Facebook’s shares finally went public Friday and the first trade was entered at $42.05 a share.
ABCT stands for Austrian Business Cycle Theory.
Howard Buffett’s Letter to Murray Rothbard, Austrian Economist
See the letter here:http://www.economicpolicyjournal.com/2012/05/warren-buffetts-father-tried-to-teach.html
Warren Buffett’s Father Tried to Teach Warren About Austrian Business Cycle Theory
Political philosophy
Howard Buffett is remembered for his Libertarian stance, having maintained a friendship with Murray Rothbard for a number of years.[6] He “would invariably draw ‘zero’ ratings from the Americans for Democratic Action and other leftist groups.”[7]
Buffett was a vocal critic of the Truman Doctrine and the Marshall Plan.[3] Of the Truman Doctrine, he said: “Our Christian ideals cannot be exported to other lands by dollars and guns.”[8] Buffett was also “one of the major voices in Congress opposed to the Korean adventure,”[7] and “was convinced that the United States was largely responsible for the eruption of conflict in Korea; for the rest of his life he tried unsuccessfully to get the Senate Armed Services Committee to declassify the testimony of CIA head Admiral Roscoe H. Hillenkoetter, which Buffett told [Rothbard] established American responsibility for the Korean outbreak.”[9]
Speaking on the floor of Congress, he said of military interventionism that,
| “ | Even if it were desirable, America is not strong enough to police the world by military force. If that attempt is made, the blessings of liberty will be replaced by coercion and tyranny at home. Our Christian ideals cannot be exported to other lands by dollars and guns. Persuasion and example are the methods taught by the Carpenter of Nazareth, and if we believe in Christianity we should try to advance our ideals by his methods. We cannot practice might and force abroad and retain freedom at home. We cannot talk world cooperation and practice power politics.[9][10] | ” |
In the summer of 1962, he wrote “an impassioned plea… for the abolition of the draft” in the National Review.[5] Buffett wrote:
| “ | When the American government conscripts a boy to go 10,000 miles to the jungles of Asia without a declaration of war by Congress (as required by the Constitution) what freedom is safe at home? Surely, profits of U.S. Steel or your private property are not more sacred than a young man’s right to life.[5] | ” |
In addition to non-interventionism overseas, Howard Buffett strongly supported the gold standard because he believed it would limit the ability of government to inflate the money supply and spend beyond its means.[11] His son Warren Buffett is not an advocate of the gold standard.[12][13]
Letter
Somewhere I had read that you wrote a book on the “Panic of 1819″. If this is correct, I would like to know where I can buy a copy of it. I have a son who is a particularly avid reader of books about panics and similar phenomenon. I would like to present him with the book referred to.
Here is a link to the mentioned book, The Panic of 1819, http://mises.org/rothbard/panic1819.pdf A facinating read.
The Panic of 1819
In 1819 a financial panic swept across the country. The growth in trade that followed the War of 1812 came to an abrupt halt. Unemployment mounted, banks failed, mortgages were foreclosed, and agricultural prices fell by half. Investment in western lands collapsed.
The panic was frightening in its scope and impact. In New York State, property values fell from $315 million in 1818 to $256 million in 1820. In Richmond, property values fell by half. In Pennsylvania, land values plunged from $150 an acre in 1815 to $35 in 1819. In Philadelphia, 1,808 individuals were committed to debtors’ prison. In Boston, the figure was 3,500.
For the first time in American history, the problem of urban poverty commanded public attention. In New York in 1819, the Society for the Prevention of Pauperism counted 8,000 paupers out of a population of 120,000. The next year, the figure climbed to 13,000. Fifty thousand people were unemployed or irregularly employed in New York, Philadelphia, and Baltimore, and one foreign observer estimated that half a million people were jobless nationwide.
Read more: http://www.digitalhistory.uh.edu/database/article_display_printable.cfm?HHID=574
Austrian Business Cycle Theory (“ABCT”)
A seven minute video described http://www.youtube.com/watch?v=5K4Os5eXPw4
ABCT briefly explained here:http://mises.org/daily/672
And refuted here: http://econlog.econlib.org/archives/2008/01/whats_wrong_wit_6.html
Remember to always seek out ideas, thoughts and conclusions DIFFERENT from your own or the original premise that you are investigating.
Note the comment about Warren Buffett’s avid study of panics. Hint.
Enjoy your weekend
John,
It’s nice you’re trying to play fair by posting Caplan’s “refutation” of ABCT, but in reality the man’s “Why I’m Not An Austrian” is an embarrassment. It demonstrates he clearly doesn’t understand Austrian economics at even a basic level. He then attempts to critique a straw man from that position of ignorance.
No wonder he’s at GMU, where all the Austrian wash-outs go.
One flaw in his argument: He says that if Entrepreneurs are so good at allocating resources in the economy, then how can they be fooled into participating in a bubble? He should get out of the Ivory Tower and talk to a few. I spoke to a mortgage broker who saw and predicted the boom and collapse, but unless he allowed his salesmen to sell, then he would have had to close up shop and lose people making it harder to remain in business or start up again AFTER the bust.
The bottom line is any centrally controlled, manipulated price (Interest Rates) creates huge distortions and MAL-investment.
Hi John,
Yes, you raise an interesting question: why doesn’t Caplan come down from his ivory tower and speak to REAL business people to understand why they react to central bank monetary manipulation as they do?
The good thing, I guess, is he could’ve figured it out even if he didn’t practice any empirical observation and instead relied on logical deduction from theory. For example:
1.) Cantillon effects– the new money/loans in the economy are not equally disbursed to all participants simultaneously. They find their way to favored firms and institutions closest to the central bank, first. These firms have first use of the new money before other actors in the economy have adjusted their prices to represent the new supply. They necessarily are able to command greater REAL savings than the unhampered market would’ve given to them in the first place, generating direct malinvestment.
2.) A business man could look at the state of the economy and say, “Okay, I know banks are only reserving 10% of their deposits, so that means that 90% of the loans being made are not necessarily representative of people’s real desire to save”. But then it becomes like the joke about advertising, “I know 50% of my advertising budget is effective, I just don’t know which 50%”. This rational businessman could realize that 90% of the loans aren’t necessarily backed by real savings… but which 90%? How do you figure out which projects are the real ones, demanded by the market and backed by real savings, and which projects are based upon fictitious demand created by FUNNY MONEY? The reality is, it’s all mixed up and it’s difficult to tell until the bust arrives.
3.) As you mentioned, a business person could recognize that there is a boom afoot and choose not to participate. But he risks two things: a.) that he has misjudged, it is not an unsustainable boom and the economy passes him by or b.) his competitors gain so much market share as he huddles down in his bomb shelter that, even after the bust wipes many out, the survivors have so weakened him competitively that he can’t come back. Most businesses aren’t set up so that the capitalist/owner can just switch them off while a CB-fueled boom-bust cycle is taking place…
4.) Finally, and maybe this one takes descent from the ivory tower to confirm but I should think it should be obvious without it– MOST PEOPLE DON’T UNDERSTAND THE BUSINESS CYCLE!! This includes most businessmen. Austrian econ and ABCT is a minority viewpoint in the world and most people, including most businessmen, are not academics and intellectuals that spend their waking hours considering esoteric economic formulae and theory. To most people, the availability of loanable funds and low interest rates is where the buck stops in their economic thinking. They don’t “look behind the veil” to see what’s driving such availability. They don’t have time and they don’t care– they’re struggling to survive and grind out a buck in the face of constant CB inflation… a rat race they once again have no idea they’re running in or why.
Thanks Valueprax:
Excellent post. I hope many reading this will go to your blog: http://www.valueprax.wordpress.com
And for those who DO want to learn—an excellent resource: http://lewrockwell.com/woods/woods177.html