Ludwig Lachmann: Bibliography and Resources

I generally enjoy reading the work of Ludwig M. Lachmann (1906–1990), even if I am in no sense an Austrian. However, if there is one Austrian that Post Keynesians should be familiar with, it is Lachmann.

That being so, I’ll start a bibliography for Lachmann’s work below. Some interesting trivia:

(1) Lachmann received a PhD in 1930 under Werner Sombart at the University of Berlin.

(2) Lachmann was at the London School of Economics (LSE) as research assistant to Hayek, and observed the epic debates between Keynes and Hayek. Lachmann was a friend of George L. S. Shackle.

(3) Lachmann went to South Africa in 1948.

(4) His radical subjectivism played a major role in the revival of Austrian economics in the 1970s, when in 1975 he became a Visiting Professor of Economics at New York University (for modern Austrians talking about Lachmann’s influence, see here and here).

Lachmann’s work came to emphasise subjective expectations and the volatility of asset markets (see Lachmann 1988) and their effects on investment – ideas he shared with Keynes (Garrison 1987). Lachmann analysed the emerging Post Keynesian school at Cambridge (including Sraffa’s work) in Lachmann (1973; see also Mongiovi 1994).


MY POSTS ON LACHMANN

“Audio Lecture by Ludwig M. Lachmann,” December 21, 2011.

“A Startling Admission from Ludwig Lachmann,” July 11, 2011.

“Ludwig Lachmann on Government Intervention,” July 9, 2011.

“Lachmann on Trade Cycle Models,” August 27, 2011.


BIOGRAPHICAL, REVIEWS AND FESTSCHRIFT WORKS ABOUT LACHMANN

Peter Lewin, “Biography of Ludwig Lachmann (1906–1990): Life and Work,” Mises.org.

Koppl, R. and G. Mongiovi, 1998. Subjectivism and Economic Analysis: Essays in Memory of Ludwig M. Lachmann, Routledge, London.

Kirzner, I. M. 1986. Subjectivism, Intelligibility, and Economic Understanding: Essays in Honor of the Eightieth Birthday of Ludwig M. Lachmann, New York University Press, New York.

Torr, C. S. W., Bohm, S. and K. H. M. Mittermaier. 1992. “L.M. Lachmann: A Bibliography (1930-1990),” South African Journal of Economics 60.1: 78–81.

Mittermaier, K. 1992. “Ludwig Lachmann (1906-1990): A Biographical Sketch,” South African Journal of Economics 60.1: 4–12.
N.B. the South African Journal of Economics, March 1992 (60.1) issue has a number of articles relating to Lachmann.

Garrison, R. W. 1987. “The Kaleidic World of Ludwig Lachmann” (review article of The Market as an Economic Process), Critical Review 1.3: 77–89.
http://www.auburn.edu/~garriro/r8lachmann.htm

Boettke, P. J. 1994. “Ludwig Lachmann and His Contributions to Economic Science,” Advances in Austrian Economics (vol. 1).
http://econfaculty.gmu.edu/pboettke/pubs/ludwig_lachmann.pdf

Mongiovi, G. 1994. “Capital, Expectations and Economic Equilibrium: Some Notes on Lachmann and the So-Called Cambridge School,” in P. Boettke and M. Rizzo (eds.), Advances in Austrian Economics (vol. 1), JAI Press, London. 257–277.

INTERVIEWS

Ludwig Lachmann, “An Interview with Ludwig Lachmann,” The Austrian Economics Newsletter, Volume 1, Number 3 (Fall 1978), Mises.org.

ARTICLES

Lachmann, L. M. 1935. “Commodity Stocks and Equilibrium,” Review of Economic Studies 3: 230–234.

Lachmann, L. M. 1937. “Uncertainty and Liquidity-Preference.” Economica n.s. 4.15: 295–308.

Lachmann, L. M. 1938. “Commodity Stocks in the Trade Cycle,” Economica 5: 435–454

Lachmann, L. M. 1938. “Investment and Costs of Production,” American Economic Review 28.3: 469–448.

Lachmann, L. M. 1939. “Expectations, Investment and Income by G. L. S. Shackle” (review), Economica n.s. 6.21: 103-105.

Lachmann, L. M. 1939. “On Crisis and Adjustment,” Review of Economics and Statistics 21: 62-68

Lachmann, L. M. 1940. “A Reconsideration of the Austrian Theory of Industrial Fluctuations,” Economica n.s. 7.26: 179–196.

Lachmann, L. M. 1941. “On the Measurement of Capital,” Economica 8.32: 361–377.

Lachmann, L. M. 1943. “The Role of Expectations in Economics as a Social Science,” Economica n.s. 10.37: 12–23.

Lachmann, L. M. 1944. “Finance Capitalism?,” Economica n.s. 11.42: 64–73.

Lachmann, L. M. 1945. “A Note on the Elasticity of Expectations,” Economica n.s. 12.48: 248–253.

Lachmann, L. M. 1947. “Complementarity and Substitution in the Theory of Capital,” Economica n.s. 14.54: 108–119.

Lachmann, L. M. 1948. “Investment Repercussions,” Quarterly Journal of Economics 62.5: 698–713.

Lachmann, L. M. 1949. “Investment Repercussions: Reply,” Quarterly Journal of Economics 63.3: 432–434.

Lachmann, L. M. 1951. “The Science of Human Action,” Economica n.s. 18.72: 412–427.

Lachmann, L. M. 1954. “Some Notes on Economic Thought, 1933–1953,” South African Journal of Economics 22: 22–31.

Lachmann, L. M. 1956. “The Velocity of Circulation as a Predictor,” South African Journal of Economics 24: 17–24.

Lachmann, L. M. 1958. “Mrs. Robinson on the Accumulation of Capital,” South African Journal of Economics 26:87–100.

Lachmann, L. M. 1959. “Professor Shackle on the Economic Significance of Time,” Metroeconomica 11: 64–73.

Lachmann, L. M. 1962. “Cost Inflation and Economic Institutions,” South African Journal of Economics 30: 177–89.

Lachmann, L. M. 1963. “Cultivated Growth and the Market Economy,” South African Journal of Economics 31: 165–174.

Lachmann, L. M. 1966. “Sir John Hicks on Capital and Growth,” South African Journal of Economics 34: 113–123.

Lachmann, L. M. 1967. “Causes and Consequences of the Inflation of Our Time,” South African Journal of Economics 35: 281–291.

Lachmann, L. M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54-62.

Lachmann, L. M. 1973. “Sir John Hicks as a Neo-Austrian,” South African Journal of Economics 41: 195–207.

Lachmann, L. M. 1977. “The Significance of the Austrian School of Economics in the History of Ideas,” in W. E. Grinder (ed.), Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy, Sheed Andrews and McMeel, Kansas City. 55–62.

Lachmann, L. M. 1988. “The Huttian Philosophy,” Managerial and Decision Economics (1986-1998): 13-15.

Lachmann, L. M. 1988. “Speculative Markets and Economic Complexity,” Economic Affairs 8.2: 7–10.

BOOKS

Lachmann, L. M. 1951. Economics as a Social Science. Inaugural Lecture, University of the Witwatersrand, Johannesburg.

Lachmann, L. M. 1970. The Legacy of Max Weber: Three Essays, Heinemann, London.

Lachmann, L. M. 1973. Macro-economic Thinking and the Market Economy: An Essay on the Neglect of the Micro-foundations and its Consequences, Institute of Economic Affairs, London.

Lachmann, L. M. 1977. Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy (ed. by W. E. Grinder), Sheed Andrews and McMeel, Kansas City.

Lachmann, L. M. 1978. Capital and its Structure, S. Andrews and McMeel, Kansas City.

Lachmann, L. M. 1986. The Market as an Economic Process, B. Blackwell, Oxford, UK and New York.

Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. by D. Lavoie), Routledge, London.

AUDIO




NOTE: The Ludwig von Mises Institute has given permission under the Creative Commons license that this audio presentation of Lachmann can be publicly reposted as long as credit is given to the Mises Institute and other guidelines are followed. More info at: http://creativecommons.org/licenses/by/3.0/us/

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Irish Fiscal Policy in 2009

The usual suspects have questioned whether Ireland really pursued austerity. Others seized on the fact that the Irish government increased government spending in 2009: wasn’t this a stimulus?

The answer is: not likely. First, a government deficit per se does not tell you whether fiscal policy is expansionary. Nor does simply looking at total government spending by itself. There are other factors to be considered:

(1) what was the effect of local and (if relevant) state government budgets?

(2) were taxes raised? If so, by how much?

Here are the figures for Ireland’s annual government spending (the Irish fiscal year is the calendar year):

Irish Government Spending
Year | Budget*
2007 | €50.9
2008 | €55.7
2009 | €60.0
2010 | €55.0
2011 | €51.9
* Billions of euros

Now it is unclear to me whether this is total government spending at all levels (e.g., thirty-four local governments exist in Ireland called county or city councils, as well as regional authorities, although I don’t think the latter have much fiscal effect).

What is clear from the data is that, from 2009 to 2011, there was been a 13.5% cut to total national government spending. That is very sharp fiscal contraction, with the tax increases that Ireland has imposed.

What of 2009? The answer follows:

(1) There was a €4.3 billion increase in spending in 2009, over 2008.

(2) Taxes were raised in 2009. This will have offset the €4.3 billion increase in spending. Ireland passed a supplementary budget in April 2009 (the first was announced in late 2008), which involved expenditure cuts of €1.5 billion and a rise in taxes of €1.8 billion. The total fiscal corrective measures in 2009 were €8 billion (see here). Although I have not found the exact figures for tax increases in this €8 billion sum (can anyone find it?), apparently the tax increases were designed to increase the government’s tax revenue by €6 billion in one year (see “Fine Gael’s Budget for Jobs: Explanatory Memo,” p. 1), with income tax, social security and consumption tax increases. It is obvious that the tax increases alone must have wiped out all or most of any expansionary effect from the €4.3 billion increase in spending in 2009, and it is likely that these tax hikes by themselves caused a contractionary fiscal effect.

(3) I have yet to find accurate figures, but if we have to factor in local government cuts, we probably have a highly contractionary budget even in 2009.

(4) I doubt whether the net effect of fiscal policy in 2009 was stimulative, but even if the net effect was mildly stimulative (like some of Hoover’s deficits), this would have been far too small to do anything about the €13.7 billion dollar collapse of GDP in 2009, as Ireland was hit hard by the worst effects of the global recession in that year.

Butos and Koppl on Varieties of Subjectivism: Keynes and Hayek

I have just finished reading this paper:

Butos, W. N. and R. Koppl, 1997. “The Varieties of Subjectivism: Keynes and Hayek on Expectations,” History of Political Economy 29.2: 327–359.

There appear to be other downloadable versions of it on the web.

This is an excellent paper, and is thought-provoking, enjoyable and intelligent. I will summarise the paper, with comments on some points.

Keynes and Hayek, Butos and Koppl note, held a subjectivist approach to economics and Keynes’s early work on the business cycle shared Wicksellian foundations with that of Hayek (Butos and Koppl 1997: 327). Keynes’s epistemology is seen as “a form of foundationalism or justificationalism” (Butos and Koppl 1997: 330–331, quoting O’Donnell 1989: 93), which is a “constructivist” or “Cartesian” rationalism (Butos and Koppl 1997: 331). Some remarks on Keynes’s view of ethics follow (Butos and Koppl 1997: 331–333). I know that Keynes was influenced by Moore’s Principia Ethica. Keynes said that he rejected the consequentialist portions of that treatise, though this statement is perhaps questionable when looking at Keynes’s practical moral reasoning (see Braithwaite 2005 [1975]: 243-244). My own view is that the virtue ethics that Keynes said he adhered to is merely a subspecies of teleological/consequentialist ethics: virtue ethics and utilitarianism all come under the same general category.

To return to Butos and Koppl, Hayek, they argue, repudiated rationalism for an “evolutionary epistemology” (Butos and Koppl 1997: 333) and Hayek came to identify himself with Popper’s Critical Rationalism (Butos and Koppl 1997: 334). Hayek held that human thought and even rational thought were “a patterned behavioral response to environmental stimuli” (Butos and Koppl 1997: 336; 334–336). On reading this, I immediately thought that Hayek’s view of human thought seems to verge on a crude form of behaviourism. Yet, according to Butos and Koppl, that is not so (Butos and Koppl 1997: 336).

Butos and Koppl make a crucial point about Hayek’s view of how we have reliable knowledge of the future:

“Hayek .. equated knowledge with practice. This matters for our argument because social practice is largely the product of blind evolution. From a Hayekian perspective, we shall argue, the reliability of our knowledge of the future, of our long-term expectations, does not depend so much on the rationality of our projections as on the properties of the economy’s selection processes. If Hayek’s view holds water, it undercuts the sort of general epistemic critique attempted by Keynes, Shackle, and Lachmann. Alternatively, if Keynes’s views on knowledge are substantially correct, then Hayek's faith in the efficacy of social evolution was misplaced.” (Butos and Koppl 1997: 337).

I think there is a great deal of merit in the remark highlighted in yellow, but not without qualification. Strangely, Butos and Koppl never develop it and overlook its importance. This is arguably the best insight of the whole paper, and I will devote attention to it in what follows.

Now Hayek’s view is that cultural evolution is group selection (Butos and Koppl 1997: 340). I would argue that human societies have certain social practices and institutions which have indeed developed to reduce uncertainty associated with the future, and economic uncertainty. Institutions influence modern capitalism (such as law courts that enforce contracts, buffer stocks, and even central banks) and have been developed precisely to deal with uncertainty. We can conceive them as external entities capable of reducing uncertainty by interventions designed to influence the state of the economic system. If I lend money, what happens if the debtor refused to pay? Law and order and contract law are basic human institutions without which commerce would be impossible. I would call in the law to demand repayment. The threat of force, or its actual use, by an entity with a monopoly on force is how it has been historically done (we call it government).

Other social conventions or institutions that reduce uncertainty (for example, forward/future markets for commodities, and even money) are so deeply ingrained that we think of them now as a fundamental part of capitalism. To the extent that such social practices and institutions exist, they do indeed help to reduce uncertainty about the future. For example, central banks developed in the 19th and 20th centuries precisely because business and financial interests wanted a system that would reduce the uncertainty caused by liquidity crises and financial panics in unregulated financial markets and banking systems.

But what happens when there remain economic phenomena that are still affected by fundamental uncertainty? The level of investment is just such a phenomenon. There is a massive hole here in Hayek’s view of the “properties of the economy’s selection processes.” Before macroeconomic interventions designed to stabilise the business cycle, there were no mechanisms to reliably end recessions and depressions. The crucial Keynesian insight is that the postulated neoclassical equilibrating mechanisms to restore full employment do not work, do not even exist, or are simply unreliable (e.g., wage and price flexibility, an alleged market-clearing equilibrium interest rate for the capital market, belief in the gross substitution axiom, etc.).

I also take issue with the idea that the “social practices” that reduce uncertainty (including institutions which underlie the market or that we now think of as a fundamental part of it) are merely the product of blind evolution. If “blind” is supposed to mean unconscious, undirected or unplanned, I think this is patently false. Human design is highly relevant. Law and order systems (such as contract law and its enforcement) have been designed and directed, and developed; they are not products of blind evolution.

Butos and Koppl discuss Keynes’s distinction between short-term and long-term expectation (Butos and Koppl 1997: 340). Events in the future relevant for long term expectation – and essentially investment decisions – are subject to fundamental uncertainty. A discussion of Keynes’s views on probability follows (Butos and Koppl 1997: 342–347). There is a statement early in Chapter 12 of Keynes’s The General Theory of Employment, Interest, and Money that supports this:

“It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain.¹ It is reasonable, therefore, to be guided to a considerable degree by the facts about which we feel somewhat confident, even though they may be less decisively relevant to the issue than other facts about which our knowledge is vague and scanty. For this reason the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change.

The state of long-term expectation, upon which our decisions are based, does not solely depend, therefore, on the most probable forecast we can make. It also depends on the confidence with which we make this forecast-on how highly we rate the likelihood of our best forecast turning out quite wrong. If we expect large changes but are very uncertain as to what precise form these changes will take, then our confidence will be weak.

The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention. …

[footnote]
1. By ‘very uncertain’ I do not mean the same thing as ‘very improbable’…” (Keynes 1936: 148).

The footnote can only refer to radical uncertainty, and it is obvious that this concept is crucial to Keynes’s theory of long-term expectation.

Butos and Koppl refer to “animal spirits” in Keynes’s thought (Butos and Koppl 1997: 349), but I think that concept, as Keynes understood it, is largely irrelevant to the theory of subjective expectations, and certainly in the modern Post Keynesian theory of subjective expectations, which can draw on modern psychology and behavioural literature.

From p. 349, Butos and Koppl try to identify Hayek’s theory of expectations. They note that Hayek’s famous 1937 paper “Economics and Knowledge” (1937: 33–54) does not, in the end, provide any such theory. Hayek’s view of knowledge is “that the evolutionary conditions of the economic environment influence the reliability of economic expectations” (Butos and Koppl 1997: 350–351). But here is precisely the problem: modern capitalist economies lacked an “evolutionary condition of the economic environment” to provide macroeconomic stability and stabilise the level of investment until the Keynesian revolution. In other words, if Hayek’s view is that economic expectations of the future influencing investment will be made reliable by some social convention or institution produced by social evolution, then they were unreliable exactly because until the 1930s there are no such effective social conventions or institutions. Keynesianism provided the solution.

Hayek argues that

“‘the process of selection that shaped customs and morality could take account of more factual circumstances than individuals could perceive, and in consequence tradition is in some respects superior to, or “wiser” than, human reason’ … . Hayek’s position suggests something similar for the market place. The homegrown traditions bred by market competition are shaped by more factual circumstances than market participants can perceive, and in consequence tried and true business practices may sometimes embody greater wisdom than rational calculation can achieve. In short, … Hayek advances a ‘rational theory of tradition.’” (Butos and Koppl 1997: 351),

This eventually leads to Kirzner’s view of the entrepreneur in capitalism, I have little doubt.

But I don’t see how this at all overcomes Keynes’s views on subjective expectation in the investment decision, and long term expectations in particular. In fact, one can conclude that Hayek’s view of expectations is a serious flaw in his whole thinking, and inferior to Keynes’s.

All in all, this is an excellent paper, raising many issues that deserve further treatment. I think, however, that Austrians would do better to engage directly with the modern Post Keynesian theory of subjective expectations, rather than simply look at Keynes.


BIBLIOGRAPHY

Braithwaite, R. B. 2005 [1975]. “Keynes as a Philosopher,” in M. Keynes (ed.), Essays on John Maynard Keynes, Cambridge University Press, Cambridge.

Hayek, F. A. 1937. “Economics and Knowledge,” Economica n.s. 4.13: 33–54.

Keynes, J. M. 1936. The General Theory of Employment, Interest, and Money, Macmillan, London.

O’Donnell, R. M. 1989. Keynes: Philosophy, Economics and Politics, St. Martin’s Press, New York.

Why isn't Ireland’s Unemployment Higher?

The answer is: a mass exodus from a country devastated by neoliberal austerity. Ireland’s unemployment rate is currently 14.5%, and it would be much worse without this outflow of the labour force.

Is this supposed to be what the West’s economies can look forward to under neoclassical economics? Depopulation and a generation lost to emigration.

Hayek and the Stock Market Crash of 1929: So Much for His Predictive Powers

In 1927, the Österreichische Konjunkturforschungsinstitut (Austrian Institute for Business Cycle Research) was opened and Friedrich August von Hayek was appointed as the first director (Hayek 1991: 125, n. 1; Steele 2001: 8–9; for the foundation of the Institute by Mises, see Hülsmann 2007: 575-576). Hayek wrote nearly all the monthly reports (“Monatsberichte” in German) of the institute for four years, and only obtained the assistance of Oskar Morgenstern as his collaborator in 1929 (Hayek 1991: 125, n. 1; Ebenstein 2003: 44; cf. Hülsmann 2007: 576: “Hayek himself wrote the first, very lengthy report [sc. of the “Monatsberichte”] ... Over the years, [sc. Hayek] ... relied more and more on contributions from others”).

You can find PDFs of the Monatsberichte here:

Monatsberichte, Historisches Volltextarchiv ab 1927.

Now it is said that in a report from November 1928 Hayek predicted a great economic crisis (“großen Wirtschaftskrise”) in America. Let’s turn to the relevant passage, with my translation of the German following:

“Harvard Economic Service meint, daß, wenn nicht unerwartete, jetzt nicht erkennbare Faktoren zu einer Liquidation am Effektenmarkt führen sollten, die ersten Monate 1929 eine neue Anspannung am Kapitalsmarkt bringen dürften. Die Kreditsituation sei als heikel und schwierig, nicht aber als gefährlich zu bezeichnen. Doch wenn die Krediterweiterung weiter fortgesetzt wird, wird man in einem Jahr einer noch viel schwierigeren und heikleren Situation gegenüberstehen. Die Position der Federal Reserve-Banken ist allerdings stark genug, um noch längere Zeit Kreditexpansion betreiben zu können und die Zeit der großen Wirtschaftskrise dürfte noch recht weit entfernt sein, wenn dies auch vorübergehende kleinere Liquidationsperioden nicht ausschließt.”

“[The] Harvard Economic Service thinks that factors not now apparent/recognizable, if not unexpected/unforeseen, should lead to a liquidation effect on the market, [and] the first months of 1929 may be expected to bring a new strain in the capital market. The credit situation is to be described as awkward and difficult, but not as dangerous. But, if the credit expansion is continued, we will face in a year an even more difficult and awkward situation. The position of the Federal Reserve banks, however, is strong enough to be able to conduct credit expansion for quite some time, and a time of great economic crisis is likely to be still quite far away, even if this does not exclude periods of temporary smaller liquidation.”
Monatsberichte des österreichischen Institutes für Konjunkturforschung, 2. Jahrgang, Nr. 11. (26 November, 1928). p. 174.

The first thing that sticks out like a sore thumb is the opening clause:

“Harvard Economic Service meint, daß, …” or “[the] Harvard Economic service thinks that … .”

Hayek is quoting from “The Harvard Economic Service,” a publication of the Harvard University Committee on Economic Research: this committee published a quarterly journal on economic statistics, and from 1922 began to provide business forecasting through a weekly newsletter with economic data and analysis.

Apparently, it was a forecast by the American Harvard Economic Service that Hayek is quoting in predicting that some problems would emerge on the US capital market in the first months of 1929. Indeed, Hayek himself on a trip to the US in 1923 had been impressed with empirical business cycle research at Columbia University, and this may have inspired the founding of the Austrian Institute for Business Cycle Research later in 1927 (Overtveldt 2007: 341; Hayek 1994: 6-8, 59; Ebenstein 2003: 43).

So are Hayek’s subsequent statements also derived from information he read in the Harvard Economic Service? If so, Hayek has no great predictive power here: he was relying on American research.

Here is the crucial statement:

“The position of the Federal Reserve banks, however, is strong enough for the credit expansion to be conducted for some time, and a time of great economic crisis is likely to be still quite far away, even if this does not exclude periods of temporary smaller liquidation.”

Was this Hayek’s own prediction? Until we look at the weekly (or perhaps quarterly) issues of the Harvard Economic Service, we can’t know. What is clear is that American forecasters were predicting some kind of crisis in 1929. Hayek picked up on that, and perhaps made this inference. Let’s assume that it was Hayek’s own prediction: in November, 1928 – about a year from the most devastating economic collapse seen in the US and the world – Hayek thought that a “great economic crisis is likely to be still quite far away” (“großen Wirtschaftskrise dürfte noch recht weit entfernt sein”). “Still quite far away” (“noch recht weit entfernt”) sounds like a number of years to me, not one year. This is yet another problem for the view that Hayek was some kind of prescient oracle.

Now Hayek is said to have predicted an economic crisis in the US in a February 1929 report (Steele 2001: 9; Huerta de Soto 2006: 429, n. 28 speaks of a 1929 prediction in the Monatsberichte, but gives no month). However, I cannot as yet find any such prediction. The report is here:

Monatsberichte des österreichischen Institutes für Konjunkturforschung, 3. Jahrgang, Nr. 2. (26 February 1929).

Let’s turn to the second relevant passage. This can be read in the 26 October 1929 issue of the Monatsberichte (my translation follows):

“Jedoch besteht derzeit kein Grund, einen plötzlichen Zusammenbruch der New Yorker Börse zu erwarten. Allerdings ist es nicht ausgeschlossen, daß nunmehr das Ende der geradezu phantastischen Kurssteigerungen gekommen ist und das Niveau langsam abbröckeln dürfte.

Die Kredit Möglichkeiten sind jedenfalls augenblicklich noch sehr große und es erscheint daher die Gewähr gegeben, daß eine ausgesprochen krisenhafte Zerstörung des jetzigen hohen Niveaus nicht befürchtet werden müßte. Zur Zeit werden europäische Gelder bereits in großen Beträgen abgezogen, so daß der Dollarkurs gedrückt ist.”

“However, at present there is no reason to expect a sudden crash of the New York stock exchange. However, it is not impossible that the end of the absolutely amazing price increases has arrived, and [that] the [price] level should slowly crumble. The credit possibilities/conditions are, at any rate, currently very great, and therefore it appears assured that an outright crisis-like destruction of the present high [sc. price] level should not be feared. At the moment, European funds are already being withdrawn in large amounts, so that the value of the [US] dollar is down.” Monatsberichte des österreichischen Institutes für Konjunkturforschung, 3. Jahrgang, Nr. 10 (26 October, 1929), p. 182.

There is a strong likelihood that Hayek wrote this, or possibly as a co-author with Oskar Morgenstern (it is clear from p. 186 of the issue that Hayek is listed as the editor: “Verantwortlicher Schriftleiter: Dr. Friedrich A. Hayek”).

So here a few days before the historic stock market crash of October 28, 1929 (Black Monday) and October 29 (Black Tuesday), a crash that continued until November 13, 1929, we have Hayek predicting

(1) no “sudden crash of the New York stock exchange”;
(2) the possibility of a slow fall in stock market prices, and
(3) an “outright crisis-like destruction of the present high [sc. price] level should not be feared.”

All utterly wrong.

All in all, I don’t see any great miracles of prediction here. There also remains the possibility that Hayek’s November 1928 prediction of a “great economic crisis … likely to be still quite far away” (“großen Wirtschaftskrise dürfte noch recht weit entfernt”) was something he read in the Harvard Economic Service, or that he inferred this from their own prediction of some kind of market liquidation in 1929.


BIBLIOGRAPHY

Ebenstein, A. O. 2003. Friedrich Hayek: A Biography, University of Chicago Press, Chicago and London.

Hayek, F. A. von. 1991. The Collected Works of F. A. Hayek. Volume 3. The Trend of Economic Thinking: Essays on Political Economists and Economic History (ed. W. W. Bartley and S. Kresge), Routledge, London.

Hayek, F. A. von. 1994. Hayek on Hayek: An Autobiographical Dialogue (eds. S. Kresge and L. Wenar), Routledge, London.

Huerta de Soto, J. 2006. Money, Bank Credit and Economic Cycles (trans. M. A. Stroup), Ludwig von Mises Institute, Auburn, Ala.

Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism, Ludwig von Mises Institute, Auburn, Ala.

Overtveldt, J. van. 2007. The Chicago School: How the University of Chicago Assembled the Thinkers who Revolutionized Economics and Business, Agate, Chicago.

Steele, G. R. 2001. Keynes and Hayek: The Money Economy, Routledge, London and New York.

Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT

Consider this passage from Hayek’s Prices and Production (2nd edn.; 1935):

“Put concisely, Wicksell’s theory is as follows: If it were not for monetary disturbances, the rate of interest would be determined so as to equalize the demand for and the supply of savings. This equilibrium rate, as I prefer to call it, he christens the natural rate of interest. In a money economy, the actual or money rate of interest (“Geldzins”) may differ from the equilibrium or natural rate, because the demand for and the supply of capital do not meet in their natural form but in the form of money, the quantity of which available for capital purposes may be arbitrarily changed by the banks.

Now, so long as the money rate of interest coincides with the equilibrium rate, the rate of interest remains “neutral” in its effects on the prices of goods, tending neither to raise nor to lower them. When the banks, however, lower the money rate of interest below the equilibrium rate, which they can do by lending more than has been entrusted to them, i.e., by adding to the circulation, this must tend to raise prices; …” (Hayek 2008 [1935]: 215).

This passage illustrates a fundamental reason why Sraffa’s critique of Hayek was so important. In Sraffa’s analysis of Hayek’s theory, we see that

(1) the relevant market for the “demand for and the supply of capital” is the market for capital goods. Depending on how one defines “saving” (see Pollin 2003: 304–308) and “investment,” the demand for capital that is met results in investment (if savings is defined simply as “income not spent,” savings can exceed investment when money or even goods are held without lending for capital goods investment).

(2) By the words

“because the demand for and the supply of capital do not meet in their natural form but in the form of money,”

Hayek is referring to the idea of loans being made in natura (in real commodities), as opposed to in money terms.

(3) A state where loans are made in in natura is a barter state (or, more correctly, a credit/debt transaction where real goods are lent out and repayed with interest with some other goods later). What would a rate of interest be when loans are made in goods? The rate of interest would be the rate on loans of a physical commodity or commodities (Sraffa 1932: 49–51). In a world of heterogeneous goods as factor inputs (including capital goods) which is out of equilibrium, there could be as many natural rates on each commodity considered as a factor input (or capital good) as there as such commodities (Barens and Caspari 1997: 288).

(4) Which one of these rates would in fact be the “natural rate”? There is no unique natural rate, but multiple rates. Any monetary rate could be both above and below a number of multiple natural rates, or, as Lachmann stated, “it is evidently possible for the money rate of interest to be lower than some [sc. multitude of commodity rates] but higher than others” (Lachmann 1994: 154). In short, one should agree with Robert P. Murphy, who concludes that “canonical ABCT does need to be updated, in light of a crippling objection raised early on by Piero Sraffa (1932a, 1932b) [my emphasis]” (see “Multiple Interest Rates and Austrian Business Cycle Theory,” p. 1).

(5) It therefore makes no sense to speak of a monetary rate of interest diverging from the unique Wicksellian natural rate of interest (or what Hayek calls the equilibrium rate), because there is no such rate outside of an imaginary equilibrium position.

(6) If some average of multiple natural rates were constructed, would this get Hayek out of his conundrum? No. As Sraffa argued,

“I pointed out that only under conditions of equilibrium would there be a single rate; and that when saving was in progress there would at any one moment be many ‘natural’ rates, possibly as many as there are commodities; so that it would be not merely difficult in practice, but altogether inconceivable, that the money rate should be equal to ‘the’ natural rate. And whilst Wicksell might fall back, for the criterion of his ‘money’ rate, upon an average of the ‘natural’ rates weighted in the same way as the index number of prices which he chose to stabilise, this way of escape was not open to Dr. Hayek, for he had emphatically repudiated the use of averages. Dr. Hayek now acknowledges the multiplicity of the ‘natural’ rates, but he has nothing more to say on this specific point than that they ‘all would be equilibrium rates.’ The only meaning (if it be a meaning) I can attach to this is that his maxim of policy now requires that the money rate should be equal to all these divergent natural rates.” (Sraffa 1932b: 251).

Lachmann also noted that Wicksell’s natural rate could be interpreted as an average of actual own-rates in a barter economy (Lachmann 1978: 76–77), and later tried to defend the natural rate idea.

For Lachmann’s attempts to salvage the notion of a natural rate, see Lachmann (1978: 75–77) and Lachmann (1986: 225–242). See Robert P. Murphy (2003) and Murphy’s paper “Multiple Interest Rates and Austrian Business Cycle Theory” for why Lachmann’s solution does not work.

BIBLIOGRAPHY

Barens, I. and V. Caspari, 1997. “Own-Rates of Interest and Their Relevance for the Existence of Underemployment Equilibrium Positions,” in G. C. Harcourt and P. A. Riach (eds.), A “Second Edition” of The General Theory (Vol. 1), Routledge, London. 283–303.

Hayek, F. A. von, 1932. “Money and Capital: A Reply,” Economic Journal 42 (June): 237–249.

Hayek, F. A. von, 2008. Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard, Ludwig von Mises Institute, Auburn, Ala.

Lachmann, L. M. 1978. Capital and its Structure, S. Andrews and McMeel, Kansas City. pp. 75–77.

Lachmann, L. M. 1986. “Austrian Economics under Fire: The Hayek-Sraffa Duel in Retrospect,” in W. Grassl and B. Smith (eds.), Austrian Economics: Historical and Philosophical Background, Croom Helm, London. 225–242. [reprinted in Lachmann 1994: 141–158.]

Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. by D. Lavoie), Routledge, London. 141–158.

Murphy, Robert P. 2003. Unanticipated Intertemporal Change in Theories of Interest, PhD dissert., Department of Economics, New York University.

Murphy, Robert P. “Multiple Interest Rates and Austrian Business Cycle Theory.”

Pollin, R. 2003. “Saving,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics, Edward Elgar, Cheltenham, UK and Northhampton, MA, USA. 304–308.

Sraffa, P. 1932a. “Dr. Hayek on Money and Capital,” Economic Journal 42: 42–53.

Sraffa, P. 1932b. “A Rejoinder,” Economic Journal 42 (June): 249–251.


UPDATED BIBLIOGRAPHY ON THE HAYEK–SRAFFA DEBATE

Barens, I. and V. Caspari, 1997. “Own-Rates of Interest and Their Relevance for the Existence of Underemployment Equilibrium Positions,” in G. C. Harcourt and P. A. Riach (eds.), A “Second Edition” of The General Theory (Vol. 1), Routledge, London. 283–303.

Bellofiore, R. 1998. “Between Wicksell and Hayek: Mises’ Theory of Money and Credit Revisited,” American Journal of Economics and Sociology 57.4: 531–578.

Burger, P. 2003. Sustainable Fiscal Policy and Economic Stability: Theory and Practice, Edward Elgar, Cheltenham, UK.

Caldwell, B. 2004. Hayek’s Challenge: An Intellectual Biography of F.A. Hayek, University of Chicago Press, Chicago and London.

Cottrell, A. 1993. “Hayek’s Early Cycle Theory Re-examined,” Cambridge Journal of Economics 18: 197–212.

Harcourt, G. C. and P. A. Riach. 1997. A “Second Edition” of The General Theory (Vol. 1), Routledge, London.

Hayek, F. A. von, 1931. Prices and Production, G. Routledge & Sons, Ltd, London.

Hayek, F. A. von, 1932. “Money and Capital: A Reply,” Economic Journal 42 (June): 237–249.

Hayek, F. A. von, 1935. Prices and Production (2nd edn), Routledge and Kegan Paul.

Hicks, J. R. and J. C. Gilbert. 1934. Review of Beiträge zur Geldtheorie by F. A. von Hayek, Economica n.s. 1.4: 479–486.

Kurz, H. D. 2000. “Hayek-Keynes-Sraffa Controversy Reconsidered,” in H. D. Kurz (ed.), Critical Essays on Piero Sraffa’s Legacy in Economics, Cambridge University Press, Cambridge. 257-302.

Kyun, K. 1988. Equilibrium Business Cycle Theory in Historical Perspective Cambridge University Press, Cambridge. p. 36ff.

Lachmann, L. M. 1978. Capital and its Structure, S. Andrews and McMeel, Kansas City. pp. 75–77.

Lachmann, L. M. 1986. “Austrian Economics under Fire: The Hayek-Sraffa Duel in Retrospect,” in W. Grassl and B. Smith (eds.), Austrian Economics: Historical and Philosophical Background, Croom Helm, London. 225–242. [reprinted in Lachmann 1994: 141–158.]

Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. by D. Lavoie), Routledge, London. 141–158.

Lawlor, M. S. and Horn, B. 1992. “Notes on the Hayek–Sraffa Exchange,” Review of Political Economy 4: 317–340.

Lawlor, M. S. 1994. “The Own-Rates Framework as an Interpretation of the General Theory: A Suggestion for Complicating the Keynesian Theory of Money,” in J. B. Davis (ed.), The State of Interpretation of Keynes, Kluwer Academic, Boston and London. 39–90.

Milgate, M. 1979. “On the Origin of the Notion of ‘Intertemporal Equilibrium,’” Economica n.s. 46.181: 1–10.

Murphy, Robert P. 2003. Unanticipated Intertemporal Change in Theories of Interest, PhD dissert., Department of Economics, New York University.

Murphy, Robert P. “Multiple Interest Rates and Austrian Business Cycle Theory.”

Myrdal, G. 1965 [1939]. Monetary Equilibrium, Augustus M. Kelly, New York.

Sraffa, P. 1932a. “Dr. Hayek on Money and Capital,” Economic Journal 42: 42–53.

Sraffa, P. 1932b. “A Rejoinder,” Economic Journal 42 (June): 249–251.

Vaughn, K. I. 1994. Austrian Economics in America: The Migration of a Tradition, Cambridge University Press, Cambridge and New York.

Money as Debt

It strikes me that debt is a major aspect of the nature of money (or at least things which function as a means of payment/medium of exchange). We have a descending list of things that are, or could be, used as money, in the sense of a means of payment/medium of exchange or store of value, from the most acceptable and final means of payment to the least acceptable. By the time we get to the bottom of the list, it is rare for the thing in question to be used as money (especially if it is not negotiable). E.g., in a commodity money world, we have the following:

Base commodity money: gold or silver, or banknotes of the central bank
so-called money certificates
demand deposits/fractional reserve current accounts
savings accounts
shares/deposits in other financial institutions (e.g., S&Ls)
promissory notes (private bank notes, other notes payable)
bills of exchange (this sometimes includes the cheque)
cheques (particularly negotiable cheques)
certain term/time CDs (e.g., negotiable CDs)
securities (bonds).

Now I have included bonds in the list because there are historical examples of bonds being used as a means of payment or medium of exchange, although ordinarily they do not function as money in this sense.

Since even in the 19th century gold fell to a small percentage of actual broad money, most central bank banknotes in the 19th century were essentially obligations (debts) of the central banks, where these central banks existed. Triffin (1985: 152) estimates that in 1800 bank money or credit money probably constituted less than 33% of the money supply in the developed world. By 1913, paper currency and bank deposits accounted for 90% of overall currency circulation in the world, and actual gold itself for not much more than 10%.

Behind all of these “money things” listed above is a crucial concept: the abstract money of account (or the abstract unit of money) by which we measure the value of things. Two concepts essential to the definition of money are therefore important:

(1) the abstract money of account or unit of account (which is not physical or concrete), and

(2) the “money things” that function as money which are denominated in the abstract money of account. This refers to things which might be physical (gold, cash, promissory note) or mere accounting records (e.g., reserves at the central bank, bank money or demand deposits recorded in a bank’s balance sheet or transferable debts recorded in written or electronic form) (Wray 2003: 261).

An important additional conceptual division is

(1) the final means of payment (which can be regarded as high powered money), the ultimate “money thing” which can clear all debts or discharge any obligation denominated in the unit of account, and

(2) other debt forms of money which are finally discharged by using (1).

Final clearing of debts of course occurs with the final means of payment: commodity money or banknotes of the central bank. When we withdraw money from our bank, we in fact demand the repayment of the debt instrument that is the fractional reserve account (or demand deposit) in the final means of payment (cash or reserves). Also, when banks settle their accounts with one another, they use the final means of payment.

Furthermore, the property of being able to demand repayment of a debt instrument on demand is by no means confined to fractional reserve demand deposits: it can also be a property of promissory notes and bills of exchange.

If we consider a modern fiat money economy, the following hierarchy is needed:

High Powered Money: cash and base money of the central bank
demand deposits/fractional reserve current accounts
savings accounts
shares/deposits in other financial institutions (e.g., S&Ls)
promissory notes (private notes payable)
bills of exchange (sometimes includes the cheque)
cheques (particularly negotiable cheques)
certain term/time CDs (e.g., negotiable CDs)
securities (bonds).

It is possible to think of high-powered money as the obligations of the central bank, though it is a special type of obligation: it is only convertible into itself (or another currency), not to any commodity. For example, a $10 note is an obligation to convert that bill into another $10 note, or two $5 notes (or some other combination of cash adding up to $10), or $10 of reserves that are merely accounting records.

In a modern economy, high-powered money (or the monetary base, base money, or US M0) is currency in circulation and bank reserves (both required and excess reserves).

M1 is the following:

(1) currency in circulation outside bank vaults (and also excluding bank reserves),
(2) checking/transactions accounts (or demand deposits) and other checkable accounts, and
(3) travellers checks.

Note that M1 excludes vault cash and bank reserves at the central bank, but includes cash held by the non-bank public and the debt forms of money we know as bank money.

BIBLIOGRAPHY

Triffin, R. 1985. “Myth and Realities of the Gold Standard,” in B. Eichengreen and M. Flandreau (eds), The Gold Standard in Theory and History, Routledge, London and New York. 140–161.

Wray, L. R. 2003. “Money,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics, Edward Elgar, Cheltenham, UK and Northhampton, MA, USA. 261–265.

The Scale of Obama’s 2009 Stimulus

What was the actual size of the American Recovery and Reinvestment Act (ARRA, Public Law 111-5), enacted on February 17, 2009? This is a subject causing some confusion. We must remember that this was the second stimulus enacted after the $168 billion Bush stimulus in 2008 (about 1% of GDP).

Here are the facts:

(1) The original estimate in early 2009 by the Congressional Budget Office (CBO) was $787 billion over 10 years.

(2) There have been subsequent revisions of the size.

(3) In January 2010, the CBO revised its estimate to $862 billion, partly because unemployment benefits were costing more than estimated.

(4) By August 2010, the January figure was revised downward to $814 billion over 10 years.

(5) In February 2011, the figure was revised to $821 billion over 10 years.

So currently it is $821 billion over 10 years, and about 70% had been spent by the end of September 2010. That is roughly $300 billion in 2009 and $300 billion in 2010. This was in a roughly $14 trillion US economy (or $14.25 trillion [2009 est.] and $14.66 trillion [2010 est.]), so that overall size of the stimulus in each year is roughly 2% of GDP .

Meanwhile, one sees hordes of ignoramuses who bandy the figure of $800 billion about as if it was all spent in one year. That is false.

And, as always, we have the question of to what extent the stimulus was offset by

(1) state and local austerity, and
(2) deleveraging (for example, many people got a tax cut: did they mostly use this to pay down debt or spend it on consumer goods?).

This will have to be taken into account.

The effect of the stimulus was that the US emerged from recession in Q3 2009, and has not had a negative quarter of growth since:

http://www.tradingeconomics.com/united-states/gdp-growth

It was widely said in early 2009 that the stimulus was not enough to close the output gap, and this is entirely correct. The US was in many ways one of the hardest hit by the financial crisis and demand shocks, so the high level of unemployment that has resulted is not surprising.

In my opinion, the New Keynesians have badly underestimated the potential GDP/GNP of the United States: the US is the largest economy on earth and has a vast unemployment problem. By U-6 (a better measure), unemployment soared to 18% in 2009. This, with massive unused resources and idle capacity (not to mention other nations ready and willing to sell goods to the US), makes for a huge aggregate demand deficiency.

By contrast, other nations have also used Keynesian stimulus, and have managed to keep unemployment levels relatively low with positive GDP growth: e.g., South Korea, China, Singapore, Australia, Germany, Sweden, Norway, and Belgium, to name a few. In fact, if there was any honesty to right wing, conservative or libertarian analysis of economic conditions over the past 3 years, they would be talking about the astonishing success of global Keynesianism. US libertarians and Austrian commentators in particular are contemptibly and laughably ignorant of what goes on outside the United States, where a vast number of other countries have used Keynesian stimulus with success.

There is no doubt whatsoever that global monetary and fiscal interventions have prevented a new Great Depression, which can be seen in the global data compiled by Barry Eichengreen and Kevin O’Rourke (comparing various relevant world statistics from 2008-2011 with 1929-1933). From 2008-2009, world industrial production, world trade, and the value of equity markets were falling off a cliff at a rate as bad as 1929-1932 (and in some cases at a rate even worse than 1929-1930). From 2009 onwards, there has been a remarkable recovery in world industrial production and world trade: the reason is that today we had governments that acted to stop financial systems from collapsing and to stimulate aggregate demand. In the 1930s, governments did not do this, and a global depression resulted.

Today, very few countries have had a depression in the proper sense of a contraction in real GDP/GNP of 10% or more. The only nations where this has happened are countries like Ireland, Greece, Latvia, Lithuania, and Estonia, in which savage austerity has been pursued and Keynesianism rejected.


LINKS

Dean Baker, “Keynes and the Current Crisis,” 7 December 2011.
http://www.cepr.net/index.php/blogs/cepr-blog/keynes-and-the-current-crisis

Paul Krugman, “On the Inadequacy of the Stimulus,” September 5, 2011
http://krugman.blogs.nytimes.com/2011/09/05/on-the-inadequacy-of-the-stimulus/

Economists Who Make the Third Stimulus Honor Roll
http://www.cepr.net/index.php/press-releases/interactive-press-releases/economists-who-make-the-third-stimulus-honor-roll/

Steve Keen on the Keiser Report

An interview here with Steve Keen on the Keiser Report. Skip forward to 14.00 to get the actual interview.

Audio Lecture by Ludwig M. Lachmann

I have just found this talk by Ludwig M. Lachmann, delivered at the Department of Economics at the University of Colorado in the 1970s. Some biographical trivia:

(1) Lachmann obtained a PhD from the University of Berlin, where from 1924 to 1933 he was a graduate student.

(2) Lachmann went to England in 1933, and was at the London School of Economics (LSE) as research assistant to Hayek.

(3) Lachmann went to South Africa in 1948.

Here are some comments:

(1) Lachmann ascribes the Austrian view of time to George L. S. Shackle, which I find interesting.

(2) From 8.31 onwards Lachmann gives what he calls the Austrian view of macroeconomic entities: he says Austrians don’t deny the existence of macroeconomic entities (consumption, investment, etc.). Lachmann objects to the idea that these entities have mechanical effects on each other.

(3) Lachmann (27.44 onwards) notes that Schumpeter was early on affiliated with the Austrian school, but became a Walrasian.

(4) From 43.14 Lachmann describes the victory of Keynesianism at the LSE: by 1939 he and Hayek, he says (perhaps with some exaggeration), were the only Austrians left!

(5) From 44.55, Lachmann refers to the early writings of George L. S. Shackle, and includes these writings as making a contribution to his own work on time.

(6) From 55.38, in response to a question about policies for the macroeconomy, Lachmann explicitly allows government intervention in a depression: he notes that Hayek retreated from his liquidationism of 1932 (“Hayek has now realised that that was wrong,” he says from 56.53). “In a situation in which nothing really is scarce” there can be government intervention to increase employment (56.57). That is very significant, and I have written about it here:

“A Startling Admission from Ludwig Lachmann,” July 11, 2011.

“Ludwig Lachmann on Government Intervention,” July 9, 2011.

Lachmann was a different Austrian from the hordes of modern Austrian anarcho-capitalists. In fact, one gets a wonderful insight into Lachmann’s thinking on this from his Austrian Economics Newsletter (AEN) interview:

“AEN: After you moved to England in 1933 you became a research assistant to Hayek. What type of topics were usually of interest in the famous Hayek-Robbins seminar.

Lachmann: In general, problems of the business cycle and of capital theory. I actually worked on secondary depressions. That is to say, what Hayek first used to call the process of secondary deflation, a word that had been coined by a German economist to denote that part of the process of depression which goes beyond any kind of primary maladjustment. That is to say, that kind of depression that would not be an adjustment process in the Hayekian sense. It was by then (1933) admitted that a depression of this kind could develop and I think everybody admitted that by 1933 the world was in a process of secondary depression.”

Ludwig Lachmann, “An Interview with Ludwig Lachmann,” The Austrian Economics Newsletter, Volume 1, Number 3 (Fall 1978), Mises.org.

When I read this I thought: it’s all falling into place! (as an aside, in the same interview, Lachmann talks of Paul Rosenstein-Rodan’s comments on the role of expectations and the Austrian trade cycle theory).

(7) From 59.14, Lachmann rejects the gold standard for the modern world.

(8) From 1.06.20 Lachmann gives his view on government. He confirms that he was a Classical liberal who supported a minimal state, like Mises, as the institutional foundation of the market. Lachmann sees modern democracy in which voters choose to re-distribute wealth as a problem.

(9) From 1.08.12 onwards, Lachmann argues that Austrian economics is consistent with Popper’s methodology. Lachmann quotes Keynes’s letter to Roy Harrod of 16 July 1938 on the proper method for the social sciences.

Other Resources on Lachmann:

Peter Lewin, “Biography of Ludwig Lachmann (1906-1990): Life and Work,” Mises.org.

Ludwig Lachmann, “An Interview with Ludwig Lachmann,” The Austrian Economics Newsletter, Volume 1, Number 3 (Fall 1978), Mises.org.

I strongly urge people to read the interview with Lachmann.

NOTE: The Ludwig von Mises Institute has given permission under the Creative Commons license that this audio presentation of Lachmann can be publicly reposted as long as credit is given to the Mises Institute and other guidelines are followed. More info at: http://creativecommons.org/licenses/by/3.0/us/

My blog Social Democracy for the 21st Century: A Post Keynesian Perspective is in no way endorsed by or affiliated with the Ludwig von Mises Institute, any of its lecturers or staff members.

Steve Keen on Capital Account (December 20th 2011)

An interesting interview here with Steve Keen on Capital Account (December 20th 2011), with comments on the Eurozone and government debt. Skip forward to 3.30 to get to the interview.

A Classification of Libertarianism

I have written on this subject before. But I think my earlier classification needs re-thinking. It is obvious that not all free market libertarianism is derived from neoclassical theory. The Austrians and the cult of Rand are not really based on neoclassical theory, although, paradoxically, the Hayekian version of the Austrian business cycle theory is heavily influenced by neoclassical equilibrium theory via Hayek’s use of Wicksellian monetary equilibrium analysis.

Here is an updated classification of free market libertarians:

(1) Randians

(2) Austrians

(i) the Anarcho-capitalists, like Rothbard and Hoppe;

(ii) The minimal state Austrians like Mises (with his praxeology);

(iii) Austrian supporters of Hayek’s economics, with a minimal state;

(iv) The “orthodox” Austrians who have a moderate subjectivist position (like Israel Kirzner and Roger Garrison);

(v) Austrian radical subjectivists like Ludwig Lachmann;

(3) Non-Austrian libertarians (but influenced by Austrian economics)

I suspect that it is also possible to put many of the “Free Bankers” in this category.

(4) Neoclassical libertarians (but influenced by Austrian economics and neoclassical theory)

(i) followers of Robert Nozick’s libertarianism;

(ii) followers of David D. Friedman’s anarcho-capitalism, and other non-Austrian anarcho-capitalism (e.g., Jan Narveson);

(iii) other non-Austrian, neoclassical influenced libertarians (e.g., Tom Palmer, Bryan Caplan and Tyler Cowen).

I have not included Milton Friedman’s monetarism here, because Friedman’s economics was the pretty much mainstream neoclassical macroeconomic theory. Moreover, I am not sure that all modern monetarists or new monetarists would really think of themselves as “libertarians.” Although they are supporters of free markets, I suspect many think of themselves just as mainstream economists.

UPDATE

I have taken Professor George Selgin out of category (3). Professor Selgin no longer self-identifies as an Austrian, but also notes in a comment below:

“... I am no less uncomfortable with the libertarian label than I am with the Austrian one. In fact, you will be hard-pressed to find me ever identifying with a "movement" of any sort: I dislike them all, viscerally.”
http://socialdemocracy21stcentury.blogspot.com/2011/12/classification-of-libertarianism.html?showComment=1324413251211#c4718352180192394769

Fair enough. I do like to get these classifications right.

Neoliberal Austerity in Ireland: A Disaster

Professor Bill Mitchell has an excellent post here on the continuing disaster of Ireland’s austerity:

Bill Mitchell, “How’s Poor Old Ireland, and How Does She Stand?,” Billy Blog, December 19, 2011.

What’s happened in Ireland?:

(1) Real GDP has contracted 1.9% in Q3 2011, while real GNP contracted by 2.2%. If growth in Q4 is negative for 2011, Ireland will officially slip back into recession. Of the 14 quarters since Q2 2008, only 4 have seen real GDP growth (28%), and 5 have seen real GNP growth (36%).

(2) Unemployment is a disaster. It has soared to over 14% in early 2011 and remains at 14.5%

(3) The domestic sectors of the economy are stagnant or depressed. It is only exports that have provided some positive real GDP/GNP growth. However, with austerity and possible demand for Ireland’s exports falling in its trade partners, even that source of growth will falter, which will probably plunge the economy back into severe contraction. A healthy economy has balanced growth in both the export and domestic sectors. Ireland’s economy is deeply sick, and the only cure for its depressed domestic sector is government spending.

All in all, a dismal result for all that austerity. This is not success: it is miserable failure.

Jonathan Finegold Catalán’s Blog

A quick post on Austrian blogs again. The Austrian Jonathan Finegold Catalán is blogging again:

Economic Thought.

One can start with this post:

“Austrian Economics and its Place,” 17 December, 2011.

A sample:

“The convergence of the political and economic debates brings to memory a similar debate which dominated during the mid-1930s, between Friedrich Hayek and John Maynard Keynes. .... Hayek and Keynes disagreed on the nature of the crisis and, consequently, on the method of recovering from it. Keynes, broadly considered, supported the use of monetary and fiscal stimuli to put to use unemployed resources, thereby aiding the recovery of aggregate demand. Hayek rejected this approach, since it ignored many of the microfoundations which define the nature of the market process, and instead suggested a means to recovery which relied on the personalized economization of resources by the individuals which constitute the market.”

In other words, Hayek favoured liquidationism. But what is left unsaid is that Hayek retreated from that stance and held views broadly the same as those of Keynes on monetary and fiscal stimulus in a depression by the late 1930s, as I have shown here:

“Did Hayek Advocate Public Works in a Depression?,” September 25, 2011. (this post is the second most read one on my blog, as a matter of interest).

Furthermore, Catalán asserts that

“Sraffa convincingly critiqued a very limited portion of Hayek’s theory of capital, and the profession threw the baby out with the bath water. When Hayek finally finished the polished version of his thoughts nobody was there to listen.”

That is not true: Nicholas Kaldor continued to attack Hayek’s business cycle theory in its later modified versions, in these articles:

Kaldor, N. 1939. “Capital Intensity and the Trade Cycle,” Economica n.s. 6.21: 40–66.

Kaldor, N. 1940. “The Trade Cycle and Capital Intensity: A Reply,” Economica n.s. 7.25: 16–22.

Kaldor, N. 1942. “Professor Hayek and the Concertina-Effect,” Economica n.s. 9.36: 359–382.

And, while I think of it, does anyone know what happened to Robert P. Murphy’s blog?

My Posts on Fractional Reserve Banking (Updated)

This is an updated list of my various posts on fractional reserve banking:

“Are the Public Ignorant of the Nature of Fractional Reserve Banking?,” December 17, 2011.

“Why is the Fractional Reserve Account a Mutuum, not a Bailment?,” December 17, 2011.

“Callable Option Loans and Fractional Reserve Accounts,” December 16, 2011.

“Future Goods and Fractional Reserve Banking,” December 15, 2011.

“Rothbard on the Bill of Exchange,” December 11, 2011.

“Hoppe on Fractional Reserve Banking: A Critique,” December 11, 2011.

“The Monetary Production Economy and Fiduciary Media,” December 11, 2011

“Fractional Reserve Banking: An Evil?,” June 26, 2010.

“The Romans and Fractional Reserve Banking,” February 23, 2011.

“Gene Callahan on Fractional Reserve Banking,” February 18, 2011.

“Lawrence H. White refutes Huerta de Soto on Fractional Reserve Banking,” February 22, 2011.

“Selgin on Fractional Reserve Banking,” June 1, 2011.

“Schumpeter on Fractional Reserve Banking,” June 12, 2011.

“If Fractional Reserve Banking is Fraudulent, Why isn’t the Insurance Industry Fraud?,” September 29, 2011.

“The Mutuum Contract in Anglo-American Law,” September 30, 2011.

“Rothbard Mangles the Legal History of Fractional Reserve Banking,” October 1, 2011.

“More Historical Evidence on the Mutuum Contract,” October 1, 2011.

“What British Law Says about the Mutuum Contract,” October 2, 2011.

“If Fractional Reserve Banking is Voluntary, Where is the Fraud?,” October 3, 2011.

An Austrian Radical Subjectivist Blog

A quick post. Here is an Austrian blog identifying with the radical subjectivist tradition of Ludwig Lachmann I have just seen:

The Radical Subjectivist.

It is worth a read.

I will just note that some commentator on the first post accuses Lachmann of having “sympathies towards Keynesian economics” (shock!, horror!). I, however, seriously doubt that. Lachmann placed a strong emphasis on subjective expectations and uncertainty in economics, as Post Keynesians do, and appreciated some of Keynes’s work where these ideas are expressed. That doesn’t necessarily mean Lachmann had “sympathies towards Keynesian economics” at all. Walter Block says this of Lachmann:

“I remember fondly Ludwig saying to me in his heavy accent: ‘Ve must smash zem!’ And he was talking about non Austrians. Inspirational.”

Walter Block, Comment at ThinkMarkets @November 27, 2009 at 10:21 pm
http://thinkmarkets.wordpress.com/2009/11/23/what-is-austrian-economics/#comment-3666

I.e., Lachmann was just as hostile to other economic schools as any Rothbardian.

Are the Public Ignorant of the Nature of Fractional Reserve Banking?

The short answer is, of course, that there is no doubt some degree of ignorance – perhaps even a great degree of ignorance – about the nature of fractional reserve banking amongst the public, but as to what percentage of people are ignorant I would prefer to see more than one well-sampled survey before giving definitive numbers. One survey that is available from the UK that can be read here (“Public Attitudes to Banking. A Student Consultancy Project by ESCP Europe for The Cobden Centre,” June 2010) finds that 74% of people surveyed (in August 2009) thought that they were the legal owner of the money in their FR current account (p. 6). A further 16% thought that both the bank and the depositor were joint owners of the money (p. 6). Only 8% knew that the bank was the legal owner (p. 6).

Now 74% is indeed a high percentage, but what is very interesting to me is that, despite this number, 61% of people surveyed also said that they did not mind the bank lending out some of the money in their current account as loans (p. 8)! Only 15% said that they keep money in a FR current account for safekeeping (p. 5).
Furthermore, only 33% thought that the bank lending out some of the money from their current account was wrong because they did not give permission (p. 8). This strongly suggests to me that in fact if people were properly informed of the legal nature of FR banking (with the proviso that their debt/deposit is insured), they would not object to the actual practice of FR lending or its legal status. People want banking services with a return on their money. A majority do not mind that the bank lends their money, even though a majority most also think that they remain the legal owner of the money.

Now of course the objection that can be made to fractional reserve banking is that a majority (at least from this UK survey) do not understand the legal nature of the FR contract as a mutuum. In response to this:

(1) The existence of bank runs strongly suggests that historically many people have understood the basic facts behind fractional reserve banking. Bank runs were frequent during financial crises before the 1930s when modern fiat systems and deposit insurance generally became the norm. Now I cannot resist posting this video of one of the best movie bank runs I can think of, because it really does illustrate the issues involved.



Even as a fiction, it is illustrative. In order for such bank runs to have occurred, many people must have understood that the banks do not operate on a 100-percent-reserve basis. Nor am I insensitive to the suffering and negative economic effects caused by the failure of a FR bank (see point (2) below).

I suspect that before the 1930s there was probably a greater degree of public understanding of the nature of FR banking (though I would need empirical evidence to prove it), but in the modern world, as bank runs virtually disappeared, public ignorance has grown. Another crucial point is that before the 19th century, ordinary people did not normally use FR banking systems. FR banking was limited to the wealthy, the commercial and mercantile classes and businessmen, people who had a much better understanding of finance and the contracts they were entering into. There is, then, a strong case to be made here that the widespread ignorance of the legal nature of FR banking has only become a problem in the modern world, as ordinary people have come, in vast numbers, to open FR accounts with the money they earn.

Furthermore, people are surely aware that the money they “withdraw” from their FR reserve account cannot be the same money they deposit in a physical sense. The money you withdraw from an ATM is not the same money you may have physically deposited or that was credited to your account by electronic transfer from your paycheck. It would take but further reflection to see that the belief that your FR account is a mere bailment cannot be true.

(2) If you have failed to read your fractional reserve bank contract, whose fault is that? As a client, you ought to understand the contract that you sign. If, for example, I contract with you to lend you my wheat as a mutuum loan where I have signed a contract that explicitly states that I transferred ownership of the grain to you, but then I think that it is a mere bailment, then this is my misunderstanding. I would be a poor and incompetent businessman. There is no fraud involved, simply ignorance and misunderstanding on my part. This does not mean that there is no consequentialist moral argument for intervening to stop the distress and economic disaster caused by the failure of a fractional reserve system: on the contrary, I hold that there are strong consequentialist moral arguments for government intervention to stop the pro-cyclical nature of unregulated FR banking which lacks an effective lender of last resort. Without modern fiat money, a well-regulated financial system, deposit insurance and a central bank ready as the lender of last resort, fractional reserve banking can be extremely destabilizing and has led to disastrous bank collapses and recessions in the past.

(3) The solution to the problem of modern people not understanding the nature of fractional reserve banking – if we perceive it as problem – is simply legislation to make banks explicitly explain to potential customers when they sign a contract how FR banking works. Specifying to clients that the property rights to the money had passed to the bank, and in return an IOU or credit had been granted to the depositor, that the bank lends your money out, and that it will return not the same money, but other money from its reserves will solve the moral problem of clients not understanding the nature of FR banking. Under these circumstances, FR banking is not fraud. It is a free contract. There was very probably a strong moral argument for enforcing such legislation in the days before deposit insurance, so that people understood the risks involved in FR bank accounts.

In practical terms, however, modern FR systems are protected by deposit insurance and the central bank as a lender of last resort: there is no need to warn depositors that they could lose their money, because that simply does not happen these days. The issue of explaining FR banking to consumers is a far less pressing moral issue than it is made out to be by opponents of FB banking.

UPDATE
I have updated the post in light of this survey.

Why is the Fractional Reserve Account a Mutuum, not a Bailment?

Certain anti-fractional reserve banking Austrians complain that fractional reserve (FR) banking is illegitimate, because FR accounts are not loans “in the economic sense.” This objection is derived from Mises’s comments on FR banking here:

“It is usual to reckon the acceptance of a deposit which can be drawn upon at any time by means of notes or cheques as a type of credit transaction and juristically this view is, of course, justified; but economically, the case is not one of a credit transaction. If credit in the economic sense means the exchange of a present good or a present service against a future good or a future service, then it is hardly possible to include the transactions in question under the conception of credit. A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of the money in no way means that he has renounced immediate disposal over the utility it commands.” (Mises 2009: 269; see also Huerta de Soto 2006: 14–15; Rothbard 2011: 733–734; cf. Rozeff 2010).

Essentially, this reduces to the question whether the FR account (or even callable loan) constitutes “the exchange of a present good or a present service against a future good or a future service.” The Austrian argument assumes that money is a good (Huerta de Soto 2006: 696), and with respect to any commodity money system that assumption can be accepted, when money proper in the sense of the commodity money base is distinguished from debt instruments used as a medium of exchange. In a fiat money system, money as the final means of payment is the fiat base money, the obligations of the central bank, and in fiat money systems one will have to say that the FR account involves the exchange of present units of account/medium of exchange for future goods (considered as banking services) and units of account/medium of exchange.

The FR reserve account is an exchange of present for future goods (or exchange of present units of account/medium of exchange for future goods and units of account/medium of exchange), for the following reasons:

(1) you give up the ownership and possession of your money (the present good) in exchange for

(2) the future goods that are (a) interest (which will be paid at a certain future date) and/or (b) banking services (e.g., the use of cheques, debit cards, electronic funds transfer, etc.), and (c) repayment of your loan as recorded in the debt instrument you receive, your FR account.

It is clear that the argument for the FR reserve account constituting an exchange of present for future goods relies on the crucial point that the FR clients do in fact give up the ownership of their money.

Now how do we know that the FR bank clients do, in actual fact, give up the ownership of their money? The reason is that we have overwhelming empirical evidence: we can look carefully at the present and historical actual actions and practices of FR clients and bankers, their free exchanges, their contracts, how both parties understand these actions and contracts, and how these practices were understood in human legal systems.

Let us review the two pieces of evidence:

(1) Real World Contracts, Exchange and Banking Practice.

First, the voluntary and free contract entered into to by two parties that we call the fractional reserve bank account was a real world banking practice, specified by written and verbal agreement.

In Roman law, there were a number of types of real contract (contracts re), as follows:

(1) mutuum (loan for consumption);
(2) commodatum (loan for use);
(3) pignus (pledge), and
(4) depositum or depositum regulare (bailment for safe keeping).

In Roman law, the mutuum contract included loans repayable on demand (loans with a call option, as it were), and the explicit evidence for this can be found in the Institutes of Gaius (161 AD):

“The agreement enforceable as mutuum could only be for the restoration of an equal sum of money or of goods equal in quantity and similar in quality to those lent, at a date named or, if no date was named, on demand.” (De Zulueta 1953: 149).

Already under Roman civil law, the mutuum loan of money involves either (1) a time deposit or (2) a demand deposit/callable loan. Because money can be regarded as representing a certain value, what is deposited is a quantity of a thing (quantitas) and not an individual thing itself (corpus). The depositor thus receives back the same quantity (tantundem) of money, not the same money itself (Zimmermann 1990: 215–216). The essence of the mutuum contract is that ownership rights to the money pass from the creditor to debtor: in the case of a FR account the bank now became the owner of the money.

Therefore the mutuum was the legal framework and concept under which fractional reserve banking was conducted in ancient Rome (Zimmermann 1990: 218). Whether the mutuum was a time deposit or a demand deposit depended on the type of contract between the two parties, and there is no reason to think that fractional reserve banking was held as either immoral or illegal (for how Roman law influenced Medieval law on banking, see Dotson 2004: 89–92). The evidence for the existence of FRB in the Roman Republic and Roman Empire is overwhelming (Harris 2006: 11; Harris 2011: 236). There is not one shred of evidence that it was regarded as immoral or prosecuted as a crime.

There was even a clear action and convention by which two parties indicated that their entering into such an mutuum exchange: in actual banking practice for over 2,000 years, since the Roman Republic, two parties have engaged in a type of callable loan called in Latin the mutuum, by which money brought to a bank was determined to be a loan if it was handed over in an unsealed box/bag/container.

In the Middle ages, these conventions continued. The practice of giving over money in an unsealed bag or box, as described above, was recognised in Talmudic law (Goldin 1913: 68), as it was from the Jewish community from which many medieval bankers came.

The convention entered European civil law, and it was still cited by American judges in the 19th century in Dawson et al vs. the Real Estate Bank before the Supreme Court of Arkansas in 1845:

“From a careful consideration of the authorities on this subject, we understand the general rule to be, that where money, not in a sealed packet, or closed box, bag or chest, is deposited with a bank or banking corporation, the law presumes it to be a general deposit [= mutuum loan – LK], until the contrary appears; because such deposit is esteemed the most advantageous to the depositary, and most consistent with the general objects, usages, and course of business of such companies or corporations. But if the deposit be made of any thing sealed or locked up or otherwise covered or secured in a package, cask, box, bag or chest, or any thing of the like kind of or belonging to the depositor, the law regards it as a pure or special deposit [= bailment – LK], and the depositary as having the custody thereof only for safe keeping, and the accommodation of the depositor.” (Pike 1845: 296–297).

The “general deposit” is a mutuum (or loan) and the “pure or special deposit” refers to a depositum (or bailment). The tradition of sealing money in a bag, chest or box to indicate that it was to be held in safekeeping as a depositum (not as a mutuum) goes right back to English banking practices that have been examined by Selgin (2011). In English law, showing the influence of Roman law through the Norman conquest, certainly from Elizabethan times, and probably from the Norman conquest, law and banking practice distinguished the bailment (depositum) deposit of money from the mutuum loan of money. The question whether the mutuum was a FR account (or callable loan) or time deposit would depend on the type of verbal or written contract or whether it was handed over in a sealed bag or not. This is how freely consenting clients and bankers understood their fractional reserve accounts/loans, in real world actions.

So the free actions and contractual understanding of agents engaged in FR mutuum loans throughout history

(2) The Evidence of Law.

In the legal systems, codes and legal treatises of European civilisation for over 2,000 years that described banking practice, the exchanges I have discussed above are clearly recognised. In the 4th edition of A New Institute of the Imperial or Civil Law (1730; 1st edn. 1704), Thomas Wood (1661–1722), the English Doctor of Civil Law (New College, Oxford), defines the mutuum contract:

“Mutuum (a Loan simply so call’d quod de meo tuum fiat [sc. “because let what is mine become yours”])

It hath no one particular name in the English Language.

is a Contract introduced by the Law of Nations, in which a Thing that consists in weight (as Bullion,) in number (as Money,) in measure (as Wine,) “is given to another upon condition that he shall return another thing of the same Quantity, Nature and Value upon demand. More than Consent is required, for the Thing, viz. Money, Wine, or Oil ought to be actually delivered, and more than what was delivered cannot be repaid; but less may be repaid by Agreement. This Contract forces men to be industrious and promotes Trade, and for this reason it may be greater charity to lend than to give. Creditum is a more general Word. In the case of Money, Silver may be repaid tor Gold, unless the Creditor is to be damnified by it; for it shall be understood to be the same kind of Money when it is of the same” (Wood 1730: 212).

First, the transfer of ownership of the money in a mutuum loan is explicitly stated by Wood above in the Latin phrase de meo tuum fiat (“let what is mine become yours”). This phrase (in the form quod de meo tuum fit) goes right back to Roman law (MacLeod 1902: 149) as a way of describing the mutuum loan, and is found as a definition of mutuum in the Digest (at 12.1.2.2) of Justinian (AD 530-533), part of that emperor’s Corpus Iuris Civilis (Body of Civil Law). Secondly, Wood’s statement here is important:

“he shall return another thing of the same Quantity, Nature and Value upon demand”.

The words “upon demand” confirm that under English law mutuum contracts allow demand deposits or what I call FR accounts (and not just time deposits).

If we turn to modern English law, we can cite the The Laws of England: Being a Complete Statement of the Whole Law of England (vol. 2; 3rd edn.; 1964):

“The contract of mutuum differs from that of commodatum, in that in the latter a bare possession of the chattel lent, as distinguished from the property in it, vests in the borrower, the general property in it still remaining in the lender; where in mutuum that property in the chattel passes from the lender to the borrower.
Mutuum is confined to such chattels as are intended to be consumed in the using and are capable of being estimated by number, weight, or measure, such as money, corn, or wine. The essence of the contract in the case of such loans is, not that the borrower should return to the lender the identical chattels lent (for such specific return would ordinarily render the loan valueless), but that upon demand or at a fixed date the lender should receive from the borrower an equivalent quantity of the chattels lent.” (Halsbury 1964: 112).

This clearly entails that in the case of a mutuum demand deposit in a fractional reserve bank:

(1) Ownership of the money passes from the client to the fractional reserve bank;

(2) The bank returns only money up to the same value (a tantundem), not the original money;

(3) By the terms of the mutuum contract, the money can be returned either at a fixed future date or on demand.

When a modern fractional reserve bank takes money for a new deposit, this is actually a personal loan to the bank. The money in the deposit becomes the property of the bank. This is clearly stated in FR contracts and in modern law. That fact underlies the conclusion that FR banking is an exchange of present for future goods.

The free actions, actual real world contracts, practices and law relating to FR accounts demonstrate that callable mutuum loans involve the transfer of ownership of the money lent.

The typical Austrian advocate of a priori praxeology is incapable of refuting the overwhelming evidence that people have in fact historically freely contracted to give up ownership of their money and enter into a debt contract in the case of FR accounts and callable loans. This how the FR current account/transactions account is properly defined today. The only solution that such Austrian cultists are driven to is the absurd denial of the relevance of the empirical evidence of the FR contract terms, actual banking practice, real world FR exchanges, and the principles defined in law. Such a denial is essentially an admission of defeat in argument.

BIBLIOGRAPHY

Dotson, John E. 2004. “Banks and Banking,” in C. Kleinhenz (ed.), Medieval Italy: An Encyclopedia. Vol. 1, A to K, Routledge, London. 89–92.

Goldin, H. E. 1913. Mishnah. A Digest of the Basic Principles of the Early Jewish Jurisprudence, Baba Meziah (Middle Gate), Order IV, Treatise II, G. P. Putnam’s Sons, New York & London.

Halsbury, H. S. G. 1964. The Laws of England: Being a Complete Statement of the Whole Law of England (vol. 2; 3rd edn.; ed. G. T. Simonds), Butterworth, London.

Harris, W. V. 2006. “A Revisionist View of Roman Money,” Journal of Roman Studies 96: 1–24.

Harris, W. V. 2011. Rome’s Imperial Economy. Twelve Essays, Oxford University Press, Oxford.

Huerta de Soto, J. 2006. Money, Bank Credit and Economic Cycles (trans. M. A. Stroup), Ludwig von Mises Institute, Auburn, Ala

Macleod, Henry Dunning, 1893. The Theory and Practice of Banking in Two Volumes (2nd edn.; vol. 1), Longmans, Green and Co., London.

Mises, L. von, 2009 [1953]. The Theory of Money and Credit (trans. J. E. Batson), Mises Institute, Auburn, Ala.

Rothbard, M. N. 2009. Man, Economy, and State: A Treatise on Economic Principles (2nd edn.), Ludwig von Mises Institute, Auburn, Ala.

Rozeff, M. S. 2010. “Rothbard on Fractional Reserve Banking: A Critique,” Independent Review 14.4 (Spring): 497–512.

Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709

Wood, Thomas. 1730. A New Institute of the Imperial or Civil Law (4th edn.), J. and J. Knapton, London.

Zimmermann, R. 1990. The Law of Obligations: Roman Foundations of the Civilian Tradition, Juta & Co, Cape Town.

Zulueta, Francis de. 1953. The Institutes of Gaius Part 2, Clarendon Press, Oxford.