Ludwig von Bernanke
By Bryan Caplan
Where did Ludwig von Mises say the following?
[T]he U.S. government has a technology, called a printing press… that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
Actually, Mises didn’t say it. It comes from Ben Bernanke, new chairman of the CEA. But there is absolutely nothing in this quote that Mises could not have written. And yet, in the latest issue of the Free Market (June 2005; article available online here), Lew Rockwell uses this quote to convince readers that the appointment of Ben Bernanke is the Number One “economic error” of the Bush administration.
Consider: Bernanke says that the U.S. government can freely raise prices by printing more money. Bernanke says that deflation is extremely unlikely given this fact. Bernanke suggests that we are always likely to see positive inflation given paper money. If these claims show that Bernanke is, as Rockwell calls him, the “sort of crank who becomes famous in history for having destroyed whole countries,” I daresay the Ludwig von Mises Institute needs to distance itself from the “crank” for which it is named – because Mises could have endorsed Bernanke’s quote in its entirety.
I was a student of Ben Bernanke at Princeton, and he was by far the best teacher and most impressive mind I encountered there. He is not a dinosaur Keynesian left over from the 60’s, or an idiot savant math whiz. Bernanke is a macro theorist who knows an enormous amount of economic history, and an empirical economist interested in wise policy.
I don’t know if Bernanke’s intellectual prowess will enable him to improve upon Bush’s economic policies. I suspect he is mostly a fig leaf for Bush’s economic illiteracy. But it is absurd to suggest that Bernanke plans to launch a hyper-inflation. He has a firm grip on the ephemeral benefits and long-run dangers of inflation. In fact, he has long been sympathetic to inflation targeting. The idea is simple: Have central banks aim for a low, constant inflation rate, rather than pursuing a laundry list of amorphous goals. It’s not free banking, which I’d prefer, but Bernanke’s inflation targeting would have precluded most of the bad things central banks have done this century.
I mentioned that Bernanke knows his economic history. Given his Misesian view of inflation, it is not surprising that he has a Rothbardian take on the Great Depression. I kid you not. Bernanke is part of the wave of modern macroeconomists who finally noticed what Rothbard pointed out to his uncomprehending colleagues forty years ago: Wage floors make unemployment worse, especially in the face of a monetary contraction. Price floors have a similar effect. In Bernanke’s own words:
Examples of interventionist measures by the French government included tough agricultural import restrictions and minimum grain prices, intended to support the nominal incomes of farmers (a political powerful group of debtors); government-supported cartelization of industry, as well as import protection, with the goal of increasing prices and profits; and measures to reduce labor supply, including repatriation of foreign workers and the shortening of workweeks. These measures (comparable to New Deal-era actions in the United States) tended to block the downward adjustment of wages and prices. (Bernanke, Ben. 1995. “The Macroeconomics of the Great Depression: A Comparative Approach.” Journal of Money, Credit, and Banking 27, pp.24-25)
In case it isn’t obvious to you, context makes it clear that he firmly disapproves of policies inhibiting the market’s adjustment.
Bernanke is admittedly a mainstream economist – and I’m not. I’m sure we’d disagree on a great many issues. But at the same time, he is living proof that the mainstream of economics has vastly improved since the dark days of the 60’s. Bush’s Number One economic mistake is not appointing Bernanke to head the CEA. In fact, Bush’s Number One economic mistake is a lot more likely to be habitually ignoring the advice of the excellent economist he appointed.