We Austrians Are Shills for the Bankers, Says Critic

So I’m minding my own business on Twitter — where you can follow me @ThomasEWoods, by the way — and some guy starts suggesting that the Austrian School economists are just shills and apologists for the bankers.

I restrained myself from asking which Austrian books and authors he had read, since I’m not inclined to pose questions to which I already know the answers. I noted to him that no one was more opposed to the bailouts than the Austrian economists, and that this failure to support rescues of financial institutions seems like odd behavior for shills and apologists for those same financial institutions.

I asked him if he thought the present banking system, one of the most regulated and controlled industries in the country, was a free-market one. He replied, “How is existing banking system diff than a gold backed currency issued by private banks? Isn’t that Austrian monetary utopia?” (He then said he favored the nationalization of the Fed — the Fed’s problem evidently being that it isn’t socialistic enough — and the issuance of money by the federal government directly.)

Well, for one thing, the Austrians simply describe the phenomena of money and banking, and leave it to individuals to draw out the implications of the analysis.

Money emerges on the market as the most highly marketable commodity. This is how society moves from barter to a money economy. People value the most saleable good not just for its use value but increasingly for its exchange value. In other words, gold — or whatever — is valued not just for its ornamental and industrial uses, but also because it can fetch you the goods you want. People want it, so if you can get it, you can acquire the things you want from them.

Irredeemable paper money could not possibly have emerged this way. It is not a saleable good. No one values pieces of paper with politicians’ faces on them, so they would not be the most marketable commodity in society.

Moreover, no one can engage in economic calculation using a paper money introduced ex nihilo by the state. With gold (or whatever the spontaneously chosen money commodity happens to be), people can recall the exchange ratios that existed under the latest stage of barter — one gold unit for ten hats, three dozen oranges, or 100 pencils. But with pieces of paper printed by the state and simply imposed on people, how can anyone know how many of them ought to fetch a hat, an orange, or a tomato? Another reason no one would spontaneously adopt this system.

The system my critic wishes to impose must be imposed via the police. It could never emerge voluntarily. He doesn’t see this as an indication that something might be wrong with it.

The position on money that seems to make the most sense in light of Austrian analysis is not a gold-coin standard — though that would be a vast improvement on what we have now — but the production of money on the market according to the normal laws of commerce and contract. Professor Jeff Herbener describes this system here. Guido Hulsmann defends it in The Ethics of Money Production, which makes both a moral and an economic case for it. No fiat-paper advocate has refuted Hulsmann.

Under such a system, there would be no monopolistic legal-tender laws, no monopoly of the mint, no special privileges of any kind.

The tendency under such a system, nevertheless, would be toward a single commodity money in use throughout society and indeed around the world. Money emerges in order to lift society out of barter conditions. A situation of multiple monies is a case of partial barter, and thus undermines the very purpose of money. Hence it would gradually give way – as people apprehended the facility with which they could consummate their transactions by using the most marketable commodity as money – to a single, universally accepted money.

The situation that exists now, by contrast, involves

(1) a coercively imposed monopoly on the production of money;

(2) monopolistic legal tender laws, which artificially privilege the money issued by the government-established central bank;

(3) a central bank with the monopoly power to create legal-tender money out of thin air, a power granted to it by the government, and with a mandate to manipulate the money supply in the purported service of maximizing output and minimizing unemployment and price inflation;

(4) interest rates influenced by a monopoly monetary authority instead of by the free market;

(5) implicit and explicit bailout guarantees for large financial institutions;

(6) artificially low borrowing costs for large institutions, since the public knows these institutions will be bailed out;

(7) artificial protection of the banks, in the form of government deposit insurance and various Federal Reserve mechanisms, thereby keeping afloat a fractional-reserve system that would be radically different under a free market; under the existing system the banks will therefore create more money out of thin air than they otherwise would.

This is just off the top of my head. A free-market banking system would have no central bank and no “monetary policy.” It would not rely on politicians to print up “interest-free money.” It would not require any guns or badges. It would preserve the purchasing power of people’s money, as it did even under the classical gold standard. It would make entrepreneurial profit-and-loss calculation far easier, without the white noise introduced by the monetary manipulations of the government or its privileged central bank.

That’s kind of different from the system we have now, isn’t it?

But this critic thinks we Austrians, of all people, defend the present system! It is he who defends it. Oh, sure, he is against the Fed, but for trivial reasons. He thinks there is a net social benefit to producing money out of thin air. He just thinks the banks today are doing a bad job of it.

Which of us has the more fundamental critique of the present system? This is an exercise for the student.

Anonymous

Yes.
Jordan

OK, you clearly don’t know what you’re talking about.
Jordan

Not to mention the medieval Germans, who were dispersed into hundreds, if not thousands, of governmental entities.
Jordan

You can’t honestly believe what you’re saying. It’s impossible.
Dan

Yes, we have heard you restate your meanderings again and again. We get what you want and think, but we find your views repugnant, ignorant, and comical all at the same time.
Anonymous

It reduces humans to the level of materialistic, shallow consumers who cannot even stand up for the prerequisites that built their own society.

Courage and idealism built the West. Libertarianism mocks these values unless they promote increased ‘freedom’ and more profits.
Jordan

I think ContrarianRex changed names to SwissMister.
Anonymous

Well if there are not enough men who can even defend the foundations that built the West, may be this culture and civilization should be destroyed.
Dan

Again, repugnant, ignorant, and comical all at the sme time.
Anonymous

You are just a coward. Free markets allows you to live a safe existence without having to defend any kind of ideal.
Dan

Says the materialistic shallow consumer who is talking with people across the globe on her computer. If you believed what you say you do then you would go join some tribe somewhere and give up all your high tech gadgets.
Jordan

“My contention is that Free Markets have destroyed the spirituality of
the West and rendered it open to social engineering of subversive agents
which seek to dominate the human person psychologically”

And yet you claim that dominating the human person psychologically is a good thing.
Jordan

Nope. The only thing I can wrap my head around is that they’re just deliberately trying to stir the pot.
Dan

Aww… the ignorant sociopath thinks I’m a coward.
Jordan

That it does. That it does indeed.
Jordan

Tom Woods doing a Wookie impression would be less surreal than some of the things I’ve read here thus far. LOL!
Jordan

So, in other words, it’s unnatural and evil for two people to exchange goods in a non-violent way. However, it’s perfectly moral for one of them to stand up and bash the other in the head to order to get what he wants from him.

But, again, us peaceful libertarians are the cowardly violent ones.
Jordan

How can you not see how evil that is? Seriously!
Jordan

HAHAHA!
Jordan

Tom, I’m assuming this whole blog post is in response to what ContrarianRex was writing on your Twitter account – given what the Twitter feed to the right of the screen here at tomwoods.com has been saying. Just remember that this is a guy who has claimed that….

1.) Richard Nixon was an Austrian.
2.) Greece is an Austrian free-market utopia.
3.) Fiat money has a spotless record of not causing hyper-inflationary or deflationary crashes.
4.) Government control of the money supply has absolutely nothing to do with Marxism.
5.) The Federal Reserve is a completely private organization.
6.) A gold-backed currency makes bailouts mandatory.

He’s just trying to stir s*** up and really isn’t worth your time.
Jordan

If this is an attempt at humor it’s got to be the darkest humor I’ve ever seen.
Jordan

Maybe it’s Bush himself.
Jordan

But then he/she wouldn’t be able to dominate others like he/she claims is moral.
Mike

What’s scary is that you’re right.
Mike

Yeah. The poor guys has even been accused of being a 33rd degree Mason. i’m shocked all the conspiracy theorists haven’t been accusing him of being a Jesuit agent–(I almost typed “Jewsuit”. Damn I need to get to sleep) hes Catholic after all. Well, maybe they have, I don’t know.

I know why Tom’s hair has been thinning the past several years. He’s been steadily tearing it out reading these people’s nonsense.
Mike

Yeah I agree. It’s just too stupid to be real. He’s been a riot though. lol!
vox

Definitely Jordan. Unbelievers just have to look at increased life expectancy and the advances in medicine and dentistry. Sometimes I’m nostalgic to live in a much earlier time, but not for its medicine and dentistry.
vox

Jones is very passionate and like me, sometimes views the glass as half-empty too much. Not to say that he is wrong to do so. Our modern culture is sometimes enough to drive you insane. For me, I think it started with public school. Kids can be such sh**theads when your different. I think I have been something of a libertarian since birth. I couldn’t articulate it, of course.
vox

Ha. Jordan, this reminds me of reading Griffin’s The Fearful Master: A Second Look at the United Nations. Our government becomes the prime mover in creating the U.N., and staffing it with monsters who do nothing but denounce capitalism, “capitalist-imperialism” and American aggression. But they sure loved our easy-money and imports so that they could survive politically.
Republicae

I have yet to encounter a group that seems to be so completely indoctrinated as these “Greenquackers”, their mantra is stagnant, repetitive and boring. They are incapable of explaining exactly what they mean or how their system would actually function in the real world. If you have encountered one you have essentially encountered all of them because they are mental clones, cookie-cut from the same stale, tasteless dough.
Republicae

In other words, you are a proponent of Statism;
you are essentially saying that you agree that Fascism is the best form of
government. That is what you are saying, is it not? If you can deny that please
do.

You whole premise is that an elite
governing body is not only necessary to form a Patriarchic society, but is desirous.
That the State is the beginning and end of all social and economic order. Though
you declare that capitalism and classical liberalism turn people into
conformist guinea pigs, the fact of the matter is that you have already
proposed that the right of all social policy should be reserved to philosophers
and aristocrats, what type of conformity do you think will result from such a
structure?

Please give us details on the ideal
economic and social structure that you are proposing. What does spirituality
have to do with it and why would you concern yourself with the conscience of
others when you have already stated that all social policy should be reserved
to an elite, in other words someone to think for the people, to guide their
behavior and to essentially create an artificial type of spirituality to
replace that of the individual. You are essentially condemning the very thing
you are proposing in your own comment.

You say you need institutions to promote
character, in other words what you are proposing is something, give all that
you have said, akin to re-education centers, run and administered by the elite
political and social philosophers. While you may not come out and say it, that
is actually what you have in mind.

Your argument is chocked full of the
most absurd contradictions and it appears that you are not even aware of that
fact when you are writing them.
Jordan

Exactly. But SwissMister wants to force others to into agreement instead of living by his/her own standards.
Jordan

I don’t think SwissMister will ever get the picture.
Jordan

I’m sorry, but are you honestly claiming that the Third World is a prime example of the failure of free-markets?! When did the third world ever have truly free market capitalism?
Jordan

I think we ought to start a collection to get Tom Woods to do a Chewbacca impression on his next YouTube video.
vonPeterhof

I think they’re claiming that the depression rates are higher in the First World than in the Third World precisely because of the alleged triumph of free market capitalism in the former.
Jordan

Exactly, about Jones being too pessimistic at times. That’s probably my biggest problem with him.
Jordan

The latest Lew Rockwell Show deals with this exact situation.

http://www.lewrockwell.com/lewrockwell-show/2012/06/22/285-the-environmental-movement-wants-to-kill-you-since-youre-a-nasty-human/
Jordan

That sums up all this absurdity perfectly. Well done!
Republicae

Please, tell us how you equate to
cowardice. The whole premise of a free market is that it is free; it is the
outcropping of the individual as each of them makes their daily decisions based
upon what they need, desire and hope for in their lives.

You state, strangely, that life is a
struggle and get use to it and yet, you have proposed a system where the
structure of life is replaced by a State that guides all social policy, creates
an institutionalized spirituality and is run by some omniscient philosopher
aristocratic elite. You don’t find any contradictions within your words do you?

What is a free market, do you even know?
If the market is left to its own devices you assume that it is somehow a
controlled system that is manipulated in one way or another, but you propose a
system of absolute control. You declare that those who believe in free markets
are enemies of organic societies and yet, again, you are in direct
contradiction to your own proposals when you state that all social policy
should be reserved to aristocrats and philosophers, do you actually think that
an organic society is build by such a structure or by institutions that would
essentially re-educate people by promoting your idea or an official idea of
spirituality? Come on now, read what you have written.

The whole idea behind free markets is
the fact that the world indeed is not a vacuum and yet, you appear to be
proposing a system that would operate as though the world was indeed
functioning within a vacuum, the structural vacuum that you propose. How does
suppose of the market destroy something else, in particular cultural identity?
Additionally, what you have proposed, in this and all your other comments, is
exactly what you are now condemning. What do you think will become of cultural
identity under the system that you advocate; do you think such identity will
actually thrive?

How do you know that free markets
postpone the asking of philosophical and religious questions about the ultimate
significance of life and death? What makes you think, assume or, for that
matter, make such an utterly ridiculous assertion and on what basis can you
make such an assertion? How on earth would you possibly know such a thing? How
do free markets destroy cultures and bring decay and destruction to prior
social orders when free markets gave rise to every single social order and
preceded government. Again, what on earth do you think a free market is and how
do you think it operates?

Markets are people, it is not an external,
as you seem to suggest, it is the actions of people in their everyday lives,
acting. You seem to think of the free market as an external force, but it is
the most organic form of economic and social expression because it is the
result of the daily action of billions of people seeking to benefit and make
the best of their world on a daily basis and in the process, others also
benefit.

As I am reading your comments I am
struck by the conglomeration of jumbled ideas that don’t approach any real
logical conclusion.
Mike

I guess simple addition is too difficult even for some “adults”.
Republicae

Again, you clearly declare that you
support Fascism and yet, in the same breath you declare that markets destroy
spirituality and make people into conformist guinea pigs! You are truly a very
confused person and it is evident in your own writings, filled with the most
absurd contradictions and yet you seem oblivious to your own ideological
inconsistencies. You believe, or at least you state such a belief, that, as
Mussolini defines the State as absolute. Here is what you are promoting, is it
not?

“The Fascist State organizes the
nation, but leaves a sufficient margin of liberty to the individual; the latter
is deprived of all useless and possibly harmful freedom, but retains what is
essential; the deciding power in this question cannot be the individual, but
the State alone….”

I would also suppose, given your
propensity for Statism, that anyone not adhering the to tenants of the all
powerful State would, by necessity, be eliminated. That is, after all,
following the progression of your thoughts, the final solution to any
free-thinking individual who would reject such a form of abject Statism, is it
not?

So, we know exactly what you really are
SwissMister, don’t we?
Republicae

Do you even read what you write, or think about it for that matter?
guest

As Stefan often says, there is no free market when the Fed controls the money supply
Bridget Arnelle

1. You’re using weasel words. Stop it. Make a case without insults as well.

2. Most right-libertarians are quite aware of their intellectual heritage to the point that many become amateur (in the good sense) historians. So, your claim here is invalidated too.

3. Your claims that we need ‘God’ or some nonsensical institutions runs in the face of the historical facts that religiousity was the start of much of the tyrannies and depravities throughout history (including Statism).

4. Your God is not my God (I’m more in line with Process Theology than whatever you’re shoveling).

5. Blaming free markets for change is like blaming Evolution for extinction. They’re both essential for both kinds of phenomena. If you don’t like it then you and folks like yourself can forge your own enclave to prove your case. Otherwise, you’re just another troll looking for a fight.
Republicae

You obviously have no clue about that you have already written, for you condemn the very thing that you propose in your authoritarian Statist view of the world. You decry, wrongly so, that free markets, in your mind, homogenize and colonize the masses into a proletariat of robotic, non-thinking automatons and yet you assert that the only way to build an idea society is to have an elite class to have paternity over society, re-educating them, directing them, performing all the essential duties of individual thought and the ability of the individual to decide for him/herself. Your own proposals would result in the very thing you decry as evil. You exhibit an astounding lunacy and yet, you don’t seem to be aware of the contradiction.

You are nothing more than a charlatan, your ideas are in complete contradiction to the very thing you say you support and then oppose.
Bridget Arnelle

Obviously, you love to romanticize aristocrats like Hoppe and not realize the average lifespan of a peasant was around 40 (at the high end). And lets not forget the wars the aristocrats love to pursue for their own thirst for power.

I think if you would take the time to actually read history rather than paint your pretty picture of it, you’d find yourself horrified by the atrocities of the Hundred Years War or the various city-state wars amongst the Mesopotamians where children were literally dashed on rocks because they were ‘them’ versus our ‘us.’

What a lovely aristocratic/elite-driven world. /sarcasm
Anonymous

Strange, but it
appears that you simply don’t have much comprehension of exactly what the free
market really is or how it functions within a society, do you?

The fact is that
what you propose completely contradicts the very ideals of courage and idealism
that actually built the West. The free market doesn’t reduce humans to the
level of materialistic, shallow consumers and since we have not had a free
market in this country for decades you cannot place the current consumerism on
the free market, but on a market that has been centrally planned and directed. The
distortions created by such central planning has produced a consumer society
rather than a productive society, built upon debt accumulation rather than
thrift and reason. I think if you delve into it you will find that you are
fighting the wrong foe, that foe is the very one that you have been promoting…the
State.
Anonymous

Tell us, if you can, what you think are the foundations that build the West? I wait with baited breath for this!
Anonymous

Please, do us a favor, tell us exactly how free markets allows people to live a safe existence without having to defend any kind of ideal.

Strangely, you seem to think of the free market as an external force, something outside the purview of actual living. You seem to view it as separated from human action as though it were a factor that only exerted power from outside the human experience and therefore it is something that can and should, in your mind, be either completely controlled or rendered completely impotent within human society.

How strange the world that you live in must appear to be in your mind, for your words denote a person that lives in a world of complete contradictions.