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Source link: http://archive.mises.org/6579/benjamin-anderson-1886-1949/

Benjamin Anderson, 1886-1949

May 1, 2007 by

It might be May Day in Cuba–the day on which Castro gives his traditional 4-5 hour speech, or so says NPR with exuberant expectation–but at the Mises Institute, it is Benjamin Anderson day. He was born on May 1, 1886. He was an outstanding economist who first drew Hazlitt’s attention to the Austrian School with his book The Value of Money. His book on events before and after the Great Depression is a solid Austrian account too often overlooked in the discussion of this issue. He began his career as a professor at Columbia and Harvard but then moved to the financial world as chief economist at Chase. Much of his writing remains out of print and uncollected, which is a real tragedy. That is something that needs to be addressed in the future.


Dennis May 1, 2007 at 6:59 pm

Yes, Benjamin M. Anderson was an eminent economist. His “Economics and the Public Welfare” is perhaps the best economic and financial history available of the World War I through World War II period. As an example of the quality of commentary and analysis found in the book, I believe this quote from Chapter 16. Depression and Rally of 1924—The Beginning of the New Deal (page 127) is instructive:

“…but the New Deal, as a conscious and deliberate thing in governmental policy, did begin in 1924 in an immense and artificial manipulation of the money market to which we shall give extended attention in what follows.”

But does not the standard account of U.S. economic history state that all was laissez faire (or very close to it) before the 1929 stock market crash?

JIMB May 2, 2007 at 1:01 pm

Dennis – So what’s to be believed about the standard account?

In my view, Anderson is not an “Austrian” at all … he deviated significantly from Austrian analysis of events and had a much more nuanced and broad view, which makes his writings in fact more valuable.

Dennis May 2, 2007 at 3:13 pm


Mirroring the teachings of Mises, Rothbard, and Hayek, in my view the standard account of the 1920s in wrong.

How much Anderson was or was not an “Austrian” or Misesian would be an interesting topic to research. Anderson certainly was not a Keynesian or a mechanical quantity theorist. However, my understanding is that he did not fully accept Mises’s monetary theory. Do any readers know of any research that has been done on this topic? And of course, labels can serve to highlight differences or similarities.

At least regarding the 1920s, Anderson recognized that the Federal Reserve actively manipulated the credit markets and that this manipulation eventually had significant negative consequences. On this issue he appears to qualify as an “Austrian”.

JIMB May 2, 2007 at 7:13 pm

Dennis – Yes – however, none of his views are easily correlated to Rothbard’s “America’s Great Depression” … which I found nonsense – “life insurance net policy reserves” had to be added to “money supply” to make the case that money supply expanded (subtract that out and MS just doesn’t even move – at least according to the stats in AGD). That appeared highly concocted to me that I couldn’t take it seriously.


See pg 135 of the pdf or pg 92 of the book. The book has lots of other good stuff, however.

I think the issue may have been more the mismatch between assets and liabilities. I.e. longer and longer duration liabilities were funding consumptive and speculative (i.e. very short) assets so a liquidity crisis is going to happen even if the money supply ** doesn’t ** expand; and in fact you can see this today. Borrow on your house for a big screen TV .. TV gone in 5 yrs, debt still there.

As soon as the primary assets stop rising (real estate) a serious liquidity crisis emerges even if ‘liquidity’ is plentiful because the rematching of the duration of assets and liabilities is structurally difficult.

In fact, a depression can occur simply if the government appears to immunize a number of market participants against risk, irrespective of MS figures.

I think Benjamin Anderson captures a number of events that occur with excellent synopses (would love to read his articles from that time period). Anderson discusses the ** relative ** structural changes that made the correction so difficult and why Keynesianism was so wrong (and some informed observers then who had the sense to know it was wrong went ahead with it anyway – they seemed strangely attracted to government solutions: almost a ‘religious’ experience in all the bad ways).

Dennis May 3, 2007 at 11:46 am


My understanding is that Rothbard has been criticized for the definition of the money supply that he used in AGD. Austrians of Rothbard’s lineage have tried to define the money supply in subjectivist terms, and I think it is correct to say that mainstream economists do not concentrate on money supply issues too much anymore because of money supply measurement problems.

However, as I understand it, the main point of Austrian Business Cycle Theory (ABCT) is not money supply expansion per se. Rather, ABCT focuses on credit expansion since credit expansion depresses the rate of interest below its “natural” rate, i.e., the rate determined by real savings and the demand for loanable funds. This artificial depressing of the rate of interest rate is the root cause the business cycle, with its malinvestment and inter-temporally distorted capital allocation.

Dennis May 3, 2007 at 3:32 pm

Please excuse my sloppy writing, but the last sentence in the above post should read:

“This artificial depressing of the rate of interest rate is the root cause the business cycle and its malinvestment and temporally distorted capital allocation.”

JIMB May 3, 2007 at 4:31 pm

Dennis – Credit expansion itself isn’t necessarily the problem — it is ** the term mismatch ** which is the problem. Austrians do tend to focus on the expansion of money because that is how the term mismatch is accomplished.

The Fed defends immediate deposit redeemability by creation of enough new money so that redemptions of short-term spending power is sustained even though the bank assets (the loans) that ‘back’ it are long term. They do this by pre-pricing interbank loans and will buy government paper to keep liquidity flowing.

However, a term mismatch can happen even if there’s no money supply increase because some participants feel they are immunized (by the state) against risk. And so assets become ‘long maturity’ while obligations become ‘short maturity’ … exactly what happens structurally in the economy (investment horizons are too long for the present consumption rate and consumption of key input goods causes input prices to rise, businesses to become unprofitable, and finally consumption goods to be in short supply).

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