Neil Macdonald of the CBC recently did an investigative piece
on central bankers and what they’re doing to the world’s economies.
Mark Carney was featured heavily. He told Macdonald, “there is no secret
cabal orchestrating things,” despite CBC’s own findings earlier in the
program. Central bankers around the world meet in Basel, Switzerland
for secretive meetings. Of course, central banks have – and have always
had – enormous power that remained more-or-less hidden until 2008. A
paradigm shift is occurring where a large number of people (particularly
young people) are questioning their assumptions. Some of them are even
beginning to read economists like Ludwig von Mises and Murray Rothbard.
The “economics” of central bankers can now be revealed for what it truly
is: statistical propaganda. Not only is the “Keynesian school” of
economics unsound – the entire social science is bunk. Only the Austrian
tradition can explain economic phenomena in such a way that makes
common sense, scientific. Carney is asking us to trust him. This cannot
be done. He is not speaking truth; he is speaking nonsense.
Who is Mark Carney?
Bank of Canada governor, soon-to-be Bank of England governor. He was
born in the Northwest Territories 48 years ago. He graduated from the
University of Alberta in Edmonton before studying economics at Harvard
and getting his master’s and doctorate from Oxford. He spent 13 years
with Goldman Sachs in London, Tokyo, New York and Toronto. He then
worked for the Department of Finance under both the Liberal and
Conservative governments. He joined the Bank of Canada as a deputy
governor before moving on into the top position. This was in 2007, just
in time for the bursting of US housing bubble. Like every other central
banker in the wake of the crisis, Mark Carney lowered interest rates and
helped governments bail out large institutions.
What makes Carney unique is that he bumped up rates by a percent in
2010. Hardly a radical reversal, but it is something the US Federal
Reserve has yet to accomplish. Carney got away with it because, at the
time, Canadians were not as heavily indebted. The “boom” was still in
its infancy. Carney still threatens to raise interest rates, but nobody
believes him. All he does is give verbal warnings to Canadians that
“taking advantage” of low rates is a bad idea. Despite all those
educational institutions under his belt, Mark Carney does not understand
Now he is bailing himself out from Canada’s certain crash and heading
across the pond to lead the Bank of England. An already depressed
economy, Britain won’t be any better under Carney’s rule alas he
dismantles the Bank or at the very least raises interest rates to
astronomical levels. Carney won’t do either of those things though
because Mark Carney is a Keynesian. That is, the work of John Maynard
Keynes influence his decision-making in macroeconomic analysis. This
ideological view of society and its economic structure is one where no
capital structure exists. Absurd given that nearly all consumer goods
need some kind of input of capital stock. Keynesians also have a
peculiar view on scarcity – a view that makes no economic sense
The public tend to have an unfavourable view of economics and
economists – and for good reason. “Economics” is as dismal as it
sounds; making economic sense is a whole other ball game. For
Mark Carney, “economics” resembles something like physics and history.
Although Carney would probably concede to the notion that an economy
needs entrepreneurs and capital accumulation, his ideology assumes
inherent failures in this process that must be corrected by state
intervention. In actuality, it is state intervention that inhibits
entrepreneurship, savings and investment. Therefore the Bank of Canada
publishes nonsense. Their CPI indexes and growth estimates are results
of computer models that produce the results they expect. Lately, this
method has been failing as economies stagnate where the BoC’s arithmetic
Mark Carney’s economic methodology mimics the “hard” sciences like
physics and chemistry. But economics is not a mathematical discipline;
it involves agents who have free-will. Making economic sense requires
understanding praxeology. Praxeology is the scientific study of human
action. It is empirical but not in the sense of quantitative data.
Praxeology begins with what we know is true and broadens its horizon
through deductive reasoning. Instead of making a hypothesis of what we
don’t know and then using empirical testing to validate the hypothesis,
praxeology begins with what we do know – such as individuals act on
purpose and value is subjective – to build logical constructs. The
axioms – and the deductive reasoning built from them – are not trying to
“prove” a hypothesis. They are true because of human language and the
semiotic sign-systems we use to communicate and validate what’s real.
Therefore the logical constructs in praxeological economics don’t need
empirical testing since they can be traced to their irrefutable origin.
The Austrian tradition studies economics as understood through praxeology. This method has a long history,
starting with the Late Scholastics and revived later by Austrians such
as Carl Menger, Eugen Böhm-Bawerk and Ludwig von Mises. It survived
the 20th century by a small group of Americans before exploding
worldwide via the internet. With this school comes a deeper
understanding of how we know. Human perception is a filter of
information – five senses experiencing infinite possibilities. Language
is crucial for understanding ideas. When individuals communicate we are
quickly guessing and making decisions. Guessing if the words correspond
to an objective reality and whether to choose those words. The process
happens so fast that most of us are unaware of it; we do it
Generations of state education have perverted the language to a
degree that knowledge from logic is questionable, open to interpretation
or deemed utterly unscientific. Bureaucratic schooling demotes common
sense to the lowest common denominator. Mark Carney is a product of this
conditioning but with a more intellectually rigorous indoctrination
from Harvard and Oxford. It’s quite possible that he truly believes in
what he’s doing.
Austrian Capital Theory
The Austrian School of Economics could in some cases also be
called capital-based macroeconomics. Building from the irrefutable
axioms that individuals act, value is subjective and the assumption that
leisure is valuable good – the Austrians can build an entire framework
on the structure of production and interest rates. The most clearest
example I’ve ever come across is from Murray Rothbard’s Man, Economy & State. Particularly Figure 41:
This figure is showing an “evenly-rotating economy,” a logical
construct where certain things are assumed as to make economic
principles more clear. In this economy, Mark Carney would experience
reality as if every day were the same as the last. Risk, opportunity and
uncertainty cease to exist. People still act – there is interest
income, income to land and labour and consumer expenditure. But it is a
closed system; everything behaves like clockwork.
On the right-hand side of the figure there are numbers ascending 1-6 starting with C. C is consumption, above it is the first-stage of production, then the second, third, etc. etc. Whereas C
may be a nicely cooked t-bone steak, the stages of production are the
process in which a cow becomes a steak on your plate. The cow is at the
top, 19 ounces of gold to land and labour.
At each stage of production, a capitalist is purchasing capital goods
(the shaded blocks) to be transformed by land and labour (the white
blocks with numbers 8, 13, 12, 16, 15). For example, at the 1st
stage of production a capitalist is purchasing t-bone steaks for 80
ounces, using 15 ounces worth of land and labour to cook it and
collecting 5 ounces in interest. 80 + 15 + 5 = 100 ounces, which is what
consumers spend on the product. If we trace the t-bone steak back to
its nature-given resource we find cows. The capitalist at the fifth
stage of production buys a cow for 20 ounces, earns 1 ounce in interest
by investing in the 8 ounces (land and labour) required to butcher the
cow and sell it to the next capitalist for 30 ounces. At each stage of
production, value is added to the goods. This value is determined by the
consumers willing to spend 100 ounces on cooked t-bone steak each
In Man, Economy & State, Murray Rothbard constructs sound
economics step-by-step. Prices, he shows, are determined by individual
valuations. This process is evident in this construct which has features
to it that are not accidental. 83 ounces to land and labour and 17
ounces in interest equal the 100 ounces on consumer expenditure. While
in the real world of uncertainty these price ratios would be constantly
changing – the reality of human action keeps the economy heading in the
direction of this stationary economy. However the evenly-rotating
economy will never arrive due to people’s ever-changing valuations and
Mark Carney’s low interest rates are messing up the production
structure. If the Bank of Canada analysed Figure 41, they’d conclude
that GDP every period is 100 ounces and driven completely by consumer
spending. If the economy were in a slump, the BoC would report that GDP
is 100% consumer spending therefore we need consumers to drive us out of
recession. But how do they get that GDP figure? By comparing consumption to net investment, where Y= 100 ounces, Y=C+I+G+(X – M).
In this economy, the Keynesian framework would tell central bankers
that there’s no investment and that everything is driven purely by
consumption. But that’s not true. Consumption is 100 ounces each period,
but 318 ounces are being invested. There are 418 ounces spent each period, only 100 are directed to consumption.
Keynesians, if they are intellectually honest, must take this
absurdity further. It takes six stages of production to get to this
consumer good, but Keynesians would say everybody should consume as much
as they can and that will grow the economy. But if all those
capitalists at those various stages said “okay, let’s consume more,” and
they went to buy t-bone steaks instead of reinvesting, that would a)
push up the price of t-bone steaks, and b) create a shortage of t-bone
steaks since the capitalists didn’t bother replenishing their capital
A Keynesian may argue, “but this is good; higher prices entice
producers. Bigger, final demand.” But this is nonsensical. There aren’t
more goods to go around just because people are spending more. There can
only exist what’s actually been produced. If more buyers enter the market and push up the price, we won’t have more goods, just higher prices.
But won’t that stimulate production? No, it can’t because the
capitalists invested less in production and more in consumption. There
is no way around the physical reality of scarcity. The Keynesian
solution is to dilapidate the capital structure by diverting resources
out of gross investment and into consumption. Sometimes people change
their preferences and consume more in the present and less in the
future. This naturally changes interest rates and businesses adjust
accordingly. When Mark Carney manually lowers interest rates, he’s
leading you to believe that we can get a free lunch.
Carney’s Fallacies Exposed
Neil Macdonald sat down to interview Mark Carney for his CBC report.
Although the full interview has yet to be released, it’s evident from
excerpts that Mark Carney did not like Macdonald’s reasoning.
Carney says, “There is a logic to some of your questioning which is
that wouldn’t it be better if interest rates were really high? … You
wanna talk unintended consequences, I’ll give you the intended
consequences of that scenario which is let’s get interest rates back to
historic levels, so that the money you saved and the return on that in
your bank account is going to commence with what you expected.” In other
words, let’s make it so your money isn’t losing its purchasing power.
Carney continues, “and we have double unemployment in this country,
hundreds of thousands of people losing their homes, their businesses
because we have deflation.”
Mark Carney’s ideology is illogical: An economy with high
unemployment can be fixed by printing money and mass unemployment and
mass inflation never occur together. The 1970′s
pretty much ended this Keynesian argument until the ’08 crisis revived
the monster. The paradox of high unemployment with high inflation is
corrected by changing how governments and banks measure inflation. No
longer defined by the money supply, inflation in Canada is defined by
the Consumer Price Index. A collection of prices of goods chosen by
central bankers. Naturally, food and energy prices are excluded. The
bias is blatant.
Mark Carney has no capital theory. The effect on savings in a low
interest rate environment is to him, “a distributional implication.”
Interest rates are an objective expression of individual time
preferences – not tools to be wielded. It’s true, high rates will cause
immediate recession if not depression, but this is temporary and
necessary as the malinvestments liquidate and labour and capital find
more productive uses. When savers are no longer punished, economic
growth can occur.
In additional footage of his CBC interview, Mark Carney
reveals that he really has no idea what he’s talking about. For example:
The US Government issues bonds to finance their massive debt.
Increasingly, only the Fed is willing to buy them. So the US Federal
Reserve is the bond market. They might as well print money and
mail a cheque to everyone. But according to Carney, this is a monetary
stimulus where the Fed buys all the bonds to encourage investors to go
into something risky. Without risk, says Carney, economies don’t grow.
“You find risk in lending money to corporates or buying their shares,”
he says, “or… by investing in another country.” He doesn’t elaborate
much further, simply stating that, “that’s how economies grow and that’s
the process by which central banks are trying to restart real growth in
The financial crisis, according to Carney, was not a result of a
government and central banking interventions. Carney thinks that money –
“created in the private sector” – collapsed. By creating new money
central banks are merely “leaning into” this collapse of money that
threatened a repeat of the Great Depression. When Macdonald asked about
central banks causing asset bubbles through quantitative easing, Carney
answers in the affirmative. He says, “those are intended consequences,
not unintended consequences.”
Mark Carney has no scientific backing to justify his actions.
He is in a position that is dangerous and should not exist in a free
society. Money is a commodity; not magic wand created by state decree.
Is there an exit strategy for the Bank of Canada? What is Mark Carney’s
plan to get England out of depression? It looks as if he isn’t too
worried. Carney believes that everything depends on how governments act.
“People can elect governments that do what they want,” says Carney.
Funny, coming from the head of an institution that is supposed to remain
independent of government influence.