Archive for October, 2010

An Interview with the President of the Ludwig von Mises Institute Poland

October 26, 2010

From Austrian economists’ point of view, responsibility for the current breakdown lies entirely with the state and central banking. In an interview with Bankier.pl, Witold Falkowski, the president of the Ludwig von Mises Institute Poland, explains where the economic crisis comes from and how to avoid the return of recessions.

[Bankier.pl] Who was Ludwig von Mises?

[WF] Mises was a distinguished economist and praxeologist. As he mentioned himself, a real economist he became after reading ‘Principles of Economics’ by Carl Menger, the founder of the Austrian school of economics. Mises was highly esteemed and respected as a researcher in the twenties and thirties. The Austrian school and Mises were forgotten though, ever since Keynes’ ideas became popular. Jörg Guido Hülsmann, author of a recent monumental biography of Mises, titled it: “Mises: The Last Knight of Liberalism”. Indeed, Mises was a consistent and staunch defender of the truth which he regarded as economic liberalism, not very popular in academic circles in the U.S., where he spent over 30 years, and still unpopular in state capitalist Europe. Thanks to his consistency and intellectual activity the Austrian school has survived, and recently even been booming.

Mises was also a knight in a more literal sense. In winter 1918-1919, when the Marxists gained influence in the government of Austria, he personally persuaded Otto Bauer, the leader of the Marxists, and his wife Helena Gumplowicz to give up plans for an alliance with Moscow and the introduction of the Bolshevik regime in Vienna. Therefore we can say that Mises won an important battle in defense of civilization.

What determines the uniqueness of Austrian economics?

Its normality – we are living in abnormal times when evil is often referred to the good, theft to justice, savings to suppression of demand, good of certain interest groups to the public good. The Austrian School stubbornly asserts that there is no reason to take away people’s money in the name of some public benefit, as there is no investment without savings and capital accumulation, and the market is able to provide almost all goods and services the consumers need.

In the scientific sense, what determines the peculiarity of the school is: its methodological individualism (we study various phenomena, and not their aggregates, the average statistics, etc.); subjectivism (no objective economic values, price depending on supply, demand, preferences of the seller and buyer); realism (these are units who work, rather than collectives, aiming to improve the situation of acting). Austrian economics is firmly rooted in praxeology, a philosophical study on the effectiveness of action. It indicates certain rules, which control human action, and warns against the consequences of violations of these rules. Such violations include, for example: dictating to people what is good for them; forcing entire populations to follow certain regulations and economic compulsions (maximum prices, minimum wages, tariffs, state insurance, subsidizing certain spheres of the economy, fiat money, and many others).

Austrian economics, unlike the British tradition and all of today’s mainstream, is actually not divided into macroeconomics and microeconomics. Economic laws are universal and the activity of all market participants ultimately boils down to the actions of individuals. Reflections on the aggregates, models and the shape of the national and the world economy are the areas of speculation which the Austrians do not enter.

There is one more distinctive feature of Austrian economics. Austrians believe that economics is the science which everyone can and should learn, because it concerns everyone. Practicing economics, as something between social engineering and creative accounting, is in our opinion a blind alley or rather a way that leads to increasingly serious crises and large scale manipulations. Economics should be taught from kindergarten.

Are achievements of Austrians still valid?

As valid as the law of gravity. Austrians do not announce anything sensational, they rather call not to be against human nature, which is analogous to the force of gravity, which affects all animate and inanimate objects. They remind us that man is not an electron brain but a being with the specific evolutionary constraints. Accumulated in the human mind is both discursive knowledge, that can be used to create clear plans, and practical knowledge (Hayek called it ”Metis” from Greek, after James Scott), which is rather encoded in the mind and body, passed in culture and customs, distributed within society. If all human knowledge is brought to the discursive layer, we will not only deprive it of substantial resources but also allow dangerous abuse, which Hayek called the ‘fatal conceit of reason’.

The Austrian theory of money and business cycles is especially current during the smoldering crisis. Austrians consistently preach that fiat money, created “ex nihilo” paper money as the credit, has to destabilize the economy because it gives a man the power that no one should have, a temptation which no power can oppose…

Larry White Interview at the Daily Bell

October 24, 2010

Daily Bell: What is free banking and why has it been controversial with Austrians?

Lawrence White: A free banking system means a monetary system where private, competitive, unregulated banks are responsible for providing all kinds of payment instruments and intermediation. So generically it means the absence of restrictions on banking and – in other words laissez-faire banking. An implication is banks and not the government will provide currency as well as transferrable deposits. It implies the absence of the central bank and central banks are everywhere in the world today. That’s the big difference from the status quo. F.A. Hayek was somewhat ambivalent — and I wrote a paper about that – about free banking, out of the concern that banks might be inherently unstable pro-cyclically.

Some people questions deny that free banking would or should be allowed to function with fractional reserve accounts. Murray Rothbard was the leader of the point of view that fractional reserve banking ought to be outlawed. He thought the fractional-reserve bank was inherently defrauding the customer. Some of his followers have switched to some other kinds of objections. I don’t hear the fraud argument as often these days, but I do hear the argument that there is something absurd about a fractional reserve generally because it implies that two people are exclusive owners of the same coin; which is I think is the misunderstanding of the arrangement between the bank and its customer. Another objection is that it reduces the value of gold held by third parties, but there are all kinds of changes in the value of your property that come about through market forces, and we can’t outlaw those consistent with properties property rights.

Daily Bell: Do you consider yourself an Austrian Economist?

Lawrence White: Yes. If Austrian means heavily influenced by Ludwig von Mises and Hayek, then certainly yes. And on my CV, you will see that I was part of the Austrian Economics program at NY University and I am now part of the Austrian economics program at George Mason. I was on the committee that wrote and evaluated the Austrian economics field exams. So I don’t think I can deny being an Austrian.

Daily Bell: Is free-banking the freest kind of money association available?

Lawrence White: Well that’s how I think of it. It’s a system based on a free contract without third- party legal interference between banks and customers. Various kinds of contracts are available. The ones we observe historically are the ones that we presume would prevail if free banking were re-established today. So it’s usually described as being based a gold or silver standard, which we saw historically before governments began to interfere.

Daily Bell: The idea is to let the market decide on the amount of reserves?

Lawrence White: Yes, in the sense that there would be competition among banks. Banks have a trade- off to consider between earning more interest and holding more reserves. Holding more reserves makes the bank safer. Being safer may be important for attracting customers. Not all banks may follow the same policy but people will sort themselves among banks according to how safe they think the banks are versus how big a return the bank pays. Most people want a very safe bank, so there is a market force that compels banks to act prudently. Remember deposits would not be guaranteed in a free banking system, so banks have to convince potential customers that they are trustworthy…

Sparks Goes to the White House

October 16, 2010

The New Anarcho-Capitalist Paradigm

October 6, 2010

Lew Rockwell on the unstoppable.

Famed liberal journo Joe Conason is worried about the increasing influence of Rothbardian “anarcho-capitalism” and the related “Austrian school of economics.” As well he should be. It is these radical ideas–undistorted by the journos–that enthrall the young, and indeed any thinking person. We all know there is something desperately wrong–morally and economically–with the US empire and its police state, welfare state, and banksterism. We are, after all, living in yet another Federal Reserve depression. The average family’s income has not increased in real terms since the 1970s, the first decade of full Fed power. The state and its related corporations are enriching themselves by making us poorer.

“The Austrian craze is particularly curious because it has displaced a school of economics that ought to be more appealing to the proud and patriotic, especially those who claim to be true to the views of the nation’s founders. That would be the school known as ‘the American system’…[a]s articulated by thinkers from Alexander Hamilton to Henry Clay to Abraham Lincoln….” Very funny. Why can’t you people just be government-loving, trade-warring, state-building mercantilists? Then journos could praise you.

“If the ‘Austrian’ ideology prevailed in tearing down government, extirpating regulation and destroying public institutions, what would be left standing? Not much except giant corporations, mammoth banks and hedge funds, whose proprietors would then be able to completely dominate an increasingly impoverished, uneducated and undefended people.” Say, isn’t that the current system, as made possible by the apparatus of aggression known as the state? We, on the other hand, understand that civilization itself, as well as international peace and prosperity, depend on private property and laissez-faire. We are sick of government and its allied merchants of death and fractional-reserves, its wars and its secret police, its taxes and inflation, its bailed-out buddies. We don’t want military socialism, school socialism, or road socialism. We don’t want Wall Street, big bank, MIC, or petro fascism.

The Consason article is, of course, just another indication of how worried the ruling class is. Not about Koch thinktanks, neocon magazines, or coordinating state universities. Not because Republicans will soon replace Democrats, but because the climate of opinion is changing. Joe Conason recognizes that it is works like these that are responsible. He doesn’t yet recognize that our ideas are unstoppable.

Mises, Hayek, and Bastiat, Oh My!

October 5, 2010

The New York Times on the movement of the moment looks to long-ago texts.

Books like “The Law,” from 1850, and “The Road to Serfdom” from 1944, have risen to best-seller status among liberty lovers and those in favor of a peaceful and prosperous society.