Twin Spin: Debt Ceiling and Sticky Wages
I forgot to blog last week’s “current events” article on Congress and the debt ceiling.
Then today, I respond to Karl Smith’s invocation of “sticky wages” as a justification for monetary and fiscal activism. Note that this is not my response to the quasi-monetarists (though it’s applicable); this particular article has been in the queue for weeks. An excerpt:
[W]e should note that “sticky wages” are not a market failure at all, but a quite appropriate response to the worker and employer’s desire for predictability. In other words, it is not some arbitrary fluke that allows copper and gold prices to adjust by the second, while labor contracts tend to be for periods of a year or more.
Suppose things were the opposite, and that workers’ wage rates could adjust every minute according to supply and demand. Someone making $20 per hour today, might make only $8 per hour tomorrow. In such an environment, workers would build up an enormous cushion of savings, because they would have to draw down their liquid assets to get them through periods of below-average wages. Very few workers would buy houses, but would instead rent apartments, ideally on month-to-month terms.
I have no doubt that if this were the norm, interventionists of various stripes would invent sophisticated mainstream models showing that such an outcome was “Pareto inefficient.” If only the government would pass laws, requiring labor contracts to lock in wages for longer periods, then the enhanced predictability would increase the welfare of everyone in society.
Because they could count on their paychecks for a longer horizon, workers would reduce their antisocial “hoarding” of cash. Without such benevolent government intervention, the perfectly flexible wages of the cutthroat capitalist economy would be yet another example of market failure.
When I wrote the above, I intended it as a hypothetical (yet crushing) argument. But in retrospect, I think I have heard interventionists complain that “piece wages” are unfair, the government should get involved, blah blah blah. I’m not saying that they’re the same interventionists, but still, it’s ironic that whether workers get paid a fixed hourly wage for (say) a year, or whether they get paid in direct proportion to the spot market value of their output, either way it’s evidence of market failure and justifies government intervention.
Excellent rebuttal Bob.
It reminds me of another “the market can’t win” situation:
When I set a price higher than others, they said I was “price gauging”.
When I set a price lower than others, they said I was “dumping”.
When I set the same price as others, they said I was “colluding”.
Yeah that’s a good one.
Bob,
You make a good point about why it is rational for workers and employers to want sticky wages. But don’t you see that this undercuts your arguments against Mankiw/Smith et al? Mankiw’s argument was that sticky wages impede the adjustment process to a monetary contraction. Your response was that the only reason we have sticky wages was because of gov interventions like unemployment benefits. If wages would be sticky even in a purely free market, then your response to Mankiw is invalid and his point stands.
But how much more ‘sticky’ would they be without government intervention? I mean, there’s sticky and then there’s sticky (as in stuck).
And, you have the problem (if you buy ABCT) that the new inflation to unstick the stickiness will cause more resources misallocation. How do you evaluate the trade off between the two?
Also, just curious, do you see unemployment ‘stickiness’ in the Keynsian sense? That is in which unemployment is involuntary when nominal wages are falling (along with other factors), or just a difficult adjustment, but ‘voluntary’ nonetheless?
And, you have the problem (if you buy ABCT) that the new inflation to unstick the stickiness will cause more resources misallocation.
Why would offsetting a monetary contraction lead to more resource misallocation?
Also, just curious, do you see unemployment ‘stickiness’ in the Keynsian sense? That is in which unemployment is involuntary when nominal wages are falling (along with other factors), or just a difficult adjustment, but ‘voluntary’ nonetheless?
I’m not entirely sure I understand the question, but I will attempt to answer it any way.
People often talk as if sticky wages were a result of unemployed people being irrational. If they would just lower their wage demands there would be no problem. I don’t think that is the main issue. Rather, wage stickiness is the result of employed people being rational. As Bob notes, there are perfectly good reasons why people would want wages to be on a fairly steady nominal path that isn’t easy to change. If the choice is between me getting a pay cut and someone else being unemployed it’s not irrational for me to prefer the former to the latter even if my pay cut is only nominal.
Blackadder,
No Austrian, including Bob, claims that wages would “instantly adjust” in a free market, nor would they argue that the “only reason” wages are “not infinitely flexible” is because of government intervention. There is nuance here.
When Bob et al respond to quasi-monetarists who argue that “wages are sticky, therefore the government needs to inflate”, they are saying that wages will adapt to the new monetary conditions as market forces bring them down. Free market forces won’t bring wages down in the way interventionists pejoratively claim that straw man Mr. Market insists must happen in a free market, and if they don’t instantly adjust across the board, then it’s inflation time!
What Austrians are saying is that *to the extent* that wages are inflexible due to government intervention, this causes widespread unemployment where there would otherwise be less unemployment. Austrians are NOT saying that without government intervention, wages would adjust instantly a la “pure and perfect competition” every minute of every day.
Yes, if there is a decline in aggregate spending and that decline results in a concomitant decline in the money demand for labor, then to the extent that the free market generates wage contracts that are not “infinitely and instantly flexible” according to the straw man free market model of “pure and perfect competition”, then there will be unemployment. But this fact does not imply that governments have to use violence and force aggregate demand to move away from where it would move with individual economic freedom. Such interventions would only *exacerbate* the wage inflexibility, because inflexible wage contracts that market forces would otherwise punish, end up get rewarded as if people voluntarily found them as valuable as they seem to be in the interventionist world.
In fact, if it weren’t the case that unemployment results during an economic downturn, then the whole Austrian theory would be a wash.
You are fallaciously claiming that Austrians hold wages to be infinitely flexible as they are in the “pure and perfect competition” model.
If our monetary system were free market driven, then the supply of money and hence spending would be much more stable over time compared to an economy where there is a single monopoly of money producers whose mistakes affect everyone. As such, to the extent that wages become “rigid” compared to “pure and perfect” pricing, it would be justified, and if the government made the inflexibility more pronounced by intervention, then the unemployment that results cannot be blamed on the market.
In other words, no Austrian is claiming that unemployment would always be zero in a free market because prices allegedly adjust instantly. What they are saying is that those interventionists who so often complain about “sticky wages” rarely, if ever, show understanding that the very same government that they call on to solve the “sticky wages” problem, is itself exacerbating wage rigidity beyond what is justified according to individual preferences in free trade.
To Austrians, wage “stickness” is considered absent in a free market, because in the real world of mankind, where nothing operates according to any mystical standard of “pure and perfect competition”, wages are necessarily as flexible as they can possibly be, for they are the result of maximal individual reason and voluntary choice.
It is almost impossible for an interventionist to understand this nuance, because they come to the table as philosophically very hostile to individual choice, and therefore deny the notion that free individual choice maximizes utility/prosperity/progress/employment/etc/etc. They come with prejudice right off the bat, and they rationalize this antagonism by making all sorts of claims that they are not really hostile to the free market, they are only trying to get the free market to act like it “should” in “pure and perfect competition/pricing”.
Interventionists think very much like an abusive parent or guardian thinks. They rationalize their abusive behavior by claiming that they do so only because their children do not act so “perfect” like the non-abusive parents allegedly claim would take place absent the abuse. So they abuse the children to “save them from themselves”, and to force them to act “perfect” like all those pesky parents claim will happen in a peaceful household.
Just like parents who do not beat their children are not saying that peace will turn children into angels, so too do Austrians tell interventionists that removing the regulations will not make wages perfectly flexible.
Market determined “wage inflexibility” is, to the Austrian, a rather ephemeral, curious concept, because it implies that freedom of association and peaceful trade does not live up to a standard interventionists claim it must, or else they will bring out the guns and impose “perfection” by force (of course with failure, but interventionists don’t really care, and say, incredibly, “Yeah, well, government isn’t perfect.”
You have to be very careful in what the Austrian position really is. It is NOT “pure and perfect competition”. That is a straw man standard devised by interventionists to justify government intervention. Intellectuals with a psychological predisposition of wanting to control other people often rationalize prior acts of mindless government violence by creating new sophisticated theories that supposedly justify the violence.
This is what quasi-monetarists do with central banking. Central bankers and government created central banking by threatening everyone with violence into using their paper as money, in order to allow them to continue to misappropriate demand deposit money, and continue to inflate money out of thin air and earn profits on that money created out of thin air. Intellectuals with a psychological bent on social control, e.g. quasi-monetarists, rationalize this violence by inventing theories on aggregate demand and its supreme importance on everything economics related.
First they say that if the government didn’t inflate and spend, then the rate of profit would continually fall until it hits zero. That was already proven false by the time it was advanced, so the interventionists came up with a new justification, which is that without inflation, unemployment would result because savings would leak out of the economy. Then they invented “wage stickiness” to justify inflation.
They keep coming up with new rationalizations to justify the violence underpinning the whole thing. The reason why the justifications for inflation, and central economic planning in money production backed by violence, keeps changing, is because *there is no rational justification for violence*.
Many intellectuals see violence around them, and rather than questioning it and fighting back, they just don’t want to question the violence, and they start to do what every abused child does: they start to question themselves as rational actors capable of surviving and prospering in peace.
There has been dozens of justifications for violence backed inflation, each new justification as absurd as the last justification. The latest fad is blaming wages and prices as not living up to an impossible standard of flexibility.
It’s easy to blame the free market and justify violence when you hold the free market up to an impossible standard.
I should create a “pure and perfect government” standard, whereby all governments should be measured up against it, and if they fail to live up to it (infinitely flexible tax rates, infinitely flexible immigration/emigration, infinitely flexible rules and regulations, infinitely flexible democratic voting for every single law proposed, infinitely flexible competition in public services, infinite number of governments, no one government controlled society can appreciably affect the rules and social mores of any other government controlled society, etc, etc, etc), and then, when the governments of the world inevitably “fail” to live up to this standard, declare that governments must not have any unilateral power at all, and that the market must regulate violence and hence provide all protection and security services. Anyone who defends government must be dogmatists because they fallaciously and ignorantly believe that governments act pure and perfect, and that taxes and inflation are infinitely flexible and must instantly respond to social conditions every minute of every day.
Captain Freedom,
I’m glad we agree that wages aren’t infinitely flexible and don’t instantly adjust in the face of a monetary contraction. Because wages aren’t infinitely flexible, a monetary contraction will result in a painful adjustment process; unemployment will be higher than it otherwise would be, output will be lower, and so forth. I believe we agree on that too. The quasimonetarist point is that since these bad effects are the result of the contraction, you can avoid the effects by preventing the contraction.
In fact, if it weren’t the case that unemployment results during an economic downturn, then the whole Austrian theory would be a wash.
Are you saying that if I can produce an example of an economic downturn where unemployment didn’t rise, the Austrian theory will be refuted?
It is almost impossible for an interventionist to understand this nuance, because they come to the table as philosophically very hostile to individual choice
You really seem to have no clue what motivates someone like Scott Sumner or Karl Smith (or Hayek). This is like liberals thinking that the reason libertarians hold the views they do is because deep down they hate the poor.
If you don’t understand why someone believes what they do you aren’t going to have much success in persuading them they are wrong.
They keep coming up with new rationalizations to justify the violence underpinning the whole thing.
Austrians are quick to point out (correctly) that all government action is implicitly backed by threats of force. What they often fail to realize is that the same is true of private property.
“I’m glad we agree that wages aren’t infinitely flexible and don’t instantly adjust in the face of a monetary contraction. Because wages aren’t infinitely flexible, a monetary contraction will result in a painful adjustment process; unemployment will be higher than it otherwise would be, output will be lower, and so forth. I believe we agree on that too.
It’s amazing isn’t it? Reject the absurd pure and perfect competition doctrine, and all of a sudden, people agree on so many things. All of a sudden, the free market ceases to carry with it an aura of mystical omnipotence and providence. All of a sudden, the free market becomes HUMANIZED. Humans aren’t perfect, ergo the free market, as well as every other social system, is not “perfect”. QED.
“The quasimonetarist point is that since these bad effects are the result of the contraction, you can avoid the effects by preventing the contraction.”
Well, that’s the kicker isn’t it? The Austrian point is that the problem isn’t monetary contraction. The problem is the previous monetary *expansion*. It is the expansion that the problems are created. Austrians hold that money is not neutral. Money affects the real productive structure of the economy, and that the money and spending which facilitates an inflationary credit financed boom, becomes “locked in” to that real capital structure, so to speak.
Quasi-monetarists treat money like it’s some sort of panacea, where as long as total spending rises at a predetermined rate, then the micro structure of the real economy doesn’t matter. “It will all work out”. Austrians do not accept this. They think that money is primarily used as a medium of exchange of real goods and services for other real goods and services. If there is a long term sustainability problem on the real goods and services side, then trying to “prop up” that unsustainable structure via inflation (which is what is actually going on when inflationists try to blindly increase aggregate demand and ignoring capital structure), they are not taking into account that the prior high aggregate demand was not sustainable. It was specific to that distorted capital structure.
Printing new money and making available new loans in order to boost aggregate demand does not attack the fundamental problem. It only treats the symptoms. The fundamental problem is a distorted capital structure. That has to be fixed. Printing more money and compelling the distortions to persist, will not solve the fundamental problem.
Yes, a depression almost always correlates with a drop in aggregate demand. But this does not mean that the depression was CAUSED by the drop in aggregate demand, any more than a person’s fever is not caused by their thermometer rising above 100F. The rise in temperature is a SYMPTOM. Similarly, the fall in aggregate demand is a SYMPTOM.
Just like putting a sick person in a bathtub full of ice will not cure him, but may prolong his life by reducing his temperature, so too will inflation not attack the cause for the depression, it will only attack the symptoms.
Austrians want the person to stop doing what made him ill, quasi-monetarists take his illness as a given, think it is inevitable, and then only focus on the symptoms.
Do you see why Austrians seem to be rejecting what quasi-monetarists think is so obvious as to be irrefutable? It’s because Austrians are trying to find a cure for the disease. Quasi-monetarists are trying to treat the symptoms.
“Are you saying that if I can produce an example of an economic downturn where unemployment didn’t rise, the Austrian theory will be refuted?”
Are you saying that you are successfully hiding your anxious desire to refute Austrian theory by any means necessary?
To answer your question, it depends on what definition of “downturn” you use. The meaning I had in mind is an exposure of credit expansion induced malinvestments, liquidation of those malinvestments, and reallocation of capital of labor, all of which requires time. If a reduction of employment did not take place during this process, then the Austrian theory would be untenable.
“You really seem to have no clue what motivates someone like Scott Sumner or Karl Smith (or Hayek).”
On the contrary, it is you that seem to have no clue what motivates interventionists.
“This is like liberals thinking that the reason libertarians hold the views they do is because deep down they hate the poor.”
While that is actually true to an extent, as I have been told on many occasions by serious liberals that I must hate the poor, it is not anything like that. The “socialist” mentality arises among intellectuals who find pleasure in controlling things. The chemist likes to control chemicals, the biologist likes to control living tissue samples, and the interventionist economist likes to control the economy.
The major difference is that whereas the chemist and biologist are controlling physical matter, the interventionist economist is controlling people.
Most economists are not idiots. Interventionist economists understand that their models apply to real people, and that the government is going to have use their guns to force people to act in such a way that the interventionist’s models are satisfied.
“If you don’t understand why someone believes what they do you aren’t going to have much success in persuading them they are wrong.”
I agree. But I think I do understand why they believe what they believe. If you don’t agree with me on that point, then that’s fine, but wouldn’t it be more constructive if you provided a response with some substance, rather than “You’re wrong but I’m not saying why”?
“Austrians are quick to point out (correctly) that all government action is implicitly backed by threats of force. What they often fail to realize is that the same is true of private property.”
Ah, and the penny drops. No wonder you are so philosophically hostile to Austrian economics, and free markets in general.
You are conflating the use of violence to protect and defend against initiations of violence, with initiations of violence proper, simply because there can be violence from both sides.
Private property is neither explicitly nor implicitly backed by threats of violence. Private property is backed by praxeological reason and logic. I know Bob will disagree with me here (yeah, that’s one more disagreement!), but praxeology can logically prove that private property is implied in the very nature of human action.
While the entire argument is rather long and complex (you should read Hoppe), it can be boiled down (and don’t criticize me for failing to consider this or that, or leaving anything out, because I am giving a crude summary) to an engagement of self-referential analysis against the person who rejects private property because it is allegedly based on violence, to see if their own argument is logically consistent with their argument as such.
For example, if I said “Language does not exist”, then I would be making a self-contradictory argument, one that self-detonates, for it is language that is being used to communicate such a statement.
A similar argument can be made against those who say that private property is backed by violence and/or is unjustified.
Well, that’s the kicker isn’t it? The Austrian point is that the problem isn’t monetary contraction. The problem is the previous monetary *expansion*.
Here is my statement that you just agreed with: “a monetary contraction will result in a painful adjustment process; unemployment will be higher than it otherwise would be, output will be lower, and so forth.”
Note, I say “monetary contraction” not monetary expansion. It is the monetary contraction that produces these effects, not monetary expansion.
Perhaps you hold to a kind of ‘what goes up must come down’ theory of the money supply: any monetary expansion must inevitably lead to a corresponding monetary contraction and a monetary contraction can’t occur without a prior expansion. I would say that this theory is refuted by the entirety of monetary history. There is no reason why a monetary expansion has to lead to a monetary contraction, nor does a contraction have to be caused by a previous expansion (nor is this implied by ABCT).
Ah, and the penny drops. No wonder you are so philosophically hostile to Austrian economics, and free markets in general.
I am not hostile to free markets in general. In fact I am a pretty big fan. You really know nothing about me and have no basis for jumping to conclusions about what I think on issues we haven’t discussed.
I am a bit hostile to Austrian economics for roughly the same reason I’m hostile to my ex-girlfriend: I used to love her, but she proved to be false.
You are conflating the use of violence to protect and defend against initiations of violence, with initiations of violence proper, simply because there can be violence from both sides.
I’m not conflating the two. Obviously there is a difference between violence that is justified and violence that is unjustified. But they are both still violence.
I’ve noticed you like to claim you are anti-violence when in fact you are only anti-unjustified violence. Which is not quite the same thing.
Private property is neither explicitly nor implicitly backed by threats of violence.
Of course it is. Suppose I saunter into your living room and start reading your copy of Human Action. You tell me to leave. If I refuse, eventually the men with guns show up and make me leave (this would be true even if we were living in an anarcho-capitalist utopia). This is *exactly* the kind of argument anarcho-capitalists use to prove that all government action is based on force, and it applies equally to claims of ownership as well. The only difference is that, according to anarcho-capitalists, threats of violence in enforcement of property rights are legitimate while threats in enforcement of government action are illegitimate.
Private property is backed by praxeological reason and logic.
I assume you are referring to Hoppe’s argumentation ethic idea. Bob Murphy himself has done a pretty good job of explaining why the idea doesn’t work. However, even Hoppe’s position is correct, it doesn’t follow that private property isn’t backed by violence; at best it shows that this violence is justified.
It seems like the italics thing is working again, so I will give it another go.
Here is my statement that you just agreed with: “a monetary contraction will result in a painful adjustment process; unemployment will be higher than it otherwise would be, output will be lower, and so forth.”
Here is a statement that I actually agree with: “A monetary *expansion* will result in an inevitable painful contraction in the future. The solution is therefore NOT more monetary expansion, but allowing the expansion to contract.”
Note, I say “monetary contraction” not monetary expansion. It is the monetary contraction that produces these effects, not monetary expansion.
Note that the Austrian position, which I accept, is that the problems are caused by the monetary expansion, and that is the process that produces the negative effects later on. The fall in spending later on is a symptom, not a cause.
Perhaps you hold to a kind of ‘what goes up must come down’ theory of the money supply: any monetary expansion must inevitably lead to a corresponding monetary contraction and a monetary contraction can’t occur without a prior expansion. I would say that this theory is refuted by the entirety of monetary history. There is no reason why a monetary expansion has to lead to a monetary contraction, nor does a contraction have to be caused by a previous expansion (nor is this implied by ABCT).
No, I don’t hold a what goes up must come down.
I am saying that an economy that is distorted by inflation that “goes up” through the loan market, will make it inevitable that the economy has to readjust, and money and spending will contract.
Simply denying that artificial expansion must lead to inevitable contraction, that “there is no reason why a monetary contraction must lead to monetary contraction”, and then topping that off with a false claim about history, only serves to undermine your position and strengthen the Austrian position. History is littered with credit expansion booms leading to contractionary busts. Furthermore, your denial that monetary expansion through credit expansion leads to future contractions is just a denial of Austrian theory. It is not a proper rebuttal of it. It’s OK to disagree, but you have to have good reasons for it.
I am not hostile to free markets in general. In fact I am a pretty big fan. You really know nothing about me and have no basis for jumping to conclusions about what I think on issues we haven’t discussed.
So you are against the free market. One cannot be friendly to free markets “in general”, and then deny that one is hostile to free markets.
You are either friendly to it, or hostile to it. The free market is a single process of human interaction, namely, peaceful exchange of private property based on no initiations of violence against person or property.
You cannot be friendly to this and not friendly to it. It is a single concept. You are not friendly to the free market because you do not want the free market process to run completely unimpeded and immune from initiations of violence from the state. You clearly believe there is a place for people to initiate violence against one another. You believe violence is justified if such violence can “improve” various abstract collective concepts like “aggregate demand”. You rationalize this by thinking “Well, as long as there is going to be violence, and I cannot stop it, that violence might as well be used for SOME good”.
THAT is where morality collapses into darkness, and where economic absurdity reigns supreme. All sorts of excuses and rationalizations for violence take hold, to justify a “just world” hypothesis and blame the problems not on the violence, but on the fact that the violence was used the wrong way. “Instead of using violence to target CPI, which is silly, let’s use violence to target NGDP. That will be better.”
I am quite capable of understanding what you are clearly advocating in writing. It doesn’t take a mind reader to know another’s fundamental philosophical outlook on reality, when they are saying what it is in plain writing!
I am a bit hostile to Austrian economics for roughly the same reason I’m hostile to my ex-girlfriend: I used to love her, but she proved to be false.
Where is Austrian economics false?
I’m not conflating the two. Obviously there is a difference between violence that is justified and violence that is unjustified. But they are both still violence.
But you said violence BACKS private property. If violence were to only be used against initiators of violence, then are you saying that those of us who are peaceful and voluntarily respect each other private property rights are not actually practicing private property rights because nobody is initiating violence against each other and thus there is no “backing” to those private property rights?
The MIND ultimately “backs” ALL human action, and if my mind and other people’s minds guide us to respect each other private property rights, then it is not true to say that violence is ultimately backing it. You can’t say “Well, OK that’s fine, but IF someone initiates violence, then defensive violence is the ONLY thing that can truly protect property rights.” You can’t presume that is a knock down argument because it doesn’t stand alone apart from the converse argument, namely, “If violence was being used everywhere, and no private property rights were respected by anyone, then peaceful respect of private property rights by conscious choice is the ONLY thing that can truly protect property rights.”
If you say that your argument knocks down the argument that private property rights are based on praxeological reasoning, then I can knock your argument down using the exact same logic but in reverse.
I’ve noticed you like to claim you are anti-violence when in fact you are only anti-unjustified violence. Which is not quite the same thing.
I actually like to claim I am anti-initiation of violence. I am not a pacifist.
Private property is neither explicitly nor implicitly backed by threats of violence.
Of course it is. Suppose I saunter into your living room and start reading your copy of Human Action. You tell me to leave. If I refuse, eventually the men with guns show up and make me leave (this would be true even if we were living in an anarcho-capitalist utopia). This is *exactly* the kind of argument anarcho-capitalists use to prove that all government action is based on force, and it applies equally to claims of ownership as well. The only difference is that, according to anarcho-capitalists, threats of violence in enforcement of property rights are legitimate while threats in enforcement of government action are illegitimate.
But if you enter my living room to read my copy of Human Action, then would only do so if you expect everyone else to peacefully respect your claim to that property.
Your actions imply a private property ethic that contains an expectation of others peacefully respecting it.
If you truly held that private property rights were ultimately based on violence, then as soon as you entered my house and starting reading that book, then either myself or someone else can just take the book right out of your hands and declare it for themselves, and then someone else will immediately take the book, and so on. The decisions of each individual would only be made if each individual expected others to not reacquire the property and respected their property rights claim.
In other words, by taking the book, your actions show that what ultimately backs your property claim is your expectation of a conscious willingness on the part of others to not violate your property rights claim to that book.
If there is an apple on the table, and I expect that as soon as I take control of it in order to accomplish a particular goal, say eating it, that someone else will right away take control of it away from me, then I would not bother to take control of the apple. It is only if I expect others to respect my property rights claim, implicitly or explicitly, by conscious choice, will I take control of that apple.
Violence is not what ultimately backs my claim. It is a praxeologically derived expectation on the part of other human beings who share my logical thought process, that backs it. It takes reason to understand this, not violence, not might makes right, not the strongest person wins.
Let me make this more clear. My life is not ultimately backed by violence. It is ultimately backed by my mind, not only in my choice to continue living, but also my expectation that others will not kill me. If I truly expected to be killed by someone else as soon as I tried to live a moment longer by my own free will, then I would not even bother to try defending myself. Heck, I might even kill myself before he had the chance so that I can go out “my own way”. If on the other hand I expected that I could successfully defend myself from this particular attacker, AND I had the expectation that others besides him will choose to respect my life consciously, such that my claim to my own life is peacefully respected, then I will defend myself from the attacker. I defend myself because I expect to be treated with respect by other human beings. If everyone in the entire world wanted me dead, and were all willing to kill me, and I had an expectation that they will kill me as soon as I try to live a moment longer according to my own free will, then I would not even bother defending myself.
So what ultimately backs my life, and hence my property rights claims, is a praxeologically derived reasoning that concerns expectations and goals of future oriented actions.
Private property is backed by praxeological reason and logic.
I assume you are referring to Hoppe’s argumentation ethic idea. Bob Murphy himself has done a pretty good job of explaining why the idea doesn’t work.
Hoppe gave me the idea, but I think my reasoning is slightly different. He emphasizes refuting the counter-party’s claims using self-referential arguments. I like to think that my reasoning is more “positive” in the sense that it provides an argument FOR private property rights.
As for Murphy’s response to Hoppe, Stephan Kinsella replied to Murphy and, I think, showed some areas where Murphy and Callahan misinterpreted or misunderstood what Hoppe said.
However, even Hoppe’s position is correct, it doesn’t follow that private property isn’t backed by violence; at best it shows that this violence is justified.
I hope I gave you some food for thought on this matter such that you stop believing that property is ultimately backed by violence.
Captain Freedom,
Imagine a society with a 100% reserve gold standard where a significant portion of the gold supply gets whipped out. This would require prices and wages to adjust downward, and since wages are not infinitely flexible, this adjustment process will take time and will involve a good deal of economic pain, increased unemployment, lower output, etc.
Note that in this situation the monetary contraction is not preceded by a prior monetary expansion. Yet all the same effects occur.
Perhaps you wish to claim that in the real world monetary contractions are preceded by monetary contractions and are caused by them, so that while the increased unemployment, etc. are caused by the contraction, the contraction is caused by the expansion, so ultimately the unemployment is caused by the contraction. That’s fine, but note in that case we still agree that the unemployment is caused by the contraction, we just disagree about what caused the contraction in the first place. If you could stop the contraction (which is what the quasimonetarists advocate, then you could avoid the increased unemployment).
I am saying that an economy that is distorted by inflation that “goes up” through the loan market, will make it inevitable that the economy has to readjust, and money and spending will contract.
If this was true, then at the end of the process the level of money and spending should be about where it was at the beginning (otherwise what you are saying is that some level of credit expansion is okay, and that it’s only too much expansion that gets you into trouble). Is this what we actually see? No. Monetary contractions do not cancel out previous expansions. So it’s not true that expansions *must* result in corresponding contractions.
Note that in saying this, I’m not denying that credit expansions are often followed by contractions, or even that contractions are often the result of previous contractions. My claim is simply that there is no necessity involved here.
One cannot be friendly to free markets “in general”, and then deny that one is hostile to free markets.
You are either friendly to it, or hostile to it.
Let’s test this. Mises was not an anarchist. He thought there were some things that should be handled by the state rather than the market. Do you think he was hostile to the free market? Did he hate individual choice?
Where is Austrian economics false?
Here is a good summary of some of the problems with Austrian economics.
The MIND ultimately “backs” ALL human action, and if my mind and other people’s minds guide us to respect each other private property rights, then it is not true to say that violence is ultimately backing it.
The same could be said of government. If everyone always chooses to do what the government says, then violence is never needed to enforce its dictates. Does it follow that government action is not backed by force? No. What matters is that if people do not comply, then force will be used. Same with property.
In other words, by taking the book, your actions show that what ultimately backs your property claim is your expectation of a conscious willingness on the part of others to not violate your property rights claim to that book.
Suppose I come into the room with my bodyguard, Mad Dog McKee, who is heavily armed. It’s true that I don’t expect anyone to grab the book out of my hand, but is it necessarily the case that I think this is because they will voluntarily recognize my claim to property in the book? Maybe I just think that they won’t do it because the implied threat is that if they try Mad Dog will go to town on them, and they don’t want that.
Blackadder:
Imagine a society with a 100% reserve gold standard where a significant portion of the gold supply gets whipped out. This would require prices and wages to adjust downward, and since wages are not infinitely flexible, this adjustment process will take time and will involve a good deal of economic pain, increased unemployment, lower output, etc.
Imagine a society that contained people who felt threatened by an alien invasion. Does the fact that some people imagine such a thing imply that a fascist military dictatorship must be imposed on the entire world?
A 100% reserve gold standard will not suddenly experience a significant “wiping out” of gold money. Once gold comes into existence, it tends to stay in existence. Should aliens invade and steal most of the gold, then yes, there would be a significant adaptation required, which may be painful, but I think people have bigger things to worry about than price adjustment.
Whatever would cause the supply of gold money to suddenly be wiped out would dwarf any transitory problems of price adjustment.
In any event, considering the fact that the Fed now has no constraints at all in terms of their ability inflate, doesn’t the fact that the fact that deflation still takes place imply that the Fed cannot do what you think they can do?
Note that in this situation the monetary contraction is not preceded by a prior monetary expansion. Yet all the same effects occur.
Perhaps you wish to claim that in the real world monetary contractions are preceded by monetary contractions and are caused by them, so that while the increased unemployment, etc. are caused by the contraction, the contraction is caused by the expansion, so ultimately the unemployment is caused by the contraction.
I think you made a typo. I think you meant to say “Perhaps you wish to claim that in the real world monetary contractions are preceded by monetary expansions…”.
In any event, if you accept, in theory, the argument that monetary contractions are preceded by the issuance of inflation induced credit expansion, then ULTIMATELY it must follow that unemployment is caused by the expansion, not the contraction.
That’s fine, but note in that case we still agree that the unemployment is caused by the contraction, we just disagree about what caused the contraction in the first place. If you could stop the contraction (which is what the quasimonetarists advocate, then you could avoid the increased unemployment).
The Austrian argument is that the credit expansion will necessarily cause a future contraction, because the expansion distorts the capital structure and thus requires malinvestment liquidation and unemployment, both of which results in a contraction of spending. If the Fed tries to combat this contraction so that aggregate demand never falls, then they will either generate another credit expansion induced unsustainable bubble, or they will eventually destroy the currency. What almost always happens is that rather than risk hyperinflation, central banks always tighten, which brings about the contraction before the collapse.
It is impossible for credit expansion to facilitate continually increasing aggregate demand. If it only affected nominal spending, then it would work, but because it negatively affects the capital structure and puts it in an unsustainable path, it cannot work.
I am saying that an economy that is distorted by inflation that “goes up” through the loan market, will make it inevitable that the economy has to readjust, and money and spending will contract.
If this was true, then at the end of the process the level of money and spending should be about where it was at the beginning (otherwise what you are saying is that some level of credit expansion is okay, and that it’s only too much expansion that gets you into trouble).
There are many problems here.
First off, what do you mean by “at the beginning”? Typically what happens is that the Fed System always tries to begin anew another round of inflationary credit expansion to combat the fall in spending. If the Fed stopped inflating after the economy collapses in a bust, then the total money supply will tend to decline down towards the quantity of “hard” money. Most money in our economy is fiduciary money, which can be literally erased from existence when debt is defaulted on. This deflation will continue on, and the maximum deflation that can take place is the quantity of fiduciary media, leaving hard money left over that does not disappear when debt is defaulted on.
The term “at the beginning” is problematic because the economy is always “on”. The Fed keeps fighting against deflation, which prevents the money from contracting down to where the free market would put it. The free market is the standard for what will happen in the absence of Fed intervention. The reason why “we don’t see rapid deflation in the real world” is precisely because the Fed constantly tries to fight it.
Furthermore, I hold that there is no such thing as an “OK level of credit expansion”. ALL of it is fraud and economically destructive.
Is this what we actually see? No. Monetary contractions do not cancel out previous expansions. So it’s not true that expansions *must* result in corresponding contractions.
Blackadder, do you not understand that the reason monetary contractions follow monetary expansions, but are not as contractionary as the expansion, is because the Fed constantly engineers renewed expansion in the face of potential deflation?
I never argued that the empirical contractions we see must be the same size as the monetary expansions. I am saying that monetary expansions will lead to future monetary contractions, but the Fed again inflates before the free market fully contracts spending.
Note that in saying this, I’m not denying that credit expansions are often followed by contractions, or even that contractions are often the result of previous contractions. My claim is simply that there is no necessity involved here.
Yes, there is. The choice the Fed presents to itself is choosing between expansion and then contraction, but fighting the contraction so that it is less in absolute terms than the expansion, or destroy the currency. At least the way they do things now, which is inflating via credit expansion.
The Fed has the power to inflate the currency, but individual economic actors can temporarily “overrule” the Fed by reducing their spending even as the Fed tries to reflate. If the Fed is going to actually succeed in inflating so much that people do not reduce their spending even during a depression, then they will simply destroy the currency.
One cannot be friendly to free markets “in general”, and then deny that one is hostile to free markets.
You are either friendly to it, or hostile to it.
Let’s test this. Mises was not an anarchist. He thought there were some things that should be handled by the state rather than the market. Do you think he was hostile to the free market? Did he hate individual choice?
Yes, Mises was hostile to the free market. He was at one point in favor of conscription. He was against a free market in protection and security services, which are typically state controlled.
Having said that, this does not say anything negative about Mises’ free market ARGUMENTS. His free market arguments were top quality, brilliant, and devastating to those hostile to the free market.
This is one reason why I look up to Mises because of his ideas, not because his name is Mises.
Is it so surprising that Mises was inconsistent in his ideas? Even the most well intentioned intellectuals who think they are for the free market, are actually hostile to it. Mises and quasi-monetarists are similar in this respect.
Rothbard I think took Mises’ fundamental ideas regarding the free market, and “radicalized” them by universalizing the pro-market logic of Mises.
I do not feel ashamed to say that Mises was hostile to the free market, while at the same time consider his free market ideas the greatest the world has ever known. People aren’t perfect, and so I am not about to throw the baby out with the bath water. I don’t have to hate or resent Mises to reject his statism. His free market ideas overwhelm his statist capitulations.
Where is Austrian economics false?
Here is a good summary of some of the problems with Austrian economics.
Yes, Caplan’s criticisms are taken as serious objections, as he is perhaps the world’s foremost critic of Austrian economics who actually UNDERSTANDS Austrian economics, but alas, Caplan’s criticisms are not devastating to Austrian theory. He either implicitly agrees with Austrians, or he misunderstands small portions of it. His article was responded to by many Austrians. Have you read those responses?
They are here:
http://www.economicthought.net/2010/12/refutations-responses-and-rejoinders/
The MIND ultimately “backs” ALL human action, and if my mind and other people’s minds guide us to respect each other private property rights, then it is not true to say that violence is ultimately backing it.
The same could be said of government. If everyone always chooses to do what the government says, then violence is never needed to enforce its dictates. Does it follow that government action is not backed by force? No.
Not true. If government requests are followed, then violence does not actually backstop it. Consent would backstop people’s actions. But in the real world, the government’s requests are backed by violence precisely because people aren’t going to follow their requests voluntarily.
By your logic, we should conclude that for couples who go out on dates, their actions are backed by violence, even though they respect each other’s requests for a set time period.
You cannot claim that even though people voluntarily agree to act peacefully, there is nevertheless violence underpinning the whole thing. You are imagining violence where there is none if you consider peaceful cooperation.
The government in reality is backed by violence because they do not ask people, they threaten people or else they will subject them to violence.
What matters is that if people do not comply, then force will be used.
That’s government, not voluntary cooperation and the logical implications of claiming property rights, both of which imply reason and the mind backstop them, not violence.
Same with property.
No, not with property. Yes, property qua property cannot be maintained without the owner standing ready to use defensive violence against initiations of violence. but my argument is about property rights CLAIMS, which is a different issue.
Property rights CLAIMS are ultimately backed by praxeologically derived implications and expectations of peaceful respect for those property rights.
Suppose I come into the room with my bodyguard, Mad Dog McKee, who is heavily armed. It’s true that I don’t expect anyone to grab the book out of my hand, but is it necessarily the case that I think this is because they will voluntarily recognize my claim to property in the book?
Maybe I just think that they won’t do it because the implied threat is that if they try Mad Dog will go to town on them, and they don’t want that.
If you come into the house with Mad Dog McKee who is armed, and expect your property rights claim to be “respected”, then you would already be implying an expectation on the part of others to respect your property rights claim in terms of their actions. It does not matter that they do so out of psychological fear instead of outright support. Praxeologically speaking, there is no difference, from your perspective, between the two, when it comes to your expectations concerning other people’s actions. Your usage of Mad Dog McKee is an attempt to convince others to voluntarily and peacefully accept your claim.
That Mad Dog stands ready to use violence only prevents those who disagree from stopping you, and everyone else you expect to voluntarily accept your claim. If you truly expected that the people other than the people you intend to intimidate with Mad Dog are going to take the book right after you take it, then you would not take it.
The argument is that at some point, you ULTIMATELY rely on people voluntarily accepting your claim. Mad Dog can only eliminate the violence from at most a finite number of people. For everyone else, you expect them to voluntarily accept your claim. THAT expectation is what ULTIMATELY backstops your property rights CLAIM to the book.
Whatever would cause the supply of gold money to suddenly be wiped out would dwarf any transitory problems of price adjustment.
This is what in law school they call fighting the hypo. The point of asking you to consider what would happen in this example is to show that the effects of a monetary contraction would be roughly the same regardless of what caused the contraction.
In any event, considering the fact that the Fed now has no constraints at all in terms of their ability inflate, doesn’t the fact that the fact that deflation still takes place imply that the Fed cannot do what you think they can do?
It means that the Fed is a fallible institution run by fallible people.
That the Fed often screws things up is an argument for getting rid of the Fed. It’s not an argument for keeping the Fed but not having it respond to monetary contractions.
In any event, if you accept, in theory, the argument that monetary contractions are preceded by the issuance of inflation induced credit expansion, then ULTIMATELY it must follow that unemployment is caused by the expansion, not the contraction.
Google “post hoc ergo propter hoc” and then get back to me.
The Austrian argument is that the credit expansion will necessarily cause a future contraction, because the expansion distorts the capital structure and thus requires malinvestment liquidation and unemployment, both of which results in a contraction of spending. If the Fed tries to combat this contraction so that aggregate demand never falls, then they will either generate another credit expansion induced unsustainable bubble, or they will eventually destroy the currency.
It’s true that if you look back at history you see periods of expansion alternating with periods of contraction. Yet most of the time aggregate demand is higher at the end of the contraction than at the beginning of the prior expansion. If you look at the U.S., for example, aggregate demand has tended to increase over the long term with contractions not even affecting the overall trend in most cases. This has been going on for hundreds of years. And yet the currency has yet to be destroyed. In fact, lots of people in other parts of the world prefer our currency as a reserve even to gold or silver.
It is impossible for credit expansion to facilitate continually increasing aggregate demand. If it only affected nominal spending, then it would work, but because it negatively affects the capital structure and puts it in an unsustainable path, it cannot work.
Bill Woolsey has already explained to you why this isn’t so. He’s a lot smarter than me, so if he wasn’t able to get you to understand this then I probably can’t either.
The term “at the beginning” is problematic because the economy is always “on”. The Fed keeps fighting against deflation, which prevents the money from contracting down to where the free market would put it.
Think about what you are saying here. If the Fed can keep inflating for hundreds of years, and after all this time the standard of living is much much higher than it was at the beginning, doesn’t that suggest that maybe just maybe Monetary expansions *don’t* inevitably lead to a corresponding contraction?
Yes, Mises was hostile to the free market.
I am happy to be grouped together with Mises, Hayek, etc. as against you and Rothbard (although Rothbard was in favor of copyrights, which I hear are a bunch of violence induced injustice, so perhaps I shouldn’t be so quick to put him on the side of the angels).
“This is what in law school they call fighting the hypo.”
My response is what in John Hopkins Medical School, Harvard Business School, and the Astrophysics Division of the Physics Department at MIT call “an unrealistic hypothetical scenario that betrays the real world validity of what you are trying to prove.”
“The point of asking you to consider what would happen in this example is to show that the effects of a monetary contraction would be roughly the same regardless of what caused the contraction.”
I understood your point. But you are not understanding mine. A gold money standard would certainly not result in such a thing in the real world, and even if it did, the cause for why it could happen is not inherent to the gold system itself. An EXTERNAL cause would have to exist. Not so with a fractional reserve credit expansion standard. The contraction is INHERENT to the expansion itself.
“It means that the Fed is a fallible institution run by fallible people.”
I don’t see potato production collapsing, or PC market collapsing, and yet these industries are run by fallible people.
The problem with central banking (as opposed to a free market) is that the failures of one person or one group of people can collapse the entire market, whereas the failures of one person or one group in the free market will not collapse the entire market, for they are not the only producers and individuals making decisions.
“That the Fed often screws things up is an argument for getting rid of the Fed. It’s not an argument for keeping the Fed but not having it respond to monetary contractions.”
But you just admitted they fail in that regard. If they continuously fail, then it makes no sense to keep asking the Fed to respond when a free market in money production does not have that problem.
“In any event, if you accept, in theory, the argument that monetary contractions are preceded by the issuance of inflation induced credit expansion, then ULTIMATELY it must follow that unemployment is caused by the expansion, not the contraction.”
“Google “post hoc ergo propter hoc” and then get back to me.”
I wasn’t making the claim that contractions necessarily occur due to expansions only because contractions occur after expansions. I quite clearly argued that the reason expansions lead to contractions is due the expansions’ unsustainable effect on the capital structure of the economy and labor allocation, which will invariably require adjustment, reallocation, unemployment, etc.
At no point did I even give a hint that contractions occur BECAUSE they occur after expansions.
“It’s true that if you look back at history you see periods of expansion alternating with periods of contraction. Yet most of the time aggregate demand is higher at the end of the contraction than at the beginning of the prior expansion.”
BECAUSE THE FED KEEPS RE-INFLATING.
If the Fed did not re-inflate, and the market operated without further monetary manipulation, then the contraction would be much more pronounced.
“If you look at the U.S., for example, aggregate demand has tended to increase over the long term with contractions not even affecting the overall trend in most cases.”
History proves otherwise. For example, the Great Depression saw a roughly 30% decrease in the broad money supply. The latest collapse saw a drop in broad money from -2% annualized to -6% annualized during 2010.
“This has been going on for hundreds of years. And yet the currency has yet to be destroyed.”
Our currency today is not hundreds of years old. It is only around 40 years old. And the average lifespan of a pure paper money standard is around one generation.
“In fact, lots of people in other parts of the world prefer our currency as a reserve even to gold or silver.”
Irrelevant.
“Bill Woolsey has already explained to you why this isn’t so. He’s a lot smarter than me, so if he wasn’t able to get you to understand this then I probably can’t either.”
I’ve already explained why Bill was wrong.
“The term “at the beginning” is problematic because the economy is always “on”. The Fed keeps fighting against deflation, which prevents the money from contracting down to where the free market would put it.”
“Think about what you are saying here. If the Fed can keep inflating for hundreds of years, and after all this time the standard of living is much much higher than it was at the beginning, doesn’t that suggest that maybe just maybe Monetary expansions *don’t* inevitably lead to a corresponding contraction?”
The Fed has not been inflating for hundreds of years. It was created in 1913 and was partly restrained at the time by gold. It wasn’t until 1971 did the last restraints get abandoned can we say that the Fed has been a fiat money monopolist.
Furthermore, history shows quite clearly that inflationary episodes of credit expansion almost always lead to future collapse and deflation as a consequence.
“Yes, Mises was hostile to the free market.”
“I am happy to be grouped together with Mises, Hayek, etc. as against you and Rothbard (although Rothbard was in favor of copyrights, which I hear are a bunch of violence induced injustice, so perhaps I shouldn’t be so quick to put him on the side of the angels).”
I am happy to be grouped together with Rothbard, Block, Murphy, and 99% of the Austrians at the Mises Institute as against you, Mises, Woolsey, Beckworth, and all the other violence apologists.
I understood your point. But you are not understanding mine. A gold money standard would certainly not result in such a thing in the real world
No, I don’t think you do. You seem to think that I was offering the hypo as some sort of criticism of the gold standard, which is not the case. The reason I used a 100% backed gold standard in my example was it isolated one sort of effect (the effect of a monetary contraction) from another (the effect of a prior expansion).
But you just admitted they fail in that regard. If they continuously fail, then it makes no sense to keep asking the Fed to respond when a free market in money production does not have that problem.
If one thinks that a free market in money production is superior to the Fed (and I think there is a strong case that it would be), then one ought to advocate abolishing the Fed and replacing it with a free market in money production. It doesn’t follow that until that happens one can’t try to prevent or minimize new mistakes by the Fed.
Here’s analogy. No doubt you believe that roads ought to be owned and operated by private enterprise rather than the government. But this doesn’t stop you from using the government roads, as the private alternatives are not available. Suppose the government decided to stop repairing the roads or in fact started ripping them up. Wouldn’t it be sensible to complain about this, even if you think ultimately the government is going to do an inferior job? What sense does it make to object that one can’t complain because things would be better if we had free market roads and what the government was doing was backed by violence?
“No, I don’t think you do.”
Oh I can assure you I most certainly do.
“You seem to think that I was offering the hypo as some sort of criticism of the gold standard, which is not the case.”
No, I do not think you are trying to criticize gold using that particular argument. I already know your fallacious premises for why you are against gold.
The reason I reject your hypothetical is because there is no inherent contractionary tendency in gold supply expansion. It is not the case that the more gold that is produced, the greater and more likely will be a gold supply contraction.
You are trying to show the problems that are allegedly caused by money supply contraction. I am showing you that the expansionary credit expansion that you believe is the correct means to counteract deflation, contains within itself a tendency of future deflation. The deflation tendency is borne out of the expansion.
Thus, I reject your hypothetical on the grounds that the problem of any contraction of gold money will be due to external circumstances like war, outright physical destruction of currency, or plague. It will be THOSE problems that are the ultimate cause for economic problems, not the symptoms of deflation.
“The reason I used a 100% backed gold standard in my example was it isolated one sort of effect (the effect of a monetary contraction) from another (the effect of a prior expansion).”
You cannot do that if the context is credit expansion of fiat money! The contraction tendency is INHERENT in the expansion phase. You seem to not understand that you cannot separate expansion and contraction just because you believe the Fed has no limit to inflation.
“If one thinks that a free market in money production is superior to the Fed (and I think there is a strong case that it would be), then one ought to advocate abolishing the Fed and replacing it with a free market in money production. It doesn’t follow that until that happens one can’t try to prevent or minimize new mistakes by the Fed.”
It cannot happen if everyone thinks like you and asks the Fed to remain in existence and continually act. If nobody actually fights for its abolition, then it won’t get abolished.
You are leaving the responsibility for acting to achieve your goal to other people, while you exploit the corrupt system while you can. And then, to make matters worse, you even attack those who don’t settle for “second best”, but want the first best and focus their arguments on that, rather than intellectual capitulation.
Most importantly, you are so blind that you can’t even see that credit expansion, the very means by which you want the Fed to “correct it’s mistakes”, IS THE VERY CAUSE FOR THE MISTAKES YOU THINK THEY COMMIT LATER ON
“Here’s analogy. No doubt you believe that roads ought to be owned and operated by private enterprise rather than the government. But this doesn’t stop you from using the government roads, as the private alternatives are not available.”
No Blackadder. If you want to use the road to money analogy correctly, you would have to say that my opposition to Federal Reserve does not preclude my usage of Federal Reserve paper money in my trades. This is the case, but I only use Federal Reserve paper money because I am threatened with initiations of force, through legal tender laws, taxation of gold price appreciation, and taxation in US dollars, all of which coerces me into using US dollars in trade.
Now, if you want to see a proper analogy for your position, it is this. Your advocacy for the Fed to inflate while it exists, is akin to saying that while you think a baby killing institution should be abolished, you nevertheless accept it killing babies, but only according to some rule you believe is justified. You hold that as long as they kill babies, which is wrong “in theory”, there is nevertheless some “good” that can come out of it, which is a rule that says “only kill babies from people you don’t like”. You insist that you are against baby killing, and you say it would be better if they didn’t exist, but we don’t live in that world, so continue to attack those who ONLY want to abolish it, because they aren’t “pragmatic”, and insist that they follow a rule for baby killing.
“Suppose the government decided to stop repairing the roads or in fact started ripping them up. Wouldn’t it be sensible to complain about this, even if you think ultimately the government is going to do an inferior job?”
I would not complain in the way you believe I would or should complain. I will complain by saying they should not be in the road business at all, and that their terrible job is not surprising or unexpected.
“What sense does it make to object that one can’t complain because things would be better if we had free market roads and what the government was doing was backed by violence?”
You can complain about anything you want.
Oh I can assure you I most certainly do.
Okay then, what was my point?
If you want to use the road to money analogy correctly, you would have to say that my opposition to Federal Reserve does not preclude my usage of Federal Reserve paper money in my trades. This is the case, but I only use Federal Reserve paper money because I am threatened with initiations of force, through legal tender laws, taxation of gold price appreciation, and taxation in US dollars, all of which coerces me into using US dollars in trade.
No, I don’t think so. There are no parallel requirements that say you have to drive on roads, yet you still do that. For that matter, there is no requirement that you have to have a bank account, and on your view having a bank account means you are committing fraud and supporting violence. Yet you do that to.
Frankly, Captain Freedom, you’re beginning to sound like a Grade A hypocrite. You like to talk about how much you hate violence and about the morally corrupting effects of government blah blah blah, yet aside from writing lots of 2000+ word long comments on random blogs, it’s not clear how this profound moral commitment gets expressed in your actions.
Your advocacy for the Fed to inflate while it exists, is akin to saying that while you think a baby killing institution should be abolished, you nevertheless accept it killing babies, but only according to some rule you believe is justified.
As it happens, I do oppose taxpayer funding for abortion (which in my view is a form of baby killing). Ideally I would like there to be no funding for abortion whatsoever, but I understand that this is not politically possible, so as a second-best option I support limiting taxpayer funding to cases of rape, incest, or where the life of the mother is endangered. I suppose if I wanted I could rail against the Hyde Amendment. At best my opposition would mean that the Hyde Amendment would get repealed, and we would have taxpayer funding for abortion generally. Why I should want to do that is not clear.
No, I don’t think so. There are no parallel requirements that say you have to drive on roads, yet you still do that.
It is not necessary that there are. It is only necessary to show that my antagonism against the Fed does not preclude my usage of Fed notes anymore than my antagonism against government road monopoly doesn’t preclude my usage of roads.
“For that matter, there is no requirement that you have to have a bank account, and on your view having a bank account means you are committing fraud and supporting violence. Yet you do that to.”
Well, when the government gets its tentacles involved in the most highly valued goods and services, and seeks to monopolize them, then it shouldn’t be surprising to see people “consent” to using a government regulated/monopolized service.
“Frankly, Captain Freedom, you’re beginning to sound like a Grade A hypocrite. You like to talk about how much you hate violence and about the morally corrupting effects of government blah blah blah, yet aside from writing lots of 2000+ word long comments on random blogs,
You’re starting to have a meltdown Blackadder. I’ve noticed your posts have slowly moved away from arguments and towards attacking me as a person.
Maybe you should take a break? I noticed you are posting the same exact comments on both the Mises website and here. Maybe you’re burning yourself out? I don’t mind the attacks, but if your attacks start to overcome your actual arguments, which I am suspecting is going to happen soon, then maybe it’s best if you find others to chat with?
“it’s not clear how this profound moral commitment gets expressed in your actions.”
Why should that be clear to you? You don’t know me personally.
I can tell you that my moral commitment does transfer to my actions.
It’s not hypocritical to use government roads and be against government monopolizing roads any more than it is not hypocritical for a kidnapped victim to accept food from their kidnapper, while still being against kidnapping.
The fact that I am forced to pay for the roads at gunpoint should ring a bell in your head that it makes sense to use the roads that I am forced to pay for anyway!
But now that your demeanor has shifted to ad hominem oriented, I am not surprising that you are now finding your violence based ideology to lead you to start blaming the victims of that violence.
You are thinking like an abusive parent. An abusive parent would justify their mistreatment of their children by claiming that because the children eat the food the parents give to them, and sleep under their roof they paid for, that entitles the parents to blame the children and call them hypocritical brats if they do not want to be abused anymore.
I can tell you that I am VERY keen and capable of knowing who grew up in an abusive family, not because I was abused (I wasn’t), but rather because I grew up in a family of psychologists and doctors.
I find that in almost every case someone attacks me because I use government roads but at the same time am against government, that person grew up being tormented by their parents, who interpret the world through a dysfunctional family perspective. Anytime adults say to other adults “grow up”, “stop being a brat”, “be thankful you ungrateful little bastard”, etc, those are memories of their childhood coming to the forefront. It’s how they deal with conflict because it’s the only way they were taught growing up. They were not taught to peaceful resolve their disputes, and that sometimes people just disagree with each other.
“As it happens, I do oppose taxpayer funding for abortion (which in my view is a form of baby killing).”
I oppose taxation, but not abortion. The rights of the mother are absolute to anything inside and fully dependent on her.
“Ideally I would like there to be no funding for abortion whatsoever, but I understand that this is not politically possible, so as a second-best option I support limiting taxpayer funding to cases of rape, incest, or where the life of the mother is endangered.”
Why is it “impossible” to stop taxpayer financed abortions, but it is not impossible for the government to only finance rape, incest and mother endangering cases of abortion?
It’s not impossible to stop government financing of abortion. You are capitulating again.
Captain Freedom,
Here’s some free advice: If you want to object to someone’s making ad hominem attacks, it’s best not to do so by accusing them of having a meltdown. It’s also probably not a good idea to suggest, in the same comment, that they may have been abused as child.
However, I agree that it’s best if we end the conversation here.
Blackadder:
“Here’s some free advice: If you want to object to someone’s making ad hominem attacks, it’s best not to do so by accusing them of having a meltdown.”
Here’s some better free advice: He who resorts to ad hominem and personal attacks is one who has no ideas left, but does not understand he moved past his limit, which is the beginnings of a psychological meltdown.
“It’s also probably not a good idea to suggest, in the same comment, that they may have been abused as child.”
If you read my post carefully, you will see that I did not actually make any definitive comments about that. I relayed to you what I have learned over the years concerning people who speak like you do. Whether or not it applies to you is none of my business.
“However, I agree that it’s best if we end the conversation here.”
You’ll be back.
Btw, I completely agree with you that government failure is generally a bigger a problem than market failure. There are lots of imperfections in existing markets that theoretically could be cured via government action, but governments in practice are so bad at doing this that the cure is worse than the disease.
There are no moral nor economic justifications for initiating violence against people.
There are no market “imperfections” that can be cured with initiations of violence. The market is by definition a process of peaceful cooperation that may or may not include the trade of private property.
Governments are not capable of curing market “imperfections” even in theory, because in theory the government are not benevolent Gods. There is no way that pointing guns at innocent people and ordering them around can make those people’s lives better off. Their lives are best off when they are completely free from violence and coercion. Governments, when they act governmentally, can ONLY use violence and coercion. They derive their income that way, and they provide “services” that way.
It’s not a matter of humanity failing to live up the standard of pure and perfect government. It’s a matter of the government failing to live up the standard of humanity.
I’m sure workers never make wage demands in anticipation of expected inflation, therefore chatching them completely awares when you debase the currency and thus getting them to shift to a new optimum.
Silas,
Of course workers make wage demands in anticipation of expected inflation. This is why when expected inflation does not appear, you get unemployment. The whole quasimonetarist argument about why we need to keep nominal spending to trend is based on the fact that workers build expected inflation into their wage demands.
Right: we have to stay one step ahead of their expectations!
Right: we have to stay one step ahead of their expectations!
Huh? The idea is to match their expectations, not to exceed them.
No, workers are negotiating (real) wage increases. If you think that the solution is for real wages to go down, and you want to do this through monetary policy (as is the official line from the quasi-monetarists), you have to inflate the currency *more* than they expected. If you inflate *as* they expected, monetary policy can’t quite push those sticky real wages back to equilibrium, now, can it?
Suppose that a worker and employer want to negotiate a 2% real wage increase for the next year. If they think inflation will be 3%, then they will end up with a 5% nominal increase. If there ends up being -2% deflation instead of 3% inflation, then the workers will end up with a real wage increase of 7%, far more than they bargained for. Getting nominal spending back to trend just restores the real wage increases to the levels actually bargained for.
Perhaps what you’re saying is that worker expectations update really quickly, so that if you have a bunch of years with 3% inflation and then one year where inflation is -2%, workers and employers will negotiate next year’s wages on the assumption that inflation will be -2%. I would say that it takes much longer for people’s expectations to adjust. The average worker’s sense of how much of a nominal increase you need just to match inflation hasn’t changed much if at all since 2008.
Blackadder:
Suppose that a worker and employer want to negotiate a 2% real wage increase for the next year. If they think inflation will be 3%, then they will end up with a 5% nominal increase. If there ends up being -2% deflation instead of 3% inflation, then the workers will end up with a real wage increase of 7%, far more than they bargained for. Getting nominal spending back to trend just restores the real wage increases to the levels actually bargained for.
The bargained for wage takes into account inflation expectations that are primarily influenced by past inflation. Thus, if monetary policy authorities fall to live up to their stated goal of inflation rate of x%, then the better solution is to release restrictions on the labor market and allow wage earners and employers to settle on new wage rates given the new monetary conditions, than to inflate and then wait 12-18 months for inflation of the money supply to appreciably affect aggregate spending so that existing wage rates are “justified”.
You make a good point. I don’t think Murphy really addresses the problem that neo-Austrians like Horwitz, Garrison, Selgin, et.al. are concerned about, i.e. a sudden increase in the demand for money. As Steve Horwitz points out in his second book, there is the “who goes first problem” when it comes time to make all those price adjustments. This will not happen smoothly with sticky wages/prices. And admitting this does not mean that wage contracts don’t serve a useful purpose.
From “The Incredible Bread Machine” poem from 1966:
They’d surely been misled;
No rule of law had he defied.
But the their lawyer said:
“The rule of law, in complex times,
Has proved itself deficient.
We much prefer the rule of men!
It’s vastly more efficient.
Now, let me state the present rules,”
The lawyer then went on,
“These very simple guidelines You can rely upon”
You’re gouging on your prices if You charge more than the rest.
But it’s unfair competition If you think you can charge less.
“A second point that we would make To help avoid confusion:
Don’t try to charge the same amount: That would be collusion!
You must compete. But not too much For if you do, you see,
Then the market would be yours And that’s monopoly!”
Price too high? Or price too low?
Now, which charge did they make?
Well, they weren’t loath to charging both With Public Good at stake!
In fact, the went on better They charged “monopoly!”
No muss, no fuss, oh woe is us, Egad, they charged all three!
“Five years in jail,” then the judge then said
“You’re lucky it’s not worse.
Robber Barons must be taught Society Comes First!
http://www.enterpriseintegrators.com/flint/4thR/TomSmithsIncredibleBreadMachinePoem.txt
Then it only took another 44 years before “The Ben Bernank” youtube came out. We’re sweeping the world!
Also, while I don’t want to get off on too much of a tangent, but the attempt to pin high unemployment during the early years of the Great Depression on Hoover’s pleas not to cut wages strikes me as deeply unpersuasive. In any other context Austrians would snicker at the idea that the government could impede normal market processes simply by using moral suasion. Hoover’s unemployment conference was the equivalent of the Ford people wearing WIN buttons, but apparently the man was so persuasive that he managed to keep all employers (not just those at the conference) from cutting wages for years, even to the point that you had 25% unemployment.
Blackadder, I think this is actually a good tangent, and I’m glad you brought it up. About Hoover preventing wages from falling, I’ve listened to many Murphy podcasts and I have to admit that I have never heard a reference cited. Just that “Hoover had a bunch of conferences and convinced employers not to cut wages”. If anyone can point me to some references or some data I would be grateful.
Daniel,
Rothbard writes about it in “America’s Great Depression”.
UCLA’s Lee Ohanian adds additional considerations to the Hoover/wages issue in one of his papers; here’s a discussion of it: http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caused-great-91447.aspx
Well, Old Hoover said you manufacturing boys better keep your wages up and your hours down. And then the manufacturing boys said they would keep their wages up and their hours down because Hoover “asked” them to. And then they did indeed keep their wages up and their hours down. And then agricultural employment did not drop but agricultural wages did drop while manufacturing wages did not drop but unemployment shot way up.
I’m convinced by this circumstantial evidence.
I’ve only had time to skim the paper that Tom Woods linked, but it does have many further useful citations. Sometime in the future I will extract them and add to the Great Depression article on the Mises Wiki. This is great stuff that should be made more available….your statement above summarizes the paper quite nicely.
Thanks Richard and Tom.
It seems to me that we could avoid all the hand wringing regarding what should done about a post-boom money implosion if we never had the money explosion in the first place.
Our ideological opponents will never grant us that. 🙂
Daniel, grow up already and quit being such a mindless Rothbardian kook!
And take that poster of Rothbard off your bedroom wall! Economics is not about justifying peaceful exchange economic freedom. It’s about understanding why people initiate violence against others, and then joining in the fun before the winds change and the violence is redirected.
Unless we have a machine that reads peoples’ minds, how would we know exactly why people actually do anything, including get stuck with sticky wages?
Of course, if people weren’t conditioned to expect all prices to mysteriously rise all the time as a force of nature, they probably wouldn’t get conditioned to expect all prices to mysteriously rise all the time as a force of nature.
Of course, if people weren’t conditioned to expect all prices to mysteriously rise all the time as a force of nature, they probably wouldn’t get conditioned to expect all prices to mysteriously rise all the time as a force of nature.
A lot of Austrian arguments on this score have the flavor of “you don’t need to take the antidote because if you hadn’t taken the poison you’d be fine.”
If prices hadn’t consistently risen in the past then people probably wouldn’t expect them to keep rising in the future. But they did, so they do.
Hayek originally thought that you could break wage stickiness by allowing a severe deflation-induced-recession. Eventually he concluded that this wasn’t going to work, and switched to advocating against allowing nominal spending to fall.
1. I don’t think prices tended to rise until we got The Fed.
2. I just received an old copy in the mail of “A Discussion with FVH” from 1975. I haven’t read it yet.
3. It seems to me that these “sticky wages” problems are all the cause of fiat money and/or fractional reserve banking and are exactly the types of problems Austrians warn about until they are blue in the face. Further, if you are so stubborn that you won’t lower your nominal wage to get a job, who cares? That’s you’re problem. Why not try holding your breath until you turn purple?
Being senile, I noticed that I think I should have said:
It seems to me that these “sticky wages” problems are all the RESULT of fiat money etc…
@Bob:
. But in retrospect, I think I have heard interventionists complain that “piece wages” are unfair, the government should get involved, blah blah blah. I’m not saying that they’re the same interventionists,
Why wouldn’t they be? After all, you can otherwise trivially circumvent minimum wage laws for e.g. farm workers by paying per fruit picked, such that typical work will earn you less than the minimum wage rate, I’m 99% sure that the DoL won’t buy the argument that “hey, they’re contract workers and I’m paying by piecework…”
Captain_Freedom,
Your arguments would be much more persuasive if you separated questions of economics from questions of morality. Even if natural rights/argumentation ethics are true, it doesn’t follow that quasi-monetarists are wrong in their description of depressions. Presumably you believe that free markets are both just AND efficient, so there’s no reason to dwell on moral arguments.
Additionally, if you agree that the typical image of the libertarian as someone who hates the poor is an unfair caricature, are you really sure your image of quasi-monetarists as “abusive parents” and inherently prejudiced isn’t a gross mischaracterization? It’s unfair when liberals smear libertarians, but it’s just as unfair when it’s the other way around.
Please, from one libertarian to another: don’t feed into these types of unfair stereotypes.
Your arguments would be much more persuasive if you separated questions of economics from questions of morality.
Point taken, but I vehemently disagree. People in general are far more persuaded by moral arguments than mechanical economics arguments. Morality is the fundamental set of values that individuals adopt.
Furthermore, I do not accept the position that there can exist an action that is “morally wrong” but “economically right”. Morality and economics are insuperably connected. Humans are morally guided acting beings. Economics is the study of acting man. Good economics necessarily implies good morality, and good morality necessarily implies good economics.
There is no such thing as a human action that is rationally moral yet economically destructive. Economics is the study of acting man, and acting man can achieve the greatest happiness when his mind is allowed to freely guide his actions. If good economics is economics that maximizes individual utility, then good economics must necessarily be good morality.
I do not hold the traditional Austrian position that morality is subjective. I hold that there exists an objective reality for mankind.
If you can get people to see the immorality in various economic proposals, then you are at the same time exposing bad economic proposals. If you can get people to see the terrible economics in various morality proposals, then you are at the same time exposing bad morality.
Please note that I fully adhere very strongly that value is subjectively determined, but I also hold that this only makes sense if people are allowed to pursue their individual values, which implies an objective, praxeologically determined system of ethics.
Even if natural rights/argumentation ethics are true, it doesn’t follow that quasi-monetarists are wrong in their description of depressions.
Actually it would prove it, for it would prove that their proposals are ignoring/evading economic problems caused by immoral actions done in the past, and they almost always involve the same immoral actions that caused the economic problems!
Presumably you believe that free markets are both just AND efficient, so there’s no reason to dwell on moral arguments.
There certainly is, because advocating for “efficiency” is an ethical framework.
Additionally, if you agree that the typical image of the libertarian as someone who hates the poor is an unfair caricature, are you really sure your image of quasi-monetarists as “abusive parents” and inherently prejudiced isn’t a gross mischaracterization?
I said that THINK like an abusive parent. I didn’t say they ARE abusive parents. There’s a difference.
It’s unfair when liberals smear libertarians, but it’s just as unfair when it’s the other way around.
It was no smear. I was being incredibly serious and honest.
Please, from one libertarian to another: don’t feed into these types of unfair stereotypes.
Thanks for your advice, but you play your game, and I’ll play mine.
CapFree,
Your comment reminds me of this conversation I had with an interventionist a while back. He too was hesitant to stray far from ethics when discussing economics. However, this just made the conversation more confusing for me. He did not even concede the max utility law (that all actions are attempts to bring about a state of affairs which is more preferred than the state that would arise without the act). I think this is a perfect example of a “good economic law” which does not imply anything about morality. He thought I was advocating some kind of nihilism when I said that the law held regardless of one’s ethical code.
Anyway, the conversion got increasingly bizarre until I finally gave up and said something like “You want to talk about morality [jerk]? Fine, let’s talk about morality. Can we start by agreeing that an advocacy of any economic policy should have these TWO parts:
(a) The advocate should indicate what state of affairs the policy is designed to bring about and why he thinks the policy WILL bring about that state of affairs. Note that whatever moral principles the policy touches upon, ethics cannot be used in this part of the argument. Only the non-ethical sciences can be used. I think it is perfectly reasonable to use economic principles like the max-utility law and “an effective price ceiling will bring about shortages” here.
(b) The advocate should state why it is moral to bring about the intended state of affairs. For example, I may advocate a scheme for how to rob everyone and I may have a credible plan for doing so. However, if I want to argue for this policy, then I should explain why everyone SHOULD be robbed. This part cannot be separated from ethics.”
I can’t tell you whether this convinced him that there really is such a thing as value-free economic laws. He stopped returning my emails. I assume that he was so shamed by the loss of this argument that he decided to go into hiding.
Captain Freedom,
I am a libertarian.
I don’t think economics is about justifying peaceful exchange.
I rather like peaceful exchange, but I don’t think economics is about justifying it.
It is about understanding social phenomenon. It isn’t about justifying anything.
Your alternative of what economics might be was a bit difficult to understand, but
understanding initiations of force is also part of economics, yes. I don’t think justifying
them is part of it, really.
I don’t think economics is about justifying peaceful exchange.
Your argument is self-detonating, because to even make that claim requires peaceful exchange, of ideas, and respect for each other’s person and property.
Economics is about acting man, and your choice to tell me that economics is not about justifying peaceful exchange is itself an action. You have utilized scarce means to achieve a goal that rules out all other possible goals you could have otherwise achieved. You economized your action.
Furthermore, since you would not even make that argument if you didn’t already presuppose an implicit argument for respect for property rights and peaceful exchange, your argument is not logically consistent.
I rather like peaceful exchange, but I don’t think economics is about justifying it.
It is about understanding social phenomenon. It isn’t about justifying anything.
Your alternative of what economics might be was a bit difficult to understand, but understanding initiations of force is also part of economics, yes. I don’t think justifying them is part of it, really.
Understanding social phenomenon cannot be done unless one already comes to the table with a theory that one feels is justified. Without such a theory the researcher considers justified, social phenomenon will be a random series of incomprehensible events.
Even the most ardent “value-free” economists are implicitly attempting to justify the logical implications of their models. All economic models concern human beings and human action, and as such, all models presuppose a system of ethics and implicit justification for a particular set of values.
You can point me to ANY economics model that the creator considers to be value-free, and I will show you the implicit values and ethics the creator has adopted.
Your argument is self-detonating
Like in Mission Impossible?
Blackadder,
I wish there was a “like” button on this forum for your posts and Bill Woolsey’s posts.
It is important distinguish between the trend of money expenditure and fluctuations.
In my view, it is very important for the nominal quantity of money to match changes in the amount of money demanded, leaving the trend growth rate of money expenditures unchanged.
While I prefer a trend growth rate of money expenditures that matches the trend growth rate in the productive capacity of the economy, that is less important that avoiding temporary changes.
For example, I think people can adjust to a 2% or 4% growth path for money expenditures, with 1% deflation or inflation respectively. Shifting from 2% to 3% to 4% or vice versa would cause disruption. But most important, if there is a 15% increase in money demand, whether temporary or permanent, it is much better to have a 15% increase in the quantity of money, either termporary or permanent rather than a 15% deflation of prices and wages. Permanent would be bad enough, but a 15% deflation followed after a time by 15% inflation is just awful.
wages are sticky. They could remain stable, and product prices fall. Or they could grow 3% or 5%. But having them drop 15% for a couple of years, and then rise back, not too good.
I am seeing little ability to distinguish to these matters. But then, when it is all about intellectual ammunition for a 100% reserve gold standard, then what should I expect? Or maybe if there is any light shown on the matter, I just shouldn’t expect to get any feedback.
“either way it’s evidence of market failure and justifies government intervention”
Nail -> Head. You see, it’s not about what is “better”, it’s about what justifies increasing power; thus ‘markets’ will always be labelled ‘failures’ by those who seek to gain power through increased government intervention.
If prices and wages were perfectly flexible, then there would be no problem regarding monetary disequilibirum. The real quantity of money would always equal the demand to hold money and real expenditures would always equal the productive capacity of the economy.
However, unexpected changes in the price level (including resources like wages) would disrupt contracts set in money terms. It still would be better for the nominal quantity of money to adjust to the demand to hold money without there being fluctuations in the price level.
Making every nominal contract a speculation on the purchasing power of money, along with whatever real relative prices are of concern, is a bad thing.
A fluctuating price level would result in fewer contracts being made, costly efforts at indexing, and then, a lot of undesired transfers by people who consider the element of the contract that is a speculation on the purchasing power of money to be better than indexing or doing without a contract.
Most of my arguments in favor of money expenditures targeting as opposed to price level targeting would have less force with perfectly flexible wages and prices.
The reason for money expenditures targeting is to avoid the need to force other prices to change in the opposite direction when some prices change due to changes in productivity.
Selgin has provided arguments as to why money expenditures targeting in terms of contracting, but to me, the sticky prices and wages is the strongest argument for why stabilizing the product price level is inferior to stabilizing money expenditure (growth.)
@Bill Woolsey
If prices and wages were perfectly flexible, then there would be no problem regarding monetary disequilibirum
So.. Can I read the quoted statement as: The total amount of money be damned, all that matters are relative prices?
And, obviously you think that one can fine-tune/fix them (relative prices) by fine-tuning/fixing it (the amount of money), but it is a slightly different story.
A story of which I’m skeptical, by the way, because I read it as: It is easier for economy to adapt to local and global change than just to local change.
Unobvious, good sir.
Captain Freedom,
I will grant that my approach to economics requires that I put value on an open-eyed assessment of reality.
I will even grant that my approach to economics requires that I value truth above achieving libertarian revolution.
OK. You know something about my scale of values.
To me, economics is not about justifying peaceful exchange.
By the way, you can call me inconsisent or evil if you want, but I will continue to make arguments without endorsing anarcho-capitalism as morally obligatory.
When Rothbard failed to join the rest of us in laughing at Hoppe’s argumentation ethics, my low opinion of him dropped further.
BTW, if anyone is interested in reading about Hoppe’s theory of argumentation ethics (which I personally think is interesting), they can find a good summary on the wiki page for Discourse Ethics [http://en.wikipedia.org/wiki/Discourse_ethics]. I am able to follow Hoppe’s law-as-a-consequence-of-scarcity arguments better than the Habermas-inspired communication stuff.
Bill Woolsey, not sure why you don’t approve. Also, can you provide some references to economic texts which describe the “monetary equilibrium theory” you keep mentioning? I personally floated from neoclassical model to model until I read Rothbard’s _Man, Economy, in State_. The book is a masterpiece! I’ve never read another economics book like it. Even if one does not agree with Rothbard’s judgments, it is easy to understand the concepts he introduces and to understand the arguments he is making. Is there some similar magnum opus for this “monetary equilibrium” theory?
Dr Murphy,
What do the gray vertical bars in the graph background mean?
Are they just stylistic?
Recessions.
“So.. Can I read the quoted statement as: The total amount of money be damned, all that matters are relative prices?”
No. It is only the price of money (its purchasing power) that needs to be fixed.
“And, obviously you think that one can fine-tune/fix them (relative prices) by fine-tuning/fixing it (the amount of money), but it is a slightly different story.”
I don’t think that relative prices can be fine tuned or fixed by fine-tuning or fixing the amount of money.
I think market forces should determine relative prices at all times.
I don’t really think that imagining what would happen to relative prices with a 100% gold standard forms an appropriate baseline, however.
What is the best macroecnomic evironment for entrepreneurs to make microeconomic adjustments? That is my perspective. And slow growth of money expenditures on output is the least bad option in my view.
In such an environment, relative prices can change in any sort of way. I don’t argue that, say, single family homes are getting too expensive (or too cheap) relative to other goods, and so, monetary policy should be changed until the relative prices adjust to some target.
There is a bad harvest of corn. Corn prices rise. The price level rises. Less corn is being produced. Real outptut falls. Corn farmers (I presume) reduce their demand for hired hands. Employment falls. Money expenditures in total should just continue to increase. In the corn market, less corn will be sold for a higher price. Depending on elasticity of demand, spending in the rest of the economy could go either way. With money expenditure targeting, the total is contrained to grow at constant rate. But there is no effort to use monetary policy to somehow reduce the relative price of corn. Raising the money prices of everything else (without raising the money price of corn) or somehow getting the money price of corn down, is just not part of the proposal.
Price level targeting would require that the money prices of everything else be reduced, and the money price of corn be reduced, so that the price level would remain unchanged in the face fo the increase in the relative price of corn due to the drought. The reason for money expenditure targeting is to avoid that sort of adjustment. If the relative price of corn rises, then the money price of corn rises as does its relative price. Other money prices don’t change much. Or rather, they change through the usual micro relationships–substitutes for corn get more expense, products of corn get more expensive, complements of corn get cheaper.
If you look at the price level, it rises a bit. And then, when the corn industry recovers (the next year, maybe,) the price level falls back to where it started. There is deflation.
If the problem with corn was permanent, like a incurable blight, then the price level might be permanently increased a bit by the changes.
The opposite would occur if there were an unusually good growing season, and corn supply was extra high. The money and relative price of corn falls. And the quantity of corn produced and consumed rises. In aggregate, the price level falls a bit and aggregate output rises a bit. Nothing is done to keep the price level from falling. There is no monetary expansion to raise the money prices of other goods a bit (and the price of corn from its extra low level) so that the price level remains unchanged.
If, in the next year, the corn crop is normal, then when the price of corn rises back, the price level will rise back to where it started.
Bill,
Why would the price level necessarily rise if the price of corn increased due to a drought? If people spent more money on corn, then they have less money to spend on other goods. The prices of other goods would fall. Overall, the price level would remain unchanged, would it not? (I am assuming the consumption-savings ratio to be the same. I see no reason why that would have to change if people were spending more money on corn and less money on other goods…)
Richard,
MV=PO. If O falls without an equivalent change in either M or V, then P will go up.
Yikes.
Should have just stayed in bed this morning.
No. It is only the price of money (its purchasing power) that needs to be fixed.
Well, you are chasing a very elusive beast here. Goods, wants, technologies, are changing all the time, but the purchasing power of money should stay put. Fixed?
Maybe, I’m going to waste your time stating the obvious, but isn’t the the purchasing power of money just an synthetic value made of individual relative prices which, your words, are better left to be set by the market? So individual prices should (a value-free “should” of course) be left to individual buyers and sellers to decide upon, but purchasing power of money which is just an average shouldn’t? Do you happen to have an easy, obvious answer to that, which I somehow missed?
What is the best macroecnomic evironment for entrepreneurs to make microeconomic adjustments? That is my perspective. And slow growth of money expenditures on output is the least bad option in my view.
And a fixed monney supply is a badder option because…
There is a bad harvest of corn. Corn prices rise. The price level rises. Less corn is being produced. Real outptut falls. Corn farmers (I presume) reduce their demand for hired hands. Employment falls.
Of course, the increase in the supply of money will not increase the supply of corn (just a note to myself)
Money expenditures in total should just continue to increase. In the corn market, less corn will be sold for a higher price. Depending on elasticity of demand, spending in the rest of the economy could go either way
Let me see if I got it right? There was a bad harvest, the consumption pool has shrunken but the amount of money spent in the economy should continue to increase, because of .. You did not spell it explicitly.
I miss the rationale. What is the danger to be avoided? And, yes, I seem to understand what your proposal is not. You’re not proposing to increase price of rice and beans to such a level that house prices do not have to fall.
So, what is the nirvana to be reached through nominal income targeting?