# Think Tank > Austrian Economics / Economic Theory >  Austrian Economics (Ron Paul) vs. Bernanke's Economics, great article

## tsetsefly

here is an article from the ludwig von mises institute: http://www.mises.org/story/2781
They take a closer look at Paul's schooling of bernanke, and explain in lamens term, why Paul was correct.

excertp:




> Economists of the Austrian School of economics define inflation differently than much of the mainstream of the economics profession. The typical mainstream intermediate macroeconomics textbook defines inflation as "[a]n increase in the overall level of prices" (Mankiw, Macroeconomics 5th Edition, 530). The eminent Austrian economist, Ludwig von Mises, suggested otherwise:
> 
>     What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation. (Mises, Planning for Freedom, 79)
> 
> A recent exchange between Congressman Ron Paul and Ben Bernanke took place during Bernanke's testimony before the Congressional Joint Economic Committee on November 8, 2007. Congressman Paul, instead of referring to either the PPI or CPI, referred to the MZM money aggregate:
> 
>     Currently, of course, we can't follow the money supply with M3 but we can follow one of your statistics, which is the MZM  the ready cash available  and we see that inflation is alive and well. That money supply figure is going up about 20 percent per annualized.
> 
> In a typical Austrian analysis of the business cycle, Congressman Paul attributed both the NASDAQ bubble and the more recent housing bubble to interest rate manipulation. Congressman Paul's interpretation of the Austrian Business Cycle Theory (ABCT) suggests that distorted messages transmitted via the price mechanism to consumers and to investors in particular cause malinvestment to occur within the economy. Specifically, Congressman Paul pointed out the 1% federal funds rates that followed the September 11th attacks as evidence of the Federal Reserve distorting the economy and likened the role of the Federal Reserve to that of a price fixer. After first attributing the problem of bubbles in the economy to the Federal Reserve's expansion of the money supply, Congressman Paul then questioned how a further inflation could prove helpful....

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## tsetsefly

bump

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## DRV45N05

On monetary policy, I really favor Dr. Paul's proposal of allowing Gold and Silver to compete with the dollar as legal tender rather than just outright returning to a strict gold standard as of now. My reason for this is because in cases like 9/11, you absolutely DO need to have discretionary central bank policy tools available. Yes, the Great Depression was initiated by the building of financial and credit bubbles by the Fed during the 1920s (when there was a semi-gold standard), but a case like 9/11 is a catastrophic shock to the system. There needs to be a stabilizing mechanism in place to prevent a depression, which would have certainly occurred if the Fed did nothing. 

However, with competing currencies, you still get the great features of a gold standard, so individuals can protect themselves against the dangers of fiat currency.

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## Abobo

> On monetary policy, I really favor Dr. Paul's proposal of allowing Gold and Silver to compete with the dollar as legal tender rather than just outright returning to a strict gold standard as of now. My reason for this is because in cases like 9/11, you absolutely DO need to have discretionary central bank policy tools available. Yes, the Great Depression was initiated by the building of financial and credit bubbles by the Fed during the 1920s (when there was a semi-gold standard), but a case like 9/11 is a catastrophic shock to the system. There needs to be a stabilizing mechanism in place to prevent a depression, which would have certainly occurred if the Fed did nothing. 
> 
> However, with competing currencies, you still get the great features of a gold standard, so individuals can protect themselves against the dangers of fiat currency.


I'm pretty sure you're not quite grasping what "money" is -- money is simply a medium of exchange. 

If there is a depression that means the number of goods ( things money can be exchanged for ) is shrinking. Printing more money will not cause more things to be created, it will only mean it will take more money to purchase the products ( inflation ).

At best manipulation of the money supply will cause malinvestment that leads to the "business cycle" at worst it causes hyper-inflation and the eventual collapse of the money supply and economy.

EDIT:
The economy was pretty f***ed up before the attacks. The NASDAQ bubble, created by the fed, was just starting to unwind when the attacks happened. It was only the visible jolt that started the things falling down.

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## hocaltar

> EDIT:
> The economy was pretty f***ed up before the attacks. The NASDAQ bubble, created by the fed, was just starting to unwind when the attacks happened. It was only the visible jolt that started the things falling down.


You are right sir.  If you read Warren Buffet about the tech bubble he gives a better reason for its' bursting.  Buffet said, 'the investments in the .com companies are foolish because those companies don't earn any real money.  How can a company be worth anything if it doesn't sell anything?'  People finally woke up to this fact and the whole thing sank like a rock.

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## Matthew Zak

DIGG HERE: http://digg.com/business_finance/Aus...ke_s_Economics

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## Mark

for the money bump

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## apropos

This looks like an interesting website. Thanks!

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## tsetsefly

bump

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## torchbearer

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## torchbearer

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## torchbearer

blump.

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## JRegs85

The Austrian School reaches largely the same conclusions as the Chicago School....government monetary policy interference confuses/changes the expectations of the market, which leads to an overall slowing effect on the economy.

I still don't understand the Austrian School's notion that inflation is destined to cause an entire economic collapse of the system, however.

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