Fixing the Economists Article of the Fortnight
by Philip Pilkington, Fixing The Economists
I’ve been asking myself that question rather a lot in the past two weeks. This is because I have had two separate commissions for pieces of writing that require me jump down the rabbit hole into the land of the money cranks. One piece is for a magazine and is about gold bugs and their ilk. The other is for an encyclopedia and deals with the Real Bills Doctrine.
To be frank, the Real Bills stuff is actually in some ways worse than the gold bug stuff. Whereas the gold bug stuff is pretty straight-forward and basically in line with the quantity theory, the Real Bills stuff is all over the place. The basic “insight” is simple — that is, money-loans backed by assets that yield real income will not cause inflation — but the various and almost never-ending articulations and re-articulations become ever more murky and confused the digger you deep.
So, what then constitutes a money crank? Well, first of all let’s run through a few names and try to decide if they are money cranks. I will be doing this more so from intuition at this stage rather than by appeal to argument. I will try to build an argument around the intuitive examples I give thereafter.
Was Irving Fisher, founder of the famous Quantity Equation, a money crank? I don’t think so. Was John Maynard Keynes in his Treatise on Money a money crank? Again, I think not. Were Milton Friedman and Anna Schwarz money cranks when they wrote their A Monetary History of the United States, 1867–1960? I would answer in the negative. What about Nicholas Kaldor in The New Monetarism and Joan Robinson in The Rate of Interest and Other Essays? Again, no. The MMT economists? I think not. Finally, what about David Graeber in his book Debt: The First 5,000 Years? Nope, I really don’t think so.
As the reader can appreciate that list contains a number of people with different opinions and different backgrounds. Most are trained economists, for example, but Graeber is an anthropologist and largely an autodidact on monetary theory. It also contains some people that I strongly disagree with on monetary matters, like Friedman and Schwarz. I wanted to include all of these to show that the criteria for what constitutes a money crank should have nothing to do with (a) academic background or (b) whether I disagree with the theories or not.
Now, let’s list some people who I do consider money cranks. Murray Rothbard is, I believe, a money crank. But he is of a more softcore variety. On the left is Silvio Gesell, albeit he is of a more softcore variety. Antal Fekete is what I would consider a hardcore money crank. What about media figures like Peter Schiff and Marc Faber? I don’t believe that these two constitute money cranks. Rather I think that they draw upon the stories spun by money cranks to sell their respective products — whether that be themselves as media figures or financial positions managed by their companies. They are better seen as ‘pop money cranks’ who spread the heavily condensed Gospel to the masses in the form of soundbites.
So, what are the commonalities that go to make a person a money crank? If I must summarise I think it would be as follows: in order for someone to be a money crank they must meet one of two criteria. One such criteria is that their analysis of money must be tied up with strongly normative views of how the money system should function. Now, obviously most monetary theorists will have some normative views about how the system should operate, but I think that we can draw a distinction between, say, the view of Friedman that central banks should stick to monetary targets and, say, the views of Rothbard.
We can get a clearer idea of the divergence by quoting from both writers. The chapter headings of Rothbard’s work What Has the Government Done to Our Money? are instructive in this regard (as is the title of the work itself). These include:
Government Meddling With Money
The Monetary Breakdown of the West
The content is quite in keeping with the titles too. In the subsection entitled Government and Money Rothbard writes,
Furthermore, government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order. It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs.
Now compare this to some of Friedman’s writings on the desirability of his monetary policy rules. The following is from his paper The Role of Monetary Policy,
By setting itself a steady course and keeping to it, the monetary authority could make a major contribution to promoting economic stability. By making that course one of steady but moderate growth in the quantity of money, it would make a major contribution to avoidance of either inflation or deflation of prices. Other forces would still affect the economy, require change and adjustment, and disturb the even tenor of our ways. But steady monetary growth would provide a monetary climate favorable to the effective operation of those basic forces of enterprise, ingenuity, invention, hard work, and thrift that are the true springs of economic growth. That is the most that we can ask from monetary policy at our present stage of knowledge. But that much and it is a great deal-is clearly within our reach. (p17)
Note carefully the difference in tone. Rothbard gives off an impression that this is all quite personal. Someone has, in a very real sense, done him an injustice… personally. Terms like “meddling” and “tyranny” are thrown around to show that all the ills of the world are tied up with the money system. This highlights something of interest. Whereas in, say, Marx we find a similarly agitated tone, we do not find this tied to something occurring in the money system. That is why Rothbard is a money crank and Marx is not. Marx’s ire is primarily political, Rothbard’s is primarily tied to the money system — for Rothbard politics and the money system cannot be separated.
For Friedman, however, there is no indication that the money system gets him hot and bothered. For him it is just a means to an end. He has set goals in mind for society — goals that are largely in keeping with the economic consensus — and the money system is merely a means to bring about these goals. Whereas one can imagine Rothbard foaming at the mouth and genuinely affronted by a Federal Reserve open market purchase, one cannot imagine the same to be true for Friedman.
This criteria may be outlined as such: a money crank is a person who views the money system from a position in which they have substantial emotional investment.
Rothbard, however, is tame in comparison to a writer like Fekete. In his poorly written work The Gold Standard Manifesto: “Dismal Monetary Science” he writes,
Governments and academia have utterly failed in discharging their sacred duty to provide a serene environment for the search for and dissemination of truth regarding economics in general and monetary science in particular. This failure has to do, first and foremost, with the incestuous financing of research ever since the Federal Reserve System was launched in the United States in 1913… Under the gold standard government bonds were the instrument to which widows and orphans could safely entrust their savings. Under the regime of irredeemable currency they are the instrument whereby special interest fleeces the rest of society.
Unknown to the public, at the end of the day the shill is obliged to hand over her gains to the casino owner, alias the United States Treasury. There is nothing open about what is euphemistically called ‘open market operations’. It is a conspiratorial operation. It has come about through unlawful delegation of power without imposing countervailing responsibilities. It was never authorized by the Federal Reserve Act of 1913. It defies the principle of checks and balances. It is immoral. It is a formula to corrupt and ultimately to destroy the Republic.
Such passages are pretty off-the-wall. The money system is portrayed as a vast conspiracy set up to defraud widows and orphans. Here we see that Fekete is far more hardcore than Rothbard. Whereas both agree that the government “meddles” with money and this is undesirable and leads to some sort of personal injury, Fekete goes one step further and portrays the system as an organised conspiracy set up against the vulnerable. Let us now turn to the second criteria that a person can meet to be considered a money crank.
This criteria is often, but not always, tied to the first. It is: the idea that all of society’s ills can be solved merely by reorganising the money system. Often the proposed changes must be extremely complex and little thought is typically given as to how really existing social institutions — which arose less by design than by necessity — will integrate the proposed changes. This, I think, is why Gesell falls into the category of money crank.
I cannot quote it at length here but the interested reader should have a look at the section of his work The Natural Economic Order entitled Description of Free Money. There you can see a highly complex exposition of how the money system should be changed to liberate mankind. The problem with such expositions are twofold. First, as already mentioned, it is well-nigh impossible to redesign institutions that have arisen organically — the money system is one of such systems. Second, the idea that the Grand Plan would work out just as it did on the back of the author’s envelope is deranged. No one seriously interested in economic policy could rationally believe such a thing. Plans only work when they are highly simplified — and even then they will have enormous unforeseen consequences.
So, let’s state this criteria in no uncertain terms: a person who believe that all, or the vast majority of, social ills are caused by the current money system and thus can be solved by implementing an imaginary money system that they have designed can be safely considered a money crank.
Anyway, I doubt that the above is completely comprehensive. But I think it lays down a few general observations that might help in distinguishing between monetary theorists and money cranks. Of course, as with most of these things there may be some that fall outside of the criteria here laid down who are nevertheless money cranks. In that regard, the reader can only but trust their own judgment.
Finally, I would say that we should not think that money cranks have nothing to offer. I am sure that right-wingers can find suggestive insights in Fekete’s work and I think that the left can find a few in Gesell’s work (in the General Theory Keynes certainly thought so). This is because of these writers almost monomaniacal focus on the money system. Most monetary theorists, as I have said, view the money system as a means to an end and thus they do not obsess over it any more than they need to. Money cranks do, however, and that can often lead them to generate minor insights that conventional money theorists miss. But a crank is still a crank. And that should be at the forefront of peoples’ mind when approaching the works of any money crank. Because it is far easier to fall down the rabbit hole than it is to crawl back out.