Fellow Rothbardians: The Jig Is Up
I told you guys not to push it, or else our whole plan would blow up in our faces. Now seriously, who went and typed in two sentences on the Wikipedia entry for “liquidity preference,” explaining that Murray Rothbard disagrees that it is the proper way to explain interest? Who was it? It’s better if you tell me now, yourself, than if I find out later when one of your pals gives you up.
(Seriously guys, two sentences?! I could see if you wrote one sentence, but two?! What the hell were you thinking?)
But wait, it gets worse. We can’t even play it off like the typing up of Rothbard’s views on an economics topic in Wikipedia was an accident. Nope, Daniel Kuehn tells me, “I am not confused at all about Austrian motivations on this.”
Last thing, and I can’t believe I even have to say this, but after you clowns wrote two (sic!!!) sentences on a Wikipedia entry about liquidity preference, I’m not taking any chances: If and when Jimmy Wales asks you about the Austrian Internet strategy session we held over the summer, you say, “What Austrian Internet strategy session?” Got it?
That’s too funny
You forgot the link Dan http://factsandotherstubbornthings.blogspot.com/2013/11/wikipedia-fail.html?showComment=1384873810686#c8319034577763281564
And yes it’s very funny!
I can see why Daniel was so upset. Because, you know, the quality of the entry without the Rothbard lines was so high.
Not upset at all.
Oh you’re upset, just in your typical passive-aggressive way.
Loves it!
Upset enough to spend valuable time thinking about and writing a blog post complaining about two non-controversial sentences on a wikipedia entry.
He meant “whatever emotion you wish he would have said because you have an aversion to being ‘upset’.”
As i noted at DK’s, I think Bob is right. Sure the Rothbard entry looks like a clumsy product placement in a bad movie. But the Rothbard entry is in the subsection about criticisms. Surely the Austrian critique is one of the major criticisms of the theory. Why is that out of place in the criticisms subsection?
The claim is of course not that the Austrian critique is not a criticism. That would be absurd.
I’m not sure I’d call it a “major criticism” – perhaps of some elements, but probably not this. As Gene points out writing up time preference and tying it to Rothbard is more likely to confuse than clarify.
No. Gene’s point was that Rothbard didn’t invent or advance the critique in a serious way. So what? It’s a reference to a source, not an intellectual history. Is the Rothbard book a clear presentation of the critique? That’s the test.
You nailed it.
This. If you’re going to say Rothbard’s presentation of time preference is more likely to “confuse than clarify,” please provide some evidence. You cannot infer that from Callahan’s point.
To a positive degree, a source being “confusing” is founded on the reader’s inabilities.
Of course 15% is pure hyperbole. It is only 13.2% !
26 Words out of 193 and I have not even included the sections “see also” and “references”. I even subtracted the multiple “edit” and “From Wikipedia, the free encyclopedia”…
15% would have been really bad, but 13.2% seems to be completely fine to me.
Correction, I made a big mistake when typing it into the calculator (glad I checked it a second time) and I really don’t want to spin this in any direction like others: It is 13.5% (13.47150259% to be exact).
However, I don’t know 13.5 makes me a bit uneasy now…
However it is still shocking that Danial exaggerated by at least 11% to make his point!
I took the headings out – just the text – and it was just over 15%. It was 15.1 or 15.2 or something.
Not sure if I took “edit” our or not.. I forget.
So not hyperbole…
Ever heard of “penny stocks” DK?
With penny stocks, volatility of return (which is a percentage) tends to be higher, simply because a given change in price represents a higher percentage for penny stocks, than it does for “normal” priced stocks.
The same sort of thing is the case with this liquidity preference theory. If the “market price” of the liquidity preference explanation were higher, then the two sentence “return” of the Rothbard entry would represent a far lower percent of the total entry. But because the explanation is so short, a super duper small reference to Rothbard represents a whopping 15% “return”!
Perhaps the problem isn’t the two sentences that refer to time preference as a criticism. Perhaps the problem is the lack of depth and rigor of the explanation of liquidity preference. Why didn’t you instead say “Here is a reference to Rothbard’s criticism of liquidity preference. Who ever said “You know what this entry needs? A short and lazy explanation of liquidity preference theory!” Oh those pesky Keynesian agendas, making Keynes look bad and shit.”
26 words in the Rothbard section divided by 173 total words equals 0.1502890173410405
In light of your revealed methodology, I guess I stand corrected. Though you should have written 15% of the actual content, and not of the Wikipedia article..
Daniel, I really think you are focusing on the wrong things…
😉
LOL
173 total words for a core component of a world renowned theory of interest rates that moves governments, trillions of dollars, and history altering events?
173? Really? Shouldn’t the entry on an incredibly important theory of economics have, oh I don’t know, more words than what I piss?
“more words than what I piss?”
I knew you a trick, with all those screen busting comments, I just knew it!
As a Rothbard-bot, I enjoy the Keynesians airing their viewpoints every chance they get because I think they ultimately just embarrass themselves when they do. You can’t beat an opponent like that– he beats himself.
But seriously, folks, I think we should all kill ourselves. Then Keynesians wouldn’t have to confront the fact that there is a controversy (not whether or not the controversy is guided by correct thinking, just that a controversy exists at all). Remember, the only reason Keynesianism doesn’t always deliver the perfect paradise it offers is because there are still committed spoilers littered over planet earth, bent on ruining its attempts at human economic perfection every chance they get.
Because of class interests. Involving huge psychic benefit from ruining other people’s shit arbitrarily. Because of bad moral characters. Because we are irredeemably evil. Which is why we should just kill ourselves.
The Leninists blamed their failures on saboteurs. The Keynesians blame either us or the reality-based public for hindering their scientific schemes for enough profligate spending and money dilution. And there’s just never enough of it, is there?
In principle, in theory, in some distant possible scenario, Keynesians admit that there can be too much of what they peddle.
It just has never happened in history, that’s all. For whatever reason, we are just never at any “potential GDP”. So it’s perma-deficit bitchez…
Democracy is important, but it doesn’t determine scientific results and it is also a process. That means that at the very least you speak clearly to the public on the science – you have an obligation to be honest.
http://consultingbyrpm.com/blog/2013/11/fellow-rothbardians-the-jig-is-up.html#comment-80597
Keynesianism would likely not “succeed” if it were presented honestly.
Btw, if Daniel Kuehn is going to officially take the gloves off on psycho-analysis, can we all do the same? It could yield some fascinating results! FOR SCIENCE! (and by that I mean, for blind class ideology, of course)
Please only add one word in the future, just “Rothbard” please…
Hey, that’s my job (even though I still can’t figure out where in the historical record of this blog I did that, thus earning myself the title of Rothbard-bot Supreme)!
Ddin’t you just announce recently that that’s what you did? Fall back on rote Rothbardism, or some comment to that effect?
What are you asking me, bud?
Are you unaware that I talk about being a Rothbard-bot in an over the top sarcastic way because I can’t find it in me to take your accusation seriously, given that I have no idea why you started assaulting me with it?
I posted this on Kuehn’s blog, reposting it here for the purposes of discussion:
You should educate yourself on wikipedia policies and guidelines (http://en.wikipedia.org/wiki/Wikipedia:List_of_policies_and_guidelines) before thinking to lecture anyone for their contributions to wikipedia.
“If the question is “is it reasonable, if the goal is to have a comprehensive online encyclopedia, for the Austrian position to take up fifteen percent of the liquidity preference entry and be regularly featured on every econ entry”, the answer is certainly “no”.”
The answer to that question is “it depends”. It depends largely on what state the article was in at the time; the breadth and detail included, the established consensus, the maliciousness of the edits, et cetera. Actually, what it depends on most importantly is whatever consensus forms as a result of discussion and debate in the wikipedia talk page.
I take it you aren’t a frequent contributor on wikipedia and don’t understand it’s guidelines or policies. You understand how wikipedia works, yes? Volunteer contributors edit an article over time. This process is often slow going, and most of the time key guidelines and policies are violated in the process, or at least not upheld consistently (http://en.wikipedia.org/wiki/Wikipedia:Ignore_all_rules). It is up to the volunteers who edit and notice a problem to correct said problems. There is no wikipedia police who go around enforcing the rules. But as more people add to, remove from, discuss, and otherwise edit the article or its talk page for various reasons (http://en.wikipedia.org/wiki/Wikipedia:Understanding_IAR#Successfully_ignoring_rules), it grows into an incredibly well-made piece of work.
For a stub like liquidity preferences, the most important part is to fill it so that it is not a stub before worrying about undue weight (http://en.wikipedia.org/wiki/Wikipedia:NPOV#Due_and_undue_weight). In the words (http://en.wikipedia.org/wiki/Wikipedia:Be_bold) of Wikipedia: Be Bold! Make edits to an article if you think they need it. You will find others will make bold edits. The correct response to an edit that you feel is problematic is not to lament said problems, but fix said problems with your own edit. And not to take it personally if someone comes around and edits your contributions.
What most likely happened is that some random Austrian stumbled upon the article, recognized a viewpoint they disagreed with, noticed it had no listed criticisms, and tossed one out there. Travesty, you say? Conspiracy, you say? No, not really. Had everyone who stumbled across the article done something similar (that is, made a small edit to resolve some perceived problem), the article would be an amazing treatise on the subject. Instead, it seems you are content with lamenting the contributions of others and providing nothing yourself.
You realize that wikipedia is edittable, right? If you feel like a two-sentence addition to a stub is inappropriate, explain your rationale in the talk page for removing it. Then remove it. Better yet, go and fill out the page with contrasting viewpoints to your hearts content so that the weight of the Austrian position is almost entirely marginalized.
Make edits and contribute; if you don’t, the contributors to wikipedia do not care what your opinions are about their edits.
In order to counteract all of that dubious scholarship claiming a racist, warmongering and eugenics past of “progressive” thought, DK has posted a link to this:
Murray Rothbard was the student of Ludwig Von Mises and a friend of Ayn Rand. Rothbard was a racist, and believed in the “voluntary” separation of the races. I have argued that his teacher, Mises, was an elitist with fascist tendencies. This part of libertarian history is a part that the libertarians would like to cover up. It slips out at times and has done so with Ron Paul, Rand Paul and others. But we need to take a look at what these guys believed, circa 1990 because that was not so long ago.
We know that Rothbard spoke kindly of David Duke, the KKK office seeker. One disaffected libertarian was dismayed that Rothbard would seek to align himself with a pure racist just because he believed in limited government. The only reason that Rothbard did not back a separate state for blacks was because he was afraid it would cost too much in “foreign aid”.
It should be noted that Ron Paul distanced himself from Rothbard’s racism, in stating that racism is a collectivist view. Still, there is a strong racial tension in libertarian thought.
http://factsandotherstubbornthings.blogspot.com/2013/11/i-am-confident-al-people-that-drone-on.html
I guess he told us.
Every time I make salad dressing, I can never figure out who is more racist, vinegar or oil?
Good thing the egg forces them together.
Haha…”fascist tendencies”…
A point to make: the self-proclaimed “progressives” of today are not the Progressives of the early 20th century.
Did I ever mention:
Saturday, April 21, 2012
Glenn Greenwald bothers me in a really deep, genuine way…
Posted by dkuehn at 10:10 PM
…and I’m always a little shocked that a lot of people don’t see it that way.
http://factsandotherstubbornthings.blogspot.com/2012/04/glenn-greenwald-bothers-me-in-really.html
For the newbies.
Dkwrote:
Glenn Greenwald bothers me in a really deep, genuine way…
Obviously the supreme court needs to force the 2 of you together.
Richard Gamble:
A propositional nation like Lincoln’s is “teleocratic,” in philosopher Michael Oakeshott’s use of the word, as distinct from “nomocratic.” That is, it governs itself by the never-ending pursuit of an abstract “idea” rather than by a regime of law that allows individuals and local communities to live ordinary lives and to find their highest calling in causes other than the nation-state.
http://www.theamericanconservative.com/articles/gettysburg-gospel/
The Keynesians are relentlessly “teleocratic” (as were the Leninists) while we’re “nomocratic”. In fact, that is why they cannot and will not comprehend basic Austrian concepts like economic calculation and mis-calculation. It only takes about 20 seconds of thought to realize that the enforcement of the “teleocratic” vision in practice is going to distort economic calculation and that the solution to this problem is a “nomocratic” system. The Keynesians are not about to think through an analysis that points to them as THE major affliction of modern civilization.
Ummm, whoever did also posted up his/her gmail address so why don’t you just ask directly rather than niggling at us about it? Maybe there’s some interesting story to be told here. I may not call myself a social scientist, but I con usually stumble around the most prominent social networks without too much difficulty.
http://en.wikipedia.org/wiki/User:Byelf2007
If you send an email, don’t forget to ask about he/she they got banned from writing economics articles. I did some random rabbit hole diving and stumbled into a bit of completely unrelated information, linked here:
https://archive.org/details/En.wikipediaEncyclopediaAndTheTechnocracyEntries
Hmmm, can’t make head nor tail of what this guy is on about. Anyone explain it to me?
why don’t you just ask directly rather than niggling at us about it?
http://www.youtube.com/watch?v=PJeCL6vcFYc
You are correct, my question was indeed rhetorical.
It is true that anyone who goes on Wikipedia looking for a representation of mainstream thought is going to think the Austrians are much more important and numerous than they actually are. In that sense the Austrian prominence on Wikipedia is inappropriate.
Of course, the quality of the economics articles in general on Wikipedia are fairly low.
Because the electorate is still somewhat reality-based and has not yet succumbed to the Keynesian Hoax (to the extent that they even know or know of its components), they are going to be resistant to the preposterous claims that endless spending and money dilution cause prosperity or cure bad times. I think many of the Keynesians blame us for that resistance. That was the source of the hysterical and vicious name calling conducted against those who “caused” the government shutdown because they “didn’t know economics”.
DK explains what must be done against the resistance to being saved among the public (but does not seem to blame that on us in this post, which is fairly unique among the Keynesians).
Posted by dkuehn at 2:32 PM
Brad DeLong shares some nuggets from Grunwald’s book, including this quotation of Obama: “Look, I get the Keynesian thing. But it’s not where the electorate is.”
Imagine if President Johnson said “Look, I get the equality of the races thing. But it’s not where the electorate is”.
Democracy is important, but it doesn’t determine scientific results and it is also a process. That means that at the very least you speak clearly to the public on the science – you have an obligation to be honest. It also means that you can persuade the public you think public opinion is wrong. It’s not a hard case to make and Americans are intelligent. Finally, democracy doesn’t delegitimize your Constitutional authority. The electorate said their piece to Obama in 2008. They said he would do a better job leading the country through the crisis than McCain and Palin. He should take their word for it, and so should Congress, and do what they think is right. Future elections are there to discipline public representatives, but they are not there to turn republican government into a perpetual plebiscite. Man up. And if you’re not re-elected but do the right thingthat’s four years well spent.
http://factsandotherstubbornthings.blogspot.com/2012/08/obama-and-keynesian-thing.html
“Imagine if President Johnson said “Look, I get the equality of the races thing. But it’s not where the electorate is”.”
Funny, because historically, the EXACT OPPOSITE is true. Johnson was quoted in referencing to signing the civil rights act as having said “I’ll have those n****** voting Democratic for the next hundred years.” He personally was staunchly opposed to it, but signed on specifically because it was beneficial politically to him and his party.
Imagine if Johnson had had exactly that attitude as a Senator and opposed the Civil RIghts Act of 1957 and 1960 as leader of the Democrats staging two record breaking filibusters. Imagine if he had opposed legislation to protect blacks from lynching while in the House. Imagine if he had taken the enforcement provisions out of the 1957 act and then let Thurmond filibuster it anyway. Imagine if he had said the plan with the Great Society was “to have them n*ggers voting Democratic for the next two hundred years.”
Oh wait. We don’t have to imagine. All that stuff actually happened. Johnson did indeed make cynical political calculations, but in the opposite direction Kuehn believes.
Almost every day I note that no non-Austrian understands even basic Austrian concepts. People get sick of hearing it but no one actually seems to dispute it.
How is it then possible for a non-Austrian to claim that Austrians think they have some type of overwhelming influence upon society?
“Almost every day I note that no non-Austrian understands even basic Austrian concepts.”
Yes, roddis, no non-Austrian in human history has ever understood subjective marginal utility, loanable funds, the time preference theory of interest, heterogeneous capital, non-neutrality of money, the idea of money prices allowing profit and loss, and the idea of flexible wages and prices via well behaved demand curves tending to clear markets.
Except nearly all these ideas are accepted in mainstream economics, most of them were invented by non-Austrians, and Post Keynesians accept heterogeneous capital and non-neutrality of money.
No doubt you’ll be screaming next that no Austrian in human history has ever said that wages and prices need to be flexible to create a tendency for market clearing, or some such garbage.
Wages and prices need to be flexible.
“Post Keynesians accept heterogeneous capital”
I accept that aggregate statistics can be calculated.
Doesn’t mean I necessarily integrate these aggregates into my economic analysis, especially those that carry social and political implications.
Post Keynesians just pay lip service to heterogeneous capital, whilst retaining the core homogeneity interpretation in their analyses.
Prices and wage rates are flexible, since they can and do change. It is not necessary that they change as fast as you believe Austrians believe they must change, before prices and wages are correctly understood as flexible. Flexible prices does not mean instantaneously changing prices. Flexible prices does not mean prices necessarily change to instantly sell any good for sale, or to instantly hire someone who wants a job.
Your gobbledygook on “fixed prices” is nothing but a misunderstanding of a particular method of formation of prices. Fixed prices just means prices tend to gravitate around costs of production, which changes relatively “slower” than output prices due to costs being a reflection of past spending, which carries depreciation charges, and other “fixed” costs.
If bankruptcies and losses were allowed to be incurred via market forces, instead of bad investments being bailed out by a government fulfilling the role of your mommy and daddy, and that occurred over and over and over again, then instead of leveraging to the hilt on the assumption of bail outs, certain investment would fall much more rapdily, and with it costs, with subsequently an increase in real investment.
Falling prices and wage rates cures depressions. Prices and wage rates WOULD fall if only your ilk ceased interferring on the flawed assumption that all recessions are evil and unnecessary.
“Flexible prices does not mean instantaneously changing prices. Flexible prices does not mean prices necessarily change to instantly sell any good for sale, or to instantly hire someone who wants a job.”
And nobody here said they need to be.
“Fixed prices just means prices tend to gravitate around costs of production,”
Wrong. Administered prices always have a profit markup: they do not gravitate around average costs of production per unit: they will always be above it.
And anyway, costs of production in Austrian and neoclassical theory are understood as marginal cost, not averages costs.
“And nobody here said they need to be”
If you really believe that they don’t need to change instantly, then if they don’t actually change instantly, but over time, then you admit that prices, all prices, are indeed capable of being changed, which of course implies that they change in the direction to better suit human wants, which is the same thing as saying to better achieve human ends, which is the same thing as saying tending to clear the market.
Thanks DK, for admitting Austrian theory on prices is correct.
Austrians never claimed that prices have to adjust instantly. They have always held they can be changed over time.
“Wrong. Administered prices always have a profit markup: they do not gravitate around average costs of production per unit: they will always be above it.”
That’s what gravitate means Einstein. Notice I didn’t say equivalent to, or the same as, or identical to.
“And anyway, costs of production in Austrian and neoclassical theory are understood as marginal cost, not averages costs.”
I understand costs to be the FULL costs, the full money costs that is, of production.
I ultimately defend my own views, not the views of others.
I”Austrians never claimed that prices have to adjust instantly. They have always held they can be changed over time.”
Right: they are flexible in market trades between buyers and sellers in a mutual haggling process, so that prices generally **tend** to move towards their market clearing levels, so that demand will be adjust to quantities sellers want to sell, even if the system as a whole will not reach general equilibrium or Mises’ final state of rest. But nevertheless the economy has a *tendency* to towards clearing of product and labour markets.
That is Austrian theory: it is untrue because administered prices account for about 60%-80% of prices in any particular market economy.
I expect we will now see some torturous insanity by which you will scream that Austrians have never said prices or wages need to be flexible in this way or that prices tend towards market clearing levels.
Only they do, idiot:
(1) “Mises conceives the market process as coordinative, ‘the essence of coordination of all elements of supply and demand.’ This means that the structure of realized (disequilibrium) prices, which continually emerges in the course of the market process and whose elements are employed for monetary calculation, performs the indispensable function of clearing all markets ….” (Salerno 1993: 124).
(2) “The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.” (Mises 2008: 756–757).
(3) “The market interaction brings about a price at which demand and supply tend to coincide. The number of potential buyers willing to pay the market price is large enough for the whole market supply to be sold. If government lowers the price below that which the unhampered market would set, the same quantity of goods faces a greater number of potential buyers who are willing to pay the lower official price. Supply and demand no longer coincide; demand exceeds supply, and the market mechanism, which tends to bring supply and demand together through changes in price, no longer functions.” (Mises 2011: 101).
(4) “Private business prices its goods and services to ‘clear the market,’ so that supply equals demand, and there are neither shortages nor goods going unsold.” (Rothbard 2006a: 259).
(5) “Similarly, most economists would readily admit that keeping the price of any good above the amount that would clear the market will cause unsold surpluses to pile up.”
(Rothbard 2008: 43).
LK:
“Right: they are flexible in market trades between buyers and sellers in a mutual haggling process, so that prices generally **tend** to move towards their market clearing levels, so that demand will be adjust to quantities sellers want to sell, even if the system as a whole will not reach general equilibrium or Mises’ final state of rest. But nevertheless the economy has a *tendency* to towards clearing of product and labour markets.”
That’s actually very well written.
“That is Austrian theory: it is untrue because administered prices account for about 60%-80% of prices in any particular market economy.”
And? Costs fall over time if aggregate demand falls. Once costs fall, then pricing based on costs of production can also fall.
“I expect we will now see some torturous insanity by which you will scream that Austrians have never said prices or wages need to be flexible in this way or that prices tend towards market clearing levels.”
Tortured. Insane. Scream. LK, serious question, did you have the crap beat out of you while growing up? Who talks like this other than…tortured souls?
I know you need for me to say certain things that you have zingers ready to use, because you feel safer that way, but unfortunately for you my convictions are not accurately described by such statements.
“Only they do, idiot:”
Hey now, at least have the decency to wait for me to make the statement you want me to make. You’re jumping the gun! It’s funnier when the comedic routine goes back and forth, not just forth.
You’re avoiding the issue I am raising. The argument that prices tend towards market clearing levels is not refuted, let alone challenged, let alone even dented, by the phenomena of prices gravitating around costs of production.
You are ignoring the fact that costs are not forever fixed. Costs are a function of spending, namely past spending.
As I mentioned above, if aggregate spending falls for whatever reason, then over time so will costs fall, as with lower aggregate spending there will be lower investment spending, ceteris paribus. With lower investment spending, and thus lower costs, prices formed on the basis of costs can fall as well.
The doctrine of “fixed pricing” does not mean prices are fixed forever. Fixed prices just means cost plus markup pricing. Aggregate spending changes affects costs no less than it affects final output prices.
Your confusion stems from a belief that because aggregate demand has the immediate consequence of a fall in average profitability, due to the fact that while revenues fall instantly under such a scenario, costs on the other hand fall with a time lag as costs are a function of past spending, that this represents a “failure” of the market that requires inflation and higher spending.
But that is a non-sequitur and a red herring. You are trying to refute Austrian price theory by implicitly claiming that costs are forever rigid. You didn’t explicitly mention this, but it is implied in your criticism of the argument that prices can and do change which tends to clear the market.
There is also a hidden moral premise in your “scientific” analysis. Your moral premise is this: We ought not wait for costs to fall as aggregate demand falls, because it would lead to a fall in profitability and rising unemployment. We ought instead to pester a “powerful social institution of demand management” to print more money so that aggregate demand doesn’t fall.
You are presenting a moral theory, not an economics one, when you prattle for coercive Keynesian activity. You don’t want people to suffer from unemployment, you want people to suffer from coercive transfers of wealth, because in your mind you have the notion that the costs of Keynesianism are borne primarily by “the rich”.
However, in a division of labor society, which is radically different from the feudalistic conception of society you have in your mind, harming the wealthy harms the poor, and vice versa.
“You are trying to refute Austrian price theory by implicitly claiming that costs are forever rigid. You didn’t explicitly mention this, but it is implied in your criticism of the argument”
No, it isn’t.
Yet another pathetic straw man indicative of your intellectual bankruptcy.
That markup prices can and often do change when costs change is precisely what I have said all along.
You’re a feeble liar at best.
But just because markup prices might change when costs change that does not mean that prices generally change in response to demand, or that they are flexible in mutual trades where agents try to find market clear prices.
Your epic failure is clear.
“No, it isn’t.”
Yes, it is. Your argument that sellers will not reduce prices in the face of a fall in demand, because costs plus profit pricing prevents them from doing so, is very much an implicit argument that costs do not fall.
“That markup prices can and often do change when costs change is precisely what I have said all along.”
I didn’t say you weren’t being contradictory.
If you admit that costs change in the face of a change in aggregate demand, then you admit that prices are indeed flexible and do indeed tend to clear the market.
“But just because markup prices might change when costs change that does not mean that prices generally change in response to demand, or that they are flexible in mutual trades where agents try to find market clear prices.”
On the contrary, if you admit that a change to aggregate demand leads to a change to investment spending, ceteris paribus, then you are at the same time admitting that changed demand really does lead to changed costs, and with changed costs, selling prices can change.
“Your argument that sellers will not reduce prices in the face of a fall in demand, because costs plus profit pricing prevents them from doing so, is very much an implicit argument that costs do not fall.
Rubbish. It implies no such thing.
“If you admit that costs change in the face of a change in aggregate demand, then you admit that prices are indeed flexible and do indeed tend to clear the market. “
That is an utter non sequitur.
Market clearing implies flexible prices adjusted in response to demand to equate demand with supply offered.
Markup prices do not do that. Instead output and employment are adjusted, and inventories are adjusted.
Unused factors like unemployment rise.
Your theory requires that prices and wages are adjusted to find market clearing levels.That is precisely what does not happen in fixprice markets.
“Rubbish. It implies no such thing.”
Yes, it does. For if you accepted that costs can and do fall in the face of a fall in aggregate demand, then you would not be fixated on an inability of sellers to reduce prices. You would instead be readily open to the fact that they are willing to cut prices, as costs fall.
“That is an utter non sequitur.”
No, it actually follows.
“Market clearing implies flexible prices adjusted in response to demand to equate demand with supply offered.”
That is what you conceded takes place as costs fall due to a fall in nominal demand.
“Markup prices do not do that. Instead output and employment are adjusted, and inventories are adjusted.”
“Unused factors like unemployment rise.”
“Your theory requires that prices and wages are adjusted to find market clearing levels.That is precisely what does not happen in fixprice markets.”
False. That is precisely what happens, because the fall in costs is predicated on a fall in investment spending, and when there is a fall in investment spending, capital goods and labor prices tend to fall. If they don’t fall right away, due to expectations of reinflation or what have you, then that just means more time will pass before prices do fall. A wage earner is not going to hold out on a higher wage until it kills them. A capital goods seller is not going to hold his inventory forever. If either try to hold out, market forces will compel them into selling at a lower price if they want to avoid losses.
The implicit premise in your worldview is that you believe people would rather starve, then sell at prevailing, and lower, bid offers. That is certainly not the case.
Try again.
” For if you accepted that costs can and do fall in the face of a fall in aggregate demand, then you would not be fixated on an inability of sellers to reduce prices. You would instead be readily open to the fact that they are willing to cut prices, as costs fall.”
Such reduction of prices is not the same thing as a tendency to market clearing prices.
And in actual fact the empirical evidence shows that many modern administered price businesses often do NOT reduce their prices when factor input prices decrease.
Instead, the business will increase the profit markup and maintain prices, to maintain profits – a factor that tends to re-enforce the downward rigidity of prices in modern market economies.
See Álvarez, L. J., Dhyne, E., Hoeberichts, M., Kwapil, C., Le Bihan, H., Lünnemann, P., Martins, F., Sabbatini, R., Stahl, H., Vermeulen, P. and J. Vilmunen. 2006. “Sticky Prices in the Euro Area: A Summary of New Micro-Evidence,” Journal of the European Economic Association 4.2–3: 575–584.
But of course the real world is of no concern to Rothbardian fantasists like you.
“Such reduction of prices is not the same thing as a tendency to market clearing prices.”
Yes, it is. The reason why prices are falling is because it is in the interests of the individual exchangers. Since the exchanges are in their interests, that is by definition a tending towards clearing the market.
“And in actual fact the empirical evidence shows that many modern administered price businesses often do NOT reduce their prices when factor input prices decrease.”
That can only be the case if nominal demand doesn’t fall. But we are assuming a fall in demand.
“Instead, the business will increase the profit markup and maintain prices, to maintain profits – a factor that tends to re-enforce the downward rigidity of prices in modern market economies.”
That will just attract more investment, and thus a rise in costs, and fall in profits.
“But of course the real world is of no concern to Rothbardian fantasists like you.”
The real world contradicts you.
“That can only be the case if nominal demand doesn’t fall”
False.
That practice also happens in recessions.
In fact, just as Gardiner Means noted long ago, administered prices can move in any direct during any phase of the business cycle. Their rigidity is also quite clear in recessions.
“That can only be the case if nominal demand doesn’t fall””
“False.”
“That practice also happens in recessions.”
That doesn’t refute what I said such that “false” is warranted.
“In fact, just as Gardiner Means noted long ago, administered prices can move in any direct during any phase of the business cycle. Their rigidity is also quite clear in recessions.”
You ignore the fact that such prices can and do change given enough time in an environment of a changed nominal demand. Any “rigidity” is purely temporary. Owners of labor and capital goods are not going to choose starvation over reducing their asking prices. Prices can and do fall over time with a fallen nominal demand.
The fact that they don’t fall instantly does not mean that the tendency towards market clearing does not occur.
Prices become more rigid as owners of labor and capital expect inflation. For then they have less of an incentive to cut their prices. They believe they can wait things about until nominal demand increases again.
But if this inflation is not expected, because we have a free market without Fed intervention during recessions (which is the argument you believe you are refuting by claiming it’s not true until we actually have a free market, HAHA!), then people would not come to expect rising demand. They would more readily accept lower prices.
This effect would be even more pronounced in an economy with gradual price deflation on the basis of production increases. Here, falling prices would be normal, and so any cut to prices due a sudden decreases in nominal demand, would be much more readily accepted, since prices are falling anyway as per normal.
LK, you’re not even attempting to engage the argument, but are instead simply denying what follows from premises you yourself have stated you agreed with.
Prices don’t remain elevated forever with a fallen nominal demand. They can and do fall over time, towards clearing. Just because it doesn’t happen instantly, it doesn’t entitle you to claim that prices don’t fall in a free market due to a fall in nominal demand.
“I understand costs to be the FULL costs, the full money costs that is, of production.
Oh, so you’re not disputing that in marginalist price theory — either Austrian or neoclassical — the cost of production tends to mean marginal cost, not average costs of production per unit.
Thanks for confirming my statement.
LK:
Yes. Austrian theory is limited to subjective marginal pricing.
However, what is important to note is that costs plus profit pricing is actually an outcome of marginal pricing. Austrian theory of prices isn’t wrong, it just has to be applied the proper way in order to explain why we see prices tending towards costs of production (plus profit). Remember, during the 1860s when Bohm-Bawerk and Menger were working out the rudiments of what would later be called the marginalist revolution, they were living in a world where most goods were not manufactured goods, but rather were basic commodities produced mainly using direct labor.
Their analysis of pricing is true for raw material commodities. Marginal utility explains it. However, as the rise of manufacturing accelerated, it became the case that more and more, and then most goods, were not basic commodities produced by direct labor.
The correct application of marginal pricing required an additional set of components, all of which are grounded on action.
To see why marginal utility actually leads to cost plus profit markup pricing, I recommend you read Reisman’s Capitalism.
George Reisman’s Capitalism: A Treatise on Economics (1996) has no theory of administered prices.
He mentions them on p. 417 and then dismisses the subject. On earlier pages he simply discusses marginal pricing based on marginal cost.
You have no idea what you’re talking about.
And moreover even if it were true that Reisman has a theory of administered pricing (he doesn’t), Mises, Rothbard and Hayek and all other Austrians do not.
Their theories are grossly flawed by the failure to understand the concept.
You misunderstand.
I cited Reisman to show you a source of a discussion on why marginal pricing leads to cost plus profit pricing.
By “administered prices” you are of course referring to cost plus profit pricing.
“And moreover even if it were true that Reisman has a theory of administered pricing (he doesn’t), Mises, Rothbard and Hayek and all other Austrians do not.”
Actually, Reisman does have a theory of administered prices. He just has a different theory than you. Furthermore, it is irrelevant whether Mises or Rothbard had a theory of it, when it comes to what I am arguing to you on this blog, which you are dodging and avoiding because you can’t answer them.
Keynes, How do feel about the book I wrote about you, “Keynes, the Man”?
Lord Keynes answers himself:
A simple question can demonstrate the absurdity of his approach:
Can you sit in an armchair and use deduction from the action axiom to determine how all prices are actually set in real world capitalist economies and with apodictic truth?
http://socialdemocracy21stcentury.blogspot.com/2013/11/a-simple-question-for-austrian.html
Answer: NO
Thus, it does not follow from basic Austrian concepts that prices will be “set” in any particular manner.
“Answer: NO”
Right. Apriorist phraseology can’t tell you how prices are actually set.
And yet Mises and Rothbard says:
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.” (Mises 2008: 756–757).
“The market interaction brings about a price at which demand and supply tend to coincide. The number of potential buyers willing to pay the market price is large enough for the whole market supply to be sold. If government lowers the price below that which the unhampered market would set, the same quantity of goods faces a greater number of potential buyers who are willing to pay the lower official price. Supply and demand no longer coincide; demand exceeds supply, and the market mechanism, which tends to bring supply and demand together through changes in price, no longer functions.” (Mises
2011: 101).
“Rothbard presumed that in individual markets, the law of one price dominated, and that market clearing happened rapidly and smoothly … . ” (Vaughn 1994: 97).
Mises and Rothbard were wrong: because of their unwillingness to take an empirical approach to price theory.
Austrian price theory holds that prices are essential information. Socialism eliminates that information. Keynesianism deforms it.
Because laissez faire provides the best information, people are going to tend to know what to make, how much to make, where to sell it and for what price. Further, without subsidies and bailouts, they may find that they have to be flexible when things do not turn out as planned.
LK has mangled the essence of the theory. On purpose. Because he must.
LK:
“The market interaction brings about a price at which demand and supply tend to coincide.”
“Mises and Rothbard were wrong: because of their unwillingness to take an empirical approach to price theory.”
No, Rothbard and Mises were right.
You yourself even agree with that statement, as you said prices don’t have to instantly adjust to every change in supply or demand. Well, if prices don’t have to immediately adjust, and humans by nature tend to seek gains and avoid losses, it follows that prices do tend towards clearing the market.
LK, you’re disagreeing with your own claims, and agreeing them at the same time.
“Well, if prices don’t have to immediately adjust, and humans by nature tend to seek gains and avoid losses, it follows that prices do tend towards clearing the market.”
It does not follow at all, and this is typical of your inability to argue without gross non sequiturs.
Flexible price adjustment as postulated in Austrian theory does not require instant adjustment but adjustment over time in trades where prices are flexible and respond to demand and have a strong tendency to adjust towards market clearing levels.
That is what does not happen with administered prices, despite your desperate attempts to ignore reality.
I know many people are sick of this dispute. But I always thoroughly enjoy watching LK twist himself into a pretzel simply to avoid and/or obfuscate the notion of prices as information and Keynesian prices as disinformation.
If prices are actually administered, why the concern about preventing “liquidation” during bad times? If prices are administered, firms need not EVER lower their prices, right?
But isn’t “liquidation” just a new set of much lower “market clearing prices” replacing the much higher set of “market clearing prices” that obtained during the boom?
Sounds like a Lord Keynesian Kontradiction to me.
I haven’t denied that Austrians — especially Hayek — see prices as conveying fundamentally important information.
But that view is equally as mistaken with respect to most prices: administered prices are not adjusted to reflect supply and demand factors, but you’re too stupid to remember we’ve been through all this before.
In fact, you’re so stupid you’ve forgotten that Austrians themselves are divided on this subject:
“For Mises (as Salerno and Rothbard correctly point out) prices are not primarily signals economizing on the cost of communicating information.”
Kirzner, Israel M. 2000. The Driving Force of the Market: Essays in Austrian Economics. Routledge, London and New York. p. 159.
I expect we’ll now hear form you that Austrians have never — never! — said that prices communicate information.
“If prices are administered, firms need not EVER lower their prices, right?”
Wrong, idiot. Administered prices will generally fall as factor inputs costs fall — and some factor inputs markets are indeed flexprice.
“Flexible price adjustment as postulated in Austrian theory does not require instant adjustment but adjustment over time in trades where prices are flexible and respond to demand and have a strong tendency to adjust towards market clearing levels.”
That is exactly what happens as individuals seek gains and avoid losses. Avoiding losses means they don’t keep investing the same high amount in the face of a reduced nominal demand. That avoidance of losses results in a decline in business costs, since costs are a function of investments.
Administered prices just means cost plus profit markup pricing. Well, since costs fall as individuals seek to avoid losses in the face of a fall in nominal demand, it means that your assertion otherwise is incorrect.
LK:
“Administered prices will generally fall as factor inputs costs fall — and some factor inputs markets are indeed flexprice.”
That’s what is implied in the argument that prices tend to clear the market. Prices tend to clear the market because with a fall in nominal demand, investment and costs fall, to allow the decreased demand to earn profits.
“Well, since costs fall as individuals seek to avoid losses in the face of a fall in nominal demand, it means that your assertion otherwise is incorrect”
No, it does not.
it means businesses cut employment and output, creating idle capital goods and unemployment.
Prices in recessions still rise, and generally recessions are just disinflationary.
Keep waging your war against reality.
“No, it does not.”
Yes, it does.
Avoiding losses would imply a reduced investment in the face of reduce demand. It would also imply accepting lower prices in the face of a reduced demand, if the alternative is no sale for the foreseeable future.
“it means businesses cut employment and output, creating idle capital goods and unemployment.”
Tending towards clearing does not imply absence of unsold labor and unsold capital goods.
What you are missing is that should capital or labor go unsold for a time, the drive for the owners of such factors to seek gains and avoid losses will drive them to change their exchange prices from what they used to be. They won’t refuse to cut prices until they starve.
“Prices in recessions still rise, and generally recessions are just disinflationary.”
Prices in recessions don’t necessrily rise nor do they necessarily fall. It would depend on the inflation.
“Keep waging your war against reality.”
Love it how you’re aping Roddis. He’s had an effect on you hasn’t he? LOL
“Prices in recessions don’t necessrily rise nor do they necessarily fall. It would depend on the inflation.”
You’ve just destroys yourself, fool.
You just said that in a recession fixprice businesses will adjust prices to downwards to find market clearing prices because costs fall.
Not only is any price reduction through cost reductions not the same thing as flexible prices moved to find market clearing levels, but now you just admitted they may not even be general price reduction at all, but continuing rising prices.
You have crashed and burned.
LK wrote:
You’ve just destroys yourself, fool.
LK, does it ever occur to you that you act like Darth Vader on this blog? Are you pleased or alarmed?
If your fans such as MF were capable of even minimal good faith by avoiding outright lies, obviously dishonest straw man arguments and basic standards of logic they would not provoke the contempt they deserve.
MF and roddis in particular have regularly called me a liar or worse.
Or take a look at one of your libertarian regulars’ language here.
Is he a “Darth Vader on this blog”? Are pleased or alarmed?
We could easily find numerous people who use langauge as bad or worse than that, far worse than my relatively mild dismissals of MF
Is he a “Darth Vader on this blog”?
Clearly not. Darth Vader never used the ‘f’ word.
I think you need brush up on your SW dialogue, LK -( or maybe not – you’re a natural…)
“Darth Vader”
Oh dear God Bob have you really never noticed how rude and and insulting the Rothbardian claque is here? I’m not saying LK is a paragon of politeness like Gene Callahan but sheesh they do provoke him.
Love him or hate him LK you can’t say LK doesn’t provide arguments, quotes and links to support his claims. Darth Vader never did that.
Oh dear God Bob have you really never noticed how rude and and insulting the Rothbardian claque is here?
Have you never noticed me telling them to back down? I do that regularly.
And there is a difference between being rude and sounding like Darth Vader. For example, you are extremely rude, Ken B., but you don’t sound like Darth Vader. See?
Actually Bob I think you are far ruder to me than I am to anyone. Or perhaps some of the ings you’ve said “patronizing”, “liar”, “delusional”, “from the devil”, “the worst sort of …” ,”troll” don’t count as rude?
You might tell them to tone it down once in a while, but you also whip them up often enough, or set the tone. See above. or “Darth Vader”, who last time I checked was a villain.
Bob Murphy definitely makes me tone it WAY DOWN. And I think I’ve been very good this year. Santa.
LK:
“You’ve just destroys yourself, fool.”
Oh no!
“You just said that in a recession fixprice businesses will adjust prices to downwards to find market clearing prices because costs fall.”
LK I know it’s hard for you to keep up, but at least try. That argument was assuming ceteris paribus holds. But if the Fed inflates like gangbusters, then prices won’t necessarily fall during a recession. You do realize that it’s obvious I hold that inflationary depressions can exist, right?
“Not only is any price reduction through cost reductions not the same thing as flexible prices moved to find market clearing levels”
Actually it is, because the costs reduction leads to a tendency of cost prices to be reduced as well, given that owners of factors prefer to sell goods than not sell them at all.
“but now you just admitted they may not even be general price reduction at all, but continuing rising prices.”
If there is inflation, yes. Recessions and inflation are not mutually exclusive you know.
“You have crashed and burned.”
KeerrrrrrPLUNK!
“If your fans such as MF were capable of even minimal good faith by avoiding outright lies, obviously dishonest straw man arguments and basic standards of logic they would not provoke the contempt they deserve.”
What straw men? What lies? What illogic?
“MF and roddis in particular have regularly called me a liar or worse. ”
I only call you a liar when you call me a liar. Can’t say the same thing about Roddis. But don’t conflate us. I treat you with respect if you do the same.
Ken B:
If you notice, LK on this thread started the name calling, at least with me. Go ahead, check it out.
This is constructive, fer sure. Let’s review today’s name-calling by LK.
I wrote:
If prices are actually administered, why the concern about preventing “liquidation” during bad times? If prices are administered, firms need not EVER lower their prices, right? But isn’t “liquidation” just a new set of much lower “market clearing prices” replacing the much higher set of “market clearing prices” that obtained during the boom? Sounds like a Lord Keynesian Kontradiction to me.
LK then took the second sentence out of context and called me an idiot without answering the gist of the questions:
http://consultingbyrpm.com/blog/2013/11/fellow-rothbardians-the-jig-is-up.html#comment-81146
I’ve made the same point several times. If prices are indeed “administered” in BAD TIMES, why the fear of liquidation? And doesn’t a prediction of liquidation predict much lower “market clearing prices” AND an understanding of the problems of DEBT DEFLATION, something LK says we do not understand so completely that we are all IDIOTS?
Typo:
And doesn’t a prediction of liquidation predicting much lower “market clearing prices” demonstrate an understanding of the problems of DEBT DEFLATION, something LK says we do not understand so completely that we are all IDIOTS?
” That argument was assuming ceteris paribus holds. But if the Fed inflates like gangbusters, then prices won’t necessarily fall during a recession.
lol.. so your remarks above apply to only to a imaginary fantasy world!
In the REAL WORLD, markup prices tend not to even fall in recessions, which means that they cannot possibly be downwardly adjusting market clearing prices in the REAL WORLD as opposed to your fantasy world.
Your entire arguments have collapsed.
This statement is the perfect example of total economic ignorance. As always, you are a good economic chronicler who knows not the least bit about economics.
“lol.. so your remarks above apply to only to a imaginary fantasy world!”
No, it applies to the real world, one in which humans choose to allow prices to fall in a free market.
Just because a free market doesn’t exist, it doesn’t mean we can’t say anything about it.
“In the REAL WORLD, markup prices tend not to even fall in recessions”
That is precisely why recessions are prolonged LK. It is in part because the Fed is preventing prices from being allowed to fall, out of a misplaced fear of “deflation”.
In the REAL WORLD, humans can choose to allow prices to fall, if only more were educated in economics instead of Keynesianism. Falling prices cures depressions.
Yes, prices can fall, if the Fed allows them to fall. Just because the Fed doesn’t allow them to fall, it doesn’t mean that falling prices don’t cure depressions, or that falling prices cannot take place if the Fed were abolished.
Try harder. According to your illogic, if Keynesianism isn’t being applied, then Keynesians have nothing to say about why such and such occurred, for example why the economy got worse because of a lack of Keynesian activity.
But you yourself make such arguments all the time, which are argument NOT of the “real world” as it is.
Your worldview collapses in on itself in total contradiction.
“lol.. so your remarks above apply to only to a imaginary fantasy world!”
No, it applies to the real world, one in which humans choose to allow prices to fall in a free market..
Just because a free market doesn’t exist, it doesn’t mean we can’t say anything about it.
“In the REAL WORLD, markup prices tend not to even fall in recessions”
That is precisely why recessions are prolonged LK. It is in part because the Fed is preventing prices from being allowed to fall, out of a misplaced fear of “deflation”.
In the REAL WORLD, humans can choose to allow prices to fall, if only more were educated in economics instead of Keynesianism. Falling prices cures depressions.
Yes, prices can fall, if the Fed allows them to fall. Just because the Fed doesn’t allow them to fall, it doesn’t mean that falling prices don’t cure depressions, or that falling prices cannot take place if the Fed were abolished.
Try harder. According to your illogic, if Keynesianism isn’t being applied, then Keynesians have nothing to say about why such and such occurred, for example why the economy got worse because of a lack of Keynesian activity.
But you yourself make such arguments all the time, which are argument NOT of the “real world” as it is.
Your worldview collapses in on itself in total contradiction.
“That is precisely why recessions are prolonged LK. It is in part because the Fed is preventing prices from being allowed to fall, out of a misplaced fear of “deflation”.
In the REAL WORLD, humans can choose to allow prices to fall, if only more were educated in economics instead of Keynesianism. Falling prices cures depressions.
You have now completely lost.
(1) you have retreated from your absurd claim that REAL WORLD administered prices are “market clearing” prices, just because some costs allegedly fall in recessions.
Of course, in most recessions markup prices generally still rise: they do not normally fall.
I expect you’ll now scream that none of your comments above was meant to apply to the real world, but to a flying unicorn fantasy world where — by definition — you just assume all prices and wages are sufficiently flexible to clear markets.
That fine — for utter fantasists.
(2) it follows directly that in the real world prices are mostly not flexible in the way Austrian theory imagines or requires and that demand does indeed drive output and employment in administered price sectors.
(3) it also follows that Misesian economic coordination is not a trait of real world economies.
(4) you’ve now shifted to a new argument: it’s all the fault of central banks. This is just rubbish, because it is quite clear that businesses themselves prefer mark-up prices and they are not forced by the Fed or government to do so. It is highly probable that if there was no Fed there would still be widespread mark-up prices.,since this is what businesses say they prefer.
(5) and finally the notion that even if wages and prices were highly flexible this would cure recessions is just garbage: it ignores debt deflationary dynamics and the subjective nature of expectations and business confidence.
You would require a world where there are no private debts or where debt magically adjust to deflation and where agents are all robots acting under no uncertainty.
In my defense, I am a former sailor. Also, the guy that I was talking to agreed that he is indeed “F’d up”.
Another thing that I’d like to add is that context is pretty important. The link that you referred to where I used the F word, I was remarking on the actions of xgsmmy. He spent three days in a row spamming a video on youtube, and on one of those days he spammed it for over 24 hours straight (with multiple postings per hour). That’s pretty strange behavior.
With that said, my response to xgsmmy that he is either “multiple people, or one F’d up individual” (paraphrased) is entirely different from your constant name-calling and personal attacks. While it is true that I often use swear words, I don’t often make it a habit of personally attacking people. But you do.
What any of this has to do with Bob describing you as Darth Vader is beyond me.
LK:
“You have now completely lost.”
That’s a funny way of conceding defeat, don’t you think?
“(1) you have retreated from your absurd claim that REAL WORLD administered prices are “market clearing” prices, just because some costs allegedly fall in recessions.”
No, I didn’t say that. I didn’t say that “some costs” fall in recessions. I said that given there is a fall in aggregate demand, costs and prices will tend to fall. Just because it doesn’t happen instantly, it doesn’t mean the tendency is not there.
“Of course, in most recessions markup prices generally still rise: they do not normally fall.”
Only if there is sufficient inflation to keep prices elevated.
But in the absence of such artificial goosing of the money supply, prices do tend to fall.
“I expect you’ll now scream that none of your comments above was meant to apply to the real world, but to a flying unicorn fantasy world where — by definition — you just assume all prices and wages are sufficiently flexible to clear markets.”
Prices are sufficiently flexible to tend to clear markets. Just because they don’t fall instantly, it doesn’t mean they never fall.
“That fine — for utter fantasists.”
Not in the slightest. It’s a real world description of how markets actually work. It doesn’t have to observed before we know there are downward forces acting on prices. We know these forces exist, because the Fed has to act in order to bring about rising prices.
The very fact that he Fed has to do what it does, proves that the forces I say exist, really do exist.
“(2) it follows directly that in the real world prices are mostly not flexible in the way Austrian theory imagines”
Straw man. Austrians don’t claim that prices change instantly. But that instant change is required in order for your argument to work. But since that instant change is not required in Austrian theory, your argument collapses once again
“or requires and that demand does indeed drive output and employment in administered price sectors.”
Output demand does not drive output. Only saving and investment drives output.
“(3) it also follows that Misesian economic coordination is not a trait of real world economies.”
Non sequitur.
“(4) you’ve now shifted to a new argument: it’s all the fault of central banks.”
This is not a “shift” in my argument. That was a response to your question about why prices don’t fall. The answer is central banks.
“This is just rubbish, because it is quite clear that businesses themselves prefer mark-up prices and they are not forced by the Fed or government to do so.”
Another non sequitur. What is true for individual business firms is not necessarily true for the economy as a whole. Yet another fallacy of composition.
“It is highly probable that if there was no Fed there would still be widespread mark-up prices.,since this is what businesses say they prefer.”
Irrelevant. My position is not that cost plus profit pricing is a result of inflation. It would likely exist in a free market as well. But in a free market, prices would be allowed to fall IF there is a fall in demand. For our inflationary economy, the Fed typically prevents deflation.
“(5) and finally the notion that even if wages and prices were highly flexible this would cure recessions is just garbage: it ignores debt deflationary dynamics and the subjective nature of expectations and business confidence.”
It ignores neither. Debt liquidation is a part of the curation process. Subjective nature of expectations is ubiquitous for every actor, including the statesmen. Having subjective expectations does not refute the fact that prices change to tend to clear markets.
“You would require a world where there are no private debts or where debt magically adjust to deflation and where agents are all robots acting under no uncertainty.”
Not at all. That is just your imagination. You tacitly believe the existence of subjective expectations prevents economic calculation and seeking gains and avoiding losses.
Uncertainty is also ubiquitous. People do not need to be certain in order for prices to be able to be changed and for those changes to tend to clear the market, all grounded on individuals seeking gains and avoiding losses.
My point below is proven yet again.
(1) “I didn’t say that “some costs” fall in recessions. I said that given there is a fall in aggregate demand, costs and prices will tend to fall. “
If you bothered to look at the real world, you’d notice that modern recessions are mostly still inflationary. They cannot be market clearing prices, and your original argument — that because costs fall in a recession therefore mark-up prices in the real world will fall to market clearing levels — is false.
You’ve totally confirmed my statement above by now saying that this only applies to a hypothetical world.
(2) you’re back to straw man idiocy.
“>(2) it follows directly
>that in the real world
>prices are mostly not
>flexible in the way Austrian
>theory imagines”
Straw man. Austrians don’t claim that prices change instantly.”
It is you who guilty of straw man arguments. I never said or implied that Austrian say that prices must change instantly.
Your dishonesty is testimony to how you’ve lost this argument.
MF,
I am truly amazed at your patience. I am assuming you haven’t yet banged your head on the keyboard after this
I wonder what will it take for this guy to realise that he is saying exactly what you are, except that he ignores the point that the real world is the one in which money supply has been goosed up and that the observation of inflationary recessions is not something you do not anticipate or explain. Even worse is his statement that these are not market clearing prices under the changed supply of money.
LK’s antics are as ludicrous as they have always been. Once again, hats off to your patience.
“Even worse is his statement that these are not market clearing prices under the changed supply of money.
What? you’ve saying that modern mark-up prices ARE market clearing prices?
This debate was about what happens in the real world. The real world mark-up prices are not market clearing prices, and if you think so you are as deluded and stupid as MF is.
under the changed supply of money
Did you miss this out, LK?
If you saying that real world mark-up prices are not market clearing prices, you are just admitting I am right: a real world market economy does not have a strong tendency to this market clearing in product markets as required in Austrian economics..
But — like MF —
I expect you’re too dishonest, pigheaded and irrational to simply concede my original statement was true.
Instead we can expect tantrums, straw man arguments, etc. etc. etc.
LK,
First, I do not have MF’s patience.
Second, I am not the dishonest one out here given that I have already shredded your fixprices are not market clearing prices “argument”. Remember the time you quoted Salerno and I showed you up? I know. I know. You will flatly deny that I showed you up. You always do. That’s why I have no patience for you.
LK, of course real world markets are not as smoothly operating as theoretical Austrian markets. Surely your disagreement is deeper than that…
No, Rick hull, M-F and bala are not even admitting that: they saying that real world mark-up prices ARE market clearing prices.
So how would you propose we discover a market clearing price? And how to test this in practice?
LK:
“My point below is proven yet again.”
Your point was not only not proved prior, but was actually refuted.
“(1) “I didn’t say that “some costs” fall in recessions. I said that given there is a fall in aggregate demand, costs and prices will tend to fall. “
“If you bothered to look at the real world, you’d notice that modern recessions are mostly still inflationary.”
That is because the Fed typically steps in to prevent a fall in nominal demand. But that doesn’t refute the fact that WHEN there is a fall in demand, prices and costs tend to fall.
Your “rebuttal” here is not actually addressing the argument. It is avoiding it.
“They cannot be market clearing prices”
IF there is a fall in nominal demand, then yes, prices do indeed tend to fall and do indeed tend to clear the market. This is not refuted by the existence of a central bank that prevents the fall in nominal demand that would cause a fall in prices from being manifest.
“and your original argument — that because costs fall in a recession therefore mark-up prices in the real world will fall to market clearing levels — is false.”
No, that is true. You have not refuted this.
“You’ve totally confirmed my statement above by now saying that this only applies to a hypothetical world.”
The fact that in our world there is a central bank that continually inflates, does not refute the argument that costs tend to fall in response to a fall in nominal demand. This is an argument about free markets. This is an argument that the Fed is not needed to do what you claim the free market cannot do, which is set prices that tend to clear the market.
“(2) you’re back to straw man idiocy.”
Where?
“Straw man. Austrians don’t claim that prices change instantly.”
“It is you who guilty of straw man arguments. I never said or implied that Austrian say that prices must change instantly.”
Again, this is what is implied in your arguments that a fall in demand will not result in prices and costs falling that tend to clear the market. The fact that there is a central bank that prevents nominal demand and/or prices from falling via inflation is not an argument against what the free market can or cannot do.
You have not refuted the argument that prices and costs in a free market tend to fall in response to a fall in nominal demand.
Merely calling this “hypothetical”, on the basis that there is a central bank, is insufficient.
It would be as insufficient as claiming that because we don’t have worldwide communism, we cannot correctly argue that there would not be a price system for the means of production. That instead, this is merely a “hypothetical” argument only. That we must actually have worldwide communism in order to “test” the “theory” that there cannot be a price system for the means of production.
“Even worse is his statement that these are not market clearing prices under the changed supply of money.”
“What? you’ve saying that modern mark-up prices ARE market clearing prices?”
Even “mark-up” prices in an inflationary environment tend to clear the market LK.
Just like prices and costs RISE to tend to clear the market in an inflationary environment, so too do prices and costs FALL to tend to clear the market in a non-inflationary environment.
“This debate was about what happens in the real world.”
Even in an inflationary environment, prices and costs tend to change to clear the market.
You seem not to recognize the fact that prices and costs tending to clear the market occurs within an inflationary environment OR a deflationary environment. Whatever “environment” takes place in the future, is what the applicable change direction of prices will be.
When you assert that you are talking about the real world whereas I am talking about an imaginary world, you are actually saying that you are talking about history, whereas I am talking about what will occur going forward IF certain conditions are met. That isn’t a hypothetical argument only, because it is DEDUCED from the reality of action in a world of deflation.
I can deduce the same exact thing in a world of inflation. Human action in a world of inflation is seeking gains and avoiding losses in a context of money that, according to the quantity theory of money, results in rising prices and costs due to the marginal fall in utility of a given dollar. The law of marginal utility and quantity theory of money in a context of deflation is no less true.
“The real world mark-up prices are not market clearing prices”
Mark-up prices are prices that TEND to clear the market. If there is a relative partial over or under supply of goods, due to the particular prices and costs set, then the acts of seeking gains and avoiding losses will tend to make prices and costs rise or fall, depending on what is occurring to the money supply and nominal demand.
“If you saying that real world mark-up prices are not market clearing prices”
Read what Bala said LK instead of making “hypothetical” arguments about “if” he is saying this or that.
“you are just admitting I am right: a real world market economy does not have a strong tendency to this market clearing in product markets as required in Austrian economics.”
Yes, it does. You are not refuting this by pointing to the fact that there is a central bank that prevents a fall in demand and prevents a fall in prices that WOULD clear the market IF there is indeed a fall in nominal demand.
Your arguments all collapse into absurdity LK. You’re not addressing the point being made.
You must think that in a world of slavery, any argument that says people would be better off without being enslaved is merely a “hypothetical”, because emancipation “does not exist.”
We don’t need to observe falling nominal demand in order to know that prices and costs tend to fall than they otherwise would in such an environment, no less than we don’t need to actually observe rising nominal demand in order to know that prices and costs will tend to rise from where they otherwise would in such an environment.
The whole reason the Fed exists is to PREVENT losses (mainly to banks and to the Treasury) from being incurred due to a fall in nominal demand and prices. The very fact that the Fed exists, doing what it does, is actually sufficient evidence that my argument about what would happen without the Fed, is actually true.
Mark-up prices tend to clear the market both in inflationary and deflationary environments. People are indeed capable of setting higher or lower investment spending quantities in response to expected nominal demand.
LK:
“Austrians think prices are or should be flexible and have a **tendency** towards market clearing prices, some may reach that level, but all do not.”
There is no “level” to be reached.
ALL prices and price changes tend towards clearing. This is the case whether prices are formed on the basis of direct supply and demand, or on the basis of costs of production.
“Mark-up prices are prices that TEND to clear the market. If there is a relative partial over or under supply of goods, due to the particular prices and costs set, then the acts of seeking gains and avoiding losses will tend to make prices and costs rise or fall, depending on what is occurring to the money supply and nominal demand.”
“Mark-up prices tend to clear the market both in inflationary and deflationary environments.”
And now we are back to sheer absurdity totally contrary to reality.
In virtually any recession you care to pick since 1945 in mark-up pricing sectors and in prices generally inflation still happens and prices overall are still rising.
These mark-up prices cannot be market clearing prices because generally they do not even respond to demand changes either upwards or downwards.
And relative downwards rigidity — even in response to costs changes– is an empirically observed fact marked.
ALL prices and price changes tend towards clearing.
What do you mean by “tend”? A weak tendency or strong tendency?
Do a majority of prices tend to actually reach market clearing levels where quantity demanded is equated to quantity supplied by sellers?
Shame on you LK. “Tend” means “in a sufficiently long time so that no test can refute it.” You’ve been tracking pigeon beak prices since 1713 you say? Not long enough yet. In the long run we’re all cleared.
Ken B,
Good lord, I see the light now!
Yes, I expect we need to wait at least 58 million years before market clearing “tendencies” finally clear markets in mark-up price sectors. Therefore they always **tend** to clear.
How stupid of me.
LK:
“And now we are back to sheer absurdity totally contrary to reality.”
No, we’re still in the same context that we were in the whole time. Individuals tend to change prices and costs to clear the market. This is true in an inflationary and deflationary environment.
“In virtually any recession you care to pick since 1945 in mark-up pricing sectors and in prices generally inflation still happens and prices overall are still rising.”
That does not refute the argument that individuals set prices that tend to clear the market.
“These mark-up prices cannot be market clearing prices because generally they do not even respond to demand changes either upwards or downwards.”
False. With a fall in nominal demand, or with a rise in nominal demand, prices do indeed adjust. Just because they don’t change instantly, it doesn’t mean Austrian theory is wrong.
“And relative downwards rigidity — even in response to costs changes– is an empirically observed fact marked.”
Prices do not adjust instantly. That is the same thing as saying prices are “rigid” in the face of a nominal demand change, upwards or downwards. The average individual’s nominal income does not rise instantly when a central bank announces, and enacts, an inflation of the money supply.
Just like prices don’t all instantly adjust with an inflation, so too do they not instantly adjust with a deflation.
“ALL prices and price changes tend towards clearing.”
“What do you mean by “tend”? A weak tendency or strong tendency?”
The term “tends” means that it takes place over time, given certain propositions are true, such as individual purposeful behavior, seeking gains and avoiding losses, the law of marginal utility, and quantity theory of money.
As an example, suppose others, RIGHT NOW, offered you no more than $800 a week in nominal income. Suppose that you want to work. Suppose that you think you might be able to get more, say $1000, if you held out, and lived off your savings in the meantime. Question: Given that accumulated savings is scarce, in what direction will your asking price tend to go over time? Will it tend to go above or below $1000?
Now consider all individuals taken together. Here, competition offsets, and so if there is a total spending of $800 billion available for 1 billion laborers, for an average nominal income of $800 per person per week, then from an initial asking price of an average of $1000 per person per week, in which direction will the income tend over time?
“Do a majority of prices tend to actually reach market clearing levels where quantity demanded is equated to quantity supplied by sellers?”
Equality is never achieved LK. To achieve equality between supply and demand would imply all action comes to an end. Humans would cease having any wants that have not been satisfied.
But GIVEN individual action continues to take place, GIVEN that human wants remain unsatisfied, then equality is never achieved, but there is a tendency towards equality.
““These mark-up prices cannot be market clearing prices because generally they do not even respond to demand changes either upwards or downwards.”
False. With a fall in nominal demand, or with a rise in nominal demand, prices do indeed adjust. Just because they don’t change instantly, it doesn’t mean Austrian theory is wrong.”
Mark-up prices do not adjust in the real world in manner required by you.
They remain in the long run generally inelastic with respect to demand.
E..g, in A. S. Blinder, et al. (eds.). Asking about Prices: A New Approach to Understanding Price Stickiness (1998) it is found that over 50% of firms surveyed said that they would not increase their prices when demand increased. These firms were in the mark-up pricing sector.
In studies on Ireland, an average of 66.5% of firms surveyed in a representative survey said negative demand shocks were of little or **no relevance** to pricing decisions (Keeney et al 2010: 6).
But of course the real world is irrelevant to M_F.
——-
Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html
Ken B:
“Shame on you LK. “Tend” means “in a sufficiently long time so that no test can refute it.” You’ve been tracking pigeon beak prices since 1713 you say? Not long enough yet. In the long run we’re all cleared.”
Oh now it makes sense. Ken B thinks individuals are inherently stupid and would choose death over holding out for a higher wage.
Congrats Ken B, you’ve shown your true colors concerning your respect for individual reason.
Since 1713? People can’t even live that long. People can only hold out for a higher price to the extent that they can live off their savings. But to live off one’s savings means that at some point those savings will be consumed. I would love it if everyone could live off their savings forever and hold out working until someone offers $100 billion an hour.
But we live in a world of scarcity, and so asking prices will tend to fall if the offered nominal demand is not as high as what is desired and what is capable of generating the higher, unmet asking price.
The real argument between LK and myself, which I am getting to slowly with him, step by step, is not actually anything to do with equilibrium or market clearing or any other rigid concept. It has to do with how much the concept of time LK is willing to integrate into his worldview. We’re actually debating how moral or ethical it is to wait (for longer or shorter) for others to satisfy their own ends, given the existence of other people’s ends. LK doesn’t want to wait for others to achieve their own ends, obviously, because he equates state ends with ends in themselves. Individual ends are really means to achieve social ends in LK’s worldview. Since violence is here and now, whereas reason is more time oriented, LK can’t wait for others to make their own decisions. He believes they are too weak and too stupid to take care of themselves.
He doesn’t want individual decision making in the market to result in other people’s unemployment.
He doesn’t want individual decision making in the market to result in resources not being used for a time.
His mindset is, as of now, one of impatience and irrationality. It’s, as of now, very short term oriented.
That is what this debate is really about. Everything Roddis and I are saying, notwithstanding the content which is valuable in itself, has the implicit intention of expanding consciousness to accommodate time, which reason requires by its very nature.
To LK, if someone is unemployed, he wants them to do “something” as soon as possible, even if that something is a bad idea in a context of private property rights, efficient production, and peaceful coexistence.
In short, LK wants to solve individual problems through social exploitation, because he is, at this point, incapable of thinking in the longer run.
LK:
“Mark-up prices do not adjust in the real world in manner required by you.”
Yes, they do. You even admitted as much when you argued that prices and costs rise over time.
This is the result of prices tending towards clearing in an environment of inflation.
The same thing is true in an environment of deflation. Just like individuals expecting higher incomes due to inflation encourages them to make higher nominal investment now, which has the result of increasing costs and prices over time, so too individuals expecting lower incomes due to deflation encourages them to make lower nominal investment now, which has the result of decreasing costs and prices over time.
“They remain in the long run generally inelastic with respect to demand.”
All prices are “inelastic” in the immediate moment. But they do adjust over time. That is all the Austrians are arguing. They are not arguing prices will adjust within 1 month, or 1 year. They are saying they tend to adjust.
The historical data collection you cited is irrelevant.
“it is found that over 50% of firms surveyed said that they would not increase their prices when demand increased. These firms were in the mark-up pricing sector.”
Surveys are not sufficient to what people actually DO, LK.
The fact that prices do indeed rise over time, in a context of inflation of the money supply, should have made it obvious that individuals do indeed set higher prices in response to an increasing nominal demand over time.
“In studies on Ireland, an average of 66.5% of firms surveyed in a representative survey said negative demand shocks were of little or **no relevance** to pricing decisions”
That’s because they expect higher incomes to be restored, due to central bank inflation.
Temporary demand “shocks” are not required to instantly reduce or increase prices, according to Austrian theory.
If the people of Ireland are asked if a “temporary demand shock in the downard direction were permanent, in that the central bank is not going to reinflate the money supply, such that the current bidding prices would not be rising anytime soon, then it is likely that those same people who otherwise would have held out for higher prices, would not choose to let their inventory rot. They would almost certainly cut their losses and make something rather than nothing.
Imagine if your nominal income offering suddenly fell 25%, and you believed it is permanent, because of a general deflation that is not going to be reversed by any central bank.
Would you hold out for a higher price until you are dead? Or would you at some point accept the lower income?
““it is found that over 50% of firms surveyed said that they would not increase their prices when demand increased. These firms were in the mark-up pricing sector.”
Surveys are not sufficient to what people actually DO, LK.”
That says it all: empirical evidence is utterly irrelevant to anything M_F says. How the real world actually is is irrelevant to what M_F says.
If we wished to understand how people set prices, actually asking a large number of companies in a representative sample is irrelevant.
This is absolute proof of M_F’s irrationality.
LK:
It does not follow at all, and this is typical of your inability to argue without gross non sequiturs.
False. It does follow. The reason why prices are formed, and the reason why prices change, is because of a desire among individuals to seek gains and avoid losses.
It’s why sellers don’t charge infinite prices, and why buyers don’t offer zero dollars or $0.01.
Prices are set because of individual goal seeking. That is the driver.
I know you want the state to be the driver of society, but in reality, individuals are self-drivers. They don’t need a state to drive them or tell them what to buy or how much they ought to spend.
It’s not a non-sequitur. It is perhaps the most clear case of sound deductive logic in economics.
Adjusted over time on the basis of individuals seeking gains and avoiding losses!
Sure it does. It happens with fix prices by the effect a changed demand has on investment and costs of production and thus cost plus mark up pricing.
When a firm experiences a reduced nominal demand, it will tend to invest less nominally as well. That will put downward pressure on costs, which can enable the firm to earn profits once again with the new lower nominal demand for their products.
This is the tendency.
LK:
That isn’t empirical evidence of prices LK.
Prices are empirical evidence of prices.
Now ask those firms what they would bid for labor and what owners of labor would ask if there are more people looking for a job at those firms, versus fewer people looking for a job at those firms, which is what next happens if firms respond to changed demand by laying off employees.
Ask them what they would price they would bid for capital goods and ask the owners of idle resource capital goods what price they would ask if there were more capital goods as opposed to fewer capital goods for sale, which are also the consequence of firms responding to a changed demand by putting those capital goods in a state of idleness.
Asking certain sets of questions cannot possibly explain the totality of what goes on in the market LK. You’re citing a study of questions that are of course formed in a ceteris paribus manner. But things are never ceteris paribus in reality, which is why surveys of prices are not empirical evidence of prices.
Based on an empiricist’s standards, then even they couldn’t say how “prices are set in real world capitalist economies”.
I went to The Dollar Tree the other day and EVERYTHING WAS A DOLLAR! I tried to negotiate but the minimum wage clerk said everything was a dollar and there was no negotiating. I guess we wrong about that Fixprice stuff. Austrian analysis has been vanquished!
I went to Dollar General the other day and they had Michael Moore’s film “Capitalism – A Love Story” in the discount bin for $3. Strange but true. I asked the minimum wage clerk why they didn’t just hold onto it forever at $19.95. She said that her boss was an Austrian and everyone knows that’s how Austrians ALWAYS price stuff.
I went to a dollar store in the local mall near where I live recently-the place is *really* run down compared to what it was like even in the late 90’s as I recall, but I digress. I had remembered that it used to be everything-and I mean everything-was a dollar there. Some time around 2008ish I want to say, they started charging more than a dollar for some things-I don’t recall if they charged less for anything but they may have. Anyway so I went back there recently and got a medium size bag of candy (“fun size” Snickers bars) for like 5 dollars, a couple of bags of fake spider webs for like 60 cents each-this was just before Halloween. Anyway, I didn’t inquire as to the economic beliefs of the management but it might have been interesting!
I will say I was surprised the places was still in business. The mall is still depressingly less active than it used to be.
Dollar Tree and Dollar General are ubiquitous clean chain stores that I discovered on my frequent back roads trips.
http://www.dollartree.com/home.jsp
If you are camping or in a motel and need supplies cheap and fast, they are the place to go.
http://www.dollargeneral.com/home/index.jsp
If you take your senile dad to Terlingua, Texas and run out of Depends, there’s a Dollar General in Presidio, Texas.
http://www.flickr.com/photos/bob_roddis/2387935953/in/set-72157604387259746
They also have cheap reading glasses. In 2008, the reading glasses were $5, but now they are $6. No inflation, huh?
I recorded an album there.
Dollar General has great acoustics.
I’m sorry but “Viva Terlingua” was recorded in Luckenbach, Texas, 500 miles from Terlingua.
I know a little about Jerry Jeff Walker.
http://www.flickr.com/photos/bob_roddis/871337554/in/set-72157600951975307
Well that escalated quickly.
Hilarious!
It’s funny how he complains about that small section. A couple months ago every single page on Wikipedia related to Austrian economics/libertarianism was vandalized by leftists. I haven’t checked if it’s still that way, but all of the entries were 90% negative.
Pretty sure Lord Keynes had something to do with it as well.
Or Kuehn.
That is how they play. They removed all of my, yes on #101 tax cut, signs. We would never touch their Marxist propaganda.
Play fair, lose.
Some random observations:
I noticed that the criticism section for Austrian economics article, at just over 1350 words is only a few words short of the entire article devoted to Neo-Classical economics. Keynsian economics gets a whopping 429 words. The article on new Keynsian economics is so amazing that there isn’t a criticism section at all, while the criticism article for the Labor Theory of Value gets 3500 words.
I meant “the entire article devoted to criticism of Neo-Classical economics”.
Quote “It’s simple, Kevin: If the reader likes soap operas, then they are a beautiful creation of the free market. If the person hates soap operas, then they are the result of government intervention.”
ROTFLMAO
I just re-wrote the criticism section the way I think it should have been written in the first place. I still cite Rothbard, while making it clear that this is not a theory he came up with, and that many non-Austrians accept the theory as well. Daniel’s criticism, as I see it, is that this section ought to have just been written this way in the first place, and not have been written as a marketing plug for Rothbard.
And you did a good job.
I wonder how long it lasts.
Thanks.
Gene,
You forgot Böhm-Bawerk. His works on interest and time preference precede Fishers, and are at least as pioneering I guess.
And by the way, folks, do you know that your own host here at this blog, at least when I last check this out, does NOT adhere to the pure time preference theory of interest?
Funny: at the American Conservative web site, I have been arguing that Black English is not grammatically challenged English, but simply English with a different grammar. Above, I see that Siri must have been reading this, and is rendering my posts in Black English even when I spoke them in Callahan English.
For shizzle, you better axe sumbudy about dat…
” your own host here at this blog, at least when I last check this out, does NOT adhere to the pure time preference theory of interest?”
No theory can explain
…my trigger happy mobile device, apparently. Fugg
LK, being the fundamentally dishonest and dishonorable person that he is, omitted the subsequent portion of this Salerno quote from his post above:
“The price system is not—and praxeologically cannot be—a mechanism for economizing and communicating the knowledge relevant to production plans. The realized prices of history are an accessory of appraisement, the mental operation in which the faculty of understanding is used to assess the quantitative structure of price relationships which corresponds to an anticipated constellation of the economic data. Nor are anticipated future prices tools of knowledge; they are instruments of economic calculation. And economic calculation itself is not the means of acquiring knowledge, but the very prerequisite of rational action within the setting of the social division of labor. It provides individuals, whatever their endowment of knowledge, the indispensable tool for attaining a mental grasp and comparison of the means and ends of social action.” (Salerno 1990: 44).
Thus, regardless of the Salerno/Rothbard vs. Hayek dispute, the information provided by “realized prices” is an essential and necessary ACCESSORY OF APPRAISEMENT used to assess the quantitative structure of price relationships which corresponds to an anticipated constellation of the economic data.
lol… this quote actually refutes your Hayekian statement about prices as information. You’re using a fallacy of equivocation and changing what you mean by “information”.
And prices are used to calculate profit and loss, yes. Every economist understands this.
By the way: is flexible price adjustment where prices are adjusted over time in trades and respond to demand, and have a strong tendency to adjust towards market clearing levels an important part of Austrian price theory or not?
Every time you run away in terror and refuse to answer this question, it is proof you have no idea about basic Austrian concepts.
Israel Kirzner [HT2 LK, who always provides information to refute his distortions]:
Where Salerno and Rothbard have (as demonstrated by Yeager) gone astray, is in their refusal to recognize that this impossibility of rational calculation and action under socialism can illuminatingiy be recognized as arising out of the limitations of the human planning mind-in other words, as consisting in a disastrous knowledge gap which, without market prices for resources, it is impossible to bridge. WE MAY READILY CONCEDE THAT MISES DID NOT ARTICULATE HIS CALCULATION PROBLEM IN TERMS OF KNOWLEDGE; BUT THIS DOES NOT IN THE SLIGHTEST IMPLY THAT THAT PROBLEM CANNOT BE SEEN TO CONSIST OF A KNOWLEGE PROBLEM. Reasonable interpreters of Mises may disagree on whether (as this writer emphatically believes to be the case) Mises’s calculation problem is indeed seen more clearly when its knowledge implications are made explicit. But there is no basis whatever for claiming that, in exposing these knowledge implications of the Misesian argument, one is distorting or falsifying that argument.
************
It is quite true that for Mises this “best available entrepreneurial knowledgen expressed in current market prices would be valuably useful for calculation purposes EVEN IF one could imagine these prices not already to reflect the corrective entrepreneurial market process which tends to replace false prices with prices less false. But the circumstance that in fact current market prices reflect that corrective market process (and our awareness that Mises did indeed emphasize this circumstance in regard to market prices) should convince us that an appreciation of the role of market prices stated in terms of the “Hayekian” knowledge problem is simply a somewhat differently articulated appreciation for the calculative properties Mises taught us to understand to exist in those market prices.
Some Observations on the Misesian Legacy
Mises had a profound and subtle understanding of the market’s operation. In that understanding, the character of the market as a process in which mistaken entrepreneurial judgments tend to come to be replaced by more accurate judgments (and thus one in which false prices are replaced by less false prices), was a central feature: Hayek, too, had his own understanding of the market’s operation. In certain respects, particularly in its articulation of the role of knowledge and discovery, that understanding can be differentiated from that of Mises. BUT THE CENTRALITY OF THE KNOWLEDGE-CORRECTIVE CHARACTER OF THE MARKET PROCESS FOR BOTH MISES AND HAYEK CANNOT SERIOUSLY BE DOUBTED. Whatever the differences between a Hayekian articulation of the market process and a Misesian articulation, the centrality of the notion of the corrective process for both, is the crucially important circumstance. It is this that should convince us that any talk of a Hayekian “paradigm which differs fundamentally from the Misesian paradigm should be dismissed as not only reflecting a mistaken doctrinal judgment, but as reflecting a mistaken judgment with potentially catastrophic implications for the future of Austrian economics.
Austrians are a beleaguered minority in the economics profession today. One of the core doctrinal issues separating Austrian economics character of the market process. We learned this from Mises. From Hayek we learned additional, complementary insights. If we wish preserve and build upon the Misesian legacy, we must not generate confusion (both among Austrians and their opponents) by exaggerating perceived differences between Mises and Hayek, to the point where the centrally shared insights of both are dangerously obscured.
http://mises.org/journals/rae/pdf/R92_8.PDF
Yes, Kirzner disagrees with Salerno.
This does not refute anything what I said, roddis.
It refutes almost EVERYTHING you’ve ever said on:
a) Economic calculation/miscalculation as applied to Keynesianism and the boom/bust cycle; and
b) Your pathetic “Inflexible Austrian Automaton Retail Price Setting Theory”.
False.
(a) implies that prices generally have a tendency to market clearing prices, which is false.
(b) is straw man idiocy.
No. it’s true.
(a) You did not refute or contradict my argument above that with a fall in aggregate demand, investment spending falls ceteris paribus, and with a fall in investment spending, costs fall as well. Free market prices do indeed tend to clear the market.
If a business experiences a reduced nominal demand, then at some point it will have to reduce its investment, or else it will go bankrupt, and the money will go to other firms. It can’t keep investing the same over and over in the face of a collapsed demand. As a result, as it reduces its investment, its costs will also fall, since costs are a function of (past) investment.
(b) No, that’s actually an apt description of your (mis)understanding of Austrian price theory.
“You did not refute or contradict my argument above that with a fall in aggregate demand, investment spending falls ceteris paribus, and with a fall in investment spending, costs fall as well. “
Falls in costs do not result in flexible fixprices and wages *to clear markets.*
In fact, most modern recessions do not even have deflation at all, but disinflation — which is actually still RISING prices.
Once again the real world destroys you and leaves you twisting the wind.
“Falls in costs do not result in flexible fixprices and wages *to clear markets.*”
Yes, they do. Prices are a function of supply and demand. If demand falls, and labor supply does not fall, then the price of labor will fall.
“In fact, most modern recessions do not even have deflation at all, but disinflation — which is actually still RISING prices.”
Red herring.
“Once again the real world destroys you and leaves you twisting the wind.”
Not in the slightest. I’m refuting you left right and center on this thread.
Well you could if you lived in utopia with no losers and only winners…
“It can’t keep investing the same over and over in the face of a collapsed demand.”
““In fact, most modern recessions do not even have deflation at all, but disinflation — which is actually still RISING prices.”
Red herring.”
I see why you say that now from your comments above: you’re talking about a purely imaginary world that irrelevant to reality.
Of course, any facts about the real world are irrelevant to MF’s flying unicorn fantasy world.
Boy this gets tiresome. Let me try to recap what I think LK is arguing. An LK Turing Test.
LK, please confirm or deny.
A significant number of prices are “managed” by the firm.
This means that they do not attempt to closely track changes in cost or demand
but periodically revise prices based on certain goals, such as ROI.
This does not imply that in the longer term these firms are immune from costs or competition,
only that there will be delays and saltations in the price adjustments they make.
There are enough of these rigidities to complicate any argument based on market response or the effectiveness with which markets converging on a clearing price.
Any valid macro-economic theory should reflect this behavior, and the Austrian theory does not.
Ken B,
Very close and good, but let me clarify:
(1) over 70 years of empirical investigation of capitalist economies shows that (depending on the nation) between 50% and 80% of prices are administered prices (or mark-up prices): these are “administered” or generally set by the business before sales take place, and are calculated (depending on the accounting conventions used) on average costs of production per unit plus a profit mark-up (and “marginal cost” is often irrelevant, contrary to neoclassical and Austrian theory).
(2) These mark-up prices will *generally* change when costs of production change, but generally movements upwards are more frequent than movements downwards (that is, there is a significant degree of downwards rigidity in these prices).
If costs rise to a sufficient extent and the firms’ average costs of production rise, then they will adjust their price upwards, preserving their profit mark-up. Demand changes do not generally affect mark-up prices.
When demand changes, businesses generally just adjust production and inventories. Therefore the Keynesian view that demand drives output and employment is confirmed, certainly for a large part of the economy.
(3) Mark-up prices are not flexible in the way required by neoclassical and Austrian theory, and they are not moved towards market clearing levels.
Austrian price theory – with the exception of Lachmann and a few pages of Reisman’s book Capitalism – is severely flawed by its inability to understand this.
Once we factor in wage rigidities, it is clear that modern market economies do not have general or strong tendencies to market clearing, nor to Misesian economic co-ordination by which all resources tend to be used and product and labour markets tend to clear.
The solution to recessions cannot be flexible wages and prices, because most of the private sector already shuns such flexible prices.
Once we factor in debt deflation, subjective expectations of businesses, the fact that loanable funds theory is wrong, and that investment cannot be reduced to a function of interest rates and time preference, the whole notion of flexible wages and prices as the solution macroeconomic problems cannot be maintained.
LK
Thanks. I’m not saying I agree, but I am trying to understand. As Bob would doubltess put it I am patronizing and arrogant enough to think I can succeed where so many here have failed.
Much appreciated.
This is difference between you and certain other people here: you make a good faith attempt to understand the arguments offered — and you summarized my position, more or less, correctly, instead of inventing straw man arguments or gross distortions.
Incidentally, some empirical evidence on mark-up pricing if you want the evidence: e.g.,
Eurozone nations:
Fabiani, S. et al. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.
Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York.
The average mark-up pricing in the Eurozone as whole is estimated at 54%, but some nations it is estimated as high as 65%. In Germany, mark-up pricing accounts for 73% of goods prices.
US:
Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.
Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.
Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.
The first two surveys show that from the 1980s to the 1990s mark-up pricing accounted for roughly 70% to 85% of US industrial prices.
Blinder confirms that mark-up pricing accounts for over 50% of price rigidity in the US, and over 50% of firms said that they would not normally even increase their prices when demand increased.
LK:
“I see why you say that now from your comments above: you’re talking about a purely imaginary world that irrelevant to reality.”
No LK, your analytical skills are astoundingly bad. So bad in fact that you don’t even see that you are cutting the ground from under your own comments and beliefs.
All your arguments about “ideal” Keynesianism collapse if we have to actually observe perfect Keynesianism before we can say how Keynesian policies can improve the world. Since we are not living in perfect Keynesianism now, it would imply that every argument you make about Keynesianism, COLLAPSES as “imaginary”.
We don’t need to live in a world communist state before we can know if there will or will not exist a price system for the means of production.
Similarly, we don’t need to actually live in a world without central banks to know that prices and spending cannot keep going up year after year without it. We don’t have to actually observe falling prices before we can know that more production given a constant demand will tend to reduce prices.
Counter-factual reasoning is perfectly valid.
Your counterfactual imaginary world would not work for reasons I explained above.
And your whole absurd claim that mark-up prices in the REAL WORLD are market clearing prices — just because costs might fall in recessions — has totally collapsed.
The main points I made above are ALL confirmed.
Real world mark-up pricing is not consistent with Austrian price theory.
Real world economies do not have strong tendencies towards market clearing, nor to Misesian economic co-ordination.
Demands drives output and employment in the widespread mark-up pricing sectors.
Meanwhile, all you have is a flying unicorn world.
“Your counterfactual imaginary world would not work for reasons I explained above.”
You did not explain this above.
“And your whole absurd claim that mark-up prices in the REAL WORLD are market clearing prices — just because costs might fall in recessions — has totally collapsed.”
No it hasn’t. Your claim that demand management is necessary collapses, because you admitted that costs can fall in the face of a fall in aggregate demand, which of course tends to lower prices, and thus tends to clear markets.
“The main points I made above are ALL confirmed.”
You just stated historical data. There is no economic analsysis at all.
“Real world mark-up pricing is not consistent with Austrian price theory.”
Real world pricing based on costs of production is entirely consistent with Austrian theory. See Reisman on cost plus profit pricing.
“Real world economies do not have strong tendencies towards market clearing, nor to Misesian economic co-ordination.”
Your argument collapses even further. Now you’re adding a “strong” adjective. In fact, without inflation, there is a VERY strong force to reduce prices. That force is millions if not billions of people seeking to avoid starvation and losses, which makes accepting lower prices a massive gain than the alternative.
“Demands drives output and employment in the widespread mark-up pricing sectors.”
False. Saving and investment drives output and employment in all sectors.
In the aggregate, output demand is in competition with all other demands, including demand for labor.
Your thesis is grounded on the fallacy of composition in addition to all the other errors.
“Meanwhile, all you have is a flying unicorn world.”
No, I have economics. You only have history without a rational theory to intepret it correctly.
LK:
Your position remains contradictory.
You have proven my point perfectly: all you have is appeals to purely hypothetical worlds.
You refuse to discuss the real world. My statements concern the real world. All your responses concern some imaginary world.
“You have proven my point perfectly: all you have is appeals to purely hypothetical worlds.”
Your point is moot. You, me, everyone, we all appeal to theoretical arguments when making arguments about why history was not perfectly ideal. We all appeal to “imaginary” theory when we argue how to change the world for the better.
“You refuse to discuss the real world.”
No, I do not refuse to discuss the real world. I already said that in the real world, we have a central bank that causes rising prices. It is not unreasonable to argue that without a central bank, prices would tend to fall, or not rise as much.
“My statements concern the real world. All your responses concern some imaginary world.”
What you are calling “real world versus imaginary world” is really just “history versus theory.”
I am using economic theory to correctly intepret history. You are using incorrect theory to intepret history but you falsely believe you are only making historical arguments.
When you say that historically, 50-60% of business use cost plus profit pricing, you are not refuting the argument that individuals set prices in such a way so as to tend to clear the market. You are not refuting the argument that falling prices cures depressions. You are not refuting the argument that in a free market, prices tend to fall if there is a fall in nominal demand. You are not refuting any of these theoretical arguments, because you’re a historian data collector who is using wrong theory to intepret it.
You are not making only historical arguments. You are not just relaying data of prices. You are also making theoretical arguments, or, what you call “imaginary world” arguments.
Every time you say that IF Keynesianism is implemented, THEN such and such follows, is theoretical, not historical.
LK constantly attacks us for relying upon “liquidation” during a bust but insists we know nothing of “debt deflation” and “administered prices”.
The only reason “liquidation” might come about is because when the boom collapses, people can’t pay their debts. “Liquidation” means a very low “market clearing” price unanticipated by the now unsuccessful entrepreneur. Liquidation refutes “administered prices” during bad times. Further, the cause of liquidation is “debt deflation” that comes about because too much debt was taken on due to distorted prices and anticipation of further distorted prices in the future.
Bob thanks for trying to explain it to lK.
I think lordK confuses symptoms of Fracfiatinterventionism with real economics.
This Salerno/Kirzner dispute gets the Keyenesian exactly nowhere. The alleged dispute is merely between prices as knowledge (Hayek) or prices as knowledge in need of additional entrepreneurial skill to know what to do next (Salerno).
Neither version disputes the necessity of prices as essential information regardless of the emphasis.
It is one thing to be able to cite and quote economic theory in a literal-minded way, and quite another to be able to grasp the concept in a working way, and utilise this.
Fortunately, there’s a reliable and empirical way to discover the difference and measure up one intellect against another. Yes, you might guess I am talking about a programming competetion, my algorithm against your algorithm. Code against code, if your theory works then this is your chance to prove it.
LK: This is difference between you and certain other people here: you make a good faith attempt to understand the arguments offered — and you summarized my position, more or less, correctly, instead of inventing straw man arguments or gross distortions.
BUT…..
Can you sit in an armchair and use deduction from the action axiom to determine how all prices are actually set in real world capitalist economies and with apodictic truth?
http://socialdemocracy21stcentury.blogspot.com/2013/11/a-simple-question-for-austrian.html
Answer: NO
A) Thus, it does not follow from basic Austrian concepts that prices will be “set” in any particular manner. Or that Austrians predict that prices will be set in a particular matter because the way a person conducts business is based upon SUBJECTIVE values and plans. It does not matter what Rothbard or Salerno have stated if what they have said does not follow from basic Austrian concepts. LK has admitted that what he interprets Rothbard and Salerno as saying does not follow from basic Austrian concepts. Their statements DO NOT CHANGE THE LOGICAL IMPLICATIONS OF THE BASIC CONCEPTS. So don’t go quoting Salerno and Rothbard again on “market clearing prices”.
B) One would expect a long term successful business to sell above cost on a regular basis. Zzzzzzzzzz
But most new businesses fail.
C) LK’s phony and dishonest analysis is based upon the obliteration of the concept of prices as essential information which facilitate successful plans. Everything about Austrian analysis, whether it be the socialist calculation debate or the ABCT caused by funny money loans is derived from that basic concept. Like everything LK says about Austrian concepts, his phony “analysis” is always completely out of context. All the evidence of so-called “markup pricing” in the universe does not change that.
” It does not matter what Rothbard or Salerno have stated if what they have said does not follow from basic Austrian concepts.
So Rothbard and Salerno have said things that do not follow from “basic Austrian concepts”? lol..
Why haven’t you published these crucial insights in the Review of Austrian Economics or osme other Austrian house journal?
“LK has admitted that what he interprets Rothbard and Salerno as saying does not follow from basic Austrian concepts. “
I’ve admitted no such thing, you ignorant fool.
Rothbard’s belief in flexible prices and a tendency to market clearing is the same opinion Mises had — and Hayek. It is all based on Austrian concepts.
Lord Keynes:
Can you sit in an armchair and use deduction from the action axiom to determine how all prices are actually set in real world capitalist economies and with apodictic truth?
“Answer: NO”
Lord Keynes: Right. Apriorist phraseology can’t tell you how prices are actually set.
LK has admitted that what he interprets Rothbard and Salerno as saying does not follow from basic Austrian concepts.
That’s all folks.
You misinterpret my meaning. That post and the sentence you quote is directed at vulgar Austrians like you, not at Salerno or Rothbard.
I did not say that Rothbard and Salerno think that can know with absolute truth how ALL prices are set in the real world. Of course they would admit that real world might to some degree depart from their ideal model because of “evil” government or whatever. If you asked them how prices are set in a particular firm x, then I doubt even they say by anything other than experience.
But the price theory — both in its descriptive and ideal form — is still seriously flawed.
THERE IS NO PRICE THEORY THAT IS NOT DERIVED FROM THE ACTION “AXIOM”. How prices will actually be “set” in specific instances is then an empirical question.
If Rothbard and Salerno are saying something different, they are wrong. Alternatively, you are distorting what they are saying (which is, in fact, the case).
“THERE IS NO PRICE THEORY THAT IS NOT DERIVED FROM THE ACTION “AXIOM”. ”
It’s clear you don’t understand the fundamental principle of logical calculation.
If you cannot derive a price theory from the action axiom, then your “theory” of exactly how prices are “set” will be based upon observation of particular people. There is no Austrian theory derived from the action axiom on how a folk singer will tune his/her guitar.
There is no “crisis” resulting from free exchange that suggests voluntary parties cannot resolve their own “pricing” problems voluntarily or that such problems require government spending and/or funny money emissions to solve. LK’s purpose here is to concoct such an alleged “crisis” supposedly resulting from voluntary behavior employing his usual fraudulent methods.
Kirzner explained the context very well of how economic calculation operates. There is nothing to add to it. It completely refutes LK who must, like all Keynesians, distort or ignore that basic concept of economic calculation and how is operates in society. An understanding of economic calculation easily demonstrates why Keynesianism is the cause of most of our current problems and not the cure for them. Therefore, for Keynesians, it must be destroyed or distorted using any means necessary.
First Theory prices are set by Martians who descend and fix price tags on salable objects while noone is watching.
Second Theoryprices are determined by sunspots.
Third Theory prices are determined according to the laws of Keynesian economics.
Please derive each of these theories from the action axiom.
Pulling out to the centre.
Let’s try to settle Rick Hull’squestion.
Major freedom and Balla,
Do you believe that real world prices are market clearing prices, do you admit that they are not, or do you maintain the question cannot be answered?
If you have any caveats please elaborate.
Ken B,
(1) MF has said that mark-up prices will become market clearing prices, just because some costs will fall during recessions, and mark-up prices will be adjusted to reflect costs. That is mistaken for the simple reason that even in recessions mark-up prices tend to rise: witness how virtually all recessions since 1945 have been disinflationary (which is still a form of inflation).
(2) Bala appears to just re-define the meaning of “market clearing” in a fallacy of equivocation.
LK,
Thanks for demonstrating your dishonesty right there for all to see. Here is the exchange we had on the issue of market clearing prices.
http://tinyurl.com/pqx4o8d
Out there, the entire discussion started with me asking you for what you mean by Misesian Economic Coordination to which, after an attempt at being a smart alek, you replied with your position on Misesian Economic Coordination which was encapsulated in a Salerno quote YOU cited.
All I did out there was to use the very Salerno quote YOU cited to show you that your notion of market clearing prices converging towards market clearing levels is utter nonsense even going by the concept of market clearing price that you endorsed, i.e., as given in the Salerno quote because as per THAT quote that YOU cited, prices that emerge on the market are market clearing prices.
All I did was make you come up with your position and showed you speaking nonsense as per your position. I did not give my definition of market clearing or market clearing price. So, the claim that I redefined it is a plain lie.
Ken B,
Decide for yourself who is honest and who is lying through his teeth.
Guys, I really don’t understand why you fight with each other on every other blog post. It doesn’t even seem like they are distinct arguments. To be sure, I don’t follow them very closely, so maybe you uncover new reasons to hate each other, each time you fight, but I really wonder why you keep doing this.
Bob,
I was silent and responded to him only when my name was dragged into it. Even now, I only pointed out what actually happened in my previous “discussion” with him (which was quite some time ago) and thus made the point that he is dragging my name in for the sole purpose of lying about what I said and using that as a device to bolster his claims.
Of course you can settle the whole thing easily by telling us:
Does Austrian economics in its price theory hold that flexible wages and prices are important to ensure that there is **tendency** towards market clearing?
Dr. Murphy, the sun will burn out before these arguments stop. It’s like reading petty children argue with each other.
Of course, to make it entertaining, I wish they would do something like this:
http://www.youtube.com/watch?v=XmBFZqZ4d4Y
At least you and I keep finding new things to disagree about Bob.
We’ll always have Paris.
For example we’ve fought when you claimed up is down, wrong is right, white is black, good is evil, cruel is kind and Bobby Darin is better than Elvis.
🙂
That isn’t what I said.
I didn’t say that mark-up prices tend towards clearing prices on the basis that “some costs will fall during recessions”. They fall on the basis of a fall in nominal demand, which can happen at any time.
The fact that the Fed has responded to deflationary events and potential deflationary events with more inflation of the money supply, thus causing no fall in nominal demand, or no fall in prices, or a rise in prices, does not refute the fact that prices tend to fall in response to a fall in nominal demand.
Ok, so in answer to my question, you think prices always tend towards market clearing but do not assert they always reach market clearing. Is that correct?
Kirzner explains:
Salerno and Rothbard are right to emphasize that for Mises the prices which prevail at any time fulfill their function of rendering economic calculation possible. THIS, WE MUST INSIST, IS NOT BECAUSE ALL PRICES, AT ALL TIMES, ARE “MARKET CLEARING PRICES,” IN ANY SENSE RELEVANT FOR OUR EVALUATION OF THE SOCIAL EFFICIENCY OF THE PRICE SYSTEM. After all, false prices reflect production plans which are, by definition, at variance with the true preferences of consumers. The Misesian insight that all prices, at all times, render economic calculation possible, arises out of two closely related circumstances: (a) at each instant in time, the price offers and bids, and thus also the realized prices, reflect the expectations of the most canny entrepreneurs in the market (so that what may, a day later, with the wisdom of hindsight, indeed be seen as having been false prices, were nonetheless, in terms of the most perceptive entrepreneurial assessment of the preceding day, at that time expressive of the most judicious readings-the best knowledge–of consumer preferences); (b) at each instant in time, current prices are the outcomes of processes of entrepreneurial profit-seeking corrections of still earlier false prices; at no time, in the real world, can we say that the corrective market process has not yet begun its work. At each instant, therefore, current market prices reflect the best conceivable estimates of relative consumer preferences. The calculations which entrepreneurs make by reference to such prices (and by reference to such expected future prices), are thus informed by the assessment of the shrewdest of entrepreneurs, operating under the powerful incentive of winning pure profits.
What we wish to stress is that the capacity of market prices to inspire calculative economic activity is based solidly on the extent to which prices do express correct assessments of (i.e., the relevant {153} knowledge regarding) both current and future preferences of consumers, and the current and future production plans of other entrepreneurs. As Mises pointed out in his first statements on the calculation problem (see, e.g., Mises [I9221 1936, pp. 115-17), market prices are not perfect tools in this respect: but they are extraordinarily valuable tools nonetheless. THEIR VALUE SURELY LIES IN THE EXPRESSION OF THE BEST AVAILABLE ENTREPRENEURIAL KNOWLEDGE CONCERNING MARKET CONDITIONS.
It is quite true that for Mises this “best available entrepreneurial knowledge expressed in current market prices would be valuably useful for calculation purposes even if one could imagine these prices not already to reflect the corrective entrepreneurial market process which tends to replace false prices with prices less false. But the circumstance that in fact current market prices reflect that corrective market process (and our awareness that Mises did indeed emphasize this circumstance in regard to market prices) should convince us that an appreciation of the role of market prices stated in terms of the “Hayekian” knowledge problem is simply a somewhat differently articulated appreciation for the calculative properties Mises taught us to understand to exist in those market prices.
http://mises.org/journals/rae/pdf/rae9_2_8.pdf
This quote refutes nothing I have said, because I never said Austrians think all prices are market clearing prices at all times.
Austrians think prices are or should be flexible and have a **tendency** towards market clearing prices, some may reach that level, but all do not.
In short, roddis shows us yet again his sheer incompetence.
“Austrians think prices are or should be flexible and have a **tendency** towards market clearing prices, some may reach that level, but all do not.”
There is no “level” to be reached.
ALL prices and price changes tend towards clearing. This is the case whether prices are formed on the basis of direct supply and demand, or on the basis of costs of production.
“There is no “level” to be reached.”
lol… so there is no such thing as an equilibrium price where quantity demanded will equal quantity supplied?
Statement 1:
“There is no “level” to be reached.”
Statement 2:
“ALL prices and price changes tend towards clearing.”
So in statement 2 there are no market clearing prices towards which prices can move?
You are an idiot and you have demonstrated utter incoherence on this point.
Good work.
“so there is no such thing as an equilibrium price where quantity demanded will equal quantity supplied?”
Never. Even if you assume the example of a store with a supply of goods, and that store sells out entirely, it does not mean that supply has equalled demand. For there would still be a nominal demand AFTER the sale, on the part of the sellers who now have the cash. They are going to demand something that will have to be produced first before that money can buy anything. So there is a partial underproduction of goods in this scenario.
“So in statement 2 there are no market clearing prices towards which prices can move?”
Not over time. Over time the hypothetical clearing prices that would clear the market would themselves change again, due to learning and innovative action in the very process of tending towards clearing given the prior circumstances.
The ERE and the matrix of hypothetical market clearing prices is a mental tool only. It does not refer to an actual empirical state of affairs.
“You are an idiot and you have demonstrated utter incoherence on this point.”
Hahaha, you sound mad LK. Your problem is that you have convinced yourself that your inability to grasp Austrian theory is equivalent to it being nonsense. It’s your shortcoming, not the theory. Do you honestly think you have the intellectual capability of doing what you believe you’re doing? For the last 3 years, at least, you have shown time and time again that you don’t grasp the theory.
(1) ” Even if you assume the example of a store with a supply of goods, and that store sells out entirely, it does not mean that supply has equalled demand. For there would still be a nominal demand AFTER the sale, on the part of the sellers who now have the cash.
That is nothing but a fallacy of equivocation in which you simply re-define “demand” as understood in equilibrium prices.
(2) “Over time the hypothetical clearing prices that would clear the market would themselves change again, due to learning and innovative action in the very process of tending towards clearing given the prior circumstances.”
Even changes in the market clearing price over time still entail that such market clearing prices/levels exist.
M_F is now saying that such changing equilibrium prices can NEVER exist.
“That is nothing but a fallacy of equivocation in which you simply re-define “demand” as understood in equilibrium prices.”
I did not equivocate the two. I said even if you assume that a store clears its shelves, it is not the case that supply has equalled demand. There is still a difference.
This is not equivocating demand with clearing prices.
“Even changes in the market clearing price over time still entail that such market clearing prices/levels exist.”
No, the concept of clearing prices have always been a mental tool only.
You should have known that, because we’ve gone over it more than once before.
“M_F is now saying that such changing equilibrium prices can NEVER exist.”
That’s always been true LK. This isn’t a gotcha against me, this is just you remembering something that you forgot, which you have conflated to be a change in what I have been saying.
Don’t you remember the whole “Equilibrium is a mental tool only” discussion? Is your memory really that bad? How do you expect to understand Austrian theory if you keep forgetting the premises that are required to get it?
The truth will make you free, but falsehood always brings violence in its wake
– Alexandr Solzhenitsyn
“I did not equivocate the two. I said even if you assume that a store clears its shelves, it is not the case that supply has equalled demand. “
Only by redefining what demand means in the context of market clearing price as understood by ALL economists.
Not even Austrian economists have made such a stupid argument.
You’re pulling these arguments right out of your ass.
Show me one Austrian economist who makes this argument.
“No, the concept of clearing prices have always been a mental tool only”
The concept of market clearing price in a particular product market — where quantity demanded by buyers will equal quantity supplied by sellers — describes a REAL behavior and a real state of the world and is not abstract and imaginary in the way general equilibrium is, since a GE state can never exist in the real world.
LK:
“Only by redefining what demand means in the context of market clearing price as understood by ALL economists.”
I notice that every time you are stumped, you accuse me of “redefining” terms. That is just an evasion. It isn’t engaging the argument itself.
I am not redefining anything. If you disagree with my definitions, then I could just as well say that you’re wrong because of your definitions. But I don’t do that, because I am not weak minded like you. I am not afraid of engaging your arguments even on your own terms. You’re too afraid to do the same.
“Not even Austrian economists have made such a stupid argument.”
You haven’t shown how it is “stupid.”
“You’re pulling these arguments right out of your ass.”
That comment is evidence you have no rebuttal.
“Show me one Austrian economist who makes this argument.”
I don’t have to. You’re arguing with me, not them.
“No, the concept of clearing prices have always been a mental tool only”
“The concept of market clearing price in a particular product market — where quantity demanded by buyers will equal quantity supplied by sellers — describes a REAL behavior and a real state of the world and is not abstract and imaginary in the way general equilibrium is, since a GE state can never exist in the real world.”
No, market clearing is not a description of the real world. It is a mental tool.
…..is that it? Man your arguments are weak.