Cobden Centre Radio

Cobden Centre Radio: Schlichter on the collapse

Most Cobden Centre supporters will be thoroughly familiar with Detlev Schlichter through his book Paper Money Collapse and his blog “The Schlichter Files”.  In this podcast I ask how it is that the collapse he predicted in the book has been averted.  Detlev explains how western governments have propped up their banks, how we have seen a massive change in the money creation process and how inflation expectations will act as the trigger for the final collapse.

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So, what is wrong with Keynesianism?

Recently, someone left a comment on a post here along the lines of: “What’s your problem with Keynes?” One of the replies mentioned Hazlitt’s The Failure of the New Economics which is a critique of Keynes’s General Theory.

As that very book had been gathering dust on my bookshelves for a number of years I thought it was about time I actually read it.  So, I did.

And, what did I learn?  Sadly, not much.  I learnt that Hazlitt writes well but I knew that already. Economics in One Lesson is a masterpiece.  And he is on form here too.  His put downs of Keynes are tremendous fun:

I have been unable to find in it a single important doctrine that is both true and original.  What is original in the book is not true; and what is true is not original. (p6)

So I have found in Keynes’s General Theory an incredible number of fallacies, inconsistencies, vaguenesses, shifting definitions and usages of words, and plain errors of fact. (p7)

One reason Keynes’s thought is so often difficult to follow…, is that he writes so badly…. And one reason he writes so badly… is that he is constantly introducing technical terms that are not only unnecessary but inappropriate and misleading. (p16)

One begins to suspect that Keynes’ reputation, like Shaw’s, rests in large part on sheer impudence. (p346)

Keynes’s trick in this chapter is to mix plausible statements with implausible statements (p173)

The theory embodied in this paragraph is that the public is irrational, that it can be easily gulled, and that the object of government is to be the chief party to the swindle. (p245)

And so on.

But I was left with a problem.  Hazlitt’s criticisms may be witty and elegant but are they true?  I didn’t have the time to go through the whole of Keynes’s General Theory to check but I could at least have a stab at one chapter and see if it Hazlitt’s criticisms stand up.  Does Keynes say what Hazlitt says he says?  And is Hazlitt’s analysis correct?  I took as the sample chapter the one on the Multiplier.

Sadly, this experiment didn’t work.  Keynes is so opaque – even arch-Keynesian Paul Krugman admits it’s “tough meat” – that, try as I might, I couldn’t understand it. All I can say is that Hazlitt’s description appears to be correct. The idea that there is a causal relationship between current marginal investment and current marginal incomes appears to be absurd. To say that this relationship can be used to increase incomes seems doubly absurd.

At this point some wise words from Brian Micklethwait kicked in: if you can’t understand it that’s their problem, not yours.  It is up to Keynes (or his supporters) (and for that matter Mises and his) to make me understand what they are on about.  I will make moderate efforts and no more.

Of course, we are assuming that there is such a thing as “Keynesianism” to understand.  One of Hazlitt’s complaints is that he is constantly changing his definitions and contradicting himself.  I, myself, am aware that having described gold as a “barbarous relic”, Keynes went on to support its being part of the monetary system, before condemning it in the General theory and then supporting it again as part of Bretton Woods.

Now, people do change their minds over time.  I am sure there are differences in Mises’s thinking between The Theory of Money and Credit and Human Action but I suspect they are not that great – certainly nothing like as great as Keynes’s.

Still, I feel obliged to give Keynes one last chance.  If the theory can’t help us what about the practice?   I grew up in Britain at a time when Keynesian policies were being practised red in tooth and claw.  They didn’t work.  On two occasions – the early 1980s and the early 1990s – semi-Austrian policies were followed.  They did work.  I am not aware of any time or any place where Keynesian policies have worked and I am not aware of any time or any place where freedom (to give Austrianism its real name) – even in a watered-down form – did not.

As an aside I’ll allow Paul Krugman to have the final word.  This is what he had to say in an introduction to the General Theory in 2006:

One can identify a number of occasions, most notably Japan in the 1990s, where depression-like conditions might well have returned without the guidance of Keynesian economics.

Words fail me.

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Cobden Centre Radio: Douglas Carswell MP on The End of Politics and the Birth of iDemocracy

Are democracy and sound money incompatible?  Many people think they are but Douglas Carswell, MP for Clacton, begs to differ.  Indeed, he has begged so much that he’s produced a book: The End of Politics and the Birth of iDemocracy.

In this podcast we discuss how debts are undermining Western civilisation, the significance of unequal taxation and how iDemocracy most definitely does not mean voting by computer.  And, oh yeah, what is the difference between a metaphor and a simile?

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A trip to the Japanese Currency Museum

You probably didn’t know there was a Japanese Currrency Museum, did you?  Well, neither did I until I found myself stood outside it one Saturday morning.  (As you do.)  It’s run by the Bank of Japan (i.e. the central bank) and inside there are a large number of displays charting the history of Japan’s money from gold dust to today’s paper-based fiat currency.  It’s not a big museum but it’s a damn sight better that the British equivalent.

So what did I learn?  Mainly, that Japan’s monetary history is much the same as the UK’s:  for most of Japan’s history gold and silver dominated, governments were forever debasing the coinage, paper money came about at almost the same time as it did in Britain and the exchange rate between gold and silver was always causing problems.  This was especially true immediately after Japan opened up to the West.  A lucrative arbitrage trade developed in which Westerners would sell their silver to the Japanese government and receive far more gold in return than they would at home.

The only real differences with Britain are that many Japanese coins had a hole in the centre to allow them to be threaded together with string (a practice echoed in the modern 5 and 50 yen coins) and that Japanese ingots were a really cool shape.

Indeed that shape is a frequently used banking emblem to this day.  The other difference is that the Japanese were quite happy to accept foreign currency, particularly Chinese currency.  Japan even had privately minted coins in much the same way Britain had, as George Selgin described in his book Good Money.

One thing I picked up (or at least I think I picked up – the English notices were limited) was to do with the collapse of the Tokugawa Shogunate.  The stock history of the birth of modern Japan goes something like this: for 200 years the Shoguns shut Japan off from the rest of the world; in 1853 the US Commodore Perry parked his ships in Tokyo Bay and demanded a trade agreement; the Shogunate resisted change and in 1868 it was abolished and the Emperor restored.  Modernisation began.

What I picked up was that well before the arrival of Perry there was a severe debasement of the currency underway.  I found this rather surprising given that Japan didn’t have any wars to fight, but they managed it anyway.  Could it be that, far from modernisation being the culprit, it was a currency collapse that did for the Shogun?

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Brian Micklethwait on propaganda

In this podcast, Brian and I discuss the difficulties in making the case for Austrian economics, the difficulties in reading the case for Austrian economics, the importance of the term “Austrianism”, how things are going and how best to deal with socialists (answer: agree on the problem: disagree on the solution).

We also manage to get into a bit of a pickle over whether TARP and the Stimulus were Keynesian or Monetarist. If there are members of the commentariat who could enlighten us we would be grateful.

Here is a link to Brian’s piece on the importance of being Number Two.

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The music featured in this podcast is from Kopeika, by et_.

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Cobden Centre Radio: John Butler on the coming gold standard

In the latest podcast I talk to John Butler, Chief Investment Officer of Amphora, about his new book, The Golden Revolution, in which he argues that we are to see the return of the gold standard. In doing so we discuss the end of the gold standard in 1971, subsequent economic history, the importance of the BRICs and touch on the end of the United States as the global super-power.

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The music featured in this podcast is from Kopeika, by et_.


Why has George Soros sold his gold?

I am something of a gold bug, believing that gold (and silver) represent the best way to preserve wealth in inflationary times as well as representing a fantastic opportunity for speculation.

So, I was delighted a couple of years ago when George Soros bought a whole load of the stuff. “Great minds etc…”

But then, the other week, came the news that he had sold it all. The silence amongst gold bugs has been deafening. About the only response I have seen was to the effect that although Soros was small in bullion, he was big in mining. But my back-of-an-envelope calculations tell me that this is gibberish – his mine holdings are nothing like the size of his former bullion holdings. The truth is that Soros has sold.

It is possible that what he has done is to get out of ETFs (a sort of fund) and into actual physical metal (a certain sort of gold bug will tell you there is a crucial difference). But I would have thought that would show up in exactly the sort of records that told us he had sold. (I am not an expert here so I would love to know).

It is also possible that he thinks there is going to be a confiscation like 1933. But wouldn’t he be bigger into mining stocks? And anyway, what are the chances of a confiscation with a divided Congress? Sure, the Republicans in the House seem to be reluctant to do anything sensible (like keeping the debt ceiling where it is) but equally they don’t seem too keen on doing anything stupid either. There might be a confiscation here, in Britain, but not in the US.

I suppose it could all be a bluff to depress the price. Maybe, but so far it doesn’t seem to have worked.

Or maybe Soros is simply stupid. But I don’t think Soros does stupid. I may not agree with his politics, but his reading of finance is normally spot on.

Perhaps he’s looking at the situation in Greece. Perhaps he thinks Greece is about to default. Greece defaulting is likely to be very like Lehman going bust – just bigger. When Lehman went bust just about all asset classes (including gold) fell as people got desperate for cash. If Greece goes the same way there are going to be some wonderful fire sales. Only later will governments carpet-bomb the planet with out-of-thin-air cash leading to a further boost to the gold price.

Maybe, maybe, but I really don’t know. Any ideas?