Economics

Mises Gets Belated Respect from the Wall Street Journal

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Hedge-funder Mark Spitznagel in the Wall Street Journal huzzahs Ludwig von Mises' nearly century-old Theory of Money and Credit for laying out the basics about why we are in such an econ-jam these days, and pointing toward a path alas not-taken toward a solution. An excerpt:

when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse.

The system is dramatically susceptible to errors, both on the policy side and on the entrepreneurial side. Government expansion of credit takes a system otherwise capable of adjustment and resilience and transforms it into one with tremendous cyclical volatility…….

Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating. Don't encourage consumption, but rather encourage saving and the repayment of debt. Let all the lame businesses fail—no bailouts. (You see where I'm going with this.) The distortions must be removed or else the precipice from which the system will inevitably fall will simply grow higher and higher.

As David Henderson points out at greater length, Spitznagel in part of his piece not quoted above mischaracterizes Keynes' use of math (he barely did) and the oppositional nature of Mises' work (in 1912, he was right in the monetary policy mainstream of his profession). But nice to see the economist–and the great fountainhead of modern libertarian thought through his own great social science writing and the inspiration and education he provided to Rand, Hayek, and Rothbard, among many others–get some big daily newspaper love.

My book Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement tells at great length Mises' story, and the story of the movement he inspired.

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  1. So, Mark Spitznagel has booked a flight to Dubai to buy as much gold and private islands as he can?

  2. It is funny how very smart people allow theories and math to releave them of common sense. All Von Misses is saying is that to get wealthier, you have to actually make a good or service. You can’t do it by shuffling paper. Bubbles are not real wealth.

  3. I already read this piece of news on Lewrockwell.com

    1. Cool story, bro

  4. If Mises wanted respect like Keynes, he should have thought up a cooler adjective for himself than Misesian. Something catchy and easier to pronounce. Misesiatic or Misessy maybe.

    I don’t know, didn’t they have market research back then?

  5. Chad to Government:

    Subsidizing debt: BAD

    Subsidizing saving: HAS TRADEOFFS…CAN BE BENEFICIAL

    Subsidizing both at the same time: IDIOTIC and a COMPLETE HANDOUT TO BANKERS

    Think about it. How many Americans how hundreds of thousand of dollars on a home, on which they are paying the bankers 5% interest a year, while at the same time have tens or hundreds of thousands of dollars in their 401k’s and IRA’s…which the bankers claim 1% for managing? Now, any idiot, in a subsidy-free world, would realize that it makes a hell of a lot of sense to pay off the bankers and save yourself a risk-free 6% per year. But in the real world, we don’t, because both the saving and the borrowing are so heavily subsidized that it actually makes sense to do both at the same time. Who wins? The banks.

    We need to eliminate all subisidies of any form of debt as soon as possible.

    1. I hate to burst your bubble (no pun intended), but we can’t even get a God damned audit of the Fed.

      1. Simply because IGNORANCE IS STRENGTH. The whole plan of shuffling worthless assets into the Fed’s balance sheets relies on the organizations opacity. They’ve gone all-in on hiding the problem, they’re not about to let some pesky transparency ruin it.

  6. You can’t fix what’s broken by breaking it yet again.

    You can’t build a house of cards on top of a pile of fallen cards.

    1. a new German invention
      a kind of Cor-recto-type paper
      on which you simply type
      the same mistake again
      in the exact same place
      and the paper erases
      the original sin
      by a kind of chemical amnesia
      Ain’t that ingenious
      ain’t that great
      Two wrongs make a right in Berlin

      ~ Lawrence Ferlinghetti

  7. If Mises wanted respect like Keynes, he should have thought up a cooler adjective for himself than Misesian. Something catchy and easier to pronounce.

    Misetastic!

    1. Misesanic. The second ‘s’ is silent.

      1. Misegasmic. That’s a school of thought I could subscribe to.

  8. This is one of the first times I’ve actually seen an Austrian solution to the crisis proposed. I’ve read a lot of Austrian critiques of the Fed and Treasury, but not often a lot of strategies for dealing with it.

    So their approach is basically “let em fail”? I’m fine with that.

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