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How the Business Cycle Happens Part 1

October 22, 2015

federal reserve

How the Business Cycle Happens Part 1

[This excerpt from the first chapters of Murray Rothbard’s America’s Great Depression (1963)] Reprinted from Mises.org

Study of business cycles must be based upon a satisfactory cycle theory. Gazing at sheaves of statistics without “pre-judgment” is futile. A cycle takes place in the economic world, and therefore a usable cycle theory must be integrated with general economic theory. And yet, remarkably, such integration, even attempted integration, is the exception, not the rule. Economics, in the last two decades, has fissured badly into a host of airtight compartments — each sphere hardly related to the others. Only in the theories of Schumpeter and Mises has cycle theory been integrated into general economics.1

The bulk of cycle specialists, who spurn any systematic integration as impossibly deductive and overly simplified, are thereby (wittingly or unwittingly) rejecting economics itself. For if one may forge a theory of the cycle with little or no relation to general economics, then general economics must be incorrect, failing as it does to account for such a vital economic phenomenon. For institutionalists — the pure data collectors — if not for others, this is a welcome conclusion. Even institutionalists, however, must use theory sometimes, in analysis and recommendation; in fact, they end by using a concoction of ad hoc hunches, insights, etc., plucked unsystematically from various theoretical gardens. Few, if any, economists have realized that the Mises theory of the trade cycle is not just another theory: that, in fact, it meshes closely with a general theory of the economic system.2 The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.

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

Ayn Rand & Murray Rothbard: Diverse Champions of Liberty

August 29, 2015

Ayn Rand & Murray Rothbard: Diverse Champions of Liberty

Differences and Similarities

No one should attempt to treat Ayn Rand and Murray N. Rothbard as uncomplicated and rather similar defenders of the free society although they have more in common than many believe.  As just one example, neither was a hawk when it comes to deploying military power abroad.*  There is evidence, too, that both considered it imprudent for the US government to be entangled in international affairs, such as fighting dictators who were no threat to America.  Even their lack of enthusiasm for entering WW II could be seen as quite similar.

Ayn Rand, famed writer and founder of the Objectivist movement
Photo credit: Cornell Capa / Magnum

And so far as their underlying philosophical positions are concerned, they both can be regarded as Aristotelians.  In matters of economics they were unwavering supporters of the fully free market capitalist system, although while Rand didn’t find corporations per se objectionable, arguably Rothbard had some problems with corporate commerce, especially as it manifest itself in the 20th century.  One sphere in which they took very different positions, at least at first glance, is whether government is a bona fide feature of a genuinely free country. Rand thought it is, Rothbard thought it wasn’t.  Yet the reason Rothbard opposed government was that it depended on taxation, something Rand also opposed, so even here where the difference between them appears to be quite stark, they were closer than one might think.

RothbardChalkboardMurray Rothbard, introducing his students to French economist Anne-Robert-Jacques Turgot (widely regarded as a “proto-Austrian” today)
Photo credit: Roberto Losada Maestre

When intellectuals such as Rand and Rothbard have roughly the same political-economic position, it isn’t that surprising that they and their followers would stress the difference between them instead of the similarities.  Moreover, in this case both had a similar explosive personality, with powerful likes and dislikes not just in fundamentals but also in what may legitimately be considered incidentals–music, poetry, novels, movies and so forth.

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

 

 

Why The Recurring Economic Crises?

August 28, 2015

Why The Recurring Economic Crises?

Authored by Murray Rothbard via The Mises Institute,

A selection from Chapter 42 of Economic Controversies.

Why, then, does the business cycle recur? Why does the next boom-and-bust cycle always begin? To answer that, we have to understand the motivations of the banks and the government. The commercial banks live and profit by expanding credit and by creating a new money supply; so they are naturally inclined to do so, “to monetize credit,” if they can. The government also wishes to inflate, both to expand its own revenue (either by printing money or so that the banking system can finance government deficits) and to subsidize favored economic and political groups through a boom and cheap credit. So we know why the initial boom began. The government and the banks had to retreat when disaster threatened and the crisis point had arrived. But as gold flows into the country, the condition of the banks becomes sounder. And when the banks have pretty well recovered, they are then in the confident position to resume their natural tendency of inflating the supply of money and credit. And so the next boom proceeds on its way, sowing the seeds for the next inevitable bust.

Thus, the Ricardian theory also explained the continuing recurrence of the business cycle. But two things it did not explain.

First, and most important, it did not explain the massive cluster of error that businessmen are suddenly seen to have made when the crisis hits and bust follows boom. For businessmen are trained to be successful forecasters, and it is not like them to make a sudden cluster of grave error that forces them to experience widespread and severe losses.

Second, another important feature of every business cycle has been the fact that both booms and busts have been much more severe in the “capital goods industries” (the industries making machines, equipment, plant or industrial raw materials) than in consumer goods industries.And the Ricardian theory had no way of explaining this feature of the cycle.

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

Organized Plunder, a.k.a. The State

July 9, 2015

Organized Plunder, a.k.a. The State

Whose Side Are You On?

On one side: the Fed… the NSA… the CIA… Fannie Mae… Freddie Mac… the trade unions… Wall Street… the dollar… Obamacare… New York’s taxi system… QE… the wars on terror, poverty, illiteracy, and drugs… Dodd-Frank… the TSA… the ATF… millions of retirees and disability scammers… General Motors… Hillary Clinton… and many, many others…

StatismA widely held and quite erroneous belief …

On the other: Airbnb… Uber… cryptocurrencies… “Main Street”… businesses… families… gold… young people… savers… Freemasons… Ron Paul… truck drivers… the Episcopal Church… Elks… entrepreneurs… free markets… and millions of honest people who make their livings and live their lives as best they can without holding a gun to anyone else’s head.

Yes, dear reader, maybe it was too much alcohol or too little food. But in the night, a vision came to us. It revealed the big picture in a way we hadn’t seen it. Zombies, you’ll recall, are people and institutions that live at the expense of others. How?

Some are freelance criminals. But most depend on government to get the flesh they need. People don’t give up their own blood readily. They run. They hide. They try to protect themselves. But government maintains a territorial monopoly on the one thing that does the trick – violence.

So today, we stoop to admire the institution of government. What a beautiful racket! It typically takes 20% to 50% of an economy’s output. It makes the rules. It sets the pace. And woe to anybody or anything that gets in its way…

murray_rothbard_poster-rf988ce7ae6e04a73bd0086fe28baac98_wvo_8byvr_324Murray Rothbard’s concise definition of the State

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

 

 

CAN CENTRAL BANKS GO BANKRUPT?

April 26, 2015

CAN CENTRAL BANKS GO BANKRUPT?

A TDV subscriber forwarded us an article that said the Federal Reserve was dangerously close to going “bankrupt,” stating, “In direct figures, the Fed has $4.485 trillion in assets, but a whopping $4.428 trillion in liabilities, leaving only $57 billion, or about 1.28%”.

The article stated that, “if the value of the Fed’s assets drops by more than 1.28%, the Fed will be bankrupt.” It went on to paint a conundrum wherein if the government relies on the Fed, and the Fed goes bankrupt, who will bail whom out?

Before we begin to show the trouble with this circular logic let us first preface that central banks are intentionally set-up to be incredibly confusing.  Hardly anyone really understands how they work and Alan Greenspan even coined the term “Fed Speak” where he said that he would talk to Congress in plain gibberish because their goal was for no one to really understand what they do.  Because, if they really did understand what they do, as Henry Ford said, “there would be a revolution tomorrow”.

Analysts who understand what they do in detail are few and far between and include people like Jim Grant, Robert Murphy and TDV’s Senior Analyst, Ed Bugos.

Murray Rothbard (1926-95), a Misesian successor in the Austrian School, speech writer for many Libertarian presidential candidates, author of many books about the Federal Reserve System (and the evils of fractional reserve banking), and inspiration to Ron Paul, said this in his 1994 book, “The Case Against the Fed,”

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

7 Habits of Highly Effective Libertarians

April 26, 2015

7 Habits of Highly Effective Libertarians

How to sustain a lasting passion for liberty

What does it mean to be an effective advocate of liberty? It means to love what you do and adopt sustainable patterns of thinking and living that contribute to making the world a freer place.

Sustainability is key. Most of today’s attacks on freedom lovers include a dismissal that libertarianism is an ideology for idealistic (or maybe deluded) kids, not one for adults. Sure, you can feel enraptured by the writings of Bastiat or Rand or Rothbard when you are in high school or college. But once you get into the real world, they say, you mature and give up the illusions of a freer world.

I don’t believe this. Within the domain of liberty, we find the path to prosperity, social peace, and human flourishing. Every limitation on the freedom of thought, action, and ownership robs the world of creativity, wealth, and progress.

And yet, freedom is not baked into a world where various forms of despotism are always threatening. It must be won anew in every generation. Indeed, it’s the ones who fancy themselves as grown-ups — able to make big decisions for the rest of humanity — who become the next generation of despots. It is the very foundation of intellectual and moral maturity to resist this level of hubris and to acknowledge the truth of our limitations.

Surely maturity shows us the limits of power. Surely the cause of liberty is worth our lifelong efforts.

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

 

 

Today’s Lunatic Foreign Policy – LewRockwell.com

October 28, 2014

The argument for imperialism has always been two-edged, what the great Old Rightist Garet Garrett called (in his classic The People’sToday’s Lunatic Foreign Policy – LewRockwell.com.

In 1990, Murray Rothbard clearly identified the earliest signs of the ultimately successful decade-long push by the neocons to replace their dearly missed Cold War with a global, imperialist, and permanent War on Islamic fundamentalism and for “Democracy.” He wrote in his April 1990 column “The Post-Cold War World: Whither U.S. Foreign Policy” (which can be found in the collection The Irrepressible Rothbard):

“But if the Cold War died in the Communist collapse of 1989, what can the ruling conservative-liberal Establishment come up with to justify the policy of massive intervention by the U.S. everywhere on the globe? In short, what cloak can the Establishment now find to mask and vindicate the continuance of U.S. imperialism? With their perks and their power at stake, the Court apologists for imperialism have been quick to offer excuses and alternatives, even if they don’t always hang together. Perhaps the feeling is that one of them may stick.

The argument for imperialism has always been two-edged, what the great Old Rightist Garet Garrett called (in his classic The People’s Pottage) “a complex of fear and vaunting.” Fear means alleged threats to American interests and the American people. To replace the Soviet-international Communist threat, three candidates have been offered by various Establishment pundits. (…) [Rothbard here offers international narco-terrorism and reunified Germany as the first two potential bogeymen.]

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

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