Author Archive for Christopher Westley

Was Hy Minsky a Blockian?

151165810_6930a33a4f_zHardly, especially given his endorsement of the view that markets are inherently unstable and prone to failure, thus requiring extra-market supervision and control.  But I couldn’t help but to think of Walter Block when listening to this part of Duncan Weldon’s recent segment about Minsky on BBC 4 (around the 6:00 mark):
Weldon:  [Minsky] sounds like someone not afraid to challenge authority.  I mean, can you see that in his work as well?
Laurence Meyer:  Well, yes, because I think he always felt that he was treated like an outsider.  Okay?  He wasn’t really part of the mainstream.  And he took great joy in taking on that mainstream for how simplistic their views were and failing to pay attention to something that seems so obvious.
One can’t help but to think that part of the reason mainstream central bankers like Meyer and Janet Yellen appreciate Minsky today because Minsky not only missed the role of central banks in causing financial instability, he also endorsed their expanded role in addressing the adverse economic effects of bubbles they themselves helped inflate.  Today, this role takes the form of (faddish) “macroprudential” policies that assume central banks are capable of seeking out and eliminating sector bubbles all while pumping new money into the economy so desired by the political class and the cronies attached to it.  It’s not what Minsky got right that makes him relevant to them, but actually what he got so wrong.

Minsky may have had something of a Blockian spirit that we can admire, but such a spirit can prove damaging when backed more by ideology than logical consistency and right reason.

Here’s the Google Books version of the Elgar Companion to Hyman Minsky.

Here’s Frank Shostak on Minsky from 2007.

A Slice of Life in the Former East Germany

I received the following in an email from a reader in response to my Mises Daily article for today:

I grew up in East Germany – a similar economic environment as there was in the former Soviet Union. For (equally) poor East Germans, buying a new dryer would have been utterly impossible. Firstly, central planing never allocated enough resources to buy cloth dryers or virtually any other consumer product. Secondly, income levels were too low to afford a $500 cloth dryer. Hiring a state-approved dryer repair man was also not a option as there were only very few. These few professionals were busy meeting the needs of state officials.

However, under these conditions there was a thriving black-market of covert repair men. Through hearsay, one would to know the home address of such a “miracle worker,” meet him at home, and posed as friends and not as customers (since private businesses were not allowed), ask for the repair of the dryer. These “customers” typically didn’t pay with paper money, instead with more valued commodities such as high-quality meat, imported bananas or oranges, rare booze or, as my dad often did, with cleaning clothes which he found in the trash of the textile manufacturing plant he was working for.

Thanks to you and other Austrian economists, I begin to understand many “peculiarities” of socialist economics of my former home.

Monetary Policy’s ‘Unsustainable Conceit’

The inestimable Jim Grant of Grant’s Interest Rate Observer reminds Washington Post readers that the United States has defaulted on its debt in the past and will do so again in the future.  Almost as educational as Grant’s op-ed are the accompanying comments from beltarians who are simply shocked–shocked!–that there are people beyond its border who study unapproved financial history and take notions such as government default seriously.

Grant’s op-ed is a useful companion to Peter Klein’s Mises Daily, also published today, which also places government default in perspective.

Grant concludes:

In other words, the value of money has become an instrument of public policy, not an honest weight or measure. In such a setting, an old-time “default” is impossible. How can a creditor cry foul when the government to which he is lending has repeatedly said that the value of the money he lent will shrink?

The post-1971 dollar derives its value from the stamp of the government that issues it. Across the seas, this imprimatur is starting to look a little tenuous. Lend us your dollars for 10 years, the Treasury proposes. We will pay you the lordly interest rate of 2.7 percent per annum. And at the end of those 10 years, we will hand you back your principal, which will almost certainly buy less than the money you lent.

This is the unsustainable conceit of the world’s superpower-cum-super debtor. By deed, if not audible word, we Americans say: “The greenback is the world’s great monetary brand. You have no choice but to use it. Like it or lump it.” But the historical record of paper currencies is clear: Governments always over-issue it. The people finally do lump it.

Read the whole piece here.



Have You Heard the One About the Fiat Money Printing Central Banker?

Here’s the abstract from a new paper in the October 2013 issue of Economic Inquiry:

During their meetings, the members of the Federal Open Market Committee (FOMC) make monetary policy, but they also make each other laugh. This article studies the amount of laughter elicited by members of the FOMC during their meetings. The study finds that a member elicits more laughter if he or she expects higher inflation, other things being equal. This finding suggests that members may use humor to cope with the threat of inflation. (JEL E52, E58, C23)

They use humor. One wonders what savers and pensioners use.

On This Day in 1933

You were considered a hoarder and a slacker if you still resisted turning over your gold to the government. From the New York Times, June 13, 1933:


(Click on the image for a sharper picture.)

Roosevelt had only been in office for 101 days and while there was broad bipartisan support for inflationary policies in Congress, it’s safe to say that most of those who voted for FDR never expected him to confiscate private holdings of gold coins, bullion, and certificates. Roosevelt called the measure a temporary one (it wasn’t), and he followed it up by invalidating gold clauses in private contracts that obligated payment in gold dollars, which had the effect of devaluing the assets of bond and contract holders. Many of these hoarders and slackers purchased gold as a hedge against the (Fed-fueled) inflationary boom of the 1920s and then hung on to it during the Hoover years when his crazed and unprecedented interventions in wages and prices caused a normal market correction to devolve into a depression. Why would they trust Roosevelt any more?

They were smart not to. By January 1934, Roosevelt increased the dollar price of gold from $20.67 to $35, thus devaluing the dollar by 70 percent while increasing the value of gold that the government now owned.


Gold flowed to the United States because the new price exceeded the world price, causing Fort Knox to become, well, Fort Knox. Since the Treasury was authorized to maintain the new dollar-gold exchange rate, it increased the money supply accordingly. Over the next three years, M2 increased by an average of 13.4 percent a year. Congress and the president with strong ties to Wall Street got the inflation they wanted.

Queue the tape: “Happy Days Are Here Again.

A major constraint on the federal government’s ability to spend had been lifted, and by the end of the decade the balance of political power had shifted from the states and the cities to Washington, D.C. It remains to be seen whether inflating the money supply will have any different effect in the 2010s than it did in the 1930s.

On This Day in 1913

Congress had just passed the Underwood Tariff (reinstating the federal income tax following the passage of the 16th Amendment) and, miracle of miracles, the stock market began to slump.  While the trade-off for passing the income tax was a reduction in tariff rates—this way, the tax’s proponents could claim pro-trade motivations—the powers-that-were wanted to inflate the currency to counter any adverse economic effects of the new tax.  They thus began promoting  the need for a currency bill that would consolidate many competing currencies into one that would be both subject to legal tender law and administered by a federal agency.

From the New York Times (“Hostile Action to Currency Now” June 12, 1913, p. 4):

From the time the tariff bill reached the Senate a month ago Republican Senators have been trying to obtain promises that a currency bill will not be pushed.  Democrats have evinced in private an equal earnestness in their desires to go home as soon as the tariff bill is out of the way.  The possibility of increasing the present financial uncertainty by threats of immediate tariff revision merely supplied another argument.

As a matter of fact, [President Wilson] has let it be known that he wishes prompt currency revision to supply easy money for what hardships might arise in the first months of reduced protection.  The inference was openly drawn by Senator Tillman in discussing the letter he received from the President that the Republicans want to block currency revision for the simple purpose of giving full headway to any [financial] panic which might arise and which could be ascribed to the Democratic customs policy.  The shortage of the money in New York, London, Berlin, and Paris, which, of course, cannot be attributed to the promise of reduced protection in the United States, would thus seem to be another argument for the prompt provision of an elastic currency.

We now know that Wilson would get his way and that, in fact, he surely knew legislation had already been drawn up in secret in Jekyll Island, Georgia, less than three years earlier by leaders from the public and private sectors who were waiting for such a political environment to introduce it.  In November 2010, the Fed held a conference to commemorate this meeting, entitled “A Return to Jekyll Island.”  The Fed’s return, however, occurred some nine months following the Mises Institute’s conference at Jekyll Island, entitled “The Birth and Death of the Fed.”

As a side note, according to the Bureau of Labor Statistics, the dollar has lost 6.27 percent of its value since the Fed’s November 2010 conference.  Although this is a gross underestimation (see, it nonetheless proves that the Fed has remained true to its original purpose to inflate.

Sign of the Times

A new book by Portuguese economist João Ferreira do Amaral entitled Why We Should Leave the Euro is outselling Fifty Shades of Grey there. This makes sense given that both books center on painful relationships in which one party is being spanked and that are apparently difficult to dissolve. (h/t Bill Easterly)

Thomas Sowell on Why the Intelligencia Pay No Price for Being Wrong

Thomas Sowell recently sat down with Peter Robinson to discuss his latest book, Intellectuals and Race. Here’s a short excerpt:

Robinson: …[N]ow you’re saying that multiculturalists [who argue for] bringing kids into [academic] institutions for which they’re ill-qualified — you take bright, hard-working, otherwise perfectly well-qualified students and put them in the wrong institution and you set them back in life.
Sowell: Yes.
R: And they’re culpable as well. They had ought to know better.
S: Yes.
R: Intellectuals and Race, quote: “The Intelligencia pay no price for being wrong.”
S: I think that’s the secret of their influence.
R: How’s that?
S: Well, if you come up with a lot of wrong ideas and pay a price for it, you’re forced to think about it and to change your ways or else get eliminated. But there is no such test. The only test for most intellectuals is whether other intellectuals go along with them. And if they all have a wrong idea, then it becomes invincible.
R: Tom, you’re coming pretty close to saying that intellectuals aren’t very smart.
S: [Laughs.] They are very smart in very limited areas. And they don’t realize [it]. That’s the problem.

Although Sowell’s book isn’t explicitly about epistemology, it does deal with critiques Austrians have long made to understand why false ideas persist. For instance, Keynesian ideas persist among intellectuals in large part because so many intellectuals accept them uncritically. Indeed, to point out the failures of massive Keynesian stimulus since 2008 is the intellectual equivalent today of pointing out the emperor is not wearing any clothes. In both cases, too many careers and incomes depend on ignoring what is actually quite obvious. Mises pointed this out in Human Action (Scholar’s Edition, p. 868) as well when he noted that “[t]ax-supported universities are under the sway of the party in power. The authorities try to appoint only professors who are ready to advance ideas of which they themselves approve.”

The result is a herd mentality that affects the tenor and quality of much discourse in higher education today, whether it is about race, economics, the environment, marriage and the family, or “good citizenship.” The irony is that the Keynesian notion of animal spirits is actually strongest within the marketplace of ideas where, at present, state-supported research institutions exert the most influence.

For more, see Mises’ Epistemological Problems in Economics and Hayek’s Counter-Revolution of Science. For a personal account of these issues, also see Bill Anderson’s short article, “Austrian Economics and the ‘Market Test’: A Comment of Laband and Tollison”.

Why Irish Banks Are Not Smiling

Great chart from Moody’s:


Ireland’s banks received bailouts in the billions of euros in 2009 and 2010, including €67.5 billion from the EU, other European countries, and the IMF as part of a larger overall bailout effort. While the lion’s share of these funds have flowed to bondholders outside of Ireland, they have done little to promote real wealth creation and regime certainty in the Irish economy. One wonders how the situation would be today if Ireland had, like Iceland, required its banks to internalize their losses (which would have resulted in some to fail), defaulted on its bond debt, and allowed many of its malinvestments created during the boom to be restructured in a correction.

Regardless, the “best and the brightest”–people like Klaus Masuch and Poul Thomsen–who argued for the bailouts back then envisioned a different situation in Ireland today. If Cypress provides any lesson, Irish depositors should hold cash and be wary of any “bail-in” programs that might be implemented there in response to a banking crisis.

“The Tax Was Most Popular Before It Was Laid”

On this date in 1913, from the New York Times:

The Chamber of Commerce has directed an inquiry into the administrative feature of the income tax after a debate in which it was said that the tax would not affect 99 per cent. of the citizenship. It was suggested that this deprived the bill of general interest, and that it was sure to be unpopular on account of the narrowness of its application.


The case is worse than this. It will tax the honest and allow the dishonest to escape. The administrative features which the Chamber is to investigate are so complicated that those who understand them will make their taxes light at the cost of those less well informed about the law. The income tax law may be considered good nevertheless by some, but even those who approve the tax despite its faults cannot contend that the same sums could not have been raised more certainly, more equitably, and with less trouble to both payers and collectors by a stamp tax.

The experience with the tariff shows how hard it is to reduce or remove a tax once laid. It always seems better and easier to devise ways to spend the money than to repeal the tax. This fact will be better appreciated as the years pass, and particularly when the time shall come when this extraordinary tax–as it ought to be–shall be needed for an emergency. Then it will appear that this resource has been utilized and that the tax must be doubled instead of imposed initially. The tax was most popular before it was laid. Its unpopularity will grow with its life.