Thursday, January 30, 2014

Quote of the day 30th January 2014

"Common sense is seeing things as they are; and doing things as they ought to be."



Jim said...

common sense to me is a bit of an oxymoron, as its not that common.

seeing though things like the veil of money is something i have been trying to tell people for years, but many just cant grasp it. Its quite a simple thing, you see no one actually wants more money, they don't. They in fact want the goods that they can exchange money for (whet ever those goods or indeed services, are. No one wants more money. From there its quite a simple step to see that as the value of money in terms of "stuff" falls, then we see its not things getting more expensive, its the value of money falling. How to stop this? well here is an old idea, go onto a gold standard, where every pound is worth so much gold, it would solve this in a nutshell, and would prevent the government borrowing beyond their means.

Chris Whiteside said...

You're absolutely right about money illusion (one of John Maynard Keynes' best insights) although when inflation is higher people are more likely to start to see through money illusion (Milton Friedman's best insight).

There are advantages to the gold standard. The main trouble with it is what happens to the price of everything else if the supply and demand position for the commodity of gold itself shifts?

For example, the stolen treasure which the Spanish brought back from the americas in the 16th century caused a century of inflation throughout Europe by disrupting the supply and demand for gold and silver.

Chris Whiteside said...

You're also right that common sense is not that common, either if it means shared sense (as the expression originally meant) of something widespread (which sadly, common sense isn't.)

Jim said...

To answer your question in the first comment.

Yes, the levels of available gold can suddenly change, making gold more available, (cheaper) thus casing a perceived increase in the price of everything else, sure this can happen.

Thing is though you need to find a lot of gold to do this, and like common sense, gold is not that common either. So it does not happen very often.

Its not like you can turn on a printing press and make a paper note with no defined value. You need a bit of gold to make a coin, or at least a bit of paper which is a receipt for x amount of it. In the case of a receipt then store houses (banks) need to be audited to ensure the number of receipts, matches the amount of gold in the vault.

So to me your argument about gold can cause inflation, is a little like someone in whitehaven harbour saying its a little bit wavy in here, and heading off to sea for shelter.