I have assembled a set of two lists of links and a bibliography below, as follows:
(1) my posts on the origin of money and the debate between David Graeber and Robert P. Murphy;
(2) some external links on the debate between David Graeber and Robert P. Murphy, and
(3) a bibliography on the origin of money.
First, however, I will give a quick summary of Graeber’s view on the origin of money in his recent book (Graeber 2011).Social Democracy for the 21st Century
My Posts on the Origin of Money
Lord Keynes
We've totally and completely smacked down LK again and again this week. And just like you MMTers, he still does not understand the concept of economic calculation. And Graeber's account of primitive moneyless credit transactions is pure Austrian catallactics and you're all too dumb to know it. So keep on promoting it.
ReplyDeletehttp://consultingbyrpm.com/blog/2012/11/krugman-explains-that-a-bogus-alien-invasion-would-end-recession-in-18-months.html#comments
http://consultingbyrpm.com/blog/2012/10/money-is-a-spontaneous-order-not-a-social-contrivance.html
http://consultingbyrpm.com/blog/2012/10/gold-money-apparently-existed-before-the-big-bang.html
"And just like you MMTers, he still does not understand the concept of economic calculation."
ReplyDeleteSo says the fellow who just had his *alleged* economic calculation problems listed by a Keynesian.
I'll ask you again.
Is this what you mean when you invoke alleged "economic calculation" problems in a Keynesian system:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) alleged price distortions caused by government spending, deficit spending, central bank fiat money creation, price controls, subsidies, income policies, and so on.
(3) Cantillon effects
(4) impediments to 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).
-----
If Roddis answers "yes", he has demonstrated his statement that nobody outside the Austrian cult understands their concepts of "economic calculation" is sheer nonsense.
If "no", well, then, obviously we need not worry about any of these things! They can't cause any economic calculation problems.
We can all sleep peacefully at night!
"And Graeber's account of primitive moneyless credit transactions is pure Austrian catallactics and you're all too dumb to know it."
ReplyDeleteAssume (for the sake of argument only) that your correct. But that would still not refute/address the anthropological critique of the Mengerian theory of money's origins
But it does suggest you should be awarded a prize for the trolling red herring argument.
Congratulations!
LK's question is purposefully convoluted. Economic calculation refers to prices providing information. Keynesian policies interfere with the creation of unadulterated prices. LK should already know that. Distorted prices caused by FRB and fiat money loans lead to the ABCT (factor 1). Price distortions caused by government spending, deficit spending, central bank fiat money creation, price controls, subsidies, income policies impair the pricing process. (factor 2) Cantillon effects are the result of new money entering society at different points in time and space. New money creation artificially distorts the pricing process thereby impairing economic calculation. (factor 3) All of these concepts are purposefully ignored by MMT because they render MMT preposterous.
ReplyDeleteHayek's quote does not concern "impediments to a price vector that will clear all markets". A market may very well clear during the boom stage with distorted prices. Because prices are distorted, investments have been made into lines of production that only appear profitable in the long term due to the new money and credit. Those investments will ultimately be exposed as unsustainable because they were not based upon a true pricing representing true supply and demand. In Hayek's quote, the "equilibrium structure" is merely the structure that would have obtained without the artificial injection of new money and credit. Since it never existed, it cannot be measured. Read the top of page 7 of the Hayek interview.
http://www.flickr.com/photos/bob_roddis/7534880182/in/set-72157630494776170
This isn't that complicated, you lying bastard.
Bob, in a closed system with a fixed money supply, perfect markets, perfect competition, and perfect knowledge, economic calculation would be undisturbed. That's neoclassical economics.
ReplyDeleteThat system has never existed and never will exist because it is an abstraction from reality. Human beings are social and political animals as much as economic. they function in terms of culture and institutions.
As human societies grow in complexity, increasing challenges call for a coordinated response and that coordination is called governing. Government is a natural outgrowth of social complexity. Due to inter group conflict, militaries are deemed essential, and due to intra-group conflict, laws and enforcement are also deemed essential. Markets must be government also, e.g., by standards and rules that prevent cheating.
Just one a very practical leve in law, the laws allowing limited liability corporations would have to be rescinded.The institutional structure of corporations leads to corporatism, unless laws are in place to prevent that. Various attempts have been made since the inception of the corporation, all unsuccessfully.
There is not purely free market, and there cannot be a purely free market in actuality given the level of human consciousness we see exhibited. It's not going to happen because it is "unnatural." It's not the way human beings are observed to function. Trying to impose a free market as an ideal is a impractical as trying to impose socialism. Just as socialism was hijacked by a political elite, so is a so-called free market subject to hijacking, as history goes to show.
(1) I take it, then, from this eloquent comment above, that your answer is "yes" to all questions.
ReplyDeleteYou have now demonstrated to us all that the "nobody-outside-the-Austrian-cult-understands-our- concepts-of-'economic-calculation'" meme is sheer nonsense.
(2) despite what you say the underlying idea in the Hayek quotation is certainly "a price vector that will clear all markets".
(3) All your "economic calculation" problems are either non-existent or grossly exaggerated:
http://socialdemocracy21stcentury.blogspot.com/2012/10/mises-on-rational-economic-planning.html
(a) the market has no tendency to some equilibrium structure of prices and wages.
The belief in a set of market clearing equilibrium prices is nothing but a Walrasian fiction.
Thus there is no "natural," equilibrium price structure from which prices can be "distorted" away from. This is why prices are not "distorted" in the sense in which you use that term.
All you can say is that prices are "changed" by the factors cited above, but it does not follow at all that economic calculations problems follow from such changes.
E.g., many corporations and business are in fact price setters/administrators: they set their prices according to production costs and then a profit markup, then leave them unchanged for significant periods of time, even when demand changes. These "changes" in prices do not mean that the market collapses: it still achieves investment, production and economic growth over long periods.
(2) it follows logically that government spending, deficit spending, central bank fiat money creation, price controls, subsidies, income policies etc, do not "distort" (in the sense in which you use that term) prices away from from something non-existent: the "distortions" in the sense in which you use that term are also simply imaginary as well.
(3) I have dealt with how Cantillon effects do not constitute an argument against state spending before:
http://socialdemocracy21stcentury.blogspot.com/2011/09/are-cantillon-effects-argument-against.html
(4) ABCT is a false and flawed theory:
http://socialdemocracy21stcentury.blogspot.com/2012/03/my-posts-on-austrian-business-cycle.html
http://socialdemocracy21stcentury.blogspot.com/2012/10/hayek-on-his-simplified-capital-theory.html
http://socialdemocracy21stcentury.blogspot.com/2012/01/hayeks-trade-cycle-theory-equilibrium.html
That disposes of your economic calculation problems.
All you can say is that prices are "changed" by the factors cited above, but it does not follow at all that economic calculations problems follow from such changes.
ReplyDeletePeople purchased what should have been $100,000 homes for $500,000 bid up by fiat funny money loans. There was no one at the end of the line to trade $500,000 worth of goods and services for those homes and when that became apparent, the prices collapsed. The pricing process was distorted and the structure of prices became completely dis-coordinated. Of course those artificial prices were "false prices" as Hayek calls them. It's so obvious, the only thing you totalitarians have left is denial.
Stated another way, economic calculation should alert everyone that a $100,000 home is really worth $100,000. Keynesian policy distorts that process making people think $100,000 homes are really worth $500,000 and they act accordingly to their and society's peril.
ReplyDelete"People purchased what should have been $100,000 homes for $500,000"
ReplyDeleteIndeed! So you agree with Keynes do you?
It called asset price inflation: a problem that Keynesians agree exists and is a problem, just as Keynes himself warned of the danger of asset bubbles:
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."
The solution is not abolishing FR banking or debt instruments but financial regulation.
Also, the house prices are "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble.
Tom Hickey:
ReplyDeleteConstant references to "complexity" does not justify your criticism against the argument that government intervention hampers economic calculation WITHIN the population of market actors, who utilize the information contained in market prices as means to calculate their actions.
There can be no government that can replace market driven prices with its own influenced prices that are superior in terms of what information market prices convey.
----------------
LK:
(1) You actually don't understand the concept of economic calculation, because the interpretations of the concept that you are making, contradict it.
(2) Hayek did not actually believe that real world markets would contain constant 100% employment.
(3) You have not shown how the affects to economic calculation that government introduces is "non-existent".
(3a) No Austrian holds that markets clear such that there is always 100% employment. The market process however does tend towards clearing, ultimately due to economic self-interest.
We can say more than merely "prices change". We can say that prices change via non-market means in Keynesianism, which hampers the ability of market actors to coordinate their actions with each other.
That firms set prices according to cost plus markup does not mean that they set permanent prices. But the state does make it more difficult for firms to change their prices. For example, in NY city, the government has made it illegal for sellers to raise prices during disasters. So there are shortages of such goods as gasoline and bread.
In a free market, self-interested sellers will not keep selling at excessive prices in the face of declining demand. You are using a weasel word "significant" in "significant period of time". You tend to use these weasel words in most of your posts.
(5) The Cantillon Effect is a component of the argument of how inflation redistributes wealth, contrary to the claim that it doesn't, and it is a component of ABCT, to the extent that inflation enters the economy in the loan market first.
The Cantillon Effect is in fact an argument against inflation, because the money we use is mandatory, because we have to pay taxes in dollars that are inflated.
A free market in money would not be subject to this, even if the supply increases and some people's bank accounts are increased first. Those who receive the new money last are not obligated to keep using that commodity as money.
(6) You haven't shown how ABCT is a false and flawed theory. You still do not understand economic calculation.
That disposes of your garbage post.
"Stated another way, economic calculation should alert everyone that a $100,000 home is really worth $100,000. Keynesian policy distorts that process making people think $100,000 homes are really worth $500,000"
ReplyDelete"Keynesian" policy does no such thing.
No Keynesian policy existed in 1880s Australia, and yet they had a huge real estate asset bubble too, at a time when they had a gold standard, no central bank and virtually no bank regulations.
An endogenous credit system and an appropriate number of speculators are sufficient to cause asset price inflation.
Keynesian macroeconomic policy, by contrast, warns of the destabilizing nature of asset bubbles, and advocates effective financial sector regulation to stop such bubbles.
Also, the house prices are "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble.
ReplyDeleteThe bubble is produced, induced and made possible by the artificial creation of new credit. Otherwise, there is no source for the continuous price increases across the board which do not, in fact, reflect the true state of demand for the purchased items that would obtain absent the artificial new credit.
LK:
ReplyDeleteIndeed! So you agree with Keynes do you?
It called asset price inflation: a problem that Keynesians agree exists and is a problem, just as Keynes himself warned of the danger of asset bubbles:
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."
Keynes did not pinpoint the cause of this "speculation". He lazily relegated it to "animal spirits", which means "I don't know".
The solution is not abolishing FR banking or debt instruments but financial regulation.
The solution is not regulation, but abolishing FR banking. Regulators cannot know the proper quantity of credit. 1945-1971 was a time when the central banking system was somewhat constrained by gold.
Fiat money system instability cannot be regulated away.
Also, the house prices are "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble.
Financed by credit expansion.
"Keynesian" policy does no such thing.
ReplyDeleteYes, it does. Keynesianism is pro central bank pro credit expansion.
No Keynesian policy existed in 1880s Australia, and yet they had a huge real estate asset bubble too, at a time when they had a gold standard, no central bank and virtually no bank regulations.
There was government intervention, there was regulations, and it was not a free market in money.
An endogenous credit system and an appropriate number of speculators are sufficient to cause asset price inflation.
I agree, the state does exacerbate credit and asset bubbles.
Keynesian macroeconomic policy, by contrast, warns of the destabilizing nature of asset bubbles, and advocates effective financial sector regulation to stop such bubbles.
Regulations cannot stop bubbles, because regulators do not know the proper supply of credit beyond the rate of real savings.
(3a) No Austrian holds that markets clear such that there is always 100% employment.
ReplyDelete"(2) Hayek did not actually believe that real world markets would contain constant 100% employment."
All red herrings. No such assertions were made or implied above.
"The Cantillon Effect is in fact an argument against inflation, because the money we use is mandatory, because we have to pay taxes in dollars that are inflated."
That just reduces to a moral objection to modern fiat money. If Cantillon effects were an argument against any policy causing inflation, all private sector activity causing inflation would also be ruled out.
"(6) You haven't shown how ABCT is a false and flawed theory. "
Yes, I have. Take just one example: in the classical Hayekian ABCT, Hayek made unrealistic assumptions about the capital structure (and even admitted this to Keynes), as George L. S. Shackle also pointed out:
“Hayek’s argument, viewing ‘capital goods’ as materials which only retain their physical identity through a process of fabrication into consumable form, overlooks the grip that durability has in constraining the business man’s choice of productive methods. The span of the nine-year business cycle, to which his theory was meant to apply, is not long enough for a wholesale discarding of existing equipment during the latter half of its upward phase, say two or three years.” (Shackle, George L. S. 1981. “F. A. Hayek, 1899– ,” in D. P. O’Brien and J. R. Presley (eds.), Pioneers of Modern Economics in Britain. Macmillan, London. p. 240).
http://socialdemocracy21stcentury.blogspot.com/2012/10/hayek-on-his-simplified-capital-theory.html
Mises has been explaining what causes bubbles and panics since 1912: Prices being distorted by artificial credit expansion. You Keynesians mindlessly reject that analysis with no counter analysis and blame "animal spirits" and Minsky Moments (aka "I don't know"). But actually, you really do know. You just don't want it to be true because it destroys your totalitarian schemes and dreams of running society.
ReplyDelete(3a) No Austrian holds that markets clear such that there is always 100% employment.
ReplyDelete"(2) Hayek did not actually believe that real world markets would contain constant 100% employment."
All red herrings. No such assertions were made or implied above.
Yes, they were. You keep invoking the mantra "Walrasian equilibrium" as if Hayek and other Austrians held it to be an empirically permanent feature of markets.
It is a mental tool, not an empirical claim.
"The Cantillon Effect is in fact an argument against inflation, because the money we use is mandatory, because we have to pay taxes in dollars that are inflated."
That just reduces to a moral objection to modern fiat money.
No, it starts and stays with the fact that inflation benefits the first receivers at the expense of later receivers, contrary to claims otherwise.
If Cantillon effects were an argument against any policy causing inflation, all private sector activity causing inflation would also be ruled out.
No, it wouldn't, because you would not be legally obligated to accept such commodities in exchanges.
"(6) You haven't shown how ABCT is a false and flawed theory. "
Yes, I have.
No, you haven't. Every single one of your claims have been debunked, countless times. Like this one:
Take just one example: in the classical Hayekian ABCT, Hayek made unrealistic assumptions about the capital structure (and even admitted this to Keynes), as George L. S. Shackle also pointed out:
“Hayek’s argument, viewing ‘capital goods’ as materials which only retain their physical identity through a process of fabrication into consumable form, overlooks the grip that durability has in constraining the business man’s choice of productive methods. The span of the nine-year business cycle, to which his theory was meant to apply, is not long enough for a wholesale discarding of existing equipment during the latter half of its upward phase, say two or three years.”
Not an argument against ABCT.
(1) The classical ABCT is Misesian, not Hayekian.
(2) Durability of capital goods is not required for ABCT to take effect. In fact, durability is another reason why it takes time for the market to readjust after a boom. Capital goods cannot be instantly converted and redeployed.
You're proving ABCT in your critique.
As claimed prior, you have not shown that ABCT is flawed.
"Keynes did not pinpoint the cause of this "speculation". He lazily relegated it to "animal spirits", which means "I don't know".
ReplyDeleteHe did no such thing.
"Also, the house prices are "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble."
That was a typo. My sentence should read:
Also, the house prices are NOT "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble.
"No Keynesian policy existed in 1880s Australia, and yet they had a huge real estate asset bubble too, at a time when they had a gold standard, no central bank and virtually no bank regulations.
There was government intervention, there was regulations, and it was not a free market in money."
Red herring - which suggests your intellectual bankruptcy. I repeat: no Keynesian policy existed in 1880s Australia.
"The solution is not regulation, but abolishing FR banking.
So now you wish to abolish a free and voluntary market institution like FR banking?
Do you also wish to abolish all debt instruments?
It sounds like you *hate* the market and are becoming a *coercive, anti-market thug!*
“Hayek’s argument, viewing ‘capital goods’ as materials which only retain their physical identity through a process of fabrication into consumable form, overlooks the grip that durability has in constraining the business man’s choice of productive methods. The span of the nine-year business cycle, to which his theory was meant to apply, is not long enough for a wholesale discarding of existing equipment during the latter half of its upward phase, say two or three years.”
ReplyDeleteLK, when get desperate, you get really desperate. How the hell does anyone know the durability of a machine other than the guys who build them, buy the parts, and sample the market for the finished goods the machine can make? Who the hell cares in any broad general sense? Those people cannot get an accurate sense of the market for either the finished goods or the factors to produce the goods if the prices for those items have been distorted through artificial credit expansion. LK, give up.
"You keep invoking the mantra "Walrasian equilibrium" as if Hayek and other Austrians held it to be an empirically permanent feature of markets."
ReplyDeleteNothing but a straw man. I have made my position clear on what the Austrians believe about equilibrium, and it is not what you say it is:
http://socialdemocracy21stcentury.blogspot.com/2012/06/austrian-view-of-markets-tendency-to.html
Yes, Austrians do not think GE states are ever attained.
You have refuted any of the original points above.
"If Cantillon effects were an argument against any policy causing inflation, all private sector activity causing inflation would also be ruled out.
No, it wouldn't, because you would not be legally obligated to accept such commodities in exchanges."
Proves my point: this just reduces to a moral objection to modern fiat money.
"The classical ABCT is Misesian, not Hayekian."
No, it isn't. And the modern exponents like Roger Garrison are still using the basic Hayekian version with the non existent unique natural rate of interest.
Oh, and Hayek admitted to Keynes that his capital theory assumptions in Prices and Production were too oversimplified for the real world:
"From F. A. HAYEK, 7 January 1932
Dear Keynes,
....
The problem becomes, of course, a little more complicated if one combines, as one has to do to come nearer to reality, the two factors determining the existence of capital. The simplest way out seems to me to be to reduce both factors, ‘duration of the process’ in the narrower sense and the duration of the instruments, to the concept of the average length of the production process in a wider sense as the common denominator. I am conscious that I have treated the durability factor lightly too in Prices and Production, but I did so because I hoped to make it less difficult and because I assumed a greater familiarity with Bohm-Bawerk’s concepts of the average length of production than I ought obviously have done.
http://socialdemocracy21stcentury.blogspot.com/2012/10/hayek-on-his-simplified-capital-theory.html
LK:
ReplyDeleteKeynes did not pinpoint the cause of this "speculation". He lazily relegated it to "animal spirits", which means "I don't know".
He did no such thing.
Yes, he did.
"Also, the house prices are "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble."
That was a typo. My sentence should read:
Also, the house prices are NOT "distorted" away from some "equilibrium price": they are just inflated in a speculative bubble.
I knew it was a typo, which is why I didn't say "AHA!"
Prices inflated in a speculative bubble are what is meant by prices rising above the misnomer phrase "equilibrium" prices.
"There was government intervention, there was regulations, and it was not a free market in money."
Red herring
Hahahahahaha
No, it is quite relevant. You have insinuated that 19th century Australia was what a free market in money looks like, when it wasn't.
I repeat: no Keynesian policy existed in 1880s Australia.
False. There was credit expansion, which is advocated by Keynesians. There was government regulation of the financial sector, which is advocated by Keynesians.
"The solution is not regulation, but abolishing FR banking."
So now you wish to abolish a free and voluntary market institution like FR banking?
Oh so you want to regulate in a way that keeps credit expansion, and introduces ignorant regulations on top of it?
Do you also wish to abolish all debt instruments?
No, just as long as people are not forced into it via legal tender and monopolies on money.
It sounds like you *hate* the market and are becoming a *coercive, anti-market thug!*
FR banking is not a market activity that is based on property rights, in practise. Maybe in theory.
You can't chastise anyone for (allegedly) holding views that you yourself support. That would make you a hypocrite.
The so called "equilibrium structure" is basically what people would have exchanged without money or with money being as neutral as possible. It is easy to conduct economic calculation when you are trading 5 ducks for a cow next spring. You want a form of money such that it allows for a similar type of self evident economic calculation. An artificial increase in credit distorts that process. It's not that complicated to understand.
ReplyDeleteConstant references to "complexity" does not justify your criticism against the argument that government intervention hampers economic calculation WITHIN the population of market actors, who utilize the information contained in market prices as means to calculate their actions.
ReplyDeleteThere can be no government that can replace market driven prices with its own influenced prices that are superior in terms of what information market prices convey.
Have you got a proof, or is that your opinion? And don't cite some dead economist. Where's the math?
"Mises has been explaining what causes bubbles and panics since 1912: Prices being distorted by artificial credit expansion. "
ReplyDeleteThat FR credit allows and contributes to asset price inflation would be accepted by Keynesians.
But there is nothing "artificial" about credit expansion: it is nothing but a normal characteristic of an endogenous money system.
There might be uses for new credit that have beneficial effects (new capital goods investments) or that cause deleterious economic effects (destabilizing asset bubbles).
LK:
ReplyDelete"You keep invoking the mantra "Walrasian equilibrium" as if Hayek and other Austrians held it to be an empirically permanent feature of markets."
Nothing but a straw man. I have made my position clear on what the Austrians believe about equilibrium, and it is not what you say it is:
http://socialdemocracy21stcentury.blogspot.com/2012/06/austrian-view-of-markets-tendency-to.html
Yes, you do tend to contradict yourself.
You have refuted any of the original points above.
I think you accidentally another word.
"No, it wouldn't, because you would not be legally obligated to accept such commodities in exchanges."
Proves my point: this just reduces to a moral objection to modern fiat money.
No, it doesn't. It starts and stays with the fact that the Cantillon Effect inherent in fiat money redirects wealth from those who receive it last, to those who receive it first.
People are not obligated to accept a money commodity that is subject to Cantillon Effects. For example, Bitcoins are going to be capped at 21 million at some point in the near future.
"The classical ABCT is Misesian, not Hayekian."
No, it isn't.
Yes, it is. Mises was the one who taught Hayek ABCT.
And the modern exponents like Roger Garrison are still using the basic Hayekian version with the non existent unique natural rate of interest.
Your point?
Oh, and Hayek admitted to Keynes that his capital theory assumptions in Prices and Production were too oversimplified for the real world:
Not an argument against ABCT.
Keynes did not pinpoint the cause of this "speculation". He lazily relegated it to "animal spirits", which means "I don't know".
ReplyDeleteIt means "I don't know and no one else does either." Again, there is no math, which was what Keynes meant if you read his criticism of econometrics.
Was there an Austrian model that precisely predicted when the financial crisis would manifest. No? I didn't think so. There are so such models because social science don't support that.
LK:
ReplyDeleteThat FR credit allows and contributes to asset price inflation would be accepted by Keynesians.
Not good enough. The asset price inflation is specifically intended by many Keynesians. They hope it brings about what they call the "wealth effect."
Where Keynesians go wrong is asserting that it doesn't generate malinvestment and the boom bust cycle.
But there is nothing "artificial" about credit expansion: it is nothing but a normal characteristic of an endogenous money system.
No it isn't. The reason central banks were created was to bring about what the market limited the states and banks from doing.
There might be uses for new credit that have beneficial effects (new capital goods investments) or that cause deleterious economic effects (destabilizing asset bubbles).
Not all new capital is beneficial. Credit expansion generates capital consumption, despite the fact that investments are being made.
How can there be "math"? Human action is unpredictable. In a 1975 speech, Hayek stated:
ReplyDeleteThese discrepancies of demand and supply in different industries, discrepancies between the distribution of demand and the allocation of the factors of production, are in the last analysis due to some distortion in the price system that has directed resources to false uses. It can be corrected only by making sure, first, that prices achieve what, somewhat misleadingly, we call an equilibrium structure, and second, that labor is reallocated according to these new prices. ****
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. ****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
http://www.flickr.com/photos/bob_roddis/7534880182/in/set-72157630494776170
That's what he won the Nobel Prize for.
Query: Do you MMTers deny the socialist calculation problem? LK doesn't which makes his blanket denial of the same problem afflicting Keynesianism quite bizarre.
Tom Hickey:
ReplyDelete"Keynes did not pinpoint the cause of this "speculation". He lazily relegated it to "animal spirits", which means "I don't know"."
It means "I don't know and no one else does either."
It means I don't know, period. He cannot possibly claim nobody else knows. He's not God.
Again, there is no math, which was what Keynes meant if you read his criticism of econometrics.
Was there an Austrian model that precisely predicted when the financial crisis would manifest. No? I didn't think so. There are so such models because social science don't support that.
Austrian models don't have to predict WHEN bubbles bust, to know that credit expansion generates them and makes corrections inevitable.
I can know that the price of sugar next year will inevitably be a function of supply and demand next year, without being committed to knowing exactly what the supply and demands will be, and when.
Granted, it isn't saying much, but what it says is compelling.
"I repeat: no Keynesian policy existed in 1880s Australia.
ReplyDeleteFalse. There was credit expansion, which is advocated by Keynesians. There was government regulation of the financial sector, which is advocated by Keynesians. "
Keynesian policy = macroeconomic management of the economy via deficit spending to maintain full employment.
There was no such policy in 1880s Australia.
"So now you wish to abolish a free and voluntary market institution like FR banking?
Oh so you want to regulate in a way that keeps credit expansion, and introduces ignorant regulations on top of it?"
You evaded the question: you wish to abolish a free and voluntary market institution like FR banking?
FR banking is not a market activity that is based on property rights, in practise. Maybe in theory
You can't even keep your answers straight.
Over at Robert Murphy's blog, you said "no," you would not ban it.
If so, you're just stuck in the same quandary:
(1) with FRB and negotiable debt instruments legal under private law systems in an anarcho-capitalist society, why wouldn’t fiduciary media creation occur?;
(2) with fiduciary media creation, under the logic of ABCT, the anarcho-capitalist society will be hit by perpetual trade cycles;
(3) even under the logic of their own trade cycle theory, the anarcho-capitalist belief that the trade cycle will be eliminated in their system is nonsensical rubbish;
(4) the anarcho-capitalist system just reduces to a free banking system: it faces all the instability and unemployment that a free banking system would face, including asset bubbles, banking sector collapse, and debt deflationary depression.
"That's what he won the Nobel Prize for."
ReplyDeleteAnd Krugman won the Nobel memorial prize: does that make his theories true per se?
You have inexhaustible supply of fallacies.
That's what he won the Nobel Prize for.
ReplyDeleteAnd its pseudo-philosophy.
We can't do the math, but we know that if left free, markets will take care of it.
Gratuitous assumption spun out of the head, not a testable hypothesis.
"Where Keynesians go wrong is asserting that it doesn't generate malinvestment and the boom bust cycle."
ReplyDeleteThe very essence of Minsky's financial instability hypothesis is precisely the use of credit for destabilizing speculative purposes generating a boom/bust cycle.
You have no idea what your taking about, as always.
"There might be uses for new credit that have beneficial effects (new capital goods investments) or that cause deleterious economic effects (destabilizing asset bubbles).
ReplyDeleteNot all new capital is beneficial. "
So some new capital from new credit may be "beneficial"?
That simply proves my point.
LK:
ReplyDeleteKeynesian policy = macroeconomic management of the economy via deficit spending to maintain full employment.
Keynesian policy INCLUDES credit expansion, inflation, which took place in 19th century Australia.
Keynesianism isn't only budget deficits.
you wish to abolish a free and voluntary market institution like FR banking?
You evaded the argument. You want the state to regulate, i.e. violate consensual agreements, but you say it is wrong to want to reduce credit expansion by some law enforcement, state or private?
You can't even keep your answers straight.
Over at Robert Murphy's blog, you said "no," you would not ban it.
I don't visit that blog.
I didn't say I would ban it. If OTHERS want to engage in credit expansion of Wal-Mart money, let them. As long as I and all other individuals are not legally obligated to deal with those notes to pay taxes, then I have no basis to ban it.
(1) with FRB and negotiable debt instruments legal under private law systems in an anarcho-capitalist society, why wouldn’t fiduciary media creation occur?;
I am not saying it necessarily would not occur, just like I can't say torture will necessarily not occur.
What will definitely occur is that it will be reduced compared to now. It will be self-regulated, instead of state regulated.
(2) with fiduciary media creation, under the logic of ABCT, the anarcho-capitalist society will be hit by perpetual trade cycles;
Not if anarcho-capitalist laws ban it.
(3) even under the logic of their own trade cycle theory, the anarcho-capitalist belief that the trade cycle will be eliminated in their system is nonsensical rubbish;
Straw man.
(4) the anarcho-capitalist system just reduces to a free banking system: it faces all the instability and unemployment that a free banking system would face, including asset bubbles, banking sector collapse, and debt deflationary depression.
False. You cannot claim credit expansion will necessarily exist in anarchy.
" It starts and stays with the fact that the Cantillon Effect inherent in fiat money redirects wealth from those who receive it last, to those who receive it first. "
ReplyDeleteJust as with any new private sector fiduciary media.
That is not an argument for abolishing fiduciary media.
And it is nothing but an externality.
Practically all market activities generate externalities, whether beneficial or harmful.
LK:
ReplyDelete"Where Keynesians go wrong is asserting that it doesn't generate malinvestment and the boom bust cycle."
The very essence of Minsky's financial instability hypothesis is precisely the use of credit for destabilizing speculative purposes generating a boom/bust cycle.
No, Minsky asserts that credit qua credit does it. Austrians hold that it is credit expansion that does it.
You have no idea what your taking about, as always.
You don't know what YOU'RE talking about. And what do you mean "as always"? I just started showing you your errors.
"Not all new capital is beneficial."
So some new capital from new credit may be "beneficial"?
Of course, because credit REDIRECTS capital. Some of it MAY end up being sustainable, but it is overwhelmed by capital that is not, which is precisely why the boom bust cycle takes place with credit expansion.
That simply proves my point.
No, it doesn't, because your point is about credit expansion in general, not isolated instances where credit happened to have led to an individual investment that is later sustainable because of chance.
Credit expansion cannot be used to target only sustainable investments.
It would be like claiming because spraying a water hose at crowds MAY end up helping one or two people because they want a shower, or a drink, that it means spraying a water hose at crowds creates net benefits to the people who get wet.
Austrian models don't have to predict WHEN bubbles bust, to know that credit expansion generates them and makes corrections inevitable.
ReplyDeleteYes, and Minsky/MMT says the same thing, but significantly differently.
And we know when they will burst, too. That occurs when debt service outruns income to service it. Banks stop tighten standards, momentum slows, and savvy traders that aren't out yet run for the door at once. But no one can say during the run-up when that will occur with any degree of precision.
Then there were those that applied similar reasoning to govt debt and lost their shirts shorting tsys. "But hyperinflation is just around the corner."
"Over at Robert Murphy's blog, you said "no," you would not ban it.
ReplyDeleteI don't visit that blog."
My, that's truly brilliant, Major_Freedom.
So you post under multiple handles so you can change your views whenever it suits!! I always wondered why you use so many internet handles: Major_Freedom, Pete, David, Christof, Pete PetePete, George, etc, etc.
How convenient!
This underscores for us all how you are utterly intellectually bankrupt.
LK:
ReplyDelete" It starts and stays with the fact that the Cantillon Effect inherent in fiat money redirects wealth from those who receive it last, to those who receive it first. "
Just as with any new private sector fiduciary media.
No, not just as with any new private sector fiduciary media, because the Cantillon Effect is not mandatory in a free market money system.
That is not an argument for abolishing fiduciary media.
It is sufficient. There are other reasons.
And it is nothing but an externality.
Only if others are obligated to deal in them. If they are not, then the costs do not get "externalized".
Practically all market activities generate externalities, whether beneficial or harmful.
Private property rights is a way to eliminate negative externalities.
The state is the biggest negative externality generating institution in human history.
My, that's truly brilliant, Major_Freedom.
ReplyDeleteI am not Major_Freedom.
So you post under multiple handles so you can change your views whenever it suits!! I always wondered why you use so many internet handles: Major_Freedom, Pete, David, Christof, Pete PetePete, George, etc, etc.
Of course my views have changed. I am learning over time. Those whose views don't change are not learning.
I don't use those handled.
How convenient!
How false!
This underscores for us all how you are utterly intellectually bankrupt.
That doesn't follow. You just want to use that phrase because it gives you a psychological fix. But it doesn't last long, which is why you have said it more than once on this same blog post.
"No, not just as with any new private sector fiduciary media, because the Cantillon Effect is not mandatory in a free market money system."
ReplyDeleteLOL!!
How is not mandatory? Millions will not give their consent to the new fiduciary media created by other private agents, and fiduciary media will redirect wealth from those who receive it last, to those who receive it first.
Tom Hickey:
ReplyDeleteYes, and Minsky/MMT says the same thing, but significantly differently.
And we know when they will burst, too. That occurs when debt service outruns income to service it.
What does that mean? Are you saying when income falls? How can debt service suddenly exceed incomes of borrowers? When do incomes of borrowers fall? Why?
Banks stop tighten standards, momentum slows, and savvy traders that aren't out yet run for the door at once. But no one can say during the run-up when that will occur with any degree of precision.
This doesn't explain why debt becomes burdensome.
Then there were those that applied similar reasoning to govt debt and lost their shirts shorting tsys. "But hyperinflation is just around the corner."
I am invested in a portfolio that retains principle, but gains if REAL inflation picks up. I've done fairly well, but nothing spectacular.
No, Minsky asserts that credit qua credit does it. Austrians hold that it is credit expansion that does it.
ReplyDeleteNo the way I read Minsky. Financial instability results from the financial cycle, in which quantity increases and quality decreases. Credit "expansion" as as absolute number is meaningless. Analysis is necessary and it's ratios that count more than amounts.
Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.[5]
(source)
LK:
ReplyDelete"No, not just as with any new private sector fiduciary media, because the Cantillon Effect is not mandatory in a free market money system."
LOL!!
How is not mandatory?
LOL!!!!!!!!!!
Because you are not FORCED to accept the commodity that is being increased with you as a late receiver!
Millions will not give their consent to the new fiduciary media created by other private agents, and fiduciary media will redirect wealth from those who receive it last, to those who receive it first.
You are assuming everyone is already accepting it. Sure, if I agree to use gold, and I tend to be a late receiver, then it is my choice to be subject to the Cantillon Effect. I cannot use it to argue against the private money.
But I know that in a private money system, I am free to compete to PRODUCE THAT MONEY MYSELF.
I can't do that with fiat money. Only the state created banking cartel is allowed to do that. Thus, I am subjected the Cantillon Effect against my will, and it becomes important.
What does that mean? Are you saying when income falls? How can debt service suddenly exceed incomes of borrowers? When do incomes of borrowers fall? Why?
ReplyDeleteBecause lending institution start to get concerned about repayment and are unwilling to lend against collateral whose value they deem unreasonable based on ability to pay. This was a no brainer in hot spots like CA, NV, and FL. I was amazed that banks went along with the momo market as long as they did. It was clear they were going to be burned, and they were once they chickened out, momo slowed, and flippers bolted.
This doesn't explain why debt becomes burdensome.
ReplyDeletePeople start missing payment schedules. Then banks know something's up, and the game of musical chairs is over.
Tom Hickey:
ReplyDelete"No, Minsky asserts that credit qua credit does it. Austrians hold that it is credit expansion that does it."
No the way I read Minsky. Financial instability results from the financial cycle, in which quantity increases and quality decreases. Credit "expansion" as as absolute number is meaningless.
Not to Austrians it isn't. Austrians hold that credit expansion is that quantity of credit that exceeds that which is voluntarily saved. This is quantitative, because we can see how much money people set aside for lending, and how much money is actually lent by credit expanding banks.
Analysis is necessary and it's ratios that count more than amounts.
Of course. Note that credit expansion can be considered as a ratio. Total credit as the numerator, and total money saved to be lent as the denominator.
Note also that Austrians do not hold that money printed by the Fed, acquired by the banks, and then "saved" and lent is not considered as actual savings. There has to be an act of production, earning, and saving WITHIN the market process.
Tom Hickey:
ReplyDelete"What does that mean? Are you saying when income falls? How can debt service suddenly exceed incomes of borrowers? When do incomes of borrowers fall? Why?"
Because lending institution start to get concerned about repayment and are unwilling to lend against collateral whose value they deem unreasonable based on ability to pay.
Why would banks suddenly become "concerned" about ability to repay?
This was a no brainer in hot spots like CA, NV, and FL. I was amazed that banks went along with the momo market as long as they did. It was clear they were going to be burned, and they were once they chickened out, momo slowed, and flippers bolted.
No doubt. Greenspan and Bernanke Puts.
"This doesn't explain why debt becomes burdensome."
People start missing payment schedules.
Then banks know something's up, and the game of musical chairs is over.
Why do people start missing payments?
Not to Austrians it isn't. Austrians hold that credit expansion is that quantity of credit that exceeds that which is voluntarily saved. This is quantitative, because we can see how much money people set aside for lending, and how much money is actually lent by credit expanding banks.
ReplyDeleteWell, as you know, endogenous money folks don't look at it this way. Banks don't lend out savings.
Ask Chuck Prince. He admitted it was a game of musical chairs but everyone felt they had to play to stay competitive — until the music stopped. Dick Fuld got caught without a chair.
ReplyDeleteTom Hickey:
ReplyDeleteWell, as you know, endogenous money folks don't look at it this way. Banks don't lend out savings.
Yes, and that is precisely what Austrians hold to be a problem. If banks did lend only from savings, then credit would not generate a Minsky moment.
Ask Chuck Prince. He admitted it was a game of musical chairs but everyone felt they had to play to stay competitive — until the music stopped. Dick Fuld got caught without a chair.
Bingo. Even those who understand financial instability, have to play the game if they want to stay competitive, and that balancing act IMO demoralizes otherwise good producers and investors, and, I think, makes people more cynical and more willing to go for the quick investment buck, rather than long term investments that provide production and employment opportunities for many years.
Remember when people graduated school and then stayed at one employer their entire career? That is getting rarer and rarer, and I don't think it is ALL to do with innovation and globalization.
Well, we can argue this until doomsday, but in my view it is social and political as much as if not more than economic, that is, cultural and institutional. I don't see changing economic institutions as being either practical or effective. unless people decide to change them. Change is always taking place but it generally takes place slowly unless forced by crisis. Then the outcome is quite uncertain and depends on a lot of factors that are social and political.
ReplyDeleteGenerally the political dimension is most significant because it is where actual power lies. I mean "political" in a broad sense here, not just government and what we call "politics."
Cultural changes determine long term trends socially. The social trends is toward recognition of greater universality and increasing social liberalism. In my view, economic institutions are out of step with this trend and will fall in line over time. but with increasing complexification, it is unlikely it will be toward greater economic liberalism since more cooperation and coordination are required to meet growing challenges. As complexification increases, society has to commit more resources to organization to meet emergent opportunities and challenges. So the bias is toward greater social democracy and perhaps some form of syndicalism in which control of the means of production is more equally shared. What we have now is a plutocratic oligarchy and I don't think that this is a sustainable arrangement. It's a step between landed aristocracy and titled landownership of late feudalism and the next stage of economic organization.
Historically, economic institutions are determined by social and political ones rather than vice versa. I think that Marx got that backwards. But in eras where acquisitors rule, the economic influence is more to the fore than in other eras.
"Sure, if I agree to use gold, and I tend to be a late receiver, then it is my choice to be subject to the Cantillon Effect. I cannot use it to argue against the private money."
ReplyDeleteSure, if I agree to use fiat money, and I tend to be a late receiver, then it is my choice to be subject to the Cantillon Effect.
Your position is incoherent: it is all just dependent on the original moral objection to fiat money, etc.
My point is proven.
Graph of the Day: Frequency of Banking Crises
ReplyDeletehttp://nakedkeynesianism.blogspot.co.uk/2012/10/graph-of-day-frequency-of-banking-crises.html
"What does that mean? Are you saying when income falls? How can debt service suddenly exceed incomes of borrowers? When do incomes of borrowers fall? Why?
ReplyDelete"
Here's how:
https://www.evernote.com/shard/s82/sh/4305d816-3f46-4b6c-b429-3ee9ac7f51d2/725e44fda952b472bfba8b5238a01a60
This is the simple case of private debt funding gross profit only. With no net governmemt spending where else could the funds come from?
Liablities quickly out-run the growth of incomes.
"Ask Chuck Prince. He admitted it was a game of musical chairs but everyone felt they had to play to stay competitive"
ReplyDeleteIt's a game of musical chairs with only (1) chair for every (10) players.
It's a game of musical chairs with only (1) chair for every (10) players.
ReplyDeleteRight, govt step in with chairs for everybody but Fuld. Now they see that was a mistake that paralyzed the system and almost took the whole economy down.