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Final words (for now) on The Theory of Money and Credit

Posted By Kurt Schuler On November 27, 2012 @ 11:34 pm In Uncategorized | 16 Comments

Several writers of comments were in high dudgeon about my view that Ludwig von Mises's Theory of Money and Credit is a good but not a great book. I gave three reasons: (1) I had some criticisms of the book, which I made in my first post on the subject. (2) I do not think it stands out from the large body of important work on monetary economics produced by Mises's contemporaries, whom I listed in my second post on the subject and most of whom I have read. (3) After a century, the book's influence is negligible outside the Austrian School.

Some of the comments proposed that (2) and (3) were a kind of argument from authority. My only partly joking reply was that that I was not making an argument from authority, I was making an argument from thousands of authorities. In a mature discipline such as economics, and for many of its subfields, the amount that any one person can know -- really know, in the sense of having pondered and understood deeply -- is limited. Other than perhaps a few exceptional minds (who are unlikely to be spending their time blogging), we get most of what we know from accepting things on authority. If you have read The Theory of Money and Credit, for instance, but have not read Ricardo, the Currency School and Banking School writers of the 19th century, Wicksell, Knapp, and other writers Mises refers to, and you think Mises is correct about them and their ideas, you are accepting those views on his authority. If you have not read the contemporaries of Mises I listed in my previous post (many of whom Mises cites in The Theory of Money and Credit) you are also accepting on the authority of Mises, or maybe of Murray Rothbard or some later Austrian School writer, that they are not worth your while. You may be correct. I simply wish to point out that your judgement is not based on first-hand acquaintance with the material in question, but on authority.

Over time, a bit of work endures in influence and most does not. The Theory of Money and Credit is not influential today outside the Austrian School. Many thousands of minds, each an authority of greater or lesser degree, have determined the result. After a century during which the book has been widely available and Mises's name has been well known, the presumption is weak that there are ideas in the book that deserve to be part of mainstream discourse but still have not been at least partly absorbed. That the presumption is weak does not mean it is zero, but the attempted counterexamples in the comments did not prove what their writers thought. They asked, What about the wide acceptance of Keynes's General Theory? What about the initial strong rejection of Wegener's theory of continental drift? What about the neglect of Socialism for many years? All of those things changed in well under a century. The General Theory, published in 1936, lost its totemic status in the 1970s, though it remains an influential book; Wegener's theory, first proposed in 1912, the same year as The Theory of Money and Credit, became accepted by the 1960s and by the 1970s was being taught in high schools; and Socialism, published in 1922 (and in English translation in 1936), received its full due by about 1990.

After being not so busy, I am now starting to get busier with other things. Accordingly, my replies in the comment section will again become sparse. I do, however, read comments, and appreciate the numerous thoughtful ones.


16 Comments (Open | Close)

16 Comments To "Final words (for now) on The Theory of Money and Credit"

#1 Comment By gcallah On November 27, 2012 @ 11:56 pm

"I simply wish to point out that your judgement is not based on first-hand acquaintance with the material in question, but on authority."

Great pont, Kurt. People constantly misuse the "argument from authority" response: it is only a fallacy when you are citing someone who is not really an authority on the matter in question!

#2 Comment By Paul Marks On November 28, 2012 @ 4:04 am

Actually it is Kurt Schuler who is guilty of the fallacy of an "argument from authority" - and very odd authority at that.

Against Ludwig Von Mises, Kurt Schuler has declared that Irving Fisher is "foundational" - yet Irving Fisher is well known for his hostility to fractional reserve banking, the very doctrine which the people of this site hold most dear.

To uphold Irving Fisher on monetary economics one would have to show, by ARGUMENT, that he was correct and that his opponents (in direct debate most noteably Frank Fetter) were wrong.

This Kurt Shuler does not do.

Kurt Shuler provides no arguments against Frank Fetter any more than he does against Ludwig Von Mises.

All we get is that the "influence" of Ludwig Von Mises is small - as if the correctness of ideas can be judged by the current fashions of academia (and so on).

Of course Ludwig Von Mises (and Frank Fetter and.....) could be wrong - quite wrong.

But what Kurt Shuler needs to do, in order to show this, is to produce ARGUMENTS showing that is so.

This he does not do.

#3 Comment By CT On November 28, 2012 @ 9:06 am

If I accept Mises' arguments in the Theory of Money and Credit (which I largely do) and haven't read every single other economist which has ever written anything on monetary matters, I am not accepting his arguments based on Mises' authority (I don't give a crap about who Mises was or his 'authority'), I am accepting his arguments because I believe his theory reflects reality. I may be accepting his arguments out of ignorance (and perhaps reading other economists will change my mind), but I am not accepting him out of authority. That his book is not accepted by most economists is simply not an argument.

And btw, the error here is not argument from authority but 'argumentum ad populum' (appeal to the majority). The fact that the majority of economist and population find no value in this book is not an argument.

Stick to arguing that demand deposits are savings. At least this is legitimate criticism.

#4 Comment By gcallah On November 28, 2012 @ 9:15 am

Ah, it's easier to ignore Kurt's point than address it, isn't it?

#5 Comment By gcallah On November 28, 2012 @ 9:24 am

"And btw, the error here is not argument from authority but 'argumentum ad populum' (appeal to the majority). The fact that the majority of economist and population find no value in this book is not an argument."

Oh, and, rubbish! Kurt never recommended taking a popular opinion poll to see what "the people" think, or even "the majority of economists." He was recommending looking to the EXPERTS in the field of monetary economics. And unless you yourself are an expert in the field (which you pretty much admit you are not), this is very much the best way to proceed.

#6 Comment By JP Koning On November 28, 2012 @ 1:14 pm

"I am not accepting his arguments based on Mises' authority (I don't give a crap about who Mises was or his 'authority'), I am accepting his arguments because I believe his theory reflects reality."

Mises's arguments didn't arise in a vacuum - they emerged in the to and fro of monetary economic discourse of the day. As long as you're not willing to properly evaluate the accounts Mises provides of other contemporary economist's differing views, then you're accepting Mises's authority in his portrayal of these views.

For instance, having read J. Laurence Laughlin's theory of fiat money, Mises disliked it so much that he came up with his "regression theorem". He describes Laughlin's theory in the TMC. How can you be sure that Mises has properly articulated and understood Laughlin's own theory? Well, you have to go back and read Laughlin too. If you don't, you're accepting the authority of Mises on Laughlin. If you trudge through Laughlin, you should probably also read some Macleod, and from there try Benjamin Anderson. Only then will you achieve the degree of knowledge to free yourself from Mises's authority and properly evaluate the relevance of his regression theorem.

Now obviously that's a lot of work! You're talking about a good month of reading. Just take a short cut and see how history has evaluated TMC.

You can go on trusting Mises, but you should put a pretty low level of confidence in the quality of what you've attained. Say 51-52%?

#7 Comment By CT On November 28, 2012 @ 2:31 pm

His point is a bad one. Even if I've only read Mises (which I haven't) and come to agree with him, it does not follow that I have necessarily accepted what he has said because he is an 'authority'. I could just happen that I agree with his premises, think he hasn't made any errors of logic, and believe his theory explains reality. I, personally, don't care about authority, I'm pretty sure I'm not the only one.

#8 Comment By CT On November 28, 2012 @ 2:46 pm

Oh ... calm down. "Many thousands of minds, each an authority of greater or lesser degree, have determined the result." Kurt is clearly saying that if the majority of monetary economists disagree with something, then it is not a great work. My understanding of a great work in economics is whether the author is correct or not. If you prefer a great work to be decided by a popularity contest (even if limited to monetary theorists), I suppose we must then part ways.

Btw, I've admitted nothing pertaining to my expertise.

"He was recommending looking to the EXPERTS in the field of monetary economics."

That's not what he was doing originally. Read his points 2) and 3) He is suggesting that Mises' book is not great because it is not accepted by a majority of monetary theorists. This is not an argument. He then goes on to defend it by saying that most of us can't know everything and therefore rely on authorities in monetary economics (which is true). But this does not support his original argument (in fact, it seems to be a red herring). In other words, even if it is true that I accept Mises' theories based on his 'authority', it does support Schuler's argument that the large majority of economists disagreeing with Mises' book makes it only a good book.

#9 Comment By CT On November 28, 2012 @ 2:47 pm

*it does not support ... sorry

#10 Comment By CT On November 28, 2012 @ 2:54 pm

None of this is relevent as to whether TMC is a great book or not. It could simply be that the large majority of monetary economists are wrong on what constitutes a great book. So let's assume I've only ever read Mises (which is false ... I have an advanced degree in econ and finance and was a Keynesian until I started working). Let's also assume the I've accepted what Mises has written based on his 'authority' (which is also false). This has nothing whatsoever to do with whether what Mises wrote was wrong or whether his book is great or not. It's a red herring. Whether Mises' book is great or not should rest on whether his premises' reflect reality, his logic is sound, and if his theory can adequately explain historical events.

#11 Comment By gcallah On November 29, 2012 @ 1:11 am

"Mises's arguments didn't arise in a vacuum - they emerged in the to and fro of monetary economic discourse of the day. As long as you're not willing to properly evaluate the accounts Mises provides of other contemporary economist's differing views, then you're accepting Mises's authority in his portrayal of these views."

Amen, JP! But CT will ignore this reality, I predict.

#12 Comment By gcallah On November 29, 2012 @ 1:13 am

You were right in the first place!

#13 Comment By gcallah On November 29, 2012 @ 1:14 am

"I, personally, don't care about authority,"

And that marks you as a fool!

[Careful, please. -- Kurt]

#14 Comment By RobertThorpe On November 29, 2012 @ 8:33 pm

I agree to some degree with CT and to some degree with Gene.

Some of the things we discuss in monetary economics are very empirical. The degree of stickiness of prices for example, which is something I think Mises treats very badly in ToMaC. In this situation the knowledge of experts in the field of monetary economics is very important.

But, some theories are more to do with reasoned argument and less to do with complex facts. In that situation the parties are agreed on the "stylized facts" of the situation, but not on the outcomes. In that case it's quite possible to agree with a line of argument without any great examination of the empirical evidence. This is part of Gene's argument about epistemology with everyone else over at Dan Kuehn's blog.

But, in practice I don't think things work out so easily. Any little part of a theory often looks like it relies on stylized facts that everyone agrees on, but when you dig a little deeper they often don't agree. And the reasoning is often more complex than it immediately appears.

#15 Comment By Free Radical On December 3, 2012 @ 12:14 am

The trouble with Austrians, and I'm saying this as someone who agrees with most of their policy prescriptions, is that every argument with them ends up being about whether something is an argument from authority or some similarly pointless bickering. If I understand Kurth Schuler's argument correctly, it is something like "yes I"m making an argument from authority and there is a legitimate place for such an argument." The truth of this position is nearly unavoidable.

I get that Austrians aren't persuaded by this but I also don't think that persuading them is the main objective. As someone who is interested in monetary issues but not an authority on that particular literature, I need some guidance on which works are important to look into. Just reading everything is not a viable option. So I have to look to some authority to help me know what is important and what isn't. If something is not highly influential in academic circles, it doesn't prove it is wrong, but it's certainly not unreasonable to factor this information into my decision of what to read.

If you have a logical argument in mind, no you shouldn't abandon it just because someone presents you with an argument from authority. Yes it's true that this does nothing to refute whatever idea you have in mind. But if they are trying to tell me that a book isn't very important and you jump in and just say "hey, that's an argument from authority," you haven't done anything to refute the argument that they are making either.

If you want to convince me that I should read a book, you pretty much have two options. You can fight fire with fire and put your own (or someone else's) authority behind the book in question and let me weigh it against your opponent or you can make a logical argument explaining what the important contribution of the work is which I would not be exposed to if I didn't read it and allow me to use reason to determine the truth of your argument. If you don't believe in arguments from authority, then how about telling me what's so great about TMC rather than what you think is wrong with Kurt Schuler's rhetorical approach.

#16 Comment By Ned Netterville On December 3, 2012 @ 2:22 pm

Mises TMC remains the seminal work on monetary theory.

Schuler: "[Keynes'] General Theory, published in 1936, lost its totemic status in the 1970s, though it remains an influential book."

Influential, perhaps, but only among government operatives and people who haven't bothered to read the book. As Hazlitt said, There is not "a single important doctrine [in the GT] that is both true and original. What is original in the book is not true; and what is true is not original." Its influence upon politicians remains powerful, no doubt, but that is because the GT pretended, without a shred of substance to back up his fantastic assertions, that governments could inflate and spend their nations to prosperity. Keynes provided a pseudo-economic justification for policies that politicians and bureaucrats eternally lust to invoke, for who doesn't enjoy spending other people's money (OPM) with reckless abandon? That is the one and only reason Keynes GT retains influence, but no real economist should do anything but condemn his influence and the disastrous policies he sought to justify.


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