Food for thought: http://libertarianpapers.org/articles/2010/lp-2-43.pdf
I read that paper some time ago. It seems far more political than ‘Austrian’, but I generally agree with him.
The author errs in one very key and important economic issue, which undermines his entire theory in support of his conclusions.
He does not understand that the notion of “moderate” inflationary policy (implied in his conclusions regarding likely fed’s policy in the future) is unattainable in the long run. Either the inflationary policy is at some point abandoned completely, or it must result in the “crack up” boom. Somehow, he ignored this insight by Mises, while referring to him in other respects.
If one recognizes the above, that the policy will have to be abandoned at some point in the future in order to avoid the hyperinflation, and its consequences of “break down of the monetary system” (as even he puts it), then it must be also conceded that this can only occur at the expense of the banking system, which will have to entirely collapse due to the nature of fractional reserve banking. There is no middle ground. A middle ground suggests that the Fed will “plan” his way out of future banking crisis.
Now, yes. Theoretically, it’s possible that the Fed will st some point in the future abandon his inflationary policy. But this undermines the author’s argument about the Fed representing the banking class, as oppose to strictly adhering to the whims of policy makers. BTW, this distinction between political class and banking class is also entirely fallacious.
That was an interesting paper.
DD5,
Why is the distinction fallacious? It is not obvious to me. Are you implying bankers are just as oblivious to ABCT?
First, the entire distinction between different classes is a purely mythical one. There isn’t a set of people who strictly belong to one class and another set of people who strictly belong to another class. Likewise, the “political class” and the “banking class” are not two homogeneous groups comprised of different people. They are all interconnected.
Second, fiscal policy of artificially lowering the rate of interest is typically a common political interest that originates from various political pressure groups. Banks are typically one of these groups for the obvious reasons.
Third, financing government debt through inflation is in the interest of banks. Commercial banks are the primary customers of government securities.
I’m sorry, but I don’t see the case being made in that paper about how the interest of banks somehow suddenly becomes aligned with the long term “public” interest of preserving markets and the division of labor. I could make a similar case for the alleged political class also, for how will they continue to loot without preserving the market economy. It’s quite a naive argument to make.
[quoteuser=“DD5”]
First, the entire distinction between different classes is a purely mythical one. There isn’t a set of people who strictly belong to one class and another set of people who strictly belong to another class. Likewise, the “political class” and the “banking class” are not two homogeneous groups comprised of different people. They are all interconnected.
Second, fiscal policy of artificially lowering the rate of interest is typically a common political interest that originates from various political pressure groups. Banks are typically one of these groups for the obvious reasons.
Third, financing government debt through inflation is in the interest of banks. Commercial banks are the primary customers of government securities.
I’m sorry, but I don’t see the case being made in that paper about how the interest of banks somehow suddenly becomes aligned with the long term “public” interest of preserving markets and the division of labor. I could make a similar case for the alleged political class also, for how will they continue to loot without preserving the market economy. It’s quite a naive argument to make.
[/quote]
Your first point was the only one that was obvious to me personally. The use of the term “class” seems instantly dubious to me. Rather, I would of expected the use of the word “sector”.
On your second point, these political pressure groups (most notably banking, as you mention) are emulating the desires of the Fed. So, politics acting for special interest is essentially politics acting for the Fed. We are clear on the third point.
The paper mentions a “stasis” in the morgage market stating that the market is reverting regardless of easy credit via government/Fed. Or am I wrong in this interpretation?
Also, I have come across people retorting with “Why would the people who run the monetary system, by their actions, destroy their dollar?”. I would respond with historical examples of hyperinflation to point out it is a potent issue. However they seem to not be convinced since they have faith in bright American minds. This is a river I can’t seem to cross at that point.
Thanks DD5
/trickle down theory