Murray Rothbard is well-known as one of the greatest exponents of praxeology, which operates through a priori reasoning. He was careful, however, to distinguish praxeology from history. The latter could be studied only through empirical investigation. In this week’s column, I’d like to discuss some observations he makes about this in For a New Liberty, which was published fifty years ago.

On Tuesday, Representative Kevin McCarthy (R-CA) was ousted as Speaker of the House. This came days after the former Speaker struck a forty-five-day spending deal with House Democrats to keep the government funded.

Federal spending is so out of control that it only took three months for the federal debt to increase by one trillion dollars to over 33 trillion dollars. In contrast, it took almost 200 years for the federal debt to reach one trillion dollars. So the federal government racked up more debt in the last three months than it did from the ratification of the US Constitution until Ronald Reagan’s first term! There will be even more shocking increases in the future since, according to some experts, federal debt is increasing by approximately 14 billion dollars a day.

Admittedly, this idea sounds bad. Both “sell out” and “selling out” have a bad odor to them. Rather, we should “stand firm!” And there is nothing like perking up that patriotic spirit that compares to bashing supposed foreign enemies. However, there are deep and dire problems with this attempt at demagoguery.

By popular thinking, whenever the central bank raises the growth rate of the money supply through the buying of financial assets such as Treasuries this pushes the prices of Treasuries higher and their yields lower. This is labeled as the monetary liquidity effect. This effect is inversely correlated with interest rates.

Furthermore, an increase in the money supply after a time lag strengthens economic activity and this pushes interest rates higher. Note that we have here a positive correlation between economic activity and interest rates.