26 Jun 2013

The Cross Keynesian

Daniel Kuehn, Steve Landsburg 99 Comments

Steve Landsburg took on the Keynesian Cross (and its case for the government multiplier) and Daniel Kuehn is none too happy. Daniel lists all sorts of reasons that the Keynesian textbook case isn’t as simplistic as Landsburg makes out. For example, any decent Econ 101 student (according to Daniel) realizes that there should be time subscripts for these variables, and that government spending will be influenced by supply side constraints / crowding out.

So: Can someone go look up the discussion of this in both Samuelson and Krugman/Wells? I am quite sure none of Daniel’s nuances are in the former, but they might be in the latter. (Yet even if they are in the latter, the form would have to be: “We just used this diagram to talk about the multiplier, but actually, everything we just said is bogus, because of the following complications…”)

99 Responses to “The Cross Keynesian”

  1. Daniel Kuehn says:

    Where are you getting this time subscripts thing? That was a comment from Min. I responded to him/her that I don’t think time subscripts matter all that much – that you’re just teaching an equilibrium and that’s fine.

    • Major_Freedom says:

      DK, this comment you made on your blog:

      “The Keynesian multiplier has two sides: income and expenditure. The economy’s income today is the economy’s expenditure yesterday. If you had a lot of income today but there was not a lot of expenditure today, then tomorrow you will have less income.”

      Is ridiculously wrong.

      Income and expenditure are two sides of the same activity. There are two words because they refer to the two parties of the same exchange, the payer and receiver.

      If, like you propose, there is a lot of income today, then by the very definition of income, there was also a lot of expenditure today, and vice versa. This is because money income earned IS money expenditures made.

      It is logically impossible for income and expenditure to be different, at the same (praxeologically constrained) time. If there is a lot of income, that just means that there are a lot of dollars being received by a group of people (or one person). If a lot of dollars are being received, then that IS a lot of dollars being spent by a different group of people (or one person).

      For example, if I accept from you $0.01 in exchange for my copy of Samuelson’s Economics, then “income” (my income) is $0.01 and “expenditure” (your expenditure) is $0.01. It is not the case that “income” (my income) goes up by $0.01 now, and then at some time in the future, say tomorrow, expenditure (your expenditure) goes up $0.01, or vice versa.

      Income and expenditure are two ways of relating to the same changing hands of dollars from one party to another party, in one activity we call “an exchange”.

      Your criticism of Say on this score is wrong.

      How one can actually become befuddled about income/expenditure – such a basic economic concept – is jaw droppingly startling.

    • Daniel Kuehn says:

      Nice – thanks. As you know this criticism came up in Landsburg’s comment section. I think it’s valid (there’s some playing fast and loose with income shares), but it still misses the central point, I think. I fleshed that out a little in my most recent post.

      • Matt Tanous says:

        Callahan entirely misses the point. Rothbard’s entire argument is a reductio, here. Of course the “personal multiplier” is a non-existent farce! But so is the Keynesian investment multipler, and FOR ALL THE SAME REASONS. The point of Rothbard’s critique is precisely that “In the simplest version of the Keynesian multiplier story, an essential element is that C remains a constant percentage of Y (ignoring autonomous consumption) regardless of what happens to G or I. ” And that claim is ABSOLUTE NONSENSE. C cannot remain the same percentage of Y “regardless of what happens to G or I”. Every dollar (and more importantly, every real resource) that goes to G or I can no longer go to C.

        The Keynesians implicitly assume scarcity away, and then complain when you ridicule them for doing so!

          • Lord Keynes says:

            “The Keynesians implicitly assume scarcity away,”

            And Austrians are assuming an economy with no idle resources, no unemployment and no vast resources available via international trade.

            In any recession or depression, when Keynesian stimulus programs are meant to to be implemented, BY DEFINITION, there are idle resources, otherwise there wouldn’t be a recession in the first place.

            The lack of reality is quite clearly on the Austrian side.

            • Yancey Ward says:

              So, in what ways is the stimulus being targeted to exactly those unemployed resources?

              • Lord Keynes says:

                Example: public works projects employ unemployed construction workers.

              • Matt Tanous says:

                “Example: public works projects employ unemployed construction workers.”

                And if those construction workers really should have changed to a new line of work to meet consumer demand? Maybe the reason for the recession was too much investment in, say, housing construction, and not enough in other parts of the economy. Employing construction workers would only delay the process of shifting them into more useful industries.

              • Yancey Ward says:

                Well, no. As far as I can tell, the workers on the public projects after 2008 were still employed prior to the stimulus.

              • Major_Freedom says:

                “Example: public works projects employ unemployed construction workers.”

                What about unemployed burger flippers, insurance salesmen, wholesalers, cashiers, and shelf stockers?

                Not every unemployed person is a construction worker.

                Why do Keynesians hold that construction workers get taxpayer money all the time?

            • Matt Tanous says:

              The theory of idle resources is a false one. Those resources would quickly be shifted into profitable use by the market. Government taking them for its own use halts this process.

            • Bob Roddis says:

              Resources are “idle” because they have been mis-priced. Your policies induce a further and unsustainable mis-pricing.

            • Major_Freedom says:

              “And Austrians are assuming an economy with no idle resources, no unemployment and no vast resources available via international trade.”

              Once again, false on all three counts. You’re either lying or your memory is garbage because you’ve been repeatedly shown that these are not true.

              Austrians do not reject the empirical phenomena of what you call idle resources. They just have a different theoretical interpretation of them. Same thing with unemployment. I mean really, how stupid is it to accuse any economics school of denying the existence of unemployment?

              “In any recession or depression, when Keynesian stimulus programs are meant to to be implemented, BY DEFINITION, there are idle resources, otherwise there wouldn’t be a recession in the first place.”

              Then according to Keynesians there is ALWAYS a recession, because there is always idle resources according to your fallacious theoretical understanding of the empirical phenomena to which you refer.

              “The lack of reality is quite clearly on the Austrian side.”

              Nothing but spitballs.

  2. Daniel Kuehn says:

    I do think every Econ 101 student is taught about supply, depreciation, diminishing returns, and crowding out. I don’t think I’m going out on a limb there.

    That motivates why you need investment, which is why you’re not going to get MPCs of 1 or near 1 which is why you pin down the multiplier to something reasonable.

    If your argument is that I’m not allowed to talk about supply, then I think you’ve just forfeited the argument.

    Why would the Keynesian cross be “bogus”??? If you have exogenous investment – which is always taught in the Keynesian cross – then the odder potential solutions don’t really emerge. All I’m saying is that we understand why you need investment simply by an understanding of what goes into supply. Nothing is “bogus” here. I’m just saying you don’t teach the Keynesian cross in the absence of teaching about supply. How is that at all controversial?

    • Ken B says:

      Daniel
      Econ 101 may teach those things, but that doesn’t really matter for Steve’s post. You are focusing on his jab at Krugman (note the double exclamation) rather than his real argument. His implication is that the derivation he presented for the Keynesian multiplier, is a fair recapitulation of how Old Keynesians made the argument. There really is no room for doubt on this, as SL has made the implication explicit in a lter comment:

      This textbook explanation really is a good representation of the traditional “old Keynesian” argument for the multiplier. Today we have “new Keynesians” who tell more plausible stories, but we also have occasional pundits who keep insisting that for many purposes, the old Keynesian ways of thinking are plenty good enough.

      So discussions of New Keynesian awareness of the problem, while interesting, is not relevant to whether Landsburg’s post is right or not.

      Steve’s point is quite clear and I think quite logically sound. If you start with two premises, one of which is a tautology and the other of which is not, then you cannot treat your conclusion as a tautology. In terms of equations that means even if you start with an identity, if you through in a contingent equation, you don’t end up with an identity. The arguments Steve presented, BOTH of them, depend on making just exactly this error.

    • Matt Tanous says:

      As Callahan points out, the Keynesian cross – like Rothbard’s reductio – assumes there is no crowding out. Add in crowding out, and suddenly, the cross is indeed bogus.

    • Major_Freedom says:

      “Why would the Keynesian cross be “bogus”???”

      One of the most popular logical interpretations of the cross is what is bogus, as Landsburg noted in his post, which you seem to have tremendous difficulty parsing.

  3. Bob Roddis says:

    The Rothbardian personal multiplier to which Landsburg refers is found here:

    http://mises.org/rothbard/mes/chap11e.asp#17._Further_Fallacies

  4. Bob Roddis says:

    For all of those strictly empirical Keynesians out there:

    What reason is there to suppose that there is any such thing as “the multiplier”? Or that it is determined by the “propensity to consume”? Or that the whole concept is not just a worthless toy, the kind of thing made depressingly familiar by monetary cranks?

    There are, in fact, so many things wrong with the “multiplier” concept that it is hard to know where to begin in dealing with them.

    Let us try to look at one probable origin of the concept. If a community’s income, by definition, is equal to what it consumes plus what it invests, and if that community spends nine-tenths of its income on consumption and invests one tenth, then its income must be ten times as great as its investment. If it spends nineteen-twentieths on consumption and invests one-twentieth, then its income must be twenty times as great as its investment. If it spends ninety-ninehundredths of its income on consumption and invests the remaining one-hundredth, then its income must be a hundred times its investment. And so ad infinitum. These things are true simply because they are different ways of saying the same thing. The ordinary man in the street would understand this. But suppose you have a subtle man, trained in mathematics. He will then see that, given the fraction of the community’s income that goes into investment, the income itself can mathematically be called a “function” of that fraction. If investment is one-tenth of income, income will be ten times investment, etc. Then, by some wild leap, this “functional” and purely formal or terminological relationship is confused with a causal relationship. Next, the causal relationship is stood on its head and the amazing conclusion emerges that the greater the proportion of income spent, and the smaller the fraction that represents investment, the more this investment must “multiply” itself to create the total income!

    I admit that all this sounds pretty fantastic; but I am at a loss otherwise how to explain how Keynes came to think that such an amazing causal mathematical relationship should exist.

    Henry Hazlitt

  5. Bob Roddis says:

    Mark Blyth, in his new book “Austerity: The History of a Dangerous Idea” says:

    Remember, in the Keynesian world, the point of spending money to stimulate the economy is not that money is causal per se. Rather, the point is to raise prices sufficiently to alter the expectations of investors, which in turn impacts employment and consumption.

    http://ideas.time.com/contributor/mark-blyth/

    Mark Blyth is Professor of International Political Economy and Faculty Fellow at the Watson Institute at Brown University

    • Lord Keynes says:

      “Remember, in the Keynesian world, the point of spending money to stimulate the economy is not that money is causal per se. Rather, the point is to raise prices sufficiently to alter the expectations of investors, “

      Blyth is thinking of some versions of neoclassical Keynesianism.

      But of course many Keynesians would point out that increases in demand generally induce direct increases in output and employment in fixprice markets, a large part of any advanced economy.

      • Major_Freedom says:

        What about new neo orthodox classical synthesis updated 2.0 neo new neoclassical Keynesianism? THAT version has something in it that is right and totally and completely and utterly refutes everything any Austrian has ever said ever.

    • Bob Roddis says:

      And all Austrians would point out that providing an artificial “demand” stimulus via funny money or spending to people who actually have no assets or skills to exchange will probably induce an artificial and unsustainable increase in consumption and thus production while distorting the price, investment and capital structure.

      In fact, all Austrians would point out that the result could not be otherwise.

      • Daniel Kuehn says:

        Don’t be so hard on LK. I’m told no Keynesian anywhere ever has ever understood Austrianism.

        It’s a very closely guarded secret, apparently.

        • Bob Roddis says:

          I bought Mark Blyth’s book. He doesn’t understand Austrian concepts either although he sorta likes the Austrian description of the boom. It’s easier to count the number of Keynesians who understand (or want to understand) Austrian concepts (zero) than keeping a long running tab on the ones who do not (the rest).

        • Bob Roddis says:

          Further, neither you nor Krugman understand Austrian concepts. There is certainly no evidence of the Austrian critique of Keynesianism in your post or Krugman’s.

          http://factsandotherstubbornthings.blogspot.com/2013/06/paul-krugman-is-sick-of-trying-to.html

          And I know the difference between Krugman and his spending obsession during the “zero bound” vs. the MMTers’ belief that government spending runs the universe every day all the time.

          • Daniel Kuehn says:

            So I shouldn’t encourage you, but I’ve been very good – when I’ve written about Austrian economics – to pass it by people like Bob, Jonathan Finegod, Karen Vaughn, Robert Thorpe Gene Callahan, Peter Boettke, and others to ensure that I am not mischaracterizing something. These are brilliant people that represent a wide distribution of the Austrian school from the GMU/subjectivist/Kirzner/Lavoie camp to the Auburn/Rothbardian camp.

            I’ve also run it by non-Austrian non-Keynesians like JP Koning, David Glasner, and Guinever Nell, etc that are pretty well read on it to ensure that there isn’t some weird issue that is in both my Keynesian blindspot and the Austrians’ blindspot.

            There are small points here and there, but they’ve basically given the thumbs up and I’ve moved forward with the handful of things I’ve passed by all these people.

            So this is what I want to submit to you as a possibility.

            Maybe YOU don’t understand Austrian economics.

            • Lord Keynes says:

              Daniel,

              Of course, Roddis does not understand basic “Austrian” or even economic concepts.

              He open tells us that he does not understand the concept of a market clearing price:

              “I do not like the term “market clearing prices”. I don’t use it and I do not think it is particularly helpful in understanding reality. When I see the term used, my reaction is always “WTF are you actually trying to say”?”

              http://mikenormaneconomics.blogspot.com/2013/05/daniel-little-what-about-marx.html?showComment=1369144674917#c9135395801097278615

              • Lord Keynes says:

                Also, witness Roddis’s recent breathtaking admission that ultimately he does NOT care what actual and real Austrian economists say, and does not even consider himself bound by actual Austrian theories or concepts he doesn’t understand or like!:

                “But I don’t care what the past masters have said if it turns out you are right about what they have written (but you are wrong). I personally will not be bound by anything that someone else might have said if it conflicts with my application of basic Austrian concepts. My application of basic Austrian concepts is exactly how I described things above. If the past masters were wrong, I’m still right. Give me and my cat the Nobel Prize.”

                http://mikenormaneconomics.blogspot.com/2013/06/lord-keynes-gardiner-means-on.html?showComment=1371824970913#c1773378129103665189

                We have a sheer genius at work!

              • Bob Roddis says:

                Again, LK and his “fixprice” nonsense which we totally refuted before. He still maintains that Austrians INSIST that business people MUST always slash prices in bad times and will not, could not and cannot adjust quantity, quality, production etc…. Since he claims that business people often cut production and not prices, he claims to have refuted the Austrian School. That is preposterous.

                All I said was that if the past Austrian masters actually claimed such a stupid thing (and they didn’t because LK is misrepresenting them), then they were wrong.

              • Lord Keynes says:

                “He still maintains that Austrians INSIST that business people MUST always slash prices in bad times and will not, could not and cannot adjust quantity, quality, production etc….”

                No, I do not assert that at all, roddis. Your trouble is inability to represent your opponents arguments.

                I assert that it is, above all, what Austrian economic coordination theory says is GENERALLY done (not ALWAYS done) and requires and prescribes as what GENERALLY (not ALWAYS) must be done for there to be a tendency to market clearing and full use of resources:

                “Mises conceives the market process as coordinative, ‘the essence of coordination of all elements of supply and demand.’ This means that the structure of realized (disequilibrium) prices, which continually emerges in the course of the market process and whose elements are employed for monetary calculation, performs the indispensable function of clearing all markets and, in the process, coordinating the productive employments and combinations of all resources with one another and with the anticipated preferences of consumers.” (Salerno 1993: 124).

                Of course, if roddis is saying is that this a largely unrealistic model of what happens in modern economies, he’s conceded Austrian coordination theory does not describe reality and even as a prescriptive vision is ignored by many businesses.

              • Major_Freedom says:

                “I assert that it is, above all, what Austrian economic coordination theory says is GENERALLY done (not ALWAYS done) and requires and prescribes as what GENERALLY (not ALWAYS) must be done for there to be a tendency to market clearing and full use of resources”

                One can never be wrong no matter what happens, with this empirical claim. If A happens, then it’s “generally”. If ~A happens, then it’s “not always.”

                This is you declaring to the whole world you do not understand Austrian theory.

              • Lord Keynes says:

                Hardly. “Generally” means what Austrians think normally — or in the majority of cases — happens. I.e. prices in most cases should be flexible. That does not deny that they think exceptions can happen, which are usually ascribed to evil government or unions.

                And I suppose no Austrian ever has advocated more flexible prices as a prescriptive economic policy, as in prices free from unions or government interventions?

                MF’s sheer genius at work.

              • Major_Freedom says:

                “Hardly. “Generally” means what Austrians think normally — or in the majority of cases — happens.”

                So you’re not talking about Austrian theory, you’re talking about what you believe individuals who you identify as Austrians allegedly say.

                Tell me one Austrian who claims that if a consumer walks into a store and spends $100 instead of $50, that the store owner will instantly, or immediately, or quickly, adjust the prices upwards.

                “I.e. prices in most cases should be flexible.”

                Define “flexible”, biatch, and be specific, and reference any Austrian who holds that definition, and then show why that definition should be identified with the Austrian school and not some other economics school.

                “That does not deny that they think exceptions can happen, which are usually ascribed to evil government or unions.”

                LOL, “usually”.

                “And I suppose no Austrian ever has advocated more flexible prices as a prescriptive economic policy, as in prices free from unions or government interventions?”

                To the extent that prices can be made more flexible by more free market activity and less coercive activity, of course “prescribing” more flexible prices through a removal of such barriers, is not unreasonable, especially when such solutions are separate from the notion of demanding that sellers reduce their prices, even below cost, for every drop in market demand, incurring losses now instead of possible losses later on.

                “MF’s sheer genius at work.”

                Every insult you make, only gives me more confidence that I am on the right track, because you’re ignorant.

              • Lord Keynes says:

                “Tell me one Austrian who claims that if a consumer walks into a store and spends $100 instead of $50, that the store owner will instantly, or immediately, or quickly, adjust the prices upwards”

                Yes, MF, we know you’re a master of the straw man argument.

                No one claimed that prices must be immediately flexible in response to every individual transaction.

                “To the extent that prices can be made more flexible by more free market activity and less coercive activity, of course “prescribing” more flexible prices etc. etc.”</i.

                This concedes my original point.

              • Major_Freedom says:

                “No one claimed that prices must be immediately flexible in response to every individual transaction.”

                So then your claim that Austrians reject, or deny, or fail to appreciate, fixprices, is a bogus claim. If you do not claim that Austrians hold that prices immediately adjust, then you can’t claim that they reject fixprices at the same time.

                “To the extent that prices can be made more flexible by more free market activity and less coercive activity, of course “prescribing” more flexible prices etc. etc.”

                “This concedes my original point.”

                No it doesn’t. It reinforces mine and weakens yours. Your point was over fixprices, which I have already shown you is cost plus profit pricing, which is flexible because like you said, nobody claims that prices *immediately* adjust to every change in demand.

                So which is it now? Do Austrians reject fixprice markets, and so regard prices as instantly adjusting, or do no Austrians regard prices as instantly adjusting, and so regard prices as inflexible?

                Either way, your argument are just weak spitballs.

              • Lord Keynes says:

                “Your point was over fixprices, which I have already shown you is cost plus profit pricing, which is flexible because like you said, nobody claims that prices *immediately* adjust to every change in demand.”

                So now fixprices/ administered prices are re-defined by you as prices that do not “*immediately* adjust to every change in demand”, when of course nobody defines them in that sense.

                Administered prices are generally inflexible with respect to demand changes, and when changed are usually changed because factor input prices change.

                That is, businesses generally change output and employment when they think demand for their product has significantly changed, not change prices by adjusting them towards market clearing levels.

                But now this definition is thrown to the wind as you use a fallacy of equivocation.

                This is as rich as your re-definition of “immediately” as any time whatsoever:

              • Major_Freedom says:

                “So now fixprices/ administered prices are re-defined by you as prices that do not “*immediately* adjust to every change in demand”, when of course nobody defines them in that sense.”

                Oh so now you’re redefining fixprices to be prices that do adjust after all, and are not in fact fixed?

                “Administered prices are generally inflexible with respect to demand changes, and when changed are usually changed because factor input prices change.”

                If fixprices are “generally” inflexible with respect to demand changes, then you are claiming that fixprices can be flexible with respect to demand changes. Why call them fixprices then? You’re confused because you don’t have a sound theory that would enable you to have the intellectual wherewithal to actually define fixprices without contradicting yourself, or using sloppy language like “generally” and “usually”.

                “That is, businesses generally change output and employment when they think demand for their product has significantly changed, not change prices by adjusting them towards market clearing levels.”

                But then that becomes the market clearing levels. If I own something, say a car, and I won’t sell it unless there is a buyer who comes along and offers significantly more than the rest of the offers, then me not selling the car now, such that the theoretical, expected price for the car becomes “fixed”, or “inflexible”, then THAT significantly higher price IS the market clearing price, for the car is NOT on the market for any price less than that, and if all offers are too low, then the car is not “idle”, nor is the fixprice “failing to clear the market.”

                Markets include both buyers AND sellers, not just buyers. If a seller doesn’t want to sell a property of his, at the current offers, then that property is not in the market. Think this is unfair and sneaky? Not even close. Imagine me offering a sum of money to a priest or nun to buy a piece of holy land. They might regard even a billion dollars as too low a price. It’s not on the market because the current offers are not to the seller’s liking.

                Similar thing with every other property, the only difference being that sellers have lower minimum selling prices in mind, should they ever decide to sell.

                “But now this definition is thrown to the wind as you use a fallacy of equivocation.”

                Hahaha, no you’re just dodging the issue of defining your terms because you know you’re just blowing farts into that wind, hoping nobody smells them.

                If nobody claims that prices instantly adjust to changes in demand, then your entire criticism against Austrians allegedly prescribing, or depending on, or only having eyes for, “flexible” prices, falls to the ground like a house of cards.

                For if nobody claims that prices instantly adjust, then certainly that implies Austrians don’t claim that prices instantly adjust either.

                Your criticism is empty and nothing but playing with words and feigning straw men whenever your spitballs are recognized instead of ignored.

                You have yet to even define flexible prices, or fixprices. Using the word “signficantly change” just moves the problem one step back, because then instead of having to define “fixprice”, you have to define “significant.”

                And you’ll keep dodging and feigning and obfuscating, as long as you try to find truth in the prices themselves, instead of grounding your understanding, and criticism of, Austrianism, from an individual action perspective, which you continue to fail to do.

              • Lord Keynes says:

                “If fixprices are “generally” inflexible with respect to demand changes, then you are claiming that fixprices can be flexible with respect to demand changes.

                So assertion of the proposition p now means ~p in the world of MF, where basic laws of logic are thrown to the wind!!

                Alternatively, if “fixprices can be flexible with respect to demand changes” is supposed to mean “fixprices can be flexible with respect to demand changes in few or rare cases, then that is reasonable but only proves my argument.

              • Lord Keynes says:

                “Oh so now you’re redefining fixprices to be prices that do adjust after all, and are not in fact fixed?”

                Nobody defined “fixprices” as prices that never change, so this constitutes an absurd re-definition of a term in order to then present a straw man argument.

              • Major_Freedom says:

                “So assertion of the proposition p now means ~p in the world of MF, where basic laws of logic are thrown to the wind!!”

                Haha, I know that as a Keynesian you have difficulty with logic, but this is just basic inference, LK.

                If I said: “I generally go to the grocery store every Saturday”, then that implies there are times when I go to the grocery store on days not Saturday.

                If you claim that

                “fixprices are “generally” inflexible with respect to demand changes”

                then that implies fixprices can be flexible with respect to demand changes.

                I am just directing your attention towards the “exceptions”, or the “not generally” instances, implied by your “generally” argument. It’s everything else not in the “generally” category.

                Come on LK, this is basic logic here.

                “Alternatively, if “fixprices can be flexible with respect to demand changes” is supposed to mean “fixprices can be flexible with respect to demand changes in few or rare cases, then that is reasonable but only proves my argument.”

                No, it proves my argument, the one that you just claimed I threw basic logic to the wind.

                You still have not defined fixprices, or flexible prices, BTW.

              • Lord Keynes says:

                ” Why call them fixprices then?”

                Because such prices are RELATIVELY fixed with respect to demand changes as opposed to prices as conceived in neoclassical and Austrian theory when determined by dynamics of supply and demand curves.

                Of course, when one deliberately ignores the accepted meaning of terms or changes them, then one can invent pointless questions as a red herring argument.

                E.g., why call a Big mac a hamburger, after all it is not made of ham!

              • Major_Freedom says:

                “Nobody defined “fixprices” as prices that never change”

                So now you’re saying fixprices are prices that are flexible?

                Why use the term “fixprice” to describe prices that are flexible?

                If you admit that nobody defines flexible prices as prices that instantly adjust, and if you now define fixprices as prices that are flexible after all, then you hold an essentially Austrian position.

                Combine this with the fact that you are a daily, every day practising anarcho-capitalist, and I think it’s not unreasonable to conclude that after what is it, 3 years now, you have finally “converted” to Rothbardia.

                I don’t care about what you think is moral for a certain subset of the population to do, such as the state, to do what you won’t do yourself, because as far as you are concerned, as far as your activity is in reality, you’re now one of us.

                How does it feel?

                Flexible pricing, practising anarcho-capitalism, you might as well have a poster of Rothbard on your study wall.

                LOL

              • Lord Keynes says:

                “If you admit that nobody defines flexible prices as prices that instantly adjust, and if you now define fixprices as prices that are flexible after all, then you hold an essentially Austrian position.”

                One could just as easily turn this absurd logic on its head:

                “If you admit that nobody defines fixprices as prices that never change, and if you now define flexprices as prices that can be fixed for periods of time after all, then you hold an essentially A Keynesian position.”!

              • Major_Freedom says:

                “Because such prices are RELATIVELY fixed”

                This is still just moving the same problem one step back.

                You are using “relatively” in place of “significantly”, without defining either.

                “with respect to demand changes as opposed to prices as conceived in neoclassical and Austrian theory when determined by dynamics of supply and demand curves.”

                What demand dynamics? You don’t even have a clear definition of flexible or fixpricing!

                “Of course, when one deliberately ignores the accepted meaning of terms or changes them, then one can invent pointless questions as a red herring argument.”

                Ah, the good ol’ appeal to ad populum.

                You really don’t understand the gap in theory between Austrianism and..whatever the heck you call yourself these days-ism, do you?

                To praxeologists, terms like “fixprice” and “flexible” price are essentially useless, because it is up to the individual what prices he values at any given time, which of course means history is not necessarily “condemned” to a pattern over time such that you see a particular “speed” at which prices change.

                I can disprove any price oriented, as opposed to a praxeologically oriented, theory of price you have, by simply consciously doing the opposite of what your theory holds. If you hold that my property is subject to some fixprice law, then I could sell a unit of good at a lower price just to prove to you your theory is shit.

                But I can never disprove praxeologically derived principles, because any attempt to disprove them, by selling lower, higher, or whatever, will be an activity that is necessarily constrained to the praxeological principles. I will act towards a goal: refuting praxeological principles. I will use (scarce) means to do so. I will “succeed” or “fail”, depending on whether or not I intend to disprove my own method of behavior.

                “E.g., why call a Big mac a hamburger, after all it is not made of ham!”

                They’re called hamburgers because the sandwich style was invented in Hamburg Germany, you culturally illiterate yahoo.

              • Major_Freedom says:

                “One could just as easily turn this absurd logic on its head:”

                “If you admit that nobody defines fixprices as prices that never change, and if you now define flexprices as prices that can be fixed for periods of time after all, then you hold an essentially A Keynesian position.”!”

                Well is the logic absurd or not? If it is absurd, then your argument here is absurd. If you believe your argument is valid, then it would be absurd for you to regard my logic as absurd.

                To respond to your point, ALL prices are “fixed for a period of time.” Nobody denies this.

                Austrians might call this a praxeologically constrained unit of time.

                If you admit that all prices are fixed for a period of time, but are free to change according to human action, which moves in discrete space, which is why price change times are discrete, then YOU continue to hold an essentially Austrian position!

                See, what is happening here LK is that your position is really nothing but an attack on individual subjective economic values, i.e. individual liberty, nothing more. You just couch it in stupid vague terms that you can’t even properly or concretely define.

                You are only finding that prices don’t change according to how YOU want them to change, and that makes you flipping hysterically angry on the inside, and so you believe there is some “flaw” in the market. Other people behave in ways that you do not feel comfortable with, and that superficiality is sufficient for you to demand that there is some subset of the population to bring about their own goals for others, which of course prevents the individual’s goals for themselves, through deception, coercion, and other anti-Lord-Keynes-Born-Again-Anarcho-Capitalist activities.

                People don’t adjust their prices the way you want them to adjust, so while you remain an anarcho-capitalist in practise, you want to benefit from others being deprived of acting as such and everyone else, including you, not having facing the full consequences of others being able to adjust their economic activities according to their own plans.

                How does it feel being a hypocrite? I used to be one like you. When I was 14.

              • Lord Keynes says:

                “You are using “relatively” in place of “significantly”, without defining either.”

                Yes, presumably dictionary definitions of words can never be presupposed in argument with MF!

                After all, we know “immediately” can be defined in any way he wants:

                “immediately”, … can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective,

                http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html?showComment=1322756770135

                “What demand dynamics? You don’t even have a clear definition of flexible or fixpricing!”

                No, I am sure nobody understands what “flexible” means in the content of prices:

                “Entrepreneurs, however, can formulate and execute production plans only in a world in which economic calculation is possible, that is, in which catallactic competition generates market-clearing prices which, at every moment of calendar time and without fail, reflect, promote, and coordinate those uses of the available scarce resources that are expected to be the most highly valued by consumers. Price coordination, therefore, is not a phenomenon associated with an unrealizable state of equilibrium, however the latter is conceived; rather, price coordination is the essential characteristic of the plain state of rest, which, as Mises tells us, ‘… is not an imaginary construction but the adequate description of what happens again and again on every market.’”
                (Salerno 2010: 182–183).

                Presumably MF would say that we cannot accept this argument: Salerno has not defined the meaning of “price” or “market-clearing prices”!

                And he hasn’t defined “the” either! Therefore nobody could possibly understand what he means!

              • Lord Keynes says:

                “If you admit that all prices are fixed for a period of time, but are free to change according to human action, which moves in discrete space, which is why price change times are discrete, then YOU continue to hold an essentially Austrian position!”

                That is not an “essentially Austrian position”. It is and would be an idea accepted by all economists when pressed. It is no doubt a simple idea that economists would have accepted before the Austrian school even existed.

                It is akin to saying that “oh? you accept that goods traded on markets often have a money price?? Therefore you are clearly holding a Walrasian position!

                You might as well say that:

                “If you admit that all prices are fixed for a period of time, but are free to change according to human action, which moves in discrete space, which is why price change times are discrete, then YOU continue to hold an essentially Keynesian/monetarist/neoclassical/Marxist position!”

              • Major_Freedom says:

                “Yes, presumably dictionary definitions of words can never be presupposed in argument with MF!”

                I wasn’t asking one of a hundred dictionaries. I was asking you.

                “After all, we know “immediately” can be defined in any way he wants”

                You continue to dodge.

                Define “relatively fixed” pertaining to fixpricing, and how it differs from flexible prices.

                “immediately”, … can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective”

                This is still true.

                Time and all concepts of time are relative to the individual observer. In this respect, Praxeologists are consistent with General Relativity. Interesting how that worked out.

                I can define “immediately” in a practically infinite number of ways, all constrained to within one micro-second, if I wanted. You say “immediately” should be constrained to within a second, and I will have ready a practically infinite number of different definitions, to be anything I wanted.

                “No, I am sure nobody understands what “flexible” means in the content of prices:”

                I was asking you.

                “Entrepreneurs, however, can formulate and execute production plans only in a world in which economic calculation is possible, that is, in which catallactic competition generates market-clearing prices which, at every moment of calendar time and without fail, reflect, promote, and coordinate those uses of the available scarce resources that are expected to be the most highly valued by consumers. Price coordination, therefore, is not a phenomenon associated with an unrealizable state of equilibrium, however the latter is conceived; rather, price coordination is the essential characteristic of the plain state of rest, which, as Mises tells us, ‘… is not an imaginary construction but the adequate description of what happens again and again on every market.’”
                (Salerno 2010: 182–183).”

                So you’re saying your definition is what the Austrian Joe Salerno wrote? This is getting more and more interesting everyday.

                “Presumably MF would say that we cannot accept this argument: Salerno has not defined the meaning of “price” or “market-clearing prices”!”

                As a praxeologist, his usage of terms are implied. He doesn’t need to define his terms to me, because I know what he means. But you’re not a praxeologist, so he’ll have to define his terms to you.

                I don’t understand what YOU mean by those same terms, because you’re not a praxeologist.

                Your inference that because I am asking what you mean by the terms you use, that I have to ask what a praxeologist means by the same terms, just adds to the evidence that you don’t fully appreciate the theoretical gulf between Austrians and non-economists.

                “And he hasn’t defined “the” either! Therefore nobody could possibly understand what he means!”

                You still haven’t defined your terms.

                I’ll try to help, since you’re having incredible difficulty:

                Each individual has their own subjectively determined preferences for prices, price changes, and asking/bidding price holding time periods.

                Agreed?

                Each individual can, if they so choose, raise or lower their asking/bidding price, and incur the costs of doing so.

                Agreed?

                Do you have an inkling of why it is absurd to find some law or pattern in prices themselves, divorced from the cause? If you don’t understand the cause (human action), how in the world can you understand the effect (prices)?

                Did you ever learn that because humans act, there are no constancies discoverable by observing past historical prices?

                Saying flexible prices and inflexible prices are really just sloppy ways of dealing with the multitude of individual subjective preferences that manifest in a myriad of different “price holding times”, some longer than others, with no clear dividing line between what is flexible and what is not flexible, because these terms are arbitrary distinctions.

                A consistent method would have you use as many different forms of price changes (i.e. super duper flexible, super flexible, largely flexible, …. , largely inflexible, super inflexible, super duper inflexible, etc) as there are individuals on Earth, since it is individuals who set their own price preferences (constrained to all other individual’s price preferences).

                You can continue to jump through hoola hoops all you want, if it pleases you.

              • Major_Freedom says:

                “That is not an “essentially Austrian position”.”

                Yes it is. All Austrians recognize that prices remain fixed for some positive period of time. All Austrians recognize that no price changes instantaneously. That is what “essentially” means. It doesn’t mean “monopoly” on the idea. It means it is a fundamental principle of Austrianism.

                All Austrians use discrete, non-continuous thinking. They vehemently reject calculus in economics; after all, humans don’t alter their activity on the basis of a single atom of a car, when purchasing or selling cars.

                Infinitely small time periods of price changes, or physical changes, is ungraspable to human actors. We can only faintly glimmer what it might mean to some superhuman entity, but nowhere close to what it actually is, or what it would be like to think of it in full.

                “It is and would be an idea accepted by all economists when pressed. It is no doubt a simple idea that economists would have accepted before the Austrian school even existed.”

                I don’t think you understand what “essentially” means. You believe it means a monopoly, an exclusive claim to knowledge, etc. But that’s not what it means.

                “It is akin to saying that “oh? you accept that goods traded on markets often have a money price?? Therefore you are clearly holding a Walrasian position!”

                But that wouldn’t be wrong to say. Walras really did include prices in his theory.

                “You might as well say that:
                “If you admit that all prices are fixed for a period of time, but are free to change according to human action, which moves in discrete space, which is why price change times are discrete, then YOU continue to hold an essentially Keynesian/monetarist/neoclassical/Marxist position!”

                Not really, because most Keynesians, especially the neoclassicals, use continuous calculus functions in their economic analyses.

              • Major_Freedom says:

                I have never seen any Keynesian professor take a series of price “dots” on a graph of supply and demand, which represent actual activities in the real world market, and resist the urge to connect those dots with lines, and making inferences between the dots.

                For that matter, I’ve never seen an economics textbook, other than Austrian ones, that contain charts with ONLY the price dots, even though the dotted graphs are more accurate to the real world.

              • Lord Keynes says:

                “Define “relatively fixed” pertaining to fixpricing, and how it differs from flexible prices.”

                (1) relatively fixed with respect to demand changes seen as significant by businesses, as compared with a neoclassical or Austrian theory of prices where businesses move prices towards a market clearing price with respect to demand changes seen as significant by businesses.

                (2) when “fix” prices change they are normally changed when factor prices change, not demand changes.

                (3) “fixed” price means they generally remain unchanged when output and employment are cut to adjust supply with demand, when a “flexible” price would be one where the price is moved to clear the stock.

              • Lord Keynes says:

                “It is akin to saying that “oh? you accept that goods traded on markets often have a money price?? Therefore you are clearly holding a Walrasian position!”

                But that wouldn’t be wrong to say. Walras really did include prices in his theory.”

                The idea is not essentially or uniquely Walrasian. It is a widely held idea, and the idea that someone who recognizes prices are not instantly and always flexible and remain fixed for some periods of time is holding an “Austrian” position is just as absurd.

              • Bob Roddis says:

                Also, witness LK’s breathtaking dishonesty in partially reciting my comment This is my entire comment with the parts LK omitted in bold:

                I BELIEVE YOUR INTERPRETATION OF WHAT THE PAST “MASTERS” HAVE SAID ON THE SUBJECT IS DISHONEST. But I don’t care what the past masters have said if it turns out you are right about what they have written (but you are wrong). I personally will not be bound by anything that someone else might have said if it conflicts with my application of basic Austrian concepts. My application of basic Austrian concepts is exactly how I described things above. If the past masters were wrong, I’m still right. Give me and my cat the Nobel Prize.

                YOUR ARGUMENT IS QUITE CLEVER (WHICH IS WHY I LOVE YOU SO MUCH) BUT ULTIMATELY PHONY. IT IS THE “FREE PLAY OF THE MARKET” (VS. A “MANAGED” MARKET) THAT PROVIDES THE INFORMATION NECESSARY TO KNOW HOW TO PROCEED IN THE FUTURE WHETHER THAT ENTAILS SLASHING PRICES OR PRODUCTION OR BOTH OR WHATEVER. EMPLOYING THAT ESSENTIAL INFORMATION WILL RESULT IN FEWER ERRORS AS TO WHAT TO MAKE FOR WHOM IN WHAT AMOUNTS AND AT WHAT PRICES IN THE FUTURE. PEOPLE WILL MAKE THE BEST EFFORT TO MAKE ONLY WHAT THEY CAN PROFITABLY SELL AT WHATEVER PRICE THAT MIGHT BE. THE UNADULTERATED MARKET WITH ITS UNADULTERATED PRICES TELLS YOU WHAT PEOPLE ACTUALLY WANT AND WILL PAY FOR, WHICH IS QUITE DIFFERENT THAN THE UNSUSTAINABLE AND ARTIFICIAL “WANTS” THAT RESULT AFTER THE MASSES RECEIVE A FUNNY MONEY INJECTION SUBSIDY OF STOLEN PURCHASING POWER.

              • Major_Freedom says:

                “(1) relatively fixed with respect to demand changes seen as significant by businesses, as compared with a neoclassical or Austrian theory of prices where businesses move prices towards a market clearing price with respect to demand changes seen as significant by businesses.”

                Those are not mutually exclusive. Austrian theory does not hold that all prices instantly change with every change in demand. No Austrian has claimed that prices instantly change with every change in demand, and therefore Austrian theory includes what you understand to be “fixprices”.

                “(2) when “fix” prices change they are normally changed when factor prices change, not demand changes.”

                Factor prices are a function of the DEMAND for factors. So it is indeed demand changes that affect fixprices.

                “(3) “fixed” price means they generally remain unchanged when output and employment are cut to adjust supply with demand, when a “flexible” price would be one where the price is moved to clear the stock.”

                Austrian theory does not hold that prices instantly change to every change in demand.

                “It is akin to saying that “oh? you accept that goods traded on markets often have a money price?? Therefore you are clearly holding a Walrasian position!”
                But that wouldn’t be wrong to say. Walras really did include prices in his theory.”

                “The idea is not essentially or uniquely Walrasian. It is a widely held idea”

                Nobody claimed it was uniquely Walrasian, just like nobody claimed that the idea that all prices are fixed for a period of time, but are free to change according to human action, which moves in discrete space, which is why price change times are discrete, that this is “uniquely” an Austrian position.

                You keep confusing “essentially” and “uniquely.” To argue that a theory is essentially Austrian, is not to argue that it is uniquely Austrian.

                “and the idea that someone who recognizes prices are not instantly and always flexible and remain fixed for some periods of time is holding an “Austrian” position is just as absurd.”

                No it isn’t, because that is in fact the Austrian position on prices!

                Are you so dense that you can only categorize ideas into what is unique to every school of economics? Are you so afraid of agreeing with anything Austrian, that you won’t even recognize that a particular theory is included in Austrianism, but agreeing with that theory does not obligate you to agree with everything else Austrian?

      • Lord Keynes says:

        “And all Austrians would point out that providing an artificial “demand” stimulus via funny money”

        So all “funny money” private sector negotiable bills of exchange, negotiable cheques, and negotiable promissory notes used as a medium of exchange do nothing but create artificial “demand”? Is that right?

        This is proof that your “economics” is profoundly anti-capitalist. It would require massive coercion to stop the private sector from creating such debt instruments.

        • Bob Roddis says:

          Since we’ve been over that topic too a previous 547 times, your post is dishonest as to my views. My objection is to debt instruments masquerading as warehouse receipts, pure and simple. Debt instruments clearing marked as debt instruments will probably not pass as cash in bars at face value and probably will not cause pricing problems.

          http://tinyurl.com/pzqhk9t

          We don’t need to go over it again. Especially here.

          • Lord Keynes says:

            “Debt instruments clear..[ly?] marked as debt instruments will probably not pass as cash in bars at face value and probably will not cause pricing problems.”

            Even a discounted bill of exchange STILL adds new demand to an economy with spending power effectively created from nothing but a later promise to pay.

            Why isn’t this artificial “demand”?

            • Bob Roddis says:

              Assuming that the transactions were performed voluntarily and without fraud, no third party has standing to object. To the extent that the lender and the borrower now claim to possess the same liquid funds at the same time, there might be pricing problems. This free banking FRB “model” is nothing but a proposed business plan and we will have to see how it actually works. I’m not going to argue for it and I suspect it will have substantial problems, BUT I DON’T CARE and it has nothing to do with Keynesian policies under a kleptocratic Keynesian monopoly fiat money regime. A 100% reserve regime does not have those problems.

              • Lord Keynes says:

                So after all this waffling, you’re implying that you think negotiable bills of exchange, negotiable cheques, and negotiable promissory notes used as a medium of exchange DO nothing but create artificial “demand”!

                As noted above, this is proof that your “economics” is profoundly anti-capitalist. It would require massive coercion to stop the private sector from creating such debt instruments.

                Alternatively, if you propose to allow private agents to be free, then experience teaches us there will always be (alleged) artificial “demand” in an advanced economy from credit money.

                That means that your worldview entails that capitalism is flawed and dysfunctional!

              • Bob Roddis says:

                If a person has $1000 in the bank and writes a “negotiable cheque” to someone for $988, he cannot write another one for $988 without adding more funds to his account. The payee now has the money that the drawer once had. No new money is created.

                It is pointless to have another 300 comment session to refute each and every one of your constant distortions.

              • Lord Keynes says:

                “If a person has $1000 in the bank and writes a “negotiable cheque” to someone for $988, he cannot write another one for $988”

                He doesn’t need to. The cheque can be used as a medium of exchange by THIRD PARTIES.

                In fact, he need only have $988 in the bank when the cheque is finally cleared and settled. He might have drawn down the account while it is being used as a negotiable instrument by third parties sand had less than 988 when he originally wrote the cheque..

                Negotiable promissory notes are even more inflationary, for here one is simply promising to pay in the future without even having the money at all in the present.

              • Bob Roddis says:

                Assuming that the transactions were performed voluntarily and without fraud, no third party has standing to object.

                Oh wait, I already said that.

              • Lord Keynes says:

                “Assuming that the transactions were performed voluntarily and without fraud, no third party has standing to object.”

                And according to your logic it’s still “artificial demand”.

                Yet now you’re not objecting to this private sector “artificial demand”, which is a ridiculous double standard.

              • steveZ says:

                If a pencil maker and a pig farmer exchange bacon for pencils on a monthly basis, but one month the pig farmer didn’t have the bacon, but gave the pencil maker an IOU, how would that impact the economy? If those two would have exchanged (pencils for actual bacon) anyways, the produce of all the other actors in this economy would remain unchanged. The only difference is the loss of the immediate utility derived from direct use of the bacon, in exchange for future bacon.
                There’s no “artificial demand.” Pencil maker exchanges his supply of pencils for pig farmer’s supply of future bacon.

                “Artificial” would only apply to things like government intervention, and not actions taking place in the market by voluntary actors. Those voluntary actions ARE the market. Without them, there is no market. The same cannot be said for government intervention. In fact, government couldn’t survive, if not for the supply of resources it extracts from the voluntary actors.

              • Major_Freedom says:

                “And according to your logic it’s still “artificial demand”.”

                No it isn’t, not if all parties are informed and educated on the nature of fractional reserve banking and the related notes and instruments.

                In the real world, most people believe they are the owners of the money they deposit, and as a result, act as if they are, and that activity sends out false signals relative to the actual monetary affairs.

  6. AD says:

    I thought the key assumption in the Keynesian model is that the economy is not supply-constrained, only demand-constrained. By assumption there is no crowding out.

    • Daniel Kuehn says:

      *facepalm*

      Ya, and I hear that the Austrians think when you create a central bank the sun explodes.

      • Ken B says:

        That’s because you don’t understand the fundamental concept of critical mass calculation.

        🙂

        • Bob Roddis says:

          Where’s the evidence that they do understand it? And where do they explain it to the public as they viciously attack Austrians?

          Quotations and citations, please.

      • AD says:

        You may think this is a caricature or a mistake, but check the assumptions that get you the standard Keynesian multiplier in any textbook, it assumes excess capacity with no upward pressure on the price level from an AD increase. You’re trying to imply some kind of supply-side hybrid model, but that’s certainly not in Econ 101.

        • Bob Roddis says:

          AD, I think you are correct in practice. When promoting their particular policies, Keynesians ignore the fact that resources cannot be two places at the same time. Money used to purchase government bonds where the proceeds are used to subsidize welfare pathologies cannot be simultaneously used for investment in science-based startup companies. The fact that there may be little discernible CPI inflation as a result of their silly bonds-over-investment policy is almost irrelevant.

          More fundamentally, Keynesians are seeking to solve a problem that either does not exist or one that was created by their own policies. Distorted prices of most everything must be allowed to be repriced. Ignoring that fundamental truth while arguing Keynesian minutiae seems like a waste of time.

      • Matt Tanous says:

        “In the simplest version of the Keynesian multiplier story, an essential element is that C remains a constant percentage of Y (ignoring autonomous consumption) regardless of what happens to G or I. Therefore, an increase in G or I must lead to enough of an increase in C to keep that percentage where it was.”

        Sounds like they assume there is no crowding out to me.

    • Bob Roddis says:

      That is not my understanding of Keynesian analysis in general.

  7. Bob Roddis says:

    Krugman: By the way, the man who really brought Keynesianism into the classroom — who was responsible for what we now call the “Keynesian cross” — was Paul Samuelson. And while arguing from the qualities of individuals isn’t the main way you should assess anything, still: maybe you think I’m stupid (a remarkable number of people apparently do believe that), but do you really imagine that Paul Samuelson was an idiot promoting a moronic set of ideas?

    Anyway, as I said, ultimately being caricatured like this is a compliment.

    Me, April 21, 2010:

    http://krugman.blogs.nytimes.com/2010/04/20/samuelson-memorial-2/?comments#permid=21

  8. Bob Roddis says:

    Gene Callahan proves Rothbard correct:

    Rothbard has played a trick here: because V is such a huge percentage of Y, he can claim it is “a completely stable function of Y.” But the correct thing to look at is: When R changes, does V respond so as to maintain its ratio to Y? While the Keynesian story may be wrong, at least it represents a theory as to why the ratio might be roughly constant. Rothbard, on the other hand, has absolutely no theory for positing that V and R are behave like they do in his model, and thus his example is hardly “in keeping with the Keynesian method.”

    The correct answer for the multiplier in Rothbard’s example is roughly 1 rather than 100,000. Rather a bad error. But who cares? For readers who did not bother to analyze the example carefully, it sure made the Keynesians look dumb!”

    http://factsandotherstubbornthings.blogspot.com/2013/06/gene-callahan-on-landsburg-rothbard.html

    The alleged relationships ARE NOT mathematical functions and there are really no constants in the “equation”.* Rothbard does this kind of thing because “Murray Rothbard NEVER, cared if an argument he offered was sound, but only about whether it seemed to make his opponent look stupid”.

    *(We can just posit this generally and then look for data to support it while purposefully ignoring the economic miscalculation that’s occurring due to our policies while trying to convince the public it really is a true function.)

    • Matt Tanous says:

      Further, let’s misrepresent Rothbard as arguing that there actually is a “personal multiplier” instead of ridiculing the concept of holding C (and I) constant while fiddling with G.

      • Gene Callahan says:

        Matt that remark is massively stupid. I never misrepresented Rothbard in the way you say, and I always knew exactly what he was doing. I was demonstrating that his analogy fails, not that he believed there was a personal multiplier.

        • Major_Freedom says:

          I always knew exactly what he was doing.

          You are as deluded as you are sloppy.

          This argument:

          “Murray Rothbard never cared if an argument he offered was sound, but only about whether it seemed to make his opponent look stupid.”

          Is you confusing yourself *feeling* stupid when reading Rothbard, with Rothbard actually intending for that to occur.

        • Ken B says:

          Gene, I invite readers to look at our exchange over at Daniel Kuehn’s blog and judge for themselves just how adept you proved yourself at understanding equations.

          • Ken B says:

            Here btw is a précis.
            Gene: “Trust me, I understand equations better than Landsburg.”
            Ken B: “You messed that one up.”
            Gene:”Moron!”

            • Richie says:

              You’re a lucky guy. He didn’t call you mentally retarded, just moronic.

              The fact the he responded multiple times means that you got it right, and he’s pissed.

              • Anonymous says:

                Yup.

                The reason I responded at DK’s is that Gene censors responses that refute him on his own blog.

  9. Bob Roddis says:

    Mr. Kuehn wrote:

    Maybe YOU don’t understand Austrian economics.

    In his post entitled “Paul Krugman is sick of trying to reason with you people” Mr Kuehn stated:

    Not only does he cite me and not only did he apparently read through the comment section, BUT HE WROTE ONE HELL OF A POST TOO. [emphasis added]

    Krugman’s attack (and thus Kuehn’s too) is implicitly an attack upon Austrians. Nowhere in Krugman’s current attack (or EVER) is there an explanation that the central Austrian concept is economic calculation and miscalculation based upon price distortions caused by artificial creation of credit (and government spending and regulation). Or that the gist of Rothbard’s critique was that the proposed mathematical “function” was not actually a mathematical function.

    Krugman’s dishonest argument is that all Keynesian critics seem to not understand that his increased spending and debt proposals only apply during the “zero-bound” period and not all of the time. That is basically a cynical dodge of the real issues and the Austrian critique. Does Bob Murphy not understand that? The Austrian position is that such Krugmanite spending is counter-productive whenever it occurs because the cure for bad times is to allow prices to reset in a non-distorted manner.

    I cannot read the minds of Keynesians. Regardless of whether Keynesians understand Austrian concepts or not, Keynesians invariably fail to apply (or even acknowledge) them when attacking Austrians and/or “austerians”. Thus, there exists no empirical evidence that Keynesians understand those concepts and/or know how they are to be applied.

    • Lord Keynes says:

      “Nowhere in Krugman’s current attack (or EVER) is there an explanation that the central Austrian concept is economic calculation and miscalculation based upon price distortions caused by artificial creation of credit”

      (1) So you want a world with zero private sector credit money? It would require massive coercion to stop the private sector from creating such debt instruments. In essence, Roddis is saying capitalism is flawed.

      (2) Price distortions away from what? You’ve already conceded the real world existence of fixprice markets and administered prices, which are not set flexibly toward their market clearing levels.

      And since administered prices are generally inflexible with respect to demand changes they aren’t being “distorted” by credit money or government spending.

      • Bob Roddis says:

        We’ve been over this so many times before. You’ve lost. Give up.

        http://www.youtube.com/watch?v=-_kwXNVCaxY

      • Richie says:

        “(1) So you want a world with zero private sector credit money? It would require massive coercion to stop the private sector from creating such debt instruments. In essence, Roddis is saying capitalism is flawed.”

        Nice strawman you created there, Lord Eugenics. Do you not know the meaning of artificial?

        Maybe if you read other Austrians instead of the faux Austrian F.A. Hayek, you would have a little bit of a clue regarding Austrian economics.

      • Major_Freedom says:

        “Price distortions away from what? You’ve already conceded the real world existence of fixprice markets and administered prices, which are not set flexibly toward their market clearing levels.”

        Define fixprice.

        Oh wait, you never have, and never will. Why? Because you know any attempt to do so will expose your ignorance.

        All prices are both fixed and flexible, depending on human choices, which is what you persistently fail to grasp or ground your understanding of Austrianism upon.

        Go to the grocery store. Spend $50 instead of $25.

        Why oh why didn’t the prices of the goods instantly rise according to your choice at the time? Stupid Austrians thinking prices are all flexible and shit.

      • Bob Roddis says:

        First, I carefully explain to LK that “THE UNADULTERATED MARKET WITH ITS UNADULTERATED PRICES TELLS YOU WHAT PEOPLE ACTUALLY WANT AND WILL PAY FOR, WHICH IS QUITE DIFFERENT THAN THE UNSUSTAINABLE AND ARTIFICIAL “WANTS” THAT RESULT AFTER THE MASSES RECEIVE A FUNNY MONEY INJECTION SUBSIDY OF STOLEN PURCHASING POWER.”

        http://mikenormaneconomics.blogspot.com/2013/06/lord-keynes-gardiner-means-on.html?showComment=1371824970913#c1773378129103665189

        Being a both a genius and an honest person, LK subsequently asks here:

        (2) Price distortions away from what?

        • Lord Keynes says:

          (1) So your unadulterated price system is where prices are supposed to be flexible and adjusted towards their market clearing values?

          Even if it were true that such a price system does what you think it does, you then must agree that this price system is largely shunned by most private businesses and that therefore private behaviour already largely thwarts it!!

          (2) If your “unadulterated” price system is not where prices are supposed to be flexible and adjusted towards their market clearing values, then it does not provide the economic information you think it does,, and the whole argument fails.

          • Major_Freedom says:

            “So your unadulterated price system is where prices are supposed to be flexible and adjusted towards their market clearing values?”

            Are you blind?

            “THE UNADULTERATED MARKET WITH ITS UNADULTERATED PRICES TELLS YOU WHAT PEOPLE ACTUALLY WANT AND WILL PAY FOR.”

            There is no tangent or red herring on whether or not these prices do what you expect them to do, or what you want them to do, or what you want to introduce force in order to change them to do something other than what would prevail in an UNADULTERATED process of free exchange based on absolute private property rights.

            “Even if it were true that such a price system does what you think it does, you then must agree that this price system is largely shunned by most private businesses and that therefore private behaviour already largely thwarts it!!”

            No it isn’t. Flexible prices, as you so poignantly pointed out, includes ALL PRICES, since all prices do not stay the same forever, and fixprices, as you also poignantly pointed out, includes ALL prices, since all prices stay fixed for at least some positive period of time.

            “If your “unadulterated” price system is not where prices are supposed to be flexible and adjusted towards their market clearing values, then it does not provide the economic information you think it does,, and the whole argument fails.”

            Since they are so flexible, your argument against free activity fails.

        • Lord Keynes says:

          “Being a both a genius and an honest person, LK subsequently asks here:

          (2) Price distortions away from what?”

          You’ve not answered the question.

          if prices were set as administered prices by the private sector even if they were no government, they would not be communicating economic knowledge in the Austrian sense.

          Also, according to Roddis’s logic, all private sector creation of fiduciary media must create “artificial” demand and be an unsustainable “funny money” injection.

          Since what Austrians call “fiduciary media” are a massive part of any capitalism system and there is no convincing reason to think that would change in Rothbardtopia (absent massive coercion), Roddis is saying that capitalism is inherently flawed.

          • Major_Freedom says:

            “You’ve not answered the question.”

            You asked a question that was clearly answered.

            If you won’t even recognize when an answer to your question has been given, where in the world are you getting the notion that your questions must be answered?

            “if prices were set as administered prices by the private sector even if they were no government, they would not be communicating economic knowledge in the Austrian sense.”

            Yes there would. The fixprices that would prevail signal actual preferences of actual individual actors. They do indeed communicate all the knowledge that can be gleaned from prices.

            “Also, according to Roddis’s logic, all private sector creation of fiduciary media must create “artificial” demand and be an unsustainable “funny money” injection.”

            He already went over this umpteen times. If participants are aware of the nature of the contracts and notes, then it’s not fraud, it’s not misleading, it’s not signalling of false information.

            Can you not even connect the false information being claimed by Austrians, and individual actors not knowing the true nature of fractional reserve instruments? The whole reason credit expansion sets off the business cycle is because the great bulk of the population do not understand that they are trading credit, not money, and in so doing, acting as if they have ultimate monetary purchasing power that they do not in fact have, and because of this, send out price signals that do not reflect their actual time preferences and cross sectional consumption/investment preferences.

            “Since what Austrians call “fiduciary media” are a massive part of any capitalism system and there is no convincing reason to think that would change in Rothbardtopia (absent massive coercion), Roddis is saying that capitalism is inherently flawed.”

            No, he’s saying that humans are fallible and not all knowing, and are susceptible to acting according to false information due to having imperfect knowledge concerning the monetary system.

            He’s not saying free exchange is fundamentally flawed. The only way that “flawed” would make sense as a description, would be if the standard you are smuggling in is omniscience, i.e. God, and in your case, God is the state.

            Which brings me to the next point. All your attempts to attack free exchange, have no bearing whatsoever on any supposed proof that government violence therefore “improves” society, especially when the government exacerbates the very false information from their “funny money” monopoly!

            To say that individuals are not all knowing, and make errors concerning the true nature of fractional reserve instruments, does not in the slightest way, not within a billion light years, justify state intervention that only makes an imperfect situation WORSE.

            Hayek wrote that state intervention changes prices away from their unadulterated prices, which may or may not include false signals due to human fallibility and lack of knowing the nature of fractional reserve banking. He did NOT argue that without state intervention, prices would be perfect reflections of omniscient humans.

            Your whole attempt here is nothing but a giant clusterf&*k of fail in smearing free market activity.

            By your asinine logic, if A beats up B on a daily basis, but B cannot prove that he will act perfectly without A’s aggression, this somehow proves to you that A’s aggression is justified.

            • Lord Keynes says:

              (1) so now the knowledge allegedly communicated by price adjustment towards market clearing levels in Austrian theory is just thrown to the wind and regarded as unimportant!

              Of course, nobody who has actually read real Austrian economists would deny that adjustment towards market clearing levels is a fundamental part of the alleged knowledge prices communicate in that theory:

              Entrepreneurs, however, can formulate and execute production plans only in a world in which economic calculation is possible, that is, in which catallactic competition generates market-clearing prices which, at every moment of calendar time and without fail, reflect, promote, and coordinate those uses of the available scarce resources that are expected to be the most highly valued by consumers. Price coordination, therefore, is not a phenomenon associated with an unrealizable state of equilibrium, however the latter is conceived; rather, price coordination is the essential characteristic of the plain state of rest, which, as Mises tells us, ‘… is not an imaginary construction but the adequate description of what happens again and again on every market.’” (Salerno 2010: 182–183).

              “Mises conceives the market process as coordinative, ‘the essence of coordination of all elements of supply and demand.’ This means that the structure of realized (disequilibrium) prices, which continually emerges in the course of the market process and whose elements are employed for monetary calculation, performs the indispensable function of clearing all markets and, in the process, coordinating the productive employments and combinations of all resources with one another and with the anticipated preferences of consumers.” (Salerno 1993: 124).

              Like Roddis, you do not even remotely understand your own Austrian theory. You are not defending Austrian theory as found in, say, Mises Hayek or Kirzner, but simply reinventing some hare-brained version of Austrianism you dreamed up when reading this thread.

              (2) “Can you not even connect the false information being claimed by Austrians, and individual actors not knowing the true nature of fractional reserve instruments? “

              This discussion isn’t even referring to FR banking, but to credit instruments such as negotiable bills of exchange, negotiable cheques, and negotiable promissory notes.

              Therefore it is obvious that Roddis’s cannot be objecting to extra demand as caused by additional fiduciary media of these types per se, and his real objection just boils down to the alleged fraudulent nature of certain of these fiduciary media.

              Again, if in theory everyone understood FR banking, your argument also implies that no extra demand would be “artificial” demand, even though the extra demand would (according to your own theory) be creating demand in excess of real saving and the cause of Austrian business cycles.

              At this point your position is so badly flawed, you prove only that it is utterly incoherent.

              Congratulations.

              • Bob Roddis says:

                Therefore it is obvious that Roddis’s cannot be objecting to extra demand as caused by additional fiduciary media of these types per se, and his real objection just boils down to the alleged fraudulent nature of certain of these fiduciary media.

                For the 755th time, I object to debt instruments masquerading as warehouse receipts. I fail to see why deposits that are made part of a check writing service MUST double SIMULTANEOUSLY as a source of loans. But I don’t care.

                What I mean by “artificial” demand is simply the “demand” artificially created by government policies like the ones you promote which are based upon theft, force, fraud and embezzlement of purchasing power. The price structure that results is unsustainable and misleading. It is the opposite of the “demand” and price structure that would obtain without government interference via intervention and artificial stimulus.*

                This differentiation is not at all complicated so you are compelled to make it appear complicated and unarticulated. Being the dishonest person that you are, your mission is to permanently obfuscate that simple differentiation so that others of your ilk and people not paying attention cannot or don’t want to understand it. It’s a vicious attempt at Orwellian destruction of language intended to destroy unambiguous Austrian concepts as options that might be taken.

                Finally, you are simply lying that Austrians insist that prices must be slashed in lieu of production reductions etc… as we have pointed out 500 prior times. Your constant lying is just more proof we’ve won and you’ve lost.

                *Otherwise, why would Keynesians insist upon imposing the policies that they do except to artificially create a different demand and price structure than what would obtain without those policies?

              • Major_Freedom says:

                “(1) so now the knowledge allegedly communicated by price adjustment towards market clearing levels in Austrian theory is just thrown to the wind and regarded as unimportant!”

                Not at all. Prices still convey THE BEST information. They don’t convey everything that can be known in principle.

                “Of course, nobody who has actually read real Austrian economists would deny that adjustment towards market clearing levels is a fundamental part of the alleged knowledge prices communicate in that theory:”

                You’re still evading the fact that government intervention in the form of interest rate and inflation manipulation, distort the (maximally informative) information that otherwise would have been communicated had there been no intervention.

                Nobody claimed the market was perfect. Nobody claimed prices convey perfect information. The main argument is that whatever imperfect information is conveyed in a free market, is made even less than perfect with state activity.

                “Entrepreneurs, however, can formulate and execute production plans only in a world in which economic calculation is possible, that is, in which catallactic competition generates market-clearing prices which, at every moment of calendar time and without fail, reflect, promote, and coordinate those uses of the available scarce resources that are expected to be the most highly valued by consumers.”

                That is indeed what free market prices do. They TEND to clear markets.

                “Price coordination, therefore, is not a phenomenon associated with an unrealizable state of equilibrium, however the latter is conceived; rather, price coordination is the essential characteristic of the plain state of rest, which, as Mises tells us, ‘… is not an imaginary construction but the adequate description of what happens again and again on every market.’”

                Regardless of how one wants to communicate the coordination mechanism of free market prices, regardless of how one wants to convey the principles involved here, it is not a refutation of this to point to how Salerno or Mises describe what is going on.

                “Mises conceives the market process as coordinative, ‘the essence of coordination of all elements of supply and demand.’ This means that the structure of realized (disequilibrium) prices, which continually emerges in the course of the market process and whose elements are employed for monetary calculation, performs the indispensable function of clearing all markets and, in the process, coordinating the productive employments and combinations of all resources with one another and with the anticipated preferences of consumers.”

                You seem to have difficulty understanding these arguments.

                “Like Roddis, you do not even remotely understand your own Austrian theory.”

                Hahaha, it is us who has taught you these principles numbnuts. Every quote you have provided does not at all contradict price coordination. They have all emphasized it.

                “You are not defending Austrian theory as found in, say, Mises Hayek or Kirzner”

                Yes, I am.

                “Can you not even connect the false information being claimed by Austrians, and individual actors not knowing the true nature of fractional reserve instruments? “

                “This discussion isn’t even referring to FR banking, but to credit instruments such as negotiable bills of exchange, negotiable cheques, and negotiable promissory notes.”

                It is fractional reserve that you are attempting to claim is “inherent” in the market, and so subject to the ABCT. Your tune is old.

                “Therefore it is obvious that Roddis’s cannot be objecting to extra demand as caused by additional fiduciary media of these types per se”

                The items you listed above do not cause any distortions to the extent that all parties are aware of their property rights nature.

                “and his real objection just boils down to the alleged fraudulent nature of certain of these fiduciary media.”

                He’s said repeatedly he doesn’t consider all FRB fraud, so that’s a straw man.

                “Again, if in theory everyone understood FR banking, your argument also implies that no extra demand would be “artificial” demand, even though the extra demand would (according to your own theory) be creating demand in excess of real saving and the cause of Austrian business cycles.”

                False. If everyone is aware of the nature of the instruments, they wouldn’t be adding to nominal demand, because they would be regarded, correctly, as credit, not money. Trading credit for goods does not add to nominal demand, in terms of money, by definition.

                “At this point your position is so badly flawed, you prove only that it is utterly incoherent.”

                Hahahaha, keep throwing those spitballs LK. It’s fun.

  10. supply demand graph maker says:

    I don’t know if you guys will be as excited about this as I am but I found a great tool that is free for students to make IS-LM graphs. Web based so it works great on my Mac.

Leave a Reply to AD

Cancel Reply