Hello all. This is my first post at the Mises Forum.
In the last few month I've taken interest in Austrian economics. I'm just about fininshed with Robert Murphy's Lessons for the Young Economists. I've read Murphy's Politically Incorrect Guide to the Great Depression and the New Deal. I have also read Tom Woods' Meltdown. I also have many other books on my Kindle that I'm planning on reading (thanks to the Mises Institute for all the free ebooks they put out).
My question is this. I was looking at Ron Paul's book End the Fed, and stumbled across a review of the book at Amazon that I think would generate a good discussion. The (negative) review can be found here: http://www.amazon.com/gp/cdp/member-reviews/AK2NTWE7SB15W/ref=cm_pdp_rev_title_2?ie=UTF8&sort_by=MostRecentReview#R1USCOE7XR1EHP
The reviewer, K.S. Schaeffer, takes exception to many of the things Ron Paul writes. First starting with the view that it's not the Fed that is responsible for the boom-bust cycle, noting the recessions/depressions prior to the creation of the Fed in 1913. From there the reviewer numbers his disagreements with Ron Paul. I think all deserve attention, though some more so than others.
I'm curious as to how to best think through the reviewers' critique of some of the ideas Ron Pual wrote.
There were central banks and fractional reserve banking before the Fed.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Even without central banks or the discovery of new gold, etc. booms and busts are still possible but they will be milder and fewer in number.
'' The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.'' Stephen Hawking
Daniel, that's right. Though I'm thinking the reviewer was possibly being pedantic in that Ron Paul was placing all of the economic woes--inflation, recession, depression, and excessive debt--at the feet of the Fed. (Though I believe the quote he uses from Ron Paul wasn't a view in which Ron Pual was trying to say the Fed is the sole and only thing responsible for the aforementioned woes.)
The reviewer noted in his number 1 that there was a U.S. central bank prior to the Fed--which he called an early version of the Fed.
Who else inflates the US Dollar? The $150 million that was counterfeited in the movie Contraband (2012), starring Marky Mark, is peanuts compared to the trillions of dollars that the Fed prints every year.
Daniel, you're preaching to the choir. Though (my turn to be pedantic) technically speaking the Fed doesn't print money (the U.S. Treasury does that), rather it creates money--out of thin air. Robert P. Murphy explained this in a Mises article: http://mises.org/daily/5515
If you are a member of the choir, then you understand what I mean when I say that the Fed prints money.
Daniel, I know what you meant, though it's best to say that the Fed creates money than say it prints money. It cuts down on confusion for those we disagree with.
With regards to the reviewers point numbers 1-11, do you have anything of rebuttal? I know for point number 7 it's simply a reading mistake by the reviewer. Ron Paul didn't say there were New Deal programs that forced banks to make poor loans (though maybe there was?). What Ron Paul said is there were various programs, some starting with the New Deal that encouraged banks to make poor loans, then after the New Deal there were other programs that still further encouraged and some even forced banks to make bad loans.
Jarrett, welcome. The reviewer fails on basic (elementary school level) logic and understanding of economics. I'll take a stab...
One more thing to add to the point about central banking and money supply manipulation before the Fed...
Early Speculative Bubbles and Increases in the Supply of Money
http://wiki.mises.org/wiki/Financial_crisis#History
z1235, thanks for welcoming me to the Mises Forum.
Your reply is exactly what I was looking for. Superfically the reviewer makes some decent points. I know Rothbard has some works which deals with some of the recessions/depressions prior to the creation of the Fed. As noted in my previous post, the reviewer also adds on to what Ron Pual was trying to say. In doing so he misconstrues what Paul was actually saying.
Also, about the FDIC, the reviewer doesn't note the moral hazard that this brings about. The banks can now be more risky in their loans than they otherwise could be if there wasn't a guarantee on the depositors' money.
Oh yeah...Welcome to the forum!
You're definitely doing well in your studies and are much farther a long than most who find there way here. Even though you've read some of the good intro texts, I still highly recommend checking out this beginner post for good links and info for continuing your education.
For info on the forum, be sure and check out the newbie thread:
New member? READ THIS!
Another thing to note. The reviewer criticizes Ron Paul that he doesn't give any evidence that the Fed does things in secrecy (point number 2). I mean, even a good bit of the American population are saying the Fed needs to be audited. The Fed doesn't even tell Congress what all they are doing. So yes things are being done in secrecy.
Thanks John, I'll make sure to check out the beginner post.
Jarrett Cooper: Also, about the FDIC, the reviewer doesn't note the moral hazard that this brings about. The banks can now be more risky in their loans than they otherwise could be if there wasn't a guarantee on the depositors' money.
The moral hazard caused by FDIC is peanuts compared to the moral hazard caused by the Fed system. The latter is the core mechanism of wealth transfer (plunder). Please read Ed Griffin's "The Creature From Jekyll Island" to understand this crucial point better.
Here's a video of his lecture about the book. Highly recommended:
Welcome to the forum, Jarrett.
There are a relatively limited number of common fallacies about Austrian criticisms of central banking which have been being repeated for over a century and which you will run into again and again. I think z took that specific review to task quite well. I'll just give you a heads-up on the broad scope of things. Some of the common fallacies include:
There are many more but I think this will give you the highlights. Read Rothbard's The Mystery of Banking and The Case Against the Fed - these should be your starting points.
Clayton -
Even though End the Fed was interesting book it didn't have that much economic theory, so I'm not surprised that some people are calling these kind of critiques.
Hey, JC (if I may)! Welcome to a wonderful journey into the heartlessness of Austrian Economics! (technically, it is value-free)
I will take some of the points in the review and refute them and then present you with some nice links.
In the late 1800s, Paul's policies of a gold standard, minimal business regulation, no income tax, and no Federal Reserve were in place.
Careful with the "minimal business regulation" stuff in there. This is false. There was plenty of regulation. Furthermore, there was tons of other interference in the market (outside of regulation) in the form of subsidies/government policies that help business.
By beginning like this, the reviewer belies a basic misunderstanding of the Gilded Age. It's a nice fallacy to believe in that the Gilded Age was laissez-faire. In fact, it was not. While there were some free market aspects which helped to raise the US out of subsistence farming, the big robber barons were the ones who used government power.
Here are some articles to begin debunking the idea of the laissez-faire Gilded Age:
http://www.thefreemanonline.org/featured/the-gilded-age-a-modest-revision/
http://www.thefreemanonline.org/columns/tgif/no-laissez-faire-there/
http://www.thefreemanonline.org/departments/it-just-aint-so-5/
http://www.thefreemanonline.org/columns/the-robber-barons-and-the-real-gilded-age/
http://www.thefreemanonline.org/featured/the-many-monopolies/
That should get you started.
Next, debunk the idea of the evil Standard Oil monopoly: http://wiki.mises.org/wiki/Standard_Oil (I will soon expand on this article even more)
Afterwards, note that the popular example of meatpacking as market failure is no more than a myth: http://wiki.mises.org/wiki/Meat_packing
For more example of how government in fact was always helping big business, see Gabriel Kolko's The Triumph of Conservativism. (he's a socialist)
A nice quick article to read about Big Business loving regulation is this one: http://www.cato.org/research/articles/cpr28n4-1.html
Alright, now that we've got that down...
They often worked 96 hour weeks in dangerous conditions with hazardous substances (15,000 on-the-job deaths per year).
Yet they chose this voluntarily over the alternative - backbreaking farm labor. People need to snap out of the idea that the time before the Industrial Revolution was all ice cream and roses. No. Subsistence farming isn't cool. It's tough. Really tough. And dangerous. And you don't make much money or food. You need many children for it and these children need to get used to tough farm labor. This brings me to my next point,
Yet their children went hungry (many of them worked too).
The desperate workers often went on strike, despite government militias and company-hired killers frequently taking strikers' live
Ron Paul avoids addressing the sufferings of this era and fails to demonstrate how his policies will bring about a totally different result for the working class this time around.
A totally different result? Why would you want that? The Industrial Revolution was one of the most magnificent times in the history of man. It brought the people out of poverty by greatly increasing their productivity. This is merely propaganda he's repeating.
Looks like Dr. Paul missed the first day of his Econ 101 class. Inflation hurts the wealthy the most - i.e., a $100 million inheritance only buys $50 million worth of stuff 18 years later. On the other hand, those who earn too little to save (which is more than half the U.S. population) have no such concern, but will find a mortgage easier to pay as years go by. Of course, as usual, Paul fails to walk us through how his inverted view of reality actually plays out.
He neglects the fact that the rich (or more precisely, some of the rich) get gigantic loans before inflation kicks in. And remember, Paul says "middle class". The middle class is not "too poor to save." That's ridiculous.
Which New Deal 1930's programs forced banks to make such bad business decisions? Paul, as usual, fails to divulge. Apparently, he thinks if he makes something up, that makes it true.
Correct me if I'm wrong, but wouldn't that be http://en.wikipedia.org/wiki/Fannie_Mae ?
Paul hates all regulation, even anti-fraud regulation. He prefers that people be powerless against corporate predators - all in the name of "liberty."
I... don't think so...
No thanks, Ron. Let's keep our money safe with the FDIC.
a national plan to get through the famine
Uhm, sort of like the government destroying crops during the GD while people were starving?