Mises’s notion of economic calculation and coordination in market economies is at the heart of Austrian economics.
I provide an overview below and critique.
Note that I am not discussing the issues of thestrict socialist calculation debate, which should be differentiated from Mises’s views on economic calculation in capitalist systems where there are money and money prices for capital goods (unlike the socialist economies Mises imagined).
Social Democracy For The 21St Century
Lord Keynes
80 comments:
“Lord Keynes” has hit rock bottom with his deceptions. His fixprice “fixprice” example is thus:
(1) year 1: a business sells 100,000 units;
(2) year 2: only 60,000 are sold, with monthly sales failing in last months, though prices are not cut;
(3) year 3: in first quarter
production is cut to 20,000 units (instead of 33,000 as in year 1), with a number of workers fired, though prices are not cut, and excess capacity is available to meet any extra demand.
They sell 21,000 in Q1, with an extra 1,000 made by quickly using excess capacity.
———-
This sort of thing happens in the real world all the time: quantity of produced goods is changed to match demand, prices are not changed.
http://consultingbyrpm.com/blog/2013/05/krugmans-botched-inflation-call-and-scary-other-country-reference.html#comment-63029
So, in the real world, the entrepreneur found that it made more sense to sell fewer items at the same price. I’m utterly perplexed at how stupid this example is. I cannot conceive of how it is a knock on voluntary transactions or how it provides support for government bureaucratic control of and interference in transactions.
In year 1, 100,000 are sold for $x.
In year 2, 60,000 are sold for $x and 40,000 are sold for $0. “Demand” or lack of “demand” is a price offer and the final sale is the realized price. LK is deceitfully extracting the concept of “price” from what is exactly sold and where. This change is quantity at the same price is similar to a change in style, with people no longer wanting men’s bell bottom pants (think 1980) and so pants makers switch to straight leg pants. In voluntary transactions, sellers can and will change price, quantity, quality, source, style, color ad nauseum. Further, the unchanged price of the smaller quantity was the market clearing price. Why would anyone perpetually lower their price below their cost of production to maintain a certain volume of sales when they could still obtain some profit by producing less at the same price? No Austrian ever claimed that.
Finally, this quote is doubly pathetic:
the whole notion that there exists a universal set of market-clearing values for prices and wages just waiting to be discovered by adjusting prices
What garbage. There may never be a “universal set of market-clearing values for prices just waiting to be discovered by adjusting prices” for men’s 70s bell bottom pants other than for use as kindling. Further, nothing is invariably “out there” just sitting around “waiting to be discovered”. The future is uncertain and only free individuals have the information necessary by observing other people, their purchases, and using their entrepreneurial skills to correctly anticipate what others might want at what price. Certainly, the funny money issuer has no clue for solving those problems of life.
The difference LK is too dense to see is the difference between free people engaging in voluntary and non-fraudulent exchanges and people forced to used diluted funny money which induces distorted prices and a fraudulent theft and shifting of purchasing power. Absent the problems caused by diluted funny money, “business expectations” would never be “shattered or weak”.
Conclusion: LK distorts the essential nature of non-fraudulent voluntary exchanges by a phony attempt to extract the concept of “price” from what and how much is sold. LK distorts the nature of the future and uncertainty by claiming Austrians think the future is just “out there somewhere” waiting to be discovered. All garbage.
It is all based upon the unfounded assertion that free people are too dumb to set their own wages and prices without the helping hand of the Keynesian who must distort prices via funny money and government spending to help the helpless masses.
It's clear that you have little experience in the world of business, Bob. This is how it works.
Firm typically quantity adjust before price adjusting, and when they price adjust it is always temporary, e.g, a clearance sale. When they need cash, they typically factor excess inventory so they don't have to cut prices. Similarly, firms don't cut wages, they cut hours and lay off workers.
Bob Roddis@May 11, 2013 at 11:25 PM
" Further, the unchanged price of the smaller quantity was the market clearing price."
No, it wasn't, idiot. In year 2 the business had a surplus of 40,000 goods, which were not sold.
For Austrian theory to work, the business would have adjusted the price downwards when sales were poor to *clear the market* in year 2, or, that is, SELL ALL THEIR PRODUCTS.
You have now shown us you do not even understand the concept of market-clearing price.
Based on the level of the market clearing price in year 2, they would have then have adjusted supply if necessary. E.g.,
(1) if the market-clearing price
was still above cost of production, they may well have continued to produce 100,000 in year 3.
(2) if it had fallen below cost of production, then they would have cut supply to restore profits.
Bob Roddis@May 11, 2013 at 11:25 PM
"Why would anyone perpetually lower their price below their cost of production to maintain a certain volume of sales when they could still obtain some profit by producing less at the same price? No Austrian ever claimed that."
Bob Roddis, you are really the most stupid and ignorant Austrian fool on the internet.
Your claim above is that no business would ever lower its price below costs of production and no "Austrian ever claimed that".
Well, here is Rothbard claiming exactly that:
"There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their "surplus" stock, they need only cut their prices low enough to sell all of their product. But won't they then suffer losses? Of course, but now the discussion has shifted to a different plane. We find no overproduction, we find now that the selling prices of products are below their cost of production. But since costs are determined by expected future selling prices, this means that costs were previously bid too high by entrepreneurs."
Murray Newton Rothbard, America's Great Depression (5th edn, 2008), pp. 56-57.
That notion that business must lower prices to clear their market, even if the price falls below the cost of production, is a fundamental part of Austrian theory, because flexible prices adjusted to market clearing values are how demand and supply are equated.
But you -- beyond any doubt now -- are utterly ignorant of basic Austrian concepts.
You naturally missed the key word in the sentence:
Why would anyone PERPETUALLY [forever and ever] lower their price below their cost of production
Does this firm in your example make a profit by selling 60,000? What do you claim they do with the 40,000 they don't sell? Do they ever adjust their production? Do they sell other things? Are they concerned with not having an image as a discounter? Are they concerned with not being seen as a failure so they avoid an observable liquidation sale? There are numerous reasons why a firm would behave in this manner.
Do you have ten actual concrete examples from the past 10 years with company name and product line?
What I don't understand is why you think it is so essential for the government to step in when people just don't want to buy the extra 40,000 (since that is a mystery you conveniently omitted from your theoretical example).
(1) If the business wants to clear its stock, it must, according to your own idiot Austrian theory, adjust its prices downwards to find a market clearing value. That is exactly what Rothbard was saying.
So now you admit that Rothbard is not describing the real world because businesses do not like losses? Wow. It's almost like you're saying that Austrian theory is fantasy world rubbish!
(2) "Do you have ten actual concrete examples from the past 10 years with company name and product line?"
There are 100,000s of examples.
Just look at the 2008-2009 recessions.
US Iron and Steel Manufacturing 2008/9:
When the recession hit and demand fell, manufacturers slashed production levels to preserve profit margins.
http://www.prweb.com/releases/2013/1/prweb10376227.htm
US manufacturing 2001:
"Manufacturers are not fools, and they looked out over the economy and saw that economic activity had slowed dramatically," Naroff said. "Not wanting to carry inventories, they slashed production and workers.
http://cnnfn.cnn.com/2001/11/01/economy/napm/
I.e., they "slashed production" when they should have been slashing price sot clear their markets, and equate demand with supply.
China
"... the sharp decline of foreign demand forced firms to cut production, postpone recruitment and/or go bankrupt, leading to job losses and layoffs,"
http://www.adbi.org/working-paper/2010/05/17/3822.social.security.domestic.consumption.prc/labor.market.trend.and.unemployment.shock/
"Japanese business confidence tumbled to a record low in March, ... Sentiment among big manufacturers fell at the fastest pace on record as slumping global demand has halved exports and slashed production of cars and electronics, "
http://www.accountants.org.sg/general/economy_watch_detail.asp?id=2249
"In common with the rest of the world, Britain's factories slashed production late last year as financial markets became paralysed. Many factories were either closed or put on short-time working."
http://www.guardian.co.uk/business/2009/jun/10/recession-economic-recovery
The nature of the process:
"Part of the answer is that each supplier of goods or services puts a great deal of effort into forecasting and affecting both changes in demand for its products and the prices of its inputs. Corporations in well-developed capitalist economies employ an army of well-paid, and high value-adding, specialists in business administration, marketing, and finance to analyze and forecast how demand for its outputs will change and how the prices of its inputs will change. These data drive corporate decisions on what to produce, what inputs to use, and to whom to market and how."
Economic Lessons from the Transition: The Basic Theory Re-examined, p. 121.
"Similarly, firms don't cut wages, they cut hours and lay off workers."
Exactly...wages are cut in the aggregate...the result is unemployment.
That's really what "cutting wages" boils down to.
No but LK what you haven't understood is that any bad thing that you can ever describe is necessarily only the fault of the government, because there is a perfect magical fantasy world full of candy floss and flying unicorns inside Bob's head and the only reason why the real world isn't like the inside of Bob's head is because of the goddamn government which is out to rob and kill us all.
This is the "basic Austrian concept" that Bob keeps trying to tell you about.
LK’s company: In year 2 the business had a surplus of 40,000 goods, which were not sold. Thus,in the stupid example to which I was responding, production was not slashed. But in the real world examples:
manufacturers slashed production levels to preserve profit margins
"Manufacturers are not fools, and they looked out over the economy and saw that economic activity had slowed dramatically," Naroff said. "Not wanting to carry inventories, they slashed production and workers.
So LK first submits a fraudulent theoretical which did not match up with the evidence. In the example, what exactly was the product and what exactly happened to the 40,000 which were not sold?
They cut production in year 3 in my hypothetical example.
Just as many businesses cut production around 2008-2009 in response to demand stocks, instead of (as in your Austrian theory) cutting/slashing prices to clear their product markets.
Sounds like your running scared and reduced to spouting idiocy now. Oh wait, that's what you normally do!
And, by the way, are you saying that prices adjusted in a flexible manner towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination?
Did you read “Mises and Hayek Dehomogenized” yet so you can answer the question? Or were all those big words too much for your small brain, bob?
My answer is very very long regarding the "dehomogenized" article. Meanwhile, WHAT HAPPENED TO THE 40,000 UNSOLD ITEMS?
Are you so stupid that you fail to realise that my hypothetical of a company is only using hypothetical quantities to prove a general point?
Possibly there is a real world example of a company with those exact quantities, but I have better things to do with my time than find it for an idiot like you.
The general point -- that fixprice market businesses generally adjust output and employment in response to demand changes rather than prices -- is overwhelmingly confirmed by the empirical evidence, which is what I was proving above with the loads of links I posted.
"My answer is very very long regarding the "dehomogenized" article."
Really!
So give us the short answer! Come on, a genius like you, with all those years of reading Austrian economics, who is familiar with basic Austrian concepts!
Yes or no?
What actually happened to the unsold 40,000? Don't you understand the real world enough to tell us?
In the hypothetical? If perishable, added them to inventory and accepted loss due to spoilage or whatever, or if durable added them to inventory stock.
Either way their behaviour is contrary to Austrian theory, which requires economic coordination by price adjustment to find a market clearing price for output first, even if that means selling below cost of production.
You could easily adjust the example to take account of inventory stock:
(1) year 1: a business sells 100,000 units;
(2) year 2: only 60,000 are sold, with monthly sales failing in last months, though prices are not cut;
(3) year 3: in first quarter
production is cut to 10,000 units (instead of 33,000 as in year 1), with a number of workers fired, though prices are not cut, excess capacity and stock are available to meet any extra demand.
They sell 21,000 in Q1, with an extra 1,000 made by quickly using excess capacity and 10,000 from inventory stock.
------
Same result: fixprice market businesses are not coordinating demand with supply by means of flexible prices to clear their product markets.
I'll tell you what happened to the 40,000 and why it was absent from your example: They were sold for whatever functionality, maybe for scrap, at a much lower market clearing price.
Further, since your examples come from 2008-2009, the entire series of production overshots you cited resulted from Keynesian distortion of prices.
see, I told you so LK.
(see my comment above for info on Bob's "basic Austrian concept")
And the evidence for the unwillingness of many fixprice firms/businesses to cut prices in a recession is clear to anyone who bothers to look:
"If your brand is not about price — adopting a low price strategy is probably going to damage the work you’ve already done. And that doesn’t only apply to luxury or high end brands.
As money gets tighter, consumers will want to be confident in the companies they do business with. Brand trust will become even more important, the tighter people are with their cash.
A recession is the time to be even more diligent about protecting your brand by staying consistent. "
http://www.drewsmarketingminute.com/2008/02/marketing-durin.html
"The Best Way to Help Small Business in a Recession ....
Do not cut prices. A small business' strength is usually the services it offers, not its prices. Cutting prices will not add value to the business."
http://smallbusiness.chron.com/way-small-business-recession-2463.html
"When a recession reduces demand for automobiles, for example, the automobile companies do not cut prices but reduce production. Sometimes they even raise prices in periods of falling demand."
Introduction to social science and contemporary issues, p. 219.
Further, the price (or non-price) for the 40,000, such as it was, was a signal for the company to cut production. The fact that a lower quantity could be sold profitably at the price it was sold for was a signal. Even after the Keynesian-induced disaster, realized prices, which includes quantity, quality and style etc... showed them the way to profitability (how much to make of what and at what price).
Pure Austrian analysis.
Your stupid and dishonest analysis is attempting to strip the concept of "price" away from what is being sold.
If your brand is not about price — adopting a low price strategy is probably going to damage the work you’ve already done. And that doesn’t only apply to luxury or high end brands.
Exactly.
"They were sold for whatever functionality, maybe for scrap, at a much lower market clearing price."
No, they were not. They were added to inventory: adding unsold goods to inventory is standard procedure in such firms.
So are you now saying that prices adjusted in a flexible manner towards their market clearing levels IS a fundamental element in Austrian price theory and in Misesian economic coordination?
Come on, give us an answer, coward.
Yep. How can business drop its prices to clear inventory when its debt costs are fixed? And wages can't be lowered either because the debt costs of the employees are fixed too. And why are businesses and employees in debt anyway? ans: The government-backed credit cartel has driven them into debt. The option is to be priced out of the market by those who do borrow.
This is a place where the Austrians miss the mark; they fail to see that borrowers are victims of the credit cartel too and see liquidation of the victims as some kinda of moral solution when it isn't.
In in the middle of the first gulf war (FEB 1991), no one was buying cars and I was able to buy a nice car with a $15,000 sticker price for $11,000. That sounds like a price cut to me.
"Further, the price (or non-price) for the 40,000, such as it was, was a signal for the company to cut production."
No, they did not sell the 40,000 in year 2. They were added to stock. Demand changed.
Demand is what signalled the business to change output.
But you're such a fool that you do not understand that your Austrian theory says that businesses should be clearing their product markets by adjusting prices of all goods, not just unsold ones, from year 2 and onwards.
So again you have no idea what you're talking about.
"And why are businesses and employees in debt anyway? ans: The government-backed credit cartel has driven them into debt"
are you now trying to say that there is no role for private debt in a capitalist economy?
Please don't say "common stock as money".
in the middle of the first gulf war (FEB 1991), no one was buying cars and I was able to buy a nice car with a $15,000 sticker price for $11,000. That sounds like a price cut to me.
No doubt. Behaviour of a retail business or second hand dealers is DIFFERENT from producers.
What actually happened to the unsold 40,000? Don't you understand the real world enough to tell us?
Depends on the merchandise, but in aggregate some was given to charity and ended up in thrift stores, some was liquidated and ended up in discount houses, some was factored and sold into the export market, some was sold through sales promotions, and some unplanned inventory was held over to the next period.
But the important point is that prices and wages in general were not adjusted down. All of these are one-offs that enable merchants to maintain current prices even in downturns because they know that there is resistance to both price hikes and wage cuts.
BTW, this is happening all the time, not just during downturns. The global economy is in a constant state of overproduction and prices are maintained by creating artificial scarcity in the primary venue by moving surplus goods through "sales," secondary and tertiary venues, and liquidation and destruction.
I puts sales in quotes because very often the sale price is the real price and mos of the goods are expected to be sold at the sale price. The temporary "sale" creates an impulse to buy so as not to miss the sale.
Retail is all about creating buying psychology, and wholesalers use this also.
The markets that respond to supply and demand are materials markets and financial markets. But even these are driven by speculation based on not only expectations but also trend momentum that introduces inefficiencies that present trading opportunities. It is traders, generally using technical analysis, that make the market rather than end users.
"Depends on the merchandise, but in aggregate some was given to charity and ended up in thrift stores, some was liquidated and ended up in discount houses, some was factored and sold into the export market, some was sold through sales promotions, and some unplanned inventory was held over to the next period."
Right. I am not denying that this or combination of some of these might happen in some businesses.
Or that often retail businesses want to clear stock by clearance sales.
But if you are a producer, it is just as likely that you would add a lot of the unsold goods to inventory too.
But as you say, the "important point is that prices and wages in general were not adjusted down" by the business. Its fixprice for newly produced goods is probably the same, unless changes in factor inputs prices that are expected to be permanent occur.
What traders and business people recognize is that there is no "price," let alone a price set by supply and demand in most retail and wholesale markets. The way to be successful is when buying to find the "real price," and when selling to manipulate psychology to get the highest possible price wrt to competition, which involves all sorts of things that have nothing substantial to do with the goods being sold. It helps a lot to have clueless customers, and fortunately for businesspeople most customers are clueless.
I fail to see how adding unsold goods to inventory resulting from the Keynesian bust refutes anything Austrian. Readjustment to new realities takes time and the fact that they were unsold was a signal. As a result, production was reduced so that a proper amount of goods could be profitably sold at market clearing prices. It does not appear that costs of production could have actually been reduced. Further, since values are subjective, snob appeal of high prices may often trump the desire for bargains. Austrians note that constantly.
What was sold and unsold were signals that allowed the firm to readjust its production and stay profitable. Such is impossible under socialism and the process is impaired and distorted by Keynesianism.
are you now trying to say that there is no role for private debt in a capitalist economy? y
Credit is debt but debt is not necessarily credit.
If you loan me $100, then you have $100 less to spend so aggregate purchasing power does not change. But a bank can create any amount of credit so long as it can find so-called "creditworthy" borrowers; i.e. the banks create the money ("credit") they lend.
Now obviously, if one can create money to lend, then one can drive up prices. And if prices are being driven up, then those who don't borrow can be priced out of the market by those who do borrow.
What traders and business people recognize is that there is no "price," let alone a price set by supply and demand in most retail and wholesale markets. The way to be successful is when buying to find the "real price," and when selling to manipulate psychology to get the highest possible price wrt to competition, which involves all sorts of things that have nothing substantial to do with the goods being sold. It helps a lot to have clueless customers, and fortunately for businesspeople most customers are clueless.
Thank you Mr. Kickey for this pure Austrian analysis. People are purposeful, not necessarily rational. The prices paid are not necessarily rational but the result of subjective beliefs of the parties involved.
unless changes in factor inputs prices that are expected to be permanent occur
In most cases involving retail, changes in factor prices other than labor are not a major factor in setting price because there are so many other issues involved.
Material prices do vary with changing factor costs, especially the cost of energy, now that labor costs are well-controlled by reduction in workers' bargaining power. Energy is the wild card wrt factor prices. Modern capitalism runs on cheap energy and cheap labor.
"I fail to see how adding unsold goods to inventory resulting from the Keynesian bust refutes anything Austrian."
That is because you are
(1) unwilling to answer the question: so are you saying that prices adjusted in a flexible manner towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination? or
(2) an ignoramus who does not understand basic concepts.
" As a result, production was reduced so that a proper amount of goods could be profitably sold at market clearing prices."
They were not "market clearing prices", you fool. You do not even know the meaning of that term.
Quantity adjustment to meet reduced demand with unsold stock is not an example flexible prices to clear a product market and equate demand with supply.
In the latter case, if the market clearing price is above cost of production, there is in theory not necessarily any need for output or employment adjustments under your Austrian theory. But you do not understand that theory.
no one was buying cars and I was able to buy a nice car with a $15,000 sticker price for $11,000
Anyone who pays anything near the sticker price is a fool, unless the desired model is actually in high demand and short supply. The emphasis is on the actually here.
"if prices are being driven up, then those who don't borrow can be priced out of the market by those who do borrow".
So let's say there was a strictly limited supply of money, but very high demand for houses. Those with less money would still end up getting priced out.
The prices paid are not necessarily rational but the result of subjective beliefs of the parties involved.
There are two sides to this. First, most people are clueless about real price or don't care aout it , which is why two gas stations on opposite corners can charge different prices, and different markets in the same relatively small town can charge varying prices, sometime rather substantial. People don't look chiefly at price in making purchasing decisions. Anyone in business that doesn't realize this is not going to be very successful.
Secondly, there are people that realize that there is a "real" price related to costs and they seek it out. Very often this is not easy to find because of the maze of middlemen and suppliers that are able to charge in excess of the real price. Those businesspeople that do the footwork necessary to get to the real price and stay current with it have the best chance out of the gate. After that, it's all marketing.
Ordinary people think that businesses sell products. Business people know that they are are selling a promise and the product has to deliver on that promise, the cheaper the better wrt to price. You don't have to make a better product, you have make a more attractive and believable promise and be able to back it up.
When I say, "be able to back it up,' this is measured in returns. If returns are too great, then you are promising too much, and if returns are too low then you are not promising enough. Different product-types have different return rate sweet spots.
The fundamental Austrian concept is economic calculation. Allowing voluntary non-fraudulent transactions produces the information essential to knowing what other people have and desire and the potential value of what you have or may attain. This will induce a TREND towards producing goods which will have a PROFITABLE and SUSTAINABLE market at market clearing prices (which is a corollary of economic calculation).
Keynesianism introduces fraud and deception into the process resulting in the boom/bust cycle. Keynesian-distorted prices may very well be market clearing for years leading up to the bust.
The fact the LK's company could only sell 60,000 in year 2 was a signal to change production and it was determined that the company could lower production without lowering prices to attain further profitable sales at market clearing prices.
As always, LK's pathetic attempts to extract Austrian analysis out of all context of the real world just demonstrates his desperation.
But if you are a producer, it is just as likely that you would add a lot of the unsold goods to inventory too.
Producers are much more influenced by factor cost and therefore very carefully control inventory. Today, most large producers only want to hold inventory of about a week in advance. Computer manufacturers are down to several days. Inventory control is the name of the game in profits. So most producers are not going to get caught with a lot of inventory in the first place.
What they will get caught with is supply of materials that need to be ordered in advance and shipped from afar. They will just hold that or sell some into the market if need be.
So let's say there was a strictly limited supply of money, y
But I don't argue for a limited supply of money; I argue that money MUST be ethically created; not that its amount be limited. Nor should we have a single, government enforced monopoly money supply for private debts either.
but very high demand for houses. Those with less money would still end up getting priced out. y
Not necessarily because:
1) Housing prices would not necessarily rise faster than the interest rate they receive in that money for their savings. Thus people might be able to save for a house in a reasonable amount of time especially since monetary reform would ensure that workers were not cheated of productivity gains.
2) Reform of the money system should include, along with at least a temporary ban on new credit creation, a universal and equal bailout of the entire population with new fiat at least until all deposits are 100% covered by reserves. That would help debtors pay down their debts and give non-debtors a substantial chunk of cash.
As Ronald Coase has pointed out, many economists are clueless about what firms actually do because they don't factor in transaction costs or don't know how to do it and keep the model tractable. Coase has said that he is not down on math or econometrics, but you have to be measuring something that is representative of reality, otherwise the model is just a thumbnail sketch.
I hate to disappoint all of you Keynesians out there but whether a particular business will slash prices and/or production or change production or move to Mexico is not covered by Austrian analysis. What Austrian analysis says is that observing what is actually sold at realized non-fraudulent prices resulting from voluntary exchanges provides the essential information for facing the future more informed than in an unpriced socialist system or a distorted price Keynesian system. How you actually conduct your business is up to you.
if the market clearing price is above cost of production, there is in theory not necessarily any need for output or employment adjustments under your Austrian theory. But you do not understand that theory
I would not say just Austrian theory, but neoclassical as well. Any market based theory that is based on price adjustment rather than quantity adjustment views the market as an equilibrator through constant price discovery allowing markets to clear. This is market fundamentalism and the basis of market-induced efficiency that is supposed to result in optimality.
But in a world dominated by quantity adjustment, that is just not representative of reality.
So let's say there was a strictly limited supply of money, but very high demand for houses. Those with less money would still end up getting priced out.
Change "houses" to "food" and you've got the situation the Third World is in, as well as a lot of the poor elsewhere.
"I hate to disappoint all of you Keynesians out there but whether a particular business will slash prices and/or production or change production or move to Mexico is not covered by Austrian analysis."
So what happens when a vast number of fixprice businesses do not clear their product markets by adjusting prices to market clearing levels?
Answer: Austrian economic coordination as envisaged by Mises where demand is equated with supply DOES NOT HAPPEN.
Demand drives output and employment. The Keynesian analysis of market systems is correct.
Of course, you're too feeble minded to see that.
And also too much of a little coward to answer the question: are you saying that prices adjusted in a flexible manner towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination?
You will never answer, roddis. Because you know that the moment you do you will be exposed as an idiot and ignoramus.
"The fact the LK's company could only sell 60,000 in year 2 was a signal to change production and it was determined that the company could lower production without lowering prices to attain further profitable sales at market clearing prices.
You have no idea what a market clearing price even is.
Demand drives output and employment.
It depends upon your definition of "drive". Of course, if you don't have ready, willing and able buyers, you don't try to sell stuff because you will fail.
"The fact the LK's company could only sell 60,000 in year 2 was a signal to change production and it was determined that the company could lower production without lowering prices"
By conceding that, you have already conceded that output and employment in fixprice businesses are adjusted directly by quantity signals (demand, sales orders, sales volume), not by price adjustments to equate demand with supply by seeking market clearing prices.
Result:
(1) Austrian economic coordination theory falsified
(2) Keynesian theory verified.
Thanks for proving Keynesian theory for us.
LK: You do not understand the difference between:
1. Price adjustments and
2. Prices as signals. Austrian analysis is primarily concerned with #2.
This latest episode of your pathetic hair splitting has gotten quite boring.
"1. Price adjustments and
2. Prices as signals.
Austrian analysis is primarily concerned with #2."
lol... So are you saying that prices adjusted in a flexible manner towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination?
You know you've lost, coward. Better run and hide over Bob Murphy's blog.
Keynesianism introduces fraud and deception into the process resulting in the boom/bust cycle. Keynesian-distorted prices may very well be market clearing for years leading up to the bust.
Sounds like conspiracy theory to me.
non-fraudulent prices
achieved by exchanging gold bullion?
So you claim that "Austrian analysis is primarily concerned" with "prices as signals" and not "price adjustments"??
Should have read your own fellow Austrian cultists:
“Despite the economy’s disequilibrium character, however, the market-clearing process has an important function to perform in the pricing and allocation of scarce resources, a function that Hutt felicitously described as ‘the dynamic coordinative consequences of price adjustment.’ According to Mises, the coordinative social appraisement process of the market insures that the current price of every scarce resource is equal to its expected marginal revenue product (discounted by the interest rate), and thus that all existing productive resources are always fully employed in those uses that entrepreneurs consider to be most valuable in light of their knowledge of the technological possibilities and their forecasts of future market conditions, including their appraisements of prospective output prices."
Salerno, Joseph T. 2010. Money, Sound and Unsound. Ludwig von Mises Institute, Auburn, Ala. p. 210.
“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 and, in the process, coordinating the productive employments and combinations of all resources with one another and with the anticipated preferences of consumers.”
Salerno, Joseph T. 1993. “Mises and Hayek Dehomogenized,” Review of Austrian Economics 6.2: 113–146. at p. 124.
This is my final answer, LK.
Unadulterated prices resulting from non-fraudulent voluntary transactions provide the essential information necessary to provide guidance as to what should/can be produced and sold profitably. As such, there will be a tendency towards market clearing prices because otherwise, producers will fail. Whether the particular situation calls for price changes, production changes, quality changes, style changes or any combination of the preceding list will be determined by the facts and circumstances as determined by the market actor. There is nothing in Austrian analysis that precludes the example you provided and nothing in Austrian analysis that says price changes must always trump quantity or quality changes.
You were wrong about the socialist calculation debate, you were wrong about the nature of economic calculation and you now are wrong about this.
You lost. Give up.
THE END.
"As such, there will be a tendency towards market clearing prices because otherwise, producers will fail.
So, on the one hand, there IS a tendency towards market clearing prices?? Is that right?
Whether the particular situation calls for price changes, production changes, quality changes, style changes or any combination of the preceding list will be determined by the facts and circumstances as determined by the market actor. There is nothing in Austrian analysis that precludes the example you provided and nothing in Austrian analysis that says price changes must always trump quantity or quality changes.
Yes, there is. Your Austrian theory says that "the market-clearing process has an important function to perform in the pricing and allocation of scarce resources, a function that Hutt felicitously described as ‘the dynamic coordinative consequences of price adjustment.’"
You, bob roddis, are a fool, an idiot, an ignoramus, and you do not understand the Austrian theory that you claim to defend.
You have demonstrated your ignorance of basic Austrian theories on economic coordination for all time on this thread, and now we need only link to your idiocy above to prove that.
You don't understand your own Austrian "economic calculation" theory and are incapable of answering ONE simple question about it.
"This is my final answer, LK."
Great. Go running away. Good riddance.
Hopefully the MMT community here will never have to listen to your ignorant blathering and stupidity about economic calculation ever again.
"Did you read “Mises and Hayek Dehomogenized” yet so you can answer the question? Or were all those big words too much for your small brain, bob?"
Lord Keynes - I find your comments utterly offensive. This should be a forum to debate important ideas not one which debases the exchange into a form of school yard name calling. Can't you think of a better way of expressing yourself?
Rombach, trust me, Roddis started it.
"Rombach, trust me, Roddis started it."
Bob Roddis seems to be quite capable of defending himself while taking heating from all sides. I may have missed something but as I scanned this exchange I noticed one overt name calling transgression by Bob Roddis aimed at LK vs. countless examples going the other way. I'm not a card carrying MMTr but more like a fellow traveler and I come here for the intellectual challenge, but this type of childishness makes me want to take a pass. That is how a website like this becomes an echo chamber. Everyone should just grow up.
"debases the exchange into a form of school yard name calling"
...something Roddis resorts to consistently...if it isn't insult it's ad-hominem...which makes it nearly impossible to take anything he says seriously.
So much for debate.
Rombach,
"I may have missed something"
Yes you have missed a couple of years of incessant insults, and offensive repetitive nonsense from Roddis.
If you think that Roddis is a reasonable individual with a genuine interest in debate then I'm sorry but you really have things completely upside down.
The Rombach Report,
If Roddis had even the slightest interest in giving you or anyone a serious "intellectual challenge" or debate, he would answer the simple question I have posed to him above repeatedly:
Does he think that prices adjusted in a flexible manner towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination?
-----
There is a point at which the only way to deal with offensive, intellectually dishonest individuals like roddis is to treat them with the utter contempt they deserve. And it has worked: he evaded serious discussion and disappeared.
Why? Because he knows the moment he answers the question above he will be exposed as ignorant of Austrian ideas he promotes with such spite and stupidity.
"Why? Because he knows the moment he answers the question above he will be exposed as ignorant of Austrian ideas he promotes with such spite and stupidity."
LK - Thank you for making my point.
Rombach, please compare LK's blog and Roddis' blog to see who is the more reasonable of the two.
"I may have missed something but as I scanned this exchange I noticed one overt name calling transgression by Bob Roddis"
Perhaps you missed the fact that in his first comment above roddis describes LK as being intentionally deceptive and deceitful, as "dense", his article as "stupid", "pathetic", "garbage", intentionally distorting, and "phony".
He later goes on to describe LK as "stupid", "dishonest" and "fraudulent", accuses LK of thinking that normal people are "too dumb", and (as always) repeats his usual mindless slogans - that Keynesianism is to blame for all economic problems and is simply "fraud", "deception" and "theft".
OK, my bad as the kids say for missing that. Maybe I was shooting from the hip so my apologies to LK for that. Point is, if MMT wants to gain influence it will have to engage in dialogue with people like Austrians, Supply Siders, Marxists and other persuasions and if we can all be civil with each other despite differences it can only help the process.
1. LK's post was "stupid", "pathetic", "garbage", intentionally distorting, and "phony".
2. The essence of the Austrian Business Cycle Theory is that it is caused by Keynesian policy. How does one say that in a nice way?
3. I count 48 uses to the word "moron" in blog posts on this page alone:
http://mikenormaneconomics.blogspot.com/search?q=moron
4. "y" made me this special gift months ago demonstrating his courtesy (and debating skills):
http://www.flickr.com/photos/bob_roddis/8413813679/in/photostream
5. When I was being my usual polite self, LK called me an "idiot" for suggesting that under pure laissez faire that FRB bank notes should contain an explicit warning regarding the amount of reserves backing them up and suggesting that if there was such a warning, few people would accept them.
http://factsandotherstubbornthings.blogspot.com/2012/07/bob-roddis-makes-bad-argument.html?showComment=1342710097212#c6712169092392909862
Let’s assume that LK is correct (he’s not) and that all of the prior Austrian writers for 100 years were so pig-headed as to believe that each firm MUST ONLY SLASH PRICES, and not cut production, change quantities, change quality and/or style when faced with a crisis. I’ve just added those options back into the theory. Now the theory has been repaired. Keynesian price distortion is still the cause of the boom/ bust crisis and the rest of the Austrian analysis still stands tall.
"The essence of the Austrian Business Cycle Theory is that it is caused by Keynesian policy"
So there were no business cycles before Keynes, according to what you call "austrian theory" (i.e. your made up version of austrian theory).
"y" made me this special gift"
It's an accurate description of the strange delusional world which exists inside your head, minus all the candyfloss and flying unicorns of course.
"under pure laissez faire that FRB bank notes should contain an explicit warning"
If you want to exchange your FRB notes for gold please log on to bullionvault.com. Do not go to your nearest Federal Reserve Bank. Log on to Bullionvault. They will be able to redeem your Federal Reserve Notes for gold.
"few people would accept them".
I'm sure the people at Bullionvault will accept them. they'll give you gold for your FRB notes, Bob.
Notice how Roddis still won't answer the question:
Does he think that prices adjusted in a flexible manner by market agents towards their market clearing levels is NOT a fundamental element in Austrian price theory and in Misesian economic coordination?
The fact that he will not answer this simple question is absolute proof of his complete bankruptcy and loss in this debate.
"Let’s assume that LK is correct (he’s not) and that all of the prior Austrian writers for 100 years were so pig-headed as to believe that each firm MUST ONLY SLASH PRICES, and not cut production, change quantities,"
I've never claimed that "all of the prior Austrian writers for 100 years were so pig-headed as to believe that each firm MUST ONLY SLASH PRICES, and not cut production, change quantities" -- this is your idiot straw man.
E.g., Lachmann understood quantity adjustments and fixprices:
http://socialdemocracy21stcentury.blogspot.com/2013/05/lachmann-on-hicks-on-fixprices.html
That is partly the reason why he accepted the idea of Keynesian stimulus in a deep depression, as did Hayek:
http://socialdemocracy21stcentury.blogspot.com/2012/02/lachmann-endorsed-keynesian-stimulus-in.html
http://socialdemocracy21stcentury.blogspot.com/2011/09/did-hayek-advocate-public-works-in.html
"y" made me this special gift"
OMG.. Y, your poster is awesome.
"Keynesian price distortion is still the cause of the boom/ bust crisis"
Nah Bob, Hayekian price distortion is the cause of the boom/bust cycle. Or Rothbardian price distortion is the cause of the boom/bust cycle. Whatever. Doesn't matter, let's just say any old shit and keep repeating it over and over again until we convince ourselves that it must be true. Clown.
Bob Roddis said...
... I’ve just added those options back into the theory.
Oh, really?
But then if demand is not equated with supply by price adjustment, it follows that failures of aggregate demand occur!
That follows directly from denying Rothbard's vision of how the market supposedly equalizes demand with supply and (allegedly) in his flying unicorn world avoids overproduction:
"There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their "surplus" stock, they need only cut their prices low enough to sell all of their product. But won't they then suffer losses? Of course, but now the discussion has shifted to a different plane. We find no overproduction, we find now that the selling prices of products are below their cost of production. But since costs are determined by expected future selling prices, this means that costs were previously bid too high by entrepreneurs."
Murray Newton Rothbard, America's Great Depression (5th edn, 2008), pp. 56-57.
>"y" made me this special gift"
It's an accurate description of the strange delusional world which exists inside your head, minus all the candyfloss and flying unicorns of course.
Y, you crack me up. :)
Also by conceding that fixprices/administered prices are extensive in the real world, Roddis has implicitly conceded that money supply growth does NOT distort prices away from their flying-unicorn market-clearing values -- because fixprice businesses DO NOT set them at that level or adjust them towards that level. They are not "distorted" from those values, because they are never going to go there in the first place and fixprices are relatively demand inelastic.
The coordination of demand and supply is achieved by quantity adjustments, not price changes, so his whole Austrian economic coordination theory falls flat on its face.
Secondly, Roddis never read Mises:
"For the sake of economic calculation all that is needed is to avoid great and abrupt fluctuations in the supply of money. Gold and, up to the middle of the nineteenth century, silver served very well all the purposes of economic calculation. Changes in the relation between the supply of and the demand for the precious metals and the resulting alterations in purchasing power went on so slowly that the entrepreneur’s economic calculation could disregard them without going too far afield. Precision is unattainable in economic calculation quite apart from the shortcomings emanating from not paying due consideration to monetary changes.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition. Ludwig von Mises Institute, Auburn, Al. p. 225).
That is, what you need is:
(1) no great and abrupt fluctuations in the supply of money, and
(2) slow changes in purchasing power of money
So economic calculation IS consistent with mild or moderate money supply growth when matched by money demand, and mild/low inflation or deflation.
Roddis fails to understand his own Austrian theory yet again.
"I count 48 uses to the word "moron" in blog posts on this page alone:"
That use of the term "moron" has special context around here…
…someone who couldn't find his ass with both hands…not because he's stupid, but because he's driven by ideology rather than facts.
"What good is a brain without eyes to see?" - Igor in Bride of Frankenstein
"OMG.. Y, your poster is awesome"
Thanks. A moment of creativity inspired by Bob's endless sanctimonious hectoring.
"OMG.. Y, your poster is awesome"
The poster is nothing but an animated straw man. Kudos to your artistic abilities, but it's clear you have no interest in engaging in an honest, serious debate about economics.
This is one sad little echo chamber.
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