Brad DeLong v. Ludwig Von Mises: Ron Paul Better Watch Out!

Picture: Von Mises Institute (CC)

Brad DeLong has taken some time out of his busy day to try to explain to the rest of us why Ludwig von Mises, patron saint of goldbugs and PaulBots, got monetary policy so very very wrong:

The problem, I think Ludwig von Mises would say, is that the wealth of society is the amount of work has gone into creating the commodities in the economy: the food, the clothing, the houses, the little gold disks. The sum of past work crystalized in commodities is society’s wealth. The food is wealth, the housing is wealth, the clothing is wealth, and the little gold disks are wealth. Then add unbacked fiat money and bank credit–either public or private, it doesn’t matter–to the mix. The fiat money and the bank credit are counted as wealth, as if they were claims to little gold disks that took sweat and tears to create, but they are not wealth at all. They are fictions: false promises that there is somewhere some valuable gold that you have title to.

And, Ludwig von Mises would say, the larger the unbacked circulating medium the bigger the lie and the theft. It is all guaranteed to end in tears. Whenever society thinks that it is richer than it is, plans will be inconsistent and unattainable. When that unattainability becomes manifest, that will trigger the crash and the depression.

That is, I think, where von Mises is coming from.

And, of course, this is wrong–so so so so so so so so so unbelievably wrong.

It is simply not the case that we can cheaply and easily buy things with money because it is valuable. It is, instead, the case that money is valuable because we can cheaply and easily buy things with it.

And so far as that goes, DeLong is in step even with orthodox Marxism on where the value of money comes from. Albeit unknowingly. DeLong has made clear by his ignorance of the basic Marxist critique of capital crisis that he never honestly wrestled with Das Kapital and doesn’t understand Marxist economics beyond various strawmen he’s happy to dismiss out of hand.

Still, DeLong’s failures as a scholar aside, he’s useful to point to as a pro-trade liberal economist whose bona fides include being a follower of Adam Smith and Milton Friedman the next time some PaulBot Goldbug starts yammering at you about why we should end the Federal Reserve and return to a gold standard and free banking. Unfortunately, they’re right about the treatment and wrong on the diagnosis and ultimate cure. The Federal Reserve has only ever been a weak replacement for Alexander Hamilton’s Bank of the United States and its inadequacy to the challenge of managing the money supply has nothing to do with the fact that the commodity backing US Currency is the abstracted total production of the United States economy rather than gold. Instead it has everything to do with the fact that the US Central Bank has historically failed to take seriously its mandate to reach full employment and worried over-much about stabilizing the currency when periods of controlled inflation might otherwise improve the situation in the economy.

But see, the macroeconomists who run these banks have, like DeLong and others of his ilk, bought into the lie that capital deserves a return on its investment, and therefore inflation that devalues debts and prevents the holders of capital from reaping their gains are allowed to continuously unbalance the economy with the tacit approval of the central bank which will avoid at all costs the inflation that would would strip most of their assets of any real value. But I digress.

The real point is that DeLong couches the Marxist critique of Austrian economic nonsense in suitably neoclassical, milton friedmanesque language so it might actually shut down the incoherent masses bamboozled by Ron Paul into buying his half-baked version of the old “Jewish Rothschild Bankers Out to Enslave Us All Through Monetary Policy” conspiracy.

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  • Auto5734955

    Sounds like this guy has a handle on the situation………But kind of like the dog who chased the car and caught it,  now what in the hell does he do with it?  Take it in the back yard and bury it?  It still boils down to the same thing. The rich are protected by the crooked in charge of the goons, and we’re just the friggin slaves.  We are treated like less than the Pharaohs slaves, who built Alexandria, the pyramids and the splendor of the wealthy in that era.  Now they want to take the rest of the crumbs as well. They will not be happy till they have it all, and we work for free just to feed ourselves.

  • DisInfoLame

    Way to keep missing the point. 

    Gold standard is not be the solution, but that doesn’t mean an elite few should be able to get free money while the rest of us have to wage slave for it.

    Watch Money Masters.  Fiat money doesn’t have to be a scam, but it is when in private hands.

  • DisInfoLame

    Way to keep missing the point. 

    Gold standard is not be the solution, but that doesn’t mean an elite few should be able to get free money while the rest of us have to wage slave for it.

    Watch Money Masters.  Fiat money doesn’t have to be a scam, but it is when in private hands.

    • Matt Staggs

      Assuming you’re aware of the irony, I have to doff my hat to anyone who willing to go by a handle that insults the site he (or she) continues to visit and comment on on a regular basis. I’ve yet to receive any input from you regarding the content you’d like to see here. I want you to enjoy the time you spend at Disinfo. Email me at matt@disinfo.com with your content requests and other comments, and I’ll try to make this a fun place for you. Unless complaining is what’s fun for you – in that case, carry on.

  • kowalityjesus

    This is well-written, completely-substanceless article.  It dances around an over-dramatic negation obfuscating a rather-logical thesis, and completely shirks the responsibility of explaining not only any reason why DeLong is right (I am dying to know), or even fucking WHY von Mises is wrong.

    My, my, what a surprise, what….a…..big…….surprise.  Another insubstantial Ron Paul hater.  

  • kowalityjesus

    This is well-written, completely-substanceless article.  It dances around an over-dramatic negation obfuscating a rather-logical thesis, and completely shirks the responsibility of explaining not only any reason why DeLong is right (I am dying to know), or even fucking WHY von Mises is wrong.

    My, my, what a surprise, what….a…..big…….surprise.  Another insubstantial Ron Paul hater.  

  • http://buzzcoastin.posterous.com BuzzCoastin

    I was gonna log into a porn site
    and then I saw the Brad DeLong v. Ludwig Von Mises headline
    and that means Bambi Goes Anal can wait
    till I digest this golden nugget

  • http://buzzcoastin.posterous.com BuzzCoastin

    I was gonna log into a porn site
    and then I saw the Brad DeLong v. Ludwig Von Mises headline
    and that means Bambi Goes Anal can wait
    till I digest this golden nugget

  • SKP

    Austrians would never say that capital “deserves” a return.  It “earns” a return, and that return can be positive or negative in relation to economic costs.  To the extent that capital is invested in avenues of production that are out of sync with the preferences of consumers, that capital will earn lower returns.  It may earn such low returns that the capital is taken out of use. This begs the question of how quickly or easily capital can be transformed or reabsorbed once it has been committed to a particular use; thus the danger of fiat money is that is disrupts and distorts the very pricing mechanism that acts to coordinate capital investment with consumer preferences.  Insofar as the distortion creates and perpetuates investment in lines of production that will prove economically unprofitable, i.e. a waste of scarce resources, we face the problem of misallocated capital resources that cannot be simply changed back into some part of the aggregated K.  

    DeLong swings, misses terribly, and has nothing trenchant to say regarding capital, investment and the relationship to money or how Mises is so so so so wrong.  How Marx even enters the equation is startlingly besides the point; if DeLong’s thesis supports Marxist monetary theory, I would suppose this thesis would support the notion that Marx couldn’t find his ass with both hands tied behind his back as well.  Any Marxist who would proffer this argument as a coherent objection to Mises’ theory on money would have most Austrians spewing their beverages in laughter. Mises wins this one without even having to show up to the “debate.”  

  • SKP

    Austrians would never say that capital “deserves” a return.  It “earns” a return, and that return can be positive or negative in relation to economic costs.  To the extent that capital is invested in avenues of production that are out of sync with the preferences of consumers, that capital will earn lower returns.  It may earn such low returns that the capital is taken out of use. This begs the question of how quickly or easily capital can be transformed or reabsorbed once it has been committed to a particular use; thus the danger of fiat money is that is disrupts and distorts the very pricing mechanism that acts to coordinate capital investment with consumer preferences.  Insofar as the distortion creates and perpetuates investment in lines of production that will prove economically unprofitable, i.e. a waste of scarce resources, we face the problem of misallocated capital resources that cannot be simply changed back into some part of the aggregated K.  

    DeLong swings, misses terribly, and has nothing trenchant to say regarding capital, investment and the relationship to money or how Mises is so so so so wrong.  How Marx even enters the equation is startlingly besides the point; if DeLong’s thesis supports Marxist monetary theory, I would suppose this thesis would support the notion that Marx couldn’t find his ass with both hands tied behind his back as well.  Any Marxist who would proffer this argument as a coherent objection to Mises’ theory on money would have most Austrians spewing their beverages in laughter. Mises wins this one without even having to show up to the “debate.”  

    • http://twitter.com/jfqbsh Jason F Quackenbush

      deserves:earns::poTAYto:poTAHto 

      The marxist objection to Mises’s ludicrous goldbug theory of money requires the labor theory of value and a valid understanding of commodity production, both of which Austrians lack and which lack they make up for with unearned smugness and inexplicable goldbuggery. As you’ve just demonstrated.

    • http://twitter.com/jfqbsh Jason F Quackenbush

      deserves:earns::poTAYto:poTAHto 

      The marxist objection to Mises’s ludicrous goldbug theory of money requires the labor theory of value and a valid understanding of commodity production, both of which Austrians lack and which lack they make up for with unearned smugness and inexplicable goldbuggery. As you’ve just demonstrated.

  • http://hormeticminds.blogspot.com/ Chaorder Gradient

    http://xkcd.com/980/

    Money! *click to expand*

  • http://twitter.com/WarWithEastasia warwitheastasia

    the real crux of the whole libertarian/free market argument is the socialist calculation debate, which informs libertarian thought and RP specifically much more so than this stuff about fiat money not being a true commodity

  • http://twitter.com/WarWithEastasia warwitheastasia

    the real crux of the whole libertarian/free market argument is the socialist calculation debate, which informs libertarian thought and RP specifically much more so than this stuff about fiat money not being a true commodity

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