The Truth about Austrian economic theory - pro-Elite propaganda

Elusive Wapiti has just completed a monumental book review, in four parts, of An Austrian Perspective on The History of Economic Thought, by Murray Rothbard. His review is excellent, I recommend it, access it by following these links: Parts 1, 2, 3, and 4.

Austrian Economic Thought, in a nutshell

The Austrian position on economics essentially boils down to a principled opposition to government interference. This has its potential positives, and in its opposition to government power, it is often attractive to people with populist anti-elite sympathies.

But Austrian thought also has some huge negatives, which deserve careful attention. In fact, under careful scrutiny, you will find that Austrian economic thought is extremely hostile to populist concerns, and is, in fact, little more than pro-elite propaganda.

The Positives (???)

The best part of Austrian thought comes from its principled opposition to government power. If this position were actually implemented, a great deal of elite power would be blunted, since the elite co-opt the power of government to magnify their power. Unfortunately, this part of the libertarian solution is never implemented, so, in practice, there are no positives.

The Negatives

The largest negative implication of Austrian theory is the attack on any government regulation of elite economic power. According to the Austrians, ANY use of government power to regulate the economic activities of the rich is wrong. Of course, this is a very convenient ideology if you have lots of economic power. For the average person, who is victimized by the economic power of the elite, this ideology is toxic.


The Fallacies of the Austrian theory of Usury

Nowhere more than in their discussion of usury do I find Austrian ideas to be so fully retrograde and misleading. I will freely admit they make a great point about usury... if we are talking about a world of full-reserve banking combined with the gold standard. For today's world, their insight is completely obsolete, and their analysis is completely misleading.

Today, under the fractional reserve system, bankers don't take "risks" with their own capital. They create credit, from scratch, by monetizing collateral, without having the money beforehand.

If the loan fails, they simply seize the collateral. Thus, they never faced any risk, since their credit creation was guaranteed by physical collateral and never involved their own capital.

Nor do they shift the time demand to the present from the future, because they AREN'T bringing unused capital into play. They are simply monetizing capital that their customers bring to them!

The whole idea that bankers deserve a premium for the service of making money available, only makes sense if money is a scarce commodity. That is no longer the case. In our modern system, credit creation is without limit, unconstrained by anything but entrepreneurial demand.

This also means that interest rates are, today, completely arbitrary, and are used SOLELY as a means to ENRICH the banking elites. Thus, for example, right now, banks can get money from the Fed at near ZERO PERCENT. Yet, interest rates on credit cards, car loans, and student loans HAVE NOT COME DOWN!!!

It is little short of a huge scam. There is NO REASON we don't have essentially INTEREST FREE banking today. [Well, the reason is apparent enough: just the pro-bank rhetoric of elite apologists like the Austrians.] This is known as the concept of PUBLIC BANKING, to allow credit creation for the public good, eliminating the wealth transfer that goes to the banking elites.

The Austrians denounce this practice of public banking, as some sort of heretical violation of the principles of capitalism. Well, of course they do. Capitalism, to an Austrian, means the system by which commoners are maximally fleeced by the economic elites. Public banking would eliminate their surest source of power.

The Fallacies of the Austrian theory of Private Property

In the modern economic context of mass production based on natural resource extraction, simplistic ideations of private property are problematic. The Austrians support the definition of private property that is most friendly to elite economic interests.

The basis of the Austrian concept of “the sanctity of private property” is the support for the reprehensible medieval practice of absentee landlord ownership. Thus, we can see that the Austrian concept is mainly a tool used to smash the common man over the head, as it sanctifies his exploitation by absentee owners as inviolable law.

This Austrian support for absentee ownership applies to both land and factor production. It is this Austrian theory which proposes the absurd idea that someone who has taken no part in the production of something, can nonetheless claim to be the owner of it.

This is the parasitical basis of exploitative capitalism: that someone can claim ownership of things that he neither builds nor maintains, nor has any interaction with whatsoever. Austrian capitalism means that some chain of legal title enables a man to appropriate a portion created by the sweat of another man’s brow.

Under these rules as applied to the mass-production system, the result in practice is that the elite owner class continues to apppropriate ever-greater shares of wealth to themselves. Combine this mass production system with globalism, and we have a system wherein the owner class has maximal power to exploit the cheapest, most unregulated labor sources across the entire planet, further concentrating their own wealth and power.

The Fallacies of the Austrian theory of Central Banking

Austrians are big fans of The True Golden Rule: He Who Has the Gold Makes the Rules. Because they want the money supply to be fixed by the quantity of some limited commodity like gold, Austrians hate the concept of central banking. This appears to be somewhat of a paradox at first, because central banks today have been almost completely co-opted by the banking elites for their own enrichment, and populists like Andrew Jackson opposed central banking.

Central banks, you see, are fundamentally a threat to banking privilege, because banking privilege is based on the scarcity of money. Central banks are an assertion that the government, as the sovereign representative of the people, has the right to issue credit on their behalf. If a central bank fulfills its promise by fully nationalizing credit, it would deal a blow to banks in the way that nationalizing oil deals a blow to oil companies.

The banking function is essentially parasitic, because it involves nothing more than the skimming off of wealth created by others. In short, banking profit represents loss to the productive economy, and bankers’ wealth represents profits exploited from real producers.

Having a central bank which works FOR THE PEOPLE is a great blessing, such as the practice of public banking, in which banking profits are minimized and channeled to fund government.

The problem with central banking, and the reason why populists have traditionally opposed it, is that the establishment of a central bank usually means that the government establishes a PRIVATE bank as the MONOPOLY partner of the central government. This type of monopolistic, privately-owned central banking is indeed a monstrosity to be abhorred.

Since all banking profit is parasitic and is bad for everyone else, minimizing it is perfectly reasonable. Ideologues like the Austrians would condemn limitations on banking profits. Functionally, on this issue as on others, the Austrians are a mouthpiece for the rich elites.