Browsed by
Tag: Keynesianism

What Did Fed Chairman Yellen Tell Obama? – Article by Ron Paul

What Did Fed Chairman Yellen Tell Obama? – Article by Ron Paul

The New Renaissance HatRon Paul

This week, President Obama and Vice President Biden held a hastily arranged secret meeting with Federal Reserve Chairman Janet Yellen. According to the one paragraph statement released by the White House following the meeting, Yellen, Obama, and Biden simply “exchanged notes” about the economy and the progress of financial reform. Because the meeting was held behind closed doors, the American people have no way of knowing what else the three might have discussed.

Yellen’s secret meeting at the White House followed an emergency secret Federal Reserve Board meeting. The Fed then held another secret meeting to discuss bank reform. These secret meetings come on the heels of the Federal Reserve Bank of Atlanta’s estimate that first quarter GDP growth was .01 percent, dangerously close to the official definition of recession.

Thus the real reason for all these secret meetings could be a panic that the Fed’s eight-year explosion of money creation has not just failed to revive the economy, but is about to cause another major market meltdown.

Establishment politicians and economists find the Fed’s failures puzzling. According to the Keynesian paradigm that still dominates the thinking of most policymakers, the Fed’s money creation should have produced such robust growth that today the Fed would be raising interest rates to prevent the economy from “overheating.”

The Fed’s response to its failures is to find new ways to pump money into the economy. Hence the Fed is actually considering implementing “negative interest rates.” Negative interest rates are a hidden tax on savings. Negative interest rates may create the short-term illusion of growth, but, by discouraging savings, they will cause tremendous long-term economic damage.

Even as Yellen admits that the Fed “has not taken negative interest rates off the table,” she and other Fed officials are still promising to raise rates this year. The Federal Reserve needs to promise future rate increases in order to stop nervous investors from fleeing US markets and challenging the dollar’s reserve currency status.

The Fed can only keep the wolves at bay with promises of future rate increases for so long before its polices cause a major dollar crisis. However, raising rates could also cause major economic problems. Higher interest rates will hurt the millions of Americans struggling with student loan, credit card, and other forms of debt. Already over 40 percent of Americans who owe student loan debt are defaulting on their payments. If Federal Reserve policies increase the burden of student loan debt, the number of defaults will dramatically increase leading to a bursting of the student loan bubble.

By increasing the federal government’s cost of borrowing, an interest rate increase will also make it harder for the federal government to manage its debt. Increased costs of debt financing will place increased burden on the American people and could be the last straw that finally pushes the federal government into a Greek-style financial crisis.

The no-win situation the Fed finds itself in is a sign that we are reaching the inevitable collapse of the fiat currency system. Unless immediate steps are taken to manage the transition, this collapse could usher in an economic catastrophe dwarfing the Great Depression. Therefore, those of us who know the truth must redouble our efforts to spread the ideas of liberty.

If we are successful, we may be able to force Congress to properly manage the transition by cutting spending in all areas and auditing, then ending, the Federal Reserve. We may also be able to ensure the current crisis ends not just the Fed but the entire welfare-warfare state.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

3 Kinds of Economic Ignorance – Article by Steven Horwitz

3 Kinds of Economic Ignorance – Article by Steven Horwitz

The New Renaissance HatSteven Horwitz

Do you know what you don’t know?

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also require theoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Technology Needs Capital To Produce Economic Growth – Article by Frank Shostak

Technology Needs Capital To Produce Economic Growth – Article by Frank Shostak

The New Renaissance Hat
Frank Shostak
June 8, 2015

In his article “The Big Meh” Paul Krugman complains that despite all the information technology advances the effect so far has been negligible as far as economic growth is concerned.

Krugman writes “That the whole digital era, spanning more than four decades, is looking like a disappointment. New technologies have yielded great headlines but modest economic results. Why? … The answer is that I don’t know — but neither does anyone else.”

Indeed if one looks at the real gross domestic product to the potential real gross domestic product ratio the economy does appear to be hovering below potential with the ratio of 0.977 registered in Q1 this year.

shostak_june 8 300_1

Contrary to Krugman, we suggest that economists such as Ludwig von Mises and Murray Rothbard have provided a clear answer to the issue of technology and economic growth.

In Man, Economy, and State, Rothbard says that technology, while important, must always work through the investment of capital in order to generate economic growth.

On this issue, Rothbard quotes Mises who says,

What is lacking in (underdeveloped counties) is not knowledge of Western technological methods (“know how”); that is learned easily enough. The service of imparting knowledge, in person or in book form, can be paid for readily. What is lacking is the supply of saved capital needed to put the advanced methods into effect.

Most modern theories that emphasize the importance of new ideas and new technologies give the impression that these ideas and technologies have a “life of their own.” Many experts hold that because of the limited amounts of capital and labor, without technological progress, the opportunities for growth will eventually run out.

We Need Funding To Implement New Ideas

Ideas, unlike material inputs, are not themselves scarce. Consequently, it is argued, new ideas for more efficient processes and new products can make continuous growth possible.

We suggest that regardless of how many ideas people have, what matters is whether these ideas can be implemented. What always limits the implementation of various new techniques is the availability of funding. While ideas and new techniques can result in a better use of scarce resources, they can however, do very little without the pool of real savings.

So regardless of how clever we are and regardless of various technological ideas, without an adequate pool of funding nothing will emerge. It is through the expansion in the pool of real savings that an increase in the stock of capital goods is possible. And it is the increase in the capital goods per worker that permits economic growth to emerge.

To Get More Funding, We Need Savings

Obviously, new ideas and new technology can be introduced during the production of new capital goods (i.e., new technology) and will be imbedded in the capital goods stock. The crux of the matter however, is that capital goods cannot emerge without a prior increase in the pool of funding or pool of real savings.

Take, for instance, a baker John who produced ten loaves of bread. He consumes two loaves of bread whilst the other two loaves — his real savings — he employs to purchase a new part to improve his oven. With a better oven he can now raise the output of bread to twenty loaves. If he still consumes only two loaves, then with a larger savings (now stands at eighteen loaves) he can enhance further his oven by introducing new parts, which will enable the introduction of new technology. Note that all this is made possible on account of real savings.

We suggest that despite new technologies, a major impediment to economic growth has been the relentless central bank tampering with financial markets.

Since 2008 this tampering was made manifest in the extremely loose monetary policy of the Fed that resulted in the massive monetary expansion of the Fed’s balance sheet and the lowering of interest rates to almost nil.

These policies have been responsible for a severe erosion of the pool of real savings and thus a weakening of the process of capital formation. This in turn has undermined real economic growth notwithstanding new information technology.

For Krugman and his followers savings is bad news — it is seen as less demand — hence one shouldn’t be surprised that Krugman is puzzled as to why new ideas haven’t manifested in a more robust economic growth. Contrary to Krugman, boosting so-called aggregate demand whilst undermining the capital formation process, and hence the ability to produce goods and services, cannot strengthen economic growth over time. In fact this way of thinking results in the notion that something can be generated out of nothing.

Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

The New Renaissance Hat
Ryan McMaken
May 26, 2015

In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few.

Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down.

This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education?

With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth.

We’re Told to Want High Home Prices

But in today’s economy, if home prices are outpacing wage growth, then housing is becoming less affordable. This is grudgingly admitted even by the supporters of ginning up home prices, but the affordability of housing takes a back seat to the insistence that home prices be preserved at all costs.

Behind all of this is the philosophy that even if the home-price/household-income relationship gets out of whack, most problems will nevertheless be solved if we can just get people into a house. Once someone becomes a homeowner, the theory goes, he’ll be sitting on a huge asset that (almost) always goes up in price, meaning that any homeowner will increase in net worth as the equity in his home increases.

Then, the homeowner can use that equity to buy furniture, appliances, and a host of other consumer goods. With all that consumer spending, the economy takes off and we all win. Rising home prices are just a bump in the road, we are told, because if we can just get everyone into a home, the overall benefit to the economy will be immense.

Making Homes Affordable with More Cheap Debt

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades.

The fly in the ointment, of course, is if home prices keep going up faster than wages — ceteris paribus — fewer people will be able to save enough money to come up with either the full amount or even a sizable down payment on a loan.

Not to worry, the experts tell us. We’ll just make it easier, with the help of inflationary fiat money, to get an enormous loan that will allow you to buy a house. Thus, rock-bottom interest rates and low down payments have been the name of the game since the late 1980s.

We started to see the end game at work during the last housing bubble when Fannie Mae introduced the 40-year mortgage in 2005, which just emphasized that when it comes to being a homeowner, the idea is not to pay off the mortgage, but to “buy” a house and just pay the monthly payment until one moves to another house and gets a new thirty- or forty-year loan.

It Pays To Be in Debt

On the surface of it, it’s hard to see how this scenario is fundamentally different from just paying rent every month. If the homeowner stops paying the monthly payment, he’s out on the street, and the bank keeps the house, which is very similar to the scenario in which a renter stops paying a landlord. There’s (at least) one big difference here, however. It makes sense for the homeowner to get a home loan rather than rent an apartment because — if it’s a fixed-rate loan — price inflation ensures the real monthly payment will go down every month. Residential rents, on the other hand, tend to keep up with inflation.

But why would any lending institution make these sorts of long-term loans if the payment in real terms keeps getting smaller? After all, thirty years is a long time for something to go wrong.

Lenders are willing and able to do this because the loans are subsidized and underwritten through government creations like Fannie Mae (which buys up these loans on the secondary market), through bailouts, and through a myriad of other federal programs such as FHA. Naturally, in an unhampered market, a loan of such a long term would require high interest rates to cover the risk. But, Congress and the Fed have come to the rescue with promises of bailouts and easy money, meaning cheap thirty-year loans continue to live on.

So, what we end up with is a complex system of subsidies and favoritism on the part of lenders, homeowners, government agencies, and the Fed. The price of homes keeps going up, increasing the net worth of homeowners, and banks can make long-term loans on fairly risky terms because they know bailouts of various sorts will come if things go wrong.

But problems begin to arise when increases in home prices begin to outpace access to easy money and cheap loans. Indeed, we’re now seeing that homeownership rates are going down in spite of low interest rates, and vacancy rates in rental housing are at a twenty-year low. Meanwhile, new production in housing units is at 1992 levels, offering little relief from rising prices and rents. Obviously, something isn’t going according to plan.

Who Loses?

The old debt-based tricks that once kept homeownership climbing and accessible in the face of rising home prices are no longer working.

From a free market’s perspective, renting a home is neither good nor bad, but American policymakers long ago decided to favor homeowners over renters. Consequently, we’re faced with an economic system that pushes renters toward homeownership — price inflation and the tax code punishes renters more than owners — while simultaneously pushing home prices higher and higher.

During the last housing bubble, however, as homeownership levels climbed, few noticed or cared about this. So many renters became homeowners that rental vacancies climbed to record highs from 2004 to 2009. But in our current economy, one cannot avoid rising rents or hedge against inflation by easily leaving rental housing behind.

This time around, the cost of purchasing housing is going up by 6 to 10 percent per year, but few renters can join the ranks of the homeowners to enjoy the windfall. Instead, they just face record-high rent increases and a record-low inventory in for-sale houses.

There once was a time when rising home prices and rising homeownership rates could happen at the same time; it was possible for the government to stick to its unofficial policy of propping up home prices while also claiming to be pushing homeownership. We no longer live in such a time.

Ryan W. McMaken is the editor of Mises Daily and The Free Market. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. 

This article was published on and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

New Fed Boss Same as the Old Boss – Article by Ron Paul

New Fed Boss Same as the Old Boss – Article by Ron Paul

The New Renaissance Hat
Ron Paul
October 13, 2013

The news that Janet Yellen was nominated to become the next Chairman of the Board of Governors of the Federal Reserve System was greeted with joy by financial markets and the financial press. Wall Street saw Yellen’s nomination as a harbinger of continued easy money. Contrast this with the hand-wringing that took place when Larry Summers’ name was still in the running. Pundits worried that Summers would be too cautious, too hawkish on inflation, or too close to big banks.

The reality is that there wouldn’t have been a dime’s worth of difference between Yellen’s and Summers’ monetary policy. No matter who is at the top, the conduct of monetary policy will be largely unchanged: large-scale money printing to bail out big banks. There may be some fiddling around the edges, but any monetary policy changes will be in style only, not in substance.

Yellen, like Bernanke, Summers, and everyone else within the Fed’s orbit, believes in Keynesian economics. To economists of Yellen’s persuasion, the solution to recession is to stimulate spending by creating more money. Wall Street need not worry about tapering of the Fed’s massive program of quantitative easing under Yellen’s reign. If anything, the Fed’s trillion dollars of yearly money creation may even increase.

What is obvious to most people not captured by the system is that the Fed’s loose monetary policy was the root cause of the current financial crisis. Just like the Great Depression, the stagflation of the 1970s, and every other recession of the past century, the current crisis resulted from the creation of money and credit by the Federal Reserve, which led to unsustainable economic booms.

Rather than allowing the malinvestments and bad debts caused by its money creation to liquidate, the Fed continually tries to prop them up. It pumps more and more money into the system, piling debt on top of debt on top of debt. Yellen will continue along those lines, and she might even end up being Ben Bernanke on steroids.

To Yellen, the booms and bust of the business cycle are random, unforeseen events that take place just because. The possibility that the Fed itself could be responsible for the booms and busts of the business cycle would never enter her head. Nor would such thoughts cross the minds of the hundreds of economists employed by the Fed. They will continue to think the same way they have for decades, interpreting economic data and market performance through the same distorted Keynesian lens, and advocating for the same flawed policies over and over.

As a result, the American people will continue to suffer decreases in the purchasing power of the dollar and a diminished standard of living. The phony recovery we find ourselves in is only due to the Fed’s easy money policies. But the Fed cannot continue to purchase trillions of dollars of assets forever. Quantitative easing must end sometime, and at that point the economy will face the prospect of rising interest rates, mountains of bad debt and malinvested resources, and a Federal Reserve which holds several trillion dollars of worthless bonds.

The future of the US economy with Chairman Yellen at the helm is grim indeed, which provides all the more reason to end our system of central economic planning by getting rid of the Federal Reserve entirely. Ripping off the bandage may hurt some in the short run, but in the long term everyone will be better off. Anyway, most of this pain will be borne by the politicians, big banks, and other special interests who profit from the current system. Ending this current system of crony capitalism and moving to sound money and free markets is the only way to return to economic prosperity and a vibrant middle class.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Review of Gary Wolfram’s “A Capitalist Manifesto” – Article by G. Stolyarov II

Review of Gary Wolfram’s “A Capitalist Manifesto” – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
January 5, 2013

While Dr. Gary Wolfram’s A Capitalist Manifesto is more an introduction to economics and economic history than a manifesto, it communicates economic concepts in a clear and entertaining manner and does so from a market-friendly point of view. Wolfram’s strengths as an educator stand out in this book, which could serve as an excellent text for teaching basic microeconomics and political economy to all audiences. Wolfram is a professor of economics at Hillsdale College, whose course in public-choice economics I attended. The book’s narration greatly resembles my experience of Wolfram’s classroom teaching, which focuses on the essence of an idea and its real-world relevance and applications, often utilizing entertaining concrete examples.

The book begins with several chapters on introductory microeconomics – marginal analysis, supply, demand, market equilibrium, opportunity cost, and the effects of policies that artificially prevent markets from clearing. The middle of the book focuses on economic history and political economy – commenting on the development of Western markets from the autarkic, manorial system of the feudal Middle Ages, through the rise of commerce during the Early Modern period, the Industrial Revolution, the emergence of corporations, and the rise in the 20th century of economic regimentation by national governments. One of the strengths of this book is its treatment of the benefits of free trade, from its role in progress throughout history to the theoretical groundwork of Ricardian comparative advantage. Enlightening discussions of constitutionalism and the classical idea of negative liberty are also provided. Wolfram introduces the insights of Ludwig von Mises regarding the infeasibility of central planning in solving the problem of economic calculation, as well as Friedrich Hayek’s famous “knowledge problem” – the dispersion of information among all the individuals in an economy and the impossibility of a central planner assembling all the information needed to make appropriate decisions. Wolfram further articulates the key insights of Frederic Bastiat: the seen versus the unseen in economic policy, the perils of coercive redistribution of wealth, the immorality of using the law to commit acts which would have been unacceptable if done by private individuals acting alone, and the perverse incentives created by a system where the government is able to dispense special privileges to a select few.

The latter third of the book focuses on such areas as money, inflation, and macroeconomics – including an exposition of the Keynesian model and its assumptions. Wolfram is able to explain Keynesian economics in a more coherent and understandable manner than most Keynesians; he thoroughly understands the theories he critiques, and he presents them with fairness and objectivity. I do, however, wish that the book had delved more thoroughly into a critique of Keynesianism. The discussion therein of the Keynesian model’s questionable assumptions is a good start, and perhaps a gateway to more comprehensive critiques, such as those of Murray Rothbard and Robert Murphy. A layperson reading A Capitalist Manifesto would be able to come out with a fundamental understanding of Keynes’s central idea and its assumptions – but he would not, solely as a result of this book, necessarily be able to refute the arguments of Keynes’s contemporary followers, such as Joseph Stiglitz and Paul Krugman. Wolfram mentions critiques of Keynesianism by Milton Friedman and the monetarist school, the concept of rational expectations precipitating a move away from Keynesianism in the late 1970s, and the “supply-side” interpretations of the Keynesian model from the 1980s. However, those viewpoints are not discussed in the same level of detail as the basic Keynesian model.

More generally, my only significant critique of A Capitalist Manifesto is that it is too brief in certain respects. It offers promising introductions to a variety of economic ideas, but leaves some significant questions arising from those areas unanswered. Wolfram introduces the history and function of the corporation but does not discuss the principal-agent problem in large, publicly traded firms with highly dispersed ownership. To anticipate and answer (and perhaps partially acknowledge the validity of) criticisms of the contemporary corporate form of organization, commentary on how this problem might be overcome is essential. Wolfram explains the components and computation of Gross Domestic Product and the Consumer Price Index but devotes only a small discussion to critiques of these measures – critiques that are particularly relevant in an electronic age, when an increasing proportion of valuable content – from art to music to writing to games – is delivered online at no monetary cost to the final consumer. How can economic output and inflation be measured and meaningfully interpreted in an economy characterized partially by traditional money-for-goods/services transactions and partially by the “free” content model that is funded through external sources (e.g., donations or the creators’ independent income and wealth)? Moreover, does Wolfram’s statement that the absence of profit (sufficient to cover the opportunity cost) would result in the eventual decline of an enterprise need to be qualified to account for new models of delivering content? For instance, if an individual or firm uses one income stream to support a different activity that is not itself revenue- or profit-generating, there is a possibility for this arrangement to be sustainable in the long term if it is also justified by perceived non-monetary value.

Wolfram’s discussion of inflation is correct and forms a strong link between inflation and the quantity of money (government-issued fiat money these days) – but I would have wished to see a more thorough focus on Ludwig von Mises’s insight that new money does not enter the economy to equally raise everybody’s incomes simultaneously; rather, the distortion due to inflation comes precisely from the fact that some (the politically favored) receive the new money and can benefit from using it while prices have not yet fully adjusted. (This can be logically inferred from Wolfram’s discussion of some of the “tools” of the Federal Reserve, which directly affect the incomes of politically connected banks – but I wish the connection to Mises’s insight had been made more explicit.) Wolfram does mention that inflation can be a convenient tool for national governments to reduce their debt burdens, and he also discusses the inflationary role of fractional-reserve banking and “tools” available to central banks such as the Federal Reserve. However, Wolfram’s proposed solutions to the problems of inflation remain unclear from the text. Does he support Milton Friedman’s proposal for a fixed rate of growth in the fiat-money supply, or does he advocate a return to a classical gold standard – or perhaps to a system of market-originated competing currencies, as proposed by Hayek? It would also have been interesting to read Wolfram’s thoughts on the prospects and viability of peer-to-peer and digital currencies, such as Bitcoin, and whether these could mitigate some of the deleterious effects of central-bank-generated inflation.

Wolfram does discuss in some detail the sometimes non-meritocratic outcomes of markets – stating, for instance, that “boxers may make millions of dollars while poets make very little.” Indeed, it is possible to produce far more extreme comparisons of this sort – e.g., a popular “star” with no talent or sense earning millions of dollars for recording-studio-hackneyed “music” while genuinely talented classical musicians and composers might earn relatively little, or even have their own work remain a personal hobby pursued for enjoyment alone. To some critics of markets, this may well be the reason to oppose them and seek some manner of non-market compensation for people of merit. For a defender of the unhampered market economy, a crucial endeavor should be to demonstrate that truly free markets (unlike the heavily politicized markets of our time) can tend toward meritocracy in the long run, or at least offer people of merit a much greater range of possibilities for success than exists under any other system. Another possible avenue of exploration might be the manner in which a highly regimented political system (especially in the areas of education) might result in a “dumbed-down” culture which neglects and sometimes outright opposes intellectual and esthetic sophistication and the ethic of personal productivity which is indispensable to a culture that prizes merit. Furthermore, defenders of markets should continually seek out ways to make the existing society more meritocratic, even in the face of systemic distortions of outcomes. Technology and competition – both of which Wolfram correctly praises – should be utilized by liberty-friendly entrepreneurs to provide more opportunities for talented individuals to demonstrate their value and be rewarded thereby.

Wolfram’s engaging style and many valid and enlightening insights led me to desire more along the same lines from him. Perhaps A Capitalist Manifesto will inspire other readers to ask similar questions and seek more market-friendly answers. Wolfram provides a glossary of common economic terms and famous historical figures, as well as some helpful references to economic classics within the endnotes of each chapter.  A Capitalist Manifesto will have its most powerful impact if readers see it as the beginning of their intellectual journey and utilize the gateways it offers to other writings in economics and political economy.

Disclosure: I received a free copy of the book for the purposes of creating a review.