The Post Keynesian view is that the theory underlying the natural rate of interest is flawed. See Philip Pilkington's September 2014 working paper, "Endogenous Money and the Natural Rate of Interest: The Reemergence of Liquidity Preference and Animal Spirits in the Post-Keynesian Theory of Capital Markets," the abstract of which follows:
Since the beginning of the fall of monetarism in the mid-1980s, mainstream macroeconomics has incorporated many of the principles of post-Keynesian endogenous money theory. This paper argues that the most important critical component of post-Keynesian monetary theory today is its rejection of the “natural rate of interest.” By examining the hidden assumptions of the loanable funds doctrine as it was modified in light of the idea of a natural rate of interest—specifically, its implicit reliance on an “efficient markets hypothesis” view of capital markets—this paper seeks to show that the mainstream view of capital markets is completely at odds with the world of fundamental uncertainty addressed by post-Keynesian economists, a world in which Keynesian liquidity preference and animal spirits rule the roost. This perspective also allows us to shed new light on the debate that has sprung up around the work of Hyman Minsky, calling into question to what extent he rejected the loanable funds view of financial markets. When Minsky’s theories are examined against the backdrop of the natural rate of interest version of the loanable funds theory, it quickly becomes clear that Minsky does not fall into the loanable funds camp.
Social Democracy For The 21St Century: A Post Keynesian Perspective
How did Wicksell, the early Austrians and Keynes define the Natural Rate of Interest?
Lord Keynes
How did Wicksell, the early Austrians and Keynes define the Natural Rate of Interest?
Lord Keynes
LK refuses to understand that Hayek uses the terms “natural rate” and “equilibrium rate” and “equilibrium price structure” to refer to three distinct concepts:
ReplyDelete1. that rate which would rule ‘if there were no money transactions and real capital were lent in natura’;
2. ‘that rate at which the demand for loan capital just equals the supply of savings’ [1 and 2 can be either “the natural rate” or “the equilibrium rate” pursuant to Wicksell’s DOUBLE MEANING]; and
3. [the] 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.
The Austrian Business Cycle Theory does not “depend” upon such a “natural rate” or “natural rates” or “equilibrium structure of prices” per se. These concepts reflect merely alternatives and are mental teaching tools used to differentiate these situations from real world situations where behavior is changed due to the introduction of fiduciary media and/or violent intervention upon otherwise voluntary transactions. Whether these “pure” alternatives are better than situations where there is violent intervention is an entirely different issue.
(1) Point (3), that Hayek thinks the "equilibrium structure of prices" is not quantitatively predicable beforehand is well understood by me, idiot:
ReplyDeletehttp://socialdemocracy21stcentury.blogspot.com/2014/02/hayek-on-market-clearing-prices-and.html
(2) "The Austrian Business Cycle Theory does not “depend” upon such a “natural rate” or “natural rates” or “equilibrium structure of prices” per se. "
False: ALL versions of the ABCT use and depend on the natural rate or is functional equivalent such as Mises' single originary rate on capital goods, as pointed out by Robert Murphy:
“In his brief remarks, Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 [1941]) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it. ...
Austrian expositions of their trade cycle theory never incorporated the points raised during the Sraffa-Hayek debate. Despite several editions, Mises’ magnum opus (1998 [1949]) continued to talk of ‘the’ originary rate of interest, corresponding to the uniform premium placed on present versus future goods. The other definitive Austrian treatise, Murray Rothbard’s (2004 [1962]) Man, Economy, and State, also treats the possibility of different commodity rates of interest as a disequilibrium phenomenon that would be eliminated through entrepreneurship. To my knowledge, the only Austrian to specifically elaborate on Hayekian cycle theory vis-à-vis Sraffa’s challenge is Ludwig Lachmann.”
(Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 11–12).
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In short, roddis is still an ignoramus, half-wit and idiot.
I stand by my analysis. Nothing LK has written here refutes my claim that these concepts are nothing but mental tool alternatives to the violent interventions of the real world. Commodities are never going to trade with each other on a society-wide basis without money. Even if they did, there would always be different risk factors associated with each transaction that could not be clearly identified.
ReplyDeleteThe point is to attempt to describe individual subjective preferences in voluntary exchange transactions that are not changed or impacted by money. If they are changed by the introduction of money, then we need to know that and try to compare it to an alternative where they are not. The concept of "equilibrium structure of prices" (which Hayek notes is not really an "equilibrium") incorporates all prices, including interest rates and is a perfectly workable concept for this purpose.
However, if one is going to attempt to guess at what the "natural rate" might be for purposes of "monetary policy", the entire process is preposterous.
Keynesianism uses a similar, but less refined tool (because Keynesianism is a hoax and a ruse). The alternative to "stimulus" is no stimulus or less stimulus than Keynesians claim to require which is 800x less specific and descriptive than "the equilibrium structure of prices".
Notice how Roddis the idiot can refute noting said above -- but merely changes the subject
ReplyDeleteHe says:
"The concept of "equilibrium structure of prices" (which Hayek notes is not really an "equilibrium") incorporates all prices, including interest rates and is a perfectly workable concept for this purpose.
However, if one is going to attempt to guess at what the "natural rate" might be for purposes of "monetary policy", the entire process is preposterous. "
So now the natural rate is an important, real concept in Austrian theory?
You've denied this for years, and this comment simply reveals how your rambling bulsh*t is utterly incoherent and confused -- and how you understand very little of Austrian theory.
And, no, despite what you say, Hayek's "equilibrium structure of prices" is a set of market clearing prices and wages -- your half-witted stupidity not withstanding.
Hayek's "equilibrium structure of prices" is a set of market clearing prices and wages
ReplyDeleteNot exactly, which means you are again wrong. It's the structure of prices that would exist after giving "the market free play". You like to jump steps in the argument in order to distort the argument.
It's a separate issue as to whether those prices would in general tend towards "market clearing" (more specifically, if giving "the market free play" would result in better attainment of "psychic profit" and accomplishment of plans than otherwise). Under such a scenario, that would tend to be the case as the result of unimpaired economic calculation and freedom to act upon such calculation.
"It's the structure of prices that would exist after giving "the market free play".
ReplyDeleteFor Hayek, giving "the market free play" would result in the tendency towards the "equilibrium structure of prices" (= a set of market clearing prices and wages), idiot.