Comments (17)

• AJTozer

  That looks like interesting reading (I've skimmed the forward and introdction so far), but in the end it probably means little in the fight against monetary lunacy.

  This was written almost 25 years ago and the dire consequences predicted in the book have not materialized. Now I, and probably most readers here, believe the problems still exist and will sooner or later become unmanageable but most people just aren't going to be swayed.

  A quarter century ago someone shouted that the sky was falling, but we're still here today. How convincing will that argument seem today when the economy seems to be doing pretty good?

  I'm afraid that from the perspective of the masses, we've cried wolf too many times. They don't care what we say anymore because for the majority of their lives things have gone pretty well. Why should they listen to what seems like "The end is near" ravings of some "fringe economists"? Posting this book might get some Amens from the choir but that's about it. Everyone else will just shrug it off as more evidence that you can't believe anything economists say.

  Maybe when the sky is hitting them on the head they'll understand, but until then I'm afraid the battle is lost. Anyway, for what little it's worth, I'll give one good AMEN from the choir.

  Published: March 27, 2007 3:50 PM

• jeffrey

  You make a good point, but another way to look at it is that we have become used to the sky falling a bit at a time and adjusted to it. Whether it is exchange-rate instability, drip by drip inflation, or ever larger government debt and spending made possible by fiat money, the critics have proven correct. What has not happened is German-style hyperinflation. But there are specific reasons for that, mostly having to do with global dollar dominance. The future could be very different indeed.

  Published: March 27, 2007 4:22 PM

• RogerM

  Abandoning gold for fiat money has already caused several disasters, most notably the Great Depression and the stagflation of the 1970's. But people don't know it because mainstream econ tells them the cause is something else, usually greedy businessmen or the natural instability of capitalism.

  But a lot of people have the idea that a catastrophe has to follow fiat money today because it has in the past. Several changes have made that less likely. For one, the Fed is moving more and more toward Austrian thinking and clamping down on the money supply via interest rates when the price indexes rise. The other change is that financial deregulation in the 1970's took away from banks about 2/3 of their lending and saving business, leaving fractional banking with much less ability to do the great damage it did in the past. Most businesses today borrow from large corporations like GE, or issue bonds, instead of borrowing from banks. A lot more savings goes into CD's and mutual funds which don't inflate the money supply the way bank deposits and checking accounts do. As a result of these changes, prophecies of doom and disaster are unlikely to come true, and continue to hurt the credibility of Austrian econ. We're more likely to suffer small amounts of damage through regular recessions, but we're still poorer than we would have been with 100% reserve banking and gold money.

  Published: March 27, 2007 5:10 PM

• David White

  RogerM,

  "For one, the Fed is moving more and more toward Austrian thinking and clamping down on the money supply via interest rates when the price indexes rise."

  On the contrary, stand by for a series of Fed cuts in a vain attempt to forestall the bursting of the housing bubble that its loose-money policies created. And were it to actually tighten, it would only hasten housing's collapse and hence the economy's.

  Be advised: This is The Mother of All Bubbles.

  Published: March 27, 2007 8:38 PM

• AJTozer

  I fall into that group who believe that our fiat currency is doomed to fail in the end. Maybe recent developments have made it safer, but safer is not the same as safe. Human nature has not changed and sooner or later the desire for something for nothing will win out and then the inevitable will happen. All of the reasons given above about why the current fiat money system is much better than those of the past may be valid, but they are all recent achievements and could all vanish very quickly. If history is any guide they will vanish at the exact moment they are needed most. Still, I doubt that the collapse is imminent, and I honestly doubt we could do anything about it if it was. It took a long time to create this mess and I'm sure it will take longer to undo it. But that's exactly what we need to work on.

  I guess what spurred my initial gloomy comment was that this just seems like another attempt at preaching to the choir and it's not very productive. Bringing up a 25 year old prediction of doom and gloom that didn't come true isn't going to convince anyone undecided or opposed to the Austrian view even if the bulk of the book contains wonderful and insightful thought. It's just too easy to dismiss. We don't need more reasons to be dismissed.

  Published: March 27, 2007 9:35 PM

• adi

  Yes, it seems that the fiat system is here to stay. Of course no-one can predict if some system will last since we know that many empires and kingdoms have fallen in our history.

  Ultimate fallacy in central banking is that they think that economy can be managed by the interest rate and/or monetary policy. Many empirical relations which have been said to be stable have broke down and also central banks policies have hit the ground in the same time.

  Published: March 28, 2007 5:19 AM

• Dan Coleman

  "Still, I doubt that the collapse is imminent, and I honestly doubt we could do anything about it if it was. It took a long time to create this mess and I'm sure it will take longer to undo it. But that's exactly what we need to work on."

  I agree with what you wrote generally but I have to quibble on this point. One of the glories of the free market is how efficiently, quickly, and soundly it works out kinks and distortions. Look at the amazing progress of places like Estonia or Hong Kong when a little freedom was introduced.

  This bureaucratic, coercive mess may have been about a hundred years in the making, but if liberty could truly prevail for even a generation, I'd be willing to bet that it will have smoothed out most all of the government created problems.

  This is, of course, very much conjecture (and subjective as far as what it means to "smooth out" problems), but I can't help but think that the market will clear out the mess sooner than one would assume is even possible.

  Published: March 28, 2007 7:43 AM

• darjen

  On the contrary, stand by for a series of Fed cuts in a vain attempt to forestall the bursting of the housing bubble that its loose-money policies created. And were it to actually tighten, it would only hasten housing's collapse and hence the economy's.

  Be advised: This is The Mother of All Bubbles.

  So, given the Austrian view as discussed in this thread and elsewhere, is it complete folly to buy a house at this point? There are some decent ones for around 100k in my area, Cleveland, and temptation may get the best of me. Maybe if I keep saving gold I'll be able to pay it off on the cheap when the bubble does burst...

  Published: March 28, 2007 8:21 AM

• RogerM

  David: "On the contrary, stand by for a series of Fed cuts in a vain attempt to forestall the bursting of the housing bubble that its loose-money policies created."

  I agree. The Fed is a long ways from being monetarist, let alone Austrian. But Friedman and Hayek have influenced them to the point that I don't think you'll see hyperinflation any time soon, which is a prerequisite for a major collapse.

  Also, read THE STOCK MARKET, CREDIT AND CAPITAL
  FORMATION By FRITZ MACHLUP available on this site. Machlup writes that when the Fed stops inflating the money supply, a collapse will happen and then prices and the economy will adjust to the new level of money and start growing again. The Fed periodically stops inflating, which causes the regular cycle of recessions.

  The Fed learned the wrong lessons from the Great Depression, thanks to Keynes, but some of the right lessons from the stagflation of the '70's, thanks to Friedman. Austrians are too few in number to force the Fed to change, but we can make a lot of money from them if we use Austrian econ to guide our investing. We will continue to see bubbles and busts for a long time now. We need to watch the Fed and particularly capital investment for signs of changes in the economy. We should always be contrarian investors and sell when assets, like housing and the stock market, are high and buy when the crash comes. That's how the really rich do it, according to Kyosagi, author of "Rich Dad Poor Dad." Though they may not have heard of Austrian economics, they are wise enough to notice the cycles and not get caught up in irrational exhuberance.

  Published: March 28, 2007 9:09 AM

• David White

  darjen,

  If you believe, as I do, that stagflation on steroids is on the way -- even a hyper-inflationary depression -- then buying a house at these bargain-basement interest rates is a no-brainer, as you'll be paying off your loan with IOU-nothings in the end.

  Published: March 28, 2007 9:14 AM

• AJTozer

  ...but if liberty could truly prevail for even a generation...

  There's the dream.

  But still, we have to realize that historically speaking we have a lot of liberty here in the US. That's part of what makes these arguments so hard for many people to accept. They have so much liberty that giving up small amounts of it doesn't seem like a big loss especially if they buy the government line that they are getting something valuable (e.g. security) in return. The converted see and are afraid of the doomsday scenarios, but it's very easy for the rest to believe "It can't happen here".

  The problem for today is not that liberty is gone, but that the trend is an erosion of liberty. The goal should be to change that trend. We don't have to make a huge leap from here to Utopia, we just need to redirect the trend towards an increase in liberty. The rest will take care of itself over time. Maybe a free society could recover from a collapse of the fiat money system, but huge shocks like that are not conducive to creating liberty and freedom; the opposite is more the case. Into that vacuum would likely come despots, not liberty. I think it's better to focus on what small things can be done to gradually approach a liberal society. It may take longer, but in the end result will be better and more likely to last.

  Published: March 28, 2007 9:44 AM

• David White

  RogerM,

  I heartily recommend that you (and everyone else) go here -- http://www.netcastdaily.com/fsnewshour.htm -- and scroll down to the March 10 interview with Peter Schiff regarding his new book "Crash Proof: How to Profit from the Coming Economic Collapse." It lays it on the line about what has happened, and why, and what you can do to protect yourself.

  Published: March 28, 2007 9:47 AM

• D. Saul Weiner

  David,

  I listened to this interview and was very impressed. Schiff lays out the issues very bluntly and clearly and makes a strong case. The emperor is wearing no clothes, indeed. If the pundits would speak like this, there would be no way that all of the shenanigans could continue.

  Published: March 28, 2007 11:53 AM

• Rob

  "So, given the Austrian view as discussed in this thread and elsewhere, is it complete folly to buy a house at this point? ..."

  That really depends on the area. Some bubbles are very big (New England, SoCal) and some areas have not been affected much. Generally areas with restrictive zoning/building codes and/or high wage rates are going to see the biggest bubbles and potentially the most loss of air.

  Overall, if you are single and don't need the space to live, it is probably best to hold off for a few more years or at the very least don't buy more house than you need.

  Published: March 28, 2007 6:50 PM

• David White

  D. Saul Weiner,

  Even here on Mises.org (see Robert Murphy's latest deficits-don't-matter piece), few are listening. So imagine the deafness of the general public with regard to what is to come.

  That's why I continue to post about the EU-like superstate -- http://www.thought-criminal.org/2007/02/09/the-north-american-union-exposed-a-presentation-on-the-destruction-of-america -- and its attendant euro-like currency -- http://www.amerocurrency.com -- as these are the shape of things to come, with Peak Oil -- http://www.youtube.com/watch?v=3-y_0fpF1bA -- doing its part to seal our fate.

  So join these fine folks -- www.vtcommons.org -- and help the country go forward to the past and redeem itself accordingly.

  Published: March 28, 2007 7:17 PM

• RogerM

  David,
  I read the transcript of the interview with Peter Schiff and I disagree with just about every single line of it. Neither Schiff nor Puplava have a clue about what's going on in the world's economy. We've clashed before on the issue of trade so I don't want to relive old battles. But keep this in mind: Horror sells better than good news.

  I've read books on the coming economic catastrophe for over 30 years and none have been even remotely correct. Anyone remember "The Coming Economic Earthquake" by Larry Barnett? It made Larry Rich, even though Larry's predictions failed in every single case. Anyone can get rich writing a book about the next disaster because people love to be scared. Write a book about the coming good times and no one will buy it.

  Published: March 28, 2007 9:09 PM

• Ethan Jones

  The more I read about Ron Paul, the more impressed I become with his character and insight. I don't think I've ever seen a more consistent or principled politician. Truly is he a breath of fresh air - a rare specimen these days.

  I also believe that his revolutionary platform is necessary to save a dying economy; i.e. eliminating income tax and the Federal Reserve and reducing the size and scope of the Federal government. I also like his idea of returning to the gold standard as a means by which to regain a more stable and disciplined monetary policy.

  Face it: the arbitrary printing of baseless currency causes an increase in consumer prices, taxing personal savings. Not only that, it also destroys the incentive to save; after all, if prices are constantly increasing, the impetus for present consumption is intensified. This encourages people to be more gluttonous, consuming more than what they can afford and incurring more and more debt.

  I realize that I'm preaching to the choir and not saying anything new; however, consider that this is coming from a former Marxist sympathizer.

  Published: July 3, 2007 9:58 AM