Inflation, like sin, is an inevitable consequence of choices people make. But to strategise it as a policy is wrong. It undermines confidence not just in the money supply of the moment, but in the nature of money itself. This government, via the Ponzi scheme of “quantitative easing” is pumping inflation into the financial structures of the UK. This is a deep subversion of the concept of money itself.
|
|||||
|
We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people. Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house] Authors
Arts, Tech & CultureCivil LibertiesCommentary
EconomicsSamizdatistas |
Samizdata quote of the daySamizdata Illuminatus (Arkham, Massachusetts) · Economics, Business & Globalization · Slogans & Quotations March 11th, 2021 |
 17 comments to Samizdata quote of the day |
Who Are We?The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling. We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe. CategoriesArchivesFeed This PageLink Icons   |
|||
All content on this website (including text, photographs, audio files, and any other original works), unless otherwise noted, is licensed under a Creative Commons License. |
|||||
“This Government”, ha.
The pound has lost what, 95%? 98%? of its purchasing power during the life of the current Queen.
Degrading the money has been the policy of every British Government for almost a hundred years.
You are probably right. I would imagine it would take a pound now to buy what a shilling would have bought in 1952.
More than a pound JohnK – a Pound will buy a loaf of bread, imagine being charged a silver shilling for a loaf of bread in 1952. Sill no rose tinted glasses – rationing was only just being got rid of after Churchill’s “Set the People Free” election victory of 1951.
As for debasement of the currency – there were really two stages of this.
Under the system before 1931 money was at least supposed to be gold – major wars (and BANK PANICS) aside one could get physical gold for the paper notes.
Sir Robert Peel’s Act of 1844 did not really work – bank notes were restricted, but the bankers could still expand fake “deposits” with their book keeping tricks (so there were boom-busts) – but the “broad money” (the bank credit) would always fall back towards the actual monetary base (the physical gold) eventually.
I am not a great fan of bankers (to put it mildly), but on their own they CAN NOT inflate the currency over the long term – prices in 1914 were lower than they had been in 1814.
Only government (or those the government gives the power to) can actually inflate the currency in the long term.
And please remember inflation may not mean “prices in the shops” (not at first) – it may mean “inflating the money supply” which will inflate asset prices (stock markets, real estate…..) a Benjamin Strong (New York Federal Reserve) did in the late 1920s – thus creating the 1929 bust (which he did not live to see).
As for the present monetary and general economic position…..
I am astonished, utterly astonished, it has lasted this long – as the policies followed for many years now have been utterly insane (certainly since 2008 – but really before that as well).
This international system will collapse – and it deserves to collapse. People in such countries as New Zealand, Australia, Canada will get by (they have plenty of natural resources and farm land).
The United Kingdom?
Well here things will not be good – not the fault of the present government, the fault of many British governments for a long time.
Did the last year of vast government spending make things worse? Well of course it did, but all parties supported that vast government spending. And they supported it KNOWING it would be financed by yet more monetary expansion.
When I turn on British television (any station) I never see demands for less government spending – it is always MORE (more-more-more) government spending that is demanded.
It is much the same with most American television.
And, of course, the pet “intellectuals” (the Witch Doctors – as Ayn Rand put it) dance out from their universities saying how the wild government spending is a good thing.
The difficulty that Australia, Canada and New Zealand will face is political – surviving in a hostile world (most likely dominated by the People’s Republic of China) where the leading nation of the West, the United States, will have fallen into a total mess.
November 2020 may well have been the last chance – the terrible Election Fraud (and the INSTITUTIONAL corruption in the United States that it revealed – as the media covered it up, and the courts refused to do anything about it), spiritually America may already be dead, who knows how long it has really been dead.
It is quite possible that President Trump would have failed to reverse American decline – but Puppet Biden does not even want to (he does not grasp that there is a problem) and soon to be President Harris (being pushed by Forbes and all the other Corporations) has the deep HATRED of the United States that so many of the modern American establishment elite have.
Essentially the People’s Republic of China may have already won.
In 1975 beer in the pub was 24p for mild, 25p for bitter and 26p for lager.
I would imagine it would take a pound now to buy what a shilling would have bought in 1952.
According to the Measuring Worth site a shilling in 1952 is worth about £1.45 today.
Sean Walsh : It undermines confidence not just in the money supply of the moment, but in the nature of money itself.
Well, not really. Maybe it ought to, but in fact it doesn’t. As demonstrated by the incredible shrinking pound (see above) but also by the even more incredibly shrinking German Mark (and the incredibly shrinking Hungarian and Austrian thingummies shortly before the German Mark’s big shrink), people still go on using money, even while they can see its value collapsing. And after the currency reform in Germany, people mysteriously seemed to have total faith in the new Rentenmark, even though it was built on just as sandy foundations as the old Mark.
I think Mr Walsh is confusing money-as-a-store-of-value with money-as-a-medium-of-exchange. Obviously in order to function as a medium of exchange, money has to be a store of money to some extent. But it turns out, not to a very great extent.
Imagine a currency which reliably loses 10% of its value every month. In a year it’s lost more than 70% of its opening value. But in your monthly paycheck, if you spend it steadily over the month, you’re getting 95% of its value. And compared with trying to barter trade your gardening services for Mrs Wilkins haircut service, 95% is easily enough to make that money worthwhile as a medium of exchange.
The reason people don’t lose faith in money as a concept, even when it’s rather bad money, is that even bad money is incrediby useful.
The scars of high inflation have more to do with money as a store of wealth over a longer term than its use as a medium of exchange. Debt instruments denominated in money and so on. But for that, you have alternative investment opportunities.
Which is not to say that inflation is a good thing. Merely that people will continue to use bad money if there is no good stuff available.
The chaps who had the best idea about destroying the notion of money were, of course, the Bolsheviks. Who engineered a roaring inflation as soon as they seized power, but then added the extra trick of ensuring that there was nothing to buy. Now that’s how to destroy the notion of money.
Dubious (as Mr. Moore has already said, but I’m gonna keep my reply, too).
Targeted inflation *at a low rate, and credibly*, has no obvious effect on “faith in money”, let alone somehow undermining the “concept”; we have decades of experience with this in the first world, after all. Fiat money ain’t new, and we can and should distinguish “non-zero inflation, deliberate and planned and held to” from “money printer go brrrt/Leeroy Jenkins The Economy/Just Spend All We Want” policies.
Because “having more than zero inflation” does not automatically lead one to Weimar or Zimbabwe or Venezuela.
(“Money is anything used primarily as a medium of exchange rather than for its own uses”; in the extreme case, very common these days, money has NO other uses.
That it will be worth 2% less next year, reliably, does not undermine that. It is, in fact, already priced into everyone’s expectations and demands for money.
As much as I am an Austrian at heart, I’m with Mises that there’s no going back to metallic money, and am of the opinion that slow, constant, predictable inflation at a low rate is probably an active good, as it pressures against the stickiness of wages and such.)
According to the Bank of England inflation calculator ( the site the British government likes to use to taunt hapless subjects about how much it’s impoverished them ). It would take £35 pounds today, to buy what £1 would have purchased you in 1950.
Or you’d have to spend one hundred and eighteen 2020 pounds sterling to achieve the purchasing power of one 1913 pound sterling.
I suppose the economy and Population is larger today.
Anyway, here is my question. Given that the government has just pissed up to two thirds of the economy away last year. What is the prudent strategy to adopt:
1. Borrow as much money as you can in anticipation of a delayed ( 18 month ) burst in inflation ( preferably at zero % rate ).
2. Save as much money as you can in anticipation of a delayed ( 18 month ) burst in inflation.
It’s human nature to try to get through today’s problems as easily as possible.
Tomorrow can look after itself.
Lee Moore AND Sigivald – +1
llater,
llamas
@APL
Or you’d have to spend one hundred and eighteen 2020 pounds sterling to achieve the purchasing power of one 1913 pound sterling.
That might be so, but the reverse is not true. Were I to spend 800 2020 pounds on a new Samsung phone there are no amount of 1950s pounds I could spend for the same result. Which is to say it is misleading, not apples and oranges, restricted only to some subset of goods (including, ironically, apples and oranges.) And also, were you to buy a TV in 1950s dollars it would cost maybe 1000 pounds, whereas today a vastly better one would cost 100 pounds.
So why am I picking at this detail? Because it is the very essence of the money problem. If the money supply represents the circulating value is society, then, as we develop new things the total value of the economy, including the circulating subset, needs to be represented in money lest we have deflation (which is generally considered bad, though I am not convinced that it is an unadulterated bad.) So there is a need to grow the money supply. We need some limit though so that it grows in line with economic needs rather than becoming a political slush fund. The theory is that that rate is limited by the rate you can dig gold out of the ground, but that is not all that great a method. For example, the discovery of gold in America made Spain first rich, then hyperinflated, and then the collapse of the Spanish Empire.
However, there is an interesting option, namely bitcoin (and its friends) mining. I think the reality of this is under appreciated. Mining bitcoin requires vast amounts of energy and computer power (I think I read somewhere that bitcoin miners use the same amount of electricity as Argentina.) But what is interesting is that if you were to think of a proxy for economic growth in the economy you would probably suggest energy and technological growth, the very limiting factors on bitcoin.
Of course right now it is massively over speculated, and it is in danger of being regulated out of business since it really does offer competition that governments will find scary. But if it can settle down, get enough bulk to defend itself against dollar bullying, and survive the legislative gauntlet to become more widely accepted, then I think it is potentially a good solution. And it is not just ignorant old me who thinks this. In this article Citibank indicated that they think there is a serious possibility of BTC becoming the main currency of international trade. https://www.cnbc.com/2021/03/01/bitcoin-btc-is-at-a-tipping-point-citi-says.html
Just a follow up to my comment, the idea of BTC as a big player in international transactions makes me a bit uncomfortable. There was always some comfort in the US dollar and its associated stable, liberty oriented government controlling world trade. However, the dollar has strayed very far from its roots, and is a terrifying wildcard now. But what is the alternative? The Renminbi/Yuan? That is truly terrifying.
(BTW, can anyone explain to me the difference between Renminbi and Yuan? My experience in China was that they seem to use the description Yuan in the North, Beijing for example, but RMB in the south like Guangzhou or Nanchang. But that could have been just the specific people I encountered there.)
So, I’ve read you comment a couple of times and attempted to reply more than once. I don’t really know what point you’re making. You couldn’t use £800 2020 pounds to buy something that hadn’t been invented in 1950, While true, what does it illustrate? Inflation as a spur to innovation? I think not.
Then, when something similar had been invented, and take up in the market was at the top end affluent sector that tends to set the trends and, by association incentivise other sectors of the market to aspire to owning that thing, it was expensive. Well, yes.
In the technology sector where we have had increasing utility & value for decreasing cost – the very definition of deflation. Yet deflation is a bad thing ?
As the population in an economy grows, there may be a case to inflate the money supply if only to maintain the value of the currency unit. More people, same quantity of currency implies the value of the currency would appreciate – simple supply and demand, so an argument for increasing money supply if your ( qualification: productive ) population increases – exists, and I don’t particularly object to it, assuming your goal is to maintain the value of the currency.
Neither do I object to mild deflation, if you accept that mild inflation ( I claim that a sustained inflationary policy is pernicious ) is good, then why object in the same measure to mild deflation? We both probably agree that extremes in either direction are bad, hyper inflation and a sudden massive deflation are both destructive and to be avoided if possible.
Bitcoin which you seem to advocate, is an inherently deflationary instrument. In that there is finite quantity of any given bitcoin denomination that can be in circulation at any time, you reference the energy expense (effort to ‘mine’ ) bitcoin has increased over time. Well, yes.
Once people start to accept Bitcoin ( or its analogues ) then it grows in acceptance and ‘popularity’ as there is a mathematical limit to the amount in circulation, then each individual bitcoin will increase in value with regard to so called ‘fiat’ currency, especially if that fiat currency is being inflated.
Yours seem to me, to be two contradictory stances – fiat inflation and bitcoin deflation.
Think of Renminbi as being a unit of exchange within China, and Yuan as being the total value of all wealth in China.
Yuan is used for accounting, for exchanges to dollars, that kind of thing. RMB is used to buy a bowl of noodles whilst you’re in the country.
Unhelpfully, they’re often used interchangeably, which makes it difficult to get your head around. And they sort of are interchangeable, too, since one is a function of the other.
Imagine “formalising” the word “quid”, so that all exchanges within the UK were on lines of “That will be 10 quid, please”. But then the Bank Of England still rolls up all the quids into British Pound Sterling.
Clear as mud?
Money as a store of value and a medium of exchange.
Well Lee Moore that sounds like the silver that was used in most of the Middle East (Egypt was more gold – more durable than the bread and beer they also used) for thousands of years before (yes before) the invention of coinage.
As for fiat money.
Well the “Continental” of the Continental Congress, the “Assignat” of the French Revolution and so on were not really about Store of Value or even (really) about “medium of exchange”.
They were about government plundering – on their own behalf and for those corrupt commercial interests allied with them.
So are the Pound and Dollar today. Legal Tender Laws, Tax Demands, and just spend-spend-spend by government and their pals.
A good indication of how corrupt an historical regime was is how debased the coinage was – whether its coins were real gold and sliver or NOT, how debased the coins were.
Look at modern Dollars and Pounds an all the other currencies (including the Swiss Franc) and you will see how debased government and society is – totally debased, totally corrupted.
@APL
So, I’ve read you comment a couple of times and attempted to reply more than once. I don’t really know what point you’re making. You couldn’t use £800 2020 pounds to buy something that hadn’t been invented in 1950, While true, what does it illustrate? Inflation as a spur to innovation? I think not.
No it means comparing purchasing power in 1950 to purchasing power in 2021 does not make any sense. They are not at all comparable because the markets are entirely different. To reiterate my example, a TV was massively more expensive in 1950 than 2021. The point I am making here is not really about inflation it is about economic growth. It is economic growth that is the justification for inflating the money supply, and there is merit to doing so.
In the technology sector where we have had increasing utility & value for decreasing cost – the very definition of deflation. Yet deflation is a bad thing ?
I said, I believe, that I did not think deflation was an unadulterated bad. The problem with deflation is that it means people wait to buy (because the future price will be lower.) On the one hand encouraging saving is good, on the other had it delays spending and suppresses economic growth.
Neither do I object to mild deflation, if you accept that mild inflation ( I claim that a sustained inflationary policy is pernicious ) is good, then why object in the same measure to mild deflation?
I don’t know that I do object to it. However, it is a drag on economic activity, which is a downside, against which must be balanced a number of upsides.
Bitcoin which you seem to advocate, is an inherently deflationary instrument. In that there is finite quantity of any given bitcoin denomination that can be in circulation at any time, you reference the energy expense (effort to ‘mine’ ) bitcoin has increased over time. Well, yes.
I don’t think that is a true at all. The goal is neither inflation nor deflation, but stability. (I know that is a bit of a joke in reference to BTC, but go with me on this.) Another way to say that is that the growth of the money supply is proportional to the growth of the underlying value generated in the economy.
If you imagine a world in which bitcoin (or some other superior instrument along the same lines) is the currency, then the expansion of the money supply is proportional to the growing capability to produce energy and computational power, and so we have precisely that alignment. I agree there are some problems with the specifics of bitcoin itself (like for example, we are running out of them), but that is the theory I am advocating.
How else are we to make that alignment? Trust politicians? Certainly not. Trust bureaucrats? We have tried that and it is now unraveling. Trust that an ancient technology like digging metal out of the dirt aligns with the economy? That seems insane.
I believe it was Milton Friedman that suggested we grow the money supply by a fixed amount each year, 4%, for example. And I think that is a good approach. But it is entirely infeasible in today’s political economy. BTC is still breathing. The knives are out, but we can hope that that currency, out of reach of slime-ball politicians, might survive and save us all. Having said that, I thought the Internet would save us from censorship and I was wrong about that, so I might be wrong about this too, and for exactly the same reasons.
It makes sense in the context of evaluating the historical value of the currency. Which in my opinion is a useful thing to be able to do. But verboten as far as you are concerned, OK. But I’m not proposing it as a ten decimal accurate measure, but as a rough guide, a comparison between then and now is valid. And yes, there are clear differences between the ’50s and now, but to claim you cannot make a comparison between then and now because, some luxury goods did not exist then, or because it isn’t an exact comparison, it’s that that doesn’t make sense.
You can make such a comparison, everyone who does knows it’s not an exact absolutely accurate comparison, but it’s good enough ( especially for a blog discussion ).
I’d also proposed, taking your principle of comparing like with like to extremes, we can’t compare the 2018 economy with the 2019 economy because COVID-19. Well no, we can, for the same reason, and doing so has some utility.
I don’t really disagree, if your economy grows, or your population grows that would be a good reason to inflate the currency, since as I mentioned in my first reply, supply and demand. Because your goal is, or in my opinion should be stable value of the currency.
But also by the same rationale 2019 when the economy shrank by 10% year over year, (20% in the second quarter). The logical response would be to reduce the money supply – obviously that didn’t happen, and we’re all going to have that cost extracted from us in the next couple of years.
I doubt you’d agree, that the government should have withdrawn liquidity last year? From my perspective it would have been better had we not locked down.
We haven’t ever given it a try. The only deflation discussed is the ’29 crash, as if that type of debt deflation ( the sort we are most likely to see today ) is the only sort of deflation.
No, there is the sort of deflation that has existed in the IT sector for the last seventy years, increasing value and declining costs. That sort of deflation – introduced by increasing innovation and efficiency -could also be applied to other industries with some benefit.
I also disagree that deflation ( of the second kind ) is a drag on economic activity. Encouraging people to save, implies that they will spend at some time in the future ( else what’s the point of saving ). Yes, if people are sufficiently affluent to buy a thing out of their own savings rather than via the intermediary of a Bank, the economic activity in the Financial Sector, may well be discouraged. But economic activity in other parts of the economy would not.
Well, if it were, then governments wouldn’t be fixated on inflation alone. In any case, I really don’t think you can call the economy we currently have ‘stable’, its a hollowed out husk, brought to that condition by a centuries worth of inflationary monetary policy.