The Man Who Predicted the Depression

[AnnArborGator]

It's great to see Ludwig von Mises getting a little press...if only more people understood his writings and theories, we'd be in much better shape right now:

Taking his cue from David Hume and David Ricardo, Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse.
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With interest rates at zero, monetary engines humming as never before, and a self-proclaimed Keynesian government, we are back again embracing the brave new era of government-sponsored prosperity and debt. And, more than ever, the system is piling uncertainties on top of uncertainties, turning an otherwise resilient economy into a brittle one.

http://online.wsj.com/article/SB1000...711779692.html

If anyone is interested in great free market writings and tons of resources, check out the Mises Institute's webpage at: http://mises.org/

[Burke]

Mises was a great economist and his monetary theories spot on, but the problem with Mises and all libertarians is that they have no consistent, rational, underlying philosophy. They are mostly just anti-govt, sometimes outright anarchist.

While Objectivists recommend Von Mises economics and agree with the Austrian school of economics, they reject the philosophy he adopted known as "praxeology."