Timing Is Everything

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Time preference is an economic concept that compares time in relation to an individual’s need for material gratification. Time preference is a comparison, not a measurement. Time preference is immeasurable because it is, by definition, subjective. That is, each individual has a different time preference and each individual’s time preference can change over time. Individuals with a “high time preference,” e.g. newborns, prefer immediate material gratification to time. If these individuals have a need or desire, they do not like to wait. Feed me now or I will cry. People with a “low time preference,” e.g. capitalist lenders, have developed the immaterial virtue of patience, and accordingly have cultivated the ability to choose “time” over material gratification. Even the most patient capitalist at one time was an impatient, bawling newborn. That is the miracle of evolution. People are capable of change. 
In one respect, the interaction of people with high and low time preference drives capitalism. People with liquid capital (lenders) agree to give up the immediate gratification that comes from enjoying that capital (spending it on cool stuff) to individuals who need it (cash-poor entrepreneurs and businesses) in exchange for either: (a) a piece of the business (equity) or (b) a loan, which really is a money-lease agreement where the high-time preference individual gets liquid capital (money) now and agrees to pay the low-time preference individual both the amount borrowed (principal) and rent on the borrowed money (interest) over a period of “time.” The borrower chooses money, the investor or lender chooses time (and interest).   
It is no surprise that our current system was the spawn of a John Maynard Keynes, the born-on-third-base-and-acts-like-he-just-hit-a-triple English mathematician and lavender secret society aristocrat whose most famous quote, made in response to criticism of prudent, patient low-time preference economists who pointed to “long run” bankruptcy of his economic system, was: 
“In the long run, we’re all dead.”
It is now the long run and we are not all dead. Although his followers are moribund, only Keynes is dead. The rest of the West is, as Keynes’ low-time preference critics predicted, bankrupt, a direct consequence of following Keynes’ bankrupt ideology for nearly 70 years.  
It is also no surprise that the “winners” in Keynes’ system are not the prudent capitalists who cultivate patience and carefully and dispassionately analyze investment opportunities and credit risks. The “winners” in Keynes’ system are the impatient, high-time preference newborn whiners who latch onto the government teat like baby swine and bleat for protection in the form of newly-printed fiat dollars the minute they stand to lose on their bets. These politically connected insiders--Goldman Sachs, JP Morgan, Citibank, Deutschbank and their executives--have protected themselves from the “systemic risk” inherent in Keynes’ central bank cartel, fiat-money system by doing the only thing that really matters: putting themselves firmly in the pocket of the central bank and kissing the rear ends of the politicians who bend the knee to the central bank.  
While the patient and prudent are now scrambling to pay their bills and perhaps even defaulting on their mortgages, the central bank abettors and sycophants are awash in newly printed dollars. These dollars, held in just a few select hands, still enjoy high purchasing power in the marketplace as the little guy gets squeezed. This is because very few (perhaps even some of the insiders) know that the central planners have increased the real money supply by at least 20 percent in just one year. While “Austrian” economics has a heady, highbrow ring to it, a big part of it is the very simple recognition that increasing the money supply in a purely fiat-money system will inevitably cause prices to increase in relation to the fiat currency. Although central bankers can temporarily squeeze additional value out of their notes by causing interest rates to rise and by raising bank reserve ratios, only Austrians are smart enough to recognize the nearly self-evident proposition that twice as much paper money chasing the same amount of goods means that paper prices of those goods will double. The planners can of course manipulate some asset classes with the carrot of subsidy and stick of tax, but only the Austrians appear to understand this fundamental economic concept: increased money supply = increased prices. 
So what is the lesson in all of this? 
In our crony socialist system, the impatient, politically-connected money-grubbers win by getting their hands on the fiat money first. The real capitalists—those who refuse to play that dishonest game—lose. Timing is everything. 
So what can you do about it? 
Not much, but if someone from Goldman Sachs tries to buy something from you, charge him double.

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Bill Butler's picture
Columns on STR: 7

Bill Butler is a Minneapolis attorney whose practice is devoted to protecting liberty and property interests.  His website is Libertas Lex.   


golefevre's picture

Mr. Butler is easily one of my favorite writers here. But I disagree that only Austrian economists understand inflation. The Keynesian crowd understands this concept too but unfortunately suffers from the delusion that they can control inflation and that in moderate amounts it is "good" for everyone (when in fact is only good for the insiders and cronies as he rightly suggests here). It is sort of like someone telling you that a little bit of cancer is good for the body or that "mild" amounts of arsenic can be a stimulant.

Jim Davies's picture

No disagreement that 20% or so has recently been pumped in to the "money" supply; but I notice the strange anomaly that, according to one respected source, the M3 aggregate has nonetheless FALLEN. The chart showing this is at http://www.nowandfutures.com/key_stats.html

The total peaked in mid-2009 at about $14.7T, then slid down to the present $13.9T. The rate of growth, meanwhile, plunged dramatically since mid-2008 and is at present mildly negative.

I notice that prices have not (yet) dramatically risen; overall, I have the impression that they are about level with those of two years ago. That seems consistent with a roughly-constant M3 value.

So where have the freshly-minted $2T gone? Any ideas? Bill?

tzo's picture

Sucked up by banks who want to fix their balance sheets instead of loan the dollars?

If that's the case, and it works at all to temporarily stabilize the system, then eventually they will lend out with the 10x multiplier. Then we'll see an explosion in dollar supply and prices.

Tom Terrific's picture

"So what can you do about it?"

I spend a lot of time these days thinking about just that question.

"Not much, but if someone from Goldman Sachs tries to buy something from you, charge him double."

What about refusing to sell to him at all? The value of money depends on whether the Seller will respect it.

Some communities have begun issuing their own local currency, which is just another form of barter. I am a big fan of barter, inasmuch as it offers a way to exchange goods in a largely clandestine fashion. If a barterer doesn't pay income tax on his transaction, he may get caught and punished; but if a hundred thousand barterers don't pay income tax on their transactions, such an outcome is much less likely. So, besides doing your part to make those ill-gotten, inflated dollars worthless, this approach denies the government revenue while at the same time taking you off the economy train that is speeding down the track toward inevitable disaster.

Barter also has considerable potential for reinvigorating local community consciousness and spirit. I just can't say enough good things about it, in the current climate.

Naturally, it goes without saying that life as we know it has ended. We will not be able to hold onto the conveniences and lifestyles we have become accustomed to enjoying; indeed, these have been slipping away for some time (how many families are making it on just one income?). I expect this process to accelerate. We need to stop thinking in terms of holding onto a past that is built on a crumbling foundation and build a new foundation, atop which we can build another prosperous economy -- perhaps not for ourselves, but for our children and our children's children.