Supporters of Capitalism are Crazy, Says Harvard
Last weekend, Harvard University sponsored a conference called (I am not making this up) "The Free Market Mindset: History, Psychology, and Consequences." Its purpose was to try to figure out why, since everyone knows the current crisis amounts to a failure of the market economy, the stupid rubes continue to believe in it. The promotional literature for the conference opened with a quotation from the oracle Alan Greenspan.
Well, that does it, then! If our Soviet commissar in charge of money and interest rates says the free market doesn't work, who are you to disagree? FULL ARTICLE
Comments (111)
Bruce Koerber
Money and Ethics
Monday, March 16, 2009
Bennie Madoff Bernanke Wants The Ponzi Scheme To Continue!
Yesterday evening I happened to surf on TV (I don't watch much TV) and I saw some 'reporter' interviewing Ben Bernanke, the Chairman of the Federal Reserve. I couldn't stomach more than a couple of 'questions' and 'answers.'
'Questions' that are really just designed as propaganda tools are ones that lead the listener along a false line of reasoning before ending with a request for a confirmation? For example the 'reporter' said that there was a depression in 1907 that lead to the formation of the Federal Reserve which from then on made it possible to cure depressions. And then the Ponzi scheme manager (alias Bennie Madoff Bernanke) confirmed that it is the Federal Reserve that can solve depressions!
Another 'question' by the pawn of the unConstitutional coup praised Bernanke as an expert on the Great Depression and then lead the listeners on a journey of lies and half-truths so that before Bennie Madoff Bernanke answered it was made clear that the Federal Reserve was doing right now exactly what it should be doing to prevent another Great Depression. Bernanke - the narcissist - tried to pretend that he modestly contributed a great, great and unparalleled amount of unmatched and magnificent knowledge about the Great Depression as a scholar prior to his appointment to the highest Keynesian position in a Keynesian world. Then he went on describing how more regulation that is made international will fix the problem!
When a Ponzi scheme is nearing its breakdown point the only hope is to expand it. So in that regard Bennie Madoff Bernanke is correct that more regulations are needed to keep the Ponzi scheme hidden and he is also correct about needing to expand of the scope of the Ponzi scheme.
What the scum failed to say and what the scum who interviewed him failed to ask was who were the victims of the Ponzi scheme?
The unConstitutional coup is desperately trying to brainwash the public and is nervous about the rising tide of rebellion against its counterfeit operation. Whether Bennie Madoff Bernanke knows it or not the unConstitutional coup will use him as a scapegoat when the economy continues to collapse, to divert attention away from their Presidential puppet as long as possible. They hope to impose strict totalitarian control and use the faltering economy and the 'popularity' of their puppet to accomplish their destruction of the Constitutional Republic. Their eyes are on the prize - world monetary hegemony!
Published: March 17, 2009 8:29 AM
Enjoy Every Sandwich
I can't help but wonder if these guys are putting us on. Can they really be that stupid? It is obvious (even to an uneducated rube like me) that most "policy makers" who "support" the free market have no idea what the term "free market" means. They say the words because that's what pops up on the teleprompter (luckily, "free market" is fairly easy to pronounce).
The rest of the "policy makers" who claim to support the free market are lying. Everybody knows (well, perhaps not Harvard PhDs) that politicians are unprincipled wretches who will say whatever gets votes.
Why would I submit to a monetary system run by idiots like Harvard PhDs?
Published: March 17, 2009 9:43 AM
Barry Loberfeld
The anti-capitalist mentality — yesterday and today:
(From Requiem for the Left)
Finale
Judgment
The feminist anti-pornography campaign was notable for several reasons: its insistence that modern pornography was the "theory" to the ancient evil of rape's "practice"; its adopted Marxian disdain for liberty and evidence (e.g., Kathleen Barry: "It is costly for us to be diverted to false issues like freedom of speech or ... trying to prove through research what we already know through common sense."); its alliance with authoritarian conservatives and the Reagan Administration; and most striking, its eventual eclipse by the campaign against the "rape culture," which by 1993 led to an anthology of essays by such American feminists as Gloria Steinem, bell hooks, Andrea Dworkin, and Susan Griffin.
What is the "rape culture"? Considering how the writers point to everything from religion to sports to (of course) capitalism, we should really ask: What isn't the "rape culture"? To which only one answer emerges: the feminists themselves. It is only they, their ideas, and their actions that are not in any way indicted. They find guilt everywhere but in the mirror.
On the face of it, the very concept of a "rape culture" is an absurdity. How does one logically contend that the crimes of sociopaths reflect the values of society? Are we similarly a pedophilia culture, a murder culture, etc.? What, then, do feminists gain from this demonization of everyone else?
The canonization of themselves. It is widely but erroneously believed that Nietzsche's "beyond good and evil" refers to the rejection of any notion of right and wrong. He was in fact comparing two warring archetypes of right and wrong: "good and evil" vs. "good and bad." Among the differences, the man of "good and bad" wants an "enemy" in whom "there is nothing to despise and very much to honor," he explains in On the Genealogy of Morals.
It is the evil of the Other that determines the good of oneself. Consequently, the greater the former, the greater the latter. What moral distinction did self-professed "feminists" gain from opposing only rape? Not much: Who doesn't oppose rape? In contrast, the anti-pornography campaign cast them in the role of crusaders -- against violence and for "equality" and "civil rights." But even this placed them only in the company -- i.e., on the same moral plane -- as the Religious Right and many other Americans. But the "rape culture"! Now their moral distinction, their moral superiority, was unmistakable when contrasted to the great evil of the masses.
For Leftists, all evil is mass evil -- "systemic," "institutional" evil -- against which only they stand. Just look at how over these past decades American racism has contracted in practice (largely because of the revolt against government-imposed segregation) but exploded in Leftist theory. The "rape culture" has also become a "racist society." It's gone from bigotry being the province of an Archie Bunker to this being a nation of Archie Bunkers -- and worse. Contemporary America is routinely described by such figures as Julianne Malveaux ("two hundred million white racists"), Joe Faegin ("every major aspect of life [here] is shaped ... by racist realities"), and Maulana Karenga ("increasing racism and continuing commitment to white supremacy") in terms honestly applicable to only apartheid or Nazism. But it's a progression not without its own logic: The greater the evil of the social masses, the greater the good of the socialist elite.
And how to make that evil greater but by making it absolute, i.e., manifested in every possible alternative? Consider this in relation to one of the Left's more asinine projects: Is the purpose of "politically correct" Newspeak to construct a language free from bias? An intriguing answer can be found in the example of feminist "thealogian" Mary Daly. Using a sometimes-specific term in a universal sense (e.g., "the pseudo-generic 'man'") will earn an accusation of sexism, while using only universal terms (e.g., "human") will draw an accusation of deliberately trying "to avoid confronting the specific problems of sexism." No matter what language a person uses, the Left reserves the right to condemn it for bias -- and to damn him as evil.
(And to exempt itself from any standard. After all, if not to "gender angle" the tragedy of violence, why speak of only a "rape culture"? What about other acts of violence against women -- robbery, assault, murder? Has it anything to do with the fact that these, too obviously, are also crimes against males?)
Even the economic inequality of the market substantiates the moral superiority of the Left, since the latter is the singular good that will vanquish the evil of the former. "Greed," like rape and racism, is judged yet another evil spreading throughout society. And the greater the evil of the social masses, the greater the need for the good of the socialist elite. "What you need," reveals Catharine MacKinnon, "is people who see through literature [!] like Andrea Dworkin, who see through law like me, to see through art and create the uncompromised women's visual vocabulary." While the Left condemns the free market for a division of labor based on ability and the alleged concoction of "false needs," its own politics centers on the dire need of the endarkened masses for axiological experts.
It is precisely the mechanics of this moral elitism that produces a superstructure of political elitism, the coercive rule of self-appointed experts, which is what every socialist government to date has been. What the Left has always condemned "capitalism" for most profoundly is its legal egalitarianism, its "formal equality" -- that is, its granting of political equality to moral unequals. In such a society, a Catharine MacKinnon has no more power than anyone else to censor others. Would-be Lenins and Maos and Castros are reduced to the Man on the Street. Each citizen controls his own property, and no cete of socialists is authorized to redistribute that wealth according to any scheme.
The equality of political liberty is the fundamental evil the Left opposes -- and the foremost evil the Left seeks to abolish. The feminists didn't legislate an end to rape, but an end to freedom of speech. What they achieved (especially in Canada) were laws that controlled speech in accordance with their dictates. And once they established this in connection to pornography, they then went on to declare that everything was "pornography," i.e., an agent of rape causation. (The title of that 1993 text? Transforming a Rape Culture.) The Communists didn't end hunger and poverty, but any economic (and cultural) activity not under their direction. This abolition of capitalist evil -- of capitalist "sham-liberty" -- is the one undisputed accomplishment of all socialist revolutionaries and the reason for their praise (and often iconization) by the West's would-be revolutionaries.
And like all aspects of the Left, it traces back to the same source -- Marx: "[While] its heart is the proletariat," the "head of the emancipation is philosophy," i.e., the theory class of the socialist elite. So much for the endless ruminating as to why "the workers' struggle" so engages intellectuals. In time, that "heart" has come to be identified with the Third World, minorities, women, the environment, but in every incarnation it remains an organ to be controlled by that "head," an epistemological and ethical hierarchy who will rule as philosopher-tyrants. The Republic of Marx
The Communist state -- even as the embryonic project of the League of the Just, whose proclamation was penned by Marx and Engels -- was never anything so much as an Inquisition launched against, not a handful of heretics, but the whole populace, for whom freedom would be only the freedom to do evil.
What flows from these premises fills every stream of collectivism. Forget about outright socialism and even such features of American social democracy as foreign aid (especially to foreign dictators) and corporate subsidies. Consider instead the most basic function of the "welfare state": care for the needy. What justifies the concentration of all "welfare" dollars into the hands of government except the notion that society will starve the poor but the State won't? Yes, the government -- essentially, a handful of guys with guns -- will be more compassionate and generous with the people's money than the people themselves -- the entirety of the population -- will. With that as a concession, is it any wonder that this limited welfare state continues to grow beyond its limits (possibly with socialized medicine as the next domino)?
Contempt for the masses, not compassion for the poor, motivates the welfare statist, a disciple manqué of the Gotha Marx. It is from his creation of an "evil" entity -- the "greed," "selfishness," and "materialism" of all others, of society -- that he derives, with his advocacy of redistribution, an opposed "good" identity -- his own "social conscience." For a Michael Moore, the evil of America -- of capitalist society -- is that it will not "guarantee" free, unlimited medicine for all as a political right, while his own good is to be found right there in his support for such a noble (i.e., paper) proclamation. His position doesn't come from a focus on the reality (theoretical and empirical) of health care as provided by the market vs. the State, a reality well known in Canada (which didn't legislate free, unlimited medicine for all, but government control over all areas of medicine) and brilliantly dramatized in the Québecois export The Barbarian Invasions, the 2004 Oscar winner for best foreign language film. If the good is to be found in the market -- in "civil society," the explicit enemy from Marx to Chomsky -- what is to be gained from setting oneself apart from -- above -- it?
Leftists have a very real reason for wanting their moral status -- their moral superiority -- to be established in that way (as opposed to more conventional, "reactionary" ones). When challenged for any studies supporting the claim that feminist censorship would stop rape, Susan Brownmiller responded: "The statistics will come. We supply the ideology; it's for other people to come up with the statistics." All right, so let's move from the issue of women's safety to that of women's health, where feminist laetrile peddlers are claiming that their product will stop breast cancer. When pressed for any kind of proof, a representative releases this: "The statistics will come. We supply the ideology; it's for other people to come up with the statistics." Moving back to the original context, is Brownmiller's statement any less corrupt, any less contemptible?
When Viva magazine editor Patricia Bosworth made revisions in an article submitted by Andrea Dworkin, Dworkin "threw me to the ground and practically pinned me. She physically held me there and said, 'I won't let this run until the cuts are restored.' If you know how slight I am and how big she is, you can imagine my dilemma. We reached a compromise and the piece, which was about the horrors of Chinese footbinding, ran." The horror of a physical assault of a woman in the workplace, however, didn't prevent Dworkin from going on to provide the introduction to 1992's Sexual Harassment: Women Speak Out. ("The verbal assaults and some physical assault are endemic in the environment, a given, an apparently inevitable emanation of the male spirit.")
And in 1984, a 23-year-old woman in Minneapolis, then the epicenter of the anti-pornography campaign, took gasoline and immolated herself. When confronted with the news of this horrific and pointless tragedy, Catharine MacKinnon simply responded: "Women feel very desperate about the existence of pornography. This doesn't single her out. People make choices on how [to protest it]." Unbelievable. The feminist who cries for the nonexistent victims of "snuff films" (feminism's blood libel against men) can't even conjure a tear for a young woman who actually set herself on fire in the name of MacKinnon's own movement. The feminist who wants to hold others responsible for the violence they (allegedly) inspire gives absolutely no indication that she believes herself in any way responsible for inspiring this act of violence, much less that she should be held so legally. The feminist who propagates a dehumanizing lab-rat ideology of behavior, who denies that adults can make truly free decisions regarding their own lives (such as a young woman posing for a magazine), now tells us that people can "make choices" -- such as a young woman dousing herself with gasoline. Observe how MacKinnon doesn't even seem worried that -- or particularly bothered if -- other women might make similar "choices."
But as grotesque as all these things are, what's worst is how utterly they pale compared to the justifications the Left has given over the decades -- the eggs-omelet analogy and its many equivalents -- for the destruction of the lives and liberties of untold millions of common people by socialist kakistocracy. The "moral" impulse of the Left is (to borrow the poet's terms) the passionate intensity of the worst who think themselves the best.
Leftism constantly reveals itself for what so many have called it: a religious dogma. The religious aspects are innumerable, including the doctrine of a sinful humanity that needs the saving gospel of an elect that itself cannot fall from grace, an elect ordained to construct and control an earthly theocracy. The dogma is to be found in the attempts to juggle internal contradictions and insulate itself from empirical falsification. When the vision before one's eyes is eclipsed by the vision behind one's eyes, dogmas become outright delusions. And just as the sun itself is useless to a blind man, all the reality in the world will not liberate a mind enslaved by delusions, be they of grandeur or anything else.
Published: March 17, 2009 9:48 AM
Franklin
Difficult to say the extent to which "Harvard" is anti-capitalist. Seems to me that among its investments, tuition charges, endowments reaching upwards of $30-billion, its business model appears to be quite robust. Throw in a few more conferences, controversial guest speakers, and the overall operation (non-profit notwithstanding) is quite the earnings machine.
Published: March 17, 2009 9:59 AM
greg
I was kind of with you on this article in the beginning, but you just lost me the more I read.
People like Peter Schiff and Ron Paul do not predict squat! They take a single line position and continue with it forever. Hell, I can play roullette and bet on black everytime and I would be right 48% of the time. Their perma-bear position yeilds less odds than that, but given the current conditions, people like you elevate them to the high position of economic forecasting.
Having been schooled in Austrian Economics, formed a home building business, hold one patent and currently run an investment fund, your position of the downturn is completely off base. The problem is complex but for me to sum it up, it is more a problem of people trying to make profits off of leveraging other people's funds. Left unchecked and unregulated, they over extended to the point where a 10% downturn led to forced liquidation.
Interest rates of 3% or 15% did not matter. If they could trade and make money, these traders really didn't care. For homebuilders, the interest rates they paid on spec homes was just a cost of construction that everyone paid, and is not a factor on their decision to build.
I still am a believer in the free market system but the system needs rules or laws to protect property rights.
Published: March 17, 2009 10:00 AM
re Bruce
Die Pleite hat ungeahnte Ausmaße: Insolvenzverwalter Michael Frege bezifferte am Dienstag auf der ersten Gläubigerversammlung für die deutsche Tochter der zusammengebrochenen US-Investmentbank die Gesamtforderungen auf 38,2 Milliarden Euro.
Fast die Hälfte davon geht allerdings auf Lehman-Gesellschaften zurück. Ob deren Ansprüche wirtschaftlich und rechtlich angemessen seien, müsse der Insolvenzverwalter noch prüfen, teilte die Bank mit. Die Finanzaufsicht BaFin hatte das Institut Mitte September geschlossen und damals von Verbindlichkeiten gegenüber institutionellen Kunden von lediglich 14,3 Milliarden Euro gesprochen.
Published: March 17, 2009 10:08 AM
DD
greg,
"Having been schooled in Austrian Economics"
You've been schooled in Austrian economics, and I am God!
In other blogs, you may actually be able to get away with such a lie in order to gain some extra false credibility.
Published: March 17, 2009 10:22 AM
Stephen Grossman
This Harvard conference, a mere personal attack, is more evidence of the corruption of contemporary, mainstream philosophy and the universities. Ayn Rand's philosophy of Objectivism is the only alternative.
Published: March 17, 2009 11:00 AM
Mark
I have a thread on this in the forum. This the first shot in a new attempt by the socialists in academia to avoid debate on free markets by smearing the supporters of them with baseless accusations of mental illness. This is nothing but an elaborate ad hominem attack.
Published: March 17, 2009 11:01 AM
Stephen Grossman
Franklin
>Difficult to say the extent to which "Harvard" is anti-capitalist. Seems to me that among its investments, tuition charges, endowments reaching upwards of $30-billion, its business model appears to be quite robust.
This is a perfect example of intellectual corruption. Frankin evades ideas for economic class. Harvard is wealthy, thus, he rationalizes, it is capitalist despite a long and dishonorable history of anti-capitalist ideas. This is an attack on man's mind, the source of production.
Published: March 17, 2009 11:07 AM
Psychological
This Harvard conference represents an ad hominem attack on good economics. You have probably been in the situation where you win an argument by facts and reason, so your opponent resorts to attacking your character and motives. The collectivists and socialists have lost the argument, so now they claim their opponents must be mentally ill to oppose them.
The soviet gulags were intended to "reeducate" those who failed to see the virtue of the State. America is already implementing a system to help those who want to be free see the error of their ways. More and more we see campaigns questioning why anyone would be so morally and mentally deficient as to believe in liberty. An open intellectual forum debating the virtue and soundness of ideas is anathema. We must define free thought as a form of insanity and get those people treatment!.
Published: March 17, 2009 11:41 AM
Paul Marks
There were a whole series of articles (on this blog) not just about how the montary policy of Alan Greenspan was leading to cliff, but also on specific stuff - like Fannie Mae and Freddie Mac, exactly what they were doing and why it was wrong. All well before the event.
Austrian School economists do not believe that "science is prediction", but it was the Austrian School that predicted what government intervention was going to lead to.
By the way interventionism and corporate welfare (such as the Federal Reserve system and its antics) has got nothing to do with "establishing rules to protect private property" it is closer to the opposite.
Published: March 17, 2009 11:48 AM
Eric
Let's protect property rights GREG style:
Since GREG is so productive, let's share his productive genus with others. Since he obviously has great ability, let's protect his property by giving it to those not so fortunate - according to their needs.
And of his patent, well, now there's something to leave him with. That is, after all, his private property.
Published: March 17, 2009 11:54 AM
lightofliberty
Imagine yourself as a free market Luke Skywalker with Obi Wan von Mises at your side staring across the barren intellectual desert. In the distance, there is a bustling cityscape. He turns to you and says "Socialism. You will never find a more wretched hive of scum and villainy. We must be cautious."
Thanks, Mr. Woods, for another eye-rolling moment. I don't suppose the conference would begin with "Let's first define free markets" or even ask "What is a free market?" Everyone has caught on to the whole socialist/statist smear campaign that has lasted for decades. Carry the torch of liberty high and proud!
Published: March 17, 2009 11:56 AM
billwald
"People who believe in the market economy support a social order in which free individuals make voluntary contracts with each other, and no one can initiate physical force against anyone else."
OPEC: Perfect example of the Libertarian market economy, free individuals make voluntary contracts with each other and no force is initiated.
Published: March 17, 2009 12:10 PM
Robert A. Meyer
Metaphysicians claim we live in a world of illusion. Apparently, government planners, altruists and Keynesian economists are attempting to prove that illusion is reality. You know: A=B, C, D or anything else they claim it equals.
When a person exists in a haze of unreality—believing that his illusions have substance—he will maliciously defend these illusions no matter how many people he bankrupts, tortures or kills.
Published: March 17, 2009 12:14 PM
Franklin
Stephen writes, "Franklin evades ideas for economic class."
Quite the contrary and you ignore the subtle irony and sarcasm.
Firstly, I'm not an apologist for the school, nor have any relationship with it, past nor current. I did not attend the conference so I make assumptions that the provost and the Board of Trustees did not sign an endorsement supporting the conference argument and speakers' opinions.
The mission of the school is ostensibly promotion of thought, exchange of ideas. So right off the bat, I do take issue with the, "Harvard says" in the article title.
The service that Harvard provides its clients in the marketplace is a curriculum and a piece of paper, in exchange for tuition. The method they provide the service is via classes and conferences (among other means, of course).
The school's administrators, historically, have done quite well in securing wealth for the university (mostly through peaceful association, marketing, relationship building, and shrewd investments).
They play the capitalist game, as they would define it. Nevertheless, their teachers are oftentimes socialists and left-Democrats who generally ignore this matter.
So I am amused (no, scratch that), I am resigned to the fact that those who criticize the capitalist paradigm (and misunderstand it as well) readily enjoy its fruits. Those who criticize it, include rich talking head CNBC corporatists, establishment leftist actors in Hollywood, and much of academia. (I still maintain that the US system, as imperfect as it is, and drifting farther each day, still is relatively "capitalist.") Thus the irony.
Published: March 17, 2009 12:23 PM
Michael A. Clem
Um, billwald, isn't OPEC an agreement between nations, not individuals?
OPEC stands for Organization of the Petroleum Exporting Countries, and is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. I don't know what you think, but those countries don't sound like anarchocapitalist institutions made up of free and voluntary individuals to me, or even liberal democratic societies. You think Venezuela is a laissez-faire capitalist paradise? Perhaps Hugo Chavez is in need of a new speechwriter.
Published: March 17, 2009 12:26 PM
Joe Stoutenburg
I think that the author takes the right approach to challenge the pre-conceived notion that free markets caused recent problems. How free is our economy if money is managed by a central agency with government-granted monopoly status? People sincerely seeking to learn may make a great deal of headway connecting the dots on that question alone even without delving into the mechanics of modern banking.
I hope that the Mises institute continues to hammer at that effective message.
That being said, I have a matter of respectful critique regarding a trend that I have noticed. I think that the level of cynicism, sarcasm and uncivility often displayed by writers here is unbecoming of the scholarship that I think your position may command. I understand that you are often responding to people who are themselves uncivil. Indeed, I don't imagine that I would defend much of what was said at the Harvard conference.
It is hard to not return tit for tat. But I hope that you will consider it beneath you to waste time on people who can not be civil. Respond to them, but do so in a dignified manner. Austrian positions are good enough to stand so.
Published: March 17, 2009 12:34 PM
Joe Stoutenburg
Franklin wrote:
I do take issue with the, "Harvard says" in the article title.
I had the same thought when I opened the article. I'm sure that the author would agree that a more accurate title would be something like "Supporters of Capitalism are Crazy, Say Some Harvard Faculty". To maintain that all people at Harvard say so would be to repeat an ordeal like that suffered by your own Walter Block.
Published: March 17, 2009 12:43 PM
FTG
OPEC: Perfect example of the Libertarian market economy, free individuals make voluntary contracts with each other and no force is initiated.
Countries (i.e. State kleptomaniacs) forming cartels is not the same as individuals forming cartels. Pick a better example.
Published: March 17, 2009 12:45 PM
Billy Beck
"billwald": "OPEC: Perfect example of the Libertarian market economy, free individuals make voluntary contracts with each other and no force is initiated."
Are you fucking stupid? Do you realize that you're talking about a bunch of dirt-scratching savages who would still be living on piles of camel-shit if they hadn't stolen what Westerners built in the trackless and otherwise useless wastes where they live?
Sit down and shut up, you unconscionable imbecile.
Published: March 17, 2009 12:57 PM
Inquisitor
"OPEC: Perfect example of the Libertarian market economy, free individuals make voluntary contracts with each other and no force is initiated. "
Troll spotted! Do you honestly believe the crap you spew on this blog?
Published: March 17, 2009 1:14 PM
Matt R.
OPEC? You've got to be kidding me!
Published: March 17, 2009 1:29 PM
EnEm
These guys sound like minions of Drs. Robert Stadler & Simon Pritchett. This conference would have made them proud.
Published: March 17, 2009 1:31 PM
Chip
Okay. Seriously I dont nedd to type three paragraphs explaining the idiocaracy of the conference. We who have done our studying know the faults. My question is what about sites like capitalism.org? Who claim libertarians are anti capitalist because of our ties to rothbard and anarchism? I mean seriously can someone clarify?
Published: March 17, 2009 1:41 PM
Chip
Okay. Seriously I dont nedd to type three paragraphs explaining the idiocaracy of the conference. We who have done our studying know the faults. My question is what about sites like capitalism.org? Who claim libertarians are anti capitalist because of our ties to rothbard and anarchism? I mean seriously can someone clarify?
Published: March 17, 2009 1:45 PM
Richard H.
If anything can be taken from our current debacle, the news coverage, and this conference, it is that few people have any idea as to what capitalism actually is. as such any meaningful debate, at least with the general populace, is a nonstarter. As long as people look at various forms and degrees of mercantilism and corporatism and identify them as capitalism, there's going to be confusion. And if we are truly worried and offended by the belief of some Harvardites that those who believe in free markets are nuts, we should challenge them to first define what exactly a free market is, and then ask how what amounts to a massive price fixing scheme fits in with their assessment of just how 'free' the US market really is.
Published: March 17, 2009 2:12 PM
Tim
I know the people who run this site are all up for liberty and freedom of speech, but some comments left here are just disgraceful. I mean I kind of expected higher standards from this site. This isn't youtube, 4chan or some social networking forum. When people come here they should be expected to behave at least formally and refrain from spouting obscenities and insulting others.
Libertarians are shocked at how the court babblers at Harvard associate the idea of the free markets with insanity. Yet they viciously lash out at anyone who tries to present even the slightest deviation from their own idea of liberty or the economy. A poster who went by the name "greg" presented a few perfectly valid points regarding the nature of this crisis. Even if you disagreed with him, you would at least try to point out where he was wrong and explain to him otherwise. Nowhere did he advocate the disastrous Keynesian approach that the governments are following right now. Still, he was showered with petty insults and dismissed without any of his points addressed.
Again someone else made an off hand remark about OPEC being a libertarian venture, perhaps more in sarcasm than anything else. The response? A profanity laced, racist, completely inane personal attack against him. Is this what we want to be known for? Calling anyone who disagrees with us "fucking idiots"?
This site really needs stricter moderation.
Published: March 17, 2009 2:14 PM
Michael A. Clem
Tim, including my own, I counted five responses to billwald's OPEC comment. Of those five, only one of them was an uncivil comment. Perhaps that's one too many, but four out of five comments were not attacks.
Published: March 17, 2009 2:20 PM
redshirt
Greg,
Anyone can make that argument about anything... you could be always one way or the other or vacillate on the idea du jour. Then someone would argue that you chose this way or that and it is only because you choose in a particular pattern that you are occasionally right. That is true of all positions to some extent... pointless to bring it up.
The fact is the ideas predict nicely what happened. Period. A few policy makers will never make better decisions then the market as a whole. You should take a look at this:
http://www.campaignforliberty.com/blog.php?view=13512
Interest rates in fact make all the difference. Higher interest rates spur on higher savings while also reducing the rate of risky investment. You are missing this point by dismissing the value of interest rates; they are a feedback mechanism indicating the amount of savings available to drive investment.
You are commenting that there would be a bubble no matter what, but there isn't any Austrian economists that deny bubbles occur in a free market... they simply do not have the momentum generated by the government which inflates the problem.
You are missing the key features of the argument it seems.
Another key feature of the argument is that government is need of regulating itself. The lack of good performance by the government has been key in the regulatory failures. Moreover, when government regulates the market it very often chooses incorrectly and causes many unintended consequences, such as stifling small business development and promoting big business with the very laws it intended to reign in big business.
It's a mess.
Published: March 17, 2009 2:34 PM
Frank V.
Von Mises, Rothbard, Hazlett, and many other libertarians were, and are, part of an ongoing campaign aimed at smearing John Maynard Keynes based on lies,untruths ,and canards. And why?
Because the business cycle is due to technological and financial innovations that create endogenous uncertainty (not just an element of uncertainty;uncertainty is the major problem. No person has a chance of ever getting Keynes down correctly until they recognize this basic fact).UNCERTAINTY OF THE FUTURE IS THE MAJOR PROBLEM. Only Keynes,Ellsberg ,and Mandelbrot have clearcut technical analysis dealing with it. No Austrian or Libertarian economist has ever shown how to deal technically with uncertainty in formal,analytic terms.
Published: March 17, 2009 2:41 PM
Mark Knutson
Probably best to look at this long term and recall that harvard was founded as a religious school--only difference now is the ideologues there are fancy themselves scientists when in fact they are religious fundamentalists. Its faith-based economics--so no need to examine its predictive value.
Published: March 17, 2009 2:50 PM
Deefburger
I don't think any of you have noticed, but this site is getting more and more traffic. I think that it is being targeted by trolls and shills and to good effect. The problem is that the comments code for this site does not have "mod" capabilities. Many people read the posts without adding comments, but even though they will not comment regularly, they are usually willing to mod a post thumbs up or down. Slashdot hides annonymous posts automatically, and mod systems can auto-hide a post modded down too many times.
I think we need an upgrade to the forum code!
DV, you listening?
Published: March 17, 2009 2:53 PM
C. Evans
Deefburger,
I did not notice until you mentioned it, but you do have a point. The last two days I have noticed several hit and run statist comments. Some statists, however, are sticking around and engaging in debate. Overall, I think this helps us sharpen our arguments, but I'm not sure if we'll be converting very many trolls and shills. I subscribe to Chodorov's theory of innate statism, so any converts we make are probably nascent libertarians unaware of their true ideology.
Published: March 17, 2009 3:05 PM
Magnus
UNCERTAINTY OF THE FUTURE IS THE MAJOR PROBLEM.
And adaptation to change is the solution.
The only way to adapt to changing economic circumstances is for everyone in the economy to KNOW about changing economic circumstances.
That information is transmitted throughout the economy via prices. If you had read Hayek, you'd understand this.
Keynesian government spending (and the monetary socialism on which it is predicated) distorts prices. It makes it IMPOSSIBLE for the agents in the economy to know what they NEED to know to react to economic changes. Distorting prices through inflation is a sure-fire way to make everyone in the economy intentionally ignorant and blind, and thus, incapable of adaptation to the kinds of ecological changes you mentioned.
Trying to forcibly clamp down on price volatility doesn't make the economic changes that prompted them go away (regardless of how much politicians might like them to).
Published: March 17, 2009 3:06 PM
A.Viirlaid
Great article!
Thank you to Thomas E. Woods, Jr.
I have decided that Mainstream Economics is like Climate Science.
Both are very immature sciences. IMO Keynes never did grow up.
People can make comments and opinions and get away with presenting them as self-evident 'facts'.
The logical approach taken by the Austrian School will one day be acknowledged IMO.
But that day will not come until (and maybe not even then) the future turns out not as Ben Bernanke and Alan Greenspan expect.
Not every collapsed bubble (so hard to recognize according to Greenspan when we are in an expanding one) will lend itself to being "mopped up".
I love it --- "mopped up" --- no, the FED is delusional if it thinks this Mother of All Credit Bubbles (directly created by it and other Central Banks) will be "mopped up".
Nobody has a MOP big enough.
Indeed it may be that this Credit Implosion will “mop up” the Federal Reserve System.
And only then will the naysayers possibly consider the Austrian explanation (sad to say). This is to our detriment. The suffering was completely avoidable.
Are there no Austrians at Harvard? Hard to believe!
Published: March 17, 2009 3:19 PM
I Hate The Government
Free Market Capitalism FAILED to defend itself against governmental, social and union aggression.
Free Market Capitalism is perfect at producing wealth but an absolute loser at protecting the wealth it produced.
We need a defense mechanism to arm capitalism and let it protect the wealth it creates against government and all other institutional looters.
Published: March 17, 2009 3:43 PM
I Hate The Government
Tim,
In a libertarian framework, any companies are free to join together to form a cartel in an attempt to manage offer and increase the prices.
They are just not allowed to force other companies to join their cartel.
And by making a cartel to force prices up, you set up the environment for other companies to defect from the cartel and offer lower prices.
In free market capitalism, price gouging is impossible because high prices makes it easy for other comapies to offer slightly lower prices to compete and eventually the price gouging cartel breaks appart.
Only when there is government regulation and monopoly is it possible for price gouging cartels to endure the test of time.
Published: March 17, 2009 3:50 PM
I Hate The Government
Sandwich,
Voters vote every 4 years, consumers vote every second.
If I was to promote libertarianism, I would not do this through politics, I would try to turn libertarianism into a goods or services and offer it for sale.
I would get more "votes" that way.
The best way to promote libertarianism is to develop a trading platform that makes it acceptable to avoid taxes and regulations.
Clandestine economy is the only thing that will put government to an end.
Published: March 17, 2009 3:53 PM
Frank V.
It is interesting to realize that the bankers have again brought the United States to the edge of financial catastrophe with their highly speculative loan policies.
Let's rewind through history a little bit:
Herbert Hoover, blamed for the Great Depression in the United States,calla the future outcome one hundred percent correctly when he statea that the speculation of the late 1920's would lead to a Depression unless the banker financed speculative build up was stopped.Hoover's attempt to stop the insane rate cut failed.
And today: Greenspan,a well known libertarian,as well as a supporter and advocate of the economic confusions of Murray Rothbard, allowed the private commercial banks to engage in massive speculative debt leverage on the assumption that the free market would provide the discipline necessary to prevent the current catastrophe .Unfortunately, Greenspan never read Adam Smith's warning about the great dangers of a private commercial banking industry engaging in speculative loan practices.Smith was very clear-private bank loans made to speculators will end up being "...wasted and destroyed ".This is exactly what has happened .I recommend that you study the ancient wisdom of Adam Smith and not the nonsense of Murray Rothbard or Thomas Woods.
Published: March 17, 2009 4:17 PM
Tom Woods
Too much to reply to here, but:
1) Low interest rates played no role in production decisions by construction companies? How about the very fact that resources, including labor, were shifted into this industry because of its artificial profitability? The objection takes for granted that the amount of resources devoted to home production is fixed, and then the interest rate has its effect from there. This assumes away most of the issue.
2) The bubble in housing created subsidiary bubbles in other industries related to housing. It is shortsighted to look only to housing for the effects of the bubble.
3) "Speculative loan practices" are condemned in one of the comments. The banks were making lots of crazy loans. Gee, you think the presence of the Fed and its constant injections of fresh reserves might have had a little bit to do with that? Is it just a coincidence that all throughout American history, wild speculative activity accompanies expansionary monetary policy by the Fed?
Published: March 17, 2009 4:25 PM
Tom Woods
One small edit to my comment: the last few words should be "by the central bank" rather than "by the Fed," since this phenomenon is evident throughout the nineteenth century and the crummy national banks that existed at that time as well.
Published: March 17, 2009 4:28 PM
Jeremy Matthews
Frank V.,
Maybe you're a troll but I just have to ask two questions: Are we talking about Greenspan, the CENTRAL BANKER? Have you read Rothbard?
Maybe I'm crazy, but to say that Greenspan was a supporter and advocate of Rothbard's economics strikes me as absurd.
Then again, I didn't attend an Ivy League school...
Published: March 17, 2009 4:29 PM
gene
Redshirt, you are right about interest rates!
It is possible that higher [natural] interest rates may have prevented the entire ordeal. The mortgage backed security does not work well with high rates.
1. with high rates, the banker has more incentive to keep the mortgage for its entirety or charge more for it to a broker or bundler.
2. The MBS is very risky [that's a laugh!] with higher rates. homeowners with high rate mortgages always looked to refinance therefore "cashing" out their original loan. This causes a "loss" for the security holder of at least interest return but most likely principle also as the security is bought for above principle value [but below total return].
The MBS needs the low interest rate and easy money to spur the banker to opt for quantity of loans over quality.
Published: March 17, 2009 4:38 PM
Garoad
This article is a masterpiece, as usual. It's more than a little outrageous that these people ("the established economic authorities") still have been able to so far hang on to their level of control and influence. Such arrogance and ignorance! But I've been making some headway with people I know personally, in debunking their myths and getting people interested in learning about the Austrian school, so hopefully that's a trend that is happening on a larger scale in light of recent events.
I feel everyone here should be doing the same with people they know, any chance you get. Bring some books or mises.org conversation starters for display at work. The message isn't always accepted by those that are extremely rooted in "state dependency" thinking, but just as many are disgusted with the state and find the information makes more sense than what comes out of the mainstream.
I even have a hardcore "Obama supporter" reading Meltdown and so far he thinks it makes good points. Whether this will have any effect, I can't say yet, but I hope so.
Published: March 17, 2009 4:54 PM
Inquisitor
"#
Von Mises, Rothbard, Hazlett, and many other libertarians were, and are, part of an ongoing campaign aimed at smearing John Maynard Keynes based on lies,untruths ,and canards. And why?
Because the business cycle is due to technological and financial innovations that create endogenous uncertainty (not just an element of uncertainty;uncertainty is the major problem. No person has a chance of ever getting Keynes down correctly until they recognize this basic fact).UNCERTAINTY OF THE FUTURE IS THE MAJOR PROBLEM. Only Keynes,Ellsberg ,and Mandelbrot have clearcut technical analysis dealing with it. No Austrian or Libertarian economist has ever shown how to deal technically with uncertainty in formal,analytic terms."
Nope, uncertainty is not the problem (if it is, it afflicts governments even more severely...). The problem is price-controlling the interest rate. That no "Austrian" has shown how to deal with "uncertainty" in "formal, analytic" (scientism much?) terms is neither here nor there. Why should they, moreover? No one here is interested in "smearing" Keynes, as opposed to deconstructing the barrage of lies and nonsense he engaged in. Who cares how nicely Mandelbrot can play with numbers, when the assumptions translated into them are flawed? I think Magnus's response pretty much disposed of your assertions ex cathedra.
Published: March 17, 2009 5:02 PM
Morty
Frank V, is that the same Adam Smith who believed in the thoroughly debunked labor theory of value? Yes? I'm thinking maybe he shouldn't be held up as the infallible source of all economic knowledge.
"Greenspan,a well known libertarian,as well as a supporter and advocate of the economic confusions of Murray Rothbard"
We have ourselves a potential head of the Harvard Economics Dept. posting right here on our blog!
Published: March 17, 2009 5:32 PM
Konrad Swart
Hi, Greg.
You made a valid point. You are right about what you wrote: Quote: The problem is complex but for me to sum it up, it is more a problem of people trying to make profits off of leveraging other people's funds. Left unchecked and unregulated, they over extended to the point where a 10% downturn led to forced liquidation.
I think others do not understand the whole concept of leverage as you clearly do. It is also correct that there is something wrong with the 'unregulated' part, exactly as you wrote.
The problem, however, is deeper. When people want to use leverage through mortgages, the banks can only give those people the loan to be used for leverage, through creating new money.
According to Austrian theory, this means that the investors only see an opportunity to use leverage in the first place, because the banks are allowed to use the mechanism of fractional reserve to create the money thus asked for.
This creates three problems.
The first is, macro economically speaking, there is more money put into the economy. And since there is no corresponding increase in production, the money must be put against something into the economy already existing. The longer something exists, the more the money is put against exactly that. Simply said, the money is put against the more durable products. Houses are the most durable, and therefore they are the one that raise the most in prices. That is why this scheme leads to a feedback loop, whereby the prices of houses rise, which makes investors see that that is the place where money can be made most easily, through mortgages, which lets them go to banks for lending money to leverage, which causes more money to be put into the economy, which causes the prices of houses to rise more etc, until there is no real relationship between the effort needed to create houses, and their prices. So there is an imbalance in the economy.
The second problem, and that is what leads to its breakdown is this. The more it seems that money can be earned in this way through leverage, the greater the demand for people to buy houses through mortgages. But there are simply not enough 'sound buyers of houses' to sell these mortgages to. So there is a search going on for more people willing but NOT ABLE to buy houses, and pay for the mortgages. This makes the investments in houses more speculative, and more risky. This is the stimulus of taking more risk, and the causing of more insecurity in society Austrian business cycle theory is talking about in this particular case.
The third problem is this. The banks do not lend the money for these mortgages for nothing. They want to have more money back in the form of interest payments. But this interest is NOT created by the banks 'out of thin air' also. So, macro-economically speaking, this money must come from somewhere else. If it does not, then the investment becomes even more risky. The new homeowners, who could afford the money less in the first place, cannot even find the interest on the mortgages in the economy, because it is not created also. This speeds up the defaulting. The banks then come into a position whereby they do not only not get the interest back, but they do not even get back the principal. This is lost. The banks therefore cannot create more money out of thin air, because the rules forbid it. They therefore cannot provide credit for other investments. This then IS the 'credit crisis'.
The funny thing is, that the government CAN solve the problem, at least temporarily. If the government increases the deficit spending through selling government bonds to the FED, it creates, within society the extra money needed to pay the interest on the mortgage loans. This will delay the collapse of the monetary system for maybe a decade. Therefore I expect the 'big collapse' to occur about 8 to 10 years from now, that is, around 2017 - 2020.
What is the root of the problem? It is simply that the banks are allowed to create money 'out of thin air'. They are allowed to receive interest on money they have not gotten from savers. So they do not have any RIGHT on this interest. It is a form of robbery, and, very funny if you think about it, a corroboration of the thesis of a. Rodbertus (See Eugen von Böhm Bawerk's first book on Capital and Interest, the exploitation theory of Interest), that interest is theft. In this case, indeed it is. If you are not capable to make a clear distinction between 'honest interest' and 'deceptive interest', then this IS an argument against 'Capitalism'. This is so, because you NEED to solve the Interest problem as stated by Eugen von Böhm Bawerk to solve this problem.
As far as I know, within Austrian economics NOBODY has solved the Interest problem yet. which Eugen von Böhm Bawerk devoted his entire life to solve, but he himself admitted not to have solved.
To solve it, according to Eugen von Böhm Bawerk, you need two questions to answer. He could not solve either of the two questions. The first is: what is the ORIGIN of Interest? The second is : what is the JUSTIFICATION of interest?
Maybe surprising for many, it is George Reisman who solved the first problem. He has shown, that within a really free market, there is no 'extra money interest problem' as I explained above, because, macroscopically speaking, the extra money comes from those who consume AFTER production. And these are the Investors. You must go through his whole book, especially the flowcharts at the end of his book, AND his explanation on his own website, to see that this is, indeed, the solution.
The second problem, the JUSTIFICATION problem, is still an unsolved problem. I think I have solved it, and I am writing a book about it. But let us return to you.
You make a valid point when you say: 'Left unchecked and unregulated, they over extended to the point where a 10% downturn led to forced liquidation.' This point, though, is not an answer, but a question. The question is: what regluation, in particular, is needed?
The answer is as follows. By ACCEPTING fiat money, instead of gold, and by not outlawing fractional reserve banking, and identifying it as the crime it is, as is explained by De Soto, people are CONNED by bankers. The business cycles are the result of corrupt banking. I do not think that it is on purpose, but it is because there is no full understanding of the nature of fractional reserve banking. And this is because of the fact, that the Interest problem is not solved. Especially it is NOT solved by Austrian economics. That is why the points you raise are valid one's.
So what is needed is two things. A solution of the justification part of the Interest problem. And, as a consequence, an absolute ban on any form of fractional reserve banking.
So what is needed is, indeed a further regulation, as you say. What is needed, to be exact, is only ONE SPECIFIC regulation. And that is a complete outlawing of any form of fractional reserve banking. If I would be 'in charge', I would even put nothing less than the death penalty on fractional reserve banking in any form whatsoever. This would be enough to make the economy completely sound. There would still be crises, but only when there is a major breakthrough in science and technology. These crises would be very mild one's, and in the eyes of what we now consider to be crises, so laughable in their scope, that we could consider them virtually nonexistent.
Published: March 17, 2009 6:19 PM
Garoad
Regarding "uncertainty being the problem", Magnus' comments pretty much ended that for anyone thinking logically and without bias. Central planning is bureaucratic, clumsy guesswork made by the few (often entirely economically ignorant), compared to the fast, dynamic, fact driven free market controlled by the many. Which sounds like it compensates for "uncertainty" better?
I also find it ironic that "technical analysis" is being used to combat "uncertainty"--as if uncertainty is something that can be calculated and quantified on a spreadsheet or using statistics. Perhaps this would work if you had a working crystal ball to predict the future (or heck, even one that accurately and completely explains what's happening in the present!), or if you had ESP to understand what everyone is thinking. Alas, Keynes was no fortune teller or mind reader, and neither are these Harvard quacks.
Published: March 17, 2009 6:20 PM
TCK
Konrad Swart,
I may be misunderstanding the question you raise about interest. I completely agree with your assessment that fractional reserve banking is tantamount to theft. In regards to the justification for the charging of interest on a loan, I think the subject of 'time preference' addresses this.
Published: March 17, 2009 7:22 PM
Oil Shock
Frank V,
Here is something Murray Rothbard wrote in 1987...
Greenspan's real qualification is that he can be trusted never to rock the establishment's boat. He has long positioned himself in the very middle of the economic spectrum. He is, like most other long-time Republican economists, a conservative Keynesian, which in these days is almost indistinguishable from the liberal Keynesians in the Democratic camp. In fact, his views are virtually the same as Paul Volcker, also a conservative Keynesian. Which means that he wants moderate deficits and tax increases, and will loudly worry about inflation as he pours on increases in the money supply."
Published: March 17, 2009 8:19 PM
Konrad
Hi, TCK.
Thanks for you response.
To answer your question requires some digression.
The time preference theory is exactly what Eugen von Böhm Bawerk came up with, but afther long thought he rejected it.
Ludwig von Mises believed nevertheless, that the time theory of interest as put forward by Bawerk was the solution to both questions about interest. The reason why Ludwig von Mises thought that Eugen von Böhm Bawerk did not see this, was because Eugen von Böhm Bawerk did not have the concept of Human Action that is the cornerstone of Ludwig von Mises' vision.
In particular there is the problem of 'length of production lines'. Mises thought that Eugen von Böhm Bawerk became confused, because Bawerk thought he had to consider the whole 'length of time' for any capital good to even exist. So all of history, from the stone age, should be part of the production lines leading to the present wealth, if you wanted to have a sound theory of interest. Von Mises identified this as a mistake, because the concept of Human Action assumes (correctly) that, economically speaking, only the future is important. History does not play a part in economy, economically speaking. This is, because human action takes the present as a given, and considers it as less satisfactory than something imagined into the future. Human action is then the means that transforms the present (less satisfactory) condition into the more satisfactory condition in the future.
The only distinction that is important in Misean analysis is that between goods and land. A good is 'something that disappears in time, even if not used', while 'land' is something that MIGHT be the result of actions of the present, but do not disappear when no action is taken. So 'land' becomes a technical term. This insight solved the problem of Bawerk, Mises believed. And, indeed, it is a significant breakthrough.
Human action, at any moment in time, is driven by the difference between the less satisfactory condition of the present and the more satisfactory condition imagined in the future. When that last condition has been become an actuality, the aim of the action has been reached.
This means, that you do not have to consider all of history, as Eugen von Böhm Bawerk believed. And therefore von Mises had thought that he had given a single justification for time preference, and therefore for interest, which was fully convincing. While Eugen von Böhm Bawerk needed three, none of which were fully convincing.
The problem with the time preference theory is this: It states, that any good or service in the present has a greater value than that same good or service in the future. Therefore, if you exchange a present good against a future good in monetary terms, you must be compensated for this difference in value. This difference in value, expressed in monetary terms, IS interest.
This theory is the consequence from the 'subjective evaluation theory of value', worked out through the marginal utility theory of value.
The problem is, that the marginal utility theory of value is simply wrong. Why? Because it is based on three things. Utility, scarcity, and subjective evaluation.
I think that utility and value have nothing whatsoever to do with each other. Value is a totally different phenomenon than Ludwig von Mises thought it was. In that sense I am not a Misean.
To be frank, I have a completely new theory of value, which I consider to be the next step in the Austrian theory of value. I have succeeded to derive the concept of value DIRECTLY from the concept of Human Action in a way, that even leads to a Cardinal Measure of value.
My own theory of value has one thing in common with Ludwig von Mises' theory of value, though. In that sense I 'stand on his shoulders'. Both his concept of value and mine are dependent on the individual. The difference is that he makes it dependent on the valuation of the individual, while I make it only dependent on the action of the individual. (Action as defined by von Mises: 'Human action is purposeful behavior.') I think the step I have made might cause such a deepening of Austrian economics, that nobody is able to ignore it any more.
It is my opinion, that the very fact that value is based on subjective evaluation is the very reason why Austrian economics is not mainstream. As I said, I am writing it all down now in my own book, so I am not going to explain it here. I just point at some problems that might convince you that the Austrian theory of economic value just 'does not cut it'.
To summarize, the Austrian theory of economic value assumes, that value is the result of three things: utility, scarcity and subjective evaluation. It is related to 'action', in the sense 'that we prefer to have the results of our actions as soon as possible'. It then leads to the concept of 'time preference', which is identical with the concept of interest, when connected to money.
What is the problem with this? It is that scarcity is a very important part of the Austrian theory of value.
And that is exactly why I reject it. Why? Because if scarcity is part of a theory of value, then the same objection can be raised against it that can be raised against the Marxian theory of value. It 'assumes that the goods and services are already there', and therefore it implies that THE definition of economy in its full generality is:
"Economy is the science that studies the distribution of scarce means among competing ends".
This is the definition accepted by Rothbard. I consider it strange, that nobody within the von Mises community has pointed out, that this definition is in essence socialist.
The problem with this definition is that it leaves production out of the picture. Why? Because production is a particular kind of human action. A kind of human action that has as its result the diminishing of scarcity. And that very fact shows, that economy has to be more than just 'the DISTRIBUTION of scarce means among competing ends'.
Reisman's definition is better. He defines economy as the science that studies the production of wealth under a system of division of labor. I almost agree with this definition. I would only like to replace the word: 'production' with 'creation'. This is because I do not believe in the belief, that human action is not creative, because it 'just rearranges the elements of nature'. A rearrangement can lead to actual creation in the sense that you can have a combination of elements, that unites into a whole, that does the exact opposite of its components. Just consider water. It consists of two gases, one highly explosive, hydrogen, and the other is a catalyzer of fire. But, both combined lead to water, which can be used to extinguish fire. If water was 'just a rearrangement of hydrogen and oxygen', and you knew that hydrogen is an explosive gas, while oxygen is a catalyzer of fire, then you would shrudder by the suggestion, that you must use water to extinguish fire.
The fact is, that the 'mere rearrangement' of hydrogen and oxygen, two gases, leads to a liquid having properties that cannot be explained by just considering hydrogen and oxygen. This is because the properties of water are the result of the interaction between hydrogen and oxygen. Therefore, the term 'mere rearrangement' is a huge misnomer. Arrangement can lead to a whole having properties that is not present in any of its components, and which might not even have existed before. Therefore human action can lead, through rearrangements to creation. And that is why I want to replace 'production of wealth' with 'creation of wealth' in Reisman's definition.
That this is very important can be seen by an article that appeared on this very website a short while ago. Somebody defended that file sharing (torrent websites) should be made completely legal, and that all products in the form of information, should have no price attached, because they were not scarce.
There has to be something very wrong about this, because movies, music, computer programs etc. are all definitely forms of wealth, created through human action. And therefore, in a completely honest economy, the makers should be paid for making them. The very fact, that file sharing websites were defended through using a scarcity argument on this very website shows to me, that the value theory of von Mises 'just is not it'. And therefore, despite the genius of von Mises, this part of his theory is the archilles heel, and this is why it fails to convince the rest of the economic world.
Mind you, I consider the von Mises economic theory the best of all of the known economic theories there is. But it is just not good enough to really solve 'the big problems' we now have in our society. To give just one example, even the simple fact that making more money leads to a decrease in value of the monetary unit cannot be PROVED by the Misean economy theory, simply because value is based on 'subjective evaluation'. The concept of 'subjective evaluation' is just too weak to prove this statement. A really convincing economic theory of value should be able to PROVE this statement, which we all know to be true. My point is, we know it (except when we are Keynesians), but it does not FOLLOW FROM Misean economics.
Or, to give a concrete example, if you assert that increasing the amount of money in circulation will cause a devaluation of the monetary unit, then a Keynesian could object, by stating that increases of the money supply wil STIMULATE more people to 'get the extra money', hence stimulate production, and, therefore, by the very fact that value is the result of subjective evaluation, will do the exact opposite. It will INCREASE the value of money. This means, that you can use Misean economics to defend Keynes! And this just because 'subjective evaluation' is one of the components of the value theory of Misean economics.
One of the the two words 'time preference' is 'preference', hence 'subjective evaluation'. And therefore it is NOT a justification of interest. At most it is a different way to describe interest. It is a pseudo-explanation for the justification of the following sort: 'Why does John drink milk? Because he is a Milk Drinker.' It is a question reformulated as an answer.
And that is why 'time preference' is no justification for interest.
Published: March 17, 2009 8:50 PM
Frank Staheli
I'm trying to understand how these simple economic truths are not making it through to more mainstream Americans. The Establishment has a TON invested in the wishful thinking that they might not be true, but for the average person who spends very much time at all thinking about it, these simple economic facts take the simplest of common sense to understand.
Economic truths exist that are as embedded in law as are the laws of gravity.
Long before I read Mr. Woods's "Meltdown", I understood these principles innately. My 12-year-old son understands them. Yet, as my own weblog attests, people cannot or will not see that the elephant in the room, without which hardly any of this economic mayhem could have happened, is the Federal Reserve.
Published: March 17, 2009 9:10 PM
Konrad Swart
To Frank Staheli.
You wrote: 'Economic truths exist that are as embedded in law as are the laws of gravity.'
Newton's law of motion reads:
F = dp/dt
or, force is equal to the change in the amount of motion. Amount of motion being equal to mass times velocity.
For thousands of years people believed Aristotle's statement, that a force is required to have motion. In Newton's language, this statement is equivalent to
F = p
This was the common sense for thousands of years.
My point is: common sense does not have to make sense. It is only common.
Published: March 17, 2009 9:39 PM
Inquisitor
"To be frank, I have a completely new theory of value, which I consider to be the next step in the Austrian theory of value. I have succeeded to derive the concept of value DIRECTLY from the concept of Human Action in a way, that even leads to a Cardinal Measure of value."
Elaborate. How does one derive a "cardinal" measure of "value"?
"I think that utility and value have nothing whatsoever to do with each other. Value is a totally different phenomenon than Ludwig von Mises thought it was."
Same as before.
Published: March 17, 2009 11:10 PM
Jaycephus
I'm not an economist, but I am a thinker...
I'm interested in reading more of what you have to say Konrad. I'll be reading Human Action as soon as I am able, first.
It has always bothered me to hear that digital media, or IP or different sorts, should be free. (Information 'wants' to be free? Maybe that expresses a principle, but it's an extremely poor way to do it. I do know there is a LOT of value in making sure it isn't free. And as a documentation writer, I would have to point out that there is a lot of information that costs a hell of a lot to make it 'free'.) I was surprised to find that argument here. Just because production costs are down to zero doesn't mean it has no value.
Say I'm a chef in the future when I have a Star Trek matter-reconstitution device that lets me make any food items I can download from the internet, or come up with myself and copy into the system, i.e. 'digitize'. Assuming energy costs are negligible, then this situation is no different than copying digitial music (the matter in question is obtained from organic wastes - instant recycling, assumed to be negligible cost, since the desired elements are trasported from the waste to the item being reconstituted).
The point is, as long as I don't permit any of my creations to be pirated, if I am a good chef, I can make a living running my restuarant, and if I'm great, I get rich (relative to others in this futuristic scenario). Obviously, my creations have value, and it seems the only factor is their subjective evaluation by my patrons, a value that exists because I have created something that delights them.
I can only receive value for them as long as I keep them from being pirated. If my creation is pirated, anyone will be able to have it produced in his own matter-reconstitution system for dinner. The value is expressed then by how popular a download it becomes. The demand is still there, but I no longer receive any renumeration. I must keep my creation from being pirated, or I cease to earn anything from the creation.
But why is it not semantics that Reisman describes this as the production of wealth and you describe it as the creation of wealth? I see that my 'production method' is not the wealth generator. The 'wealth generation' (another alternative term for 'wealth production'!) is my initial creation of something new. But whether I say I am producing or creating or generating wealth seems to be merely semantics.
And why can't an item have value merely for its subjective evaluation alone. Both before and after piracy, my creation is in demand. But in this sci-fi scenario, there is virtually no value that comes from 'scarcity'.
However, something can be scarce, possibly even a one of a kind, and yet have virtually no value due to lack of subjective evaluation.
Just some thoughts you made me think.
Jay
Published: March 18, 2009 3:06 AM
Mrhuh
If one gets irked by Harvard's class, then I recommend reading the book, "Guilt, Blame, and Politics" by Allan Levite. Think of it as sort of the antithesis of the Harvard lectures. Another good book is "Conceit of the Annointed" by Thomas Sowell.
Published: March 18, 2009 3:23 AM
Mrhuh
If one gets irked by Harvard's class, then I recommend reading the book, "Guilt, Blame, and Politics" by Allan Levite. Think of it as sort of the antithesis of the Harvard lectures. Its lessons could easily be appolied to those eggheads. Another good book is "Conceit of the Annointed" by Thomas Sowell.
Published: March 18, 2009 3:24 AM
Kakugo
Perhaps you got too carried out by personal issues to remember that the lunatic asylums of the "Communist" countries were stacked full with perfectly sane persons who happened to be "crazy" because, say, they said that Lysenko's theories were not worth the paper they were printed on or that State-run schools and hospitals were falling to pieces and staffed by bureaucrats instead of teachers and physicians.
Calling the "enemy" crazy is an old rouse: the Fathers of the Church used to consider "heretics" like Marcion, Montanus or Priscilla either clinically insane or possessed by demons.
Has something changed?
Published: March 18, 2009 6:37 AM
David Ch
'To be frank, I have a completely new theory of value, which I consider to be the next step in the Austrian theory of value. I have succeeded to derive the concept of value DIRECTLY from the concept of Human Action in a way, that even leads to a Cardinal Measure of value'
thats not new. Its called the market price. But it is only a true measure at the instant the transaction takes place
Published: March 18, 2009 6:51 AM
joebhed
central government planner here -
Sorry to jump in so late and being so stupid, but....
the FED didn't create ALL the money that Fu*$ed up the system.
Ever hear of Investment banks?
TOTALLY unregulated free-marketeers of capitalism?
Got the power to "leverage" their meager equities in 80s.
Didn't they have SOMETHING to do with it?
Like 40 or 50 to 1 ??
Yeah, capitalism as they have known it, is on its way out.
You all should be glad to hear it.
Even my friend Milton Friedman admonished AGAINST the private creation and destruction of capital.
And FOR 100 percent reserve banking.
Like y'all.
So, we're heading for something new.
This is the Libertarians chance.
Polish it up.
Get it out there.
Compete agaist government-issue, debt-free moneyy with your free-banking.
Let's get on with it.
Respectfully.
Published: March 18, 2009 8:01 AM
Yeti
It seems a major problem is the practice of pricing derivatives by marking to model rather than by discovering price in a market. How does "mark to model" become a failure of capitalism???
Published: March 18, 2009 9:01 AM
Konrad Swart
To Inquisitor.
I am not going to explain my value theory on this forum. My value theory is just too great a breakthrough to just spill on a forum.
What I am prepared to disclose here is what my value theory is not. My value theory is NOT the Mercantilistic value theory. (I.e. gold HAS a yellow color, and HAS value, as if these two properties are the same.) It is NOT the utility theory of value. It is NOT the labor theory of value. It is NOT the quantity theory of value. It is NOT the scarcity theory of value. It is NOT the service theory of value of Bastiat. It is NOT the marginal utility theory of value. It is NOT the subjective judgement theory of value. And, lastly, Cost and value are NOT the same thing. (This is also a response to David Ch.) .
Despite the fact that it is none of these, it has elements of all of them in it, in the sense that it explains why all of them at one time or another could have been mistaken as an explanation of value. Despite the fact, that my theory addresses all of the previous theories of value, it is not a complicated theory. Usually, when I describe it, I begin with an example that is a real surprise to many, and then I derive the basic principle from it, which most agree on to be ridiculously simple. Nevertheless, it does have the power to really explain the concept of economic value fully. In fact, because the concept is so simple, I usually have great trouble to convince people that it IS the solution. They cannot believe that it is THAT simple! That is why I am now writing a book about it. It is my intention to show that my principle of value IS the solution, and is able to solve ALL problems we now have about economic value. That is why I am now moving through all of economy, and show how it solves the problem of value in all cases.
Let me tell you what is the minimum I ask to disclose it. I am prepared to explain my value theory in a lecture. To persuade me to do that, you have to arrange it, and pay all of my expenses to deliver it, including the cost of travel and lodging. (I live in Holland.)
Recently, I gave a lecture on my value theory here, in Holland, in the Hague, to a group of libertarians. Two of them were economists. They both said they were so impressed, that they would teach it in their classes immediately.
* To Jaycephus.
There is an interesting book, with the title: The Pirate's Dilemma.
http://www.amazon.com/Pirates-Dilemma-Culture-Reinventing-Capitalism/dp/1416532188
This book was a real challenge to my value theory, but it survived it, in the sense that it could show a way out. The exchange of information products through filesharing can be addressed in such a way, that this technology can become a new step to creating wealth just like the printing press once was.
The subject is too vast to do full justice here, but let me at least try.
My own vision on this, after reading this book and applying my own value theory on this particular problem, is that THIS technology, despite the havoc it causes now, is THE thing that will cause a revolution comparable to the Industrial revolution.
What I mean is this. Before the printing press, knowledge as such was not free. It was enclosed in the Guild system. Knowledge (which is not the same as information, there is a subtle difference) was so very closely guarded, that when a member of a guild moved from one country to another, and used his knowledge there, his family could be imprisoned, and there was a death warranty put onto his head.
Before the printing press, knowledge was a source of secure income. This changed with the printing press. The only way to make books that were worth while to buy, and to take on the work to learn to read and write, was to put the knowledge of the guilds in them.
There were some attempts to stop this, but it was no use. The security based on knowledge was gone. There had to be another source of secure income. And the funny thing is, that those same books played a role in it.
There was one thing you could not put into the book. SKILL. To be precies, the skill necessary to transform knowledge into products. So what happened is this. If you could COMBINE the knowledge of many books, you could make products that would not be possible before, because it was impossible that there was so much secret knowledge in the mind of ONE man. But now, with all of these books containing this previously secret knowledge lying around, no knowledge could be kept secret. This enabled people to spend a number of years in studying a whole collection of these books, and then learn to apply far more knowledge on one task than could ever be done before. But, as more people began to do this, they competed with each other in making more and more complex products and tools, which required longer and longer periods of studying.
This long period of studying in itself became the NEW source of secure income. Moreover, it led directly to the Industrial Revolution. How? The tools became larger and larger, and became machines. And the machines required complete buildings designed for them. This led to the phenomenon of 'worker' or 'laborer'. (As Reisman has made clear in his book Capitalism, the first farmers were not workers, but, as economic agents, must be identified as early capitalists. I would rather say, that the distinction did not exist before the Industrial Revolution.)
This also led to the typical Industrial Revolution notion of 'payment by years of experience'. For the longer the time you spent in a particular job, the better you became in applying more and more knowledge, which is the essence of skill, and the greater the value you had for your employer. This is the economic sense behind raises in payment for more years in experience.
All this basically ended, when the computer entered the scene. We look at the computer as an information tool, that is, a knowledge took, but, basically, it isn't. With computers it is possible to do with SKILLS what the printing press did with KNOWLEDGE.
This point became clear to me a number of years ago. I had produced a music CD, and I wanted to have a jacket and a label for it, and didn't know squad how to do that. I had two choices. Either I paid € 300 for a professional designer who did this for me, OR I bought a computer program for justs € 20 that was so user friendly, that I needed only 1 hour to master it, with which I could design my own jacket and label. Moreover, with that computer program it was not just a one time affair, but once I had the computer program under control, I could make such jackets and labels for any future product I liked, even when the box was not standard. In other words, a computer program does not only contain knowledge like a book, but also the skill like in a very experienced worker! This was quite a revelation to me.
This is also, why so many people lose their jobs in the Information revolution. It is mostly skilled workers who lose their job. If you learn to work with a computer, you, together with the computer, can learn to form a 'system' in just 3 to 6 MONTHS that is the equivalent of a worker with 20 to 30 YEARS of experience, if not more. And you can do that just by learning to work with computer programs containing the skills belonging to a certain field.
THE question of the information revolution is: where is the certainty?
It has to be in something that cannot be stored into a computer. Information can be stored into a computer. Skill can be stored into a computer. To give one more example, if you want to be the equivalent of a concert pianist, you just study notes, midi and steptime, and you can play any piano piece, complete with ocrhestra you like. You can be your own pianist and conductor and orchestra, just by yourself, with only one computer. I myself have made a church organ performance of the entire Das Wohltemperierte Klavier with a number of virtual church organs in that way. Before me, there were only three other complete church organ performances of the WTK. It took me 2 years, including the skill building. It took those others 20 years, EXCLUDING the skill building!
But no matter how user-friendly you try to make the interface (the graphical interface was a real breakthrough in this respect), the computer is unable to do two things. It is unable to UNDERSTAND, and it is unable to BE CREATIVE. And that is where the certainty moves to.
More and more people are paid for their ability to understand and for their creativity. The more you learn to use the computer, the more skills you are able to combine, the more you can make with your understanding and creativity.
History is now repeating itself. More and more people use their ability to understand and to create to open more and more possibilities. The money lies in people who can combine skills in months that, each separately, would take 20 to 30 years to master before. With spectacular results. To give just one example I found very impressive. With computer programs a SINGLE engineer can now design a ship that have the size of entire cities. This would be beyond the capability of any engineer, and even any team of engineers before the computer.
That is partly what the book "The Pirate's Dilemma' is addressing. Although it does not give a solution to the problem. It makes it very clear, and gives a hint to a direction of a solution.
So what filesharing will do, is giving people access to the skills of others. Skills as such become as valueless through the computer as knowledge became through the printing press. Value now moves from skill to creativity and understanding. And we are in the middle of this transition. If we move thrhoug this, we will see a tremendous increase in wealth, comparable to the difference between the Middle Ages and the mass production of the Industrial Revolution. We will see products appear, that will even dwarf the ships I just mention.
To return to my value theory. An economic theory that has solved the value problem is, I think, absolutely crucial to make this happen. A theory that can be applied to whatever the new source of value will be in the future. And that is what I think to have found.
Published: March 18, 2009 9:34 AM
Ken
Attempting to pathologize political views with which one disagrees goes back to Adorno and beyond. The statist/populist "right" (Ann Coulter, Michael Savage, and the like) have begun to do it as well.
Published: March 18, 2009 9:43 AM
Konrad Swart
Little correction: I wrote: And, lastly, Cost and value are NOT the same thing. (This is also a response to David Ch.)
I meant to say: price and value are not the same thing.
Published: March 18, 2009 9:53 AM
Frank V.
Will someone on here please demonstrate to me that they have the basic knowledge of Austrian capital theory. Read Stefan Schmitz's "Uncertainty in the Austrian Theory of Capital",The Review of Austrian Economics,17:1,67-85,2004. Schmitz's suggested remedy, for dealing with the failure of Austrians to deal with uncertainty in capital theory,is to integrate non additive capacities into Austrian capital theory. However,non additive capacities are merely one kind of probabilistic upper-lower interval bound first analyzed by J M Keynes and discussed in detail in chapters 15,17,20,22,and 26 of the 1921 A Treatise on Probability (TP).
While Rothbard realizes that uncertainty is important , he can't provide any analysis to explain why and how.Only J M Keynes did this in the TP.The GT is based on the TP.In fact,the GT is merely an application of the general theory of decision making under uncertainty/ignorance/risk developed by Keynes.
Oil Shock:
Let me take a moment to correct some of your more egregious errors before I return to Keynes. Volcker is not a conservative Keynesian. Greenspan is not a conservative Keynesian. Keynes was a lifelong opponent of deficit finance/budget deficits.There is no such thing as monetary socialism except in your own private libertarian world.
Keynes has a theory and a model that explains and analyzes the roles of uncertainty and ignorance in human decision making.The Austrians have nothing except talk. Austrians like to talk about uncertainty.That's it.
Where does Rothbard,von Mises or Hayek provide a theory and a model of dealing with uncertainty and ignorance ? The answer is that they don't.Their assertion or claim is that decision making under ignorance and/ or uncertainty leads to the same result as decision making under risk or certainty.
Published: March 18, 2009 10:17 AM
filc
@ joebhed
Hello joebhed,
Yes member banks of the fed did play a roll. But only because their iresponsibility would be enforced and encouraged by a central bank, the fed. Had the fed not been there, and interest rates allowed to float on the market, (Like normal commodities) than these banks you speak of would have been far more responsible.
Unfortunately no matter how you twist it the finger will always point back at the fed. By your same logic we should be blaming homeowners who can no longer pay their mortgage, business who over invested, ect, ect, ect, and every other crappy argument you hear on fox news. These are only symptoms of the source however.
The truth is, those people acted rationally to a market that had an excess amount of credit. Now that the credit is retracting all the mal-investment becomes apparent.
It all started with the fed my friend. Had the big banking establishment not had a lender of last resort we may very well be in an entirely different economic situation right now. One that is vastly more healthy, even if it is still fiat based.
Published: March 18, 2009 12:37 PM
Inquisitor
Well I'll have to suspend judgement on your claims then until you publish your book, since you remain cryptic.
Published: March 18, 2009 1:13 PM
Inquisitor
"There is no such thing as monetary socialism except in your own private libertarian world."
Gee, what a clever statement. it exists, except for you and your own little world.
Published: March 18, 2009 1:18 PM
Frank V.
Inquisitor, When you have read (and understand) Schmitz, perhaps then you can reserve judgment on my comments.
Published: March 18, 2009 1:34 PM
Inquisitor
I need to read Schmitz to consider your statement there an exercise in pure bullshit? No, not really. Your rants on "uncertainty" seem to be a demand for a "formal model" of it. More of the same positivist nonsense. Shall we "model" commonsense too?
Published: March 18, 2009 1:54 PM
Frank V.
Inquisitor,
Nice excuse. Get back to me after you have absorbed the wisdom of Adam Smith. Smith recognized that speculators heavily distort price signals in the economy.These severe distortions lead to bubbles which leads to panics which leads to crashes which leads to recessions and depressions. Austrians stupidly, foolishly,and ignorantly confuse speculation with enterprise and entrepreneurship.This is why their literary assertions and claims,which they purport to be economic theories, always lead to failure.
Published: March 18, 2009 2:05 PM
Inquisitor
Ipse dixit/assertions ex cathedra. Get back to me when you've got more than that to deal. So far your claim is that they haven't offered a "formal model" of uncertainty and the bizarre claim that they treat the decision-making under uncertainty on par when it is lacking, which is pure nonsense. In fact, it is you who stupidly confuses enterprise and entrepreneurship with the cause of the business cycle. And please, don't appeal to Adam Smith for authority. He has very little here. Even less so Keynes, regardless of his "model" of uncertainty...
Published: March 18, 2009 2:10 PM
Frank V.
Perhaps you or Mr. Woods can explain why there are no more investment banks currently operating at present on Wall Street . This is due to the near unanimous ,desperate deleveraging undertaken , nearly simultaneously, by all of the Wall Street investment banks once they realized that their debt leveraging practices were collapsing. It was easy to see that this would only continue to drive the value of their assets down further and further.
The more important problem is the completely unregulated and unchecked "shadow" banking system ,composed of thousands of hedge funds and private equity (leveraged buyout) firms, that are still employing the same dangerous debt leverage speculative behavior that has led to the current financial collapse. This "shadow" banking system thrives in an atmosphere of secrecy. It seeks to engage in the use of financial instruments (securitization,derivatives,collateralized debt obligations,credit default swaps,etc.) that can be hidden from view. These financial instruments were deliberately made as complex as possible so that it would be very difficult for outside accountants and financial managers to be able to figure out what the risks of these financial " products " actually were. The usual approach of outsiders was to rely on the underwriters and the rating agencies' risk assessment management evaluations. Unfortunately,the underwriters and the rating agencies had all been " bought off ".
But it's much easier to just blame the Fed than actually delve into the details, right? Yes, I thought so.
Published: March 18, 2009 2:17 PM
Morty
Frank V,
Since you know so much about Austrian economics, perhaps you can give a full and reasoned critique of their business cycle theory, which you seem to oppose in the strongest terms. You might also want to include your evidence as to why you consider Greenspan an Austrian, considering his actions as Fed Chairman and his statements about how the economy works.
Published: March 18, 2009 2:21 PM
Inquisitor
I have to ask, have you even read any Austrian works on the topic? Or are you just making up nonsense as you go along? There are countless articles going into the details of it. None of them just "blame the Fed" (unlike you, who simplistically blames "speculation" or the "market" or a "lack of regulation". Undefined nonsense.) So much easier than actually acknowledging the Fed's role and assert that it's all due to "uncertainty". I'm at a loss as to why you'd think Mr Woods would have any trouble explaining that, by the way.
Published: March 18, 2009 2:22 PM
Frank V.
The conclusion I reach is that you have NOT read Adam Smith's Wealth of Nations, although maybe you have read little snippets that you quote out of context, which, of course, is all that Rothbard's lame critique amounts to.
The utter nonsense written about Keynes on this forum is even more bizarre. Keynes opposed the use of expansionary-contractionary fiscal and monetary policy.His policies are identical to those listed by Smith on pp.339-340 of the Wealth of Nations. You will find that it is Keynes who is the one in opposition to budget deficits /deficit finance,etc.Keynes 's position is that the budget be split into two different categories -a capital budget and a current account budget.The current account budget would always be balanced.The capital budget would be unbalanced only in the case of constructing long run infrastructure projects that pay for themselves over time by borrowing the inactive balances available from the public during a recession/depression at very low rates of interest.No expansion of the money supply is involved.Keynes's own position was that the money to build the new infrastructure in England during the 1930's would be generated by simply slowing down the build up of the sinking fund set aside by the government to finance the national debt
Published: March 18, 2009 2:38 PM
fundamentalist
Frank V.: “Their assertion or claim is that decision making under ignorance and/ or uncertainty leads to the same result as decision making under risk or certainty.”
I think you need to read Stefan Schmitz's article again. All he does is relate uncertainty, which he writes is a key component of Austrian economics, to the Austrian structure of capital. Boiled down, all he writes is that the further the stage of production is from consumption the greater is the uncertainty that the entrepreneur faces. While it might not be formally incorporated into the capital structure theory, it has certainly been a part of the business cycle theory.
Austrians never have asserted that “…decision making under ignorance and/ or uncertainty leads to the same result as decision making under risk or certainty.” They would have to be incredibly stupid to assert that. In fact, Mises attributes the origin of profits (economic profits above the rate of interest) to uncertainty. Certainty can only exist in the imaginary world of equilibrium. With certainty, no money exists because it is unnecessary. The existence of uncertainty characterizes the real world and gives rise to the demand for money to hold as cash in order to meet unplanned obligations.
You may be thinking of mainstream econ, which assumes that everyone has the same knowledge.
Frank: “While Rothbard realizes that uncertainty is important , he can't provide any analysis to explain why and how.”
What explanation for uncertainty do you need other than that we are human; no one but God is omniscient and no one can accurately forecast the future because change happens and humans aren’t that predictable?
Frank: “the GT is merely an application of the general theory of decision making under uncertainty/ignorance/risk developed by Keynes.”
That explains why he was such an abysmal economist.
Frank: "Keynes opposed the use of expansionary-contractionary fiscal and monetary policy."
You must be thinking of his younger brother, Leroy. JM Keynes was a socialist to the core.
Published: March 18, 2009 4:26 PM
Inquisitor
""The conclusion I reach is that you have NOT read Adam Smith's Wealth of Nations, although maybe you have read little snippets that you quote out of context, which, of course, is all that Rothbard's lame critique amounts to."
Kinda like your "critique" of Mises and Rothbard?
"The utter nonsense written about Keynes on this forum is even more bizarre. Keynes opposed the use of expansionary-contractionary fiscal and monetary policy.His policies are identical to those listed by Smith on pp.339-340 of the Wealth of Nations. You will find that it is Keynes who is the one in opposition to budget deficits /deficit finance,etc.Keynes 's position is that the budget be split into two different categories -a capital budget and a current account budget.The current account budget would always be balanced.The capital budget would be unbalanced only in the case of constructing long run infrastructure projects that pay for themselves over time by borrowing the inactive balances available from the public during a recession/depression at very low rates of interest.No expansion of the money supply is involved.Keynes's own position was that the money to build the new infrastructure in England during the 1930's would be generated by simply slowing down the build up of the sinking fund set aside by the government to finance the national debt"
Which is relevant to this article or what Keynesians in general advocate, how?
Published: March 18, 2009 4:30 PM
Frank V.
I believe I provided a good reference to where Keynes ACTUALLY stood versus where you BELIEVE he stood. Please check my last post again.
Published: March 18, 2009 4:32 PM
AC
Frank V said,
"You will find that it is Keynes who is the one in opposition to budget deficits /deficit finance,etc.Keynes 's position is that the budget be split into two different categories -a capital budget and a current account budget.The current account budget would always be balanced."
AC asks, how's that balanced budget working out for you? How about paying back that national debt as the infrastructure declines so that we've got it paid off by the time we need more infrastructure improvements, working out for you? I've got an idea, I could balance our $1,800,000,000,000 current deficit tomorrow by forcibly confiscating it from the citizens. Presto! Balanced budget.
Frank V, you advocate for tyranny. Gov't spending is tyranny. Now, I'm willing to tolerate gov't tyranny when it is extremely limited, as in limited gov't, as in the US Constitution. You know why the gov't won't forcibly balance the budget and raise enough extra tax revenues to pay down the national debt, Frank V? It's because there would be riots and a revolt, the members of the various branches of gov't would be overthrown, probably violently.
Everytime the gov't takes away money from me, it means I have less to enter into a voluntary transaction with someone else. Liberty is based on this premise, transactions are voluntary. The gov't does not raise money through voluntary transactions. If you say they do when they sell US Treasury bonds, I'll laugh at you. The money to repay those bonds will be raised through involuntary transactions, taxation. Gov't exists to serve the people. You have it backwards, you've got people existing to serve the gov't through paying taxes.
Ends don't justify means.
Published: March 18, 2009 4:38 PM
Vanmind
Perhaps the conference is a hasty response to "Meltdown"
Published: March 18, 2009 8:18 PM
Frank V.
It's just as I suspected: Austrians have no theory of how decisions are made under uncertainty or ignorance.That is why their capital theory assumes away uncertainty. That is why Hayek only started talking about uncertainty and ignorance after 1936.Keynes is the master of decision making under uncertainty,ignorance,and risk. Austrian business cycle theory is based on the loanable funds theory that excludes uncertaintycompletely.
Published: March 18, 2009 8:28 PM
Tom Woods
Frank, uncertainty is at the heart of Austrian economics, through and through, so I fail to understand your objection. No aspect of Austrian thought "excludes uncertainty completely." As for Austrian capital theory, at least the Austrians HAVE a capital theory, unlike Keynes.
Published: March 18, 2009 8:43 PM
Evan
Frank V said:"Perhaps you or Mr. Woods can explain why there are no more investment banks currently operating at present on Wall Street . This is due to the near unanimous ,desperate deleveraging undertaken , nearly simultaneously, by all of the Wall Street investment banks once they realized that their debt leveraging practices were collapsing. It was easy to see that this would only continue to drive the value of their assets down further and further."
The reason there are no more "investment banks" is that they reformulated themselves over the course of one weekend in order to be able to get federal bailout money. I fail to see how that is a result of leverage beyond the leverage of any other type of banking.
Frank V said:"Keynes opposed the use of expansionary-contractionary fiscal and monetary policy."
It seems to me that when Keynes was advocating a zero-interest-rate policy, that is a de facto 'expansionary-contractionary fiscal and monetary policy', since the socialized investment policy would create bubbles in some areas and contractions in other areas due to government bumbling. Anybody ever ask Keynes how you can socialize investment but maintain private production?
Published: March 18, 2009 9:04 PM
Jaycephus
Konrad,
Thanks very much for the reply. I enjoyed reading it.
Jay
Published: March 18, 2009 9:45 PM
Inquisitor
"I believe I provided a good reference to where Keynes ACTUALLY stood versus where you BELIEVE he stood. Please check my last post again. "
I did. How do you know what I "believe" about where he "stood"?
"It's just as I suspected: Austrians have no theory of how decisions are made under uncertainty or ignorance.That is why their capital theory assumes away uncertainty,"
You repeat this lie over and over. The theory is called "entrepreneurship", which Hayek, Mises, Rothbard and even Knight cover. But it isn't the garbled "formal" kind of model you'd like.
Published: March 19, 2009 12:01 AM
Paul S. Nofs
Anyone that owns an asset is a capitalist. Capital is just stuff that one finds valuable. If someone else finds it valuable both parties might exchange capital in a market for mutual benefit. 'Free' indicates that there is no coercion involved.
The key question involves ownership. According to Soviet law, the state owned all capital. Is state capitalism == socialism?
When the individual capitalist make a decision he takes a risk with his private property. The risk of loss keeps greed at bay and promotes prudence. In a civil society the rule of law works to protect him from fraud and theft and to enforce contracts. thereby reducing the risk of owning and trading private property.
In the Soviet and similar systems the risk to the individual happens when they criticize or fail to follow the state's edicts. Followers are rewarded and leaders disappear as they threaten the ruling class. The private capitalist can just fire you making you a free agent.
Both systems are merit systems. One often rewards individual effort, cleverness and prudent economic choices. State capitalism rewards the good slave.
It's wealth of the individual vs. the Wealth of Nations. Those fond of suckling at the government teat are immediately tempted to use the force of government to loot other individuals for their own good.
.
Published: March 19, 2009 12:26 AM
Paul S. Nofs
"how decisions are made under uncertainty or ignorance."? They are made wisely, carelessly or stupidly. But this is a question for psychology not serious economics.
For the individual uncertainty and ignorance are part of the risk. Many would strive to prevent being foolishly parted from their money or capital.
For the state is is an unsolvable mystery meaning that they will spend too much money trying to solve it.
Published: March 19, 2009 12:58 AM
Frank V.
I have already gone over Keynes's policy recommendations repeatedly numerous times for other libertarians in other discussion forums. Keynes's policies are identical to those of Adam Smith . The claim that Keynes advocated a zero interest rate policy and/or socialized investment policy means that either you reside in the Twilight Zone or have been a regular reader of Henry Hazlitt or The Freeman magazine for too long. Smith and Keynes both support fixing the long run rate of interest permanently at a low level. Smith and Keynes then support this policy with a policy of credit restriction aimed at (a) preventing projectors,prodigals,and imprudent risk takers from obtaining bank loans(Smith) or (b) preventing rentiers and speculators from obtaining bank loans (Keynes) . An ounce of Smithian or Keynesian prevention is worth a hundred pounds of empty libertarian claims about a free speculation economy,which is what libertarians mean by a free enterprise economy.
Austrian capital theory is based on the assumption that there is no uncertainty or ignorance of the future, only risk . Keynes's capital theory is just an application of his general theory of decision making under conditions of risk,uncertainty,or ignorance as discussed in chapters 3,5 ,6,15,17,20,22,26,and 29 of the TP . Keynes uses lower-upper probability intervals and decision weights some 80 years before the current non-additive approach started with Tversky and Kahneman in 1979 and Gilboa and Schmeidler in 1987 . Austrian capital theory is just a very special case of Keynes's general theory of decision making under conditions of risk,uncertainty,or ignorance. I'm going to let Inquisitor and other readers have the last word. Note that Keynes explicitly rejected socialism on p. 379 of the GT. Keynes rejected state ownership and control of the means of production and the means of distribution. This forum's definition of socialism is a special, private definition that does not appear in any dictionaries. Under this special, private, llibertarian definition of socialism, George Washington, Alexander Hamilton, Benjamn Franklin, Abraham LIncoln, Theodore Roosevelt, Dwight D Eisenhower, Douglas MacArthur, and all Catholic Popes are socialists. Readers here should understand that membership in a group of people who hold such outlandish and wayout beliefs will never convince more than 1/2 of 1% of the population in any country.
Published: March 19, 2009 8:34 AM
Lou Ohls
I really enjoyed Woods' article. I laughed all the way through it, the condemned man laughing at the hangman's attire. I am retired at the low side of comfortable, and have recently been telling my wife we need to consider our poverty options in five to ten years. I have watched my inflation hedges "freeze up", and it is 10.6 miles from my house to the bread line; that is a long way for an old man to walk.
I often cannot tell the difference between cash and capital. I was educated in the Marxian "economic determinism of society" and "economics as a science"; so I am handicapped. But some of the assumptions made by our "representatives" are just plain silly. I made my living reading people; I find it incredible that anyone believes anything Bernanke says. Ben spends a tremendous amount of energy attempting to control his voice, eyes, head; he doesnt want to give up a poker "tell", so you only know he's lying when his lips are moving.
I have one quibble with the Austrian school, as I understand it: When two people sit down to draw up a contract, the well fed man always has the advantage over the starving man, and the starving man resents it. After the starving man eats, he wants to re-negotiate the contract. It takes force to keep the original contract in effect. That is the role of government, and government's interest is in taxing that contract. Now that three parties are involved, it is no longer a contract. It is now a game, with a winner, a loser, and a score keeper.
But my quibble with the Austrian school doesn't come close to my astonishment with the current events. The Keynesian threat of government spending to free up economies becomes hollow when the threat is actuated. Government runs on about a thirty year lag to society and takes so long to act that the acts mostly exacerbate current problems. When the thirty year lag is mandated, people die, by the trainload. Stalin killed between ten million and thirty million. When chairman Mao mandated the "cultural revolution," about ten million died. A whole wad of those folks, in both cases, were "intellectuals." If I was "expendable", I dont know that I would be standing on a soapbox.
Published: March 19, 2009 8:40 AM
fundamentalist
Frank: “Keynes's policies are identical to those of Adam Smith .”
People have been trying to rehabilitate Keynes for a long time, ever since they realized he was a socialist. But any honest reading of what Keynes wrote demonstrates his devotion to socialism. Do you really think that every critic of Keynes was just stupid or mean? No one knew Keynes better than Hayek and his criticism of Keynes was not very different from that of Hazlitt and the Freeman. You might try actually reading Keynes instead of all the writers who try to make him a free market economist when he wasn’t. As for Keynes agreeing with Smith, so did Marx. Austrians don’t agree with everything Smith wrote.
Frank: “Austrian capital theory is based on the assumption that there is no uncertainty or ignorance of the future, only risk “
That statement alone demonstrates that you don’t know a thing about Austrian economics.
Frank: “Keynes rejected state ownership and control of the means of production and the means of distribution. This forum's definition of socialism is a special, private definition that does not appear in any dictionaries.”
Dictionaries just print the popular definitions of words. But consider that Germany regarded its system as socialist in the late 19th century under the Kaizer and NAZI stood for National Socialism. Nazis considered themselves to be socialists. The Soviet model of socialism is just another model. Germans never nationalized industries, but controlled every aspect of them. State control of industry is just as much socialism as is state ownership.
Frank: “Austrian capital theory is just a very special case of Keynes's general theory of decision making under conditions of risk,uncertainty,or ignorance.”
Keynes didn’t have a theory of capital. Hayek pointed that out in his 1941 “Pure Theory of Capital.” To Keynes, capital was mush that recreated itself as needed.”
Published: March 19, 2009 9:17 AM
Inquisitor
"The claim that Keynes advocated a zero interest rate policy and/or socialized investment policy means that either you reside in the Twilight Zone or have been a regular reader of Henry Hazlitt or The Freeman magazine for too long."
Except he can be quoted saying as much....
"Smith and Keynes both support fixing the long run rate of interest permanently at a low level."
Which is to say they're both in favour of a price control over the interest rate.
"Austrian capital theory is based on the assumption that there is no uncertainty or ignorance of the future, only risk ."
You've asserted this repeatedly. It's nonsense. Why repeat it?
Published: March 19, 2009 11:12 AM
Frank V.
This is getting tiresome, but I'll try again since you're not paying attention to what I'm writing.
Speculative finance by the private commercial and investment banking institutions is at the core of the problem.Thus, the error was the deregulation of financial institutions, carried out in the 1920's and 1980-2006 time period in the USA and in the period 1986-1992 in Japan.Speculative bubbles, inflated by a private banking system that no longer was subjected to oversight,no longer required to maintain sufficient capital reserves, and freed from the requirement to impose basic creditworthiness standards,inevitably leads to a panic, crash, and recession/depression.
Published: March 19, 2009 11:22 AM
Tom Woods
See, Frank, there's the problem. A "private banking system"? You mean the one we have, with its government-guaranteed deposits, with reserves pumped into it by a government-created central bank with government-granted monopoly privileges? That one?
You think banks just might keep higher capital reserves if they didn't have their comfortable cartel arrangement with the Fed? If the "too big to fail" doctrine didn't exist? If the government didn't artificially prop them up, and give the public false assurances of their soundness?
You think the decline in creditworthiness standards might have something to do with all the money the Fed poured into the system, especially since standards of creditworthiness have consistently been thrown out the window during national bank-created artificial booms since at least the 1830s?
Just wondering.
Published: March 19, 2009 11:28 AM
Frank V.
Furthermore, the basic problem can be traced back to the late 1970's and early 1980's to the Carter and Reagan administrations deregulation and privatization agendas.The problem was then exacerbated in the George H W Bush,Clinton-Gore,and George W. Bush-Cheney administration. Huge numbers of University of Chicago type economists and business school academics were hired ,who did not believe in any kind of regulation at all, by the Securities and Exchange Commission(SEC) Federal Reserve System (FRS), Federal Deposit Insurance Corporation(FDIC), Office of Thrift Supervision,etc.These individuals believed in a pseudo theory called the Efficient Market Hypothesis(EMH).This theory asserted ,without any empirical,historical,or statistical support or goodness of fit tests to support it,that all financial markets are normally distributed around a stable mean.The conclusions of this pseudo theory,still taught to every MBA candidate in finance worldwide and every PH.D candidate in every economics department,are that (a) bubbles are not possible,(b) financial markets are self regulating,(c) risk management techniques, based on the Mean -Variance model,the Capital Asset Pricing Model(CAPM),and the Black-Scholes equation for valuing put and call options,will create an efficient market where speculation on a massive scale can be engaged in using debt leverage to maximize profits " safely ". Benoit Mandelbrot, Nassim Nichlas Taleb,and George Soros, like D Ellsberg and J M Keynes before them,demonstrated that there is no support for this pseudo theory.The EMH is very similar to Ptolomaic astronomy.It is a completely artificially created and constructed theory based on a priori claims and assertions that have ,as noted above,been disproved in a world of uncertainty (Keynes,Ellsberg,Soros) and wild risk (Mandelbrot,Taleb).
Published: March 19, 2009 11:29 AM
fundamentalist
Frank: "Speculative finance by the private commercial and investment banking institutions is at the core of the problem."
Even mainstream economists admit that bubbles can't happen without the consent of the Fed, even if they don't see the Fed as the initiator. The reason is that none of the speculation could take place without huge increases in credit made possible by the Fed's low interest rate policies. That's very basic economics.
The changes in financial regulation under Republican presidents was miniscule compared to the amount of regulation in place. In addition, you had a huge increase in regulation with SOX. So you can't blame a lack of regulation for the problem.
Blaming speculation for the crisis is like blaming gravity for airplane crashes, because like gravity it's always there. What you have to explain is why speculation overcame the restrains put on it and got out of hand. The answer always and everywhere is loose monetary policies breeding credit like rabbits.
Published: March 19, 2009 2:00 PM
gene
Control of the banking system cartel, as it is today, is certainly socialism or at least socialization.
We don't have control of the industrial system though, we have intervention mostly by way of subsidy, bailout, giveaway, etc. We have the innate advantage of "incorporation".
This all points to corporatism as opposed to socialism. There is nothing "social" [the inherent nature of the corporation is anti-social] about corporatism other than the cost, but there is little "control" of the means [except it could be argued corporate control], if that is used as defining.
It's a hybrid system based on the unnatural "capitalization" of corporate entities through the workings of the government. I think it is unique and don't think "socialism" is that descriptive of the entire condition. The "socialized" capital system is manipulated to keep the corporate system thriving.
Published: March 19, 2009 2:15 PM
Inquisitor
"This is getting tiresome, but I'll try again since you're not paying attention to what I'm writing."
No, I am (and if it's getting tiresome that is your fault), but it's just your rehashing the same nonsense over and over. And subsequently to that you post some bizarre collection of criticisms of neoclassical EMH theory. Well, so what? Austrians are also critical of it.
Published: March 19, 2009 4:57 PM
Frank V.
All of you...wrong again! Low interest rates do not cause speculation. Speculation results because private commercial banks decide to loan to projectors, imprudent risk takers, and prodigals, or, in Keynes's terms, speculators and rentiers.The private commercial banks are the ones making the loans.Smith correcty pointed out that bubbles are impossible to inflate unless private commerciial banks loan the speculators the money,which will then end up being wasted and destroyed.You appear to believe that it is the FRS that makes the loans.You don't know what you are talking about.
I thnk that everyone who follows Mises.orgare an apologist for the powerful private banking industry and view speculation as enterprise.I go with Smith and Keynes.You go with Rand,Rothbard,von Mises, and Hazlett.
Published: March 19, 2009 7:43 PM
Frank V.
p.s. There are so many errors in Woods' books that, in general, they are not worth reading . In general, they are also not worth reviewing. Let me know where Woods discusses the following facts- that the FRS is subject to no audit and is subject to no budget constraint . Both are necessary conditions that have to be satisfied in order for government to have real power.
Published: March 19, 2009 7:47 PM
Tom Woods
Franky babe, you're not listening. Where would the Fed be without the government-granted monopoly privilege of creating money out of thin air? You're actually going to pretend this is a "private" system? And I'm the one with all the "errors"?
Since you ignored my comment, I'll repeat it:
See, Frank, there's the problem. A "private banking system"? You mean the one we have, with its government-guaranteed deposits, with reserves pumped into it by a government-created central bank with government-granted monopoly privileges? That one?
You think banks just might keep higher capital reserves if they didn't have their comfortable cartel arrangement with the Fed? If the "too big to fail" doctrine didn't exist? If the government didn't artificially prop them up, and give the public false assurances of their soundness?
You think the decline in creditworthiness standards might have something to do with all the money the Fed poured into the system, especially since standards of creditworthiness have consistently been thrown out the window during national bank-created artificial booms since at least the 1830s?
Just wondering.
Published: March 19, 2009 8:33 PM
Frank V.
Woods, It's the same situation today as occurred in August, 1927. Mellon and Strong wanted to help promote the twin bubbles that were generating tremendous profits for the private banking industry. Hoover went to President Coolidge and asked him to overturn the speculative policies of the FRS. Coolidge told Hoover that there was nothing he could do because the FRS operated independently of the executive,legislative,and judicial branches of government. The current bailout of AIG,Citi bank and Bank of America demonstrate the tremendous power that the private commercial banking industry has in the FRS.
Published: March 19, 2009 10:00 PM
Tom Woods
Frank, it's one thing to disagree, but this is just spooky. WHERE DID THE FED GET ITS MONOPOLY POWERS -- WITHOUT WHICH IT WOULD BE NOTHING -- FROM? The free market? It has the monopoly power to create legal-tender money out of thin air. HOW IS THAT THE FAULT OF THE FREE MARKET? MAYBE IF I TYPE IN ALL CAPS, I CAN GET AN ANSWER TO THIS QUESTION.
Published: March 20, 2009 12:09 AM
Inquisitor
IOW, the corruption of the political machinery is somehow also a failure of the market, as opposed to, the government. I think it's pretty evident you're a troll at this juncture.
Published: March 20, 2009 12:11 AM
Evan
Frank, I think you are defining "private ownership" in a way that most mises.org readers would not. The Federal Reserve System is private only in the most convoluted legal sense. It has a GOVERNMENT GRANTED MONOPOLY on printing all the money it wants. When an entity is granted a government monopoly, subsidy, tax-break, or license of any kind. It becomes more socialized and less of a private entity.
Surely, this happens to many different degrees, but in no way can the FRS be called a "private" institution, because of its government granted monopoly. If it actually tried to do something which Washington did not like, congress could (and would) easily revoke its monopoly or replace all its board members. The reason politicians say that this cannot be done is only because the FRS does what they (congress) want while at the same time being a convenient scapegoat ("We cant do anything! Its private!").
I would agree with you that the private banks profited greatly from the FRS, because if not for the FRS, where would they get the money to leverage 40-to-1? And I would say that fractional reserve banking is largely to blame as well, but that is another case of government granted license for a bank to do something which a private party cannot, thus it did not arise from the free market. FDIC insurance is another instance of government interference to hide the instability of fractional reserve banking.
As for a zero-interest-rate not causing speculation, you beg the question by stating that it will not cause speculation if it is not lent to speculators. The reason that people say ZIR will cause speculation is that we talk about it functioning in a market similar to the current one. Also, the Austrians might argue that any borrower of money is in a sense speculating. The only reason somebody would borrow money is if they thought that whatever project the money would fund could turn a profit (monetary or psychic) which they could enjoy (speculation). If business people did not speculate, they would not create new businesses, and thus would have no need of borrowed funds.
Published: March 20, 2009 12:23 AM
Pat
I guess Frank has never heard of the Basel or the Federal Reserve Act of 1913. Furthermore, he fails to realize that while banks were given a little more power to act on their own to some extent, they still had to answer to the Fed (e.g.: capital requirement).
The Gramm-Leach-Billey Act(http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act), not that I could defend the system since I happen to be against it, did not remove all restrictions on the banks (e.g.: they couldn't own non-financial companies). While it is true that the Fed supposedly act as an independent entity from the government, it still has to answer to the government and it has been established by an act of Congress.
P.S.: I fail to see how the Mises Institute is supposed to be an apologist for Wall Street when they happen to be in favor of a bailout and the Feds given that the Mises Institute opposed to these two. Unless I have been dreaming.
Published: March 20, 2009 8:18 AM
Frank V.
All of you continue to ignore, or are attempting to cover up the fact that the only time such amendments were introduced and passed by Congress were in the mid 1930's when it was clear to the general public that the large private banks actually had effective control of the system.The large commercial banks were gradually able to reassert effective control with the appointment of Martin as chairman of the Fed .Martin easily repulsed the attempts of Wright Patman in the late 1950's-early 1960's to subject the Fed to an audit and a budget. All other government agencies are subject to an audit and a budget-except the FRS. It is, effectively, a privately run system dominated by the largest commercial banks. Again,it is the banks themselves that choose whom to lend to .They have chosen to lend constantly to speculators.This is the root of the problem.
Published: March 20, 2009 8:31 AM
Tom Woods
Frank, why won't you answer my simple question? And why do you think we would deny that the system as exists at present artificially benefits the banks, especially large ones? No one here would deny that, so why do you keep emphasizing the obvious as if it wins the argument for you?
The fact that private actors benefit from an arrangement, however, does not prove or even imply that that arrangement is the spontaneous result of the free market. That's your blind spot here.
So I'll repeat my question: Frank, it's one thing to disagree, but this is just spooky. WHERE DID THE FED GET ITS MONOPOLY POWERS -- WITHOUT WHICH IT WOULD BE NOTHING -- FROM? The free market? It has the monopoly power to create legal-tender money out of thin air. HOW IS THAT THE FAULT OF THE FREE MARKET? MAYBE IF I TYPE IN ALL CAPS, I CAN GET AN ANSWER TO THIS QUESTION.
THE FED WOULD BE NOTHING WITHOUT ITS MONOPOLY POWER TO CREATE LEGAL-TENDER MONEY OUT OF THIN AIR, and the "private" banking system would be radically different and operate under radically different incentives, all of which would solve the problems you've identified.
Published: March 20, 2009 9:43 AM
newson
frank v. is wrong: emh's flaws and logical inconsistencies are dealt with even in undergraduate finance degrees. they also are well known in the industry.
bubbles created by loose monetary policy can endure long enough to enable operators to make an awful lot of money before the models break down calamitously. the incentive is to devise and sell product, and let somebody else fix up the systemic collapse.
also, derivatives only flourish with volatility. their growth was assured after the gold link was severed by nixon, ushering in a new era of unprecedented volatility in all financials.
a strange sort of private corporation indeed, the fed, that disburses all its net profits to treasury.
Published: March 20, 2009 10:08 AM