Power & Market

QT or QE: What Is This?

03/27/2023Robert Aro

Leave it to the Federal Reserve to throw a knuckleball when the batter is expecting a fastball. These last few weeks have been just that, with the Fed saying nothing of abandoning their Quantitative Tightening (QT) position while engaging in what appears to be a Quantitative Easing (QE) position.

The general public may be familiar with the term QE, but it’s nothing more than inflationism as public policy, with known detriments as old as money itself. But inflationism or currency debasement doesn’t sound as appealing as Quantitative Easing, and so selling economic destruction as a cure-all is more of a successful branding initiative than anything else.

In the last two weeks, the Fed has almost completely undone a year of balance sheet wind down, conjuring up $400 billion as of last Thursday’s data release.

The problem is that QE or QT is not “economics” per se. There’s no credible theory behind money printing nor are there any guidelines which determine what exactly constitutes these terms.

If the terms QE/QT are broadly given to the direction of the Fed’s balance sheet, then we could say that in the last two weeks, they’ve been doing QE, since the net change to the balance sheet was positive.

However, if the terms are more narrowly defined to only mean the change in US Treasury holdings and Mortgage-Backed Security holdings, then we could say that the Fed is still engaging in QT, since they are still rolling off these securities. The net balance sheet increase has only been due to lending programs that temporarily help banks out of this current crisis.

Yet the magnitude and length of time must also be considered.

On Monday CNBC announced that First Citizens Bank will purchase “around $72 billion of Silicon Valley Bank assets at a discount of $16.5 billion.” The role of the Fed and FDIC is instrumental to this bank merger, with the final cost of the bailout still not known.

The [FDIC] regulator added that the estimated cost of SVB’s failure to its Deposit Insurance Fund (DIF) will be around $20 billion, with the exact cost determined once the receivership is terminated.

By simply making available new funding programs for banks and FDIC, it appears the threat of bank runs has subsided, for now. And if we’re really lucky, the Fed’s lending schemes are nearing the end, stopping at only a few hundred billion and not several trillions of dollars.

Again, “if” the money the Fed loaned is paid back promptly, and “if” the banking crisis subsides, the balance sheet should resume its downward trajectory. Then history would consider this as still part of the QT phase. Conversely, if this lending program is only just the start of much longer and larger programs to come, history will show QE began two weeks ago.

Regardless of whether this is QT or QE, we remain in uncharted waters with nothing but a promise of a bigger storm ahead. Should these lending schemes be hailed a success, then it stands to reason that when the next bank fails, the Fed will go back to the same playbook, again and again…

As for what tomorrow brings, no one knows. But Minneapolis Federal Reserve Bank Neel Kashkari continues to have no shortage of foresight for the problems he helps create, as told to CBS over the weekend:

He said that banks holding commercial real estate assets could also see losses in the future. 

And in his own words saying:

But right now it's unclear how much of an imprint these banking stresses are going to have on the economy.

Noting that it was too early to determine the impact on inflation.

Clearly the Fed remains on standby, ready and willing to create money to prop up failed banks, at the same time staying committed to reducing its holdings of US government and mortgage debt. And so, the Fed really is the lender of last resort, functioning only in terms of “need” for the big banks. So long as no bank asks for money from the Fed, the Fed won’t give them any. But the minute a bank needs the Fed, the Fed will be there like any other insurance company… with an infinite amount of cash on hand, prepared to inflate dollars at little cost to them, but at a big cost to society.

QJAE Vol. 22, No. 4 (Winter 2019) and Vol. 23, No. 1 (Spring 2020) Are Now Online

06/19/2020Mises Institute

Two new issues of the Quarterly Journal of Austrian Economics are now available online.

Vol. 22, no. 4 features an article by Dr. Mark Thornton on an unpublished note from the early 1960s by Murray Rothbard on the economics of antebellum slavery. Other highlights include a response by Dr. Joseph Salerno to Dr. Karl-Friedrich Israel on the wealth effect and the law of demand, as well as a book review from Dr. David Gordon of Janek Wasserman's book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas.

Vol 23. no. 1 includes an interesting look by Dr. Mark A. DeWeaver at extending Austrian business cycle theory to the command economy, demonstrating that Mises’s socialist commonwealth would not be free from Rothbardian error cycles. Other notable articles include a critique of intellectual property by Dr. Jakub Bożydar Wiśniewski, a tribute to Oskar Morganstern from Dr. Richard Ebeling, and a response from Márton Kónya to the economic analysis of The People’s Republic of Walmart.

Volume 22, no. 4 (Winter 2019)


An Overlooked Scenario of “Reswitching” in the Austrian Structure of Production
by Er’el Granot

The Macroeconomic Models of the Austrian School: A History and Comparative Analysis
by Renaud Fillieule

Rothbard on the Economics of Slavery
by Mark Thornton

Notes and Replies:

The Wealth Effect and the Law of Demand: A Comment on Karl-Friedrich Israel
by Joseph T. Salerno

A Note on Some Recent Misinterpretations of the Cantillon Effect
by Arkadiusz Sieroń

The Relevance of Bitcoin to the Regression Theorem: A Reply to Luther
by George Pickering

Book Reviews:

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Reviewed by Brendan Brown

Indebted: How Families Make College Work at Any Cost
by Caitlin Zaloom
Reviewed by Jeffrey Degner

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Reviewed by Kristoffer M. Hansen

Beyond Brexit: A Programme for UK Reform
by The Policy Reform Group
Reviewed by George Pickering

Prosperity and Liberty: What Venezuela Needs…
by Rafael Acevedo, ed.
Reviewed by David Gordon

Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly
by John Quiggin
Reviewed by David Gordon

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas
by Janek Wasserman
Reviewed by David Gordon


Remembering Ulrich Fehl, German Economist and Prominent Scholar with a Deep Knowledge of Austrian Economics
by Peter Engelhard

Volume 23, no. 1 (Spring 2020)


Discovering Markets
by Marius Kleinheyer and Thomas Mayer

Beyond Calculation: The Austrian Business Cycle in the Socialist Commonwealth
by Mark A. DeWeaver

On the Impossibility of Intellectual Property
by Jakub Bożydar Wiśniewski

Planned Economy and Economic Planning: What The People’s Republic of Walmart Got Wrong about the Nature of Economic Planning
by Márton Kónya

Book Reviews:

Ribatarianizumu: Amerika wo yurugasu jiyūshijōshugi (Libertarianism: The Ultrafreedomism Shaking Up America, published only in Japanese)
by Yasushi Watanabe
Reviewed by Jason Morgan

Unprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory Tower
by Todd J. Zywicki and Neal P. McCluskey (ed.)
Reviewed by Jason Morgan

American Bonds: How Credit Markets Shaped a Nation
by Sarah L. Quinn
Reviewed by Patrick Newman

The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society
by Binyamin Appelbaum
Reviewed by David Gordon

The Great Reversal: How America Gave Up on Free Markets
by Thomas Philippon
Reviewed by David Gordon

Socialism Sucks: Two Economists Drink Their Way through the Unfree World
by Robert Lawson and Benjamin Powell
Reviewed by David Gordon

Banking and Monetary Policy from the Perspective of Austrian Economics
by Annette Godart-van der Kroon and Patrik Vonlanthen (ed.)
Reviewed by Joseph T. Salerno


Remembering Oskar Morganstern
by Richard Ebeling

The Quarterly Journal of Austrian Economics is also available on Scholastica.

If you are interested in submitting an article to the QJAE, learn more here.

Quarantine in a Stateless Society

04/23/2020Isaac Deak

With the spread of the coronavirus, leaders across the United States are dipping into their governing toolboxes—treasure troves of both so-called legitimate and usurped power—in order to attempt to stop the virus’ spread. The federal government has suggested social distancing and quarantining, while states have simply imposed compulsory mandates. Some cry that it is a necessity for the state to intervene, and that the market could not accomplish these measures. This begs the question of whether these measures could occur in a stateless society. Although the measures seen in the present crisis are indeed forced by the arm of government, certain market actors could create the same quarantine conditions, although perhaps not to the same extent. To clarify, none of this is to express a value judgment on the effectiveness of quarantines, only that they could be implemented without a state.

First, let us define what is meant by a “stateless society.” In a broad sense, it is a society that lacks government with an monopoly on the means of coercion. A working stateless society would rest on contractural property rights. In the absence of the state, many individuals would opt to live in contractual communities with rules. In such an order, market actors such as private defense agencies would maintain order through the protection of property rights. The arguably useful aspects of government could easily be performed by market actors seeking profits and therefore striving to provide the best for the consumers.

If there were a lethal threat such as a pandemic, the inhabitants of these property rights–based communities would be unlikely to allow free entry if it were not already prohibited.  In the case of a pandemic, the incentive to restrict entry to either individuals’ property or contractual communities would be sizable, effectively leading to self-quarantine for the community.

Though individuals would not find themselves on their own property at all times, each property would have an owner, and they would be pressured to protect those on their premises. This happens on private property today. In the current crisis, nursing homes, housing those most vulnerable to the virus, were already taking precautions and restricting entry before government took action. Some retailers in the United States are implementing precautionary measures to best protect their customers, such as experimenting with “one-way” aisles in order to minimize the risk of customers crossing paths and transmitting the illness. More extreme cases include limiting the amount of shoppers in stores. In the competitive marketplace, producers have a high incentive to attract buyers, and in a pandemic, such precautions would reassure the worried public. Obviously, not all retailers are taking voluntary steps in attempt to stop the virus’ spread, and the same retailers likely would not do so in the absence of the state; however, depending on the hysteria of the masses, those who took the precautions would appear better in the eyes of consumers. If there is a high consumer demand for protection from the illness when shopping, there will be a high profit incentive for retailers to enact the protocols.

Firms specializing in protecting individuals and their property would also take steps to stop a virus’s spread. Today, the firms whose sole purpose is to mitigate losses are insurance providers, and without government their roles would become more prominent. Not only would they pay for losses, but they would have a high incentive to prevent them in the first place. A pandemic concerns illness, and health insurance companies would be the most likely to be affected. In order to maximize their profits and minimize their losses, these firms would take as many precautionary measures as possible in order to prevent a disease’s spread. Since such companies operate under contractual agreements with their customers, they could not simply raise their rates in response to the contagion. They could, however, offer lower rates new customers willing to quarantine and higher ones to those who are not. The firms could entice existing customers with less expensive alternative plans with a self-quarantine requirement. If clients so desired, they could switch plans; the old contract would be dissolved and the quarantine would be required.

It may be objected that this kind of contract would require a state-like, coercive surveillance apparatus to enforce. However, this objection is misguided and ignores the operation of the preexisting status quo: insurance comes with conditions. Suppose someone purchases insurance for their home, and their insurance provider prohibits certain objects—trampolines, for instance—on the premises for liability reasons, as is commonly done. The provider would not incessantly fly surveillance drones over the house, but if a trampoline were spotted under normal circumstances, the property owner would be in violation of his contract and would suffer the consequences. Likewise, in the stateless society, if a buyer has agreed to a condition of quarantine and accepted the cheaper rate, and then decides to have a frivolous night on the town, if caught, he will be in breach of contract. Insurance providers could theoretically track those who break the quarantine, such as by creating a reporting system among the less essential businesses. In more extreme cases, as part of the contract, the firms could require permission to track the customer’s movements in some capacity. Certainly, the methods used by the firms could become highly invasive—if not voluntary tyranny; however, in order to attract more clients, competing firms would attempt to ensure customers’ compliance with the least invasive means possible.

The concept of the insurance firm–enforced quarantine can be applied to production as well. At present, many producers seeking to attract the best workers already pay for their employees’ health insurance. The insurance provider could use the same techniques—stipulating quarantine measures in new contracts or offering alternatives at a better rate—on firm owners, except it would apply to the operation of the firm. In order to keep costs down, precautions against the disease would be encouraged, such as having employees work remotely whose jobs could be performed at home. Production might be rearranged for more space and/or isolation to prevent transmission, and in some cases, employees might be laid off. Although the methods seem unkind to workers, the employed are not working specifically for insurance benefits but for wages, and it is the company and not the worker who secures coverage. It is also important to bear in mind that the firm’s goal is to secure the best labor, and that it will therefore seek to minimize labor cuts as much as possible.

It can be conceded these market policies would not be as forceful as those of government. Some may very well accept the risks and forgo purchasing insurance. But unlike the state, these market actors are pursuing profits by solving problems through the most efficient means possible. If quarantines an effective measure, they will be pursued, and if not, they will likely be rejected. Most importantly, on the market, they will be voluntary and their effectiveness will be judged through the market process and not through state monopoly.

To summarize, the present crisis has brought about new state-enforced regulations—stay-at-home orders, social distancing, etc. Many insist that the government swinging into action is not only a necessity, but that the state is the only organization capable of implementing these measures. In actuality, in the absence of the state, different market actors could replicate many of these protocols on a voluntary basis, and on the market, their usefulness would be judged rather than forced.

Image source:

Quarantine Chronicles, No. 3: Political Decentralization

04/08/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of political decentralization, we recommend some of the following selections:

Long Reads:



Image source:
torange.biz | torange.biz/fx/monochrome-texture-old-map-20346

Quarantine Chronicles, No. 2: Praxeology

04/01/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of praxeology, we recommend some of the following selections:

Long Reads:



Quarantine Chronicles, No. 1: The History of the Austrian School

03/25/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of the History of the Austrian School of Economics, we recommend some of the following selections:

Long-Form Reading:



Quarter Pounder with Cost Theory

05/25/2018Tho Bishop

Today in stupid lawsuits we have two Florida men suing McDonalds for not giving them a discount for asking for a Quarter Pounder with Cheese without the cheese. They are asking for $5 million in damages. 

As the Miami Herald reports:

The suit claims, "customers have been forced, and continue to be overcharged for these products, by being forced to pay for two slices of cheese, which they do not want, order, or receive, to be able to purchase their desired product."

Having to pay for cheese they do not receive because they asked that it be held off of the burgers, well, they are not "lovin' it," to borrow from McDonald's current slogan....

According to Lavin's suit, Kissner and Werner "have suffered injury as a result of their purchases because they were overcharged, and were required to pay for cheese, which is not a component of either a Quarter Pounder or a Double Quarter Pounder, that they did not want and did not receive."

As absurd as the lawsuit is, there is a worthwhile economics lesson here. The case is clearly grounded in the idea of a Cost Theory of Value, which basically viewed the price of goods as the result of combining the cost of production with enough profit to make the entire venture worthwhile. In the view of Mr. Kissner and Mr. Werner, the fact they are asking for a sandwich requiring one less factor of production means that McDonalds is now wrongly profiting more from their order than a fellow customer who likes their cheese. 

If McDonalds is in need of an expert to debunk this argument, I would suggest Bob Murphy.

As he explained in his excellent article Problems with the Cost Theory of Value:

Fundamentally, the cost theory is deficient because it doesn't actually explain the determinants of market prices. Rather, the cost theory merely explains relationships among market prices.

"Costs" are prices too. To "explain" the price of a $10,000 car by reference to the prices of the engine, tires, glass, and so on, doesn't really explain market prices per se. At best, it pushes back the explanation one step: Why does the engine have a price of $5,000, etc.?


Even on its own terms, the cost theory of value (at least as I have summarized it above) acknowledges that the present day "spot" price of a good is determined by something other than the costs of its production. The theory explicitly deals with the cases where the actual market price is either higher or lower than the long-run "anchor" price set by the cost theory, and tries to explain the forces that would move those "aberrational" prices back toward the long-run "natural" price.

The classical economists weren't dummies. They understood that a sudden urge among the public to buy more of a certain good would lead to an immediate increase in its price. But the cost theory could only comment on this situation by saying that the market would tend toward a restoration of the same rate of profit in the industry through an increase in production to match the increased demand.

In other words, the cost theory of value could explain the long-run target toward which the day-to-day spot prices would tend. The cost theory could not explain what actually formed those spot prices on any given day.

Because the cost theory couldn't explain how actual market prices were formed "from scratch," it was useless when it came to non-reproducible goods. Obviously the price of the Mona Lisa, or of an original Shakespeare manuscript, would have nothing to do with the cost of producing these masterpieces.

Cost Theory Has Things Backward

Here we see the methodological problem of the cost theory: By explaining final retail prices through the cost of making the goods, the cost theory implies that economic value is an objective property of physical items that flows from resources into the goods that they produce. In contrast, the subjective value theory of Menger and others starts with the valuation of consumer goods and works its way back through the prices of labor and other inputs accordingly.

When a consumer is deciding on a purchase, the cost of producing the item is usually irrelevant. For example, going along with our hypothetical example above, if a new company decided to use twice as many resources to make an equivalent car, it couldn't charge $20,000 simply because "that's how much it cost."

For a different example, if a farmer discovers a meteorite chock full of gold on his property, he will charge whatever the market will bear for it. He won't sell it for less than other gold producers on account of his virtually zero cost of production.

To put it simply, the fact these Florida Men purchased their Double Quarter Pounder without Cheese shows that they thought the sandwich was worth the price they paid for it. If not, they wouldn't have ordered it. That it costs the store slightly less to make that sandwich than others is entirely irrelevant, which explains why profit margins vary widely on the McDonalds menu. 

Case dismissed. 

Quebec High Court Affirms a 50%-Plus-One Vote Sufficient to Trigger Secession Talks

05/03/2018Ryan McMaken

In a court battle that has apparently been working itself out for 17 years, the Quebec High Court this week affirmed that a law establishing a simple majority as key in triggering secession talks with the Canadian government — known as Bill 99 — is sound:

The law was passed in 2000 by then-premier [of Quebec] Lucien Bouchard as a response to the federal government's Clarity Act, which defines how a province can secede from the federation. It [the Clarity Act] famously called for a "clear" majority in a referendum, without specifying what that meant, prompting endless debates about whether 50 per cent plus one would suffice to trigger sovereignty negotiations. 

In its preamble, Bill 99 describes the Clarity Act as an intrusion into Quebec's democratic institutions. It declared that no government can "impose constraints on the democratic will of the Quebec people."

Bill 99 also contains a clause stating that a simple majority is enough to win any referendum held by the Quebec government. 

The Court sought to quell theories that the Quebec government was attempting to pass a law that allowed for unilateral secession. The simple majority necessary for secession talks, the Court concluded, is Constitutional, although, the vote, by itself, is not sufficient to fully execute a withdrawal from the Canadian confederation. Withdrawal would require negotiations with the federal government. 

The significance of the case stems from the fact that the federal government's Clarity Act is ambiguous as to how much of a majority was necessary to indicate a pro-secession vote from provincial voters. In other words, the Act appeared to allow the federal government to determine, perhaps after the fact, if a pro-secession majority  vote in a province is a large enough majority. 

The new Court decision affirms that a simple majority is sufficient and limits the federal government's attempts to hedge its bets with language about what constitutes a "clear majority."