To: mishedlo who wrote (20071 ) 10/17/2004 9:41:56 AM From: russwinter Read Replies (6) | Respond to I believe you are asking Mike to describe a crack up boom or "flucht in die sachwerte" . Further, you are asking him to answer "what to do" in a crack up boom as if it's an easy answer. Clearly it isn't an easy answer as it will be extremely difficult and dislocating. I'm not sure how I will survive it, and I have better awareness of it, of about anybody. The only thing I do know is that if you choose to hold USD (in Old Maid Cards like bonds) in the belief that you will have even greater purchasing power, you will be one of the first to be quickly wiped out. So rather than answer you directly, let me direct you to Von Mises' description of the evolution of crack up boom behavior, and then ask you to answer your own question? I believe this is a vital and essential read for you and everybody else, in term of understanding this aspect of our debate. In fact, if you just skip this unaddressed, I think you're doing us a disserve in asking Mike (or me) to respond to your line of questioning. But if once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call "velocity of circulation." The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether. People return either to barter or to the use of another kind of money. The price rise affects the various commodities and services, as has been shown, at different dates and to a different extent. the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the [p. 428] country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. mises.org
