Economists typically treat government as something outside the business realm, a sort of “Lord of the Manor”. Richard Wagner argues that this is the wrong approach and can ultimately be destructive to capitalism and to society.
Subjectivism and the Austrian School of Economics
This book clarifies the specific nature of the Austrian theory and restores the unity and open-mindedness of the Austrian school in general. The intention is not to offer a collection of different or parallel ideas, but rather to retrace, from a pedagogical and constructive perspective, the various stages of the construction of a well-founded theoretical edifice: from Ludwig von Mises to Murray Rothbard, from Friedrich Hayek to Israel M. Kirzner and from Lachmann to Lavoie. The book is a reconstitution of the way Austrian ideas and concepts organize themselves in a common structure.
This book tackles a number of controversial questions regarding Sweden’s economic and political development: • How did Sweden become rich? • How did Sweden become egalitarian? • Why has Sweden since the early 1990s grown faster than the US and most EU-countries despite its high taxes and generous welfare state? The author uses new research on institutions and economic reforms to explain the rise, the fall and the recent revival of the Swedish welfare state. The central argument is that a generous welfare state like Sweden’s can work well, provided that it is built on well-functioning capitalist institutions and economic openess.
A devaluation is a change of the exchange rate decided by monetary authorities in an exchange rate system in which the exchange rate ought to be fixed. The consequences of a devaluation are different according to the initial situation when it is decided. If there is initially a monetary equilibrium, the devaluation creates a disequilibrium and an adjustment takes place mainly thanks to international monetary flows. If there is an initial disequilibrium, it is generally because monetary authorities in a country have not been respectful of the normal ‘rules of the game’ of a fixed exchange rate system, according to which the central bank should adjust its monetary policy to changes in its reserves of foreign currency (or gold, in a gold standard). In such a case a devaluation is intended to cure the disequilibrium, at least if the new exchange rate can be considered as an equilibrium exchange rate.
The history of the evolution of monetary systems in this chapter is, more or less, a rebuilding of history in a logical and theoretical way. But it appears that, quite often, this ‘invented’ history is close to the real one. Starting from the case of a barter economy, it describes several steps in the evolution of monetary systems: invention of a commodity currency (for instance, gold), issue of banknotes with 100 per cent reserves, fractional reserves, creation of hierarchical systems with a central bank, monopoly of the central bank in the production of banknotes, and so on.
Under a gold standard the producers of money give a convertibility guarantee at a fixed price in terms of gold. In modern monetary sytems such an international reference money no longer exists, so that convertibility guarantees are given in terms of one specific ‘national’ currency (for instance, the dollar in a dollar standard). In such systems there can be conflicting monetary and exchange rate policies. These problems and the ways to solve them are studied, first, in the case of a two-country model; and second, in the case of n countries and n currencies. In this latter case, there is what is called the ‘n_1 problem’, that is, the fact that all the monetary policies of the countries which belong to a system of fixed rates are dependent, except the monetary policy of one of them (there are n_1 dependent monetary policies).
Monetary policy must aim at curing possible monetary problems, but it is an illusion to believe that real problems (for instance, a low rate of real growth) can be solved by the use of monetary policy. Business cycles nowadays are mainly of monetary origin, as it has been stressed by the so-called ‘Austrian theory of the business cycle’. This theory explains how an excess of money creation and the corresponding excess of credit distribution by banks is creating distorsions in the structure of prices and the structure of production. Therefore, the harmful effects of an excess of money creation are not only inflation (implying costs which are studied in previous chapters), but economic distortions.
Monetary integration is usually viewed as implying the replacement of several national currencies by one single currency controlled by an international central bank (as is the case with the euro and the European Central Bank). However, a definition and evaluation of monetary integration cannot be made without referring to the roles of money which have been studied previously. It then appears that there are possible routes towards monetary integration other than the substitution of an international monetary system for national systems, namely competition betwen existing currencies, or even competition with newly invented private currencies (such as those which are appearing nowadays).
The international monetary system, and the disparate systems that make it up, are complex and there are many fallacies surrounding the ways in which they work. This book provides a clear and rigorous understanding of these systems and their possible consequences.