George Selgin

Total Page:16

File Type:pdf, Size:1020Kb

George Selgin Government-Mandated Shutdown: Monetary & Fiscal Policy in Crisis | George Selgin March 26, 2020 “[T]o avert panic, central banks should lend early and freely, to solvent INTRODUCTION firms, against good collateral, and at 'high rates.’” — Walter Bagehot George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia. His research covers a broad range of topics within the field of monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is the author of The Theory of Free Banking (Rowman & Littlefield, 1988); Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage (University of Michigan Press, 2008); Money: Free & Unfree (The Cato Institute, 2017); Less Than Zero: The Case for a Falling Price Level in a Growing Economy (The Cato Institute, 2018) and, most recently, Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (The Cato Institute, 2018). Selgin is one of the founders, with Kevin Dowd and Lawrence H. White, of the Modern Free Banking School, which draws its inspiration from the writings of F. A. Hayek on denationalization of money and choice in currency. Selgin has written for numerous scholarly journals, including the British Numismatic Journal; the Economic Journal; the Economic History Review; the Journal of Economic Literature; and the Journal of Money, Credit, and Banking; and for popular outlets such as the Christian Science Monitor, the Financial Times, and the Wall Street Journal, among others. Selgin holds a BA in economics and zoology from Drew University, and a PhD in economics from New York University. 1 FED POLICY SUMMARY The Federal Reserve has committed to unlimited purchases of US Treasuries and agency mortgage-backed securities (ABS) and set up additional lending tools to shore up struggling companies and financial markets. “The Federal Reserve is committed to using its full range of tools to support households, businesses, and the US economy overall in this challenging time,” the Fed said in a statement. “While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” it said. The Fed had originally planned to purchase at least $500bn in US Treasuries and at least $200bn in agency mortgage-backed securities. In recent days it has sped up the pace of these purchases, after earlier interventions failed to address strains that had emerged in both debt markets. By Friday, it had already completed roughly half of its planned Treasury purchases, as well as about a third for the agency mortgage-backed securities. Following a meeting of the Federal Open Market Committee, its monetary policy setting committee, the US central bank is no longer putting a numerical cap on its purchases of Treasuries and mortgage-backed securities, instead signaling that it is prepared to act as much as necessary. Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities. Corporate Credit Facilities — The Fed also unveiled two new facilities—the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds—that allow it to purchase corporate bonds, including new issues. The PMCCF is open to investment grade companies and will provide bridge financing of four years. Borrowers may elect to defer interest and principal payments during the first six months of the loan, extendable at the Federal Reserve's discretion, in order to have additional cash on hand that can be used to pay employees and suppliers. The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. 2 Consumer & Business Credit — The revival of the Term Asset-Backed Securities Loan Facility (TALF) “will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.” (i.e. gives the Fed the ability to buy these securities ) Under the TALF, the Federal Reserve will lend on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The Fed also said it would soon announce a “Main Street Business Lending Programme” to lend directly to small businesses, “complementing efforts by the SBA.” Municipal Credit — In order to facilitate the flow of credit to municipalities the Fed is “expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.” Likewise, the Fed is “facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.” The CPFF was a system created by the United States Federal Reserve Board during the Global financial crisis of 2008 for the official purpose of improving liquidity in the short-term funding markets. This program lent out a total $738 billion before it was closed. 45 out 81 of the companies participating in this program were foreign firms. These actions augment the measures taken by the Federal Reserve over the past week to support the flow of credit to households and businesses. These include: • The establishment of the CPFF, the MMLF, and the Primary Dealer Credit Facility; • The expansion of central bank liquidity swap lines; • Steps to enhance the availability and ease terms for borrowing at the discount window; • The elimination of reserve requirements; • Guidance encouraging banks to be flexible with customers experiencing financial challenges related to the coronavirus and to utilize their liquidity and capital buffers in doing so; • Statements encouraging the use of daylight credit at the Federal Reserve. 3 CORPORATE BOND MARKET SUMMARY US junk bonds have lost nearly 19% this month, a deeper dive than even at the peak of the financial crisis in 2008. Even investment-grade US corporate bonds have lost more than 10%, as investors fret that the coming recession will hurt even more creditworthy companies. Companies have gorged on cheap debt for a decade, sending the global outstanding stock of non-financial corporate bonds to an all-time high of $13.5tn by the end of last year, according to the OECD, or double where it stood in December 2008 in real terms. More than $320bn of US debt sitting on the lowest rung of the investment grade ladder now yields more than 5%, according to Ice Data Services figures, previously a rate attached to much riskier companies. Restructuring experts, according to the FT, said investors scanning for vulnerability should watch those companies with largely fixed capacity and high costs which would be hard hit by a significant drop in demand. Almost $840bn of bonds rated triple B or below in the US are set to come due this year and roughly $270bn of US bonds now trade below 90 cents on the dollar. Many companies have already been locked out of refinancing or selling new debt. The consequences showed up most vividly this week in the oil and gas sector as a price war between Riyadh and Moscow compounded the market’s coronavirus concerns, plunging almost $110bn of US energy company bonds into distressed territory. Bonds in WeWork have dropped from about 90 cents on the dollar to 68 cents and market swings are also changing the calculus on M&A. Data group HFR’s index of merger-arbitrage funds has tumbled 17.5 per cent so far in March, 4 putting it on course for its worst month since at least 1997. Large hedge funds such as Millennium and more specialised groups such as Westchester Capital Management have been hit by bets on frozen deals, according to industry specialists. Big banks were likely to focus on the largest corporate clients, putting smaller companies “well back in the queue … These small and medium-sized firms are often crucial links in the supply chain. If these links are broken, it will be much more difficult to recover from a recession.” — Campbell Harvey, finance professor at Duke University “Even if they only last for a short period of time, the effects of this earnings evaporation on a company’s capital structure and liquidity are significant and will in turn have consequences for the broader ecosystem in which that company operates.” — Alan Waxman, Sixth Street Partners “We’ll have up to $4 trillion of liquidity that we can use to support the economy." — Steve Mnuchin “If, for whatever reason, you know, 10 weeks from now, this virus, we haven’t won this, we’ll go back to Congress again.” — Steve Mnuchin ECONOMIC DATA & FORECASTS Economists have predicted a dramatic slowdown in economic activity in the coming weeks. J.P. Morgan released estimates Wednesday that predicted a 14% contraction in second-quarter U.S. growth. Goldman Sachs has forecast a 24% drop in US gross domestic product in the second quarter and Morgan Stanley has predicted a 30% contraction.
Recommended publications
  • Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Rockoff, Hugh Working Paper Parallel journeys: Adam Smith and Milton Friedman on the regulation of banking Working Paper, No. 2010-04 Provided in Cooperation with: Department of Economics, Rutgers University Suggested Citation: Rockoff, Hugh (2010) : Parallel journeys: Adam Smith and Milton Friedman on the regulation of banking, Working Paper, No. 2010-04, Rutgers University, Department of Economics, New Brunswick, NJ This Version is available at: http://hdl.handle.net/10419/59460 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu February, 2010 Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking Hugh Rockoff Rutgers University and NBER Department of Economics 75 Hamilton Street New Brunswick NJ 08901 [email protected] 1 Abstract Adam Smith and Milton Friedman are famous for championing Laissez Faire, yet both supported government regulation of the banking system.
    [Show full text]
  • Introduction
    INTRODUCTION I The 1920s and 1930s were a glorious era in the history of the Austrian School of economics. In those days, the city of Vienna saw the first genuine culture of scholars working in the tradition established by Carl Menger, and this culture radiated throughout the rest of the German-speaking world and into other countries. Many important works of this period have been translated into English, in particular, the books by Ludwig von Mises and F.A. Hayek, and also works of other scholars like Fritz Machlup, Gottfried von Haberler, Oskar Morgenstern, Franz uhel, Hans Mayer, Paul Rosenstein-Rodan, and Leo Schönfeld-Illy.1 Among the pioneering works of this time that have hitherto not been accessible to the anglophone public is that by Richard von Strigl. First published in 1934 under the title Kapital und Pro- duktion by the former Austrian Institute for Business Cycle Research in its series “Contributions to Business Cycle Research,”2 it was reprinted in 1982 by Philosophia Verlag in 1For a sample of writings by these authors from the inter-war period see Austrian Economics: ASampling in the History of a Tradition, Israel M. Kirzner, ed., vol. 2 (London: William Pickering, 1994). 2Beiträge zur Konjunkturforschung, edited by the Österreichischen Institut für Konjunkturforschung. The first seven volumes in this series are all classics of Aus- trian economics: F.A. Hayek, Geldtheorie und Konjunkturtheorie (Vienna: Hölder- Pichler-Tempsky, 1929); Fritz Machlup, Börsenkredit, Industriekredit und Kapitalbil- dung (Vienna: Springer, 1931); F.A. Hayek, Preise und Produktion (Vienna: Springer, 1933); Erich Schiff, Kapitalbildung und Kapitalaufzehrung im Konjunkturverlauf (Vienna: Springer, 1933); Oskar Morgenstern, Die Grenzen der Wirtschaftspolitik (Vienna: Springer, 1934); Fritz Machlup, Führer durch die Krisenpolitik (Vienna: Manz, [1934] 1998); and Richard von Strigl, Kapital und Produktion (Munich: vii Capital and Production Munich under the editorship of Professor Barry Smith.
    [Show full text]
  • Central Banks As Sources of Financial Instability
    SUBSCRIBE NOW AND RECEIVE CRISIS AND LEVIATHAN* FREE! “The Independent Review does not accept “The Independent Review is pronouncements of government officials nor the excellent.” conventional wisdom at face value.” —GARY BECKER, Noble Laureate —JOHN R. MACARTHUR, Publisher, Harper’s in Economic Sciences Subscribe to The Independent Review and receive a free book of your choice* such as the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Founding Editor Robert Higgs. This quarterly journal, guided by co-editors Christopher J. Coyne, and Michael C. Munger, and Robert M. Whaples offers leading-edge insights on today’s most critical issues in economics, healthcare, education, law, history, political science, philosophy, and sociology. Thought-provoking and educational, The Independent Review is blazing the way toward informed debate! Student? Educator? Journalist? Business or civic leader? Engaged citizen? This journal is for YOU! *Order today for more FREE book options Perfect for students or anyone on the go! The Independent Review is available on mobile devices or tablets: iOS devices, Amazon Kindle Fire, or Android through Magzter. INDEPENDENT INSTITUTE, 100 SWAN WAY, OAKLAND, CA 94621 • 800-927-8733 • [email protected] PROMO CODE IRA1703 Central Banks as Sources of Financial Instability F GEORGE SELGIN he present financial crisis has set in bold relief the Jekyll and Hyde nature of contemporary central banks. It has made apparent both our utter depen- T dence on such banks as instruments for assuring the continuous flow of credit in the aftermath of a financial bust and the same institutions’ capacity to fuel the financial booms that make severe busts possible in the first place.
    [Show full text]
  • The Menger-Mises Theory of the Origin of Money—Conjecture Or Economic Law? Kristoffer Hansen*
    THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS VOLUME 22 | No. 1 | 26–48 | SPRING 2019 WWW.QJAE.ORG The Menger-Mises Theory of the Origin of Money—Conjecture or Economic Law? Kristoffer Hansen* JEL Classification: B13, B40, B53, E40, E42 Abstract: In recent years some economists have begun to doubt the scientific standing of the standard Austrian theory of the origin of money. They seem to think that it is only one possible solution to the problem of accounting for money’s value. Of these economists, Gary North (North 2012b) has presented the most cogent count- er-interpretation to how we should understand the theory of the origin of money as elaborated by Carl Menger and Ludwig von Mises. Unlike the rest of economic theory, the origin of money and Mises’s regression theorem do not partake of the character of a scientific law deduced from the basic principles of the science, but is rather, and is presented as such in the writings of Menger and Mises, what North terms “conjectural history.” In this essay we will respond to North’s challenge and to the economists who agree with him. * Kristoffer Hansen ([email protected]) is a Ph.D. candidate at the University of Angers. This paper originated as a presentation to the fellows’ seminar at the Mises Institute in 2017. I would like to thank Dr. Salerno and Dr. Thornton and the fellows for their helpful comments. I would also like to thank Dr. David Gordon, Dr. Guido Hülsmann, and Prof. Patrick Newman for helpful suggestions and comments.
    [Show full text]
  • Ludwig Von Mises and Contemporary Free Banking Theory
    Ludwig von Mises and Contemporary Free Banking Theory Wang Kesong Abstract: It has long been debated whether 100 percent reserve is an inherent requirement of a truly “free” banking system. This paper examines accordingly 1) the historical question regarding Mises’s true position on free banking and 2) the theoretical claims of both Mises and contemporary free banking theorists on this issue, in light of Mises’s general theory of money and banking. I argue that Mises is in fact lying on the middle ground between modern 100 percent reserve free bankers and fractional reserve free bankers. For the second issue, I argue that 1) Mises’s theoretical claims on free banking are not satisfactory, 2) modern FRFB theorists’ modified theory is not satisfactory, and 3) 100 percent reserve free bankers’ fraud/embezzlement argument is generally correct, whereas it does not satisfactorily explain the nature of modern “demand deposits”. I thus propose a modified analysis as a complement and reinforcement to their argument. I also point in my conclusion two possible ways to a resolution of modern free banking debate. 1. Introduction Recent decades have witnessed a remarkable revival of a long-ignored research approach in monetary/banking theory. The idea of “free banking”—the application of the general principle of free trade in money and banking—greatly challenges the long-held belief regarding the alleged necessity of a centralized monetary/banking system. However, as in many other cases, controversies arise even among the proponents of this general idea: while one group seeks for an unconditional deregulation of the banking industry, another group argues in contrast the “inseparable” requirement of a “truly free” banking system, viz., 100 percent reserve legal requirement.
    [Show full text]
  • Monetary Policy: a Lecture Series Edited by Norbert J
    SPECIAL REPORT No. 207 | FEBRUARY 13, 2019 Monetary Policy: A Lecture Series Edited by Norbert J. Michel, PhD Foreword Norbert J. Michel, PhD Monetary Policy: A Lecture Series Edited by Norbert J. Michel, PhD Foreword Norbert J. Michel, PhD SR-207 This paper, in its entirety, can be found at: http://report.heritage.org/sr207 The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress. SPECIAL REPORT | NO. 207 FEBRUARY 13, 2019 Table of Contents Contributors ...........................................................................................................................................................................................v Foreword .................................................................................................................................................................................................. 1 The Federal Reserve at 100: A Panel Discussion ............................................................................................................. 5 A Brief Tour of the Fed’s Historical Performance ......................................................................................................... 5 Lawrence White The Federal Reserve’s Mythical Reputation .....................................................................................................................
    [Show full text]
  • University of Georgia
    ECONOMICS 816: Macroeconomic Theory II Spring 2011 Nguyen Engineering Building 1107 W 7:20 – 10:00 pm Prof. Lawrence H. White Enterprise 349 Office Hours TuTh 2:45-3:45, or by appointment ph: 993-4049 fax: 993-1133 [email protected] Prerequisites: ECON 715, or permission of instructor. Overview: Intertemporal equilibrium; monetary equilibrium; monetary disequilibrium and its spillover effects on intertemporal and labor markets; proposals for neutralizing monetary policy. Requirements: exam date grading weight 1st exam (75 mins.) TBA 20% 2nd exam (75 mins.) TBA 20% Final exam (cumulative) 11 May, 7:30-10:15 pm 50% Problem sets and participation 10% The following policies are stated as a matter of record. (1) Collaboration on problem sets is allowed. (2) Cheating on an exam is grounds for a zero score on the exam. (3) Failure to take an exam at the scheduled time will result in an exam score of zero (absent a valid medical excuse or certified final exam conflict). You may not take an exam at a different time from the rest of the class. Please don't ask. (3) No one will be permitted to leave an exam before 30 minutes have elapsed, or to enter after anyone has left. (4) Performance on these exams, and on problem sets, will be the only bases for grading. No other "extra credit" will be assigned or accepted. Books (abbreviated below): MD: Michael Darby, Macroeconomics: The Theory of Income, Employment, and the Price Level (McGraw-Hill 1976). Relevant chapters posted on Blackboard. IF: Irving Fisher, The Theory of Interest (1930).
    [Show full text]
  • Did Hayek and Robbins Deepen the Great Depression?1
    Did Hayek and Robbins Deepen the Great Depression?1 Lawrence H. White2 Economist, George Mason University Liberal Düşünce, Cilt 15, Sayı 59 - 60, Yaz-Güz 2010, s. 103 - 121 ABSTRACT Contrary to some accounts, the Hayek-Robbins (“Austri- an”) theory of the business cycle did not prescribe a mone- tary policy of “liquidationism” in the sense of passive indif- ference to sharp deflation during the early years of the Gre- at Depression. There is no evidence that Hayek or Robbins influenced any “liquidationist” in the Hoover administrati- on or the Federal Reserve System. Federal Reserve policy during the Great Depression was instead influenced by the real bills doctrine, which (despite some apparent similari- ties) was diametrically opposed in key respects to Hayek’s norms for central bank policy. 1 Lawrence White, “Did Hayek and Robbins Deepen the Great Depression?,” Journal of Money, Credit and Banking, Volume 40 Issue 4, (2008), pages 751 – 768. For the web link see http://economics.sbs.ohio-state.edu/jmcb/jmcb/07056/07056.pdf 2 The author thanks Roger Garrison, David Laidler, Masao Ogaki, George Selgin, Dick Timberlake, the (JMCB) referees, and seminar participants at the Foundation for Economic Education for comments. 103 104 | Lawrence H. White I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself.
    [Show full text]
  • Accounting for Fractional-Reserve Banknotes and Deposits— Or, What’S Twenty Quid to the Bloody Midland Bank?
    SUBSCRIBE NOW AND RECEIVE CRISIS AND LEVIATHAN* FREE! “The Independent Review does not accept “The Independent Review is pronouncements of government officials nor the excellent.” conventional wisdom at face value.” —GARY BECKER, Noble Laureate —JOHN R. MACARTHUR, Publisher, Harper’s in Economic Sciences Subscribe to The Independent Review and receive a free book of your choice* such as the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Founding Editor Robert Higgs. This quarterly journal, guided by co-editors Christopher J. Coyne, and Michael C. Munger, and Robert M. Whaples offers leading-edge insights on today’s most critical issues in economics, healthcare, education, law, history, political science, philosophy, and sociology. Thought-provoking and educational, The Independent Review is blazing the way toward informed debate! Student? Educator? Journalist? Business or civic leader? Engaged citizen? This journal is for YOU! *Order today for more FREE book options Perfect for students or anyone on the go! The Independent Review is available on mobile devices or tablets: iOS devices, Amazon Kindle Fire, or Android through Magzter. INDEPENDENT INSTITUTE, 100 SWAN WAY, OAKLAND, CA 94621 • 800-927-8733 • [email protected] PROMO CODE IRA1703 CONTROVERSY Accounting for Fractional-Reserve Banknotes and Deposits— or, What’s Twenty Quid to the Bloody Midland Bank? —————— ✦ —————— LAWRENCE H. WHITE or centuries—even before government guarantees came on the scene— Western payment systems predominantly have used banknotes and demand F deposits backed by fractional rather that 100 percent reserves. Explaining the long historical prevalence of fractional-reserve instruments poses a difficult challenge to those who believe that such products necessarily or usually represent a fraud.1 A business practice is fraudulent, of course, only if someone is duped.
    [Show full text]
  • The Austrian School of Economics: 1950-2000 • Peter Boettke and Peter Leeson
    Forthcoming in Jeff Biddle and Warren Samuels, eds., Blackwell Companion to the History of Economic Thought (Oxford: Basil Blackwell, 2002). The Austrian School of Economics: 1950-2000 • Peter Boettke and Peter Leeson The Earlier History of the Austrian School The doctrines comprising the Austrian school of economics have varied and the relative position of the school within the mainstream of economic thought has moved from the center to the fringe several times throughout the 130 years of its history. Carl Menger, in his Grundsatze der Volkswirthshaftslehre of 1871, substituted subjective marginal utility for the classicists’ objective cost of production as the theory of value. Friedrich von Wieser introduced the idea of opportunity cost and emphasized its subjective and ubiquitous character. Eugen von Böhm-Bawerk engaged in applying Menger’s theory of value to the theories of capital and interest. The next generation’s leaders were Ludwig von Mises and Hans Mayer, who emphasized epistemic, ontological and other philosophical themes. A fourth generation of Austrian economists emerged (most of whom would make their academic mark in the US after WWII) that included such major economists as F. A. Hayek, Gottfried Haberler, Oskar Morgenstern, Fritz Machlup and Paul Rosenstein-Rodan. Austrian economics flourished in the period immediately following WWI. By the mid-30's, however, the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed
    [Show full text]
  • Praxeology and Understanding
    Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics by George A. Selgin ~[A\j1(J ~ INSTITUTE The Ludwig von Mises Institute Auburn University Auburn, Alabama 36849 Copyright © 1990 The Ludwig von Mises Institute All rights reserved. Written permission mustbe secured from the publisherto use or reproduce any partofthis book, except for brief quotations in critical reviews or articles. Published by Praxeology Press of the Ludwig von Mises Institute, Auburn University, Auburn, Alabama 36849 Library of Congress Catalog Card Number: 90-062373 ISBN: 0-945466-09-9 Contents Preface. ..................................... .. 5 Praxeology and Understanding. .................. .. 9 Praxeology: The Method of Economic Theory. ....... .. 11 Ideal Types and "Exact Laws" .. ................. .. 18 From Mises to Lachmann: Austrian Revisionism. .... .. 27 Hayek • Shackle • Lachmann Equilibration and Coordination 37 Equilibration • Kirzner, Lachmann, and the "Tendency toward Equilibrium" • Prerequisites for Successful Action • The "Common Sense" of Coordination The Implications of the "Kaleidic Society" .......... .. 59 References 69 About the Author ............................. .. 73 About the Ludwig von Mises Institute. .............. .. 74 Preface he essay reprinted here is from the 1987 Review ofAustrian Economics and is based upon a longer T one written in 1982, when I was a second-year graduate student at New York University. That essay was composed in response to a seemingly indeterminable de­ bate amongparticipants in the N.Y.U. Austrian economics colloquium. The debate centered around the question of whether any "tendency toward equilibrium" is present in market economies. Israel Kirzner believed wholeheart­ edly in the tendency; Ludwig Lachmann was equally firm in his skepticism. The graduate students were more or less equally divided on the issue.
    [Show full text]
  • In Defense of Fiduciary Media-Or, W E Are Not Devo(Lutionists)
    In Defense of Fiduciary Media-or, We are Not Devo(lutionists), We are Misesiaasll George Selgin and Lawrence H. White he Murray Rothbard both of us knew was committed to a frank and vigorous contest of ideas. He understood that an expression Tof disagreement was not an expression of disrespect--quite the contrary. Here we wish to honor Rothbard's memory by addressing a set of issues surrounding fractional-reserve banking, issues on which we disagree with some of Rothbard's conclusions despite beginning (we believe) from many of the same premises. Our main concern is to de- fend the freedoms to issue and use fiduciary media of exchange. The vehicle for our defense is a response to criticisms of our views by Hans- Herman Hoppe in his article "How is Fiat Money Possible?-or, The Devolution of Money and Credit" (1994). Subsequent to Hoppe's arti- cle, Jesus Huerta de Soto (1995) and Jorg Guido Hiilsmann (1996) have also offered criticisms of our position in lengthy articles in this jour- nal. We address at a few points in the text below what we take to be de Soto's main arguments. Hulsmann's article has appeared too recently for us to address it directly here, but its arguments closely parallel Hoppe's. In particular, Hiilsmann, like Hoppe, fails to appreciate Mises's (fairly standard) explanation of why fractional-reserve banking is feasible. We therefore believe that our rebuttal to Hoppe serves to rebut Hiilsmann's main arguments as well. The Origins of Fiat Money It should be understood at the outset that fiduciary media, i.e., demandable bank claims that are not 100 percent backed by bank *George Selgin and Lawrence H.
    [Show full text]