Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

Posts Tagged ‘hayek’

Finally! An explanation for the economic crisis!!

Posted by Jesse on February 6, 2009

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Most of my writing are comments are other blogs….

Posted by Jesse on October 17, 2008

my blog is more of a library with a little bit of “diary/notes” that I feel like recording.

another comment I have made on LibertasExemplar

jason,

i wish more people would try to apply the logic you just cited to other problems. (in this country, not other people’s countries) you are exactly correct in asking how government distorts the market. the current banking/wall st. crisis is difficult to analyze for precisely the reason there is and have been massive government interventions.

short term and long term is highly important. if we talked about the theory of intervention in more depth we could expose the reasons why the market is far superior to government control of the economy.

there is no choice that separates short and long, they are integrated. what differentiates the two is a matter of efficiency. so it is simple, yet complex. which is exactly the reason it is inefficient for a central authority to even attempt to command such a complex phenomena as the market.

government cannot control the economy, in fact, it is subject to the economy, not the other way around. this is why it is futile and destructive for government to assume authority in these matters. just as government is supposed to be of, by, and for the people, so is the market. but the market comes first. government is born out of the market. (choices are limited, we live under oppressive standards, lets create a more prosperous environment where our rights are secured and protected, i.e., the liberal idea of the function of government) one can only explain the market and act in it, whereas government is instituted and established to protect the rights to life and property. the market is made up of human actors that produce the goods that we enjoy in life.

it’s easy to see how they are similar, and indeed we can integrate them, but it is completely against the idea of a free society to say that government should create the market and dictate the rules thereof. a free society can be explained in terms of economy, and the government should, if at all, only exist to protect that right to act in the economy so long ones actions are not coercive. a peaceful society should be protected. it cannot be dictated.

so this statement is exactly backwards: “trying to divorce the “free-market” from what is actually happening in the world.”

“That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it”

this statement exactly represents the true nature of the market. it is supposed to be voluntary. it cannot be ‘coercive’ and at the same time ‘free’. value is subjective. it cannot be dictated. which is exactly why this bailout is flat-out robbery. “the people”, the citizens are buying at a price that is being dictated by government. there is no choice. this is not the function of government. government is instituted to protect and secure the property of its people, not squander it.

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For more on praxeology, austrian theory of price, modern subjectivist economics, causal-realist economic theory, scientific economics and the constructs and structures thereof….Man, Economy, and State would be the source to read.

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Capitalism is not the culprit, it’s bad policy by Peter Schiff

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Ron Paul is going the distance.

Posted in antiwar, Constitution, Current Events, economy, Education, free market, Mine, Politics, republican, Rights, Ron Paul | Tagged: , , , , , , , , , , | Leave a Comment »

Get to know the economy with this list of articles.

Posted by Jesse on September 29, 2008

The Recession Reader

Instead of looking to the mainstream for answers to this crisis, why not look to those who saw it coming?

The Bailout Reader

It’s never been more important to spread a sound view of money and banking, not only as a protection against the fallacies of “stabilization” and “reflation” but also as way to see what kind of reforms are essential now.

Posted in antiwar, Constitution, Current Events, economy, Education, free market, Politics, republican, Rights, Ron Paul | Tagged: , , , , , , , , , , , , , , , , , , , , , , | Leave a Comment »

Great Depression parallels

Posted by Jesse on March 14, 2008

This review is excerpted from a letter to the William Volker Fund, dated November 14, 1959.

Lionel Robbins’s The Great Depression (Macmillan, 1934) is one of the great economic works of our time. Its greatness lies not so much in originality of economic thought, as in the application of the best economic thought to the explanation of the cataclysmic phenomena of the Great Depression. This is unquestionably the best work published on the Great Depression.

At the time that Robbins wrote this work, he was perhaps the second most eminent follower of Ludwig von Mises (Hayek being the first). To his work, Robbins brought a clarity and polish of style that I believe to be unequalled among any economists, past or present. Robbins is the premier economic stylist.

In this brief, clear, but extremely meaty book, Robbins sets forth first the Misesian theory of business cycles, and then applies it to the events of the 1920s and 1930s. We see how bank credit expansion in the United States, Great Britain, and other countries (in Britain generated because of the rigid wage structure caused by unions and the unemployment insurance system, as well as a return to the gold standard at too high a par; and in the United States generated by a desire to inflate in order to help Britain as well as an absurd devotion to the ideal of a stable price level) drove the civilized world into a great depression.

Then Robbins shows how the various nations took measures to counteract and cushion the depression that could only make it worse: propping up unsound, shaky business positions; inflating credit; expanding public works; keeping up wage rates (e.g., Hoover and his White House conferences) – all things that prolonged the necessary depression adjustments, and profoundly aggravated the catastrophe. Robbins is particularly bitter about the wave of tariffs, exchange controls, quotas, etc. that prolonged crises, set nation against nation, and fragmented the international division of labor.

And this is not all. Robbins also sets the European scene in the context of the disruptions of the largely free market brought about by World War I; the statization, unionization, and cartelization of the economy that the war brought about; the dislocation of industrial investment and agricultural overproduction brought about by war demand, etc. And above all, the gold standard of pre–World War I, that truly international money, was disrupted and never really brought back again. Robbins shows the tragedy of this, and defends the gold standard vigorously against charges that it “broke down” in 1929. He shows that the US inflation in 1927 and 1928 when it was losing gold, and Britain’s cavalierly going off gold when its bank discount rate was a low 4.5%, was in flagrant violation of the “rules” of the gold standard (as was Britain’s persistent inflationism in the 1920s).

Robbins also has excellent sections demonstrating the Misesian point that one intervention leads inexorably to another intervention or else repeal of the original policy. He also has a critique of the idea of central planning and a fine summation of the Misesian demonstration that socialist economies cannot calculate. Almost every important relevant point is touched upon and handled in unexceptionable fashion. Thus, Robbins, touching on the monopoly question, shows that the only really important monopolies are those created and fostered by governments. He has not the time for a rigorous demonstration of this, but his apercus are important, stimulating, and sound. Robbins sums up his book in this superb passage:

It has been the object … to show that if recovery is to be maintained and future progress assured, there must be a more or less complete reversal of contemporary tendencies of governmental regulation of enterprise. The aim of governmental policy in regard to industry must be to create a field in which the forces of enterprise and the disposal of resources are once more allowed to be governed by the market.

But what is this but the restoration of capitalism? And is not the restoration of capitalism the restoration of the causes of depression?

If the analysis of this essay is correct, the answer is unequivocal. The conditions of recovery which have been stated do indeed involve the restoration of what has been called capitalism. But the slump was not due to these conditions. On the contrary, it was due to their negation. It was due to monetary mismanagement and State intervention operating in a milieu in which the essential strength of capitalism had already been sapped by war and by policy. Ever since the outbreak of war in 1914, the whole tendency of policy has been away from that system, which in spite of the persistence of feudal obstacles and the unprecedented multiplication of the people, produced that enormous increase of wealth per head…. Whether that increase will be resumed, or whether, after perhaps some recovery, we shall be plunged anew into depression and the chaos of planning and restrictionism – that is the issue which depends on our willingness to reverse this tendency.

The Great Depression, in short, is a brilliant work that should be read by every economist. It is not at all outdated. It deserves the widest possible distribution, and would be indeed a fitting companion to Hazlitt’s The Failure of the New Economics – that refutation of the other great explanation of the Depression – the Keynesian.

Murray N. Rothbard (1926–1995) was the author of Man, Economy, and State, Conceived in Liberty, What Has Government Done to Our Money, For a New Liberty, The Case Against the Fed, and many other books and articles. He was also the editor – with Lew Rockwell – of The Rothbard-Rockwell Report.

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Recession or Depression? by Rockwell

Posted by Jesse on January 18, 2008

You can find the article here.

Many people are finally saying the R word: Recession. The fundamentals don’t look good. The externals are even scarier: dollar and stocks skidding, gold and other prices (particularly producer prices) rising. But what has tipped the psychological scales is the statistic no one has cared much about in many years: unemployment.

The actual rate is very low by any historical standard: 5%. What matters here is the direction of change. It jumped from 4.7%. In the old days, unemployment rates of 5% and 6% were considered “full employment” in the Keynesian models. If government attempted to push employment below that level (and it is absurd to think that anyone in Washington can control the economy in that way), it would risk setting off inflation, or so it was believed.

If the actual unemployment rate is low, why this wave of pessimism? All data in the postwar period of American economic history consistently show that an increase in the rate has coincided with the onset of recession. The parallel between the two is the most consistent feature of the business cycle. See the NBER list: 2001, 1990–91, 1981–82, 1980, 1973–75, 1970, 1960–61, 1957–58, 1953–54, and so on. In each case, unemployment begins to rise at the onset.

Now, keep in mind that the link between rising unemployment and recession is largely true by definition only. In other words, those charged with defining what is and what isn’t a recession put a huge weight on rising unemployment. So of course it appears that weak labor markets are what push an economy into recession.

This is sheer fallacy, and a particularly dangerous one. Rising unemployment is a symptom of a recession, not its cause. If the critical problem of recession is unemployment, policy makers are tempted to address this one area to the exclusion of everything else.

Already, Bush administration spokesmen are talking about a “fiscal stimulus” to counter this trend. But why isn’t this laughable on its face? Perhaps if Bush had been a famed penny pincher, you could see how a stimulus would make some sense on the surface. But it is hard to imagine a more fiscally profligate regime than the Bush administration. We can confidently say that more spending is not the answer.

The view that unemployment causes recession was one of the great errors of the New Deal and the Great Depression. The government looted the private sector and transferred it to visible jobs programs. It forced business to maintain high wages precisely when the market was attempting to equilibrate them downward. It increased the costs of hiring just when the costs needed to be lower.

None of it did any good; in fact, it delayed recovery for many years. Lionel Robbins, in his classic book The Great Depression, wrote this in 1934: “If it had not been for the prevalence of the view that wage rates must at all costs be maintained in order to maintain the purchasing power of the consumer, the violence of the present depression and the magnitude of the unemployment which has accompanied it would have been considerably less…. A policy which holds wage rates rigid when the equilibrium rate has altered, is a policy which creates unemployment.”

Writing in 1931, in his book Causes of the Economic Crisis, Ludwig von Mises explained that there would be no involuntary unemployment in a free market. There will always be some unemployment in a market in the same way that there are houses that are empty and not selling and resources that are not being used for production. This isn’t due to market failure but to individuals who have the freedom to lower their asking price, provided they are permitted by policy to do so and businesses are free to negotiate wages freely.

What, then, is the solution to unemployment? “The determination of wage rates must become free once again. The formation of wage rates should be hampered neither by the clubs of striking pickets nor by government’s apparatus of force. Only if the determination of wage rates is free, will they be able to fulfill their function of bringing demand and supply into balance on the labor market.”

There is an error even more fundamental than seeking an interventionist solution to the problem of unemployment. It is the attempt to seek a solution to the recession itself, as if it were the critical problem. Writing all throughout the 1930s, both Mises and F.A. Hayek tried to explain that the recession itself served a market purpose, in the same way a correction to an inflated stock market serves a purpose. It re-coordinates economic structures that have grown seriously out of balance.

In other words, they urged that we look back before the recession, to the good old days of economic boom, and realize the prosperity of the past was a partial illusion. The recession is the way that the economy tells the truth about the fundamentals. The illusion itself is caused by errors in monetary policy. Interest rates are driven down by the Fed, and this causes widespread errors in the investment sector. These investments are unsustainable over the long term. The recession is the time of cleansing out errors and reestablishing economic soundness.

The housing boom and bust is only a symptom of a wider problem. If the economy has indeed fallen into recession, we can know with certainty that recession is precisely what the economy needs the most. It is the equivalent of the drunk who needs time on the wagon.

The rap on the Austrian School of the 1930s is that they counseled a do-nothing policy on the depression. That is not true. There are many things that government can do but they all amount to doing less, which is a positive action of sorts. It must not attempt to prop up and raise wages. It must stop taxing business so heavily and raising the costs of investment. It must cut regulations that are hampering recovery. It can cut spending dramatically as a way of returning resources to the private sector where they can do some good.

What government cannot do without causing even more problems is take positive action against symptoms, such as falling stocks or housing prices, rising unemployment, business failures, and falling incomes. This is precisely what caused the Great Depression to get its name instead of being called what it might have been called: the recession of 1929–1931.

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