Are Goldbugs Crazy?

Ever since the United States stopped converting gold into dollars at a fixed rate in 1973, a small but vocal minority of economists have championed a revival of the gold standard. Their Jerusalem is Austria. Their prophet is Ludwig von Mises. And their sacred text is The Road to Serfdom, the seminal work of von Mises' protege Friedrich Hayek.

These economists are referred to as "goldbugs," either affectionately or derisively depending upon which school of economics you subscribe to. Hayek's camp believes they espouse the truth. The camp of Hayek's English contemporary, John Maynard Keynes, thinks they're crazy -- thus the title of this column.

The issue that separates the two concerns how the international monetary and financial system should -- or for that matter, should not -- be governed.

Surveying the battlefield
It's not an exaggeration to say that Keynes is the most popular and widely followed economist in the Western world today. During his life, he advocated for an active governmental role in the economy. He believed that unfettered markets gravitate toward disequilibrium, inflicting unnecessary pain and suffering by means of unemployment. It was the government's job, therefore, to ease an economy back into place with monetary and fiscal tools.

On the international level, Keynes' theory manifested itself in the Bretton Woods Agreements of 1944, in which he played a central role. Under this system, the majority of world governments abandoned the gold standard and pegged their currencies to the U.S. dollar, which had emerged as the world's dominant currency following the war. The dollar, in turn, was convertible to gold at a rate of $35 per ounce. While countries could revalue their currencies vis-a-vis the dollar under certain conditions, most disequilibriums would be corrected by the newly established International Monetary Fund, a multinational organization headquartered conveniently in New York City.

This system represented everything Hayek struggled against. To him, governmental interference in the economy was anathema to efficiency and freedom. The Austrian economist advanced two basic ideas in The Road to Serfdom. The first was the notion that markets left to themselves were the best way to allocate resources efficiently. And the second was that a government's intrusion into the economy necessarily leads to dictatorship and oppression -- thus the title of his book. With respect to the latter, it's important to note that Hayek grew up in Austria during the reigns of Adolf Hitler and Joseph Stalin -- both of whom were ostensibly socialist dictators.

In terms of the international monetary system, Hayek's beliefs manifested themselves in the gold standard. Under this system, a country ties the value of its currency to physical gold reserves held by its central bank. If gold floods out due to sustained trade deficits, the currency supply contracts, which causes price deflation, and thereby encourages capital to return. And if gold floods in due to sustained trade surpluses, the currency supply expands, which causes price inflation, and thereby encourages capital holders to look elsewhere for cheaper goods. In this way, the system self-corrects without the governmental meddling.

Battle lines are drawn
Since the United States abandoned the gold standard and the Bretton Woods system in 1973, these camps have feverishly advanced their positions. On the defense are the quasi-incumbent Keynesians, who argue that a return to the classical gold standard would bring with it the scourge of deflation -- an impediment to prosperity and economic growth. On the offense are Hayek's followers, who see the government lurking behind all of our current economic woes.

So who's right? It turns out, both of them. Or perhaps a better way to put it is that each is a little right and a little wrong, as both offer advantages over the current system of monetary chaos and lawlessness.

Economists at the Bank of England explored the subject in a recent paper comparing the monetary regimes of the last century. As the following table shows, the Bretton Woods system averaged the highest annual world GDP growth, more than double the average growth experienced under the gold standard and 100 basis points better than the current system. In terms of inflation, however, the gold standard was leaps and bounds ahead of both the Bretton Woods and current regimes.

Monetary System

Average Annual World GDP Growth

Average Annual World Inflation

Gold Standard (1870-1913) 1.3% 0.6%
Bretton Woods (1948-1972) 2.8% 3.3%
Current (1972-present) 1.8% 4.8%

Source: Bank of England, Financial Stability Paper No. 13, "Reform of the International Monetary and Financial System" (PDF, Adobe Acrobat required).

Where these systems really shone, however, was when the authors looked at the incidence rate of monetary crises under each regime. Both the gold standard and the Bretton Woods system performed dramatically better than the current system. During the years Bretton Woods was in place, there was an average of 0.1 banking crises per year. Since 1972, there have been an average of 2.6. And the same can be said about currency crises. During the gold standard's reign, there were 0.6 currency crises per year, compared to 3.7 a year since 1972. Indeed, as you can see in the table below, the current system performs the worst across the board.

Monetary System

Banking Crises per Year

Currency Crises per Year

External Defaults per Year

Gold Standard (1870-1913) 1.3 0.6 0.9
Bretton Woods (1948-1972) 0.1 1.7 0.7
Current (1972-present) 2.6 3.7 1.3

Source: Bank of England, Financial Stability Paper No. 13, "Reform of the International Monetary and Financial System."

Goldbugs aren't crazy after all
If the Bank of England's study is legitimate, and I suspect it is, then the only thing we know for sure is that the current international monetary system is broken. Beyond that, one could argue to his or her heart's content that Keynes' Bretton Woods system was better than Hayek's gold standard. But at the end of the day, both have identifiable strengths and weaknesses. Thus the debate will wage on. At least this time, when you're a part of it, you can bring some cold, hard facts to the table.

Gold beyond the gold standard
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  • Report this Comment On January 24, 2012, at 3:59 PM, EGTalbot wrote:

    I'm sure the study is accurate insofar as it is examining historical evidence. I'm not so sure that what applied a hundred years ago applied fifty years ago and what applied then applies today, though. In an era where a trillion shares of stock can be traded in a day, and the vast majority of financial activity wouldn't even have been possible without computers, I'm don;t think this kind of study should carry very much weight.

    The problem that to a large extent gets ignored is that either school will eventually lead to failure. There's a little thing called human nature that will cause it. Create the govt control Keynes sought, and you do tend to get Big Brother. Create the unfettered markets that Hayek worshipped, and not only do you not get efficient allocation of resources, the system destroys itself with a variety of basic Econ 101 predictable results.

    I think the study is correct that the mishmash we have now is less efficient than either one in theory. The keynes people would argue that we've abdicated the responsibility of government and that's why things have failed, and the Hayek people would argue that we still have too much regulation and too much interference with the currency and that's why we do.

    Ultimately the problem is people. People corrupt any system, because individual persons tend towards both a lack of efficiency and a lack of freedom. The vast majority of us want things "our way," not some other guy's way and not some theoretical efficient idea. And people are more clever than any system can completely account for.

    The founders recognized this, and they created checks and balances. Even those checks and balances don't work all the time, but their intent is to get at the heart of the problem. Most economic systems lack sufficient checks and balances on people trying to game the system. Certainly both Keynes and Hayek's systems lack these. And so they fail.

  • Report this Comment On January 24, 2012, at 4:14 PM, seattle1115 wrote:

    Of all the things that bother me about Austrian School devotees, I think the one that most gets under my skin is their insistence on redefining every economic measure. Real inflation - as redefined by the Austrians - is always much greater than anyone else's measure. Real unemployment is much higher even than U6. Real economic growth is several points lower than conventionally measured, and in fact is often negative when all the reports are to the contrary. Ultimately, their argument requires that the listener look around at all the improvements to our quality of life over the past century - the reduced number of people worldwide starving to death, the rise of the middle class in America, in Europe, and now in developing economies like China and India, the fabulous riches acquired by the truly wealthy - and conclude that none of it is real.

  • Report this Comment On January 24, 2012, at 4:50 PM, EGTalbot wrote:

    Well said, Seattle1115!

  • Report this Comment On January 24, 2012, at 5:42 PM, xetn wrote:

    seattle1115: That is complete nonsense. It is the government that originally defined the parameters for each of those metrics and it is the government that keeps changing their definitions. The ones the Austrians (and in particular Shadowstats.com) uses are the original definitions.

    As for the problems with gold or any currency for that matter is anytime they are controlled by government, you can bet that problems will ensue. Currencies, and in particular gold and banking, should be based on free markets and let the consumers decide which should prevail and which should fail.

    As it is, we have a market, currency, interest rates, and practically everything else managed by the Fed (or every central bank in the world) and their respective governments. These regulations favor the banks, but corporations and the government. They do not favor the consumer or the individual. It is called Socialism, or Fascism or in its worst case communism. What ever it is called, the results are about the same.

  • Report this Comment On January 24, 2012, at 8:10 PM, gkirkmf wrote:

    A different kind of economic education tool....

    I want the Earth plus 5% (in 5 parts - this is the first)

    Search for it on youtube or start it with this link.

    http://www.youtube.com/watch?v=no0Y0RVrWFM

  • Report this Comment On January 24, 2012, at 8:18 PM, CaptainWidget wrote:

    Why did they measure the worldwide GDP increase and not individual countries? The period of the greatest expansion in GDP and commensurate prosperity in the history of mankind was 1860ish to 1900ish America with a whopping GDP growth rate of over 6% per annum. At the same time the rest of the world was dirt poor with no hopes or aspiration of development. The industrial age didn't reach the majority of the world until the 20th century. So why lump everyone together?

    Was it all because of the gold standard? Of course not, but sound money had a lot to do with American's success during the Gilded Age. I will never understand the level of delusion it takes to truly believe that having a weaker currency is better for a nation.....

  • Report this Comment On January 24, 2012, at 9:40 PM, MellowGuy1 wrote:

    There's not enough gold to back up the world's currencies.

    Adam Smith and other economists have realized that gold is not a good way to store wealth, but instead it's best to turn wealth into productive assets.

    Gold has been a good measure of value being well matched to the price of everything else.

    So, countries should buy and sell gold in a manner to keep their currencies relatively stable instead of absolutely stable.

  • Report this Comment On January 24, 2012, at 10:45 PM, CaptainWidget wrote:

    <<There's not enough gold to back up the world's currencies.>>

    Not at current price or liquidity levels...but I think that's the point. The quantity of money has increased much faster than the quantity of gold production, meaning that gold's purchasing power has maintained much better than fiat currencies.

    But I agree in theory, a strict 1 to 1 gold standard isn't necessary or even desirable. However having a currency that is backed by something that is tangibly valuable is. It doesn't need to be gold, and it could be fractional. But without tangible assets the propensity will always be to print more money.

  • Report this Comment On January 24, 2012, at 11:24 PM, DRTAXSACTO wrote:

    As an economist who leans toward the Hayek view of the world there are some odd comments here. In 1953 Hayek wrote a book which should be read by more people - called the Counterrevolution of Science - he warned that the dangers of Keynesian theory was that its adherents would believe that the numbers they used to justify their policies were actually real. He also warned, as one of the commenters suggested, that if the numbers did not come out correctly, that they would "adjust." A good example is the labor market participation data which DOL has adjusted a couple of times in the last couple of years.

    At the same time, Hayek sometimes underestimated the ability of producers to try to manipulate the system. He argued (I think correctly) that government regulation often creates more problems than it solves. Good example was the behavior of the GSEs in the mortgage crisis. Public choice economists correctly identified that political decisions are not under the same constraints for preference revelation that markets require.

  • Report this Comment On January 24, 2012, at 11:29 PM, Chontichajim wrote:

    Based on the simple premise that gold flows in and out of countries based on the combination of trade surpluses/deficits and the value of each currency to an ounce of gold doesn't that require a gold standard to be international and not just followed by a single country?

    The part of the equation that makes me view gold standard proponents as crazy is that they propose it for the United States unilaterally. That seems to mean we would bleed gold to China and any other country we had trade imbalances with, but even if those imbalances were self correcting, gold would never flow back in our direction since our trading partners would still use fiat currencies.

  • Report this Comment On January 24, 2012, at 11:31 PM, ETFsRule wrote:

    xetn: Please enlighten us. What are these "original" definitions that you speak of? And why do you put so much faith in Shadowstats' estimates of inflation, considering their utter lack of explanation or transparency?

  • Report this Comment On January 25, 2012, at 12:16 AM, ETFsRule wrote:

    "I will never understand the level of delusion it takes to truly believe that having a weaker currency is better for a nation....."

    And I will never understand the level of delusion it takes to truly believe that having a stronger currency is better for a nation.....

  • Report this Comment On January 25, 2012, at 5:58 AM, dbtheonly wrote:

    ETFsRule,

    I think you're looking at it the wrong way. You are viewing the issue as one of economics; instead view it as a religion. it makes much more sense.

    The "hyper-inflation" arguments used since at least the early 1980s are explicable as having the same focus & consistency as the "Armageddon" prophesies.

    The original writings become their own substantiation and justification & establish a self-contained consistent philosophy. I remember the Poster on this site who proudly cited Ron Paul polling information to show that Paul was widely popular and not anathema among minorities.

    Evidence is adduced in accordance to the "holy writ" and arguments to the contrary are ignored or explained away. Just as an example, the BOE cites a rise in "Currency Crises"; ignoring the fact that since WWII there has been an explosion of the number of countries & thus currencies in existence. Not caring enough to count, but I'd guess, that prior to WWI; there were less that two dozen currencies in existence.

    I'd suggest you treat them just as you'd treat any other religious fanatic.I see you trying to use logic & that simply doesn't work in a religious forum.

  • Report this Comment On January 25, 2012, at 11:31 AM, DJDynamicNC wrote:

    If your argument is "would a gold standard be sufficient for managing an economy operating at 1890's complexity" then sure.

    If, however, your argument is - as it appears to be - "a gold standard was good enough for the 1890s provided you only look at inflation and don't look at employment, and it should therefore translate equally well into a complex modern economy," I think you've yet to prove your case.

    There's no such thing as a free market. The economy is going to be regulated - the only question is whether the regulation is performed by inefficient government agencies indirectly accountable to the people, or efficient corporate entities in NO way accountable to ANYBODY but themselves and the markets they are then free to dominate.

    The thing about fiat currency is that the individual units are only worth whatever somebody will pay you for them. Contrast this with gold, which is worth precisely... whatever somebody will pay you for it.

    @Seattle - I wish I had saved the links, but I have concrete examples of quotes from some of the Austrians on this site completely redefining such basic terms as "default" in order to make their arguments. As I said at the time, if you have to adjust the evidence rather than adjusting your views, there's a problem.

    @xetn - see what I just said to Seattle; I've actually watched this process unfold where terms are redefined on the fly to suit whatever argument was at hand. I see the same process all the time when debating creationists.

    @CaptainWidget - I'd be open to discussion about some sort of commodities backing for world currency. I don't think the notion is without value and it's a debate worth having.

  • Report this Comment On January 25, 2012, at 11:55 AM, DJDynamicNC wrote:

    @Chontichajim - that's a very good point.

    @DBtheonly - the comparison between full-fledged Austrianism and religion is well made.

    Austrian economics is not without value, just as certain traits of religion have their redeeming values. But the underlying premise is frighteningly similar to faith. You'll find that Austrians are never content to simply make contributions to economic understanding, but instead must constantly advocate for a complete "regime change" - theirs is a transformational and, as you noted, frequently apocolyptic belief structure. Praxeology explicitly rejects empirical evidence, stating that the economy is too subjective to be measured in such a way and thus should be understood using logical "first principles" as revealed to... uh, derived by the original Austrians - but then they cite statistics (whether redefined or not) and claim that predictions their adherents made then came to pass. Since they reject empirical evidence, that means either one of two things - they are dressing their praxeological claims in the trappings of science, in much the same manner as Christian or Muslim creationists will dress their beliefs up to look scientific because they recognize the authority that proper empirical science conveys, OR they are referencing these predictions in the same way that zealots refer to prophecies which have come to pass.

    Either way, the religious overtones are hard to ignore.

    It's fascinating to me, because a lot of REALLY SMART people are Austrians; I think it's the same situation as Christian apologetics, where you get some really sharp minds which are just that much better at rationalizing.

  • Report this Comment On January 25, 2012, at 11:59 AM, seattle1115 wrote:

    @dbtheonly: "I think you're looking at it the wrong way. You are viewing the issue as one of economics; instead view it as a religion. it makes much more sense."

    Exactly this.

  • Report this Comment On January 25, 2012, at 12:21 PM, AvianFlu wrote:

    As the cliche goes, the definition of insane is doing the same thing over and over again and expecting the same results. By this definition the followers of Keynes are the crazy ones.

    By the way, Seattle1115, the ones who keep redefining inflation are the government officials. They changed the formulas in 1980, about 1990, and they are trying to get a new inflation calculation accepted right now! Since the inflation figure is used in calculating GDP, then this is affected also.

    I am not for a gold standard. Although it makes sense to either be more prudent in the rate of increase of money supply, or possibly link to some basket of commodities or single commodity.

  • Report this Comment On January 25, 2012, at 3:28 PM, DJDynamicNC wrote:

    @Avian - what exactly do you mean by "more prudent"?

    The Federal Reserve has a dual mandate, to deal with inflation and unemployment. We've had inflation thoroughly under control for some time. Unemployment, on the other hand, remains at crisis levels. The arsenal for dealing with inflation is fully armed, with interest rates literally at zero percent, so it seems clear that the Fed should be pursuing a policy geared towards ramping up employment, even at the increased risk of inflation and even in the event of the realization of that risk, within reason.

  • Report this Comment On January 25, 2012, at 9:52 PM, CaptainWidget wrote:

    <<And I will never understand the level of delusion it takes to truly believe that having a stronger currency is better for a nation.....>>

    Right, look how great it worked for Zimbabwae, their exports are ultra competitive on the world scene.....

    Give me a break. Weakening currencies mean that every citizen is getting progressively poorer as time goes on, regardless of their level of productive activity. This not only discourages production (why work hard when you only continue to stay poor) but it makes it impossible to trade with anyone on the world scene. Low levels of productivity mean crappy products that no one is willing to buy, and insufficient purchasing power means that no one is willing to sell to you.

    If the US dollar were infinitely strong, no one in the US would ever have to work again. You could outsource all your material needs to someone in China for a single penny you found in your couch. On the other hand, if I REALLY wanted to work, I could sell my assets to other Americans in exchange for their infinitely valuable dollars, since we have equal purchasing power.

    On the other hand an infinitely weak dollar would mean we could never buy anything from any other nation ever again. Our lack of purchasing power would prevent me being a purchaser of any goods made out of the US. Those other nations would also have little interest in trading their valuable dollars for cheap American goods simply because the quality of goods developed by a nation is directly in line with their levels of productivity and prosperity. Without a strong currency to facilitate international trade of goods and talent, it would be impossible for us to make quality products (yes China, I'm talking about you). With an infinitely weak dollar we would have no way to purchase all the copper, oil, silicon, and engineers that are so important to manufacturing good products. Without good products, we have no exports.

    If having a weaker dollar is an important goal for our economy, we could achieve that in about a week. Print up a few trillion dollar notes and everyone will be richer...amirite???

  • Report this Comment On January 25, 2012, at 10:19 PM, whereaminow wrote:

    Hello gentlemen. You knew I'd be here eventually =D. Let's start with the article itself. Then I'm going to address some of the comments, particularly those by individuals who are either completely dishonest or incapable of remembering things they've previously admitted (ETFsRule, I'm looking at you.)

    We could have re-titled this article "Are People Who Want to Print UP Paper Money and Shovel it to Special Interests Crazy?" Because that's what a central bank. Last time I checked, no average citizen got a package in the mail containing crisply printed $100 bills and a note of explanation from the Federal Reserve. When money gets created by the Fed, it is given to someone. That someone is a special interest. That's why they're called Special Interests and not Average Interests.

    Of course, we could eschew all that and have a peaceful and reasonable discussion by being fair to both positions. It's rather simple. Keynesians want a top-down approach. Hayekians want a bottom-up approach. Keynesians want plans by the few - a central authority that makes the most important decisions. Hayekians want plans by the many - with the important decisions decided through market processes.

    Painted in this way, neither party to this debate seems crazy at all. Or religious...

    Yes, yes, call them religious and then you don't have to deal with the theory. But this writer can't help himself and so he refers to Road to Serfdom as a "sacred text," Subtle, but overly so, since the writer isn't THAT clever, after all.

    There is no sacred text to the Austrian School of Economics. And I can assure you this, it wouldn't be Road to Serfdom, since that isn't even an economic treatise. It's a political tome. Right there, you know the author is ignorant of actual Austrian School theory. He heard that Glenn Beck talked about Road to Serfdom, ipso facto it's the Sacred Text. ROFL, whatever.

    Even if you want to go with Hayek, you could have at least pulled out "Prices and Production" or "The Pure Theory of Capital." If you had ever heard of them. I'll bet $20 you hadn't.

    The Law of gold movement you describe doesn't even belong to Hayek. That is a real phenomenon that every classical economist was familiar with. It's called the Price-Specie Flow Mechanism. Hayek didn't invent it. It's an Economic Law. He merely did what every economist for 200 years had done - he studied it.

    So we have a case here where you are feigning to present both sides of the story, but you don't know Hayek's story at all (just his "Sacred Text" ROFL). You could attempt to learn The Austrian Theory of the Business Cycle, but that's like asking you learn brain surgery overnight. You are probably not smart enough to do that. I've noticed that the commenters here still can't get it even though I've explained in the simplest terms over and over again. Yet if I ask them to give me a short paragraph describing the theory, they'll get it wrong. Every time.

    Finally, you present GDP without an explanation of what GDP is. Many people simply don't know. It counts Government Spending as a wealth adding event. Now even if you are a Keynesian, to be fair you would at least have to admit that there is no consensus that this view is correct. Or are you going to tell me that anyone who doesn't believe it is a religious nut that reads sacred texts? Hmmm, I wonder.

    GDP is the net of all goods produced (sort of, with caveats) measured in money. Of course if you create more money, the prices of those goods in the long run will rise ceteris paribus. This is another Economic Law. Therefore, under any system where more money is created, ceteris paribus, GDP will be higher. Hmmm, so is GDP really a good representation of economic growth?

    I know of no economist who claims that the Gilded Age in America had lower growth rates in the standard of living than Bretton Woods. They may whine about wealth inequality (cuz Keynesians really nipped that in the bud!) or some other nonsense, but they don't claim, that the Gilded Age saw a smaller rise in the standard of living.

    If that's the case what are we really measuring with GDP? If it's not measuring increases in the standard of living, what is it doing? It's measuring the price level. That's all.

    My advice to you. Step up to the debate. Don't cower. When you make references to "Sacred Texts" you do so in order to make it easy to dismiss the actual theory. Learn Austrian Business Cycle Theory. Take your shot, big guy. Let's find out if you're as smart as you think you are.

    David in LIberty

  • Report this Comment On January 25, 2012, at 10:35 PM, whereaminow wrote:

    Oh, and the United States went off the Gold Coin Standard in 1933 and replaced it with an irredeemable Gold Exchange Standard (which of course, isn't a gold standard at all).

    Another note: the Bretton Woods Agreement wasn't Keynes' plan. It was a compromise between Keynes and the American Harry Dexter White. White, btw, was eventually found to be a Communist spy when the Kremlin released the Venona Papers.

    http://en.wikipedia.org/wiki/Harry_Dexter_White

    David in Liberty

  • Report this Comment On January 25, 2012, at 10:50 PM, whereaminow wrote:

    seattle1115 wrote:

    ------------> Of all the things that bother me about Austrian School devotees, I think the one that most gets under my skin is their insistence on redefining every economic measure. <---------------

    Well nothing gets under my skin like a person that is willing to display their complete ignorance of economic history in a comment.

    The actual definition of inflation throughout history is not an economic measure at all. Since at least 1371, when Nicole Oresme published "Treatise on the Alterations of Money" up until WWII, inflation was defined as an Economic Law that "overissue of currency" was inflation. In other words, everything the Federal Reserve was created to do. It was understood that prices rise as a RESULT of inflation - the printing of excess currency.

    So no, Austrians didn't redefine any measures. Nor did John Williams at Shadow Stats. He simply uses the methods of government statisticians to define the change in price level before they changed it. You can argue back and forth all day whether they were more right the first, second, third, fouth, etc.... time they tried to pinpoint the price level. It's a nonsense argument. A price level is a statistical construct and has no bearing on economic theory.

    Prices move in every direction for millions of goods. There is no static price level. There is no optimal price level. That is the Austrian view.

    Don't you feel foolish now? The Austrians certainly aren't redefining the government's statistical measures. They don't believe those measures have any meaning to begin with or that this is the proper way to do economic science.

    Now, your turn. Call me a religious nut. Get it over with. That way you won't have to address any actual Austrian School theory.

    David in Liberty

  • Report this Comment On January 25, 2012, at 10:53 PM, whereaminow wrote:

    DJDynamicNC wrote:

    ---->Austrian economics is not without value, just as certain traits of religion have their redeeming values. But the underlying premise is frighteningly similar to faith.<-----

    See how easy that was? Now DJ can excuse himself from actually learning the Austrian School position. It's a religion. His intellectual integrity remains intact.

    David in Liberty

  • Report this Comment On January 25, 2012, at 11:01 PM, whereaminow wrote:

    ETFsRule wrote,

    ----------> And I will never understand the level of delusion it takes to truly believe that having a stronger currency is better for a nation.....<------

    And I could call it a delusion to believe that a weaker currency is better for a nation. Which is it?

    But you don't actually understand what is being advocated. Economics is a value free science. The Austrian School analyzes your plans, and then sadly remarks that your plans will fail. That's all it does. You don't have to like it. But they're not advocating that you be replaced with someone else and their plans ("Regime Change" as DJ Dynamic hysterically referred to it.)

    It's not the job of an economist to decide what is "better for a nation." Better is a value term that is based on what YOU believe to be better. Some people believe that having material things are better. Some people believe that wealth equality is better. Some people believe that technology is good. Some think it's bad.

    You tell the economist what you want, not the other way around. The Austrian School determines that if you want sustained prosperity, a free market in all things (including money) is the best way to achieve it. If the nation doesn't want that, I don't recall Ludwig and Murray storming the capital to impose regime change. They sighed, tried to convince you otherwise and moved on.

    The most important thing the Austrian School is telling you, you can't grasp. That is, if you want to end these horrible busts, you have to understand that it is the boom that is the problem. And that all booms, even the Tulip Bubble, are caused by the excess issue of credit.

    Now, if you don't want to learn that - if you don't want to listen, fine. But stop pretending to understand a theory that you spent 18 seconds studying and can't represent properly.

    David in Liberty

  • Report this Comment On January 25, 2012, at 11:24 PM, whereaminow wrote:

    Ok now let's deal with the most ignorant comment in the thread. And since the bar was set pretty high, that's saying something. I can't for the life of me understand what possesses people to write seven paragraphs on a topic they clearly know nothing about:

    On January 25, 2012, at 11:31 AM, DJDynamicNC wrote:

    -----> If your argument is "would a gold standard be sufficient for managing an economy operating at 1890's complexity" then sure.<-----

    You don't MANAGE an economy under a gold standard. OMG, DJ we have been over and over and over this. Why is this so hard for you to understand? The gold standard is not economic management. It is a receipt for real private property. When you check your coat at the night club and they hand you a ticket, is that? It's a receipt for private property. That's how a gold standard works. You own gold. You exchange it for receipts for that gold. This isn't rocket science. That's what a dollar is. It's a receipt for private property. It's origin is the word Thaler which was a respected coin that was rarely debased.

    Without the property underlying it, the word dollar is meaningless. That's what Ron Paul is getting at when he asks Ben to define a dollar, and why Bernanke has so much trouble answering. It has no meaning and no definition anymore.

    If you want to manage an economy, you don't understand what an economy is. Again, we've been over this. Prices come from the exchange of goods and services based on the individual subjective value scales of market participants.

    This stuff isn't hard. I don't know why you can't get it.

    As for complexity, the market handles complexity pretty darn well. How many iPhone apps have you downloaded this week? How do countries that REALLY manage their economies handle that complexity? North Korea and Cuba, boy, those two countries are rocking it aren't they? The Soviet Union, man they had that complexity managed so well.......

    Or was it because they just had the WRONG managers? If we just put the right ones in with the right ideologies, they'll get it.

    That's called technocracy and it's been tried over and over and over again. It's anti capitalist fallacy. Technocrats can't ever know what the right price of ANYTHING should be (even the price of money - the interest rate), because where do prices come from, DJ?

    ------> If, however, your argument is - as it appears to be - "a gold standard was good enough for the 1890s provided you only look at inflation and don't look at employment, and it should therefore translate equally well into a complex modern economy," I think you've yet to prove your case.

    There's no such thing as a free market. The economy is going to be regulated - the only question is whether the regulation is performed by inefficient government agencies indirectly accountable to the people, or efficient corporate entities in NO way accountable to ANYBODY but themselves and the markets they are then free to dominate. <---------------

    Yes the free market, if it existed is evil. That's why it goes out and slaughters people by the millions and starts war after war. Oh wait, that's government. My bad.

    The free market is the sum of all voluntary transactions at any given time. It's true that no "country" has ever had a completely free market. Government is the negation of liberty. Hence, there can't be complete freedom if a government exists.

    But moving beyond this third grade analysis, we find that you can have a market with many interventions and other markets with few interventions. Any person with a functioning brain can see that one market is freer than the other. Is that beyond your capabilities, DJ? I hope not.

    ---------> The thing about fiat currency is that the individual units are only worth whatever somebody will pay you for them. Contrast this with gold, which is worth precisely... whatever somebody will pay you for it. <-----

    You're trying to be clever, but again you haven't studied enough. Fiat concerns are accepted by the market involuntarily. Hence, it's not an economic decision based on "worth" alone, in an economic sense. It's the Hut Tax factor. You see, when the British were colonizing Africa they had a problem. They couldn't get the Africans to use British money. So they enacted a Hut Tax. A tax to live in your hut... your hut you built years before you even knew what a Brit was.... (I bet they called it a social contract too!) By forcing the Africans to pay the hut tax (at the point of a gun of course) in English money, they raised the "worth" of English money on the value scales of Africans.

    I think that's rather ghoulish behavior. You think it's conventional wisdom and anyone who doesn't accept it must be a religious wacko! Ok, DJ.

    ------> @Seattle - I wish I had saved the links, but I have concrete examples of quotes from some of the Austrians on this site completely redefining such basic terms as "default" in order to make their arguments. As I said at the time, if you have to adjust the evidence rather than adjusting your views, there's a problem.<------

    Oh I'm sure you know the original economic term of default dating back to the Bank of Medici too!

    ----> @xetn - see what I just said to Seattle; I've actually watched this process unfold where terms are redefined on the fly to suit whatever argument was at hand. I see the same process all the time when debating creationists. <----

    Yes, yes, compare us to creationists even though there is no religious consensus among Austrians, and even though Atheists were the dominant part of the libertarian party (and still maintain a large membership) before its popularity grew.

    In other words, you're so unbelievably ignorant it's incredible. What else you got?

    ----> @CaptainWidget - I'd be open to discussion about some sort of commodities backing for world currency. I don't think the notion is without value and it's a debate worth having. <----

    Ok, you're open to discussion. After you've called our School a religion, compared us to creationists, and claimed that you know all the original definitions of all economic terms even though you have no knowledge of economic history prior to General Theory.

    Well I'm just jumping over myself to have that discussion with you!

    David in Liberty

  • Report this Comment On January 26, 2012, at 12:25 AM, whereaminow wrote:

    Finally, I'd like to point out, in reference to the idea that in the free market corporations are only beholden to themselves, one little tidbit...

    Let's say that this is true. Let's give Elizabeth Warren and DJ Dynamic and devoish the benefit of the doubt. In a free market, corporations are only beholden to the themselves.

    So one would assume then, that in an economy with a large amount of laissez faire, few companies would ever fail. Without government "stopping their evil" they could continue on forever, bilking the poor downtrodden workers, and enslaving the noble little 12 year old girsl in their salt mines!

    Oh my!

    But then, why is it.... that in the 70 years of the Soviet Union, when the economy was so completely managed that one couldn't even call it an economy anymore, when all capitalists were expropriated and no corporation was beholden to themselves....

    that not a single firm failed.

    By 1988, not a single USSR market entity (whatever sick nightmare thing it was) had ever closed for business.

    Yet in America, businesses fail all the time. And they failed under conditions of a great deal of laissez faire for 200 years.

    How is that? When these American businesses, when left to their own devices, are only beholden to themselves?

    Hmmm....

    David in Liberty

  • Report this Comment On January 26, 2012, at 4:45 AM, CaptainWidget wrote:

    Wow...David just owned this mofo......

  • Report this Comment On January 26, 2012, at 9:40 AM, whereaminow wrote:

    CaptainWidget,

    I would just ONCE like to see the opponents of the Austrian School correctly explain the Austrian School theories they claim to be oppose. I would like to see it done once without using the condescending religious overtones and zero instances of words like "faith" and "devotion", etc.

    They can't do it.

    They're just not smart enough because they don't study hard enough. They took one class on economics in college and think they have this thing all figured out. 'Why study Austrian Business Cycle Theory,' they think? If Professor Pony Tail at Liberal Arts U. didn't teach me it, then it must be the sacred text of religious wackos!

    So anyone who actually does study something foreign to them and Professor Pony Tail must be reading religious texts, since he can't actually be studying economics. Never mind the Scholastics and Physiocrats and Austrians and the Currency School. They don't exist. They have no value. Only Keynes and Samuelson matter. All else is religion. Case closed.

    But it's whatever. Because of their ignorance and absolute refusal to learn a theory - even for the opportunity of defeating it - all they have are thinly veiled insults. They can't defeat the theories because they don't even know what they are. Stupid is as stupid does.

    David in Liberty

  • Report this Comment On January 26, 2012, at 11:09 AM, ETFsRule wrote:

    "So no, Austrians didn't redefine any measures. Nor did John Williams at Shadow Stats. He simply uses the methods of government statisticians to define the change in price level before they changed it."

    No he doesn't. You're giving him credit for something that he simply isn't doing. Shadowstats is nothing more than his "estimate" of how inflation might have been previously calculated.

    If he would show us the raw data that he uses, and show us his calculation methods, then his numbers might be meaningful, and it would be worthwhile to compare them with "official" gov't numbers that used those same methods. But that is not the case.

    His numbers come from a black box: for all we know he is just making them up from thin air.

    But, the so-called "skeptics" never call him out on this - revealing themselves to be fraudulent skeptics.

    "ETFsRule wrote,

    ----------> And I will never understand the level of delusion it takes to truly believe that having a stronger currency is better for a nation.....<------

    And I could call it a delusion to believe that a weaker currency is better for a nation. Which is it?"

    I simply copied what the previous poster had said, and substituted 1 word. That's it. If he is going to claim that strong currency is a good thing, without providing any basis for that position, then I'll do the same thing to show him the uselessness of his post. That's all I was doing. I honestly don't care about weak or strong currency. It's not very important either way.

    "The most important thing the Austrian School is telling you, you can't grasp. That is, if you want to end these horrible busts, you have to understand that it is the boom that is the problem. And that all booms, even the Tulip Bubble, are caused by the excess issue of credit."

    If that's the case, then why don't you prove to me, using data, that excess credit is the cause of booms? You have even said yourself that you can prove correlation but not causation. So you have no way of knowing whether your position is correct.

    In fact, you don't even have correlation. Friedman has already disproven Austrian business cycle theory. He crunched the numbers and showed that there is no correlation between the size of a boom and the size of the bust that followed it. Bigger booms do not lead to bigger busts. So, the Austrians may be good with rhetoric, but the facts simply are not on their side. That's why, in all your rambling, you didn't spend any time discussing little things like "facts" or "data".

    Oh, and "Professor Pony Tail at Liberal Arts U"? Good line... I wonder if you got that one from Sarah Palin, George W Bush, or Rick Perry. Those goshdarn liberals with their books and their ponytails.

  • Report this Comment On January 26, 2012, at 11:26 AM, whereaminow wrote:

    ETFsRule,

    -----------> No he doesn't. You're giving him credit for something that he simply isn't doing. Shadowstats is nothing more than his "estimate" of how inflation might have been previously calculated. <---------------

    And I'll let you tear your hair out trying to figure out whether or not John Williams is correct on how it was previously calculated. Go back and compare his results versus the results for previous government reports. Have fun with that. If that puts wind in your sails, so be it.

    John Williams does interesting work and I look at it every now and then. He's the 350th or so most influential person to me in the economics field. Have at him. He's not an Austrian School economist. He's a businessman and fellow traveler in free market theory that provides a service that many Austrian School readers find useful.

    ----> Friedman has already disproven Austrian business cycle theory. He crunched the numbers and showed that there is no correlation between the size of a boom and the size of the bust that followed it. Bigger booms do not lead to bigger busts. <----

    Again, total nonsense. Neither you nor Milton Friedman know what is being discussed here. Friedman was so ignorant on matters of money he pronounced that it was the dollar holding up the price of gold, not the other way around. He predicted that after the gold standard was completely severed in 1971 that gold would drop to $10/oz or its industrial use value. Whoops!

    Friedman didn't even know what to look at when analyzing the data. If you want proof, with historical data, read Rothbard's "Panic of 1819" and "America's Great Depression", both of which contain mountains of data, particularly the latter which support the Austrian School view.

    And of course, you and I have been over and over and over on this but you are too dim witted to get it. Nothing in economics can be proven or dis-proven through the presentation of data alone. You know that and have acknowledged it in the past. The belief that data is the ultimate trump is called Positivism. If you are a Positivist, say so.

    Should we review the difference between the scientific method in the hard sciences and economics? Do I have to review that with you again?

    Ok fine, I'll cover it with you for the 9 millionth time. In the hard sciences you can control variables and conduct live experiments with controls. In economics, you cannot. Is this that difficult for you comprehend? Really? That concept is that hard for you? Wow.

    So nothing can be proven in economics through data alone, since there is no way to isolate variables.

    Again, what is so hard to understand ETFs?

    ---->"Bigger booms do not lead to bigger busts."<----

    Well if that was Austrian Business Cycle Theory, he'd be right on! But it's not, oh well. The size of the booms and busts are dependent on so many numerous factors that they can't even be counted, including but not limited to central bank policy response, the level of government intervention, banking laws (whether or not reserve requirements are strictly enforced, how suspension of payment is handled, etc),

    No Austrian even claimed that the bust will perfectly correlate to the boom. In other words, like just about everything else on money, Friedman was lost. He was a Positivist, after all. Go figure.

    For the 20 millionth time, you still haven't properly explained Austrian Business Cycle Theory that you claim Friedman defeated. You simply don't know what it is, which is why you think Friedman "got it".

    David in Liberty

  • Report this Comment On January 26, 2012, at 11:41 AM, whereaminow wrote:

    I'll tell you what ETFs, in the spirit of educating anyone reading this that is not already convinced that they know ABCT when they have no clue....

    If you can properly explain ABCT, I'll show you EXACTLY why Friedman got it wrong.

    But I don't know why I should waste my time breaking down Friedman's critique when you can't be bothered to learn the theory in the first place.

    David in Liberty

  • Report this Comment On January 26, 2012, at 11:48 AM, ETFsRule wrote:

    Good try, David. It's true that economics isn't a science. That doesn't mean we should ignore facts altogether.

    The problem is, you're trying to have it both ways, as usual. You have no problem using facts and statistics in an effort to criticize the viewpoints of others. You try to use facts and data all the time to criticize the gov't.

    But when someone else uses facts and data, you try to weasel out of the discussion saying "economics is not a science", "it's complicated", "there are lots of variables" (ha!), etc, etc. For someone so hard on the other side, you sure aren't very demanding of yourself.

    "If you want proof, with historical data, read Rothbard's "Panic of 1819" and "America's Great Depression", both of which contain mountains of data, particularly the latter which support the Austrian School view."

    Why were these people analyzing data? Doesn't that completely go against everything you just explained, in terms of the Austrian view of the world?

    Are we supposed to care about data or not? If we are supposed to care about the data you mentioned here, then why should we ignore all data that is presented by non-Austrians?

    "No Austrian even claimed that the bust will perfectly correlate to the boom. In other words, like just about everything else on money, Friedman was lost."

    I love how you inserted the qualifier "perfectly" in this sentence. It shows your lack of confidence.

    No one was ever talking about perfection. There are many different levels of correlation... strong correlations, weak correlations, and moderate correlations. The strength of the correlation between any 2 variables can be described in many different ways, using simple statistical analysis.

    Also: I am choosing to ignore your ad hominem attacks of Friedman, as I prefer to stick to the issue at hand.

  • Report this Comment On January 26, 2012, at 11:51 AM, whereaminow wrote:

    ----->Also: I am choosing to ignore your ad hominem attacks of Friedman, as I prefer to stick to the issue at hand.<------

    Then stick to the issue at hand. You don't even know Friedman's critique, because it was more than just "sizes don't match up".

    And since you can't explain ABCT in the first place, you can't see where Freidman went wrong.

    Stick to the topic ETFs. Show us ABCT and then show us how Friedman "disproved" it.

    David in Liberty

  • Report this Comment On January 26, 2012, at 11:54 AM, portefeuille wrote:

    I am German, but I do pity the people of Austria a little for being connected to gold all the time. They certainly prefer cake.

  • Report this Comment On January 26, 2012, at 11:55 AM, whereaminow wrote:

    ----> There are many different levels of correlation... strong correlations, weak correlations, and moderate correlations. <----

    Yes, and it helps when what you are correlating is actually relevant data. What a shocker that someone would find no correlation between two things that no one said would correlate in the first place.

    Of course you would know this had you actually studied. You and I have been going back and forth for almost three years and yet you still never took the time to learn the theory. Three years! You wanted to argue it for three years and pound your chest for three years about how bogus it was. But you never actually learned it.

    And they call us "religious". ROFL.

    David in Liberty

  • Report this Comment On January 26, 2012, at 12:12 PM, whereaminow wrote:

    -----> It's true that economics isn't a science.<-----

    Never said that. Reading comprehension...

    Economics is not like the HARD sciences. I capitalized it that time so you wouldn't miss it.

    Mathematics, for example, is a science built on logical deductions, not empiricism. We didn't determine that a straight line is the shortest distance between two points by going out and measuring 80 million straight lines. It was logically deduced.

    Economics is treated by the Austrian School in the same manner, as a science built on logical deduction. Again, we've covered this at least a dozen times in the past three years.

    David in Liberty

  • Report this Comment On January 26, 2012, at 12:30 PM, ETFsRule wrote:

    "Then stick to the issue at hand. You don't even know Friedman's critique, because it was more than just "sizes don't match up". "

    As usual you are trying to use nitpicking and semantics (as well as arrogance) to dodge the issue. As usual, it is very transparent.

    To be precise, he concluded "that there is no significant correlation between the length and severity of an expansion and the succeeding contraction".

    Please explain to me the significant difference between this, and saying that "the sizes don't match up".

    "Yes, and it helps when what you are correlating is actually relevant data. What a shocker that someone would find no correlation between two things that no one said would correlate in the first place."

    Incorrect. If you had ever taken the time to actually read Austrian Theory, you would know the specific predictions that Mises made. He argued that "commodity price levels" and "capital goods" prices would increase as a result of "excess credit". And he said that they would inevitably crash when the boom was over.

    So, there would be a correlation between booms and busts, as measured by these price levels.

    He also said, among other things, "The boom produces impoverishment." So please, defend that prediction with facts.

  • Report this Comment On January 26, 2012, at 12:33 PM, ETFsRule wrote:

    "Economics is treated by the Austrian School in the same manner, as a science built on logical deduction. Again, we've covered this at least a dozen times in the past three years. "

    You still have not explained why you only apply this concept subjectively: when someone criticizes the Austrian view using data, you claim that their critcism is invalid, because economics is not a hard science.

    Yet, you consistantly use data and statistics in an effort to undermine opposing viewpoints. Do you still not understand this?

  • Report this Comment On January 26, 2012, at 12:41 PM, DJDynamicNC wrote:

    David, good to see you could join us. I knew it was only a matter of time.

    --> "Give me a break. Weakening currencies mean that every citizen is getting progressively poorer as time goes on, regardless of their level of productive activity. " <--

    Every citizen? That's demonstrably false. Let's say you're a citizen who - like most of this country - is pretty heavily in debt. Repaying your debts in devalued dollars means you're saving money. Or let's say you're involved in the export business. Or let's say you simply have very little money - once again, like increasing portions of the US population since the advent of the Reagan administration.

    You go on to bolster your claim using praxeological thought experiments about "infinitely strong" and "infinitely weak" dollars. Since you want me to avoid making religious analogies, I'll simply point out that you'll find a stronger case if you use real world examples (which we who are not Austrian School call "empirical evidence"). You tried that with Zimbabwe, which, sure, is an example of an inflating currency, just like Somalia is a country with no functioning government and thus a bitchin' example of libertarian ideas in action (see how that works?)

    Of course, you could just as easily have cited Germany, or even better, China, a country that is actively weakening its currency in order to better compete on the global stage.

    Does that mean inflation is awesome? Not at all. It is simply a price that is sometimes worth paying. Should we trade some increased inflation for improvement employment? I think so, because one thing that DEFINITELY makes people poorer is not having a job.

  • Report this Comment On January 26, 2012, at 12:45 PM, whereaminow wrote:

    ------>Incorrect. If you had ever taken the time to actually read Austrian Theory, you would know the specific predictions that Mises made. He argued that "commodity price levels" and "capital goods" prices would increase as a result of "excess credit". And he said that they would inevitably crash when the boom was over.<-----------

    Yeah, I'm the one that hasn't read Mises. He argued that commodity price levels would be higher IN RELATION TO WHAT?

    David in Liberty

  • Report this Comment On January 26, 2012, at 12:58 PM, DJDynamicNC wrote:

    "Yet in America, businesses fail all the time. And they failed under conditions of a great deal of laissez faire for 200 years. "

    You dodged the claim. The claim was that corporations will govern your actions if the government doesn't. You said "businesses fail." Well sure. Do you know what else they do? Pay as little as possible, trap people in wage slavery, externalize costs, dump toxins in the air and water, and do anything else to make a profit, because they exist to make a profit. Fair enough, but if a corporation is unregulated in regard to what it can put into the air or what business practices it can pursue, you get company towns with corporate scrip locking people into effective slavery, you get mountain top removal and acid rain. Of course, you get cheaper prices, too.

    I would also take issue with your claim that less government intervention automatically equals a freer market. A competitive market may be one result of such a state of affairs, but the formation of monopolies or rent seeking by established players can lock down a market just as fast as any regulation.

    Competitive markets will often yield greater efficiencies than non-competitive markets, sure. My argument is and always has been that there is more to life than efficiency. Institutions exist to serve people. Not the other way around.

  • Report this Comment On January 26, 2012, at 1:14 PM, rfaramir wrote:

    There are great rebuttals to the "you must love Somalia" canard, but I found an excellent recent one: http://www.quebecoislibre.org/09/090515-3.htm

    "Even though we in the developed world are groaning under the weight of burdensome government today, we nonetheless continue to benefit from a centuries-long legacy of relative freedom, during which we made enormous gains in scientific knowledge, capital accumulation, and human rights. A decade or two of reduced levels of government in Somalia could not possibly make up for the animism, the tribalism, the underinvestment, and the mistreatment of women that still prevail in much of Africa."

    Somalia is much better off than it used to be when it had more government, and it is better off than its neighbors. This by no means indicates that it's a great place to live.

    Here are some of the other articles:

    http://mises.org/daily/5418 "Anarchy in Somalia"

    http://mises.org/story/2066 "Stateless in Somalia and Loving it"

    http://www.reason.com/blog/show/117519.html "The Anarchy Advantage in Somalia"

    http://mises.org/daily/2701 "The Rule of Law without the State"

    Excerpt from the last one:

    If the expectation was that Somalia would plunge into an abyss of chaos, what is the reality? A number of recent studies address this question, including one by economist Peter Leeson drawing on statistical data from the United Nations Development Project, World Bank, CIA, and World Health Organization. Comparing the last five years under the central government (1985–1990) with the most recent five years of anarchy (2000–2005), Leeson finds these welfare changes:

    Life expectancy increased from 46 to 48.5 years. This is a poor expectancy as compared with developed countries. But in any measurement of welfare, what is important to observe is not where a population stands at a given time, but what is the trend. Is the trend positive, or is it the reverse?

    Number of one-year-olds fully immunized against measles rose from 30 to 40 percent.

    Number of physicians per 100,000 population rose from 3.4 to 4.

    Number of infants with low birth weight fell from 16 per thousand to 0.3 — almost none.

    Infant mortality per 1,000 births fell from 152 to 114.9.

    Maternal mortality per 100,000 births fell from 1,600 to 1,100.

    Percent of population with access to sanitation rose from 18 to 26.

    Percent of population with access to at least one health facility rose from 28 to 54.8.

    Percent of population in extreme poverty (i.e., less than $1 per day) fell from 60 to 43.2.

    Radios per thousand population rose from 4 to 98.5.

    Telephones per thousand population rose from 1.9 to 14.9.

    TVs per 1,000 population rose from 1.2 to 3.7.

    Fatalities due to measles fell from 8,000 to 5,600.

    Another even more comprehensive study published last year by Benjamin Powell of the Independent Institute, concludes: "We find that Somalia's living standards have improved generally … not just in absolute terms, but also relative to other African countries since the collapse of the Somali central government."

    Somalia's pastoral economy is now stronger than that of either neighboring Kenya or Ethiopia.

  • Report this Comment On January 26, 2012, at 1:25 PM, rfaramir wrote:

    "Every citizen? That's demonstrably false."

    True, he should have said every holder of the currency. Citizens in particular are forced by legal tender laws to transact in their national currency, so he's still mostly correct.

    But in particular, debtors (the biggest one being the federal government), the money printers themselves (technically the 'independent' Fed, but essentially the government), foreigners, and exporters selling to foreigners are better off.

    Who is worse off? Creditors, importers, wage earners (wages are very slow to adapt to inflation), bond holders, and anyone on a fixed income. Those last two categories especially affect the elderly, who cannot easily go back to work to make up their losses.

  • Report this Comment On January 26, 2012, at 1:45 PM, TopAustrianFool wrote:

    There is no rule of law in Somalia. Arbitration (a just court system) is necessary for the free market to work.

    This is a fallacious argument, that if it wasn't for govt we would have the great things we have today.

  • Report this Comment On January 26, 2012, at 1:59 PM, TopAustrianFool wrote:

    "Ever since the United States stopped converting gold into dollars at a fixed rate in 1973, a small but vocal minority of economists have championed a revival of the gold standard. Their Jerusalem is Austria. Their prophet is Ludwig von Mises. And their sacred text is The Road to Serfdom, the seminal work of von Mises' protege Friedrich Hayek."

    First, it is the followers of Keynes who are the religious type. Most of history has been dominated by Keynesian economics. That's right. Keynes didn't invented monetary manipulation, he just dressed it as economics.

    Second, the Austrian School of Economics is much more than the Road to Serfdom. There is a whole century of scholarship behind it, and it pretty much predicts within a 16mo period the effects of the Business Cycle. Which, Keynesians blame on greed and deregulation, but forget that greed is a constant and deregulation is ever-increasing.

    The free-market work more like a law of conservation of wealth. When you manipulate the monetary standard, human beings which act upon incentives and subjective value will behave to maximize there personal profit. Which under government regulation translated into the main ecomic dislocations giving rise to bubbles and ensuing deflation.

    Mr. Maxfield, with all due respect you don't have a clue what the Austrian School of Economics is, neither what Keynes advocated.

  • Report this Comment On January 26, 2012, at 2:00 PM, TopAustrianFool wrote:

    I mean "regulation is ever-increasing"

  • Report this Comment On January 26, 2012, at 2:44 PM, whereaminow wrote:

    DJDynamicNC wrote,

    ----->You dodged the claim. The claim was that corporations will govern your actions if the government doesn't. <------

    You claimed that corporations are beholden to no one but themselves. That's simply not true. You say later that corporations are influenced by competition, which means they are at least beholden to market processes. The reality is that at its core, corporations are beholden to consumers. So it's false to say that they are beholden to no one. I am pointing that out.

    -------->You said "businesses fail." Well sure. Do you know what else they do? Pay as little as possible, <----------

    That's only half right. Of course it makes no sense for a businessman to pay as much as possible. That would raise costs and benefit only the worker. Those costs would be passed on to consumers or the business would close.

    Businesses pay as little as possible in relation to the marginal product of labor. If they just "paid as little as possible" I wouldn't make a six figure salary. As a worker, it helps to understand what the market value of your labor is. Of course, you can't know that if your line of work is dominated by government intervention, unions, etc. That's why the IT field pays so well. We can go out and easily determine what businesses think the marginal product of our labor is. Then we can negotiate in kind. If businesses in a relatively free market like IT try to underpay me, it won't be long before someone else scoops me up. This is how markets work. So it doesn't bother me in the least that businesses pay me as little as possible in relation to the marginal product of my labor. That keeps costs low and makes the products we buy less expensive, benefiting all of us. Can you explain why low prices are a terrible thing?

    --->trap people in wage slavery, <---

    I know you're not a Marxist, so stop borrowing their nonsensical terminology. Wages are accepted voluntarily. Working for a living isn't slavery. The only way to trap someone in wage slavery is to make it impossible to open another business. A government can do that through violent intervention. They can increase the regulatory burden on behalf of big business. They can restrict competition through licensing, promotion of unions, even something as mundane as zoning laws which limit where businesses can operate. And of course many other ways. (They can also bomb competition into oblivion.) Or they can go completely communistic and become the only employer in town, giving them a monopoly and forcing everyone into wage slavery.

    If you don't like your wage there are things you can do to increase it. The market is about learning to serve others with skills they need. Find out what those skills are and learn them. Education must be taken, never given. Either people are satisfied with their wage or not. But there's no wage slavery. Nor am I a wage slave. I provide a service. In return, I get paid. Voluntarily on both ends.

    ----> externalize costs,<-----

    Externalized costs are the result of a lack of respect and understanding of private property rights. One cannot determine what those costs actually are unless they are subjected to a market test. At which point, they are no longer externalized. The solution, as always, is let the market clear. Interfering with the process makes externalized costs both permanent and unquantifiable, since costs cannot be determined unless prices are allowed to work.

    ----> dump toxins in the air and water, <---------

    Like all of the above, when compared to government, this is nonsensical. The world's biggest polluters are States, such as the Soviet Union, China, and the United States. For decades the US Navy dumped its trash in the ocean. The biggest man made disaster in American history was caused by the TVA just a few years ago. Of course, you'll never hear about it since that would make people question the Conventional Wisdom that governments care about the environment and capitalists hate it! That's nonsense for anyone over the sixth grade, but oh well. Anyone can pollute, whether it's government or business. The best solution is to enforce property rights. Unfortunately, government institutionalizes an arbitrarily accepted level of pollution (with Orwellian names like The Clean Air Act), destroying the rights of individuals to sue polluters. A libertarian society would be far stricter on environmental issues than any environmentalist.

    ----> and do anything else to make a profit, because they exist to make a profit. <----

    Profits benefit society, so doing "anything" for a profit is usually seen as a positive. I mean, unless you're going to tell me you're a Marxist I don't see any point in spending time on this crap.

    ----> Fair enough,but if a corporation is unregulated in regard to what it can put into the air or what business practices it can pursue, you get company towns with corporate scrip locking people into effective slavery, you get mountain top removal and acid rain. <------

    Well that's some nice hysteria, but in reality we know that this kind of behavior can arise from both business and government. But with business you have avenues, in a free society, to punish them. With government, since they have a comparative advantage in violence, it's much more difficult. Tell me, DJ, is it harder for the common man to overthrow a dictator or to change jobs? Is it harder to oust the ruling military junta or to buy a different product from a competitor?

    ----> Of course, you get cheaper prices, too. <--

    And the consumer doesn't come from an alternate reality. He's also a worker. So the worker benefits from competition by getting things he needs cheaper.

    ---- >I would also take issue with your claim that less government intervention automatically equals a freer market. A competitive market may be one result of such a state of affairs, but the formation of monopolies or rent seeking by established players can lock down a market just as fast as any regulation. <-----

    Rent seeking is using the government to gain an unfair advantage in the market. It's seems pretty logical that if you remove the government, that particular problem would go away.

    The formation of monopolies is a two part issue. First, if the monopoly comes about by doing great business - lowering costs, providing valuable service - there is nothing inherently wrong with it. It benefits all. Second, all instances of monopoly that don't involve great business are caused by government granting the monopoly. Governments granted monopolies and cartels dominate the history of monopoly. For every actual laissez faire business that became a monopoly from providing a great service at low costs, you can find 100 that got there with a government privilege.

    In truth, we all have a monopoly. If you invent something, you automatically have a monopoly, for as long as you can hold it. Good for you. I have a monopoly on my labor. No one else is a better David in Liberty than I. Each product on the market is unique in some way, whether it is a difference in the products themselves - like the 7 million flavors of soft drink (none of which you should ever drink) or the different level of service provided by two different otherwise identical products. The term economic "good" is shorthand for any distinguishable product. So if you really want to think like an economist, any maker of any product could be considered a monopolist.

    ----> Competitive markets will often yield greater efficiencies than non-competitive markets, sure. My argument is and always has been that there is more to life than efficiency. Institutions exist to serve people. Not the other way around. <----

    Well, the Austrian School isn't telling you what makes a "better world" as I pointed out to ETFs above. It's only telling you what makes for sustainable prosperity.

    I think working for a living is the way to serve people. It's the least selfish act you can take. You are putting your personal desires ("I wanna be an art major! Waaaa!") behind the need to learn skills that serve others.

    David in Liberty

  • Report this Comment On January 26, 2012, at 3:23 PM, whereaminow wrote:

    ETFs,

    ----------> You still have not explained why you only apply this concept subjectively: when someone criticizes the Austrian view using data, you claim that their critcism is invalid, because economics is not a hard science. <-----

    I'm not criticizing you or Friedman for using data. I am criticizing you for claiming that Friedman "proved" anything by "crunching the numbers".

    I am criticizing Friedman for not understanding Austrian Business Cycle Theory. There are plenty numbers that correlate strongly with Mises' view and Rothbard included tables and tables of statistics in "America's Great Depression" that are presented as supporting evidence. But just as Friedman cannot disprove with statistics alone, Rothbard cannot prove with statistics alone.

    If you want correlating data, it's there. But it would have helped Friedman to know what he was looking for. But if you're looking for data as proof either way, it doesn't exist.

    David in Liberty

  • Report this Comment On January 26, 2012, at 5:28 PM, CaptainWidget wrote:

    <<Every citizen? That's demonstrably false. Let's say you're a citizen who - like most of this country - is pretty heavily in debt. Repaying your debts in devalued dollars means you're saving money. Or let's say you're involved in the export business. Or let's say you simply have very little money - once again, like increasing portions of the US population since the advent of the Reagan administration.>>

    That debt that you're failing to repay doesn't disappear, it just means someone else pays it. The debt that you shirk on through inflation is a job someone else loses. Transferring costs in an economy is a zero sum game.

    Inflation does mean your exports are relatively more competitive on a global stage. So what? It means that imports are relatively more expensive. Again....transferring costs =/= prosperity.

    And as the argument that inflation helps the poor....HA. You know that prices go up as the money supply goes up too, right? Arguing inflation as a cure for poverty is like arguing that stage 4 brain cancer is the cure for AIDS. You probably won't die of the AIDS once you get the cancer...

    <<Does that mean inflation is awesome? Not at all. It is simply a price that is sometimes worth paying. Should we trade some increased inflation for improvement employment? I think so, because one thing that DEFINITELY makes people poorer is not having a job.>>

    Fortunately we don't need to create inflation to create jobs. Business owners create jobs when the liability of bringing on another employee is less than the benefits. The non-salary liability of hiring an employee in the US is higher than it's ever been at any point in the history of the nation. You can't mandate prosperity, but you can mandate a reduction in non-salary costs of hiring a person.

    If you want a legislative response to unemployment, it seems like reducing the risks of hiring would be a greater boon than trying to use zero-sum economic stimulus to increase the benefits of hiring.

  • Report this Comment On January 26, 2012, at 6:46 PM, ETFsRule wrote:

    "But it would have helped Friedman to know what he was looking for."

    How about this:

    1. What did Friedman look at, and why do you think he was wrong?

    2. What did Rothbard look at, and what makes his approach better?

    3. In your opinion, what would be the best things to look at, in order to judge the accuracy of ABCT predictions?

  • Report this Comment On January 26, 2012, at 8:28 PM, whereaminow wrote:

    ETFsRule,

    You've just given me a blog idea. Thanks! I'll write it up and post a link here.

    David in Liberty

  • Report this Comment On February 07, 2012, at 12:30 AM, whereaminow wrote:
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