Peter Schiff vs Austrian Theory

Economics Economics Questions
1

I’ve learned a lot from listening to Peter Schiff. I’m curious as to how much of his theories jibe with Austrian theory.

For example:

  • To better understand a transaction he often simplifies things by removing cash from the equation and focusing on the actual trade.

  • He believes the economic principles for an individual or small group also apply to a large group such as government.

  • He believes a large trade deficit is sign of poor productivity.

  • He believes debt is harmful to an economy, much more than other economists.

2

People need access to loans to finance entrepreneurship. It’s highly unlikely that many new firms will appear, because very few people have all the necessary capital in their pocket when they are starting out. Of course, debt can be harmful, but it is not necessarily harmful. I’m quite certain that this one conflicts with Austrian theory.

I’m far from an expert on the subject, nor am I familiar with his work, but to the best of my knowledge, the other theories you provided examples of don’t conflict.

3

Everything he says is 100% Austrian.

As for debt, he doesnt say debt is a bad thing in itself. he is talking about borrowing money to consume [especially if you cant repay]. that is bad. but borrowing money to be able to produce more is good.

Here is one place he says it:

http://www.youtube.com/watch?v=IV3NEOt_8Uk At about the four minute mark and on.

4

because of of what is discussed here:

Not all debt. Government debt, Consumers debt encouraged by government intervention in the economy, etc…

5

Don’t confuse debt with loans.

He speaks against the nonsense like bailout money based on money from other government &/or printed money.

I think all Austrians speak of the need for savings, and loans should be from what is saved, not debt.

6

Peter schiff is an investor. It’s more applied economics. It’d be like knowing physics, and making a basketball.

You’d need to elaborate on these examples for more specific answers, but as far as the trade deficit and debt, i’m sure he means in our economy. The problems with our economy aren’t problems of a free market economy. The debt is funded by fiat currency, and by your statement it’s unclear what he means by debt. Government debt is bad of course, debt that earns profit is not. An individual in debt heading for bankruptcy is probably not good for him…

Trade deficit of course is bad for us in todays economy because it’s not a free market world. We have governments and borders preventing us from producing here what could and should be. The Tuna canning factory in American Samoa was a good example of the government taking production away with taxes or regulations and such, the trade deficit itself isn’t a bad thing, it simply represents the problem that the government is selling our production to china.

I see most of what schiff says along the same lines as other austrians like on the daily mises. Alot of them are looking at todays problems and economy through the lense of austrian school theory, so trade deficits, debt, fiat currency. They’re all problems.

7

I recall hearing an interview with Bob Murphy, where Bob said he was not really sure everything Peter was saying was true in regard to the currency in particular, that is seemed a little far fetched to him, but when he really looked into it he saw it was all spot on and he could hardly believe it himself.

8

LInk, please?

9

Sorry, debt was too general. He has stated many times that debt used for capital investment is a good thing. In fact he says this is how standard of living grows. I was mainly referring to government debt. I’ve seen so many interviews on financial shows where the guests are arguing about some new government program (cash for clunkers for example). They always talk about the positive and negative effects but they never worry about the DEBT that accumulates. In my opinion even a government program that appears to be somewhat harmless to the overall economy is not simply because of the debt.

10

It has to do with the fact that each country has it’s own currency. He talks about it in his book Crash Proof. Pretty interesting.

11

I’m not sure, it was some time ago. But I think it was an interview at antiwar radio so it should probably be one of these: http://www.scotthortonshow.com/index.php?s=bob+murphy&option=com_search

12

Nope, wait. I listened through all three and no mention of Shiff in any of them. Human memory is a weird thing. :frowning:

13

[:)] Thanks for the effort.

14

I totally agree, but it seems that most others on this website disagree.

Here’s a passage from Crash Proof:

Tale of Two Farmers

Farmer Chang only grows oranges. Farmer Jones only grows apples. Each grows only the fruit that he produces most efficiently, trading the surplus for the fruit grown by the other. Both farmers benefit from comparative advantage and free trade. The sole reason that Farmer Chang “exports” oranges is to “import” apples, and vise-versa.

Suppose that one year a frost wipes out farmer Jones’ apple crop. Not having any fruit to trade, but hungry nevertheless, he proposes to trade apple IOUs for farmer Chang’s oranges. Since Farmer Chang cannot eat all of the oranges he grew anyway, and since farmer Jones’ IOUs will pay 10% interest (in extra apples of course) he agrees.

Farmer Chang only accepts farmer Jones’ offer because of the apples that Farmer Jones’ IOUs promise to pay. By themselves, the IOUs have no intrinsic value. Farmer Chang cannot eat them. It is only the promise to pay apples that gives them value.

Now suppose that the following year farmer Jones’ crop is again destroyed, this time by a flood. He and Farmer Chang once again make the same deal, with Farmer Jones getting more of Farmer Chang’s oranges, and Farmer Chang accepting more of Farmer Jones’ IOUs.

Further suppose that similar natural disasters continue to besiege Farmer Jones for several more years, with Farmer Chang continuing to accept Farmer Jones’ interest-bearing apple IOUs in exchange for his oranges. Eventually it dawns on Farmer Jones that he is eating pretty well, without actually farming. He therefore decides to turn his apple orchard into a golf course, and simply play golf all day while enjoying Farmer Chang’s oranges. In other words, Farmer Jones now operates a “service economy.”

Farmer Chang on the other hand is so busy growing all those oranges that he never gets a chance to play Farmer Jones’ course. In fact, he has been accepting farmer Jones’s IOUs for so long that he no longer remembers his original reason for doing so. He forgot about his original desire to actually eat the real apples Farmer Jones had promised to deliver. Instead, he now counts his wealth based solely on his accumulation of apple IOUs.

In fact, Farmer Jones had such a good reputation within the farming community that Farmer Chang was actually able to trade some of Farmer Jones’ IOUs for goods and services provided by other farmers and local merchants. Apparently no one bothered to notice that Farmer Jones’ apple orchard had become a golf course, and that his IOUs were therefore worthless, as he no longer possessed the ability to redeem them with actual apples.

Some might argue that the entire community now depends on Farmer Jones and his worthless IOUs and that everyone will accept them indifferently rather than acknowledging the reality of their folly. Of course, were these revelations to occur, any unfortunate holders of Farmer Jones’ IOUs would officially be forced to realize their losses. However, their true financial situations would improve, as any further accumulation of worthless IOUs would end. As for Farmer Chang, he would literally once again enjoy all of the fruits of his labor.

The real loser of course would be Farmer Jones, for without a viable apple orchard or the ability to buy oranges on credit, he would starve. It would take years to transform his golf course back into an orchard, regain his lost knowledge of farming, and replace his obsolete or dilapidated farming equipment (provided he hadn’t already traded it in for golf carts and titanium clubs). In the end, his only alternative might be to sell his golf course to farmer Chang and take a job picking fruit in his orange grove.