Steve G.

The Austrian/Monetarist split as a proxy for the rift within the LP

In Economics, Libertarian Party-US, Libertarian Politics on July 8, 2008 at 5:52 pm

From Amateur Economists:

“Libertarians are Republicans who smoke pot.” So goes the saying. And most Americans know little else about the Libertarian Party, America’s third largest, or the libertarian political philosophy. So when former Republican congressman Bob Barr announced his candidacy for the LP’s presidential nomination on May 12, the mainstream media assumed he was a shoo-in. After all, he was a Republican and now lobbies for the Marijuana Policy Project—how could someone better fit the popular definition?

But what the media failed to recognize is that many party members don’t consider libertarianism to be a branch of conservatism but, instead, its diametric opposite. These libertarians refused to embrace Barr and, instead, rallied behind the candidacy of party stalwart Mary Ruwart during the Libertarian National Convention on May 25. It took six ballots before Barr was finally able to win the party’s nomination with just over 51% of the vote, and the rift now between the “reformers” who backed Barr and the “radicals” who supported Ruwart is bitter—and largely economics related.

Read the whole article.

  1. Eh, as an economist I have to take issue with that classification. In my opinion the free banking and competitive currencies advocated by F.A. Hayek, Larry White, and George Selgin are far more radical than the government imposed gold standard and government imposed 100% reserve requirements advocated by Ludwig von Mises and Murray Rothbard. Milton Friedman was in favor of 100% reserves too at some times in his life, but his reasoning was to make monetary policy more effective rather than a fractional reserve banking = theft rational. Of course primarily Frieman was a monetarist far less radical than the rest mentioned here.

    I think a lot of libertarians suffer from Rothbard worship without making themselves aware of more radical libertarian ideas available. Applying the free market to banking and money rather than subjecting it to government regulation is the true radical approach.

    http://en.wikipedia.org/wiki/Free_banking
    http://en.wikipedia.org/wiki/Gold_standard

  2. I don’t know if my earlier comment just didn’t go through or was screened as spam. I’ll try reposting it without the links.

  3. Eh, as an economist I have to take issue with that classification. In my opinion the free banking and competitive currencies advocated by F.A. Hayek, Larry White, and George Selgin are far more radical than the government imposed gold standard and government imposed 100% reserve requirements advocated by Ludwig von Mises and Murray Rothbard. Milton Friedman was in favor of 100% reserves too at some times in his life, but his reasoning was to make monetary policy more effective rather than a fractional reserve banking = theft rational. Of course primarily Frieman was a monetarist far less radical than the rest mentioned here.

    I think a lot of libertarians suffer from Rothbard worship without making themselves aware of more radical libertarian ideas available. Applying the free market to banking and money rather than subjecting it to government regulation is the true radical approach.

  4. “Eh, as an economist I have to take issue with that classification. In my opinion the free banking and competitive currencies advocated by F.A. Hayek, Larry White, and George Selgin are far more radical than the government imposed gold standard and government imposed 100% reserve requirements advocated by Ludwig von Mises and Murray Rothbard. “

    I agree and said so earlier here:
    http://www.independentpoliticalreport.com/2008/07/reason-profiles-chuck-baldwin/#comment-4721

    But Hayek also said at one point (see Radicals for Capitalism) that the idea of not having a central bank was idiotic (or some equally harsh epithet).

  5. “. . . many party members don’t consider libertarianism to be a branch of conservatism”

    I’ll go further by saying that anyone who DOES think libertarianism is a branch of conservatism is not only ignorant of history, but lacks the general understanding of what liberty is.

    As Frederic Bastiat had pointed out, the conservative “right” which sat on the right side of the legislative assembly had the land interests and were thus the conservatives, i.e keeping the traditional “owners” of land in their hands. The “left” side of the assembly were the liberals or those opposed to control by the landed, virtually feudal interests. This “left” is where the libertarian movement had its origin . . . the LEFT!

    However, this LEFT is not to be confused with the modern left in America, which is socialist in nature.

    Fundamentally, liberty is not confined to economic or “civil” liberty. The modern left may to a greater extent uphold “civil” liberty, and the modern right may to a greater extent uphold economic/enterprising liberty.

    When libertarianism upholds liberty in all matters, it is correct to characterize modern “liberalism” and “conservatism”, loosely as supporters of one aspect of liberty. Libertarianism cannot possibly be a subset of either. Rather, the liberals and conservatives have chosen which libertarian aspects to adopt.

    FACT-Bob Barr is a conservative, and as such is likely to have some libertarian values. The fact that he is a little stronger than most other conservatives on privacy does not however, qualify him to be a libertarian. Barr’s nomination is much more a function of frustration on the part of Libertarian Party members, than a statement of belief in Barr being a libertarian. As has been stated to me on several occasions, “I’m sick of losing” and “we have to do SOMETHING to win” . . . and anything will be tried as a result of this frustration. Case in point . . . Barr winning the LP nomination. Barr’s candidacy, I predict will be a failure in furthering liberty, regardless of the number of votes he gets.

  6. Steve – You are very right about Bastiat and everything else, too.

  7. Though Chuck Moulton’s point about Hayek’s alleged radical monetary views may be true, maybe he or someone else can explain why Milton Friedman, (an advocate of central banking, with authority over centralized control of the money supply) was so amenable to Hayek, yet so opposed to Mises and Rothbard.

  8. Chuck – pulled your comment out of spam

  9. Don’t have time to pull up the link now, but What Has Government Done To Our Money? seemed to me to advocate free market currency, not a government gold standard.

  10. Right, I disagree with Hayek on having central banks. Hayek started the competitive currency movement by proposing competitive national currencies. White and Selgin refined it with competitive bank currencies without necessarily having any national currencies.

    By citing a particular economist that doesn’t mean I agree with all his views. But I do believe free banking and competitive currency are much more radical than 100% reserves and the gold standard.

  11. Gold may have been the historic origin of money, but it doesn’t work very well in a modern liquid economy. There’s not enough of it. And if there were, its marginal value would go down.

    Gold as a measure of value is a good idea. As a store of liquid value, it has much to be desired. For this reason, debt based money continues to be popular despite its problems.

    If Rothbard believed that people continued to accept dollars merely out of conditioning as the cited article states, Rothbard was an economic idiot. And it is little wonder that few mainstream economists took him seriously. Our monetary system is primarily debt-based. The banking system, even before the advent of the Fed, creates new debt-backed money to add liquidity to the system. Monetary inflation by this mechanism is not proportionately inflationary because the banks don’t create the money out of thin air; they create it with fresh backing.

    With thin reserve requirements, the system is unstable since the underlying value of the debts used to create the new money changes. Fixed mortgages and long term bonds are quite volatile as interest rates shift.

    That said, when the Fed purchases government securities through “open market operations”, the result is inflationary as the government owns the Fed and thus collects the interest it pays to the Fed. Money is added to the system without new demand for the money to back it up.

  12. Chuck – I agree with you and that’s Ron Paul’s view, too. But from Rothbard’s perspective (which may have been inaccurate) Hayek was hypothesizing fiat-money issuing competing banks, and while banks should certainly be free to issue fiat money in the free market (so long as they make no false claims about it), Rothbard, from my reading, was mostly heaping scorn on the idea that such institutions would have any support.

    I also agree with you that 100% reserves should not be required so long as banks are held accountable for shortages and allowed to fail. Also, if notes are printed that claim to be backed by something for which there is no backing, this is counterfeiting, and the bankers who engage in it should be executed under the Constitution. Historically, governments have excused and supported these practices and bailed out counterfeiting bankers, which did much to discredit the gold standard.

  13. Craptastic article. Too simplistic.

    Plenty of reform folks cannot stand Barr and were horrified by his nomination, and there are a few radicals who have expressed support for the ticket.

    Once again, the media delivers only 1/4 of the story.

  14. G.E., I agree with your positions; however, I don’t think they accurately represent Ron Paul’s view — at least from what I have heard during his campaign. Ron Paul seems to be a gold bug like Rothbard. I have no problem with gold and certainly there are very good arguments that in a free market institutions would adopt gold or converge to gold as the best standard, but I would let the free market arrive at the standard rather than imposing it.

    I agree that fiat currency and commodity based currency could both be offered on the free market and consumers could decide which to support — free of any government regulations (especially free of legal tender laws).

  15. Carl Says:
    July 8, 2008 at 7:57 pm

    Gold may have been the historic origin of money, but it doesn’t work very well in a modern liquid economy. There’s not enough of it. And if there were, its marginal value would go down.

    The concept of Gold as money, being slandered by Milsted because “There’s not enough of it.” is so short sighted. Though there is no way to predict the future, market forces would lead innovative thinking to find a way to transition out of the current monetary crisis. Maybe there could be other substances used? Maybe the money supply could just be frozen at the level it is now, and the gold, silver, platinum, etc could the represent the level of money in circulation. I don’t have the answer. However, I do trust people in using the market to find the solution(s). If Carl thinks that staying with the current fiat money is preferable, then he is more of an idiot than he alleges Rothbard is.

    I expect that here, since I may not have proposed a viable solution or combination of solutions, my ideas will likely be shot down by Milsted. However, again, if Milsted thinks that government and regulation of the private banking cartel which is wedded to fiat money is better, it will indicate just how much faith he has in government. Can anyone say statist?

  16. Short sighted? No, it’s backward-looking. It’s based on history.

    The market did come up with an alternative to hard money: fractional reserve banking. As I said in my post above, fractional reserve banking predates the Fed by a long time. And as I said above, fractional reserve banking had serious stability problems. With free banking, large banks could (and did) force runs on smaller banks in order to then buy them up on the cheap. With the Fed, smaller banks have easier access to liquidity and are more proof against such gaming the system. On the downside, having the Fed allows the entire banking system to over-leverage.

    In the late 20s the Fed realized the system was over-leveraged, and acted precipitously to fix the problem. The result was the Great Depression. The depression ended when the Fed cranked up open market operations in order to finance the war effort — reliquifying the system at the cost of inflation.

    LaBianca is right in this: today we might be able to have a liquid economy and hard money at the same time using innovative “near money.” Money market accounts and computerized trading of short term notes might do the job.

    LaBianca is wrong in this: I am not claiming the current system is ideal. Far from it! It is inane strawman critiques of the current system I deplore. The cause of liberty is not served by associating it with bad economics.

    I do, however, oppose simplistic solutions to the current system that cause more problems than they solve. Create a depression by slamming the brakes too hard on inflation and you discredit hard money for the next century. Can anyone say effective statist?

  17. Wish I understood half of what you guys were talking about..haha.

    I’m more of a social activist.

  18. My view of money has always centered around the idea that the real challenge doesn’t have anything to do with gold, per se, it has to do with forcefully keeping a limit to the growth of the money supply.

    I don’t want to put words in anyone’s mouth, but I would assume that G.E. would agree with me on this: the gold standard isn’t about gold having any intrinsic value, because it doesn’t. There is no intrinsic worth to gold. The value comes from the fact that gold is, among other characteristics, scarce and finite. That built in scarcity prevents inflationary growth in the money supply. Therefore, it’s not about gold per se; it’s about an effective way to keep the money supply from experiencing inflationary growth.

  19. Which is why I’ve always considered myself in the middle. Friedman is right when he says inflation can be subdued by not allowing unnatural growth of the money supply. Mises is right when he says gold may do the trick.

    I don’t necessarily advocate gold; I will advocate any policy which effectively prevents unnatural growth of the money supply. If we can figure out a way to overcome the shortcomings of a god standard (which there are), more power to it. If we can find another way, great. (I hesitite to mention Friedman’s computerized system, because I know G.E. will have a coronary🙂 )

  20. If we can figure out a way to overcome the shortcomings of a god standard

    Whoa, crazy typo. Obviously I meant gold standard.

  21. I find a great deal of the economic theory to be efforts by narrow agendas (gold bugs in particular) to create a so-called “libertarian economic theory,” when there isn’t a single basis for it.

    Libertarianism is the belief in the primacy of the individual and his/her right to engage in mutual contractual exchanges as agreed. A “real” libertarian doesn’t believe in replacing a mandatory fiat government monopoly with a mandatory gold-backed government monopoly — rather, he should support the right of any individual to trade his or her labor for any other medium of value agreed by both parties in the transactions — fiat dollars, goats, gold bars, timeshares in Boise, whatever.

    Most of the wonkishness and faux precision of the “economic debates” in the LP turn off both mainstream voters who should be attracted to the LP as well as many longtime libertarians, who understand that the purpose of the LP is to facilitate the deconstruction of government economic monopolies — not replace one monopoly with another using government force.

  22. Jason: I think you should investigate some of this stuff. It’s not as complex as it might sound once you get your feet wet. And it is very important and it is a “social” issue — the robbery of wealth by the rich from the poor and working class is the root cause of many, if not all, social ills, and this is what is achieved by our current monetary system!

  23. Jeff – No threat of a coronary. I just think your position is deeply flawed because the government cannot be trusted to manage the money supply for two reasons: 1) It is corrupt and will always mismanage to the benefit of favored interests; and 2) It, nor any other entity, can ever know what the correct supply of money should be. Even angels running the monetary system would be foiled by #2 — your typo is appropriate, since it would require a legitimate “God standard” run by the Almighty Himself to achieve what you’re willing to entrust in the hands of a corrupt government.

    The goal is not stability of the money supply: The goal is to prevent governments from defrauding people via manipulation of that money supply. Of course, the market will inevitably choose (in my opinion) something that’s supply is relatively stable to be its money — but this is not the goal, per se.

    You are right that it’s not about gold, but you stop one step short of the truth. 1. Gold, 2. Stability, 3. Lack of government control. It just so happens that an unmanipulatable (most important!) type of money that’s also stable (secondly) is gold. I think it is unreasonable to believe that anything other than gold would be “money” absent coercion, however, I do NOT advocate coercion to force gold upon the people.

  24. Another good link to read — Debunking Federal Reserve Conspiracy Theories:

    http://www.geocities.com/CapitolHill/Embassy/1154/flaherty.html

    Debunks a lot of the right-fringe/Russo-ite conspiracy theory talk about the Fed and explains how the system really operates.

    It’s good to have the facts when critiquing the system, so that one doesn’t come off sounding like a crank (as so many “the Jews started the Fed and use it to send America’s wealth to the Rothschilds and England” sorts so often do!)

  25. It’s good to check out the facts about the Fed too. Most of the fringe-right conspiracy theories about the Rothschilds and Jews setting up the Fed to send money to the Queen and other such stuff is, as it sounds, lunacy:

    http://www.geocities.com/CapitolHill/Embassy/1154/flaherty.html

    There’s plenty to criticize in the system without sounding like a crank.

  26. I thought Hayek was for a commodity based currency vs. the fiat system of Friedman, it is not to easy to put them in the same boat.
    Anyway, the issue is that Paul know more about monetary theory than any other politician in DC, and including Barr and Root of course. Barr did mention he would want to get rid of the Fed, but this is not an issue that is going to happen overnight. The whole interest of the military-media-industrial complex is locked into the Fed. The system may well implode itself in a few years, as Jim Rogers has pointed out. Rogers has called for the abolishment of the Fed. Attacking the Fed was/is the issue Paul got most applause form university students and young people, and not for protest against the war. The anti-war stance was the first attention to him and his views, but when they study him deeper and see and understand what it really is about, they are most attracted and excited. Paul will continue to do that with rallies and speeches in the coming months. I just wish someone like Murray Sabrin (Rothbard student) – who ran in the NJ senate primary – were a congressman to help Paul attacking Bernanke.

    Contrary to popular view, Paul is NOT for a return to a gold standard, in any case not immediately. It would lead to disruption and you would rather have to phase in a commodity based currency, e.g. a basket of commodities, than only gold, of which there is a limited supply. Paul is for competing currencies to be allowed, (which the constitution actually permits, e.g. gold and silver as legal tender), so that people can buy gold or silver. This alone could mean more stability and strength to the dollar. In Hong Kong for instance, once can buy TAEL gold online, as a diversification in investment. They say in Nazi Germany Hitler ordered all the citizens to give (or sell?) their precious metal (gold) to the state, but a few people disobeyed the order and hide their gold in the sand, under the house etc. Directly after the war, when most were very poor, the people that made the fastest headway, were those that dug up their hidden gold.

  27. The problem is not the supply of money constant. There are two different problems:

    1. keeping the supply and demand for money constant enough so that people can do business with it. When a bank loans out short term savings and checking account money to people for mortgages, the overall supply of money goes up, but so does the demand. The person taking out the mortgage now needs to make payments or lose property of significant intrinsic value. The new money is backed up by the land/house so mortgaged.

    2. Ensuring that financial institutions avoid making promises they cannot keep. When banks loan out too much short term money to make long term debts, it is possible to have panics.

    With a quick clearing system such as the Fed (or truly private equivalent), local panics can be averted as long as banks’ long term loan portfolios can be sold/borrowed against quickly enough to raise cash demanded. With a ten percent reserve rate, this requires an incredibly stable economy to meet this condition. Since the economy is not that stable, fluctuations get magnified by the overleveraged banking system.

  28. Carl Says:
    ” Short sighted? No, it’s backward-looking. It’s based on history.
    The market did come up with an alternative to hard money: fractional reserve banking. As I said in my post above, fractional reserve banking predates the Fed by a long time. ”

    Yep, of course before governnents came along and saw it could be used it as a method of boosting their incomes by inflation, the other word for fractional reserve was FRAUD… They used to string up, or otherwise end the earthly existence of those they caught engaging in this sort of thing – I don’t know where we went wrong, but they stopped doing this, and we haven’t had a legitimate money system since!

    ART

  29. Chuck when did you move to Canada, eh?😉

    to more unimportant comments.

    How many people in the Mainstream Media are going to read this article and get an understanding as to where the Libertarian philosophy is from?

    While I’d love to see this sort of stuff get circulated to a larger group I doubt that it will. Unfortunately that is where our problems lies. Long ago we should have seperated ourselves from the likes of Neal Boortz and company.

    Michael Wilson who usually signs his post with Civil Liberties and Economic Freedom.

  30. I didn’t read all of this, since I’m short on time. But I will point this out: Removing the fiat is what libertarians can agree on. After that, there will be competing currencies, and I suspect that gold will be the biggest, baddest, competitor. If West Virginia wants to use “Wal-Mart Coupons” as their standard of exchange, then so be it.

  31. Wal-Mart coupons as legal tender would actually be unconstitutional. Right or wrong, the Constitution gives states the right to declare legal tender and they’re limited to options of gold and/or silver. A state could declare NO legal tender, which is the right policy.

  32. Carl,

    please explain to me why the fractional reserve system is nothing short of any ponzi scheme?. the people who get access to the credit early in the game make more money (wall st and banks) than the ones who are left holding the paper in the end.
    it is patently fraudulent. do you want to say that Ponzi schemes were also free market inventions?.

    there is something called as the rule of law,sir.

  33. […] The Austrian/Monetarist split as a proxy […]

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