Man, Economy, and Liberty

12

Murray Rothbard as
Investment Advisor

Mark Skousen

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

John Maynard Keynes

It may seem inappropriate to cast Murray Rothbard as an investment advisor, since by profession he is an academic economist who is largely disinterested in personal investment strategies. Nevertheless, Professor Rothbard has been the ideological mentor of most of the major investment advisors, writers and entrepreneurs in the “hard money” movement, including Harry Browne, Gary North, Jerome F. Smith, John Pugsley, Julian Snyder, James U. Blanchard, III, Richard Band, and myself. Others, such as Howard Ruff and Douglas R. Casey, have been influenced by Rothbard indirectly through the writings of Harry Browne. Rothbard’s writings, especially those published in the early 1960s, greatly affected their way of looking at the effects of government economic policy on the financial world. His popular works provided the theoretical foundation for investing in precious metals, foreign currencies, and other “hedges” against inflation or monetary crises.1

There are, of course, other “free market” economists who also greatly contributed to the hard-money movement. Alexander P. Paris mentions Friedrich A. Hayek, current leader of the “Austrian” school of economics.2 James Dines credits the French economist Jacques Rueff.3 Donald J. Hoppe says he was influenced by E. C. Harwood, who founded the American Institute for Economic Research in Great Barrington, Massachusetts, and Dr. Elgin Groseclose, author of Money and Man, a book which Hoppe considered a “classic.”4 In addition to Rothbard, Gary North credits Ludwig von Mises, F. A. Hayek, and Hans Sennholz.5 Hans Sennholz, both an academic economist and avid speculator, was influenced by Wilhelm Röpke and Ludwig von Mises. John Pugsley praises, in addition to Rothbard, the works of Henry Hazlitt, especially his Economics in One Lesson; “I probably would never have written this book [Common Sense Economics] but for his inspiration.”6 Harry Browne acknowledges the influence of several other economists besides Rothbard, including Hazlitt, Mises and Milton Friedman.7

But it is apparent from hard-money books and articles that Rothbard has had the broadest appeal and is the chief intellectual architect of the hard-money movement. Harry Browne says, “Rothbard has had far greater influence than Mises on the popular ‘hard money’ investment community, although some writers have read only Rothbard’s popular pamphlets and pay him lip service.” Undoubtedly it was Rothbard’s ability to write to laymen in a lucid, practical fashion that made him so influential. As one of the members of the hard-money movement, Larry Abraham, states, “Murray Rothbard is the best popularizer of the ‘Austrian’ school of economics who has ever lived.”

Are Economists Superior Investors?

While Professor Rothbard’s theoretical and historical writings have had a significant impact on hard-money investment advisors, this fact does not mean that he considers himself an investment counselor or even a gifted speculator. Rothbard freely admits that his investment advice, which he occasionally proffers, has been wrong from time to time. Moreover, he has suffered incredibly bad luck in the stock market, according to his own account. For example, in 1956, he bought shares in Shell Oil, only to see the value of the stock plummet when Egypt nationalized the Suez Canal the very next day. On another occasion, he bought some cheap “junk” bonds, only to see them delisted the following week. Investment advisor Douglas R. Casey says that he once called Rothbard in the mid-1970s and tried to talk him into buying South African gold shares, which at the time were selling at bargain prices, but he wasn’t interested. Rothbard says he has primarily lost money based on “inside tips” from brokers. He has since then become much more conservative, putting most his savings into money market funds and a few gold coins.

Of course, some economists have done well as investors. The British economist John Maynard Keynes was considered an astute foreign currency speculator, “dealing in rupees, the dollar, the French franc, the German mark, and the Dutch florin.” He made several highly profitable trades, often while “still in bed in the morning.”8 However, the belief that Keynes was a consistent profiteer taking advantage of sources inside government is probably mistaken. Like most speculators, he also lost money frequently. He almost went bankrupt in 1920, when he shorted the German mark, and took severe losses in the 1937 stock market collapse.9 Still, Keynes became well-to-do and considered financial success a sign of a “versatile genius.” In his Essays in Biography, Keynes praised Sir Isaac Newton as not only a preeminent scientist, but a successful investor who survived the South Sea Bubble fiasco and died a rich man.10

There is no evidence to indicate that the financial performance of economists is any better than other professions. Some contemporary economists, such as Paul A. Samuelson and Milton Friedman, have become wealthy, but they have done so primarily because of their business—through teaching, writing, and lecturing—not from their investments. Indeed, if one evaluates Rothbard’s financial performance in terms of his own business, which also comes from teaching, writing, and lecturing, he would be rated highly successful compared to the average income level of academic economists.

One might think, initially, that sound economic theory should lead to correct economic predictions, which, in turn, should result in superior personal money-making strategies. Certainly, that is the implication of the hard-money investment advisors. Jerome Smith, for example, writes on the value of using sound economic principles:

Its application permits us to determine where we are, approximately, in any given cycle and, more importantly for investment decisions, what the next stage of the cycle is, approximately when it will begin, and its probable impact on various investment categories… . Austrian economists have developed techniques of economic analysis which allow them to understand these secondary effects of government intervention and, based on microeconomic analysis of the impact of these interventions on acting individuals, to forecast the range of distorting and damaging consequences that follow the obvious immediate impact.11

Economists’ Ability to Forecast

However, there are many reasons why economic analysis may not lead to correct economic forecasts or sound investment advice. There could be a sizeable slip twixt the “theoretical” cup and the “investment” lip.

Making predictions and investment decisions depend on a complex set of factors. Hayek has written:

The value of business forecasting depends upon correct theoretical concepts… . Every economic theory … aims exclusively at foretelling the necessary consequences of a given situation, event or measure. The subject-matter of trade cycle theory being what it is, it follows that ideally it should result in a collective forecast showing the total development resulting from a given situation under given conditions. In practice, such forecasts are attempted in too unconditional a form, and on an in-admissibly over-simplified basis: and, consequently, the very possibility of scientific judgments about future economic trends today appears problematical, and cautious thinkers are apt to disparage any attempt at such forecasting.12

Forecasting is extremely difficult because financial data, such as interest rates, the inflation rate and the prices of commodities, stocks and other investments, are determined by a myriad of supply and demand factors, both major and minor, which are constantly undergoing change. The markets are in continual disequilibrium, and, in fact, as Ludwig Lachmann states, “Relative prices change every day … a price system implying a uniform rate of profit and wage cannot exist. The forces tending to bring it about will always be weaker than the forces of change.”13

Take interest rates as an example. Why is the movement of interest rates difficult to predict? Because they depend on both the supply and demand for money. Suppose, for instance, that the Federal Reserve starts a massive inflation. If the government has not previously been inflationary, interest rates may drop as the supply of money increases. However, the drop in interest rates is only temporary. As nominal incomes increase, the demand for money rises, which pushes interest rates up. This is the general scheme of events.

Economics may properly determine the direction that interest rates may take, but it is extremely difficult to determine when interest rates will start changing direction and by how much. As Rothbard notes, such decisions are “quantitative” in nature, while economics can only properly deal with “qualitative” changes. “There are no constant numerical relations in human action, and therefore there are no coefficients that can be included … that are not simply arbitrary and erroneous. Economic theory is and can only be qualitative—not quantitative.”14 It’s up to professional speculators and entrepreneurs to try to predict and profit from “quantitative” changes.

The whole scenario can change radically, too, if the government has inflated in the past and the general public starts to anticipate the effects of high prices. The result may be an immediate rise in interest rates when the government starts inflating again. Inflationary expectations play a major role in determining interest rates, both long and short term.15

The outlook for inflation is another case in point. Rothbard, in the various introductions to his book, America’s Great Depression, has consistently pointed out the inflationary nature of government policies. In the perennial “inflation-deflation” debates that go on at investment seminars, Rothbard has consistently been on the inflationist side, arguing that higher consumer prices are practically inevitable: “As long as the Federal Reserve has the unlimited power to inflate, and the will to inflate, it will not stop inflating. It’s inevitable. Even in the deep recession of ’82, we still had inflation. Sometimes more inflation, sometimes less. But always inflation.”16

But Rothbard has not pretended to know the rate of inflation, nor by how much it will vary from year to year. One of the principal reasons why the rate of inflation is difficult to predict, as Rothbard clearly demonstrates, is that the central bank’s fiat monetary system affects both relative prices and the production of various goods and services. There can be no scientific way to measure a “general price level.” One can only look at “relative” prices as they relate to the structure of production, from capital goods to final consumer products. The monetarists’ Quantity Theory of Money and alleged long-run neutrality of money is rejected.17 Monetary inflation, no matter how large or small, causes a business cycle and malinvestments, particularly in the capital goods markets. Because of malinvestments, it’s possible to have both a “recession” and an “inflation” at the same time. Rothbard was the first economist to offer a practical explanation of the phenomenon of “inflationary recession.” As Rothbard states,

… the prices of consumer goods always tend to rise, relative to the prices of producer goods, during recessions. The reason that this phenomenon has not been noted before is that, in past recessions, prices have generally fallen…. But, in the last few decades, monetary deflation has been strictly prevented by government expansion of credit and bank reserves… . The result of the government’s abolition of deflation, however, is that general prices no longer fall, even in recessions… . Hence, the prices of consumer goods still rise relatively, but now, shorn of general deflation, they must rise absolutely and visibly as well.18

The Importance of Timing

Timing is critical in making investment decisions. Rothbard’s outlook for continued inflation might suggest investing in gold and other inflation hedges, yet a fall in the rate of inflation can have an adverse effect on “inflation hedges” for many years. For example, when inflation was generally rising in the 1970s, gold rose to nearly $850 an ounce by January, 1980, only to fall back to under $300 an ounce when the rate of inflation significantly dropped during the first half of the 1980s.

In short, investing is an art, not a science. It requires unusual skill and keen interest, and the ability to forecast accurately based on assessing a myriad of supply and demand factors and investment psychology.

Given the complexity of the economic and financial world, it is not surprising that economists have made serious blunders in their predictions and investment advice. Perhaps the most egregious prediction was made by Yale economist Irving Fisher, when he stated, “stock prices have reached what looks like a permanently high plateau. . . . I expect to see the stock market a good deal higher than it is today within a few months” on October 16, 1929, a few days prior to the stock market crash.19

Even in recent times, sophisticated econometric programs developed by economists in conjunction with high-speed computers have not fared well. The record of most of them in predicting the future of the economy has been dismal.20

How about the “Austrian” economists? It’s difficult to assess their ability to make predictions. Early in his career, Ludwig von Mises was offered a high position at the Credit Anstalt, the largest bank in Austria, but he refused because he expected a great “crash” to be coming and he didn’t want his name associated with it. He was proven correct when Credit Anstalt went bankrupt and precipitated the depression in Europe in the 1930s.21

In recent times, however, the forecasts of “Austrian” economists have been mixed. They were largely correct in their predicting higher inflation, higher interest rates, the fall of the dollar, and the rise in the prices of gold and silver in the late 1960s and 1970s. But in large measure they failed to see the reduction in inflation and interest rates in the 1980s. As Hans Sennholz, professor of economics at Grove City College, admits, “The 1980s took us by surprise.”

It is no wonder, as financier Bernard Baruch once remarked, that “I think economists as a rule … take for granted they know a lot of things. If they really knew so much, they would have all the money and we would have none.”22 Rothbard says practically the same thing: “If someone were really able to forecast the economic future, he wouldn’t be wasting his time putting out market letters or econometric models. He’d be busy making several trillion dollars forecasting the stock and commodity markets.”23

The Mind of the Speculator

Recent research, particularly by Eastern schools of thought, has shown that the world of investing is distinct from the academic world of economic analysis. The analytical and deductive mind, used by economists, is separate from the intuitive and emotional mind. Bennett W. Goodspeed makes this point in his intriguing book, The Tao Jones Averages:

Looking at the brain and how it operates, it is interesting to see that we have two brains within our neocortex: a left and right hemisphere. Furthermore, each person is dominated by either one side or the other… . our left hemisphere, which controls the right side of the body, is analytically oriented. It reasons logically and sequentially and is responsible for our speech. It is adept at math, accounting, languages, science, and writing. . . . Our right-brain hemisphere, which controls the movements of the left side of the body, is unique. It operates non-sequentially, is intuitive, artistic, has feelings, is gestalt-oriented (sees the forest and not just the trees), and controls our visual perceptions.24

According to Goodspeed, left-brain oriented professions include most lawyers, editors, doctors, scientists, researchers and analysts, dancers, politicians, and entrepreneurs.25 The point of Goodspeed’s book is that a successful investor must use both sides of the brain effectively, relying on both in-depth research and analysis (left brain) and intuitive feelings (right brain).

Interestingly, Rothbard’s method of reasoning is primarily a priori,26 which fits the “left brain” analytical side, while successful investing usually requires a strong “right brain” artistic approach, according to Goodspeed. This may be one explanation of why Rothbard has shown little interest in giving investment advice or speculating in the markets.

Charles Hession, in his biography of John Maynard Keynes, argues that Keynes was both a creative economist and successful speculator because he was in essence “dual-minded,” in a similar sense described by Goodspeed.

In modern analyses of creativity there is a pronounced tendency to conceive it as a rhythmic process involving an interplay between opposite aspects of the mind…. more recently, students of the lateral functioning of the brain have stressed that it is the polarity and integration of the two hemispheres, the complementary workings of the intellect and of intuition, which underlie creative achievement….”27

Hession goes further to suggest that Keynes’ androgynous behavior was, in part, responsible for this creative ability, combining “the masculine truth of reason and the feminine truth of imagination.”28 Goodspeed’s thesis also suggests that the left-brained analytical side is usually more developed in males and the right-brained intuitive side is usually more developed in females, and that men or women who adopt both sides of the brain might be more creative and entrepreneurial.29

Rothbard also recognizes the necessity of skill and intuition to be successful in business or finance. “Forecasting on the market is the function of the entrepreneur, and entrepreneurship in the final analysis is an art rather than a science, a matter of intuition, hunch, and deep insight into the slice of the market that the entrepreneur knows and is dealing with.”30

The Personal Goals of the Economist

The study of finance and business is not the same as the study of economics. They are related fields, but being knowledgeable in economics does not make one an expert in finance. An academic economist may be totally engrossed in the theory of interest rates, inflation, or foreign trade, while showing little interest in the investment vehicles which profit from movements in interest rates, inflation and foreign trade. Some economists such as Keynes find the markets intriguing, others like Rothbard find them uninteresting.

An academic economist can certainly use the principles of economics to make investment decisions, but it is purely a voluntary decision which many economists eschew. In fact, many well-known economists such as Milton Friedman refuse to give investment advice when asked publicly. If there is one thing economists recognize, it’s the fact that time is a scarce commodity and one cannot do everything in this lifetime. Therefore one must allocate his time to achieve his most desired goals. These goals are not always materialistic.

As successful short-term traders know, keeping track of your speculative investments is a full-time job and can keep you from achieving many other non-pecuniary goals you may have. The troubles and sorrows connected with substantial wealth can be counter-productive.

Being “rich” does not necessarily mean financial wealth. It can mean richness in wisdom, creative ideas, and charity toward mankind. Rothbard spends most of his time working on books and articles that will live far beyond his time. They are “classics” which will be read a hundred years from now, far after the dust gathers on today’s popular titles. As economist Leon Walras once commented, “If one wants to harvest quickly, one must plant carrots and salads; if one has the ambition to plant oaks, one must have the sense to tell oneself: my grandchildren will owe me this shade.”

In conclusion, perhaps Murray Rothbard would agree most with his teacher, Ludwig von Mises, who told his new wife, Margit, “If you want a rich man, don’t marry me. I am not interested in earning money. I am writing about money, but will never have much of my own.”31

Hard-Money Response to Monetary Crises:
Assessing Rothbard’s Impact

Rothbard wrote a series of books and pamphlets which were published in the early 1960s which had a great impact on the hard-money movement. There were several major economic events which triggered the creation of the hard-money movement: the silver coin shortage in the United States in 1963-64, the dollar crisis in 1968-71, and the inflation crisis and commodity shortages of the 1970s.

Rothbard’s popular works appeared a few years prior to this series of economic crises. The first book, Man, Economy, and State, published in 1962, was a treatise on economic principles and appealed primarily to a small group of dedicated followers who had some form of economic training.32 In fact, most regard it as a graduate text in its degree of difficulty. Nevertheless, the book had a tremendous impact because it elucidated the principles of the free market, following in the footsteps of Rothbard’s teacher, Ludwig von Mises, and his magnum opus, Human Action. Moreover, Man, Economy, and State offered a full-scale critique of Keynesian economics, practically the only type of economic doctrine being taught in colleges in the 1960s. It was a breath of fresh air. When first exposed to Rothbard’s magnum opus, the reaction of students of free-market economics seemed like Paul A. Samuelson’s when he had read Keynes’s General Theory: “Bliss was it in that dawn to be alive, but to be young was very heaven!”

As far as popularity was concerned, the next two works were far more significant for the intelligent layman. America’s Great Depression, a revisionist history of the Great Depression in the 1930s, came out a year later, in 1963.33 It explained in lucid terms the basics of a business cycle and why government monetary inflation was the cause of booms and busts, not the free market. It also offered a devastating critique of Keynesian and other business cycle theories. Investment writer John Pugsley wrote, “Dr. Rothbard’s America’s Great Depression was both shocking and exciting in its revelation of the causes of the economic debacle in the thirties. I have always been impressed by careful scholarship and adherence to scientific principles, and Dr. Rothbard’s book was a fine example of both.”34

Rothbard’s next work, a 60-page pamphlet called What Has Government Done to Our Money?, published in 1964, probably had the greatest impact of any short work.35 What The Communist Manifesto was to Marxists, Rothbard’s What Has Government Done was to the hard-money movement. The booklet was highly influential because for the first time it explained in simple, understandable terms what money is all about. It took away the mystique of the dollar and foreign currencies. It explained the creation of money all the way from barter to the modern fiat money system. It showed the ill-effects of government’s meddling with money, why central banking was inflationary, and the monetary breakdown of the West. Finally, he demonstrated that the only stable monetary system was a return to a pure gold standard.

Financial writer Gary North recalls the influence Rothbard’s works, especially Man, Economy, and State, had on him during the silver coin shortage in 1963-64. Rothbard’s writings demonstrated how going off the gold standard allowed the government to be more and more inflationary. Meanwhile, the government had established a controlled price for silver at $1.29 an ounce. As inflation worsened, a shortage of silver coins was inevitable. This was interpreted by many free-market economists as an example of Gresham’s Law, which stated that “bad money drives out good money.” It was named after Sir Thomas Gresham, founder of the English Royal Exchange, who lived in the sixteenth century during the reign of Queen Elizabeth I. According to Gresham’s Law, if the government made two commodities equal in price, the overvalued (“bad”) commodity will circulate, while the undervalued (“good”) commodity will disappear. If two coins of equal nominal value are circulating, the one with the highest intrinsic value will be hoarded and the one with the lower intrinsic value will be spent. As John Pugsley states, “When you find you have a silver quarter and a copper plated quarter, you’ll naturally follow Gresham’s Law by keeping the silver and spending the copper.”36

North states, “In 1962, I read Rothbard’s Man, Economy, and State. After reading his section on Gresham’s Law, I knew that silver dimes and quarters would gradually become scarce, and I started hoarding the coins. In the fall of 1963, the crisis hit and silver coins disappeared from the big cities. The U.S. Mint had to introduce non-silver coins in 1964 to avert a nationwide shortage of small coins.”37

After the silver coin shortage of 1963-64, the conservative publishing house, Arlington House, under Neil McCaffrey, began publishing a series of books on hard-money topics. One of the most popular books in 1966 was Wooden Nickels, by William F. Rickenbacher, who discussed the “decline and fall of silver coins” in America, and how to profit from it. Rickenbacher said he had been influenced by Henry Hazlitt and Elgin Groseclose. He recommended buying silver coins and silver mining stocks.38 This book was followed by another in 1968, Death of the Dollar, in which Rickenbacher predicted the “inevitability” of more inflation, a devaluation of the dollar, and a rise in the dollar price of gold. In the final chapter, he recommended investing in collectibles, rare coins, real estate, gold and silver shares, and silver coins.39

By far the most popular financial book published by Arlington House was Harry Browne’s How You Can Profit from the Coming Devaluation in 1970. It reached the New York Times bestseller list, and eventually sold nearly half a million copies (including paperback). Browne’s book took a more direct investment approach than Rickenbacher’s and also came at a more opportune time; the dollar was reaching a crisis stage in the foreign exchange markets in the early 1970s at the time when Browne’s book was published. In his breakthrough work, Browne correctly predicted the devaluation of the U.S. dollar and the rise in the price of gold. “The greatest influence on my thinking at the time was Rothbard,” Browne said. In the “acknowledgements” section of the book, Browne credits Rothbard: “In the field of money, the most important help has come from the writings of Murray Rothbard.” He cites several of Rothbard’s works: What Has Government Done to our Money?, America’s Great Depression, and the Panic of 1819. Using principles developed by Rothbard and other free-market economists, Browne concluded that the fixed exchange rate system and the fixed gold price ($35 an ounce) were in essence forms of price controls. Therefore, a run on gold and the dollar were almost inevitable, which in turn could only mean an “official devaluation,” according to Browne. The devaluation occurred in 1971, soon after Browne’s book came out.

Browne used Gresham’s Law as an investment tool. “A good example of this took place in the United States during 1964 and 1965. The dollar was continuing to depreciate rapidly. American citizens couldn’t legally own gold. But silver coins were available. At that time, the value of the silver in a silver coin was slightly less than the face value of the coin (a silver quarter had about 23 cents worth of silver in it). But the silver had value; the paper was intrinsically worthless. Consequently, the silver coins became scarce. Pretty soon it became almost impossible to keep the cash register stocked with dimes, quarters, or half-dollars. It reached a point where the government (after having tried to flood the market with 300 million ounces of new silver coins) gave up and switched to copper-nickel tokens.”40

Browne also noted, “Gresham’s Law can’t tell us how soon a given reaction will occur. It’s a mistake to take a general principle and try to predict specific short-term market activity from it.”41

Based on Mises, Rothbard, and other Austrian economic thinkers, Browne applied these principles to the financial situation and concluded in 1970, “Because its only alternative is deflation, a devaluation is an overwhelming probability.”42 Browne says he was “lucky.” In his Devaluation book, he declared, “I expect a devaluation to occur sometime between this coming Saturday and the end of 1971.”43

As a result of the devaluation of the dollar, Browne expected a fall in stock prices (“With a good selection of stocks, a short seller might do surprisingly well at this time”) and a rise in gold (“gold bullion is a prime beneficiary of devaluation”). He recommended buying North American and South African gold shares, silver (“Silver bullion is one of the best all-around investments….”), and Swiss francs (“The only currency to be recommended is the Swiss franc”).44

Browne’s Devaluation book was the first in a series of Arlington House books under the category, “Dollar Growth Library.” Llewellyn H. Rockwell, Jr. was the senior editor in charge of the financial books. In 1971, Arlington House published Panics and Crashes, and How You Can Make Money Out of Them, by Harry D. Schultz. It also published two books by Donald J. Hoppe, entitled How to Buy Gold Coins and How to Buy Gold Stocks and Avoid the Pitfalls.45

Harry Browne followed with another financial book in 1974, entitled You Can Profit from a Monetary Crisis, which also became a bestseller.46 Again, he acknowledged several books by Rothbard. In it, he argued that continued inflation in the 1970s would mean further rises in the prices of gold, silver and Swiss francs. His expectations proved to be correct in the late 1970s. “All of these events were probable according to my understanding of economics, but no one could predict exactly when they would happen. The timing was very fortuitous.”

Following the official devaluation of the dollar and the closing of the gold window on August 15, 1971, a whole industry was created. The mid-1970s witnessed a tremendous increase in “hard money” books, newsletters, seminars, coin companies, survival retreats, food storage, and related businesses. In 1974, Robert D. Kephart, former publisher of Human Events and long-time follower of Austrian economics, began the first mass-audience investment letter, called the Inflation Survival Letter. Of course, many hard-money activities took place prior to these events, but the monetary crises, the OPEC oil embargo and commodity shortages of the early 1970s gave great impetus to the movement. Harry Schultz claimed to have sponsored the first hard-money investment seminar in 1967. James U. Blanchard, III, a free-market devotee and admirer of Rothbard, began his famous New Orleans investment conferences in 1974. There are several financial advisors who claim to be the “original gold bug,” including Harry Schultz, James Dines, and Joe Granville, because they recommended buying gold shares in the late 1950s. However, Hans Sennholz and E. C. Harwood were two hard-money investment advisors who bought gold shares as early as 1950. Sennholz wrote several articles in Human Events in 1959 and 1960 predicting higher gold and silver prices. He also was one of the first hard-money investment counselors to invest in real estate.

Another well-known investment counselor and writer is Jerome F. Smith, who formed the ERC Publishing Co. in West Vancouver, British Columbia, in the early 1970s and helped investors open Swiss bank accounts. Smith has high regard for Rothbard and the “Austrian” school of economics: “Murray Rothbard has advanced economic science, in my view, more than any other living economist.”47 Smith’s most famous book was Silver Profits in the Seventies, which argued that silver was greatly undervalued at the time because of inflationary pressure and annual figures indicating net consumption of silver throughout the 1970s. He predicted, “silver will double in price and then double again.”48

Another writer influenced by Rothbard and the Austrian economists is Alexander P. Paris, who wrote The Coming Credit Collapse in 1974, analyzing the debt and banking crisis, and the significance it would have on investments. Paris wrote, “My view of the business cycle and the cause of the recessions is a simple one and is based upon the role of money and credit in the economy. It is also strongly based on theories of the Austrian school of economics… .”49

John A. Pugsley also wrote a hard-money investment book in 1974, entitled Common Sense Economics, which sold over 200,000 copies by mail order. He argued that the financial survivors of these turbulent years would only be “a more astute minority who will succeed because they have taken the time to understand the causes of the world’s economic turmoil.”50

Based on this economic analysis, Pugsley developed a “rational portfolio,” which included an emphasis on gold and other inflation hedges: “I believe that the demand for gold from, private holders will increase dramatically in the next few years as currency inflation accelerates.”51

The Inflation-Deflation Debate

A recurring debate within the hard-money movement has been over the question of whether the economy would suffer a serious deflation, or the continuation of inflation. The debate went on throughout the 1970s and continues even more fiercely in the 1980s. Murray Rothbard has been in the center of this battle for over 10 years. The principal “deflationists” have been C. Vern Myers, John Exter, Don Hoppe and James Dines. The “inflationists” have been led by Rothbard, Jerome Smith, James Blanchard and Howard Ruff, among others.

The deflationists argued that business, consumer and government debt were reaching such dangerous levels that a recession would lead to worldwide bankruptcies, a banking crisis, and a financial panic. The government would not be able to stop it. Official efforts would be futile, like “pushing on a string,” because the demand for cash in a banking crisis would exceed the ability of the government to supply it. The deflationists have pointed to the sharp drop in commodity prices at various times to prove that deflation was “imminent.”52

Rothbard wrote at least three articles for investment newsletters responding to the deflationists’ arguments, covering the past 10 years. The timing of the articles is helpful in examining Rothbard’s views on the subject. His first article was written for Inflation Survival Letter, in 1975, at the bottom of the 1973-75 inflationary recession; the second for World Market Perspective, in 1979, at the height of double-digit inflation; and the third for Jerome Smith’s Investment Perspectives in November 1984, during the “disinflationary” era.

In the first article, written in 1975, Rothbard makes a strong case for higher inflation ahead, despite the “inflationary depression” at hand. The Federal Reserve, Rothbard maintained, “can stop any deflationary process from taking hold, and can ensure that inflation will continue.” This is because the U.S. and the world are no longer on a gold standard, so that “restraints on Fed inflationary manipulation have been removed.” He concluded, “[i]f, as seems likely, the current depression is substantially over by next year, this recovery will add further fuel to the fires of accelerated inflation.”53

In 1979, writing for World Market Perspective, Rothbard acknowledged that the Federal Reserve can precipitate a major recession or depression. “The deflationists see correctly that our Keynesian policies of inflationary bank credit, propelled by the Federal Reserve System, have brought and will continue to bring about recessions.…” Rothbard refers back to the 1973-75 recession, noting that “inflation, though indeed stamped down to 6 or 7 percent per year, was yet not reversed.” Using Austrian economic analysis, Rothbard showed how the deflationists have been misled by declines in industrial commodity prices. He explained how it’s perfectly natural for consumer prices to rise relative to commodity or wholesale prices during a recession. But Rothbard also raised the possibility that the “inflationist mentality” could be reversed.

It is certainly theoretically possible that power in Washington will soon be assumed by sound-money men dedicated to stopping inflation in its tracks…. the last few years have seen a notable economic education on the part of the public. Most people now believe that federal spending and deficits are in some important way a cause of chronic inflation, and are putting pressure on the politicians to reduce or slow down their spending and deficits. Even the money printing process as a source of inflation is becoming known among the public…. Already the Carter Administration has slowed down, though in no way stopped, the rate of inflating because of this public pressure.

Nevertheless, Rothbard dismissed the possibility of lower inflation: “… until hard-money trends among the public take hold and become more institutionalized in organized political pressure—inflation will probably continue to grow. Furthermore, it might even accelerate, because we have in the last few years gotten to the dangerous point where the public expects continued inflation… ,”54

Finally, in late 1984, in the midst of a lower inflation environment, Rothbard responded to the question, “Is it really true that inflation is finished?” He stated, “I am notoriously leery about making forecasts in economics, but I am confident in repeating the same thing I have been saying, over and over, for several decades: Don’t you believe it! Inflation is here to stay, a permanent feature of the economic landscape. No one can predict the precise percentage of price rise from year to year, but the direction—inflation—is here and will not be altered.” Rothbard noted that, if by deflation is meant a fall in consumer prices, it won’t happen. He expressed great skepticism about President Ronald Reagan’s “supply side” economics and the possibility of a return to some kind of gold standard. He noted that Congress, under the Monetary Control Act of 1980, gave the Federal Reserve increased power to “buy any asset whatever, even foreign currencies and shares of stock” to avoid a monetary crisis. Rothbard concluded, “… inflation is going to be permanent in the United States and throughout the world.”55

Rothbard’s Critique of the Kondratieff Cycle

Part of the deflationists’ argument involved the use of what is called the “Kondratieff Cycle,” frequently expounded by investment writers such as Donald J. Hoppe, Julian Snyder, Jim McKeever and Bert Dohmen-Ramirez. Rothbard has been sharply critical of this cycle theory, and of cycle theories in general.

The Kondratieff cycle theory is named after the Russian economist Nikolai D. Kondratieff, who in the 1920s researched the proposal that Western business cycles go through a periodic “long wave” lasting approximately 50-60 years. The Great Depression of the 1930s represented a major cyclical point of reference for predicting the next depression. According to Kondratieff advocates, the next depression would be 50-60 years later—some proponents suggested the 1973-75 recession as a starting point, while others keep moving the date upward into the 1980s.56 Rothbard criticized the Kondratieff long-wave theory in both specific and general terms. In an article published in the Inflation Survival Letter in 1978, Rothbard demonstrates that the economic data does not fit the 50-60 year cycle. For example, the 1896-1940 trough-to-trough cycle lasted only 44 years. Moreover, Rothbard notes that Kondratieff only observed the “long wave” two and one-half times: “The idea of even hypothesizing, much less proclaiming, the existence of a cycle on the basis of only two-and-a-half observations must strike the unbiased observer as breathtaking in its presumption.”

On a more general level, Rothbard criticizes the whole notion of cycle analysis:

Correct business cycle theory is qualitative; it cannot predict the length or the intensity of any particular cycle. Specifically, the length of the boom period depends on how long the government authorities are willing to keep inflating the money supply at a rapid pace. It is manifestly absurd for economists or historians to claim that they can forecast precisely when the monetary authorities will stop or slow down their inflationary policies. This depends on complex qualitative political and psychological factors than manifestly cannot be squeezed into some predictable set of numbers.57

Still, despite Rothbard’s and others’ devastating critiques, the Kondratieff wave theory is still espoused by investment writers. Recently, for example, financial advisor Bert Dohmen-Ramirez suggested that the early 1980s was the “depression” which Kondratieff predicted. “I have often referred to the Kondratieff Wave (K-Wave), which is the long-term, 52 to 56-year, economic wave. I believe we are presently at the end of that wave and that the K-Wave crash (which many analysts are still expecting) occurred in 1980, when all the tangible assets collapsed.”58

Rothbard’s stinging criticism of wave or cycle theory could also apply to other recent cycle theories. For example, during the first half of the 1980s, some hard-money writers and analysts (especially Mary-Anne and Pamela Aden, chart analysts from Costa Rica) predicted that gold and silver would skyrocket by 1986, based on a so-called “six year” cycle in gold and silver prices (gold and silver reached previous highs in 1974 and 1980). Forecasts of $2,000 to $4,000 per ounce for gold were made frequently. Although Rothbard did not comment publicly on the six-year gold cycle theory, he expressed grave skepticism about technical analysts who forecast higher prices based purely on “cycle” theory. As Rothbard stated in 1979, “Computer models can only embody past quantitative linkages. But there is no guarantee that these same linkages and ratios will hold in the near or far future. Ratios and trends change. It is no great thing simply to extrapolate past trends into the next year: anyone can do this with a ruler, and there is no need for high-speed computers. The real trick is to forecast sudden changes and reversals of trends; and econometricians have been spectacularly unsuccessful in doing so.”59 In 1982, when the six-year gold cycle became popular, Rothbard stated that “expectations are purely subjective, and cannot be captured by the mechanistic use of charts and regressions.”60

Rothbard and the Financial Markets in the Eighties

Rothbard and the “inflationist” camp expected inflation to worsen in the 1980s. In 1979, Rothbard suggested that, barring the government adopting an anti-inflation policy, “the prognosis ahead can only be for more, and ever more, inflation.”61 Jerome Smith, Hans Sennholz, Howard Ruff, Jim Blanchard, Doug Casey and other hard-money investment writers expected double-digit inflation to worsen in the 1980s. Jerome Smith, for instance, wrote in 1979, “the accelerating double-digit inflation rate of the 1970s (now around 15 percent) will lead to triple-digit inflation and destruction of the dollar (and all dollar-tied national currencies) in the 1980s.”62 Doug Casey, in his bestselling book, Crisis Investing, argued that an “inflationary depression” was inevitable, based on “Austrian” malinvestment theory of the business cycle. Casey suggested that “a hyperinflation seems almost inevitable.”63

But higher inflation didn’t materialize—in fact, the “Reagan Eighties” have so far been characterized by a reduction in inflation and a gradual decline in interest rates, following the severe 1981-82 recession. At that point, some hard-money investment advisors parted company with the “inflationists.”

Harry Browne’s views on the markets changed in the early 1980s, departing from Rothbard’s inflationist viewpoint. In the book, Inflation Proofing Your Investments, Browne and co-author Terry Coxon developed one potential scenario in which the demand for money might rise substantially, offsetting the rise in the money supply and resulting in a “high interest, low inflation” environment.64 But, according to Browne, Rothbard read the chapter in manuscript and thought such a possibility to be “remote.” “He felt very strongly that deflation wasn’t politically possible,” Browne said. “I’m philosophically more in harmony with Ludwig von Mises, who was agnostic, skeptical, and non-political.”

Despite the decline in interest rates and inflation in the 1980s, Rothbard has been staunchly critical of the monetary and fiscal policy of the Reagan Administration and the Federal Reserve. In 1981, he commented, “there is no Reagan Revolution. There is no budget cut; there is no tax cut. The whole brouhaha is sound and fury, signifying nothing. Nothing is happening.” Rothbard noted that Reagan’s budget showed an increase in government spending, not a decrease. Also, despite a reduction in the highest tax bracket from 70% to 50%, and a reduction in long-term capital gains rates to 20%, the tax bill for most Americans was going up, if one includes Social Security levies. As far as monetary policy is concerned Rothbard criticized Federal Reserve chairman Paul Volcker for achieving “neither stable nor slow monetary growth so far…. Federal Reserve actions, and the resulting money supply, have been unprecedentedly erratic and volatile.” He added that “… the Reagan program of gradually reducing the rate of money growth until a ‘moderate’ level is achieved is not going to work. Gradualism won’t work, now less than ever.” Nevertheless, Rothbard noted that a “disinflationary psychological impact” had already begun in the United States in 1981, with incredibly high deregulated interest rates and the dramatic drop in precious metals prices and other commodities. Rothbard was critical of his friends in the hard-money movement who were sympathetic with Reagan: “James Sinclair asserts that Reagan, Regan and Volcker have been saying exactly the right things, which are exactly the wrong things for gold, and my old friend Dr. Mark Skousen persists in claiming significant future reductions in inflation and improvements in the economic climate.” Rothbard summarized by stating:

“The bottom line is that the Reagan program is all talk and no action. In short order, the market will discover this, will realize that all we are getting is retread Nixon-Ford economics, and inflation will resume its accelerating course. The interesting question is: will my friends in the hard-money movement wake up before, or later than, the market?”65

Actually, a case can be made to explain the disinflationary phenomenon of the 1980s using “Austrian” principles of economics. F. A. Hayek and other Austrian economists have shown that fiat money inflation is inherently unstable, creating a boom-bust cycle. A monetary inflation inevitably leads to a recession, even if the central bank adopts a monetarist rule by expanding the money stock at a steady rate equal to average GNP growth. In fact, according to Hayek, the only short-term way to postpone a recession is to accelerate monetary growth (which of course can only result in a worse disaster in the long run, eventually leading to what Mises called the “crack up” boom).66 A corollary of this principle can be applied to the monetary policy of the eighties: if, after a “tight” money policy and severe recession, the government expands the money supply at a rate equal to the previous monetary inflation, general consumer prices will rise by an amount less than the previous rate (assuming that the recession is strong enough to break the inflationary psychology). Moreover, in order to reignite consumer price inflation to the previous high level, the Federal Reserve would have to reinflate at a more rapid rate. Why? Because the tight money policy and severe recession have left the capital goods industry in a precarious financial state, many of them close to bankruptcy. In general, with a high debt exposure, the capital markets are in a more vulnerable position than at the beginning of the previous cycle. The level of “malinvestment” in the economy has grown as a result of the inflationary policy of the government. Thus, the “malinvested” capital markets require substantially greater resources to bring them out of their dangerous financial condition. Under this burden, the chances of reigniting an artificial boom, accompanied by sharply higher prices, are reduced.

Monetary policy in the first half of the 1980s appears to bear this out. The Federal Reserve under Carter expanded the money supply at double-digit rates, anywhere from 10% to 13% depending on which definition of money you look at. The Federal Reserve under Reagan has expanded the money supply at similar rates. The result has been less consumer price inflation under Reagan than under Carter. Admittedly, there are other significant factors at work which keep inflation down—e.g., the tight money in the early 1980s, the deregulation of the banking industry, the reduction of marginal tax rates, the collapse of OPEC, and the worldwide psychological impact of Reagan’s conservative image. But the point is that, under Austrian analysis, the Federal Reserve under Reagan would have had to expand the money supply at significantly higher levels than it has been doing in order to reignite the fires of price inflation to equal the double-digit levels of the 1970s. And so far it has not done so.67

Despite the drop in interest rates and inflation in the 1980s, Rothbard takes a long-term view. In a 1985 interview, he said that “we will certainly see a reacceleration of inflation and interest rates.… I can’t predict the exact time frame… . but certainly over the next few years… . We’ve been in a permanent inflation for the last 50 years, and I don’t see any sign that it’s ending. The money supply has been going up about 10%, depending on which figures you look at. It’s inevitable that prices will start reaccelerating again as the economy heats up. And when they do start to move, they will do so quickly. People have been lulled to sleep by the rhetoric of the Reagan administration.” He considered Volcker “less inflationary than Arthur Burns, but he’s certainly no hero of the free market. The Reagan administration has been attacking Volcker for not being inflationary enough. In that sense, he’s keeping monetary growth down. But based on any absolute criteria, the guy’s an inflationist.” When asked about the bull market in stocks, with the Dow at 1,300 at the time, he responded, “That’s only 30% higher than it was in 1966. Consumer prices have tripled since then. I’d hardly call it a boom.” He did, however, suggest that the stock market could go higher.68

The Prospects for Another Economic Crisis

Unlike an investment advisor, who has to be concerned about the short-term shifts in public psychology and trends in the financial markets, Rothbard is an academic economist who can take the long-term view. Despite good economic news in the mid-1980s—low inflation, falling interest rates, and a bull market in stocks—Rothbard points out that serious fundamental problems still exist. Consumer inflation is maybe 4% but—“Four percent was considered so terrible in 1971 that Nixon put on a wage and price freeze,” notes Rothbard. The Federal Reserve still governs a totally fiat monetary system, which is both inflationary and economically destructive. As Rothbard states, “Since the Fed is no longer limited by gold restraints, it can now print dollars in unlimited amounts, unhampered by domestic statute or international obligations.”69 And the Federal government continues to run huge deficits and is always looking for ways to increase revenues. So the wise investor, while taking advantage of the temporary goods news in traditional investment vehicles such as stocks and bonds, must be prepared for the bad economic news that Rothbard eventually foresees. Rothbard’s viewpoint may not be a popular one today, but in the words of Josh Billings, “As scarce as truth is, the supply has always been in excess of the demand.”

Notes

1. Sources, unless otherwise indicated, are based on private interviews with individuals in the hard-money movement. Each has had the opportunity to review references to them, but only I am responsible for any conclusions reached in this paper. I also wish to thank Robert D. Kephart for the use of his extensive library in preparation of this paper.

2. Alexander P. Paris, The Coming Credit Collapse (New York: Arlington House, [1974] 1980), p. x.

3. James Dines, The Invisible Crash (New York: Random House, 1975), p. xiv.

4. Donald J. Hoppe, How to Buy Gold Coins (New York: Arlington House, 1970), pp. 17, 19-20.

5. Gary North, How You Can Profit From the Coming Price Controls (Durham, N.C.: American Bureau of Economic Research, 1978). See also his Introduction to Christian Economics (Nutley, N.J.: The Craig Press, 1973), pp. 107-23.

6. John A. Pugsley, Common Sense Economics (Costa Mesa, Calif.: Common Sense Press, [1974] 1976), pp. v-vi.

7. Harry Browne, How You Can Profit from the Coming Devaluation (New York: Macmillan, 1974); Inflation-Proofing Your Investments (New York: William Morrow &. Co., 1981), co-authored with Terry Coxon, is dedicated to Rothbard, Mises, Hazlitt and Friedman.

8. Charles H. Hession, John Maynard Keynes (New York: Macmillan, 1984), pp. 174-75, 212.

9. Ibid., pp. 174-75, 305.

10. John Maynard Keynes, Essays in Biography, in The Collected Writings of John Maynard Keynes, vol. X, A. Robinson and D. Moggridge, eds. (London: Macmillan and Cambridge University Press, 1951).

11. Jerome F. Smith, “Charter Issue: Understanding the Business Cycle,” Jerome Smith’s Investment Perspectives (October 1983): 1-2.

12. Friedrich A. Hayek, Monetary Theory and the Trade Cycle (London: Jonathan Cape, 1933), pp. 41, 36n.

13. Ludwig M. Lachmann, Capital, Expectations, and the Market Process (Kansas City, Kans.: Sheed Andrews and McMeel, 1977). pp. 31-32.

14. Murray N. Rothbard, “Foreword,” in James B. Ramsey, Economic Forecasting—Models or Markets? (San Francisco: Cato Institute, 1977), p. x.

15. Interview with Murray N. Rothbard, Predictions (April 1985), p. 6-7.

16. Murray N. Rothbard, “The Inflation-Deflation Debate,” World Market Perspective (January 1985), p. 2.

17. Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash Publishing, [1962] 1970), pp. 727-37.

18. See Murray N. Rothbard, “Introduction to Second Edition,” America’s Great Depression (New York: Richardson and Snyder, [1963] 1983), pp. xxv-xxxviii.

19. Irving Fisher, New York Times, 16 October 1929. Quoted in Oh Yeah?, compiled by Edward Angly (New York: Viking Press, 1931), an amusing compilation of predictions about the economy and the stock market during the 1929-1931 depression.

20. Ramsey, Economic Forecasting.

21. Margit von Mises, My Years with Ludwig von Mises (Cedar Falls, Iowa: Center for Futures Education, [1976] 1984), pp. 23-24.

22. James Brant, Bernard M. Baruch (New York: Simon Schuster, 1983), p. 324.

23. Quoted in Ramsey, Economic Forecasting, p. xii.

24. Bennett W. Goodspeed, The Tao Jones Averages: A Guide to Whole-brained Investing (New York: Penguin Books, 1983), pp. 22-23.

25. Ibid., p. 30.

26. Rothbard, “In Defense of Extreme Apriorism,” Southern Economic Journal, 23, no. 3 (January 1957): 314-320

27. Hession, John Maynard Keynes, pp. 105-06.

28. Ibid., p. 107.

29. Goodspeed, The Tao Jones Averages, pp. 117-18. This “dual-minded” theory does not justify, in my mind, a proclivity toward deviate sexual behavior as a prerequisite to creativity or financial success, as Hession seems to characterize Keynes.

30. Ramsey, Economic Forecasting, p. xi.

31. Margit von Mises, My Years, p. 24.

32. Rothbard, Man, Economy, and State (Princeton: Van Nostrand, 1962; reprint, Los Angeles: Nash Publishing, 1970).

33. Murray N. Rothbard, America’s Great Depression, (Princeton: Van Nostrand, 1963; 2nd ed., Los Angeles: Nash Publishing, 1972; 3rd ed., New York: New York University Press, 1975; 4th ed., New York: Richardson and Snyder, 1983).

34. Pugsley, Common Sense Economics, p. v.

35. Murray N. Rothbard, What Has Government Done to Our Money? (Larkspur, Colo.: Pine Tree Press, 1964; 2nd ed., San Rafael, Calif.: Libertarian Publishing, 1982).

36. Pugsley, Common Sense Economics, p. 118.

37. Cf. Gary North, How You Can Profit From the Coming Price Controls, p. 2.

38. William F. Rickenbacher, Wooden Nickels (New York: Arlington House, 1966), pp. 145-47, 154-55.

39. William F. Rickenbacher, Death of the Dollar (New York: Arlington House, 1968).

40. Harry Browne, How You Can Profit from the Coming Devaluation, pp. 88-89.

41. Ibid., p. 89.

42. Ibid., p. 124.

43. Ibid., p. 125.

44. Ibid., pp. 148, 154-59, 162.

45. Harry D. Schultz, Panics and Crashes and How You Can Make Money Out of Them (New York: Arlington House, 1971); Donald J. Hoppe, How to Buy Gold Coins; idem., How to Buy Gold Stocks and Avoid the Pitfalls (New York: Arlington House, 1972).

46. Browne, You Can Profit from a Monetary Crisis.

47. Jerome Smith’s Investment Perspectives (November 1984).

48. Jerome Smith, Silver Profits in the Seventies (West Vancouver, B.C.: ERC Publishing, 1972). Smith’s book was updated in 1982; idem, Silver Profits in the Eighties (New York: Books in Focus, 1982). Smith calls his letter, “The Investment Advisory Newsletter Based on the Austrian School of Economics.”

49. Alexander P. Paris, The Coming Credit Collapse, p. 198.

50. Pugsley, Common Sense Economics, p. xii.

51. Ibid., pp. 108-09.

52. The most popular deflationist book was C. Vern Myers, The Coming Deflation (New York: Arlington House, 1979).

53. “Inflation or Deflation?” Inflation Survival Letter (4 June 1975).

54. “Inflation or Deflation-Which Way?” World Market Perspective (19 July 1979).

55. “What’s Ahead? Resurging Inflation or Sudden Deflation?” Jerome Smith’s Investment Perspectives (November 1984).

56. For an in-depth critique of the Kondratieff cycle theory, see John A. Pugsley, “The Long Wave: Should We Praise or Bury Kondratieff?” Common Sense Viewpoint (November 1982).

57. “The Kondratieff Cycle Myth,” Inflation Survival Letter (14 June 1978); see also, “The Kondratieff Cycle: Real or Fabricated?” Investment Insights, (August and September 1984).

58. Bert Dohmen-Ramirez, “The Long-Term Wave Phenomenon,” Wellington’s Capital (January 1986), p. 7.

59. Murray N. Rothbard, “Ten Most Dangerous Economic Fallacies of Our Time,” Personal Finance (21 March 1979); see also my critique of the six-year gold cycle theory in Personal Finance (9 December 1981).

60. Rothbard, America’s Great Depression, p. x.

61. “Inflation or Deflation-Which Way?” World Market Perspective (19 July 1979), p. 7.

62. Ibid., p. 1. See also Jerome F. Smith, The Coming Currency Collapse—And What You Can Do About It (New York: Books in Focus, 1980).

63. Douglas R. Casey, Crisis Investing (Los Angeles: Stratford Press/Harper and Row, 1980), pp. 39-62, 278. See also Howard Ruff, How to Prosper During the Coming Bad Years (New York: Times Books, 1979).

64. Harry Browne and Terry Coxon, Inflation-Proofing Your Investments, pp. 45-83.

65. Rothbard, “The Reagan Budget Fraud,” World Market Perspective (19 March 1981).

66. F. A. Hayek, Monetary Theory and the Trade Cycle, pp. 111-32, 212-26. For a more complete explanation of Hayek’s monetary theory of the business cycle, see his Prices and Production (New York: Augustus M. Kelly, [1931] 1967).

67. Written extensively on this subject in my newsletter, Forecasts & Strategies (September 1985 and March 1985). In order for my thesis to occur, it is essential that the inflationary psychology be broken. If not, the result might be more price inflation, not less.

68. Predictions (April 1985). By the summer of 1987, however, Rothbard had turned bearish on the stock market. In a private letter to a money manager, he suggested that a tight-money policy by the Federal Reserve could send stocks “plummeting” (Mark Skousen, The Great Crash of 1987: Prelude to Financial Disaster? [Potomac, Md.: Phillips Publishing, 1988], p. 7).

69. “Inflation or Deflation—Which Way?” World Market Perspective (19 July 1979), p.2.