WEBVTT NOTE Five Best Books on the Current Crisis 1 00:00:00.000 --> 00:00:08.280 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. 2 00:00:08.280 --> 00:00:19.080 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, 3 00:00:19.080 --> 00:00:28.120 but it's contrast to the prevailing views like neoclassical or Keynesian views, which are very difficult to understand. 4 00:00:28.120 --> 00:00:47.120 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. 5 00:00:47.120 --> 00:00:55.560 But the first book that I want to mention is one that really gives you the basics of 6 00:00:55.560 --> 00:01:03.360 the Austrian view in a very easy to understand form. It's a very short book. It's not as 7 00:01:03.360 --> 00:01:12.600 short as the world's shortest book, which is Our Duties to Others by Ayn Rand, but it's 8 00:01:12.600 --> 00:01:18.400 This book is quite short. The book is Murray Rothbard's book, What Has Government Done 9 00:01:18.400 --> 00:01:26.520 To Our Money? Now what Rothbard does in this book is he makes it, there's really two ways 10 00:01:26.520 --> 00:01:34.320 of looking at money. We can view money just as pieces of paper or entries in checkbooks 11 00:01:34.320 --> 00:01:40.200 or something just artificial based on a social convention, or on the other hand we can view 12 00:01:40.200 --> 00:01:44.520 Do Money as a Commodity 13 00:01:44.520 --> 00:01:51.040 Murray Rothbard argues that really money must originate as a commodity, that money is just 14 00:01:51.040 --> 00:02:00.320 really a commodity just like any others and really the only sound basis for a monetary 15 00:02:00.320 --> 00:02:03.200 system is money as a commodity. 16 00:02:03.200 --> 00:02:13.580 And he goes on from there to give in an amazingly short space a complete account of monetary 17 00:02:13.580 --> 00:02:17.800 theory where he explains the basics of the Austrian theory of the business cycle which 18 00:02:17.800 --> 00:02:25.880 some of the previous speakers have discussed where an expansion of bank credit causes malinvestment 19 00:02:25.880 --> 00:02:32.660 and leading to depression and he also goes into how the gold standard works and the difference 20 00:02:32.660 --> 00:02:37.220 between the classical gold standard and gold exchange standard. 21 00:02:37.220 --> 00:02:49.220 He has an account of the Federal Reserve system, so he really gives you the basics of the whole Austrian approach right away. 22 00:02:49.220 --> 00:02:58.620 Now, if you get that, then you're in a position, I think, to understand the whole of the crisis. 23 00:02:58.620 --> 00:03:04.220 Now, I think one of the biggest mistakes, probably the biggest mistake people make about the current crisis, 24 00:03:04.220 --> 00:03:10.820 is they'll think that, well, this is just a problem, say, in a particular area of the economy, 25 00:03:10.820 --> 00:03:16.120 particularly the housing market, real estate, that just got out of hand, 26 00:03:16.120 --> 00:03:25.920 and this was what it was tied in with other things, and because of this, that's why the economy faced collapse. 27 00:03:25.920 --> 00:03:35.520 And they don't realize how this is tied in with the problems in the whole monetary system. 28 00:03:35.520 --> 00:03:45.480 And I want to mention this, which is the second book, one that gives a very good account of some historical episodes. 29 00:03:45.480 --> 00:03:54.400 A book by the president of the Mises Institute, Doug French, which is called Speculative Bubbles and Increases in Supply of Money. 30 00:03:54.400 --> 00:04:03.080 This was a master's thesis that he wrote under Murray Rothbard, and what he, what Doug shows 31 00:04:03.080 --> 00:04:09.140 in this book, he takes three historical episodes, and he shows in every case where there was 32 00:04:09.140 --> 00:04:15.400 a speculative boom that was associated with an increase in the supply of money. 33 00:04:15.400 --> 00:04:20.440 So it's not just some particular market getting out of hand or some particular product getting 34 00:04:20.440 --> 00:04:27.840 out of hand, but it's always some increase in the supply of money. 35 00:04:27.840 --> 00:04:37.760 The first of these is the famous tulip mania case in the Netherlands in the 1630s. 36 00:04:37.760 --> 00:04:46.460 Here, unlike most cases where there's a financial panic, it wasn't that the financial system 37 00:04:46.460 --> 00:04:53.980 was based on fractional reserves or something like that. 38 00:04:53.980 --> 00:05:00.540 On the contrary, the Bank of Amsterdam insisted on a very sound money policy, but because 39 00:05:00.540 --> 00:05:06.100 of that attracted a lot of gold and silver came into the country and it was only because 40 00:05:06.100 --> 00:05:09.940 of that expansion of money that you had the tulip mania. 41 00:05:09.940 --> 00:05:18.060 Now, the second of the crisis, he discusses the famous John Law, Mississippi bubble. 42 00:05:18.060 --> 00:05:28.980 This was something that John Law was a Scotsman who moved to France, tried to have an investment 43 00:05:28.980 --> 00:05:29.980 in Mississippi. 44 00:05:29.980 --> 00:05:35.860 But it wasn't just investments, it was he wanted an expansion of money supply based 45 00:05:35.860 --> 00:05:37.320 on land grants. 46 00:05:37.320 --> 00:05:43.880 She tried to put this into effect at first under the last years, Louis XIV, you remember 47 00:05:43.880 --> 00:05:50.000 Louis XIV was the longest reigning of any European monarch, he reigned, he was king 48 00:05:50.000 --> 00:05:57.800 for 73 years, he became king when he was 5 in 1643 and he kept on for 73 years, which 49 00:05:57.800 --> 00:06:07.480 which is, I hope, longer than we'll have Obama with us, but so, and then he, John Law was 50 00:06:07.480 --> 00:06:17.160 much more successful under the regime of the Regency, Louis XV came right after that. 51 00:06:17.160 --> 00:06:27.420 So again, we have this idea of the specular bubble depends on the expansion of the money 52 00:06:27.420 --> 00:06:35.580 Supply by the state. So it isn't just a bubble in one area, it's that the government is involved. 53 00:06:35.580 --> 00:06:42.780 And the same is true in the third crisis that Doug discusses, which is the South Sea bubble in England. 54 00:06:43.660 --> 00:06:51.820 Now, I want to turn from that to another historical book, which is also by one of our speakers. 55 00:06:51.820 --> 00:06:57.100 This is Bob Murphy's book, The Politically Incorrect Guide to the Great Depression and to 56 00:06:57.100 --> 00:06:58.900 of the New Deal. 57 00:06:58.900 --> 00:07:04.600 Bob has been involved sometimes in criticism of Paul Krugman, who is an economist with 58 00:07:04.600 --> 00:07:07.980 very different views from the Austrian views. 59 00:07:07.980 --> 00:07:14.060 Paul Krugman is what I would call a quantum economist, which is, you can't understand 60 00:07:14.060 --> 00:07:19.340 him and his position at the same time. 61 00:07:19.340 --> 00:07:25.260 Krugman has written a number of books, popular books that I'm not going to recommend, but 62 00:07:25.260 --> 00:07:30.460 I only say of those books that they fill a much-needed gap in the literature. 63 00:07:30.460 --> 00:07:35.120 Now, you'll get that joke if you think about it. 64 00:07:35.120 --> 00:07:40.700 So the book that, what I think is very important in Bob Murphy's book that he demonstrated 65 00:07:40.700 --> 00:07:46.420 in his talk today, he has a very strong gift for apt analogies. 66 00:07:46.420 --> 00:07:53.860 For example, one of the claims of the Keynesians is that if we let the price system work during 67 00:07:53.860 --> 00:08:00.180 In the Depression, where prices would be lower, that business expectations depend on how they 68 00:08:00.180 --> 00:08:03.620 think their prices will be in the future. 69 00:08:03.620 --> 00:08:09.620 If prices are allowed to fall, then people will just not invest because they'll be afraid 70 00:08:09.620 --> 00:08:15.100 that prices will keep falling and will just get caught in kind of a downward spiral ever 71 00:08:15.100 --> 00:08:16.100 going downward. 72 00:08:16.100 --> 00:08:22.920 And he, Bob, points out while he compares this with the, say, selling computers, people 73 00:08:22.920 --> 00:08:27.840 We'll have good reason to think that in many cases that prices of computer equipment will 74 00:08:27.840 --> 00:08:28.840 go down. 75 00:08:28.840 --> 00:08:34.640 So if they waited to purchase computers for several months, they would pay a lower price. 76 00:08:34.640 --> 00:08:39.900 But this fact doesn't have the effect that nobody ever buys computers. 77 00:08:39.900 --> 00:08:44.640 So similarly, here there's just an appeal to this notion of a downward spiral that's 78 00:08:44.640 --> 00:08:45.640 not supported. 79 00:08:45.640 --> 00:08:52.800 And in the book he shows how the policies of the New Deal and the Herbert Hoover before 80 00:08:52.800 --> 00:08:56.680 really impeded the recovery from the Depression. 81 00:08:56.680 --> 00:09:03.080 They just made things worse, say, by under Hoover artificially keeping wage rates up, 82 00:09:03.080 --> 00:09:10.080 which of course caused unemployment because the employers are not going to hire people, 83 00:09:10.080 --> 00:09:15.480 won't keep people on payroll if they have to pay them more than the marginal value product 84 00:09:15.480 --> 00:09:45.480 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 85 00:09:45.480 --> 00:09:52.400 In all, World War II didn't result in prosperity. It certainly ended unemployment, but if you 86 00:09:52.400 --> 00:09:58.400 compel people, millions of people to serve in the military, that's hardly ending unemployment 87 00:09:58.400 --> 00:10:02.560 in the desirable sense of that term. 88 00:10:02.560 --> 00:10:10.040 Now, the next book actually deals with the concrete details of the current crisis, and 89 00:10:10.040 --> 00:10:13.400 This is a meltdown by Tom Woods. 90 00:10:13.400 --> 00:10:17.280 And what Tom Woods does, he has a remarkable ability here 91 00:10:17.280 --> 00:10:21.080 that he can explain the Austrian business cycle theory, 92 00:10:21.080 --> 00:10:23.200 even fairly technical details of it, 93 00:10:23.200 --> 00:10:26.160 in very easy to understand language. 94 00:10:26.160 --> 00:10:29.560 And what he, I think a point that he makes is very valuable. 95 00:10:29.560 --> 00:10:33.640 He says, the basic problem with the Keynesian approach 96 00:10:33.640 --> 00:10:38.080 is that it's really thinking that just printing up 97 00:10:38.080 --> 00:10:44.400 More and more pieces of paper, the equivalents, will promote prosperity, but really the only 98 00:10:44.400 --> 00:10:51.040 way you can have prosperity would be an increase in actual goods and services, and the way 99 00:10:51.040 --> 00:10:57.240 to do that is we have to have saving, we have to have people postponing consumption and 100 00:10:57.240 --> 00:11:04.320 saving so we can have actual capital goods being created, and we won't do this just 101 00:11:04.320 --> 00:11:11.680 by having the government increase the supply of money and he's at one point he makes that 102 00:11:11.680 --> 00:11:17.920 very, people might say well this is a very interesting theory but how do we know that 103 00:11:17.920 --> 00:11:23.400 the Austrian view would be well the government should really respond to the depression by 104 00:11:23.400 --> 00:11:28.000 not doing anything instead of trying to stimulate the economy government just is the source 105 00:11:28.000 --> 00:11:33.640 of the problem through this expansion of bank credit causing the business cycle so it should 106 00:11:33.640 --> 00:11:36.120 to just stop doing anything. 107 00:11:36.120 --> 00:11:37.940 So people say, well, isn't this too dangerous? 108 00:11:37.940 --> 00:11:41.040 What would happen if they'd done that in 1929? 109 00:11:41.040 --> 00:11:42.960 It would lead to disaster. 110 00:11:42.960 --> 00:11:44.960 So one point Tom Woods makes, 111 00:11:44.960 --> 00:11:48.280 he's my professional historian, 112 00:11:48.280 --> 00:11:52.040 he points out that there was quite a big recession 113 00:11:52.040 --> 00:11:55.560 the end of 1920, going into 1921, 114 00:11:55.560 --> 00:11:58.440 where the drop in production was even more 115 00:11:58.440 --> 00:12:01.000 than in the famous 1929 depression. 116 00:12:01.000 --> 00:12:09.600 In the government, which was the last part of Woodrow Wilson in the presidency of his successor, Warren Harding, really didn't do anything. 117 00:12:09.600 --> 00:12:18.400 We didn't have any stimulus package as anything like Hoover and Roosevelt attempted, but the economy recovered very fast within this. 118 00:12:18.400 --> 00:12:22.200 I think within 1921, it was already back to prosperous level. 119 00:12:22.200 --> 00:12:30.400 So we have really case study showing how the by following the Austrian program, which the government doesn't do anything, 120 00:12:30.400 --> 00:13:00.400 The Theory of Money and Credit 121 00:13:00.400 --> 00:13:10.400 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. 122 00:13:10.400 --> 00:13:17.400 I saw there was one quite well-known economist, Robert Shiller, who was asked to comment on this. 123 00:13:17.400 --> 00:13:25.400 Shiller is the author with George Akilov, a book called Irrational Exuberance. 124 00:13:25.400 --> 00:13:28.400 He's an author of another book with George Akilov, a very influential economist. 125 00:13:28.400 --> 00:13:31.200 He was asked, well, what about this proposal to audit the Fed? 126 00:13:31.200 --> 00:13:37.200 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. 127 00:13:37.200 --> 00:13:38.800 Of course, we wouldn't want that. 128 00:13:38.800 --> 00:13:49.400 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. 129 00:13:49.400 --> 00:13:53.000 And he'd written essays defending the gold standard. 130 00:13:53.000 --> 00:13:57.000 So Ron Paul asked him, well, how could you repute it? 131 00:13:57.000 --> 00:14:01.640 And I said, no, he still endorses that, so then Ron Paul said, well, how can you support 132 00:14:01.640 --> 00:14:07.240 what you do now? And he said he thought that as the head of the system, he could try to 133 00:14:07.240 --> 00:14:12.880 do just what they do under the gold standard. He'd try to do the same policy. So sort of 134 00:14:12.880 --> 00:14:18.420 here, he's thinking himself as some sort of super brain who was able to imitate the 135 00:14:18.420 --> 00:14:23.640 free market. Of course, he didn't do that. Now, those are the five books I've mentioned. 136 00:14:23.640 --> 00:14:27.480 I just wanted to conclude with mentioning one other book, if you'll allow me, it doesn't 137 00:14:27.480 --> 00:14:32.000 deal with the crisis, but I think it's a very good one just for getting a perspective 138 00:14:32.000 --> 00:14:37.220 on the free society, and this is The Inclined to Liberty by Lou Carabini, who's sponsoring 139 00:14:37.220 --> 00:14:42.040 our conference, and this shows, I think, the fundamental flaw in all these government programs, 140 00:14:42.040 --> 00:14:46.360 that people don't want to take responsibility for their own decisions, and it's only by 141 00:14:46.360 --> 00:14:51.000 acceptance of individual responsibility that we can hope to solve the financial crisis. 142 00:14:51.000 --> 00:14:56.600 All of the books that I mentioned are available for sale outside with Lew Karabini's book. 143 00:14:56.600 --> 00:14:59.600 You don't even have to do that. It's right there at your table. 144 00:14:59.600 --> 00:15:03.800 So I think everybody, I urge everybody to read that and the other books. Thank you.