Saifedean Ammous on the failed forecasts of Paul Samuelson's economics textbook

The most popular and influential economics textbook in the post-war period was written by Nobel Laureate Paul Samuelson.  We saw in Chapter 4 how Samuelson predicted that ending World War II would cause the biggest recession in world history, only for one of the biggest booms in U.S. history to ensue.  But it gets even better.  Samuelson wrote the most popular economics textbook of the postwar era, Economics: An Introductory Analysis, which has sold millions of copies over six decades.  Levy and Peart studied the different versions of Samuelson's to find him repeatedly presenting the Soviet economic model as being more conducive to economic growth, predicting in the fourth edition in 1961 that the Soviet Union's economy would overtake that of the United States sometime between 1984 and 1997.  These forecasts for Soviets overtaking the United States continued to be made with increasing confidence through seven editions of the textbook, until the eleventh edition in 1980, with varying estimates for when the overtaking would occur.  In the thirteenth edition, published in 1989, which hit the desks of university students as the Soviet Union was beginning to unravel, Samuelson and this then-co-author William Nordhaus wrote, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."  Nor was this confined to one textbook, as Levy and Peart show that such insights were common in the many editions of what is probably the second most popular economics textbook, McConnell's Economics: Principles, Policies and Problems, as well as several other textbooks.  Any student who learned economics in the postwar period in a university following an American curriculum (the majority of the world's students) learned that the Soviet model is a more efficient way of organizing economic activity.  Even after the collapse and utter failure of the Soviet Union, the same textbooks continued to be taught in the same universities, with the newer editions removing the grandiose proclamations about Soviet success, without questioning the rest of their economic worldview and methodological tools.  How is it that such patently failed textbooks continue to be taught, and how is the Keynesian worldview, so brutally assaulted beyond repair by reality over the past seven decades - from the boom after World War II, to the stagflation of the seventies, to the collapse of the Soviet Union - still taught in universities?  The dean of today's Keynesian economists, Paul Krugman, has even written of how an alien invasion would be great for the economy as it would force government to spend and mobilize resources.

In a free market economic system, no self-respecting university would want to teach its students things that are so patently wrong and absurd, as it strives to arm its students with the most useful knowledge.  But in an academic system completely corrupted by government money, the curriculum is not determined through its accordance with reality, but through its accordance with the political agenda of the governments funding it.  And governments, universally, love Keynesian economics today for the same reason they loved it in the 1930s: it offers them the sophistry and justification for acquiring ever more power and money.

~ Saifedean Ammous, The Bitcoin Standard, pp. 158-160

First Edition, 1948

Saifedean Ammous on the appreciation of the Iraqi dinar in 2003

Should a currency credibly demonstrate its supply cannot be expanded, it would immediately gain value significantly.  In 2003, when the United States invaded Iraq, aerial bombardment destroyed the Iraqi central bank and with it the capability of the Iraqi government to print new Iraqi dinars.  This led to the dinar drastically appreciating overnight as Iraqis became more confident in the currency given that no central bank could print it anymore.  A similar story happened to Somali shillings after their central bank was destroyed.  Money is more desirable when demonstrably scarce than when liable to being debased.

~ Saifedean Ammous, The Bitcoin Standard, p. 68

Saifedean Ammous on hyperinflation

Hyperinflation is a form of economic disaster unique to government money.  There was never an example of hyperinflation with economies that operated a gold or silver standard, and even when artifact money like seashells and beads lost its monetary role over time, it usually lost it slowly, with replacements taking over more and more of the purchasing power of the outgoing money.  But with government money, whose cost of production tends to zero, it has become quite possible for an entire society to witness all of its savings in the form of money disappear in the space of a few months or even weeks.

Hyperinflation is a far more pernicious phenomenon than just the loss of a lot of economic value by a lot of people; it constitutes a complete breakdown of the structure of economic production of a society built up over centuries and millennia.  With the collapse of money, it becomes impossible to trade, produce, or engage in anything other than scraping for the bare essentials of life.  As the structures of production and trade that societies have developed over centuries break down due to the inability of consumers, producers, and workers to pay one another, the goods which humans take for granted begin to disappear.  Capital is destroyed and sold off to finance consumption.  First go the luxury goods, but soon follow the basic essentials of survival, until humans are brought back to a barbaric state wherein they need to fend for themselves and struggle to secure the most basic needs of survival.  As the individual's quality of life degenerates markedly, despair begins to turn to anger, scapegoats are sought, and the most demagogic and opportunistic politicians take advantage of the situation, stoking people's anger to gain power.  The most vivid example of this is the destruction of the Weimar Republic in the 1920s, which not only led to the destruction and breakdown of one of the world's most advanced and prosperous economies, but also fueled the rise of Adolph Hitler to power.

Even if the textbooks were correct about the benefits of government management of the money supply, the damage from one episode of hyperinflation anywhere in the world far outweighs them.  And the century of government money had far more than one of these calamitous episodes.

As these lines are written, it is Venezuela's turn to go through this travesty and witness the ravages of the destruction of money, but this is a process that has occurred 56 times since the end of World War I, according to research by Steve Hanke and Charles Bushnell, who define hyperinflation as a 50% increase in the price level over a period of a month.  Hanke and Bushnell have been able to verify 57 episodes of hyperinflation in history, only one of which occurred before the era of monetary nationalism, and that was the inflation in France in 1795, in the wake of the Mississippi Bubble, which was also produced through government money and engineered by the honorary father of modern government money, John Law.

~ Saifedean Ammous, The Bitcoin Standard, pp. 66-67