Sunday, December 28, 2008

Objectivism & Economics, Part 13

Objectivism and Austrian Economics: Salsman as “hyper-inflationist.” Stefan Karlsson over at complained a few years ago that many ARI-affiliated economists have “abandoned Mises” in favor of “supply-siders”:
[I]f you look at their articles on economics [over at], you will ... find the pro-inflationist supply-side economics advocated there.… This is particularly true if you look at older articles from 1999 or 2000. There you'll find many articles strongly attacking Ayn Rand's former associate Alan Greenspan—but not because he has abandoned his former hard money stance. No quite to the contrary, in true supply-sider fashion he was attacked for not being inflationist enough. Of course, in true supply-sider fashion they profess to be anti-inflation only to go on to attack the Fed for not lowering interest rates and increasing the money supply.

Karlsson has discovered a glaring contradiction at the heart of those Objectivists who, like Salsman, reject Austrian economics: they are all inflationists! It is this sort of thing that causes those of us at ARCHNBlog to be so very unimpressed whenever we hear Objectivists making virtuous noise about “reason” and logic and “rationality.” In practice, those who talk a great deal about “reason” are almost always found to be mere rationalizers of their own personal interests and private shibbeloths. Salsman, for example, is an investment analyst for his own company, InterMarket Financing, which “quantifies market price indicators to guide the asset allocation decisions and trading strategies of institutional investors. [InterMarket Financing helps] pension plans, asset managers, financial institutions and hedge funds use disciplined methods to outperform benchmarks.”

Given how embedded such financial advising firms have been in the speculative excesses of the last quarter century, it is not surprising that Salsman would favor an economic ideology that supported the economic conditions that feathered his own nest. The difficulty for Salsman was trying to harmonize his supply side ideology with orthodox Objectivism’s traditional allegience with Austrian economics. It turned out to be easier than many of us might have expected. There already existed points of difference between Rand and the Austrians (e.g., Mises’ neo-Kantian epistemology and “radical subjectivism”), and Salsman merely exaggerated these differences and added several more of his own, nearly all based on absurd economic heresies He has even had the gall to excuse for Rand for her advocacy of Austrian economics: “By the way, I do not fault Ayn Rand for having promoted the Austrian School in the 1960s,” he writes. “I suspect she was merely trying to suggest the best economics books then available, realizing they weren't perfect.”

What is puzzling about all this is that no one over at ARI should raise a word in protest. Since economics is considered a non-philosophical subject-matter, differences of opinion in that discipline are allowed. While that is entirely understandable, shouldn’t there be at least some limits? After all, would ARI wish to be affiliated with an individual who denied that the earth is a globe? Wouldn’t they, at the very least, wish to be on record as not advocating so obvious a detour into blatant evasion of reality? Well, as it happens, Salsman’s view are nearly on the same plane as those of the flat-earthers. He scorns what he calls the “myth of scarcity” and holds that the Stock Market of early 2000 was not overvalued!

Incidentally, George Riesman, who represents the traditional view among orthodox Randians that seeks to integrate Objectivism with Austrian economics, had a reply of sorts to Salsman’s criticism of Austrians for favoring interest-rate hikes by the Fed:
Austrian economists ... actually do advocate this and it’s perfectly correct for them to do so [Riesman wrote]. This is because we would all be better off if the Federal Reserve refused to lend except at an interest rate that was too high for anyone being willing to borrow at. In that case the Federal Reserve would be unable to affect the market in any way and might as well not exist. The Federal Reserve exists in order to make interest rates lower than they would otherwise be. It tries to achieve this by creating new and additional money and lending it out. The new and additional money appears on the market as an increase in the supply of loanable funds and in this way brings interest rates down. However, once the new and additional money gets out into circulation and is spent and respent, sales revenues and profits tend to rise throughout the economic system, which serves to increase the demand for loanable funds. If the Fed does not raise interest rates but simply provides more new and additional money to meet the additional demand for funds, the problem grows worse and worse. A rise in interest rates is essential to choke off the flow of new and additional money—to prevent a continuous acceleration in the creation of new and additional money. In objecting to this rise in interest rates, Salsman is in the position of advocating hyperinflation. Hyperinflation is profoundly destructive of wealth and rests on the total obliteration of any kind of objective standards in the economic system.


Damien said...


I can't help but find it rather odd that objectivists would be so upset with the "Austrian school" since they are among the most consistent supporters of a free market, at least as much so as Rand was.

Damien said...


By the way, I'm kind of curious, you mentioned philosophy that you would recommend in a previous post. What books on economics would you recommend?

gregnyquist said...

"What books on economics would you recommend?"

I'll give a quick list of ten, listed in order of difficulty, with the easier books first.

1. The Inflation Crisis and How to Resolve It, by Henry Hazlitt
2. Trillion Dollar Meltdown, by Charles Morris
3. The Wealth and Poverty of Nations, by David S. Landes
4. The Mystery of Capital, by Hernando de Soto
5. Culture and Prosperity, by John Kay
6. A Humane Economy, by Wilhelm Roepke
7. From Marx to Mises, by David Ramsey Steele
8. Individualism and Economic Order, by Friedrich Hayek
9. The Theory of Economic Development, by Joseph Schumpeter
10. Risk, Uncertainty, and Profit, by Frank Knight

Damien said...
This comment has been removed by the author.
Damien said...


Thank you, I think I'll try to find some of them.

JayCross said...

Nice! I just bought "The Mystery of Capital" last week (along with Sowell's "Economic Facts & Fallacies.") It is a terrific read so far.

Anonymous said...

Hm, Salsman says the stock market of early 2000 was NOT overvalued? Let's see, the Dow was at 11,000 and change in 2000, it's below 8000 now 9 years later. That is a non-inflation adjusted return of negative 27% over 9 years. Yeah sure, I want to put my money with that guy!!!!!