At 11:56 AM 3/19/01 -0800, you wrote:
>If you could explain to me how monetary deflation can arise from private
>market relations and not the actions of a central bank(s), I would be very
>interested.
There is no such thing as "private market relations." Without the Fed and
other government agencies, private market relations -- which encourage
opportunistic greed of the worst kind -- would degenerate into a Hobbesian
war of each against all.
Further, though the Fed and similar government agencies clearly make
mistakes, they do so under the profound influence of those engaged in
"private market relations," since the latter have the most political power
on issues economic unless there is a movement of labor, etc., to counteract
that influence.
An historical illustration: In the early 1930s, for example, the Fed
allowed the U.S. money supply to fall drastically. Milton Friedman and
similar MFs lambaste the Fed for this, basically saying that "if I, Milton
Friedman, had been running the show, the 'great contraction' of the money
supply would never have happened, so there wouldn't have been a great
depression and the resultant rise in statism."
But this is nonsense. At the time, those in "private market relations,"
i.e., business, had tremendous amounts of political power. It was a very
conservative _pro-business_ position to tie the dollar to gold. In fact,
many laissez-faire-oriented "supply-siders" think that the gold standard
should be re-established -- even though the clinging to the gold standard
was a major reason for the Fed's deflationary policies. Further, it was a
_pro-business_ position to "liquidate labor, liquidate stocks, liquidate
the farmers, liquidate real estate" (Treasury Secretary Andrew Mellon),
i.e., to encourage recession. It was also the _pro-business_ position to
push the income distribution toward greater and greater degrees of
inequality during the 1920s, including big "supply-side" tax cuts which
reinforced the trend toward inequality and high profits. It was also the
_pro-business_ position to push the government to raise taxes in the early
1930s, since it was the pro-business position that the government should
never, ever, run deficits. Those in "private market relations" were running
the show, suffered from _hubris_, and blew it. Of course, they then
struggled to make sure that the working people paid the cost of their blunders.
Finally, the money supply and the cost of credit do not simply respond to
Fed policy. When the pro-business policies led to the collapse of the US
banking system, that led to a shrinkage of the money supply (and a rise in
the cost of financial services) beyond what the Fed was trying to do.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
