Leithner Letter Nos. 188-191
26 July 2015 - 26 October 2015

The special commodity or medium that we call money has a long and interesting history. And since we are so dependent on our use of it (and so much controlled and motivated by the wish to have more of it or not to lose what we have) we may become irrational in thinking about it and fail to be able to reason about it like about a technology, such as radio, to be used more or less efficiently.

… So I wish to present the argument that various interests and groups, notably including “Keynesian” economists, have sold to the public a “quasi-doctrine” which teaches, in effect, that “less is more” or that (in other words) “bad money is better than good money.” Here we can remember the classic ancient economics saying called “Gresham’s law” which was “The bad money drives out the good.” The saying of Gresham’s is mostly of interest here because it illustrates the “old” or “classical” concept of “bad money” and this can be contrasted with more recent attitudes which have been very much influenced by the Keynesians and by the results of their influence on government policies since the 1930s.

So let us define “Keynesian” to be descriptive of a “school of thought” that originated at the time of the devaluations of the pound and the dollar in the early 1930’s of the 20th century. Then, more specifically, a “Keynesian” would favour the existence of a “manipulative” state establishment of central bank and treasury which would continuously seek to achieve “economic welfare” objectives with comparatively little regard for the long term reputation of the national currency and the associated effects of that on the reputation of financial enterprises domestic to the state.

… I see this as analogous to how the “Bolshevik communists” were claiming to provide something much better than the “bourgeois democracy” that they could not deny existed in some other countries. But in the end the “dictatorship of the proletariat” seemed to become rather exposed as simply the dictatorship of the regime. So there may be an analogy to this as regards those called “the Keynesians” in that while they have claimed to be operating for high and noble objectives of general welfare, what is clearly true is that they have made it easier for governments to “print money.”

John Forbes Nash, Jr.
Ideal Money and Asymptotically Ideal Money (undated lecture)
(see also Nash’s “Ideal Money,” Southern Economic Journal,
vol. 69, no. 1, 2002, pp. 4-11)

Why Has the Price of Oil Plunged?
What Will Be Its Price in a Year? In Five Years?

Observers of and participants in financial markets typically prophesy confidently and frequently. Indeed, many predict like they breathe – that is, constantly and without conscious thought. Very few, in other words, bother to describe and justify (or even mention) the reasoning and data that underlie their prognoses. This, I suspect, is because most “forecasts” – including those of alleged “experts” – are at best simple extrapolations from recent trends; at worst, they’re mere random guesses. People who purport to foresee, in other words, characteristically “see” the future exclusively through the lens of the present: if today it’s sunny and warm, then they’re upbeat and anticipate that tomorrow’s weather will be even more pleasant; but if it’s presently storming and cold, they’re downcast and expect that the gloom will persist and worsen. The price of oil provides a good example.

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Chris Leithner


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