One of the great ironies of American politics is that most politicians who talk about helping the middle class support policies that, by expanding the welfare-warfare state, are harmful to middle-class Americans. Eliminating the welfare-warfare state would benefit middle-class Americans by freeing them from exorbitant federal taxes, including the Federal Reserve’s inflation tax.
Joe Salerno, like Ludwig von Mises, is not only a great economist but a great teacher of economics as well. Since 2005, he has been in charge of the Mises Institute Summer Fellows program. In this program, graduate students spend a summer at the Institute. They engage in regular discussions; and, under Joe’s direction, they prepare a research paper. He has a masterly ability to discern at once the direction in which a student’s argument is heading.
Mises Institute: How did you first learn about Austrian economics and the Mises Institute?
Most of the United States west of the 100th meridian is very dry. But back in the 19th century, when a period of unusually wet growing seasons was observed in the American West, many claimed it was proof that God was sending rain to help the white man settle the West, which had formerly been much more arid. God had withheld the rain from the “savages,” but now that the Americans had arrived, “the Great American Desert” as it had often been called, was going to turn green.
Since I’m not a person who follows the climate-change debate or climate science in detail, I don’t get involved in discussions over temperature readings or climate trends. On the other hand, I find it’s a very bad idea to leave the science of economics and political economy up to climate scientists and their friends in politics who tend to be woefully deficient in their knowledge of how economies work or how scarce goods and amenities can be preserved, obtained, or manufactured.
Mises Daily Tuesday by Patrick Barron:
A recent report commissioned by the prime minister of Iceland calls for limits on the money supply through ending fractional reserve banking and deposit insurance. Unfortunately, the report also calls for nearly unlimited control of the money supply by the central bank.
16. Schumpeter’s Theory of Business Cycles
Joseph Schumpeter’s business cycle theory is one of the very few that attempts to integrate an explanation of the business cycle with an analysis of the entire economic system. The theory was presented in essence in his Theory of Economic Development, published in 1912.
17. Further Fallacies of the Keynesian System
In the text above, we saw that even if the Keynesian functions were correct and social expenditures fell below income above a certain point and vice versa, this would have no unfortunate consequences for the economy. The level of national money income, and consequently of hoarding, is an imaginary bogey. In this section, we shall pursue our analysis of the Keynesian system and demonstrate further grave fallacies within the system itself.
18. The Fallacy of the Acceleration Principle
The “acceleration principle” has been adopted by some Keynesians as their explanation of investment, then to be combined with the “multiplier” to yield various mathematical “models” of the business cycle. The acceleration principle antedates Keynesianism, however, and may be considered on its own merits. It is almost always used to explain the behavior of investment in the business cycle.
The essence of the acceleration principle may be summed up in the following illustration:
A. Interest and Investment
Investment, though the dynamic and volatile factor in the Keynesian system, is also the Keynesian stepchild. Keynesians have differed on the causal determinants of investment. Originally, Keynes determined it by the interest rate as compared with the marginal efficiency of capital, or prospect for net return. The interest rate is supposed to be determined by the money relation; we have seen that this idea is fallacious. Actually, the equilibrium net rate of return is the interest rate, the natural rate to which the bond rate conforms.
