Tuesday, May 8, 2012

More Powerful Anti-Fed Testimony in Congress

In addition to Peter Klein's powerful testimony before Ron Paul's subcommittee on monetary policy, Dr. Jeffrey M. Herbener, Chairman, Economics Department, Grove City College, is testifying. Here are snippets from his important testimony:
An elastic currency breaks the integration of production on the market by being an element foreign to the test of profit and loss. An elastic currency has two characteristics: a central bank empowered to issue fiat paper money and commercial banks empowered to issue fiduciary media.The production of fiat paper money cannot be regulated by profit and loss. It is always profitable to produce more. In 2011, the average cost of the 5.8 billion Federal Reserve Notes produced was $0.091. So a profit of around $4.90 is made by printing and spending a $5 bill. If the Fed continued order the printing of FRNs as long as it was profitable, then eventually
prices of inputs would rise so that it cost more than $5 to print a $5 bill. Then the Fed could order the printing of $50 bills instead and so on indefinitely as we have witnessed in hyperinflations  like Zimbabwe’s...

There is no social benefit from keeping the price level stable. The alleged benefit is that
price stability prevents wealth transfers between creditors and debtors and between workers and capitalists. But such transfers assume that entrepreneurs fail to anticipate changes in money’s purchasing power. Entrepreneurs can earn profits and avoid losses by anticipating these changes just as well as changes in prices of other goods. If they anticipate rising prices for goods overall, then they will increase their demands for resources today bidding up wages today. Likewise, lenders will insist on higher interest rates today. An elastic currency adds another dimension of uncertainty to changes in money’s purchasing power. It makes the task of entrepreneurs more, not less, difficult. In extreme cases, an elastic currency can result in wildly unstable prices that paralyze entrepreneurial decision making and destroy production on the market... two of the periods of most rapid economic growth in U.S. history were from 1820-1850 and 1865-1900. In each of these periods, the purchasing power of the dollar roughly doubled...

.Monetary inflation and credit expansion generate the boom bust cycle, however, not economic growth... 
No one can describe today the configuration of commodity money and money certificates that entrepreneurs would bring about if permitted to operate private enterprises in their production any more than one could have predicted in 1900 the development of the 21st century automobile industry or predicted in 1950 the 21st century consumer electronics industry.

What we do know is that their production would be regulated by profit and loss and therefore, would result in the satisfaction of people’s preferences. The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts
that have plagued our history


  1. A great exposition of Austrian economics as applied to money and banking. Dr. Herbener's Economics Dept. at Grove City College is a great place to learn sound economic theory at a wonderful liberal arts college. I may be biased - my son is a student at GCC.

  2. Here is the video... http://www.c-spanvideo.org/program/305885-2