Arguments about interest rates are, at heart, moral and not mathematical...
WE PAUSE A MOMENT to pay our respects to one of the last great economists of his generation, Kurt Richebächer.
He died last week in Cannes, with his family at his bedside. He was 88 years old.
Dr.Richebächer spent the last ten years of his life spreading the gospel of Austrian economics. It's ironic that he should die just as many of his predictions about the abuse of credit are coming true. For he, like other economists in the Austrian school, understood that growth in credit above available savings is how the entire business cycle is thrown out of whack.
Huge structural imbalances in the economy – in the case of this latest credit bubble, the global economy – ensue.
We learned a lot from the Doctor, mostly in our years in Europe and especially in France, where he would often call our desk to vent about the latest statistical outrage. We'd pick up the ringing phone, say hello, and hear something like, "Mr.Denning, the CPI numbers are a total fraud. It is ridiculous. Do Americans really believe prices are not rising?"
We also learned that proper gentlemen do not eat quiche Lorraine at their desk. On one of his trips up to Paris, Dr.Ricehbacher came by our office near Hotel Deville to visit and have lunch. "Would you like me to bring something back and we can eat here?" we asked, thinking he'd rather not make the four-block walk with his silver-tipped cane. The Doctor was injured in a training accident in World War two as a solider in the German army. His leg never fully healed, but his injury prevented him from seeing combat, which probably turned out to be a good deal.
"No, no, Mr.Denning! We will not sit at our desks and eat like barbarians. You and I will sit down and have a proper, civilized meal."
We've eaten "al desko" many times since, but never without thinking of the Doctor's old world admonitions.
But our clearest memory is a quiet afternoon we spent with him in the lobby of the Raphael Hotel on Avenue Kleber just off the Champs Elysses. Sipping a cup of coffee, he tossed a magazine onto a large pile of other magazines, all full of superficial headlines.
"The problem, you see, is not an economic one. You can measure it with statistics and analyze it in the fashion I do, although no one does this work anymore. There are very few real economists who understand these things anymore. But the real problem is just this...
"What we are doing to our children with this use of credit and debt is deeply immoral. It is wrong. It is wrong to burden the future with our mistakes, our conceits, our ambitions.
"This is what we are doing, and it is shameful."
We never forgot that. Economics started out as moral philosophy, because it was the analysis of decisions people make about money. But decisions are based on judgment, sometimes rational, sometimes not. And judgment is based on principles...about what works...what is fair...or what is right and what is wrong.
Arguments about interest rates are, at heart, moral and not mathematical.