Thursday, June 27, 2013

It's like confusing Austrian with Australian

Veteran Irish economics pundit David McWilliams -- an apparent influence on the country's disastrous bank guarantee -- writes in today's Irish Independent (alt. link) in the light of the newspaper's latest disclosures about the behaviour of Anglo Irish Bank in the run-up to the guarantee:

THE brilliant English economist John Stuart Mill, writing in the 1860s, noted that "a crash doesn't destroy wealth, it merely reflects the extent to which wealth has already been destroyed by stupid investments made during the preceding boom".

With a modicum of knowledge about 19th century economics, the bogus quote detector should be going off. Those words don't sound like John Stuart Mill, they sound at best like a modern paraphrase of something he might have said. One's curiosity is further piqued when Google can't find the quote (it can find 2 other instances of McWilliams using the same quote). So then you go with the possibility that it's a paraphrase, and Voilà, the quote appears:

Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.

But that's not the only problem. That quote is not from John Stuart Mill, though various websites (from where McWilliams probably took his notes) say that it is. It was by John Mills, Article read before the Manchester Statistical Society, December 11, 1867, on Credit Cycles and the Origin of Commercial Panics, which is an important article in the intellectual ancestry of Austrian economics.

Luckily, Ireland's actual policy decisions around the time of its banking crisis were characterized by much greater diligence.

UPDATE 27 SEPTEMBER: McWilliams uses the botched quote again.