Austrian Economics

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Discussion

Is capitalism is a computer?

Nick Dyer-Witheford:

"This is the contention implicit in one of the most serious intellectual challenges mounted against communist thought, ‘the socialist calculation problem’, formulated by ‘Austrian school’ economists such as Ludwig von Mises (1935) and Frederick Hayek (1945). Writing in the period defined by the success of the Russian revolution, these economists attacked the premises and feasibility of the centrally planned economy. All social systems, they recognized, need some form of resource planning.

The market, however, enacts a distributed, spontaneous and emergent, non-coercive plan – what Hayek (1976: 38) called the ‘catallaxy’. Prices provide a synoptic, abstracted signal of heterogeneous and changing needs and conditions, to which entrepreneurial investment responds. A command economy, in contrast, must be both despotic and impractical, as calculating an optimal distribution of scarce resources depends on innumerable local knowledges about consumption needs and production conditions that no central reporting method could compile and evaluate.

The Austrian economists thus offered an update of Adam Smith’s celebration of capital’s ‘invisible hand’, now re-envisioned as a quasi-cybernetic information system:

- 'It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.' (Hayek, 1945: 527)

Although he referred to telecommunications and engineering, Hayek, writing in the final year of the Second World War, might as well have invoked the giant mainframe computers of the Manhattan Project, for what he proposed was that the market acted as an automatic calculating engine: a computer.

This was, however, a two-sided argument deployed polemically against socialism. For if the market acts as a computer, why not replace it with a computer? If central planning suffered from a calculation problem, why not just solve it with real calculation machines? This was precisely the point made by Hayek’s opponent, the economist Oskar Lange, who, retrospectively reviewing the ‘socialist calculation’ debate, remarked: ‘today my task would be much simpler. My answer to Hayek … would be: so what’s the trouble? Let us put the simultaneous equations on an electronic computer and we shall obtain the solution in less than a second’ (1967: 159). Such was the project of the cyberneticians featured in Red Plenty, a project driven by the realization that the apparently successful Soviet industrial economy, despite its triumphs in the 1940s and ‘50s, was slowly stagnating amidst organizational incoherence and informational bottlenecks." (http://www.culturemachine.net/index.php/cm/article/view/511/526)


The Top Ten Mistakes of Austrian Economics

Anthony Migchels:


1. Bankers hate Gold

"Nowadays everybody knows that the 19th century was called ‘the Age of Rothschild’. They controlled the Gold Market and became incredibly rich by lending the stuff to Governments.

The Money Power came to power through Gold.

They love it because it is deflationary, they can tax it with interest, they can create the boom/bust cycle with it and they control it completely.

Clearly Bankers don’t hate gold. Europe was on a Gold Standard for the entire 19th century and left it only in the thirties, due to the horrible deflation that was the Great Depression. Populists at the time finally managed to force their Governments to get rid of it. They had been warning about its deflationary tendencies for ever.

Gold is de facto World Currency. Ron Paul: “Commodity money if voluntarily and universally accepted could give us a single world currency requiring no money managers, no manipulators orchestrating a man-made business cycle with rampant price inflation.” — Ron Paul, Congressional Record, March 13, 2001

In older days Austrian Economists would say Governments hate the Gold Standard. Alan Greenspan, one of the more famous Austrian Gold loving Bankers, wrote in 1966: “An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions.“

Government, of course, is Austrian Economics’s classic enemy, but the adversary du jour in the ‘Truth Movement’ are the Bankers. So to sell something we say Bankers hate it.

They did face the little problem that the American Populists would be very hard to convince of this. Not in the least because of the book ‘Secrets of the Federal Reserve’ by Eustace Mullins, who famously described who owns the FED and how it came about. Mullins of course was quite explicit in his analysis of Gold as the Banker’s favorite currency.

But Ed Griffin solved this for them. He wrote an even more famous book: ‘the Creature from Jekyll Island’. This is basically a rip off of Mullins’s book, with one difference: it proposes a Gold Standard to get rid of the FED.

In this way Griffin obscured the truth for millions of people, who assumed he was basically saying the same thing as Mullins.


2. Government is the main problem

This is the red herring that Austrian Economics is famous for. Just like the mainstream it completely ignores the Money Power.

Austrian Economics is also incredibly ‘naive’ when it comes to private interests controlling markets. Austrian Economics will always explain Governments shouldn’t mess with the economy, while ignoring the monopolistic inclination of Capital. As a result Austrian Economics is the wet dream of the Trillionaires, as they will resist any Government action against them and their Transnationals.

Austrian Economics will actually blame Government for the fact that markets now are controlled by Transnational Cartels. Why they don’t seem to consider the shareholders and controllers responsible remains an open question.

To be fair, the analysis of Austrian Economics about the negative implications of many regulations is spot on and very enlightening.

However, to ignore the power struggle that is inevitable both in the market in and politics, is so naive and pleasant to the powerful that it is almost impossible to fathom how somebody else could have thought it up than these powerful interests themselves.

The fact is, that Governments all over the world have been subverted by private interests. And these private interests are quite homogenous. This international centralization of power, concentrated around extremely rich banking families, the Money Power, is the problem.

Government is a neutral institution, associated with a Nation. Public Opinion can always force its hand.

But when both Government itself AND Public Opinion are captive to the Money Power, Government will become quite unpleasant.

Soon, it will be obsolete, as it surrenders its sovereignty to World Government and World Currency. Governments and certainly Nations will never voluntarily surrender sovereignty.

These projects clearly belong to the Money Power.


3. Manipulation of the Volume of the Money Supply is the main problem with our money

Another red herring: manipulation of Volume is certainly quite a scourge. But it ignores an even bigger problem: Interest.

The Government currently pays 700 billion per year in debt service for the National Debt. It matters not whether she pays this for Gold or for paper.

We currently pay $150.000 dollars in interest over thirty years for a $100.000 mortgage. Most of this mortgage was created by simple bookkeeping the moment we borrowed it.

45% of prices we pay for our daily needs are compensation for capital costs incurred by the producer.

We are Interest Slaves.

But if we can have credit by bookkeeping, clearly we should get the money interest free, because it is our credit, not the bank’s.


4. Gold guarantees a steady volume

This another very strange supposition. After all, the Gold Standards of the past saw horrible asset bubbles.

The boom/bust cycle has nothing to do with the currency, but whether the money supply is being manipulated.

The idea that Gold cannot be printed and that that give security about the volume is nonsense. Bankers routinely have withheld vast quantities of specie from circulation, only to inflate at a later stage again.


5. Inflation is bad

It is certainly true that inflation knows problems.

Inflation hurts savers, creditors and people on pinned incomes. But it is pleasant for debtors, of which there are far more than creditors. And, very important, inflation is associated with economic growth. People stop hoarding cash and rather invest and spend.

The one sided focus of Austrianism on inflation, while actually promoting the horror of deflation (see next) makes it look like they’re demonizing inflation in order to make deflation more palatable.


6. Deflation is good

This statement is so incredibly favorable for the ultra rich, who are basically the only ones who benefit from deflation, that it puts Austrian Economics in a very bad light.

Austrians clearly promote the Deflation vs. Inflation dialectic, with all its nefarious implications.

Deflation hurts debtors. It makes their debts and the interest they pay over it worth more.

Deflation is a wealth transfer from those holding assets to those holding cash.

Deflation destroys economic growth because people rather hold cash than invest or spend it.

As a result, Deflation on all fronts makes the rich richer and the poor poorer.


7. We don’t want a Gold Standard, we want a Free Market for Currencies

This is such nonsense.There are two major reasons why it is.

1. In fact, the idea of a Currency Free Market is quite attractive. In the case that all different systems would receive the same funding and propaganda, such a market would undoubtedly see Mutual Credit Facilities providing interest-free credit prevail, see below.

However, only Gold and perhaps Silver, but not if they can avoid it, will receive all the attention and funding. In fact, Mutual Credit will be resisted actively by the Money Power.

This will not be hindered Government, who just by decree created this new ‘Free Market’, because that would be ‘statist interference’

Thus, only Gold will circulate.

2. Would there be a ‘free market’, there is Gresham’s Law. Bad money drives out good money.

It means that the units appreciating in value will be hoarded, while those depreciating will be used to pay.

Everybody will accept the depreciating unit (as long as it is not hyper inflating), because most will want to pay with it and firms will have to accept them to accommodate their customers. They won’t have a problem with that anyway. Firms don’t care what the money will be worth in a year. They want to know where they can spend it tomorrow.

This means nothing will happen if Ron Paul’s proposal to make Gold and Silver also legal tender is accepted. People will continue to pay with the Fed’s notes and hoard Gold.

Also, if you can get a Gold based mortgage costing 5% per year, or a 0% mortgage in Mutual Credit, which would you chose?

Case closed.

8. Austrian Economics is hated by the Main Stream Media

While it is true that Austrian Economics is a fringe, also in terms of Media Attention, it always has maintained a steady niche. It is not for nothing that Peter Schiff and Gerald Celente were predicting the crash in the MSM.

Lately, Ed Griffin was plugged by Glenn Beck on prime time T.V.

Judge Napolitano gets all the airtime he wants on Fox News, spouting his Austrianism. Amazingly, the fact that even Fox News will plug Austrianism does not ring a bell with people.


9. Fiat Currencies are always bad

Another typical device: a dialectic. Trying to frame it as Paper vs. Gold. Both ignoring interest.

But interest-free paper is of course something else entirely. At least it won’t suffer from the forced inflation on interest-bearing money supplies. Because the interest is not spent back into circulation, but lent back, there is never enough to pay off all the debt + interest. During a Gold Standard this is deflationary, because the money supply can’t grow. With paper, this is ‘solved’ by ever more debt. With ever more interest.

Modern Mutual Credit is inflation free. Or better: the market is in control of the money supply. It grows when it must, shrinks when it must.

Social Credit is probably inflationary, but everybody will be fully compensated for it because of the fact that they spend the inflationary cash into circulation themselves. Meanwhile, the inflation will stimulate production.

They are trying to promote the idea that Fiat Currencies are automatically bad ‘because the volume will be manipulated’.

This is the eternal clincher, killing all rational debate about how to manage all the different parameters in the different proposals.


10. The problem is the FED

The FED is a symptom, not the problem. The problem is that the Money Supply is controlled by the Money Power, which uses this control to enslave us with interest, scarce money and the boom/bust cycle.

The FED is their vehicle. We want to get rid of it, because we want to end the control of the Money Supply by the Money Power. It’s not a goal in itself.

Austrians use this to ‘fight the FED’ and gain sympathy and support, meanwhile maintaining the control of the Money Supply with the Plutocracy." (http://realcurrencies.wordpress.com/2012/01/25/top-ten-lies-and-mistakes-of-austrian-economics/)

More Information

Books by Hayek:

  • Hayek, F. (ed.) (1935) Collectivist Economic Planning. London:

Routledge.

  • Hayek, F. (1976) Law, Legislation and Liberty v. 2: The Mirage of

Social Justice. Chicago: University of Chicago Press.

  • Hayek, F. (1945) ‘The Use of Knowledge in Society’, American

Economic Review 35 (4): 519-530.

  • Hayek, F. (1944) The Road to Serfdom. Chicago: University of

Chicago.