Wednesday, April 13, 2016

Why does it feel like many Austrians give a pass on money destruction?

So I just graduated with my BA in econ last December. I have been a fan of Austrian related topics since I was in my late teens. (I am 34 now) I was reading The Creature from Jekyll Island etc. I am familiar with most of the arguments and probably have a solid 500-1000 hours spent listening to lectures from various Mises Academy events, podcasts and whatever else I could scrounge up from the Mises website. A hint to everyone out there who hasn't gotten to listen to Robert LeFavre, his lectures are a true treasure. However I feel like the only side that is stressed in most lectures is the money creation side and the inflation caused by artificially low rates by the FED. When I learned that the repayments on loans lower the money supply, I was shocked. Through simple loan creation there is potential for both problems at the same time, inflation and deflation, because they are two sides of the same coin. Because a loan repayments decrease the money supply, more and more loans need to be created to keep that same money supply. This leads me to think that over time as prices increase to coincide with the larger and larger money supply, we would have problems as debt matures and a loan repayment starts paying back larger and larger amounts of the principle than it did before. Furthermore I feel like we would reach psychic "peak debt" type of level where we just no longer want to service a larger debt burden anymore. Thus, at that point things would start to collapse as well. I feel like this is a separate problem then just the capital based macro arguments that an economist like Roger Garrison would make. (by the way I love Roger Garrison's work. He is one of my favorite economists.) This isn't really a criticism of his 3 quadrant model ( which I love) but I am wondering if his model and the capital arguments are inclusive of the money creation/destruction problem or not. For example, the capital arguments seem to run along the lines of capital structure gets artificially lengthened through artificially low rates giving improper signals to entrepreneurs but the subsistence fund basically ends up being to small to support the production structure. Does this include the monetary element?

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