Exclusive Interviews
Dr. Richard Ebeling Explains Free-Market Economics, Why to Bet Against the Dollar and Own Gold
By Anthony Wile - July 12, 2009

Introduction: Dr. Richard Ebeling is a senior fellow at the American Institute for Economic Research in Great Barrington, Massachusetts and professor of economics at Northwood University in Midland, Michigan. He has been a visiting professor at Trinity College in Hartford, Connecticut (2008-2009), served as the president of the Foundation for Economic Education (FEE) from 2003 to 2008 and was the Ludwig von Mises Professor of Economics at Hillsdale College, in Michigan (1988-2003). Dr. Ebeling is the author of Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition (Routledge, 2010), Austrian Economics and the Political Economy of Freedom (Elgar, 2003) and is also the editor of the Selected Writings of Ludwig von Mises (Liberty Fund), based on the "lost papers" of Ludwig von Mises, which he recovered from a formerly secret KGB archive in Moscow, Russia. The last of this three-volume set was published in April 2012. Dr. Ebeling is also the co-author and co-editor of the multi-volume work, In Defense of Capitalism (Northwood University, 2010-2013). In the early 1990s, Ebeling consulted on market reform and privatization with the emerging new democratic government in Lithuania when it was still part of the Soviet Union and witnessed the violent, attempted Soviet crackdown on the Lithuanian freedom movement in January 1991. He also was with Russian defenders of freedom in Moscow during the failed hardline coup in August 1991. Dr. Ebeling earned his PhD in economics from Middlesex University in London, England.

Daily Bell: Thanks for stopping by.

Dr. Ebeling: My pleasure to be here.

Daily Bell: Can you give readers a little bit of background on how you became interested in free-markets?

Dr. Ebeling: Well, it all started on the day I was born. This doctor grabbed me by my little feet, turned me upside down and slapped my bottom. I started to cry, and realized that this was an act of force without my consent. From that moment on, I have been a classical liberal, free market advocate determined to limit the use of coercion in society.

I can tell from the look on your face that you seem not to believe me! Ok, it happened later. When I was about 16 years old, I met two people who introduced me to the writings of Ayn Rand. I first read her non-fiction books, The Virtue of Selfishness and Capitalism: The Unknown Ideal. It gave me a totally unique and different view of the nature of individual liberty and the nature of the free market.

I then began reading her novels, The Fountainhead and Atlas Shrugged, in which she presents her philosophy of individual rights and freedom. At that time, back in the mid-1960s, I was living in Hollywood, California. I started attending a taped lecture series about her ideas. The organizers also sold books that included many of the leading free market and individualist writers of the 19th and 20th century, including Frederic Bastiat, Herbert Spencer, William Graham Sumner, Ludwig von Mises, Henry Hazlitt, Isabel Patterson, and many others.

From there I discovered other classical liberal and free market authors, including F. A. Hayek, Milton Friedman, and Murray Rothbard. All of them greatly influenced my entire worldview. Those economists who are considered members of the Austrian School most especially influenced me: Carl Menger, Eugen von Boehm-Bawerk, Mises, Hayek and Rothbard.

As a result, I had decided to major in economics before I entered the university to begin my undergraduate studies. It was a bit of a shock to discover that virtually all my professors knew nothing about the Austrian School. They were all Keynesians and Marxists – and Stalinist Marxists, no less!

In fact, when Mises died in October 1973 at the age of 92, I wrote an obituary piece about him for my university student newspaper. One of my professors came up to me after he had read it and said, "Mises? Mises? I thought he died in the 19th century!"

Daily Bell: You recently resigned from FEE. Can you explain a bit about the group and what you accomplished?

Dr. Ebeling: Yes, I served as the president of the Foundation for Economic Education (FEE) from 2003 to 2008. FEE is the oldest free market educational organization in the United States, having been founded by Mr. Leonard Read in 1946. When FEE opened its doors over sixty years ago the entire political climate of opinion was in a socialist direction, both in the United States and around the world. FEE stood out as a beacon of liberty when there were few voices standing against the collectivist tide. But after Read passed away in 1982, FEE went through almost 20 years of rocky times, and some on the Foundation's Board of Trustees thought it was time to close it down.

FEE had been very important in my own intellectual development. Like the writings of Ayn Rand, FEE's literature, and especially its monthly magazine, The Freeman: Ideas on Liberty, helped in molding my view of things. I attended a weeklong seminar at FEE back in June of 1974, which only reinforced my appreciation for the work they did.

In the spring of 2003, I was offered the job a FEE's president. I decided to accept the position because I wanted to do what I could to put the Foundation back on its feet so it could be there to help educate future generations about the principles of freedom, as it had been there for me when I was younger.

Over my five years as FEE's president, we turned the organization's financial situation around, from a huge budget deficit when I arrived to surpluses in every year that I was there. We increased its budget from around $1.5 million to $3 million. Summer student seminars were improved and expanded in number. We redid the website and unique visits grew from barely 20,000 per month when I arrived to nearly 200,000 per month when I stepped down.

We also introduced student seminars aboard with programs held in the Republic of Georgia, Armenia, Ukraine, and the Czech Republic. And we restored regional seminars for adults around the United States on a regular basis.

When I left, I could happily say that FEE was "back on the map" and had reclaimed its reputation for excellence in educating for liberty.

Daily Bell: Why did you decide to return to teaching?

Dr. Ebeling: Teaching in the classroom has always been my first love. I more or less set for myself a five-year horizon to work at FEE, and then see about returning to higher education. So this past academic year, 2008-2009, I have been a visiting professor at Trinity College in Hartford, Connecticut. I've also been serving as a senior fellow at the American Institute for Economic Research in Great Barrington, Massachusetts, for which I've written a variety of commentaries about the causes of the current economic crisis, and the wrongheadedness of many of the government policies implemented to supposedly end it.

This coming autumn of 2009, I take up a new, permanent position as a professor of economics at Northwood University in Midland, Michigan. Northwood is a serious and well-respected business school devoted to the principles of freedom and the free market. They have a fine faculty and excellent students. I'm looking forward to joining their very worthwhile mission of helping to train and prepare the next generation of entrepreneurs and businessmen, all of whom are introduced to the ideas of individual freedom, free markets, the rule of law, and limited, constitutional government. Among the courses I've been asked to teach each year is Austrian Economics, which I will very much enjoy.

Daily Bell: Can you give us some background on your latest book, Austrian Economics and the Political Economy of Freedom?

Dr. Ebeling: This book actually was published in 2003, just about the time I moved to FEE. I try to explain the core concepts of the Austrian School, how they differ from other schools of economic thought, and the nature of both socialism and the interventionist-welfare state from an Austrian Economic and classical liberal perspective.

I have an new volume that will appear either by late 2009 or early 2010, entitled Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition, which will be published by Routledge. The beginning chapters discuss the ideas and contributions of Ludwig von Mises in the historical context in which he lived and wrote, especially in the first half of the 20th century.

In a lengthy chapter I explain the Austrian theory of money and the business cycle and the Austrian analysis of the causes of and the cures for the Great Depression of the 1930s; and I then offer a detailed critical study of the Keynesian alternative that was in competition with the Austrian view at that time. In two other chapters I compare Mises' theory of money and business cycles with that of Joseph Schumpeter, and then Mises and Hayek in relation to the Swedish Economists. I also present in the concluding chapter the distinctly "Austrian" theory of expectations and expectations-formation for understanding the problems of market coordination in a complex and ever-changing economy.

Right now I am working on an intellectual biography of Ludwig von Mises that will be published in late 2010 by Continuum Books, in a series they are publishing on leading libertarian and conservative thinkers over the last three hundred years. I hope it will help readers have an understanding and appreciation for one of the greatest economists and defenders of freedom during the last one hundred years.

Daily Bell: You've traveled a good deal. What is the status of freedom in the world these days?

Dr. Ebeling: To use the famous line with which Charles Dickens began A Tale of Two Cities, "It was the best of times, and the worst of times." On the one hand, all the totalitarian systems of the 20th century – fascism, Nazism, communism – are gone. We have seen the dismantling of the Berlin Wall and the collapse of the Soviet Union. There are very few who will with a straight face still publicly advocate Soviet-style central planning.

Many countries around the world that suffered from poverty and lived under socialist tyranny are now experiencing economic growth and prosperity. They have abandoned the ‘socialist road" and have introduced, if not a free market, then at least freer market reforms. These changes have generated rising standards of living in parts of the world that have only known hunger and despair for all of recorded history.

But what has not been defeated is the socialist critique of capitalism. That is, many people, and most especially educators, those in the mass media and the political arena, believe the socialist claims that capitalism, as an economic system, is inherently bad. It results in exploitation of consumers and workers; it doesn't produce the goods and services that people "really" need; it is short-sighted and harms the environment; and it causes the boom and busts of the business cycle, resulting in innocent, ordinary people losing their jobs.

Thus, all current economic policies, and especially during this recession, are grounded in the idea that free markets have failed and only "big government" can save the economy and society. Now, of course, what we are actually suffering from is the failure of the interventionist state and misguided monetary policies that have gotten us into this mess. But, unfortunately, that is not how things are seen by most of those who mold public opinion and set government policy.

Daily Bell: What's your opinion of the European Union? It was supposed to facilitate free trade, but it seems to be doing so much more – and much of what it does today seems to be less about freedom than control.

Dr. Ebeling: The original spirit behind the Common Market was a worthwhile one: establish freedom of trade among the nations of Europe to raise standards of living for all and to reduce the likelihood of war by creating a greater economic interdependence among them.

Unfortunately, the ideas and ideology behind the European Union is a different one. It is to create a United States of Europe that would politically dictate and determine the social and economic direction of the continent from its headquarters in Brussels. Now, don't get me wrong, there is nothing wrong in principle with independent nations, with their citizens' consent, choosing to unify themselves in any political arrangement they want.

But, in my opinion, the motivations behind the current drive for greater centralization of power within the European Union have very little to do with either greater individual freedom or increased freedom of trade across the countries of Europe. Europe has been and is in the grip of the ideology of political and economic paternalism and collectivism. The European nations are merely substituting their national systems of interventionism and welfare statism for the same policies concentrated and controlled by bureaucracies in Brussels. In addition, the stronger states such as France and Germany are attempting to manipulate the rules and regulations to serve their own purposes, which is the source of much of the resistance by smaller member states.

The same applies, in my view, to the imposition of the Euro. This was not a market choice by consumers and producers to converge into one currency among the member nations. No, this was a political decision by governments in Europe who wanted a single currency as a political tool against the dominance of the dollar in international trade and finance. Certainly, this was not far from the French mind. I consider the imposition of a single, monopoly money managed by a single central bank to be an inflationary threat in the long run, and inherently unstable as long as the member states have independent fiscal authority within their national jurisdiction.

Daily Bell: You served as the Ludwig von Mises Professor of Economics at Hillsdale College from 1988 to 2003. Can you give our readers a sense of Hillsdale and its curriculum?

Dr. Ebeling: Hillsdale College is a private, liberal arts college founded in 1844. Since a legal battle in the mid-1970s, Hillsdale has chosen not to accept any Federal government money in the form of student loans, grants, or scholarships. This has freed it from many of the Federal rules, regulations and oversights that accompany the acceptance of money from Washington. It successfully raises private dollars to financially assist qualified students who wish to attend Hillsdale, and who cannot afford the school's full tuition costs. It is an outstanding example of the workings of voluntary charity in a relatively free society.

I have not been at Hillsdale for more than six years, now. During the fifteen years that I served as the Mises Professor of Economics, I enjoyed the atmosphere and general educational philosophy of the institution. The goal was to offer a well-rounded training to the students. The underlying principles emphasized by George Roche, who was president during most of my tenure at the college, were a strong belief in the ideals of individual freedom and the market order.

Daily Bell: Give us a little background on how you discovered the lost papers of Ludwig von Mises in a formerly secret Soviet archive in Moscow.

Dr. Ebeling: In 1934, Mises had accepted a teaching post at the Graduate Institute of International Studies in Geneva, Switzerland. But he sublet a room in the Vienna apartment that he had lived in since the beginning of the 20th century. In March 1938, shortly after the Nazi Germany's annexation of Austria, the Gestapo ransacked Mises' apartment and carted off his library, personal and family papers, his professional writings, and correspondence.

For the remainder of his life, Mises believed that the Nazis had destroyed all of his looted property. In fact, they were warehoused in German-occupied Czechoslovakia along with many other collections of papers and documents that the Nazis plundered in the various parts of Europe they conquered. At the end of the war, the Soviets captured this vast cache of papers and documents, and under Stalin's orders they were hidden away in a secret archive in Moscow built for this purpose.

My wife, Anna, and I were in Vienna in 1993 doing archival research about Ludwig von Mises and other Austrian Economists. A friend of mine told us that some German diplomats had recently been in Moscow looking for information about anti-fascist Germans from the interwar period of the 1930s. While going through various records they saw a reference to Ludwig von Mises, but because he was Austrian and not German, they had not followed up on it. And that was all my friend knew.

In 1996, my wife and I went to the Holocaust Museum in Washington, D.C. and one of the researchers there showed us the index to a formerly secret KGB archive in Moscow that was now open to Russian and foreign scholars. Going through the index we came across an entry, "Ludwig Mises – Fund 623." Nothing else.

When we returned to Hillsdale, I informed George Roche, the college president, what we had found. He immediately arranged for the financing of a trip to Moscow so my wife and I could follow this lead. Anna was born and raised in Moscow, and with the assistance of some of her friends we were able to gain access to the archive and Mises' papers. We returned to the United States with over 8,000 pages of photocopied material, nearly the entire collection of papers and documents, the originals of which still are kept in that archive in Moscow.

Daily Bell: Are they fully published now? Can you assess their impact?

Dr. Ebeling: Liberty Fund of Indianapolis has been supporting the translation and publishing of a large portion of these papers. Two of three volumes have so far appeared in print under my editorship, under the title, Selected Writings of Ludwig von Mises. The last of the three volumes should appear in the near future.

Those who are a bit familiar with Ludwig von Mises' writings easily might think of him as the great economic theorist, focusing on the wide issues of capitalism vs. socialism vs. the interventionist state; or as a monetary theorist explaining the nature of money and the causes of the business cycle. But in the Austria of his time, especially both before the First World War and in the interwar period of the 1920s and 1930s, Mises earned his living as a nuts and bolts economic policy analyst as a senior staff member at the Vienna Chamber of Commerce.

Many of these "lost papers" show him as grappling with the reality of a hyperinflation in the immediate aftermath of the First World War; devising policy strategies to overcome the fiscal madness of massive deficit spending by left-leaning Austrian governments; and proposing policies for Austria to overcome the disastrous consequences of misguided economic policy during the Great Depression. In these papers you see how Mises combines theory with practice in dealing with a tidal wave of government interventionism and socialist planning.

Daily Bell: You have lectured on Microeconomics and History of Economical Thought. Can you explain the difference between Microeconomics and Macroeconomics within the Austrian discipline?

Dr. Ebeling: The distinction between Microeconomics and Macroeconomics developed out of the Keynesian Revolution of the 1930s. British economist, John Maynard Keynes, argued that Microeconomics focuses on individual market supply and demand conditions. Macroeconomics is concerned with analyzing the "economy as a whole," that is, total employment, total output, and the general levels of wages and prices.

Keynes said that what determined the Macro aggregate totals had no direct relation to what was going on in the individual markets at the Microeconomic level. Hence, understanding what caused and what could cure economy-wide swings in output, employment, and prices could not be found in any study of Microeconomics.

The Austrian Economists have always insisted that nothing happens in society or in the economy as a whole that does not originate in the actions of choosing individuals. Thus, any supposed Macroeconomic analysis must be grounded in Microeconomic foundations.

They ask, what is the common element that is present in the exchange process of each and every individual market, such that if that element is tampered with the consequences can have serious ramifications throughout the economy?

They see money as that element. As the generally used medium of exchange, money is the one commodity that is one side of every transaction. We trade our goods for money and then use the money we have earned to buy the goods that others are offering for sale. Thus, something that disturbs money's role in smoothly facilitating the buying and selling of goods can generate economy-wide imbalances.

The "key" to understanding the business cycle, the Austrians argue, is looking at how governments in modern society have misused and abused their monopoly control over the supply of money through central banking.

Daily Bell: What caused the financial crisis in your opinion?

Dr. Ebeling: The U.S. Federal Reserve dramatically expanding the money supply between 2003 and 2008, has caused the current situation. They flooded the financial markets with additional money for lending purposes. Adjusted for inflation, many key interest rates in 2003 and 2004 were near zero or actually negative. Even after 2004, real, inflation adjustment interest rates were abnormally kept low due to this monetary expansion.

To attract borrowers to take all this newly created money out of the banking system, financial institutions had lowered nominal interest rates and reduced their lending standards. As a result, savings and investment in the economy was thrown out of balance. The housing, investment, and consumer credit booms were unsustainable in the long run in relation to the real savings in the economy available to sustain all of these activities.

The housing bubble, in particular, was exacerbating by various government interventionist policies that artificially stimulated the housing market. This had its origin in government subsidization of low interest, credit unworthy borrowing by people in the high-risk category through loan guarantees and mortgage purchases by Fannie Mae and Freddie Mac.

The bubbles have now burst, and the economy must now go with a "correction process," which merely means adjusting and adapting to the real supply and demand conditions of the market after the illusionary booms caused by monetary inflation.

But what is the government doing, first under the Bush Administration and now under Obama? It has been and is introducing policies that are delaying or preventing the necessary adjustments to restore a balanced and stable market for future sustainable growth. I will go even further. The policies of the Obama Administration are not merely retarding the market's adjustment to the post-boom environment. The policies and regulations being implemented by Obama and the Congress are undermining the very existence of a functioning market economy.

We are now in a crisis of anti-capitalist policies not seen to this degree in America since the New Deal days of the Franklin Roosevelt Administration in the 1930s. Washington is literally taking over ownership of or control over entire sectors of the economy, by which I mean the automotive and financial markets.

Also, their planned regulations over industry in the name of the environment and fighting "climate change" will mean that government will have a directing hand of how virtually every product is produced; government will dictate with what technologies they are manufatured, and what their finished forms will be as consumer goods that the public will be forced to accept. This will include price and wage controls and caps, regardless of the names and rationales under which it is implemented.

We are heading down a road that leads to national socialism. That is, industrial fascism and socialist-style redistribution of wealth in the name of "social justice."

Daily Bell: How will the financial crisis end?

Dr. Ebeling: If the government hadn't so heavily meddled and intervened last year and this year, I would have said that recovery from the recession would likely to have been no more difficult and no longer than many of the post-World War II cycles of booms and busts.

But with the push towards economic fascism our problem is much more serious. In addition, the growth in government spending and the huge deficits as far as the eye can see are making any usual return to "normalcy" far more uncertain.

Under the Bush Administration government spending was out of control, and the Federal debt grew from around $5 trillion to over $10.6 trillion. Now the Obama Administration is planning to balloon this trend even more with national health insurance, greater government spending on all levels of education, huge financial bailouts that seem to have no end, and misnamed "stimulus spending" in a drive to "create jobs" before the 2010 and 2012 elections.

What I see is: higher taxes on the wealthy and the middle class; higher interest rates due to the huge budget deficits; a falling dollar on the exchange markets caused by foreign lenders having concerns about the future of the American economy; rising prices caused by Federal Reserve monetary inflation; and a sluggish economic recovery resulting from the Federal government's very heavy handed intervention in the U.S. private sector.

But other than all of this, we are doing just fine!

Daily Bell: Will the dollar still be the reserve currency?

Dr. Ebeling: Over the last year, a number of foreign governments, including China and Russia, have called for reducing or eliminating the dollar as the global economy's reserve currency. There is talk of a shift to a new artificial currency that would be issued and controlled by the International Monetary Fund.

Any transition from the dollar to some other national currency or an IMF-created money as the generally used and accepted global reserve currency would take quite a bit of time and would require a variety of international agreements and regulations.

But if this happens at some point, the government of the United States will have caused it. It will have been Washington's fiscal irresponsibility and the Federal Reserve's monetary mismanagement that will finally create the incentive and opportunity for other nations to abandon the dollar on the global market.

Daily Bell: Will there be increased centralization of banking and regulation worldwide? Is this a good thing, in your opinion – the various remedies that have been put forth?

Dr. Ebeling: It appears that either individually or through some international consort, the governments of the major countries of the world will introduce new and more intrusive banking regulations and oversight. This should not be welcomed.

First, the financial markets in America and in Europe, for example, are not suffering from a lack of regulation. The regulatory hands of government and central banks have been and are very active in financial markets.

Second, more regulations will only reduce bank and investment flexibility and innovation that are essential for a growing and changing world economy.

Third, the more government intervenes in and regulates the financial markets, the more investment decision-making becomes politicized. Rather than banks and other financial institutions properly performing their necessary intermediation role guided by the prospective profitability of market-based investment opportunities, they are "influenced" or dictated to allocate society's scarce and valuable savings and capital on the basis of political pull and ideological interest groups.

This undermines the working of a core sector of any functioning market economy.

Daily Bell: Where do you see gold headed pricewise? How about silver?

Dr. Ebeling: In inflationary and politically unstable times, gold and silver have historically been important hedges for the investor to protect himself to some degree. I think we are in such times, again, and gold and silver are likely to remain high, and if inflation worsens they will rise in price even more.

Daily Bell: What would be an ideal portfolio in the current environment?

Dr. Ebeling: Well, I would suggest it would not be bad idea to bet against the dollar. That is, the Federal budget deficits and Federal Reserve's monetary policy, in my opinion, will result in a further decline in the value of the dollar on the foreign exchange markets. Holding at least part of your portfolio in monies other than the dollar will likely put you on the winning side of the coming dollar devaluation.

Daily Bell: How long will this leg of the business cycle continue?

Dr. Ebeling: We must distinguish between a real, healthy and sustainable recovery, and the artificial stimulus that government-funded public works projects and a Federal inflationary policy will generate.

A sound, market-based recovery, I fear, is not around the corner. An illusionary recovery that will merely lead to another slump down the road is more likely.

Daily Bell: What's most important to you that you would like our audience to be aware of and support?

Dr. Ebeling: We are living in what are momentous times. But its significance comes from the fact that the world seems to be once again turning its back on individual freedom, limited government, and free markets. Our property rights are coming under severe and dangerous attack from the governments under which we live. Each and every one of us is called upon by both conscience and self-interest to oppose this direction. We don't need another century of disastrous experiments with planned economies and heavily paternalistic governments. The cause of liberty and prosperity for our children and ourselves depend upon our success in resisting this ominous trend.

Daily Bell: On behalf of all of our readers we thank you for sharing your views with us. And we encourage all readers to visit your site to learn more about your groundbreaking insights.

After Thoughts

It's a great pleasure to speak with Dr. Richard Ebeling, as he has been able to forge an exciting career that focuses squarely on free-market economics despite obstacles that must have stood in the way.

Richard grew up and pursued his career at a time when most people, even in academia and economics, probably thought that "Mises" was a kind of mite. So … our collective hat is off to him. He managed his professional journey in a field that basically didn't exist during much of the latter half of the past century – and still is not exactly popular in the leftist groves of academia.

That wasn't enough! In an incredible wrinkle, Richard sojourned overseas with his wife and discovered lost papers of Ludwig von Mises, the father of modern-day free-market economics. That sure was some serendipity (actually, hard work and perspicacity, no doubt). Yet it didn't end there. On his return, he takes over FEE, badly damaged and listing, and turns it right around. Thanks, Richard – FEE is a great enterprise.

It is testimony not only to discipline but also to optimism that Richard has accomplished so much. Thus, we would like to add one more point. We hope that Richard, like our readers, will consider how far the free market movement has come and how many resources it has now compared to the 20th century. Yes, governments may seem more oppressive than ever, as Richard points out, but the Internet itself has educated millions about free markets and the need to create more freedom with less regulation.

We know Richard recognizes this because he has been part of this extraordinary Renaissance that has helped resuscitate FEE and bring the wonders of free-market economics to so many new ‘Net surfers and students. He is proud, we are sure, not only of what he has accomplished, but for all that lies ahead.

Others will stand on his shoulders. You know, Richard, when they look behind, they will see the progress that has been made – and be grateful to honest, intelligent people like yourself. When they look ahead, they will perceive what is yet to come.

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