'This will enrage many readers — especially the "Austrian" internet vigilantes — but I have to say it. A near universal view has emerged that Europe's crisis can only be solved by governments and fiscal policy, with varying views over the proper dosage of pain. I beg to differ ...'I'm actually quite pleased. I didn't know anyone in the establishment media had heard of Austrian economics, or if they had, were allowed to mention it. Not that he seems to grasp what Austrian economics teaches on the subject of money and government policy, over and above the simple conclusion that its acolytes are against inflationism.
Austrian economics is 'wertfrei' - value free. It doesn't deal with ends, only with means to those ends. So it doesn't say printing up warehouses full of pallets stacked with $100,000,000 notes is right or wrong. It only tells you what the likely effects of that will be, and points out that these effects are no doubt contrary to your stated goals.
The problem for Austrian economists is knowing what to suggest at this point in time, given that the political world has been blithely ignoring their prognoses for many decades and has now arrived at the place the Austrians told them they would, teetering over the brink of utter monetary disaster.
We've been hanging on to a rising balloon. The Austrians told us that, but it's one thing to take that into account and act accordingly when you are three feet in the air, and another when you are 300 feet up. Austrianism should not allow itself to be used as the banner for austerity measures, which punish the people but leave untouched, or rather entrenched, the forces which engendered the crisis.
I shall end with a quote from Ludwig von Mises, taken from an essay entitled 'The stabilization of the monetary unit', which notes the interrelation between inflationism and the ideologies in which it is enmeshed. This does not, I recognise, give a simple answer to the question of what 'we' should do in the current crisis, but it may help illuminate the nature of the crisis.
VIII The ideological meaning of reformThe purely materialistic doctrine now used to explain every event looks on monetary depreciation as a phenomenon brought about by certain “material” causes. Attempts are made to counteract these imagined causes by various monetary techniques. People ignore, perhaps knowingly, that the roots of monetary depreciation are ideological in nature. It is always an inflationist policy, not “economic conditions,” which brings about the monetary depreciation. The evil is philosophical in character. The state of affairs, universally deplored today, was created by a misunderstanding of the nature of money and an incorrect judgment as to the consequences of monetary depreciation.
1. The ideological conflict
Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism. Just as the world catastrophe, which has swept over mankind since 1914, is not a natural phenomenon but the necessary outcome of the ideas which dominate our time, so also is the monetary crisis nothing but the inevitable consequence of the supremacy of certain ideologies concerning monetary policy.
Statist Theory has tried to explain every social phenomenon by the operation of mysterious power factors. It has disputed the possibility that economic laws for the formation of prices could be demonstrated. Failing to recognize the significance of commodity prices for the development of exchange relationships among various moneys, it has tried to distinguish between the domestic and foreign values of money. It has tried to attribute changes in exchange rates to various causes—the balance of payments, speculative activity, and political factors. Ignoring completely the Currency Theory’s important criticism of the Banking Theory, Statist Theory has actually prescribed the Banking Theory. It has moreover even revived the doctrine of the canonists and of the legal authorities of the Middle Ages to the effect that money is a creature of the government and the legal order. Thus, Statist Theory prepared the philosophical groundwork from which the inflationism of recent years developed.
The belief that a sound monetary system can once again be attained without making substantial changes in economic policy is a serious error. What is needed first and foremost is to renounce all inflationist fallacies. This renunciation cannot last, however, if it is not firmly grounded on a full and complete divorce of ideology from all imperialist, militarist, protectionist, statist, and socialist ideas.