Tag Archives: Ludwig von Mises

A Big Theory of Boom and Bust, by Jeffrey Tucker

Posted on December 8, 2022 | Leave a comment

The Austrian economists worked out the theory of booms and busts in a fiat money system. From Jeffrey Tucker at dailyreckoning.com:

Our times of boom to bust are the perfect illustration of the credit cycle first presented in its fullness in the 1920s. Why then? Because this was the first decade after most countries created central banks. They caused some very odd behavior that made 19th-century-style economics seem to have less explanatory power.

That was when a few economists working in Vienna put together a model for understanding how business cycles work in a modern economy. Their names were Friedrich von Hayek and Ludwig von Mises. They drew on their theoretical knowledge based on the following inputs:

Richard Cantillon (1680–1734) observed that when governments inflate the money supply, the effects are unevenly distributed among economic sectors, affecting some more than others and in different ways.

Adam Smith (1723–1790) explained that a critical element of rising wealth is embedded in the division of labor, in which individuals specialize in tasks and cooperate across firms and those firms cooperate with each other.

Carl Menger (1840–1921) saw money as an organic market creation, not an invention of the state, which implies that it should be produced like any other good or service.

Knut Wicksell (1851–1926) demonstrated that interest rates function as a price mechanism to allocate investment decisions over time, which is why the yield curve exists. Manipulation of the interest rate disturbs the natural allocation of resources.

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“The Great Reset” Is the Road to Socialism Mises Warned Us About, by Tho Bishop

Posted on October 2, 2021 | Leave a comment

Socialism has been smuggled in by a thousand compromises. When a fundamental principle compromises with political expediency, who wins? From Thos Bishop at mises.org:

Through the sheer power of his intellectual output, Ludwig von Mises established himself as one of the most important intellectuals of the twentieth century. His work Human Action remains a foundational text of the Austrian school. His critique outlining the impracticality of socialism was vindicated with the fall of the Soviet Union and remains without a serious intellectual challenge today.

Just as important, but often overlooked, is his work on the economic system that continues to infect the world today: interventionism.

Like contemporaries such as James Burnham, Mises discerned that the true threat to free markets in the West was not a true socialist revolution, but rather a “middle of the road” approach that so attracted an intellectually shallow political class.

In 1950, during one of his most important speeches, Mises identified the most dangerous ideology on the global stage:

They reject socialism no less than capitalism. They recommend a third system, which, as they say, is as far from capitalism as it is from socialism, which as a third system of society’s economic organization, stands midway between the two other systems, and while retaining the advantages of both, avoids the disadvantages inherent in each. This third system is known as the system of interventionism. In the terminology of American politics it is often referred to as the middle-of-the-road policy.

This ideology succeeded where communism failed, successfully toppling governments around the world that never had true respect for property rights.

But as Mises understood, however, this “managerial revolution” could not last as a sustainable form of government. Interventionism may be politically convenient, but ultimately it is grounded in volatile inconsistencies. It must be rejected completely, or it will inevitably lead to more and more power shifting to the state.

This is precisely what we have seen.

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Posted in Capitalism, Civil Liberties, Collapse, Government, History, Politics

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Inflation Breeds Even More Inflation, by Thorstein Polleit

Posted on January 19, 2021 | Leave a comment

Inflation is a slippery, one-way slope. from Thorstein Polleit at mises.org:

I. Warning against Fiduciary Media

Early in the 20th century, Ludwig von Mises warned against the consequences of granting the government control over the money supply. Such a regime inevitably creates money through bank credit that is not backed by real savings—a type of money that Mises termed “fiduciary media.”

In 1912, Mises wrote,

It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of the fiduciary medium must necessarily lead to its breakdown.1

Mises knew that breakdowns of economic activity were the inevitable outcome of government interference in the monetary sphere. However, public opinion has not correctly diagnosed the root cause, regularly blaming instead the free market system—rather than the government—for the malaise. In times of crisis, people call for more government intervention in all sorts of markets, thereby setting into motion a spiral of intervention which, over time, erodes the liberal economic and social order.

It is therefore a rather discomforting truth that today’s governments the world over produce fiduciary media, the very kind of money Mises had warned us against.

It is an inflationary regime. The relentless rise in the money stock necessarily reduces the purchasing power of money to below the level that would prevail had the money supply not been increased. Early receivers of the new money benefit at the expense of those receiving it later.

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Posted in Banking, Currencies, Debt, Economy, Financial markets, Governments

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The Establishment Must Undermine Alternative Economists As Crisis Unfolds, by Brandon Smith

Posted on October 27, 2018 | Leave a comment

Very few mainstream economists saw the last financial crisis coming, while numerous alternative media economists and noneconomsists did. The same thing will happen again with the impending financial crisis. From Brandon Smith at alt-market.com:

There is a notion within the mainstream media that certain economic indicators are unassailable; they never stop being reliable. The way they look at and report on the system is rather outdated and extremely limited in scope; showcasing and cherry picking only net-positive statistics, even if those stats don’t represent reality. The result is a kind of holographic view of the financial structure; a mirage of a healthy and vibrant foundation that simply does not exist.

This fraudulent view appeals to the masses for a time because it provides fuel for false hopes. In economics, an analyst must always account for two major factors: the hard math and human psychology. These factors tend to conflict during times when a financial bubble is present, and they tend to converge when such bubbles implode. One must never underestimate the power of public psychology, though. Even when the math is screaming that danger is present in the system, a naive and misinformed populace (coupled with central bank manipulation) can keep a dead economy in a state of profane reanimation for much longer than seems logically possible.

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He Said That? 7/11/16

Posted on July 11, 2016 | Leave a comment

From Ludwig von Mises (1881–1973), Austrian economist, philosopher, author and classical liberal, Human Action (1949):

If one takes pleasure in calling the gold standard a “barbarous relic,” one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.

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He Said That? 5/16/16

Posted on May 16, 2016 | 2 comments

SLL will be on vacation 5/17-5/21 and will resume posting 5/22.

From Ludwig von Mises ( 1881-1973) leading Austrian School economist, The Quotable Mises (2007), his top 9 quotes on gold:

1. Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard.

Source: Omnipotent Government

2. The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its advantage. It is a form of protection against spendthrift governments.

Source: Economic Policy

3. quot;The gold standard alone makes the determination of money’s purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called “sound money.”

Source: Planning for Freedom

4. Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold — and not something else — is used as money is merely a historical fact and as such cannot be conceived by catallactics.

Source: Human Action

5. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy.

Source: Human Action

6. The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.

Source: Economic Freedom and Interventionism

7. The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion — policemen, customs guards, penal courts, prisons, in some countries even executioners — had to be put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done and hailed the dawn of the fiat-money millennium.

Source: The Theory of Money and Credit

8. The classical or orthodox gold standard alone is a truly effective check on the power of the government to inflate the currency. Without such a check all other constitutional safeguards can be rendered vain.

Source: The Theory of Money and Credit

9. The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market. It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.

Source: Human Action

https://mises.org/blog/ludwig-von-misess-top-9-quotes-gold

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He Said That? 12/15/15

Posted on December 15, 2015 | 1 comment

From Ludwig von Mises (1881-1973), Austrian economist, philosopher, author, and classical liberal, Planned Chaos (1947):

In fact, however, the supporters of the welfare state are utterly anti-social and intolerant zealots. For their ideology tacitly implies that the government will exactly execute what they themselves deem right and beneficial. They entirely disregard the possibility that there could arise disagreement with regard to the question of what is right and expedient and what is not. They advocate enlightened despotism, but they are convinced that the enlightened despot will in every detail comply with their own opinion concerning the measures to be adopted. They favour planning, but what they have in mind is exclusively their own plan, not those of other people. They want to exterminate all opponents, that is, all those who disagree with them. They are utterly intolerant and are not prepared to allow any discussion. Every advocate of the welfare state and of planning is a potential dictator. What he plans is to deprive all other men of all their rights, and to establish his own and his friends’ unrestricted omnipotence. He refuses to convince his fellow-citizens. He prefers to “liquidate” them. He scorns the “bourgeois” society that worships law and legal procedure. He himself worships violence and bloodshed.

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Ludwig von Mises Is Winning, by Tho Bishop

Posted on December 15, 2015 | Leave a comment

From Tho Bishop at mises.org:

As a young man Alexander Hamilton once wrote, “There is a certain enthusiasm in liberty, that makes human nature rise above itself, in acts of bravery and heroism.” While it is tragic that Hamilton would grow up to advocate all sorts of government policies contrary to liberty — America would be better off had he read Cantillion — there is a power in these words that has always resonated with me.

No man better embodies this heroic nature of liberty than Ludwig von Mises.

My favorite example of Mises’s legendary dedication to his principles is his experience during WWI.

Even though he was already an accomplished scholar, his masterpiece Theory of Money and Credit was published in 1912, the Great War brought Mises to the field of battle. As a commanding officer of an Austrian artillery regiment, Mises and his men were tasked with defending the Northern Front of the Austro-Hungarian Empire from the marching Russians.

Not only were Mises and his men outnumbered, but manning the cannons meant being the prime targets of Russian fire. The result was horrific. As Guido Hülsmann details in Mises: Last Knight of Liberalism, “In the first few weeks and months of the war, almost no day went by that did not see entire [Austrian] batteries (about 100 men each) and even regiments (about 500) being wiped out.”

Mises and his men held the line and the Russians were driven back in December of 1914.

After receiving honors for his actions on the battlefield, First Lieutenant Ludwig von Mises was extended an invitation to join a team of fellow economists on the Viennese war council. Though glad to be away from the canons of war, Mises was horrified by what he found — his nation’s greatest minds, men who knew better, becoming apologists for a bureaucratic government seeking to tighten its grip on the economy.

Writes Hülsmann:

Montesquieu once said that although one had to die for one’s country, one was not obliged to lie for it. This seems to have been Mises’s maxim too. He had already demonstrated his readiness to give his life for his country. Now he showed his will to honor the truth even if it brought him in conflict with powerful opponents. … Mises argued that, “from a purely economic standpoint,” the case for free trade and against protectionism was unassailable.

The power of the argument … made it impossible for the war party to ignore Mises. Trouble lay ahead.

The trouble came in the form of orders to return back into combat. The government’s message was clear — Mises needed to go. Not for the last time, his decision to stand firm in his defense of liberty put his very life in danger.

Luckily for us all, Mises survived the war and went on to live a life that fundamentally altered the world. He overcame the Nazis, academic blacklists, and the personal hardships that tends to haunt any man who refuses to sacrifice his principles.

To continue reading: Ludwig von Mises Is Winning 

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He Said That? 3/3/15

Posted on March 3, 2015 | Leave a comment

From Ludwig von Mises, economist, Human Action: A Treatise on Economics:

“The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application, and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about.”

If you understand this quote, especially that last sentence, you know more economics than many Ivy League PhDs, and your knowledge didn’t cost you a quarter-of-a-million dollars, either. We’re not even getting a boom this go around; we can only go back to the inflation and credit expansion well so many times.

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