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Are Economic Crises Inherent to Market Economies?

December 12, 2017

ARE ECONOMIC CRISES INHERENT TO MARKET ECONOMIES?

It is interesting to note that Marx, in his analysis of the capitalist economic system, basically concentrates on the study of the imbalances and maladjustments which occur in the market.

This accounts for the fact that Marxist theory is primarily a theory of market disequilibrium and that occasionally it even coincides remarkably with the dynamic analysis of market processes which was developed by economists of the Austrian School, and particularly by Mises and Hayek themselves. One of the more curious points on which a certain agreement exists relates precisely to the theory of the crises and recessions which systematically ravage the capitalist system. Thus it is interesting to observe that certain authors of the Marxist tradition, such as the Ukrainian Mijail Ivanovich Tugan-Baranovsky (1865–1919), reached the conclusion that economic crises originate from a tendency toward a lack of proportion among the different branches of production, a lack Tugan-Baranovsky believed inherent in the capitalist system.1 According to Baranovsky, crises occur because

the distribution of production ceases to be proportional: the machines, tools, tiles and wood used in construction are requested less than before, given that new companies are less numerous. However the producers of the means of production cannot withdraw their capital from their companies, and in addition, the importance of the capital involved in the form of buildings, machines, etc., obliges producers to continue producing (if not, the idle capital would not bear interest). Thus there is excessive production of the means of production.2

Clearly part of the underlying economic reasoning behind this analysis bears a strong resemblance to that behind the Austrian theory of the business cycle. In fact Hayek himself mentions Tugan-Baranovsky as one of the forerunners of the theory of the cycle he presents in Prices and Production.3

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“The End Of Truth” – Hayek Saw It All Coming Over 70 Years Ago

March 29, 2017

“The End Of Truth” – Hayek Saw It All Coming Over 70 Years Ago

The Road To Serfdom (authored by F.A. Hayek, first publ;ished in 1944)

Excerpts from Chapter 11 – The End of Truth

Annotated via Crossroad.to/heaven,

“The most effective way of making everybody serve the single system of ends toward which the social plan is directed is to make everybody believe in those ends. To make a totalitarian system function efficiently, it is not enough that everybody should be forced to work for the same ends. It is essential that the people should come to regard them as their own ends.”[p.171]

Berit’s comment: Ponder that statement. It helps explain the significance of universal service-learning. Like socialist youth in Nazi (National Socialism) and Communist countries, all must embrace the new ideology. Those who don’t — the intolerable dissenters — must be silenced.

The next section elaborates:

“Although the beliefs must be chosen for the people and imposed upon them, they must become their beliefs, a generally accepted creed which makes the individuals as far as possible act spontaneously in the way the planner wants. If the feeling of oppression in totalitarian countries is in general much less acute than most people in liberal countries imagine, this is because the totalitarian governments succeed to a high degree in making people think as they want them to.”[p.171]

The strategies that accomplish this mental change include numerous subtle and obvious forms of propaganda. Schools, the media, children- and youth-service teams, corporations, etc…. every source of propaganda must share the same vision. Though totalitarian, it will be designed to sound noble, compassionate and fair to all. Yet the result with be the exact opposite.

Ponder this warning from Dr. Thomas Sowell’s review of Road to Serfdom:

…click on the above link to read the rest of the article…

The Fed Can’t Save Us

April 6, 2016

The Fed Can’t Save Us

Janet Yellen

In December, the Fed hiked its target for the federal funds rate, which is the interest rate banks charge each other for overnight loans of reserves. Since 2008 the Fed’s target for the Fed Funds Rate had been a range of 0 percent – 0.25 percent (or what is referred to as zero to 25 “basis points”). But last month they moved that target range up to 0.25 – 0.50 percent. Ending a seven-year period of effectively zero percent interest rates.

From our vantage point, we already see carnage in the financial markets, with the worst opening week in US history. This of course lines up neatly with standard Austrian business cycle theory, which says that the central bank can give an appearance of prosperity for a while with cheap credit, but that this only sets the economy up for a crash once rates begin rising.

However, there is something new in the present cycle. The Fed is trying to raise rates while simultaneously maintaining its bloated balance sheet. It is attempting to pull off a magic trick whereby it can keep all of the “benefits” of its earlier rounds of monetary expansion (i.e., “quantitative easing” or “QE”) while removing the artificial stimulus of ultra-low interest rates. As we’ll see, this attempt will not end well, for the Fed officials or for the rest of us. In the meantime, Ben Bernanke will look on with concern, writing the occasional blog post and perhaps giving a speech about poor Janet Yellen’s tough predicament.

Austrian Business Cycle Theory

One of the seminal contributions of Ludwig von Mises was what he called the circulation credit theory of the trade cycle. In our times, we simply call it Austrian business cycle theory, sometimes abbreviated as ABCT. The Misesian theory was subsequently elaborated by Friedrich Hayek, and it was partly for this work that Hayek won the Nobel Prize in 1974.

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Professor Fekete About Gold And The Debt Society

December 21, 2015

Professor Fekete About Gold And The Debt Society 

Claudio Grass interviews Professor Antal E. Fekete

GLOBAL GOLD: “Prof. Fekete, it is a pleasure to have this opportunity to talk to you. You are a fierce critic of the current monetary system and a strong proponent of the gold standard, particularly the variety that combines with the Real Bills Doctrine (RBD) of Adam Smith which we shall get into later. We are very much interested to learn how this interest of yours started in the first place and what led you to believe in gold and Austrian Economics in general.”

Antal FeketeProfessor Antal E. Fekete (see further below for biographical details) Photo credit: verlagjohannesmuller

AF: “I have been a lifelong student of gold money which led me to Austrian economics. However, I find that the writings by Austrian authors such as Hayek and Mises on gold somehow deviated from Carl Menger’s basic idea of marketability of goods in favor of the Quantity Theory of Money. For this reason, I find they did not address the nexus between gold and interest. I take pride in pioneering a new departure to develop a theory of interest based on the idea of marketability of goods (also known as hoardability) that puts this nexus right into the center. My own view is that gold and silver are the only monetary metals for reasons having to do with the fact that they are the most hoardable substances in existence. I also believe that if Menger had lived longer, he himself would have developed his theory of interest along the lines of indirect exchange of income and wealth that are an improved version of hoarding and dishoarding (direct exchange). As a matter of fact, here we are talking about the dual theory of the evolution of direct exchange (barter) into indirect exchange of goods and services (monetary economy).

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Olduvai IV: Courage
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Olduvai II: Exodus
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