In response to economic illiteracy

I wouldn't not argue against you about what the cause of all crashes is. I'm not an expert on car crashes.

But I do make the claim that inflation is entirely a monetary phenomenon. Inflation cannot occur in a non-monetary economy, thus it must be an exclusively monetary phenomenon. If you disagree, please feel free to explain how inflation can occur in an economy without money.

 

Do you think that when you explain to people that inflation is a monetary phenomenon, they have to be "experts" in economics to understand?

If not, why do you have to be an expert in car crashes to realize that moving doesn't cause car crashes even though all crashes occur when your moving?

Inflation can result because too much money is created, but it an also be the result of a loss of productivity because the value of money has nothing to to with the amount created, rather the amount being spent relative to the amount of goods and services available to purchase.

 

No.

I offer no argument against your car-crash theory.

Okay, then please explain how the general price level can rise in a non-monetary economy.

 

It's irrelevant, we don't operate in a non-monetary economy. I can, however, explain to you how inflation can occur without creating a single new dollar.

 

I'm aware we operate in a monetary economy. And that is why inflation is possible in our economy.

Inflation can only occur in an economy with money, which means that it is an exclusively monetary phenomenon.

 

All your doing now is stating the obvious. Again, that's like saying that all crashes occur when cars are moving. What we want to know is the cause of inflation just like when a car crashes we want to know what caused the crash.

 

No. It's not like that at all. That has nothing to do with my statement.

The cause of inflation is an increase in the supply of money, which reduces it price.

Inflation can only occur in an economy with money, which means that it is an exclusively monetary phenomenon.

 

It depends, not directly, but it parallels your statement. Breathing is an oxegenary phenomenon, crashes are a phenomenon of motion and rain is a evaporinationary phenomenon.....

Stating the obvious.

If an economy has X dollars and productivity is Y and the resulting prices are Z, what would happen to prices if dollars stayed the same put productivity dropped by 50%?

Now the number of dollars, X, would be the same, but what can be bought with them would be Y - (50%), that would mean that supply would be 1/2 of what it was. Assuming demand stayed the same, then inflation would result if supply could no longer keep pace with demand.

So is inflation a productary phenomenon? After all, if there were nothing to buy with dollars there would be no inflation, therefore products, or lack thereof cause inflation.

Money that doesn't buy anything isn't money, therefore:

There is an inverse relationship between money and what can be bought with it.

(At maximum employment)

If you increase money or reduce the products that can be bought with it, you will get inflation.

If you increase money and increase products (that are in demand) you won't get inflation.

If you decrease money and decrease products (that are in demand) you won't get inflation

You cannot, no matter how hard you try, separate money from the products that can be purchased with that money.

See how this works?

Again, you are simply stating the brutally obvious. Saying that you can only suffocate if you don't have air or you can only crash if you're moving or that it can only rain if there is evaporation or that there can only be inflation if there is money is simply stating the obvious, but it doesn't tell us the cause. I've just demonstrated that inflation in a monetary economy can be the result of a decrease in products as much as an increase in money.

 

Your definition of inflation was a rise in the general price level. That is different from simply a change in relative prices.

Let's say the price of an hour of labor is $20. Lets also say that the price of a loaf of bread is $5. This means that I would have to give you the price of 4 loaves of bread to pay you for an hour of your of labor.

So, in your scenario, productivity drops, making bread more expensive. So now a loaf of bread costs $7.50, which means that now I only need to give you the price of 2.66 loaves of bread for an hour of labor. The price of bread relative to labor has gone up, but the price of labor relative to bread has gone down. The price of bread relative to dollars has increased. The price of labor relative to dollars remains unchanged. This is not a general rise in prices. Only the price of bread has changed.

The only way for ALL prices to rise is for the price of money to fall, which is caused by an increase in supply.

 

And how exactly DOES the government take my property or my freedom away? I certainly am not voluntarily giving it up. They take it away from me by threathening to have the police force use lethal force against me if I do not comply. If they fine me and I don't pay, someone will visit my house to take away my property. If I resist, they will threathen to kidnap me and send to prison. If I still don't comply, they'll send armed men to my house. If I resist once again, they'll shoot me.

So yes, every law in existence is very much enforced at gunpoint. How long do you think people would follow the law if the government didn't have guns? And even if you are still going to deny they force me to do things at gunpoint, you at the very LEAST have to see that they enforce laws by threathening to use force. That means the government is the one initiating force, and is therefore in the wrong, no matter what the extent of the force is.

Okay so in Saudi-Arabia men aren't "forced" not to have sex with other men, because they know the consequences of having sex with other men? The government is threathening to use force against me if I do not pay taxes, that means they are forcing me to do something whether you like it or not. "Well just don't make any money if you do not want to pay taxes" is about as much of an argument as "Just don't wear short skirts if you do not want to get raped".

"If you like gay marriage so much go live in a country where it is legal!"

You may not be aware of this but instead of moving to an entirely different location because you don't agree with the status quo of your nation, you can also try to change the status quo through debate and elections... I have heard this dumbass argument SOOOO many times for so many different things and it just gets tiring. No the gays don't have to move out of the country if they want to get married, no the rich don't have to move out of the country if they do not want to pay taxes and no, blacks do not have to move back to Africa if they want to use the same public drinking fountains. You "argument" is equally invalid for all of those opinions.

Actually no, because I do not trust another man's reasoning capacities enough to draw his own conclusions based on that statement, so I feld I had to explain the implications. A long history of useless debates has thought me to always exact consequences of everything.

That depends of what era you are talking about, but right now the government tends to spend before they tax. I do not see how that is relevant to whether or not government interference in economics hurts the purchasing power of the consumer(and thus the economy as a whole), or whether or not taxation and inflation are inherently evil.

So you agree that governments only thrive by enforcing a monopoly through force, rather than by being the best option in a certain area like a private business?

There is no further evaluation to be made. If we know that theft is morally bad and bad for the economy, then we also know that taxation is bad for exactly the same reasons. If you do not agree with this statement, please give me one fundamental difference between pity thievery and federal taxation.

Free market capitalism and corporatism are in fact two completely different things, so no it is not a no true scotsman fallacy. That would be you showing flaws in a free market capitalist system and me just shouting that it's not "true free market capitalism". We both know that there are very significant differences in the two systems mentioned, for example: In a free market system banks don't get baillouts if they screw up, in a corporatist society they often do if they bought the right people in government.

I do, I just don't see how inflating the currency to pay for things and using taxation to combat said inflation is so different from simply taxing to pay for things that my entire line of reasoning doesn't exist anymore. The principle remains the same: The government spends money and the people(eventually) pay for it. If it is through inflation or through taxation is entirely irrelevant, it's still wrong.

Any entity that initiates force is evil, that includes all governments currently in existence. If someone came up with a form of government that can enforce non-oppressive laws(meaning: laws that prevent people from initiating force against one another, and nothing else.) without having to steal from the people to pay for that law enforcement, then that form of government would theoretically not be evil. However how such a system plays out in reality remains to be seen.

As for the second part of your question: A government is evil because it initiates force.

Creating a need for a product is called marketing, and provided you don't violate anyone's rights to do so then it is not a form of force. So for example: If someone creates a need for water by putting it in a fancy bottle and paying for advertising space on the streets, then that is manupilation that is entirely fine. However if someone creates a need for bottled water by throwing acid in the publicly owned river, then he violated the property rights of the public and is therefore intitiating force, which is wrong.


I don't deny that. Nor am I making the claim that it is right or wrong, I'm simply pointing out how it works. Yes, the dollar's value comes, at least in part from the fact that failure to pay taxes can result in the loss of property or freedom. But the alternitive is worse.

Now, if you'd like to convince me that the system we have now is wrong, not in a moral sense, but in a more practical sense (nations that don't use force, are they more successful than nations that do?). Examples?

That is because the original argument I made in this thread was a moral argument, and it is therefore the argument I am defending. Besides that, morality weighs higher than all pragmatic benefits. If something is wrong then you shouldn't do it, not matter the circumstances. If you are going to deny that, then you might as well abolish the idea of objective morality all together.

If you do insist on a pragmatic argument against taxation specifically:
If you tax someone then he has less money to spend, the demand in an economy is therefore lower. That means that there is less insentive(and less capital, because of the taxation) to higher to supply by expanding a business or creating new ones. That means fewer jobs, less wealth and higher prices in the entire nation.

As for inflation:
If a government inflates a currency then their wages tend to adjust eventually, however until they do they can buy a lot less with the same money, which has the exact same effects as taxation. However even worse is that the capital they have saves is now worth a lot less, which means if someone saved money to start a business they are now in a worse position compared to their already established counterparts. This means the economy will be less competitive, which means the prices of consumer goods will be higher(even when adjusted for inflation) and of lesser qualities. And then the final problem, a lot of people have a contract at their job, which means it will probably take several YEARS before their wages to be adjusted to the inflation.

These consequences are so bad for the country as a whole that I sincerely doubt you can find any branch of government which is justifiable if you know these are the costs. Even the police force can be privatised, which has already been done in a lot of gated communities all over the world. That is because in a free market even security companies have to compete with one another meaning a better service for a lower price. There have already been reports of private security being twice as effective and eight times cheaper than a regular police force. And that is just one example.

If you are going to say wealth is how well off people subjectively are, then there is literally no argument to be made for the statement that a nation is wealthy when its economy is mostly producing weapons of war and destruction.

That other 13,4 trillion dollars they borrowed from the federal reserve, which is why it is the exact same number as the national debt... If the government borrowed money from the national reserve, which printed the money, than the money of the consumer has become worth less meaning their purchasing power has decreased. So whether you like it or not, the people HAVE payed for it. My claim was that the people payed for it, not that they payed for it through taxation.

J. W. McCallister in The Grim Reaper

It doesn't matter because your claim was that the government doesn't pay back its debt or pay interest with tax money, I just pointed out that that is incorrect.

As for the rest, if the Federal Reserve is a government entity then why do you have to pay interest over the money you borrow from them? It's almost like they are a private company that wants to make money....

I don't think we will because you seem to think that magically changes everything somehow without giving me a reason why.

 

The cause of inflation is having more of a certain type of currency representing the same amount of whatever is backing it. So if a currency is backed by gold, and the central bank in control of that currency prints twice as much money as is in circulation without adding to the gold supply than that currency becomes worth half as much as it was before.

So what you are implying with your example of 2000 people with 2000 dollars and 1000 people with 1000 people is intellectually dishonest because it is implying the money is backed by the people who use it, while it is not. If you have 2000 people with 2000 dollars backed by 1 kilo of gold, then those dollars are worth less than 1000 dollars owned by a thousand 1000 people also backed by one kilo of gold. That is because gold is in this example what is actually being used to trade, not dollars. Dollars are merely a way of representing that gold.

 

So you believe that business owners check the quantity of currency in circulation to determine if they should raise or lower their prices?

Unless it taxes the same amount back out of the economy, which is exactly what the US government did during WWII, that and sell bonds, which is just another way to remove dollars from circulation.

No, it does not, though I admit I figured you'd realize that when talking about "people" what we're really talking about is their productivity, thus, if you cut the number of people in half, then productivity will fall. If the number of dollars in circulation stays the same then inflation will most likely result.

Dollars aren't backed or redeemable for gold, period, full stop.

 

I took this response first because it's the most relevant.

The era I'm talking about is the fiat era, post-1974.

The government does not tend to spend before it taxes, as a matter of accounting, it must (which has important implications). In 1974 when we switched to fiat, there were $108 billion dollars of base money. If we go back to 2008 before QE (so we can compare apples-to-apples) there was $874 billion in base money (peaking at $4.3 trillion post-2008 including QE, but like I said, let's set this aside for the moment), the extra $770 billion would not exist if the government had not created it. You can't borrow $766 billion in your own money if there is only $108 billion in base money, to begin with. Even if you include dollars created via the private sector, there was a total of $680 billion in circulation in 1974. You can't have more US dollars than exist if you can only "borrow" dollars that exist.

Now you might claim it borrows the money from the Fed, right?

But in order for the Fed to create "Reserve Notes", it has to hold collateral. The Fed can just "print" money because it feels like it. It has to follow rules of accounting. Where does the Fed, pre-2008 (again, we want an apples-to-apples comparison) get its collateral? From the US government. Without collateral from the government, the Fed cannot create money. The US government "prints" (creates) bonds and auctions those bonds off to the private sector. The Fed then purchases those bonds in order to hold them as collateral so it can turn the government's bonds into dollar credit (assets whatever you want to call them). So who actually creates the money? The Fed or the government? US bonds are liabilities of the US government and so are dollars. They are two forms of the same thing. If you have a US bond you can deposit it in any bank or you can sell it to someone else or the US Treasury and redeem it for its full value. The Treasury Constitutionally must redeem it. As long as the government operates there is no chance the government won't redeem a bond it created.

(This section is a little "fluff" I added to help you understand history, feel free to skip if you like).

Why does the Fed purchase bonds from the banking system and not directly from the Treasury?

Hey! great question.

By "running" bonds through the private sector we get an indication of what they are worth because the private sector market is setting the value in the market. You might remind me here that the Fed can manipulate values, but at least we know what the private sector will pay under the prevailing conditions (whatever they are) so we can measure how much the Fed is manipulating the value (if at all).

The other big part of this is that before the Fed, the cost of consumers, businesses, and banks doing business with each other were extremely high if they didn't use the same bank. If a bank wanted to do business with other banking organizations the bank had to open an account at each bank it did business with so it could settle up after an agreed period of time. So if Acme bank did business with 10 other banks then it had to have an account at those 10 banks and those 10 banks each had to have an account at Acme Bank. If you tried to cash a check at Acme Bank that Acme bank didn't have an account with, Acme bank wouldn't take the deposit.

If you wrote a check in Richmond and wanted to cash it in Boston, you might have to stop in Baltimore cash your check and then have another check written from that bank in Baltimore to the bank in Boston, or the bank in Boston might take the check and hold it for days or even weeks as it initiated a physical transfer through the bank in Baltimore. The bank in Baltimore wouldn't do this for free, there was a cost at each step associated with it. If you did thousands of transactions this could get quite expensive and could limit the reach of your business and it's productivity, because of course, for the banks, this was quite expensive.

If at the end of the day Acme bank had a positive balance to 3 of the banks it did business with, but a negative balance to 7. It might have to physically send money out to 7 banks and wait for deposits from 3 others.

Then came the concept of regional banks so that customer banks could all have an account at the Regional bank that would process settlements between all the banks in the region (this is the real purpose of reserves, to act as settlement funds between banks) and could then settle between all the other regional banks in the nation, which again, was expensive and increase the cost of commerce. This, of course, led to the concept of central banking where all the regional banks settle with the central bank and all the local banks settle with the regional banks.

So banking under the Federal Reserve Act was connected and if a bank wanted to be connected to the system it had to adhere to rules created by Congress. Banks would now operate in the public interest. You might be old enough to remember a time when you could cash a check written to you from almost any bank without paying fees. In 1970 a bounced check cost $6 (or $21 when adjusted for inflation) at a time when it cost the bank just 30 cents, a 2000 percent markup. Today bounced check fees can be 470,000 times higher than it costs the bank (that doesn't sound like "in the public interest").

What's happened is that people have forgotten that banks operate in the public interest and that the costs the banks agreed to absorb were made up for by the fact that the government was selling bonds to the banks and they were in turn selling those bonds at a guaranteed profit to the Fed or people in the private sector. That profit was supposed to be the bank's payment for the services that it was expected to offer for free. But, as I said, we've forgotten the advantages of banking in the public interest and now treat banks just like we treat education, prisons and healthcare and other institutions that don't exactly lend themselves to the for-profit model.

The following is from the Federal Reserve Chairman, Marriner S. Eccles, to a member of Congress, Wright Patman,
who was promoting the idea that the government should create its own interest-free dollars in 1941

SOURCE HERE​

In conclusion, the US government auctions treasuries to private banks so they can sell them to the Fed at a profit only as a sort of payment for providing services that, back before the Fed, were quite costly. As I said, we've forgotten our history and we are paying for it. Literally.

Having said that, there is NOTHING that would prevent Congress from simply creating a rule where the Treasury could sell treasuries directly to the Fed who would then deposit them and the Fed, in turn, crediting the US government's account. Furthermore, there's nothing that would prevent the government from doing away with the entire bond system altogether. It's an anachronism from the time of the gold standard (something that you apparently think still exists in some form).

I think you mention interest somewhere else so I'll address that there.

Finally...

If you admit that spending can come before taxes, have you not just admitted that the government does not need to tax in order to spend.

There are a few examples, like Ruby Ridge that have happened throughout our history, most people, if they think the government is being unfair might "fight" in court, but if they lose simply comply. I suspect for all your bluster and tough talk you pay your taxes and if the government found you in violation and seized your property, you'd comply without the need for guns and violence.

Being raped is the same as asking you to pay taxes? Really? Seriously?

The fact that you think these are the least bit comparable tells me a lot. I think I'm starting to see the problem.

Rape causes real, universal and quantifiable harm. Homosexuality does not and neither does the compulsory paying of taxes. Compulsory taxes, while a burden returns something of value to the taxpayer. Police, fire, ambulance, roads a military...Etc.

Not one the same page, not in the same chapter, not even in the same book. The fact that you see rape and taxes equally at a moral level is, at least from my point of view, the problem.

Quite right, the winning of hearts and minds. Clearly, your heart is in a strange place, so I fear I cannot help you, but there are others who hear the kinds of intuitive rhetoric you write and might be tempted to think it makes sense. I help them understand it does not.

Now having said all of that, in the system we have today, I don't believe that anyone that makes less than $400k should pay any federal tax at all, but this is because I understand the actual purpose of taxes. It's been known for a really long time. Something else that was forgotten in history and ironically it's the government's fault. The government in a panicked need to control inflation during WWII needed to remove money from the economy in order to prevent a loss of purchasing power. So it raised taxes to their highest levels in history, but that still was not enough. So much of the nation's productivity was focused on the war, consumers had little to buy at a time, ironically, when people were making more than ever.

So the government convinced those people to buy savings accounts (bonds) as a way to "pay" for the war. This was a fabrication, a total lie. The war had been paid for already. The government had already created the money and spent it, it was simply trying to ensure the value of the money it created wouldn't be lost to inflation. People were convinced they had to buy bonds to help "pay" for the war, to defeat Natzi Germany!, rather than the truth which wasn't nearly as "sexy" which was the fact that the government had to tax and sell bonds to control inflation.

If I were to advocate for tax reform I'd support the Land Value Tax or Georgism. This is because I understand the taxes serve a different purpose than most people believe.

In 1964 Beardsley Ruml, head of the Federal Reserve enumerated quite well the need for taxes....

(1) as an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
(2) to express public policy in the distribution of wealth and of income as in the case of the progressive income and estate taxes;
(3) to express public policy in subsidizing or in penalizing various industries and economic groups; and
(4) to isolate and assess directly the costs of certain national benefits, such as highways and social security. (ibid p. 26

I can't argue that..But you'll notice that Chairman Ruml knew what Chairman Eccles new 23 years earlier, taxes don't "pay" for spending, it's is a tool of fiscal policy meant to control inflation.

 

Cont....

I wouldn't try to apply "my argument" to any of those.

We're just going to have to agree to disagree.

I wouldn't use the term "thrive", I would use the term "operate effectively", though I freely concede that the government has a monopoly on the creation of the nation's money and that monopoly is maintained via its power to enforce the rules it creates.

This begs the question, why do I believe that government operates better when it has the power to impose punishments for non-compliance rather than allow people to freely decide to contribute?

There are experiments done that conclusively demonstrate that when people are given a choice between contributing voluntarily and compulsory contribution, that people in groups that require compulsory contribution will outperform "voluntary groups".

This is because the weakness of those that support the voluntary position make the assumption that:

1) People will have all the information they need to make rational choices.
2) That people will make rational choices with or without information.
3) That those with the resources, means, and willingness will use their wealth to manipulate information will do so to serve their own best interests. "Free" people will base their opinions on bad information that is marketed well.

We see this today in the lobbying industry. We see it on TV in "Made For TV Products" that mislead and don't deliver on their promises. People can be easily mislead, which is or course why free public education is so important, so people can make decisions based on the evidence.

People can neither be expected to have all the information they need on the daunting array of topics that one would need to be aware of in order to make good decisions on what's best for his/ her country nor can they be expected to act rationally as evidenced by the way people act today.

Compulsory systems use resources to divide up tasks and specialize, even when the value of that specialization might come into question. Because of this, all other things being equal, compulsory groups will always outperform voluntary groups (when dealing with large populations).

First off, the only people that should be paying taxes are those that can drive excess inflation though demand or people that can use the excess money to influence public policy in a way that serve their interests at the expense of others.

Evil is when we as a nation have the people and the resorces to feed, clothe, provide shelter, education, healthcare and a minimum standard of living to everyone who is a citizen of the United States and choose not to, and instead talk about the immorality of a compusory system because it "takes" your money and at the same time completely ignoring the social benefits you get from it. That's evil, and if you are a Christian (or not), who do you think Christ would side with? Me, or you? Do you think he'd consider the suffering of the poor or taxes to those who work the greater moral hazzard in a nation that could, if it chose to, see to it that every person capable of work a job so they could earn a living?

Oh, come now...Don't be coy.

Things are never that simple. If profited from the sale of water and used my wealth influence to fight against "air conditioning" (maybe I'm the chairperson of the loacal council) as harmful to the public good (for whatever reason, I just state a case). The point is, I hold that opinion because I know I'll sell more water, but can provide a plausibly deniable excuse of perceived harm, perhaps even "donating" to a scientist who writes a paper that supports my conclusions.

That is force, just plausibly deniable force, which I'd argue is a lot more dangerous.

First, I reject the idea of objective morality, and so did Christ. Stealing is wrong, but if it is the only way to feed your family, then it is not.

That is subjective.

Is making a 10-year-old child work immoral? Not if you live under such harsh conditions that the failure to make children work would cause the death of the group. Is it wrong to murder? If a nuke was about to fall on New York, but you had the ability to divert it to a sparsely populated area, would you? If you did, that would be murder, if you didn't, that would be murder.

Either way, you are a murderer, the only question is, were you justified? If your action leads to the deaths of 50k people vs 8 million, I'd say you were justified. Hence, all morality is subjective.

Look, I support lower taxes. I already told you, In our current economic climate, I'd support zero federal tax on those making less than $400k for exactly the reasons you outline. Taxing those that make less than $400k takes money out of the hands of consumers and leads to the situation you describe.

However, those that make more than $400k who are taxed aren't consuming less if they are taxed. Now having said that, here is where tax incentives come into play. If the wealthy invest their money in spending or investments that lead to jobs, then they should, IMO, be able to continue to avoid taxes. Those that shelter money in the financial markets, on the other hand, might be asked to pay a tax.

I also don't support corporate taxes as a way to generate revenue. I do however support corporate taxes to drive social incentives. A business that invests in their local communities, those that keep good environmental and worker safety records, those that invest in research and development, those that avoid manipulating their stock price through buybacks.

In other words, a company should have the opportunity to avoid 100% of the tax by doing things that are in the communities and nations best interest.

I don't accept your claim of the cause of inflation, so before we start talking about the result of inflation we need to debate the cause of inflation. I addressed this in a post above.

Subjectively that depends. Are they making weapons because they need them to defend themselves against the imminat threat? Does the creation of weapons crowd out the creation of other items needed to achieve a decent standard of living? It depends.

Yes there is an inverse relationship, but the national debt is $20 trillion...Not $13.4 trillion.

Disagree, but we'll get to that. I've already pointed out that it's not possible to get from where we started to where we are borrowing or taxing money from the private sector as a simple matter of accounting.

No idea what that means.

It doesn't. The government sells bonds and those sales finance spending. Not a penny in taxes pays for bond redemptions....

See here:


See how issues exceed redemptions?

It is the issue of new treasuries, not taxes that pay for redemptions. It's always been like this and when you understand global finance you realize that it always will be. Even if the world changed abruptly and the old paradigms changed, there still wouldn't be a need for taxes to pay for redemptions.

Prior to 2008, how much interest income was the Fed earning?

The Fed gives back 94% of the profits it makes and those that do earn interest earn a FIXED 6% dividend. It makes no difference how much the Fed makes in interest, the dividend is still the same.

No, the overwhelming majority of the interest is earned by the private and foreign sectors. Heck, even the government pays itself interest (which is the dumbest thing ever).

So no, you don't understand how the Fed operates and who gets the money and the influence. People, like me, that hold Treasuries as part of their asset portfolio, we earn most of the interest, not the Fed and certainly not the Rothchilds...lol

Patience Kenny, patience, as long as you're willing to look, I will show you. I can't promise you'll like the answers though.

 

you mean like surviving in an internationally competitive market to supply us with the best possible goods and services needed daily for our very survival??

 

So you'd consider "survival" a companies only priority?

 

I think you may have missed this, so reposting.

Your definition of inflation was a rise in the general price level. That is different from simply a change in relative prices.

Let's say the price of an hour of labor is $20. Lets also say that the price of a loaf of bread is $5. This means that I would have to give you the price of 4 loaves of bread to pay you for an hour of your of labor.

So, in your scenario, productivity drops, making bread more expensive. So now a loaf of bread costs $7.50, which means that now I only need to give you the price of 2.66 loaves of bread for an hour of labor. The price of bread relative to labor has gone up, but the price of labor relative to bread has gone down. The price of bread relative to dollars has increased. The price of labor relative to dollars remains unchanged. This is not a general rise in prices. Only the price of bread has changed.

The only way for ALL prices to rise is for the price of money to fall, which is caused by an increase in supply.

Last edited: Friday at 7:25 AM

 

no idea why you'd say that??? Do you have any idea why you'd say that??

 

Dollars, fiat dollars today that is, are backed by everything you are able to exchange them for in the market place, including gold and silver which prior to government becoming the source of creating money were valued at about $20 and $1 each per ounce.
Today gold is valued at $1267/oz and silver $17.41 while $20 in 1913 is equivalent to $493.99 and $1 in 1913 is equivalent to $24.70 in purchasing power.

If in 1965 you had a $135.50 and you purchased an ounce of gold at $35.50 and put it and the remaining $100 bill under your mattress, which would benefit you greater today?
Had you placed the $100 bill in a savings account instead, you would have had to earn 5% interest after taxes each year to turn the $100 into $1264.

 

They need not check the quantity of currency in circulation, simply the demand on their production. If sales are going up and raising the price doesn't reduce sales it could be caused by either an increase in the quantity of money in circulation or the velocity in which existing quantity of money is being spent.

 

Only if in the unlikely case of a velocity increase, and even then only for a certain category of products.

 

why would that be???

 

With respect, you're being a little sloppy when using the term "backed".

When Walmart issues a gift card, that card is legally backed by the products that Walmart offers for sale. Thus it is true to say that giftcards are backed by the goods and services offered by the issuer.

In the case of dollars, the US government is the issuer. The US government does NOT back US dollars with anything. If you walked into the US Treasury or the Fed (whoever you believe issues the dollar) and demanded goods and services you won't legally be entitled to anything.

So no, the US dollar isn't backed by anything, literally, however, I understand what you are trying to say. When people agree to take dollars as payment, they agree to do so only because they have faith that someone will offer something of value in trade for those dollars.

A business owner could open a store any only sell their goods for seashells, gold, pounds of copper, or even something like Bitcoin... whatever...There is nothing illegal about that whatsoever. The problem is that store owners would find it difficult to stay in business if they did that because those other forms of payment have some sort of difficulty associated with them. If you want any of those things (copper, seashells etc), it's easier to take dollars and then use your dollars to trade for the things you want.

In the case of Bitcoin, it makes a poor currency as it's value is so high people have tended to hold them as an investment. Thier value also fluctuates making them risky to hold.

Fantastic, but gold is a commodity just like steel, grain, or coal. It's value isn't constant. it changes based on global demand for it and the supply of it. You've given nominal values, but to determine the real value between 1913 and today you'd have to know more about supply relative to demand in 1913 and today.

In other words, if there were gold supply surpluses or shortages, that would have affected gold's price relative to the dollar.

Of course the commodity, but so what? Look at bitcoin:



Does the fact that it has appreciated for all but approx 1 year of its existence make it good money?

No, it makes it terrible money. It might arguably make a good investment, but that's not the purpose of currency. Money needs to circulate. If people save the currency it reduces the number of transactions in an economy. This reduces demand. It is a fact that if you are saving you are reducing velocity and in an economy that measures growth in sales, that would reduce sales that would lead to a deflationary spiral.

Slight inflation encourages people to move dollars into real things, like gold, silver, grain, energy, stocks, bonds, real estate, goods and services etc....

It is those exachanges that create jobs!

 

no it doesn't some people like to save for retirement, for example. S=I (savings equal investment) thus savings can be good for growth. libNazis in govt don't know how much people should save or invest. These are decisions that individual free people want to make for themselves.

 

Who is responsible for ensuring that there is slight inflation, and how do they accomplish this?