A Lesson in Austrian School Economics for a Morgan Stanley V.P.

David BahnsenSenior Vice PresidentMorgan StanleyNewport Beach, CA

Dear Mr. Bahnsen:

I am writing this in response to your article, published on December 12, 2005, which was critical of Austrian School economics. You said at the time, correctly, that Austrian School economists were highly skeptical of the American stock market, given Alan Greenspan’s policies as Chairman of the Federal Reserve System. You then quoted several paragraphs by Mr. Greenspan proving that Greenspan was an advocate of free markets.

This article was a follow-up to your article of October 24, “The Streak Goes On,” in which you had kind words for President Bush’s appointees, most notably Ben Bernanke. You wrote:

His choice of Christopher Cox to director of the Securities & Exchange Commissions, Paul Wolfowitz to head the World Bank, and John Bolton to serve as Ambassador to the United Nations all represent the selection of deeply principled men, committed to reform where it is needed, and progress where it is possible. . . .

Now, this morning, President Bush has pushed his streak yet another notch further with the apparent appointment of Ben Bernanke to serve as the next Federal Reserve Chairman … The Wall Street Journal and NBC News have confirmed that President Bush will be make this announcement this morning, and supply-siders like myself can barely contain their excitement … Dr. Bernanke will have big shoes to fill (Alan Greenspan has served as chairman since 1987, covering all or part of six presidential terms along the way), though he surely is up for the task. A much more reliable deficit hawk than our own President, and his predecessor, Dr. Bernanke is a Chicago-school economist through and through, carrying on the tradition of the great Reagan team of the 1980’s (think Laffer, Kudlow, Bartley, etc.). A graduate of Harvard College, and MIT (Ph.D), he has served a professor at Princeton University, a federal reserve governor, and recently the chairman of President Bush’s Council of Economic Advisors.

First, Dr. Bernanke is, was, and always has been a Keynesian. He made a positive reference to Friedman with respect to Friedman’s almost universally accepted thesis that the cause of the Great Depression was the Federal Reserve System’s refusal to inflate the money supply, 1930—33. Keynesians have long applauded this thesis.

Dr. Bernanke’s recent decisions as Chairman prove his commitment to Keynesianism. There is no Friedmanian 3% per annum constant growth in the money supply. There was a 100% increase in the monetary base in the last three months of 2008 — the highest and fastest in history.

Read the rest of the article

March 3, 2009

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North.