Samizdata

British academic John Gray, based at the London School of Economics, is well-known in Samizdata circles as the former ‘Thatcherite’ professor, author of interesting books about FA Hayek and John Stuart Mill who in the late 1980s turned sharply away from classical liberalism and embraced the doom-and-gloom agenda with the fervour of the convert. His depressing prose can be occasionally seen in such idiotarian enclaves as the New Statesman and the Guardian. OK, it’s a shame to lose a potentially good guy to the Forces of Lunacy, but such is life.

But even I did not realise that the chap has pretty much decided that the planet would be better off if we all dropped dead. Really. His pessimism has attained heroic proportions. Check out this superb piece of Fisking of the guy by leftist writer Helene Guldberg. It surely points to something pretty chilling about what some folk who use the Green banner really believe in.

Update: link and attribution now corrected

Paul Marks points out why the likes of Paul Krugman really dislike what we have to say.

Paul Krugman (the pet economist of the New York Times) is fond of sneering at the Austrian school theory of the boom-bust cycle as a ‘moral theory’.

According to Professor Krugman, Austrian school economist believe the bust is a moral punishment for the degenerate luxury of the boom.

Of course to a ‘liberal’ like Paul Krugman moral and morality are ‘boo words’ to be sneered at (unless they are talking about George W. Bush – in which case it is quite all right to talk about lack of morality). However, Professor Krugman is (I believe) up to a bit more than this here. Ludwig Von Mises was insistent that economic science be “value free” – the methods of natural science were not suitable for economics (or so Von Mises taught), but economics (like natural science) must be kept distinct from ethics. As an economist one explained the consequences of a policy – and only then did one (as a human being) decide whether these consequences were good or bad.

So by claiming that Austrian school of economics is a moral school Professor Krugman is playing the same game that Marx and Engels played with Max Stirner – knowing he was obsessive atheist (even more so than they were) they insisted on calling him “Saint Max”, “Our Saint” (and so on). Stirner had claimed that a communist society (which he opposed) would have to be based on the ethical (‘religious’) principle that equality was good (communism as an overgrown monastery) – so Marx and Engels were trying to get their own back on someone who had argued that communism was not ‘scientific’.

There is clearly a long tradition in ‘social science’ of regarding the accusation of ‘morality’ as a deadly insult, so Professor Krugman clearly knows where to hit. However, is he totally wrong? Is there no connection between Austrian economics and morality?

Murray Rothbard often argued that there was a connection between the concept of economic law and the idea of natural law in ethics.

I will not examine Rothbardian Aristotelianism in this blog but I mention it in case any one supposes that I am the first person to try and explore the connections between economic law and moral law.

Von Mises (like Carl Menger before him) based his whole conception of economics on human choice – on the reasoning “I” which decides how to act and then acts. It is true that Hayek (being influenced by determinism) did not go along with the concept of agency (the choosing agent – the “I”) but, in practice, Hayek accepted that people should be considered “as if” they were actually different from clock work toys so he need not be examined here (although I wonder who is doing the considering if Hayek himself was not an agent-subject – but simply a complex object like the rest of us supposed to be).

Mises himself was careful to never actually formally endorse the concept of free will (to do so would have been the ultimate horror in early 1900’s Vienna) but clearly (as for the Aristotelian Menger) the whole of his thought depends on man being able to think – to consider, to make choices, to be “acting man” the agent. Agency may not be ethics but it is at least a doctrine of metaphysics. This is why both Mises and Karl Popper were amused when they were accused of being ‘positivists’. The Vienna Circle would never accept any metaphysical doctrines – indeed that was the whole point of the Vienna Circle (circles with points? oh well “you know what I mean”).

Still how does all this metaphysical stuff relate to practical ‘policy issues’? Someone might accept that not allowing private ownership of the means of production and money prices derived from voluntary interaction will (eventually) lead to mass starvation, but still hold that mass starvation does not matter (the Cambridge economist Maurice Dobbs came close to this – he accepted that socialism was not as good at giving people what they wanted as capitalism was – but held that this was not relevant, as it did not matter what people wanted) surely then Mises’ distinction between economics and morality still holds? → Continue reading: Economics and Morality

Free marketeers in the U.S. are currently arguing in convincing terms that taxes on equity dividend payments should be scrapped. This, they argue, would end many of the pressures to inflate corporate accounts and the kind of shenanigans currently roiling the financial markets around the world. It is an interesting point, and made in great detail by blogger and economics writer Brink Lindsey.

Lindsey points out that the current problems in the financial system are a result of government intervention, such as restrictions on hostile takeovers, rather than laissez faire. Hostile takeovers, as he explains, actually keep management on their toes and can prevent, rather than cause, the kind of abuses that happened at Enron.

So perhaps we need more Gordon Gekkos and fewer Harvey Pitt’s (head of the U.S. SEC). Not an argument one is likely to read in the New York Times.

Paul Marks is revealed to be the hard man of the blogosphere!

Now I have stopped writing as an unbiased person (at least as unbiased as I can be) in my blog Monetary Policy I can get on to a question that interests me as a hard money faction Austrian School man.

Those of you with the courage to read my last blog (I should have made it more plain – but I lack the wit to do so) will hopefully know that a Austrian school man of my type believes that money should be based entirely on one commodity and that institutions that issue paper money (bills of credit, whatever) should actually have enough of that commodity to cover all their notes. Traditionally people of my sort have supported the so called ‘100%’ or ‘real’ gold standard (as opposed to the various statist frauds that have existed under the name of ‘gold standard’) – but actually any commodity might be used, and there might be competition between commodities – as there was (for example) in the Kingdom of Hanover before the mid 19th century. As long as only one commodity was used for each money and there were no fixed exchange rates between the commodities – if (for example) a certain amount of gold ‘has’ to buy a certain amount of silver then things are messed up.

Some people who read these blogs are well aware of the ‘Austrian’ arguments against Monetarists (that the concept of a ‘price level’ is too loose to be useful, that a price ‘index’ is a misunderstanding [even Hayek argued that himself at various times – but sometimes seemed to like the concept of a price index], and that the ‘money supply’ does not gush everywhere like water, but instead piles up like treacle – creating asset price bubbles, distorting relative prices and creating mal-investment).

However, I am not going to deal with all this here. My question is this – given that the world is not what I would wish it to be, just what will happen?

Traditionally a hard money man would say there will be a bust or a crack up boom. In a bust the government stops propping up the magic circle of ‘private’ financial institutions and other favoured business enterprises (by ‘increasing the money supply’) and the economy goes into slump. In a ‘crack up boom’ the government continues to increase the money supply (i.e. credit money) till there is vast open inflation (not just asset price inflation but ‘prices in the shops’) and a ‘flight from money’ occurs – and the thing comes to a terrible stop. The boom-bust cycle (with the crack up boom being far worse than a normal bust).

However, what happens if government continues to increase the credit-money supply, but not enough to create vast open ‘in the shops’ inflation? As the various speculations of the financial institutions and other favoured enterprises go wrong so the government increases its credit money supply to prop them up – but (by their very failures) the institutions’ own credit paper (‘broad money’ if you like ‘M3’ etc) shrinks – so there is not much actual change in what people see as the ‘price level’.

Well of course things become more and more inefficient as a greater and greater share of resources are devoted to propping up mal-investments – so there is general economic decline over time. But is there a formal big bust?

Readers of this should get to find out over the next few years – as governments seem determined to neither go for vast open inflation, or to allow the financial system to bust.

The economy will get worse – but in what way the process manifests itself will be very interesting.

Please take some time off from the simple process of survival, over the next few years, to observe and consider these matters. A bit of observation and thought will not reduce your survival chances (if survival is what interests you) – it may even help.

Paul Marks

Paul Marks reads what is generally said to be a ‘pro-free market’ newspaper and find a procession of writers who do not have the slightest idea what they are talking about

Page four of the Sunday Telegraph business supplement (4 August 2002) tells us quite a lot of the state of what passes for free market thought in Britain today – remember the ‘Sunday Telegraph’ is about as free market as mainstream Britain gets, the other newspapers (let alone radio and television programs) are far worse.

There are three articles on the page. The first article is by Jeff Randall of the BBC Mr Randall is one of several B.B.C. people who write in the Daily and Sunday Telegraph and such people are given as evidence that the B.B.C. is tolerant of free market thought. My own opinion is that the Telegraph is rather welcoming to anti free market thought – but I must deal with the article on its merits (not on basis that the author works for the BBC.)

Mr Randall writes about two topics in his article. The second topic is the stupidity of the Football League – a topic I know little about. However, Mr Randall starts his article by writing about the 1990’s stock market bubble. Mr Randall blames the whole thing on stupid greedy people (businessmen, politicians, ordinary investors and so on) and gives several examples of stupid behaviour.

Mr Randall shows little sign of understanding that the bubble was created by an expansion of credit-money by the Federal Reserve Board and the other central banks. But why should Mr Randall understand this? The source of Mr Randall’s understanding of economics is that “classic work” by J.K. Galbraith “The Great Crash”. J.K. Galbraith (being a socialist) would hardly blame the great depression on government credit-money expansion – no, greedy businessmen and other silly people were the cause. Being mostly University graduates Sunday Telegraph readers are likely to have heard of Galbraith’s work. However, it is very unlikely that the average reader (or even Mr Randall himself) has heard of Ludwig Von Mises’ “Theory of Money and Credit” or Murray Rothbard’s “America’s Great Depression”.

The basic truth that investment must be based on real savings and that trying to base investment on credit-money expansion via the central bank system MUST lead to a boom-bust cycle (whatever the moral character of businessmen) is not something that it is generally known. And how can Conservative “Telegraph” readers get to know about it? The socialists are not going to tell them – and anti-socialist establishment types such as Mr Alan Greenspan of the Federal Reserve Board are not going to tell them either. Even if the establishment types know what they have done (and I suspect that Mr Greenspan is one of the few people in the international finance “community” who actually does know what he has done) they are hardly going to say “look, we have created a boom-bust cycle”, such a statement would not make them popular. It is far better to blame “greed”.

The second article (on page four of the business supplement of the Sunday Telegraph) is by Evan Davis (another BBC man). Mr Davis notes that people in some Continental nations tend to save more than people in Britain or the United States. Mr Davis concludes from this that the E.U. central bank should cut interest rates – as this will encourage the people in Europe to spend and invest, rather than save.

Mr Davis is unaware that investment depends on saving (I suppose he thinks that “saving” means hiding money under the floor boards). Mr Davis is also unaware that people must produce before they can consume. All efforts to “stimulate the economy” by getting people to buy more things are putting the cart before the horse.

However, there is no reason why Mr Davis should know any of this – he could spend as much time as he wished in university economics departments without learning any of it. The business people who read the “Sunday Telegraph” are (no doubt) quite happy to think that all would be well if only people had more money to buy their products. Why should the business people not think like this? No one has ever told them anything different.

Mr Davis points out that there is less of a house price bubble in most continental nations and that the stock markets have not reached the heights seen in the United States. However, Mr Davis does not point out that there has in fact been vast money supply growth in most Continental nations and that presently the Euro money supply growth figures are higher than money supply growth figures for the United States – see the back pages of the “Economist” magazine for the figures.

The idea that the effects of the boom-bust cycle in Britain and the United States can be mitigated by further money supply expansion in the Euro Zone is insane – but there is no reason why Mr Davis (or his readers) should know that it is insane.

The last article (on page four of the business supplement of the Sunday Telegraph) is by Luke Johnson (chairman of Signature Restaurants). Mr Johnson is concerned about the rise of China and the relative decline of the West in manufacturing.

Mr Johnson knows little about “macro economic” matters – for example he thinks that the “relentless deflation now present in all economies” is due to China manufacturing cheap goods. Actually there is “deflation” (i.e. falling prices) in virtually no Western nations (apart from Japan) – and the falls in asset values that we have seen (and will see a lot more of next year) are due to the credit bubble (which is still being pumped up) nearing its terrible end. Mr Johnson does mention the credit bubble – but being a businessman he prefers to deal with something he can see in terms of physical goods (in this case the manufactured goods of China).

Mr Johnson is actually right to dismiss the idea that manufacturing does not matter – I know only to well that “service industries” normally do not mean flashy things (and when they do mean flashy things – they are often unstable credit bubble linked things such as “financial services”). Mostly “services” are things like the warehouses that have replaced the factories of the midlands (and much of the rest of Britain). And anyone who thinks that warehouse work, looking after goods imported from abroad, is a real substitute for actually making things is simply wrong.

Mr Johnson makes too much of China’s low wages (there are nations with much lower wages than China that produce very little in terms of manufactured goods – and there is no reason why, with automation, “high wage” areas can not hold their own against “low wage” areas).

However, Mr Johnson is right to point out that depending on a hostile power (and China is deeply hostile to the west) for essential manufactured goods may be unwise. Although one should remember that a real market order can adapt very fast – for example the British military, to some extent, depended on goods produced in Germany in 1914 (even down to the dye for army uniforms) – but this did not prevent Britain fighting Germany (British firms filled the gaps).

But Mr Johnson’s last but one paragraph makes his most important point (and shows there is some reason to read the ‘Telegraph’ papers, rather than reading the ‘Guardian’ or watching the BBC.).

“Fatuous E.U. bureaucrats legislate for more burdensome health and safety regulations, higher taxes, and more red tape for business, and insist that curing unemployment is a priority”.

When they are dealing with “micro” economics (as opposed to the financial magic of “macro” economics) Telegraph business people have something to say. It is the taxes, spending and regulations of Western nations (E.U. or not E.U.) that is helping destroy Western industry – not a wicked Chinese plot. Of course Western industry is also being destroyed by the boom-bust cycle, the very demands for “lower interest rates” and “more consumer demand” that we hear from business people in every Western nation.

They are rich, they are well meaning, they are hard working – but (sadly) they are ignorant.

Paul Marks

Happy birthday, Professor Milton Friedman! Chicago’s greatest academic passes the 90-year milestone today. Now there are many ways we Samizdatistas got to hold the views we do, but speaking for myself, Prof. Friedman was a key factor.

I recall reading his book Free to Choose when I must have been in my mid-teens, and found the clarity of his writing and often wry comments about the insanity of Big Government a compelling combination. As a youngster, I found his arguments easy to understand but they never patronised the reader. He surely ranks alongside Ludwig Mises, Murray Rothbard, Ayn Rand, F.A. Hayek and Robert Nozick as one of the giant figures in the libertarian counter-revolution after the Second World War.