Mises' Interest in Free Banking Post Human Action

Bettina Bien-Greaves is an important, though, sadly, somewhat forgotten figure within the American Austrian School.  She was one of Mises’ most devoted disciples and attended nearly every one of Mises’ NYU seminars.[1]  During these seminars, Mises would often propose possible research questions in an effort to pique the minds of his students to various topics, which Bien-Greaves recorded on handwritten and typed notecards.[2]  Below is a list of some of the research questions that Mises proposed to his students on the topic of free banking, showing that he, at the very least, had an interest in it.[3]     

• April 30, 1953
• Book suggestion: History of the abolition of free banking.
• April 30, 1953
• Book suggestion: "There is no book that answers the question, 'What ideas were responsible for the fact that the 19th century liberals did not apply the liberal principles to banking?' This is one of the most important historical problems because this was in fact the problem that brought about the fall of the liberal policies, of capitalism, etc."
• December 6, 1956
• Book suggestion: What did the countries' governments do in order to make credit expansion technically possible? Legal tender legislation? The (illegible) to free the banks from the obligation of redeeming banknotes, etc.?
• May, 1959
• Mises' definition of inflation: "an increase in the money supply exceeding the demand for cash holding."[4]
  
• December 7, 1961
• Book suggestion: Historical book on the struggle for free banking.
• October 7, 1965
• Book suggestion: Free banking and its disappearance.
• November 4, 1965
• A history of the free banking movement. Research in this area would probably involve French and German sources. 
• April 21, 1966
• PhD thesis suggestion: Free banking.

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[1] See here for a recording of her questioning Mises on an array of topics: www.youtube.com/watch?v=GZ_dSo1Es4Q

[2] See here for a typed list of these: https://mises.org/etexts/Mises_Research_Ideas.pdf And the typed/handwritten notecard scan: https://mises.org/pdf/misesideas.pdf
[3] Mises discusses free banking and fiduciary media at some length in Human Action, specifically in  the subchapter, "The Money-Substitutes", located in the chapter "Indirect Exchange" (pages 433 - 450 in the 3rd revised Regnery Press edition of the book published in 1966).
[4] The reason I've included this particular note on my list is that most so-called "Free Bankers" use this definition.  On a related note, the 100% reservists maintain that Mises eventually moved to a definition of inflation similar to Rothbard.  If this is the case, this must have occurred after 1959.

Rethinking Economics

Last month, I travelled to New York City for the first ever Rethinking Economics conference being held there.  In short, the student organized conference was orchestrated in an effort to critique what they call “Mainstream Neoclassical Economics” and to bolster a change in pedagogical methods in classrooms.  Now, as an Austrian who views himself in the minority, even in Austrian circles, the conference immediately piqued my interests.  What I experienced at the conference was an agglomeration of talks and panels ranging from topics such as agent based modeling, Post-Keynesian economics, to feminist economics.  In all, I found some sessions extremely insightful, while others were quite dull and unimaginative. 

The first day of the conference, Friday, September 12^th, started out quite well with a talk given by two of Rethinking Economics’ founders, Yuan Yang and Thomas Vass.  They provided a brief sketch of the group’s history and how it was formed in response to their disenchanted experiences while studying economics in undergraduate classes all the way up to their doctoral classes. For example, during his talk, Vass explained how he began to have doubts about some of the assumptions and usefulness of some models in his undergraduate experiences only to be told that they would make more sense in graduate classes, but of course, once he reached graduate classes and the same doubts continued, he was told that they would make more sense while taking doctoral classes. It seems to be a neverending spiral into uselessness.  In all, Yang and Vass proposed three questions which would be the themes of the conference:

1)      Why should we rethink economics?

2)      What needs to be rethought, specifically?

3)      How do we rethink economics? 

Another major talk from the first day’s sessions was the “Macroeconomics and Policy Making” panel, featuring Paul Krugman, James Galbraith, and Willem Buiter. The panel was probably the most attended session of the whole conference, filling up the NYU Tishman Auditorium to nearly full capacity.  Despite the panel’s billed name, discussion on central bank policy, for example, was quite lax.  In fact, it only really coming up to any extent in the post panel Q & A session.  Instead of talking about this central issue, the speakers spent a large amount of time discussing climate change and how to enforce particular taxes to mitigate it.  Also of note, throughout the panel, Galbraith would often make exceedingly populist comments, for example railing that the banking profession is replete with fraud and that bankers should be arrested.  In all it was a painful panel to listen to. 



James Galbraith, Paul Krugman, and Willem Buiter



Out of the remaining sessions, there was a hodgepodge dealing with inequality and mentioning Piketty more times than a typical NYC cab driver honks his horn in an hour. Of course, these speakers offered a myriad of typical prescriptions to “mitigate” the issue, such as wealth taxation, guaranteed jobs, and other forms of redistributionism.  In all, these talks were the least enlightening to me and I felt as though they were a bit outside of conference’s stated goals as laid out by the founders in their opening remarks. 



Deirdre McCloskey

Despite these rather pedestrian talks, there were a number of astute and insightful ones.   For example, Steve Keen’s talk on Post-Keynesian economics was really centered on stressing the concept of dynamics in theory.  I wish he could have talked a bit more about uncertainty with the Post-Keynesian framework, but sadly his talk was cut short due to time issues.

Another interesting presentation was given by Philip Mirowski on Saturday evening.  Entitled “Should Economists be Experts in Markets or Experts in Human Nature?”, it examined a wide array of literature and ideas on markets.  Harking back to some of his previous works, such as Against Mechanism or More Heat Than Light, Mirowski pointed out that most of orthodox economics has been done in an attempt to emulate physics and that, as he put it, its humanism is “palpably fake”.  A large chunk of the talk focused on what markets actually are and how they operate as institutions, even outside of human action.  For example, he mentioned a 1993 paper by Gode and Sunder entitled “Allocative Efficiency of Markets with Zero-Intelligence Traders”.  I haven’t read the paper, but essentially, as Mirowski described it, it centers around an experiment where, similar to Vernon Smith’s market-clearing experiments with humans, “zero-intelligence” robots were able to clear a double auction market.  Mirowski sees this example of  market clearing as evidence that its occurrence in markets is more so attributable to the rule structures of the market institution than the intentionality of those that comprise it.  It almost makes me think of Hayek’s notion of spontaneous order, where certain orders emerge unplanned, not of anyone’s own design.

The next day brought two more interesting sessions; The morning Austrian Economics session, and Peter Boettke talk “What is Left out of Mainstream Economics Textbooks?”. 

Led by Liya Palagashvili, the Austrian session was well attended.  After a brief and competent overview of some major themes in Austrian economics, the floor was opened up to a group discussion.  I was a bit disappointed to hear some of the attendees conflate Austrian economics with libertarianism or other moral or preference positions.  For example, a question was asked on whether Austrians thought Bitcoin was good or bad.  Another example was when one attendee claimed that Austrian theory states that fractional reserve banking is fraud.   Of course, such comments are grossly in error as Austrian theory itself is wertfrei, or, said another way, value free.  One’s own prescriptions or value judgments are outside the scope of the theory itself.  Thus, Austrian theory has nothing to say on whether Bitcoin is good or bad or if fractional reserve banking is fraud or not.^[1]

Peter Boettke’s talk was an interesting look at the distinction of what he calls mainline and mainstream economics.  As he has explained in the past together with Fink and Smith, the mainline tradition “... focus their scholarly efforts on studying how … individuals, acting in their own self-interest, create complex social arrangements under the division of labor that align individual interest with the social interest.”, as compared to the mainstream, who seem to follow whatever is the current fashion in scholarship and that  “Rather than focusing their scholarly efforts towards studying the social arrangements that emerge to align individual and social interest, mainstream economists focused their attention on modeling the choice of cognitively perfect individuals in ideal situations, leaving no room for institutional analysis and operative mechanisms to explain how markets work given behavioral deviations from the hypothesized ideal man.”^{[2] [3]}  In essence his talk was an appeal for replacing homo economicus with homo agens.  



Peter Boettke with his talk's title slide.

In all, despite not being overly impressed with all that happned at the conference, it offered a great ability to connect with professors, students, and others who are interested in problems of rethinking economics.  It was fun chatting with both Mirowski and Boettke at the conference, as well as other students about a myriad of topics.  From discussing time and uncertainty with Post-Keynesians, Stigler’s Coase Theorem with Boettke^[4], to the differences between Mises and Rothbard with fellow Austrians, the event was worth the trip.

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[1] Not even all Austrian economists qua moral theorists see it as fraud either.

[2] Boettke, Peter J., Fink, Alexander and Smith, Daniel J., The Impact of Nobel Prize Winners in Economics: Mainline vs. Mainstream (October 26, 2011). American Journal of Economics and Sociology 71(5): 1219-1249; GMU Working Paper in Economics No. 12-43., 1220-1221.
[3] For more on this, see Boettke’s 2012 work, Living Economics.
[4] See McCloskey’s article “The So-Called Coase Theorem” for more on this.

Who is Ludwig Lachmann?

Here's a link to a slideshow I created for the May, 7th event, "Who is Ludwig Lachmann?", hosted in tandem by the Boston and Manchester Austrian Economics groups:

https://docs.google.com/presentation/d/1_rLKTqVqDkxFOTPZ229R6p0vfJ7C8h_MJ36G7ZDvmVE/pub?start=false&loop=false&delayms=3000

Over the course of the next few weeks, I intend to post a few introductory entries here in regards to Lachmann's life and works.

About Me

My name is Michael Valcic and Kaleidic Catallaxy will be the blog where I’ll post my thoughts on various aspects of economics from a Lachmannian and Misesian point of view. The name Kaleidic Catallaxy was chosen to stress two notions that I believe are paramount in explaining human action.

Firstly, as George Shackle explained it, kaleidic, stemming from the word kaleidoscope, implies a “…society, interspersing its moments or intervals of order, assurance and beauty with sudden disintegration and a cascade into a new pattern”.[1] This view stresses that we live in a world where individual actors’ subjective valuations, expectations and knowledge are in flux. Some actions may spur coordination, while other actions may destroy them and bring about a variety of new elements. The word catallaxy, as used by Mises and Hayek, stresses that instead of viewing the market as an ‘economy’ – a view where actors have common values and goals – the various properties of a market are outgrowths of the many unique values and goals of the human actors within it.[2]

I’ve had an interest in the social sciences, especially economics and history since I was an adolescent.  Hearing stories about daily life affairs in socialist Yugoslavia from my grandparents with all of their struggles piqued my interest in economics and comparative institutional analysis.  I began to seriously look at the works of Marx and Engels and Milton Friedman’s Free to Choose in an effort to gain some understanding.  Eventually, at some point in 2007, I discovered Mises’ essay, “Economic Calculation in the Socialist Commonwealth”, which was an enlightening first introduction to Austrian economics.  I soon began to read the other works of Mises, Rothbard, and Böhm-Bawerk, among others.  I would eventually start reading the works of Lachmann around 2010 and have been tremendously influenced by his thought ever since. 

Why would I wait until now to start a blog?  Well, I honestly didn’t care much about writing about economics, especially from a radical subjectivist position, but after an event held in tandem by the Boston and Manchester Austrian Economics groups, I have changed my mind. I presented a brief sketch of Lachmann’s life and important ideas at this event, – see a write up of it by my friend, Andrew Criscione, here[3] – which generated a positive reception.  On top of this, there seems to be a dearth of blogs coming from a similar viewpoint.[4]  So why not start now!

Using Lachmann’s own terms, it seems that his work has been lost “in the wilderness”[5] in the mainstream, as well as in orthodox Austrian thought.  With this blog, I will aim to raise some interest in his work and attempt to find a way out of the wilderness and back to civilization. 

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[1] Shackle, G. L. S.. Epistemics and Economics: A Critique of Economic Doctrines. (New Brunswick: Transaction Publishers, 1991), 76.

[2] Shenoy, Sudha R.. Towards a Theoretical Framework for British and International Economic History: Early Modern England. (Auburn, Ala: Mises Institue, 2010), 47.

[3] Criscione, Andrew. "Resurrecting Lachmann." Boston Austrian Economics Group. http://www.misesboston.com/2014/05/resurrecting-lachmann/ (accessed May 22, 2014).

[4] At the time of this writing, the only two I know of are: http://radicalsubjectivist.wordpress.com/ and http://austrianomnibus.blogspot.com/

[5] Lachmann, Ludwig M., “The Salvage of Ideas” in Expectations and the Meaning of Institutions, ed. Don Lavoie.   (London: Routledge, 1994), 161.