This sequence is in no way intended to be a defense of free banking. It’s intended to teach a sufficient amount of economics such that, among other things, disagreeing with central banking falls out of it, in much the same way that teaching a sufficient amount of rationality should produce atheism as a side effect. If people say at the end of the sequence, “Geez, I sure learned a lot of economics, and incidentally I no longer think central banking is a swell idea,” I would take that a sign of success, and if they said the opposite I would take it as a sign of failure. But if people said at the end, “Now I think free banking is swell,” I would not take that as a sign of success, and if people said at the end, “I still don’t think free banking is swell,” I would not take that as a sign of failure. Thinking central banking is a bad idea simply doesn’t imply that free banking is a good idea.
When I say that economists have no explanation for central banking, this isn’t supposed to say that there aren’t any intellectual reasons economists support central banking or that individual economists don’t have their own rationales. But these don’t take the form of arguments that justify other entities like the FDA or other regulations like Pigovian taxes. Nor does central banking look like an targeted minimally intrusive intervention that addresses the various specific issues with free banking. This is because it isn’t, of course. If you had never heard of central banking, and then you noticed those various problems in the banking market, would central banking really be the best idea you would come up with to solve those problems?
Saying that someone is motivated by self-interest doesn’t mean they are motivated by impure thoughts. That’s not how the algorithm feels from the inside. It is my hypothesis that self-interest has dramatically lowered the intellectual standards of economists relative to central banking. That looks bad from the outside, but from the inside it feels normal and that’s just how things are. That’s why economists can be satisfied with their own weak individual rationalizations, like, say, the deadweight loss from dealing with too many different currencies, which would never in a million years persuade economists of central banking if they weren’t already persuaded of central banking and/or had lowered intellectual standards for some reason. But they’re not thinking bad thoughts, and I’ll never use self-interest as an ad hominem against economists who support central banking.
As far as politics goes, the truth of the matter is that I didn’t make up my mind about the merits of central banking until after months of research and thought. The project was the result of genuine curiosity about just why economists treat banking so much differently from other industries after I was shocked by the way Mankiw completely glossed over free banking in his textbook. The problem wasn’t that he supported central banking. The problem is that’s not how economists do things. I was just trying to find the answer to that question, and ended up destroying my own confidence in central banking. I’m not a libertarian nor an Austrian economist, and most of the articles in this sequence should be pure economics. Now, I might use examples from politics when doing so is really convenient—the disasters of price controls make the function and role of prices so very clear—but if even that turns out to be a problem, I’ll find different examples.
Actually it sounds to me like you don’t yet know sufficient economics to be sure that “disagreeing with central banking falls out of it.” Mankiw seems to be saying that he doesn’t know sufficient economics to be sure that “disagreeing with central banking falls out of it”, and he doesn’t think anyone else does either.
There is (maybe) an interesting topic here, but don’t presume your conclusion. What if you learn sufficient economics and realize that “agreeing with central banking falls out of it” instead?
So let me try to clarify a few things here.
This sequence is in no way intended to be a defense of free banking. It’s intended to teach a sufficient amount of economics such that, among other things, disagreeing with central banking falls out of it, in much the same way that teaching a sufficient amount of rationality should produce atheism as a side effect. If people say at the end of the sequence, “Geez, I sure learned a lot of economics, and incidentally I no longer think central banking is a swell idea,” I would take that a sign of success, and if they said the opposite I would take it as a sign of failure. But if people said at the end, “Now I think free banking is swell,” I would not take that as a sign of success, and if people said at the end, “I still don’t think free banking is swell,” I would not take that as a sign of failure. Thinking central banking is a bad idea simply doesn’t imply that free banking is a good idea.
When I say that economists have no explanation for central banking, this isn’t supposed to say that there aren’t any intellectual reasons economists support central banking or that individual economists don’t have their own rationales. But these don’t take the form of arguments that justify other entities like the FDA or other regulations like Pigovian taxes. Nor does central banking look like an targeted minimally intrusive intervention that addresses the various specific issues with free banking. This is because it isn’t, of course. If you had never heard of central banking, and then you noticed those various problems in the banking market, would central banking really be the best idea you would come up with to solve those problems?
Saying that someone is motivated by self-interest doesn’t mean they are motivated by impure thoughts. That’s not how the algorithm feels from the inside. It is my hypothesis that self-interest has dramatically lowered the intellectual standards of economists relative to central banking. That looks bad from the outside, but from the inside it feels normal and that’s just how things are. That’s why economists can be satisfied with their own weak individual rationalizations, like, say, the deadweight loss from dealing with too many different currencies, which would never in a million years persuade economists of central banking if they weren’t already persuaded of central banking and/or had lowered intellectual standards for some reason. But they’re not thinking bad thoughts, and I’ll never use self-interest as an ad hominem against economists who support central banking.
As far as politics goes, the truth of the matter is that I didn’t make up my mind about the merits of central banking until after months of research and thought. The project was the result of genuine curiosity about just why economists treat banking so much differently from other industries after I was shocked by the way Mankiw completely glossed over free banking in his textbook. The problem wasn’t that he supported central banking. The problem is that’s not how economists do things. I was just trying to find the answer to that question, and ended up destroying my own confidence in central banking. I’m not a libertarian nor an Austrian economist, and most of the articles in this sequence should be pure economics. Now, I might use examples from politics when doing so is really convenient—the disasters of price controls make the function and role of prices so very clear—but if even that turns out to be a problem, I’ll find different examples.
Actually it sounds to me like you don’t yet know sufficient economics to be sure that “disagreeing with central banking falls out of it.” Mankiw seems to be saying that he doesn’t know sufficient economics to be sure that “disagreeing with central banking falls out of it”, and he doesn’t think anyone else does either.
There is (maybe) an interesting topic here, but don’t presume your conclusion. What if you learn sufficient economics and realize that “agreeing with central banking falls out of it” instead?