Friday, October 10, 2014

Ralph Hawtrey on the Natural Rate of Interest

That is, Ralph Hawtrey’s own peculiar definition of this concept from his book Good and Bad Trade (1913), with his two other interest rates:
“In the absence of a banking system we found that two distinct elements had to be taken into consideration in calculating the rate of interest. First, there was the rate which represented the actual labour-saving value of capital at the level of capitalisation reached by industry. This ratio of labour saved per annum to labour expended on first cost is a physical property of the capital actually in use, and under perfectly stable monetary conditions is equal to the market rate of interest. It may be conveniently termed the ‘natural rate.’ But, secondly, where monetary conditions are not stable, the market rate diverges from the natural rate according to the tendency of prices. When prices are rising the market rate is higher, and when falling lower, than the natural rate, and this divergence is due to the fact that the actual profits of business show under those conditions corresponding movements.

And now, thirdly, we find that where a banking system is in operation the market rate does not even coincide with this second rate of interest, which, as it represents the true profits of business prevailing for the time being, may be called the ‘profit rate.’ The market rate is in fact the bankers’ rate, and is greater or less than the profit rate, according as the bankers wish to discourage or encourage borrowing.” (Hawtrey 1913: 65–66).
This seems to be a rather different formulation of the concept from Wicksell’s own definitions.

Deutscher (1997: 300) defines Hawtrey’s concept of the “natural rate” as the real rate of interest in an equilibrium state with no inflation.

Hawtrey’s third rate corresponds to the conventional “bank rate.”

Deutscher, P. 1997. “Hawtrey, Ralph George (1879–1975),” in D. Glasner and T. F. Cooley (eds). Business Cycles and Depressions: An Encyclopedia. Garland Publishing, New York. 300–302.

Hawtrey, Ralph George. 1913. Good and Bad Trade: An Inquiry into the Causes of Trade Fluctuations. Constable, London.


  1. Is the natural rate of interest theft?

  2. Re Bob Murphy.

    Obviously, according to the law, taxation is not theft.

    Obviously, according to the law, the money Bob pays in taxes is money he owes to the state. It belongs to the state. It is not 'Bob's property'.

    Obviously, according to the law, not paying taxes you owe is a form of theft, like not paying bills you owe.

    So what does Bob Murphy mean when he says that taxation is theft?

    I guess what he means is that he thinks the money he pays in taxes is really his property, and not the state's property. He thinks he doesn't really owe any money to the state.

    In other words he thinks the law is wrong, and by extension that most other people who support the law are also wrong.

    You would have thought that this belief would require Bob Murphy to have a clear and rational theory of property rights, which somehow differed from the standard, commonly-accepted and legal theory of property rights in which taxation is not theft.

    Which is odd because according to Bob, this is precisely what he doesn't have:

    "Some readers may wonder how I can propose a replacement for the State’s “justice” system when I haven’t first offered a rational theory of the source and nature of legitimate property rights. The answer is simple: I don’t have such a theory."

    (Chaos Theory, p.30)

    So Bob claims that the money he pays in taxes is really his property and doesn't belong to state. But according to Bob he has no rational theory to explain why he believes that.

    Funny, huh.

    1. "I guess what he means is that he thinks the money he pays in taxes is really his property, and not the state's property. He thinks he doesn't really owe any money to the state. "

      Right. But from his comments in past posts, he does seem to have a theory: Rothbardian natural rights theory.

    2. In other articles I've seen him suggest that community consensus somehow decides what property rights are and who legitimately owns what.

      And then in his book on the subject he says he has no rational theory of property rights.

      Until he clarifies this, his exclamations that 'taxation is theft' will remain unexplained and mysterious.

    3. maybe you could ask him to clarify, LK, as if I post a comment, he will delete it.

    4. did you get banned? No wonder it feels like the comments section there is a stronghold of idiocy!

    5. He can't argue it's community consensus. He does argue for a "deductive approach to property rights".
      Of course a deductive theory of property rights can never be correct. Property rights are not a dyadic relation between a person and an asset, they are a relation between multiple people and assets. As such they are conventional.
      Now some conventions work better than others, and I lean towards markets and private property, but that is my *conclusion* based on many things, including seeing how well or poorly different property conventions have worked in the past. There is nothing a priori about it.

    6. Quite so, Ken B.

      The support for a significant, though not absolute, degree of private property rights -- which virtually everyone except the communists agree on -- is justified first and foremost empirically: things just work better that way.

    7. And there is a name for this type of ethical thinking: consequentialism.

      We must rationally justify the moral aims we think are needed for society to function properly and fairly and effectively.

      Then present arguments for how to achieve those aims, which will involve a high degree of empirical evidence, inductive argument, and a posteriori justification.

    8. LK,It looks like Ralph Hawtrey and Gustav Cassel shared much views.Over all.Gustav Cassel and Knut Wicksell were main rivals on every level.They really disliked each personally as well as professional.They were as different personalities as one could be.I just found this,RW Batchelder -
      Ralph C. Hawtrey and Gustav Cassel

  3. Philippe was banned. Me, joe, someone else whom I forget, maybe more. Others have remarked on their comments vanishing. I have seen some of yours vanish LK.

  4. "He can't argue it's community consensus"

    Bob likes to vaguely suggest and insinuate, so it can be unclear sometimes what he's actually saying.

    On the one hand whenever he writes about his ancap fantasy land he always assumes that most of the community agree and believe in the ancap ideology. I've never seen him describe a society where most people disagree with ancap ideology but it is enforced regardless.

    See for example:

    “In a civilized community, especially if it had a sophisticated market economy, people wouldn't want "vigilante justice" to be the norm. Instead, most people would want to reassure their neighbors and business associates that they were justified in the way they handled property.

    “…Obviously every reasonable person in the community would see that Thad almost certainly was a thief, and that I was telling the truth. If I went to a reputable judge and presented my case against Thad in his absence, and if the judge agreed with me, then the community would have little sympathy for Thad if I went with professional repo men to retrieve my laptop from Thad's house.”

    “… If I didn't agree to any of [the judges], the roles would be reversed: Thad would go to the most reputable, and have his case heard in my absence. Assuming the judge gave his opinion that Thad should be acquitted, the community would probably now assume that Thad had been innocent all along. If at this point I tried to hire a group of burly repo men to break down Thad's down, no reputable company would agree to my request. They would lose goodwill in the community, because they were helping to "enforce" a ruling that had clearly been overturned.”

    So, what if the community and reputable judges all agreed that Bob Murphy owed money to the community, and agreed that they were justified in sending around burly repo men to retrieve it? Or what if they agreed that Bob Murphy shouldn't have the right to do this or that on his patch of real estate?

    1. Ancap "privatised" justice is incoherent nonsense. What is Thad is super-rich and has own personal private protection agencies? Will there then be war between private protection agencies?

    2. In reply to Philippe's long quotes from Murphy. This is a rhetorical trick from Murphy, and rather a low one: "you already agree with me.". Keshav Srinivasan puts it well on a comment at Murphy's. Follow the chain from here; Keshav does a good job.

      Roddis does the same thing, just more clumsily than Murphy, when he parrots that everyone already accepts common law notions of property rights.

    3. About "reputable". There is a technical point lurking here we shouldn't ignore. Murphy is making an implicit equilibrium argument. He claims that in the competition for adjudication and enforcement honest and fair "reputable" providers will win out. I think that very unlikely, but that claim, not an appeal to consensus, lies behind his words.

    4. Just look at Roddis' comments:

      “Further, there is no reason why such a rule need be adopted as a contractual bylaw by anyone under AnCap unless they thought it was a good idea.”

      So if a subgroup of libertarians in ancap paradise want to ignore Rothbard’s private law codes on theft or murder against outsiders, or other major laws, they just opt out?

      So basically ancapistan could fragment into groups possibly following different laws or only laws they like and even be hostile to one another. Sounds like feudal anarchy to me.

    5. Roddis's ideas are nonsense. If Roddis steals my pig do he and I need to have signed a contract for me toenforce my rights? If not then how is his comment relevant? I just hire thugs to get my pig back, and beat him senseless. What is the bar?

  5. the above quotes from: