Reply To: Mathematically Perfected Economy


While I’m not a faculty member, I pursued the website and would like to offer some observations. If I am mistaken by some of my assumptions about what this guy is saying, please forgive me.

First, the biggest problem that I have with anyone who “has a plan” is: what happens if I choose not to participate? In other words, will you use coercion to force me to take part in your plan? If your plan is not based on the free market, the answer is yes and your plan should be rejected out of hand.

Second, we should always be suspicious when the words “mathematics” and “perfect” are used in the same sentence as “economy.” Economics is not a mathematical science. Numbers and statistics are useful in economic history, but not in a prescriptive or predictive way. And the economy can never be perfect. The economy is a dynamic system, always imperfect, but always moving towards a greater degree of perfection or equilibrium. It never achieves this state since conditions are always changing. The Evenly Rotating Economy is great for understanding how the economy works, but it is an imaginary construct which holds no validity in the real world.

Third, this guy seems to be completely ignorant of the role interest plays in market economy. Interest is a necessary and vital component of the market. Without interest, there would be no lending. Without lending, there would be no concentration of capital. Hence, a very small division of labor and specialization. Yes, the State concentrate capital with its chosen recipients, but it can only do so by 1) increasing the money supply or 2) taking it from someone else and thus destroying their capital. In addition, the interest rate provides entrepreneurs and investors with important signals that help to effectively allocate resources. The problem with interest today is that the interest rate is fixed by the State or its proxy the central bank. This is simply another form of price controls. It also seems that the gentleman is confused by interest and price inflation as he keeps talking about how much more things like houses cost in dollars than they did 30 or 40 years ago.

Fourth, the gold standard is not perfect, but so long as the State is going to be involved in monetary affairs, something like the gold standard is necessary to impose discipline on government spending. Monetary and price inflation in the US really took off after Nixon closed the gold window in 1971. Austrians do not believe in a gold standard per se. In general, we agree with Hayek that the market will determine what the best money is. As with everything else, the market is vastly superior to central planners. Trusting the State to issue fiat currency without any checks is bound to lead to disaster. While this disaster may manifest itself in different ways, once you come to the root of the problem THIS is the reason that the world is in the situation that it is.