Gary North on current economic affairs and investment marketsGary North -- Specific Answers
HomeContact MeTell a FriendText SizeSearchMember Area
Gain immediate access to all of our current articles, the question-and-answer forums, dozens of free books, and article archives. Click here for details on how to join.

About This Site
Academic Gaps
Articles
Capitalism and the Bible
Clichés of Protectionism
College Finances
Debt Management
Ellen Brown: Critique
Federal Reserve Charts
Gary North's Free Books
Get Published Here!
Gold Price & My Report
Keynes Project
Price Index (U.S.A.)
Questions for Jim Wallis
Remnant Review
Social Security/Medicare
Sustained Revival
Tea Party Economist
U.S. Debt Clock
Yield Curve
Your YouTube Channel
Gary North's Miscellany
Advertising
Blogging
Budgeting for Wealth
Business Start-Up
Career Advancement
Digital Tools
Education That Works
Evernote: Free Notes
Federal Reserve Policy
Fireproof Your Job
Goal-Setting for Success
Great Default
Inheritance Strategies
Insurance
International Investing
Investment Basics
Job and Calling
Keynesian Economics
Leadership
Marketing Case Studies
Obamanomics
Precious Metals
Real Estate
Retirement
Safe Places
State of the Economy
Stocks and Bonds
Video Channel Profits
War With Iran
Members' Free Manuals
Our Products
Contact Me
Help
Tell a Friend
Text Size
Your Account
My 100% Guarantee
Privacy Policy
Terms of Use


This site powered by MemberGate

Economic Error #9: Murray Rothbard's Theory of Money Is Wrong (Especially When You Alter What He Wrote).

Gary North
Printer-Friendly Format

Ellen Brown has no understanding of monetary theory. She claims to know what Austrian economics teaches about money, yet her footnotes do not directly cite a single book or article on Austrian monetary theory. She is faking it.

Consider her treatment of Murray Rothbard's little book What Has Government Done to Our Money? (1964). I regard it as the clearest presentation of monetary theory ever written. It is surely the best introduction to Austrian School monetary theory.

Rothbard made an important point: it does not matter what the money supply is. Prices will adjust to the existing money supply on a free market. He specifically used the example of a gold standard.

He opposed a planned increase in the supply of money. This does not create wealth. Ellen Brown's book is a denial of this position. No one has stated this position any more clearly than Rothbard did in his book. In an updated version of the book published in 1990, he explained this. But the basics had been present in the 1964 edition.

What is the effect of a change in the money supply? Following the example of David Hume, one of the first economists, we may ask ourselves what would happen if, overnight, some good fairy slipped into pockets, purses, and bank vaults, and doubled our supply of money. In our example, she magically doubled our supply of gold. Would we be twice as rich? Obviously not. What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor, and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its new-found wealth, prices will, very roughly, double--or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods.

Thus, we see that while an increase in the money supply, like an increase in the supply of any good, lowers its price, the change does not--unlike other goods--confer a social benefit. The public at large is not made richer. Whereas new consumer or capital goods add to standards of living, new money only raises prices--i.e., dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value. Other goods have various "real" utilities, so that an increase in their supply satisfies more consumer wants. Money has only utility for prospective exchange; its utility lies in its exchange value, or "purchasing power." Our law--that an increase in money does not confer a social benefit--stems from its unique use as a medium of exchange.

You can download it for free here.

Brown did not respond to this or the earlier version, because she never read the book. She read only the following section, which another author quoted. Then she changed it. She decided that what Rothbard wrote was not what she wanted to respond to. So, she tampered with the quotation. She inserted a something else: [monetary]. This is considered legitimate in academia when you are clarifying another person's concept. But she was not clarifying a concept. She deliberately dropped a word: gold-. Rothbard wrote "gold-unit." She substituted "[monetary] unit" for "gold-unit."

This is called "putting the shuck on the rubes." Her readers are the rubes. Here is the altered passage.

We come now to the startling truth that it doesn't matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness, of its [monetary] unit. There is no need whatever for any planned increase in the money supply, for the supply to rise to offset any condition, or to follow any artificial criteria. More money does not supply more capital, is not more productive, does not permit "economic growth." [Web of Debt, p. 153]

This appears in the 1964 first edition of the book, on page 13.

When I first read this book 45 years ago, I marked this passage, and only this passage. I put an exclamation point here: "it doesn't matter what the supply of money is." He put these words in bold face in the original edition. I recognized at the time that this was the central sentence in the whole book. I had read Rothbard's monetary theory two years before: Chapter 11 of Man, Economy, and State. That was why I instantly recognized this as his central insight.

If Ellen Brown wanted to refute Rothbard's theory of money, this was the correct passage to select. She tried -- but not very hard.

First, she did not read his book before she wrote her book. She got this brief extract, as her footnote indicates, from G. Edward Griffin's book, The Creature from Jekyll Island. There is nothing with this practice, just so long as you do not subsequently refute the author's entire thesis (62 pages) based on one section in one paragraph, and also substitute your preferred word for his.

Second, here is her response:

That was the theory, but in the Great Depression it clearly wasn't working (p. 153).

That's all? That's all.

Nowhere in her book does she again respond to Rothbard's monetary theory or Austrian School monetary theory in general.

Her 519-page book is one long attempt to justify government issuing of fiat paper money -- the need to increase the money supply for economic growth -- yet she does not attempt to explain why Rothbard was wrong. This is not scholarship. This is an untrained non-economist's attempt to put the shuck on the rubes.

Third, Rothbard wrote a book in 1963, America's Great Depression, in which he argued in great detail that it was the Hoover Administration's interference with prices -- preventing price decreases -- that caused the Great Depression. The government did not allow businesses to lower prices in order to clear the market of unsold goods and services. Ellen Brown never refers to this book. You can download it for free here

So, for her to say that the depression disproved Rothbard is preposterous. A year before his book on money was published, he had explained in detail why the Great Depression did not end. The free market was not allowed to respond to a contracting money supply by lowering prices.

Fourth, she never once offers a theoretical argument to refute his theoretical argument. Yet her entire book is premised on the assumption that his argument is wrong. She never tries to explain why Rothbard's theory is wrong.

This is pretending that you don't see the elephant in the bedroom. You desperately hope that the guests in the living room don't wander into the bedroom.

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm


Printer-Friendly Format
 Tip of the Week
Sign up for my free
Tip of the Week
Verification Characters:    Type     W  F  R  S  M     here   


Tip of the week archives
On what this icon
means, and how it
can help you,
click here
 Q & A Forums
General Q&A Forum
Advertising and Resumés
Affiliates
American History Topics
Backyard Food Gardening
Banking and Politics
Blog Sites and Web Sites
Books Worth Reading
Bumper Sticker Slogans
Business Forum
Buying Smart
Christian Service Forum
College -- The Cheap Way
Copywriting
Education Alternatives
Food Storage
For Women Only
Fukushima
GNC Benefits
GNC Testimonials
Gold and Silver
Great Default Forum
Health and Diet
Health Insurance
Homeschooling
Investments Forum
Iran War
Job, Calling, and Career
Leadership Development
Legacy Building
Less Dependent Living
Local Political Action
Non-Retirement Forum
One Good Idea
Police State
Privacy
Public Speaking
Real Estate Forum
Remnant Review Forum
Safe Places Forum
Taxation Policy
Typographical Errors
Video Production Basics

 Archives
Reality Check
 Discussion Forum
Search Discussion


Recent Forum Posts
• insurance
• Foreigners Stop Buying Treasury IOU's
• Technical Analysis
• Blood Moons Tetrad
• 60 mins piece, stock market rigged! Why Invest.
• 60 mins piece, stock market rigged! Why Invest.
• Sean Hyman Absolute profits secret calendar
• Investment Portfolio - Inverse Funds
• DowJones Ind Avg is a hoax
• Digital textbooks
• Joint Venture Oil & Gas Investing
• Trading Or Gambling?
• 5 year return on investment in Stock Market
• Bottom for Mining Stocks?
• Home Equity Loan for investment
• RIch Buy Real Estate, Poor Want Gold
• HUD bringing a bit of Chicago to Dubuque
• Buying a home/ putting it in child's name
• CNNFN Rent rate tool
• proposed elimination of 1031 exchange
• Business card for real estate
• Buy rentals in NW Indiana
• Market and Timing
• Housing Advice Sought...
• Too many Eggs in one basket???
• edit
• Sit On Two Mortgages?
• Motivated sellers
• Recommendations for Pre-Approval for Mortgage?
• Rental properties in hurricane country
• Middle Class squeezed out of Chicago
• An Article on Chile
• 5 Amazing, Cheap Places to Live as an Expat
• Oil Field Job Security
• Moving to TriCities Area
• PJ ORourke on the Baby Boom
• Is Vegas DOOMED?
• Mint.com
• Second Passport- Mexico?
• Radiation dangers to US,World Confirmed
• Safety in numbers? Questions…..
• Best in Asia?
• Simple Exercise
• Coming to an airport near you ...
• S.W. New Mexico not looking so safe...
• I take it Retirement Armageddon is not available
• Post Retirement Career
• Social Security - when to start collecting
• 401K Risk
• Detroit Retirees Fight 83% Health Care Cut
• Lump Sum Early DROP
• Underfunded pensions
• 401k strategy
• Can I Avoid Medicare Entirely?
• Looking for a Financial Planner/CPA
• How to calculate retirement needs
• Two IRA questions:
• Rentals
• Why?
• Teaching in non-retirement
• Christian Nation novel
• On Law Enforcement and Government
• MC = MR: True but useless?
• Ruppert Article
• Up from Slavery
• Don't accuse customers of cheating
• Constantine's Sword: The Church and the Jews
• Money Banned
• Question about gold not being ultimate asset
• Gary has wisdom
• help finding a decent rehab center
• Rodent Congressmen
• Evernote and Moleskine team up to create smart bus
• Up Credit Limit on Card?
• New study warns on effects of wireless technology
• free service?
• How to quit my full-time job
• Fair joint ventures?
• Intern to Equity Holder
• Oil field business ideas?
• Turning Over Tables on Craigslist
• This might be crazy. Maybe not. I don't know.
• Best Ways of Starting an Online Business
• Copyright Law for Textbook Problems
• Help Needed with Music Appreciation Course
• Engineer starts rubber band braclet business
• Is my USP unappealing?
• Startup of a Daycare
• Last payment
• Employee Death