Milton Friedman on the Difference Between Hayek and Mises on Gold

Below, Milton Friedman during an interview with Lanny Ebenstein, as reported in Chicagonomics.

The Friedman dislike for the great Ludwig von Mises and gold really becomes clear in this interview:

Mises was for the gold standard. [Friedrich] Hayek went around and around the bush on that...But he was not a gold nut like von Mises was.

-RW

Ludwig von Mises on Capitalism

Capitalism is essentially a system of mass production for the satisfaction of the needs of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small élite.-The Anti-Capitalistic Mentality,

The Worst Thing That Can Happen to a Socialist

Ludwig von Mises and the Austrian Theory of Inflations and Recessions

Richard Ebeling emails:

Dear Bob,

I have a new article on the news and commentary website, "Epictimes," on "Ludwig von Mises and the Austrian Theory of Inflations and Recessions,"

This autumn marks the 80th anniversary of the appearance in English of Austrian Economist, Ludwig von Mises', important work, "The Theory of Money and Credit."

Though the English translation of his book may have appeared eight decades ago, in 1934, it nonetheless remains one of the most important works on monetary theory and policy penned in the 20th century.

In Mises' book is to be found the explanation of how the market, and not government, generates the emergence of money, and how it has been government's take-over of the control of money through its central banks that has resulted in the "business cycle," the patterns of booms and busts, inflations and recessions.

The market, when left free and competitive, always has a tendency to bring market supplies and demands into coordinated balance, including savings and investment through the intermediation of financial institutions.

But government central bank manipulation of the quantity of money and credit in the banking system, and the resulting distortions of rates of interest throw savings and investment relationships out of balance and set in motion the inflationary "booms" that are inescapably followed by the recessionary "busts."

Mises' "Theory of Money and Credit" (and his later master work, "Human Action, A Treatise on Economics"), if read and understood, continues to offer the clearest guide for learning how to avoid the roller coaster of government-caused economy-wide disruption of market activity.

http://www.epictimes.com/2014/10/ludwig-von-mises-and-the-austrian-theory-of-inflations-and-recessions/

Best,
Richard

David Gordon Responds to John Tamny at Forbes

Dvaid Gordon sends along the below rebuttal to John Tamny, which originally appeared at Mises.org

John Tamny on Money and Credit
By David Gordon

Mr. John Tamny has kindly taken notice  of my review of Money by Steve Forbes and Elizabeth Ames. (Tamny’s comments are here.) In my review, I questioned the claim of Forbes and Ames that money is a measure of value. In doing so, Tamny thinks, I disagreed with Mises. Unlike me, Mises did not deny the obvious truth that money is a measure of value.

Is that so? Here is what Mises says about this exact point in The Theory of Money and Credit:

CHAPTER 2

On the Measurement of Value

1 The Immeasurability of Subjective Use-Values

Although it is usual to speak of money as a measure of value and
prices, the notion is entirely fallacious. So long as the subjective
theory of value is accepted, this question of measurement cannot arise.
In the older political economy, the search for a principle governing the
measurement of value was to a certain extent justifiable. If, in
accordance with an objective theory of value, the possibility of an
objective concept of commodity values is accepted, and exchange is
regarded as the reciprocal surrender of equivalent goods, then the
conclusion necessarily follows that exchange transactions must be
preceded by measurement of the quantity of value contained in each of
the objects that are to be exchanged. And it is then an obvious step to
regard money as the measure of value.

In the plan of Forbes and Ames, the government would aim to keep the dollar price of gold constant. Doing this would require the government to issue or withdraw dollars, from time to time. Amazingly, Tamny says, “Von Mises seemed to agree. As he wrote in The Theory of Money & Credit, ‘No individual and no nation need fear at any time to have less money than it needs.’”  In other words, Forbes and Ames, seconded by Tamny, think that, depending on the dollar price of gold, a nation may have less money than it needs. The government should issue or withdraw enough dollars to restore the dollar price of gold which these authors want to maintain as a constant. A quotation by Mises that denies that a nation need fear having less money than it needs is taken by Tamny to support Forbes and Ames’s contrary opinion.

Evidently, in Tamny’s lexicon, “seems to agree” means “directly contradicts.” This is not the only unusual entry to be found there: “credit” means, as he uses the word, “real resources.” Some remarks from Through the Looking-Glass come to mind:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

Forbes Attacks David Gordon

This is going to be fun.

John Tamny is out with an article in Forbes attacking David Gordon. The article is actually titled, David Gordon Takes Aim At Steve Forbes, But Hits Ludwig von Mises.

Gordon has a special knife he uses for such attacks, it's his razor sharp mind. Tamny is about to find out what a real shock and awe attack is like,

Gordon will have little problem in fending off this attempted mugging. Tamny seems to either have a reading comprehension problem or likes to run things through a minor league distortion machine.

Here Tamny's charge:

Last week Mises Institute senior fellow David  Gordon reviewed Money, the book released last summer by Steve Forbes and Elizabeth Ames. Gordon described it as “odd” in the sense that he disagreed with how the authors have chosen to define money. What struck this writer as odd is that in lightly attacking Forbes and Ames, Gordon only succeeded insofar as he perhaps unintentionally revealed a strong disagreement about money with the intellectual father of the Institute which employs him, Ludwig von Mises.

Gordon has a problem with the Forbes and Ames assertion that money is merely a measure meant to facilitate exchange. Notable here is that the authors are simply stating what’s obvious, something that surely predates even Adam Smith (“the sole use of money is to circulate consumable goods”), that money isn’t wealth. It’s what we use to exchange actual wealth.

So what is this so-called evidence that Mises disagreed with Gordon's point on money as a measure of value.. Tamny says:

 As Mises wrote in Human Action, “One must disregard the intermediary role played by money in order to realize that what is ultimately exchanged is always economic goods of the first order against other such goods. Money is nothing but a medium of personal exchange (my emphasis).” In short, Mises saw money just as Forbes and Ames do, as a measure that fosters the exchange of actual economic goods.

Say what? Again, Tamny either has a reading comprehension problem or is running his stuff through a minor league distortion machine. Money being a medium of personal exchange is not the same as it being a measure to facilitate exchange.

Tamny needs to do a little more reading of Mises. Here's what Mises really thinks about money as a measure. From The Theory of Money and Credit:

Although it is usual to speak of money as a measure of value and prices, the notion is entirely fallacious.

A Used Book Dealer on Paul Krugman

Yesterday, I picked up a mint condition copy of Toward Liberty: Essays in Honor of Ludwig Von Mises on the Occasion of His 90th Birthday, from a used book dealer.

I talked to the proprietor for a bit and he told me that books by Ludwig von Mises, Friedrich Hayek and Murray Rothbard, he liked to carry. While he did have familiarity with these Austrian school economists by name, it didn't seem that he had any in depth knowledge of their theories.

Then, out of the blue, he said to me, "I carry Mises. Rothbard and Hayek, but I don't carry Paul Krugman. Krugman seems to just write about current hot topics and then interest in his books fades."

Israel Kirzner's Keynote Address on F. A. Hayek and the Nobel Prize

Prof. Israel Kirzner recently delivered the keynote address at a symposium discussing F. A. Hayek and the awarding of Nobel Prize to him 40 years ago.

The address is fascinating in that Kirzner attributes much of the resurgence in Austrian economics, following Hayek being awarded the Noble Prize, to the further examination by Austrians of the debates both Hayek and Ludwig von Mises had, with mainly advocates of central planning, between 1937 and 1948. Kirzner highlights the emphasis that both Mises and Hayek placed on subjectivism during the debates and points to this emphasis as extremely important in the advancement of Austrian school theory.

Kirzner, in passing, also recognizes Murray Rothbard's publication of Man, Economy and State as an important event in the re-emergence of Austrian economics.

Viewers will note that Kirzner in this lecture puts emphasis on where Mises and Hayek were mostly in sync and fails to credit any of the Austrian resurgence to areas where Hayek tended to wander away from the Misesian perspective.

Five Occupy Protesters Arrested at Ron Paul's Iowa Headquarters

Five Occupy protesters were arrested Thursday outside the Iowa campaign headquarters of Ron Paul.

The Occupy movement has been harassing all Republican presidential candidates in Iowa.

Occupy spokeswoman Danielle Ryun said more protests, and probably arrests, will come. According to Ryun, the protest at the Paul headquarters was aimed at Dr. Paul's proposal to dismantle the Environmental Protection Agency, if elected.

Got that? The protesters are up in arms because Dr. Paul wants to eliminate a bureaucratic, politically charged agency that has no understanding of how private property rights would solve most of the problems the EPA is "policing", for the benefit of crony corporate insiders.

In other words, these occupiers appear as clueless as the youth protesters that Ludwig von Mises described as roaming through Germany before World War I. Wrote Mises:

But the characteristic feature of the youth movement was that they had neither new ideas nor plans. They called their action the youth movement precisely because they lacked any program which they could use to give a name to their endeavors. In fact they espoused entirely the program of their parents. They did not oppose the trend toward government omnipotence and bureaucratization.

(htRyanUnderwood)

Vox Day Takes His Confusion to the Misesian Level

Vox Day has responded to my earlier criticism of his view, .

As per my policy with these guys, I won't respond to all their confusions, misinterpretations, etc., but I will bring in the whoppers. Vox Day's entire post is littered with confusions, but I will stick to fixing the real stinky litter.

Vox Day has brought the views of Ludwig von Mises into the picture by quoting him out of context, spinning Mises views in ways that Mises would never take them and giving the outrageous impression that Mises would be a greenbacker.

Vox Day writes:

And what is a "dollar"? A dollar is presently a credit instrument, specifically, a credit instrument known as a Federal Reserve Note. This is what Mises defines as "credit money", and not, as is commonly assumed, "fiat money", nor is it "commodity money", as was the case with the historical dollar, which was defined in 1792 as 24.056 grams of silver.

Vox Day states this without reference because he would never be able to find such a reference in the writing of Mises.

It simply boggles my mind that these guys think that a dollar is some kind of credit instrument. It's not. But further, it would make no difference if it was a credit instrument.

Later in his post, Vox Day quotes Mises and reveals his own confusion. He writes:

While I'm tempted to cut Wenzel some slack due to his support of Ron Paul, that is unfortunately not my idiom. So, to end my response with all the tender mercy of Van Helsing driving home a stake, I shall conclude by quoting Ludwig von Mises:

In a developed monetary system, on the other hand, we find commodity money, of which large quantities remain constantly in circulation and are never consumed or used in industry; credit money, whose foundation, the claim to payment, is never made use of;* and possibly even fiat money, which has no use at all except as money.
- The Theory of Money and Credit, p. 103 (1953)

What this has to do with the debate, I'm not sure. To me it sounds terribly misleading, as though Mises is making the claim that a Federal Reserve note is a credit instrument that is currently circulating. In fact, what Mises was doing at that point in his discussion was stating that many things have been used as money. In the sentence above the quote that Vox Day selected, Mises refers to the time when "An ox or a sack of corn" were used as money.

In other words, Mises discussion has nothing to do with Federal Reserve notes. It's slick copy and pasting by a confused Vox Day.

What is relevant to my debate with Vox Day and comes from the same book Vox Day quotes, The Theory of Money and Credit, is when Mises writes:

To regard note-holders or owners of current accounts as granters of credit is to fail to recognize the meaning of a credit transaction. To treat both notes and bills of exchange in general (that is, not merely sight bills) as "credit instruments" alike is to renounce all hope of getting to the heart of the matter.

There it is, Mises speaking from the grave directly to Vox Day about his crazed thinking that notes should be treated as "credit instruments." As Mises says, the Vox Day view renounces "all hope of getting to the heart of the matter."

Bill Still Figures Out 'My Problem': Ludwig von Mises

In an email, Bill Still, a candidate for the presidential nomination of the Libertarian Party writes to me:

from:		Bill Still thesecretofoz@gmail.com
sender-time:		Sent at 1:13 PM (GMT-05:00). Current time there: 1:39 PM. ✆
to:		rw@economicpolicyjournal.com
date:		Mon, Dec 19, 2011 at 1:13 PM
subject:		Ludwig Ahhh, I get it now. This from your post: "Richard Ebeling: On Mises, Central Planning ....." "We discussed why Ludwig von Mises was a great economist, central planning ...."

Sounds like Bill Still is not a big fan of Ludwig von Mises. I wonder how that will go over in the Libertarian Party?

Richard Ebeling: On Mises, Central Planning and Facing Down Russian Tanks

Don't miss this week's Robert Wenzel Show. I spoke with economics Professor Richard Ebeling. 

We discussed why Ludwig von Mises was a great economist, central planning, what's going on in Russia right now and about Richard in Moscow facing down Russian tanks.




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How to Lie with Statistics and Graphs

Correlation does not mean causality. Here's proof, unless you think Staten Island Cakes is behind Michelle Bachmann's decline in the polls and that Facebook is driving the Greek debt.

Writes Vali Chandrasekaran of Businessweek:

Need to prove something you already believe? Statistics are easy: All you need are two graphs and a leading question.

Click on chart for larger view.

It should be noted that Austrian economists have always been solidly in the camp of understanding that economics is a deductive science and that econometricains, who use complex equations to "prove" correlations, can be way off.

Wrote Ludwig von Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not "measured" the "elasticity of demand" of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .

The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations. . . . Economics is not, as . . . positivists repeat again and again, backward because it is not "quantitative." It is not quantitative and does not measure because there are no constants. Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case. Physical events can be interpreted on the ground of our knowledge concerning constant relations established by experiments. Historical events are not open to such an interpretation. . . .

Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts. . . . The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus. There is no such thing as quantitative economics. All economic quantities we know about are data of economic history. . . . Nobody is so bold as to maintain that a rise of A percent in the supply of any commodity must always – in every country and at any time – result in a fall of B percent in price. But as no quantitative economist ever ventured to define precisely on the ground of statistical experience the special conditions producing a definite deviation from the ratio A:B, the futility of his endeavors is manifest.

NYU To Offer Two Classes On Occupy Wall Street Movement

New York University plans to offer two classes next semester on the Occupy Wall Street movement, reports HuffPo.

One course will be called: "Why Occupy Wall Street? The History and Politics of Debt and Finance."

Another professor will be teaching a graduate-level seminar on the demonstration.

I highly recommend this quote from Ludwig von Mises be discussed in the classes.

The Dark Side of Economist Oskar Morgenstern

Richard Ebeling emails a link to his review of the book, Von Neumann, Morgenstern and the Creation of Game Theory by Robert Leonard.

Oskar Morgenstern is best known as the co-developer, with mathematician John von Neumann, of game theory. Their book The Theory of Games and Economic Behavior is a classic.

But, Peter Klein notes:

Game theory can be fun and interesting. It’s central to current mainstream research in industrial organization and corporate strategy. It’s been taught to a generation of MBA students. Unfortunately, according to FastCompany, nobody in business actually uses it.

In his review, Ebeling writes:

...what is less well known is that Morgenstern was a prominent member of the Austrian School of Economics before the Second World War.

His first book was on Economic Forecasting (1928), which unfortunately has never been translated into English. He presented a biting and insightful analysis as to why quantitative models would never be able to successfully predict the economic future. His three fundamental arguments were (1) that historical events are too unique and interdependently complex to be reducible to statistical probability analysis; (2) any public forecast easily will result in people taking the forecast into consideration, and therefore acting in ways different than what the forecast presumed; and (3) how individuals act is dependent on their expectations of how they expect others to act, and understanding and interpreting people’s subjective meanings and intentions is not readily reducible to strictly quantitative categories and classifications for statistical study...

Leonard traces out the development of Morgenstern’s thinking in the 1920s and 1930a under the influence of Austrian Economists such as Ludwig von Mises and Hans Mayer, and his friendship with Karl Menger, Jr., the son of the founder of the Austrian School.

But what he also brings out is how Morgenstern increasingly turned against his “Austrian” roots...

Even worse, after 1934, with Hayek now a professor at the London School of Economics, and Mises teaching in Geneva, Switzerland, Morgenstern attempted to portray himself as the “leader” of the Austrian School in an Austria that was now a fascist-type authoritarian dictatorship. He worked as a senior advisor to the Austrian government, often offering policy advice far removed from a free market perspective...

In addition, Leonard points out that Morgenstern’s diary from this period is sprinkled with often heavily anti-Semitic sentiments, in spite of the fact that many of the members of the Austrian School at this time were Jewish (including Mises), and who had been among those encouraging and supportive of his own work and professional advancement.

As a side note, Ebeling tells us in his review that he took a course with Morgenstern and he is clearly shocked by some of the revelations about Morgenstern . See Ebeling's full review, here.

Krugman and DeLong versus Hayek and Mises

Mario Rizzo comments on the latest attacks by Paul Krugman (on Friedrich Hayek) and Brad DeLong (on Ludwig von Mises) and believes a major nerve has been touched. Under the title, Yes, Paul: It is Hayek versus Keynes, Rizzo writes:

...now comes Paul Krugman with his sometimes-echo Brad Delong (or is it vice versa?). Krugman thinks that Hayek was not an important “macro” economist; certainly not the rival or alternative to Keynes, either in the 1930s or today. In fact, Hayek embarrassed himself with his cycle and capital theory. Hayek’s brilliance as a monetary theorist (aka “macroeconomist”) is a figment of the political imaginations of those who love him for his “political” book, The Road to Serfdom.

Until just a little while ago, I thought it best to ignore the latest Krugmanic outburst, especially since there are excellent posts at Marginal Revolution and Café Hayek, just to mention two. And yet the recent obsession Krugman has with Hayek (and lately the obsession DeLong has with Mises) means that some nerve has been touched. Of course, it might simply be that Krugman needs material for his blogs and columns.

However, I think the real issue is this. Hayek’s approach attacks, root-and-branch, the macroeconomic way of thinking. It is not simply a challenge to a particular theory of the determinants of mass unemployment, inflation, business cycles and the like. Hayek is not accepting the rules of the game or the parameters of the sub-discipline of modern macroeconomics. Hayek does not want to argue that the government expenditure multiplier is 0.5 instead of 2.0, for example. He does not want to discuss just how much fiscal stimulus should be undertaken and what form it should assume.

In short, he does not want to focus on aggregate spending and aggregate consequences. Hayek’s approach says: Let us pierce the veil of aggregates and look at the distortive effects on relative prices and relative output produced by boom-time credit expansions. Let us look at the distortive effects that booms leave us as we work our way through a recession. Let us concentrate on sustainable lines of expenditure both during the boom and during the road out from the bust.

Suffice it to say this greatly erodes the intellectual capital of a field of economics – although one not noted for its successes. It mocks the claim that Keynes was a true revolutionary in economic thought. It opens the possibility that he was muddled, inconsistent and unaware of the contributions to monetary and business cycle theory made by the “classical economists” on the eve of the General Theory.

It also opens the possibility that Keynes’s economics was catapulted into prominence not so much by its technical or scientific excellence but the compatibility of its policy nostrums with the temper of the times.