ANALYSIS: How the conceit of monetarism is punctured by anthropology


Gold, property and arable land are forever, but fiat money and hitech trading are transitory 

Can you imagine what the reaction would’ve been forty years ago if a senior banker or major-league politician had said, “We’re going to focus going forward on achieving our inflation target”? Even the Mad Handbag would’ve said that the only target she had was zero. But the three major central bankers on the planet right now are all singing from that same hymn sheet of the inverted Cross: they want more inflation.

Something has gone very badly wrong here, and I am about to explain why.

Predictably, fortune-cookie rentaquote Milton Friedman observed, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” You know, history is going to one day unmask Milt as the emptiest vessel of all time.

Here’s a teaser for monetarist Friedman fans everywhere: are we saying here that every form of exchange before money was absolutely useless? And that there was no inflation before money? Because if we (and by that, I really mean you, dummy) are saying such a thing, then it is undiluted tosh. A great deal of potential inflation is in the human mind….based, for example, on a few smart people in one sector deciding what the value of something is on the basis of human vanity. Long before the first coinage appeared, gold was inflating in value all the time because it was bright, shiny, and very hard to find. Hold that thought on gold: it led to currency, but – as Christ said about his Dad being ‘Before Time’ in the original Hebrew before the Greeks messed up the translation – gold was before currency.

If you and only you have the secret of making bricks – and generations of cave-dwelling have taught your mates that it gets horribly cold in winter – the price of building houses is going to inflate…if the punters have the right stuff with which to pay for them. This could be gold, but it might also be confit de canard…another thing whose price has been decided by a large number of French chefs proclaiming it to be the ultimate lascivious food – especially when plonked into a pork and beans cassoulet.

The unit of barter could also be leeks, beetroot, milk, meat, cheese or indeed anything else that exists on the reality Planet called productive land.

Inflation does not come down to money in the end, it comes down to sapiens brains, their ability to calculate relative value in a crude sort of way…and their dangerously sad inability to stop imagining a future involving More.

Humans have brains that imagine riches in the future. This is also called greed. Greed creates inflation. Wage greed created inflation in 1970s Britain, cuisinier greed created restaurant inflation in the 1990s, and neoliberal greed creates inflation today. But none of that needed money to produce the result. It just needs the reaction of everyone else to be predictable. “He’s got more than me but I want more than him and she’s catching me up, which pisses me off, and my God I have to be seen eating in La Casa de Don Tomas”. On and on it goes.

The central plank of Friedmanism is that you need money for inflation. That is utter rot.

To be fair, there was very probably far more certainty before there were globally accepted relative currency values, because even though there were many different commodities with which to barter, if you were doing it every day you could walk away from the stall where the guy had just doubled his tomatoes-to-potatoes relativity for no reason. Having currencies that yee-yaw up and down based on obfuscation is far less certain than such a system.

But reasoned inflation does not need money.

For example, the tomato stallholder says, “They had a flood in Marmande, the tomatoes rotted, so the ones that survived are worth more”. Climate produces inflation.

Today, some pillock in the Citibank currencies HNWI back office writes “Well, the euro went down on fears of derivatively adjusted currency purchases of the Yuan by Japan, and hopes of a return to OMPs by the ECB”. On hearing this, 94% of humanity retires with a headache to worry more about why they’ve now got even less idea WTF is going on.

One of the reasons why (I think) Gillian Tett has been one of the most relevant and original writers on fiscal economics in recent years is because she came from social anthropology studies, not a former career in wonk quant drivel. She writes mainly about how brains and cultures interpret stuff. Last month, she wrote this crackerjack piece at the Financial Times about exactly that: for what she and I’m sure thousands of others have grasped is that the introduction of technology that is way faster, too jargonised and often beyond the comprehension of the brain and the culture means even more uncertainty as regards WTF is going on.

I’ll tell you where all our contemporary lunacy started: Dick Nixon, and the heads fashioned from dick who were advising him as US President. Nixon signed away the idea of US Dollars being either backed by gold or indeed related to anything that the individual human brain might be able to grasp as some kind of viable straw.

Now that all this lunacy is very obviously coming to a pulsating head and a sticky end, three certainties have been reestablished: property in nice places is the best investment of all, arable land prices can only go up, and the price of the one thing everyone loves – gold – is being depressed for at least seven reasons – but they all lead to one conclusion: the smart folks want more of it…especially Asians.

Well just fancy that. Think about it: we could abolish money tomorrow, and one immediate effect of the following uncertainty and panic would be a massive inflation in the value of gold, land and property. Yet again: inflation without money….and yet more proof that Friedman and his disciples are full of the one commodity than almost nobody wants to retain at all. But note the third element I mentioned earlier – technology – and ask yourselves this: if techno-trading algorithms are the answer, why isn’t everyone piling into that?

The reason is that it isn’t the answer, it’s merely a big part of the problem.

The bottom line is that hitech speed-of-light-dark-deep-liquidity oceans have first blurred and then rendered impenetrable how markets are working…or not. Man is a intra-tribal competitor, and an inter-tribe trader. What post-Keynesian techno-economics have done – eventually – is to create a global value uncertainty, whereby property and gold prices head towards Mars, paper becomes uncertain, land becomes something to defend with weapons, and computers disguise these inevitable outcomes. Homo sapiens the inveterate trader is being baffled by jargon, and bamboozled by technology.

Uncertainty produces panic. As I’ve posted ad nauseam, there is no such thing as a gradual panic.

Enjoy the weekend, he added ironically.

Earlier at The Slog: Cold facts in a cool Courtroom show up the Hotheads