The Austrians were Right

House.gov ^ | 11/20/08 | Ron Paul

[ovrtaxt]

Madame Speaker, many Americans are hoping the new administration will solve the economic problems we face.  That’s not likely to happen, because the economic advisors to the new President have no more understanding of how to get us out of this mess than previous administrations and Congresses understood how the crisis was brought about in the first place. Except for a rare few, Members of Congress are unaware of Austrian Free Market economics.  For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics.  If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections. Today, a major economic crisis is unfolding.  New government programs are started daily, and future plans are being made for even more.  All are based on the belief that we’re in this mess because free-market capitalism and sound money failed.  The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement.  Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency.  These suggestions are merely more of the same policies that created our mess and are doomed to fail. At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve.  It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form.  Congress added fuel to the fire by various programs and institutions like the Community Reinvestment Act, Fannie Mae and Freddie Mac, FDIC, and HUD mandates, which were all backed up by aggressive court rulings. The Fed has now doled out close to $2 trillion in subsidized loans to troubled banks and other financial institutions.  The Federal Reserve and Treasury constantly brag about the need for “transparency” and “oversight,” but it’s all just talk — they want none of it.  They want secrecy while the privileged are rescued at the expense of the middle class. It is unimaginable that Congress could be so derelict in its duty.  It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone.  All Members of Congress and all Americans should be outraged that conditions could deteriorate to this degree.  It’s no wonder that a large and growing number of Americans are now demanding an end to the Fed. The Federal Reserve created our problem, yet it manages to gain even more power in the socialization of the entire financial system.  The whole bailout process this past year was characterized by no oversight, no limits, no concerns, no understanding, and no common sense. Similar mistakes were made in the 1930s and ushered in the age of the New Deal, the Fair Deal, the Great Society and the supply-siders who convinced conservatives that deficits didn’t really matter after all, since they were anxious to finance a very expensive deficit-financed American empire. All the programs since the Depression were meant to prevent recessions and depressions.  Yet all that was done was to plant the seeds of the greatest financial bubble in all history.  Because of this lack of understanding, the stage is now set for massive nationalization of the financial system and quite likely the means of production. Although it is obvious that the Keynesians were all wrong and interventionism and central economic planning don’t work, whom are we listening to for advice on getting us out of this mess?  Unfortunately, it’s the Keynesians, the socialists, and big-government proponents. Who’s being ignored?  The Austrian free-market economists—the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today.  If the crisis was predictable and is explainable, why did no one listen?  It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before--like the philosopher’s stone that could turn lead into gold.  Prosperity without work is a dream of the ages. Over and above this are those who understand that political power is controlled by those who control the money supply.  Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful.  The truth is otherwise.  Central economic planning is always harmful.  Inflating the money supply and purposely devaluing the dollar is always painful and dangerous. The policies of big-government proponents are running out of steam.  Their policies have failed and will continue to fail.  Merely doing more of what caused the crisis can hardly provide a solution. The good news is that Austrian economists are gaining more acceptance every day and have a greater chance of influencing our future than they’ve had for a long time. The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation.  Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt.  But the piper will be paid, and that’s what this crisis is all about. There are limits.  A country cannot forever depend on a central bank to keep the economy afloat and the currency functionable through constant acceleration of money supply growth.  Eventually the laws of economics will overrule the politicians, the bureaucrats and the central bankers.  The system will fail to respond unless the excess debt and mal-investment is liquidated.  If it goes too far and the wild extravagance is not arrested, runaway inflation will result, and an entirely new currency will be required to restore growth and reasonable political stability. The choice we face is ominous:  We either accept world-wide authoritarian government holding together a flawed system, OR we restore the principles of the Constitution, limit government power, restore commodity money without a Federal Reserve system, reject world government, and promote the cause of peace by protecting liberty equally for all persons.  Freedom is the answer.

[mnehring]

You may want to clarify that Austrian school type free markets are not real-world tested. There are many examples, including our own, of various types of free markets (as well as now which is a textbook case of what happens when you reduce the ‘free’ in free markets.)

[milwguy]

Another of my favorite Mises quotes! Hayek as well had thoughts on money’’’’’’’’

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” Frederick Hayek

“There cannot be stable money within an environment dominated by ideologies hostile to the preservation of economic freedom.”
- Ludwig von Mises

“The governments alone are responsible for the spread of the superstitious awe with which the common man looks upon every bit of paper upon which the treasury or agencies which it controls have printed the magical words legal tender.”
-Ludwig Von Mises

“How pale is the art of sorcerers, witches, and conjurers when compared with that of the government’s Treasury Department!”
- Ludwig von Mises

“If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit.”
- Ludwig von Mises

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”
- Thomas Jefferson

[milwguy]

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.”
- Congressman Louis T. McFadden in 1932

[garbanzo]

He took the stance that the US is the cause of the world's problems.

I think that's somewhat unfair to Paul. I think he believes in American exceptionalism, but doesn't believe it extends to unilateral military moves or the right to dictate policy to sovereign states without repercussions. I am sympathetic to that view without endorsing it fully.

[milwguy]

I was just sending some info on where to get general info on the Austrian School. One could also read Socialism by Von Mises and get a good understanding of the theories behind the Austrain school.

[mnehring]

I have yet to find where he has ever made a statement about American exceptionalism. He blames us for financial crisis, military crisis, etc. It isn’t just the current war, it is his entire history. He said Ronald Reagan made Jimmy Carter look conservative. Regarding the current war, just as you stated, he falsely keeps using the left’s statements of ‘unilateral’ and even falsely states it was unconstitutional.

[padre35]

There are strips in the money, the Amero is under discussion and someone is certainly going through a lot of trouble to give taxpayers monies to bail out banksters.

For myself, the one thing that is not being talked about, and never is, Process...where are we heading from say a 1987 view, and a 1997 view and a 2007 view?

It’s as if folks, though well meaning, expect all of those things to happen overnight, the politicos who implement this stuff are much more clever then that, this process occurs over decades, not months, or even a span of 2-3 years.

Yet Paul stated the whole structure was going to crash and burn, he said that during the primaries and was laughed at, but after 10 yrs of CRA induced GIGO for FDIC insured agencies look what happened...

If someone had said, someone in National Office had said, “the banks are going to collapse in 4 years” in 2004, they would have been laughed at...and yet..

[mnehring]

I understand, just pointing that out.. Rockwell’s site twists the Austrian school’s theory and we have a whole generation who have an incomplete, sometimes inaccurate view because of that site. I would suggest Mises’ The Theory of Money and Credit & The Austrian Theory of the Trade Cycle and Other Essays. Go to the source...

[mnehring]

Please don’t say you buy into the conspiracy theory that the ‘strips in money’ are tracking chips.

[Moonman62]

Go ahead and define free markets. Are they regulated?

[padre35]

Hmm.. I didn’t see it that way, to me he was not naming the US as the locus of the World’s problems, rather Paul was saying that America has run off of her Constitutional Rails.

For example, he was not in favor of the War in Iraq, his specified reason was the lack of a Declaration of War, however he also said that if we went to war, we should not have a pit stop in the UN for a permission slip, the Constitution does not require such a “Nanny May I...” before America goes to war.

That said, his argument falls down at the idea that we should just cut and run and pull everyone out ASAP, IMO he erred in that position.

[mnehring]

If someone had said, someone in National Office had said, “the banks are going to collapse in 4 years” in 2004, they would have been laughed at...and yet..

The problem is, anyone can make statements like this and the prediction will come true. I predict now that in one year, businesses will go bankrupt. Does this mean I have special knowledge? No, it means that it is common sense that businesses will go bankrupt. They always do. Paul isn't special, nor is he a prophet. He is a professional naysayer, throwing shotgun blasts of predictions, hoping a few will hit the bulls eye. Far too many put him on a pedestal that he doesn't deserve.

[padre35]

Maybe I do...maybe I don’t...LOL!

Naah, but you’ve got to say, we are printing more money then we ever had before, basically devaluing the currency via the printing press...

[mnehring]

No, but the Constitution specifically gives congress the authorization to ‘Define and punish offenses against the laws of nations’.. the Constitution also declares that any treaties made are to be considered high law of the land. This isn’t saying “nanny may I”, this is the Constitution giving us the tools to use these types of laws/groups as we need, and if we do go into a treaty, such as the treaties we’ve signed with NATO or the UN, we must honor our treaties (our word), unless we Constitutionally de-ratify those treaties.

Using a UN resolution isn’t asking their permission. The UN resolution is a tool that we used for our purposes. It allowed 30+ other nations to legally support us by the fact that they are also signatories to that treaty.

The war issue is just another way Paul picks and chooses from the Constitution for his own purpose the same way that Fred Phelps picks and chooses from the Bible.

[padre35]

Not businesses in general, but Banks specifically, I can recall Paul being laughed at this early spring in the Debates when he said the banks would crumble, literally, McCain and Romney were chuckling..and yet...

And you will not here me say Paul is some sort of Guru, he does stick to Constitutionalism, and based on variation from that standard, we can see the results in the country.

[padre35]

Disagree completely, the UN had a Veto over our going to war in Iraq, such a notion is antithetical to the Constitution.

[FightThePower!]

It has been very amusing for me to watch this whole system collapse. An unnatural system, which tries to guarantee prosperity with out savings, investment and work is bound to fail. The USA is going to collapse just like the USSR did because it is based on a false monetary system that tries to create something out of nothing.

[FightThePower!]

“Free markets and Austrian economics aren’t sufficiently defined or tested in the real world.”

Socialist.

[mnehring]

Thank you for pointing that out because you just disproved your original point that we went to the UN with a ‘nanny may I” comment... their Veto power did nothing. IE, we didn’t ask their permission, we had a resolution, and we used it. They are a tool, not a boss. Let’s go back to the aforementioned Article 1 statement.. “Congress is authorized to define and punish offenses against the laws of nations”... Notice the Constitution didn’t say just ‘punish’ but to define and punish, ie, it is Congress’ job to determine what offenses against these laws of nations we enforce, for our own purposes.. our needs trump others.