Monday, August 27, 2012

Lord Keynes — Rescuing Menger from the Austrians

I have written before of Carl Menger’s Lectures to Crown Prince Rudolf of Austria (trans. Monika Streissler and David F. Good; Aldershot, 1994).

That book shows that the founder of Austrian economics was worlds apart from the modern cult of anarcho-capitalism.
Social Democracy for the 21st Century
Rescuing Menger from the Austrians
Lord Keynes


Roger Erickson said...

Economist Appearing On Max Keiser Show Forced To Resign
(for dissing von Miser)

after dutiful calculation, of course

Tom Hickey said...

Shows AE in not monolithic. The Mises-Rothbardian school within a school is only one of several, albeit the loudest and the most dogmatic.

Matt Franko said...

Paging Bob Roddis... paging Bob Roddis.... Bob, come in please....

Bob Roddis said...

I don't see how Menger's views on child labor help the Keynesian case against thinking about voluntary human exchange. Heck, Ron Paul talks about maintaining Social Security for years to come because of the necessity of a transition phase. Does that vindicate distorting the pricing process with funny money? This is just LK in his usual tap-dance around the central topic of economic calculation.

I don't have the energy to go into detail, but in an "anarcho" world, the guys up the hill with the cut trees would likely be enjoined from allowing mud to slide down the hill into someone else's river. Typical ignorant drive-by from LK and the MMTers.

PeterP said...


" the guys up the hill with the cut trees would likely be enjoined from allowing mud to slide down the hill into someone else's river"

Yes, they will be, by the representatives of the community - the government.

Bob Roddis said...

The Rothbardian difference that you guys refuse to run through your brains is that the "government" would result from VOLUNTARY associations and that there would be no exceptions (such as "it's good for society" and "jobs") for pollution.

I'll say it for the 17,000th time. You guys do not understand the non-aggression principle and you do not understand economic calculation. So keep on mocking things you refuse to comprehend. It's amusing. Mildly.

Tom Hickey said...

Bob, what don't you understand about the preamble, "We the people....."?

As I have said about calculation and which you never answer is that macro is based on economic complexity, which includes emergence. Just because it is impossible to anticipate the outcome of water (H2O) from knowledge of hydrogen (H) and oxygen (O) so too, no amount of study of micro will get you to macro because of the difference that relationships in a whole makes. You need to get up on your math and systems theory. You are back in the 19th century, as paul has been trying to tell you.

Lord Keynes said...

"You guys do not understand the non-aggression principle and you do not understand economic calculation."

So says someone who is quite clearly unaware that the "economic calculation" (read: free market clearing equilibrium prices) he keeps talking about is just mainstream general equilibrium (GE) neoclassical economics.

It is not even an invention or unique trait of the Austrian school. GE was invented by Walras and Pareto. Every mainstream economist understands/ Hell, even New Keynesians think markets would converge to full employment equilibrium if not for sticky wages and prices.

Bob Roddis said...

"Economic calculation" is NOT the same concept as "free market clearing equilibrium prices". Prices distorted by nefarious Keynesian schemes might "clear the market" but would still impair economic calculation.

Anonymous said...

What Bob Roddis etc. prozelytes,have done,is simply to snatch a whole tradition of thinkers (or more correct a whole countries) name and use it for purposes they never could resisted since they passed away almost a century ago.I wonder what people in Austria think about to be connected with extremists like Rothbard and Ron Paul all the time??

Bob Roddis said...

I wonder what people in Austria think about to be connected with extremists like Rothbard and Ron Paul all the time??

OMG. I'm sure the real Austrians are appalled to be associated with great and decent men of peace who preached and preach constantly against war and violent aggression against even the most helpless people and against the police state. How terrible.

But Hitler was a true Austrian national and he was pretty tough, so maybe they can take it.

Lord Keynes said...

"Bob Roddis said...

"Economic calculation" is NOT the same concept as "free market clearing equilibrium prices"."


The passage of Hayek you endlessly parrot proves exactly so:

"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. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.” (Hayek, Friedrich A. von. 1975. A Discussion with Friedrich A Von Hayek. American Enterprise Institute, Washington. pp. 6–7).

This exactly Walrasian neoclassical GE theory.

So now we have established that you are
(1) an utter ignoramus;
(2) seriously deluded beyond words; or just
(3) a liar.

Which one is it?

Bob Roddis said...

"Equilibrium" prices allow for economic calculation. The point is that Keynesian policies preclude the formation of "equilibrium" prices and thereby distort economic calculation. Proper "economic calculation" requires "free market clearing equilibrium prices" but they are distinct concepts. You've made career out of misunderstanding and misrepresenting the concept of economic calculation and how it is central to the Austrian critique of the distortions caused by Keynesian policies.

Septeus7 said...

Quote from Mystic Bob Roddis: "I don't have the energy to go into detail, but in an "anarcho" world, the guys up the hill with the cut trees would likely be enjoined from allowing mud to slide down the hill into someone else's river."

How would they be enjoined? By magic? You do even know what the word "enjoined" means?

Bob doesn't what economic calculation is or why then entire argument of the inability to properly calculate effects from individuals (i.e. indeterminate particle motion) has been refuted since Gauss. He simply recites it as a mantra against nearly 200 years of physical science that have proven that Hayek and Mises where know nothing idiots.

Mises was a special idiot who thought that commercial popular music was of same quality as J.S. Bach.

His brainless citation of the phase "voluntary" as if that was even a meaningful moral or economic factor to anything.

In the Satanist Murray Rothbard's, world no crimes of omission exist so infanticide is moral as is genocide of those without ability to pull themselves up by their bootstraps.

Rob Boddis said...

Bob Roddis speaks more nonsense unto the masses.

Rob Boddis said...

Keep on mocking things you refuse to comprehend, Bob Roddis. It's amusing. Mildly.

paul meli said...

"economic calculation" requires "free market clearing equilibrium prices"

This seems self-refuting to me.

Free market clearing equilibrium prices (as in perfect) are not possible in the real world due to frictions, which are impossible to eliminate completely.

In addition, a free market can't exist in a marketplace unless there is no political or other induced interference. Good luck with that.

Tom Hickey said...

Transaction cost is economic friction. So is transitional voluntary unemployment. Mainstream economics already admits friction, so how equilibrium at full employment as "natural" equilibrium?

Oh, and what about Keynes refutation of Say's law due to net saving or net borrowing, i.e., not all income is used for consumption and investment, or more is borrowed than earned, so that S - I ≠ 0. In cases that S ≠ I, Net saving/borrowing are frictions wrt equilibrium at full employment.

JK said...

Has anyone done a comprehensive rebuttal of Economic Calcualtion? It seems like Roddies is thouroghly unconvinced with counter arguments here. I wonder if anyone is tackled this issue in detail? If so, anybody got link? If not, anybody gonna give it a shot?

I simply do not understand what the big deal is about government internvention distorting prices, and therefore "Economic Calculation". All sorts of things, both man-induced and as the result of natural events, cause price distortions.

So what? People respond accordingly.

If one wants to make the argument that "it is an inefficient allocation of resources" …give me a break. The for-profit system is full of inefficiency.

What about Planned Obsolescence? this characteristic of capitalism and the 'for-profit' system is a very inefficent use of raw materials.

What about that every human being the world doesn't have access to a basic level of healthcare, food, and water? SORRY!… too many of us have economically calculated that is not of value because it's too expensive (not profitable).

Tom Hickey said...

JK, the economic calculation problem is about the superiority of market price discovery as a means to efficient distribution, as well as a signal to suppliers what and how much to produce, based on demand to a command system of allocating scarce resources characteristic of non-market socialists systems. The evidence is in and the case is closed other than in a couple of countries like NK and Cuba, and it looks like they are getting ready to throw in the towel. So no argument with that claim.

However, some would like to argue for the strong form of market capitalism in which there is minimal government interaction with the market other than national defense (not projection of power) and enforcing the rule of law, especially wrt domestic security and property rights, which the basis of a capitalistic market system based on private ownership.

The principle is correct economically as far as it goes but it doesn't take into account two important points, first, government necessarily affects the economy through both laws and economic policy. The basis of law in a liberal democracy is not economic but political, and the electorate decides what kind of a country they want to live in and leave for future generation and they pressure their representatives to legislate and execute appropriate policy. There are good ways to structure such policies economically and bad ways.

MMT assumes a couple of things in this regard based on hisstory. Politicians are concerned with growth, employment and price stability. These are macro outcomes wrt macro policy. There is good macro and bad macro. An economic policy that leads to a global financial crisis and a failure to reapir the damage is clearly bad macro and bad economic policy.

MMT claims to be good macro recommending good policy by resolving this trifecta both effectively, that is, meeting the desired goals of growth, full employment, and price stability and also efficiently through appropriate fiscal policy. The rationale offered is based on SFC macro modeling using sectoral balances, functional finance, the MMT JG, and Minsky's financial analysis, built on a foundation of a description of the monetary system and previous work in PKE based on Keynes, Kalecki, and others.

The other side says that government should be downsized to eliminate it as much as possible to let market forces do their magic. From the point of view of MMT that is magical thinking.

JK said...

Tom, thanks for the perspective.

So you're saying that the idea of "economic calculation" is sound, but that it is naive to expect it alone to lead to desirable outcomes?

I suppose Bob would say, who are you to decide what is desirable? (you commie Totalitairan!)

To which you might respond, the process of democracy and elected representatives decide.

To which he might respond, that is far less efficient than the price system at allocating scare resources…

and so on.

Seems to me it comes back to public purpose. That is, there are desrable outcomes that we achieve using the public purse that otherwise would not occur in the world Bob is advocating, e.g. universal public education.

It begs the question: are democracy and capitalism fundamentally opposing forces? Would we be a much more socilaist country if our democracy thrived on an informed citizenry participating, instead of being manipuated by powerful interests and an ignorant populace? And likewise, in order for Bob's world to exist, is a mandate by an authoriatrian government probably necessary? Because otherwise, if the masses get to participate (democracy) and their well informed, they're likely to choose more socialistic policies.

Quite the conundrum.

Tom Hickey said...

JK, MMT economists are very specific about the calculation problem wrt to govt economic policy. The propensity to consume/save ratio in not determinable before the fact and it is difficult to determine after the fact. Investment is based on demand expectations which are uncertain, so that firms can be left with either insufficient inventory or unplanned excess inventory. Exports are dependent on changes in the world economy that too complex to predict. Moreover, the government fiscal balance is endogenous due to changes in tax revenue and automatic stabilization cyclically. So it is not possible to determine the appropriate size fiscal balance wert to changing nongovernment saving desire.

Therefore MMT recommends fiscal policy that adjusts automatically to cyclical changes.

MMT economists also don't think that monetary policy is effective or efficient and should be abandoned in favor of fiscal, with the interest rate set a zero and unlimited liquidity provided to solvent institutions via LLR. The cb function can be relegated to a computer instead of a small group of unelected bureaucrats setting interest rates, which is a command system.

paul meli said...

"Quite the conundrum"

Does it matter if Bob is convinced?

Anything I write in response to things Bob posts are for others to digest mainly. Bob's mind is impenetrable. Just speaking for myself here.

If Bob really knew what he was talking about he would be able to describe the system he's promoting in some detail at the root to the rest of us.

Instead he repeats the same tropes ad infinitum and expects us to figure out on our own what he can't explain himself.

How would he even know if we figured it out?

As far as capitalism being compatible with democracy, capitalism is designed to fail. As long as the resets are fair and equitable it is one way to do economics. We've just been taught that all of the other possibilities are evil.