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Comments |
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 | Tuesday, October 21, 2008 at 23:30:46 mst
Comment ID: #1
Name: Aaron Davies
E-mail: agd12(at)columbia.edu
I can tell you one thing--if we get out of this mess with our economy intact, that'll be the *real* "mackerel"! |
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| Wednesday, October 22, 2008 at 6:15:58 mst
Comment ID: #2
Name: Galileo Blogs
E-mail: rayniles(at)rcniles.com
URL: http://galileoblogs.blogspot.com
The mackerel standard sounds a lot more stable than the Paulson/Bernanke standard. What would a "fiat mackerel" look like anyway?
Great post, Paul. |
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| Wednesday, October 22, 2008 at 7:12:39 mst
Comment ID: #3
Name: Flibbert
E-mail: junk(at)treygivens.com
URL: http://flibbertigibbet.mu.nu/
Fiat mackerel is how Jesus pays his taxes. |
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| Wednesday, October 22, 2008 at 8:29:00 mst
Comment ID: #4
Name: Kyle Haight
E-mail: khaight(at)alumni.ucsd.edu
URL: http://www.leftist.org/haightspeech/
My brain insists on interpreting "fiat mackerel" as a faux-Latin translation of "Let there be fish!" |
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| Wednesday, October 22, 2008 at 8:52:30 mst
Comment ID: #5
Name: Steve D'Ippolito
Instead of William Jennings Bryan complaining that we are being crucified on a "cross of gold" (he was pushing for a silver standard which in that context would have been inflationary), someone will now complain about the Holy Mackerel. |
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| Wednesday, October 22, 2008 at 9:16:12 mst
Comment ID: #6
Name: Ted Coxhead
E-mail: tedcoxhead(at)yahoo.co.uk
Was Peter a fisher of men or a man of fish? |
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| Wednesday, October 22, 2008 at 9:26:23 mst
Comment ID: #7
Name: Per-Olof Samuelsson
E-mail: per-olof.samuelsson(at)swipnet.se
URL: http://www.nattvakt.com
"What would a 'fiat mackerel' look like anyway?"
I don't know, but the "mackerel bank" could certainly practice fractional banking. The bank simply issues IOU slips to 2 or 10 or 100 different people, all backed by the same mackerel. When those people come back to the bank with their IOU slips, they find that they will only receive half a mackerel, or a tenth of a mackerel, or a hundredth of a mackerel. |
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| Wednesday, October 22, 2008 at 10:51:29 mst
Comment ID: #8
Name: anonymous
E-mail: a123(at)example.com
"It's interesting that these prisoners understand the need for a stable objective medium of economic exchange..."
They don't actually UNDERSTAND anything, and they didn't set out to do this consciously. If they had access to fiat paper money, that's what they would be using. This is simply further evidence/proof to the theory that left to its devices, sound money originates out of the free market without the need for government intervention. |
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| Wednesday, October 22, 2008 at 14:36:42 mst
Comment ID: #9
Name: Michael Labeit
E-mail: logician169(at)yahoo.com
URL: http://themethodoflogic.blogspot.com
"They don't actually UNDERSTAND anything, and they didn't set out to do this consciously."
The prisoners understand the need for a stable medium of exchange through common sense. They choose mackerel because it possesses the characteristics of marketability: scarity, durability, divisibility, transportability, and cognizability. If you were to ask them why they choose mackerel, you would get a (very)layman's version of the above. None of them would accept 2x2 inch bits of paper (prison fiat money) even if offered it because such prison media fails to possess all of the necessary monetary charcteristics above. They understand, albeit implicitly. |
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| Wednesday, October 22, 2008 at 18:05:40 mst
Comment ID: #10
Name: Jeff
E-mail: jeff.erno(at)gmail.com
URL: http://ernoj.blogspot.com
Hi Paul,
Excellent post. It is very interesting that they made their own money in a manner of speaking.
There is one thing about the gold standard I never understood, and maybe you can help me understand it. If you are on a gold standard then doesn't that mean that we are in a "zero sum game"? I always thought the economy was ever expanding through new and improved efficiencies, thus meaning that the pie keeps getting bigger. If the gold is the standard, and gold is neither created nor destroyed in the process then how does the pie get any bigger over time? Anything you could link we to so I could understand it would be greatly appreciated.
jeff |
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| Wednesday, October 22, 2008 at 19:31:04 mst
Comment ID: #11
Name: William H. Stoddard
E-mail: whswhs(at)mindspring.com
URL: http://whswhs.livejournal.com/
Jeff,
I don't have a link to offer you, but I do have some comments on the basic principles involved.
First, from the fact that the same amount of money is in circulation, it doesn't follow that the same amount of wealth exists. That was the view of one of the earliest schools of economic thought, often referred to now as "mercantilism": they thought that gold was wealth and that the way for a country to get rich was to pile up as much gold (and silver) as possible. The rejection of this idea, by Adam Smith among others, was the first great step toward a genuinely scientific economics.
A very simple analysis of inflation is that if you have the same goods available, but you double the amount of money in circulation, then people who have more money will offer higher prices to get the goods they want. Eventually things will stabilize with goods costing roughly twice as much as they did before. But you can turn that around, and say that if you have the same amount of money, but twice the output of goods, you will reach a stable point when the goods cost half as much on the average. That is, instead of more money buying the same goods, the same money will buy more goods.
Second, it isn't strictly true that gold is not created or destroyed. We do have a gold mining industry that brings new gold into circulation. But there's a natural stabilizing mechanism for this process. If it costs $500 to produce an ounce of gold, and gold sells for $750 an ounce, people will mine and refine more gold, because doing so is profitable. But bringing more gold into circulation will make gold cheaper. When the price drops to $499 an ounce, it's no longer worth anyone's trouble to produce any more. This is exactly the same kind of process that keeps the temperature of a room stable with a thermostat controlling the furnace.
On the other hand, the actual cost of printing a dollar bill is probably less than a dollar; and printing a hundred dollar bill, or a billion dollar bill, is equally cheap. So you don't have the same kind of automatic stabilizing mechanism for paper money. There are other possible stabilizing mechanisms, but they ultimately depend on the banks exercising prudence in how much paper money they issue, and historically that has not been as reliable as the process that controls the supply of gold.
Third, despite this, it is never true that money is completely stable in value, or that fluctuations in the value of money are neutral (that is, have no effect on the economy other than changing the general price level). The supply of money changes over time, and in changing it makes some people better off and others worse off. What IS true is that all the various schemes for having government step in and improve things have been less stable and less neutral. We don't have a Platonic ideal economy and never will have. The strength of markets is that anyone who sees a way to make things work better is free to go into business making them work better.
And that's the process that generates increasing wealth, with the consequences of, first, a fall in prices (that is, a rise in the purchasing power of money), and, second, an increase in the supply of gold (which can be produced more cheaply) that tends to stabilize the price level over time.
I hope this is helpful. There are economic texts that explain it much better than I can; this is the kind of thing I would say if I were tutoring someone in Austrian monetary theory, to try to help give them an intuition for how it works. But it's no substitute for actually reading, say, von Mises. |
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| Thursday, October 23, 2008 at 4:57:30 mst
Comment ID: #12
Name: Jeff
E-mail: jeff.erno(at)gmail.com
URL: http://ernoj.blogspot.com
Hey William,
Thanks for the lesson. I understand this much better now. This sentence resonated:
"But you can turn that around, and say that if you have the same amount of money, but twice the output of goods, you will reach a stable point when the goods cost half as much on the average. That is, instead of more money buying the same goods, the same money will buy more goods.".
This makes perfect sense to me. We get richer as a nation not by increasing our monetary holdings but by being able to produce more and thus get more for the same holdings.
thanks again,
jeff |
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