LewRockwell.com is running my most recent commentary on the Real Bills Doctrine of Antal Fekete, An Error in Fekethmetic. The main point of contention between the Austrians and the Feketians is the question of whether savings and only savings are necessary to fund production, or whether real bills can substitute. On this point, I will quote a particularly insightful email that I received from a reader of one of my other articles on this topic:
- I have been following the other defenders of RBs and I am not surprised at the “mental” blocks of logic. I remember, when I was in a position of desiring to have “reality” be something else than it was. I was trying to get a business going and having “credit” (as opposed to “savings”) needs, to fund the development (production) process, I was in those same shoes as those RB supporters. Finally, I had to have a perspective shift and allow new partners into the business, so we could use their savings; but this meant a dilution of my anticipated financial gains; a bitter pill (unmet expectations) but one I am better for swallowing. This is what needs to happen to those RB supporters, one cannot have the cake and eat it too. Till they make that perspective shift, all your accurate and precise reasoning is in vain. I know, I was there, I was blind; till I saw the light…I put myself in the shoes of those with savings and realized that if I were them, I wouldn’t part with my savings until I had control of the business either.
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Robert Blumen and Sean Corrigan,
Though it may appear to you that it is a thankless task to carry the water on this debate, is is not. The series of essays that the two of you have written in answer to the RBD supporters contain more real economic education than can be gathered from a PhD in economics at almost any university. I was not unfamiliar with the Austrian school before this debate ensued, but it has clarified my thinking on economics greatly.
Thank you.
I suppose there is an advantage to being a narcotic addict AND an obsessive-compulsive that inflicts pain on himself. He can argue he needs the heroin to prevent the pain. Or those who find reasons to do all kinds of things which are evil, or even taboo, after finding some good end or other justification.
It seems the Feketians wish to be inflationists. They want FRB to not be a fraud, to have extensions of credit not backed by savings (instead of money, a promise of future production) yet call them “real”.
The problem with “real bills” is that the bills really come due. And then the system collapses.
The only “real bill” would be one which transfers ownership to a fixed and already existing amount of gold (or other commodity as money). If there’s nothing real at the very moment, the bill isn’t real.
Mr. Blumen:
The fourth paragraph of your essay refers to roundaboutness and a growth in the number of transactions involved in the production of consumption goods.
This is a statement that is generally true but not NECESSARILY so. That is to say, that increasing “roundaboutness” is not an inexorable economic necessity except that it will certainly be a general feature of the progressing economy.
The basic reason for the general tendency is the simple fact that people at any stage of economic development, in seeking improvement of want-satisfaction, seek what seem the more expeditious routes to fulfillment of their plans. What exists in the present (and determines the availability of the material requirements of all plans for the future) is itself the outcome of a continuous progression of the same sort of provisions for the future which has determined the deployment and devotion of resources at any given time.
I only wanted to point out that, except as a generality, there is no ironclad necessity that every improvement involve lengthening of production processes. New ideas, both in the spheres of materials and methods, can actually shorten productive processes on occasion–just not usually, for the simple reason that people have already chosen just those processes that their deliberations have deemed most adequate in light of the resources available.
Though I haven’t read the appropriate passages in some 20 years or more, I believe that this slightly “finer tuning” of the “roundaboutness” (Bohm-Bawerk’s term, I believe) matter was part of Mises’ criticism of his teacher’s earlier and less satisfactory theory of interest, which lapsed into dependence on a “productivity” type of explanation.
Of course, the Fekete camp is as “all wet” as you and Sean Corrigan have demonstrated wonderfully. However, I am quite CERTAIN that none of the so-far-advanced ideas on monetary reform, of whatever origin, hold the slightest promise of actually delivering, except possibly temporarily, the hoped-for benefits. I believe, furthermore, that I appreciate the only possible method for amelioration of all shortcomings of the past (though it is impossible for me to prove that the scheme I envision is either: 1.) possible; or, 2.) if possible, actually capable of functioning satisfactorily to deliver the desired benefits.
A couple of weeks ago, I mentioned (somewhere on this blog) that I had some novel ideas on this subject (monetary reform). At the time, I invited others interested to send me their e-mail addresses to continue the discussion, which I would begin by circularizing to that list an informal paper laying out the elements of the plan in my mind (including background of its origin). From the respondents, I culled some who seemed un-(or under-)qualified to discuss these ideas and the list now has, I think, 8 names on it. I’d like to invite both you and Mr. Corrigan to be included–just send your e-mail address to me at: gene.berman@verizon.net (For some unknown reason, I cannot use the e-mail links provided.) I can’t promise the information within a specific time but will try to get it out within the next couple months.
What I will guarantee is that you will get a completely different appreciation at least for the ORIGIN of monetary problems in general and also of the reasons for their intractibility. It is clear to me that neither fractional-reserve banking nor gov’t.-licensed banking are “root” causes: rather, they are more or less inevitable outgrowths of monetary histories and are attributable, in the main, to the preferences of the preponderance of ordinary people (and due far less to the acquisitiveness or power-seeking tendencies of governing elites).
Gene Berman,
Mises.org has a section on working papers that might be a suitable forum to discuss your ideas. Though I like to read these papers, I don’t know how much feedback and what quality of it you would receive. However, it would be a way to get a larger number of eyes reading them.
Yancey:
I am determined, to the extent I am able, to limit the exposure (and discussion)of my ideas to a relatively select group and to not merely enter them in an “open forum” format (where there is a tendency for the introduction of extraneous matters and unproductive “side” argumentation).
You are certainly among those I’d be glad to circularize and include in any developing discussion. Just e-mail me (gene.berman@verizon.net) your e-mail address and I’ll add it to my relatively short list. I’m also open to suggestions from my invitees (who know who they are) as to any others they think should be included. Requests from others will be considered but cannot be assured (for reason just stated).
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