Fekete: Gold and Honey

http://www.thedailybell.com/1675/Antal-Fekete-Gold-and-Honey.html

My various comments posted at the Daily Bell:

1) The only source of non-inflationary credit is savings.

2) If credit is provided absent savings, it is inflation by definition

3) Gold can circulate without any assistance from real bills

4) Silver (or any other unencumbered asset a party in the trade finds acceptable) can extinguish debt



@Jeff Albertson For an article, start here.

Blumen wrote a series of article, I believe this is the first in the series. If you want further discussion, type "Fekete" in the search box at Mises.org

http://mises.org/daily/1833

One nice feature of Austrian economics is that it is not "over my head." But economics shouldn't be over anyone's head. It only describes how we live our daily life. The basics of Austrian economics are quite simple to grasp: value is subjective, money should be commodity based, etc.

I do not ascribe the same description of simplicity to RBD as it relates to Austrian economics. I understand the mechanism of RBD, just as I understand other economic mechanisms ' for example, central banking. But I do not see a connection of RBD to Austrian economics ' see my post above. The explanations to some basic questions seem over my head, but I am not a trained economist.


@Philip Mccormack, Jeff Albertson

My intent with the Blumen article was not to suggest it was the last word, or that I agree fully with each comment. As Jeff mentioned "...because I had never seen him mentioned by the Von Mises-linked scholars..." I thought I would get the ball rolling regarding this comment.

As does Philip, I also suggest you read all you desire on this subject. I have done so and am not satisfied regarding my four critiques above.

So, I guess instead of looking "upon it as a gift", I see a void. I guess my eyes weren't "opened!" :-)


@Philip Mccormack

"Austrian economists have the same problem with RBD." Yes, it appears many do. The entire doctrine would bother me less if Fekete did not refer to himself or his economics as Austrian – just as I am not so bothered with Friedman as he didn't refer to himself as an Austrian. The theories can be wrong, but at least not associated with the Austrian school.

"Strictly speaking a bill of exchange...is not a credit instrument. It is a clearing instrument." Perhaps I take his words out of context, but this is how Dr. Fekete has described at least one aspect of real bills in a previous article: "I made the central point that the source of commercial credit is not saving but consumption." As this was discussed exhaustively the last time Dr. Fekete posted here, without correction or clarification from any advocates as to my interpretation, I assume I do not misunderstand him.

As a source of credit without savings, it must be inflationary. As a clearing instrument, it is not necessary. Gold (or silver, or whatever the market chooses) can clear.

I accept that real bills may naturally spring up in a free market, and in fact can provide certain benefits. But, just like drug use in a free society, it does not require me to be a proponent or to ignore the fallacies, the main ones listed above.


@PAGAU

"...eventually some low-life crook (read moneychangers) will seek to control or corrupt the standard. In such a case it is the government's rightful place to step in and regulate it."

Trusting a monopoly, with the power to legislate, interpret, and enforce its own dictates (backed by a gun), is the most certain way to ensure that which you most fear. Virtually every time the government held this monopoly, it cheated. Why would you expect otherwise now?

There is no need for a government mint. We do not have a government "mint" for cars, yet the production of cars is infinitely more complex that the production of turning bullion into a recognizable coin.


@DB

Fekete: "I made the central point that the source of commercial credit is not saving but consumption."

DB: “What is your point regarding this statement? Can you clarify?”

My point is reflected in the first two statements of my first post on this topic.

1) The only source of non-inflationary credit is savings.

2) If credit is provided absent savings, it is inflation by definition

There can be no credit without savings. Credit comes from savings. Absent savings there is no credit. How many ways can I say it? EXCEPT if the credit is NOT backed by savings. Then it is no different than funny money, and it is inflation.

This point was discussed ad nauseum the last time Dr. Fekete wrote for DB, and never clarified or refuted. It was defended that the source of commercial credit is something other than savings...the source is consumption.

Credit comes from consumption? If there is some theory that explains how two people can eat the same meal, I am all ears. Seriously...enough people fawn all over Dr. Fekete (including Ingo Bischoff, who I have grown to respect) that I want to believe there is meat there. Let's start by explaining this seeming impossibility.

And keep it simple, as Austrian economics doesn't require convoluted explanations.




@DB, I will clarify one statement in my last post, I did not mean to suggest that I include Ingo as one who "fawns" over Dr. Fekete, as many others do. I have found his statements on many subjects quite well reasoned, even though I don't always come to the same conclusion as he does.

@PAGAU, this is too much. Is there only the government mint, or will others be allowed to compete freely, unhindered by legal tender laws or other tax and legislated disadvantages?

@Philip Mccormack, "Social Circulating capital." This adds nothing to clarification. This term is nonsensical to anyone who understands free markets and Austrian economics. Words have meaning. If these words are yours, please consider the interpretation. If they are Dr. Fekete's, I would suggest the same to him. Is the "New Austrian School" inventing an entirely new dictionary with new meanings to old terms?

In any case, Dr. Fekete is quite clear, and I am not misquoting him. "I made the central point that the source of commercial credit is not saving but consumption." Perhaps these terms also have meanings not previously understood in the study of economics and finance.

With apologies, I will sign off for the next day or two, other responsibilities. If there is any clarification offered in the meantime, I shall reply when I come up for air.



Intuitive Reason: "These accounts are used in the purchase of bills, and are the 'savings' that form the source of credit. As the source of credit is a pool of savings, the credit is non inflationary."

Dr. Fekete: "I made the central point that the source of commercial credit is not saving but consumption."

Your statement and Dr. Fekete's statement are not only contradictory, you have made the argument fully circular: The source of credit is a pool of savings which is not the source of credit.



@Intuitive Reason

Saying the same thing in a different way doesn't change the fact that you are saying the same contradictory thing.

It isn't only the transfer of gold from the consumer to the retailer that is involved. That covers one day of the ninety days. What of the other eighty-nine days, and all the intermediate producers involved? For eighty-nine days there is no transfer of gold, just transfers of man-made paper. Fiduciary media, by any other name, smells as (un)sweet.

"At the same time, what these funds are between receipt and maturity is savings. And as you said, savings are a non-inflationary when used as credit."

But Dr. Fekete says the source IS NOT SAVINGS. Why do you say it is (except when you say it isn't)?

The beauty of Austrian economics (besides its truth) is in its simplicity. It is simple because it captures very well human behavior and human action.

Besides the inflationary, fiduciary media, non-asset backed currency aspects of real bills, something as convoluted as RBD, whatever the merits, cannot be called Austrian. My objections still stand.



@PAGAU

BM: "Is there only the government mint, or will others be allowed to compete freely, unhindered by legal tender laws or other tax and legislated disadvantages?"

PAGAU: "You seem to have zero tolerance for government involvement in money."

Yes. Tell me why some people who happen to work for a particular employer should be allowed a monopoly, backed by force, over this process? The market is supremely capable of sorting this out.

"I am in favor of reining in the out of control government….But I consider a government operating within the limits of the constitution to be a good thing."

How do you propose reigning in a group of people to whom you gladly grant a monopoly of legalized force over you? By what means will you be able to keep them in “control”?

What would you propose to do if a group of individuals decided that they willingly and voluntarily wanted to transact in coin other than that minted by the government? By what moral basis would you stop them? Your answer will either cause you to refute your faith in granting the government such a monopoly, or it will condemn you as a willing cheerleader for a government agent compelling that group via a gun to the belly.

Your choice.