Unfortunately, Mr. Paul has maintained his consistency by ignoring reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.
I’m not talking here about Mr. Paul’s antiwar views or his less well-known views on civil and reproductive rights, which would horrify liberals who think of him as a good guy. I’m talking, instead, about his views on economics.
Mr. Paul identifies himself as a believer in “Austrian” economics — a doctrine that it goes without saying rejects John Maynard Keynes but is almost equally vehement in rejecting the ideas of Milton Friedman. For Austrians see “fiat money,” money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression — and which was actually carried out by Ben Bernanke this time around.
O.K., a brief digression: the Federal Reserve doesn’t actually print money (the Treasury does that). But the Fed does control the “monetary base,” the sum of bank reserves and currency in circulation. So when people talk about Mr. Bernanke printing money, what they really mean is that the Fed expanded the monetary base.
And there has, indeed, been a huge expansion of the monetary base. After Lehman Brothers fell, the Fed began lending large sums to banks as well as buying a wide range of other assets, in a (successful) attempt to stabilize financial markets, in the process adding large amounts to bank reserves. In the fall of 2010, the Fed began another round of purchases, in a less successful attempt to boost economic growth. The combined effect of these actions was that the monetary base more than tripled in size.
Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation. One popular Austrian commentator who has advised Mr. Paul, Peter Schiff, even warned (on Glenn Beck’s TV show) of the possibility of Zimbabwe-style hyperinflation in the near future.
So here we are, three years later. How’s it going? Inflation has fluctuated, but, at the end of the day, consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent. Who could have predicted that printing so much money would cause so little inflation? Well, I could. And did. And so did others who understood the Keynesian economics Mr. Paul reviles. But Mr. Paul’s supporters continue to claim, somehow, that he has been right about everything.
Still, while the original proponents of the doctrine won’t ever admit that they were wrong — my experience is that nobody in the political world ever admits to having been wrong about anything — you might think that having been so completely off-base about something so central to their belief system would have caused the Austrians to lose popularity, even within the G.O.P. After all, as recently as the Bush years, many Republicans were all for printing money when the economy slumps. “Aggressive monetary policy can reduce the depth of a recession,” declared the 2004 Economic Report of the President.
What has happened instead, however, is that hard-money doctrine and paranoia about inflation have taken over the party, even as the predicted inflation keeps failing to materialize. For example, in February, Representative Paul Ryan, who is somewhat inexplicably regarded as the party’s deep thinker on matters economic, harangued Mr. Bernanke on how terrible it is to “debase” a currency and pointed to a rise in commodity prices in late 2010 and early 2011 as evidence that inflation was finally coming. Commodity prices have plunged since then, but there is no sign that Mr. Ryan or anyone else is having second thoughts.
Now, it’s still very unlikely that Ron Paul will become president. But, as I said, his economic doctrine has, in effect, become the official G.O.P. line, despite having been proved utterly wrong by events. And what will happen if that doctrine actually ends up being put into action? Great Depression, here we come.
I think it bears mention that this is less about the actual merits of Austrian economics and more about a complete failure of due diligence on the part of a professed intellectual. Murphy was admittedly responding to an argument that Graeber wasn’t making. The question of whether Murphy’s response is coherent in light of the argument he was responding to is a different question entirely from whether his response to Graeber was misinformed with respect opinions Graeber actually holds.
Well you make a good point, one that I believe Dave addresses in some detail, however his reply to Murphy ends with the following,
At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true. If what they are really describing is not how we ‘naturally’ behave but rather how we are taught to behave by the market—well who, nowadays, is doing most of the actual teaching? Primarily, economists. The question of barter cuts to the heart of not only what an economy is—most economists still insist that an economy is essentially a vast barter system, with money a mere tool (a position all the more peculiar now that the majority of economic transactions in the world have come to consist of playing around with money in one form or another) [10]—but also, the very status of economics: is it a science that describes of how humans actually behave, or prescriptive, a way of informing them how they should? (Remember, sciences generate hypothesis about the world that can be tested against the evidence and changed or abandoned if they don’t prove to predict what’s empirically there.)
Or is economics instead a technique of operating within a world that economists themselves have largely created? Or is it, as it appears for so many of the Austrians, a kind of faith, a revealed Truth embodied in the words of great prophets (such as Von Mises) who must, by definition be correct, and whose theories must be defended whatever empirical reality throws at them—even to the extent of generating imaginary unknown periods of history where something like what was originally described ‘must have’ taken place?
The emphasis is mine.
Edit: In my experience, Murphy’s lack of due dilligence is quite common at Mises (with a steady stream of people ready to parrot and discredit an entire person’s work because of slander or imaginary arguments made in one post.)
