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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (30325)	4/29/2005 2:27:01 AM
From: Elroy Jetson	Read Replies (3) \| Respond to of 306849

Monetarism is merely a new politically correct name for Currency Crankism, as economists have referred to it for many generations. Currency Crank ideas date back in a formal way to John Law, a Scottish adventurer, who was the first to commit them to writing and was fortunate enough to convince the King of France to adopt them. Fortunate for him, although unfortunate for all of France as it devastated the economy and led eventually to the French Revolution. cepa.newschool.edu Adam Smith, during a trip to France, was favorably impressed with Law's ideas and they provide much of the basis for Adam Smith's Wealth of Nations. In turn Currency Crank ideas have periodically been championed in Anglo-Saxon economics. Most recently by Milton Friedman. If we are to understand who someone is, we need to see what they do rather than what they say. Only then does it become clear why Milton Friedman is known as "the politician's pal". A capitalist economy experiences periodic recessions as over-enthusiasm is replaced by conservatism and de-leveraging. Currency crank economists believe that this de-leveraging process is unnecessary and can be countered with the issuance of additional paper money or credit. Milton Friedman argues quite forcefully that the Great Depression could have been avoided with a great increase in currency. In modern terms he speaks of dropping currency from helicopters, were a similar situation to arrive. By contrast traditional economists believe the Great Depression was a natural result of the boom which preceded it. They counsel if you don't want to bust, don't have the boom. Traditional economists like Charles Rist specifically see the boom of the 1920s resulting from monetary inflation to avoid the post WW-I downturn and decline in prices. "A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920s teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation." While Currency Cranks like Milton Friedman believe the issuance of more money and credit could have solved the problem of previous excessive monetary creation, it solves it only in the same way that a bottle of Scotch cures the alcoholic's tremours. As Joseph Schumpeter cautions, "Policy does not allow a choice between depression and no depression, but between depression now and a worse depression later. Inflation pushed far enough would undoubtedly turn depression into the sham prosperity so familiar from European postwar (WW-I) experience, and would, in the end, lead to a collapse worse than the one it was called in to remedy. For recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another worse crisis ahead." No politician wants a downturn on his watch, even though they are a normal event in a capitalist economy. It becomes clear why Milton Friedman is known as the politician's pal. We may soon see his protégé, Ben Bernanke, become Fed Chairman and we can watch John Law class disaster in action. Currency crank economists do not realize that de-leveraging is a necessary part of the capitalist cycle. As can be seen in the chart below, debt in America, as a percentage of income, remained neutral from 1945 until 1980. Upon the election of Reagan currency crank economics, with a new name of "supply-side" led to an explosion of debt similar in magnitude to that prior to the Great Depression. home.pacbell.net Followers of currency crank theories like Friedman and Dick Cheney argue that debt doesn't matter. In fact Grace Zaccardi put forth the same irrational nonsense this evening. Its true that the explosion of newly issued credit, far exceeding any available savings, pushes down interest rates, as a simple matter of supply and demand. Thus as the debt load in the economy increases, the debt service remains manageable. Currency crank economists point to Japan with pride, where an interest rate of near zero permits an almost infinite debt load. This may be a currency crank success, but it is a bizarre distortion of a capitalist economy. What this excessive creation of credit accomplishes in reality is what traditional economists call mal-investment - the destruction of capital by funneling it into non-economic investments. Its like a wealthy man who keeps his money at home in a box while his housekeeper steals this money over time. The wealthy man maintains his lavish spending long after the bulk of his wealth is gone. He curbs his spending only once he discovers the theft. Once the realization that mal-investment has destroyed much of the capital in an economy, an economic depression occurs. Now Milton Friedman, like a politician, has said so many conflicting things that his words can be found to be pleasing to almost any palette, just so long as you edit out the part you don't like. Indeed, the disastrous implementation of his ideas in Chile led his subsequent writing to conform more closely with those of traditional economist, while still including enough currency crank poison to please his long time fans. In Economics departments at most schools you can find copies of Milton Friedman made to argue with himself, by placing his conflicting ideas side by side. A good place to begin understanding who the little squirrel actually is, is the essay "Is Milton Friedman a Keynesian? - He isn't but he is" and "Milton Friedman and Monetarism". auburn.edu huppi.com Additional fun insights can be found on the quirky website of economist and long time Republican activist Pierre Rinfret, who gave advice to several Presidents, often with Milton Friedman present as well. parida.com For a more complete contrast between currency crank ideas, such as monetarism, and traditional capitalism I suggest a book by Charles Rist. "History of Monetary and Credit Theory from John Law to the Present Day" amazon.com .