A doubling of the money supply does not confer any social benefit. It does not add nor deduct from the wealth of society(let's just say this is done by magic fairy so that there is no redistribution).
Likewise, cutting the money supply in half does not add nor deduct from the wealth of society.
If this is true, then taxation (independent of spending and equally applied to all) is not bad because it just reduces the money supply. Please explain.
Kenneth: A doubling of the money supply does not confer any social benefit. It does not add nor deduct from the wealth of society(let's just say this is done by magic fairy so that there is no redistribution). Likewise, cutting the money supply in half does not add nor deduct from the wealth of society.
No. It depends.
Kenneth:it just reduces the money supply.
How?
Kenneth:If this is true, then taxation (independent of spending and equally applied to all) is not bad because it just reduces the money supply. Please explain.
Ignoring for the sake of argument the deflationary transitional phase, as you clearly are, the problem in your reasoning is that you forgot that the government actually spends that money. The spending diverts resources to meet the demands of the government and the wages paid with taxation are consumed.
Kenneth: A doubling of the money supply does not confer any social benefit. It does not add nor deduct from the wealth of society
A doubling of the money supply does not confer any social benefit. It does not add nor deduct from the wealth of society
It means nothing to double the money supply if all the new money remains in a box or in a mattress and never gets spent or is held by bank reserves with the Fed (and doesn't get borrowed & spent). Increasing the money supply does have a great benefit to the people who get to spend the new money first. The holders of the new money get to spend it without having to first produce something to earn it. The spenders of the new money get to buy goods at yesterday's price before the price of those goods get bid up by other people (producers) who have earned money and want to buy those same goods.
Kenneth: Likewise, cutting the money supply in half does not add nor deduct from the wealth of society.
How do you cut the money supply in half? Do you do it overnight while everyone is sleeping? Does all debt that is owed also get cut in half? Does everyone who owns money lose half their savings? If yes, what's the benefit of halving the money supply? It would be like issuing a new money with a 1:1 swap. No one loses any purchasing power or obtains debt relief. No one gains or loses. A revaluation of the money supply is intended to be for the benefit of some special interest minority... which is always the gov't. The gov't has no savings but has a massive amount of debt. A revaluation will make savers lose and debtors win.
Kenneth: If this is true, then taxation (independent of spending and equally applied to all) is not bad because it just reduces the money supply.
If this is true, then taxation (independent of spending and equally applied to all) is not bad because it just reduces the money supply.
Taxation does not affect the overall money supply. It affects only your money supply. The gov't steals your money and spends it for you on things they want.
Kenneth:A doubling of the money supply does not confer any social benefit. It does not add nor deduct from the wealth of society(let's just say this is done by magic fairy so that there is no redistribution). Likewise, cutting the money supply in half does not add nor deduct from the wealth of society.
Am I the only person who caught this?
It doesn't reduce the money supply. And this is why no one here is really willing to entertain your fairy concept because it's all too much what's actually happening in modern economics. "Let's assume the world works like a perfectly tuned mathematical model where subjective values can be quantified and predicted via algorithims of mass behavior," is simply another way of saying, "Let's just say this is all done by a magic fairy..." The process in the real world is what counts, and paying attention to this is what differentiates to an extent the Autrian approach from the modern approach with professors who have their heads rammed so far up their theories that they never bother to look out the windows of their ivory towers.
So yeah, assuming taxation could be applied 'equally' to all, which further assumes quantifiability of interpersonal valuations of dollars earned and then taken which is itself impossible, and then the government just sat on the money or threw it in a pit and swam in it like Scrooge McDuck, there probably wouldn't be any ill effects. But since the real world will never, ever, match such a conceptual model, what the fuck is the point of it?
xahrx: Kenneth:(let's just say this is done by magic fairy so that there is no redistribution). Likewise, cutting the money supply in half does not add nor deduct from the wealth of society. Am I the only person who caught this?
Kenneth:(let's just say this is done by magic fairy so that there is no redistribution). Likewise, cutting the money supply in half does not add nor deduct from the wealth of society.
I didn't pick up on it. That makes changing the money supply have no impact. Makes the argument moot. If the banking system were to overnight double everyone's savings account and double their debt balances then all that would be accomplished is that prices for goods/services would double overnight.
The only other thing I can think of that supports this idea of deflation is the concept that gov't uses tax funds to pay off US treasury debt. If US treasuries are paid off and no new bonds are created to replace them then that is deflationary to the money supply. The assumption here is that gov't will balance its budget and run a surplus. That it will extinguish its debt, and not roll it over by borrowing the same debt again. It also assumes that the Fed won't monetize other assets or debt to supply the rest of the economy with debt which replaces the gov'ts demand for debt.
Let me clarify: If the US Treasury uses tax dollars to pay off debt held by the Federal Reserve and the Fed's balance sheet contracts, it is deflationary. However, the Fed can choose to swap US Treasuries with other assets (like mortgage backed securities) and then the holders of those securities (now holding US Treasuries) will receive the repayment dollars from the gov't for the Treasury debt. In this latter case, the holder of the US Treasury gets the money and gets to spend it. The money doesn't die. Money dies only when the Fed's balance sheet contracts. The gov't could pay off all its US treasuries in full and have zero debt. If this is the plan, as long as the Fed swaps its holdings of US treasuries with other (private) debt to offset the maturing of US treasuries then the Fed's balance sheet won't contract. That will avoid deflation.
Kenneth:taxation (independent of spending and equally applied to all) is not bad because it just reduces the money supply. Please explain.
This is simply false.
As an aside, it has been noted by Rothbard (I believe, can't remember where), that even Hume's Angel Gabriel scenario will not leave the economy un-perturbed - upon waking in the morning, everyone will believe for some time that they are in fact twice as wealthy as they were. Until this mistaken notion is corrected, their spending patterns will indeed be altered by what they supposed to be their new wealth.
Clayton -
ClaytonB:As an aside, it has been noted by Rothbard (I believe, can't remember where), that even Hume's Angel Gabriel scenario will not leave the economy un-perturbed - upon waking in the morning, everyone will believe for some time that they are in fact twice as wealthy as they were. Until this mistaken notion is corrected, their spending patterns will indeed be altered by what they supposed to be their new wealth.
The magic fairy took care of that too, I'm sure.