The American Conservative, 9 February 2009

dorothealangeConsidering the state of America’s economic system today, it’s hardly surprising that this issue focuses chiefly on economics.

Adam Fergusson provides a synopsis of his long out of print book When Money Dies, an elegantly written study of the cultural and psychological effects of hyperinflation on the middle classes in Germany during the 1920s.  An introductory note mentions that Amazon lists a copy of the book for $2,500.  Gripping as the synopsis is, it isn’t hard to see why someone would be reluctant to part with a copy of the book for less.  On the other hand, the high price may represent a fear that Weimar-style hyperinflation will soon strike here, a fear that Fergusson’s prose, vivid as that of any nightmare-inducing tale of terror, will certainly feed.

George Selgin, professor of economics at the University of West Virginia, argues that while deflation resulting from a collapse in demand is a very bad thing, there is also a good kind of deflation.  This good deflation results from an increase in supply.  Indeed, Selgin points out, prices in gold-standard countries fell and average of 2% annually from 1873-1896, years during which output in those same countries increased at almost 3%.  This good deflation is perfectly natural- “technology was improving, so goods cost less to produce.  Why shouldn’t prices reflect that reality?”  In fact, Selgin argues, supply-driven deflation “never exceeds an economy’s rate of productivity growth, and that rate itself sets a lower bound to equilbrium real rates of interest.”  So, supply-driven deflation is not a destabilizing phenomenon, but a stabilizing one. 

Another article notes the rise in popular opposition to central banking since Representative Ron Paul made the abolition of the Federal Reserve a central plank of his 2008 presidential bid.  A number of high profile financial commentators, such as potential US Senate candidate Peter Schiff, have taken up the “End the Fed” banner.

Comments are closed.
%d bloggers like this: