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Economic Schools of Thought

At the close of my last post here, I referred to myself as a "non-Austrian," causing one of our regular commentators to wonder why. "Because," I answered, "belonging means conforming."

That admittedly cryptic reply (I was anxious to get back to the book I was reading) led to speculation to the effect that I was inclined to identify "Austrian" economics with the economics of Murray Rothbard, and particularly with his and his devotees' opposition to fractional reserve banking.

But although it's true that I have a low opinion of the ideas and arguments put forward by the 100-percent crowd, and that I'd rather swallow a dozen toads than have anyone confuse my thinking with theirs, I don't believe they've yet succeeded, despite trying their damnedest, in hijacking the "Austrian" brand name. There are, thank goodness, still plenty of non-Rothbardian "Austrians," including my fellow blogger and former colleague and mentor Larry White. But though there is no such radical difference–and in some cases hardly any difference at all–between my views and those of such non-Rothbardian Austrians, I wouldn't consider myself an Austrian even if they were the only self-styled Austrians around. My reason has nothing to do with any particular "Austrian" belief to which I object. I don't consider myself an Austrian economist for the same reason that I don't consider myself a Chicago economist, or a Keynesian economist, or a New Classical economist, or a–well, you get the point. I don't want to belong to any economic school of thought, or to "do" any sort of economics. I just want to "do" my own sort of economics.

And what sort of economics is that? I can't tell you–I've never thought much about it. But perhaps that's just it: I don't "think" about writing any "sort" of economics. I don't want to have to think about whether what I'm up to qualifies as "praxeology" or not, or whether Mises would mind my using terms like "money" and "inflation" the way most contemporary economists use them, instead of the way Mises himself used them a century ago. Nor am I any more inclined to trouble myself over whether my work fits neatly into any other economic school's pigeonhole. I don't worry about not having a "model," meaning a bunch of equations, when I'm perfectly confident that I can say what I need to say in plain English. (I rather wish that other economists both appreciated the power of plain English, and knew how to make proper use of it.) But if there's one thing I truly believe concerning the "methodology" of economics, it's that thinking about it is as helpful to actually doing economics as contemplating one's steps is to dancing the rumba. In short, having to look over my shoulder while I think or write, at any methodological strictures at all, cramps my style.

I can't imagine, on the other hand, what it could possibly mean for me to declare myself an Austrian (or a Chicagoan, or a Keynesian…) unless it means precisely that when I think or write about economics I seek while doing so to abide as much as possible by what I consider to be the distinguishing maxims of the Austrian (or Chicagoan or Keynesian…) approach. That is what I meant when I said that "belonging is conforming." And though I suppose some will take issue with this–that they will insist that being "Austrian" is not so strict a matter as all that–I can only observe in return that they might wish to consider what it would mean–no, what it has already meant–to have that label bandied about by every other anti-government nitwit. No sir: a school of thought had better insist upon its defining tenets, or risk becoming a laughing stock.

Does this mean that I think schools of economic thought entirely useless, except perhaps as convenient labels to be used by historians of the discipline after the fact? Not quite. For while I hold self-conscious devotion to any school of thought to amount to putting blinkers on one's brain, I can't deny that such devotion brings offsetting, psychological advantages. The academy is no bed of roses, especially for young faculty; and having the moral support of an organized body of like-minded peers can help a lot. What's more, it can be lots of fun. The alternative is…well, it can get pretty darn lonely.

And that, I suppose, is why, despite everything, I don't really mind being called an Austrian. That at least makes one school whose parties I don't have to crash.

  • Excellent essay.

    Regarding schools of thought i.e. Austrian, Chicagoan or Keynesian one might want to add an additional school of thought. How so? The Virginia School of Political Economy (public choice theory).

    • George Selgin

      Very well: you may consider it added to the list of schools to which I don't wish to belong!

      • What about the free banking school? 😉

        • George Selgin

          Not my choice, either. Nor, FWIW, do I like being called a "free banker."

  • gcallah

    Great post, George.

  • ludwigvandenhauwe

    If economists are artists (and economics an art rather than a science) then one can expect economists' writings to be the most individual and self-styled expression of their most individual and self-styled opinions. If economics is a science, however, a tendency toward "conformity" is what should be expected. Scientists' beliefs tend converge upon the "truth" because that is where epistemological criteria such as respect for logic and the facts (roughly) lead them…. Physicists agree on accepting the theory of relativity (say) because that theory is the one that best accords with the entire body of accepted knowledge, with the evidence etc…. Convergence toward "conformity" is the normal thing within science because science is about reaching intersubjective agreement….

  • ludwigvandenhauwe

    Besides that, I am full of comprehension for Prof. Selgin's apparent identity crisis….

  • Makes perfect sense. Intellectual innovators will always be classified by others. It is understandable that the innovators should resist it, for the liberty of further innovation.

    • ludwigvandenhauwe

      Surely true, but for new ideas to survive, they have to be imitated, adopted, followed by others, preferably one's peers…. This being said, we all know that in economics "new" does not always mean "better"… (this is meant very generally not specifically…)

      • "Surely true, but for new ideas to survive, they have to be imitated, adopted, followed by others, preferably one's peers"

        I didn't say there was anything wrong with categorizing ideas. It's perfectly natural. It may even be necessary for grasping the world. I just understand why a man of ideas would resist himself being categorized. After all, you can always pick and choose good ideas from whatever source, even with unhesitating full credit, without claiming to be a member or follower of any school.

        • ludwigvandenhauwe

          As I said, from a scientific viewpoint it's all about pursuing one's activity in accordance with certain epistemological and/or methodological criteria such as respect for logic and the evidence, consistency, coherence…. If that is true, why do we have this ongoing proliferation of different and even contradictory schools, approaches etc…? Of course to some degree one can say: this is about a very complex reality, so obviously one can look at it from different viewpoints….. My feeling is there must be something else still…

          • gcallah

            "such as respect for logic and the evidence, consistency, coherence"

            Right. When George said he didn't want to look over his shoulder at some "methodological" scold, what he meant was he didn't care about logic or consistency.

          • George Selgin

            Yes, thanks Gene. Of course there are general rules anyone must keep in mind if his research is to be taken seriously–rules of logic, respect for evidence, accurate representation of rivals' positions, and so on. But these are universal rules, not ones that distinguish any particular school of thought. They are to specific methodological systems what the rules of, say, basketball, are to particular offensive strategies (e.g. zone, spread, set).

          • gcallah
          • ludwigvandenhauwe

            I am not sure I agree…. I contend that even the general methodological rules, if consistently followed, would allow to seriously reduce the proliferation of approaches, schools… By the way, as I understand the Austrian methodological position, Austrians are saying their particular methodological rules are not so limited but rather universal in scope… Consider also rules like: Occam's razor, the idea that methods should be in tune with the particular flield or layer of reality one is examining etc… From this latter perspective there is no justification for the almost universal preference for using mathematics for instance…. There is no equivalent, within the sciences of human action, of Galilei's dictum that "the book of nature is written in the language of mathematics"…. But something like this seems to be needed…. The problem seems to me to be a rather general lack of philosophical sophistication among economists….

          • ludwigvandenhauwe

            The requirement of consistency is an interesting one, but here I tend to believe it is indeed a domain-specific one… It takes some training in mathematics to learn to distinguish between inconsistent and consistent mathematical reasoning, it takes some training in economics to learn to distinguisch between consistent and inconsistent economic reasoning, and it takes some training in the law, to learn to distinguisch legal sense from legal nonsense…..

          • ludwigvandenhauwe

            I also agree that the point about the use of mathematics is more complicated than Rothbard and Mises would have had it…. Game theory is a good example… When Mises was criticizing the use of mathematics, he was mainly thinking about differential equations I tink….

          • " it's all about pursuing one's activity in accordance with certain epistemological and/or methodological criteria such as respect for logic and the evidence, consistency, coherence…."

            Something else is necessary, too. Logic will succeed only to the degree that one bases it on sound presuppositions. Sound logic leads to error if it starts with false assumptions. As a result, one's logic can be coherent and consistent and still be wrong if the assumptions are faulty. As for evidence, the historical data are so vast and contradictory that any fool can find supporting evidence for his argument. Assumptions are the most important part of reasoning.

            Mainstream econ goes wrong with its assumptions about capital being a homogenous "shmoo", money being a veil and money creation having no adverse effects whatsoever other than price inflation, and its limitation of economics to only that which we can put into math. Finally, their assumptions regarding equilibrium cause them to work in two extreme time scales, the instantaneous and something close to infinity. They attempt dynamic analysis by comparing two states of equilibrium but it doesn't accomplish much.

            What is required to get assumptions correct? I think it's the desire for truth no matter where it leads. Most people don't care about knowing the truth; they care only about advancing an agenda. To know the truth one must value it above all else and be willing to accept the consequences. That leaves out the majority of people.

  • Paul Marks

    The Austrian School is based upon three principles – methodological individualism, the universal nature of economic law (the rejection of historicism), and the subjective nature of ECONOMIC value.

    As for money lending (whether called "banking" or whatever) – this is actually dealt by the older Classical School of economics (as Hunter Lewis points out in "Where Keynes Wrong" – even Karl Marx has, for once, sensible things to say about the absurd idea that one can improve long term living standards by increasing money or credit) – with the central principle that lending must not be greater than real savings (with the refusal to allow the word "saving" to be redefied to mean nothing – by Keynes or anyone else). This is the central principle of the "Currency School" (as both Mises and Hayek said – the Currency School were "right about the problem – but wrong about the solution" the Currency School solution being a ban on banks issuing bank notes, a "solution" that solved nothing).

    Should a money lender (or complex set of interactions between money lenders – calling themselves "bankers") lend out "money" that does not really exist (expand credit beyond real savings) a credit "bubble" will be formed – and it will (sooner or later) "bust", as the credit shrinks back down to the monetary base of real savings.

    Should this be "illegal"? That is not a question for economics (that is a legal question) – all economics can say is that there should be no bailouts for banks who get into trouble (or other trickery such as a government "suspension of cash payments"). If banks do not have the cash they are contractually obliged to have – then they should be allowed to go "bankrupt" (close their doors). If they manage to avoid bankruptcy – well then jolly good! But it is nothing to do with the state – or with Central Banks (which should not exist).

    Certainly there is no contribution to lasting prosperity by expanding credit beyond real savings – no matter how complex and clever the procedures developed to try and create this magical prosperity.

    By the way – I see you are about to go on RT.

    I will say the same to you, Dr Selgin, as I say to "100%ers".

    Watch you back when you are dealing with Putin's boys and girls – whether it is Max Keiser or the blond lady in the blue jacket and red skirt.

    I remember Putin's boys and girls from the old days.

    They are not really nice.

    Even by my standards – and I am hardly fluffy.

    There are worse things than me in the world – and on RT you will meet some of them (even if you do not know it).

    • ludwigvandenhauwe

      Surely, but as you may know there is no consensus or agreement as to what "real saving" means….

      • Paul Marks

        My apologies – I should have defined the term "real savings".

        Sacrifice of consumption – having an income and not spending all of it, sacrificing part of this consumption (doing without – self denial) in order to have money to lend to others (in the hope of profit when, and if, the money is repaid).

        This is why when the late Lord Keynes described monetary expansion as "savings – as real as any other kind" he was wrong, flat wrong.

  • ludwigvandenhauwe

    Actually I am not sure that the debate between proponents of fractional-reserve banking and 100% reserve banking is about "different sorts of economics" at all…. What makes you think the debate is to be decided by economists at all? Try to talk about this subject matter with lawyers, or legal theorists…. Surely wihtin the shortest of times they will tell you that they understand these matters much better than the economists…. Suppose we move towards a (roughly) libertarian society and that this matter as to the most appropriate banking system has to be decided… What makes you think econmists' views will be given more weight than these folks' opinions?

  • ludwigvandenhauwe

    And I am not sure which way is easier…. Is it easier for economists to understand the law than it is for lawyers to understand economics? Who knows…..

  • EricD

    While I understand the motivation for this post, it seems to ignore one important function of identifying schools of thought and subsuming individuals under them, which is, not to reign in rogue school members, but to help people in understanding the intellectual history of economics. Even if a lion finds it stifling to be called a predator, he is one, I know it by his claw, and that knowledge could be quite helpful to me in understanding and dealing with wild animals.

    This is not meant to assert that George Selgin is an Austrian. I would say he is an Austro-monetarist with zero Old Keynesian or Real Business Cycle components. And even if he doesn't like the moniker, or if it ceases to apply in the future, it is undeniably helpful to me now.

    • George Selgin

      Nothing wrong with what you say, EricD, but the kind of classifying you defend is best left to historians of thought, and as such is something the potential utility of which I allow for in my penultimate paragraph. It is self-labeling that strikes me as problematic, for labels come with implicit demands for truth-in-advertizing.

  • Joe Esty

    To Selgin, Rothbard is the fart in the room. Rothbard is what Mises was 40 years ago. Sure, mention Hayek, but God forbid you mention Mises. He's too damned radical. God forbid, you differ on Selgin on fractional-reserve banking. You might agree with him on everything else, but he's so invested in fractional-reserve banking, he dare not budge. In this regard, he's not unlike our favorite Keynesian at The New York Times. Selgin has had his run-ins with Joe Salerno, David Howden, Phillip Bagus, and others on banking. Mention their names — let alone Rothbards — and vitriol is sure to follow.

    What's so ironic is that everyone I mention is for "free banking" — letting the market determine what will develop. Yet everyone pisses on each other in "theoretical land" because they're so fucking sure they're banking concept will prevail. Seventeenth-century Scottish fractional-reserve banking and 18th century Dutch full-reserve banking won't serve has models for either side.

    • George Selgin

      Joe, there was no such thing as "Dutch full-reserve banking." There was a single institution, the Bank of Amsterdam, that was supposed to hold full reserves, which was a creature of the Dutch gov't and one propped-up by laws outlawing potential fractional-reserve rivals. What's more it also eventually engaged in fractional reserve lending, despite pretending (which other banks did not) to be a glorified warehouse.

      And the Scottish system flourished, not during the 17th century, but in the later 18th and first half of the 19th century.

      And as for the claim that Rothbardians merely favor "letting the market determine what will develop," that pose is merely an attempt to pass-off as open-mindedness what is in fact either a lack of awareness of the historical record or an utter unwillingness to grapple with that record, which makes it perfectly clear that freedom in banking has always gone hand-in-hand with fractional reserves. If I am obstinate about fractional reserves, and inclined to have "run ins" with Austrians who insist upon either condemning them or imagining that they would not survive under laissez-faire, it is because I know that if I don't go after them they will keep bamboozling their readers with their phony and misleading arguments. It's all in my job description, actually, so there's no use complaining about it.

      And since when have I been anti-Mises? I don't worship the man, true enough. But then, I'm not exactly the worshiping sort.

      • Joe Esty

        By the way, George, I did mention that Dutch full-reserve banking doesn't serve the counter argument.

        • gcallah

          But got the history completely wrong.

      • ludwigvandenhauwe

        I am not sure one can use "history" or "historical evidence" in order to define or charactrize "laissez-faire", "freedom in banking" or "the free market" if one does not want to become embroiled in circular reasoning…. If one knows independently, however, what "freedom" or "laissez-faire" means then one can use this as a yardstick to judge the historical record without circularity….

  • Joe Esty

    Spare me the "worshiping sort" canard. I don't worship Mises, or anyone for that matter. (You don't know me to make that judgement, so again you resort to Krugman-esque tactics.) The issue is that no one knows what form of banking would develop in a 21st-century free society. Perhaps, it would be fractional reserve. If so, more power to it. Also, there is no "bamboozling." I'm keenly interested in both arguments. You and White do a good job, but that doesn't mean Howden and Bagus do a bad job.

    There is no modern day version of what will develop in free-market banking. Forgive me for being off on the centuries (though 17th century Scotland differed little from 18th century Scotland), but if I'm not mistaken the Bank of England did exist during the Scottish free-banking Renaissance.

    • "The issue is that no one knows what form of banking would develop in a 21st-century free society."

      That is only "the issue" for people who don't know what fractional reserve banking is. The issue is, with almost everyone I encounter on the subject, not even economical. It is semantical, historical, and logical. It's gotten to the point where I'd gladly defer to him *all* prognostications if I encountered a blog-commenting full-reserver who even knew what fractional reserve banking, in fact and in definition, is. But then if he did, he'd hardly be a full-reserver.

      • Paul Marks

        Well Vikingvista – even in the time of Mr J.P. Morgan (before the creation of the Federal Reserve in 1913) "fractional reserve banking" meant, via the complex interactions between banks, lending out 30 Dollars for every 10 Dollars (cash) one actually had. This is a "fraction" of some 30 tenths (which is not how most people think of a "fraction"). Today the "fraction" of money lent out (compared the cash that actually exists with the banks) is more like a thousand tenths – lending out 100 Dollars for every one Dollar in cash one really has.

        To deny that the credit expansion of the banking system (the complex interactions between banks and so on) expands lending ("broad money") beyond real savings (the real money) is to deny, for example, that there was a credit expansion in the late 1920s and a "deflationary" crash after 1929. After all Dollar bills and coins were not being destroyed in bank vaults – the money supply that was contracting was actually bank credit.

        • That's exactly what I'm talking about. It's as though you went from neophyte to Rothbard, without ever cracking an encyclopedia or mainstream college economics textbook. So no, I will be deferring no prognostications to you today.

          • Paul Marks

            vikingvista you do not dispute the facts I presented (because you can not – as they are accurate) you just call me names and claim I have never studied economics before reading Rothbard (untrue I read "mainstream" economics works for years, nor did reading Rothbard make me hostile to credit-bubble finance, because I was already hostile to credit bubble finance). If you have money (cash) to lend then lend it – if you wish to do so. If you do not have cash-money to lend then do not pretend that you have (or at least do not say "I need support – or there will be deflation" when the inevitable bust occurs).

          • Oh. Well, then what do you call a financial institution that lends less than it borrows; has credits less than debits? You know, an institution that loans all but a *fraction* less than 1 of what it borrows? Is there a name for that? Have you ever heard of such a thing? Or am I just making this up?

            "If you have money (cash) to lend then lend it"

            You mean just like a fractional reserve bank does, except that a bank lends less than what it has. Ergo "fractional".

    • George Selgin

      According to this sort of reasoning, the future is a perfectly clean slate, and empirical evidence–which of course is necessarily evidence for the past–can play no part at all in assessing which generalizations regarding the consequences of freedom in banking have merit. The stance is rather aggressively Humean, I think. In any event it would, if generally accepted, pretty much put paid to every sort of empiricism.

      With regard to your other remarks: I never characterized your view of Mises; I merely answered your claim that I was anti-Mises by saying that I was so only to the extent of not worshiping him. It is rich under the circumstance for you to be accusing me of putting forth a canard! Finally, when it comes to arguing against fractional reserves, I hold that Bagus and Howden do a very bad job indeed.

      • Joe Esty

        Good grief, man, of course the future is not a perfectly clean slate, and the past does matter. Please, stop these cheap tricks. Yes, you hold that Howden and Bagus do a very bad job, but you're not the final arbiter.

        By the way, I did say that the Dutch model doesn't hold. You are so focused on your defense other opinions don't matter.

        • gcallah

          George, every time you defeat one argument, Joe is going to change directions. This is instinctive behavior on the part of trolls. The only thing to do is stop feeding them, and they find another bridge.

          • ludwigvandenhauwe

            Gene, I would not expect such a disappointing remark from a person like you…

        • ludwigvandenhauwe

          You have said: "….you're not the final arbiter." So who decides? Who is the final arbiter?

      • ludwigvandenhauwe

        But Austrian apriorism was exactly thàt: an attempt to answer Hume… One cannot infer one's concepts from the empirical facts, history etc…. One first has to get one's concepts straight and thèn us this as a tool or yardstick to analyze and understand the empirical, historical evidence etc… From this viewpoint it is of little use to invoke "the history of free banking" to answer Rothbard, Howden, Bagus or whoever…. Their argument is first and foremost based on conceptual analysis….

        • Paul Marks

          ludwigvandenhauwe – exactly. Far from being a slavish follower of David Hume (who did indeed write in such a way that both cast doubt on the existence of the exterior universe and the existence of the reasoning "I" that is the human mind – Hume being a sceptic) Ludwig Von Mises supported the Kantian effort to reply to Hume (for example the work of Ernst Cassirer on the universal structure of the human mind – denying both "racial", "class" and "historical period" efforts to chop up human reason). Carl Menger (the founder of the Austrian School – and a student of the philosophy of Franz Branteno) and Murray Rothbard (of whom vikingvista keeps accusing me of being slave of – even though there is not a single work by Rothbard in this house, vikingvista may search the place if he insists) were actually closer to Aristotle (in their philosophy – not their economics) and thus nothing whatever to do with David Hume (who certainly was not Aristotelian in his philosophy).

          However, David Hume did write on banking and it may be this (rather than his sceptical philosophy) that George Selgin may be pointing to. David Hume actually lived in Scotland during the period when it supposedly had a independent financial system – although (in historical reality) Scotland has a unified fiscal and monetary system with England and Wales (although not with Ireland – where the fiscal system was different even after political union in 1801) from 1707 onwards. This fiscal and monetary union may now be under threat – as Chancellor Osborne (in a speech today) has declared that Scotland would not be allowed to use the Pound as money it the Scots vote for independence in September. So it may be that Scotland may really get an independent financial system again – as it had before 1707.

          Of course England and Wales did not have Central Banking before 1694 – and some people (including myself) believe that the creation of the Bank of England (in an effort to get cheaper borrowing for the government) was an error. By the way – the de facto confiscation of gold by the English government, the "Exchequer Stop" where money deposited with the government was just grabbed, in January 1672 (war did not break out till March of that year – so the disguised default was not "under pressure of war" it was just government being corrupt as governments so often are) may have inspired the gold confiscation by Franklin Roosevelt in 1933 – although the American action was more extreme (hitting even gold that had not been deposited with the government and voiding private contracts – not just contracts with the government).

          • ludwigvandenhauwe

            Well, yes, Prof. Selgin may have been referring to Hume's views on banking…. Still I believe much of the confusion here and elsewhere has epitemological and methodological roots….

    • Bradley Jansen

      Joe, the more you try to clarify your history the worse it gets–and profanity is a poor substitute for an understanding of history or a rational argument.
      "Forgive me for being off on the centuries (though 17th century Scotland differed little from 18th century Scotland), but if I'm not mistaken the Bank of England did exist during the Scottish free-banking Renaissance."
      Yes, the Bank of England existed, but for a good look at the contrast of the English and Scottish examples during the same period, you might want to read a short look by Randall Kroszner:

      I referenced it in my talk at Mises on how to transition to sound money
      where I explained, "In the beginning of the eighteenth century Scotland was much poorer than England. By the mid-eighteenth century the GNP per capita in Scotland was roughly half of that inEngland. By the mid-nineteenth century,however, Scotland's GDP per capita nearly equaled that of England."

  • "I don't worry about not having a "model," meaning a bunch of equations, when I'm perfectly confident that I can say what I need to say in plain English."

    That alone identifies you with Austrian econ. It's one of the chief traits of Mises and Hayek who fought so hard against the tyranny of math in economics. It separates the Austrians from the rest of the crowd more than anything except maybe capital and monetary theory. Your monetary theory is pure Austrian. I don't know much about your theory of capital so you may not agree with Austrians on that.

    I can understand why one in academics would not self-identify as Austrian. The reasons you gave, but in addition it closes minds and therefore opportunities to persuade as well as advance in one's carrier. It would be a bad idea for young people interested in a career in academics to self-identify as Austrian. After all, it is nothing more than a play book for helping others grasp your presuppositions.

    Quite a few economists follow Austrian principles and occasionally give a footnote to Mises or Hayek but don't identify themselves as Austrian. I'm thinking of Borio at the BIS among others.

    I teach econ part time and use the different schools of economics to explain to students why economists disagree. Most people understand that there is a lot of disagreement among economists. They want to know why, if economics is a science. I tell them there is almost no disagreement on micro, but a great deal of disagreement in macro because of the different assumptions they hold. Instead of telling them that every economist starts with different assumptions, I summarize the five schools. Of course, then they want to know which school is right and force me to promote Austrian econ.

    • gcallah

      "That alone identifies you with Austrian econ."

      Sorry, McKinney, this just shows ignorance of the history of economics. Many economists have favored prose over equations: Marx and Keynes, for instance. Would you also identify them as Austrians?

      • ludwigvandenhauwe

        I believe Austrians _do have_ a model, a conceptual model, not a mathematical one. Or rather several models…. They have conceptual models of how the free market works, of the capital structure, of the business cycle etc….

  • Paul Marks

    vikingvista you seem to be denying that the banking system expands credit (broad money) – but now you will say that I am misinterpreting you.

    If the banking system does not expand credit (making "broad money" bigger than cash) then what contracted between 1929 and 1933? Did evil "deflation" elves go around burning Dollar bills and melting down coins in bank vaults?

    This, what form of money contracted between 1929 and 1933, is a question I have asked you many times – and just got bluster and insults in reply.

    By the way….

    It was not Murray Rothbard (or even Ludwig Von Mises) who first made me hostile to the credit bubble financial system – it was, ironically enough, Milton Friedman (more than 30 years ago). Friedman's account of the late 1920a and the 1930s simply made no sense. Specifically his praise for Benjamin Strong in relation to the 1920s (for what, specifically, was Mr Strong being praised for?) and his attack on the Federal Reserve for not preventing the "collapse of the money supply" after 1929.

    What sort of "money supply" collapsed?

    • vv: "what do you call a financial institution that lends less than it borrows; has credits less than debits? You know, an institution that loans all but a *fraction* less than 1 of what it borrows?"

      pm: "you seem to be denying that the banking system expands credit"

      I gather, then, that you are unfamiliar with the type of financial institution that I described. Fine, as I explained earlier, I already knew that to be the case. But at least clarify this: Do you think that the financial institution that I described expands credit?

      • Paul Marks

        Vikingvista I will repeat to you the point I have made many times – and never once got a civil answer.

        When Milton Friedman (and other such) complained of the "deflation" that occurred after 1929 no one was going round bank vaults destroying Dollar notes and coins, so what form of money was "contracting"?

        According to you (if you are saying anything at all) the banking system does not expand credit beyond real savings of cash-money, so (again according to your theory) no form of "deflation" occurred after 1929.