Money and BanksMoney and BankingPhilosophy and Methodology
Economic theory must have only one purpose — to explain economic activity. However, statistical methods are of no help in this regard.
Philosophy and MethodologyPraxeology
Money and BanksMoney and Banking
Central banks contend they can avoid booms and busts by increasing the money supply the "correct" amount. They are bound to fail.
Rather than increase efficiency and profitability, corporate managers look for easy ways to increase their salaries through leveraged buyouts. And central banks have a key role in making this easier and more common.
SubjectivismValue and Exchange
Prices are set by how much people value goods and services. And people value things based on what they think will improve their life and well-being.
Economist Greg Mankiw confesses: I love the Federal Reserve. And I suspect that, in their heart of hearts, most other economists love the Federal Reserve, too.
A "neutral" interest rate cannot be observed through any statistical test or public policy. But central bankers are sure they can find it and use it to endlessly tinker with the economy.
Attempts at stabilizing the economy distort economic signals and cause economic instability, rather than preventing it.