin) was a “Free Banker” (as he claims) but just was unable to express himself clearly.
However….
Then he started to pretend that banks only lent out real savings (not in a different world – in THIS world).
That was not mist, and it was not an inablity to express himself clearly.
It was blatent LYING.
One can say “I think that banks should be allowed to create credit-money bubbles, not just lend out real savings” without lying.
It is a point of view.
But to claim that banks (as things are) just lend real savings is not a statement of opinion – it is a statement of fact.
And it is a false statement of fact, a knowingly false statement, a lie.
I gave up on the man after that.
So all those Dollars the banks said existed really did exist.
Banks are not boogeymen somehow tricking people into believing money exists that doesn’t really exist.
The money existed and then much of it it didn’t exist. That’s called deflation and it helped cause the Great Depression. And all of that happened before fiat money. Imagine that.
And if you look at pre-Great Depression price levels, we had periods of both inflation and deflation.
Gold is not a magical elixir that will somehow fix an economy, and most money is not in the form of currency and hasn’t been since pre-industrial times.
Bruce.
You said the money was NOT fiat.
And you now you say that the banks did NOT trick anyone into thinking they had money they did not have.
On the contrary….
According to you
“the money existed and then it did not exist”.
So wicked elves stole the gold.
As the money was NOT fiat.
And the banks were NOT involved any deception.
The gold was in their vaults.
And then wicked “deflation” elves stole the gold.
You are not this stupid.
Nobody is this stupid.
You do not really believe “the money existed and then much of it did not exit”.
It never existed – it was CON, a SCAM, a SWINDLE.
Remember you said (just as the Federal Reserve and the banks said) that the money was NOT fiat.
In short they were claiming to have stuff they did not have.
It is not even a new scam.
Richard Cantillion (John Law’s partner in “legal” crime) explained the whole con – back in the 1700s.
Bruce.
I know my name is “Marks” but do not treat me like a mark – I resent it.
Do not tell me “the money existed and then much of it did not exist”.
There are no evil “deflation” elves who stole the gold from your vaults.
You never had the gold in the first place. All your claims to NOT be dealing in fiat money were false.
The money did not exist – it was a credit bubble.
A con, a scam, a swindle.
No you are not a “bogeyman” Bruce.
You are just a crook.
“I am not a crook”.
Are you not?
Well let us test that.
What should happen when people go to the banks for the gold the banks CONTRACTUALLY PROMISED TO PAY.
Should the banks go banks go bankrupt – really bankrupt (close their doors).
Or should there are be a “suspension of cash payments” and efforts to “combat the deflation”.
If I have been to harsh on you, I will apologise.
By the way the great George Selgin is not even, when actually put to the test (“would you get rid of the Fed – right now”) in favour of getting rid of the Federal Reserve.
You see there would be a “delflationary collapse” the banks need the Fed……..
So much for a being a “Free Banker”.
You are just a crook.
You know, I was just going to ignore you as a name-calling crank until I realized you are listed as a principal contributor to this site. Goodbye.
I also typed “I am not a crook” meaning you.
I gave you a fair chance to show that.
Your response shows which of the alternatives (crook or not crook) applies to you.
So please leave.
But before you leave…..
Please return all that gold you say “existed and then did not exist”.
I am sure you can get it back from the “deflation” elves.
There of course, according to you, being no credit bubble – nothing fiat at all.
Oh dear me, certainly not.