Output and the Industrial Production Index

At FRED, the notes for INDPRO (the Industrial Production Index) read in part:

The Industrial Production Index (INDPRO) is an economic indicator that measures real output for all facilities located in the United States manufacturing, mining, and electric, and gas utilities (excluding those in U.S. territories).

It's an index of real (inflation-adjusted) industrial output. One might suppose the index runs more or less in proportion to overall output. One could check that by comparing INDPRO to an inflation-adjusted measure of GDP.

Graph #1: Real GDP Relative to the Industrial Production Index

US output grew generally more slowly than industrial production until around 1973, and generally faster than industrial production since that date.

During the post-1973 period of increase, there is a decline from 1992 to 1998. Goldilocks, I think. Industrial production grew faster than GDP in the Clinton years.

Anything else?

What is "effective demand" and why do we care?

Chapter three of The General Theory is The Principle of Effective Demand. Keynes opens the chapter with some definitions. I want to skip a few of them and get to the ones where he defines the term "effective demand".

We begin with supply and demand. We begin with the "aggregate supply function" Z and the "aggregate demand function" D:

Let Z be the aggregate supply price of the output from employing N men ....

Similarly, let D be the proceeds which entrepreneurs expect to receive from the employment of N men ....

Now ... if D is greater than Z, there will be an incentive to entrepreneurs to increase employment ... up to the value of N for which Z has become equal to D. Thus the volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function; for it is at this point that the entrepreneurs’ expectation of profits will be maximised. The value of D at the point of the aggregate demand function, where it is intersected by the aggregate supply function, will be called the effective demand.

So effective demand occurs at the equilibrium point where the supply curve and the demand curve intersect -- where they intersect in the expectations of entrepreneurs. That's according to Keynes. And I think he's the one who invented the term, so his is the definition I want to use.

To my simple mind, thinking like a consumer, thinking of demand as a quantity demanded -- gasp!! -- the term makes perfect sense. "Effective" demand is given by actual purchases: by how much we spent. I can't think of a better fit for the word "effective". This goes back to Adam Smith:

The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market.

But as we all know, now, "quantity demanded" is not the same as demand. So, "how much we spent" to buy that quantity can't be demand, either. And that means that "actual purchases" cannot be demand. (Clearly, "actual purchases" are the same as "quantity demanded"!)

Yeah, I have trouble with that. As a demand-side entity, I think I express demand by buying things. I don't think I express demand by woulda-buying more at a lower price and woulda-buying less at a higher price. If your price is too high and I buy little, well, that's the demand I express then. If you think you can get me to buy more by lowering the price, go for it.


Effective demand occurs at the intersection of supply and demand, where supply is

the expectation of proceeds which will just make it worth the while of the entrepreneurs to give that employment

and demand is

the proceeds which entrepreneurs expect to receive from the employment of N men

according to Keynes. Demand in this view is the demand for labor. Supply is not supply at all, but is the minimum acceptable return that brings supply to market. This is altogether supply-side machinery.

So why do I care about effective demand? I guess I don't.

Come to think of it, why do I care about the grand distinction between "demand" and "quantity demanded"? Because economists tell me this distinction exists?? That ain't gonna happen.

I'm easily convinced of things, by good argument. The argument that economists make a distinction, that's not good argument. Seems like an appeal to authority.

Or maybe it's just ego.

Chapter Three, Section Three, Three Paragraphs

The idea that we can safely neglect the aggregate demand function is fundamental to the Ricardian economics, which underlie what we have been taught for more than a century. Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For, since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and why effective demand could be deficient or excessive, he failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain. Not only was his theory accepted by the city, by statesmen and by the academic world. But controversy ceased; the other point of view completely disappeared; it ceased to be discussed. The great puzzle of Effective Demand with which Malthus had wrestled vanished from economic literature. You will not find it mentioned even once in the whole works of Marshall, Edgeworth and Professor Pigou, from whose hands the classical theory has received its most mature embodiment. It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.

The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.

But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;— a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts.

The General Theory, of course. From 80 years ago.

I think I learned something from yesterday's post

Just the other day I wrote

It ain't demand if you don't put your money where your mouth is.

Now I'm starting to "get" Scott Sumner's definition of demand, the economists' definition. I guess the stuff we buy measures actualized demand or realized demand or something like that. But it doesn't fully describe the "shape" of demand. For if the stuff we bought had been selling at different prices, the actualized or realized demand would have been different.

Let's say demand is a line on a graph. It runs from high on the left, to low on the right. As it goes from the left to the right, the x-axis value increases. "Quantity demanded" increases.

As it goes from high to low, the y-axis value falls. The price falls.

This graph -- this is the part I get now, that I didn't get before -- this graph is not a picture of demand over some period of time. It is a picture of demand at a moment, at any given time. The present moment, say.

How can there be a whole bunch of different quantities demanded, and a whole bunch of different prices, all at the same time? Because, I think, because it's not a demand-side picture of demand. It's a supply-side picture of demand. The graph is for a supplier who is considering his possibilities: If I sell it for this much, I'll sell this many; if I sell it for that much, I'll sell that many. It makes sense to me, this way.

And, granted, if sellers lowered their prices, we probably would buy more.

It's a "ceteris paribus" graph, nothing else changes but price and (as a result) the quantity demanded. And the line on the graph, the line that shows all those hypothetical quantities demanded at all those possible prices, that line is "demand", according to economists. I still prefer the Keynesian call: it's a demand schedule. But economists just call it "demand". And you have to we have to understand what the economists are thinking, or we get scolded by people like Sumner

The amount of ice cream you want at a fixed price level is quantity demanded. One of the most basic concepts in economics is that one should never confuse demand and quantity demanded.

and David Glasner

Never Mistake a Change in Quantity Demanded for a Change in Demand

(read the Glasner post, for more on this topic) and no doubt by others. And we don't want to get scolded!

//

So. At this writing (26 May) it is less than a week since I said Demand is measured by what we spend. But now I'm singing a somewhat different tune. (Maybe that makes up for some of the fun things I've been saying? Maybe not.) But here's what I learned:

The thing that consumers (like me) call "demand" is not the same as what economists call "demand". What we call demand, Sumner calls quantity demanded. It's a location on the x-axis. It's one of a whole possible range of quantities that would (or could, or might) be demanded, depending on where the price is set.

Let's push this to macro.

GDP is a point on the x-axis. It is a "quantity demanded". It is not "demand", not for economists. For economists, demand (or at the macro level, aggregate demand) is the line on the graph. It includes all the possible quantities demanded at all the possible prices. Possible or reasonable prices. Whatever.

The thing that economists call "demand" is a demand schedule. And the thing that consumers call "demand" -- a single point on that line on the graph -- I'm thinking now that maybe that is effective demand. I'm saying, the point on the aggregate demand curve that corresponds to what we actually bought -- to GDP -- that point gives us "effective demand".

I don't know. I sure hope this is right.

I just can't do it in two sentences, Scott

Yup. Still Sumner.

In the comments on his no such thing post, Scott Sumner wrote

The amount of ice cream you want at a fixed price level is quantity demanded. One of the most basic concepts in economics is that one should never confuse demand and quantity demanded.

You're being a dick again, Scott. You're doing that cliquey thing economists do. To somebody who doesn't understand the concept, restating the concept more rigorously doesn't make the concept clear. It just makes you look like a dick.

See how I'm using simple words to get the point across?

As I understand the concept (which may very well be not as economists understand it) aggregate demand means "totaled up" demand. I don't need a degree in economics to understand that, because I know what the word "aggregate" means.

Maybe you guys have invented some other meaning for the word "aggregate". I wouldn't be surprised. I know you have some other meaning for the word "real".

//define aggregate demand

Okay. I looked it up. Pikiwedia says

In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in an economy at a given time. It specifies the amounts of goods and services that will be purchased at all possible price levels. This is the demand for the gross domestic product of a country. It is often called effective demand ...

The first sentence of that excerpt is exactly what I think. The second sentence says something completely different. It's another "compromise" paragraph, written by people who change each others words.

The second sentence refers to goods "purchased at all possible price levels". This is what I think you are referring to, Scott, as "demand" as opposed to "quantity demanded". Something like

  •  If we sell it for one cent, we will sell 100 of them, but
  •  If we sell it for two cents, we will sell 99 of them, but
  •  If we sell it for three cents, we will sell 98 of them, but
  •  If we sell it for four cents, we will sell 97 of them, but
  •  If we sell it for five cents, we will sell 96 of them, but
  •  If we sell it for six cents, we will sell 95 of them, but
  •  If we sell it for seven cents, we will sell 94 of them, but

and so on, for all possible price levels. (Clearly, at Wikipedia they don't know what "all possible price levels" means.) (To shorten the list, I have left out the selling price of 1.10 cents, and 1.20 cents, and 1.11 cents and 1.12 cents, and 1.111 and 1.112 and 1.1111 and 1.1112 cents and infinitely many other "possible" price levels.)

Come to think of it, I don't know what Wikipedia means by demand for final goods and services "at a given time". The total demand for final goods and services during a given time period is GDP for that time period. The total demand at a given point in time is not GDP; it could be something else. Is that what you mean, Scott? Okay, I see it now. But we're talking about when time is stopped, as opposed to when time is moving forward. As I see it, if time is not moving there can be no demand. If we stop time, imaginarily stop time, we can do things like count up the money that's in M1 or add up the total amount of debt outstanding. But you can't buy anything when time is stopped. You can only look at numbers. I don't know if that makes sense to you, Scott. It makes sense to me.

I'm also not sure what Wikipedia means by the word will: "goods and services that will be purchased at all possible price levels." They don't say "could be purchased" or "would be purchased" or "might be purchased". There's nothing conditional about it. They predict the future boldly. If they had been talking about the past instead, they'd have said "goods and services that were purchased at all possible price levels." I really don't know what that could mean, but I'm sure it makes at least as much sense as Wikipedia's version.

// a demand schedule

The nonsense table I made up just above -- if we sell it for 1 cent, if we sell it for 2 cents, if we sell it for 3 cents, etc. -- that's a demand schedule, isn't it. Keynes wrote about that stuff:

... the volume of employed resources is duly determined, according to the classical theory, by the two postulates. The first gives us the demand schedule for employment, the second gives us the supply schedule ...

I was trying to imagine a train schedule, one that lists all the times during the day that a train will stop at the station, and where it will go. Change that to "demand schedule", one that lists all the possible prices we can buy stuff at, and what we will buy at each price. Yeah, that doesn't seem to help. Anyway, it's all hypothetical. The word "will" certainly doesn't belong there.

I looked it up. Investopedia:

DEFINITION of 'Demand Schedule'

In economics, the demand schedule is a table of the quantity demanded of a good at different price levels. Thus, given the price level, it is easy to determine the expected quantity demanded.

They crack me up. It is "easy" to determine the expected quantity demanded, but only after you have created your list of the quantity demanded at every possible price level. Or, not to be a dick, at every reasonable price level.

And it's easy to make up such numbers. Economics textbooks are littered with 'em. But that's not the same as actually knowing how many you would actually sell at each of those price levels.

This demand schedule can be graphed as a continuous demand curve on a chart having the Y-axis representing price and the X-axis representing quantity.

INVESTOPEDIA EXPLAINS 'Demand Schedule'

A demand schedule is typically used in conjunction with a supply schedule showing the quantity of a good that would be supplied to the market at given price levels. Then, graphing both schedules on a chart with the axes described above, it is possible to obtain a graphical representation of the supply and demand dynamics of a particular market. Ceteris paribus, the market will reach equilibrium where the supply and demand schedules intersect. At this point, the corresponding price will be the equilibrium market price, and the corresponding quantity will be the equilibrium quantity exchanged in the market.

So (to refresh our memory) Scott Sumner said

One of the most basic concepts in economics is that one should never confuse demand and quantity demanded.

I think he means that demand (i.e., the aggregate demand schedule) is not measured by how many you sell, but by how many you would sell at all the different possible price levels, or, again, at all the different realistic price levels.

Cliffs Notes seems to resolve a few things:

In macroeconomics, the focus is on the demand and supply of all goods and services produced by an economy. Accordingly, the demand for all individual goods and services is also combined and referred to as aggregate demand. The supply of all individual goods and services is also combined and referred to as aggregate supply. Like the demand and supply for individual goods and services, the aggregate demand and aggregate supply for an economy can be represented by a schedule, a curve, or by an algebraic equation

The aggregate demand curve represents the total quantity of all goods (and services) demanded by the economy at different price levels.

So yeah, Scott and Cliff seem to agree, and I seem finally to understand what they were trying to tell me. But I still don't buy it. "Demand" is measured by what we actually in fact buy. Period. How much we could buy today, once we start the clock, at a whole array of different price possibilities, that is not demand. It is a "demand schedule" -- an imaginary list of possible sales volume numbers for all those different prices.

As far as I can tell, however, this dismal distinction between "demand" and "demand" gives us no clue as to why there may be no such thing as global aggregate demand. So, as far as I can tell, when Sumner said

The amount of ice cream you want at a fixed price level is quantity demanded. One of the most basic concepts in economics is that one should never confuse demand and quantity demanded.

he was simply being a dick.

Again, the "natural" rate of output

Which part of this graph would you say shows "natural" output?

GDP Growth Over the Very Long Run
Max Roser (2014) – ‘GDP Growth Over the Very Long Run’. Published online at OurWorldInData.org. Retrieved from: http://ourworldindata.org/data/growth-and-distribution-of-prosperity/gdp-growth-over-the-very-long-run/ [Online Resource]

Before you answer let me say I think there must have been a similar peak in the time of ancient Rome. Smaller than ours, but no less temporary. And probably others.

When a peak rises like that, it's not "natural". It's the result of economic management, coddling, encouragement, and stuff like that. And finance. Not only technology. Probably not primarily technology.

Maybe it's all natural, the extended low, the rise to peak, and the fall back. But then, the rise and fall is only a momentary blip on the screen.

Here's another look, with some old MeasuringWorth data that's no longer available:

Graph #2

This graph only goes back to 1688. The first graph goes back to year one.

//

The graph of MeasuringWorth data is from 2010 maybe or 2011. It's a Google Docs spreadsheet graph, I recognize it. So I searched my old Google Docs files and found it. Exported it to XLS format, added some current UK GDP data for comparison -- the new and old datasets differ! -- and provided a link to the older data that MeasuringWorth no longer provides.

Might not be worth anything: The current dataset begins with 1820. The old dataset contains only five values before that date: 1300, 1688, 1759, 1801, and 1811.

Huh. I wonder why they didn't have a number for 1086. From the Domesday book.

The natural rate of output

Okay, so when I googled it I got 180 million results for the natural rate of output. I thought maybe I'd show them all here. (chuckle chuckle)

Number one on the list, from SparkNotes:

Natural Rate of Output - The rate of output when the factors of production, capital and labor, are used at their normal rates.

"Normal rates". Number one on the list. Plus they had big colorful circles, and pictures of cute girls and stuff.

From one extreme to the other, the second of those 180 million results is from Wikipedia:

In economics, potential output (also referred to as "natural gross domestic product") refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints. If actual GDP rises and stays above potential output, then (in the absence of wage and price controls) inflation tends to increase as demand for factors of production exceeds supply. This is because of the limited supply of workers and their time, capital equipment, and natural resources, along with the limits of our technology and our management skills.

More than I wanted to know. (If the wikiparagraph seems unfocused, that's probably because it's a compromise written by people who disagree with each other. Everybody gets to say a little of what they want to say.)

So, per Wikipedia, when Sumner writes

... monetary stimulus that boosts output closer to the natural rate.

I should read

... monetary stimulus that boosts output closer to potential.

That makes more sense to me.

I worked with a guy years back who said that if the progress of the world had depended on him, we'd all still be living in caves. I always took him to mean he didn't think of himself as part of what Arnold J. Toynbee called "the creative minority". But anyway: Living like cave men, that's natural. I have no trouble with "potential output" as an economic concept, but I don't think you want to equate it with the cave man rate of output.

Oh, and I didn't bring this up in the earlier post, but what is that awkward construction supposed to mean? "The natural rate of output." Rate of output growth? You'd think. But if Sumner meant "boosts output closer to potential" then I think he means the level, not the rate. But he said "rate". That's just casual conversation, sloppy ... natural conversation.

Sloppy conversation is out of place in a post like Sumner's. Unless he meant the whole thing as a joke.

Hm.

Nah. My response to Sumner, my whole response was a joke, because his argument didn't deserve to be taken seriously; that was my whole point. But Sumner wasn't making joke. He was having a serious disagreement with Rajan, with Nick Rowe, and others.

//

What else we got?

The third hit of those 182 million is from the Fed. That's good. They often have the best answer.

Well, they offer two definitions:

  •  potential output: "the level of output that would prevail under perfect competition"
  •  natural output: "the level of output that would prevail with flexible prices and wages"

I'm not comfortable with either of those definitions. That's how you know when people are economists: They use definitions and terms and names that are supposed to have definite and particular meaning, and nobody outside the clique knows what the fuck they're talking about. Pardon my French.

The fourth hit is for the natural rate of unemployment. So we're done here.

The natural rate of painting himself into a corner

The most interesting part of Scott Sumner's no such thing post was this right here:

And when those economies are artificially depressed by a combination of low NGDP and sticky wages, then the rest of the world benefits from monetary stimulus that boosts output closer to the natural rate.

The natural rate of output. I never heard of that one. Well... I heard of the natural rate of unemployment. I suppose the two are related by Okun's law: There's a tight relation between employment and output. But that doesn't prove there's any such thing as the natural rate of output.

If you have a natural rate of unemployment, I guess you could have a natural rate of output growth. So the question is: Do we really have a natural rate of unemployment?

I'm not touching that one.

//

Sumner expresses the idea that an economy might be "artificially depressed" by "low NGDP and sticky wages". Well, I'm not an economist so I don't have to have an opinion on whether wages are sticky. But if wages are sticky, that's a natural phenomenon. Not an "artificial" one.

Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages...

If wages are sticky, it is because of human nature. That's not "artificial". And if NGDP is low, that's not what makes the economy depressed. It's what we measure so we can tell if the economy is depressed. Sumner depends a lot on his own popularity instead of on clear thinking these days. He used to be better than that.

I agree with Auburn Parks. It is as if Sumner has painted himself into a corner by his prior argument. And now he is stuck having to say stupid things to prop up his entire conceptual framework for understanding the modern economy.

Two, not of the same kind

Sumner says "There is no such thing as 'global aggregate demand'".

He doesn't say global aggregate demand cannot be measured. He says there isn't any.

That's idiotic.

Sumner also said "Aggregate demand is fundamentally a monetary concept". That's interesting. Keynes complained that "The National Dividend, as defined by Marshall and Professor Pigou, measures the volume of current output or real income and not the value of output or money-income." So, Sumner is child of Keynes on this point: Keynes said we ought to consider nominal demand, and Sumner does.

Keynes also pointed out that "the community’s output of goods and services is a non-homogeneous complex which cannot be measured ... except in certain special cases".

But he didn't say there isn't any.

The Cobb-Douglas production function

At Twenty-Cent Paradigms, Bill C presents the Cobb-Douglas production function at origin, "in a 1928 AER article, 'A Theory of Production,' by Charles Cobb and Paul Douglas." 27-page PDF.

Bill's post is very good. I didn't tackle the PDF yet.

There is no such thing as Scott Sumner (because if there was, this would be ad hominem)

At There is no such thing as "global aggregate demand", someone pretending to be Scott Sumner quotes Raghuram Rajan

I fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it

and reacts defensively -- as one might if one's only good idea were suddenly put at risk. Sumner would never do that.

How does the false Sumner respond? He takes the concept of Aggregate Demand and dumbs it down -- all the way down to pure bullshit:

Rajan seems to imply there is such a thing as global AD, that it's a pie that countries can take a larger piece of by engaging in beggar-thy-neighbor policies, such as monetary stimulus. This is almost entirely wrong. There is no such thing as global AD

Dick.

Demand is measured by what we spend. Aggregate demand is measured by totaling up demand. If some demand is expressed (or spent) in dollars, and some in euros, so what? You can't add dollars and euros, but you can do exchange rate calculations that let you aggregate the numbers. Sumner is just being a dick.

Oh, right, it can't be Sumner. Because there's no such thing.

Massaging egos and getting to the point

Keynes, from the Preface:

Massaging egos:

Those, who are strongly wedded to what I shall call “the classical theory”, will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new. It is for others to determine if either of these or the third alternative is right. My controversial passages are aimed at providing some material for an answer; and I must ask forgiveness if, in the pursuit of sharp distinctions, my controversy is itself too keen. I myself held with conviction for many years the theories which I now attack, and I am not, I think, ignorant of their strong points.

The matters at issue are of an importance which cannot be exaggerated. But, if my explanations are right, it is my fellow economists, not the general public, whom I must first convince. At this stage of the argument the general public, though welcome at the debate, are only eavesdroppers...

Getting to the point:

... eavesdroppers at an attempt by an economist to bring to an issue the deep divergences of opinion between fellow economists which have for the time being almost destroyed the practical influence of economic theory, and will, until they are resolved, continue to do so.

"This is the danger..."

Keynes, quoted in The Moral Philosophy of Management: From Quesnay to Keynes:

I wonder how the Farm Sector did in the Goldilocks years

Goo-glit.

I found this, for starters, from USDA:

Farm Business Net Cash Income Forecast To Decline in 2015:

Farm businesses are defined as operations with gross cash farm income of over $350,000 (labeled "commercial") or smaller operations where farming is reported as the operator's primary occupation (labeled "intermediate"). Approximately 11 percent of U.S. farms are commercial and 33 percent are intermediate. "Residence farms" comprise the remaining 55 percent of operations. These are small farms operated by those whose primary occupation is something other than farming.

Interesting. Also, they give the distribution of farms by financial size, but fail to state the total income for each of those groups. It would have been more interesting if they provided that extra bit of information.

I also find it quite interesting that they didn't provide that information.

///

This is useful: From the U.S. Census Bureau, a page of links to data in Excel and PDF formats. In the Farm Income and Balance Sheet section I found

840 - Farm Sector Output and Value Added [Excel 70k] | [PDF 61k]

and downloaded the 12s0840.xls file, which covers the years 1929-2009.

Oh! Ignoring component subcategories, the spreadsheet lists
1. Farm output
2. Less: Intermediate goods and services consumed
3. Equals: Gross farm value added
4. Less: Consumption of fixed capital
5. Equals: Net farm value added

Since #4 is Consumption of fixed capital, I'd say #3 must be the farm component of GDP, and #5 must be the farm component of Net Domestic Product. So then #1, Farm output, is gross farm output. But farmers (like other producers) consume in the process of producing. So you have to subtract #2, intermediate consumption, to arrive at #3, the GDP component.

This goes back to what I was looking at a while back, the UNSNA stuff. Wait, a better link is my "Gross Domestic Spending" is not "Gross Output". Let me quote again the bit I quoted there, from Wikipedia's Intermediate consumption page:

Conceptually, the aggregate "intermediate consumption" is equal to the amount of the difference between Gross Output (roughly, the total sales value) and Net output (gross value added or GDP). In the US economy, total intermediate consumption represents about 45% of Gross Output.

We're so used to thinking of GDP as "total economic activity" because that's what the media always says. But it's not even close. Gross Domestic Product is what's left after the process of production consumes some 45% of gross output.

I'm gonna use the "Gross farm value added" number from the 12s0840.xls spreadsheet as the Farm Sector component of GDP.

Graph #1: Farm Sector Share of GDP

Graph #2: Ditto

Graph #3: Ditto. Pretty quiet in 1998, 1999, 2000, 2001

Graph #4: Year-on-Year change in Gross Farm Value Added

The farming sector looks to be more volatile than GPDI.

//

How did the Farm Sector do in the Goldilocks years?

The U.S. economy of the mid- to late-1990s was considered a Goldilocks economy because it was "not too hot, not too cold, but just right."

Say 1995-2000.

Graph #5: Year-on-Year change in Gross Farm Value Added, 1980-2009

Looks like the latter 1990s & early 2000s were the longest, least volatile period in quite some time. And more below zero than above.

Challenge to self #1bCq

The challenge: Duplicate this:

Graph 1: from Marcus Nunes: "The chart describes in ‘phase space’
the degree to which growth ‘spreads out’ (is volatile)."

What I think I'm looking at:

X-axis: Percent Change from Year Ago of RGDP, at time t (quarterly data)

Y-axis: Percent Change from Year Ago of RGDP, at time t+1 (quarterly data)

RGDP = GDPC1 at FRED


Where I'll start:

Data Source: FRED GDPC1 in various formats I considered for the "What I think I'm looking at" part of this post.

Source Data: The "Download as XLS" file from the "Data Source" FRED graph.


Now, how do I get to Zoho? It's been a while.

I just type ZOHO in the Firefox URL field. ZOHO DOCS is on the list. I go there and sign in.

Loading... Please wait.

There it is.

I upload the file I got from FRED and check the box to convert it to Zoho format.

To start, I'm just gonna use the one column of data: "GDPC1_PC1: Real Gross Domestic Product, Percent Change from Year Ago, Quarterly, Seasonally Adjusted Annual Rate".

So far, so good.


On Marcus's graph the dates run from 1992 to 2007, then nothing, then from 2010 to 2015. Makes sense; that takes the crisis data out of the picture. You'd want to look at that separately I'm sure. (That was the first thought I had while looking at the FRED graph: Why doesn't Marcus's graph show the negative three, four, five percent growth we had during the crisis? And my answer: Oh! He omitted those years.

Okay. The last data I got from FRED is for 2015Q1. I can't get t+1 for that. So my most recent t data will be 2014Q4.

This is May. We're still in 2015Q2. No data yet.

I made a copy of the original XLS worksheet, deleted the data I'm not using, and inserted some columns for the data I want to graph.

One of the first things that strikes me while duplicating the graph is that the dots suggest a trend line that runs from lower-left to upper-right. In other words, when growth is pretty good one year, it is likely to be pretty good the next. And if growth sucks one year, it is likely to suck the next. (But I think we knew that already!)


I ended up doing the graphs in LibreOffice Calc. I think it gives me more options than I get with Zoho. (Or maybe I just didn't find the options in Zoho.)

It was easy enough to duplicate Marcus's graph. I didn't dress it up with circles and ovals and annotations. But the dots group the way Marcus says they do:

Graph #2: Duplicating Marcus's Dots

It's easy to imagine a circle around the group of orange dots, and an oval that overlaps it at lower-left but reaches way out to the upper-right to  surround all those blue dots. And there are those three crappy-economy dots in the extreme lower left, two of which Marcus identified as from the year 2001.

So next I added the years Marcus left out, 2008 and 2009, the crisis years. These dots (dark red) reach way down to the lower left, and push the graph's origin to mid-image.

This confirms our lower-left-to-upper-right trend line hypothesis , and confirms what we already knew: that when times are tough one year, they are liable to be tough the following year:

Graph #3: Same as Graph #2, but with 2008-2009 added into the picture.

Next, I went back to Graph #2 and split the blue dots into two groups. The first years, 1992 thru 2000 now show in green. The remaining years of the period, 2001-2007, remain blue:

Graph #4: 1992-2000 (green), 2001-2007 (blue), & 2010-2015 (orange)

So most of the good years that Marcus was talking about were the Clinton years. The "macroeconomic miracle" years. The "Goldilocks" years.

For what it's worth.

// The LibreOffice (spreadsheet with graphs) is yours for the taking.

I have to stop and check

For another post in the works, I want to say "circulating money is smaller than GDP, and growing more slowly". But I have to stop and check the "growing more slowly" part.

What I love about FRED.

Graph #1: FRED 1bzh

Circulating money is less than GDP, and the ratio remained on the low side from the 1970s to the crisis.

But something else catches my eye. Before the 1982 recession, it's clearly downtrend. Since the crisis, it's clearly uptrend. But from 1981 to oh, 2008, there is a definite uptrend infused with a business cycle-like pattern of ups and downs. Up during recovery, then down to recession.

I don't usually look at M1ADJ, circulating money "adjusted for retail sweeps". I'm trying to use it more often because I think it's more accurate than M1SL. With M1SL you'd want to argue the trend runs downhill to the crisis. I'm pretty sure now, that that's wrong.

But it's the regular, business cycle-like pattern that fascinates me, on the graph above.

A World in Disarray: Excel 2013

Pictured below is a squeezed-down version of Excel 2013. Across the top is the one toolbar I'm allowed to have in this "improved" version of Excel. One toolbar, followed by the workbook name and the five standard URC buttons.

Below that, the second line displays what appears to be a menu of sorts, though it differs from the old "FILE... EDIT... VIEW... INSERT..." menu of the old Excel. Notice how the labels on this menu have been cropped because I made Excel too narrow to show the whole words. How crude is that! We have the command PAGE L, short for PAGE LAYOUT. We have FORM, short for FORMULAS. We have DEVEL ("DEVELOPER"). And we have ADD-I ("Add-Ins"). And we have my name, part of my name, there on the right.

What the hell is my name doing there? I hate the new Excel.

Next below the line that appears to be a menu is "the ribbon" -- a big, wide chunk of the screen that takes up as much space as four or five rows of data. This is a complete waste of screen space. Of course, there is a way to hide the ribbon -- the fourth button from the right, of those five URC buttons in Excel's upper right corner. But if I hide the ribbon, how can I show you what a piece of shit it is?

//

I was trying to find something on the ribbon, and ended up at Keyboard access to the ribbon in the Excel Help. "The ribbon comes with new shortcuts, called Key Tips", the Help says...

To make the Key Tips appear, press Alt.

To display a tab on the ribbon, press the key for the tab--for example, press the letter N for the Insert tab or M for the Formulas tab.

Along with the explanation, the Help provides an image showing the letter N partially overlaid upon the Insert text and the letter M intruding upon the text of the Formulas tab. But let me ask a question: If you can't find the menu item you're looking for, does it really help to litter the screen with bird-droppings?

I don't think so.

Of course, Excel doesn't call them bird-droppings. Excel calls them "Key Tip badges".

Badges? Yeah, we have badges in the new AutoCAD as well. Fuck badges. In AutoCAD I added something to the initialization script that I use all the time, to turn badges off. AutoCAD keeps turning them on again. I end up initializing more than I need to, simply to turn badges off.

It's really a matter of who is going to be in control of the things I'm doing on the computer. I insist on being in control. As a result, my productivity suffers while I duke it out with AutoCAD.

Supply-side economics at its finest, ladies and gentlemen.

//

But the Excel Help was saying

... for example, press the letter N for the Insert tab or M for the Formulas tab. This makes all the Key Tip badges for that tab's button's appear.

So I pressed N for Insert, and I got a whole new slew of bird droppings:

Is that helpful, really? Is it neat and orderly? Is it better than this:

Plus I got five rows for data instead of two, in a smaller Excel window!!!

The first item on my menubar here is SJ. That's something I made for work, a custom menu containing custom menu items that I created. But that was back in the day when you were allowed (and even encouraged) by Microsoft to do such things. Today such things are discouraged and disallowed.

But anyway, just to the right of my SJ menu we find FILE... EDIT... VIEW... INSERT... and more. That's how the menu used to be, since the 1990s. That's how I knew it since the 1990s. And after a while it was intuitive and you didn't have to wonder where you might want to look to find something.

For example, if you want to insert a picture into your spreadsheet, from a file that you have, you click INSERT, and the INSERT menu appears, and you read down the list till you find PICTURE and click that, and a sub-menu appears, and you read down that list till you find FROM FILE, and then you go get the file. It's neat and orderly, and it's not all littered with bird droppings.

Consumer sentiment

https://research.stlouisfed.org/fred2/graph/?id=UMCSENT,UMCSENT1,

I was looking at the two Consumer Sentiment© series at FRED, copyright, 2014, Survey Research Center, Thomson Reuters/University of Michigan. Nice of them to share.

Found something a little odd in the "Edit Data Series" settings. First, the one that's not odd -- data frequency for the more recent sentiment series:

"Frequency" for UMCSENT

The data is available as monthly numbers, but the frequency can be changed if needed. That's the one that's not odd.

Here's the one that *is* odd:

"Frequency" for UMCSENT1

"Not Applicable". Isn't that odd?

SeriesMonitor.com

SeriesMonitor.com

Way, way, way off topic. But it's a link I don't want to lose track of. And you might like it, if you're a TV watcher like me.

http://seriesmonitor.com/index.html

Welcome to SeriesMonitor.com, your one stop site for comprehensive TV series statistics, analysis, episode guides, videos, cast information, reviews, transcripts, and much more!! The site has hundreds of graphs and tables on 31 shows, which have aired 106 seasons, and more than 2200 episodes between them. The Fall 2014/2015 television season is over with the big networks announcing their new series and schedules. A few series will be moved to the Canceled section, but new ones will also be added shortly so stay tuned!

The significance of non-linearity

Chaos theory suggests that even in a deterministic system, if the equations describing its behaviour are non-linear, a tiny change in the initial conditions can lead to a cataclysmic and unpredictable result.

- Sheldon Cooper

What's missing? (Part one)

These two series look the same to me:

FRED CMDEBT (blue) and HSTCMDODNS (red)

They even both have the same Title. How do you know they're two different series? Because that's what I put in the caption? Maybe I'm lying to ya. Or maybe I made a spelling error. Or got the colors backwards. There's no way to tell.

Maybe I'll forget to link to the FRED source page so you can't mouse-over the graph and see that the two sets of numbers actually differ a bit, and you can't click the Notes tab to learn that the numbers come from two different source tables.

Back before they changed things, FRED graphs were the best. There was no tweak that could raise questions. The data series were identified unambiguously, and -- given the top-border text and the vertical-axis text -- you could duplicate somebody else's FRED graph easily.

That's all gone, now. These days it's a shot in the dark.

// Find Part Two here.

Inflexible Economists

In Inflexible Trends, I showed the new FRED Graph tool for adding lines to a graph. It's not bad. It has its uses. But they insist on calling their line a "trend line" when clearly it isn't. It's a straight, connect-the-dots line.

Here's the first graph from the FRED Blog of 7 May 2015...

... along with the settings that establish their trend line: start-point and end-point dates and values. But if you look at the graph, the data (blue) is almost entirely below the  red trend line.

Actually it looks as if the blue line spends most of its time curving back up toward the red line. If I was going to show a trend line for that graph, I think I'd show a sharp drop-off just after the recession, followed by a gradual curve back toward what FRED calls a trend line.

And there's the real problem I want to point out today: Economists too often insist on thinking of trends as straight lines. That's not the way the world is.

"When a general shortage of cash does occur, this is a sign that there has been an undue expansion of credit"

Hawtrey's words, those.

From R.G. Hawtrey, Currency and Credit:

"When a general shortage of cash does occur, this is a sign that there has been an undue expansion of credit."

Hawtrey describes the monetary imbalance I show in my debt-per-dollar graph.

Graph #1: Dollars of Total (Public and Private) Debt, for Every Dollar of Spending Money

Even the first coins were debased

Source: Alternative Economics

Another Amateur Economist: Power and Society in Late Capitalism

greg, at Another Amateur Economist, writes about one post a month. I think, to appreciate his work, I need to spend about a month reading each one.

I didn't spend anywhere near enough time on his The Evolution of Power and Society in Late Capitalism, dated 30 April. But as usual, I feel he is doing important work. I have decided to take his concluding paragraphs, shorten them just a tad, beg greg's forgiveness for editing his stuff, and post it here.

From: The Evolution of Power and Society in Late Capitalism

So, the question arises, why hasn’t capital captured the government before now?

The first reason is the fact that the activities of government are, of themselves, not particularly profitable.

The second reason is that it is often much more difficult for a private entity to capture the return on these kinds of investments, than it is for the larger society. (For these reasons together education, for example, tends to be relegated to the public sphere.)

So taken together, these reasons imply that ordinarily capital will seek greater profits elsewhere. As long as it can do so, that is where its efforts will lie. And as long as it has access to an expanding base of resources, capital will remain dispersed. That is, as long as access to resources expanded faster than the profit rate, capital would remain dispersed. But in recent times, this has ceased to happen, and return to real capital has declined.

Where greater profit can be obtained through manipulation of an economy, rather than providing for it, this is where capital will next turn. Since this process is essentially the wealthy transferring assets from the people to themselves without substantial compensation, it can be expected to be resisted by the government. Thus, the government must be captured by the wealthy before it can be done efficiently.

The final reason that we haven't previously observed capital to capture the government is that one of the most important activities of government is to counterbalance the accumulation and concentration of profit in society. The government must distribute final demand throughout the economy, in order to sustain the people and their institutions. When government ceases to do this, the ability of the people and their institutions to sustain themselves collapses. No society long survives the capture of its government by the wealthy.

That's not what happened in the 1960s

A post from 14 April 2013, James Delingpole's Gold, currency debasement and the fall of the Roman Empire. It's got 1056 comments.

I didn't read the comments.

Some introductory chatter on the price of gold. Then Delingpole relays a prediction that gold "could go at least as high as $6,000" because "both history and market fundamentals show that it cannot be otherwise."

Then this:

What's happening to fiat currency, they note, is much the same as what successive Roman emperors did to the denarius – debasing it to the point of near worthlessness. They quote The Collapse of Complex Societies by US anthropologist Joseph Tainter, which argues that monetary collapse was one of the main reasons for the Fall of the Roman Empire.

"By debasing currency, increasing taxes and imposing stringent regulations on the lives of individuals, the Empire was, for a time able to survive. It did so however by vastly increasing its own costliness and in doing so decreased the marginal return it could offer its population. These costs drained the peasantry so thoroughly that population could not recover from outbreaks of plague, producing lands were abandoned and the ability of the state to support itself deteriorated."

Gold analyst and trader Andy Smith made the same point at the Dubai Precious Metals Conference earlier this month. At root, he argues, it's all down to government overspending. He quotes Tainter's point that currency debasement was a politically expedient measure adopted because "those who lived off the treasury were more numerous than those paying into it."

See, there at the end of that: The government debases the currency (their argument goes) in order to get money to spend. As I've been trying to emphasize over the past few posts, that is the most common view. Common, but wrong.

I don't mean to say that government never engages in debasement solely (or even primarily) for profit. But "solely for profit" apparently prevents people from noticing any other reason why debasement occurs. That's a problem.

The "solely for profit" story -- the the government needs the money story of debasement -- is the most satisfying story, if you want to be able to blame the government. That's why it is so popular.

My story is a little different: There is a misunderstanding about how the economy works, which has allowed us to create some bad economic policy that we think is good policy. (Specifically: We think it's always good to expand private sector credit use.) This leads to all sorts of problems, including inflation, which makes debasement inevitable as long as there is any intrinsic value left in the money.

If you like, you can take my story and take the "bad economic policy" part of it, and say well that's the government's fault. So you can blame the government anyway, even if you use my story, if your primary goal is to blame the government.

My primary goal is to get the story right. The the government needs the money story of debasement is not the right story.

In 1965, the U.S. government had to take silver out of the coins, because the coins were getting to be worth less than the silver. Usually, when we think of debasement, we think of the money becoming worth less because the government reduces the silver content. That's not what happened in the 1960s.

This is the problem that topples nations

I'm gonna use base money as a measure of the money the Federal Reserve puts into the economy. I'm gonna use the Federal debt as a measure of the money the U.S. Treasury puts into the economy. And I'm gonna use FRED's TCMDO -- with the Federal government's share subtracted out of it -- as a measure of the money that everybody else puts into the economy.

(If that doesn't seem right to you let me know -- but be specific about the data I should use and where I can find it -- and I will do the graph over using your data.)

I'm going to look at the annual changes in these money measures (change in billions, not percent change).

I'm using Federal debt held by the public rather than "gross" Federal debt because the difference is borrowed from money that was already in the economy.

Here's a first look:

Graph #1: A Stacked Area Graph showing Percent of Total
(I duplicated the graph at FRED to get the link;)

The red area is the money added to the economy each year by the Federal Reserve. Almost nothing, except during the three bursts of quantitative easing near the end.

The green area represents money borrowed in the private sector and spent into the economy. So I guess we can see who it is that has been putting inflationary amounts of money into the economy. I guess we can see who it was, in the years leading up to the 1965 debasement of U.S. silver coin, we can see who it was that generated the inflation that finally forced the hand of government, forcing the debasement.

It wasn't the Federal government that did the forcing. It was the private sector. The inflation that forced the debasement of U.S. coinage was due primarily to private sector credit expansion, not to the government printing money. Thus we are justified, saying that debasement occurred because the government's hand was forced. This forcing of government's hand by private sector credit expansion, this is a recurring problem. This is the problem that topples nations.

This is the problem that must be addressed.

Silver prices went up because of technological change?

I'm a little closer to my four o'clock target today.

Okay, here's what I've been thinking: The U.S. government debased its silver coinage in the mid-1960s, not because they were trying to make a profit on it and not because they were trying to screw anybody over, but because their hand was forced. The price of silver was rising, and it was reaching the point that the silver in a dollar coin was worth more than a dollar.

If that happened, the coins would have been hoarded, or melted down for the silver, and either way would have disappeared from circulation. So the government was in a position where it had to do something to preserve its coinage.

Now you might say that the reason the price of silver was rising was because prices in general had been rising. Because of inflation, in other words. Well, yeah, that's what I was thinking, too.

But then I found Henry E. Hilliards's short PDF titled Silver, which I summarized yesterday:

Technological change led to increased demand for silver, which drove up the market price of silver until it interfered with the monetary standard price that had been in use by the U.S. government. At that point, the US was forced to debase its silver coinage.

Hilliard went into some detail:

At a market price above $1.29 [per ounce of silver], a profit could be made by redeeming the silver certificates... In addition, at a market price above $1.38, a profit could be made by melting U.S. circulating coinage for its silver content.

Those numbers stand, no matter the reason for the rise of silver prices. Perhaps the reason was technological advance and the growing industrial demand for silver. Perhaps the reason was just plain inflation. And that's where I left off yesterday:

I'm wondering whether the increase in silver prices was a relative increase (the price of silver increased relative to other prices in general) or whether it was part of an overall increase in prices.

Hilliard's PDF includes a table of silver prices (annual averages) that covers the period from 1900 to 1998. Ooh, that's a lot of data. I couldn't resist. I copied and pasted it into Excel (and formatted it into one column). Then I went looking for measures of the general price level to compare to Hilliard's silver prices. I found numbers for the Consumer Price Index all the way back to 1800 at the Minneapolis Fed. And I found numbers for the GDP Deflator easily back to 1900 at the ever-reliable MeasuringWorth.

After a little more copy-and-paste-ing, I was ready to work through the agony of Excel's "ribbon" menu and generate this graph:

Graph #1: Silver Prices (blue) compared to the GDP Deflator and CPI-U

The three lines are indexed; all three start at the value 1.0 in the year 1900.You can see from 1900 to the mid-1960s a slow but persistent rise in the general price level (red & green lines) as compared to the price of silver. Pegged by government decree, the price of silver lagged behind other prices.

Silver prices increased because the demand for silver increased because of technological change? Sure, why not. But that's not the only reason silver prices had to increase. Silver prices had to increase because there was an increase in the general price level. You know: inflation.

Graph #1 shows the big picture. I took a subset of that data and made another graph, in order to see some of the detail Henry Hilliard described in his PDF. I started the second graph at 1947 (because a lot of FRED datasets start at that date) and stopped it at 1972 (before silver prices went really crazy):

Graph #2: Silver Prices (blue) compared to the GDP Deflator and CPI-U

This time the three lines all start out at the value 1.0 in 1947. This time the three lines run close together until the early 1960s. But you can see, from 1958 to 1961, the blue line runs on the low side. The timing of this pretty well corresponds to the description Hilliard gives:

Through the first half of the 1950’s, the market price remained below $0.91, so domestic mine operators sold their silver to the Treasury. In the second half of the 1950’s, the continued increase in industrial demand for silver and static mine production resulted in the market price increasing to $0.91 and Treasury silver sales being the largest source of silver for industrial consumers...

So I think Hilliard's description of what happened to silver prices is pretty good. I expect he's right, also, about technology and the demand for silver. But he left out the part about inflation and prices going up.


Now, maybe you have noticed that what I'm saying -- the price of silver increased because prices in general were rising -- undermines the view that the government's hand was forced. If the price of silver went up because of technological advance, well, there was nothing the government could do about that. But if the price of silver went up because prices in general were going up, that was the government's own fault. Right?

That's what most people would say. I want to say something different. I want to say we didn't have inflation because the government was "printing money". We had inflation despite the government's efforts to prevent it. (If you remember Romer & Romer's 2002 evaluation of the 1950s, they say economic policy in the 1950s was as good as "modern" policy, much better than the pro-inflation policy of the 1960s.)

If the inflation that forced the debasement of U.S. coinage was due to private sector credit expansion rather than to the government issuing money, then we are in some measure justified in saying that debasement occurred because the government's hand was forced. I will ultimately argue that this, the forcing of government's hand by private sector credit expansion, this is a recurring problem. It can be used even to explain the fall of Rome.

U.S. economic policy restricts the quantity of money to fight inflation, but encourages credit-use to promote growth. U.S. economic policy is a tangle of self-contradiction. I'm gonna go look for graphs now that might show it was the growth of private-sector credit, not the growth of government-issue money, that was responsible for inflation, even in the 1950s.

//

The Excel spreadsheet is available on Google Drive.

Absalootly fascinatin

Running late today. If it matters to you, I apologize. It matters to me.

Following up on the US debasement of 1965, I've been looking into the price of silver. Finally found something that suits my needs -- a brief historical overview. I found Silver, a four-page PDF by Henry E. Hilliard. It was written probably in the late 1990s, so if your interest is current events you won't find it useful. But it was exactly what I was looking for, and I found it, well... absolutely fascinating.

Brief excerpts. I'll try to keep it short.

Prior to World War II, the major uses for silver, other than in coinage, were for jewelry and sterlingware. During the war, however, technological advances were made in electronics and photography. After the war, this technology was used to develop new consumer products. As the demand for consumer goods increased, so did the demand for silver, and, as a result, the market price increased. The higher market price, however, did not result in increased mine production. The Silver Act of 1946 authorized the U.S. Treasury to purchase domestically mined silver at $0.905 and to sell its silver holdings at $0.91 per ounce. Through the first half of the 1950’s, the market price remained below $0.91, so domestic mine operators sold their silver to the Treasury. In the second half of the 1950’s, the continued increase in industrial demand for silver and static mine production resulted in the market price increasing to $0.91 and Treasury silver sales being the largest source of silver for industrial consumers (National Academy of Sciences, 1968).

In the late 1950’s and early 1960’s, a second component was added to the demand side of the supply-demand equation—the investor-speculator. The silver certificates authorized by the Silver Purchase Act of 1934 were redeemable for silver held by the Treasury. At a market price above $1.29, a profit could be made by redeeming the silver certificates, receiving 0.77 ounce of silver from the Treasury, and then selling the silver. In addition, at a market price above $1.38, a profit could be made by melting U.S. circulating coinage for its silver content. Realizing that it could not continue to supply industrial consumers with silver, mint coinage, and maintain a stock of silver for redemption of silver certificates, the Government began a program to demonetize silver. Public Law 88-36, which repealed the Silver Purchase Act of 1934 and authorized the printing of Federal Reserve Notes not redeemable in silver, was passed in mid-1963. The Coinage Act of 1965 eliminated the use of silver in dimes and quarters and reduced the silver content of half dollars. In 1967, silver coins were withdrawn from circulation, and holders of silver certificates were given 1 year, until June 24, 1968, to redeem the certificates for silver (Silver Institute, 1990, p. 6-7).

Okay: Technological change led to increased demand for silver, which drove up the market price of silver until it interfered with the monetary standard price that had been in use by the U.S. government. At that point, the US was forced to debase its silver coinage.

What comes to mind is Milton Friedman saying prices can't go up if the money supply doesn't grow enough to allow it. So I'm wondering whether the increase in silver prices was a relative increase (the price of silver increased relative to other prices in general) or whether it was part of an overall increase in prices. I want to look into that (but not for this post).