Friday, September 13, 2013

J.P. Koning Goes Wrong on Money

This is so rare that I have to note it:

"Even more interesting, in a few rare cases the precious metal content of a famous coin of a previous era that no longer existed was used as the link coin. Monetary historians such as Munro call these 'ghost monies'. The advantage of having a ghost link coin rather than a current coin is that it the unit-of-account would stay constant over time, preserving the real value of debts and contracts."

Here is what Mises had to say about the idea of trying to create "constant" money thus "preserving the real value of debts and contracts" (all quotes from Human Action, in the "Sphere of Economic Calculation" section):

"Stability, the establishment of which the program of stabilization aims at, is an empty and contradictory notion. The urge toward action, i.e., improvement of the conditions of iife, is inborn in man...

"If all human conditions were unchangeable, if all people were always to repeat the same actions because their uneasiness and their ideas about its removal were constant, or if we wcre in a position to assume that changes in these factors occurring with some individuals or groups are always outweighed by opposite changes with other individuals or groups and therefore do not affect total demand and total supply, we would live in a world of stability. But the idea that in such a world money's purchasing power could change is contradictory.

"Human action originates change. As far as there is human action there is no stability, but ceaseless alteration. The historical process is a sequence of changes. It is beyond the power of man to stop it and to bring about an age of stability in which all history comes to a standstill...

"The fact that rigidity in the monetary unit's purchasing power is unthinkable and unrealizable does not impair the methods of economic calculation...


  1. I probably should have written:

    **The advantage of having a ghost link coin rather than a current coin is that the unit-of-account would stay constant over time, preserving the gold-denominated value of debts and contracts. Independent fluctuations in gold's value would of course affect the real value of debts.**

    I did find this interesting quote from Selgin on Mises:

    **Mises drew a distinction between the ‘‘outer’’ and the ‘‘inner’’ exchange value of money, where the former is simply money’s purchasing power as conventionally understood, while the latter reflects ‘‘the money side’’ determinants of money’s purchasing power only and is therefore a measure of nominal expenditures. Mises’ ideal of a money with a constant inner objective exchange value (but with an outer exchange value that varied directly with changes in real output) was thus, in essence, equivalent to the modern idea of a nominal income (GDP) target. Mises himself, however (perhaps because of his refusal to employ the equation of exchange as a tool of reasoning), never recognized the equivalence of a stable inner objective exchange value of money and stable nominal income. This failure caused Mises to exaggerate the difficulties involved in efforts to deliberately achieve an ‘‘ideal’’ money and to overstate the relative advantages of a gold standard.**


    1. Yes, your corrected version is right.

      The Selgin quote is interesting, but I haven't fully absorbed its meaning yet.


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