More Journalists Schooling Austrian Economists on Monetary Theory
I have asked George Selgin to please destroy this properly, but for now, behold:
Goodhart points out, however, that Menger is just wrong about the actual history of physical money, especially metal coins. Goodhart writes that coins don’t follow Menger’s account at all. Normal people, after all, can’t judge the quality of hunks of metal the same way they can count cigarettes or shells. They can, however, count coins. Coins need to be minted, and governments are the ideal body to do so. Precious metals that become coins are, well, precious, and stores of them need to be protected from theft. Also, a private mint will always have the incentive to say its coins contain more high-value stuff than they actually do. Governments can last a long time and make multi-generational commitments to their currencies that your local blacksmith can’t.
I’m trying to come up with an analogy, to show what other enterprises should be monopolized by the government as a way to overcome incentives for bad behavior, but I am at a loss. I can’t believe someone wrote the above paragraph, particularly in an article claiming to knock someone upside the head with the real facts of history.
The used car market seems like a good candidate for government monopoly. How could normal people judge the quality of the hunk of metal that is a used car? Especially when a used car salesman has every incentive to misrepresent a car’s value to make you pay up for a lemon.
I showed this painting of Spaniards attacking Indians to the MMTers to explain that people really need the NAP much more than they need government economic “stimulus”.
http://www.flickr.com/photos/bob_roddis/8525140770/in/photostream
They responded with, ‘They’re killing those Indians because they are looking for GOLD, you evil stupid Goldbug”.
But I thought gold only had value as coins created and denominated by governments who required people to use them to pay taxes. I’m confused.
“Also, a private mint will always have the incentive to say its coins contain more high-value stuff than they actually do.”
At least we know that governments are immune to that same perverse incentive, and would never say that the coins are worth more than they really are.
Exactly. Because, as we all know, private firms have complete and total immunity from lawsuits about false claims unlike governments which are universally subject to strict liability.
Monopolists are more easily controlled, because they’re singular concepts, whereas a plurality of private producers are virtually impossible to control, because they’re plentiful and diverse.
The ego must control as much as can be controlled, by any means necessary. A society of numerous separate egos is terrifying. As many egos as possible must be eliminated, if not through liquidation, then through coercion from a monopolist, and if that doesn’t work, then through ideological control from the monopolist, and if that doesn’t work, then self-destruction in a miasma of self-hatred and contempt.
The desire is to control. Got it? Everything else is smoke and mirrors designed specifically to placate you into obedience.
And so it goes, through the ages, chapter by chapter. In a madhouse, where not everyone is mad.
Yea, I think this was the lowest point of the piece. The author completely forgets the benefits of competition that the market allows for. And, in the next paragraph he mentions seigniorage, which directly contradicts his prior claim.
That is an empirical claim (do state or private mints debase currency “faster” or “more often”?) and the author should have some evidence to back it up such a claim. My instincts are that the evidence would show that the state is more likely to debase the currency, since they face the same incentives as private mints but lack the controlling mechanism of competition.
However, I do not have specific data or examples to back my claim.
Does anyone else have examples or data for either side?
Oh, really, have you never of the underweight silver coinage of John Chalmers in 1780s?
Or the 1780s report that private copper coins in New York often had a value of 50-100% above production costs, which led to legislation on coin standards?
Or the debased private coins issued in California in the 1850s identified the tests of Eckfeldt and Dubois which caused lack of public confidence in private mints in general?
OMG! There are individual minters who are dishonest in the world! Now which laissez market advocate said that people are going to be pure doves in a laissez faire world? Where are you? Anyone?
It’s a good thing there is now a monopoly on minting of money, because now we never have to deal with debasement of money ever again. OK fine, there’s debasement, but it’s insignificant. OK, fine, it’s significant, but it doesn’t benefit special interests! OK, fine, it benefits special interests, but it’s good for “the aggregate” economy! We need debasement now, or else prices will fall!
You see, it’s not debasement when monopolists do it. It’s only debasement when private minters do it. OK, fine, it’s debasement, but when monopolists do it, it turns non-ergodic systems into ergodic ones. That’s a good thing!
If anyone is going to profit from debasement, it should be a violence backed monopolist. That way, we can get the monopolist to favor special interests, our special interests of course.
Then we can fake outrage at private debasers who are destroying society.
LOL
While the journalist you cite might be wrong about Menger’s views, the statement that coins were invented by ancient states to “pay soldiers … and then made … the only acceptable currency for paying taxes” is confirmed by history:
Cook, R.M. 1958. “Speculation on the Origins of Coinage,” Historia 7: 257–262.
Kraay, C. M. 1964. “Hoards, Small Change and the Origin of Coinage,” Journal of Hellenic Studies 84: 76–91.Peacock, M. S. 2006. “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange,” Cambridge Journal of Economics 30: 637–650.
Secondly, Menger recognised the “important functions of state administration” in creating coinage and creating public confidence in the “genuineness, weight, and fineness” of coined money (Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255, at p. 255). Menger held that the government reduces the uncertainty associated with “several commodities serving as currency” by official legal recognition of some commodities as money, or where more than one commodity money exists by fixing a definite exchange ratio between them (Menger 1892: 255). In this way, governments perfected precious metals in their function as money (Menger 1892: 255).
Menger also made this concession:
“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).
Expect these points to be brought up in your debate with Mosler! (if it happens)
>While the journalist you cite might be wrong about Menger’s views, the statement that coins were invented by ancient states to “pay soldiers … and then made … the only acceptable currency for paying taxes” is confirmed by history:
States paid soldiers in gold because gold was already valued (in exchanges) prior. It’s why they didn’t pay soldiers in pats on the back, or piles of dirt. The fact that historians haven’t noticed this in the historical record, isn’t a refutation of the barter theory of money.
>Secondly, Menger recognised the “important functions of state administration” in creating coinage and creating public confidence in the “genuineness, weight, and fineness” of coined money (Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255, at p. 255). Menger held that the government reduces the uncertainty associated with “several commodities serving as currency” by official legal recognition of some commodities as money, or where more than one commodity money exists by fixing a definite exchange ratio between them (Menger 1892: 255). In this way, governments perfected precious metals in their function as money (Menger 1892: 255).
Private minters have existed, private minters do exist, and private minters can exist in the future.
To say that governments stamped coins isn’t an argument that only governments stamped coins, just for your information.
>“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).
How is that a “concession”? He’s saying here that legislation (violence) isn’t the primary mode in which money originated.
“States paid soldiers in gold because gold was already valued (in exchanges) “
The strict Mengerian argument is not that gold was simply valued in some sense (valued as what? simply as a rare high prestige object?) before becoming money, but that gold did become the physical medium of exchange as the most saleable commodity in real market transactions.
But is a different question from the question of the origin of coins.
“The strict Mengerian argument is not that gold was simply valued in some sense (valued as what? simply as a rare high prestige object?) before becoming money, but that gold did become the physical medium of exchange as the most saleable commodity in real market transactions.”
That is not the Mengerian account. In the barter theory of money, Menger only said that money originates as a barter good, valued in exchanges, *before* it becomes a universally accepted medium of exchange.
The reason why Kings wanted gold, the reason why soldiers accepted gold, the reason why gold even entered the land, in the particular framework of a chartalist system of gold-taxation, is because gold was already valued in exchanges prior. The King and the soldiers knew gold was already highly valued, and that is why the first King taxed people of gold that was already exchanged for prior, and why the soldiers accepted the gold offered them.
Gold did not arise as an exchanged good after the King taxed people in gold.
“That is not the Mengerian account. In the barter theory of money, Menger only said that money originates as a barter good, valued in exchanges, *before* it becomes a universally accepted medium of exchange
Nope, you do not even understand Menger.
A good emerges as money by becoming a REAL medium of exchange as the most saleable commodity in real barter spot trades.
For example, before Lydian coinage, a metal like electrum was a high prestige object and was simply one of many goods used in barter trades: it was not the reigning medium of exchange that had ALREADY emerged as the most saleable barter.
Electrum in coin form became a universal medium of exchange not by the Mengerian barter spot trade process, but by the use of the metal by the state in payments and as demanded back in tax levies.
Which means people traded gold for the goods they needed long before the state minted coins, as MF is pointing out. Whether the metals used for money were in actual coin form is frankly irrelevant – small bars would work just as well, as would any other fairly uniform weighting system.
LK’s post was funny to read. His claims were basically these:
Electrum was a barter good before it was money.
Electrum was money before it was bartered.
Electrum was a barter good before it was money.
Electrum was money before it was bartered.
Not what I said, and you commit a non sequitur.
I said electrum was a simple good sometimes used in barter, not money.
If M_F thinks all goods just used conventionally in barter trades are also money, he has now abandoned all pretense of argument and reason.
Oh, wait, he did that a long time ago….
LK:
“Not what I said, and you commit a non sequitur.”
That is what you said, and it is not a non-sequitur.
You said:
“…a metal like electrum was a high prestige object and was simply one of many goods used in barter trades”
OK, electrum was used in barter. But then you say
“..it was not the reigning medium of exchange that had ALREADY emerged as the most saleable barter. Electrum in coin form became a universal medium of exchange
Here you’re saying Electrum both is and is not money.
You can’t say that electrum, because it went into coin format by state decree, violates Menger’s theory of money. It’s the electrum that is the commodity. Whether or not the state fashioned coins out of it, doesn’t change the fact that electrum was originall used in barter.
That’s Menger.
“I said electrum was a simple good sometimes used in barter, not money.”
Right, barter!
“If M_F thinks all goods just used conventionally in barter trades are also money”
Which I don’t…so this:
“he has now abandoned all pretense of argument and reason.”
Does not follow.
“Oh, wait, he did that a long time ago…”
You’re funny.
You can’t say that electrum, because it went into coin format by state decree, violates Menger’s theory of money. It’s the electrum that is the commodity. Whether or not the state fashioned coins out of it, doesn’t change the fact that electrum was originall used in barter.
That’s Menger.
No, it isn’t and you like roddis are now revealed as ignorant of Austrian theory.
http://socialdemocracy21stcentury.blogspot.com/2013/04/the-origin-of-money-and-coins-in.html
LK:
“A good emerges as money by becoming a REAL medium of exchange as the most saleable commodity in real barter spot trades.”
Contradictory nonense. If a commodity is a medium of exchange, then it’s not a barter commodity, but a monetary commodity.
You don’t even know basic economic concepts.
“For example, before Lydian coinage, a metal like electrum was a high prestige object and was simply one of many goods used in barter trades”
That is consistent with Menger’s barter theory of money
“it was not the reigning medium of exchange that had ALREADY emerged as the most saleable barter.”
The most saleable barter good IS money.
“Electrum in coin form became a universal medium of exchange not by the Mengerian barter spot trade process, but by the use of the metal by the state in payments and as demanded back in tax levies.”
You just treated electrum above as being used in barter prior to it becoming money.
Dude you’re lost.
I like the comment George Selgin left:
“Mr. Zeitlin accuses others of not knowing their monetary history. But it is Mr. Zeitlin himself who displays a lack of familiarity with that history in observing that “governments are the ideal body to [mint coins]” and that “a private mint will always have the incentive to say its coins contain more high-value stuff than they actually do.” He seems not to realize (1) that the history of government coinage is chock-full of of instances of debasement and other abuses of governments’ coinage “prerogatives”; (2) that the opportunity to abuse their coinage prerogative for fiscal purposes is in fact the real reason why government authorities have long insisted upon exercising the privilege of coining, while generally outlawing private coinage; and (3) that in those few instances in which private, competitive coinage has been allowed–e.g., in California for a few years during and following the gold rush,–the most successful and enduring private mints produced coins that were in fact generally of a somewhat _higher_ standard than their gov’t-struck counterparts. Indeed, if private minting really had had the consequences Mr. Zeitlin claims, it should never have been necessary for governments to outlaw it: reputation effects alone should have done the private coiners in.
But then again, I suppose that according to Mr. Zeitlin’s (a priori) reasoning, we should prefer to let the government take over the manufacturing of earrings and necklaces.”
On Californian private coins, I’ve read just the opposite:
But though the general appearance of these $5, $10, $20, and $50 coins resembled each other, their value was not uniform, and some of the firms were not completely honest in their minting.
Ron Paul, The Case for Gold, Second Edition, p. 145.
lol…
If you’re predisposed to finding faults in free market money that’s damning evidence, but otherwise it also shows the benefits of competition. Another point that ought to be made that market outcomes are bound to be imperfect. The real question is whether non-market outcomes, regarding money, are any better.
And that also presupposes that commodity money IS the best way to go for a monetary system, the thing that is under intense question.
I see you endorse some kind of monetary equilibrium theory on your blog, or so it seems. You ain’t gonna get that with a commodity money world, with FR banking, no lender of last resort and an inelastic supply of the commodity money base…
Competitive monies don’t necessarily need to be commodity moneys, although I think that commodity monies would be the most stable (assets like gold make for stable backings, because they’re largely information insensitive).
Relevant:
https://www.youtube.com/watch?v=kUkXIRetCX0
That’s why a meticulously enforced prohibition against fraud and the initiation of force is so important.
See. We’ve already thought of that.
The existence of “some” dishonest private coinage firms doesn’t nullify Selgin’s arguments.
State monopolies tend to be even worse that competitive minters, because states face no economic competition, since they outlaw it by violence.
Every economist worth his salt knows the incentives present in monopolies. The incentive is to increase the prices (costs to others) and decrease the quality.
LK: Everyone knows from history that private coinage firms will invariably cheat their customers.
Me: That’s why a meticulously enforced prohibition against fraud and the initiation of force is so important.
LK: Idiot!
Me: That’s why fractional reserve bank notes should have explicit warnings on the face of the notes that they are not the equivalent of 100% reserve warehouse receipts.
LK: Despite what such notes promise on their face, NO ONE ever misunderstands that they are not warehouse receipts. Idiot!
http://factsandotherstubbornthings.blogspot.com/2012/07/bob-roddis-makes-bad-argument.html?showComment=1342711388945#c3957944063574219509
What exactly is the issue the Austrians are upset about?
As I understand it… perhaps incorrectly…
Everyone is free to create any form of money they wish.
Everyone is free to save in any form of money (or financial asset) they wish.
Is the issue simply that the state is always forcing people to constantly convert their other forms of money into what the state would like to collect and this ends up being very burdensome for those that like to create and or save in other units of account?