John Tamny has an unfortunate habit of criticizing Austrian economists by citing the legacy of Ludwig von Mises, when it is clear that Tamny doesn’t know what he’s talking about. Let me be clear: I am all for people criticizing Austrians; perhaps we’re suffering from a blind spot on some key issue, and only an outsider can set us straight. But it will confuse the general public about what Mises’ views actually were, when guys like Tamny continually write articles “explaining” Mises that are utterly wrong. One these pages, I’ve previously dealt with Tamny’s confused writings on banking–where he also argued that Mises would disavow current Austrian School economists–and in the present post, I’ll address his recent finger-wagging of David Gordon.
It all started when Gordon criticized the new book by Steve Forbes and Elizabeth Ames, arguing that they erroneously conceived of money as a “measuring rod” of value. This is an absolutely standard component of Austrian economics, and it comes straight from the mouth of Mises–as I’ll document soon.
Yet astonishingly, John Tamny then rushed to the defense of Forbes and Ames by arguing that Gordon was defying the teachings of Mises. (!) Moreover, Tamny actually got sarcastic in his response, and argued that the Forbes/Ames/Tamny position was self-evident, a tautology flowing out of the definition of money as a means to facilitate exchange. Let me here just quote a bit of Tamny’s piece to reassure the reader that I’m not misrepresenting him:
Last week Mises Institute senior fellow David Gordon reviewed Money, the book released last summer by Steve Forbes and Elizabeth Ames…What struck this writer [Tamny–RPM] as odd is that in lightly attacking Forbes and Ames, Gordon only succeeded insofar as he perhaps unintentionally revealed a strong disagreement about money with the intellectual father of the Institute which employs him, Ludwig von Mises.
Gordon has a problem with the Forbes and Ames assertion that money is merely a measure meant to facilitate exchange. Notable here is that the authors are simply stating what’s obvious, something that surely predates even Adam Smith (“the sole use of money is to circulate consumable goods”), that money isn’t wealth. It’s what we use to exchange actual wealth.
Rather than viewing money as a concept, meaning a measuring rod of value meant to foster the exchange of actual value, Gordon sees money as a floating commodity that is most useful when it’s scarce.…In short, Mises saw money just as Forbes and Ames do, as a measure that fosters the exchange of actual economic goods...Sorry, but per Mises’s very definition, money is most useful if its value isn’t changing; as in if it has the properties that are the opposite of the floating commodity-money that Gordon desires. Gordon surely knows this, at least implicitly.
I don’t mean to be histrionic about it, but for anyone who is intimately familiar with the work of Mises, the above musings from Tamny are simply breathtaking. It’s hard for me to come up with analogy to do it justice, but here goes: Imagine a scholar working for the Albert Einstein Institute wrote a blog post arguing that gravity actually reflected the curvature of space-time. Then someone writes a rebuttal in Forbes, saying, “This is an odd claim, because Einstein himself taught us that everything is relative. One man’s curvature is another’s straight line.” Well, that analogy probably won’t do much for most readers, but I tried…
Now I don’t want come off as too harsh on Tamny. This is a tricky and nuanced area, and one’s natural reaction against massive government inflation is to rush for refuge in the idea of a “stable” money. Nonetheless, it was Mises himself who taught me (through his writings of course) that the idea of stabilization in this sense is a chimera.
In a future post I’ll come back to this topic, and explain the proper way–consistent with Misesian theory–to think about the gold standard, government inflation, and the purchasing power of money. (If you’re dying of suspense, here’s Joe Salerno on these matters.) But for now, I just want to make sure that people realize Tamny really is horribly misreading Mises.
To that end, the rest of this post will consist of quotes I’ve grabbed from the Scholar’s Edition of Human Action. (Note that in his own response to Tamny, Gordon highlighted a clear statement by Mises from The Theory of Money and Credit.) Note in the page numbers that these span a large section; I’m not highlighting something that is a random footnote. This is actually one of the (minor) themes of the book, which is why it’s so shocking that Tamny could have gotten things backwards. Without further ado, here we go:
However, the spurious idea that values are measurable and are really
measured in the conduct of economic transactions was so deeply
rooted that even eminent economists fell victim to the fallacy implied.
Even Friedrich von Wieser and Irving Fisher took it for granted
that there must be something like measurement of value and that economics
must be able to indicate and to explain the method by which
such measurement is effected. Most of the lesser economists simply
maintained that money serves “as a measure of values.” (205)
The money equivalents as used in acting and in economic calculation
are money prices, i.e., exchange ratios between money and other
goods and services. The prices are not measured in money; they
consist in money…There is nothing in prices which permits one to
liken them to the measurement of physical and chemical phenomena. (218)
An outgrowth of all these errors is the idea of stabilization.
Shortcomings in the governments’ handling of monetary matters
and the disastrous consequences of policies aimed at lowering the
rate of interest and at encouraging business activities through credit
expansion gave birth to the ideas which finally generated the slogan
“stabilization.” One can explain its emergence and its popular appeal,
one can understand it as the fruit of the last hundred and fifty years’
history of currency and banking, one can, as it were, plead extenuating
circumstances for the error involved. But no such sympathetic
appreciation can render its fallacies any more tenable.
…All methods suggested for a measurement of the changes in the
monetary unit’s purchasing power are more or less unwittingly
founded on the illusory image of an eternal and immutable being who
determines by the application of an immutable standard the quantity
of satisfaction which a unit of money conveys to him…The layman,
laboring under the ideas of physics, once considered
money as a yardstick of prices….Eagerness to
find indexes for the measurement of purchasing power silenced all
scruples. Both the doubtfulness and the incomparability of the price
records employed and the arbitrary character of the procedures used
for the computation of averages were disregarded. (220-221)
In the field of praxeology and economics no sense can be given to
the notion of measurement. In the hypothetical state of rigid conditions
there are no changes to be measured. In the actual world of
change there are no fixed points, dimensions, or relations which could
serve as a standard. The monetary unit’s purchasing power never
changes evenly with regard to all things vendible and purchasable.
The notions of stability and stabilization are empty if they do not
refer to a state of rigidity and its preservation. (223)
The significance of the fact that the gold standard makes the increase
in the supply of gold depend upon the profitability of producing
gold is, of course, that it limits the govcrnment7s power to
resort to inflation. The gold standard makes the determination of
money’s purchasing power independent of the changing ambitions
and doctrines of political parties and pressure groups. This is not
a defect of the gold standard; it is its main excellence. Every method
of manipulating purchasing power is by necessity arbitrary. All
methods recommended for the discovery of an allegedly objective
and “scientific” yardstick for monetary manipulation are based on
the illusion that changes in purchasing power can be “measured.”
The goId standard removes the determination of cash-induced changes
in purchasing power from the political arena. Its general acceptance
requires the acknowledgment of the truth that one cannot make a11
people richer by printing money. (471)
Notice that last quotation in particular. It’s ironic because Tamny himself quoted from this very same part of the book, in his critique of Gordon. Yet Tamny completely misunderstood Mises’ views on gold. Mises was saying IT IS IMPOSSIBLE to maintain a constant purchasing power of money, because economic calculation ultimately translates back into subjective valuations, which by their very nature do not consist of cardinal units that can be measured. Nonetheless, Mises says that the gold standard is virtuous precisely because it keeps politics out of the game.
(For an analogy, you wouldn’t want political officials telling you whom you could date. That doesn’t mean that love is therefore measurable.)
In conclusion, I hope I’ve made an unassailable case that John Tamny had things completely backwards when he wagged his finger at David Gordon on the use of money as a “measuring rod” of value. I welcome Tamny’s future criticisms of today’s Austrians; it will keep us on our toes. Yet I implore Tamny to be more careful the next time he plans on telling the readers at Forbes and elsewhere “what Mises said on the subject.”