Sorry everyone but I am working through some major deadlines and won’t be able to blog much, at least through mid-September. (However, if you just can’t stand it, find me on Facebook, as Robert P. Murphy who lives in Nashville. That’s where I go when I have a lot of work to be done and should totally be immersed in work.)
Anyway, I had to take a break from everything and read the absolute train wreck of Sandeep Jaitly taking on Mises the fake Austrian, and Lew Rockwell the fake libertarian. (Seriously, I’m not being inflammatory; read Tom Woods’ smackdown.)
I guess it’s a good sign that popular outlets are getting publicity by hosting people who openly criticize the Austrians and libertarianism; if we’re worth blowing up, we must be gaining in importance. But like the historian Webster Tarpley, this particular critic is just so WRONG that it’s not even fun. It doesn’t mean Austrians are flawless, of course, but it would be like Krugman having to fend off accusations that Keynes was a jerk because he was an anarchist.
To compound things, Max Keiser himself (it’s not a guest post, right?) weighs in on Tom Woods’ “Blunders.” So Alex Jones at least could just say he hosted Tarpley to keep things interesting, without endorsing his position. But here Keiser–again, unless I’m getting mixed up and he’s not the author of “Tom Woods’ Blunders”–is agreeing with Jaitly and in fact is being ruder about it.
What’s really weird in all this is that Jaitly and Keiser seem not to want to throw Austrian economics under the bus. So strategically, you would think they’d be a little more diplomatic, inasmuch as 99% of the world right now who likes Austrian economics, also respects Tom Woods. (OK maybe 85%; I know Tom is too aggressive for some people.) Anyway, here is Tom’s response to Keiser’s critique. (HT2 Robert Wenzel for linking to this.)
In the interest of evenhandedness, let me say that there are two areas where I think Tom may have not quite gotten what Jaitly was saying. This doesn’t excuse the other jaw-droppers, such as Jaitly claiming Mises was less subjectivist than Menger. (!) But here are the two things I have in mind (and I’m quoting from Tom’s original critique of Jaitly):
Jaitly further contends that “Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a natural consequence of not having a present good.”
This claim is so at odds with Mises’ words that one is left breathless at its sheer daring. Mises never denied that interest is a market phenomenon. The whole point of his business-cycle theory is that deviation from market rates of interest by means of artificial credit expansion leads to malinvestments that culminate in a bust.
Mises does not say interest is “a natural consequence of not having a present good.” Merely not having something yields no natural consequence. Mises says people prefer a good in the present to the same good in the future, such that they would opt for the future good only at a premium. This premium reflects their time preference, or their discount of the future. Interest rates that arise on the market reflect these time preferences of individuals in society.
To say that Mises did not believe interest was a market phenomenon because its origins lay in individuals’ time preferences is like saying he didn’t believe prices were a market phenomenon because their origins lay in individuals’ subjective valuations. In each case, the market takes a subjective factor (individuals’ value scales in the case of prices, and individuals’ time preferences in the case of interest) and gives it objective expression – market prices in the former case, and the interest rate in the latter case.
OK, everything Tom says is perfectly true, but I think I get what Jaitly means. There are several places where Mises goes out of his way to beat down the conventional understanding of interest rates. I’m paraphrasing, but in Human Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc. Instead, Mises says interest is due to time preference, which flows apodictically from the fact that humans act. Indeed, when I argue that interest really is the price of borrowing money, I get pushback from self-described Misesians saying, “No Bob, interest would exist even in a barter economy,” and I think even some of them would say it exists for Robinson Crusoe. (One guy literally said the former to me just last week, but perhaps nobody has actually claimed the latter; I don’t remember.) Anyway, if you want to see my heretical views on Misesian interest rate theory, see the second chapter in my dissertation.
There is one other point on which I think Tom simply misunderstood Jaitly. Here’s Tom:
Finally, Jaitly claims that Mises confuses “the thing that occupies an object with the object itself,” and gives as an example: “Mises thinks that a promise to gold is the same as the object of a promise to gold.”
Finding this point rather opaque, I ran it by a friend, who came back to me with, “As near as I can make out, Jaitly thinks that Mises believed that gold is valued intrinsically instead of as a means to an end. This appears to be what he has in mind by saying that a ‘promise to gold,’ i.e., a commitment to provide gold, is the same as the object, or end, for which this commitment is made.”
I find no evidence that Mises ever said or believed such a thing, and Keiser, doubtless as confused as his audience over this claim, doesn’t follow up on it either of the times Jaitly tries to raise it.
OK here, I think Jaitly is referring to Mises’ distinction between money in the narrower vs. broader sense. In particular, Mises’ circulation credit theory of the trade cycle (i.e. “Austrian business cycle theory”) relies on the ability of banks to increase the “quantity of money” during the boom phase by issuing claims to gold, even though the actual amount of gold hasn’t increased.
Now notice, Jaitly’s point here (assuming my interpretation is correct) is exactly backwards, just like his claim about Mises and subjectivism. Far from not recognizing the difference between a claim to gold vs. gold itself, Mises’ whole theory rests upon the distinction. Yes, Mises says that in some respects a “money substitute” functions just as money itself, but since they’re not really the same, this leads to trouble. If anyone wants to carefully spell out the senses in which claims to gold and gold itself are similar and yet different, I think the list of bullet points would end up looking exactly like Mises’ treatment. For more, see his Theory of Money and Credit and my Study Guide, since it can be tough reading at times.
So in summary, I think Jaitly and Keiser missed badly in their critique of Mises, libertarianism, and Lew Rockwell, while Woods was 6.5/8 in his reply, and any 3 of Woods’ hits were fatal.