Reddit reviews Money Mischief: Episodes in Monetary History

>"inflation and recession are basically mutually exclusive"

That's what the olden-style Keynesians said -- and that's why they left the field thanks to the stagflation of the 1970s, which they said couldn't happen.

In simplest terms: there's the real economy and then there's the price level, changes in which comprise inflation ... and as Milton Friedman famously said, "Significant inflation is always and everywhere a monetary phenomenon".

In the 1970s the big oil price shock hit. That was a real shock to the economy that was going to hurt it and cause unemployment.

The Fed reacted with the olden-Keynesisan prescription of stimulus to increase employment and prevent a recession, even if causing some inflation.

Friedman said that wouldn't work -- since the blow to the economy was a real external shock a recession was going to result whatever the Fed did, as the economy adjusted to the big change in the cost of oil. Adding a loose money policy on top of it would only result in inflation added to the recession -- stagflation.

Friedman as proved exactly right. He collected his Nobel shortly afterward. Old-style Keynesianism disappeared. (Krugman and the other "Keynesians" of today are Neo-Keynesians who have adapted to Friedman's insights.)

A really excellent book on all this written for the general audience is Friedman's Money Mischief. It shows how during the oil shock inflation in the USA surged, in Germany remained flat, and in Japan fell sharply -- because the Germans are never going to allow inflation again after their Weimar experience, and the Japanese had started an anti-inflation money policy when they had it at 20% a few years earlier, and stuck with the policy during the oil shock years. But all three had the same recession.

This absolutely refuted, among other things, the claim heard all the time then (and still today) that oil price increases cause inflation. "Significant inflation is always and everywhere a monetary phenomenon", not an oil price phenomenon, or a commodity price phenomenon.

The book also has an excellent history of the gold standard (and silver money in the USA) that some of the Paleo-Austrians around here ought to read to learn something.

Note that different recessions have different root causes. If the main cause is an external real shock such as a big sudden unexpected increase in the cost of oil, causing the economy to have to restructure, there's nothing money policy can do to avert it.

OTOH if the cause of recession is a sudden sharp fall in aggregate demand, then there is a lot that monetary policy can do about it.

This was very plainly clear in the current recession when in the last half of 2008 deflation very suddenly hit at a 13% annual rate -- not seen since the worst days of the Great Depression -- and the Fed reacted with QE1 which stopped the deflation dead in its tracks.

"Inflation and recession are mutually exclusive" pretty much fit the general pattern from 1948 though the 1980s, when the typical business cycle pattern was that the Fed got too loose, caused inflation, then tightened and caused a recession to cut the inflation.

The extreme example of that was during the Carter years when inflation went way up into double digits -- then after Reagan came into office Volcker put a hammerlock on the money supply to break the inflation, caused a recession with 11% unemployment (higher than in the current recession, though for not as long), smashed inflation down to near zip, then loosened to get the economy going at a good rate again with modest inflation, as it did for the next decade.

But the stagflation years were different (and so is today).

https://www.amazon.com/Money-Mischief-Episodes-Monetary-History/dp/015661930X

First chapter of Friedman's book talks about a Polynesian tribe that used giant stone wheels as currency and walks through the absurdity of the mechanics of that economy. How the Imperial Germans, when they occupied the island, spurred the islanders to action by painting the rocks with black paint as a punishment for non-compliance with their edicts (it worked). How the tribe developed basically a system of credit that no longer required physical ownership or the moving of the heavy wheels.

Then he turns it around and points out that the paper money and credit economy is basically the same thing.

People will always find a medium of exchange. Gold served perfectly for thousands of years because it was malleable (coinable), rare, you could not fake it (Archimedes solved that), and to a certain degree useful as jewelry. Still is useful as a store of value in that respect, but if you have a responsible money supply (which we've more or less had since 1982), money functions the same as gold

Underrated friedman book: Money Mischief

https://www.amazon.com/Money-Mischief-Episodes-Monetary-History/dp/015661930X

If the USD was defined as "X grams of metal Y", and some country Z, happened to accumulate a large reserve of metal Y. Z could then drive the value of the dollar down by selling a large quantity of metal Y.

In Milton Friedman's book Money Mischief he described how the US gov't accidently caused financial ruin in China in the 1930's and 1940's through change in US policy with regard to silver

Money Mischief: Episodes in Monetary History

Econometrickk and Integralds' lists are great. A few additions:

Wealth of Nations

Money Mischief

and

Nudge

The top two present a one sided view of economics, but are incredibly useful for providing a framework for thinking about it. Nudge gives some behavioral. You're mostly missing Keynesian which is available on the other lists. These are non-technical books.

Haha, your perception is pretty spot on. Minus the bad gaming habit; I simply don't have the time for it. It's much more towards I fantasize about having a bad gaming habit. And yes, I'm a big fan of the Socratic method; Have you read Plato's Allegory of the Cave?

Yes, I am somewhat similar to a moderately successful small-business owner, and somewhat not.... And someone who has otherwise benefited from the capitalist system. And yes, I am a software engineer. I'm 25 if you are curious, and I'm married to the most beautiful & wonderful woman in the world (who does have a bad gaming habit.)

My name is Martin by the way, its a pleasure to meet you.

As for your question; the truth is it is rather difficult for me to put into words why it is I believe a wealth redistribution like you suggested is a bad deal not just for the wealthy, but for the poor too. My belief is based on many other beliefs, and the knowledge that there are many negative effects that will often outweigh the benefits of a well-meaning policy (such as doubling everyone's income, halves everyone's wealth.)

The reason it is difficult for me to put it into words directly is simply because I am not skilled enough at this kind of discourse to do so. I am trying my best to lead you to your answer. I did not find the answer myself until I had gone through many pages of many books, conversed many hours with opposite thinkers, endured a few years of great hardships, and enjoyed hard earned success. I do not think I am completely capable of giving your question the justice it deserves.

If you are still interested in having your question answered, let me get you a list of resources that helped me change my answer.

Free To Choose - TV Series from the 80's-90's originally hosted on PBS, its a good overview for the general principles of the capitalist system.

If you are not the type of person who likes to watch media, and more of a reader, I can make a few recommendations for starters.

The Road to Serfdom - written by Fredrick A. Hayek in the early 1940's. This book is a bit dry and a difficult read, but is a very interesting adventure into history and the ideas of capitalism. I HIGHLY recommend reading at least the foreword of this version. You might see some parallels between it and what is happening today.

Money Mischief: Episodes in Monetary History - If you like history, a good story teller, and truly have a desire to learn more about the funny effects of money, this is your book. This doesn't go over the capitalist system exactly, but explores man-kinds relationship with money. This book is a beautiful work of art which forces you to contemplate the nature of those little pieces of paper in our wallets.

Freakonomics is a goodie that makes you think about the nature of our own personal beliefs, and the beliefs our society has taken for granted.

By the way, my personal transition from socialist to capitalist started with me arguing against a (as she would have me describe her) 'big, fat, old, and alcoholic jewish lady'. We were arguing over legalization of heroin, she was for, I was staunchly against. Life is very strange sometimes.

I'm not saying you must or even should transition from what seems likely communist (based on word choice) to capitalist. Diversity of Ideas is the only thing that matters in a world where all people are equal.

One last thing, remember, if you never try to do more than you can, you'll never be more than you are.

Well, I think it goes back to what you consider "inflation". Is your definition prices going up? If let's say, everyone starts buying tulips so the price of tulips goes up, is that "inflation"? I don't think so. Inflation is caused by an increase in the money supply. Let me flip this question on you, what do you think has happened that so caused the stock market to magically go up since 2008? Did all of our problems with the mortgage market simply disappear? All those shit variable rate loans, all of the student loan debt, all of the traunching of mortgage back securities? Did all the banks just magically become all better? No. The Federal Reserve lowered interest by purchasing government bonds from commercial banks, lowering their price artificially and thus lowering their yield, and recapitalized the banks. They just handed the commercial banks a bunch of money. When you do that, producers of real goods see that and will end up raising prices as ultimately more money chasing the same amount of goods increases the prices of goods. How long this takes is dependent on "monetary lag" and basically how liberal the banks are with re-lending this money out through the fractional reserve banking system/ spending it themselves. Obviously if they just sitting on this money, they are just sitting on cash and the quantity of money doesn't necessarily increase in the actual economy. Again, if you are let's say for a hyperbole, the only producer of diapers and you see this going on and you know you have a monopoly on diapers you just raise prices.

Over time you will continue to see those goods, that you have the most inelastic demand for with the least amount of competition, prices go up. This is why theoretically the price of gold should go up as there is a limited supply; however, bankers know that and buy it up to drive down the price. This is also why gold was historically used as a backing for our currency- because it's real money.

Here is a good book to check out for more information and probably a better explanation than I can give late at night-

http://www.amazon.com/Money-Mischief-Episodes-Monetary-History/dp/015661930X/ref=sr_1_2?ie=UTF8&qid=1462511792&sr=8-2&keywords=The+monetary+history+of+the+united+states

absolutely not. If you dig deeper, you will have a great appreciation for Ron paul for standing up to an unfair system.

Few places you can start to learn about conditions underwhich Fed had to be started and you be the judge and see if that is working as intended.
https://www.youtube.com/watch?v=lu_VqX6J93k
http://www.amazon.com/Money-Mischief-Episodes-Monetary-History/dp/015661930X

I would really encourage you to pick up anything written by Milton Friedman but especially this to gain a different understanding of the underlying problems in the US economy: http://www.amazon.com/Money-Mischief-Episodes-Monetary-History/dp/015661930X/ref=sr_1_4?ie=UTF8&qid=1317849962&sr=8-4