Ready for Her Close-Up
Nick Gillespie’s review of two recent Ayn Rand biographies (“Ready for Her Close-Up,” December) was inspiring and encouraging to those of us who value Rand’s ideas. Two minor criticisms should be made, however.
Rand, contrary to Gillespie, was not a philosophical materialist but a naturalist. Materialism is mainly reductive, claiming all is really nothing but matter in motion. Rand derides materialists as “mystics of the muscle.”
Second, both Jennifer Burns’ and Anne C. Heller’s well-composed biographies extensively commit the genetic fallacy, which involves the explanation of someone’s ideas by reference to their childhood histories. Millions share many of Rand’s ideas without sharing her history in the early Soviet Union.
Tibor R. Machan
Penn Bullock’s otherwise good article on Ben Bernanke (“Bernanke’s Philosopher,” December) leaves the impression that all Austrian economists reject Milton Friedman’s view that the Fed’s contraction of the money supply during the early 1930s was an important cause of the Great Depression and that all Austrians reject the notion that expanding the money supply is ever justified. Both of these impressions are incorrect.
There is no inconsistency in claiming that a Fed-generated inflation during the 1920s and a deflationary over-correction in the early 1930s were both factors in the onset and depth of the Great Depression. One can’t explain the current recession by invoking only the Fed’s inflation since 2001.
A number of Austrian school economists (including myself, Lawrence H. White, George Selgin, and Roger Garrison) also believe that the ideal monetary system should adjust the supply of money to the public’s demand to hold money. Thus when the demand for money rises economy-wide, as it did in the early 1930s and in the fall of 2008, the proper response is to provide additional money so as to avoid the monetary deflation and potential banking system collapse we saw in the 1930s.
This group of Austrians also believes that central banks will not be very good at doing this, which is why we support the separation of banking and the state in the form of a system of competitive money production. Our proposed “free banking” system would use market forces to adjust the supply of money up and down as determined by demand, just like markets do with other goods and services.
My own view is that while the Fed responded appropriately by providing more liquidity in the fall of 2008, it overdid it. In particular, the Federal Reserve did not need additional powers. Its standard tools would have done the trick and kept the expansion in check. The powers it has acquired and the massive increase in the monetary base they generated are dangerous mistakes that create a high probability of significant inflation in years to come. This misbehavior lends support to one idea that Bullock rightly notes all Austrians do agree on: We need to get rid of the Fed.
Department of Economics
St. Lawrence University