05 Jul 2009

Wenzel v. Murphy: The Grand Finale

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OK this will be my last post on this topic. Robert Wenzel struggles on, even though Stefan Karlsson has further demonstrated the untenability of Wenzel’s position. Wenzel is spending 95% of his time trying to show that my arguments sound like the Keynesian position that Rothbard attacks in his treatise. I’m not going to get into that dispute. I don’t think Rothbard would agree with what Wenzel is saying, but it would take too long to make my case.

I think that I have demonstrated the problems with Wenzel’s approach. He has never really answered that challenge. But let me here take up his implicit (explicit?) claim that my view lines up with Keynes, whereas his (Wenzel’s) view lines up with the Austrians.

First, look at Chapter XXV [.pdf] (p. 334) to see Hayek’s views on income, saving, and investment in The Pure Theory of Capital. I can’t give you a knockdown quote that settles the matter, since–after all–we’re dealing with Hayek here. So you need to read five pages to get the context. But my point is, within the first few pages, it should be clear that Hayek thinks saving and investment are different things, and also that he defines saving as income minus consumption. (E.g. on page 337 he says, “The indirect method consists in comparing the increase or decrease with the supposed standard case where capital remains “constant”, and thus arriving at the concepts of net saving (net income minus consumption) and net investment, and then placing these derived concepts in juxtaposition.“)

Second, if you scroll near to the bottom of this link, you will see that Keynes in the General Theory actually “proves” that savings necessarily equal investment. Since Wenzel was so happy to find Rothbard saying the terms were basically interchangeable, and since Wenzel thought my own view in contrast was similar to the dreaded K-word, I thought this would be surprising. (I too was surprised when I first saw this, such that I bored my History of Economic Thought students to tears by going over it in class. But I had thought one of the big bugaboos in the GT was that investment would fall short of savings. Yet Keynes apparently says that is impossible.)

Third, I have saved the best for last. Here is Mises on the topic. Maybe we can all get along now, because Mises seems to unify us all. As I read the quote below, Mises is clearly saying that adding to your cash balances is a form of saving. However, Wenzel might say that Mises is also (apparently) claiming that it is also a form of investment.

If an individual employs a sum of money not for consumption but for the purchase of factors of production, saving is directly turned into capital accumulation. If the individual saver employs his additional savings for increasing his cash holding because this is in his eyes the most advantageous mode of using them, he brings about a tendency toward a fall in commodity prices and a rise in the monetary unit’s purchasing power. If we assume that the supply of money in the market system does not change, this conduct on the part of the saver will not directly influence the accumulation of capital and its employment for an expansion of production.[18] The effect of our [p. 522] saver’s saving, i.e., the surplus of goods produced over goods consumed, does not disappear on account of his hoarding. The prices of capital goods do not rise to the height they would have attained in the absence of such hoarding. But the fact that more capital goods are available is not affected by the striving of a number of people to increase their cash holdings. If nobody employs the goods–the nonconsumption of which brought about the additional saving–for an expansion of his consumptive spending, they remain as an increment in the amount of capital goods available, whatever their prices may be. Tho two processes–increased cash holding of some people and increased capital accumulation–take place side by side.

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