My economics professor was an Austrian and highly recommended Rothbard’s Man, Economy and State on the first day of class. Throughout the semester she brought in several Mises.org articles dealing with the current financial crisis and we compared them as a class to stories from CNBC and Fox Business Channel. By the end of the semester most students in the class preferred the Austrian to the Neoclassical explanation of the financial crisis.
I do think that since most economicists today are Keynesian it can be a good idea to have at least a basic understand of Keynesianism. Just to understand where most economics today are coming from.
Wow, I would so much love to have an Austrian professor.
I have to cringe at a lot of things my econ professor said last semester. He somehow “knew” that if we didnt’ have a New Deal, the Depression would have been much worse. WWII got us out of the GD.
I really cringed when he was talking about health care: someone asked if he thought there should be a little extra tax on cigs because of the healthcare costs, and he said “Oh yeah, I think there should be like $3 more of a tax on ciggarettes.” I can’t understand why freedom isn’t even an option for these kind of people. He won’t even consider letting people pay for their own health care, which would quite easily bypass the whole problem.
I assume you mean where do Federal Reserve Notes come from and not how natural monies came to be used as mediums of exchange. But to answer the second question it is crutual to examine the orgins of money, 100% reserve banking and then fractional reserve banking.
In the barter economy trade was limited by the double coincidence of wants. If a shoemaker needs wheat, he must find a farmer that is willing to take a pair of shoes in return some wheat. If the farmer isn’t willing to trade his wheat for the shoemakers shoes but instead wants some suger then the shoemaker must trade his shoes for suger and then the suger to the famer for wheat. This was a very inefficient way of trade.
Over time market participants came up with better ways of of conducting trade. Certain consumer goods were found to be highly marketable and possessed physical characteristics that made them perfect for trade such as homogeneity, divisibility, and portability. These items came to be used as money and originated through the voluntary cooperation of market participants.
Gold and silver and sometimes copper has been the only natural monies that lasted for thousands of years. People didn’t feel safe or found it inconvenient to store large amounts of gold silver or copper themselves. This created a demand for banks.
Banks stored peoples money issuing them tickets refundable in gold. Any time someone needed money they presented their ticket to the bank received there gold, made their purchases, and deposited anything that was left over back into the bank.
Before long people realized these bank notes were just as good as gold and began to use them like gold.
Banks saw that people rarely reclaimed their money in gold. Some bankers began printing bank notes that were redeemable in gold but not backed by gold. They would then lend the money they had created out of thin air to people for interest.
This is roughly the system we have in place today.
For a more detailed and accurate explanation I recommend Rothbard’s The Case Against the Fed which can be found here:
At the time I was attending CVCC which is a local community college. Since then I’ve moved to NC State and it has been all Keynesian and Neoclassical economics since then.
Couldn’t supply and demand in a roundabout way have a significent effect on interest rates? An increase in the money supply and decrease in the peoples demand to hold money promotes a very high time preference. Or a decrease in the money supply promoting savings and a lower time preference of the people.
Right but then you’re assuming a shift in time preferences I think, which is the determinant (as opposed to demand and supply of money.) The statement Eliot mentioned takes it as the determinant.