Mathematics brought rigor to Economics.
Unfortunately, it also brought mortis.

I recently gave an interview to fraudedocumental.com towards their forthcoming documentary on the crisis. A good number of my colleagues in the UK and Europe will be appearing in the film:

Fraud. Why the Great Recession (Official Trailer) from amagifilms on Vimeo.

One of the stars is Jesús Huerta de Soto, author of the brilliant Money, Bank Credit, and Economic Cycles , which set out, from a sound theoretical basis, the mechanisms of this crisis as long ago as 1998 and which sets out a better way to organise banking.

As reported by The Cobden Centre, on Thursday, Jesús Huerta de Soto gave the 2010 Hayek lecture at the London School of Economics.

You can find the text of his speech here and a podcast of his preview interview here. A video will follow in due course.

Yesterday, I gave a talk at the Libertarian Alliance Conference 2010 entitled Honest Money and the Future of Banking. Please click the image below for the slides.

Video footage of my presentation will be available shortly. Both events were well received.

A couple of quotes from De Soto, pp 456-474.

From “Effects the business cycle exerts on the banking sector”:

Hence we can conclude that an inherent trend in the privileged exercise of fractional-reserve banking leads to bank consolidation and encourages bankers to develop and maintain close relations with the central bank as the only institution capable of guaranteeing banks’ survival in moments of crisis, situations banks themselves create regularly. Furthermore the central bank directs, orchestrates, and organizes credit expansion, making sure that banks expand more or less in unison and that none stray far from the established pace.

Eerily familiar… and for fun, from “Marx, Hayek and the view that economic crises are intrinsic to market economies”:

To contend that an economy of real socialism offers the advantage of eliminating economic crises is tantamount to affirming that the advantage of being dead is immunity to disease.

De Soto goes on to provide a clear and detailed solution which he claims could provide stable and gently growing constant prosperity.

(This post is a precis of Huerta de Soto’s Money, Bank Credit and Economic Cycles pp650-653, presenting an argument which was famously expounded by von Mises in Socialism.

Among the young idealists who were attracted to socialism after the Great War, who came through these arguments expressed in full to understand that they “had been looking for improvement in the wrong direction”, was F A Hayek, Author of The Road to Serfdom, Nobel Prize winner and proponent of the denationalization of money.)

To attempt to coordinate society through coercion is an intellectual error: it is impossible for an institution to obtain the information needed to establish social coordination by decree. There are four reasons:

• It is impossible to obtain, store and process the vast amount of practical information in the minds of different people.
• Most of the necessary information is subjective, practical, tacit and non-verbal: it cannot be transmitted.
• Information which people have not yet discovered or created and which arises from the market process cannot be transmitted.
• Coercion — that is, regulation — prevents the discovery or creation of the necessary information.

These are the arguments developed at length by von Mises in Socialism. Von Mises demonstrates the impossibility of socialism and of effective state intervention in the economy. His thesis explains theoretically why the socialist economies of the Eastern Bloc failed. It also explains the growth of the tensions, maladjustments and inefficiencies in western economies which have led to our present crisis.

Crisis is the inevitable outcome of the application of coercion and privilege by government, which systematically worsens social maladjustments, hinders the creativity of entrepreneurs, distorts economic information, encourages irresponsibility, corrupts individuals and encourages the underground economy.
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