The Problem Began When the Invention of the Spear Reduced the Price of Food

by Don Boudreaux on May 27, 2011

in Complexity & Emergence, Creative destruction, Growth, Myths and Fallacies

Here’s a letter to the programming director of Marketplace Morning Report:

Speaking on this morning’s program about prices in Japan, the BBC’s Roland Buerk opined that “it really becomes a habit for people. You know, companies start to pander to people’s needs to pay less.  McDonald’s for example introduced a 100 yen – just over $1 – menus a few years ago.  There’s a battle between companies to make jeans for the cheapest possible price.  You can buy a pair of jeans for about $5 now in Japan.  Once you’re in that downward spiral, it’s very hard to pull out of it.”


Mr. Buerk’s knee-jerk hostility to deflation leads him to lament the fundamental source of economic growth and widespread prosperity: efficiencies and innovations driven by competition.

Deflation is harmful if caused by a contracting money supply.*  But when prices fall because competition drives firms to operate more efficiently and pass along these efficiencies to consumers in the form of lower prices, economies grow.  Resources once needed to feed and clothe people become available to produce other goods and services.  Consumers once unable to afford other goods and services can now do so.  And so it goes, and grows, as competition incessantly prods producers to “pander” (as Mr. Buerk sneeringly refers to this engine of economic growth) to consumers.

Does Mr. Buerk believe that Japan’s economy will recover faster and thrive better if producers stop such “pandering”?  Do competition-sparked efficiencies really cause a “downward spiral” from which the Japanese should seek to escape?

Donald J. Boudreaux

* Yes, yes – I’m aware that demand to hold larger money balances is also harmful in a world with downwardly sticky prices – but there’s only so much space in a letter-to-the-editor (and the prices that this Mr Buerk points to clearly aren’t sticky downward!).

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Daniel Kuehn May 27, 2011 at 10:27 am

“I’m aware that demand to hold larger money balances is also harmful in a world with downwardly sticky prices”

I’m thrilled this made an asterisk personally. There are a lot of people today acting like these things aren’t an issue.

I agree with everything you’ve said in the letter in response to this particular guy, but when I think of Japanese deflation, I don’t normally think of competition and innovation as the source (clearly it’s the deflation this guy is talking about).

A declining price level – even for good reasons – still doesn’t help the situation at ultra-low interest rates. But that’s clearly no reason to frown at innovation – it’s just a reason to print money while you smile at innovation!

Mesa Econoguy May 28, 2011 at 4:41 am

Awww, Don got a smiley from Dan.

[Group HUG]


Mao_Dung May 27, 2011 at 10:34 am

“There is nothing evil in capitalism, unless you consider freedom to be evil.”
-Frank (Cafe Hayek troll)

My cell phone company, Verizon, steals around $10 from me every month. That’s over $100/ per year. That isn’t evil?

I pay 25 cents/minute of use with a 60 minute monthly minimum. That’s whether I call or someone calls me. I pre-pay $15 every 30 days. If I don’t use the full 60 minutes in a month, Verizon wipes out my remaining time and I have to start over paying another $15. If I pre-pay even more, they will still wipe my out account balance out. Stealing is evil. Verizon steals. Verizon is evil, and so is its greedy capitalist ethic. Verizon should have its hand chopped off for stealing.

Daniel Kuehn May 27, 2011 at 10:36 am

They do it to me too – if you call them they take it right off. It is a mistake (a data charge right?). I’ve called them and they said they would block our phones from even being able to incur the charge in question – and sure enough, next month another ten dollar data charge.

There’s apparently some class action against them over it I’ve heard. That sounds troublesome, but if you just call them they should credit the account.

Mao_Dung May 27, 2011 at 10:51 am

I’m new to this cell phone business. It is amazing technology that allows sound waves can travel through the air from point a to point b over tremendous distance. I see so many people with their phone seemingly attached to their hand as another appendage. And they stare at the damn thing all day long. It’s a sickness if you ask me. How can someone enjoy texting, or reading text messages on a tiny cell phone? I don’t get it. I also can’t stand repeatedly charging my phone after it the battery runs down whether I use it or not. What an annoyance.

I initially thought that the time would carry over from month to month with a $15 charge for an addition hour every month. That way I’d build up time for a very long phone call should I ever need to make one. But no, the time/money is wiped out. The richest man in the world, Carlos Slim owns the cell phone business in Mexico. Does that give you an idea of how ripping off Mexican peasants has made him so outrageously rich?

Daniel Kuehn May 27, 2011 at 11:26 am

There is a tradeoff between texting on a small cell phone and carrying a large cell phone I suppose.

re: “Does that give you an idea of how ripping off Mexican peasants has made him so outrageously rich?”

How much could he possibly be ripping them off if they buy the things?

Mao_Dung May 27, 2011 at 11:33 am

He rips them off as much as he can.

Josh S May 27, 2011 at 1:25 pm

The Mexican government gave Slim a virtual monopoly over telecommunications in the country. Thank your gods in the State for high prices.

On the other hand, no one made you buy a cell phone.

vidyohs May 27, 2011 at 6:33 pm

““There is nothing evil in capitalism, unless you consider freedom to be evil.”
-Frank (Cafe Hayek troll)

My cell phone company, Verizon, steals around $10 from me every month. That’s over $100/ per year. That isn’t evil?”

In regards to that, it is difficult to tell which of you two, Cao Dung or Disingenuous Kuehn is the more stupid.

You cite what you believe is a criminal enterprise, stealing, and conflate it with capitalism, which clearly it is not. Theft is criminal. Making, holding, and investing profit is not.

But there good ole Cao Dung is no freaking clue as to what capitalism is, and good ole Disingenuous Kuehn jumping right on this bandwagon and joining the party.,

What a pair. Well suited for sure.

Mao_Dung May 28, 2011 at 8:04 am

UR a nasty old coot with obvious Alzheimer’s. UR a 4-F four-flusher troll.

vidyohs May 27, 2011 at 6:36 pm

BTW, I have met Carlos Slim, and he has more class in his pinkie finger, more brains between his ears, and more grace in his right big toe than you have in your whole body.

vikingvista May 28, 2011 at 9:05 am

Where did you meet him?

vidyohs May 28, 2011 at 7:56 pm

Mexico City.

Spent all day at one of his outlying properties doing depositions of his two senior VPs and them himself.

Some people let money make them into shits, Carlos Slim is not one of them.

vidyohs May 28, 2011 at 7:58 pm

Arrgh, – “and then himself”

I had all morning, a long buffet lunch and then all afternoon with my camera on him, to observe him.

Man is sincerely a good person. Rich as hell, yes, but not a shit..

vikingvista May 28, 2011 at 8:48 pm

I’ll bet he was an interesting person.

I think the ongoing success of Dale Carnegie helps show that being a total lying snake prick is not very conducive to success in business. Business is a form of social interaction, and people usually don’t like dealing with and depending upon people who they don’t like and can’t trust.

vidyohs May 29, 2011 at 1:15 pm

I also met the oldest son of Carlos Slim, briefly to be sure, but he seem to be a bit full of himself. He was in his mid to late 30s at the time, had an edge of arrogance about him.

That seems to happen a lot when a decent man makes it big. His children aren’t quite as humble.

SheetWise June 1, 2011 at 3:35 am

There are many comments — but your contract is still being billed as agreed — right? If you didn’t understand what you agreed to, that’s not the providers fault (assuming you agreed).

Daniel Kuehn May 27, 2011 at 10:42 am

PS – a troublesome corporate bureaucracy is no more an argument against capitalism in general than a troublesome public bureaucracy is against government in general. Don’t fall into the same poor logic that others do. Don’t confuse an intensive margin with an extensive margin – that gets people in a heap of trouble.

Seth May 27, 2011 at 11:54 am

“is no more an argument against capitalism in general than a troublesome public bureaucracy is against government in general.”

My argument against government in general is that the incentives tend to reward troublesome public bureaucracies, not that there are troublesome public bureaucracies.

Josh S May 27, 2011 at 1:30 pm

Corporate bureaucracies–insofar as they are not mandated by the state, anyway–and government bureaucracies are fundamentally different animals. The job of any corporate bureaucracy is to enhance the company’s productivity and make it more competitive. A corporate bureaucracy that drives away customers, hurts supplier relationships, and causes institutional sclerosis will, if not checked, drive away business, lose money, and possibly kill the business.

A government bureaucracy’s job is to implement the will of politicians. Its job is to make life unpleasant for its subjects, restrict their behavior, and cause institutional sclerosis. It survives, not by making anything better in the world, but by expanding its mandate and successfully bidding for more funding from Washington. There is no “profit” or “loss” determining its success. It can even be an outright failure, like the Department of Education, and still command increasing dollars and power.

Daniel Kuehn May 27, 2011 at 1:50 pm

Certainly they’re fundamentally different animals – and those differences are very important. I’ve never argued otherwise and I’m aware of the differences.

It still doesn’t change the fact that generalizing from an intensive margin to an extensive margin is not logically sound.

Seth May 27, 2011 at 3:11 pm

I’ve seen corporate bureaucracies that implement the will of the political bureaucrats. Those bureaucracies are not fundamentally different than public bureaucracies.

The difference, as you point out, is in the incentives. Eventually the corporate bureaucracy can put itself out of business while the public bureaucracy has a tendency to grow stronger.

That derives from the difference in the nature of incremental (consumer driven) decisions vs. categorical (voter driven) decisions.

However, there are plenty of strong corporate bureaucracies that persist for long periods of time fueled by strong underlying value propositions.

Randy May 27, 2011 at 5:19 pm

The problem with your statement about public bureaucracy and government is that there is no such thing as government. There is only the bureaucracy of the political organization – and its problems are problems.

Ghengis Khak May 28, 2011 at 10:52 am

The major difference that concerns me is that I am generally free to go about my life ignoring the corporate bureaucracy if I so choose, or buy from a competitor, or choose an alternative product to meet my wants.

On the other hand, men with guns will eventually show up at my house if I choose not to pay for the government flavor of troublesome bureaucracy.

carlsoane May 27, 2011 at 10:50 am

“I’m aware that demand to hold larger money balances is also harmful in a world with downwardly sticky prices.”

Isn’t this just a variation of the Keynesian justification for fiscal stimulus in a time of sticky wages?

carlsoane May 27, 2011 at 10:57 am

Meant to make this comment at the root level not in response to Mao Dung’s comment about cell phones.

By the way Mao Dung, why don’t you just stop using Verizon?

Captain Profit May 27, 2011 at 1:10 pm

“By the way Mao Dung, why don’t you just stop using Verizon?”

Indeed, and since he seems to have a problem with cell phones in general, I have to wonder why Mr. Dung doesn’t exercise his freedom to do his communicating by telegram or semaphore or something…

Harold Cockerill May 28, 2011 at 8:05 am

Given his lack of anything worthwhile to say I think he should just stop communicating altogether.

DG Lesvic May 27, 2011 at 1:51 pm


You’re exactly right, and Don and Keynes are wrong. That is not just Keynesian but Madman Economics, for what they are really saying is that people are mad, that they care more for money than the things it buys, and would rather starve than live even better at lower nominal wages and prices.

Who loses when a shipload of gold sinks to the ocean floor, other than its owners. For the rest of us, commerce goes on as before, just at lower prices.

Economiser May 27, 2011 at 2:35 pm

Thank you for pointing this out.

Characterizing it as a “harm” implies that things would be better if the government stepped in and did something about it. In the end, markets clear.

DG Lesvic May 27, 2011 at 3:22 pm

Exactly. It’s so simple. Why is it so hard to see?

Have to ask all those Keynesin Austrians.

With Austrians like that, we don’t need Keynesians.

DG Lesvic May 27, 2011 at 4:53 pm

Still and all, why do I have to be so churlish about it?

There are times when I don’t like myself.

Apologies to our wonderful hosts and everyone else here.

It’s one thing to criticize and another to be nasty about it.


vikingvista May 28, 2011 at 9:08 am

It sure sounds like it. And his deflation statement sounds like the curse of Friedman.

PrometheeFeu May 27, 2011 at 11:00 am

Perhaps you should have looked a little more carefully into the agreement you were entering with them. If they lied to you, perhaps it’s time to file a small claims lawsuits or to change carrier while complaining loudly to friends and family.

For one I would not consider this evil. Inappropriate, dishonest, maybe depending upon the situation, but I have a higher bar for evil than not rolling over your minutes. Furthermore, this is something that is being done by Verizon, not “capitalism.” Such things can just as easily occur in a centrally-planned economy as in a capitalist economy. The big difference is this: If you don’t like Verizon, you don’t have to pay for it. If I find that the public school system is terrible, I still have to pay for it.

Pete May 27, 2011 at 4:25 pm

I’m sorry, are you serious or sarcastic?

You signed up for this deal and knew, or should have known, this was the deal before you signed. If you don’t like it, Verizon offers many other plans for you to choose. If those aren’t good enough, there are a dozen other carriers who will be happy to have your business — maybe one of them has a plan you’d like. But it’s not stealing if they tell you up front your $15 buys you a month of access rights and up to 60 minutes of right to use the airwaves.

Mao_Dung May 27, 2011 at 5:18 pm

You are an apologist for greedy, unethical business practices. I would outlaw this type of theft, but you condone it. Sorry, you’re not a serious person.

Ken May 27, 2011 at 6:17 pm


Please allow me to translate Dung’s comment for you:

“I’m too stupid to read a document that I signed of my own free will and failed to ask all questions about relevant charges. I am now being charged more than I want (which of course anything greater than zero is an example of a greedy unethical business practice), so will call you names, since you’ve not demonstrated the proper level of deference to me.”

Hope that clears things up.


Harold Cockerill May 28, 2011 at 8:09 am

I want a video of you following Mao around translating for him. Tht would be some funny shit.

Sam Grove May 28, 2011 at 11:51 am

If that is all you got from Pete’s post, you need a course in reading comprehension. He wasn’t being an apologist for greedy, unethical business practices, he was offering suggestions of what you might do about your particular situation.

vidyohs May 27, 2011 at 10:41 am

Finally my ancestors Og and Mog get some back handed recognition for their contribution to the improvement of the human food supply chain; now I just have to wait for the third ancestor Rrg that made a significant contribution with the invention of the digging stick to aid in planting seeds.

Alex May 27, 2011 at 10:42 am

Mao_Dung, you must be living in a country where it is illegal not to have a mobile phone contract with Verizon. What country is that?

Mao_Dung May 27, 2011 at 11:00 am

Yes, I should BOYCOTT Verizon. I’m working to connect tin cans with very long wires to all my friends and phone contacts. I hope I don’t get tangled up in all that wire. It could be dangerous.

Seth May 27, 2011 at 12:17 pm

I don’t get it. Does Verizon have a monopoly?

Mao_Dung May 27, 2011 at 12:37 pm

Do you object to monopolies?

Seth May 27, 2011 at 3:16 pm

Already changing the subject (red herring)?

David Shaw May 27, 2011 at 1:46 pm

Of course you’re aware that the aptly named Mao_Dung is just repeating his daily performance here in the comments at Cafe Hayek – He’s built up a transparent, far afield straw man and is now vigorously beating it about the head.

He is the very definition of an internet troll. At least muirgeo, albeit rarely, and never coherently, can sometimes stay on topic. This guy is simply here to distract the rest of us from the cause of liberty.

Seth May 27, 2011 at 3:13 pm

I am. But thanks. It’s Friday.

Rugby1 May 27, 2011 at 1:14 pm

I was not aware that Verizon was the single cell phone carrier where you are located? Is that the case? If not why not change carriers? Most carriers will provide discounts when switching someone over from another service.

Downsize DC May 27, 2011 at 10:58 am

Deflation would distort markets if a governmental central bank contracts the money supply, just as inflation would distort markets if it created money out of thin air. That’s an argument against central banking and monopoly money.

It’s unclear, however, whether a free choice to hold money rather, than lending it or making purchases, would otherwise be harmful. The price of goods and services would fall, which would benefit the poor and middle class most of all.

Daniel Kuehn May 27, 2011 at 11:28 am

re: “The price of goods and services would fall, which would benefit the poor and middle class most of all.”

So would wages, which would hurt the poor and middle class. Simply doing things better than you did them before – what Don talks about in the post – is easy to see as a benefit. You’re not going to get away with touting the benefits of a monetary deflation that easily, though.

Brock May 27, 2011 at 12:47 pm

So, real wages? What about higher interest incomes on savings?

The “Deflation is harmful…” sentence and the asterisk both surprised me. I’d like to know the basis for the claim.

Gil May 28, 2011 at 6:20 am

What good is cheaper goods if your pay is lower in kind (monetary deflation)? Hence Don refers to the benefit of productivity improvements that makes goods cheaper in real terms.

vikingvista May 28, 2011 at 7:17 am

What bad is it in that case?

Gil May 28, 2011 at 12:44 pm

What bad is in higher prices for goods if you’re getting paid more anyway? Savers are better off but borrowers are worse off in deflation.

vikingvista May 28, 2011 at 1:15 pm

That saver vs borrower line is typical. However, borrowers have less demand to borrow when their existing capital retains or increases in value. It isn’t enough to make that general statement. You have to know why a borrower wants to borrow before you can tell if deflation helps or hurts him.

If the ratio of wage rates for vast sectors to other market prices drops, then it seems there may be a problem. Short of that, it isn’t clear that deflation must be problematic. Increasing value of dollars affects each person in two ways, since each person both buys and sells dollars. People aren’t one or the other.

What is bad, is when a coercive central authority either imposes severe liquidity restrictions on financial institutions, or counterfeits mass quantities of money to draw resources away from its victims and toward itself. Those are the problems of deflation and inflation. Free floating market prices are not the problem.

Gil May 29, 2011 at 2:57 am

“counterfeits” I take that to mean money should be gold and silver coins or paper/electronic money based on a idyllic gold standard and not government fiat. Otherwise the government has the legal right to create new fiat money alongside old fiat money so it’s not counterfeiting.

vikingvista May 29, 2011 at 5:02 am

If you take government law as your standard, then it is legal counterfeiting. If you don’t realize that fiat money central banks are counterfeiters, then you simply don’t understand the mechanics and effects of central banking. The fact that it is legal is as unimportant as taxes are a form of theft that is legal.

And since the worst criminals write the laws, government law is not a reasonable point of reference.

And no, I don’t advocate that money should be anything other than what free individuals voluntarily choose it to be. History suggests that if the government boot were lifted, competing private notes redeemable in standard quantities of gold would emerge, but I don’t personally care.

Gil May 29, 2011 at 11:21 am

I mean it’s not counterfeiting in the sense that new money appears alongside the old and causes inflation if the economy hasn’t grown because gold miners would be “counterfeiting” by flooding the market and making gold coins a little less valuable. But, of course, you also shown you would go down the road of – taxes = theft, arrest = kidnapping, fines = extortion, etc.

vikingvista May 29, 2011 at 4:19 pm


It is indeed counterfeiting in that manner. If it were a free, rather than violently-imposed monopoly money, then perhaps the creation of new money would be according to agreed to mechanisms. Since there would be no offense, counterfeiting would not be an appropriate term. But even in that free fiat money example, it is important to realize that the same mechanism that enriches illegal counterfeiters, enriches the creators of new free fiat money.

The creation and spending of new fiat money ALWAYS transfers resources away from the money users to the money creators. If it is a agreed to form of voluntary seigniorage, then nobody has anything to complain about.

Mining new gold is not counterfeiting. It is well understood by everyone that a commodity money is inextricably linked to the production of the commodity. Additionally, the production of the commodity is naturally regulated by the current price level of the commodity money.

Gil May 29, 2011 at 9:46 pm

I don’t care that you see all government as illegitimate I say the government isn’t counterfeiting because it essentially has a right to create money. You’re a dickhead if you think the government was supposed to create a pool of money then stop except to only replace worn notes. And yes a gold miner is “counterfeiting” because he’s making more money available thereby causing inflation. Not to mention the gold miner gets the immediate purchasing power ahead of others. The only believeable version of “counterfeiting” is that the government shouldn’t have the right to make money in the first place and all government money is fake and market money, usually gold and silver coins, are the real deal.

vikingvista May 30, 2011 at 6:34 am

“I don’t care that you see all government as illegitimate I say the government isn’t counterfeiting because it essentially has a right to create money.”

I see all violence targeted against innocents as illegitimate–which encompasses a larger set of actions than just the government’s.

The government has the power. By what standard do they have the right? There can be no right to violate rights. The law commonly violates rights, so that is no standard. I surely didn’t grant them that right over me. You may think that you have granted them the right to violently suppress all peaceful challenges to their imposition of monopoly money, but I assure you, the government cares even less about your opinions than I do. Neither you, nor anyone else has a choice in the matter. You confuse power with right, as though a tornado has the right to flatten a town.

If you are to judge the government’s right, you must use the same means by which you judge the government’s laws, and even the Constitution itself.

“You’re a dickhead if you think the government was supposed to create a pool of money then stop except to only replace worn notes.”

In spite of you repeatedly proving yourself to be an almost incomparable dimwit, I have always engaged you seriously, because I have a soft spot for polite and curious little minds. But I am always willing to play a game of invectives with those who insist. You should know, I am better at it than you.

And of course I don’t believe the government should have created some pool. What that I wrote to you did not contradict this odd hallucination of yours?

“And yes a gold miner is “counterfeiting” because he’s making more money available thereby causing inflation.”

The term “counterfeiting” implies an offense. Some people insist that it implies illegality, so as I told you, I am happy to use the term “legal counterfeiting”. But neither inflation, nor making money, nor mining, necessitates any kind of offense, as I also told you. You contradict yourself anyway, by claiming the government creation of new money is not counterfeiting.

“Not to mention the gold miner gets the immediate purchasing power ahead of others.”

You argue against me by reiterating my own points? Is the reason that you come across as such an idiot, that you are not actually reading my posts to you?

If it costs a miner 1000 shekels to produce an ounce of gold, but the market is at 500 shekels/ounce, then he would lose wealth. If the market is at 1500 shekels/oz, then he will indeed be able to accrue resources to himself. This is just as everyone who ever voluntarily chose to trade in gold since the beginning of history understood it. There is no offense in laboring to meet the market demand for new gold. It cannot be counterfeiting, no matter how much new money or inflation it produces.

There can of course be counterfeiting of gold notes. There can be counterfeiting of minted gold coins as well. But it is as absurd to refer to the production of gold as counterfeiting as to refer to the production of chickens as counterfeiting–even if some group out there chose to use chicken feathers as money.

Of course, there is no such physical regulation of the production of fiat money. With fiat money, there is only regulation by agreement, or by whim.

“The only believeable version of “counterfeiting” is that the government shouldn’t have the right to make money in the first place and all government money is fake and market money, usually gold and silver coins, are the real deal.”

When a Soviet government bakery produced a loaf of bread, the bread was not “fake”. But if individuals were caught making or importing bread outside the law, their rights were legally violated by the government. And in spite of government bakeries, Soviet citizens frequently went hungry.

You seem unable to get your little mind around the notion of an offense. It is easy. Take any two people, and any particular interaction between them. If the interaction is mutually agreed to, there is no offense in that particular interaction. If the interaction consists of one person effectively initiating unwanted violence against the other, there is an offense. It makes no difference who the people are, what groups they belong to, or what the most effectively imposed law in their space is at the time.

Gil May 30, 2011 at 10:58 am

Gee you might as well argue from a template. X is provided by government but private business can do better and, by the way, X is illegal when the government does it.

I say the government isn’t “counterfeiting” because it’s more Federal Reserve Notes that come off the presses not photocopies. You can call unfair or whatever but it isn’t counterfeiting – the Fed has the right to print out what is considered the currency of the nation. Joe Blogg with his scanner/printer is counterfeiting. BIlly Bob putting gold plating on lead coins is counterfeiting. But the government isn’t..

vikingvista May 31, 2011 at 3:31 pm

“Gee you might as well argue from a template. X is provided by government but private business can do better and, by the way, X is illegal when the government does it.”

Maybe if you read my posts to you, you would know the template. It has nothing to do with who does what better; and government defines legality. Furthermore, the Secret Service doesn’t care if an illegal counterfeiter manages to make absolutely perfect Federal Reserve notes or not, they will still prosecute. Likewise, King Midas doesn’t care if a counterfeiter stamps out Midas’s likeness on real gold coins. He will still lop off their heads. The reason is that it is of central importance WHO spends the new money.

Apparently, it is too much to ask for you to post a coherent thought, so let me attempt to speak for you as if your IQ were in the triple digits:

Gilgernon: Federal Reserve notes are created by, and are defined by, the Federal Reserve. It is therefore up to the Federal Reserve to determine what makes a FRN real, and what makes it fake. A “counterfeit” FRN is synonymous with a “fake” FRN. By definition, a FRN created by the FR cannot be counterfeit.

You miss the very important point. Consider this:

1. The method by which a center bank money maker profits, is identical to the method by which a counterfeiter profits.

2. The method by which a central bank money maker harms others, is identical to the method by which a counterfeiter harms others.

3. A central banker gives no more (and actually less) choice in the use if its money than does a counterfeiter.

4. We all judge for ourselves laws as right or wrong. It therefore is hypocritical (as well as circular) to claim government has a right, because because what it does is legal.

Central bank creation of fiat money simply **CANNOT** be understood, unless one understands counterfeiting. “Cannot”, because they are entirely the same, save for one being declared legal by the offender. The importance is in the offense, and the offense is identical whether or not a particular issue is fake.

Frank33328 May 27, 2011 at 11:22 am

“The Problem Began When the Invention of the Spear Reduced the Price of Food” – Dr. Boudreaux, you are very funny.

Krishnan May 27, 2011 at 11:27 am

Astonishing, yet very common indeed. Today, the Chinese are evil because they assemble many things that people are able to buy – so these goons would make it expensive to buy things made in China (a la Trump) – and while doing so demand payment from those that continue to want to sell anyway

In short, what this is is the transfer of power – purchasing power – from the Central Planners to the population at large – they cannot stand it that people seem to want to do what they want to do

Condescension – describes it.

carlsoane May 27, 2011 at 11:29 am

“I’m aware that demand to hold larger money balances is also harmful in a world with downwardly sticky prices.”

Isn’t this just a variation of the Keynesian justification for fiscal stimulus in a time of sticky wages?

robert_o May 27, 2011 at 2:12 pm

When demand for money increases, money becomes more valuable. This is harmful in the same way as any commodity becoming more valuable, for virtually any reason: it increases the cost of certain parts of the structure of production.

That said, there’s a difference between saying “X is bad”, and “X is bad, therefore ‘we’ need to do A, B, and C”. In this case, A, B, and C would make the situation worse.

The mere fact that money is becoming more valuable (and therefore harmful) isn’t an excuse to print more money, anymore than money becoming less valuable is a reason to destroy money.

carlsoane May 27, 2011 at 2:22 pm

But how do you know that it isn’t less harmful for people to hold on to money and buy fewer commodities at their current prices? Perhaps prices are coming down after a commodity bubble.

dsylexic May 27, 2011 at 9:02 pm

totally agree.sometimes,cash is king ,in dont have to always invest in commodities or equities.holding money is signalling that prices are too high

carlsoane May 27, 2011 at 2:33 pm

And you have the question of more harmful for whom? Some people presumably benefit from higher prices, others from lower prices.

robert_o May 27, 2011 at 2:37 pm

It’s harmful in exactly the same way any commodity increasing price is harmful: Those who do not have it but want it need to pay more for it. Those who have it already benefit.

Money isn’t special in that regard (other than being very commonly exchanged).

Economiser May 27, 2011 at 2:47 pm

Why is a commodity increasing in price necessarily “harmful?” Prices are information — increased prices lead to conservation, substitution, etc. It would be great if we lived in a world of infinite, free resources, but if we did we wouldn’t need economics.

Also, I’d take issue with the statement that money is a commodity. Money is a means of exchange.

vikingvista May 28, 2011 at 8:46 am

In the modern context, “deflation” of any kind means that the “price” of money relative to most other things increases. This includes when productivity increases. You are therefore arguing against Don.

Economiser May 27, 2011 at 2:41 pm

Also, money is simply a means of exchange. It has no tangible value in and of itself.

Take the extreme example: Assume a miser somehow accumulated all the US dollars in the world, and it were impossible to print more. Said miser enjoyed looking at his money and refused to spend any of it.

That might cause some short-term dislocation, but soon enough a different item would be dubbed as “money” and the economy would carry on much as before. I don’t see the harm (other than the short-term dislocation).

dsylexic May 28, 2011 at 1:23 am

it wouldnt be short term.others in the economy would move towards some other currency which would be acceptable to them over time -assuming the miser doesnt corner all dollars in the short term (impossible even in a thought experiment)

money is indeed a commodity.a commodity which has been designated /accepted as a means of exchange.the evolution of money tells us why money is a commodity which satisfies the need for acceptability,store of value etc .

vikingvista May 28, 2011 at 9:03 am

Money becomes more valuable even in Don’s nonharmful scenario.

Don Kenner May 27, 2011 at 11:55 am

I’m amazed you can listen to Marketplace Morning Report. I almost crashed my fossil-fuel-sucking, earth-destroying, exploited-labor-produced vehicle the last time I listened those somber tones telling me that everything I have is the result of grinding the rest of the world into dog food.

Methinks1776 May 27, 2011 at 9:30 pm


Ken May 27, 2011 at 12:09 pm

“companies start to pander to people’s needs to pay less.”

Companies really are heartless pricks making things more affordable, particularly to poor people.

Mao_Dung May 27, 2011 at 12:36 pm

“Companies really are heartless pricks …”

May I quote you?

Ken May 27, 2011 at 1:03 pm


Only if you can be honorable about it and quote the ENTIRE sentence, instead of the dishonest hack job you want to do.


dsylexic May 27, 2011 at 12:31 pm

did you mean downward sticking wages? what other price not subject to unions and govt regulations like minimum wage is downward sticky? house prices?

Nevada Doctor May 27, 2011 at 12:36 pm

Let’s call a truce. The cowboy’s agree to the abolition of corporations, partnerships, and trusts. I’m sure capitalism will still thrive.

In return you agree to abolish all titles, immuities, and priveleges of government. A mostly online & virtual government server can handle almost everything. All NGOs, who are already running the government, will now be specifically accountable for their work.
Dan Mead will thus be personally liable for each Verizon cell phone. Barack Obama will be personally guilty for each murder of an innocent civilian by a drone. What we have now performs poorly in all 6 categories of human needs, and their is plenty of room for incremental improvement.

Cat 1. We all want comfort. And much of this comfort comes from certainty. We want certainty the car will start, the water will flow from the tap when we turn it on and the currency we use will hold its value. TaxFeeders work to hinder this by mandating they be involved and get a cut off the top prior to any transaction.

Cat 2.. Variety. Once we have enough certainty, we paradoxically crave variety. We require sufficient uncertainty to provide spice and adventure in our lives. TaxFeeders hate this, they jealously demand contribution certainty. They ban transfats, 4loko, loverslane, soft-porn on late-night tv.

Cat 3. Significance. At root, we all want to be important. We want our life to have meaning and significance. I can imagine no worse a death than to think my life didn’t matter. Statists need homogeneity. They require one-size fits all and standardization. To them you are only a worker, a troop, a domicile, their protocols can’t handle variances and exceptionalism.

Cat 4. Connection/Love. Who can argue against the need for love. We want to feel part of a community. We want to be cared for and cared about. Socialists & NeoCons have perverted this in an inhuman way. Deadbeat dads, underage sex, prostitution roundups, polygamy bans, interracial bans, interfaith bans. Mothers & Fathers are charged with crimes against their own children, when ironically, said children don’t exist without them

Cat 5. Growth. Some people claim they don’t want to grow, but I think they’re simply fearful of failing at it or being unable to cope in a new situation. To become better, to improve our skills, to stretch and excel may be more evident in some than others, but it’s there.The state calcifies and is a barrier to growth. They can’t foresee their new self, so they reject becoming it and cling to old known concretes.

Cat 6. Contribution. We all have a desire to contribute something of value—to help others, to make the world a better place than we found it is in all of us. The first thing a government worker learns, is how to avoid doing more than is required. Often his assigned role makes individuals lives worse off, and the best he can do is to abdicate and find somewhere to hide until the end of his shift.

Bob Landry May 27, 2011 at 1:31 pm

Deflation is harmful if caused by a contracting money supply.*

That statement assumes that the demand for money has not contracted as well. If the demand for dollar liquidity is falling, a contracting money supply would be necessary to ensure a stable currency value. Of course, the only way to determine this would be the use of a gold standard whereby the dollar is defined as a certain value per ounce of gold.

vikingvista May 28, 2011 at 8:58 am

Since there is deflation, it does mean that the supply of money is contacting more than demand. Otherwise there would be price stability or inflation.

vikingvista May 28, 2011 at 12:50 pm

contracting not contacting

Jack Glantz May 27, 2011 at 6:11 pm

Don, although I enjoy your blog in general and certainly appreciate you sustaining it, I’d like to thank you in particular for the title of this post. When read in conjunction with the rest of the post, it created such a reductio ad absurdum that I chuckled about it the whole day. Different things tickle different senses of humor, but this one totally got to me.

Don’t lose that wit!

DG Lesvic May 28, 2011 at 12:11 am

Kudos to carlsoan and economiser for their insights into deflation.

They’re way ahead of everyone else here.

dsylexic May 28, 2011 at 1:25 am

do you disagree that money is a commodity?

vikingvista May 28, 2011 at 8:55 am

Money is the commodity used only for obtaining other commodities. It is only traded, unlike non money commodities which are both traded and consumed. This is true even for “commodity money”, which is dual purpose.

But if you are asking if laws of supply and demand hold for money, the answer is yes.

Economiser May 28, 2011 at 10:17 am

Yes, the laws of supply and demand hold, but the difference with fiat money is that one party (i.e., the government) has a monopoly on the production of fiat money below fair market value. That means one party can unilaterally shift the supply curve.

That’s why I object to calling fiat money a “commodity” in the same sense as other commodities.

vikingvista May 28, 2011 at 12:31 pm

What is the fair market value of a government fiat money?

If a fiat money is a free money, then the monetary authority can increase its supply as much as it wants within the terms of its voluntary contracts, and it always has fair market value.

If a monetary authority violently suppresses competition, such as with legal tender laws, taxes, or central banking, then the money never has fair market value, fiat or not.

Supplies of goods and services can also increase or decrease by large amounts without those on the demand side having any influence beyond the price. Even a wildly inflated fiat money remains finite and scarce up to the point where it becomes worthless.

Fair is never what happens to a supply schedule. Fair is always how one person treats another. A fair market is nothing more than a market composed of voluntary agreements.

DG Lesvic May 28, 2011 at 4:05 am

Certainly gold and silver whether in coin form or not are commodites, and paper certificates or wharehouse receipts for them are receipts for commodites.

But just plain paper fiat money is not a commodity.

DG Lesvic May 28, 2011 at 4:08 am

And by the way I should have included Lexus among the leaders in this discussion.

Dan May 28, 2011 at 6:48 am

I would love to read a much broader discussion on deflation. Thinking we are in need of it.

vikingvista May 28, 2011 at 8:48 am

I agree. We can start by dropping the corrupted terms “inflation” and “deflation”, and instead refer to prices and money supply.

Economiser May 28, 2011 at 10:46 am

I agree as well. Don, can you do a separate discussion on your initial footnote and the disagreement it has provoked? I’d love to learn why I’m wrong.

DG Lesvic May 28, 2011 at 1:00 pm


Here was part of my attempt at it, from The Cause and Cure of the Depression

at Cause and Cure of the Depression

In a monetary contraction, by itself, it is not employment but wages that contract. Employers will still hire the cheapest labor, the unemployed, until there are no more of them. So there will still be full employment, though at lower wages, for, entrepreneurs wouldn’t waste time any more than capital.

The Keynesians (including the Keynesian Austrians, Selgin, White, Horwitz, Rizzo, Garrison, O’Driscoll) see the flight to safety as an “excess demand for money,” sending prices and markets into a deflationary tailspin; and, to stabilize them, would increase the supply of money until it equaled the demand for it.

Their plans are contradictory, for the monetary discipline of their Free Banking would preclude the inflation for their Monetary Equilibrium.

They are confusing the medium with the objects of exchange, and marginal with total demand for money. While the supply of oil, apples and oranges, the objects of exchange, determines our wealth, that of money, the medium of it, does not. We are richer with 100 than with 50 barrels of oil, but no richer with oil at $100 than at $50 a barrel. While the greater supply of oil renders a greater service than the lesser supply of it, the greater supply of money renders no greater service. So there will be no market demand for any greater number of dollars. The greater demand for money in the market means something entirely different, a greater marginal rather than greater total demand for money.

As production and the supply of goods goes up, and there are more goods chasing the same number of dollars, there will be a greater demand for each dollar, but not for more dollars. Or, if the greater demand for money was for more savings, increasing the supply of money and reducing the value of savings would not be meeting but thwarting the demand.

There is an excess demand for money only in the mind of a dictator, for the market and its individuals are the best judges of how much they should save.

While to Prof. Selgin, this was nothing but “gibberish,” he did accept my label for him. “Yes, I am one of those ‘Keynesian Austrians.’ Just like Hayek.”

He may have had Hayek in his corner, but not Mises, stating that “All plans to render money neutral and stable are contradictory. Money is an element of action and consequently of change.”

Human Action, P 419

By the way, forget about Mises’s earlier Theory of Money and Credit and just rely on his much later and more mature Human Action as your guide to his thinking on this subject.

DG Lesvic May 28, 2011 at 1:02 pm

Sorry that that link didn’t post properly. Sometimes it does, sometimes it doesn’t, and I have no control over the gods of the internet.

DG Lesvic May 28, 2011 at 1:06 pm

I’ll give that link another try, and, if it doesn’t work, click on Book Two and then Cause and Cure in the Contents. Cause and Cure of the Depression

vikingvista May 28, 2011 at 7:24 am

“deflation is harmful if”

Shouldn’t that read “deflation can be harmful if”?

Can you explain your absolute statement here?

Sam Grove May 28, 2011 at 11:58 am

Deflation can be harmful in the scenario where government and a central bank are managing economic functioning.

Sam Grove May 28, 2011 at 12:12 pm

I need to rewrite that: Political management of economic functioning is harmful.

DG Lesvic May 28, 2011 at 12:49 pm


You hit the nail on the head.

It is not “inflation” or “deflation” per se that is harmful but interventionism, whether “inflationary” or “deflationary.”

Commerce and real wealth are affected very little by discoveries of new veins of gold or the loss of gold in shipwrecks. But it is affected very much and always adversely by political manipulation of the money supply.

vikingvista May 28, 2011 at 12:33 pm

But would you say that it simply IS harmful?

Sam Grove May 28, 2011 at 3:51 pm

I would.

vikingvista May 28, 2011 at 4:55 pm

To clarify, you think that deflation is always harmful if caused by a contracting money supply? Then can you explain that to me?

Sam Grove May 28, 2011 at 5:23 pm

To clarify, I think political management of economic functioning is always harmful.

As for deflation, the probability of harmful effect is contingent on why there is deflation. In the context of political/central bank manipulation, I would suppose that it is always harmful.

Why? Because politicians are attempting to thwart the information carrying aspect of prices.

vikingvista May 28, 2011 at 5:25 pm

I agree with your statement. My original question to you was in reference to Don’s statement.

Economists Do It With Models May 28, 2011 at 1:57 pm

I would like to think that the quote referenced was actually meant as a lamentation that businesses are only catering to the bottom end of the market rather than focusing on providing higher-quality and higher value products that consumers should be willing to pay more for. If this is the case, then I think it’s a valid personal complaint, assuming that the author likes nice things.

Methinks1776 May 28, 2011 at 7:25 pm

I love to spend less on ordinary t-shirts so that I may buy more Louboutin and Hermes, dear.

economic collapse May 29, 2011 at 9:01 pm

That was a totally idiotic statement. Yes, inflation good, deflation bad.

jalany June 1, 2011 at 1:29 am

It is amazing what I read in the news today, it is like no one has ever taken a 101 economics class. The writer of this story may benefit from distinguishing between macro and micro economics, or where prices are determined by monetary policy vs. markets. We all know that macro economics is just a bunch of hand waving anyway… :)

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