LewRockwell Post

My recent open letter to Hannity and Colmes was graciously published by Mr. Rockwell on his blog LewRockwell.com. Check out the story and digg it if you'd like.

An Open Letter to Fox News' Hannity and Colmes

Dear Sean Hannity and Alan Colmes,

On November 29th, your show's administrators contacted the local University of Florida libertarian group in an effort to have a discussion over a recent issue involving the separation between church and state. The Libertarian Activist Network, of which I am a cofounder, was chosen by your staff and we proceeded to conclude when and where we could have this discussion. I agreed to represent my organization and have meaningful discourse with the show regarding the subject at hand. The issue involved a monument to the Ten Commandments that was erected at the Dixie County Courthouse near Gainesville, Florida in an effort to connect the laws of our nation with that of Judeo-Christian religions.

As I was getting mentally prepared for the television broadcast, your administrators notified me that they had gotten another individual to take my spot: the leader of the atheist and agnostics on the University of Florida campus. Sadden by the change of heart on part of the Hannity and Colmes staff, I thought hard and well as to the reasons why a libertarian representative would be replaced with an atheist instead. One conclusion might be suggested that by inviting a representative of an atheist group to present the counterpoint in the Ten Commandments discussion, the show would immediately turn the impending deep and important political discourse into a religious ramble. The matter at hand has less to do with Christianity in itself and more to do with the Constitution and the separation between church and state. It is vital that the state not favor any specific religion over another, and by displaying monuments to the commandments of the Judeo-Christian religions at a courthouse, the state is doing just that. In essence, it is a matter of the constitutionality of the subject and not of the importance of Christian themes in our moral systems.

In addition, many of the individuals in favor of these Ten Commandment displays, such as you, Sean Hannity, claim that the United States of America is a Christian nation founded on Christian laws; this can not be farther from the truth. In all reality, one of the principle reasons for the creation of the United States was freedom of religion and the separation of religion from the state. This is something the British crown did not practice and which led to many acts against minority religious groups by the English government. It was the intent of the Founding Fathers that the United States government be free from all ties to any specific religion.

An additional argument in favor of this belief is the famous Treaty with Tripoli, signed by the 5th Congress and President John Adams, that states in Article 11 that "the government of the United States of America is not, in any sense, founded on the Christian religion." I know this is a old and dusty paper, Hannity and Colmes, but it is one that clearly states the position of this government with respect to its supposed embrace of the Christian religion. In fact, many of the Founding Fathers were not Christians, but Deists who believed that God could only be understood through scientific insight and not faith. Thomas Jefferson himself urged us to "question with boldness even the existence of a God; because, if there be one, he must more approve of the homage of reason than that of blindfolded fear." This wasn't (nor is it today) a popular opinion of Christian individuals, yet it was this man that wrote the very document that separated the colonies from the British crown. James Madison understood that "the general government is proscribed from the interfering, in any manner whatsoever, in matters respecting religion." In fact, Madison believed that by government interfering in matters of religion and binding religion to its laws would inevitably lead to a decrease in the faith of individuals in religion. Madison writes that "religion flourishes in greater purity without than with the aid of government."

It was Deism, not Christianity, that was the belief of a large part of the Founding Fathers and it is the duty of government not to respect any sect of religion, including Christianity. This is clearly not the case when government courts find it justified to place religious icons at the top of courthouse steps.

These are the points that you, Sean Hannity, the self-proclaimed libertarian, would not have wanted to hear come out on his show. In essence, by making the problem at hand into a religious conflict rather than a legal and political issue, your show could simply argue over the validity of the atheist's claims and label them inherently biased. This is what Hannity and Colmes proceeded to do on the show, to label any individual opposed to the union of the state and Christianity as an infidel and atheist. In the blink of an eye and the execution of a phone call, the discourse of the show was changed from a meaningful and intellectual discussion to the religious ranting of a member of the Christian right. Individuals should be more concerned about the rights that are being stripped away from them by the religious right and less passionate about the unconstitutional union of the state with Christianity. This administration has been given the unconstitutional privileges to suspend habeas corpus, intrude into the private lives of law-abiding citizens without warrants, and gather the national guardsmen without regard to the wishes of the governors. If your show ever wants to have serious discussions on the many controversial subjects of our time, you know where to find us. Otherwise, your show can continue to perpetuate the dull and empty talking points found in modern political circles. It now seems clearer than ever that libertarianism and truth are out of fashion, while meaningless rants are all the rage.

Sincerely,
Alexander Villacampa
Cofounder of the Libertarian Activist Network

Emma Goldman on General Manuel Villacampa

The other day I was reading some anarchist writings, specifically the literature of a famous feminist socialist-anarchist Emma Goldman. She wrote an extensive essay on a famous Spanish rebel by the name of Francisco Ferrer. Ferrer was part of a band of rebels led by a well known soldier who had become disillusioned with the royal crown of Spain and believed that government should be elected by the people. Ferrer would later write much on the topic of republics and the supposed divine right of kings. In summation, to my surprise, the soldier that led the band of rebels to sack the royal house at Madrid was General Manuel Villacampa, a past relative of mine. The band of rebels failed but their reputation lived on and General Villacampa was sentenced to life in jail, where he died. Personally, I am very proud of General Villacampa and his courage to stand up to the supposed divine right of kings. This interesting find lends to my respect for my family's name.

"Francisco Ferrer was not only a doubter, a searcher for truth; he was also a rebel. His spirit would rise in just indignation against the iron régime of his country, and when a band of rebels, led by the brave patriot General Villacampa, under the banner of the Republican ideal, made an onslaught on that regime, none was more ardent a fighter than young Francisco Ferrer. The Republican ideal,--I hope no one will confound it with the Republicanism of this country."

An Analysis of the Factors Surrounding the First Bank of the United States

The first case of the use of paper money in the colonies came from a series of events that unfolded in the colony of Massachusetts. Colonial Massachusetts had often times plundered the French colonies of Canada for wealth and commodities. Usually the expeditions were successful in bringing back significant returns, but one of the expeditions returned unfruitful. As a result the soldiers demanded compensation from the Massachusetts government. The colony attempted to borrow funds from local merchants, but it did not have a sufficient credit rating and thus, acquired little borrowed funds to finance the debt. The Massachusetts government proceeded to print up paper money and give it to the soldiers. Fearing that their paper money would not be accepted to pay off the outstanding debt, the colony promised to pay the debt in full at a later date with tax revenue. The soldiers accepted the paper money, but it was not until forty years later that Massachusetts attempted to redeem only a fraction of its initial promise.

Then in 1691, Massachusetts proceeded, once again, to print up large amounts of paper notes to pay off its outstanding debt. The market quickly devalued the newly issued paper money to forty percent of its declared value. As a response, the colony declared the paper certificates as legal tender; as a result all individuals would have to accept it to pay off any debts. Soon after, a larger number of Spanish silver dollars began to move out of the colony due to a phenomenon known as Gresham's law. Consequently, nearby colonies followed suit with their own paper currency. The colonies then began to inflate the amount of paper currency in the economy to finance the French and Indian War and any other debts the colonies had incurred. As a result, inflation was rampant and soon the schilling depreciated over eighty percent versus silver specie. The effects of these inflationary tactics by the governments led to the familiar boom and bust cycles. A boom present soon after the introduction of newly issued paper currency into the market and a bust when the money supply would contract. In 1751, the British government demanded that all American colonies halt the issue of supposedly redeemable paper currency and return to a market of totally gold and silver coinage. After a rough transition period, the market began a much more prosperous trend and stimulated the export markets of the colonies.

After the American Revolutionary War, the states had accumulated a significant amount of debt from the conflict. Some states, like Virginia, were quite conservative in their spending habits during the war and were firmly against the acquisition of the wartime debt by the Federal Government. The Federal Government taking responsibility for the debt on behalf of the states signified, for example, that Virginians would have to pay off some of the bill of other member states and vice-versa. This was a real problem for the states that spent very little during the war, for they would have to be paying for the debt of other states, expenditures they were not involved in. The newly ratified Constitution of the United States allowed the Federal Government to acquire the debts of the states and use differing methods in order to pay off the debt. Taxation and tariffs were common methods of generating government funding but what was often overlooked was the establishment of a central bank that could inflate the currency supply in order to fund government expenditures.

Alexander Hamilton, Secretary of Treasury under President Washington, was the main proponent of a central bank that could not only pay off the accumulated debt of the states but also spur economic growth by handing credit over to businesses at cheap rates of interest. Monetary inflation allows the central bank to give money, through loans and credit transactions, to individuals that desire these loans. This increase in the outstanding quantity of loanable funds pushes the market rate of interest below the natural rate of interest. The natural rate of interest is the interest rate existent before the artificial inflation of the money supply. Through the inflation of credit, business ventures that would have not seemed profitable before the fall in the rate of interest now seem profitable and that way the economy is spurred by increased yields. Therefore, Hamilton believed that you could use the central bank to accomplish multiple tasks and through paying off the national debt, the economy could be allowed to enjoy increased yields. In addition to allowing businesses “easy money” to initiate what would have otherwise been risky ventures, the government could directly fund investment opportunities and finance various government programs. In this manner infrastructure could be simpler to fund and any government expenditures could be easily paid for.

This proposed central bank would still use gold and silver specie to back up the bank notes but the notes would be more “elastic.” Money would be more readily available in case of a bank run and for investment opportunities. All notes would still be backed 100% by gold or silver specie, this would allow for an objective check on the amount of bank notes the central bank could inflate. These inflated notes, of course, would be deemed legal tender and would be payable for all debts public or private. This was necessary because it was a coercive measure in order to induce individuals to accept these notes versus simply accepting the notes of private banks or simply gold or silver specie.
Hamilton often times tried to persuade President Washington into signing a bill allowing the establishment of a central bank. Thomas Jefferson, who was then Secretary of State under President Washington, advised President Washington to turn down the establishment of any central bank for it would stagnate the economy and allow the Federal Government to instantly receive funding in order to expand its boundaries, something the Anti-Federalists constantly feared. The national media mainly consisted of Anti-Federalist supporters and printed various articles with opinions opposed to central banking. With both Thomas Jefferson and a large portion of the media against him, Hamilton pleaded to President Washington to endorse and sign a bill establishing a central bank. President Washington, after reading a detailed opinion by Hamilton on the subject, accepted, and with Congress, established the First Bank of the United States in 1791.

The Jeffersonian position on the existence of the First Bank of the United States is a very important one and an argument that gives much insight into the early politics of Federal finance. The Anti-Federalists at the signing of the Constitution had many doubts as to the workings of the new document and the possibility that the wording would be skewed in favor of a more oppressive government. In order to curb any absurd growth of government, the Anti-Federalists demanded that their be a Bill of Rights instituted into the document to insure that certain inalienable liberties were protected. That said, there was much in the Constitution already that could give the Federal government leeway and abilities unforeseen by the Anti-Federalists. Thomas Jefferson opposed the First Bank of the United States as an entity destructive to property rights and that its constitutionality was ill-founded. The First Bank of the United States was approved on the premise that the Constitution allows for the coining of money and the regulation of its value. By this measure, the First Bank of the United States was instituted but this seemed to be a large step outside of Constitutional bounds. For instance, the power to coin was given to Congress and was not a power that Congress could transfer to a quasi-private entity, such as in the case of the First Bank of the United States.

In addition, Article 1 Section 8 of the Constitution states that “the Congress shall have the power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measure.” This idea of “weight and measure” and “the value thereof” refers to the common practice, in that era, of bimetallism in which different metal monies such as gold and silver had fixed exchange rates against one another. Also, the act of coinage is simply the branding of quality of a coin and not the creation of fiat money or credit out-of-thin-air. In all reality, Congress was simply given the right to take part in bimetallism and fix the exchange rate of metallic currencies, not create paper money without an increase in specie reserves. Timberlake states that “this stipulation presumed a simple, self-adjusting specie standard, and it limited the power of Congress to setting the legal tender value of monetary metal” and that the Constituion emphasizes “the exclusive legal tender properties of the precious metals.” In addition, the Jeffersonians attacked the institution of fiat money on principle. This attack on fiat money had to do with the fact that an inflation of the money supply via fiat money devalues the coins on the market and transfers purchasing power from one person to another. Jefferson and the Anti-Federalists understood that hen government inflates the money supply it was systematically taking money from society and giving it to whoever received the additional credit or fiat money. In essence, fiat money is a system in which government can transfer wealth either to itself or to select individuals. Gregory Christainsen is in agreement and states that “the Founding Fathers did not give the U.S. Government the legal authority to issue fiat money” on the basis that the coinage of money and the regulation of value does not signify the creation of money but instead the minting of coins. That said, Jefferson, during his presidency, made no moves against the First Bank of the United States mostly due to his Treasury Secretary Albert Gallatin who “thought the Bank convenient for the management of government finances.” Though the Jeffersonians where fundamentally against a fiat money issuing banking system, when the time came, few did anything about it.

The First Bank was to reign for twenty years and was given monopoly privilege to release banknotes and credit to the populace. The First Bank inflated on two million dollars in specie. By 1796, the First Bank lent to the public in excess of $6.2 million and had printed notes to pay off any outstanding debts the government had incurred. During the inflationary period, prices rose 72 percent in wholesale markets and by 1796, the First Bank had grown to 18 branches.

Jeffersonians argued that there was no constitutional right that allowed the Federal government to print and distribute paper money. The Federalists on the other hand, predominately Hamilton, argued that the constitution implied that those powers could be used. Before the First Bank's expiration in 1811, the Democratic-Republicans failed to seriously promote a rejection of the First Bank's rechartering; this was mostly due to the presence of Federalist sympathizers within the Democratic - Republican Party. The number of First Bank branches rose from 28 in 1800 to 117 in 1811. In 1804, the banking institutions had inflated twice over specie and were causing turmoil within the economic structure of the United States. The First Bank of the United States had a pyramid ratio of 2.57 to 1; over a two-fold increase on the amount of specie available to the United States Treasury. When the date came for rechartering, the bill was rejected by a slim one-vote margin both in the House of Representatives and the United States Senate. There were many attempts to reestablish the First Bank of the United States including a petition by 150 New York citizens that made its way to the United States Federal House of Representatives Ways and Means Committee.

It is the opinion of the author that inflation, in artificial forms (i.e. forms that do not evolve the laboring for money such as mining for precious metals), has a negative effect on the economy. For certain reasons, individuals could easily argue that inflation is an unethical act- as the Anti-Federalists did- but instead what will be analyzed are the physical effects on the economy with respect to an inflation of the money supply. It is only through proper banking and free markets that prosperity and the production of wealth can take place. Once government gets involved in the market there is always a distortion. This is evident in the use of central banking as a method of spurring economic growth and creating wealth. When there is an inflation of the money supply there is a transfer of wealth that occurs from one group to another. Inflation, through an increase in the supply of loanable funds, signals entrepreneurs of higher order goods- those goods farthest away from consumer’s goods- to produce more capital than desired by the market. Additional artificial credit signals economic actors to engage in production processes that will not turn out profitable due to the existence of the social rate of time preference. Whenever the government uses an inflation of the money supply to bring down the market rate of interest below the natural rate of interest, it creates a misallocation of resources that winds up in a boom and bust cycle.
This fall in the market rate of interest wrongly signals entrepreneurs to be more “future-oriented” and produced with a more long-term strategy in mind. These production processes soon fail as the rate of interest is bid up by the market closer to the natural rate of interest. In an effort to keep the market rate of interest down the banking system can either continue inflation (risking hyperinflation ) or it can cease the creation of new money and allow a depression to reset the economy. It is money and credit that lend to an explanation of the business cycle and it is by following the "money trail," so to speak, that von Mises and von Hayek were able to structure the Austrian theory of the business cycle.

In summation, the establishment of the First Bank of the United States seems to have tested the political workings of the early United States republic. It came quite promptly after the establishment of the Constitution and as the brain-child of Alexander Hamilton. There were many problems present with the First Bank of the United States, both practically and ideologically, but in time it was eventually dismantled by a slim margin on the part of Jeffersonian Democrats. Probably the most interesting part of this paper was analyzing the Jeffersonian position and the lack of initiative Jefferson made during his presidency to disband the First Bank of the United States. That said, the Anti-Federalists were well aware as to the dangers of inflationary money and believed it to be a negative source of finance for the government. The Federalists saw it as an efficient way to finance the Federal system and spur economic growth within the country. In the end it seems that the Federalists have won the battle but only time can tell if fiat money, with its boom and bust cycles, will continue to reign in the financial markets of the United States.

Works Cited

1. Bradford, Frederick A. Money and Banking. Longmans, Green, & Co., 1935.
2. Christainsen, Gregory B. Constitutional and Ideological Influences on State Action: The Case of the First Bank of the United States. George Mason University Press, 1995.
3. Cowen, David J. The Origins and Economic Impact of the First Bank of the United States, 1791-1797. Garland Publishing, 2000.
4. Dowrie, George W. Money and Banking. John Wiley & Sons, Inc., 1936.
5. Groseclose, Elgin. Man and Money. University of Oklahoma Press, 1977.
6. Rothbard, Murray N. A History of Money and Banking in the United States. The Ludwig von Mises Institute, 2005.
7. Timberlake, Richard H. Monetary Policy in the United States. University of Chicago Press, 1993.
8. von Hayek, Friedrich. Prices and Production. George Routledge & Sons, Ltd., 1935.

Milton Friedman Dies At 94

He was a great man and an honest economist, as such individuals come. As Rothbard once said, Friedman is great on everything, except money. He definitely did alot to spread the message of free markets and individual responsibility. The Austrians have our differences with the old Chicago School and the Friedmanites but they were always our close cousins. I am sad to state that with his death ends the last libertarian economic school outside of the Austrian school. I believe all economists should look upon him as only a soldier of freedom. Rest in peace, compatriot. Dr. Block has a great article on Friedman on Mises blog.

Response to Mathematics in Economics

The following is a response to a post on Awkward Utopia titled 'Mathematics and Economics.'

I recently wrote an entry to this blog specifically lining out my ideas as to the merits of and against empirical analysis in economic science. For the formulation of theory, it has not only been held by Austrians that mathematical and empirical analysis is incorrect. As most can understand, mathematics and empirical analysis aren't the same thing and shouldn't be categorized as the same thing. Calculus isn't Statistics, they are very different fields. Personally, I categorize Statistics as a natural science and Calculus as a deductive science or logic. Calculus is basically logic taken to the extreme. In mathematical analysis though there must be strict units of measurement. Udels are not units of measurement and can never be.

I remember on the first test of my high school physics class I received a low score. Remarkably it was not because my answers were wrong per se but that I had no units to the numerical answers. I protested the grade but my teacher would simply point at my answers and say something like "45 what? Bananas? Apples? 45 what?" That left quite an impression on me and it makes sense. To the natural scientists the Austrian answer to mathematical questions make complete sense. There is a fine line and distinction between natural science and social science.

Economists have traditionally based their theories on logically deduced facts and economic laws. The title of "mathematical incompetence" is one you label with the Austrian school but i would be weary with your claims. Keynes is completely counter to Austrian thought but he recognized the incorrect use of mathematical analysis in economics. In the General Theory, there is but one graph and it is a simple illustration of shifts in the rate of interest. Keynes' theories were in fact based on *gasp* human action. The fundamental difference between Keynes and von Mises was their understandings of human action and not their disagreement on the use of it in economic science.

The approach of the Austrian school is one that is unique and has served it well. von Mises pioneered the use of praxeology in economics or better said the science of human action. von Mises, Rothbard, Hayek, Schumpeter, Hazlit, Bohm-Bawerk, Fetter, Kirzner, etc. all take after a long held tradition of Austrian economics that is loyal to the subjective theory of value and its approach to economic theory. Our methodology is not found in the nonexistence of Austrian economists that are competent in the field mathematics but a difference in the analysis of economic valuation. The subjective theory of value is a powerful tool that has served the Austrian school well and has developed theories such as the Mises-Hayek theory of the trade cycle.

So Matt, I do not know what your knowledge is of the Austrian school but I would not be so hasty as to label the Austrian school "mathematically incompetent." During my stay at the von Mises Institute over the summer, I was surprised to find out that most of the Austrian economists I look up to were in fact heavily steeped in mathematics. Hulsmann and Garrison are two of the Austrian economists of our day that are heavily steeped in mathematics, the latter having graduated college with a degree in engineering.

In conclusion, this argument presented by Matt is not logically sound. Just because most economists use mathematical formulas in their theory does not make it automatically correct nor does it make opposing schools of thought such as the Austrians "mathematically incompetent." We believe that human action can not be simplified into neat curves or equations. It is only through understanding the mechanisms of human action can the social science of Economics provide useful additions to the body of knowledge. This is probably the only thing Keynes and von Mises would have agreed upon.

A Basic Inquiry Into the Nature and Effects of Monetary Economics Speech

The following is the speech I will give at this years Austrian Students Scholars Conference hosted by Dr. Herbener and Grove City College.

Economic science is the study of human relationships and how these interpersonal connections lead to the existence of a complex network of transactions. These crucial economic functions form societies, civilizations, and empires. Though civilizations have traditionally been ruled by political bodies, there has always been something much grander behind the scenes that has been able to outlive these institutions. This phenomenon is the market and it is built by the voluntary transactions of individuals and exists without regard to the corrupt workings of the body politic. The market functions through many different channels and its operations can be understood by the analysis of specific economic elements. In my paper, the backbone of the economic structure and catalyst of interpersonal exchanges is analyzed; this catalyst is, of course, money. The importance of this catalyst is evaluated and its origins discovered. From understanding primitive interpersonal relationships to the complexity of business cycles, money is the lens through which economic scholars may view market activity. To comprehend the nature of media of exchange is to understand the structure of the modern market, its failures, and its triumphs. The goal of this study is to deliver a proper explanation of the phenomenon of money, credit, and their affects on the economy as well as explore the origins of some the problems of the modern market and the government's connection to these problems. My paper strives to conclude that the old Monetarist saying that “money matters” is, in fact, unquestionably true.

My paper begins by analyzing the concepts of interpersonal relationships and how these interactions make up the foundation of market activity. Rothbard's Man, Economy, and State lends much to this discussion and gives brilliant insight into the differing interpersonal relationships that may arise in human interactions. Von Mises has an equally magnificent explanation in his Human Action and deduces the elements that make an interpersonal relationship hegemonic. It is only through voluntary trade and peaceful interpersonal relationships that a market can be formed. When voluntary trade takes place, the parties in question are always ex ante better off. Its in a hegemonic relationship that one individual is benefiting at the expense of another and is therefore exploited. As Rothbard notes, “the master uses the subject as a factor of production for his own profit at the latter's expense” and that “the ruler exploits the subject for the ruler's benefit.” It maybe said that a citizenry's relationship with the government is inarguably hegemonic and that its in the free market where voluntary or contractual interpersonal relationships are allowed to breed prosperity and wealth.

As voluntary transactions produce markets, there is a shift within these markets towards specific media of exchange. This occurs out of the sheer difficulty of finding, as Jevons labels, a double coincidence of wants. Money comes out of a need by markets to facilitate trade between individuals and it is those goods that are more generally accepted that become media of exchange. Media of exchange also exhibit certain qualities and the market for money soon clears itself of goods that do not exhibit these attributes. Adam Smith correctly points out in The Wealth of Nations that money usually exhibits the following attributes: durability, divisibility, portability, homogeneity, and scarcity. Its these elements that lend to the existence of gold, silver, and sometimes copper as the most highly valued moneys of all time. That said there have also existed other goods that have exhibited these attributes. For instance, iron nails in Scotland, pressed tea leaves in China, and beaver pelts in the early American colonies. In addition, tobacco was used so widely in Virginia as money that warehouses soon sprung up willing to store tobacco in exchange for receipts with 100% redeemability. That said, in time gold and silver did win out as a popular money for both domestic and international trade.

Indirect exchange can be labeled as those interactions that use money as a facilitator of exchange and its through the use of money that prices can be formed. Prices can be formed in a market where direct exchange prevails but such a list of exchange rates would be enormous and impossible to maintain as the demands for commodities shift in relation to one another. Indirect exchange allows for exchange rates between a wide array of factors of production to be valued against a highly marketable good (i.e. money). These exchange rates translate into prices which entrepreneurs and consumers use to decide the profitability of certain ventures. Prices signal to entrepreneurs when to cut back or increase production and allow consumers to know how much of each good, with respect to their marginal utility for differing goods, to purchase. In essence, its prices, through the constant bidding of producers and consumers, that allocate resources efficiently with respect to the social rate of time preference. In an unhampered market, without central banking, prices can distribute resources to where they are most urgently needed and allow the market to fulfill the demands of economic actors.

The reasons for the proper allocation of resources, with respect to a free market, has less to do with the intelligence of men and more to do with the ability of individuals to use indirect exchange and media of exchange to properly calculate the demand, costs, revenue, and the potential output of a given production process. By using prices and economic calculation, an entrepreneur can understand at what point cost has outweighed profit and then begin to take the proper measures to curve losses. In the market, resources are not always allocated efficiently but the profit and loss mechanism drive entrepreneurs away from wasting precious resources; this is an attribute lost when speaking of Socialism and government programs.

Socialism, because of its lack of private initiative and an adequate medium of exchange, does not have the basic tools to allow entrepreneurs to use economic calculation to properly allocated resources. Instead, Socialist societies rely on the benevolence of a central planning commission to dictate what is best for a population many times it's size. How is it that Socialist central planners can acquire the knowledge of how many shoes need to be made? How many tractors must be produced to yield X amount of grain, on Z acres of farmland, for Y number of citizens? The problem lies in the inability to calculate costs in terms of goods physically used up in the production process. Due to the sheer size and scope of goods used in industrial production processes, proper allocation of these resources when valued against each other is nearly impossible. Mathematical calculations based on assumptions of human order do not suffice. What is necessary is a marketplace and the entrepreneurial incentive for profit which guides resources to their proper uses.

It is only through proper banking and free markets that prosperity and the production of wealth can take place. Once government gets involved in the market there is always a distortion. This is evident in the use of central banking as a method of spurring economic growth and creating wealth. When there is an inflation of the money supply there is a transfer of wealth that occurs from one group to another. In addition, it is inflation, through an increase in the supply of loanable funds, that signal entrepreneurs of higher order goods to produce more capital than desired by the market. Credit creation signals economic actors to engage in production processes that will not turn out profitable due to the existence of the social rate of time preference. Whenever the government uses an inflation of the money supply to bring down the market rate of interest, below the natural rate of interest, it creates a misallocation of resources that winds up in a boom and bust cycle. Its money and credit that lend to an explanation of the business cycle and it is by following the "money trail," so to speak, that von Mises and von Hayek were able to structure the Austrian theory of the business cycle.

In summation, money governs much of economic activity and it is through media of exchange that markets can be built and destroyed. Money allows individuals to create wealth and act as a buffer between prosperous transactions. Though money, through voluntary transactions, can produce wealth, when the monopoly of legal tender is in the hands of the State and when metallic currency is replaced by fiat money, the market can easily be disrupted. The study of currency has allowed me to see its true importance and the power the State has in its enforcement of legal tender laws with respect to it's issuance of fiat money. It has also directed me towards my main passion in economics, namely business cycle theory, and the role it plays in the field. As von Hayek writes in Monetary Theory and the Trade Cycle, only through a proper understanding of money and its role in the economy, with respect to the rate of interest and capital creation, that one can fully grasp the nature of business cycles.