Posted by: graemebird | May 4, 2006

A Better Tomorrow: If It Aint Growth Deflation…..

Then it aint justice, it aint true Capitalism, its aint the real deal. And though people will see that on paper the policies are pretty right, in their hearts they will know that something is terribly wrong. They will know that it can never be Australia City. And though the banners and the neon signs will SAY Australia city, the more thoughtful amongst us will always have this sense that they are living in Poo-Town.

This one cribbed from Gold Is Money:

Truthsearcher. In order to decide on what you think the best monetary policy would be you might want to check out a book by the historian David Hackett Fischer:

‘The Great Wave’ (Price Revolutions And The Rythm Of History)

My own view is that the optimal setup is for nominal GDP to be rock solid and for prices to be falling pretty much all the time. Although I wouldn’t want to presuppose a government-run system.

In ‘The Great Wave’ Fischer studies periods in Western history where prices were rising over many decades. And other periods when they weren’t. When prices were generally dropping.

The specific time periods of inflation he looks at are:

1. The medieval price revolution 1180-1350
average inflation about .5%

2. The Price Revolution of the Sixteenth Century. And the crisis of the 17th. About 1470-1660

3. The Price Revolution of the 18th century: About 1720-1820

1. The Equilibrium of the Renaissance 1400-1470

2.The Equilibrium of the Enlightenment 1660-1730

3. The Victorian Equilibrium. 1820-1896

Now what we see is that it is the time periods of rising prices where you wind up with horrid social conditions, falling real wages, social unrest and relatively more violence. Whereas in the era’s of falling prices we get great cultural acheivements, less war and violence and after a time increasing real wages, and a more even distribution of wealth.

To my mind the Victorian era was a little different then the other two. Since fractional reserve banking was in full swing so that therefore you will get a boom bust cycle going which is not a good thing and entirely unnecessary.

But in any case here we see that 0.5% price inflation is still unheathy. No matter how benign we may seem to think of it these days. My own view is that nominal GDP ought to be held stable. And prices should be falling all the time. Then after a time we would likely get all the benefits that you might expect. Social stability, increasing real wages and general culural health.



  1. GWB

    Let me ask you. Under your system of benign deflation we would unless I am mistaken see a peculiar situation develop. One new dollar earned today would be worth more the next day and so forth. Theoretically then the value of a dollar would always be going up against goods.. A new dollar is the gold weight expression in this example. Isn’t that a mirror image of what we have now, where a dollar earned today has less value tomorrow.

    Wouldn’t this system cause hoarding etc.

  2. Yes it would cause hoarding. And historically the first two decades of falling prices was very hard on society. Even with their primitive guilds and things you would expect there to be barriers to downward price movements. The times when this wasn’t the case was on some occasions in the 19th century when prices fell so fast that the economy kept growing and only business investment was affected adversely.

    You can see the problem. Hoarding means high liquidity. Growth deflation is paradoxically a situation where liquidity is higher then in any other system. Cash everywhere. Cash at home the bank stuffed with cash, businesses all with cash. Cash buried out on the farm. Even on a neighbours farm. Pirates burying treasure.

    But the start of the process of getting to there is being starved of cash. So its a big problem since the price level needs to drop much more then many Austrians seem to assume. Its got to drop to:

    1. Allow for growth

    2. To account for a slowdown in velocity (probably more then 300%)

    3. To get to our eventual situation where we have more and not less liquidity then in other systems.

    So yes its a big problem. So I am not in favour of the Rothbard changeover. And we have to come up with creative solutions in order to get people to pay off their debts faster and build up their cash balances. Since we cannot put up with twenty years of pain before we get to the wonder years like in the Middle Ages.

    I thought of just cutting taxes in half. Or rather every debt you have you register it. And half of your taxes is then credited to paying off your own debt so long as you swear off borrowing. But we release enough cash to enable this and to enable investment markets to stay on an even keel.

    Gotta split. But you see how quickly you got to the crux of the problem. This is the first time I’ve even had occasion to voice this particular fly in the ointment.

  3. Japan in the last decade has had deflation. This wasn’t exactly paradise on earth. The biggest problem is that when you know things will be chaper tomorrow, then who will spend anything? And if the consumer does not but anything, the demand falls and businesses go bust. How on (free market) earth this can help growth?

  4. I might take a long time to get my head around that Nabakov. I’m not much for understanding poetry really. Unless its got a back-beat and some guys about to be convicted of tele-(caster) torturing.

    The dudes who have really hit it for me so far have been Coleridge with the Rhime Of The Ancient Mariner and Kipling. Nearly all Kiplings stuff strikes me as superb when I trouble to read it. But the one that really grabbed me was Gunga Din. Goose bumps.

    Up in Brisbane when the internet was still the internot I had this Radio Rentals computer and I had this CD-Rom with the Ancient Mariner on it. Would come off afternoon shift and drink beer just reading this poem over and over like I was suffering from some sort of crazed autism or something. I never seemed to tire of it. But then again this could be real dementia because a while back I realised I quite liked Andy Williams as well. Andy Williams and Gene Pitney of all people.

    So I might not be the one to ask about poetic taste. Sometimes I’ll read a poem and it will really grab me but I’ll quickly forget it. There was this one by Robert Frost…… And woohoo as fate would have it I managed to google it…


    I’m going out to clean the pasture spring;
    I’ll only stop to rake the leaves away
    (And wait to watch the water clear, I may):
    I shan’t be gone long. — You come too.
    I’m going out to fetch the little calf
    That’s standing by the mother. It’s so young,
    It totters when she licks it with her tongue.
    I shan’t be gone long. — You come too. ”

    Isn’t that “You come too” a bit of a masterstroke? I shall try and use it always:

    Anna my temptress,
    I’m going down to inseminate,
    The tiny Jersey cows,
    with semen from,
    a giant Fresian Bull,
    You come too,

    I shall tell you yarns,
    Of my old Virginia herds,
    The rolling hills,
    The flatlands of endless cotton,
    Before the dread yankees came,
    Where I needed no bull,
    Nor any of these metal tools……..


    No-one now will ever be able to use those simple three words again in a poem. Which is a shame. Because no matter what else you write. No matter how bad it is these simple three words just add a bit of an edge to it.

    Great stuff Nabakov. I need all of your brains for this project. And you actually made a contribution. I want you to hang out Nabakov but I need you to be productive. Good work. Don’t go anywhere.

    Fyodor…. FyodorFyodorFyodorrrrrrrr.

    I can’t come up with a good analogy. So this one will do. You get a fever when you are sick right? The fever is your bodies way of coping. And a fever can also be said to be….. BEING WARM.

    But you put clothes on. We get about in clothes. And this could be because it is good for thing for us this…. BEING WARM. In both cases being warm is a good thing. And in all cases deflation is a good thing given the monetary circumstances thrust on people.

    But is it deflation as coping mechanism for a very sick patient? Or deflation as the best way to be for balanced growth and the good society. Is it growth deflation in Australia City? Or is it payback for the stupidity of Pootown. (Hopefully if I use the Audio Assasins terminology enough he will show. And then I’ll have one of the best brains out there on my blog)

    Deflation of consumer prices is a good thing. And being warm is a good thing. But in one case you are sick. And being warm is a way of coping with the sickness. And in the other case you take the benefits of being warm directly. And you are in good health.

    Now you say:

    “Japan in the last decade has had deflation. This wasn’t exactly paradise on earth.”

    Well no it wasn’t. But some of us are able to make that intellectual leap to relating the previous time periods MACROMANCY to the deflationary time periods distress. If you are Fyodor then I must point out that we’ve been over this before. And that it seems your learning curves are flat here.

    You could do me a favour and link it where we went over this before. I want you to hang out Fyodor. But I want you to hang out so I can harness your brains. Its not much good if you don’t use them………

    “The biggest problem is that when you know things will be chaper tomorrow, then who will spend anything?”

    I’ll rewrite this sentence to show you just how wonderful growth deflation is……

    (the biggest problem is) THE MOST WONDERFUL THING ABOUT GROWTH DEFLATION IS that when you know things will be cheaper tommorrow, then who will spend anything?

    Well the answer is of course that we will all spend. But WE WILL SAVE MORE THEN UNDER THE CURRENT SYSTEM. We will put off spending another month. The small children will not blow their money on video games like I did in the late 70’s. They will tend to be misers like I was in the early 70’s.

    Everyone will tend to save a lot more. And Savings (forget Keynes) equals investment. And under 100% backing where the situation is managed such that nominal GDP is rock solid……. then SAVINGS……EQUALS INVESTMENT….. ON A VERY CLEAR AND IMMEDIATE ONE TO ONE BASIS THAT EVERYONE CAN SEE.

    “And if the consumer does not but anything, the demand falls and businesses go bust.”

    But we aren’t talking about a situation where no consumer buys anything. No consumer local or foreign buys a damn thing. We are talking about a situation where they buy more every year. But they save a great deal of what they earn.

    Now you are right that if savings suddenly go from 1% of GDP to 90% of GDP there will be a sudden drop of real GDP even under 100% backing. Since it takes some time to transfer resources from consumption to business investment. But if we had enightened monetary authorities (that is if you make ME the RBA boss) and if everyone listened to the competition commision like they bloody well know they should we’d get by even in this situation and be better off for it.

    But that situation would never happen except in transition. And I have made it clear (if you are Fyodor) that the transition is a very big problem. And that until recently most of the Austrians seem to have underestimated the scope of this problem.

    I’m going to grade people on their contribution here and there to give you an idea of how it will work when you have to pay for the post or can earn money if you put in the hard yards.

    Nabakov you wouldn’t lose money on that one. Good show. Boris if you are Fyodor that would likely cost you a dollar since you don’t seem to have absorbed what it is me and Joe were telling you at Catallaxy.

    But if you aren’t Fyodor you would be ahead a dollar since you very succinctly got right down to the Crux of the disagreement. So if you are not Fyodor fantastic work and I would owe you a dollar. But if you are Fyodor do try harder next time because I don’t want your body you dirty-homo. I only want your brains.

  5. Look. Basing everything around consumer prices is a really bad idea. I know a lot of very smart people one time or another have bought into it. But surely after the 90’s its just untenable.

    Look at the situation we are in now. We have had years of real estate Gold Rush. When they migh have been putting the squeeze on they went for these small tiny infrequent rate rises. So that was never going to stop the bubble. Now they are talking about raising them? Why now? Well prices are going up. So when they could have lifted them without great stress they didn’t. But now that everyone has over bought they are going to lift them.

    But its worse then that. Because when the compulsary super went from 3 to 9% we might have expected for the balance of trade to improve. But if you keep consumer price inflation constant what happens. With 6% less consumer spending you would get a deflationary effect. So then the bank, targeting the wrong damn thing starts pumping in money. Pumps in more since the rise of China and others was at that time flooding us with cheap consumer goods….

    So you get a bubble.

    So by any logic it is a bad target. The one thing that we shouldn’t target since the stress comes from a collapse in demand for those things we borrow to buy.

    Now interest rates tell you next to nothing about monetary policy in a fractional reserve banking setup. Just does not tell you how much money that will be sent out there. So then to build anothe shaky idea on that one and to suggest that there is a natural rate….. A natural rate for some artifice they shouldn’t be using in any case.

    You can’t have a natural rate for an artificial invention of the cartelised banking system scoring for itself the newly counterfeited money at the lowest possible interest rates.

  6. The interim period is what the Austrians call “cash-buiding deflation”. The policy trick would be to be able to expedite this phase.

  7. Lets go over it again.

    Remember that the cash-building phase precedes the Growth Delation phase. And we YOU STUPID CUNT are not talking about the cash-building phrase.

    All hoarding means is keeping great amounts of cash out of the banking system. Liquidity is not the same thing as velocity of circulation.

    All monetary cranks like Gesel or Keynes have this fetish about the velocity of circulation. In thier occult way they think this means that money is out their working for the man. But really high velocity of circulation means that the men are out there engaging in myriad activities that they would not need to be doing under more rational monetary conditions.

    So you being a dumb cunt have not defined your terms. Velocity of circulation in not the same thing as liquidity.

    Here we pause for yet another reminder since you are such a dumb cunt and so very very very very dishonest.


    So we say that Growth Deflation is a system where:

    1. Velocity Of Circulation Of Money is very low ( and this means it is a very efficient system not requiring unecessary effort running around transferring money here and there and worrying about financial investments as much).

    2. A system of extremely high liquidity. Which means high cash balances. Which is the same as hoarding. High hoarding mean s high cash balances which means high liquidity. These are all the same thing except for the different degrees of derogatory connotations.

  8. “I know what you meant, dipshit. I said the phrase was clumsy…because it’s a phrase of great clumsiness befitting an accident-prone dickhead like yourself.”

    Yes you did say that it was a clumsy phrase. And you were wrong and or lying. Since it is a phrase of great exactitude. And also it clearly seperates the condition from other conditions. Furthermore it gives us (I’m not including YOU in the plural dopey) as theorists our marching order for policy development. We must find many ways of speeding up the Cash-building phase……….

    And this also implies that we should have competing currencies with fiat still in the mix before we try and get to growth deflation. Since if peoples cash balances are growing we need to be supplying the extra cash for this. Enough to speed the process up. But not enough to stop the deflation of consumer prices or the overall steadiness in the prices investment assets.

  9. “It doesn’t matter which phase you’re talking about, moron. There’s NO RELATIONSHIP between 100% backing and “Growth Deflation”. These are bullshit assertions you keep making, with no justification.”

    Right now you are lying again you lying cunt. Since I never once asserted that 100% backing and Growth Deflation were one in the same thing.

    But not only are you lying (YOU LYING CUNT). But you are also quite wrong.

    Since fractional reserve is not stable enough to get to where we have had deflation consistently for some decades we find that in history GROWTH DEFLATION AND THE ABSENCE FRACTIONAL RESERVE BANKING ARE VERY MUCH CORRELATED.

    The great tragedy about metallic standards with fractional reserve is that they are perpetually going back and forth over the liquidity trap vortex. Whereas you want a system of Growth Deflation that never goes near that event horizon.

    I’ll talk about what this dumb cunt will try on a bit more. So you get what’s going on.

    1.The subject is Growth Deflation.

    2. I have rightly pointed out that under growth deflation the liquidity levels are paradoxically higher then under other systems.

    3. So the stupid, dishonest brain-dead illogical cunt thinks he’s proving me wrong by talking about a situation other then GROWTH DEFLATION.

    So do you see what this dumb lying statist occultist cunt is going to try on?

    Well lets see it then:

    I SEZ:

    “All hoarding means is keeping great amounts of cash out of the banking system. Liquidity is not the same thing as velocity of circulation.”


    “Well that proves it. You’re even further out of your depth than usual.”


    Phase of pure gibber coming up:

    Velocity of circulation (or rather, money), by definition, is a variable in the total quantity of money. Requiring 100% backing NECESSARILY reduces circulation due to the disincentive effects on banks and (otherwise) depositors. Reduced circulation/velocity = reduced supply of money = impaired liquidity.

    Let us work through this pure gibber:

    “Velocity of circulation (or rather, money)…”

    This is just fucking laughable. The dumb cunt doesn’t seem to know that VELOCITY OF CIRCULATION means VELOCITY OF CIRCULATION OF MONEY. But lets be charitable here. Lets assume a bit of silliness that he may well have edited if he were able.

    “Velocity of circulation (or rather, money), by definition, is a variable in the total quantity of money.”

    What a stupid cunt. No that’s just 100% wrong. Velocity of money is a variable that is seperated from the quantity of money. The Quantity of Money is split into fiduciary money and non-fiduciary money. And the velocity of circulation of money is a concept quite seperate to these two. And all throughout monetary theory we have kept these concepts seperate.

    Fiduciary money is that which is created by the fractional reserve system and on-call committments for cash but not the cash itself.

    ” and Requiring 100% backing NECESSARILY reduces circulation”

    I can rewrite this one for better precision:

    “and requiring 100% backing necessarily reduces THE VELOCITY OF CIRCULATION”

    Okay with that amended then the sentence is OK and fair enough.

    “………. due to the disincentive effects on banks and (otherwise) depositors.”

    That part is just gibber. Its impossible to know what the dumb cunt means…..

    Now we must bring back our reminder for yea this fellow is addicted to monetary occultism:


    OK so having reminded people of that lets see what our new model dumb cunt is now on about.

    “Reduced circulation/velocity = reduced supply of money”

    Wrong. That part of the equation is flat wrong.

    “reduced supply of money= impaired liquidity.”

    Not in the phase we are talking about. Under Growth deflation the supply of money is not reduced. What the fuck are you on about. I’m talking about Growth deflation where the money supply stays fairly constant or grows just enough to keep nominal GDP constant.

    I mean you can throw 50 reminders of what the fuck the subject is but if its Fyodor (who is in fact a complete cunt) he will promptly pretend to forget.


    Lets look at his statement again:

    “Velocity of circulation (or rather, money), by definition, is a variable in the total quantity of money. Requiring 100% backing NECESSARILY reduces circulation due to the disincentive effects on banks and (otherwise) depositors. Reduced circulation/velocity = reduced supply of money = impaired liquidity.”

    Every last word of this complete ignorance and wrong.

    So lets go over it again. Growth Deflation is not a situation where the money supply is falling. Perhaps it could be but its most unlikely. Growth Deflation is a situation where the money supply is pretty stable or growing glacially.

    And its a situation of very high cash holdings.

    very high cash holdings IS very high liquidity WHICH IS SOMETIMES REFFERED TO IN A DEROGATORY FASHION AS hoarding.

    Under cash-building deflation the situation is a little different. Because we would expect to have the hoarding of the few and the cash starvation of the many.

    But this is not a situation of GROWTH DEFLATION. A situation of GROWTH DEFLATION is a situation of very high cash balances. Which means very high liquidity.

    Has anyone else ever seen someone so STUCK ON STUPID as Fyodor?

    OK Fyodor. I wil have those retractions. Let us have those retractions right now.


  10. Yeah Joe.

    Hey Joe. If you ever get hold of that book by David Hackett Fisher there is an interesting mystery in it where his findings appear to contradict the Quantity Theory Of Money.

    That one had me stomped for a bit but we actually have almost discussed the answer to the mystery on this forum.

    So if you ever get hold of this book see if you can figure out what I mean. And if you can figure out why it is that the Quantity Theory seems to be being contradicted here.

  11. Okay, disclaimer:

    I just came here from Cat-a-lax to find out whether Poo-town vs Australia City was a song by the Audio Assassins, and I have nothing to add to the thread but this;

    There are 2 Google ads at the top of this page right fucking now.

    #1: Chi-poo Training: How To Train Your Chi-Poo Fast With No Hitting Or Scolding

    #2: Remove Bird Droppings: Boats, Cars, Patios, Furniture, Bricks, Blogs. Buy online or find a local stockist.

    Okay, I added blogs. But I shit you not, that’s the gospel.

  12. Buon luogo, congratulazioni, il mio amico!

  13. you and cambria used to be friends.

    what happened?

    • Cambria was a fake and a sellout is what happened.

  14. “I’m bringing this post up”.

    Heh. Telling.

    You really should think of consulting an MD, twerb-blab. Sounds to me like you might have incipient cancer of the oesphagous or the stomach. Yikes. Nasty prognosis even for a chronically nagging, angry, envious Catallaxian twerp.

  15. Great clip. Very scary. Good acting. Still the movie might have been better directed by De Palma. I like many individual scenes, but not so much the movie as a whole.

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