Rick Santelli & Jim Grant On Hazlitt's Timeless Wisdom

Tyler Durden's picture

Submitted by Doug French via the Ludwig von Mises Institute of Canada,

CNBC’s Rick Santelli used his “Santelli Exchange” segment on March 14th to highlight the wisdom of Hazlitt’s Economics in One Lesson written in 1946.

The financial network’s tea party rabble rouser and sparring partner to economist Steve Liesman said, Warren Buffett had talked that morning about reading Timothy Geithner’s new book Stress Test: Reflections on Financial Crisis and the Oracle of Omaha said maybe the government saved the world back in 2008.

Santelli highlighted chapter six from Hazlitt’s great work where he wrote that if government makes loans, that private lenders won’t make, to entities that can’t pay back, economic signals get destroyed, and chaos ensues. Hazlitt also emphasized that all credit is debt.

Another Hazlitt fan, Jim Grant of Grant’s Interest Rate Observer, delivered the Henry Hazlitt Memorial Lecture in Auburn, Alabama less than a week after Santelli’s comments.  Grant said, “I can’t imagine what the world would be like without Economics In One Lesson.”

Full Jim Grant presentation below


The  very witty Grant spoke in a humbled tone of being asked to provide the Hazlitt lecture at the Mises Institute, comparing it to a baseball journalist being asked to speak in Cooperstown.   Grant’s hero was one of the few giants in financial journalism where, Grants said, “the pinnacle, is still at sea level.”

At the young age of 22 Hazlitt figured out the future involves too many factors for anyone to predict, not to mention just knowing what the relevant factors are. Grant admitted it took him 40 years in the business to finally realize he couldn’t understand the future.

Unfortunately the folks working at the Eccles Building have not come to this realization. The PhDs believe they can depreciate the currency at the proper rate to cause everyone gainful employment and live happily ever after.

Hazlitt was on the job during a depression that no one ever mentions—the 1920-21 downturn. Christine Romer called the episode, “a bump in the road.” Grant disagrees. While Romer may use analytics to make her case, he mentions the song that came out in 1921, “Ain’t We Got Fun.” After reciting a few lines, Grant told the audience, “They don’t write songs about recessions. It was a depression.”

Prices plunged in 1920-21, but the Fed, having just been created a few years before was “not quite out of short pants.” Lord Keynes had not written The General Theory and there were no Bernankes or Yellens running the central bank. In response to deflation, the Fed raised interest rates.

Grant looked into the camera and asked, “How did we ever recover, Dr. Krugman? I know you’re watching.”

Of course no one has heard of this depression because it was over so quickly and they certainly don’t talk about it at the Fed’s monthly meetings. The government did not enable capitalism’s losers with low rates and bailouts. Before they knew it the economy was back on track. Murray Rothbard said the only way to treat depression is with laissez faire. “This experience would seem to prove Rothbard right,” Grant said.

The financial historian and wordsmith emphasized that it was not just crops and commodities that fell in price, but also stocks. Coca-Cola traded at just 1.7 times earnings and yielded 5 percent. Radio Company of America shares traded at one times earnings. At the time, the tender new Fed was not yet in the securities boosting business as it is today, where “a higher stock market is part of public policy.”

Like Santelli, Grant mentioned 1946 and a couple of Hazlitt columns that “could have been written yesterday.”    “Economic experts see deflation as the problem,” cracked Hazlitt snidely in one piece while titling another, “The Fetish of Low Interest Rates.” He explained that lowering rates by government fiat requires more money (inflation).

Today’s investors don’t realize artificially low rates make stocks artificially high in price as future earnings are capitalized at a lower than natural discount rate to create present values. The Fed’s stomping on rates has distorted this calculus making the market “a house of mirrors.” Valuations would be much different if interest rates were “organic, free-range, and local,” instead of being nurtured in the Fed’s “hothouse.”

While Grant and his audience of hard money true believers look with disdain on the Fed’s distorting rate policy, corporate executives are all for it. Executives for Homebuilder Toll Brothers thanked their banker on a recent earnings call for arranging a loan with a two percent rate. Grant pointed out the company should give credit where credit is due and thank Janet Yellen.

Hazlitt was not a trained economist, but as Lew Rockwell writes, “he was familiar with the work of every important thinker in nearly every field. At an early age, he lacked in formal education but ended in knowing more than most learned men of any age; and he certainly was more principled than most.”

Hazlitt would, by his estimation,  write 10 millions words, mostly about economics. He was surprised when Economics in One Lesson became his signature work. “He wrote it to expose the popular fallacies of its day,” Rockwell explains. “He did not know that those fallacies would be government policy for the duration of the century.”

What Janet Yellen is doing has been done time and time again since John Law’s system created the Mississippi Bubble in 1720. It never ends well. As long as there is an over-reaching government and ever-expanding central bank, Hazlitt will be looked to for guidance and inspiration.  He warned us then. He warns us now.




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DaddyO's picture

Fat finger!

Hit return instead of shift.


Anusocracy's picture

All economies are made poorer by government actions.

It doesn't create wealth and it destroys a fairly large portion of what it steals.

Mister Kitty's picture

I don't mind the money printing.  It's the stratification that bothers me.  Lloyd Blankfein was caught redhanded lying to Carl Levin in front of congress.  That's perjury.  Just ask Roger Clemons.  Those Ivy League bitches should have been prosecuted.

old naughty's picture

It took me until age 57+ to realise what PhD means.

Pile high and deep.

philipat's picture

LIESman is NOT qualified as an economist. Not that it makes much difference, Krugman is both a qualified economist AND a Nober Laureate, but is doesn't prevent him from being a total douche..

Indian_Goldsmith's picture

. The government did not enable capitalism’s losers with low rates and bailouts. Before they knew it the economy was back on track. ......


Hey prof Paul Krugman! Consider this. 

Papasmurf's picture

Don't worry.  They will get sorted out at the pearly gates.


DoChenRollingBearing's picture

It took me until age 57 to understand that I could not even come close to predicting the future.  

On almost anything, especially short-term.  Even though I had made various bad speculations, decades ago, thinking that "I was smart enough" to probably make money off of doing something (buying puts, "story stocks", etc.).


Debt-Is-Not-Money's picture

Making predictions is difficult,

especially about the future.


nofluer's picture

I can't predict the future, but I can track. If you've ever gone hunting, you know that tracks don't just magically appear - the creatures that make the tracks can be identified by them, and they have patterns of behavior. So even if you can't tell if the critter is going straight or turning past the next tree, you can make a good guess.

Like animals, people are creatures of habit too. If you have a banker who has lied, cheated, and swindled bank customers before, you would be relatively safe in assuming that such a banker will do it again.

The Fed and the big banks have been completely consistent for a long time...

prains's picture

corptocracy.....it's the drink....and they've pissed in it

Rafferty's picture

He gets 4 greens for saying nothing??  This must mean something at a cosmic level.

DaddyO's picture

Does anyone else get tired of the talking heads, no matter which side of the coin they're on.

I guess I'm ready for the great reset and suffering for it.


HoofHearted's picture

Everything seems extremely quiet this weekend. I know the sheeple are all watching basketball, but it is almost too quiet out there, even after we just had the quadruple witching hour yesterday...

DoChenRollingBearing's picture

I took my first nap today around noon, hey it´s hot down here...

Kayman's picture


What's copper prices doing to Peru and Chile.  I see Cat's sales are way off. How are yours ?

DoChenRollingBearing's picture

Copper is priced the same worldwide (or close) as far as I know.  There may be long-term contracts, however, that I do not know about (example (MSU here): Chile to China).  My guess is that since copper is relatively low priced (by recent standards), well, that means fewer $$$ for Chile and Peru now.  China´s copper demand is probably about to go DOWN big time I read, because they have so much in stock (much by speculation).

Peru´s economy is one of the few doing well in S. America.  Even with metal prices down.  Metals are 60% of Peru´s exports, see my latest note re gold: http://tinyurl.com/9hlvzdx

Copper exports are worth a fair amount more than their gold exports, but that is for my next piece as I am still collecting the data and trying to figure it all out.


Our bearing sales are doing just fine, thanks.  A bit over 2013 (Jan & Feb anyway, I have yet to look in detail at March so far).  But, our sales are almost all for cars (and a few buses), not to mines or industry.


Peru could be very vulnerable to economic problems in China.  Brazil is suffering from lower Chinese demand even now.  It could hit here as well.

nofluer's picture

"China´s copper demand is probably about to go DOWN big time I read, because they have so much in stock (much by speculation)."

Interesting... the last I read on China and Copper was that they were buying huge amounts of it and parking it in bonded warehouses with big padlocks on the doors, then using the building full of copper as security for low-interest loans.

DoChenRollingBearing's picture

You explained it better than I did.

Ness.'s picture

Don't dump Santelli into the 'talking heads' category just yet.  Name one other person willing to risk his job to state on da teevee that "All credit is debt, think about that."  


Disclaimer:  I've known Rick for 20+ years.  I started as a runner on the floor of the CBOT.  His first comment to me was "Do you own any physical gold?"  I didn't even have a job yet, I was 21 and interviweing, owning physical gold was something other people did.  I listened to him.  He was right.  

Carl Popper's picture

"Nature has established patterns originating in the return of events, but only for the most part".  Liebniz


In other words "Nature is predictable until it isn't."



ebworthen's picture

"The Fetish of Low Interest Rates".


scuttlebutt's picture

Santelli, one of few people on CNBC that thinks with an independant mind. No. Has a mind!

Love his rants.

Keyser's picture

The day the new Tea Party was born and has been lambasted ever since.



Bangin7GramRocks's picture

Santelli is OK, but he gives a pass to the institutional theft by Wall Street and loses his fucking shit whenever there is a much smaller "Main Street" mess. His new tea party rant is a perfect example. The gubmint bailed out and bonused every cocksucker on Wall Street, but his famous rant was because they were going to allocate 75 billion to help homeowners. Well, as we have seen, they didn't spend 75 billion and the asshole bankers got their greedy fucking hands on most of it. I choose to direct my anger at the real thieves!

Theta_Burn's picture

Thanks for typing that..

Thats right, according to dick, it was all the deadbeat homeowners fault everything imploded, to the cheering lackeys who were allowed to be on camera with him... http://www.youtube.com/watch?v=or-EKjfVCoA

Ck that clip out..everyones fault except who created this mess.

to summerize.. who is at fault, the idiot landscaper who makes 11.00 the hr. or the loan officer/lending institution that pushes his $407,000.00, no down payment, variable-rate sub-prime mortgage through?

Dick failed to see/comment on the big picture that day...

nmewn's picture

Every fraud & theft requires a comment?

The shit started with a "law" called the Community Reinvestment Act, which at its very heart is credit/debt. Banking & finance are one of THE MOST regulated "industries" on the planet, we would have to agree.

Yes, it is.

And yet somehow, Santelli (unconnected to government or its regulators of Wall Street) FAILS to ask government to bail out peoples own bad choices and is branded, what?

What part of two entities/people signing a KNOWINGLY fraudulent contract that I am supposed to back (an unconnected third party) with my earnings am I missing?

Greenskeeper_Carl's picture

You aren't supposed to back either of them. Those arrangements you speak of were called 'liars loans' for a reason. The purchaser knew they could never actually repay that loan, and the bank was completely aware of that as well. But when you have the govt pushing this community reinvestment act on the country, while at the same time you have a central bank pushing artificially low interest rates, this is what you get. Those loans were made anyway, because it came down from 'on high' that housing always goes up, so you could take out a liars loan like that, and make interest only payments for a year, and then sell that thing and walk away with 75k in your pocket. I know of people who did it. Every single entity involved in these transactions was involved in a form of fraud, and all deserved to lose their asses.

Doom and Dust's picture

My question, do any of you people take this guy's pharma-charged opinions seriously, or is he just on display to emphasize and dramatize American moronity?

Vampyroteuthis infernalis's picture

CNBC needs an opposite (bad cop) to the other morons (good cops) to dance all over. The problem is the bad cop is mostly correct and the good cops are clueless. It reflects the state of our society. 

InjuredThales's picture

I think the latter role has been allocated to you.

centerline's picture

Santelli walks a fine line.  Same as Ron Paul did.  Push too hard and get shut down quick.  Just like RP at the convention.

shovelhead's picture


Sorry Tim, nobody listens to you.

ebworthen's picture

What, are you arguing that credit fueled debt bubbles, ZIRP, and the missallocation of capital and resources are good things?

moneybots's picture

 “Economic experts see deflation as the problem,”


Actually, it is the polar opposite.  100% of bubbles burst and deflate.  A bubble can't burst until it is inflated.

InjuredThales's picture

Do you have a reading comprehension problem.  Perhaps a learning disability?

disabledvet's picture

and that's the "dirty little secret" ain't it. "no Wall Street ever saw a bubble they didn't want to inflate."

No way you can do that with a gold standard. No way you can do that with a war (especially with the USA as the protagonist.)

That's why the Dutch Carillion "and all those tulips" sits right next to the memorial to the Marines at Iwo Jima.

"So out of the biggest financial collapse in history we'll create a whole 'nother bubble."
You all here think you can just "conjure up" these things...bwhahahahahaha.
Just ask the Dutch...they've never had another since the "tulip days" actually.

The USA has now had three of these things in less than 20 years (1993-1999/2001-2008/2009-2013.)

If there is a single sentence to describe it it's "the Federal Reserve has back-up."
This wasn't true in the 1920's.
And from the 1940's to the 1980's "Government was too big" (although we recovered from 1929 by about...1960.)

"History hangs in the balance and her name is Kiev."
If Putin gets "Crimea" but winds up with a massive Western military presence "right on his doorstep and orders for him to get out" that would be a crushing defeat.

The President heads to Europe this week.
If he issues an ultimatum to Putin to "get out or suffer consequences" then you'll see "this guy can play offense as well as defense." to date "no one is talking boots on the ground." Nor will they unless the Commander in Chief orders it.

what was that about "oil companies not taking advantage of the crisis to raise prices" again?

Fuck you too Gazpromia.

Kayman's picture


"If Putin gets "Crimea" but winds up with a massive Western military presence "right on his doorstep and orders for him to get out" that would be a crushing defeat."

And if Obama had balls he'd be Michelle.

Being a thug doesn't make Putin a fool. Long before any U.S. troops got to the Ukraine Russian troops would control every airport and every border.  Russia has a long history in the Crimea (part of the Ottoman Empire before Russia kicked them out) and the Ukraine (why Krushchev gave Crimea to the Ukraine, only the bottle of vodka knows).  

The Ukraine is the soft underbelly of Russia and Russia isn't going to allow belligerents easy access to Mother Russia. 

nofluer's picture

"no Wall Street ever saw a bubble they didn't want to inflate." No way you can do that with a gold standard.

Might I suggest that you study Ancient Rome - towards the end of the Western Empire... look especially for the issue of "debasement of the currency." Yes, gold currency CAN be debased, and you CAN have inflation, and hyperinflation, with metal money.

Heroic Couplet's picture

Who cares what a paid shill like Rick Santelli says about anything? How much money does he have sitting in offshore accounts? and who's paying him to run his mouth?

JungleJim's picture

And just who are your "heroes" if you don't mind me asking ???

nmewn's picture

"I have reliable sources who tell me Santelli cheated on his income taxes." - Harry Reid

Atomizer's picture

Are future society doesn’t rely on nigger rich anomalies, it’s a diversion called despotism … Well said Rick.

The Capitalist Review's picture

Why are people bitching about Santelli and not focusing on the crux of the article that Hazlitt was brilliant?  His lucid writing is as fresh today as it was 68 years ago.  Santelli works for CNBC so we shouldn't run around saying the guy is a genius, but that doesn't mean in the cesspool that is fiancial news media, that he can't' get something correct more than the rest of the lunatics.  

Regardless, seeing Grant at the Mises institute is fantastic as hopefully it will perk the intellectual interest of the non-Mises Instittute Grant subscribers to combine Grant's financial acumen with the Institute's principled and theoretically sound free market stand.  

I've always had great respect for Grant.  My only concern is that Barry and the porn addicts at the SEC will begin to audit him or enhance their snooping as a few months back he recommended buying Gazprom and now he's giving a speech at a MI conference.