Monday, February 15, 2010

Positivism in Economics

Doug Reich has a good post up on his blog discussing economic boom and busts, and the influence of positivism on the economics profession. I laughed at his apt paraphrasing of how people view the banking history of the US prior to the establishment of our Central Bank:
Once upon a time, the United States had laissez faire and a totally free banking system based on a gold standard. This "free market" system led to reoccuring panics, runs on banks, and a volatile business cycle throughout the 19th century. Finally, after the 1907 panic, a group of wise businessmen and government officials got together and created the quasi-public Federal Reserve system to act as lender of last resort and to permanently eliminate reliance on the "barbarous relic" (gold) which stood in the way of economic progress by causing continual liquidity crises. With the banking system and money supply in the hands of wise and prescient central planners (like Ben Bernanke), the United States economy would live happily ever after. The End.

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