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Showing posts from 2012

The Economic Superbowl: 1920-1921 versus 1930-1931

It’s been said there’s no such thing as a controlled experiment in the social sciences, including economics.  But we had something close to a laboratory experiment back in 1920-1921 and 1930-1931.*

In each of these periods there was a depression.  Unemployment was high - for awhile, it was higher in the 1920s than in the 1930s.  Prices were falling in both periods. 

In the 1920-21 depression, the Federal Reserve Bank of New York crashed the monetary base, thereby reducing the money stock, and jacked interest rates to record highs.

In the 1930-1931 depression, the federal reserve gradually increased the monetary base and lowered the interest rate. 

In the 1920-21 period the government slashed spending and allowed nominal wages to fall.

In the 1930-31 depression the government increased spending and deficits while pressuring industrial leaders to maintain wage rates.

Tax Policies

Coming out of World War I the highest marginal income tax rate was 77%.  First Harding, then Coolidge (followin…

Who Are the Revolutionaries in a Free Market Revolution?

On the dedication page of Ron Paul’s The Revolution: A Manifestowe find these words:
To my supporters:
I have never been more humbled and honored than by your selfless devotion to freedom and the Constitution. The modifier “selfless” is intended as a moral tribute.  Imagine instead if he had written “selfish.”  Would that kill the Paul freedom movement?  Certainly there would be many who would question his choice of words, though most would probably shrug it off as an unfortunate typo. 

But if he had written “selfish” quite intentionally, how many people would regard that as a moral tribute?

What are the facts?  Can we really say that people who fight for freedom are acting in self-denial?  Wouldn’t freedom be an infinitely better condition to live under than the controlled society we now have or the totalitarian slave state we’re edging towards?  And if this is true, wouldn’t it be correct to say Paul’s supporters act in their conscientious self-interest, and therefore their support s…

A Review of Gary North's "What is Money?"

The inaugural installment of this collection of essays first appeared on on September 29, 2009 - fittingly, Ludwig von Mises' birthday. Dr. North is one of the foremost Austrian economists and economic historians working today, and has gained a wide following with his writing and lectures. These essays are virtually impossible to overrate; they clear up so much of what is misunderstood about money and banking.

Our civilization depends on sound money and honest banking. As North makes emphatically clear, we have neither.

A few excerpts should get my point across:

"The heart of the modern monetary system is fractional reserve banking. This system is based on fraud. At the very heart of the modern economy is fraud -- fraud on a gigantic scale. What is the nature of this fraud? Counterfeiting. Banks are government-licensed institutions that issue bogus IOUs. Because these IOUs function as money, they are counterfeit money. This is the heart, mind, and soul of all …

Securing Property Rights in the Absence of a State

Many Rothbardians are vowing not to vote in this or any election since voting only supports the State.  But I wonder if they could be persuaded otherwise if they knew one of the ballot choices were to dissolve the governments and replace them with voluntary market institutions.  Of course, we don’t have that choice, and most people would either laugh or be scared to death if it were proposed.   But with sovereign nations riding the Keynesian sled into the Abyss, the dissolution might fall in our laps anyway.  Preposterous as it might sound, we might need to consider organizing society around something other than the coercive monopolies driving us to extinction.

Fortunately, we have both experience and theory to draw upon.  In this article I want to touch on two sources from each: The classic study by Terry L. Anderson and P. J. Hill, An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West and Robert P. Murphy’s Chaos Theory.

Thanks to Hollywood and popular literature,…

Fiscal Cliffs and Monetary Mountains

On September 13, economist Frank Shostak had an article on about the upcoming “fiscal cliff,” which he explains this way: 
The "fiscal cliff" refers to the impact of around $500 billion in expiring tax cuts and automatic government-spending reductions set for 2013 as a result of successive failures by Congress to agree on some orderly alternative method of reducing budget deficits. The impact, according to the CBO, is that the federal deficit could fall by nearly half (43%), from $1.128 trillion in 2012 to $641 billion in 2013. 

How should we interpret this projection?  The IMF and CBO think it’s a looming disaster.  But the IMF and CBO are not staffed by Austrian economists.  Shostak:
Ultimately what matters for the economy is not the size of the budget deficit but the size of government outlays — the amount of resources that government diverts to its own activities. Note that, because the government is not a wealth-generating entity, the more it spends, the more…

Still propagandized after all these years

I got a call from a young friend the other day complaining of writer’s block.  It wasn’t that he couldn’t think of anything to write, exactly; he couldn’t think of anything to satirize

“You’re crazy,” I said.  “What’s not to satirize?”

Brief silence.  “I can see you don’t know a thing about satire.“  He sighed.  “Satire requires an audience who would appreciate it.  Look, you don’t tell jokes to yourself, right?  You tell them to others.  If no one gets them, they’re not jokes.”


“They’re not jokes -- trust me.  Satire’s a little more complicated.  You want them to laugh, but when they’re done you want them to see what or who you’re picking on and agree with you.  You want them to take action.  If it’s political satire, you want them to overthrow the government.  Satire’s serious business.  You need to know what’s right, to laugh at what’s wrong.  But that’s the problem.  People don’t know.”

“Oh, yeah?  Tell that to the cast of Saturday Night Live.  Or Jon Stewart.  You’re …

Does the Fed really monetize government debt?

If monetizing debt is understood to mean printing money to pay for government deficits, then the Fed is guilty.

The basics are quite simple.  The federal government issues and the Fed buys interest-bearing debt certificates.  The Fed pays for these securities by creating digits on a computer that represent dollars.  In this Age of Ron Paul, more people are learning that the digits do not represent savings borrowed from the public.  The Fed is not a financial intermediary; it is a money factory.  And while factories under capitalism produce for the benefit of the masses, this factory cranks out dollars for the politically-favored, to the detriment of the masses.   The Fed is thus an anti-capitalist, anti-free market institution.  The 12 members of the FOMC decide how much money they need and create the digits on-the-fly, from nothing.  The idea of Bernanke or other Fed chairmen printing money is a metaphor, but an accurate one.  It’s simply more convenient for the Fed to create digits t…

Honest money in dishonest hands

People are always looking for better ways of doing things, and this includes a better way of imparting a message to a misinformed American public.  In particular, if a layman wanted to learn about the nature of our money and banking system I would direct them to Murray Rothbard’s What Has Government Done to Our Money?  In my view Rothbard’s classic has always been the best introduction to the topic.  But Gary North has written an elementary work called Honest Money that held my interest not merely for its economic reasoning, but for the many original touches I found throughout.  Would North’s book reach more people than Rothbard’s?

I must point out that Honest Money is subtitled, “The Biblical Blueprint for Money and Banking,” and each chapter begins with references to the Bible and Christian ethics.  In the introduction he says his book asks a question:
What violations of the principles of the Bible did the West commit that led us into this mess [referring to the crisis of 2008 and …

Very bad exchanges

An election in today’s welfare-fiat world is somewhat like gangs of people pushing on a big sow in different directions, trying to get it to move their way.  So who won the pushing contest Sunday in Greece?  The media tells us it’s the conservatives, who will stay the course and keep the sow on an austerity diet once they form a new government.  But the losers are not without influence, and they don’t like this frugality business, so maybe the new government will only mostly stay the course.  They will negotiate with creditors.  They will attempt to exchange their present deal for something more pleasing to the also-rans.

In the perpetual crisis of modern banking and sovereign states it may seem that economics is an arcane art beyond man’s comprehension.  Yet, its mystery is purely man-made.

In its broadest sense, economics can be thought of as the study of exchanges.  This is how it is defined by Robert Murphy, author of an unusual textbook called Lessons for the Young Economist.  I…

Peter Schiff on avoiding the brick wall

Peter Schiff, who was famously ridiculed for calling the crisis of 2008, steps up as a prognosticator again in his new book, The Real Crash: America’s Coming Bankruptcy - How to Save Yourself and Your Country.  We had way too much government and cheap credit leading up to 2008, he says, and even more government and cheap credit since then, which is why the next crisis will be the real haymaker. 

His book is divided into two main sections.  Part I addresses the problems, while part II, which is by far the lion’s share of his discussion, presents solutions.  In a nutshell, the problem is government, and the solution is to take an ax to it - again and again.   Since this view is currently unacceptable to policymakers and the public at large, we can only hope reality will win out before calamity hits.

The Real Crash is encyclopedic in its coverage and highly readable in its presentation.  Is there a government agency that truly serves the interests of all Americans?  He finds few.  What a…