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.