Ron Paul on CNBC: Give Free Markets A Chance

Austrian economists define inflation as an increase in the money supply, which in turn leads to higher prices for goods and services.

This is important to note for a number of reasons, but most importantly for the point made by Ludwig von Mises in his 1951 essay “Inflation: An Unworkable Fiscal Policy,” highlighted in the article above by Frank Shostak, an adjunct scholar at the Mises Institute. Mises wrote,

Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

On CNBC’s “Futures Now,” Dr. Paul warned that inflation is indeed occurring causing higher prices in various areas of the market, creating a new bubble in the stock market that will, again, lead to a severe crash.

The blame for setting up this next bubble lies straight at the feet of the inflationist monetary policy pursued over the past six years by the Federal Reserve and its easy money policies that have distorted market signals.

“One thing we have to remember is that when you get false information from artificially low interest rates, that mistakes are made, they’re inevitable. You make mistakes even when you have market rates of interest. But when the market rate of interest is so low for everybody, there’s a lot of mistakes, and that’s why you have the bubbles, and that’s why you go through the catastrophe we had in ’08 and ’09, and I think the conditions are every bit as bad as they were in ’08 and ’09,” Ron Paul told CNBC.

Dr. Paul went on to predict that a market correction will indeed have to occur, and the solution for restoring America’s sound economy would be to end the Fed to restore America’s free market system.

It’s unfortunate after the crash in ’08 that America didn’t learn from past mistakes, or listen to the Austrian school economists who predicted the crash while everyone else was still riding high on the buzz of the market’s boom. Rather than allow the market correction to occur, the Fed’s policies of intervention and stimulus, artificially bolstering sections of the economy where the correction was most necessary, has set America only prolonged the necessary readjustment period.

Near the beginning of Murray Rothbard’s classic work, America’s Great Depression,  Rothbard argues that “government hampering aggravates and perpetuates the depression.”

He goes on to highlight six ways that government intervention will make things worse, slightly edited below for space. See how many of these our government has done over the past six years:

“1) Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.”

“2) Inflate further. A government “easy money” policy prevents the market’s return to the necessary higher interest rates.”

“3) Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment.”

“4) Keep prices up.  Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.”

“5) Stimulate consumption and discourage saving.  Government can encourage consumption by “food stamp plans” and relief payments. It can discourage savings and investment by higher taxes…”

“6) Subsidize unemployment. Any subsidization of unemployment will prolong unemployment indefinitely…”