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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (44028)	1/6/2006 5:41:50 PM
From: Tommaso	Read Replies (1) \| Respond to of 116555

I think everything you say is likely to happen, but on top of that, I think the U. S. dollar is going to decline seriously in value against all commodities. That means that everything will be priced higher in U. S. dollars: gold, orange juice, oil, steel, things made of steel, lumber, you name it. Incidentally, I am on the Mises mailing list and seem to get something from them every single day. The Austrian point of view has begun to seem rather obsessive to me, as it does to a friend of mine, a distinguished economist and one of the top Hayek authorities in the world (as well as a friend of Milton Friedman's).

To: mishedlo who wrote (44028)	1/7/2006 11:19:54 AM
From: Tommaso	Read Replies (2) \| Respond to of 116555

Shostak quotes Mises: "an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange value based on some other use" (Mises 1980, p. 131). I have in my wallet a number of $20 bills. When they were distributed to the bank that first received them and went into circulation, they had absolutely no use other than as money. To claim otherwise is an absurdity. Of course there is the story of the voice from behind the partition in the restroom; "Could you let me have some paper from the roll on your side?" "It's all gone here, too." Moment of silence. "Do you have change for a five?" Years ago, when the Greek drachma repeatedly lost value through inflation, there were coins of some small denomination that had a hole in the middle and were made of aluminum. They were sometimes used as washers, being cheaper than anything else for this purpose. I think that U. S. pennies should be made with holes in them. Then they would be good for something. I think that the entire basis of any argument by the Mises school is the assumption that paper money is not money. To me, this may be somewhat like the Catholic argument that Protestant communion is invalid because the bread is not REALLY the body of Christ. Ultimately, the whole Mises school is based on gold-buggery. Further on Shostak says of a bank deposit: "In depositing his money, he never reliquishes ownership. No one else is expected to make use of it." That is a literally childish view, almost the piggy bank view of a bank. Actually, the bank immediately and continually makes use of the money as the basis of loans. That is what banking is all about. It started with the issuing of receipts by goldsmiths, and the use of those receipts as money. The Mises outlook is an effort to deny the reality of what goes on in money and banking. What is truly weird is that instead of saying that only gold OUGHT to be real money, and that demand deposits OUGHT to be uniquely the property of the depositor, the Mises argument asserts that these things ARE true. It is necessary to believe these non-truths in order to continue to believe that there will be a terrible day of reckoning when all debts must be paid. In fact, through inflation of the currency, much debt never is repaid. The process can go on insidiously over decades or catastrophically in months. As Dwight Eisenhower said in his 1953 inaugural address: "We pledge the Government's share in guarding the integrity of the dollar. But the Government's efforts cannot be the entire campaign against inflation, the thief that can rob the individual of the value of the pension and social security he has earned during his productive life." Shostak himself says: "Through an ongoing selection process over thousands of years, people have settled on gold as money. In other words, gold served as the standard money." Then in the very next sentence he contradicts himself: "In today's monetary system, the core of the money supply is no longer gold but coins and notes issued by the government and central bank." Why does he say, "People have settled on gold as money" and then deny this? Further on Shostak says, "Deposited cash, however, cannot disappear as long as the physical stock of money is not destroyed." He really seems to think that a bank at any time is holding cash in the amount of the demand deposits of its customers. Or at least that is certainly the inevitable consequence of the sentence I just quoted. I could go on multiplying examples of self-contradiction. I think that the Mises school is so opposed to current banking practices that it cannot even describe accurately what is going on. If they think that all bank demand deposits should be covered 100% at all times by cash in the bank's possession, they should say so. If they think that the cash should be 100% backed by gold, they should say so. Instead, they get lost in a swamp of definitions and redefinitions as to what constitutes money. Shostak says "the nature of money will never change." I suppose in the same sense one might write, "the nature of transportation will never change," in the sense that transportation is what gets you from one place to another. Or "the nature of food will never change." I would say that he is ambling along astride a golden ass, myself.