We are all suspects now.

With Dr Tim Evans joining the Cobden Centre as Chief Executive and after the publication of a number of substantial new Insight articles, it has been quite a week for The Cobden Centre.

Today, Toby Baxendale has published a refutation of the mechanistic Quantity Theory of Money, the theory on which QE is based:

The mainstream economists hold that the volume of money in circulation, times its velocity is equal to the prices of all goods and services added up. This is the famous Theory of Exchange, MV=PT, or the mechanistic Quantity Theory of Money, where:

• M is the stock of money,
• V is the velocity of circulation: the number of times the monetary unit changes hands in a certain time period,
• P is the general price level,
• and T is the “aggregate” of all quantities of goods and services exchanged in the period.

It is held by the overwhelming majority of all economists, that if the velocity of money falls, the price level will fall and thus it is the duty of government, the monopoly issuer of money, the chief Central Planner of the Money Supply, to create more money to keep the price level where it is and thus preserve the existing spending habits of the nation.

In a nutshell:

• The monetary authorities do not have an adequate measure of the money supply.
• The velocity of circulation makes no economic sense.
• The general price level aggregates away a vital factor: the relative structure of prices.
• The aggregate quantity of goods and services sold is an impossible sum.
• The mechanistic Quantity Theory of Money is not a causal relation but a tautology.

Please see the main article for details. I have commented extensively there.

Via FTSE 100: stock market has best month in more than six years – Telegraph:

The stock market has enjoyed its best month in more than six years, boosting the savings of millions of investors and bringing hope that the worst of the recession may be over.

The FTSE 100 index of leading shares climbed 8.5 per cent in July, adding £134 billion to the value of the stock market, its best monthly performance since the fall of Baghdad during the second Gulf war in April, 2003.

The rise in share prices followed a series of strong profit figures from Britain’s biggest companies, with many proving to investors that they are coping well in the recession by cutting costs.

However, according to Austrian-School Theorists¹:

[U]ninterrupted stock market growth never indicates favorable economic conditions. Quite the contrary: all such growth provides the most unmistakable sign of credit expansion unbacked by real savings, expansion which feeds an artificial boom that will invariably culminate in a severe stock market crisis.

In other words, and most unfortunately, the present stock market conditions are an illusion produced by quantitative easing that will not last. And:

The crash will take place as soon as economic agents begin to doubt the continuance of the expansionary process, observe a slowdown or halt in credit expansion and in short, become convinced that a crisis and recession will appear in the near future. At that point the fate of the stock market is sealed.

1. De Soto, “Money Bank Credit and Economic Cycles”, p462 [↩]