Potpourri
==> My latest Mises CA post catches Krugman being misleading, at best, regarding the latest CBO long-term budget outlook.
==> Tom Woods has a great, ecumenical interview with Ralph Nader.
==> If there is something creepier than Scott Sumner endorsing Cass Sunstein trying to get people to second-guess their intuition against killing innocent fat guys, I’d like to hear it.
==> Steve Horwitz responds to Yglesias on gold standard.
==> Rand Paul can’t handle the truth! He scrubs my book from his website.
==> Krugman gives a fruity response to my exchange with Noah Smith, which contains this great admission: “[T]he main point is that nobody else cares about the monetary base, or at any rate they care about it only to the extent that it was presumed to say something about future rises in the CPI.”
I would have been reluctant to attribute such a naked stance to him before, but hey, he volunteered that.
Last point on this: In fairness, I have heard Peter Schiff at least once make the rhetorical move that Noah and Krugman are complaining about here. Specifically, one time I did catch Schiff on a CNBC show or something like that where the anchor said, “You’ve been wrong or premature in your inflation warnings, haven’t you Peter?” and he tried to say, “We have had inflation, inflation is what Bernanke’s been doing…” But I hope any fair reader will agree that that is NOT something I have been doing, and Noah is wrong to act as if this definitional point was invented by Austrians after the fact to cover up failed CPI predictions.
What was the CBO’s long term budget outlook back in 2000?
Yeah, of course people don’t care about the monetary base. What everyone (and especially decisionmakers in private business throughout the economy) cares about is NGDP, which they have *always* consistently checked and monitored and used as the basis for major decisions, and totally did not just start that in 2009, when NGDP became the hip new fad in the econ blogosphere.
Silas, I am sure when they really start not only to monitor NGDP but really target it, then they will send out some memo to explain to the people how they actually should respond properly to it.
BTW: I actually think it was much better to target the long run growth path of Greenspan’s men underwear index. At least people understand quite fast what it is in contrast to NGDP…
“But I hope any fair reader will agree that that is NOT something I have been doing, and Noah is wrong to act as if this definitional point was invented by Austrians after the fact to cover up failed CPI predictions.”
Noah Smith was wrong on that, but the fact remains that there is precious little evidence that the word “inflation” was originally only used in the sense of “monetary inflation” (see point 6):
http://socialdemocracy21stcentury.blogspot.com/2014/07/how-noah-smith-should-have-criticised_9471.html
There is precious little logic in assuming that two different definitions of the same word arise at the exact same time.
They need not have arisen at exactly the same second in English economic writing to refute this Austrian rubbish — it is sufficient that when “inflation” was first used in an economic sense in the early 1800s both usages arose in same few years.
LK:
When a definition arises is important to claims concerning which definition arose first.
There is good reason to have a society where the fat man can live in confidence that other people won’t take it upon themselves to sacrifice him at some random time. If you believe that this came about by Darwinism then you would have to accept that other approaches failed.
Strangely, I was attempting to post at the bottom.
Intuitions do not necessarily have any ethical basis. Societies where we have empathy for those right in front of us may have been more successful than those where this was not the case. That does necessarily have any bearing on whether it is right to sacrifice the man.
Only a limited number of approaches have been tried. The current front runner is not necessarily the “best”
I would argue that the only non-intuitive approach we have to ethics is trial and error.
You might indeed be able to use a bit of creativity and guesswork to come up with something better than what thousands of years and a planet full of humans have been able to think of, but if I was putting down a substantial bet, I’d be betting against you.
Trial and error can lead to a successful strategy, but not an ethical strategy. Success is measured in terms of achieving your goals. In evolutions case, we could say the “goal” for each gene is to reproduce. Nothing about the success of meeting the goals can tell you if your goals are ethical.
And Horwitz gets his Canadian banking history badly wrong:
“Yglesias has to explain why these were absent in Canada which also had a gold standard, and a more “pure” one than the US. Absent such an answer, this is not evidence against the gold standard.”
First of all, Canada did have a business cycle and serious recessions under the gold standard.
Secondly, regarding the 1930s:
(1) Canada in the 1920s and early 1930s **did** have a government lender of last resort via the discount window at the Canadian Department of Finance, created by the Finance Act of 1914.
(2) After WWI, a third of Canadian banks failed outright or were unloaded on other institutions, and it was government issued money and a continued infusion of these government legal tender notes that keep the banking system solvent.
(3) There is some evidence that successive Canadian governments from the 1920s made public statements and implicit promises to protect depositors in failed private banks, at least to some extent.
——————————
Thirdly, regarding the period before 1914:
(1) in 1907 the Canadian banking system had a bad panic and financial crisis: the Canadian government had to intervene to stop the financial crisis by providing reserves to the banks (details in 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 p. 121).
(2) Furthermore, the relevant histories tell us that banks were subject to regulation by the Bank Act of 1871 and subsequent revisions of that act, which “specified (among other things) audits, capital requirements, directors’ qualifications, and loan restrictions, including a prohibition against holding mortgages” (see Haubrich, Joseph G. 1990. “Nonmonetary Effects of Financial Crises: Lessons from the Great Depression in Canada,” Journal of Monetary Economics 25: 223–252, at 226).
In particular, the Bank Act of 1871 had prohibited banks from lending on real estate, which checked debt-financed asset bubbles in property and real estate speculation – all major sources of instability in capitalist systems.
(3) a government supported industry group called the “Canadian Bankers Association” was formed in 1891 to provide stability to the banking system by organizing bank mergers to deal with insolvent banks and emergency loans. In 1900, it even became a public corporation.
—————–
All in all, this use of Canada to try and support free banking is shoddy and bad history.
See:
http://socialdemocracy21stcentury.blogspot.com/2013/12/canadas-banking-stability-in-early-20th.html
“First of all, Canada did have a business cycle and serious recessions under the gold standard.”
Nowhere near as bad.
“Canada in the 1920s and early 1930s **did** have a government lender of last resort via the discount window at the Canadian Department of Finance, created by the Finance Act of 1914.”
Having a discount window and using a discount window are two different things. Incidentally, after the crash of 1929, the use of the discount window at the Fed was very modest.
“(2) After WWI, a third of Canadian banks failed outright or were unloaded on other institutions, and it was government issued money and a continued infusion of these government legal tender notes that keep the banking system solvent.”
Nonsense. Bankrupt banks can be taken over by newer, better owners. Bankruptcy does not mean the buildings and all the banking infrastructure is destroyed.
“(3) There is some evidence that successive Canadian governments from the 1920s made public statements and implicit promises to protect depositors in failed private banks, at least to some extent.”
May, suggest, some extent, perhaps…
“Thirdly, regarding the period before 1914:”
“(1) in 1907 the Canadian banking system had a bad panic and financial crisis: the Canadian government had to intervene to stop the financial crisis by providing reserves to the banks”
Nowhere near as bad as the US.
“(2) Furthermore, the relevant histories tell us that banks were subject to regulation by the Bank Act of 1871 and subsequent revisions of that act, which “specified (among other things) audits, capital requirements, directors’ qualifications, and loan restrictions, including a prohibition against holding mortgages”
Closer to 100% reserve? The darn you say.
” In particular, the Bank Act of 1871 had prohibited banks from lending on real estate, which checked debt-financed asset bubbles in property and real estate speculation – all major sources of instability in capitalist systems.”
Closer to 100% reserve lessens instability? No way!
“(3) a government supported industry group called the “Canadian Bankers Association” was formed in 1891 to provide stability to the banking system by organizing bank mergers to deal with insolvent banks and emergency loans. In 1900, it even became a public corporation.”
Oh you mean that Pinochle group that meets on Wednesdays? Super influential.
“All in all, this use of Canada to try and support free banking is shoddy and bad history.”
LK, all you did was fling spitballs and in the process fail to refute a single argument Horowitz made.
(1) Nowhere near as bad.
Oh, really? And what is your actual evidence for this statement? or do you know by magic or clairvoyance? lol
(2) “Having a discount window and using a discount window are two different things. Incidentally, after the crash of 1929, the use of the discount window at the Fed was very modest.”
The Canadian banks made considerable use of discount window lending in the 1920s and early 1930s — that is fact, as documented in Shearer, Ronald A. and Carolyn Clark. 1984. “Canada and the Interwar Gold Standard, 1920–35: Monetary Policy without a Central Bank,” in Michael D. Bordo and Anna J. Schwartz (eds.), A Retrospective on the Classical Gold Standard, 1821–1931. University of Chicago Press, Chicago, Ill. and London. 277–310, at 279-283.
I expect you’re going to tell us next that this in no way stabilised the Canadian banking system.
(3) “(2) After WWI, a third of Canadian banks failed outright or
were unloaded on other institutions, and it was government
issued money and a continued infusion of these government legal
tender notes that keep the banking system solvent.”
Nonsense. Bankrupt banks can be taken over by newer, better owners. Bankruptcy does not mean the buildings and all the banking infrastructure is destroyed.
Your response is what is called a red herring. You say “nonsense” as if you are disputing the truth of the statements “after WWI, a third of Canadian banks failed outright or were unloaded on other institutions .. etc.”, but then launch into assertions that do not refute the truth of the statements.
(4) “Nowhere near as bad as the US.”
Evidence? Or do you know by telepathy?
(5) The “audits, … directors’ qualifications, and loan restrictions, including a prohibition against holding mortgages” did not necessarily make the system closer to 100% reserve.
This clear system of regulation alone is sufficient to refute the free banking myths on Canada.
(6) “Oh you mean that Pinochle group …
Yes, halfwitted comments like this pretty much prove you’re got nothing, M_F.
(7) Finally, Horwitz wants to suggest that Canada had great banking stability because it was an example of free banking — this is rubbish. No banking system with government lender of last resort facilities (and used extensively by the private banks too) can be a free banking system.
(1) Horowitz and Selgin
(2) What you call “considerable”, I call modest.
(3) Not a red herring at all because you advocate for such bailouts for the specific purpose of “saving the banking system from collapse.”. But that belief of yours is the red herring, because bail outs would save the owners and an absence of bail outs would likely lead to liquidation and new owners, which is not a collapse of banking at all. A change of ownership is not a collapse of banking services. You conflate saving bad managers with saving banks and banking.
(4) See above.
(5) Nobody claimed banking in Canada was pure laissez faire.
(6) Falsely inflating the importance and influence of a law proves your position cannot stand up.
(7) Horowitz did not claim banking in Canada was laissez-faire.
LK,
Horwitz is suggesting that the Canadian system is better in 2 ways (see the link in his article)
“it lacked the two most damaging government regulations present in the US. Canadian banks have always been free to operate nationwide and were, before 1934, able to issue their own currency free of bond collateral requirements.”
Free banking is one of those areas where claim and counter-claim can be exchanged on any particular episode with neither side conceding an inch.
But anyone who has looked at this objectively would be hard pressed to to conclude , based on the evidence of financial panics rather than recessions , that the Canada system was much more stable than the US system.
“would be hard pressed NOT to to conclude “
And Horwitz is unconvincing on these points:
(1) the branch banking in Canada might have made the system more stable, but after 1914 it had a powerful stabilizing factor in the government lender of last resort facility — the idea that Canada’s financial system weathered the Great Depression just because of branch banking is unconvincing,.
(2) Furthermore, Austrian had no branch banking regulations in the 19th century, but its banking system utterly crashed in the 1890s. This evidence is ignored by Horwitz.
You mean Australia, right, not Austrian ?
There’s a lot of evidence pointing out that it (the Australian banking system) didn’t crash due to it’s own weight (like with over-expansion) but outside factors. I believe George Selgin has written about it, I’ll provide links if you’re truly unfamiliar.
lol
(1) so you can give no references, citations and no evidence.
(2) did modest use of a lender of last resort facility stabilise the banking system??
(3) more red herring rambling.
(5) and nobody said Horwitz said that Canada was “pure laissez faire”, because obviously you mean pure Rothbardian “laissez faire ” here — a disgraceful and dishonest fallacy of equivocation. Horwitz thinks Canada was an example of a free banking system, maybe not prefect, but at least close to it.
(7) see 5.
(1) I gave two references.
(2) Of course not. Bailing out badly managed banks using violent means is destabilizing, not stabilizing. Healthy economies have bankruptcies driven by bad methods being outcompeted and replaced by better methods.
(3) Nope.
(5). I didn’t say you said it was laissez-faire. I said nobody claimed it was. You dropped the ball when you sloppily added “close to” free banking. The interventions were of course destabilizingz destructive, and not representative of your warped and depraved caricaturization of free markets.
(7) see my 5
(1) non-market “lender of last resort” is destabilizing, nit stabilizing, because it rewards and perpetuates bad management, malinvestment, and capital waste and misallocation. According to your butchering of the meaning of “stabilization”, if the entire world’s population were forced into a coma by some lunatic state, then this would be the ideal society because there would be more “stabilization”.
Straw man? It isn’t, because you are asserting ” stabilization” without any qualification.
If you can understand that some superficial seeming instability is part of healthy growth, then you will not be so absolutist and dogmatic about “stabilizing the banking sector” through violent intervention against others.
Why not advocate for the state to print, tax, borrow and “stabilize” EVERY firm, or individual who incurred losses and is about to declare bankruptcy?
Why the fascistic worldview that has the banks subject to a different set of ethics than everyone else?
“[T]he main point is that nobody else cares about the monetary base, or at any rate they care about it only to the extent that it was presumed to say something about future rises in the CPI.”
I notice that whenever Krugman and other “Pay no attention to the man behind the curtain!” types lack a substantive argument to make in their partisan zealotry, they seem to always fall back on pretending their subjective values of what to “care about” are somehow objective standards. They declare nobody else cares, and that is supposed to be that. But aside from that habit, in this case it isn’t even true. Obviously the banks care or else they would not hold them. Obviously the Fed cares or else they never would have increased them or paid interest on them.
If both the Fed and banks care, surely there must be something to the monetary base other than merely consumer price index levels. Are we supposed to be purposefully ignorant and be passive minded and focus only on what most people “care about” at the time? If people acted in accordance with that metric, Keynes would have never written The General Theory!
What Krugman is really saying is a normative claim that economists ought not care, and that the only permitted thing we should care about is the CPI. What, as if the only consequence of a changing monetary base is the change in consumer price indexes? Such myopia!
A true economist is curious. A true economist is willing to go against the grain like Keynes did. A true economist wants to think more about what others may not care about. Surely even Krugman would admit that prior to Keynes very few people cared about the dull statistic of aggregate demand. If we go by “we should not concern ourselves with what nobody else cares about”, then would Krugman not care about AD either?
He is a bully. No true intellectual tells people to only think of what is currently popular and ridicule them otherwise.
I think you are missing the key point here. Krugman is saying that the comeback “Oh, you meant thaaaaaaaat kind of inflation!” isn’t going to get the Austrians out of their failed CPI inflation predictions.
I’m sure if you’ve got something compelling to say about the current condition of the monetary base he’ll listen.
I think you are missing the point Scott H. People who predict high inflation at time x based on a previous change to the monetary base are not “representing” the Austrian school.
Even if a man named Mr. Austrian Austrianovich went on the 6 o’clock news in Austria, wearing a tie with a picture of Mises on it, and declared “Austrian economics absolutely without a doubt predicts that the CPI should rise by x because of what Bernanke did to the monetary base, and you can take that to the Austrian bank”, then that person STILL would not be saying ANYTHING from Austrian theory.
The whole premise used by Krugman and Smith is totally false.
This “comeback”, as you refer to it, also has nothing to do with Austrian theory. It has to do with a bunch of people who predicted hyperinflation. Not Austrian theory!
If Smith and Krugman want to attack people for redefining terms ex post facto, then fine, but they’re wrong for suggesting this has anything to do with “Austrianism”.
They are failing to separate the man from ideas.
” It has to do with a bunch of people who predicted hyperinflation. Not Austrian theory!”
So Austrian theory says there is no relationship between the money supply and the price level? None whatsoever?
We shouldn’t in the least be concerned about any large rise in the money supply caused by a central bank? lol!
LK, you’ve been around this blog for a long time and I assumed you were at least somewhat aware of Austrian theory. Austrian economics is not predictive in the normal use of the term. It does “predict,” that, all else equal, an increase in the money supply will lead to an increase in the price level. This doesn’t mean that “all else equal” will necessarily hold, nor does it give a time frame, nor does it give a degree of change. Thus, even with an Austrian analysis, multiple predictions can be made depending on the judgments of the respective individuals making the predictions.
“It does “predict,” that, all else equal, an increase in the money supply will lead to an increase in the price level. “
Right. But MF is too dishonest to say that Austrian predictions of hyperinflation were in fact derived from this underlying Austrian view.
But the Austrian claim of a logical relation ALSO includes demand for money holding.
If someone correctly predicted the demand for money holding, and as such they predicted that price inflation would not be high, then they would have “used Austrian theory to make a correct prediction.”
And oh look at that, in 2009 there were disagreements in the Austrian camp about price inflation precisely because in Austrian theory it doesn’t tell us that the demand for money holding will be a constant.
I am not dishonest. You just don’t understand Austrian theory.
LK:
“So Austrian theory says there is no relationship between the money supply and the price level? None whatsoever?”
No constant relationahip that can justify any predictions like “Since the monetary base has expanded X%, consumer prices will rise Y%”.
What Austrianism does say is a logical relation, such as “If the quantity of money increases, then provided the demand for money holding does not fall, then the purchasing power of money will be lower than it otherwise would have been.”
“We shouldn’t in the least be concerned about any large rise in the money supply caused by a central bank?”
Austrian economics states that if the increase in money supply causes an increase in lending that depresses interest rates below free market rates, then intertemporal malinvestment cannot be prevented by free market forces that otherwise would have stopped it.
Whether a person OUGHT to be “concerned” with that is an ethical question outside the scope of Austrianism.
Um…”lol”
“No constant relationahip that can justify any predictions like “Since the monetary base has expanded X%, consumer prices will rise Y%”.”
Right. So Austrian theory DOES say there is a relationship between money supply and price level.
Any Austrian saying that very high inflation would result from massive expansion of the money base IS saying something derived from Austrian theory.
You’re just too dishonest to admit it.
LK:
Do you know the difference between saying that there is a mathematical, logical relationship between nominal demand, quantity sold, and prices…
P=D/S
And saying that we can predict P if we know D?
“Any Austrian saying that very high inflation would result from massive expansion of the money base IS saying something derived from Austrian theory.”
No, they would not. An Austrian cannot claim to predict what the future demand for money will be, nor what future productivity will, nor what the aggregate supply of money will be, given an increase in the monetary base.
“You’re just too dishonest to admit it.”
No, I am just not ignorant enough to contradict it like you are, because my motivation is not how to perpetuate the lie that Austrian theory predicts future prices in order to pretend in your mind that the recent modest consumer price inflation falsifies Austrian theory.
Austrian theory is not falsifiable by predictions and historical events. Austrian theory can only be refuted logically.
Once again, there is no predictions in Austrian economics. Nothing in Austrian theory does it say anything about a theoretical, constant relationship between the monetary base and resulting prices in the future.
Once again, what you are talking about is the mechanistic quantity theory of money, which presupposes a constant relationship between monetary base and future prices, which Austrian theory rejects.
Your intentions here are not honest and not driven by truth. Your intention here is clearly to find some way to refute a non-falsifiable system of logic, by lying that there are empirically falsifiable statements in the theory.
You still do not understand Austrian theory.
I’m having trouble understanding your point, LK. It’s as if you didn’t read our comments. Above, I say:
“This doesn’t mean that “all else equal” will necessarily hold, nor does it give a time frame, nor does it give a degree of change. Thus, even with an Austrian analysis, multiple predictions can be made depending on the judgments of the respective individuals making the predictions.”
MF’s point is that an incorrect prediction made by an Austrian economist does not have any impact on the truthfulness and validity of Austrian economic theory. This is because of the reasons I have mentioned above. Multiple predictions can be derived from an underlying Austrian worldview. MF is NOT saying there is no relationship between the money supply and prices. Austrian economics does not have a single prediction of the future, with a specific timing and degree of impact.
This is all just one big rhetorical game that LK is desperate to win, doncha know…
I get the point here, but I think Scott H. Is right about what Krugman meant. For whatever reason, he does think a lot of Austrians, like Bob, predicted high inflation after 2008. People on this site now seem to be saying it’s not true. I don’t know if it’s true, although a lot of, for want of a better term, “right-wing” economists predicted high inflation, because I remember they did. But were they Austrians — this I don’t know. Krugman thinks that a lot of them were, and I think Scott H. Is right about what he meant.
John, two points:
(1) I’m not denying that I (and some others like Schiff) predicted very large increases in consumer prices by now. We were wrong.
(2) It is absolutely untrue, as Noah Smith claimed in his original Bloomberg assault, that defining “inflation” as “increase in quantity of money” rather than “increase in consumer prices” is a last-ditch move to salvage the predictions. On the contrary, Mises was complaining about the shift in terminology as early as Human Action (1949).
Mises didn’t define inflation as “an increase in the quantity of money”.
Philippe:
Rothbard did not define inflation as “an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur”, as per Mises.
Mises did not define inflation as per Rothbard.
I do not define inflation as per Rothbard.
Mises did not define inflation as per myself, nor Rothbard.
So nobody is using the Austrian definition!
Oh my gosh!
Philippe:
Rothbard did not define inflation as “an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur”, as per Mises.
Mises did not define inflation as per Rothbard.
I do not define inflation as per Rothbard.
Mises did not define inflation as per myself, nor Rothbard.
So nobody is using the Austrian definition!
Oh my gosh!
Philippe, you’re out of your element. I wrote the Study Guide to Theory of Money and Credit. Moreover, I have been reading these blog comments like you have. I understand the point. If you read even that particular quote in broader context, you’ll see Mises doesn’t even like using the terms at all, and just settles on that if one insists. Later on he uses it more casually, as in the quote I gave in my reply to Noah.
Philippe:
Kidding aside, Mises defined inflation in terms of money supply as opposed to prices. Whether there is “greater than X”, where X can be either ” demand for money”, or “rate of gold discovery” is kind of besides the point.
“you’ll see Mises doesn’t even like using the terms at all, and just settles on that if one insists”
But he didn’t define inflation as ‘an increase in the quantity of money’. No austrian economist did. So why do you define it in that way?
Philippe:
“But he didn’t define inflation as ‘an increase in the quantity of money’. No austrian economist did. So why do you define it in that way?”
Now you’re just being obtuse. Mises did in fact define inflation that way, in his essay Infation: An Unworkable Policy.
Murphy is an Austrian and he defines it that way.
Shostak defines it that way.
There are many other Austrians who define it that way.
The commonality between them all is the focus on money supply rather than prices.
“Inflation: An unworkable policy” is apparently a transcript of ‘remarks before the Conference on the Economics of Mobilization, held at White Sulphur Springs, West Virginia, April 6-8, 1951’
http://mises.org/efandi/ch20.asp
Mises is contradicting himself, as he writes very clearly in The Theory of Money and Credit that “In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation” before giving the definition I posted previously.
I think it is likely that in the text/talk you mention, Mises is being casual and not precise.
This is more likely than the idea that he was inconsistent and contradictory in his views.
I think it is likely that in the text/talk you mention, Mises is being casual and not precise.
Right. So I’m not allowed to be “casual and not precise” in the comments of a blog post?
I wasn’t objecting to your claim about Mises’ views, I was objecting to you thinking you were correcting my understanding of his views.
in 1952 Mises defined inflation as “an increase in the quantity of money without a corresponding increase in the demand for money”, in a paper entitled “The Free Market and Its Enemies: Pseudo-Science, Socialism, and Inflation”.
This was a year after the text/talk you referred to. It is a restatement of the definition in The Theory of Money and Credit.
http://libertarianpapers.org/wp-content/uploads/article/2009/lp-1-43.pdf
Philippe:
So will you admit that the statement “Austrians define inflation as increase in money” is true?
Or will you contradict yourself by saying that what Mises defined inflation to be is no longer a factor for how “Austrians define inflation”?
Remember, I gave you two more Austrians who define it that way, Shostak and Murphy. There are, I can tell you honestly, many more.
Mises defined it as increase in the quantity of money in Human Action:
“The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation. What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies toward inflationism.” Pg 423
And
“Because they do not comprehend the causal relation between the increase in the quantity of money on the one hand and the rise in prices on the other, they practically make things worse. The best example was provided by the subsidies granted in the Second World War on the part of the governments of the United States, Canada, and Great Britain to farmers. Price ceilings reduce the supply of the commodities concerned because production involves a loss for the marginal producers. To prevent this outcome the governments granted subsidies to the farmers producing at the highest costs. These subsidies were financed out of additional increases in the quantity of money. If the consumers had had to pay higher prices for the products concerned, no further inflationary effects would have emerged. The consumers would have had to use for such surplus expenditure only money which had already been issued previously. Thus the confusion of inflation and its consequences in fact can directly bring about more inflation.” Pg 424.
Does it make sense for Mises to have two different definitions of the word ‘inflation’? No. He states very clearly that inflation is an increase in the quantity of money above the demand for money (or not offset by an increase in the demand for money). If on an occasion he left out the second part, it must be because he was being imprecise, rather than because he had two different definitions.
Philippe:
If we take every stated definition of inflation Mises made, you’ll definitely see differences.
Mises, in Human Action, regarded the term “inflation” as non-praxeological, as political. It think that is an important point to keep in mind.
Philippe:
Does it make sense to hold two definitions at once? No.
But separated by years? Why the hell not?
You can charge him with inconsistency on definitions, but he stated quite clearly in Human Action that he regrets inflation no longer being defined as increase in money supply, but changed to refer go the consequences of it (prices).
The second quote from Human Action you posted above doesn’t specifically refer to inflation as ‘an increase in the quantity of money’. The first quote refers to inflation as “[a] great increase… in the supply of money”, which implies that a non-great or relatively small increase might not be inflation according to Mises.
Philippe:
And besides, aren’t we getting off track a bit here? Wasn’t this about you claiming that the definition I use, is not a definition any Austrian uses?
Mises used it.
Murphy uses it.
Shostak uses it.
Why can’t I say Austrians define it that way again?
“But separated by years? Why the hell not?”
No, as he stated the definition I posted throughout his life, he also made less precise statements which seem to have caused some confusion.
The alternative theory is that he held two different definitions of inflation concurrently, which makes no sense.
Philippe:
“The second quote from Human Action you posted above doesn’t specifically refer to inflation as ‘an increase in the quantity of money’. The first quote refers to inflation as “[a] great increase… in the supply of money”, which implies that a non-great or relatively small increase might not be inflation according to Mises.”
I think it is important to note here that the whole reason the central bank was invented was to bring about more money in the government’s coffers than they could otherwise get on a free market. So “small increases”, if the standard for “small” is “less than free market”, isn’t even on the radar. All increases in the quantity of money would be “inflationary” in that case.
I define inflation the way Mises did in that essay, and the way he spoke about it in Human Action in that section that makes no mention of demand for money holding. “great” isn’t enough imo.
Philippe:
“No, as he stated the definition I posted throughout his life”
Clearly he didn’t use the same definition “all throughout his life.”
“He also made less precise…”
You mean DIFFERENT. Yes, they were different. I use the one, not the other.
“The alternative theory is that he held two different definitions of inflation concurrently, which makes no sense.”
Not at all. The texts being cited were written at different times.
I posted a reply regarding ‘Human Action’ at the bottom of this page.
Austrian Austrianovich – sounds like he may be Russian, no?
If a self-professed Keynesian underestimated the extent of demand for money holding, and predicted high consumer price inflation (not impossible!) then Krugman would have said this person is not representing Keynesian theory, because Keynesian theory states such and such instead.
When people predict high price inflation based on monetary base multiplier constancy, they are actually “representing” a particular mechanistic version of the quantity theory of money. That’s it.
Nowhere in Austrian theory does it say anything like “When the monetary base is increased by X%, then consumer price inflation must rise by Y% within Z years.”
Krugman’s attacks are misplaced. He is only lumping Austrianism in with it because A. He doesn’t understand it, and B. He just wants to attack Austrians because F them.
“When people predict high price inflation based on monetary base multiplier constancy, they are actually “representing” a particular mechanistic version of the quantity theory of money. That’s it.
Nowhere in Austrian theory does it say anything like “When the monetary base is increased by X%, then consumer price inflation must rise by Y% within Z years.””
Right. The Austrians by and large were making **qualitative** predictions that high inflation or hyperinflation would happen based on the large base money expansion.
They failed and were utterly discredited.
I can’t help myself… LK do you agree that early in the crisis Krugman was saying that high unemployment would lead to accelerating price deflation? His predictions failed and he was utterly discredited in your book, right?
LK:
“The Austrians by and large were making **qualitative** predictions that high inflation or hyperinflation would happen based on the large base money expansion.”
First, those are QUANTITATIVE predictions. Quantitative predictions without definite times or percentages does not imply they are qualitative.
Secondly, it is FALSE that “Austrians were making predictions of high inflation”.
Peter Schiff predicted high inflation. Peter Schiff adheres to the Austrian school of economics. Both true. But these two facts do NOT imply that Austrians were predicting high inflation.
People are only Austrian as a label to the extent they think in accordance with Austrian theory.
Just because Schiff adheres to the Austrian school, it does not mean that everything he says or does is Austrian theory.
If you can understand that Murphy being great at Karaoke does not imply that his singing represents the Austrian school, even though Murphy adheres to the Austrian school, then you should be able to understand that Schiff predicting high consumer price inflation (and me who predicted modest/low consumer price inflation) does not imply that such predictions are Austrian thoughts.
“They failed and were utterly discredited.”
Even if they predicted correctly, you would still a priori believe the theory is false. That is why I don’t take your claim here seriously. It has nothing to do with empiricism. You reject Austrianism on a priori grounds. You always have.
I predicted consumer prices would continue to rise around the official targeted rate of about 2-3% per year tops after the crash. I suspected this not only because I didn’t believe the Fed would “lose control” as of yet, but I also suspected that a sufficiently large number of people would be too afraid to spend more and more given how acute I believed the crash would be.
Does this mean Austrian theory is vindicated after all? I am an Austrian. So according to you Austrian theory has not been discredited.
Oh, what is that you say? I am just a random person who does not represent true Austrian theory? That because “a lot” of people who call themselves predicted high inflation, that this means Austrian theory is falsified?
Or do you mean just those Austrians have been proven wrong?
Either way, nothing to do with Austrian theory. Austrian theory CANNOT predict future human knowledge or preferences, and therefore CANNOT predict how strong or weak the demand for money will be, i.e. the “multiplier”. That is the whole point of departure for Austrianism vis a vis other, positivist schools.
You have to stop believing the lie that people who adhere to Austrian economics is the same thing as Austrian theory. People are multifaceted. They make predictions as non-Austrians. They make deductions as Austrians. If they confuse themselves and believe their prediction of the multiplier is some sort of logical deduction, then they would be committing an error according to Austrian theory.
If you want to lump everyone who made wrong predictions into the “discredited” box, then like Murphy suggested below, to be consistent you are going to have to put Krugman in there too, for he made predictions that turned out wrong.
(1) “First, those are QUANTITATIVE predictions. Quantitative predictions without definite times or percentages does not imply they are qualitative.”
Now the very meanings of “quantitative” and “quantitative” are mangled belong recognition — you’re just reduced to re-defining terms at will.
(2) “You reject Austrianism on a priori grounds. You always have. “
A shameless lie
(3) I did not say that all of Austrian theory was discredited. You’ve misread the comment: I meant that the **specific predictions** were discredited.
To the extent that those predictions were caused by flawed underlying theories about the money multiplier and the exaggerated views on how flexible prices are, those underlying ideas held by Austrians too are thrown into doubt.
LK:
(1) YOU are “mangling” the meanings of the terms, not me.
(2) Not a lie. Truth. You cannot reject an a priori framework without bringing with you counter a priori convictions. A posteriorism cannot refute or prove a priorism. The reason why you attempt to refute Austrian a priorism is because your a priori convictions are incompatible with it. You a priori believe that the only valid human knowledge of “the real world” is through a posteriorism, a rank contradiction because you are claiming a truth about the real world of human cognitive abilities on a priori grounds. You a priori believe a posteriorism is the only method humans can learn anything about the real world.
(3) THOSE SPECIFIC PREDICTIONS ARE NOT FROM AUSTRIAN THEORY BECAUSE THERE ARE NO PREDICTIONS IN AUSTRIAN THEORY.
There were disagreements among Austrians in 2009 on whether there would be high consumer price inflation or low consumer price inflation.
Incorrect predictions about the multiplier between monetary base and price levels does not have anything to do with Austrian theory. There is nothing in Austrian praxeology that states anything about any constant ratio between two economic variables. The biggest difference between the Austrian school and other schools is precisely this. I adhere to Austrian theory precisely because it doesn’t arrogate itself into claiming any ability to predict future human knowledge and actions, and thus future ratios between monetary base and prices.
Austrian economics only deals with the form, not the content, of economic concepts and relationships by grounding them not on LordKeynesianism, but on individual action.
“THOSE SPECIFIC PREDICTIONS ARE NOT FROM AUSTRIAN THEORY BECAUSE THERE ARE NO PREDICTIONS IN AUSTRIAN THEORY.”
So, as I said above, actually if you had a shred of logical consistency you should be telling us that Austrians should never, ever make predictions of any kind whatsoever.
Yet there you go suddenly having no problem with Austrian making predictions.
You are utterly, totally confused and incoherent on this point.
LK:
“Austrians should never, ever make predictions of any kind whatsoever.”
What kind of garbage logic is that? Austrian theory makes no mention of baseball, does that mean Austrian economists can’t go to baseball games? Of course not. Why?
Because idividuals are more than the economics school they think is on the best track to truth.
You are fallaciously and quite arbitrarily attempting to pigeonhole every individual into a particulat flag carrying group. Austrian economists can’t even exercise their free speech on what they think might happen in their own future lives, because they carry flag X, and people who carry flag X can only say X isms.
“Yet there you go suddenly having no problem with Austrian making predictions.
You are utterly, totally confused and incoherent on this point.”
YOU are “utterly, totally confused”, not me.
If I were “incoherent”, then you would not even be able to know what I am saying to claim it is wrong. You don’t even know the meaning of the words you use. You are just flinging monkey f&ces.
Austrian theory makes no predictions, but that does not imply in any way that people who are Austrians shouldn’t make predictions.
You are absurdly suggesting that Austrian economists ARE the theory itself. Talk about confused!
“Austrian theory makes no predictions, but that does not imply in any way that people who are Austrians shouldn’t make predictions. “
So can “people who are Austrians” make *qualitative* economic predictions BY USING Austrian economic theory?
Yes or no?
(1) if “yes”, you’ve just conceded what I said. Austrians made qualitative predictions about high inflation or hyperinflation, using their theories, and were wrong.
(2) if “no”, you are telling us that “people who are Austrians” have an economic theory that actually **cannot be used to make any predictions whatsoever. **
——————
If (2) really is your position, then you cannot tell me that Keynesianism will not work tomorrow, because your economic theory makes no predictions whatsoever.
You cannot even tell us if Austrian economic theory will even be true tomorrow, because your economic theory makes no predictions whatsoever.
Either way your position is totally, utterly destroyed and revealed as the intellectually bankrupt.
LK:
“So can “people who are Austrians” make *qualitative* economic predictions BY USING Austrian economic theory?”
“Yes or no?”
The same way I “use” a book on formal logic, and a dictionary, to make predictions, is the same way I can “use” Austrian theory to make predictions.
“Austrians made qualitative predictions about high inflation or hyperinflation, using their theories, and were wrong.”
Some formal logicians made incorrect predictions on the Superbowl.
Therefore formal logic is flawed.
Some mathematicians incorrectly estimated the number of stars in a galaxy.
Therefore mathematics is flawed.
You keep failing to separate the individual from a theory.
“(2) if “no”, you are telling us that “people who are Austrians” have an economic theory that actually **cannot be used to make any predictions whatsoever. **”
Austrian theory is a theory of the form of action, not the content of action.
“If (2) really is your position, then you cannot tell me that Keynesianism will not work tomorrow, because your economic theory makes no predictions whatsoever.”
I cannot predict what will happen, but I can use Austrianism to expose the inner contradictions of the a priori conceptions in Keynesianism.
“You cannot even tell us if Austrian economic theory will even be true tomorrow, because your economic theory makes no predictions whatsoever.”
I cannot predict there will definitely be actors tomorrow, no.
Austrian theory is a theory of what action is, not that it will definitely exist or not in the future.
“Either way your position is totally, utterly destroyed and revealed as the intellectually bankrupt.”
Non sequitur.
“You cannot even tell us if Austrian economic theory will even be true tomorrow, because your economic theory makes no predictions whatsoever.”
I cannot predict there will definitely be actors tomorrow, no.
So you’re admitting that you cannot even tell us if Austrian economic theory will even be true tomorrow?
Yes?
LK:
Praxeology is the science of action. Action is not an absolute necessity of nature. Actors can annihilate themselves by choice.
If action exists, then everything true about action exists.
If every actor in the universe ceases to exist tomorrow, then action will cease to exist. If action will not exist, then there will no actor to either attempt to prove or disprove Austrian economics.
Austrain economics is a body of knowledge about actors, by actors, and for actors. No actors, no Austrian (or Keynesian) economics. There will be no Austrian austerity nor Keynesian violence.
But if some time later, actors reappear, then action will again exist, and everything true about action will again exist. The lgc
Philippe:
“no austrian economists defined inflation as ‘an increase in the quantity of money’.”
Mises did.
As Mises explained in his essay “Inflation: An Unworkable Fiscal Policy”:
“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”
Lets see if this is straight. Austrian economics cannot make any predictions. In order to be of any use, we must make predictions. So if we want to use praxeology we need to combine it with other assumptions in order to apply it to the world.
MF (I think) believes that what we must assume in order to make predictions from praxeology is the preferences of the actors. We cannot from Praxeology say that increased supply will be followed by lower prices. In order to make such a claim we must assume that people will have certain preferences.
If we want to use praxeology to describe the world, we must make these assumptions. Without these assumptions it is useless, except as an argument in logic.
Personally, I think the original thinking is flawed – we do not know to what extent humans are actors. However, it all ends up in the same place. We could say that rocks have a preference for staying in one place and not moving, or we could say that rocks are not actors. We have no a priori way to determine which is the case. The end result is the same- rocks pretty much stay where they are. It seems more likely to me that they are not actors, but what the heck, if someone wants to think the other way, it makes no practical difference.
Praxeology is a model and a useful tool, but no more.
MF -you say praxeology is the science of action. It strikes me as a philosophy of action. In what way is it a science?
Harold:
I understand and I can appreciate what you are saying.
I think a good idea is for you (and me!) to make it a habit to not only say what we think, bu to also analyze what we said self-reflectively. Ask yourself what kind of statements are you making. That is necessary for understanding praxeological reasoning.
Are your arguments above dependent in any way on philosophy, or are they scientific? And is all philosophy really different from science? What is science? Hypothesis of “If A then B”, observe, and if B does not follow A then falsified, and if B does follow A then confirmed, and that if a statement is not falsifiable by experience in principle, then it ipso facto cannot ever tell us anything true about the world? What kind of a statement is that one? If it is really true, then the statement, or more generally, all the propositions of positivism, must themselves be hypotheses that are falsifiable in principle. But if they are falsifiable, then logically speaking falsificationism cannot rule out a priori synthetic knowledge as possible!
In other words, even a science that tries to be a posteriori, is structured to allow for a priori synthetic knowledge, and cannot ever flat out it permanently without contradicting itself.
Why does this happen? It is because no matter how elaborate and sophisticated and non-self-reflective you try to construct a scientific method, you will be virtue of having a consciousness, bring with you a non-empty vessel that is itself a pillar in your creation of your preferred scientific method. In other words, ALL science is logically constrained by the laws of ALL thought, and all thinking is action. Action is a real world phenomena. Gods do not act. There are no means and ends in thought unconstrained to reality.
If you are concerned that this will open the back door to religious superstition, then I can tell you that you have been misled. Gods and Heaven are outside the scope of knowledge actors are capable of. They are of no concern to praxeologists.
Now on to what you wrote:
“Austrian economics cannot make any predictions. In order to be of any use, we must make predictions. So if we want to use praxeology we need to combine it with other assumptions in order to apply it to the world.”
Is that belief that in order to be of any “use”, a method of inquiry MUST be predictive, itself a prediction? Subject it to self-reflective logical analysis. If we look closely at the structure of the statement, then in order to be non-self-contradictory, it would itself have to be a prediction and would itself have to be falsifiable by experience in principle. In other words, it too would leave open the possibility of non-falsifiable knowledge of the real world. And, if it is possible, it cannot be learned via falsificationism, for by definition non-falsifiable knowledge is not derivable from observational testing of hypotheses.
” MF (I think) believes that what we must assume in order to make predictions from praxeology is the preferences of the actors. We cannot from Praxeology say that increased supply will be followed by lower prices. In order to make such a claim we must assume that people will have certain preferences.
If we want to use praxeology to describe the world, we must make these assumptions. Without these assumptions it is useless, except as an argument in logic.”
If you want to describe history, then yes, thymology is a must. Praxeology on its own is “skeletal.” Thymology is the “meat.”
We can only know what motivated people to do X after the fact.
“Personally, I think the original thinking is flawed – we do not know to what extent humans are actors.”
They either are or are not. Action is binary. The presence of non-action aspects of our bodies does not reduce the presence of action. Every experiment that enlarges our knowledge of our brains for example would all logically presuppose an actor is experimenting. There is no “Action of the gaps” here. Action is not a fudge factor that lives in the areas positivist science has not yet penetrated. Even if we discover what seems to be constancies between our physical brain orientation and our future actions, all of that learning would itself change our brains. We will never be able to fully “catch up” with the change, because every step we take, is itself a change. Action is a real world constraint.
Praxeology does NOT suggest “thou ought not research your brains with positivist science.” All it says is that whatever is learned, will be constrained to certain categories that applies to all sciences and all scientific research.
Feel restricted by that thought? Ultimate truth should feel like a continually shrinking prison the closer you get to it. Ultimate truth is unflinching. If you think ultimate truth should fell less restrictive, then it just means you believe ultimate truth includes ultimate falsehoods. That is, true freedom is
From the point of view of a super-human being, our future knowledge and thus actions may very well be predictable. But this future knowledge is opaque to us. We cannot learn what we will learn, before we learn it.
“However, it all ends up in the same place. We could say that rocks have a preference for staying in one place and not moving, or we could say that rocks are not actors. We have no a priori way to determine which is the case.”
Outside the scope of economics of man. Praxeology isn’t concerned with the geology of rocks.
“The end result is the same- rocks pretty much stay where they are. It seems more likely to me that they are not actors, but what the heck, if someone wants to think the other way, it makes no practical difference.”
It might.
“Praxeology is a model and a useful tool, but no more.”
It is more. It tells us absolute truths about ourselves.
“MF -you say praxeology is the science of action. It strikes me as a philosophy of action. In what way is it a science?”
Science is more than testing falsifiable hypotheses against observations of external phenomena.
MF. Your points are detailed and will take some time to respond to. Some points for now. “Is that belief that in order to be of any “use”, a method of inquiry MUST be predictive, itself a prediction?”
Do you agree with the statement? To be of use means using it to inform our choices. This involves predicting the consequences. Can you demonstrate how we can use a method of enquiry without prediction?
“Outside the scope of economics of man. Praxeology isn’t concerned with the geology of rocks.” I was talking of the behaviour of rocks, not the geology.
What is science is quite a topic. Whatever the finer points, I think science is empirical. If your subject is not empirical, it ain’t science. Is that a fair summation?
“if a statement is not falsifiable by experience in principle, then it ipso facto cannot ever tell us anything true about the world?”
If it is really true, then the statement… [must] be hypothese[s] that are falsifiable in principle. ”
No, it may be true but tell us nothing about the world. Many statements are true and not falsifiable.
Harold:
““Is that belief that in order to be of any “use”, a method of inquiry MUST be predictive, itself a prediction?”
“Do you agree with the statement?”
No, because I find mathematics, formal non-praxeologically constrained logic, and praxeology to be of tremendous use, despite zero predictions.
“To be of use means using it to inform our choices. This involves predicting the consequences. Can you demonstrate how we can use a method of enquiry without prediction?”
I thought we were talking about whether or not all knowledge must be hypotheses subject to falsification, that is, predictions of the future.
I am not saying praxeology cannot be used in the act of making predictions. It is not itself predictions, but is certainly useful in making predictions, the same way knowing non-predictive mathematics is useful in making predictions.
“Praxeology isn’t concerned with the geology of rocks.”
“I was talking of the behaviour of rocks, not the geology.”
Geology is the study of rocks. Studying rock behavior is included in the study of rocks.
“What is science is quite a topic. Whatever the finer points, I think science is empirical.”
Is that an empirical statement right there? Hypothesis only? Must be falsifiable? Admit the possibility of science being not solely empiricism?
“If your subject is not empirical, it ain’t science. Is that a fair summation?”
No, because it presumes all science is empirical.
If you define science as only empiricism, then fine, I won’t quibble over that.
But I define science as all inquiring into the reality of nature.
There is good science and bad science.
Science to me is not merely forming a hypothesis, testing it, and then confirming or falsifying it. To me, not only do the outcomes have to make sense, but the assumptions have to make sense too. Empiricism admits any and all beliefs and absurdities in the assumptions. As long as the predictions turn out confirmed, that’s all that matters.
And when I say assumptions, I don’t necessarily only mean the stated variables or their stated relationships, but also the hidden assumptions that often times not even the practitioner is aware.
“if a statement is not falsifiable by experience in principle, then it ipso facto cannot ever tell us anything true about the world?”
“If it is really true, then the statement… [must] be hypothese[s] that are falsifiable in principle. ”
“No, it may be true but tell us nothing about the world. Many statements are true and not falsifiable.”
How about THAT statement right there? That it tells us nothing about the world? Is that a statement that is falsifiable in principle? Doesn’t look like it. Looks like you’re telling me what you are presuming is an absolute truth about non-falsifiable statements.
If geology is the study of rocks, then it is a tautology to say the geology of rocks. Better simply geology. But why is praxeology not concerned with rocks? It is surely merely presumed to be a null concern. Praxeology is concerned with the action of rocks, which is presumed to be none.
“No, because I find mathematics, formal non-praxeologically constrained logic, and praxeology to be of tremendous use, despite zero predictions.”
Do you view praxeology as pretty much the same as mathematics in how it relates to the world? Whether maths is a science is an area of debate. Many think of mathematics as a language, others as tool.
Put me straight where I go wrong below please. Praxeology starts from action. Action cannot be disproved because attempted disproof is action. This shows that action exists as long as there is an actor who could attempt to disprove it. It is a property of actors
Humans are the said to be actors. I am not sure why this is the case – action may exist but we have no knowledge of other actors. Anyway, to the extent that humans are not actors, then Praxeology simply does not concern itself with them.
You say action is binary – it either is or it is not action. Action is a type of behaviour that is purposeful. There may exist other behaviours that are not purposeful in that they are not conscious. These are not the concern of praxeology.
Praxeology is non-predictive, but it can be used as a tool to make predictions.
” LK do you agree that early in the crisis Krugman was saying that high unemployment would lead to accelerating price deflation?”
Only ***in the absence of appropriate government monetary and fiscal interventions***.
Krugman is vindicated – your side was not.
You claimed that continued QE would lead to uncontrollable inflation.
Well, we had round after round after round of QE and large deficits it did not happen. Your predictions failed.
LK
“Only in the absence of appropriategovernment monetary and fiscal interventions.
Krugman is vindicated – your side was not.”
Easy to vindicate a theory when the definition of “appropriate” is itself based on the outcome.
Prices fell? Not appropriate. Prices did not fall? Appropriate.
No matter what happened to prices, such a theory will appear “vindicated”.
World 1: “Oh, prices fell? See? I told you what would happen if government activity was “inappropriate”. Theory vindicated!”
World 2: “Oh, prices did not fall? See? Government activity must have been “appropriate”. Theory vindicated!”
This is EXACTLY the kind of mental confusions that led Krugman to say this projection:
“OK, you know that if the CPI had soared, they would have claimed vindication”.
http://krugman.blogs.nytimes.com/2014/07/21/yes-we-have-no-banana/?_php=true&_type=blogs&_r=0
Nah, M_F, you’re utterly incoherent, you clearly think that government central bank actions and deficit spending tend to be inflationary — this is the endless screaming complaint form Austrian hacks like you — but now you’re suggesting that no level of government central bank actions and deficit spending can be inflationary!
If you do **not** think that government central bank actions and deficit spending tend to be inflationary, then tell us explicitly now that you do not.
LK:
Nah, nah, nah…nah
“you clearly think that government central bank actions and deficit spending tend to be inflationary”
I define inflation as an increase in the supply of money.
” this is the endless screaming complaint form Austrian hacks like you”
Hacks like me, are not me.
Straw man.
“But now you’re suggesting that no level of government central bank actions and deficit spending can be inflationary!”
Never claimed that either. Straw man.
What I actually think is that there is no way to scientifically predict what the future knowledge and contentual preferencew of people will be, and thus no way to scientifically predict what the demand for money holding will be, and thus mo way to scientifically predict what will happen to prices given a particular change in the monetary base.
Does this mean I would be compelled to admit that I cannot scientifically predict what will happen to the price level if the money supply were increased tomorrow by a factor of 10000?
YOU’RE DAMN RIGHT I CAN’T.
Don’t project what you believe onto me as if I must believe it.
I cannot predict if for example the Fed will increase the monetary base AND pass a new law that says banks have to keep 1000% reserve, or whatever. I can’t predict what will happen to demand for money holding. Maybe people will hoard money to such a degree due to some unexpected event that it will keep a lid on prices.
You are just sloppily and ignorantly claiming yourself capable of knowing what will happen to the future economy, because you have been brainwashed with positivist gobbledygook.
“If you do **not** think that government central bank actions and deficit spending tend to be inflationary, then tell us explicitly now that you do not.”
So after accusing me and straw manning me, now you slip in this meek question of what I really think?
Is that your MO?
I define inflation as an increase in the money supply. If the Fed’s OMOs are not offset by a reduction in fiduciary credit created money, or money destruction, then Fed OMOs are inflationary, yes.
I do not think deficits add anything to the money supply.
The same pathetic evasions, and fallacies of equivocation.
Does central bank expansion of the monetary base tend to increase the general price level, according to you ? Or at least prevent money supply from collapsing by stopping banks from collapsing, thereby preventing tendencies to price deflation?
Yes or no?
(1) if “yes” then all the rubbish above trying to suggest that monetary and fiscal intervention cannot prevent deflation is the B.S. it is.
(2) if “no”, then you’re clearly not even an Austrian at all, but some halfwit pretending to be an Austrian, because the Austrian view is clearly this:
“.. it should be crystal clear that increases in the supply of money, not any sort of problems from the supply side, are the fundamental cause of our chronic and accelerating problem of inflation. … Prices are continually being pulled up by increases in the quantity of money and hence of the monetary demand for products.”
Rothbard, The Mystery of Banking, p. 28
LK:
“now you’re suggesting that no level of government central bank actions and deficit spending can be inflationary!
If I say “An increase in the supply of money will, ceteris paribus, increase prices”, that is a statement derivable from Austrian theory, because while it may look like a prediction, it is actually a tautological-qua-action statement.
So you’re telling us that “An increase in the supply of money will, ceteris paribus, increase prices” is not a prediction and not a description of anything that will happen in the real world?
It gives us no necessarily truth about anything that will happen in the real world?
Congratulations, you have just destroyed the apriorist praxeology you claim to support and shown us you have nothing of any economic significance to say about anything.
LK:
“The same pathetic evasions, and fallacies of equivocation.”
I didn’t evade or equivocate a first time, so that comment is false.
“Does central bank expansion of the monetary base tend to increase the general price level, according to you ?”
The way I understand this is that inflation of the money supply is the only concievable explanation for the historical general increase in prices.
History occurred. Our minds bring with them ideas that in combination with the data, leads to understanding. Understanding action enables self to non-self real world understanding.
Whether or not a given increase in money supply increases prices going forward, depends on factors I do claim to scientifically predict.
But if we assume profit making, if we assume a market, if we make a whole slew of assumptions, then it becomes a logical deduction.
The market is not a given. We must choose it. If we choose it, then certain tendencies are there.
Remember, your whole crusade has been against what is in fact just an idea of free markets.
All your claims about it are a priori, because we don’t have a free market.
“Or at least prevent money supply from collapsing by stopping banks from collapsing, thereby preventing tendencies to price deflation?”
Same as above, but in reverse.
“(1) if “yes” then all the rubbish above trying to suggest that monetary and fiscal intervention cannot prevent deflation is the B.S. it is.”
I never claimed that.
“(2) if “no”, then you’re clearly not even an Austrian at all, but some halfwit pretending to be an Austrian, because the Austrian view is clearly this:”
“”.. it should be crystal clear that increases in the supply of money, not any sort of problems from the supply side, are the fundamental cause of our chronic and accelerating problem of inflation. … Prices are continually being pulled up by increases in the quantity of money and hence of the monetary demand for products.”
That is not a prediction numbnuts. That is exactly the argument I made above about explaining the rise in prices.
LK:
“So you’re telling us that “An increase in the supply of money will, ceteris paribus, increase prices” is not a prediction and not a description of anything that will happen in the real world?”
I do not predict an increase in money supply, and I certainly do not predict ceteris paribus.
So no, it is not a prediction. But it does tell us about a real world relationship.
“It gives us no necessarily truth about anything that will happen in the real world?”
What will happen is a function of our choices and actions. I can tell you what is true for action and everything logically grounded on it, but I cannot tell you what choices and actions people will make.
“Congratulations, you have just destroyed the apriorist praxeology you claim to support and shown us you have nothing of any economic significance to say about anything.”
Another non-sequitur
LK:
Not making a prediction of the content of action does not mean I cannot know will be true IF action exists.
“Not making a prediction of the content of action does not mean I cannot know will be true IF action exists.”
So you are now telling us you *can* make some predictions about what will happen in the real world IF action exists??
But I thought:
““There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.””
—————
You are once again utterly and completely incoherent.
So all your ramblings above simply leads to the conclusion: you have no reason to think any increase in the money supply will cause inflation of prices in the future, because you claim no predictions of any kind can be made from Austrian economics.
You cannot tell me that Keynesianism will not work tomorrow, because your economic theory makes no predictions whatsoever.
You cannot even tell us if Austrian economic theory will even be true tomorrow, because your economic theory makes no predictions whatsoever.
Austrian economics, then, according to you is totally useless for any kind of prediction about anything that happens in any economy tomorrow.
I predict that nothing useful will come from further discussion with LK on this thread.
“I define inflation as an increase in the supply of money.”
Why don’t austrian enthusiasts like you define inflation in the same way as austrian economists like Mises?
“In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur.”
Ludwig von Mises, The Theory of Money and Credit, p.272
LK:
“So you are now telling us you *can* make some predictions about what will happen in the real world IF action exists??”
THAT WAS NOT A PREDICTION.
It was referring solely to what action IS. What action IS, is not a prediction of what people will do.
“You are once again utterly and completely incoherent.”
No, you are just totally and completely confused.
“So all your ramblings above simply leads to the conclusion: you have no reason to think any increase in the money supply will cause inflation of prices in the future, because you claim no predictions of any kind can be made from Austrian economics.”
BINGO.
“You cannot tell me that Keynesianism will not work tomorrow, because your economic theory makes no predictions whatsoever.”
I can say that the a priori propositions hidden and explicit in Keynesianism contains contradictions.
“You cannot even tell us if Austrian economic theory will even be true tomorrow, because your economic theory makes no predictions whatsoever.”
I can’t say that there will be actors tomorrow. But if there are actors, then everything about action is taking place. That is what “If there are actors” means.
“Austrian economics, then, according to you is totally useless for any kind of prediction about anything that happens in any economy tomorrow.”
False again. I already said that we can “use” Austrian economics the same way we can “use” formal logic textbooks.
Formal logic textbooks do not contain any predictions, but that doesn’t mean that they are “useless.” Reality is logically structured. Praxeology is useful for economics but not predictions.
You are biasedly implying that the only “useful” knowledge is knowledge consisting of hypotheses falsifiable by experience. But then you are just re-asserting the very belief that I am challenging.
No, it is not true that knowledge of the necessary categories of action which are not themselves predictions, is “useless” knowledge.
———————
Murphy:
“I predict that nothing useful will come from further discussion with LK on this thread.”
Perhaps. But he showing everyone the common confusions and misunderstandings of Austrianism. As mundane and error repeating his posts are, they might be useful to anyone who is able and willing to think at a more sophisticated and subtle level.
———————
Philippe:
“Why don’t austrian enthusiasts like you define inflation in the same way as austrian economists like Mises?”
Oh I don’t know, maybe because I’m not a cult of personality type who only repeats and does not think about what people say? That maybe just because I think some Austrians taught me a lot, that I don’t start calling myself Master Mises or Qui Gonn Rothbard?
Why do you insist in lumping me into a flag carrying pigeon hole?
So that you can more easily handle the arguments? So that you don’t have to think as much? I’d rather not be an intellectual slave to your laziness, thanks.
To answer your question more seriously, Rothbard defined inflation as an increase in the supply of money above the rate of precious metals.
Mises defined it as you quoted below.
I define it as an increase in the quantity of money.
The reason I think my definition is better than Rothbard’s definition is that I do not believe that gold and silver should be regarded as the standard. Individuals in a free market should be the standard. To me that means everyone or nobody inflates. If inflation is to mean anything, it should mean an increase in the quantity of money, where I make no claim of what exactly the money is.
Perhaps Rothbard just used that definition out of convenience. I agree that precious metals would likely be the money in a free market, but I want to be more accurate in the reasoning.
I don’t use Mises’ definition, because on its face it implies that we have not had any inflation since the formation of the Fed. Think about it. All the dollars the Federal Reserve System has issued since its inception has been accepted and held by someone. The fact that all dollars are held by someone (excluding money lost), means all dollars are valued enough to hold as property. All dollars are held at any moment in time. Exchanges are not any elimination of money holding. It is a transfer of money holding from one owner to another. All along, money is “held.”
As far as I am concerned, the only way that inflation as defined by that superficial reading of Mises can take place, would be if more dollars are printed, but NOBODY wanted to hold them. In other words, hyperinflation as defined by a rejection of a currency and a theoretical infinite asking price in dollars for goods.
Now, I know what Mises *meant* by what he wrote. He meant a rise in the quantity of money matched by an increase in money expenditures. That is because Mises’ theory of markets is one of catallactics. So if we just consider a supply of money, then that information alone is in a way “sterile”. Money supply? OK, but what does it have to do with exchanges? That is why Mises connected supply of money to exchanges using his definition.
I don’t like that definition, because I think that money supply as such is not sterile. Money supply carries with it human valuations to hold it. I think exchanges is the primary use of money, but I also think that money held is a part of individual valuation. Money held is a use of money, as is money exchanged.
I don’t think it is reasonable to believe there is no inflation as long as any dollars printed are met with a corresponding desire to hold them. It seems to cut off the element of time from things. Maybe not exchanged now, but maybe in the future those held dollars will be exchanged. Am I then supposed to say inflation has only then taken place? That only once market actors decide to exchange all the dollars previously printed has inflation arisen? But what was the cause of this increase in spending? The increase in the money supply right? That’s why I define it as increase in money supply as such.
Yes this would mean inflation would take place in a free market.
But inflation isn’t supposed to be political. In that sense I am on Mises’ side.
Ok, so when you say that ‘austrians define inflation as an increase in the money supply’, you don’t actually mean austrian economists. You mean people like you who are fans of austrian economics and who have invented their own definition of inflation, which is different to that used by austrian economists.
“Why do you insist in lumping me into a flag carrying pigeon hole?”
I don’t. You keep referring to yourself as an ‘austrian’.
Philippe:
“Ok, so when you say that ‘austrians define inflation as an increase in the money supply’, you don’t actually mean austrian economists.”
Well not exactly, because the commonality is the focus on the change in the quantity of money. That is what links all Austrian definitions, but since there is no universal agreement, if the context is what “Austrians” define it as, then increase in quantity of money is fine I think. No Austrian as far as I know includes prices. Not even Mises’ definition mentions prices. Fall in purchasing power may or may not lead to a rise in prices. It would depend on supply changes.
“You mean people like you who are fans of austrian economics and who have invented their own definition of inflation, which is different to that used by austrian economists.”
All definitions are invented. If one definition is to be associated with “Austrians”, given that there are nuances and differences, I think quantity of money increases is fine. If you want to quibble and say a different definition should be associated with them, then it will have to be unassociated with prices, and associated with money supply increases. Take your pick.
“increase in quantity of money is fine I think”
But neither Mises, Hayek or Rothbard defined inflation as ‘an increase in the quantity of money’, so you want to use a definition they did not use.
That is ok. You can make up your own non-austrian definitions if you want.
Philippe:
So what you are saying is that because Mises and Rothbard defined inflation slightly differently, it means Mises made up his own non-Austrian definition since his is not exactly Rothbardian, and Rothbard made up his own non-Austrian definition because his is not exactly Misesian?
Is that the route you want to go down?
OK, then there is no Keynesian economics in existence, because not all Keynesians agree with each other on everything.
In fact, humans don’t exist either, because what you might call humans, are all slightly different and not exact clones.
In fact, reality does not exist either, because reality is diverse and heterogeneous, and that means nothing exists.
Only if everything was exactly the same. Pure singularity. No differences. That is ultimate truth. Hello God? It’s me, Margaret.
Philippe:
It’s OK Philippe, by virturpe of you being a unique entity, your existence is entirely a made up non-“other” existence. Since what you think is your own and nobody else’s, it means what you think is non-“others” and made up as well.
None of the austrian economists defined inflation as ‘an increase in the quantity of money’.
This is your own definition. It is not an ‘austrian economics’ definition.
Philippe:
Mises did not define it as Rothbard did. Mises made his up.
Rothbard did not define it as Mises did. Rothbard made his up.
Oh my gosh, neither were Austrian economists!
no austrian economists defined inflation as ‘an increase in the quantity of money’.
That is your definition, not an ‘austrian economics’ definition.
When you say that the ‘austrian definition of inflation is an increase in the quantity of money’ you are not telling the truth.
Philippe,
Consider this conversation from the movie, “Minority Report”:
John Anderton: Why’d you catch that?
Danny Witwer: Because it was going to fall.
John Anderton: You’re certain?
Danny Witwer: Yeah.
John Anderton: But it didn’t fall. You caught it. The fact that you prevented it from happening doesnt change the fact that it was *going* to happen.
Neither person is making a prediction.
They are merely *describing* physics.
Notice that their description is of a ceteris paribus nature.
Philippe:
“no austrian economists defined inflation as ‘an increase in the quantity of money’.”
Mises did.
As Mises explained in his essay “Inflation: An Unworkable Fiscal Policy”:
“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”
Philippe:
The thing that makes the Austrian definition of inflation “Austrian” is the focus on money supply instead of prices.
Whether there have been any nuances and slight variations to this general idea between Austrians, and as my quote of Mises shows, even for one and the same Austrian, is besides the point.
Austrians do define inflation as an increase in the money supply. Mises did at one point. Frank Shostak defines it that way. Murphy defines it that way.
What is your beef?
“the focus on money supply”
No, Mises’ definition refers to both money supply and money demand.
According to Mises’ definition, inflation is an increase in money supply above demand.
Rothbard’s definition assumes that any increase in the supply of precious metal-based money is not inflation.
Maybe it’s time to let Philippe be wrong, because apparently he don’t want to be right. I can’t understand how someone could read that excerpt from “Inflation: An Unworkable Fiscal Policy” and still manage to ignore that and double-down on his original premise.
Still, here is more evidence, which Philppe will surely ignore:
This chapter from a 1964 book by Henry Hazlitt, “What You Should Know About Inflation”, not only shows that Murphy’s position is consistent with a book published 50 years ago by a NYT journalist, but it references a dictionary definition to that effect, and then laments on how that definition is being rewritten: http://mises.org/daily/2914
“I can’t understand how someone could read that excerpt”
so do you believe that Mises had two different definitions of inflation, and he switched between these two different definitions whenever he felt like it?
Philippe:
Imagine for a moment that we have an economy based on gold. Crazy, right? Total chaos. But bear with me.
Now, there’s X amount of gold that is being used for currency, Y amount that is used in industry and for ornamentation, and Z amount that is in the ground, waiting to be extracted.
If the demand for money (gold currency) increases, what happens to the amounts of X, Y and Z? I would expect that X would tend to increase, while Y and Z would tend to decrease. More gold would end up as money. The point is that this is a market process where the demand curve has shifted and production ramps up in response. We might call it inflation, but it is not something that Mises would object to, hence his qualification that you keep citing. If he was being imprecise, it was a shorthand to indicate the kind of inflation that he found objectionable, namely fiat money printing.
I should clarify this:
“If I say “An increase in the supply of money will, ceteris paribus, increase prices”, that is a statement derivable from Austrian theory, because while it may look like a prediction, it is actually a tautological-qua-action statement.”
By “increase in the supply of money” I had in mind the Fed buying bonds. If there is an increase in the supply of money, and all else remains the same, then this must increase bond prices, because all other spending and other prices remains the same.
Bob, is this right? Krugman thought there’s be deflation and instead there was very very low inflation. He’s talked about that a lot, and why he thinks that is. Is that really the same as saying there will be severe inflation, and finding there was actually very low inflation? One seems like a huge miss, and one seems like a moderate miss. But you’re getting that from a layman.
Let me ask a different question, because that question was written before I read the whole thread above. So, is it right that we would use Austrian theory to organize the economic system — by that I mean, in determining whether the economy would have a central bank, be on a gold standard, be regulated in some ways, but we would not use it to try to “fix” an economy gone wrong in the actual world, because we could not use Austrian theory to make predictions about what would happen if “we” (I’m not sure who that is — the government?) took certain actions, i.e. eliminating all deficit spending or government regulation of banks. Is Austrianism more of a guide to setting up the most smoothly working economy in a perfect world, than it is a way to approach dealing with world economies as they actually exist? I’m struggling with how to use it in the real world if it can’t really be used as a theoretical model to make predictions of some kind. Also, how do you tell if it’s wrong, or some part of it is wrong?
… but we would not use it to try to “fix” an economy gone wrong in the actual world …
…
I’m struggling with how to use it in the real world …
To answer your concern, it helps to say that all economic activity occurs at the individual level, when individuals act to alleviate a felt uneasiness.
“The economy” isn’t a single thing, such that “it” can be managed.
It logically follows from this that “the economy” cannot be fixed through central planning, because it necessarily hinders economic activity, which only individuals are capable of undertaking.
Further, many of the problems with the economy are a result of the very attempt to centrally plan the economy. And these lead well-meaning people to blame them on laissez-faire activity, and then call for more problem-inducing government interventions.
Regarding predictions, the actions of people cannot be predicted.
All you can know from the Action Axiom is what would logically follow, all other things being equal.
This is nothing less than that of which all Sciences are capable, assuming humans are a factor – like in Minority Report, when the man caught the ball before it dropped.
Here’s the last 5-6 years:
1. Some broker partial to Austrian economics went on national TV and warned of a coming crash, how it happens, why it happens, etc. He becomes incredibly popular for being right, but he is not a Keynesian.
2. He became the focus of attacks from Keynesians. Every thing Schiff says that is wrong is conveyed by his attackera as a failure of Austrian theory proper.
3. Schiff predicted high inflation.
4. Thus the false inference that Austrian theory predicts high inflation.
5. We can’t correct Krugman on the falsehood of 4, because he just knows that if the CPI did rise substantially, Austrians everywhere would be claiming (I think Pyrrhic) “victory.”. Well, strictly speaking, no it would not. There might be Austrians who would, but it wouldn’t follow from the theory. Austrian theory is not proven right or wrong by what happens to prices, nor what is predicted about them.
6. Austrianism is now forever wrong because it doesn’t make predictions and Austrianism is forever wrong because it falsely predicted inflation.
Yglesias’ poiht about a gold standard “reducing the supply of gold” used for “industrious or decorative use” is on its face a valid point, but is it a “problem”? All money systems have SOME cost. Fiat money costs consist of: reduced freedom with a police state to ensure its monopoly, remains intact, the guns and armored vehicles used by the police, cotton and linen used up in the making of cash notes, the materials going into the money printing machines, the computers needed for digital money entries and bookkeeping etc. There are also real costs in fiat money.
So which costs should be incurred and which should not? This is where statiat fiat bug types and libertarian gold bug types disagree. Libertarians understand costs as incurred by individuals, and that individuals should determine which costs they are willing to incur. If they have gold, and there is a free market in money where gold plays a role, then libertarians believe the individual should decide whether any or all of their gold is to be used as a store of value, or as jewelry or use in industry. If the government mandates taxes in gold, and mandates banks keep gold on hand as reserve, the libertarian would be against it because of the coercion, period. Whether it is better or worse than fiat paper is up to the individual to decide for themselves. O personally believe it will be better for me, but I accept everyone has the right to decide for themselves. I cannot consistently say you are wrong for wanting paper for yourself, but I can say you are wrong if you want to force it on me as well.
As I’ve heard Tom Woods and others point out, even under todays “fiat” monetary system the central banks still hoard gold anyway that isn’t used for industrial purposes anyway.
It’s funny that the very people Keynesians want to save us from the “horrors” of voluntary market driven price decreases are gold bug, barbarous relic holding people who seem to not even trust themselves.
I’ve actually read through all of the commentary (God help me), and I’ve concluded that none of the commentators have progressed from the positions that they’ve held before (at least over the 5 years that I’ve been here). Conclusion: I should stop reading these comments and move onto other things.
Don’t ever become a high school teacher or university prof, Joseph. You’ll he bored stiff.
Fortunately (or unfortunately), I don’t have the credentials to do either.
Credentials in today’s world maybe. But I think you have more valuable things to offer than let’s just say “more than one” teacher I’ve had. Simple fact.
I feel the same way at times, although I know my positions have changed on a number of things over the years since I’ve been coming to this blog. But, occasionally I’ll run into someone like John who seems to want to understand what Austrians actually believe. I still don’t find that debating issues on blogs is very fruitful, as far as convincing people, but I find it interesting when it’s just an honest discussion of differing views. Debating LK, or those like him, seems about as fun and fruitful as slamming my head against a brick wall, though.
I find that with practice I can read them a lot faster. Skipping past the words often helps.
Any suggestions for new and better things?
“the way he spoke about it in Human Action in that section that makes no mention of demand for money holding. “great” isn’t enough imo.”
I had a read of that section and it is clear that he defines inflation as an increase in the supply of money greater than the demand for money (i.e. not ‘offset’ by an increase in the demand for money), resulting in rising prices.
First of all he refers to inflation as “cash-induced changes in purchasing power” or “cash-induced changes resulting in a drop in purchasing power”.
By a drop in purchasing power he means a rise in prices:
“The basis of all judgments concerning money is its purchasing power as it was in the immediate past. But as far as cash- induced changes in purchasing power are expected, a second factor enters the scene, the anticipation of these changes. He who believes that the prices of the goods in which he takes an interest will rise, buys more of them than he would have bought in the absence of this belief; accordingly he restricts his cash holding. He who believes that prices will drop, restricts his purchases and thus enlarges his cash holding. As long as such speculative anticipations are limited to some commodities, they do not bring about a general tendency toward changes in cash holding. But it is different if people believe that they are on the eve of big cash-induced changes in purchasing power. When they expect that the money prices of all goods will rise or fall, they expand or restrict their purchases. These attitudes strengthen and accelerate the expected tendencies considerably. This goes on until the point is reached beyond which no further changes in the purchasing power of money are expected. Only then does the inclination to buy or to sell stop and do people begin again to increase or to decrease their cash holdings.
But if once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progrcssivc fall in purchasing power.” 423-4
He states that both supply of and demand for money influence purchasing power:
“But the purchasing power handed down from the immediate past is modified by today’s demand for and supply of money”. 423
He then states that a fall in purchasing power (rising prices) is the result of the supply of money increasing more than the demand for money:
“It is asserted that mankind would not have reached its present state of well-being if the supply of money had not increased to a greater extent than the demand for money. The resulting fall in purchasing power, it is said, was a necessary condition of economic progress.” 463
He’s describing the effects of increasing the supply of money (decreased purchasing power) in these passages.
did you simply not read that other word: demand?
I didn’t see any mention of demand or purchasing power in the definition he used in “Inflation: An Unworkable Fiscal Policy” essay.
He wrote:
“Inflation, an increase in money and credit, is certainly not a means to avoid or to postpone for more than a short time the need to resort to taxes levied on people other than those belonging to the rich minority. If, for the sake of argument, we leave aside all the objections which may be raised against any inflationary policy, we must take into account the fact that inflation can never be more than a temporary makeshift. Inflation cannot be continued over a long period of time without defeating its fiscal purpose and ending in a complete debacle as was the case in this country with the Continental currency, in France with the mandats territoriaux and in Germany with the mark in 1923.”
“What makes it possible for a government to increase its funds by inflation is the ignorance of the public. The people must ignore the fact that the government has chosen inflation as a fiscal system and plans to go on with inflation endlessly. It must ascribe the general rise in prices to other causes than to the policy of the government and must assume that prices will drop again in a not-too-distant future. If this opinion fades away, inflation comes to a catastrophic breakdown.”
“The Housewife’s Behavior”
“If the housewife who needs a new frying pan reasons: “Now prices are too high; I will postpone the purchase until they drop again,” inflation can still fulfill its fiscal purpose. As long as people share this view, they increase their cash holdings and bank balances, and a part of the newly created money is absorbed by these additional cash holdings and bank balances; prices on the market do not rise in proportion to the inflation.”
Notice how these passages make clear that what he had in mind was not increase in the money supply greater than demand, but increase as such. That last sentence makes it crystal clear. He wrote that if people demand to hold any portion of the new money, then prices will not rise in proportion to the inflation. But if inflation is defined as only that increase in supply that isn’t matched by demand to hold, then Mises’ entire argument would make no sense.
Yes, Mises advanced different definitions at different points in his life. It isn’ just a matter of short hand or impreciseness. He had in mind an increase in supply of money in the above passages, and he only talked about demand for money holding in connection to prices, APART from inflation, which prices may or may not rise in proportion to the inflation (as defined by money supply increase) depending on what happens to demand for holding money.
Here he is saying that if inflation is matched by a demand to hold, then prices will not rise, but if inflation is not matched by a demand to hold, then prices will rise.
Inflation defined as he defined it in Theory of Money and Credit would make the above passages nonsensical, but inflation defined as increase in money supply would make them sensible.
It is not necessary that Mises use the same definition his entire life before I can say that I define inflation the way Mises did. I have a source. Mises was an Austrian. My definition matches his in this essay.
You still have not addressed my response to your accusation that no Austrian defines inflation as increase in money supply. I said Shostak and Murphy define it that way, and they are Austrians, which means your claim that Austrians don’t define it that way is false. I have repeatedly stated that Mises defined it including demand for money holding as well. Nothing more needs to be said by me on this issue. I proved that my statement was accurate. That the definition I use is not one I invented. That Austrians use it.
“It is not necessary that Mises use the same definition his entire life”
The text you quote was from a talk he gave in 1951. The same year he gave another talk at FEE in which he defined inflation as “an increase in the quantity of money without a corresponding increase in the demand for money, i.e., for cash holdings.” This was published as a text in 1952.
http://libertarianpapers.org/wp-content/uploads/article/2009/lp-1-43.pdf
And?
here are some quotes from the previous section which are even clearer:
“The purchasing power of money is determined by demand and supply, as is the case with the prices of all vendible goods and services.” 407
“The relation between the demand for money and the supply of money, which may be called the money reiation, determines the height of purchasing power. Today’s money relation, as it is shaped on the ground of yesterday’s purchasing power, determines today’s purchasing power. He who wants to increase his cash holding restricts his purchases and increases his sales and thus brings about a tendency toward falling prices. He who wants to reduce his cash holding increases his purchases – either for consumption or for production and investment – and restricts his sales; thus he brings about a tendency toward rising prices.” 408
“Changes in the money relation are not onIy caused by governments issuing additional paper money. An increase in the production of the precious metals employed as money has the same effects although, of course, other classes of the population may be favored or hurt by it. Prices also rise in the same way if, without a corresponding reduction in the quantity of money available, the demand for money falls be- cause of a general tendency toward a diminution of cash holdings. The money expended additionally by such a “dishoarding” brings about a tendency toward higher prices in the same way as that flowing from the gold mines or from the printing press. Conversely, prices drop when the supply of money falls (e.g., through a withdrawal of paper money) or the demand for money increases (e.g., through a tendency toward “hoarding,” the keeping of greater cash balances).”410
“As against this reasoning one must first of all observe that within a progressing economy in which population figures are increasing and the division of labor and its corollary, industrial specialization,
are perfected, there prevaiis a tendency toward an increase in the demand for money. Additional people appear on the scene and want to establish cash holdings. The extent of economic self-sufficiency, i.e., of production for the household’s own needs, shrinks and people become more dependent upon the market; this will, by and large, impel them to increase their holding of cash. Thus the price-raising tendency emanating from what is called the “normal” gold production encounters a price-cutting tendency emanating from the increased demand for cash holding.” 411
“Changes in the purchasing power of money, i.e., in the exchange ratio between money and the vendible goods and commodities, can originate either from the side of money or from the side of the vendible goods and commodities. The change in the data which provokes them can either occur in the demand for and supply of money or in the demand for and supply of the other goods and services. We may
accordingly distinguish between cash-induced and goods-induced changes in purchasing power.” 416
“The services money renders are conditioned by the height of its purchasing power. Nobody wants to have in his cash holding a definite number of pieces of money or a definite weight of money; he wants to keep a cash holding of a definite amount of purchasing power. As the operation of the market tends to determine the final state of money’s purchasing power at a height at which the supply of and the dcmand for money coincide, there can never be an excess or a deficiency of money.” 418
We’re passed this point.
We can keep doing this all day.
“But borrowing from the commercial banks is tantamount to printing additional bank notes and expanding the amount of deposits subject to check. That is inflation.” – Inflation: An Unworkable Fiscal Policy.
No mention of “not met with an increased demand to hold.”
“Look at the silly term, “inflationary pressures.” There is no such thing as an “inflationary pressure.” There is inflation or there is the absence of inflation. If there is no increase in the quantity of money and if there is no credit expansion, the average height of prices and wages will by and large remain unchanged. But if the quantity of money and credit is increased, prices and wages must rise, whatever the government may decree. If there is no inflation, price control is superfluous. If there is inflation, price control is a sham, a hopeless venture.”
your theory is that he contradicted himself and had two definitions of inflation. My view is that in the text you quote he was simply being imprecise.
My view is that your theory is saying “imprecise” so as to make it appear that he had in mind demand for money holding the whole time he was making the arguments in the essay that only makes sense if demand for money holding is kept open ended, so that you again make the false claim that no Austrians define inflation the way I do.
You still have not addressed my response to your accusation that I lied about Austrians defining inflation as money supply increase.
so either Mises came up with a different definition of inflation on an occasion in 1951, and then promptly abandoned it for his previous definition later in the same year, OR he was being imprecise, possibly for rhetorical effect.
Or maybe the whole time his focus was on money supply, and only added demand for holding in order to explain why prices have risen. Money supply increase alone is insufficient. The new money has to actually get out into the spending stream as it were in order to make prices rise (assuming supply doesn’t fall).
I think he sometimes defined it as increase in supply when he assumed everything printed would get out into the spending stream.
Regardless, the important point is that he did not like the prices definition, and instead liked the definition to be the cause of increased prices.
I think if we exclude the demand for money holding part, then that is a definition of inflation that does not explain the rise in prices.
For me, I don’t include demand for money holding because I do not intend to define inflation in a “cause for price increases” way. Increasing prices is only one of many effects of inflation.
“Regardless, the important point is that he did not like the prices definition”
the problem is that his definition revolves around loss of purchasing power.
In The Theory of Money and Credit, and in Human Action, inflation is defined as reduction in the purchasing power (or objective exchange value) of money, which is ’caused’ by an increase in the supply of money above the demand for money.
Basically, according to this definition, if there is no loss of purchasing power (rising prices ), then there is no inflation, according to Mises.
Philippe:
“the problem is that his definition revolves around loss of purchasing power.”
Why is that a problem?
“In The Theory of Money and Credit, and in Human Action, inflation is defined as reduction in the purchasing power (or objective exchange value) of money, which is ’caused’ by an increase in the supply of money above the demand for money.”
No, in Human Action he refers to inflation as an increase in money supply.
“Basically, according to this definition, if there is no loss of purchasing power (rising prices ), then there is no inflation, according to Mises.”
Nope.
“if the quantity of money and credit is increased, prices and wages must rise, whatever the government may decree.”
How does that fit with:
“you have no reason to think any increase in the money supply will cause inflation of prices in the future, because you claim no predictions of any kind can be made from Austrian economics.”
“BINGO.”
?
It doesn’t.
I think Mises should have taken into account production and supply there, like he did in other places.
1. Why do I have to defend inflation predictions by “the Austrians” from 2009 when I did not predict much inflation and I cringed when those predictions were made?
http://consultingbyrpm.com/blog/2011/05/krugman-and-i-are-self-hating-economists.html#comment-17521
2. Why do I have to defend the use of the term “inflation” by “the Austrians” when I’ve been trying for years to replace the term with “money dilution” so that average people might focus for 17 or 18 seconds on what is actually going on? Note the last sentence of this post:
http://consultingbyrpm.com/blog/2010/06/get-on-the-tom-woods-train-before-it-leaves-the-station.html
3. When are LK and “Philippe” going to answer my question as to why voter-majority-horde-A has such special knowledge allowing them to manage the economy in a proper Keynesian manner when they lack such special knowledge while engaging in voluntary transactions? I submit that the answer is “never” because they do not understand the problem of knowledge and prices whatsoever and they do not want to understand those concepts. And that they do not understand that this is the core insight of Austrian economics.
4. Apparently everyone is sick of me making point #3. I’m sick of everyone else not making the point in every dispute with the statists. If the point is wrong, correct me. If I’m right, why aren’t you making it?
Since we can never know whether or not prices are actually “bubble” prices until if and when a bubble pops, that makes the use of the term problematic, right? The same goes for funny money-induced unsustainable consumer spending.
I guess we finally agree on something.
Information age and ADHD? Can’t focus on the same thing for too long or else that itch reappears?
Is question 3 as phrased really the question though? Isn’t the Keynesian notion that free markets will not perform perfectly, that while generating wealth and a vibrant economy as a general rule, they will also throw off some undesirable consequences, and have some problems sustaining themselves. People or entities involved in the individual voluntary transactions in the free market may not care about these undesirable consequences because they may not negatively affect those particular people or entities in obvious ways. Therefore an outside power, which has less interest in the individual transactions at issue in the free market, might be useful to address the undesirable consequences of the free market. Isn’t something like that the theory? I’m not saying it’s necessarily right, thou it doesn’t sound inherently nuts to me.
Just to clarify my position on point 4. I don’t care if you make that point on every post. I’m only bothered when you get into long drawn out arguments over the same thing with the same people. It just makes it much more difficult to find the conversations that are actually on topic, or to find the discussions from people who honestly want to learn about Austrian economics or libertarianism. Plus, with Dr. Murphy making it pretty dang clear that he’d prefer to not have these flame wars in the comments, it just seems to be bad form to go against that. Not to say I haven’t gotten in long drawn out arguments that led nowhere, but lately I have made a concerted effort to not belabour the same point over and over with the same people . I’d rather see our side respect the wishes of Murphy and leave it to our opponents to sling mud or troll the site.
Austrian economics is descriptive of the real world.
One can and will employ those observations when making predictions about the future. Of, predictions about the future are hard.
The primary issuing regarding prediting future price increases back in 2009 as the result of all of the funny money injections is predicting what areas of the economy will demonstrate resulting price increases, a purely factual question. However, if a bunch of people were all making $79,000 a year in a protected and subsidized line of employment that was the beneficiary of funny money injections and they all lost their jobs in the bust and are now making $30,000, we really do not know how much “price inflation” there was. Absent the latest round of funny money injections, maybe they would only be making $24,000. So if we could measure it, they are the beneficiaries/victims of $6,000 of inflation but the statistics would only look at the drop in pay from $79,000 to $30,000 and the Keynesians would shout “DEFLATION”. But we really do not know for sure if this is a wage increase or decrease because the alternate universe of the $24,000 does not, will not and never will exist.
As Hayek stated in 1975:
These discrepancies of demand and supply in different industries, discrepancies between the distribution of demand and the allocation of the factors of production, are in the last analysis due to some distortion in the price system that has directed resources to false uses. It can be corrected only by making sure, first, that prices achieve what, somewhat misleadingly, we call an equilibrium structure, and second, that labor is reallocated according to these new prices. ****
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure [by which Hayek means “non-false” prices which result from giving the market free play] . Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured. ****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
That this point is so central to Austrian analysis (and so ignored by most everyone) is why LK constantly attacks me so viciously and distorts its true meaning whenever I bring it up. I bring it up because few others do. I’m sick of that.
Thus, CPI inflation, per se, is merely a secondary feature of Austrian analysis. An opponent who pounds the CPI issue without understanding the problems of how funny money distorts relative prices is merely trying to divert the discussion away from what is really important.
LK, Roddis knows Austrian theory. You do not. You are unwilling to engage in the necessary self-reflective reasoning. You cannot claim to know it if you refuse to engage in the necessary method.
You know virtually nothing about Austrian economics.
A real Austrian economist:
“Praxeology can make certain predictions about the future, but they are necessarily qualitative. For example, it can tell us that (other things equal) a fall in the demand for apples will lead to a lower price of apples. But praxeology alone can never tell us that (say) a particular change will yield a 9 percent drop in apple prices. Such quantitative forecasts are possible with the aid of understanding, but then of course they are no longer certain.” (Murphy and Gabriel 2008: 47–48).
Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala.
You:
“There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
I’ve already told that I do not regard what Murphy said as a prediction.
I regard economics arguments that include “ceteris paribus” to be logical deductions of what terms included mean. The argument “a fall in the demand for apples and ceteris paribus” I regard as saying the same thing as a fall in the price of apples. This is because if all else is equal, it means the same supply of apples are being sold, but for less nominal spending (which is how I define demand) as stipulated. A lower spending for the same supply of apples IS a fall in the price of apples, because prices are a mathematical ratio between money spent and supply offered.
Murphy regards it as a prediction because it is making a claim about a possible future subject to certain constraints. I do not regard it as a prediction because it doesn’t actually predict those constraints.
You are arguing semantics. Murphy and I agree that we cannot predict the economy the way I regard predictions. He just uses the word “prediction” to ALSO refer to what I regard as logical relations.
But this is all besides the point. Using different terms than Murphy, or even disagreeing with him, does not on its face constitute proof that the person who disagrees does not understand Austrian theory, unless and until you show via discursive reasoning exactly how and why. Merely name dropping someone and then declaring victory is epic fallacy of authority.
You still do not understand Austrian economics.
“Murphy regards it as a prediction because it is making a claim about a possible future subject to certain constraints. I do not regard it as a prediction because it doesn’t actually predict those constraints.”
In other words, you don’t speak for Austrian economists, your view is not what can be found in the published writings of Austrian economists — and we have no reason to regard anything you say as anything but your own eccentric ravings.
LK, I don’t want to be a traffic cop on this stuff. You need to stop calling people idiots, madmen, spouting “eccentric ravings” etc.
I never claimed or suggested or implied I do speak “on behalf of” anyone, Mr. Cult of Personality. That is your psychological impairment that you have brought upon yourseld and get all upset when you can’t pigeonhole people into “official” bins or groups.
You are not only a political collectivist, you are a thought and ideas collectivist as well.
I speak for myself and only myself. If that makes you upset, deal with it. It isn’t my obligation to only speak to you “on behalf of” someone else, or some flag carrying commune of group think robots.
You should try thinking for yourself sometime. It is a lot better than being a parrot like you who contributes nothing new and everything old and wrong. You are not providing anything that we can’t get from some other Keynesian clone. Just consider your life and what you are doing. You spend every day in an ideaological battle of groups, and individuality gets caught in the cross-fire. Thinking for yourself? Necessarily “eccentric ravings” according to you.
No wonder you are so psychologically hostile to anarcho-capitalism! Even thinking about each person being a unique, thinking for themselves beings makes you a priori uncomfortable. And why? Because you hate your own individuality. So much so that you name your own self after another human being.
You might benefit from a good dose of thinking as an individual, if your intention is to understand Austrianism. Austrianism is grounded on individual action. Self-reflection. You loathe yourself which is why you refuse to do it. You let Roddis get to you. You are not confident enough to let his hostility fall off your back.
I don’t despise LK. and I’ve often noted that he meticulously finds errors in the expression of Austrian ideas by Austrians and I agree that they are errors or could be stated differently and better.
I’m sorry. I just don’t see where I’m so hostile to LK. Seriously. I suppose that’s coming from a Detroit perspective so…..
I don’t think you’re hostile to him, but I think he thinks you are. Maybe because he is particularly jealous of his knowledge. He is a person of spirit, i.e. about thoughts. He moves his person as an anarcho-capitalist, but he is engaged in a hostile war in the realm of ideas.
You are dropping continual intellectual bombs on his ideas, and he wants you to know he’s still standing.
“I speak for myself and only myself.”
Oh, really?:
“There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
So you say that there are “no predictions in Austrian economics” — thereby claiming to explain, support and interpret Austrian economics.
But suddenly you don’t actually speak for Austrian economics?? lol.
1. You do realize that thinking for oneself does not mean you have to disagree with everything others say, right?
2. Arguing that Austrian economics makes no predictions is my interpretation of Austrian economics. If anyone disagrees, I will only be convinced otherwise through painstaking discussion and debate where I can understand where I went wrong.
This statement you made is just silly:
“But suddenly you don’t actually speak for Austrian economics?? lol.”
You keep interpreting a correction to your previous assumption as me “suddenly” changing my mind on that point. I have always spoken FOR myself. Whether what I speak of is an interpretation of a theory, or support of it, or against it, all throughout I am ultimately speaking for me and only me, nobody else.
Me saying Austrian theory does not make predictions is not me speaking on behalf of it. It is me speaking on behalf of myself and oh look, this is what I think is true about a particular theory. If I am wrong, you can show me how and where using discursive reasoning. Not fallacy of authority.
“Arguing that Austrian economics makes no predictions is my interpretation of Austrian economics”
So now you do claim to be interpreting Austrian economics!
And what Austrian economists actually agree with you that “There are no predictions in Austrian economics. None. Zero. Nada”?
All of them? 5? 3? 2? 1?
0?
LK:
What do you mean “now” I say that? I never claimed I wasn’t interpreting it.
Are you able to parse the man and distinguish him from thoughts? People are not the theory.
Which Austrians agree that there are no predictions? Murphy for one. He agrees with me using my definition of prediction. Rothbard agreed too. I’m pretty sure virtually the entire population of people who understand and accept Praxeology as the field of inquiry into economics, agrees.
But so what if nobody else did agree? That alone would not prove me wrong. I could only be proven wrong by reasoned debate and discussion. Just like I try, but not my best here, to prove right that Praxeology makes no predictions.
I do not engage in popularity contests. That is not the standard of truth.
“Which Austrians agree that there are no predictions? Murphy for one. “
lol..
“Praxeology can make certain predictions about the future, but they are necessarily qualitative. (Murphy and Gabriel 2008: 47–48).
—-
So do you agree with Murphy that “Praxeology can make certain predictions about the future, but they are necessarily qualitative”?
Yes or no?
“But so what if nobody else did agree? That alone would not prove me wrong”
No, not per se, but it would provide strong evidence that “you don’t speak for Austrian economists, and your view is not what can be found in the published writings of Austrian economists”.
It is perhaps apropos to ask you this question LK:
Is the following statement one that requires empirical testing to know, or is it one that we can know via deduction:
$1000 was spent to buy 1000 units of banana. Average price per unit of banana was $1.
If in the real world spending on bananas fell from $1000 to $500, and supply of bananas in the world remained the same, what would be the real world average price per unit of banana?
Well? Is it a hypothesis until observed or something else?
Do we need to empirically test this to find out of it will be $0.50, or can we know based deducing from what the above means? Remember, $0.50 is not mentioned in the question. It is not immediately known the way $1 was known prior by observing it.
LK:
“Yes or no?”
Yes the way Murphy defines predictions, no the way I define predictions.
We agree with other’s arguments about whether Praxeology contains predictions.
We do not have to agree on the definition of prediction. We are referring to the same underlying concepts and we agree with what we think about them. He says potato, I say potahto.
“No, not per se, but it would provide strong evidence that “you don’t speak for Austrian economists, and your view is not what can be found in the published writings of Austrian economists”.
But is it wrong?
So now you do agree with Murphy that “Praxeology can make certain predictions about the future, but they are necessarily qualitative ” — as Murphy defines predictions.
But you say :
““There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
Yet here no predictions of any kind are possible.
You are utterly incoherent and confused.
LK:
“So now…”
No.
“…you do agree with Murphy that “Praxeology can make certain predictions about the future, but they are necessarily qualitative ” — as Murphy defines predictions.”
Yes.
But you say :
““There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
Yes, defining prediction my way.
What’s your bag?
(1) So you agree that praxeology can make *qualitative* predictions about the future.
(2) That some Austrians made *qualitative* predictions about runaway inflation or hyperinflation and were wrong.
(3) you have your own eccentric definition of “prediction” — contrary to how Austrians define the word.
———–
in short, all my major points above have been conceded by you.
And yet still these latest statements contradict your earlier statements:
“So all your ramblings above simply leads to the conclusion: you have no reason to think any increase in the money supply will cause inflation of prices in the future, because you claim no predictions of any kind can be made from Austrian economics.”
BINGO.
You’ve already agreed above that you agree that “no predictions of any kind can be made from Austrian economics.”
But now suddenly you say that Murphy is right that *qualitative* predictions can be made from Austrian economics.
LK:
“1) So you agree that praxeology can make *qualitative* predictions about the future.”
No, I do not agree. I do not regard those as predictions, as explained above. I regard them as logical relations.
“(2) That some Austrians made *qualitative* predictions about runaway inflation or hyperinflation and were wrong.”
Yes, just like Krugman made predictions in 1982 about price inflation that turned out wrong.
“(3) you have your own eccentric definition of “prediction” — contrary to how Austrians define the word.”
Some Austrians use my definition of prediction.
“In short, all my major points above have been conceded by you.”
Non sequitur.
“And yet still these latest statements contradict your earlier statements:”
How so?
“You’ve already agreed above that you agree that “no predictions of any kind can be made from Austrian economics.”
Agree that “no prediction can be made” with whom? Lol
“But now suddenly you say that Murphy is right that *qualitative* predictions can be made from Austrian economics.”
What Murphy calls predictions there, I call logical deductions. Yes I agree with what he means. No, I do not agree with that definition of prediction.
Yes, you claim the right to simply re-define words at will to whatever sense you like.
In other words, you claim the right to invoke fallacies of equivocation whenever and wherever you like.
It is just like your absurd claim that “immediately” can have any sense you like:
“Other than the misleading word “immediately”, which can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective, how is that statement idiotic?”
http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html?showComment=1322754858471#c4751417681290758722
LK:
You’re arguing over semantics, not substance.
That means your argument does not challenge my interpretation of Austrian theory as being non-predictive.
I am not “redefining” prediction. I am using an already established definition. But even if I did introduce a new definition, that alone would not in any way undercut my argument. Definitions can be anything we want them to be. That is from positivist epistemology as a matter of fact.
I understand your frustration. You want so badly to expose flaws in what I say. And in all likelihood there probably are flaws of which I am not aware.
But attacking my argument on the basis that you don’t like the definition I use, is like an English person trying to refute a German’s argument on the basis that the German is defining words in ways that the Englishman does not like.
You have no excuse to tell me that I just redefined my terms, because I remember the last time this topic was brought up, and I said back then that I do not regard what Murphy said to be a prediction. I am saying the same thing today, and yet you are arguing as if I just redefined it. I am not going to define a term in accordance with what you want or what Murphy wants. I know what Murphy is saying and I agree with it. I do not have to insist that he use my definition of prediction, because unlike you, I am willing to put forth the mental effort to translate what he is saying into a language I prefer, then analyzing it, then retranslating it back into his language where I end up saying yes, Austrian praxeology does make “predictions” as Murphy defines it.
I define it as a necessary logical relationship because if we say that the nominal demand for apples has gone up, and ceteris paribus applies, then we are also saying, by virtue of these considerations, that the price has gone up. That is what nominal demand going up for an unchanged supply MEANS. It is two different ways of saying the same thing. It is just like saying “plane right triangle” and “Pythagorean relation holds” are two different ways of saying the same thing.
This is what Mises meant when he said praxeological deductions are “tautological”. He didn’t mean it in the pop culture pejorative sense of “I’m right because I’m right”, but rather because everything true about action that can be logically deduced, is all there and true prior to us deducing anything. The whole logical structure of action is one giant elaborate tautology. But this does not imply that it does not expand our knowledge over ourselves or the real world of action.
“I end up saying yes, Austrian praxeology does make “predictions””
at last.
“I end up saying yes, Austrian praxeology does make “predictions””
Sigh.
The statement, “You will hurt your hand when you stick it into a blender, tonight” is a prediction.
The statement, “You will hurt your hand IF you stick it into a blender, tonight” is NOT a prediction – but Bob Murphy would consider this a “prediction”, according to his definition, with which MF disagrees but understands.
whatever dude
Philippe:
You are being purposefully dishonest. You did not quote the rest of that sentence.
I said:
“I end up saying yes, Austrian praxeology does make “predictions” as Murphy defines it.
You purposefully left that crucial part out, and by responding with “at last” you try to make it seem like I have made an argument I did not in fact make.
Philippe, you ought to be ashamed. That was not cool.
Philippe:
“I end up saying yes, Austrian praxeology does make “predictions” as Murphy defines it.”
Means
“I end up saying yes, Austrian praxeology does make [logical deductions].”
My “at last” was not related to the sentence above it. The two are completely unrelated.
I liked the shape your words made, so I copied and pasted them, adding quotation marks purely as visual decoration. Then I felt a random and totally unrelated desire to write “at last” for no reason, below it. Maybe because I just like the sound that “at last” makes when you repeat it inside your head. Yes, that’s it.
The two sentences have nothing to do with each other at all. Nothing at all.
Why are you getting worked up?
MF I am pretty sure this is the point at which anyone who respects his own time would walk away.
Philippe:
The internet is interesting. It is simultaneously the easiest place to lie, and the easiest place to tell the truth.
Not sure why you find either more difficult than the other.
just copying your style, mf
Philippe:
Copying style isn’t my style.
I think you misunderstand. I define “copying your style” to mean “sitting here eating a pineapple”.
“You will hurt your hand IF you stick it into a blender, tonight” is NOT a prediction”
Of course it is a prediction, if you are talking of a real world person and blender and specific date – just contingent on the *if* statement.
… anyone who respects his own time would walk away.
If I may interject …
Philippe is trying to make a point, here; albeit, one that is based on a misunderstanding of MF.
He is not trying to avoid being pinned down – at least not in the manner which would seem most obvious.
He’s accusing MF of making up definitions.
He doesn’t understand the nuance with which Bob Murphy’s uses the term “prediction”, and so doesn’t realize that when MF says that there are no predictions in Austrian Economics, they’re both saying the same thing.
My hope is that this will prevent others from writing Philippe off, prematurely.
Philippe, knowing how something works in a particular scenario does not provide the ability to make predictions about how that thing will behave in the future because you still need to know whether or not that scenario will actually happen.
Unlike with physical things, we cannot control for the variables which accompany human action, since those variables entail subjective preferences.
Therefore, scenarios involving human action cannot be predicted, even though some things about the nature of human action can be known with apodictic certainty.
Philippe:
“I think you misunderstand. I define “copying your style” to mean “sitting here eating a pineapple”.”
I think you misunderstand. I define “sitting here eating a pineapple” to mean “I lost the argument.”
He deleted Roddis’ comment as well.
This probably violates our etiquette rules but I want Karl Malden to play LK in the movie version:
https://www.youtube.com/watch?v=HlSc-_9vx1k
Okay, having read all this, I have the following question: so, we had this economic collapse in 2008: Keynesian economists wanted the government to do certain things about it. Is it correct to say that an Austrian economist would want the government to do nothing about it, other than stop doing anything regarding the economy? Would the Austrian prescription be to close the Fed, stop regulating banks, and stop taxing and regulating businesses? Stop taxing anybody? (I’m not talking about the AC prescription here.). Would Austrians also eliminate paper money? In other words, what’s the positive prescription per Austrian theory for how to improve the American economy after 2008, assuming we’re not just closing the government completely.
Yes, end the Fed, eliminate State regulations, eliminate the minimum wage, eliminate taxes, eliminate unemployment insurance, no bailouts, etc.
As far as paper money, Austrians would say to let people use whatever form of money they want to use. No legal tender laws. No taxes on commodities.
Okay, this would clearly create enormous suffering in at least the short term. The idea is that, well maybe that’s true, but in the long term there would actually be more prosperity and wealth for more people than under the current system?
The reason we think this is true is because the apriori principles of Austrian economics show it must be true. Have I got that right? We’re not worried about historical evidence, to the extent any exists, because that evidence is infected by factors that would not exist if Austrian principles were put into effect properly.
I don’t think implementing an “Austrain Policy” would eliminate, say, earthquakes..
Okay, this would clearly create enormous suffering in at least the short term.
Reconsider, after reading this:
Rockwell’s Thirty-Day Plan
http://archive.lewrockwell.com/rockwell/30-day-plan.html
An excerpt:
DAY FOUR: The minimum wage is reduced to zero, creating jobs for ex-federal bureaucrats at their market wage. All pro-union laws and regulations are scrapped. The jobless rate falls dramatically.
…
DAY SEVENTEEN: Centrally planned agriculture, as imposed by Hoover and Roosevelt, is repealed: there are no more subsidies, payments-in-kind, marketing orders, low-interest loans, etc. Farm prices drop. Entrepreneurial farmers get rich. Welfare farmers go into another line of work. The poor eat like kings.
I think, regardless of whether one accepts Rockwell’s predictions about what would happen after the policies he proposes are implemented, he’s being a little facetious about the time it would take to feel the beneficial effects, assuming there would be some, from these actions. Without any government support, certainly those in economic trouble would feel substantial pain for a while, and without a minimum wage, it might take a while before wages crept up from where employers would likely drop them, etc. I’m not saying Rockwell’s wrong, but I think even he would concede it would take substantially more than a month for good things to start happening.
Without any government support, certainly those in economic trouble would feel substantial pain for a while …
We don’t frown on the idea that a thief who has been prevented from stealing then has to go out and find a job, even though he is in economic trouble.
In a sense, that’s what’s happening in a crash – it’s a correction of the malinvestments that took place due to some businesses getting favors from the government.
The economic trouble would happen where it’s *supposed* to happen.
If you want to help people realign their production processes to accommodate consumer preferences (which is how economic growth happens), then for goodness sake stay out of their way.
I think after the housing bubble burst there would’ve been short term suffering regardless of which economic school’s prescriptions were followed. There were a lot of resources that needed to be reallocated just to get things back on a healthy track. It’s just that the bailout approach prolongs the agony, IMO. I mean, I think there has been a ton I suffering over the last 6 years because of what the State and Fed did in response to the collapse. And I think the bailout approach does the seeds for even bigger problems down the line. I think the tech bubble bailouts created a bigger problem in the housing bubble, and I think the housing bubble bailout has created a future bigger mess in a bond bubble.
That said, I think if we saw the approach I mentioned above implemented, then the short term suffering would’ve lasted a very short amount of time. Months instead of years. And then moving forward we would see prosperity growth like the world has never seen before. I’m a bit of a bleeding heart, and the reason I advocate Austrianism and libertarianism is because I believe it is the way to help everyone, especially the poor. Doesn’t mean that I’m right simply because I want to help people, I think most of us want that, but I definitely believe our views are humanities best hope.
“The poor eat like kings”
nice. Is that guaranteed?
Guns will guarantee everything you ever need/s
so the poors get those too?
so the poors get those too?
He means that there are still poor people, now, even though the government uses guns to redistribute others’ wealth to them.
So there would still be poor people in either scenario.
But less people would be poor.
Philippe:
“so the poors get those too?”
Haha no. Progressives and leftists think the poor are too stupid and careless to be able to own guns.
They only want the rich politicians to own and control the guns.
That sounds like a very very good reason to be pro Austrian and libertarian to me. After reading MF and others, is it that we think Austrian economics will have the beneficial effects discussed because logical deduction and certain immutable principles tell us it must have these effects, or do we believe in the positive effects based on some type of historical or other sort of evidence. I know Tom Woods has made a big effort to show that a lot of the problems ascribed to unbridled capitalism by some historians and economists didn’t really happen. If true, is that an important fact, or really a marginally important fact, because evidence is largely irrelevant since we already know Austrianism is essentially correct and must yield most of the positive outcomes discussed?
Buy and read “The Triumph of Conservatism” by Gabriel Kolko on the Robber Baron era.
Then read Stockman’s “Keynesian Myths, Monetary Central Planning and The Triumph of The Warfare State”
http://davidstockmanscontracorner.com/keynesian-myths-monetary-central-planning-and-the-triumph-of-the-warfare-state-part-1/
The Great Depression was a hold-over from WWI fiscal and monetary madness, not the market.
It seems that the Keynesians and hard leftists are now arguing that there never was a time of “laissez faire”. If that is so, how can they determine by examining history that “laissez faire” has failed historically?
We’re getting into the weeds a bit when we start talking about this issue. I mean, if you watch Dr. Murphy debate Dr. Friedman then you can see how difficult a time Murphy had in getting even a brilliant man like Friedman to understand the point he was trying to make.
But, yes, logical deductions, according to Austrians, is the only proper method for the science of economics. Much like geometry. See, we don’t need empirical evidence to prove supply and demand theory. And we don’t need empirical evidence to prove that a minimum wage creates unemployment. For example, a society could institute a minimum wage law of $20 that wouldn’t show an increase of unemployment if other factors offset the negative effects of that law. Empirical evidence wouldn’t prove minimum wages cause unemployment, and it wouldn’t prove that they don’t create unemployment. Only through logical deduction can we prove that.
As far as economic history is concerned, it can be a very important area of study. For example, you can apply Austrian business cycle theory to past collapses to better understand exactly what happened in the past. This is why Austrians and libertarians don’t just ignore history. But, just because we can use economics to study the past doesn’t mean that what happened in the past will happen in the future. For example, let’s say a society years ago implemented a $20 minimum wage, and we saw massive unemployment as a result. We could use economics to explain why that happened, but we couldn’t say that any society in the future would see the same results. Some future society might implement a $20 min wage and see no discernible effect because the productive capacity of that society was much greater than the society that saw the massive increase in unemployment. Hopefully, that makes sense to you.
Also, that’s not to say Austrians are right about everything. We could very well have incorrect premises that led us to have made a mistake in our logical deductions. But, empirical evidence wouldn’t prove we erred. You have to show that our logical deductions were incorrect with a correct logical deduction. Unfortunately, too many people subscribe to the “logic is overrated” philosophy when it comes to economics.
FYI, Scott Horton interviews David Stockman today on his show.
“David Stockman, author of The Great Deformation, discusses how US intervention in WWI led to a century of American interventionist foreign policy and the adoption of Keynesian economics”.
http://scotthorton.org/interviews/2014/07/22/072214-david-stockman/
Thank you to those who responded to my questions. That was very helpful.