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Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (354)	11/7/2008 1:26:41 AM
From: Aloysius Q. Finnegan	Read Replies (2) \| Respond to of 445

Okay. But let's assume for the moment that the "Austrian" purist is put in the awkward position of having to defend his ideal nation state. As you noted "... wars can and have been fought on a gold or other commodity standard, but when the government is allowed to expand the money supply it can raise more money." Would the "Austrian" traditionalist refuse to expand the money supply on principal ... and thereby compromise the security of the nation? Here is some more information on the "Austrian" position on credit that I lifted from Wikipedia: "The Austrian School has consistently argued that a "traditionalist" approach to inflation yields the most accurate understanding of the causes (and the cure) for inflation. Austrian economists maintain that inflation is always and everywhere simply an increase in the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services. Given that all major economies currently have a central bank supporting the private banking system, almost all new money is supplied into the economy by way of bank-created credit (or debt). Austrian economists believe that this bank-created credit growth (which forms the bulk of the money supply) sets off and creates volatile business cycles (see Austrian Business Cycle Theory) and maintain that this "wave-like" or "boomerang" effect on economic activity is one of the most damaging effects of monetary inflation. According to the Austrian Business Cycle Theory, it is the central bank's policy of ineffectually attempting to control the complex multi-faceted ever-evolving market economy that creates volatile credit cycles or business cycles, and, as a necessary by-product, inflation (especially in asset markets). By the central bank artificially "stimulating" the economy with artificially low interest rates (thereby permitting excessive increases in the money supply), the government-sponsored central bank itself allows debasement of the means of exchange (inflation), often focused in asset or capital markets, resulting in "false signals" going out to the market place, in turn resulting in clusters of malinvestments, and the artificial lowering of the returns on savings, which eventually causes the malinvestments to be liquidated as they inevitably show their underlying unprofitability and unsustainability.[18] Austrian economists therefore regard the state-sponsored central bank as the main cause of inflation, because it is the institution charged with the creation of new currency units, referred to as bank credit. When newly created bank credit is injected into the fractional-reserve banking system, the credit expands, thus enhancing the inflationary effect.[19] The Austrian School also views the "contemporary" definition of inflation as inherently misleading in that it draws attention only to the effect of inflation (rising prices) and does not address the "true" phenomenon of inflation which they believe is the debasement of the means of exchange. They argue that this semantic difference is important in defining inflation and finding a cure for inflation. Much like a physician studying a disease (such as cancer), the causes of the cancer need to be identified before an effective cure can be found. Similarly, Austrian economists maintain the most effective "cure" for the "disease" of inflation is the strict maintenance of a stable money supply.[20]" So what's an Austrian Economist to do when the barbarians are at the gate and defenses have to be rapidly built up? Will they never use credit under any condition? I appreciate your previous response. Thanks