October 19, 2012 § 5 Comments

Real Currencies

Recently Tom Woods has been on a crusade ‘debunking’ the critique on Austrian Economics by Wayne Walton and myself. Yesterday he reasserts his faith in deflation in an article also posted on Lew Rockwell. In this article we not only, again, disassemble the breathtakingly ‘naive’ Austrian view on deflation, we throw in a challenge too.

Yesterday Woods wrote an article, also posted at Lew Rockwell’s, regurgitating the same nonsense about deflation and basically claiming victory. Apparently assuming nobody would find out about what actually happened, because he didn’t provide the link to the Facebook debate Wayne Walton and I were having  with him earlier, that led to this article of his.

Of course we’ll point out the obvious (for the readers of this blog) once more, by analyzing his article, but before we do, let me say this.

It’s high time for a full blown, man to man…

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§ 5 Responses to

  • ‘Free trade’ is just a wonderful word construct hiding reality: market dominance by the few.’ Except free trade leads to the exact opposite of dominance by a few. It is extremely difficult for any business to become very successful in an open market and even more difficult for it to remain so. This is the reason why all regulation is lobbied for and written by large corporations. It is the only way for them to maintain their monopolies. If free markets actually benefitted big business, why don’t we have them? Your argument is just not borne out by reality.

    “Free trade” is an accurate term insofar as it means unregulated foreign trade. I agree that unregulated foreign trade does lead to “dominance by the few.” Austrians and other Rockefeller-financed “free-trade” apologists are not students of Ricardian “mutual gains from trade to each trading nation according to the principle of specialization where each nation produces that in which it holds a comparative advantage in production. What today’s “free traders” ignore are the conditions specified by Ricardo and all who have carefully studied his reasoning is this: the result of mutual gains from trade only obtains when two assumptions are met — that is when two necessary condtions for mutual gains from trade are met. These conditions are 1) the immobility of capital and 2) the immobility of labor — that is to say, neither capital nor labor are allowed to migrate across national boundaries. When these the necessary conditions for ensured mutual gain from trade are violated, then mutual gains from trade will definitely not obtain. Capital will flee to the nation with a definite absolute advantage to producers. In this case the nation with an absolute disadvantage will be trained of capital investment and standard of living will fall – this nation will be made worse off.

    The loss to a nation when a necessary condition of Ricardian mutual gains from trade is as certain as is mutual gains from trade when the conditions of the model are met.

    Now here is where the class bias in Austrian economics. The arbitrageur sees gain in relocating industrial capital to a country with absolute advantage in production, such as the absolute advantage in cheap labor offered by totalitarian countries that sell the labor of those they rule to internationalists financier/corporatist who identify with no nation but seek profit from arbitrage in labor markets where other things are equal.

    Now what goes on when this happens is not simple and takes a little more economics to understand. What is needed to understand the situation are the ideas of the contract curve in labor-employer relations and the seeking of economic rent, the taking of the employee’s surplus when employees, without “Rockefeller Free Trade”, are able to work bargains with employeers above subsistence wage, are able through social contract (economic bargaining or political regulation) contract with employers for a wage above the minimum. The contract-curve is the schedule of possible ways the profit from production can be distributed beteen worker and management and owner and financier on the other — to simplify think of the ways the amount of profit and the amount of wage and salary can differ depending on the bargaining strength of labor. In the United States, for example, a higher wage has been obtained, largely due to the fact that the US was rich in land and resources and foriegn capital but that labor was scarce — especially when the worker with too low a wage could simply “move west” and find a farm. (Government lands were invented to keep industrial workers and domestic servants from leaving the labor market to become farmers or blacksmiths or shopkeepers who supply farmers. This much more than labor union power. Labor unions in the auto industry, for example, were encouraged by the big auto makers as a means of driving the little auto makers, their competitors, out of business — which the Big Three did with Hudson, Kaiser, American Motors, Studebaker and many others. Which Hollywood does to keep other film makers from competing with the “Kosher Nostra” movie moguls. And yes, labor unions capture surplus from other workers as well as from employers. (If an entire nation was unionized and acted as a monopoly, they would push the entrepreneur and financier to the minimum of profits and interest (because there is also a “contract-curve” between financiers and entrepreneurs – of who much surplus will be realized as profit and how much as interest payment) — and, to be thorough about this — there must also be a contract curve between labor and finance (holding entrepreneur profit constant in our thinking so we can draw the two-dimensional “contract” diagram. In fact the contract curve is multi-dimensional — with different claimants barganing for share according to their bargaining power — labor, management, owner, entrepreneur and lender. And now we are ready to get back to the discussion of trade and the impossibility of mutual gains to both nations when industrial capital is allowed to migrate to China where there is an “absolute advantage” to international corportations in “coolie” Chinese labor trained by the totalitarin state to accept wages at the low end of the employees’ labor-contract curve. The US loses absolutely as industrial capital leaves the US and migrates to China — so that the American skilled worker, the American engineer, the American manager, the American renter of industrial land and buildings all lose their former position on the contract cureve with corporations and financiers.

    All of this is ingored by Lew Rockwell, Peter Schiff, and all of the “Austrian School” true believers — but the fact is that I have found in Ludwig von Mises book Human Action that he himself understood and presented the condition that for there to be mutual gains to trade there must be immobility of capital — international investment capital must be prohibited — and when that condition and the condition of the migration of labor across boarders is eliminated, then each nation will produce where it has comparative advantage — sheep’s wool Scotland and bananas from Mexico.

    So, the Austrians paid by the Rockefellers have been misleading everyone on “free trade.” Their version of free trade is really a plot to allow capitalists and international abritrageurs to capture the surplus that American’s enjoyed with our social contract among workers, savers, investors, managers, entrepreneurs and government — which was all subverted by the money power — the monopoly of money creation and the extension of credit catpured by the Rothschild interests as managed by their American representatives Rothschild and Morgan and Goldman-Sachs, roughly speaking.

    Austrains are for unregulated free trade — which means that they are for the international arbitrageurs — the Rothschilds – to capture all the surplus in all the contract curves. Thus “free trade” — which has nothing to do with nations enjoying mutual gain from specialization of national production according to comparative advantage (and just having an inventor with an idea for a better product or a cheaper way of manufacturing – can be a comparative advantage — comparative advantage changes as new means of producing that call for different combinations of resources are discovered).

    The best economy is one of regulated international trade — where investment capital does not migrate to wherever there is absolute advantage in production — because that robs and beggars nations — and it allows the capitalists to rob the population of the nation with absolute advantage the chance to develop its own advantages to its own profit — instead the Rockefellers move in, build the factories with the partnership of the Chinese dictatorship — the Triad princelings who rule China as a slave labor factory in the name of Communism — not to say that all the captured profit and captured wage and captured rents do not enable the “winners’ from making some Chinese very rich — and those who cater to the wants of the rich — as it has been in every great despotism based on slave labor.

    Instead nations should trade with balanced trade — trading according to comparative advantage in production (taking into account transportation costs) — otherwise all world wages will fall to near subsistence and the top one percent (or 3% or 1/10th %) will capture all of the benefit that the masses of each nation could have best enjoyed.

    Austrian Schoolers are not economists — or if they are, they are keeping the truth of what they know from you as they sell you lies to capture the wages and profits that once gave this nation the highest standard of living for the common man.

    The Austrians make their money by telling half truths — but they have they don’t tell you is what is killing us.

    Dick Eastman
    Yakima, Washington

  • My opposition to “Free Trade”

    “Free trade” is an accurate term insofar as it means unregulated foreign trade. I agree that unregulated foreign trade does lead to “dominance by the few.” Austrians and other Rockefeller-financed “free-trade” apologists are not students of Ricardian “mutual gains from trade to each trading nation according to the principle of specialization where each nation produces that in which it holds a comparative advantage in production. What today’s “free traders” ignore are the conditions specified by Ricardo and all who have carefully studied his reasoning is this: the result of mutual gains from trade only obtains when two assumptions are met — that is when two necessary condtions for mutual gains from trade are met. These conditions are 1) the immobility of capital and 2) the immobility of labor — that is to say, neither capital nor labor are allowed to migrate across national boundaries. When these the necessary conditions for ensured mutual gain from trade are violated, then mutual gains from trade will definitely not obtain. Capital will flee to the nation with a definite absolute advantage to producers. In this case the nation with an absolute disadvantage will be trained of capital investment and standard of living will fall – this nation will be made worse off.

    The loss to a nation when a necessary condition of Ricardian mutual gains from trade is as certain as is mutual gains from trade when the conditions of the model are met.

    Now here is where the class bias in Austrian economics. The arbitrageur sees gain in relocating industrial capital to a country with absolute advantage in production, such as the absolute advantage in cheap labor offered by totalitarian countries that sell the labor of those they rule to internationalists financier/corporatist who identify with no nation but seek profit from arbitrage in labor markets where other things are equal.

    Now what goes on when this happens is not simple and takes a little more economics to understand. What is needed to understand the situation are the ideas of the contract curve in labor-employer relations and the seeking of economic rent, the taking of the employee’s surplus when employees, without “Rockefeller Free Trade”, are able to work bargains with employeers above subsistence wage, are able through social contract (economic bargaining or political regulation) contract with employers for a wage above the minimum. The contract-curve is the schedule of possible ways the profit from production can be distributed beteen worker and management and owner and financier on the other — to simplify think of the ways the amount of profit and the amount of wage and salary can differ depending on the bargaining strength of labor. In the United States, for example, a higher wage has been obtained, largely due to the fact that the US was rich in land and resources and foriegn capital but that labor was scarce — especially when the worker with too low a wage could simply “move west” and find a farm. (Government lands were invented to keep industrial workers and domestic servants from leaving the labor market to become farmers or blacksmiths or shopkeepers who supply farmers. This much more than labor union power. Labor unions in the auto industry, for example, were encouraged by the big auto makers as a means of driving the little auto makers, their competitors, out of business — which the Big Three did with Hudson, Kaiser, American Motors, Studebaker and many others. Which Hollywood does to keep other film makers from competing with the “Kosher Nostra” movie moguls. And yes, labor unions capture surplus from other workers as well as from employers. (If an entire nation was unionized and acted as a monopoly, they would push the entrepreneur and financier to the minimum of profits and interest (because there is also a “contract-curve” between financiers and entrepreneurs – of who much surplus will be realized as profit and how much as interest payment) — and, to be thorough about this — there must also be a contract curve between labor and finance (holding entrepreneur profit constant in our thinking so we can draw the two-dimensional “contract” diagram. In fact the contract curve is multi-dimensional — with different claimants barganing for share according to their bargaining power — labor, management, owner, entrepreneur and lender. And now we are ready to get back to the discussion of trade and the impossibility of mutual gains to both nations when industrial capital is allowed to migrate to China where there is an “absolute advantage” to international corportations in “coolie” Chinese labor trained by the totalitarin state to accept wages at the low end of the employees’ labor-contract curve. The US loses absolutely as industrial capital leaves the US and migrates to China — so that the American skilled worker, the American engineer, the American manager, the American renter of industrial land and buildings all lose their former position on the contract cureve with corporations and financiers.

    All of this is ingored by Lew Rockwell, Peter Schiff, and all of the “Austrian School” true believers — but the fact is that I have found in Ludwig von Mises book Human Action that he himself understood and presented the condition that for there to be mutual gains to trade there must be immobility of capital — international investment capital must be prohibited — and when that condition and the condition of the migration of labor across boarders is eliminated, then each nation will produce where it has comparative advantage — sheep’s wool Scotland and bananas from Mexico.

    So, the Austrians paid by the Rockefellers have been misleading everyone on “free trade.” Their version of free trade is really a plot to allow capitalists and international abritrageurs to capture the surplus that American’s enjoyed with our social contract among workers, savers, investors, managers, entrepreneurs and government — which was all subverted by the money power — the monopoly of money creation and the extension of credit catpured by the Rothschild interests as managed by their American representatives Rothschild and Morgan and Goldman-Sachs, roughly speaking.

    Austrains are for unregulated free trade — which means that they are for the international arbitrageurs — the Rothschilds – to capture all the surplus in all the contract curves. Thus “free trade” — which has nothing to do with nations enjoying mutual gain from specialization of national production according to comparative advantage (and just having an inventor with an idea for a better product or a cheaper way of manufacturing – can be a comparative advantage — comparative advantage changes as new means of producing that call for different combinations of resources are discovered).

    The best economy is one of regulated international trade — where investment capital does not migrate to wherever there is absolute advantage in production — because that robs and beggars nations — and it allows the capitalists to rob the population of the nation with absolute advantage the chance to develop its own advantages to its own profit — instead the Rockefellers move in, build the factories with the partnership of the Chinese dictatorship — the Triad princelings who rule China as a slave labor factory in the name of Communism — not to say that all the captured profit and captured wage and captured rents do not enable the “winners’ from making some Chinese very rich — and those who cater to the wants of the rich — as it has been in every great despotism based on slave labor.

    Instead nations should trade with balanced trade — trading according to comparative advantage in production (taking into account transportation costs) — otherwise all world wages will fall to near subsistence and the top one percent (or 3% or 1/10th %) will capture all of the benefit that the masses of each nation could have best enjoyed.

    Austrian Schoolers are not economists — or if they are, they are keeping the truth of what they know from you as they sell you lies to capture the wages and profits that once gave this nation the highest standard of living for the common man.

    The Austrians make their money by telling half truths — but they have they don’t tell you is what is killing us.

    Dick Eastman
    Yakima, Washington

  • Hello,
    I’m no prominent Austrian, but I still wanted to share my thoughts on this article.

    A few exerpts:
    ” During the ‘Industrial Revolution’, the common man was relegated to 80 hour working weeks in the sweatshops, making just enough to feed himself (but not his family) on a spuds/grains only diet.”

    Neither Tom Woods nor anyone else in his “camp” has denied that the working conditions in the factories were hard. However, the important question is where and what they were relegated, as you put it, to the factories. The fact is that they were relegated from abject poverty and death by starvation they faced in the rural areas. Nobody forced them to take these jobs, they chose to do so voluntarily. Why? Because their alternatives were even worse, much worse.
    It is undeniable that the Industrial Revolution lifted the standard of living of millions of people. Of course it took time to go from the one bad harvest away from starvation to the comfort of modern day, but the Industrial Revolution was the what set that development in motion, and the progress was stupendously fast.

    It should also be noted that social inequality has nothing to do with capitalism. Capitalism is merely an economic system based on private ownership of the means of production. That is all. And as history has shown, no economic system leads to more equality and higher standards of living at the same time than capitalism. There are many reasons for that, but that is another topic.

    Regarding the FED study by Atkeson/Kehoe. It is important to note that the FED has always viewed deflation as something bad. After all, it wants constant inflation and does its best to achieve it. In addition, one of the FED’s principal arguments for existence is the age old, debunked claim that deflation is what caused the Great Depression and that deflation is the most serious threat now. In other words, it is in the FED’s interest to prove the damaging effects of deflation whenever it can. It is therefore very significant and noteworthy when the FED publishes a study which conclusions run against its own interests. The FED had every interest to find a clear link between deflation and depression, but it found no such link. That is what gives the study so much credibility, because there is absolutely no reason to think that the FED would manipulate a study so that it shows the exact opposite of what the FED wants the study to show. I would have thought this was fairly obvsious.

    Regarding the definition of deflation. To imply that Tom Woods doesn’t know that deflation means shrinking money supply is beyond disingenuous. It is and outright lie. He knows full well what it means and has stated it on numerous occasions. However, this study used the falling prices definition which is the same definition the FED uses, and the same definition many deflation hawks use. They also think that falling prices is what leads to a depression. Again, the study found otherwise, so even according to their own definitions, they are wrong and the study shows that. Another reason for giving it credence.

    The next paragraph deserves to be quoted in full:
    “This is where we enter the, what I like to call, ‘ultra naive’ parts of the Austrian paradigm. It’s amazing how many Austrian positions are both utterly naive to the real world and simultaneously incredibly comfortable to the Powers that Be and this is a typical case in point. Obviously, the elite does not fear deflation. However, it is keenly aware the masses (us) absolutely deplore deflation. We hate it, because it broke our back in the thirties and many other depressions. So of course the Money Power and its shills cater to this by being very busy pretending they hate deflation too.”

    This really is just a pointless rant consisting of overt insults and ad hominem and unbacked, demonstrably false claims. You say that elite doesn’t fear deflation. If that is the case, why has the FED printed money to the tunes of 15 TRILLION dollars the past few years? Why are the interest rates at zero? Why has the FED’s balance sheet tripled since 2008?
    In 1980, Paul Volcker famously raised the interest rate north of 20 percent, which broke the inflationary spiral of the 1970s. If the elites didn’t fear inflation, they would not have enacted massive stimulus, they would have let the too-big-to-fails go bankrupt, let the housing prices fall to their actual market values, kept interest rates at 4-5 percent or even raised them, raised the reserve requirements etc. But they didn’t, they did the exact opposite. They did everything conceivable to keep the money supply growing and the prices from falling (and preferably going back up). If this is not a display of an almost manic fear of deflation, then what is it?

    Instead, you make it seem like the Powers-that-Be did this because they know “we the masses” deplore it. This may be the most ridiculous thing I’ve ever heard. Firstly, I like falling prices. It was a great boon for “the masses” from the founding of the American republic until the founding of the FED in 1913. Even in the 1930s, it was great for those who had a job and at least some comfort to those without it, since whatever little money they got could actually buy something. Had they only been allowed to lower their wages, they would have done much better.

    Regarding the private bankers and their lust for deflation. I’ve noticed that most people who speak confidently about banking don’t know the first thing about banks and how they operate. You and your friends are perfect examples of this rule. What you forget is that no institutions are so leveraged and loaded up with debt (already matured debt to boot), as banks.
    Take HSBC, for example, one of the largest banks in the world. It has $2,556 billion in assets and $166 billion in equity. What does this mean? That HSBC has $2,390 billion in liabilities, i.e. in DEBT. The same is true for all banks. All of them have almost as much debt as they have assets. What’s more, their assets consist mainly of long-term receivables (mortgage debt, auto loans, student loans, business loans etc), while most of their liabilities are short-term payables, with a large chunk of their deposits being payable on demand.

    For banks, inflation has two major advantages: 1. It raises the nominal value of their assets. 2. It dilutes the value of its liabilities. In addition to that, the banks generally receive any new money first, so they get to enjoy the most purchasing power. If the banks were actually keen on deflation, as you seem to suggest, they would simply refrain from engaging in credit expansion. Also, no bank likes it when borrowers default on their loans. The bank doesn’t want the house or car the borrower has bought, it wants the money it has lent to the borrower. Houses are illiquid. They don’t yield good returns, especially if everyone has been so impoverished that they can’t even pay rent, let alone buy the houses. Residential apartments carry lower rents and higher maintenance costs compared to commercial property. Residential houses is even worse. That is why you don’t see banks owning houses. They don’t want to, so it is rather silly to claim that they do.

    “Nowadays, it’s a mainstream science matter of record that all the banks own each other and are one major cartel, no, monopoly.”
    You’d be hard pressed to find an Austrian who don’t view the banking industry as a monopoly or cartel, so I really don’t understand the derogatory rant preceding this paragraph.

    “But of course we’re far too polite and far too interested in maintaining cordial relations with everybody even pretending to oppose the banksters”
    Are you serious? Your whole “article” was nothing more than a smear job build on unbacked claims and outright falsehoods.

    I hope and trust Tom Woods will accept your “challenge”. However, if and when he does, you will be left with shame. A word of advice to you: Don’t issue challenges on subjects you don’t understand. You will most certainly lose, and it won’t be pleasant.

    Regards,
    Kaj Grüssner

  • Dick

    There is no point to debunk your childish, unsubstantiated and uneducated falsehoods about the Austrian school. Like Anthony, you’ve clearly not read a single Austrian text in your life, yet you purport to know where they stand.

    But I should like to hear your answers to these questions:

    With what economic and moral justifications do you stop people from engaging in voluntary, cross-border exchange?

    By what means would you make sure no “unregulated” cross-border trade takes place? Would you, for instance, imprison or kill people who did this?

    Who is to decide who can trade with whom, what can be traded and at what price?

    I would appreciate it if all you people could stop spouting lies about the Austrian School, since you know nothing about it, and explain your position on these questions.

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