What is free-market capitalism? 47

This post was born as a comment by our economist reader and contributor, Don L. He expanded it into an article. 

It is addressed to the average American who earns, banks, invests, and pays taxes, but might confess that he doesn’t really understand “the dismal science” (as the Scottish philosopher Thomas Carlyle called Economics). Free-market capitalism is the only system that benefits everybody, and the only economists who were right about this were those of the Austrian School (of which the best known members are, probably, Ludwig von Mises and Friedrich Hayek). The article points the way to finding out what free-market capitalism really is. 

The possibly surprising point the author makes is that the United States is not really the free-market capitalist country it is purported to be …  

**

There’s a tactic employed in the field of Economics, and other corrupted fields of study/“professionalism” (history, law, meteorology/climate, education/compulsory schooling, etc.) that I label the “3rd-Party Authority Justification & Deflection Tactic”.  The tactic invokes authority to implement a plan and the ability to escape blame when it fails: “We relied on the experts.” And, the experts (unjustified) sell their name and authority (the “Top 500”, the “Leading” or the “Council of Advisers”, etc.) for grants, subsidies, a new regulation or a tit-for-tat pay raise. Being right is subordinated to the reward from political benefactors: “We support the Senators program”; which, as all unconstitutional social plans do, inevitably fails with tragic consequences.

It must be understood that in the US of A it is estimated that from 53% to 60% of ALL economists are employed directly by government (split approx. 60/40 percent by federal and state respectively) with another 20% plus estimated to be employed in positions dependent on government support. Upton Sinclair said it best: “It is hard to get a man to understand a thing when his job depends on his not understanding it.”  (Do you think there might be a “favor government” over human beings bias in the profession? DUH)

The challenge stands: The Austrian economist Robert Murphy challenged the icon of leftist economics, Paul Krugman, to debate. The inducement was a prize of $100K to be given to a food bank in NYC if Krugman merely showed up …he has refused. Consider, he refused to just put in an appearance and thereby denied a food bank, the hungry, a windfall of $100K of needed funds/foodstuffs. So much for social justice; even primary leftist cause takes a back seat to being exposed as a fraud. He’s a fraudulent coward!

A debate on what the political economic policy should be has never happened. Indeed, every measure is taken to insure that economics qua economics is never ever exposed to the general public. Mainstream economics is as fake as mainstream news. It is a fraud, sham, scam and lie. What is shoved down our throats as economics is singularly and only government central planning of the economy. Economics qua economics is a descriptive social science requiring thinking. IT IS NOT pretend hard science employing mathematical-modeling of historic, static, limited point-in-time data toward predicting (crystal ball) the future for unconstitutional, politicized, social engineering.

The world has been brought, through ideologically-designed compulsory schooling , to unquestionably believe the lie that the economy is so large and complex that only experts can manage it. Yes, the economy is large and complex … SO? How does “manage it by experts”  follow? IT DOESN’T.

In fact it was at the end of the 19th and into the 20th century that the answers to all the significant questions about economics, after 500 years of scholarship, were finally answered. And, the paramount finding was the irrefutable fact that an economy cannot and ought not be managed at all; by anyone whether “expert” or not.

These findings, however, did not and do not sit well with the rulers … implementation requires  stripping them of their power over the people: He who has the gold makes the rules. Well, simultaneous with the revelations of real economics, the opportunist and clownish son of a noted economist, admittedly fabricated a politician-pleasing economic theory, out of thin air (like the phony money monetary policies he backed – the FED). The sophomoric son was John Maynard Keynes and his ludicrous and wholly incomprehensible theory was presented in his book The General Theory of Employment, Interest and Money.

Keynes’s theory has been totally destroyed, yet it persists because it justifies – absolute nonsensical and proven tragically wrong – government intervention in the economy: social engineering. Marx – also a failed thinker with a failed tragic theory – and Keynes have done more to destroy lives, wealth and natural resources than any other two men. They provided the “3rd-Party Authority Justification & Deflection Tactic” cover, employed by governments around the world, behind which rulers could hide as they engineer “social justice” – i.e. control and manipulate their populations. Like here in the good ol’ US of A.

Incidentally, the supposed icon of Free-Markets, Milton Friedman, was NOT!  In fact, Friedman naively supported the worst and most deleterious of the government interventions, thereby negating his promotion of free enterprise (curiously not free-markets): monetary manipulation (inflation) for the benefit of government – not the governed!

Austrian economics, for those who do not know, is the only school of economics that does NOT incorporate any notion of government intervention in the economy – ALL OTHERS DO! Austrian Econ is the only school that advances Free-Market Capitalism; which mirrors, coincidentally, the Founder’s principles of individual sovereignty and government by the consent of the governed.

It is the only school that has been proven correct, 100% of the time, in projections and warnings for more than 100 years. Name one economist from any other school that has ever been right. That was rhetorical as one cannot find any other school of economics that has ever been correct …PERIOD. All they offer is the fake cover for fraudulent banking schemes that benefit politicians and their cadres of sycophants.

If you don’t know what free-market capitalism IS, you can be made to believe it is the economic system in America when it isn’t; and, IT ISN’T!

If you don’t know what free-market capitalism IS, you can be made to believe it is the cause of all manner of horrific and immoral human tragedy when it isn’t; and, IT ISN’T!

If you do not know what centralized fractional reserve banking is then you have to begin to ask yourself: “How have I been made to not care about my own best interests?” Why? Because centralized fractional reserve banking IS the fascistic political economic system of the united States of America NOT Free-Market Capitalism! It was enacted as law in 1913. It replaced Free-Market Capitalism with what can only be described as Centrally-Planned “Debtism” (dollars do not represent wealth but, rather, DEBT). You may know it’s intended-to-deceive name: The FED – not a federal government entity. How is it you have never been taught this?

Economic tragedies cannot be blamed on an economic system that does not exist. Every economic turn down in America’s history is directly and demonstrably the fault of government intervention in the economy; specifically, monetary manipulation by the FED. And, not one bit of it is FREE-MARKET CAPITALISM! So, why is it blamed? Well, the planners aren’t going to blame themselves … are they?

If life, liberty and prosperity are inextricably linked to the economy and there can be no exercise of rights, unalienable or otherwise, without economic freedom, how is it over 95% of Americans, including bankers and top CEOs, do not know what centralized fractional reserve banking is or does – to their detriment.

NOTE: Centralized fractional reserve banking IS the system by which purchasing power (wealth) is stripped from those on the lowest rungs of the economic ladder and transferred to those already up the ladder and standing on the roof: currency inflation is the FED’s ONLY function.

It is time that every citizen fulfilled his duty to give INFORMED consent. First, each individual must take the time to discover Free-Market Capitalism – Austrian economics. Once done, the informed citizen will never be Lulled, Gulled & Dulled by duplicitous and/or dangerously ignorant career-politicians, their army of cronies and their deceptive 3rd-Party Authority Justification & Deflection Tactic ever again … GUARANTEED!

Here’s some further “discover” info:

Keynes The Man by Murray N. Rothbard

Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts by Hunter Lewis

A Free-Market Monetary System and The Pretense of Knowledge by F. A. Hayek

Recovering Economics by Harry C. Veryser

The Red Prussian by Leopold Schwarzschild

QUICK INTRODUCTION TO AUSTRIAN ECONOMICS:

Why Austrian Economics Matters by Llewellyn H. Rockwell, Jr

What is Austrian Economics? — The Ludwig von Mises Institute

Economic Policy: Thoughts for Today and Tomorrow by Ludwig von Mises

Liberty and Property by Ludwig von Mises

 

Don L     April 5, 2018

(For more books that will aid discovery in the field of of Economics, please see The Atheist Conservative’s (starter) reading list, under Pages in the margin.)

Posted under Economics by Jillian Becker on Thursday, April 5, 2018

Tagged with , , , , ,

This post has 47 comments.

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  • Don L

    It IS NOT necessarily the case that free trade and nationalism* are mutually exclusive. Yo, Brrr … Bray?… scuff, scuff – red cape … Burro. I’d like your thinking on that? Were you here when, “got your ears on?” was a … decile

    *competition = our industries against yours; are you up for it? Or, what is it we can agree on. But we are America … let’s play.

    • The Burro

      Aha, I recognize a call to arms when I see it!

      • The BUrro

        First, I think I should offer a small prejudice of mine: I prefer unfettered markets to free, as I much prefer to charge to the moon for my services. In my life “nowt be free lad”.As regards trade, I take that to mean tangible goods but also intangible services. Next, I looked up the meaning of nationalism and found in the Pocket Oxford the following, “…nationalism = patriotic feeling, principles or efforts, policy of national independence.” So, I personally see every reason for unfettered trade and nationalism to go hand-in-hand. As regards mutual exclusivity, I reckon its a dead duck given the circumstances.

        An example may help. In the UK, we have a delicious item called a sausage. It was going to be banned as it did not fit the EU collective’s correct wording. Another marvel was black pudding, a blood-sausage much enjoyed in the manly North of England. This too was going to be banned. Now for several millennia these items had been gorged on by gentle-persons such as myself without any negative consequences. However, along come the foreign types and …kabumski… off goes the sausage and blackie. Now, after Brexit, these items lived to fight another day, and could be traded with such exotic locales as across the Channel in a quaint place called France. Perhaps even to certain Gallic specimens or Hunnish types called Germans. The sky is the limit here.

        There is no reason for trade to be minimized by “nationalism” at least at this level. Of course, that name is often applied to a political movement which wants no foreign goods of any kind within its borders. At this point though, we enter the dark alleys of politics lit only by the luminaries such as the Clintons, so I will not go there.

        In short, viva la blackie.

        • Don L

          Great and thanks. It is how I saw it as well. And, Trump hit the EU hard in his rally speech last evening. My sense is he gave Angela a ‘what for’ respective of what he calls “reciprocal trade”.

          And, I knew you’d have a reasoned and practical view. The boys at the Mises Institute have a hard time grasping that trade and America (UK, France, Italy, China, etc.) first is not a barrier to trade. Division of labor is still intact. Thanks again!

  • Cogito

    I would very much like to know Don L’s view of Trump’s tariffs. I believe they will be a disaster if implemented for prolonged period. They will certainly help some steel workers (several hundred thousand), but will be disastrous for steel using businesses (some tens of millions of workers), and steel consuming Americans (350 million)

    What say you?

    • Don L

      Hi, I just found this when I got the Burro’s comment notification.

      Down ‘n dirty quick: tariff for defense of national defense IS NOT tariff for favorite cronyism which is unjustifiable.

      And, do not apply a theory that is in contradiction to practicality/reality: there is no Ceteris Paribus in today’s non-existent free trade. Yes, there will be consequences for violating the theories (laws/rules/principles). However, adhering to the theory and not countering China has worse consequences. Had any of our prior leaders had the cajones, or knowledge, to tackle these issues when and as China was implementing its violent economic policies, the pain would have been negligible or non existent. We pay the price now for prior failures.

      Sooner or later, the piper always gets paid – that’s a law too.

      Indeed, whereas trade is between people/enterprise the idea that governments are even writing trade agreements is to introduce imbalance and distortion. Trump calls it correctly that China cheats, steals and extorts and fails to adhere to contractual terms – Sorry, but those industries and segments that will be affected are already affected: they are either receiving unearned reward or are actually losing as full opportunity cannot be realized because of China’s outrageous tariffs and ‘extortive’ import policies: you must build your plant here and turn over your proprietary intellectual material. Long-term, USA wins when trade is competitive not government-backed planned attacks.

      So, I’m for these tariffs that protect defense strategic industries … it’s why China attacks them: These are not companies competing – it is a red army attack by economic means,

      Lastly, the world has changed since Hoover implemented the Smoot-Hawley tariiffs. The FED Great Depression was already underway, production already dropping, when these tariffs were imposed to crush production altogether. And, those were career-politicians at work screwing things up. Trump is a different animal. Just because something is named Free trade doesn’t mean it is: NAFTA is an assemblage of tariffs – all, like with China, in Canada’s and Mexico’s favor. Change is a ‘comin’.

      So, is it that we should not impose tariff’s and lose our metals industry? Monopolies are government constructs – do we really want to facilitate China gaining a monopoly on steel and aluminum? Not me.

      • The Burro

        I had typed up a further response to your magnificent efforts but seem to have inadvertently deleted it, so here is a little replacement.

        Only moments before I found your words I had been sending our great leader, The Jillian, to sleep, with an account of a Wicksellian inversion in the interest rate markets. No sooner had I sent her off to sleep when I read her support material for you from my old mate Mark Skousen. In his material was the very same Wicksellian inversion discussed but not named as such.

        Now you may, O Don One, find what I am about to tell you of particular interest as it shows the utter incompetence of the FED, in spite of hundreds of Ph. D’s employed there (maybe because of them), as well as what an odd bunch the economists can be, and last of all how small the world is.

        In the markets today, a most unusual interest rate pattern has just shown up on Friday. Nikolaos Panigitzoglou (a real person!) Has just published a little paper on the “US overnight indexed swap rate” which is an index of rates adjusted to show what will potentially happen in the next several years in the bond market etc. It has just given a most rare warning: an inversion of interest rates is occurring as we communicate. In other words, rates at the short end – one to three years – are showing up as higher than three to eight. This is very unusual and means either FED policy (and I use the phrase with tongue in cheek) is not correct, or the economy is about to tank. Where do you place your bets, Oh Don One? I know where my greenies are going.

        This pattern was always in the past a forewarning of disaster, economically speaking. It was most studied by Knut Wicksell, and hence its name – a Wicksellian Inversion.

        Knut was, poor sod, Swedish, and came across the works of Menger and Bohm-Bawerk and after reading the latter, became convinced with the Austrian way of thought as the only worthwhile way of thinking. Sound familiar? However, like many a man afore him, he was influenced by his wife, Anna Bugge, who was one of the world’s earliest feminists. This led him into bad ways, such as partially accepting that government should stick its nose into other people’s business and occasionally try to save the world. However, he was quite a character, and got locked up for blasphemy, and had the worst hairdresser ever known – look him up. Sadly, he was against drunkeness and bad behaviour by charming ladies late at night – a real party-pooper.

        Anyway, Knutty began to study interest rates and came up with the concept of the natural rate of interest. His work led to the concept of a split in the rate market as fabulous government ineptitude pushes rates away from the natural level. This then provides the wrong incentives to the world and…………………..disaster………………investment in facilities goes the wrong way, funded by the fractionalized banking system and ends up in the many economic collapses one sees. This work was taken up by the Austrians and added to their explanation of the trade cycle, which should be properly named the government cock-up cycle – the GCUC.

        This is where the story gets to be fun. So Knutty goes off to Sweden, a small barren wilderness in the North filled with snow and Socialists, and forms the Stockholm school of econ. He then publishes some really good stuff. Except it is in German. Yes, German! Even Marx had the brains to publish in English and I mean Karl as opposed to Groucho, although I prefer Groucho. But such is life. Along comes a translator, none other than my old friend and teacher, Professor the Lord Richard Kahn, who translates the incomprehensible master text in 1936 and publishes it as “Money and Prices” – far better than Geldzins Und Guterpreise wont you agree?

        Here we now see the way the world works: Richard was as close to John Maynard Keynes as the next chair. It was Richard who came up with the multiplier concept and who did much of the work for the General Theory – note the publication date of 1936 as well. Keynes completely overshadowed Wicksell. Richard, along with Joan Robinson, provided much of the support and research for Maynard, but alas, got only a little of the glory. Thus, if we abolish the Keynesians, we will inadvertently abolish the source of much of the understanding of the Austrian trade cycle theory. Beware!

        Richard once told me he regretted greatly not working more with Knutty’s work as well as Michal Kalecki. I can see why – just about every trader I know looks for “inversions” as guides to the future yet both men are relatively unknown. In recent years I became aware at least one chappie, Charles Gave, the co-founder of GaveKal, is very familiar with Knutty and is giving him a sort of revival. GaveKal seems to be quoted all over the place and I hope this leads to interest in the Austrians among the limited number of people who can read.

        Now, to our final issues. I have recently been investigating FED policy and in particular, the last few years’ developments. After burrowing deep inside the Belly of the Beast, I discovered to my horror the FED is using at the core of its “models” none other than the “Phillips Curve.” The curve has been just about completely discredited except for some limited time-periods – yet the central bank persists in moving the world’s markets with such a device! I feel very confident in such leadership and am expressing it by loading up on gold.

        As if that is not sufficient, I just completed a reading of “Monetary Theory and Policy” by Carl Walsh. This tome is a magnificent piece of work, and is filled with very sophisticated mathematics. I loved it and felt reading it as if I had died and been reincarnated as a house-plant in the Mathematics seminar room at Harvard Maths Department. However………….at the very end of the book Walsh basically admits he doesn’t have a clue as to what will happen. This may explain his writing fantastic texts as opposed to speculating in markets. He should get a job at the FED as I hear their lunches are excellent. Your fears about mathematical nonsense are very pertinent.

        I must say Don One, your grasp of the Austrians leaves me gasping! I hope you keep at it, but as my mother once warned me on seeing me digesting Bohm-Bawerk, “do not read so much, you will wear your brain out.” Hence my words. Need I say more?

        Well, just a little more! The Jekyll Island text is available online free.

        I will be in touch, rest assured.

        The Burro

      • Cogito

        Thanks very much for your response. You argue cogently but I believe you miss the mark Don L. I thought you were an exponent of Austrian Economics. I can find no case of von Mises or Hayek justifying tariffs at all. They are punitive taxes pure and simple.

        See here:
        https://austrian.economicblogs.org/mises-us/2018/editors-trump-tariffs-2/

        “In the end, some advocates for protectionism resort to the “nuclear
        option” of claiming that protectionism is necessary for national
        defense. These arguments are no more convincing, as Lew Rockwell has shown:

        Finally,
        some people claim that propping up the steel industry is necessary
        because the nation is at war and war requires steel. Thus, American
        consumers need to be ripped off to support the munitions manufacturers.
        But notice that the bomb manufacturers themselves must also pay higher
        prices for steel, so they aren’t being helped. Steel tariffs only make
        it more costly to build the same weapons the U.S. would otherwise
        produce in absence of the new tax.

        As for the war excuse
        generally, it could also be cited in defense of complete autarky since
        there’s hardly a producer or consumer good in existence that war
        planners can’t find some use for. When policymakers start talking this
        way, look out. Most hot wars begin in trade wars. Witness the current
        war on terrorism, which began with a mass murder driven by revenge
        against persistent U.S. trade sanctions.

        Bush’s
        new tariffs create more enemies and antagonize friends at the very time
        when the U.S. ought to be doing its best to win friends and influence
        people in the direction of freedom. Let there be no talk of the
        “fairness” of these tariffs. Here’s a better description of them: a
        shameless act of mass thievery.

        • Don L

          ISLAM REQUIRED NO TRADE ANYTHING TO KILL!

          Even as you asked I knew you’d go there. I tried, obviously unsuccesfully, to head you off taking the Republic down the Ron & Rand Paul terminal risk trail but there you go skipping along.

          The Pauls are christian. They will not give up their god and christ. Their conflicts with Austrian econ revolves around their religious attitudes, as do many theist Austrians; famous among them was Rothbard the anarchist. Their problem is over the primary Austrian premise of human action – people act out of self interest – selfish. OOH, god’s pissed.

          The Pauls believe the Iranian Mullahs are rational and won’t follow the DICTATES OF THEIR VILE ISLAMIC FAITH; the Pauls never explain why they won’t. If they are wrong then we are at terminal risk because the mullahs have assured their allah they intend to destroy Israel and us even if they lose their own lives (a suicidal state – suicide bomber extreme). The Paul’s have no right to impose their “THEORY” and place us at terminal risk.

          You are right, neither Mises nor Hayek indicated anything good about tariffs, per se. They spoke of the theoretical and they are correct. And, again, yes there will be consequences of negative effect for imposing these specific NON CRONY, NOT PROTECTIONARY, NON REVENUE GENERATING tariffs. To what degree I haven’t the info to know. But, our Republic without the means to make things out of aluminum or steel … well, that’s right down there with the idiocy of Chamberlain; peace at all costs is no different than no tariffs at all costs. Just as Hitler rose, China, terrorism, Russia, et all will have a field day with us.

          In your world view there are no enemies? There are. Do you think they sit in their war rooms and say, “Nope, we can’t destroy America, they didn’t put on tariffs.”. There was a spokesperson for the Ludwig von Mises Institute, Jeffrey Tucker, an Austrian but primarily a libertarian like your quoted Lew Rockwell (you kept equating their libertarian comments with Austraian econ – anything can be twisted), that actually advocated and defended, in his book “Bourbon for Breakfast” that America ought not defend itself against any invader. Just lie down and take it because THEORETICALLY, they won’t last long as invaders because their economy would crash and burn. And, that is absolutely theoretically true. Do you want to watch your son killed and your wife and daughter raped by gangs of invaders? It’s OK, Mises and Hayek said war destroys wealth so no fighting; which a defense against invasion would be. Tucker’s book other than a couple of other nonsensical notions was a fun read.

          The Pauls, returning, in fact are implementing this very dangerous adherence to this pacifistic theory; abandoning reality and practicality. If somebody is stealing from you, cheating you and intends to kill you are you turning the other cheek waiting to be killed? Or do you take him out first?

          The cost of not doing it is higher by magnitudes than of doing it. Respective of tariffs for defense of defense: if your beer cost 10 cents more, or the refrigerator is $50 more … the Austrian principles are correct there will be a cost … IT’S WORTH THE PRICE. If you don’t agree …go visit, Beijing, Moscow and Tehran and let ’em know that we aren’t in a war with them.

          • liz

            Great reply, Don! And you’re absolutely right – the idea that terrorism “began with a mass murder driven by revenge against persistent U.S. trade sanctions” is a load of B.S.!! As bogus as Obama’s B.S. that it’s caused by poverty and unemployment.

            • Don L

              At the same time, America’s adventurism did not help. Teddy Roosevelt, McCains hero, was the worst of the lot. Thanks Jeanne er Liz. ( I don’t know if you know. A few articles back I was replying to Jeanne but typed your name – never a good thing to call a woman by another woman’s name – phew it wasn’t in one of ‘those’ moments! And, she justifiably took it as a compliment.) Later Liz.

          • Cogito

            I’m neither advocating nor defending the Pauls’ viewpoint. I am advocating the position held by the Austrian school which, unless I am mistaken, is definitely anti-tariff.

            • Don L

              see my reply to Zerothruster. Thanks

          • Zerothruster

            Well said, Don.
            Just as the Constitution was not originally intended as a suicide pact, free-market economic philosophy should not be practiced without regard to national security. I think you are right to point out that Austrian and doctrinaire Libertarian doctrines are not always the same. Hayek for instance supported a limited social welfare framework, and even Milton Friedman at one point could support a federally guaranteed minimum income, or negative income tax (I think Hayek also did at one time.) Especially important is the strategic materials argument. You make those points contra doctrinaire libertarians like Jeffrey Tucker and the Pauls very well. Thanks.

            • Don L

              Thanks. This is for Cogito also:

              I do want to be clear on the topic of the economic principles/rules/laws. Cogito is right as to tariffs, motive irrelevant (a tariiff is a tariff – at least a justifiable reason eases the swallowing). Tariffs do have negative impacts on an economy. Absolutely true.

              That said, An economy unable to produce basic raw materials, in a world loaded with enemies, because of egregious and failed government interventions (all gov’ts) in the economy (as opposed to company-to-company or industry-to-industry competition) will not have an economy to worry about being negatively effected. Tariffs do not exist in a world alone. There are trade offs: Cost-Benefit.

              The argument including the Paul’s was to illustrate the ignorance of adhering to a thing to your own destruction; as they, like the left and libertarians, do. Unfortunately, Cogito seems to dismiss practicality and real world reality in favor of myopic only “what you see” – a violation of Hazlitt’s principle of seeking to understand ALL the consequences. It isn’t just guns and bombs not made – it’s no capability to make machine tools, a saw, pliers, etceteras – capital equipment with which to grow the economy – if the invaders leave us one.

              And, as of this AM (04-10-2018) China blinked and concedes considerable ground to Trump’s strategy. China knows, as Trump has oft touted, they are absolutely in the wrong. Now if we could just get gov’t, altogether, out of the econ intervention business!

              Just consider how much wealth China lost trying to take out our critical industries – They’ve been Trumped.

            • Zerothruster

              Another item to president Trump’s credit is the way he’s backed domestic energy revitalization, rather than leave us at the mercy of foreign oil, etc. Though most of our imports come from Mexico and Canada, that’s no excuse not to make the most of resources closest to hand. A strategic material if there ever was one.

            • Don L

              added a PS

            • Zerothruster

              Just as a PS, a couple of random thoughts on the side:

              The Libertarians who advocate (or demand) a gold standard are guilty of advocating governmental price-fixing, no? Multi-commodity standards of currency value arise naturally, is my untutored opinion (for what its worth). In an extended market order, currency values are also stabilized with respect to each other (as well as with respect to commodities.)

              Also, the thing I find philosophically most elegant about the Austrian school is their essential insight that the institutions of a free and prosperous society are the results of human action, but not of human design. That actually goes back to Adam Ferguson during the Scottish Enlightenment

            • Don L

              It is my impression that gold standard is not desired – a return to what restricted but didn’t cure the problem of currency inflation. No, No – a return to gold and/or silver – not a standard but the real medium of exchange, just as human action determined over thousands of years. The only inflation coming ONLY from the discovery of new gold – not out of the air. Discoveries which benefit those that found it, not the bankers and cronies that print (digital) it.

              And, you’re right. All this stuff is historic. The Austrians pulled together the best of what worked and could be explained from over 500 years of study and then Carl Menger and his student good ol’ Ludwig solved the remaining questions.

            • liz

              Good point about the Constitution – and a free market – not being a suicide pact. The same can be said about free speech.
              Other nations, such as China, are taking advantage of the principle of free trade and are using it against us, just as leftists and Islamists have taken advantage of constitutional principles, such as free speech, and used them against us. Now we have no free speech – only “hate speech”, or leftist/Islamic compliant speech.

    • I quote (with some adjustments to aid abbreviation):

      President Trump last week raged about China’s high tariffs against American products. The Mainstream media breathlessly predicted a devastating trade war – one the MSM gleefully declared the U.S. would lose. The exact opposite has happened. Today Chinese President Xi Jingping announced plans to “open” China and vowed to “significantly” lower tariffs on automobile imports from the U.S. “China does not seek trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account,” Xi said at the economic Boao Forum for Asia.

      http://trumptrainnews.com/articles/trump-gets-china-to-concede-on-tariffs

  • Economist Mark Skouson writes at TownhallFinance:

    I presented two papers on Austrian economics at the annual Association of Private Enterprise Education (APEE) last week. One was called “Squaring the Mises Circle: How to Integrate Austrian Economics in the Classroom and Mainstream Textbooks.” The other was entitled, “Measuring Hayek’s Triangle: Gross Output as the Top Line in National Income Accounting and a Leading Indicator.” In both presentations, I talked about gross output (GO) as an important breakthrough in accurately measuring the economy. It demonstrates that business is the key catalyst in determining the direction of the economy and our standard of living. .. I began my lectures by pointing out that I’ve spent most of my career trying to teach, write and incorporate Austrian economics in my financial newsletters and classrooms.
    My book, “A Viennese Waltz Down Wall Street: Austrian Economics for Investors,” suggests that the stock market is not a random walk down Wall Street, but a dance — sometimes fast like a Viennese Waltz and In the book, I talked about the “Austrian indicator,” that predicted the recessions and market tops in 2000 and 2008… What is it predicting now?
    Most economists and financial experts look at the 10-year Treasury bond rate to see if the rate is rising or falling. But Austrian economists, such as myself, look at the structure of interest rates, that is, the yield curve comparing the short-term rates with the long-term rates. Normally, the yield curve is positive. But if it turns negative, watch out, it could spell trouble.
    Fortunately, right now, the yield curve is still positive, so I remain positive long-term about the stock market (bumpy as it is these days).
    Highlights of “A Viennese Waltz Down Wall Street” include:
    • Why the “Austrian Indicator” does a better job of anticipating recessions and market tops.
    • Why gold and silver have become superior inflation hedges since President Nixon closed the gold window in 1971.
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    This book will help you become a better investor. It contains chapters on Menger, Böhm-Bawerk, Mises, Hayek, Schumpeter, Kirzner and Rothbard. Plus, read chapters on Keynes, Fisher, Milton Friedman and many colorful figures in the financial world.
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    • Don L

      In my trading days I could have used the info. LOL. It was the trading that got me interested in econ again … or at all (only had the ‘dismal’ biz-school required 101 college course). That’s when I stumbled upon Austrian econ and my world changed. It screwed up my trading as all I wanted to do was short stocks and the e-minis – it worked for awhile as the Great Recession hit, but as the FED eased ‘quantitatives’ and the market rose – I knew it would crash – hadn’t figured out yet that it didn’t happen that way. $ ouch – an expensive lesson. LOL.

      I can’t help myself. I wrote a review of the movie the “Big Short” which erroneously attempts to explain the Great Recession. Skouson’s Austrian Indicator (new to me) is in essence what the money winner in the movie actually employed to see the fall coming.

      The Big Short (2015): a review:
      Director: Adam NnNcKay
      Writers: Charles Randolph (screenplay), Adam McKay (screenplay)
      Stars: Christian Bale, Steve Carell, Ryan Gosling

      A Review by Don L (Cabby #268)

      Over and over, again and again, repeatedly, never ending … books, articles and now a movie portends an explanation of the cause of the economic crisis named the Great Recession of 2007-08. They do not deliver. Indeed, the movie “The Big Short” does not even come close to describing the cause of the housing/financial Boom & Bust, It ascribes the symptoms of the cause as the cause. Huh?

      Ah, what is the big short? A thread of the movie follows investor Michael Burry who made billions betting against (SHORTING) the market despite the horrendous pressure to get out of the trade. Shorting, by the way, is the trading plan wherein a trader sells a stock/commodity the trader does not own. The law is, the trader must buy/own the stock/commodity at some point … selling high and buying low – keep the difference. If the price rises, the trader loses. This guy made himself and firm billions: He sold high and bought low as the market crashed..

      Now, nothing in the movie about Swips & Swaps, Bundling, No Doc Loans, Balloon Payment Starter Loans, Congressional/Executive
      /Judicial regulation and programs, etceteras … can ever be traced back as actually being the cause of the economic collapse!!! They are things that occurred, but they are in no way the cause.

      The movie presents an incredible view of the behavior, not the cause, created under the economic law called ‘Moral Hazard’. Quite simply, if one knows they will never ever be held accountable for their actions … Grab all the Gusto You Can Get! Slime bags will seduce people into mortgages, slime bags will bundle them, slime bags will buy them and resell them … who gives a damn? The FED has it all covered; just one of many deposits to its cartelized banks … to eventually be paid off by ‘The Tax Payer’.

      Alright, a bit ahead of myself, here are three questions that anyone has to / MUST answer in order to explain how the housing/financial collapse occurred:

      1. Why did EVERY heretofore very successful business decision-maker in every segment of many industries all make the same bad decisions all at the same time? Did anything in the movie even come close to recognizing or explaining this? Nope.

      2. Why did the collapse come in the heavy capital industries first; before it came to the consumer markets? The movie never even mentions an iota of the timing of the economic-actors’ collapse. Not an inkling.

      3. Lastly, given that every economic crisis since 1913 has had the same characteristics as the 2007/2008 Great Recession, Is there an underlying consistent that explains it all? Yes, there is. But, the movie isn’t anywhere near the ball park! Or even same sport.

      The answer to the three questions and the cause of the Great Recession is explained in what is titled the Austrian Business Cycle Theory. Ah, as Einstein’s Theory of Relativity is irrefutably proven and no longer a theory per se, likewise, the Austrian Business Cycle Theory, having been irrefutably proven correct, time-after-time, over more than a century, too has departed theoretical to reside as truth. Only the Lulled, Gulled, Dulled – the incapable and/or duplicitous – ignore, denounce or deny, at their peril, the reality of the Austrian Business Cycle.

      Quickly, here’s the gist:

      There is a law of supply and demand. It is a law just as you never fall UP a building! More of something, prices are low; less of something, prices are high. When this economic law is broken bad things happen!!!

      Another law is that for an economy to function properly, prices must be honest. Prices are the communicating device with which now/later, yes/no and all sell/buy decisions are made. If the price system is distorted, the law of supply and demand is distorted and, again, bad things happen.

      In a free market, buyers and sellers willingly, agreeably and quickly adjust to price variances – self-balancing (Another irrefutable and accepted law). When, however, prices are intentionally manipulated, the market cannot attain balance. All decision-making is distorted. And, the distortion will eventually result in a market collapse as capital has been malinvested by dishonest pricing signals. Another law: There is no free market when every price is being manipulated. It is never the central planners that get blamed, it is Free-Market Capitalism that catches it.

      For Kicks: A year ago you sent a recipe for a cake: 350 degrees for 45 minutes. But 6 months ago the Planners changed a minute to be 97 seconds. If I bake the recipe today, today a minute is 141 seconds, how do you think the cake will turn out? Oh, along with the new times are severe non-compliance penalties … the cake must be baked for 45 of today’s 141 sec minutes. How do you think the cake will turn out? LOL or tear – Hourly wage earner? Screwing with price is just like screwing with seconds in a minute – it doesn’t work!!! Why are there tender laws? Check your fractional fiat dollar bills: the promise to promise to pay you nothing.

      “Any idea that requires a law to protect it from criticism is ipso facto a bad idea.”
      Jillian Becker, Jan 2015

      First, funds for capital investment comes from deferred purchases – savings (e.g. putting money to work while building cash to buy a boat – will you save if interest is zero?). If lots of people are saving then money for lending is plentiful and the rates are low. If nobody has savings then rates are high. The most important price in an economy is the price of money … it must be honest or bad things happen! It effects every other price.

      If you make appliances and it takes several years to build a new plant, the cost of money is very important. If the interest rate is low, it signals that consumers have money available to buy the goods eventually produced by expanded production. Given low rates, the decision is made to build a plant. Had the rates been high, well, consumers are spending everything now and no new plant will be built.

      Then here comes the FED to, politically or other arbitrary fortunetelling reason, drop the interest rate to, say … ZERO!!! FREE MONEY. So, all the businesses with long lead times and heavy capital investment borrow the money and build the plants/houses/etceteras. The FED has created a timing mismatch between consumers, no cash, and producers, bringing new massive quantities and goods to market: plants and stores close and consumers are laid off.

      And, all the new free FED out-of-thin-air money is right out of the pocket of those on the lower rungs – handed over to those on the roof already. Those who get the counterfeit money first benefit the most from greater purchasing power; all behind lose purchasing power as the new out-of-thin-air currency drives prices up [more dollars chasing fewer goods] as it distributes and dilutes existing currency – if you didn’t know.

      Those trillions of borrowed dollars get paid out, deposited, spent and deposited and spent again, as employees and contractors are consumers unintentionally committing economic suicide as they shovel money through the fraudulent fractional reserve currency inflation scheme – the FED. But, everything sure looks rosey. NONE OF THIS HAS ANYTHING TO DO WITH FREE MARKET CAPITALISM.

      (Please see YouTube “Peter Schiff Was Right”. He was always brought around to be laughed and scoffed at. Now, having been proved absolutely right, he is never seen and all those who got it wrong are still trotted out as experts. It is a rigged system…to the left. (The original has been edited to remove the FED Chair, Bernancke, and some mainstream media personalities) https://www.youtube.com/watch?v=sgRGBNekFIw )

      Continuing, in a few years all those new plants and homes show up and there isn’t anybody with any money to buy all this new stuff. Plants close, developments go under and then the employees get let go, contracts are canceled and the bubble has burst. The Planners’ econ theories do not incorporate human behavior or time. That’s why they have never been right. Of course, they never accept blame and it’s their failures.

      This is the pattern. Relative to the Great Recession, had the market been allowed to establish honest prices, no matter the No Doc, What’s Up Doc, bundling or whatever, the money wouldn’t have been available for the excesses that occurred – the rates would have been too high for the fake demand. The signals to build would not have been sent. No Bubble, No Burst.

      To correct and balance, the bad investments have to go away. The banks should have been allowed to fail. Yes, the 401Ks were saved, temporarily. Had the bad investments been cleared out the markets would have roared back, as they have when government isn’t involved … the people and capital is still in place ready to work again, immediately. Unfortunately, the FED is doing exactly what caused the problem in order to delay the inevitable. The more they inflate the currency and distort prices, the worse the eventual fall will be. The current levels of the DOW are the visual of the distortion. Relatively, not a penny of the growth is because of productivity or innovation or organic market forces. (It is all debt driven consumption and the bill will come due … it always does! It’s a law.

      If your explanation doesn’t answer the above questions, then you don’t have a solution and your economic theory fails. In fact there isn’t another school of economics that can explain the econ Bubbles & Bursts other than the Austrian School: Again, it has been correct 100% of the time for over 100 years. Not Friedman’s monetarist Chicago School nor Krugman’s Keynesianism have a clue – ‘animal spirits’ is their answer; as if that’s an actual thing.

      Summarily, it’s another movie that misleads in favor of the left. All we need to do is regulate, is the drumbeat. And, the ‘how immoral business people are’ is included as well. Lefty celebrity cameos (the dunce Anthony Bourdain is an expert on?) regurgitate central planning and regulation dribble. Yet, I enjoyed it, but I know the difference. Others, unfortunately, will continue down the left’s inculcating course of Lull, Gull and Dull America.

      Keynes Must Die that America May Live!

      Oh, The guy who made the billions shorting, he was one of only a few … just good observation and common sense: Free money isn’t a good idea for a healthy economy. You don’t even need to know the Austrian Business Cycle Theory to figure it out. All others, Lulled, Gulled and Dulled by the drumbeat of lefty failure music: quiet the FED is about to speak. LOL. Buy Gold.

      • Don L: Have you thought of writing a book about this?

        • Don L

          Cogito got me to blush. Now you go and swell my head: a bright red balloon on my shoulders.

          As my friend Bernie used to say, “Oy, vee shud tawk?”.

          .

          • The Burro

            Well, well, Don L! It is a pleasure to see such manly fortitude in the face of the leftist onslaught all around us!

            • Don L

              Hi Burro. Thanks. Been awhile. Hope you’re well.

              The left is defenseless against the reason and deductive logic of Free-Market Capitalism …as you know!

              Nice to see you out and about.

  • Don L

    When I was a youth, many decades ago, I recognized and incorporated a seeming insignificant truth: “We never think about things we don’t think about”. Initially, it was a device to facilitate listening (on the other hand) to others. Now, It doesn’t seem profound yet I began to see its implications: it is the law behind why mainstream economics IS, intentionally, the dismal science! You are never to know about free-market capitalism. Heck, you might figure out how you are being robbed by the criminal “Gang of 545: 1 pres, 435 reps, 100 senators and 9 justices.

    Continuing, mainstream economics came into existence along with the FED. I’m not about to reinvent the wheel. I beseech all to acquire and read “The Creature from Jekyll Island : A Second Look at the Federal Reserve” by G Edward Griffin. You will discover how the initial Gang of 545 (the progressive Woodrow Wilson and the Democrat-controlled 63rd Congress in a cabal with unscrupulous and deceitful cartelized-bankers imposed the fractional reserve banking scheme by which America was and is being robbed blind: the greatest theft in world history.

    And, to conceal their criminality, they conceived words, expressions and all manner of unintelligible, obfuscating and misdirecting concepts understood only by the criminals themselves (quantitative easing is misdirection for currency inflation (creating money out-of-thin air) that lowers the value of every dollar in existence; benefiting those who get the new money first; and, by the time the money distributes through the economy the poor pay more for the increased prices with dollars worth less – two taps. Of course, they need stooges to carry out the dirty work without they’re realizing they are dirty. Enter the failed weak brain candidates for a degree in the NEW economics.

    Consider that the mainstream econ schools offer only disjointed, incomplete, incomprehensible, contradictory and nonsensical theories. So, what kind of candidate goes for a phd and how is it acquired. Simple, brown nose the idiot prof and memorize the stupidity – pass the totally make believe economic test and voila. Then like the self-embarrassing Austan Goolsebee, you to can advise an Obama … a Bush …even Trump (his econ guys are ALL central planners – Kudlow is another Friedman monetarist.

    So, if one understands that you cannot spend your way out of debt – why does anyone listen to the experts that sell the opposite? Why? Because all are instructed to beleive they aren’t smart enough to understand economics. In deed, do a test: Ask people how they feel when they hear the words economy or economics. Talk about Pavlov conditioning. The responses are near universally negative. a free economy IS freedom from government – it IS liberty and prosperity and nobody even wants to know about it.

    The following video is the most important video you can watch. Yes, the topic is about economics. No, you don’t have to understand all of it. What’s important is seeing how rigged the system is – the guy who is right is only brought out to be laughed at by the mainstream business media and the foisted experts: Reagan’s Chief econ guy Art Laffer is a laugh … a joke!
    Peter Schiff is an advocate and adherent to Austrian economics. Like all the Austrians that know economics, the collapse of the bubble created by the Greenspan/Bernacke principles is obvious. Not knowing what idiocy the the FED will do precludes knowing when the burst will come, but IT WILL COME – it was the 2007-08 Great Recession.

    Watch how the talking heads and the “3rd-Party Authorities” behave, Obviously, as we watch we know they are all wrong. Yet, these same horrendously wrong experts are still trotted out to spew stupidity. If you don’t know about fre-market economics, you can’t think they are wrong. Peter Schiff is never brought out as an expert – the only guy who was right cannot be allowed to reveal truth.

    NOTE: the original video has been edited to omit many of the not FOX talking heads and the total ommision of the Ben Bernacke segments.
    This is how the lies are promulgated; along with the corrupted schooling:https://www.youtube.com/watch?time_continue=18&v=sgRGBNekFIw

    • Jeanne

      You are correct, Don, “we never think about things we don’t think about.” It is good that most everybody has something that they think deeply about and understand, but go further and act on it, else we would have no advancement at all. When “things” get twisted and complicated with hidden agendas and then thrust upon the regular folks, who think mostly on their area of expertise and who change diapers and raise food, police communities, drive taxis and check out customers, and all the while the people twisting things present it using a language designed to befuddle the unwashed masses…well there we are, stymied and betrayed by the experts.

      Where do we go to from here? Who has time to commit to revolution? Seriously. Can any meaningful change be made now? Or…do we just hold on and ride to the end, while trying to hold our own families together, safe and sound as possible? Then hope our children and grandchildren can pick up the pieces and try again.

      • Don L

        Liz, YOU ARE A CHANGE AGENT. They don’t all like or comment, but your commentary reaches those you speak of. They tell others and so it goes. We don’t need pick up weapons. Merely speak and write.

        • Jeanne

          Thanks for thinking it was Liz who posted. No…really, that is a compliment to me. Been trying to be an agent of change in my spare time for many years, but usually feel inadequate to the task.

          • Don L

            LOL, It was a slip. I knew it was you by the style. Your empathy for the folks always comes through. You are more than capable … and, you have experience in the area given the political world you live in. Keep at it!

            • The Burro

              To add to the various responses: the Jekyll Island book can be read at:

              https://archive.org/stream/…/The%20Creature%20From%20Jekyll%20Island_djvu.txt

              The djvu indicates some Russian compressed form of file, and it should open at once on access. However, in my experience should, is, of course, a conditional tense so anything can happen. I suspect given the news you will be contacted on unzipping the file by a gentleman from the Russian Embassy asking if you want photos of Hilary Clinton in a compromised position. That would mean her talking common sense, or worse, Pelosi constructing a sentence with a verb, subject, and object. This could be the end of civilization as we know it.

              On another note, the recent tome by Sumner on the Depression, as in 1930’s, shows that the effect of the Smoot-Hawley tariffs amounted to 6-7% of the depression if % means the degree of price fall. Not a lot, but a bad day if concentrated in specific areas. Sumner concludes the French were 50% responsible, the USA about 20-25%, the UK 12-15% and Germany about 12-15%. I just love giving the French their full desserts. I reckon we should never have let them off after Agincourt, and the Depression would have been avoided 514 years later.

              Last again, after digesting just about all the major works on the Depression (1929 to 1933) I can state with great authority it was caused almost entirely by government action. Suffice it to say that while the French were very responsible, the other governments could have taken offsetting actions and massively mitigated the ultimate collapse but did not. Worse, the Central Banks utterly misread the signals and did exactly the reverse of what they should have done. What the Hell? They didn’t lose their jobs did they? The elite never do………………………

              If you have not already consumed the text, the Lords of Finance gives a superb account of the characters involved, and is truly a fantastic read. I could not make the stories up it contains even if given a vast stipend by the Democrats and three years to contemplate the story. All paid with fiat currency of course………………………and what is that worth?

              Final last word: the velocity of circulation has collapsed. It look as if the FED is now FED up and out of hope. It promises to be an interesting 2019.

            • liz

              Very informative also! And thanks for the book recommendations. I’ve got to read “The Lords of Finance”, now! That last remark on the FED is a positive hint, I hope.

            • The Burro

              The book is tremendous fun. The characters are literally almost unbelievable, yet are real. As you will find, my favourite scene is the one where a certain central banker, travels incognito under an assumed name gets interviewed as the person! I was weeping with laughter and yet, all true. Enjoy! Sumner is a little tough and more an economists’ text.

            • Don L

              Had they had the com capabilities as today – A___ge and the gang could not have manipulated the various bank calamities and put this conspiracy together.

            • The Burro

              I see you said, “what could they do?” above Don L. That is like throwing the red cape in front of the bull!

              Here is what happened and could have happened.

              The role of a central bank (CB hereinafter) is to be a lender of last resort. That means, to lend to financial institutions which are undergoing a temporary “liquidity crisis.” What is that? A condition where, temporarily, an institution has insufficient cash to pay the brothers pounding on their front door for deposit repayment. It must have collateral which is good enough to lend against, such as government bonds, so it can put up the collateral and get cash from the CB. It then pays the pounders until they go away and the situation stabilizes. Institutions which are illiquid qualify. Those insolvent do not as they are losing money under normal conditions and should go bankrupt.

              Whether we like it or not, the FED existed in 1929. Thus, as the CB, it should have provided liquidity to the financial system. How could it do that? In two ways: first, take collateral at the discount window in exchange for cash, and second, move into the financial markets and buy government bonds. These action supply the institutions with cash, maintain the money stock which is then multiplied by the banking system and offsets the move by depositors to get cash and shrink the stock and supply ie the opposite.

              Now you be the judge of the FED actions in 1929 to 1932.

              In 1928 the FED became concerned about the stock boom. Quite apart from the fact its action had encouraged the boom in prior years, it began to tighten liquidity. This came at an interesting time in history as just about all significant economies were also tightening in response to the first world war and its aftermath of inflation. Most were trying or did return to the gold standard and France, in particular, enacted very stringent means to boost its gold holdings and between 1927 and 1932 the portion of world gold hoards held by the French government went from 7% to 27%. In other words, world monetary conditions were tightening, and as France did not take any actions to monetize its gold, ie print equivalent francs and use them to purchase bonds, this was a net reduction in WORLD money stock and supply.

              The correct action would have been to recycle these reductions through inter-country loans, or actions within each country to expand their money stock or supply. The FED did neither.

              I leave as an unanswered consideration the approach I find very appealing. Invade France, seize the gold, and then give it to each American as a good-will gesture. Helicopter money in 1929!

              Next, in 1928 Benjamin Strong, the experienced banker running the Fed died. While argument continues as to whether his death affected anything, it can be said he was very aware of the price level falling with a decline in the money stock or supply. It is worth looking as a quote from an observer after Strong died, “ When it (ie the FED) did act, they argue, it was to promote the interests of commercial banks, rather than economic recovery. Anderson, Shughart and Tollison emphasize even more the Fed’s interest in aiding its member banks. They argue that monetary policy was designed to cause the failure of nonmember banks, which would enhance the long-run profits of member banks and enlarge the System’s regulatory domain. “

              In simple English or American, that means the FED was being run with a view to helping member banks and damn the consequences. Nice!

              Interest rates had been falling since 1921, in the aftermath of the Harding Depression (and a very interesting one it was too). The FED misread this as “sloppy” excess money pushing rates down. It did not seem to strike the bosses it could also mean tightening monetary conditions as shown by our French friend’s actions. However, the policy of raising rates continued until October 1929.

              In 1927 or 1928 the FED then constricted money supply by selling 75% of its holdings of government stock – not exactly providing liquidity. By mid 1929 the economy in the US was showing all signs of a recession, yet the rate rises continued. As 1929 progressed, the rate for overnight money began to rise sharply, and went from 4% to 14%. In August 1929 the FED rate was upped from 5 to 6%. Most of this money was for stock speculation, and in 1929 one could buy $100 of stock with $10 down. As the rate rose, selling was flushed out and the following cycle started: selling – prices fall – collateral for brokers’ loans fall – brokers call clients – clients sold out – more selling – more price falls.

              The silent implication is that finance for investment evaporates and thus investment falls.

              With this Doomsday scenario unfolding, the FED incredibly continued its actions. If inflation had been going wild one may have understood its actions, but the price increases at the consumer level were: 1928 0%, 1929 (-2%), 1930 (-4%), 1931 (-10%), 1932 (-11%). Furthermore, if you believe in any relationship twixt the money stock and prices how about money stock: October 1929 $7.3 billion, October 1930 $6.8 billion. Again, all the wrong way.

              After the initial crack, in 1929, the situation actually stabilized somewhat. The sharp fall in stock prices caused the Fed to offer capital at the discount window for banks suffering from broker loan liquidation. The New York Fed even bought USG securities to inject liquidity into the banking system and cut the discount rate by 1% on 11-01-29, and a further 0.5% on 11-15-29. However, within a few months it was over-ruled by other member banks and the injections stopped.

              As a recession took hold, Hoover started jawboning firms to keep wages up and coupled with the deteriorating monetary conditions, profitability of corporations fell sharply. This scenario started: costs constant – price fall – managers wait – profits fall – managers start to cut variable costs – prices fall more – managers attack fixed costs – managers start closing entities. Once the banks began to fail in 1930 and loans were called, the doors had to be closed on many companies.

              The FED did not act to offset the obvious decline in prices, the money stock or money supply, preferring to adjust downwards interest rates. The speed it did so at was slow – ½% on 02-30, 03-30, 05-30 and 01-31. It then INCREASED rates by 1% on 10-09-31, 1.5% 10-16-31. During this time the actions the FED took were designed to assist overseas countries such as England, and preserve the gold standard. Very little, if any, concern was expressed for the price level falling or the money stock falling. As Meltzer put it, “ (I) found that the Fed leaders spent very little time looking at the sharp decline in the money supply, although in late 1931 and 1932 they began to note signs of currency hoarding and the holding of excess reserves by banks.”

              In a nutshell, the FED did just about everything wrong to 1932. Between 02-32 and 06-32 the FED purchased $1 bn securities. Had this injection been made in early 1930, it is generally believed the Depression would not have occurred. Various models run with cash injections of $1 to $2 bn suggest any recession would have been mild at worst with a decline in GNP of 4 to 8%. The actual was 46%.

              Contrast this with the 1920 – 21 Depression. Here, in spite of the incredibly fast price fall – twice to four times that in 1929 to 1933 – and the fastest in 140 years, plus again utter incompetence in the FED causing a restrictive monetary policy pushing up rates to 7%, unemployment failed to get over 12%. The 1930’s peak was 26.8%. One leftist economist, Romer, even set unemployment at a low 8% high. The government slashed spending and cut the government size around 50% and then slashed taxes. In 18 months the economy turned around and a boom stated lasting eight years with minor oscillations. The government essentially stepped aside. The comments made by Harding are astonishing in modern political times. Who among the chosen in the Congress would ever dare to tell the constituents, “ We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity,” or “ Let us call to all the people for thrift and economy, for denial and sacrifice, if need be, for a nation-wide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the Republic.”

              And finally, the FED repeated the mistakes in 1936-1937.

              Time for abolishing the FED anyone?

              The Burro

            • Don L

              Oy, my error. My “What could these countries have done?” comment is normally uttered with a shrug of the shoulders and a raising of the eyebrows; thereby conveying the underlying meaning: Anything they do will be wrong (understanding they exist and will do something – the fools).

              You lay out, perfectly the FED’s, unconstitutional and not in their own mission statement, intervention as lender of last resort. There was, however, a 3rd option other than “collateral at the discount window in exchange for cash” or “[moving] into the financial markets and buy government bonds”. They could have learned and implemented the same action as they did in the depression of 1920: DO NOTHING!

              Your understanding of the FED plumbing is excellent – so what? That this immoral monstrosity exists, and has the Republic, the world by extension, by short hairs is the problem; notwithstanding the things they can or can’t do, anything they do do, except disbanding and returing to sound money, will be criminal and economically hurtful.

              Again, BURRO, you lay out their failures perfectly and prove two important notions: (1) Hayek’s “Pretense of Knowledge Fallacy” – no person or assembly of persons can ever ever know enough to manage any part of or the entirety of an economy (Piketty nonsense: http://theatheistconservative.com/review-the-savior-of-socialism-proves-the-worth-of-capitalism/ ; and, (2) End the FED!

            • Don L

              I trust you on Sumner (only the martinis are dry) and just ordered the Lords.

              I’ve always been curious about the velocity: Who actually knows how much currency (including coins et al) is out there to make the calculation (no FED audit and they don’t tell). And, is it not another construct toward econ manipulation, like the externalities stupidity of the perfect economy (sans humans where a crime is not and property rights are negated).

              Putin may be tee’d off – link out.

              What could these countries have done to stop the crash? After all, the malinvestments had been made they needed to be cleared. No gov’t should have done anything. Yes, that they did just made it worse. Back then, at least there was still a constraint on the dollar as it was still linked, temporarily, to gold. Not, however, on interest rates which created the crash.

              The FED’s actions of easing the “quantitatives” (LOL) after the surprise financial/housing collapse … the fall coming is extremely worrying. How many stupid moves does the FED have left to keep their monstrous bubble inflated? Scary they keep trying.

              Thanks Burro

      • liz

        Yes, as the saying goes, “you can’t fight city hall.” It’s very hard to keep a positive attitude that change can be made when you find that kicking the bums out of office (hard enough to begin with!) is really only a surface change. The ones in real power, controlling the FED behind the scenes, aren’t about to give up control. Who’s going to make them?

        • Don L

          The people, when enough lights get turned on and return to sound money – gold and silver – it’ll cut off any holds they had. And, the people will also know the standards against which to judge a candidate. Today, it’s a guess and a (gulp) prayer. Or, your vote doesn’t count because you don’t know what your voting to even have done.

        • Jeanne

          The power at state and federal level is held by those elite establishment officials, who control so much that it barely matters when a new Governor or President is elected. Term limits for Congress and State Assemblies sounds about right.

          • Don L

            Right on. (dating myself with that one). Term limits, including all the judges, and repeal the 17th Amendment. It severed Senators from their states and that was the final straw that broke any check and balance on the central government. Senators used to be picked by the respective state governments – not a popular vote. They were the free and independent nations’ ambassadors to the federal/limited government. Now, senators represent self- and special-interests. States are wards of the central government. There would not have been an Obamacare had the Senators acted as their states wanted them to.

            • Jeanne

              When I found out about the 17th amendment, I was stunned. I could not agree more.

  • Cogito

    Who the hell id Don L anyway? Where has he been hiding? This is a marvellous introduction to market economics, but more please!

    • Don L

      You make me blush. Thanks!

  • liz

    Very informative!