Some comments:
(1) Kirzner notes (from 6.50 onwards) that the defeat of the Austrian school in the 1930s went well beyond the perception of its defeat in the debate with Keynes: it also included defeat in Hayek’s debate with Sraffa, Frank Knight (over the nature of capital) and in the Socialist Calculation debate.
(2) Kirzner argues that Mises and Hayek learnt in the Socialist Calculation debate that the standard neoclassical price theory had serious flaws. Kirzner provides an alternative account of price theory from Mises and Hayek.
(3) Towards the end of the talk Kirzner speaks of the revival of Austrian economics from the 1970s.
Lord, love your site. I'm pretty new to it but I learn a lot.
ReplyDeleteTo digress you might be amused to see my comic relief post looking at the Bizzaro world that is Major (Un)Freedom's explanation of economics
http://diaryofarepublicanhater.blogspot.com/2012/08/the-strange-world-of-major-freedoms.html
I read your blog post on theory of profits.
DeleteWhile I am certainly no expert this area, what is bizarro? As far as I can see that explanation sounded reasonable.
Any help will be appreciated.
You're in for a real treat, evilsax. There are rumors that "major freedom" has at least one alias on this blog's comment threads. For the life of me, I can't remember them.
ReplyDeleteWho knows what evil lurks in the hearts of Keynsians? Major Freedom knows.
Argosy Jones,
DeleteI suspect MajorFreedom posted under the aliases Pete, David, and Christof at least here.
Once while using "David" he accidentally gave himself away in this comment:
http://socialdemocracy21stcentury.blogspot.com/2011/11/michael-emmett-brady-on-keyness.html?showComment=1322680209311#c6209119304324371187
Yes I see that he did! LOL. Fat Tony you aren't another Major Freedom sock puppet are you? You don't seem that way, you're very polite and he is anything but that. Unless you're a really good actor...
ReplyDeleteWell anyway I just found his whole deficition of profits as the differecne between consumption and investment very odd. wrong, but more just eccentric.
His style always strikes me as odd too. He takes this idea that there are no aggregates so seriously that he has to break down everything indivudally.
Let's look at what he said:
" "In the first economy, aggregate investment is $10*N and aggregate consumption is $90*N (N = number of individuals). This means that out of all money received through sales (labor, goods, etc), which is ($10 + $90)*N = $100*N, there will be $10 that will show up as business costs (ignore depreciation and assume for simplicity that the $10*N capital invested each year is used up each year) and $100*N that will show up as revenues."
""Here is where the rate of interest comes in. If the aggregate rate of profit on capital invested is 900%, then what will tend to occur is that anyone who wants to “part with their liquidity” for investment purposes, will have two investment choices. Either they can invest the money themselves and try to earn the 900% average profit, or they can loan it to others who will then invest it and try to earn the 900% average profit."
The 900% number is just so extrvagant. He says it doesn't matter for his example but still why not just use a more realistic example?
Then there's this whole idea that profit is investment minus consumption.
That strikes me as very odd. If anyone else here feels differently let me know. It's possible I'm missing something.
Hi Mike. I can assure you I am my own person, no sockpuppeting. As much as promises on the internet are credible! LOL.
DeleteForgive me for repeating myself, but I am still not understanding what is wrong.
You say you have a problem with the size of the numbers. OK, but my teachers often use rather large numbers to get points across. It helps me at any rate. I would get my head bit off if I challenged the teacher for using "widgets", even though nobody actually makes things called widgets!
You also say the theory says profits are investment minus consumption. As far as I could tell, the person is not saying profit is investment minus consumption, but rather that profits ARISE from there being a difference between investment and consumption.
Concluding, in the part you cut and pasted, it looks like the theory is that profits are revenues minus costs, not investment minus consumption. That makes sense to me. Is there more to it? It looks like the reason there is a positive difference between revenues and costs is because there is a difference between consumption and investment. As of now I don't get the connection.
Maybe he's just adding up total aggregate revenues in the society and subtracting total aggregate costs, to get what the profit is. Then, he breaks down aggregate revenues and aggregate costs to find out what determines those two things. Maybe there is a difference between revenues and costs because investment doesn't equal consumption. I kind of get the logic. Imagine if investment equaled consumption. Wouldn't profits be zero?
FAT Tony
ReplyDeleteWell if you are Major then you're an extremely good actor. You're not a jerk and Major is, well a Major League Jerk.
Part of what I find amusing about his style is the way he hates aggreages so much that he has to break it down into x amount at $10 a head rather than just givng us $10*X from the start. Here's a good example of it:
"In the first economy, aggregate investment is $10*N and aggregate consumption is $90*N (N = number of individuals). This means that out of all money received through sales (labor, goods, etc), which is ($10 + $90)*N = $100*N, there will be $10 that will show up as business costs (ignore depreciation and assume for simplicity that the $10*N capital invested each year is used up each year) and $100*N that will show up as revenues"
He has an idiosyncratic way of putting things that makes it real obscure.
"the person is not saying profit is investment minus consumption, but rather that profits ARISE from there being a difference between investment and consumption."
Tony let me just admit that the distinction is to fine for me to grasp. Here is where he talks about the difference between consumption and investment:
"Mises called the 900% aggregate rate of profit, that I showed above, as “originary interest.” This difference is monetary as in your dissertation Bob, that is, the difference between money out and money in, or exchange rate between current dollars and future dollars, and, most importantly, this difference is determined by time preference, not liquidity preference."
"To part with liquidity does not necessitate being compensated by interest. One can part with liquidity and consume with one’s money, and not earn any interest either. Hoarding cash and consuming using cash do not earn any interest. Where interest arises is by the difference in value people attach to present GOODS versus future GOODS. The nominal rate of interest on loans is manifested by the difference in money in and money out, which is itself a function of the difference between investment (which generates costs and revenues) and consumption (which generates only revenues). That
"Liquidity preference differences did not change the rate of interest in my two examples. In the first economy, people had a huge liquidity preference, and in the second economy they had a relatively smaller liquidity preference, and yet in both cases, the rate of profit, i.e. originary interest, i.e. the difference between money out and money in, i.e. the exchange rate between current money and future money, i.e. the rate of interest on nominal loans, was 900%. That 900% is determined by the difference between investment spending and consumption spending, that is, by time preference."