Replies

***I’m guessing you have another suggestion that’s explicitly identified in the Constitution.***

Article 1 Section 8 Clause 5:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

Here’s a link with various sources on what that phrase means: http://press-pubs.uchicago.edu/founders/tocs/a1_8_5.html

The federal government also isn’t given the power to emit bills of credit (a power specifically denied to the states) so when you ask who would manage the money supply (constitutionally) I would say nobody since that implies an unbacked paper currency.

***And that gave us stable prices? No experiences with 5% inflation one year and then 5% deflation the next? No boom and bust cycles? We never had tens of thousands of families and businesses destroyed because of wildly swinging inflation and deflation before the Fed?***

I think you missed my point. What is implied when people blame booms and busts on the fed is that they are blaming the fed’s ability to increase the money supply and artificially lower interest rates. Fractional reserve banking is a key ingredient to this. You had asked if prices were stable or if we had booms and busts before the fed. My point in illustrating that we had fractional reserve banking, central banks, and centralized banking before the fed was that we had many of the same conditions before the fed as when it was enacted (up to the present day) and so it would make sense for there to still be booms and busts and price instability (if indeed the theory portrayed is correct, namely that fractional reserve banking et al. lead to booms and busts, and here I haven’t made a judgment on whether that is true or not).

Most certainly we had both price and monetary inflation and and deflation before the fed, but then we never had a truly free market monetary system.

***Capitalism only works with no involvement by government? Do you agree with me that this is a ridiculous statement? Sounds like you do. If so, why even bring it up?***

The government’s legitimate role is to provide police, military, judiciary, etc. for the the reasons I stated earlier. Without those, there is no capitalism because in order to function, capitalism needs the protections offered by the police, military and judicial system. I don’t see those as an intervention of government so much as necessary conditions for capitalism to exist.

The reason I brought it up is because I believe calex59 was thinking about the issue like I have presented it, namely that the government (police, military, judiciary) must exist in order for capitalism to exist. Any government intervention beyond this constitutes government involvement (such as regulation, taxation for any purpose outside police, military, legislator, judiciary, executive, etc. etc.).

Clearly if there is no government, capitalism doesn’t work, so on that we agree, but if we assume that implicit in the definition of capitalism is the establishment of government with minimal taxation to allow government to function, then any involvement beyond that constitutes something other than capitalism. I think basically we’re all on the same page just coming from different angles.

***Because all industries have low barriers for entry***

Under a free market yes. When government gets involved, then that’s another matter. Anti-trust legislation would be the government’s response to a problem it created essentially.

***a monopoly would never be able to manipulate the ebb and flow of supply and demand?***

Well I’m not sure what it would be able to do to demand, but it could most certainly affect supply in the short run. Let’s say it restricts supply presumably to charge higher prices. Firstly it should be noted that this does not necessarily guarantee it higher profits. They are selling less but charging more so it depends.

But secondly and more importantly I think, under a free market, there is no barrier to entry. A monopoly became such because it beat out all other competition. So up until that point it has benefited consumers. If it seeks to then raise prices, the competition it had beat out can now afford to jump back into the market as there is now the potential for profit. The threat of competition never disappears and so the monopoly must always please its consumers and out bid its competition, established or potential. Restricting supply may help a monopoly for the very short term, but it will quickly lead to its undoing.

***Because without robust competition we can still have innovation?***

If the monopoly isn’t constantly finding ways to benefit consumers better than its potential competition, then it will not survive as a monopoly. It has a vested interest in keeping its market share so if it wishes to remain viable, then it will look for ways to innovate, invest, and in general lower the costs of production. If there is a monopoly in a market, there will constantly be potential competitors looking for ways to grab a piece of the market share.

***To think that monopolies will benefit consumers is naive at best.***

It depends if they come about by the free market or not. A government created or supported monopoly most definitely won’t benefit consumers, but how can it be said that a monopoly created by the free market hurts consumers? Consumers are the ones that made it a monopoly.

Article 1 Section 8 Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

Just as I thought. Congress has the authority to create a Federal Reserve or end it. Since the value of money is defined by its value in trade (purchasing power) how would Congress be able to regulate this? The only means available to them (in the real world) is by altering the money supply.

Congress also has the right to regulate interstate commerce. Banking and other financial services clearly involves interstate commerce. This has been established by the the courts for a long time.

Congress has the right to make any laws that are 'necessary and proper' for the execution of its enumerated powers. When the facts are considered it would appear that only fringers would attempt to make an argument, such as it is, that the Fed is unconstitutional.

...so when you ask who would manage the money supply (constitutionally) I would say nobody since that implies an unbacked paper currency.

In your conservative utopia, sans a Central Bank or anyone else to control the supply of money, how would the money supply be increased or decreased?

You had asked if prices were stable or if we had booms and busts before the fed. My point in illustrating that we had fractional reserve banking, central banks, and centralized banking before the fed was that we had many of the same conditions before the fed as when it was enacted

Uh, huh. Looks like prices have been much more stable over the past 27 years since Friedman taught us that inflation is always and everywhere a monetary phenomenon.

Just look at all that stability. If only we would establish a truly "free market" system then prices would remain constant (LOL). But how would the money supply increase or decrease? In fantasy world it just would. Trust us.

You keep trying to tell me Calex said something other than he did. There's a reason he hasn't come back to defend his nonsense. He said that capitalism only works when there is no government involvement. You and I both know that's absurdity. But, for some reason, you can't admit it.

***Because all industries have low barriers for entry***

Under a free market yes.

Theory and the real world are sometimes very different places. I suppose that's why some people never leave academia. In the real world people wouldn't want to invest in a start up that was looking to compete against a monopoly because most people, yourself included, don't like losing their money. One company could easily solicit investment from an Arab oil family, investment bank or foreign government to buy up their competition to create a monopoly. Consumers would have nothing to do with it and without a government to prevent it, all consumers can do is bend over.

You can wax and wane with stars in your eyes all day long about economic utopia and how things could or should be. However, those of us who reside somewhere close to reality know that the money supply isn't going to manage itself and that the Fed has done a pretty good job of controlling prices over the past 30 years or so. We also know that the Fed is Constitutional and that Congress has oversight and can end the Fed tomorrow if it so chooses. Managing the supply of money perfectly is difficult and we understand that mild inflation is better than deflation. Finally, we know that monopolies are not established by consumers and that a monopoly in any industry would serve the monopoly and not the consumer because they could easily take out any start up that, somehow, managed to find someone loopy enough to invest in them.