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Posts Tagged ‘FOFOA’

In which Jehu finds G:D on a rainy Sunday morning, thanks to Andrew Kliman and @BrianGallaghe17

September 30, 2012 Leave a comment

Tweep @BrianGallaghe17 sent me this tweet the other day:

@ReThePeople Kliman interviewed about his new book in which he claims the profitability crisis is from the 70s

So I went to see what Kliman is up to now. In the interview, Kliman makes this statement:

So what we have is a major debt crisis. I don’t think it’s very likely that we’ll have a sustained boom unless and until the debt problem and the deeper, underlying problem – the profitability problem – are resolved. We may have a long period of very weak growth, as Japan has had ever since bubbles in its real-estate and stock markets burst at the start of the 1990s, or we may have something worse. Given the magnitude of the bust in the US construction industry and the magnitude of the recession in general, it would have taken a long time for production and employment to return to pre-recession levels in any case. It’s likely that the persistent debt problems and pessimism about the future have slowed down the recovery, and that they’ll continue to do so. Real gross domestic product in the UK and most other major European countries is still lower than before the recession. And even in countries where that’s not the case, like the US and Germany, GDP growth is still quite slow.

I wondered if in the US case GDP grew at all, much less growing slowly, since 2007. In 2007, GDP was estimated by the BEA at $14.028 trillion versus $15.075 trillion in 2011, an increase of $1 trillion or so in output. As far as Kliman is concerned, that pretty much settles it, because the fascist state says dollars are money, not tokens of money. We can, therefore, assume that these dollars measure “real” economic activity, without more inquiry.

However, Marx said money had to be a commodity — and no matter how much Kliman might trust Washington’s monetary policy, good analysis suggests we should at least check GDP using a commodity money to see if we can confirm Washington’s numbers. In 2007 one ounce of gold fetched a price in the market of $695.39, however by 2011, that same ounce of gold was priced at $1,571.52. So, during the same period that GDP rose 7.5% in nominal dollars, these same dollars depreciated to less than half their former purchasing power against gold.

Now before I read and compared Kurz to Postone, I would have suggested dollar denominated measures of GDP were completely bogus. But, no more — I am reformed, I have seen the light! Thank you Jesus! I have come to the conclusion that, in fact, both are right, Halleluiah!

Can I get an Amen?

Which means, quite oddly, that the US “economy” has both grown and shrunk during the same period 2007 to 2011. So things are a bit more complicated than simply stating the economy grew or shrank during some period of time. By one measure it has grown and this has implications, but by another measure it continues to shrink and this has other implications. If we say it grew, simply because dollar denominated values have increased, we miss that it shrunk in commodity money terms. On the other hand, if we say it shrunk in commodity money terms, we miss the fact that it grew in dollar denominated terms.

We end up dissing either Postone or Kurz, and I kind of like both of them.

It occurred to me while reading the Kliman interview that we need a measure that captured this relationship in terms of the historical trajectory of value. Something along the lines of Marx’s organic composition of value, c:v. This measure would reflect the dollar denominated value of output as a ratio to the commodity money value of this same output.

But how would it be structured as a ratio? Gold to dollars, or dollars to gold? Bourgeois economics places the relation as the dollar price of gold, i.e., the value of gold is measured in some quantity of dollars. This relationship can be expressed as dollars per ounce of gold. This is precisely the question I am interested to know when i am trying to stock my gulch with beans, guns and gold for the coming global apocalypse that threaten civilization itself.

However, Sam Williams and I have suggested the actual relationship is reversed: it is actually some physical quantity of gold per dollar; which is to say, dollars do not denominate the price of gold, gold denominates the price of dollars. I am proud to say I blatantly stole the idea from FOFOA, the Austrian school blogger, where he quotes his mentor, Another:

Another:
Gold! It is the only medium that currencies do not “move thru”. It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say “gold moves thru paper currencies”.

FOFOA:
Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world **except gold**.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.

And he arrives at the conclusion that:

All Paper is STILL a short position on gold!

Which is to say, fiat currencies do not express the value of gold, but only symbolically represent some magnitude of value denominated in a physical quantity of gold. Employing this method, I think, but I am not sure, that the ratio should be set as G:D — which is a bizarrely pseudo-religious formulation. If we used this to measure the value content of a single dollar, this is how GDP has actually changed since 2000:

That is also the value content of US GDP over the same period. If we look at how the value content of the dollar has fallen since 1970, the results are even more starkly represented.

During this same period, 1970 until 2011, the nominal GDP of the United States has almost increased every year, but the value content of this GDP has fallen for most of that period. This graphically represents the relation between Postone’s and Kurz’s definitions of value as a relation between gold and the dollar. It confirms, I think, the argument of both that the value form, measured in dollar, and the content of this form, measured in gold, have become completely disconnected from one another.

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MONEYLESS: Deflation (Or, “too little money”)

December 29, 2011 9 comments

FOFOA’s argument against modern money theory can be summarized as follows:

A staggeringly massive hyperinflationary event is already latent in the global economy. The dollars currently in circulation only retain their purchasing power because of the function of money as medium for the circulation of commodities. Modern money theory, which proposes the fascist state faces no monetary constraint on spending in excess of its ability to tax or issue debt, is making an argument for monetary policies that will only exacerbate the latent hyperinflation already present in the economy. The problem posed by hyperinflation, “too little money”, is not mitigated when the state creates new currency out of nothing. Rather, the case is the reverse: emitting new dollars does not create additional purchasing power; it simply dilutes the purchasing power of the dollars already in circulation, adding to the implosive potential of the inevitable hyperinflationary event.

According to FOFOA, the hyperinflationary event has been held back so far by the self-interested action of Europe, Japan, and China; who have recycled their dollars back to the US to buy its debt over the past thirty years. This recycling of dollars into US debt has supported the purchasing power of the dollar, but it has reached its limit. The dollar is now suffering a credibility crisis among US creditors, that must lead to an effort by these creditors to exchange their dollars for real, not fictional, assets. With the US’s creditors losing faith in the stability of dollar purchasing power, and boycotting the purchase of US debt, the US is actually engaged in wholesale creation of dollars out of nothing to fund its operations, driving the dollar into actual hyperinflation.

This latter scenario, the impending and irreversible loss of dollar credibility, is where FOFOA badly stumbles in his argument against the advocates of modern money theory.

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MONEYLESS: FOFOA on Hyperinflation (or “too little money”)

December 7, 2011 Leave a comment

Toward the end of his case against the modern money school, FOFOA offers this insight into Wiemar Republic hyperinflation, and what he argues is the basis for the coming hyperinflation set to be unleashed in the dollar system:

As the German Mark fell, there was “not enough money” to pay the debt. And with a little inflation, there is “not enough money” to buy our necessities from abroad.

Hyperinflation, FOFOA argues, is commonly described as a rapid rise in the general price level — an incredibly sharp burst of inflation where the prices of commodities increase a hundred-fold, even a thousand-fold, as a result of a rapid depreciation of the purchasing power of the currency. But, hyperinflation can also be thought of as a sudden implosion — collapse — in the supply of money in relation to the prices of commodities. A situation emerges where there is “not enough money” to pay for commodities.

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MONEYLESS: The Dollar Puzzle

December 4, 2011 2 comments

It turns out my first reaction to FOFOA’s post, Moneyness, was the correct one: the Moneyness of the dollar is to Money what Stephen Colbert’s Truthiness is to Truth, i.e., NOT.

To really understand the significance of FOFOA’s pure concept of money, I will compare it to Karl Marx’s and classical political-economy’s view of money. In the latter view, value drives and determines price; while in FOFOA’s pure concept of money, price is wholly indifferent to value. Marx argued the price realized by the sale of a commodity in any exchange was, at root, a function of the duration of socially necessary labor time it takes to produce it. The realized price of the commodity included the wages paid to the worker plus a quantum of unpaid labor time realized as profit by the capitalist. However, because this is a social process, and the actual exchange is heavily influenced by imbalance between supply and demand and many other factors, a direct connection between the price and value of a commodity in a given transaction could not be established in any obvious fashion.

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MONEYLESS: FOFOA on the Dollar, Gold and the Present Crisis

December 1, 2011 4 comments

I am now reading FOFOA’s Moneyness, an epic length blog on the history of money. I was lured into reading it by the title, which I stupidly misinterpreted as tongue in cheek on the order of Colbert’s Truthiness. In fact, it is an attempt to bring his view on money to an analysis of the current global monetary crisis.

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