Friday, May 6, 2011

A trap for fiscal conservative: the chicago school of economics & Milton Friedman

Say you have 2 systems, one virtues and just (say system A) while the other not so (say system B). If the other system (B) gives tremendous profits to some corporations, which system do you think such corporations will try to promote and keep? This other system B isn't it? ...
Well, it is obvious to me that central banking (which always lead to fiat paper money by the way) provides much more wealth and profits to the banking industry, most specifically those banks controlling such central bank. Consequently, that such banking cartel would do whatever they can to keep such system is easy to imagine.
Central Banking allows government to easily grow, spend and increase their debt, which in turns provides the constant flow of money under the commercial bank's fractional reserve pyramid to keep providing loans to the general public. When such system is initially tied to gold, it will inevitably detach itself from it when more money has been printed than there was gold (as FDR has proven with Executive Order 6102 and again with Nixon in August 1971, so called Nixon Shock).

An economist that is well received by the majority of the people on the left is John Maynard Keynes for which his economic views have been called "Keynesian economics". This calls for the government to start spending in downturn (when the fractional reserve banking inverse pyramid collapse - see my previous post
Growing the government, particularly in socialism programs isn't the call that the fiscally conservatives would make and hence, they would turn to another economic view. The Austrian school of economics (promoted by such web site has the Mises Institute would have been a good answer since it asks for small government and free market capitalism. Any government regulations and interventions would be interfering with the free market and will results with more issues. In fact, most issues we see today where the media blames the free market actually happens because of one or more government regulation or intervention. The problem for the banking cartel is that the Austrian school also promotes free market money and banking, where there is no such monopoly of money by a central bank fixing interest rates. Although it is speculations from my part, knowing how much financial impact the banking cartel has on the educational community, I believe they knew a wall had to be mounted to keep the Austrian school in the trench views.

To attract fiscal conservatives away from such economic school, the creation of another economic school still promoting free market in everything but money and still promoting small government and anti-socialism views would be ideal. As long as the central banking scheme is left alone and allowed to print, the system can survive. Here comes, somewhere in the 1950s, the Chicago school of economics, inserting itself right between the Keynesians and the Austrian School. It was given such name because so many of the economists of this school were part of the department of economics of the University of Chicago. Note that although Wikipedia list Frederick Hayek as part of this movement, Hayek was part of the Austrian school of economics and in favor of a hard money/free market money. Milton Friedman is one of the most well known economist part of this school. He is the one who advised Nixon to go off the gold standard in 1971, so much for free market... but it does prove the Chicago school was no enemy of the banking cartel. Ironically, Friedman later mention regretting that call as it allowed the federal government to grow even more. What was he thinking?  To his defense, Friedman give several wonderful statements and debates in favor of free market and against socialism of which one of my favorite is the 4 ways to spend money:

So, my point is that I believe the banking cartel probably helped or is the originator of the Chicago school in order to dominate the "alternative" view to the pro-socialism-Keynesian view. If it wasn't there to provide such barrier - or wall - the major alternative would have been the Austrian school of economics with its anti-Central banking view. I think they succeeded since barely today anyone has heard of the Austrian school, even though it is even older than Keynesian economics  (which took main root in the 1930s). However, the latest financial debacles of this century's first decade has woken up a growing segment of the population who have decided to educate themselves more on this very fundamental issue of money, credit and central banking. In that process, they have learned about the Austrian school. If you haven't, start your wonderful journey at Recommended books are some by Robert P. Murphy, Thomas Woods or Peter Schiff.

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