Bob Murphy is anti-market (monetarism)

Bob Murphy has a comment on Market Monetarism on the Ludwig von Mises Institute website. Bob has been a fierce critic of Market Monetarism for some time and his views clearly deserves attention.

I will not go into a detailed discussion of Bob’s comments, but one thing I have always found rather puzzling about the Austrian view of monetary policy is to what extent it is anti-market. Bob and other Austrians are claiming that the present US monetary policy is highly inflationary. However, that is not what the financial markets are saying.

Bob Murphy’s big hero (and one of my big heroes as well) Murray Rothbard teaches us in Man, Economy and State that we can only observe people’s preference through their actions – what Rothbard terms demonstrated preferences. In a similarly way we can talk about a demonstrated expectations of monetary policy. Said, in another way market pricing is demonstrating to us whether monetary policy is loose or tight.

If there really was a massive risk of US hyperinflation (as the Austrians basically are arguing) then US bond yields should explode and the dollar should collapse. Furthermore, if investors truly were afraid about inflation then they would certainly not hold dollars. However, investors have basically never hoarded dollars like no time before. Hence, market participants are telling us that the US is not facing hyperinflation, but rather disinflation.

Either the markets are wrong or Bob Murphy’s analysis is wrong. I trust the markets…

Leave a comment


  1. Alex Salter

     /  October 7, 2011

    Money is too tight for the old 5%NGDP growth path. However there are multiple growth paths consistent with a dynamic monetary equilibrium. Why can’t the Fed announce a 2 or 3 percent growth target, level targeting? At the end of the day it makes little difference which number the Fed picks as long as expectations are right.

  2. Alex, I completely agree.

    I have myself been somewhat critical about for example Scott Sumner’s call for “monetary stimulus” and I don’t think that the important thing is to return to the old NGDP path, but rather the need for the Fed to announce a clear nominal rule. Bill Woolsey has forcefully argued in favour of a 3% growth target for NGDP, while Scott Sumner favours a 5% growth path.

    I would even go further in the sense that I think George Selgin’s arguments in “Less than Zero” for moderate deflation are very valid. That said, the implicit “contract” between the Federal Reserve and market participants and the wider public basically was a 5% NGDP growth path target.

  3. Benjamin Cole

     /  October 7, 2011

    Excellent blogging by Lars

    To paraphrase Friedman, Solow: Everything reminds Friedman of money, everything reminds Solow of sex, and everything reminds the Austrians of inflation.

    The Austrians have a perverted worship of gold, and an unhealthy fetish for zero inflation rates. They want the value of paper currency stored in monetary formaldehyde. From that position, they create platforms and commentary, but it all goes back to a demented, sickly obsession with gold and paper currency. Additionally, I sense the Austrians have involuntary arm spasms when they hear martial music.

    I cannot take their “policies” as workable in the modern world.

  4. Alex Salter

     /  October 7, 2011


    Just as it’s unfair to toss out one-size-fits-all characterizations of New Keynesians due to the diverse beliefs of those who self-identify as New Keynesian, it’s unfair to do the same regarding Austrians. Many economists sympathetic to market monetarism identify as Austrian or Austrian-influenced. ( I myself am a graduate student at George Mason University and have no problem identifying as Austrian.) In particular, there is a significant difference in worldview between Mises Institute Austrians and Austrians at GMU. Please don’t lump all Austrians under one heading; it’s ignorant at best and dishonest at worst.

  5. Alex, I would certainly agree with you view. There are clear difference among “Austrians”. I am personally influenced by Austrian thinking. Furthermore, some Free Banking theorists like Larry White would gladly say they are Austrian or Austrian inspired and the economics of the Free Banking school and the Market Monetarists in my view is very close.

    Furthermore, I think the difference between LvMI Austrians and GMU Austrians should be acknowledged.

  6. Benjamin Cole

     /  October 8, 2011

    Okay, I will confess I don;t know about the nuances of Austrianism, and I retract my comment about involuntary arm spasms (but it was funny).

    My point of view remains that inflation is a very tolerable good, up until about 5 percent. It helps with sticky wages, it helps deleverage, it helps give business people and real estate investors Dutch courage.

    Sure, inflation gyrations above 10 percent perhaps cause some problems,

    I guess what annoys me is the moralistic air adopted by so many gold nuts, and their worship of dead capital before active business and labor.

    I also see no recognition among Austrians that we may be in a period of global capital gluts. It may be necessary to boost demand, even consumer demand, by any means necessary, as opposed to helping capital formation. Sound odd, but heavy savings rates across Asia and Europe, and some global demographics, makes it so. We may have high savings rates regardless of interest rates or gold prices, as people need to save for retirement, college, economic security.

    Like I said, the Fed needs to release a picture of Ben Bernanke, with his hand on the lever of a printing press. The caption: :Think I can’t cause growth and inflation? Go ahead. Make my day.”

    Bernanke ought to print money until the plates melt. Crickey, we probably ought to toss bags of Ben Franklins out on the street at night.

  7. Dustin

     /  October 8, 2011


    “Furthermore, I think the difference between LvMI Austrians and GMU Austrians should be acknowledged.”


    Is it fair to say that GMU is more Hayek oriented, and LvMI is more Rothbard oriented?

    Just how good or bad was Rothbard? I saw Selgin write that Rothbard was a mediocre to poor monetary economist, or something like that.

    I was reading Man Economy and State at the time, and put the book back on the shelf! I wish Hayek had written a book similar to Human Action and MES.

  8. Dustin, LvMI is clearly very Rothbardian. In terms of GMU I would just say GMU is much dogmatic and therefore also more “welcoming” to Hayek.

    I remember reading George’s comment on Rothbard as well. Frankly, I think he was a bit to hard on Rothbard, but I do agree that Rothbard’s strength is certainly not his monetary theory.

    Man, Economy and State is certainly less of a fantastic book than for example Human Action and my general view is that Rothbard attempt to come up with his own version of a standard microeconomic textbook.

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