Austrian school do it better

April 18, 2009 9:04 PM

The Austrian school of economics try to explain what's wrong with our money.
posted by - (83 comments total)

It's because it is backed by the full faith of the U.S. Federal Government, isn't it?

(ok, now I'll read the article.)
posted by Balisong at 9:27 PM on April 18, 2009

The Austrian school? I have not read the article yet, but I will bet $10 that the answer will be "a return to specie currencies".
posted by boo_radley at 9:29 PM on April 18, 2009 [9 favorites]

Aha! Fiat currencies are fraudulent monies. Time to count my gold now.
posted by Balisong at 9:31 PM on April 18, 2009

ronpaulfilter
posted by TrialByMedia at 9:33 PM on April 18, 2009 [4 favorites]

But still worth talking about.
posted by bugmuncher at 9:35 PM on April 18, 2009 [2 favorites]

I started reading the explanation of what's wrong with our monetary system and how Mises would fix it, but I stopped when the author had to blow Mises first.
posted by fatbird at 9:36 PM on April 18, 2009 [13 favorites]

I will only support a specie backed currency if said specie was some kind of theoretical or experiment element like Ununoctium or Ununhexium. Gold is just too vulgar, sorry.
posted by Burhanistan at 9:37 PM on April 18, 2009 [5 favorites]

Whoops, I didn't mean to start a train of hurf-durf-bullion-eater comments.

So, in earnestness, here's a question: Why couldn't fiat currencies be considered to be backed in some part by the labor of their countries? Productivity gains are always reported as good indicators of a healthy economy, and I always thought that was in part why the U.S. had decent exchange rates: we did more than other countries.
posted by boo_radley at 9:39 PM on April 18, 2009 [1 favorite]

Google the Tsar!
posted by allen.spaulding at 9:54 PM on April 18, 2009

Socialism is impossible — it does not allow for a survival of the human race.

ideology-riven claptrap from the looks of it.
posted by mrt at 10:02 PM on April 18, 2009 [5 favorites]

That article seem littered with circular statements...I can figure out almost nothing other than "sound money is good because Mises said so, as Mises has clearly demonstrated".
posted by StrikeTheViol at 10:04 PM on April 18, 2009 [3 favorites]

Does anyone know whether they have a word for wheeling-and-dealing in Austrian?
posted by Slap Factory at 10:05 PM on April 18, 2009

Why couldn't fiat currencies be considered to be backed in some part by the labor of their countries?

This is exactly what they are. A US Dollar, once out in the wild, has the primary attribute of satisfying a dollar of debt owed to the US Government by any given taxpayer.

Every other feature, like being a store of value, medium of exchange, central reserve currency, and cigar lighting paper for the rich are bonuses.

A currency is intimately tied with the GDP of its host economy. Produce a lot of wealth -- tradable stuff that other people want to buy -- and you have control of the power of your currency base. This IMO was the backstory behind the meteoric rise of the money supply 1995-2005, a decade that saw China be incorporated into a first-tier trade partner, by which we essentially off-shored wealth-creation capacity to our Chinese friends. From a monetary perspective, the goods arriving by the boatload were products of the USD economy -- Chinese manufacturers were willing, nay required, to take USD as payment.

Now, I am no macro-economist and the advanced financial stuff is way beyond my pay-grade but that's the impression I have.

Austrians are too caught up in their own ideology for me to pay them any heed. Moody's bond ratings of the nations goes:

AAA: Australia, Canada, Denmark, Finland, Luxembourg, Netherlands, Sweden, Norway, Singapore and New Zealand.

AA: Germany, France, Austria, Spain and Switzerland.

A - Spain, the United Kingdom, the United States and Ireland.

Seems like a little socialism is a good thing not a bad thing if you go by bond ratings.
posted by mrt at 10:17 PM on April 18, 2009 [7 favorites]

Why couldn't fiat currencies be considered to be backed in some part by the labor of their countries?

Because, for example, the value of the US dollar isn't just based on knowing that the Americans produce good products that you could pay dollars for; it's based on predicting that the dollars you're willing to pay aren't going to be devalued by an influx of newly created competitors first.

So, you're not just betting that the workers who want dollars are going to keep working hard, you're gambling that the elites who print dollars (as well as bumping up M3 in more subtle ways) aren't going to start working too hard.

Historically we've had a pretty good record with that. Inflation is an exponential process and looks scary on long timescales, but in the short term our biggest mistakes have been in the opposite direction. E.g. contracting the money supply out of fears of inflation during a recession, and ending up with the Great Depression. But just like an exploitable computer can be secure for years until hackers discover the flaw, an exploitable economy might be safe for decades until politicians discover how to use its flaws. Pump easy credit and debt-financed spending into a bubble, soak in the adulation from voters who like a booming economy, try to time things right so that the next jerk in the Oval Office has to clean up the mess.

Better still, cleaning up the mess probably involves more debt and more new money, so your tracks are covered. How do your opponents criticize your high deficits when they're running up higher ones?

The mechanism's been (inadvertently, to be charitable) in effect at least since Reagan; it's possible that politicians will get good at using it before voters and creditors get good at seeing through it. This isn't a partisan problem, but the most immediate example certainly is: if the Republicans had had slightly better timing on this cycle, people other than Hannity and Limbaugh would be calling this "The Obama Recession" with a straight face.
posted by roystgnr at 10:23 PM on April 18, 2009 [6 favorites]

From the article:

But whatever the gold-cover ratio will be, the really important issue is the re-anchoring of money to gold, which would save the currency system from complete destruction and pave the way towards free-market money, that is, sound money.

now, if they changed the asset to acre-feet of potable water, megawatt-hours, or even mbtu-equivalent they might have something. Basing your currency on a useless metal is horribly distorting.

people other than Hannity and Limbaugh would be calling this "The Obama Recession" with a straight face.

yeah, my God, just today the thought occurred to me, what if Kerry had won??? Other that not being inflicted with Roberts, Alito, and the rest of the Federalist Society white-anters, he would have easily gone down as another Carter in 2008.
posted by mrt at 10:29 PM on April 18, 2009

For my part, I haven't seen real responses to the massive inequities that would theoretically result The author and presumably his friendly audience know that gold prices would shoot through the roof, making a mint for him and his fellow travelers. While the world financial markets reel, they'd live like kings.
posted by StrikeTheViol at 10:37 PM on April 18, 2009 [1 favorite]

Right now, we have an economic crisis which is at least partially a crisis of confidence. How much money do we have? We have to estimate, and it's based on layers upon layers of abstractions and predictions.

Get this, those bond ratings which were a big part of the problem? They are an estimation of confidence for a prediction of extrapolated future earnings for an abstracted collection and model of behavior for probable repayment on fractions of loans for structures on arbitrarily-designated slices of land. Damn. It's like playing Telephone for wealth. Someone loses confidence, doesn't estimate well, their predictions turn out to be a little off anywhere in that chain, the effects ripple upwards, growing larger and larger. One defaulted loan for a single, low-income home can result in millions of dollars of damages in a credit default swap. It's like a flick of the wrist turning into a miniature sonic boom at the end of a whip.

Gold doesn't have that much in the way of confidence issues. It just sits there. You want to know how much gold you have, you put it on a scale. Yeah, it's an abstraction, but it's a bit closer to real than shares where banks cannot even find the physical paperwork associated with a loan they supposedly own a part of. That, I think, is the point. At least you know how much gold you have. Right now, all we hear are estimates of our troubles, and damned if they don't vary wildly.

It's a shame that a good point is largely obscured by annoying ideology.
posted by adipocere at 10:38 PM on April 18, 2009 [4 favorites]

Hell, why not back a global currency on tonnes of carbon dioxide? The less there is floating around, the more valuable it will be.

...

Did I just solve global warming?
posted by Decimask at 10:40 PM on April 18, 2009 [5 favorites]

yeah, my God, just today the thought occurred to me, what if Kerry had won??? Other that not being inflicted with Roberts, Alito, and the rest of the Federalist Society white-anters, he would have easily gone down as another Carter in 2008.

Well, Kerry had a lot of Carter like qualities, that's for sure. But this mortgage bubble really got going in '05-'06, so theoretically Kerry could have avoided it. Bush also specifically promoted subprime mortgages as a policy, probably at the behest of bankers.

So if Kerry had some smarts, he might have avoided the issue. But I doubt he would have, he'd probably slobering all over Larry Summer's cock like the rest of the democrats at the time.
posted by delmoi at 10:43 PM on April 18, 2009

Yeah, my God, just today the thought occurred to me, what if Kerry had won??? Other that not being inflicted with Roberts, Alito, and the rest of the Federalist Society white-anters, he would have easily gone down as another Carter in 2008.

That's nothing: if Hilary had taken the primaries, McCain might have won the general, and the bitterly cold weather at the inauguration might have been too much for the old fella...

"President Palin announced today that Joe the Plumber will be taking over at Treasury to clean out the money tubes. In other news, AAAAAUUUUUUGGGGHHHHHH!"
posted by sixswitch at 10:44 PM on April 18, 2009 [2 favorites]

Hell, why not back a global currency on tonnes of carbon dioxide? The less there is floating around, the more valuable it will be.

Cap 'n' Trade is exactly that (well, a currency backed by the government right to emit X amount of CO₂)

It's been proposed pretty seriously by the Obama administration in their budget.
posted by delmoi at 10:44 PM on April 18, 2009 [1 favorite]

I don't get it. Where does the blimp fit in?

The Relovelution is confusing.
posted by Flunkie at 10:48 PM on April 18, 2009 [2 favorites]

I thought Cap'n Trade was what the Somali pirates were proposing.
posted by dhartung at 10:51 PM on April 18, 2009 [5 favorites]

Next post what the dude on the street corner babbling about Jesus stealing his thoughts and selling them to the CIA thinks about money, since it's at least as valid and connected to reality as the von Mises people.
posted by Pope Guilty at 10:52 PM on April 18, 2009 [2 favorites]

Yeah, that's one thing the goldbugs don't really get... the 'only gold is money' idea is silly. It can be any commodity. The critical thing is that, whatever the commodity is, it can't be invented out of nothing -- it has to be generated by labor. I saw an article a few days ago about a 'copper standard', observing that China was buying massive quantities of resources, and for some reason (I just skimmed) the author thought they might back their currency with their commodities. That would be just fine with me.

Governments hate this idea, because it keeps them honest. The US government is in debt north of fifty trillion dollars, has a massive annual deficit adding to that load each and every year, and sits on top of an economy with a 7% trade imbalance. These things would almost certainly not have been possible on any kind of commodity money; there's no way we could have gotten that maladjusted, because the commodity would have gone overseas to our creditors. The money supply, in other words, would shrink, forcing consumptive activities to slow, and productive (export-based) activities to increase, like magic.

Instead, no matter how many trillions of greenbacks we shipped overseas, we could just make more. All those dollars sloshing around in foreigners' hands are another form of debt position, one we can't easily track and don't typically think of that way. But debt it is, and those foreigners are going to be pretty pissed if they can't get back the same value they lent us by accepting our currency.

There was no signal to the economy that we needed to stop consuming and start producing. Instead, the debt and trade deficit first expanded, and then absolutely ballooned, as the Federal Reserve cheerled. We had three separate bubbles, and now that the later two are popping, suddenly we're realizing we're in dire trouble.

So what's the prescribed solution? More of what made us sick, massive deficit spending and debt expansion. This shouldn't even be possible; the Federal Reserve has literally invented trillions of dollars out of thin air to turn the bank derivatives into 'real' money. Combine that with Congress taking on even more debt to bail out those same entities, and we're not just shoveling at our hole anymore, we've taken a backhoe to it.

Commodity money means that when we can't afford something, we know we can't afford it. Resources -- real wealth -- are limited; Federal Reserve notes aren't. We can always pretend more dollars into existence, regardless of the economy's actual state. We can issue unlimited claims on limited wealth, letting us engage in economic wishful thinking until it kills us.
posted by Malor at 11:02 PM on April 18, 2009 [3 favorites]

Oh, and: yeah, this specific link isn't very good. I gather it was a speech, where he was already talking to people who think this way, and his insistence that obvious givens lead to absolute truth are hogwash. It was an obvious given that the Earth was flat at one time, and that the Sun was moving while the Earth stood still.

Don't mistake his poor quality of thought for Mises'; the original is verbose, but it's pretty well thought out. This link is mostly some guy verbally fellating the Demigod Who Came Before Us.
posted by Malor at 11:13 PM on April 18, 2009

Malor: The US government is in debt north of fifty trillion dollars ...

That's some interesting accounting you've got there.
posted by JackFlash at 11:19 PM on April 18, 2009

True. The article tend to the over simplification and ideology obfuscation. Beside that, it still pretty interesting.
posted by - at 11:21 PM on April 18, 2009

Jackflash: That's straight from the GAO; this particular report is a few years old, and I think it was 46 trillion at the time. It's well north of fifty now, probably sixty, if you count the Fannie Mae and Freddie Mac debt.
posted by Malor at 11:24 PM on April 18, 2009

Productivity gains are always reported as good indicators of a healthy economy, and I always thought that was in part why the U.S. had decent exchange rates: we did more than other countries.

A significant part of those "productivity gains" were based on Wall Street manipulation of derivatives of derivatives, i.e. not productive labour of any sort. If this crash were to work out fairly, it would be that those of us who did actually produce useful, tangible product would retain our meagre savings at par, while those who were blowing smoke up the investment industry's ass would lose their cheating, lying bajillions of dollars.
posted by five fresh fish at 11:37 PM on April 18, 2009 [1 favorite]

The judicial analogy to the Austrian school is Supreme Court Justice Clarence Thomas' famous defense during his confirmation hearing. He claimed that law cannot be based on human elements (ie, human reason) but that it must be based on something considered divine, like the Bible, or the Koran perhaps. The cultural relativism is apparent to anyone who disagrees, as is the pretense to secure foundational assumptions. I think this comes back to the gold standard. Human transactions are complex, but that doesn't mean we should base them on something as simple as gold. Arguments against something are not arguments for something, as they would have it. I would rather assume that if fiat currency is as bad as they say, it's probably because it resembles gold in too many ways.
posted by Brian B. at 11:40 PM on April 18, 2009 [1 favorite]

This IMO was the backstory behind the meteoric rise of the money supply 1995-2005, a decade that saw China be incorporated into a first-tier trade partner, by which we essentially off-shored wealth-creation capacity to our Chinese friends.

Ah, in addition to derivatives, this. Productivity gains created by moving the labour out of the country was smoke blown up our ass: that's no productivity gain for the country, it's a goddamn productivity loss. The corporation may have seen a gain, but The Corporation Is Not The Country.
posted by five fresh fish at 11:40 PM on April 18, 2009

I don't get it. Where does the blimp fit in?

That's where Ron Paul's hot air is stored, for future research into a form of renewable energy.
posted by Blazecock Pileon at 11:43 PM on April 18, 2009 [1 favorite]

an exploitable economy might be safe for decades until politicians discover how to use its flaws. Pump easy credit and debt-financed spending into a bubble, soak in the adulation from voters who like a booming economy, try to time things right so that the next jerk in the Oval Office has to clean up the mess.

Until monied interests discover how to use its flaws. There are a good many politicians who would do the right thing upon discovery a flaw: they would stitch it up, so that monied interests can't pluck that thread and unravel the economy.

That we do not elect enough of these honest politicians, instead being so stupid as to believe the lies of campaigns funded by huge amounts of money, is our own damn fault.

Press for change.
posted by five fresh fish at 11:47 PM on April 18, 2009

Malor: That's straight from the GAO; this particular report is a few years old, and I think it was 46 trillion at the time. It's well north of fifty now, probably sixty, if you count the Fannie Mae and Freddie Mac debt.

That's not debt. That's what they call "fiscal exposure," right from your document. It is mostly money that will be spent in the next 75 years. It hasn't been spent yet and it isn't debt.

The average person in the U.S. needs to spend, "has a fiscal exposure", of about $3.5 million dollars over a 75 year life time. You wouldn't say that high school graduates have a $3.5 million debt.
posted by JackFlash at 11:47 PM on April 18, 2009 [5 favorites]

and I think it was 46 trillion at the time. It's well north of fifty now, probably sixty, if you count the Fannie Mae and Freddie Mac debt.

the bulk of that debt is ballooning medicare payments over this century. Either we a) rationalize medical care in this country by increasing supply and reducing profit margins or b) everyone involved in the delivery of medical care in this country is going to be richer than Bill Gates.
posted by mrt at 11:49 PM on April 18, 2009

Is it almost Zimbabwe time, Malor? I'm getting tired of waiting.
posted by Justinian at 11:51 PM on April 18, 2009

Productivity gains created by moving the labour out of the country was smoke blown up our ass: that's no productivity gain for the country, it's a goddamn productivity loss.

I was thinking about this earlier. In the economy of the 1970s for the capitalist to assemble capital stock of say $10,000,000 worth of goods to sell required hiring hundreds of people.

In the current economy all it takes is a trip to Guandong or Taipei, a customs guy, and warehouse staff. In the initial anaylsys, that is an immense productivity boost, the only problem is that we've incorporated the Chinese economy into our own, ie. certain Chinese interests are going to have immense amounts of USD-denominated capital to throw around down the road.

How our John Birch Society members can know this and still function without their heads exploding is beyond me.
posted by mrt at 11:55 PM on April 18, 2009 [1 favorite]

It's like playing Telephone for wealth.

A beautiful analogy for describing the derivatives of derivatives.

But debt it is, and those foreigners are going to be pretty pissed if they can't get back the same value they lent us by accepting our currency.

Trillions of dollars of supermoney is floating around out there, courtesy the CIA and North Korea. For each real US dollar out there, how much counterfeit exists? That could end up hurting.
posted by five fresh fish at 11:55 PM on April 18, 2009

TL;DR:

Fiat money is a ~30% equity stake in all individuals and corporations (also known as "taxes"), in other words, that means that the value of US Dollar derived from the US government holding 30% preferred stock in everyone and everything in the US.

Austrian economists instead believe it is simpler and more practical to base global financial systems on the value of shiny rocks. No joke. They don't believe in basing it on something practical, like Joules (energy), nope — it's shiny yellow rocks.
posted by amuseDetachment at 12:08 AM on April 19, 2009 [4 favorites]

Well, Kerry had a lot of Carter like qualities, that's for sure. But this mortgage bubble really got going in '05-'06, so theoretically Kerry could have avoided it. Bush also specifically promoted subprime mortgages as a policy, probably at the behest of bankers.

Nah, the spadework -- allowing lenders to do 80/20, neg-am, and stated income loans, increasing leverage of Wall Street from 12:1 to 40:1 -- that was all completed in the 2002-2004 timeframe (picture from 2003 of administration cutting regulations). We were holding the wolf by the ear in 2005. Any action to stop the music would prick the bubble and start the cascade.

Subprime wasn't the problem. The core problem was lenders taking bubble valuations, lending money against them, and packaging the loans out to the ultimate bagholder investors in CDOs and RMBS, ie it was full-bore capitalism being allowed to run on all cylinders with no regulation.

Problem is once that engine gets spun up, you're fucked. The best solution AFAICT would have been to just double or triple the home interest deduction starting in 2007 to artificially prop up property values while the new lending regime was established. That would cost maybe $200B per year I guess and in the scheme of things might have been the best way to get a soft landing out of this.
posted by mrt at 12:12 AM on April 19, 2009 [2 favorites]

As a simpleton who is having trouble understanding that article and this thread, can someone explain what the point of the article was? That we go off the fiat currency of the U.S. govt. and...go back to the gold standard? Is that even possible at this point? Small words and short sentences, please.
posted by zardoz at 12:54 AM on April 19, 2009

amuseDetachments: Absolutely: energy might be the ideal currency in terms of economic efficiency. After all, it literally represents the "power to do something". The problem is that energy is generally not very fungible: It comes in all sorts of forms, not all of which are easily interchangeable. It also doesn't store well: in fact, storing energy on any kind of scale is next to impossible with current technology. The best we've got is "oil in the ground" and that's open to all kinds of interpretation.

So energy can't be "money" because it fails to meet several of the key properties of money. On the other hand, we could imagine an energy backed fiat currency: That might work.
posted by pharm at 12:59 AM on April 19, 2009

Well, "might work" except for the immense political difficulties involved of course: Energy producing countries that have threatened to take anything other than dollars for their oil have tended to meet a bad end recently. You can't ignore the gorilla in the room.
posted by pharm at 1:01 AM on April 19, 2009 [1 favorite]

A helium currency floats Ron Paul's blimp.
posted by orthogonality at 1:02 AM on April 19, 2009 [2 favorites]

pharm: Exactly. My implied point is that literal petrodollars are at least interesting and arguable. To advocate for shiny rocks as currency, on the other hand, is downright idiotic and dangerous.

I do believe that fiat money is the most practical today (until we develop a magical energy storage system), if I didn't make myself clear.
posted by amuseDetachment at 1:26 AM on April 19, 2009

that we go off the fiat currency of the U.S. govt. and...go back to the gold standard?

yes, and also get rid of (outlaw?) fractional-reserve lending and any government involvement in monetary controls.

A fully private system of fully asset-backed ie. "sound money" will natural gravitate towards a gold-backed regime since gold is the most trusted asset to serve as a store of value:

"If, for instance, US M2 were backed by gold, the resulting gold price would, under current circumstances, climb to more than US$31,000 per ounce; in the case of a 100% gold backing of M1, the gold price would exceed US$6,000 per ounce."

How the money supply is adjusted to reflect economic growth is not addressed in the article. In general deflation (rising purchasing power of a given monetary asset) is seen as a good, a reward to savers, so perhaps new money will be created at only the rate it can be dug from the ground (or harvested from seawater).
posted by mrt at 1:36 AM on April 19, 2009

That we go off the fiat currency of the U.S. govt. and...go back to the gold standard? Is that even possible at this point?

Not without gold losing most of its value first. The value of all the gold in the world is less than the amount of US dollars in currency.

More to the point, that people want a commodity-backed currency, which inhibits the growth of economies by keeping monetary supply constrained, to be combined with the absolute demand that capitalism makes of economies that they constantly expand is absolute madness.
posted by Pope Guilty at 1:39 AM on April 19, 2009 [2 favorites]

energy might be the ideal currency in terms of economic efficiency.

I think energy would be disastrous as a currency. There would be random shocks of inflation as people developed more efficient technologies and drove down the price of energy. Of course we do want people developing these technologies but we don't want them to be tied to the money supply.

The same problem comes with all specie based currency, where the specie is any material that has value outside of being a unit of currency. What if someone invents a new type of gold silicon based semi conductor and the price of gold shoots up? What if a huge silver deposit is found in Antarctica and drives down the price? It's just stupid to like currency to commodities market that follow a random path.

The Chinese idea about a global reserve currency based on a basket of other currencies isn't such a bad idea, though there will need to be major changes in the Global balance of power for it to happen.
posted by afu at 1:48 AM on April 19, 2009

I stopped reading as soon as it said that governments cannot control currency. It looks like Libertarian crap to me.
posted by Pseudology at 1:53 AM on April 19, 2009

Well, you have to admit that the Wiki is objective - "Although often controversial, the Austrian School was once influential dating back to the early 20th century, but currently contributes relatively little to mainstream economic thought.".

I'm by no means an economist (I'm an econometrician by education and profession) but I share my office at University with a full on economist and The Austrian School came up recently, and termed them bloody nutters. I don't know, I'm open minded, like to look at lots of ideas but I don't think anyone is teaching The Austrian School anymore - they certainly never came up on my reading lists, and I took extra economics when I went to Business School, as I was / am genuinely interested in the topic. But seriously far more interested in The Markets and how to make money.

Regardless, everyone quibbling over what to back the currency with ignores the fundamental problem; regulation.

How did money come about? Well, in the 1700s England, The Netherlands, and many of the other European nations were very, very successful traders. But without a banking system merchants routinely kept their cash either in their premises, in their homes or in a hole in the ground in the woods.

Yep, that's all they could do. Banks hadn't been invented yet.

So after a few decades of the mayhem that won't surprise anyone reading this, it was noted that some merchants never got robbed. They have very, very effective physical security. Some other the other merchants noted this, asked if they could store (deposit) their gold for safekeeping.

"Sure, for a fee" was the response. "Ok, Sir, here is your receipt noting the date and amount of gold stored. Please produce it when you want your gold back" . So we had the first component of the modern banking system.

Over time these merchants stopped doing whatever it was they previously did, started storing gold for a living from that point on called themselves Goldsmiths.

Second component started when folks started trading those receipts among themselves. It was easier if you owed a debt - that you intended to pay with gold stored - if you simply gave your receipt to satisfy your debt rather than visit the Goldsmith, withdraw the gold which, more than likely, was just stored again with the same Goldsmith.

So we started trading receipts. Second component of the modern banking system.

Third component started when Goldsmiths noticed their total stores of gold would regularly increase (England's GDP was consistently increasing), but people would withdraw very little.

Why would they withdraw their gold? They had no place to put it. Capital markets hadn't developed yet (need a banking system as a prerequisite) so The Goldsmith (although at this point folks were indeed now calling them banks) was the only place to put the wealth.

So the Goldsmiths, that they could print more receipts than they had gold. This worked for the Goldsmiths, who in that act defined moral hazard; they were getting paid to issue receipts, and if they issued more receipts than they had gold, what was the worst that could happen?

Well, all sorts of bank failures for starters, as you might expect. But at the same time we saw the emergence of the modern banking system in the form of credit and borrowing activities for "creditworthy" customers. Folks now started getting paid to deposit their gold, with the bank earning the spread between borrowing and lending. Cheques were invented, as bankers (goldsmiths) sought to keep control of the gold for as long as possible.

And some banks naturally were stronger, more robust than others. Folks noticed this and would tend to gravitate towards those banks, but the smaller, weaker banks would offer (and this will sound familiar) better deals on either deposit or borrowing rates.

This went on for a long time, bank failures wiping out life savings, all sorts of scam, all sorts of social unrest in England, The Royalty got worried and passed the Bank Charter Act of 1844, which was the foundation of the modern regulatory system.

Banks were now required to hold back a percentage of their stored gold. Keep accurate book and receipts and it was from this point on we saw the emergence of legal tender ; Pound Sterling here in England, for example. One currency for all debts, public and private.

Key takeway: there is no magic about using any commodity as a basis for your currency. This the point all these FPPs and all this debate consistently miss.

Its The Regulatory System that matters. Folks will abuse any currency - be it commodity based or fiat - if they can get away with it.

Even the relatively crude, gold backed currencies that formed the foundation of the modern banking system were susceptible to manipulation, and in those days one would routinely be shown the gold backing the money.

You need a robust and capable Regulatory System before anything else.

Over history we've multiple currencies fail; they all failed because the Regulatory System failed.

Its really that simple.
posted by Mutant at 2:15 AM on April 19, 2009 [60 favorites]

afu: ah, but more energy supply means more production as well, so it nets out by and large. Yes, it's a bit simplistic, but in general energy costs are a huge portion of production (think manufacturing, fertilizer, transport, etc.). It'd be nice if we had incentives towards creating more energy supplies anyways (of course, we need to account for externalities like pollution). Too bad it's never going to happen due to politics, organization, and technology.

Gold is crazy stupid as a reserve because we would create incentive to bring in more gold to the market (whether it be by mining or crazy atomic crap), and we really don't need a bunch of new miners digging up shiny rocks because it's profitable, that's a colossal waste of world resources.

And yes, Austrian economics is magical la-la-land libertarian crap. Their main incentive for a gold standard isn't a more efficient global economy, it's their hate of government. This hate of a strong nation-state is driving their need for a currency not controlled by a sovereign. They're too crazy to realize that externalities (like pollution and security) cannot be managed by lone nuts in a cabin in Montana. While I normally empathize with any postmodern arguments of less integration and top-down management, the current financial crisis is proving the colossal need for international coordination.
posted by amuseDetachment at 2:21 AM on April 19, 2009 [2 favorites]

I hate them Mises to pieces.
posted by Grangousier at 3:16 AM on April 19, 2009 [2 favorites]

"more energy supply means more production as well"

A transfer of labour from manufacturing to running people into giant gerbil wheels would generate a net energy increase, but it sure wouldn't mean a net production increase.
posted by SamuelBowman at 3:25 AM on April 19, 2009

"Their main incentive for a gold standard isn't a more efficient global economy, it's their hate of government."

Out of interest, are you familiar with the Austrian business cycle theory? I only ask because the term "business cycle", which is the Austrians' justification for gold standard, hasn't even been used yet on this thread.

Basically the Austrian view is that inflation doesn't instantly balance out in an economy, as neoclassical economics tends to assume it does. Neoclassicists generally state that inflation causes ALL incomes, prices, account holdings, etc, to rise in line with inflation. The Austrian approach is to look at how inflation moves through an economy. They would say that extra money tends to go to certain sectors of the economy over others – in most cases, that means banks (who are able to loan out money more cheaply than before). People borrowing from banks then have this cheaper money to use to bid for things. Let's say, as an example, that very often money borrowed from banks is used to buy houses (ie, mortgages) and the cheap money provided by inflation allows bubbles to emerge as people bid more and more money. This creates a bubble which will burst once the money spreads out across the economy and that money that was being bid on houses isn't there anymore. Cue defaults, etc.

Ok, this is a VERY simplified example but it's clear that the bubble could have been avoided had the inflation not occured in the first place. That is one of the justifications for the Austrian business cycle theory. The point of having gold is exactly that it has very few industrial uses and is extremely difficult to inflate.
posted by SamuelBowman at 3:39 AM on April 19, 2009 [2 favorites]

But still worth talking about.

No, not really.
posted by caddis at 4:01 AM on April 19, 2009

The Austrian School?!

... the ones who are routinely racist, sexist, and homophobic?

The ones who routinely dismiss the effects of discrimination? The ones who wrote off "the glass ceiling" to women being less productive and generally less exceptional than men?

The ones who blamed the over 30% salary gap for black men on them being less productive, less exceptional, and having lower IQs?! The ones who justified prejudice and discrimination as "broad empirical generalizations, that happen to be true."

Are these the ones who, in the middle of a discussion on blacks and racism, said:

"Suppose you go into a room and see a tiger sitting on the couch. . . You could be prejudice against tiger and hold the door... or you could be unprejudice and not judge this tiger by tiger behavior, and say 'hey, what's happening tiger? How's it shakin'? Well, if this is racism, then this is just the word for empirical evidence."

Gee... guess so.

For economists, they sure insist on acting like bigoted, anti-intellectual, free market apologists, incapable of accepting the fact that their perfect unfettered free market system doesn't always create the best of all possible worlds.
posted by markkraft at 4:13 AM on April 19, 2009 [5 favorites]

This thread is still young. Before it delves into "lollibertarians", "Ron Paul is a bigot", etc. I'll post Bryan Caplan's critique of Austrianism Why I Am Not an Austrian. Caplan use to be a big Austrian, and though he's still sympathetic in many cases, feels they fall short.

The Austrian School is pretty much a pretty fringe school, and you'll have a hard time finding any neoclassical (i.e. the predominating school of thought in economics at the moment) even know what Austrian Economics is, much less anything good they have to say about them. Most of the research done by Austrians is pretty much only printed in relatively low prestige journals and hell will probably freeze over before they get published in leading journals like the American Economic Review.

However, I think they have a lot to offer and it's not like they're total kooks. Hayek was an Austrian economist and he won the Nobel Prize mostly for the business cycle theory that he did under Mises. Schumpeter, though more of a fellow traveler of Austrianism, is still pretty well respected by economic historians. Austrian Business Cycle Theory isn't too far from what Milton Friedman and the Monetarists (who are well respected in modern economics) did, except they have different conclusions about policy. It was an Austrian who was one of the three men who pioneered the idea of value subjectivism (along with Marshall and Walras), the idea that value is based on people's personal values and not something inherent in the product which was a landmark in economics. They have very reasonable criticisms of neoclassical economics, such as their assumptions of man as "homo economus" (a criticism that is not unique to Austrians) and the over reliance of math and econometrics in the field.

Socialism is impossible — it does not allow for a survival of the human race.

ideology-riven claptrap from the looks of it.

The tl;dr version of Mises' argument against socialism is that under pure socialism, where the means of production are entirely controlled and voluntary exchange (the free market) is eliminated means there can't be any sort of economic calculus. What gets produced? For instance, let's say you have x tons of steel. How much is used to make cars? How much is used to make tanks? How much is used to make computer casing? And what about the other myriad of goods that use steel? In the free market, there's no Commissar of Steel who sits down, looks at the total amount of steel, and allocates how much steel gets allocated where. In the free market, people respond to prices and things get allocated accordingly without any sort of plan from a planner. The free market doesn't get it right all the time but the market usually manages to correct itself. Along with Mises' Economic Calculation in the Socialist Commonwealth (a lot shorter than his full length treatment Socialism that you can find online) is Hayeks The Use of Knowledge in Society which is also available online and deals with similar themes about how prices communicate how resources should be allocated.

This is more or less the reason that Lenin had to institute economic reform that allowed for some market aspects after the Soviets tried a pure system where planners decided everything and that didn't work out very well for them. I can't attest that I have a deep background with how Soviet economic planning but from what I understand, the Soviet planners would pretty much look at global commodity prices in trying to determine how allocate resources because otherwise, they couldn't determine how to otherwise.

Oskar Lange was a Polish socialist and who studied Mises believed that when the day comes when socialism triumphs over capitalism, every Ministry of Planning should have a statue of Mises in front in honor of the man who pointed out this flaw of socialism (with the idea being that socialists would find a way to address this point).

I think a good quote that sums up both parts of my comment is from Mises. He was at a Mount Perlin Society (a group set up for free market, liberty minded thinkers) meeting and he heard Milton Friedman and some other Chicago School economists talking about effectively carrying out monetary policy. Mises stands up, says "YOU'RE ALL A BUNCH OF SOCIALISTS!" and storms out of the room.
posted by champthom at 4:13 AM on April 19, 2009 [7 favorites]

Recycling good:



Gasoline/fuel oil, 7.62mm ammunition, bottled water, canned food, whiskey.
posted by sfts2 at 4:46 AM on April 19, 2009

Open letter to thre Mises Institute adjunct faculty members...
posted by markkraft at 5:21 AM on April 19, 2009

Mises stands up, says "YOU'RE ALL A BUNCH OF SOCIALISTS!" and storms out of the room.

And that's pretty much why it's hard to take them seriously - any planning or financial incentives or attempts to guide the economy at all are seen as a descent into authoritarianism. There is zero recognition that the "free" market can be oppressive to some of the population if left unchecked.
posted by mdn at 5:45 AM on April 19, 2009 [5 favorites]

I'm no economist, but I am a historian, so obviously I will look to the past for answers.

Now, let's see, what happened when Britain tried to go back on the gold standard after WWI? Wikipedia has a nice little section:

As had happened after previous major wars, the UK was returned to the gold standard in 1925, by a somewhat reluctant Winston Churchill. Although a higher gold price and significant inflation had followed the wartime suspension, Churchill followed tradition by resuming conversion payments at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, causing deflation throughout those countries of the British Empire and Commonwealth using the Pound Sterling. But the rise in demand for gold for conversion payments that followed the similar European resumptions from 1925 to 1928 meant a further rise in demand for gold relative to goods and therefore the need for a lower price of goods because of the fixed rate of conversion from money to goods. In order to attract gold, Britain needed to increase the value of investing in their domestic assets. They needed to increase the demand for the pound. By doing this, Britain attracted gold from the stronger US, which decreased the US money supply as well as depressed Britain’s own economy. Because of these price declines and predictable depressionary effects, the British government finally abandoned the standard September 20, 1931.

Yeah, deflation (from trying to go back on the standard, not necessarily from gold-backed money). The only thing in the world WAY worse than inflation.

Money is a funny, difficult thing. Specie-based money is subject to disruption by new sources of that specie - massive inflation in Europe in the 16th century due to new silver and gold from the New World, massive inflation in China in the late 18th/early 19th century due to the influx of silver from the tea trade. The price of gold wandered up and down against silver in c1700, causing the British gold guinea to be changing value against the silver pound, and screwing over businesses who accepted one in payment of the other (I've seen letters complaining about this).

We have fiat money, because we figured it's better to have a person looking out for the supply of money than just rely on the scarcity or availability of some shiny element (even though they are very pretty) to mediate our exchanges of goods or services.
posted by jb at 6:45 AM on April 19, 2009 [4 favorites]

Wait - I've misstated Chinese inflation c1800. I remember that silver inflated in value against copper, which caused major problems since everyone was paid in copper but owed taxes in silver. But it can't have been the tea trade, because that brought an influx of silver (and would have depressed the value of silver). There must have been something else which decreased the supply of silver or increased the supply of copper.

But it still sucked for the tax paying labourers and farmers.
posted by jb at 6:51 AM on April 19, 2009

Mdn, I completely agree with you. At that point we leave the realm of economics and entre that of human psychology: at the moment an individual, of group of individuals with shared interests, get to set the rules without answering to anybody else, they'll start bending them in their favour, and it doesn't matter whether you call them "government", "banks", "proletariat", "the rich", or "the Church". That's why I can't take either full-on freemarketeers nor full-on socialists seriously. The writers of the US Constitution (who based themselves on centuries of Greek, Roman, English, Dutch and French political thinking) got it right: checks and balances. The secret lies in preventing that anybody gets their hands on all the levers of power. That's why "self-regulation" was such a disastrous delusion. Good regulation, as Mutant says. Also, to anybody who believes that a gold-based currency can't be manipulated by the government, I recommend studying the history of the Spanish Empire.
posted by Skeptic at 6:55 AM on April 19, 2009 [3 favorites]

Mutant - I'm confused by your economic history:

This went on for a long time, bank failures wiping out life savings, all sorts of scam, all sorts of social unrest in England, The Royalty got worried and passed the Bank Charter Act of 1844, which was the foundation of the modern regulatory system.

Banks were now required to hold back a percentage of their stored gold. Keep accurate book and receipts and it was from this point on we saw the emergence of legal tender ; Pound Sterling here in England, for example. One currency for all debts, public and private

My knowledges of economic history is much better in labourer's wages than it is in banking, but as far as I knew legal English money long predates 1844. Though there was no legal paper currency, I know that at least by the 1500s credit was traded extensively at all levels in society. Maybe I, as a widow, have some extra money, so I lend it to my neighbour the baker, who takes credit for his bread, etc - and we settle up when we need to - or sometimes we just pass our credits and debits on in our wills or in our estates when we die (which I have seen). Craig Muldrew has a very good book on the use of credit in the early modern (The Economy of Obligation) - in fact, he argues that credit was necessary because there simply wasn't enough specie-backed money in the growing economy.

But I know that a lot of these credits/debits are very specific that they were to be repaid in "lawfull English money," because I have seen it written so in wills or probate inventories. It wasn't an official paper currency, of course - those pounds would still be in silver (leading to some problems with the value of the guinea, as I noted above, later), but there certainly was a sense that there was one legal currency, and you wouldn't accept some French silver coins or Dutch ones.

The Bank of England was itself established in the reign of William III and Mary in 1694, and had the right to issue notes which were by the government/Crown paying interest and principle on the huge amount of money it borrowed to finance its wars. There were other banks issuing banknotes, but this was true in England until the 1930s, and is still true in Scotland.

This seems all picky - but I guess what I'm saying is that legal money long predates the still important changes to bank regulations in the 19th century; the monopolies of governments to mint coins is an ancient right, and people had ideas about what was lawfull and what wasn't lawfull money long before the 19th century.
posted by jb at 7:32 AM on April 19, 2009 [4 favorites]

"more energy supply means more production as well"

A transfer of labour from manufacturing to running people into giant gerbil wheels would generate a net energy increase, but it sure wouldn't mean a net production increase.

With all due respect, you clearly do not have a firm grasp on exactly how little I produce.
posted by Flunkie at 8:05 AM on April 19, 2009 [2 favorites]

Economist Brad DeLong's blog has some good material about why the gold standard is not a good idea:

Why Not the Gold Standard?

The Earlier You Abandon the Gold Standard and Start Your New Deal the Better
posted by jonp72 at 10:00 AM on April 19, 2009

What we need is to separate our daily money from the money used by Wall Street gamblers.

If Wall Street had been using poker chips, the collapse would not have destroyed my "safety investments." I had a bunch of money invested in lower-risk, lower-return vehicles that should never have been affected by the jackass fantasy investment schemes and scams in which AIG, Goldman Sachs, and the likes were gambling.
posted by five fresh fish at 10:06 AM on April 19, 2009

A transfer of labour from manufacturing to running people into giant gerbil wheels would generate a net energy increase, but it sure wouldn't mean a net production increase.

What? I'm not talking about allocation between Labor and Capital in production of goods, I'm talking about currency-pricing.

You are describing ECON 102: By allocating all labor resources towards a specific capital, it will have a net decrease in Utility due to labor being more efficient at production of certain goods. Most goods have an optimal ratio between Labor and Capital, and it is not towards 100% of a specific form of Capital, energy. By allocating a transfer of all labor towards a specific form of capital production, namely energy, it will not generate a net energy increase, because the production of other goods will become more expensive. On the other hand, if you found a way to produce energy that is more efficient than current means (and having people run in giant wheels is not one of them), then it will increase productivity. This is all DUH common sense (ECON 102).

We're talking about base currency pricing here. The argument for gold is essentially, "you cannot duplicate it, and therefore it can't create bubbles". This is deeply disingenuous, as modern bubbles in first-world advanced nations are primarily formed out of the debt markets, not government spending. Our current financial crisis was not the Federal government going hog-wild with spending, it's too much credit sloshing around in the system. Bubbles will happen to a certain extent no matter what your base currency is so long as you allow debt to exist. The key is to manage that risk (via strong government regulation), and moving to gold will still nevertheless create bubbles so long as credit cards and mortgages exist. If Austrians were really concerned about bubbles, instead of what they're really concerned about (government interference), they would advocate an Islamic economy that outlaws interest debt, with pure equity only. We know that's unreasonable and therefore the only possible reason for being in favor of the gold standard is some kind of insane hate towards sovereign nations.
posted by amuseDetachment at 10:28 AM on April 19, 2009 [2 favorites]

I had a bunch of money invested in lower-risk, lower-return vehicles that should never have been affected by the jackass fantasy investment schemes and scams in which AIG, Goldman Sachs, and the likes were gambling.

The previous occupant of my apartment is a former Yahoo guy and every year I get the statement from his holdings in a hedge fund. This year temptation was too great and I took a peak: down 20%, and this is supposed to be a low-volatility fund if one goes by the name of it.
posted by mrt at 10:42 AM on April 19, 2009

That is a really horrible article, certainly if it's meant for general consumption - far too much Mises-sycophancy, which can only create the impression of dogmatism and cultishness. I think it's pretty bad even for Austrian fans, since it spends too much time on things that they already know. Ugh. I don't know who its audience is supposed to be.

champthom, thanks for the link to Caplan's critique. I had not encountered that before. On Caplan's site he links to an essay by Austrian Peter Boettke, which I think gives a balanced account, from an Austrian perspective, on some very fundamental economic issues.

Caplan makes a number of points that I thought were excessively picky, along with some that I think are fundamental and important. On one question, though, I think he definitely misrepresents the Austrian position, namely the argument for why inflation is bad. If I read him right, Caplan claims that according to Austrians, the bad effect of inflation is that it distorts interest rates, and that Austrians further believe (unaccountably) that entrepreneurs can't anticipate this and adjust for it, and that this is the reason why inflation leads to malinvestment. If that were really the Austrian argument, then it would indeed be laughably weak. In fact, though, the Austrian argument says a lot more. Rothbard, for instance, says in Man, Economy, and State:

Credit expansion...is a process of redistribution, whereby the inflators, and the part of the economy selling to them, gain at the expense of those who come last in line in the spending process.... The valuations of the individuals making temporary gains and losses will differ. Therefore, each individual will react differently to his gains and losses and alter his relative spending patterns accordingly. Moreover, the new money will form a high ratio to the existing cash balance of some and a low ratio to that of others, and the result will be a variety of changes in spending patterns. Therefore, all prices will not have increased uniformly in the new equilibrium; the purchasing power of the monetary unit has fallen, but not equiproportionally over the entire array of exchange-values.

So, why do Austrians say that inflation leads to malinvestment? It is certainly just because of the the mere fact of changing interest rates. Rather, it is the fact of differential and in-principle-unpredictable distribution of the new money as it moves through the economy, which leads to in-principle-unpredictable distortions in demand (and then supply) patterns.

I'm no economist, just someone with an interest in the subject. There are aspects of Austrianism that I can't agree with, principally the insistence of some of Austrians (Rothbard especially) on an extreme anti-empiricism: according to them, historical economics is useful only as a way of illustrating the a priori truths of economic theory, not as a way of testing theories or for providing input to them. That goes completely against the grain for me. But I think of that as an aberration that can be corrected. Other aspects of Austrianism - especially their rejection of the idea that every aspect of human life must be mathematicized before it can be an object of science, and their investigations into the emergence of spontaneous order - seem to me profoundly important.
posted by semblance at 12:47 PM on April 19, 2009 [1 favorite]

...argh. "certainly not just because of the mere fact of changing interest rates" in the next to last paragraph.
posted by semblance at 12:49 PM on April 19, 2009

Yeah, the Austrian insistence that theory is more important than reality is symptomatic of the fact that it's more of a sort of cult than a legitimate school of economics.
posted by Pope Guilty at 3:58 PM on April 19, 2009 [1 favorite]

http://www.youtube.com/watch?v=vVkFb26u9g8

This does a better job than that speech. But it's arguably from the "Canadian School."
posted by bugmuncher at 6:17 PM on April 19, 2009

Capitalism rests on individuals' property rights: private ownership of the means of production.

And where do those "rights" come from, and who enforces them? What ensures that the property "owner" may enjoy all the good that comes from having inherited his daddy's yacht? Yes, throw out the government, government is bad, fiat currency is the devil's plaything... but excuse me Mr. Government, can you please enforce my contract?

There are so many non-sequiturs and empirically unsupported assumptions in this article it's laughable. One selected at random: "Sooner or later, however, people return to their favored savings-consumption ratio." Really? Everyone has some in-built default savings/consumption ratio that isn't a function of wealth, age, prior consumption patterns, expected future income, and the current and expected future price systems (and a number of other factors)? Why do people take this anti-hero-worshipping clap-trap seriously? Prices change - relative prices change. And people not surprisingly adjust their savings and consumption behavior in the face of such changes. There isn't one magical Absolute Consumption to which we all aspire, and there isn't one Correct Price or Ultimate Investment Level such that deviations mark some failure of the human endeavor.

SamuelBowman: "Basically the Austrian view is that inflation doesn't instantly balance out in an economy, as neoclassical economics tends to assume it does. Neoclassicists generally state that inflation causes ALL incomes, prices, account holdings, etc, to rise in line with inflation. The Austrian approach is to look at how inflation moves through an economy. They would say that extra money tends to go to certain sectors of the economy over others – in most cases, that means banks (who are able to loan out money more cheaply than before)."

No neoclassical economist I have ever read assumes inflation causes all prices to inflate at the same rate. Sure, a lot of macro papers refer to "the" rate of inflation, but they also refer to "the" interest rate, and "representative consumers", and a whole bunch of other nonsense, and none of the authors believe that they're talking about real metaphysical entities. Virtually every micro paper since Edgeworth has explicitly allowed for changes in relative prices. If you represent the Austrian take on inflation correctly, then the Austrian take on inflation is an unilluminating attack on a very weak strawman. I mean, the BLS calculates item-area indices for hundreds of goods - the government itself publishes highly disaggregated inflation rates.

semblance: "So, why do Austrians say that inflation leads to malinvestment? It is certainly just because of the the mere fact of changing interest rates. Rather, it is the fact of differential and in-principle-unpredictable distribution of the new money as it moves through the economy, which leads to in-principle-unpredictable distortions in demand (and then supply) patterns."

Why are they "distortions" in demand? Is there some Platonic form of demand to which moral beings aim? Or is the claim that unpredictable distortions are uninsurable, which means that thems that gots it might lose it to thems that don't, which is bad?
posted by dilettanti at 9:46 PM on April 19, 2009

dilettanti: No need for Platonic forms, thankfully. Inflation represents a transfer of wealth; the first recipients of the artificial money benefit, at the expense of others (e.g. those who live on a fixed income). This transfer is not voluntary. That's the distortion.
posted by semblance at 10:48 PM on April 19, 2009

And a fantastically good distortion it is. The transfer of wealth should be celebrated. Without low-level inflation, we'd have a bunch of rich blue-blood dilettantes sitting around on their money not putting it to good use via investments to increase global efficiency (because of risk aversion, they are very likely to not spend their money). Inflation forces rich people to make investments towards improving production. The rich which are poor decision-makers of resource allocation become poorer over time, while rewarding those who make sound investments by maintaining their wealth. (The lazier ones dump their money into rent-seeking activity such as land, but the point still stands)
posted by amuseDetachment at 2:54 AM on April 20, 2009

amuseDetachment: I suppose we'll have to agree to disagree. I think I see the point you're making, though I assume that when you say "they are very likely to not spend their money," you mean "they are very likely to not invest their money"? That would be a good hypothesis to test empirically.

As to whether this particular transfer of wealth should be celebrated, perhaps the people who lose the most from it (e.g. old folks on fixed incomes) should be consulted.
posted by semblance at 6:58 AM on April 20, 2009

Hayek was an Austrian economist and he won the Nobel Prize mostly for the business cycle theory that he did under Mises

Fun fact of the day: the Nobel Memorial Prize in Economic Sciences is not connected to the Nobel Prizes, but was created in 1968 by the Swedish central bank, and named to deliberately invite confusion with the Nobel prizes for "real" sciences and the Nobel Peace Prize.
posted by acb at 8:56 AM on April 20, 2009 [1 favorite]

Inflation forces rich people to make investments towards improving production.

Really? Then do explain the 'production' that banks in the Dow were involved with. Ya know - the CDOs.

I think energy would be disastrous as a currency.

Energy would have velocity (due to a lack of storage), short term expandibility (and long term also) and man would be able to make like on like comparisons. A watt is a watt is a watt. So is the energy of a soda worth as much utility to me when I could get energy cheaper water to slake my thirst? Is this plastic widget worth X amount of food? How about some lighting this evening? Is watching Stephen Colbert worth X watts? How about if instead of driving I ride my bike to location Y? Right now those comparisons are hidden by the weird US Dollar system.

The technocracy movement and the eMergy works of Howard Odum have tried to show what an actual energy accounting system might look like.

I'll let others decide if energy would be 'a disaster' - for people who make their living off the present system and are on top - yea it would be a disaster for them. Anyone who owned 'sunlight rights' or 'wind rights' might come out better off.
posted by rough ashlar at 9:04 AM on April 20, 2009

Really? Then do explain the 'production' that banks in the Dow were involved with. Ya know - the CDOs.

rough ashlar: Do the morons that invested in MBSes and poorly constructed CDOs have money now? No? Then it's working, dumbasses lose their shirt. The only problem is there's too many of them and we didn't stop dumbasses from hurting themselves too much (Arguably this is social and it's no surprise that developing nations (China, Saudi Arabia, etc.) are the ones getting burned the most here).

Energy-backed currency would be a disaster today because it's hard to account for pollution. While storage is a massive hassle and convertability between different energy sources is inconsistent (a Joule is not a Joule, there are different overhead costs), they're all insignificant to the amount of regulatory coordination needed for a pure energy backed currency. I do like the idea in theory and it makes a whole lot more sense than gold, but it's not going to work out in the near future.
posted by amuseDetachment at 1:53 PM on April 20, 2009

Mefi: Y'know, we heard that banking industry regulations are really very simple.

Mutant: Oh, no, that's not true! You see, modern banking regulations are a product of five different regulatory traditions -- six, if you wanna get technical.

Mefi: Oh, I do.

Mefi: Well, in the 1700s England, The Netherlands, and many of the other European nations were very, very successful traders...
posted by Rhaomi at 2:26 PM on April 20, 2009

For economists, they sure insist on acting like bigoted, anti-intellectual, free market apologists, incapable of accepting the fact that their perfect unfettered free market system doesn't always create the best of all possible worlds.

Most economists lean towards liberal, however. In one poll:

48 percent -- Democrats

17 percent -- Republicans

27 percent -- Independents

3 percent -- Libertarian

5 percent -- Other or not registered
posted by Brian B. at 10:20 PM on April 20, 2009