Detlev Schlichter of Paper Money Collapse has consistently generated insightful articles about the contemporary economic scene through the lens of the Austrian school of economics. His article from yesterday, “U.S. Republicans introduce gold standard debate – mainstream media go mental“, was brilliant. What struck me was two points that he made.
The first point was the importance of understanding that injections of money and credit into the economy by central banks must occur at specific points. The notion that such injections are uniform throughout the economy is one of the more persistent economic fallacies. Schlichter notes, “… an inflow of new money will not lift all prices simultaneously and by the same extent but some prices more than others and some sooner than others.” I stressed the same point in Why Inflation Is Immoral where I quoted a passage from Rothbard’s The Mystery of Banking, which was published in 1983. Mises made the same point in The Theory of Money and Credit that was published in 1912. Schlichter points out that Richard Cantillon was probably the first to make this point in the first half of the 18th century.
The second point ties in with the first by Schlichter’s citation of the contributions of Richard Cantillon to economic theory. While the biases of the English speaking world refer to Adam Smith as the founder of economics, the Austrians have emphasized that this notion is entirely incorrect. There were many penetrating insights made well before Adam Smith. Indeed, Cantillon has been acknowledged by the Austrian school as a proto-Austrian. Schlichter explicitly reminds us of this by showing that Cantillon’s economic thought regarding the decrease in the purchasing power of money was far in advance of the naive, simplistic views of the mechanical monetarist school as espoused by all too many of today’s economists.
I encourage all who are interested in outstanding economic commentary and insights read Detlev Schlichter’s works on his blog Paper Money Collapse.