The Impossibility Of Economic Calculation In A Fiat World

Tyler Durden's picture

via Alasdair Macleod, originally posted at,

The purpose of keeping accurate accounts is to quantify net worth at any given point in time – as well as the change from a prior date. It goes without saying that the measure used, money, should be constant if comparisons over time are to mean anything. Only then do prices of capital goods, consumer goods and services truly reflect their changing values, giving important signals to businessmen. With unstable fiat money market signals lose much of their meaning.

It is not normal for businessmen to fret over this. They tend to work from management accounts which are usually prepared monthly, and over that time-scale a depreciating currency is unnoticed – except in the case of monetary extremes. However, businessmen should pay attention to the problem, because the accumulation of entrepreneurial wealth is achieved over many years; its productive value can be significantly altered by fluctuations in the purchasing power of unstable money.

Governments in countries like the United Kingdom have destroyed much of their manufacturing industry through currency depreciation, while Germany contrasts with a history of engineering excellence and a firm currency. The German business owner in the post-war years had relative certainty of economic calculation, allowing him to build up his productive wealth; while the British business lobby resorted to encouraging successive governments to keep costs down by devaluing the pound, rather than investing their own resources in more efficient production.

Reducing costs by managing the currency is, to put it less politely, all about robbing the workforce of the purchasing power of its wages. But the workforce is, in economic terms, made up of individual entrepreneurs selling their skills and labour to employers. They are the unconscious victims of devaluation as indeed are small businesses, but at least in the short-term the central planners manipulating fiat money congratulate themselves that jobs have been saved.

The cost comes later, as consumers – who in turn are also entrepreneurs and savers – pay the bill through higher prices and lose on their savings through lower interest rates and monetary value. So where’s the benefit?

None. The history of nations whose governments respect sound money, such as Germany and Japan in the post-war years, has been one of persistent economic progress, despite otherwise economically incompetent governments. This is in contrast with the UK and some European countries, whose continual devaluations were always accompanied by economic underperformance. Since then all governments have increased their currency debasement efforts. Nevertheless, it is striking that businesses do better with a stable currency in the long run than with the supposed benefits of these continual devaluations.

This lesson is not so clear to today’s economists, because Japan blew up over 20 years ago; Germany ditched her currency for the euro; and now we have a worse set of problems. But those of us who understand that currency devaluation only serves to defraud the majority of society must be alarmed that the governments of nearly all the advanced economies are racing each other to rob their citizens in this way.

Instead of bringing about a Lazarene recovery in the economy, this approach is already failing, because the very basis of economic calculation is being destroyed. Who knows the value of anything anymore? We do however know the inevitable outcome of this lunacy, and it is not good.

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the misanthrope's picture

please allow me : monetary standard bitchez !

Supernova Born's picture

Baseless fiat fully debases the rule of law.

Expect war.

ghostfaceinvestah's picture

"One of the evils of paper money is that it turns the whole country into stock jobbers. The precariousness of its value and the uncertainty of its fate continually operate, night and day, to produce this destructive effect. Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country."

Thomas Paine - 1786

Ghordius's picture

+1 note the " turns the whole country into stock jobbers" - when speculation becomes a "way of life" you know that you are wading in deep shit, soon

LongSoupLine's picture

thre words that make economic calculation impossible:


Dark Fucking Pools.

bank guy in Brussels's picture

Tyler's posting on the Venezuela devaluation has been prominently linked by a quite entertaining and popularity-favoured 'conspiracy' site in Ireland, using ZeroHedge and other sources to predict US economic collapse by April or so

Article also says that, with today being Lunar New Year's Day (Chinese New Year etc.), and a new Year of the Snake beginning

« Previous Snake years have been marked by the 11 September 11 2001 terror strikes that killed nearly 3,000 people, the crushing of the 1989 Tiananmen pro-democracy protests and the Japanese attack on Pearl Harbor in 1941. The 1929 stock market plunge that heralded the Great Depression also occurred in a snake year. »

Everything all right, then

Banksters's picture

4 x the money 1/4 of the purchasing power.  I'm rich, bitchez!

The Shootist's picture

A wise entrepreneur, Scrooge McDuck teaches his nephews the danger of monetary inflation...

A Nanny Moose's picture

Friggin classic. Thanks for the link.

Babushka's picture

I have spent this evening reading old zerohedge on


Tyler you have changed......a lott!

Babushka's picture

Not that I am desagree with the post above.

Dre4dwolf's picture

accounting is meaningless in this system, its only purpose is taxation (to further impoversh a people).


The only way to measure net gains is to take your previous net worth in gold/oil/silver/gasoline, and weigh it against your current net - worth in gold/oil/silver/gasoline.

Thats why savings are at an all time low, no one saves because the money is worthless paper, people spend and consume before they even have the means to do so, even if it means getting into debt because they will just pay debts off with de-valued paper anyway, or not pay the debts off at all or at a reduced ammount because paper yesterday is worth more than paper right now.

espirit's picture

If I base my net worth on what "I think" the price of PM's in fiatsco should be...

I'm a meeelionaire!

gwar5's picture

Alasdair Macleod (of the clan Macleod) makes way too much sense.


"Firstly, it is a basic human right to choose to save without our savings being debased by the tax of monetary inflation. Those who are worst affected by this inflation tax are not the rich -- they benefit -- but the poor and the barely well-off, which is why monetary inflation undermines society and why the right to sound money should be respected. If government gives itself a monopoly over money, it has a duty to protect the property rights vested in it.

"Secondly, it is a basic right for us to own our own money rather than have it owned by the banks. For them to take our money and expand credit on the back of it debases it. It is an abuse of an individual's property rights and a banking licence is a government licence to do so. If anyone else was to do this, they would be guilty of fraud. Banks should be custodians of our money, and it should not appear in their balance sheets as their property."

How ironic and sad, then, that advocates of recognizing gold and silver as money, as was done in not-so-olden times, should be characterized as conservatives, reactionaries, and worse when they are actually liberators and when advocates of infinitely "elastic" currency are actually the great enablers of totalitarianism throughout the world.

--Alasdair Macleod, 2011




Babushka's picture

let foget about savings or spending all what you take home as netto...let run credit card...take a loan...and hope that you gonna pay it back somehow....this is my generation

davidsmith's picture

"respect sound money."


Another adolescent dreamer.  There has never been sound money.  It's another fantasy.  Can't we have fewer schoolboy fantasy posts on ZH? or do we have to keep on putting up with them?  Jeez!  Get off the fantasy train!!

oddjob's picture

Schoolboy? that you hiding in the crowd?...Grow a pair and replace we with I .

trebuchet's picture

its called current cost accounting + currency hedges for multinationals. 



Peterus's picture

There was never in the history of the world a time of perfect 100% safety. You can just trip and bash your own skull in very peacefuly neighborhood at any moment, however unlikely that is. But what does it matter? Safety still has meaning, you can have more or less safe even though there is never 100% safe.

Sound money is not some uber-value-store that is resistant to everything. But it still is much less volatile than fiat.

JR's picture

And now another parallel between the empires America and Rome: the cheapening of the currency on the road to decline.

Here’s how it played out in a decaying Rome, before her fall in 476. And as economist Lawrence Reed points out in this piece, “defining inflation properly is critical to our understanding of it,” as well of course is our understanding of fraud and corruption, i.e., legalized plunder by the system…

Excerpt from The Fall of Rome and Modern Parallels:

“Rome also suffered from the bane of all welfare states, inflation. The massive demands on the government to spend for this and that created pressures for the creation of new money. The Roman coin, the denarius, was cheapened and debased by one emperor after another to pay for the expensive programs. Once 94% silver, the denarius, by 268 A.D., was little more than a piece of junk containing only .02% silver. Flooding the economy with all this new and cheapened money had predictable results: prices skyrocketed, savings were eroded, and the people became angry and frustrated. Businessmen were often blamed for the rising prices even as government continued its spendthrift ways.

“In the year 301, Emperor Diocletian responded with his famous ‘Edict of 301.’ This law established a system of comprehensive wage and price controls, to be enforced by a penalty of death. The chaos that ensued inspired the historian Lactantius to write in 314 A.D.: 'After the many oppressions which he put in practice had brought a general dearth upon the empire, he then set himself to regulate the prices of all vendible things. There was much bloodshed upon very slight and trifling accounts; and the people brought provisions no more to markets, since they could not get a reasonable price for them; and this increased the dearth so much that at last after many had died by it, the law itself was laid aside.'

“All this robbery and tyranny by the State was a reflection of the breakdown of moral law in Roman society. The people had lost all respect for private property...

 “The end came, rather anti-climactically, in 476, when the German chieftain, Odovacer, pushed aside the Roman emperor and made himself the new authority… When the Vandals, Goths, Huns and others reached Rome, many citizens actually welcomed them in the belief that anything was better than their own tax collectors and regulators. I think it is accurate to say that Rome committed suicide. First she lost her freedom, then she lost her life.

“History does seem to have an uncanny knack of repeating itself.” --Lawrence W. Reed

The Heart's picture

Eggsellent JR.

Bless and thanks for that.

Cycles and the Roman Empire.

Here is something for the audiences entertainment.:

"The most famous currency wars example is from the 1930s, when countries got into a vicious spiral of
currency devaluations in order to try to maintain the competitiveness of their exporters. All that was
achieved was that these countries’ trading partners sank deeper into the mire of recession, further
curtailing trade and leading to more depreciations. Thus, the global economy shrank and global trade
and investment was devastated, a situation that only ended after the outbreak of the Second World
War. Although we are not predicting that the current situation will lead to such a severe outcome, there
are some parallels between the significant problems in each historical case.

As countries rush to protect the competitiveness of their exports, currency wars will prompt a number
of problems, such as asset-price volatility (particularly in the currency markets), increased adoption of
trade protection policies, and a rise in anti-dumping and countervailing duty disputes. These all raise
risks for cross border trade and investment. While it is extremely difficult to predict in detail what will
happen in the short to medium term, it is quite possible that the effects seen during the 2008–09
recession will be repeated, such as increases in the three factors mentioned above: currency volatility,
protectionism and trading disputes."



Radical Marijuana's picture

Comparisons between the Roman Empire and the American Empire ONLY work when one stays within the realm of human psychology, and the political systems that psychology is related to. Human psychology, and therefore, politics, has NOT changed much since Roman times, however, physics has changed, and changed, and CHANGED PROFOUNDLY! Our physics today is extremely different than the physics that the Romans had. They did not have quantum mechanics, and so, did not have global satellite communications, with things like cell phones. They did not have the special theory of relativity, and so, did not have things like atomic bombs.

American psychology and politics IS similar to those in Roman times. THAT IS OUR GROWING SOCIAL INSANITY SITUATION! When Rome fell, there were merely new groups of guys with swords and spears. However, the decline and fall of the American Empire is towards chaos amplified trillions of times by weapons of mass destruction!

Unfortunately, since human psychology and politics ARE basically the same, it is practically impossible to have any rational debate about anything. The whole world is STILL dominated by bullies and bullshit, BUT amplified to astronomical sizes by technologies that have made human beings become trillions of times "better" at being dishonest, and backing that up with violence. The apparently rocky road for evolution is for that runaway social insanity to finally impose enough selection pressure to wipe out the majority of the human population, so that, maybe, the survivors will have thereby been selected to not be the same as the vast majority of people are today.

To quote Albert Einstein:

"The splitting of the atom has changed everything, save our mode of thinking, and thus we drift toward unparalleled catastrophe."

THAT is the difference between the decline and fall of the Roman Empire versus the American Empire. The laws of nature have been understood way better than ever before, BUT, that understanding has primarily been employed to have BIGGER force backed frauds. When it comes to politics, we do NOT think differently. We have the same social pyramid systems! The first generation that has grown up with NEW SCIENTIFIC FACTS are still alive today. However, they have not been able to do anything to change the established systems, but merely have gone into exponential growth of debt slavery, toward debt insanity. When the American Empire collapses that will be nothing like the collapse of the Roman Empire. The collapse of the American Empire will become billions of times worse!

I believe that anyone who spends enough time reading Zero Hedge articles, and comments, eventually has to accept that the social situation is totally out of control, and that there is no reasonable hope that it will get better, rather than far worse.  While most of the people who publish articles and comments here understand that the runaway privatized fiat "money-as-debt" systems are triumphant fraudulence, which make "economics" become a tragic farce, there is barely the slightest sign in any of the articles or comments that I have ever read which indicates any possible significant agreements regarding what should be done better instead.

The growing social insanity of the chasm between advancing science and technology, within a society dominated by old-fashioned religions and ideologies, is only getting worse and worse. Looking back at previous civilizations rise and fall is a useful thing to do, and that provides interesting comparisons to think about. However, there is NOTHING in human history to compare to things like atomic energy and atomic bombs.

After worrying about that for several decades, I still have not got the slightest basis for any reasonable hope for the future to look forwards to, but have only learned more and more that, BECAUSE HUMAN PSYCHOLOGY AND POLITICS IS THE SAME, THE DECLINE AND FALL OF THE ANGLO-AMERICAN (ZIONIST) EMPIRE SHALL BE WAY WORSE THAN THE DECLINE AND FALL OF ANY PREVIOUS CIVILIZATION!

Zola's picture

it would be the moment to bring out the usual "gold bitches" but i think the new ZH slogan shoud be: "TAR and FEATHERS bitches!!"

espirit's picture

It's Bitchez.

There, fixed it.

Black Markets's picture

Businessmen and executives shouldn't worry about debasement, but their shareholders should.

Uber Vandal's picture

A clever play on words.

De Basement went the "shareholder value" as the elevator's frayed cables finally snapped and no one inspected the brakes in years (cost savings in deferred maintenance you know).

Joebloinvestor's picture

Look at a dollar bill and read what it says.

It is "legal tender blah blah blah".

It has no intrinsic value.

It used to, but not anymore and is printed at will by a government out of control.

WHEEEE!, this will end well (not).

besnook's picture

zimbabwe says we will all be trillionaires soon.

GoldMInerJoe's picture

zimbabwe says we will all be rhodesian soon




fixed it

smacker's picture

ISTM at the core of the steady decline of Western economies is the same old same old problem: "politicians".

Is there anything they meddle with which doesn't turn to rubble soon afterwards?

The description of what's happened to UK manufacturing over a generation or so is fairly good. At the root of it were politicians desperate for a quick economic fix which could be peddled in The Commons as GDP growth (always phony growth) in the run-up to the next election. Likewise, for many companies struggling to improve productivity because of low skills and trade unions, a currency devaluation by govt was always a Godsend. And they lobbied for many Godsends!

The consequence is where we are today. A bankrupt nation with sovereign deficits and debt out of control, the BoE printing new money like there's no tomorrow, and the socialists in all parties calling for more of everything. But the political elites will still not downsize government.

Obama4Ever's picture

"The cost comes later, as consumers – who in turn are also entrepreneurs and savers – pay the bill through higher prices and lose on their savings through lower interest rates and monetary value. So where’s the benefit?"

Well, just off the top of my head, I can think of one. If you're *heavily* in debt if the fiat currency you owe in evaporates, so does your debt, in terms of real things. As in, today I shall either buy a loaf of bread or pay off my $120,000 home loan...

When most people have negative net worth, they're perfectly ok with fiat collapse. With the fiat collapse comes the debt jubilee.

espirit's picture

Well good luck on buying that loaf of bread after you pay off that $120,000 mortgage.

Toronto Kid's picture

Foolishness. Go read Ferfal's blog - - for his eyes on the ground account of currency devaluation in 2001 Argentina. Nowhere does he crow about his house mortgage suddenly being worth a loaf of bread. He does talk about the resulting rampant crime and misery and how hard it is to afford a loaf of bread.

Negative net worth just means you have to stay put enduring anarchy, instead of leaving your home country and going to where your other bank account is located.

Tombstone's picture

The stats are what the socialists say they are.  You cannot have truth in a government controlled economy.  If the stats don't look "right", then the left wil simply institute another 5 year plan and life goes on. 

Incubus's picture

Irony is wonderful; all around us "fringies" are the conventional lot that're caught up in their fantasy world called "normal."

The more they are pushed, the more they cling onto their delusional fantasies.  Corporate humanoids, the lot of them.



Radical Marijuana's picture

A "truth standard" regarding money begins with the conservation of energy, of which the conservation of matter, in the form of silver and gold, etc., is a common sense example. However, systematic examination of the ways that human energy systems operate should start with the concepts of SUBTRACTION and ROBBERY.  In that context, it becomes plainly obvious that the privatized fiat money-as-debt systems that dominate the world today are a fundamentally fraudulent financial accounting system, which are the result of the historical processes of the methods of organized crime being covertly employed to take control of governments, in order to legalize counterfeiting, and coerce everyone else to accept that situation.

What made War King then made Fraud King. There are no genuine solutions outside of energy laws and general system theory, being applied to understand human civilization. THE problem is that, when we do that, we realize that those systems are being controlled, by definition, by their more labile components, which MEANS that human civilizations ends up being controlled by those who were the best at deceits. As long as production is possible, it ends up having its development directed by destruction.

Of course, I totally agree regarding "The Impossibility Of Economic Calculation In A Fiat World!"

Any "money" which appears to be made out of nothing, and which can return to nothing, is a FRAUD, which violates the basic laws of nature which make everything else possible to be intelligible at all. It is apparently impossible for human beings to create goods or services out of nothing, nor have those sent to nothing. The ONLY aspect of our systems that appear to do that are the fiat money systems. The idea of gold and silver backed money relates to the idea that matter cannot be created out of nothing, nor sent to nothing. However, that idea has to be radically transformed by the concepts which demonstrated that matter is a form of energy. Therefore, a postmodernizing monetary system should be consistent with our postmodernizing understandings of energy systems.

Without some conservation and preservation principles, then there could be NO PATTERNS. The best approaches that we have to understanding those today are the laws of thermodynamics and information theory. Those ideas CAN explain our current monetary systems, BUT, do so by revealing those systems are runaway triumphant frauds, driving the society they have taken over insane, due to too much successful fraud. HOWEVER, a deeper analysis of those problems then leads us to WHY, and that, therefore, the only real solutions to our mad monetary systems are radical changes in our military paradigms. The only way to change the money system is to change the murder system. The only ways to change the debt controls are to change the death controls. THAT is why our real problems are almost infinitely more difficult and dangerous than we can even get close to imagining!

EVERYTHING we are doing within a fiat money system is using a bent rubber ruler to measure the results, because of "The Impossibility Of Economic Calculation In A Fiat World!"  However, when we actually attempt to have a more honest and sound monetary system, then we run into the central problem that money is backed by murder. The existing fiat money system is due to the way that War Kings morphed into Fraud Kings. What created organized sovereign states, with their legalized lies, backed by legalized violence, is what was also then behind making it possible for the best organized covertly operating gangs of criminals to take control of those governments, in order to thereby legalize their crimes. THAT process became an automatically running away system ...

The deeper challenge is whether human beings can survive their own evolutionary processes! Right now, that looks dubious, although I like to believe in some series of political miracles that some of us will survive through the current phases of global electronic fiat money frauds, backed up by atomic weapons. However, the ONLY theoretical way that appears to be possible is if our generally accepted political science develops enough to make it more consistent with our advancing understanding of energy systems in the other domains, such as with electronics and atomic energy.

Right now, we have the runaway paradox of politics which is based on triumphant frauds, flagrantly getting away with deliberately ignoring the basic laws of nature, by being able to make "money" out of nothing! However, that is merely the tip of iceberg regarding those problems!

Ghordius's picture

"Governments in countries like the United Kingdom have destroyed much of their manufacturing industry through currency depreciation, while Germany contrasts with a history of engineering excellence and a firm currency. The German business owner in the post-war years had relative certainty of economic calculation, allowing him to build up his productive wealth; while the British business lobby resorted to encouraging successive governments to keep costs down by devaluing the pound, rather than investing their own resources in more efficient production."

one the argumentations that led to the creation of the EUR to shelter a continental-sized zone from the ravages of currency wars and so in part pre-empt it (and the creation of the EU to do the same for trade wars)

economic calculation, bitchez - gimme gold or gimme the next best thing

smacker's picture

Ghordius: You say that one reason for introducing the EUR was to shelter the continent from the ravages of currency wars.

Which currency wars would they be then?

I do not recall that ever being claimed by any member of the EU governments or any EU apparatchiks.

As far as I know the only serious currency war in our lifetime is the one going on now, in large part caused by out-of-control sovereign debt levels in the EU (and US).

If what you claim is true, what did "they" propose to do about huge productivity differences between EZ member states? Wish it away? Introduce a hidden system of transfer payments behind the backs of citizens in richer member states? Create a single pan-EU economy?

I have never seen any action taken by any EZ member state to address the ClubMed productivity problems.

What would be successful for Greece/Spain/Portugal/Italy (and everybody else) would be to go back to their own currencies. Low productivity can then be managed through the FX rates as it was before. It would once again be an individual national issue on how to address it, not left to a barmy bunch of buffoons in Brussels to pontificate.

Ghordius's picture

"Germany ditched her currency for the euro; and now we have a worse set of problems"

really? and what "worse set of problems" is this? without the EUR the DEM would now be in the same situation of the CHF, though without an anchor - except the USD. think about that

Poor Grogman's picture

When German jobs start to disappear the euro print festival will begin in earnest.

To paraphrase...

An outgoing tide grounds all the boats

tradewithdave's picture

It's true that in a 2-dimensional model you cannot apply a comprehensive measurement.  However, that it not the case in a triple entry accounting or 3-D model.


You can measure velocity in a triple entry accounting system:

The Chicago Plan and triple entry accounting:

How prepaid and the introduction of the prebit dimension facilitates the Occidental to Oriental wealth transfer: