David Graeber, “Debt: The First Five Thousand Years,” Eurozine.com, 2009-08-20.Robert Murphy has posted David Graeber’s responses to his critique of Graeber’s view on the origins of money here:
Robert Murphy, “David Graeber’s Response to My Article,” September 8, 2011.This is really fascinating stuff. I think there is much here that would confirm the chartalist or neochartalist theory of money.
Graeber states:
“The flaw in the barter theory of the origin of money is that barter presumes SPOT TRANSACTIONS. There is no reason whatsoever to presume that neighbors would limit themselves to spot transactions in dealing with one another. However, if one does not presume spot transactions, then the notorious problem of the “double coincidence of wants” does not occur. You end up with a system of broad, non-enumerated credits, and this is precisely what those who actually did research on communities that do not use money did find.Graeber refers here to the work of Caroline Humphrey, and her paper “Barter and Economic Disintegration” (Man 20.1 [1984] 48–72), which I have not as yet seen.
Here the evidence is simply in and you’d think an honest economist would acknowledge it. As Caroline Humphrey of Cambridge in the definitive anthropological work on barter put it, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” (By “barter economy” of course she means a community in which this is how everyday goods are normally distributed amongst neighbors.) Arguing that it might have been a brief period of history which we never happen to have noticed anywhere is a perfect example of special pleading.”
And Graeber does a wonderful job of exposing the sheer folly and absurdity of the pure aprioristic method in Austrian economics where empirical evidence is ignored:
”As for the supposed refutation of my example of the village where people loan things to one another, no, the commentator does not get my argument right at all. First of all, we are not dealing with a situation where people borrow things from one another and expect an equivalent of exactly the same value. I suppose the certain Austrian school theories of human nature assume that’s what neighbors in a moneyless economy would do with one another, but again, this just shows a flaw in those theories of human nature, because when tested against the empirical evidence, this is not what one finds. What one finds are a variety of mechanisms of distribution, some open-ended sharing, some relatively centralized allocation (the actual Iroquoian societies that people like Jevons used as examples mainly had women’s councils allocate things and didn’t swap directly between households at all), and some direct exchange, particular[ly] with people in that vague middle ground between neighbors and strangers – but that exchange was based not on exact value equivalence – a concept that presumes the prior existence of money in the first place, and is therefore completely illogical to attribute to people unfamiliar with the use of money to buy and sell things – but a broad sense of owing someone a favor of a roughly equivalent sort. This need not be a material object at all, it could be help, or ritual sponsorship, or maybe your son is in love with your neighbor’s daughter, but let’s leave that aside for a moment. Insofar as it is goods, it would generate a system of vague ballpark equivalents. And this is indeed what one finds where there is extensive “gift exchange”: a rank system, whereby certain types of goods are seen as roughly equivalent to others, but not a proportional (i.e., monetary) system where you can say how many of this type of rank B objects is equivalent to one of these rank A objects. The question is what would be the circumstances that would generate a system where one can measure such precise equivalents. Here, again, ethnography provides endless examples of what actually does happen and it’s nothing like the economists predict.”The arm-chair Misesian praxeologists have nothing much of any importance to say about the real world, unless they engage with empirical evidence in a serious way.
LINKS
“What is Debt? – An Interview with Economic Anthropologist David Graeber,” August 26, 2011.
The original interview with Graeber that sparked the debate.
Robert Murphy, “Murphy Replies to David Graeber on Menger and Money,” Mises.org, September 8, 2011.
BIBLIOGRAPHY
Graeber, David, 2009. “Debt: The First Five Thousand Years,” Eurozine.com, 2009-08-20.
Graeber, David. 2011 Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.
Humphrey, C. 1984. “Barter and Economic Disintegration,” MAN 20.1: 48–72.
(reprinted in S. Gudeman (ed.). 1998. Economic Anthropology. The International Library of Critical Writings in Economics, Edward Elgar, Cheltenham UK).
If anything, historical evidence showing the existence of no barter economies would strengthen Austrian claims, particularly about economic calculation under socialism. If a well developed economy could allocate scarce resources without money (since under barter there is no room for calculation of profits/losses and a well developed structure of production), then this would prove particularly troublesome for Austrians, relating to their strictures about calculation in market economies. All the Regression Theorem needs is that some good, which some individual valued (eating, looking nice, making goods with, etc), also "grew" a value to be exchanged solely for other goods. People started to trade for that good not because they directly wanted it, but because they could exchange it for something else. The Regression Theorem doesn't imply an advanced barter economy that existed for years on end with suddenly money appearing and "injecting" itself in exchanges, but that barter existed primitively. A requisite for an actual economy beyond small groups of people is money, barter can only occur in the most primitive societies; this is needed for Austrian claims about economic calculation to be true. Without money you cannot engage in monetary calculation, and without monetary calculation you cannot engage in economic calculation. Without money economies cannot develop.
ReplyDeletePatch
Patch,
ReplyDeleteMaybe you can help me with this. The Austrian school is based on praxeology, which is supposedly a priori true: by definition nothing can strengthen its claims. So either what you said is self-contradictory, or you believe that some aspect of Austrianism is falsifiable. The question is then, what empirically testable claims could weaken Austrianism as a theory? If there aren't any, it's intellectually vacuous. Looking forward to your response.
Incidentally, many of these comments have reminded me of Einstein's quote - "As far as the laws of mathematics refer to reality they are not certain, and as far as they are certain they do not refer to reality."
Humphrey, C. 1984. “Barter and Economic Disintegration,” MAN 20.1: 48–72.
ReplyDelete"As far as the laws of mathematics refer to reality they are not certain, and as far as they are certain they do not refer to reality."
ReplyDeleteSomething similar has been said before as a criticism of Mises:
"[sc. Mises] confounds the analytical character of propositions with the logical character of the relationships between propositions in a deduction. But the fact that particular propositions are deducible from particular sets of premises does not render them analytic. For instance, in physics propositions from geometry get an empirical interpretation, and, interpreted in this way, they are synthetic. But propositions which are the result of the ‘logical unfolding’ of certain concepts contain no information. They are analytic not because they are derived, but because they follow from definitions which do not carry information themselves. When Mises tells us that the concept of money already implies all theorems of the theory of money, the alleged certainty of the basis of this derivation does not help him to establish a nonvacuous economic theory. The theory of money as he envisages it here would be without informational content and could not be used to explain anything.” (Albert, H. 1999. Between Social Science, Religion and Politics: Essays in Critical Rationalism, Rodopi, Amsterdam. pp. 131–132).
"Maybe you can help me with this. The Austrian school is based on praxeology, which is supposedly a priori true: by definition nothing can strengthen its claims. So either what you said is self-contradictory, or you believe that some aspect of Austrianism is falsifiable. The question is then, what empirically testable claims could weaken Austrianism as a theory? If there aren't any, it's intellectually vacuous. Looking forward to your response."
ReplyDeleteYou are correct, according to Austrian logic, nothing in the empirical world can prove or disprove the Austrian theorems. I didn't mean to suggest that the Regression Theorem/Austrian theory of economic calculation is right because of my interpretation of the evidence concerning barter economies. Thats why I wrote, "If anything", implying that instead of no barter economies being used as evidence to disprove Austrian economics, no barter economies ironically can actually be shown as an example of Austrian theories "in action".
Austrian economics can show particular theories in the real world by pointing to empirical evidence. But this is not economics proper, but rather the job of the economic historian, whose job is to pinpoint, isolate, and analyze the particular theories behind a real world event. But it is important to know that these examples also do not prove the “validity” of the theorems, they can only show a theory in action and attempt to explain real world phenomenon. I see where you are coming from, and apologize for my slight ambiguity behind the first sentence.
As for your second question, concerning the typical empirical economic data used in other economic theories, I would respond with a no. Austrian economics is basically the "logical implications of human action", and strictly speaking, all of its "laws" and "theorems" are based off the irrefutable law of human action, i.e, humans have a conscious, can make decisions, and use their free world to engage in the physical world. Concerning this, the only empirical data that could make me reconsider the implications of Austrian economics if science were to somehow show that humans do not act and instead are robotic machines that are automatically driven and express no mind of their own. But humans cannot even conceive of such a world without consciousness, because we would have to use our consciousness to conceive of a world without a consciousness, and it would make no sense. Humans are unable to comprehend a world without human action; we lack the creative capacity. So I would hardly consider deductive economics “vacuous”, as you or Lord Keynes (below) describes it, because it starts off with a real world proposition that cannot be denied. Since it starts off with this undeniable real world proposition, its theorems are indeed synthetic and do contain new information.
ReplyDeleteAside from this fact of human action, there are empirical facts also used in the theory. But these empirical facts are moreso basic knowledge about our physical surroundings that all humans would find as self evident. These are 1)Leisure as a consumer’s good 2)The existence of a variety of natural resources (planet earth) and a variety of humans (not all humans are clones) 3)Labor is scarcer than Land 4)An Empirical world with two or more people, indirect exchange, a developed economy, etc and 5)Humans engage in monetary profit maximization. All of these (1-4) are chosen solely because they apply to this world right now. 5 may seem controversial, but it is infact only an extensive of the law that humans always try to engage in psychic maximization (deduced from the action axiom), and only used to permit the development of monetary economics. Using this particular “assumption” allows all economic theorems and explanations of market phenomenon to be explained, but always keeping in mind the ceteris paribus assumption of excluding psychic factors. It is useful because Austrian economics holds that humans do strive for monetary gain much of the time during human action. These are all of the economic “facts” or “assumptions” used in developing Austrian economics. None of these are absolutely fundamental to the logical edifice of economics proper, laws could be deduced using other empirical circumstances (a world where humans don’t value leisure), but there is no real point because most, if not all, humans on this earth value leisure.
"So I would hardly consider deductive economics “vacuous”, as you or Lord Keynes (below) describes it, because it starts off with a real world proposition that cannot be denied.
ReplyDeleteThat's not why some inferences of praxeology are non-vacuous.
Since it starts off with this undeniable real world proposition,...
From which you can't deduce anything of significance without other premises - synthetic propositions. Even the simplest type of deductive syllogism requires 2 premises - if one of premises isn't analytic, it will be synthetic.
its theorems are indeed synthetic and do contain new information."
By the time you move from your starting axioms to actual praxeological arguments/inferences about economic "laws" (say, free trade etc.), praxeology requires a vast set of synthetic propositions as premises - either hidden or present - in its deductive reasoning. It doesn't evade basic issues of epistemology to do with empiricism or evade fundamental empirical content.
I have dealt with this issue here before:
http://socialdemocracy21stcentury.blogspot.com/2011/08/prediction-and-economics.html
http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html
An example of where praxeology falls flat on its face is free trade:
ReplyDeletehttp://socialdemocracy21stcentury.blogspot.com/2011/01/mises-on-ricardian-law-of-association.html
As I said before, there are 5 empirical facts (which pertain to this real world) and one irrefutable axiom that are used to facilitate Austrian deductions. It seems that most of the criticisms listed by you and the authors you cite say Mises "conceded" to empirical facts (the 5 above) and other hidden assumptions.
ReplyDeleteDemand curves are always downward sloping (or downward jagging), due to the Law of Marginal Utility (which I'm sure your familiar with). There are no hidden propositions in this, all that is needed is humans rankings goods according to how they rank their ends, and that each additional good ranked will serve lower ends (and hence command a lower utility ranking) since the good ranked prior has to serve a higher end. The opposite occurs for the good being given up (money) Additional units of a good bought serve lower ranked ends, and hence will command a lower price. The quantity demanded always stays the same or increases as price decreases, given the same value scale. Once a value scale changes, the rankings of the particular goods changed and its a new demand curve. Apparent “exceptions” to the Law of Demand confuse what a “good” actually is. Ceteris paribus, if an increase in price causes an increase in the quantity demanded, then what is really happening is the actor is taking the price change as a proxy for quality (e.g Veblen good). Since the good (the satisfaction) has changed, the demand curve also changes.
Secondly, relating to your link citing the Law of Comparative Advantage, Mises' deduction is far simpler and relates to basic exchange between two people. People exchange goods because they value the good they give up less than the good they are receiving. In a voluntary society, if they didn't value the good they receive more, they would not do this. All of this comes from logically imagining a world with two actors exchanging goods and the implications of human action (when a human acts, ex ante he always values what he is trying to achieve more than what he gives up), and the Law of Marginal Utility stated above. Therefore, voluntary exchange is beneficial, for whatever reason the actors have e.g. to maximize the use of time, natural resources, or labor skill, or else humans would not logically do it. As such, exchange strictly implies specialization in the good the actor is giving up. If exchange (and hence specialization) was not productive, then humans would not engage in it.
Since it starts off with this undeniable real world proposition, its theorems are indeed synthetic and do contain new information.
ReplyDeleteThat is an unresolvable point of contention for me. I just can't in good conscience regard you a rational person when you believe it.
(I apologize if this is a repost)
ReplyDeleteAs I said before, there are 5 empirical facts (which pertain to this real world) and one irrefutable axiom that are used to facilitate Austrian deductions. It seems that most of the criticisms listed by you and the authors you cite say Mises "conceded" to empirical facts (the 5 above) and other hidden assumptions.
Demand curves are always downward sloping (or downward jagging), due to the Law of Marginal Utility (which I'm sure your familiar with). There are no hidden propositions in this, all that is needed is humans rankings goods according to how they rank their ends, and that each additional good ranked will serve lower ends (and hence command a lower utility ranking) since the good ranked prior has to serve a higher end. The opposite occurs for the good being given up (money) Additional units of a good bought serve lower ranked ends, and hence will command a lower price. The quantity demanded always stays the same or increases as price decreases, given the same value scale. Once a value scale changes, the rankings of the particular goods changed and its a new demand curve. Apparent “exceptions” to the Law of Demand confuse what a “good” actually is. Ceteris paribus, if an increase in price causes an increase in the quantity demanded, then what is really happening is the actor is taking the price change as a proxy for quality (e.g Veblen good). Since the good (the satisfaction) has changed, the demand curve also changes.
Secondly, relating to your link citing the Law of Comparative Advantage, Mises' deduction is far simpler and relates to basic exchange between two people. People exchange goods because they value the good they give up less than the good they are receiving. In a voluntary society, if they didn't value the good they receive more, they would not do this. All of this comes from logically imagining a world with two actors exchanging goods and the implications of human action (when a human acts, ex ante he always values what he is trying to achieve more than what he gives up), and the Law of Marginal Utility stated above. Therefore, voluntary exchange is beneficial, for whatever reason the actors have e.g. to maximize the use of time, natural resources, or labor skill, or else humans would not logically do it. As such, exchange strictly implies specialization in the good the actor is giving up. If exchange (and hence specialization) was not productive, then humans would not engage in it.
What's up with this "exact value equivalence" stuff? There's no such thing. We cannot measure each person's valuation of anything with certainty. We can only assume that each person apparently valued the thing received over the thing exchanged. There's no Austrian claim that these people who engaged in barter necessarily thought in terms of "exact value equivalence" and thus must have been thinking in terms of preexisting monetary equivalence. We seem here to have statist projection of objective values onto Austrians.
ReplyDeleteThe arm-chair Misesian praxeologists have nothing much of any importance to say about the real world, unless they engage with empirical evidence in a serious way.
ReplyDeleteThe statist refuses to engage the empirical evidence of the real world by refusing to acknowledge that the only thing we can take away from an exchange with any degree of certainty are its terms which, in our world, is the price actually paid for something.
[A]nd some direct exchange, particular[ly] with people in that vague middle ground between neighbors and strangers – but that exchange was based not on exact value equivalence – a concept that presumes the prior existence of money in the first place, and is therefore completely illogical to attribute to people unfamiliar with the use of money to buy and sell things – but a broad sense of owing someone a favor of a roughly equivalent sort. This need not be a material object at all, it could be help, or ritual sponsorship, or maybe your son is in love with your neighbor’s daughter, but let’s leave that aside for a moment. Insofar as it is goods, it would generate a system of vague ballpark equivalents. And this is indeed what one finds where there is extensive “gift exchange”: a rank system, whereby certain types of goods are seen as roughly equivalent to others, but not a proportional (i.e., monetary) system where you can say how many of this type of rank B objects is equivalent to one of these rank A objects.
ReplyDeleteThis is all Austrian style analysis, emphasizing informal systems of exchange, not the infantile and artificial Keynesian "mechanical spinning top needs traction" model of an imaginary “economy”.
The origins of the phrases "Thank You" or "Danke Schoen" will tell you much about how debt obligations were dealt with in ancient societies. This despite the fact the this phrase has now lost most of its original meaning -- becoming instead a platitude.
ReplyDeleteThe origins of "Thank You" go back to the Sanskrit roots. In the European languages, the word "Thank" or "Danke" has no antecedent meaningful predecessor. The only meaningful phonetic predecessor comes from the Sanskrit branch, where the Sanskrit phrase was "Dhanya Ho" which meant "May you be enriched" This was a direct acknowledgement of a debt relationship, acknowledging the gift, and an implicit promise of fulfilling that debt at a future time. This is much more in line with David Graeber's understanding of the development of a monetary system.
ReplyDelete"Demand curves are always downward sloping (or downward jagging), due to the Law of Marginal Utility (which I'm sure your familiar with). "
ReplyDeleteNo, they're not:
http://socialdemocracy21stcentury.blogspot.com/2011/07/steve-keen-on-neoclassical-economics.html
"Secondly, relating to your link citing the Law of Comparative Advantage, Mises' deduction is far simpler and relates to basic exchange between two people."
ReplyDeleteMises also takes over Ricardo's argument for free trade between countries - a flawed argument.
This is also a micro versus macro issue. E.g., just because saving might be good to the individual does not mean it is good at the macro level if vast numbers of people suddenly significantly increase the amount of money they save.
This is also a micro versus macro issue. E.g., just because saving might be good to the individual does not mean it is good at the macro level if vast numbers of people suddenly significantly increase the amount of money they save.
ReplyDeleteWhich, unless you live in a totalitarian nightmare state, is no one's business but your own.
"Which, unless you live in a totalitarian nightmare state, is no one's business but your own."
ReplyDeleteAnd the business of many people - the majority - in the community, as their jobs and livelihoods are destroyed in recession.
Such people can vote to have Keynesian policies to fix that macroeconomic problem.
"
ReplyDeleteNo, they're not:
http://socialdemocracy21stcentury.blogspot.com/2011/07/steve-keen-on-neoclassical-economics.html "
Again, in your article you post the same two quotes. No other "assumptions" are needed in the Austrian derivation of the demand curve that cannot be deduced from the action axiom with the analysis I provided above.
I watched the video concerning the part about downward sloping demand curves. First of all, although Neoclassical economics derives its demand curves using the income/substitution effects and consumer budget restraints (which I find equivalent to tedious mental gymnastics), it has literally nothing to do with Austrian economics' derivation of a demand curve. Austrian's analyses of “income and substitution effects” are not used for how a specific demand curve is derived, but rather the interrelations between prices. Austrians demand curves are always determined via marginal utility. Whatever the reason for the marginal utility ranking is up to the actor. For example, a decrease in the stock of a good on an inelastic demand curve raises the price and increases the total amount of money spent on that good. This means that the for the consumers who bought that particular good, their remaining income falls and ceteris paribus, their rankings of remaining money units rise (LMU). With this change in value scales, their relative rankings of all substitute goods (all other goods that compete for the consumer's money) fall, and therefore those demand curves fall. Unless their money demand has increased, the people who sell the good’s income increased, and their relative rankings of money units fall compared to goods they want, and those demand curves increase. A change in value scale means different demand curves.
As for your comment on the Law of Association and the Fallacy of Composition (saving is bad for everyone), I'm sure you know my opinion on that, and I'm very well sure I know your opinion on Austrian saving. Neither of us will change each others minds concerning that particular topic, so arguing over that will get us nowhere.
This interview with Graeber may also be of interest to readers: http://bit.ly/pwYPy1
ReplyDeleteIt would be helpful if this post had some context. Why would Graeber's view conflict with the Austrian view and how does this verify MMT? What is the Austrian view of the origin of money anyway? And what are the repercussions to the Austrian perspective, assuming Graeber is correct?
ReplyDelete