What lies ahead is undoubtedly a rather sensitive chapter in the boom-and-bust-cycle drama caused by US monetary policy: the US Federal Reserve System (Fed) is about to end its ultraeasy course. The reason: after many years of exceptionally low interest rates—with most real, i.e., inflation-adjusted, interest rates even in the negative territory—and a huge inflow of newly created money to the economic and financial system, goods price inflation is rearing its ugly head.
Chapter 17: An Austrian Reaction to Modern Monetary Theory (MMT)
The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy
by Stephanie Kelton
New York: PublicAffairs, 2020, 336 pp.
If you did any Fed watching this week, you probably heard all about how Jay Powell has turned (or perhaps returned) to hawkishness, and how the Federal Open Market Committee is all about fighting price inflation now.
Chapter 16: Bitcoin and the Theory of Money
In a modern primer on money mechanics, it is necessary to provide at least an introduction to Bitcoin.
Consequently, in this chapter we will first give a basic explanation of what Bitcoin is and how it works.
Chapter 15: The “Market Monetarists” and NGDP Targeting
In addition to the Keynesian perspective (covered in chapter 14), a relatively new challenge to the Austrian framework comes from the “market monetarists” and their endorsement of a central bank policy of “level targeting” of nominal gross domestic product (sometimes abbreviated as NGDPLT
).
Chapter 14: Keynesians on the Cause of, and Cure for, Depressions
In chapter 8 we presented Ludwig von Mises’s explanation of how bank credit expansion causes the boom-bust cycle, what is now known as Austrian business cycle theory. However, the reigning view today in both academia and the popular media is the Keynesian explanation, derived from John Maynard Keynes’s famous 1936 book The General Theory of Employment, Interest, and Money.
Chapter 13: Crying Wolf on (Hyper)Inflation?
In chapter 9 we explained the connection between monetary inflation and price inflation, and warned that there is no simple one-to-one relationship. This fact has been very relevant in the wake of the various rounds of quantitative easing (QE) that the Federal Reserve implemented after the financial crisis of 2008. The following chart shows the huge increase in the monetary base since 2008:
Figure 1: Monetary Base
Throughout much of the past century, the idea of a gold standard for national currencies has been routinely linked with laissez-faire economics and “classical liberalism”—also known as “libertarianism.” It’s not difficult to see why. During the second half of the nineteenth century—as free-market liberalism was especially influential in much of Western Europe—it was the liberals who pushed for the adoption of the system we now know as the classical gold standard (CGS), which reigned supreme in Europe from approximately 1870 to 1914.
In this week’s column, I’d like to discuss an important criticism of the modern state that the historian Martin van Creveld raises in his classic book The Rise and Decline of the State (Cambridge University Press, 1999). By “state,” Van Creveld means something different from contemporary libertarians, for whom the state means a person or group exercising a monopoly over coercion in a territory.
Van Creveld has something less broad in mind.
