Thursday, September 20, 2012
Brad DeLong on Mises and gold
Brad DeLong takes on Mises and the Austrian cohort over gold. (Longish but interesting if you are following this debate)
Grasping Reality With Both Hands
Paul Krugman Asks A Question: On The "Austrian" Hatred Of Fractional Reserve Banking, Paper Money, Etc. Weblogging
J. Bradley DeLong
(h/t Mark Thoma)
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32 comments:
First. Had to beat Bob R. on a post wrt specie.
Also irony for me since DeLong was my go-to economics read back in the day until he posted a link to Billy Blog that changed my life forever.
Somewhat related, no time for a post today:
Lincolns Treasury Secretary Chase to Lincoln:
"The continuance of the war, however, and the increased disbursements made necessary by the augmented forces now in the field demand your best reflections on the best modes of providing the necessary revenue without injury to business & with the least possible burdens upon labor.
The suspension of specie payments by the Banks soon after the commencement of your last session made larger issues of United States notes unavoidable. In no other way could the payment of the troops and the satisfaction of other just demands be so economically or so well provided for.. The judicious legislation of Congress securing the receivability of these notes for loans & Internal duties & making them a legal tender for other debts has made them an universal currency; and and has satisfied, partially at least and for the time, the long felt want of a uniform circulating medium, saving thereby to the people immense sums in discounts and exchanges.
A return to specie payments, however, at the earliest period compatible with due regard to all interests concerned, should always ever be kept in view. Fluctuations in the value of currency are always injurious and to reduce these fluctuations to the lowest possible point will always be a leading purpose in wise legislation. Convertibility -- prompt & certain convertibility into coin is generally acknowledged to be the best & surest safeguard against them; and it is extremely doubtful whether a circulation of United States notes payable in coin and sufficiently large for the wants of the people can be permanently, usefully & safely maintained."
http://memory.loc.gov/cgi-bin/query/r?ammem/mal:@field(DOCID+@lit(d2066200))
So it looks like Lincoln and Chase only did the 'Greenbacks' begrudgingly at best, perhaps a 'last ditch effort'.
I interpret Chase's reference to "specie" and "coin" as code for metals.... even though the US Notes are indicated here as in effect 'working' they STILL thought that long term they had to get back to the metals...
rsp,
Lincoln then to Congress:
(He was EMBARRASSED to issue US Notes)
"January 17, 1863
To the Senate and House of Representatives:
I have signed the Joint Resolution to provide for the immediate payment of the army and navy of the United States, passed by the House of Representatives on the 14th, and by the Senate on the 15th instant.
The Joint Resolution is a simple authority, amounting however, under existing circumstances, to a direction to the Secretary of the Treasury to make an additional issue of one hundred millions of dollars in United States notes if so much money is needed for the payment of the army and navy.
My approval is given in order that every possible facility may be afforded for the prompt discharge of all arrears of pay due to our soldiers and our sailors.
While giving this approval, however, I think it my duty to express my sincere regret that it has been found necessary to authorize
Page 61
so large an additional issue of United States notes, when this circulation, and that of the suspended banks together have become already so redundant as to increase prices beyond real values, thereby augmenting the cost of living to the injury of labor, and the cost of supplies to the injury of the whole country.
It seems very plain that continued issues of United States notes, without any check to the issues of suspended banks, and without adequate provision for the raising of money by loans, and for founding the issues so as to keep them within due limits, must soon produce disastrous consequences. And this matter appears to me so important that I feel bound to avail myself of this occasion to ask the special attention of Congress to it.
That Congress has power to regulate the currency of the country, can hardly admit of doubt; and that a judicious measure to prevent the deterioration of this currency, by a reasonable taxation of bank circulation or otherwise is needed, seems equally clear. Independently of this general consideration, it would be unjust to the people at large, to exempt banks, enjoying the special privilege of circulation, from their just proportion of the public burdens.
In order to raise money by way of loans most easily and cheaply, it is clearly necessary to give every possible support to the public credit. To that end, a uniform currency, in which taxes, subscriptions to loans, and all other ordinary public dues, as well as all private dues may be paid, is almost, if not quite indispensable. Such a currency can be furnished by banking associations, organized under a general act of Congress, as suggested in my message at the beginning of the present session. The securing of this circulation, by the pledge of United States bonds, as therein suggested, would still further facilitate loans, by increasing the present and causing a future demand for such bonds.
In view of the actual financial embarrassments of the government, and of the greater embarrassments sure to come, if the necessary means of relief be not afforded, I feel that I should not perform my duty by a simple announcement of my approval of the Joint Resolution which proposes relief only by increasing circulation, without expressing my earnest desire that measures, such in substances as those I have just referred to, may receive the early sanction of Congress.
By such measures, in my opinion, will payment be most certainly secured, not only to the army and navy, but to all honest creditors of the government, and satisfactory provision made for future demands on the treasury. ABRAHAM LINCOLN"
http://quod.lib.umich.edu/l/lincoln/lincoln6?rgn=main;view=fulltext
rsp,
Matt,
Changes the context of the history of Greenbacks completely.
Paul,
I was immediately disappointed with these findings.... still chewing it over though...
"death to tyrants"? Looks like hardly that imo.
rsp,
I think he was right to be embarrassed.
Basically he was saying: "we're going to spend so much money in tight circumstances, such that the value of everyone's money is necessarily going to fall".
This is what always happens during a war: demand for goods massively outstrips supply and prices rise.
MMT is not about excusing high levels of inflation during wars, or about proposing infinite financing for wars.
It is about providing a quantity of money to the real - non military - economy such that people can be as productive and as successful as they desire to be.
If I was embarking upon a war, and knew that I was about to inflate the currency, I would be embarrassed too.
But MMT isn't about going to war or hyperinflating the currency. It's about using money to achieve the outcomes that people actually want, peacefully.
"such that the value of everyone's money is necessarily going to fall"
Fall as compared to what? Metal?
IE the same 1 ounce of silver or gold ended up priced higher in units of US Notes?
rsp,
no in relation to essential goods like food
that's why they had rationing during the world wars.
No wage and price controls available in addition to rationing?
Looks like again, it comes back to REAL constraints.
Doesnt have anything to do with "prompt & certain convertibility into coin is generally acknowledged... blah blah blah..."
That's just another layer of complexity that is not required (at least not today)...
rsp,
y,
My take is that this reads as though he was not embarrassed by price increases, but rather the basic form of monetary arrangements.
This: "and that a judicious measure to prevent the deterioration of this currency, by a reasonable taxation of bank circulation or otherwise is needed, "
Sounds like "taxes drive the currency"... so I need to study this some more... looks like AL perhaps understood a "tax driven" state currency (US Notes) but perhaps without the correct kind of tax to "drive" it he was scolding Congress to get that part done...
I'd also note that Chase mentions metal and not Lincoln per se....
Interesting...
rsp,
"And by the 1920s it’s part of a general fear of Jews, intellectuals, homosexuals, financiers, and people who weren’t born rich but might be smarter and become richer than you."
So that's it. The very Jewish Ludwig von Mises, Murray Rothbard, and Alisa Zinov'yevna Rosenbaum had a fear of Jews. The very gay Justin Raimondo of antiwar.com has a fear of gays.
You people have sunk to new depths of desperation. But it's here, on display for all to see. Can you sink any lower?
After reading that, the question arises: are neo-classical economists (such as Delong) any more qualified that Austrians to expatiate on monetary theory? Where's the evidence that the value of money ever had anything to do with "the cost of production" of gold? There isn't any. It's just another textbook myth perpetuated for generations.
Bob,
where's your quote from?
Y,
It looks like it is from Delong at the link.
Honestly I think Bob does have a point here.... the 3 metals from column 11 of the periodic table seem to be equal opportunity seducers...
Rsp
I think Delong and Krugman have it backwards.
The interesting question is not 'where does banking hate come from?', it is 'where does metal love come from?'....
RSP,
Matt, I see two majro factors at work. First, as you say, metal love. There are reasons for metal love, some rather obvious and others no so much. I'll let it go at that.
Secondly, many people see money creation "from nothing" (credit money, state fiat money) to be an attempt to get something for nothing, which they regard as deeply immoral and a character failing. They think that money should be "earned." They really seem to think that money is created by "earning it." They are in denial about how money actually comes into existence and use.
"Secondly, many people see money creation "from nothing" (credit money, state fiat money) to be an attempt to get something for nothing, which they regard as deeply immoral and a character failing. They think that money should be "earned." They really seem to think that money is created by "earning it." They are in denial about how money actually comes into existence and use."
This, period. End of this question, it all comes to this. ALL. Metal love, people against monetary financing (printing and spending instead of borrowing and spending), whatever.
People thinks money has to be created through work in some mystical way or an other, otherwise they are just wasting their life and being fooled by 'money creators' (be it governments or banks). It all comes to this.
But it' impossible! You can't create money from work (you can create commodities through work, but not units of accounts which take virtually no work to be created)! They don't get it.
I can understand the intrinsic value of a potato, but the intrinsic value of gold escapes me...
I've been searching for some more correspondence between Lincoln and Chase from earlier than 1863 and came across this:
http://www.lewrockwell.com/orig2/lincoln-arch.html
"King" Lincoln of "Rothbardshire"... you can't make this stuff up!
rsp,
" They are in denial about how money actually comes into existence and use."
Tom/Lev,
Consider that their metal love blinds them to an understanding of these other types of arrangements.
Our Bob here uses "funny money", and if you read Chase's excerpt above, to me it looks like the US Notes were indeed working, but both Chase and perhaps Lincoln were blind to this fact and STILL were looking forward to getting on a metal standard eventually... hard to understand...
rsp,
Brad DeLong is clueless on the subject of full and fractional reserve. See:
http://ralphanomics.blogspot.co.uk/2012/09/brad-delongs-flawed-criticisms-of-full.html
"to me it looks like the US Notes were indeed working, but both Chase and perhaps Lincoln were blind to this fact and STILL were looking forward to getting on a metal standard eventually... hard to understand..."
Thats because they understood the short run vs the long run!!!
Greg,
'Long run'
International/ external factors?
Rsp
y,
Here is an interesting one:
This guy is apparently writing to Lincoln complaining about the US Notes falling in value but the only measure of value he uses is GOLD, no mention of any other commodities:
http://memory.loc.gov/cgi-bin/query/r?ammem/mal:@field(DOCID+@lit(d3415600))
Excerpt: "if I was Secretary, I would have Gold arriving here at the rate of one million or more per week."
Oh boy that sounds like heaven on earth!!! Cue Alexander Hamilton: "oh imagine the invigorating copious flows of that darling metal!" ... ... What a bunch of morons these gold lovers are.
Tom,,
"There are reasons for metal love, some rather obvious and others no so much."
I think it must be those filled outer most d-band electrons Tom... "you just 'gotta love those d-band electrons..."
These people get some sort of perverted sort of sexually oriented mental stimulation from the very unique electron characteristics of the 3 noble metals, copper/silver/gold and it really screws them up.
This is the only scientific link I can come up with.
rsp,
Pardon the self-promotion but I've re-created a video I wrote the script for last year with help from Joe Firestone and it is posted at New Economic Perspectives and here:
http://www.youtube.com/watch?v=o-PXRkJxV3A
In addition, Yves smith over at Naked Capitalism has made some thoughtful comments on it and the ensuing discussion is parallel with one we have been having here recently.
Matt, but both Chase and perhaps Lincoln were blind to this fact and STILL were looking forward to getting on a metal standard eventually... hard to understand...
At the time the US was an emerging country, dependent on exports, and competing in a mercantilist world in which trade was dominant by PM's, so it is not all that surprising. It is also why Hamilton copied the British and European banking system against the wishes of folks like Jefferson, who thought that the US should go its own way and emphasize state sovereignty rather than a strong federal govt. Hamilton won the argument.
Lincoln went off gold to prosecute the war, which was pretty standard practice for sovereigns historically when they needed fiscal space for war. So Abe saw it as temporary.
super-duper stuff Paul... rsp,
Matt, the not so obvious reason for metal love is set forth allegorically in ancient myths such as story of King Midas. The story of Midas is about the bewitching power of gold.
The other great myth is contained in the Norse Edda and Volsungsaga and the German Nibelungenleid, which Wagner adapted as the Ring Cycle and and Tolkien in Hobbit, LOTR, and Silmarillion. This is about the use of gold in acquiring occult power.
As general rule, people on the spiritual path never even touch money except occasionally to pass it through for good purpose.Jesus took a dim view of wealth, i.e., savings rather than use. And Judas, the one who betrayed Jesus was the holder of the purse and according to the story was bribed by thirty pieces of silver.
There is a lot in these ancient teaching stories that sends a warning to those who are not able to see "behind the scenes" about things unseen that have great consequences. While the ancient teaching stories may be made up, ie., function as symbols and allegories, that to which they point is not made up.
There's a fascinating page or so in Carl Sandburg's biography of Lincoln describing a conversation between Chase & Lincoln.
Chase was on a high horse holding forth about how the proposal to issue Greenbacks was unconstitutional. After Lincoln listened for an hour, he said that he never understood finance & asked what else could be done for the Union, to preserve the rest of the Constitution.
Chase said: Nothing. And that not doing it would be catastrophic to the Union. And that from now on, he would shut up & go to work!
So Chase never really changed his mind when he wrote the opinion on the Legal Tender cases as a Supreme Court Justice, invalidating his own wartime actions. Mitchell-Innes quotes from it in his papers, btw. So I think Chase had a decent understanding when push came to shove; he was a "practical metallist" (or a legal one) in Schumpeter's classification, while in necessity being a theoretical chartalist.
The real point about inflation, which didn't escape Lincol or Chase, is how little there was of it during the Civil War (& still less during WWII, under even more intelligent economic management). Greenbacks released productive capacity which had not been suspected before.
Another fascinating thing there is some of Lincoln's obscure speeches. They envisioned a USA which would grow much faster than it actually did, something like a population of 300 million, like right now, only 100 years after the speech. Or 150 million in 50 years. Might have been a better prediction if Lincoln could have continued his wartime policies into peacetime.
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