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.