Tuesday, August 18, 2009

Lynn: Deflation Theory Is Lemon We've All Been Sold

In one of the better Op-Ed pieces in a major financial publication I've seen in quite some time, Matthew Lynn attacks the common dogma that deflation is dangerous and evil while inflation remains a benevolent and kind friend to all.

This goes along well with my last article, Depression in the 21st Century, where I urged the abandonment of unnecessary fear in understanding what a deflationary depression would look like for various people.

Lynn concludes his article:

There are winners and losers, just as there are from most economic developments. The important point is that the people who lose are more powerful than the people who gain. That might explain why we hear about the dangers of deflation, and not about its advantages. It still doesn’t make them right.

There is no threat from deflation. It may even be desirable if it encourages a balance between saving and consumption, and discourages governments and banks from taking on debt.

If Lynn's conclusion sounds conspiratorial, it's because it is. "The money interest" as it used to be known will stop at no end to ensure that they are able to increase the supply of it at will. 180 years ago this meant attempting the assassination of Andrew Jackson - six times. Murray Rothbard's book, A History Of Money and Banking in the United States, is perhaps the best book to read for understanding these realities. It destroys popular misconceptions and attacks those originally responsible for their adoption into mainstream thought.

As an extension to Lynn's piece today, curious readers may wish to explore a more in depth piece discussing deflation and the misinformation that has typically been tied to it. To do so, I recommend Jorg Guido Hulsmann's monograph Deflation and Liberty, which can be read free in its entirety at that link.

It is high time to put an end to the culture of fear being propagated by central bankers and their minions in government. Neither deflation nor a general economic depression can be seen as an unquestionable evil. Both will reinstate discipline in our markets and provide justice for the responsible.

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John Cooper said...

May I post the link to Lynn's piece?

mike.montchalin said...

It seems like increased productivity should be reflected in lower prices and having to work fewer hours.

But that's not what we get. We get to send the wife to work.

So where does this increased productivity wind up? Not in lower prices or having to work less. The wealth resulting from increased productivity must be burnt up in government's programs and wars. And they aren't satisfied. They have to squeeze every ounce of wealth out of increased productivity with their 'hedonic adjusting.'

Thanks for the links.

John Cooper said...

Deflation and Liberty is absolutely brilliant. It makes the logical connection between fiat money and statism. Thanks for posting the link.

"At the beginning of the twentieth century, most firms and industrial corporations were financed out of their revenues, and banks and other
financial intermediaries played only a subordinate role. Today, the picture has been reversed, and the most fundamental reason for this reversal is paper money. Paper money has caused an unprecedented increase of debt on all levels: government, corporate, and individual. It has financed the growth of the state on all levels, federal, state, and local. It thus has become the technical foundation for the totalitarian menace of our days."

Matt Stiles said...

Thanks John, I updated the article with a link. Don't know how I missed that.

occdude said...

More important than the so-called "power elite" who suffer disproportionately in a recession, it is debtors. Mostly governments who suffer from the crushing debt loads and decreasing revenues that happen in a recession. That is why central bankers want to print and thats why EVENTUALLY they'll get the hang of i and thy will do just that.

Anonymous said...

Well, it depends as to what is driving the "deflation". If it's monetary contraction, that is a bad thing - the problem I have with Rothbard that he insists that this is the *only* way to deal with the bust scenario.

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