David Glasner has an interesting post here on the Hayek versus Sraffa debate:
David Glasner, “Sraffa v. Hayek,” September 9.
“Ludwig Lachmann in his book Capital and its Structure elegantly explained the critical point that neither Sraffa nor Hayek had quite comprehended. The natural interest rate in a barter economy has a perfectly clear meaning, independent of any statistical average, in an intertemporal equilibrium setting, because equilibrium requires that the expected return from holding all durable or storable assets be the same. The weakness of the natural-rate concept is not that it necessarily pertains to a monetary rather than to a barter economy, as Hayek supposed, but that it could only be given meaning in the context of a full intertemporal equilibrium. .... Sraffa did demonstrate that there was no single natural rate of interest in a disequilibrium, but he did not do so for an intertemporal equilibrium in which price changes are correctly foreseen.”
Since an “intertemporal equilibrium” seems to be a condition that will never exist in the real world (just like Mises’s ERE) where we face fundamental uncertainty (in the sense of Frank Knight, Keynes, and Shackle), I am not sure what improvement this insight is on matters. You can’t have a real world state where all economic decisions related to future events are “correctly foreseen.”
Pretty much my thoughts. If we could all correctly foresee the future, the entire world would have been communistic from the outset and we'd probably all be floating around space as tiny gods by now, our every physical need attended to by dry nanomachine colonies stored within our no doubt vastly-altered physical forms.ReplyDelete
Anyway, LK, I have been meaning to ask your opinion on a fellow by the name of Michael Emmett Brady. He's the one who has been referred to as Keynes' Amazon Bulldog. His interpretation of Keynes' General Theory requires intimate familiarity with Keynes' Treatise on Probability, and apparently interpreting the Treatise properly requires familiarity with Boole's Laws of Thought (the latter two books are available for free via Google Books, thank god).
The reason I ask is that his framing of Keynes makes it sound like he made much bigger strides than even contemporary scholars acknowledge, though I haven't been able to read the sequence of books (Boole->Keynes TP->Keynes GT) to adequately understand it, yet.
The other reason I ask is that he's often rather uncharitable about post-Keynesians; his view seems to be that the Davidson tradition "gets" that prediction is right out, but then goes too far and winds up saying markets are fully non-ergodic, despite general ergodicity being demonstrated in their regular spikes and crashes.
Apparently, this is because Davidson inherited a mathematical error from Weintraub, who did so from Shackle & Co., further on down the line.
I dunno, I'm just parroting what I've read. Basically, these arguments are spread over a whole swath of Amazon reviews. If you'd like, I can pick through them to arrange a set of five or so in a way that approximates a single argument, but I was just wondering if perhaps you're already familiar with the gist of it.
I have not heard of Michael Emmett Brady. If you can cut and paste some of his arguments/comments here, that would help.ReplyDelete
"his view seems to be that the Davidson tradition "gets" that prediction is right out, but then goes too far and winds up saying markets are fully non-ergodic, despite general ergodicity being demonstrated in their regular spikes and crashes."ReplyDelete
That's a very interesting view. Where does he write in detail about how the "general ergodicity" of markets is demonstrated in their behaviour?
These mathematical concepts like non-ergodicity and ergodicity can be complex and confusing for the non-mathematically minded, so some insight from an actual mathematician would be helpful, I imagine.
On a different topic, I have often wondered whether earth's long term climate system is non-ergodic or ergodic, but I have never got a straight answer from people who study climate science or mathematics.
I have noticed Michael Emmet Brady again and again and for the love of god I wish he'd arrange his prose better. He has an understanding of probability that I have not yet reached but he appears to reduce Keynes' policy prescriptions down to two main things:ReplyDelete
- Banning loans to speculators to stabilise M2
- Low long term interest rates
He also says Adam Smith advocated something similar.
I'm honestly not sure if he's a genius or just mentally unstable.
On the issue of ergodicity, I note:ReplyDelete
"Davidson (1988) notes that we are dealing with an ergodic stochastic process if (a) for infinite realisations the time and space averages coincide, or (b) for finite realisations the time and space averages converge (with a probability of one) as the number of observations increases."
Stephen P. Dunn, The 'Uncertain' Foundations of Post Keynesian Economics: Essays in Exploration, p. 102.
So is it the case that Brady thinks this definition applies to modern economies with decentralised decision-making by millions of agents on their consumption, investment, employment, etc.?
Does it mean, for example, that if we take the arithmetic mean of the annual unemployment figures over past 100 years, for these for finite realisations, such averages converge (with a probability of one)?
LK: I don't think I can speak for the man, but here are a few of his amazon reviews which may be of interest to you:ReplyDelete
Davidson - The Keynes Solution: The Path to Global Economic Prosperity
Taylor - Maynard's Revenge: The Collapse of Free Market Macroeconomics
Skidelsky - Keynes: The Return of the Master
Rizzo & O'Driscoll - The Economics of Time and Ignorance
Rothbard - Keynes the Man
I agree with Cahal (sup Cahal, I think I have seen you elsewhere); his text formatting is a pain in the ass to get through.
I have a couple of his academic papers saved somewhere, they are considerably easier on the eyes.
Anyway, the single most complete link I can provide to his exposition is probably this one, which is his page of Amazon "So you'd like to..." guides, which are broken down by subject and thus a bit easier to parse.
Michael Emmett Brady does positively review Hyman Minsky's "Stabilizing an Unstable Economy", however.ReplyDelete
He also has papers on the SSRN.
A brief look at Brady's stuff suggests to me that he might indeed be a bit weird. He talks about credit cycles that were apparently noted by Jesus Christ in the New Testament [!]. Come on.ReplyDelete
He also claims that a stock market bubble was inflating after the bailouts. Not true. Commodities bubble, yes. But no stock market bubble.
He goes on to claim that because speculative bubbles take place throughout history they are thus ergodic because they have the same pattern over and over again. Sure, if you allow the word 'same' in that sentences to have a very loose meaning.
TheIllusionist: While this is belated...he may seem eccentric, but he doesn't seem to be a fool, either. I've corresponded with him before, and he's quite well read.ReplyDelete
Jan said:I told it before,Hayek as well as Austrian in general are fare enough from understanding the hypothesis nature of Wicksell´s natural rate concept, as (a working model Wicksell used to elaborate with during his life to try use to understand shift in economy by endogenous money,capital theory etc and it very diffuse,something that Wicksell was aware of)Gunnar Myrdal,was very familar with it since he was a friend and student to Wicksell and Gustav Cassel,and was aware and critical to Wicksell´s natural rate but as the other stockholm schoolars saw it as something of a starting point, to use to develop in another direction that lead to similar conclusion as Keynes , something Hayek was incapabel to.Myrdal wrote about Hayek failure to understand Wicksell,and it seems Hayek never forgot that throw his life.ReplyDelete
So Glasner is spot on when he writes "Only if Hayek were willing to follow Wicksell in defining a price level in terms of some average of prices would Hayek have been able to define a natural rate of interest as some average of own rates. But Hayek explicitly rejected the use of statistical price levels. Hayek’s reply was ineffective, leaving Sraffa the clear winner in that exchange."
You've made a very good point. I don't understand why is Glasner making this such a big deal. Sraffa understood that this was not about inertemporal equilibium. I think Hayek did too. Glasner is saying: yes, there is no such rate in practical world but let me just theorize here. I've followed the Glasner posts about It and the comments. Then Nick Rowe reads Lachmann's explanation and says: yeah, it is no biggie. It is a biggie!ReplyDelete
It's a very big deal to those who are talking about natural rate. Austrian ABCT collapses, so does neoclassical economics. They are very tight brothers any way.