The work of Prof. Antal Fekete, and his critique of leading Austrians such as Hayek, Mises, and Rothbard is coming to increasing note. He was discovered years ago by "the Sage of Mexico," Hugo Salinas Price, who said of Fekete, in 2007, "When we met, Antal E. Fekete was hardly known. Today, he is read around the world, as he fully deserves to be. I am proud to call this man my friend. His thinking is as fresh and profound as ever; his erudition is classic, hard to be found in economic circles today."
Carl Menger, courtesy of Wikipedia
A brief excerpt from Prof. Fekete's recently issued CRITIQUE OF MAINSTREAM AUSTRIAN ECONOMICS, reportedly available in full at Lemetropolecafe.com.
I have always been an admirer of Ludwig von Mises (1881-1973) and have long considered him the greatest economist of the 20th century. He was also a charming and a modest person. He would have never considered himself infallible. And he wasn’t. After a long study, soul-searching and hesitation I called attention to points where in my opinion Mises was wrong. With a great deal of diffidence and humility I am doing my best to defend my position vis-a-vis that of Mises.
Accentuating the negative
I have always felt that the theory of gold, as presented by Mises and even more so by Hayek, is a ‘negative theory’. Friedrich A. Hayek almost goes as far as saying that the gold standard is a necessary evil; there would be no need for it if the government were trustworthy. According to Mises it is the temptation to tamper with the value of the monetary unit that has made the gold standard indispensable. In this way growth in the stock of money is tied to the profitability of gold mining. Mises thought it was necessary to add that “the gold standard is not a perfect institution: there is no such thing as perfection in human affairs.” His argument is motivated by the Quantity Theory of Money. Consequently he fails to distinguish between the value and the purchasing power of gold.
Positive theory of gold
In my view there is no need to be apologetic about the gold standard. Rather, there is need for what I call in want of a better word a ‘positive theory’ of gold. I am offering such a positive theory, and my main criticism of Mises, Hayek, and many other great economic thinkers going all the way back to Ricardo, centers around the fact that they have all missed the point of contact between gold and interest. More specifically they have missed the point of contact between gold and the curse of aging. Man knows that his surplus of mental and physical powers will one day give way to deficit. He prepares for the day when he has to draw on his savings. ...
In the view of most economists gold was hit upon by accident for reasons of being heavy, shiny; an ideal symbol of opulence. ... I am merely advocating a return to Menger and his ‘quality theory of money’.
Adam Smith, in his An Inquiry into the Nature and Causes of the Wealth of Nations, praises fractional reserve currency -- if secure in the "confidence in the fortune, probity, and prudence of a particular banker."
"Though he has generally in circulation, therefore, notes to the extent of a hundred thousand pounds, twenty thousand pounds in gold and silver may frequently be a sufficient provision for answering occasional demands. By this operation, therefore, twenty thousand pounds in gold and silver perform all the functions which a hundred thousand could otherwise have performed. The same exchanges may be made, the same quantity of consumable goods may be circulated and distributed to their proper consumers, by means of his promissory notes, to the value of a hundred thousand pounds, as by an equal value of gold and silver money. Eighty thousand pounds of gold and silver, therefore, can, in this manner, be spared from the circulation of the country; and if different operations of the same kind should, at the same time, be carried on by many different banks and bankers, the whole circulation may thus be conducted with a fifth part only of the gold and silver which would otherwise have been requisite."
Moreover, his approval also is predicated on the use to which the specie thereby conserved is used in the export trade.
"If they employ it in purchasing foreign goods for home consumption, they may either, first, purchase such goods as are likely to be consumed by idle people who produce nothing, such as foreign wines, foreign silks, etc.; or, secondly, they may purchase an additional stock of materials, tools, and provisions, in order to maintain and employ an additional number of industrious people, who reproduce, with a profit, the value of their annual consumption.
So far as it is employed in the first way, it promotes prodigality, increases expense and consumption without increasing production, or establishing any permanent fund for supporting that expense, and is in every respect hurtful to the society.
So far as it is employed in the second way, it promotes industry; and though it increases the consumption of the society, it provides a permanent fund for supporting that consumption, the people who consume reproducing, with a profit, the whole value of their annual consumption."
Among the many commodities that have been used as money -- such as seashells, tobacco, salt -- the tail feathers of the Resplendent Quetzl -- after whom the national currency of Guatemala is named -- may be the most picturesque. Its tail feathers are said to grow to two feet in length -- three times its body length.
According to the Wikipedia,
"The Resplendent Quetzal (Pharomachrus mocinno) plays an important role in Mesoamerican mythologies. The Resplendent Quetzal is Guatemala's national bird, and an image of it is on the flag and coat of arms of Guatemala. It is also the name of the local currency (abbreviation GTQ). ...
"The Resplendent Quetzal was considered divine, associated with the "snake god", Quetzalcoatl by Pre-Columbian Mesoamerican civilizations. Its iridescent green tail feathers, symbols for spring plant growth, were venerated by the ancient Aztecs and Maya, who viewed the quetzal as the "god of the air" and as a symbol of goodness and light. Mesoamerican rulers and some nobility of other ranks wore headdresses made from quetzal feathers, symbolically connecting them to Quetzalcoatl. Since it was a crime to kill a quetzal, the bird was simply captured, its long tail feathers plucked, and was set free. Quetzalcoatl was the creator god and god of wind, often depicted with grey hair. In several Mesoamerican languages, the term for quetzal can also mean precious, sacred, or erected."
The name quetzal is an ancient Mayan term for tail feather, and the bird itself represents liberty. Ancient people believed the Quetzal would not survive in captivity, it would rather die than be held prisoner. So rather than killing these birds for their feathers, the Maya would pluck them and set the birds free to grow new feathers.
The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper. They complained of the contracted views and dastardly spirit of the directors of those banks.... -- Adam Smith
"Quantitative Easing" is a fancy new euphemism for an old practice: bailouts demanded by merchants of bankers.
Adam Smith, in An Inquiry into the Nature and Causes of the Wealth of Nations, was an early critic of the practice. From Book II, Chapter II:
It is now more than five-and-twenty years since the paper money issued by the different banking companies of Scotland was fully equal, or rather was somewhat more than fully equal, to what the circulation of the country could easily absorb and employ. Those companies, therefore, had so long ago given all the assistance to the traders and other undertakers of Scotland which it is possible for banks and bankers, consistently with their own interest, to give. They had even done somewhat more. They had overtraded a little, and had brought upon themselves that loss, or at least that diminution of profit, which in this particular business never fails to attend the smallest degree of overtrading. Those traders and other undertakers, having got so much assistance from banks and bankers, wished to get still more. The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper. They complained of the contracted views and dastardly spirit of the directors of those banks, which did not, they said, extend their credits in proportion to the extension of the trade of the country; meaning, no doubt, by the extension of that trade the extension of their own projects beyond what they could carry on, either with their own capital, or with what they had credit to borrow of private people in the usual way of bond or mortgage. The banks, they seem to have thought, were in honour bound to supply the deficiency, and to provide them with all the capital which they wanted to trade with. The banks, however, were of a different opinion, and upon their refusing to extend their credits, some of those traders had recourse to an expedient which, for a time, served their purpose, though at a much greater expense, yet as effectually as the utmost extension of bank credits could have done. This expedient was no other than the well-known shift of drawing and redrawing; the shift to which unfortunate traders have sometimes recourse when they are upon the brink of bankruptcy.
The work of Sir Isaac Newton, as Master of the British Mint, in creating the classical gold standard is relatively well known.
The work of an equally great scientist, Copernicus, who gave us the heliocentric model of the solar system, is less so.
Leszek Zygner of Nicolaus Copernicus University, recently referenced in another entry here, provides substantial information on Copernicus's great contributions to monetary theory. These are by no means no less relevant today than are his breakthrough contributions to astronomy.
Copernicus wrote three versions of his treatise on the reform of Prussian coinage in the years 1517-26 which have survived in the form of copies and translations. As has been proved in the course of a thorough analysis of their contents, they are subsequent versions of the same work. The text of the first draft, usually referred to as Meditata, was written in Latin in 1517. This document was produced with Bishop Fabianus Lusianus and members of the cathedral chapter of Warmia in mind and was to support their arguments in debates on monetary reform held during assemblies of the Estates of Royal Prussia (Stany Prus Królewskich). The treatise consisted of two parts. In the first Copernicus discusses general issues related to the theory of money and formulates inter alia a law of bad money driving out good. In the second he focused on the current monetary situation in Royal Prussia and in particular on the decline in the value of Prussian coinage, enumerating its types and explaining the reasons for the decrease in value of individual coins. The second version, known from the 16th c. as Modus cudendi monetam (The Way to Strike Coin), was a German translation of the Meditata of 1517. This translation, incidentally abounding in oversimplifications and inaccuracies, was made in 1519 most probably as a document to be presented to the Prussian Assembly attended by the Polish King Sigismund I the Old (Zygmunt I Stary). Copernicus read the German version of his treatise before the Royal Prussian Assembly attended by King Sigismund Is envoys at Grudzi?dz (Graudenz) on 21 March 1522. Referring to the debate held before his speech, he concluded his presentation with a proposal to mint three Prussian szel?gi as an equivalent of one Polish grosz (groshen) and thus to equalize the value of the new Prussian coinage with that issued by the Crown. The third version of his treatise on money entitled Monete cudende ratio (On the Minting of Coin) survives in three copies and was most probably written before April 1526. This revised version partly based on the text of his 1517 paper, was complemented by a general theory of money with special emphasis placed on the debasement of money as one of the main reasons for the fall of a state.
The gold standard, in short, has an unrivaled intellectual pedigree.