Tuesday, April 19, 2011

My Letter to National Review re: Not Enough Money

Monday, April 18, 2011

National Review:

Dear Sirs:
Catching up on my NR reading. Ah, a couple hours in the airplane, so I start on the April 4th edition. Another excellent article by Kevin D. Williamson—this one about Texas Governor Rick Perry, my kind of guy! I turn the page and…What!…”Not Enough Money”, by Ramesh Ponnuru! This must be some kind of April Fool’s joke! But, no. Now Ramesh is a great guy. I was privileged to sit next to him at the annual banquet of the Conservative Caucus of Delaware last fall and then introduce him to the group. He certainly knows a lot about the things of which he knows a lot…but monetary policy is not one of them. My copy of his essay in the April 4th edition is full of my pen and ink notations, which are too numerous to mention. Suffice it to say that Ramesh recites the mainstream economic opinion that equates prosperity with GNP growth. But this is a HUGE mistake, even if it is the opinion of the vast majority of economists. Modern day Monetarist School policy, with Milton Friedman as its champion, and Keynesian School policy, with just about everybody in government and the Fed as its champion, completely ignore capital theory. Both schools of thought want “flexible” money that can be managed by so-called experts to keep the economy on an even keel and growing nicely. (Tell me, how has that worked out?) Austrian School monetary policy emphasizes that sound money is as much a part of the free market as any other product. If you want more money, go dig some up and mint it. That is the only way that REAL money can grow…and that is a good thing! Ramesh relies upon the old MV=PY formula and then enhances it by adding the money multiplier. Just because someone writes a formula does not necessary mean that the formula represents reality…and this one does NOT. It is true that an increase in the demand for money will cause prices to drop, but it does not cause production to drop. And the reverse is true. If the velocity of money increases (the demand for money falls), prices will rise but nothing happens to production. But increasing the money supply causes all manner of evils, the worst being the temporal dislocation of the stages of the structure of production, which simply means that we make too much of the wrong stuff that no one wants to buy at a price that will turn a profit.

There’s much, much more to this than a short letter can elucidate. I’d love to have Ramesh in my Introduction to Austrian Economics class at the University of Iowa next semester. I especially like to educate my friends.

So, I turn the page and, lo and behold!, an excellent essay about one of my favorite economists: Walter Williams. John J. Miller even mentions that Walter was influenced by Ludwig von Mises and Friedrich Hayek. Ah, all is once again right with the world.

Warmest regards,

Patrick Barron

1 comment:

  1. This really cracks me up, because I was catching up on my NRs last night, read the great Rick Perry article, then was thoroughly annoyed by the Ramesh Ponnuru article, and this morning went hunting online for an Austrian to restore sanity.

    And, lo and behold, I find your article. Thank you, thank you, thank you. While he may be a fine fellow with some legitimate conservative strengths, Ramesh is a modern day Alexander Hamilton, with an elitism that says "we big brains need to manipulate to save all you little brains out there."

    His pet cause to this point has been family (i.e. per child) tax breaks to make sure "we" strengthen the American family structure. He snuck it into this "not enough money" essay, as he does nearly everywhere, and apparently he has convinced Rich Lowry it must be inserted in every NR editorial discussing the federal budget and/or tax policy.

    Heaven forbid Ramesh's statist instincts reach beyond fiddling with the tax code to start a relentless discourse on genius-guidance all of monetary policy.

    P.S. Kill The Fed.