Archive for QJAE

Spring 2014 Issue of QJAE Now Online

qjaecover-200x300The Spring 2014 Issue of the Quarterly Journal of Austrian Economics is now online.

Misesian Insights for Modern Macroeconomics by J Huston McCulloch

Not Enough Bricks: Monetary Misperceptions and the UK Housing Boom by Anthony J. Evans

Rothbard’s Time Market and the Demand for Present Goods by Patrick Newman

The Economic Consequences of Loan Maturity Mismatching in the Unhampered Economy by Laura Davidson

IHS and the Rebirth of Austrian Economics: Some Reflections on 1974–1976 by John Blundell

Review of Defending the Undefendable II: Freedom in All Realms by Walter E. Block by Mark Thornton

Review of Jean-Baptiste Say: Revolutionary, Entrepreneur, Economist by Evert Schoorl by Carmen Elena Dorobăț

Review of Priceless: Curing the Healthcare Crisis by John C. Goodman by Dale Steinreich

B.R. Shenoy on Agriculture and Foreign Aid

shenoy[From "An Appreciation of B.R. Shenoy, Economist in the Fall 2013 issue of the Quarterly Journal of Austrian Economics.]

AGRICULTURE AND FOREIGN AID
In 1968, Shenoy resigned from Gujarat University and founded  an independent research institution, the Economic Research  Centre, in Delhi. Although weakened by heart ailments, he continued to write many articles (Bhatt, 2001, p. 106). Shenoy  was deeply concerned with the welfare of the rural poor engaged  in agriculture—at the time and currently a majority of people  in India. In his policy analysis, he methodically struck down  the State’s arguments for price controls, import/export bans,  restrictions on private bankers, public expenditures on wasteful  industrial projects, and state monopsony of agricultural goods.  Shenoy points out, “Unduly heavy resource drafts into the public  sector, the weighted emphasis on industrialization, and legislative hurdles to the flow of credit and capital into the farm sector have led to capital starvation of agriculture” (Shenoy, 2004a, p. 169).

State monopsony procurement prices of farm products continue to be commonplace in India and it remains the fact that “…procurement prices…involve confiscation on part of the most legitimate earnings of the peasants and farms producing foodgrain. The social accounting of the phenomenon of procurement prices and the subsidised distribution of foodgrain is broadly that we supplement these confiscated amounts from the Union and state
budgets and utilise the total sum to issue rations to urban people at low market prices” (Shenoy, 2004a, p. 175).

Shenoy was one of the earliest critics of the popular notion that foreign aid transfers help kick-start growth. He was seeing first-hand in India the unintended, yet destructive consequences of US and European aid. In a 1970 paper entitled “Is aid necessaryfor development?” Shenoy writes, “If domestic policies fail to make for harmonious, balanced, multi-sided progress but divert resources into the wrong channels, any amount of foreign aid cannot effectively contribute to economic development. Massive aid is apt to be massively misdirected” (Shenoy, 2004a, 89–90).Shenoy was appropriately disgusted by the perverse effects of aid,which he linked to “…the accumulation of smuggled gold despite semi-stagnant per capita incomes… secret accounts in investments in Switzerland and elsewhere, and of the abandonment of frugal ways for extravagant living by the new rich among the beneficiaries
of planning” (Shenoy, 2004a, p. 96). Shenoy was in a unique position as a highly competent economist in an aid-receiving country.

When the United States began the P.l. 480 food aid program, India bought massive amounts of aid by printing money. Shenoy was able to discern the unintended consequences of this arrangement:

Thus, it is not as if—as Professor Max Millikan, Mrs. Joan Robinson and their Indian followers seem to think—P.L. 480 imports offer abundant scope for accelerated economic growth through deficit financing, foodgrains absorbing inflation. Foodgrains are not the entire package of wage-goods, nor can wage-goods alone enable economic development.For the latter, wage-goods must come with complementary factors of production. The complementary factors being unavailable, P.l. 480 imports of foodgrains do no more than glut the market and demoralize it without furthering economic development…. These imports are a clear case of dumping, though they are heavily dressed up in the garb of benevolence” (Shenoy, 1963, pp. 107–109).

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DiLorenzo Reviews Stockman’s ‘The Great Deformation’

books (1)From the Summer 2013 issue of the Quarterly Journal of Austrian Economics.

[The GreaDeformation: The Corruption of Capitalism in America by David A. Stockman,  New York: Public Affairs Books, 2013, 742 pp.]

Reviewed by Thomas DiLorenzo

The Great Transformation is a Human Action-sized treatise about how the Fed over the past several decades has generated economic instability in far more ways than even the Austrian Business Cycle theory contends, primarily for the benefit of Wall Street One-Percenters at the expense of the rest of society. It has cemented into place neo-mercantilism as the American economic system. In many ways the book can be thought of as “Human Action for Financial Markets” (which is not to suggest that Mises would agree with everything in the book). It is a treasure trove of ideas for future research on financial markets and regulation from an Austrian perspective. David Stockman not only cites Mises and Hazlitt, among other Austrians, but is also a severe critic of the supposedly free-market ChicagoSchool of monetarism and its patron saint, Milton Friedman. In fact, he pins a large share of the blame for the corruption of American capitalism on Friedman as a preeminent defender of the Fed with his utopian and cultish “monetary rule.” (If anything defined twentieth-century monetarism, it was Friedman’s “monetary rule” of 3 percent monetary growth per year, administered presumably by what Stockman calls monetary “eunuchs”).

The main theme of The Great Deformation is stated clearly on the first page of the introduction, where Stockman explains how “fiscal cliffs as far as the eye can see” are “the result of the capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.” This statement suggests a great irony in that it was the “Chicago School” economists who championed the “capture theory of regu­lation” with regard to such industries as interstate trucking and airlines, but ignored the biggest and most important regulatory capture of all—the creation of the Fed.

Stockman’s unique background and experience have allowed him to write authoritatively and with great knowledge the mountain of lies—about “too big to fail,” Reaganomics, the New Deal, and the antics of the Fed—that have been employed by Washington’s central planners who have succeeded in essentially destroying much of American capitalism and replacing it with putrid political cronyism. This is a man who was once a member of Congress and the director of the U.S. Office of Management and Budget during the first four years of the Reagan administration. Since then, he has been a consummate Wall Street insider, first with Salomon Brothers and then as a private equity investor with The Blackstone Group. He is also very well read in economics and economic history. It is doubtful that any other human being has a comparable combination of talents. Only David Stockman could have written this book, in other words.

CORPORATE WELFARE RUN AMOK

Part I debunks the lies perpetrated by Washington to justify the bailouts of Wall Street (and other industries) in the wake of the “Great Recession” that was created by the Greenspan Fed with the “help” of myriad other federal government policies. For example, there was never any reason for the government to bail out Goldman Sachs. After being handed $10 billion the company “swiveled on a dime and generated a $29 billion financial surplus” which included $16 billion in salary and bonuses just three months after the bailout to supposedly “save it from extinction.”

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Winter 2013 Issue of QJAE Now Online

qjaecoverFeatured in this issue of the Quarterly Journal of Austrian Economics (Vol. 16, No. 4):

The Marginal Efficiency of Capital by Edward W. Fuller

How Entrepreneurship Theory Created Economics by Christopher Brown and Mark Thornton

Driving the Market Process: “Alertness” Versus Innovation and “Creative Destruction” by Samuel Bostaph

Legal Monocentrism and the Paradox of Government by Jakub Bozydar Wisniewski

Sunk Costs and Contestable Markets by Mateusz Machaj

The Political Nature of Paper Monies

299px-COP50000_frente_rotated[From the Summer 2013 issue of The Quarterly Journal of Austrian Economics]

By Nicolay Gertchev

The distinctive feature of modern central banks is their political and privileged position within the economy. Indeed, the very framework in which paper monies are produced and introduced into circulation is fundamentally different from that of commodity monies. Commodity monies, which evolve out of direct voluntary exchanges, are subject to the rules of both horizontal and vertical competition. On the one hand, different commodities can be competing for fulfilling simultaneously the function of a medium of exchange. Additionally, various producers of the same commodity can be competing for offering certification services with regards to the specific monetary objects. On the other hand, and much more importantly, the producers of any of the commodities which serve as media of exchange must compete, in the context of generalized scarcity, with the producers of any other good. This implies that on the market an expansion of the money supply is costly, as factors of production must be bid up from other sectors. Thus, the price mechanism, through its influence on the expected relative profitability of any business venture, naturally regulates the quantity of money in the economy.

This natural regulation of the production and purchasing power of commodity monies also ensures that the entrepreneurs who venture into supplying media of exchange do not benefit from a privileged position. Their income and wealth are positively affected if the demand for money relative to other commodities, including other media of exchange, rises; inversely, a negative income effect occurs if competition intensifies or demand declines. Competitive money producers must cope with the uncertainty related to the management of private property, and could occasionally be driven out of business, exactly as any other capitalist entrepreneurs. Most significantly, the fact that they supply the economy with a medium of exchange does not confer on them any special status that would allow them to claim more of the aggregate output of the economy than what they earn on the market, i.e., what other property owners transfer voluntarily to them through free and mutually beneficial exchanges.

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Available: QJAE vol. 15, no. 2 (Foss, Engelhardt, Davidson, Grimm, Block/Barnett, and Howden)

Volume 15, no. 2 of the Quarterly Journal of Austrian Economics was made available online this week. Articles are:

Nicolai J. Foss, “The Continuing Relevance of Austrian Capital Theory,”

Lucas Engelhardt, “Expansionary Monetary Policy and Decreasing Entrepreneurial Quality,”

Laura Davidson, “Against Monetary Disequilibrium Theory and Fractional Reserve Free Banking,”

Richard C. Grimm, “Fundamental Analysis as a Traditional Austrian Approach to Common Stock Selection,”

Walter E. Block and William Barnett II, “Transitivity and the Money Pump,”

David Howden, Review of Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation, by Jeffrey Friedman and Wladimir Kraus

The Quarterly Journal of Austrian Economics was nominally founded in 1998, but, in terms of its mission and guiding spirit, it is a continuation, in an expanded and improved form, of the first ten volumes of the semi-annual Review of Austrian Economics, whose founding editor was the late Murray N. Rothbard.

The mission now, as it was when it was adopted from Rothbard, is “to promote the development and extension of Austrian economics and to promote the analysis of contemporary issues in the mainstream of economics from an Austrian perspective.”

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