PhD Economists Endorse Ron Paul
A number of well-known economists – such as Nassim Taleb, Marc Faber, Thomas Woods and Paul Craig Roberts – support Ron Paul, believing that he would help the American economy more than any other presidential candidate.
I interviewed one well-known Ron Paul supporter – Dr. Walter E. Block – to find out.
Block is an Eminent Scholar Endowed Chair and Professor of Economics at Loyola University in New Orleans, received his PhD in economics from Columbia University, and is a senior fellow at the Ludwig von Mises Institute. He has written 8 books and more than 300 scholarly articles and reviews, and co-edited dozens of books on economics.
Block just published a book called Ron Paul for President in 2012: Yes to Ron Paul and Liberty.
We asked Professor Block 10 questions related to Ron Paul. [Our follow-up comments are in brackets.]
1. Ron Paul doesn’t support government bailouts for the big banks. But if the big banks fail, won’t it drive us into another depression?
[WEB] No. In the Austrian economic view, depressions are caused by big banks (the Fed) artificially lowering interest rates.
[Austrian economists believe that lowering interest rates too far gives a false signal to businesses to gear up production and invest more, which causes a "misallocation" of resources and unsustainable bubbles ... which always lead to crashes when the bubble bursts.
In addition, top economists have said that failing to let the big banks fail when they make bad bets which lead to insolvency is preventing economic recovery.]
2. Wasn’t the Great Depression a “liquidity crisis” which was made much worse by so many bank failures?
[WEB] Read Rothbard’s America’s Great Depression on this.
3. Paul wants to end the Federal Reserve, or at least reduce its powers. But isn’t the Fed – as the “lender of last resort” – critical for keeping us out of a depression by providing stimulus to the economy when consumers and small businesses are tapped out?
[WEB] The fed as lender of last resort is a buttress of sorts, but only because we have fractional reserve banking.
If we have 100% demand deposit banking (see below) this function wouldn’t be needed
[We agree with professor Block. And it should be noted that we no longer even have fractional reserve banking ... we now have fictional reserve banking.]
4. Isn’t the best chance of prosperity for the most people available when the government somewhat plans the economy, and operates the “levers” of economic policy to push more money into the system when things are getting tight?
[WEB] No, that’s central Sovietized planning. Prosperity comes from laissez faire capitalism.
[While many may assume that laissez faire capitalism is a bad thing, and is the cause of our problems, the truth is that we don't currently have real capitalism at all. Instead, we have - depending on the label one uses - crony capitalism, fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption. In fact, both liberals and conservatives despise crony capitalism.]
5. Isn’t the Fed – an independent governmental agency – vital for overseeing the big banks as a watchdog, and acting “independently” of the temptations of politicians to promote monetary policy which will help them get re-elected?
[WEB] “Independent govt agency” is a recipe for disaster. Suppose they make a mistake … there would be no market forces that can force them into bankruptcy?
6. Paul is a “non-interventionist”, who wants to avoid wars that President Obama and Mitt Romney say we need to fight. But isn’t war a necessary form of “military Keynesianism” … i.e. a vital way to stimulate our economy and so keep us out of an even deeper recession? Wouldn’t cutting military spending destroy our economy?
[WEB] Read my new book on this:
Block, Walter E. 2012. Ron Paul for President in 2012: Yes to Ron Paul and Liberty. Ishi Press; http://www.amazon.com/dp/4871873234; http://www.barnesandnoble.com/w/ron-paul-for-president-in-2012-walter-block/1110505571?ean=9784871873239.
[Many top economists say that the claim that war is good for the economy is a myth made up out of whole cloth.]
7. “Austerians” – as Paul Krugman call them – want to reduce our national debt. But isn’t it true – as both liberal and conservative economists have said – that “debt doesn’t matter”? And don’t we have to spend a little more now to get our economy out of the ditch, and then we’ll be more frugal later … when things are stable?
[WEB] We monetize that debt, which creates inflation, lowers interest rates, created booms and then busts.
8. Isn’t the “business cycle” largely responsible for the bad economy? Aren’t “booms” and “busts” part of the nature of things, like seasons?
[WEB] No, they emanate from the Fed. In the fully free society, there would be no such thing as the business cycle. See Rothbard’s Depressions: Their Cause and Cure.
9. Radicals think that we should let our most important companies fail if they’ve made dumb bets, or even that we should put Wall Street executives in jail for “fraud”. But wouldn’t both things undermine people’s trust in our economy, and depress our economy even more?
[WEB] No business should be too big to fail. Trust in the economy is highly overvalued. I oppose putting executives in jail for losing money, unless they are guilty of actual fraud.
[Happy talk and band-aid fixes cannot fix the economy. Blind trust in the stability of banks which have made foolish gambles is not helpful. But restoring trust in the honesty of one another - by prosecuting financial fraud - is vital. Conservative free market advocates and liberals both agree on this basic point.]
10. The May jobs report is a disaster. Paul Krugman (who – like the chairmen of the Fed – advocate blowing bubble after bubble in order to minimize the damage from the bursting of previous bubbles) and other Keynesians blame a failure of the government to spend more, and to do more quantitative easing and other monetary stimulus of the economy.
Do you think that government spending and stimulus are the solution to unemployment? Do you think that the government should blow another bubble in order to increase unemployment?
[WEB] These bubbles only cause inflation. They do nothing to rectify our problems. the Fed should stop this. We ought to end the Fed, and adopt a 100% dollar back gold standard.
[Even the "Central Banks' Central Bank" - the Bank for International Settlements - slammed the Fed and other central banks for blowing bubbles and using other "gimmicks" which only make the economy worse.]
Postscript: Dr. Block provided the following bibliography for those wishing to learn more about the pitfalls of fractional reserve banking:
Bagus, 2003; Bagus, Howden and Block, forthcoming; Barnett and Block, 2005, 2008, 2009; Baxendale, 2010; Block, 2008; Block and Caplan, 2008; Block and Garschina, 1996; Block and Humphries, 2008; Block and Posner, 2008; Davidson, 2008; Davidson and Block, 2011; Hanke, 2008; Hoppe, 1994; Hoppe, Hulsmann and Block, 1998; Huerta de Soto, 1995, 1998, 2001, 2006, 2010; Hulsmann, 1996, 2000, 2002a, 2002b, 2003, 2008; Murphy, 2010; North, 2009; Polleit, 2010; Reisman, 1996, 2009; Rothbard, 1975; 1990, 1991, 1993; Salerno, 2010A, 2010B, 2011.
Bagus, Philipp. 2003, ‘The Commons and the Tragedy of Banking’, November 12, http://mises.org/story/1373
Bagus, Philipp, David Howden and Walter E. Block. Forthcoming. “Deposits, Loans and Banking: Clarifying the Debate,” American Journal of Economics and Sociology
Barnett, William II and Walter Block. 2005. “In defense of fiduciary media— a comment; or, what’s wrong with “clown” or play money?” Quarterly Journal of Austrian Economics; Vol. 8, No. 2, Summer, pp. 55-69; http://mises.org/journals/qjae/pdf/qjae8_2_4.pdf
Barnett, William and Walter Block. 2008. “Time deposits, dimensions and fraud,” Journal of Business Ethics; www.WalterBlock.com/publications; http://www.springerlink.com/content/100281/?k=walter+block&sortorder=asc&v=condensed&o=20; www.WalterBlock.com/publications
Barnett, William and Walter Block. 2009. “Financial Intermediaries, the Intertemporal-Carry Trade, and Austrian Business Cycles; or; Crash and Carry: Can Fraudulent Time deposits lead to an Austrian Business Cycle? Yes.” Journal Etica e Politica / Ethics & Politics; Vol. XI, No. 1, pp. 455-469; http://www2.units.it/~etica/2009_1/BARNETT_BLOCK.pdf
Baxendale, Tony. 2010. Free Banking, the Balance Sheet and Contract Law Approach; March 15; http://www.cobdencentre.org/2010/03/free-banking-the-balance-sheet-and-contract-law-approach/
Block, Walter and Bryan Caplan. 2008. “Walter Block versus Bryan Caplan on Fractional Reserve Banking.” Nov 1; http://www.lewrockwell.com/block/block110.html
Block, Walter and Kenneth M. Garschina. 1996. “Hayek, Business Cycles and Fractional Reserve Banking: Continuing the De-Homoginization Process,” Review of Austrian Economics, Vol. 9, No. 1, 1995, pp. 77-94; http://www.mises.org/journals/rae/pdf/rae9_1_3.pdf.
Block, Walter and John Humphries. 2008. “Humphries vs Block on fractional reserve banking.” November 17; http://alsblog.wordpress.com/2008/11/17/fractional-reserve-banking/
Block, Walter versus Eric Posner. 2008. “Posner vs. Block on fractional reserve banking.” November, 29; http://www.lewrockwell.com/block/block114.html
Davidson, Laura. 2008. “Fractional Reserve Banking Is Indeed Fraudulent,” November 17;
Davidson, Laura and Walter E. Block. 2011. “The Case Against Fiduciary Media: Ethics Is The Key,” The Journal of Business Ethics. Vol. 98, Issue 3, pp. 505-511;
http://www.springerlink.com/content/j76323752648720g/; http://dx.doi.org/10.1007/s10551-010-0590-2; 10.1007/s10551-010-0590-2
Hanke, Steve. 2008. “Banking Crises: Plus Ça Change…” GlobeAsia, November, pp. 168-169; http://www.freemarketfoundation.com/Hanke%5CBanking%20Crises–Plus%20%C3%87a%20Change,%20November%202008.pdf
Hoppe, Hans-Hermann. 1994. “How is Fiat Money Possible? or, The Devolution of Money and Credit,” Review of Austrian Economics, 7(2), pp. 49-74.
Hoppe, Hans-Hermann, with Guido Hulsmann and Walter Block. 1998. “Against Fiduciary Media,” Quarterly Journal of Austrian Economics, Vol. 1, No. 1, pp. 19-50, http://www.mises.org/journals/qjae/pdf/qjae1_1_2.pdf
Huerta de Soto, Jesús. 1995. “A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian Perspective,” Review of Austrian Economics, 8(2), pp. 25-38.
Huerta de Soto, Jesús. 1998, ‘A Critical Note on Fractional-Reserve Free Banking’, The Quarterly Journal of Austrian Economics 1(4), 25-49.
Huerta de Soto, Jesús. 2001. “A Critical Note on Fractional Reserve Free Banking,” The Quarterly Journal of Austrian Economics, Vol. 1, No. 4, Fall, pp. 34-35
Huerta de Soto, Jesús. 2006. Money, Bank Credit and Economic Cycles (Ludwig von Mises Institute, Auburn AL.)
Huerta de Soto, Jesús. 2010. “Economic Recessions, Banking Reform, and the Future of Capitalism.” http://mises.org/daily/4817
Hülsmann, Jorg Guido. 1996, ‘Free Banking and the Free Bankers’, Review of Austrian Economics 9(1), 3-53.
Hulsmann, Jorg Guido. 2000. “Banks Cannot Create Money”, The Independent Review: A Journal of Political Economy, vol. 5, no. 1, summer, 101—110; http://www.independent.org/pdf/tir/tir_05_1_hulsman.pdf
Hulsmann, Jorg Guido. 2002a. “Free Banking and the Free Bankers.” Review of Austrian Economics. Vol. 9, No. 1. pp. 3-53; http://www.mises.org/journals/rae/pdf/rae9_1_1.pdf
Hulsmann, Jorg Guido. 2002b. “Free Banking Fractional Reserves: Reply to Pascal Salin.” Review of Austrian Economics, Vol. 1, No. 3.
Hulsmann, Jorg Guido. 2003. “Has Fractional-Reserve Banking Really Passed the Market Test?,” Independent Review 7/3, Winter, 399-422. http://www.independent.org/publications/tir/article.asp?a=90
Hülsmann, Jorg Guido. 2008. The Ethics of Money Production Auburn AL: Ludwig von Mises Institute
Murphy, Robert P. 2011. The Fractional-Reserve Banking Question.” June 14; http://mises.org/daily/4499
North, Gary. 2009. “What Is Money? Part 5: Fractional Reserve Banking.” October 10;
Polleit, Thorsten. 2010. “The Faults of Fractional-Reserve Banking.” December 23;
Reisman, George. 1996. Capitalism. Ottawa, Il.: Jameson Books; pp. 954-963
Reisman, George. 2009. “A Pro-Free-Market Program for Economic Recovery,” November 20; http://mises.org/daily/3870
Rothbard, Murray N.  1975. America’s Great Depression (Sheed and Ward, Kansas City).
Rothbard, Murray N. 1990. What Has Government Done to Our Money?, Auburn, AL: Ludwig von Mises Institute; http://www.mises.org/rothbard/rothmoney.pdf
Rothbard, Murray N.  1991. “The Case for a 100 Percent Gold Dollar,” In Search of a Monetary Constitution, Leland B. Yeager, ed., Cambridge, MA: Harvard University Press, pp. 94-136, and Auburn, AL: Ludwig von Mises Institute. See also “The Logic of Action One” pp. 364-384; http://mises.org/story/1829
Rothbard, Murray N.  1993. Man, Economy, and State. Ludwig von Mises Institute, Auburn, AL
Rothbard, Murray N. The Myth of Free Banking in Scotland, Review of Austrian Economics; http://mises.org/journals/rae/pdf/RAE2_1_15.pdf
Salerno, Joseph T. Salerno. 2010A. Money, Sound and Unsound. Auburn, Ludwig von Mises Institute
Salerno, Joseph T. 2010B. “White contra Mises on Fiduciary Media,” May 14;
Joseph T. Salerno. 2011. “Dr. Joseph Salerno Explains Everything You Ever Wanted to Know About Money (But Were Afraid to Ask)”, The Daily Bell, July 3;