So, who does one follow: The Nobel Laureate or the man the Federal Reserve seems to be following? Perhaps neither? We certainly cannot follow both
If you didn’t accept the wisdom of the Federal Reserve before in its policies and theoretical choices, why would you accept the wisdom of the Federal Reserve after they have supposedly begun listening to Sumner? Why, indeed, does their choice matter at all to someone considering whether to believe Krugman, Sumner, or neither?
Imagine a square matrix in which our n commodities are rows and columns. How much real information is there in this matrix? Obviously, the oil-oil exchange rate is always 1, and the oil-wheat and wheat-oil rates are the same thing. So half our boxes, plus n, become blank.
But this is by no means enough blanking. Because we note an interesting fact—if this entire marketplace clears, it cannot be possible to construct a cycle of exchanges through which one ends up with more wheat, or oil, or silver, or anything, than one started with. This is obviously a desirable trade, and yet in a cleared market there are no desirable trades.
This statement is misleading economics—markets work because individuals preferences do not match the general consensus. Because of comparative advantage, there’s no particular reason to expect individual valuations to ever exactly match the market rates.
Later, Moldbug notes people want accumulate money, but rejects the explanation that it is valued because it is the medium of exchange. It is confusing when the monetary object is actually of some value (i.e. gold or silver), but no one uses the gold standard any more. There’s really no reason to treat fiat money as a good. And all of the discussion assumes that treating money as a good makes sense.
Finally, Moldbug’s discussion of the transition from gold-standard to fiat money without discussing private currency at all seems like more selective history. All selective history is worthless—it’s like throwing out all the data from an experiment that does not agree with your hypothesis.
My response, based on my current understanding, such as it is. Note the qualifier “marketplace clears”. In the process of clearing, a market undergoes price-discovery and any arbitrage opportunities are taken and thus removed. Fiat money is a good, in economic terms. It exchanges for other goods.
Note the qualifier “marketplace clears”. In the process of clearing, a market undergoes price-discovery and any arbitrage opportunities are taken and thus removed.
“Marketplace clears” doesn’t imply that everyone agrees that the price = the value. McDonald’s has cheeseburgers on sale for ~$1. That’s probably the market clearing price. I still don’t think a cheeseburger creates $1 of value for me.
If Moldbug makes a basic econ error (by conflating value and price), then there’s no reason to trust any other part of his “return to first principles of economics.”
Fiat money is a good, in economic terms. It exchanges for other goods.
“exchanges for other goods” is a bizarre definition of good. The hoarding-of-physical-objects metaphor is misleading.
If you didn’t accept the wisdom of the Federal Reserve before in its policies and theoretical choices, why would you accept the wisdom of the Federal Reserve after they have supposedly begun listening to Sumner? Why, indeed, does their choice matter at all to someone considering whether to believe Krugman, Sumner, or neither?
From the article:
This statement is misleading economics—markets work because individuals preferences do not match the general consensus. Because of comparative advantage, there’s no particular reason to expect individual valuations to ever exactly match the market rates.
Later, Moldbug notes people want accumulate money, but rejects the explanation that it is valued because it is the medium of exchange. It is confusing when the monetary object is actually of some value (i.e. gold or silver), but no one uses the gold standard any more. There’s really no reason to treat fiat money as a good. And all of the discussion assumes that treating money as a good makes sense.
Finally, Moldbug’s discussion of the transition from gold-standard to fiat money without discussing private currency at all seems like more selective history. All selective history is worthless—it’s like throwing out all the data from an experiment that does not agree with your hypothesis.
“Marketplace clears” doesn’t imply that everyone agrees that the price = the value. McDonald’s has cheeseburgers on sale for ~$1. That’s probably the market clearing price. I still don’t think a cheeseburger creates $1 of value for me.
If Moldbug makes a basic econ error (by conflating value and price), then there’s no reason to trust any other part of his “return to first principles of economics.”
“exchanges for other goods” is a bizarre definition of good. The hoarding-of-physical-objects metaphor is misleading.