'..the system as such is very rarely questioned..' - '..the widespread public ignorance of the functioning of the financial system.'

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'..why the system as such is very rarely questioned in the mainstream press or by mainstream economists..'

<blockquote>'It should be clear that today's political class and the banking cartels led by the central banks would never consider the adoption of a sound market-based money voluntarily. Too many 'free lunches' would be at stake for those profiting from the system. An enormous shift in economic and political power would result. Governments would have to shrink dramatically and central economic planners and their myriad advisers and intellectual handmaidens would all be out of a job. Banks would find credit expansion more risky and difficult. In short, from the point of view of today's bureaucratic and intellectual elites, the idea of voluntarily adopting a sound market-based money is ruled out completely. To them it is undoubtedly the most toxic subject imaginable.

This is also why the system as such is very rarely questioned in the mainstream press or by mainstream economists. It is a topic that is not even up for debate – everybody proceeds as though it were perfectly normal that money and interest rates are subject to central planning. The only debates revolve around how to 'improve on the plan', not on whether it might actually be better to abandon the plan altogether. If a mainstream economist were to suggest that central banks and fiat money should be abolished, it would be akin to farting in church.

So in this sense, Davies' article may be regarded as one of those 'how the inflationary policy might be improved' missives (even though he is personally not in favor of the proposal). It calmly discusses the possibility that central banks might indeed agree to cancel the government debt they hold in order to 'ease fiscal pressures' and 'boost the economy'. We will look at a few excerpts from the article in below and add our comments.


..Davies falls prey to another error. This is actually an argument frequently forwarded by the chartalists as well (or proponents of 'MMT' as it is called today) – he denies that there is a fundamental difference between money and credit instruments..'

- Acting Man, Armchair Planners Plotting Monetary Conflagration, October 18, 2012</blockquote>

'The “gag rule” which has generally been imposed on the Austrian theory of the business cycle is highly significant, as is the widespread public ignorance of the functioning of the financial system..'

<blockquote>'Furthermore it should be obvious that such cycles perpetually recur due to an institutional cause, one capable of accounting for this inherent behavior of (hampered) market economies. As we have been arguing from the beginning of chapter 1, the cause lies in the privilege granted to bankers, allowing them, in violation of traditional legal principles, to loan out the money placed with them on demand deposit, thus operating with a fractional reserve. Governments have also taken advantage of this privilege in order to obtain easy financing in moments of difficulty, and later, via central banks, to guarantee easy credit terms and inflationary liquidity, which until now have been considered necessary and favorable as a stimulus of economic development.

The “gag rule” which has generally been imposed on the Austrian theory of the business cycle is highly significant, as is the widespread public ignorance of the functioning of the financial system. It is as if the two corresponded to an unspoken strategy to avoid change, a strategy which may originate from the desire of many theorists to maintain a justification for government intervention in financial and banking markets together with the fear and awe most people feel at the idea of confronting banks. Thus we conclude with Mises:

<blockquote>For the nonmonetary explanations of the trade cycle the
experience that there are recurrent depressions is the pri-
mary thing. Their champions first do not see in their scheme
of the sequence of economic events any clue which could
suggest a satisfactory interpretation of these enigmatic dis-
orders. They desperately search for a makeshift [explana-
tion] in order to patch it onto their teachings as an alleged
cycle theory. The case is different with the monetary or cir-
culating credit theory. Modern monetary theory has finally
cleared away all notions of an alleged neutrality of money.
It has proved irrefutably that there are in the market econ-
omy factors operating about which a doctrine ignorant of
the driving force of money has nothing to say. . . . It has been
mentioned already that every nonmonetary explanation of
the cycle is bound to admit that an increase in the quantity
of money or fiduciary media is an indispensable condition
of the emergence of a boom. . . . The fanaticism with which
the supporters of all these nonmonetary doctrines refuse to
acknowledge their errors is, of course, a display of political
bias. . . . [T]he interventionists are . . . anxious to demon-
strate that the market economy cannot avoid the return of
depressions. They are the more eager to assail the monetary
theory as currency and credit manipulation is today the
main instrument by means of which the anticapitalist gov-
ernments are intent upon establishing government omnipo-
tence. <sup>118</sup></blockquote>

- Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles (Third edition, 2012), page(s) 605 & 505

<font size="-1">118 Mises, “Fallacies of the Nonmonetary Explanations of the Trade
Cycle,” in Human Action, pp. 580–82.</font></blockquote>


<blockquote>(Monetary) bureaucracy - '..our organizations are .. hostages to an ideology that is, in a real sense, inhuman.'

(Electric Universe) - '..History speaks only to those people who know how to interpret it on the ground of correct theories.' - Mises</blockquote>