This article is from WeChat official account:Understand knowledge (ID: mingbaizhishi)< span class = "text-remarks">, author: understand knowledge er, the original title: “whether the market or politics, most people could never lie to the long-term,” Word problems from: vision China
Open Pinduoduo, and you will see that many counterfeit and inferior products have extremely high sales, even exceeding the genuine ones;
Walking into the bookstore, you will see a lot of successful learning and spiritual chicken soup on the bestseller list, but those famous classics have been shelved;
Click on the video website, and you will see that many shoddy dramas have gained a large audience through marketing hype, while those that are carefully crafted and require a calm understanding are not very popular.
We often lament that defective products squeeze out genuine ones, and bad money drives out good money.
For the explanation of this kind of phenomenon, Li Junhui, a disciple of economist Professor Zhang Wuchang, said that “bad money drives out good money” is just an economic myth, and it simply cannot exist in real life.
In the article “The Economic Myth of “Bad Money Drives Good Money””, Li Junhui criticized:
“The myth of’bad money drives out good money’ is not the only myth in economics that still prevails today, but this myth is very representative, and it can almost be said to cover many economics that have appeared and even now There are many characteristics of the myth that is still widely spread:
First, the so-called facts are actually just spreading falsehoods. According to the Nobel Prize-winning British economist Hicks, the law of “bad money drives out good money” is just a rumor, but it has become more and more popular in the years…
Secondly, the logic of myths is often due to the fact that one leaf blinds one’s eyes and does not see Taishan, only knows one, does not know the other……
The third characteristic of mythology is, of course, that it is very simple and obvious, but it is still believed by people for a long time. “
The economist Li Junhui’s article “The Economic Myth of “Bad Money Drives Out Good Coins”” argues that there is no bad money driving out good money.
What we know about “bad money drives out good money” comes from the observation of economist MacLeod (Henry Dunning Macleod). He found that Elizabeth I’s financial adviser Thomas Gresham(Thomas Gresham) advised the Queen to restore the devaluation of the domestic currency, making the market have two Currency exists.
So McLeod named this phenomenon “Gresham’s Law” (Gresham’s Law) to refer to the market Many “bad coins” with insufficient fineness are circulated, and those with high fineness are kept for collection, that is, “bad coins drive out good coins”(Bad money drives out good).
The economist McRoad named “Gresham’s Law”. Image source: The Blue Collar Economist
Not only where Gresham isIn the 16th century, as early as the ancient Greek period, the play “Frog” (Aristophanes) created by the playwright Aristophanes(Frogs) described the phenomenon of the proliferation of brass coins and no one cares about good coins.
There are many similar phenomena. Because people have observed such phenomena, the “Gresham’s Law” has gradually been summarized as: if there are multiple currencies in circulation in the market, bad coins will drive out good coins.
In Li Junhui’s view, this rule or law is logically wrong.
She believes that bad money “drives out” good money in the short term because of official inflation.
In order to solve the financial problem, the official minted a large number of “bad coins” with little gold content on the market, and limited the ratio between “good coins” and “bad coins”.
For example, after the Anshi Rebellion, the economy was dying. In order to alleviate financial difficulties, Tang Suzong issued the “Qianyuan Heavy Treasure” (the reign of Tang Suzong Qianyuan). This coin weighs 5.97g, which is less than twice that of Kaiyuan Tongbao, which is 3.98g. It stands to reason that one piece of Qianyuan Heavy Treasure should be worth 1.5 Wen Kaiyuan Tongbao, but the official believes that it is worth ten Wen Kaiyuan Tongbao.
As a result, as Tang Suzong designed, inflation prevailed.
Li Junhui believes that, despite this, the existence of bad currency is only “a flash in the pan.” There may be a short-term information asymmetry when bad currency first appears, but this asymmetry will not exist for a long time. Over time, everyone will know that there are good coins and bad coins.
Moreover, no matter how smart the person who pays the currency is, the person who receives the currency is not a fool. Of course, he will not accept bad currency unless it increases the price or gives good currency.
If there is really bad money that drives out good money, it can be deduced that there will be counterfeit money that drives out good money. In this way, everyone is using fake money, which is obviously not in line with the facts.
Therefore, Li Junhui pointed out that “bad money drives out good money” is just an economic myth. “The mistake is simple and obvious”, but it is rumored and rumored by people and is convinced.
Her view, in short, “bad money” will onlyIn the short term, but logically speaking, bad coins cannot compete with good coins, and it is impossible to drive good coins out.
This is why she believes that bad money drives out good money to be a logically wrong myth.
For this law, economist Professor Zhou Qiren also believes that bad money drives good money out of logic. He mentioned in the article “Why Is “Bad Money Drive Good Money” Logically Wrong”:
“The circulation of bad coins will stimulate the supply of more bad coins. Once a certain critical point is crossed, inflation will come…At this time, it is not just good coins that exit the transaction, even the good Goods’
—— Those products with value preservation function—— have also begun to withdraw from the market. People I prefer to rush to buy and hoard, and I want to exchange all the currency in my hand for goods. At this time, it is the bad currency itself that is expelled. Is the monetary authority reluctant to bear the bad currencyThe people will expel the monetary authorities together.” ?< /h-inner>
Think about it, how many “bad coins” appeared in history. In ancient Rome, silver coins with cheap metals were added, the greenback banknotes issued by the United States during the Civil War, and the denominations of the banknotes were directly deleted of ten zero Zimbabwe dollars. , These are bad currencies.
The greenback banknotes issued by the United States during the Civil War cannot be exchanged for gold, and gradually withdrawn from the market after 1879. Image source: Wikipedia
Are these currencies still available today? They have long been eliminated in the market tide.
What’s the matter?
Professor Zhou Qiren’s explanation logic is clearer. He pointed out that in the short term, because the market needs to be exchangedThere are too many commodities, but not enough money, so bad money with insufficient fineness can also be used as a medium to circulate in the market. Slowly, the original good currency was replaced by the bad currency.
It was because of insufficient currency that bad currency succeeded. Now that good currency slowly withdraws from the market, isn’t currency even more inadequate?
Following is inflation. The money in people’s hands is worthless. In order to live and maintain their value, people will naturally take out all the bad coins in their hands to exchange for items to keep their value. At this time, the bad coins are used by people. Expelled.
So, logically speaking, whether it is Li Junhui or Professor Zhou Qiren’s analysis, “bad money drives out good money” is of course wrong. There is no problem at all.
As economists say, the paying party is not a fool. If they know that the payment is exchanged for bad money, they are of course reluctant to exchange bad money at the price of good money, and even reluctant to use more money at all. Low prices to exchange for bad currency.
For example, milk powder, if you know that a certain brand of milk powder has a problem, and not to mention that its price is almost the same as that of high-quality milk powder, people will not want to buy it. Even if the price is ten times cheaper, no one will want to buy it. To your own children.
But the question is, when people are talking about “bad money driving out good money”, is the essence of their discussion really the fallacy pointed out by economists?
When people use “bad money to drive out good money” to express that counterfeit and inferior products are shoddy, or that low-cost toxic milk powder squeezes out high-cost good milk powder, of course they are not so stupid to think that they are under market competition. Bad money will drive out good money, but we are discussing why we are all willing to exchange good money, but only bad money can be exchanged in the market. Where did the good money go? Even if we know that good coins can eventually drive out bad coins, we can’t wait!
In this regard, “bad money drives out good money” is just a popular saying. People use this saying to a large extent to express the above-mentioned doubts and anger.
When Li Junhui and other Wuchang learned to laugh at people who were so stupid to believe that “bad money drives out good money” with false logic, they might not pay attention to the scarecrow fallacy they fell into.
Economists should not stand up as a scarecrow when criticizing, treating consumers as fools, ignoring the essence of the issues they are discussing, and at the same time pointing out that rational consumers are not fools and emphasizing that this is the premise. Don’t you contradict yourself?
So, for bad money to drive out good money, what we should discuss is not whether “bad money drives out good money” logically, why people are “stupid” to believe this myth, but whyIt is possible for bad coins (including bad products) to enter the market for trading, and why can bad coins get a “price” escort to compete with good coins (including good products).
According to whether power interferes with the market, this can actually be divided into two situations.
In the first case, there is no power to intervene, but because of asymmetric information, bad coins can be shoddy;
In a transaction, there is an information gap between the buyer and the seller. Generally speaking, the seller has more information about the item than the buyer, so it is easier to have the incentive to take advantage.
The taking advantage here has nothing to do with morality, but from the perspective of human behavior, it has such a tendency. With the motivation to take advantage, there is also the possibility of shoddy.
Historically, the confuse of the fish and the miscellaneous replenishment are all because of information asymmetry.
Under asymmetric information, the most extreme situation is adverse selection in the market.
The theory of adverse selection comes from the paper “Lemon Market: Quality Uncertainty and Market Mechanism” (The Market for Lemons: Quality Uncertainty and the Market Mechanism).
Akerlov and his papers. Akerlov won the Nobel Prize in Economics for his contribution to information economics. Picture source: “Information Economics that Everyone Can Understand” Course by Professor Wang Zeke
The reason why it is called “Lemon Market” is because Americans go to the thrift market to buy things.It’s a good thing, it’s called plum (Plum); if it looks worse, it’s called lemon(Lemon).
When buyers and sellers have asymmetric information and the quality of goods in the market is getting worse, it is called the “lemon market”.
The “adverse selection” of the market was calculated by Akerlov with rigorous mathematical proofs. Here we use economist Professor Wang Zeke’s explanation in “Information Economics That Everyone Can Understand”, briefly Overview.
The United States is a country on wheels. Many families have cars. Some young people get a car as a gift before going to university. But cars are not cheap, so second-hand cars have become the choice of many families.
Suppose there are 100 people who need a used car, and there are exactly 100 car owners in a used car market who want to sell a car. These 100 cars must be good and bad. Some cars are well maintained and brand new; some cars are scarred.
We arrange these cars from low to high in terms of performance, quality, etc., and corresponding prices will be generated. Assuming that the number of vehicles of various quality levels is consistent and evenly distributed, the best car corresponds to $1,000. analogy.
The remaining mass distribution map of used cars. Picture source: “Information Economics that Everyone Can Understand” Course by Professor Wang Zeke
When a young man came to buy a used car, he knew that the 100 cars in the market were good or bad, and the price was high or low, but he didn’t know the specifics of each car. How to do it? It’s better to get an average of $500 and try your luck.
What do car owners think?
Those whose prices should be higher than $500Of course, the car owner was not happy, so he withdrew from the market. At this time, only those vehicles with a quality of less than $500 will remain in the market.
When the bid was $500, some car owners withdrew from the market. Picture source: “Information Economics that Everyone Can Understand” Course by Professor Wang Zeke
Of course the person who bought the car was not happy, so he lowered his bid to $250. Similarly, some car owners have withdrawn from the market.
It goes back and forth like this, and in the end there will only be a batch of broken copper and iron.
This process of elimination is called “adverse selection.”
Akerlov’s argument was logical and academic, and therefore influenced a large number of subsequent economists to devote themselves to information economics research.
The phenomenon of adverse selection looks very similar to bad money driving out good money, but it is actually different. The root cause of adverse selection is the asymmetry of information between buyers and sellers. It is a natural transaction behavior and has no right to intervene in the market.
In the second case, the power intervenes in the market to protect the “price” of bad currency;
As far as currency is concerned, there are actually two more situations.
First, Li Junhui mentioned that there is only one type of metal currency in circulation, because the country wants to take advantage of the society and casts “traitful money” with less metal content to replace “positive money”. As a result, Jia Yi’s office appeared in history. The situation that “traitful money is becoming more and more frequent, and righteous money is dying every day”.
The second is that Li Junhui did not mention the simultaneous existence of multiple metals.
In this case, multiple metals (such as gold and silver) circulate at the same time, different metals can be exchanged for each other, but the ratio is imposed by the state dead.
At this time, as the actual exchange rate between the two fluctuates, there will be a profit-seeking behavior of “melting gold for silver” or “melting silver for gold”. Those that are undervalued by the country’s exchange rate are the so-called “bad currencies.” , And it is supposed to be good money; what is overvalued is “good money”, and it is supposed to be bad money.
In other words, because of the country’s mandatory regulations, the originally inferior currency has been mentioned to have the same or even higher status as the good currency; while the original high-quality currency has been artificially undervalued and has dropped to the same or even higher status. Same as bad currency, even lower status.
Is this phenomenon rare?
When power sets an “arbitrary” standard to set barriers for the entry and exit of bad money and good money in the market, replacing the spontaneous role of the market, bad money is blessed by power and is “insured” and cannot be driven out of the market by competition.
What’s more, when the power restricts the entry of good coins into the market and only allows bad coins to circulate in the market, people have no choice and cannot change this standard. In the long run, in the spirit of profit-seeking, everyone will use cheaper currencies. . Naturally, bad coins will drive away good coins.
In the face of powerful power, bad money drives out good money, but it is the result of people’s instinct to seek advantages and avoid disadvantages.
So, when people say that bad money drives out good money, they are actually sighing: whether it’s people or things, because of the arbitrary power intervention in this field, the instinct of human nature to seek advantages and avoid disadvantages finally brings a Relatively bad social outcomes, with few exceptions.
In other words, it is also the “significant” of “bad money drives out good money”. The meaning of economists is different from that of the general public.
If an economist misunderstands the background in which people use this concept, the scarecrow fallacy will naturally appear when criticizing it. What’s more, they pretend to be shocking and force new ideas.
Bad money drives out good money, or bad products drives out good products. It is not a good thing for human life. If power exists for a long time and arbitrary standards also exist for a long time, how should we face the fact that bad money drives out good money? How has our society functioned so far?
Professor Zhou Qiren has a good saying:
“In the final analysis, deception in the market or politics can deceive a few people for a long time or a majority at a time, but it can never be a long-term deception. Most people.”
Therefore, both political governance and returnIt is an economic transaction. Bad coins will definitely be eliminated, and good coins will eventually win.
It’s just that, in the short term, people need to pay a price.
Because of this, what economists have to do is not to compete with the public on a certain concept and enjoy the superiority in IQ, but to analyze why even if a certain concept is inaccurate, people still have to adopt ; Criticism should not be directed at the egg, but at the high wall.
For those great economists, what they have to do is to create accurate and critical concepts that better describe human behavior.
If not, you can only be trapped in a state of arguing about right and wrong, taking what you are must be, and what you are not going to be wrong, and everyone will be dissatisfied.
This article is from WeChat official account:Understand knowledge (ID: mingbaizhishi)< span class = "text-remarks">, author: understand knowledge er