In general, does not the Government force the use of a particular tender, then once we've accepted it, also force us to accept their privilege of counterfeiting?
"So you're going to force me to accept/work for a particular medium of exchange (legal tender), then proceed to counterfeit, thus robbing me of property...?"
For the moment let's disregard the counterarguments of "well you don't have to live here, go work elsewhere; or ask your boss to pay you in gold; or feel free to exchange your paycheck for whatever medium you would prefer; etc." unless of course those are the best arguments and you would like to expound.
in a global economy, you need common mediums of exchange
ReplyDeleteit's always been global
ReplyDeleteRothbard says that controlling the money supply and inflating the money supply is the same as counterfeiting and I disagree. The counterfeiter's goal is to produce evidence of value/worth/etc without actually doing what is required. Now, in the modern economy this just means that a person wants to produce evidence that they have worked/taken on risk/etc without working or taking on risk. So lets first dispel the notion (which I believe is implied in your comments) that legal tender = counterfeiting because this would and did happen without generally accepted legal tender.
ReplyDeleteMoving on to the argument that government is a counterfeiter because they control the money supply and that federally generated increases in the money supply are akin to theft. The argument is, I think, a bit more subtle than your are making it out to be. Without subtlety the question can be asked whether the government has incentive to feign value where there is none and the answer is obviously yes. The appearance of value leads to the appearance of growth and prosperity and that leads to politicians keeping their jobs - and thus they can be considered counterfeiters. And that is why deficit spending is much more popular than having a surplus, even though surpluses of government revenue are much more healthy for the economy.
HOWEVER, the Fed is NOT the government, which Rothbard gives as a criticism and writes about ad nauseum, and this is the best reason for it not to be politicized. If it were politicized - and as I mentioned before, my main fear is that it is becoming more and more politicized given its increasing connections with the Treasury - then the motivation to feign value where there is none would be very present. But as a separate entity its just not there. I have already written about why I think there is just no motivation for the Fed to do that but if you can come up with a reason why members of the Fed would want to counterfeit I would love to hear it.
The duty of the Fed is to control the money supply which, as I have explained, I think is different from counterfeiting and different from inflation. Inflation is not solely a Fed generated phenonmena, it is also a bank and government generated phenomena. Since banks want to make money and since government has the incentive to counterfeit there would be and was inflation without the Fed. The Fed simply controls it and historically speaking it has been much more stable since the Fed was established.
Then the argument becomes, "Well if the Fed controls the money supply why can't it just control it such that there is no inflation?" I'm not sure that's a good idea. The argument that a little inflation is the grease that keeps the wheels of the economy moving is . . . I don't know a good word for it but stupid probably works. I mean its pretty unclear what that means, the analogy doesn't really translate to real life and I would agree with the notion that it has been expounded to distract. So let me say I have my own theory about why inflation is not a bad thing - small, controlled inflation. I think it has a psychological benefit. Imagine if the Fed had since its inception controlled the money supply such that no inflation ever occured (its not an exact science so that would never happen but whatever). Then the amount of legal tender in the US would be the same as it was in 1913 but the number of people would be much greater. Thus with each incremental step of population growth every person in the US would hold less money. Now that isn't a problem in and of itself because the real value of every dollar would just be much higher but I think there's a psychological problem. Its easier to think in nominal terms rather than in real terms so absent a paradigm shift there would be a psychological blow to people because the idea of earning more than their parents and grandparents would be ludicrous. Maybe it doesn't need to be this - or shouldn't be this way - but population wide paradigm shifts are difficult to come by.
ReplyDeleteIn general, I'm just saying that the argument is much more subtle than Rothbard makes it out to be.
In general, I'm just saying that the argument is much more subtle than Rothbard makes it out to be.
Interesting news regarding the Fed today:
ReplyDeletehttp://online.wsj.com/article/SB10001424052748704250104575238260199174690.html?mod=WSJ_WSJ_US_News_5
http://gregmankiw.blogspot.com/2010/05/does-currency-area-need-fiscal.html
ReplyDeleteFirst of all, I am shocked that you are citing Krugman. I think that according to R Roberts he is public enemy number one. And I'm not sure exactly what point you are making with the article.
ReplyDelete