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25.02.2014
Third Daily Bell Interview
The Daily Bell is pleased to present this exclusive interview with Antal Fekete.
Author: Prof. Antal E. Fekete

Daily Bell: You stated the following: "Using Menger's idea of the bid/asked spread, the two theories can be merged in a happy synthesis. Just as the price of goods is not monolithic but splits into bid and asked prices, so the rate of interest is not monolithic either: it splits into a floor and a ceiling rate. These two must be studied separately. Their rise and effect are different. The ceiling rate can be understood in terms of marginal productivity; the floor rate in terms of marginal time preference." Isn't this a bit complex for most people and is the reason why the quantity theory of money is accepted by popular acclaim?

Antal Fekete: The special theory of relativity is also a bit complex, yet you have to master it if you want to understand high-velocity physics dealing with particles moving almost as fast as light travels. It is not popular acclaim that has made the special theory of relativity valid. The trouble is that the rate of interest was never properly defined. Here is the proper definition: the rate of interest is that rate at which the stream of interest payments plus the lump sum payment of the (fixed) face value at maturity amortize the (variable) market value of the bond. The reason why economists have never hit upon this definition is that the bond market was suppressed pursuant to secular and canon law for centuries. The last ban was lifted as recently as the 19th century when the Vatican instructed confessors not to disturb penitents accusing themselves of taking or paying interest (read: buying or selling bonds). Once you accept this definition you will realize that there must be two interest rates, one having to do with the asked price and the other with the bid price of the bond.

Daily Bell: Update us on your New Austrian School of Economics. Also explain generally the main differences between your school and Mises. You seem to admire Menger more than Mises.

Antal Fekete: I admire Mises as long as he does not deviate from Menger. I feel I have to criticize Mises whenever he does. Post-Mises Austrians think that criticizing Mises is sacrilege. It is not. In science there is no Revelation. Instead, there is debate out of which truth springs in full armor in the fullness of time. Just this month, October, 2013, the New Austrian School of Economics held a Seminar at the British Museum in London where the New Austrian Economic Manifesto was formally adopted. It considers six points of disagreement between the two schools, all concerning the denial of either Menger or of Adam Smith by post-Mises Austrians.You may read it on my website for a fuller understanding of our differences.

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