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Thursday
September 8, 2005

Machan's Musings - Alan Greenspan's Open Secret by Tibor R. Machan

Free market champions have, of course, had their complaints about Greenspan, most of them expressing perplexity -- some virulent hostility -- given his early unapologetic support of the gold standard and total laissez-faire. What is most interesting to me, though, is how silent the Washington press corps has been on Greenspan’s views of central banking. Maybe they all like the Fed so much, they do not want to broadcast the fact that the Pope himself doubts whether the church is even needed or doing any good at all. (Read more...)
Discuss this Article (110 messages)

Sunday, September 11, 2005 - 4:49pm

Andy,

You write, "You cannot imagine a truly functioning economy without farmers, manufacturers, or miners." But I can. For example, my wife supervises the production of pharmaceutical peptides. They are produced synthetically, but in the past, they could only be extracted from plants grown by farmers. At some point in the near future, farmers will no longer be indispensable - everything they produce will be available from chemical manufacturing. Similarly for miners: our machines require less and less material, and what is still needed could be obtained from scrap rather than mining. And so on... I find it much more difficult to imagine a working economy without accountants and lawyers than without farmers and miners.

On the other hand, a physician who keeps me healthy for 30 years longer sells me greater value than any number of farmers, manufacturers and miners. Would you argue that he is not a producer of wealth?

Where do you get this stuff, anyway?

Sunday, September 11, 2005 - 5:27pm

Andrew Bissell, great post 13. Also, good posts by Mark and Adam.

Andy, I want to add my voice to those disagreeing with you on this thread (your posts on some other threads have been quite good) There's so much to disagree with, but I only want to address one major point (others have done a great job with the other points).

You say that deflation is a thief, because borrowers have to pay more real wealth to the lenders. But this is true of any price fluctuation in the market. Imagine I lend you $100. At today's prices, I can buy 33 gallons of gasoline, and 100 pepperoni sticks. But in a year when you pay me back, pepperoni stick may be $1.10. Have I been robbed? Should you be forced to pay me more? But then gasoline may be back down to $2.50 a gallon. Who's robbed who? Depending on which product I look at, we've both "cheated" each other!??! I suggest we both go to jail for that one! Or if the government is in charge of ensuring nobody gets cheated (and the dollar doesn't vary in value with goods), then what policy could they possibly take?

If you want to call that theft, then you have to demand complete price stability. I don't think anyone has to point out what a disaster that is! Imagine the government having to subsidize certain goods to keep them cheap, and consume other goods to keep them expensive. That's the logical consequences of trying to enforce price ratios.

On the other hand, there are market based solutions. If you happen to think pepperoni sticks are a better indicator of the value of money, you could always just borrow in terms of pepperoni sticks. I can lend you 100 pepperoni sticks worth of money, and you can pay me back in that amount (plus interest of course). Easy enough, and you don't have to have the government come meddling with anything. If you guess wrong, and there's a pepperoni shortage, you're in a bit of trouble.

And there's the curious question of wealth growing faster than the money supply. What's the government supposed to do to keep price stability? Consume all "excess" wealth? Well, yes. It would have to be consumed or made illegal. Of course, the government doesn't have to consume it themselves...they can print fancy new dollar bills and give them to other people to spend. Isn't that what you're demanding?

This all comes from the notion that money is a unit of measurement, and needs to be enforced to measure the same amount. It's a disaster to even contemplate. And then there's additional questions like the old "velocity of money" idea. Surely that must be enforced as well! You're not able to spend your money faster than you did last year. Don't want prices to change! We must lock them in over time or someone will be robbed!

This idea of trying to lock in the value of a dollar relative to every other good is an invitation to have the government control every aspect of the economy, with no possible way to make it work anyway. There are premises here that need to be checked.

Sunday, September 11, 2005 - 6:56pm

Andy,

You write: “You have provided me with the means to increase my productivity by renting me your tractor, but I am the one who is actually producing.”

This is eerily similar to and could easily slip into the Marxist theory of labor/value. ‘General Motors may provide the factory to work in, the means to increase productivity, but I, the laborer, am the one actually producing.’

Sunday, September 11, 2005 - 7:11pm

Damn,

Another bonk for Jon. Stop making good posts! (kidding)

Ethan

Sunday, September 11, 2005 - 7:31pm

Jon Letendre said regarding Andy’s comment: “This is eerily similar to and could easily slip into the Marxist theory of labor/value. ‘General Motors may provide the factory to work in, the means to increase productivity, but I, the laborer, am the one actually producing.’”

And so many of you wonder (or mock) when I say this list is full of socialists. It’s SO EASY to immediately identify them, especially when they try to convince others through their elaborate "economic" (or otherwise) bullshit that that A is not A.

- B.

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Sunday, September 11, 2005 - 11:16pm

Andy, if you ask me -- and I know you're not asking me -- these guys have you on the ropes here. Until proper rebuttal to these last few arguments, I will stand by my Ye' Ole' Line-o-reasonin' -- which states that entrepreneurs (those responsible for production-induced deflation) are the proper beneficiaries of said deflation.

If you've been so productive that you've lowered prices for everyone, then "society" owes you, bigtime (you can't be paid back, no matter how much windfall profits you receive from your "lending" -- during the deflation you've personally caused).

Ed

Monday, September 12, 2005 - 5:22am

Ed,

Andy, if you ask me -- and I know you're not asking me -- these guys have you on the ropes here.

They don't. Not even close. Every objection raised has already been answered by me.

My friends here who object to my observation that deflation is a thief have yet to acknowledge the important difference between lower prices because of the dynamics of supply and demand and lower prices because the yardstick has changed - in other words, deflation.

As to those who object to my observation that the only creators of wealth are those who produce or add value to physical goods, have either labeled it as Marxist with no further comment or have in fact made my point (Adam).

Perhaps this will become clearer as I respond to everyone individually.

Andy

Monday, September 12, 2005 - 5:34am

Adam,

And so on... I find it much more difficult to imagine a working economy without accountants and lawyers than without farmers and miners.

All you have done is describe how farming and mining will be done in the future with greater productivity because of technology. The principle remains the same. Your chemist and yor recycler are primary economic actors because they create wealth. Their accountants and lawyers who let them spend time on producing that wealth instead bookkeeping and drafting contracts may provide valuable services, but are secondary to the creation of wealth.

On the other hand, a physician who keeps me healthy for 30 years longer sells me greater value than any number of farmers, manufacturers and miners. Would you argue that he is not a producer of wealth?

Again, a doctor is secondary to the creation of wealth. If he keeps a manufacturer healthy enough to continue producing new wealth for another thirty years, his medical services are valuable. But he remains secondary to the manufacturer in the creation of wealth.

Where do you get this stuff, anyway?

Are you asking what authority I am relying upon? None. I think for myself. My observations about money and wealth come from experience in trading the markets, an interest in numismatics, and the great deal of material I have read on both subjects.

Andy

Monday, September 12, 2005 - 5:57am

Joe,

Thanks for the thumb's up on the other stuff I have written. Now to the subject at hand ...

If you want to call that theft, then you have to demand complete price stability.

By "thief" I was making a rhetorical point. Lovett called inflation a thief, and in response I said that deflation was a thief for the same reasons. Now to substance, I do not demand price stability as an ideal. Prices will fluctuate because of supply and demand. They will also fluctuate because of the monetary yardstick contracts and expands, which is deflation and inflation.

The ideal monetary system will minimize the distortions of deflation and inflation. Hard money has tends to be deflationary for no reason other than that the supply of any commodity suitable as a currency typically does not expand in synch with the economy. Fiat money has huge problems because central banks can manipulate it, usually to cause the hidden tax of inflation. What I call "free market" money avoids both problems, because its supply is regulated by the credit extended by an unregulated banking system in response to the market's demand for capital. I think we were almost there with the national bank system in the U.S. around the turn of the last century, but that was destroyed by the creation of the Fed in 1913.

I have no illusions that "free market" money will distort prices through deflation and inflation, because all markets, including that for money, will have bubbles and crashes. That's human nature. All I argue is that allowing the market to regulate the money supply will cause the least distortion compared to hard money and fiat money. Hard money isn't terrible. It's obsolete. But if we did use it now instead of "free market" money, I suspect we would see the phenomenon of zero or negative interest rates during deflation because of competition between lenders. (Just like with fiat money, we currently have nominal interest rates that include the "rent" for money plus the inflation rate.)

We can all agree that we do not need the government to regulate the money supply. The market can take care of that. Then if some want to use hard money, that'll happen. If others want to use a unit of currency whose supply is controlled by banks and capital markets, that'll happen too. There'll be competition among currencies, and I think that would be great. Who says we need to use only one type of dollar?

Andy

Monday, September 12, 2005 - 6:11am

Jon,

I said to Adam:

You have provided me with the means to increase my productivity by renting me your tractor, but I am the one who is actually producing.

You piped in:

This is eerily similar to and could easily slip into the Marxist theory of labor/value. ‘General Motors may provide the factory to work in, the means to increase productivity, but I, the laborer, am the one actually producing.’

Your factory worker is productive because of two critical factors. First is his labor. Second is the labor of the business owner to create and manage an enterprise that leverages the worker's labor. Adam as a tractor renter is not akin to the business owner, because he does nothing, unlike the business owner, to manage the enterprise - in that example, my onion farm - that actually produces the wealth. Marx does not recognize the crucial value of the labor of the business owner.

Again, none of the distinction I make between primary and secondary economic actors means that lenders, lessors, and service providers do not do things that are valuable. Their services make producers more efficient.

Andy

Monday, September 12, 2005 - 6:20am

Lovett,

And so many of you wonder (or mock) when I say this list is full of socialists. It’s SO EASY to immediately identify them, especially when they try to convince others through their elaborate "economic" (or otherwise) bullshit that that A is not A.

No. I just don't try to make A = B by falsely attributing the benefits of increased productivity (A) to the deflationary effects of hard money (B) to pretend that no monetary problems ever exist in the utopian world of the gold dollar.

If you can explain to me how competely deregulating the money supply and letting the free market reign, as I have repeatedly advocated, is socialist, then I supposed I will understand how A = B.

Andy

Monday, September 12, 2005 - 8:38am

Andy,

"Where do you get this stuff from" was intended as a question as to the source of your ideas. Take, for example, your conception of "wealth." Somehow you have managed to divorce "wealth" from "value." If your own mind is the source of this separation, which to me seems ungroundable, then you should be able to give an account of what your concept of "wealth" is, and why you think it superior to Rand's.

Since wealth is measured as market value, I suggest that you start with Rand's grounding of market value and tell the rest of us why you think that Rand got it wrong. For someone who used to chant "I am an Objectivist" as though it were your mantra, you seem suspiciously unaware of the epistemological requirement, in a Randian forum, to identify your dissent from Rand as dissent, and either to ground it - or, in the interest of intellectual honesty, to retract it.

Monday, September 12, 2005 - 9:12am

Andy,

The tractor rental operation is itself an enterprise. The tractor represents a store of previously created wealth. The enterprise has expenses for real estate location, lights, and employees. The equipment must be repaired, maintained, transported to and from renters; interest payments must be made on the presumably financed equipment. ‘The tractor renter does nothing.’ Priceless.

In your response to me about the General Motors worker, you state that his productivity is due primarily to his labor. No it isn’t. It’s due primarily to the enormous capital put in his hands by others. I am reminded of an analogy N. Branden used in Capitalism, TUI: What is the value of the labor of lifting a hand and pushing a button performed by an elevator operator? Zero. He would die within a week doing this by himself. But surround him with *someone else’s apartment building* and suddenly, he has a job that will feed him.

Jon

Monday, September 12, 2005 - 9:22am

Adam,

For someone who used to chant "I am an Objectivist" as though it were your mantra, you seem suspiciously unaware of the epistemological requirement, in a Randian forum, to identify your dissent from Rand as dissent, and either to ground it - or, in the interest of intellectual honesty, to retract it.

It is amazing how you find perfidy is the open discussion of ideas.

When I first began posting in this forum about a month ago, I stated that I was an Objectivist because not everyone here is. It was a shorthand for giving everyone a rough idea of my perspective. Now if you want to be precise, I am a Randian rather than an Objectivist. Perhaps only Miss Rand can make that claim, and I am not in lockstep with her thinking or anyone else.

As for intellectual honesty, when did I ever claim in this thread to be speaking for anyone's ideas other than my own? What obligation did I have to say, Miss Rand said that, but I say this? You are ginning up a moral conflict where none exists.

As for the bit of substance in your response to me, value is a much broader concept than wealth. I did not divorce value from wealth. Wealth has value, as do all things. I value the love of my wife, but that love is not wealth in any economic sense. Another example, I may value my virtue more than wealth, so I donate food and water to hurricane victims rather than charge them for it. But let's turn to the economic relationship between value and wealth.

I'm an onion farmer who values the services of my accountant. Why? I can keep my own books or can hire an accountant to do that. I will find value in the accountant's services to the extent he saves me time to produce more wealth in onions than the wealth I must expend to pay for his services. Now you can make all the epistemological fuss you want about this, Adam, but these facts remain:

[1] What the accountant does may have value, but only in terms of the wealth that is indirectly produced as a consequence of his services;

[2] Therefore, the value of the accountant's services are secondary to the value of the wealth produced by the onion farmer.

In other words, there is no reason for the accountant to do bookkeeping unless someone has books to keep. Sure he may be keeping a lawyer's books, but that's because someone else is keeping the lawyer busy with contracts and litigation. If you follow that chain of economic activity, at the end of it are not lawyers, doctors, and teachers circulating work among themselves. The economic foundation for everything is the creation of wealth which occurs only through the production of physical goods. All else is seconday to that, even if very valuable.

I honestly don't know why this seems to be a hot button to some. I am only pointing out that before there is an oak (bankers, lawyers, accountants, etc.) there must be an acorn (the creation of wealth by farmers, manufacturers, miners, etc.).

Andy

Monday, September 12, 2005 - 9:39am

Jon,

‘The tractor renter does nothing.’ Priceless.

What good does it do to take my statement out of context and then clip off the inconvenient part to create a paraphrase that is the opposite of what I said?

In your response to me about the General Motors worker, you state that his productivity is due primarily to his labor. No it isn’t.

And I didn't say that either.

You and some others here seem bent on finding differences where they don't exist. You can mindlessly slough off what I have written as Marxist or socialist because it does not appear to precisely conform to pieties you and Adam and Lovett cling to. But if you objectively read what I have written about the creation of wealth, you'll find no slander against capitalists. All I have done is identified what is foundational to an economy, the production of tangible goods - i.e. wealth.

Obviously in a sophisticated capitalist economy you are going to have a lot of valuable work being done to make accumulated wealth - i.e. capital - available to producers of new wealth and those who make their production more efficient, either directly or indirectly. Noting the true relationships of these economic actors denigrates none of them.

This is starting to get silly.

Andy

Monday, September 12, 2005 - 10:00am

You did say it. “Your factory worker is productive because of two critical factors. First is his labor. Second is…”

Andy, your thoughts on this thread have given me much to think about, much value to me. It’s just that we want to help you with this error. Your emphasis on the generation of physical goods is off. The mass of wealth you see around you is not here thanks to hands moving, but to minds thinking. You haven’t absorbed this fact yet.

Jon

Monday, September 12, 2005 - 10:23am

Jon,

Andy, your thoughts on this thread have given me much to think about, much value to me.

That is a heckuva compliment. Thank you.

Your emphasis on the generation of physical goods is off. The mass of wealth you see around you is not here thanks to hands moving, but to minds thinking. You haven’t absorbed this fact yet.

Not only have I absorbed that fact, Jon, but I thought it was so obvious as to go without saying. You can't dig a ditch without thinking about it first, right? But not all minds are focused upon the creation of wealth. Many minds are dedicated to thinking about how to put accumulated wealth to work to produce more wealth and others to how to make the creation of wealth more efficient.

All of this is secondary economic activity, as I call it, is necessary if we are to free as many minds as possible from the production of goods to higher pursuits - tertiary activities like the arts, entertainment, scholarship, etc. We want manufacturing to go the way of agriculture, for example, in which only two percent instead of two-thirds of the U.S. population is engaged in the production of food and fiber. We want minds engaged in the generation of ideas and their implementation that make manufacturing and mining as efficient.

Once we get that kind of efficiency in the creation of wealth, we can focus upon efficiency in the delivery of services. Who knows where it ends? Maybe we all end being artists and scientists in the end, entirely devoted to lives of aesthetics and discovery. Wherever this does end, the creation of wealth will and must be at the foundation of it. So it is important to understand who sustains this foundation. I am saying nothing more than this.

Andy

P.S. You quoted me to argue that I was giving primacy to the worker over the business owner ...

You did say it. “Your factory worker is productive because of two critical factors. First is his labor. Second is…”

I think if you look at this again, you'll that "first" and "second" are not ranking the two factors. They are simply enumerating them.

(Edited by Andy Postema on 9/12, 10:27am)

Monday, September 12, 2005 - 4:34pm

Andy demonstrates his grasp of Rand’s thesis that the mind is the fountainhead of all values thusly:

“You can't dig a ditch without thinking about it first, right?”

And goes on, “All of this is secondary economic activity”

And goes on further with examples, “[…]tertiary activities like the arts[…]”

Like writing Atlas Shrugged.

I trust that everyone is as satisfied with this as I am.

Jon

Monday, September 12, 2005 - 4:55pm

Jon,

I trust that everyone is as satisfied with this as I am.

Everybody should recognizing that you cannot build a roof without a frame underneath it, and you cannot build a frame without a foundation underneath that. To reach the heights we must first have solid footing.

Andy

Monday, September 12, 2005 - 5:00pm

All glory to the Proletariat!

No Ayn Rand without us, her foundation!

Edited to change “the foundation” to “her foundation”, making it even more offensive.

(Edited by Jon Letendre
on 9/12, 5:17pm)