Janet Yellen was answering at the “Finance and Society” conference in Washington DC from Christine Lagarde, the Director of the International Monetary Fund when she said:
“I would highlight that equity market valuations at this point generally are quite high,” Yellen said. “There are potential dangers there.”
A new Polish translation of Hans-Hermann Hoppe’s A Theory of Socialism & Capitalism (Teoria socjalizmu i kapitalizmu), is now available here from the Mises Institute of Poland. (translated by Paweł Nowakowski).
I wish I could say that the recent events in Baltimore are shocking, but in the larger scheme of things, I only can wonder why it took this long for violent unrest to hit that city in the wake of police brutality.
Appendix B: “Collective Goods” and “External Benefits”: Two Arguments for Government Activity
One of the most important philosophical problems of recent centuries is whether ethics is a rational discipline, or instead a purely arbitrary, unscientific set of personal values. Whichever side one may take in this debate, it would certainly be generally agreed that economics—or praxeology—cannot by itself suffice to establish an ethical, or politico-ethical, doctrine. Economics per se is therefore a Wertfrei science, which does not engage in ethical judgments.
12. Conclusion: The Free Market and Coercion
We have thus concluded our analysis of voluntary and free action and its consequences in the free market, and of violent and coercive action and its consequences in economic intervention. Superficially, it looks to many people as if the free market is a chaotic and anarchic place, while government intervention imposes order and community values upon this anarchy. Actually, praxeology—economics—shows us that the truth is quite the reverse. We may divide our analysis into the direct, or palpable, effects, and the indirect, hidden effects of the two principles.
Appendix A: Government Borrowing
The major source of government revenue is taxation. Another source is government borrowing. Government borrowing from the banking system is really a form of inflation: it creates new money-substitutes that go first to the government and then diffuse, with each step of spending, into the community. Inflation is discussed in the text above. This is a process entirely different from borrowing from the public, which is not inflationary, for the latter transfers saved funds from private to governmental hands rather than creates new funds.
D. The Limits of Credit Expansion
Having investigated the consequences of credit expansion, we must discuss the important question: If fractional-reserve banking is legal, are there any natural limits to credit expansion by the banks? The one basic limit, of course, is the necessity of the banks to redeem their money-substitutes on demand. Under a gold or silver standard, they must redeem in specie; under a government fiat paper standard (see below), the banks have to redeem in government paper. In any case, they must redeem in standard money or its virtual equivalent.
E. The Government as Promoter of Credit Expansion
Historically, governments have fostered and encouraged credit expansion to a great degree. They have done so by weakening the limitations that the market places on bank credit expansion. One way of weakening is to anesthetize the bank against the threat of bank runs. In nineteenth-century America, the government permitted banks, when they got into trouble in a business crisis, to suspend specie payment while continuing in operation.
F. The Ultimate Limit: The Runaway Boom
With the establishment of fiat money by a State or by a World State, it would seem that all limitations on credit expansion, or on any inflation, are eliminated. The central bank can issue limitless amounts of nominal units of paper, unchecked by any necessity of digging a commodity out of the ground. They may be supplied to banks to bolster their credit at the pleasure of the government. No problems of internal or external drain exist.
G. Inflation and Compensatory Fiscal Policy
Inflation, in recent years, has been generally defined as an increase in prices. This is a highly unsatisfactory definition. Prices are highly complex phenomena, activated by many different causal factors. They may increase or decrease from the goods side—i.e., as a result of a change in the supply of goods on the market. They may increase or decrease because of a change in the social demand for money to hold; or they may rise or fall from a change in the supply of money.
