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Madigan
Joined: 15 Oct 2010
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 Posted: Sun Mar 06, 2011 9:31 am Post subject: |
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| mises wrote: |
| The Austrians are excellent critics of the prevailing neo-liberal/classical/Keynesian regime. This does not mean that they have the solutions. |
Yes, for example, the Austrians are some of the best critics of overbearing debt and unsound monetary policies, but their myopic desire for tying money to a single commodity, i.e. the gold standard, is just as wrong-headed.
What is the unfortunate conclusion of too much debt?
Germany 1923:
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When the inflation was over, everyone who had owed marks suddenly and magically owed nothing. This came about because every contract or debt that called for payment in a fixed number of marks was paid off with that many marks, but they were worth next to nothing compared with what they had been worth when they had been borrowed or earned. Germany�s total prewar mortgage indebtedness alone, for example, equal to 40 billion marks or one-sixth of the total German wealth, was worth less than one American cent after the inflation. On the other side, of course, everyone who had owned marks or mark wealth such as bank accounts, savings, insurance, bonds, notes, or any sort of contractual right to money suddenly and magically owned nothing.
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Industrial stocks, the darling of the inflationary speculation, had a peculiar history. At the height of the boom, stock prices had been bid up to astronomical price-earnings ratios while dividends went out of style. Stock prices increased more than fourfold during the great boom from February 1920 to November 1921. Then, however, shortly after the first upturn of price inflation and long before the inflationary engine faltered and business began to weaken, a stock market crash occurred. This was the Black Thursday of December 1,1921. Stock prices fell by about 25% in a short time and hovered for six months while all other prices were soaring. The real value of stocks declined steadily because their prices lagged far behind the prices of tangible goods, until for example the entire stock ownership of the great Mercedes-Benz automobile manufacturer was valued by the market at no more than 327 cars. Investors were extremely slow to grasp that stocks were poles apart from fixed obligations like bonds, quite wrongly thinking that if bonds were worthless stocks must be too. Nearer the end in 1923, relative prices of stocks skyrocketed again as investors returned to them for their underlying real value. Stocks in general were no very effective hedge against inflation at any given moment while inflation continued; but when it was all over, stocks of sound businesses turned out to have kept all but their peak boom values notably well. Stocks of inflation-born businesses, of course, were as worthless as bonds were.
The mass of the workers who lived mostly on their current wages, and who had no savings to lose, suffered only temporarily with privation and unemployment in the very last throes of the inflation; but these problems passed and left them where they had been or not much behind. To them, the agony of the inflation was largely someone else�s, just as the boom had been.
At bottom, it was the unsuspecting middle class who were Germany�s savers, pensioners, purchasers of life insurance, including everyone from workers who saved to the modestly well-off, who not only suffered the worst of the agony while the inflation lasted but also were left after it was over with the most staggering permanent loss in relation to their whole substance. This class paid the piper for all of Germany. Great numbers of pensioners were left totally impoverished and forced back into the work gang to end their days there. The encouragement to thrift, an old German weakness, turned out to have been a complete swindle. Instead of a levy on all the Germans to pay for Germany�s indulgences, a levy which might have been heavy but could have been fair, Germany left the levy to fall on those who were too innocent to evade it, and from them it took everything they owned. In any case, it was not the piper who went unpaid.
The effect was a confiscatory tax on these victims. John Maynard Keynes, who later rightly or wrongly was adopted as patron saint by inflationary governments, excoriated them on this occasion:
�Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they can not only confiscate, but they confiscate arbitrarily � � |
http://tinyurl.com/4vzcs9e
The elites in Germany got off practically scott-free while the poor had nothing to gain nor lose. It was the middle class that got soaked. This has been a theme of yours, has it not? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Mar 08, 2011 7:59 am Post subject: |
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| Madigan wrote: |
Yes, for example, the Austrians are some of the best critics of overbearing debt and unsound monetary policies, but their myopic desire for tying money to a single commodity, i.e. the gold standard, is just as wrong-headed.
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The elites in Germany got off practically scott-free while the poor had nothing to gain nor lose. It was the middle class that got soaked. This has been a theme of yours, has it not? |
Yes. The top and bottom against the middle.
The classical gold standard could be an improvement on the present system. I don't know. When people like Peter Schiff etc talk about gold I assume they're talking their book. James Grant of Grant's Interest Rate Observer makes an excellent case for a gold standard and I don't believe he's talking his book.
The major problem in our present system is corruption and fraud. Clean that up and maybe the current arrangement will suffice. |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Tue Mar 08, 2011 9:18 am Post subject: |
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| mises wrote: |
| The major problem in our present system is corruption and fraud. |
And the ridiculous propaganda hoovering in the pinhead brigade (although maybe that also falls under the "corruption and fraud" heading). |
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Madigan
Joined: 15 Oct 2010
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| Posted: Tue Mar 08, 2011 3:56 pm Post subject: |
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| mises wrote: |
| The major problem in our present system is corruption and fraud. Clean that up and maybe the current arrangement will suffice. |
I think the problem stems from the monopoly power the Fed has over the supply of USD. Competing interests, the "several property" as it were, are needed. This, I feel, would best mitigate the corruption and fraud inherent in the system. At the very least, if a single organization is going to have so much control, a system of checks and balances is needed. |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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