If You Don’t Have Anything Honest to Say, Don’t Do Economics At All

Once again, economist Brad DeLong conveniently cuts off a quote mid-thought in an attempt to “prove” how crazy/dishonest those kooky Austrians are (for those not aware, “Austrian” is shorthand for a more capital-based school of economics than that of the mainstream).  DeLong uses this half quote to claim that Ludwig von Mises held an absurd cost-of-production theory of value and believed that increased gold production would end a depression while increased paper money would not.  Thankfully, the brilliant Bob Murphy was paying close attention and was able to reveal the rest of the story to show that if anyone is crazy/dishonest, it’s not the Austrians.

Delong’s portion of the quote:

If gold production had been considerably greater than it actually was in recent years, then the drop in prices would have been moderated or perhaps even prevented from appearing.

The full quote:

If gold production had been considerably greater than it actually was in recent years, then the drop in prices would have been moderated or perhaps even prevented from appearing. It would be wrong, however, to assume that the phenomenon of the crisis would not then have occurred.

Looks pretty clear to me.  DeLong’s error is in his assumption that falling prices (deflation) necessarily mean trouble for an economy.  With that assumption in place, it would then be a logical jump to claim that Mises’ view was that anything preventing deflation is therefore a cure for economic depression (that is, if Mises did not specifically state otherwise in the very next sentence).  On the contrary, Austrian economists do not believe that falling prices are necessarily a bad thing in all cases.  Therefore, money production in and of itself (whether paper or commodity-backed) and its resulting increase of prices (inflation) is not viewed by Austrians as a panacea for economic troubles, and no responsible academic would pretend that it was.  Internet libertarians can and have been guilty of similar tactics at times, but I would expect a professional economist like DeLong to be better than that.

For those interested in this sort of thing, Murphy’s blog is always an entertaining read (and his sparring with neo-monetarist Scott Sumner may be of interest to my co-blogger Thomas Schminke).

About Josh Hanson

Josh Hanson is a past Libertarian Candidate for Illinois Secretary of State and former Chair of the DuPage Libertarians. Despite holding a Bachelor of Arts degree in Political Science from Wheaton College, he accidentally fell in love with economics after graduating and now works as a Project Coordinator in the merchandising/point-of-sale industry to make the money necessary to feed his addiction to books. He blogs under “Radical Cooperation“.