Saturday, October 28, 2017

Poor and Rist on Tooke

Poor and Rist on Tooke
Thomas Allen

    This article presents two views, Poor's and Rist's, on Thomas Tooke. Thomas Tooke (1774-1858) was an English merchant, economist, and historian of prices. He wrote History of Prices and of the State of the Circulation during the Years 1793–1856 (1838-1857) in six volumes and Enquiry into the Currency Principle (1844). Unlike most of the people whom Poor reviews, Tooke is not an ardent supporter of the Quantity Theory of Money. He considers the quantity of money, i.e.,  circulating purchasing media, to be mostly irrelevant.

Poor on Tooke

    In 1877, Henry Varnum Poor (1812-1905) wrote Money and Its Laws: Embracing a History of Monetary Theories, and a History of the Currency of the United States. He was a financial analyst and founder of a company that evolved into Standard & Poor’s. Poor was a proponent of the real bills doctrine and the classical gold-coin standard and, thus, the quality theory of money. He gave little credence to the quantity theory of money — especially if credit money, such as bank notes, were convertible on demand in species. Also, he contended that the value of money depends on and is derived from the value of the material of which it is made and with paper money, its representation of such value.
    In the latter part of his book, he discusses leading monetary theorists from Aristotle (350 B.C.) to David A. Wells (1875). Most of the economists whom he discussed were proponents of the quantity theory of money. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.
    Tooke sought to prove “that a rise in prices always precedes, and causes an increase of money, in whatever form” (p. 313). Poor states that Tooke’s claim is like saying “that a rise of water in rivers always precedes and is the cause of rainfall.” [In other words, Poor asserts, to the extent that changes in the money supply relate to prices, that a rise in general prices follows an increase in money supply while Tooke asserts that it precedes an increase money supply. Both include all forms of credit money as part of the money supply.]
    Tooke believes that no variation in the quantity of the circulating medium affects prices. He believes “that the amount of the circulating medium, is the effect, and not the cause, of variations in prices” (p. 314). Because people have more money to spend does not mean that they will spend it. He maintains that as long as paper money is convertible to gold on demand, increasing the quantity of paper money will not affect the prices of commodities. Thus, convertible paper money cannot affect prices under any condition (pp. 314-316). [Tooke appears not to distinguish between paper money issued to discount real bills and paper money issued to discount fictitious bills like accommodation bills or financial bills like government bills. The former has little or no affect on prices whereas the latter often cause prices to rise, i.e., causes the currency to depreciate.]
    Following Adam Smith, Tooke believes that paper money is merely a substitute for gold coin. For each unit of paper money in circulation, a unit of gold coin is removed from circulation. Any excess paper money would be redeemed in gold coin. Thus, paper money is a substitute for coin and is not in addition to gold coin. [Under the real bills doctrine, paper money is not a substitute for gold coin, but is in addition to gold coin. However, if excessive paper money is issued, the excess is quickly redeemed for coin. As shown below, Rist disagrees with Poor on this interpretation of Tooke.]
    According to Tooke’s argument, convertible paper money cannot affect prices. Moreover, “[n]either could a government inconvertible paper currency affect prices, so long as it was not in excess of the wants of those using it in their exchanges” (p. 216). Also, Tooke maintains that “[v]alue was no necessary attribute of [paper money or gold coin]” (p. 316).
    Poor objects to Tooke’s claim that money, i.e., gold coin, has no value per se. Poor states, “Whatever is to serve as money, in the last resort, must always possess uniformity of value, not only for months and years, but for ages” (p. 316). [Whatever serves as money needs to be able to transport value not only through space but also through time. Before a material becomes money, it must be able to transport value through time and space or represent something that can transport value through time and space. To do that, it has to have value in itself.]
    According to Tooke, prices “depend upon cost, and the ability, not the will, of the public to consume” (p. 317). Poor remarks, “The public are able to consume a thousand things they will not” (p. 317). [As value is subjective and price reflects value, a person must have the will to consume before he consumes. Also, once he decides to consume, he must have the ability to consume. Poor is much closer to the truth on this issue than Tooke.]
    According to Poor, Tooke fails to understand “that it is possible for prices to fall enormously, even when it [money] is greatly inflated” (p. 317). Poor continues:
The effect of an inflation is to advance prices, from an increase of the instruments of expenditure, and from its tendency to excite speculation, which may be carried to such a pitch as to seize and attempt to hold all the food, for example, upon the market. In such case, it not unfrequently happens that the public can be supplied from other sources, or that, from the excessive rates charged by holders, consumption will be so much reduced that those who attempted to control prices find themselves unable to carry their purchases, and are forced to throw them upon the market; in consequence of which, prices may for a time be far below what they would have been under a metallic currency (p. 317).
    [In the United States, the decades following Lincoln’s war to prevent Southern independence, general prices trended downward although the money supply was inflated. First, it was inflated with U.S. notes; then it was inflated with silver dollars. Although this inflation did not result in a rise in general prices, it did distort the economy and lead to the depression of the 1870s and the depression of the 1890s. Moreover, technological advances were driving prices down faster than the inflation could push them up.]
    Tooke’s notion that prices are “wholly independent of the quantity of the circulating medium” (p. 317) comes from observations of events occurring when the Bank of England had suspended redemption of its notes. About Tooke’s notion, Poor writes in his concluding remarks on Tooke:
He might as well have attempted to prove that indulgence in liquor had no tendency to elevate one, from the exhaustion or syncope resulting from its excessive use. So, under an inflation of the currency, prices may fall in much greater ratio than the inflation, from the decreased cost of production, or from the falling off, from any cause, of the demand. None of these causes or influences were properly considered by him. He sought to erect a science from an observation of certain phenomena, without sufficient reference to their cause or law. It is as useless, however, to attempt to reason with him as it was with the philosopher in the tale of “Rasselas.” It was, probably, from an examination or an attempted examination of his works, that Mr. Gladstone declared the study of money to be a fruitful cause of insanity (p. 317).
    [In recent decades, the money supply in the United States, Japan, Europe, and other countries have been highly inflated. Yet none of the developed countries have experienced a rise in general prices of the magnitude that one would expect if the Quantity Theory of Money were correct.
    Whereas Poor is more focused on the real bills doctrine than on the Law of Reflux, Tooke focuses on the Law of Reflux and mostly ignores the real bills doctrine. {The Law of Reflux claims that banks cannot overissue bank credit money, bank notes and checkbook money, because any over issued currency quickly returns to the issuing bank for redemption. The Law of Reflux pertains to the liability side of a bank’s balance sheet while the real bills doctrine pertains to its asset side. Although the real bills doctrine depends on the Law of Reflux, the Law of Reflux does not depend on the real bills doctrine. That is, the Law of Reflux can operate when financial papers like government bills and commercial papers other than real bills of exchanges like accommodation bills are discounted. The Law of Reflux functions under the gold standard where excess credit money can be exchanged for gold, which extinguishes the credit money. However, it does not function under today’s fiat money standard where one form of credit money can only be exchanged for another form of credit money.} As shown below, Rist is more in agreement with Tooke than is Poor. However, Rist places more importance on the real bills doctrine than does Tooke.]

Rist on Tooke
    In 1938, Charles Rist  (1874-1955) wrote History of Monetary and Credit Theory from John Law to the Present Day (translated by Jane Degras, New York: Augustus M. Kelly Publishers: 1966) in which he reviews several economists including Tooke. Rist was a French economist, who was of the Banking School as opposed to the Currency School. [Under the gold standard, banking philosophies generally fell into either the banking school or the currency school. The banking school “holds that as long as a bank maintains the convertibility of its bank notes into specie (gold), for which it should keep ‘adequate’ reserves, it is impossible for it to over issue its bank notes against sound commercial paper with fixed short term (90 days or less) maturities.”[1] Its position is also called the “Banking Principle” or “Principle of Fullerton.” To the banking school, bank notes are merely circulating credit instruments. Although they can be exchanged for gold, they are not intended to be warehouse receipts for gold. The currency school “maintains that all . . . changes in the nation’s quantity of money should correspond precisely with changes in the nation’s holdings of monetary metal. . . .”[2] Its position is also called the “currency doctrine.” To the currency school, bank notes are merely warehouse receipts and, therefore, should be backed 100 percent by specie. To the banking school, bank notes are claims for new merchandise offered for sale in the markets. Under the currency school, bank notes are claims for gold. Under the currency school philosophy, an elastic currency does not exist; under the banking school, it does.] Rist’s opinion of Tooke differs somewhat from Poor’s. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Rist’s book.
    As an opponent of devaluation, Tooke supports making bank notes convertible to gold at the same rate that existed before suspension during the Napoleonic wars. Devaluation hurts the working class (pp. 184-185). [However, devaluation benefits debtors, most of whom are speculators, governments, and people living beyond their means, as it allows them to pay their debts with less gold.]
    Tooke does not believe that the fall of prices and the concomitant economic sluggishness resulted from returning to the gold standard at prewar parity (p. 185). About the fall in prices, Rist notes:
In all probability, the output of the gold and silver mines being what it was, the increase in the volume of goods produced would in itself have been enough, once the war was over, to bring prices down. . . . [T]he very high level to which prices in England and on the continent had been raised by the war and by paper money could not be maintained once the increase in the quantity of paper issued, which had been continuous up till then, was interrupted by the return to gold. The normal lowering of prices which would in any case have followed from a greater output of goods while the volume of currency remained the same, was intensified in England by the rise in the gold value of the pound sterling. . . . [T]he scarcity of gold was made responsible for what was in fact the obvious result of war and inflation (pp. 185-186).
    Tooke distinguishes between paper money and bank notes. Paper money is money in the proper sense of the word. Bank notes are instruments of bank credit. Moreover, bank notes should not be treated differently from checks and bills of exchange. All three are credit instruments and have the same character. Also, in the full meaning of the word, none are money (p. 187).
    Whereas Ricardo considers only the supply of paper money to explain the rise in prices when bank notes are not convertible to gold, Tooke considers both the supply of and the demand for currency (p. 187). Demand depends on the conditions of the markets and fluctuates accordingly (pp. 188-189). Fluctuation in foreign demand for the British pound has an immediate effect on domestic prices. Thus, the rise in prices is affected by “expansion of the home demand for goods due to successive increases in the amount of paper money put into circulation, and a rise in the price of goods imported due to the depreciation of the paper money on the foreign exchange market” (p. 189).
    Rist compares Tooke with Ricardo on the rise in prices under a paper money standard: “Tooke contends that the rise in English prices during the Napoleonic wars was to a large extent the effect of the depreciation of sterling on the exchange, whereas Ricardo regards that depreciation merely as a repercussion of the preceding rise in the prices of English goods” (p. 190).
    Tooke contends “that in fact that part of the rise in English prices above the rise due to exchange depreciation was the result of an excessive issue of paper money” (p. 190). However, he also believes that exchange depreciation is closely connected with the increased quantity of paper money (p. 191).
    Ricardo argues that “the only way to bring the pound back to par was to reduce the note circulation” (p. 193). However, the pound was brought back to parity with gold not by reducing the quantity of notes in circulation, but through improvements on foreign exchanges, which Tooke noted (pp. 193-194).
    Whereas Ricardo treats convertible bank notes as equivalent to paper money, Tooke notices a great deal of difference between the two. Also, Ricardo distinguishes bank notes from other credit instruments (checkable deposits and bills of exchange) while Tooke considers them the same (p. 196).
    To Tooke forced paper currency, such as the pound during the Napoleonic wars and the U.S. note until 1879, is money. Legal-tender paper money “is issued to meet the requirements and cover the expenditure of the State, it represents a final income (that is to say, not subject to repayment) for those individuals who come into possession of it, increasing their purchasing power, thus increasing their demand for goods and making prices rise. In brief, paper money acts on prices in the same way as metallic money does” (p. 197). [Examples are the U.S. note between 1862 and 1879 and the federal reserve note after 1933 domestically and after 1971 on foreign exchanges.]
    On the other hand, convertible bank notes “are credit instruments. They are only issued as advances. Far from being incorporated in the currency, they are bound to return to the bank which has issued them when the advances are repaid” (p. 197).
    Bank notes can “affect prices only provisionally, for in order to repay the advances a sum exactly equal to those advances has to be taken from the final income. An advance from the bank enables the borrower to spend to-day an income which he will in fact receive only later, but he will not spend that income since it will be used to repay the advance” (p. 198). Thus, “[b]ank-notes are claims on a defined quantity of gold. Paper money is a means of payment whose purchasing power over goods (or gold) is fixed on the market according to variations in supply and demand. It is a legal claim, and it is only the law which gives it the power to settle debts” (p. 199). [Legal-tender paper money settles a debt by passing that debt to another. However, being an obligation of the issuer, it can never extinguish debt. On the other hand, gold coin is no one’s obligation and can, therefore, extinguish debt.]
    Not only does convertibility limit the quantity of notes issued [and checkbook money], it also “gives notes legal and economic qualities which paper money does not possess, and which are independent of quantity” (p. 200).
    Unlike Ricardo, Tooke does not consider bank notes identical to metallic money, gold or silver coin. To Tooke, money is more than a medium of exchange or a common denomination of value; “it is the ‘subject of contracts for future payment,’ and ‘it is in this latter capacity that the fixity of a standard is most essential’” (pp. 200-201). “[T]the value of the convertible bank-note is derived precisely from its connexion with the metallic standard” (p. 201). Although a paper money standard is a standard, it is, however, a poor standard because it has nothing to guarantee stability (p. 201).
    Rist summarizes Tooke’s conclusion on the identity of bank notes and checkable deposits:
        1.  Since all credit instruments are essentially the same, it is absurd to put bank-notes in a class apart. If credit has been granted in excessive quantities, the situation cannot be remedied merely by limiting the number of bank-notes issued, as the Currency School argued, it is necessary to deal with credit as a whole.
        2.  The banks’ creation of credit, in all its forms, and particularly in the form of bank-notes, takes place only because the public demand credit. Banks cannot create notes at will, any more than they can create deposits. They are only created if the public demand them. That is why it is impossible to get out of a crisis by creating paper. Whereas paper money is created by the government at will in order to meet expenditure which cannot be covered by its ordinary revenue, credit instruments are created only in response to public demand. The State creates paper money at will but cannot withdraw it from circulation, the banks do not create credit instruments at will, but can withdraw them by ceasing to renew credits (p 213.).
    According to Tooke, financial crises result from the abuse of credit (p. 214). Preventing the abuse of credit is necessary to prevent financial crises. “[T]he abuse of credit is the result of the ‘spirit of speculation’” (p. 214). Moreover, “[c]redit does not give rise to speculation, but follows it; credit is always the response to a demand, and this demand is itself the result of a given economic situation” (p. 214). [The beginning of the twenty-first century bears witness to speculation abusing credit — the housing bubble for example.]
    Tooke identifies two primary price movements: (1) speculative price movements and (2) permanent or fundamental price movements (p. 215). Speculative price movements “originate not in an expansion of credit, but in a favourable price situation in certain commodity markets” (p. 215). As a result, credit expands in response to the demand for speculation. Thus, the boom begins.
    According to Tooke, “1, . . . speculation originates in the situation of the commercial or industrial market, and not in an increase in the note circulation; 2, that the steady expansion of credit is an effect, and not a cause of this speculation, for there is no expansion of credit without the demand for it; 3, that the contraction in the currency which follows a crisis is the consequence and not the cause of the slump” (p. 215).
    An economic slump (panic, depression, or recession) occurs when the income (wages, interest, dividends, profits, etc.) of consumers fails to keep up with rising prices of commodities. As a result, commodity prices must drop, which leads to an economic crisis. Prices decline to the level of the income of consumers, i.e., consumers can again afford to buy (pp. 216-217). [The world has been witnessing such an event with the collapse of the prices of real estate and commodities beginning in 2008.] Thus, according to Tooke, the aggregate of money income devoted to consumption limits the aggregate of money prices. [The Social Credits advocates hold a similar view. They believe that economic slumps result from the people lacking the money to buy the goods that have been produced. Their solution is to have the government or its central bank to print enough money, either physically or electronically, for the people to buy the excess goods and give it directly to the people.]
    Tooke does not deny that the influx of gold or the creation of paper money affects prices. However, other things also affect prices (pp. 219-220). For example, speculation can lead to an increase in the velocity of money, which can affect prices (p. 220). Also, affecting prices are the balance of trade, the capital markets, and the state of credit (p. 222).
    Rist summaries Tooke’s observation on interest:
    1.    A low discount rate cannot by itself stimulate the price level;
    2.    A low discount rate can affect prices on the stock exchange without having any effect on commodity markets.   
[Tooke’s observation is seen in lowering of interest rate following the 2008 crisis. Stock markets have trended upward while commodity prices have trended downward.]
    For a fall in interest to stimulate the economy, it has to “‘coincide with a tendency from other causes, to a speculative rise of prices, and with the opening of new fields for enterprise’” (p. 223). Otherwise, any action undertaking by the central bank to stimulate the circulation of money will not affect prices (p. 223). Nevertheless, “a low rate of interest may foster and support a rise which began from other causes. ‘If there exist grounds for speculation in goods, a coincident facility of credit may, but will not necessarily, extend the range of it.’ . . .[A] low rate of interest is at the bottom of all cases of ‘overtrading’ and ‘overbanking’” (p. 223). (“Overbanking” means “advances, either on insufficient or inconvertible securities, or in too large a proportion to the liabilities” [p. 214, fn].)
    “Tooke maintained that the raising of the discount rate, coupled with a strong cash position, would enable the Bank of England to mitigate the effects of a crisis and to prevent it from developing. Mere limitation of notes will only make the crisis more acute, for it is the function of notes to provide additional temporary currency in times of crisis, which will make it possible to avoid bankruptcies and collapses” (p. 228).
    [Poor is a proponent of elasticity in the credit system. There seems to be less difference between Poor and Tooke than Poor claims. Tooke’s explanations are closer to the truth than Poor credits him.
    As shown above, Poor’s view of Tooke’s works differs significantly from Rist’s. Poor’s views Tooke unfavorably while Rist views him favorably.]

End Notes

1. Percy L. Greaves, Jr.,Understanding the Dollar Crisis (Belmont, Massachusetts: Western Islands, 1973), p. 8.

2. Ibid., p. 28.

Copyright © 2016 by Thomas Coley Allen. 

More articles on money.

Saturday, October 21, 2017

Mencken on the Inferior Man

Mencken on the Inferior Man
Thomas Allen

    In 1926, H. L. Mencken (1880-1956) wrote Notes on Democracy in which he expressed his views on democracy and related issues. He was a journalist, satirist, and critic and a libertarian and one of the leaders of the Old Right. In his book, he describes the inferior man, pages 15-21, 31-32, 38-39. Below is an overview of his discussion on the inferior man; my comments are in brackets.
    About the inferior man, Mencken notes “that there is actually no more evidence for the wisdom of the inferior man, nor for his virtue, than there is for the notion that Friday is an unlucky day.” In the early days, testing this notion of superiority of the inferior man was difficult. “[W]hat cannot be tried and disproved has always had a lascivious lure for illogical man.” Recent knowledge about “the content and character of the human mind,” has disposed of “the old belief in its congenital intuitions and inherent benevolences.” [Studies during the past several decades show that genetics has a much greater influence on the human mind than suspected in Mencken’s day.] The functions of the mind are mostly “purely physical and chemical phenomena, and its development and operation are subject to precisely the same natural laws which govern the development and operation, say, of the human nose or lungs.” Thus, some “minds . . . start out with a superior equipment, and proceed to high and arduous deeds; there are minds which never get any farther than a sort of insensate sweating, like that of a kidney.” [Mencken is correct in that some minds are genetically superior to others. However, he ignores the spiritual or soul aspects of the mind, i.e., the mind is more than physical and chemical phenomena, a notion that he, most likely, would reject. In the last two chapters of Darwinism Refuted, Harun Yahya discusses this aspect of the mind. Being an evolutionist, Mencken would have rejected Yahya’s book as so much superstition.]
    Open-minded people can easily observe the difference between a superior mind and an inferior mind. When exposed to suitable training, a superior mind “acquires the largest body of knowledge and the highest skill.” On the other hand, “no conceivable training can move” the inferior mind beyond a certain point. “In other words, men differ inside their heads as they differ outside. There are men who are naturally intelligent and can learn, and there are men who are naturally stupid and cannot.” [Mencken is writing about intelligence, and what he writes is true. However, a person with high intelligence may be weak in wisdom, common sense, morality, and ethics. A person of low intelligence may be more endowed with these traits than many highly intelligent people. That is, a high I.Q. makes a superior mind, but it does not necessarily make a superior person. For example, university heads and professors have high I.Q. Most likely, Mencken would consider most of them “betters” and “superiors.” Yet, most of them show no more love for liberty than the typical inferior of the mob. For the most part, they are Puritans, cultural Marxists, who want to micromanage everyone’s thoughts and actions and mold everybody into their ideal. Thus, the relationship between intelligence and the desire for liberty seems weak.]
    “Liberals, whatever their defects otherwise, are themselves capable of learning, and so they quickly mastered the fact that MM. Simon and Binet offered the most dangerous menace to their vapourings ever heard of since the collapse of the Holy Alliance.” [Simon and Binet were pioneers in intelligence testing.] Liberals despise intelligence tests for two reasons.  “First, they provide a more or less scientific means of demonstrating the difference in natural intelligence between man and man — a difference noted ages ago by common observation, and held to be real by all men save democrats, at all times and everywhere. Second, they provide a rational scale for measuring it and a rational explanation of it.”
    Mencken continues, “An intelligent man is one who is capable of taking in knowledge until the natural limits of the species are reached. A stupid man is one whose progress is arrested at some specific time and place before then. . . . Some men can learn almost indefinitely; their capacity goes on increasing until their bodies begin to wear out. Others stop in childhood, even in infancy. They reach, say, the mental age of ten or twelve, and then they develop no more.” [This later group dominates Social Justice, Black Live Matter and Antifa. They are also predominant among the anti-Confederate crowd.]
    Naturally, the democrats [egalitarians] strongly object to this conclusion of the naturally inferior man. “Their objection to it is rather of a metaphysical character, and involves gratuitous, transcendental assumptions as to what ought and what ought not to be true.” [Not only do democrats dominate the Democratic party, they also dominate the Republican party and even the Libertarian party.] They claim that “believing such things would be in contempt of the dignity of man, made in God’s image.” [But God made people the way that they are.]
    Alas, democracy is “a form of theology, and shows all the immemorial stigmata. Confronted by uncomfortable facts, it invariably tries to dispose of them by appeals to the highest sentiments of the human heart.” Furthermore, the “anti-democrat is not merely mistaken; he is also wicked; and the more plausible he is the more wicked he becomes.”
    Mencken adds, “that man on the lower levels, though he quickly reaches the limit of his capacity for taking in actual knowledge, remains capable for a long time thereafter of absorbing delusions. What is true daunts him, but what is not true finds lodgment in his cranium with so little resistance that there is only a trifling emission of heat.” [The anti-Confederates support Mencken’s observation. They lack the ability to acquire knowledge, but they easily absorb delusion. The same type of person is also seen supporting Hillary Clinton and Barrack Obama and to a slightly lesser degree George Bush.] Moreover, the inferior man “has a dreadful capacity for embracing and cherishing impostures.” Since the beginning of recorded history, priests, politicians, and all sorts of quacks have victimized him. “His heroes are always frauds. In all ages he has hated bitterly the men who were labouring most honestly and effectively for the progress of the race. What such men teach is beyond his grasp. He believes in consequence that it is unsound, immoral and of the devil.”
    Fear guides and controls the inferior man. “[E]ducation is largely a process of getting rid of such fears.” [Today, what passes for education teaches the inferior man to fear even more and tries to teach the superior man also to fear. One can see the operation of the inferior man in public education, which is nothing more than indoctrination in politically correct thinking. Parents who send their children to private schools are often looked down upon, even by the super rich who send their children to private schools. The worst heretics are parents who homeschool. They are accused of being pariahs who abuse their children and often have their children take from them.] “The ideal educated man is simply one who has put away as foolish the immemorial fears of the race — of strange men and strange ideas, of the powers and principalities of the air. He is sure of himself in the world; no dread of the dark rides him; he is serene.” Unfortunately, “the vast majority of men are congenitally incapable of any such intellectual progress. They cannot take in new ideas, and they cannot get rid of old fears.” Moreover, lacking logical sense, he is “unable to reason from a set of facts before [him], free from emotional distraction.” Furthermore, the inferior man is “incompetent to take in the bald facts” himself. Except at the most elemental level, words convey nothing to the inferior man. His mind “cannot grasp even the simplest abstractions.” [Perhaps, more than anything else, the ability to think in abstract terms is what separates the superior man from the inferior man.] All his thinking “is done on the level of a few primitive appetites and emotions.” [Although Mencken avoids mentioning race, some races seem to have more difficulty thinking abstractly and seem to “think” more on the primitive level of appetites and emotions.] Thus, ideas leave him unscathed; he is “responsive only to emotions,” and his “emotions are all elemental — the emotions, indeed, of  tabby-cats rather than of men.” Therefore, educating the inferior man is impossible.
    “[I]n all departments and on all planes the inferior man reduces it [love, which “runs from the erotic to the philanthropic,”] to terms of his own elemental yearnings. Of all his stupidities there is none more stupid than that which makes it impossible for him to see beyond them, even as an act of the imagination.” Moreover, he “cannot formulate the concept of a good that is not his own good.” From time immemorial, he has hated both sacred and secular heretics. “His first thought and his last thought, contemplating them, is to stand them up against a wall and have at them with musketry.” No record is found of him ever opening “his mouth for fairness, for justice, for decency between man and man. Such concepts, like the concepts of honour and of liberty, are eternally beyond him, and belong only to his superiors.” The inferior man is a natural coward. His “congenital fear is easily translated into cruelty.” His “deficiency in imagination” makes him incapable of projecting “himself into the place of the other.” When the inferior man’s “ betters stand before [him], asking for something that [he] may withhold — when [he is] thus confronted, though the thing asked for be only fair dealing, elemental justice, common decency,” he is a wolf.
    [Examples of the inferior man include supporters and members of the Southern Poverty Law Center, Social Justice, Antifa, and Black Lives Matter. Another example is the people who seek to remove and destroy Confederate monuments. They do not understand why the South fought for its independence, the purpose of the monuments memorializing the Confederate soldier, or the reason for erecting them. Moreover, they can never understand because they are incapable of understanding. It is beyond the capacity of their minds. Therefore, they fear them and want to destroy them. Still, another example is the supporters of Hillary Clinton. They do not understand Donald Trump’s supporters, and they will never understand them. Therefore, they fear them and want to bring Trump, who represents them, down. Blindly, they support Clinton because she is one of them; therefore, they understand her, although she despises them and spits on them.]

Copyright © 2017 by Thomas Coley Allen.

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Wednesday, October 11, 2017

A Response to “What’s Wrong with Progressive Creation?”

 A Response to “What’s Wrong with Progressive Creation?”
 Thomas Allen

    The following is a response to “What’s Wrong with Progressive Creation?” by Ken Ham and Terry Mortenson, which appeared in Grace in Focus, September and October 2015, pages 17-23. The authors argue that the first chapter of Genesis should be understood literally. The Earth was created in six 24-hour days. It was created somewhere between 6000 and 12000 years ago. Also, the Noahic Flood was universal; it covered the whole planet. This Flood occurred around 2500 B.C. (My comments were neither replied to nor acknowledged.)
    If the description in Genesis 1 is literally true, then to be consistent everywhere else that the Bible describes the Earth or Universe must be literally true. Thus, we have a geocentric Earth where the Earth is flat, sitting on pillars and where the sun, planets, and stars revolve around a fix, stationary Earth.
    Based upon the following verse the Earth rested immovably at the center of the Universe. Because it was founded and fixed upon pillars, bases, and pedestals, the Earth could not possibly move. Moreover, the sun moves around the Earth instead of the Earth moving around the sun.
    1. Psalm 104:5 (“He founded the earth upon its bases, that it should not be moved for ever.”—alternative translation.)
    2. Psalm 24:2 (“For he hath founded it [the world] upon the seas, And established [or, fixed] it upon the floods [or, streams].”)
    3. Psalm 136:6 (“To him that spread forth the earth above the water. . . .”)
    4. Ecclesiastes 1:4, 5 (“One generation goeth, and another generation cometh; but the earth abideth for ever. The sun also ariseth, and the sun goeth down, and hasten to its place where it ariseth.”)
    5. Psalm 19:5, 6 (“. . . [the Sun] rejoiceth as a strong man to run his course. His [the Sun’s] going forth is from the end of the heavens, And his circuit unto the ends of it [or, to their uttermost parts]. . . .”)
    6. Psalm 148:4 (“Praise him, ye heavens of heavens, And ye waters that are above the heavens.”)
    7. Psalm 104:2, 3 (. . . Who stretchest out the heavens like a curtain; Who layeth the beams of his chambers in the water. . . .”)
    Many Biblical passages describe the Earth as flat, supported by pillars, surrounded by water, and covered by a solid dome. A literal interpretation would lead one to believe that either the Bible is false, and therefore, not inspired, or the facts of science are false.
    The following verses depict the Earth as round and flat and supported on pillars:
    1. Job 9:6 (“That shaketh the earth out of its place, And the pillars thereof tremble.”)
    2. 1 Samuel 2:8 (“. . . For the pillars of the earth are Jehovah’s, And he hath set the world upon them.”)
    3. Psalm 104:5 (“Who laid the foundation of the earth [or, He founded the earth upon its bases], that it should not be moved for ever.”)
    The following verses depict the earth as covered by a solid dome of the firmament supported by mountain-pillars:
    1. Job 26:11 (“The pillars of heaven tremble And are astonished at his rebuke.”)
    2. Job 37:18 (“Canst thou with him spread out the sky, Which is strong as a molten mirror?”)
    The following verses depict the earth as surrounded by water:
    1. Genesis 1:6, 7 (“And God said, Let there be a firmament in the midst of the waters, and let it divide the waters from the waters. And God made the firmament, and divided the waters which were under the firmament from the waters which were above the firmament: and it was so.”)
    2. Genesis 7:11 (“. . . were all the fountains of the great deep broken up, and the windows of heaven opened.”)
    3. Genesis 8:2 (“the fountains also of the deep and the windows of heaven were stopped. . . .”)
    4. Psalm 24:2 (“For he hath founded it [the Earth] upon the seas, And established it upon the floods.”)
    5. Psalm 148:4 (“Praise him . . . ye waters that are above the heavens.)
    The following verse depicts the Sun, Moon, and stars as fixed or moving across the firmament:
    1. Psalm 19:4, 6 (“Their line is gone out through all the earth, and their words to the end of the world. In them hath he set a tabernacle for the sun, . . . His going forth is from the end of the heavens, and his circuit unto the ends of it; and there is nothing hid from the heat thereof.”)
    As these passages show the theory that the Earth is flat, supported by pillars, surrounded by water, and covered by a solid dome is easily supported by Scripture. The Bible supports this theory as well as, if not better than, the theory of creation in six 24-hour days, a universal flood, or Adam or Noah as the father of all races of men.
    Moreover, with rare exception, every six-day, and most other, creationists, whom I have encountered resorts to evolution to explain the origins of the human races. These creationists do not call it evolution, but the description that they give is an evolutionary description, Darwinism. Most prefer the obfuscation of declaring that the races developed from another race instead of the more honest evolved from another race. Either God created the races, or they evolved. These creationists prefer evolution to giving God the credit for the origins of the human races. The only real difference between creationist evolution and traditional evolution is that creationist evolution is accelerated (occurring over a few generations) while traditional evolution is gradual.
    Why did God have Noah bring onto the ark dinosaurs, giant mammals, and all other species that became extinct shortly after the Flood?
    Ham and Martinson write that God cannot lie. Yet He created a universe and earth that appear to be much older than a few thousand years. For example, according to universal-flood-six-day creationists, all fossil-bearing sedimentary rocks resulted from the Flood. If so, God has deceived (lied to) us with the apparent age of the Earth being much more than a few thousand years. There are igneous inclusions between fossil-bearing sedimentary rocks that are so massive that more than 100,000 years is required for them to cool.
    Moreover, God does not keep the promise that Jesus makes in Matthew 7:7: “Ask, and it shall be given you. . . .” Therefore, whatever one asks for, he should receive if God and the Bible mean what they say. Yet, cemeteries are full of unanswered prayers. Thus, theologians have developed all sorts of excuses for unanswered prayers, although Jesus tells us that we would receive whatever we ask for — there should be no unanswered prayers. When these excuses are applied to prayers for peace, they make God look like a bloodthirsty warmonger and prayers for peace look like hypocrites who secretly lust for war. Thus, God is the God of war and not the God of peace as the Bible declares. Furthermore, excuses for unanswered prayers mean that one believes that the Bible should not be taken literally and that God does not mean what He says. Moreover, the truthfulness of the promise that Jesus makes in Matthews 7:7 can be tested in minutes. More often than not, this promise turns out to be a false promise — a lie! Or is the Bible written the way that a good shyster lawyer writes a contract: Grandiose promises made up front are voided by the fine print later. (If I am wrong, prove me wrong.) I suspect this unfilled promise has turned more people off from Christianity than the disputes between science and creation. (V. “Why Elijah Defeated the Baal Priests” for my commentary on prayer.)

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Monday, October 2, 2017

Poor on Ricardo

Poor on Ricardo
Thomas Allen
    In 1877, Henry Varnum Poor (1812-1905) wrote Money and Its Laws: Embracing a History of Monetary Theories, and a History of the Currency of the United States. He was a financial analyst and founder of a company that evolved into Standard & Poor’s. Poor was a proponent of the real bills doctrine and the classical gold-coin standard and, thus, the quality theory of money. He gave little credence to the quantity theory of money — especially if credit money, such as bank notes, were convertible on demand in species. Also, he contended that the value of money depends on and is derived from the value of the material of which it is made and with paper money, its representation of such value.
    In the latter part of his book, he discusses leading monetary theorists from Aristotle (350 B.C.) to David A. Wells (1875). Most of the economists whom he discussed were proponents of the quantity theory of money. We will look at his discussion on David Ricardo. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.
    David Ricardo (1772-1823) was a British economist. Included among his major works are The High Price of Bullion: A Proof of the Depression of Bank Notes (1809), Proposals for Economical and Secure Currency (1816), and Principles of Economy and Taxation (1817). When Parliament returned Great Britain to the gold standard after the Napoleonic Wars, it relied on his works. It also relied on his works when developing banking and monetary laws in the decades that followed.
    Ricardo argued that a currency without a specific standard was a chimera. He favored a monometallic silver standard. Also, he preferred the bullion standard to the coin standard. That is, banks redeemed their bank notes in standard bullion bars instead of coin. Thus, people would be forced to make small payments with paper money. Ricardo was a proponent of the quantity theory of money and believed that the value of money can be properly maintained by regulating its quantity.
    Ricardo believed “that value was not a necessary attribute of money. . . . [M]oney became such by virtue of the insignia of government; that its value was in ratio to its quantity, — that the most worthless pieces of paper, or the most debased coin, might be raised to the highest pitch of value simply by limiting their amount” (p. 221). That is, the government can declare anything to be the medium of exchange, give it a specific value, and maintain that value by properly regulating its quantity. [Menger proves the falsity of this notion. Gold and silver were used as purchasing media before any government insignia was stamped on it. Gold and silver have been used throughout history, and even today, as purchasing media without a government insignia stamped on it. When a government debased its coins, history shows that the value of the coin falls until it reaches the value of its gold or silver content. Therefore, the metal content, and not governmental decree, fixes the value of the coin.]
    Poor quotes from Ricardo’s Principle of Political Economy and Taxation:
        The quantity of money that can be employed in any country must depend upon its value. . . . A circulation can never be so abundant as to overflow; for, by diminishing its value, you will in the same proportion increase its quantity, and, by increasing its value, diminish its quantity. . . .
        While the State coins money, and charges no seigniorage, money will be of the same value as any other piece of the same metal of equal weight and fineness; but, if the State charges a seigniorage for coinage, the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole seigniorage charged, because it will require a greater quantity of labor, or, which is the same thing, the value of the produce of a greater quantity of labor, to procure it.
        While the State alone coins, there can be no limit to this charge of seigniorage; for, by limiting the quantity of coin, it can be raised to any conceivable value.
        It is on this principle that paper money circulates: the whole charge for paper money may be considered as seigniorage. Though it has no intrinsic value, yet, by limiting its quantity, its value in exchange is as great as an equal denomination of coin or of bullion in that coin. On the same principle, too, namely, by a limitation of the quantity, a debased coin would circulate at the value it should bear if it were of the legal weight and fineness, not at the value of the quantity of metal which it actually contained. . . .
        [I]t will be seen that it is not necessary that paper money should be payable in specie to secure its value: it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be its standard. If the standard were gold of a given weight and fineness, paper might be increased with every fall in the value of gold, or, which is the same thing in its effects, with every rise in the price of goods. . . .
    Poor argues against Ricardo’s assertion that the government can charge whatever seigniorage that it wants to. For example, if the government charged 9 ounces of gold to coin 1 ounce, Ricardo believes that people will still bring gold to be coined because they need coins, or money, in commerce. Poor argues that people will cease bringing their gold to be coined. Instead, the metal will be privately assayed and will pass by weight. “A person possessing bullion might wish to sell it for use in the arts, or for the purchase of foreign commodities; for which it would be received at its full value” (p. 223). Noting that a lack of coinage may cause inconveniences, he adds that “great commercial communities existed long before coinage was invented” (p. 223). Furthermore, “[t]he inconvenience resulting from the want of coinage, relative to the magnitude of the transactions taking place, would be much less now than before the invention or use of symbolic money; for the reserves necessary for the conversion of such currency may be in the form of bullion, nearly as well as in that of coin. They are now largely held in bullion” (p. 223). Disagreeing with Ricardo about the government’s insignia giving money value, Poor writes, “[G]overnment can no more create values by its insignia without an obligation, than the Alchemist could create gold out of curious and fanciful combinations of the baser metals” (p. 223). [Moreover, history shows that under the gold standard, bank notes without the government’s insignia circulated at par with gold coins as long as they were convertible in gold coin on demand.]
    Ricardo acknowledges that paper money has no intrinsic value. However, according to Ricardo, its value can be maintained by properly controlling its quantity. Poor argues that governments cannot be trusted with the issuance of paper money. As history shows, they will always abuse that power. Therefore, Poor argues that paper money should always be issued by private parties or bankers (p. 224). As long as bankers have to convert their paper money to species on demand, their issue of paper money will be regulated. Any excess issue of paper money, i.e., in excess of the real demand of the domestic markets, people will convert to gold for use in foreign markets. [A situation like this occurred in the United States in the early 1890s. In response to political pressures, the U.S. government had left a large quantity of U.S. notes, greenbacks, in circulation following Lincoln’s war to suppress Southern independence. Gold backed less than half these notes. Also, to satisfy the silver interest and the inflationists, i.e., the “easy money” folks, Congress enacted the Sherman Act. This Act required the U.S. government to buy large quantities of silver with legal tender Treasury notes of 1890. These notes were redeemable in gold or silver at the discretion of the Secretary of the Treasury. He chose to redeem them in gold. People began redeeming U.S. notes and Treasury notes of 1890 for gold, which they exported. The Secretary of the Treasury could retire Treasury notes when they were redeemed. However, the law required him to reissue U.S. notes that were redeemed. The reissued U.S. notes were redeemed for gold, thereby creating a vicious cycle draining the treasury of its gold. The crisis ended with the repeal of the silver purchase part of the Sherman Act and the sale of bonds for gold to European bankers to replenish the treasury’s gold stock. Nevertheless, this crisis helped to precipitate the depression of the 1890s.]
    “Convertibility of paper at all times into coin . . . [is] the only certain test of the propriety of its issues” (p. 224). Nevertheless, much more than convertibility is needed to ensure the propriety of issue. Poor writes that “convertibility of issue may have no relation whatever to propriety of issue. A person may be able to pay a bill he has uttered; but by doing so be may strip himself of every dollar he possesses. The question, therefore, far in advance of convertibility, and which is the only one important to be considered, is the manner in, or cost at which, convertibility is sought to be secured” (p. 224). The solution to the propriety of issue is the real bills doctrine: “Where bills are discounted, obligations are mutually created; and, so long as such bills represent merchandise entering into consumption, their payment is certain to return to the Bank its obligations, without the withdrawal of any considerable portion of its means. So long as such rule is followed, so long as a currency is issued only in the discount of bills representing merchandise, there can be no inflation; nor is there any danger that the Bank issuing it will be called upon for any considerable amount of coin” (p. 225).
    When a bank ceases discounting bills and uses its bank notes to buy government securities, the result is often bankruptcy and financial crisis. The only way to avoid this outcome is some provision to retire bank notes without any act of the issuer. With financial papers like government securities, no such mechanism exists. Poor states, “The only proper mode of issuing a currency is that which shall provide for its retirement automatically, by the operation of the laws of trade, — by the debtors of the Bank, instead of the Bank itself” (p. 225).
    About government notes, Poor declares, “A government currency, which may at first have a value in coin nearly equal to its nominal value, may become wholly valueless; but its price at any given time is to be accepted as its value. In other words, money will no more be taken but at its value than any other kind of merchandise or property” (p. 225). Yet, Ricardo “held value to be no attribute of money; but that it was an instrument of commerce precisely in the same manner that scales or balances are instruments of commerce, the value of both depending upon their quantity” (p. 226). Poor responds, “If Ricardo be correct, then provided there be but one shilling in the world, and that a debased one, its value might be equal to all the money in it at the present time. If he be correct, then the debasement of a currency, provided its nominal amount be not increased, is the wisest possible policy both for princes and people” (p. 226). As shown, Poor strongly disagrees with Ricardo.
    Ricardo preferred the government to issue the country’s paper money if it would not abuse this power. However, governments are more likely to abuse this power than a banker. Redemption of notes to gold would limit the ability of banks to expand the money supply. Governments are more likely to suspend the redemption of government notes than they are of bank notes. Nevertheless, he saw no problem with an independent government commission issuing the country’s currency as convertibility would not be suspended, so he believed (pp. 226-227) [Ricardo’s logic is flawed. First, no government body is truly independent. Like all government agencies, politics control it. The legislature can withdraw independence as quickly as it grants it. Furthermore, the French made similar arguments before they introduced the assignat, and that turned out to be a disaster.]
    Ricardo praised paper money and preferred not to see gold and silver coins circulated. Circulating coins were a waste of resources and much more expensive than paper. He restricted the conversion of paper to gold to large bars of gold. Redemption should be in bullion and not in coin (p. 230).
    Poor writes, “Ricardo would maintain the value of paper money by having it represent gold, but would prevent a resort to gold by throwing inconveniences in the way of its use. He assumed, of course, that only a small amount of gold would be required to meet occasional calls; for nothing would be gained, provided the amount of gold to be held in reserve equaled the amount of notes issued. But, if it were optional with the public whether or not they would receive the notes of the Bank, they would not receive them, if they could get nothing for them but bullion” (pp. 281-282). Thus, Ricardo based his monetary argument on the assumption that the public wanted currency, a medium of exchange, instead of capital. Also, he believed that if people were free to choose between coin and paper, they would choose the more expensive (to manufacture) coin over paper. Therefore, they should be denied the choice of coin. According to Ricardo, “a perfect currency would be realized; costing nothing in itself, yet always at the standard of coin” (p. 232)!
    Poor concludes his discussion of Ricardo with the following critique:
Ricardo possessed in an eminent degree the gift of money-making, and undoubtedly ranked high as a man of affairs. He, however, no sooner took up his pen than he seemed instantly discharged of all reasoning faculty. In the same sentence, he could affirm propositions exactly opposed the one to the other, without the least perception of their incongruity. Never was there a more striking instance of confident assumption on the one hand, and fatuity on the other. To add to the strangeness of the picture, he occupies the front rank among the Economists as an original and profound thinker, — one who exploded many of the radical errors, who placed on firm foundations some of the most important truths of Political Economy, and to whom it is more indebted than to any writer but Adam Smith. . . . From his example, it would seem that no mind is capable of discussing the subject of money, and of preserving, at the same time, its balance and integrity. (pp. 232-233).
    Poor adds that “in the matter of money, the most groundless and absurd theories are often found intimately associated with the greatest practical talent for its accumulation and administration. Life nowhere else presents an example of such complete disassociation between the practical and speculative sides of our nature” (p. 233).

Copyright © 2016 by Thomas Coley Allen.

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