The Fed is always claiming to come up with new ways to make monetary policy less damaging to the economy. But Frank Shostak argues that this isn’t possible. A policy of intervention always benefits some individuals at the expense of other individuals. It always leads to a redistribution of real wealth and weakens the process of wealth formation. No monetary rule, no matter how carefully designed, will change that. [FULL ARTICLE]
Source link: http://archive.mises.org/2067/the-fed-cannot-fix-itself/
The Fed Cannot Fix Itself
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As someone who is just starting his road on Austrian economics, and very interested, I found the article very interesting. However, I have one question perhaps someone can explain. How is there no ‘economy’? In otherwords, how is it some sort of illusionary thing?
Arman D: I believe what Frank Shostak is referring to is the fact that economic activity (as we think of it) is merely a subset of human actions. Furthermore, when you really get down to it, the lines between “non-economic” human action and “economic” human action blur.
What politicians and the Federal Reserve have attempted to do is strictly classify economic activity, regulate it, and tax it.
Here is the kicker, if you proposed to regulate and tax the human action of say, walking your dog most people would say that is absurd. However, this human action is no different than that of what is deemed to be “economic activity”, it is simply man attaining an end by his means.
Good timing on this article today: Greenspan Says Interest Rate-Hike Likely to Be Gradual” (NYT).
When the Fed introduces new money into the market, it invariably goes to politically favoured interests, i.e; malinvestment (consumer borrowing for frivilous spending is a politically favoured interest). Under the classical gold standard banking system, newly printed money (receipts for newly smelted gold)was invariably invested in the creation of real wealth. Tweak the Fed as ye may Mssr’s Greenspan & Bernanke, you’ll still cause malinvestment in the market (or the economy).
Harry Valentine
Steven Kane – well said. It is why Mises selected Human Action as the title of his treatise on economics.
In the book Creature from Jekyll Island the author takes the position that since modern paper money merely represents debt instruments and not a claim on gold or silver the state must increase debt in order to increase the money supply. One way to create enormous supplies of money when a contraction has occurred (such as has occurred with all the huge write offs of the stock market bubble which have taken place in the past 4 years)is WAR. This sounds plausible to me.
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