4 ms·

It's not new at all. It's actually fairly easy to demonstrate. I recommend Murray Rothbard's America's Great Depression[0] from 1963. The quick hit is this: A.

It's not new at all. It's actually fairly easy to demonstrate. I recommend Murray Rothbard's America's Great Depression[0] from 1963. The quick hit is this: A. US Monetary policy provides large banks with extremely cheap capital B. Large banks competing with each other in the free market must make use of that capital C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). D. Those bad investments fail, and mass margin calls lead to an economy-wide de-leveraging that destroys economic growth for months or years. Systemic financial crises can't happen without cheap, printed money. It's also reasonable to question whether giant companies could exist at all without US monetary policy. Companies of that size are almost completely dependent on the financial industry, which is completely dependent on the Fed's cheap currency. [0][PDF]https://mises.org/files/americas-great-depressionpdf-0/download?token=rwW4UjXa https://mises.org/files/americas-great-depressionpdf-0/downl... Edit: added PDF label

Retric 9y ago
You like many people are confusing money with resources. If I make 100 trillion dollars from thin air you can't actually build 10x the number of houses. What's really happening is an allocation of resources. Banks can only back specific kinds of investments which approximate zero sum as you keep pumping ever more resources in ex: Real Estate. yes, everyone wants shelter. So, we can all get a 100,000 sf house! Well, no. However, you can increase the money supply without simply handing banks all that money just increase reserve requirements as your pumping money into the economy.
VHRanger 9y ago
I'm sorry, but Murray Rothbard is not taken seriously by the profession at this point. He has no economic model to speak of (he never modelized anything in a testable mathematical framework), and none of his claim were ever supported by econometric evidence. His "analysis" harks back to economics of the 1800s, similar to Marx, where you would try to understand the economy by intuition, using nothing more than the english language. It turns out if you don't rigorously test your ideas you can use the english language to make a case for all sorts of loopy theories.
frgtpsswrdlame 9y ago
Please step out of your bubble and try reading some analysis from people who call themselves economists before they call themselves libertarians or austrians(aka not mises.org). The other commenter is right, Rothbard is not taken seriously and anyhow citing economics thats over 50 years old isn't exactly good practice. Austrian economics is the climate science denialism of economics, there's a reason "we are all Keynesians now."
- padobson 9y ago
  It's fine to call me and Rothbard and other proponents of Austrian economics kooks, if that does it for you. But where's your counter example? What book should I read to become enlightened? If I was curious enough to read Rothbard's book from 1963, don't you think I'd at least consider your recommendation? If you can find me a Keynesian who can explain a systemic financial crisis without ringing their hands and shouting "Capitalism is reckless and greed causes financial crises!" than I'll consider their ideas. But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. I'm not going to simply side with the Keynesians because they have the dominant view. I'm not built that way. I need a better explanation than hand wringing and worship of Piketty.
  - frgtpsswrdlame 9y ago
    >But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. Keynesians give regulation. If you're unwilling to consider the ideas of someone who believes that capitalism is reckless, that greed does cause financial crises and that regulation is an answer, then why are you asking for a book recommendation? You should also note that I believe in regulated markets not socialism or communism. There are a million shades of gray here. >I need a better explanation than hand wringing and worship of Piketty. Have you read Piketty? I'm going to recommend two books which should be a gentle introduction to my viewpoint: 23 Things They Don't Tell You About Capitalism by Ha-Joon Chang Economism: Bad Economics and the Rise of Inequality by James Kwak EDIT: I'd also note that one of the things that frustrates me most is to see the politicization of economics. The misuse of economic terminology to advocate a specific political viewpoint is exactly what mises and similar institutions engage in and it leads to a group of the public who believes that they're educated in economics when they're actually just inculcated to a political worldview. If you read those books and still disagree, that's fine but just think about whether it's an intelligent disagreement. I've run into so many individuals who know Friedman, Hayek, Mises, Rothbard, maybe Hoppe and no one else. People who explain to me all about how supply and demand lead to market clearing but don't know a single model other than "the free market model" (actually the perfectly competitive model) and definitely don't know its assumptions. People who have never read an empirical/econometric study of economics that did not come with an easy synopsis from a blog they read(and agree with). These people do not know economics, they know politics.
ska 9y ago
Beyond the issues with Rothbard's thinking, this : "Systemic financial crises can't happen without cheap, printed money" is ahistorical nonsense.
- padobson 9y ago
  Ahistorical. As in not backed up by history? You'll have to cite with examples. Here's some of mine: Amsterdam opens the precursor to central bank in 1609[0]. Less than thirty years later, one of the earliest speculative financial crises on record demolishes the Dutch economy.[1] In the early 20th century, fractional reserve lending practices paired with a rapidly growing economy leads to the first banking crises, most notably in 1907[2]. The damage is largely limited to financial types, but the banking industry starts clamoring for government help to feed their recklessness. The government obliges them with founding of the Federal Reserve in 1913[3], which allows fractional reserve lending to go off the rails. A World War and a boom cycle later, and we have the worst financial catastrophe in history in 1929[4]. Going off the gold standard in the 1970s preceded the financial crises of the early 80s[5] and the Black Monday in 1987[6] Finally, another lax round of monetary policy under Greenspan led to a rash of bad investments in dotcoms, and then Bernanke helped precipitate the 2008 financial crises. Now, you can go ahead and say that I'm making a post hoc ergo propter hoc argument, and that's fine, BUT you absolutely cannot say Austrian economics is ahistorical. It completely relies on history as its foundation. [0]https://en.wikipedia.org/wiki/Amsterdam_Wisselbank https://en.wikipedia.org/wiki/Amsterdam_Wisselbank [1]https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania [2]https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907 [3]https://en.wikipedia.org/wiki/Federal_Reserve_Act https://en.wikipedia.org/wiki/Federal_Reserve_Act [4]https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929 https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929 [5]https://en.wikipedia.org/wiki/Black_Monday_(1987) https://en.wikipedia.org/wiki/Black_Monday_(1987)
  - ska 9y ago
    I am of course not suggesting Austrian school has paid no attention to history. Insufficient, perhaps :) I'm objecting to the rather stronger (than an austrian would make) statement that :"systemic financial crises cannot happen without cheap,printed money". Emphasis mine. You even have to squint very hard at your first example to make it fit - it's increasingly hard to try and argue from anything pre 18th century. You can probably (and many Austrian's would) try and make the argument for this as a root cause of most/all modern crisis, but of course alternate analysis exist that are similarly grounded. It's a complex subject.
atmosx 9y ago
> C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). If the US government in 2008 had let Goldman Sachs (and others) to get what they really deserved, possibly keeping afloat tiny investors/victims for social reasons, I think investment would be pretty balanced. I would argue that the problem is a revolving door between Goldman and the US Gov that benefits very specific ppl and not the FED's policy.
- padobson 9y ago
  I agree with the revolving door. The way I see it, the Fed is inflating bubbles by pumping cheap money into the financial sector, and then the US Gov is bailing out the financial sector when the bubbles burst. It's hard to distinguish between the government and big finance, that's for certain.

Retric 9y ago

You like many people are confusing money with resources. If I make 100 trillion dollars from thin air you can't actually build 10x the number of houses. What's really happening is an allocation of resources. Banks can only back specific kinds of investments which approximate zero sum as you keep pumping ever more resources in ex: Real Estate. yes, everyone wants shelter. So, we can all get a 100,000 sf house! Well, no. However, you can increase the money supply without simply handing banks all that money just increase reserve requirements as your pumping money into the economy.

VHRanger 9y ago

I'm sorry, but Murray Rothbard is not taken seriously by the profession at this point. He has no economic model to speak of (he never modelized anything in a testable mathematical framework), and none of his claim were ever supported by econometric evidence. His "analysis" harks back to economics of the 1800s, similar to Marx, where you would try to understand the economy by intuition, using nothing more than the english language. It turns out if you don't rigorously test your ideas you can use the english language to make a case for all sorts of loopy theories.

frgtpsswrdlame 9y ago

Please step out of your bubble and try reading some analysis from people who call themselves economists before they call themselves libertarians or austrians(aka not mises.org). The other commenter is right, Rothbard is not taken seriously and anyhow citing economics thats over 50 years old isn't exactly good practice. Austrian economics is the climate science denialism of economics, there's a reason "we are all Keynesians now."

padobson 9y ago
It's fine to call me and Rothbard and other proponents of Austrian economics kooks, if that does it for you. But where's your counter example? What book should I read to become enlightened? If I was curious enough to read Rothbard's book from 1963, don't you think I'd at least consider your recommendation? If you can find me a Keynesian who can explain a systemic financial crisis without ringing their hands and shouting "Capitalism is reckless and greed causes financial crises!" than I'll consider their ideas. But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. I'm not going to simply side with the Keynesians because they have the dominant view. I'm not built that way. I need a better explanation than hand wringing and worship of Piketty.
- frgtpsswrdlame 9y ago
  >But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. Keynesians give regulation. If you're unwilling to consider the ideas of someone who believes that capitalism is reckless, that greed does cause financial crises and that regulation is an answer, then why are you asking for a book recommendation? You should also note that I believe in regulated markets not socialism or communism. There are a million shades of gray here. >I need a better explanation than hand wringing and worship of Piketty. Have you read Piketty? I'm going to recommend two books which should be a gentle introduction to my viewpoint: 23 Things They Don't Tell You About Capitalism by Ha-Joon Chang Economism: Bad Economics and the Rise of Inequality by James Kwak EDIT: I'd also note that one of the things that frustrates me most is to see the politicization of economics. The misuse of economic terminology to advocate a specific political viewpoint is exactly what mises and similar institutions engage in and it leads to a group of the public who believes that they're educated in economics when they're actually just inculcated to a political worldview. If you read those books and still disagree, that's fine but just think about whether it's an intelligent disagreement. I've run into so many individuals who know Friedman, Hayek, Mises, Rothbard, maybe Hoppe and no one else. People who explain to me all about how supply and demand lead to market clearing but don't know a single model other than "the free market model" (actually the perfectly competitive model) and definitely don't know its assumptions. People who have never read an empirical/econometric study of economics that did not come with an easy synopsis from a blog they read(and agree with). These people do not know economics, they know politics.

ska 9y ago

Beyond the issues with Rothbard's thinking, this : "Systemic financial crises can't happen without cheap, printed money" is ahistorical nonsense.

padobson 9y ago
Ahistorical. As in not backed up by history? You'll have to cite with examples. Here's some of mine: Amsterdam opens the precursor to central bank in 1609[0]. Less than thirty years later, one of the earliest speculative financial crises on record demolishes the Dutch economy.[1] In the early 20th century, fractional reserve lending practices paired with a rapidly growing economy leads to the first banking crises, most notably in 1907[2]. The damage is largely limited to financial types, but the banking industry starts clamoring for government help to feed their recklessness. The government obliges them with founding of the Federal Reserve in 1913[3], which allows fractional reserve lending to go off the rails. A World War and a boom cycle later, and we have the worst financial catastrophe in history in 1929[4]. Going off the gold standard in the 1970s preceded the financial crises of the early 80s[5] and the Black Monday in 1987[6] Finally, another lax round of monetary policy under Greenspan led to a rash of bad investments in dotcoms, and then Bernanke helped precipitate the 2008 financial crises. Now, you can go ahead and say that I'm making a post hoc ergo propter hoc argument, and that's fine, BUT you absolutely cannot say Austrian economics is ahistorical. It completely relies on history as its foundation. [0]https://en.wikipedia.org/wiki/Amsterdam_Wisselbank https://en.wikipedia.org/wiki/Amsterdam_Wisselbank [1]https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania [2]https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907 [3]https://en.wikipedia.org/wiki/Federal_Reserve_Act https://en.wikipedia.org/wiki/Federal_Reserve_Act [4]https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929 https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929 [5]https://en.wikipedia.org/wiki/Black_Monday_(1987) https://en.wikipedia.org/wiki/Black_Monday_(1987)
- ska 9y ago
  I am of course not suggesting Austrian school has paid no attention to history. Insufficient, perhaps :) I'm objecting to the rather stronger (than an austrian would make) statement that :"systemic financial crises cannot happen without cheap,printed money". Emphasis mine. You even have to squint very hard at your first example to make it fit - it's increasingly hard to try and argue from anything pre 18th century. You can probably (and many Austrian's would) try and make the argument for this as a root cause of most/all modern crisis, but of course alternate analysis exist that are similarly grounded. It's a complex subject.

atmosx 9y ago

> C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). If the US government in 2008 had let Goldman Sachs (and others) to get what they really deserved, possibly keeping afloat tiny investors/victims for social reasons, I think investment would be pretty balanced. I would argue that the problem is a revolving door between Goldman and the US Gov that benefits very specific ppl and not the FED's policy.

padobson 9y ago
I agree with the revolving door. The way I see it, the Fed is inflating bubbles by pumping cheap money into the financial sector, and then the US Gov is bailing out the financial sector when the bubbles burst. It's hard to distinguish between the government and big finance, that's for certain.