...So, yes Austrians do have a natural rate**, even if they don't know it. Note that the capital debates show exactly that the idea of natural rate of interest inversely related with capital abundance (supply and demand) is not tenable. The poetry on market efficiency depends on being able to prove that. That's why the neoclassical project, and with it Austrians, have been derailed. It is really zombie economics.
** According to Garegnani, in fact, even the inter-temporal Arrow-Debreu models, which supposedly do not have a uniform rate of profit, require a natural rate of interest to bring about the equilibrium of investment with full employment savings.Naked Keynesianism
On Austrians and the natural rate of interest
Matias Vernengo | Associate Professor of Economics, University of Utah
3 comments:
It’s good to know that a hack like Vernengo understands nothing about Austrian analysis. I fail to see a mention of the central concept of economic calculation in his sad little piece. The best way to think of “natural rates of interest” is to imagine those rates which would exist in the absence of distortion and interference by the authorities (and if they do not come to exist, we won’t know what they should have been). Even uber-Keynesian Daniel Kuehn points out that there is a simple solution to Hayek’s mistaken use of the concept:
Hayek’s early work in the United Kingdom was primarily concerned with the unsustainable boom, leaving detailed discussions of the upper turning point to later books and articles. Naturally some of the first criticisms were directed at this part of the theory. One of the most prominent detractors was Piero Sraffa, a Cambridge economist that was asked by Keynes (in his capacity as editor of the Economic Journal) to respond to Hayek. Sraffa (1932) pointed out that if the economy was not in equilibrium (as Hayek suggested it would not be) there could be no single natural rate of interest, so it was difficult to see how Hayek’s concern with distortions caused by an interest rate pushed below the natural rate were intelligible. Sraffa showed that given a certain basket of consumer goods as an index for consumer prices, you could calculate one natural rate, but with a different basket you would get a completely different natural rate, because each good has its own rate of interest. Without any “correct” natural rate of interest it was hard to see how a unique capital structure could be considered the sustainable or natural capital structure.
Sraffa was right to dismiss the idealized version of the natural rate of interest used by Hayek, but the problems posed for Hayekian business cycle theory by this point are relatively trivial. Conrad (1959) and Lachmann ([1956] 1978) showed that the solution to the puzzle was that multiple natural rates of interest could emerge if the economy was in equilibrium at a particular point in time, but not in intertemporal equilibrium. Lachmann also points out that Sraffa ignores liquidity differences and differences in real costs (like storage costs), which help to explain observed variability of own rates of interest. Murphy (2010), an Austrian economist, considers Sraffa’s criticism more substantial and Hayek’s concept of a natural rate unintelligible. Murphy (2010) agrees with the general thrust of Conrad (1959) and Lachmann’s ([1956] 1978) solution that in an intertemporal equilibrium we can say that a credit expansion is distortionary, but he maintains that even in this situation discussion of a “natural rate” is unintelligible. Although his is one of the more famous critiques of Hayekian business cycle theory, Sraffa is better thought of as presenting an argument against casual discussions about a single natural rate than a threat to the main contours of the theory.
http://danielpkuehn.files.wordpress.com/2013/07/abct-article-for-critical-review.pdf
(1) You are also ignorant of basic Austrian concepts, roddis. You're a self-confessed idiot who does not understand the concept of a market-clearing price.
Also, Vernengo does not need to mention economic calculation to make these points on the natural rate.
(2) "The best way to think of “natural rates of interest” is to imagine those rates which would exist in the absence of distortion and interference by the authorities"
No, it isn't. Without actual market clearing in the capital goods market, pure market rates have no economic significance.
(3) Also Danial is simply wrong to say that the non-existence of the natural rate of interest is a "relatively trivial" point.
(3) Conrad (1959) and Lachmann ([1956] 1978) showed that the solution to the puzzle was that multiple natural rates of interest could emerge if the economy was in equilibrium at a particular point in time, but not in intertemporal equilibrium.
That is no solution at all. It says there would be an imaginary natural rate if the economy were in a *completely imaginary* state equilibrium.
But then if -- like roddis -- you're away and living in a fantasy world with elves, dragons and unicorns, you might believe that.
Vernengo has no clue concerning what he's discussing. LK is constantly on the lookout for ways to purposefully distort what he's talking about.
I disagree with DK that the single natural rate is a trivial point. It's an irrelevant point.
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