A Morally Unacceptable Budget

On the same day I received an e-mail from Sojourners encouraging me to join Jim Wallis, David Beckman, and Tony Hall in a hunger fast "to put Congress on notice" that immoral "cuts to the social safety net are not acceptable," Doug Bandow's essay "Balancing the Federal Budget: What Would Jesus Cut?" appeared at Forbes.com. I concur with Jason Jewell that it is excellent.

Bandow is one of our more thoughtful political commentators working today. He approaches the issue of spending cuts from a non-partisan perspective. As Bandow frames the issue:

The religious right has been justly criticized for confusing its political views with Christian theology, but many leftish activists make the same mistake. The Bible says a lot about man’s relationship to other men and to God. Scripture doesn’t say much about how men (and women, obviously) should organize government and forcibly rule over others.

Indeed, the Bible is essentially silent on when men should regulate, tax, draft, arrest, imprison and kill their neighbors, as governments do every day. For these tasks we should heed James’ injunction to ask God for wisdom. We shouldn’t assume that God is on our side of the political divide.

Bandow makes the point that in order to make decisions about fiscal policy, which, because they always involve constraints on the use of people's property, always have a moral dimension, we must use Christian wisdom. Such wisdom draws not on explicit Scriptural statements about tax rates and subsidy levels, but on Christian principles that must be systematically integrated in order to develop a Christian approach we can use to guide us in determining whether particular government spending is desirable.

Bandow also notes that while Sojouners are right to deny that our spiritual well-being is correlated with GDP and military might, we also err in seeking salvation via the state.

Christians should treat government with the same skepticism they apply to other human institutions. One Biblical principle not mentioned by the “What would Jesus cut” activists is “Thou Shalt not Steal.” (Exodus 20:15) Whatever government takes should be used for the common good, which means spending responsibly for a public purpose.

Uncle Sam fails in this regard every minute of every day. Many programs are created by and for influential interest groups. Moreover, the waste, fraud and abuse in the federal government is legendary. Many agencies aren’t even able to account for the money they spend, let alone demonstrate that they are spending it well.

The above begs the question, of course, of what sort of public purpose  legitimates coerced taxation and spending. Nevertheless, his main point stands. The state routinely takes money from the productive and gives to the politically connected.

This brings to mind an almost prophetic passage from Francis Wayland's Elements of Political Economy. In a section explaining various ways the capital stock could diminish, he discusses the negative consequences of theft. First he discusses private thievery by an individual person and then explains the more disastrous thievery by the confiscatory state.

But the right of property may be violated by society. It sometimes happens, that society or government, which is its agent, though it may prevent the infliction of wrong by individuals upon individuals, is itself by no means averse to inflicting wrong or violating the right of individuals. This is done, where governments seize upon the property of individuals by mere arbitrary act, a form of tyranny, with which all the nations of Europe were, of old, too well acquainted. It is also done, by unjust legislation; that is, when legislators, how well soever chose, enact unjust laws, by which the property of a part, or of the whole, is unjustly taken away, or unjustly subjected to oppressive taxation.

Of all the destructive agencies which can be brought to bear upon production, by fear the most fatal, is public oppression. It drinks up the spirit of a people, by inflicting wrong throughout means of an agency which was created for the sole purpose of preventing wrong; and which was intended to be the ultimate and faithful refuge of the friendless. When the antidote to evil, become the source of evil, what hope for man is left? When society itself sets the example of peculation, what shall prevent the individuals of the society from imitating that example? Hence, public injustice is always the prolific parent of private violence. That result is, that capital emigrates, production ceases, and a nation either sinks down in hopeless despondence; or else the people, harassed beyond endurance, and believing that their condition cannot be made worse by any change, rush into all the horrors of civil war; the social elements are dissolved; the sword enters every house; the holiest ties which bind men together are severed; and no prophet can predict, at the beginning, what will be the end (Wayland, 1843, Elements of Political Economy, p. 112-13).

That is a profound tour de force. In light of the massive amounts of taxing and spending that takes place in our contemporary welfare-warfare state--spending that can in no way be construed as furthering the legitimate mission of the magistrate, Christian property ethics demand that we cut early and often.

Willard: Happiness Consists In Attaining Our End

Consider the following quotation:

Happiness properly consists in our attaining of our end, and this is reached unto by a right using of means suitable and proper. The end, though it be last in execution, yet is the first in intention; and being that unto which the means are to be fitted, is that which is first to come into consideration; because, the better that is known, the fitter we are to judge of the other. A man cannot rationally tell what he is to do, until he first understand what it is for. . . .

Except for some of the sentence structure, one might think this came out of the work of Menger or Mises. In fact, it comes from Samuel Willard's sermon on the first question and answer of the Westminster Shorter Catechism.

Samuel Willard (1640-1707) was a pastor in colonial America who ministered to the communities of Groton and Boston in Massachusetts and who also served as acting president of Harvard from 1701 until his death in 1707. The sermon quoted from above is the first in a series of 250 he preached on the Catechism. The sermon's were collected and published posthumously as A Compleat Body of Divinity.

What strikes me about the passage quoted above is how praxeological it is. The theme of the sermon is that man's chief end is to glorify God and to enjoy Him forever. In discussing his theme, he does so in a thoroughly means-end framework. One might say it is causal-realist.One more piece of evidence supporting my contention that there is no conflict between Christian doctrine and sound economics built upon the premise of human action.

Davidowitz on What He Would Do About Our Economic Woes

For my money, one of the most entertaining economic commentators working the circuit is Howard Davidowitz. He was recently interviewed on the newly-named Daily Ticker by Henry Blodgett about what he would do to get us out of our current economic mess. You can watch the interview here:

Davidowitz is surely right that our current path is unsustainable. The idea that annual budgets over a trillion dollars is the new normal is foolish in the extreme. He is also right that the actions by the Federal Reserve over the past several years has done tremendous damage to the value of the dollar. He is also right that if the value of the dollar drops enough for it to no longer serve as the world's reserve currency, things will get very ugly very fast.

Regarding his suggested solutions, he is absolutely right that we need to get our fiscal house in order, but the best way to do this is to cut spending, not to raise taxes. It is true that we could raise taxes enough to balance the budget, but the true drag on the economy is not the deficit, but spending, regardless of how it is funded. If we raise taxes to balance the budget, the higher level of government spending still sucks capital out of the hands of private entrepreneurs and places it into the hands of government bureaucrats, reducing our productivity and prosperity.

Davidowitz is also right that when he says we need to deal with our entitlement problems, if by "dealing" with entitlements he means getting rid of them. What he is really saying is that we need to dismantle the welfare state. Another thing way to greatly help our fiscal situation is to halt our adventures in foreign military intervention. Our bombing of Libya has already cost us hundreds of millions of dollars.

Extraordinary Speculative Activity Means There is a Bubble Somewhere

Dallas Federal Reserve Bank President Richard W. Fisher said in a speech in Berlin yesterday that the Fed does not need to expand the monetary base any more because right now he sees "Extraordinary Speculative Activity" in our economy. As he put it, "There is a tremendous amount of liquidity sloshing around." That could explain why stock prices have increased like they have since Money Printing 2 was announced. Economist Gary Shilling is seeing what he calls "bubble-like characteristics" in the stock market.

We can maintain nominal spending all we want, but if this spending is on wasteful investment, it will make us poorer, not richer. Due to malinvestment, capital is being consumed, not accumulated. This will make us less productive, not more, and we will enjoy a lower standard of living not higher.

Ben Bernanke, Terrorist?

Last Friday, Bernard von NotHaus was convicted in federal court of counterfeiting. His crime was owning and selling silver coins he made himself. In the FBI's press release announcing NotHaus' conviction, federal attorney Anne M. Tomkins is quoted as saying:

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country. We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”

That got me to wondering about two questions. Does this mean that Ben Bernanke is a domestic terrorist? And does this mean that the FBI has infiltrated the Federal Reserve?

The Consequences of Money Printing (er, Quantitative Easing) 2

One thing James Grant said Congress could do to help the public understand the Federal Reserve's expansive monetary policy is to call it to start speaking plainly, use truthful language, and stop the euphemisms. A case in point, he said was "quantitative easing." He said we should require the Fed to us the term that is indicative of what it really is--money printing. I think he has a great point.

Regardless of the terminology, however, I was very disappointed to read an article that appeared at Bloomberg News discussing the immediate consequences of Money Printing 2. During the financial crisis and Great Recession, Bloomberg was the best financial news media outlet that gave you the straight scoop. A recent piece by Caroline Salas, however, was sad in how it tried to paint the Fed's inflationary monetary policy as a big success.

Salas asserts that Money Printing 2 has helped the economy and points to the following as evidence:

• Since the plan was announced in August of last year, the S & P 500 has increased 18 percent.
• Inflation expectations has increased 44.4 %. 
• Official unemployment rate has fallen to 8.9%. 

All of these are seen as positive signs for the economy, indicating that Fed policy is working. As the song in Gershwin's Porgy and Bess goes, "It ain't necessarily so."

In the first place if the Fed’s expansive monetary policy was really that wise, one would think the unemployment rate should be much lower than 8.9 percent. In fact, much of the drop in the unemployment rate is related to a drop in the civilian labor force to its December 2007 level. A low official unemployment rate is not per se an indication of a flourishing economy anyway. In May of 2007 the unemployment rate was 4.4 percent. Was the economy strong? No.

Additionally, high stock indices are not necessarily signs of a healthy economy. Back on October 9, 2007 the Dow Jones Industrial Average closed at 14,164 and the S & P 500 closed at 1,565. These were the highest they have ever been. Were they a sign the economy was strong? No.

Inflation expectations up by 44.4% is not to be applauded either. We should not be surprised that they have increased. Expanding the monetary base from $1.7 billion to $1 trillion tends to do that. In fact, inflationary expectations are the first dangerous step toward hyper-inflation. If people expect continual higher prices, they are likewise expecting a continual loss in the purchasing power of the dollar. People will not want to hold on to dollars as much if they think that while they do so, the quantity of goods they can buy with their dollars is shrinking every day. Increased spending increases demand for producer and consumer goods, which raises their prices even more, fueling even more intense inflationary expectations, which encourages people to spend even faster, driving up prices even more sharply, which. . . . You get the picture. It is a recipe for economic disaster. Ask the Zimbabweans.

To the extent that macroeconomic statistics have improved after last August, it is just as likely that the Fed has merely postponed a more full liquidation of malinvestments undertaken in the mid-2000s. At best, the reckoning is merely put off. Any actual improvement is not due to the Fed but rather to a real increase in savings funding productive private investment.

Salerno on the Benign Effects of Deflation

During his testimony last week before the House Committee on Financial Services, Joseph Salerno noted that a primary reason current Federal Reserve policy is so biased toward inflation is that they are deflation-phobes. I've blogged about this a few times already, but Salerno's brief, but profound explanation why a fear of falling prices has "no rational basis in theory or history" is worth quoting in full:

Let me explain. As technology advances and saving increases in a progressing economy, entrepreneurs and business firms are given the means and the incentive to invest in new methods of production, which in turn enables them to lower their costs and expand their profit margins. In a given market, the natural result is an increase in the supply of the good and more intense competition among its suppliers. Assuming no change in the money supply and continuing technological innovation, this competitive process will drive the production costs and price of the good ever downward. Consumers will benefit from the falling price because their real wages will continually increase as each dollar of income commands an increasing quantity of the good in exchange.

This is not merely abstract theoretical speculation but is precisely the process that occurred in the past four decades with respect to the products of the consumer electronics and high-tech industries, such as hand calculators, video game systems, personal computers, HDTVs, and medical lasers. Thus, for example, a mainframe computer sold for $4.7 million in 1970, while today one can purchase a PC that is 20 times faster for less than $1,000. The first hand calculator was introduced in 1971 and was priced at $240, which is $1,400 in terms of today’s inflated dollar. By 1980, similar hand calculators were selling for $10 despite the fact that the 1970s was the most inflationary decade in U.S. history. The first HDTV was introduced in 1990 and sold for $36,000. When HDTVs began to be sold widely in the United States in 2003 their prices ranged between $3,000 and $5000. Today you can purchase one of much higher quality for as little as $500. In the medical field, the price of Lasik eye surgery dropped from $4000 per eye in 1998, when it was first approved by the FDA, to as little as $300 per eye today.

Now no one, not even a Keynesian economist, would claim that the spectacular price deflation in these industries has been a bad thing for the U.S. economy. Indeed the falling prices reflect a greater abundance of goods which enhances the welfare of American consumers. Nor has price deflation in these or other industries diminished profits, production and employment. In fact, their growth has been just as spectacular as decline in the prices of their products and has been caused by it. But if deflation is a benign development for both consumers and businesses in individual markets and industries than why should we fear a fall in the general price level, which of course is nothing but an average of the prices of individual goods? The answer given by theory and history is that a falling price level is the natural outcome of a dynamic market economy operating with a sound money like gold.

Once you think about it, the idea that lower prices for some goods is good for individual households while lower prices on all goods is a disaster is absurd.

I encourage you to read Salerno's entire written testimony. For a more detailed discussion on the economic consequences of various forms of deflation I recommend his article, "An Austrian Taxonomy of Deflation," published in the Winter 2003, Vol. 6, No. 4, issue of the Quarterly Journal of Austrian Economics.

Machen: A Forgotten Libertarian

I have been asked to contribute to a new blog devoted to the person and work of J. Gresham Machen, a Presbyterian theologian and one of the founders of Westminster Theological Seminary. The blog is at jgmachen.org. My first entry is entitled, "J. Gresham Machen: A Forgotten Libertarian" and is cross posted here:

I was introduced to the Orthodox Presbyterian Church through the writings of J. Gresham Machen. As a graduate student studying economics at Auburn University, I further developed my interest in affinities between conservative theology and good economic analysis. It was during this time that I came across Daniel F. Walker’s article “J. Gresham Machen: A Forgotten Libertarian” published in December 1993 The Freeman, a magazine published by the Foundation for Economic Education. Walker’s piece was a delight as it introduced me to Machen’s social thought and served as a catalyst for me to present a seminar lecture on Machen to the political economy club we had at the Mises Institute when I was a graduate student. Walker begins his essay by quoting a passage from early in Machen’s book Christian Faith in the Modern World.

Everywhere there rises before our eyes the spectre of a society where security, if it is attained at all, will be attained at the expense of freedom, where the security that is attained will be the security of fed beasts in a stable, and where all the high aspirations of humanity will have been crushed by an all-powerful state.

The Christian Faith in the Modern World, by the way, is an excellent accessible introduction to Reformed theology concerning the nature of the Scriptures and the characteristics of God.

Hyperinflation Alters Human Personality

At this year's Austrian Student Scholars Conference, Joseph T. Salerno presented an outstanding and thought provoking lecture, "Hyperinflation and the Abolition of Human Personality." You can watch his lecture by clicking here.

In his lecture Salerno points out the importance of monetary prices and economic calculation for not only entrepreneurs, but for all people as we seek to plan purchases, investments, and make other economic decisions. He notes that no one can hope to have a rational estimate about the net worth of their assets, such as their homes or autos, without monetary prices.

If the monetary system descends into hyperinflation, however, prices change so fast they cannot be used for economic calculation and people begin acting less than human. He uses the 1923 hyperinflation in Germany as a case study drawing on the writings of those who lived through that period, including a sociologist who was among the first to follow the career of Hitler. He shows how the German hyperinflation was a primary contributing factor in making the German masses open to the rise of Nazism. It is fascinating stuff!

The Relationship Between Monetary Policy and Rising Prices

I have blogged several times about inflation and monetary policy. Today the House Committee on Financial Services is holding a hearing on monetary policy and price inflation. The line-up of witnesses is stellar. The committee chair, Ron Paul, has asked Lewis E. Lehrman, James Grant, and Joseph T. Salerno to testify. All three should prove very enlightening. Lehrman was a member of the U. S. Gold Commission in 1981 and co-authored the book, The Case for Gold with Ron Paul. James Grant is the best financial writer we have today and Salerno is the best monetary economist alive today. The committee's website has a link to a live video feed for the hearing, which begins at 10:00 am Eastern Time here. You can access the prepared remarks of the witnesses here:

Lewis E. Lehrman, "Statement and Testimony of Lewis E. Lehrman"

James Grant, "Over to You, H. Parker Willis"

Joseph T. Salerno, "Testimony before the U.S. House Committee on Financial Services"

 

Our Legacy of Debt

Yesterday I posted the transcript of David Stockman's lecture "The Forgotten Cause of Sound Money." Stockman documented the river of debt that we plunged into after Nixon closed the gold window in 1971 and how that river became an ocean. For those who consider themselves more visual learners, take a look at these pictures:

Household Debt Outstanding

Federal Government Debt

These are not pretty pictures. Funding government spending by borrowing does not remove our tax burden, it merely moves it to another point in time.

2011 Henry Hazlitt Memorial Lecture: Transcript

Yesterday I posted the video feed to David Stockman's Hazlitt Lecture, "The Forgotten Cause of Sound Money." For those of you who would rather read the lecture rather than watch it, the Mises Institute has generously made it available to all. As Stockman notes, the US Government's response to the financial crisis of 2008 was the quintessential act of crony capitalism.

The triumph of crony capitalism occurred on October 3rd, 2008. The event was the enactment of TARP — the single greatest economic-policy abomination since the 1930s, or perhaps ever.

Like most other quantum leaps in statist intervention, the Wall Street bailout was justified as a last-resort exercise in breaking the rules to save the system. In the immortal words of George W. Bush, our most economically befuddled President since FDR, "I've abandoned free market principles in order to save the free market system."

Based on the panicked advice of Paulson and Bernanke, of course, the president had the misapprehension that without a bailout "this sucker is going down." Yet 30 months after the fact, evidence that the American economy had been on the edge of a nuclear-style meltdown is nowhere to be found.

In fact, the only real difference with Iraq is that in the campaign against Saddam we found no weapons of mass destruction; by contrast, in the campaign to save the economy we actually used them — or at least their economic equivalent.

David Stockman on The Forgotten Cause of Sound Money

This year's Henry Hazlitt Memorial Lecture at the Austrian Scholars Conference was delivered by David Stockman, former budget director under President Ronald Reagan and current investment banker. In his excellent and very thought provoking lecture, "The Forgotten Cause of Sound Money," Stockman documents the far-reaching consequences of leaving the last vestiges of the gold standard in 1971.



He argues that the 2008 financial crisis was the result of leveraged speculation made possible by easy credit fueled by monetary inflation--bad investments that should have been liquidated according to ordinary free market rules. Instead they were papered over with monetary inflation and government spending.

He also explains why we do not see evidence, in the form of higher interest rates, of government borrowing crowding out private borrowing. Continued monetary inflation keeps interest rates artificially low. What has happened to the debt-to-income ratio since 1971 is astounding. The bottom line is that by resorting to monetary inflation and government deficit spending, we are borrowing GDP, not growing it.

Will Japan's Earthquake Be an Economic Boon?

Larry Summers thinks so (HT: Jeff Tucker). It is so sad that, almost like clockwork (to use a timeworn cliche in pointing to another timeworn economic cliche), some economist who has drunk too deeply at the fount of Keynesianism, has already asserted that, because of Japan's earthquake, their economy will receive a short term boost.

How in the world will the destruction of massive amounts of capital and durable consumer goods grow an economy, one may be excused for asking. The answer from Larry Summers and Keynesians like him, is that the Japanese will now have to spend more to rebuild, which will result in a boost to GDP. Of course, however, as I point out to my students, spending does not necessarily equal economic well being. I have already explained on this blog that we should be careful not to confuse GDP with the economy. Instead of spending a lot of yen to rebuild a home. It would be better to still have the home and still have the yen that could be directed to purchasing additional goods that could be used to satisfy even more ends. GDP measures spending as a flow of income, it does not measure wealth.

Summers cites as support for his case, the aftermath of the Kobe earthquake that hit Japan in 1995. It turns out that, according to SG Cross Asset Research, the data reveal that Summers' claim is wrong.

There was a significant decrease in industrial production due to the Kobe earthquake. No matter what certain "experts" say, we cannot achieve prosperity, even in the short-term, by breaking things.

Murphy on Why Only Austrian Economists Understand the True Danger of Bernanke

Last month, Grove City College hosted our annual Austrian Student Scholars Conference. The Conference itself just keeps getting bigger and better. One of the reasons the conference was so good this year is our keynote lectures. Bob Murphy kicked off the conference by delivering the Hans Sennholz memorial lecture entitled "Why Only Austrians Understand the True Danger of Bernanke" The video of the lecture is up so now all can learn the answer.

Austrian Scholars Conference!

The Austrian Scholars Conference is underway! It is the leading conference devoted to scholarship in the tradition of Menger, Bohn-Bawerk, Mises, Hayek, Rothbard, and Sennholz. I and my colleagues, Jeff Herbener and Tracy Miller are attending in person, along with four of our students. For those of you who cannot be here with us, you can watch the festivities via the live video stream from Mises.org. Enjoy and have your mind stretched and your spirits lifted.

Webcam chat at Ustream

Why Do Modern Macroeconomists Get It So Wrong?

I have written before about why inflation and government spending do not provide general prosperity, and yet time and again inflation and increases in government spending are what modern macroeconomists and policy makers call for in the face of tough economic times. Why is this? Why is it that so many professional economists advocate policies that are useless at best and destructive at worst?

Robert Higgs indicates, rightly in my opinion, that a primary reason for such persistent and maddening error is that modern macroeconomists live in a world of extreme aggregation in which the root of all economic phenomena--personal human action--is either downplayed or utterly ignored. Failing to remember the first principles of human action, modern macroeconomists fail to take into account the importance of time in the production process. In doing so, they fail to see that the entire social economy is integrated into a vast, complex, multi-stage structure of production. They further miss, therefore, that entrepreneurs must allocate specific land, labor, and capital goods of the right quality in the right quantity to the right uses at the right time for the entire production structure to be directed toward meeting the most highly valued ends of those who make up society.

Higgs nails it as he explains:

A serious problem lurks, however, in the way the mainstream experts think about the economy, and hence in the kind of analysis they undertake to assess its current performance and its likely future changes. All too often, they model the macroeconomy as a black box into which flow undifferentiated “labor” services and “capital” services and out of which flows a uniform substance called “output,” measured empirically by estimates of real GDP. Units of this output command a price known as the “price level,” measured empirically by the GDP deflator; otherwise, prices play no role in the model. The interest rate plays only a limited role as a determinant of the demand for money and as a minor determinant of saving and investment spending. Time is essentially irrelevant. There is no time structure of production in which certain kinds of production must precede others in a process running from raw materials to intermediate goods to completed consumer goods because, as mentioned, such distinctions among different kinds of goods are ignored in favor of positing a single homogeneous “output.” Just as time plays no role, and hence the interest rate (the price of goods available now relative to goods available later) plays no role in resource allocation, so location does not matter. It’s as though all production took place at a Euclidian point, and therefore no one need worry about, say, the government’s injecting “stimulus” money into Connecticut in order to lower unemployment in Nevada.

The more I consider the opinions of professional economists regarding the causes of the Great Recession and what to do to get out of it, I am increasingly convinced of the importance of doing economic analysis within the right framework--one that takes human action and its implications seriously.

As I explain in the chapter 11 of my book where I introduce the concept of macroeconomics:

The production of every consumer good in the economy is supported by a structure of production. The existence of a production structure for every consumer good has a very important implication for our analysis of the overall economy. Our analysis of the overall social economy must include the entire capital structure. Because all production takes time, if we leave capital out of our analysis, we will be ignoring a key aspect of economic theory that is necessary to explain how production occurs, what leads to economic expansion, and what causes recessions. In short, it is absolutely necessary to understand the production structure in order to understand the workings of the social economy as a whole.

It is not surprising, then, when professional macroeconomists and policy makers, who fail to take into account the nature of the production structure, make such bad policy recommendations.

Miller on Resolving the Transportation Funding Crisis

Last month, my friend and colleague Tracy Miller gave a lecture entitled "Resolving the Transportation Funding Crisis" in the Grove City College Freedom Readers series. This series is designed to introduce college students to the principles of a free economy. He will be presenting a paper entitled, "Moving Toward a Private Transportation System" at this week's Austrian Scholars Conference at the Ludwig von Mises Institute. You can watch Professor Miller's lecture by clicking here.

The Importance of Prices and Private Property for Good Stewardship

Yesterday, I posted a video by Steve Horowitz that, among other things, illustrated how prices help people in society economize on resource development and usage. Some might be tempted to think that his perspective is a decidedly worldly way to look at using resources that God has created.

In fact, economists William L. Anderson and Timothy Terrell, both of whom are devout Christians, have shown that good stewardship from a Christian perspective also requires a functioning price system. I heartily recommend their paper, "Stewardship without Prices and Private Property? Modern Evangelical Environmentalism's Struggle to Value Nature," published in The Journal of Markets and Morality. One of the great virtues of their article is that it speaks directly to the issues raised in a way that is both faithful to Scripture and sound economics.

The abstract of their article reads as follows:

All too often, the Christian social agenda trails world opinion rather than acting decisively to move it in a biblical direction. Christian commentary on environmental issues reveals few exceptions, as some scholars have attempted to repackage the economics of the modern environmental movement in “stewardship” lingo so as to be more palatable to Christians. This article will focus on the economics of some Christian statements on the environment, discussing what we believe to be a serious and pervasive error. Stewardship of nature requires decisions about how to allocate natural resources—decisions that can only be based on comparisons of values. Rejecting the market economy’s methods of obtaining and using information about valuations, some Christian scholars find a moral virtue in placing higher “objective” valuations on nature. If others cannot be coaxed into adopting similar appraisals of nature, these writers suggest that the valuations should be enforced by placing severe constraints on the free-market system and using governmental regulation to move the environment in a direction consistent with their ideals.

In response, we contend that market prices are indispensable in the valuation and allocation of natural resources and that the price system is not inimical to biblical standards. Furthermore, we contend that the “solutions” as proscribed by the modern “stewardship” proponents ultimately collapse when subjected to the same scrutiny that Ludwig von Mises of the Austrian school of economics placed upon socialism. In other words, the “stewardship” paradigm faces the same problems of economic calculation that have doomed socialism.

Are We Running Out of Resources?

Steve Horowitz, Charles A. Dana Professor and Chair of Economics at St. Lawrence University, says no and explains why in this brief, but very informative video.



This is very timely for me, because in my Economic Expansion and Development course we have just got to the section in which we discuss issues of "Sustainable Development." One of the hot issues is resource depletion. Those on what David Osterfeld called "the Catastrophist" side of the argument begin with the assumptions of exponential demand growth and a finite stock of resources and conclude by claiming that the more resources we use, the less we have left; and the faster we use resources, the faster we will run out.

As Horowitz shows, we have good reason to believe this is not the case. As long as the price system is allowed to work, entrepreneurs will have the incentive to produce whatever goods experience relative increases in demand and consumers have the incentive to economize on the same. Both of these phenomena work to increase the quantity of resources available to satisfy our ends.

Terrell's Review of Foundations of Economics is Now Available On-line

Timothy Terrell's review of my book, Foundations of Economics, that appears in the Journal of Markets and Morality is now available on-line by clicking here.

Brittany Cobb on Sound Money

Congratulations goes out to Grove City College economics major Brittany Cobb for writing a winning essay in the undergraduate student division of the Sound Money Essay Content sponsored by the Atlas Economic Research Foundation! Her paper is entitled "The Gold or the Green?," which she recently presented at the Austrian Student Scholars Conference here at Grove City College. Her paper is an excellent survey of the relative strengths and weaknesses of various monetary systems including the gold standard, dollarization, and fiat paper currency. This makes the second year in a row that a Grove City College economics major has won a prize in this essay contest.

Murray Rothbard

Murray Rothbard (1926 - 1995)

If he was still with us, Murray Rothbard would have been 85 years old today.  Rothbard was arguably Mises' brightest American student, who built upon the edifice of Mises' Human Action end went on to erect a grand structure of the economics of liberty. Hans-Hermann Hoppe, his comrade in arms while at the University of Las Vegas wrote an excellent chapter in Great Austrian Economists on the life and work of Rothbard. The chapter is aptly entitled, "Murray N. Rothbard: Economics, Science, and Liberty." A festshrift published in his honor, Man, Economy, and Liberty, contains a fun and valuable article by Gary North in which he explains "Why Rothbard Will Never Win the Nobel Prize." He begins with Rothbard's unpardonable professional sin: he writes so people can understand him. Writing while Rothbard was still living, North points out that Rothbard's professional work had a quality

which categorically bars an economist from ever winning the Nobel Prize in economics: clarity. Murray Rothbard has an addiction: clear, forthright writing. He says what he thinks, and he explains why he thinks it, in easily followed logic. He does not use equations, statistics, and the other paraphernalia of the economics priesthood. He simply takes his readers step by step through economic reasoning, selecting the relevant facts—relevant in terms of the economic logic he sets forth—and drawing conclusions. He gives readers his operating presuppositions; he then marshals the evidence and reaches conclusions. It is an old-fashioned procedure, and decidedly out of favor these days. If you doubt me, pick up a copy of American Economic Review (let alone Econometrica), turn to any page randomly, read it three times to yourself, and offer a brief summary to your wife. Understand, this can be done with Rothbard's books.

North continues, documenting what puts Rothbard's work absolutely beyond the professional pale:

Furthermore, Rothbard does something which is absolutely unacceptable in academia in general and the economics profession in particular. He uses italics. Yes, when he thinks that something is important, he underlines it. How gauche! How utterly unscientific! One is supposed to allow the reader the option of missing the whole point—an option which reputable scholars exercise frequently, if not continually.

His ability to explain uncountable profound economic insights with such clarity is why I have his photo hanging in my office.

Mises Quote of the Day: Monetary Inflation is No Remedy

It seems that Tim Geithner's stock (reputational, not financial) is riding high two years after the financial crisis became impossible to recognize. The man himself claimed recently that the economy is in a "much stronger position than it was before the crisis" two years ago. Along with Bernanke, Geithner is credited by many with stabilizing our financial system via TARP and bailing out Fannie Mae and Freddie Mac so as to forestall another Great Depression. With unemployment persisting between 9 and 10 per cent, however, it seems to me that the jury is still out regarding the health of our economy. What may appear as economic health, may merely be another inflated stock market. Let us not forget that the stock market was looking pretty robust immediately before the crash of 2009.

All of this brings to mind a passage from Ludwig von Mises' Monetary Stabilization and Cyclical Policy (written in 1928) I read recently. In a section evaluating monetary inflation as a policy response to a recession once it begins, he writes:

It may well be asked whether the damage inflicted by misguiding entrepreneurial activity by artificially lowering the loan rate would be greater if the crisis were permitted to run its course. Certainly many saved by the intervention would be sacrificed in the panic, but if such enterprises were permitted to fail, others would prosper. Still the total loss brought about by the “boom” (which the crisis did not produce, but only made evident) is largely due to the fact that factors of production were expended for fixed investments which, in the light of economic conditions, were not the most urgent. As a result, these factors of production are now lacking for more urgent uses. If intervention prevents the transfer of goods from the hands of imprudent entrepreneurs to those who would now take over because they have evidenced better foresight, this imbalance becomes neither less significant nor less perceptible.