Sunday, September 2, 2012

John Carney Rolls Out Rothbard, Salerno and Herbener to Smash the Myth of Gold and Price Stability

In a piece for the Atlantic, Matthew O’Brien attempts to demonstrate “Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts”  and, natch, Paul Krugman has jumped on O'Brien's analysis. Krugman writes:
Matthew O’Brien makes one obvious point: anyone who believes that the gold standard era was marked by price stability, or for that matter any kind of stability, just hasn’t looked at the evidence.
But, not so fast, says CNBC's John Carney. He demolishes O'Brien's and Krugman's critique by explaining that:
What makes this [critique] so odd is that “price stability” is not a central claim of real-life advocates of the gold standard. 
And who does John consider the "real-life" advocates of the gold standard?
 The so-called Austrian school of economics, the most prominent economics school advocating the gold standard...
Carney goes on:
[The Austrian School] is actually quite notable for its criticism of the very idea of “price stability.”
Carney then uses Austrian economists Murray Rothbard, Joesph Salerno and Jeffrey Herbener to advance his point.

Carney's article is the most sound presentation of the Austrian School's view on gold with reference to price stability that I have ever seen in mainstream media. Carney gets it.

To carry Carney's point a step further, the Austrian school sees falling prices. as opposed to stable prices, as an ideal economic environment. Because of the money printing the Fed does now, there are only a few items that regularly fall in price, at present namely computers, cell phones and flat screen televisions. If the Fed stopped printing money, most other products would begin to regularly fall in price as productivity increased. Three cheers for unstable, falling prices!

Carney's article is a must read and can be found, here.


  1. Like that socialist idiot Max Keiser, Matthew O’Brien creates a strawman. These people have NO CLUE what they're talking about.

    Max and Matthew...please keep your trap shut on subjects you are not qualified to talk about.

  2. Why does Carney care? He's been in bed with the MMT loonies for some time now. What's his angle?

    1. If "in bed" means:

      "Likewise, the MMTers seem not to understand the politics of inflation and why government often doesn't prevent inflation from occurring, even though it is obviously within its power to do so. The problem with inflation was first and best described by Austrian economists, who explained that inflation does not spread evenly through the economy."

      Then, sure. He's "in bed" with the MMTers. Because one can't believe that some people get a few things right, while messing a lot of junk up. That would be nuts, right?

    2. Taylor,

      I mostly care about getting things right and explaining things, people, events and ideas to people. Here, O'Brien and Krugman were just misleading people about the gold standard. I don't think they were misleading people intentionally. I just don't think they understand this subject very well.

      I'm not "in bed" with anyone. I think the MMTers do a good job at explaining some aspects of our financial system and the operations of the Fed and its interactions with the Treasury. Not a complete job, of course, as the post-MMT Monetary Realists have shown. (See

      Actually, I find the MMT perspective really useful because it really shows how strange our monetary system is. It's far weirder than anything that can be described as fiat money or fractional reserve banking.

    3. Hi John,

      Thanks for the reply.

      I'm not sure what I can say about this that hasn't already been said, that I am sure you yourself have read as you follow the site, for example, here:

      I've read quite a bit of Mike Norman's blog which seems to be the hotbed for the MMTer stuff (I've read much more of it than I should have and would like to admit to at this point...). I've read Cullen Roche and the MR blog you linked to, as well as many others like Warren Mosler's, Bill Mitchell's, etc.

      Whether one group of guys gets it completely correct or not, common themes run throughout: implicit modeling of the economy as a system of slavery where the citizens are the slaves and the government the slave drivers (for example, look at Mosler's "British hut tax" example, or Cullen Roche's model of the US Navy invading a small, prosperous island nation); deification of democracy as a holy-of-holies system of social organization that can not be questioned; insistence that economic scarcity has been abolished and the only problem left to be solved now is distribution of these resources, not coordination of continued production; denial of the importance of thrift to long-run prosperity with the declaration that money-manipulation can substitute in for people saving; premising of arguments on the long-since refuted crank theories of kook totalitarian-admirer thinkers like Abba Lerner; a deeply-held belief (which is accurate!) that they are the true, most consistent heirs to the economic theories first popularized by Keynes.

      There's a lot of stuff going on there, some of it economic in nature, a lot of it not, most of it fallacious and poorly reasoned. I find it confused at best and purposefully dishonest at worst to mishmash all that stuff together and then treat it like a coherent economic theory, especially when it treads recklessly over established economic principles like the subjectivity of value, the primacy of production before consumption, the central importance of the voluntary price mechanism in coordinating the economic activity of millions if not billions of people (depending on how high up you're looking down from...).

      For the MMTers, these established economic concepts are apparently political propaganda (usually Republican in nature, but really who cares which "ideology" it supposedly belongs to) that can safely be ignored or better yet disparaged as backwards, meaningless drivel. Further, all their ideas about "operational realities", slave economy models, the god democracy, etc., go hand in hand-- you don't get to pick and choose in their mind, they're all interdependent and for the good.

      You say you mostly care about getting things right and explaining things. That's fair. For my part, I'd like to see you do that a bit more intensively with the MMT crowd. By this I mean, be honest with people about what they're really after. They are NOT just trying to innocently describe the "operational realities" of the modern monetary system-- they have a specific agenda that they insist is a necessary conclusion to be drawn from the facts they have observed, when actually this agenda is up for questioning and debate.

    4. (part ii)

      Call them out, John! Draw attention to their apparent talent for describing "how things work" but then do the noble deed of airing their dirty laundry... point out how it isn't an accident that their economic models and examples always involve slavery and the use of political force to compel people to behave in ways they never would voluntarily. Tell people about how their ideas originated with people like Abba Lerner who thought the USSR's economy was quite grand!

      And once you have, then, take a stand yourself. You can not just be a "simple observer", objectively explaining "things, people, events and ideas to people." By virtue of the fact that you're a man, you must have values and these values must guide your choices and actions every day of your life and if you find that the MMTers are working against these values (which, I assume they are as I am guessing you're not an advocate of slave economics or the USSR as an economic example), then say so. Tell people what you're for and why the MMTers are against it.

      The war of ideas is the future of the war of peoples, and it would save everyone a lot of blood, money, sweat, tears and hardship if we defeated wrong-headed and often times evil ideas on the intellectual battle grounds when we have a chance, instead of letting them grow and fester to the point that they are put to action and we all suffer the consequences.

      I believe you're an honest, well-intentioned person and that's why I've been so upset up to this point to see you treat the MMT position so uncritically. I hope you'll reconsider your approach going forward.

    5. Excellent points, Mr. Conant.

      For those interested in a primer on Mad, I mean Modern Monetary Theory, here are:

      "Why do so many Americans want a gold-based currency?"


      "Hey, Paul Ryan...we can't run out of money!"

      The pro-MMT comments are literally out of this world.

      John Carney has previously commented on the Mike Norman site:

      Finally, MMTers do not seem to fully appreciate the problems of ignorance and calculation that inform Austrian economics. They seem to recoil at even thinking about them because of the implications for the limits of political action. This also needs to be corrected.

    6. A central MMT mantra is that the government must run continuous deficits because, among other things, it can simply create as many “dollars” as it wants and surpluses are the CAUSE of recession and despair. It is the surpluses that FORCE the "non-government sector" to barrow and barrow and barrow the funny money it cannot pay back:

      Then Stephanie Kelton lays the hammer blow:

      Now, you might ask, “What’s the matter with a negative private sector balance?”. We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses “as far as the eye can see” (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn’t because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government. It cannot support rising indebtedness in perpetuity. It is not a currency issuer. Eventually, something will give. And when it does, the private sector will retrench, the economy will contract, and the government’s budget will move back into deficit.
      This is precisely what happened. It fueled an expansion of bubbles, first from tech stocks, then from housing, as private actors had to keep borrowing to satisfy consumption. And this could not hold out, and a crash resulted.

      As John Carney said:

      The problem is as follows: MMTer are so focused on sectoral balances and the interaction between the private domestic sector and the public sector that they often downplay the intra-sector dynamics.

      Indeed. Actually, in the MMT world, there are no “intra-sector” dynamics at all, aka people, production and/or exchange. As Mises noted 100 years ago, the “state theory of money” (central to MMT) is acatallactic.

    7. Further, the MMTers, being crypto-Leninist totalitarians, are obsessed with proving that the value of money comes from state diktat. Thus, Warren Mosler's approving reference to the British getting the Africans to work for them by taxing their huts with the requirement that the taxes be paid in British money. They’re still at it today:

      Our history DICTATES that here in the West, "money" is nomisma, or a medium of exchange solely based on the DICTATES of the authority of our civil law. Those who assert otherwise are some sort of interlopers or usurpers of our Western traditions and advocates of lawlessness.

  3. John's brother is Tim, who writes constantly against cronyism and who likes Ron Paul, maybe family conversations are working ...

    1. Tim is my brother! This is true. And our family conversations are great.

  4. I thought Austrians did say that the 1920s were a time of price stability though.

    I know that at the very least price stability was the goal of the 1920s, but I thought it was true that they did fairly well at maintaining it. Is this incorrect?

    1. That is true of the '20's, but as Rothbard has cogently written in his excellent book 'The Great Depression' the Inflationary Fed policies of the '20's were masked by the great productivity gains from technology and increasingly specialization in the division of labor in many industries which would otherwise have caused prices to continue falling and would have provided much greater increases in standard of living for the masses. The Fed's policies have NEVER been in reality price stability except by accident through the productivity gains of what remains of laissez-faire Capitalism in the 'fettered' markets.

  5. It's good to see Tim Carney teach the right perspective of "price stability" on a nationwide network. Thumbs up! More and more the good word is getting out to the uneducated in society. Tim is doing a service for the cause of setting things straight with these two and their kind, who have dominated the public debate with falsehoods and half truths for too long. Thanks Tim!