President Barack Obama returned from the 2010 G20 Summit held in Toronto having failed to convince world leaders that more “economic stimulus” was needed to cure what ails the world’s economies. Walking a seeming tightrope between too much spending and spiraling deficits, on the one hand, and too little spending and economic recession, on the other, world leaders reluctantly agreed to err on the side of fiscal and monetary caution and to halve deficits in three years.

Economist Paul Krugman in response to this decision cautioned that this policy of deficit reduction is a mistake. In his opinion, the world suffers from too little spending, not too much spending. Without further stimulus, he opined, the world is headed for another depression.

Of course, the coronavirus put an end to whatever reluctance the world’s governments and its central banks had about fiscal and monetary “stimulus,” and caution was thrown to the wind. The latest addition to the debt stockpile will be the $1.7 trillion proposed US omnibus government funding bill. We are now all awash in debt and fiat money. With the US inflation rate running north of 8 percent a year and recession (or worse) still hanging over the US economy, we may yet get a recurrence of ’70s style stagflation!

Is this call for more “economic stimulus” sound or just more Keynesian nonsense from statists and their court jesters? Most calls for economic stimulus are based on the so-called multiplier effect.

John Maynard Keynes believed that spending (consumption) was the engine of economic activity. A dollar spent, he opined, would ripple through the economy creating new wealth worth many times the value of the original dollar. He called this the “multiplier effect.”

It is supposed to work something like this:

Joe is given $100. Joe is in the habit of spending 90 percent of his income, saving the rest for a rainy day. Joe buys a new coat for $90. The shop owner Max, from whom he bought the coat, now has Joe’s $90, but he too is in the habit of spending 90 percent of his income, saving the rest. Max spends $81 (90 percent of $90) taking his wife out to dinner. The restaurant owner Mario now has $81 to spend. Like Joe and Max, Mario spends his income, buying various items for $72.90 (90 percent of $81) for his restaurant at the local hardware store.

This chain of buying and selling continues until someone spends the last dime. According to Keynes’s multiplier, Joe’s $100 increased the wealth of society by $1,000 (ten times $100). Put another way, the value of all goods and services in society increased by $1,000 because of the chain of buying and selling started by Joe.

What would happen if the savings rate jumped to 20 percent?

The multiplier would be only half as much, and each new dollar of income would create five dollars in newfound “wealth.” Joe’s $100 would increase the value of goods and services bought and sold in society by only $500. The multiplier effect is the reciprocal of the demand for money, or rate of savings. In this case, 1 divided by 0.20, or 5.

In the Keynesian view, therefore, the act of saving must be discouraged if the general goal is to increase production and reduce unemployment. As a result, frugality is labeled “hoarding.” Not a good thing. On the other hand, government profligacy is good—at least when the government needs to stimulate the economy.

With the magic of the multiplier effect dancing in his head, Keynes came to the rather novel conclusion that all that is necessary to cure economic depressions and unemployment is for the government to print and spend money. Keynes wrote (with obvious contempt for market-based economic theories) as follows:

If the Treasury were to fill old bottles with banknotes [fiat paper money], bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment and with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.

And what can we reasonably conclude from this statement? We can conclude that the most influential economist of the twentieth century does not know beans about the value of money!

Why bother hiding banknotes in old bottles? Do away with the charade and give everyone a printing press so we can print our own banknotes. Everyone will be busy counterfeiting money until all hours of the morning. We will have solved the problem of unemployment, idleness, and scarcity in one fell swoop and become millionaires in the process. How’s that for economic stimulus?

Of course, this is but a fairy tale. You cannot print your way to wealth and economic prosperity. Wealth does not lie in the amount of paper money floating around the economy, but rather in the available supply of goods and services. An increase in wealth is made possible by technological innovations, which result in more efficient uses of scarce resources. Society is more prosperous when more and better goods and services are available at prices people can afford to pay. By Keynes’s standard, Greece should be rich, while Switzerland should be well on its way to the poorhouse!

As Jean-Baptiste Say pointed out, “commodities are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.”

Trying to “stimulate” the economy by flooding the market with new money makes matters worse. Any increase in the money supply is inflationary, even when prices are stable. Stable price levels often mask underlying inflation in cases where prices would have declined absent an increase in the money supply. In fact, for most of the nineteenth century, at a time of great industrial and agricultural expansion, prices did decline. Price declines were then considered normal—the result of greater efficiencies in production—and a benefit of the Industrial Revolution.

In the current context, general price declines would clear the market of excess goods and services (e.g., unsold houses) and lay the foundation for true economic recovery. Increasing the money supply—even when it results in no discernible general price increases—prolongs the beginning of economic recovery, sets the stage for the next boom-bust cycle, erodes the value of money, and robs us of the benefits of improvements in technology, production, and distribution.

The creation of new money out of thin air will not increase society’s real wealth. The effect of more fiat money has more to do with illusion than reality. People will have more money to spend, but they will soon discover that their money buys less. And when the multiplier runs its course, society will find that the placing of new banknotes in old bottles was just another government con game.

The heart of economic growth is an expanding subsistence fund, or the pool of real savings. This pool, which is composed of final consumer goods, sustains individuals in the various stages of the production process. The increase in the pool of real savings permits the expansion and the enhancement of the infrastructure, and this strengthens economic growth. An increase in economic growth for a given stock of money implies more goods per unit of money. This means that economic growth, all other things being equal increases the purchasing power of money.

Note that most individuals are likely to strive to improve their living standards. This means that individuals are likely to aim at expanding the pool of real savings, which will in turn strengthen economic growth and the purchasing power of money. In the framework of market-selected money such as gold, the purchasing power of money is likely to strengthen over time.

According to Joseph Salerno,

Historically, the natural tendency in the industrial market economy under a commodity money such as gold has been for general prices to persistently decline as ongoing capital accumulation and advances in industrial techniques led to a continual expansion in the supplies of goods.

Hence, in the framework of a gold standard, the purchasing power of financial assets such as stocks and bonds is likely to strengthen alongside economic growth. Note that stronger economic growth, all other things being equal, implies a strengthening in the pool of real savings; i.e., the pool of final consumer goods.

Under the present monetary standard—i.e., the paper standard—an increase in the quantity of money, because of the loose policy of the central bank, undermines the pool of real savings and in turn undermines economic growth. (Observe that loose monetary policy sets in motion an exchange of nothing for something.)

As long as the pool of real savings is expanding, the increase in the money supply creates the illusion that the central bank can generate real economic growth and strengthen assets’ purchasing power. However, once the pool of real savings comes under pressure because of the monetary pumping, the growth in assets’ purchasing power starts to slow. According to Richard von Strigl,

Let us assume that in some country production must be completely rebuilt. The only factors of production available to the population besides labourers are those factors of production provided by nature. Now, if production is to be carried out by a roundabout method, let us assume of one year’s duration, then it is self-evident that production can only begin if, in addition to these originary factors of production, a subsistence fund is available to the population which will secure their nourishment and any other needs for a period of one year. . . . The greater this fund, the longer is the roundabout factor of production that can be undertaken, and the greater the output will be.

The Subsistence Fund and Money

When producers exchange their produce for money, they can then exchange their money for various consumer goods; i.e., they can access the subsistence fund whenever they deem this necessary. When an individuals exchanges their money for goods, this is an act of exchange and not an act of payment—money is just the medium of exchange. Payment is made by means of various goods.

For instance, a baker pays for shoes by means of the bread he produced, while the shoemaker pays for the bread by means of the shoes he made. (Both shoes and bread are part of the subsistence fund, as they are final consumer goods.) When the baker exchanges his money for shoes, he has already paid for the shoes with the bread that he produced prior to this exchange.

Trouble erupts when, on account of loose monetary policies, a structure of production emerges that ties up much more consumer goods than it creates. This excessive consumption relative to the production of consumer goods leads to a decline in the subsistence fund, meaning that there is less economic support for the individuals that are employed in the various stages of the production structure. This results in an economic slump.

Intermediate Goods

What about a producer of intermediate goods, like a producer of a special tool—what is his contribution to the subsistence fund?

An individual who exchanges his money for the tool will employ the tool in the production of final consumer goods or in the production of other tools and machinery that, in turn, will contribute to the production of final consumer goods sometime in the future. The producer of the special tool does not directly supply final consumer goods. However, he does offer means to secure these goods. He also offers time.

According to Murray Rothbard:

Crusoe without the axe is two hundred fifty hours away from his desired house; Crusoe with the axe is only two hundred hours away. If the logs of wood had been piled up ready-made on his arrival, he would be that much closer to his objective; and if the house were there to begin with, he would achieve his desire immediately. He would be further advanced toward his goal without the necessity of further restriction of consumption.

Now, what about education and the arts? Should we include them in the subsistence fund? Without the availability of consumer goods that sustain individuals, education and the arts are likely to be lower on individuals’ priority lists.

Once the individuals’ living standard increases, all these things become affordable to them. Hence, anything that undermines the subsistence fund undermines the ability to live like human beings, as opposed to existing like other animals.

The Purchasing Power of Financial Assets and Monetary Liquidity

An important factor that causes fluctuations in financial asset prices is monetary liquidity. Monetary liquidity depicts the interaction between the supply and the demand for money. Now, the increase in liquidity—an increase in the supply of money relative to the demand for money—does not enter all asset markets instantaneously. It enters various markets sequentially. Note that the price of an asset is the amount of money paid for the asset.

When money enters a particular asset market, there is now more money per unit of the asset. This means that the price of the asset in this market has gone up. After a time lapse, once investors have adopted the view that the asset is overvalued, they move the monetary liquidity to other asset markets. This shows that there is a time lag between changes in liquidity and changes in the average price of assets.

Observe that the increase in the momentum of asset prices is driven by the increase in the lagged liquidity momentum. Conversely, a decline in the liquidity momentum after a time lag results in a decline in the momentum of asset prices. It would appear that the monetary liquidity is the key driver of asset prices. This is not the case. The pool of real savings, which gives rise to economic growth, determines the purchasing power of assets in money terms.

Notwithstanding the popular view that increases in the money supply can help grow the economy, money cannot do such things. More money cannot replace real savings that sustain individuals in the various stages of production. According to  Rothbard, this is revealed once the pool of real savings starts to decline and the central bank’s monetary pumping becomes ineffective in reviving the pace of economic activity.

In the framework of market-selected money such as gold and in the absence of a central bank, an increase in assets’ purchasing power is going to reflect an increase in the pool of real savings and thus economic growth.

Central bank policies, however, curtail investors’ ability to distinguish wealth-generating activities from non-wealth-generating ones; i.e., bubble activities. An increase in money supply masquerades as an increase in real wealth. This results in erroneous investment decisions. Hence, all other things being equal, the exchange value of assets is set by the pool of real savings. Changes in monetary liquidity because of central bank policies cause disruptions known as bull-bear markets.

Summary and Conclusions

An important factor that appears to drive financial asset prices is monetary liquidity, defined as the growth rate in money supply minus the growth rate in the demand for money. This is not the case. The pool of real savings gives rise to economic growth, which for a given stock of money determines the purchasing power of assets.

If anyone believes that it is reactionary hysteria to claim the radical Left wishes to destroy the traditional family, then let Sophie Lewis’s 2022 book, Abolish the Family, allay such concerns. This “Manifesto for Care and Liberation” sets forth the why and the how of the erasure of traditional households.

As to the why, it won’t come as a surprise that the goal is to destroy the productivity and wealth that capitalism creates. Lewis cites others, like Pat Parker, who state definitively that the family must go, as it is “the basic unit of capitalism and in order for us to move to revolution it has to be destroyed.” Lewis further notes that the reason for abolishing marriage is deeply intertwined with abolishing private property, which would put an end to voluntary exchange.

It’s the “how” of family nihilism that Lewis presents that provides bizarre yet shockingly effective challenges to traditional family life. She recounts the various—and completely failed—attempts at socialist utopias. She hails Joseph Fourier’s phalanstery buildings (vast dormitories housing precisely sixteen hundred people assigned to live there), where “regular carefully curated sex parties are presided over by special ‘fairies.’” She continues, “The original feminism, then, is inseparable from family abolition, queer sex, and socialist utopianism. Good to know, right? Vive le phalanstère!”

Lewis doubles down on this statement in a section entitled “The Queer Indigenous and Maroon Nineteenth Century.” She claims that Native Americans exhibited superior ways of being and practiced “no forms of patriarchy; raising children collectively, honoring more than two genders, placing only loose social strictures on sexual pleasure, counting nonhuman relatives among their kin, and sometimes conceptualizing mothering-practices (such as breast-feeding) as gender-inclusive.”

For Lewis, all of these practices are to be lauded as grassroot forms of resistance to the nuclear family. The view that the normalization of such practices does indeed contribute to the dissolution of the traditional family is certainly agreeable to this author. One should not believe the practices Lewis hails merely represent a bacchanalian desire for bizarre sexual expression for its own sake. Rather, the author presents these practices as a deliberate methodology through which the traditional family may be annihilated.

Other attempts to destroy the family that Lewis seems to fancy include the “cooperative, group-marriage based model” of Robert Owen, a model that failed in spectacular fashion. Other alternative living arrangements include the machinations of comrade Alexandra Kollontai, who assured her followers that women and children would be better off because “communist society takes care of every child and guarantees both him and his mother material and moral support. Society will feed, bring up and educate the child.” Indeed, in this respect, we can agree at least in part with Karl Marx and Friedrich Engels, whose first footnote in The German Ideology stated unequivocally, “That the abolition of individual economy is inseparable from the abolition of the family, is self-evident.”

Not to be outdone by these comrades and their dreams of the elimination of the family, Lewis directs us to a section on “Gay and Lesbian—and Children’s—Liberation.” Fifty years ago, activists made a list of demands to the Democratic National Convention in Miami, and the sixth part of their manifesto declared, “Rearing children should be the common responsibility of their whole community. Any legal rights parents have over ‘their’ children should be dissolved, and each child should be free to choose its own destiny. Free twenty-four hour child care centers should be established where faggots and lesbians can share the responsibility of child rearing.”

Not to be outdone by the gay activists of the ’70s, today’s comrades against kinship Michele Barrett and Mary McIntosh present a vision of complete nihilism. They boldly state, “We hope that by now it will be clear that we would put nothing in the place of the family.” The total absence of traditional family structures in practice is something that Lewis saw with her own eyes—and celebrated. She recounted a covid-policy-induced tent encampment in central Philadelphia where inhabitants had the socialist blessings of “an occupation, complete with a kitchen, distribution center, medical tent, substance use supply store, and even a jerry-rigged standing shower—a militant village led by unhoused Philadelphians and working-class rebels.” This apparently was a preferable form of living, as it was a “home—in a new, true, common sense of the word . . . a practice of planetary revolution.”

In a final rhetorical flourish, Lewis describes the goal of the final demolition of the family. She insists that

the state return especially dependent humans to the arms of the few caregivers it tends to recognize and insist on deprivatizing care, contesting “parental rights,” and imagining a world in which all people are cared for by many by default. What we are saying is that KEEPING FAMILIES TOGETHER and ENDING FAMILY SEPARATION are political imperatives. (emphasis in the original)

Put another way, this is the end of parents raising their own children and the end of free association, replaced by the state as parent and with centrally controlled living arrangements.

In light of the decay of the traditional family in the West, one might be tempted to think these changes are accidental. As Lewis’s work explains, they most assuredly are not. Ryan McMaken is right in saying that there are multiple causes for family decay and alienation. There are economic, political, and moral catalysts. But make no mistake, it is anything but accidental. Lewis and her comrades on the radical Left have stated their intentional attempts to destroy the family, and it behooves people of goodwill everywhere to take these threats to take possession of your children and property seriously by exposing the work of antifamily pseudointellectuals.

This will be brief, appropriate to the topic at hand. It consists of a quote from Milton Friedman found in Joseph Salerno’s outstanding book, Money: Sound and Unsound:

If a domestic money consists of a commodity, [such as] a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself. (emphasis added)

Imagine that. If we have sound money, we don’t need the Fed. Or Congress. We just need sound money.

End of essay.

Postscript:

Economist Nouriel Roubini once attacked the gold standard:

Roubini raises the following question: If you are on a gold standard, or modified gold standard, what do you do in the event of a bank run—if you don’t have enough gold to fully back the currency?

Translated: What happens if the banks have created bogus IOUs for their depositors’ gold? Suggestion: Have them indicted for fraud. Gold doesn’t “back” anything. It is the money. The banks issue IOUs for the money. When they issue more IOUs than they have gold on hand, they’re cheating.

Murray Rothbard:

In my view, issuing promises to pay on demand in excess of the amount of the goods on hand is simply fraud, and should be so considered by the legal system . . .

This is legalized counterfeiting; this is the creation of money without the necessity of production, to compete for resources against those who have produced.

In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.

Roubini also says that a “gold standard limits the flexibility and range of actions that central banks can take.” He thinks it’s a shortcoming, but that alone should recommend it.

At the start of World War I, the belligerent governments went off the gold standard so they could fight the bloodiest war in human history. Gold, since it can’t be created on demand, would have severely limited the “flexibility and range of actions” governments could take. 

Sound money is not a product of central bank policy decisions. But who cares about sound money when you want to engage in massive human slaughter?

More recently, Roubini said, “The world is on a slow-motion train wreck.” 

The unmolested gold coin standard avoids train wrecks, “Dr. Doom,” by staying on track.

A gold standard doesn’t need Roubini. It doesn’t need Jerome Powell. It doesn’t need Congress. It doesn’t need the World Bank or the International Monetary Fund. It doesn’t need the WEF, the FOMC, or AOC.

It just needs to be left alone.

The gold standard “requires nothing else than that the government abstain from deliberately sabotaging it,” Ludwig von Mises wrote in The Theory of Money and Credit.

What all the enemies of the gold standard spurn as its main vice is precisely the same thing that in the eyes of the advocates of the gold standard is its main virtue, namely its incompatibility with a policy of credit expansion. The nucleus of all the effusions of the anti-gold authors and politicians is the expansionist fallacy.

Credit expansion—inflation—is indispensable to a growing government. From Human Action:

The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.

If wealth could be created out of scraps of paper or their digital equivalent, world poverty would be a thing of the past.

Remember, the commodity money takes care of itself—and us too, if we let it.

Can you imagine giving people who are already suffering from mental illness a drug that you know will make them worse? Sounds like something out of a sadistic horror movie. Long-term mental illness sufferers experience such torturous states of mind that they might try just about anything to escape them—from the extreme of suicide to taking just about any drug their doctor says holds the hope of helping them. It takes a particular brand of evil to exploit that condition. But that’s exactly what Pfizer did with Neurontin (also prescribed as gabapentin.)

Pfizer’s own studies showed that manic symptoms were significantly worse in bipolar patients on gabapentin than in those on a placebo, but that didn’t stop Pfizer from doing everything they could to get doctors to prescribe it off label at very high doses for people suffering from bipolar disorder. This included publishing claims they knew were false or misleading, misrepresenting one study, rigging another, and suppressing the results of two more, according to John Abramson, author of Sickening (2022), who was an expert witness in court proceedings against Pfizer. In one leaked email, Pfizer’s own medical director referred to Neurontin as “snake oil.”

Pfizer was eventually found guilty of fraud for the illegal off-label marketing of Neurontin. Foundation Health Plan, America’s largest HMO, sued them. But given that sales of Neurontin had reached $2.1 billion in the US by 2003, the total penalty of a paltry $142 million could not serve as much of a deterrent from committing future fraud. No one was jailed, and the trial was barely mentioned in the news. So, guess what? Neurontin is still being prescribed off label to treat bipolar disorder by doctors who are just used to prescribing it.

Is this just a one-off incident of a bad drug slipping through the net?

Hardly. GlaxoSmithKline suppressed negative findings about the effects on suicide and depression caused by their drug paroxetine (Paxil/Seroxat). This only came to light because they were dragged through court and forced to release internal documents.

One document gave instructions to “effectively manage the dissemination of these data in order to minimise potential negative impact,” which is a really nice way of saying “make sure no one finds out that this drug will make depressed people suicidal or we won’t be able to keep making money selling this drug.” They were fined $3 billion, but that only represented a quarter of the total sales of paroxetine over the years.

When it’s more profitable for pharmaceutical companies to break the law than to follow it, being fined just becomes another expense to take account of. A drug can pass the regulator on flimsy or fraudulent evidence without anyone even noticing. Even if someone notices and sues the pharmaceutical companies, there is no guarantee that your doctor will even know these companies have been sued! They might just keep on prescribing the drug for no other reason than that they are used to doing it.