26 Mar 2014

How Government Wrecks the Economy

Shameless Self-Promotion 131 Comments

My next class at Mises Academy. Full infomercial here. An excerpt:

The fall of the Soviet Union should have spelled the demise of central planning, yet the socialist mentality thrives — albeit in a diluted form — in all governments in the so-called “free world.” No one explained the failures of pure socialism and of (the more moderate) interventionism better than Ludwig von Mises. Whether we want to understand why people are starving in North Korea, why minimum wage laws lead to teen unemployment, or what caused the boom and then crash in the U.S. housing market, the answer is in the Austrian School of economics. As the Obamacare disaster unfolds before our very eyes, it is critical for the average person — both adults and young people alike — to understand how economic science makes sense of these heartbreaking outcomes, and shows the way to solve them.

131 Responses to “How Government Wrecks the Economy”

  1. joe says:

    Why would the fall of the Soviet Union spell the demise of central planning? The US economy is the largest and strongest in the world due to central planning.

    The Soviet Union did not fall due to central planning. The satellite states were conquered and brought into the empire. They did not form a union and create a strong centralized govt following the US model. Nationalist movements in the conquered satellite states and the crash of oil in the late 80s led to the collapse of the Soviet Union (economy is heavily dependent upon oil).

    In contrast, the US formed an “indissoluble union” via the democratic process.

    In the words of James Madison in Federalist 11:

    Let the thirteen States, bound together in a strict and indissoluble Union, concur in erecting one great American system, superior to the control of all transatlantic force or influence, and able to dictate the terms of the connection between the old and the new world!

    • Richie says:

      LOL.

      • Matt M (Dude Where's My Freedom) says:

        Don’t laugh. People who think exactly like him are the ones educating our children.

        Remember the college professor who was caught on video loudly exclaiming that the Soviet Union never killed a single person? I’ve met in person professors who state as a matter of absolute fact that the only reason the Soviet Union collapsed is because Ronald Reagan FORCED them to spend a bunch of money “to defend themselves against U.S. aggression.”

        • Richie says:

          🙁

        • Tel says:

          http://stevengoddard.wordpress.com/2014/03/26/comment-of-the-day-6/

          A reminder about who is educating children.

        • Mule Rider says:

          I agree with Matt M….ultimately, it’s not that funny. Depending on the day and how the particular issue is framed, anywhere from 40% to 80% of this country would line up squarely with the insane gibberish joe just spewed. I think of myself as a truly optimistic sort of guy, but it’s hard not to be a little bit cynical knowing what you’re up against here.

    • guest says:


      The US economy is the largest and strongest in the world due to central planning.

      No, we’re the largest and strongest because we rip other countries off by tricking them into using the useless paper we print as their reserve currencies.

      Oh wait. Yeah, you’re right: Central planning. Well, if you steal from other people, you’re going to have a lot of stuff. Do you admire America for its cronyism?

      But that will end when they ditch the FRN, as they should. And so should we; But we should not adopt other countries’ funny money, either.

    • guest says:


      In the words of James Madison in Federalist 11 …

      James Madison, in context, is saying the near exact opposite of what you think he’s saying:

      The Federalist No. 11


      I shall briefly observe, that our situation invites and our interests prompt us to aim at an ascendant in the system of American affairs. The world may politically, as well as geographically, be divided into four parts, each having a distinct set of interests. Unhappily for the other three, Europe, by her arms and by her negotiations, by force and by fraud, has, in different degrees, extended her dominion over them all. Africa, Asia, and America, have successively felt her domination. The superiority she has long maintained has tempted her to plume herself as the Mistress of the World, and to consider the rest of mankind as created for her benefit. Men admired as profound philosophers have, in direct terms, attributed to her inhabitants a physical superiority, and have gravely asserted that all animals, and with them the human species, degenerate in America — that even dogs cease to bark after having breathed awhile in our atmosphere.1 Facts have too long supported these arrogant pretensions of the Europeans. It belongs to us to vindicate the honor of the human race, and to teach that assuming brother, moderation. Union will enable us to do it. Disunion will will add another victim to his triumphs. Let Americans disdain to be the instruments of European greatness! Let the thirteen States, bound together in a strict and indissoluble Union, concur in erecting one great American system, superior to the control of all transatlantic force or influence, and able to dictate the terms of the connection between the old and the new world!

      He’s saying that America should be “superior to the control of” other countries so that it can choose FOR ITSELF how it wants to associate with Europe – NOT that America should dictate what other countries do.

      [I say “near exact opposite” because he nevertheless is conceding the “public goods” position when he supports the idea of a nation.]

      • guest says:

        Oops. Forgot the link:

        The Federalist No. 11
        http://www.constitution.org/fed/federa11.htm

      • Keshav Srinivasan says:

        I could be wrong, but I don’t think joe was misinterpreting the “control” part of the quote. I think joe’s intent in citing the quote was simply to point out Madison’s argument for the virtues of an indivisible union.

        • guest says:

          The virtue he is intending to attribute to an indivisible union is that of central planning.

          James Madison supported the Union in defense AGAINST central planning.

          Which is self-defeating, but at least when you read Madison you get the sense that the goal was to use the Union to secure individual liberty. It certainly wasn’t to create a command economy.

        • Ken B says:

          I think joe is pointing out planning has more than one meaning. He is not refering to economic dirigisme, he is referring to a strong role for the central government in addressing other issues. Rothbardians leap from the failure of economic planning to the failure of government tout court. Joe thinks this a non sequitur.

    • Major_Freedom says:

      The USSR was more centralized than the US.

      The nationalist movements were encouraged by the failures of central planning.

      The US economy became the most dominant because of its relatively highest degree of laissez faire. And as the US govenment became more interventionist, that dominance has been in retreat.

      The Soviet Union fell because of central planning.

      You can’t be more wrong. I recommend you begin doing the George Costanza: Think of what is right, and then do the exact opposite.

    • Bala says:

      The US economy is the largest and strongest in the world due to central planning.

      The key question is “Is it due to central planning or in spite of it?” You seem to be making a big assumption or are mistaking coincidence for causality.

  2. Andrew' says:

    A country that prefers moving liquids by rail rather than the fairly well thought of technology known as “pipe” is not really doing any central planning.

  3. Lord Keynes says:

    “No one explained the failures of pure socialism and of (the more moderate) interventionism better than Ludwig von Mises.”

    A grossly exaggerated assessment of Mises.

    At most, Mises showed money prices are indeed needed in any system of production — whether a market or planning system.

    But a lot of his socialist opponents quickly conceded that, and argued that a planning system could formulate its own appropriate money prices for economic calculation. The rest of Mises’s critique is based on a profoundly mistaken theory of how capitalism even works.: his largely deluded belief that a capitalist system is constantly generating a tendency to market clearing prices.

    And the Soviet Union not only had a pricing system but also had significant economic growth from the 1920s to early 1970s, and their planning system was good enough to outproduce and beat Germany — the most powerful economy in Europe — in WWII. Mises never refuted the idea that you can have a successful planning system with producers’ sovereignty.

    That the Soviet Union had serious economic problems from the 1970s and collapsed in 1991 is true. But there are far better explanations of that fall than Mises’ ideological twaddle.

    • Lord Keynes says:

      Oh, and he also at one point argued that a syndicalist system of production could not only work, but also WAS a type of capitalist system.

      Nice one, Ludwig: just define “capitalism” in a way so broad that any friggin’ system is included in the definition.

      • Bob Roddis says:

        LK always wants to broadly define “capitalism” to meaninglessness by ignoring whether or not the NAP has been practiced and by ignoring the extent and impact of prior violent interventions and frauds upon the economic actors. Thus, “capitalism” includes both a society where bailouts are strictly prohibited and its opposite , like ours, where everyone is on the dole.

        http://socialdemocracy21stcentury.blogspot.com/2013/03/the-classical-gold-standard-era-was-myth.html

        This is how Keynes approached the Great Depression, by ignoring and obfuscating the prior and ongoing violent interventions.

        And, by the way, a truly free market is generally constantly generating a tendency to something that approaches “market clearing prices” better than any other system.

        • Lord Keynes says:

          “And, by the way, a truly free market is generally constantly generating a tendency to something that approaches “market clearing prices” better than any other system.”

          A tendency “to something that approaches “market clearing prices” better than any other system”??

          What something is that?

          Or is it some profound, ineffable mystery that only fellow cult members can understand?

          • Major_Freedom says:

            What something is that?

            ANY other concieivable system.

        • Tel says:

          And, by the way, a truly free market is generally constantly generating a tendency to something that approaches “market clearing prices” better than any other system.

          Better than the Soviets and the North Koreans at any rate.

          I think it’s a far stretch to include systems yet to be invented.

    • guest says:

      [Time stamped]
      Calculation and Socialism | Joseph T. Salerno
      http://www.youtube.com/watch?v=KseRuyAjlHY#t=40m28s


      Now, let me just mention this objection to Mises.

      Socialists said … in the 40s and 50s… “The Soviet Union has been in existence since 1917” … even to the 70s and 80s they said, “Mises was wrong because Socialism wasn’t impossible. Yes, maybe it’s inefficient. It’s not impossible, though.

      But Mises had said … if you just had Socialism in one country, it’s like having a Post Office in the middle of a profit-making business. Yeah, the Post Office is inefficient … It’s bad service; You hate it. But it still gets the job done in some sense, because it can copy prices and technologies from outside the government sector.

      So what Mises said was that’s what the Soviet Union is like. The Soviet Union, in fact, did act in that way. Their steel prices, their electricity prices: they used Western prices.

      But those prices didn’t reflect the exact same scarcity conditions in the Soviet Union. … So they weren’t the correct prices. So you still had shortages, and so on. And you had increasing inefficiency.

    • Major_Freedom says:

      LK:

      “A grossly exaggerated assessment of Mises.”

      Then who explained the failures of socialism better than Mises? I notice you did not suggest anyone, which is implied in that comment.

      “But a lot of his socialist opponents quickly conceded that, and argued that a planning system could formulate its own appropriate money prices for economic calculation.”

      Define “appropriate”. Oh that’s right, it wasn’t mean to mean anything other than antagonism towards Mises’ theory. No substance.

      “That the Soviet Union had serious economic problems from the 1970s and collapsed in 1991 is true. But there are far better explanations of that fall than Mises’ ideological twaddle.”

      Mises died in 1973, almost 20 years before the USSR fell you hack. That comment you just made is proof positive that you are only pretending to have an informed judgment of Mises when you make assessments of the quality of his writings.

    • Major_Freedom says:

      LK:

      “The rest of Mises’s critique is based on a profoundly mistaken theory of how capitalism even works.: his largely deluded belief that a capitalist system is constantly generating a tendency to market clearing prices.”

      You’ve already admitted that is what occurs in free markets. You did so by admitting that mark up prices fall as costs fall in response to demand falling. And that mark up prices rise as costs rise in response to demand rising.

      That IS “market prices tending towards clearing.”

      • Lord Keynes says:

        “You’ve already admitted that is what occurs in free markets. You did so by admitting that mark up prices fall as costs fall in response to demand falling. .”

        I did no such thing, liar.

        That you are reduced to outright, shameless, laughable lies speaks volumes.

        • Major_Freedom says:

          Yes you did LK.

          I understand that doing so contradicts other beliefs you have, but it’s too late.

        • razer says:

          You did, LK. You simply have no understanding of actual economics and try to fight every bit of Austrian economics because you know where the trail of logic leads — to the absolute destruction of your non-science beliefs. Keynes even fudged his math to come up with his hair brained ideas. A math professor waded through the nonsense and destroys it at its root, not that it holds up to a logic based methodology.

          Your whole life’s work is meaningless, LK. How’s it feel?

    • Tel says:

      As ever, you do not provide a precise definition of “market clearing prices”, let alone what Mises would have made of it.

      I know you say that supply must equal demand, but then provide a measurable definition of “supply” and “demand”. Demonstrate a way to measure whether a given market is getting closer to this “clearing” you talk about.

      • Lord Keynes says:

        If you seriously think nobody can give a precise definition of “market clearing prices”, then Austrian economics is right up s*** creek, tel, because it is utterly dependent on that concept.

        A market clearing price in any given product market x is when the price has equated the quantity of the good demanded with the quantity of the good supplied by the producer(s). That is, when excess demand or excess supply is zero.

        Just as every god damn Austrian economist defines it:

        The day-to-day tendency in the market is toward the establishment of an equilibrium price for each particular consumer good. Prevailing prices tend toward that price at which quantity supplied and quantity demanded are equal, a movement that attests to the price system’s capacity to coordinate the actions of persons engaged in different activities. The typical depiction of this tendency on a graph shows the equilibrium price at the point at which the market supply-and-demand curves intersect. Any price above or below the equilibrium price cannot persist because such a price will result, respectively, in either frustrated sellers or frustrated buyers. Prices are reduced by sellers if the market price is too high to clear the quantity offered; prices are bid upward by buyers if the price is too low to induce sellers to offer a quantity ample enough to satisfy the buyers’ demand.”
        Taylor, Thomas C. 1980. An Introduction to Austrian Economics. Ludwig von Mises Institute, Auburn, Ala. p. 56.

        The market operates by shifting the height of prices so that again and again demand and supply will tend to coincide. If demand for a good goes up, then its price rises, and this price rise leads to an increase in supply. Entrepreneurs try to produce those goods the sale of which offers them the highest possible gain.” (Mises 2006 [1931]: 156–157).

        “The market process will tend to establish a price that clears the market: all sellers willing to sell at the market price will be able to do so, and all buyers willing to buy at that price will also be able to do so. …. If these dynamics of supply and demand change, the market process will adjust the price to the new realities.” (Callahan 2004: 76).

        ““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.” (Mises 2011: 101).

        “There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available.” (Rothbard 2008: 56).

        • Tel says:

          I was asking for your definition of “supply” and “demand” such that they can be used in an empirical manner.

          I’m aware that Mises used the terms “Supply” and “Demand”, often loosely (he didn’t use the term “market clearing”) but you claim to be an empiricist, so this requires an actual measurement.

          How do you empirically measure a supply curve or a demand curve for example?

          • Lord Keynes says:

            No, Tel, your desperate attempts to change the subject are just pathetic.

            You stated:

            “As ever, you do not provide a precise definition of “market clearing prices”, let alone what Mises would have made of it.”

            I just gave you a precise definition AND quotations from Mises (and other Austrians) showing he had such a concept.

            “I’m aware that Mises used the terms “Supply” and “Demand”, often loosely (he didn’t use the term “market clearing”)”

            He does not have to use the precise term “market clearing price” to use the same concept. The term “equilibrium price” can have the same meaning, as can the circumlocution “The market interaction brings about a price at which demand and supply tend to coincide” (Mises 2011: 101).

            • Tel says:

              I just gave you a precise definition AND quotations from Mises (and other Austrians) showing he had such a concept.

              You provided this definition:

              A market clearing price in any given product market x is when the price has equated the quantity of the good demanded with the quantity of the good supplied by the producer(s). That is, when excess demand or excess supply is zero.

              If you take the trouble to read closely I already anticipated that:

              I know you say that supply must equal demand, but then provide a measurable definition of “supply” and “demand”. Demonstrate a way to measure whether a given market is getting closer to this “clearing” you talk about.

              The only person changing the subject is you LK. If you are going to define “market clearing” in terms of suppy and demand, then you need to provide measurable definition of “supply” and “demand”. Measurable, means you can observe and economy and say, “oh there’s X much supply here.”

              Show me how you do it. Asking for the second time here.

          • Lord Keynes says:

            As for definition of “supply”: it means the total quantity of any good x offered for sale at a point in time.

            “Demand”: total quantity demanded at the price in the market of good x.

            Market clearing price: as Mises says

            “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.” (Mises 2011: 101).

            • Bala says:

              LK,

              These are the definitions of quantity supplied and quantity demanded. Further, your definition of supply is missing a price somewhere out there.

              • Lord Keynes says:

                “These are the definitions of quantity supplied and quantity demanded.”

                Which are both important senses of the the meanings of “supply” and “demand”. But, no, screams bala: a standard sense of a term is unacceptable.

              • Bala says:

                LK,

                What I was pointing out was that you were asked for the definition of demand and that you offered the definition of a different concept, quantity demanded. They are different concepts and are defined differently. All this intellectual gymnastics about “senses of the meanings” are not an appropriate response to the point “You have defined A when asked to define B”.

            • Major_Freedom says:

              LK:

              ““Demand”: total quantity demanded at the price in the market of good x.”

              Demand is demand? LOL

              • Lord Keynes says:

                Demand has more than one sense, e.g., (1) it is desire for a particular good backed up by the necessary medium of exchange to acquire it, or (2) quantity demanded of a good x in a particular time period.

                Just like tel below you are an idiot if you think circularity is some kind of problem in definition: circularity in definition in the sense of using synonyms and synonymous circumlocutions is the BASIS of giving definitions, idiot.

              • Major_Freedom says:

                LK:

                Desire is a mental category that is not observed. It can only be inferred from your pre-existing understanding of what it means to desire.

                Your explanations of the economic concepts supply and demand remain non-empirical.

                Circularity in definitions is not in fact a problem? Contrary to your claim that is represents no problem at all, it is a problem if you are attempting to define what a term means.

                You can’t claim to be defining what demand means, by defining demand in terms of demand. That’s called begging the question fallacy. Fallacies are problems.

              • Lord Keynes says:

                You can’t claim to be defining what demand means, by defining demand in terms of demand. That’s called begging the question fallacy

                False. Demand is defined in terms of synonyms and circumlocutions that describe the concept. Nobody said that such descriptions are not empirical.

                Furthermore, that is not begging the question, the logical fallacy, which is different.

                You give me a non circular definition of ANY TERM you care to name in the sense of not using synonyms and synonymous circumlocutions.

                You cannot and will not, because you know you will be totally destroyed.

              • Bala says:

                LK,

                Demand – The desire to possess a good combined with the readiness to offer what the current possessor of the desired good desires to obtain in exchange and thus come into possession of.

                Now! Point out the circularity.

              • Bala says:

                LK

                This

                Demand has more than one sense, e.g., (1) it is desire for a particular good backed up by the necessary medium of exchange to acquire it, or (2) quantity demanded of a good x in a particular time period

                is false. “Demand” and “Quantity Demanded” are separate concepts and are distinctly defined. They are not different senses of the same concept. Demand is an abstraction and quantity demanded is a further abstraction from that abstraction. The former is a concept and the latter is an attribute of that concept.

                For instance, a person may in general desire to possess a good and be ready to offer that which is desired in exchange. Within this, at a particular “price” (the quantity of the sale good that he would have to give up), he would desire a certain quantity of the purchase good. There would be a definite quantity at every such “price”, though the quantity could be the same or different at different prices.

                Forcefully asserting a falsehood and using derision to beat down those who call you out is not a good method of argumentation.

              • Bala says:

                LK,

                Here’s one more on the “circularity” challenge…..

                And when a straight-line stood upon (another) straight-line makes adjacent angles (which are) equal to one another, each of the equal angles is a right-angle, and former straight-line is called a perpendicular to that upon which it stands.

                Good luck.

              • Bala says:

                LK,

                This challenge is what I like best..

                .A circle is a plane figure contained by a single line [which is called a circumference], (such that) all of the straight-lines radiating towards [the circumference] from one point amongst those lying inside the figure are equal to one another.

                The definition of the circle is the most appropriate one while addressing the claim of the inherent circularity of definitions. Now! Do go ahead and give it your best shot.

              • Lord Keynes says:

                All your definitions involve the use of synonymous circumlocutions that have the same meaning — in different words — as the head word. Hence they are all circular in the sense described above.

                You have absolutely proved my bala.

                Congratulations.

              • Bala says:

                Oh! So something becomes true because you declare it is so, does it? Very interesting. Us mere mortals need to explain our position. I guess is it different for the Lords.

                YOU……. are most hilarious.

              • Bala says:

                Response 1 – YES – It proves LK’s point.

                Response 2 – NO – It proves LK’s point.

                Will someone do something about this troll?

              • Bala says:

                LK,

                When a definition starts as “Demand is….”, it does not “use” the word to define demand. It is identifying “Demand” as the subject of the sentence where the definition is contained in the predicate. The same works when the sentence uses the words “right-angle” or “circle”. So do point out the circumlocution and the use of synonyms in the predicate

              • Lord Keynes says:

                The very essence of definition is equivalence in meaning.

                That you imply above that a definition is not equivalence in meaning (synonymy) speaks volumes about your utter ignorance of even basic facts about language.

                You’re saying in effect “my definition of circle in the predicate is not equivalent in meaning to ‘circle'”! Best one yet, bala.

              • Bala says:

                LK,

                A definition is a listing of the characteristics that distinguish the concept being defined from all others. The characteristics are not synonyms of the concept. They are what the concept possesses.

                Take for instance something as simple as a table. It is properly defined as a man-made object with a flat surface supported on legs and which is used to support objects placed on it. The concept is here rightly defined in terms of the attributes that distinguish it.

                To claim that definitions are necessarily circular is to bastardise the very concept of definitions. Your notion of equivalence is nothing but a common attempt to make clear, concrete, distinct definitions impossible. It may be OK for confused people like you, but not for those who seek clarity in their definitions.

              • Bala says:

                *They are what the concept subsumes and every entity that is an instance of that concept possesses.

              • Bala says:

                This one absolutely takes the cake

                The very essence of definition is equivalence in meaning.

                The definition IS the meaning, my dear sir. To define something in synonyms is to destroy the very concept “definition”. To list out the very attributes that “define” something is not using synonyms. The vacuity of your epistemology is glaringly visible.

            • Tel says:

              Goods are not normally offered for sale on the basis of quantity. They are offered on the basis of price.

              Walk into a supermarket and ask how many tins of beans are being offered. Go on, I want to hear the answer you get.

              Indeed the supermarket does not report to anyone this “quantity offered for sale” figure, nor should they do because it’s their own business what stocks they keep and what capacity they have available.

              Your definition of “supply” is not measurable.

              Definition of “demand” is just circular, you define demand in terms of demand, so what? How to measure it, asking for the third time here.

              • Lord Keynes says:

                Tel, supermarkets most probably WOULD answer if, say, a university or government survey was involved.

                Your claim that you cannot get empirical evidence of unsold goods is just plain idiocy. In open auction markets or commodity markets, people DO often report the quantity they offer for sale, so even your claim above about that is stupid.

                “Definition of “demand” is just circular, you define demand in terms of demand, so what? “

                Circularity is only a problem in argument when it is vicious circularity.

                Circularity in definition in the sense of using synonyms and synonymous circumlocutions is not any sense an issue.

                If you think that you can offer a definition of any term you care to name without using synonyms and synonymous circumlocutions, then do, so you idiot.

                If you think that an economic term like “demand” is invalid merely on the stupid grounds you have given above, then Austrian economics would collapse too, because its fundamental terms are invalid.

                You p***ing in the wind. tel. Good work.

              • Tel says:

                Given the impersonal medium of the Internet, it’s difficult to tell if you are being vicious about your circular definitions or whether you are joking around and yanking my chain. I try to give people benefit of the doubt so I’ll presume the latter. Now, you’ve had your fun, how about a sensible definition of demand?

                Even narrow it down for me a bit, what are the units of “demand”? Are we talking physical quantity of goods, or are we talking number of dollars?

                In open auction markets or commodity markets, people DO often report the quantity they offer for sale, so even your claim above about that is stupid.

                Sure, let’s take a practical example: consider the oil market in 1972, what was the measure of “supply” and “demand”? Did a surplus exist in that market or a shortage?

                Please compare with 1974, show how you calculate surplus or shortage.

                How many unsold barrels of oil were in Saudi Arabia in 1972, and how many in 1974?

              • Lord Keynes says:

                (1) I repeat: circularity in definitions in the use of
                synonyms and synonymous circumlocutions is not per se an issue or problem and not a form of vicious circularity that is a problem in argument.

                Pick any word you like and give me a non-circular definition of it (in the sense of not using synonyms and synonymous circumlocutions), idiot.

                You cannot do so.

                (2) Demand can be quantified EITHER as the number of units demanded OR measured in money terms.

        • guest says:


          That is, when excess demand or excess supply is zero.

          A seller who refuses to sell below a certain price is offering the highest bid.

          So the seller will stop incurring costs toward selling that good, and pursue other opportunities: The market clears.

      • Lord Keynes says:

        Murphy:

        An equilibrium price is one in which quantity supplied equals quantity demanded. Graphically, it occurs at the intersection of the supply and demand curves. The market tends toward equilibrium: If the current price is above the equilibrium price, there is an excess supply (‘surplus’) and sellers reduce their asking price. If the current price is below the equilibrium price, there is an excess demand (‘shortage’) and buyers increase their offer price.

        There is a tendency for one price to rule over a market. If there weren’t, then arbitrage opportunities would exist; a middleman could buy low and sell high.”
        Murphy, Robert P. 2006. Study Guide to Man, Economy, and State: A Treatise on Economic Principles with Power and Market: Government and the Economy. Scholar’s Edition.. Ludwig von Mises Institute, Auburn, Ala. pp. 19–20.

        “Because of diminishing marginal utility, an individual’s demand curve cannot be upward sloping. The summation of each potential buyer’s demand schedule gives the market demand schedule, i.e., the number of units demanded at each hypothetical money price for the good. The determination of the market supply schedule is also comparable to the barter analysis. The equilibrium (money) price is the (money) price at which quantity supplied equals quantity demanded.” (Murphy, ibid., 2006: 42).
        —————————
        Convinced yet Tel — or is Murphy an idiot who does not know what he is talking about?

        • Tel says:

          An equilibrium price is one in which quantity supplied equals quantity demanded. Graphically, it occurs at the intersection of the supply and demand curves.

          That largely just kicks the question to another level. Where do the supply and demand curves come from? I mean from an empiricist point of view?

          Convinced yet Tel — or is Murphy an idiot who does not know what he is talking about?

          In terms of classical economics, Murphy knows what he is talking about with supply and demand curves. I personally happen to believe that the world his multi-dimensional and these curves are approximations which happen to be useful in some situations and not in others… which is an important consideration for any tool, don’t go looking for nails just because you are holding a hammer. I think Murphy kind of implicitly understands this too but maybe he doesn’t bang on about it.

          Also, Murphy has not declared himself an empiricist (although he uses empirical data when it suits him) so he gets to play by his own rules. You get to play by the rules you have declared for yourself.

          • Lord Keynes says:

            (1) “That largely just kicks the question to another level. Where do the supply and demand curves come from?”

            Yes, tel, you are good at committing the moving the goalpost fallacy:

            http://www.logicallyfallacious.com/index.php/logical-fallacies/130-moving-the-goal-posts

            (2) that demand curves are hypothetical entities — and an empirical description of the relation between quantity demanded at some price would involve discrete points on a graph rather than a curve — does not refute my argument above.

            • Major_Freedom says:

              That isn’t moving the goalposts.

              He is correctly showing you that your definitions of your definitions keep assuming non-empirical concepts.

              We cannot observe supply or demand curves. We can only observe the intersections, i.e. the prices. And no, we are not observing the curves by observing price changes, because we can’t observe if those changes are along a particular curve, or if each price in the change of prices are intersections of new supply and demand curves.

              Supply and demand curves are theoretical tools. They are not observed. Every point besides the intersections, are not observed.

              • Major_Freedom says:

                Your definitions of supply and demand remain grounded on a non-empirical foundation.

                You still have yet to define your terms empirically.

              • Lord Keynes says:

                “We cannot observe supply or demand curves. We can only observe the intersections, i.e. the prices. And no, we are not observing the curves by observing price changes”

                And I never said we can do any such thing. Again, more lies.

                Tel makes the ridiculous claim that you cannot cannot get empirical evidence of unsold goods: just plain idiocy.

                The original discussion was not about observing demand curves.

                You are shifting the goal posts with any doubt.

              • Hank says:

                Plain idiocy, yet you have not provided any evidence.

      • Lord Keynes says:

        Murphy:

        “A surplus (or a ‘glut’) occurs when producers are trying to sell more units of a good or service than consumers want to purchase (at a particular price). A shortage occurs when consumers want to buy more units than producers want to sell (at a particular price). In this context, the equilibrium price (or the market-clearing price) is the one at which the amount supplied exactly equals the amount demanded. If the market is in equilibrium, there is no surplus and no shortage.”
        Murphy, Robert P. 2010. Lessons for the Young Economist. Ludwig von Mises Institute, Auburn, Ala. pp. 156–157.

        • Tel says:

          Again, kicking it to another level, but how to empirically measure “surplus” and “shortage”?

          Show me a shortage, in physical form.

          • Lord Keynes says:

            Surplus = excess of goods of a specific good x going unsold even though sellers want to sell them.

            shortage = all goods of a specific good x sold but buyers wanting to buy more even though they are not available.

            • Tel says:

              Surplus = excess of goods of a specific good x going unsold even though sellers want to sell them.

              Sure, so I own a house that I want to sell for a million dollars, but so far it has gone unsold and I’m stuck living here instead. That would be a “surplus” house by your definition, right? Strangely though, it isn’t exactly surplus because I still live here.

              If I chose a low price I could sell it easily, but I want a high price.

              shortage = all goods of a specific good x sold but buyers wanting to buy more even though they are not available.

              So by that definition there have never been food shortages in Africa, because at least one article of food was always available for purchase, somewhere, at a sufficient price.

              You definitions don’t make sense. They aren’t practical. The surplus will occur in every economy (because there’s always something somewhere that isn’t being sold, but could be for high enough price) and the shortage will never happen (for the same reason).

              Indeed, you have completely ignored the concept of price in your definitions, so now you have done that, how does it relate to Austrian price setting theory?

              • Lord Keynes says:

                (1) Yes, on “shortage” I was sloppy in my definition. The standard definition:

                “A situation where demand for a product or service exceeds the available supply.

                (2) “Sure, so I own a house that I want to sell for a million dollars,….

                That house example does not violate the economic definition of excess supply, as quoted above.

                (2) the food example does not refute the definition of shortage, because (i) people need the money means to back up demand and (ii) they either cannot or will not pay the price of food that is offered for sale, and (iii) it is still true quantity demanded is in excess of quantity supplied.

              • Tel says:

                That house example does not violate the economic definition of excess supply, as quoted above.

                Quite so, I cited the house as an example of excess supply, by the definition you gave. That’s unintuitive though, because I’m living in it, so if does not feel like excess supply. That’s what makes your definition a bit impractical… there will always be a surplus somewhere under your definition.

                (i) people need the money means to back up demand and

                Woooha! Wait a moment there, you are bringing money into this? That’s new, because your previous definition never mentioned money:

                shortage = all goods of a specific good x sold but buyers wanting to buy more even though they are not available.

                Now we need to replace this with a definition involving money. This of course brings up the question of whether shortages can happen in a barter economy, or does a shortage require money in circulation? Could we say that the existence of money causes the existence of shortages?

                (ii) they either cannot or will not pay the price of food that is offered for sale,

                So they want the goods, but they don’t buy because they don’t want to pay that price. Where’s your empirical measurement here? How big is the shortage? Where are your statistics coming from?

              • Lord Keynes says:

                “That’s what makes your definition a bit impractical… there will always be a surplus somewhere under your definition.”

                Untrue. There are plenty of examples of markets where demand was in excess of supply.

              • Lord Keynes says:

                Demand is defined as desire for goods backed up by something to obtain it in exchange, either another good or money.

                Demand as a concept does not need money: it applies to a barter economy too.

              • Major_Freedom says:

                LK:

                You define demand as a desire. Yet you can’t observe someone’s desire. Desire is a mental concept. Your definition of demand is not empirical.

          • Hank says:

            Tel

            This is amazing.

            Lord Keynes cannot use the terms “excess” and “want” in any empirical sense.

            He cannot measure the points when “sellers want to sell them,” or when “buyers wanting to buy.”

            • Hank says:

              Lk may rely on a survey without realizing that people often do not do what they say they will do.

              • Major_Freedom says:

                Well then, if economic concepts are defined in terms of what people say, then

                “I want to sell my labor for $1 million an hour, but there are no takers”

                means that the market process has failed and that it is now justified for the government to point its guns at innocent people, monopolize the money, and then print enough paper so that my asking price can find a willing buyer.

                But of course, when presented with this critical flaw in his theory, THEN he will say “the market process should punish that decision.”

                Then all of a sudden people are to smarten up and ask for a lower wage rate, and that we can wait as long as it takes for me to find a buyer.

              • Hank says:

                I meant to say that LK would rely on this. I don’t think its a correct position.

              • Tel says:

                Lk may rely on a survey without realizing that people often do not do what they say they will do.

                I vaguely remember trying to explain that to LK at one stage.

              • Lord Keynes says:

                That people can or might lie in surveys is possible and accepted as a logical possibility by me, but my argument was that it is HIGHLY IMPROBABLE that any significant number of people did lie in the surveys, given the extraordinary consistency of answers over time in many countries in many different surveys.

                As for you, you succeeded only in showing that your absurd view that they were all or mostly lying requires a massive and idiotic conspiracy theory to account for the consistency of the answers.

              • Tel says:

                I’m pretty sure that MF is extraordinarily consistent about wanting to sell his labour for $1 million per hour.

                You know the strangest thing? I too feel the desire to sell my labour for $1 million per hour. Is that a coincidence or what?

              • Lord Keynes says:

                That answer is idiocy, tel: it does not address anything I said.

                Your reduced to speaking nonsense.

              • Bob Murphy says:

                At least he uses apostrophes properly!!

              • Bala says:

                Bob,

                ROFL.

              • Hank says:

                Hey LK

                You have absolutely no grounds to say how probable it is. May I see the statistical evidence on that claim?

                The fact of the matter is that people will answer a question based on imaginary conditions. When the same situation manifests in reality, people often overestimate how much resources they have compared to what is imagined in the survey. This is because the answer on the survey has no real consequences for them.

              • Hank says:

                Poorly worded. People will overestimate their resources in the survey compared to reality.

              • Lord Keynes says:

                The probability of most of them not lying on the surveys I referred to is a straightforward epistemic probability on the basis of how difficult it would be for multiple people in different countries to give the same answers over time in many surveys, not a statistical probability.

                But I doubt that the fine details of probability theory are understood by you or many people here.

              • Hank says:

                Ya, your right. Everyone here is probably dumb. Is this also what you call “straightforward epistemic probability”?

              • Hank says:

                Why don’t you write a blog post on epistemic probability and how this magical concept automatically makes all your arguments valid?

              • Major_Freedom says:

                LK:

                You’re missing the point again, usual.

                The issue isn’t whether people lie on surveys or not.

                The issue is how you come to know what supply means, what demand means.

                The claim is that you have shown yourself to be unable to give an empirical explanation. That claim still stands.

                Surveys on what sellers would or would not do with their supplies, given a demand, does not provide an empirical explanation of what supply means and what demand means. These surveys PRESUPPOSE that certain meanings for supply and demand have already ben understood by both the sellers and the surveyers.

                The surveys did not contain questions on the theory of economics. They did not ask the sellers epistemological or empirical questions on abstract concepts such as supply and demand. In these surveys, an already existing understanding of what supply means and what demand means, is assumed.

                The challenge to you therefore remains:

                Can you give an empirical explanation of what supply means and what demand means?

                So far, you have failed, because in every attempt you have made, an understanding of the meaning of these terms has always been assumed prior.

            • Major_Freedom says:

              “Lord Keynes cannot use the terms “excess” and “want” in any empirical sense.”

              To be accurate (and not that this stands as a defense of LK’s ramblings), it is impossible to describe economic terms in an empirical sense. They are necessarily a priori.

              • Hank says:

                Of course for LK, there is no impossible or necessary. There is only highly probable.

              • Lord Keynes says:

                You should have read Mises before opening your big fat mouth, MF:

                “The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).

              • Hank says:

                LK

                The disutility of labor is not an economic proposition. Lets not get into another semantics war.

              • Major_Freedom says:

                LK:

                The disutility of labor is not an economic argument. It is an empirical claim concerning someone’s psychology in the past.

              • Tel says:

                … it is impossible to describe economic terms in an empirical sense.

                Suppose I sold my car for $5000 to a second hand dealer. Is that an economic term? Well it was a transaction, surely transactions are part of economics.

                Is it empirical? Well, the car is observable, the dealer is observable, the money does change hands. Sounds pretty close to an observation if you ask me.

                Let me point out that in every real transaction, each buyer implies a seller. Supply always equals demand exactly and precisely. That’s one of those, errr, accounting identities.

                What’s hard to observe is how much the dealer really wanted that car. Maybe I could have pushed for $5100, maybe the dealer could have gotten it for $4900. All you can observe is what happened, not what might have happened. A common feature of empiricism.

              • Ben B says:

                Tel,

                “Sounds pretty close to an observation if you ask me?”

                But how do you come to know that you are observing an exchange?

                Isn’t the knowledge of what constitutes an exchange derived from self-reflection and understanding and not from empirical observation?

              • Lord Keynes says:

                “The disutility of labor is not an economic argument.

                lol… We know it is not an argument. Nobody said it was an “argument.”

                It is a concept just as in your actual statement above:

                “it is impossible to describe economic terms in an empirical sense.”

                Nice lying, MF.

              • Major_Freedom says:

                All economic “concepts” that are presented as concepts have been argued. Propositioning and arguing mean the same thing.

                The disutility of labor is not an economic “concept”. It is not an economics proposition. It is not an economics argument.

                It is an empirical statement concerning the historical state of someone’s psychology.

                You still have yet to define any of your economic concepts, arguments, or propositions empirically. You just keep moving the line back and back by redefining your terms using more and more praxeological arguments.

              • Lord Keynes says:

                Statement 1:

                “The disutility of labor is not an economic “concept”. It is not an economics proposition. It is not an economics argument.

                Statement 2:

                “It is an empirical statement concerning the historical state of someone’s psychology.”

                Since proposition/statement has the same meaning, in (1) it is not a proposition but in (2) it is!

                Since Mises used disutility of labor as an axiom, it follows logically it must be a proposition, yet by (1) it is not.

                Every time you open your mouth you make of fool of yourself.

              • Anonymous says:

                Lord Keynes, Major_Freedom just said it wasn’t an economic proposition, not that it wasn’t a proposition of any kind.

              • Keshav Srinivasan says:

                Lord Keynes, Major_Freedom just said that it’s not an economic proposition, not that it’s not a proposition of any kind.

              • Lord Keynes says:

                It does not matter how you interpret him, Keshav Srinivasan.

                MF’s whole answer is absurd. The disutilty of labour axiom is not an economic proposition nor an economic concept??

                MF is joking, lying or stark raving mad. Take your pick.

              • Major_Freedom says:

                LK:

                LOLOLOL

                It doesn’t matter how my argument is “interpreted”, it is wrong?

                You’re making a total fool of yourself, yet again. You are proving yourself to the world that your claims are nothing but ” I don’t like it, but I won’t show them to be wrong.”

                Take a deep breathe LK. What I am saying is not madness. You are just having a tremn

                To reiterate:

                Any disutility that a person

              • Major_Freedom says:

                Bah, clicked submit by mistake..

                Any disutility that a person may experience from performing labor is a HISTORICAL assertion about a past experience, that may or may not be true.

                This precludes it from being an economics proposition.

                An economics proposition on the other hand is what necessarily must be true. That all goal seeking utilizes scarce means, that is an economics proposition. It is not just a historical claim that may or may not be true. It is necessarily true for all action.

                You don’t seem to understand the difference between theory and history. Economics deals with the theory, and is used to understand history. It is not the history itself.

              • Major_Freedom says:

                LK:

                And we are not obligated, logically, to regard disutility of labor to be an “axiom”.

                I regard it as an empirical event, which can logically be true ot false, depending on the individual.

                If anyone disagrees, let them. My argument stands or falls on its own merits.

              • Hank says:

                What’s the point? LK interprets things the way it is most convenient for him. He’s not interested in truth.

                According to Mises’ system, the disutility of labor is not an economic proposition. Whether Mises is right or wrong, LK will invent a caricature.

              • Lord Keynes says:

                No, MF, your statement:

                “it is impossible to describe economic terms in an empirical sense. They are necessarily a priori.

                Mises:

                ““The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).

                You are just making things up.

                You say:

                “Any disutility that a person may experience from performing labor is a HISTORICAL assertion about a past experience, that may or may not be true.

                This precludes it from being an economics proposition.

                So no proposition that is not necessarily true can be used as an axiom in praxeology?

                You just destroyed praxeology — since it uses the axiom of the disutility of labour, an empirical proposition.

              • Hank says:

                The reason you have such a hard time with this LK is because you have a very ingrained bias. According to Mises, economics is praxeological, i.e. a priori.

                Is the disutility of labor an a priori proposition LK? No.

                Therefore, its not an economics proposition (according to Mises). Let me know if these simple steps are lost on you.

              • Lord Keynes says:

                The notion that the disutility of labor axiom is not an economic proposition is ridiculous.

                You are saying that the axiom, which is part of a fundamental explanation of labour supply, has zero economic content?

                Good luck with your half-witted ramblings.

              • Bala says:

                LK,

                It is a given. It is one of the premises from which economic propositions are derived using logic. I wonder why this is so difficult to fathom (unless you do not want to fathom it, of course)….

            • Tel says:

              Lord Keynes cannot use the terms “excess” and “want” in any empirical sense.

              I think I’m giving him a fair chance to provide a definition. If he really “cannot” then I’m certainly not the one preventing him.

              You might think the task is difficult, but I wouldn’t bother asking if there was a trivial answer.

              • Hank says:

                I just thought it was so elegant and simple.

                It is so revealing that when he defines the terms, he only defined them in terms of the actions (desires, wants, expectations) that people engage in. He repudiates praxeology, yet he can’t help but use it when doing economics.

              • Lord Keynes says:

                They have already been defined for you.

                It is only you refusing to accept that it is possible to observe unsold goods.

              • Major_Freedom says:

                How can you observe unsold goods without knowing the intentions of the seller?

              • Major_Freedom says:

                More relevently, how can you know what an unsold good is apart from a priori understanding of action?

              • Lord Keynes says:

                “How can you observe unsold goods without knowing the intentions of the seller?”

                One of the stupidest question you’ve ever asked.

                In any survey or questioning of seller you would already have asked them what their intention is with respect to the goods… e.g., are you offering this good for sale and you wish to sell it now (or in a relevant time frame)?

              • Hank says:

                Tell me, how do you measure whether the good is unsold or not?

              • Major_Freedom says:

                LK:

                So when you talk about “idle resources”, you’re actually referring to what the owners have said in a survey?

              • Tel says:

                How can you observe unsold goods without knowing the intentions of the seller?

                LK is not trying to do that, he said: “going unsold even though sellers want to sell them” thus clearly he has defined the unsold goods in terms of the intentions of the seller.

                The only question remaining is how to empirically measure those intentions. Which I grant you might be tricky.

  4. Major_Freedom says:

    Great article Murphy. Not only because it’s true, but because it is driving the socialists crazy.

  5. Gamble says:

    Hey lord Keynes thanks for digging up all those Mises and Rothbard quotes relating to supply/demand and generally the price mechanism. Thanks for proving command and control economies stink.

    Mises did a terrific job explaining the importance of prices. I just don’t understand how Mises did not believe in God or at least intelligent design. Prices, profit, money and other naturally occurring market phenomenon really are gifts from above.

    Without thee, civilization would have never even started…

    lK thanks for reminding us all the beauty, simplicity and genius of prices..

    • Major_Freedom says:

      “I just don’t understand how Mises did not believe in God or at least intelligent design.”

      Mises was a Kantian. Kantian epistemology regarding claims of the noumenal world to be outside the scope of human power.

      “Prices, profit, money and other naturally occurring market phenomenon really are gifts from above.”

      They are the result of choices we have to make. They are not given to us from above. If everyone sat around waiting for profit to be gifted to them, there wouldn’t be any profits made.

  6. andrew' says:

    I’m getting that lk is not a fan.

    I still don’t know if he personally believe debt deflation is a big deal.

    • andrew' says:

      It is pretty remarkable that a country like Russia collapsed at all. Or that a China with a billion high IQ humans and a head start is a disgrace until they start liberalizing, increasing trade and courting foreign investment. I wonder what the expected standard for capitalism is.

  7. Tel says:

    Just a note on empiricism in economics, I think most of us can agree that with regards to the “seen” part of economics (i.e. actual transactions) we can get an empirical measurement (at least in theory, maybe in practice things like the drug trade are difficult to measure).

    However, the “unseen” part of economics is the path not chosen which is a challenge to empiricists. One could argue that this path simply does not exist, because it never happened and things that don’t happen are not real. Unfortunately, in terms of modelling the decision making process, with only one path you don’t have a decision to make, so by ignoring the “unseen” you also destroy any model you might have.

    Surveys are one attempt to peer into the “unseen”, not entirely useless but once people get the idea that governments respond to survey results, you can be sure the answers will be structured for the purpose of getting the desired result for the participants.

    • guest says:


      … I think most of us can agree that with regards to the “seen” part of economics (i.e. actual transactions) we can get an empirical measurement (at least in theory …

      Mises granted this; But since individual valuations change constantly, those measurements would be obsolete in an instant:

      [Time stamped]
      Calculation and Socialism | Joseph T. Salerno
      http://www.youtube.com/watch?v=KseRuyAjlHY#t=54m53s

      • Tel says:

        Measuring sea level faces much the same problem… every time you measure it, the value changes. However, most people do accept that seal level measurements are empirical measurements.

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