Do YOU understand Austrian Economics?

[stoutmaker]

All right. Here's another term Ron uses

that probably goes over the average joe's head as well:

Fiat Currency.

I've heard him use the term on many an occasion and have to admit I didn't know exactly what the heck this meant either. So, Ron would be very happy...I did my homework. For those of you who had similar interests:

In economics, fiat currency or fiat money is money backed by an authority, usually a government, for use in exchange of goods and services or to pay a debt.


Just when I thought I was smart, I started listening to Ron Paul. Damn this guy has his feces together.

 

[stoutmaker]

Hmm....

that probably goes over the average joe's head as well:

Fiat Currency.

I've heard him use the term on many an occasion and have to admit I didn't know exactly what the heck this meant either. So, Ron would be very happy...I did my homework. For those of you who had similar interests:

In economics, fiat currency or fiat money is money backed by an authority, usually a government, for use in exchange of goods and services or to pay a debt.


Just when I thought I was smart, I started listening to Ron Paul. Damn this guy has his feces together.

So what would the Opposition to Fiat Currency be called? And what would be a real world example, if there is one?

 

[Mises]

About return to gold as money:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin

Ugh. Let's stop throwing this quote around. While the sentiments certainly fits Jefferson's worldview, there is no verification that he ever said this. It doesn't appear in any letters he wrote that we have record of. The dead giveaway is the usage of modern nomenclature such as "inflation," "deflation," and "corporations."

http://etext.lib.virginia.edu/jefferson/texts/

Here is what Jefferson did say in a letter to Gallatin in 1820:

At home things are not well. The flood of paper money, as you well know, had produced an exaggeration of nominal prices and at the same time a facility of obtaining money, which not only encouraged speculations on fictitious capital, but seduced those of real capital, even in private life, to contract debts too freely. Had things continued in the same course, these might have been manageable. But the operations of the U.S. bank for the demolition of the state banks, obliged these suddenly to call in more than half of their paper, crushed all fictitious and doubtful capital, and reduced the prices of property and produce suddenly to 1/3 of what they had been. Wheat, for example, at the distance of two or three days from market, fell to and continues at from one third to half a dollar. Should it be stationary at this for a while, a very general revolution of property must take place.

It's as good a description of the inflationary process as we have from him. He's actually recognizing its effect on the economy in general, what Austrians would call malinvestment and the "boom/bust cycle" in the 20th century.

 

[Bradley in DC]

If you're less of a reader, check into Milton Friedman's "Free to Choose" video series.

That is NOT Austrian economics. He's an empiricist using the perfect competition model, not our market process approach.

 

[malibu]

I've never found anyone who could satisfactorily explain to me how a gold standard would work in today's world.

The amount of gold in the world is so small, it's difficult to understand how it could support the level of economic activity in the USA, let alone the global economy.

I think it's been calculated that 1oz of gold would have to be worth $300,000 to support all the trade in the global economy. That hardly seems like a realistic proposition so I'd like to hear more from RP exactly how he intends to do it.

ok, well then make it all commodities - or several like it was before -
Silver Certificates and Gold Certificates were issued in paper as well as the more common Federal Reserve Note.

Then Nixon got rid of the commodities supported dollar.

Platinum Certificates anyone ?

 

[stoutmaker]

Does anyone have

the dates of the original Federal Banks and which president was responsible for getting rid of them? If you know why, I'd love to hear that as well.

 

[peacemonger]

I've never found anyone who could satisfactorily explain to me how a gold standard would work in today's world.

The amount of gold in the world is so small, it's difficult to understand how it could support the level of economic activity in the USA, let alone the global economy.

I think it's been calculated that 1oz of gold would have to be worth $300,000 to support all the trade in the global economy. That hardly seems like a realistic proposition so I'd like to hear more from RP exactly how he intends to do it.

Ron Paul proposes all of his ideas as gradual transitions so that we can try to maintain stability of the system.

First, remove all taxation from the exchange and capital gains for metals like gold and silver (probably also, copper, platinum, palladium, and a few others). This will bring back some of the barter economy and get some people to start to invest their earnings in a diverse portfolio of metals and commodities.

We could just legalize competing currencies. This would have 2 counterbalancing effects the relative scarcity of some of these metals would cause the price of those metals in paper dollars to rise, while at the same time, the international confidence in the dollar would cause a counterbalancing increase in the value of the dollar.

Prices of everything would not change much because simply legalizing competing currencies does not cause mass hysteria. In the old days in Europe I could buy just about anything anywhere by paying in dollars, Deutsch marks, or Guilders. Many shops would have a list with several prices. Some gave you a fair exchange rate. Others did not. You would probably get a better exchange rate at a bank than you would at a restaurant, but that is because banks have to compete with other banks according to the spot rate. That is the ideal situation. Is it perfect? No. Is it better? Hell yes!!!

So, Gold would not go to 300,000 per ounce because it is only part of a diversified commodity exchange system. The bulk of the currency use would probably transfer to silver because it is FAR more plentiful, therefore provides greater liquidity. When they made the transition from the multiple currencies to the Euro, first they pegged each of the currencies to a Euro exchange rate. Next, for about 2 years they had all of the currencies drifting up and down in relation to one another. Everybody was nervous!!! The prices in all of the stores were written in 2 currencies. Then, one day the transition deadline passed with out a bump and the old currency was no longer accepted.

The same thing would happen here. Legalize the metals. Congress can dictate the weights, measures, and purity standards of the new currency if they want to but value of the currency for exchanges should be determined by the market. The reality is that a silver coin will still by dinner for 2 people. A few ounces of gold will still buy you a car. Things will be interesting but life will go on. It may take a little longer than 2 years to make this transition but who knows? Personally, I like gold and silver. They are beautiful metals and it is a total waste to keep them locked up in some vault somewhere. Melt those bars down and make some nice coins.

I don't think we will ever get rid of paper money or electronic money. I just want my paper and electrons to be redeemable 1 for 1 with gold (no fractional reserve banking).

That is my take on how this would work. Others may have a different opinion.

 

[peacemonger]

So what would the Opposition to Fiat Currency be called? And what would be a real world example, if there is one?

We had silver and silver certificates in circulation in this country until the 1970's.

 

[stoutmaker]

maybe I'm just confused...

We had silver and silver certificates in circulation in this country until the 1970's.

but Fiat Currency is:
money backed by an authority, usually a government, for use in exchange of goods and services or to pay a debt.

If the government owns X amount of silver (gold, what have you), and thus is able to print out X # of appropriate dollars whereby equally valuating this commodity, doesn't the government still OWN this silver, until you would essentially "trade in" your silver certificate for the equivalent amount of silver, if you wanted it?

Thus wouldn't this STILL be money backed up by the government who is the one holding the controlling interest in this "currency", which would thereby make it fiat currency?

Someone help me with the holes in this logic. I would REALLY like to have a better understanding, so that I can more accurately defend Dr. Paul's position of returning or supplementing our currency with a gold standard enforced "dollar".

 

[AceNZ]

but Fiat Currency is:
money backed by an authority, usually a government, for use in exchange of goods and services or to pay a debt.

Yes. The "authority" is called a legal tender law. People are forced to accept the currency for all debts, public and private.

If the government owns X amount of silver (gold, what have you), and thus is able to print out X # of appropriate dollars whereby equally valuating this commodity, doesn't the government still OWN this silver, until you would essentially "trade in" your silver certificate for the equivalent amount of silver, if you wanted it?

No. The government doesn't own it. They are custodians, but only for some of the gold, not all of it.

Thus wouldn't this STILL be money backed up by the government who is the one holding the controlling interest in this "currency", which would thereby make it fiat currency?

No. In addition to the paper money, gold (for example) would also circulate as coins. There would be a free market that allows the exchange of coins for paper. Third parties, in addition to government, could participate in that market -- there's nothing special about government's role, other than the printing of the certificates and insuring that they are actually backed by something.

If the certificates were to suddenly be exchangeable for less gold, they would be driven from a free market (why hold a depreciating currency when an alternative is available). It's the same concept that would allow a gold-backed currency to be established in the first place. If you had the choice between a currency that could be depreciated and one that couldn't be, which would you choose?

 

[AceNZ]

the dates of the original Federal Banks and which president was responsible for getting rid of them? If you know why, I'd love to hear that as well.

Bank of North America (formed before the Constitution was written)
-- did not have its charter renewed by Congress, and closed in 1783
Bank of the United States, formed in 1791 (encouraged by Hamilton)
-- fought by Jefferson, its charter was not renewed by Congress in 1811
Second Bank of the United States, formed in 1816
-- fought by Jackson, its charter expired in 1836


Jefferson's portrait is now on our $2 bills.
Hamilton is now on our $10 bills.
Jackson is now on our $20 bills.

 

[snaFU]

So here's a larger point about this topic. If only ~1/2 of us (currently 152 - 121) say we understood what Austrian economics is before the start of this discussion, (and I would put this groups intelligence at an above average level), what makes Ron think that he's gonna break through to the rest of America?

I'm not saying he shouldn't talk about it, I'm just suggesting that during a nationally televised debate when you have the chance for the greatest single voter penetration , you need to curb the message SLIGHTLY to keep it simple for folks and get them fired up about your candidacy. Once they are interested, THEN hit them with the heavy stuff, as if they're interested like we are, they're more inclined to WANT to learn more.

Someone (campaign manager, most likely) REALLY needed to help focus Ron for these debates and help him to still clearly state his messages, but in more user friendly to the format methods.

Good point

 

[Misesean]

Bear in mind please that I've read the Wikipedia article, and its not the best. It implies several times that the Austrian School is inconsistent with observational phenomena or that it is entirely theoretical, and not pragmatic. That is simply not true. For a *real* understanding, you're going to *have* to read something written by an economist.

However, wikipedia does do a decent job summarizing a great many things.

Depends what things. On some topics it's decent, but on others not so much. The "NPOV" (neutral point of view) rule is virtually interpreted to mean that you can't write an article saying the earth is an oblate spheroid, because that's not neutral to the views of flat-earthers. On subjects related to economics, all the crazies who disagree with economics (socialists, Real Bills people, etc.) appear to make sure the article doesn't provide any real information.

 

[Misesean]

Im getting my PhD in Economics so yes

Non sequitur. Most PhDs in economics don't know anything about [Austrian] economics

 

[Trance Dance Master]

Depends what things. On some topics it's decent, but on others not so much. The "NPOV" (neutral point of view) rule is virtually interpreted to mean that you can't write an article saying the earth is an oblate spheroid, because that's not neutral to the views of flat-earthers. On subjects related to economics, all the crazies who disagree with economics (socialists, Real Bills people, etc.) appear to make sure the article doesn't provide any real information.

For wikipedia, you're better looking up free market economics.

http://en.wikipedia.org/wiki/Free_market

People talk about free market economics as "Austrian economics" so that they can sound smart and look like they know about cool foreign stuff that you have to be super educated to understand. It's like the way people who gamble on stocks and commodities like to sound smart talking about a gazillion different technical indicators they look at. Makes them look like big shots, especially when they talk about it at cocktail parties. I can talk about this stuff for hours to people who are interested in hearing me talk about the stock market, and they'll listen because they think I know what I'm talking about as far as how to become a successful trader.

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:introduction_to_tech

Successful trading and investing can be summed up on one sentence: Allocate assets, manage risk.

Free market economics can also be summed up in one sentence: If it's my money, that means I'm the one who has the right to spend it where ever I want to.

If anybody can tell me, in their own words, what the difference between Austrian economics and free market economics is, I'm all ears.

 

[Misesean]

If anybody can tell me, in their own words, what the difference between Austrian economics and free market economics is, I'm all ears.

Methodology. "Free market economics" isn't necessarily Austrian (e.g., the Chicago school - Milton Friedman, etc.), and Austrians aren't necessarily free marketers. Austrian economics in the strict sense is merely the application of the science of praxeology to the subject of economics, and is "wertfrei" (value-free; meaning it only tells you that if you do A, B will result, etc., but doesn't have anything to say about whether or not you should do A). If you want everyone to be poor and miserable, Austrian economics tells you that you don't want free markets Or you can use bad (non-Austrian) methodology and nevertheless conclude that free markets are the way to peace and prosperity; then you're a free-marketer but not an Austrian.

 

[Misesean]

FWIW, it's not called "Austrian" after Mises, but after Menger - two generations before Mises.

 

[bucfish]

I received the Von Mises Intstitute newsletter and read works by many. Of course Ayn Rand and her philosophy will help many. Objectivist thinking is the key to understanding logic and reason. Austrian Economics follws logic and reason in economic terms

 

[snaFU]

I received the Von Mises Intstitute newsletter and read works by many. Of course Ayn Rand and her philosophy will help many. Objectivist thinking is the key to understanding logic and reason. Austrian Economics follws logic and reason in economic terms

No offense but turning into a Randroid doesn't make you the most intelligent person. It turns you into a big business humper.

 

[Omnis]

Non sequitur. Most PhDs in economics don't know anything about [Austrian] economics

So true. I told my history professor I liked Austrian Economics and he just had this blank face like, "Well, we're going to talk about Austria soon. What about German economics?"