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Money and Our Future

This talk was given at the 2009 Jeremy Davis Mises Circle in Houston.

We are fortunate to be living in these times, for we are seeing the unfolding of events long explained and predicted by the Austrian tradition.

Maybe that sounds implausible. What is fortunate about our times? The economy is tanking, stocks have been pummeled, unemployment is rising, and Washington is pursuing the worst combination of economic policies since Hoover and FDR. Nor does the new guy in charge seem to have a clue about the limits of what government can do.

Consider what it means to live through our times in the light of economic understanding. Even in the face of calamity, there is no mystery and hence fear is reduced. You look at department stores going belly-up, and you know why. You see parking lots empty, and you know the reason. You have friends losing their jobs, and there is clarity concerning the cause. You see depositors in failing banks lose their money, and you are not surprised. Prices behave in ways that shock and surprise everyone else, but you know what's what.

In many ways, it is like watching the movement of stars and planets with the scientific knowledge provided by astronomy, or observing the effects of a plague with medical knowledge.

Without the understanding, the events look mysterious, like a curse from the gods, and their patterns appear random. With the knowledge, with the understanding, we can make sense of the events. Patterns of cause and effect emerge. You see events before they happen, like turning the page of a script before the movie catches up to you. This gives you a sense of intellectual coherence and inner peace – even in the midst of calamity.

If you read what Mises wrote during the Great Depression and World War Two, you can see firmness of conviction and steadfast calm, even as the whole world was going nuts. Intellectual clarity is the key to seeing the right things and doing the right things. It is a matter of knowing the shape of things even before the things take shape.

Knowledge provides a means of curing the ill. It provides a way out, an answer that gives hope. This is a major reason why people with an Austrian understanding in the midst of financial meltdown keep their wits about them.

Yes, it is more than frustrating to see people in Washington spending trillions in a futile effort to repeal economic law. It is sheer madness that they are creating vast quantities of new dollars by means of the Fed's power, even with evidence from the whole of human history that new money only waters down the value of the old, and does nothing to provide a long-term boost to the economy, and much to further distort economic structures.

It's like watching as barbers bleed patients in the name of curing them, or bringing in the witch doctors to cast out demons from people with the flu. But even if our knowledge of events cannot stop what these people are doing for now, it provides us with a sense of solace in the face of disaster. We can keep our heads, even as others run around as if theirs had been cut off.

In order to understand events, there is no substitute for doing what the media and most economists refuse to do, which is to look at the big picture and the long view, over decades. It is a matter of applying the rule that Henry Hazlitt brings home so clearly in Economics in One Lesson: economics consists in looking at the effects of policies not on one group but on all groups, not only in the short run but also in the long run.

From the long-run point of view, we observe an intriguing illustration of the Austrian warning against ever attempting to bail out an economy that is pushing toward recession. In 2001, the economy wanted to go into recession but the government wouldn't let it happen. It was the first stimulus package in the new millennium, consisting of vast new funding and vast money creation, with the Fed driving down rates and keeping them rock bottom.

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