Is Ron Paul Crazy? Part V: The Conclusion

Ron Paul has been consistently called crazy by the establishment media and political parties for his attacks against Ben Bernanke and the Federal Reserve in general. The preceding series was an attempt to educate people on Ron Paul’s understanding of economics that comes from subjective-utility economics that has become associated with the Austrian School of Economics.

The question remains; is Ron Paul crazy?

In one corner you have Ron Paul and the Austrians that believe that money creation does not create wealth, only the production of goods and services does.  They believe that in order to earn an income you must first produce a good or service, the value of which is determined subjectively. You can either use this income to purchase other goods, increase your cash balance, or invest it (e.g. lend it to somebody else).  Therefore the increase of credit must come at the expense of purchasing goods or increasing cash balances. This is all done voluntarily based on each individual’s subject valuations of goods and services and time-preference (e.g. the desire to consume more now or in the future). Thus the Austrian concept of wealth is that is relative to each individual and can only be generated voluntarily through work and sacrifice. There is no free lunch.

In the other corner you have the Monetarists (Milton Friedman) and the Keynesians (John Maynard Keynes) who share their roots with Adam Smith and the rest of the Classical Economists. It is appropriate to put them all under the name of the Inflationists. They believe that in order to earn an income you must first produce a good or serve, the value of which they aren’t quite sure how is determined but know that it has something to do with supply/demand curves , costs of production, and bargaining power. You can use this income to either purchase goods or save it. If the amount of credit available is not to the liking of these economists then they believe it is necessary to create money and credit to stimulate aggregate demand (businessmen almost always support these economists because for them there are never enough people buying their products and loans are always too expensive). Therefore the increase of credit does not need to come at the expense of purchasing goods or increasing cash balances. This is all done involuntarily based on the ruling elite’s valuations of goods and services and what they believe time-preference should be. Thus the Inflationist concept of wealth is that is objectively determined by GDP calculations and can be generated by the printing press (currently digits in a computer). There is a free lunch after all.

So, is Ron Paul crazy? No, but he is not a god either. More on that in future posts.