Artificial Intelligence is not a new concept in computer science. It goes back to the earliest days of digital computing. There have been multiple generations of ‘AI’ as it is frequently called. None of these amounted to anything but losses. The microprocessors were too slow, the memory too small and disk space so limited it bordered on useless. Things have changed dramatically with the advent of cloud computing which is based on low cost 64 bit Intel, AMD, and Arm CPU’s using very large disk arrays in the cloud thanks to very cheap terabyte disks and high performance graphic processing units (GPU) from Nvidia; now one of the most valuable companies in the world. None of this required the government. It is a perfect case of private capital serving the free market. It seems to be ubiquitous now; loved by the IT community for the incredible tools now available and cursed by those who think it will take everyone’s job away, enslave humanity and perhaps launch a thermonuclear war ala the Terminator.

Sadly for the venture capital crowd it is still a money losing sinkhole with the sunk costs now in the tens of billions instead of the old days when it failed losing only millions. The biggest names are OpenAI, xAI, Google Gemini, Perplexity, Hugging Face and Microsoft Copilot (based on OpenAI) all that produce nothing but red ink. How to Live Longer and... Coleman, Dr Vernon Best Price: $2.08 Buy New $7.24 (as of 11:36 UTC - Details)

ChatGPT is my new best friend. We ‘chat’ almost every day and it is free. A chat at its simplest is question and response. You can run ChatGPT from a web browser, a program on your PC, Mac or Android desktop computer. It also has an application for the iPhone and Android smart phones. If you pay $20 a month you get expanded capabilities but even these are mainly free for some part of every day. It understands many languages including computer programming languages. Thanks to the vast amount of data available on the Internet the dialogs can be very interesting.

I love to discuss Austrian Economic Theory with ChatGPT. It understands it at the most profound level something mainstream economists, government leaders including our elected leaders either do not or refuse to. In a quick dialect it shows clearly the Austrian way to peace and freedom. Here’s a short dialog I had today with ChatGPT illuminating this. My questions will be in fixed width Courier font which is what teletype terminals used for decades!

Question: briefly explain Austrian Economic Theory.

Austrian economic theory emphasizes individual action, subjective value, and free markets. It rejects mathematical modeling and central planning, focusing instead on how individuals make decisions based on personal preferences and limited information.

Key principles include:

• Methodological individualism: All economic phenomena arise from individual choices.
• Subjective theory of value: Value is determined by individual preferences, not labor or intrinsic properties.
• Marginalism: Economic decisions are made at the margin—what matters is the next unit of a good or service.
• Spontaneous order: Markets self-organize through voluntary exchange without central direction.
• Business cycle theory: Credit expansion by central banks distorts interest rates, causing booms and inevitable busts (Mises-Hayek theory).

Austrian economists generally oppose government intervention, arguing it disrupts the natural coordination of market forces.

Would you like a contrast with Keynesian or Chicago school economics?

Question. No. Explain currency?

In Austrian economics, currency (money) is viewed as a market-originating tool, not something that should be created or managed by governments. Key views include:

• Sound money: Austrians strongly support commodity-backed money (like gold or silver), believing it limits inflation and government overreach.
• Against fiat currency: They argue fiat money—created by central banks without commodity backing—leads to inflation, asset bubbles, and economic distortions.
• No central banking: They advocate for free banking, where banks issue their own currencies backed by real assets, competing in the market.
• Money as a medium of exchange: Austrians see money as a neutral medium that emerges spontaneously from trade, not as a tool for macroeconomic policy.

Ludwig von Mises and Murray Rothbard were especially vocal about the dangers of inflationary fiat currency and central banking (e.g., the Federal Reserve).

Would you like a deeper dive into their critique of central banks?

Question: yes.

Austrian economists offer a fundamental critique of central banks, especially the Federal Reserve, rooted in the belief that centralized control of money leads to economic instability, distortion of prices, and erosion of individual liberty. Here’s a concise breakdown:

Key Austrian Critiques of Central Banks

1. Distortion of Interest Rates

• Central banks artificially lower interest rates via monetary expansion.
• Austrians argue interest rates should emerge from real savings and time preference.
• Artificially low rates mislead entrepreneurs, triggering malinvestment (bad investments) during the boom phase of the Austrian Business Cycle Theory (ABCT).

2. Boom and Bust Cycles

• When credit is cheap and abundant (due to central bank policy), it fuels unsustainable economic booms.
• Once reality catches up (e.g., unsustainable debt, resource misallocation), a bust follows.
• The 2008 financial crisis is often cited by Austrians as a modern example.

3. Inflation and Currency Devaluation

• Printing money to finance deficits (or stimulate growth) dilutes the value of currency.
• Austrians see this as a hidden tax that erodes purchasing power, especially harming savers and the poor.
• They argue inflation is not “too much growth” but too much money chasing the same goods.

4. Moral Hazard and Crony Capitalism

• Central banks bail out large institutions (“too big to fail”), encouraging reckless behavior and consolidating power among elites.
• This fosters crony capitalism, where politically connected firms survive while competitive ones fail.

5. Lack of Price Signals

• By controlling money and credit, central banks distort market signals, undermining efficient resource allocation.
• Free-market Austrians believe accurate prices can only emerge in a decentralized, undistorted market.

Bottom Line

Austrians argue that central banking:

• Undermines economic stability,
• Destroys the integrity of money,
• Encourages systemic risk and inequality.

Instead, they favor:

• Free banking, where banks issue their own competing currencies,
• A return to sound money, ideally backed by gold or another hard asset.

Would you like a historical example, like the Fed during the Great Depression or 2008 crisis?

Question: No, but I do want you to list the financial crises and inflation since 1913 the birth of the fed.

Financial Crises Since 1913

1. 1913–1920: WWI Inflation & Recession

• Fed expands money supply to fund war.
• Post-war inflation (1917–1920) >15% annually.
• Sharp deflation and recession followed in 1920–1921.

2. 1929–1939: The Great Depression

• Stock market crash (1929).
• GDP fell nearly 30%, unemployment peaked at 25%.
• Fed blamed for tightening money supply during initial collapse.

3. 1941–1945: WWII Inflation Controls

• Price controls and rationing to fight war-induced inflation.
• Suppressed official CPI, but black-market inflation persisted.

4. 1965–1982: The Great Inflation

• Loose monetary policy + Vietnam War + social spending.
• CPI inflation:
  • 6% avg (1965–1970),
  • 11%+ (1974–1975),
  • 13.5% (1980 peak).
• Fed under Paul Volcker raised rates >20% to break it (1981–82 recession).

5. 1987: Black Monday

• Dow Jones fell 22% in one day (Oct 19, 1987).
• No recession followed, but exposed fragility in financial system.

6. 1998: LTCM Collapse

• Hedge fund Long-Term Capital Management implodes.
• Fed organizes private bailout to prevent systemic risk.

7. 2000–2002: Dot-Com Bust

• Nasdaq crashes ~78% from 2000 peak.
• Fed lowers interest rates aggressively.

8. 2007–2009: Global Financial Crisis (GFC)

• Housing bubble fueled by ultra-low rates and loose credit.
• Lehman Brothers collapse (2008).
• Fed initiates massive Quantitative Easing (QE) and bailouts.

9. 2020: COVID-19 Crash

• Stock market dropped ~30% in a month (March 2020).
• Fed slashes rates to zero, launches trillions in asset purchases.

10. 2021–2023: Post-COVID Inflation

• Inflation rises to 9.1% (June 2022) — highest in 40+ years.
• Driven by stimulus, supply shocks, QE, and Fed balance sheet expansion.
• Fed begins aggressive tightening in 2022.

Major Inflation Episodes

–

Austrian economists argue these crises and inflation spikes are not random, but the direct result of Federal Reserve intervention in credit markets and manipulation of money.

Would you like this in a table format or want to expand on one of these periods?

Question: No. You forgot to include the war inflation of 2003 to 2024.

2003–2024: War Inflation and Monetary Expansion

Key Events & Drivers:

• Iraq & Afghanistan wars ($6–8 trillion estimated total cost).
• Massive deficit spending with little offset by taxation.
• Expansion of homeland security, military-industrial complex, and foreign aid.
• 2008 crisis triggered QE1–QE3 (2008–2014): trillions created to bail out banks and stimulate markets.
• Post-2008 asset inflation: Real estate, stocks, and wealth inequality rise sharply.
• COVID-19 (2020–2021): Trillions in stimulus deepen existing monetary distortion.
• 2022–2024: Inflation surge due to prior QE, disrupted supply chains, war in Ukraine, global food/energy shocks.

Inflation Profile:

• CPI remained deceptively low (under 3%) from 2009–2020, but:
  • Asset inflation: Home prices, stocks, and debt surged.
  • Shadow inflation: Shrinkflation, product quality decline, and healthcare/education cost spikes.
• 2021–2022: CPI spikes to 9.1% — Fed forced into historic rate hikes (2022–2023).

Austrian View:

• Entire period is a monetary illusion — real productivity masked by fiat expansion.
• Wars funded via inflationary credit, not taxation or savings — violating sound money principles.
• Massive misallocation of capital and dependence on central banking.
• Inflation was delayed, but inevitable due to decades of easy money.

This period may go down as the longest stealth inflation era in modern history, culminating in a sudden price shock once monetary distortions could no longer be hidden by productivity gains or asset inflation.

Would you like a full timeline combining this with earlier crises in a printable or tabular format?

Question: Yes

–

Austrian & Historical Notes:

• Most panics were tied to speculative excess (especially railroads and land), banking instability, and sudden contraction of credit.
• Absence of a central bank meant localized collapses, but also faster corrections.
• These crises led to calls for a centralized lender of last resort, culminating in the Federal Reserve Act of 1913.

No government in the world fully follows Austrian economic theory for several interrelated political, institutional, and practical reasons. Here’s a structured speculative answer grounded in political economy:

1. Austrian Economics Imposes Hard Fiscal Limits

• Austrian theory rejects fiat money and government deficit spending.
• Governments rely heavily on debt financing, especially during crises (wars, recessions, pandemics).
• Adopting Austrian principles would force balanced budgets, meaning:
  • No stimulus spending,
  • No monetization of debt,
  • Severe constraints on welfare and military programs.
• Politicians are incentivized to spend and promise more than they tax to stay in power.

2. It Removes Monetary Tools That Central Banks Depend On

• Austrian theory opposes:
  • Central banking,
  • Interest rate targeting,
  • Quantitative easing,
  • Inflation targeting.
• Central banks are the core mechanism modern governments use to:
  • Stabilize markets,
  • Manage unemployment,
  • Respond to recessions.
• No modern state wants to give up the ability to “print” money or manage short-term economic variables.

3. Austrian Policy Benefits the Long Term, Not the Short Term

• Austrian policy is painful in the short run:
  • No bailouts,
  • No stimulus,
  • “Let bad businesses fail.”
• Voters and markets demand immediate relief, not long-term discipline.
• Austrian medicine often means austerity, liquidation, and deflation before recovery — politically toxic.

4. It Reduces Political Power

• Austrianism implies minimal government:
  • No central economic planning,
  • No regulatory discretion,
  • No socialized safety nets.
• Governments would shrink in scope and relevance, reducing power of bureaucracies, central banks, and legislatures.
• Political elites and corporate lobbyists benefit from interventionism and state-connected finance.

5. Global Finance Is Built on Fiat and Leverage

• Global capital markets are deeply intertwined with fiat currencies, fractional reserve banking, and central bank backstops. The 5-Ingredient Cookb... Kelly, Benjamin Best Price: $3.88 Buy New $9.26 (as of 11:36 UTC - Details)
• A shift to Austrian-style free banking or hard money (e.g. gold or Bitcoin) would:
  • Disrupt bond markets,
  • Collapse overleveraged institutions,
  • Force deleveraging on a global scale.
• Governments would lose control over monetary sovereignty.

6. Austrian Theory Is Philosophically Uncomfortable

• It’s not technocratic — it emphasizes subjective value, spontaneous order, and uncertainty.
• Mainstream economics favors models, equations, and control, while Austrians reject mathematical central planning.
• It challenges the very legitimacy of modern economic management.

 Summary

No government follows Austrian economics because it:

• Limits state power,
• Prevents monetary manipulation,
• Requires immediate economic pain for long-term gain,
• And removes tools politicians use to manage public perception.

In essence: Austrian economics is good economics, but bad politics.

Politics is the Art of the Deal which is a code for stealing from the public fisc by direct taxation and central bank inflation by giving the funds bilked to those that did not earn them. C’est la vie.

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