24 Aug 2012

I Hear a Train a Comin, It’s Comin Down the Tracks

Economics, Mises, Shameless Self-Promotion, Tom Woods 42 Comments

Sorry everyone but I am working through some major deadlines and won’t be able to blog much, at least through mid-September. (However, if you just can’t stand it, find me on Facebook, as Robert P. Murphy who lives in Nashville. That’s where I go when I have a lot of work to be done and should totally be immersed in work.)

Anyway, I had to take a break from everything and read the absolute train wreck of Sandeep Jaitly taking on Mises the fake Austrian, and Lew Rockwell the fake libertarian. (Seriously, I’m not being inflammatory; read Tom Woods’ smackdown.)

I guess it’s a good sign that popular outlets are getting publicity by hosting people who openly criticize the Austrians and libertarianism; if we’re worth blowing up, we must be gaining in importance. But like the historian Webster Tarpley, this particular critic is just so WRONG that it’s not even fun. It doesn’t mean Austrians are flawless, of course, but it would be like Krugman having to fend off accusations that Keynes was a jerk because he was an anarchist.

To compound things, Max Keiser himself (it’s not a guest post, right?) weighs in on Tom Woods’ “Blunders.” So Alex Jones at least could just say he hosted Tarpley to keep things interesting, without endorsing his position. But here Keiser–again, unless I’m getting mixed up and he’s not the author of “Tom Woods’ Blunders”–is agreeing with Jaitly and in fact is being ruder about it.

What’s really weird in all this is that Jaitly and Keiser seem not to want to throw Austrian economics under the bus. So strategically, you would think they’d be a little more diplomatic, inasmuch as 99% of the world right now who likes Austrian economics, also respects Tom Woods. (OK maybe 85%; I know Tom is too aggressive for some people.) Anyway, here is Tom’s response to Keiser’s critique. (HT2 Robert Wenzel for linking to this.)

In the interest of evenhandedness, let me say that there are two areas where I think Tom may have not quite gotten what Jaitly was saying. This doesn’t excuse the other jaw-droppers, such as Jaitly claiming Mises was less subjectivist than Menger. (!) But here are the two things I have in mind (and I’m quoting from Tom’s original critique of Jaitly):

Jaitly further contends that “Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a natural consequence of not having a present good.”

This claim is so at odds with Mises’ words that one is left breathless at its sheer daring. Mises never denied that interest is a market phenomenon. The whole point of his business-cycle theory is that deviation from market rates of interest by means of artificial credit expansion leads to malinvestments that culminate in a bust.

Mises does not say interest is “a natural consequence of not having a present good.” Merely not having something yields no natural consequence. Mises says people prefer a good in the present to the same good in the future, such that they would opt for the future good only at a premium. This premium reflects their time preference, or their discount of the future. Interest rates that arise on the market reflect these time preferences of individuals in society.

To say that Mises did not believe interest was a market phenomenon because its origins lay in individuals’ time preferences is like saying he didn’t believe prices were a market phenomenon because their origins lay in individuals’ subjective valuations. In each case, the market takes a subjective factor (individuals’ value scales in the case of prices, and individuals’ time preferences in the case of interest) and gives it objective expression – market prices in the former case, and the interest rate in the latter case.

OK, everything Tom says is perfectly true, but I think I get what Jaitly means. There are several places where Mises goes out of his way to beat down the conventional understanding of interest rates. I’m paraphrasing, but in Human Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc. Instead, Mises says interest is due to time preference, which flows apodictically from the fact that humans act. Indeed, when I argue that interest really is the price of borrowing money, I get pushback from self-described Misesians saying, “No Bob, interest would exist even in a barter economy,” and I think even some of them would say it exists for Robinson Crusoe. (One guy literally said the former to me just last week, but perhaps nobody has actually claimed the latter; I don’t remember.) Anyway, if you want to see my heretical views on Misesian interest rate theory, see the second chapter in my dissertation.

There is one other point on which I think Tom simply misunderstood Jaitly. Here’s Tom:

Finally, Jaitly claims that Mises confuses “the thing that occupies an object with the object itself,” and gives as an example: “Mises thinks that a promise to gold is the same as the object of a promise to gold.”

Finding this point rather opaque, I ran it by a friend, who came back to me with, “As near as I can make out, Jaitly thinks that Mises believed that gold is valued intrinsically instead of as a means to an end. This appears to be what he has in mind by saying that a ‘promise to gold,’ i.e., a commitment to provide gold, is the same as the object, or end, for which this commitment is made.”

I find no evidence that Mises ever said or believed such a thing, and Keiser, doubtless as confused as his audience over this claim, doesn’t follow up on it either of the times Jaitly tries to raise it.

OK here, I think Jaitly is referring to Mises’ distinction between money in the narrower vs. broader sense. In particular, Mises’ circulation credit theory of the trade cycle (i.e. “Austrian business cycle theory”) relies on the ability of banks to increase the “quantity of money” during the boom phase by issuing claims to gold, even though the actual amount of gold hasn’t increased.

Now notice, Jaitly’s point here (assuming my interpretation is correct) is exactly backwards, just like his claim about Mises and subjectivism. Far from not recognizing the difference between a claim to gold vs. gold itself, Mises’ whole theory rests upon the distinction. Yes, Mises says that in some respects a “money substitute” functions just as money itself, but since they’re not really the same, this leads to trouble. If anyone wants to carefully spell out the senses in which claims to gold and gold itself are similar and yet different, I think the list of bullet points would end up looking exactly like Mises’ treatment. For more, see his Theory of Money and Credit and my Study Guide, since it can be tough reading at times.

So in summary, I think Jaitly and Keiser missed badly in their critique of Mises, libertarianism, and Lew Rockwell, while Woods was 6.5/8 in his reply, and any 3 of Woods’ hits were fatal.

42 Responses to “I Hear a Train a Comin, It’s Comin Down the Tracks”

  1. Jonathan M.F. Catalán says:

    I’d hope that any response is fatal, because Jaitly’s comments seem to be made by someone who has never read Mises nor read anything in reference to Mises. He essentially makes stuff up.

    • Bharat says:

      I’m sure Jaitly has read someone who read someone who read someone who read Mises though.

      It reminds me of how when people sit in a circle and a word or phrase gets passed on from the beginning to the end it ends up as a completely different one by the time the circle is complete.

      In this case, it must have started off as:

      “Mises was a subjectivist”

      and ended as

      “Mises was not a subjectivist”

      It’s actually pretty understandable.

      • Ken B says:

        “I’m sure Jaitly has read someone who read someone who read someone who read Mises though.”

        Six degrees of Ludwig von Mises.

    • RPLong says:


      And: Well, at least he made Menger look good.

  2. Joseph Fetz says:

    It get’s worse, Keiser is claiming that the digital revolution is a refutation of the tragedy of the commons. I am guessing that he doesn’t understand what scarcity means.

  3. Bob Roddis says:

    Not only was Mises a fake Austrian, but the entire Hayekian “knowledge problem” has been made obsolete by the internet.


    • Jonathan M.F. Catalán says:

      Jaitly obviously missed the 60s, because otherwise he would have known that computers solved the knowledge problem.

    • Ken says:

      You’re kidding right? There is no way that a central planner can possibly have perfect knowledge (or anything even remotely close) in order to plan the economy. There are far too many variables, and the millions of equations that you’d have to run would have to be changed each and every day in order to capture the constant changing preferences of the people.

      As for the idea that Mises was a fake Austrian, only someone who’s never read a shred of Mises or Menger would say something this wrong.

  4. Ken B says:

    “getting publicity by hosting people who openly criticize the Austrians and libertarianism; if we’re worth blowing up, we must be gaining in importance.”

    A concise enough summary of Krugman’s stated reason for ducking the debate.

    • Bob Murphy says:

      Ken B. just to be clear, I never said, “Krugman is a jerk for saying he doesn’t want to give Austrians a platform.” Rather, I said:

      (a) Krugman says he doesn’t want to give us a platform, so OK, I will do a ridiculous publicity stunt to force his hand.


      (b) Why the heck did he give Ron Paul a platform to sell his book then?

      • Major_Freedom says:

        Because Krugman arrogantly believed, which in hindsight proved to be unwarranted, that he could easily handle Ron Paul.

        I think Krugman was all ready with the talking point that Ron Paul wants to take us back 200 years, but didn’t expect to have his own views exposed as 1700 years old (Emperor Dioclitean).

        I’ve noticed that Krugman no longer uses the “Gold bugs want to take us back 200 years” talking point. He’s probably thinking “If a cranky old Republican obstetrician who isn’t formally trained in economics can make me look like a fool, then no way am I debating their PhD economists.”

        • Dan Hewitt says:
        • Bob Roddis says:


          Well, the Millennial Edition of Historical Statistics of the United States(subscription required) has some data. As I read it, as of 1813 there was only $7 million worth of coins in the hands of the U.S. public, versus $52 million in bank notes. So even two centuries ago, we were already a paper-money economy.

          And this means that Ryan wants to turn the clock back two centuries, not one.

          Those notes didn’t lead to a “panic”, say in 1819, did it, Prof. Krugman?

          Ryan in 2002:

          Well how about that. It seems Paul Ryan decided to vigorously support stimulus spending after all. Just look at what Congressman Ryan is saying about the value of government support in the aftermath of a recession:

          “What we’re trying to accomplish today with the passage of this third stimulus package is to create jobs and help the unemployed,” Ryan said.

          “What we’re trying to accomplish here is the recognition of the fact that in recessions, unemployment lags on well after a recovery has taken place,” Ryan said. “We have a lot of laid-off workers, and more layoffs are occurring. And we know, as a historical fact, that even if our economy begins to slowly recover, unemployment is going to linger on and on well after that recovery takes place.”

          “You have to spend a little to grow a little,” Ryan told constituents at a town hall in Wisconsin. “What we’re trying to do is stimulate that part of the economy that’s on its back.”

          “We’ve got to get the engine of economic growth growing again, because we now know because of recession, we don’t have the revenues that we wanted to, we don’t have the revenues we need, to fix Medicare, to fix Social Security. To fix these issues we’ve got to get Americans back to work,” Ryan said. “Then the surpluses come back, then the jobs come back. That is the constructive answer we’re trying to accomplish here on, yes, a bipartisan basis.”


      • Ken B says:

        Bob, I was just pointing out that PK ducks with the excuse that he doesnt want thereby to boost these (to him nonserious) ideas. I wasnt sniping at you (this time).

        Plus I think I pledged long ago. I’d like to see the debate. It would be fun and — praise the lord — you might both lose!


      • Tel says:

        To be fair, Ron Paul largely made his own platform by running for President, and getting a significant number of delegates (even winning some states). The media tried hard to pretend Ron Paul does not exist, but eventually it got so blatant that not noticing Ron Paul was drawing a bigger crowd than giving in and talking to him.

        Sadly, pretending that Bob Murphy simply does not exist is still viable (for the time being anyhow).

  5. dvide says:

    Bob, I’ve been trying to investigate where Jaitly is coming from. It’s a shame it has descended into absurd squabbling and non-sequiturs on the part of Max and Stacey.

    But I found this tweet: https://twitter.com/Bullionbasis/status/236817243525226496

    So from that it sounds as though he could be talking about the same point of subtlety which you discuss in your dissertation. Fair enough there then.

    But I also found these:

    He keeps referring to Fakete solving this with a ‘time and space’ theory of interest. I’m not sure what that means. Is he saying space = productivity of capital I guess? Kinda weird. I’d like to read what Fekete is saying, but I feel like you’ve already resolved this issue for me. And it also seems to be related to his charge that Mises forgot about bids and asks, but I’m not sure how 🙂

    • Bob Murphy says:

      dvide I don’t know enough about bills of credit etc. to get into Fakete’s world. I suspect Fakete is wrong in the big picture, but I am not confident enough to take a public position on it.

  6. Egoist says:

    OK, everything Tom says is perfectly true, but I think I get what Jaitly means. There are several places where Mises goes out of his way to beat down the conventional understanding of interest rates. I’m paraphrasing, but in Human Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc. Instead, Mises says interest is due to time preference, which flows apodictically from the fact that humans act. Indeed, when I argue that interest really is the price of borrowing money, I get pushback from self-described Misesians saying, “No Bob, interest would exist even in a barter economy,” and I think even some of them would say it exists for Robinson Crusoe. (One guy literally said the former to me just last week, but perhaps nobody has actually claimed the latter; I don’t remember.)

    I think that interest would exist even in the case of Robinson Crusoe.

    Valuing future goods at all means one is not only valuing present goods, and as such, time preference is less than infinity. It might be very, very, very, very high, for example if Crusoe just gets up each day, picks coconuts all day, eats them all, and then goes back to sleep at night. This is maximally high time preference. But it isn’t infinitely time preference, since Crusoe would still be aiming at future ends.

    I cannot have an infinite time preference. I’m temporal. I act with an aim at achieving ends in the future, which necessarily delays my consumption to the future. Not being able to consume the entire universe in the present, and leaving zero future consumption, i.e. destroying the universe, is why time preference is necessarily delimited and why interest ALWAYS exists, from an individual on an island at one extreme, to a division of labor economy at the other.

    If I imagined myself alone on an island, I think of what I would do and what I can do. If I thought about my present consumption, and then consumed, it will necessarily be smaller than everything that naturally exists on that island, as well everything I could have produced on that island using existing resources that are not valued for my present consumption.

    Even if I was somehow able to consume the entire island in the present, I would cease to exist, since there would be nothing left for my future self. Since I am temporal, I necessarily aim at future ends, and because I aim at future ends at all, it means I cannot only be valuing present ends all the time – a point of infinitely high time preference.

    Interest cannot NOT transpire even if I’m alone on an island! The interest that exists is the additional future consumption my future self enjoys by necessarily postponing present consumption to the future. Could I try to maximize my present consumption, in order to see if I could avoid future consumption? Sure, but guess what I would have to consume if I did maximize my present consumption? I would have to at least consume my entire body! Anything less and I did not maximize my present consumption. Thus, the very fact that I have decided to postpone consuming the entirety of my body, means I am postponing consumption to the future, and thus interest arises.

    Even by merely thinking of the future at all, I am not consuming the entirety of my body, and I make a future me possible.

    Becoming aware of this fact can enable me to use it to achieve other ends, such as increasing future consumption by more than what nature would have provided me. By recognizing myself as an actor, I can, if I choose, increase my future consumption above the minimum that would exist if I maximized present consumption. I can start to reduce present consumption below what I could have consumed, and devote more time, energy, and resources, i.e. convert some possible present consumption into means for future consumption, even if our own bodies, in order to increase future consumption above the minimum that nature would have otherwise provided. In so doing, I can eventually become a new present self with a higher present consumption.

    What is happening when I consciously reduce present consumption below what is physically possible, is not that interest suddenly comes into being, but rather that I have consciously lowered interest from a prior objective maximum (where I depended on something outside myself to provide me with future consumer goods after I maximize my present consumption, including consuming my entire body and depending on God) down to a new self-created lower time preference and lower interest (where I depend on my future self to provide me with future consumption goods to value after I consciously reduced present consumption and convert present consumption into means for increasing future consumption for my future self).


    If I don’t trust my future self, because I either lack a sense of self, or I think my future self is going to be robbed, then I will depend more on my present self, and with a low enough self-esteem and/or a great enough thought of violence against my future self, the more I will depend on things outside of my future self to benefit my future self.

    Well, if I invest more in a dependent future self, and invest less in an independent future self, then it should not be surprising that the outcome will be me becoming a seller of a dependent body to consumers looking to own that which is not independent (state, God, etc), rather than a seller of an independent body to consumers looking to own that which is dependent on my independence.

    The reason why I don’t devote my full attention to my present consumption and then depend on the Earth or God to provide my future self with desirable ends, is that I don’t prefer the world to be as it is “naturally.” I prefer the world to change in accordance with my egoist desires. What I want the world to be, and what the world is, are different, and my temporality means I cannot change everything, so scarcity arises for me. I must choose.

    If I truly never desired anything different than what exists, then while I would abolish scarcity for myself, I would also abolish my sense of self in the process. I would “become one with nature.” This is the path that many in the past have taken to achieve freedom, particular in the Eastern theologies.

    I want the Earth to be different than what it is “naturally”, which springs from my sense of self. Sure, scarcity arises, but instead of the world using me for the benefit of that which exists outside of me, I use the world for the benefit of me. Once I develop a sense of self, there is no turning back.

    • John Robb says:

      I enjoyed reading your comment. I enjoyed the first half as you adequately covered my desire to defend the notion that interest exists in the case of Robinson Crusoe. It continues to exist but makes some unexpected turns following the advent of externalities introduced by Man Friday. I also enjoyed the second half after shifting gears into absurdity, and I appreciate that you marked that point of shifting so clearly with “I would have to at least consume my entire body!”. That still somewhat made sense in its context, but things spiraled toward [enjoyable] insanity soon after. It still made for a good read through the end.

      I won’t touch anything from the second half, but in the first half I did flag this…
      “This is maximally high time preference.”
      My mind keeps wanting to tweak this into…
      “This is maximally high originary interest.”

      I personally didn’t understand how Mises used many of his terms, including time preference, until I understood [or so I think] how he used the term originary interest. Time preference does not always include sacrifice. Time is neutrally expressed as ratio and preference does not always imply multiple choice. Time preference merely indicates. What we have here is a maximally close time preference. “Maximally high time preference” makes me think of tequila. “Maximally high originary interest” is something I try to explain to my boss while I’m hungover on the day after I didn’t return from a lunch break.

  7. zee says:


  8. John Saxton says:

    Sorry to be the one to point this out, Bob, but there’s a fatal flaw in your post here.

    The actual lyric is “I hear the train a comin’/It’s rollin’ ’round the bend”.

    • Bob Murphy says:

      Oh my gosh John I am not even going to look it up, for fear that you are right. That is inexcusable if true (and I suspect it is). (I’m not being sarcastic, I am horrified.)

      • Ken B says:

        Cheer up Bob. Let that lonesome whistle blow your blues away.

  9. Dan Hewitt says:

    OT – there is now an open spot at EconLog, just waiting for you to fill it Bob.

    • Ken B says:

      Actually no. Bob’s comments policy is about as far from Econlog’s as you can get. To Bob’s credit.

      • Ken B says:

        Although come to think of it, a lot of Bob’s comments wouldn’t meet Econlog’s policies either!

  10. Davis says:

    Sandeep Jaitly Has Been Forced to Resign From the Gold Standard Institute

    • Bob Murphy says:

      Hmm I guess I feel bad if the guy lost his job. Or was it just an affiliation?

      • Joseph Fetz says:

        As far as I know it wasn’t his job, he just writes for them. I believe that he works for an investment firm for his day job.

  11. John Becker says:

    It really bothers me that libertarians seem to infight so much. As a minority position, Austrians need to be willing to unite with nearly anyone who favors smaller government at this point. I actually think that the best thing libertarians can do is to simply vote Republican and try to influence the Republican party to be less xenophobic and socially conservative. It certainly doesn’t help to spend time or energy further arguing about interest with other libertarians (with all due respect to your excellent dissertation Bob) in a world thoroughly run under horribly incorrect statist assumptions.

    • Joseph Fetz says:

      Max Keiser is far from a libertarian. I would say that he is mostly socialist, at the very least a progressive (not that there’s all that much difference).

      • Tel says:

        If you are going embrace Liberty, you have to face up to the situation where a lot of different points of view exist… because that’s inevitably what happens when you allow people to think for themselves.

        From that perspective Max Keiser is indeed Libertarian.

        I like his support for Bitcoin and for the gold standard, because a free people can never be free unless they have the ability to trade. I also support Keiser’s efforts at uncovering illegal CIA rendition and torture flights, which must have taken a lot of guts to speak out against.

        I think Keiser has a fair grievance when he claims the banks are crooked and the system is rigged. I agree with him on that conclusion, we are a long way from a free market system. The rule of law is not doing its job, and that’s a big part of the problem. We don’t know who to trust anymore.

        Mind you, I also believe that Max Keiser could learn a whole lot from Tom Woods, if he took the trouble to make the effort and study. None of the problems Max Keiser describes are new, nor are they uniquely discovered by him. Tom Woods provides a good historical context to understand how what we are facing now fits into our cultural roots and what solutions have worked in the past. Of course the world is always changing, but overall the person who is well grounded in history will have an advantage of the person who is rediscovering things as they go along.

    • Ken B says:

      More or less my view, but it ignores that many libertarians, just like many Ds and Rs, are more concerned with signalling and self image than results. IMO.

    • Tel says:

      Since Libertarians for the most part stand for speech and no action, it makes perfect sense they would discuss their disagreements with one another. There’s not a whole lot else to do.

      Obviously that speech has gradually floated out to the mainstream because Paul Ryan is willing to at least offer lip service to constitutional conservatism and small government (even lip service is better than nothing, and who knows, it might actually come to something). What’s more Krugman feels the need to get out and condemn the gold standard. Fantastic! Krugman finally admits that a gold standard might in some very distant scenario be a real possibility. That’s massive progress for a bunch of people who do nothing beyond arguing amongst themselves.

  12. Bharat says:

    Jaitly (I believe it’s him) replies here: http://maxkeiser.com/2012/08/25/menger-von-mises-the-essential-difference-2/

    What do you think of this, Dr. Murphy? I don’t know if it’s his writing style or what, but I have a lot of trouble understanding clearly what his arguments are.

    • Bob Murphy says:

      Yeah he is throwing around too much “look how many different fields I know, I must be smart” references for me. And I haven’t looked it up yet, but I think his putting in brackets in that last quote is reversing what Mises means, in the context of his claim.

  13. Dave Harrison says:

    Indeed this is an excellent breakdown of the two key points which are in question. I had previously described Max’s handling of Sandeep’s communications as mis-handled. Although I agreed that Sandeep’s assertions were consistent with von Mises, I also asserted that if they were accurate that they form an Achilles’ heel for the Austrian school.

    Many thanks for Bob for breaking out the fan and removing much of the smoke and breaking the mirrors too. I don’t expect my thesis to be welcome, but the debate, IMHO, is of sufficient gravity that it deserves more clarity and less distraction.

    To summarize my argument against the combined camp (libertarian and the libertarian paternalist for that matter), it would be that technology (via behavioral economics), creates a sufficiently convincing appearance of the disintermediation of free will to disable the “intrinsic value” formed with human consciousness.

    My argument supports Jaitly’s assertion, but in the support of that it exposes a vulnerability of von Mises to technology and furthermore to Menger as based on a fundamentally existenialist kernel whereby the seeming “appearance of free will” is quite effectively, although falsely, presented via technology.


    I don’t expect to win any fans a this site, but Bob has won a fan in me by being thoughtful enough to parse the Woods/Keiser debate into what it really is which is a Fekete/Mises debate over the distinction between a “hard-wired” link between gold value and human consciousness and whether or not that value could be, or will be extended via Fekete’s Real Bills Doctrine. I suspect that Fekete’s benefactors are the ones who intend to back at least half of Mervyn King’s “divorced currency” model with a fractional reserve of gold.

    Dave Harrison

  14. Jeremy Sinn says:

    I came across this piece today that offers up a couple of ‘mistakes’ made by Mises. http://www.zerohedge.com/news/antal-fekete-responds-ben-bernanke-gold-standard Maybe if you have a moment you can address them Bob. One of them is the same as was talked about by the guy on Kaiser’s show, Mises supposedly was mistaken about the difference between gold and the promise to pay gold thing-a-ma-jig. I think the author of this piece is mistaken in calling a bond a ‘future good.’ But anyways, I am curious what you all think of the critiques of Mises contained in this piece.

    • skylien says:

      Fekete basically argues that the discount rate on bills of exchange is entirely different than the interest rate on loans. I really can’t understand how the discount rate of bills cannot be connected to the prevailing interest rate on loans. I think they are the same thing just expressed in a different form… Whatever it would be definitely interesting to read Bob’s take on this.

  15. JayT says:

    What’s interesting is that Jaitly is so obtuse in what he says that everyone is trying to figure out what he really said!!! It is not a surprise that he lost his job at the GSI. Who would put trust in this guy to provide a coherent view of what is transpiring economically and how it could affect one’s wealth!

Leave a Reply