When Mises and Hayek were making their argument against central planning and command economies, their focus was Soviet communism, that is, Marxist-Leninist Stalinism. Thankfully, that historical period is now over and has been declared a failure.
Some followers of Mises and Hayek now seek to apply that critique to contemporary systems in which government is an institutional player economically. Does that original criticism hold? Lord Keynes argues, no.
Social Democracy for the 21st Century
Mises on Rational Economic Planning under Syndicalism and “Economic Calculation” in Keynesian Economies
Lord Keynes
12 comments:
Lord Keynes is such a lying bastard. The Austrian Business Cycle Theory has always been based upon a variation of the socialist calculation problem in that Keynesian style monetary and fiscal policy MUST change prices from what would otherwise occur [which is THE WHOLE ADMITTED AND INTENDED PURPOSE OF THE POLICIES!] with the policy thereby impairing economic calculation by distorting prices. LK, being a lying fool, has been claiming that such an analysis has not always been Austrian theory.
http://tinyurl.com/9anfjej
If the government creates funny money out of nothing and buys something with it, the price of that good must be different from what it would have been without the purchase OR ELSE THERE WOULD HAVE BEEN NO POINT OF THE PURCHASE IN THE FIRST PLACE. I'm perfectly happy for you MMTers to quote LK until the cows come home because it telegraphs to the world that neither the MMTers nor the other Keynesian have the slightest understanding of Austrian theory.
If "aggregate demand" is allegedly too low, the masses are unable to buy whatever it is that the Keynesians think they should be able to buy, right? [Actually, either the masses are too poor, or the seller is charging too much]. In lieu of the seller lowering his prices, the Keynesian seeks to squirt new funny money to the masses so that they can purchase the seller's stuff at the current price because the lower, more realistic sales price would be "catastrophic deflation", right?
So, prices obtaining after Keynesian spending and money squirting are different than what prices would have been without the government spending and money squirting, right?
Whether this is good or bad policy is an entirely different issue.
"The Austrian Business Cycle Theory has always been based upon a variation of the socialist calculation problem in that Keynesian style monetary and fiscal policy MUST change prices from what would otherwise occur"
My post does not in fact deny this: yes, it is a variation on socialist calculation problem, but a clear and important variation and difference.
The original and strict “economic calculation” problem as defined by Mises is: the lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
But that specific problem does not apply to capitalist economies with Keynesian macro policies, just as Mises admitted it did not apply to syndicalist economies.
"If the government creates funny money out of nothing and buys something with it, the price of that good must be different from what it would have been without the purchase OR ELSE THERE WOULD HAVE BEEN NO POINT OF THE PURCHASE IN THE FIRST PLACE"
Just as any private sector debt instrument, created from thin air, would also "distort"/change the price! It simply does not follow that severe or even serious economic calculation problems occur because this happens.
Private sector debt instruments have been ubiquitous throughout modern capitalism - yet real output growth and real per capita output growth (sometimes very strong growth, as in 1946-1970s) has still occurred.
In fact, changes in the price of goods to indicate changes in demand (and shifts in relative scarcity or abundance) are the whole basis and essence of the price system - the reason it works! So Bob contradicts himself.
Some followers of Mises and Hayek now seek to apply that critique to contemporary systems in which government is an institutional player economically.
NOW SEEK? Hickey, you can't be serious. ALL FOLLOWERS OF MISES AND HAYEK HAVE ALWAYS APPLIED THE SOCIALIST CALCULATION THEORY to "contemporary systems in which government is an institutional player economically". That's the Hayekian problem of knowledge in society.
Whether that is a right or wrong analysis is a different question. However, a derivative of the socialist calculation problem (which even LK admits is correct) is at the core of Austrian analysis of not only Keynes but monetarism and all interventionist creeds as well and always has been.
LK is either a fool, a liar or both. But it's fine with me if you want to keep quoting him as an authority.
"NOW SEEK? Hickey, you can't be serious. ALL FOLLOWERS OF MISES AND HAYEK HAVE ALWAYS APPLIED THE SOCIALIST CALCULATION THEORY to "contemporary systems in which government is an institutional player economically".
A perfect example of the fallacy of equivocation.
What does "SOCIALIST CALCULATION THEORY" mean in this sentence?
If it is supposed to mean "economic calculation problems caused by the lack of market prices for capital goods, and thus eliminating producers’ goods markets needed by capitalists to calculate profit and loss," then your statement is false.
Serious Austrians know that this problem applies to communist, command, planned economies - not capitalist ones. That is how Mises could argue that his strict "socialist calculation problem"
would not apply to a syndicalist economy.
When modern Austrians talk about government interventions or Keynesianism causing *alleged* economic calculation problems in a capitalist economy, they are talking about the following (and not the lack of markets for capital goods preventing a profit and loss system):
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies, income policies, and so on.
(3) Cantillon effects
(4) ignorant internet Austrians like you invoke the Walrasian general equilibrium concept of a price vector that will clear all markets (with flexible wages clearing the labour market)in this quotation of Hayek:
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept.” (Hayek 1975: 6–7).
But I have already dealt with all these in the original post.
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Now, finally, let us assume that Roddis has intellectual integrity, honesty, and is interested in serious debate.
Does he:
(1) deny that, under Austrian theory, (1) to (4) above allegedly cause economic calculation problems in a modern economy like the US?
(2) does he deny that the US and other capitalist nations have vast and private markets for capital goods?
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If he answers "yes" to (1) and (2), he proves my point. The debate is over.
If he answers "no" to (1), then he is saying that none of the things above actually cause economic calculation problems!!
If he answer "no" to (2), well, then, what really needs be said? He thinks that modern capitalist nations have no mass private production of capital goods!
There is no further need to address his constant braying about how nobody understands economic calculation.
"In lieu of the seller lowering his prices, the Keynesian seeks to squirt new funny money to the masses so that they can purchase the seller's stuff at the current price because the lower, more realistic sales price would be "catastrophic deflation", right? "
Deficit spending covered by bond issues per se does not involve creating new money. So, no, you are wrong about Keynesians wanting that - if you mean neoclassical synthesis Keynesians or New Keynesians (the only exception is: unless you see government bonds as money, which most people don't).
MMTers and Post Keynesians might, under some circumstances, propose some central bank purchases of bonds perhaps directly from the treasury, but even here bond issues would occur to keep control of interest rates, so even deficits in this case do not necessarily mean new money creation.
Strange how after reading so many Keynesian blogs, you are still ignorant of basic Keynesian ideas!
I re-post that the end of that earlier comment because I had the "yes" and "no" around the wrong way:
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Now, finally, let us assume that Roddis has intellectual integrity, honesty, and is interested in serious debate.
Does he:
(1) deny that, under Austrian theory, (1) to (4) above allegedly cause economic calculation problems in a modern economy like the US?
(2) does he deny that the US and other capitalist nations have vast and private markets for capital goods?
----
If he answers "no" to (1) and (2), he proves my point. The debate is over.
If he answers "yes" to (1), then he is saying that none of the things above actually cause economic calculation problems!!
If he answer "yes" to (2), well, then, what really needs be said? He thinks that modern capitalist nations have no mass private production of capital goods!
If he answers "no" to (2), it also follows logically that modern capitalist nations, even with Keynesian policies, are still not subject to the original and strict “economic calculation” problem as defined by Mises: the lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
A Keynesian system, just like a syndicalist one, is capable of rational economic calculation in the sense defined in the original debate.
The set of other *alleged* economic calculation problems proposed by Austrians that it is supposedly subject to are different from Mises' original problem (and are expressed in my points (1) to (4) above).
LK:
Please restate your questions from the beginning without the typos and without incorporating by reference. It will be difficult enough trying to translate them into intelligible English.
These factors:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies, and income policies.
(3) government spending allegedly leading to Cantillon effects
(4) obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market), as in this quotation of Hayek:
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept.” (Hayek 1975: 6–7).
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Is it your view that
(1) factors (1) to (4) above cause economic calculation problems in a modern economy like the US?
(2) is it your view that the US and other capitalist nations have vast and private markets for capital goods?
Yeah, no doubt you have problems reading English! - or that's the excuse you'll use to avoid giving a proper, straightforward answer.
"The Austrian Business Cycle Theory has always been based upon a variation of the socialist calculation problem in that Keynesian style monetary and fiscal policy MUST change prices from what would otherwise occur with the policy thereby impairing economic calculation by distorting prices."
This is just circular reasoning.
So if the government builds a school or a bridge, or employs some policemen or firemen, that immediately "distorts economic calculation", right?
Basically your argument is:
1. The "free market" economy is as perfect as it's possible to be.
2. Therefore any involvement by government is necessarily harmful.
But by the "free market" you don't mean anything that actually exists, has ever existed, or could ever possibly exist in reality. Instead you mean an imaginary perfect "free market" economy that only exists inside your head and can only exist inside your head, which bears no relation to any real "market" or economy whatsoever.
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