Why U.S. Economists Should Love Canada
From my latest Mises Canada post:
As I’ll be exploring in many future posts, Canada offers a great opportunity for U.S. economists interested in historical research. Because the U.S. and Canada are both wealthy countries with similar forms of government, their physical proximity sheds light on the effects of different policies.
Take the Great Depression and the impact of Franklin Roosevelt’s sweeping “New Deal.” …
Yet I had encountered defenders of Roosevelt who argued that…no other U.S. president had ever inherited such as mess as Roosevelt acquired from Herbert Hoover after the 1932 election. In other words, since FDR started out in such a quagmire, it’s not surprising that it took him longer to achieve recovery. These writers still wanted to say, “Roosevelt and his New Deal got us out of the Depression.”
It occurred to me to compare U.S. and Canadian unemployment. Here’s what I found…
No, Bob Murphy, the unemployment figures you use for the US are overestimates of unemployment because they exclude people working in US federal government programs like the Civilian Conservation Corps, the Civil Works Administration, etc. where most people were in full-time jobs in construction projects and public works, as shown by Darby (1976) years ago.
Once we adjust the figures we get these better estimates:
Year | Unemployment Rate
1929 | 3.2%
1930 | 8.7%
1931 | 15.3%
1932 | 22.5%
1933 | 20.6%
1934 | 16.0%
1935 | 14.2%
1936 | 9.9%
1937 | 9.1%
1938 | 12.5%
1939 | 11.3%
1940 | 9.5%
1941 | 6.0%
1942 | 3.1%
1943 | 1.8%
(Darby 1976: 8).
Once we look at these, the US unemployment data is BETTER than Canada’s for all years after 1933 except 1934 and 1938, and even then the difference is not great.
And in the 1938, anyway, unemployment rose because of Roosevelt’s monetary and fiscal contraction.
All in all, your whole argumeht is in tatters.
Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16.
I’m wondering if the Canadian unemployment rate would have to be adjusted in similar fashion.
“I’m wondering if the Canadian unemployment rate would have to be adjusted in similar fashion.”
The answer is most definitely: no.
The Canadian unemployment data Murphy used includes people employed in Canada’s relief public works programs, as shown conclusively in Zagorsky, Jay L. 1998. “Was Depression Era Unemployment Really Less in Canada than the U.S.?,” Economics Letters 61.1: 125–131 at p. 129.
OK, just curious.
At any rate, isn’t including government jobs a flawed indicator? Shouldn’t the Canadian data be adjusted to match the BLS’ method that only considers private jobs?
I mean, I would not deny that the government has the capability to print whatever quantity of money is needed to employ currently unemployed people to engage in wasteful, or otherwise questionable activity, and so reduce the unemployment rate (defined as those without private or public sector jobs) down to zero. I don’t think this is controversial.
I think where the disagreement here lies is, among other disagreements, whether hiring people for public works instead of waiting for them to get private sector jobs, constitutes a “gain”. Government jobs are not subjected to market forces, and so given the tendency in all monopolies to increase costs and lower quality, I don’t see how the US was better off…
Correction:
“the US are overestimates of unemployment because they **FAIL** to exclude”
Doesn’t fail to exclude mean include? If the BLS “fails to exclude” government jobs, then doesn’t that imply they include government jobs?
And, if the Canadian data already includes government jobs, then what’s the discrepancy?
(1) BLS data counts people in public works programs as unemployed. Therefore these people should be *excluded* as Darby does.
(2) the Canadian data does not count people in public works programs as unemployed.
Why does the BLS data have to be adjusted to exclude as unemployed those people in government make work programs, instead of the Canadian data having to be adjusted to exclude as employed people in government make work programs?
Isn’t the whole point of public works programs to stimulate “the economy”, rather than the government only? Shouldn’t we exclude as employed all those on make work projects?
If Murphy wants to include all Canadians working in public works programs in the official Canadian unemployment stats, and then compare that with official BLS stats, fine.
But he needs to do that recalculation of data and completely rewrite his Mises.org post.
His present post is still utterly flawed.
I was actually asking why aren’t you doing this. I’m wondering why you responded to Murphy’s post with updated BLS data instead of updated Canadian data.
Okay, so first of all I would suggest that all of the data gathered in the 1930’s is suspect. Lord Keynes, What was the primary method or calculation in the 1930’s? Why was wage price rigidity so high? I actually do not agree with your or Bobs read on this but that is mainly due to the fact I do not believe Darby (based on the paper he wrote) is correct but I do not agree with Bobs numbers either. See Bernanke (1986) and Jensen (1989) I would also suggest you read Kesselman and Savin (1978 ) who argue that the inclusion of the data points Darby brings in are disingenuous in the homogenization of the data and would need to then rework ALL of the data points before and afterward and not simply looking at the 1930’s. ‘Labor’ Programs had issues with double counting etc… and so can not be looked on with any degree of confidence in reporting.
Even in Darby’s paper he explains WHY Lebergott was JUSTIFIED in the method that he used. Finally these people were STILL marginally attached to the labor force so there FULL inclusion as Darby then attempts to justify is at best a smoke screen used by those who wish to demonstrate how ‘great’ the new deal was.
By the token I admit to not knowing how the statistics are taken in Canada and if what you suggest is true ( I admit ignorance ) then I would say that Murphy should adjust to compare apples to apples. Either to include what Darby suggests or create an unmodified dataset.
” Canada during the Depression did not see an expansion in its government comparable to the US. New Deal, and what analogous programs it did have, were not implemented until 1935.
Even if we except that as true, then Canada’s unemployment — which had been stuck at 14% in 1934 and 1935 — started falling significantly after 1935:
Year | Unemployment Rate
1934 | 14.5%
1935 | 14.2%
1936 | 12.8%
1937 | 9.1%
1938 | 11.4%
1939 | 11.4%
1940 | 9.2%
This doesn’t support your case! It contradicts it.
All that “evil” Canadian government intervention should have caused unemployment to rise or stay the same.
(By the way, the spike around 1938-1939 looks to me like a knock-on effect of Roosevelt’s contraction in the US.)
“accept that as true”
I don’t think any Austrian denies that the government can print money and spend it on paying people for “make work” projects, thus bringing about an exploitation of coercive dependency from those on the make-work projects, on those producing their food, clothing, medicine, and other goods for non-market exchange valued goods in return.
Except Lord Keynes, virtually all of the “New Deal” Style interventions were struck down by Canadian Courts.
“Some of the measures were alleged to have encroached on provincial jurisdictions laid out in Section 92 of the British North America Act. The courts, including the Judicial Committee of the Privy Council, agreed and eventually struck down virtually all of Bennett’s reforms.[11][13] However, some of Bennett’s initiatives, such as the Bank of Canada, which he founded in 1934, remain in place to this day, and the Canadian Wheat Board, remained in place until 2011 when the government of Stephen Harper abolished it.”
Most of Bennett’s New Deal was.
King’s later measures were not.
This is very odd, discussing minutiae from my high school Canadian history on the web….
LK is right. King did new dealish stuiff, but he was not an enthusiast for it, and I do not believe it ever reached anything like a scale proportionate to the New Deal. No TVA for example.
The Wheat Board is nothing to boast about.
What’s more R. B. Bennett’s new central bank was never abolished: it survives to this day.
It is unclear to what extent the new central bank took monetary stimulus measures in 1935 and after.
E.g, did the new Canadian central bank flood the financial system with liquidity and help the government in deficit spending?
These would be significant interventions from the Austrian point of view.
Also, William Lyon Mackenzie King began to introduce the welfare state in Canada in the later 1930s, and around 1938 government fiscal policy under Mackenzie King shifted to a Keynesian stimulus (Neatby, H. Blair. 2003. The Politics of Chaos: Canada in the Thirties. pp. 85–86), though it was not a great one.
“In future posts, I’ll walk through other U.S./Canadian comparisons. For example, the countries had much different experiences with bank failures during the early 1930s. “
We know why Canada escaped mass banking failures: the Canadian government gave an implicit promise not to allow such banking failures:
“… the archival evidence is consistent with our hypothesis that beginning in 1923, an implicit guarantee from the Canadian government (amounting to 100 percent implicit insurance) stood behind all domestic bank deposits. The government actively facilitated mergers during the 1920s to avoid firesale insolvency and successfully created public confidence that no bank would be allowed to fail. This confidence persisted during the 1930s” (Kryzanowski and Roberts 1993: 366).”
http://socialdemocracy21stcentury.blogspot.com/2012/09/why-did-canada-have-no-mass-banking.html
100% reserve banking?
Anti-capitalist!
“100% reserve banking?
Anti-capitalist!”
Correct. The allegedly fraudulent nature of FR banking is all based on gross misunderstanding of basic legal principles of contract law and the difference between the “mutuum” and “depositum regulare” contract.
To enforce 100% reserve banking would require coercive restriction of private freedom and private enterprise.
To prohibit us from using alternative currency other than fraudulent reserve notes also requires coercive restriction of private freedom and private enterprise.
But that’s justified coercion, because the costs are borne by others besides the banks and bank customers only. If the costs are borne by a bank and its customers only, then whatever brings that about is unjustified coercion.
It all makes sense now.
It’s not coercion when lots and lots of people are coerced.
But you just said that it prevented “mass banking failures”.
As a consequentialist/utilitarian/empiricist, shouldn’t you be advocating for 100% reserve requirements in the UK and US? Or are you denying the “empirical evidence” that you yourself posted?
(1) “But you just said that it prevented “mass banking failures”.
I said the Canadian government prevented “mass banking failures”.
(2) “As a consequentialist/utilitarian/empiricist, shouldn’t you be advocating for 100% reserve requirements in the UK and US? “
Only if it were the only way to deal with FR banking instability and the benefits outweighed the costs.
However, the benefits of FR banking can be had without the negative costs by deposit insurance, financial regulation and central banking.
The consequentialist argument for this is far better than the 100% reserve requirements.
“I said the Canadian government prevented “mass banking failures”.
Yes, “Canadian government” in the form of Canadian government enacting 100% reserve banking.
“Only if it were the only way to deal with FR banking instability and the benefits outweighed the costs.
However, the benefits of FR banking can be had without the negative costs by deposit insurance, financial regulation and central banking.”
“The consequentialist argument for this is far better than the 100% reserve requirements.”
So the Canadian government did the wrong thing by making sure that every deposit was backed 100%?
“Yes, “Canadian government” in the form of Canadian government enacting 100% reserve banking.
WTF are talking about?
They did it by implicit promises of bailouts for any distressed bank on the verg o f collapse.
The Canadian government never abolished FR banking or instituted 100% reserve requirements.
Your either misread or deliberately distort the phrase “amounting to 100 percent implicit insurance” = impliciit deposit insurance, not 100% reserve requirements
You’re making no sense LK.
You are praising the benefits of 100% reserve banking, but not coerced at the bank level, but coerced at the national level (direct and inflation tax).
If the government is going to enforce a 100% reserve requirement in the form of an “implicit bailout”, then that requires coercive government intervention no less than it requires coercive government intervention if the government is going to enforce 100% reserve at the bank level.
In both cases the government has to step in and stop what otherwise would be market forces determining bank survival (and/or bankruptcy).
You are making a “Kontradiction.” On the one hand, you are praising the benefits of coercive, anti-capitalist government intervention that “mimicks” 100% reserve through aggression on the national level. So you’re trying to get the benefits of 100% reserve banking, just not coerced at the bank level but the national level.
On the other hand, you have found yourself continually attacking direct 100% reserve banking as anti-capitalist, as it is coerced not at the national level, but at the bank level.
If you’re against 100% reserve enforced by government coercion at the bank level, on the basis that it is “anti-capitalist”, then because enforcing an “implicit guarantee” 100% reserve is also enforced by government coercion, just at the national level instead of the bank level, then why are you not attacking what the Canadian government did as “anti-capitalist”?
In other words, if 100% reserve banking enforced at the bank level would achieve the same outcome of no widespread bank failures as enforcing a bank bailout paid for at the national level, why as a consequentialist are you against the former but in favor of the latter?
Seems you want to have the benefits of 100% reserve banking, but instead of the costs being incurred by the banks and their clients only, you want the whole country to pay the costs, hopefully where those costs will go unnoticed.
“If you’re against 100% reserve enforced by government coercion at the bank level, on the basis that it is “anti-capitalist”, then because enforcing an “implicit guarantee” 100% reserve is also enforced by government coercion,”
Wrong. Because in the comment above here:
“The allegedly fraudulent nature of FR banking is all based on gross misunderstanding of basic legal principles of contract law and the difference between the “mutuum” and “depositum regulare” contract.
To enforce 100% reserve banking would require coercive restriction of private freedom and private enterprise.”
The sentence in bold is meant to be a reference to how it would be **under Rothbard’s ethics**, not conventionalist ethics, to point out the hypocrisy of their position once we understand that their misunderstanding of the mutuum contract.
I do not subscribe to Rothbard’s ethics.
The coercion involved in regulation etc. is no problem for me because I argue it is justified.
“To enforce 100% reserve banking would require coercive restriction of private freedom and private enterprise.”
So do bank bailouts, you know, what you’re praising instead of attacking what it is: anti-capitalist and a restriction of private enterprise.
Do you honestly believe bank bailouts enacted by government are not coercive?
“The sentence in bold is meant to be a reference to how it would be **under Rothbard’s ethics**, not conventionalist ethics, to point out the hypocrisy of their position once we understand that their misunderstanding of the mutuum contract.”
“I do not subscribe to Rothbard’s ethics.”
OK, but what about a non-Rothbardian consequentialist, who advocates for 100% reserve?
“OK, but what about a non-Rothbardian consequentialist, who advocates for 100% reserve?”
He can present his/her case and try and convince people.
I would argue — exactly as I said — that the benefits of FR banking can be had without the possible negative consequences by deposit insurance, financial regulation and central banking.
“He can present his/her case and try and convince people.”
Convince how?
“I would argue — exactly as I said — that the benefits of FR banking can be had without the possible negative consequences by deposit insurance, financial regulation and central banking.”
Doesn’t deposit insurance, financial regulation and central banking have “negative consequences”?
LK previously lost this argument long ago. Many times.
http://factsandotherstubbornthings.blogspot.com/2012/07/bob-roddis-makes-bad-argument.html?showComment=1342710030818#c2618524232434861358
“To enforce 100% reserve banking would require coercive restriction of private freedom and private enterprise.”
As does the present enforcement of a fiat legal tender system
And “implicit bank bailouts” that LK supports.
LK’s position is pretty hilarious. The way he attacks de jure FRB and defends de facto FRB, would be like an anarcho-capitalist saying:
“We should have everything produced in a free market, except potatoes, because if potatoes were produced in a free market, that would be anti-socialist..ugh“
Yeah I have seen that post before, I will do more research on it in the future – simply because the Canadian Government said they would do it, does not mean that they could have done it – I would also like to see the archival evidence that they refer to.
Also, in the 19th Century, the Canadian financial sector as it was, was far more stable than it’s US counterpart.
Yet in the 1800s, Canada had a large and powerful private bank called the “Bank of Montreal” that in some ways acted just like a de facto central bank (Bordo, M. D. 2002. “The Lender of Last Resort: Alternative Views and Historical Experience,” in Charles Goodhart and Gerhard Illing (eds.). Financial Crises, Contagion, and the Lender of Last Resort: A Reader. Oxford University Press, Oxford. 109–125 at 121), by taking over insolvent banks and being committed to the stability of the system.
Also, the Canadian banks were able to access the New York money markets, which had a stabilising role and also stability induced by Canada’s banking system becoming a “satellite” (as it were) of the New York money market (Goodhart, C. A. E. 1987. Review of Free Banking in Britain: Theory, Experience and Debate, 1800–1845 by L. H. White, Economica n.s. 54.213: 129–131 at 131).
And then when serious financial crises DID occur, the government had to step in: in both 1907 and 1914, Canadian governments had intervened to stop financial crises in the banking system by providing reserves (Bordo 2002: 121).
Yet another point. If we assume that from 1929 Canada “did not see an expansion in its government comparable to the US New Deal, and what analogous programs it did have, were not implemented until 1935”, then why did the
Canadian economy collapse so badly from 1929-1933:
Year | GDP | Growth Rate
1929 | 52 199 | -0.13%
1930 | 50 454 | -3.34%
1931 | 42 667 | -15.43%
1932 | 39 630 | -7.11%
1933 | 36 801 | -7.13%
1934 | 40 712 | 10.62%
1935 | 43 994 | 8.06%
1936 | 46 368 | 5.39%
1937 | 50 733 | 9.41%
1938 | 52 060 | 2.61%
1939 | 55 167 | 5.96%
1940 | 62 744 | 13.73%
Why did unemployment soar? The alleged non-intervention did not lead to a rapid self-equilibrating markets and recovery.
Of all Western nations ranked by the scale of GDP collapse from 1929 onwards during the contractionary phase of the Great Depression, Canada actually comes out as the worst by a small margin:
(1) Canada | -29.59% | 1929–1933
(2) US | -28.52% | 1929–1933
(3) Austria | -22.45% | 1929–1933
(4) Poland | -20.70% | 1930–1933
(5) Czechoslovakia | -18.19% | 1930–1935
(6) Germany | -16.11% | 1929–1932
(7) France | -14.65% | 1930–1932
(8) New Zealand | -14.63% | 1930–1932
(9) Yugoslavia | -13.69% | 1930–1932
(10) Bulgaria | -12.72% | 1934–1935
Do you have an explanation for that, Murphy old chap?
I expect we will now hear desperate backsliding. Suddenly we will hear that Canada was the *most* interventionist nation in human history from 1929-1933, etc. etc. etc. That dirty evil government ruined the economy blah, blah blah.
At any rate, here is a detailed refutation of your post:
http://socialdemocracy21stcentury.blogspot.com/2013/12/murphy-on-us-and-canadian-unemployment.html
The item that Lord Keynes [damn, I have trouble writing that name with a straight face] recommends is well worth reading. It does refute some of what Bob says and, beyond that, it appears to me, former Canuck that I am, as good economic history.
Two points, though:
1. Notice that according to that article, serious fiscal stimulus did not begin until 1938. So, contrary to LK’s earlier comment above, the big drop in unemployment after 1935 was NOT due to Keynesian stimulus.
2. I might be wrong on this, but I seem to remember that even though William Lyon McKenzie King, Canada’s PM, tried to get a Canadian equivalent of the New Deal, Britain’s Privy Council essentially acted like the “9 old men” of the U.S. Supreme Court and threw it out. I’m pretty sure it’s true. What I don’t remember is when it happened. Does anyone know?
(1) “So, contrary to LK’s earlier comment above, the big drop in unemployment after 1935 was NOT due to Keynesian stimulus.”
What comment? I did not claim any such thing above,
Not to mention that I wrote the blog post as well.
(2) no, the “New Deal” proposed by the Conservative government under Richard B. Bennett was thrown out as ultra vires after William Lyon McKenzie King was elected.
McKenzie King, however, introduced his own New Deal style policies after 1935.
We would have to look into what those policies were exactly – they were almost certainly not as far reaching as the ones pursued under FDR.
Not quite. RB Bennett the conservative Prime Minister before King was reelected in 1935 implemented new deal like policies. These were struck down by the privy Council in 1933 or 1934.
The constitutional crisis with King was much more important that was the King Byng Affair of 1926.
Another day on planet free advice.
Lord Keynes stated that the Canadian government provided an implicit promise of 100% reimbursement in case of a bank failure. Major freedom reads that as saying that the bank was subject to 100% reserve ratio.
Lord Keynes says that the Canadian government exercised tighter regulatory control over the banks than happened in the United States. Major freedom reads this as Lord Keynes as saying that 100% reserve banking prevented the failures.
Lord Keynes can you explain the difference between mutuum and depsositum regulre I am keen to see how major freedom interprets that as you saying that 100% reserve banking is the answer.
Well, the legal differences between mutuum and depositum regulare go right back to the ancient Roman legal system, which most European countries have inherited:
(1) mutuum = loan for consumption
The object loaned becomes the legal property of the debtor. He can use it anyway he wants, as he now has **full ownership rights.**
The creditor who loaned him the thing is now owed a debt.
E.g., I lend my neighbor a chicken as a mutuum, it is now his chicken. Say, he kills it and eats it or sells it or even lends it to someone else. That is ALL perfectly legal: he is the new owner.
All that he — the debtor — owes me is a debt of 1 chicken (of the same quality or type, or whatever our contracted stated).
If it is mutuum repayable on demand, then he must simply repay me 1 chicken whenever I ask.
Just replace “chicken” with “money” and you see how it works with banking.
(2) depositum regulare = bailment
This is just entrusting a thing to a person to safeguard for you.
You remain the owner. The person who guards it does not become its owner.
he must give it back to you upon request.
So you’re saying hundred percent reserve is the answer?
Just saving time.
What if, for whatever reason, a substantial majority of the population of chicken depositors believe that the chicken bankers have that quantity of chickens in their possession at all times?
What if Mr. Smith went around educating those depositors that the chicken bankers don’t actually have that many chickens in their possession, which leads to a sudden mass demand from the depositors to take possession of the chicken they were promised, which leads to bankruptcy of the chicken bankers? And, what if the chicken bankers were not able to bribe anyone to use force against others to bail them out? And, what if chicken depositors then started to demand that the chicken bankers always have in their possession the same number of chickens as was deposited?
Except in the real world when we look at surveys such as the one below we find something very interesting:
“Public Attitudes to Banking. A Student Consultancy Project by ESCP Europe for The Cobden Centre,” June 2010
61% of people surveyed also said that they did not mind the bank lending out some of the money in their current account as loans (p. 8)! Only 15% said that they keep money in a FR current account for safekeeping (p. 5).
Mass bank runs don’t lead to collapse in our system because of central banks, so there isn’t a problem.
So your answer is you don’t know?
In that same study, it found that 70% of the respondents believed they were the owners of those deposited funds, even if they agreed to lend those funds out. That means 70% believe they are the owners of those LOANED funds, when according to the contracts, the banks are the owners.
My question is actually quite applicable to real world events.
“Mass bank runs don’t lead to collapse in our system because of central banks, so there isn’t a problem.”
100% reserve banking would do the same thing, the difference being that the costs would be borne by the seller and buyer involved, not the entire country. You want to externalize costs.
“That means 70% believe they are the owners of those LOANED funds, when according to the contracts, the banks are the owners.”
Which shows that many people do not understand the contracts properly. But that does not make the FR banks fraudulent. They tell you plainly on any statement you have CREDITS and DEBITS not warehoused funds.
This is simply not the problem libertarians make it out to be, for reaons I explained.
OK fine, they don’t get them. But my question is not if you can identify whether or not people understand the dealings, but what would happen if my above thought experiment took place. Given that they do not understand, what do you know of the consequences?
Rothbard already covers this in “The Case Against The Fed”.
They went through the same deal with grain elevators, and even though grain is fully fungible and even though no farmer expects to get exactly the same individual grains of wheat back that they put in, there is still an expectation that the elevator actually holds equivalent volume of wheat as the total number of receipts it issues.
This was put to the test when grain elevators did sell additional receipts for future grain that didn’t exist yet, and regardless of whether they could cover the contract it was held illegal to do this because of the damage to markets caused by the imaginary glut of grain (much of which was receipts against grain that did not exist).
Rothbard’s conclusion is that the bankers simply were better lobbyists, and I’d say that’s probably just as true now or more so.
The problem of course is that customers of the banking industry only have one cartel to choose from. If they had a choice of various options then this situation could easily be remedied by free market competition.
Isn’t this a bailment? By which I mean, isn’t this an example of what Lord Keynes noted, confusing these two?
It might be under a bailment contract but there’s no reason in principle why it should, and there’s certainly no “ancient principle” dating back to Roman law.
Grain is fully fungible and the well understood practice of grain storage is that the depositor cannot demand the particular grains they put in. Thus, those particular grains must have changed ownership at some time, Here’s the quote from the online free legal dictionary:
Look at that, they even use grain as an example of the type of good where return to the lender is in kind and quantity, rather than returning the original property. No ancient principle of bailment happening there.
However, many grain contracts are treated like a bailment, even though it is patently impossible for the owner to be returned her original property. This is a legal fiction created by the courts, and if it can apply to grain there’s absolutely no reason why it could not apply to money as well since there’s no difference in principle between them.
“However, many grain contracts are treated like a bailment, even though it is patently impossible for the owner to be returned her original property.”
If the silo is specifically set up as a mutuum business, that is juts misunderstanding on the part of their clients.
Alternatively, if the business does not state clearly what kind of contract it is offering, then that is the fault of the business. Maybe they are guilty of fraud, maybe not.
Either way it is does not refute anything I said.
But if you check Rothbard, in the USA they forced the grain silos to operate in a particular way (which is nominally a bailment, even though it does not strictly satisfy the requirements of a bailment that property ownership never transfers).
The justification was that fraud was committed by the market manipulation of prices that could be made possible by issuing receipts for future grain that did not exist yet (i.e. the silo operated in fractional reserve, or short-selling if you prefer).
No I don’t have reference to the exact court case, I would guess that Rothbard made pretty good footnotes.
Major freedom: “Do you honestly believe bank bailouts enacted by government are not coercive?”
Paging Murphy and Brenan! Paging Murphy and Brennan!
A very good post Bob!
By the way Darby’s attempt to “rewrite history” was completely refuted by Kesselman and Savin (1978) and by Gordon (1976), that’s why any serious economist still uses Lebergott’s numbers or similar. As far as I can say, Bob’ post is completely right.
see here for the links
http://econo-miaytuya.blogspot.com.ar/2013/08/no-war-was-not-good.html
Okay now we’re talking. Who is right about Canadian figures? That seems to be the central issue here; did Bob use the right numbers?
LK and GS, let the battle begin.
Before all that stuff hits the fan, I just want to point out that whatever the agreement on the unemployment data happens to be, it will not prove anyone’s economic theories right or wrong.
If the Canadian rate of (private sector?) unemployment is lower, that won’t prove “austerity works”, and if the US rate of (private sector?) unemployment is lower, that won’t prove “stimulus works.”
No, Ken B. Darby IS right.
Let us take Guillermo Sanchez’s sources one by one:
Kesselman, J. R. and N. E. Savin. 1978. “Three-and-a-Half Million Workers Never Were Lost,” Economic Inquiry 16.2: 205–225.
I have just read this.
Virtually all this paper is devoted to arguing against Darby’s SEPARATE general equilibrium analysis about the “natural rate of unemployment”.
At times, they do question whether the public workers in relief programs should be counted as employed, but the arguments are unconvincing.
Kesselman and Savin point out that many people on public works programs still looked for private sector jobs, but that does not refute Darby’s case that they were employed. After all, plenty of people in full time private sector jobs STILL look for better private sector jobs: does this mean that such people are not employed?
In fact, I see no argument anywhere in this paper that seriously refutes Darby.
“Virtually all this paper is devoted to arguing against Darby’s SEPARATE general equilibrium analysis about the “natural rate of unemployment”.”
Why isn’t that “serious”?
The issue is whether the accounting is done the same way both countries or not.
Will the real issue is consistency. Do These two show that Darby made an error in his counting, or did they just dispute which number is the more meaningful to use? It doesn’t matter which is the better number to use if Bob Murphy is using different criteria in Canada and the US. If he’s doing that his numbers are invalid. So do they refute derby on the numbers rather than the significance of the numbers? I take it your Answer on that is no.
GS?
Ken B, neither source in ANY WAY says that Darby’s actual numbers for the people involved in public work relief are wrong.
Both agree that the present BLS stats include people as unemployed when they were engaged in relief work.
Since Canada’s unemployment stats exclude people who were employed on Canada’s public work relief programs, if Murphy wants to use the official Canadian stats, he MUST use Darby’s estimates to make a meaningful comparison.
What if Murphy wants to us BLS data? Then he MUST use adjusted Canadian data, right?
Darby’s “corrected” numbers accelerate considerably america’s “speed of adjustment” from high unemployment to the “natural rate”. It is not a “separate” issue, but it is part of Kessleman-savin critique.
LK, it is not a “separate” issue at all. This is clarified from the very beginning in K-S: “Darby’s policy inferences presuppose that the “corrected” data measure how many persons would have been unemployed in the absence of 1930’s work relief programs. More particularly, THE INTEREST OF THESE FIGURES LIES IN THEIR CLAIM OF REVEALING THE ECONOMY’S SPEED OF ADJUSTMENT FROM HIGH UNEMPLOYMENT RATES TO THE NATURAL RATE. Otherwise, the “corrected” figures merely reclassify relief workers from the unemployed to the employed category.”
Not only are K-S arguing that relief workers were unemployed in reality, they even demonstrated that “corrected” rates were not showing the people who would have been unemployed without those government programs.
Precisely BECAUSE they (K-S) did not find either theoretical or empirical support for 1) Darby’s natural rate hypothesis and 2) his 1 to 1 displacement (1 relief work crowded out 1 private sector work), they reach the conclusion that there was no support at all for the Darby’s hipothesis (that they should be clasified as “employed”). In exactly the same way that germans under relief were not employed in the 30s. Both are the main points rose against Darby’s.
Unless you refute the main points of the paper, you did not “save” Darby. The whole study supports Lebergott/BLS against him: “As judged by the anticipations-search equation, relief workers acted very much like other members of the unemployed. This is explained by the excess demand for jobs and the “look-alike” properties of the two groups of the unemployed. Our results essentially support Stanley Lebergott, the original formulator of BLS unemployment mesurement methodology, in his position…”
Since Lebergott’s numbers are bigger than Darby’s, then the “classic” unemployment numbers are fine.
In an exercise of conceding you something, I can say that Darby’s hypotheses is *at least* dubious if you want to. But definitely it is NOT right.
“Kesselman and Savin point out that many people on public works programs still looked for private sector jobs, but that does not refute Darby’s case that they were employed”
I don’t know what you mean. In the only part I remember something like that, K-S were referring to *official* unemployment, not to Darby’s numbers. “Moreover, the official statistics understate the true levels of unemployment for the 1930’s. They fail to count the large number of persons who were working only part-time but desired more work.” And that is not their main argument.
One last more thing, this time by Margo who is very equilibrated on this subject: “Although he [Darby] claims that Keynesians would “certainly” count persons on work relief as employed, he identifies no Keynesians who ever held this view. The instructions to enumerators of the 1940 census specify several instances in which unemployed persons who were not actively seeking work (for example, because there was no work to be found in their occupation in their community) were still to be counted as unemployed (U.S. Bureau of the Census, 1983, section 6, p. 27). Consistency with the search approach to unemployment would, at the very least, require that such persons be separated out from the unemployed who were actively searching for work, which Darby fails to do.”
Are you going to take again the “denial position” as you did on the Stigler and Kindahl issue? Come on LK, heterodox Keynesians may have had a lot of victories over neo-classicals. But they also have had some defeats; this one and S-K are good examples.
Ken B, if you are asking me whether or not Bob is using right unemployment numbers after all have been said here, my answer is: I don’t know. Because I don’t know if there is an answer to Zagorsky’s 7 pages clarification paper. As I have very few free time to find out that and I don’t want this post reaches 100 comment because of me, I will have to give LK the victory (help me God!) on this issue about that we can´t compare two unemployment data that use different criteria. Even though I’m an extreme Misesian-Rothbardian austrian, I have no problem on doing that.
However I would never underestimate Bob, he is very good and has demonstrated he can arise from the ashes.
PD: Sorry I’m late. This is the third world you know; we have a lot of trouble with the internet.
Here’s my take. There are arguments to be made either way on how these individuals should be classified. However they were in fact classified differently in Canada and the United States. Whatever criteria are used should be applied uniformly. The criticisms of Derby do not dispute this disparity, only Darby’s conclusions.
Does anyone disagree with this assessment?
Under this reading I think Bob Murphy is simply wrong.
(1) Darby’s new figures do not logically require a natural rate hypothesis at all to be valid: it is as simple as that.
That is why K-S’s critique falls.
And I see you have rightly dropped any reference to Gordon 1976.
(2) and the simple fact is that Murphy is comparing apples to oranges in his table.
Canada’s stats include people on relief work programs. He MUST Darb’s data to make a meaningful comparison.
And the second source:
Gordon, Robert J. 1976. “Recent Developments in the Theory of Inflation and Unemployment,” Journal of Monetary Economics 2: 185–219.
This mentions Darby’s work in the relevant way only on pp.195–196, and that is it.
But Gordon does not “refute” Darby’s estimates of unemployment. Gordon is concerned with Darby’s attempt “to explain the 1934-40 wage behaviour by redefining the unemployment data” (p. 195).
He does not provide any solid arguments for rejecting the new estimates and never even takes a clear position on whether they are right or wrong.
So much for this “refutation”.
LK, you’re going through these far too fast to signal that you are doing something other than a ham-fisted, hasty dismissal of papers that make conclusions you don’t like by using questionable criticisms.
No-one has presented any evidence at all that Guillermo Sanchez’s claim — LK not Bob is using the wrong figures — is correct. To the contrary LK has re-affirmed that Darby is correct, after checking Sanchez’s references. Henderson has tacitly agreed.
Is there any reason not to conclude that Bob’s “whole argument is in tatters”?
Ken B,
As noted above, neither Gordon nor Kesselman and Savin dispute that US BLS unemployment stats include workers employed on public works projects. Nor do they dispute Darby’s actual numbers for such people, which are indeed simply based on earlier work.
It follows logically that the only meaningful comparison between unemployment stats, IF Bob wants to use the official Canadian ones, is one based on Darby’s revised figures for the US.
Either that or Bob must recalculate Canadian stats to remove workers in public works programs there.
Note how we have not seen even one comment from Bob (so far) on this entire thread.
I suppose he will draw a discreet veil over this whole embarrassing subject, and move on quietly to another “Krugman Kontradiction.”
LK, while you are probably jusitified in acting like a douche to myself, considering the way I often treat you, I think you’re way out of line for speaking about Murphy like that. As I am sure you are aware if only you stopped to consider, he’s treated you in a way that deserves only the highest of respect from you. Your last sentence was uncalled for and uncouthe.
Why it’s almost as if LK was acting like Darth Vader!
In view of today’s Kontradiction I am scoring this one for Lord Keynes.
And finally here is another good indicator that Murphy is wrong: private investment in both Canada and the US from 1929–1939.
The US trend from 1933 to 1937 is quite clear: it does not support Murphy’s case at all. The US had superior private sector investment growth in this period during Roosevelt’s New Deal, better than Canada’s:
http://socialdemocracy21stcentury.blogspot.com/2013/12/us-and-canadian-private-investment.html
So Canada’s private investment rose 1933-1939 despite the absence of a New Deal?
Wrong. Canada had a New Deal from 1935, implemented by the Liberal Prime Minster William Lyon Mackenzie King who passed a host of “New Deal”-style legislation after 1935 (Gough, Barry M. 2011. Historical Dictionary of Canada 2nd edn., p. 284).
But anyway who said that private investment can never in any case rise without stimulus? No academic Keynesian.
The point is that empirical evidence suggests it is mostly unlikely to rise rapidly enough to restore high employment after severe shocks.
“The point is that empirical evidence suggests it is mostly unlikely to rise rapidly enough to restore high employment after severe shocks.”
How does the evidence “suggest” that conclusion, but not another conclusion, say for example that if both the US and Canadian governments did not interfere at all, that both economies would have performed better than they in fact did with the stimuli?
In other words, how does the empirical evidence not suggest that private investment recovered despite the governmental interference, where it would have been even better without the interference?
I just don’t understand how you can be so sure that one among many mutually incompatible theories is the correct one, despite those theories being consistent with the empirical evidence on their own.
Like what?
Some New Dealer King Was:
Thomas Dufferin Pattullo*, the Liberal premier of British Columbia, whose concept of liberalism embraced the provision of work and wages, committed his government to construction projects for which it had no funds. When King refused to provide money for a bridge across the Fraser River, Pattullo was furious…
King was still not prepared to risk constitutional changes that might overextend federal finances. He focused instead on defending the fiscal stability of his government, convinced that a more efficient administration of relief by the provinces would reduce costs…
He(King) and Dunning had initially planned a balanced budget for 1938, sure that voters would reward a financially responsible government…
Lowering trade barriers still seemed a surer way of stimulating the economy…
Well it took the dynamite duo combination of Hoover and Hoover on steroids Roosevelt a modest 24 years to get the economy rolling again all with the benefit theft devaluation and misery. It took Harding and his predecessor under 3 on perhaps worse starting circumstances and the best part was that Hoover was advising Harding to do the same things he did later in the early 1930s.
Looking at the Dow Jones it took until 1953 for it to reach its previous 1929 high.
Not sure if Presidents control the money supply…
Roosevelt through executive order confiscated gold coins for $25 per ounce and sold them for $35.
OK, but he didn’t control the quantity of gold in existence.
He did though. That’s how tyrannical he was.
FDR was a gold miner?
hmmm… Bob Murphy’s silence on this thread is deafening.
In situations like this LK, I like a nice little Baroque symphony. https://m.youtube.com/watch?desktop_uri=%2Fwatch%3Fv%3DumS3XM3xAPk&v=umS3XM3xAPk&desktop_uri=%2Fwatch%3Fv%3DumS3XM3xAPk%26desktop_uri%3D%252Fwatch%253Fv%253DumS3XM3xAPk
Hey LK I have a comment/question for you but I don’t want to startle the horses. I’ll try to leave a comment not for publication. And enjoy the symphony; something to fill the silence.
What is most obvious about Keynesian “analysis” (such as it is) is what it always purposely avoids discussing, which is the self evident but empirical nature of voluntary exchange and how the pricing process provides the essential information for economic calculation. It also avoids like the plague the concept of economic miscalculation caused by artificial credit expansions. Thus, 99.99% of Keynesians pretend the concepts do not exist while LK has devoted his life to obscuring and distorting them.
The problem of the Great Depression was the mis-pricing of most everything due to the prior artificial credit expansion. There is no question that Keynesian policy can surreptitiously accomplish a partial or even substantial “liquidation” in the amount of total debt by further dilution of the money supply, a process which could be better accomplished by an actual and open repricing. Further, unless a society is knowledgeable and mature enough to recognize the nature of the problem (which is rarely the case as the result of listening to monstrous quacks like the Keynesians and socialists), resolution of a bust is always going to be more problematic than it might otherwise have to be. While the interventions during the New Deal were always less than optimum according to the Keynesians, the fact remains that normal times did not return for 15 or 16 years until after the death of FDR and the end of WWII. While is always interesting to compare different areas that employed different economic policies, such analysis cannot wash away the underlying nature of human action, voluntary exchange and economic calculation which is always the fundamental self evident activity that needs to be examined. Again, such analysis MUST disappear from Keynesian and statist analysis so that the focus of analysis is misplaced. And so it does disappear. This is even more obvious in Minsky’s distorted analysis as it is in Keynes’.
A final point always ignored or distorted by the Keynesians is that there is nothing that occurred during the Great Depression that is not easily explained by Austrian analysis. There is no evidence that the market ever failed and thus no reason to think that the market is in need of a Keynesian “cure” to solve a problem that does not actually exist.
(i) Except in a socialised community where wage-policy is settled by decree, there is no means of securing uniform wage reductions for every class of labour. The result can only be brought about by a series of gradual, irregular changes, justifiable on no criterion of social justice or economic expedience, and probably completed only after wasteful and disastrous struggles, where those in the weakest bargaining position will suffer relatively to the rest. A change in the quantity of money, on the other hand, is already within the power of most governments by open-market policy or analogous measures. Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable…….
(ii)…..If important classes are to have their remuneration fixed in terms of money in any case, social justice and social expediency are best served if the remunerations of all factors are somewhat inflexible in terms of money. Having regard to the large groups of incomes which are comparatively inflexible in terms of money, it can only be an unjust person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter.
(iii) The method of increasing the quantity of money in terms of wage-units by decreasing the wage-unit increases proportionately the burden of debt; whereas the method of producing the same result by increasing the quantity of money whilst leaving the wage-unit unchanged has the opposite effect. Having regard to the excessive burden of many types of debt, it can only be an inexperienced person who would prefer the former. “The General Theory” Pages 268-269 Chapter 19
Canadian history on the web, cool.
Canadian history quiz.
1. How many years in its history has Canada had a 100% reserve requirement?
2. How many chartered banks in Canadian history have failed?
Does getting handouts from government count as failure or success in these scenarios?