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The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-s

by mhartl 17y ago

The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-supply currency (well-approximated by gold), the demand for money increases as an economy grows, so (for fixed supply) its price increases as well. Hence, no deflation. Intuitively, the money supply must increase as an economy grows. Intuitively, clocks tick just as fast at sea level as they do on top of Everest. Intuition is often wrong. Einstein can help you re-tune your clock-ticking intuition (http://en.wikipedia.org/wiki/Gravitational_time_dilation http://en.wikipedia.org/wiki/Gravitational_time_dilation). Rothbard can help you with money (http://mises.org/money.asp http://mises.org/money.asp).

philwelch 17y ago
Rothbard isn't the end-all and be-all of monetary economists, and there is historical precedent that contractions in the money supply have caused deflation. Also, economies which have gone back on the gold standard have usually deflated as well.
- mhartl 17y ago
  Rothbard has gaps, but he's light-years past most. Never trust "historical evidence" when it comes to economics. There are no controlled experiments, and the winners write the books. In this case, there are four concepts masquerading as two. See http://news.ycombinator.com/item?id=1058639 http://news.ycombinator.com/item?id=1058639.
  - philwelch 17y ago
    What "evidence" is there to trust, other than Rothbard's amateur philosophizing?
    - mhartl 17y ago
      Evidence in economics is messy---and political. Trust logic instead. Of course monetary contraction causes deflation; you don't need evidence to tell you that when people have less money, ceteris paribus prices will fall. As far as the "gold standard" goes, beware: most so-called historical "gold standards" are not gold-as-money, but rather some weird bastardized version, such as "paper currency (partially) backed by gold". As I said: messy. This conflation serves the interests of those who benefit from manipulating the money supply. Messy, and political. I take it you mean Rothbard is "amateur" in the pejorative sense. Have you read Rothbard? He is many things; "amateur" is not one of them.
      - philwelch 17y ago
        "Evidence in economics is messy---and political. Trust logic instead." The problem is, Rothbard's logic is also every bit as political as, say, Marx's logic. You're talking to someone who was a confirmed libertarian, Austrian sympathizer, and Ayn Rand enthusiast from roughly the age of 16 to maybe 20 or so. I know the arguments and I know inside and outside the kind of thinking they come from, which is simply put, a tendentious effort to justify one particular political ideology over another. That is the exact opposite of what any science should aspire to, even economics. And that is the sin Rothbard is guilty of, a sin he relentlessly accuses others of in order to distract from his own guilt. This is not to say he in specific, or the Austrians in general, were totally bereft of good ideas--just that their ideas should not be taken as proven unless tested. You're suggesting the scientific equivalent of "the code looks reasonable so there's no need to test it".
        mhartl 17y ago
        I certainly don't agree with everything Rothbard or other Austrians say, and indeed I agree that their greatest errors are driven by ideology. (And despite my general sympathy with Ayn Rand, this goes triple for her and her followers.) That being said, a substantial subset of economics is analogous not, as you say, to a programmer saying the code looks reasonable, so there's no need to test it but rather to a mathematician saying the proof is correct, so there's no need to test it That is, what is the point of testing the Pythagorean Theorem? Perhaps we should measure a bunch of triangles? Why would you do that, when you have a proof? And yet, many people seem to believe that, e.g., raising the minimum wage might not (ceteris paribus) raise unemployment. They even sometimes collect "evidence" that it doesn't! (See, e.g., the paper by Card & Krueger showing a rise in employment after a minimum-wage hike, which Bill Clinton used as political cover to get Congress raise the minimum wage.) Of course, you'd better be double-sure your proof is right, and I agree that the Austrians sometimes fall down on this point (Rand, triply so). But their approach is right: economics, correctly done, is much closer to mathematics than it is to physics. N.B. I too am a reformed libertarian-Objectivist, and I too know the arguments forward and backward; I could crush a traditional libertarian in a debate, because I know the weaknesses all too well. But it seems that my ultimate parting of ways with them has taken me in the opposite direction from yours. You see, I'm even more radical (or, rather, reactionary) than they are. :-)

by mhartl 17y ago

philwelch 17y ago

Rothbard isn't the end-all and be-all of monetary economists, and there is historical precedent that contractions in the money supply have caused deflation. Also, economies which have gone back on the gold standard have usually deflated as well.

mhartl 17y ago
Rothbard has gaps, but he's light-years past most. Never trust "historical evidence" when it comes to economics. There are no controlled experiments, and the winners write the books. In this case, there are four concepts masquerading as two. See http://news.ycombinator.com/item?id=1058639 http://news.ycombinator.com/item?id=1058639.
- philwelch 17y ago
  What "evidence" is there to trust, other than Rothbard's amateur philosophizing?
  - mhartl 17y ago
    Evidence in economics is messy---and political. Trust logic instead. Of course monetary contraction causes deflation; you don't need evidence to tell you that when people have less money, ceteris paribus prices will fall. As far as the "gold standard" goes, beware: most so-called historical "gold standards" are not gold-as-money, but rather some weird bastardized version, such as "paper currency (partially) backed by gold". As I said: messy. This conflation serves the interests of those who benefit from manipulating the money supply. Messy, and political. I take it you mean Rothbard is "amateur" in the pejorative sense. Have you read Rothbard? He is many things; "amateur" is not one of them.
    - philwelch 17y ago
      "Evidence in economics is messy---and political. Trust logic instead." The problem is, Rothbard's logic is also every bit as political as, say, Marx's logic. You're talking to someone who was a confirmed libertarian, Austrian sympathizer, and Ayn Rand enthusiast from roughly the age of 16 to maybe 20 or so. I know the arguments and I know inside and outside the kind of thinking they come from, which is simply put, a tendentious effort to justify one particular political ideology over another. That is the exact opposite of what any science should aspire to, even economics. And that is the sin Rothbard is guilty of, a sin he relentlessly accuses others of in order to distract from his own guilt. This is not to say he in specific, or the Austrians in general, were totally bereft of good ideas--just that their ideas should not be taken as proven unless tested. You're suggesting the scientific equivalent of "the code looks reasonable so there's no need to test it".
      - mhartl 17y ago
        I certainly don't agree with everything Rothbard or other Austrians say, and indeed I agree that their greatest errors are driven by ideology. (And despite my general sympathy with Ayn Rand, this goes triple for her and her followers.) That being said, a substantial subset of economics is analogous not, as you say, to a programmer saying the code looks reasonable, so there's no need to test it but rather to a mathematician saying the proof is correct, so there's no need to test it That is, what is the point of testing the Pythagorean Theorem? Perhaps we should measure a bunch of triangles? Why would you do that, when you have a proof? And yet, many people seem to believe that, e.g., raising the minimum wage might not (ceteris paribus) raise unemployment. They even sometimes collect "evidence" that it doesn't! (See, e.g., the paper by Card & Krueger showing a rise in employment after a minimum-wage hike, which Bill Clinton used as political cover to get Congress raise the minimum wage.) Of course, you'd better be double-sure your proof is right, and I agree that the Austrians sometimes fall down on this point (Rand, triply so). But their approach is right: economics, correctly done, is much closer to mathematics than it is to physics. N.B. I too am a reformed libertarian-Objectivist, and I too know the arguments forward and backward; I could crush a traditional libertarian in a debate, because I know the weaknesses all too well. But it seems that my ultimate parting of ways with them has taken me in the opposite direction from yours. You see, I'm even more radical (or, rather, reactionary) than they are. :-)