Krugman: “Fiat Money…Is Backed By Men With Guns”
Wow, you really have to hand it to Paul Krugman. In the quick snippet below, he talks to Joe Weisenthal about Bitcoin. Krugman reiterates his surprise that it has lasted this long, but admits that it’s theoretically possible for an asset not backed by anything to chug along because of a self-fulfilling prophecy.
However, Krugman is quick to remind the viewers that (government) fiat money is not susceptible to such an uncertain fate. (Phew!) This is because people have to pay taxes in government-issued fiat money. Krugman actually says, “Fiat money, if you like, is backed by men with guns.”
Krugman is here echoing the theory of money advanced by Abba Lerner and today’s MMT (Modern Monetary Theory) camp. For a full understanding of why this view is mistaken, you should read Mises’ Theory of Money and Credit (my study guide here). But for a quick point: Fiat currencies can collapse. And it’s not because the governments decide to abolish taxes in those countries when it occurs. So there’s obviously something fishy in Krugman’s glib remark, beyond the creepiness of his nonchalance of having money backed up by “men with guns.” (Note he said it in the same impish tone with which he discussed death panels as the way to fix health care costs.)
Fiat Money = backed by Guns, Taxes and Death Panels
…with the help of court intellectuals like Krugman who serve their masters in performing the role of public brainwashers.
“For a full understanding of why this view is mistaken, you should read Mises’ Theory of Money and Credit (my study guide here). But for a quick point: Fiat currencies can collapse”
(1) no, Mises’s regression theorem is flawed and is trying to solve a pseudo-problem. The search for a solution to the alleged “circularity” of the indirect utility of money all depends on rejecting the view that money has direct utility. But money does have direct utility, and the whole problem of the alleged circularity that Mises tried to solve is an illusion:
http://socialdemocracy21stcentury.blogspot.com/2012/01/misess-regression-theorem-critique.html
Even a thing not used in direct exchange *could* acquire monetary value if the government demands it back as taxes.
Even a look through the history of money and coins in Western civilisation shows it does not really accord with Mises’s fables:
http://socialdemocracy21stcentury.blogspot.com/2013/04/the-origin-of-money-and-coins-in.html
(2) and no MMTer ever said that it is impossible for fiat currency to collapse. You’re just inventing a straw man.
LK he’s saying fiat money derives its value from the fact that people need it to pay taxes.
We have historical examples of fiat money going to zero value.
In none of those cases did the government first abolish taxes.
So…?
“LK he’s saying fiat money derives its value from the fact that people need it to pay taxes.”
Not even MMTers think that money derives ALL of its value from taxes. Demand for it for taxes is ONE important cause, but hardly the only one.
If Krugman is saying fiat money derives value **solely and only** from taxes, then he is simply wrong.
The fact that you find historical examples existing of fiat money collapsing does not disprove the statement that government demand for fiat money for taxes is ONE important cause of its value. But nobody is saying that money can never in any instance lose its value just because a government is demanding it in taxes.
Not even MMTers think that money derives ALL of its value from taxes.
Sure they do. They say it over and over. Just like Krugman did. That’s because, as Mises explained 100 years ago, there is no concept of exchange in the loony world of chartalism. Which, to a normal person, would be fatal to chartalist analysis.
http://www.econlib.org/library/Mises/msTApp.html
The reason people use funny money these days is mostly the result of being taxed on every transaction conducted in an alternative currency and having to keep track of one’s “tax basis” in the currency which is considered as just another asset by the state. Absent those taxes, one could always do a last minute exchange to obtain funny money to pay taxes with it. Ron Paul is constantly calling for an end to taxes on alternative currencies.
Wait, then why was I just in 15 different flamewars with people insisting that Bitcoin “can’t work” because “basic economic theory” says that a government “must issue it and accept it for taxes” in order for a currency to work at all?
The orthodox-Austrian Robinson Crusoe story is unacceptable as it contains several logical flaws (Gardiner 2004; Ingham 2000; Desan 2013). The other common explanation relies on an infinite regress story: Billy-Bob accepts currency because he thinks Buffy-Sue will accept it (Buchanan 2013). In our view, that is less than satisfying. If Davidson, Palley, Rochon, or Vernango has an alternative story, we would love to see it.
More importantly, as Rochon and Vernango seem to agree, modern “chartal” currency is today “driven” by taxes. In other words, even if the “origins” of money are hidden in the “mists of time”, we can look around the modern world and note that almost without exception each national government adopts its own money of account, imposes tax obligations in that unit, and issues currency as well as central bank reserves also denominated in that unit. In turn, the government accepts (and hence “destroys” in redemption) high powered money (bank reserves) in tax payment.
For government currency, it is not an oversimplification to state that taxes play a central role in the origins of today’s monetary systems. It is logical once one moves away from a commodity view of money and into the financial view of money in which the government plays a central role.
http://neweconomicperspectives.org/2013/12/mmt-101-response-critics-part-2.html
Because the chartalists have no theory of exchange and completely expunge the concept from their “analysis”, they really have no theory or explanation as to why anyone would use their funny money in commerce. It certainly is not because one has to pay taxes with it.
Note that in the above referenced six part series entitled “MMT 101: Response to the Critics”, the above quote is the only use of the word “Austrian” and their is no other reference to any Austrian ideas or analysis. These MTTers are running scared.
“For government currency, it is not an oversimplification to state that taxes play a central role in the **origins of today’s monetary systems”**
lol.. that quote refutes your statement above that MMTers think that money derives all of its value from taxes: for a central role is not the only role, and even that central role is in the “origins of today’s monetary systems”. It does not deny other factors giving money its value today or even in the past.
“Because the chartalists have no theory of exchange and completely expunge the concept from their “analysis”,”
The statement of a buffoon.
Since all basic micro — even MMT micro — is based on fundamental ideas like exchange, of course MMT has a theory of exchange.
OK. So where is the MMT theory of exchange propounded? Good luck.
No they don’t. Exchange presupposes private property. MMT is based on a violent overthrow of private property in the field of money.
Does exchange presume that there is never theft? Isn’t Your argument that money is theft?
“Does exchange presume that there is never theft?”
Since when did 100% exchange determine who are the producers of money in our society? It is precisely violations of voluntary exchanges that we have central banks, and governments for that matter.
“Isn’t Your argument that money is theft?”
Certainly not, and I am interested in you stating exactly what I said that would lead to such an interpretation.
Conclusion. We can conclude that TAXES DRIVE MONEY. The government first creates a money of account (the Dollar, the Tenge), and then imposes tax obligations in that national money of account. In all modern nations, this is sufficient to ensure that many (indeed, most) debts, assets, and prices, will also be denominated in the national money of account.
(Note the asymmetry that is open to a sovereign: it imposes a liability on you so that you will accept its IOU. It is a nice trick—and you can do it too, if you are king of your own little castle.)
http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-money.html
Mises: Another acatallactic doctrine seeks to explain the value of money by the command of the state. According to this theory the value of money rests on the authority of the highest civil power, not on the estimation of commerce.*13 The law commands, the subject obeys. This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation. Since this cannot be asserted to be the case, the state theory of money is obliged to limit itself to the thesis that the state command establishes only the Geltung or validity of the money in nominal units, but not the validity of these nominal units in commerce. But this limitation amounts to abandonment of the attempt to explain the problem of money.
Let’s examine the deep understanding by the MMTers of the concept of exchange. David Colander, co-author of a 1980 book with Abba P. Lerner (Grand Pooh-bah of the MMTers and author of “The Economics of Control”) wrote two years before Lerner’s death that Lerner wanted to make it illegal to change prices without a permit in order to control “inflation”:
Initially he [Lerner] toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]
ftp://ftp.repec.org/opt/ReDIF/RePEc/mdl/ancoec/0234.pdf
Fraudulent Reserve Notes derive their value because men with guns prohibit all other competition. Humanity needs money, therefore FNR has value.
You could stop collecting ALL taxes and so long as men with guns kill the competition, FRN will be the currency.
FRN may have value even amongst competing currencies, but we will probably never know.
Governments cannot exist without taxes.
If no taxes, then no governments.
If no governments, then men with guns would likely not be able to stop whole countries from using their own money.
I should not have said countries there. Damn.
Jefferson davis might have demanded taxes in 1866.
LK, He doesn’t say “soley” but he does imply that it is sufficient. Bob’s point stands.
Correct me if I’m wrong, but the only cases of fiat systems “going to 0” happened because the “men with guns” were either deposed by other men with guns (with their own monetary systems), or themselves gave up on the currency.
Otherwise, we have lots of examples of fiat systems going to “very small values greater than 0”. The Zimbabwean dollar doesn’t buy much, but it’s still not worth 0. As long as you can pay taxes with it, it still has value.
In other words, as long as the men with guns demand it, then demand is non zero, and therefore the value is also non zero.
Adam, the Zimbabwean dollar dropped 100 million fold in 6 months. That is effectively zero in my mind. If I had a $100,000,000 and 6 months later it was worth $1, I would not waste my time arguing over whether it was worth zero or more than zero. Plus that is after a trillion-fold drop in the previous 7 years.
Also, I don’t know where the argument about zero came from. Krugman was basically saying fiat money is safe as a currency. Bob used the term collapse, but he didn’t say drop to zero.
Actually Bob did say zero. However your point is right. A good programmer knows never compare floating-point number to 0.
Krugman was clearly arguing that at base fiat currency derives value from the fact that you needed to pay taxes and that this implies it is less likely to collapse than a currency not so based. That’s what he said fundamentally derives its values from men with guns that is the taxers.
The fact that you find historical examples existing of fiat money collapsing does not disprove the statement that government demand for fiat money for taxes is ONE important cause of its value
Oh man, I have seen many of Lord Keynes’ uneasy remarks as confused quibbles centered around his fallacious application and view on theory of value. Sure one can keep questioning how it is that Menger came up with an explanation that delineates value theory through value scales, but this is where Keynesians trip up. They’d need to read Mises on how those values are expressed, through their actions, not some silly form of indifference analysis or unrealistic calculation. Essentially, the idea of inherent value are mistakes made by many economists within academia. And it seems to the detriment of economies and monetary units. Mises’ regression theorem becomes lucid to the economist willing to understand the logical aspects of subjective value theory. If one treks down the road of inherent value, in that case they are only half way there and need to do some further soul searching….pick up another book.
“Even a thing not used in direct exchange *could* acquire monetary value if the government demands it back as taxes.”
Bahahahahaha! Oh, man! My sides. Dang, LK.
If the government started, say tomorrow, requiring that taxes be paid in Christmas ornaments, you still won’t have “ornament money”. You might have people that exchange their money FOR ornaments and THEN pay the state-mandated tributes, but you aren’t going to turn ornaments into money like this.
Which is why fiat money DID NOT come about because the government started mandating that pieces of paper with dead presidents are used instead of gold coins for taxes. It came about because people (a) already circulated banknotes as money substitutes, (b) had direct convertibility (at least for some time) from the government-issued notes to the actual money of gold coins, and (c) that convertibility was eliminated by men with guns when a significant amount of wealth was held in the substitute notes (and demand deposits that abstracted even further).
Oh dear:
In those parts of Africa where land was still in African hands, colonial governments forced Africans to produce cashcrops no matter how low the prices were. The favourite technique was taxation. Money taxes were introduced on numerous itemscattle, land, houses, and the people themselves. Money to pay taxes was got by growing cash crops or working on European farms or in their mines. (Rodney, 1972, p. 165, original emphasis)
The British and other colonial powers, interested in African produced cash crops and wage labor, refused to accept inkind payments, instead imposing taxes payable only in their own currency. This turned out to be a highly effective means of compelling Africans to enter cash crop production and to offer their labor services for sale. In addition, as the only local source of British pounds, the colonial authority was also in a position to determine the price it would pay for those goods and services. In his book, A Political Economy of Africa, Claude Ake also stresses this process of monetization of African colonies:
African economies were monetised by imposing taxes and insisting on payments of taxes with European currency. The experience with paying taxes was not new to Africa. What was new was the requirement that the taxes be paid in European currency. Compulsory payment of taxes in European currency was a critical measure in the monetization of African economies as well as the spread of wage labor. (Ake, 1981, pp. 3334)
http://www.epicoalition.org/docs/pavlina.htm
“African economies were monetised by imposing taxes and insisting on payments of taxes with European currency”
Currency of which was valued prior to it becoming a currency in Europe.
“Money to pay taxes was got by growing cash crops or working on European farms or in their mines.”
That’s not money. That’s slave tokens. The bad slaves who didn’t get tokens were punished (likely killed), and the ones with the tokens were not.
If I go to an arcade that only takes tokens, and only gives out those tokens to people that perform physical labor for the storeowner, that’s not money. There’s no exchange.
Yes, the men with guns were able to force the natives to produce what they wanted. They further legitimized the scheme by handing out currency tokens and then taking them right back. So what? The economy was not ‘monetized’ by this scheme – it was eliminated.
Oh dear, indeed. It’s always good to be reminded that MMT and Keynesian “ideas” arose from vicious colonialism and near-slavery. This example only proves that you can point a gun at someone and make them do most anything. It does not explain how imposing taxes to be paid with funny money leads to that funny money being generally used in commerce. These precious metal coins the near-slaves were paid with already had and continued to have market value regardless of the imposition of taxes.
“It does not explain how imposing taxes to be paid with funny money leads to that funny money being generally used in commerce”
That is EXACTLY what he did show:
“African economies were monetised by imposing taxes and insisting on payments of taxes with European currency. The experience with paying taxes was not new to Africa. What was new was the requirement that the taxes be paid in European currency. Compulsory payment of taxes in European currency was a critical measure in the monetization of African economies as well as the spread of wage labor.”
For anyone who isn’t an idiot, “monetising” the economy here means that the European currencies became “generally used in commerce” as a consequence of tax imposition.
Gold and silver were already valued prior to them becoming gold and silver.
You’re just proving the argument correct when you try to refute it.
Correction:
Gold and silver were already valued prior to them becoming gold and silver money.
You’re just proving the argument correct when you try to refute it.
Indeed. I’m bookmarking this one. This one is almost as good as:
Can you sit in an armchair and use deduction from the action axiom to determine how all prices are actually set in real world capitalist economies and with apodictic truth?
http://socialdemocracy21stcentury.blogspot.com/2013/11/a-simple-question-for-austrian.html
The Mengerian theory of money requires more than mere “valuing” of a good for that good to become money: it requires that the good emerges as the most saleable good and a common medium of exchange by voluntary trading and market exchange.
But actually Menger’s theory was far less extreme than rubbish of Mises and Rothbard:
“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).
Like other social institutions, the institution of intermediaries of exchange, which serves the common good in the fullest sense of the term, may, as I shall explain later, emerge or be promoted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation. This manner of emergence of media of exchange, however, is neither the only nor the earliest one. Here, a relation exists similar to that between statute law and common law: media of exchange originally emerged and eventually, through progressive imitation, became generally used not by way of law or agreement but by way of ‘custom’, that is, through similar actions, corresponding to similar subjective impulses and similar intellectual progress, of individuals living together in society (as the unreflective result of specific individual strivings of the members of society) – a circumstance which subsequently, as with other institutions that arose in like manner, does not rule out, of course, their being established or influenced by government.”
(Menger 2002 [1909]: 33).
LK:
“The Mengerian theory of money requires more than mere “valuing” of a good for that good to become money: it requires that the good emerges as the most saleable good and a common medium of exchange by voluntary trading and market exchange.”
No, it just requires that the good be valued (in exchanges) prior as a non-monetary good.
“No, it just requires that the good be valued (in exchanges) prior as a non-monetary good.”
No, it does not.
Your plain lying or gross misunderstanding of Menger is plain to see.
Cite me the passage where Menger says words to effect that a good only need “be valued (in exchanges)” prior to becoming a non-monetary good.
You can’t — for the simple reason that there are no such passages,
Or maybe you have some telepathic or magical understating of Menger beyond mere mortals.
“No, it does not.”
Yes, it does.
“Cite me the passage where Menger says words to effect that a good only need “be valued (in exchanges)” prior to becoming a non-monetary good.”
Quoting one passage from Menger would be quoting Menger out of context.
You will inevitably misinterpret it if I posted one passage. That would not help you.
Instead, I will post the reference of a 56 page essay he wrote:
http://mises.org/document/4984
Focus on Section VI.
Focus also on his various discussions of “saleableness” of a commodity. To Menger, money is just a special case of a good that has acquired, over time, the highest barter saleability.
Read the whole essay. This passage gives a flavor of where Menger was coming from:
“It is obvious how highly significant a factor is
habit in the genesis of such generally serviceable
means of exchange. It lies in the economic interest
of each trafficking individual to exchange less
saleable for more saleable commodities. But the
willing acceptance of the medium of exchange
presupposes already a knowledge of these interest
on the part of those economic subjects who
are expected to accept in exchange for their wares
a commodity which in and by itself is perhaps
entirely useless to them. It is certain that this
knowledge never arises in every part of a nation
at the same time. It is only in the first instance a
limited number of economic subjects who will
recognize the advantage in such procedure, an
advantage which, in and by itself, is independent
of the general recognition of a commodity
as a medium of exchange, inasmuch as such an
exchange, always and under all circumstances,
brings the economic unit a good deal nearer to
his goal, to the acquisition of useful things of
which he really stands in need.”
They were not paid in FIAT CURRENCIES. The example does not demonstrate that this method gives value to fiat currencies for general use in commerce.
Which is the issue at hand, Mr. Obfuscation.
“Compulsory payment of taxes in European currency was a critical measure in the monetization of African economies as well as the spread of wage labor.”
These “monetized” African economies consisted of these African slaves being forced to work on the cash crops, and then – not having produced actually useful goods for themselves – “importing” *from the Europeans*, the rest of it.
There was no “spread of wage labor”. There was the transition from Africans laboring for themselves to Africans being forced to work for Europeans. There was no “African economy” that was now monetized – there was the forcible extension of the ALREADY EXISTING European economies into African territory AT GUNPOINT.
“Even a look through the history of money and coins in Western civilisation shows it does not really accord with Mises’s fables”
1) Why are religious offerings not part of the salability of the good? Do people not purchase what they intend to offer to their churches (or cults or whatever)?
2) Homer’s epics are stories. Nothing more. Should we also assume there were no naval battles between the maritime powers of Mycenae and Troy, because the Illiad contains no record of that.
3) Cows make bad money, per the requirements laid out by Austrian theory. They were not money – perhaps a unit of account, per your article. This disproves Menger and Mises how, exactly? The market used one unit of account – presumably for reasons that were selected on the market – and later switched to alternatives that were superior.
4) The story of cattle being a unit of account, while exchanges were made directly with other goods doesn’t sound like money mainly because it is a somewhat elaborate system of **barter** (i.e., that state that Austrian theory purports exists before a good becomes the generally accepted medium of exchange).
And one could use a good as a unit of account if it is deemed the most important good throughout a limited society. An agrarian society that is primarily sheepherders would consider sheep flocks to be the main source of wealth. But even accounting in “units of sheep” would not prevent something different – say, salt – from actually being the medium of exchange. Money *becomes* the most effective unit of account, by its nature. It isn’t necessarily so as it becomes money. Your historical narrative, at its best, utterly ignores the PROCESS of a good becoming accepted as a medium of exchange and then money, and assumes simply the end result of “X good is money”.
Additionally weakening the use of the stories of Homer, in describing infantry combat, Homer names the phalanx formation, but most scholars do not believe the historical Trojan War was so fought. Available evidence from the period indicates a heavy reliance on chariot combat, which would not really be compatible with infantry phalanxes (it’s not an effective strategy at all).
After all, Homer is writing his stories somewhere around 400 years after the fact. It is altogether unlikely that his references to social conventions are scientifically accurate. It’s much more sensible to assume that it is more like if one of us were writing about the Revolutionary War now, as a semi-fictional story. We may get the general gist right, but there’s very little chance the social conventions are going to be accurate.
So our options are these:
1) An unknown man wrote a story about 400 years after the fact giving a mythical dramatization of a war and its aftermath, in a couple of epic poems of which few copies near the original remain. Yet, somehow, we know the one thing that was absolutely accurate in the stories of Achilles, the Trojan War, and Odysseus is not the encounters with the River Styx, the Achilles Heel, the Cyclops, or any of that – it’s that cattle were a unit of account in Greece c. 1200 BC. Sure. Why not believe that?
2) An economic school that has logically examined the problem of what money is and how it came to be used in indirect exchange might actually be correct – or at least have a plausible argument, regardless of what is written in 3000 year old myths.
Which is more plausible, LK?
It is quite clear you didn’t even read the post properly, for I did not say that Homer’s epics are real history or that they reliably describe the Mycenaean Age.
I said:
“Our important evidence for early Greek monetary history comes from the Homeric epics the Iliad and the Odyssey, which were written c. 750–700 BC, and reflect real social practices in the **late** Dark (or Geometric) Age from c. 1200–800 BC, and **early** Archaic period (800–480 BC). “
In other words, Homer’s epics have some reasonably good evidence on **certain** real social practices c. 850-700 BC around about Homer’s own time, such as units of account and payment systems.
That is the finding of modern historians and archaeologists, e..g, as in Ian Morris and Barry B. Powell, A New Companion to Homer p. 512.
All of which is perfectly consistent with Mises.
You asserted without evidence. NOW you provide your sources. Sure. I haven’t the time to investigate them, and they sound implausible, but at least there is now a scholarly basis here.
Either way, you failed to address any of the points which took your argument for granted re: livestock as a unit of account and still criticized your conclusions.
” livestock as a unit of account and still criticized your conclusions.”
No, Matt Tanous it is you are ignorant of pretty the whole issue.
The evidence for the cattle unit of account in ancient Greece goes well beyond the Homeric epics.
There is also a great deal of
evidence from the religious and social use of cattle in sacrifice as a unit of account (Seaford, R. 2004. Money and the Early Greek Mind: Homer, Philosophy, Tragedy, Cambridge University Press, Cambridge. p. 61)
And cattle or animal units of account are well attested through history and even recently.
Einzig, for example, notes how the indigenous people of the New Hebrides had a developed credit system denominated in terms of pigs, which arose from the sacrificial use of pigs (Einzig 1948: 984; Einzig 1949: 383). The same general type of cattle unit of account seems to have developed in ancient India as well (Einzig 1949: 382).
Einzig, Paul. 1949. Primitive Money: In Its Ethnological, Historical, and Economic Aspects, Eyre & Spottiswoode, London.
Again, taking this point for granted, you still neglect the whole point I’ve made about the market selection PROCESS, instead of an instantaneous “no money/ gold money” switch.
Why do you presuppose I’m supposed to know all the potential sources you might have? And why should I assume that these individuals are accurate in their portrayal of history, instead of wrong – or worse? I don’t have the time to investigate all potential sources for *your* claims, and you apparently only have the time to cite anything when you can pull a few articles out in a smug “I’m so superior because I know of these articles” manner.
It’s like someone making the claim about private lighthouses as if it were self-evident, then pulling out Coase’s work on it with a “you’re ignorant of the whole issue” air of superiority. It just makes you seem like an ass.
Use of cattle money but also often as a mere cattle unit of account:
Mors, P. O., 1954. “Cattle in Buhaya,” Anthropological Quarterly 27, 23–29.
Schneider, H. K. “Economic Development and Economic Change: The Case of East African Cattle.” Current Anthropology, 15 (1974): 259-279.
Turyahikayo-Rugyema, B. “Markets in Precolonial East Africa: The Case of the Bakiga,” CurrentAnthropology 17, no. 2 (1976): 286-90
Hutchinson, Sharon 1992. “The Cattle of Money and Cattle of Girls Among the Nuer, 1930-83,” American Ethnologist 19.2:294-316
MacKinnon, Aran. “The Persistence of the Cattle Economy in Zululand, South Africa, 1900-50,” Canadian Journal of African Studies 33, 98–135.
O’Donovan, J. 1940. The Economic History of Live Stock in Ireland. Cork University Press, Cork.
Cattle was valued prior to it being valued as a medium of exchange.
More evidence:
Homer’s poems reflect 8th century society:
Ian Morris, 1986. “The Use and Abuse of Homer,” Classical Antiquity 5.1: 81-138.
Homer’s poems reflect early 8th century society:
Qviller, B. 1981. “The Dynamics of Homeric Society,” Symbole Osloenses 56:109–55.
Raaflaub, Kurt A. 1993. “Homer to Solon: the rise of the polis. The Written Sources,” in M. H. Hansen (ed.), The Ancient Greek City-State. Munksgaard, Copenhagen. 41–105.
Raaflaub, Kurt A 1997. “Homeric Society,” in I. Morris and B. Powell (eds.), A New Companion to Homer. Brill, Leiden. 624-649.
Finnegan, Ruth H. 1977. Oral Poetry: Its Nature, Significance and Social Context. Cambridge University Press, Cambridge.
———
Still, I expect you don’t care much for what the professional historians say — or for evidence and arguments.
That is all evidence consistent with Mises.
Nice to see you embrace textual criticism Matt. http://kenblogic.blogspot.com/2012_06_01_archive.html
“Mises’s regression theorem is flawed ”
You haven’t shown how it is “flawed”.
“Even a thing not used in direct exchange *could* acquire monetary value if the government demands it back as taxes.”
That requires the thing to have already been valued for non-monetary purposes.
“Even a look through the history of money and coins in Western civilisation shows it does not really accord with Mises’s fables:”
Not a single event in history has, or ever could, violate the regression theorem. It is a logical necessity.
Calling Ken B:
“Not a single event in history has, or ever could, violate the regression theorem. It is a logical necessity.”
Historical necessity — it’s a trademark of vulgar Marxists and internet Austrians, so it seems
I see you don’t know the difference between a historical versus logical necessity. A logical necessity does not mean it must arise historically.
I fully grant the possibility that humans could potentially choose not to trade for any medium of exchange. That isn’t a historical necessity.
It is however a logical necessity that the argument that a good becomes monetized, presupposes an initial state of non-monetization.
Yes. Note that MF is both. Or has been.
It’s the sort of thing that appeals to what Richard Hofstadter called “the 100% mind”. They hate uncertainty and not knowing. Thus they are drawn to unscientific notions and their chimerical certainty.
This is why I joked that if Bob and Feynman ever shook hands they’d destroy the universe.
Yes? Yes?
I’m not a historical determinist. I reject it as anti-rationalism.
Ha, Ken B chastising someone for being certain. That’s rich.
I am 100% certain Ken B is a hypocrite.
There is nothing wrong with being certain about a tiny aspect (human action and the deductions) of all phenomena in the universe.
You’re right, I do dislike not knowing. But as Mises said, diverting to the psychological reasons for why a person would make one argument over another, does not constitute a refutation of that argument. Only through discursive reasoning can you show them that they are wrong.
He also said that the tactic you just used is the recourse of recognizing oneself to be unable to refute the argument via discursive reasoning. It’s a cover. Wool over the eyes. A diversion.
Umm, a Marxist? LK mentioned two groups . Hence “both”.
OK, sure, I used to be Marxist. I’m a little embarrassed. But that doesn’t mean I believe in historical materialism now, and certainly not the Marxist version of it.
I just want to be demolished intellectually, through argument, not by guilt by association, or smearing.
Major_Freedom, out of curiosity, what made you switch from Marxism to the Austrian school?
Also, does it trouble you at all that you switched from one school that purports to be a totalistic guide to all aspects of the human condition to another such school?
“Major_Freedom, out of curiosity, what made you switch from Marxism to the Austrian school?”
Reading the Austrian School.
“Also, does it trouble you at all that you switched from one school that purports to be a totalistic guide to all aspects of the human condition to another such school?”
No, because all fundamental philosophies that say ultimate truths about human life will have such a character.
2+2=4 is as absolute correct as 2+2=5 is absolutely incorrect.
Should I doubt myself if I thought 2+2=4, simply because it is as absolute as thinking (incorrectly) that 2+2=5?
” So there’s obviously something fishy in Krugman’s glib remark, beyond the creepiness of his nonchalance of having money backed up by “men with guns.””
Jeez, your private property rights are ultimately also “backed up by “men with guns”, whether they are state police or private sector “private protection” thugs.
LK you can arguably say that to a standard Rothbardian–I’ll let them speak for themselves–but no, I’m a pacifist. I don’t endorse ANYTHING being backed up by guns. If you think that’s impossible (and you’re not alone), I would urge you to expand your mind.
Bob I’m interested in you taking more about passivism.
I’m curious about this as well. Did Bob just out himself as an incredibly easy mark once our transition to an AnCap society is complete? Would he hire no private protection firm and not put up any resistance if we showed up to rob him?
Matt M wrote:
Did Bob just out himself as an incredibly easy mark once our transition to an AnCap society is complete? Would he hire no private protection firm and not put up any resistance if we showed up to rob him?
Note to self: Don’t ever let an anarcho-capitalist babysit my kid.
Haha
Pretty sure he was pretending to be a non-anarcho-capitalist in order to test your resolve.
It’s cruel to make endangered species babysit.
(joke)
Why would you rob anybody? Some people simply need to learn how to keep their hand to themselves.
IF there were only 5 things parents(aka public education) teach their children, keeping your hands to yourself is 1 of the 5.
Bob, so you don’t even think that violence should be responded to by violence?
As a Christian, that is tricky 1.
Turn the other cheek, etc.
However there is a Biblical example of using deadly force to protect your family when an evil man try’s to harm you and your possessions under the cover of darkness.
Exodus 22:2-3
New International Version (NIV)
2 “If a thief is caught breaking in at night and is struck a fatal blow, the defender is not guilty of bloodshed; 3 but if it happens after sunrise, the defender is guilty of bloodshed.
“Anyone who steals must certainly make restitution, but if they have nothing, they must be sold to pay for their theft.
Are you unfamiliar with the term pacifist?
No, I’m familiar with it. I’m a pacifist myself.
So let me ask you the question that so angered Bob when I asked it. You are present when Breivik is about to take aim at another victim. Had you a gun would you shoot him? Were you near enough would you tackle him?
It’s hard to predict what a human would actually do in a given situation, since we’re prone to all sorts of irrational emotions. But if you’re asking what I think I ought to do and what I hope I’d do, then no, I wouldn’t either shoot or tackle Breivik (at least if tackling him would injure him).
Follow up. Would you collect the Obamacare tax from a recalcitrant non-purchaser? I include by proxy (police, bailiifs, etc)
Oh, and thank you for not pretending like I asked you if you’ve stopped beating your wife.It’s a legitimate question for a pacifist.
Ken B, rather than getting into the weeds of my views on the U.S. government in general and Obamacare in particular, let me just say that as a general principle, I believe that it can be legitimate for the government to use force to collect taxes.
Out of curiosity, Keshav, how do you square that with being a pacifist? I hate when I see people come up with scenarios where a pacifist might abandon their core principle, as if that somehow proves that person isn’t a “true” pacifist, but I can’t see how someone could say force is legitimate under certain circumstances and turn around and say they are a pacifist.
I’m not taking a dig at pacifism, either. I think it is the correct view, even though I find it nearly impossible for me to follow.
Dan, Hindu political philosophy is rather complex, but rather than getting into that, let me just say that it’s a distinction between how regular people should live their life, and how government and society as a whole should operate.
Well OK that’s fine, but that’s not pacifism.
As I said on the other thread, maybe it should be called “personal pacifism”.
I’m with Dan. It’s personal quietism, not pacifism. I am morally responsible for what my agents do at my behest or with my blessings.
ON a side note: With the internet and other things that make this a small world, I think most humans do not want war. It appears war is a symptom of government that has long run its course and should be abolished. I seriously doubt there would ever again be enough muster for a new government to come in a wage war against another new government.
People are friends now. W etrade. We share. We are connect buy the internet, airplanes and other advancements.
Only war profiteers and the few power hungry want war. 99.9% do not want war. 99.9% do not steal. 99.9% do not murder. 99.9% do not practice force, theft and fraud.
We let a few dirt bags justify all this government waste, and destruction, geesh…
Just hit the reset button 1 time and see what comes about. IF Fiat money, big government and war reappears than so be it. I seriously doubt humanity will ever let this happen again.
Give it a try, hit the reset button.
I was just taking a playful dig at you. I just thought the question you asked was funny to the smart ass in me.
When I asked you once you said you had no objection to private police enforcing rules against parents who, per Rothbard, left their children to starve.
Ken B. that’s a pretty complex issue and I doubt I summarized in two words of “no objection.”
No not two words. But briefly. http://consultingbyrpm.com/blog/2012/08/reader-mail-reconciling-anarcho-capitalism-with-christianity.html#comment-43388
So unless you intend private judges,s rulings to just be “pretty please” in Ancapistan, it looks like you’re either endorsing coercion here or saying we should only ask parents not to starve their babies.
Incidentally scroll down a few comments for a really good line from Bob.
I personally expect that if we lived in ancapistan, there would be judges who ruled unfairly. Even “evil”.
But here’s the point ol’ chap: It is only in a competitive environment of protection that there is some semblance of power retained by the clients, the customers, of such protection. If there is a bad judge who ruled the way our supreme court did with Obamacare, then there would be a counter-force mitigating it, assuming that there are those who understand there can be a better outcome.
Right now, the only ways to reverse the onslaught of injustice from the “providers of security” in a monopoly, is to either convince the majority, which of course implies that the minority are nothing but lambs to be brought to slaughter or party, depending on the whims of the majority, or for some pronounced revolution to take place, violent or intellectual.
I am for the intellectual revolution of course, but I am sure you can understand the difficulty in this considering the fact that the government also has a virtual monopoly on educating our impressionable youth. But good thing for the internet. The gatekeepers are losing their grip. Bitcoin bitchez.
We need something similar for protection and security.
Oh, I think you understand that even in Ancapistan there will be coercion. You just think it will all work better if its in a market.
You taking a page out of Ayn Rand or something?
Coercion would be minimized if PROTECTION were a market.
Protection in a market isn’t a market of coercion.
Unless you want to call would be rape and murder victims “coercing” their attackers.
Coercion isn’t blind.
Yes. If I pull you off Bob as you try to rape him I am coercing you into stopping. This has the advantage of being what the word means, as well as letting Keshav and I agree on what I am doing whilst letting us disagree on the morality of it.
“Yes. If I pull you off Bob as you try to rape him I am coercing you into stopping.”
Because rape and stopping rape deserve the same name of “coercion”, amiright?
“This has the advantage of being what the word means, as well as letting Keshav and I agree on what I am doing whilst letting us disagree on the morality of it.”
You’re just continually equivocating defensive force with aggressive force, such that when I say I want a market for protection, you insinuate that includes a market for aggression.
Suppose I’m walking down the street carrying a gold bar, and someone runs up to grab it off me. The guy grabbing it off me obviously thinks it must be worth something else he wouldn’t be running up to grab it.
So let’s further suppose I have wisely hired some snipers to flank me for this exercise, and they let rip. Did those guns make the bar more valuable? It’s not really possible since the snipers were hidden and the gold grabber (let’s call him “Frankie”) did not even know the guns were there.
Why not go one step further and consider that perhaps I was shopping at Hench and Co where all the hired muscle took shooting lessons from the bad guys in a Lone Ranger episode and somehow they miss the gold grabbing bastard, and he gets away clean. Now what has happened to the value of the gold bar? The guns turned out to be useless but the Frankie won’t exactly be tossing aside his ill-gotten trash now will he?
I say the gold is what gives the guns their value, not the other way around.
LK, so there is no moral difference between raping someone and fending off a rapist?
Or are you arguing that the government just defends his property by forcing people to pay taxes and all debts in a certain currency? If that is the case why am I not allowed to do that as well? Reciprocity is key. Try to think of what would happen if all sides do the same thing. There is not one bit of violence on earth if all people exclusively are ready to fend of rapists. However there definitely is a lot of violence if all people try to rape each other or try to force their own currency onto each other.
You may argue that this is the only way to maximize well-being for whatever reasons. However don’t pretend that there is no moral difference between enforcing a monetary monopoly and property rights.
“Jeez, your private property rights are ultimately also “backed up by “men with guns”, whether they are state police or private sector “private protection” thugs.”
False. Private property rights are not backed by guns. They are backed by individual homesteading and trading, neither of which is an introduction of violence against other people or their homesteaded or traded property.
Violations of private property, that is what is “backed by guns.”
It is fallacious to assert that because an individal who homesteaded or, traded property, must use (defensive) force to protect his property rights in order for him to continue to posses it, that it is in the defense of his property that private property comes into existence. False! It is false because the property was already private prior to the invader attempting to make the property his private property instead.
Since ALL economic goods are scarce, i.e. rivalrous, they will always be under the exclusive control of someone. Property is created/acquired in only two ways, peacefully or violently. Either an individual lives his life homesteading and trading for property, or, he violently takes the property homesteaded and traded peacefully by others.
Private property initially arose, and necessarily so, through 100% peaceful means. For all land was non-homesteaded prior to the first human explorer. The first humans ever to expand their control over previously untouched nature, were the first homesteaders. They did not aggress against anyone, because there was nobody in control of that land prior. After land is homesteaded, there are only two ways property can be acquired by non-homesteaders: peacefully or violently. They can either gain the consent of the homesteader through trade or charity, or the homesteader is aggressed against, robbed, etc.
When protective violence arises in a pure anarcho-capitalist world, that is not a manifestation of any “backing” of private property. That is a backing of protecting existing private property to their RIGHTFUL owners, as opposed to non-rightful owners.”
The easiest way for you to grasp that private property is not “backed” by violence, is simply assuming what would happen, and what would be the implications, if no homesteader ever used defensive force against any invader who happens to come along and declare the property his own.
If this occurred, then private property would still exist, NO LESS than it existed if everyone practised homesteading and voluntary exchange only. Why is this? It’s because the invaders would presumably have exclusive control over the stolen property. Private property hasn’t gone away. It’s still there, it’s just controlled by an unjustified declarant of property. The homesteader’s claim to ownership is justified, but the invader’s is not justified. The private property still exists.
So violence isn’t actually “backing” private property at all. Violence “backs” non-homesteaded and non-trade-based claims to private property.
If no individual ever aggressed against any other individual’s person or homesteaded/traded property, through choice, then private property would still exist, despite there being no violence.
Right, but the property itself has intrinsic value both in the hands of the rightful owner (however you want to define that) and in the hands of anyone else (however they came by it).
The value of the property is not created out of private ownership, but the reverse is true – we desire private ownership because the property has value.
There is no such thing as intrinsic value. Value is given by individuals. It is not something “recognized” as inherent in the object.
It doesn’t have to be universally constant to still be intrinsic to the item. I might like apples more than you do, thus we value the apple differently but my valuation of the apple is never the less related to the quality of the apple itself… whether I’m declared the official owner of the apple or not does not change the quality of the apple.
That doesn’t mean the apple has intrinsic value. The fact that we disagree over the value of it, even though neither of us can be argued as “wrong”, should make it clear that it isn’t the apple that has value, it’s you and I doing the valuing.
LK
“your private property rights are ultimately also “backed up by “men with guns”
For someone that accuses others of straw man arguments, you should look in the mirror.
You’re equating protection of individual property rights via a proper constitutional framework and rule of law with government’s monopoly imposition of a currency by threat of violence? Really?
I’ll assume you have education and knowledge. Have you ever considered what you lack is wisdom?
Yup, sure does sound like Warren Mosler. Still remember him saying those exact things when you made him look like a fool at Columbia. Funny thing is that just like Krugman, he thinks what he’s saying is justification for its existence. Let’s not get into the business cycle, those guys would like to use even more guns to “stimulate aggregate demand.” The silliness of college dogma.
To take a glass half full approach, at least Krugman finally admits to the violence behind his sophistry.
PS. Thanks for all the great work, Bob. Huge fan of both your ability to communicate and your karoake skills. You helped me transition to anarcho-capitalism.
Thanks for the kind words Justin. The people who don’t know me in karaoke bars respect my mad skillz too. I think the people who know me as an economist just can’t accept the fact that I have pipes too.
Bob, I am confident you are a better economist that John Lennon and a better singer than Steve Landsburg.
I don’t know Ken B, there being no possessions would eliminate scarcity and conflict.
I snark of course.
Men with guns who cannot prevent hyperinflation, for instance…
IRS needs to accept bit coin and gold and frn.
No more violence. No more green Martians holding guns to our heads…
Gold is an asset that isn’t “backed by anything.”
You do have to dig/find gold. There is no infinite gold machine.
However fiat on the other hand, once you pay for the computer and electricity, you could create a googol ( 10 to the 100) with a few key strokes.
Also, you had better convince my wife, gold and diamonds have no intrinsic value. You would save me a bundle…
Right, but that’s a different argument in favor for gold than saying “paper money is unbacked, therefore paper money is bad.”
No asset is actually backed by anything but the hopes and dreams of the people. Er…. I mean subjective valuations.
Yes but when you mine gold or other commodity, you generate demand. The people doing the digging needs lots of stuff in the process.
Fiat on the other hand is created from the stroke of a pen and creates very little real demand/production.
Exactly. The reason we think about paper money being backed is because typically paper money is a liability to the issuer. Paper money is still a liability to the issuer, it’s just not “backed” by gold — it’s “backed” by other types of assets.
Fiat is not backed by anything. Fiat it created prior to the supposed assets being created, not the other way around.
Is your debt to me an asset for me?
I mean a legally enforceable debt.
The paper is backed by a valuation of not being kidnapped and thrown into a cage.
That fiat money ultimately derives (part) of its inherent value from taxation purposes is not something limited to MMT. I’ve heard lots of mainstream economists make this point and I’m not sure why it should be considered particularly controversial. (Certainly not from a theoretical standpoint.) E.g. Here is Chris Sims last year in the AER:
It is easy to construct models of economies in which unbacked paper money can have value, but in such models it is generally also possible for money to be valueless, or to dwindle rapidly in value so that the economy approaches a barter equilibrium. In such models, introducing taxation either to pay interest on government liabilities or to contract the supply of non-interest-bearing liabilities (and thus, via deflation, create a real return) tends to resolve the indeterminacy and provide a uniquely determined price level.
(Sims: “Paper Money”, p. 567)
Er, make that p. 565.
I’m not sure why it should be considered particularly controversial.
No one denies that “part” of the value of funny money can be induced by forcing one to pay taxes with it. What is denied is that such a threat results in the use of the funny money generally in commerce to the exclusion of other forms of money.
The exclusion of other forms of money is also backed by men with guns. This is what FDR demonstrated with his gold grab, and also the purpose of modern day Capital Gains Tax.
Capital gains only hits when one “cashes out”. If you actually use it (gold, silver, Bitcoin, whatever) as another form of money, it is very difficult to tax and actually falls under bartering taxes: http://www.irs.gov/taxtopics/tc420.html
I think the theory is circular, though. Governments usually choose to tax in the most liquid asset.
I’ve heard the argument pushed so far as to have silver being the unit of account, not because people traded for silver or used it for anything, but because some temple authorities decided one day that silver should be. Never explained is how they knew how much silver should be associated per bushel of wheat or cow….
And now we know the rest of the story.
Africans were attracted from the reserves last century through what seemed to them to be almost unbelievably favourable opportunities and prospects of improving their material condition. It was the rise of the great areas of mining activity which created these prospects. At the same time, the incentives for Africans to accept employment in the mines were strengthened by signs of increasing privation in the tribal areas due to soil erosion, population growth, and extending land occupation by Whites.
Hutt, William H. (2012-02-02). The Economics of the Colour Bar (LvMI) (Kindle Locations 872-875). Ludwig von Mises Institute. Kindle Edition.
The unacquisitive nature of tribal Africans, possibly because the accumulation of private property (except in the form of cattle) offends the ‘communistic’ psychology of aboriginal societies, has, from the beginning, created one of the major difficulties of mining management. Moreover, the conventional material needs of the Africans are low relatively to their earnings, so contributing to what has been called their ‘wantlessness’ or what I prefer to call high ‘leisure preference’. Accordingly, those who found it profitable to employ them tried to find methods of increasing their preference for material goods as against ‘leisure’. The morally least defensible way of attempting this was by means of poll taxes intended to force the Africans to earn the necessary money, which they could only do by serving the white man outside the reserves, on the farms or mines or elsewhere.
Hutt, William H. (2012-02-02). The Economics of the Colour Bar (LvMI) (Kindle Locations 903-906). Ludwig von Mises Institute. Kindle Edition.
And we all always knew where LK where heading with his “fixprice” nonsense:
http://socialdemocracy21stcentury.blogspot.com/2013/12/administered-prices-discredit-austrian.html
there is no strong tendency to Misesian “economic coordination” by which full use of resources is achieved as product markets and labour markets are cleared, so that unused resources offered for sale are eliminated.
This, of course, is all demonstrated by the UAW agreeing to much much lower entry level wages after the latest auto-bust. It’s also demonstrated by the low wages paid to the unskilled which requires a much higher minimum wage.
No, it is demonstrated by widespread administered prices which are relatively inflexible with respect to demand, fixed for significant periods, and which are never intended to be market clearing prices.
I expect we’ll now hear from you that flexible prices that move towards market clearing levels have absolutely no place in Austrian economics.
I suppose every major Austrian economist is wrong:
“Prices are set so as to ‘clear the market’ by equating supply and demand; at the market price the supply of a good will exactly equal the amount of the good that people are willing to buy or hold. If the demand for the good increases, purchases will bid the price up; if the supply increases, the price will fall. Demanders consist of consumers, whose purchases are determined by the values they place on the goods, and various producers or businessmen, whose demands are determined by how much they expect consumers to pay for the final product.” (Rothbard 2006: 390).
“The day-to-day tendency in the market is toward the establishment of an equilibrium price for each particular consumer good. Prevailing prices tend toward that price at which quantity supplied and quantity demanded are equal, a movement that attests to the price system’s capacity to coordinate the actions of persons engaged in different activities. The typical depiction of this tendency on a graph shows the equilibrium price at the point at which the market supply-and-demand curves intersect. Any price above or below the equilibrium price cannot persist because such a price will result, respectively, in either frustrated sellers or frustrated buyers. Prices are reduced by sellers if the market price is too high to clear the quantity offered; prices are bid upward by buyers if the price is too low to induce sellers to offer a quantity ample enough to satisfy the buyers’ demand.” (Taylor 1980: 56).
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.” (Mises 2008: 756–757).
““The market interaction brings about a price at which demand and supply tend to coincide. The number of potential buyers willing to pay the market price is large enough for the whole market supply to be sold. If government lowers the price below that which the unhampered market would set, the same quantity of goods faces a greater number of potential buyers who are willing to pay the lower official price. Supply and demand no longer coincide; demand exceeds supply, and the market mechanism, which tends to bring supply and demand together through changes in price, no longer functions.” (Mises 2011: 101).
Can you sit in an armchair and use deduction from the action axiom to determine how all prices are actually set in real world capitalist economies and with apodictic truth?
http://socialdemocracy21stcentury.blogspot.com/2013/11/a-simple-question-for-austrian.html
NO.
The tax joy of trading precious metals.
http://abcnews.go.com/Business/gold-coin-dealers-decry-tax-law/story?id=11211611
The question is whether flexible prices that move towards market clearing levels in trades by agents have an important role in Austrian theory, even though the economy never reaches Mises’ final state of rest.
The fact that you will not and cannot answer that question indicates your intellectual bankruptcy.
Fixed prices do adjust to changes in demand.
A seller who experiences what he thinks is a permanent reduction in nominal revenues, is not going to keep investing the same over and over and incur losses. Even if he tried, he’d go bankrupt, and those who do adjust their prices sooner, will take over the scarce means of production.
Markets do indeed tend towards clearing. It takes time, and the concept of time is virtually absent in all of your gobbledygook.
“A seller who experiences what he thinks is a permanent reduction in nominal revenues, is not going to keep investing the same over and over and incur losses. “
Correct.
He cut production and employment to a level where his output supply matches demand.
“He cut production and employment to a level where his output supply matches demand.”
I think you are conflating nominal demand with real supply.
If the seller cuts production, how does he do so? He reduces his real investment, right? Well, that means those who were recently selling that real supply to him, or now having to sell into a thinner market. That would put downward pressure on the prices of those factors of production.
On the labor side, there is a similar implication. When there is a reduction in nominal demand for labor, given the labor supply, that puts downward pressure on the prices for labor. If those prices are free to fall, as they are in a free market, then prices of labor will tend to clear the market of labor.
LK, please understand when I say this, and I am not trying to be a d!@k, but I notice that you have a penchant for considering only the short term, immediate consequences to changes in economic conditions. You are not tracing out the longer term consequences, nor are you considering the effects on other parties.
A division of labor economy is vastly different from a command and control economy. You have to consider all individuals in the division of labor at once, which is admittedly often difficult to do, but it will help you understand how the market process works.
The way you’re approaching the market is almost indistinguishable from the Luddites, who also only considered the immediate consequences of introducing labor saving machinery and technology.
I think it is important to make all this explicit because in our very much government controlled economy, bad ideas can have pretty disastrous outcomes. In a pure laissez-faire economy, bad ideas would tend to quickly be corrected, because of the overwhelming counter-forces. But when ideas are backed by violence, it is much harder to correct them. Ergo my strong reactions to your posts that are almost 100% advocacies of violence.
“When there is a reduction in nominal demand for labor, given the labor supply, that puts downward pressure on the prices for labor. If those prices are free to fall, as they are in a free market, then prices of labor will tend to clear the market of labor. “
Yes, we’ve have heard this rubbish before.
These rapid and smooth wage and price adjustments will happen in a **magical free market** that exist only in M_F head, along with flying unicorns and magical leprechauns.
Real world economists are concerned with the real world with its real wage and price rigidities, not imaginary Rothbardian worlds.
“Yes, we’ve have heard this rubbish before.”
“These rapid and smooth wage and price adjustments will happen in a **magical free market**”
Hahahaha, did you honestly think that I would overlook your mischaracterization, indeed caricaturization, of the free market process being “rapid and smooth”?
I didn’t use those terms. Why did you attribute them to me? Is that not a….STRAW MAN? OMG LK, you’re straw manning me? How can that be? You’re accusing me and everyone under the anarcho-capitalist sun of straw manning the s&*t out of you. Yet you have absolutely zero qualms with doing that to me!
I never said the tendency towards market clearing is “rapid”. Can’t you see why I always point out to you that YOU are the one interpreting the market process as virtually atemporal?
For the record, the market process takes time. Everything human related takes time. Time is something that frustrates the mystic mind, such as yours. The ancients considered time the most characteristic depravity of being human. They seriously frowned upon mortality and the fact that life takes place over time. Ergo the idea of atemporal existence, i.e. the afterlife.
The argument that the markets tends towards clearing is not refuted by pointing to a historical period where unemployment persisted for longer than what you personally feel the market process “should” have eliminated in order for the market process to be real.
Reality takes place over more than the short run, LK.
If there is a rise in unemployment, then the process of self-interested action on the parts of both those who pay wages, and those seeking wages, will put downward pressure on wages from what they otherwise would have been. This is true even if wages on average are rising in nominal terms in the temporal sense.
“that exist only in M_F head, along with flying unicorns and magical leprechauns.”
LK, you can attack and disparage and insult rationalism all you want, but the mind isn’t going to be destroyed when you do that.
“Real world economists are concerned with the real world with its real wage and price rigidities, not imaginary Rothbardian worlds.”
Define “rigidities” LK. You have not actually done this anywhere yet. Do you know why that is? It’s because you want to retain for yourself the power, intellectually in your case, to decide when enough is enough, that the guns must come out to force people to act a different way than they otherwise would have acted.
You’re not arguing against what I said you know. You’re only complaining that it doesn’t take place as fast as it actually does in our hampered market.
Correction:
You’re not arguing against what I said you know. You’re only complaining that it takes place as slow as it does in our hampered market.
LK:
If you can understand how it is that someone can live for a year or more without earning any wage income, you can understand the sort of thing that prevents wage rates from adjusting more quickly than they otherwise do.
“No, it is demonstrated by widespread administered prices which are relatively inflexible with respect to demand, fixed for significant periods, and which are never intended to be market clearing prices.”
Yes, LK, we’ve heard all about how it is impossible for a producer to modify his supply output – whether through storing inventory or cutting back production – to keep his prices at the same level despite demand changes. Markets don’t clear because all factories always output at 100%, and there is no such thing as a warehouse, so fixprices prevent supply and demand equilibrium. Sheesh.
All this “administered prices” argument will do is make the “progressives” think Austrian analysis has been refuted without any of them actually understanding Austrian analysis. If people are dumb and/or dishonest enough to believe this nonsense, there’s not much we can do about it. I don’t see average people buying into it any more than they bought into Marxist analysis. LK and his ilk just DO NOT WANT Austrian analysis to be true because it removes the necessity of a society run by authoritarian know-it-all geniuses like them. In a free society, their “expertise” is not needed by anyone.
Boo hoo.
Yes Bob Roddis, it is all political. It is a ploy.
Thank Goodness Bob Murphy has the patience of a saint. I do believe he is making headway.
Krug admitted the true nature of fiat government, “Men with guns.”
Exodus 20:15 You shall not steal.
The tax joy of trading foreign currencies.
http://www.investopedia.com/articles/forex/09/forex-taxation-basics.asp
Also, capital gains are not indexed for inflation so your “nominal” gains are taxed as the result of the dilution of the funny money supply.
http://www.motherjones.com/kevin-drum/2012/07/lets-index-everything-inflation
Thus, you will be taxed on illusory gains incurred from buying and later selling inflation hedges.
Exactly Bob.
But for tyrants, taxes on illusory gains are not theft, its fiscal policy. Imposition of a fiat currency by men with guns and subsequent debasement of said currency is not violence and theft, its monetary policy.
A caricature.
Nowhere have I ever said that “Markets don’t clear because all factories always output at 100%”.
Nowhere has any Austrian denied that it takes time for prices to adjust in the face of changed demand (or supply).
Nobody has said the prices have to adjust instantly.
The gaping flaw in your whole attempt to justify economic tyranny is an absence of serious inquiry into the concept of time. You are never making time explicit. You never think beyond the near term. To you, if a price does not instantly change to a response in a change to demand, then pointing guns at innocent people for some magical, mystical reason, “improves” their lives.
“No, it is demonstrated by widespread administered prices which are relatively inflexible with respect to demand, fixed for significant periods, and which are never intended to be market clearing prices.”
In other words, you admit that demand changes do indeed affect fixed prices, just not as soon as you claim is justified before the guns should be pointed at innocent people.
hi LK, ‘market-clearing’ does not mean what you seem to think it means from Mises’ words.
A mkt clearing means that the price at which the mkt arrived was such that all the people – who were willing and able to sell at that price and all those who were willing and able to buy at that price – transacted.
It does not mean that All goods meant for sale (able to sell) are sold at a price which is profitable/acceptable to seller (willing to sell). At the clearing price, there might well be some goods not sold, as the price was too low for the seller (not willing to sell, though able). But the mkt Has cleared, as in at that price, all transactions that were desired have been made. Willing and able. “Supply” – in Mises’ words – does not mean just available/able to sell. It means being willing and able. That is, values of supply and demand exist wrt price. They change w price. They are not invariant absolutes. So, in that sense, a mkt clearing price is an almost trivial concept.
Of course, the clearing price will change from minute to minute, as new supply/demand comes and people’s preferences change.
unqualified-reservations.blogspot.com/2009/07/urs-crash-course-in-sound-economics.html (not mine, just correct, and not strictly Misesian)
This is so bad. Part of me wishes that some economy somewhere would adopt LK’s ideas full blast just so we can put this nonsense to rest.
The whole Misesian argument against price controls collapses.
There is no clear theoretical reason why such price controls could not work and be effective in those markets already subject to private capitalist administered prices, especially when production of the goods under price control is highly elastic (which, its turns out, many goods actually are in modern capitalist economies)
Even if all consumer prices and prices for factor inputs were set by costs of production plus profit mark-up by a planning board, profit and loss could still be calculated by means of administered prices. If the production system had state-owned firms with unused excess capacity and stocks and inventories, they would simply adjust output quantity to the quantity demanded by production decisions, as modern capitalist firms do.
Why do we have good reasons to think that such a planned economy would work, at least in an advanced industrial nation? Because so many of the elements of such a system are already used and practised in modern capitalist nations by the private sector.
Still I suspect he would have an excuse for the failure.
technically he is right. Very lucky planners could guess perfectly. This is a bit like putting your hand in a blender hoping for the perfect manicure. It could happen.
If you don’t mind, I’m stealing that analogy.
“Part of me wishes that some economy somewhere would adopt LK’s ideas full blast just so we can put this nonsense to rest. “
The two surveys below* that found that from the 1980s to the 1990s mark-up pricing accounted for roughly 70% to 85% of US industrial prices, and Gardiner Means found the similar level in the 1930s.
The “ideas” in question have been “tested” throughout the capitalist world world since the 1930s.
*Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.
Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.
Outside of just saying “firms use mark-up pricing!!” why do you suppose they chose to leave prices unchanged in the face of shortages or surpluses? Do incentives not matter?
LK:
The existence of mark-up pricing does not imply price controls, let alone state ownership of the means of production, are justified.
That is just another lame brain attempt to justify economic tyranny.
False. The existence of mark-up pricing does imply that government price controls adopting the **same mark-up pricing practices** in those markets will work.
That is exactly how many price controls in WWII worked.
But I expect you’re too much of an idiot to bother looking at the real world.
The problem LK is that you can only do it once. You can adopt the current pricing scheme, but you cannot adopt how it would change. Whilst mark up pricing may introduce quantization, incentives, and delays that confound price signals and incentives, and so obviate simples Misesian arguments, it does not follow that those prices are immune to market forces and demand shifts. The reaction to those will adjustments to the mark up prices which planers, denied the knowledge of what the businesses do in reaction, cannot replicate. Nor likely would if they could.
In short sticky prices may obviate Mises/Rothbard. They do not answer Hayek’s information and knowledge objections.
Ken B,
OK, an interesting critique but
(1) “The problem LK is that you can only do it once. You can adopt the current pricing scheme, but you cannot adopt how it would change.
Well, yes, a government can change it: it can track average total costs per unit — just as a private businesses do. Or review requests from the business to change price based on the private businesses own calculations — just as happened in WWII.
If total costs per unit have risen and profits are being squeezed, then you raise the administered price. This is what the firms do themselves.
And as for effectiveness, just read John Kenneth Galbraith’s A Theory of Price Control (1952). As Galbraith said, “it is relatively easy to fix prices that are already fixed.”
http://socialdemocracy21stcentury.blogspot.com/2013/12/john-kenneth-galbraith-on-price-controls.html
(2) “In short sticky prices may obviate Mises/Rothbard. They do not answer Hayek’s information and knowledge objections.”
Again, they do: because administered prices do not perform the informational and allocative role analysed by Hayek since they are not set by conventional forces of supply and demand.
Prices ALWAYS inform. If people are too dumb or stubborn to lower their prices, someone is likely to notice that opportunity and undercut them. Further, most of these “sticky prices” issues arise due to prior funny money distortions which most people do not grasp. Many are caused by artificial government barriers to entry.
None of this analysis suggests that there is any market failure nor is there any reason to think that government spending or more funny money emissions might “cure” the non-existent problem.
(1) ” If people are too dumb or stubborn to lower their prices, someone is likely to notice that opportunity and undercut them”
Not necessarily in a way that causes enough price reductions to make an economy have truly flexible prices that tend to clear markets.
Mark-up prices will not normally be lowered to the point where the profit mark-up is eliminated.
(2) endogenous money is a fundamental part of capitalism: opposition to it arises from gross misunderstanding of money and FR banking.
“Mark-up prices will not normally be lowered to the point where the profit mark-up is eliminated.”
No, because those goods are usually taken out of the portfolio… The remaining stock actually is sold off for whatever price or if not possible scapped. The stock of goods is only kept if they expect the market price to increase again.
Those expectations of keeping the stock and waiting for the price to come up again are very often justified due to Keynesians arguing for pump priming and the increase of price inflation!
So your policies are the very reason for your alleged problem of price stickiness, which in my view is a normal expression of subjective valuations and expectations of the future changes in prices.
Skylien, haven’t you just argued that keynesian inflation marshals fallow resources, and by preventing scrapping, effectively increases the stock of goods ie wealth?
“The remaining stock actually is sold off for whatever price or if not possible scapped. The stock of goods is only kept if they expect the market price to increase again.”
False. Fixprice firms will generally ALWAYS hold stock and they do so to deal with demand fluctuations.
They hold the stock not because they expect prices to rise — for they set their own prices — but to deal with and meet increases in demand.
Ken B,
You conflate the value with the physical amount of goods. Resources are scarce, and you could theoretically produce millions of different goods with the same amount of resources. Some with lots of value, some with lower value and some with none. If a good can’t be sold yet for any price (=there is no demand what so ever), then this means it has no value to anyone at this point in time. If you further don’t expect a return of demand justifying the costs of stocking it until that day you expect the demand to return for it, then you will scrap that part. We do that every day in our business…
LK, you didn’t get my point.
Ken B,
I wanted to say with my explanation (Though I guess it is clear for you what I meant) is that preventing a firm from scrapping goods that have no value, is not preventing them from destroying wealth. Output of physical goods is not the same as wealth or output of value.
“Still I suspect he would have an excuse for the failure.”
Someone once made a comment during a lecture that people/economists who get Econs wrong will be weeded out, Darwianian-style, when there is the next monetary reset, which is enroute. So, hopefully, they will then not have time to contribute their epistemically woeful, overpriced 2 cents.
There is a thought to lift one’s spirits, unless one is included amongst the incorrect ones. Back to the books, comrades!
The MMTers think that the “hoarding” of fiat money should be a crime, but high inflation will cure the evil drive to “hoard”.
1) Stop the useless hoarding of currency that’s already fiat? How?
2) Stop letting currency hoarders scare everyone into not replacing needed currency when & an as needed.
Those hoarding fiat are the same people who lobby most strongly to NOT let the buying power of their hoarded currency fall. They are the “Deficit Terrorists.” In contrast, if enough buying power was always distributed so as to let workers efficiently consume what they are capable of producing, then:
a) excessive hoarding of currency would be self defeating;
(peak value would be in hoarding coordination capabilities, not depreciating paper;
hoard access to dynamic, not static value)
b) unemployment would not be a factor;
c) entire populations could continuously explore their options, instead of stagnating;
d) we would divert less attention to investigating, prosecuting & incarcerating currency hoarders.
If a bunch of dumb cells can make a functioning human body, then why can’t a bunch of supposedly smart humans make a functioning national economy?
This ain’t rocket science, by any stretch of the imagination. It’s simple system dynamics.
Any systems or circuit engineer could make it work – if given a chance.
http://mikenormaneconomics.blogspot.com/2012/07/wealth-doesnt-trickle-down-its-hoarded.html
Roddis, if you please, if you don’t mind, if it is OK, could you maybe perhaps never post anything from that cesspool of a website please? It’s pure intellectual poison.
I’m showing why we should be optimistic. Plus, those MMT guys are LK’s kinfolk.
Charlton Heston: If this is the best they’ve got around here, in six months we’ll be running this planet.
I don’t feel optimistic when I read that drivel. I feel like I’m living among anti-social psychopaths.
If you can’t resist, just paste the link. Please.
High enough inflation will certainly make people spend. That we can all agree on. But not necessarily on consumption, but rather on getting rid of currency from personal savings and using something else as a medium of savings. Gold maybe. Bitcoin perhaps. Hell, I would buy oil barrels if they were easy to store, and later sell. Who wants all of one’s purchasing power stored in a commodity that a politician-controlled bureaucrat can create at will, and will def do so, since he/she is likely a DSGE model-using neo-keynesian.
Chartalists/Keynesians, just to make sure we are on same page, you agree that when people spend their money, it ends up instantly in someone else’s “hoard”, right? All money at all times is by definition hoarded/held by someone.
Yes, new spending may create additional employment temporarily for those for whose labour there is no current demand, but it may not. And it will certainly harm the currency for those who rely on it (the rest of the economy).
The solution is not incenting spending. The solution is to realise that some people have no value to offer the 21st century economy (even after removing laws like minimum wage that achieve the opposite of the intended effect) and arrange conditions so that they do. Ruining personal balance sheets is not a sustainable way, as we are all unfortunately finding out. One can at least make sure to enjoy the ride, before the car reaches the wall. C’est la vie.
The dollar is backed by the same thing Bitcoin may be backed by or not- people’s willingness to take them in exchange. The same thing was true of gold and silver where they circulated as currencies. Abuse the currency enough, and even guns won’t matter. Krugman is clearly losing whatever marbles he had.
“Abuse the currency enough, and even guns won’t matter. ”
Precisely. If money velocity rises enough as sig % of people dump dollars for gold/BC/Yuan, there is no way the US govt can make everyone hold dollars. It is not enforceable. There is a limit to sovereign power and the govt is getting closer to it. But, first, the central banks have to finish ruining the middle class’ purchasing power. All in good time.
Krugman – unlucky chap – was never given any marbles. Whoever turned him onto this monetary theory ensured that: http://www.pkarchive.org/theory/baby.html
Since this topic is on Money, may I post these 2 long essays (not mine, just great) for the local Misesians’ perusal and critique:
http://unqualified-reservations.blogspot.com/2009/07/urs-crash-course-in-sound-economics.html
http://unqualified-reservations.blogspot.sg/2011/04/on-monetary-restandardization.html
Keynesians and Chartalists should not read these. They will cause extreme cognitive discomfort, and who needs that. Post-keynesians may suffer a bit too.
Money (har) quote from first essay:
“On to sound economics. Readers familiar with Austrian economics will find much to skim, especially at the start, but should also watch out for nontrivial differences in the origin of money and the structure of the loan market.”
“Here at UR, “economics” is not the study of how real economies work. It is the study of how economies should work – in other words, of how sound economies work. Sound economies, as we’ll see, are also stable economies. All the King’s mathematicians have had some trouble in reproducing this property.
Since there are no economies on the planet which are even remotely sound, nor is there any prospect of any such thing appearing, this discipline cannot conceivably be empirical, quantitative, or worst of all predictive”
lol.. so you’re engaged in fantasy world economics. How would have guessed.
hi LK,
From reading your blog’s initial entries, I think you are genuinely curious about understanding Econs (not just spending time online discussing it). If so, I should clarify that what the “should work” means is how an economy should work if it is to be healthy. What it takes for an economy to be healthy can only be understood if one correctly understands Economics. The analogy is trying to study how a human “should” live/eat. To find that out, one has to understand biology. Once one gets that right, then one can tell people to stay away from cheeseburgers etc.
Do study the actual deduction in the essay, moving past the not-perfect phrasing (language is not as precise as maths). But if not, no worries. Like I advised in B&W, keynesians should not read it. Ignore at own peril. Why go looking for cognitive dissonance? Life is far more pleasant when one is sure of one’s stance. Only issue might be if one is wrong and then the economy does what it will cos one gets one’s theory from PK et al.
As I also mentioned semi-humorously elsewhere, those who have their Econs wrong will be weeded out darwinian-style when the inevitable outcome of listening to PK etc. arises. So at least there is some semblance of justice at the end of it all. I would love to know what PK has in his personal portfolio.
“”Who”” would
I am not sure you saw this comment addressed to you (and generally any Keynesian/Chartalist).
So, just in case: http://consultingbyrpm.com/blog/2013/12/krugman-fiat-money-is-backed-by-men-with-guns.html#comment-109933
Anyone else notice the poster of economists on the wall behind Krugman’s head around the 1 minute mark?…. heh heh!
I think the ghost of Henry Hazlitt is whispering into Krugman’s ear…:”men with guns… say men with guns”
Sorry, forgot one essay.
Local Misesians (& Rothbardians), try these essays, in order:
http://unqualified-reservations.blogspot.com/2009/07/urs-crash-course-in-sound-economics.html
http://unqualified-reservations.blogspot.sg/2008/10/misesian-explanation-of-bank-crisis.html
http://unqualified-reservations.blogspot.sg/2011/04/on-monetary-restandardization.html
I reiterate: I share these cos they are formidably great. They are not mine (I wish!).
Everything you ever wanted to know about LK’s little cult, “Post Keynesianism”.
Money matters in the long and short run, that is, changes in the money supply can affect decisions that determine the level of employment and real economic output. [Distorted prices?? What distorted prices?]
http://larspsyll.wordpress.com/2013/12/12/what-is-post-keynesian-economics-2/
This thread is not long enough.
Here is Lord Keynes is wrong. Even if they are quantized and sticky, prices always convey information and incentive. Therefore arguments that rely only on these two properties are valid even in the presence of markup pricing.
Here is why Roddis is wrong. Sticky and quantized prices can mean that there are periods during which resources really do lie fallow, and the market fails to move towards equilibrium. It is an empirical question how important this effect is. Quantized prices also mean that the market may never reach equilibrium.
2000 posts despatched in two short paragraphs. I feel entitled to a beer at this point.
Defining equilibrium as the point where all resources/labour are in use is an error. A cleared market equilibrium does not mean that. It means this: http://consultingbyrpm.com/blog/2013/12/krugman-fiat-money-is-backed-by-men-with-guns.html#comment-109933
This is one of the main errors of Keynesians and chartalists. It arises from a combination of the following epistemic habits:
– thinking primarily in aggregates
– equating health of an Economy with level of AD (irrespective of how it arises). AD is an effect of a healthy economy, not the cause. Can’t cause a cause with its own effect.
– not grasping balance sheets
There is no way to get the issue right without fixing these habits. Having said that, the focus by Keynesians on the unemployed is clearly well-intentioned. The issue is that even in a completely free mkt, some people are unemployable. One can call this a mkt failure but that is unfair since the mkt is an info-transmission, amoral mechanism, not a compassionate god.
Also, the schemes to fix unemployment by boosting AD runs into the issue that the extra AD need not employ the idle. If someone is not employable at a profit, self-interested actors will supply the injected AD in other ways.
“Defining equilibrium as the point where all resources/labour are in use is an error.
Lucy in the sky w Dimon is simply clueless.
What does he/she think Mises meant by the “final state of rest” or the ERE?
In the long run we’re all evenly revolving.
Dear LK, you are projecting, but I digress.
Who cares what Mises said/meant? Did I ever claim Mises to be the final arbiter on all things Economic? Did you see me claim that he was the ONE, the one who was bereft of error? From whither comes this huge respect you have for what Mises meant, when you spend all day (& night apparently) abusing the man?
Read the 3 essays. If you can’t be bothered with 45 minutes of scholarship, that’s cool.
“Who cares what Mises said/meant? Did I ever claim Mises to be the final arbiter on all things Econonic
My statements about equilibrium refer to what Austrian theory says, not to your own idiosyncratic version of economics.
My comment you replied to was a reply to Ken B (not you), and I pointed that saying ‘equilibrium means all resources are used up” is an error. Not just Ken B’s error, but also of Mises wherever and whenever he said that.
There has been no claim by me about being in complete agreement with every word of Mises.
So, I don’t know what the “clueless” comment was for. Poor taste, I thought. Also, it made no sense.
You simply assumed I was supporting Mises, when I was disagreeing with a statement, regardless of who made it.
Dear chap, do breathe.
Ken B,
I do not deny that administered prices convey some information (such as information to calculate profits) — but just not the conventional information about supply and demand changes as postulated in Hayek’s theory
Do you agree that even in industries whete every firm does mark up by a desired ROI firms can change there desired Roi, that industries with a higher ROI mark up will attract new firms?
Certainly, industries can and do change their mark-up and projected targeted rate of return.
But it does not follow that high profit industries will attract signification new competitors. Many industries have strong barriers to new entry,
And even when new firms might enter, they will most likely charge the much the same mark-up price as their competitors, because they want the same levels of profit.
The idea that there is a strong tendency for profits to be driven towards zero by competition is another myth of both neoclassical and Austrian theory.
“Even if they are quantized and sticky, prices always convey information and incentive. Therefore arguments that rely only on these two properties are valid even in the presence of markup pricing. “
No, Hayek’s arguments do not because he is talking about a DIFFERENT type of information.
That administered prices convey information about what something costs and information that allows calculation of profit and loss, it does not follow they are communicating information about movements in demand and supply or signalling that businesses need to economize on some good, etc.
See my comment above.
I agree the signal will be attenuated. Attenuated isn’t absent.
As Hayek explained, it is possible that wages or prices may not come down because of POLITICAL concerns. Further, these problems are always caused by some prior funny money distortion and a public oblivious to the action nature of the problem. Since this does not happen under laissez faire, there is no need for a Keynesian “cure” for a problem that does not exist.
Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?
Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.
Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way. Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.
Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:
“Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.
Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.
Mr. Buckley: It was an ad hoc?
Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.
Mr. Buckley: Like Nixon.
Mr. Hayek: No, no. (laughter).
http://www.youtube.com/watch?v=gaQcbGoW2C0
TYPO:
and a public oblivious to the ACTUAL nature of the problem.
“As Hayek explained, it is possible that wages or prices may not come down because of POLITICAL concerns. “
That is because he was gross ignoramus and never looked at nay data on administered prices.
Also, this quote requires that Hayek DID think that adjustment at least **towards** market clearing levels IS a fundamental idea in Austrian economics, — despite you ridiculous denials and mountains of BS on this issue
Here’s my take on why LK is wrong. He says this.
A potential seller may hold stock due to expectation of increase in price or due to expectation of a greater quantity demanded at the same price in the future. In either case, he would be engaging in speculation. His speculative demand is part of his reservation demand, i.e., the seller’s demand to hold stock.
So unsold stock on shelves do not indicate demand<supply. They only indicate exchange demand<stock. However, at that price, speculation drives possessors (potential sellers) to have a demand to hold, one that we may understand as their reservation demand.
In other words, all stock must have a possessor at every hypothetical price. The potential seller of any good is just a possessor of the good. If his maximum holding price is less than the prevailing price, he transfers possession. If his maximum holding price is greater than the prevailing price, he holds. All we realise from unsold stock is that at that instant, total demand to hold consists partially of potential sellers’ reservation demand.
So, in simple terms, from a total demand-stock analysis, fix-price markets are also always cleared because Total Demand to Hold = Stock.
MF, Roddis, Bob… Any comments? Is there anything obviously incorrect with my explanation?
The issue is that Keynesians (or anyone claiming that prices are administered by firms) do not realise they are dealing with survivorship bias. The companies that do the best obviously make a profit, implying that their pricing strategy of cost plus margin works fine.
But that is not the whole picture. There are plenty of firms that cannot match the competitors’ prices, perhaps cos their local costs are higher or they are incompetent. Those guys are unable to sell at a profit and so go bankrupt. So when economists go looking for how firms price their goods, they mostly see firms that set cost plus margin prices.
This has nothing to do with how the mkt price arises. What is visible is that the functioning firms are getting the marked up price they asked for. Yes, but only cos there are buyers willing to pay that price. What is unseen is that plenty of firms did Not get the marked up prices they wanted.
A mkt clears when the price is such that the amt sellers are Willing to sell matches the amt buyers are Able to buy.
Sellers as a group are always Able to sell more, but may not be Willing to do so at the mkt clearing price. Buyers as a group are always Willing to buy more, but may not be Able to at the mkt clearing price. That is what Makes the mkt clear… It is the definition of the term, not what Keynesians and chartalists think it is. It is a simple correction to make, but kinda important.
“Survivorship bias” is a very good way to put it.
Yes.
All known human cultures and groups use language, but the languages vary,and can be grouped into classes. Just because there seems to be no strong selection presssure on any particular class of language doesn’t mean that there isn’t wasn’t wouldn’t be on the presence or absence of language. Successful firms have, whatever their priccing process, managed to adapt prices well enough to survive.
The causation is reversed.
The firms that have adapted prices well enough (during hard times, that is) have been successful. There is no ontological fundamental such as a successful firm. But there is the fundamental concept of revenue greater than costs.
The way they manage this is typically cash-buffers, that is, they are not run based on naive economic/financial models, which assume away large negative events.
“So, in simple terms, from a total demand-stock analysis, fix-price markets are also always cleared because Total Demand to Hold = Stock.”
Bala just redefines “market clearing” and reduces it to a trivial concept very different from what Mises and Rothbard meant by it.
This is nothing but a feeble fallacy of equivocation.
If there is NEVER any tendency towards market clearing in the Misesian sense, then many Austrian theories collapse:
(1) the Austrian arguments against price controls do not work.
(2) the Austrian belief that rapid and smooth recovery happens after the recessions/depressions collapses
(3) the idea that market economies have Misesian economic coordination fails,
(4) Mises’s argument in the Socialist Calculation debate collapses, and
(5) Mises’ most important explanation of the Great Depression as caused by trade unions stopping wages from reaching market clearing levels (Hülsmann 2007: 620) fails to if there was never any such tendency in the first place or any reason to expect it would happen in the future.
Yes. Imagine that I become a hooker. I find no one willing to pay me. Doesn’t really make sense to say that I’m purchasing my own services? That’s semantic trickery. It’s one thing to say if I’m busy and I decided to work only eight hours a day rather than 10 that my reserve price corresponds to me purchasing free time or somesuch thing, but clearly I’m trying to sell my services and I’m not finding anything like the demand but I’m hoping for.
“but clearly I’m trying to sell my services and I’m not finding anything like the demand but I’m hoping for.”
Did it ever strike you that the service is yet to be produced while in contrast, the goods I spoke of are taken to have been produced? Do you realise that in services such as the one you identified, supply is always equal to demand and that the concept of reservation demand does not apply because the service cannot be stored in a stock?
No? Then maybe you should resolve these basic issues first.
hi Bala and Ken B, one’s time is a resource owned and at-hand. If one wants to sell but if no buyer is forthcoming at the named price, then it is not that the same analysis cannot apply.
In such a case, the seller ends up using his time for his own pursuits, assuming he is not willing to lower his asking price. In that sense, Bala’s analysis still applies consistently.
So, the observation re the seller “using his own resource” is correct. He is using his own time for sleeping/online arguments, instead of selling it to some John.
That’s a useful thought experiment (unlike certain substance-light comments by others, who shall remain unnamed! Let conscience be thy guide, guilty one.).
In this case, it means that you got to lower your asking price (the Ask) until you get a buyer (a Bid). If, at any price, you cannot get a buyer, C’est la vie. Time for another career.
It is certainly possible that the resource someone offers (their time) finds no bid ever, at any price. That person is thus unemployable – this is a common problem in a world of capable machines and cheap-ish energy. And it is getting worse. One good thing abt peak, cheap oil is that this problem goes away eventually. Even the rankest idiot will find employment when human-muscle energy is cheaper than machines fuelled by expensive fossil fuel energy. The bad news is we will not be able to afford online discussions such as this fine one. Bloody trade-offs.
LK,
Just explain how stating that the market is cleared when Total Demand to Hold = Stock is equivocation and redefining terms. Are you denying that the potential seller can have a reservation demand for the goods he has in his possession? Are you denying that including this reservation demand in the total demand to hold is not legitimate Austrian analysis?
Yes, reservation demand exists.
But the real existence of reservation demand does not change the fact that Austrian theory also has a strong role for a flexible wage and price system where prices and wages move towards their market clearing levels:
“Private business prices its goods and services to ‘clear the market,’ so that supply equals demand, and there are neither shortages nor goods going unsold.” (Rothbard 2006a: 259).
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.” (Mises 2008: 756–757).
“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).
“Competitive prices are the outcome of a complete adjustment of the sellers to the demand of the consumers. Under the competitive price the whole supply available is sold, and the specific factors of production are employed to the extent permitted by the prices of the nonspecific complementary factors. No part of a supply available is permanently withheld from the market, and the marginal unit of specific factors of production employed does not yield any net proceed. The whole economic process is conducted for the benefit of the consumers.” (Mises 2008: 354).
LK
I think you should stop rambling and address my point. If
1. reservation demand is real
2. total demand-stock analysis is legitimate Austrian analysis
3. therefore (on account of 2.) saying that clearing may be defined as total demand = stock is legitimate
3. possessor’s speculative demand to hold is legitimately part of reservation demand
then, even when sellers are not able to sell all their stock at a price they quote, Total Demand = Stock. Voila! The market is always cleared. Tell me how I am equivocating and redefining terms.
And if the market is always cleared because Total Demand = Stock, how does Austrian analysis require “flexible” prices moving towards market clearing levels?
If your idea of “market clearing” is so weak that you seriously think that all markets are always cleared 100% of the time, then your question answers itself.
You’re saying no recession ever happen. Recessions are all just imaginary.
What garbage!! Recessions are not a result of markets not clearing. Markets do clear even when goods lie unsold on shelves. Markets are cleared even when businesses shut down en masse as in a recession. Your complete failure to understand what a recession is is showing.
Bala is now:
(1) desperately trying to distort Rothbard’s concept of “reservation demand” to include ALL unsold goods — even those still offered for sale in stocks or on display in stores — at all points in time as part of “reservation demand”, even though Rothbard never defined it in that sense.
(2) he is then saying that since all goods not sold — even when still offered for sale — at all points in time form part of reservation demand, then markets clear 100% of the time. All markets at all moment in time through human history are always cleared.
This is a transformation of Austrian theory into outright nonsense.
Bala is saying that even when real output collapses for 2 quarters or more and many businesses would like to sell their goods but cannot and when workers are not withholding their labor services from the market but cannot find work, then there is no recession. Markets are all clearing. There is no economic problem of any kind.
Any economic problems are just a product of the imagination.
It’s even more simple than that. Under the Austrian definition of “market clearing” as soon as a “plain state of rest” is achieved, the market is clear by definition. Thus, the market cannot in practice ever fail to clear.
Other schools of economics use the same words to mean different things, but that’s irrelevant for an Austrian analysis.
Any yeah, FWIW you can say that total demand = stock at that point as well, because again by definition, if anyone really wanted to buy the item, they could have offered more money. Again, it’s a tautology, the market cannot fail to clear.
“Thus, the market cannot in practice ever fail to clear.”
Precisely.
The erroneous claim made by some is to cast ‘goods unsold at a Profit’ as an uncleared mkt and a mkt failure. Huh? Why, dash it?
Mkts certainly can “fail” to provide employment to the incompetent and to provide customers for expensive dog-turd, but to call that a mkt failure is rich. The mkt is doing exactly what a mkt does. It conveys people’s economic preferences via their actions.
(1) yes, reservation is real, but overrated.
(2) it may be legitimate “Austrian” analysis but it still fails to understand the nature of many REAL WORLD stocks, as opposed to the sheer fantasy world of stocks in Bala’s head with its world of magical flying unicorns.
(3) You reduce clearing to trivial and weak concept. And it is STILL clear that Mises and Rothbard hold a different notion of market clearing too familiar from neoclassical economics: where all supply offered is bought and market is cleared.
(4) see (2)
“then, even when sellers are not able to sell all their stock at a price they quote, Total Demand = Stock”
False. Rothbard’s reservation demand requires that they withhold the goods either for their own consumption or in expectation of a higher price.
That is NOT how many stocks function: they are not waiting for a higher price (since price fixed) and stock is available for sale.
Once again we see the sheer desperate incompetence of Bala.
.
But furthermore even the concept of “reservation demand” is often irrelevant to real world stocks and inventories, which are held NOT because the seller is waiting for a higher price, but simply to meet changes in demand for output.
E.g., a shoe store has a stock of shoes in the back room. They are not **withholding** their stock from the market or buyers at all: it is still available to sell.
In most stores, if I came in and said “oh, I’ll buy all these type of shoes at the price offered on display in the store *as well as* all you have in stock”, then most stores would sell them to me.
This isn’t Rothbard’s reservation demand at all.
No LK. It is very relevant. Reservation demand is simply the seller’s demand to hold. Why the seller is waiting is in fact what is quite irrelevant.
The issue is still that if market clearing may be legitimately interpreted as total demand = stock, you need to explain why Austrian analysis requires flexible prices moving towards market clearing levels because real world prices turn out to be market clearing prices. Reservation demand explains why they are.
But “reservation demand” is an FTB (Figure To Balance), it will always be whatever is required to allow a plain state of rest, and that’s because we observe a plain state of rest.
This doesn’t actually tell you anything. It fits the Austrian analysis to be sure, by definition it will always fit.
(1) no, Rothbard’s “reservation demand” is plainly stock WITHHELD from the market.
Many inventories/stocks are not like that at all: they ARE offered for sale, just not on direct display.
(2) “The issue is still that if market clearing may be legitimately interpreted as total demand = stock,”
That is actually what you do not understand.
Many goods held in modern stocks/inventories are NOT being withheld from sale.
They are still being offered for sale.
(3) “The issue is still that if market clearing may be legitimately interpreted as total demand = stock, you need to explain why Austrian analysis requires flexible prices moving towards market clearing levels because real world prices turn out to be market clearing prices”
If you seriously believe that, then you are saying recession never occur.
Let us all live in Bala’s fairy tale world where recessions are just a fiction of the imagination.
I agree. My point is simply that LK’s claim that Austrian theory is bunkum because
1. it requires flexible prices converging towards market clearing levels and
2. real world prices are fixprices and hence not flexible as Austrian theory requires.
is utterly nonsensical.
This is a statement that reflects how pathetic is your understanding of what a recession/depression is. Unsold stock != Recessions. Recessions involve unsold stock but they are not about the market failing to clear.
” Unsold stock != Recessions.”
I do not define recession in that sense, fool.
Did the goods change hands?
If yes, then they aren’t in stock any more so the market cleared.
If no then the offered price was insufficient so the goods were withheld and the market cleared.
Get it? The market always clears. It’s an Austrian identity.
Bala’s redefinition is correct. Mkt-clearing IS a trivial concept. If mises/rothbard got it wrong here and there, too bad for them, what?
1. Price controls are still a bad idea. Suppose there are a 100 people unemployed who no one wants to hire at the current time at any price because there has just been a major financial/natural disaster and balance sheets are strained. You would say that the labour mkt has not cleared. That is incorrect. It has cleared. Those 100 people are not employable given the Current demand of the mktplace.
Now the govt imposes a minimum wage. How does that help the 100 people or the economy? It does however throw other people out of work too.
Is there something else meant by point 1?
In the (Mises 2008: 756–757) quote, he is correct. In the (Mises 2011: 101) quote, he is not.
The earlier comment abt misunderstanding Mises’ use of the term ‘mkt-clearing’ shd say that Rothbard’s use of the term in (Rothbard 2006: 390) has been misunderstood.
One’s attempt – at steering the masses away from the path trod by Mises and onto the close-by, related path laid out by Moldbug – has been an abysmal failure.
“If your idea of “market clearing” is so weak that you seriously think that all markets are always cleared 100% of the time, then your question answers itself.
You’re saying no recession ever happen. Recessions are all just imaginary.”
This is precisely the nub! Oh, happy day.
– If you define recession as unsold goods, then almost all cleared mkts are in recession.
– If you define recession as a reduction in nominal AD (real AD is a political contrivance, ref CPI), then yes, many cleared mkts are in recession.
– If you define recession as unemployed ppl who are willing to work but cant, then yes, many cleared mkts are in recession.
You are pointing at the wrong thing as a problem cos you have misunderstood the ontological nature of an economy. It is not to create AD.
Yeah! The economic chronicler does not understand what a recession or a depression is.
” If you define recession as unsold goods, then almost all cleared mkts are in recession.”
I do not define recession in that sense.
Recession is when real output declines for 2 quarters or more,
Then in what sense do you define recession when you declare that a person who says that markets are always cleared and that real world prices are market clearing prices once you take into account reservation demand is saying that recessions do not occur?
See my comment right at the bottom.
I went to the supermarket just now. Blow me down if there weren’t hundreds, nay, thousands of unsold goods on shelves. We are in a recession, people!
Will no one think of the children?
No, you idiot. A recession is when real output declines for 2 quarters or more.
Oh my dear genius! You are the one who interpreted my statement that markets are always cleared to infer that according to me, recessions will not occur. That statement presupposes that according to you, recessions are about markets not clearing.
“That statement presupposes that according to you, recessions are about markets not clearing”
Of course that is ONE important element of a recession.
You, Bala, are an idiot of the highest order.
LK, your claim – when Bala showed that unsold goods is not an uncleared mkt – was that that would mean recessions cannot happen. You do see the connection, don’t you? Plain English and so forth.
No worries. Have at it again then, and this time do make an effort to think instead of regurgitating Keynes just cos you happen to hate AE (what is up with that?). What do unsold goods have to do w recession then?
//Dear chap, I may be an idiot (the jury is out) but compared to you, I am a colossus wrt econs and civility.//
“LK, your claim – when Bala showed that unsold goods is not an uncleared mkt “
He showed no such thing. He invented a position unknown in Austrian economics. Rothbard never said goods **offered for sale** form part of reservation demand.
Forget Rothbard. Forget mises. Think for yourself, dude.
Certainly forget Keynes while you are at it.
This discussion is precisely about Austrian economics. Not in arbitrary redefinitions of words or fallacies of equivocation
Fair enough. But thinking for yourself is still highly recommended. Not all dead white men were infallible.
To summarise. Bala is now:
(1) desperately trying to distort Rothbard’s concept of “reservation demand” to include ALL unsold goods — even those still offered for sale in stocks or on display in stores — at all points in time as part of “reservation demand”, even though Rothbard never defined it in that sense.
(2) Bala is then saying that since all goods not sold — even when still offered for sale — at all points in time form part of reservation demand, then markets clear 100% of the time. All markets at all moments in time through human history are always cleared.
This is a transformation of Austrian theory into outright nonsense.
Bala is saying that even when real output collapses for 2 quarters or more and many businesses would like to sell their goods but cannot and when workers are not withholding their labor services from the market but cannot find work, then there is no recession. Markets are all clearing. There is no economic problem of any kind.
Any economic problems are just a product of the imagination.
LK: “Bala is saying that even when real output collapses for 2 quarters or more and many businesses would like to sell their goods but cannot and when workers are not withholding their labor services from the market but cannot find work, then there is no recession. Markets are all clearing. There is no economic problem of any kind.”
You are now equating recession with even a smidgen of unemployment. And you will have to backtrack that too. Are you trolling or are you sincere? Why do you keep coming back to unsold goods or unemployed labour as implying recession? There were plenty of both in the 20s and the 90s, but that was not a recession. You know that. I dunno why you keep misequating the two.
Forget abt AE, think on your own.
“You are now equating recession with even a smidgen of unemployment. “
I am doing no such thing, idiot.
The conditions for a recession have just been defined for you:
(1) real output contracts for 2 quarters or more.
(2) many businesses would like to sell their goods but cannot.
(3) workers are not withholding their labor services from the market but cannot find work.
(1) is a necessary and crucial part of the definition. Mere unsold goods and involuntary unemployment during expansionary phases of the business cycle obviously do not mean that there is a recession at that time.
🙂
The Q still remains.
Back to step one: mkts always clear. So why do you claim from that that implies recessions cannot happen?
Btw, epistemology 101: If a condition A existing can mean EITHER that a recession exists OR that it does not exist, then condition A is deadweight, uninformative and irrelevant.
This is another way of asking you to realise the fundamental Q being debated.
Bala has simply redefined reservation demand:
“The stock of a good is the number of units existing at any given time. The total demand to hold consists of the number of units desired by buyers, plus the number of units that current owners refrain from selling (what is called the reservation demand).”
Murphy, Robert P. 2006. Study Guide to Man, Economy, and State: A Treatise on Economic Principles with Power and Market: Government and the Economy. Scholar’s Edition. . Ludwig von Mises Institute, Auburn, Ala. pp. 20–21.
“There is another way of treating supply and demand schedules, which, for some problems of analysis, is more useful than the schedules presented above. At any point on the market, suppliers are engaged in offering some of their stock of the good and withholding their offer of the remainder. Thus, at a price of 86, suppliers supply three horses on the market and withhold the other five in their stock. This withholding is caused by one of the factors mentioned above as possible costs of the exchange: either the direct use of the good (say the horse) has greater utility than the receipt of the fish in direct use; or else the horse could be exchanged for some other good; or, finally, the seller expects the final price to be higher, so that he can profitably delay the sale. The amount that sellers will withhold on the market is termed their reservation demand. .”
Rothbard. M. 2009. Man, Economy, and State: A Treatise on Economic Principles. Scholar’s Edition (2nd edn.), Ludwig von Mises Institute, Auburn, Ala. pp. 137–138.
Therefore goods still **offered for sale** cannot be part of reservation demand. But many stocks in real world firms have goods which are not being withheld from sale, as I noted above: they are still available and offered for sale.
Bala is simply peddling a fictitious version of Austrian economics. He is ignorant of basic Austrian concepts and theories.
You are struggling with a semantic issue here.
All goods for sale are defined wrt a price. In the above quotes, “offering stock” means accepting the price offered by buyers. “Withholding” means not accepting the offered price. It does not mean that the good is not for sale at a higher price.
Always define supply and demand wrt price. It is meaningless without.
” In the above quotes, “offering stock” means accepting the price offered by buyers. “”
And as stated, many goods held in stocks are not withheld from sale because the sellers are expecting a higher price.
They are STILL offered for sale. All the sellers need is a buyer.
You are the one “struggling with” the arguments offered you.
And he will get one if he lowers his price… What is the confusion?! Wanting to sell at a price the mkt will not pay is pointless. I want to be paid a million bucks for my time. But no one does so. That does not a bad outcome comprise.
I reiterate: it’s a semantic issue.
“Wanting to sell at a price the mkt will not pay is pointless. I want to be paid a million bucks for my time. But no one does so. That does not a bad outcome comprise. “
(1) that requires that all product markets have well behaved demand curves — which is just a article of faith from market religious fundamentalists like you.
(2) it also requires that the very existence of people who want to sell at a price but are not willing to lower price entails that markets are not clearing, which totally destroys what you are saying.
Rothbard: The amount that sellers will withhold on the market is termed their reservation demand.
Withhold does not mean that it is hidden away without even any consideration of being sold. It means that seller is not willing to sell at the offered price. Withheld not from being sold generally, but from being sold at that price. Semantic issue.
A mkt is not the entire plethora of money supply and all goods produced but not yet consumed. A mkt is the slice of all that which is – right here and now- in the process of exchange. That us why we say mkts always clear.
A mkt is not the shelf. A mkt is the cash counter.
“Withhold does not mean that it is hidden away without even any consideration of being sold. It means that seller is not willing to sell at the offered price. Withheld not from being sold generally, but from being sold at that price. “
As I just told you, many goods in stocks ARE still offered for sale at the same price as goods on display.
The fact that cannot understand this is why you are still writing these worthless comments.
That’s called the “asking price”.
Oh yeah, he really did say “offered price”. How about that? Offered price might be lower than asking price. Learn something ever day, don’t cha?
If this is supposed to be directed at me, all you’re saying is that sellers — according to Austrian theory — must lower price to sell goods. That is exactly what sellers generally WILL NOT DO: they have fixed mark-up prices.
That entails that markets are not clearing by Mises’s deification:
“Competitive prices are the outcome of a complete adjustment of the sellers to the demand of the consumers. Under the competitive price the whole supply available is sold, and the specific factors of production are employed to the extent permitted by the prices of the nonspecific complementary factors. No part of a supply available is permanently withheld from the market, and the marginal unit of specific factors of production employed does not yield any net proceed. The whole economic process is conducted for the benefit of the consumers.” (Mises 2008: 354).
My limited mind cannot scale the Olympian cognitive heights or the old-school decencies of debate that you clearly possess, LK.
Have a good one. I am off to bang my head against a wall. More my speed.
LK,
It appears you do not understand Total Demand-Stock analysis. The first thing that is done in that analysis is that we stop viewing people as buyers and sellers. There are only possessors and non possessors with valuations of the purchase good and the sale good. In this framework, each buyer is understood to have a Maximum Holding Price rather than a Minimum Selling or Maximum Buying Price.
At every hypothetical price, we only know the total quantity demanded to hold by ALL market participants put together. This is deduced by counting the number of units that correspond to a market participant with an MHP>/=Hypothetical Price. At this stage, we are not interested in classifying them as buyers and sellers because we simply do not possess that information. All we know is that there is a certain total demand at every hypothetical price and the market clearing price is that at which Total Demand to Hold is equal to the Stock available.
It is for this reason that TD-Stock analysis does not explain the quantity exchanged at equilibrium the way Exchange Demand-Supply analysis would. When we look at this market and deduce the value scales of the different market participants, all we are able to say is that all the people holding stock at the end of the process had an MHP higher than the market price and all those not holding stock at the end of the process had an MHP lower than the market price. If some of those finally found possessing units of the purchase good happened to be possessors prior to the exchange as well, we deduce that their MHP is greater than the market price and their demand for the purchase good is what is understood as reservation demand. It is that portion of the stock that suppliers withhold from sale at the prevailing price because their MHP is greater than the prevailing market price.
In fact, the concept of reservation demand comes in only when we bring in additional knowledge of who the possessors were prior to the market process, i.e., when we bring in knowledge of who the buyers and sellers are. It is a concept that is used to reconcile the concepts Exchange Demand and Total Demand and to identify that even those who entered the market as potential sellers but who do not sell their goods value holding their stock over exchanging it at the prevailing price.
There are 2 uses of reservation demand.
1. Exchange Demand = Total Demand – Reservation Demand
2. Supply = Stock – Reservation Demand
In the TD-Stock analysis, ALL possessors at the end of the market process are people whose MHP is greater than Market price. So, if they were prior possessors, one deduces that they must have had an MHP>Market Price and them we classify their demand as reservation demand. This is useful in understanding that only that quantity is supplied which was originally in the possession of those whose MHP is less than the prevailing market price. It also helps understand that the quantity demanded in exchange is the total quantity demanded by all market participants less that that prior possessors prefer to hold at the prevailing market price.
So, your attack on my use of the concept of reservation demand is incorrect. It is you who completely fails to comprehend the analysis where it is used and the very meaning of the concept. Taking this further forward, my point that market prices are market clearing prices once you use the TD-Stock analysis holds. Therefore, your attack on the Austrian explanation by claiming that fixprices are not market clearing prices and that by their being “fixed”, their failure to be flexible as “required” by Austrian theory negates Austrian theory stands exposed as complete nonsense and tomfoolery that is the product of an economically ignorant chronicler.
You may be a good economic historian. In economics, you flunk the basics.
Correction.
In this framework, each market participant is understood to have a Maximum Holding Price rather than a Minimum Selling or Maximum Buying Price.
“It is for this reason that TD-Stock analysis does not explain the quantity exchanged at equilibrium the way Exchange Demand-Supply analysis would. “
Which only underlines how you are ignoring the concept of market clearing as defined in exchange demand-supply analysis.
Your TD-Stock analysis “market clearing” concept reduces to a trivial concept that, as noted above, would entail that all markets are cleared 100% of the time.
You then want to say that this invalidates the alternative exchange demand-supply concept of market clearing as used by Mises etc.
This is just more incredible stupidity.
And you fail to understand that even Exchange Demand-Supply analysis does not and is not meant to explain market clearing across time. It abstracts time away, takes values to be constant and explains what the market would tend to if the market process of bidding were to proceed to the point where no more bidding would happen and the market would cease to exist.
I am waiting for someone who understand economics (that means not you) to tell me I am being stupid. Your judgement means nothing to me. That’s why I posed the question to those who are in a position to evaluate my statements and give me valuable feedback.
“And you fail to understand that even Exchange Demand-Supply analysis does not and is not meant to explain market clearing across time.”
LOL! Mises, Hayek and Rothbard’s statements about tendencies **towards** to market clearing in real world markets as defined as the Exchange Demand-Supply concept of market clearing — even if the real world never reaches Mises’s final state of rest — are “not meant to explain market clearing across time”!!!
In other words, when Mises said this, he was not even referring to the real world:
“The market interaction brings about a price at which demand and supply tend to coincide. The number of potential buyers willing to pay the market price is large enough for the whole market supply to be sold. If government lowers the price below that which the unhampered market would set, the same quantity of goods faces a greater number of potential buyers who are willing to pay the lower official price. Supply and demand no longer coincide; demand exceeds supply, and the market mechanism, which tends to bring supply and demand together through changes in price, no longer functions.” (Mises 2011: 101).
LK,
You are only revealing your complete failure to comprehend what Mises is saying out here. What he is saying is about what would happen in the real world for a given set of value scales of market participants. The very idea of excluding speculation from this analysis (which I can see you do not understand) is to abstract time away from the analysis.
Further, please note that demand and supply tend to coincide, he is not talking of a tendency to converge. He is saying that supply and demand have a tendency to be equal.
When he speaks of the whole market supply, he is talking of supply, i.e., Stock-Reservation Demand.
Mises is not defining reservation demand or market clearing in this passage in the way you do in your utterly ridiculous attempt to argue that
markets clear 100% of the time.
Very simply put, market clearing is that state in which no more bidding happens and can happen. The market is said to be cleared because there is no scope for any more market activity. I don’t think you get it.
“Very simply put, market clearing is that state in which no more bidding happens and can happen.”
That is a trivial concept of “market clearing” you have derived from Mises’s comments about plain state of rest.
Its does not refute the fact that Mises thinks that OVER TIME there is a **tendency** towards supply-demand market clearing in product markets and the labour market where quantity demanded is equated with supply offered for sale.
You haven’t shown where. The quote you picked up does not do that.
“Competitive prices are the outcome of a complete adjustment of the sellers to the demand of the consumers. Under the competitive price the whole supply available is sold, and the specific factors of production are employed to the extent permitted by the prices of the nonspecific complementary factors. No part of a supply available is permanently withheld from the market, and the marginal unit of specific factors of production employed does not yield any net proceed. The whole economic process is conducted for the benefit of the consumers.” (Mises 2008: 354).
This quote too does not talk of across time. You are misinterpreting the word permanently.
You are now inventing nonsense.
Mises does not need to literally say that this process towards supply-demand market clearing happens “over time”: it is implied in what he says.
Fixed prices change OVER TIME when there is a signficant enough change in nominal demand that persisting with the same prices will incur perpetual losses.
Prices are not fixed. Calling them fixed doesn’t make them so.
Is anyone here a computer scientist, engineer or mathematician?
Or a physicist?
Yes. 2/3.
Wonderful. I wanted to run Moldbug’s Economic corpus past someone trained in that manner, for their considered opinion.
Would you be interested in an email discussion? This forum is not near optimal.
Correct. We’re better than you.