Former "Plunge Protection Team" Member on Gold, Wealth Confiscation, Gov debt

[moda0306]

How are things any more or less messed up now than they have ever been? Life on earth is a messy enterprise...and I have a feeling that if the world economy were run according to the tenets of Austrian economics, it would continue to be a messy place.

I have been on this earth for about three decades and I can't remember a period for longer than a year when something or another wasn't in upheaval.

True.  And we have to make decisions on what our government does based on what other governments are doing.  I'm not trying to sound like a statist war hawk, but the best defense against big-government tyranny (actually tyranny involving genocide, gross property confiscation, etc) has probably been other big governments that are simply "less bad."  WWII is probably a pretty good example... even though I'm thoroughly intrigued how Switzerland stayed out of the war and didn't get invaded.

[moda0306]

It seems to me that if a country has a relatively honest culture, a decent amount of natural resource, and can strike the right mix of private and public roles/responsibilities, they've struck a very "robust" balance that can be hard to undo... I think it would do Austrianism well to start realizing this, even if they want to continue their moral crusade against said governments.

That's the rub though and an argument I've had against MMT for a while. Even if I thought stimulus spending, etc. were needed at some level, governments do destructive things with it. Whether it is a new war overseas, drones over American cities, or the latest Prism surveillance disclosure, governments with bottomless checkbooks can do really bad things.

craig,

I don't think you'd find any disagreement from MMT or MR.  However, Austrians make all kinds of assertions outside of the realm "it maks it easier to fund wars."  They claim it reduces incentives for businesses to a huge degree, "crowds out" private investment, or "we'll hyperinflate tomorrow because the government is "printing money."

These range from incomplete assertions to ridiculous ones, and MMT/MR gladly calls them out.  The power to manage money is an awesome one to hand government, but probably no more so than the ability to draft men into a war to go kill other men, women and children.  The latter came first.  The former, while contributing to military expansion, probably does so just as a natural result of facilitating economic stability and private-sector growth, therefore more military creativity.

Also, in the end, militaries can kill a ton of people before the creditors come knocking.  For all the unnecessary size of our military, or those of the world, in the end, there are few times I'd rather live in terms of whether I'm scared that I'm going to be round up and killed.  That includes all the times where war/draft/genocide/theft were happening under a gold standard.

[clacy]

I think all monetary theories will essentially end up back in the same place.  They all have fatal flaws that assume we live in a bubble without human emotions such as fear, greed and the desire to stay in political power.

There is no free lunch to be had from moving numbers around on an accounting form.

[Pointedstick]

moda, you keep bringing up the draft as an example of something that's even worse than taxes, or regulations, or monopolizing the money supply, but I don't know of anyone here arguing in favor of a draft. It therefore becomes a weak argument because I can just reply with, "yeah… and I don't want the government to force people to kill strangers either!"

[moda0306]

PS,

The reason I bring up the draft, or slavery, or genocide, is to give us perspective on whether "things are getting worse" or not, or how to truly measure the power we're giving government.

I'm not saying libertarians/Austrians are arguing for the draft or slavery, but that the existence of those government forces in the past are far, far more coercive than any tax or regulation today, and we should be cognizant of that when we're trying to decide what way the pendulum is swinging, or whether we're granting the government "way too much power" when having them manage a floating monetary system.

Perspective is all I'm trying to get at... not trying to put words in your mouths or go on some righteous tirade.

[Pointedstick]

Okay, I understand what you mean. In terms of the government's impact on you, it's true that things are better today if you're black, or a woman, or an immigrant. But by contrast, I would say that the government is more harmful to you if you're a high earner, a business owner, a gun owner, a small farmer, an owner-builder, etc. Even more so if you're in the wrong state! 

That's not to say that life isn't better for these folks in other ways; as a business owner myself, I prefer to live today because of the internet in particular. Most folks probably would as well, due to cell phones, refrigeration, computers, personal motor vehicles, and so on and so forth.

But IMHO that doesn't mean we should ignore the increasing burden levied by government. Why should we say, "well, the rest of society's getting better, who cares if your taxes are higher?" That's defeatism.

[rocketdog]

Meanwhile, we have no examples of an Austrian model that works in the modern world. 

Does Estonia qualify?

http://news.heartland.org/newspaper-art ... ic-miracle

https://www.youtube.com/watch?v=4f9SZiZ-azU

[moda0306]

I think all monetary theories will essentially end up back in the same place.  They all have fatal flaws that assume we live in a bubble without human emotions such as fear, greed and the desire to stay in political power.

There is no free lunch to be had from moving numbers around on an accounting form.

I hear MR or Keynesianism referred to as "a free lunch" quite often.  I'm going to assume that's sort of what you're getting at.

There's nothing "free" about having a guy wake up at 6:30 AM to go work on repairing a bridge, or building a light rail line.  Human resources must be expended.  However, this is far superior to having high unemployment. 

Full employment is not a free lunch.  Full employment is a more efficient use of resources in an economy not macroeconomically poised to result in it.  People still get up early, and, in most cases, go build stuff we actually will want, but that government usually provides (infrastructure, to sum it all up, essentially).  There's nothing "free" about it, no more than your hammer provides a "free lunch" when its nailing something for you vs just sitting in a drawer.

Our productive capacity and creative capacity has not diminished since 2007.  We have a ton of potential not going to use.  Why is that?  Well, we're pretty much split into two camps, opinion-wise:

1) We truly don't want the items our economy has to offer, or we need to pay some sort of pennance for over-consumption.  Our economy is further slowed by uncertainty around taxes and regulation, and our government is "crowding out" private investment by investing in things or hiring people.

2) A monetized economy has great efficiency, but some structural inflexibilities.  Unlike a bartar economy, people can't just "work their way" out of economic mistakes or economic shocks (on a macro scale).  We are essentially in an Economic Mexican Standoff where we all have skills that other people want, but there's not enough net financial assets in our hands to induce us to buy from each other.

So if you're in camp #1, you've got a ton of evidence working against you in the form of evidence that we're in a demand-side crisis, not a crisis of inadequate number of willing "John Galts" out there.  Taxes and regulations can be burdensome, but they aren't a consideration if you don't have demand for your product.

I really don't care what the regulatory environment is around snake-oil, because I wouldn't be able to get people to buy it, regardless!

[moda0306]

Meanwhile, we have no examples of an Austrian model that works in the modern world. 

Does Estonia qualify?

http://news.heartland.org/newspaper-art ... ic-miracle

https://www.youtube.com/watch?v=4f9SZiZ-azU

I'll have to look into that.  Thanks for an example.

But methinks that even if this is a shining example, it may just be the exception that proves the rule . (Can't remember the last time I heard "Estonia" mentioned)

[moda0306]

Okay, I understand what you mean. In terms of the government's impact on you, it's true that things are better today if you're black, or a woman, or an immigrant. Byt by contrast, I would say that the government is more harmful to you if you're a high earner, a business owner, a gun owner, a small farmer, etc. Even more so if you're in the wrong state! 

That's not to say that life isn't better for these folks in other ways; as a business owner myself, I prefer to live today because of the internet in particular. Most folks probably would, due to cell phones, refrigeration, personal motor vehicles, and so on and so forth.

But IMHO that doesn't mean we should ignore the increasing burden levied by government. Why should we say, "well, the rest of society's getting better, who cares if your taxes are higher?" That's defeatism.

I've never said "who cares."  I'm levying my arguments against folks talking about "the good ol' days" or claiming that the government is being given "broad, sweeping new powers" and who harken back to the "days of limited government," or I have to hear something like "we can't have something as important as money set into the hands of government" even though it's overtly in the constitution that it's the federal government's role, oh, and the same entity has nuclear bombs... do we trust them with those?

And you may be right, government is probably more intrusive into the lives of certain people today who were given land for free, were exempt from the draft, and had the right to bear any arms they wish, and weren't considered by the state to be property, were free from most regulations, didn't have to pay taxes, etc.  However, we don't get to pick our parents.  I'll gladly be born as a random person in a world we live in today than take my chances being born a slave, or poor someday-draftee in the 1800's, at the cost of maybe having some annoying regulations thrust upon me, or having to fill out a form when I sell my AR-15 to someone.

Though I'd argue there are things that various levels of government do today to facilitate business ownership and operation through the tax-code and SBA help, etc.  The former might get me a few laughs and gasps, but when viewed in context of the alternative (being an employee), business owners are free to deduct a ton of things the average person isn't, and their extra FICA/Medicare is really not "extra," as the employers of their wage-earning counterparts are paying that half, and would essentially have been more compensation.  Lastly, most of the intrusions on business owners, IMO, are from state/local governments.

So it's all about context.  What miseries are avoidable and what aren't.  A victim of the draft, or slavery, or genocide, really has no options but to fight, work, or die, respectively.  To put that anywhere near the "big government" problems we deal with to day is almost insulting.

If we are going to move forward trying to decide how to make our country have as good a balance between freedom, prosperity, productivity, fairness and security as possible, and discussing what the role of government should be, we have to quit using some kind of past utopia of a starting point. 

If we're arguing about the morality of what government does, I don't think it serves us to use the past as a moral spring-board.

If we're arguing about the robustness (is that a word?) of a society that has government coercion at levels some consider harsh, it doesn't serve us to use the past as a comparison tool.

If we're arguing about the productivity of a nation with a "big government," it's probably useless to try to claim that "big government" societies are inherantly unproductive, which they obviously are not necessarily so.

If we're arguing that managing a floating currency is giving the government "too much power," we should probably realize that government does immensely important or potentially-disasterous things (manages military, recognizes property, designs/manages infrastructure, sends us to the moon, digs the Panama Canal).

Context is all I'm asking for.  I'm nervous having the monetary system lie in the hands of a few ex-bankers.  I truly question it.  However, there are so many random things the government seems to do well enough that we're not awash in collapsed bridges, failed sewer systems, nuclear winter, property mishaps, men dying in space floating out into nothingness.  I mean if government was as evil or incompetent as we can tend to make it out to be, I'd have to think we'd all be radioactive mush right now, or all fighting with each other over who owns what.

I mean doesn't the Panama Canal alone make you wonder as to whether government actually CAN be a force for productive gain?  In 1914 no less?  Or landing a man on the moon in the 1960's?  I mean have you seen shit from the '60's?

[jbrown]

I mean doesn't the Panama Canal alone make you wonder as to whether government actually CAN be a force for productive gain?  In 1914 no less?  Or landing a man on the moon in the 1960's?  I mean have you seen shit from the '60's?

Interesting etymology of the term "good enough for government work" which we now take to mean shoddy when it originally meant the exact opposite....

http://en.wiktionary.org/wiki/close_eno ... nment_work

And as for the 60's shit...Yes, that was some very good shit. I remember it well.

[moda0306]

jbrown,

There was some durable stuff in the '60's, but one wouldn't think that taking to flying in a vacuum around the moon in a government-designed tin can would be a venture worth engaging in.

[JonathanH]

I found that Mosler presented arguments that begged for further questions. He seemed to touch on the fact that real goods and services are wealth and that money is not. That money is a claim on real goods. And when government spends more money, it is claiming resources that otherwise could have gone to the private sector. I don't see much to quibble about here.
He says that governments that issue their own currency cannot default because they can always create more money to then spend as they wish as long as inflation is low.

He continues that government debt is not a burden to future generations because future generations will continue to create goods and services that they will consume, and that what the government does today has no bearing on what future generations will create and consume.

I think this is a major problem the Austrians would have. After talking about how money is just a claim on resources, and that the government spending is no big deal as long as inflation is low - this overlooks the role of prices in economic calculation. And the unseen effect of what alternative purpose resources could have been used for when they are directed towards political ends. Government spending more today, means those resources won't be directed towards consumer goals, and that means less wealth in the future.
Because government spending at best, redistributes wealth, but more likely destroys it.

So if money is just a measure of account, and its no big deal if governments spend as long as inflation is low, how can so many people make such a large cluster of errors at the same time? This idea ignores the structure of production.

Of course, he mentions that there should be no reason why resources have to go unused, that labor and capital need to remain idle, justifying countercyclical spending.

Both links discuss free banking in the 1800s and what a disaster it was without elaborating, and a lot of material has been written on this subject that refutes these claims in detail.

The Austrian critique of this is that measuring inflation year over year as an increase in prices over looks the unseen effect of what would the prices be if there was not a policy to attempt stable prices. If left alone, competition would result in lower prices over time. The unseen effect is how low prices would get year over year. And the difference between how low prices could be and how high they are now are important. This element is tricky and I'm not sure it's quantifiable. But the difference represents resources people can't use to access a greater number of goods. Competition might bring prices down 2% a year but inflation keeps them rising at 2% a year.

Government spending of any sort results in a structure of production that is directed away from consumer ends. And because of this, when the government spending stops, we will see a drop in activity in those areas dependent on that spending. This is why an economic recovery has not happened. An increase in spending by either the government directly or by the Fed results in distortions that are not sustainable and just asking to be cleared away.

If you want a healthy economy not reliant on government spending, then those resources first have to become idle, made available on the market, and then bid on in order to be directed towards consumers' higher order ends. This means businesses closing and workers becoming unemployed. Mosler thinks that jobs should be available at a minimum wage to anyone willing to work. But this would slow down the transition from workers being directed towards the ends of consumers.

To Mosler, money is a method of account and a medium of exchange.  He does not focus on prices or on the subjective value individuals place on goods. But to Mises, money originates in the market and has several purposes. Going away from barter it eliminates the double coincidence of wants. It provides for a medium of exchange, a store of wealth. Prices that money represent are crucial to economic calculation. It's what entrepreneurs use when taking risks on what consumers want.

With interference in market money, prices are distorted beyond what would have occurred "naturally". It makes economic calculation difficult. What seems profitable due to a credit expansion will turn out to be not profitable. And that is one reason why there is a general cluster of errors resulting in a bust.

I hope I have not overlooked something or perhaps even worse, misrepresented a crucial argument. If so, my apologies! Honestly, I do feel over my head - I mean how can I trust what I think when so many smart people disagree?!

[moda0306]

JonathanH,

To a couple of your points:

"Government spending is diverting from private spending" (paraphrasing here)

- In some cases, yes.  However, in a demand-side recession in a monetized economy, we can have private demand that self-fulfillingly lags productive capacity unless government can upset the process.  In these environments, resources will sit idle unless government comes in to use them (building infrastructure), or to get people to be motivated to use them (negative real interest rates and more NFA's on peoples' balance sheets ( federal deficits)).

And whether infrastructure is helpful leads to my second point.

"Government spending is redistributive at its best, destructive at its worst"

- I disagree with this.  Government is destructive at its worst, redistributive (which may serve some stabilizing function), and facilitates real wealth creation at its best.  Sewer, roads, other infrastructure, the Panama Canal?  Do we really think that government can't facilitate real wealth creation?  Whether roads/sewers/militaries in-and-of-themselves are "wealth" is semantics... they facilitate real wealth creation when used in the right doses.  For evidence, see the most productive countries today... I haven't read about Estonia yet, but there seem to be very few examples of societies built on significantly more freedom than the US that are more productive.  There are several that have a much more active role of government that are more productive, however.



In the end, a lot of this hinges on the realization that in a modern, monetized economy, we are going to have great efficiency, but with the added problem of these Economic Mexican Standoffs that would never occur in a bartar economy where people can efficiently "work off their debt" to others.  Or at least not to anywhere near the same scale.

Also, "transfer payments" do no expend any real resources (at least not enough to mention).  They usually exist as a safety net for poor and/or retired folks.  This is redistribution, but it's important to realize that no real resources are extinguished in this process.  Of course, there is the caveat that these people are maybe choosing not to produce to the tune of the income they're receiving for free.  However, I think this is over-exaggerated.  It does more to stabilize demand than we lose in productivity of having 75 year old women bag our groceries.

When government builds something, or pays someone to do something, then you have a situation where resources have been diverted.  However, a lot of those things facilitate wealth creation.  Roads, bridges, other infrastructure, etc.  Countries that do this stuff right tend to have very productive economies (and vice versa, but that's kind of the point... it's about balance).

[Pointedstick]

moda, I find it interesting that you keep bringing up the Panama Canal. The history of that effort involves colonial explitation, treaties signed by parties without the right to do so, and clandestine support for guerrilla fighters, and its role as a strategic war asset has made the region a military flashpoint. It's not at all this orderly endeavor where a big benevolent government decided to build a big canal in order to increase the productive capacity of the world.

Government is the dark side; it's the quick and easy route to prosperity. Sure... if we don't care about rights, or pre-existing property or wealth, then maybe the government can come in, re-arrange things, and possibly do some good! But only looking at these examples where it succeeds and creates real wealth obscures the majority of cases when governments bring misery and ruination upon their victims when they engage in this type of activity.

I'm reminded of another benevolent infrastructure effort done by our own government that didn't go as well: Operation Plowshare. Let's use nuclear weapons to dig canals and make lakes! What could possibly go wrong?

Project Gnome vented radioactive steam over the very press gallery that was called to confirm its safety. The next blast, a 104-kiloton detonation at Yucca Flat, Nevada, displaced 12 million tons of soil and resulted in a radioactive dust cloud that rose 12,000 feet and plumed toward the Mississippi River. Other consequences – blighted land, relocated communities, tritium-contaminated water, radioactivity, and fallout from debris being hurled high into the atmosphere – were ignored and downplayed until the program was terminated in 1977, due in large part to public opposition.

https://en.wikipedia.org/wiki/Operation_Plowshare

Oops.

[MediumTex]

Jonathan,

I don't read Mosler as offering a theoretical framework for how the world should be, I read him as offering an explanation of how the world is, whether we like it or not.

Which of his observations about the nature of the current system do you disagree with?

I agree that in theory we should let resources sit idle until the most efficient use of them has been identified by the private sector, but in a highly leveraged economy while this is happening everyone is going broke because they can't service their debt and there is very little economic activity taking place, which makes everything worse.  During such periods people have no money to even buy basic necessities, much less service their debt.

I completely agree that the government has distorted the private economy in countless ways, but this distortion has still been the product of the tastes and preferences of the broader society.  In other words, people get the society that they want, and regardless of what they may say some people really like a lot of government and thus imagining a pure private sector market economy undistorted by government may be just as unrealistic as imagining a human being who never did anything stupid--that's just not how we are made and unmolested private markets may just not be how human economic arrangements at the societal level are made.

Without government spending during an economic crisis, how do you prevent a deflationary spiral?  I'm not saying that I'm for more government spending; I'm just asking the question because I know of no other way to prevent a deflationary spiral.

The option of simply letting the economy totally and completely crater so that an economic utopia can replace it seems unrealistic to me.  That sounds like the economic equivalent of just letting a very sick person die because it will make room for a more healthy person--the premises of the solution seem to defeat the purpose of solving the problem in the first place.

It is also noteworthy that the 20th century was easily the most productive in all of human history and for much of the 20th century debt-based money and deficit spending by governments were fixtures of the economic landscape.  In other words, if debt-based money and government tinkering with the economy is as bad as many people believe it is, how do they explain the dramatic increase in production and living standards between 1900 and 2000?  I don't have the answer, but it's a reasonable question to ask.

[AgAuMoney]

Oh boy, here we go again! 

I'd start with http://pragcap.com/understand-the-moder ... ary-system

Mosler's book is also good, but a bit much for a first introduction.

Roche is purportedly describing how things are.  Yet mostly he talks in broad strokes and when he has details, he is somewhat wrong while in gist correct. (E.g. the fed remits 95% profit to gov't?  No, they are allowed to make 6% profit and must remit the rest.  The gotcha is they get to decide what is "profit" with no 3rd party audit.)  I stumble over all those and it makes it hard to get thru the rest.  Would have been better had he never tried to report details.

In essence tho, I agree with his assessment.  Where I disagree is in the implicit assumption that the system is working and will continue to work.

He acknowledges that the limit on gov't spending is inflation.  I agree that is one limit (but I'm concerned about the studies which show level of debt to GDP tends to hit a threshold and cause a sharp drop in productivity).  He does not address the problem of measuring inflation and the strong motivation to fudge the numbers.

He also claims that a purpose of money is as a unit of account.  How can you reliably measure anything if your unit of measure is not constant and the adjustment is individual at best and typically unknowable?  You cannot.  Yet it doesn't matter too much as long as the error is insignificant in proportion.

You combine those facts and the only conclusion is that the functioning of the system depends on self control exercised by those who are limiting the supply of money.  I don't believe that is a tenable long-term plan.  Historically it has consistently failed.  I see no evidence for how this will end any differently.

Mosler looks to be a quick read but I don't know that I can do it in under the hour I have...

(edited to correct description of Fed remittance/profit.)

[Dieter]

Meanwhile, we have no examples of an Austrian model that works in the modern world. 

Does Estonia qualify?

http://news.heartland.org/newspaper-art ... ic-miracle

https://www.youtube.com/watch?v=4f9SZiZ-azU

While it sounds like they have done a lot of good, do remember that they receive a lot of subsides from the EU, and much lower % of GDP spending on defense vs US.

[moda0306]

Oh boy, here we go again! 

I'd start with http://pragcap.com/understand-the-moder ... ary-system

Mosler's book is also good, but a bit much for a first introduction.

Roche is purportedly describing how things are.  Yet mostly he talks in broad strokes and when he has details, he is somewhat wrong while in gist correct. (E.g. the fed remits 95% profit to gov't?  No, they are allowed to make 6% profit and must remit the rest.  The gotcha is they get to decide what is "profit" with no 3rd party audit.)  I stumble over all those and it makes it hard to get thru the rest.  Would have been better had he never tried to report details.

In essence tho, I agree with his assessment.  Where I disagree is in the implicit assumption that the system is working and will continue to work.

He acknowledges that the limit on gov't spending is inflation.  I agree that is one limit (but I'm concerned about the studies which show level of debt to GDP tends to hit a threshold and cause a sharp drop in productivity).  He does not address the problem of measuring inflation and the strong motivation to fudge the numbers.

He also claims that a purpose of money is as a unit of account.  How can you reliably measure anything if your unit of measure is not constant and the adjustment is individual at best and typically unknowable?  You cannot.  Yet it doesn't matter too much as long as the error is insignificant in proportion.

You combine those facts and the only conclusion is that the functioning of the system depends on self control exercised by those who are limiting the supply of money.  I don't believe that is a tenable long-term plan.  Historically it has consistently failed.  I see no evidence for how this will end any differently.

Mosler looks to be a quick read but I don't know that I can do it in under the hour I have...

(edited to correct description of Fed remittance/profit.)

AgAu,

Are you sure most of the failures of monetary systems of the past weren't moreso failures of the underlying government/society?  Whether it be losing a war and owing massive war debts, massive corruption (way beyond what we think is bad here), or some other complete collapse of productive capacity?

It seems to me that the failure of many fiat currencies is very correlated to much more fundamenal failures of government in REAL areas such as losing wars, owing foreign-denominated debt, other losses of productive capacity, or massive corruption... or some clusterf*ck combo platter of those reasons.

Also, his assertion that it's a unit of account is simply stating that this is the main way we measure economic transactions in the U.S.  Of course, we need to adjust things for inflation for some perspective, but in the end, any entity that issues currency doesn't need to issue debt, and any such debt should be looked at as simply a management tool of private money creation (private credit), as it simply helps set a floor on the cost of debt below which the private sector will not lend to each other.

This means QE is far, far less impactful than Austrians and the like would invision.  It's simply trading fiat assets issued by government for fiat assets issued by government.  Hell, if we really wanted to as a society, we could use the treasury bonds themselves as a medium of exchange.

If the government "printing money" actually put new assets on people's balance sheets, I'd have to agree there was some sizable impact, but it's really nothing more than a swap of one government-issued fiat asset for another of equal value.  We have to get away from these M0 charts if we're ever to understand what is fundamentally happening.

[AgAuMoney]

Mosler did go quickly.  It helped that I merely skimmed the bio section at the end.

His descriptive is good if rather repetitive.  Unfortunately it is all mixed thruout with proscriptive that is nothing more than a banker's utopian wet dream.  Never the less, I'll run with it.

The proscriptive appendix is actually better than most of that contained thruout the text.

Discussion of the risk/effect of inflation is sorely lacking.

And the role of taxes came up often enough that on almost every page I was reminded that in a rational world he would be a Fairtax proponent.  It would be a lot more direct and effective than the IRS.

And finally, I wasn't convinced of the need for treasury securities other than to provide profit (the interest) to the banks.  "To support interest rates" was not sufficiently supported nor self evident, at least to me.

[AgAuMoney]

Are you sure most of the failures of monetary systems of the past weren't moreso failures of the underlying government/society?  Whether it be losing a war and owing massive war debts, massive corruption (way beyond what we think is bad here), or some other complete collapse of productive capacity?

It seems to me that the failure of many fiat currencies is very correlated to much more fundamenal failures of government in REAL areas such as losing wars, owing foreign-denominated debt, other losses of productive capacity, or massive corruption... or some clusterf*ck combo platter of those reasons.

When government IS the source and controller of the money, failure of the money is failure of the government is failure of the money.  Impossible to separate cause and effect.  Even the Wiemar Republic and the Great Depression are debated endlessly because the system is sufficiently complex that there is no unequivocal answer.

The only thing clear is that all fiat monetary systems prior to the mid-20th century failed.

Also, his assertion that it's a unit of account is simply stating that this is the main way we measure economic transactions in the U.S.  Of course, we need to adjust things for inflation for some perspective,

Which is Exactly my point about the problem of inflation which Roche did not address nor reconcile with money being a unit of account.

Edit:  Adjusting units of measure is a HUGE problem.  Witness the survey mile vs. the nautical mile vs ...

[JonathanH]

To MediumTex:
In regards to the deflationary spiral, this is a point that trips me up because Rothbard is possibly inconsistent in his views. In "Man, Economy, & State" and "America's Great Depression" he suggests that as long as prices and wages can adjust to the new money supply, then the deflation of the money stock will be short lived because it cannot go on to infinity as individuals cannot postpone consumption forever. Yet in later writings suggesting a return to the gold standard he talks about linking gold to a certain present dollar value instead of a lower dollar value to avoid a "wracking deflation". How can this severe deflation be 'not a problem' and then later 'be a problem'.
And according to Roger Garrison, Hayek was concerned about the social costs of deflation as well. To further expand on deflation, it is viewed by Rothbard and Mises that the paradox of thrift is not something to be concerned about. As people save, those savings are directed towards investments based upon consumer ends and will stabilize the economy.

The evidence seems to suggest this has happened when the Fed has not intervened (for example, the panic of 1920-1921 was short lived even though unemployment was higher at the start of this panic than during the Great Depression - as well as panics before the Fed).

So I don't know how to prevent the severe deflation. Other than going back in time to prevent the expansion of credit beyond the available pool of savings, the deflation seems inevitable. Trying to re-inflate seems to prolong the problem - that's how I interpret Japan. The quickest way to recover from it would be no intervention whatsoever (according to the Austrians) because prices will fall to the level that goods will finally clear.

And to Moda and others:
That's how I view all government spending - either overheating an economy or prolonging a downturn. While the state can build things that we can observe and see, and may in fact appear to facilitate commerce, I don't see why these services couldn't also be provided by the market. What we don't see are what would have been used with certain resources.

I have to agree with MediumTex that this is unlikely to become popular as most people really prefer to have the government provide services.

In regards to Mosler's paper, I don't know that I can disagree with his assessment of the current system. But his work is not only lmited to a description of how things are but he takes a stand on how the system should be - that it is proper to have intervention (in the areas that he describes).
In one section he describes as a fallacy that investment requires prior savings. The current system as it is sure does not seem to require prior savings to engage in investment and he seems happy about that.
That may be how it is, but the Austrians would disagree that this is how it should be.

To AgAuMoney:
I enjoyed your analyses here:

"He also claims that a purpose of money is as a unit of account.  How can you reliably measure anything if your unit of measure is not constant and the adjustment is individual at best and typically unknowable?  You cannot.  Yet it doesn't matter too much as long as the error is insignificant in proportion.

You combine those facts and the only conclusion is that the functioning of the system depends on self control exercised by those who are limiting the supply of money.  I don't believe that is a tenable long-term plan.  Historically it has consistently failed.  I see no evidence for how this will end any differently."

Unfortunately, I have to stop here, at least for now, as my son is resisting his bed time. Goodnight!

[AgAuMoney]

the deflation of the money stock will be short lived because it cannot go on to infinity as individuals cannot postpone consumption forever. Yet in later writings suggesting a return to the gold standard he talks about linking gold to a certain present dollar value instead of a lower dollar value to avoid a "wracking deflation". How can this severe deflation be 'not a problem' and then later 'be a problem'.

My interpretation was that once on the gold standard deflation is short-lived.  However when transitioning to the gold standard you do not want (like the British tried) to set it back to some arbitrary dollar value from the past, but rather to a current reasonable dollar value.

For example, currently one definition of the dollar is $1 = 1/50 oz or a $50/oz price of gold.  (one of many conflicting definitions currently in the law)  Trying to resume the gold standard at that level, should it be at all possible, would cause the dollar to gain more than 26x over night.  That deflation would be severely wracking!  Instead you would set the ratio at least say $1500/oz.

[MediumTex]

The problem with just letting the price of everything reset to a lower level as a deflationary spiral unfolds is that in the process it destroys the confidence in the economy of a large part of the population.  When these people do begin to recover from the economic disaster they are very hesitant to take ANY risk with their new pool of capital, and this makes it hard for the economy to get any traction as it is recovering.  There is capital out there, but much of it is not available because it is sitting in banks that won't lend it or worse it's under someone's mattress.

I wouldn't deliberately set in motion a deflationary spiral any more than I would set in motion an inflationary spiral.  They are both highly destructive to the stability and optimism needed for a healthy economy.  There are still people around who lived through the 1930s who have never really recovered from their fear of the stock market and their scarcity mentality.

[moda0306]

The problem with just letting the price of everything reset to a lower level as a deflationary spiral unfolds is that in the process it destroys the confidence in the economy of a large part of the population.  When these people do begin to recover from the economic disaster they are very hesitant to take ANY risk with their new pool of capital, and this makes it hard for the economy to get any traction as it is recovering.  There is capital out there, but much of it is not available because it is sitting in banks that won't lend it or worse it's under someone's mattress.

I wouldn't deliberately set in motion a deflationary spiral any more than I would set in motion an inflationary spiral.  They are both highly destructive to the stability and optimism needed for a healthy economy.  There are still people around who lived through the 1930s who have never really recovered from their fear of the stock market and their scarcity mentality.

MT,

Very well put.  Austrians act like once we hit some deflationary floor that investment in "real" productive ventures will be rampant.  I disagree.  Thousands if not millions of business owners will have felt very burned from the deflation and demand collapse.  This idea that liquidationism is healthy is beyond me... and I'm putting the Galts of the country near the top of the list of people that I'm afraid would pare their great ideas way back in terms of scope.