Why Henry III's gold penny failed
jpkoning.blogspot.com
jpkoning.blogspot.com
* https://www.goodreads.com/book/show/249245.The_Power_of_Gold
Money: The True Story of a Made-Up Thing by Jacob Goldstein (of NPR's Planet Money) is also good:
I don't know what the mined quantities where back then but 1:10 seem arbitrary, maybe because we have 10 fingers like everything else (decimal)?
The ratio is today 1:80, an order of magnitude!
Oxidation is that important?
Price fixing, rent control, anti-gouging laws, etc, all fail for the same reason, but that never discourages the next cohort that imagines they can defy economics.
https://www.washingtonpost.com/archive/politics/1997/10/30/h...
Not exactly a great example.
Wikipedias
Yeah, that was the so-called "Asian Contagion" financial crisis. IIRC the US dumped a shitload of money into Mexico and maybe some other countries to stop the dominoes falling. Lots of countries had a bad time right around then.
Actually, the maybe-relevant part of this is that Thailand kicked it off by screwing up currency-pegging and having to switch to float, which led to a panic. But Hong Kong didn't suffer particularly hard from it, overall, compared to those worst-affected, so using HK in late 1997 as the example of this practice failing still isn't very strong.
(I can't find any mention of the Mexico thing on the Wiki article, but have a weirdly-strong memory of that specific detail being mentioned in an IPE class years and years ago, so either I'm wrong or it's one of those things that's considered a kind of folk-knowledge poli-sci and economics but doesn't make it to places like Wikipedia, some action that "wasn't" directly connected, but [by common understanding of folks in those fields] totally was—further digging reveals an Argentine event in 1998 that did affect Mexico, so I'm guessing that's what I'm recalling and that at the very least that particular professor considered it obviously true that the two events were connected, so presented that as a continuation of the Asian Crisis in late '97)
[EDIT] To be clear I'm not even going hard into the paint for pegging currencies, I just think that's a bad example and that lots of readers may not recall or be aware of the late 90s crises to have context for it, especially fellow US readers.
Sounds like it was working quite well. Also interest rates as high as 280% only equates to 0.37% that night, considering how short term the disruption they actually survived quite well. The net result the country made out like bandits from the currency traders attack while others fell. “In 1999, the Government started selling those shares by launching the Tracker Fund of Hong Kong, making a profit of about HK$30 billion (US$4 billion).” https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
Compared to say Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries.[33] The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed.
I’m not sure if you count the penny (or any other US coin) as “successful” or not, but that peg has not led to calamitous money outcomes for the US currency system.
This is actually exactly analogous; many people don't realize that the status quo of "multiple denominations" have ancestral ties to bimetallic currencies of the sort covered in this article.
It would have been difficult for Henry III to de facto outlaw smelting of gold coins because the scale of the gold penny's distribution was much smaller (making attribution of a smelting operation much harder), and because the ability to surveil this sort of activity was severely limited by geography.
But melting down US pennies is de jure illegal (nb: only since 2007 [1]) and the number of pennies you'd need to smelt down in order to justify the effort would probably make the sourcing operation noticeable to authorities.
[1] https://www.usmint.gov/news/press-releases/20061214-united-s...
It’s also due to the difference not being worth the effort most of the time but that doesn’t change the refutation of the claim that no pegs work. The penny peg works even in a world where the actual utility of a 1/100th usd coin is probably negative.
§ 82.1 Prohibitions. Except as specifically authorized by the Secretary of the Treasury (or designee) or as otherwise provided in this part, no person shall export, melt, or treat: (a) Any 5-cent coin of the United States; or (b) Any one-cent coin of the United States.
https://www.law.cornell.edu/cfr/text/31/82.1.
Click "next" on that link for the special exceptions, which do allow for modifying small amounts of these for jewelry or decoration.
Bosnian convertible mark, also pegged to the Euro.
Moroccan dirham, another one pegged to the Euro.
There's a whole list: https://en.wikipedia.org/wiki/List_of_circulating_fixed_exch...
According to Google ~39 US States have anti price gouging laws, how have those failed?
Anti-gouging laws always leave people without critical supplies.
Remember the Great Toilet Paper Shortage a couple years ago?
Additionally, jurisdictions without APG laws also empirically faced widespread shortages during the pandemic, that's not a unique feature of APG laws.
Socialism, however, works worse and worse the closer things get to ideal socialism.
With price-gouging laws, it means they run out just like everyone else, and then there's no supply available for anyone, regardless of how bad the need.[0]
But it also makes the problem much worse, because when price is fixed, the sole determining factor of who gets it becomes who can get there first.
[0]Or they hoard it themselves and only sell it to friends and family, or as a favor, or in a quasi black market in exchange for other price controlled items. Eg, negotiating how much they'll sell you at the capped price. "I'll sell you $500 of price-capped gas if you sell me a $500 price-capped generator."
Unless a rationing scheme was simultaneously instituted.
Inevitably, criminal gangs arose to redistribute the rationed gas, complete with drive-by shootings.
The result was a month of people needing tests, but couldn't find them. While the feds prepared to mail them out 4 at a time to people who, if symptomatic, were likely to be either fully recovered by the time they arrive, or for severe cases, already under medical care.
Delivery time of a week means you have to order them before you know you might need them. Being "free", there's a rational reason to order speculatively, even if you don't currently need them. And no cost to reduce momentary demand so that people who do currently need them (enough to go to the trouble to pay for them and get reimbursed by insurance) can get them, as happens with store distribution.
Perfect example of a market operating efficiently, where un-needed "do-something" govt intervention creates artifical shortages, distributes irrelevant to current need, while reducing efficiency in both availability (same day vs week+) and quantity (delivered 4 at a time vs getting 1 at the store).
With 'price gouging laws' you also include 'rationing' which can and does often generated considerably better outcomes.
> does often generated considerably better outcomes.
Nope. Usually, it generates criminal redistribution activity, hoarding, a greatly reduced supply, etc. All the miserable characteristics of a centrally planned economy.
During the gas crisis of the 1970s, gas stations could not sell gas until they were allocated (rationed) gas by the D.O.E. The allocation was based on the previous year's usage pattern. Of course, nothing stays the same, and one year Florida was overflowing with gas while there were loooong lines on the west coast. Also there were lovely instances of one gas station appealing to the DOE to get the allocation of the gas station across the street cut off as being "unneeded".
All these problems disappeared literally overnight when Reagan, as his first act as President, signed an Executive Order eliminating all oil & gas price controls and allocation.
I know it was overnight, because I remember the gas lines evaporating the very next day and never returning in the 40 years since.
Additionally there have empirically been gas lines in the US in the 40 years since 1980.
The US suffered much more in 1979 from the disruption of the oil from Iran than other countries that also relied on this oil. It would be wrong to ignore the role the government played in making this oil disruption significantly worse.
From "TheU.S. Petroleum Crisis of 1979", PHILIP K. VERLEGER, JR.
>...On February 28, 1979, DOE published the following notice in the Federal Register: "It is essential that refiners enter the spring driving season with adequate gasoline stocks to meet seasonal demand requirements. We recognize that gasoline stocks are currently at adequate levels for this time of year, which is usually a period of low demand. Recent industry data indicate that total stocks are now in excess of 265 million barrels, which is less than last year's record high levels during the same period but above the average levels of previous years. Our concern is that these stocks not be drawn down precipitously as soon as the impacts of the Iranian shortfall are felt by refiners. Refiners are urged to keep stocks high enough to meet expected demand during the 1979 summer driving season, even if it is necessary to restrict somewhat the amount of surplus gasoline that is made available to purchasers currently"
>The implementation of these instructions had the effect of restricting the volume of gasoline available to service stations to between 80 and 90 percent of 1978 levels. This reduction was greater than the reduction in total gasoline supplies.
>...In April 1979, DOE ordered the fifteen largest refiners to sell 7.8 million barrels of crude oil to smaller firms that were unable to obtain supplies on the world market at competitive prices. …These transfers probably reduced the volume of gasoline produced in the second quarter because the refineries that purchased the crude oil had only a limited capacity to produce gasoline, while the refineries that sold it could have produced more. ...In addition to reducing the supply of gasoline, the buy/sell program appears to have affected the geographic distribution of crude oil and gasoline. This is because the primary recipients of the crude oil were refineries in the Midwest and the gulf coast areas, while the sellers were companies that were marketing throughout the nation.
>...…In April, DOE turned its attention to the low stock of distillate fuel oil … Two impacts were observed on domestic markets. First, excessive stocks of heating oil were accumulated. Second, companies may have been influenced to increase gasoline stocks in anticipation of the mandator yield controls that DOE threatened to impose. These controls specified the percent of refiner output that had to be heating oil. Such controls were designed to curtail the output of gasoline. By building higher gasoline inventories, refiners could smooth out the month-to-month distribution of gasoline despite the controls.
>...Price controls on gasoline may have also created an incentive to withhold gasoline from the market when the prices of crude oil were rising rapidly. …In summary, the refiners had the capacity and the knowledge to take advantage of this opportunity. Ironically, the instructions from DOE to the companies were to do precisely what was most profitable.
>...In addition to encouraging the buildup of stocks, DOE may have added to the shortages by creating an incentive to reduce the output of crude oil. Although it is difficult to estimate what domestic supplies of crude oil might have been in the absence of any restriction, a DOE announcement in November that control levels of the base period were to be reviewed may have constrained production in the first half of 1979.
The same goes for rent controls which are ubiquitous in most of Canada and Europe.
And where is the 'black market' for these vast economies?
These ridiculous references to 'communism' are an intellectual canard.
There is no such thing as a 'free market' - a market is a dynamic equilibrium of the balance of power. This becomes a problem when power is asymetrical, i.e. in monopoly, or monopoly-like situations such as 'sole provider of a drug' in which case there is always regulation.
If the 'free market' were fully effective, Phizer would be selling vaccines at Wallgreens instead of via the US Gov.. But it's not, and so we're not, because it wouldn't work as the 'profit maximizing' price point for the vaccine is way above what most people would be willing to pay.
For me, they are references to actual events in my past. Unable to provide the bare necessities, in the 80's, the Communist State's central planners had rationed bread, sugar, flour and vegetable oil. A black market has promptly sprung up. Its vendors ranged from regular folks who did not use their entire ration to illegal "entrepreneurs" who had other means of getting stuff.
This market could easily tell you the actual price of these goods. But you had to be careful because some of the participants where actual Secret Service laying traps. It was illegal after all...
They'd take a trailer with them when evacuating, and load it up with everything they could find locally in stock before returning home.
Now, they might do it as a favor for friends, but they make sure they've got each one claimed before purchasing. Whereas before, a profit margin made speculative buying worthwhile, and would cover expenses without worrying about having to sell 100%.
So if people want to buy a Mona Lisa all they have to do is wait until the price is high enough and Leonardo da Vinci will paint another?
No, you don't. You're usually just limiting the supply even further by discouraging sales, and at the absolute best, shuffling around the people who get to buy the item. You can't help scarcity at all by fixing prices.
It's not like the anti-gouging laws lock in a price under profitablity; the stores wouldn't have the items even before the anti-gouging kicks in if that were the case.
In fact, a high enough price may even turn a hoarder into a vendor.
Yes, you definitely can.
The price which incurs maximum profits for producers has little to do with consumer surplus or the maximization thereof.
Price fixing alters the distribution of surpluses one way or the other, because we don't measure consumer surplus directly, we often think of 'reduced profits' to the producer, but fail to regard the increased surpluses to consumers.
The term 'scarcity' is a bit of canard, because very, very few things are actually truly 'scarce' like Gold, most things depend on labour inputs, materials, and especially opportunity cost.
Vaccines are an example. Phizer could probably make a lot more profit by charging $150-500/vaccine in the USA, which might leave 65% of Americans in the lurch.
But the surpluses to citizens arrived at through a 'not really market price' negotiated between the US Gov, and Phizer, are much more vast.
Especially the moment you consider longer term effects (i.e. limited deployment of vaccine hurts the economy badly and thus other lines of revenue) you see the systematic effects.
And that is how we ended up with the completely f'ed up allocation where in the beginning elder folks completely isolated from the virus had priority while active, exposed younger persons did not have access.
Central planners have failed over and over again to allocate resources as needed in the territory, while a market-based approach will simply and elegantly solve this problem while maximizing the incentives for producers.
Before all these price gouging laws, in natural disasters there used to be marginal producers (people with a pickup truck etc.) who would load up on some supplies like ice etc. and bring them to the area that was hit to make a quick profit. When the electricity is out and someone wants $12 a bag for ice it would anger you if you just want to keep your drinks cold, but you would think it is an incredible bargain if that way you can keep your insulin chilled:
https://www.econlib.org/library/Columns/y2007/Mungergouging....
In the long run, high profits during a shortage also mean that suppliers in general will be incentivized to keep a larger stockpile of goods that have a good shelf-life since they know they will be able to make good money the next time there is a shortage (more than the storage costs). (Or the potential for high profits will incentivize spending money to be more flexible in production in case demand increases for a short time.)
If you are going to literally make it illegal to try this, then you better have a government be willing to spend its tax dollars on creating a stockpile - when the pandemic started we saw that all the talk of the national stockpile the federal government supposedly had was greatly exaggerated.
While politicians like 'price gouging' laws since everyone can see a higher price (but can't see the missing products that won't be available), a majority of economists are opposed to 'price gouging' laws. For example see:
Secondly, it's not clear that these resellers given up as examples are truly performing arbitrage, like is generally assumed in thought experiments by opponents of APG laws. These thought experiments also generally assume that the subsequent lack of additional incentive is enough to reduce supply. Let's take the example you gave of the ice sellers (and was given in your econlib citation). This example cites owners of a refrigeration truck with either direct access to the equipment that produces ice (a remarkably time and capital intensive venture), or business connections capable of obtaining large quantities of ice during a shortage. Either those hold true and for some reason these people who have invested heavily in ice distribution are for some reason deciding to stay home on a day of the highest demand because they can't increase the going rate more than 5%, or (more likely in my mind) they aren't actually increasing supply to the market in question, but instead bought locally before the the normal sellers thought to increase their prices (or the normal sellers had ethical issues with greatly increasing their prices in a a time of need).
Additionally, these examples all leave out the key to the idea, simultaneous rationing, which means that the supply isn't reduced by hoarding (at any price to the hoarder) by directly reducing the amount they can get. So in your example, there isn't an issue getting ice for your insulin because of rationing _and_ you didn't have to pay a premium for it.
Finally, as an aside, your first citation is from a far right think tank dedicated to the removal of government influence on all aspects of life, and the second is a polling of economists connected to a specifc branch of economics known to be rife with groupthink. It's unsurprising the conclusion they come to.
This is covered in the article:
>...But no such mass movement of resources to their highest valued use took place. North Carolina had an “anti-gouging law,” which made it illegal to sell anything useful at a price that was “unreasonably excessive under the circumstances.” This had been widely interpreted to limit price increases to around 5% or less. Each instance of violation of this law could result in a fine of up to $5,000. So, ice that happened in Charlotte, stayed in Charlotte. Why drive three hours to Raleigh when you can only charge the Charlotte price, plus just enough for gas money to break even?
>...So in your example, there isn't an issue getting ice for your insulin because of rationing _and_ you didn't have to pay a premium for it.
In the particular example I gave, it wouldn't help if people are limited to the amount they can buy - in an emergency situation like that, when there is no electricity, the demand for ice will be far higher than the local supply. The goal should be that the limited supply goes to the most valuable uses and that there is an incentive to increase the supply from other areas. In the long run, it would be even better if the local supplies of goods was more resilient to a natural disaster.
As I wrote:
>...In the long run, high profits during a shortage also mean that suppliers in general will be incentivized to keep a larger stockpile of goods that have a good shelf-life since they know they will be able to make good money the next time there is a shortage (more than the storage costs). (Or the potential for high profits will incentivize spending money to be more flexible in production in case demand increases for a short time.) If you are going to literally make it illegal to try this, then you better have a government be willing to spend its tax dollars on creating a stockpile - when the pandemic started we saw that all the talk of the national stockpile the federal government supposedly had was greatly exaggerated.
>...your first citation is from a far right think tank dedicated to the removal of government influence on all aspects of life, and the second is a polling of economists connected to a specifc branch of economics known to be rife with groupthink.
You don't need to stoop to trying to poison the well with ridiculous comments like the above. If you have a point to make, then make it. Shallow dismissals are against the guidelines of this site.
When has that happened? Can you provide an example?
I don't know of a single counter example, and I'd bet I could find examples of even the US taking similar, extremely limited measures, and that those worked out OK, too. At the very least the harm of those cures, if you will, do not look to be worse than the disease.
Also nobody else would want to outbid them because the single payer then turns around and gives all potential users the service for a fraction of the real price.
So this is a great system for providing healthcare at reasonable prices.
For housing. Rent control only works for the first that can get in the system, but what does work I think are widespread and well positioned non-profit housing entities that can provide a large enough share of potential renters reasonable apartment prices so that the for-profit companies can’t raise their prices too much.
Source: I’m an extensively trained armchair economist.
That'd be the monopsony option I mentioned. When you have (actually, or effectively) one buyer, they tell you how much profit you can make, and can pressure you even further to pressure your own suppliers to bring prices down further.
> Source: I’m an extensively trained armchair economist.
Same, to put my cards on the table, but I've spent an unhealthy (haha) amount of time reading about healthcare systems and when I started to draw a line between all the non-US systems among OECD and other rich countries, that was the single thing that stood out as being common to all of them, despite there actually being a huge variety of approaches. They all seem at least medium-term stable (which is more than I can say for our US system, which seems like a train racing straight for a canyon wall, while also coming apart at every seam and bolt) and none appear to exhibit, to a significant degree, the usual problems Econ 101 (and, indeed, plenty of real-world examples) tells you price fixing ought to raise very quickly, which means it's "never a good idea" or "never works". In fact, in this case... I mean, it sure looks like it works, doesn't it? And it's not like we only have one example.
Today our coins are all base metal, worthless except for the face value. Essentially the same as paper money, but smaller and more durable. And we have a different sensibility about them: we don't even consider melting them down (well, not usually) since they are a symbol, not intrinsically valuable.
Bit of a joke but not really. Bimetallism is an attempt to harmonize two mediums of exchange, and it's worked well enough at various times.
Combines well with a bit of seignorage: not so much that the coins don't have value, but enough that they trade above the melt value of the metal.
If the sovereign says "pay taxes with a 90% silver coin with my face or the same weight of pure silver, don't care", and has the muscle to compel citizens to do it, this puts some slack in the actual exchange rate between gold and silver: one or the other has to exceed the debased rate, rather than the natural rate, for melting to be the rational move.
And when it doesn't, it's a doozy, as in the Great Depression. (The fed inflated the currency while the exchange rate was pegged to gold.)
> and has the muscle to compel citizens to do it
Even in the most totalitarian countries, it leads to collapse.