We were recently contacted by a journalist regarding some of our thoughts on 1971 and how they conflict with mainstream economic narratives regarding productivity, growth, and the gold standard. You can read the full article here.
What is often striking to us is just how childish academic narratives regarding money seem to be. Which frankly, is no big surprise considering the only certain future for economically oriented academia is endorsement of the status quo. We certainly don’t want to claim to be experts or infallible, on the contrary we believe it is the want for a critical eye on economic and monetary policy that is the root of the problem in our unprecedented economic situation.
Certainly we would be willing to admit that there are always extraneous factors (IE: regulation) that impact macro economic patterns. However, we find the magnitude of disruption in historical trends following the end of Bretton Woods to be undeniable, and certainly not to be taken lightly. The rate at which money supply and credit expands today is unprecedented in our history, and economic intervention seeks to stave off the liquidation of mal-investment indefinitely. A futile game of kick the can down the road, which only continues to exacerbate the problem with full grandstanding support of academia.
While the extent of our mal-investment might be unprecedented, the nature of it and its postponement is not. Lionel Robbins (1934) went so far as to attribute the extraordinary depth and length of the Great Depression to excessive expansionary monetary policy. He wrote that:
“The moment the boom broke…Central Banks of the world… set to work to create a condition of easy money.…The process of liquidation was arrested.” This was a mistake. For: in…a boom many bad business commitments are undertaken.…[Goods] are produced…which it is impossible to sell at a profit. Loans are made which it is impossible to recover.…[W]hen the boom breaks, these …commitments are revealed.…Nobody wishes… bankruptcies.
Nobody likes liquidation as such.… [But] when the extent of mal-investment and over-indebtedness has passed a certain limit, measures which postpone liquidation only make matters worse.”
This is all too familiar with our great big bubble of today, and we are assuredly all familiar with the old saying about the lessons of history.
Book of the Month:
The Dao of Capital: Austrian Investing in a Distorted World
-“Rather than pursue the direct route of immediate gain, we will seek the difficult and roundabout route of immediate loss, an intermediate step which begets an advantage for greater potential gain.”
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