America's Great Depression | The Twilight of Gold Series | Episode 16 (WiM404)
Dec 4, 2023
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Lester, a fellow student of money, joins the podcast to discuss topics such as the current situation of the Bitcoin market price, the decay of the system including the Vietnam War and FTX scandal, self-preservation and self-deception, the predictability of assets, price camouflage in the 20th century, inflation harvesting additional productivity, economic theory and observational data, fractional reserve banking, and more.
The Great Depression in America was caused by a combination of genuine prosperity and a massive credit expansion and malinvestment of capital.
Technological advancements and increased productivity in the 1920s masked the inflation caused by monetary expansion, resulting in stable or decreasing prices.
The prevailing myth that the Great Depression was caused by unrestrained capitalism obscures the complex interplay between genuine prosperity and credit expansion/malinvestment of capital.
The interplay between technology, productivity, and prices in the 1920s led to stable or decreasing prices despite the initial inflationary effects of the credit expansion.
Deep dives
The 1920s: Interplay of Prosperity and Credit Expansion
The 1920s saw a period of genuine prosperity in America, with high savings, investment, and increased living standards. However, there was also a massive credit expansion and malinvestment of capital, leading to the eventual crisis. The boom and bust cycle is not inherent to free-market capitalism, but rather a result of these competing forces. The interplay between genuine prosperity and the credit expansion shapes the final outcome. Despite the credit expansion, the technological advancements and increased productivity masked any rise in prices. Prices were stable or even slightly decreased due to the offset by the increase in productivity. The increase in productivity led to lower costs and prices, spreading higher standards of living to consumers. However, the monetary inflation offset this effect and created the boom and depression of the business cycle. The hallmark of the inflationary boom is that prices are higher than they would have been in a free market, leading to eventual consequences.
Inflation and the Camouflage of Money Printing
The prosperity of the 1920s was accompanied by a significant increase in productivity, which effectively camouflaged the inflation caused by monetary expansion. The increase in output and new goods and services absorbed the new money creation. Prices were initially bid up, but the offsetting technological advancements and productivity gains resulted in stable or even decreasing prices. The increase in productivity allowed for reduced costs in goods and higher wages for workers without significant price increases. Asset inflation must be considered part of overall inflation, as it represents the harvesting of economic surplus and additional productivity. Understanding the interplay between genuine prosperity and the effects of monetary expansion is essential in assessing the causes and consequences of inflation.
The Myth of Laissez-faire Capitalism in the 1920s
The prevailing myth that the Great Depression was caused by unrestrained capitalism in the 1920s obscures the complex interplay of two conflicting forces during that period. While there was genuine prosperity characterized by high savings, investment, and increased living standards, there was also a massive credit expansion and malinvestment of capital. The increase in productivity and technological advancements camouflaged any rise in prices, while the monetary inflation offset the effects of increased prosperity. The designation of the 1920s as an inflationary boom is misleading, as overall prices remained stable or slightly decreased due to the offsetting effects. Understanding the complex dynamics of this period is crucial in debunking the myth of the blame placed on laissez-faire capitalism for the Great Depression.
The Interplay of Technology, Productivity, and Prices
The 1920s witnessed significant advancements in technology and increased productivity, resulting in the production of new goods and services. While the credit expansion initially led to higher prices, the increased productivity and technological gains offset these effects, leading to stable or even decreasing prices. For example, output and production of various commodities, such as electricity, automobiles, and tractors, soared during this period, leading to lower costs. This interplay between technology, productivity, and prices resulted in the masking of inflationary pressures caused by monetary expansion. Understanding this interplay is crucial in comprehending the complex dynamics of the 1920s and its impact on prices and inflation.
The Complexity of Economic Planning
The podcast episode discusses the complexity of economic planning and the challenges of understanding the true causes and effects of economic events. The speaker emphasizes the need to go beyond surface-level data and dig deeper to fully understand the underlying factors at play. They argue that economic theory and history are not the same, and one must have a solid understanding of economic principles to interpret observational data accurately. The discussion highlights the role of the Federal Reserve and the influence of reserve requirements and controlled factors on inflation. The episode underscores the importance of having a comprehensive understanding of the myths surrounding economic history and being armed with knowledge to challenge conventional wisdom.
The Impact of Reserve Requirements
The podcast delves into the impact of reserve requirements on the economy, specifically focusing on the Federal Reserve Act of 1913. It explains how the new reserve system changed statutory reserve requirements for different types of banks and outlines the reductions in legal reserves of national banks since 1913. The episode highlights how lowering reserve requirements allowed banks to create new money and inject more leverage into the system, leading to inflation. It also examines the shift from demand deposits to time deposits, orchestrated by the Federal Reserve, and the subsequent increase in total reserves. The discussion warns against the dangers of trust in banks offering yield on deposits and stresses the importance of not falling for such schemes.
The Role of Central Planning and Uncontrolled Factors
The podcast explores the role of central planning and its effect on inflation and economic outcomes. It provides an in-depth analysis of the 12 sub-periods from 1921 to 1929, highlighting the interplay between controlled and uncontrolled factors in the Federal Reserve's actions. The episode emphasizes how the Fed's deliberate inflationary measures, such as increasing controlled reserves and promoting investment, had long-term consequences. It discusses the challenges of stabilizing the value of money, the manipulation of exchange rates, and the detrimental impact of central planning on the economy. The episode concludes by underscoring the importance of decentralized decision-making and the potential value of opting out of the centralized monetary system through a free and incorruptible alternative like Bitcoin.
My friend and fellow student of money codenamed "Lester" joins me for a multi-episode conversation exploring the excellent book "The Twilight of Gold" by Melchior Palyi.
// OUTLINE // 00:00:00 - Coming up 00:00:58 - Intro 00:02:31 - Helping Lightning Startups with In Wolf's Clothing 00:03:17 - Current Situation of the Bitcoin Market Price 00:07:30 - Decay of the System: Vietnam War and FTX Scandal 00:36:42 - Self-Preservation and Self-Deception 00:38:30 - The Oracle for Truth 00:43:54 - The Predictability of Assets 00:45:51 - Run Your Business from Anywhere with NetSuite 00:46:56 - Secure Your Bitcoin Stash with the iCoin Hardware Wallet 00:47:52 - Myth Two: Capitalism & the Great Depression 00:53:26 - Price Camouflage in 20th Century 01:00:15 - Inflation Harvests Additional Productivity 01:04:46 - Economic Theory and Observational Data 01:07:15 - Why Fractional Reserve Banking is Insolvent and Fraudulent 01:19:32 - Enhance Your Brain Power with Mind Lab Pro 01:20:39 - Take Control of Your Healthcare with CrowdHealth 01:21:41 - Increase in Total Outstanding Reserve 01:23:46 - 10 Ways to Control Total Bank Reserve 01:28:41 - Main Inflationary Factor 01:33:33 - Britain's Switch Back to Gold Standard 01:38:29 - Uncontrolled Factors and Increase in Controlled Reserves 01:42:29 - The Deflationary Period 01:44:41 - The Great Depression: Why and How 01:46:35 - Bad Outcomes of Central Planning 01:50:45 - Missing the Perspective of Consequences
