The books I'm going to mention on the crisis are, as you would expect, all presented from the point of view of Austrian economics.
One thing is, I think, about the Austrian point of view. It's a very easy to understand view, very commonsensical view you can readily grasp,
but it's contrast to the prevailing views like neoclassical or Keynesian views, which are very difficult to understand.
The neoclassical or Keynesian views remind me a bit of what H. L. Mencken said about metaphysics, that it's almost always assertions of the unintelligible supported by appeals to the incredible.
But the first book that I want to mention is one that really gives you the basics of
the Austrian view in a very easy to understand form. It's a very short book. It's not as
short as the world's shortest book, which is Our Duties to Others by Ayn Rand, but it's
This book is quite short. The book is Murray Rothbard's book, What Has Government Done
To Our Money? Now what Rothbard does in this book is he makes it, there's really two ways
of looking at money. We can view money just as pieces of paper or entries in checkbooks
or something just artificial based on a social convention, or on the other hand we can view
Do Money as a Commodity
Murray Rothbard argues that really money must originate as a commodity, that money is just
really a commodity just like any others and really the only sound basis for a monetary
system is money as a commodity.
And he goes on from there to give in an amazingly short space a complete account of monetary
theory where he explains the basics of the Austrian theory of the business cycle which
some of the previous speakers have discussed where an expansion of bank credit causes malinvestment
and leading to depression and he also goes into how the gold standard works and the difference
between the classical gold standard and gold exchange standard.
He has an account of the Federal Reserve system, so he really gives you the basics of the whole Austrian approach right away.
Now, if you get that, then you're in a position, I think, to understand the whole of the crisis.
Now, I think one of the biggest mistakes, probably the biggest mistake people make about the current crisis,
is they'll think that, well, this is just a problem, say, in a particular area of the economy,
particularly the housing market, real estate, that just got out of hand,
and this was what it was tied in with other things, and because of this, that's why the economy faced collapse.
And they don't realize how this is tied in with the problems in the whole monetary system.
And I want to mention this, which is the second book, one that gives a very good account of some historical episodes.
A book by the president of the Mises Institute, Doug French, which is called Speculative Bubbles and Increases in Supply of Money.
This was a master's thesis that he wrote under Murray Rothbard, and what he, what Doug shows
in this book, he takes three historical episodes, and he shows in every case where there was
a speculative boom that was associated with an increase in the supply of money.
So it's not just some particular market getting out of hand or some particular product getting
out of hand, but it's always some increase in the supply of money.
The first of these is the famous tulip mania case in the Netherlands in the 1630s.
Here, unlike most cases where there's a financial panic, it wasn't that the financial system
was based on fractional reserves or something like that.
On the contrary, the Bank of Amsterdam insisted on a very sound money policy, but because
of that attracted a lot of gold and silver came into the country and it was only because
of that expansion of money that you had the tulip mania.
Now, the second of the crisis, he discusses the famous John Law, Mississippi bubble.
This was something that John Law was a Scotsman who moved to France, tried to have an investment
in Mississippi.
But it wasn't just investments, it was he wanted an expansion of money supply based
on land grants.
She tried to put this into effect at first under the last years, Louis XIV, you remember
Louis XIV was the longest reigning of any European monarch, he reigned, he was king
for 73 years, he became king when he was 5 in 1643 and he kept on for 73 years, which
which is, I hope, longer than we'll have Obama with us, but so, and then he, John Law was
much more successful under the regime of the Regency, Louis XV came right after that.
So again, we have this idea of the specular bubble depends on the expansion of the money
Supply by the state. So it isn't just a bubble in one area, it's that the government is involved.
And the same is true in the third crisis that Doug discusses, which is the South Sea bubble in England.
Now, I want to turn from that to another historical book, which is also by one of our speakers.
This is Bob Murphy's book, The Politically Incorrect Guide to the Great Depression and to
of the New Deal.
Bob has been involved sometimes in criticism of Paul Krugman, who is an economist with
very different views from the Austrian views.
Paul Krugman is what I would call a quantum economist, which is, you can't understand
him and his position at the same time.
Krugman has written a number of books, popular books that I'm not going to recommend, but
I only say of those books that they fill a much-needed gap in the literature.
Now, you'll get that joke if you think about it.
So the book that, what I think is very important in Bob Murphy's book that he demonstrated
in his talk today, he has a very strong gift for apt analogies.
For example, one of the claims of the Keynesians is that if we let the price system work during
In the Depression, where prices would be lower, that business expectations depend on how they
think their prices will be in the future.
If prices are allowed to fall, then people will just not invest because they'll be afraid
that prices will keep falling and will just get caught in kind of a downward spiral ever
going downward.
And he, Bob, points out while he compares this with the, say, selling computers, people
We'll have good reason to think that in many cases that prices of computer equipment will
go down.
So if they waited to purchase computers for several months, they would pay a lower price.
But this fact doesn't have the effect that nobody ever buys computers.
So similarly, here there's just an appeal to this notion of a downward spiral that's
not supported.
And in the book he shows how the policies of the New Deal and the Herbert Hoover before
really impeded the recovery from the Depression.
They just made things worse, say, by under Hoover artificially keeping wage rates up,
which of course caused unemployment because the employers are not going to hire people,
won't keep people on payroll if they have to pay them more than the marginal value product
to what they're working so this was the notion was that Hoover and Roosevelt has well you have to keep purchasing power up but is completely ignoring the prices in one feature also that Bob Murphy has that he's very good at puncturing a conventional myth is that people say well Roosevelt got us out of the depression and eventually with World War II because of the big spending in the military but as he points out again here following Robert Higgs that isn't true at all
In all, World War II didn't result in prosperity. It certainly ended unemployment, but if you
compel people, millions of people to serve in the military, that's hardly ending unemployment
in the desirable sense of that term.
Now, the next book actually deals with the concrete details of the current crisis, and
This is a meltdown by Tom Woods.
And what Tom Woods does, he has a remarkable ability here
that he can explain the Austrian business cycle theory,
even fairly technical details of it,
in very easy to understand language.
And what he, I think a point that he makes is very valuable.
He says, the basic problem with the Keynesian approach
is that it's really thinking that just printing up
More and more pieces of paper, the equivalents, will promote prosperity, but really the only
way you can have prosperity would be an increase in actual goods and services, and the way
to do that is we have to have saving, we have to have people postponing consumption and
saving so we can have actual capital goods being created, and we won't do this just
by having the government increase the supply of money and he's at one point he makes that
very, people might say well this is a very interesting theory but how do we know that
the Austrian view would be well the government should really respond to the depression by
not doing anything instead of trying to stimulate the economy government just is the source
of the problem through this expansion of bank credit causing the business cycle so it should
to just stop doing anything.
So people say, well, isn't this too dangerous?
What would happen if they'd done that in 1929?
It would lead to disaster.
So one point Tom Woods makes,
he's my professional historian,
he points out that there was quite a big recession
the end of 1920, going into 1921,
where the drop in production was even more
than in the famous 1929 depression.
In the government, which was the last part of Woodrow Wilson in the presidency of his successor, Warren Harding, really didn't do anything.
We didn't have any stimulus package as anything like Hoover and Roosevelt attempted, but the economy recovered very fast within this.
I think within 1921, it was already back to prosperous level.
So we have really case study showing how the by following the Austrian program, which the government doesn't do anything,
The Theory of Money and Credit
The obvious solution is to get rid of the Federal Reserve, and he proposes, as a first step, we should have an audit of the Fed.
I saw there was one quite well-known economist, Robert Shiller, who was asked to comment on this.
Shiller is the author with George Akilov, a book called Irrational Exuberance.
He's an author of another book with George Akilov, a very influential economist.
He was asked, well, what about this proposal to audit the Fed?
And he said, oh, well, that wouldn't be a good idea because people did that, then they might get the idea of abolishing the Fed altogether.
Of course, we wouldn't want that.
Now, one thing Ron Paul mentioned in the book, I think very interesting, Alan Greenspan, who was the Fed chairman for a long time, was, as some of you know, a follower of Ayn Rand.
And he'd written essays defending the gold standard.
So Ron Paul asked him, well, how could you repute it?
And I said, no, he still endorses that, so then Ron Paul said, well, how can you support
what you do now? And he said he thought that as the head of the system, he could try to
do just what they do under the gold standard. He'd try to do the same policy. So sort of
here, he's thinking himself as some sort of super brain who was able to imitate the
free market. Of course, he didn't do that. Now, those are the five books I've mentioned.
I just wanted to conclude with mentioning one other book, if you'll allow me, it doesn't
deal with the crisis, but I think it's a very good one just for getting a perspective
on the free society, and this is The Inclined to Liberty by Lou Carabini, who's sponsoring
our conference, and this shows, I think, the fundamental flaw in all these government programs,
that people don't want to take responsibility for their own decisions, and it's only by
acceptance of individual responsibility that we can hope to solve the financial crisis.
All of the books that I mentioned are available for sale outside with Lew Karabini's book.
You don't even have to do that. It's right there at your table.
So I think everybody, I urge everybody to read that and the other books. Thank you.