ALL BLOG POSTS AND COMMENTS COPYRIGHT (C) 2003-2014 VOX DAY. ALL RIGHTS RESERVED. REPRODUCTION WITHOUT WRITTEN PERMISSION IS EXPRESSLY PROHIBITED.

Thursday, April 05, 2012

Medieval Pre-Keynesianism

From The Discoverers by Daniel Boorstin:
Following the example of the more advanced people they had conquered, the Tartars began issuing their own paper currency, and after 1260, when Kublai Khan completed his conquest of China, he made it the regular institution reported by Marco Polo. In Marco Polo’s day the notes were still passing at full face value, but in the last years of the Mongols’ Yüan dynasty (1260–1368), floods of paper money once again signaled inflation. When the first emperor of the new Ming dynasty (1368–1644) took over, he cut back the paper money in circulation, and finally succeeded in stabilizing the currency.

From its beginnings in China, printing bore this guilty association with unsound currency. For centuries printed paper money appeared to be the only form of printing known to European travelers. A paper-money debacle closer to the West added to the ill-repute of printing. In Tabriz, capital of Mongol-conquered Persia, both Venice and Genoa kept commercial agents during the early years of the fourteenth century. The extravagance of the Mongol ruler Gaikhatu Khan from 1291 to 1295 put pressure on his treasury, which he tried to relieve by issuing paper currency. Block-printed in 1294 in Chinese and Arabic, each of his notes bore the date of the Muslim era, a warning to forgers, and the cheerful prediction that now “poverty will vanish, provisions become cheap, and rich and poor be equal.” But the magic did not work. After only a few days of compulsory use of the paper, commerce was disrupted, markets closed, and the Khan’s financial officer was reported murdered.
We like to flatter ourselves that we know so much more than our predecessors. And yet, the idea that printing more money will lead to economic growth as well as reductions in poverty and income inequality can be seen in almost every Paul Krugman column that mentions the money supply. The problem isn't that his solutions are old, failed policies from the 1930s, but that they are old, failed policies from the 13th century.

The only difference between the treasury of Gaikhatu Khan and the Federal Reserve is that the latter has had the sense to slowly increase the money supply, thus delaying its eventual day of reckoning. But the cold, hard, mathematics means that day will eventually come.

Labels:

33 Comments:

Blogger swiftfoxmark2 April 05, 2012 9:38 AM  

There is indeed nothing new under the sun.

Anonymous Stilicho April 05, 2012 9:41 AM  

The only difference between the treasury of Gaikhatu Khan and the Federal Reserve is that the latter has had the sense to slowly increase the money supply, thus delaying its eventual day of reckoning. But the cold, hard, mathematics means that day will eventually come.

Slowly boiling the frog is more likely to keep him in the pot until it is too late.

Anonymous Starbuck April 05, 2012 9:43 AM  

Isn't it bizarre that the newer smarter people of the 20th and 21st centry are repeating the same dumb (even though they look like smart solutions) mistakes? It is akin to shooting an arrow in the air expecting it to not come down, it used to and it will now. Once in a while it will stick in your head.

I think it is that old teenager feeling of discovering sex. Every generation seems to think they are the smart ones to have figured that one out and no one else has.... Then they realize how they came about..

Blogger A April 05, 2012 9:43 AM  

Vox, which do you think is superior: Fractional Reserve Free Banking with convertible currency, or, 100% Reserve Free Banking with convertible currency?

Anonymous Anonymous April 05, 2012 9:51 AM  

If Obama had a son he would look like Gaikhatu Khan...

Anonymous Rantor April 05, 2012 9:59 AM  

And we have knowwn that artificially low interest rate policies hurt the poor since at leas the 15th century...

Blogger tz April 05, 2012 10:02 AM  

Money is not credit is not wealth.

Only freedom and creativity increases the supply of wealth.

Fractional Reserve banking is loaning out wealth but pretending it is still there because it is on the books. If physical things were being loaned it would be clearer.

And modern money theory (See Peter Pilkington at nakedcapitalism.com for particularly egregious errors including mis-interviewing a "libertarian") says you can print wealth - they can increase the money supply, and make it illegal or do other things to suppress interest rates for a while. But that destroys wealth. Why mine and refine gold to create a pure ounce when you can print a certificate that says it is equivalent or represents, or may be repaid in, or something else...

Anonymous Grendelizer April 05, 2012 10:04 AM  

Currently reading "The Creature from Jekyll Island" on the origins of the Federal Reserve, and, of course, it devotes much time to fiat money. Eye-opening, if true. Has this book been seriously and soundly rebuted, or does its thesis stand?

Anonymous Josh April 05, 2012 10:10 AM  

full reserve free banking

Anonymous artie April 05, 2012 10:21 AM  

The problem is not the fractional per se, it's not the printing per se. It's the monopoly granted to the federal reserve that's the main problem.

if alternative currencies were allowed, the best likely would stay. so people could choose between fractional or 100% backed money. backed by 'word of the banker' or backed by gold. whatever suits the people.

that should be free banking.

Looks like the book is an interesting read. VD, did you notice any historical fallacies?

Anonymous dh April 05, 2012 10:30 AM  

> But the cold, hard, mathematics means that day will eventually come.

And we are all dead on a sufficiently long time line.

Blogger crazyivan498 April 05, 2012 11:00 AM  

I am currently reading Rothbard's History of Economic Thought. It is remarkable how history repeats itself offer and offer again. It seems that mankind is only interested looting what it can from the producers in the short term while destroying it's future sustainability.

Blogger crazyivan498 April 05, 2012 11:03 AM  

"Currently reading "The Creature from Jekyll Island" on the origins of the Federal Reserve, and, of course, it devotes much time to fiat money. Eye-opening, if true. Has this book been seriously and soundly rebuted, or does its thesis stand?"

great question. I haven't read it myself, but I am aware of it. Given VD expertise in history it would nice to hear what he thought of it

Anonymous James Dixon April 05, 2012 11:09 AM  

> Only freedom and creativity increases the supply of wealth.

Well, you're leaving the physical labor which is usually involved in expressing that creativity, but otherwise, yes.

And since people will be creative anytime creativity is not actively punished (and a small percentage of people even then), what does that leave as the primary creator of wealth? I know, preaching tot he choir here, but...

> It is remarkable how history repeats itself offer and offer again.

The nature of people doesn't change, so why is it that surprising?

Anonymous Not Gary North April 05, 2012 11:48 AM  

"The only difference between the treasury of Gaikhatu Khan and the Federal Reserve is that the latter has had the sense to slowly increase the money supply, thus delaying its eventual day of reckoning."

Funny thing about those evil corporations. Banks want to keep the system running to keep their profits. Yes, a really crappy check on the State. A million times worse than than moral system based on the gold standard...

But still MUCH better than having Congress and the Treasury print fiat money directly -- which you're seeing some in the "Abolish the Fed" movement saying (talking about commies like #OWS and creepy greenbackers like Ellen Brown http://www.garynorth.com/public/department141.cfm)

Anonymous Modernist April 05, 2012 12:02 PM  

It's different this time.

Anonymous bw April 05, 2012 12:44 PM  

Boy, those Venetians keep popping up, don't they??

Blogger Magson April 05, 2012 12:58 PM  

There's a similar section in Charles Mann's "1493" where it talks about the various currencies in use in China in the 1300-1500's and how they went through many cycles of hyperinflation and collapse. I recall as I read it (and his indictments of how crappy their governments and lawmakers were) that I felt that I could substitute current USA place-names and government officials into his narrative and it still would have been 100% factually correct.

The more things change, and all that.

Anonymous The One April 05, 2012 1:15 PM  

I'm more curious to the history of what happened after the currency collapse?

Anonymous Geoff-UK April 05, 2012 1:16 PM  

Don't fight history, and don't expect mankind to undergo a sea change in morality or intelligence. Just recognize that the rabble don't understand inflation and never will, the rabble demand benefits that they can't afford, they don't even realize that they're ruining their own country (nor would they care if they did). In short, they refuse to be educated. Pity them as you would an African villager who has seen 3 of his relatives die at the river's shallow bend hole to crocodiles, yet refuses to use the pulley system on the higher riverbank farther upstream to fill his water bucket because it's "too far to walk."

The evil banksters are no doubt evil. And very, very, very likely to win in the end. Until the next end, which they will also win.

If you can't beat them, join them. Doing a great job Brownie! I mean, Ben!

Save your wealth in AU, read FOFOA, and continue swimming in the pool of worthless paper (that everyone agrees to pretend has value) if you need return. AAPL to $1,000!

Anonymous Shild April 05, 2012 1:24 PM  

The problem is not the fractional per se, it's not the printing per se. It's the monopoly granted to the federal reserve that's the main problem.

if alternative currencies were allowed, the best likely would stay. so people could choose between fractional or 100% backed money.


Alternative currencies are allowed right now; there are plenty of towns with their own local currency. Also, I'm pretty sure it's legal to make contracts that trade anything (gold, silver, puppies, a pound of flesh, etc) without using currency.

I think the issue is that US courts will not enforce contracts unless payment was made in US dollars (not sure about that).

Blogger JartStar April 05, 2012 1:36 PM  

I'm curious if after seeing the EU tear itself apart thanks to deficits if the neo-Keynesians have changed their tune that deficits and debt don't matter.

Blogger LP 999/Eliza April 05, 2012 1:49 PM  

Fictional reserve banking can only last for so long, the emp's naked as a jail bird. The K-team is eventually admit their policies are failures.

Anonymous FUBAR Nation (Ben) April 05, 2012 1:57 PM  

Keynesianism is as much a religion as global warming/climate change. It can't be disproven because if a stimulus didn't work, it's because we didn't blow enough money on useless crap like solyndra. Why did Greece go bankrupt? Because it didn't spend enough.

Austrian economics basically says that if you spend more than you make you will go bankrupt eventually. Simple stuff that isn't sexy or doesn't use ridiculous econometric models that think there are constants to human behavior.

It isn't fun to be the one at the party that tells everyone the party's over because the cops have just shown up.

Anonymous Clay April 05, 2012 3:02 PM  

Those devious Mongolian Jews.

Anonymous James Dixon April 05, 2012 3:49 PM  

> Simple stuff that isn't sexy or doesn't use ridiculous econometric models that think there are constants to human behavior.

There are constants to human behavior. One of which is that most people like to spend more money than they have. :)

Anonymous Stilicho April 05, 2012 4:04 PM  

I'm curious if after seeing the EU tear itself apart thanks to deficits if the neo-Keynesians have changed their tune that deficits and debt don't matter.

Silly realist, their deficits just weren't big enough.

Blogger Galt-in-Da-Box April 05, 2012 4:35 PM  

"Dere echt no financial crisis, ve yusht need to preent more monyah!!!" - Helicopter Ben

SHUT UP, DUMBASS!!! - Everyone else.

Anonymous Kyle In Japan April 05, 2012 7:24 PM  

The Lorites would be laughing their butts off.

Anonymous Anonymous April 05, 2012 8:38 PM  

tasbasco rules!

Anonymous Anonymous April 05, 2012 8:42 PM  

so dats how dis works.list time is e.s.t. gmt 0043

Blogger Kentucky Packrat April 06, 2012 8:41 AM  

I think the issue is that US courts will not enforce contracts unless payment was made in US dollars (not sure about that).

If I run a grocery store, I can refuse to accept any payment (Bitcoin, script, Silver Dollar coins, etc.) before I give you your groceries. Let's say that I'm charitable, and allow you to buy $50 worth of groceries on credit. You come in a week later, packing $25 in US paper money, and offer to make a partial payment. I refuse, because I only accept Bitcoin or Silver Dollars. I have refused to accept legal tender for debt, so no court will enforce the debt.

Alternate currencies are very, very hard in the US because the government holds a monopoly on coinage (no Gold coins, for example), and you cannot refuse USD for debt repayment.

Anonymous JMH April 06, 2012 3:00 PM  

If found at least two optimistic items in the passage quoted from Boorstin.

Post a Comment

NO ANONYMOUS COMMENTS. Anonymous comments will be deleted.

Links to this post:

Create a Link

<< Home

Newer Posts Older Posts