Tell us Ron, What’s the Plan, What’s the “Austrian” Plan?

Guest Post by Pater Tenebrarum

What? No Austrian Prescription? Bloomberg Reporters Cannot Believe It

This is truly funny. Ahead of the FOMC decision, Ron Paul, who is well-known as an an implacable critic and enemy of the Fed and a fan of the Austrian School of Economics, was interviewed at Bloomberg as to “what the Fed should do”.

What makes it so funny is that the Bloomberg reporters seemingly cannot believe that Austrian economists simply have no “prescriptions” for the Fed. They keep pushing Ron Paul for giving them some advice. “But we do have a Fed…given that the institutional set-up is what it is and we cannot change it, what should they do? What’s the “Austrian” prescription?”

Dear Dr. Paul, please tell the Fed what to do! 🙂

Photo credit: Sean Gardner / Reuters

We happen to think Ron Paul could actually have handled the reply to this a bit better than he did. He could e.g. simply have told them that their question was akin to asking him “how many tractors should GOSPLAN produce this year?” It is simply an utterly nonsensical question. What inter alia makes Austrian economics unique is precisely that the theory leads to the inescapable conclusion that one cannot improve on the free market economy by means of statist intervention and central planning.

There Cannot Be a “Right” Fed Decision

Hence there cannot be any “advice” to a central bank, except the one Ron Paul actually gives: butt out and let the market decide. Of course this is tantamount to telling the Fed that it is surplus to requirements – which it indeed is. Ron Paul also mentions that the government should actually open money to competition – in other words, it should repeal legal tender laws and allow private money production to occur.

We would add to that: since the State could continue to insist that taxes be paid in its own scrip, it could always ensure a secondary market demand for its so-called “money”. But if competition in money issuance were legal, citizens would at least have a choice as to what kind of money they wish to use in exchanges. It could well be that the government’s scrip would over time become an also-ran medium of exchange, used exclusively for tax-related transactions and little else. It should be clear that without legal tender laws and the compulsory use of government scrip for tax payments, no-one would even remotely consider using irredeemable pieces of paper with ink slapped on them (or the associated digital entries) backed by nothing at all.

Note here that “unbacked” digital currencies like Bitcoin owe their existence precisely to the many drawbacks of government scrip, as well as to the fact that they are actually convertible into the latter. We have discussed Bitcoin in the context of monetary theory previously – see “The Bitcoin Bubble Deflates – But the Currency Continues to Evolve” (scroll down to the sentence “Is Bitcoin actually money?” and read from there). In fact, Bitcoin can be explained with Menger’s theory on the origin of money.

Anyway, here is the amusing interview:

How can there be no “Austrian plan”? Bloomberg reporters are stumped (if the video doesn’t play for some reason, here is a link to the the version on the Bloomberg page)

Conclusion:

This is a very good reminder on what has become of economics in modern times: these days it is assumed as a matter of course that representatives of various economic schools of thought should have ideas about the best way to centrally plan important aspects of the economy. However, this was never supposed to be the task of economic science. The science was once called “dismal”, mainly because economists used to tell politicians that they couldn’t hope to cheat the market or circumvent economic laws. Telling truth to power was regarded as one of the things an economist would frequently have to do on the side. These days the State has usurped economic science and made it part of its ever growing interventionist programs.