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The Nondismal Science

February 9, 2010

Tags Free MarketsMoney and BanksBusiness CyclesMonetary Theory

Understanding the Dollar Crisis

[Libertarian Forum, 1974]

Economics is not a dry subject. It is not a dismal subject. It is not about statistics. It is about human life. It is about the ideas that motivate human beings. It is about how men act from birth to death. It is about the most important and interesting drama of all — human action.

Thus, Percy Greaves launched his very readable book, Understanding the Dollar Crisis, concerned with explaining to the general reader economics in general and monetary matters in particular. The book is based on the lectures that Greaves presented to the Centro de Estudios sobre la Libertad in Buenos Aires at the invitation of Alberto Benegas Lynch.

Greaves's experience as an economic author began as a financial editor for the United States News. During World War II he was research director of the Republican National Committee until he resigned because of the party's shift to support for federal aid to education, public housing, etc. During 1945–46 he was Chief of the Minority (Republican) Staff of the Joint Congressional Committee on the Investigation of the Pearl Harbor Attack, and in 1947 was a congressional expert in drafting the Taft-Hartley Law.

For the past quarter century, Greaves has been a noted economic columnist and lecturer (Freedom School and Foundation for Economic Education), and Armstrong Professor of Economics at the University of Plano in association with Professor Mises.

The first part of the work, concerned with general economics, presents a clear analysis of the misunderstanding of value by the classical economists, and the rectification by the Austrian School. Greaves's fine summary of the position of mathematics in economics deserves quotation.

Mathematics in the field of economics is always statistics, and statistics are always history. Mathematics cannot and does not enter into measuring the ideas or values that determine human action. There are no constants in these. There is no equality in market transactions. Therefore, mathematics does not apply. The use of mathematics requires constants. Mathematics cannot be used in economic theory.

He notes a debate between Walter Heller and Milton Friedman that was described as "a readable exchange between two of the nation's best-known economists who take contrasting views of government's role in managing the national economy." (Emphasis added by Greaves.)

A fine critique is presented of the fallacies of Friedman's monetary thought. As Greaves notes, Friedman is a good economist in areas such as labor economics or foreign aid. Unfortunately he does not stick to matters that he understands, but dabbles in monetary theory. One may judge the correctness of one's monetary theory by the distance of the economist from the president's ear.

Basing himself on Böhm-Bawerk and Mises, Greaves undertakes a thorough historical analysis of modern American monetary problems. He calls to mind the anti-inflation writings of Pelatiah Webster (1726–1795). The center of his attention is the monetary and banking policies of the 1910s and 1920s, and the special relationship of the New York Federal Reserve Bank and the Bank of England. Of special importance was Churchill's 1925 blunder of overvaluing the English pound; it ranks along side his 1940 foreign policy as the Alpha and Omega of England's total decline.

Greaves details the role of foreign policy and war as the steps used by the New Deal to escape the consequences of its economic programs. War production and Lend-Lease to the Allies was financed by increases in the money supply ($46.5 billion at the end of 1938 and $64.5 billion at the end of 1941).

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Greaves also shows the very important relationship between inflation of the money supply after World War II, the Marshall Plan, and foreign-aid programs; this analysis is must reading.

Especially good is Greaves's discussion of the "Effect of Wage Rate Intervention," and his critique of publicly financed education.

Anyone who understands the benefits of competition must hold that the system that is best for producing what people want most through the market forces is also the best system for producing the best education.

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This review originally appeared in the Libertarian Forum, Vol. 6, No. 9 (1974), pp. 7–8.Download PDF

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