Big Rock Candy Monetary Theory 🔗 1439057927
There are some days where I really shouldn't bother reading my emails. Though I list Naked Capitalism as one of my sources in the Links page, there are some pages I skip over rather routinely. This one, unfortunately, got emailed to me as well, so I decided to see what must be so neat about this article. Alas, I could not resist ragin' hard enough to write a rather lengthy reply over this one. Below is the reply, with a link added for context.
This time, Phillip Pilkington continues with his usual strawmanning and misunderstanding of Austrian Economics. I'll admit, he would be correct to bash the 'right wing' and the CATO crowd for acting illogically/nostalgically. Ultimately, however, he's not even striking in their direction, except tangentially. Judging by Phillip's references and earlier hit pieces on Austrianism, this appears to just be another polemic against Austrian economics (due to an MMT based Inflation Infatuation).
In any case, the Austrian Economist does not advocate either inflation or deflation, as the 'correct' money supply is necessarily unknowable to the Austrian due to the implications of the action axiom. If asked for a policy prescription, any 'target' amount of money given by an Austrian economist would always be incorrect even by their own admission, unless due to accident/luck (as it is not calculable via economic analysis, due to omniscience not being a means available to man).
Mises recommendation would not be to abolish the fed or abolish the government, instead merely observing that central planning of 'x' is necessarily going to be an insufficient means of obtaining whatever 'y' is and must thus necessarily end either by voluntary abandonment of these "Means unsuited to the attainment of certain Ends" or by the failure of that collective venture due to the compound effect of persisting in employing means unsuited for obtaining whatever the desired end is.
Even more essential to the debate is the very structure of production and 'Cantillon effects', which all but the most delusional MMT bozos can grasp (Ed Harrison gets this). MMT has a similar, but much more limited notion of banks not being 'reserve constrained' but rather 'capital constrained'. In the same way, regardless of the supply of money, the real capital pool of an economy is not determined by the supply of money, but by incentives existent to employ capital (which the money supply does influence, but is not the only factor). One can contrast the 'miraculous' gold glut period Pilkington refers to with the 'disastrous' gold glut that accompanied the fall of the Spanish Empire. Why did these periods have similar monetary growth profiles but different outcomes (ENDS)?
If you've been paying attention, you'll see it is the means employed by the actors in the market to obtain the gold. The private gold miners of the 1800s largely were providing a demanded product at a price freely negotiated between them and the buyers, where the Spanish empire had no such concern. Thus the Empire made errors in calculation due to having no frame of reference to judge the profitability/viability of their decisions as it relates to funding the continued operation of the Hapsburg Empire. This caused more errors later when the empire frivolously wasted all their gold on that century's version of 'No Bid Contracts'.
Once you start walking down those roads, whether it starts with paper money and ends with authoritarianism or starts with authoritarianism and ends with paper money is irrelevant, as doubling down on any coercive end to obtain anything other than privation will necessitate ever more intervention until whatever comprises the collective achieves a perfect state of privation and savagery. The Spanish monarchs eventually figured this out and voluntarily abandoned most of their schemes when their cousins got hanged and guillotined or otherwise fell from grace.
In the end, Pilkington makes the Austrian case himself and doesn't realize it by using 'the great liberalism due to gold glut' theory he espouses, as no central bank was required to accomplish this miracle of inflation without the 'stag'. He then goes on to note that the deflation afterward was marked by massive cronyism and police stating (mostly born from the 'Reconstruction' of the south into the north's plantation). This massive increase in slavery resulted in a deflation the Aztecs got to experience earlier as all their gold got 'liberated' from them by the Spanish empire. The north, of course, was busy spending all the spoils from the enslaved south to pacify the southern slave states at the time, so the economy predictably suffered due to the misdirection of scarce resources.
Philip doesn't get that the reason the Libertarian Austrians decry paper money/centrally planned inflation is because it is not caused by an actual increase in scarce resources and thus breaks the price mechanism in ways both unforeseeable and catastrophic. Since MMT guys are stuck in Book Value world, I suppose it is unsurprising that he does not grasp this.