Archive for January 2009
Ludwig von Mises’ pioneering work The Theory of Money and Credit was published in 1912. In it, Mises integrated maroeconomics and microeconomics, presented an imperfect but sound theory of money, applied the principles of marginal utility to money, formulated his regression theorem and presented the first rendering of the Austrian Business Cycle Theory.
Unfortunately upon its’ publication the German language edition recieved a lack-lustre review from one John Maynard Keynes, then editor of the Cambridge Economic Journal:
He reviewed Mises’s book,giving it short shrift. The book, he wrote condescendingly, had “considerable merit” and was “enlightened,” and its author was definitely “widely read,” but Keynes expressed his disappointment that the book was neither “construc tive” nor “original” [Source (pdf, p. 11)]
That’s a pretty harsh review. But here’s the clincher: Keynes later admitted he was not proficient in German!
Keynes impishly admitted that “in German, I can only clearly understand what I already know—sothat new ideas are apt to be veiled from me by the difficulties of the language” [Source (pdf, p. 12)]
Almost a century later, and one U.C. Berkeley Professor named Bradford DeLong has just attempted his own critique of Money and Credit. Let’s see what he has to say about it:
My view is that Money and Credit is very readable–compulsively readable, in fact: I have just spent two and a half hours telling myself “it’s OK; I will just read one more page…”. But it is only readable in a rhetorical-excess-train-wreck mode, for it is also totally bats— insane.
I recommend starting at page 416: read through the defenses of the gold standard as the only monetary system consistent with representative government, the attacks on Keynes, the attacks on the New Deal, the attacks on the United Nations, the blaming of all unemployment on labor unions–or on governments–the attacks on private-sector fractional-reserve banking, and stop with the attacks on all other believers in the gold standard not named “von Mises”,… [Source]
And it goes on. If anyone is confused at the Keynes and New Deal references, DeLong was quoting from the 1944 addition to the book, not the 1912 original.
What’s more tragic is that when Robert P. Murphy was alerted to this post, he quickly reacted with a comment of his own. It was proptly deleted by Professor DeLong. One enterprising young man has gone on to pen a scathing, profanity-free response to the slander.
This incident, like countless others, exemplifies how opponents of sound economics often resort to slander, ad hominem and straw man arguments when they fail to argue against it with reason.
Tu Ne Cede Malis.
Found this economic propaganda piece lampooned on the LewRockwell blog:
Some thought exercises for the viewer:
1. Can real wages rise when the purchasing power of the dollar decreases and the “cost of living” increases.
2. Although the farmer was able to pay off his mortgage, how will consumers be affected by the rise in wheat prices? What will they do in response to the price increases?
Contrary to what the video might tell us, creating new pieces of paper have no miraculous healing powers for an economy. As Hoppe explains:
However, once a commodity has been established as a universal medium of exchange and the prices of all directly serviceable exchange goods are expressed in terms of units of this money (while the price of the money unit is its power to purchase an array of non-money goods), money no longer exercises any systematic influence on the division of labor, employment, and produced income. Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs.
But this means that any supply of money is optimal and, in that sense, that the supply of money is indifferent or “neutral” to the real processes of the economy. But, unfortunately, changes in the supply of money can have untoward and even devastating effects on the real processes of production.
Robert Heilbroner’s brilliant book The Worldly Philosophers devotes a single page to William Stanley Jevons, the 19th century economist whose claim to fame lies in his “sunspot theory” of the business cycle.
Jevons had analysed huge piles of economic and meterological data and discovered the periodicity of the business cycle (from boom to boom) was 10.46 years, while the periodicity of sunspots was 10.45 years. This was “too close to be accidental”, and as such Jevons had “explained” the business cycle.
Jevons argued that there was a connection between the timing of commercial crises and the solar cycle. The basic chain of events was that variations in sunspots affect the power of the sun’s rays, influencing the bountifulness of harvests and thus the price of corn which, in turn, affected business confidence and gave rise to commercial crises. (Source)
This anecdote would be funny if the economics world had learnt from this failed approach. But it hasn’t. The same failed methodology, pure empiricism still rears its ugly head. The prime example of this is the Phillips’ Curve.
Economist A. W. Phillips plotted the relationship between the rate of price inflation and unemployment in the United Kingdom between 1913 and 1948 and came up with this:
As we clearly see, there is an inverse relationship between the rate of inflation and unemployment. This discovery was a major rationale for central banks need to manage the money supply in order to keep this relationship in check.
But something happened in the 1970s. The relationship between unemplyment and price inflation severed. It became just a random cloud of dots!
But never fear, the economists managed to manipulate the data and “mutate” the curve to fit the data. Now the New Phillips Curve represents the relationship between expected inflation and unemplyment. Who needs a theory when you can make the evidence conform to whatever relationship you want?
So there it is. The folly of economic empiricism revealed once again. You cannot effectively examine any economic data without building a theory beforehand. Any attempt is bound to fail.
“Are we not the government?” In the phrase “we are the government,” the useful collective term “we” has enabled an ideological camouflage to be thrown over the naked exploitative reality of political life. For if we truly are the government, then anything a government does to an individual is not only just and not tyrannical; it is also “voluntary” on the part of the individual concerned. If the government has incurred a huge public debt which must be paid by taxing one group
on behalf of another, this reality of burden is conveniently obscured by blithely saying that “we owe it to ourselves” (but who are the “we” and who the “ourselves”?). If the government drafts a man, or even throws him into jail for dissident opinions, then he is only “doing it to himself” and therefore nothing improper has occurred. Under this reasoning, then, Jews murdered by the Nazi government were not murdered; they must have “committed suicide,” since they were the government (which was democratically chosen), and therefore anything the government did to them w as only voluntary on their part. But there is no way out of such grotesqueries for those supporters of government who see the State merely as a benevolent and voluntary agent of the public.
And so we must conclude that “we” are not the government; the government is not “us.”
Page 60, “For a New Liberty” by Murray N. Rothbard