Money Is a Spontaneous Order Not a Social Contrivance
Everybody has been talking about this “is money a bubble?” controversy. (Nick Rowe, in addition to being awesome on OLG apple models, is also good at linking everybody in this debate.) I want to make two main points:
(1) This isn’t even about fiat money per se. Even if we’re talking about gold, once it becomes used as a medium of exchange, it achieves an exchange value higher than what it had in direct exchange, precisely because of its new role. In other words, the demand to hold gold goes up, once it acquires a monetary demand in addition to its industrial/consumption demand. So I would caution Austrians not to say something like, “Krugman you idiot! Fiat money is too a bubble because of its very nature it’s worth zero, and eventually that’s where it’s headed!” To be clear, these are all defensible and plausibly true claims, but my point is, the mere fact that fiat money currently has a positive market value, by itself doesn’t guarantee that it must eventually pop. If you think that, then you would have to tell Mises that when he says gold acquires a value because of its use as money, then eventually the gold bubble must pop and gold’s value returns to the floor determined by its industrial/consumption uses. I don’t think most Austrians believe that. If you want to thread the needle you can argue something like, “The ‘bubble’ equilibrium for gold is more stable than for fiat money, because people know gold has a positive backstop value, whereas Benjamins have nowhere to go but doooooown.” So I’m just saying, be careful when attacking Krugman on this, that you don’t throw out gold with the bathwater.
(2) I really really don’t like the Samuelson idea of calling money a “social contrivance.” Here’s Krugman’s take on this, which epitomizes what I dislike:
So what is fiat money? It is, as Paul Samuelson put it in his original overlapping-generations model (pdf), a “social contrivance”. It’s a convention, which works as long as the future is like the past. Obviously, such conventions can break down — but then so can things like property rights. In fact, you could argue that almost every asset in a modern economy owes its value to social convention; green pieces of paper could become worthless, but then so could any paper claim, which is, after all, worth something only because laws say it is — and laws can be repealed.
Here, Krugman is making it sound as if fiat money has its value via the same mechanism that we decide when to hold Election Day. Or, to be more accurate, Krugman is making it sound like fiat money has its value for the same reason that people generally hold doors for each other, or help each other to move.
But this really misses what’s special about money, and other spontaneous orders, that are the “result of human action but not of human design.” (Ironically, I would say property rights are also an example of institution that wasn’t consciously designed, but Krugman is thinking of legislated property rights in government courts.)
The worst offender in this category was an op ed columnist (can’t remember who) who once stated something like, “Fundamentally, money is just a social convention. I agree to give you my stuff in exchange for your intrinsically useless money, but only because you agree to do the reverse in the future.” And that is not at all the way you should be thinking about money.
The single most important work on monetary theory is Ludwig von Mises’ classic, The Theory of Money and Credit. When the Mises Institute commissioned me to write a study guide for it, I confess I was thinking it would be a real chore, because I remembered working my way through it as a kid (either in high school or maybe freshman year in college, can’t remember) and finding it really difficult. But this time through, it wasn’t hard at all. I kept waiting for it to get tough, and it never did. (I’m not just saying I “got it” because I had a PhD in economics. I’m saying even for the lay adult reader, it’s not that hard.) It’s not a Dan Brown novel, to be sure, but it is still good ol’ Mises. And with my trusty study guide beside you, what’s stopping you from absorbing a proper understanding of money?
It’s a coincidence that this topic was brought up today because, as I procrastinated while cleaning out the garage, I was jousting with the MMTers about Graeber and the origin of money. After re-reading Bob Murphy’s review of Graeber’s book in “The American Conservative”, I posted this:
For your harebrained “state theory of money” to be true, NOTHING CAN HAVE ANY “INTRINSIC VALUE”. And certainly gold, silver and diamonds cannot have any “intrinsic value” because there cannot be any such thing. Even the concept of “value” must have been invented by some vicious king who just out of the blue ordered his poor subjects to “value” every single item of a physical nature in their lives according to his whims. Since, of course, they could not have “valued” anything in their lives or even conceptualized the concept of value itself until ordered to do so by the king.
http://tinyurl.com/8fzxygr
I do not think that the statement is an exaggeration.
I don’t think it’s an exaggeration, either.
If it’s valuable to someone else, it can be traded. And since people have differing preferences, this allows the possibility of indirect exchange, which is more efficient than direct exchange.
And with indirect exchange comes the emergence of commodities as money.
I think this video lays it out well:
Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
http://www.youtube.com/watch?v=HAzExlEsIKk
That guy Mises is just lucky, I guess. He noted in an appendix to his “Theory of Money and Credit” that the state theory of money was acatallactic a long long time ago. As in “the value of money arises independently of people actually valuing it”.
http://www.econlib.org/library/Mises/msTApp.html
On a serious note, isn’t it creepy the lengths that our opponents will go to deny the most obvious and self evident of our positions? They just don’t want us to be right and they apparently will fight to the death to avoid admitting we’re right.
I particularly like how they refer to legal tender laws as if no one had ever thought about their effects before, despite my seeing references to their effects in much of Mises work, and some talks on that subject directly at the Mises Institute.
Of course, when you point out that if I was king and told people to pay taxes in little slips of paper that weren’t already money, they would have no idea what the slips of paper were worth, they kind of ignore it. How does one calculate what they owe in taxes in, say, Rothbards?
Also, without some pre-existing measure of value, why would the king go to all the trouble of extracting whatever it was he was extracting at the point of his sword? His lady friend is still going to want gold and diamond jewelry and not 95 pound bags of chicken flickings just because he decreed those to be money.
Bob, why can’t money be a social convention that was not consciously designed by anyone? And anyway, what does the origin of a human habit have to do with its fundamental nature?
The worst offender in this category was an op ed columnist (can’t remember who) who once stated something like, “Fundamentally, money is just a social convention. I agree to give you my stuff in exchange for your intrinsically useless money, but only because you agree to do the reverse in the future.” And that is not at all the way you should be thinking about money.
How’s that fundamentally different from the Misesian view on money?
“The single most important work on monetary theory is Ludwig von Mises’ classic, The Theory of Money and Credit. “
Its importance is grossly exaggerated.
Take the regression theorem: supposedly one of Mises’s greatest achievements.
Yet it is utterly otiose, once one realises that money can deliver direct utility:
http://socialdemocracy21stcentury.blogspot.com/2012/01/misess-regression-theorem-critique.html
Fishing for website hits?
We’re subjected to more of the same old same old from LK who still does not comprehend the central Austrian concept of economic calculation.
(2) The regression theorem also commits a non sequitur in ignoring the role that money can have in discharging future obligations such as taxes, and the theoretical possibility and empirical reality that money could arise by governments imposing tax obligations on a community, by taking goods in kind, paying wages for labour, or issuing debt, and giving in return a token or money thing, and demanding that taxes be discharged in that particular money thing (e.g., a hazelwood tallystick, paper money, etc.). Money can then acquire purchasing power through people’s need to acquire it to pay taxes: the purchasing power of money would then develop as related to the value of goods that can also be used to extinguish taxes. The direct utility that money provides would be the ability to meet future tax obligations.
Which, as I just said above, must be based upon the allegation that average people had no concept of or ability to value at all prior to being ordered to by the king, and is another desperate scream of “no no no, we can’t allow you libertarians to be right about anything!”
Further, if the good chosen to pay the taxes is an inferior form of money, it can simply be acquired at the last minute to be used to satisfy the tax debt. And these silly theories still do not explain the different prices for different goods and services if stated in terms of this government ordered money. Finally, WTF does any of this have to do with subjective valuation, economic calculation/miscalculation and prices as objective manifestations of subjective valuations when no Austrian critic (other than perhaps ex-Austrians) has the slightest understanding of those central concepts? It does not change how the world works.
Suppose we learn that it really was King Vicious the 17th who invented money. People still cannot calculate under socialism while Keynesianism still impairs economic calculation leading to malinvestment. We get this Graeber nonsense in lieu of our opponents dealing with the gist of our theory.
“Which, as I just said above, must be based upon the allegation that average people had no concept of or ability to value at all prior to being ordered to by the king, and is another desperate scream of “no no no, we can’t allow you libertarians to be right about anything!”
No, it is not based on any such assumption.
“And these silly theories still do not explain the different prices for different goods and services if stated in terms of this government ordered money. “
On the contrary, chartalism can explain it: the government can pay a wage in its “money” or buy commodities in its money, thereby creating a money price and wage price. Prices for other commodities will arise by further use of the government money.
“does any of this have to do with subjective valuation, economic calculation/miscalculation and prices as objective manifestations of subjective valuations when no Austrian critic (other than perhaps ex-Austrians) has the slightest understanding of those central concepts?”
Yes, no one in history outside the Austrian cult has ever understood price theory, subjective utility, ABCT, etc.
“People still cannot calculate under socialism while Keynesianism still impairs economic calculation leading to malinvestment. “
Why, then, was there outstanding real GDP growth, real per capita GDP growth and productivity growth in nation after nation in the classic era of Keynesianism?
“he government can pay a wage in its “money” or buy commodities in its money, thereby creating a money price and wage price”
Nonsense. The government cannot pay a price here. It can arbitrarily force a producer to take a certain amount its “money” for what they produced – but that stops there, as there is no reason for anyone to take what they were forced to, unless forced themselves. Nor is that a “price”, any more than there are prices in any totalitarian socialist state. You haven’t had the state create money – you have created a totalitarian socialist system that cannot calculate, has no real incentive to produce, and will likely self-destruct rather quickly.
“Why, then, was there outstanding real GDP growth, real per capita GDP growth and productivity growth in nation after nation in the classic era of Keynesianism?”
GDP aggregates include useless government spending, and ignore the malinvestments of the Keynesian booms. Your “real” figures are manipulated based on statistically determined inflation rates on arbitrary baskets of goods in arbitrary proportions, with no record of quality and unit size changes. Productivity growth is a function of capital accumulation, which is not a factor merely of government economic policy (although obviously affected – negatively – by it). Your entire argument here is a post hoc ergo propter hoc fallacy.
“Productivity growth is a function of capital accumulation, which is not a factor merely of government economic policy “
On the contrary, it is.
Demand and sales volume drive capital investment and employment decisions in the private sector.
If you don’t believe that, you live in a fantasy world, along with the leprechauns and pixies.
Right. The government is omnipotent, and no one could ever act in a way that the government dislikes. You are so full of yourself.
Capital accumulation is a complex phenomenon, based on many considerations in the individual capitalist’s recent history and expectations of the future. The idea that government, and only government, determines this circumstance is ridiculous on its face.
“The idea that government, and only government, determines this circumstance is ridiculous on its face.”
Ah, the straw man argument … last refuge of the scoundrel – or buffoon.
Nowhere above is any such idea expressed or implied.
All that is being asserted is that government fiscal power has the ability to influence demand and sales volume and in turn drive capital investment and employment decisions in the private sector.
That does not deny other, myriad factors influencing private capital investment, however.
Matt: “capital accumulation […] is not a factor merely of government economic policy”
LK: “On the contrary, it is.”
Matt: “The idea that government, and only government, determines this circumstance is ridiculous”
LK: “Nowhere above is any such idea expressed or implied.”
You are just digging yourself a hole here. You explicitly denied my contention that other factors besides government fiscal policy matter.
“All that is being asserted is that government fiscal power has the ability to influence demand and sales volume”
Except even this is false. Government can only shift demand around – it cannot change the volume of demand. Every dollar spent by government is taken, through taxation or borrowing, from other potential uses – including the “direct utility” of building up cash balances. Not only do you think Mises didn’t recognize the import of cash balances (erroneously), you deny the import yourself.
“That does not deny other, myriad factors influencing private capital investment, however.”
Except my contention – which you denied – was precisely that.
Profit, as is perceived to be exemplified by sales volume, drives capital investment.
You still have to produce something in order to realize that profit;
And if the profit is in terms of unsound (e.g. fiat) money, then the assumption of profit can be wrong, such that wealth is CONSUMED, rather than created.
This is why creating demand by essentially lying to people about how well their paper is able to represent real wealth leads to unsustainable investment booms.
At the individual firm level, yes, but in the economy as a whole, demand for products is in competition with demand for factors of production, including labor.
Ceteris paribus, a rise in nominal demand for products of business must require a fall in the demand for factors of production.
The consumptionism behind vulgar Keynesianism fails to grasp that saving finances most expenditures in a modern division of labor economy. Most spending is business to business, not business to consumer.
Too much consumer spending can result in capital consumption, which will lower long term standards of living.
“GDP aggregates include useless government spending, and ignore the malinvestments of the Keynesian booms. “
(1) ABCT is a cartload of garbage.
(2) Even Rothbard’s aggregates called “gross private product” (GPP) and real “private product remaining with producers” (PPR) show high real output growth during the classic era of Keynesianism:
http://mises.org/daily/2231/
1) This doesn’t even require ABCT to be correct. (It is, though. The logic is sound and the conclusion unavoidable unless you introduce your – false – assumptions of neutral money.) Do you deny that much investment during the boom is malinvestment – perhaps in housing, or internet firms, that later prove to be unsustainable failures? It doesn’t particularly matter, in this regard, why this is so – only that it is, and this investment is still counted as equivalent to investment in things that are sustainable based on consumer demand. The structure of production is ignored in the GDP aggregation (or any aggregation at all). Hence, the USSR had great GDP figures… until it didn’t.
2) Again – post hoc ergo propter hoc. You do understand what that means right? All “empirical” economics is merely a case of this fallacy. All statistics must be interpreted in light of theory – the statistics cannot prove or disprove the theory. If, as I claim, this is a case of growth despite government policy, you cannot prove I am wrong by claiming there was growth. Only logical theory can demonstrate that – and you have shown you are deficient in that regard, as was Keynes himself.
“This doesn’t even require ABCT to be correct”
Yes, it does.
” Do you deny that much investment during the boom is malinvestment – perhaps in housing, or internet firms, that later prove to be unsustainable failures”
Which booms? 1990s and 2000s? We are talking about 1945-1970d here – not about neoliberal bubble economies.
The structure of production is ignored in the GDP aggregation (or any aggregation at all).
Just as it is in Rothbard’s aggregates called “gross private product” (GPP) and real “private product remaining with producers” (PPR)! – which of course are all meant to show aggregate value of final goods sold or capital investments.
This statement does not refute the meaningful nature of aggregate measures of output like GDP.
No one claims they are perfect , but merely reasonably good measures of output growth.
“Which booms? We are talking about 1945-1970d here”
The Recession of 1949 started with a period of monetary tightening from loose monetary policy. The Recession of 1953 started after, in 1952, the Fed changed monetary policy to be more restrictive because of fears of further inflation or of a bubble forming. The Recession of 1958 also followed monetary policy tightening during the two years preceding 1957. Seriously, just look at the list here (http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward) and note how many deal with “monetary policy tightening”.
“Just as it is in Rothbard’s aggregates ”
Never denied this. But even Rothbard pointed out that his aggregates, while better than GDP, are not all that useful. One can simultaneously criticize GDP as worse than an aggregate absent government spending and burdens, and declare even that GPP and PPR are not useful in the scheme of things.
“This statement does not refute the meaningful nature of aggregate measures of output like GDP.”
Your reliance on something that is deemed preferable is pointless. I can declare that silver is preferable to the FRN, but hold gold as even better – just as I can declare GPP/PPR as better than GDP, but not relying on aggregation as better still. As Rothbard put it himself:
“This failure of the Keynesian model is a direct result of misleading aggregative concepts. Consumption is not just a function of income; it depends, in a complex fashion, on the level of past income, expected future income, the phase of the business cycle, the length of the time period under discussion, on prices of commodities, on capital gains or losses, and on the cash balances of consumers.
Furthermore, the breakdown of the economic system into a few aggregates assumes that these aggregates are independent of each other, that they are determined independently and can change independently. This overlooks the great amount of interdependence and interaction among the aggregates. Thus, saving is not independent of investment; most of it, particularly business saving, is made in anticipation of future investment. Therefore, a change in the prospects for profitable investment will have a great influence on the savings function, and hence on the consumption function. Similarly, investment is influenced by the level of income, by the expected course of future income, by anticipated consumption, and by the flow of savings. For example, a fall in savings will mean a cut in the funds available for investment, thus restricting investment.
A further illustration of the fallacy of aggregates is the Keynesian assumption that the State can simply add or subtract its expenditures from that of the private economy. This assumes that private investment decisions remain constant, unaffected by government deficits or surpluses. There is no basis whatsoever for this assumption. In addition, progressive income taxation, which is designed to encourage consumption, is assumed to have no effect on private investment. This cannot be true, since, as we have already noted, a restriction of savings will reduce investment.
Thus, aggregative economics is a drastic misrepresentation of reality. The aggregates are merely an arithmetic cloak over the real world, where multitudes of firms and individuals react and interact in a highly complex manner. The alleged “basic determinants” of the Keynesian system are themselves determined by complex interactions within and between these aggregates.”
Keynesianism has been in effect since at least the 1930s.
“Neoliberal bubble economies” are in reality Keynesian bubble economies.
(1) You haven’t shown ABCT to be a “cartload of garbage”
(2) Growth would have been even higher without the “classic Keynesianism”.
(3) Keynesian theory is a boatload of garbage, as shown by Austrian economists.
On the contrary, chartalism can explain it: the government can pay a wage in its “money” or buy commodities in its money, thereby creating a money price and wage price.
Rubbish. If the government buys commodities, then those commodities must have already been produced (and probably sold) in the market. That means there already were prices.
The government cannot buy all goods from itself.
Yes, no one in history outside the Austrian cult has ever understood price theory, subjective utility, ABCT, etc.
It’s not about “no one.” It’s you who doesn’t understand price theory, subjective utility, and ABCT.
Why, then, was there outstanding real GDP growth, real per capita GDP growth and productivity growth in nation after nation in the classic era of Keynesianism?
Growth would have been even higher WITHOUT IT.
“Money can then acquire purchasing power through people’s need to acquire it to pay taxes”
Now I know you are an idiot, even for a Keynesian. How do I calculate my tax burden in money that starts with no value? If I trade some chickens for gold money, and the authority says I have to pay in paper tickets, how do I determine how many to pay without a fixed tie to a commodity (either gold or chickens) in that transaction? And once you introduce a fixed tie to a commodity money to start the value of fiat money, then the regression theorem holds.
“the neoclassical idea that money is non-neutral is false”
So when Bernanke prints off lots of money to buy troubled bank assets, that money instantly appears in the hands of each individual in proportion to the money they already held? It doesn’t enter at specific points in the economy and spread its effects from there?
Money is not neutral. The very idea of neutral money is ludicrous. If Bernanke creates money at the Fed, or the banks through fractional reserve lending, that money clearly changes the proportions of cash holdings, and thus changes real considerations in the economy. Perhaps not GDP directly and obviously, but GDP is a useless aggregate anyway, hiding malinvestment, capital consumption, and so many other economic ills under a “growing economy”.
And the direct utility argument is bunk. Mises was quite clear that money HAD TO deliver direct utility at some point in the past as a commodity, and that is where it obtained its initial value. Money qua money cannot deliver direct utility – it can be used to satisfy indirect desires now, or held for later. Holding money as a “store of value” is (a) impossible, as money has no static value and (b) provides no “security against uncertainty”. It is a form of entrepreneurship to hold money expecting its value to remain or increase, as well as to think that it can buffer uncertainty – those remain unknown factors. Either way, this “direct utility” IS DERIVED FROM THE OBJECTIVE-EXCHANGE VALUE.
I wasn’t aware that even Keynesians could fail so hard.
““the neoclassical idea that money is non-neutral is false””
Ah, that is nothing but a typo, of course. Since I have always held (like any Post Keynesian) and have said many times on the blog that money is non-neutral. It should read :
““the neoclassical idea that money is neutral is false””
Anyway, the typo ought to be clear from whole statement
“This idea held by Austrians and neoclassicals should be rejected. To begin with, the neoclassical idea that money is non-neutral is false: the economy cannot be modelled as a mere barter system, as if money is only a numeraire. ”
Only neutral money allows modelling a modern monetary economy as a barter system.
Are you unaware that Austrians have always held that money is not neutral?
“Only neutral money allows modelling a modern monetary economy as a barter system.”
Indirect exchange analysis is not “modelling the economy as a barter system”. it’s not a “model” at all. It is a description of human action. The neutrality of money has no bearing whatsoever on the exchange for a good for money, for another good later. It only enters into the analysis of inflation/deflation and the business cycle through changes in prices and interest rates. It cannot have any bearing on indirect exchange on its own.
No good is “neutral” in a barter economy either, whether for direct or indirect barter.
In order for money to facilitate indirect exchange, it has to represent the values of the goods that will ultimately be bought with it.
Now, the whole point of trading is to acquire profit (of some kind) in exchnage for that which is given up;
That is, the good I trade has a specific value TO ME, and I am in the best position to know what would represent a profit to me, in exchange.
To acquire a profit through indirect exchange, therefore, I must have assurance that the money can correctly represent those goods which I value more than what I give up.
But that can only happen if the money has a non-arbitrary value in trade. And THAT can only happen if it has first acquired a barter value.
And what I mean when I say the money has to have a “non-arbitrary value” is NOT that the value isn’t subjective to the individual.
Rather, what I mean is that the money has actually had value as a commodity, as represented by individuals’ actual actions to utilize it as such – instead of someone just arbitrarily assigning a value to the money.
Money qua money cannot deliver direct utility – it can be used to satisfy indirect desires now, or held for later. Holding money as a “store of value” is (a) impossible, as money has no static value and (b) provides no “security against uncertainty”
Yes, money can deliver direct utility. If it did not, there would be no uncertainty in the world.
Even Hans Hermann Hoppe agrees, though fails to see its implications for the regression theorem:
http://socialdemocracy21stcentury.blogspot.com/2012/10/money-has-direct-utility.html
“Yes, money can deliver direct utility. If it did not, there would be no uncertainty in the world.”
The hedging against uncertainty with cash holdings (or “hoarding” as you Keynesians put it) is, once again, DEPENDENT ON ITS OBJECTIVE EXCHANGE -VALUE, and UNCERTAIN judgments of future changes in it.
So, once again, the regression theorem holds. I can only derive this “direct” utility from money because it had objective exchange-value yesterday, and it only had that because of the day before, and so forth. Your criticism holds no water.
Yes, money can deliver direct utility. If it did not, there would be no uncertainty in the world.
Non sequitur.
Money is can deliver direct utility, but this utility is derived from its exchange value utility. If someone were told, and they believed, that their money would have zero exchange value in the near future, then they would no longer hold that money. They would seek to exchange it away for real goods and services.
Hoppe agrees that money has direct utility only in a context of money already being valued as a medium of exchange.
Once again, you have no idea what you are talking about.
Doesn’t money’s use as a cash balance depend on it already being used as a money?
Yes.
LK is wrong as usual.
LK’ posts all follow a formula:
1) Assert that statistics disprove theory, despite the fact that those statistics must be interpreted by theory.
2) Assert that because X effect followed Y policy,X must have been caused by Y.
3) Assert, without rationale, that ABCT is disproven, so he need not acknowledge your claims – even if they have nothing to do with ABCT.
4) Fail to understand important concepts Austrians are talking about, including economic calculation, time preference, and others.
5) Insert non sequiturs like “non-neutrality of money means one cannot model the modern economy as a barter economy”.
6) Ignore the difference between a useless empirical model of an economy and logical analysis of restricted aspects of it.
7) Assert that all Austrians believe the same thing, so as to ignore the claims of Mises or Rothbard by pointing to the errors of other Austrian economists, particularly Hayek. (I’m surprised he hasn’t jumped all over Lachmann’s nihilism – maybe he wasn’t famous enough?)
8) Link to a blog post with rationale just as shaky and fallacious, as if this proves – once and for all – his (erroneous) point.
Its importance is grossly exaggerated.
It’s importance is greatly, incredibly, profoundly understated.
Take the regression theorem: supposedly one of Mises’s greatest achievements.
Yet it is utterly otiose, once one realises that money can deliver direct utility:
Money cannot have value divorced from its exchange value characteristic. If every holder of cash truly believed that the exchange value of their money would collapse to zero, then they would no longer value holding the money for the initial reason.
“Money cannot have value divorced from its exchange value characteristic. If every holder of cash truly believed”…
Yes, it can. It still has value in extinguishing taxes or fines to governments, if governments choose to accept it.
This is dependent on an already existent exchange value or a fixed link to something that does.
Without that, again, you cannot determine what you owe in taxes or fines. If the US government declares tomorrow that taxes must henceforth be paid in “Bernankes” the Fed will print, there will be no way to calculate what taxes are owed by anyone, because that is dependent on – once again – an already existent exchange value.
I’m going to run through an example, and if you can, point out where you think I go wrong.
Let’s say there is a public and a private sector. The government pays its public sector workers with ‘Bernankes’ that it prints. The private sector has functioned off its own money or just purely barter up to this point (I don’t think this part matters very much).
Regardless, for simplicity, the government pays every one of its public workers 10 Bernankes. However, it asks for 2 Bernankes back in taxes from everyone (public and private workers).
Public workers receive a total of 10 Bernankes and give 2 back to the government in taxes, therefore earning net 8. Private workers have get a hold of 2 Bernankes to pay taxes or they will end up in prison. So private workers will exchange goods for Bernankes, based on each individual’s marginal utility of the Bernankes (for the value Bernankes give them in preventing them from being thrown in a prison cell) vs. the marginal utility of the goods they already hold (for whatever satisfactions they would otherwise satisfy).
So regardless of whether the economy was originally a money economy or a barter economy, why couldn’t government develop its own money in this manner?
The simplest objection would be that no public worker would take those 10 Bernankes unless they had a predefined exchange value (i.e., they had some idea of what goods they could get for their salary).
The more complex objection is that the private sector so dwarfs the public sector that there would be no way for the government to imprison those that didn’t pay the head tax of 2 Bernankes if no one takes them in exchange. The public workers would starve, and the private workers would be able to ignore the tax, as government action is always limited by public opinion. In short, if 90% of the populace only takes gold, for instance, and has no Bernankes to pay the tax, it would be impossible to put that many people in jail.
Even were this to “succeed”, the “money” would be extremely limited. Once the merchant gets enough Bernankes to pay the tax for himself and his workers, he would immediately stop taking them. And if the tax is not a head tax, then it won’t even be able to work as you have described. An income tax, for instance, would need to either have the income be in Bernankes already – meaning it would already have exchange value – or determinable in Bernankes through a fixed (until it becomes money itself) tie to the current money (as the US dollar did until it was broken from gold).
Thanks for the reply, all your objections are sensible and satisfactory.
Actually I don’t understand you’re reasoning. You’ve created imaginary numbers to make your point and then stated that government policy is always limited by public opinion which isn’t actually true.
I have a question:
When people first start using gold a money then the value of gold will increase as in addition to its non-money use there will now be additional monetary demand.
If fractional reserve banking begins then the value of gold should fall again as people can hold bits of paper that represent gold instead of gold itself. In theory the value of gold should fall back it its pre-commodity-money value.
If FRB is replaced by fiat money then what causes money to maintain its value if not something like what Samuelson says ? If gold can have additional “marketability” value that is based upon people expectations that it will keep its value then I suppose there is no reason why paper money should not have this attribute too. But as FRB has eliminated this additional value from gold I’m not seeing by what mechanism paper money regains this “marketability” value” as it switches to fiat money. Could there be any merit in the theories that suggest it is govt taxation that allows money to keep its value ?
“If fractional reserve banking begins then the value of gold should fall again as people can hold bits of paper that represent gold instead of gold itself. In theory the value of gold should fall back it its pre-commodity-money value.”
This is a bit of an incorrect leap. The value of money will fall with an increase in fiduciary media. It will not necessarily reach the pre-money commodity value. Additionally, the supply is still limited by the base metal in existence.
“If FRB is replaced by fiat money then what causes money to maintain its value if not something like what Samuelson says?”
The regression theorem, actually. Money qua money has exchange value because it had it yesterday. Hence, as long as people are still willing to use the money, it maintains its value. (As the supply increases, the value drops in accordance, but not merely because there is no backing.) Taxation “helps” insofar as it restricts the use of alternative money commodities by forcing them to eventually be converted into the fiat money for payment (insofar as the government can track such “barter” in alternative money and tax it).
Thanks.
Yes, I guess in a FRB system the requirement to keep gold as bank reserves and (by some people) as money outside of the FRB system will mean that gold will always keep some additional value.
I’m not sure I’m really seeing much difference between the regression theory and Samuelson view about ” It’s a convention, which works as long as the future is like the past” though.
The implication that it is a convention implies that it can be changed, without much impact, to some reasonable alternative because it is just how we decided to do it. The regression theorem demonstrates instead that money comes about in a certain way, must always come about in that way, and cannot function otherwise.
Put another way, a convention is an agreed upon standard – something like the USB connector over some other plug design. Money is not agreed upon, where people think “money should work this way”. It is a praxeological category – everything that is true of money is true of any medium of indirect exchange (no matter how common), as Mises put it, and no medium of exchange can function according to another “convention”.
Off topic, but I finally get the essence of the Mike Norman version of MMT. The great Lauren Lyster of RT finally dragged it out of him yesterday. Government spending out of thin air creates increasing wealth so there’s more great stuff to buy with the diluted dollars so prices don’t rise as fast as the money supply is diluted. And government spending out of thin air is necessary to make the whole thing spin. That’s it. Absent the constant injection of new funny money “dollars” into the economy, we’d all shrivel up and die. And thus the problem of real and monetary scarcity is solved because we can never run out of funny money “dollars” which are necessary to make the whole thing run.
http://mikenormaneconomics.blogspot.com/2012/10/must-watch-rumble-in-monetary-jungle.html?showComment=1351174624894#c7081882496110849418
LK has reared his head over there giving his rap about the non-existent 1920 non-depression. The point about 1920 was that those serious problems were caused by the Fed and WWI dislocations, and not the market, which DK has proven in his paper on the topic and they were solved by doing practically nothing. Further, the subsequent problems leading up to 1929 were also caused by various interventions and not the market.
Government spending out of thin air creates increasing wealth so there’s more great stuff to buy with the diluted dollars so prices don’t rise as fast as the money supply is diluted.
Private sector spending out of thin air (read: negotiable debt instruments like bank deposits, bills of exchange, promissory notes, and cheques) create increasing wealth, though driving higher consumption and capital goods investment, so there’s more great stuff to buy with the diluted dollars.
It is the way capitalism has nearly always worked, idiot – outside of historically aberrant periods like 1873-1896, booms even in the 19th century were mostly inflationary.
“negotiable debt instruments like bank deposits, bills of exchange, promissory notes, and cheques”
How are any of these “negotiable” so as to create money out of thin air? Are they not all transfers or storage of specific quantities of money held in contract?
“create increasing wealth, though driving higher consumption and capital goods investment”
That’s nonsense. All they can do is raise prices – first in the goods bought by those with the new money, and later across the entire economy. It is impossible to consume what is not first produced, and it is impossible to have higher capital investment when the prices of goods is higher. The whole point of saving/investing is to buy what is needed while producing those capital goods (and thus not earning) – if the prices are higher (and they will be), the investment cannot increase. It will, however, shift into different lines – lines that will not likely be met with later consumer demand.
“How are any of these “negotiable” so as to create money out of thin air?
All negotiable instruments do when used to purchase goods and services.
“It is impossible to consume what is not first produced, and it is impossible to have higher capital investment when the prices of goods is higher.”
The stupid assumption of an economy with no idle resources. Of course you can buy capital goods with negotiable debt instruments and thus add to the capital stock.
“All negotiable instruments do when used to purchase goods and services.”
In all those cases, I see a fixed sum of money being transferred from one person to another according to a contract. It cannot then be spent by the lender. Negotiable terms or not, no money is “created”.
“The stupid assumption of an economy with no idle resources.”
Nonsense. Idle resources only require a price transition to be used. They are idle because they cannot be used (capital goods without enough labor on the market) or because the price demanded for the use is too high (voluntary unemployment of labor). You cannot buy capital goods that don’t physically exist. Idle resources are invested – buying them with new money (which negotiable debt instruments DO NOT CREATE) only shifts the investment from one person to another as the latter thinks they can make better use of it.
Private sector spending out of thin air (read: negotiable debt instruments like bank deposits, bills of exchange, promissory notes, and cheques) create increasing wealth, though driving higher consumption and capital goods investment, so there’s more great stuff to buy with the diluted dollars.
Those are not money.
Fiat dollars can rather easily be understood as a bubble, by simply considering what would happen to its exchange value if tomorrow morning the state stopped demanding taxes in fiat dollars, stopped enforcing legal tenders laws in fiat dollars, and let individual private property owners and their other property owning customers decide on which commodity or commodities will become universally accepted as a medium of exchange.
I think it is safe to assume that people would not work all week for the purposes of earning defaced cotton and linen bills, rather than something more rare and valuable.
I think it makes sense to differentiate this from a bubble in the sense of malinvestment in a particular line of production due to credit expansion.
“Bubble” in the sense that prices rise than fall isn’t really useful, I think. With this, you get people talking about “gold bubbles” and other nonsense.
I think it makes sense to differentiate this from a bubble in the sense of malinvestment in a particular line of production due to credit expansion.
I think that is impossible, because the particular line of production in question is the production of money itself.
Right, but there is not “investment” in it. The term bubble needs to be limited, I think. For instance, I wouldn’t say there is a bubble in healthcare because Obamacare forces you to buy insurance and the price would drop if/when that mandate is removed. The bubble is the result of a specific intervention on the part of government – the creation of additional money, or the failure to stop this creation by the fraudulent FRB.
Right, but there is not “investment” in it.
Of course there is! In a free market, investments would be required to produce money.
Even in a socialist monetary order, the state has to make expenditures to maintain not only the physical production of fiat money, but also to maintain the relentless physical coercion and intellectual propaganda that ultimately backstops the entire operation.
For instance, I wouldn’t say there is a bubble in healthcare because Obamacare forces you to buy insurance and the price would drop if/when that mandate is removed. The bubble is the result of a specific intervention on the part of government – the creation of additional money, or the failure to stop this creation by the fraudulent FRB.
Again, that can’t be used when the subject is the production of “additional money” itself.
What you are saying is that because you want bubbles to only be understood as a consequence of inflation of fiat money, you are making it impossible to understand bubbles in the very inflation itself.
” In a free market, investments would be required to produce money.”
But, sadly, it is not a free market.
“Even in a socialist monetary order, the state has to make expenditures”
See Rothbard on why state spending is not investment:
““Investment” is defined as expenditures made not for the direct satisfaction of those who make it, but for other, ultimate consumers. Machines are produced not to serve the entrepreneur, but to serve the ultimate consumers, who in turn remunerate the entrepreneurs. But government acquires its funds by seizing them from private individuals; the spending of the funds, therefore, gratifies the desires of government officials.Government officials have forcibly shifted production from satisfying private consumers to satisfying themselves; their spending is therefore pure consumption and can by no stretch of the term be called “investment.” (Of course, to the extent that government officials do not realize this, their “consumption” is really waste-spending.)”
“What you are saying is that because you want bubbles to only be understood as a consequence of inflation of fiat money, you are making it impossible to understand bubbles in the very inflation itself.”
No, I’m saying that a “bubble” is a description of a set events – an example of an boom and bust generally limited to a group of specific assets, as opposed to general malinvestment. (Contrary to LK’s misunderstanding of ABCT, an asset bubble is not the only possible consequence of credit expansions.) As malinvestment by entrepreneurs cannot occur w.r.t. the unit of money itself, I don’t think it correct to describe the propping up of fiat currency by state action as a bubble. I think that can actually hide what is going on, and thus obscure analysis or provide false “loopholes” for mainstream economists to jump through as proving their case.
See Rothbard on why state spending is not investment:
OK, sure, I agree with that if you want to get technical about what “investment” really is, but for the purposes of my argument, the government does have to abstain from devoting scarce resources and labor elsewhere, to make them available for continuing to enforce fiat inflation, so it’s not like fiat money is being created at zero cost.
No, I’m saying that a “bubble” is a description of a set events – an example of an boom and bust generally limited to a group of specific assets, as opposed to general malinvestment.
Money is a specific asset.
“it’s not like fiat money is being created at zero cost.”
Right, but the boom of malinvestment is caused by overbidding for factors by entrepreneurs with access to cheap money. If there were, in any event, a single entrepreneur involved, you wouldn’t get the boom, followed by the bust.
And that is the thrust of my argument. There is no boom/bust to fiat money – no inflation of a “bubble”, followed by a “pop”. Only a semi-managed continual decline. (Even a newly freed market shift wouldn’t be instantaneous, as a bubble bursting is, but would be “held up” by bad economic understanding – see: gold to $6/oz when delinked from dollar, semi-inertial momentum of value – see: regression theorem – and other psychological factors causing some people to choose dollars.)
Right, but the boom of malinvestment is caused by overbidding for factors by entrepreneurs with access to cheap money.
Yes, and the boom of malinvestment in dollars, IMO, is caused by price controls on factors that ends up not limiting production of fiat money.
And that is the thrust of my argument. There is no boom/bust to fiat money – no inflation of a “bubble”, followed by a “pop”. Only a semi-managed continual decline.
Not if the enforcement is abandoned.
(Even a newly freed market shift wouldn’t be instantaneous, as a bubble bursting is, but would be “held up” by bad economic understanding – see: gold to $6/oz when delinked from dollar, semi-inertial momentum of value – see: regression theorem – and other psychological factors causing some people to choose dollars.)
The busts following bubbles are not “instantaneous” either. The stock market collapse during the last financial crisis (peak to trough) took place over a period of roughly 1.5 years.
A newly freed market in money would result in a non-instantaneous, but relentless, collapse of the value of the dollar. If we understand bubbles to mean sudden realizations that the “fundamental” prices of something is too high, then I insist that I am justified in calling the dollar a bubble.
“If we understand bubbles to mean sudden realizations that the “fundamental” prices of something is too high, then I insist that I am justified in calling the dollar a bubble.”
And I contend that this understanding of bubbles is erroneous. My claim is that what is called a “bubble” is a specific form of the business cycle.
And I contend that the dollar is ITSELF in a business cycle boom phase, driven by inflation (itself).
“Fiat dollars can rather easily be understood as a bubble, by simply considering what would happen to its exchange value if tomorrow morning the state stopped demanding taxes in fiat dollars”
In other words, you’ve signed up to the chartalist theory. of money.
My goodness. LK only reprinted a portion of MF’s entire sentence. As you can see, our opponents just can’t stand the idea that we’re right, they are wrong and they are the problem. Thus, they will never concede.
That isn’t the chartalist theory of money. Chartalism is a theory of FIAT money. I do not hold the chartalist theory of money qua money, which is what Knapp and today’s MMTers allege.
To recognize that the reason fiat money has exchange value is because of state coercion (law), is not to describe to the chartalist theory of money.
ascribe
Does anyone else find it as odd and creepy as I do that we Austrians (who are constantly explaining that government interference in the pricing process must lead to catastrophe) are constantly subjected to “economic lessons” from Keynesians and MMTers breathless telling us that throughout human history, governments have been setting prices and terms of trade upon the threat of violence? No sh*t, Sherlock.
Hey, man. We must be wrong about price controls. After all, FDR instituted those, and he fixed the Great Depression!
I wonder why we never hear that argument? May it have something to do with statistics being interpreted by predefined theory? Nah….
In lieu of having an understanding of the concept of “economic calculation”, LK showed up on the Mike Norman site to bring up Rothbard’s strange views on legal torture.
Then, after I posted on the Lauren Lyster/Capital Account site that you’d likely have more success explaining economic calculation to your cat than to Mike Norman, Tom Hickey, an official blogger on the Mike Norman MMT site, explained their “understanding” of the concept of economic calculation:
“We do understand economic calculation because we understand that we live in an world dominated by cultural convention and institutional arrangements that influence economic outcomes more than individual choice of supposedly free and rational agents, which psychology and evolutionary theory show to be an illusion. Moreover, it is world dominated by complexity, and as such unpredictable owing to such factors emergence and reflexivity.”
http://tinyurl.com/9fqcxg7
What? Can these guys be serious or are they just trying to drive me insane?
Oh, yeah. They want you to go insane. They clearly already are.
Also, I would mention that LK’s post on Rothbard’s post on torture ignores the context that he himself posted:
“As a corollary, police can never be allowed to commit an invasion that is worse than, or that is more than proportionate to, the crime under investigation. Thus, the police can never be allowed to beat and torture someone charged with petty theft, since the beating is far more proportionate a violation of a man’s rights than the theft, even if the man is indeed the thief.”
I don’t agree with the concept of torture at all as a deserved punishment for any crime, so this “corollary” would be the only principle regarding torture, but still. It is ironic that he misrepresents the full context of the very Rothbard quote he posted.
I’ve induced an astonishing assertion by LK:
Mises’ socialist calculation paper applies to communist command economies, not capitalist economies with Keynesian macro management.
http://tinyurl.com/8t4r98w
Yes, but….the impairment of economic calculation by Keynesian macro management is easily and has always been derived from the same concept as the problem of calculation under socialism. As Bob Murphy has stated so many times, these ideas were clearly set forth in 1912 in “The Theory of Money and Credit”, almost a decade before the writings on socialism per se. LK’s entire phony objection to Austrian ideas is based upon his purposeful (or possibly idiotic) failure to comprehend the basic concept of economic calculation.
Rothbard applied the idea to the concept of large firms being the only operator in an industry as well in MES. I would bet that Rothbard had a better conception of economic calculation than LK and his “it means moving towards Walrasian GE, right?”
I’m fairly certain that I’ve previously directed LK to Peter Klein’s essay on entrepreneurship with its Rothbard quotes from MES around pp. 14-16. But it’s all harder to explain it to LK than explaining it to your cat.
http://tinyurl.com/9mvdkd9
What is more bizarre is that until LK brought it up, I never really gave much thought to the difference between strictly soviet socialist calculation impairment and Keynesian calculation impairment or the alleged difference between a single natural rate of interest or a whole bunch of natural rates of interest. To me, they were just slight differences in emphasis on the same or clearly related concepts. LK splits hairs because he has to.
lol…. The pages you refer to in Peter G. Klein’s The Capitalist and the Entrepreneur: Essays on Organizations and Markets are nothing but
(1) a discussion of how within large PRIVATE firms internally traded intermediate products allegedly cause organizational inefficiencies, because there was no price based on external markets for them.
(2) some brief comments on why command economies do not work because a “single agent owns and directs all resources” (p. 16).
In no sense does it support the idea that government spending or Keynesian macro policies impose catastrophic economic calculation problems on a capitalist society.
Sounds like you just quoted some random Austrian tripe in the hope that no one would read it or call you on your garbage assertions.
And incidentally the pages you cite also require that free capitalist agents on the free market itself are perfectly capable of creating serious economic problems just by developing large monopolistic, oligopolistic or conglomerate firms with large internal managed trade or transactions.
And JCat never wrote this:
http://mises.org/daily/5123/Government-Spending-Is-Bad-Economics
Let’s all thank Lord “Kelso” Keynes for setting us straight.
Lord Keynes:
You just subconsciously admitted that Keynesian policy imposes distortions to economic calculation.
That is why you felt compelled to denying the trivial fact that it doesn’t impose “CATASTROPHIC” distortions to economic calculation.
I think 100% of Austrians will agree that it doesn’t impose “catastrophic” distortions. But they will agree with you that it imposes distortions qua distortions.
The inefficiency because of no market price for factors of production is the problem of calculation, LK.
“When any of these external markets disappears, because all are absorbed within the province of a single firm, calculability disappears, and there is no way for the firm rationally to allocate factors to that specific area. The more these limits are encroached upon, the greater and greater will be the sphere of irrationality, and the more difficult it will be to avoid losses. One big cartel would not be able rationally to allocate producers’ goods at all and hence could not avoid severe losses. Consequently, it could never really be established, and, if tried, would quickly break asunder.
In the production sphere, socialism is equivalent to One Big Cartel, compulsorily organized and controlled by the State.”
(1) “The Theory of Money and Credit” (1912) set outs Mises’ business cycle theory, not the arguments of “Economic Calculation in the Socialist Commonwealth” (1920). Indeed the latter assumes an economy WITHOUT money, and its economic calculation problems, while the former is all about economies WITH MONEY.
Roddis badly misunderstands Austrian economics again.
(2) In fact, even Mises said that a libertarian socialist/syndicalist system of production was possible: he admitted that rational economic calculation was possible under syndicalism since he argued that there was a group-collective private ownership of capital goods in such a system (Keizer, W. 1987. “Two Forgotten Articles by Ludwig von Mises on the Rationality of Socialist Economic Calculation,” Review of Austrian Economics 1.1: p. 114).
So why would a modern capitalist state with Keynesian macromanagement where private ownership of capital goods exists be affected by the original socialist economic calculation problems (as described by Mises in 1920) but a syndicalist economy would not be?
(1) The ideas behind the Austrian theory of the business cycle, as laid out in Theory of Money and Credit are the same ideas that pertain to the problem of economic calculation in a division of labor, i.e. capitalist, society. As usual, LK does not understand economic calculation.
(2) What utter confusion. Mises’ discussion of syndicalist economies as they pertain to the problem of economic calculation did not contain the argument that a syndicalist economy would not be affected by Keynesian macro-management. You are mixing things up. Mises argued on the one hand that a syndicalist economy with group private ownership of the means of production would have rational economic planning. Mises argued on the other hand that Keynesian macro-management distorts economic calculation, and that would apply to both capitalist and syndicalist economies. Keynesianism is not syndicalism. You cannot argue that if Mises argues there can be rational economic calculation in a syndicalist economy, that to be consistent he would also have to argue that Keynesianism does not distort calculation in a capitalist economy.
Regarding syndicalism in particular, Mises argued in “Socialism” that it would not even last, because it is an attempt to impose a rigid ownership structure in a necessarily dynamic world. He argued that even if workers took ownership of the companies they worked at, that changing preferences, technology, and production methods would eventually progress society to capitalist ownership once again, as former workers become capitalists themselves. And, impoetantly, the only way to stop this would be if the state uses force to prevent these production relation innovations, which of course would imply a socialist take-over of society, and thus the syndicalist order would make way for a socialist economic order.
The “admission” of Mises that there would be rational calculation in Syndicalism presumes no distortions from any Keynesian impositions. It isn’t as significant of an “admission” as you seem to believe. Better luck next time.
“Keynesianism is not syndicalism.”
Precisely. It is Nazi style totalitarian socialism, at its heart. That can be the only result of Keynes advocacy for the State directing “investment”.
(1) “Mises argued on the one hand that a syndicalist economy with group private ownership of the means of production would have rational economic planning. Mises argued on the other hand that Keynesian macro-management distorts economic calculation, and that would apply to both capitalist and syndicalist economies.”
A fortiori a Keynesian system would also have “rational economic planning”.
Quite an admission.
(2) Your whole argument is a straw man as well. What I actually said:
“why would a modern capitalist state with Keynesian macromanagement where private ownership of capital goods exists be affected by the original socialist economic calculation problems (as described by Mises in 1920) but a syndicalist economy would not be?”
The “original socialist economic calculation problems” are nothing but a lack of “rational economic planning”.
You have changed that to some other unspecified “economic calculation” problems, using a fallacy of equivocation.
By effectively admitting that a syndicalist economy would have “rational economic planning” and logically by implication that a Keynesian economy would too, you have done nothing but conceded my argument.
Well done.
Still confused I see. A Keynesian system has distorted economic calculaton, but it still has enough private ownership forces such that there is a semblance of rational planning.
You incorrectly claimed that because there is private ownership and hence a price system for the means of production, that suddenly Keynesian hampered capitalist economies have non-distorted rational planning. You are comparing apples and oranges.
My response was not a straw man because the SAME ideas behind the impossibility of economic calculation in socialism, are ALSO applicable to economies where less than 100% government intervention, but greater than zero intervention, exists. In such cases, economic calculation, instead of being impossible, becomes hampered to the degree the government intervenes.
The greater the extent of Keynesian interventions, the greater calculation is hampered.
Are you THAT pig-headed that you are unable to grasp the concept of DEGREES? Do you actually hold that it’s all or nothing? That if there is 99.9% government intervention, then because it is not technically 100% socialism, that Mises’ arguments somehow do not apply and the quality of capitalist calculation is the same as if there was 100% capitalism?
It sounds like you believe that because Keynesianism is less than 100% socialism, that there are no distortions to economic calculation. That somehow capitalists are able to discern from nominal prices, interest rates and demands, which portion is derived from market forces, and which portion is derived from government forces, such that they are able to make investment decisions as if the Keynesian policies don’t even exist?
Keynesian policies would not even be imposed if it weren’t for the fact they it moves the economy away from a free market trajectory, and thus by its own nature, must be assumed as changing economic calculation decisions of market participants.
Hahahaha, that logic does not follow! Nothing Keynesian related follows from the argument that there exists rational planning in syndicalism WITHOUT Keynesianism.
It would be like me claiming you admit anarcho-capitalism is the optimal social order because you conceded Keynesianism has less than 100% government intervention.
There is no there, there. The one is not related to the other.
The point that continues to go over your head is that there is a spectrum concerning economic calculation. It isn’t black and white all or nothing.
At the one extreme, in anarcho-capitalism, economic calculation is totally undistorted.
At the other extreme, in socialist command economies, economic calculation is totally absent.
In the middle, which is where most economies have been throughout history, and what describes our economy, the presence of less than 100% and greater than 0% government intervention, economic calculation is hampered, distorted, price signals are jammed. But because the signal is not totally jammed, some communication is possible.
You are hilarious. You want so badly for Keynesianism to pass Mises’ arguments that you will ignore the arguments Mises actually made.
“the presence of less than 100% and greater than 0% government intervention, economic calculation is hampered, distorted, price signals are jammed. But because the signal is not totally jammed, some communication is possible.”
You continue to prove my point, as you flail about ridiculously trying to prove otherwise.
The alleged economic calculation problems you now refer to are not the ones specified by Mises in the original socialist calculation debate, which are: lack of market prices for capital goods, which thereby eliminates the markets which produce prices for the means of production with which capitalists are able to calculate profit and loss.
So therefore all of my point in the discussion above has been vindicated: the original socialist calculation debate is about an “economic calculation problem” quite different in sense from the ones postulated by Austrians in their criticisms of Keynesianism.
You have already admitted that a capitalist economy with mere Keynesian macro would have a considerable degree of rational economic calculation to the extent that government intervention was well below 100% (whivh it would be), since the overwhelming, vast majority of capital goods are owned, produced and sold privately on markets in such a system, and the vast majority of all production is private.
It’s excellent to see how in your desperate attempts to prove otherwise you reinforce what has been argued above.
Congratulations all around, MF.
hahaha, what “flailing”?
The only thing I see is a continual inability of you to understand that which you are desperately trying to refute.
Once again, the ideas that constitute the justification for the argument of a lack of calculation in a socialist economy, are THE SAME as the ideas that constitute the justification for why Keynesian interventions distort economic calculation.
Once again you are simply denying the arguments from Mises, by pretending that Mises arguments do not apply to anything less than 100% socialism.
which are: lack of market prices for capital goods, which thereby eliminates the markets which produce prices for the means of production with which capitalists are able to calculate profit and loss.
That calculation is according to Mises HAMPERED by Keynesian style interventions.
So therefore all of my point in the discussion above has been vindicated: the original socialist calculation debate is about an “economic calculation problem” quite different in sense from the ones postulated by Austrians in their criticisms of Keynesianism.
FALSE. Your claim remains as wrong now as it was the first time you made it.
The problem is not “quite different”. The problem of Keynesianism is the same fundamental problem of socialism, only to a lesser DEGREE.
You have already admitted that a capitalist economy with mere Keynesian macro would have a considerable degree of rational economic calculation to the extent that government intervention was well below 100% (whivh it would be)
Hahaha, you just admitted that an eonomy with “Keynesian macro” intervention has distorted economic calculation, as I argued all along. For that is why you feel vindicated by the notion of me admitting that an economy with “Keynesian macro” intervention has but “considerable” rational planning. “Considerable” means, in other words, less than some possible optimal that is found in economies WITHOUT “Keynesian macro” interventions.
Thanks for playing, LK. You have provided yet another round of fodder.
It’s like the more you argue against Austrianism, the more you find yourself reluctantly agreeing with it.
Lord “Kelso” Keynes is not focusing upon any insistence that Keynesianism does not and cannot impair calculation. Instead he is insisting that Austrian theory has never held that it did. Life is short. Let’s declare victory and go out for a nice Sunday drive using stolen gas.
“which are: lack of market prices for capital goods, which thereby eliminates the markets which produce prices for the means of production with which capitalists are able to calculate profit and loss.”
Effect before cause, once again. The problem Mises pointed to is that the price signals don’t exist because there is no market. With a hampered market, driven by Keynes socialization of “investment” by the State, there can only be inaccurate prices.
The economic calculation is falsified by the interference of government. The difference is akin to the difference between solving an equation without any constants, and one where someone changes what you have for the value of the constants midway through the solution.
Inspired by the idiocy and fraud of this election and the idiocy and fraud of the proponents of Keynesianism and funny money, I’ve had a deep thought about the difference between “democracy” and Ancap. In a democracy or in politics, one can lie and over-promise until one is blue in the face. In the market, if you lie and commit fraud, other parties to the contract can sue you for fraud and you will held accountable for your lies. In a democracy, if you are a state official and commit an assault on a person or property, you can probably find a way to weasel out of any significant punishment. In the market, you will be held liable for such a violation.
Politics is the antithesis of the market and even its electoral process is based upon (an expected) tissue of lies. That is why Keynesianism is such a brilliant political strategy: Because it is such a marvelous and impenetrable maze of doubletalk and lies. For its perpetrators there is no punishment and for its victims there is no justice.
The debate between libertarians and the statists is fundamentally the difference between those of us who insist upon enforcing agreements and preventing assaultive behavior and those who reject and seek to violate those rules of civilization.
And to add to what I’ve just said, I think that much of the hostility of the public to “laissez faire” is the result of experiences in government courts where the likelihood of obtaining justice for breaches of contracts and torts is both expensive and quite problematic. Thus, the public is left with the idea that market actors are “unregulated” which, in a sense, they are. But these are precisely the problems one might expect from a bureaucratic government agency.
I agree with Bob Murphy about money as a social contrivance.
In the constrictive environment Samuelson sets up, space emerges for some intrinsically worthless item to be passed from generation to generation. He refers to this item as money, but there’s no reason why he couldn’t call it guano, or bonds, or whatever. It’s somewhat ad hoc to take a common word like money and apply it to a variable emerging from a model, especially if that variable looks little like money as we commonly refer to it. Money is a highly liquid object, but in Samuelson’s model his money only gets passed off once every generation.
Secondly, Samuelson never speaks to the incredible degree of inter-generational coordination that would be required to arrive at a social contrivance that dictates that useless objects must be accepted. Why would future generations accept it to begin with, if they don’t know the next generation won’t laugh at it? Samuelson’s social contrivance is in many ways similar to the idea of a Walrasian auctioneer. Both do herculean amounts of work. But they are strong assumptions. Absent the assumption of a social contrivance, both credit and commodities will do the work of money. Both of these items have some intrinsic value. It is this intrinsic value that anchors their value and incentives inter-generation transfer, thereby performing the same function as the social contrivance… but at far less cost, and with the benefit of a greater degree of realism.
The relentless but desperate statist objections to the obvious and self-evident notion of money as a spontaneous order demonstrates that the statists know in their hearts that such a notion destroys the entire edifice of their silly and contrived proposals.
Oh, and Lord “Kelso” Keynes is still at it, misrepresenting everything Austrian because he must.
http://tinyurl.com/9ldek8o
Look at what the MMTers are taking away from LK’s nonsense about the limits of the socialist calculation debate:
Some followers of Mises and Hayek now seek to apply that critique to contemporary systems in which government is an institutional player economically.
No. . All followers of Mises and Hayek have always applied that critique to “contemporary systems in which government is an institutional player economically.”
http://mikenormaneconomics.blogspot.com/2012/10/lord-keynes-mises-on-rational-economic.html
Further, LK has changed his tune:
My post does not in fact deny this: yes, it is a variation on socialist calculation problem, but a clear and important variation and difference.
The original and strict “economic calculation” problem as defined by Mises is: the lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
But that specific problem does not apply to capitalist economies with Keynesian macro policies, just as Mises admitted it did not apply to syndicalist economies.
“All followers of Mises and Hayek have always applied that critique [= original socialist economic calculation problem] to “contemporary systems in which government is an institutional player economically.””
Wrong:
http://mikenormaneconomics.blogspot.com/2012/10/lord-keynes-mises-on-rational-economic.html?showComment=1351450402365#c5569951971824379637
“Further, LK has changed his tune:…
And my position has not changed at all. It is same view I held back when Catalan was discussing this issue.
In fact, it is you who have now moderated your view.
“Serious Austrians know that this problem applies to communist, command, planned economies – not capitalist ones. That is how Mises could argue that his strict “socialist calculation problem” would not apply to a syndicalist economy.”
Wrong. Serious Austrians know that this problem applies to any economy where, to any degree, property rights are not respected (including “capitalist” ones with government interference), or there is no capability for a market to exist. A syndicalist economy would have private property rights assigned to groups, but they would still exist. (Rothbard, of course, did point out that economic calculation would not be possible in rationally determining wages, rents, and interest, however.)
Your claim is utterly fallacious. If an entrepreneur must have an external market to calculate, it necessarily follows that said market must not be falsified by coercive action. This is the same reason that Mises argues that “market socialism” cannot play at having a market determine prices for factors of production.
“The original and strict “economic calculation” problem as defined by Mises is: the lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.”
I think it is because you have this entirely backwards. The economic calculation problem is the lack of rational market prices. Applied to socialism, which is a single application and not the entire use of the concept, the rational market prices cannot exist because no market can exist at all without private property.
Actually that’s correct. It’s the reason, you know, why you keep being told that BY EVERY AUSTRIAN YOU ENGAGE on the matter, that the same ideas apply.
It’s not “equivocation.” It’s the SAME ideas being used in two economies with different degrees of government intervention.
The lack of profit and loss in the price system for the means of production in command economies, which forms the backdrop of the lack of economic calculation, is ALSO present in economies where the monetary system is state monopolized. Here, there is no profit and loss in the production of money. The state uses extra-market means to change the money supply. That is why the “socialist calculation” debate applies to not only Soviet Style planning, but also capitalist economies with Keynesian intervention. The lack of profit and loss is the same in both, when it comes to the production of money.
And no, you can’t even fall back on the claim that the private sector creates money, and that banks can go bankrupt, etc, because the Fed OVERRULES those forces by direct inflation to bail out the banks and to encourage them to continue to produce money without being subjected to actual market forces.
But you did not show what you claimed to have shown. All 4 points you made reveal an utter ignorance.
“The lack of profit and loss in the price system for the means of production in command economies, which forms the backdrop of the lack of economic calculation, is ALSO present in economies where the monetary system is state monopolized. Here, there is no profit and loss in the production of money. “
Money is not a capital good. Your argument fails – and you prove my point.
The *alleged* economic calculation problems in a Keynesian economy cited by Austrians like you are different from the original problem discussed by Mises.
It doesn’t have to be for the lack of profit and loss in the field of money production to manifest itself in a non-market affect on that which is used for economic calculation, which because it is non-market, has distortive effects on market prices.
Your argument fails, and you are still confused.
The concept of economic calculation is centered on money prices, relative money prices to be precise, and relative money prices are affected by non-market money production.
The proven economic calculation problems in Keynesian non-market money interventions are based on the SAME ideas as that which underlie the “original problem.” Both Mises and Hayek noted the distortive effects of government monetary manipulation which you call “Keynesianism.”
MF, make sure that you wipe up the blood when you’re done kicking the shit out of LK. Thanks.
In his post to which he links, LK misrepresents the gist of what Hayek said.
http://mikenormaneconomics.blogspot.com/2012/10/lord-keynes-mises-on-rational-economic.html?showComment=1351450402365#c5569951971824379637
LK says:
(4) ignorant internet Austrians like you invoke the Walrasian general equilibrium concept of a price vector that will clear all markets (with flexible wages clearing the labour market)in this quotation of Hayek:
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. Remember, please: that is the crucial concept.” (Hayek 1975: 6–7).
But I have already dealt with all these in the original post.
Find the original Hayek quote which LK cites here on page 7 in context:
http://www.flickr.com/photos/bob_roddis/7534880182/sizes/o/in/set-72157630494776170/
What Hayek is saying is that intervention prevents the undistorted prices from coming into existence and, as such, one cannot statistically measure something which does not exist. Since LK does not understand economic calculation, he does not understand the gist or the context of the quote he cites.
“What Hayek is saying is that intervention prevents the undistorted prices from coming into existence and, as such, one cannot statistically measure something which does not exist. Since LK does not understand economic calculation, he does not understand the gist or the context of the quote he cites.”
All completely consistent with the notion of a price vector that will clear all markets (with flexible wages clearing the labour market).
You prove my point and refute yourself.
No, it is not necessary for there to be “perfect” price “vectors” that will clear all markets in empirical reality. That concept is a mental tool of cognition only, not an empirical claim.
Intervention moves prices away further from where prices would maximally tend to clear markets, for prolonged periods of time, due in part to the subjective expectations and fundamental uncertainty on the part of government agents who bring about the Keynesian policies, but in particular due to the lack of profit and loss signals which itself is due to a lack of a market in the fields that the intervention takes its form (money and spending).
“one cannot statistically measure something which does not exist.”
And since it was not stated or implied that one could actually “statistically measure something which does not exist such as the price structurem, this does not refute anything have written.
“What Hayek is saying is that intervention prevents the undistorted prices from coming into existence
So government interventions allegedly stop a price vector that will clear all markets (with flexible wages clearing the labour market)!?
My point proven.
You didn’t have to have explicitly said that before it refutes what you said. It refutes your claim that Keynesian policies do not introduce distortions to the price system.
It is true that market actors, in a Keynesian world, cannot observe unhampered prices, precisely because they have been affected by the interventions. That is why market actors are led astray and their communication signals jammed.
To be accurate, it prevents the dynamic price trajectory that tends to clear all markets, and replaces it with a dynamic price trajectory that prolongs, if not make impossible, such tendency.
Note also the first paragraph on page 7 where Hayek explains that distortions in the price system direct resources to “false uses” that can be corrected only by making sure that prices achieve what somewhat misleadingly we call an equilibrium structure.
http://www.flickr.com/photos/bob_roddis/7534880182/sizes/o/in/set-72157630494776170/
This interview is from 1975 which to some people was a long time ago. I didn’t just make this up.
In his post to which he links, LK misrepresents the gist of what Hayek said.
http://mikenormaneconomics.blogspot.com/2012/10/lord-keynes-mises-on-rational-economic.html?showComment=1351450402365#c5569951971824379637
LK says:
(4) ignorant internet Austrians like you invoke the Walrasian general equilibrium concept of a price vector that will clear all markets (with flexible wages clearing the labour market)in this quotation of Hayek:
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. Remember, please: that is the crucial concept.” (Hayek 1975: 6–7).
But I have already dealt with all these in the original post.
Find the original Hayek quote which LK cites here on page 7 in context:
http://www.flickr.com/photos/bob_roddis/7534880182/sizes/o/in/set-72157630494776170/
What Hayek is saying is that intervention prevents the undistorted prices from coming into existence and, as such, one cannot statistically measure something which does not exist. Since LK does not understand economic calculation, he does not understand the gist or the context of the quote he cites.
“one cannot statistically measure something which does not exist.”
And since it was not stated or implied that one could actually “statistically measure something which does not exist” such as the equilibrium price structure, this does not refute anything I have written.
“What Hayek is saying is that intervention prevents the undistorted prices from coming into existence
So government interventions allegedly stop a price vector that will clear all markets (with flexible wages clearing the labour market)!?
My point proven.
You already typed this. There is no reason to type it again. It was flawed the first time.
“What Hayek is saying is that intervention prevents the undistorted prices from coming into existence and, as such, one cannot statistically measure something which does not exist. Since LK does not understand economic calculation, he does not understand the gist or the context of the quote he cites.”
All completely consistent with the notion of a price vector that will clear all markets (with flexible wages clearing the labour market).
You prove my point and refute yourself.
You already typed this as well. You’re cluttering the blog.
LK fumbles the ball at his own three, picks it up and then panics as he runs out the back of his own end zone.
Lord Keynes said…
“However, the Austrians also attack Keynesianism (and monetarism) for producing false prices (as opposed to no prices under socialism) which mislead most everyone into investing time, money and labor into lines of production that only seem worthwhile due to the various injections of funny money but which are, in fact, unsustainable.”
An alleged economic calculation problem different from the original one of Mises.
You continue to prove the original point.
http://tinyurl.com/8fcbshz
No, LK. The problem is precisely the same under both socialism and Keynesianism. Both policies involve thugs with guns interfering with the process of voluntary exchange thereby impeding the pricing process and impeding the creation of undistorted prices. Both policies are based upon the fatal totalitarian conceit that the predatory state has better information than do the formerly free citizens.
This also explains why Keynesians will not allow these basic Austrian concepts to be set forth clearly to the public and why Keynesians refuse to engage them.
LK fumbles the ball at his own three, picks it up and then panics as he runs out the back of his own end zone.
I haven’t been paying attention to your never-ending battle, but this was funny…
a) What do you mean? I’m always funny!
b) The short version of the endless battle that just ended in victory for the good guys:
LK posts 185,982 times on his blog about the cult of the ABCT without ever understanding the concept of economic calculation. In fact, he claims that the concept of economic calculation only applies to the “socialist calculation problem” and that no Austrian had ever applied the “socialist calculation problem” analysis to Keynesianism. Then yesterday, it seemed to dawn on him that the Austrian analysis of both socialism and Keynesianism are similar, if not identical and have always been so. So, from now on, we can look forward to him splitting hairs about alleged differences between Austrian analysis of socialism and Keynesianism. And we’ve always been at war with Eastasia.
“In fact, he claims that the concept of economic calculation only applies to the “socialist calculation problem” and that no Austrian had ever applied the “socialist calculation problem” analysis to Keynesianism”
Ridiculous caricature.
(1) the original issue raised by Mises in the “socialist calculation debate” is the lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
(2) as Mises admitted, a syndicalist system where “associations engage in mutual exchange relations, [sc. and where] they give and receive as if they were the owners of the goods” would actually be perfectly capable of engaging in “rational economic calculation”.
(3) it follows logically from (2) that a capitalist economy even with Keynesian macro is also capable of engaging in rational economic calculation, since the overwhelming, vast majority of capital goods are owned, produced and sold privately on markets, and the vast majority of all production is private. .
(4) yes, Austrians also complain about alleged “economic calculation” in a capitalist system with Keynesian macro (the position I have always held even when Catalan discussed this issue ages ago), but the issues involved are different from the original one of Mises (= lack of market prices for capital goods). Instead, the “economic calculation” problems you’re talking about are:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies, and income policies.
(3) government spending allegedly leading to Cantillon effects
(4) obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market), as in this quotation of Hayek:
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. Remember, please: that is the crucial concept.” (Hayek 1975: 6–7).
Is it your view that
(1) factors (1) to (4) above cause economic calculation problems in a modern economy like the US?
(2) is it your view that the US and other capitalist nations have vast and private markets for capital goods?
I notice how you’re cowardly avoiding giving any answer to these questions over Mikenormaneconomics.
It strongly suggests your intellectual bankruptcy.
You just listed two sets of 1-4. Which set have I cowardly avoided responding to?
I thought I explained above. Socialism and Keynesianism both involve a set of thugs interfering with the pricing process OF EVERYTHING based upon their assumption that they have superior knowledge to that of average people.
lol..:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies, and income policies.
(3) government spending allegedly leading to Cantillon effects
(4) obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market).
Is it your view that
(1) factors (1) to (4) above cause economic calculation problems in a modern economy like the US?
(2) is it your view that the US and other capitalist nations have vast and private markets for capital goods?
V. Socialism and Economic Calculation
Austrian economics had always implicitly favored a free-market policy, but in the quiet and relatively free world of the late nineteenth century, the Austrians had never bothered to develop an explicit analysis of freedom or of government intervention. In an environment of accelerating statism and socialism, Ludwig von Mises, while continuing to develop his business-cycle theory, turned his powerful attention to analyzing the economics of government intervention and planning. His journal article[11] of 1920, “Economic Calculation in the Socialist Commonwealth,” was a blockbuster: demonstrating for the first time that socialism was an unviable system for an industrial economy; for Mises showed that a socialist economy, totally deprived of a free-market price system, could not rationally calculate costs or allocate factors of production efficiently to their most needed tasks. Although again untranslated into English until 1934, Mises’ demonstration had an enormous impact on European socialists, who tried for decades to refute Mises and to come up with workable models for socialist planning. Mises incorporated his insights into a comprehensive critique of socialism, Socialism[12] (1922). By the time that Mises’ devastating critiques of socialism were translated, the world of American economics was told that the Polish socialist Oskar Lange had “refuted” Mises, and the socialists rested without bothering to read Mises’ own contribution. The increasing and acknowledged failures of Communist economic planning in Russia and Eastern Europe in these increasingly industrialized economies after World War II provided a dramatic confirmation of Mises’ insights—although Mises’ own demonstration is still conveniently forgotten.
If socialism cannot work, then neither can the specific acts of government intervention into the market which Mises dubbed “interventionism.” In a series of articles during the 1920s, Mises criticized and disposed of a host of statist economic measures, articles which were collected into Kritik des Interventionismus[13] (1929). If neither socialism nor interventionism were viable. then we are left with “laissez-faire” liberalism, or the free market economy, and Mises expanded on his analysis of the merits of classical liberalism in his notable Liberalismus[14] (1927). In Liberalismus, Mises showed the close interconnection between international peace, civil liberties, and the free-market economy.
From Rothbard’s “The Essential Von Mises”.
http://mises.org/page/1442
“If socialism cannot work, then neither can the specific acts of government intervention into the market which Mises dubbed “interventionism.” In a series of articles during the 1920s, Mises criticized and disposed of a host of statist economic measures, articles which were collected into Kritik des Interventionismus[13] “
Point proven: even Rothbard distinguishes “interventionism” from “socialism”.
Mises’ “series of articles during the 1920s” was not attempting to refute “interventionism” on the basis of the idea that an “interventionist” system had no market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
Your “point” was always that “economic calculation” analysis only applied to the socialist calculation problem and not to similar problems caused by Keynesian and Keynesian-type policies. The “debate” invariably took this form:
Me: Your critique of the ABCT is silly because you do not understand the concept of economic calculation or how Keynesian policies necessarily induce economic miscalculation leading to the ABCT.
LK: Idiot! Economic calculation only applies to the socialist calculation debate!
Your point was never that the analysis as applied to socialism vs Keynesianism was similar but different [duh]. If it had been, we might have discussed that for the last 3 years instead.
I’ve already won this stupid debate so it’s over. Give up.
“Your “point” was always that “economic calculation” analysis only applied to the socialist calculation problem and not to similar problems caused by Keynesian and Keynesian-type policies. “
No, it wasn’t.
The point was, and always has been, that the original issue in the socialist calculation problem (no market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss) is not what modern Austrians mean when they complain about “economic calculation” in a Keynesian economy. The major problems they talking about are the alleged miscalculation/malinvestment issues raised by the ABCT and other government interventions as listed above.
“LK: Idiot! Economic calculation only applies to the socialist calculation debate!”
LOL.. cite me one actual instance of me asserting this.
In fact, you can easily verify my position has not changed, just as when I said nearly a year ago:
The economic calculation problem – if you are talking about the debate between Mises/Hayek and various socialists – is about the viability of command economies with no price system.
This is a stupid red herring: Hayek’s ABCT is about alleged price distortions/forced saving in economies where the vast majority of production is done privately, not about production in a communist country where all capital goods are owned by the state and production done by central planners.
http://krugman-in-wonderland.blogspot.com/2011/12/gee-maybe-we-need-those-space-aliens.html?showComment=1325126692408#c5892389491397437661
“the *strict* economic calculation debate applies to communist command economies with no price system or private ownership of capital goods, so any Austrian charge of economic calculation problems in a economy where the vast majority of all commodities are produced privately refers to the alleged “economic calculation” problems associated with the Austrian trade cycle theory in a modern capitalist economy with large private ownership of capital.
I understand the alleged “economic calculation” problems and alleged distortions of the capital structure postulated by the ABCT perfectly well, and you just make a fool of yourself by repeating this tired nonsense. “
http://krugman-in-wonderland.blogspot.com/2012/02/is-government-spending-really.html?showComment=1328309701491#c6802743273583319574
“LK: Idiot! Economic calculation only applies to the socialist calculation debate!”
LOL.. cite me one actual instance of me asserting this.
You just said it again:
The economic calculation problem – if you are talking about the debate between Mises/Hayek and various socialists – is about the viability of command economies with no price system.
This is a stupid red herring
Laughable.
For in the very same comment I made I am showing that the actual “economic calculation problems” Austrians are invoking are those postulated by the ABCT.
Point proven yet again.
ABCT is but ONE idea in the overall framework of coordination theory.
Coordination theory is what underlies the “problems of economic calculation” for BOTH Socialism and its watered down version of Keynesianism.
Oh, and I see your intellectual bankruptcy is still clear by your failure to answer the simple questions posed to you:
——-
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies, and income policies.
(3) government spending allegedly leading to Cantillon effects
(4) obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market).
Is it your view that
(1) factors (1) to (4) above cause economic calculation problems in a modern economy like the US?
(2) is it your view that the US and other capitalist nations have vast and private markets for capital goods?
The point was, and always has been, that the original issue in the socialist calculation problem (no market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss) is not what modern Austrians mean when they complain about “economic calculation” in a Keynesian economy.
YOU ARE BEING TOLD BY AUSTRIANS WHAT THEY MEAN.
Every single Austrian you have engaged on this have told you that “economic calculation” is affected by Keynesian policies in a non-market, i.e. distortionary, way.
Your retreat is just leading deeper into the hole you dug for yourself.
LK asks the obvious.
Is it your view that
(1) factors (1) to (4) above cause economic calculation problems in a modern economy like the US?
“FACTOR (1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
Response re: “FACTOR (1)”. That’s a convoluted question. I’m going to take that as asking:
Does the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT) cause economic calculation problems in a modern economy like the US?
Of course.
Response re: “FACTOR (2)”. Does government spending, deficit spending, central bank fiat money creation, price controls, subsidies, and income policies cause economic calculation problems in a modern economy like the US?
Of course.
Response re: “FACTOR (3)”. Does government spending allegedly leading to Cantillon effects cause economic calculation problems in a modern economy like the US?
Of course.
Response re: “FACTOR (4)”. Do obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market) cause economic calculation problems in a modern economy like the US?
Of course because inter alia we never get to learn what such labor is actually worth.
(2) Is it your view that the US and other capitalist nations have vast and private markets for capital goods?
The key term is here “private” markets. When a person is regulated by government, his property is less “private” than it otherwise would be. Since money is ultimately government controlled and government money is used almost exclusively to make purchases in capital markets, the whole system is no longer “private” in the manner it would have been without the interventions. When title is your name, but the government tells you what you can do with it, that’s called “fascism”.
LK, this is all so simple and we’ve stated it a thousand times before. Stop with the stupid hair-splitting. Austrian analysis has always been about price distortions and price impairment, mostly about the ones caused by government. You just cannot accept that analysis because it is so obviously and universally self-evident and it is devastating to any Keynesian analysis or policy proposal. Indeed, the entire Minsky analysis is based upon omitting these obvious truths from the analysis
So you simply evade going a direct answer to (2), which suggests you know the answer is “yes”.
It logically follows that a capitalist system with Keynesian macro is not subject to the original and strict socialist calculation problem.
And when answering “yes” to all questions from (1) to (4) you prove that the *alleged* economic calculation problems you keep leveling at a capitalist system with Keynesian macro are different from the original and strict socialist calculation problem.
Debate over: My points proven.
It also directly follows that your endless talk about how nobody outside the Austrian cult has ever understood what Austrians like you mean when they talk about “economic calculation” is also rubbish.
So you simply evade going a direct answer to (2)
I see a direct answer:
“When a person is regulated by government, his property is less “private” than it otherwise would be. Since money is ultimately government controlled and government money is used almost exclusively to make purchases in capital markets, the whole system is no longer “private” in the manner it would have been without the interventions.”
Are you blind?
It logically follows that a capitalist system with Keynesian macro is not subject to the original and strict socialist calculation problem.
Oh, now you added “strict”.
The ideas that underlie the lack of calculation in Socialism, are the SAME ideas that underlie the hampering of calculation in Keynesianism.
You lost. And you still don’t understand economic calculation. It’s not just a concept related to lack of planning in Socialism. Socialism is but one extreme of the economic calculation spectrum (i.e. zero).
The other extreme is pure private property order (i.e. full calculation).
Somewhere in the middle, there is Keynesianism (i.e. hampered calculation).
Your claims are rubbish, straw men, non sequiturs, and red herring filled cartloads of garbage.
I think LK just likes to make a bunch of noise to change the subject. In fact, that’s what all Keynesians do which is why the problem of economic dis-coordination (as long before explained by Mises) was purposefully omitted from original and subsequent Keynesian analysis. And which is why Krugman won’t debate Bob Murphy and why the Ron Paul people were driven out of the Republican convention and why the media will not provide Austrian analysis etc etc etc…..
We’ve won the debate by default.
LK wants us to believe that “vast private markets” is sufficient for there being ZERO discoordination introduced between market actors by non-market money production and spending.
He seems deeply afraid of Mises’ argument against Socialism (which LK accepts) applying no less to Keynesianism as well. Is it because he would be forced to accept that his whole intellectual bankruptcy will become as visible as a fractional reserve bank after it bloviates – excuse me, inflates – too much?
He is working off his emotions, it is clear. He doesn’t want Mises’ concept of economic calculation and Hayek’s concept of coordination (same thing, really) to apply to Keynesianism. That’s why he insists that Keynesianism represents no problem to calculation/coordination.
vul·gar (vlgr) adj.
1. Crudely indecent.
2. a. Deficient in taste, delicacy, or refinement.
b. Marked by a lack of good breeding; boorish.
c. Offensively excessive in self-display or expenditure; ostentatious: the huge vulgar houses and cars of the newly rich.
MF, you and I are just so vulgar.
http://socialdemocracy21stcentury.blogspot.com/2012/07/is-this-what-vulgar-austrians-mean-by.html
But I’m from Detroit, so I have an excuse.
I ceased clicking on links to that blog a long time ago.
If LK’s posts here are any indication, I suspect it has remained an intellectually bankrupt wasteland written by one thirsty for state violence. Dishonest thugs like him always use poor people as an excuse for their agenda, as if an innocent individual’s life really is a blank check as long as any random hungry mouth somewhere in the world can be identified.
“What’s that? You are against sacrificing yourself and your family for the sake of random people, who would then conveniently pay taxes and be sacrificed too? You immoral anarchist! I am glad the state is making you do what I want you to do but am too cowardly to do myself. Universal sacrifice or else.” – LK (paraphrased).