Sean Corrigan has just sent me his views on the book “Dying of Money: Lessons of the Great German and American Inflations” which Andy Duncan wrote about here, setting off a number of interesting comments. Sean as ever helps put our thoughts straight on the matter. One does wonder if Ambrose Evans-Pritchard and the hordes of City people have actually read it.
Toby Baxendale.
Firstly, though I have to confess that I do use ‘velocity’ as a shorthand, now and again, the idea of using this aggregate twice-removed as more than a crude heuristic, much less as the lynchpin of one’s reasoning as Parsson seems to, is very suspect – see Mises and Rothbard on the topic.
Your ‘Dying of money’ man thinks that if the use of money in exchange were totally ‘efficient’, any amount of it would be inflationary – since ‘velocity’ would be infinite – and, conversely, that if all people wanted it for was as a store of ‘value’, we would need an infinite amount of it, since velocity would be zero.
The first seems to envisage a kind of grand, instantaneous goods clearing house which, however, does not do away with the double coincidence of wants argument (since even the most transient clearing house receipts would be needed to open up trade to all buyers and sellers and so would effectively BE money); the second would mean that money had ceased to be money (i.e., that favoured present good which acts as the medium of exchange) in any meaningful sense of the word -and probably that it would therefore rapidly lose its value, in any case.
To say, also, that the later stages of Weimar inflation were all about ‘velocity’ – itself a mysterious, mass hysterical construct under his analysis – when Havenstein was publicly bragging about how many more bank notes (of increasingly surreal denominations) were being printed is only to confuse the fact that the mark was losing real value faster than it was being created.
He further seems to think that, given a stable ‘velocity’, an increase in money supply commensurate with an augmented supply of what he loosely terms ‘real values’, is therefore not inflationary – hence he would have had no objection to 1920s America, 1980s Japan, or the West in much of the late 1990s and early 2000s – and so would have been a typical Real Bills enthusiast of monstrous misallocations of capital.
In most of the work, he shows himself a slave to his oft-quoted Friedmanite style of aggregative thinking and ignores Austrian insights into the role of relative pricing, injection effects, and the ideal that improved productivity should be met with proportionately falling prices of those particular goods if we are to avoid confusing entrepreneurial assessments.
Apparently, also, if the government issues debt during an inflation, this is a good thing, for it somehow retards its effect (sic), and, conversely, a government surplus is inflationary by, wait for it, ‘reducing the supply of real value’!
My reading of his argument is that interest is not the price of money (true enough), but money the price of interest (!) though he gives no explanation as to why interest itself arises (hint: time preference).
As a result of this, fixed interest (contracts), he argues, are ‘just as much as gold, a barbarous relic of the 19th century’. Much better to have equity contracts (partly true) or constant-value lending ensured by reference to a price index… Crankdom at its finest.
Government’s main task of management, he goes on, is to use tax policy to introduce ‘balance’ into the flow between saving and consumption – each of ‘equal merit… and contributing equally to well-being’. An Austrian need really look no further than this for a critical concentration of both economic and ethical error.
Late stage capitalism has, of course, a tendency to ‘excess’ saving (why? we may ask in vain), so Keynes’ only mistake was to argue for more government investment, as an offset, rather than using fiscal policy to penalise saving and promote consumption.
Government expenditure, it seems, is also a ‘national dividend’ and it is only right that the state should ‘give away purchasing power to help support consumption’ and it is mere ‘nostalgia’ to pine for a day where everyone looked after himself and the state had little or no involvement.
No, Leviathan should provide a national dividend by giving away all basic services freely: food, clothing, housing, and medical care – out of the ‘surplus prosperity’ – allowing people to concentrate ‘only’ on working to buy whatever else they need and not having to worry about being rendered technologically redundant.
I am only half way through this tract and already I have found more fallacies, inconsistencies, and shallow-thinking being marshalled behind a grandiose plan of reform, than I have seen in a long while. HG Wells would be proud of Parsson.
No wonder this tosh is out of print!!
All I can say is that this is typical of Evans-Pritchard’s Yellow journalism: everything we do is wrong and the whole system is always about to implode. But while we cannot let the Keynesians expand debt and deficits limitlessly, neither can we allow those horrible Liquidationists to cut back or, very soon, the 1930s will look like a picnic. We will have some form or other of ‘Flation (X-flation, perhaps) on some unspecified timescale or another – but, or course, it will be of an unimaginable magnitude when it does arrive, unless we stop everything we are doing now and yet intensify everything we are doing, at the same time.
One only regrets that Murray Rothbard is not still around to skewer the idiocies of such Swiftian buffoons as Parsson and his modern day brethren, AEP, Wolf, Kaletsky, Krugman, and Stiglitz – and to rebut the opposing follies of the self-loathing Guardianistas and Dollar-doom Michigan Militia, in general.
As for us, while it’s always nice to think we are not an isolated remnant in the cause, perhaps we might be just a tad more considered in our endorsement of those who ostensibly seem to share some of our concerns, but who either lack intellectual consistency to draw the correct conclusions from them, or who use a shared criticism of some aspects of the modern institutional setting as the point of departure for a programme totally antithetical to our aims.
