The Deflation Nobody Understands

Courtesy of Peter van Coppenolle @ NASOE:


(But they will experience it first hand)

Professor Fekete has been studying and teaching the gold standard for over 40 years now. Unlike most ‘pundits’ Fekete has held a seat at the Winnipeg Commodities Exchange in order to study the gold market from every angle possible. And studying he has done so relentlessly since immigrating to Canada in 1957. He has used all his powers to educate people about gold. Part of that effort was to groom a ‘hard core’ which now, 2013, constitutes the faculty at the New Austrian School of Economics. Over the years we at the faculty have experienced the rewards that only educators can testify to: the joy when other people finally see some light. And sometimes we encounter detractors too. They are an amusing lot, put there for our entertainment, no doubt.

Professor Fekete, dissatisfied with the body of knowledge on economics, has been a writer and above all a supreme philosopher of economics. Ever since 1957, he has amassed so much old and new knowledge, that we at the faculty of NASoE have quipped that ‘if you want to understand nothing at all about the gold standard, you will have to read B. Goldwater.’ We know that is one offensive statement. But we also stand by our own insights, research and above all methodology, which is a Mengerian disequilibrium approach. Using a good compass does make a difference. The world collectively knows that traditional ‘economics science’ is (expletive) dismal, which is stronger than just ‘dismal’. It has reached the stage were this economic discipline’s own academics are mudslinging each other or hubristically refer to themselves as invincible. (E.g. Krugtron the Invincible, a neoplasm born from a bad ’80 movie.) Or in the Austrian camp, the same old boom and bust line is repeated, yet zero research has taken place, until now, either to correct for some untenable assumptions in the Austrian Business Cycle or to advance knowledge on some other aspect of credit collapse. Nor do they bother to dismiss the Quantity Theory of Money, according to which the more money is brought into circulation, the higher prices will go. “More money chasing fewer goods”, etc..

The question described in the title is the one people least understand. Perhaps I am too harsh. People who never attended or never listened to standard economics, have no problems assimilating my message. It becomes harder to grasp for those afflicted with the idea that inflation and deflation are mutually exclusive. They are not, puzzled looks and hurled insults notwithstanding. The term “hyper-deflation” was never coined nor did such a state ever occur in history and it full scope is unknown as yet. But using Mengerian disequilibrium and Aristotelian logic, I can paint the general idea.

Professor Fekete never subscribed to what he called the Quantity Theory of Money. It suffices to point to the very fact that it is possible to have a shortage of money simultaneously with the overworking of the printing presses. The reason why the QTM fails is that money is not one-dimensional. It is in fact two-dimensional. Quantity is one, and the velocity of circulation is the other dimension. Central banks control the quantity of production and the market firmly controls the circulation speed. Continue reading

Positivism and The Quantity Theory of Money

I believe that within this world we are forced into boxes and categories, believing we should act and behave within certain parameters and fit into models created on previous action. I posit that this is not the case, that we are human beings with souls and we can act in an infinite number of ways on a finite timeline, not in a finite number of ways on an infinite timeline. Positivism has no place in a free thinking and flowing world but one entrenched in a blockaded and statist world.

Courtesy of  Sandeep Jaitly @

What is positivism and how does the quantity theory of money fit in with it? The doctrine of positivism is a form of arch-empiricism that tries to crystallise the supposed process of ‘scientific thought’. An adherent of positivism believes that there are general ‘laws’ of cause and effect in the natural/social sciences and the only way to uncover these ‘laws’ is via the tool of research. An adherent of positivism believes that objective analysis – whatever is meant by this – is the only form of analysis; indeed there exists a zero possibility of the observer influencing the observed. Nature is orderly and regular; scientific knowledge is cumulative in character and all objective phenomena are eventually knowable – all characterize the approach of positivism.

Whilst it may seem to be a sound basis for a doctrine, positivism is utterly flawed and mischaracterizes the process of natural/social scientific thought. Simple examples shall be described to show why the approach of positivism is flawed. Take Newton’s ‘law’ of gravity. Newton’s observations of the movement of the visible planetary bodies seemed to fit with a certain type of mathematical relationship related to the masses of the bodies, and their distances apart. In slightly further detail, the relationship involves the inverse square of the distances apart. In the context that Newton was working, this ‘law’ was more than adequate. Indeed, centuries later, the ‘law’ was sufficient to send rockets into (near) outer space and back. However the nature of the establishment of this ‘law’ should not be mischaracterised – as a positivist approach did indeed cause with the observations of Einstein at the turn of the twentieth century. Newton’s ‘law’ is invalid over super-massive distances. When Einstein changed the context further beyond Newton, Newton’s observations did not quite fit the bill and scientific squabbling ensued. To the benefit of the physicists however, this supposed dichotomy was resolved – Einstein is appropriate in a broader context than Newton. Continue reading