Sunday, October 30, 2011

Thoughts on Idolatry of the Market

Last week I wrote a blog critical of the document "Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority" published by the Vatican's Pontifical Counil on Justice and Peace. I was predominantly critical of the document, however I did note they were right to criticize making the market an idol. I have been developing some thoughts about how we should view this particular criticism of our current economic system. To say we should not make an idol of the market is as easy to say as that we should not make an idol of anything. Properly respond to the exhortation against idolizing the market requires serious thought.

In the first place, as Tom Woods has masterfully explained, however we want to characterize the nature of the financial crisis, it should be clear to everyone that it was in no way caused by the free market. It was created by a state-privileged fractional-reserve banking system bankrolled by the Federal Reserve System. Gobs (a techical term) of bad mortgages were issued by financial institutions becasue they had more than ready buyers at Fannie Mae and Freddie Mac. Lenders were encouraged and even mandated to make sub-prime loans by the Community Reinvestment Act and similar programs.

As Tom Woods puts it:
Had we really been engaged in “idolatry of the market,” as the Vatican document suggests, we might have listened to the market. Instead, the central authorities drowned out what the market was trying to tell us.

It’s been idolatry not of the market but of central banks, institutionalized sources of moral hazard and financial instability around the world, that has yielded us the boom-bust cycle. (The aura of infallibility and the cult of personality surrounding Fed chairmen make the language of idolatry more than mere poetic license.)

Additionally, before we condem supporters of the free market too roundly, we should pause to recognize that the free market is a social institution that results from private property. To support and institution because it is mandated by the Christian ethic of property is not idolatry. To claim it is is like comdemning those who believe the church should preach the gospel because that is what Christ calls us to do for making preaching an idol.

The only case in which it makes sense to think someone is making an idol of the market is when we embrace every outcome of voluntary exchange simply because it happens in a market. Some applaud any form of action if it is the result of voluntary exchange. Only then do we make the market an idol. Those who praise the music of Lady Ga-Ga, for example,  merely because she has sold a lot of records in the market are guilty elevating the market above a Godly aesthetic and ethic. The market is not the arbiter of truth and beauty. The minute we conceive of the market as such, we embrace it as an idol.

If market outcomes are truly undesirable, however, the problem is not with the market as a social institution,  but with the people in the market. The market does not impress its values on any one. Rather people, through their actions, impress them values on the market. The market remains the social institution that develops when a society embraces the Christian ethic of private property. How people behave in a free society is another matter.

Saturday, October 29, 2011

Justice is Not Served by Government Economic Planning

That is a primary point of my most recent op-ed released by Grove City College's Center for Vision and Values. It draws heavily by my blog post about the Vatican’s Pontifical Council for Justice and Peace's new document, ”Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority.” You can read my piece by clicking here. I make many of the same points in my book, Foundations of Economics: A Christian View.

Thursday, October 27, 2011

Is the World Overcrowded?

Nita Bhalla asserts this is so. In an article published by Reuters, she reports that the "Crowded, stretched world awaits the 7 billionth baby." Bhalla documents the two sides of the explosion/implosion debate quite nicely:

To some demographers the milestone foreshadows turbulent times ahead: nations grappling with rapid urbanization, environmental degradation and skyrocketing demand for healthcare, education, resources and jobs.

To others, a shrinking population, not overpopulation, could be the longer-term challenge as fertility rates drop and a shrinking workforce is pushed to support social safety for an aging populace.

As the article reveals, the world is not over populated or even stretched, but certain locales are. The solution to any poverty problems exacerbated by localized population growth is to allow people in densely populated regions to integrate into the global division of labor. As that happens, people are more productive and standards of living rise. There is a reason that global calorie consumption per person has been increasing since the mid-1960s. More and more regions are embracing markets, even while we seemingly embrace economic fascism here in the U.S.A.

The pessimistic view of population flies in the face, but the way, of the Biblical perspective. From the early chapters of Genesis, we find that God favors being fruitful and multiplying, with the command to be fruitful always given in the context of blessing. Population growth was a promise for those who keep the covenant, while population decline was a promised curse for the people of Israel if they disobeyed God. Individual children are portrayed as a blessing to specific parents. This is spelled out very nicely in an essay by E. Calvin Beisner called "Population Growth as Blessing or Blight?"

Tuesday, October 25, 2011

Do We Need a Supernational Authority to Enforce Social Justice?

The Vatican's Council for Justice and Peace seems to think so. According to Reuters, the Vatican has called for a "global public authority" and a "central world bank" to rule world financial institutions in an effort to enforce social justice. Additionally, the new document, "Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority," calls for various specific state interventions in the market such as taxing specific financial transactions.

As Jeff Tucker notes, this call for increased economic statism is particularly unfortunate because the document diagnoses the cause of the economic crisis pretty well. The problem was created by government control of the monetary system and the inflation it fostered. It seems unlikely that the solution will be the same thing that caused the problem.

Additionally, there is a severe problem of mistaken jurisdictions. The Reuters piece quotes from the Vatican report.
It condemned what it called “the idolatry of the market” as well as a “neo-liberal thinking” that it said looked exclusively at technical solutions to economic problems. “In fact, the crisis has revealed behaviours like selfishness, collective greed and hoarding of goods on a great scale,” it said, adding that world economics needed an “ethic of solidarity” among rich and poor nations.
The Vatican is making a big mistake in thinking that behaviors such as selfishness and collective greed can be solved through global economic planning, or any state action for that matter. The church is the institution that exists to make disciples of all nations. As I explain in my book when discussing the issue of government regulation of the market,
Some Christians might fear that such a free market economic policy will result in an unbridled capitalism that produces a society characterized by harsh, greedy, unrestrained industrialists who stop at nothing as they increase their fortunes. This worry misconstrues the nature of the free market. In a free market entrepreneurs cannot force anyone to buy their products. To receive revenue, firms must convince people to voluntarily purchase from them. The action of a profit-seeking entrepreneur is far from unregulated. In a free market, the entrepreneur may not be regulated by the state but he will be regulated by his conscience and especially by consumer preferences. If people do not want to buy from an entrepreneur with a reputation for wrong-doing they are free to refrain. The accounting firm Arthur Andersen went into bankruptcy at the mere allegation of improper accounting.

In this way that the church can properly act to regulate the economy. The Christian ethic of private property does not allow them to use the coercive state to achieve their ends for a better society. Instead Christians are called to evangelize and disciple converts in the paths of righteousness. As the church does what it is called to do, people will change their preferences. They will begin to be more loving and kind to their neighbors. If Christians really want different market outcomes, they should be obedient in their calling and have faith that God can transform the hearts and minds of men and women (pp. 476-77).
I simply do not understand the charge that the economic crisis has revealed a hoarding of goods on a great scale. Calls for a super-national central bank and global economic regulation are the sort of economic policy suggestions we get when people do not understand basic economics or the nature and role of the Federal Reserve and state intervention in the economy.

Monday, October 24, 2011

A Complication of Fractional Reserve Banking

One of the complications of fractional reserve banking is that a bank's demand deposit customer's can be held hostage, so to speak, to a bank's investment follies. Recent portfolio movements at the Bank of America illustrate this quite nicely.

According to Bloomberg News, the Bank of America has moved its Merrill Lynch derivatives unit to "a subsidiary flush with insured deposits." Officials at the Federal Reserve liked this move, because it gave some relief to the bank holding company. Moving bad assets off a balance sheet will do that. Officials at FDIC, however, understandably do not like the move, because such a move greatly weakens the balance sheet of the subsidiary, making it more likely to fail with the FDIC on the hook for the losses. The Bloomberg story reminds us that even three years after the financial crisis, things are not yet cleaned up.
Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.
The frustrating thing is that banking does not have to be like this. It is possible to have deposits that are entirely secure. The way to do it is to practice 100 per cent reserve banking. Instead of allowing banks to lend out their clients demand deposits and create additional demand deposits out of thin air, banks could be required to maintain enough reserves to cover 100 per cent of their outstanding demand deposits all of the time. In such a banking environment, there would be no risk of clients losing their deposits due to foolish investments. Banks could still make entrepreneurial error and still exhibit losses, but there would be no link between their investment practices and their deposit banking.

As Guido Hulsmann notes in his article, "Free Banking and the Free Bankers," under 100 percent reserve banking,
[T]here could be crises of confidence, but there can be no crises of the payments system. This is because the monetary aggregate that is relevant for payments--the money supply in the larger sense, that is, money plus fiduciary issues--could not differ from the supply of money. Its quantity could only vary to the extent that the quantity of money varies.
The money supply plus fiduciary money (in our present system demand deposits not fully redeemable by bank reserves) would equal the money supply, because there would not be any fiduciary money. In which case there could be financial panics, but they would not inhibit a bank's ability to redeem its clients' checking deposits, because they would always have enough reserves on hand to redeem every penny. In such a happy environment, there would be no need for FDIC. 

Saturday, October 22, 2011

One of the Riskiest Things You Can Do in America Is Hire Somebody

So says Peter Schiff, President and CEO of EuroPacific. In this testimony before the House Subcommittee on Government Reform and Stimulus Oversight, he explained how the regulatory burden makes hiring a very dicey game and why government stimulus programs, such as President Obama's recent proposal is like "pouring gasoline on a fire."

Schiff is more right than wrong in his testimony.

Friday, October 21, 2011

Ron Paul Is Right To Criticize the Fed

Congressman Ron Paul
I have criticized a number of politicians and other members of the ruling class for not understanding what got us into our current economic mess and, consequently, for not knowing how to get us out of it. Readers of this blog will remember my criticisms of Ben Bernanke's monetary policy and President Obama's fiscal stimulus plan. I have also criticized the previous Bush Administration for setting the stimulus body in motion, for starting the commotion.

In yesterday's Wall Street Journal, however, there is an op-ed from Congressman Ron Paul. He is the lone presidential candidate who surely gets it right. The Fed is to blame for the financial crisis. Paul gets it right because he uses the best economic framework when analyzing economic policy. Citing Ludwig von Mises and F. A. Hayek, he draws on Austrian, causal-realist economics to explain how and why business cycles occur:
The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.
Because Paul rightly sees our central money printing organization as the chief economic culprit, he also rightly calls for abolishing this important tool of the leviathan state. He concludes his essay by noting that giving a central bank monopoly over our monetary system is the antithesis of liberty:
What exactly the Fed will do is anyone's guess, and it is no surprise that markets continue to founder as anticipation mounts. If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover. The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.
No other economic candidate even comes close to Paul's understanding of economic theory and policy.

Thursday, October 20, 2011

It's the Fed

Heleen Mees in Foreign Policy gets it. . . at least partly. In her article "The Perils of Loose Living," she explains how too much debt fueled our economic crisis and that the Fed bankrolled the whole thing. (Thanks to my friend and colleague Sam Stanton for alerting me to this article). As she correctly notes:
The real culprit was the Federal Reserve. With its ultraloose monetary policy in the early 2000s, the Fed single-handedly created the refinancing boom and ushered in the housing bubble. The record-low interest rates not only fed the boom that had to go bust, but also favored that sector of the U.S. economy that is predominantly financed with debt, i.e., the financial sector, at the expense of sectors that are more reliant on risk capital, such as manufacturing. That might explain why, by the mid-2000s, bank profits accounted for 30 percent of all profits reported by S&P 500 companies. In other words, Americans stopped making stuff and relied on paper earnings instead.
Mees also rightly understands that the Fed pushing for even more monetary expansion will not solve our problem.

Unfortunately, her prescription is not nearly as insightful. She plays our ailing economy off against that of the Chinese and the Germans. She asserts that both of their economies of booming and implies that the secret to their success is government spending on research, development, and innovation. That is what they used to say about Japan's economy before it took a nosedive back in the early 1990s. If the Chinese have to "cool down" the economy, that is an indication that the boom is a product of monetary inflation and, hence, unsustainable.

No, government spending of any kind is not the solution either. The only thing that will put our economy back on a firm footing is to free the market: stop increasing the monetary base, cut government spending, and reduce business regulation. This will allow for more saving and investment in productive activity, which is the true job creator.

Wednesday, October 19, 2011

A Theory of Political Entrepreneurship

Yet another paper presented at the most recent Austrian Student Scholars Conference has just been published. The article, "A Theory of Political Entrepreneurship" co-authored by Matthew McCaffrey and Joseph Salerno was presented by McCaffrey this past February. McCaffrey and Salerno's paper was published in the September 2011 issue of Modern Economy. The abstract reads as follows:
This paper adapts the entrepreneurial theory developed by Richard Cantillon, Frank Knight, and Ludwig von Mises to the theory of “political entrepreneurship.” Political entrepreneurship is an outgrowth of the theory of the market entrepreneur, and derives from extending entrepreneurial theory from the market into the political sphere of action. By applying the theory of the entrepreneur to political behavior, we provide a basis for identifying political entrepreneurs, and for separating them analytically from other government agents. The essence of political entrepreneurship is the redirection of production from the path it would have taken in an unregulated market. Nevertheless, this production does produce an income stream to political entrepreneurs which closely resembles the profit of market entrepreneurs.

Tuesday, October 18, 2011

The Motive

One of the important things detectives need to identify for any crime they are trying to solve is a suspect's motive. This is also a good thing to do when analyzing economic policy. While not the foundation for macroeconomic analysis, if we want to change things for the better it is helpful looking for reasons why rulers maintain certain economic regimes that create macro-scale problems.

Hans-Hermann Hoppe has another provocative article seeking to answer "Why the State Demands Control of Money." He documents the benefits monetary authorities and their friends in other branches of government receive from government monopolization and manipulation of the money supply.

Monday, October 17, 2011

Business and the Literati

Algis Valiunas has a thoughtful piece of literary criticism in National Affairs examining the treatment American writers have given commerce and businessmen over the years. He provides a broad survey of works by Lincoln Stevens, Upton Sinclair, Thorstein Veblen, Ida Tarbell, Theodore Dreiser, Sinclair Lewis, Joe Keller, Arthur Miller, David Mamet, Saul Bellow, Tom Wolfe, and Ayn Rand. Valiunas is unsatisfied with the efforts of all of the above, because they fail, in his eyes, to move beyond a mere caricature "portraying corporations large and small, and the people who run them, as heartless, soulless agents of greed." If these were only so many men and women's opinion, such caricatures would be unremarkable, however, as Valinuas also notes, "These caricatures have shaped our implicit understanding of the nature of the business world, so much that they have come to pass for conventional wisdom."

This same point was not lost on Ludwig von Mises in his The Anti-Capitalistic Mentality.
In this vein dozens and dozens of novels and plays report the transactions of the villain of their plot, the businessman. The tycoons became rich by selling cracked steel and rotten food, shoes with cardboard sales and cotton goods for silk. They bribed the senators and the governors, the judges and the police. They cheated their customers and their workers. It is a very simple story. It never occurred to these authors that their narration implicitly describes all other Americans as perfect idiots whom every rascal can easily dupe (p. 71).
In the same book, Mises also offered up a reason why the anti-capitalistic mentality is more prominent in American literature than in its European counterpart.
In Europe "society" includes all those eminent in any sphere of activity. Statesmen and parliamentary leaders, the heads of the various departments of the civil service, publishers and editors of the main newspapers and magazines, prominent writers, scientists, artists, actors, musicians, engineers, lawyers and physicians form together with outstanding businessmen and scions of aristocratic and patrician families what is considered the good society. They come into contact with one another at dinner and tea parties, charity balls and bazaars, at first-nights, and varnishing days; they frequent the same restaurants, hotels and resorts. When they meet, they take their pleasure in conversation about intellectual matters, a mode of social intercourse first developed in Italy of the Renaissance, perfected in the Parisian salons and later imitated by the "society" of all important cities of Western and Central Europe. New ideas and ideologies find their response in these social gatherings before they begin to influence broader circles. One cannot deal with the history of the fine arts and literature in the nineteenth century without analyzing the role "society" played in encouraging or discouraging their protagonists (pp. 18-19).
In the United States, however, the intelligentsia do not socialize with real businessmen as much and, hence, find it easier to caricature that of which they are ignorant.

Saturday, October 15, 2011

Public Choice Foundations of Macroeconomics?

In discussing Tyler Cowen's suggestion for a better foundation for macroeconomic analysis than the Keynesian IS-LM model, Peter Boettke at Coordination Problem affirms Cowen's appeal to public choice economics. As Boettke argues:
If the crisis has taught us anything, I would argue that it has taught us about the necessity to treat politics as endogenous to the model of policy choice.  Buchanan and Wagner's Democracy in Deficit still represents the best starting point for understanding what went wrong with the Keynesian model of technocratic economic management.  And Wagner's work on political manipulation and the boom-bust cycle is the most underrated of the public choice contributions to macroeconomics.
It is certainly helpful for us to be aware of political realities when assessing the likelihood of successful policy implementation. However, I am not convinced that we want to make economic realpolitik the foundation of macroeconomic analysis. It seems to me that economists should be able to explain the consequences of monetary inflation via credit expansion regardless of political realities.

As such, I suggest that instead of beginning with public choice, we begin with an economic framework that is even more underrated by today's profession: the Austrian, Causal-Realist tradition. The economic framework built by Menger, Böhm-Bawerk, Mises, and Hayek, brings together many different strands of economic theory to adequately analyze and explain macroeconomic fluctuations.

Sound macroeconomics must first incorporate what integrates the entire social economy. It must take into account money. Because as the medium of exchange money is traded in all markets, monetary changes affect everyone. It must also take into account the capital structure, because the entire stock of consumer goods is supported and made possible by a vast, complex and multi-stage production structure. 

It is the causal-realist economists who have most successfully put together monetary economics and capital theory to arrive at a business cycle theory that explains how we got here from there and also how to get out of our current mess. Recent culminations of this tradition in macroeconomics include Roger Garrision's Time and Money and Jesus Huerta de Soto's Money, Bank Credit, and Economic Cycles. Their work definitively demonstrates that state manipulation of the monetary system have vast consequences. Inflating the money supply via credit expansion artificially lowers interest rates, encouraging entrepreneurs to malinvest, directing factors of production to stages of production farther from producing consumer goods than is warranted by the desires of people in society. That malinvestment must eventually be liquidated via recession. 

The above is true regardless of political realities. The first task of any economist is to get the analysis straight. Once we have done that, we can turn some of our attention to advocating policies that will accomplish more sound economic conditions. Public choice economics may be able to shed light on why certain policies are harder or easier to implement than others and might help us understand how certain consequences are not those planned by policy advocates. It can't however, serve as an actual foundation for macroeconomic analysis.

Thursday, October 13, 2011

Government Spending Did Not Get Us Out of the Great Depression

So say economists, Harold Cole and Lee Ohanian. They had a fascinating op-ed in the Wall Street Journal a couple of weeks ago that everyone should read. The economic history they tell is pretty compelling:
But boosting aggregate demand did not end the Great Depression. After the initial stock market crash of 1929 and subsequent economic plunge, a recovery began in the summer of 1932, well before the New Deal. The Federal Reserve Board's Index of Industrial production rose nearly 50% between the Depression's trough of July 1932 and June 1933. This was a period of significant deflation. Inflation began after June 1933, following the demise of the gold standard. Despite higher aggregate demand, industrial production was roughly flat over the following year.
This information is especially important because most of the contemporary powerful economic policy makers, be they President Obama or Ben Bernanke, enthusiastically embrace the idea that boosting aggregate demand was crucial for alleviating the Great Depression and they think that a similar solution is in order for our current mess. I have already explained why that is not the case.

Tuesday, October 11, 2011

Hoppe on Hayek as Social Democrat

While it is not uncommon for members of the media to classify F. A. Hayek as a classical liberal, Hans-Hermann begs to differ. In his recent article "Why Mises (and not Hayek)?" he seeks to explain why Hayek receives so much attention as a free market thinking while Mises receives very little. As Hoppe sees it:
My thesis is essentially the same one also advanced by my friend Ralph Raico: Hayek is not a classical liberal at all, or a "Radikalliberaler" as the NZZ, as usual clueless, has just recently referred to him. Hayek is actually a moderate social democrat, and since we live in the age of social democracy, this makes him a "respectable" and "responsible" scholar. Hayek, as you may recall, dedicated his Road to Serfdom to "the socialists in all parties." And the socialists in all parties now pay him back in using Hayek to present themselves as "liberals."
Anything written by Hoppe is worth considering and this provocative piece is no exception.

Sunday, October 9, 2011

Steven Jobs (1955-2011)

No doubt you have already heard of the sad passing of Steven Jobs, one of the most successful entrepreneurs of his generation. Many have offered heartfelt obituaries and tributes explaining his significance to our world. Randall Holcombe praised him as the important innovator that he was. Peter Klein stressed that the success of Jobs points to the the beauty of market capitalism.
Markets aren’t winner-take all. Neither Steve Jobs nor Bill Gates nor Linus Torvalds nor anyone else decided what products we all should use and made us use them. We didn’t vote for our favorite computer or music player or phone, then all get the one that 51% of the voters preferred. No, we can all have the goods and services we like.
Grove City College's own Craig Columbus, executive director of our entrepreneurship program remembers "his ability to draw inspiration from other industries and sources, his willingness to shrink rather than constantly grow product lines, his unwillingness to rely on commoditized marketing studies or focus groups, his obsession with simplicity and functionality, his decision to accept a $1-a-year salary in order to place the emphasis on value creation." What especially struck Columbus, however, was Jobs' ability to weather his failures, ultimately transforming his company and society. Vaclav Smil, on the other hand, puts Jobs' contributions in a more historical context and affirms that "It takes nothing away from Steve Jobs to say he is no Thomas Edison."

All of these are good reasons to celebrate the life and work of Steven Jobs. The death of an entrepreneurial giant also reminds us, however, of less pleasant things. It has been appointed unto men to die once and then comes the judgement (Hebrews 9:27). As great and as socially beneficial his work is, Jobs still died. That is true of all great men. Ludwig von Mises and Murray Rothbard we brilliant economists, the most brilliant of the 20th Century I would say, however they both died and one day will be called to account for how they lived their life and how they responded to Jesus Christ.

The good news is that while the wages of sin is death, the gift of God is eternal life through Jesus Christ (Romans 6:23). Perhaps the most profound question that has even been asked was phrased by Jesus in economic terms. "What will it profit a man if he gains the whole world and forfeits his soul?" (Matthew 16:26) The only way to escape forfeiting our soul is to repent of our sins and embrace Jesus as Savior and Lord. As Christ Himself said to Nicodemus, "Whoever believes in him is not condemned, but whoever does not believe is condemned already, because he has not believed in the name of the only Son of God"(John 3:18).

Friday, October 7, 2011

Sowell on the Hunger Hoax

Thomas Sowell has what should be an eye-opening column out explaining "The Hunger Hoax." Cutting to the chase, Sowell notes
Ironically, the one demonstrable nutritional difference between the poor and others is that low-income women tend to be overweight more often than others. That may not seem like much to make a political issue, but politicians and the media have created hysteria over less.

Wednesday, October 5, 2011

The Logic of the Willing Welfare State Benefactor

During a town hall event with President Obama early last week, former Google employee Doug Edwards made this request:
“My question is would you please raise my taxes? I would like very much for our country to continue to invest in things like Pell grants, infrastructure, job training–programs that made it possible for me to get to where I am. It kills me to see Congress not supporting the expiration of tax cuts that have been benefiting so much of us for so long.”
Several people have noticed that he would not have to see his taxes go up a dime in order for him to contribute more to these causes. He could simply send more money than he is obligated to the U.S. Treasury. They are always looking for more money. Alternatively he could use his own money to give direct scholarships to college students and those seeking increased jobs training.

His dissatisfaction with such personal efforts indicates that what Edwards really wants is not higher taxes on himself, but on everyone else (or at least everyone else in his income bracket). He would be happy to contribute more to the state as long as all of his other colleagues have more of their money forcibly taken from them to contribute to his favorite causes as well. This is the ideology of redistribution in a nutshell.

We must not forget that a tax is a coerced levy. There is no way we can be charitable with other people's money. We are to be generous with our own money, not the property of other people. As the Apostle Paul told the Corinthians when explaining how the work of the Church should be funded, "Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver" (2 Cor. 9:7).

Saturday, October 1, 2011

Nair on Small Coins as Money

The most recent issue of the Quarterly Journal of Austrian Economics includes Malavika Nair's important article "Money or Money Substitutes? Implications of Selgin's Small Change Challenge." Her article serves as an explict rebuttal of George Selgin's arguments in "100 Percent Reserve Money: The Small Change Challenge," asserting that the coinage of small change in 18th Century England was an example of fiduciary money. The article's abstract reads as follows:
Selgin (2009) questions the practicality of 100 percent reserve requirements applied to small change. He interprets the private coinage of small change in 18th century England as embodying fiduciary media and concludes that requiring 100 percent reserves would have led to very high costs. This paper provides an alternative interpretation of the private coinage episode in England as embodying money itself, not fiduciary media, and uses historical details in Selgin (2008) as support of that interpretation. This leads to a discussion of the Misesian typology of money and his distinction between money and money substitutes.
Nair's article won the Richard E. Fox First Prize at the most recent Austrian Student Scholars Conference hosted here at Grove City College this past February.