There is a school of thought amongst economists called the Austrian School because it first came to the fore due to the teachings of Ludwig von Mises, Eugen von Böhm-Bawerk, and Gottfried Haberler, all well-known Austrian economists popular at the beginning of the 20th century. The Austrian School is founded on conservative, fiscally prudent principles that see credit as central to the business cycle. I have long been a devotee of the Austrian School.
As a result, I am sceptical of the current fiat money world we now live in and I reject the profligate, debt-inducing, easy money policies of the Federal Reserve under Alan Greenspan. In fact, for quite a number of years I have warned that this experiment of debt, easy money and fiat currency would end in disaster. And so it has.
My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.
And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.
Read more: http://www.creditwritedowns.com/2008/12/confessions-of-an-austrian-economist.html#ixzz0mod696kk
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