Top Ten Austrian Economics Lies and Mistakes
1. Bankers hate Gold
Nowadays everybody knows that the 19th century was called ‘the Age of Rothschild’. They controlled the Gold Market and became incredibly rich by lending the stuff to Governments.
The Money Power came to power through Gold.
They love it because it is deflationary, they can tax it with interest, they can create the boom/bust cycle with it and they control it completely.
Clearly Bankers don’t hate gold. Europe was on a Gold Standard for the entire 19th century and left it only in the thirties, due to the horrible deflation that was the Great Depression. Populists at the time finally managed to force their Governments to get rid of it. They had been warning about its deflationary tendencies for ever.
Gold is de facto World Currency.
Ron Paul: “Commodity money if voluntarily and universally accepted could give us a single world currency requiring no money managers, no manipulators orchestrating a man-made business cycle with rampant price inflation.” — Ron Paul, Congressional Record, March 13, 2001
In older days Austrian Economists would say Governments hate the Gold Standard. Alan Greenspan, one of the more famous Austrian Gold loving Bankers, wrote in 1966: “An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions.”
Government, of course, is Austrian Economics’s classic enemy, but the adversary du jour in the ‘Truth Movement’ are the Bankers. So to sell something we say Bankers hate it.
They did face the little problem that the American Populists would be very hard to convince of this. Not in the least because of the book ‘Secrets of the Federal Reserve’ by Eustace Mullins, who famously described who owns the FED and how it came about. Mullins of course was quite explicit in his analysis of Gold as the Banker’s favorite currency.
But Ed Griffin solved this for them. He wrote an even more famous book: ‘the Creature from Jekyll Island’. This is basically a rip off of Mullins’s book, with one difference: it proposes a Gold Standard to get rid of the FED.
In this way Griffin obscured the truth for millions of people, who assumed he was basically saying the same thing as Mullins.
2. Government is the main problem
This is the red herring that Austrian Economics is famous for. Just like the mainstream it completely ignores the Money Power.
Austrian Economics is also incredibly ‘naive’ when it comes to private interests controlling markets. Austrian Economics will always explain Governments shouldn’t mess with the economy, while ignoring the monopolistic inclination of Capital.
As a result Austrian Economics is the wet dream of the Trillionaires, as they will resist any Government action against them and their Transnationals.
Austrian Economics will actually blame Government for the fact that markets now are controlled by Transnational Cartels. Why they don’t seem to consider the shareholders and controllers responsible remains an open question.
To be fair, the analysis of Austrian Economics about the negative implications of many regulations is spot on and very enlightening.
However, to ignore the power struggle that is inevitable both in the market in and politics, is so naive and pleasant to the powerful that it is almost impossible to fathom how somebody else could have thought it up than these powerful interests themselves.
The fact is, that Governments all over the world have been subverted by private interests. And these private interests are quite homogenous. This international centralization of power, concentrated around extremely rich banking families, the Money Power, is the problem.
Government is a neutral institution, associated with a Nation. Public Opinion can always force its hand.
But when both Government itself AND Public Opinion are captive to the Money Power, Government will become quite unpleasant.
Soon, it will be obsolete, as it surrenders its sovereignty to World Government and World Currency. Governments and certainly Nations will never voluntarily surrender sovereignty.
These projects clearly belong to the Money Power.
3. Manipulation of the Volume of the Money Supply is the main problem with our money
Another red herring: manipulation of Volume is certainly quite a scourge. But it ignores an even bigger problem: Interest.
The Government currently pays 700 billion per year in debt service for the National Debt.
It matters not whether she pays this for Gold or for paper.
We currently pay $150.000 dollars in interest over thirty years for a $100.000 mortgage. Most of this mortgage was created by simple bookkeeping the moment we borrowed it.
45% of prices we pay for our daily needs are compensation for capital costs incurred by the producer.
We are Interest Slaves.
But if we can have credit by bookkeeping, clearly we should get the money interest free, because it is our credit, not the bank’s.
4. Gold guarantees a steady volume
This another very strange supposition. After all, the Gold Standards of the past saw horrible asset bubbles.
The boom/bust cycle has nothing to do with the currency, but whether the money supply is being manipulated.
The idea that Gold cannot be printed and that that give security about the volume is nonsense. Bankers routinely have withheld vast quantities of specie from circulation, only to inflate at a later stage again.
5. Inflation is bad
It is certainly true that inflation knows problems.
Inflation hurts savers, creditors and people on pinned incomes. But it is pleasant for debtors, of which there are far more than creditors. And, very important, inflation is associated with economic growth. People stop hoarding cash and rather invest and spend.
The one sided focus of Austrianism on inflation, while actually promoting the horror of deflation (see next) makes it look like they’re demonizing inflation in order to make deflation more palatable.
6. Deflation is good
This statement is so incredibly favorable for the ultra rich, who are basically the only ones who benefit from deflation, that it puts Austrian Economics in a very bad light.
Austrians clearly promote the Deflation vs. Inflation dialectic, with all its nefarious implications.
Deflation hurts debtors. It makes their debts and the interest they pay over it worth more.
Deflation is a wealth transfer from those holding assets to those holding cash.
Deflation destroys economic growth because people rather hold cash than invest or spend it.
As a result, Deflation on all fronts makes the rich richer and the poor poorer.
7. We don’t want a Gold Standard, we want a Free Market for Currencies
This is such nonsense.There are two major reasons why it is.
1. In fact, the idea of a Currency Free Market is quite attractive. In the case that all different systems would receive the same funding and propaganda, such a market would undoubtedly see Mutual Credit Facilities providing interest-free credit prevail, see below.
However, only Gold and perhaps Silver, but not if they can avoid it, will receive all the attention and funding. In fact, Mutual Credit will be resisted actively by the Money Power.
This will not be hindered Government, who just by decree created this new ‘Free Market’, because that would be ‘statist interference’
Thus, only Gold will circulate.
2. Would there be a ‘free market’, there is Gresham’s Law. Bad money drives out good money.
It means that the units appreciating in value will be hoarded, while those depreciating will be used to pay.
Everybody will accept the depreciating unit (as long as it is not hyper inflating), because most will want to pay with it and firms will have to accept them to accommodate their customers. They won’t have a problem with that anyway. Firms don’t care what the money will be worth in a year. They want to know where they can spend it tomorrow.
This means nothing will happen if Ron Paul’s proposal to make Gold and Silver also legal tender is accepted. People will continue to pay with the Fed’s notes and hoard Gold.
Also, if your options are a Gold based mortgage costing 5% per year, or a 0% mortgage in Mutual Credit, which would you chose?
Case closed.
8. Austrian Economics is hated by the Main Stream Media
While it is true that Austrian Economics is a fringe, also in terms of Media Attention, it always has maintained a steady niche. It is not for nothing that Peter Schiff and Gerald Celente were predicting the crash in the MSM.
Lately, Ed Griffin was plugged by Glenn Beck on prime time T.V.
Judge Napolitano gets all the airtime he wants on Fox News, spouting his Austrianism. Amazingly, the fact that even Fox News will plug Austrianism does not ring a bell with people.
9. Fiat Currencies are always bad
Another typical device: a dialectic. Trying to frame it as Paper vs. Gold. Both ignoring interest.
But interest-free paper is of course something else entirely. At least it won’t suffer from the forced inflation on interest-bearing money supplies. Because the interest is not spent back into circulation, but lent back, there is never enough to pay off all the debt + interest. During a Gold Standard this is deflationary, because the money supply can’t grow. With paper, this is ‘solved’ by ever more debt. With ever more interest.
Modern Mutual Credit is inflation free. Or better: the market is in control of the money supply. It grows when it must, shrinks when it must.
Social Credit is probably inflationary, but everybody will be fully compensated for it because of the fact that they spend the inflationary cash into circulation themselves. Meanwhile, the inflation will stimulate production.
They are trying to promote the idea that Fiat Currencies are automatically bad ‘because the volume will be manipulated’.
This is the eternal clincher, killing all rational debate about how to manage all the different parameters in the different proposals.
10. The problem is the FED
The FED is a symptom, not the problem. The problem is that the Money Supply is controlled by the Money Power, which uses this control to enslave us with interest, scarce money and the boom/bust cycle.
The FED is their vehicle. We want to get rid of it, because we want to end the control of the Money Supply by the Money Power. It’s not a goal in itself.
Austrians use this to ‘fight the FED’ and gain sympathy and support, meanwhile maintaining the control of the Money Supply with the Plutocracy.
Recovering Austrians 
“The FED is their vehicle. We want to get rid of it…”
Who is this “we”?? 🙂
Now a serious question: In Number 3 of this post you write:
“45% of prices we pay for our daily needs are compensation for capital costs incurred by the producer.”
Yes, probably. But could you please explain how to make such a calculation? I’ve been trying to figure that out, for years.
Thanks.
Art
hi Art, good question.
I’ve got a paper copy of a study by STRO (an interest free currency think tank in the Netherlands). They simply analysed the supply chain. In it they analysed all costs for capital for all firms in the production chain of certain products and services: interest on loans etc.
The leading scholar on the subject is Margrit Kennedy, you can find her with google. I’m not sure about her methodology, but it shouldn’t be too hard to find out.
Her classic work is: ‘why we need monetary innovation’.
I came to this article attracted by the pretentious title to argue with the only sound and scientific theory about the free-market economy. So far haven’t found any valid and substantial criticism to the fundamentals of what this author calls Austrian School. For example as Keynes’ General Theory was annihilated first by Hazlitt and more lately by Hunter Lewis.
No surprise here. The arguments of the author are plain vanilla propaganda revealing that he doesn’t really know what he it trying to criticize or is conveniently avoiding it assuming the readers have also no idea. Maybe he thinks that most people form their opinions from mass media and Internet blogs? I cannot argue that this has been true for awhile but Ron Paul’s recent results indicate a turning tide. Maybe more and more find the courage to go over the volumes of “Human Action” by Ludwig von Mises and then follow through with “The Capitalism:..” by his student George Reisman both available free at mises.org and capitalism.net.
Once a person goes though this purgatory of mainstream “economics” lies no one, including this author with his bombastic and pretentious title can obscure the plain truth about the real mechanisms driving the economics of any society based on labor division and free exchange. Yes, including the governments messing with the free market (see why in “Meltdown” by Thomas E. Woods Jr.) Then one can see the arguments about the above fabricated “lies” for what they truly are – inept attempt to construct false arguments that then are “criticized” with counter- arguments and complete with the pretentious conclusion that somehow the author has refuted the Austrian school of economics.
Only a true science can reliably predict future events, right? Ludwig von Mises in his treatise “The Socialism” written shortly after the bloody Bolsheviks coup in Russia HAS PREDICTED in detail how this system will evolve and why ultimately it will fail. At contrary, mainstream “economists” cannot predict economy turns and market busts even one year ahead so they need to fabricate mystical creatures like “black swans” etc.
Now, feel free to call me names, to twist my words or make fun with my English. But you cannot really argue with the sound science of economics, cannot refute in substance any fundamental position thoroughly explained in the above books by von Mises and Reisman. Nor the author of this pretentious article can either.
Human Action was verbal vomit. You’d know that if you actually tried to read it. One of the worst-written economic books. The content was as bad as Das Capital in that it was not sound nor scientific and since both tried to over-simplify every economic component as capital. There is no historical evidence supporting the Austrian position as there was no historical evidence supporting the Marx position. The scholars of Mises dedicate all their time to writing long-winded and intelligent-sounding prose to make empty statements and apologize for the short-comings of their unsound and dishonest socialist economics of the rich, theft through economic rent, deflation, and usury. The funding of the school came from the creators of the Federal Reserve and the United Nations, and the poster boy of crony capitalism and American eugenics, the Rockefeller Foundation. The Austrian School of Economics is a joke used to steer freedumb-loving people away from the liberty-loving classical liberals.
You say that there was no historical evidence supporting Austrian position, except you seem to forget about everything the Austrian school has predicted… If you read the previous comment, he pointed out that the Austrian school mad predictions about the future that were dead on right.
You tend to find this more often than not considering Keynes obliviousness to the 2007-2008 financial crisis. https://www.youtube.com/watch?v=MnekzRuu8wo
great use of logical fallacy. you get an A+ from the austrian school. i predicted that an austrian supporter would post a comment. i must be right about everything.
other schools predicted the same thing, but unlike the austrian school, other schools predicted stagflation rather than hyper-inflation. land values and other domestic values don’t reflect inflation. however, austrians are known to ignore facts while they embrace their delusions of being right about everything. it’s called praxeology after all, where the conclusion (model) is assumed right and the facts (reality) are assumed wrong. i think you guys call it circular logic — the same stuff religion uses.
…
stagflation isn’t hard to understand. i’ll make it simple for you: shrinking money supply in the national economy + china and india increasing demand for commodities causing prices to rise of those commodities.
you should also consider the dollar fleeing the nation in that equation and dollars being fictionally used to balance some balance sheets for our fictional reserve banking system.
trade deficits and monetary velocity and so forth
Keith, I’ve ready Human Action and your opinion about it is… verbal vomit. But seriously, I remember seeing Mises speak in ’71 I believe to a Society for Individual gathering in Phili. He said to us then young baby-boomers, “You are eating your seed corn…” He was right.
He was also right when he ended Human Action with:
“Man’s freedom to choose and to act is restricted in a threefold way. There are first the physical laws to whose unfeeling absoluteness man must adjust his conduct if he wants to live. There are second the individual’s innate constitutional characteristics and dispositions and the operation of environmental factors; we know that they influence both the choice of the ends and that of the means, although our cognizance of the mode of their operation is rather vague. There is finally the regularity of phenomena with regard to the interconnectedness of means and ends, viz., the praxeological law as distinct from the physical and from the physiological law.
“The elucidation and the categorial and formal examination of this third class of laws of the universe is the subject matter of praxeology and its hitherto best-developed branch, economics. The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”
http://mises.org/page/1470/Human_Action_HTML
praxeology: the science and art of bullshit, trying to impose reality unto a flawed model using logical fallacy, commonly the fallacy of transitivity (i.e., redefining different and complex concepts as a commodity or capital).
“There is no historical evidence supporting the Austrian position”
You’ll need to define or at least elaborate on ‘historical evidence’, as the Austrian school was birthed to combat the anti-logic of the German Historical school.
“The scholars of Mises dedicate all their time to writing long-winded and intelligent-sounding prose to make empty statements and apologize for the short-comings of their unsound and dishonest socialist economics of the rich, theft through economic rent, deflation, and usury.”
Perhaps you need to get a book Mises wrote titled ‘Socialism’. In it he breaks down Socialism piece by piece, & explains the different types & how they function.
“The funding of the school came from the creators of the Federal Reserve and the United Nations, and the poster boy of crony capitalism and American eugenics, the Rockefeller Foundation.”
Now this is hilarious. You directly trip over yourself in #10 here.
“The Austrian School of Economics is a joke used to steer freedumb-loving people away from the liberty-loving classical liberals.”
Menger, Bohm-Bawerk, Mises & Hayek were all classical liberals.
And I’ve really never seen someone with less understanding of Praxeology actually write about it. In another comment, you write this:
“praxeology: the science and art of bullshit, trying to impose reality unto a flawed model using logical fallacy, commonly the fallacy of transitivity (i.e., redefining different and complex concepts as a commodity or capital).”
I’m sorry, but ‘commodities & capital’ have absolutely nothing to do with prax. Prax only deals with the fact that everyone has ends sought, & chooses from available means to bring themselves to a better state than their current one. How can we know that the axiom is true? Everyone has preferences.
You say land is capital. I say land is a fundamental inheritance of all from the labor of God necessary to secure the right to one’s own toil.
You say gold is money. I say money is either free market currency or legal tender. Money ceases to be free market currency when it becomes legal tender. When gold becomes legal tender, it is a corruption of free market economics which benefits the usurer and owner of the gold at the expense of everyone who produces.
You say inflation is theft. I say deflation is theft and purely destructive, inflation is an ideal progressive tax which encourages economic growth, and monetary expansion is necessary for economic growth.
You have a simplistic and retarded view of economics. You were brainwashed with fancy prose funded by the Rockefeller Foundation. I fear you are beyond rehabilitation. Ron Paul’s popularity is from his foreign policy and desire to legalize pot, not because people want to bear the cross of gold as legal tender and not because people want land values to sky-rocket when all taxation of land and other unearned wealth is ended.
To call your economics sound and scientific while you claim my economics, the economics of the classical liberals, and the economics of the Bible to be unsound and unscientific is an absurdity, especially since I do not try to over-simplify reality and reduce everything to capital with equivalent attributes and meaning to the real world. I try to explain natural law and the unique characteristics of money and land. You try to white-wash everything as capital with words, like Karl Marx, while you ignore historical evidence and reasoning in your untested reduction of reality into absurdity and contradictions.
With all the RESPECT you deserve, you proved that you already are wrong with your ‘great’ economics views, insulting austrian economists. The only thing you have done here is insult, insult and insult and that’s the way an ignorant tries to win an argument, insulting because the ignorant doesn’t have a scientific evidence to prove that he’s right so he start insulting. You sound like Paul Krugman the most ignorant of them all, who instead of admit that he’s wrong specially when 1998 he said that impact of the internet in the economy in the year 2005 would be lower than the fax machines or when he said in 2002 that we needed to replace the Nasdaq bubble with a housing bubble, insults and start talking about politics and racism just to change the subject and not admit that he doesn’t know what he’s talking about.
About 1): The problem with Money power is not gold or any deflationary money, but fractional reserve banking. Inflationary fiat funny money just compounds it.
About 2) Greenbackers are childishly naive imagining a “good” power or a state good for the majority. Governments necessarily ARE coalitions of private interests, since Santa Claus does not exists, never did and never will. And that is why they are always evil for the majority.
About 3) Why do you suppose that the state has to be (always) indebted ? Whoever get in debt is not really sovereign. And if you do not like debt, just do not incur in it. It’s easy
4) Is nonsense
5) Inflation is a regressive tax: it damages just ppl on fixed income, and it is very good for creditors, since is helps them to get repaid with interest. That’s why you like it.
…etc.
“Childly imaginative” that there are better money powers than private interest? (The 1%?? I certainly can…and so can billions of other people right now. Wishful thinking, my friend)
I don’t recall any authoratative Austrian economists saying such things are “good” or “bad” alone. They are what they are. They will give their opinions in context, but any Austrian worth listening to won’t make statements like “Bankers hate gold” (at least not in certain contexts, like having gold) or “Inflation Bad, Deflation Good”.
This was fun. Here is a point-by-point refutation. Took me all 30 minutes.
1. Bankers hate gold.
”They did face the little problem that the American Populists would be very hard to convince of this. Not in the least because of the book ‘Secrets of the Federal Reserve’ by Eustace Mullins, who famously described who owns the FED and how it came about. Mullins of course was quite explicit in his analysis of Gold as the Banker’s favorite currency.”
Rothbard has written extensively about the Fed its precursors. Muslin was hardly a pioneer when it came to central banking. At any rate, what you fail to explain is why the remnants of the gold standard was practically destroyed through the creation of the FED, even more so by FDR in 1932 and then completely by Nixon in 1971. Why should this have happened, if the bankers favor gold as you claim?
Secondly, you clearly don’t understand what the gold standard is. It is not a single system, it has a great range. What you fail to mention is that the favor full-reserve banking in connection with a commodity money. No bank nor any government wants that. So you’re debunked.
2. Government is the problem.
“This is the red herring that Austrian Economics is famous for. Just like the mainstream it completely ignores the Money Power.”
Another lie right off the bat. Read Rothbard’s “Mystery of Banking”, Hülsmann’s “The Ethics of Money Production”, Salerno’s “Money, Sound and Unsound” and de Soto’s “Money, Bank Credit and Economic Cycles” just to name a few. Austrians have for decades described the influence of big banks on the government, they just don’t use silly names like “Money Power”.
What you constantly miss is that the problem is the partnership between big government and big business the Austrians criticize. As long as there is government power, big business and other corporations (e.g. unions) will take it over. So you’re debunked again.
3. Manipulation of the Volume of the Money Supply is the main problem with our money
“Another red herring: manipulation of Volume is certainly quite a scourge. But it ignores an even bigger problem: Interest.”
Austrians don’t generally point out “main problems” in a complex setting like money. Manipulation itself is the problem, be it through money printing, setting of reserve requirements, the interest rate etc.
Interest per se is not a problem. To the contrary, it is the most important price signal of all. In and of itself, it is just a reflection of our time preferences. You’ve never really understood interest. All you do is scream about how much money the government pays on its bonds. From a economics perspective, that is irrelevant. Debunked again.
4. Gold guarantees a steady volume
“This another very strange supposition. After all, the Gold Standards of the past saw horrible asset bubbles.”
Most of the depressions in the 19th century either didn’t happen or were much less severe than those post-FED. At any rate, gold by itself will not stave off the business cycle, and no Austrian has made such claim. The booms/busts did not happen because of gold, but because of credit expansion through fractional reserve banking. Again you show that you really don’t have any idea what the “Gold Standard” really is. Debunked again.
5. Inflation is bad
“It is certainly true that inflation knows problems.”
You debunked yourself on this one.
6. Deflation is good
“This statement is so incredibly favorable for the ultra rich, who are basically the only ones who benefit from deflation, that it puts Austrian Economics in a very bad light.”
The fact that we haven’t had deflation for at least the past 100 years is something you’ve never been able to explain. Nor do you seem to understand that bankers are debtors too, so even in your own perspective deflation would be bad for bankers.
The real mistake you make is of course that Austrians don’t favor either inflation or deflation, they favor a stable money supply, which over times leads to gradually falling prices. Only when the money supply has been hugely inflated is it due for a deflationary correction. The same goes for everything else. So as usual, you’re debunked, mostly because you still are unable to state an Austrian position correctly. It makes me wonder where you’re getting all your stuff from. Debunked, anyway.
7. We don’t want a Gold Standard, we want a Free Market for Currencies
“This is such nonsense.There are two major reasons why it is.”
And none of those reasons hold true. Firstly, free-market currencies is not about who gets what funding and propaganda, it is about letting the market choose what it wants to use as money. Undoubtedly there would emerge different monies and monetary systems, which over time would be weeded out in favor of the superiors monies and monetary systems.
Nor do you understand Gresham’s law. It referred not slightly damaged coins, the point was that as long a money of lesser quality, e.g. FED-notes, were in use, people would not trade gold for those notes. In a free market setting, paper money would disappear quite quickly in favor of whatever monies the market chose to use. Debunked again.
8. Austrian Economics is hated by the Main Stream Media
“While it is true that Austrian Economics is a fringe, also in terms of Media Attention, it always has maintained a steady niche.”
One need only look at the treatment of Ron Paul to see that the MSM don’t like the Austrian School, not to mention that actual scholars are never invited on anywhere. To claim that this is a “lie” is ridiculous on its face. Debunked again.
9. Fiat Currencies are always bad
“Another typical device: a dialectic. Trying to frame it as Paper vs. Gold. Both ignoring interest.”
Not until you come to terms with what interest really is can there be any rational discussion about currencies. There is no argument against the fact that paper money always has and always will be manipulated, because it is so easy to do it and there will always be a great temptation to do it. You have no come-back against this. Debunked.
10. The problem is the FED
“The FED is a symptom, not the problem.”
The FED is a huge problem borne out of a greater disease. It is, as you say, a vehicle for the government and the big banks to control the money supply. As such, it is a huge problem. Abolishing the FED would go a long way to solve the many problems with the current monetary system. So it is far more than just a “symptom”.
And I have to say, calling “The problem is the FED” an Austrian lie or mistake is really scraping the barrel. Debunked completely, mostly by your own ignorance.
I ask again, where are you getting all your disinformation from? We know you haven’t read any Austrian books yourself, so I’m really curios to know. And Braden Talbot is of course exactly right.
This is all nonsense.
Read Rothbard and Hulsman and Hoppe.
Could someone please tell me which facebook site is bringing all this traffic? Thanks!
I found it looking for Austrian School resources. I hesitated to click because I really didn’t want to give this viewpoint (anti-Austrian) any traffic. But I am thrilled to see so many knowledgeable people taking your assertions to task. I don’t believe anyone is totally “right” but my experience (and common sense) tells me the Austrians are pretty far along the right track in terms of maximizing both individual liberty and social progress.
Jct: Great article and you’re right, no focus on how to pay 11 when they only printed 10? Why our poker chips based on yellow rock are better than the ones based on plastic is never explained.
This article is frankly pathetic, your stylized, inadequate knowledge is filled with ideological rantings and is nothing but a bore to read. Firstly, the Austrian School, until its questionable disbanding, influenced scientific economics greatly. Its logical system, though lacking mathematical tools, had ordinal utility, not cardinal, and thus had a far more effective subjective theory of value and one much more relevant today then, Jevon’s and Edgeworth’s.
The Austrian tradition in it modern form has a varied approach to monetary arrangements. Some free banking, some gold standard (or a metal based currency) and no doubt others, which are all united behind the believe that a central bank is perverse, illiberal and unaccountable power base in a constitutional arrangements. Whilst they also both fear the pernicious aspects of fractional reserve banking – especially when this is backed up by illogical regulation and state guarantees.
One should be looking for a positive synthesis of governments and markets. Not the defense of the status quo, crony capitalism and plutocratic governance. For many the state aims should not be curtailed, but rather the means by which they can achieve these aims, with if you like a side constraint, a filter of some sort, which protects the freedoms and rights of the individual. But still allows for the state to operate, providing social provisions, where private voluntary agreements do not come about. This must not be at the experience of individual rights and thus though coercion of agencies. Man should not be treated means to an ends, rather they should be treated as ends in themselves!
What I find noteworthy in this comment is that you in no way address anything I’ve said.
I believe the ten points I make, regarding inflation, deflation, usury, the FED, Gold as currency, are, while maybe inadequate, at least concrete.
Europe went off the gold standard in 1914, not in the thirties.
They reiinstated it again in 1925, then got rid of it in the Depression.
When Churchill incorrectly valued the GBP to gold, and Brit spending caused gold to leave the country. You cannot print tons of paper money during war, then return to the gold standard at the same peg.
The article above, I again regretfully state, makes no sense. And on your nonsensical response to my comment, I ask, how can something be both inadequate and concrete? You speak nothing but propaganda, shedding no technical point on which one could question or a view backed up by evidence; rather one reads vapid, empty words….
What do you mean by Money Power?
How does this effect inflation rates?
Why does inflation have to effects on welfare you so state (if you state these at all)?
How does basic exchange even operate in your view, from which money necessarily arises ?
How does the political voting system effect all this?
Again what Austrian economics have you even read?
How would you surmise their economic theory and – if you like in its largely American off breed of today – political, social theories?
(No doubt you will respond saying I did not read your article, blaming my ignorance and fueling your righteousness. For this must be the only way one could contrive such ill-guided, mendacious material to propagate).
Debtors are hurt by deflation, you say. Yes that may be. But it could be argued that as they have taken on debt, they have taken on a risk, and it should not be in the right of any coercive unaccountable agent to punish people who have not taken such risks by invoking artificial inflation.
Inflation that will not be able to solve the problems policy gurus have perceived it to have, causing a mis-allocation of resources, out of line of
individuals who compromise a system of governance. Certain products becoming cheaper is obviously preferential in certain situation, and likewise in other situations inflation of goods would be preferred as scarcity of and human marginal utility change in a system. By what tools can a certain benevolent, if that can ever even be the case, dictator or plutocracy truly and justly determine this and then implement it without and injustice occurring.
A central bank is although not quite as monstrous, misguides economic decisions and delays the changing of the production structure and thus the decisions made by investors and get them improving. This does not occur through the manipulation of the money supply and through target settings on inflation and interest rates, while fractional banking unsupervised (and supervision would be seen as futile, hence the need for a system without a central bank) leads again to distortion of price signals, time preferences also changed.
This naturally being simplified to point of inadequacies, far from concrete (one should say).
Jct; There are so many great points mentioned about Mutual Credit, it’s too bad no name appears. I just want to remind people it applies to LETS timebank credits:
“Another red herring: manipulation of Volume is certainly quite a scourge. But it ignores an even bigger problem: Interest. We are Interest Slaves.
But if we can have credit by bookkeeping, clearly we should get the money interest free, because it is our credit, not the bank’s.
Jct: Why represent our wealth with their chips for a fee?
When we can represent our wealth with our chips for free?
such a market would undoubtedly see Mutual Credit Facilities providing interest-free credit prevail, see below.
Jct: Yes, LETS…
if your options are a Gold based mortgage costing 5% per year, or a 0% mortgage in Mutual Credit, which would you chose? Case closed.
Jct: Yes, LETS…
9. Fiat Currencies are always bad
Another typical device: a dialectic. Trying to frame it as Paper vs. Gold. Both ignoring interest. But interest-free paper is of course something else entirely. At least it won’t suffer from the forced inflation on interest-bearing money supplies.
Jct: Right, just like plastic or wooden poker chips, LETS interest-free paper or electronic chips do not suffer from inflation. It’s nice to hear someone else state that there is no inflation when i=0!
Modern Mutual Credit is inflation free. Or better: the market is in control of the money supply. It grows when it must, shrinks when it must.
Jct: Mutual Credit is inflation free, not because there’s close to the right amount, shrinking and growing, but that it is exactly the right amount withe the number of chips shrinking and growing depending on the wealth produced to be pledged at the cage.
wow. the author of this tripe has obviously never read ANY Austrian economics. there are so many flaws in this thing, i’ll never get the 5 minutes back that it took me to read.
Good job Anthony! It seems like austrianism is some sort of religion and you’ve provoked quite a few of their true believers and evangelists with this piece. Never mind them. Keep up the good work.
Thanks Peter! Great hearing from you!
Right: never mind whether it’s true or accurate, just keep saying shit because we’re against what they’re for.
The author has just enough knowledge to be dangerous. But he doesn’t care that he doesn’t know fully of which he speaks, because he clearly has an agenda.
Thank you. I follow it and it’s fine. I get “Money Power” — it’s a catch-all phrase, as is plutocrat, oligarch, etc. … useful for the purpose. It’s not a single item, but a useful gist. Best wishes.
Also, it would be nice if you had the option to just sign in using an e-mail address or anonymously, without WordPress, Twitter, Facebook.
Reading this article has evoked the same feeling I once felt reading an old soviet issue of “Pravda”… You know it is completely false but you also know the masses will consume it with joy and revel in their own ignorance.
Although I don’t claim to be an expert in any or all economic theories, I find it quite strange that no one has pointed out that the central tenet of the Austrian school of economics boils down to really one thing: a small group of men, no matter how “brilliant”, will never be able to foresee and control all of the complexities of the market economy. Consequently, the Austrian school simply says that we should not manipulate the market artificially by printing money, fixing wages and interest rates, etc… They warn against it for one reason – such actions, when taken by governments or other partIes with a specific agenda are usually taken to address a very limited problem. In doing so, they fail to recognize the consequences their actions have on everyone else. Furthermore, because those who manipulate the market are not clairvoyant or omnipresent, they will never be able to foresee all the side-effects of their actions. Chiefly, a positive action to benefit a group (either the rich or poor regardless) will have an effect on all other groups. Because the manipulation is artificial in nature, the market will react to counteract that action (you print more money and expand credit, it will make it easier for me to access that credit, and I may be more willing to take risks with it because I am paying less interest to borrow it, meaning my potential losses are much less significant) – when you make something less scarce, you make it less valuable…
The Austrian lesson is very simple….since you cannot foresee all the unintended consequences, leave it alone – the market will control itself … This is NOT an “abstraction” in the Austrian sense….they are very clear on what the “market” is….it is free human beings making choices in what they want or do not want at any given time….each person knows what they want much better than a small group of men knows what everyone wants. Thus the “market” (a.k.a “all of us”) will naturally bring a balance through our choices…
The entire article and commentary tries to muddy the water in complexities of economic theory, but the very basic fundamental principle has neither been addressed or even mentioned. This basic tenant holds true no matter how complex any market gets, in fact, the more complex the economy gets, the more true the lesson becomes.
I find it funny when people claim to support the “free market” yet at the same time claim that control and manipulation of the market is the only way that the market may be “free”. It’s like reading that soviet issue of “Pravda” (meaning “the truth” in Russian)…the articles seem at the core so counterintuitive and perverse in their logic, but the truth is so twisted and the sophistry so elaborate the it fools the minds of even the most discerning men…
It seems to me the deductionist (meaning completely devoid of practical evidence) sophistries of the Austrians got to you Jerry……..A ‘Free Market’ Austrian style will change nothing: it will continue the monopoly of capital that we have today. Austrianism is the great defender of banking and big business, of usury and deflation. In short: it’s the plutocrat’s wet dream. It’s freedom for the rich and our choice to lick their boots.
Anothony,
What do you mean when you say “Austrian style will change nothing” …and that” it is a plutocrat’s wet dream”?
The plutocrats like interventionism for the very reason that the rich in society are usually the ones closest to government power and assert the greatest influence. As such, thorough government intervention they can protect their interest. This translates to anti-free market and anti-competitive behavior (exactly what we have today).
The Austrian school simply says that it is a bad idea to intervene in the market in order to help special interests because they negatively impact others…
I guess I don’t understand your reasoning as to how limiting the plutocrats power to influence the market becomes his wet dream?
Should governments protect special interest groups through manipulation and intervention? Practically speaking that is exactly what we have today and the special interests accumulate wealth through special privilege…(bank goes bankrupt for making very bad decisions and we bail them out….car company is operating at a loss….we prop up their unsustainable business model through forced taxation of the masses)
Extremely well written/expressed:
“the central tenet of the Austrian school of economics boils down to really one thing: a small group of men, no matter how “brilliant”, will never be able to foresee and control all of the complexities of the market economy. Consequently, the Austrian school simply says that we should not manipulate the market artificially by printing money, fixing wages and interest rates, etc… They warn against it for one reason – such actions, when taken by governments or other partIes with a specific agenda are usually taken to address a very limited problem. In doing so, they fail to recognize the consequences their actions have on everyone else.”
thanks Jerry.
Regards, onebornfree
You know who’s to blame, right?
1. if austrian econ was so loved by the elites, how come it is never mentioned in schools funded by the elites, media run by the elites or government of the elites, except disparagingly?
2. to think government should check the elites, its like saying let the gangs control the thugs. which is retarded cuz the thugs are a part of the gang and run the gang….just like the elites are a part of and run the gov’t
3. monopolies can never be sustained for long without gov’t help. so if you want wealth to circulate, get the gov’t out of the market. otherwise well connected capitalists will always control the economy, as opposed to hard working capitalists…the latter changes more easily that the former…
1.) Which schools are those? GMU seems to get quite a bit of funding from very wealthy backers, and it’s the defacto university for Austrians. The university of Chicago is two steps away from Austrianism (one of those steps is math, the other is sanity… maybe) and it is a pretty elite school. Yes I know, Yale, Princeton and MIT right? Except those schools have enough self respect to stay out of the political fray, and rather have sought out sound methodology in place of dogma, and they don’t care about their wealthy donors. GMU on the other hand does. It also depends on weather you are talking financially elite backers (Austrian) or intellectually elite (non Austrian…)
2.) Nice simplistic thinking, you get an Austrian A+ for that. DERP GUVMINT BAD DERP. Sure, let the ‘thugs’ control themselves without any outside constraints. See how that works for you. Even somebody who is into organized crime can tell you why this doesn’t work.
3.) There is no evidence for this statement. NONE. The closest thing we have to evidence for this statement would be sittuations in which reduced government regulation would have decreased market power. We have never observed this, we have observed the opposite. YES your simplistic thinking may lead you to believe this, but I guarentee you that thinking takes a number of things for granted such as… Differential information, capital barriers to entry, geographic constraints to competition, competition delay, non price product differentiation, and so on, all of which lead to non competitive outcomes, and none of which require government intervention to be present.
1) You confuse monetarism with Austrian Economics.
2) Organized crime is the result of what? “I give the people what they want, that the government won’t let them have” – John Gotti
And for the record, organized crime, pirates, and gypsies all have laws. No one is suggesting no laws. But in general, companies that screw over their clients have a tendency to go out of business, as long as there is adequate competition. But the government creates laws to reduce competition and encourage cartels even when well intentioned. It actually creates the ‘moral hazard’ that facilitates ‘bad behavior’.
3)Wrong. Jimmy Carter – telecommunications, railway-airlines, beer, these all saw substantial decreases in prices and increases in quality of service.
See: Regulatory Capture
It is not “simplistic thinking”. It is “foundational”. Your own regulations are a large part of the reason for cartelerized services. What is the foundation for your ideal system? More legalized counterfeiting and debt-based currency?
‘But who will build the roads?!?’
The same people who do now. But not from no-bid government contracts.
‘Would it be possible to implement an Austrian system, today?’
That’s a tough question. Probably, not since all of our industyries are already reliant on cheap, easy money created out of thin air by the central banks, and, of course, the perpetual wars. War has always been a major driver of innovation. But is it really worth the cost? Is it?
inflation and deflation are similar in a way. each of them are good for some, bad for others, but neither is fundamentally neither good nor bad. unless, of course, it is perpetuated by politicians and bureaucrats at whim.
we should not mess with the natural economy for the same reasons that we should not mess around with our genetic code, natural weather systems, ecosystems, etc.
good and bad stuff can happen but please dont give a bureaucrat control of it and the power to choose winners and losers…cuz then good stuff will continuously happen to some people while others will forever dwell in the bad stuff.
WHAT?!? Neither are fundamentally good or bad unless their cause is something you don’t like? That’s like saying arsenic is not bad for you unless you consume it to commit suicide. It is the effect that is good or bad, not the cause.
There IS NO natural economy. NONE. You walk into stores and purchase bacon or whatever it is you want to purchase not using chickens, but currency, regardless of whether it is fiat or commodity backed. The store trusts that you will pay what the prices listed on that bacon because they know that contract law (contract in the lose sense, exchange etc.) will be enforced by government actors and thus you will probably not try to shoplift because of the threat of legal action if you do. The bacon was delivered to the store on publicly funded roads. This is all without mentioning things like product regulation. Even the most basic economy is not ‘natural’. It is not a barter system, and people don’t fight each other to make sure exchanges are fair and both sides hold up to their end of the bargain.
As for your last statement… POWER.FILLS.A.VACUUM. Without the so called bureaucrat making winner and loser decisions… Those decisions will still be made by somebody with power. Governments do not create power, they regulate it. If you think winners and losers won’t be chosen by people with power simply because it’s not the government you are incredibly naive.
‘The only reason I am honest is because of laws.’
LOL
It is not in my objectively rational self-interest to deceive others unless there is a government controlled court that I can purchase.
‘Publicly funded roads’
Without publicly funded roads there would be no roads. I suppose there would be no food unless the government funded it. Oh wait, they tried that in the Soviet Union. Didn’t work out so well, did it?
Governments HAVE power, and they sell it to the highest bidder. They have “special rights” that private individuals and businesses do not have. Technically, you and I, the “consent of the governed” create the power that government has.
Do you honestly think that if you give governments more power they will use it to your benefit? What do you have to offer government? A vote? Which brings up a more philosophical point, how can you assign “special rights” to an institution that you do not have to begin with?
Without government intrusions, businesses would be wholly reliant on consumers unless you gave them special rights above and beyond what you have,
The Causes of the Economic Crisis for non Economists
http://www.scribd.com/doc/201709399/The-Causes-of-the-Economic-Crisis-For-Non-Economists-A-Free-Market-Approach
The Socialist Myth of the Greedy Banker & the Gold Standard
http://iakal.wordpress.com/2014/02/24/the-socialist-myth-of-the-greedy-banker-the-gold-standard/
This article is terrible. Terribly argued, terribly presented and even worse, terribly defended by Keith Gardner. There have been several people who have explained the incorrect notion of the misguided steps of Austrian Economics, and those were refreshing to read. Thank you.
Letter from New Zealand,
Please dear Lord give me back some capital to reinvest into my business so I can pay higher wages. I currently work six months out of the year for the government while the rest is mine. The more I earn the more I get taxed. The incentive as pretty much gone now.
Please stop stealing my money and redistributing it to other people. You should not steal is one of the top 10 things in the world you should not do and your BIG Government sorry ass is not exempt from this.
One day I hope that Austrian economics will take a hold of the hearts and minds of New Zealanders.
A NEW Revolution a NEW Zealand!!
All things start from a thought.
you have a fundamental misunderstanding of praxeology.
Seems to me praxeology is a fundamental misunderstanding…….
a brilliant analysis… loved how you demolished the Austrian school ignorant..
I would have following to add, 2 concepts I was thinking about for a while:
1. inflation and deflation are in essence (as it stands in this system) one and the same thing.. it comes down to the fact that things cost more than you (the majority) can pay for them.. that is, you have too little money at all times, never all that you earned/saved.. inflation within the system is a product of a deflation of many bank accounts, wherein debt occurs (money is debt) during credit expansion. Then they top it off with higher interest rates (once you are in debt)..cool.. people go broke.. new money injected, those who have it first buy it all up for cheap.. nothing new here..
inflation in prices is much much higher in real life than in nominal terms.. say you pay something 3% more p.a. over a long period (average), this price growth occurs in the face of an enormous rise in productivity, where things are supposed to get cheaper.. (so in fact there is inflation in precious metals too.. one ounce of silver buys a suit today and a hundred years ago, the Austrians say.. only the real price of the suit today should be 1/10 of it..)
so, ofcourse, someone is reaping the difference there.. and where does the difference go to?—>funding progress..(along predetermined lines)
that is why debt (interest) is necessary if you want “progress”.. people need to be in debt to make it happen, otherwise, we d all just happily be living our days out, and there would be no incentive for “evolution/progress”. like this, we are living on borrowed time (money), and interest represent the time value. so we trade (give) our life time to the debt slaves, so they can direct society..
2. Austrian school is a complete equivalent of marxist teory, and not even opposed to it.. many terms are interchangeable i.e. society/free market directed by opposing forces/demand and supply creating a “dialectic”… all free of human will… makes sense..?
p.s. the debt problem is really no problem.. the state debt that is.. for the US.. the FED buys it and annuls itt…. it is not particularly inflationary.. the trillion dollar coin is also an idea.. i see nothing wrong with it (lack of trust bla bla, default)–> the US goverment sells bonds to the fed at 0.5-1% interest and buys of the existing debt.. but that is not the point the point is taxation.. fiscal or monetary, doesnt really matter.. when you work you are taxed.. and you need to be taxed to work/produce more than you need/everyone needs.. that is the only real currency-> labour/time of your life, and that is also the capital.. capita (head).. previous, present or future…
Oooo. Labor Theory of Value.
Nice job, Karl.
p.p.s government vs. bankers is a false dichotomy… as is discussing monetary issues while leaving out fiscal issues.. they are one and the same..
“bankers love gold”… I do not think they are so sentimental.. they do what at any particular point works best for them.. when they needed to fund progress/greatest economic expansion in history (20th century) they needed the fiat.. However, they do not own it all right now, because they had to give up some of the new wealth (that came from progress) for incentive purposes. now they want it back..
inflation alone wont do it, deflation alone cant do it.. too much economic knowledge out there in the public domain.. so they needed to step up their game and create an even more perfect system of taxation and funding, combining 1)monetary policies, 2) manipulating the “market” prices through the use of derivatives (the so called market is a derivative)–> supply and demand do not dictate price, price dictates supply and demand, 3)fiscal policy (they working on it now)
We explained fractional reserve banking using illustrations. Check it out at our webpage at 259trillionvs5trillion. We also explained why interest does not suck blood from the economy at all. Download our free videos.
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One element missing here that no-one has mentioned is how deflation HELPS the poor. If I am living on a fixed income, I would be tickled pink to look to the future and KNOW my money will not lose value (and probably be worth even more!) enabling me to purchase more goods more frequently than if the money were constantly losing its purchasing power, forcing me to exchange it for non-money goods while I was able.
That is actually one reason I believe functioning poor (of which I know many and some of whom are friends of mine) cannot make their money last until the end of the month–they scramble to pay their bills and secure food, gas and other livables before the prices rise again! Yes, I know that’s an over-simplification of the whole process, but there is truth to it. A money (like the US Dollar) that is losing ~9% of its value year after year will end up, after a time, chasing fewer goods unit for unit, and so each good will command more dollars. Coffee used to be 10c a cup. It is now around $2 for the same black coffee at any Waffle House or other diner in the country. That doesn’t really strike me as a success story for FED or inflationary strategy, IF the goal was price stabilisation.
Without delving into exactly what their true strategy is for the country and its people, I have to agree with Austrians in general when they place emphasis on having the freedom for individuals to choose what they wish in their lives. Handing over exclusive control of a money to any central authority is a BAD idea. One reason the Constitution of the US included the money provisions it did. Lets look at them:
First was the prohibition of the States to coin their own money, OR to make any money but gold or silver coin legal tender. That left the power to coin in two hands: the Treasury and individuals. If one failed, there would be the other to step in and make up the slack in the economy. The founding fathers were not fools. They were very well educated and had just witnessed what evils paper money brought to the economies of states and country. That was also the reason gold and silver were made the only legal money in the united States: such booms and busts and other fluctuations of the economy could not be brought about, nor the speculative endeavours so popular at those times (and that still are) had the entire monies of the individual states been 100% backed by specie. Sure, some credit could be extended and debts wrote up based on current specie reserves, but those experiments, when not engaged in by States or the federal government were isolated and did not cause near the harm to the entire economy as did the housing bubble of the 2000’s for example. May I recommend “Extraordinary Popular Delusions and the Madness of Crowds” as proof of my assertion?
Basically, the author has no knowledge of economics beyond ephemeral assertions of socialism and marxism on the part of all Austrians and like-minded peoples and their misguided notions of “fairness” and “equality” (two such ideals that never have and never will exist in reality). While I abhor the mistreatment of individuals to the enrichment of others, Austrian economics shows how best people can allocate capital to achieve their desired ends, be they rich or poor. And most Austrians, if you take a poll, will be found to be the most generous in charitable giving, I believe, because they understand it is ONLY by private, charitable giving (and not socialistic re-distribution of others’ wealth) that those in need may best receive and make use of emergency funds. It is all about agency and the ability to choose one’s economic and personal destiny, and only Austrian economic thought takes that into account, or raises the individual and his desired actions above the State, where they belong. The individual, as stated in the constitution, is the master, the government the servant. And the money of the masters is gold and silver. Was true in biblical times and it is true today.
You’re being completely ridiculous: currently we have a 250 TRILLION debt bubble, not just taxed with Usury, costing 12 Trillion per year, but in a deflation, which makes both the debt and the Usury even more harsh to carry.
[…] slogan-parroting, austerity-promoting, privatize-everything-under-the-sun Austrian School: — https://recoveringaustrians.wo… But then Austrian School icons Ludwig von Mises and Friedrich Hayek were both financed out of […]
Capital have no intrinsic monopoly causing characteristics. Its the government intervention which creates monopolies/oligopolies by restricting entry of new firms through licencing system.
[…] https://recoveringaustrians.wordpress.com/top-ten-austrian-economic-lies-and-mistakes/ […]
Pompous.
This ridiculousness of money is only begging the issue of capitalism which is a total lie. Capitalism is NOT. Capital is nothing except grease, grease for the wheels of humans and other LABORERS who toil to flagellate their skills and services to continue the lie in the subjugation of themselves. No gold, no money can do anything on its own. NOTHING. It MUST have a human or a human-like (corporation) to do its bidding. You cannot take a $100 bill into a bank and have it open its own bank account. The gold or money or shells or tulips are nothing without the humans to move them back and forth. The carrier (banks) are mere vessels that have no honor or respect, the same way a grocery bag has no honor or respect. I can do more with a grocery bag thant I can with a bank.
Breaking this vise-like grip the Invisible Hand has over human condition is what is needed. Money is becoming electronic and production is turning to machine’s churning out CPU cycles as if that has value to humans.
You need to lift your gaze away from the idiocy of the lat 500 years and realize that the time has come to change the underlying human activation that needs the grease. Capitalism may have done various forms of grease in its earliest days, similar to a young child acting out to address their most basest needs, but, as they get older they recognize that human interaction is the commodity that is important. Not ledgers and numbers and idiotic make-believe economic “laws” that have no real-world universal claim to anything.
Get your heads out of your asses.