08 Dec 2021

Debating Jon Schwarz on Whether Inflation Is Good for the Average Worker

All Posts 18 Comments

Scott Horton moderates. JS says yes, I say no.

18 Responses to “Debating Jon Schwarz on Whether Inflation Is Good for the Average Worker”

  1. guest says:

    Jon Schwarz [49:33]: “There is no solid foundation on which you can base the value of money. It doesn’t exist. It’s impossible for human beings to create that.”

    Just before this, he brings up the fact that humans can’t control the supply of gold and silver circulating, and he offers this as the reason why he believes there is no solid foundation on which to base the value of money.

    Which shows that he believes it’s the *supply* of money in relation to the amount of goods that determines the value of money.

    The reason this is wrong is because it comes from a belief that the money unit is somehow a measure of the value of one good in relation to another. But since nothing has intrinsic value, this is false.

    You could try to say that the money unit is a measure of satisfaction or of utility (a “util”), but then everything that costs the same would be equal substitutes for each other (consider a $10 meal vs. a $10 tool).

    So, both a measure of intrinsic value and a measure of satisfaction are off the table.

    It turns out that subjective value theory provides the solid foundation *IF* the money unit is, itself, a good with its own non-monetary use-value, so that the value of the commodity comes from the arbitrage opportunities created by those who happen to want the commodity for non-monetary uses.

    I’m pretty sure Bob disagrees with me, here, but the use-value of gold and silver is so high that it creates arbitrage opportunities for many people to hold it as a medium of exchange.

    That gold and silver are (were) used far more as a medium of exchange than for their use-value is not because they are “more valueable” as money, but because their use-value creates arbitrage opportunities to use them as a money.

    The money-values of gold and silver are ultimately based on their use-value, and so the supply of a commodity-money is irrelevant: People acquire the commodity-money when they perceive that the benefit of doing so is worth the cost of acquiring it, and they will spend the money or substitute that money with a different commodity when its purchasing power goes down.

    The supply automatically adjusts to demand, and there’s nothing to regulate.

    The solid foundation of the value of money is people’s subjective ends, and the values they impute to the goods that help them realize those ends.

    • guest says:

      Scott Horton brings up farmers and the Free Silver movement.

      Basically, there’s no reason to protect farmers by providing them a more reliable source of income (which is what Free Silver was intended to do).

      The law of supply and demand shows that whenever farmers do such things, it’s because there are too many farmers, and the larger farms are outproducing the smaller farms, and the smaller farms need to just find something else to do to earn money (rather than having the government steal resources from others to give to them) because there are already other people in the economy doing their job better than them, as evidenced by their customers wanting to buy food where its cheaper.

      The same thing happend during the Great Depression, except they raised farm prices by destroying food supplies.

      Tom Woods talks about farmers and Free Silver in this video:

      [Timestamped at 26:09]
      The Great Depression, WWII, and American Prosperity – Part 1
      youtube [dot] com/watch?v=vW5yvuyhVyI#t=26m09s

      • Tel says:

        It’s arguable … in the USA farmers had traditionally used Silver as their standard mechanism of exchange for 100 years or more, before Gold was imposed on them as a government edict.

        Seems to me that if Silver worked for them, they should have simply kept using it … but problem was that they ended up doing business through the banks, and many of them owed money to the banks, and once that happens, the bank gets to decide the standard.

        It’s the problem with contracts though … you can never write a contract that includes every possible eventuality, so for example if you write a contract for a loan and the contract specifies “dollars” then this at the time would have implied a Silver dollar, like it always had done previously. Then government says, “Dollars from now on are based on a Gold standard” and then the meaning of the existing contract suddenly changes. Who is to blame? Maybe they should have been more specific in the first place, but arguably it’s simply a problem with borrowing money under any conditions.

        • guest says:

          “… but problem was that they ended up doing business through the banks, and many of them owed money to the banks, and once that happens, the bank gets to decide the standard.”

          The banks can’t decide anything under a sound money system (commodity), because people would just make runs on banks.

          Bank runs kept banks honest, and that’s why the government has to force people at gun point to use a money that they print so they can prevent bank runs.

          Murray Rothbard explains:

          Anatomy of the Bank Run
          mises [dot] org/library/anatomy-bank-run

          “It was a scene familiar to any nostalgia buff: all-night lines waiting for the banks (first in Ohio, then in Maryland) to open; pompous but mendacious assurances by the bankers that all is well and that the people should go home; a stubborn insistence by depositors to get their money out; and the consequent closing of the banks by government, while at the same time the banks were permitted to stay in existence and collect the debts due them by their borrowers.

          “In other words, instead of government protecting private property and enforcing voluntary contracts, it deliberately violated the property of the depositors by barring them from retrieving their own money from the banks. …”

          “… What, then, is the magic potion of the federal government? Why does everyone trust the FDIC and FSLIC even though their reserve ratios are lower than private agencies, and though they too have only a very small fraction of total insured deposits in cash to stem any bank run? The answer is really quite simple: because everyone realizes, and realizes correctly, that only the federal government–and not the states or private firms–can print legal tender dollars. Everyone knows that, in case of a bank run, the U.S. Treasury would simply order the Fed to print enough cash to bail out any depositors who want it. The Fed has the unlimited power to print dollars, and it is this unlimited power to inflate that stands behind the current fractional reserve banking system.

          “Yes, the FDIC and FSLIC “work,” but only because the unlimited monopoly power to print money can “work” to bail out any firm or person on earth. For it was precisely bank runs, as severe as they were that, before 1933, kept the banking system under check, and prevented any substantial amount of inflation.”

          Also, the US was founded on a silver and a gold standard, the word “dollar” coming from a then-circulating spanish milled dollar made of silver and on which the US dollar was based:

          [TXT document]
          The Coinage Act of April 2, 1792
          constitution [dot] org/1-Law/uslaw/coinage1792.txt

          “Section 9. And be it further enacted, That there shall be from time to time struck and coined at the said mint, coins of gold, silver, and copper, of the following denominations, values and descriptions, viz.

          “EAGLES–each to be of he value of ten dollars or units, and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold. …”

          “… DOLLARS OR UNITS–each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.”

          (Aside: As Edwin Vieira has explained, the government tried to legislate the gold/silver convertability ratio to be at 15:1 [“And be it further enacted, That the proportional value of gold and silver … shall be fifteen to one …”], but that’s not how prices work, so it caused problems.

          (I suspect that’s the reason farmers called for free silver, rather than the banks. The government, although close to a sound money system, still managed to corrupt it to some extent with central planning.)

  2. guest says:

    [I knew there was a reason I make sure that links don’t appear as links …]

    Also, Tom Woods addresses the myths of the dangers of deflation head on in this video:

    [Timestamped at 18:59]
    Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
    youtube [dot] com/watch?v=h-PxMzSyujw#t=18m59s

    And he also dedicated a resource page to the topic:

    Should We Fear Deflation?
    libertyclassroom [dot] com/prices/

  3. Jocko says:

    How about debating if inflation is good for the elderly on fixed incomes, the working poor, the under employed, the part time employed and the gig worker. Those are the real people hurt by inflation. While wages lag, they go up. Fixed incomes do not.

    • random person says:

      I like your line of inquiry!

      Also, it would be interesting to know what effect Federal Reserve inflationary policies have on people in Africa, Latin America, etc, particularly in those countries under the thumb of World Bank, IMF, or other international loans. The average worker, after all, doesn’t actually live in the United States.

    • Tel says:

      In the USA most of the “fixed income” type pensions are inflation adjusted.

      They call it cost-of-living adjustments (COLAs) and the calculation is done by the same government that is on the hook for paying, meaning the incentive is to lowball the inflation calculation.

      • random person says:

        This article says the calculations are indeed lowballed. Which basically confirms what you’re saying.

        https://www.usatoday.com/story/money/personalfinance/retirement/2021/10/27/social-security-2022-raise-isnt-high-enough-senior-group-warns/49291641/

        • guest says:

          Also this:

          And Just Like That, Inflation Is About To Disappear?
          zerohedge [dot] com/markets/and-just-inflation-about-disappear

          “Earlier this year, when inflation was still “transitory” two Fed chairs, Powell and Bernanke, made comments which we joked only make sense if the definition of inflation is changed: …”

          “… Sadly, our feeble attempts at humor were not unjustified, and as any economic history buff knows the US dramatically changed how it calculates consumer inflation back in the 1980s, an event extensively covered by AllianceBernstein former chief economist Joseph Carson on this website in the past (see “Consumer Price Inflation: Facts vs. Fiction”) …”

          “… In any case, what we though this summer was just a joke appears to be coming true, because as the BLS has reported, starting next month it will adjust the weights for its Consumer Price Index basket, which will be calculated “based on consumer expenditure data from 2019-2020.” Alas, there is no further detail on this critical topic, although we will take any bet that post-revision reported inflation will drop because, well, “adjustments.””

          Peter Schiff has also briefly touched on how the Boskin Commission rigged the CPI in the 70s (It was in response to a question, so you’ll have to listen to the question, first).

          [Timestamped at 1:20:12]
          Peter Schiff – The Fed Unspun: The Other Side of the Story
          youtube [dot] com/watch?v=zdB9I79BQRI#t=1h20m12s

          The whole video is pretty good.

          (Aside: He slipped a little bit explaining the volatility of gold prices under our partial gold standard, but that’s covered in Tom Woods’ video “Answering the Same Old Arguments Against Sound Money”; It was deviations from the gold standard that caused the volatility – but, to answer one of the challenges brought up in this Schiff video, that volatility is still preferable because 1) that was the market fighting against the central planning and 2) you always want prices to reflect demand, regardless of how volatile the demand is, because legitimately successful businesses make money off of satisfying consumer demand, and a business that makes profits without satisfying their customers is obviously making money through a sugar daddy (cronyism)).

  4. Tel says:

    November data is available for the Producer Price Index (which is really a commodity price index).

    https://fred.stlouisfed.org/series/PPIACO

    Not looking like turning around any time soon! Using “Percent change from a year ago” the latest PPI is 22.8% per annum. If you prefer the more volatile numerical derivative formula “Compounded annual rate of change” then you get 18.0% per annum instead. I understand there’s a difference between commodity prices and consumer prices, but ultimately those consumer goods do need to be made out of something.

  5. random person says:

    Alright, so somewhere in this discussion, one of you mentions something about “false price signals”. (I think it was you, Bob, but perhaps I mixed up the voices. In any case, someone mentioned it.)

    This reminded me of a book I read recently, “The New Confessions of an Economic Hitman” by John Perkins. In that book, Perkins discusses how many of these “false price signals” are deliberate and premeditated. Apparently, it’s a sort of con game. “Economic hitmen” like John Perkins (before he quit that job) would deliberately come up with unrealistically optimistic economic forecasts that hinged on foreign governments accepting huge loans, which would be used to pay US companies to come in and build infrastructure. So, if things went according to plan, the foreign government would accept the loan, and then US companies would profit off of the contracts they got to build infrastructure, paid for by the loan. But the economic forecasts used to convince the foreign government to accept the loan were deliberately falsified, the glowing predictions would fail to come true, and the foreign government would be forced into default. When they went into default, they would be forced to implement policies that were not the will of their people, and in many cases were harmful to their people (e.g. stealing land from indigenous people and giving it to oil companies).

    The con job didn’t always work; sometimes foreign leaders saw through it and didn’t want to sell out their people (even if bribes were offered). So apparently, if the con didn’t work, then the next part of the plan was to send in the people John Perkins calls the “jackals” — basically, the CIA, and the CIA would try to assassinate or otherwise overthrow the leaders of the foreign governments in order to replace them with someone who would accept US foreign policy. Apparently, there was at least one case where a foreign leader, previously considered someone who couldn’t be corrupted, ended up getting corrupted after an assassination attempt against him failed (probably because then he realized that the CIA was very serious about their assassinations).

    And apparently if the CIA fails, then the US military gets sent in.

    Much of what Perkins says can be corroborated from other sources — it’s fairly well known that the CIA and the US military act to preserve the interests of American imperial capitalism.

    John Perkins that an US banker confessed that similar strategies are used in the United States against US citizens/residents — at least, the con part (not necessarily the CIA assassinations or the US military). Apparently, it’s become common practice for bankers to try to talk families into home loans they really can’t afford, with the intent of foreclosing later.

    Perkins recommends avoiding debt as much as possible since it’s so often a tool used to entrap people and countries.

    I don’t recall Perkins specifically mentioning inflation, but I imagine an economic hitman could figure out ways to somehow include that in their fake forecasts.

    • guest says:

      “In that book, Perkins discusses how many of these “false price signals” are deliberate and premeditated. …”

      “… Apparently, it’s a sort of con game. “Economic hitmen” like John Perkins (before he quit that job) would deliberately come up with unrealistically optimistic economic forecast …”

      First of all, false price signals are typically not deliberate and premeditated, they are baked into Keynesian-esque worldviews and are imposed with the best of intentions (which is why it doesn’t matter how much you care about people, if you’ve got the wrong economics).

      I feel like I have to harp on this point because there are well-meaning people on the right, such as that Brandon Smith guy whose articles get posted to Zerohedge who will end up destroying the economy and liberty because he thinks that whenever central banks hike interest rates (thereby guaranteeing a crash/correction) it’s intentional because the rich come out on top.

      What he fails to understand is that no matter how well the rich do as a result of a crash/correction, the rate hikes are *required* in order for the economy to recover from the interventions that caused the unsustainable bubbles in the first place. Again: compartmentalization – economic laws don’t change due to someone having good or bad motives.

      That guy is *notorious* for holding this misunderstood view, but good luck getting past his censor-happy hubris. (He has every right to censor comments on his own pages).

      Second, “deliberately … unrealistically optimistic economic forecasts” are not false price signals – false price signals only come from the use of money that doesn’t correctly reflect the use-values of the money and the goods traded.

      If you had sound money (a commodity money), then “deliberate, unrealistic forecasts” would end up penalizing the forecaster by people withholding their business from them – because when you use an actual good for one purpose – including a money that is also a good – it becomes unavailable to use for another purpose at the same time. So supply constraints of real goods would prevent such fraudulent forecasts from gaining large traction if the money, itself, was a good.

      (And, no, bitcoins don’t count as a good. And neither do FRNs, for that matter.)

      To your point about the CIA, Ron Paul has tried to expose them:

      Ron Paul calls out the CIA 1988-2010
      youtube [dot] com/watch?v=x04FuFj6wm8

      “Apparently, it’s become common practice for bankers to try to talk families into home loans they really can’t afford, with the intent of foreclosing later.”

      Here, again, it’s not the goal of these interventions to harm poor families. The banks were told *by the government* to make loans to “previously underserved” people (blacks), and because Fannie and Freddie were Government Sponsored Enterprises, it was reasonably assumed that if banks went ahead and made these loans that were known to be bad, they could then safely sell them to Fannie and Freddie because it wasn’t likely that an entity that the government was sponsoring for the purpose of putting people with bad credit risks into homes.

      (Because banks had come to the quite reasonable conclusion that blacks, as socialists, had such a high representation of bad credit risks, that it became more cost-effective to generally deny home loans to blacks. That’s not racist – there’s a reason California allows robberies of up to around $900 with almost no consequences, and it’s because the robberies are considered to be reparations to blacks, even though it was their ancestors, and not them, who were robbed.)

      Here’s two very good Tom Woods episodes that are basically him just reading from his book Rollback (unless he reused sections of his book Meltdown in his book Rollback – I remember everything he’s narrating is in Rollback), *which has the receipts* to back up all of his claims. If you look up the footnotes you will be astonished. Anyway, the episodes are back-to-back episodes.

      The 2007 housing crisis was entirely the government’s fault:

      Ep. 1907 Another Fake Narrative Smashed: Government, the Fed, and 2008
      tomwoods [dot] com/ep-1907-another-fake-narrative-smashed-government-the-fed-and-2008/

      Ep. 1908 “Regulation” Wouldn’t Have Saved Us in 2008
      tomwoods [dot] com/ep-1908-regulation-wouldnt-have-saved-us-in-2008/

      And if you watch The Bubble Film by Jimmy Morrison (not the musician), there’s a video of some government official basically saying that it is guaranteed that these loans that the government was forcing (yes, forcing) the banks to make were going to result in some losses. I can’t remember the official’s name, it’s been awhile.

      (And, yes, I understood it wasn’t just blacks, or people with bad credit risks that took out bad loans.)

  6. guest says:

    Oh, and by the way, the currency crisis in Turkey mentioned in the following article could have been avoided [wait for it] …:

    As Lira Implodes, Turkey Proposes Huge Fines For “Hoarding”
    zerohedge [dot] com/political/lira-implodes-turkey-proposes-huge-fines-hoarding

    “On one hand Turkey’s currency is crashing because the country’s ruthless despot refuses to allow higher interest rates …”

    “… And sure enough, the TRY fell another 2.75% today to a fresh all time low ahead of tomorrow’s insane rate cut by the Turkish central bank which will send the lira plunging even more in the coming days and spark even more hyperinflation. …”

    “… On the other, the local population – barred from exchanging their worthless lira into cryptos and effectively blocked from converting the local fiat into dollars and foreign currencies – is desperate to at least convert their rapidly depreciating pieces of paper into something tangible, like food. Which, of course, leads to even higher prices and so on, in your typical hyperinflationary spiral. …”

    “… According to T24, lawmakers from Turkey’s ruling Justice and Development Party’s (AKP) presented to Parliament a proposal for a new bill calling for increased fines against hoarding of food and other goods …”

    “… The bill refers to “practices by the producers, suppliers and retailers that lead to bottlenecks, disequilibrium in the market,’’ as well as “activities that alter free competition,’’ T24 said, calling for increased penalties that will serve as a greater deterrent to such moves.”

    [Resume] … could have been avoided by reading the following book:

    Forty Centuries of Wage and Price Controls: How Not to Fight Inflation
    mises [dot] org/library/forty-centuries-wage-and-price-controls-how-not-fight-inflation

    “… In modern terminology, he could either continue to “inflate” or he could begin the process of “deflating” the economy.

    “Diocletian decided that deflation, reducing the costs of civil and military government, was impossible. On the other hand:

    “”To inflate would be equally disastrous in the long run. It was inflation that had brought the Empire to the verge of complete collapse. The reform of the currency had been aimed at checking the evil, and it was becoming painfully evident that it could not succeed in its task.10

    “It was in this seemingly desperate circumstance that Diocletian determined to continue to inflate, but to do so in a way that would, he thought, prevent the inflation from occurring. He sought to do this by simultaneously fixing the prices of goods and services and suspending the freedom of people to decide what the official currency was worth. The famous Edict of A.D. 301 was designed to accomplish this end. Its framers were very much aware of the fact that unless they could enforce a universal value for the denarius in terms of goods and services — a value that was wholly out of keeping with its actual value — the system that they had devised would collapse. Thus, the Edict was all pervasive in its coverage and the penalties prescribed, severe. …”

    “… The results were not surprising and from the wording of the Edict, as we have seen, not unexpected by the Emperor himself. According to a contemporary account:

    “… then he set himself to regulate the prices of all vendible things. There was much blood shed upon very slight and trifling accounts; and the people brought provisions no more to markets, since they could not get a reasonable price for them and this increased the dearth so much, that at last after many had died by it, the law itself was set aside.17″

    “… It is not known exactly how long the Edict remained in force; it is known, however, that Diocletian, citing the strain and cares of government, resulting in his poor health, abdicated four years after the statute on wages and prices was promulgated. It certainly became a dead letter after the abdication of its author.”

    And there are more stories like this in the book.

    Socialists need to get it through their thick skulls that economics is not about equality or equity, but about the individual economizing resources for hiw own ends.

  7. Transformer says:

    With a free market for money people could choose the type of money that best meets their needs -with regards to stable purchasing power, greater transaction anonymity, smaller risk of default etc,

    Of all the bad things that states have done I think the nationalization of money has been the greatest cause of utility loss outside of war I can think of (except perhaps for the regulation of healthcare provision).

  8. Jocko says:

    Tel – BS, I have to pension from major companies, one GE, they do not adjust for inflation. Talk to a teamster their pension was underfunded and pension were CUT, not inflation adjusted, along with many government pensions. But even that is not the real problem, inflation destroys savings, IRA’s,401K’s and 403B”s. Even Social Security inflation adjustments are a joke, and your Medicare increase equals your SS increase. You really need to get real.

  9. Tel says:

    December PPI data recently turned up.

    https://fred.stlouisfed.org/graph/fredgraph.png?g=KZQT

    It’s down a tiny fraction, if the Fed does actually go ahead with the 2022 rate rises that they promised, then I expect some of these commodity prices to level out and stabilize at a new and higher equilibrium … over the period of a year or more. I notice the Gold has been gradually working its way up again, but here in Australia most of the mining sector kind of bottomed out Nov last year when people believed in “transitory” and now it’s all surging back up. It’s not just Gold, it’s lots of metals going up: Copper, Iron, Uranium. Heck, even the much maligned coal is making a great comeback.

    That would suggest there’s about 20% price hikes in the pipeline for consumer prices, some of which has been seen already but not all of it.

    • guest says:

      “I notice the Gold has been gradually working its way up again …”

      For what it’s worth, Peter Schiff is wrong when he says that gold isn’t being manipulated. And if you go back to his video where he talks about the GameStop Short Squeeze, he says something true about it that he is somehow unable to see about gold prices.

      In his GameStop Short Squeeze video, he correctly explains, in effect, that the squeezes were not based on fundamentals but on all the money-printing used to help those who the government forced out of work due to lockdowns and regulations on businesses, and the government helped those people by allowing them to syphon purchasing power (the Cantillon Effect) from those who were actually productive and had savings.

      And he also noted that as soon as the stimmy checks stopped coming, those receiving them wouldn’t be able to maintain their short squeezes – the money-printing was enabling people to squeeze an otherwise sound* short position on a brick-and-mortar store when people seem to want everything to happen online.

      (* I say “sound”, but only in the sense that what people were actually doing with their money is buying digital, rather than disc, versions of games. Enough people were doing this that it made sense to short GameStop.

      (* Having said that, I think that it’s dangerous to have all of your entertainment *only* in a form that can be shut down by the government, so I still think there’s a place for GameStop, and I think if people were more circumspect, GameStop wouldn’t find themselves being shorted.

      (* So, whether it’s ultimately wise or not, the fundamentals support a short position of GameStop.)

      Anyway, my point is that Peter Schiff recognized that the short squeezes would stop when the money-printing-enabled stimmy checks stopped, and that the money-printing had to stop at some point.

      But somehow Peter Schiff cannot see that paper gold is doing the same thing to the price of physical gold. He has said in defense of his position that the gold market is not being manipulated that gold has a large market.

      Well, if he means paper gold, then sure. But just like with the manipulation of the GameStop stock price, the same thing is happening with the paper gold market, which is what the spot price of physical gold is based on.

      Enough people are not taking possession of physical gold that paper gold can be created out of thin air.

      It doesn’t matter if there’s a large market in paper gold if no one ever takes possession of the physical gold. Paper gold is basically fractional-reserve gold, which Peter Schiff would be against if he recognized it as such.

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