The Daily Bell features a wide-ranging and engaging interview with Richard Ebeling, Professor of Economics at Northwood University. Ebeling is one of the leading scholars in the history of Austrian economics, especially the works and thought of Ludwig von Mises. and has written voluminously in the area. Ebeling is also a key figure in the development of modern Austrian economics and was present at the South Royalton conference in 1974, which marked the rebirth of the Austrian school. He will be participating in the celebration of the 40th anniversary of the South Royalton conference that will be held in March at the Austrian Economics Research Conference. Here are two sample passages from his interview. The first is on the operation of a gold standard under free banking:
A gold standard works on the “rule” that any currency outstanding is meant to be a circulating substitute and claim to a quantity of gold deposited in a bank or other financial institution for safekeeping. Any additions to the paper currency in circulation (or other bank deposits representing that currency in exchange) are only supposed to come about as a result of net additional deposits of gold into the banks of that country. And any net withdrawals of gold deposits are to be accompanied by a decrease in the number of currency notes in circulation. Money substitutes in the form of checking and other similar banking accounts are to expand and contract only as a parallel reflection of changes in the quantity of gold (or silver) money kept in the banking system. This, in principle, precludes the government from just arbitrarily changing the quantity of paper money in circulation to serve its own political policy purposes.
Thus Ebeling adopts the Currency School-Mises position on free banking. This holds that freedom of entry into the banking business and freedom to issue bank notes and deposits without the imposition of a legal reserve ratio will result in a situation in which banks will only emit additional notes and deposits in exchange for the receipt of an equivalent amount of gold coin and bullion from depositors. This in effect means that free banking will tend toward the suppression of all further issue of fiduciary media, that is, unbacked notes and deposits. Ebeling also defends Mises’s position on cyclical price deflation, pointing out that it is a necessary part of the readjustment of the economy after an inflationary boom:
When the inflationary boom phase of the business cycle ends, it is inevitable that some if not many prices may have to fall “back down to Earth.” That is, price may have to correct to that post-boom reality of actual non-inflationary supply and demand conditions. Thus, when the housing bubble burst, many housing prices inescapably went bust. This, too, should be understood as part of any healthy self-correcting market rebalancing and readjustment. Thus, a degree of price “deflation” is always likely to be part of the recovery period of the business cycle.
The interview is chock-full of such lessons and richly rewards a careful reading.
