To: Nate Lewis, Jude Wanniski, "Austrians," LewRockwell.com readers
Lewis and the "Supply-Siders"
Lewis, an economist belonging to a group that calls itself
the "Supply-Siders," has posted a
piece responding to Gary North's recent series
of essays on LewRockwell.com.
allow Dr. North to defend his scheme for monetary reform himself.
(By the way, on first reading, I found myself in close agreement
with his ideas.) But I'd like to address what I think is a totally
unjustifiable interpretation of Mises on the part of Lewis.
course, supply-side ideas do not stand or fall based on whether
Mises would have supported them. Supply-siders could be right and
Mises wrong. But it is curious that Lewis goes to such lengths to
attempt to (mis-)read Mises into the Supply-Side camp. We must suspect
a rhetorical ploy: since both Rothbard and Hayek considered Mises
as a significant mentor Hayek once called him the "master of
us all" then if a writer can make a case that they got Mises
completely wrong, it does make them look somewhat obtuse.
course, such ploys can backfire. This one does, as it is fairly
trivial to demonstrate that it is Lewis's reading that is without
reasonable textual support indeed, that his reading is directly
contradicted by Mises's own words.
begins by getting his history wrong, calling Mises one of the "original
Austrians." But Mises was actually of the third generation of Austrian
thinkers, first gaining prominence in economics over 40 years after
the publication of Carl Menger's Principles
of Economics, the Austrian School's founding book.
next claims that Mises was "at heart a classical economist," and
that his work, The
Theory of Money and Credit, "represents the pinnacle of
19th century classical monetary theory." I don't know whether Mises's
heart was classical, but his views certainly were not. Mises expresses
great admiration for the achievements of the classical economists,
but considers himself an inheritor of the marginalist revolution
of the 1870s and the subjectivism of Carl Menger. At the very beginning
Action, Mises points to the great defect of the classical
school and its remedy by "modern subjectivist economics":
classical economists met in the pursuit of their investigations
an obstacle which they failed to remove, the apparent antinomy
of value. Their theory of value was defective, and forced them
to restrict the scope of their science.
Until the late nineteenth century political economy remained a
science of the "economic" aspects of human action, a theory of
wealth and selfishness. It dealt with human action only to the
extent that it is actuated by what was very unsatisfactorily
described as the profit motive, and it asserted that there
is in addition other human action whose treatment is the task
of other disciplines. The transformation of thought which the
classical economists had initiated was brought to its consummation
only by modern subjectivist economics, which converted the theory
of market prices into a general theory of human choice.
a long time men failed to realize that the transition from the
classical theory of value to the subjective theory of value was
much more than the substitution of a more satisfactory theory
of market exchange for a less satisfactory one. The general theory
of choice and preference goes far beyond the horizon which encompassed
the scope of economic problems as circumscribed by the economists
from Cantillon, Hume, and Adam Smith down to John Stuart Mill.
It is much more than merely a theory of the "economic side" of
human endeavors and of man's striving for commodities and an improvement
in his material well-being. It is the science of every kind of
human action. (Human
fact, the great achievement of The Theory of Money and Credit
was that it brought subjectivist economics to monetary theory: it
was a refutation of classical monetary theory!
a "classical economist," Lewis contends that Mises was a "Value
Theorist," which means that he was "concerned with maintaining a
stable value of money." But Mises's actual work, as opposed to that
of his doppelganger, "Supply-Side Lu," showed that no good can have
a stable value, indeed, that the very notion of stable values is
self-contradictory. Of course, under the classical gold standard,
the value relationship of money to gold would not change, since
gold was money! (Yes, there was fiduciary media in circulation,
but the base money simply was gold, not something "linked"
or "pegged" to gold.) There is nothing very profound in noting that
the value of a good is identical to itself. But, since the value
of gold fluctuated relative to other goods, we certainly did not
have money with a "stable value." (Incidentally, what the Supply-Siders
want to do is to have a money that is not gold, but whose value
is "made stable" by its being pegged to gold quite a different
proposition from the classical gold standard.) Here is Mises on
the idea of "stable money":
ratios are subject to perpetual change because the conditions
which produce them are perpetually changing. The value that an
individual attaches both to money and to various goods and services
is the outcome of a moment's choice. Every later instant may generate
something new and bring about other considerations and valuations.
the establishment of which the program of [monetary] stabilization
aims at, is an empty and contradictory notion. The urge toward
action, i.e., improvement of the conditions of life, is inborn
in man. Man himself changes from moment to moment and his valuations,
volitions, and acts change with him. In the realm of action there
is nothing perpetual but change. There is no fixed point in this
ceaseless fluctuation other than the eternal aprioristic categories
of action. It is vain to sever valuation and action from man's
unsteadiness and the changeability of his conduct and to argue
as if there were in the universe eternal values independent of
human value judgments and suitable to serve as a yardstick for
the appraisal of real action....
all human conditions were unchangeable, if all people were always
to repeat the same actions because their uneasiness and their
ideas about its removal were constant, or if we were in a position
to assume that changes in these factors occurring with some individuals
or groups are always outweighed by opposite changes with other
individuals or groups and therefore do not effect total demand
and total supply, we would live in a world of stability. (HA,
in the monetary unit's purchasing power is unthinkable and unrealizable....
sole textual justification for contending that Mises was what Lewis
calls a "value theorist" is that he once titled a section of one
of his books, "The Value of Money." Well, yes, the words 'value'
and 'money' do occur together in that title. Employing "Lewisian
hermeneutics," we may note that Mises once wrote an essay entitled,
"Stones into Bread, the Keynesian Miracle," and consider that as
sufficient evidence that Mises was a Keynesian, and recommended
a policy of turning stones into bread.
opposes Mises to the misguided, later "Austrians," who believed
that inflation should be defined as a large increase in the money
supply, and deflation as a large decrease in it. But Mises points
out that that is actually the older definition of inflation and
deflation, that it is Lewis who is using a more recent definition,
and that the more recent definition is a cause of great mischief:
semantic revolution which is one of the characteristic features
of our day has also changed the traditional connotation of the
terms inflation and deflation. What many people today call inflation
or deflation is no longer the great increase or decrease in the
supply of money, but its inexorable consequences, the general
tendency toward a rise or a fall in commodity prices and wage
rates. This innovation is by no means harmless. It plays an important
role in fomenting the popular tendencies toward inflationism.
of all there is no longer any term available to signify what inflation
used to signify. It is impossible to fight a policy which you
cannot name. Statesmen and writers no longer have the opportunity
of resorting to a terminology accepted and understood by the public
when they want to question the expediency of issuing huge amounts
of additional money. They must enter into a detailed analysis
and description of this policy with full particulars and minute
accounts whenever they want to refer to it, and they must repeat
this bothersome procedure in every sentence in which they deal
with the subject. As this policy has no name, it becomes self-understood
and a matter of fact. It goes on luxuriantly.
second mischief is that those engaged in futile and hopeless attempts
to fight the inevitable consequences of inflation the rise
in prices are disguising their endeavors as a fight against
inflation. While merely fighting symptoms, they pretend to fight
the root causes of the evil. (HA,
almost think it was the Supply-Siders whom Mises was writing about
in that last paragraph!
goes on to criticize "Rothbardians" for not realizing that the post-WWII
Bretton Woods regime is a kind of gold standard. Well, I suppose
there is nothing wrong with calling it a kind of gold standard,
since it does involve gold in the monetary system. But such a classification
hardly means that anyone who supports the classical kind of gold
standard must also support the Bretton Woods kind. We can reasonably
classify both hang gliders and 747s as "air transport." Would Mr.
Lewis therefore criticize me as inconsistent for my willingness
to board a 747 but reluctance to hang glide?
Supply-Siders are certainly under no obligation to agree with Mises
on monetary theory. But since they disagree with him in such fundamental
ways, intellectual honesty would seem to oblige them to stop trying
to claim Mises as a supporter of their views.
Callahan [send him mail]
has just finished a book, Economics for Real People, to
be published this year by the Ludwig
von Mises Institute.
© 2002, Gene
Callahan/Stu Morgenstern Archives
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