Thursday, September 27, 2012

Of Two Minds, At Least One Not His Own

CHS has claimed to be a free thinker, but he proves time and again that he is ruled by his very own cargo cult.

CHS had a largely good post up today on "Why QE Won't Create Inflation Quite as Expected."  His problem is his reliance upon the fictive Quantity Theory of Money as truth to make his points.

Money is a false commodity.  It's value does not depend upon supply and demand.  This is true under a fiat system or under a gold-backed system.

The value of money depends not upon the supply and demand of money, but upon the supply and demand of credit.

The "velocity of money" is merely a fiction to make the tautology of the Quantity Theory of Money hold together.  Without the fiction, the theory fails, and it has failed in practice.

Nevertheless, CHS gets things mostly right in his post.  His biggest problem is relying on the velocity of money to explain the absence of inflation.

Perhaps one day he will break himself of the blinders that bind him.