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(Banking Reform - Monetary Reform) - '..The Theory of Money and Credit .. an invaluable guide for ending the business cycles of our own time.'

Posted by ProjectC 
'..what Ludwig von Mises showed in The Theory of Money and Credit and then in even greater detail in his master work, Human Action, was how the harmony and coordination of the competitive, free market can be thrown out of balance through the monetary central planning of governments and central banks.

First under a weakened gold standard and then under systems of purely government-controlled paper monies, central banks have the ability to create the illusion that there is more savings available in the economy to sustain investment-oriented uses of scarce resources in the society than is actually the case.

..

The current boom-bust cycle through which the U.S. and the world economy has been passing for over a decade now, has shown the real world application and logic of what Mises demonstrated in
The Theory of Money and Credit decades ago, and why reading and learning from this true classic of monetary theory and policy still offers an invaluable guide for ending the business cycles of our own time.'


'Money and the Savings-Investment Process

Money not only facilitates the exchange of goods and services in the present — currently-available apples for currently-available bananas — but also makes easier and possible the exchange and transfer of goods and their uses over and across time.

..

Like all other prices on the market, the rates of interest on loans coordinate the choices of savers with the decisions of borrowers so to keep supplies in balance with demands for either consumer goods or future-oriented investment goods.

In principle, there is nothing to suggest that within the free market economy itself, there are forces likely to bring about imbalance or discoordination between the choices and decisions of those trading in the marketplace. This remains true either for consumer goods in the present, or for savings in the present in exchange for more and better goods in the future through informed and successful investment by profit-oriented entrepreneurs.

Central Banks as the Cause of the Business Cycle

But what Ludwig von Mises showed in The Theory of Money and Credit and then in even greater detail in his master work, Human Action, was how the harmony and coordination of the competitive, free market can be thrown out of balance through the monetary central planning of governments and central banks.

First under a weakened gold standard and then under systems of purely government-controlled paper monies, central banks have the ability to create the illusion that there is more savings available in the economy to sustain investment-oriented uses of scarce resources in the society than is actually the case.

..

An economic recession, therefore, is the discovery period of misallocations of scarce resources in the economy that requires a rebalancing and a recoordination of supplies and demands for a return to market- and competitively-determined harmony in the society’s economic activities for long-run growth, employment, and improved standards of living.

The current boom-bust cycle through which the U.S. and the world economy has been passing for over a decade now, has shown the real world application and logic of what Mises demonstrated in The Theory of Money and Credit decades ago, and why reading and learning from this true classic of monetary theory and policy still offers an invaluable guide for ending the business cycles of our own time.

Richard M. Ebeling, Why The Theory of Money and Credit Is More Important Than Ever, November 8, 2014


'But the uniqueness and the crucial importance of Mises’s challenge to socialism is that it was totally unrelated to the well-known incentive problem. Mises in effect said: All right, suppose that the socialists have been able to create a mighty army of citizens all eager to do the bidding of their masters, the socialist planners. What exactly would those planners tell this army to do? How would they know what products to order their eager slaves to produce, at what stage of production, how much of the product at each stage, what techniques or raw materials to use in that production and how much of each, and where specifically to locate all this production? How would they know their costs, or what process of production is or is not efficient?'

'Mises and the Calculation Problem

None of this would have surprised Ludwig von Mises. Decades before, Mises had shown that a socialist economy (by which he meant a centrally planned economy) could not possibly know what to produce, when to produce it, or for whom to produce. In explaining this, Mises proved that the Soviet Union, regardless of any victories it might have in remolding human nature, was economically impossible. Rothbard explains:
Before Ludwig von Mises raised the calculation problem in his celebrated article in 1920, everyone, socialists and non-socialists alike, had long realized that socialism suffered from an incentive problem. If, for example, everyone under socialism were to receive an equal income, or, in another variant, everyone was supposed to produce “according to his ability” but receive “according to his needs,” then, to sum it up in the famous question: Who, under socialism, will take out the garbage? That is, what will be the incentive to do the grubby jobs, and, furthermore, to do them well? ...

But the uniqueness and the crucial importance of Mises’s challenge to socialism is that it was totally unrelated to the well-known incentive problem. Mises in effect said: All right, suppose that the socialists have been able to create a mighty army of citizens all eager to do the bidding of their masters, the socialist planners. What exactly would those planners tell this army to do? How would they know what products to order their eager slaves to produce, at what stage of production, how much of the product at each stage, what techniques or raw materials to use in that production and how much of each, and where specifically to locate all this production? How would they know their costs, or what process of production is or is not efficient?

Mises demonstrated that, in any economy more complex than the Crusoe or primitive family level, the socialist planning board would simply not know what to do, or how to answer any of these vital questions. Developing the momentous concept of calculation, Mises pointed out that the planning board could not answer these questions because socialism would lack the indispensable tool that private entrepreneurs use to appraise and calculate: the existence of a market in the means of production, a market that brings about money prices based on genuine profit-seeking exchanges by private owners of these means of production. Since the very essence of socialism is collective ownership of the means of production, the planning board would not be able to plan, or to make any sort of rational economic decisions. Its decisions would necessarily be completely arbitrary and chaotic, and therefore the existence of a socialist planned economy is literally “impossible” (to use a term long ridiculed by Mises’s critics).

The Soviet central planners never had an answer to this critique. Indeed, their “answer” only came in 1991 when the USSR finally shut itself down. And even up to the end, American Keynesians never figured it out either, and Paul Samuelson still claiming in 1989 that a “socialist command economy can function and even thrive.”

The answer can be found in the fact that even in a centrally planned state, capital does not simply vanish overnight. The soviet planners were not starting with nothing. They had the accumulated capital of centuries of savings and investment by Russians, Ukrainians, Germans, Poles, and others under their control.'


- Ryan McMaken, The Economics Behind the Fall of the Berlin Wall, November 7, 2014


Context (Haptopraxeology) - '..We have lost three centuries as a result of ignoring our scholars!'

How Saving Grows the Economy

Markets Are About Much More Than Material Goods

'..the theorem of the economic impossibility of socialism .. is fully applicable to central banks..' - Jesús Huerta de Soto


Entrepreneurship - '..the calculation problem is much more general than has usually been realized.' - Dr. Peter G. Klein

A Prophet Without Honor in His Own Land - By Bettina Bien Greaves

'..monetary knowledge .. of currency reform under difficult conditions you have to go to Carl Menger.'


'Freedom is never more than one generation away from extinction.' - Ronald Reagan

(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'