While I agree whole heartedly with much Ron Paul has to say, this is an area I do not. His full embrace of the Austrian School and insistence of returning to something along the lines of a gold or silver standard are not just impractical, it is a little scary. I have not read one respected economist who thinks a return to a commodity based standard could work or actually help the economy.

To examine some of the things he said further:
"The financial meltdown the economists of the Austrian School predicted has arrived."

To be fair, any financial meltdown of most any government economy right now could be identified as a prediction of the Austrian School, since most all have a central bank of some kind that "interferes" to promote growth. The Austrian Business Cycle Theory is generally not discussed much among economists today because the vast majority regard it as incorrect (some have borrowed concepts or tried to evolve it to answer some of the inherent problems in it). (Maybe i'm wrong and it's more acceptable then I take it to be from what i've read so far, I would not consider myself to be an expert in economics, but from the limited amounts i've read there has not been too much of a positive view of the theory).

I might come back and add some more commentary on specific quotes from Paul's speech, but for now I have to go back to typing a paper. Just to end on one final comment- A major problem I have with the Austrian School is not with their overall ideology about government and its role. The problems i have come down to methodology-they generally rely on self-evident axioms and logical reasoning rather then the scientific method and empirical studies. Look at the discoveries we've made in some of the hard sciences, many of these discoveries are counter-intuitive. To take it for granted that we can reason truth ourselves with no outside assistance in sciences, even if it is social sciences which are soft and not hard sciences, starts down a road I don't want to go.

Links-http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory
http://en.wikipedia.org/wiki/Austrian_School

Forgot to mention- I have some links on my site on my most recent post in regards to the bailout, some differing opinions on it and some overview on the causes of the crisis.

Btw, I watched the show PBS did on The Elegant Universe, good stuff. Lee Smolin has a good book that deals with some of the problems within string theory and the scientific community itself if you are looking for a counter opinion after you're done (The Trouble With Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next). I started on it not too long ago, but have gotten busy in the last month or so and had to put it aside.

@whataboutbahb - 

Personally, I don't subscribe to any particular school of economics for the sole fact that my knowledge of economics isn't sophisticated enough to do so; for now I would just give myself the general label of a libertarian.

As far as this piece from Paul, correct me if I'm wrong, but couldn't many schools of thought still accept most of the things he has said here (other than the introductory sentence and perhaps the reference to Hayek).

I recognize that the Austrian school and the Monetarists/Chicago school differ on the issue of a commodity backed currency, and that Milton Friedman considered a full gold standard to be neither feasible nor desirable (I read the first few chapters of "Capitalism and Freedom", but left the book somewhere and haven't read any since). However, would they not agree that artificially low interest rates would contribute to the current crisis? Friedman did link monetary policy as the main culprit of the Depression and Stagflation (although perhaps there's something in his description that would significantly differentiate himself from the Austrians-- something that may even be plainly obvious), and my impression is that they may have some overlap on this particular issue. He did complain about the money supply increasing faster than output, which seems to be on par with the Austrians. Where the line is drawn is that the Austrians would want to go back to a commodity based standard and abolish the Fed, while the Monetarists would just want the Federal Reserve to change the way things are run and control the rate at which the money supply is increased (granted, the actual "line" may be well before this point). Blaming a central bank for all the business cycles we see may be a little hard for most economists to swallow, but putting a good chunk of the blame on the Fed for the current situation seems to be a more reasonable.

And it's not that Paul has limited the cause of the problem to the Fed alone. He does reference the government's creation of Fannie Mae and Freddie Mac in his letter above, as well as the Community Reinvestment Act in a recent article on CNN.. These references, although consistent with the Austrian School, probably coincide with many other schools of thought.


As far as the critiques of the Austrian school I'm a bit torn myself. The fact that it's not one of the predominant views probably says something about it (even though it did produce a Nobel Prize winner in Hayek). On the other hand, I can't outright dismiss most of their claims (nor can I absolutely confirm them either). Regarding a commodity based standard, I can see arguments both ways. While we were on the gold standard, the money supply and the general value of the dollar seemed to have been relatively stable (or so I've heard), and that in the past few decades the years with the least inflation have had some of the best economic growth, while the years with more inflation have struggled (http://online.wsj.com/article/SB120943024074251369.html?mod=opinion_main_commentaries)
However, it does seem somewhat magical to me that the supply of gold (or whatever commodity is chosen) should increase at a rate that coincides with the proper rate at which the money supply should increase. A sudden gold rush would lead to inflation (as actually happened in the past, although it seemed to be a bit localized and not too drastic from what I understand), very large economic and/or population growth that outpaces the increase of the gold supply could result in deflation, or stagnant economic/population growth that doesn't keep up with gold could lead to inflation, which in turn could keep the economy from properly recovering and turning into a nasty little cycle. Those last two scenarios are just my thoughts. Once again, I'm not well trained in economics, so there could be some glaring flaw in them that I've missed.

I'm a bit more sympathetic towards the Austrian's epistemology, although I'm not yet convinced (btw, I haven't ready anything by Mises-- only Hoppe, Paul, and Lew Rockwell). First of all, I do appreciate the fact that they tend to discuss epistemology as much as they do (although it is possible that many of the other schools do this and I've failed to see it). My biggest objection is probably one of lesser consequence. Basically, they tend to call certain propositions a-priori that I wouldn't I may not classify as such. I may agree with them that certain propositions are valid or sound, but not necessarily a-priori. The ideas behind praxeology and human action(although I probably don't understand it in the way they do) seem that they would in themselves be a-posteriori. However, I'm not sure I could argue that certain economic laws are not a-priori (the disconnect between this statement and the previous probably reveals my ignorance in the proper understanding of praxeology), such as:
1.) the law of marginal utility
2.) the law of supply and demand
3.) that as the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of the money will fall.

While it is necessary to use empirical knowledge to make any specific, quantitative statements with these, the laws themselves seem to be true a-priori. The Austrians would seem to agree with this idea, so I suppose my ideas of praxeology are just messed up and I need to reread them on the subject.

I'm not totally certain that empirical studies should be the starting foundation of one's economic views. In the hard sciences, you have theory and experiments working together to produce the science that we see. For any new discovery, it could either be the theory or the experiment which causes the first step. By themselves, they don't say much. A theoretician needs to have his experiments empirically verified, while the experimentalist needs to explain the phenomena he sees. Often times though, it is the theorists who start the discoveries, and who have made the more counter-intuitive statements. When Einstein came up with his theories of special and general relativity, they were based upon theoretical work. Essentially, by working out the results of Maxwell's equations (notably the fact that the speed of an electromagnetic wave, i.e. light, is a constant in the wave equation no matter the reference frame, among some other facts), he arrived at the proper corrections for Newtonian mechanics (although he did have to make the decision which branch of physics was "wrong" and needed correction).

But with the hard sciences, when you want to test your hypothesis, you can set up an experiment, and can generally control the variables you want to control. Unfortunately, with economics, we don't have this type of control. Instead of having experimentalists, I suppose you're essentially left with "observationists" (or at least that's what they would be called in a field such as astronomy where conditions are somewhat similar, but the astronomer has even less control). In such a case, it seems that we are forced to rely more heavily upon the theorists, which I suppose are forced to turn more toward axioms and logical reasoning. Then again, I suppose some theoretical work (e.g. Monte Carlo simulations) can venture away from the self-evident or a-priori and into the land of making models that are empirical fit to the observed data (a process that can be useful, but I would be reluctant to let it get too out of hand). Unfortunately, I just don't know enough about economists and what all they do. But it does seem like this is an incredible difficult, if not outright impossible at times, task due to the untold number of uncontrolled variables and parameters (in addition to those that we haven't even considered).

Campaign For Liberty called our house Friday evening (March 13, 2009) trying to get pledge money to "Audit the Feds" and basically John Tate (new president of the group) is trying to get a list of the top priority items to challenge Congress about...I found it both somewhat amusing and interesting. I know Dr. Paul has no problem standing up to bills he does not support and confronting ideology he sees as harmful to America. I may do a post to try to get some ideas from the Xanga blogging community. I'm sure radicalramblings will have something to add.