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
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.
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.
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.
a century ago, the great monetary historian Alexander Del Mar wrote:
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
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
"The proof of a theory is in its reasoning."2
might make sense if he were discussing mathematics, but not economics. Von
Mises actually attacked historical research:
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."
had launched his own verbal salvo in the introduction to his State Theory of Money:
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)
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.
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
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
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
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.
usury rationale was not to be incorporated into the "Thesis" of
capitalism, for William Petty had redefined it in economic rather than
"Question #28: What is interest or use money?
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
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
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
THE EXPERIENCE WITH
PRIVATE MONEY IN THE U.S.
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
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.
political movement, in economic garb, has arisen recently from Frederich
Hayek's ill considered essay, Denationalisation
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
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
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
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:
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
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.
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.
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
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.
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
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.
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.
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
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.
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
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.
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.
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.
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
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.
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
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.
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
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
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.
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.
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
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
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.
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.
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
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
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
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.
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?
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:
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%.
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.
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
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
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.
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
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.
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.
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.
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
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
100% RESERVE SOLUTION
NEED NOT BE DEFLATIONARY
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.
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
REFORM #3: INSTITUTE
ANTI - DEFLATION PROGRAMS AND BEWARE OF DEFLATION
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!
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.
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
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.
USURY PROBLEM REMAINS
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.
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.
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
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.
WILL TRY TO SABOTAGE REFORM
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.
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
ALLOW ECONOMISTS TO DIRECT MONETARY REFORM
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.
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.
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
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.
TO MONETARY REFORM
Poor monetary and economic
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:
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
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.
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.
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.
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
ongoing work of the AIER should not discard Harwood's acute observations on this
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
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.
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 :)
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.
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.
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.
What is it with you guys bumping year old threads today?
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.