The Oil Drum | Interesting Economics

89 comments on Interesting Economics

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Don Sailorman on July 1, 2006 - 7:56pm

In regard to the usefulness of money, I recommend Robert Heinlein's "Stranger in a Strange Land."

Money does not have to work the way our system does. One good suggestion came from the young Milton Friedman, who advocated 100% reserve banking rather than fractional reserve banking.

Another controversial idea was proposed by Nobel Prize winning economist Friedrich Hayek--privatize money so that governments cannot finance themselves by creating too much of it and inflating away their debts.

Personally, I don't have much money--i.e., coins, currency and checking accounts. On the other hand, I do have an income and some wealth in various forms. Many times I have been a borrower and also a lender. You cannot buy health or happiness with money. On the other hand, with money around it makes it much easier for people such as Bill Gates and Warren Buffett to give large sums away. Indeed, IMO the only reasonable motivation for great wealth is to give it away to worthy causes, including some for needy family and friends. Aristotle agreed with this idea and regarded maganimity and generosity as important parts of virtue.

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R W Reactionairy on July 1, 2006 - 8:17pm

Jubal Harshaw and V.M. Smith both had a healthy disrespect for money. However, they both had enough for their needs at the right time.

BTW, see my earlier post. I was beginning to wonder if you had decided that this forumn wasn't to you or if you had been run over or run aground. :-)

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Don Sailorman on July 1, 2006 - 8:32pm

Hold on! Valentine Michael Smith was bowled over with delight when first he grokked money. Martians did not have money, you may recall.

Also, many of Heinlein's heroes were rich, e.g. D.D. Harriman in "Man Who Sold the Moon."

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R W Reactionairy on July 1, 2006 - 8:53pm

Smith also kept a bowl of the stuff by the door of the nest for use out in the rest of the world. In addition, money just about killed him before he had a chance to grok much of anything about humans.

Beyond this Horizon included a description of a monetary system that I believe you might endorse -- basically non debt based / non commodity based system but with the supply on auto pilot. Citizens received a periodic "dividend" [I believe that was RAH's terminology]basically for being alive to match the money supply with the growth in the economy. The Man from the Past who had at one time sold South American bonds for a living had a very hard time with this because "money has to be based on something." Back to my point ... I am not really against fiat currency as long as the quanity is not being gamed to reward, punish, and shift wealth and facilitate Government theft and other bad behaviors.

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Mike Hearn on July 2, 2006 - 6:18am

This proposal is known outside the fictional world as a "basic citizens income":

http://en.wikipedia.org/wiki/Guaranteed_minimum_income

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Don Sailorman on July 2, 2006 - 11:35am

"Beyond This Horizon" is one of my favorites of Heinlein novels.

RAH was decades ahead of his time. Look at the issues dealt with in "Beyond this Horizon," e.g. in regard to the genetic modifications of humans. Who else in 1943 was seriously worried about this?

My ambition (possibly delusional) is to write young-adult science fiction novels that will be almost as good as Heinlein's. So far I have two volumes of my future history done and have plotted out the third volume.

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R W Reactionairy on July 2, 2006 - 3:14pm

Go for it Don. You obviously write well. It would be interesting to see how your style translates into fiction. There is a niche that has not been saturated by any measure [the youth will read when something catches their interests -- witness J.K. Rowlings]. BTW, I didn't read any of RAH's young adult novels until after I had read Stranger in a Strange Land circa 1972 so depending on what you mean by "young adult" the audiance is certainly not limited to the very young. :-)

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Don Sailorman on July 2, 2006 - 6:22pm

If you're looking for some good summer reading, just check out amazon.com and look for inexpensive paperback or hardcover Heinleins. Get about thirty of them, reread or read them for the first time and relive your youth!

The first Heinlein I read was "Rocket Ship Galileo" back in '49. Some of his stuff has been published posthumously.

One of the best young-adult Heinlein's was "The Rolling Stones," and "Farmer in the Sky" was also excellent. Come to think of it, I have not reread "Rocket Ship Galileo" for decades--bunch of teenage boys along with their mentor build an atomic powered rocket and go to the moon. The film "Destination Moon" was very loosely based on "Rocket Ship Galileo."

"Have Space Suit, Will Travel" is also a lot of fun to read.

Frequently I reread books that were my favorites as a child and a teenage--invariably they are as good or better than I had remembered. Why read crappy new books when some of the old ones are so very much better?

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R W Reactionairy on July 2, 2006 - 7:04pm

In a post a while back, you commented on admiring the economics lessons of The Moon is a Harsh Mistress and the Rolling Stones. I commented that the sustainablity aspects of the former were obvious, and asked you if the the lessons of the Rolling Stones were from you perspective related to selling used bicyles or perhaps the merits of writing space opera [ignoring asteroid mining intentionally as being too straight forward]. You did not answer, but I think that I can infer from this exchange that your comment related at least in part to writing space opera. :-)

I think I have read just about all of RAH's novels and compliations except for Farmer in the Sky. Something to look forward to.

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Don Sailorman on July 2, 2006 - 8:59pm

Some of his notebooks from the thirties and forties were published a couple of years ago--very interesting reading.

Ah yes, much better to reread Heinlein than look at the low quality of books on best seller lists.

My motto: Whenever a new book comes out, read an old one.
Same for films. Of the great films, 90% were made before, say 1975.

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odograph on July 3, 2006 - 8:27am

I read about half of this book before taking it back to the library:

The Chinatown Death Cloud Peril

It was actually pretty good. Would you believe a book whose characters are all "pulp" authors (shadow, doc savage, etc.) heading for a mystery. A lot of history of the pulps here ... and would you believe L. Ron Hubbard as a the protagonist?

Funny, with some (apparently true) history, mixed into the story.

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Don Sailorman on July 2, 2006 - 9:03pm

In "Rolling Stones" I especially liked the twin brothers' scheme to make moonshine and sell it to the asteroid miners.

Also, I really identify with Hazel Stone, an oldster after my own heart, though I question the wisdom of loading my handgun with gum drops.

Do I hoard copper tubing?

You bet. Heckuva good investment no matter what.

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Everett on July 1, 2006 - 9:09pm

In the Sci-Fi vein, I'm trying to remember something by Larry Niven, maybe "A Modest Proposal".? The essay had to do with making hard currency radioactive. This would be done to facilitate circulation (velocity of money) and discourage saving/hoarding. With radioacive decay, this might also be a sort of natural demurrage. :-)

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WebHubbleTelescope on July 1, 2006 - 10:57pm

The only fiction I am reading these days is coming out of the White House. It seems clear to me that the right-wing is trying to starve the beast by cutting taxes while not cutting spending. This has the effect of making the only possible way to raise revenue by printing more money. Yes, I know this is inflationary but it is the best and sneakiest way to get the flat tax that Forbes et al have been craving for years. Printed money meant for government projects ends up getting dispersed to the general population so that it ends up costing everyone by the same ratio relative to their income. No progressivity in this at all.

So the right wing has managed to get tax breaks for the rich and designed a regressive tax scheme off a sleight-of-hand. Everyone is concentrating on the tax breaks and estate taxes, while they slyly stick it to all of us with the money printing machine.

This may be all well and good in the right-wing's minds, but the people that really suffer from this scheme are the foreign investors, who see their fortunes slowly evaporate in front of their eyes. With real income taxes, the foreign investor gets shielded, but no longer. This will spell disaster when China and company finally figure this out, as if they haven't already.

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Prodigal Son on July 2, 2006 - 12:06am

privatize money so that governments cannot finance themselves by creating too much of it and inflating away their debts.

We did have an era of 'private money' through bills-of-exchange, bank notes, and so on when government currency was tight due to the scarcity of gold/silver, and likely hurt as many people as it helped. Probably more. Independent central banks has been a partial solution to the inflation problem, but that just creates biases towards the financial sector.

The central problem with contemporary economics is that it is at best a science in its infancy, at worst a pseudo-science. Economists are like 15th century doctors who consistently order patients to be bled for lack of any substantive knowledge on what exactly they should do. Their measurements are crude. Their theories even cruder.

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TrueKaiser on July 2, 2006 - 1:16am

the united states had that for a while before the feds took it over. there was a big problem with it though.
lets say you have money issued from bank A, this though is not the only bank in the country lets call the rest B-Z.
you decide to go on a trip across the colony's so you take a modest amount of your money out of bank A. but each town you go to that money is worth less and less because more and more people are not familiar with the money bank A. the only and costly solution to this is to stop at each bank on your trip and convert all the money you have to that bank's version of the money of course for a fee.

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Mike Hearn on July 2, 2006 - 5:29am

A variant on full reserve banking has recently been proposed by James Robertson and others, and it has many strong arguments to support it. In this model new money supplies would be injected into the system via government spending; either on existing public works/services or via something like a basic citizens income.

Privatization of money I'm not sure about at all. That was effectively the scenario before the banking system was regulated and massive volatility in the sector was common. Bank runs and collapses were almost expected back then. I'm not sure it makes sense to return to that age, if that's what's being proposed.

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westexas on July 2, 2006 - 8:41am

There was also the computer, Mike, with a sense of humor in "The moon is a harsh mistress," who inflated the money supply in order to help pay for the revolt

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Don Sailorman on July 2, 2006 - 11:25am

The American Revolution was financed by printing money, and so was the French Revolution. The Confederate States of America financed their war through hyperinflation, and the northern states got into the inflation game in a big way.

Major wars cause inflations.

Revolutions cause inflations.

The superior political clout of the debtors cause inflations.

Single-factor explanations of phenomena such as inflation are silly.

And where is Robert Heinlein now that we need him?

In my future history (set in the near post-apocalyptic future) money is going to be warehouse receipts backed by ethanol. The basic unit will be "The Everclear," which is one liter of [barely] potable ethanol, i.e. lab alcohol or the 190 proof beverage you can buy at your local liquor store.

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R W Reactionairy on July 2, 2006 - 1:26pm

Don, assuming that the concept of "inflation" we are defining is a general rise in the level of prices ... my [possibly silly] one predominant factor explanation for inflation: Excess growth in the money supply & money like debt instruments vis a vis the availabity of goods and services. I would add velocity as another factor that is so closely related I could still label it a one factor explanation, as velocity of money impacts the effective although not the absolute money supply.

You left out one of the classic instances of monetary inflation -- the California & Klondike gold rushes [and similar mineral bonanzas] where metal was abundant and labor & supplies from the outside were highly constrained by logistics. It is very easy to conect the dots and establish the relationship between the money supply, supply of goods and services; and the general price level.

Major wars and revolutions most often resulted in inflation from the same old over supply of money theory [sometimes against a shrinking supply of goods and services], although at times a loss of faith in the money tied to a loss of faith in the issuer can indeed reduce fiat money to its intrinsic value [ink stained paper.] :-)

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Don Sailorman on July 2, 2006 - 2:30pm

I agree.

Your cogent comments illustrate the folly of basing money on precious metals.

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Magnus Redin on July 2, 2006 - 4:55pm

Reminds me of old Swedish emergency "coins" that were minted when our government lacked silver and used between 1644 and 1776. They were copper plates stamped in the courners and middle and litterally worth their weight in copper. Few survived from being used as the copper plates they were.

http://www.myntkabinettet.se/jpg/10daler.jpg

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