What Is Money? Part 17: Conclusion
November 21, 2009 by goldguru · Leave a Comment
By Gary North, GoldSeek
I have surveyed the Austrian School’s theory of money. This theory began with Ludwig von Mises’ “Theory of Money and Credit” (1912). I presented Mises’ theory of fractional reserve banking and the creation of the business cycle in my mini-book, Mises on Money (2002).
The previous parts of this series are on-line here.
I have done my best to get across a line of reasoning regarding money. This line of reasoning is not shared by other schools of economic thought. To the extent that it is understood by the decision-makers in the governments of the world and central banks, it is resisted. It is regarded as old-fashioned and out of touch with newer, more scientific theories of money and banking.
The crisis of 2008 has led to a revival of interest in the Austrian School’s theory of the business cycle. Why? Because several Austrian School economists and newsletter writers warned of the looming crisis. They did so two years before it hit. These predictions were dismissed as radical and out of touch. The most widely viewed debate over this matter – after the fact – took place on CNBC in 2006. Peter Schiff warned of the recession. Arthur Laffer dismissed it.
Finally, the Wall Street Journal ran an article on Mises’ prediction of the Great Depression. The article ran on November 6, 2009. Better late than never.
MY FUNDAMENTAL POINT
In Part 1, I made the point that the Austrian School’s theory of money is an extension of its overall theory of economic exchange. This distinguishes the Austrian School’s view from all rival views of money.
The rival views insist that the free market is insufficient to provide a reliable monetary system. Either the national government or the nation’s central bank must intervene in the free market in order to provide stability and reliability to the money system and therefore to the economy.
The logical extension of this outlook is that there is a great need for a world government and a world central bank, which together provide such stability internationally. Most economists and politicians refuse to say this in public, but this is a matter of prudence, not logic.
In contrast, the Austrians say that the free market can provide such a system of world money. We have already seen this system in operation. It was called the gold standard. It operated for most of the nineteenth century. It needed no world government and no world central bank to make it work. It did not need trained economists to make it work. You can imagine how popular Austrian School economics is with economists – about as popular as the gold standard.
