350 Years of Economic Theory in 50 Minutes

In the above video, Dr. Mark Thornton presents an informal lecture entitled “350 Years of Economic Theory in 50 Minutes” to a group home school students and parents. Dr. Thornton, Senior Fellow at the Ludwig von Mises Institute, is the Book Review Editor of the Quarterly Journal of Austrian Economics. Dr. Thornton also served as the editor of the Austrian Economics Newsletter and as a member of the Editorial Board of the Journal of Libertarian Studies.

In much of the first 5 minutes, Dr. Thornton provides a quick overview to the topics that he will cover and introduces the Austrian  School of Economics (free market economy) vs. what he calls the statists (including Marxists, socialists, communists, Keynesians, fascists, mercantilists, interventionists, and so forth). He points out that the market economy is not only efficient but “a just system” that is the champion of  “individual liberty, private property, and honest money.”

Using the Biblical David and Goliath analogy, Dr. Thornton compares Austrian economists to David and statists economists to Goliath in the amount of control they have within American society. Dr. Thornton then spends a few minutes sharing his “personal journey through Austrian economics” and how he ended up at Auburn University in 1982 for a graduate program. He recounts a year of discouragement when it seemed that Austrian economics was a “thing of the past.” He then learned that the Ludwig von Mises Institute was coming to Auburn University and he was offered a fellowship to continue his studies in Austrian economics.

After almost 12 and a half minutes, Dr. Thornton begins his formal part of the lecture. Some of the subjects covered include the following:

  • How behavior changes due to public policy decisions.
  • The impact of higher taxes.
  • Indirect and long-run effects of the “minimum wage” — especially job losses for the most needy.
  • “Everything the government attempts to do ultimately backfires” — examples are provided.
  • The purchasing power difference between “honest money” backed by gold and silver and our current monetary system.
  • How “fiat” paper currency can become worthless due to monetary inflation.
  • Prices for market-driven goods tends to go down while highly-regulated and taxed items tend to increase.
  • Paper money inflation has been institutionalized since the Federal Reserve (the Fed) was created.
  • Our highly-leveraged banking system — the fractional reserve banking system — means there is “basically no money in the bank.” Most reserves are in electronic format with the Federal Reserve itself.
  • The modern form of inflation is an electronic form of inflation. The Fed buys government bonds from banks and then tell the bank they have reserves for them at the Fed. That is how the Fed electronically creates money and writes it into existence.
  • “Monetary inflation at the Fed causes price inflation.”
  • “Inflation secretly redistributes money from some groups of people to other groups of people.” Some people are hurt and some are helped by inflation. If you are the first to receive the newly inflated money you benefit before prices increase but if you are on the late end you are stuck with less purchasing power and higher prices.
  • Government is the biggest beneficiary of inflation because the trillions in government debt are easier to pay off with inflated dollars.
  • “Monetary inflation causes the booms and busts of the business cycle.” Fed-lowered interest rates (i.e. increased money supply) cause a boom which misallocates a lot of things in the economy that have to be adjusted — during the bust — through bankruptcies and unemployment caused by bad investments.

After about 40 minutes Dr. Thornton takes some questions (most are difficult to hear). One interesting historic reference Dr. Thornton makes is that the Federal Reserve tripled the money supply between 1914 to 1929. This period of increase was well before the Great Depression. This massive change did not represent a market economy move for the United States but was instead part of the “Progressive Era” leading to the Great Depression.

There was also a question about changes to the tax code. Dr. Thornton suggests that taxes should be pushed downward and some eliminated outright. He argues that people should never let the government institute a new tax. He also believes that the free market economy, while not perfect, is a superior way to continually improve what human beings can do in the absence of government intervention.

In conclusion, this informal presentation by Dr. Mark Thornton, while light on economic theory, provides a wealth of insight into inflation and other problems caused by government economic interventions. It builds a strong case for replacing our federally regulated economy and fiat money supply with free market solutions.


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