Wednesday, April 1, 2015

The Theory of "Intelligent Valuation"

I reject the economic theory of inflation.  That's right.  I firmly believe deep in my heart that all currencies were created with their real values by intelligent valuators.  Inflationists will have you believe that real values of currencies have changed over time and that our modern reality is just the current state of that ever-transient change.  But were any of them there to see it happen?  These so-called economists will go so far as to suppress the teaching of Intelligent Valuation in schools so that our children will all be converted to their beliefs.  It's time that people learn that Inflationism isn't all it's cracked up to be.

In this post, I'll be highlighting the flaws that the inflationists don't want you to know.  I will be taking the method of tearing down a lot of the common arguments they spew and illustrating countless counterexamples to stand as evidence that intelligent valuation explains the reality better.  Sure, the inflationists will try to confuse you with all their talk of consumer price indices, Giffen goods, demand pull, and cost push.  They're all just ad hoc hypotheses that are built on the faith-based assumption that intelligent valuation can't be true.

What is Intelligent Valuation?

Intelligent valuation is the economic theory that states that all currencies were created with values set more or less at the current values by an intelligent agency of as yet unknown origin.  It is an alternative theory to the so-called "theory" of inflation.  Proponents of IV argue that currencies do not radically change over time in their real value, but that currencies are created with their values assigned.

What evidence is there for IV?

Case in point -- the Euro.  This was a newly created currency with its current real value very close to its original real value.  This is clearly not the result of inflation.  Certainly, one would have to be extremely foolish in order to believe that the Franc, Lira, Krona, Deutsche mark, etc. all inflated into one another to form the Euro as many inflationists would like you to believe.  Many of us were alive to see the EU's transition into the Euro, and yet, how soon we forget.

We can look also to the Chinese Yuan (Renminbi), which is set in value on a daily basis by the People's Bank of China while simultaneously managing a fixed value internal to China's borders. This makes for a perfect example of how currencies are intelligently valuated. In fact, it is widely believed that the renminbi may be undervalued by as much as 50%, which is believed to be a deliberate effort on the part of the PBOC to keep other countries buying more and more yuan from them.

What about the weakened buying power of money today vs years ago?

It seems as if inflation is sort of an obvious thing in daily life, right?  I pay so much more for a gallon of milk now than I did 20 years ago.  Surely, that must be evidence for inflation!  Of course, IV proponents do not claim that currencies are absolutely fixed in value, but the variation we see in our lives is only micro-inflation, not macro-inflation. Currencies have not changed radically over the years, and no one can show that they have.  If macro-inflation were real, we should see new denominations to reflect the changing values. Instead, we see a decrease in denominations. The Japanese Yen is no longer divided into Sen. The British pound is no longer divided into shillings and pence. There are simply no new denominations.

Add to that that the overall change in buying power may be locally varying in different directions.  Your rent or the cost of food may be going up, but the cost of electronics is going down over time.  When you average it all out, the value of the currency has stayed the same.  Also, IV proponents do not discount that certain other factors could be at play.  A severe drought or a trade embargo could temporarily increase the cost of several goods -- that isn't proof of inflation.  It's just proof of supply and demand.

But there is a big gap in value over longer periods of time!  Isn't that inflation?

Oh, sure, the inflationists will tell you that for instance, a U.S. Dollar in 1923 is roughly equivalent to about 13 of today's U.S. Dollars. But in telling you this, they are leaving out important key details.  Consider that even up through the 1950s, the dollar bill was not the same as today's bills. Below are two bills decades apart within the 20th century.

Notice the modern bill is marked as a Federal Reserve Note, while the older 1957 bill is a Silver Certificate denoting its commodity backing as opposed to a newer fiat currency model. This earlier type of bill is similar to what was traded in the 1920s as well.  What we can determine from this is that the dollar has not inflated from a silver certificate to a Federal Reserve Note, but that a brand new currency of the same name has been intelligently created and valuated with a new value closer to the one with which we are familiar today.  This is not evidence for inflation, but evidence for Intelligent Valuation.

What about the Zimbabwe Dollar?  Isn't that a case of hyperinflation?

No.  Inflationists love to trot this one out as if it is some sort of smoking gun for inflation.  The Zimbabwe Dollar's apparent inflation is an effect of black market subversion of the Intelligent Valuator.  What happened is that the market at large was not aware of the actual real value of their currency, which lead to a black market exchange of goods in which prices were set more or less arbitrarily.  Many times, exchange between various different local African currencies were not done in banks, but in back offices and empty parking lots.  Because these trades are completely arbitrary and the defined values set by valuators were blatantly ignored, the end effect is that the currency is treated as if it has no real value.  It is a strong lesson in the sort of economic collapse that occurs when a nation fails to obey the precepts of the Intelligent Valuators of their currency.
Don't currencies change relative to one another all the time?

The relative variance between currencies is an effect of a futures market that is more based on grading the economic parameters of an entire nation.  For instance, the amount of debt a nation has accumulated or its overall credit rating.  This is mere supply and demand at work in much the same way that it has happened for other commodities.  This too, can give the illusion of inflation.  When nations are highly dependent on imported goods to fill certain market demands, then the weakness of their currency with respect to the currency of another nation from which they import their goods can make it appear as if the price index has gone up.  However, these sorts of cycles of weakening an strengthening relative values of currency is not changing the real value of the currency.  Most IV proponents firmly believe that these effects go back and forth in the short term, but are overall insignificant in the longer term.

Don't all economists believe in inflation?

Not at all.  The premier IV think tank, The Recovery Institute, has has an open petition containing over 60 signatures of scholars of a wide variety of fields from highly reputable institutions such as Harvard, NYU, BYU, UCSD, Texas A&M, Dartmouth, and several others...  all of whom disagree with inflationary theory of economics.  There is significant controversy throughout the community as to the truth of inflation vs. IV.  We are not seeking to remove inflation from the school economics curriculum, but want people to know that there are competing theories out there.  We feel that IV is not getting a fair shake in economic discussion due to the effort on the part of inflationists to silence dissenters, and it has gone on long enough.  Today is the day for Intelligent Valuation to be treated as the serious economic theory it is.

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