Society Magazine

Woods -v- Keiser: A Comment

Posted on the 12 September 2012 by Lachmannian @TheLachmannian

I, for one, was not aware of the debate between Max Keiser and Tom Woods, if so I would have commented on this a long time ago. But Keiser makes an interesting point by saying that Austrians have moved further from the Mengerian vision, accusing Mises as the person who first started this separation. Keep in mind though that this is a debate of views on political economy where political views are worth considering. Woods makes the assertion that private individuals take care of property better than government officials, and assumes Menger supports this, and he asks Keiser for a Menger source to dispute this assertion.

Well if we are talking about poltical economy here, given we are talking about what Menger advocated in government policy -vs- what ‘Misesian’ Austrians (and also presumably the Rothbardian Austrians too) advocate in policy, I have to say, there is a difference… how big of difference, I dont know, this is totally subjective so I leave it up to you to decide how big of difference this was.

1) First, it is clear that in Menger’s 1909 article “Geld”, Menger called for government to be the sole supplier of coinage.In 2002 this article was translated by Leland Yeager and Erich Streissler and put in the book Carl Menger and the Evolution of Payments Systems: From Barter to Electronic Money*. Here is Menger:

Like other social institutions, the institution of intermediaries of exchange, which serve the common good in the fullest sense of the term, may, as I shall explain later, emerge or be prompted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation. This manner of emergence of media of exchange, however, is neither the only nor the earliest one. Here, a relation exits similar to that between statute law and common law: media of exchange originally emerged and eventually, through progressive imitation, became generally used not by way of law or agreement but by way of custom, that is, through similar actions, corresponding to similar subjective impulses and similar intellectual progress, of individuals living together in society (as the unreflective result of specific individual strivings of the members of society) – a circumstance which subsequently, as with other institutions that arose in like manner, does not rule out, of course, their being established or influenced by government.

Here we at least see that the automatic system, which is spontaneous order, is not so absolute to Menger for it does not make its further establishment to be influenced by government. Menger hints that his explanation goes further later in the article, and indeed it does.

But experiences on the markets of those peoples who, up to most recent times, had not yet achieved an orderly system of coins show us how inadequately the disadvantages inherent in the circulation of uncoined metals were overcome by the above automatic development. The test of weight and especially of fineness by the assayers active on these markets prove unreliable and, seeing how easily the stamps of these functionaries may be counterfeited, have to be repeated, as a rule, with every transaction, a circumstance that make payments highly time-consuming and costly.

This was seriously a disadvantage to private coinage according to Menger, thus Menger might be hinting something here…what was the solution? Maybe a government monopoly on coinage to prevent these disadvantages… Menger states further, which I thought it was a great quote and shows that Menger saw a limitation to spontaneous order, ” An advanced economy’s demands on the monetary system are not to be met by a system such as develops automatically.” In the same page:

Above all, wide experience has shown that coining the monetary metals, as soon as and insofar as this proves necessary for the economy, makes government intervention more and more inevitable. The costly supplying of the markets with coined metals appropriate (in kind and quantity) to the requirements of the economy is certainly in the interest of both individuals and the economy as a whole; but, as experience shows, it cannot be expected from a country’s individual economic units, which are under the pressure of competition and are dependent on and oriented toward profit. Accordingly, even in recent times, private coinage have met the general requirements of trade only imperfectly.

So according to Menger, as the coinage process goes on, it makes government more involved, he even criticizes private individuals to supply coinage because they are dependent on profit! It is quite clear that the whole point of his article “Geld”, that because of the disadvantages of the private supply coinage system, that government only must supply coinage.

2) Milton Friedman has this story of Mises how at the first Mont Pelerin meeting, while discussing progressive income taxes and some giving potential justification, Mises stood up and said, “You’re all a bunch of socialists.” I don’t know if this is true or not, but if it is, then Mises indirectly called Carl Menger a socialist too, given that he was a supporter of a progressive income tax. In “Transcript of Finanz-Wissenschaft von Prof. Carl Menger” translated by Takeshi Mizobata:

If one says that only those people who can pay the money can send their children to school, it is diametrically opposed to the essence of the state. There are many people in the country who cannot pay this tax… With increase in income, one feels less sacrifice, even if the loss is the same amount. For this reason, we must not tax with the same proportion; but with increase in income, the percent rate must be also increased. This means that the percent rate must be progressive as in income tax

3) Lastly, we can look at Carl Menger’s Lectures to Crown Prince Rudolf of Austria, in which Hulsmann looks at it as a strong laissez faire piece in his book Mises:The Last Knight of Liberalism, Menger mentions things such as deforestation regulation even when the forest was on private property (p 131-3), workers’ condition regulation (in fear that if nothing was done to provide this regulation, workers would revolt)(p 127), and some public works (p 121).

I think one can also look up Menger’s second edition to Principles as further differences between his writings and modern Austrians, but I have just started to do research on Menger’s second edition and I do not feel confident in quoting from it yet. Lord Keynes is quite right when he states that Menger needs to be rescued from the Austrians and I think this was Keiser’s general point too. Though I disagree with Keiser in that since there is differences between  Menger and modern Austrians, that they aren’t ‘true’ Austrians. This reminds me of a recent debate where one makes the claim that if we don’t strictly follow the praxeological method, as advocated by Mises, they aren’t Austrians**. Jon Catalan responds quite well in that Mises is not the ‘end all, be all’ of Austrian economics. The same is true of Menger, he is not the ‘end all, be all’ of Austrian economics, but nevertheless, what Menger thought of policy is still worth considering and his works are still worth to research to find out what Menger’s vision was. While I admit, generally speaking, Menger did think private individuals handled property better than government, I think it is safe to say that Menger thought there was exceptions to this, and important ones too if we wanted to see the economy progress.

* I have the book and have read the article but I do not have it with me at the moment. Though this paper has a lot of citations from the book which I cite from, given that I don’t have the book atm. I might update this later on to provide more citations.

** This is NOT to say that praxeology is irrelevant to the Austrian framework.

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