New Austrian School of Economics – The real bills doctrine of Adam Smith and the social circulating capital

Martineum Academy Szombathely, Budapest Hungary
5th – 13th March 2011

Guest Lecturers: Sandeep Jaitly, Darryl Schoon and Rudy Fritsch

This is the second in a four-course series on Austrian Economics, a branch of economic science based on the work of Carl Menger (1840-1921). The school is meant for those (incl. beginners) interested in the Austrian theory of money, credit, and banking, with special emphasis on the present financial and economic crisis. The complete program consists of four courses (10 days, 20 lectures each). Completion of each of the four courses will earn one credit. Participants who have accumulated four credits will earn a diploma signed by Professor Fekete. The four courses are:

  • Course I: Disorder and Coordination in Economics
  • Course II: Adam Smith’s Real Bill Doctrine
  • Course III: The Austrian Theory of Interest and Discount
  • Course IV: The Austrian Theory of Money, Credit, and Banking


Course I was given in Budapest in August, 2010, and is available on DVD’s

Registration Information:

The fee for participation in Course II of NASE is EUR 1200. This includes tuition, plus accommodation for ten nights (from Friday, March 4, through Sunday, March 13), breakfast and lunch every day for the nine days. In addition to this, a closing banquet is also included in the fee. The participation fee does not include travel costs, nor the evening meals, but dinner is available on the premises at approx. EUR 7 for those who order it in advance. Also there are restaurants outside Martineum where you can sample traditional Hungarian cuisine.

There is a EUR 200 non-refundable pre-registration fee that will be credited toward the tuition fee.

Scholarships in the value of EUR 500 and EUR 1000 are available for students, provided that they have paid the pre-registration fee.

Timetable and syllabus:

Saturday, March 5. Morning session, 9:30 a.m.

Lecture 1. (Fekete) Ayn Rand’s Hymn to Money. Paper money is the root of all evil. Gold money is the root of all good. That’s why “golden age” connotes with the greatest periods of civilization. Blueprint for the “unadulterated gold standard”. The battle cry: “Open the Mint to Gold!” The bill market and the discount rate versus the bond market and the rate of interest. The canard: “not enough gold in the world”. A New Golden Age.

Afternoon session, 2:30 p.m.

Lecture 2. (Weiner) Discussion paper on the permanent backwardation on gold and silver with reference to the beginning of hyperinflation.

Sunday, March 6. Morning session, 9:30 a.m.

Lecture 3. (Fekete) Don’t fix the dollar price of gold! Let the gold eagle soar without the heavy baggage of dollar debt. Don’t let the banksters sabotage the gold standard again. The world without banks. The Real Bills Doctrine. Self-liquidating credit. Why gold?

Afternoon session, 2:30 p.m.

Lecture 4. (Fekete) Credit Unions. The invisible vacuum cleaner. The pleasure of being cheated. The Quantity Theory of Money in a non-linear world. Friedman’s monetarism: “Human action or horse action?” Closed shop or right to work?

Monday, March 7. Morning session, 9:30 a.m.

Lecture 5. (Fekete) The two sources of credit: (1) credit arising out of savings; (2) credit arising out of consumption. Lending versus clearing. Interest rate versus discount rate. Uses and abused of credit. The philosophical school of positivism. Social Circulating Capital. Present goods versus  future goods. The regime of irredeemable currency. Hayek’s “extended order of information”.

Afternoon session, 2:30 p.m.

Lecture 6. (Fekete) The Second Greatest Story Ever Told. Origin of the real bill. The miracle of one gold coin performing the job of two (or, for that matter, of several). “A small step for man, but a giant step for mankind.” The merchants of Seville: Clearing and gold coins at the great medieval fairs.

Tuesday, March 8. Morning session, 9:30 a.m.

Lecture 7. (Fekete) The Invention of Discounting. No lending nor debt is involved in discounting. The discount rate is independent of the rate of interest: their sources are different. The Achillean heel of monetary science: the Quantity Theory of Money. The demand for real bills

Second morning session,  11:00 a.m.

Lecture 8. (Fekete) The Social Circulating Capital. Variation in the size and composition of the Social Circulating capital. The marginal productivity of the Social Circulating Capital.

Afternoon session, 2:30 p.m.

Lecture 9. (Jaitly) Misconceptions about the Gold Standard. The unadulterated gold standard.

Wednesday, March 9. Morning session, 9:30 a.m.

Lecture 10. (Fekete) Adam Smith on real bills. “Highway in the sky”. His concept of the Social Circulating Capital

Second morning session,  11:00 a.m.

Lecture 11. (Fekete)  Arbitrage of the retail merchant between the Social Circulating Capital and the bill market The marginal productivity of the Social Circulating Capital and the discount rate.

Afternoon session. 2:30 p.m.

Lecture 12. (Fritsch) The Discount House. The mystery of the discount rate. One discount rate or many? Arbitrage. The hijacking of the Social Circulating Capital by the banks. The rise and fall of the Discount House.

Saturday, March 12. Closing Banquet. 7:00 p.m

Sunday, March 13. Morning session, 9:30 a.m.

Lecture 19. (Fekete) Borrowing short and lending long. The interest/discount spread. Non-disclosure, misrepresentation, lack of transparency. Self-liquidating loans. Mises’ evenly rotating economy and the Social Circulating Capital.

Afternoon session, 2:30 p.m.

Lecture 20. The chimera of fractional reserve banking. 100 percent gold reserve, so called. Can banks create credit out of thin air? Corruption of the gold standard. Arbitrage versus speculation. The tyranny of gold. The Haberler-Pigou effect. The relevance of the gold standard to Capitalism.

Note: Each session has three parts:
(i) 1-hour lecture
(ii) 30-minute coffee break
(iii) 30-minute discussion period

You can watch the recordings of this seminar for free on YouTube or listen to it as a podcast