Selgin's Rejection Of Austrian Theory: A Critical Analysis

George Selgin is an American economist and Senior Fellow at the Cato Institute. He has written extensively on Austrian economics, including on Ludwig von Mises' concept of praxeology. However, in recent years, he has distanced himself from the Austrian school, referring to himself as a former Austrian. In a 2012 comment, Selgin expressed support for fractional-reserve banking, which is at odds with the typical Austrian position. Additionally, he has criticised some Austrian economists for their rejection of empirical analysis, arguing that this makes their theories lack explanatory oomph. While Selgin acknowledges the influence of Austrian economics on his work, he prefers to pursue his own sort of economics.

George Selgin is a former Austrian

George Selgin is a Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives. He is also a Professor Emeritus of Economics at the University of Georgia. Selgin is an American economist and has written extensively on monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought.

Selgin is a self-proclaimed "former Austrian". In a comment on Paul Krugman's column, he wrote: "I am a former Austrian and I do believe in fractional reserve banking — honest". This comment was in reference to Krugman's question about the Austrian position on money market mutual funds. In his response, Selgin was keen to establish his mainstream economic credentials and distance himself from the "anti-fractional reserve crowd among self-styled Austrians".

Selgin's work has been influenced by the Austrian school of economics, particularly Ludwig von Mises and Friedrich Hayek. He has also been influenced by Don Lavoie, whose eclectic approach to economics included praxeology, hermeneutics, and economic history. However, Selgin has stated that he does not want to be associated with any particular economic school of thought and would rather "do [his] own sort of economics".

Selgin has criticised the Austrian school for being relatively, if not resolutely, anti-empirical. He argues that Austrians tend to reject empirical analysis and instead believe that economic policies can be determined from a priori principles. He claims that this approach fails to recognise the importance of experience and statistics in understanding and predicting economic phenomena.

Despite his criticisms and self-proclaimed departure from the Austrian school, Selgin continues to engage with Austrian economics and be associated with the school through his work and affiliations.

Selgin's advocacy for fractional-reserve banking

George Selgin, an American economist, is a Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives. He is also a Professor Emeritus of Economics at the University of Georgia and an expert on the history and economics of old-fashioned metallic coinage.

Selgin's support for fractional-reserve banking is further illustrated by his critique of Paul Krugman's column, where he expresses his agreement with the idea of money market mutual funds. Additionally, he has co-authored articles defending fiduciary media and advocating for competitive monetary systems, which are fundamental concepts in fractional-reserve banking.

Furthermore, Selgin has written extensively on monetary policy, including his advocacy for a "productivity norm," which suggests that monetary authorities should allow mild deflation in response to productivity gains to prevent economic bubbles and recessions. His book, "Less Than Zero: The Case for a Falling Price Level in a Growing Economy," exemplifies his support for fractional-reserve banking by arguing for the benefits of a falling price level.

In summary, George Selgin's advocacy for fractional-reserve banking is evident through his economic views, publications, and his association with the Modern Free Banking School. While his stance diverges from typical Austrian thought, he has been influential in shaping discussions around monetary policy and the role of central banks.

Selgin's view on the role of central banks

George Selgin is an American economist and Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives. He is also a Professor Emeritus of Economics at the University of Georgia and an expert on the history and economics of old-fashioned metallic coinage.

Selgin's research covers a broad range of topics within monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is a founder of the Modern Free Banking School, which draws inspiration from Friedrich Hayek's writings on the denationalization of money and choice in currency. A central claim of the Free Banking School is that the effects of government intervention in monetary systems cannot be properly understood without reference to a theory of monetary laissez-faire. Selgin and other free bankers argue that financial crises and business cycles are largely attributable to misguided government interference with freely-evolved and competitive monetary arrangements, including legislation granting central banks exclusive rights to issue paper currency.

Selgin advocates for a "productivity norm" in monetary policy, which holds that the growth rate of nominal gross domestic product should be such that the output price level declines along with goods' real unit costs of production. In other words, he argues that monetary authorities should allow mild deflation in response to productivity gains to prevent inadvertently fuelling unsustainable booms or economic bubbles. Selgin's ideal amounts to a version of nominal income targeting, which helped inspire the post-Great Recession movement favouring NGDP targeting.

Selgin has been a vocal critic of some of the US Federal Reserve's post-crisis policies, including its decision to permanently switch to an ample reserves or "floor" operating system, and its decision to build a "real-time" retail payments network. He has also criticised the growing movement to use the Fed's quantitative easing powers to fund ambitious government projects that bypass the normal congressional appropriations process.

Selgin's views on central banks, therefore, appear to be sceptical of their ability to effectively manage the economy and prevent financial crises. He argues that central banks' attempts to increase spending power through credit market injections distort spending patterns and can lead to investment booms and subsequent busts. He believes that central banks should instead follow a strict and unambiguous monetary rule, such as an inflation-rate target.

Selgin's critique of the Austrian school

George Selgin is an American economist and Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives. He is also a Professor Emeritus of Economics at the University of Georgia and has taught at George Mason University, the University of Hong Kong, and West Virginia University.

Selgin also critiques the Austrian School's position on fractional-reserve banking and central banking. He disagrees with the notion that a fractional-reserve banking system would be stable and flourish in a free market without a central bank and government deposit insurance. Additionally, he argues that central banks' techniques for increasing spending power distort spending patterns and contribute to economic crises.

Selgin's own research covers a broad range of topics within monetary economics, and he is a leading critic of some of the Federal Reserve's post-crisis policies. He advocates for a "productivity norm" in monetary policy, which suggests that mild deflation should be allowed in response to productivity gains to prevent economic bubbles and recessions.

Selgin's support for a productivity norm

George Selgin is an American economist and Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives. He is also a Professor Emeritus of economics at the University of Georgia. Selgin is a strong advocate for a "productivity norm" for monetary policy.

The productivity norm suggests that the growth rate of nominal gross domestic product should be such that the price level can decline along with the real (unit) costs of production. In other words, the rate of inflation is allowed to reflect the economy's underlying rate of productivity growth. Selgin argues that by preventing mild deflation in response to productivity gains, monetary authorities risk inadvertently fuelling unsustainable booms or economic bubbles, which can lead to consequent busts and recessions.

Selgin's ideal amount of nominal income targeting, which helped inspire the post-Great Recession movement that favoured NGDP targeting. This involves treating stability in nominal spending as more desirable for overall macroeconomic stability than stability in the price level or inflation rate.

Selgin's advocacy for a productivity norm is based on the belief that maintaining a constant inflation rate can be problematic if productivity growth is not taken into account. He argues that a central bank determined to maintain a stable price level or inflation target will have to forecast and offset changes in productivity, which can be challenging and lead to mistakes. On the other hand, a productivity norm does not require central banks to respond to productivity changes, making their job easier and reducing the risk of errors.

Selgin's research and ideas on the productivity norm have been influential and contributed to the development of nominal GDP targeting. He has published extensively on this topic, including books such as "Less Than Zero: The Case for a Falling Price Level in a Growing Economy" and articles like "The Productivity Gap: Monetary Policy, the Subprime Boom, and the Post-2011 Productivity Surge".

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