The earliest work by Ludwig von Mises on uncertainty that I can think of is in the English edition of Human Action (1949) in Chapter VI, long after Keynes had published “The General Theory of Employment,” Quarterly Journal of Economics 51 (1937): 209–223.
Both Keynes and Frank Knight came to their views on uncertainty largely independently without any influence from Mises, as far as I am aware.
Frank H. Knight’s Risk, Uncertainty and Profit (Houghton Mifflin, Boston) was published in 1921. I see no evidence Knight was influenced by Mises. Curiously, in the introduction to the scholar’s edition of Human Action, we have this account of Mises’s inspiration for the chapter on uncertainty:
“Several commentators have noted the similarity of Mises’s distinction between class probability and case probability and that between risk and uncertainty introduced by Knight in Risk, Uncertainty and Profit in 1921.But the idea that Mises was not influenced by Knight in regard to his chapter on uncertainty rings hollow to me. If Mises had been “long familiar with Knight’s work” and actually cited it in Nationalökonomie (first published in Geneva in 1940), then the view that there was some influence from Knight on Mises’s thinking on uncertainty seems plausible.
Yet, it does not appear that Mises was influenced by Knight in this regard. Mises had been long familiar with Knight’s work, and had already made reference to Risk, Uncertainty and Profit in Nationalökonomie in conjunction with his discussion of profit and uncertainty.
Rather, it appears more likely that Mises’s Chapter VI was stimulated and influenced by his younger brother, Richard von Mises (1883–1953). A professor of aerodynamics and applied mathematics at Harvard University, Richard von Mises’s most outstanding theoretical achievement was his contribution, from 1919 onward, to the frequency theory of probability. In principle, Ludwig accepted Richard’s frequency interpretation of probability, but Ludwig provided a new definition of randomness, and thus significantly improved on Richard’s theory. (Mises 1998: xvi).
Knight, F. H. 1921. Risk, Uncertainty and Profit, Houghton Mifflin, Boston.
Mises, L. 1940. Nationalökonomie, Theorie des Handelns und Wirtschaftens, Éditions Union, Geneva.
Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Mises Institute, Auburn, Ala.
Keynes, J. M. “The General Theory of Employment,” Quarterly Journal of Economics 51 (1937): 209–223.
Reading that page alarms me slightly - lots of people adhering to the Austrian view point, people like Ron Paul bringing it into the public eye, debates like Keynes vs Hayek (which were won in the 1930s...by Keynes).ReplyDelete
After the crisis, the right appear to have gone insane and sided with anything but Keynesian economics. If they manage to bring about intellectual justification for Austrian economics they'll plunge us into a dark age.
"debates like Keynes vs Hayek (which were won in the 1930s...by Keynes)."ReplyDelete
Indeed. Just as the Austrian trade cycle theory was shot down in flames by Sraffa and Kaldor.
Fortunately, the Austrians are at the fringes of the economics spectrum, and there are very few actual policy makers influenced by them.
Cahal, do you claim Dark Ages were ruled by Austrian economics?ReplyDelete
I wouldn't trust the winner of any ideological debate of the 30s. Pretty gruesome ideas popular back then. Some lasted to 40s, some even up to 70s, but nothing really to be proud of.ReplyDelete
Nope, but the business cycle was certainly far more severe with a gold standard and w/o Central Banks. 8 depressions on a standard, vs (arguably) one on fiat currency. Massive poverty reductions w/ fiat, too.ReplyDelete
Cahal, get out of your ivory tower for once and ask any regular people if there have indeed been no depressions since 1929. Somehow I keep hearing about depression every 5-10 years. Oh, I'm sure you can "argue" beautifully, so have you tried to explain your arguments to the unemployed? Now FYI, 19th century gold standard has nothing to do with Austrian economics because Austrians advocate 100% reserve gold standard. There was never any depression with 100% reserve gold standard. If it is less than 100%, then it is basically equivalent to fiat money with some fractional reserver requirement, ie the keynesian transfers via inflation tax from rich to the poor that we have today. You criticize things you have no idea about.ReplyDelete
If you can't, then everything you say is worthless, since you can shift back and forth using arbitrary definitions of "depression."
Austrians advocate 100% reserve gold standard? That is plainly false. Only a subgroup of Austrian economists actually suscribe to that view.ReplyDelete
You are right: it is mainly the Rothbardian anti-fractional reserve banking, anarcho-capitalists who support the 100% reserve gold standard. Other Austrians are free bankers.
That may well be, except free banking can work only if government does not exempt banks from paying off their obligations, which was the case in all 19th century depressions. 19th century gold standard had nothing to do even with free banking. It was basically contemporary fractional reserve banking but w/o central bank. Central banks role is indeed to centralize the stealing, but the root cause of all depressions (both 19th and 20th century) is always the stealing, not names of institutions that actually do it.ReplyDelete
Even the latest keynesian label won't help you when you ultimately burn in worker class hell.
Also my question was if you really believe if Dark Ages, not 19th century, were ruled by Austrian economics. Have you ever heard of Industrial Revolution? It didn't quite happen in Dark Ages ruled by guilds, ie a system where production institutions were worker-owned, democratically self-managed enterprises, same what Chomsky would now love go back to.ReplyDelete
I repeat: define depression.
Free banking is a strange construction. It can still be haunted by misallocation of resources, maturity mismatching and finantial instability. It may only work if some assumptions are held, such as a competitive framework (I mean real competition between banks, not merely absence of governmental intervention/cartelization), rapid flows of money and absence of pro-cyclical processes (monetary inflation, followed by a recession and a shrink of the monetary supply).ReplyDelete
I may argue that an economic system would be quite stable if its banking system somehow managed to keep themselves solvent (commodity money with full reserve banking, fiat money/fiduciary media with lender of last resort?) and liquid (forbid banking institutions to borrow short and lend long, regulate the impact of monetary policy and short-term interest rates into long-term ones?).
Capitalism has three features that make it quite different to any other economic system. It has a main commodity: money. It has a main price: interest. And it has a main institution: banking. Each of them introduces new distortions all the way, we can't assume stability without focusing in the macro-implications of these features.
Any definition of a depression (or a boom for that matter) is arbitrary. You do whatever suits you. Note I did not say that there were less depressions with fiat money than with gold standard money. You may likely be right, especially considering what I did say, ie that the 19th century gold standard was in fact as shitty as fractional reserve banking with central banks in 1920s which led to the spectacular bust of 1929.ReplyDelete
Focus on essentials, that is the stealing, that is the debasement. It does not matter if you do it by clipping coins, exempt private banks from paying off their obligations, or let private banks create new government money out of thin air under the blessing of a central bank and keynesian economy tsars. Invariably the rich get richer and the poor get poorer. With each and every single government intervention it can be nicely shown how the poor in fact subsidize the rich, despite all the hype to the contrary. It obviously does all follow from fundamental Austrian insights, but still it's quite uncanny when you see it actually happening in practice over and over again in so diverse areas as, say, social security taxes, keynesian fiat money meddling, pharma regulation etc.
In other words, you won't offer any definition of "depression": your comments above are a joke.ReplyDelete
"With each and every single government intervention it can be nicely shown how the poor in fact subsidize the rich
Really? When the rich pay progressive taxes to transfer resources to the poor in social security/welfare payments, this is really the poor subsidizing the rich?
The era of classic Keynesianism (1945-1973) was one of unparalelled real GDP growth, productivity growth, and real wage growth: explain how this happened under a highly interventionist, Keynesian system.
'Cahal, get out of your ivory tower for once and ask any regular people if there have indeed been no depressions since 1929.'ReplyDelete
Jees. There have been recessions but no depressions.
'Now FYI, 19th century gold standard has nothing to do with Austrian economics because Austrians advocate 100% reserve gold standard.'
So you advocate abolishing banking then? With 100% reserves banks cannot lend.
As for the gold standard, this site rebutes it pretty effectively:
'You criticize things you have no idea about'
On the contrary, it appears you neither understand what a depression is or how the banking system works.
LK, yes, good example, note that income taxes, even the highest rates, are mostly paid by working class. Income taxes are not paid by the rich, but by people who are merely _trying_ to get rich. Truly rich, owners of factors of production, rarely pay income taxes. They can simply keep investing their profits back into their businesses. Also, truly rich can afford (international) tax optimization. In other words, income progressive taxes prevent accumulation of capital by ordinary working class. The same accumulation of capital that is required to establish new competitive companies, which increases demand for working class, ie also drives up wages. Note each employee that leaves and sets up her own company, thereby decreases supply of workers by 1 and potentially hires new workers thereby increasing demand for workers.ReplyDelete
In other words, truly rich don't mind high rates of progressive taxes. Just listen to what Bill Gates is saying. They are already rich, so _getting_ rich income tax does not apply to them. They are more worried by their employees leaving and setting up competitive companies, which both threatens their businesses and drives up wages. High progressive income taxes assure that truly rich can always hire cheap labor force which stays cheap forever.
LK, you overestimate the importance of keynesian meddling. True, it can ruin a lot, but most important factor is amount of government spending as percentage of GDP. 1945-1973 had lower government spending, hence higher GDP growth.ReplyDelete
Government spending is the single biggest evil, as it constitutes purely parasitic consumption by people who produce nothing in exchange. Government spending of 50% of GDP, it's like as if you had a civil war running. Personally, I'm truly awed by the ability of capitalism to generate even meagre growth with such disastrously high government spending.
Cahal, I happen to be obliged to have 100% reserves (ie I cannot lend money I don't posess) and I did lend someone $1000 just a month ago, thereby rebutting your ignorance.ReplyDelete
I took a look at your link. Again, rebutting gold standard as of 19th and 20th century is welcomed, but it has nothing to do with Austrian 100% reserve gold standard. What this article in fact rebutts is precisely the problems of fractional reserve banking Austrians are opposed to.
There were many banks that started as 100% gold reserve banks (later corrupted), eg http://en.wikipedia.org/wiki/Bank_of_Amsterdam
LK, no, I have offered to accept your own definition of depression (ie that there were none since 1929), because it actually all the more supports Austrian theory, read again. 19th century gold standard was quite as shitty fractional reserve banking as that of 1920s, so no wonder there were actually more severe (and how can you define severe?) depressions in 19th century than since 1930s ie since many new regulations were introduced in central bank policy to prevent the repeat of 1929 fiat money bubble bust.ReplyDelete
Keynesian ideology has kept actively ruining that obviously, but after the keynesian stagflationary depressions of 1970s (or whatever euphemism you call them) ever new checks were introduced. Still we have business cycle every 5-10 years at least (anavoidable with fractional reserve banking, still heavily boosted by keynesian ideology, even though policymakers are scared to call all the new fiat money pumping just that), but likely indeed not as bad as in 19th century, to the extent that you can "argue" with your euphemisms that they do not actually exist.
LK, yes, good example, note that income taxes, even the highest rates, are mostly paid by working class. Income taxes are not paid by the rich, but by people who are merely _trying_ to get rich.ReplyDelete
Get your facts straight:
The top 10 percent of income earners—those that earn just over 46 percent of all income-pay about 70 percent of federal income taxes. The top 5 percent-those with incomes of $145,300 or more-pay 59.7 percent of all federal income taxes.
the richest 1.3 million taxpayers-those who earn $365,000 or more-pay more income taxes than all of the 66 million American tax filers below the medium in income.
Really, it’s amazing that you think anyone’s going to believe your rambling nonsense. Do you just make things up?
this is a bit weird because while I was at the Mises Institute attending lectures, when we got onto the topic of uncertainty, I could have sworn that the professor (cant remind who it was) said that Mises took influence in Knight.... I guess I can further confirm this once the Mises Institute uploads their Mises University vids up on youtube
LK, no, they are not the richest taxpayers, they are merely taxpayers with highest salaries, ie the part of the working class that is most likely to decrease supply and increase demand for employees by establishing their own companies. The fact that they pay most of the income taxes shows the extent of the process that keeps cheap labor force cheap. You still fail to understand what income tax is.ReplyDelete