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A Critique of Milton Friedman and Monetarism


I am afraid that I must warn you from the outset that this post is going to be both very involved, and very lengthy. Consider yourselves warned.

Milton Friedman has done some very good work, to be sure, but unfortunately, Milton Friedman and what is today called “Monetarism” has many short comings. Before I start, however, it is important that you watch this entire video before reading on, as nearly all of my critiques of Friedman will be drawn from this video. The video is part of a television series that Milton Friedman did in order to combat the rising tide of Socialism, called “Free to Choose”. The program would feature a short film by Milton Friedman, then he and several other intellectuals would discuss the film in a round-table format in the Harper Library at the University of Chicago. Here is the video itself.

If you couldn’t tell from the video, Milton Friedman is talking about inflation and the disastrous consequences it has. This film however is a mixed bag. At the start of the film, Milton Friedman is in a ghost town, talking about the gold rush in the Old West. And it is here where we encounter our first big mistake that Friedman makes.

Quote at 2:40) “But a few struck it rich. For them, gold was real wealth, but was it for the world as a whole? They couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold.”

I don’t think that it’s necessary to point out the fact that people wear gold all the time, but Milton Friedman’s distain for commodity-based moneys is readily apparent. He (rightly) points out that as more gold came into circulation, overall prices in terms of gold went up, and then he goes on to say this.

Quote at 3:00) “At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world.

Milton Friedman doesn’t explicitly say it, but it is apparent from the emotional emphasis that he puts on the cost of mining that gold that he considers this entire process to be one big waste. He goes on to cite another example of a commodity money; tobacco. He talks for a moment about the history of tobacco’s use as money in the United States (very interesting stuff, and I say that with no sarcasm), but then he proceeds to make the same case that he makes with gold.

Quote from 4:35) “Now you know how money is; there is a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money, and as always when there’s more money, prices went up. Inflation. Indeed at the very end of the process, prices were forty times as high in terms of tobacco as they had been at the beginning of the process.

In this one quote, we have Milton Friedman’s implicit case against private money; people will rush to produce money in order to enrich themselves, and in the process, so much money will be created that it will cause a massive inflation. Milton Friedman, right from the start, paints private commodity-based money as inherently inflationary, but of course, this logic can be turned on him.

In 1895, it was possible to buy a five pound bag of flour for twelve cents. In the year 2011, you would’ve paid roughly $2.75 for that same bag of flour. That is roughly twenty-three times the price of what you would’ve paid in 1895. In 1890, you could get a ten pound bag of potatoes for sixteen cents. In 2011, you would’ve paid roughly $7.35 for that same ten pound bag of potatoes. That is nearly forty-six times the price typically paid in 1890. In 1905, you could get a round steak (one pound) for fourteen cents. In 2011, you would’ve paid roughly $4.69 for the same steak. That is nearly thirty-six times the price of 1905. Therefore, it is an empirical fact that a non-commodity money like fiat money that is controlled by a central authority of bankers and bureaucrats is inherently inflationary.

Now, Milton Friedman, right about here, starts to actually make some good points. He points out that government bureaucrats can’t stop the bad effects of inflation from taking place.

Quote from 4:57) “And as always when inflation occurs, people complain, and as always a legislator tried to do something, and as always to very little avail. They prohibited certain classes of people from growing tobacco, they tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco, but it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much, and they passed a law making it a capital offense, punishable by death, to destroy other people’s tobacco. Gresham’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay of course tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.

Milton Friedman makes a very important point about the devastating effects that inflation has on the psyche of society in general. As he points out, when inflation occurs, people complain about the increases in the cost of living, and where there are rising complaints about the increase in the cost of living, there is always a legislator trying to write a new law into existence that will somehow solve the problem, but it never does. Wage and price controls only make the effects of inflation even worse, as Friedman goes on to point out in the film.

But, Milton Friedman’s illustration of Gresham’s Law is rather puzzling. It is true that Gresham’s Law has come to simply be understood as, “Bad money drives out good money”, but this is a simplification that doesn’t accurately describe Gresham’s Law. A much better illustration of Gresham’s Law runs as follows:

Suppose you have country in which gold and silver are the legal tender. The government decides to decree one day that any debt equal to 20 ounces of Silver can be paid with 1 ounce of Gold. The problem however is that the actual market rate of exchange between Gold and Silver is 15 ounces of Silver = 1 ounce. of Gold. In response, the debtor will buy an ounce of Gold for 15 ounces of Silver and use the Gold to pay off his debt quoted in Silver. As a result, over time the Gold will disappear and the Silver will stay in circulation.

To really sum this up, it is impossible for two different moneys to circulate together if their conversion ratio is fixed by the state. But, is that what happened with tobacco? Not from what we can derive from Friedman’s account of it. According to Milton Friedman’s account;

Quote from 3:47) “That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made, but in the early days of the Colonies, long before the United States was established, this was money. It was a common money of Virginia, Maryland, and the Carolinas. It was used for all sorts of things; the legislator voted that it could be used legally to pay taxes, it was used to buy food, clothing, and housing. Indeed one of the most interesting sights was to see the husky young fellas at that time lug a hundred pounds of it, down to the docks to pay the cost of the passage of the beauteous young ladies who would come over from England to be their brides.

Simply voting to make a given commodity legal tender doesn’t set off Gresham’s Law. Now it would make sense if the government had set a fixed exchange ratio between Tobacco and some other commodity, like Tea for instance. If the government had set a ratio such as 24 lbs. Tobacco = 12 lbs. Tea, then we could’ve seen Gresham’s Law. Milton Friedman’s account however states that those with Tobacco would pay their debts with the poorest quality of Tobacco that they had, and that they would save their good Tobacco to buy hard moneys from overseas. According to this account of Gresham’s Law, however, any society that has had a commodity money, be it Gold, Silver, Salt, or Tobacco, would live in a practically never-ending state of Gresham’s Law.

Since the quality of the final product is not uniform among the various producers, for example the coins created by two different Gold-Smiths will not be identical in quality, this, according to Milton Friedman, will cause Gresham’s Law since the lower quality coins would be circulated while the higher quality coins would be exchanged abroad.

What has happened here is fairly simple; Milton Friedman completely misinterpreted a given phenomena as an example of something that it wasn’t. While it true that people would want to pay their various debts in the cheapest quality of Tobacco possible, this doesn’t explain why it is that people would save their good Tobacco to sell overseas. The answer is simple; high quality Tobacco was in much higher demand abroad than at home. Because of the high demand for Tobacco abroad, it was much more profitable to exchange the good Tobacco abroad than it was to exchange it domestically. A person with one hundred bushels of high quality Tobacco can get more for it abroad than he can in an area where Tobacco is plentiful. In other words, market forces made it so it is worth it to him to pay his debts in the poor quality Tobacco while saving his high quality Tobacco to exchange abroad.

Now in all of this, let me say that if indeed there was a fixed exchange ratio regarding Tobacco put in place by the government that wasn’t mentioned here (highly possible), then I admit to being wrong, but if there wasn’t, and I suspect that there wasn’t because of the way that Milton Friedman worded his account of Tobacco, then there is no way around it; Milton Friedman was wrong. This is not an illustration of Gresham’s Law.

Later in the film, Milton Friedman makes a very good point.

Quote from 8:18) “Before every election, our representatives would like to make us think that we’re getting a tax break, and they’re able to do it while at the same time actually raising our taxes, because of a bit of magic they have in their kit-bag. That magic is inflation; they reduce the tax-rates, but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effect of inflation. A neat trick; taxation without representation.

Milton Friedman is describing a phenomenon called “Bracket Creep”, and it goes like this. Suppose you have a worker making $30,000 per year gross salary, and pays an income tax of 15%. A little bit of arithmetic shows us that this person, assuming no deductions of any sort, makes a net salary of $25,500 per year. The government then slashes the tax rate to 10%, and they start printing money. The problem is that while they lowered the tax rate, inflation shoves you into a higher tax bracket. Returning to our worker about 6 years later, we see that he now makes $45,000 per year gross salary, but since he’s in a higher tax bracket, he now has to pay a higher tax rate (we’ll say 20% for the sake of the example). Arithmetic shows us that he now makes a net salary of $36,000, but because of inflation, the cost of living has gone up as well so that now he in effect has even less money than he had at the start.

This is called “Bracket Creep”, and it is an incredibly insidious tool by which the government cons us out of our money.

Milton Friedman does us yet another good service, as he then goes on to prove that Unions aren’t creating inflation as higher wages are mostly a result of inflation and not the cause. He also destroys the myth that inflation is imported; that higher world prices drives up domestic prices. And he does us possibly the greatest service that he, given all of his faculties, could do us. He pointed out that inflation is created in one place and one place only; the Federal Reserve Bank of America (or the Fed as it is sometimes called today).

After a history lesson, as well as some examples of what societies with high inflation look like, he then describes to us the reason we have inflation in the United States (or anywhere else for that matter).

Quote from 22:55) “The reason we have inflation in the United States, or for that matter anywhere in the world, is because these pieces of paper and the accompanying book entrees, or their counterparts in other nations, are growing more rapidly than the quantity of goods and services produced.

Milton Friedman has made this mistake repeatedly, and this is by no means unique to him, but he is using the term inflation to mean an overall increase in prices, when in fact it means an increase in the supply of money. To say that an increase in the supply of money causes inflation is to confuse cause for effect; are you running a fever because you’re sick, or are you sick because you’re running a fever?

Today however, many economist (quite wrongly) use two different terms to describe inflation; monetary inflation means an increase in the supply of money, while price inflation means an overall increase in prices. Make no mistake about it, this change in language is far more dangerous than it appears; if you define inflation as an overall increase in prices, then it is easy to get away with increasing the supply of money because the government can hide the price increases in their official measurements (things such as CPI, etc.).

Even if you don’t initially plan on circulating the new currency, even if you stash all of the new money in reserves as a means to boost confidence, that doesn’t mean that there is no inflation, it simply means that you won’t feel the effects of inflation for the time being. When (not if, but when) those reserves begin to circulate, overall prices will go up.

With all of that laid out, Milton Friedman then sets out to explain the “cure” for inflation, and it is here that all of his past theoretical mistakes come back to bite him.

Quote from 25:06) “In 1973, Japanese housewives going to market were faced with an unpleasant fact; the cash in their purse seemed to be losing its value. Prices were starting to soar as the awful story of inflation began to unfold once again. The Japanese government knew what to do; once more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971, the quantity of money started to grow more rapidly. As always happens, inflation wasn’t effected for a time, but in late 1972 it started to respond. In early 73, the government reacted; it started to cut monetary growth, but inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated determination to keep monetary growth in check. It took five years to squeeze inflation out of the system.

Milton Friedman is correct when he says that the way to stop inflation is to stop monetary growth (albeit for the wrong reasons), but his own plan of slow monetary growth has its own set of problems. In the first place, how much would be the optimum amount to increase the supply of money by? And by asking this question, we’ve found the answer to our problem; there is no way to know the optimum amount to increase the supply of money by. The formulae and equations that are used assume away the very answer that you’re trying to find, and what’s worse, the complex equations and formulae gives the intellectuals the appearance of a mathematical precision that they just don’t have. To make matters even worse, to say that we need to control the production of money (slow growth or otherwise) is to effectively say that we need to control the demand for money, which is undeniably impossible.

The monetary economists who are saying that we need to increase/decrease the supply of money by X amount are, in reality, planning in the dark, and while it is true that it is possible to have high inflation with a commodity-based money, it is far easier to have high inflation with a money that can be created at will.

Milton Friedman’s distain for tangible, commodity-based money is easily seen throughout the film. He doesn’t say it explicitly, but he paints private commodity-based money as inherently inflationary, and this same distain causes him to make very reckless mistakes, such as saying that people can’t wear gold or misdiagnosing a case of Gresham’s Law.

While there is a lot of good in the above film, I’m afraid there is just as much bad in it as well. The film is, as I said earlier, a mixed-bag.

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The Economics of Mass Manipulation


It is not unusual that we hear cries in the media about there not being enough jobs. A standard jobs rant runs something like this; “The government’s plan isn’t creating jobs, it’s destroying jobs! We need a new policy towards creating jobs and stimulating employment!”

This complaint is flawed in that it uses the very general term, “jobs.” What kind of jobs in what sectors? Should they be full-time jobs or part-time jobs? When you say that “We need jobs!” you’re actually creating far more questions than you’re answering.

MarxistMax responded to my piece here, and it is apparent that he entirely missed the point of my last post.

Quote from MarxistMax: “The Conservative Party is funded by the rich, staffed by the rich, and works in the interests of the rich. It was in the interests of the rich to slash the heavy industry of the north, and unleash the monster of the London financial markets. That’s why Thatcher did it.

The Conservative Party destroyed many northern communities in the 80s, and it will take more than a few environmentally destructive, ground shaking, water-supply meddling Fracking wells to revive those communities again.

This is what he started with, and I must confess that I am wholly ignorant to the Thatcher administration. But, I will say this; all of this completely misses the point. The point of my last point was to point out that all of the so-called green jobs, like those jobs such as fracking, have environmental trade-offs. I mentioned the wind-farms upsetting the ecosystem by killing thousands of birds, for instance. So the point is this; the government taking over the energy industry and investing in so-called “green technology” isn’t going to make us safer or healthier, since all of the “green technology” so heavily touted by environmentalists each have their own environmental trade-offs.

Now with regards to it being within the interests of the rich to keep us dependent on fossil fuels, let me ask you this MarxistMax; aren’t there rich people in the “green energy” business who have a massive interest in government funding of “green technology?” You are subsidizing the interests of the “rich” no matter what you do. If you say the government should nationalize the energy industry, then it can only do so in one of two ways; either it must, using public funds, buy the businesses from those businessmen who own said industries, or it must seize them forcefully from those said businessmen. But even if you nationalize the entire energy industry, the government will still have to do business with those parties outside of the energy industry, and the extortionist, backroom deals that will ensue from this will know no bounds and no ends. The interests of the “rich” are once again subsidized.

MarxistMax, right about here, changes direction; he says that the green sector is more “job intensive” than the carbon-based sector (which may or may not be true, I don’t know), and that we need the government to invest in the green sector in order to create jobs.

Quote from MarxistMax: “The fact is that the green sector is more jobs-intensive than the carbon sector. We are in a time of economic crisis. Jobs are needed more than anything. Opening up the fracking wells will introduce some jobs, but not nearly so much as pursuing our carbon targets by investing in green energy.

The argument is often put forward that prices will be lowered due to market competition, because don’t we all want to help the little grannies in the winter time? There is a shed-load of evidence that the economic conditions of the US are not compatible with the UK. If we were to get started on green infrastructure and jobs now we will be in a much better position for the future.

Notice here the massive shift-in-direction that MarxistMax just pulled. In his last post, he was saying that it is imperative to get away from fossil fuels on the basis of environmental concerns. Now he’s saying that we need to invest in the green sector on the basis of job creation.

First and foremost, there is what is seen and what is not seen. What is seen is that, yes, government spends money creating jobs. What is not seen is that when the government takes it’s revenue, it by necessity destroys an employment opportunity for someone else, so the actual net balance of jobs created is zero, if not less than zero.

Let’s say for example that the government imposes an extremely punitive tax of 50% on the consumption of fossil fuels in order to invest in the green sector. If a person on average consumes ~$500 per month in fossil fuels, he will have to pay an additional ~$250 per month as a result of the tax. The result is that he will have to pay a total of ~$750 per month in energy costs. Assuming everyone pays this incredibly punitive tax willingly, the government will use this added revenue to invest in green technology. You will look at this and say, “We’re creating jobs!” but what you don’t see is what the consumer would’ve done with the ~$250 taken away from him through taxation. The ~$250 taken away would’ve created employment for another business at a later date.

The same benefits of “job creation” are present even without the tax. Ah, but you might interject, “We actually don’t want them to pay that punitive fossil fuel tax, we want people to invest in alternative energy on their own and avoid the tax altogether. The tax is just a failsafe to see to it that investments into green technology are made.”

But even in this instance, you’re still not actually creating jobs. If the demand for fossil fuels shifts to alternative energies as a result of the tax, then jobs will disappear in the fossil fuel industry (creating unemployment) as jobs in the new green sector begin to boom. You’re merely transferring jobs from one sector to another sector, and this creates its own set of problems.

When it comes to employment, there is always one extremely important aspect of the economy that is left in the lurch; the structure of production. It is absolutely essential that the structure of production is resting on a sound foundation. If the structure of production is upset through out-right consumer manipulation (the attempt at making consumers invest in green technology so as to not pay an extremely punitive fossil fuel tax for instance), artificial credit expansion via fractional reserve banking, etc., then whatever jobs are “created” will be nothing more than a flash-in-the-pan. They have no substantial future; in a given number of years, those jobs will disappear from the economy altogether and the same people screaming that we need jobs will be back in the media once again screaming the same mantra, “We need jobs!”

There is one final issue to address with the sort of manipulative policies addressed earlier; people are not pawns on a chessboard that you can move at your whim. You’re looking at society as if it were a chessboard and saying, “if only we could get a smarter player to move the pieces. Then we could achieve results X, Y, and Z.” Before you interject and say that this is a strawman, let me remind you of what you wrote.

Quote from MarxistMax: “The energy industry should be nationalized so that the government can take an active hand in guiding the industry from carbon-intensive means of production towards green energy. Only by fully owning and controlling the industry can this be achieved. Only then can we invest properly in wind farms, offshore and onshore, in solar panels, and in geothermal energy.” (my italics)

Since it is not a strawman to say that you hold this view (when you blatantly do), let me now ask you this; how many men throughout history have looked at the whole of mankind with grand visions of regimentation and guided production, and how many people died because those same men tried to implement these grand visions? They believed that they could instill all-around regimentation within the life of man, and the result has always been mass poverty, mass murder, and mass political corruption. They manipulated the world around them as though they were God, they instituted their vision because they thought they were the ones who would save civilization from inevitable collapse, and the people at large are the ones who paid the price.

The last point to be covered with regard to MarxistMax’s post comes to us in the form of a rant about competition.

Quote from MarxistMax: “We must stop this obsession with competitiveness! The US is our economic superior (why?), and will be for the foreseeable future, we simply mustn’t let some childish international race to environmental destruction force our hand in this matter.

You will notice from the question of WHY that I injected into the above quote that he never actually questions the reason the US is economically superior to the UK. Competitiveness makes things better, and cheaper. If you do not have competition, you only have monopoly, and getting rid of competition would only make the super rich even wealthier.

Money = Debt, Debt = Money? Nonsense!


Modern day Keynesians (and Zeitgeist advocates) operate under this very absurd assumption; some proclaim it outright, but others say it indirectly. An direct statement of the above proposition that Money = Debt, and vice versa, goes like this.

Quote from Mr. Keynesian: “Money by its very nature is a claim on society; it is a token of a debt that someone in society owes. Even according to such crazies as Mises and Rothbard, money is proof that you have served your fellow man. If you performed Service A or sold him Commodity B, he pays you in money. Money isn’t good for anything else other than facilitating trade, and since it isn’t good for anything else, it is by its very nature a token of debt; an I.O.U., as it were. As one such insane bastard, Walter Williams, put it; when a man goes to a store to buy an item (let’s say a pound of beef for the sake of argument), the employee of the store asks the costumer, “Have you served your fellow man to the tune of $5” The customer replies back, “Yes, I have served my fellow man to the tune of $5, and here is the proof”, and thus the customer hands the cashier $5 and he receives the commodity. This entire exchange is, ultimately, nothing more than buying/selling debt in exchange for some tangible commodity; the store bought $5 worth of debt in exchange for a pound of beef, and the customer sold $5 worth of debt in exchange for a pound of beef. This is the fundamental reason why debts don’t really matter; money is, by its very nature, debt. Crack-pot Austrians love to talk about ‘real debt’ this, ‘real GDP’ that, but in reality the ‘real debt’ is completely incalculable. If we seriously liquidated all of the ‘toxic debt’ (an oxymoron, since the very foundation of exchange and thus society is debt), we would end up going back to primitive barter!

This is a direct statement (and exposition) of the proposition that Money = Debt, and vice versa, and while this is an extreme example to be sure, you will find that the same underlying assumptions Mr. Keynesian makes in his above argument are built into virtually every Keynesian exposition of monetary theory.

The first big mistake that he makes is that he totally neglects to talk about how money came to be used. Money is a commodity, just like any other commodity; the only difference is that it is so widely demanded, it is the medium of exchange. There is nothing arcane or mystic about money; it is just that simple. Because money is nothing more than a widely demanded commodity, it can hardly be said to be a “claim on society.” If it were true that money is a claim on society, what does that say for the goods and services that exchange for money? It would be far better (though still very incorrect) to say that the goods and services that exchange for money are themselves claims on society, but a claim on society is by necessity an entitlement. If you are entitled to something, it is yours by law, but no one is entitled to any sort of good or service on the mere basis that he has money. A person with money must first find and convince various individuals to part with their goods and services in exchange for a given amount of money. If they indeed part with these goods and services in exchange for the money, then assuming no sort of coercion took place, they did so because they valued the money they received more than the goods and services they parted with, and not because the person with money was somehow entitled to those goods and services.

The second big mistake that Mr. Keynesian makes is that he makes the assumption that money isn’t good for anything other than facilitating exchange. This mistake rests on a problem that we mentioned earlier; namely, the fact that Mr. Keynesian does not talk about how money came to be used in society to begin with. As I have pointed out before, money is nothing more than a widely demanded commodity, but why is it widely demanded? It is widely demanded because of its prior reputation. Money starts out as merely another commodity in a barter economy, but over time, individuals begin to favor certain goods over others. Why? Because the demand for those goods is higher than other goods, and thus it is easier to trade them off for the various goods and services that an individual in society may want. For example, it is easier to trade gold for lessons in economics than it is to trade dental services for musical lessons.

But, why is money so demanded? How did money (gold for instance) start from being just another commodity in a barter economy and then become a massive medium of exchange? Individual preference; people, for whatever reason, preferred gold to the other commodities available, thus the demand was higher, thus gold became a medium of exchange. You can come up with your own ideas as to the source of the original demand for gold. Like I said; money is not overly complex. It is not some arcane device that’s so intricate that the world’s smartest Ph.Ds and Nobel Laureates have a hard time understanding it.

So why do the world’s smartest Ph.Ds and Nobel Laureates have such a hard time understanding it? Because they make the above mistakes, and they make them in spades.

Political Inconsistency/Cultish Behavior


You know, for some people economics is this mathematical science that allows people to predict the state of the future economy. For others, economics is the “dismal science”, i.e., a pseudo-scientific philosophy which rarely (if ever) tells us anything about the real world or makes accurate predictions. For myself, I can fully understand the latter group’s frustration with economics. How many economists told us, for instance, back in 2005-2007 that the economy was doing great, it was going to go even higher, etc.. And bear in mind that all of these economists had very sophisticated equations and models to back their arguments.

To me, economics isn’t a series of math equations or econometric models that predict the future. To me, the science of Economics is observation; it is acknowledging that humans act, i.e., utilize means to achieve pre-determined ends, and deducing from this the most logical conclusions that the actions themselves imply. Once you take and apply this method, you will understand precisely why the empirical/mathematical methodology utterly fails its purpose within the science of economics, but we will save the finer points of that conclusion for later. For right now, however, it is necessary that we take a few cases of complete hypocrisy regarding certain political issues that, at first glance, have nothing to do with each other. We will deal with two issues at the end in which the connection will be painfully obvious.

Rent Control/Minimum Wage:

These two issues, to the untrained eye, have next to nothing in common. Rent control is an act by which the amount of rent that can be charged by a landlord is capped, while Minimum Wage is an act by which employers are forced to pay their employees no lower than a given amount. Proponents of the Minimum Wage will argue fiercely that we need Minimum Wage regulations in order to enforce a “Livable Wage”, to keep the big guys from exploiting the little guys as “Slave Labor.”

Rent Control, however, has little to no supporters. Hardly anyone supports the idea of Rent Control. In fact, in 2011 when Jimmy McMillan, the RENT IS TOO DAMN HIGH guy, got evicted from his rent-controlled apartment, The Young Turks ran a segment on it. Cenk Uygur, who everyone knows is my FAVORITE news personality *sarcasm*, had this to say regarding Rent Control.

Quote from Cenk Uygur: “Now, it’s interesting because I actually think that Rent Control is not the right policy, and I think it’s created a lot of weird consequences because of it in New York; people holding onto apartments forever and doing all these shenanigans to pass it to people they know, yada yada yada.

 Of course, Cenk’s analysis doesn’t even cover a fraction of the problems regarding Rent Control, but this has nothing to do with what Rent Control and Minimum Wage regulations have in common at their core (besides being regulations, of course). The truth is, they are both price controls. Rent Control is a downwards control on Rent, Minimum Wage is an upwards control on wages. Price controls, ultimately, have the same effect no matter where in the economy they’re applied, i.e., Demand exceeds Supply and you have shortages as a result. In the case of Rent Control, it destroys existing housing, in the case of Minimum Wage, you doom a portion of the labor force to be unemployed indefinitely. But notice, Cenk Uygur is a fervent supporter of the Minimum Wage, but he opposes Rent Control as not being the right policy even though they are both, at their core, the exact same principle applied in two different directions.

 

Immigration/New Technology:

Ok, now this one is a head-scratcher. How can immigration possibly have anything to do with New Technology? How can someone be a hypocrite by supporting one but not the other?

The answer is simpler than it first appears. One needs only to consider what the ultimate effects of Immigration and New Technology are to see what they have in common. Immigration is that process by which people from foreign lands migrate from their home country in order to set up residence in another country. The effect this has on National Labor is immediately seen; the native laborers must compete with the laborers from the foreign lands for employment, thus driving down wages. The Protectionist exclaims that this is horrible; immigration should be restricted in order to protect National Labor against foreign competition. Why? Because Foreign Labor is willing to work for less than Native Labor. This competition creates unemployment for the Native Laborers, which puts us, ultimately, in a state of dependency on Foreign Labor and Foreign Investment.

New Technology, or Labor-Saving Devices if you prefer, is almost universally embraced (with a few notable exceptions). This wasn’t always the case, however. It used to be that new technology was frowned on. It was seen as the rich finding a way to squeeze the poor by laying them off and keeping the excess profits all to himself. it used to be argued, for instance, that if a machine were invented that would do the work of two workers as opposed to one, the employer would fire one of the two employees (the other would run the machine), and as a result, his income would be absent from circulation and the economy as a whole would suffer for it. Like I said, however, hardly anyone holds this position anymore.

What Immigration and New Technology both have in common is the means by which they operate in the market, and their ultimate effects. New Technology must, initially, compete with existing labor for the right to be used in place of the existing labor. If the New Technology is proven to be effective at the purpose for which it was designed, it begins putting pre-existing labor out of work, and while New Technology does create unemployment in the short-term, in the long-term however we are all better off for it.

Immigration has the same immediate competitive effects. The cheaper Foreign Labor, if it is effective, will put Native Workers out of work. The short-term result in both Immigration and New Technology regarding competition is the same. Ah, but the protectionist would be quick to intervene, “Your proposition is incredibly misleading! Sure, I cannot deny everything you’ve said thus far regarding the effects of Immigration and New Technology as you’ve said it, but you’re forgetting that New Technology doesn’t increase the population by one per new worker! New Technology doesn’t create new burdens on the tax-payer for school/emergency room fees!” I’m sorry to break this to Mr. Protectionist, but New Technology does in fact increase the population, just not in the immediate.

Immigration gives you in the short-run, regarding population increases, that you would’ve had with the New Technology. As the means of production become more efficient, we get greater returns for our labor, most notably in agriculture. More food = more energy for people to make babies. More energy for people to make babies = increase in the population. New Technology and Immigration, therefore, have the exact same long-term effects. It is therefore utter hypocrisy to oppose one on the basis that it creates unemployment, but defend from the other just such a criticism when they both have, in the long-run, the exact same effects.

The War on Drugs/Gun Control:

This is the one I mentioned earlier who’s connection is glaringly obvious. The War on Drugs is considered by many (including myself) to be a colossal failure; a government boondoggle in which billions of dollars has been wasted by housing otherwise harmless people in government-funding prisons, and is responsible for the rise of violent cartels (most notably in Mexico). The case for criminalization runs from “it’s harmful for you and society” to “you can’t be trusted with it”.

Remind me, along what lines does Gun Control go again? Oh yeah… “It’s harmful for you and society” to “you can’t be trusted with it.” The War on Drugs fails for the precise reason that if enough people want an illegal product, there will be a Black Market for said product. Just as in drugs, so too in guns. The same economic principles are at play in both cases, but notice one is being picked in favor of the other, even though the long-term effect of both policies is exactly the same. Once again, it is sheer hypocrisy to favor one over the other.

Conclusion:

The reason these people are contradicting themselves to such an extent is precisely because of their methodology; namely, the mathematical/empirical/statistical/positivistic methodology. The core problem with this doctrine, in my opinion, is the fact that in its line of reasoning, there isn’t any room for any sort of absolute truths. You have a hypothesis, you test the hypothesis, if your hypothesis comes through, you provisionally accept it. But even if your hypothesis comes through, this line of reasoning forces you to remember; it’s just a hypothesis and it could be overturned by the next experiment. As a result of this emphasizing what is seen, what is unseen is completely neglected, and if you point this out, they simply blast you for being “un-scientific”.

This sort of behavior, and line of reasoning, cannot be classified as anything but Cultish.

Paul Krugman and the Liquidity Trap Fallacy


There are literally countless texts on the necessity of government intervention into the economy. Paul Krugman, nobel-prize winning economist has been advocating that the Federal Reserve adapt a higher inflation target than what he refers to as the 2% orthodoxy, referring of course to the central bank’s inflation target of 2%. Paul Krugman writes:

“The point is that the conventional 2 percent target is a prejudice, nothing more; it once rested to some extent on studies suggesting that 2 percent was enough to make the zero lower bound a non-problem, but we now know how utterly wrong that view was; so we’re left with a target that’s considered respectable because it’s what all the respectable people say, and is what all the respectable people say because it’s considered respectable.

What do we want? Four percent! When do we want it? Now!”

Forgetting the obvious problems with the CPI not reflecting the actual rate of inflation for a moment, there is also a serious risk for the Keynesian Liquidity Trap.

As Keynes himself wrote;

There is the possibility … that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest.

The sheer irony regarding the above quote from Keynes is that, assuming it is completely true as stated, it utterly disproves Keynesian aggregate demand theory, and it completely destroys the basis by which Paul Krugman and other Keynesian economists have to justify government stimulus programs. For starters, Keynesian macroeconomics requires the general public to hold bonds of debt at some point or another. If lowering the interest rate too low creates a situation (as Keynes himself conceded) whereby people prefer cash to bonds, and thus doesn’t create any new (or sufficient enough) spending, then the obvious deduction to be drawn from this is that the lowering of the interest rate in order to stimulate aggregate demand was a bad idea to begin with.

This is just one more inconsistency with the Keynesian position.

Response to “RationalWiki”


My last post seems to have attracted the anger of several rabid “RationalWiki” drones on the internet. They didn’t take their grievances up directly with me, but instead chose to quote small bits of my material on a part of their site and pontificate on it like clowns (though to their credit, they did link the post in it’s entirety). I found this when I was browsing through the stats of my blog, and quite unsurprisingly, they proved my point for me. For those of you who haven’t read my article on “RationalWiki,” I’d suggest you read it so you can understand what’s going on here. If you’ve already read it, then I’ll simply state that my biggest critiques of “RationalWiki” (I put that in quotes for the simple reason that it is Rational only in name) were the following.

1: They didn’t actually read any of the material that they’re critiquing (which was very easy to prove), and what little that they quoted (they quoted about one sentence worth of Murray Rothbard, which was found on the first page of the work of his that they hyperlinked for example), they didn’t understand.

2: Their arrogant tone and ad hominem attacks prove that they weren’t trying to inform anyone or make a genuine rational inquiry, they were trying to do a hatchet job on positions that they didn’t agree with (and the “article” that “RationalWiki” did on the Austrian School isn’t an isolated incident).

Those were my biggest critiques, which was a little too much to grasp apparently for some of the people over at “RationalWiki.” Now, there is one serious critique they have (the only one they have, in fact) that I will deal with. They’re claiming that I misquoted the paragraph that I quoted from the pseudoscience page; that I intentionally altered the paragraph. This isn’t the case. I copied/pasted the entire paragraph as it was on the site. The bit that is quoted is what was on the page at the time. Now, maybe it was edited by the original poster to clarify, which is possible, or maybe someone else spotted the mistake and corrected it, but I didn’t alter the paragraph myself.

Now, with that said, I have to deal with their lesser critiques.

Quote from the site: “Skepticism is arrogance. Scholars should be objective. Statistics cannot indicate a null hypothesis. Demanding proof before conclusions indicates left-wing progressivism. Left-wing progressivism is a kind of socialism. Yep. This person does not actually understand things.”

There is nothing wrong with being skeptic, and scholars are supposed to be objective, but the entire point of the critique was that the writers of “RationalWiki” are being neither of those things (which was, again, easy to prove). I don’t put faith in statistics for the sole reason that you can “prove” just about anything with statistics. Demanding proof before conclusions doesn’t indicate Left-Wing Progressivism, your arrogant “matter-of-fact” tone and your shallow treatment of the issues that you’re writing on (and your general cow-towing to the idea that government programs and agencies outside of law enforcement and military are needed) indicates Left-Wing Progressivism. Left-Wing Progressivism is, in fact, a form of Socialism. If you don’t believe me, look at the things that Left-Wingers typically advocate. They want Social Security to be expanded even more than it already is, they want healthcare to be run entirely by the government and to be free upon demand (paid for in taxes, but free upon demand none the less), they want the financial sector to be so regulated that the government practically runs the financial sector, they want the richest to be taxed at ridiculous rates (often called the FAIR SHARE) in order to pay for various social programs for lower income brackets, etc. This is their (the Left-Wing Progressive’s) rhetoric, not mine.

I’m not going to get into the merits of these programs that Left-Wing Progressives advocate and whether they can or can’t work, I’m simply going to say that it isn’t enough to laugh at the idea of Left-Wing Progressivism being Socialism and just white-washing the accusation. You have to prove that Left-Wing Progressivism isn’t Socialism, and you simply can’t do it. So I find it very interesting that this person wants proof, he’s/she’s a skeptic and an objective scholar, but not only doesn’t present proof, but utterly ignores the proof that was given to him/her. That’s not objective or skepticism, that’s simple ideological agenda.

They interestingly enough chose, instead of the mountain of other things that I slammed them for, to complain about one particular quote that I made, which was this; “that this material is on the internet and no one has challenged it tells me a lot about the intellectual bankruptcy of the Western World.” Here’s what they said about it.

Quotes from the site: “In other words, “How incredible – the internet includes things I disagree with!” “And apparently his only recourse is to bitch about it…fallaciously…on a blog that no one else will read. Can we add him to our Pissed At Us article?”

Now, there are two different quotes because they were made by two different people. The first quote conveniently ignores the fact that I was irritated because the material hadn’t been challenged, not simply because it was on the internet. The second quote claims that my reasoning was fallacious, but doesn’t offer any sort of proof to the claim (again, that objective skeptic/scholar title just doesn’t seem to fit here). Instead, the person just complains that I’m being fallacious and then proceeds to demonize my blog as, quote, “a blog that no one else will read.” Again, no substance, just personal attacks.

Now, for the last critique. Apparently, one of the regulars at “RationalWiki” read some of my other works, or more specifically, my article on Morality. I made the case against murder. “First and foremost, it is completely illogical to murder someone (unless in self-defense or in the defense of someone else, which needs no explanation) because for every act of murder you commit, you physically destroy business opportunities. You are killing a man you could’ve traded with, or co-operated with at a later date. You must also account for the resources you would use in committing this completely silly act (which vary from person to person). The resources you’d waste in killing the person and disposing of the body could’ve been used in the market, or it could’ve been kept as savings for future consumption/investment.”

Those were my words exactly. Now, whether you agree or disagree, it’s not enough to do what the regular on “RationalWiki” did. He/she responded in a fashion of shallow satire (which is auto-fail in my book).

Quote from the site: “Yep, the logical reason for not committing murder is that you might be able to make a profit out of him. My sort of guy!”

The MY SORT OF GUY bit at the end was really his tongue-in-cheek way of saying that I’m a piece of shit for saying something like this. I am, first and foremost, a realist. I recognize more than most that reality is a bitch. Your choices are; do you want people profiting off of each other, or do you want people killing each other? It is that simple, and there is no in-between. If you eliminate one of those options, the other option is inevitably taken. I would prefer people profit off of each other as opposed to killing each other, but hey, that’s just my opinion.

Once again, nothing of substance comes from “RationalWiki” but ad hominem attacks and shallow analysis. I keep, in the back of my mind, trying to give these people the benefit of the doubt; that they’re going to come back and prove me wrong. So far, however, I’m deeply disappointed.

RationalWiki is a Front for Socialist Indoctrination


Arrogance Passing for Rationality

So I was browsing the web one day when I stumbled across a site called RationalWiki. Now the name and the design was appealing, what with the brain in the brackets and whatnot, so I decided to search through the site by looking at random articles to see what kind of material they offered. Well, what I found was anything but material that you’d expect to see on a site called “RationalWiki.” Instead, I find a series of nauseatingly shallow and arrogant articles that would make any objective scholar cringe; that this material is on the internet and no one has challenged it tells me a lot about the intellectual bankruptcy of the Western World.

Take, for example, the RationalWiki article on pseudoscience. One merely has to lightly read through it to see some of the most arrogant statements that can be made.

Quote from the page: “If an idea has not been published in a single peer review journal, it is safe to say it is not science. Most people have at least a passing knowledge of the peer review system and so pseudoscience promoters often have to offer hand-wavy explanations for why their ideas have not been published anywhere. In medicine it is common to blame Big Pharma for wanting to hide the fact that some natural product cures all known illnesses because it will hurt their profits – despite the fact that such a thing would generate more profit, and Big Pharma would be dying to get their hands on it!”

Let’s just assume for a second that I agree with the premise that this quote is putting forth (which I don’t); there is no excuse for passing this kind of blithely arrogant and shallow material off as anything other than trash, and that’s not even dealing with the factual inaccuracies. Starting with the idea that it is common in medicine to blame Big Pharma for wanting to hide natural cures, this couldn’t be further from the truth as in fact the idea of natural cures in medicine is very uncommon. Currently, Big Pharma has a massive monopoly over the medicine market, of which it enjoys thanks almost entirely to the Food and Drug Administration. You may think that said government agency is protecting you from harmful products, and it is true that they have banned some harmful drugs from the market, but what you don’t see is how many life-saving drugs that never make it to market if for no other reason than the bureaucratic red-tape. In fact, the FDA has approved a lion’s share of dangerous drugs that they ended up recalling later because they had links to serious side effects, and more are recalled regularly.

Big Pharma is, first and foremost, a cartel. It is a cartel that enjoys it’s monopoly privilege because it doesn’t have to worry about competition from smaller firms or corporations thanks to the FDA. In fact, the worst thing you could do to Big Pharma would be to get rid of the FDA. Now, don’t misunderstand me. I’m not saying that the FDA intentionally props up Big Pharma (though that’s not impossible), I’m saying that Big Pharma is being propped up because of the fact that they can afford to jump through the regulatory hoops, while smaller firms and corporations can’t. The result is an artificial demand for the products of Big Pharma because the products of smaller corporations and firms are barred from the market, thus, Big Pharma can charge a higher price for their products, and therefore, make much higher profits than they would have under free-market conditions.

Quote from the page: “Pseudoscience is sometimes referred to as “junk science.” However, the term “junk science” has become associated with anti-environmental bullshit due to corporate mouthpiece Steve Milloy‘s use of the term. Milloy runs a blog called “Junk Science” where he obfuscates and denies global warming, risks associated with the use of DDT, and other environmental problems. Michael Fumento, another shill, has furthered this use of the phrase. In general, when a pundit is being interviewed or writing a column about environmental or health issues, the term “junk science” usually translates to “science that will be very inconvenient for my funders” and “sound science” translates to “some bullshit I just made up to deny the problem.”

I’ve never heard of Steve Milloy or Michael Fumento, I’ve never read any of their material (which may or may not be bullshit as the author claims) and frankly, I don’t intend to. The ad hominem attacks and arrogant tone that the author takes are more than enough to discredit the integrity of the author in question. It is a clear indication that the author isn’t writing on the basis of Rationality, but on the basis of Emotion.

RationalWiki’s Attack on the Austrian School

Out of curiosity, I typed in “Austrian School,” just to see what would come up. This is what I found, and it’s a hit piece if there ever was one. In the introductory remarks, the intent of the piece is readily apparent.

Quote from the page: “As the claims of Austrian economists are difficult to verify without empirical testing (and the same economists openly admit to it), it is widely considered a pseudoscience.[4][5] Austrian arguments as to why statistical methods cannot adequately describe human behavior can seem intuitively compelling, but they fail to provide the mathematical proof demonstrating why normally unbiased estimates suddenly become biased simply because they are dealing with people who make decisions. Perhaps one reason they are so uncomfortable with empiricism is that Austrian economists are more interested in defending the political ideology of libertarianism than they are in advancing economic understanding,[6] and rigorous testing can sometimes undermine deeply held political beliefs.”

There is a glaring logical fallacy here. If you believe that statistical methods can’t adequately describe human behavior, why in the world would you be expected to provide mathematical proof to the claim? Doing so would be in direct contradiction with your own position, and would thus undermine it entirely. Apparently, the person who wrote this piece isn’t well versed in logic (or in the material that he’s/she’s critiquing).

As Ludwig Von Mises pointed out numerous times throughout his works (most notably in “Human Action: a Treatise on Economics,” and “Theory and History: an Interpretation of Social and Economic Evolution”), the natural sciences, i.e., chemistry, physics, owe the entirety of their success to the fact that they can conduct controlled experiments. They can recreate exact conditions as many times as needed to learn all that can be learned of a particular atom or chemical process. In the social sciences however, it’s not so simple. Human beings are not atoms that can be predicted 100%, or even 90% of the time, and it is impossible to conduct the type of empirical tests that those in the natural sciences conduct simply because of the fact that you can’t recreate exact conditions in the social sciences. The attempts to do so are even more laughable, since human beings do not react to the same stimuli in same way every time. Instead, the results are presented in the form of averages and percentages, but these results are worthless because they’re essentially comparing apples to oranges. Now, whether or not you agree or disagree with this is irrelevant to the fact that this is the Austrian Position simplified.

With regards to Praxeology, the author of the page hyperlinked Murray Rothbard’s Praxeology: The Methodology of Austrian Economics. As a side note, when yours truly first saw the RationalWiki page that I’m addressing, the hyperlink title was, “Praxeology: Or How I Learned Not to Think and Enjoy Stupidity.” I have since edited the page to give Murray’s work it’s original title. Apparently someone thought it was cute and funny to change the title of the work that he/she was critiquing to something derogatory. Again, that says something about the character and intention of the author of this RationalWiki page. The author goes on to quote two very short passages from Murray’s work, which is found on the first page ironically enough.

Quote from the page: Murray Rothbard‘s “Praxeology: The Methodology of Austrian Economics” describes praxeology as an application of deductive reasoning, applied to a set of ‘unquestionable’ axioms. Of course, any implications derived from these axioms are only as good as the analysis that derived them, and the axiom that they were derived from. This is where the praxeology gets into trouble, as they reject less mushy formal analysis in favor of more weasely verbal analysis. Lets look at the axiom that Rothbard refers to as the foundation of praxeological deduction as an example, the ‘fundamental axiom of action’. Almost immediately, the axiom wades into trouble. It states that:

“Individual human beings act.”

The first part of that assertion is simple enough to grasp, but what does it mean to act? One possible definition of act says it is to “perform an action”. This seems to be as far as most Austrian school thinker take this.”

This is where the author’s ignorance on the subject that he’s/she’s critiquing shows. The Austrian economists, especially Murray Rothbard and Ludwig Von Mises, went through great pains to illustrate what is action and what is not action in the Praxeological sense. Is breathing an action? No, because it is an unconscious reflex. Is typing up this rebuttal an action? Yes, because I am undertaking a purposeful (physical) action to achieve a given end. In the Praxeological sense, “perform an action” is not an adequate definition of action. Every action has three causes that must be simultaneously met, or action does not take place. First, the person must be dissatisfied with prevailing conditions. Second, the person must think that a different set of conditions would satisfy him more. Third, the person must think that he/she can succeed in changing his/her conditions. If so much as one of those conditions is missing, no action (in the Praxeological sense) takes place.

Quote from the page:“However, as an air conditioner, vacuum cleaner and TV all perform actions, it would seem this axiom places human beings in the rather large set of things that act. It would be pretty embarrassing then, to derive any economic conclusions from the fact that people are part of the set of things that act, as the conclusions deriving from being a member of the set of things that act would apply to other members of that set as well.”

It is true that the fore-mentioned machines perform actions, but only human beings act in the Praxeological sense. Do machines have goals that they themselves set? Can a vacuum cleaner or an air conditioner turn itself on without any kind of help from human beings? No. Even the most advanced units of machinery require presetting in order to perform these feats. In this case, the actions performed by machines are nothing more than reflexes and are not actions in the Praxeological sense. Only humans can act in the Praxeological sense, because only humans have the rational capacity to voluntarily chose ends and the means taken to meet those ends. This is well defined throughout the writings of both Murray Rothbard and Ludwig Von Mises, but apparently the author of this RationalWiki page couldn’t be bothered to actually read the material that he’s/she’s critiquing.

Quote from the page. “Rothbard is kind enough to clarify his definition: ’…that is human beings take conscious action towards chosen goals.’

Note that one under-defined concept has now been replaced with two; conscious action and chosen goals. Let us ignore the validity of this assertion, and try to figure out just what chosen goals are. The word choice would seem to imply some form of conscious action was taken in forming these goals, so is the real statement of this axiom “human beings take conscious action towards a consciously acted upon set of goals”? Perhaps Rothbard meant to differentiate between ‘choosing’ and ‘acting’, but that is never clearly expressed. In either case, it would seem that the definition of goal needs some work to be truly useful. Sound logic relies on clarity of definition, as many arguments are sensitive to subtle changes in meaning, and vague statements hide contradictions. This approach of verbal deduction also leads to a rather noticeable (ab)use of false analogies and intuition pumps.”

I have to point out that with as little as the author of the RationalWiki page quoted, anything can be under-defined. The author didn’t even bother going past the first page of the material that he/she hyperlinked. The above quote is the last of his rebuttal of Praxeology, and what’s worse, the author of the RationalWiki page didn’t even understand the little bit that he/she quoted. Choosing and Acting are two different things; choosing is a Psychological event, acting on your chosen ends is a Praxeological event. I would’ve expected the title of the work to hint at this, and some in-depth research to clarify, but again the point of the author’s RationalWiki page isn’t to actually refute anything. The point of the author’s RationalWiki page is to demonize opposition, and in pursuing this end, the author left countless fallacies in his/her wake.

The Attack on the Austrian Business Cycle Theory

The author of the RationalWiki page also takes aim at the Austrian Theory of the Business Cycle. Just for reference work, I’ll link two books for you to read on your own time. The first of these is Money, Bank Credit, and Economic Cycles by Jesus Heurta de Soto, and the second is The Theory of Money and Credit by Ludwig Von Mises.

Quote from the page:  “Austrian Business Cycle Theory (ABCT) is an attempt to explain the business cycle in capitalist economies through the lens of Austrian theory (obviously). ABCT is probably one of the elements of the Austrian school that helps it spread its laissez-faire meme-plex due to its appealing simplicity. In short, the business cycle is the creation of the central bank (the Federal Reserve in the US) — when it sets interest rates too low, this makes credit much easier to get. This easy credit is confused for “real loanable funds” (ie. hard cash money). In other words, the easy credit sends out “false signals” to banks and other creditors to go into a feeding frenzy and make loans to anyone and his dog. This causes a bubble driven by inflation, not true economic growth which is destined to burst. Recessions and depressions, then, are simply payback for getting drunk on easy credit. They are in fact desirable because they represent a market correction where “misallocated resources” are liquidated and thus free to be “reallocated” to a more useful ends. This has led economist Paul Krugman to dub it the “Hangover Theory,” calling it “about as worthy of serious study as the phlogiston theory of fire.”[7] Milton Friedman remarked: “The Austrian business-cycle theory has done the world a great deal of harm.”[8] Gordon Tullock claims that with the reallocation of capital the model predicts, “Laborers would be exploiting the capitalists.””

The irony of this quote rests in the fact that the author of the RationalWiki page demonstrates here a decent understanding of the ABCT, but then proceeds to argue from authority by quoting Milton Friedman, Gordon Tullock, and Paul Krugman; and what’s worse than the attempt at arguing from authority? Two of these people he’s attempting to quote don’t understand the model (Krugman especially, and has been called on it numerous times. For a rebuttal of Krugman’s Hangover Theory, written by David Gordon, click here.)

Quote from the site: “Of course, there is some grain of truth in it as low interest rates can induce risky lending and will be inflationary, but there are some glaring flaws in ABCT that any Joe should have spotted by this point. Like, umm, the fact that business cycles existed before the Fed. (Some try to skirt this issue by redefining “central bank” as any bank with a state or national charter.[10])”

The criticism that Business Cycles existed before the Fed is a very popular critique, but it is one that falls flat on it’s face when you take into account that the Austrian Theory of the Business Cycle doesn’t just talk about central banks, but any bank that practices Fractional-Reserve Banking. The footnote that was provided here was a Keynesian response to the Austrian position, but this also falls flat on it’s face for the same reason (for a rebuttal to the author’s foot-note, written by Robert P. Murphy, click here.)

 

Quote from the page: “It also relies on two mis- or re-defined terms. The Austrians define inflation as an expansion of the base money supply, a consequence of which is rising prices, whereas inflation is defined as simply a rise in prices by mainstream economic theory. While expansion of the money supply can lead to inflation, it does not necessarily do so. Prices do not always track the expansion of the underlying monetary base.[11] Thus, the implication drawn from the Austrian definition of inflation is false.”

I won’t really get into the definition of terms here, I’ll simply say that it is not enough to claim, “Well, so-and-so said that this is correct and so-and-so is the mainstream, so therefore, it is correct because so-and-so said so.” That’s arguing from authority yet again. Austrian economics is railing against mainstream economic theory, so it’s not enough to simply cite mainstream theory, you must go deeper into why the mainstream theory is correct and the opposing theory is false. Of which, the author of the RationalWiki page fails to do so.

Quote from the page: “The ABCT also relies on a single “natural rate” of inflation, but there is no single natural rate of inflation.[12] In addition, the proposal to revert to a gold standard implied by ABCT fails to explain how to deal with the effects of a fixed money supply when population and economic output have been increasing throughout American history.”

The author’s foot-note is interesting here, since he’s referencing a Natural Rate of Inflation in his own text, but his foot-note is referencing a Natural Rate of Interest. And while the author supposedly values scholarly, accredited sources, the foot-note in question is a link to a blog written by someone by the name of Lord Keynes. Yeah… *no comment* As for the rest of the quote, the Austrians don’t “imply” that we need to go back to a gold standard, the Austrians tell you upfront in no uncertain terms that we need to go back to a gold standard. The fact that the author didn’t know this tells me that he/she hasn’t had much interaction with the works of Austrian Economists. My opinion is further reinforced by the fact that the author seems to think that the issue of the gold standard hasn’t been dealt with by Austrian Economists, when in fact it has.

Quote from the page: “ABCT ultimately is better at explaining why the Austrians and libertarians are such hardcore goldbugs and why they rail against the Fed so much than it is at explaining actual business cycles.”

More demeaning rhetoric and practically no substance.

RationalWiki’s Attack on Peter Schiff

The author of the RationalWiki page also attacks Peter Schiff. This segment of the “article” is very interesting. It appears to be more of an emotional rant than an attempt at writing an informative article.

Quote from the page: “It’s impossible to make a post on the internet about the financial crisis, or even anything economic in general, without being bombarded by “Peter Schiff was right!!11!!” videos. For the new Austrians (i.e., 19-year-olds who read a few newsletters over at the von Mises Institute and think they have achieved enlightenment), the Austrian-influenced investor Peter Schiff’s prediction of the housing bubble was vindication of all things Austrian. They believed they had finally shown all other economic theories to be utterly bankrupt and discredited.”

It’s ironic to me that the author of this RationalWiki page would refer to the New Austrians as 19 year olds who read a few newsletters and think that they’ve achieved enlightenment, when I could make the exact same argument about the author of the RationalWiki page. The author’s writing style, and methods of argumentation scream “19 year old kid with too much time on his/her hands.” It’s also worth noting that it wasn’t just Peter Schiff who saw the crash of 2008 coming. Congressman Ron Paul also saw the crash coming, and predicted with devastating accuracy what would happen all the way back in 2001.

Quote from the page: “First, Peter Schiff is still wrong about many things.[13] Second, Austrians have continuously predicted the economic end times and Weimar-style hyper-inflation as they will never be satisfied with the American economy until all regulation is lifted, the Fed is abolished, and we return to a gold standard. Only then will doom be averted. Of course, it’s easy to be a Cassandra when all you predict is doom. (In short, even a stopped clock can be right twice a day.)”

The author’s foot-note here is, again, interesting. One of them is a twelve video series on YouTube entitled “Peter Schiff was Wrong”, in which the poster attempts to prove using random news clips that Peter Schiff was demonstrably wrong. All I’m going to say about those twelve videos is that ratings are disabled, and so are the comments. That should tell you everything. As for his other link in the foot-notes, that link is pretty much dead.

Quote from the page:  “Third, they overlook the metric buttload of economists and financial guys who also saw it coming.[14] Those guys just weren’t put on CNBC alongside the Wall Street cheerleaders. Even one of Dubya‘s own economic advisers, Greg Mankiw, warned of problems at Fannie Mae and Freddie Mac back in 2003.[15] Hell, firms like Goldman Sachs were shorting their own securities[16] — the bubble was apparently not a big mystery to insiders!”

Well, of course the bubble isn’t going to be a big mystery to insiders! They’re on the inside! They get information a lot sooner than you do!

In Conclusion

The author of that RationalWiki page is really working my last nerve, so I’ll just skip to the end and leave it at that.

Quote from the page: “The founder of the Austrian school, Carl Menger, was responsible for starting the Marginal Revolution, an important step forward in economic thinking.[22] However, that was in the late 19th century. Ludwig von Mises is credited with introducing the economic calculation problem in the 1920s, which argued that a state-run economy could not be efficient because prices could not be known, only decided by the state.[23] Austrians also argued for the non-neutrality of money.[10] The school hasn’t produced anything of much value since then. Now they are primarily a small group of cranks funded by even richer cranks through the von Mises Institute looking for self-serving rationalizations couched in the form of economic theory.”

As much, as a student of the Austrian school, I would like to agree with the statement that Carl Menger started the Marginal Revolution, this statement is factually incorrect. The Marginal Revolution is called the Marginal Revolution precisely because the principle of Marginal Utility was not discovered by one man, but by three different men within three years of each other. Carl Menger and William Stanley Jevons discovered the principle in the same year, Leon Walras was the last of the three discovering the principle three years later. No one person started the Marginal Revolution, and it is an error of fact to say otherwise. As for the accusation that the school hasn’t produced anything of value since then, this is demonstrably false! Henry Hazlitt’s “The Failure of the ‘New Economics’”, Ludwig Von Mises’ “Human Action: a Treatise on Economics”, Murray Rothbard’s “Man, Economy, and State”, just to name a few. The last sentence is interesting. “Cranks”, “Self-Serving Rationalizations.”

These terms fully reveal not only the intent of the RationalWiki page in question, but also of the entire site. This is not an isolated incident. The entire site is plagued by trash (the only suitable term) of this nature. I have no doubts that RationalWiki is just a front for Left-Wing Progressivism (a type of Socialism, basically), based on the style of the writing and the methods of argumentation used. 

In conclusion, if you’re going to get your information from a Wiki, you’re much better off going to Wikipedia.