Saturday, July 9, 2016

Democrats Debating on Whether Federal Reserve Should Be Put in the Platform

This is not good.

WaPo's David Weigel, who is at the Democratic platform committee meeting, reports:

This is the problem with revolutions. If they aren't replaced with freedom leaning ideas, things could get worse.

I fear a Federal Reserve that becomes a "fully public institution."

What does this mean that Congress or the masses get to vote on the interest rate? Or get to vote the Fed chair, who could turn out to be Elizabeth Warren?

Halfway measures with regard to government institutions are almost always a bad idea.

End the Fed, don't audit it, restructure it or create more supervisory layers, end it.



  1. I think it would be very entertaining to see the Dems tussle with the Fed.

  2. This is a much bigger and much more ghastly turn of events than most libertarians and Austrians realize. The MMTer “Modern Monetary Theory” monsters have infested far more universities that have Austrians, especially in the U.K. To replace the left’s infatuation with Marx and socialism, we have MMT (Keynesianism on steroids) which proposes that EVERYTHING that governments “spend” should be funny money created out of nothing. Taxes are not for “revenue”, but to extract money from society to keep a lid on inflation. These monsters are relentless and impervious to concepts like private property, economic calculation, The Road to Serfdom, etc……

    The University of Missouri at Kansas City has an entire economics department infested with these monsters. Bernie Sanders appointed one of them as a Senate economist, Stephanie Kelton. See, for starters, this creep, L. Randall Wray.

    Taxes are for Redemption, Not Spending by L. Randall Wray

    Fiscal austerity has become the mantra, the solution to the world’s problems. Unemployment and slow growth? More austerity. High interest rates and rising debt ratios? More austerity. Inflation? More austerity. Deflation? More austerity. Budget deficits or trade deficits? More austerity. One size fits all.

    In one short article, it is impossible to deal with all of the arguments for fiscal austerity. In this piece I’m going to tackle just one justification: that government faces a budget constraint similar to that of households. Hence, even if we wanted to loosen fiscal policy, we might not be able to do so due to financial constraints. Indeed, by tightening now we create fiscal space that might be needed in the future. In the orthodox view, government’s spending is constrained by the sum of its tax revenue, bond sales, and money creation. Bond sales, in turn, are limited to the nongovernment sectors’ willingness to lend to government; as sales increase, the interest rate required to bring forth buyers rises – which eventually creates a vicious cycle of rising rates and bigger deficits. Running the printing presses to finance deficits raises the spectre of inflation, with too much money chasing too few goods. Hence, prudency dictates relying on taxes to pay for most government spending. The belief that government needs tax revenue to pay for most (or even all) of its spending is nearly universal.

    It wasn’t always so. At the end of WWII it was commonly understood by economists from the right (Milton Friedman) to the left (Abba Lerner) that taxes are not needed for revenue purposes. Indeed, the Chairman of the NY Fed, Beardsley Ruml, even wrote a piece entitled “Taxes for Revenue are Obsolete”. None of these economists were arguing that we should dispense with taxes – which can be used for a variety of purposes. Rather, they recognized that unlike a household or firm, government does not need income to finance its spending.

    We can go even further and argue that government needs to spend before it can receive income.

    Indeed, while everyone looks at tax “revenue” as the government’s equivalent to “income”, this view actually prevents understanding. We should instead understand “revenue” as “redemption”. As I’ll show, from the time of the American colonies through the early postwar period, this is the way that many regarded taxes.

    Note that the idea that the market does not require "momentum" will not compute with these people. They have a terminal case of the fatal conceit. Start to worry.

  3. In his “paper”, the awful Randall Wray cites George Knapp and his “state theory of money” which sees money as “tokens”.

    In discussing money, G.F. Knapp (one of the developers of the State Money Approach, adopted by Keynes and today by Modern Money Theory) made a useful analogy with the cloakroom token. When you drop off your coat at the cloakroom, the attendant offers you a token, usually with an identification number. The token is evidence of the debt of the cloakroom, which owes you a coat.

  4. In his Appendix to his “Theory of Money and Credit”, Mises explained that the “state theory of money” was “acatallactic”. It completely ignored the concept of exchange and subjective value. George Knapp was the major proponent of the “state theory of money” as noted by L. Randall Wray (who, BTW, is utterly clueless about the concept of catallactics. Mises wrote:

    Another acatallactic doctrine seeks to explain the value of money by the command of the state. According to this theory the value of money rests on the authority of the highest civil power, not on the estimation of commerce.*13 The law commands, the subject obeys. This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation. Since this cannot be asserted to be the case, the state theory of money is obliged to limit itself to the thesis that the state command establishes only the Geltung or validity of the money in nominal units, but not the validity of these nominal units in commerce. But this limitation amounts to abandonment of the attempt to explain the problem of money.*****

    An acatallactic monetary theory is a logical necessity for the empirico-realistic trend in economics. Since this school, unfavorable to all "theory," refrains from propounding any system of catallactics, it is bound to oppose any monetary doctrine that leads to such a system. So at first it avoided any treatment of the problem of money whatever; so far as it did touch upon this problem (in its often admirable work on the history of coinage and in its attitude toward political questions), it retained the traditional Classical theory of value. But gradually its views on the problem of money glided unconsciously into the primitive acatallactic ideas described above, which regard money made of precious metal as a good that is valuable "in itself." Now this was inconsistent. To a school that has inscribed the device of etatism on its banner, and to which all eco nomic problems appear as questions of administration, the state theory of nominalism is more suitable.*14 Knapp completed this connection. Hence the success of his book in Germany.

    The fact that Knapp has nothing to say about the catallactic monetary problem, the problem of purchasing power, cannot be regarded as an objection from the point of view of a doctrine which repudiates catallactics and has abandoned in advance any attempt at a causal explanation of the determination of prices. The difficulty over which the older nominalistic theories had come to grief did not exist for Knapp, whose public consisted solely of the disciples of the realistic economics. He was able—in fact, considering his public, he was bound—to abandon all attempt at an explanation of the validity of money in commerce.