Ferguson Must Study Mises

Yesterday, I had linked to an article by Niall Ferguson titled “America: The Fragile Empire,” where he predicts that this Evil Empire might end soon. He ends this article with the words, “Washington, you have been warned.”

It is a lucky coincidence that I have only just finished reading Niall Ferguson’s bestseller: The Ascent of Money: The Financial History of the World. I enjoyed the many interesting facts he has recounted in riveting prose but, overall, I must say that he is the typical example of an economic historian who is not equipped with the exact praxeological theories with which to “understand” – or verstehen – all the numerous facts he has accumulated.

He begins well, showing how all the silver in Potosi did not enrich the Spaniards. But then he falters, recounting the history of government bonds – perpetual irredeemable debt – as something “good.” He does not see this financial development as something horrible, and the cause of wars and capital consumption – as I had pointed out, quoting Mises, in a previous post. I further elaborated on this in another post.

Ferguson seems to be a Chicago School man – he quotes Milton Friedman often, and cities the Friedman-Schwartz history of the Great Depression as the final word on the subject: that the US Fed did not do enough. He quotes many US Fed chairmen with approval, and seems to be, like the Chicago School types, a believer in a role of the State in providing money. He quotes Keynes often. The only Austrian he cites is his fellow Harvardian, Joseph Schumpeter; that too, on the concept of “gales of creative destruction.” Yawn.

In this book, the story of the US mortgage scam is well told, as is the story of the quantitative economists who ran Long Term Capital Management into the ground. He shows how their silly formulae did not work. Yet, he seems to be blissfully unaware as to how markets actually work.

In one important chapter of the book, on housing, he is actually wrong: he discredits Hernando de Soto’s emphasis on clear property titles and favours “micro-credit” instead. The latter is just a joke; another scam. I have met innumerable street vendors who are perfectly happy with the informal credit networks that sustain them. And here is an article on an Indian champion of clear property titles, DC Wadhwa. This gent had an interesting article in my copy of the Indian Express of yesterday, but the website does not carry it as yet. So this is an area where I am in complete and total disagreement with Ferguson.

But to be fair to this Harvard historian, he seems to be “getting there.” He seems to have realized that something is terribly wrong with the Anglo-Saxon financial system which dominates the world of today. He talks well of the gold standard years, of that phase of globalization, and Gladstonian liberalism. More than that, as his article citied above shows, he seems to have arrived at the conclusion that time has run out for the Bretton Woods system, and the empire run on fiat US dollars.

I suggest some reading for Ferguson, who does not claim to be an economist. I suggest he carefully study the chapter on “Indirect Exchange” in Ludwig von Mises’ Human Action; A Treatise on Economics – PDF here. This is Chapter XVII.

I also suggest he carefully study a book that Mises wrote titled Theory and History, (pdf here) and how they must complement each other as we seek to study “human action.” In particular, he must study the central idea of verstehen in historical studies. He is young. He has much to learn. And he is getting there. All the best, Niall.