Hey guys,
So, I’m quite new to the Austrian school of economics. I’ve been a libertarian for quite some time, now, but my arguments have usually been based on the philosophy/moral side of things (primacy of the individual/taxation is theft, that sort of thing). My understanding of the Austrian business cycle theory is somewhat limited, and I do plan to do some proper reading of it over the summer (currently bogged down in exam season).
HOWEVER, my limited knowledge hasn’t stopped me from going into these debates kicking-and-screaming. Usually, people only have a “reader’s digest” version of their economic views, and so I’m equally matched. Unfortunately, in this game against Kens, I’ve hit a Ryu. And have somehow managed to find myself paired against somebody who’s a financial adviser to the British treasury… and he seems to know his stuff.
Panicked, I sent his below argument that he made to Tom Woods. Too busy, and unwishing to pick through the individual arguments, he directed me to this forum, and here I am. The below argument is exceedingly long, so I do apologise:
Firstly its effect was not what I was saying was unfounded, but it is simply a monetary phenomenon. I work for HM Treasury as an economist on financial policy, on top of that my economics knowledge in itself is enough to know what these things do and how they interact.
Secondly signals interest rates are, but more importantly and primarily a value assigned to the currency based on future expectations via intertemporal costings and constraints are what interest rates signify. People save because rates are high, arbitrage in both the triangular and spatial sense fully state that equalisation of returns occurs in the long run. So to say when savings are high IRs naturally fall is nonsense, savings are high because IRs are high and they will continue to be until investment returns have equalised to that level.
The end of '08 inflation spike was indeed cased by oil and gas prices but not a sudden exponential rise in demand but a reduction supply. Oil and gas etc have highly inelastic demand, so the actual quantity demanded here in the UK doesnt change significantly. However of late China has increased demand but that was not the case in 2008.
You state that Consumption and Investment increase when IRs are low, indeed this is the case to a point, as the increased demand for money eventually increases the interest rates, regardless of supply, in fact the increase in supply of the GBP has been insignificant because the monetary base has been left to float in the free market for many years.
Inflation doesn’t make people poorer it makes the value of the currency deteriorate. In turn that can boost exports and business and make people relatively richer, as Friedman himself said, inflation is everywhere and always a monetary phenomenon. Wages can rise my the same rate as prices do too.
Money is not centrally planned it is a commodity good with a derived demand that has significant impacts on the economy and so is regulated. Central planners would stupidly set the base rate and high powered money supply and wonder why it didnt work, the free market is working well here with the Central Banks monetary policy acting within a free market set up.
Thanks for checking out this thread, and I’m hoping for you guys to provide me with some adequate counter points. Amongst my few weaksauce points, the only one I’ve got is in relation to his point about diminishing currency = more exports, and my point being that if inflation is a global problem, then the trade benefit will be reduced, as everybody’s currencies would be weaker!