It takes a brave person to stand before a crowd of 100 persons, mostly college students, and discuss economics, which often has been called the “dismal science.” However, Tom Woods was up to the challenge last night at Grand Canyon University where he talked non-stop for ninety minutes and bored no one.
Woods brilliantly explained why and how interest rates affect business decisions and how the Fed’s manipulations of interest rates send the wrong signals to the business world. I will not attempt to reiterate Woods’ message, but will give the bottom line: The Fed’s manipulations of interest rates lead to booms and busts. Booms, of course, are warmly embraced, but they are inevitably followed by the dreaded busts.
Borrowing from one the most esteemed Austrian school economists, F. A. Hayek, Woods noted that it is the boom we must fear for it certainly leads to the bust. If interest rates were left to the free market, we would have neither booms nor busts, only slow, steady growth as the market would allocate money to the most productive areas.
For readers wanting to know more about Austrian economic theory, Woods has on his website a page title Learn Austrian Economics, which contains a list of books, essays and videos, most of which are free. At the top of the list is Henry Hazlitt’s Economic in One Lesson, which I highly recommend. Woods offers a free pdf. download. The videos on the list are excellent.
With the world—yes, the world, not just the US—facing financial challenges like never before, now would be good time to get a grasp on solutions, which the Austrian school offers. However, Austrian theory does not offer an easy way out as do the advocates of printing more money.
Advocates of printing more money, now called “quantitative easing,” assert all that is necessary for economic recovery is to crank up the printing presses. Austrians maintain that doing so will only exacerbate the problems. There are malinvestments that have to be liquidated, with the salvaged resources, both capital equipment and personnel, redirected to productive sectors. Such redirection is thwarted when attempts are made to keep the malinvestments afloat.
The best we can hope for is that after we do climb out of this hole that we don’t repeat the same mistakes. Avoiding making the same mistakes can happen only if people become aware of the causes of the problems in the first place.
CMIGS’ Essential Reading list contains other suggestions for investors wanting to know more about Austrian economic theory and gold, which is the foundation of Austrian theory because it has proven to be—along with silver—the reliable sound money. Sound money is the foundation of Austrian economic theory.
Excellent summary.
I also wanted to recommend Hazlitt’s Economics in One lesson. It’s the one book everyone needs to read whether they have an interest in economics or not.
As a follow on, I really like Irwin Schiff’s How an Economy Grows and Why It Doesn’t. This book – better than any other I’ve come across – creates an intuitive understanding of exactly how savings and production form the basis of economic growth. Only once you have that principle firmly under grasp are you able to resist the endless appeals for more credit and more consumption that roll out of Washington, DC. It is out of print but available as a pdf on the internet. Peter Schiff has an updated version for sale but I haven’t had a chance to read that one yet.