Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Answering Zarlenga's criticism of teh Austrian School

rated by 0 users
Not Answered This post has 0 verified answers | 19 Replies | 7 Followers

Not Ranked
11 Posts
Points 230
vindician posted on Sun, Jan 17 2010 3:50 PM

0 false 18 pt 18 pt 0 0 false false false

Returning to the attacks and false claims Stephen Zarlenga made about teh Austrian School, I've taken some excerpts from his book "The Lost Science of Money" and commented them, and tried to offer some critique of the ideas Zarlenga advocates, such as the "100 percent reserve solution". I tried to attach the text as a pdf-file, but evidently the maximum size of attached files is 64Kb, so it didn't work.

 

As I'm a mere student of the Austrian School, I was hoping that you guys could provide me with some feedback on the comments I've written, i.e. correcting/adding anything that I've stated wrongly or  left out. The purpose is to construct an article of the revised material and hopefully draw Zarlenga's and his American Montery Institute's attention to their shortcomings.

 

Zarlenga's text is in plain, my comments in bold italic.

 

Thanks for your help!

---------------------------

 

MONETARY HISTORY HAS BEEN IGNORED

 

The mystification process succeeded largely because of the dominant method economists have used to study money. From Adam Smith to the Austrian School, they've placed too much emphasis on theoretical reasoning - logical argumentation - rather than on direct observation. Furthermore, they've tried to exclude considerations of morality from their theorizing.

 

This is false. Even if the Austrians emphasize logical reasoning as the only proof of the validity of a theory, they have always paid close attention to history. In the field of monetary theory, great effort has been made to describe the extent of credit expansion taking place during given periods of time in given geographical areas, the amounts of new money printed by central banks, who have benefitted and so on. In short, the effects of monetary policies and practices have been closely monitored and explained.

 

As economics is a science and thus value free, morality have very little place in the study of economics and economic phenomena. However, may Austrians have produced a vast body of literature concerning morality and political philosophy. For example, the fraudulent nature of fractional reserve banking has been dealt with in great detail, as well as the immorality of the central bank and its debasement of the currency through inflation.

 

 About a century ago, the great monetary historian Alexander Del Mar wrote:

"As a rule political economists...do not take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge."1

That this tendency has continued up to the present is confirmed by the self-admitted methods of Ludwig Von Mises, who in The Theory of Money and Credit, one of the bibles of the Austrian School of Economics, wrote:

"The proof of a theory is in its reasoning."2

 

That might make sense if he were discussing mathematics, but not economics. Von Mises actually attacked historical research:

 

"Knapp, as one of the standard bearers of historicism in political economy, had thought that a substitute for thinking about economic problems could be found in the publication of old documents."

Knapp had launched his own verbal salvo in the introduction to his State Theory of Money:

"I hold the attempt to deduce [the nature of money] without the idea of a state to be not only out of date, but even absurd." (p. vii)

 

The very use of the word “bible” in reference to one of Mises’s books is a clear indication that the author cannot be taken seriously. When Mises said the proof of a theory is in its reasoning, he referred to the fact that a economic thesis cannot be proven with empirical evidence. This is because economics, unlike e.g. physics, is a social science and cannot be tested in a laboratory. There are too many unknown factors, which is why one cannot simply refer to a series of events and claim it proves something. Therefore, a theory is proven correct if the reasoning is logical and consistent.

 

Contrary to what the passage implies, Mises was a great student of history and the study of history has always been central to the Austrian School. Thus, the author clearly misrepresents Mises using the classic trick of taking a quote out of context and assigning a false meaning to it. This is text book intellectual dishonesty.

 

By focusing on the similarities of these coinages, Ridgeway's Origin of Metallic Weights and Standards, published in 1892, presented a powerful argument for an institutional origin of money. Carl Menger, founder of the Austrian School, felt compelled in 1892 to issue The Origin of Money, an excerpt from a previous book, which argued from theory for a market or trading origin of money. Menger's "Origin" is promoted by the Austrian School with an aura of being historically based, but this author has demonstrated that Menger's view is entirely theoretical, by pointing out that Menger's historical references all argue 180 degrees against Menger's own thesis.40

 

The claim made here is both false and unsubstantiated. To the contrary, Menger and other Austrian scholars have researched the origin of money very thoroughly. The research shows that a variety of commodities have been used as money throughout history. There are even examples of primitive use of commodity money in modern times. For instance, it is well documented that prisoners of war have used cigarrettes as money in prison camps. The invention of money is, like most others, a market solution to a problem. The barter economy was very inefficient due to what is called the coincidence of wants. It was the problems of direct exchange which lead to the use of money, as people understood the value of having a universally accepted medium of exchange. Government got involved in money at a much later stage. Commodity money is thus very much a market invention. Fiat paper money, however, is a government invention as something like that could never evolve on the free market. 

 

 ACTION AGAINST USURERS

In medieval times judicial action was only taken against the "manifest usurers," those practicing it openly - the Jews and the Lombards. Contrary to current opinion, the "usury traffic of the Jews was never viewed as permissible," wrote Noonan.17

 

Discrete usurers, those who employed semantic tricks in making

A) Knut Wicksell; Interest And Prices; English translation by R.F. Kahn, 1936; A. M. Kelley reprint, 1962; page xxvi. This carefully controlled "grooming" of the thoughts of Austrian economists in America would be de-railed if those economists were to really understand Aristotle's monetary views. Some Austrian economists would like to claim Wicksell as one of their own, but these ideas are very foreign to the Austrian's view of money.

 

Bacon's usury rationale was not to be incorporated into the "Thesis" of capitalism, for William Petty had redefined it in economic rather than psychological terms:

"Question #28: What is interest or use money?

Answer: A reward for forbearing the use of your own money for a term of time agreed upon, whatsoever need your self may have of it in the meanwhile."11

This justification has a definite ascetic religious overtone to it, with a desire to reward self denial. It is the rationale still given in the 20th century by some members of the Austrian School of Economics.

 

Austrians define interest as a function of time preferences. 100 dollar today is more valuable than 100 dollars one year from now. All things being equal, a person would much rather get the money directly than at a later stage. This is manifested, among other things, by something as simple and everyday as cash rebates. It is common practice in the business community to grant a discount to people who can pay cash up front, or who pay the bill well before the due date. In corporate finance, future revenues are discounted to present day to estimate their value. This is called the discounted cash flow method.

 

There is nothing religious about this or the Austrian definition of interest rates. It is simply an illustration of the truism that money or anything else, all things equal, is more valuable to the person today than a year from now. The fact that the author again stoops to the level of using religious analogies is typical for the type of intellectual dishonesty and ignorance manifested by the author on previous occasions.

 

THE EXPERIENCE WITH PRIVATE MONEY IN THE U.S.

Privately issued money was shunned and suppressed in the colonial period by the colonial governments, by individuals and even by England. The Articles of Confederation placed the money power in the hands of government. It was only under the Constitution that bankers assumed a degree of centralized control over the nation's money through the privately owned 1st Bank of the U.S. in 1791.

 

Both in the Articles of the Confederation and later in the Constitution it was said that only gold and silver can be legal tender. Thus the power of money was taken both from the government and the bankers. At the Constitutional Convention, the establishing of a central bank was suggested and thoroughly rejected. The reason for allowing only gold and silver as legal tender was the experience of the Continental Dollar, which ended as a disastrous failure. The first bank of the United States was the creation of the mercantilist Alexander Hamilton, who wanted a central bank run by politicians from the nation’s capital.

 

No matter who have formally owned the American central bank, it has always been a creature of government and its chief function has always been to fund government deficit spending. This was the case with the first two central banks, and is certainly the case with the Federal Reserve. The power of the bankers have never been as great as it is now, on a complete fiat paper standard, guaranteed by the Fed. The source of the banker’s vast riches is their government granted privilege to create credit out of thin air through fractional reserve banking. This has nothing to do with private money, but all with government granted license to fraud.

 

Nothing in the book speaks of private coinage, i.e. private minters supplying the market with currency. On the free market, there is likely to be several competing currencies. The US dollar, for instance, is derived from the Joachim’s thaler, a silver coin known for its quality and uniformity. Printing paper money out of thin air is fraud, no matter if it is the government or a private bank who does it. The only solution to the problem of fractional reserve banking is the introduction of full reserve banking, with the separation of deposit banking and loan banking as two completely different activities. This has always been the Austrian position.

 

This political movement, in economic garb, has arisen recently from Frederich Hayek's ill considered essay, Denationalisation of Money.

It is important to realize that the real free banking period was pre-1836, before the various states began passing these regulations, because now comes along the modern "free banking" economists who are trying to make the historical case that "free banking" worked well in the past and therefore should be adopted today.19

First of all, these fellows are to be commended for their interest in monetary and banking history and their realization of the great relevance of historical example and experience to the monetary field. This attention to history, rather than isolated theory, should over time help them to reach more accurate conclusions as long as they will be true to the principles needed for good research.

Unfortunately they have made several serious methodological errors in their efforts to support their conclusion that bankers should be essentially unregulated. This is not entirely their fault; training in economics is notably lacking in guidance on historical research.

 

When Austrians talk about free banking, they mean full reserve banking and the separation of deposit banking and loan banking. In that sense, there has never been free banking in the US. There have, however, been periods of more and less free banking. Murray Rothbard gives detailed account of this in his “A History of Banking in the United States”. He also describes it in his book “The Mystery of Banking”, in which he also gives a historical account of banking in England and Scotland.

 

The fact that the author omits this documented fact shows he actually doesn’t know anything about the Austrian position on banking and is thus disqualified to make any statements about it. Under a commodity standard such as gold in combination with full reserve deposit banking, the banks would be regulated by the market. Any attempt to overissue bank notes would result in an outflow of gold from its vaults and quickly raise suspicion about the bank’s solvency. Both competing banks, the customers and statutory audits of the banks would ensure that any attempt of fraud would quickly be discovered. Rothbard explains this in great detail in several of his books. However, it is clear that the author never read any of them.

 

But it also appears that some of these researchers, influenced by the polemic style of Ayn Rand, the Libertarians or the Austrian School of economics, have brought too much partisanship to their study, and may have even come to their conclusions before examining the historical evidence. The anti-government attitude of those groups has created a prejudice in them to view all regulation as bad and to place their trust in the bankers to act honorably. Here are some of the problems with the "free banking" arguments:

 

Here the author contradicts himself. First he criticizes the Austrians for omitting the moral aspect in their study, how he criticizes them for employing too much moral argument in the form of anti-government sentiment. The author is clearly confused.

 

 

Problem # 1: They (the Austrians) have not carefully defined their terms. They have not accurately and uniformly defined money. Some use a primitive commodity concept of money, others not. Their definition of "free banking" is not uniform, but varies greatly from writer to writer.

 

To the contrary, the Austrians clearly defines money as a commonly or universally accepted medium of exchange, a commodity which is used to facilitate trade, thus solving the inherent problem of the coincidence of wants which plagues the direct exchange (barter) economy.

Free banking is likewise clearly defined as a banking system where deposit banking and loan banking are clearly separated, and where the former employ a 100 percent reserve requirement. Deposit banks are money warehouses and do not engage in money lending.

 

Problem # 2: They have mis-classified the period from 1836 to 1862 as the free banking period. The correct free banking period is pre-1836, before the state regulations on banking were increased. Naturally the post - 1836 period gives better banking results, but anyone can see that it is a period of increased government regulation.

 

The Austrians do not claim that this era was truly a free banking era, since the US banks were not divided in the manner described above. However, compared to other periods, the US banks were closest to being free banks during this age, following the introduction of hard money policies by Martin van Buren.

 

Problem # 3: Partly because statistics on the banks are very patchy, the free banking advocates have focused on certain measures that cannot convey a full and accurate picture of banking. For example, they try to evaluate banking performance by the percentage of depositors' money that was lost. But that treats the banks as deposit institutions, when they were in fact banks of issue, creating new money in amounts approaching 10 times their deposits.

 

The author himself concedes the logical consistency of Austrian terminology. Since banks should be deposit institutions, their performance can in part be measured by how successfully they manage to protect their customers deposits. The fewer deposits lost, the better the performance. However, no Austrian claims that the banks were not issuing banks.

 

Problem # 4: They think that they have theoretically "proven" that bankers can be trusted to act honestly, because they say in the long term it will build banker's reputations and therefore be profitable. They don't consider that often in the short term the potential for loot is so great that it will be taken without regard to honesty. They also ignore that reputation can be influenced by public relations expenditures and advertising. That is in fact the history of business immorality. Men don't always do the right thing when they are tempted by the opportunity to grab a great amount quickly.

 

The Austrians have never claimed that bankers are theoretically proven to be trustworthy. To the contrary, they expended great efforts in explaining how the banks and bankers can be held in check, how one can put restraints on the bankers’ seemingly inherent proneness to act fraudulently by engaging in fractional reserve banking. Thus, the author again misrepresents the Austrian position completely. It is impossible to avoid criminal activity, but it is possible to create mechanisms to combat and restrain it. The practice of completely normal, statutory audits by independent auditors such as KPMG or PWC can go a long way. All that is basically needed is to compare the combined value of the issued notes with the gold in the bank’s vaults.

 

Problem # 5: Starting with this apriori position, they have briefly looked through history for empirical support for their theory. But using history in that manner is not likely to yield accurate results. The lessons of history have to be viewed more dispassionately within their own context to see what picture emerges from several sources. It doesn't work to force a modern day template onto the facts, to attempt to force a "fit" with favorite theories.

 

To the contrary, Austrians have expended great effort to record history. Jesus Huerta de Soto gives a very detailed account of the history of money and banking in his opus magnus, and Rothbard always incorporates historical events in all of his books. Again the author misrepresents the Austrian School in a most egregious manner.

 

Nor is it acceptable to use a modern created filter through which agreeable facts are retained and disagreeable facts are ignored. One cannot ignore the universal condemnations of the banks from qualified observers of many different persuasions.

 

This is not the place to go through their definitions, facts and conclusions, one by one, to point out their errors. We can and will do that if it becomes necessary; but its better for one of their own to do it. It would be commendable for Libertarians and "Austrians" to make monetary history a larger part of their work, but not in a spirit of partisanship and negligence. Particularly telling is their attempt to pass off the better results of the period of higher bank regulation by government as the free banking  period. It's not that they thought they were getting away with something, but worse - their ideology has truly blinded them.

 

As shown above, none of these problems are anything more than unsubstantiated claims. The author clearly confuses the Austrian scholars with scholars of other schools. An easy mistake to make, when one hasn’t actually read any Austrian literature.

 

If they feel the treatment of them here is too harsh, they should consider that their ideas, if implemented, would have negative life and death consequences on substantial numbers of people. Especially those unable to protect themselves from the bad effects these policies would produce.

 

I'm reluctant to criticize them too strongly, because I know that the spell they are under can be shaken off. The source of so many of their errors lies in Austrian monetary propaganda, and in Hayek's Denationalisation of Money, which literally called the modern movement into existence. These youthful offenders probably saw themselves as rising heroically, or at least dutifully, to his call.

 

Here the author engages in pure ad hominem argumentation, thus proving his own emotional impediments to clear and logical reasoning. It is indeed strange to see a person who is so clearly against fractional reserve banking devoting so much of his book to criticize the school of thought which has been the loudest critic of fractional reserve banking. It can only be explained by the author’s ignorance of the people he so deeply despises. The fact that Hayek was awarded the Nobel Prize is hardly his fault, and the author’s efforts to ridicule the prize is completely unwarranted, not in the least considering how many Chicago School economists have won the prize, the School the author thinks very highly of. In any event, this whole passage was nothing but unsubstantiated personal attacks focused on an insignificant essay, completely ignoring the great work Hayek did on developing the business cycle theory, the only conclusive explanation to the booms and busts we have today.

 

For all the attention and belief invested in this anti-governmental, actually anti-social viewpoint, surprisingly little logical argumentation or serious historical evidence has been put forward to defend it. Logically, it has usually depended on the assertion of two falsehoods: first the assumption that the poorly run money systems of the past were under government control, even when they were privately controlled; second, the anthropomorphizing of government - pretending that government has the motivations of greed, and lust for power and gain, that are characteristics only of living, individual men. We have pointed out how Hayek makes both these "mistakes" in his self-admitted propagandizing.

 

Here the author employs yet another cheap, semantic trick. When Austrians talk about government or the state and its lust for power, they mean the people who run the government, i.e. the politicians, the bureaucrats and their supporters. To claim that these people have not manifested power is an incomprehensible denial of history. Secondly, since fractional reserve banking has always worked on government granted special privilege, it is lying by omission to claim that the banking system has been privately run. By removing government from the banking, separating bank and state as many Austrians put it, you remove the special privileges from the bankers. The only way to have an effective full reserve requirement is to have a commodity standard. One has to remember that under a commodity standard, the bank notes them selves are not money, they are money substitutes which are convertible into money, i.e. the underlying commodity.

 

HISTORIC COLLAPSE OF THE GOLD/SILVER RATIO

The Great Depression served up another classic monetary lesson in the collapse in the price of commodity silver. The monetary theories of Adam Smith, David Ricardo, Karl Marx, and of Von Mises and the Austrians, all of which assert a commodity or quasi commodity nature of money, are refuted by the reality of the silver collapse. This was the second great collapse of the ratio; the first occurred from the 1870s when silver was demonetized as described in Chapter 18.

Silver had dropped from $1.38 per ounce in 1919, to 44 cents an ounce in 1932, down 75%. Since at that time gold was still $20.67 per ounce, this meant that the ratio was at 47 to 1 instead of the old 16 to 1.

The reason for the ratio collapse was that gold's value was still protected by law. It demonstrated that legal forces, not market or economic forces, determine the value of the precious metals. This is a crucial concept to grasp.

The "sanction" of the law (and earlier the "sanctification" of the Temple) was still valid for commodity gold, but had been withdrawn from commodity silver. The law is what determined the ratio. The sanction of the law is what determined the value of the precious metals as money.

 

Falling silver prices does exactly nothing to refute any part of Austrian monetary theory. Price variations between to given commodities are commonplace. It only has noticeable effect when the exchange rate between them is fixed. Again the author just makes things up as he goes, and thus offers no grounds for his claim.

 

When the price of one commodity, e.g. silver, drops against the price of another commodity, e.g. gold, the exchange rate between the two changes accordingly due to market forces. If the exchange rate is fixed, it means that one commodity is overvalued and the other is undervalued. This will induce people to trade in the undervalued commodity in exchange for the overvalued commodity. Therefore, the claim made above is false. It is the law that interferes with the market exchange rates, leading to undervaluing and overvaluing of the fixed commodities.

 

When, for example, the dollar was linked to gold at a certain value, 35 USD, any changes in supply of money will have predictable effects. So with the Bretton Woods system. The dollar was convertible into gold at 35 USD per ounce. The more dollars the US printed, the more the dollar lost its value against gold. Consequently, holders of US dollars began to redeem them in gold at the fixed rate. Due to the overvaluing of gold against the depreciating dollar, more and more gold flowed out of the US in return for paper dollars held by foreign central banks. Soon, the outflow of gold became so rapid that Nixon decided to close the gold window, thus defaulting on the US obligation and collapsing the Bretton Woods system. Exactly as Henry Hazlitt had predicted in 1944.

 

The value of a commodity does not come from government through law. It is only the fixed exchange rate against another commodity (or currency) that comes from the government, and carries with it the inherent problem of over- and undervaluing. Thus, the author misstates Austrian theory again (actually he doesn’t state it at all, simply claims that it is false and refuted), proving either his ignorance or dishonesty, or any combination of the two.

 

Uike the Sherman silver purchase program of 1890, described in Chapter 18, it allowed wealthy foreign holders to sell their silver to the U.S. government at a higher than market price. From 1933 to 1961, about $2 billion in silver was purchased. Monetary reformers should run whenever they see the silver (or gold) mining interests coming.

In the mid-1930s, an irreparable break occurred between Roosevelt and the business community when he imposed several meaningful taxes upon them. These taxes have now been reduced to inneffectual rates, which do not adequately compensate society for the educational, social, legal, and physical infrastructure, on which commerce and industry depend.

Serious consideration can be given to lowering payroll taxes and re-imposing the higher levels on the super-rich, for many reasons. Especially on unearned income and "paper shuffling" activities which produce nothing, are often of questionable legality and harm the average citizen. The overwhelming majority of Americans seemed better off under the old, higher, progressive tax rate system.

 

A simple statement of opinion and nothing else. If one wants to discuss the meaningfulness of taxes, one must first discuss what the role of government should be. The US Government had already by the 1930ies moved well beyond its constitutional limitations. Today, the Constitution is all but shredded completely, with runaway deficits and daily violations of human rights as a natural consequence.

 

PROPAGANDA TO RESURRECT CAPITALISM'S MORAL STANDING

Philosophically, the 1920s had been an orgy not only of speculation, but of so-called "free market" policies. It had been a time of the belit-tlement of government and a trusting belief in laissez-faire Capitalism and markets to serve mankind. The crash and depression put an end to that. Roosevelt's inaugural address in March 1933 had made it clear:

 

"...the rulers of the exchanges of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure and have abdicated. Practices of the unscrupulous money-changers stand indicted in the court of public opinion, rejected by the hearts and minds of men... The money-changers have fled from their high seats in the temple of civilization. We may now restore that temple to its ancient truths..."

 

Yet another complete misrepresentation of history. The 1920s started with a deep recession following the war inflation which had funded WWI. When the bubble collapsed, the US Government responded to the recession correctly, for the last time in its history. Wilson was too ill to take any action, and when Harding came in he declared that the federal government had no role in solving economic crises. Contrary to later policies, he cut government spending almost in half while the Fed remained passive. Thanks to this inactivity, the market was allowed to correct the imbalances and restore sound economic growth. A recession, which at its outset was more sever than the Wall Street crash of 1929, was over in about a year.

 

If one is prone to empirical study, this proves that the right response to a crisis is to cut spending and to stay the printing presses. Hoover, who initiated most of the policies which became the New Deal under FDR, took a different view when Wall Street crashed. He was determined to solve the crisis through government intervention, every bit as much as FDR. The price for their folly was a 16 year long depression of unparalleled magnitude. Not until 1946, when 2/3 of the national budget in absolute terms were cut and most of the wartime regulations were eased, did the recovery begin.

 

However, the 1920s after the recovery had nothing to do with the free market and laizzes faire. To the contrary, there were enormous government intervention through the Federal reserve system, increasing the money supply with some 70%, causing artificially low interest rates and inflating the stock market bubble. The very same pattern can be seen in the Nasdaq bubble of the 1990s and the burst housing bubble of today. The claim that 1920s was a decade of free market and laisses faire further illustrates the author’s ignorance of history and philosophy.

 

Americans have watched Alan Greenspan's mannerisms and heard his nasal voice, and seen him in his $10 suits often enough on television to understand he is not an evil figure. Where then did Greenspan get such foolish notions? It was from the conservative Austrian school of Economics, which his mentor, Ayn Rand, had anointed as the only economists. Her book service brochures from the 1960s offering books by many authors on various topics allow only one author in the economics section - Austrian economist Ludwig Von Mises. The message was clear!

 

Here the author goes completely off the rails and shows his ignorance of everything and everyone he talks about. Firstly, Alan Greenspan has never been an Austrian, nor has Ayn Rand for that matter. Many Austrians like Ayn Rand for her novels and generally benevolent sentiments towards free market ideals, but she was not an economist as much as a philosopher. While there is a cordial relationship between objectivists and libertarians, Ayn Rand and Murray Rothbard had a severe falling out from which they never recovered. In fact, Rothbard wrote several articles attacking the cultist nature of what he called the Objectivist Cult. The author thus makes connections between people and schools that simply are not there.

 

As for Greenspan, it is true that he in the 1960s and 1970s was very pro free market and advocated a gold standard. However, when he became Fed chairman those days were already long gone. It can be said that Greenspan more than most illustrates Lord Acton’s famous truism “Power corrupts and absolute power corrupts absolutely”. Nothing of his previous free market, sound money sentiments can be seen anywhere in his actions as Fed chairman. Instead, not only did he inflate the Nasdaq bubble but he also blew most of the air into the housing bubble.

 

No other group of economists have criticized Greenspan more than the Austrians. In previous years, Ron Paul and Peter Schiff have stated on numerous occasions that Greenspan is perhaps the worst Fed chairman of all time. Almost every Austrian who has written or spoken about the present crisis have pointed out Greenspan as perhaps the most central figure in creating the crisis.

 

This chapter demonstrates that Hayek's statement is false. But whether he is merely wrong, or lying, only Hayek himself could say. It is difficult to imagine he was so ignorant of the facts presented here. Greenspan and the Libertarians were duped, but Hayek was probably prevaricating.

 

The final proof of the authors complete ignorance of monetary theory and history. Not even mainstream economists, who usually favor government intervention, claim that the New Deal did anything but hurt the economy. It also illustrates that the author has no factual arguments against the Austrian School or any of its scholars, all he has is an emotionally driven hatred. Where it stems from I do not know. Speaking of being childish, it amazes me that a person who claims to be a monetary scholar persistently claims that the Fed is somehow a completely private institution that has nothing to do with government, as if it was an engine of the free market.

 

Hayek and other Austrians include the central bank in the concept of government, because no matter the formal ownership, the central bank is and has always been an instrument of government and the financial-industrial-congressional complex. It is much more real and much more destructive than the famous military-industrial-congressional complex. A person who does not understand the government nature of a central bank is by default disqualified to write about monetary theory and history.

 

 AVOIDING BANKING SYSTEM PANICS AND COLLAPSES

But how can we restructure our present unstable banking system in which banks do create money? The Austrian School of Economics for decades has been mis-educating Americans that any credit expansion must be followed by a crash, and many American conservatives and Libertarians now believe this. For example, Ludwig Von Mises writes:

 

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."10

 

This is utter nonsense. The Austrian School has rarely entered the universities or given any coverage by the press during the last 100 years. Even before the crash of 1929, people disregarded the warnings of Mises and Hayek, putting their trust instead in the neoclassical economist Irwing Fisher. From the 1930s up through the 1970s, it is the Keynesian school which has had almost complete dominance over economic education and press, a dominance it has since had to share with the monetarists and resurgent neoclassicals. But even today, Keynesianism is the predominant economic thought, despite the fact that the Austrians again predicted the crisis and not only that, they explained exactly what was wrong and why it was wrong, and how government was going to react. They’ve been proven right in every aspect, but for the most part utterly ignored. This is why Ron Paul has been such a lone wolf in his good 30 years of politics. So not only doesn’t  the author now economic history, he is completely oblivious to economic present!

 

 

 This fatalist doctrine is being spread in America, setting people on the wrong course regarding how to react in their personal investments and in the determination of banking policy. It's based on what we may justly refer to, after 23 chapters of demonstration, as the "childish" view that money is a commodity or "economic good." If the Austrian School understood the nature of money as a social/legal invention of mankind, they'd have to abandon their conclusion that catastrophe is inevitable.

 

It is exactly because the Austrians understand that money is, by its nature, a commodity, a medium of exchange. Here the author lies flat out by saying that money was a legal invention of mankind. It wasn’t, it was a market invention borne out of the need to facilitate trade.

 

The reason for the collapse then is the preference for the cash money as opposed to the bankers' credit money, resulting in runs on the banking establishment to draw out cash.

 

"According to this theory, it is possible to avoid a collapse following a period of credit expansion simply by converting the existing volume of bank credit into actual money having an existence independent of the debt, and at the same time take away the banking system's privilege of creating any more credit, Le., force banks to confine their lending operations to the lending of existing funds. "n

 

Those who hold a commodity view of money can't accept this possibility because neither gold nor economic goods can be brought into existence out of thin air, to change the bank credit into their idea of real money.

When one understands the nature of money as an abstract legal power, it clearly becomes possible for the government to create and substitute such trusted real money for the already existing, suspect bank credit. Thus we are not held hostage to preserving the existing flawed banking system, or to risk bringing down the whole structure.

 

Wrong again. The artificially low interest rates have lead to a cluster of errors or malinvestments. In short, people have invested money in higher order production processes which demand more resources than the economy has to offer. This means that a number of projects cannot be seen through, because of this lack of resources. This shortage cannot be eased by the creation of money out of thin air, because money itself is not a resource, it is only a medium of exchange. If it was so simple that the bust could be avoided by just converting bank credit into “real” money created out of thin air, then we could have perpetual growth by perpetual money printing. This is obviously not the case, as it would result in hyperinflation, just as Mises argued. Thus, this theory is utterly refuted.

 

WHAT WOULD IT HAVE WORKED IN 1929-32?

Could this "100% Reserve Solution" have prevented the Great Depression? Could the situation be rescued even after years of mismanagement by the bankers, and after the panic set in? The answer to these questions is "yes." The "100%> Reserve Solution" has some marvelous, almost magical effects. It is a way to get to 100%> reserves without disrupting the banking system, or calling in loans and creating a financial disaster. It is done by increasing the reserves held by banks.

 

SODDY AND SIMONS DEVELOP THE 100% RESERVE SOLUTION

Under this plan the banks are required to establish 100% reserve backing for their deposits, in this unique way:

The U.S. Treasury would loan freshly created U.S. paper currency to banks to bring their cash reserves up to 100%. The banks would pay interest to the U.S. on these loans. If the Fed had not yet been nationalized, then Federal Reserve Banks would also borrow from the treasury sufficient new currency to bring their cash reserves up to 100%.

 

24c. Frederick Soddy was Lee Professor of Chemistry at Oxford. In 1921 he received the Nobel Prize in chemistry and laid the groundwork for the "big bang" theory in cosmology. He also brought great clarity of thought to the problem of banking panics and invented the "100% Reserve Solution." This is emphatically not the same as merely requiring 100% reserves, presently being advocated by some misguided monetary reformers.

 

The amount of U.S. securities (T bills and T bonds) held by the Federal Reserve and other banks would be credited against these borrowings, canceling an equal amount.

Thus the 100% Reserve Solution is totally different from just requiring banks to keep 100% reserves, which would cause a disastrous deflation, and a repudiation of all monetary and banking reform.

 

 But with this elegant plan, all the bank credit money the banks have created out of thin air, through fractional reserve banking, would be transformed into U.S. government legal tender - real, honest money. All of the prior U.S. debt extended in the old bank created money (banking credits) would be canceled out by the banks' new borrowings from the U.S. The approximately $600 billion of U.S. bonds held by the banking system (in 1999) would go out of existence, lowering the U.S. national debt by that amount.

 

The banks would be panic proof, having by definition enough cash to pay all claims, without requiring a financial calamity through repudiation and contraction. The reform would not fix cases where banks and borrowers engaged in extraordinarily foolish loans, but the resulting bankruptcies from them need not destroy the whole system.

  

The solution presented is certainly not a new one, but rather a modification of the Austrian position, which incidentally is just the return to the origin of banking. The idea of issuing bank notes stems from the practice employed by gold smith, who stored gold and other valuables for a fee. The depositors got a receipt detailing its deposit. Whenever the depositor wanted to withdraw part or all of his deposit, he’d simply go to the gold smith, show the receipt and get his property.

 

This practice evolved into deposit banking when people realized that they could use the receipts as a money substitute rather than retrieving the underlying deposit. Of course, the ability to use such receipts (bank notes) as means of payment relied on the reputation of the issuing bank. If people had confidence that the bank indeed had the gold or other valuables the receipt described, they would accept the note as payment.

 

Over the years the practice evolved and bank notes became more and more accepted as payment. It is important to remember, however, that the notes themselves were not money per se, they were only money substitute. The actual money was still the underlying commodity, in most cases gold or silver.

 

At the outset, it didn’t even occur to most people that the bank would issue unbacked notes, as this would clearly constitute fraud. However, the bankers realized the potential of such fraudulent activity and started to engage in fractional reserve banking. This is an old practice, but it took several centuries and government intervention through legislation and court rulings to make it legal. Prior to that, fractional reserve banking was widely considered a crime punishable by death.

 

To argue that the problems of fractional reserve banking could be solved by simply lending government created paper currency to the banks so that their reserves would equal the credit they’ve issued fails from both an economics and an accounting perspective.

 

Firstly, the government created paper currency is no more real than the credit issued by the banks, as neither represent actual resources accumulated from real savings. For this purpose, it makes no difference who issues the phony money, the banks themselves or the government. If banks can create credit which then is converted into money lent from the government, they have every incentive to keep creating credit as long as they can charge higher interests rates from their borrowers than what they have to pay to the government. It also indentifies the government to keep lending money to the banks, not only for the interest they can charge but because the ever increasing supply of money leads to more and more taxable consumption, not to mention that the government itself can fund its own vote buying programs so much easier. Runaway inflation, meaning the uncontrolled increase in the supply of units of currency, would be nigh on unavoidable.

 

Secondly, the bank’s equity is not enhanced by the government loans. When the bank has lent out 90 percent of its deposits, it has, say, 1,000 dollars in reserves and 9,000 in loan receivables on its asset side, and 10,000 dollars in deposits on its liability side. The infusion of 9,000 dollars would increase its reserves to 10,000 dollars to be sure, thus covering all of its deposits, but it would also increase its indebtedness with the same amount, meaning that the bank is still undercapitalized. It owes 10,000 to its depositors and 9,000 to the government, but has only 10,000 in assets. If every depositor withdraws their money, the bank is left with zero assets and 9,000 dollars in debt.

 

The solution presented is thus no solution at all, only a mechanism by which the same type of continuous inflation of the money supply could be carried on under the guise of full reserves, leaving both the government and the banks to continue to create money out of thin air, thus debasing the currency and causing boom and bust cycles, all the while enriching themselves.

 

The very fact that the author himself says that this solution has almost magical effects shows his lack of understanding for how the banking and monetary system works. The inventors of central banking, the lender of last resort and the unchecked ability to create money out of thin air also thought their scheme was magical. As history has shown, it has been nothing more than a conjuring trick, by which they have transferred the value of other peoples’ savings and income to themselves.

 

100% RESERVE SOLUTION NEED NOT BE DEFLATIONARY

This reform would be neither inflationary nor deflationary, because it would simply make real what had been thought to be the existing monetary levels. From that point, it is crucial that alternatives to bank created credit be used to make necessary increases in the money supply.

For example, newly created money could be spent into circulation by government paying for social security and universal medical coverage for the nation. Or it could be loaned into circulation in interest free loans from the federal government to local governmental bodies (from school boards to states) to be used only for infrastructure construction and repair. This would cut the cost of all such infrastructure in half.

These and other sound alternatives are available now. More can be developed through careful thought, and even more careful trial and error. For banking institutions to continue making new loans they simply would have to attract such new money from depositors or investors.

 

First of all, the author makes the wrong use of the word “inflationary”. Inflation means the increase of the supply of money, and having government create money at will is certainly going to increase the money supply. But even if the word is used in the conventional way, i.e. rising prices, the 100% reserve solution would be highly inflationary, as the government would always find new programs to spend money one, such as those mentioned by the author itself. The more money the government spends into circulation, the more it debases the currency, causing the purchasing power of each existing dollar to fall. The more dollars chasing the same goods and services will lead to more dollars having to be spent on each unit of goods and services, thus sending both nominal and real prices up.

 

This also shows the fallacy in the argument that a currency unit’s value can be set by government. In order to keep prices from rising, the government would eventually have to impose price controls, which has been done several times before. However, the price controls would simply lead to economic chaos and black markets, where the people try to make exchanges at the real market prices. Additionally, the chronic inflation would encourage people to borrow and spend, much like in the recent decade, as the value of their debts steadily decline. The lenders would have to counter this by increasingly higher interest rates, making long term investing very difficult, which in turn would greatly disrupt economic activity.

 

REFORM #3: INSTITUTE ANTI - DEFLATION PROGRAMS AND BEWARE OF DEFLATION

To proceed merely on the basis of restricting the bankers' creation of money is to invite deflation, depression and repudiation of the reforms. This is a real danger since financial elements that would benefit from deflation would promote reforms with such "unintended" consequences. For three decades the fear of inflation has been drilled into the American mind and the political climate is still vulnerable to an over reaction to inflation phobia. Thus Fed Chairman Greenspan was praised for raising interest rates 11 times in the late 1990s in fear of an imaginary inflation!

Therefore limitations on the bankers' power to create money must not only be accompanied by clearly defined powers for the government to take their place, but also specific programs requiring money creation, for example to re-build infrastructure throughout the land in a major way. Paying for Social Security and a national health care system through government money creation would also serve to avert a deflation.

Are we advocating inflation? Certainly not. We like Henry George's answer on whether he'd support the government issuing money too freely: "('ecclesiastical expletive!') I am a Greenbacker, but I am not a fool."15

 

Robert de Fremery (1916 - 2,000) kept the concept of the "100% Reserve Solution" alive to the present day, through his books and articles and personal correspondence with prominent economists. He was also an important supporter of the Henry George school of land taxation.

 

The author’s continuous fear mongering against deflation is unwarranted, as shown by both theory and practice. Deflation, as defined by the decrease of the supply of money, is a very unlikely event in any monetary system, even under a 100 percent reserve requirement commodity standard. With banks divided into deposit banks and loan banks, with the former having to have full reserves at all time to cover their deposits, the money supply (e.g. gold in circulation or held by the banks) would be quite stable. If anything, it may increase somewhat due to gold mining activities, but probably very little. It is highly improbable that monetary gold would decrease, if nothing else then because of purely physical reasons. Gold does not generally evaporate into thin air.

 

Thus, the money supply would remain more or less on the same level, with perhaps a minute annual increase. With increasing productive capacity leading to a higher output of goods and services, the price level would fall in both real and nominal terms. This because the ever increasing amount of goods and services being chased by a stable amount of money, increasing the purchasing power of each currency unit. In the US, prices fell nearly consistently throughout the 19th century, falling very rapidly at the end of it. Even after the creation of the Federal Reserve and its raging inflationary policies, prices were kept relatively stable, the increased money supply being largely offset by increased production. When prices have fallen in this way, it has always been a boon for both industry and consumers, which is clearly demonstrated by the dramatic increase in the standard of living for the wide population in the US from the 1870s all the way to the WWI.

 

In short, deflation defined as the decrease in the money supply is almost impossible under any system, certainly under the system advocated for by the author. Deflation defined as falling prices is a boon for the entire economy, as shown by history. The idea that falling prices is bad stems from the fact that whenever a bubble has burst, the price level tends to fall, and fall rapidly in the asset class where most of the credit had been allocated. However, it is not the falling prices which cause the bust, but rather, falling prices is a necessary part of the bust when the market clears out the malinvestments, liquidates the debt and restores the balance of the economy.

 

 THE USURY PROBLEM REMAINS

Chapters 7 and 13 showed the problems of usury and interest are far from settled. Whipple's calculation (see p. 346) demonstrated the impossibility of long term interest, even at moderate rates, even where the lender did not create the money, but loaned money he already owned.

While it's outside the scope of this book to resolve all elements of this complex question, nationalizing the money creation process is a precondition to solving the usury problem and its wealth concentration effect. Continuing historical research and logical documentation would be helpful. For example applying serious computer models to this question could provide valuable information on how quickly usury concentrates wealth to insupportable, society busting levels.

Some steps could be taken immediately: nationalize money creation in government hands, where it can be created debt free, or at least interest free as described above. There should be an immediate national legal limit of 8% annual interest, including credit cards, with no offshore loopholes. No interest should be paid on checking accounts. Cumulative interest should never be allowed to exceed the amount loaned. Some of these restrictions were in effect in the early 1980s, before the mad paper chase took over our economy in its present form.

Regarding the international debt problem, Pope John Paul II, is the best economist. His call for a "Jubilee" to forgive much of the debt - to write it off - makes much more sense than most of them do.

 

The idea that “usury problem” would be solved by nationalizing money has no realistic nor historical grounds. To the contrary, it is exactly the state that has been the greatest usurer of all. Throughout history, kings and emperors have clipped coins, diluted their contents, enacted legal tender laws to force the citizens to accept paper currency, all for the purpose of financing the state’s own programs and the luxurious lives of the king and his friends.

 

FINANCIERS WILL TRY TO SABOTAGE REFORM

Once meaningful monetary reforms are underway in America, we shouldn't be surprised if bankers and financiers attempt to derail the reforms through economic disruptions, including bringing the economy to a halt. They might spark foreign and domestic crises and violence. Therefore the reforms must make substantial provision for this by creatively giving such types enough other things to worry about so that they have little time to attack the reforms. This shouldn't be too difficult, considering that reform would most likely proceed after another orgy of banking induced disasters, rife with felonious activity.

Readers who feel the author has been too harsh on the bankers should remember that even Jesus Christ felt compelled to use violence against them, and them alone.

 

The author has on many occasions criticized his opponents for being indoctrinated to the degree of religious cults. Still, he himself invokes the word of Jesus Christ in condemning bankers and draws on the authority of the Pope to substantiate his arguments. In addition, he talks about the magical qualities of the solution he advocates. If anyone is prone to religious conviction, it is the author himself. There is nothing wrong in admonishing bankers who commit crimes, no more and no less than other criminals. But to single out bankers the way the author does and completely exculpating the state is deeply fraudulent and deceitful, not to mention a grave misrepresentation of both history and reality.

 

DON'T ALLOW ECONOMISTS TO DIRECT MONETARY REFORM

Monetary reform must not be left in the hands of economists. Such reform is a legal, moral and political matter more than an economic one. Economists have no training in those areas and generally disdain such matters. Their indoctrination leads them to erroneously assume that the market process best resolves such questions.

In Chapter 12 we likened the political economists to a Temple priesthood, trained to uphold the Temple ways. They have endured so much mental pressure in their formative years in order to obtain their PHD seal of approval from their predecessors that it's not realistic to expect or count on them to break free of such thought patterns.

What role should economists play? Where exceptional individuals have achieved an independence of mind, they can best contribute to the reform process by evaluating technical matters connected with reform, not the legal, moral or political questions regarding the main structures reform should take. They can thus neutralize the destructive economists.

 

The author’s contempt for economists is evidence of his lack of logic. This is further enhanced by his statement that money is not an economic issue, but a legal, moral and political one. To be sure, any monetary system involves those aspects, but the function of a monetary system, the effects of monetary reform and how various monetary systems work are undeniably questions of monetary theory, and monetary theory is equally undeniably a field of economics.

 

While it is certainly true that the field of economics has been dominated by people with little or no real knowledge of even the most basic economics, their domination is largely due to government favoritism of such economists, JM Keynes being the most prominent example along with Karl Marx. The reason for this favoritism is that these economists have provided the state with intellectual rationale for destructive polices such as the New Deal and the Great Society, and in later times the home owner society. Conversely, Austrian economists whom history have proven right time after time have been shunned by the establishment.

 

 OBSTACLES TO MONETARY REFORM

 

Poor monetary and economic thought

Much inane monetary thinking arises from the Austrian School of Economics, which has more influence in America than in Europe, thanks to its hold on American Libertarians. The monetary positions of this school are weak right from its founder Carl Menger's theory of the origin of money. Their main monetary tract was written in 1912 by Ludwig Von Mises at only age 31. Yet re-printings have almost no changes, despite the momentous monetary events that occurred since then! This reveals a kind of arrogance to beware of. Von Mises' rarely read book has many contradictions and bold unsupported assertions on its key monetary positions, for example his assertion that:

 

"The concept of money as a creature of law and the State is clearly untenable. It is not justified by a single phenomenon of the market."16

 

Why? No answer. That single statement brands him as either dishonest or foolish. It is clear from history that money is a creature of the law and the state. We have documented case histories that prove him wrong, in many of our chapters.

 

Not only does the author make false, unsubstantiated claims about the Austrian School, he also greatly overstates the influence of the Austrians on monetary policy in the US. Even if the libertarians tend to agree with the Austrian School, they are, politically speaking, a fringe group, completely outnumbered by the Keynesian and monetarist advocates of the neoconservatives in the Republican Party and the liberal progressives in the Democratic Party. The US is still a two party country with no room for third parties. In practice, the two major political parties are so much in agreement over many issues, particularly economic policy, that one can talk about a one party state. Since it is the Federal Reserve who formally forms monetary policy, Austrians have no influence whatsoever, as the Fed is by its very nature a Keynesian-monetarist institution, favored by corporatists and socialists alike. If the Austrians and Libertarians would have their way, the Fed would be abolished.

 

The Austrian position on money is greatly researched and do not in any way begin with Carl Menger’s theory of the origin of money, nor is Mises’s “Theory of Money and Credit” the main tract. The Austrian School has produced a vast body of literature on monetary theory, and their ideas originate to a great extent from the Spanish scholastics and the classical economists. Murray Rothbard has written several books on both money and banking as well as the history of money and banking. In recent years, two major treatises on monetary theory and history as been published by the Austrian scholars Jesus Huerta de Soto and Guido Hülsmann, namely “Money, Bank Credit and Economic Cycles” and “The Ethics of Money Production”. This is a classic case of misrepresentation and even lying by omission. In the vast body of literature the origin of money has been explained and accounted for several times in great detail. Even Rothbard’s opus magnus “Man, Economy, and State” include a detailed explanation of the origin and nature of money.

 

Thus, the author shows throughout his argumentation that he is in fact not familiar with Austrian literature at all, but singles out a few early works, completely ignoring everything else.

 

The Austrian School - "A leap backward"

The method of Von Mises and the Austrians is either a form of shouting as in the above example, or it is theoretical, a'priori reasoning. This use of deduction rather than observation, and their tendency to ignore the scientific method, caused the Austrian School to be labeled "a leap backwards" in economic thought by Edward C. Harwood, founder of the American Institute for Economic Research (AIER) in Great Barrington, Massachusetts:

  "Dr. Von Mises denies not once but several times that his theories can ever be disproved by facts. This point of view represents a leap backward to Platonic Idealism or one of its offspring in various disguises."17

The ongoing work of the AIER should not discard Harwood's acute observations on this matter.c

It should be mentioned that among the Austrian economists, the author truly admires Professor Murray Rothbard's clear and unequivocal condemnation of fractional reserve banking as a "Ponzi scheme." Von Mises criticized it less forcefully; but most Austrians support it in the name of free markets. Rothbard understood that free markets stop where fraud and privilege begin.

We don't mean to only single out the Austrians. Similar charges apply to other "schools" as well. As a "science," economics is very ill.

 

As explained earlier, the Scientific Method of the natural sciences cannot be applied to social sciences. On can observe history, as Austrians always do, but one cannot explain anything by simply looking at a chain of events. For example, the present economic crisis is the consequence of a burst housing bubble. We know from looking at statistics that housing prices rose steadily during 2002 – 2007. We also know that the interest rate was kept artificially low during most of this period, and that the money supply grew rapidly as well due to injections from the Fed and massive expansion of credit. It is easy to say that low interest rates and rapid increase of the money supply leads to a bubble based on the evidence. However, that is merely a statement that may or may not be true. If one cannot explain why the bubble was blown up, the empirical evidence is worthless.

 

What Austrians do is that they formulate theories which explains economic phenomena. In the case of bubbles, their theory is called the Austrian Business Cycle Theory. Peter Schiff used the theory when predicting the present crisis, as much as Hayek and Mises used it to predict the Wall Street crash, while the mainstream economists were telling everyone that no problems were on the horizon. As such, the Austrians could claim that that history has proven them right, but they don’t, because a mere chain of events cannot prove an economic theory. To claim otherwise is to disregard the fact that when observing economic phenomena there are always hundreds, if not thousands unknown factors which contribute to the shaping of events. It is impossible to know all these factors and how they influence the events, but one cannot ignore them and focus only on what is seen.

 

To illustrate with another historical example, one can look at the price level of the 1920s. The money supply increased with about 70 percent during the decade. Standard Austrian theory says that an increase in the money supply leads to higher prices. By merely looking at the price level, one could claim that this theory is refuted, because the price level was quite steady during the decade in spite of the greatly increased money supply. However, this does not refute the theory, because the reason for the steady nominal prices was a massive increase in production during the same period, which offset the rising prices which normally follow great increases in the money supply. Had the money supply been stable, like it to a large extent was in the late 19th century, the prices would have fallen significantly.

 

In short, the scientific method is only appropriate when one can conduct tests in a laboratory environment, i.e. a controlled environment when one can account for all factors influencing the test. This is impossible to do in economics because of the sheer complexity of society and the impossibility of closing off any part of society in a test tube. The fact that the author doesn’t realize this speaks volumes of his lack of understanding of appropriate methodology in the study of social sciences.

 

Lastly, the claim that most Austrians favor fractional reserve banking in the name of free markets is utterly false, a complete and pure lie. The Austrian position has always been that fractional reserve banking is fraud. The chief reason for advocating hard money such as the gold standard has been to put an end to fractional reserve banking.

  • | Post Points: 50

All Replies

Not Ranked
11 Posts
Points 230

It may very well turn out to be a waste of time in the sense that Zarlenga is hardly going to change his views or even respond to the criticism. But doing this will certainly bolster my own understanding of AE and is good practice for future debates.

Also, maybe we could get Ron Paul to talk to Dennis Kucinich and persuade him to cut his ties to Zarlenga and the AMI cranks :)

  • | Post Points: 20
Top 500 Contributor
249 Posts
Points 3,450
hugolp replied on Mon, Jan 18 2010 7:12 AM

vindician:

It may very well turn out to be a waste of time in the sense that Zarlenga is hardly going to change his views or even respond to the criticism. But doing this will certainly bolster my own understanding of AE and is good practice for future debates.

Also, maybe we could get Ron Paul to talk to Dennis Kucinich and persuade him to cut his ties to Zarlenga and the AMI cranks :)

I think it would be more productive to get Ron Paul to put wings on a caw and make it fly.

 

  • | Post Points: 5
Top 500 Contributor
Male
166 Posts
Points 3,300
Kaz replied on Mon, Jan 3 2011 1:23 PM

Clearly, the man has never read an Austrian text in his life. No clear definition of money? If Austrians have a strong point in anything, its in money.

Actually, I'm not certain I disagree with him on that isolated point...I just don't see that it's bad.

Mises, Hayek, Schumpeter, et allum seem to have a very abstract idea about what money really is, and that's good.

Only Rothbard, and Rothbard's mischaracterization of Mises, seem to me to claim a strong, clear absolute for money, how it should be used, et cetera.

The good Austrian position is that it's simply a class of tool used for transactions and accounting, and that the free market can determine what version of it works best, and when. Very abstract and vague, which is good.

Rothbard does go far beyond that, insisting that money must be a proxy for barter of a commodity, has no intrinsic value of its own, et cetera. But he's not really Austrian.

  • | Post Points: 20
Top 10 Contributor
Male
11,343 Posts
Points 194,945
ForumsAdministrator
Moderator
SystemAdministrator

What is it with you guys bumping year old threads today?

"When you're young you worry about people stealing your ideas, when you're old you worry that they won't." - David Friedman
  • | Post Points: 20
Top 500 Contributor
Male
166 Posts
Points 3,300
Kaz replied on Mon, Jan 3 2011 5:03 PM

I would answer, but I started looking at the background of your icon and don't remember anything that happened in the previous 24 hours, which includes your question.

  • | Post Points: 5
Page 2 of 2 (20 items) < Previous 1 2 | RSS