TOS Blog: Daily Commentary from an Objectivist Perspective

For Genuine Economic Recovery, Ask “What Would Mises Do?”

On “public” radio Wednesday, yet another financial guru was advising Europe to follow the lead of the United States: Bail out troubled banks (such as those of Spain) and forcibly transfer more wealth to cover high debt (as persists in Italy).

Coincidentally, the same evening I read a passage by Ludwig von Mises, the great Austrian economist who eventually settled in New York, transcribed from lectures he delivered in Argentina in 1959. Mises’s advice is as timely now as it was then:

To these people [who say follow the United States] one should answer first of all: “One of the privileges of a rich man is that he can afford to be foolish much longer than a poor man.” And this is the situation of the United States. The financial policy of the United States is very bad and is getting worse. Perhaps the United States can afford to be foolish a bit longer than some other countries.

Mises noted that the usual alternative to financing government spending through taxation is to finance it through inflation (government fabrication of fiat money). Such a policy, he explained, is disastrous, the economic chicanery of Lord Keynes notwithstanding, for it enables the government to go further into debt while devaluing the currency in the marketplace. Fortunately, he argued, it is a policy that can be reversed:

Inflation is a policy. And a policy can be changed. Therefore, there is no reason to give in to inflation. If one regards inflation as an evil, then one has to stop inflating. One has to balance the budget of the government. Of course, public opinion must support this; the intellectuals must help the people to understand. Given the support of public opinion, it is certainly possible for the people’s elected representatives to abandon the policy of inflation.

Obviously most of today’s Argentines have forgotten or ignored Mises’s warnings; annual inflation in that nation proceeds at around 25 percent. How the United States handles its debt of nearly $16 trillion (not to mention its unfunded “entitlement” liabilities) remains to be seen.

If Americans want genuine economic recovery, rather than mountains of government debt and dollars worth dimes, they would do well to ask “What Would Mises Do?”

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Image: Wikimedia Commons

Posted in: Business and Economics

Comments are welcome so long as they are civil.
  • Anonymous

    Is there any way out when folks scream at a mere reduction in the rate of increase of government spending?  Are we going to return to an indefinite period of stagflation like we had in the 70’s?

  • rene verstraeten

    Inflation is political strategy nowadays. It is old-fashioned class-wars. Socialists choose government debt spending with inflation, to get rid of their opponents in the middle class. Take away their reward is taking away their influence. The leftists windmill plans and their multicultural society were bought on tick. Ideas might fail, but they succeeded in eliminating the freedom fighters of their wealth by “monetarizing” their savings away. Trade unions , which are mostly socialistic, go on strike with the knowledge that the inflation generated by the rising labour cost, will diminish their shareholders and bosses money after the inflation it generated. The state civil servant class, the backbone of a socialist type of society and mainly socialist opinionated, set themselves free of the influence of inflation by automatic corrections of their income and pensions. If there is no money left in small private hands to drive industry, big government must take over, to keep things running, thus steering it more and more to a prominent institution . The mighty state and the powerless civilian , that is what it wants. In fact you can see the bankers class and the extremely rich left over industry moguls, as part of the new state oriented system. These semi corrupt economy leaders have adopted to the high inflation atmosphere , and could even prosper by it. In fact some bankers in the top of Goldman Sachs got courses in Marxist economy, as our society does not behave like a normal free society any-more. It needs already special theory to describe what is happening in a new pressure organizing scheme of society, what Marxism is. In fact the Military industrial complex of the US is more Soviet alike than normal people tend to believe. The European community is run by former communists. Do not believe that inflation is some bug in the system, it is a tool.