London Mises Circle – April

This month’s meeting of the London Mises Circle will take place at the Institute of Economic Affairs on April 25th.

Abhinandan Mallick will give a talk on the Austrian School approach to the theory of value and price in the tradition of Menger and Bohm Bawerk, and its distinctive features in comparison to the dominant neoclassical approach.

He will mainly focus on how the Austrian School approach can genuinely explain and shed light on the process of price formation, and touch briefly on its application to understanding the dynamics of price relations along capital structures.

Abhinandan is a research analyst at IHS, hold Master’s degrees in Theoretical Physics and Economics from the University of Birmingham and Birkbeck College, University of London, and is a former research fellow of the Ludwig von Mises Institute.

Arrive at 6:30 for a 7pm start. Any queries please contact


March Mises Circle

The March meeting of the London Mises Circle will take place at the Institute of Economic Affairs on Thursday 21st March.

We will be having a talk from Robert C B Miller, economist, businessman, and former Senior Fellow of the IEA, on his recent paper for the Adam Smith Institute titled What Would Hayek Do? A discussion will follow.

We will be aiming to get going at 6:30pm with a fairly prompt 8pm finish.

All are welcome. If you have any questions please email


A trip to the Japanese Currency Museum

You probably didn’t know there was a Japanese Currrency Museum, did you?  Well, neither did I until I found myself stood outside it one Saturday morning.  (As you do.)  It’s run by the Bank of Japan (i.e. the central bank) and inside there are a large number of displays charting the history of Japan’s money from gold dust to today’s paper-based fiat currency.  It’s not a big museum but it’s a damn sight better that the British equivalent.

So what did I learn?  Mainly, that Japan’s monetary history is much the same as the UK’s:  for most of Japan’s history gold and silver dominated, governments were forever debasing the coinage, paper money came about at almost the same time as it did in Britain and the exchange rate between gold and silver was always causing problems.  This was especially true immediately after Japan opened up to the West.  A lucrative arbitrage trade developed in which Westerners would sell their silver to the Japanese government and receive far more gold in return than they would at home.

The only real differences with Britain are that many Japanese coins had a hole in the centre to allow them to be threaded together with string (a practice echoed in the modern 5 and 50 yen coins) and that Japanese ingots were a really cool shape.

Indeed that shape is a frequently used banking emblem to this day.  The other difference is that the Japanese were quite happy to accept foreign currency, particularly Chinese currency.  Japan even had privately minted coins in much the same way Britain had, as George Selgin described in his book Good Money.

One thing I picked up (or at least I think I picked up – the English notices were limited) was to do with the collapse of the Tokugawa Shogunate.  The stock history of the birth of modern Japan goes something like this: for 200 years the Shoguns shut Japan off from the rest of the world; in 1853 the US Commodore Perry parked his ships in Tokyo Bay and demanded a trade agreement; the Shogunate resisted change and in 1868 it was abolished and the Emperor restored.  Modernisation began.

What I picked up was that well before the arrival of Perry there was a severe debasement of the currency underway.  I found this rather surprising given that Japan didn’t have any wars to fight, but they managed it anyway.  Could it be that, far from modernisation being the culprit, it was a currency collapse that did for the Shogun?


Communist approval for western central banking

I received an interesting email recently from a distinguished colleague in Spain. He was looking at the Central Bank of Cuba’s website where they state their monetary policy. He said to me, “you could ask your readers if they can grasp similarities and spot differences (other than that they recognize they are not a market economy) as compared with the monetary policy conducted by the Bank of England or the ECB. I guess that more than one western-world central banker would feel comfy with the Cuban approach.”

Here’s the text:

In dealing with monetary policy, it is necessary to take into account that it adopts particular characteristics in the case of Cuba, since there is not a market economy but a central planning, mainly, of a financial type.

In keeping with these considerations, the instruments of monetary policy carried out by the work of the central bank up to date are the following: controls over exchange rates and legal reserve ratios, among other provisions.

In order to make up and implement monetary policy, in 1998, it was created the Comité de Política Monetaria (Monetary Policy Committee) in Banco Central de Cuba which gathers weekly with various objectives: to analyse money liquidity development; give its opinion on interest rates to be applied on the financial system; examine the exchange market where Casas de Cambio CADECA S.A. operates and, in general, inspect, know and decide on everything concerning the country’s monetary policy.

Since 1999, important progress has been achieved in the formulation and implementation of monetary policy. In this sense, measures and instruments has been put into practice to adequate the monetary situation of enterprises as well as of the population to the development of the economy.

In that year, interest rate policy for the national currency was modified, fixing ceilings of 5,0 percent for the short-term and of 7,0 percent for the medium- and long-terms; this way, the high number of purposes and of interest rates prevailing until then were eliminated. As part of that new policy, banks were given the possibility to move those ceilings to a +/- 2,0 percent, depending on the purpose of the credit, rating of the borrower and other considerations, always taking into account the risk analysis that may be effected. Accordingly, interest rates for credit granting may range from 3,0 to 9,0 percent, without meaning an onerous financial burden for enterprises.

In regard to credit policy, it is based on effecting financing in national currency as well as in foreign currency through financial intermediaries under a strict risk analysis.

In relation to loans made to the population in national currency, interest rates approved by the end of 1998 are still applied for three loan categories: consumer loans with an interest rate up to 8,0 percent; investment loans with a 9,0 percent as maximum and cash loans with an interest rate up to a 9,0 percent, also.

Likewise, as of the 2000, banks are authorised to attract fixed deposits in national currency from natural persons with attractive interest rates shifting from an annual 2,5 to 7,5 percent, according to the term, that may vary from 3 months to 3 years. This measure allows the population to place new resources in this savings method or to immobilise part of the ordinary savings they hold for specific time periods, thus having a favourable impact in monitoring and controlling the money supply.

Interest rates of loans to enterprises in freely convertible currency are at reasonable levels, around 11,0 percent, thus redounding to an acceptable cost of financing to the economy.

Interest rates on deposits in foreign currency are fixed by commercial banks directly and related to international interest rates prevailing in each moment.

At the same time, commercial banks have been authorised to take fixed deposits in national currency from enterprises which are engaged in the entrepreneurial improvement system.

Legal reserve or minimum reserve ratio is continued to be applied on demand deposits of commercial banks. It is fixed at 10,0 percent for national currency and at 5,5 percent for foreign currency. This instrument of monetary policy has enable it to act on liquidity of the banking system and, therefore, on expansion or contraction of credit given to the economy.

Work has been carried on in making a system of monetary aggregates with the objective of gradually improving control over the money supply. These monetary aggregates include national currency as well as foreign currency. Their components are liquidity held by the population, on demand or for a term, plus savings balances from enterprises and other entities operating within the economy. Likewise, it has been determined the monetary base which includes cash in circulation outside the central bank plus commercial banks’ reserves deposited in the central bank.

In this issue, it is important to underscore that, due to the characteristics of our economy, the most important component of the monetary aggregates in order to monitor price behaviour is, precisely, liquidity held by the population which includes cash in circulation and call deposit accounts.

On the other side, work is being done to estimate, among other elements, money demand of the economy by means of econometric techniques, counting on, to that purpose, with the advisory of specialists from central banks of Latin America.

In relation to the exchange market, the CADECA’s informal market exchange rate which had remained stable for two years at about 20 Cuban pesos for one dollar, by the end of 2001, it was depreciated up to about 26 pesos for one dollar. This was mainly due to the international events and the impact of the world economic recession on the Cuban economy.

The existence of a double money circulation is an aspect which makes difficult to conduct Monetary Policy at present. This is an issue where attention is focused on and whose solution is linked to the growth of the country’s economy, the increase in financing of the Current Account deficit in the Balance of Payments, mainly at medium- and long-terms, and to the increase of the International Reserves to acceptable levels. Along these years, specialists from Banco Central de Cuba have carried on different research works in which experiences from other Latin American countries facing a similar situation have been analysed.


The ultimate subsidy for the rich

I am delighted that Fraser Nelson and the Spectator have picked up something we have been saying all the time for our nearly three years in existence: that QE is a regressive tax that transfers from the poor to the rich and should be stopped with immediate effect.

This of course should not be the only reason why it should be stopped, the principal one being that no new amount of money units created causes more goods and services to be made — more things that people want at cheaper prices (yes, deflated prices!), served in a more timely fashion to suit the most urgent consumer needs. Only entrepreneurs, by refraining from consumption — i.e., doing that most terrible of things according to the mainstream economist, saving — can they deploy their wealth to invest in more intensive, better combinations of factors of production.  In short, to invest further in the capital structure of their business to produce these better goods and services.

I recommend this article and welcome that even the mainstream media are now starting to pick up on these points. There may be hope for sound economic reasoning yet!


The Bristol pound

This article, published in the The Telegraph, is interesting not for what it says about local currencies but instead the wider, unstated, political atmospherics of our time.

Putting to the side the claim that Bristol is a hot bed of left-wing radicalism, as opposed to an historic hub of global trade, it strikes me that when people are against big business, big banks, the Bank of England, or for that matter a nationalised pound, they in fact smell the unjust corporatism of crony capitalism. Unable to articulate this with a coherent body of knowledge and an understanding of ‘state failure’, they instead turn to the ever decreasing circles of protectionist localism.

While such conclusions are wrong, they are at least borne of people starting to try and articulate the right question. The key thing for them to learn is that they should try substituting the word ‘big’ with the word ‘state’!


Hugh Hendry v. Joseph Stiglitz

I received this YouTube clip from a friend of the Cobden Centre and I think it is fantastic. It shows the fundamental banality of the mainstream economists and their entrenched views: more “political cohesion”, more debt, spend, spend, spend …

Such advice will push our economies over the edge.

Investor Hugh Hendry gives Nobel Laureate Joseph Stiglitz a taste of reality.


What is the endgame?

If we step back from everything that is going on in the U.S., and in Greece and Europe, one can say that the endgame ultimately is devaluation of financial assets. It is almost as if these disruptive financial technologies enabled overproduction of financial assets. They increased productivity and they created oversupply, and that excess supply needs to be liquidated. But the liquidation is what governments don’t want to allow. So they are trying to support the prices of goods and services that have been overproduced, which are financials.

As long as confidence can be maintained in the underlying currencies, this game can carry on, but at some point it now seems inevitable that there will be an endgame. The conclusion from Simon Mikhailovich’s point of view should be read, bearing in mind this man is no gold bug but a derivatives expert with proven form in the field.


WSJ: Europe and its money

This editorial in the Wall Street Journal provides an excellent introductory comment to the European debt crisis now underway:

The German Bundestag voted last week to expand the European fund established last year to bail out Greece—or, rather, Greece’s creditors. In doing so, it also moved the euro zone one step further away from the bloc’s founding principle that its members would share a currency, but be responsible for their own fiscal policies within that currency zone.

In the current global environment of floating exchange rates, this idea seemed radical, and many people thought the experiment was doomed to failure. Yet historically speaking, the real novelty is our system of fiat currencies and floating exchange rates.

(H/T Detlev Schlichter)


ConservativeHome: It’s time for currency choice – and Douglas Carswell’s 10 minute rule Bill on currency reform

Over at ConservativeHome, I have promoted Douglas Carswell’s ten minute rule Bill on legal tender laws and currency choice:

People today have unprecedented choice.  They can shop around online.  They can tune into numerous television and radio channels.  They can even decide between different hospitals for medical treatment.

But why are people not allowed to decide for themselves in which currency to transact their business and store their own wealth?

Today, Douglas Carswell introduces a Bill designed to make a range of different currencies legal tender in the UK.  It would mean that, with the click of a mouse, people would be able to store wealth and pay taxes in a range of different currencies of their choice.

The BBC are covering it here. Read the full article.