29 Sep 2015

Mises, 134 Years Young

Mises, Shameless Self-Promotion 54 Comments

From my hagiographical piece at the American Thinker:

One of Mises’s earliest achievements was to bridge the two fields we now call microeconomics and macroeconomics.Originally, the classical economists of the eighteenth and nineteenth centuries had embraced variants of a labor theory of value in their teachings. Then, during the so-called Marginal Revolution of the 1870s, economists replaced the labor theory with the modern subjective theory of value, which sees all market prices as determined ultimately by the underlying preferences of consumers. It doesn’t matter how many labor-hours it takes to manufacture a product, according to subjectivism; if nobody really wants it, it will fetch a low price.

Economists gradually recognized the superiority of the new “subjective marginal utility” approach, but by the dawn of the twentieth century they still thought this worked only for “micro” explanations. The theory could explain, for example, how many bananas traded for how many apples, but economists still thought they needed an entirely different, “macro” framework to explain the money prices of goods.

Enter Ludwig von Mises. In his 1912 book, translated with the title The Theory of Money and Credit, he showed how to apply the theory of marginal utility to explain all market values — even the value of money itself. In so doing, Mises put individual money prices, and the purchasing power of money, under the umbrella of a unified theory of value.

 

54 Responses to “Mises, 134 Years Young”

  1. Z says:

    You spelled ‘Keynes’ wrong. Your article is invalid. Please prepare your letter of resignation and clear you desk. We’ll give you til the end of the day.

    • Scott D says:

      So, is it “Zee” or “Zed”? I don’t want to pronounce your name wrong, lest I find myself unemployed.

      • Andrew_FL says:

        You know, I think I asked the same question once. All I got was an amusing clip of Bruce Willis.

      • Z says:

        It stands for the unknown. It’s like Malcolm X except Z. Right now it stands for ‘Zebra Face’ or ‘Zebra Brains.’

      • Jan Masek says:

        Zed’s dead, baby, Zed’s dead. So it must be Zee.

  2. guest says:

    “Then, during the so-called Marginal Revolution of the 1870s, economists replaced the labor theory with the modern subjective theory of value, which sees all market prices as determined ultimately by the underlying preferences of consumers. …”

    “… but economists still thought they needed an entirely different, “macro” framework to explain the money prices of goods. …”

    “… he showed how to apply the theory of marginal utility to explain all market values — even the value of money itself.”

    You are so close that it’s frustrating. Grr.

    Marginal utility refers to use-value. Therefore, the trade value of money – consistent with the Action Axiom, which is what grounds the theory of Marginal Utility – is derived from its use-value.

    And if a money doesn’t have a use-value, then it isn’t really money; It’s counterfeiting.

    What I believe your view on money is, is that at some point, money creates value, rather than that the desire for individuals to save for the future naturally leads them to acquire those goods that will be liquid in as distant a future as possible, and that’s what we happen to call money.

    The reason an advanced economy can’t function without money isn’t so much that there isn’t an intermediary thing that trades between a good sold and a good desired. Rather, it’s that the prevention of use, or the debasement, of money is a denial of the individuals’ preference to acquire money-commodities that will be the most liquid in the most distant future possible.

    Money still has to be a commodity.

    Looking forward to Contra Krugman.

    😀

    • Tel says:

      And if a money doesn’t have a use-value, then it isn’t really money;

      Sure, fiat money has a use-value: you pay your tax with it. By paying your tax you don’t get hurt… thus the use-value is your life, which probably seems like a good subjective value exchange. Your life is worth more to you than it is to the State, but on the other hand maintaining the fiat currency monopoly is worth more to the State than it is to you. Both sides get something out of the exchange.

      It’s counterfeiting.

      If someone without an army, police force, guns, tanks, bombs, etc were to print money, they would be dishonestly pretending they can back their fiat currency… that would be counterfeiting.

      However when someone does have all the necessary tools of violence and prints money, and forces you to accept it, that’s no joke, there’s no counterfeiting happening here. Extortion, yes, standover, yes, protection racket, absolutely, but not counterfeiting. Very important distinction. Tax is not theft, it is robbery under arms.

      • guest says:

        “By paying your tax you don’t get hurt… thus the use-value is your life, which probably seems like a good subjective value exchange.”

        In order for them to turn around and then use that fiat money to buy stuff with it, it must have a use-value in the minds even of those who are forced to use it – and that use-value must exist logically prior to being forced to use it, otherwise forcing people to use it wouldn’t benefit anyone.

        Anticipating an objection, the key words here are “in the minds even of those who are forced to use it”. That is, people actually do think that fiat money is backed by some kind of use-value – that’s how they treat it.

        The FRN used to be backed by gold, so people assigned the use-value of gold to it.

        Now, people mistakenly assume it is backed by something, and this is the reason so many people, especially foreigners, are willing to take losses in terms of real wealth, so long as their nominal fiat money increases.

        They just don’t notice the loss because it’s hidden by phony fiat money prices.

        • Andrew_FL says:

          Yeah, I always ask Chartalists to explain why the King would demand tribute in gold if gold wasn’t already useful as a medium of exchange. Wouldn’t it be easier to just demand in tribute the things he’d try to use the gold to acquire in trade?

          The question applies with even greater force to mere pieces of green paper. Why does the government want to be paid in pieces of green paper? The paper has to already be useful in trade.

          At least with gold you might plausibly claim the Monarchical personality is predisposed to an unhealthy predilection for shiny metal.

        • Tel says:

          … it must have a use-value in the minds even of those who are forced to use it

          It does, the key being the word “forced”.

          – and that use-value must exist logically prior to being forced to use it, otherwise forcing people to use it wouldn’t benefit anyone.

          No, this is just silly. Of course there’s a great benefit to whoever can print the money, inflate the currency and thus make a gain without effort. This benefit is not intended to extend to the underlings who are made to work, but then that is the whole idea of “force”. That’s why counterfeiting is against the law, precisely because there is benefit to the counterfeiter, and because government does not want to share their fiat powers.

          Violence is a commodity to be traded like any other, whether this fits certain definitions of morality is irrelevant, the fact is people would prefer to work and pay tax than to get hurt, if those are the two options available. It’s been demonstrated the world over.

          • guest says:

            “Of course there’s a great benefit to whoever can print the money, inflate the currency and thus make a gain without effort.”

            What you’re saying is that a fiat money can be imposed without it having a basis for its trade value. This makes no sense.

            Even if the government forced people to value 1 unit of fiat money to 1 unit of X, the government would be assigning the value of the commodity X.

            How does the government know what 1 unit of fiat money is worth?

            It’s true that, today, people trade in fiat money all the time, but my point is that the people doing so do, in fact, mistakenly assign a use-value to the fiat money.

            It’s the descrepancy between the perceived value of the fiat money and the actual marginal utility of the goods priced in that fiat money that causes the artificial boom of the business cycle.

            Without this link to use-value, ABCT is incoherent because inflating a currency does not prevent anyone from arbitrarily deciding that the amount of money they have is sufficient for the purposes it was to serve before the inflation.

            A theory of money that does not require a link to use-value also cannot logically find fault with inflation.

            For me, this issue is so big. When alternative so-called non-commodity monies fail, I don’t want statists saying “See, even free market monies aren’t immune to business cycles, so you can all stop blaming the government for them.”

            • Tel says:

              What you’re saying is that a fiat money can be imposed without it having a basis for its trade value. This makes no sense.

              When the highway man points his pistol and says, “Your money or your life” you don’t see the use-value in staying alive? I put it to you that for most people in that situation it does make a whole lot of sense.

              How does the government know what 1 unit of fiat money is worth?

              Subjective value my friend. To the guy who can print fiat money, it isn’t worth a whole lot. To the guy who needs it ASAP to cover his obligations, it’s worth a lot more.

              Of course, the first guy has no incentive to make life easier for the second guy, if you see what I mean.

              A theory of money that does not require a link to use-value also cannot logically find fault with inflation.

              Unless you never read the news, you might have noticed that governments and central banks of the world do NOT find fault with inflation, they have a big problem that there isn’t enough inflation.

              The real meaning of inflation (long term) is seigniorage which means profits for the money printers. Sheesh, you think these guys are stupid? They love the idea that someone is working their life away in exchange for easily printed notes.

              For me, this issue is so big. When alternative so-called non-commodity monies fail, I don’t want statists saying “See, even free market monies aren’t immune to business cycles, so you can all stop blaming the government for them.”

              Fiat moneys are backed by violence. They fail because governments ability to collect tax fails (e.g. Greece) or because government is so badly mismanaged that even seigniorage cannot help them (e.g. Brazil).

              • guest says:

                “When the highway man points his pistol and says, “Your money or your life” you don’t see the use-value in staying alive?”

                That’s true as far as it goes, but then the question is why did he want to steal my money rather than force me to pick up handfuls of dirt and give it to him?

                The thing that is robbed has to have value *to the robber*.

                But since, in your scenario, the robber is the one imposing the fiat money, *he* has to be the one assiging value to it before the victim can use it in trade.

                If the robber has not assigned a commodity value to the fiat money, then the scenario we’re describing is recursive, a logical impossibility.

                So people have to have already assigned a use-value to a money substitute before it can be imposed as a fiat money.

                Then the question becomes, where did *that* value originate.

                If the answer to that question is that at some point in the past someone arbitrarily assigned the value of a pizza to it, then there was never a need to ask the question in the first place.

                The reason is because an arbitrarily valued item doesn’t need an explanation (such as the Regression Theorem); Any value from the past, or even the present, would suffice as an answer.

                It was arbitrarily valued when it first came into use, and there’s no logical reason why it couldn’t have an arbitrary value assigned to it, today, completely unrelated to the values it held in the past.

              • guest says:

                “To the guy who needs it ASAP to cover his obligations, it’s worth a lot more.”

                But that implies that there had already been a value assigned to it.

              • guest says:

                “Unless you never read the news, you might have noticed that governments and central banks of the world do NOT find fault with inflation …”

                Right, but I’m talking about Austrians, here.

                Some Austrians criticize the government for inflating the money supply while simultaneously holding that the trade value of money does not have to be derived from a use-value.

                This is inconsistent.

                An arbitrarily valued “money” that is being inflated can simply be arbitrarily re-valued to anything.

                It’s not like it ever meant anything, so why would inflation be such a problem for them.

                The rightful angst they feel toward inflation is based on a notion that the value of the money is being misrepresented by the inflation.

                But that only makes sense if the money has a connection to use-value, which is how everyone actually attempts to treat fiat money.

                Mistakenly so, I would add.

              • Harold says:

                The value assigned to it may be arbitrary, but what if it requires significant level of agreement among individuals? That means that there may be many attempts to set values on different things, but nearly all fail as they do not get a required consensus. So I offer a handful of dirt for a cabbage, but it is turned down because there is no agreement that dirt is worth anything.

                Then for some reason, out of the random fluctuations of peoples’ preferences, several people agree that a particular object has a particular value. This object can now be used as a medium of exchange among those that agree.

                This object could be something with a previous use value. having a previous use value makes it more likely to get agreement on an axchange value. But it does not have to be.

                Agreement will never be reached for something like dirt because it fails in the properties required of money – limited availability etc.

                That point of agreement will be rare, but does not necessarily require a previous use value.

                “there’s no logical reason why it couldn’t have an arbitrary value assigned to it, today, completely unrelated to the values it held in the past”

                Indeed, no logical reason, but a very real practical reason that a new agreement on the value will not be arrived at.

              • guest says:

                I didn’t see this until now. Sorry about that.

                “So I offer a handful of dirt for a cabbage, but it is turned down because there is no agreement that dirt is worth anything. ”

                Right. But *why* is there no agreement?

                The answer to that is the reason people should also not agree to trade in bitcoins, since they both have practically the same use-value (dirt has *some*, at least).

                “Then for some reason, out of the random fluctuations of peoples’ preferences, several people agree that a particular object has a particular value. This object can now be used as a medium of exchange among those that agree.”

                Ponzi got his victims to agree to trade with him, so mere agreement is not sufficient.

                It depends on *why* people agree to use it.

                If people base their valuations of a “money” on a number they could have arrived at by pulling it out of a hat (because the number, itself, doesn’t matter), then there’s no basis for a belief that it should hold that value for any length of time.

                (Here, I’m using the words “base” and “basis” in two different senses. Maybe Major.Freedom can make sense of one my earlier treatments of this issue, now.)

                “Agreement will never be reached for something like dirt because it fails in the properties required of money – limited availability etc.”

                The Austrian position on the supply of money is that it doesn’t matter how much, or how little, there is – there is always a sufficient limit of money.

                It will help to say that “limited availability” is just a function of consumer demand.

                If many individuals needed Earth-sized quantities of dirt, then dirt would be very scarce, and would command a high price.

                “Indeed, no logical reason, but a very real practical reason that a new agreement on the value will not be arrived at.”

                The impractical nature of an agreement to use dirt as a medium of exchange is the same as that for bitcoins.

                Bitcoins are arbitrarily limited, so in reality they are more numerous than dirt particles.

                People could just as arbibrarily limit themselves to using only a certain amount of dirt in their transactions.

                If there’s no basis in use-value for a money, then the value placed on it has no basis in consumer demand, except for maybe the kind of demand that motivated people to invest in Ponzi’s schemes.

  3. Tel says:

    It doesn’t matter how many labor-hours it takes to manufacture a product, according to subjectivism; if nobody really wants it, it will fetch a low price.

    That would be an entrepreneurial error, and over time those businesses founded on such errors will be liquidated and that particular product no longer sold.

    Thus we can say that this is not an equilibrium position… once equilibrium is reached such products simply don’t exist.

    There is of course a lot of discussion in the meaning of “equilibrium” and “market clearing” and all that, which is valid discussion in itself. I just think it’s a bit unfair since the majority of “classical” economics was based around equilibrium thinking, it wasn’t entirely foolish.

  4. LK says:

    ” It doesn’t matter how many labor-hours it takes to manufacture a product, according to subjectivism; if nobody really wants it, it will fetch a low price.”

    In fact, Marx never denied that. He admitted this explicitly in vol. 1 of Capital:

    “Lastly, nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.” (Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York. p. 48).

    If you are going to criticism Marxism (and I agree it is false and flawed theory), at least get his theory right.

    • Bob Murphy says:

      LK, if you are going to accuse me of criticizing Marxism, at least pick an article where I criticize Marxism.

      • LK says:

        Even in the Classical political economists to whom you explicitly refer who supported the labour theory, this was generally the standard view. E.g., in Ricardo:

        “Utility then is not the measure of exchangeable value, although it is absolutely essential to it. If a commodity were in no way useful, – in other words, if it could in no way contribute to our gratification, – it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labour might be necessary to procure it. “
        David Ricardo (1817), On The Principles of Political Economy and Taxation, Chapter 1: On Value

        I expect now you’re going to tell me you weren’t even referring you Ricardo? lol…

        • R says:

          You have him right where you want him now, LK! Though I guess that’s what happens when anywhere is “right where you want him”

        • Major.Freedom says:

          LK,

          If you’re going to accuse Murphy of criticizing Ricardo, at least pick an article where he criticizes Ricardo.

          All you’re doing in your verbal diarrhea posts here is saying that there have been two proponents of the labor theory of value who held some reservations.

          Nothing of what you wrote even engages what Murphy wrote.

          Is that your schtick now? Fumble overself in a desperate attempt to cite passages from Marx?

          Do you even know what the labor theory of value is about? Or are you saying no economist in history has ever adhered to the labor theory of value.

          Marx, in fact, wrote that labor is the SOLE and EXCLUSIVE determinant of value. But because such a theory was inconsistent with empirical prices, what Marx did was a bait and switch. Instead of abandoning his absolutist theory of value, he rather used term like “socially necessary” labor.

          And, in the quote you posted, Marx meant that even for useless goods, labor is the determinant of value, in that for these goods, the labor has a zero value. The good does not have a price because there is no labor value in it.

          After all your time and effort in reading Marx, we can chalk up yet another body of work that you are clueless about.

          All your talents sum up to being able to cite passages from many different sources. But in almost every case, your UNDERSTANDING is warped and missing the mark.

          • LK says:

            “If you’re going to accuse Murphy of criticizing Ricardo, at least pick an article where he criticizes Ricardo.”

            His statement here already by definition refers to Ricardo, idiot:

            ” classical economists of the eighteenth and nineteenth centuries had embraced variants of a labor theory of value in their teachings.”

            • Major.Freedom says:

              So again a worthless straw man then.

            • Major.Freedom says:

              Murphy did use the term “variant” in “variant of the labor theory of value.”

              I hope you aren’t actually trying to convince people that neither Ricardo nor Marx adhered to any version of the labor theory of value.

              Every economist knows the labor theory of value was believed by most of the prominent economists and political economists during the 19th century, and prior.

              Just because some of the authors wrote a few reservations here and there when reality contradicted their predictions, that doesn’t justify you’re flipping out over what Murphy wrote. What he wrote was correct.

              • Bob Murphy says:

                ^^ What MF said. LK, I didn’t say any particular classical economist thought utility was irrelevant. I said they embraced variants of the labor theory of value, which they did. Then, I showed how a LTV per se runs into serious problems.

                Anytime I teach this stuff, and often if I write about it (where I have sufficient space), I will be sure to say things like, “Adam Smith wasn’t stupid, he knew that scarcity was involved with the water-diamond paradox, but the problem was that his framework was faulty.”

                Did you read my exchange with Kevin Carson? If you want to zing me on that, go ahead with both barrels, but it’s silly for you to be biting my head off regarding an innocuous line about the LTV that is 100% correct.

              • Major.Freedom says:

                “Your innocuousness is not innocuous.”

        • Tel says:

          I expect now you’re going to tell me you weren’t even referring you Ricardo? lol…

          The Ricardo that Bob was referring to does not count as Ricardo.

          But even if it did, it still would not be Marx.

          I should point out, that paragraph you quoted from Ricardo is part of a chapter where although he partially agrees with Adam Smith about labour being the fundamental source of value, he disagrees that a universal reference can be based on this:

          Adam Smith, who so accurately defined the original source of exchangeable value, and who was bound in consistency to maintain, that all things became more or less valuable in proportion as more or less labour was bestowed on their production, has himself erected another standard measure of value, and speaks of things being more or less valuable, in proportion as they will exchange for more or less of this standard measure. Sometimes he speaks of corn, at other times of labour, as a standard measure; not the quantity of labour bestowed on the production of any object, but the quantity which it can command in the market: as if these were two equivalent expressions, and as if because a man’s labour had become doubly efficient, and he could therefore produce twice the quantity of a commodity, he would necessarily receive twice the former quantity in exchange for it.

          Ricardo then goes into detail: whereas Adam Smith had pictured something akin to an “evenly rotating economy”, Ricardo considers the more realistic situation where we have a mix of fixed capital goods and labour, along with some fluctuation. The problem rapidly becomes apparent that the present day labour as compared with the historical values of labour embedded in fixed capital cannot be guaranteed to be any sort of consistent standard. This is especially evident in the case where new technology results in capital goods that significantly improve the efficiency of present day labour, as compared with historical labour that was employed to do the same thing. In other words a description of “tech shock”.

          This concept of labour being embedded in capital is something Marx never really got his head around, but that’s completely besides the point if we are talking about Murphy’s article.

          • LK says:

            “The Ricardo that Bob was referring to does not count as Ricardo.”

            hmmm….. I see. Presumably when someone refers to Bob Murphy, that does not count as Bob Murphy!? lol…

            • Major.Freedom says:

              Well since you understand the passage from Marx where labor is not labor to really mean not labor and thus fully subject to subjective value theory.

              Lol!

            • Tel says:

              Hey, you seemed happy when Marx has labour not counting as labour… so why the double standard when other people do it?

    • Tel says:

      … the labour does not count as labour…

      I was not aware that Marx had used such an all purpose “I’m right because any time I’m not right does not count” methodology.

      As for those workers, let me tell you the exploitation does not count as exploitation.

      • Major.Freedom says:

        LK is not Lord Keynes.

        • Tel says:

          Bob says Lord Keynes was quite charming.

    • Grane Peer says:

      LK,

      You quote; ” It doesn’t matter how many labor-hours it takes to manufacture a product, according to subjectivism; if nobody really wants it, it will fetch a low price.”

      Based on that it would seem that Bob isn’t making any kind of distinction at all and I completely get your point.

      But, Bob said; “…economists replaced the labor theory with the modern subjective theory of value, which sees all market prices as determined ultimately by the underlying preferences of consumers. It doesn’t matter how many labor-hours it takes to manufacture a product, according to subjectivism; if nobody really wants it, it will fetch a low price.”

      That probably doesn’t mean much to Average Man but to someone as well versed in everything economics, such as yourself, it should be clear that Bob has made a stronger point than you are letting on.

      Has Bob thoroughly elucidated the conflict between LTV and STV? No but even Reed Richards couldn’t make the stretch that you have here.

      I wish I knew a thousandth of what you know but not if the price is my comprehension. If I give you the benefit of doubt you come here to instigate conflicts that don’t actually exist, if not, Major.Freedom was spot on with;

      “All your talents sum up to being able to cite passages from many different sources. But in almost every case, your UNDERSTANDING is warped and missing the mark.”

      Do you agree with Major?

  5. LK says:

    From your “hagiographical” piece:

    “In the 1930s, Mises’s theory was rapidly winning adherents among professional economists as the best explanation for the Great Depression. That is, until the charming John Maynard Keynes bamboozled almost everyone with the false promise that governments could deficit-spend the economy’s way back to health. “

    LOL… even though you know that Piero Sraffa tore Mises and Hayek a new one over the non-existence of the unique Wicksellian natural rate of interest and that critique (which Keynes accepted) was highly influential in turning people against the ABCT.

    Yet another empirical disproof of this ABCT rubbish — which Keynes was well are of — is that in the bust, the ABCT says that new unsustainable capital projects initiated in the boom are liquidated and when capital projects that were unsustainable are folded up and liquidated, and this drives the bust.

    The empirical evidence, however, does not support this, and economists even in the 1930s were seeing this. A great deal of the fluctuations in output and employment during recessions are caused by changes in capacity utilisation at mature firms and businesses, often connected with the need to liquidate inventory. This is what often characterises and drives the fall in investment, not liquidation of new projects. Though he didn’t bother to invoke the ABCT, Keynes already knew these facts about the inventory/Kitchin cycle well and pointed them out in Chapter 22 of The General Theory in his discussion of the business cycle.

    • guest says:

      “… when capital projects that were unsustainable are folded up and liquidated, and this drives the bust.”

      “… are caused by changes in capacity utilisation at mature firms and businesses, often connected with the need to liquidate inventory.”

      Huh?

      Anyway:

      “… Piero Sraffa tore Mises and Hayek a new one over the non-existence of the unique Wicksellian natural rate of interest …”

      The Austrian theory of interest is based on individual time preferences.

      So each individual has their own rates of interest that they’d be willing to borrow or lend at.

      And since preferences change, the “natural rate” of individual time preferences changes all the time.

      This is why we say there are many “natural rates” of interest, rather than just one.

      I’ve seen others suggest that a charitable reading of Hayek would simply replace “rate” with “rates” (plural).

    • Bob Roddis says:

      the non-existence of the unique Wicksellian natural rate of interest and that critique (which Keynes accepted) was highly influential in turning people against the ABCT.

      No, most “intellectuals” were already soft commies and Keynes’ soft commie ideas were very attractive to them. Since the market did not and does not fail, one needs to be at least a soft commie to avoid thinking about those obvious truths. One has to already be a soft commie to be attracted to Keynes’ surreptitious evisceration of private property rights via funny money transfers and government spending.

      The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory.

      The “natural rate or rates of interest” are merely prices that would obtain in the absence of violent intervention and fraud. Until they exist, no one could possibly know what they are. No anti-Austrian understand this simple concept.

    • Major.Freedom says:

      “Even though you know that Piero Sraffa tore Mises and Hayek a new one…”

      LOL! Is that what you call “Hey guys! Don’t forget to add an “s” to every time you use the phrase “natural interest rate” OK?”

      ABCT has not been disproved by adding an “s” to “natural interest rate” in the original texts.

      “The empirical evidence, however, does not support this”

      Lol, yes it most certainly does.

      Tell us more jokes LK, you’re hilarious.

      • Tel says:

        The subjective value theory automatically implies that all macroeconomic metrics are at best statistical norms, rather than individual transaction values. There’s nothing terribly shocking about this.

        Suppose I ask, “What is the market cap of Microsoft Corp?”

        The question is ill-defined. Should we look at the share price right this instant? What about yesterday, or last week? Should we take a 12 month average? Perhaps some sort of weighted average?

        What you end up with is a range of answers, and you can tie down the “real” value to within some allowance for volatility. No one freaks out over this and claims the stock market must be a complete failure, we just shrug and say, “that’s how it operates”.

      • LK says:

        A response that demonstrates how stupid you rate. If you admit Sraffa’s critique on the natural rate was right, no banking system, not even a Rothbardian one, could hit all the right natural interest rates for all capital goods because they are lending MONEY, not real capital.

        Thank for your contribution, clown

        • Major.Freedom says:

          ABCT does not require a central bank to “hit” any natural rate.

          A Rothbardian banking system would be a laissez-faire system, and since the natural rate in ABCT is the laissez-faire rate or rates if we add an as, the rates that reflect actual individual time preferences, it means a laissez-faire system would have no forces that would make the rates deviate from the natural rates.

          The solution Hayek proposed is not one necessary in ABCT. It is one that Hayek came up with for central banks.

          Misez, not Hayek, is the developer of ABCT.

          • LK says:

            That doesn’t answer my comment, and strongly suggests you don’t even understand the meaning of the Wicksellian natural rate: it is the market clearing are for capital goods in natura, not money.

            Thanks for demonstrating your ignorance yet again.

            • Bob Roddis says:

              Didn’t we previously have a short and polite discussion about how we are not particularly concerned about “the Wicksellian natural rate” because it has nothing to do with Austrian analysis? People who are unable or refuse to understand the concept of economic calculation seem to have a problem understanding that.

              • LK says:

                ” “the Wicksellian natural rate” because it has nothing to do with Austrian analysis? “

                Only in the crazy world of Bob Roddis does the Wicksellian natural rate have “nothing to do with Austrian analysis”. It is a fundamental foundation of the ABCT of both Mises and Hayek.

                Mises:
                “In conformity with Wicksell’s terminology, we shall use ‘natural interest rate’ to describe that interest rate which would be established by supply and demand if real goods were loaned in natura [directly, as in barter] without the intermediary of money. ‘Money rate of interest’ will be used for that interest rate asked on loans made in money or money substitute. Through continued expansion of fiduciary media, it is possible for the banks to force the money rate down to the actual cost of the banking operations, practically speaking that is almost to zero.” (Mises 2006 [1978]: 107–108).

                Hayek:
                “Put concisely, Wicksell’s theory is as follows: If it were not for monetary disturbances, the rate of interest would be determined so as to equalize the demand for and the supply of savings. This equilibrium rate, as I prefer to call it, he christens the natural rate of interest. In a money economy, the actual or money rate of interest (“Geldzins”) may differ from the equilibrium or natural rate, because the demand for and the supply of capital do not meet in their natural form but in the form of money, the quantity of which available for capital purposes may be arbitrarily changed by the banks.

                Now, so long as the money rate of interest coincides with the equilibrium rate, the rate of interest remains “neutral” in its effects on the prices of goods, tending neither to raise nor to lower them. When the banks, however, lower the money rate of interest below the equilibrium rate, which they can do by lending more than has been entrusted to them, i.e., by adding to the circulation, this must tend to raise prices; …” (Hayek 2008 [1935]: 215).

              • Bob Roddis says:

                According to those quotes, Mises and Hayek have different takes upon what Wicksell means. Interest rates based upon barter without money is not the same as interest rates determined “without monetary disturbances”. Economic calculation and mis-calculation concern “monetary disturbances” and other interventions. I suppose it’s true that “monetary disturbances” impair the ability of someone to accurately appraise the true supply and demand for things and their proper prices which would not happen without those “monetary disturbances”. If that is the importance of Wicksell’s “natural rate”, fine. Of course, the road not taken can never be reconstructed or known. Years ago, I actually enjoyed your hair-splitting (which is really all you have). I no longer find it interesting. Or pleasant.

            • Major.Freedom says:

              “Wicksellian natural rate: it is the market clearing are for capital goods in natura, not money.”

              False. In Mises’ theory, he used the “original interest rate”, which was the difference in value between future goods and present goods, which is not the nominal interest rates on loans, but on the contrary, the nominal interest rates on loans would reflect the originary interest rate in laissez-faire.

              Sraffa’s “critique” of the Wicksellian rate was targeted towards Hayek’s literal use of the term in his very tangential theory of how a central bank could inflate in a way that does not cause malinvestment.

              Your problem is that you don’t understand that ABCT is Mises’ theory, which Hayek only expanded upon in his own way apart from Mises.

              • Major.Freedom says:

                The quote from Mises that you posted, regarding “natural interest rate”, only needs an “s” to be added if we view every single loan in the world as not having the same nominal interest rate.

                Adding an “s” does not turn ABCT into a different theory. As Mises wrote, he was merely adopting Wicksell’s TERMINOLOGY.

                If all we did was change the terminology, all the same causes and effects, the consequences of central bank intervention, and all the rest, still very much apply.

                ABCT is not a theory of the exact determinants of every single interest rate the world over. It is a theory of why and how central banks cause unsustainable booms and inevitable busts.

                Again, merely adding an “s” to the phrase “rate” doesn’t adversely affect the theory.

                You call yourself a POST Keynesian and yet you don’t use phrases like “So and so tore Keynes a new one”. No, you still cling to Keynesianism, and you don’t view the adjustments and changes as a result of Keynes being ” demolished”, or that his theory was “totally refuted”.

        • Bob Murphy says:

          LK, I like having you around because it keeps us on our toes and it reassures me that I’m a fair guy, but c’mon, you can’t be calling people “idiot” and “clown.”

    • Z says:

      Bob wrote an article in 2004 about Sraffa’s critique:

      https://mises.org/library/sraffas-production-fallacies-means-fallacies

      I am in no way capable of determining who is right on this subject, but I will let you lions and hyenas fight this out.

      You can also fight over which of you guys are the lions and which are they hyenas.

      Heck, fight over which species is actually worth being as well.

    • Bala says:

      “Yet another empirical disproof of this ABCT rubbish”

      I am surprised no one has taken you on on this yet, but empirical “evidence” does not disprove ABCT. So the rest of what you say is of no relevance and must be ignored in its entirety.

  6. Major.Freedom says:

    In quite a number of cases, Mises’ Theory of Money and Credit is even more useful and lucid than Human Action.

  7. Major.Freedom says:

    Hey Murphy, if you’re into WW2 history stuff, you might enjoy this:

    https://www.guernicamag.com/daily/andrea-maurer-high-hitler/

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