There is such a thing as society -
it’s just not the same as the state.

Via The TaxPayers’ Alliance – Economics 101: The IFS spreadsheet doesn’t tell us what policy choices are best for the poor:

Suppose you invented a policy, some kind of economic miracle, which doubled the incomes of the poorest ten per cent of families without the Government spending a pound.  That would reduce benefit spending.  It would also increase tax revenues from the poorest.  The same method that the IFS are using in their reports would show the effects of that policy as horribly regressive, cutting spending on the poor and shifting the fiscal scales against them.

Of course that is an extreme and artificial example.  But it shows the big problem with the IFS analysis, which essentially assumes that the fortunes of the poor add up to the amount of Government money spent on them.

Over at CentreRight, I ask “Will the spending review be bold enough?“ This is a follow up to Professor Kevin Dowd’s article for The Cobden Centre: The UK is Broke.

Hazlitt’s remark in Economics in One Lesson seemed an appropriate introduction:

Today is already the tomorrow which the bad economist yesterday urged us to ignore.

This post originally appeared at The Cobden Centre.

Following his introduction to Mises, Dr Eamonn Butler has released his latest book, Austrian Economics – A Primer. I recommend it strongly if you want to grasp the fundamentals of the Austrian School of Economics as quickly as possible: at just 118 pages, this pamphlet can be tackled in one sitting.

With Keynesian-inspired policies which ‘spend your way out of recession’ clearly not working, the Austrian School provides a better explanation for recent events than more ‘mainstream’ thinking, whether Keynesian or Monetarist.

Over the course of the book, Eamonn explains the Austrian view of the importance of human agency, values and knowledge in shaping the markets, that is social cooperation. Vitally, it explains the origin of the present cycle of boom and bust: the government’s cheap credit policies, which encouraged people to borrow and discouraged saving, creating an artificial boom that inevitably ended.

For many years, the Austrian School of Economics has been sidelined, but it’s great to see that it is now rising in popularity as people become increasingly critical of the way governments and central banks have handled the economy.

Butler’s systematic and simple yet comprehensive primer is a great addition to a stable which also includes The Austrian School: Market Order and Entrepreneurial Creativity by Jesus Huerta de Soto. While Huerta de Soto’s first-class book is perhaps aimed at a more technical audience, Butler has made the Austrian School highly approachable. A strength shared by both works is to be measured and inclusive where “Austrians” can be confrontational.

Eamonn has made a superb job of outlining this important school of thought and his book should prove a great success. You can buy it here.

Via the FT, we find Fed moves towards monetary easing. This would be a disaster.

Related articles:

• The Cobden Centre: The Staggering Economic Errors Behind The Policy of Quantitive Easing and how QE harms the ordinary person: The violation of Mr Smith
• Stewart, The Cat is out of the Bag
• The Mises Institute: The Insolvency of the Fed – Philipp Bagus and The Fed’s Dilemma – Philipp Bagus – Mises Daily
• Mises, Inflationism
• Cobden Centre Blog: Jim Rickards: What’s So Wrong With Deflation?

Books:

• Schiff, How an Economy Grows and Why It Crashes
• Huerta de Soto, Money, Bank Credit, & Economic Cycles
• Garrison, Time and Money: The Macroeconomics of Capital Structure
• Mises, The Causes of the Economic Crisis, and Other Essays Before and …
• Hayek, Prices and Production and Other Works
• Mises, The Theory of Money and Credit

At The Telegraph, Ambrose Evans-Pritchard calls for a further extension to our binge:

Tight fiscal policy offset by ultra-loose money is the only option for Europe, the US, and Japan.

At The Cobden Centre, Professor Kevin Dowd says that Calls for further monetary expansion are cuckoo, and James Tyler, Chief Executive of Tyler Capital, describes the article as Monetarist whitewash.

Contemporary economic thinking takes too many aggregates, amongst its other faults (see for example Money, Bank Credit and Economic Cycles, pp 519-583). Monetarists generally ignore the structure of production. A consequence is policy which is bound to cause worse problems later. As Hayek said in his Nobel lecture:

 The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from re-appearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation, but because it is now bound to occur as a deeply regrettable but inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate.

I have discovered that the IEA have relaunched “The Austrian School” by Jesús Huerta de Soto:

It has become increasingly clear that interventionism played a significant role in precipitating the 2008 financial crisis. The Austrian School is more than capable of providing the free market theoretical framework needed to understand why governments and central banks helped bring about the bust.

Jesus Huerta de Soto’s book offers a comprehensive yet concise overview of the Austrian school, an increasingly influential branch of economics. It succeeds in contrasting the most important elements of Austrianism with the Monetarist and Keynesian paradigm and draws from seminal Austrian texts to stress the importance of subjectivist methodology.

I met Jesús in Salamanca when we attended the Ludwig von Mises Institute’s conference celebrating the birthplace of economic theory. He is a man of inspiring intellect, passion and values. His book Money, Bank Credit and Economic Cycles is one of the seminal books for this crisis, and we were delighted when Jésus agreed to become a Senior Fellow of The Cobden Centre.

I have downloaded the PDF and I’m looking forward to what I expect will be an excellent read…

Via Arthur Edwards, a section from Riegel’s book A New Approach to Freedom:

The Right-Wing Socialists

THERE ARE three classes of socialists: the left-wing, or Marxist, group, who believe that the government should own and control everything; the middle-of-the-road socialists, who believe the government should own and operate public utilities; and the right-wing socialists, who believe that the government should control only the monetary system.

The right-wing socialists are by far the most dangerous, because they are not known as socialists and call themselves capitalists, individualists, private enterprisers, etc. They even believe themselves to be anti-socialist and profess full faith in private enterprise. They are not only numerically the largest group of socialists but are also individually the most influential. Among them are the leading industrialists and mercantilists and bankers and statesmen.

The right wing socialists believe that with production and distribution facilities in the ownership and operation of private interests, and with monetary facilities in the hands of government, we can have free enterprise. They might as well believe that if a man owns an automobile, he need not worry about who or what controls the gas.

Private enterprise means the right among men to come to voluntary agreement on the exchange of their goods and services. These agreements, some written, some oral, some implicit, some explicit, run into the millions, and upon their fidelity rests the entire social structure. In a money economy, all these contracts are expressed in terms of the monetary unit, which is itself based upon a contract——the basic contract which is the foundation of the entire pyramid of contracts.

What is the money contract that makes possible or impossible the faithful performance of every other contract? Ask any businessman, banker, lawyer, economist or statesman, and you will find that his idea is not only vague, but that it involves legislation.

In other words, he believes that money is a political product.

In contrast with this universal belief, the truth is that the state is incompetent to legislate money and powerless to issue it. The substance of money is supplied entirely by private enterprise. The state’s intervention in money is at best an impediment to private enterprise, and with the assertion of the issue power, it becomes the active agent of socialization. Thus those who believe in or accept political money power——and their number is legion——are the most dangerous, though innocent, socialists.

While the great mass of people have no ideology, those who think on the issue between private enterprise and socialism are virtually all socialists of the three classes named. This is a startling fact that we must recognize before the final battle lines are formed. The would-be friends of private enterprise must be made real friends, instead of innocent fellow travelers with those who would destroy our liberties.

Private enterprise, to survive, must control its three facilities, namely, the means of exchange, the means of production, and the means of distribution. To control the means of exchange, we must have separation of money and state.

See also The Friends of Associative Economics Bulletin.

Highlights from the past week:

• On Monday, I attended the beginning of Armed Forces Week in Wycombe.
• Budget statement on Tuesday by the Chancellor. I spoke in the debate receiving a warm reception from Prof. Kevin Dowd on the Institute for Economic Affairs’ blog. The first Cobden Centre Austrian School Seminar began at the Institute of Economic Affairs.
• Wednesday saw a major post-budget event by the TaxPayers’ Alliance and the IEA, followed by lunch with Secretary of State for Health, Andrew Lansley, to discuss health reform and Wycombe Hospital.
• Writing for ConservativeHome on Thursday, I explained why economists disagree, why they are so often wrong and where economic thinking goes next. I followed this up on Saturday with some essential market analysis of the crisis from The Cobden Centre.
• On Thursday evening, I explained to like-minded comrades over dinner how we might deliver and entrench a new open society.
• On Friday, I visited the magnificent Skidz project, which delivers motor training for young people, before dropping in on the Schools Linking Network Celebration event at Adams Park. The evening was beautifully rounded off with a wonderful Patron’s summer party in Hambleden Valley.
• Yesterday, I visited Desborough Playden before enjoying Marlow Bottom’s Rose Carnival. I ended the day giving prizes to inspiring young people at the Muslim Education Centre on Totteridge Drive.

And all this reminds me: time to begin a new Google map for my work as MP…

Steve Baker (Wycombe) (Con): When I came to the House today, I expected to hear a great deal of Keynesian argument and I have not been disappointed. I am sorry that the hon. Member for Great Grimsby (Austin Mitchell) is no longer in the Chamber, as I wanted to congratulate him on his comprehensive grasp of Keynesian arguments. Unfortunately, it was also excruciating.

I am told that Keynes thought that the safe upper limit for the size of the state was 25% of national income. He might have halved the size of Government, so we can applaud the Budget as extremely moderate and thoughtful.

I have to tell those who propose deficit spending that it is inherently unsustainable. When Governments spend with a deficit they are bound to inject funds in a particular location in the economy and that is bound to create a pattern of economic activity that can be sustained only with deficit spending. We all accept that deficit spending cannot go on for ever. As one of my hon. Friends explained earlier this week, last year we were able to borrow only because we created a hole in the market for bonds using quantitative easing. That is so dangerous. In the past the world has seen the effects of printing money to pay off Government deficits, and I would dread to think that this country should live through such a circumstance.

I am reminded of some words published in 1945:

“I see now more clearly than ever before that even our greatest troubles spring from something that is as admirable and sound as it is dangerous-from our impatience to better the lot of our fellows.”

That is a quotation from Karl Popper, who is an interesting philosopher because, like his contemporary, Friedrich Hayek, he was a socialist until he understood where that philosophy went.

I am interested in the general well-being, particularly as Wycombe has not only great wealth but significant poverty and income levels everywhere in between. We must take seriously the realities that we face. I am glad that the Budget has included an announcement that there will be a review of pensions, and I should like to speak on that. I am grateful to my hon. Friend the Member for Stourbridge (Margot James) for having brought up the subject.

Read the rest of the speech here.

Previously, I reviewed Jesse Norman’s Compassionate Economics, so I was very glad to find him in Parliament amongst this intake. Jesse’s maiden speech was superb, calling as it didfor a new economic orthodoxy, following his remarks on his constituency and local priorities:

However, we are not sent to this House only to represent our constituents; we are also sent here to play a role in the wider governance of this country. The new Government have made a superb early start in opening up sources of data about spending across the public sector. But what matters is not merely what we think about, but how we think about it. Our task is to remedy not just a colossal failure of governance over the past 13 years, but a colossal failure of thought. Politicians are generally nervous about talking about abstract ideas. In the words of the late great Ernie Bevin-here I will not attempt an accent-”Open up that there Pandora’s Box, and who knows what Trojan ‘orses won’t jump out of it.” But of course to dismiss ideas is itself to be ruled by an idea. Ideas are always in charge. So it is important-nay, vital-to choose the right ones.

Now, the idea of revolution is never dear to a conservative, but even Edmund Burke would agree that we need a revolution in how we think about economics in Government. Over the past two decades the British Government have become steeped in a 1970s textbook caricature-a view in which markets are always efficient, prices reflect perfect information, and institutions are nowhere to be found. One would be tempted to call such a view neo-liberal, were we not in a time of coalition government.

Worse than that, the deep assumption remains that human beings are purely economic, rather than social, animals. This dismal gospel regards the human world as static, not dynamic-as a world of fixed social engineering, not one of creation, discovery and competition. In policy terms, this textbook economics takes power away from local people. It encourages centralisation and top-down meddling. It pushes us towards an inefficient, inhumane and factory-style view of public services. It is absurdly risk averse. In its apparent inevitability, it stifles public debate about other, more thoughtful approaches. Above all, it actively undermines the ideas of public service, public vocation and public duty-ideas which, I know, lie close to the heart of every Member of this House.

Now is the moment to re-examine these assumptions. Politics is not a subset of economics, and economics is not a subset of the financial sector. GDP growth is important-goodness knows that is true now-but so are flexibility, resilience and, above all, entrepreneurship in our economy. We need a new economics in our Government, not the desiccated economic atomism of the old textbooks, and we need to see people for what they really are, as bundles of human capability, creative, dynamic and fizzing with imagination and potential.

If we do this, and only if we do this, we can revive our economy on a huge billow of human energy, one that is barely conceivable within our current conventional economic models, and we can help to restore the trust and the mutual respect that our society so badly requires. It was that great-and rather conservative-economist, John Maynard Keynes, who once warned politicians not to be the slaves of some defunct economist. So let us all cry freedom and move on.