Sunday, October 25, 2015

The Consequences of Postmodernist Truth Relativism

One of the core beliefs of Postmodernism is this:
Proposition (1): there is no such thing as objective truth; all “truths” are culturally relative.
If one believes that there are no objective truths, then it follows that nothing you can say is objectively true, not even the statement that “there are no objective truths.” What sort of statement, then, is Proposition (1) if it is not objectively true? Is it rhetorical hot air? Is it akin to fictitious statements in poetry or novels? If not, what?

Moreover, why should anyone believe you? What justification do you offer to people to believe this proposition, if you do not even assert it as an objectively true statement?

Even worse, if Proposition (1) were true, then it would follow that all the propositions of Postmodernism are not objectively true, but merely “subjectively” true within the Postmodernism subculture. There is no reason why hostile people from other cultures or subcultures need believe them.

But why, then, when people criticise Postmodernist doctrines do the Postmodernists react with hysterical outrage and act like their core beliefs are objectively true and their critics are wrong?

If they took their beliefs seriously and they were consistent, they would say this in response to critics:
“Of course, it is true that all Postmodernist beliefs are not objectively true and are only relatively true within the Postmodernist subculture. Therefore within your own subculture your epistemological beliefs are true.”
The trouble with this, however, is that it cannot evade the following questions:
(1) why, then, should anyone who is not a Postmodernist believe the Postmodernist beliefs and what justifications can Postmodernists offer to their critics? What, for example, can the Postmodernists say to genuine Nazis to dissuade them from their beliefs?

(2) it cannot evade the issue that we live in a mind-independent world with a high degree of regularity and consistency, and that language can refer to and represent that reality. If language can represent reality, then it is but a short step to the correspondence theory of truth and objective empirical truths.
Let us start with (1).

If Postmodernist truth relativism and cultural relativism were taken seriously, then it follows that all the “truths” of official Nazi culture – racism, authoritarianism, anti-Semitism, homophobia, and German racial supremacism – were valid within Nazi culture and Nazi culture was equal to all other cultures (for that is the clear consequence of believing that all cultures are equal).

On what grounds, then, do Postmodernists object to the ideas of Nazi culture? How would they argue against it? They cannot, for example, argue that the Nazi belief that certain races are genetically inferior to other races is objectively false, for the unhinged Postmodernist core belief is that there are no objective truths (and that includes no objective empirical truths in science).

Even worse, the Postmodernist associated belief is that all cultures are equal and of equal value. So, once one beleives that, it is not possible to object to Nazi culture on moral and aesthetic grounds (especially when moral relativism is also a tenet of Postmodernism!).

Now let’s move to point (2). The analytic philosopher John Searle gives a powerful argument for this:
“The problem that all these guys [namely, postmodernists and poststructuralists] have is that once you give me that first premise—that there is a reality that exists totally independently of us—then the other steps follow naturally. Step 1, external realism: You’ve got a real world that exists independently of human beings. And step 2: Words in the language can be used to refer to objects and states of affairs in that external reality. And then step 3: If 1 and 2 are right, then some organization of those words can state objective truth about that reality. Step 4 is we can have knowledge, objective knowledge, of that truth. At some point they have to resist that derivation, because then you’ve got this objectivity of knowledge and truth on which the Enlightenment vision rests, and that’s what they want to reject.”
Postrel, Steven R. and Edward Feser. 2000. “Reality Principles: An Interview with John R. Searle,” Reason (February)
As Searle points out, once we admit that there is an ordered reality independent of our thoughts about it, and that we can use language consistently to refer to objects and processes in that reality, then the other steps follow.

Many of our words, and the concepts they represent, can and do refer to objective things in reality, and clearly many concepts we have (signified by words or sounds) are constrained, limited and defined by reality. For example, the modern English word “zebra,” as understood by competent speakers of English, cannot simply refer to hedgehogs: the concept signified by the word “zebra” really is constrained by mind-independent things we see in reality.

Or, as some analytic philosophers would say, language can be isomorphic to thought (including concepts and ideas), and in turn language can indirectly correspond and refer to reality (Schwartz 2012: 182), as is also argued by modern linguists and in the discipline of evolutionary epistemology. Objective truth follows from the way language can describe or picture reality. This leads us directly to the most convincing theory of truth: the correspondence theory.

And once we recognise the reality of objective empirical truths, we have a basis by which rational human beings can resolve their differences, settle disputes, correct errors and, above all, rationally deal with political, social, cultural and economic disagreements.

By contrast, Postmodernists have no such strategy – all they have is truth relativism and cultural relativism, utterly intellectually bankrupt concepts.

Schwartz, Stephen P. 2012. A Brief History of Analytic Philosophy: From Russell to Rawls. Wiley-Blackwell, Chichester, UK.

Tuesday, October 20, 2015

The Poststructuralists as Frustrated Marxists-Communists

What is wrong with the Left today? In my view, a big problem is the ideology called Postmodernism.

Chomsky in the video below gives us some fascinating insights into the origins of French Poststructuralism – and also into its modern offshoot Postmodernism.

Remember he is talking about the origin of French Poststructuralism in the early 1970s.

Chomsky understood the origins of Poststructuralism very well: many of the big French Poststructuralists – like Roland Barthes (1915–1980) and Michel Foucault (1920–1984) – had been Marxists, and some of them Stalinists and Maoists.

They become disillusioned with this cult-like ideology by the late 1960s and early 1970s, which had also been associated with Structuralism (the fashionable academic theory that replaced Existentialism in post-WWII France). The result? These frustrated Marxists turned to Poststructuralism, and to what they believed was a new “radical” critique of “bourgeois” society and civilisation. Unfortunately, this involved all sorts of unbelievably stupid nonsense such as truth relativism, the idea that texts don’t really have authors, and that texts can mean anything you like (no matter how insane your interpretation).

A crucial foundational text for the emerging Poststructuralist movement was Roland Barthes’ essay “The Death of the Author” (Barthes 1967 = Barthes 1977). In this, Barthes essentially argued that critics should divorce their study of a text from its author, and that a text is not a product of its author with a definite and fixed meaning intended by the author (see Barthes 1977: 146).

The radical political agenda for this nonsense was expressed quite openly, explicitly and without any shame by Barthes in this article, as follows:
“Once the Author is removed, the claim to decipher a text becomes quite futile. To give a text an Author is to impose a limit on that text, to furnish it with a final signified, to close the writing. Such a conception suits criticism very well, the latter then allotting itself the important task of discovering the Author (or its hypostases: society, history, psyche, liberty) beneath the work: when the Author has been found, the text is ‘explained’ – victory to the critic. …. literature (it would be better from now on to say writing), by refusing to assign a ‘secret’, an ultimate meaning, to the text (and to the world as text), liberates what may be called an anti-theological activity, an activity that is truly revolutionary since to refuse to fix meaning is, in the end, to refuse God and his hypostases – reason, science, law” (Barthes 1977: 146).
In other words, let us ignore authors and pretend texts can mean anything. In the process, we can emancipate ourselves from “reason, science, [and] law.”

As an aside, some people seem to think that Michel Foucault was some great exception to the absurdity of the Poststructuralist movement, but this is entirely wrong and anyone who bothers to read Foucault’s essay “What is an Author?” (Foucault 1984 [1969]) can see clearly he was fully on board with the stupidity.

Any person who wants to be “liberated” from reason and science is simply unhinged. The Poststructuralist ideology and its Postmodernist offspring was nothing but the most outrageous betrayal of the Left, which, if anything, ought to be strongly defending reason and modern science.

Let us just probe one point in what follows. For example, what would being “liberated” from modern science even involve? Would you be “liberated” from modern science-based medicine? Liberated from scientific principles that ensure that our engineers built buildings, houses and other structures that don’t just collapse on people’s heads and kill people?

Liberated from vaccination programs or scientific principles of public health and sanitation that protect first-world countries from diseases that still plague the developing world? Liberated from the germ theory of disease? Liberated from the principles of internal combustion and science that make motor vehicles work?

The few people in our world today who seriously want to be “liberated” from modern science are mostly religious fundamentalists of the most extreme kind – people who don’t accept Darwinian evolution or even modern medicine. Is that who the progressive left wants to stand with these days?

It is not surprising that the Postmodernist left took up this bizarre hostility to science to the point where it had become an embarrassment to anyone who cares to look at the issue seriously.

If the left wants to reform and strengthen itself, a good place to start is simply for left-wing people to subject Postmodernism to the withering criticism and contempt it deserves, without any concern for offending fellow leftists. Postmodernism does very little except rot your brain – it is the enemy of reason, science, logic, progressive economics and rational discourse.

Further Reading
“Postmodernism: Its Family Tree and Origins,” February 8, 2015.

“Quantum Weirdness and Nonsense,” October 4, 2015.

“Foucault’s “What is an Author?”: A Critique ,” March 7, 2015.

“Lectures on Russian Formalism and Semiotics and Structuralism,” February 19, 2015.

“Postmodernism and Third World Progressive Movements,” February 9, 2015.

“Yanis Varoufakis on Postmodernism and Economic Methodology,” February 16, 2015.

“The Left needs to abandon Postmodernism,” February 5, 2015.

“Chomsky on Žižek and Lacan,” February 6, 2015.

“Nonsense and Postmodernist Writing,” February 7, 2015.

Barthes, Roland. 1967. “Death of the Author,” Aspen 5/6.

Barthes, Roland. 1977. “Death of the Author,” Image Music Text (trans. Stephen Heath). Fontana, London. 142–148.

Foucault, Michel. 1984 [1969]. “What is an Author?,” in Paul Rabinow (ed.), The Foucault Reader. Pantheon, New York. 101–120.

Saturday, October 17, 2015

The Filthy Anti-Capitalist Mentality – of Austrian Economics

And I mean the anti-capitalist mentality of the Austrian libertarian cult and certainly in its Rothbardian form, because – make no mistake – these people are anti-capitalist in their core ideological beliefs, no matter how much we have to hear of their blustering nonsense.

Let us take the crucial points which make Austrian libertarianism anti-capitalist:
(1) Opposition to fractional reserve banking
Rothbardians and many other Austrian libertarians oppose even private capitalist fractional reserve banking, but their arguments for doing so are utterly flawed, wrong or just plain ignorant. In truth, fractional reserve banking is neither inherently immoral nor fraudulent, but is a fundamental and indispensable basis of capitalism. You cannot have modern capitalism without it.

In its ignorant opposition to fractional reserve banking, Rothbardianism and other Austrian economics following the Rothbardian view are actually profoundly anti-capitalist and (on their own principles!) would require coercive violations of private property rights and free contract to ban fractional reserve banking, if they were to implement their utopian anarcho-“capitalist” system.

(2) The Austrian business cycle theory (ABCT) when we understand Point (1)
Because of their mistaken view in (1), Austrians and Rothbardians – whether they want to admit it or not – are logically committed to the view that business cycles are a core and inevitable element of capitalism. In essence, Rothbardians assert that, in order to avoid business cycles, not only central banking but also private-sector fractional reserve banking must be abolished.

However, as we have seen, fractional reserve banking is a fundamental basis of capitalism and is not fraudulent. It cannot be abolished without rejecting capitalism. Capitalism is stuck with fractional reserve banking. It follows that Austrians and Rothbardians (if they were honest) must admit that capitalism – since fractional reserve banking is at its heart – is inherently and badly flawed and naturally tends to produce business cycles in its laissez faire state. Laissez faire capitalism is therefore obviously not the best system we could have. And Austrians must therefore hold the view that capitalism is inherently bad. They are just filthy anti-capitalists like their opponents.
Now let’s expand on these points.

What is the major argument Austrians have against fractional reserve banking? The Rothbardians argue that fractional reserve banking is fraudulent because it supposedly involves two incompatible property claims to the same money “deposited” in a bank whenever one opens a demand deposit.

However, this is simply a blatant falsehood, because when you open a demand deposit, you utterly forfeit your property rights to the money and transfer the ownership rights in the money to the bank. The money becomes the bank’s property. All you get in return is an IOU or debt instrument, promising to repay the debt owed to you on demand. Therefore there are not two property claims to the same money: there is only one.

I cannot be bothered repeating all my refutations of every ignorant and absurd Austrian argument against fractional reserve banking, but you can read them here:
“Hayek’s Original View of Fractional Reserve Banking,” February 29, 2012.

“Fractional Reserve Banking, Option Clauses, and Government,” January 31, 2012.

“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.

“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.

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

“Huerta de Soto on the Mutuum Contract: A Critique,” August 11, 2012.

“A Simple Question for Opponents of Fractional Reserve Banking,” August 17, 2012.

“Chapter 1 of Huerta de Soto’s Money, Bank Credit and Economic Cycles: A Critique,” August 31, 2012.

“Huerta de Soto on Justinian’s Digest,” September 1, 2012.

“Huerta de Soto on Banking in Ancient Rome: A Critique,” September 2, 2012.

“A Critique of Rothbard on the History of English Bailment Law,” August 11, 2014.

“Fractional Reserve Banking is a Fundamental Part of Capitalism,” August 8, 2014.

“The Mutuum Contract in Henry de Bracton and English Law,” August 1, 2014.

“Coggs v. Bernard and the History of English Bailment Law,” July 31, 2014.

“A Critique of Murray Rothbard on the Origins and Legal Basis of Fractional Reserve Banking,” July 30, 2014.

“Foley versus Hill and the History of Fractional Reserve Banking,” July 29, 2014

“Mutuum versus Bailment in Banking,” July 24, 2014.

“Carr versus Carr (1811) and the History of Fractional Reserve Banking,” July 23, 2014.

“Rothbard on ‘Deposit’ Banking: A Critique,” July 22, 2014.
Every stupid and ignorant Austrian argument is dealt with above, from Huerta de Soto’s unbelievable errors on banking and the mutuum contract in ancient Rome to Rothbard’s gross misunderstanding of the court case Carr versus Carr (1811).

When we get to the essence of the matter it is this: Rothbardians and their ignorant cult leader Rothbard tried to paint fractional reserve banking as an alien, unnatural and fraudulent addition to pure capitalism in its “garden of Eden” state, which was the reason for business cycles.

We can see this in Rothbard’s attempt to do just this in his book Economic Depressions: Their Cause and Cure, in the passage as follows:
“What, then, are the causes of periodic depressions? Must we always remain agnostic about the causes of booms and busts? Is it really true that business cycles are rooted deep within the free-market economy, and that therefore some form of government planning is needed if we wish to keep the economy within some kind of stable bounds? Do booms and then busts just simply happen, or does one phase of the cycle flow logically from the other?

The currently fashionable attitude toward the business cycle stems, actually, from Karl Marx. Marx saw that, before the Industrial Revolution in approximately the late 18th century, there were no regularly recurring booms and depressions. There would be a sudden economic crisis whenever some king made war or confiscated the property of his subject; but there was no sign of the peculiarly modern phenomena of general and fairly regular swings in business fortunes, of expansions and contractions. Since these cycles also appeared on the scene at about the same time as modern industry, Marx concluded that business cycles were an inherent feature of the capitalist market economy. All the various current schools of economic thought, regardless of their other differences and the different causes that they attribute to the cycle, agree on this vital point: that these business cycles originate somewhere deep within the free-market economy. The market economy is to blame. Karl Marx believed that the periodic depressions would get worse and worse, until the masses would be moved to revolt and destroy the system, while the modern economists believe that the government can successfully stabilize depressions and the cycle. But all parties agree that the fault lies deep within the market economy and that if anything can save the day, it must be some form of massive government intervention.” (Rothbard 2009 [1969]: 12–14).
Rothbard, of course, blamed “fraudulent” and “immoral” fractional reserve banking as well as central banks for the business cycle. As we have seen, he thought fractional reserve banking was some alien and anti-market addition to a pristine, wonderful and pure form of capitalism.

Rothbard was laughably wrong here. It is particularly absurd because it never seems to have occurred to Rothbard that the idea that the cause of business cycles lies within capitalism was actually a view of Hayek!

Hayek – to his credit – admitted that if one were to take his absurd business cycle theory seriously, we are stuck with the view that capitalism is inherently flawed and doomed to produce endless endogenous business cycles:
“we can … see how nonsensical it is to formulate the question of the causation of cyclical fluctuations in terms of ‘guilt,’ and to single out, e.g., the banks as those ‘guilty’ of causing fluctuations in economic development. Nobody has ever asked them to pursue a policy other than that which, as we have seen, gives rise to cyclical fluctuations; and it is not within their power to do away with such fluctuations, seeing that the latter originate not from their policy but from the very nature of the modern organization of credit. So long as we make use of bank credit as a means of furthering economic development we shall have to put up with the resulting trade cycles. They are, in a sense, the price we pay for a speed of development exceeding that which people would voluntarily make possible through their savings, and which therefore has to be extorted from them.” (Hayek 2008: 102).
According to the logic of the ABCT, since capitalism naturally has an endogenous/elastic money supply, not only from fractional reserve banking, but also from things as simple as bills of exchange and promissory notes, it will be hit by perpetual business cycles. Capitalism has an inherent and natural tendency to produce such destabilising cycles.

It is no surprise that, when Hayek was propounding his business cycle theory at the LSE in the 1930s, his theory was even attractive to socialists, as Skidelsky notes:
“Hayek, like Keynes, hoped to prevent a slump from developing by preventing the credit cycle from starting. But his method was very different. It was to forbid the banks to create credit, something which could be best achieved by adherence to a full gold standard. He was quite pessimistic, though, about this being practical politics, so his conclusion, like Keynes’s, was that a credit-money capitalist system is violently unstable – only with this difference, that nothing could be done about it. One can understand why Hayek’s doctrines attracted a certain kind of socialist: they seemed to reach Marx’s conclusions by a different route. Because of the Austrian school’s close attention to the institutional and political setting of a credit-money economy, Hayek’s picture of the capitalist system in action was altogether more sombre than that of conventional Anglo-Saxon economics, with its story of easy adjustments to ‘shocks.’” (Skidelsky 1992: 457).
In other words, Hayek’s theory in the 1930s was seen as a pessimistic criticism of capitalism as inherently flawed that naturally attracted people sympathetic to socialism – a point which splendidly confirms everything I have been arguing here.

Austrian economics has a profoundly anti-capitalist mentality, and they should admit this instead of denying the heart and soul of their theory, like the delusional idiot Rothbard.

So, to all Austrians everywhere, it seems to me you need to come out of the closet and embrace your inner and suppressed hatred of capitalism. I’m sure you’ll feel a lot better when you admit to being the filthy anti-capitalist you really are.

Hayek, F. A. 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.

Rothbard, M. 2009 [1969]. Economic Depressions: Their Cause and Cure. Ludwig von Mises Institute, Auburn, Ala.

Skidelsky, R. J. A. 1992. John Maynard Keynes: The Economist as Saviour, 1920–1937 (vol. 2), Macmillan, London.

Further Reading
“Rothbard Shoots Himself in the Foot: Why the ABCT is Anti-Capitalist,” June 25, 2012.

Thursday, October 15, 2015

Steve Keen on Why Economists Disagree

The talk below by Steve Keen is the first lecture in his introductory subject “Becoming an Economist” at Kingston University (in the UK), though personally I wish he had not shown that stupid rap video about Keynes and Hayek, which shows very little except that the tiresome libertarians who made it do not understand Keynes’ thought.

Tuesday, October 13, 2015

Bill Mitchell on the Euro Crisis and Austerity

This is a lecture by Bill Mitchell given at the University of Helsinki on Friday, October 9, 2015. He discusses the Eurozone crisis and austerity. Some more background is here.

Thursday, October 8, 2015

Walter Block’s An Austrian Critique of Mainstream Economics: A Critique on Epistemology

This is a talk by Walter Block on Austrian economics and its disagreements with neoclassical economics, given at the Mises Institute in Auburn, Alabama, the US, on 21 July, 2015.

I want to focus on epistemological issues here.

Let us review the epistemological problems here one by one:
(1) the Austrians badly misunderstand the philosophy and epistemology of the logical positivists.

For Austrians like Block the expression “logical positivism” is simply an ignorant term of abuse for all empiricists whom they regard as their opponents. However, there are (to my knowledge) virtually no logical positivists today, and strict logical positivist philosophy is not what is used by empiricist modern opponents of Austrian praxeology. In fact, logical positivism had had its day and had been largely abandoned by the 1950s. Modern moderate empiricism is not logical positivism.

The central element of logical positivist philosophy was the verifiability criterion for meaningfulness: the view that if a statement could (1) not be categorised as a true analytic a priori statement and (2) was not a synthetic a posteriori statement that could be verified, then it was a meaningless metaphysical proposition. This idea of course has very serious problems and proved the Achilles’ heal of logical positivism, and one of the many reasons for its rejection in mainstream analytic philosophy. Even the leading British logical positivist A. J. Ayer admitted that the core of logical positivism was wrong and it was badly flawed as a complete, coherent philosophy.

But moderate empiricists in mainstream analytic philosophy today are not logical positivists and do not accept the verifiability criterion, facts which Austrians seem ignorant of. These embarrassing philosophical errors are also committed by the Austrian Hans-Hermann Hoppe.

(2) If (1) isn’t bad enough, Block conflates logical positivism with Popper’s falsificationist principle. Popper thought that all the empirical propositions of science must pass the test of not being falsified: as long as a current scientific theory has not been falsified, then a rational person should accept it, but it must still be subject to testing in the future so that continued acceptance of a theory must depend on it continuing to pass the falsifiability test.

But that Popperian epistemological principle of falsificationism is not logical positivism, which was instead concerned with the verifiability of empirical propositions as a test of their meaningfulness.

Worse still, Block seems (if I am not mistaken) to imply that modern empiricists and the older logical positivists never accepted the necessary truth of analytic or pure mathematical statements, yet again the same mistake made by Hans-Hermann Hoppe. For the real logical positivist perspective on epistemology, see here.

(3) Block fails to mention or make explicit that the epistemological basis of Mises’ praxeology is Kantian synthetic a priori knowledge: the idea that there are statements both empirical (synthetic or non-analytic) and necessarily true of the real world. Kantian synthetic a priori knowledge, however, cannot be accepted as real nor defended anymore, and all alleged synthetic a priori statements can be re-interpreted as either analytic statements or (2) empirical statements (= synthetic a posteriori). As Block notes, even mainstream neoclassicals reject Mises’ praxeology because even they cannot accept such a flawed and unconvincing epistemological basis to economic science.

Yet, as Block notes, the Austrian school itself is divided over the very epistemological foundations of economics: there are Austrians who follow Hayek in rejecting praxeology and apriorism and who embrace a moderate empiricist method. Thus the Austrian school cannot even agree itself on whether praxeology is right or wrong.

(4) in Block’s argument about the exchange of a pen for a tie, he has not proved anything with necessary truth, for the simple reason that the person taking the tie might actually be mentally ill and have no opinion about the pen or the value of the tie at all, or alternatively he might be lying and hate the pen and like his tie more but be merely pretending to like it. The assumption that the person must by necessity value the pen more than the tie is sloppy logic and plainly untrue.

(5) Block’s assertion that there is a necessary tendency for profits to fall to zero in Mises’ evenly rotating economy would be necessarily true, but only as an analytic a priori statement asserted of a purely imaginary world or abstract model. The point is: it would not be an empirical statement, and so its necessary truth is a property of its analyticity. The only way one could maintain the necessary truth of something empirical (or synthetic) is to defend Kantian synthetic a priori knowledge. But, as we have seen above, the Austrian epistemology of Mises based on Kantian synthetic a priori knowledge cannot be seriously sustained or defended and this is why Austrian attempts to assert necessary truths of the real world fail time and again.

(6) Block also appears to be arguing that there is a necessary tendency for profit rates to be equalised in capitalism. This is untrue, and requires assuming certain assumptions about the real world that are not true, such as an unrealistic degree of competition across markets, no significant market power, no or minimal barriers to new entry, no strong patent rights giving certain companies a great advantage unavailable to competitors, no aggressive use of capacity utilisation as a barrier to entry, and no significant, persistent differences in profit mark-ups in different sectors and industries.

To what extent there is a tendency for profits to be equalised in real world capitalism is nothing but an empirical question.

(7) So too regarding the idea that minimal wage laws always cause unemployment when this is asserted as a necessary truth, it remains nothing but an analytic a priori statement asserted of a purely imaginary world or abstract model. The question whether any particular minimal wage law tends to cause unemployment in the real world is an empirical question.
Further Reading
“Why Should we reject the Existence of Synthetic a priori Knowledge?,” May 23, 2014.

“Hoppe’s Caricature of Empiricism,” September 10, 2013.

“Hoppe on Euclidean Geometry,” September 11, 2013.

“Hoppe on Euclidean Geometry, Part 2,” September 14, 2013.

“Hayek on Mises’ Apriorism,” May 23, 2011.

“Mises versus Ayer on Analytic Propositions and a priori Reasoning,” March 16, 2014.

“Kirzner on Hayek on Prices,” May 22, 2013.

“Does the Market Tend to Drive Profits to Zero?,” January 11, 2014.

“Sraffian Long-Run Equilibrium Prices of Production and Post Keynesianism,” April 11, 2015.

“Epistemology in Modern Analytic Philosophy: A Review,” September 17, 2013.

Tuesday, October 6, 2015

Why A. J. Ayer was a Great Philosopher

It can be summed up just by watching his comments here in the video below in an interview with Bryan Magee.

Remember that Bryan Magee’s opening question (“But now it must have some real defects: what do you now in retrospect think that the main shortcomings of the movement were?”) refers to Ayer’s philosophy of logical positivism.

Why was Ayer a great philosopher? Because in contrast to so many other philosophers whose work has obviously been debunked and refuted, but who continue to defend their discredited ideas like the hacks they are, A. J. Ayer cheerfully admitted that the core of logical positivism was wrong (“nearly all of it was false,” he laughs), and it was badly flawed as a coherent philosophy. He moved on with his philosophy and work, without some endless, dogmatic defence of logical positivism.

That may seem like a trivial point, but it is not. How many Postmodernist or Poststructuralist charlatans would gracefully admit their theories are wrong (and they are), and move on to some other research program?

Monday, October 5, 2015

The 1870s Economic Crisis in America: Reality versus Rothbard

It doesn’t matter how many times Rothbard’s view of the 1870s is refuted, Austrians and libertarians simply continue to shun reality and repeat Rothbard’s errors (such as here and here).

It can’t hurt to review the data.

First, industrial production. The best and most recent index of US industrial production in this era is Davis (2004) (see Hanes 2013: 121), which draws on many more industrial products and services than other, older indices.

The data from Davis shows that US industrial production contacted from 1873 to 1875, then had a modest recovery in 1876, but then stagnated in 1877:
US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index

1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2

1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).
Even in 1877 US industrial production remained below its 1873 peak. On the basis of this data, Davis argued that there was a recession in the US probably from 1873 to 1875. Strangely, the real GDP estimates in Balke and Gordon (1989) only show a recession in 1874 in this decade, but Davis’s data clearly are a much better guide to what was happening in the US industrial sector then Balke and Gordon’s work, and we should go with Davis.

The data on US industrial production are best seen in the graphs below.

As we can see in the graph above, the recession and stagnation in industrial production from 1873 to 1877 are clearly visible as compared with the ten years of growth both before and after this period.

We can also see that the serious take-off in the recovery of industrial production only happened from 1878.

It is evident, then, that something went badly wrong with US industrial production from 1873 to 1877, and this is confirmed by the unemployment estimates from this period from Vernon (1994).

As we see here, unemployment was rising from 1873 and kept on rising until 1878. That would strongly confirm that the US economy was in recession in these years or at the very least was stagnating (another point is that, on the basis of analysis of the 1890s and the likelihood that 19th century labour force participation rates were countercyclical in the sense of rising during recessions, there is at least a reasonable case that Vernon’s data seriously underestimates US unemployment in the 19th century, so that the real unemployment rate for the 1870s may have been considerably higher).

All in all, then, it is not possible to claim that the US economy was booming in these years.

Now compare the facts above with the ignorance of Murray Rothbard:
“Orthodox economic historians have long complained about the ‘great depression’ that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged ‘monetary contraction’ never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

It should be clear, then, that the ‘great depression’ of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.” (Rothbard 2002: 154–155).
Rothbard makes the following claim about our relevant period:
“Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income.” (Rothbard 2002: 154–155).
Of course, if one wants to define “depression” as a fall in real GDP of 10% or more (a definition which I accept), then it is likely that the 1873 to 1879 period was not an era of depression. Rather, it was most likely a period of serious recession (where “recession” means a fall in real GDP of less than 10%) and then stagnation of industrial production and rising unemployment, and probably pessimistic business expectations leading to deficient investment.

Moreover, Rothbard is wrong on the following points:
(1) there was no large expansion of industry in this period: our best data shows industrial production was in recession from 1873 and then stagnated until 1877. Indeed for the 1870s as a whole there were 4 years in 1873, 1874, 1875 and 1877 when industrial production was in recession or essentially stagnating.

(2) if industrial production was in crisis, then it is very difficult to see how there could have been a “large expansion” of “physical output” or “net national product” in these years, despite the real GDP estimates of Balke and Gordon (1989: 84): they estimate that average real GDP growth from 1873 to 1877 was 2.8% (which in any case is far lower than Rothbard’s estimate). If real GDP was experiencing such growth rates, one must ask: which sectors were growing? Clearly the industrial sector was not.

(3) there was no “extraordinarily large expansion of … real per capita income” in the relevant period. Even if one accepts the estimates of Balke and Gordon (in Maddison 2006: 87–89) the average real per capita GDP growth rate from 1873–1879 and even from 1871–1880 was just 1.64%: one of the lowest growth rates of all time in relevant periods of economic and historical significance in US history.

(4) finally Rothbard never considered unemployment, which by one influential modern estimate by Vernon (1994) began rising from 1873 and kept on rising until 1878.
Our inescapable conclusion is that the Austrian claim – derived from Rothbard – that the 1870s were an uninterrupted era of “prosperity …[,] economic growth, and the spread of the increased living standards” is an outright historical travesty.

And while Rothbard might claim that he did the best with the data he had at the time (e.g., older and now discredited data from Friedman and Schwartz 1963), that is no excuse for modern Austrians repeating his false and flawed analysis today.

Further Links
“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“US Unemployment Graph, 1869–1899,” February 27, 2013.

“Huerta de Soto gets it Wrong on the Gold Standard,” December 20, 2014.

“Libertarian Gold Standard Myths Never Die,” January 13, 2015.

“Real US GDP 1870–2001,” January 13, 2015.

“US Real Per Capita GDP from 1870–2001,” September 24, 2012.

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790-1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Friedman, M. and A. J. Schwartz, 1963. A Monetary History of the United States, 1867–1960. Princeton University Press, Princeton.

Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. 116–135.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Newman, Patrick. 2014. “The Depression of 1873–1879: An Austrian Perspective,” Quarterly Journal of Austrian Economics17.4: 474–509.

Rothbard, Murray N. 2002. A History of Money and Banking in the United States. Ludwig von Mises Institute, Auburn, Ala.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Sunday, October 4, 2015

Quantum Weirdness and Nonsense

The strange world of quantum mechanics seems to have a natural appeal to irrational and foolish people like Postmodernists and others who deny objective empirical truth or the laws of thought.

In arguments with such people when you defend the reality of real objective empirical truths, you will frequently find such people immediately appealing to various weird phenomena in quantum mechanics to defend themselves. “Doesn’t quantum mechanics prove that there is no objective truth?,” they might say.

The use (or, rather, abuse) of quantum theory in this manner is deeply mistaken and fallacious, however, for the simple reason that what is true for, and actually does happen in, the infinitesimally small world of quantum mechanics need not be true at all for large objects in the macroscopic world in which human beings live. Let us take one example: abuse of quantum mechanics in attempts to dismiss the laws of logic.

For example, in the Schrödinger’s cat thought experiment, a cat is imagined as being both alive and dead simultaneously, because it is imagined as being in a state of quantum superposition.

Now, if it were true that a cat could naturally be in such a state, wouldn’t this disprove the Law of Noncontradiction, the law of logic that one cannot assert as true at the same time (1) a proposition p and (2) its negation (¬p) (or, that is to say, one cannot assert p ∧ ¬p without fatal self-contradiction)?

The answer to this lies in asking: how realistic is the Schrödinger’s cat thought experiment? Actually, there is no rational reason to think large macroscopic objects like cats could ever naturally be in a state of quantum superposition at all: the Schrödinger’s cat thought experiment is abstract, unrealistic and not possible in nature (Newton 2000: 166).

To cite some recent research here, some physicists have found evidence that time dilation effects caused by gravity cause the natural collapse of quantum superpositions in objects the size of molecules and larger objects, and that on a system like the Earth (with a given gravity), even with current technology, the size limit for an object in a state of quantum superposition is about a millimetre (which actually seems to be surprisingly large!). Of course, scientists might use better technology to overcome this natural limit in experiments and so create larger objects in a state of quantum superposition, but this is obviously a highly artificial activity that does not – as far as we know – happen in nature.

So the point is: whatever weirdness that happens at quantum scales in nature stays there and does not naturally intrude into our macroscopic world, so that it does not invalidate or refute the laws of logic as applied to the natural macroscopic world. Nor does it refute the arguments for real objective truth or the laws of logic when the latter are carefully restricted to the correct domain in which they operate: the natural macroscopic world of human life and large objects in it.

Gerry, Christopher C. and Kimberley M. Bruno. 2013. The Quantum Divide: Why Schrödinger’s Cat is either Dead or Alive. Oxford University Press, Oxford.

Newton, Roger G. 2000. Thinking about Physics. Princeton University Press, Princeton, N.J.

Pikovski, Igor, Zych, Magdalena, Costa, Fabio and Časlav Brukner . 2015. “Universal Decoherence due to Gravitational Time Dilation,” Nature Physics

Saturday, October 3, 2015

Posts on 19th Century Economic History (Updated)

Below are updated links to various posts on 19th century economic history, in the US, the UK, Australia and Japan, as well posts analysing the deflation of 1873 to 1896.

(1) General
“The Gold Standard did not Prevent Price Inflation,” October 26, 2012.

“The Classical Gold Standard Era was a Myth,” March 18, 2013.

“The Profit Deflation of the 1890s,” June 13, 2013.

“Alfred Marshall’s Judgement on the ‘Depression’ of 1873–1896,” June 13, 2013.

“S. B. Saul on the Profit Deflation of the 1873–1896 Period,” June 14, 2013.

“The Original Economic Use of the Word ‘Inflation’?,” August 4, 2014.

(2) The US
“Woods on ‘Sound Money’ and Deflation: A Critique,” March 17, 2013.

“19th Century Deflation and Recession in the US,” February 9, 2013.

“US GNP Estimates in the Recession of the 1890s,” January 18, 2011.

“Government Intervention, James J. Hill and the Great Northern Railway,” July 26, 2011.

“US Real GNP Estimates 1869–1879,” December 4, 2011.

“The US Recessions of the 1890s in Balke and Gordon,” December 5, 2011.

“Why was US Unemployment so High in the 1890s?,” December 6, 2011.

“US Real GNP Growth in the 1880s,” December 6, 2011.

“Real US GNP Growth Rates 1870–1900 in Balke and Gordon,” December 6, 2011.

“Real US GNP Growth Rates 1870–1900 in Romer,” December 6, 2011.

“Real GDP and GDP per capita, 1870–1913, Selected Nations,” December 7, 2011.

“Real US GNP Growth Rates 1870–1913 in Balke and Gordon,” December 8, 2011.

“Real US GNP Growth Rates 1870–1913 in Romer,” December 9, 2011.

“US Unemployment in the 1890s,” January 24, 2012.

“US Unemployment, 1869–1899,” January 26, 2012.

“Real US GNP Growth Rates, 1873–1896,” February 26, 2012.

“Thomas E. Woods on Keynesian Predictions vs. American History: A Critique,” May 29, 2012.

“Davis on US Recessions in the 19th Century,” August 25, 2012.

“Reply to ‘Unemployment, Deflation and Growth During the Period of 1873–1896,’” September 6, 2012.

“Per Capita GDP Growth Rates During the Gold Standard Era,” September 11, 2012.

“US Real Per Capita GDP from 1870–2001,” September 24, 2012.

“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“US Unemployment Graph, 1869–1899,” February 27, 2013.

“US Unemployment in the 1890s Again,” February 20, 2014.

“US Unemployment in the 1890s: Who is Right?,” December 30, 2013.

“US Industrial Production in the 1890s,” January 2, 2014.

“Were Nominal Wages Flexible in 1890s and Early 1900s America?,” January 31, 2014.

“Weir on Historical Estimates of US Unemployment,” February 9, 2014.

“A US Wholesale Price Index 1860–1914,” June 3, 2014.

“Protectionism and US Economic History,” June 8, 2014.

“US Industrial Production Index 1800–1914,” June 9, 2014.

“US Bank Suspensions 1864–1970,” January 8, 2015.

“Real US GDP 1870–2001,” January 13, 2015.

“Huerta de Soto gets it Wrong on the Gold Standard,” December 20, 2014.

(3) The Deflation of 1873 to 1896
“Libertarian Gold Standard Myths Never Die,” January 13, 2015.

“Neoclassical and Quantity Theory Explanations of the 1873–1896 Deflation,” January 7, 2015.

“More Evidence on the Profit Squeeze of 1873–1896,” January 5, 2015.

“UK Gross Domestic Fixed Capital Formation in the 1873 to 1896 Deflation,” December 18, 2014.

“Nominal Wage Rigidity in the US and the UK 1865/1880–1913,” December 16, 2014.

“Armitage-Smith on the Profit Deflation of the 1873–1896 Era,” December 15, 2014.

“UK Average Money Earnings 1880–1913,” December 14, 2014.

“UK Real Per Capita GDP 1830–1913,” December 13, 2014.

“British Money Wages in the 1873–1896 Deflation,” December 10, 2014.

“Saul’s The Myth of the Great Depression, 1873–1896,” December 8, 2014

“Alfred Marshall on the Deflation of 1873–1896,” October 14, 2014.

“UK Real GDP 1830–1918,” October 8, 2012.

“Robert Giffen on the Deflation of 1873–1896,” December 7, 2014.

“Alfred Marshall on Business Confidence,” December 3, 2014.

“Alfred Marshall on Wage Stickiness and Debt Deflation,” November 30, 2014.

“The Profit Deflation of the 1890s,” June 13, 2013.

“Alfred Marshall’s Judgement on the ‘Depression’ of 1873–1896,” June 13, 2013.

“S. B. Saul on the Profit Deflation of the 1873–1896 Period,” June 14, 2013.

(4) The UK
“The Early British Industrial Revolution and Infant Industry Protectionism: The Case of Cotton Textiles,” June 22, 2010.

“UK Real GDP 1830–1918,” October 8, 2012.

“UK Unemployment, 1870–1999,” February 25, 2013.

(5) Australia
“The Australian Business Cycle in the 19th Century,” June 1, 2011.

“Free Banking in Australia,” May 16, 2012.

“A Tale of Two Depressions: 1930s and 1890s Australia,” May 18, 2012.

(6) Japan
“Industrial Policy in Meiji Japan,” April 14, 2012.

Friday, October 2, 2015

Debunking Murphy’s Contra Krugman: “Ep. 2 Is More Government Debt what the World Needs Now?” (Updated)

I find the libertarian obsession with Paul Krugman to be both boring and bizarre. And now Robert Murphy, along with another Austrian called Tom Woods, has launched a “Contra Krugman” show, dedicated to debunking Krugman’s column regularly.

Their second episode is here:
“Ep. 2 Is More Government Debt What the World Needs Now?”
This is dedicated to debunking Krugman’s column here:
Paul Krugman, “Debt Is Good,” August 21, 2015.
I want to focus on Tom Woods’ serious historical error below, one which seems to be peddled endlessly by libertarians.

Woods states that in the period between 1870 and 1914 the US had an average growth rate of 4%, and this supposedly was
“... highest and longest sustained growth of real output and living standards ever achieved in America either before or since ... .”
And all this occurred at a time when government debt was very low. The only reasonable way to interpret this is that, of the 1870 and 1914 period, this period had:
(1) the highest real GDP growth rate than other comparable periods;

(2) the highest real per capita GDP growth rate than other comparable periods, and

(3) that this was sustained and not punctuated by long periods of serious economic crisis.
This is simply wrong. First of all, there were extended and very serious periods of economic crisis and recession in the 1870s and 1890s, with high unemployment, as well as shocked business expectations (caused by price deflation and sticky wages), profit deflation and debt deflation (see here and here). For example, in the 1870s America was hit by a recession probably from 1873 to 1875 (Davis 2006: 106) and then soaring unemployment and stagnation of industrial production down to 1877 (see also here). Furthermore, the whole deflationary period from 1873 to 1896 seems to have suffered from deficient investment and debt deflationary crisis (see here). So to speak of the growth being “sustained” is a distortion of reality: in truth, it was punctuated by many years of crisis in the 1870s and 1890s.

Secondly, was it really the highest growth rate in US history? This claim about 1870–1914 is wrong and a libertarian myth, the same myth peddled by Peter Schiff here.

If we select those periods of economic and historical significance in US history, including the 1870 to 1913 period (since it doesn’t seem right to include 1914, the first year of the First World War in Europe), and rank them from the highest to the lowest in terms of real GDP growth, we get the following average annual GDP figures:
(1) World War II average annual growth rate: 12.491%
(2) Recovery from Depression: 1934–1940: 6.511%
(3) Roaring ’20s 1922–1929: 4.856%
(4) Average annual real GDP rate 1983–1989 (Reagan boom): 4.282%
(5) Average annual real GDP rate 1950–1973: 4.160%
(6) Average real GNP growth rate, 1870–1913 (Balke and Gordon): 4.06%
(7) Average real GNP growth rate, 1870–1913 (Romer): 4.05%
(8) Average annual real GDP rate 1871–1913 (Maddison): 4.034%

(9) Average annual real GDP rate 1948–1973: 4.000%
(10) Average annual real GDP rate 1873–1896 (Maddison): 3.666%
(11) Average annual real GNP growth rate, 1873–1896 (Balke and Gordon): 3.596%
(12) Average annual real GDP rate 1974–2001: 2.963%.
Of course, it is reasonable to remove World War II from our list, since here real GDP growth mainly represented wartime matériel production.

But even if remove WWII, as we can see, the 1870–1913 or 1871–1913 period was beaten out by (1) the recovery from Depression (1934–1940), (2) roaring ’20s (1922–1929), (3) the Reagan boom (1983–1989), and the golden age of Keynesianism (1950–1973).

But Woods also claims that in the period between 1870 and 1914 the US had historically unprecedented growth in living standards (“before or since”), and the main measure for this is real per capita GDP. Unfortunately, matters are even worse when we look at real per capita GDP. Again, we can take those periods of economic and historical significance in US history, including the 1870 to 1913 period, and rank them from the highest to the lowest, and get the following average annual real per capita GDP figures:
(1) World War II average per capita growth rate: 11.204%
(2) Recovery from Depression, average real per capita GDP growth rate 1934–1940: 5.75%
(3) Average real per capita GDP growth rate, Roaring ’20s 1922–1929: 3.35%
(4) Average real per capita GDP rate 1983–1989 (Reagan boom): 3.338%
(5) Average real per capita GDP growth rate 1950–1973: 2.66%
(6) Average real per capita GDP growth rate 1948–1973: 2.30%
(7) Average real per capita GDP growth rate 1948–2001: 2.168%
(8) Average real per capita GDP growth rate 1974–2001: 1.88%
(9) Average real per capita GDP growth rate 1871–1914: 1.63%
(10) Average real per capita GDP growth rate 1873 to 1896: 1.42%
Of course, as I have admitted above, it is reasonable to remove World War II from our list. So we have our revised list as follows:
(1) Recovery from Depression, average real per capita GDP growth rate 1934–1940: 5.75%
(2) Average real per capita GDP growth rate, Roaring ’20s 1922–1929: 3.35%
(3) Average real per capita GDP rate 1983–1989 (Reagan boom): 3.338%
(4) Average real per capita GDP growth rate 1950–1973: 2.66%
(5) Average real per capita GDP growth rate 1948–1973: 2.30%
(6) Average real per capita GDP growth rate 1948–2001: 2.168%
(7) Average real per capita GDP growth rate 1974–2001: 1.88%
(8) Average real per capita GDP growth rate 1871–1914: 1.63%
(9) Average real per capita GDP growth rate 1873 to 1896: 1.42%
As we see here, in terms of average real per capita GDP, the 1871–1914 and 1873–1896 (the great deflation of the 19th century) periods were the worst in our list, and real per capita GDP is a better measure of the per capita wealth in an economy. In contrast, from 1948 to 2001 in a period of 53 years (longer than the 1870 to 1914 period), the real average US per capita GDP growth rate was 2.168%, obviously better than the period that libertarians are obsessed with.

We should also note well that unemployment in the 19th century was much worse than in the modern era after 1945 when modern monetary and fiscal interventions became normal, as we see here.

The US experience is replicated by the history of the rest of the developed world. Let us look at the average OECD real per capita GDP growth rate estimates and data for various periods over the past three centuries:
1700–1820 – 0.2%
1820–1913 – 1.2%
1919–1940 – 1.9%
1950–1973 – 4.9%
1973–1990 – 2.5%
(Davidson 1999: 22).
So much for ignorant libertarian myths about this period.

Yet another rotten foundation of their libertarian guff is the Austrian business cycle theory (ABCT). This is utterly wrong and relies on the untenable Wicksellian natural rate of interest. It is particularly laughable too that Robert Murphy is trotted out as some heroic defender of Austrian economics when in this paper here called “Multiple Interest Rates and Austrian Business Cycle Theory” Murphy admits that Piero Sraffa was right about the untenable nature of Wicksellian natural rate of interest and effectively admits that the classical form of ABCT is profoundly flawed (see
here for more on this).

The ABCT is also discredited by the empirical evidence. The ABCT says that new unsustainable capital projects initiated in the boom are liquidated and that this drives the bust. However, a great deal of the fluctuations in output and employment during recessions are caused by changes in capacity utilisation at mature firms and businesses, often connected with the need to liquidate inventory. This is what often characterises and drives the fall in investment – not liquidation of new projects (on these points, see here, here, here).

Further Links
“Weir on Historical Estimates of US Unemployment,” February 9, 2014.

“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“US Industrial Production in the 1890s,” January 2, 2014.

“US Unemployment Graph, 1869–1899,” February 27, 2013.

“Huerta de Soto gets it Wrong on the Gold Standard,” December 20, 2014.

“Libertarian Gold Standard Myths Never Die,” January 13, 2015.

“Real US GDP 1870–2001,” January 13, 2015.

“US Real Per Capita GDP from 1870–2001,” September 24, 2012.

“Another Problem with the Austrian Business Cycle Theory,” September 28, 2014.

“Keynes on Inventories and the Business Cycle,” September 27, 2014.

“Why the Austrian Business Cycle Theory is Wrong (in a Nutshell),” August 3, 2013.

“My Links on the Deflation of 1873 to 1896,” February 24, 2015.

“Robert Murphy defends the ABCT – even though he doesn’t accept the Wicksellian Natural Rate of Interest,” August 26, 2015.

“Debunking Austrian Economics 101 (Updated).”

Davidson, P. 1999. “Global Employment and Open Economy Macroeconomics,” in J. Deprez and J. T. Harvey (eds), Foundations of International Economics: Post Keynesian Perspectives, Routledge, London and New York. 9–34.

Davis, J. H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.