Austrian School

Archive for Austrian School

How Economists Treat Interest

I got an email from a colleague (reprinted with permission): Dear Bob: Please settle a bet between me and [another colleague]. One of us maintains that without borrowing and lending, no interest rate could arise. The other of us takes the view that there is always time preference, and this guarantees an interest rate, even […]

A Note on the “Real” Rate of Interest

In my Mises Canada post walking through problems with the typical neoclassical approach to capital & interest, I came up with a simple thought experiment in which there are capital goods (nets) that have a positive marginal product–the workers can catch more birds with nets than without. This explains why the nets can earn a […]

The Final Nail in the Coffin: MPK Is Not Sufficient For Interest, Either

For those who really want to understand what all the fuss is about capital & interest, you need to get a cup of coffee, perhaps even a piece of paper and pencil, and spend 20 minutes reading my latest Mises Canada post. You know I don’t often ask these things of you, but this is […]

Heterodox Economists School Krugman on His Flim-Flam Econ

Wow, I thought I was hard on the guy… In the debate over Thomas Piketty’s book on Capital, many of the heterodox leftist economists are coming out of the woodwork to complain. Specifically, the problem is that Piketty relies on the mainstream notion that interest in a market economy is determined by the “marginal product […]

Showing Problem With Piketty Using Neoclassical Models

I am an Austrian economist. My understanding of capital & interest comes (originally) from Mises, but then it was refined in grad school when I studied Bohm-Bawerk, Fetter, and Fisher. In case I haven’t been clear: One doesn’t need to be an Austrian to understand what’s wrong with Piketty’s conceptual remarks about capital & interest […]

A Fleshed Out Example Showing Problems With Piketty

[UPDATE: Note that I clarified the thought experiment to make sure it’s obvious that all physical production is due to labor in an economic sense.] At Mises Canada I elaborate on an example showing Piketty’s approach is flawed even on its own terms. First I’ll refresh your memory about Piketty’s framework: Technology naturally plays a […]

Piketty on the Marginal Product of Capital

I’m not going to comment on this right now; I have a big article on capital theory coming out next week, and you guys should read that first as foundation. So I’ll wait. In the meantime, however, let me go ahead and type out the following excerpt from pp. 212-213 of Thomas Piketty’s blockbuster Capital […]

Yglesias Interviews Piketty

If you’re getting sick of the coverage, don’t worry: After I post my review (coming in a few weeks), I will probably be done with this topic. In the meantime, Piketty says some interesting things in this interview with Matt Yglesias. For example: I think what [economists are] doing wrong is that in order to […]