Editorial / With the Senator from Newsweek / Afterthought
Tyrrell, R. Emmett Jr.
This is another way of saying that we hear too much about money supply and not enough about money demand. As I write, we are in a period of rapidly declining inflation. The "money supply" (M1),...
...Prepayment is required on all orders not for resale...
...AFTERTHOUGHT Join with me in solemnly raising a glass of sparkling libation to the recent achievements of General Efrain Rios Montt of Guatemala and to those of Lieutenant General Hussain Mohammed Ershad of Bangladesh...
...Even a senator educated at Newsweek would have learned that much...
...The p r e s e n t solemnities issuing from the honorable gentlemen on Capitol Hill remind me of an evening some years ago in the company of some learned economists and one senator...
...Just because the public is now willing to hold more dollars, it does not necessarily follow that inflation is once again at our throats...
...Other vigorous modes of change, for instance revolution, arouse no such scrupling, as anyone reading the news dispatches from El Salvador knows...
...and it arouses far fewer barhats from our ddgagd foreign correspondents, who glow with admiration when they behold khaki-clad teenagers in the bush armed with M-16s a/!d a few lines of Marxist hashish...
...Considered purely in humanistic terms, the coup is actually more humane than revolution...
...and by raising the rates if gold is flowing out...
...Among some pundits, revolution is even preferable to the secret ballot...
...All orders from outside the United States must be prepaid in U.S...
...One looks forward to its f u r t h e r decline...
...Recently the House Appropriations Committee rejected $14.2 billion of the P r e s i d e n t ' s proposed budget cuts...
...Then he divulged the details of his lucubrations: He was a reader of Newsweek, and he had once meditated upon an interview with Milton Friedman in Playboy magazine...
...Gold's rate of production, over the long haul, is equivalent to the growth rate of mature economies, over the long haul...
...6 THE AMERICAN SPECTATOR MAY 1982...
...the role of the State in education...
...dollars...
...In other words, the demand for money goes up when inflation goes down (i.e., the "velocity" of money declines under such circumstances...
...Among subjects considered are: labor unions and labor under coercion or freedom...
...We pay book rate postage on prepaid orders...
...How might this affect M1, the alleged "money supply" ? If you are no longer so worried that things will be more expensive in a few months, you are more inclined to let your paycheck rest undisturbed in your checking account for a longer period...
...the condition of the working class...
...As Martin Feldstein has pointed out in the Was~Smgton Post, a large portion of Social Security retirement, disability, and Medicare payments go to the nonpoor, and "substantial savings in government outlays can be achieved by gradually reducing the benefits of these nonpoor families...
...A(:tually some of the Reagan cuts have ended suffering by leaving us with a bit more money than would otherwise have been the case...
...You no !onger treat money as a hot potato, passing it on (by exchanging it for something more comfortable to hold, such as goods) as quickly as you can...
...The way to balance the budget is to make prudent cuts into a monster that has fattened by over $500 billion in the decade from fiscal year 1973 to fiscal year 1983...
...A little light went on in his cranial cavity, and he proudly declared that he too had kept up with the state of economic inquiry...
...All was quiet from the senator until he could endure his unnatural s t a t e of quiescence no longer...
...The "money supply" (M1), consisting of currency plus money in checking accounts, is about $450 billion, What happens when inflation goes down...
...When a country is on a gold standard, the Treasury buys and sells a fixed weight of gold for a fixed number of dollars...
...who demands that b y R. Emmett T y r r e l l , J r . Paul Volcker end the F e d ' s antiinflation policy 'and plug in the magic money-making machines...
...Your willingness to hold dollars goes up...
...Budgetary expenses most ripe for cuts are e n t i t l e m e n t s , though the Hon...
...Inflation is now burning about 10 percent less of our dollars...
...If so, it fails to recognize (to revert to Jack Kemp's term) that when inflation declines the quality Of money improves, so the demand for it picks up, and so the quantity of it held by the public increases...
...In American journalistic and scholarly circles the coup remains a controversial method of political change, which is surprising...
...Nancy Teeters can tell you when to spend your money, or how much of it to spend...
...In short, we must take into account not j u s t t h e supply of money but the demand for it...
...Last month these two estimable gentlemen got their countries going again, as the phrase has it...
...Next will come gurgling, then a diapasonal and hysterical shout, then silence...
...Just as man is subordinated to God in a Christian society, so dollars are subordinated to gold in a properly ordered economy...
...While underway there is usually far l e s s bloodshed, and a coup's aftermath is rarely as t u r b u l e n t and rambunctiously homicidal as that of a revolution...
...and paradoxically dwindles away to the vanishing point in societies that no longer officially recognize the exisfence of God...
...And if everyone behaves the same way, then M1 will naturally tend to rise when inflation declines...
...Nevertheless, if it tries to clamp down by shrinking member bank reserves (over which it does have a more diI'ect control), then it can introduce a quite unnecessary, and quite dangerous, contraction 'in the nation's monetary aggregate...
...effects of protectionism on labor, agriculture and industry in Australia...
...Most are not so knowledgeable...
...the Post Office, State housing, and State ownership or regulation of utilities...
...Today's inordinate money:derives from our reluctance to allow that man's genius, his capacity for manipulating mathematical equations and the like, should be subordinated to anything, let alone the "handcuff~ of gold," to use the New York Times's phrase...
...Gentlemen tell us such cuts will cause the poor undue suffering...
...The level of economic discourse in Washington has now descended to the level of gibbering...
...And unlike porkbellies-Milton Friedman's facetious substitute for the yellow metal--gold is not susceptible to economies of scale in production...
...now in the midst of reduced economic activity they call for tax i n c r e a s e s . Or consider the Democrats who favor giving the citizen still more federal manna with one hand while they raise his taxes with a n o t h e r . Both groups now bawl that if the federal deficit is not cut interest rates will not come down...
...Paul Volcker nor Mrs...
...Silence from the hand-shakers of Capitol Hill will be a welcome release...
...allowing the size of the "money s u p p l y " to be determined mechanically by the inflow or outflow of gold from the central bank...
...The Hon...
...A brisk coup cuts through all the political shenanigans, allowing effective government for a change...
...Moreover a general, even a fat genera ! , is surely as heroic as a revolutionary stealing through the jungle slitting throats and mining roadways...
...Balance the budget...
...Gentlemen keep spendinj~ "a billion here and a billion there," as J ames Jackson Kilpatrick observed last month...
...Please allow 4 to 6 weeks for delivery...
...and when it abandons the discipline of gold, the willingness to hold money, and thus its quantity, must ultimately diminish...
...To order, or for a copy of our catalogue, write: LiberlyPress/LibertyClassics 7440 North Shadeland, Dept...
...There is only one way of bringing supply and demand into balance and that is by price...
...The Wall Street Journa/ tells us that the House Education and Labor Committee has recommended doubling the $22.8 billion in proposed spending for such programs as education loans to middle-class children...
...In the same way, liberty will increase in a Christian order which accepts the discipline of religion...
...The best way to do this, it has been demonstrated over the centuries, is to let gold " s t a n d i n " for all other things produced in an economy...
...The discussion is both theoretical and empirical...
...Monetary creation is thus subordinated to the flow of gold...
...Inflation has been cut from 14 percent to under 4 p e r c e n t . Here is a cut especially beneficial to the poor, who have so little discretionary income to lose to the flames of inflation...
...Then there is Congressman Henry Reuss (D-Wis...
...Is that not what every liberal really yearns for...
...Cong r a t u l a t i o n s , fellows...
...in all the gibbering on Capitol Hill why have we not heard a good word for the inflation cut...
...The point is that your decision to let your money linger in a checking account is beyond the control of the Fed, because neither Mr...
...I, for one, find it almost impossible to believe that more than a handful of the solons--and a very small handful at that--know much more about the economy than a college sophomore with an introdudtory economics course behind him and a bartender in front of him...
...So the Federal Reserve cannot directly control M1...
...Let the taxpayer spend and save as he pleases in the Land of the Free...
...If gold is flowing into the bank, that is a sign that money is too " t i g h t , " and the monetary authorities respond--as they did at the Bank of England when Britain was on the gold s t a n d a r d in the nineteenth century--by lowering the bank r a t e , or, as it would be in the United States today, by lowering the discount rate...
...They LlbertyPress Llbert-yC/ass A Plea For Liberty An Argument Against Socialism and Socialistic Legislation Edited by Thomas Mackay Introduction by Herbert Spencer Foreword by Jeffrey Paul Twelve essays, first published in 1891, by British authors investigating the impact of "social legislation" upon the people and economy of Great Britain and Australia at the turn of the century...
...The government puts money into the sorely pressed taxpayer's hand so he can send his children to college even if it takes more money out of the t a x p a y e r ' s pocket in higher taxes...
...Consider those Republicans who were brave taxcutters last summer...
...The increase conTHE AMERICAN SPECTATOR MAY 1982 5 tinues because the Hon...
...They led successful coups in their respective countries...
...Gentlemen insist that they have cut to the bone, but in fact federal spending as a share of GNP will increase to 23.5 percent this year as opposed to 23 percent last year...
...Consider the palm-greasing that persists in revolutionary Iran and Vietnam...
...If there were a porkbelly s t a n d a r d , a bacon inflation would soon follow...
...This is the Hon...
...How he found himself in such company I have never been able to ascertain, but the learned fellows expatiated on and on, as learned fellows will, about the latest economic t r e a t i s e s to appear in such scholarly journals as the Journal of Law & Economics...
...But the final irony is that ~,hen a nation accepts the discipline of gold, the quantity of money in the economy must increase, because the w!llingness to hold it also rises...
...free libraries...
...The monetary authormes should once again observe a price rule, not a quantity rule, in regulating money...
...Why not just cut taxes and cut federal subsidies...
...A57 Indianapolis, IN 46250 need not...
...E D IT O R I A L WITH-THE SENATOR FROM NEWSWEEK Tax i n c r e a s e s ! Depression...
...Gentlemen's idea of economic sophistication...
...A l a s , the senator whose economic researches take him into the arcane world of the newsweeklies is a very sophisticated statesman...
...Hardcover $13.50, Softcover $6.00...
...Admittedly a drop in interest rates is essential for economic revival, but more inflation will not bring down interest rates and raising taxes will not stimulate economic activity...
...Adapted from RET's weekly Washington Post column syndicaied by King Features...
Vol. 15 • May 1982 • No. 5
