Tuesday, Apr 22, 2008
Inflation and the spectre of negative seigniorage
Ludwig Von Mises Institute: Two Cents on the Penny (That Are Now Worth Almost Four)
The cost of producing a penny is now 1.7 cents — it costs nearly two pennies to make one.
Why is the price of zinc going up? Has there been some dramatic shift in the mining industry or a sudden catastrophe? No, because in comparison to many other of the world's currencies and commodities, the price of zinc has not risen. Instead, it is the falling value of dollars themselves that is causing the price to go up. The greater the supply of a good, the less value each individual unit of that good will have. This is known as the law of marginal utility. Applying this law to money leads to the conclusion that when the mint prints more dollars, the value of existing dollars will decrease, and thus it will take more dollars to purchase metals.
Posted by planning4acrash @ 12:08 AM (392 views) Add Comment
6 Comments
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1. lvmreader said...
Great post!
Next people will be making razor blades out of nickels, quarters and dimes.
http://news.bbc.co.uk/1/hi/world/south_asia/6766563.stm
2. planning4acrash said...
Then we come to the £50bn just proposed, the potential £200bn to fully bail out banks and the £110bn for Northern Crock. That is one hell a lot of printed money, which will ramp up inflation no end.
3. lvmreader said...
The GBP may be finished if GB(H) is left in charge.
4. drewster said...
This is nothing new - even the UK is affected.
BBC News: Royal Mint warns against melting coins [May 2006]
BBC MoneyBox: US Mint considering cheaper coins [Oct 2007]
In April 2007, the US government passed a law to make it illegal to melt down US coins or to export them in any quantity. It was already illegal in the UK.
5. lvmreader said...
God help us.
6. planning4acrash said...
Drewster, you are, right, this is not a news article. It is an academic style paper. Note that the "news" story's posted by others report the spectacle but do not explain it. They vilify those profiteering from this result of inflation but say nothing about how the homeless are probably homeless partly as a result of inflation and that negative seigniorage is a result of printing too much money. The BBC come to the conclusion that we should cancel the smaller currency. The Mises Institute come to the opposite, nay I say, counter intuitive conclusion, that we should cancel the $100 bill!
As S2R mentioned, him and I are more chilled of late. Me? I've gone through the various stages of bereavement and am now acceptant that we don't have a fully functioning democracy, that corporate fascism is partially installed in all but name, via institutions that we are supposed to trust, such as the Bank of England and the all purvasive Federal Reserve. Its nothing new. Indeed, S2R refers to an information war. Well, propaganda is nothing new. What is new, is that people like us are fighting back, with knowledge and the ability to explore the current situation with an academic mind and resolve. So, we are the new resistance. In reality, organisations like Mises have been at it for years. The change now is, with the internet, that we are all free to pursue knowledge, unconditioned by media propaganda & sloppy journalism.
So, expect more academic articles, but you guys are right, it is good to link them with current, or revisited/re-analysed news articles. That really does help to move the discourse along. Hopefully some of you can add to my understand of this, as you usually do.