The Economics Fraud

"It is almost embarrassingly easy to debunk 20th-century macroeconomics. Indeed, by failing to predict yet another vast cataclysm, one might think the field had met its end. ... Not counting Marxists, there are three significant schools of economic thought today: one founded by Lord Keynes and revitalized by Paul Samuelson (also known as 'economics'), one founded by Irving Fisher and revitalized by Milton Friedman (also known as the Chicago School), and one founded by Ludwig von Mises and revitalized by Murray Rothbard (also known as the Austrian School). As a rough guess, there are ten Kenynesians for every Fisherite, and twenty Fisherites for every Misesian. ... You may ask: why is it that Misesian economics has no influence on government policy? ... Why is new economics, which dates to the '20s, mainstream, and orthodox economics--which also dates to the '20s shunned? And from the tone that Keynesians and monetarists use to describe Austrians--when they deign to describe them at all, which isn't often, you'd think orthodoxy was the other way around. ... As anyone who has read Hazlitt's Failure of the New Economics [booklength PDF] knows, the Barron was anything but a precise thinker, but he generally uses the term orthodox to describe the 19th century or at least pre-WWI economics. ... Let's say an orthodox economist is an economist who believes that any supply of money is adequate, and the money supply should either be fixed or bound to a commodity whose supply is very difficult to expand, such as gold. ... By this definition, it is indeed the new economics (of Keynes and Fisher) which has failed. It has failed totally and completely, it is morally and intellectually bankrupt, it has inflicted vast suffering on humanity, and if there was any justice its acolytes would be packing their bags just one jump ahead of the law. ... Note [Charles Francis] Adams; perception of the paper-money advocates: they are insane, demagogic monetary cranks. Curiously enough, this is exactly how the responsible mainstream intellectual of today regards a Misean, or any other gold-standard advocate. ... Since it is clear that, 75 years or so later, some school of economics has failed, and since hard-money economics has long been displaced from the temples of power, the simple answer seems clear. Now, let's try to understand it. ... Again, we note the accuracy of our terms: before the 20th century, in both European and Greco-Roman times, monetary debasement was considered the pathetic act of a sick, decaying polity. ... So the 'new economics' does, after all, live up to its name. It is a product of the 1920s and '30s, when Britain discovered that her World War I debts would not allow her to stay on the classical gold standard that she had once established--at least not at the now-overvalued prewar parity. ... Who was right? Was the end of the classical gold standard a disaster? Or were the old orthodox economists right just a bunch of no-fun fuddy-duddies, who just didn't get it at all? And if so, how did they metamorphose from fuddy-duddies into nutball cranks? ... Second, an orthodox economist need not be a goldbug. The difference between paper and gold, as monetary goods is immaterial. ... Gold makes a good monetary system not because gold is 'intrinsically' valuable in some sense, but because the supply is strictly limited. Ideally, there would be no new gold mining at all. ... Rather, the difference is between a hard or inelastic currency, and a soft of 'elastic' one. The former cannot be inflated; the latter can. An ideal hard currency has no supply. The key fact about money is that what matters to you is not how much money you have, but what fraction of the total money supply you have. It is the latter that determines your power to exchange money for other goods, in competition with present money holders. ... Even simple inflation--printing money and spending it, Keynesian style--can be emulated with an ideal hard currency. To 'print' new money in this currency, simply confiscate it pro rata from all present holders of the currency. ... The effect of this policy is precisely the same as that of inflating the currency, although the elastic implementation is much more straightforward. Perhaps that is the advantage of elasticity. But is avoids the critical question of why we'd want to do this in the first placce. ... In order to prop up consumer demand, we steal one nickel from every holder of a dollar, add it all up, and spend it on goods which we throw away. Is this healthy? Keynes thought it was. ... Basically, the way we perceive the 'new economics' is in exactly the same way that Adams perceived it: not a sane government policy, but a response to pressure groups. ... The orthodox economists of the 19th century, the believers in sound money, were not in general policymakers. They viewed their task as one of describing the economy, not controlling it. ... So now we have a perfect understanding of the origins of the Fisher-Keynes inflationism. It exists not because it make sense but because politicians desire it. ... To end the banking cycle permanently, our existing structures of long-term debt which back short-term liabilities need to be restructured. One way to do this is the classic Austrian approach: let everything collapse. ... They have tenure after all. [Our economics faculty] ... will remain in power until someone drives a tank or two into Harvard Yard--which, come to think of it, doesn't sound like such a bad idea at all", my emphasis, Mencius Moldbug (MM) at Unqualified Reservations (UR), 22 January 2009, link: http://unqualified-reservations.blogspot.com/2009/01/gentle-introduction-to-unqualified_22.html.

As ususal, I agree with most everything MM wrote. This excerpt is from pages 15-21 of 39 of MM's post. A disagreement: Carl Menger, 1840-1921, founded the Austrian School in my opinion. By MM's standards IA is an orthodox economist. I too suggest reading Hazlitt. I say money "stock", not "supply", since stock refers to a quantity of something in existence at a given time, not quantities to be produced at different prices over time. Keynesians use "supply" to convince people more is better. Jim Grant, who I have cited before, says things like MM. As recently as 1958, "monetary debasement was considered the act of a sick, decaying polity". That's what I learned from My Weekly Reader, my 15 December 2007 post. See my comments about Marx, my 10 August, 17 September and 1 December 2007 posts. I've been called "fuddy-duddy" for decades. So? I don't see how an orthodox economist can avoid being a goldbug. I agree MM, in the limit, with no new mining, you reach my "rock economy" model of a fixed money stock. The "advantage of elasticity" is that it conceals what is happening. Keynes knew this and has a quote on it, about "not one man in a million", my 21 June 2008 post. As other MM readers have pointed out, there is no "gentle introduction" to UR. UR is about as subtle as a Sonny Liston left hook to the jaw! Some other related posts, some of which have links to other posts, 4 and 8 January 2009:

http://skepticaltexascpa.blogspot.com/2007/08/our-subprime-thinkers.html.
http://skepticaltexascpa.blogspot.com/2007/09/belated-admission.html.

http://skepticaltexascpa.blogspot.com/2007/12/regulatory-debauchery.html.

http://skepticaltexascpa.blogspot.com/2007/12/kill-all-lenders.html.

http://skepticaltexascpa.blogspot.com/2008/06/hanke-spanks-bernanke-2.html.

http://skepticaltexascpa.blogspot.com/2009/01/jim-grant-on-fed.html.

http://skepticaltexascpa.blogspot.com/2009/01/towne-on-gold.html.