Saturday, March 21, 2015

Attack on Tom Woods and Joe Salerno

By Robert Wenzel

George Selgin, a senior fellow at the Cato Institute, has penned a brief and odd attack on Tom Woods and Joe Salerno.

Selgin's attack comes about becasue of a recent interview of Salerno by Woods, where they discuss 'NGDP Targeting' and Market Monetarism, which are money printing policy solutions that Selgin advocates.

I say an odd attack because at one point Selgin writes,"In the course of the interview Salerno, egged on by Woods..."

In other words, Selgin gives the impression that the discussion goes in a direction that Salerno may not have wanted to take it and that Woods was somehow directing the interview in that direction. I urge everyone to listen to the interview and determine if you get the sense that Woods was "egging Salerno on." To me it sounds like a pretty conventional interview, where Woods asks Salerno questions on the topic at hand, without any egging on at all.

But beyond this odd characterization of the interview, Selgin attempts to take a bite out of Salerno's analysis by referencing the writing of F.A. Hayek.

Selgin writes:
The only problem with this argument [against NGDP targeting] is that at least one person who most certainly believed in Austrian business cycle theory would not have agreed with it. No biggie, right? Well, it wouldn't be, were it not for the fact that the person in question happens to have been ... Friedrich Hayek, the Austrian business cycle theory's most important elaborator and exponent.

Though before he put the finishing touches on his famous theory Hayek shared Salerno’s preference for a constant money stock, he changed his mind in the course of writing his best-known works on the subject. Hayek’s mature understanding made its debut in the first English edition of Prices and Production (1931, p. 297), where Hayek observes that “[a]ny change in the velocity of circulation would have to be compensated by a reciprocal change in the amount of money in circulation if money is to remain neutral toward prices.”...So, if Larry White doesn’t know his Austrian business cycle theory quite as well as Joe Salerno does, he shouldn’t feel too bad about it: after all, he’s in pretty good company.
But Hayek never was in favor of NGDP targeting as policy, or anything like it . Selgin is simply confused here with a theoretical discussion by Hayek versus his own the policy advocacy and that of fellow Catonian Larry White, that Salerno is discussing.

Indeed, just paragraphs after the quote of Hayek from Prices and Production, that Selgin references, Hayek makes clear that he is discussing at some kind of high theoretical level that can't be applied at the policy level, in the manner in which Selgin and White advocate. Hayek writes (my bold):
But quite apart from this particular difficulty which, from the point of view of pure theory, may not prove insuperable, it should be clear that only to satisfy the legitimate demand for money in this sense, and otherwise to leave the amount of the circulation unchanged, can never be a practical maxim of current policy...Anybody who is skeptical of the value of theoretical analysis if it does not result in practical suggestions for economic policy will probably be deeply disappointed by the small return for so prolonged an argument.
And so,  although Hayek here provides difficulty for Selgin's attempt at that fun game, "Even Hayek said," it should be pointed out that the great Austrian economists Ludwig von Mises and Murray Rothbard  never argued even on a "high theoretical level," the way Hayek did.

But let's plow further into Hayek's essay. Hayek in the same paragraph quoted above comes in full line with Mises and Rothbard and makes the same point that Salerno did in the interview, specifically that any central bank money printing results in the distortion of the economic structure (my bold):
This applies in particular to the widespread illusion that we have simply to  stabilize the value of money in order to eliminate all monetary influences on production and that, therefore, if the value of money is assumed to be stable, in theoretical analysis, we may treat money as nonexistent. 
And note well, Selgin's contention that Hayek, after 1931 had a more "mature understanding" in favor of some money printing is simply not true.  Forty-five years after the 1931 edition of Prices and Production, Hayek was,warning about any money printing. Here he is in the 1976 book, Denationalisation of Money, discussing inflation (i.e. money printing). Italics in original:
All inflation is so very dangerous precisely because many people, including many economists, regard a mild inflation as harmless even beneficial. But there are few mistakes of policy with regard to which it is important to heed the maxim principiss obsta. Apparently, and surprisingly, the self-accelerating mechanism of all engineered inflation is not yet understood even by some economists.
And apparently it is still not understood, decades later, by some who even read Hayek.

Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. George "Eternally Butthurt" Selgin is at it again. What is beyond amazing is that Salerno isn't even talking about him at all in this interview with Woods. But apparently, the Great Narcissist feels obliged to defend the honor of Larry White, too, who apparently is incapable of doing so for himself.

    Look, when only you are convinced of the importance of your worldview, and you spend all your energy trying to convince everyone of it, that's not genius, it's delusion.

  2. There is no egging on in this interview.

    As to nominal GDP targeting, just another policy recommendation for central planning, by those who want influence within beltway circles:

  3. I have long claimed that the main problem with private bank "credit money" is that it masquerades as a bearer note and/or quasi-warehouse receipt. The advocates of private "credit money" go bonkers whenever I suggest large font warning language on credit money notes to distinguish them from the less risky types of notes in a format average people can easily understand.