by

Morgan Reynolds

So is everything alright with the economy?  The Fed’s in control, right?  Ok, then Trump is?  Hardy, har, har.  We’re experiencing a Warren Buffet moment: “Only when the tide goes out do you discover who’s been swimming naked.”  Big fish, little fish, doesn’t seem to matter, nearly all nakeds in the sea are whining, “Mommy!”  Especially those “masters of the universe” on Wall Street who were bailed out a decade ago.  The last time it would be necessary, promise, promise.

So it might be worthwhile to find out what two brilliant economists, Ludwig von Mises (1881-1973) and Murray Rothbard (1926–1995), would (or did) say about the latest pronouncements of the Federal Reserve and Trump administration.  From Mises’ Human Action, Scholar’s Edition (1998) we learn:

“Nothing harmed the cause of liberalism more than the almost regular return of feverish booms and of the dramatic breakdown of bull markets followed by lingering slumps…People did not conceive that what they lamented was the necessary outcome of policies directed toward a lowering of the rate of interest by means of credit expansion. They stubbornly kept to these policies and tried in vain to fight their undesired consequences by more and more government interference (p. 441).

In fact, the chief objective of present-day government interference is to intensify further credit expansion. This policy is doomed to failure. Sooner or later it must result in a catastrophe (p. 445).

The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit [i.e., credit granted out of the issue of fiduciary media (p. 430)].  It would lead to the crack-up boom and the breakdown of the whole monetary system (p. 552).

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved (p. 570).”

What if the Fed gets really serious about firing its Big Bazooka, as it promises?   Murray Rothbard wrote, “When this runaway stage is reached, the economy in effect breaks down, the market is virtually ended, and society reverts to a state of virtual barter and complete impoverishment…When all other limits and forms of persuasion fail, this is the only way—through chaos and economic breakdown—for the people to force a return to the ‘hard’ commodity money of the free market.” pp. 876-7, Man, Economy and State Volume II, (1962, 1970).

So that’s the only way we can transit from monstrosity money to honest money!?  Via chaos and economic breakdown?  Only after catastrophe via immeasurable pain and dislocation.  Mustn’t fool mother nature.  Markets rule in the end, not rulers.  So much avoidable suffering in the world.