Today’s Daily Bell interview is with Antal Fekete; it seems to be at least partially in response to earlier comments by Richard Ebeling. I will post DB’s editorial introduction in full:
Editor's note: The following questions and responses are derived from recent articles of Dr. Fekete's. And some of them deal with a recent paper by Dr. Richard Ebeling. However, we wish to note that Dr. Ebeling's views are within the mainstream of a certain Misesian perspective. Not only do his perspectives represent the larger viewpoint of an element of his peers, his career shows him to be a staunch proponent of freedom and a courageous proponent of free-market thinking. Singling him out personalizes what is obviously a theoretical disagreement – and one, in fact, that might better have been better handled in a theoretical manner instead of an ad hominem one. We regret any offense taken by either party.
With that, let’s jump right in:
AF: …money must be not just a commodity; it must be the most marketable commodity, the marginal utility of which is virtually constant. Mises categorically stated that constant marginal utility is contradictory in that it indicates infinite demand. (emphasis added)
Here in a nutshell is one example of the confounding nature of Dr. Fekete. Which is it: “virtually constant,” or “constant”? The terms do not mean the same thing, yet he uses one to beat Mises over the head regarding the other.
AF: You cannot reconcile the variable demand for commercial credit with the idea of "100 percent gold standard."
I believe you can, although human nature might struggle with the necessary price adjustments. In any case, this problem likely isn’t terribly significant, as generally, I expect, in a free-market economy, the demands for credit would slowly and somewhat steadily increase.
Dr. Fekete will tie the significant fluctuation involved in bringing crops to market in the form of consumption goods. But turning wheat into flour into bread is not the only market in which credit is necessary – and certainly not as meaningful in the economy today as it was in the heyday of real bills.
DB: Why is there a prejudice among Misesians against real bills?
AF: That is a mystery.
As best as I can tell, the reason is inflation. Dr. Fekete will protest – real bills are not a source of inflation. But he would be wrong. It is a mathematical truism: if he states that 100% gold standard is not sufficient – and some form of paper demand on future gold must be created – then there is more currency circulating than the gold backing it.
However, inflation is not reason enough to be “against” real bills (or “gold bills” as Dr. Fekete now names these). If this is demanded in the market, there is no justification to stop it by force. There is no reason to reject the practice.
AF: On the other hand, Dr. Ebeling obviously thinks that gold bills are inflationary and therefore detrimental to the public interest…. Please ask him why he thinks he knows better than the producers of goods of higher order did who accepted payment in gold bills and did not insist on getting paid in gold coins.
That’s what I said.
AF: Further problems with central banks arose during World War I, especially in the United States. The Federal Reserve (F.R.) banks started putting their credit at the disposal of the Entente powers to finance their purchases of war materiel in violation of the F.R. Act of 1913, to say nothing of the Neutrality Act, practically the same day as war broke out in Europe in August, 1914.
There is a hidden corner within the new-Austrian community that looks at the initial Federal Reserve legislation as sound. This ignores the reality that monopoly will always lead to corruption. Dr. Fekete has identified one of the earliest corruptions of central banking within this statement.
DB: What will the nature of the deflation be – a collapse of the monetary system?
AF: Much more than that. It will be a repetition of the deflation and depression of the 1930s, but on a much larger scale. Falling-domino-style bankruptcy of firms, devastating waves of unemployment, falling prices induced by falling interest rates are just some of the consequences.
It may be all of the things Dr. Fekete states; but these are not “Much more” than the “collapse of the monetary system”; they are much less.
A true collapse of the monetary system will result in the death of perhaps 95% of the people in the developed world. Is this the future Dr. Fekete predicts? Has he planned accordingly? If not, I will suggest he doesn’t truly believe in the possibility of a collapse.