A MYTHICAL INTERVIEW WITH
LUDWIG VON MISES
James R. CookLudwig von Mises (1881-1973 pronounced Meesez) was the most influential economist in what is known as the Austrian School. He advocated limited government, free markets and sound money. In 1920 he proved that Communism and socialist planning must fail because of the absence of market pricing. He was credited with numerous other brilliant and important theoretical accomplishments.
February 16, 2009
His predictions and warnings have proven accurate. His followers have been the only effective forecasters of the current economic crisis. Austrian economics provides a financial compass for you. It stands in stark contrast to the failed Keynesian economics of Washington and Wall Street. It's imperative that you grasp the content of this interview and begin to think in terms of Austrian economics. Nothing I can tell you today is more important.
The answers to the following questions are exact quotes from various books.
Over the past few decades our
national savings rate has plummeted. What do you make of that?
Saving and the resulting
accumulation of capital goods are at the beginning of every attempt to improve
the material conditions of man; they are the foundation of human civilization.
Saving, capital accumulation,
and investment withhold the amount concerned from current consumption and
dedicate it to the improvement of future conditions.
Why have our national savings
The policies advocated by the
welfare school remove the incentive to saving on the part of private citizens.
How important is the reversal
of this trend?
If people do not consume
their whole incomes, the non-consumed surplus can be invested, it increases the
amount of capital goods available and thereby makes it possible to embark upon
projects which could not be executed before.
How does the Keynesian
economics practiced in Washington impact this view?
The essence of Keynesianism
is its complete failure to conceive the role that saving and capital
accumulation play in the improvement of economic conditions.
Why isn’t this more widely
Most people take it simply
for granted that some mysterious factor is operative that makes the nation
richer from year to year.
What do you say to them?
Do the American voters know
that the unprecedented improvement in their standard of living that the last
hundred years brought was the result of the steady rise in the per-head quota
of capital invested? Do they realize that every measure leading to capital
decumulation jeopardizes their prosperity?
Are you saying that capital
Strictly speaking, capital
has always been scarce and will always be. The available supply of capital
goods can never become so abundant that all projects, the execution of which
could improve the material well-being of people, could be undertaken. If it
were otherwise, mankind would live in the Garden of Eden and would not have to
bother at all about production.
How does this impact us
A nation cannot prosper if
its members are not fully aware of the fact that what alone can improve their
conditions is more and better production. And this can only be brought about by
increased saving and capital accumulation.
How do you explain the
influence of Keynes on contemporary politics?
The unprecedented success of
Keynesianism is due to the fact that it provides an apparent justification for
the ‘deficit spending’ policies of contemporary governments. It is the
pseudo-philosophy of those who can think of nothing else than to dissipate the
capital accumulated by previous generations.
You mean inflating?
Yes, deficit spending means
increasing the quantity of money in circulation. That the official terminology
avoids calling it inflation is of no avail whatever.
Inflating is more popular
Inflationism is the oldest of
What’s the main argument
Credit expansion and
inflationary increases of the quantity of money frustrate the ‘common man’s’
attempts to save and to accumulate reserves for less propitious days.
Why is it so popular?
For the naïve mind there is
something miraculous in the issuance of fiat money. A magic word spoken by the
government creates out of nothing a thing which can be exchanged against any
merchandise a man would like to get. How pale is the art of sorcerers, witches,
and conjurors when compared with that of the government’s Treasury Department.
What are the consequences for
An artificial boom, a boom
built entirely upon the illusions of ample and easy money.
We’ve had that. What’s next?
The inevitable result of
inflationary policies is a drop in the monetary unit’s purchasing power.
The monetary authorities seem
to think that’s helpful.
Only the naïve inflationists
could believe that government could enrich mankind through fiat money.
There’s no benefit?
No increase in the welfare of
the members of a society can result from the availability of an additional
quantity of money.
What are some of the
Under the illusions created
by the credit expansion, business has embarked upon projects for the execution
of which the real savings are not rich enough. When this mal-investment becomes
visible, the boom collapses.
The economy worsens?
Credit expansion is not a
nostrum to make people happy. The boom it engenders must inevitably lead to a
debacle and unhappiness.
Their answer is to lower
interest rates. What do you say to this?
If one wants to avert
depressions, one must abstain from any tampering with the rate of interest.
Isn’t it too late?
People must learn that the
only means to avoid the recurrence of economic catastrophes is to let the
market – and not the government – determine interest rates.
We’ve ignored this lesson.
What happens now?
The monetary and credit
policies of all nations are headed for a new catastrophe, probably more
disastrous than any of the older slumps.
We are told that government
spending will bail us out. What say you?
What the government spends is
entirely taken from the pockets of the individual citizens and corporations.
The spending and investing capacity of the public is curtailed to the same
extent to which the spending ability of the government expands.
Our current policies are for
more of the same. What’s your prognosis?
It has often been suggested
to ‘stimulate’ economic activity and to ‘prime the pump’ by recourse to a new
extension of credit which would allow the depression to be ended and bring
about a recovery or at least a return to normal conditions; the advocates of
this method forget, however, that even though it might overcome the
difficulties of the moment, it will certainly produce a worse situation in a
not too distant future.
Aren’t you afraid of a
The depression is the process
of liquidating the errors committed in the excesses of the artificial boom; it
is the return to calm reasoning and a reasonable conduct of affairs within the
limits of the available supply of capital goods. It is a painful process, but
it is a process of restoration of business health.
That will not happen. What’s
next for us?
If the credit expansion is
not stopped in time, the boom turns into the crack-up boom; the flight into
real values begins, and the whole monetary system founders.
James R. Cook
President - INVESTMENT RARITIES
Editor, Silver Newsletter
Email this Article to a Friend