Re: Economic `Armageddon' predicted

royls_at_telus.net
Date: 11/28/04 

Date: Sun, 28 Nov 2004 21:13:39 GMT

On Sun, 28 Nov 2004 10:29:36 +0100, Jan Holland <txp2@wanadoo.nl>
wrote:

>On Sat, 27 Nov 2004 19:36:29 GMT, royls@telus.net wrote:
>
>>On Sat, 27 Nov 2004 10:25:29 +0100, Jan Holland <txp2@wanadoo.nl>
>>wrote:
>>
>>>On Thu, 25 Nov 2004 21:30:29 GMT, royls@telus.net wrote:
>>>
>>>>On Thu, 25 Nov 2004 09:20:36 +0100, Jan Holland <txp2@wanadoo.nl>
>>>>wrote:
>>>>
>>>>>The only real possibility is
>>>>>to go back worlwide to the golden standard, but
>>>>>because of Fishers's Law (MxV=PxT) it would lead to
>>>>>a serious eternal depression.
>>>>
>>>>Not so. It is only when gold money is accompanied by government
>>>>policies that accelerate concentration of wealth (especially taxation
>>>>of private production rather than publicly created economic rents)
>>>>that the _combination_
>>>
>>>Interesting ... Do you have some urls before/against this statement?
>>
>>No, it is just common sense.
>
>OK, then give me some examples of
>"publicly created economic rents", please ...

Effectively, almost all economic rents are publicly created. However,
some of them such as union monopoly rents normally cannot be
accumulated and are not associated with ownership of any asset, and
thus do not encourage concentration of asset ownership. In the
context of gold money vs credit money, it is mainly rent collection
privileges that can be owned and accumulated -- land titles,
intellectual property, import, production and marketing quotas, etc.
-- that lead to concentration of wealth (in the form of money as well
as other asets) and resultant economic stagnation if not offset by
recovery of the rents for the purposes of the public that creates
them. It is true that other rent collection privileges such as union
monopolies, licensing of professionals, government control of labor
allocation, etc. can all have negative economic effects, sometimes
very severe ones, but they are not related to the currency question.

>>Because the supply of gold money cannot be arbitrarily increased,
>OK
>
>>where government policies concentrate wealth,
>You mean the (first) income distribution ?

No, the wealth (purchasing power) distribution. Concentration of
income will typically not have the same negative effects as
concentration of wealth, because income is dynamic: if people spend or
invest their incomes, concentration of income per se won't impede
economic activity. But when the supply of money accumulates in the
hands of a small minority, the inevitable effect is to reduce the
liquidity of broad markets for goods and services, and deflate the
price of labor.

>>the supply of gold in the hands of producers/consumers PC tends
>>to decline as the supply in the hands of asset owners AO increases,
>>leading to deflation and economic contraction.
>
>Are AO not a part of PC?

No. In economics people are considered in the roles they play, and
the John Smith who works at a factory is not the same John Smith who
owns a house: the former is a laborer, the latter an asset owner.
Owning assets does not involve any production or consumption. So as
money accumulates in the hands of a few who are already consuming all
they want, and investment in productive capital is crowded out by
unproductive rent seeking behavior, the cost of living in terms of
labor tends to rise. That means poverty for the working population as
real production stagnates.

>>>>tends to impede economic growth. In the normal
>>>>course of events in a free market, new gold production would tend to
>>>>gradually become cheaper in terms of labor (like production of any
>>>>other commodity), more than balancing accumulation and leading to
>>>>serious eternally increasing prosperity.
>>>
>>>I am missing some quantification here :-)
>>
>>I don't know of any quantitative research on this question, but when
>>gold money was common in the 19th C, many countries like the USA,
>>which kept the bulk of their tax burdens on unproductive ownership,
>>were able to keep deflation at bay and enjoyed strong economic growth.
>>It was only towards the end of the 19th C, when US government policies
>>changed to foster greater concentration of wealth, that deflationary
>>forces began to predominate.
>
>Might be...
>
>(or land got scarce and so a price and/or
>industrialisation and so scale enlargement started)

No. Land was already far scarcer in Meiji Japan than in the
late-19th-C USA, yet land rent recovery made the Japanese economy
explode with growth even while shifting the tax burden off land and
onto economic activity was slowing growth in the USA.

>>The labor cost of gold has declined more or less steadily throughout
>>history (there have been some blips, such as the swift decline when
>>several centuries worth of New World gold production was shipped to
>>Spain in a few decades, and the increase during the speculative bubble
>>of 1979-80), and this is normal and expected for any commodity. If
>>the holders of gold (or any other form of money, for that matter) know
>>that the labor value of their holdings will decline (and especially if
>>they will not easily obtain a return larger than that decline, after
>>taxes), they have a strong incentive to either spend it or invest it
>>as productively as possible, which is very economically stimulative.
>
>Does this contradict Fisher (other conditions kept equal) ?

I don't think so. How would it?

-- Roy L

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