Monday, November 14, 2011

DeLong Calls Austrian Business Cycle Theory: "The von Mises Monetary Mental Disorder"

Brad Delong comments on ABCT under a post titled: Another Note on Von Mises's (and Ron Paul's) Monetary Mental Disorder

He writes:
From my point of view, liquidity creation, duration transformation, and simple diversification are all attempts to make the law of large numbers work for us. They are largely successful attempts not to buy liquidity, immediacy, and Insurance from those who want to sell them, but rather to create them out of whole cloth--via clever applications of the principles of probability. As such, they are the preeminent examples of our largely successful ability to make the economy live beyond its means on its wits. Liquidity, immediacy, and insurance are good and valuable things: the marvel of financial engineering is that it creates them out of thin air.
What in the hell is this man talking about? Liquidity creation is money printing. How does this not primarily mean distortions of the structure of capital and eventual price inflation. I fail to see how this has anything to do with a "clever applications of the principles of probability." It's a clever application of theft, taking from those who save and get newly printed money last, probability has nothing to do with it..

DeLong goes on:
The point of view underlying von Mises's--and von Hayek, and Marx, and Ron Paul--complaint against fiat money in general and monetary management of the business cycle in particular is this: that value comes from human sweat and toil, not from being clever. Thus it is fine for money to have value if it is 100% backed by gold dug from the earth by sweat and machines and muscles (even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it). But it is not fine for money to have value simply because it is useful for buying things. There is, von Mises--and Marx, and von Hayek, and Ron Paul--think, something profoundly wrong on an economic and on a moral level with procedures that create value that is not backed by, in Marx's case, human labor, and in von Mises's and von Hayek's case human entrepreneurial ingenuity. And in its scarier moments this train of thought slides over to: "good German engineers (and workers); bad Jewish financiers".
Has DeLong even read Mises and Hayek?

Nowhere do Mises and Hayek write that money "value comes from human sweat and toil, not from being clever". Mises, Hayek and Ron Paul all understand that gold emerged as a money, precisely because it is scarce and requires much sweat and toil to mine. It would be absurd to use sand as money since one would have to haul around buckets full to buy a can of Coke.

In the same way, it is dangerous to support a fiat currency, since the "clever" people, with occasional mathematical equations as justification, tend to manipulate the money supply and create such disasters as the Great Depression, the current recession and the Wiemar Republic hyper-inflation--none of which would occur if gold were to be used as money instead of "clever" people managing fiat money.

As for DeLong's throwing out the Hitler card:
 ... its scarier moments this train of thought slides over to: "good German engineers (and workers); bad Jewish financiers"
Mises was Jewish and an Austrian citizen, who had to flee advancing Germans. First, he moved to Switzerland and then went it appeared that the Germans might invade Switzerland, he made a harrowing escape to the United States.

My only question is, if Mises sound monetary theory is called a mental disorder, what should the diagnosis be for someone who gets his facts mixed, gets theories confused and pretty much charges the Jewish Mises, who had to flee Nazis, with being anti-Semitic ?


  1. Bob, you had the appropriate reaction to this buffoon; Jon Catalan had a similar response over at

  2. Sometimes I thank g-d Mises was Jewish. Not that it has anything to do with anything, but it puts a quick end to people calling Austrian Economics anti-semitic.

  3. "... the marvel of financial engineering is that it creates them out of thin air."

    Do we really need to read anymore that this? He has no concept of reality. What an idiot.

  4. I have ongoing arguments on facebook with an old college socialist/Keynesian friend. He posted something in favor of the OWS, and I pointed out that his Keynesian beliefs are the basis for much of the corporatist state that benefits Wall Street. The Wall Street crowd gets to spend newly-printed money while it still maintains its value.

    He usually shoots back something along the lines of "a gold standard wouldn't create the 'proper' liquidity for a growing economy." He also argues that if the economy grows at the proper rate, there will be no inflation, so the middle class and poort aren't hurt -- a position that, of course, takes a Keynesian/monetarist view that inflation is a price phenomenon rather than a monetary one.

    Although I can't get him to see it from my perspective, it always strikes me as very odd that a "for the people[!]" socialist can argue that all the productivity increases in an economy should be funneled over to the rich (and the government, although I can understand how the socialist likes that) through monetary policy. That perpetuates the "rich get richer" environment that my friend hates. As productivity goes up and prices drop, the Keynesians counter that with inflated money that Wall Street gets to spend first.

    Keynesians are not the friends of the poor. It's too bad they can rely on intellectually-obfuscated pontifications like "They are largely successful attempts not to buy liquidity, immediacy, and Insurance from those who want to sell them, but rather to create them out of whole cloth--via clever applications of the principles of probability." to perpetuate their scams among the pseudo-intellectuals who want to keep their "intellectual cred" cards.

  5. I just have to ask, is he really lumping Mises Hayek and Paul in with Marx, and why do I think that was more of a Krugman type dig than an honest intellectual assessment? Of course the true marvel here is that people can read a statement like this, "the marvel of financial engineering is that it creates them out of thin air.", and somehow see that as a legitimate, sensible statement.

  6. What an absolute moron. Reading that article is like being sucked into a black hole of stupidity.

  7. We all need to take a deep breath and realize that we’ve won. It’s over. The statist side(s) will never admit defeat, but when have you ever seen an Austrian critic who had the slightest familiarity with even basic Austrian concepts?

    That’s why DeLong and Krugman behave as they do. That’s why the MMTers behave as they do. That’s why CBS news behaved as it did at Saturday’s debate.

    They have no response. We’ve won.

    So, next time you see anti-Austrians/anti-libertarians/anti-Ron Paulians behaving as dishonest fools, don’t be surprised. That’s all they ever do. Be surprised when we discover the very first anti-Austrian who understands Austrian concepts. He or she will be a first.

    The problem we face is how to proceed from here under these bizarre circumstances.

  8. JFF,

    Yeah, I read Catalan's blog and I believe that is the first time that I have seen Jon call somebody an idiot. I mean, Jon is usually very respecting in the face of adversity, but I completely understand why he said it.

    DeLong is up to something here. I cannot imagine that he is this ignorant to Mises and other Austrians. I think that this is just part of the current trend of trashing Austrians and libertarians. When the misinformation and attacks come in such large numbers (like they are now), that immediately tells me that we are making a crack in the edifice. And, if things go as I believe they will go economically, that crack will only widen and spill out all of the lies and distortions that fill it.

  9. Without DeLong fake land mines & Krugmans wooden torpedoes, Bernanke paper helicopters would have hard time flying.

  10. How is it that this person isn't completely and utterly embarrassed for himself???

    Must be great going through life with such a distorted view of one's own "intelligence" and "knowledge".

    How many eye-rolls does this jackass get daily...anyone care to guess?

  11. What is really sad is that this is the quality of thinking, or lack there of, that is teaching our children. Whether or not one agrees with Mises is one thing, but to disagree with such a non-intellectual broad brush as Delong has here really demonstrates how out of touch today's academia are with understanding anything but mainstream hackery. Delong should be more concerned with why mainstream economics has failed so miserably in both the managing and forecasting the economy. The 2008 melt down has really destroyed most of the creditability the mainstream crowd had, and I guess rather then question their thinking, its far easier to instead attack other schools of thought.

    Say what you want about Mises and Austrian economics, the bottom line is that it proved quite capable of seeing the downturn that people like Delong couldn't even recognize 1 month out. I'd say that deserves more explaining then what Mises thought about monetary policy.

  12. Ask Mr. De Long this. If it's ok for the US government to "manufacture liquidity", is it OK for the Russian, Chinese and Indian governments to pay back with their own manufactured liquidity?

    Can those governments settle accounts with the US with rubles, and rupees treated as on par with the dollar?

    If not, why not?
    Isn't their thin air as good as our thin air?

  13. Roddis,

    You must admit that Mr. DK (you know who I'm talking about) does attempt to understand Austrian theory. Sure, he is a diehard Keynesian, but he does at least give the effort to educate himself on the alternatives. Sure, I get angry with him on certain topics, but he doesn't go out of his way to be a prick or attack your integrity. Though he is slow to admit when he is wrong, he does admit it.

    What I think is funny about this article by DeLong is that he attempts to pair up Marx with Mises et al (hmm, that's strange). He is, if you read between the lines, attempting to say that Austrians favor a labor theory of value, or that they impute value in the opposite direction and believe that the costs associated with production is from whence value is derived. He obviously has to know about the marginal revolution and about the calculation debate, as well as Mises' use of subjective value and time (i.e. past prices) to explain PPM; breaking the circular argument associated with marginal utility theory (HT to Murphy).

    I think that the angle that he is using is that Austrians prefer their money to be produced rather than counterfeited, and he is twisting that idea to mean that Austrians believe that value is derived from labor and production (even when it is the opposite). If he wanted to make an argument more in line with what Austrian monetary theory really is, then he would take the position that Austrians should favor fiat money because its production is almost cost-free. Obviously, that is a false argument, but it is far better than what he has proposed (and, I could respect such a question).

    He's up to something and he is not the only one. There seems to be a concerted effort amongst politically connected journalists and economists (both left and right) to marginalize Austrianism and libertarianism. Ron Paul's debate this past Saturday, I believe, is part of this effort (though, I believe that this comes mostly from the right).

    The left and other statists have been speaking great things about a particular "more government" movement while at the same time bludgeoning them upside the head (ah, the irony). But, they are also spending more time than they ever have to denounce anti-statist movements and doing so primarily through the media.

    The only reason that they would do this is because, as you said, we ARE winning. While we are certainly still the minority we are no longer ignored.

  14. Dumbo Frum's arguments are so idiotic I only wonder if it was he was writing parody or something. He can't possibly be THAT stupid can he? Or maybe he's beginning to slip into some kind of insanity? Or he simply could be a liar who is trying to slime someone whose ideas he doesn't like.

  15. Not to toot my own horn too much, but I weighed in over at LvMI of Canada earlier this morning:

  16. Lila, you're awesome. It is such a simple argument, yet so effective.

    Just the other day, someone suggested the same thing with regard to water-boarding: is it ok for our "enemy" to water-board American troops?

    This particular type of argument doesn't work in all cases, but it works wonderfully in the cases where it fits, especially when they're posed to those without an original or deliberative though in their head (victims of the "media-mocking effect" as I like to call it).

    There have been a great many temper-tantrums on the part of the opposition that have resulted from the use of this particular argument, which is why I think that this argument is so fantastic.

  17. Stay the course; they are threatened. Why else would it have been written?

    Their ignorance is our benefit; if they could not have basic facts correct, how can they economics?

  18. It is important to remember that von Mises and Hayek were the first (and only) economists who predicted that Communism and Nazism would fail due to lack of price discovery under these regimes. The Nazi's did not look kindly upon von Mises.

    It is also important to remember that Keynes admitted that his General Theory would be much more effective in a totalitarian society, such as Germany was back then.

    In Keynes defense, he was not overly concerned about price discovery.

    In the period 1945-1990 Germany conducted a lab test on price discovery. The Western team was run by price discovery and the Eastern team by central planning. The West won.

  19. Funny Delong should bring up Karl Marx on this subject. Out of the 10 planks in Communist Manifesto, Plank #5 reads:

    "Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly."

    i.e. Central Banking is itself Communist!

  20. One annoying point is when De Long says...

    "(even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it)"

    This when his dollar bills have to use legal tender laws to keep the currency from totally collapsing. Would he be open to revoking the laws and letting people reject paper as money?

  21. Free market capitalism requires increasing production and consumption of goods to ensure continuous economic growth. This in turn requires increasing capital. In addition, some soon move from manufacturing and agriculture to service, esp. in finance, where more money can be made.

    Thus, money creation is an integral and eventual result of free market capitalism, which Austrian economics supports.