The Dollar-Oil Nexus

Commentary below from Steve from Virginia from the Economic Undertow and RE  of the Doomstead Diner on the Dollar-Oil Nexus thread posted on The Automatic Earth by Ashvin Pandurangi.

Re: FPC: The Dollar-Oil Nexus 4 hours, 48 minutes ago #3186

After being confronted with that critique, a few of the Freegold people implied that they agreed with most of what Keen/Minsky have to say, but thought the debt deflation theory was incomplete, in terms of how central authorities can make sure the Mother of All Deflations never really takes off.

First of all, Fisher implies the (offhand) reflation strategy without going further. Leijonhufvud doesn’t offer any strategies at all! (Why should he?) However, (Free)gold folks’ awareness of nuanced (sensible) economic arguments never seems to emerge from their arguments. It seems to me that the monetary gold arguments were all made — and settled — by Wicksell and Bagehot a hundred and ten or so years ago.

Part of the problem is the absence of conventional ‘solutions’. Our dilemma lies within the inter-temporal balance sheet beyond the reach of monetary policy.

Almost no (as in zero) conventional economist makes reference to energy or resource inputs. Herman Daly equates money capital with resources (and Charlie Hall and Robert Costanza) but equilibrium economics is built around unlimited substitution. This is a dead end.

A conceptual problem is that we are at the beginning of post-industrialism. Nobody can figure out what ‘Post Industrial Society’ is going to look like or how it will function. Some think virtual reality (Kurzweil), others think ‘hunter-gatherer’ (J. Hansen) and still others a steam-punk version of modern Detroit (Greer). Human extinction is not out of the question: how does modern industrial economics factor all of these different possibilities and others beside?

Brand X economist: “Don’t blame me!”

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.

What does come next? Hard to say but the constant will be ‘less.

Re: FPC: The Dollar-Oil Nexus 1 hour, 28 minutes ago #3188

steve from virginia wrote:

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.
What does come next? Hard to say but the constant will be ‘less’.

Well stated Steve.

Overall, it is a conceptual problem.  The tendency is to accept axiomatically that even though the Fiat will crash, Homo Sapiens will continue to hold the same things valued and pursue “trade” in more or less the same manner.
This may however be one of those Roads that is a One Way Street, or even a Dead End One Way Street.

On the assumption (hope) it is not DEOWS, where will we go from here?  What happens once we reach the end of this road?
It’s all speculation, because insofar as we know (unless Atlantis really had an industrial culture before) we are breaking new ground here.  Nobody knows what a Post-Industrial world will look like.  Though of course there is no shortage of speculative Imagery out there from Mad Max to the Children of Men.

Personally, I think there will be a “Scavenger” period during which the flotsam and jetsam of the Age of Oil gets repurposed to keep stuff like the Railroads still operational for a while.  I don’t see a great future for money during this period, though if Goobermints of some sort hold together you may have some for a while.  You definitely cannot have functioning “Money” without functioning Goobermint.  After that it’s just barter, even Gold Coins are just Barter Items.  To make them “Money”, you need a Stamped Value placed on them so they are always worth the same thing inside a given trading system.

Money requires a SHARED AGREEMENT system between all in the society on the relative values of things.  When that breaks down, when some people no longer value a McMansion at all and others place preposterous Numerical Values on them, you have Mark to Make Believe  which no longer makes any sense at all.  That really is the problem here now, relative valuations based on the monetary system are not reflecting reality.  In fact, McMansions are WORTHLESS, and so are the Carz.  Helicopter Ben cannot MAKE a McMansion worth anything, he can only print Bills.  Even if he gave you a Billion of those Bills, there still would be no reason to trade them for the McMansion.

Our Value System is changing, MUST change because the Oil which powered this value system just isn’t there in quantity enough to keep the engine running, not on a Global basis anyhow.  Now we have to figure out how to value everything we still do have in the ABSENCE of Oil.  That is quite a challenge.


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