Does "Austrian Economics" predict inflation or deflation?
Steve Saville
321gold
The answer to the above question is no, meaning that "Austrian Economics" makes no prediction about whether the future will be inflationary or deflationary. That's why some adherents to "Austrian" economic theory predict inflation while others predict deflation. An economic theory can give you an idea of what will happen if certain policies are implemented; it doesn't tell you what will happen regardless of policy choices. To explain what we mean we will zoom in on two famous quotes of Ludwig von Mises, the most important economist of the "Austrian" school.
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The Fed is presently heading down the inflation path, but it doesn't have to stay on that path. A change of direction is possible.
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The gist is that if the inflation policy continues for long enough then a psychological tipping point will eventually be reached. At this tipping point the value of money will collapse as people rush to exchange whatever money they have for 'real' goods. Mises refers to this monetary collapse as the "crack-up boom". Prior to this point being reached it will not be too late to abandon the inflation policy.
Today, the US is clearly still in the first stage of the inflationary process. If it continues along its current path then a "crack-up boom" will eventually occur, but there is no way of knowing -- and "Austrian" economic theory makes no attempt to predict -- exactly when such an event will occur. If the current policy course is maintained then the breakdown could occur within 5 years, but it could also be decades away. In addition, there is still hope that policy-makers will wake up and change course before the masses wake up and trash the currency.
{I find this HIGHLY unlikely. I'd like to know if, throughout history, "policy makers" have ever "woken up" in time to prevent their fiat currencies from being trashed. I very much doubt it and think that the probability of such a sea change occurring this time approaches ZERO. Human nature is what it is, and when you're talking about humans en masse, their behavior becomes highly predictable.
The only way I'll be wrong is if a dictator takes the helm. There *IS* such a thing as a benevolent dictatorship. Wonderful things *can* happen at the hands of the right ruthless individual. Unfortunately, terrible things can happen too -- and far more frequently do. -De }
Full article: http://www.321gold.com/editorials/saville/saville082212.html
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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