Brad DeLong is a major economist with a major problem: He cannot bother to try to understand points of view which do not bolster up his position as court wizard in the managerial class of the modern technocratic polity. So when he attacks those who oppose the court wizard system of economic advisors (and their adjuncts and rotating members in the university system), he imputes to them positions they do not hold. He accuses them of them of some sort of Yokel Theory, a Dumbass Economics.

That’s my interpretation, anyway. (Some animosity can be detected here. I’m not trying to hide it.)

Here’s the most recent example, his “Another Note on Von Mises’s (and Ron Paul’s) Monetary Mental Disorder,” all of which is worth reading, but the last half of which is especially bizarre:

1. The point of view underlying von Mises’s—and von Hayek, and Marx, and Ron Paul—complaint against fiat money in general and monetary management of the business cycle in particular is this: that value comes from human sweat and toil, not from being clever. Thus it is fine for money to have value if it is 100% backed by gold dug from the earth by sweat and machines and muscles (even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it). But it is not fine for money to have value simply because it is useful for buying things. There is, von Mises—and Marx, and von Hayek, and Ron Paul—think, something profoundly wrong on an economic and on a moral level with procedures that create value that is not backed by, in Marx’s case, human labor, and in von Mises’s and von Hayek’s case human entrepreneurial ingenuity. And in its scarier moments this train of thought slides over to: “good German engineers (and workers); bad Jewish financiers”.
   

2. Note that this does not just apply to fiat money produced by a government.
   

3. This applies to all financial market asset valuations in excess of capital cost of production (or perhaps the value of the inventions of the gigantic Krell-like brain of John Galt). They are, to von Mises, all cheats. Thus Von Mises loathes fractional reserve bankers and IPO-mongers as much as he loathes modern central bank chairs.
   

4. The “value equals cost of production constant returns to scale” viewpoint is an astonishingly powerful set of blinders to wear.
   

Before we begin to take this apart (and I’m not going to be complete), look at it, first, as an artifact of rhetoric and manners.

DeLong constantly refers to Mises and Hayek as “von Mises” and “von Hayek.” During his lifetime, Hayek repudiated the use of the “von” in his name. He just didn’t use it, didn’t think it was appropriate in the present age. Thought it an atavism. Mises, on the other hand, kept it, but almost none of his students and colleagues referred to him as “von Mises.” They just used the single word, “Mises,” when citing him.

So ask yourself: Why does DeLong persist on using those “vons”?

This is not a hard question to answer. He’s trying to load the rhetorical weight against his targets in his readers’ minds while seeming to be formal and respectful. Because he’s actually showing great and obvious disrespect to Hayek — by not using the name Hayek preferred, backhandedly imputing an old sense of aristocracy that Hayek had no truck with — and insinuating that Mises was somehow wrong to be so old-fashioned as to continue to use it as his formal title. DeLong occasionally even capitalizes the “V” in “von,” which is just wrong, it wasn’t done. It’s a country-bumpkin sort of error.

All the better to rub his readers’ noses in Austro-Hungarian aristocratic custom, hoping they come away sneezing. It’s a rhetorical ploy. It’s more subtle than calling DeLong, say, “Asshole DeLong.” But it’s not greatly different.

How’s that, exactly? Since DeLong argues that Hayek and Mises (as well as Ron Paul) fall prey to an old-fashioned fallacy, tarring them with an old-fashioned nomenclature helps reinforce his thesis.

I’d say “nice try,” but it isn’t nice. It’s just the opposite.

The substantive points DeLong makes are even more bizarre. He says that Mises and Hayek and Ron Paul share with Karl Marx (he brings this hoary figure up not only because he knows that his three main targets loathe Marx’s politics, but also — unmentioned by DeLong — one of Mises’ main claims to fame is demolishing the very idea of Marxian socialism as a workable economic policy) a view of the value of money that’s just so stupid and old-fashioned that we can just characterize it and laugh them off. Their view of “value,” says DeLong, is that it “comes from human sweat and toil, not from being clever.”

Pretty dumbass, huh?

Unfortunately, it has nothing to do with Austrian economics, and certainly not the Hayekian and Misesian views of money.

Indeed, value comes from utility as bounded by scarcity. It’s inherently subjective — that is, relational — for the Austrians starting with Menger. Mises explains his view of the value of money in The Theory of Money and Credit, and I don’t believe DeLong will be able to mine that book for any evidence to back up his claim that Mises regarded value as coming from “sweat and toil.”

Indeed, things gain value as they are useful, and it doesn’t matter, on that level, if they’ve been elaborately produced or just found lying on the beach.

A gold nugget one pulls out of the sand is just as valuable as a gold nugget mined on the Moon. The cost in terms of labor means nothing. The costs only influence how much effort people will put into engaging in this production plan or that to extract the valuable thing, or use of the thing or service.

This is basic Austrian economics. You can learn this by reading Menger, Böhm-Bawerk, Wieser, Mises, Hayek, Kirzner, Rothbard, or whoever. (See Jonathan M.F. Catalán’s note on the Mises Economics Blog for more on this.) It’s a major theme.

It’s entirely the opposite of what DeLong is saying.

So why does DeLong say it?

Perhaps because he sees members of his class, the college-trained mathematical economists, as the world’s oh-so-clever saviors, the court wizards to the late democratic-republican maximum interventionist state. (What De Jasay calls “the churning state.”) And he thinks his class can manage the money supply and its credit functions to leverage “the law of large numbers” over time (“duration transformations”) like a finely tuned watch. The problem, as he sees it, are political obstacles to their power and control. People like Ron Paul push back, and stir up the populace against them.

Of course, Ron Paul has pretty much played John the Baptist until recently. He was a voice crying in the wilderness, and he had little effective check on the insiders’ power. Blaming him for past mistakes like the 2008 housing and mortgage after-market bubble is like blaming Pharaoh Akhnaten for the Pope’s theology. It’s irrelevant.

DeLong should be interested in Austrian analysis of credit over time — “duration transformation” is what it is all about. And Austrians have interesting facts as well as fascinating theory to show why DeLong’s reliance upon “clever” policy is really just trickery.

It should be remembered that fraudsters are clever. Simple savers and investors are rarely as clever as a Madoff or Ponzi. (Obviously, I believe DeLong’s cleverness and the uses he puts to it are in the Madoff mode, not the Steve Jobs mode.)

1. There is, von Mises—and Marx, and von Hayek, and Ron Paul—think, something profoundly wrong on an economic and on a moral level with procedures that create value that is not backed by, in Marx's case, human labor, and in von Mises’s and von Hayek’s case human entrepreneurial ingenuity.
   

This admits that Mises and Hayek do admire intelligence and knowledge. But it misses the point about their understanding of the nature of cleverness in fraud. Adding the dimension of time complicates simple analysis, and Austrians have, since Menger, been very conscious and curious about how time affects the analysis of value. And co-ordination. They’ve been aware how real-world activity takes place in time. And how something successful at time T1, T2... doesn’t necessarily remain successful at Tn. Especially when money supplies change. People can be tricked (or fool themselves) into mistaking monetary effects for real effects, and base their decisions on that error.

DeLong, a trickster at heart — oh, how he loves appearing clever! — balks at those who explore such problems. Because his method is to engage in sleight-of-hand at this very level.

Still, we have to cut him a little slack. Hayek and Mises were giants. But Ron Paul is not. He’s a politician. He’s playing to the crowds. Has to. And as such, he sometimes does step into the dog doo of Dumbass Econ. That is, Ron Paul occasionally sounds like he’s promoting a witless skepticism about money, not a sophisticated Mengerian/Misesian view. Ron Paul has indeed said things like “paper money isn’t real money, it has no real value,” and that gives anyone with a sophisticated sense of what money is (which is: what money does) a strong aversion. It understandably raises hackles.

It’s certainly raised mine.

And Ron Paul isn’t the worst offender. Not by a longshot.

How many times have you heard a libertarian hold up a dollar bill and say “this isn’t worth anything”?

Somebody once said that in front of one of my smarter libertarian friends, and my friend had the proper response: “Then give it to me.”

You see, the issue is rarely “is this real money” or “is this fake money” or is this “not money.” The essential issue is: How stable in value is this money over time? Can we base reasonable, real-world plans upon its enduring value. Or must we switch to some other medium of exchange? Which form of money works better? Which unit will hold its value?

These are marginal issues, in which one compares one discrete thing to another. They are not matters settled by a binary All-YES / All-NO answer. The kind that politicians like to play up. The kind that popular rhetoric almost always assumes.

The common, rube-libertarian/vulgar libertarian “paper money has no value” kind of talk implies that one believes in intrinsic value, not subjective value, and it throws marginally sophisticated thinkers (sophisticates) like De Long way off.

Of course, in his better moments Ron Paul doesn’t say stupid things like that. He says that, without a backing by gold (he usually elides the necessary qualifier “or other hard assets”) paper money’s value will degrade over time. And Ron Paul’s recent statement that he bought gold in 1971, and that he’s now being proven right by the European and American financial collapses, ongoing, is quite on point. It does not rely upon Dumbass Econ. It relies upon an understanding of the supply of and demand for money. (It should be noted that this post, by Gregory White, has a title that implies a Dumbass Economics point of view, without quoting Ron Paul as actually saying anything dumbass.)

But every time a libertarian or hard-money advocate oversimplifies, he gives aid and comfort to the Trickster Class, to which Brad DeLong is a member in good standing.