let's say we don't have a central bank like the Federal Reserve expanding credit through inflation. Can an economic bubble still happen? if it can, can you give me an example when it happened. Can you recommend a book that gives an example of an econominc bubble where there was no Central Bank?
I appreciate the help, thank you!
No, it can't happen. It an begin to happen if money is a commodity money and some productor of the commodity begins to spend all his new created money on one sector, but this can't stay for the time required to create a recognized bubble, unless the guy has some magic on him and some crazyness and some ability to create commodities out of thin air. Otherwise the more he spends his money on one sector the more the incentive for him to spend money on other areas will grow.
Tulipmania happened without a central bank.
they said we would have an unfair fun advantage
Yes it can happen. Austrians need to be clearer about something: it is fractional reserve banking that causes bubbles and the business cycle, not just a central bank. A central bank causes the business cycle only inasmuch as it practices fractional reserve banking and inflates.
Examples abound. One good book would be The Panic of 1819, by Murray Rothbard. Very dry, but fully informative.
Every decent man is ashamed of the government he lives under - Mencken
gocrew:Yes it can happen. Austrians need to be clearer about something: it is fractional reserve banking that causes bubbles and the business cycle, not just a central bank.
False. "Austrians" said no such thing. It is an expansion in the money supply that "Austrian bubbles" require.
mikachusetts: Tulipmania happened without a central bank.
Tulips had a low supply and a high demand and this caused the price to go up, that was not realy a bubble in tulips that just looks like a bubble. While a monetary bubble or a central bank bubble is caused by an increase in the supply of money or the increase in availability of money. A price increase due to speculators and high demand and low supply is not the same type of bubble in my opinion.
The only way i can think of a economic bubble similar to one caused by a central bank, if we had a free market in currency and banking. Would be if a bank started offering loans at ridiculously low interest and relaxed loan terms. Many people might take out a loan and this might cause similar effects to what we call an economic bubble. But I am not sure exactly what effects that would have on a region.
John James,
Austrians say this all the time as a careless slip of the tongue. That is why they need to be clearer, because opponents will then point to the business cycle in the US when we had no central bank and claim that ABCT is nuts.
gocrew:Austrians say this all the time as a careless slip of the tongue. That is why they need to be clearer, because opponents will then point to the business cycle in the US when we had no central bank and claim that ABCT is nuts.
My point is you're being just as imprecise as those you are berating. You claim that the "real culprit" is fractional reserve banking, when in fact it is increases in the money supply that cause the bubbles. As mentioned above, you should look into French's work on Tulipmania, and in general Garrison's work on ABCT. (video lectures here).
The truth is there is nothing wrong with pointing to the Federal Reserve System as the main problem because (1) It is the main problem, as essentially the central expander of the money supply, (2) it is easier for people to understand, and gives them a specific entity to point a finger at and wage war against...it gives a named enemy, (unlike trying to wage a "war on fractional reserve banking" or a "war on terror"). (3) There is a case to be made for free banking.
The main focus should be on first eliminating any central governing authority and a monopoly fiat currency. (Much like Ron Paul talks about first cutting from the militarism and foreign "aid", which would help provide money for to tide people over in the dying, fraudulent programs here domestically. It is an argument of priorities.)
Jack Roberts: Tulips had a low supply and a high demand and this caused the price to go up, that was not realy a bubble in tulips that just looks like a bubble. While a monetary bubble or a central bank bubble is caused by an increase in the supply of money or the increase in availability of money. A price increase due to speculators and high demand and low supply is not the same type of bubble in my opinion. The only way i can think of a economic bubble similar to one caused by a central bank, if we had a free market in currency and banking. Would be if a bank started offering loans at ridiculously low interest and relaxed loan terms. Many people might take out a loan and this might cause similar effects to what we call an economic bubble. But I am not sure exactly what effects that would have on a region.
You're missing the point. Where did all the money necessary to bid up tulip bulbs come from? The bubbles are one in the same thing. Please see here.
Jack Roberts,
I'm not super knowledgeable about tulipmania, but Dough French says there was an increase in money supply which drove the speculation. That increase in money supply was not caused by a central bank, but rather the new law which allowed for individuals to turn there gold and silver bullion into coinage, ultimately flooding the market with more money than there was a demand for in a very short period of time.
The Fed Reserve is the main problem in the US right now. When and where there is no Fed Reserve, or no central bank, it will not be the problem. It is inaccurate to say that because, as I said, it gives our opponents ammunition they should not have.
Fractional Reserve banking is the problem. Not all increases in the money supply are malignant. Read Rothbard to discover why you are wrong on that count. Money supply increases due to FRB are the culprit.
gocrew: The Fed Reserve is the main problem in the US right now. When and where there is no Fed Reserve, or no central bank, it will not be the problem. It is inaccurate to say that because, as I said, it gives our opponents ammunition they should not have. Fractional Reserve banking is the problem. Not all increases in the money supply are malignant. Read Rothbard to discover why you are wrong on that count. Money supply increases due to FRB are the culprit.
It seems like you didn't read anything I said. (Let alone anything I suggested). Tulipmania is a perfect example of a case in the real world:
"the government policy did not expand the supply of money through fractional reserve banking which is the modern tool. Actually, it was quite the opposite. As kings throughout Europe debased their currencies, through clipping, sweating or by decree, the Dutch provided a sound money policy, which called for money to be backed one hundred per cent by specie."
Again, it is you who is being imprecise. No one said a central bank was necessary for the money supply to exand...the claim is simply that an expansion of the money supply is the driver of bubbles. And Tulipmania proves fractional reserve banking is also unnecessary for a bubble to occur. So you are just as wrong or incorrect or imprecise or whatever else you want to call someone who points the finger at the Federal Reserve. (..if not more wrong, as I said, it is the Federal Reserve System that is the current reason for all current banking policy...including fractional reserve banking).
Yes. Dutch Tulips (17th century).
You can have Austrian business cycles with or without central banks.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
John James:It seems like you didn't read anything I said.
Oh fantastic. I'm arguing with one of those people. I wish I had a dime for every time someone complained their opponent was not reading their post when in fact they are estopped from doing so.
John James:Again, it is you who is being imprecise. No one said a central bank was necessary for the money supply to exand...the claim is simply that an expansion of the money supply is the driver of bubbles. And Tulipmania proves fractional reserve banking is also unnecessary for a bubble to occur. So you are just as wrong or incorrect or imprecise or whatever else you want to call someone who points the finger at the Federal Reserve. (..if not more wrong, as I said, it is the Federal Reserve System that is the current reason for all current banking policy...including fractional reserve banking).
I'm going to explain this once, and then I'm done, because I swear to Christ I am sick to death of your kind of poster.
FRB causes the money supply to expand and causes the business cycle UNAVOIDABLY. All of our panics and depressions have been caused by FRB, but not always through a central bank. A central bank could, in theory, demand full reserves and therefore not cause a business cycle. Therefore, when I say that FRB causes the business cycle, I am correct. When an Austrian says that central banking causes, without explaining that it is because it practices FRB, he leaves himself open to apparent contradictory evidence. Believe me, I've seen it happen. What happens next is I have to correct the Austrian and then the Keynesian or whoever decides that we can't even agree among ourselves as to what our theory is and writes us off (granted, he may have done so anyway, but why give him an extra excuse?).
Furthermore, not all increases of the money supply cause a boom/bust cycle, so saying an increase of the money supply causes it, without qualification, is incorrect. For this reason, it is best to say that FRB causes it. If you go more in depth, you can acknowledge that other money supply increases could set of a boom, but that not all do.
And now I'm done with this.
gocrew:Oh fantastic. I'm arguing with one of those people. I wish I had a dime for every time someone complained their opponent was not reading their post when in fact they are estopped from doing so.
I am (or you are?) "estopped" from reading my posts? I don't even know what that is supposed to mean.
...not all increases of the money supply cause a boom/bust cycle, so saying an increase of the money supply causes it, without qualification, is incorrect. For this reason, it is best to say that FRB causes it.
So let me get this straight. Not all increases in the money supply cause a boom/bust cycle...but all instances FracRB do?...because FracRB increases the money supply?
I'm going to explain this once, and then I'm done, because I swear to Christ I am sick to death of your kind of poster. FRB causes the money supply to expand and causes the business cycle UNAVOIDABLY. All of our panics and depressions have been caused by FRB, but not always through a central bank. A central bank could, in theory, demand full reserves and therefore not cause a business cycle. Therefore, when I say that FRB causes the business cycle, I am correct. When an Austrian says that central banking causes, without explaining that it is because it practices FRB, he leaves himself open to apparent contradictory evidence. Believe me, I've seen it happen. What happens next is I have to correct the Austrian and then the Keynesian or whoever decides that we can't even agree among ourselves as to what our theory is and writes us off (granted, he may have done so anyway, but why give him an extra excuse?). Furthermore, not all increases of the money supply cause a boom/bust cycle, so saying an increase of the money supply causes it, without qualification, is incorrect. For this reason, it is best to say that FRB causes it. If you go more in depth, you can acknowledge that other money supply increases could set of a boom, but that not all do. And now I'm done with this.
Interesting you can go through all that and still not even address the fact I brought up that the bubble of Tulipmania occured without FracRB.