Exclusive Interviews
Dr. Antal Fekete on Real Bills, Quantity of Money Theory and the New Austrian Economic Manifesto
By Anthony Wile - October 27, 2013

Introduction: Professor Antal E. Fekete is an author, mathematician, monetary scientist and educator. Born in Budapest, Hungary in 1932, he graduated from the Eötvös Loránd University of Budapest in mathematics in 1955. He immigrated to Canada in 1957 and was appointed Assistant Professor at the Memorial University of Newfoundland in 1958. In 1992, after 35 years of service, he retired with the rank of Full Professor. In 1983 he was resident scholar at the American Institute for Economic Research in Great Barrington, Massachusetts. In 1995 he was resident fellow at the Foundation for Economic Education in Irvington-on-Hudson, New York. In 1996 he was Visiting Professor at the Francisco Marroquín University in Guatemala. He is the founder and Chairman of the New Austrian School of Economics in Hungary. His website is www.professorfekete.com. Professor Fekete is a proponent of the gold standard and an outspoken critic of the current monetary system based on irredeemable currency. His work falls into the school of free-market economic thought inspired by Carl Menger. He claims that his theory of interest is an extension of Menger's work. Menger championed the theory of direct exchange morphing into indirect exchange; in the same way Professor Fekete is championing the theory of direct conversion of income into wealth and wealth into income (read: gold hoarding and dishoarding) morphing into indirect conversion (read: selling and buying gold bonds). Professor Fekete is an advocate of Adam Smith's Real Bills Doctrine that he calls the Gold Bills Doctrine. We last interviewed Dr. Fekete at the Daily Bell on May 5, 2013.

Daily Bell: Hello again. Let's jump right in. The price of gold is still declining. Bring us up to date on the price action since we last spoke, please.

Antal Fekete: I take strong exception to your using the language of 'rising and falling gold price.' It puts things standing on their head. It paints a will-o'-the-wisp picture of reality. The rising of the gold price in reality is the irreversible long-term decline in the value of the dollar; the falling of the gold price in reality is a temporary strengthening of the dollar for whatever, mostly irrelevant, reasons. There is absolutely no symmetry between the two events. Moreover, this is as it ought to be, since the dollar is nothing but a dishonored promise to pay gold. When did you last see the dishonored promise of a banker permanently going to a premium? Whatever decline in the gold price you are talking about, it has not made a dent in the towering fact that the dollar has lost 99 percent of its gold value as well as its purchasing power since it was dishonored 42 years ago in 1971. The language of 'declining gold price' serves the interest of those who do everything in their power to blindfold the public in order to keep them in blissful ignorance about the terminal agony of the moribund dollar. It is disingenuous to suggest that the gold price is declining. A better way of expressing it is to say that a stay of execution for the dollar is in force.

Daily Bell: We hear that the Fed is actually considering increasing the amount of money being printed, presumably to break out of a liquidity trap. What's your take?

Antal Fekete: The liquidity trap is claptrap invented by Keynes. If the Fed is trying to fend off deflation, then it is using counter-productive means to achieve its ends. Paradoxically, ZIRP (zero interest rate policy) has the effect of destroying capital. It increases the burden of debt (as shown by the concomitant increase in the price of bonds). Printing money ad libitum makes the problem worse, not better. Opening the tap fully will not necessarily increase the level of water in the tub. You also have to consider the condition of the drain. If it is unplugged (as it is now, monetarily speaking, witness the ongoing destruction of capital), then the water-level in the tub may well be receding.

Daily Bell: Do you still believe there's no way out of this cycle but "extinction" and then barter?

Antal Fekete: I believe that the way out of the present disaster, brought upon us by the incompetence and ineptitude of our Keynesian and Friedmanite money doctors, leads to permanent gold backwardation (read: headlong rush of gold into hiding) that will in the fullness of time convert our incomparable multilateral trading system into miserable barter, and our highly productive world economy into a subsistence economy.

Daily Bell: What would you do if you were head of the Fed?

Antal Fekete: When Mises was asked what he would do if he were the President of the United States he said he would resign forthwith. I answer your question by saying that I would also resign and issue a strongly-worded statement that I don't want my name to be associated with a wrong-headed, utterly corrupt and unconstitutional experiment with irredeemable currency, foisting it upon the rest of the world. It is immoral. It marks the darkest hour in the history of this nation.

Daily Bell: What is Janet Yellen going to do when she becomes Fed head? Will there inevitably be another crash and a depression?

Antal Fekete: She is well-heeled to kick the can further down the road. This road leads to a series of crashes, the blowing and pricking of bubbles. We are already in a depression, masked by unlimited money creation which is pouring oil on the fire of deflation. Bond purchases by the Fed lead to halving interest rates and halving them again and again. This is tantamount to the destruction of capital, as we have discussed a moment ago. Lower interest rates mean higher bond prices, which measure the increase in the burden of debt, the proverbial straw that breaks the back of the camel.

Daily Bell: Are the central bankers managing to restimulate? We believe that they will cause another stock market boom and bust. Your thoughts?

Antal Fekete: Central banks stimulate prosperity and the economy into oblivion. Capital destroyed by the falling interest rate structure cannot be resurrected by an exercise in exit strategies. Besides, easy money (quantitative or otherwise) is addictive. Once being hooked on it, the economy cannot be weaned off the drug. There is a threshold of abuse beyond which the economy is doomed.

Daily Bell: The current "recovery" will not be extensive no matter how high the market runs because a money-led expansion cannot affect the underlying distortions of the economy. Only a full-fledged purging can do that, letting bankrupt firms fold up, etc. Comment?

Antal Fekete: You have put it beautifully.

Daily Bell: Let's return to your previous interview with some follow-up questions. Why does gold's marginal utility decline at a rate lower than that of any other commodity, as you observed last time?

Antal Fekete: It is the result of a long historical process that had started even before writing was invented. As Menger described it in his Origin of Money, people came to be using the most marketable good for exchange purposes, to avoid losses. Like it or hate it, the most marketable good was (and is) gold. Marketability is measured by the spread between the asked and bid price as ever greater quantities are thrown on the market. For the most marketable good the spread declines more slowly than it does for any other good. Now, Menger had a problem. He was about to define what "price" was supposed to mean, and got tangled up in a circular argument that used price in the process of defining price. He brilliantly resolved the problem by introducing the concept of marginal utility. Thereby he could avoid using the word "price" in the definition of price. By this stratagem he could break out of the logical vicious circle. To say that the marginal utility of gold declines more slowly than that of any other good is just another way of saying that the most marketable good within the observation of man is gold.

Daily Bell: You pointed out that gold does not obey the Law of Supply and Demand. "For example, a higher price of gold need not call out a greater supply; often it causes the supply to shrink further." So when Rothbard stated that higher gold valuation was bound to pull metal into the market, he was wrong?

Antal Fekete: Not necessarily. Perhaps Rothbard was thinking of a crisis-situation such as the one that presented itself on August 15, 1971. On that day President Nixon was facing the worldwide disappearance of gold on an unprecedented scale. He could have solved the problem by doubling the official gold price from $35 to $70 per oz. This would have stopped the bleeding and would have coaxed a lot of gold out of hiding. On that day Paul A. Samuelson, the paramount apostle spreading the Keynesian gospel, in an amusing but long-forgotten incident jumped the gun posting an op-ed article in the Washington Post. In it he stated that President Nixon decided to devalue the dollar in terms of gold by 50 percent! This amazing faux pas left Samuelson red-faced when Nixon went on worldwide TV announcing his actual decision to 'close the gold window' – a euphemism for defaulting on the short-term gold obligations of the United States. It became clear that Nixon spurned the Nobel-prize laureate economist in failing to consult him, of all people, in making such an historic decision.

Daily Bell: You have also said that "people would dishoard gold if its scarcity pushed up interest rates. In the 19th century there was a saying that the Bank of England could pull in gold from the moon with a bank rate of 5 percent." These two statements seem slightly contradictory. Can you explain?

Antal Fekete: Yes. The second statement refers to the routine operation of the gold standard, in the absence of a confidence crisis. Once the rate of interest has risen, the marginal bondholder buys back his gold bond at a lower price. In doing so he relinquishes the gold coin he obtained when he had earlier sold his bond at a higher price in protest against low rates. By contrast, the first statement refers to a crisis of confidence. Gold takes flight into hiding and a drastic measure is needed to stop the flight.

Daily Bell: You also told us, "Today no university offers courses teaching the gold basis, the gold cobasis and their interplay, or the apocalyptic threat of permanent gold backwardation." Can you expand on what you meant?

Antal Fekete: Here I am talking about the ominous and frightening parallel with the flight of gold into hiding in 476 A.D., the year when the Western Roman Empire collapsed − after centuries of monetary mismanagement, diluting the gold and silver coins of the realm by adding base metals to the alloy. The result was a disastrous return to barter and the breakdown of law and order. Today the situation is analogous with the difference that we now have a concrete measure of the flight of gold: the gold basis (and cobasis). When permanent gold backwardation sets in, meaning that the basis has turned and stayed negative, it will mark the withdrawal of all offers to sell gold. Those who still want it must get it through barter. This will kick off a contagion, spreading barter to all markets trading highly marketable commodities such as food, fodder and fuel. Not one university in the world is sounding the alarm that the collapse of civilization may be in the offing comparable to that experienced during the "Dark Ages." The New Austrian School of Economics is the only place where one can study the disappearance of the gold basis and the drowning of the world in hopeless barter.

Daily Bell: You told us that silver available for futures trading is dwindling and disappearing fast. "Permanent backwardation of silver is a matter of time, probably not a very long time." Where are we on the time curve?

Antal Fekete: That is hard to say. The interesting question to ask is whether gold or silver will be the first to go to permanent backwardation. Either event would trigger the other. You must watch both markets for early signs of budding permanent backwardation. I conjecture that probably silver will go first, but the evidence is circumstantial at best.

Daily Bell: You said: "The likely cause of the shake-out in the gold futures markets is not what you call too high expectations; rather, it is Bernanke's belated recognition of the threat of permanent backwardation, and his attempt to 'scare the horses properly.' " In simplest terms, what is the consequence of backwardization and why should Bernanke be worried about it?

Antal Fekete: The correct term is 'permanent gold backwardation.' As I have indicated a moment ago, it would usher in a barter economy that is grossly insufficient to serve the multifarious needs of our complex world economy. All kind of shortages would arise and famine, pestilence, unemployment would be rampant. Bernanke should be worried about it because it would mark the appearance of the irresistible pull of a black hole from which there is no escape. He should know; he studied the black hole of the Great Depression sucking in the world economy in the 1930s.

Daily Bell: You pointed out to us previously that the "Constitution left it to the market to determine the rate at which the gold eagle would be tariffed in terms of the standard silver dollar. The Coinage Act of 1792, championed by Alexander Hamilton, the Secretary of the Treasury, established an official bimetallic gold/silver ratio at 15 to 1. This was price fixing and as such unconstitutional." Did Hamilton know what he was doing? Did he realize he was destabilizing US money?

Antal Fekete: Hamilton was not a friend of the ideal of limited government. He wanted to enlarge the power of the federal government at the expense of that of state governments. He may not have realized that he was destabilizing the dollar, but he certainly believed in the omnipotence of the federal government to make his bimetallic ratio stuck. Well, it did not and, as they say, the rest is history.

Daily Bell: You told us, "Historically money is not the creature of the state. It is the creature of the market in promoting gold as the most marketable substance on Earth over the millennia." It is probably safe to say that you don't believe along with assorted Gesellians and Brownians that money is the province of the state and that money cannot exist absent government control. True?

Antal Fekete: Yes and no. Comparable to the invention of the wheel was the invention of the gold coin in the fifth century B.C. It made gold payments possible by tale. The expression 'paying by tale' means counting out gold coins rather than weighing them − a clumsy procedure by comparison. Paying by tale is made possible by the government's guarantee to strike gold coins to exact standards, and the willingness of the government to absorb losses due the wear and tear of gold coins in circulation. The original meaning of 'legal tender,' before advocates of monetary duress distorted it beyond recognition, was that the weight of the gold coin must fall within the range of tolerance standards. Legal tender gold coins were those the weight of which complied with the tolerance standards. They were accepted at face value when paid out by tale, even if they were slightly under-weight. Gold coins falling outside tolerance standards were not legal tender. They were paid out by weight, not by tale. It can be seen that the involvement of the government in minting and circulating gold coins was an essential one, and we haven't even mentioned the prosecution of counterfeiters. But at this point the government involvement must stop. In particular, the decision as to how many gold coins should be put into circulation was not up to the government to make. It was up to the people. If they thought that there were not enough gold coins in circulation, they could do something about it. They would take new gold from the gold mines, or old gold from jewelry to the mint and get the same gold back in coined form, ounce-for-ounce. The right to regulate the money supply was the prerogative of the people, not of the banks.

Daily Bell: You have pointed out a weakness of the theory of the business cycle according to Mises. Why do people allow themselves to be fooled by money magic over and over again? Why don't they learn from experience that banks are tempting them with teaser loans, and it would lead to their downfall if they invested without extra special scrutiny that the projects are sound? Your perspective is that "an improved theory of the business cycle would consider the causality relation between varying prices and varying interest rates." And you explained it thus: "It is reasonable to appeal to the phenomena of economic oscillation that has often been talked about, and economic resonance that has been talked about much less. Here are the details. Apart from leads and lags, rising (falling) prices make interest rates rise (fall) and, conversely, rising (falling) interest rates make prices rise (fall)." This induces oscillation for both prices and interest rates. Huge money-flows from the commodity market to the bond market and back are formed. If the frequency of oscillating prices coincides with that of oscillating interest rates, resonance occurs. Resonance could be dampened or the opposite, self-boosting (also called runaway resonance). If it is self-boosting, then there is trouble. It leads to hyperinflation if it occurs during the phase when money flows from the bond market to the commodity market. Could you elaborate on that?

Antal Fekete: Hyperinflation always means that the velocity of money-circulation is getting ever higher, in fact, higher than any preassigned velocity, however large. This may or may not be accompanied by central-bank money printing. The underlying flow of existing money from the bond market to the commodity market can do the trick independently of the wishes of the central bank.

Daily Bell: But you added: "There is also a second variety for which no precedent exists because we have no previous historical example of experimentation with global fiat paper money. If breakdown occurs during the phase when the rate of interest is falling and money flows from the commodity market to the bond market, then we have what I call hyperdeflation. That is what we are apparently going to have." Please elaborate on that, as well.

Antal Fekete: Hyperdeflation would mean that the velocity of money circulation is getting ever lower, in fact, lower than any preassigned velocity, however small. The important thing to note is that this is totally independent of the wishes of the central bank. It is the direct consequence of the spontaneous money-flow from the commodity market to the bond market.

Daily Bell: Mises definitely did not believe that deflation could occur during a money-printing episode such as the one we are experiencing right now. Could you revisit this topic and make the process clearer? How does "economic resonance" affect interest rates?

Antal Fekete: As money flows from the commodity market to the bond market, commodity prices fall and bond prices rise. The latter means that interest rates fall. Under a gold standard this process would be stopped sooner or later as commodity prices cannot fall to zero. Under our global fiat money experiment, however, the central bank is compulsively halving interest rates again and again, unwittingly causing further price declines in the commodity market. There is a vicious downward spiral in operation, affecting both commodity prices and interest rates. It is crazy. It is unbelievably stupid, but there it is. Everybody is expecting hyperinflation, but what we are getting is hyperdeflation.

Daily Bell: You seem to believe that the velocity of money is entirely a monetary phenomenon. Misesians tend to believe that falling monetary velocity has to do with lack of demand because economic vitality is distorted by central bank money printing. Which is it? Or is it both?

Antal Fekete: Arguing in terms of a lack of demand is a Keynesian trait. I dislike arguing in terms of the velocity, also. Mises once said that the velocity of money is always zero; period. At any one moment in time money is in the cash-balance of someone, sitting there with zero velocity. I think the correct approach to the deflationary spiral is through arguing in terms of resonance between oscillating commodity prices and oscillating interest rates. Mainstream economists do not understand speculation. Post-Mises Austrian economists are no better. Risk-free speculation in the bond market explains everything without a hitch.

Daily Bell: Please explain.

Antal Fekete: Speculators know that the central bank is buying bonds hand over fist. In fact, central bankers shout from their rooftops about their QE's and other similar imbecile tricks. Speculators react by pre-empting central bank purchases. They simply buy the bonds beforehand. Sometimes the central bank falsecards, but it cannot fool the speculators who risk their own capital, unlike its employees whose losses are automatically charged to the public purse. The result is that speculators have a free ride. They profit without taking any real risk. They win big, and the merry-go-round keeps running out of control.

Daily Bell: Please share with us your criticism of the idea that fractional reserve banking is a crime, as Murray Rothbard once held.

Antal Fekete: This is a major departure by Rothbard and by Mises from Carl Menger's monetary theory. Menger held that commercial banks properly make more loans than their net gold reserves. The excess is balanced by gold bills, that is, bills of exchange maturing daily in gold coins. You can look it up in Menger's encyclopaedic article Geld, third edition (1909). Mises published his Theory of Money and Credit just three years later, in 1912. He must have read Menger's Geld before his book went to press. It is totally incomprehensible to me why Mises failed to refer to Menger's analysis of the commercial banks' acceptable practice of monetizing gold bills. Or why he didn't criticize it if he disagreed. Be that as it may, "fractional banking" is a vicious misnomer. The commercial banks' reserves are not "fractional." They are full because their portfolio of gold bills is good as gold.

Daily Bell: You're a proponent of real bills. Can you remind us of why Misesian Austrians like Rothbard dismissed real bills as inflationary?

Antal Fekete: They call the monetization of gold bills a fraud for the silliest of reasons. They hold that it is inflationary. They do not understand that gold bills arise when a semi-finished good is turned into a finished good in urgent consumer demand, and gold bills expire when the underlying consumer good is sold to the ultimate consumer. The gold coins surrendered by the consumer liquidate all claims that have arisen along the passage of semi-finished goods from the producers of higher order to those of lower-order goods. Rothbard would have the producer of lower order goods pay the producer of higher order goods in gold coins. But this is absurd! No producer has ever paid a single gold coin for a semi-finished good, never ever! Payments in gold coins are made exclusively for finished goods, and that by the consumer, not by the producer! Producers of higher order goods get paid for semi-finished goods by drawing bills on the producer of lower-order good, and that's that.

Daily Bell: Explain to us again how commercial banks arose in reaction to the inconvenience of real bills denominated in odd figures, as compared to the convenience of bank notes denominated in round figures.

Antal Fekete: That was the smaller inconvenience. By far the greater inconvenience was that the discount had to be calculated and paid every time the gold bill changed hands. But calculating and paying the discount was eliminated when turnover increased and people held the gold bill for such short periods of time that the amount of discount became negligible, not worth bothering to collect it. Traders were happy to forego the discount due to them, in exchange for the great convenience of using bank notes.

Daily Bell: Explain as clearly as possible how real bills ceased to function. Why were they attacked? Last time you mentioned that the real bills market was a casualty of World War One. Please expand and explain as simply as possible.

Antal Fekete: I shall put it bluntly: Gold bills were forcibly and brutally eliminated by the victorious Entente powers in 1918 as they feared post-war German industrial competition and innovation. They were obliged to lift the blockade in compliance with the terms of the peace treaty, but they thought they could finesse their way through blocking the trade of gold bills in the London clearing houses. The Entente powers could not have done something more insane. They shot themselves in the foot. The gold standard Britain re-established in 1925 failed because it missed an organic part: the clearing house, that is, the market for gold bills.

Daily Bell: You also explained that withering of the real bill market caused the Great Depression. This is a decidedly minority view, even within the hard-money community. Please revisit this topic.

Antal Fekete: It is the view of a minority of one. In deliberately destroying the bill market, the Entente powers have, unwittingly, also destroyed the wage fund out of which workers producing consumer goods can be paid a good three months before their products are sold for cash. What politicians and economists forgot in 1918 was that without the bill market there is no wage fund. There is no way to finance the production of consumer good now, for which the consumer will pay only 91 days later, apart from gold-bill financing. In the euphoria after the victory several bubbles were blown: the bubble in the government bond market in 1921, the bubble in Florida real estate in 1925 and, most notoriously, the stock market bubble in 1929. Nobody noticed that the bubble-financed consumer goods market was going to be starved of funds, once the bubbles were pricked one after another. That became clear in 1930 when it turned out that the bloated inventory of consumer goods was unsalable. Had the bill market been rehabilitated in 1918, adjustment in inventory would have been made in time to avoid the glut, and financing of further production would have been available through discounting gold bills. The upshot was that workers producing consumer goods had to be laid off in six-digit contingents. Pseudo-theories were a dime a dozen, among others, those of Keynes about over-saving, under-consumption, lack of demand in 'mature' capitalist economies, the contractionist nature of the gold standard, to mention but a few. No one was looking for an answer in the forcible destruction of the gold bill market in 1918, inspired by the chauvinistic jealousy of the victorious Entente.

Daily Bell: For readers who may be reading this for the first time, please explain how real bills work and why they are so important.

Antal Fekete: The market for gold bills is entirely spontaneous. The wholesaler delivers supplies to the retailer and bills him. Once endorsed by the latter, the bill goes through a metamorphosis and becomes money that the wholesaler can use in replenishing his inventory. His suppliers accept the endorsed bill from him in payment. In this way the gold bill, the next best thing to the gold coin, becomes money, albeit an ephemeral one. It was destined to expire in no more than 91 days. Gold bills are the best earning asset a commercial bank can have. Demand for them is virtually unlimited. Not only will producers of semi-finished goods scramble for them; everybody with a large payment coming up such as bond issuers just before the maturity date of their issue, or purchasers of real estate before the closing date will, too. They would not accumulate bonds, for example, in preparation to pay their obligations. Bonds are far too illiquid for that purpose.

Daily Bell: Please review again your criticisms of the Quantity Theory of Money. It certainly makes sense on a simplistic level. When you print too much money, you devalue the rest. Why isn't this an accurate statement?

Antal Fekete: You can print all the money you want, but once it is put into circulation, you no longer have control over it. Money flows where it will; the only thing certain is that it will not flow uphill. It will flow to the place where the fun is. Right now the guys at the Fed hope against hope that their freshly printed Federal Reserve notes will flow to the commodity market and the housing market. But that's not where the fun is. The fun is in the speculative financial markets. That's where the money flows, frustrating the Quantity Theory of Money and those who believe in it.

Daily Bell: You stated your theory implies a rehabilitation of Adam Smith's Real Bills Doctrine. But how is the Real Bills Doctrine linked to the denial of the Quantity Theory of Money?

Antal Fekete: The Real Bills Doctrine is a living memento that the Quantity Theory is false. Thus it is a thorn in the flesh. Certainly drawing real bills will add to the money supply, but it does it in such a way that will not make prices rise.

Daily Bell: Why did Rothbard dislike Adam Smith? He criticized Smith based on the title of his book, Wealth of Nations, pointing out that nations cannot own wealth, only people can. Is this a valid criticism? If it is, does it imply a basic misconception on Adam Smith's part?

Antal Fekete: No, it doesn't. The title of a book must be concise (not that the full title of Adam Smith's book is the paragon of conciseness!) Rothbard is right in saying that macroeconomic aggregates such as a nation do not act like individuals, nor do they own or dispense wealth. That's the trouble with macroeconomics. The "wealth of nations" is figurative speech.

Daily Bell: You stated previously that "the fratricidal war between the Time Preference School and the Productivity School of Interest must end." Can you explain the differences between these two theories?

Antal Fekete: The Time Preference School teaches that interest exists because of our innate preference for present goods as opposed to the same quantity and quality of future goods. The Productivity School teaches that interest exists to the extent of greater productivity pursuant to the application of better tools. It never occurred to interest-theorists that both theories may be correct simultaneously. This omission resulted in a stagnation of the theory of interest that has remained the most backward chapter in economics to this day.

Daily Bell: You stated the following: "Using Menger's idea of the bid/asked spread, the two theories can be merged in a happy synthesis. Just as the price of goods is not monolithic but splits into bid and asked prices, so the rate of interest is not monolithic either but splits into floor and ceiling rates. These two must be studied separately. The ceiling rate can be understood in terms of marginal productivity; the floor rate in terms of marginal time preference." Isn't this a bit complex for most people and is it the reason the "quantity of money" school is accepted by popular acclaim?

Antal Fekete: The special theory of relativity is also "a bit complex," yet you have to master it if you want to understand high-velocity physics dealing with particles moving almost as fast as light travels. It is not popular acclaim that has made the special theory of relativity valid. The trouble is that the rate of interest was never properly defined. Here is the proper definition: The rate of interest is that rate at which the stream of interest payments plus the lump sum payment the (fixed) face value at maturity amortize the (variable) market value of the bond. Once you accept it, you realize that there must be two interest rates, one having to do with the asked and the other with the bid price of a bond.

Daily Bell: Update us on your New Austrian School of Economics. Also explain generally the main differences between your school and Mises. You seem to admire Menger more than Mises.

Antal Fekete: I admire Mises as long as he does not deviate from Menger. I feel I have to criticize Mises whenever he does deviate. Post-Mises Austrians think that criticizing Mises is sacrilege. It is not. In science there is no Revelation. Instead, there is debate out of which truth springs in full armor in the fullness of time. Just this month, October, 2013, the New Austrian School of Economics held a Seminar at the British Museum in London with a standing-room-only audience, where the New Austrian Economic Manifesto was formally adopted. It considers six points of disagreement between the two schools, all concerning the denial of either Menger or of Adam Smith by post-Mises Austrians. You may read it on my website for a fuller understanding of our differences.

Daily Bell: Will you bring out more material on your theory of economic oscillations and resonance? How about a history of real bills?

Antal Fekete: The history of gold bills is treated adequately in the literature. I am working on my treatise entitled The Rise and Fall of Credit, to be published in German next year, in which I give a full treatment of the theory of economic oscillations and resonance.

Daily Bell: Are you in the midst of a truce with the Misesians, or does the Cold War continue? You called the "altercation" a "tragic waste of talent" in the past. Status quo?

Antal Fekete: I do mean it literally. There should be a dialogue instead of altercation. A dialogue, unlike that of mediaeval theologians, on the question how many angels can simultaneously dance on the tip of a needle. Ours would be a dialogue about something on which the future of all of us, and that of our children and grandchildren vitally depends.

Daily Bell: Thank you for the interview.

Antal Fekete: Thank you for the searching and penetrating questions.

After Thoughts

Well, after some four years of trying, we finally got Dr. Fekete to be a bit clearer in layman's terms about his perspectives regarding the differences between what he is proposing for Austrian economics and what we can call the Misesian/Rothbardian school for lack of a better term.

Dr. Fekete's objections are, from our standpoint, presented better than ever in his interview and Manifesto so we won't try to summarize them in entirety. Two areas of conflict obviously reside in real bills and the Quantity of Money Theory. Dr. Fekete's perspective is that real bills are not inflationary and that the quantity of money theory is inadequate because it is not properly inclusive of interest.

Quantity-of-money analysis, he believes, does not provide the full spectrum of tools necessary for economic analysis. Basically, Dr. Fekete seems to be proposing that marginal utility applies to interest rates as well as to the volume of money. This seems to us to be a plausible point and it is one apparently made by eminent free-market economists prior to Mises. From Dr. Fekete's standpoint, obviously, Mises did not dwell on it sufficiently.

The idea behind Dr. Fekete's critiques is that since free-market theory still has sizable gaps of importance, the historical analysis being applied to the world's events, both past and present, is inadequate. For instance, Dr. Fekete believes that the Great Depression was caused in large part by the end of Real Bills, where most Austrian economists would explain the Great Depression as arising from various kinds of monetary meddling, including regulatory elaborations, confiscation of gold, etc.

Dr. Fekete would surely argue that the more people understand economically, the better off they will be in terms of building better societies. And we would certainly agree with Dr. Fekete that all human bodies of knowledge are imperfect and that includes the Austrian School. We thank Dr. Fekete for his time and patience in once more elaborating on his theories and providing his Manifesto, which is surely thought-provoking.

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