The End of Mainstream Economics
This transcript is a translation of the first part of Egill Helgason's interview of Gunnar Tómasson, a former IMF economist, on Icelandic state television's "Silfur Egils" on February 1, 2009.
(The video is available on YouTube.)
Although Tómasson does not identify himself as an Austrian, the interview is wonderful and comes down on the right side of almost every issue. He names names and blames both Paul Samuelson and Milton Friedman for the positivist and mathematical orientation of mainstream economic theory, which he argues is the underlying cause of the current breakdown of the global monetary and financial order.
Comments (56)
Taylor
This is interesting, Joe, and thanks for posting, but it's odd that Gunnar seems surprised to be surrounded by "unprofessionalism" and "knowing malfeasance" amongst his central banking comrades. What does/did he expect central banks to do, if not to abuse the power of the printing press? Gunnar should ask himself, what good is it to go to the trouble of setting up a fiat currency regime, if your plan is to keep the money supply stable? Obviously, there's no point and it'd be wasted effort to go to the trouble of designing and implementing a new medium of exchange when another one (such as precious metal-backed coins and notes) is already accepted and useful to the economic population. In that case, it only makes sense to agitate for a central bank and a fiat currency if your plan is to abuse its use by producing currency quicker than the economy produces goods and services. Even if your plan was to inflate at such a rate that the price level remains stable and does not fluctuate upward at all, you're still creating arbitrary inflows of currency into the system as the newly created money must be used to purchase something, which sends false signals into the price mechanism as a whole.
At risk of sounding cliched, Gunnar would seem to be like an individual who reads a classified ad for a "charity" organization that is hiring. Over a course of time working in the organization's employ, the individual notices that those around him seem to show a kind of "unprofessionalism" and "knowing malfeasance" that is alarming, as his fellow organizers routinely lie, cheat, steal and engage in other criminal behavior. The individual later leaves the organization and somehow misses the fact that the "charity" organization was in fact an arm of the mafia, and therefore its surprising conduct should not have been such a shocking revelation for the individual after all.
Not to kick Gunnar while he's down (I consider a person "down" when they've spent their career at the DISTINGUISHED IMF), but... what does it say about a man who notices all this unprofessionalism and malfeasance, observes that one's career-prospects hinge on his ability to swim with the stream and then... stays put for several decades? What was Gunnar doing that whole time if not swimming in the polluted stream of unprofessional central banker ethics?
Diligently documenting the horror-show in a dark room with swinging lamps?
Please... the narcissism of all these "Reborn" socialist whistleblowers is truly breathtaking.
Published: March 25, 2009 4:56 PM
DougM
I am intrigued with his statement that, if you work for a central bank or the IMF and plan to continue in that position, you must always go with the stream. Maybe this was what Greenspan was doing. It verifies that no one can change the system from the inside. The only way to do it is to change the course of the stream.
Published: March 25, 2009 5:34 PM
Austroglide
Gunnar here seems to be proposing no less than a solution to the origin of interest and profit. Has anyone before Gunnar provided this same explanation?
"Interest on loans used to finance production is paid out of the sales proceeds of the corresponding output. If the sales proceeds derive solely from the employment income generated by the production itself, then there can be no surplus. An employer breaks even if the cost of his production inputs is 100 krónur and he sells his output to those who sold him inputs for 100 krónur. Sales proceeds in excess of the production cost must be financed with money creation, new money must be created in the economy. Interest paid by the production sector does not reward any contribution of money to wealth creation. It must derive from money newly created in the banking system, which means that it must be loan-financed. Someone must become indebted to the banking system for it to be possible to sell for 110 krónur goods whose production cost only 100 krónur."
I think in order to understand Gunnar's argument here, a good understanding of Say's Law is necessary, which I don't have.
Published: March 25, 2009 5:34 PM
Sukrit
I'm posting this intellectual fodder here in case anyone feels like rebutting this critique. I know this is in many ways a repetition of Paul Krugman's errors, however I'd be interested in reading any thoughts.
"[T]he ABCT is inconsistent with current institutional realities and modern macroeconomic theory and evidence. There is only a very loose relationship between official interest rates and growth in broad money and credit aggregates under current central bank operating procedures. The ABCT is a fundamental explanation for 'bubbles' because Austrians have an axiomatic theory of the relationship between monetary policy and asset prices. However, the ABCT implicitly assumes some investor irrationality, namely, that investors fail to learn from previous cycles. Proponents of the ABCT argue that this is due to the failure of economic agents to understand or accept their theory — in other words, the theory holds only because most people reject it."
By the way, this is from a "free-market" think-tank!
Published: March 25, 2009 5:36 PM
Daniel C
Sukrit,
The pen ultimate sentence you quoted is telling: "However, the ABCT implicitly assumes some investor irrationality, namely, that investors fail to learn from previous cycles."
Two immediate, but not fully developed, thoughts come to mind.
First, entrepreneurs are deceived on the whole because market signals are dampened or are almost totally removed. For any given bubble X, there were few economic indicators that X was unsustainable until malinvestment reached enormous levels. E.g., dot-com companies that never made a penny but whose stock was worth millions; or loans that allowed a 30k income producer to purchase an 800k house with no money down. A good amount of the 'damage' of the bubbles in the last 20 years happened while few had any good reason to suspect there was a problem.
So to say that investors don't 'learn' forgets that each new bubble comes packaged with data that is fundamentally unreliable. It's like Bob Murphy's example of trying to drive a van that has a broken (or, more precisely, tampered with) gas gauge. Is the driver "irrational" when, from time to time, he runs out of gas?
Second, investors are looking to make money, and bubbles for some time pay off. Every bubble looks different, and each new one brings its own set of investors. There is no fixed unity called "investors" who collectively learn from their mistakes; there are only individuals looking to make a buck. It shouldn't be surprising that when economically unsustainable projects receive government backing, more people are going to invest more money in them then they otherwise would have.
So I don't see how the critique holds.
Published: March 25, 2009 6:34 PM
Daniel C
Not to mention that the last sentence draws the wrong conclusion entirely: "Proponents of the ABCT argue that this is due to the failure of economic agents to understand or accept their theory — in other words, the theory holds only because most people reject it."
No, the larger Austrian argument is that interventions will *always* create these distortions, whether or not the entire investor population is full of Austrians. The point is that distortions will fool any set of investors to some degree, because every distortion shields some reality that the market is trying to communicate.
Published: March 25, 2009 6:39 PM
Arend
"Paul Samuelson, the godfather of modern monetary thought, addressed the source of interest in the production process in a 1939 paper entitled "The Rate of Interest Under Ideal Conditions." He did not succeed in resolving the matter. Then, in his Ph.D. thesis at Harvard three years later, he said that interest and profit were the product of "something" and it didn't matter what we called it."
Lol, this verifies that indeed (mainstream) economists specialize in "something" what they are worst at.
Published: March 25, 2009 6:47 PM
fundamentalist
"[T]he ABCT is inconsistent with current institutional realities and modern macroeconomic theory and evidence."
It is inconsistent with modern macro theory. That much is true. And it may be inconsistent with the particular data sets and variables that modern macro fixates on. That doesn't mean it is inconsistent with other data. Several Austrian economists have demonstrated that it is. If we're forced to look only at the variables that mainstream economists use, then it could easily be proven that Austrian econ is wrong. But one of the main points of Austrian econ is that mainstream econ aggregates too much and focuses on the wrong variables.
"There is only a very loose relationship between official interest rates and growth in broad money and credit aggregates under current central bank operating procedures."
He may be thinking of the academic formula MV=QP. Austrians would agree with his criticisms of that formula. However, that doesn't mean there is no relationship at all. The ABCT says that lower interest rates will increase the money supply through credit expansion with the cavet that ALL OTHER THINGS ARE HELD CONSTANT. It's a typical cheap shot to criticize a theory for not working when you can't hold all other things constant as you would in a controlled experiment. The data show that the relation between interest rates and money is loose precisely because all other things are not constant. New money enters the economy primarily through loans to businesses and to consumers for durable goods. In depressions, very low interest rates will have no effect on money because no one wants to borrow. But in booms, small changes in interest rates have exagerated effects on money because everyone and his dog want to borrow. Such behavior could be captured in the Fed's models if mainstream economists would quit looking at aggregates, learn a little theory, and be less lazy.
"Austrians have an axiomatic theory of the relationship between monetary policy and asset prices. "
When did axioms become a dirty word?
"...the ABCT implicitly assumes some investor irrationality, namely, that investors fail to learn from previous cycles. Proponents of the ABCT argue that this is due to the failure of economic agents to understand or accept their theory — in other words, the theory holds only because most people reject it."
The author then quotes Mises saying that it would be possible for businessmen to dampen the business cycle by refusing to borrow. Mises saw evidence at the time of that happening. But that prudence went away. Why? Because of Keynes and economists like the author. At least since John Law, hucksters have tried to convince businessmen that depressions happen because of a lack of money. Since Keynes, that fallacy has been the motto of mainstream econ. As long as people like the author dominate economics and finance, people will fail to heed Mises's warnings and the business cycle will continue. But it certainly is true that if everyone in the US understood the ABCT, then the Fed would not be able to create booms and busts. But as Hayek points out in "Monetary Theory and the Trade Cycle", it just takes a few banks and businessmen taking advantage of the new money to ruin it for everyone else.
"Why would an accommodative monetary policy only manifest in one sector of a single asset class rather than in equities or asset prices more generally? It also
raises the question of how monetary policy could be expected to contain a ‘bubble’ confined to a specific sector of the stock market—without doing significant damage to the broader economy."
That's a good question, and if the author was a serious economist, he would try to find the answer instead of asking a rhetorical question. The reason he can't see the answer is that mainstream econ believes that new money effects all prices equally and immediately. It doesn't. A key feature of the ABCT is that new money enters the economy at a particular place at a particular time. It slowly spreads through the other sectors of the economy like molasses, but the greatest effect take place where the new money enters the market. No one can predict exactly where new money will enter, but my experience has been that it will enter where returns on assets have been low with respect to other assets. For example, while foreigners and the little guy were getting into the tech bubble at its peak, the smart money was getting out and into real estate, which had underperformed stocks for a while.
Published: March 25, 2009 7:05 PM
J Cortez
I haven't watched it yet, but this looks very interesting.
I have to say though, regarding the mainstream: I find it some kind of dark comedy that every one of their theories gets absolutely crushed in reality and people still stick with it.
I wonder what the game theorists are saying now?
Published: March 25, 2009 7:11 PM
fundamentalist
Dr Stephen Kirchner, who wrote the article quoted above, "Bubble Poppers: Monetary Policy and the Myth of ‘Bubbles’ in Asset Prices" clearly doesn't understand the ABCT and he doesn't want to. His methodological approach to economics is pure correlation analysis of a limited set of variables and trying to derive theory from them. The ABCT methodology is so foreign to him that asking him to understand it would be like asking a Muslim to explain Judaism.
Based on the mainstream approach to economics, the Austrian theory must seem like gibberish. That's why most criticisms of it seem so bad. The critics are coming from the methodology of mainstream econ. They can't possible take Austrian econ seriously unless they're willing to understand its assumptions and methodology, but they aren't aware that the methods and assumptions are different. So they criticize Austrian econ using the assumptions of mainstream econ, which only highlights their poor education.
Most Austrian economists understand perfectly the methodology and assumptions of mainstream econ and can criticize it effectively. The only real discussion that can take place between Austrians and mainstream economists is over methods and assumptions. Anything else is pure nonsense.
Published: March 25, 2009 7:15 PM
hebe
Heh, John Nash's views bears some similarity to Hayek's actually (and he acknowledges that):
Ideal Money and Asymptotically Ideal Money
http://www.stat.psu.edu/~babu/nash/money.pdf
News reports on his views:
http://media.www.browndailyherald.com/media/storage/paper472/news/2005/04/27/CampusNews/Nobel.Winner.Nash.Critiques.Economic.Theory-941301.shtml
http://media.www.theramonline.com/media/storage/paper1075/news/2008/10/22/News/Nobel.Prize.Winner.John.Nash.Draws.Overflow.Crowd-3503741.shtml
Goes down heavy on the Keynesians. He's got the subtlety of mind.
Published: March 25, 2009 7:25 PM
jason4liberty
Hulsmann has an excellent article entitled "Toward a General Theory of Error Cycles". It is available on Mises.org, just use the search.
He posits that the State is the only entity that can make repetitive error cycles, because the State is the only problem the free market can't protect itself from. Since the State stays around before, during, and after the cycle, the next cycle is always in the wings. If you are in business, you can't "not participate" in the cycle. Your competitors will borrow and expand - then buy you. Or acheive economies of scale that you can not. It doesn't have to serve them after the boom to hurt you, because the boom is real and during the boom they can hurt you. The boom and bust affect all market participants, not just those who borrow or spend excessively.
Published: March 25, 2009 7:36 PM
hayesy
However, the ABCT implicitly assumes some investor irrationality, namely, that investors fail to learn from previous cycles
We've had 2-3 disastrous asset bubbles in a decade, and they still think that investors learn from previous cycles?
Published: March 25, 2009 8:32 PM
D. Saul Weiner
It seems odd that Tomasson would promote an Austrian viewpoint and then refer to Keynes as one of the two great 20th century economist. Unless he meant great in the sense that he had a big influence.
Published: March 25, 2009 8:51 PM
Bruce Koerber
Classical Liberalism Protection
Wednesday, March 25, 2009
Ron Paul Speaks About The U.S. Debt!
This is one of the most remarkable moments in politicial history and in the history of television journalism! [1].
The fallacies of Keynesianism and the unconstitutional nature of the Federal Reserve were openly discussed. And numerous references to Austrian economics and the Mises Institute and frank disclosure about the way government censors economic education all make this interview a landmark event. Send a link to this interview to everyone you know who is showing signs of waking up!
Today is a great day for the cause of liberty!
[1]
http://www.campaignforliberty.com/blog.php?view=14275
Published: March 25, 2009 8:53 PM
Ohhh Henry
"However, the ABCT implicitly assumes some investor irrationality, namely, that investors fail to learn from previous cycles."
It's not a question of learning from previous cycles. Everyone who participates in a bubble becomes aware that it is a bubble long before it pops. They simply disagree about when the bubble will pop, or they have no idea of when it will pop and they don't care - all they know is that as long as some fizz is still left, their best chance of striking it rich is to stay in the game.
I participated in the tech bubble of the 1990s and I only met one person in the business, a lowly and junior employee and not an entrepreneur or manager, who seriously thought that tech would continue to grow at those rates for more than a few years. And of course there were some stock shills on the financial news networks who were literally paid to tell people that stocks like Nortel and Lucent would continue to double in price every few months for the foreseeable future.
It was my awareness of the volatile and unsustainable nature of the tech expansion which led me to start reading financial web sites, which soon led to mises.org. So bubbles do have some beneficial effects. But it's not clear that understanding a bubble, but having no influence of the government behavior that causes the bubble, does one a whole lot of good.
It's like this: understanding the concept of banditry and knowing how bandits work does not prevent farmers from planting crops or carrying their produce to market. One still has to try to make a living somehow. And a peaceful and honest farmer will always tend to be vulnerable to theft and fraud because being honest and industrious, they spend most of their time working and thinking about work, and don't have all day to think of ways of foiling crooks. They seldom know the exact direction from which the blow will be struck or exactly when it will fall. A bandit on the other hand has decided not to do any work but to live off the work of others. He therefore has all day to think about how to rob and steal. He has more time to think of nefarious plots than his victims have time to think about how to foil him.
Substitute "workers and investors" for "farmer" above, and substitute "politicians and bureaucrats" for "bandits", and you know about as much about how people behave during the business cycle as you need to know.
Published: March 25, 2009 9:17 PM
Brian Macker
Either this was poorly translated or I disagree with his last comments. At the end doesn't it sound like the guy is arguing against paying interest to people who lend out money? He talks as if paying interest somehow generates new money. Also talks as if it is wrong to pay more for a good than it's production costs. Sounded rather wacky to me.
I'm not sure what theories of Freedman and Samuelson he is referring to here but his alternate doesn't sound right to me at all.
Of course the lender of money plays a part in production and deserves a cut of the profits. Money is only a medium of exchange. What the lender is really doing is lending the goods (raw materials) plus paying the salaries of the workers.
So this guy just sounds wrong on these issues.
Published: March 25, 2009 9:42 PM
Joe
I certainly hope we continue to see more people like Tómasson move into the mainsteam. This entire Keynesian economic system we are all forced to be a part of is really becoming a gigantic, tragic joke. Now, even the U.S. Postal Service is seeking a bailout of sorts. Who is next I wonder? The Girl Scouts of America?
Postal chief says post office running out of money
WASHINGTON (AP) -- The post office will run out of money this year unless it gets help, Postmaster General John Potter told Congress on Wednesday as he sought permission to cut delivery to five days a week.
http://finance.yahoo.com/news/Moneytroubled-post-office-apf-14736300.html
Published: March 26, 2009 12:37 AM
Rich
What is it that you guys have against Friedman, anyway? Jealous of all the attention he got? Look, you're mostly in agreement anyway - I have a hard time telling you apart. And this Icelandic guy is totally misrepresenting him. Friedman never said that money is a factor of production, therefore it is entitled to a share of the production. He simply never said that. He said that inflation is a purely monetary phenomenon. And he's been proven right, over an over again.
Published: March 26, 2009 4:50 AM
Rich
Actually, listening to what this guy's saying - he's a Keynesian, through and through. He's completely opposed to free market economics. He thinks the fixed exchange rate system from Bretton Woods was good, and the departure from this was "anarchy." Well, yes it was, and that's a good thing.
Mr Salerno, I'm afraid you're not a free-marketeer, and hence not an Austrian either. So WTF?
Published: March 26, 2009 5:26 AM
hebe
The fixed exchange rates system from Bretton Woods was a good thing - it imposed a certain degree of fiscal and monetary discipline on all countries, barring the United States. That proved to be the fatal flaw.
Published: March 26, 2009 5:48 AM
William H Stoddard
I don't get why you're saying that Tómasson's ideas are compatible with Austrian economics. HIs argument about the need for money creation to enable business profits looks a lot more like the "money crank" theories of C. H. Douglas or Silvio Gesell that Keynes cited approvingly in the General Theory. The Austrian analysis of interest is that the businessman pays the workers the value of (their contribution to) the product, in advance, at a discount, and then sells the product for the full price . . . and earns interest on his investment equal to the value of the discount. No money creation is needed to make this possible.
Published: March 26, 2009 8:16 AM
libertyfirst
Mr Stoddard is wholly right. Tomasson has yet to understand the rationale for interest and (gross) profits, as if Boehm-Bawerk never existed. It looks much more marxian, sraffian or post-keynesian than Austrian. Not all those who cricitize the Fed have good points, and merely criticizing the Fed doesn't make anyone Austrian.
Published: March 26, 2009 10:09 AM
Inquisitor
"Mr Salerno, I'm afraid you're not a free-marketeer, and hence not an Austrian either. So WTF?"
Substantiate that, why don't you?
Published: March 26, 2009 11:26 AM
Rich
hebe, a fixed exchange rate system is simply a form of price-fixing, which never works. See the ERM for more evidence.
I'm a follower of Friedman, and a lot of what I hear from the Austrians seems to be spot-on - and yet I hear constant criticism of him from the Austrian camp, notably Murray Rothbard. I don't get it.
Inquisitor - what I've gathered from Austrian economics so far is that it's very pro-free market. Hence Tomasson is neither. So substantiate your question, why don't you?
Published: March 26, 2009 11:46 AM
Gunnar Tómasson
Rich.
What is it that you guys have against Friedman, anyway? Jealous of all the attention he got? Look, you're mostly in agreement anyway - I have a hard time telling you apart. And this Icelandic guy is totally misrepresenting him. Friedman never said that money is a factor of production, therefore it is entitled to a share of the production. He simply never said that. He said that inflation is a purely monetary phenomenon. And he's been proven right, over an over again.
Comment.
In personal correspondence Milton Friedman described as "egregious nonsense" the idea that money was NOT a factor of production and that interest on production credit did NOT reward a factor servic.
Published: March 26, 2009 12:31 PM
Gunnar Tómasson
Rich.
What is it that you guys have against Friedman, anyway? Jealous of all the attention he got? Look, you're mostly in agreement anyway - I have a hard time telling you apart. And this Icelandic guy is totally misrepresenting him. Friedman never said that money is a factor of production, therefore it is entitled to a share of the production. He simply never said that. He said that inflation is a purely monetary phenomenon. And he's been proven right, over an over again.
Comment.
In personal correspondence Milton Friedman described as "egregious nonsense" the idea that money was NOT a factor of production and that interest on production credit did NOT reward a factor servic.
Published: March 26, 2009 12:33 PM
Gunnar Tómasson
libertyfirst:
Mr Stoddard is wholly right. Tomasson has yet to understand the rationale for interest and (gross) profits, as if Boehm-Bawerk never existed.
Comment.
"Böhm-Bawerk was indeed the first who expressly said that the whole value of the product must in principle be divided between labor and land, if the process of production is to proceed with ideal perfection." (Schumpeter, 'The Theory of Economic Development', Oxford University Press, 1961, p. 32)
Published: March 26, 2009 12:43 PM
Gunnar Tómasson
Austroglide:
Gunnar here seems to be proposing no less than a solution to the origin of interest and profit. Has anyone before Gunnar provided this same explanation?
"Interest on loans used to finance production is paid out of the sales proceeds of the corresponding output. If the sales proceeds derive solely from the employment income generated by the production itself, then there can be no surplus. An employer breaks even if the cost of his production inputs is 100 krónur and he sells his output to those who sold him inputs for 100 krónur. Sales proceeds in excess of the production cost must be financed with money creation, new money must be created in the economy. Interest paid by the production sector does not reward any contribution of money to wealth creation. It must derive from money newly created in the banking system, which means that it must be loan-financed. Someone must become indebted to the banking system for it to be possible to sell for 110 krónur goods whose production cost only 100 krónur."
I think in order to understand Gunnar's argument here, a good understanding of Say's Law is necessary, which I don't have.
Comment.
Exactly!
I have addressed Say's Law in various postings to an economist group, Gang8, over the past several years.
See www.creditary-economics.org or www.credec.org.
But, briefly, Say's Law is predicated on a view of analytical economics as "a branch of logic" in Schumpeter's phrase.
On the occasion of Schumpeter's centenary, Paul A. Samuelson wrote a piece on Schumpeter in which he reaffirmed his surprise at why he would have described economics as "a branch of logic".
Still, that is precisely the view which John Stuart Mill, in a mid-19th century paper on outstanding methodological issues in economics, ascribed to ALL his predecessors of first rank - using "the method a priori" instead of Schumpeter's term.
Published: March 26, 2009 12:56 PM
Gunnar Tómasson
D. Saul Weiner:
It seems odd that Tomasson would promote an Austrian viewpoint and then refer to Keynes as one of the two great 20th century economist. Unless he meant great in the sense that he had a big influence.
Comment.
Keynes viewed economics as "a branch of logic" as did Schumpeter and John Stuart Mill et al. As editor of the Cambridge Economic Handbook (1922), Keynes described the "theory of economics" as "an apparatus of the mind, a technique of thinking" which does NOT relate directly to empirical facts but helps its possesser to arrive at "correct conclusions".
It is this aspect of Keynes which I have in mind.
On the other hand, I view the General Theory as a period piece in which Keynes sought to penetrate the resisting minds of his peers by adopting much of their vocabulary.
Still, the other Keynes shone through in various places:
(a) his expressed preference for labor as the sole factor of production, aided by natural resources etc. and
(b) his argument in parts of the work that any change in the value of the economy's work in progress could only come about through net change in the factor content thereof.
Samuelson derided this proposition in his 1939 paper on 'The Rate of Interest Under Ideal Conditions', suggesting that Keynes had got messed up in a version of Zeno's paradox.
Of course, Keynes's proposition is irrefutable given constant unit factor prices.
In fact, it accords perfectly with the logical structure of Say's Law which Keynes pretended to construe as an empirical rather than a logical proposition.
Published: March 26, 2009 1:12 PM
fundamentalist
Thank you, Mr. Tómasson for clarifying those issues. We focus so much on Keynes' mistakes that we forget he got a few things right. I wonder if you would agree with the person who said that what Keynes got right wasn't original? I think Hazlitt wrote it.
Published: March 26, 2009 1:27 PM
Gunnar Tómasson
fundamentalist:
Thank you, Mr. Tómasson for clarifying those issues. We focus so much on Keynes' mistakes that we forget he got a few things right. I wonder if you would agree with the person who said that what Keynes got right wasn't original? I think Hazlitt wrote it
Comment.
In his paper which I referred to in an earlier comment, John Stuart Mill wrote to the effect that economic science was a work in progress whose ultimate boundaries could not be known until the end of that progress.
The ultimate boundaries of economics as a branch of logic/apparatus of the mind/technique of thinking, I have long since concluded, are limited to the monetary aspects of production in entrepreneurial market economies.
Keynes worked hard on this aspect in Treatise on Money but, as he noted in preface to the General Theory, let purely monetary aspects thereof fall into the background or words to that effect.
Was Keynes original?
No, not in terms of achievements within the boundaries of the theory of economics as I define them above.
In my view, there is a unifying thread in the works of Quesnay, Smith, Bentham, Say, Keynes, Schumpeter and Leontief which foreshadows the demarcation of the boundaries of economic theory so defined.
These boundaries were always there.
In this respect, therefore, the originality of the above group of thinkers consists of having broken free of the intellectual fetters of conventional approaches to economics.
Published: March 26, 2009 2:02 PM
fundamentalist
The Austrian theory of interest in a barter society is time preference and in equilibrium profits will equal interest. The addition of money shouldn’t change anything. It merely represents real savings and is easier to store than tires or airplanes or whatever a company produces. Profits above the interest rate can happen even in a barter society if an entrepreneur knows something that others don’t, or expects something to happen before others do. So in a sense, luck or insight is the source of profits higher than the interest rate.
Mr. Tomasson’s theory of money isn’t exactly Austrian, but there is a sense in which it is. Remember that if the money stock is held constant while production increases, the value of money increases, or said differently, prices fall. So if it weren’t for money creation by banks, the producer would be selling his product for less than the cost of production, but that would be OK because the value of the currency will have appreciated enough to compensate him and pay the interest on his investment.
Published: March 26, 2009 4:42 PM
Brock Moore
Let me comment on this statement:
"Interest on loans used to finance production is paid out of the sales proceeds of the corresponding output. If the sales proceeds derive solely from the employment income generated by the production itself, then there can be no surplus. An employer breaks even if the cost of his production inputs is 100 krónur and he sells his output to those who sold him inputs for 100 krónur. Sales proceeds in excess of the production cost must be financed with money creation, new money must be created in the economy. Interest paid by the production sector does not reward any contribution of money to wealth creation. It must derive from money newly created in the banking system, which means that it must be loan-financed. Someone must become indebted to the banking system for it to be possible to sell for 110 krónur goods whose production cost only 100 krónur."
This is simply the cash flow fallacy. Mr. Tómasson appears to think that profit is the net accrual of cash, whereas in double entry accounting it is the net operational accrual of assets over liabilities. The concept is illustrated by two diagrams at
http://www.geocities.com/new_economics/accounting_profit/ If you will look at the portions of the diagrams with upwardly sloping lines, these represent the period of normal economic expansion. During the period of normal economic expansion, cash disbursements are always exceeding cash receipts, yet the statistical firm is always recording a positive rate of profit. This is exactly opposite of what intuitively seems to be the case. So the accounting reality is counter-intuitive. Even during the period of steady state, where cash receipts exactly equal cash disbursements, the firms are recording a positive rate of profit because dividends are never expensed, and the purchase of land is never expensed.
Brock Moore
Published: March 27, 2009 7:29 AM
Brock Moore
"Remember that if the money stock is held constant while production increases, the value of money increases, or said differently, prices fall. So if it weren’t for money creation by banks, the producer would be selling his product for less than the cost of production, but that would be OK because the value of the currency will have appreciated enough to compensate him and pay the interest on his investment."
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But this ignores the reality how you would actually account for profit and loss. Generally, as production is increasing, the number of transactors is increasing, with a growing population and increasing sophistication in productive organization. In that case, let's say the money supply is a fixed quantity of gold coins, each productive transactor would be receiving back through sales fewer gold coins that he is dispensing. What incentive would he have to continue producing? He would always have fewer gold coins than if he had never engaged in production at all. Even if the individual coins have increased in value, the fewer coins would always be worth less than the greater number of coins he had spent.
Brock Moore
Published: March 27, 2009 7:52 AM
Gunnar Tómasson
As editor of the Cambridge Economic Handbook (1922), Keynes effectively endorsed John Stuart Mill's definition of economic theory as science based on the "a priori" method, describing it as "an apparatus of the mind, a technique of thinking" which, while NOT directly applicable to economic facts, "helps its possessor" to arrive at "correct conclusions" with respect thereto. (Quoted from memory).
The Mill-Keynes concept of economic theory is not predicated on the set of book-keeping conventions favored by Major Douglas who, in 1930, used a version of "the cash flow fallacy" to deflect the thrust of a point made by Keynes:
Evidence Submitted to the Macmillan Committee of Finance and Industry by C. H. Douglas, M.I.E.E., M.I.M.E., M.I.Mech.E.
(Reprinted from the Official Minutes of Evidence) TWENTY-FOURTH DAY Thursday, 1st May, 1930
Major CLIFFORD HUGH DOUGLAS, M.I.Mech.E., M.I.E.E.
called and examined...
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An excerpt:
4488. [Mr. KEYNES] Do you mean that the receipts of capital are greater than the amount it pays out in
dividends?--
[Major DOUGLAS] Yes; that is an obvious statement of fact; the accounts of any company will show that.
4489. PROFESSOR GREGORY: What happens to the
difference?--
[Major DOUGLAS] It is represented by the fixed assets in the company which it cannot distribute in the form of money...
Published: March 27, 2009 8:24 AM
fundamentalist
Brock: “Even if the individual coins have increased in value, the fewer coins would always be worth less than the greater number of coins he had spent.”
Not necessarily. According to Higgs, the period of greatest production and wealth creation in the history of the US took place between 1875 and 1907 when prices declined relentlessly. Recently, the computer industry is a good example of something similar. How is is possible for prices to fall and businesess still make a profit? Partly it’s because the prices of inputs, business costs, are also falling. Partly because it spurs productivity increases. The situation would be the opposite of inflation. With price inflation, you have nominal profits and real profits, with the real being less than the nominal. With price deflation, nominal profits would be smaller than real profits.
Published: March 27, 2009 9:00 AM
Brock Moore
"The Mill-Keynes concept of economic theory is not predicated on the set of book-keeping conventions favored by Major Douglas who, in 1930, used a version of "the cash flow fallacy" to deflect the thrust of a point made by Keynes:"
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No he did not. In the excerpt you quote, Douglas is replying to a specific question from Keynes:
"Do you mean that the receipts of capital are greater than the amount it pays out in dividends?"
He simply did not resort to your really trivial cash flow fallacy in his response. Please actually read it. Perhaps you didn't know that Douglas was an accomplished cost accountant, having been involved with the accounts as Assistant Director at the Farnborough Aircraft Works.
He is stating the fact that profit is the operational accrual of assets over liabilities, not the net accrual of receipts over disbursements.
Brock Moore
Published: March 27, 2009 9:21 AM
Brock Moore
"Not necessarily. According to Higgs, the period of greatest production and wealth creation in the history of the US took place between 1875 and 1907 when prices declined relentlessly."
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It was also a period of time where the money supply was not a fixed quantity of gold coins, so this doesn't apply to your argument:
"So if it weren’t for money creation by banks, the producer would be selling his product for less than the cost of production, but that would be OK because the value of the currency will have appreciated enough to compensate him and pay the interest on his investment."
The economy, during that period, was very much creditary, with bank created credit, as it is today. The general trend was an increasing money supply, with intermittent contractions. There were at least two contractions and severe recessions during that time. Prices may well decrease even though the money supply is increasing.
You are still going to have to explain how eight gold coins are going to be worth more than the ten gold coins the entrepreneur had spent, had he not spent them, but kept them. Regardless of the increasing value of individual coins, ten coins are always going to be worth more than eight coins. Where is the incentive to produce if you are going to be financially better off if you do not produce?
Brock Moore
Published: March 27, 2009 9:38 AM
fundamentalist
Brock: “Where is the incentive to produce if you are going to be financially better off if you do not produce?”
I don’t understand your point about the 8 and 10 coins. Of course 10 coins are worth more than 8. I don’t see how that fits in with the discussion. As for the question above, the obvious answer is that there is no incentive to produce if you’re not financially better off. Businesses fail because they don’t make a profit. The reason I gave the examples of businesses succeeding in spite of falling prices was to show that it is possible, and has been possible for centuries to make a profit with falling prices.
Deflation does not destroy profits. There is no connection at all between deflation and profits or inflation and profits, except for unexpected deflation and inflation. Those who are caught with huge loans when deflation sets in will go out of business. No question about it. We are watching it happen today. But after a period of adjustment when deflation becomes expected, profits will return for those businesses with little debt. That’s because the costs of inputs fall along with the price of outputs.
If the total money stock consists of gold coins and no fractional banking is allowed so that the money supply is fixed, you essentially have a situation similar to that of the Dutch Republic of the 16th and 17th centuries. Prices fell, wages rose, and everyone became wealthier. That happened because producers were creating new wealth every day.
Money is not wealth. It is a measure of wealth and a store of previously produced wealth, but it is not wealth. We become wealthier as we produce more cars, houses, furniture, clothing, airplanes, etc. If we only have gold coins for money in the entire economy, we will still produce more wealth because we want to be wealthier. Wealth comes from transforming unusable natural resources into usable goods.
Say we have 8 trillion gold coins and no possibility of getting any more and no fractional banking so all loans have to be come from someone saving up gold coins out of those 8 trillion available. Then as we produce more wealth, gold coins will become more valuable because they become relatively scarcer to goods. We know they are more valuable because prices are falling and each gold coin will purchase more wealth than it did before.
Mises does a much better job of explaining profits in Human Action. Profits exist in a barter society with no money at all. In equilibrium, profits and interest at the same thing and result from time preference.
Published: March 27, 2009 11:34 AM
Gunnar Tómasson
To "deflect" the thrust of a question -
Do you mean that the receipts of capital are greater than the amount it pays out in dividends? -
is to answer with a non sequitur.
As in a dictionary example given on the internet:
She deflected the criticism by changing the subject.
Major Douglas's reply is the equivalent of resorting to non-Euclidean geometry to deflect the thrust of a question on Euclidean geometry.
Published: March 27, 2009 11:41 AM
fundamentalist
Brock, you might want to consider how computer makers have survived for decades with falling prices for their products and increasing costs for labor and materials.
Published: March 27, 2009 11:43 AM
fundamentalist
Brock, You would probably like Dr. Reisman's explanation of profits under a fixed stock of money in his book "Capitalism" because he uses an accounting approach. He shows that profits result from capitalists investing less and consuming more, which in Mises' terminology means that they have a higher time preference; they prefer present consumption over future consumption. The more capitalists prefer future consumption to present consumption the closer profits converge to the interest rate.
Published: March 27, 2009 12:20 PM
Brock Moore
I just downloaded the book. It is a rather long book. Will you please direct my attention specifically to where in the book Reisman explains how profit and loss can be accounted for in a growing economy with a fixed quantity of money?
How does he address this issue?: In a growing economy there are more and more transactors utilizing the fixed quantity of money. The means that the flux-reflux cycle is interrupted by leakage of money to newer transactors not in the original flux-reflux circuit, so a smaller quantity of money is always refluxing to each producer than the quantity the statistical producer has spent in producing his output. In other words, he spends ten gold coins and gets back eight, which is less that the ten he spent, because of the leakage, let us say. Under what conceivable accounting system, even if the eight gold coins are now worth more that the value of the ten coins, when originally spent, would report a profit? Wouldn't the producer be better off if he had not spent the ten coins, but kept them, and not engaged in economic activity at all? After a period of time he would have ten coins rather than eight. Wouldn't ten coins always be worth more than eight? Please explain how the accounting would work. Does Reisman explain the accounting?
Brock Moore
Published: March 27, 2009 2:06 PM
Brock Moore
"Major Douglas's reply is the equivalent of resorting to non-Euclidean geometry to deflect the thrust of a question on Euclidean geometry."
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No, Keynes' question, Professor Gregory's follow-up, and Douglas' reply were very straightforward. It is true, however, that Keynes and Gregory, on the one hand, and Douglas, on the other hand, were viewing the economy from quite different perspectives.
Keynes had asked: "Do you mean that the receipts of capital are greater than the amount it pays out in dividends?"
In this context the "receipts of capital" meant profit.
Professor Gregory then asked: "What happens to the difference?"
Douglas' reply was entirely correct: "It is represented by the fixed assets in the company which it cannot distribute in the form of money..."
In accounting, profit is the operational accrual to net worth, the difference between assets and liabilities. It is not, as you suppose, in your cash flow fallacy, the accrual to a firm's cash account. Retained profit is not in the form of cash, which is merely one component in the firm's schedule of assets. Bits and pieces of a firm's net worth cannot be distributed as dividends. But increasing net worth does enhance the firm's standing with banks and investors, who may, or may not, make money available to the firm for the payment of dividends and for other purposes. That is however a policy decision for the banks and investors, and is beyond the control of the firm. It is also beyond the control of the consumers. The financial system is something that stands between production and consumption and should be subject to conscious control.
Brock Moore
Published: March 27, 2009 2:43 PM
fundamentalist
Dr. Reisman gets to the heart of the matter on page 727 where he explains that profits result from net consumption, which is the excess of demand for consumer goods over the demand for capital goods and labor. But to understand his explanation, you may need to review earlier sections. That excess demand causes sales of consumer goods to be greater than the costs of capital goods and labor for production. The excess demand that is not included in the costs of production come from the capitalists. That is true in a barter economy or money economy with or without inflation. Inflation will make the nominal profits higher, but not the real profits. Deflation will make nominal profits smaller and real profits higher.
So if a producer pays 10 gold coins for production and receives just 8 gold coins in return, then the value of the 8 gold coins must have risen enough in value (what they will exchange for consumer goods) in the interim period to pay for the next round of production plus a profit, or around 25% if the rate of profit is 5%.
As Dr. Reisman explains, his is a new approach to looking at profit from a different perspective, but it agrees completely with Mises’ and Hayek’s views on profits and interest in that it is directly tied to time preference.
Published: March 27, 2009 4:11 PM
fundamentalist
PS, 8 gold coins will not equal the value of 10 gold coins at the same moment in time, but it's very possible and very likely that 8 gold coins today will exceed the value of 10 gold coins this time last year.
Published: March 27, 2009 4:13 PM
Joe Salerno
The following comments are for the few who cannot seem to spot the forest for the trees:
1. Nowhere in his interview does Gunnar Tomasson claim to be an Austrian economist. In fact, in introducing his interview I specifically noted that "he does not identify himself as an Austrian." His repeated insistence that economics is a branch of logic certainly marks him as a close ally of Austrians as against the positivists.
2. Both practitioners and students of Austrian economics can learn a great deal from the writings of economists who do not wholly, or even partially, share the Austrian perspective. No one knew this better than Murray Rothbard, who cited and drew upon the contributions and works of scores of non-Austrian economists in his magnum opus, Man, Economy and State. It would be laughable to suggest, by the way, that since many of these economists also advocated government intervention into the market economy, Rothbard "was not a free marketeer and hence not an Austrian either."
3. Tomasson's view that Schumpeter and Keynes were the two greatest economists of the 20th century does not disqualify him from offering us profound insights into the causes underlying the current collapse of the global monetary and financial system These insights, and their compatibility with Austrian economics, stand or fall on their own merits. To argue otherwise is to fall into the naive fallacy that the truth of a paricular proposition depends on the veracity of other independent beliefs held by the person who states it.
4. Tomasson's view that newly created money is necessary to generate an interest return in production was not simply plucked out of the air. It was the position originated by the eminent economist Joseph Schumpter who argued that in the circular flow of equilibrium interest would be zero and that interest was a dynamic income that depended upon the expansion of bank credit to finance innovations in the economy. Schumpeter's position was carefully scrutinized and refuted by Austran economists such as Ludwig von Mises, Lionel Robbins and Murray Rothbard. The fact that most Austrians reject this position today, of course, is completely irrelevant to the value of Tomasson's interpretation of the current financial crisis.
5. "Friedman never said that money is a factor of production, therefore it is entitled to a share of the production. He simply never said that."
Milton Friedman ("The Optimum Quantity of Money," in his book of essays book of the same name, p. 24): "As a first step, let us relax condition (9), on page 2, to permit lending and borrowing, while retaining all other conditions. These other conditions mean that borrowing will be of only two kinds, (a) to finance extra consumption, or (b) to finance the holding of cash balances as a productive resource."
6. The Bretton Woods System had only a very tenuous link to gold and was indeed a "phony gold standard" and a price-fixing scheme. However, it did provide an incentive for governments to restrain money creation because "currency devaluation," unlike continual depreciation under the current sustem, was a discrete "headline" event that created business uncertainty and popular resentment against the government in power. Thus the inflation performance under Friedman and the monetarist's dream of monopoly national fiat currencies floating against one another led to a substantially more inflationary international monetary regime-The Great Inflation of the 1970s-- which neither prevented the global dissemination of business cycles nor suppressed demands for protectionism as the Friedmanites had so glibly promised.
7. The Austrians and Friedman are not "mostly in agreement" on monetary theory or policy. On the former, Friedman embraces the Quantity Theory of Irving Fisher as the centerpiece of his analytical apparatus. This, and not Income-expenditure equation, is the foundational equation of modern macroeconomics and perpetuates the "spending illusion" that total spending drives something called the price level. For Mises, Hayek and Rothbard, of course, the interaction of subjective value scales and the various stocks of goods and money in existence determine the stucture of prices and quantities exchanged (and withheld) on the market. Spending is an ex post concept devoid of any causal significance in the price determination process (in fact it would be more nearly correct to say that prices determine spending rather than the reverse). On monetary policy, except for a few, weak and obscure statements to the contrary near the end of his life, Friedman vigorously upheld the political monopoly of the money supply throughout his career; the Austrians favor a money based on a marlket-chosen commodity.
8. It is inane to argue that Austrians are "jealous" (envious?) of the attention garnered by a macroeconomist like Friedman, just because they criticize him. Krugman and Bernanke, for example, command a great deal of popular and academic attention and Austrians are certainly critical of them. Is that prima facie evidence that Austrians are jealous of them, too.
9. So I reiterate that there is much truth and good sense in Tomasson's interview.
Published: March 27, 2009 5:58 PM
newson
just casting around...
anyone know of a better interest rate theory than hülsmann's "a theory of interest" (means to ends)? he review others' theories, finding faults, and then offers his own variant.
http://mises.org/journals/qjae/pdf/qjae5_4_7.pdf
Published: March 28, 2009 1:14 AM
Gunnar Tómasson
On p. 90 of his paper, Hülsmann has the following quote from Mises:
Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one. We call such a willfully induced alteration an exchange. A less desirable condition is bartered for a more desirable. What gratifies less is abandoned in order to attain something that pleases more.
Comment.
In entrepreneurial market economies, all production involves owner/suppliers of factor services, on the one hand, and entrepreneurs, on the other hand.
Factor services are "less satisfactory" to their owner/suppliers than their final output equivalent to which they retain claim throughout the production process in the form of IOUs paid for their supply of factor services to entrepreneurs.
When transformation of factor services into final output is completed, such IOUs are at a means to "a more satisfactory state of affairs" for suppliers of factor services.
The relationship between suppliers of factor services an entrepreneurs is a creditary one over the duration of the production process, with suppliers of factor services retaining throughout claims to the final output equivalent of their factor services.
Thus, Schumpeter's conclusion that the rate of interest on production credit is ZERO under equilibrium conditions.
Hence my own conclusion that interest on production credit and/or entrepreneurial profit is the product of what I have termed Final Demand Inflation.
That is, the flow of nominal demand into the market for final output in excess of the nominal factor cost thereof.
Published: March 28, 2009 9:41 AM
fundamentalist
It seems to me that the means/end explanation of interest and the time preference explanation are more tangled up than Hulsmann admits. Without time preference, some means/end pairs wouldn’t exist. For example, you could say that preparing for future needs is the end and saving is the means. But if people didn’t care about the future at all, as children don’t, then they would not value that “end” and therefore not value the means, saving. The fact that people save shows that they place some value on the future, so they value that end and use a means to achieve it. But the fact that they save a very small part of their income shows that they value the end of present consumption over the end of future consumption.
Suppose a businessman had a choice between two means to achieve exactly the same end, but one means required a week to accomplish it and the other a year. Which means would he choose? I guess what I’m saying is that means/end is a good explanation, but time preference is a big factor in choosing means and ends.
You could also ask why does the means/end value difference exist? The answer would be that humans always seek to improve their condition, and then that basic desire becomes the origin of interest.
Uncertainty is a big factor, too. The future is always uncertain. When a businessman invests, he can never be certain that he will earn a return, so he needs to make more from his investment to compensate him for the uncertainty.
Hulsmann’s means/end idea is very interesting and adds a lot to the discussion of interest, but it doesn’t seem to replace time preference as much as complement it. Interest is a complicated subject. It seems to me that means/end, time preference, uncertainty and probably other things should go into a comprehensive theory of interest
Published: March 28, 2009 10:44 AM
Brock Moore
"Thus, Schumpeter's conclusion that the rate of interest on production credit is ZERO under equilibrium conditions.
"Hence my own conclusion that interest on production credit and/or entrepreneurial profit is the product of what I have termed Final Demand Inflation.
"That is, the flow of nominal demand into the market for final output in excess of the nominal factor cost thereof."
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Which is the really trivial and easily demonstrable cash flow fallacy. Pushing the fallacy is not the mark of very deep thinking. Even in steady state, where the firms sector's disbursements exactly equal the firms sector's receipts there is profit, because disbursements in payment of dividends are never expensed, and disbursements for the purchase of land are never expensed.
Brock Moore
brock_moore@accountant.com
Published: March 29, 2009 7:52 AM
Brock Moore
"PS, 8 gold coins will not equal the value of 10 gold coins at the same moment in time, but it's very possible and very likely that 8 gold coins today will exceed the value of 10 gold coins this time last year."
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The question was, how do we actually account for profit and loss in a growing economy with a fixed quantity of money? Not how we philosophically think of profit, but as a practical matter, how we actually account for profit and loss. What are the mechanics of the accounting system that would do that?
The answer (or work around) was arrived at some forty thousand years ago, when instruments of debt began to circulate. Instruments of debt were contracts for future performance. This type of money has predominated ever since, with the major refinement of fractional reserve banking emerging in the seventeenth century. With fractional reserve banking, entrepreneurs would exchange their personal promissory notes, with limited recognition and acceptability, for the generally recognized and accepted notes of the banks, in the form of deposits. From that point on, you could spend what you receive in your pay voucher at any store, not just the company store. The scope and utility of the competitive market was greatly enhanced. Fractional reserve banking was a necessary precursor to the Industrial Revolution.
The intellectual pioneer of this perspective was A. Mitchell Innes. See his papers at
http://www.geocities.com/new_economics/innes/
Brock Moore
brock_moore@accountant.com
Published: March 29, 2009 8:34 AM
Gunnar Tómasson
Brock.
Which is the really trivial and easily demonstrable cash flow fallacy. Pushing the fallacy is not the mark of very deep thinking. Even in steady state, where the firms sector's disbursements exactly equal the firms sector's receipts there is profit, because disbursements in payment of dividends are never expensed, and disbursements for the purchase of land are never expensed.
Comment.
It's a pleasure to encounter a deep thinker among Major Douglas's admirers.
Published: March 29, 2009 6:38 PM
Brock Moore
"It's a pleasure to encounter a deep thinker among Major Douglas's admirers."
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Why do you think I am an admirer of Major Douglas? It was you, not me, who quoted Douglas. In that quotation, Douglas replied to Keynes and Professor Gregory with a well-known principle of accounting. That principle was that profit in accounting is not the accrual to a firm's cash account, but accrual to net worth. Accrual to net worth is not in the form of cash that can be paid out in dividends. But the accrual to net worth may enhance a firm's ability to pay dividends, because it enhances the firm's standing with banks and investors, who may (or may not) advance cash to the firm to pay dividends and for other purposes. It is the "may not" aspect of the situation that can cripple trade and commerce.
Brock
Published: March 30, 2009 7:44 AM
Rich
Joe S,
Comments for those who cannot spot the trees for the forest:
You lauded his comments. He's anti free market. You presumably identify with the Austrians. Therefore I was wondering if the Austrian position is essentially anti-free market.
Yes. But is the Austrian position free market or not? You guys obfuscate too much, which makes me suspicious.
Keynes was an important but disastrous economist. And it is not a fallacy to be influenced by other views held by the person in question. If he were to append his interview by saying he believed aliens were amongst us, wearing human skin, I would be less inclined to listen to other things he had to say.
Yes it is. Printing money, creating it or whatever is an insane solution to anything. Evidence, logic, everything points to it's insanity. Dressing it up in bullshit abstruse models does not alter this fact.
Milton Friedman ("The Optimum Quantity of Money," in his book of essays book of the same name, p. 24): "As a first step, let us relax condition (9), on page 2, to permit lending and borrowing, while retaining all other conditions. These other conditions mean that borrowing will be of only two kinds, (a) to finance extra consumption, or (b) to finance the holding of cash balances as a productive resource.">
Is that a refutation? Sorry, I don't see it.
An incentive to restraint? A price-fixing system? I'm afraid not.
The inflation was caused by government printing money, not by Friedman.
And Friedman spent a lot of time denouncing fiat currencies. He co-wrote a tract investigating whether there needed to be a government monopoly of money. The conclusion was: No.
No, he did not. That is incorrect, as I stated earlier.
Maybe...
It's pretty dull, and wrong too.
Published: April 1, 2009 6:29 AM