Power & Market

How Much Did They Print?

05/15/2023Robert Aro

The story goes something like: In the last few years, the Federal Reserve printed up to 80% of all bills that were ever in circulation. While Austrian economists have long recognized the superfluousness of central banking and understand the benefits of a decentralized monetary system, it's important not to give in to false ideas, even if they appear to support honest ones.

It starts by recognizing the existence of various money supply measures. Perhaps the most shocking is the M1 chart:

In April 2020, the M1 figure stood at $4.79 trillion, then it skyrocketed to $16.24 trillion the following month. To clarify, this surge was primarily a result of the Fed's revised definition of the money supply, without restating the prior amount before May 2020.

This topic was discussed in the article: Why Prices Have Gone Up, published last year. In a Technical Q & A, the Fed explains:

Recognizing savings deposits as a transaction account as of May 2020 will cause a series break in the M1 monetary aggregate. Beginning with the May 2020 observation, M1 will increase by the size of the industry total of savings deposits, which amounted to approximately $11.2 trillion. M2 will remain unchanged.

Meaning, from May 2020 (M1 of $16.24 trillion) to its peak in March 2022 (M1 of $20.66 trillion), the balance sheet grew by approximately $4.42 trillion, representing a growth of nearly 30%. While this may appear significant, it is still far from 80%.

On the same Q & A, the Fed includes a graph illustrating the changes to the M1 money supply, specifically highlighting the revision made in May 2020:

With no revision made to the M2 money supply, it provides a clearer interpretation. Taking the March 2022 peak of $21.70 trillion and going back to February 2020, to coincide with the beginning of the official recession, we have an initial starting point of $15.45 trillion. This two-year period represents an extraordinary increase in the money supply of around 40%. See below:

It may also cause confusion when the term "printed" is used to describe the money supply. The Fed or commercial banks do not physically print dollar bills. Instead, the money supply is increased through the creation of credit (debt), and the production of notes and coins is handled by the Treasury.

Looking at the currency in circulation, which reached its highest point last month at $2.32 trillion, and comparing it to February 2020, when it stood at $1.80 trillion, we see a growth rate of approximately 30%.

In the last several years there has been a significant increase in the money supply. While it’s far from the 80% figure seen on social media, it still appears to be substantial. It’s also important to remember, there is no optimal or ideal amount of money that should be created, and this highlights the inherent flaws of an unsustainable monetary system that has long since drifted away from sound economics.

A few days ago, Frank Shostak reminded us:

Because the present monetary system is fundamentally unstable, there cannot be a “correct” money supply growth rate … Whether the central bank injects money in accordance with economic activity or fixes the money supply growth rate, it continuously destabilizes the system.

However, it ultimately traces back to the Fed. During the same period from 2020 to 2022, the Fed’s balance sheet expanded from approximately $4 trillion to nearly $9 trillion. However, this is $9 trillion too much, and unless the Federal Reserve is completely abolished or prevented from interfering in the free market, we will continue to experience the roller coaster ride known as the boom-and-bust cycle.

The noteworthy headline should read that during the previous recession, the Fed doubled its balance sheet, and if a similar approach is taken in the upcoming recession, then the current high prices of today would pale in comparison to the price inflation that would inevitably follow.

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How to Read the Fed’s Statement of Operations

04/21/2023Robert Aro

It’s true what they say about following the money. With the release of the Federal Reserve’s 2022 Financial Statements, we can take a closer look at their income and expenses to find that the central bank functions like a federal embezzler as much as it does a federal counterfeiter.

It begins on page 7: Revenue of $170 billion.

The interest earned on US Treasuries and Mortgage-Backed Securities accounts for nearly 100% of the Fed’s revenue. Keep this question in mind until the end: Who paid this interest?

The above should be considered a national scandal, but it gets better once the expenses are understood. It starts with $102 billion paid to banks which park and lend their money to the Fed.

Almost two decades ago the Fed started paying interest on bank reserves. The Federal Reserve Bank of Richmond tells us Milton Friedman (not an Austrian) advocated for this over 40 years ago. It continues to be a costly endeavor.

From the above, we find that 60% of the Fed’s income has been absorbed by interest payments to foreign and domestic banks, central banks, and countless institutions whom we’ve never heard of.

There is another expense line item called: Other Items of Income (Loss), but this is only $220 million, therefore negligible. From an auditor’s perspective, a quarter of a billion dollars is likely below materiality when dealing with dollar-value magnitudes of this order.

Rounding out the expenses are the administrative costs of running a central bank. In 2021 there were over 23,000 people employed by the Federal Reserve System. Last year nearly $4 billion went to salaries and benefits and another $1 billion into the pension plan.

Every year we must also be reminded that the Board of Governors operating expenses and currency costs continue to be concealed and receive absolutely no note disclosure in the statements. The costs were $2 billion this year. The public therefore receives no details as to how the Board of Governors spent this $2 billion.

Elizabeth Warren’s Bureau of Consumer Financial Protection had another stellar year, bringing in $722 million from the Fed; impressive it gets its own line item!

Nonetheless, Total operating expenses amounted to $9 billion, meaning that administration consumed around 5% of the Fed’s revenue.

This brings us to the $59 billion in earnings for the year, give or take a few billion for rounding, but it’s more complicated than that.

As explained in the Note 3q:

The Reserve Banks remit excess earnings to the Treasury after providing for the cost of operations, payment of dividends, and reservation of an amount necessary to maintain surplus at the aggregate surplus limitation.

As instructed by legislation, after paying out 65% of its earnings for interest payments and administrative fees, it then paid out $1.209 billion as dividends to the banks who own capital stock at the Fed. Yes, these are the very same banks the Fed regulates and bails out on occasion.

However, near the end of the report on Note 12, it’s explained that after expenses and the dividend to banks (which was only $583 million last year), the Fed managed to remit $76 billion to the Treasury. Since the Fed does not recognize losses, the loss of $16 billion (earned $59 billion but remitted $76 billion) was capitalized as a deferred asset. See below:

Going back to the initial remark of embezzlement of public funds. In 2022 the US government paid the Fed $116 billion, and mortgage holders paid $54 billion, meaning $170 billion total revenue came from the public. In return, the Fed paid $102 billion to banks, $9 billion for administration, $1 billion in dividends, and then gave back $76 billion to the Treasury, making up for the shortfall in a way that no one else could do.

It’s generally portrayed as a win for the people when the Fed remits billions to Treasury, but this is nothing more than the return of the public’s money, less over hundred billion dollars in expenses and a healthy dividend along the way… and if this is confusing, don’t be alarmed, it’s supposed to be.

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How Does a Bank Collapse in 48 Hours?

03/17/2023Doug French

“How does a bank collapse in 48 hours?” Asks the CNN headline. Especially a bank that reported a profit of $3.4 billion just last year. Murray Rothbard answered the question years ago in What Has Government Done To Our Money?, “No other business can be plunged into bankruptcy overnight simply because its customers decide to repossess their own property. No other business creates fictitious new money, which will evaporate when truly gauged.”

If you watched the Fed Chair Jerome Powell testify before the Senate and the House this month you heard over and over that banks are well capitalized. The non-sequitur inspiring the Shakespearean quote “Methinks you protest too much.” 

The very next day after the hearings, shares of SVB Financial Group, parent of Silicon Valley Bank, fell 60 percent (the bleeding continued in after hours trading) after a Wall Street Journal article revealed, the bank “had sold large portions of its securities portfolio and would raise fresh capital, highlighting a broader problem for U.S. lenders who have seen rising interest rates hammer the values of their bond holdings.”

A day later Silicon Valley Bank depositors ran for the exits attempting to pull $42 billion out on Thursday, leaving the firm with a negative cash balance of almost $1 billion, regulators said. joining shareholders the same day the WSJ article appeared. The FDIC promptly closed the bank Friday morning saying: "Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank." 

Almost Daily Grant’s wrote “Total deposits stood at $175.4 billion, with $151.6 billion of those uninsured. Those with deposits in excess of the FDIC’s $250,000 insurance threshold will receive a receivership certificate for their funds, with payments to follow as the regulator sells down remaining assets.” (emphasis added)

Roku, Roblox, and Blockfi are among the companies that had millions on deposit at SVB, uninsured. “The company’s deposits with SVB are largely uninsured,” Roku said. “At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB.” 

Overseas this weekend, leaders of roughly 180 tech companies sent a letter calling on UK Chancellor Jeremy Hunt to intervene. “The loss of deposits has the potential to cripple the sector and set the ecosystem back 20 years,” they said in the letter seen by Bloomberg. “Many businesses will be sent into involuntary liquidation overnight.”

While SVB was a lender to the venture capital industry and tech sector, the investments that did the bank in were bonds backed by the full faith and credit of the U.S. government. However, the value of those bonds has plunged as interest rates have increased dramatically. 

Banks are able to use a little accounting trickery pokery as it concerns bonds designated “available-for-sale,” as opposed to “held-to-maturity.” The available-for-sale label allows banks to “exclude the paper losses on those holdings from its earnings and regulatory capital, although the losses [do] count in equity.” Held-to-maturity allows banks “under the accounting rules to exclude paper losses on those holdings from both its earnings and equity.”

This problem is not particular to the bank serving techland.

The Federal Deposit Insurance Corp. reported that U.S. banks’ unrealized losses on available-for-sale and held-to-maturity securities totaled $690 billion as of Sept. 30, up 47% from a quarter earlier, reported the WSJ. 

Bank analyst Christopher Whalen wondered in a tweet, “Is it possible that nobody has asked Chair Powell about the deteriorating solvency of US banks due to QE? Where do you think that -$600 billion number will be at the end of Q1 '23” (emphasis added)

MarketMaven’s Stephanie Pomboy weighed in on the same subject with this tweet, “I'm puzzling to understand how THIS isn't the only thing people are talking about today????????? Someone tell me about the rabbits. and fast!” 

But again on Capitol Hill and at the Eccles Building no one was uttering a discouraging word. However, FDIC Chairman Martin Gruenberg said in a December 1, 2022 speech, “The combination of a high level of longer-term asset maturities and a moderate decline in deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell investments to meet liquidity needs.”

Now Gruenberg’s prophecy is coming to fruition. Silicon Valley said it decided to bite the bullet and sell holdings and raise fresh capital “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.” The fresh capital could not be had at any price. 

Rothbard reminds us, “The bank creates new money out of thin air, and does not, like everyone else, have to acquire money by producing and selling its services. In short, the bank is already and at all times bankrupt; but it's bankruptcy is only revealed when customers get suspicious and precipitate ‘bank runs.’”

So the banks are well capitalized Mr. Powell? Bank depositors and ex-depositors will decide that. Silicon Valley Bank is the first this cycle to fail, but likely not the last.

How Reporters Manipulate You

03/15/2023Connor O'Keeffe

An article in the New York Times last night by reporters Jonathan Swan and Maggie Haberman is an excellent example of one of the common ways “hard news” reporters can put their thumbs on the scale and push a preferred agenda.

On Monday Florida governor, and likely presidential candidate, Ron DeSantis said on Fox News that “becoming further entangled in a territorial dispute between Ukraine and Russia” is not a vital interest of the United States.

The people who work at and manage the New York Times clearly disagree with this opinion. That’s clear to anyone who has consumed their war coverage and seen the way they frame the conflict.

However, the paper wants its reporting to continue to appear nonpolitical as can be seen in this disclaimer halfway down the article.

A NYT caption about how their reporters are not allowed to endorse or campaign for political causes.

So how do they dissuade readers of DeSantis’s point without appearing to rebuke it? They launder their opinions through experts and notable people with the same view.

In this article, they focus on some of DeSantis’s fellow Republicans who happen to agree with the New York Times on this particular issue.

The article presents reactions from seven Republicans who strongly denounce the DeSantis statement. They rake the Florida governor’s name through the mud with their comments. They call him weak and say that he’s so wrong it’s a risk to national security.

The article also quotes a Wall Street Journal columnist who criticizes GOP noninterventionists for wanting to “surrender” to Putin.

The article has one single quote from someone who agrees with DeSantis, but only because he wants the U.S. to focus more on combating China. Pure noninterventionism is given no voice, only a dissenting interventionist.

In paragraph 23, Haberman and Swan do admit one important detail that the readers who made it that far would be forgiven for getting completely backward. The opinions of those highlighted in this piece are unpopular with the GOP base compared to the skepticism of U.S. intervention in Eastern Europe voiced by Donald Trump and Ron DeSantis.

Readers will come away from this article thinking that DeSantis said something on TV that most people, including leaders and prominent members of his own party, think was stupid.

That is the exact kind of point you’d expect from the paper’s Editorial Board. But here it’s presented by reporters writing in the “hard news” section of the supposed paper of record.

How a Libertarian Church in the Nation of Georgia Helped Undermine Military Conscription There

03/14/2023Ucha Goshadze

Georgia is a country at the intersection of Eastern Europe and Western Asia. It was occupied by the Soviet Union in 1921 and remained part of it until 1991. Military service was mandatory in the USSR because the Soviet leadership didn't respect individuals’ lives and used them as mere pawns.

This practice remained intact in contemporary Georgia until a libertarian party called Girchi established a "Christian, Evangelical, Protestant Church of Georgia—Biblical Freedom" in 2017 to free people from being government slaves, as priests were legally allowed to avoid conscription.

Since its creation the church managed to free individuals in nearly 50,000 cases from this form of modern slavery, but recently the government introduced a new law making it illegal to avoid conscription this way. Therefore, Girchi is now battling against the government to completely cancel the military draft and make the service fully voluntary by offering willing soldiers a decent salary, contrary to how it is nowadays when the government pays them less than $25 per month.

For all these years, the immoral practice of forcibly taking 18 to 27-year-old boys and exploiting their labor has been justified with patriotic slogans and the unwillingness of the government to stop treating people like a free resource for the duration of 12 months. However, patriotism is not just a word; it's an act of showing your respect in material form to the people who voluntarily want to defend your country, because patriotism or any other virtue can only be moral if it's done voluntarily and not under the threat of force.

There's been research done on the topic of whether the size of an army is an important factor when it comes to winning the battle, but it turns out it's not the size of the army but other factors such as motivation, weaponry, and tactics that play the main role.

Therefore, concentrating only on soldier quantity without guaranteeing that the army is staffed with people who voluntarily chose this profession and are equipped with decent weaponry, only points out that the government places no value on individual lives, as unmotivated and inadequately armed soldiers are doomed to an undeserved death.

There have been cases when conscription was justified with false argumentation that it's a duty of every patriot to serve in the army. But this reasoning overlooks a simple fact that defense is a public service that's financed from the state budget, therefore it is in fact taxpayers who keep army well-fed and armed.

This, it is no more of a patriotic act to serve in the army than to be employed or run a business so then the government can take taxes in order to actually keep the army financed and functioning. Especially nowadays when modern armies are exclusively dependent of high-tech equipment and weaponry, it is foolish to hope merely on troop numbers rather than directing the funds towards a fully professional and well-armed voluntary army.

No army is as effective as the one that is staffed with people who have willingly accepted their occupation as a soldier and it is in fact counterproductive to keep unmotivated people in the army, as it’s a waste of financial resources required for the training as well as dear lives when it comes to the actual battle.

In some cases, Girchi's church was criticized from a religious perspective that it's a sinful act to help people avoid the conscription, however the Bible itself states the following in 1 Samuel 8:10:

Samuel told all the words of the lord to the people who were asking him for a king. He said: This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. He will take your daughters to be perfumers and cooks and bakers.

He will take the best of your fields and vineyards and olive groves and give them to his attendants. He will take a tenth of your grain and of your vintage and give it to his officials and attendants. Your male and female servants and the best of your cattle and donkeys he will take for his own use. He will take a tenth of your flocks, and you yourselves will become his slaves. When that day comes, you will cry out for relief from the king you have chosen, but the lord will not answer you in that day.

For anyone interested in learning more about the party feel free to follow the official Facebook page at or join a private Facebook group for discussions.

Half a Year of QT Down

12/13/2022Robert Aro

Who would believe we have made it this far?

6 months of official Quantitative Tightening (QT) has passed. The Fed has been doing what they said they would do (i.e., their actions, not results).

The asset reduction for the month of November was almost $80 billion. From Nov. 2 – 30, the US Treasury (UST) balance decreased by roughly $60 billion and Mortgage-Backed Security (MBS) balance decreased by roughly $20 billion.

After half a year the (temporary) gradual turn in the balance sheet predominately shows:

In a near perfect world there would be no Federal Reserve; while, in a less perfect one, they would exist, but neutralized from the ability to alter the money supply. But this is not that world and $8 trillion was released into it, weakening the dollar, making assets more expensive while increasing the cost of living.

The most decorated mainstream PhD's, the Nobel Prize winners, and the highly paid experts on TV will mention none of this. Real-world economic matters, the truth, neither concerns them nor is part of their job description. They’ll call it “QE” or “stimulus,” while trying to rationalize the Fed’s government enforced monopoly of their currency. As for the cause of booms and busts, they’ll find every other reason to blame except the Fed.

The process of minting trillion of dollars normally proves to be a lucrative endeavor for central banks. However, you get the odd time, such as this year, when they start decreasing their balance sheet. Amounts owed to the Fed are paid back from the system and the Fed deletes some of this money. The Fed buys less securities (debt), interest rates go up, yield curve inverts and as they say: “the fix is in.”

Yet, even the most powerful institutions in the world must face economic reality once in a while. Lo and behold, they found that when money was pumping into the system, it was much easier to turn a profit. Now with interest rates on the rise and a shrinking balance sheet, the magical Money Machine Technique doesn’t appear to work as well.

In 2022 we’ve reached a stage where the largest central banks are suffering losses. Just yesterday Alex J. Pollock and Paul H. Kupiec wrote an incredible article: Central Banks: Profligacy in Lockstep where they shared some of the losses the central banks are now carrying. The figures are staggering:

The Swiss National Bank’s (SNB) financial statements for the nine months ending September 30, 2022, show a bottom-line loss of US$150 billion.

As for the Fed:

…estimated at a remarkable $1.3 trillion loss as of October 2022. This is 30 times the Fed’s total capital of $42 billion.

Luckily, accounting tricks work much better in America. Unlike the Swiss central bank who must show the loss on their books, the Fed doesn’t. As any stock loser can attest, it’s only a loss when you sell!

So here we are. Over half a year of balance sheet reduction has occurred. Consider the swings in the stock market, the fear in the housing market, the increased debt burdens most people are facing, and large failures like FTX which continue to threaten the system. As for price deflation, no one should hold their breath on that.

The year has been incredible and still a few weeks remain. I’ll be the first to say I never believed we could make it to 6 months of QT, but surely, we can’t take another 6 more months of this… can we?

How Secession Solves Our Problems: On the 'Crisis Magazine' Podcast

11/18/2022Ryan McMaken

I joined Crisis editor Eric Sammon to discuss secession and my new book Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities.


From the discussion: "Secession should really just be thought of as one form of political decentralization. In America, we’re pretty familiar with the idea of decentralization overall. Most people call it federalism. ... Americans get the idea of decentralization overall, but what of course they forget is that America’s past is founded on the idea of a more radical version of decentralization, which is known as secession. And so secession took place during the American Revolution, which was a attempt for these 13 sovereign states to secede from the larger empire."

How to Lose $143 Billion Trading Stocks

11/11/2022Robert Aro

Now here’s the headline!

Swiss National Bank loses nearly $143 billion in first nine months

Reuters reported the Q3 result last week, in which Switzerland’s publicly traded central bank (SNB) suffered its largest loss in its 115-year history. The news release reads beyond belief, not because of the unprecedented amount of value that was lost, but just how nonchalantly this legal counterfeiting ring is being downplayed.

The loss … was slightly more than the annual economic output of Morocco ($132 billion), but the central bank does not face bankruptcy thanks to its ability to create money.

Justification for the SNB owning stocks has always been the same:

The SNB made a loss of 141 billion francs from its foreign-currency positions as the bonds and stocks bought during its campaign to stem the appreciation of the safe-haven franc slid in value.

As the story goes, the Swiss Franc is too high. To weaken their currency, the SNB must print money. And because money must go somewhere, they’ve found it best to put it towards owning US equities.

Mainstream economists seldom consider ideas such as the universal application of an economic theory. If this stock purchase to weaken the Franc was a good idea, then the Fed should do the same and own $10 billion of Apple shares, giving the Fed a healthy dividend, as stated above: “thanks to its ability to create money.”

And then shouldn’t Canada’s central bank do the same? I.e., inflating their currency so much to help boost exports, as is often cited as the reason to depreciate currency.

Few, if any, mainstream economists appear bothered by having a central bank intervene in the stock market. UBS economists, Alessandro Bee, did not address this concern, but dismissed the capital destruction entirely, opting to try to explain how:

These losses may sound like a lot, but the SNB is not a normal company.

He went on to say that “normal bankruptcy rules” need not apply to the SNB.

A finance director of a Swiss Canton, Heinz Taennler, was quoted similarly reassuring that losing $143 billion wasn’t as bad it sounds:

The SNB is not a normal bank, it's a central bank which has other tasks such as price stability and protecting the Swiss economy.

As for any comment on the $143 billion loss, none was given. But SNB Vice Chairman Martin Schlegal noted that a negative equity position wouldn’t change much of anything… After all, bankruptcy is difficult when you can create an infinite amount of cash.

The Vice Chairman was quoted:

We can pursue our tasks and fulfill our mandate even with negative equity capital… Nevertheless, it is important that we have enough equity. It helps the credibility of a central bank if it is well capitalized.

Must be nice to be a central bank! But not all that glitters is gold. The current dividend payout on each Swiss National Bank share (currently trading at $4,250 USD) is only 0.36%; hardly enough to keep up with any measurement of (price) inflation that  central banks are causing at the moment.

Helicopter Ben

10/13/2022Robert Aro

Every month we see the same headlines, (price) inflation through the roof, and each new month makes a new 40-year inflation high. CNBC shares the not unexpected details:

The consumer price index, a key inflation barometer, jumped by 8.2% in September relative to a year earlier. Economists had expected an 8.1% annual increase.

Per the news release, Public Transportation up 27%, Health Insurance up 28%, and Food at work or school up a mouth watering 91%!” Surely, we cannot blame Russia, China, or the reopening of the economy.

Anecdotally, discussing with friends, family, or acquaintances these price increases reveal no one has anything positive to say regarding currency debasement. It makes society worse off by increasing disparity. It hurts the middle to poor class most, leading to desperation and much worse. Inflationism as a monetary policy is a scourge on society. Anyone saying otherwise either has not truly considered the issue or is highly paid to mask it.

Allow me to illustrate the latter category: This week Nobel Prize Winner Ben Bernanke is being awarded the honor for his work in the 1980’s and his role in the Great Recession of 2007-09.

The Nobel committee doesn’t provide a link to a specific paper. But a very notable one goes into great detail describing how the system works and what the future holds. The infamous: Deflation - making sure "it" doesn’t happen here, courtesy of the Bank of International Settlements.

This short paper from 2002 is a must read! It is where the newly crowned Nobel Laureate discusses:

…the danger of deflation, or falling prices.

It is here, he famously wrote about the “printing press.” The paragraph presented in its entirety:

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

The paper delves into intellectual absurdity, illustrating many factors wrong with the economic system in which we live. Luckily, the following year, Dr. Mark Thornton authored a paper titled Apoplithorismosphobia, or “the fear of deflation.” He introduces the paper:

Or, more correctly, the fear that an economy would “suffer” from falling prices, or a general decline in the prices of goods and services. It is a fear that has gripped some economists, journalists, and policymakers with a blinding strength as powerful as faith.

There are those who understand economics and those who are paid to not. Upon reading both essays, the truth should become self-evident. Society is not better now that the cost of food has doubled in price this past year. Nor is it sincere to treat this as a matter of the Fed simply controlling inflation by mathematical formula. This idea of “positive inflation” as a public good continues to be a widely accepted idea. Thus, we must reiterate, as we have for over a century now, that it is not.

With inflation at 8.2%, we could actually use a little deflation right about now. If there is any justice in the world, it will come when an Austrian authors a paper titled: “Inflation - Making Sure It Doesn’t Happen Ever Again,” wins a Nobel prize for their work in stopping monetary destruction once and for all.

Hoppephobia Redux

Hans-Hermann Hoppe, despite retiring about fifteen years ago and only publishing lightly since, has an (un)enviable characteristic: he still manages to provoke his opponents to violent and rather silly outbursts from time to time. The most recent round of pearl clutching emanated from the otherwise sound Phillip Magness (via Twitter), who seems to have fallen into the same conspiracy-minded, guilt-by-association way of reasoning (using the term broadly!) he so ably has exposed in left-wing writers like Nancy MacLean (on James Buchanan) or Quinn Slobodian (on Ludwig von Mises).

Stephan Kinsella has answered the personal insinuations against Hoppe and most of the other claims Magness made, and one can hope that is the end of it. Yet something suggests that the Hoppe haters will not be persuaded even now. Recently, in an interview with ReasonTV, Magness again made similar claims against Hoppe so another little essay on the Hoppe question seems warranted, mainly to help the innocent bystander, who might otherwise be frightened away by the hateful rhetoric of the Hoppephobes, understand what’s going on.

I’ll here briefly address three major accusations against Hoppe.

Hoppe the Nazi

Guilt by association plays a major role in the Nazi insinuations against Hoppe—in fact, there is no argument behind it other than that. Hoppe cited David Irving without adequately condemning him for wrongthink; Hoppe refused to accept that Germans are “congenital villains” of world-historic uniqueness. In this, he contradicts what in Germany has been a basic dogma since the Historikerstreit, but it is hard to see that Hoppe said anything objectionable—or why we should simply submit to leftist dogmas. As for Hoppe’s related claim that there was an attempt to brainwash the Germans after the war—well, this is true and simply official history, as detailed, for instance, in Frederick Taylor’s Exorcizing Hitler.

There is more substance, at least on the face of it, to Magness et al.’s claim that a memo Hoppe wrote in 1996, “From Nation to Household,” betrays his sympathy for Nazism. After all, Hoppe clearly writes that what’s wrong with “national socialism” is the socialism part—get rid of that and we’ll have “national capitalism,” and that’s much better. It appears we have to accept that Hoppe really is cheering on mass extermination etc.; he just wants to privatize it (which, presumably, means that he’s really worse than the classic Nazis, since Hoppe’s national capitalism would be much more efficient).

Right? Not really. It’s a basic case of omitting crucial context. The memo is an extended critique of Samuel Francis’s and Pat Buchanan’s proposed economic policies, which Hoppe characterizes as socialism. The other part of the program, the cultural or social part, with which he agrees, Hoppe calls nationalism; hence the conclusion that Francis advocates national socialism. Hoppe explicitly states, however, that there is nothing anti-Semitic or racist in Francis’s program—it’s simply a rejection of political correctness and a call for return to normalcy and traditional middle-class values. In the same memo, Hoppe goes on to criticize the socialistic aspects of the Francis program and in its stead proposes “national capitalism”: in short, liberal economic policies that are better suited to Francis’s and Buchanan’s cultural and social aims. Reading any kinship to German Nazis into this is simply baffling—unless one thinks the real evil part of Nazism was not their socialism, or their racism, or their anti-Semitism, but their support for more traditional morality and normalcy (not to mention the fact that the Nazis did not even really promote traditional values).

Ironically, there is a much better case for calling Mises a Fascist sympathizer than Hoppe. After all, Mises explicitly wrote: “It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.” Anyone with a brain will recognize that Mises was not a fascist and that this statement occurs in the context of a thorough refutation of fascism (nor can anyone deny that at the time of writing, in 1927, it was obviously true). However, when it comes to Hoppe, the most innocuous statement is used to paint him as a fascist or worse.

It’s thus hard to see any Nazism or fascism in either Hoppe or Mises—unless, of course, one adopts the more descriptive definition of fascism once proposed: fascism is whatever Stalin doesn’t like!

Hoppe the Critical Theorist

Magness has repeatedly accused Hoppe of not being an Austrian economist but rather a critical theorist. The evidence for this claim is Hoppe’s close personal connection to the German philosopher Jürgen Habermas, one of the leading lights of the Frankfurt school. Hoppe’s work on argumentation ethics is also replete with references to Habermas and especially to Karl-Otto Apel, whose communicative ethics Hoppe refashioned into his own argumentation ethics along Misesian lines. Yet does this make Hoppe a critical theorist? What, exactly, did he take from Habermas, the bête noire in Magness’s depiction of Hoppe? Why don’t we simply listen to what Hoppe himself says:

My relationship with Habermas, while not close, was cordial, and I learned quite a bit from him, especially from his earlier works such as Erkenntnis und Interesse (Knowledge and Interest). (Since the late 1970s I essentially stopped following his work, as it was increasingly tedious and murky.) In any case, it was Habermas who introduced me to the Anglo-Saxon tradition of analytic philosophy and the philosophy of language. He helped me understand “methodological dualism,” i.e., that the study of objects with which we can communicate (and communicative action) requires different methods than those appropriate for the study of noncommunicative objects (and instrumental action). And contra all empiricist and relativist claims, Habermas always defended the notion of some sort of synthetic a priori truths.

Analytic philosophy, philosophy of language, methodological dualism, and the existence of a priori truths—if this be critical theory, make the most of it! There is nothing here incompatible with Austrian economics, no materialism or polylogism, and in fact there are plenty of building blocks for Mises’s praxeological system.

Still, Hoppe may be tainted by personal exposure to Habermas, and he may thereby unconsciously bring critical theory into his work on Austrian economics. Perhaps. Magness and others should then consider the person of Carl Grünberg. Grünberg was the founder of the Frankfurt school, as in 1924 he was the first director of the Frankfurt Institute for Social Research. So what? Before going to Frankfurt, Grünberg taught in Vienna, and among his doctoral students was … Ludwig von Mises. According to Guido Hülsmann, Mises learned a lot from the Grünberg seminar and published papers along the lines of Grünberg’s more historicist approach. If Magness is concerned about cultural Marxism tainting Austrian economics, and if learning from Marxists is enough to irrevocably taint a person, then he will have to excise a substantial portion of the Austrian tradition.

Hoppe the Anti-immigrationist

Hoppe’s views on immigration are well-known, if often misrepresented. In short, he argues that in a free society, immigration can be by invitation only. Private property owners and covenant communities will simply decide who they want to accept and how many immigrants they want. This does not imply, however, that under current conditions open borders—that is, no control on immigration—are the best policy. The state both coercively limits the number of desired immigrants and coercively imposes undesired immigration on the population. Hoppe’s more practical proposal is to limit the externalization of immigration’s costs, by limiting migrants’ access to state services, adopting some kind of sponsor system, and requiring a host to post a bond for each immigrant he invites into the country.

This proposal, we are told, is both illiberal and at odds with Mises’s views on immigration. Now, it is certainly true that Mises wrote favorably about free migration. Looking simply at incomes and production, free immigration is optimal. Workers will move where wages are highest, and since wage differentials reflect the underlying differences in productivity and in the value of the output, the free movement of labor leads to an overall increase in social production. Restrictions on migration thus make some countries relatively underpopulated, driving up wages, and other countries relatively overpopulated, driving wages down.

However, Mises was not for open borders, even at his most optimistic. In Liberalism, he clearly states that freedom of movement is incompatible with an interventionist or socialist state. Given the all-pervasive influence of the state under such conditions, Mises argues that national minorities are bound to be persecuted in such states. Therefore Mises thinks the decision of, say, the Australians to keep out immigrants to avoid being inundated by Asians and non-English Europeans and becoming a minority is fully understandable. Only if we insist on a purely economic conception of man can we enlist Mises under the banner of open borders and against Hoppe. Since this was clearly not Mises’s conception, we cannot do so.

The More Things Change

Hoppe can of course be criticized. But the attempt to paint him as some kind of evil interloper, an agent of Nazism and critical theory flying under the radar and corrupting Austrian economics, is simply laughably wrong. As I’ve tried to show here, none of the points raised against Hoppe can withstand scrutiny, and on all the substantial issues, Hoppe is much closer to Mises than the critics will accept.