Brad DeLong comments on Ron Paul’s (and Mises’) views on monetary expansion, inflation, and the business cycles, showing (once again) a complete lack of understand of Mises’ argument. I am bit hesitant to comment on the Mises blog, given that few readers here probably even care about what DeLong has to say. But, to me it is amazing that an academic of DeLong’s stature (he is, believe it or not, a respected scholar) is so incapable of actually putting forth the required energy to actually understand what he is criticizing before making the comment. Instead, DeLong decides to make himself look like an idiot to everyone but those who already worship him.
I usually try to restrain myself from personal attacks and this kind of language, but to me it is obvious that there is just no other way to characterize DeLong (and it does not help that DeLong categorizes Mises’ monetary theory as a “mental disorder”).
The point of view underlying von Mises’s–and von Hayek, and Marx, and Ron Paul–complaint against fiat money in general and monetary management of the business cycle in particular is this: that value comes from human sweat and toil, not from being clever. Thus it is fine for money to have value if it is 100% backed by gold dug from the earth by sweat and machines and muscles (even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it). But it is not fine for money to have value simply because it is useful for buying things.
To anybody with a modicum of knowledge on Misesian economic theory, it is readily obvious that DeLong has never read any of Mises’ work (which is quite unfortunate, since the scholars which give bases to DeLong’s economic beliefs did give Mises the respect deserved — including economists such as Don Patinkin [even if Patinkin did not agree with Mises]).
For Mises, wholly in the Mengerian tradition, all value is subjective. It has nothing to do whether something was produced through “human sweat and toil”. Indeed, it was probably the rise in the popularity of Marxist theory that inspired the marginal revolution (of which, as we all know, Menger was a leader) Moreover, the value of money is generally how DeLong describes it himself — money is a general medium of exchange; it is demanded, precisely because it can be used for indirect exchange. Mises would never deny that paper money has some sort of value. If it did not have value, then it would not be demanded.
But, the question of why money has value is not at the source of Mises’ arguments on inflation and the business cycle. Mises and Paul prefer gold, because gold is more resistant to inflation. It is more difficult to produce. This element of scarcity is one of many factors which made gold popular before the broad, global introduction of fiat monies. It is this element of scarcity which gives some limited long-term guarantee of stability of value of the monetary unit. (Neither does DeLong discuss Mises’ views on money substitutes and the necessity of fiduciary media [even if for Mises the role of fiduciary media is many times more limited than the role applied to it by some modern Austrians, such as Selgin and White]. Perhaps it does not behoove DeLong to actually accurately report Mises’ ideas, because then he might be forced to revise his own way of thinking.)
DeLong shows himself completely ignorant as to the real argument behind Mises’ support of gold and his opposition to fiat currency (or any government intervention in money, for that matter). For Mises, economic theory deals with explaining the market process — the processes of coordination and discoordination (see my articles: “The Foremost Austrian Contribution to Economic Science” and “Government Spending is Bad Economics“). Monetary inflation disrupts the process of economic coordination. More specifically, it disrupts intertemporal discoordination — that is, the investment of saved resources.
I am not arguing that Mises is necessarily right (although, I firmly believe that he is). I am arguing that DeLong should attack the actual argument.
Instead, DeLong has only relegated himself to the status of a second or third-rate academic scholar. I, myself, do not mind much. DeLong is doing our work for us; he is discrediting himself as a serious thinker. If DeLong wishes to prove me wrong, I suggest starting by reading Mises’ The Theory of Money and Credit.
It might be in DeLong’s interest to clear up this mess, though, because if word spreads that he is actually a poor scholar of the history of economic thought then I am not sure who is going to take his upcoming book on the history of economic thought very seriously.