Tuesday, October 22, 2013

Macroeconomics for Dragons

A conservative relative posted something on Facebook about the Federal Reserve recently.  It said that you could understand the Federal reserve by consulting the monopoly rulebook, roughly:

'Q:What happens when the bank runs out of money?'
A: The bank cannot run out of money.  If bills run out the banker will write amounts on pieces of paper and use these as money.'

Actually this is a pretty wonderfuly explanation of what the federal reserve does and why it's important: it makes sure that we have money so that we can play the game, IE buy and sell things.  It would be a miserable game of monopoly indeed if money could just run out, and in the real world the results are worse -- the Great Depression is a fabulous example.

But of course, my family member did not intend the above as a compliment to Ben Bernanke's efforts to inject more money into the economy.  And it makes me wonder -- what do you have to believe for this all to be a -bad- thing?  What do you have to believe to think that it's wrong to make sure that there is enough money in the economy?

In brief, you must believe that money is real and definite and solid.  Not a tool that we use to keep track of things and to exchange, a means to an end, but a thing as real as the things you buy with money.  A thing that must have a definite and concrete value.  This is why gold is important to these people -- it makes money into something definite (never mind that bullion based currencies have their own instabilities).  Hard-money fetishists will talk and talk about hyperinflation and its dangers, but their belief in hyperinflation is a consequence, not a cause, of their ideology.  The cause is that they cannot accept that money is merely an instrument.

They will argue that all inflation is immoral, because it violates the sanctity of money.  One could ask (more plausibly) -- isn't deflation immoral because it reduces the value of real things?  But that's the rub -- money is more important than the things it can buy and the things it can do.  This is an ideology for horders, an ideology that has made covetousness into a virtue.  If Smaug the Golden were to postulate an economic theory, I'm sure he and Rand Paul would large be in agreement.

Seen this way, hard-money ideology is a perversion, an effort to raise a human-created tool above the real things that it allows us to buy and sell.  It is an idol, and it is our duty to smash it.

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