On September 18, 2014, Sean Arands writes in The Austrian Insider:
There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).
In order to get a full understanding of the two schools of economic thought, please refer to the infographic above. Open the image in a new tab for a larger version.
If anyone feels I did a misrepresentation of either school, let me know!
The Federal Reserve System needs to be reformed to act as a purveyor of economic growth.
Most of the economic problems can be tied to the notion that exclusively “capital goods come into existence by [past] saving.”
Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairman Benjamin Bernanke and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners. The result will be that money power will flow from the bottom up, not from the top down––not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth.
http://theaustrianinsider.com/infographic-keynesian-vs-austrian-economics/
Smiling Dave September 22, 2014 at 3:40 pm · Log in to reply. →
Step 1 of the Austrian business cycle theory needs a modification. It’s not low interest rates that create money, but money creation that lowers interest rates.
Here’s Joe Salerno: “But the Fed does not directly set interest rates. This is the great modern myth, which was designed to conceal the Fed’s true modus operandi. The Fed influences interest rates by creating and injecting dollar reserves into the banking system. The additional reserves increase the supply of loanable funds relative to the economy’s demand and thus induce banks to offer loans at lower interest rates in order to attract borrowers for the additional funds. So causation runs from the increase in Fed–created base money to reduced interest rates. Lower interest rates are just one of the distortions caused by the Fed’s unrestrained power to create money ex nihilo.”
Source: http://mises.org/daily/5437/What-We-Need-to-Know-about-Money
Sean Aranda
Sean Aranda September 22, 2014 at 4:28 pm · Log in to reply. →
Smiling Dave:
Thanks for the response! Personally, I had never heard that was the way the Fed operates. I was always under the impression that they set the Fed Funds Rate and the banks can then borrow at that lower rate (creating money).
I will have to look into this further and read that article more in depth when I have a bit of time later on. Very interesting though.