tag:blogger.com,1999:blog-6245381193993153721.post8133876560505532879..comments2024-03-17T00:23:24.896-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Mises and Hayek Dehomogenized?: A Note on a Schism in Modern Austrian EconomicsLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-6245381193993153721.post-10425382790768892232013-11-28T00:59:09.865-08:002013-11-28T00:59:09.865-08:00"How does Mises know that the "Magical M...<i>"How does Mises know that the "Magical Market" allocates resources rationally without "knowledge" of a measure of what constitutes "rational allocation" and calculation of a markets proformance according to that standard?<br /><br />Doesn't allocation require calculation by definition? "</i><br /><br />Yes, Mises thinks that agents on a decentralised markets will be able to solve the calculation problems, via the price system: Mises requires a flexible price system responsive to demand and supply and where prices move towards market clearing levels. <br /><br />The "standard" he uses is full use of resources via market clearing.<br /><br />Money prices allow prices to be given to factor inputs and consumer goods, so that profits and losses can be calculated.<br /><br />In Mises' view, entrepreneurs move quickly into markets where profits are high and bring profits down towards zero. <br /><br />Apart from the role of money prices as a mechanism to calculate profit and loss, most of the rest of his analysis is not a theory that describes real world markets. Businesses often simply set their mark-up rice and adjust supply to demand, leaving prices unchanged. Competition is nowhere near as effective as Mises thinks.<br /><br />The economic "coordination" we have mostly comes from quantity adjustments, not from price adjustments.<br /><br />Of course, often markets do not have effective coordination at all but widespread unemployment and unused resources.<br /><br /><i>"Is Mises saying that humans can only calculate cost in terms of monetary cost? "</i><br /><br />Yes, he does say *objective* costs that can compared against each other can only be calculated in money terms. <br /><br />But this idea is not unreasonable: we can measure real output in money terms by GDP, for example.<br /> Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-47435790583969689262013-11-27T23:06:46.616-08:002013-11-27T23:06:46.616-08:00Quote from Rothbard on Mises' calculation argu...Quote from Rothbard on Mises' calculation argument: <br /><br />"Assume that, by some magical process, it has been able to discover and know absolutely all the value-scales of consumers, all technological methods, and compile an inventory of all resources. Suppose, then, Mises says, we grant total knowledge of all these data to the Socialist Planning Board. It still will not be able to calculate, still will not be able to figure out costs and prices, particularly of land and capital goods, and therefore will not be able to allocate resources rationally."<br /><br />I have a question. How does Mises know that the "Magical Market" allocates resources rationally without "knowledge" of a measure of what constitutes "rational allocation" and calculation of a markets proformance according to that standard? <br /><br />Doesn't allocation require calculation by definition? <br /><br />If he says his measure is the monetary price system then isn't that question begging? The question isn't about determining costs but why use a monetary pricing system to calculate cost? <br /><br />Is Mises saying that humans can only calculate cost in terms of monetary cost? <br /><br />This entire thing is idiocy beyond belief. Von Mises and Hayek are babbling. Neither are taking in any coherent concepts. <br /><br />I have yet understand why it is "impossible" for people to simply allocate resources based on rate of production of inputs themselves versus the demand for the inputs in a given time frame like living bodies do via numerous processes?. <br /><br />The biological bodies seem to have no problem allocating hundreds of trillions of units of chemical resources "rationally" according to certain standards of calculation and they doesn't relying on pricing.<br /><br /> I guess for Austrain economists living organisms either don't exist or if they do then they don't exhibit economical allocation of resources. Either way I question the usefulness of economical theories with which physical living processes have little in common. <br /><br /> Septeus7noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-27359395611801731402013-03-24T07:18:54.921-07:002013-03-24T07:18:54.921-07:00Well, it was you that went into a long defense of...Well, it was you that went into a long defense of Keynesianism if you look above - I merely pointed out that <br /><br />"demand changes > quantity changes (prices generally unchanged and employment and output changed).<br /><br />The reality is confirmation of the Keynesian view of markets and confirmation that Keynesian policies work."<br /><br />Is not a correct logical progression - even if the second statement were true it does not follow logically from the first statement. <br /><br />On quantity adjustments - I think Kaldor has some interesting ideas that actually align quite well with Bohm-Bawerk's thinking. So to that extent I have indeed learned something from this discussion.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-69333943837787588522013-03-24T02:22:28.130-07:002013-03-24T02:22:28.130-07:00Anyway, this discussion has deviated far from the ...Anyway, this discussion has deviated far from the original question, which was your demand to know how the reality of quantity adjustment (rather than price adjustment) strongly supports and confirms Keynesian theory.<br /><br />I have shown exactly how it does, and you grudgingly concede this by suddenly switching to talking about how Keynesianism has the "illusion of working".<br /><br />In other words, all the empirical data confirm it works, but you just can't accept it because of your preconceived Austrian ideas.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-72818236647314667222013-03-23T22:53:50.082-07:002013-03-23T22:53:50.082-07:00Part 2
Causes of stagflation:
(1) From 1968–1971 ...<b>Part 2</b><br />Causes of stagflation:<br /><br />(1) From 1968–1971 there were the beginnings of inflationary pressures, in both wages and prices in many industrialised nations. Around 1968–1969, this was reflected in wage rises in Japan, France, Belgium and the Netherlands, and from 1969–1970 in Germany, Italy, Switzerland and the UK, which Kaldor attributes to demands by unions for wage rises (Kaldor 1976: 224). But this would not have become a serious problem had it not been for (2) (3) (4).<br /><br />(2) During the most of the Golden Age of Capitalism (1945–1973), primary commodity buffer stocks had ensured price stability. But this policy was changed in the 1960s when the US modified its buffer stock polices:<br /><br /><i> “… the duration and stability of the post-war economic boom owed a great deal to the policies of the United States and other governments in absorbing and carrying stocks of grain and other basic commodities both for price stabilisation and for strategic purposes. Many people are also convinced that if the United States had shown greater readiness to carry stocks of grain (instead of trying by all means throughout the 1960s to eliminate its huge surpluses by giving away wheat under PL 480 provisions and by reducing output through acreage restriction) the sharp rise of food prices following upon the large grain purchases by the U.S.S.R. [in 1972–1973], which unhinged the stability of the world price level far more than anything else, could have been avoided.”</i> (Kaldor 1976: 228). <br /><br />The prelude to stagflation was marked by a significant explosion in commodity prices that occurred in the second half of 1972. Part of the problem was the failure of the harvest in the old Soviet Union in 1972–1973 and the unexpectedly large purchases on world markets by the Soviet state. As Kaldor noted, this could have been averted had the United States not dismantled its commodity buffer stock in the 1960s.<br /><br />(3) The end of Bretton Woods (the post-WWII international monetary system) was momentous: inflation expectations and instability on financial and commodity markets resulted, as well as a rise in commodity speculation as a hedge against inflation. This contributed to the cost-push inflation that was being felt in many countries after 1971. As Kaldor noted, this could have been averted had the United States not dismantled its commodity buffer stock in the 1960s.<br /><br />(4) The final factor that caused the severe inflation of the 1970s was the first oil shock from October 1973, when various Middle Eastern producers of oil instituted an embargo that lasted until March 1974 (Kaldor 1976: 226). In most countries, the double digit inflation of the 1970s was caused by the oil shocks.<br /><br />Kaldor, N. 1976. “Inflation and Recession in the World Economy,” Economic Journal 86 (December): 703–714.<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/06/stagflation-in-1970s-post-keynesian.htmlLord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-62098927796266641592013-03-23T22:53:02.791-07:002013-03-23T22:53:02.791-07:00(1) I have no idea why you say "If you agree ...(1) I have no idea why you say "If you agree you admit that Keynesian policy is unnecessary and all that is needed is correct monetary policy." <i>I have NEVER said, stated or implied any such thing.</i><br /><br />Monetary policy is a <i>highly variable and blunt instrument</i>. The relationship between interest rates and output is complex and not linear: the monetary transmission between interest rates and real economic variables is unreliable and complicated. It might work or might not. It depends on the state of expectations.<br /><br />http://socialdemocracy21stcentury.blogspot.com/2013/03/post-keynesian-policy-on-interest-rates.html<br /><br />(2) There was no accelerating inflation from 1945 right down to about 1969 during the Keynesian golden age of capitalism. <br /><br />Inflation was in fact low and showed no upward trend or tendency to rise higher with each stimulus. <br /><br />At most, you can say that during booms there was sometimes a short-term accelerating inflation, but this was true even of booms in the 19th century.<br /><br /><b>US Inflation 1945-1982<br />Year | Inflation Rate</b><br />1945 2.27 <br /><b>1946 8.56 <br />1947 14.33</b> Inflation after WWII<br />1948 7.79 <br />1949 -0.96 <br />1950 0.96 <br />1951 7.89 <br />1952 2.19 <br />1953 0.75 <br />1954 0.49 <br />1955 -0.37 <br />1956 1.49 <br />1957 3.57 <br />1958 2.74 <br />1959 0.83 <br />1960 1.58 <br />1961 1.01 <br />1962 1.14 <br />1963 1.19 <br />1964 1.34 <br />1965 1.71 <br />1966 2.85 <br />1967 2.90 <br />1968 4.19 <br /><b>1969 5.37 <br />1970 5.92 <br />1971 4.30 <br />1972 3.31 <br />1973 6.21 <br />1974 10.98 </b> 1st stagflation crisis <br />1975 9.14 <br />1976 5.76 <br />1977 6.45 <br /><b>1978 7.61 <br />1979 11.27 <br />1980 13.52 <br />1981 10.38</b> 2nd stagflation crisis <br />1982 6.13 <br /><br />http://www.measuringworth.com/calculators/inflation/result.php<br /><br />And you have clearly not read the link I posted.<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-35951712108197114252013-03-23T17:04:29.087-07:002013-03-23T17:04:29.087-07:00In the interest of fairness I should add that I ...In the interest of fairness I should add that I think bad monetary policy in the 1970s as well as expansionary fiscal policy was needed to achieve stagflation.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-22209440614261826792013-03-23T16:50:50.106-07:002013-03-23T16:50:50.106-07:00"(1) LOL.. the stimulus in 1949 was not via p..."(1) LOL.. the stimulus in 1949 was not via public works or "government controlled projects financed by fiscal-spending". It was via a tax cut covered by deficits. <br /><br />Your analysis is absurd."<br /><br />I am claiming that monetary policy (creation of new money) would have the same effect on stimulating AD as fiscal policy (in this case tax cuts). Why is that absurd? Do you agree it would have the same affects or don't you ? If you agree you admit that Keynesian policy is unnecessary and all that is needed is correct monetary policy. If you disagree then your response is the thing that is absurd. Which is it ? <br /><br />(2) There was no "economic stagnation" in the 1960s. It had some of best real GDP and real per capita GDP growth ever.<br /><br />You are correct - I mean the 1970s stagflation, that I think can be shown to be directly related to the Keynesian policies of the 1960s (inflation actually started to pick up pace after 1967). Those high growth rates you are so proud of were achieved by trading growth for inflation - and this proved unsustainable.<br /><br />I think this process began in the 1950's - it simply took 15-20 years for the full effects to manifest themselves - wouldn't a correct policy be able to maintain stability for longer than that ?<br /><br /><br /><br />Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-45873060494463151552013-03-23T14:46:42.269-07:002013-03-23T14:46:42.269-07:00(1) LOL.. the stimulus in 1949 was not via public ...(1) LOL.. the stimulus in 1949 was not via public works or "government controlled projects financed by fiscal-spending". It was via a tax cut covered by deficits. <br /><br />Your analysis is absurd.<br /><br />(2) There was no "economic stagnation" in the 1960s. It had some of best real GDP and real per capita GDP growth ever:<br /><br />Year | GNP* | Growth Rate<br />* Billions of Chained 2005 Dollars<br />1960 | 2848.20 | 2.52%<br />1961 | 2916.10 | 2.38%<br />1962 | 3094.10 | 6.10%<br />1963 | 3230.10 | 4.39%<br />1964 | 3417.50 | 5.80%<br />1965 | 3636.40 | 6.40%<br />1966 | 3869.80 | 6.41%<br />1967 | 3967.70 | 2.52%<br />1968 | 4160.60 | 4.86%<br />1969 | 4288.00 | 3.06%<br /><br />Real US Per Capita GDP 1870–2001<br />(in 1990 international Geary-Khamis dollars)<br />Year | GDP | Growth rate<br />1960 | 11328 | 0.87%<br />1961 | 11402 | 0.65%<br />1962 | 11905 | 4.41%<br />1963 | 12242 | 2.83%<br />1964 | 12773 | 4.33%<br />1965 | 13419 | 5.05%<br />1966 | 14134 | 5.32%<br />1967 | 14330 | 1.38%<br />1968 | 14863 | 3.71%<br />1969 | 15179 | 2.12%<br /><br />You are thinking of 1970s stagflation above. That had different causes:<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/06/stagflation-in-1970s-post-keynesian.html<br /><br />It Keynesianism leads directly to "stagnation and inflation" why didn't this happen in the early 1950s?<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-48517278323168167792013-03-23T12:00:33.422-07:002013-03-23T12:00:33.422-07:00Keynesianism often gives the illusion of working ...Keynesianism often gives the illusion of working because a side-effect of its AD-stabilizing policies is to keep the economy close to equilibrium in the short term. However because it focuses on real variables like unemployment or output rather than nominal variables like NGDP , and because it disrupts the economy by diverting resources into government controlled projects financed by fiscal-spending it is unable to keep the economy in equilibrium beyond the short-run.<br /><br />This is precisely what we saw in the 1960s where Keynsian policies led directly to economic stagnation and inflation.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-49753467202036782102013-03-23T11:49:33.200-07:002013-03-23T11:49:33.200-07:00It is my contention that had Truman used monetary ...It is my contention that had Truman used monetary rather than fiscal policy to expand AD in 1949 the results would have been very similar. Indeed the cause of that recession was probably too tight prior monetary policy so the whole,thing could have been avoided with a correct understanding of the centrality of maintaining monetary equilibrium by policy makers at the time.<br /> Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-89032101329356402542013-03-23T09:17:56.453-07:002013-03-23T09:17:56.453-07:00It is a Keynesian proposition:
(1) Aggregate dem...It is a Keynesian proposition:<br /><br />(1) Aggregate demand drives employment and output.<br /><br />Empirical investigation of the real world shows a vast number of markets are flexprice markets with price administration. <br /><br />Demand changes do not normally change prices. Demand changes cause changes in production/output levels and employment.<br /><br />Therefore an increase in general demand for products (sales volume, orders, etc.) will lead to greater employment and output. Proposition (1) above now has support with empirical evidence.<br /><br />Real world examples of the process can be seen all the time. E.g., the US was hit by recession from November 1948 to October 1949. The US government stepped in after 1948 to provide macroeconomic stability. <br /><br />Congress pushed through a tax cut in 1948 whose effect was felt in 1949 with shortfall in revenue funded by deficits -- classical Keynesian fiscal stimulus. Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP. <br /><br />With this fiscal expansion, Keynesian theory says that real output and employment should have increased after the GDP contraction and rise in unemployment in 1949.<br /><br />Both real output and employment data confirm that is exactly what happened:<br /><br /><b>Real US Per Capita GDP 1948-1953<br />(in millions of 1990 international Geary-Khamis dollars)<br />Year | GDP | Growth rate</b><br />1948 | 9065 | 2.01%<br />1949 | 8944 | -1.33%<br />1950 | 9561 | 6.89%<br />1951 | 10116 | 5.80%<br />1952 | 10316 | 1.97%<br />1953 | 10613 | 2.87%<br /><br /><b>Unemployment</b><br />1949 5.9<br /><b>1950 5.3<br />1951 3.3</b><br />1952 3.0<br />1953 2.9Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-41244543215383950402013-03-23T07:58:53.096-07:002013-03-23T07:58:53.096-07:00Even if one accepts that
"demand changes &g...Even if one accepts that <br /><br />"demand changes > quantity changes (prices generally unchanged and employment and output changed)"<br /><br />Is a true statement - how is that confirmation that Keynesian policies work ? Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-60730226071858344102013-03-23T07:40:57.150-07:002013-03-23T07:40:57.150-07:00You describe a situation of price stickiness and t...<i>You describe a situation of price stickiness and then declare that this is "confirmation of the Keynesian view of markets and confirmation that Keynesian policies work.". I'm sure you are aware that is very bad logic."</i><br /><br />That is not what I said:<br /><br />demand changes > <b>quantity changes</b> (prices generally unchanged and employment and output changed).<br /><br />The reality is confirmation of the Keynesian view of markets and confirmation that Keynesian policies work.<br /><br />That is logical.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-16669430042039003212013-03-23T07:30:50.601-07:002013-03-23T07:30:50.601-07:00Do Austrians think :
demand changes > flexible ...Do Austrians think :<br />demand changes > flexible prices > convergence to market clearing value (little or no change in employment)?<br /><br />They clearly think there is a tendency for this happen but recognize the existence of frictions that stop it happen instantly - as your post shows there is debate in the Austrian world as to the implications of this.<br /><br />If the demand change is in aggregate demand rather than relative demand then most (but not all) Austrian recognize the importance of avoiding monetary disequilibrium as a consequence - if this fails to happen then these Austrians recognize that employment levels will be affected. <br /><br />So your simple flow is incorrect in how most Austrians see the process as related to aggregate demand.<br /><br />(BTW: You describe a situation of price stickiness and then declare that this is "confirmation of the Keynesian view of markets and confirmation that Keynesian policies work.". I'm sure you are aware that is very bad logic.)<br /><br /><br />Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-679041591528182882013-03-23T04:40:31.775-07:002013-03-23T04:40:31.775-07:00Jan:
LK if you are interested of the
of the Stockh...Jan:<br />LK if you are interested of the<br />of the Stockholm School and <br />it´s development at the time in early mid thirties<br />from a Wicksellian that will say almost same roots as Austrian school but that take<br />very different direction.And if you not did it <br />allready maybee it would be of interest for you to<br />to check out Erik Lundberg´s 1937 Studies in the Theory of Economic Expansiones and <br />Erik Lindahl 1939: Studies in the Theory of Money and Capital <br /><br />Lundberg's thesis is in many respects a comparative study of the economic approach, where older economic theory, based on Böhm-Bawerk and and<br />Wicksell,is broken against at the time, contemporary theory, presented by the Stockholm School economists and Keynes' General<br />Theory as well as A Treatise on Money<br /><br />Erik Lindahl 1939: Studies in the Theory of Money and Capital is also based on a Wicksellian ground but is leading in even<br />a more Keynesian-inspired analysis<br />It should be mentioned that both Lundberg and Lindahl<br />later came to adapt a more pure Keynsian approach<br />Have a nice weekend! Cheers!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-36276699008602708632013-03-22T22:54:29.471-07:002013-03-22T22:54:29.471-07:00I could imagine a lot of ways one could poke at th...I could imagine a lot of ways one could poke at the internal mechanics of Post-Keynesian models and theories, but the whole Socialist Calculation Debate? Come on, it is totally irrelevant to pretty much anybody.<br />Imagine that, for example, Mises won and it is impossible for the central planner to plan production in the absence of prices. What part of Post-Keynesian theory collapses because of this very important result?<br />Roman P.https://www.blogger.com/profile/17384153967221979673noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67496848929319430482013-03-22T20:43:15.342-07:002013-03-22T20:43:15.342-07:00No, the Austrian theory is:
demand changes > f...No, the Austrian theory is:<br /><br />demand changes > flexible prices > convergence to market clearing value (little or no change in employment).<br /><br />The reality:<br /><br />demand changes > quantity changes (prices generally unchanged and employment and output changed).<br /><br />The reality is confirmation of the Keynesian view of markets and confirmation that Keynesian policies work.<br /><br />Aggregate demand changes induce more investment employment and output.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-55372384221123298562013-03-22T12:16:37.386-07:002013-03-22T12:16:37.386-07:00Battling post-Keynsisnism is a thankless and proba...Battling post-Keynsisnism is a thankless and probably pointless task - but someone's got to do it.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-61464346758318178632013-03-22T12:06:34.115-07:002013-03-22T12:06:34.115-07:00What you said @March 22, 2013 at 10:39 AM is true ...What you said @March 22, 2013 at 10:39 AM is true but (I think) somewhat misleading without additional clarification about the role of lags in the price adjustment process in earlier stages of ABCT.<br /><br />To cut to the chase: Clearly the fundamental point of disagreement is about whether any "tendency towards market clearing prices" exists or not. What I am trying to establish is that short-term price stickiness (totally consistent with what you call fixprice, and where quantity signals as well as price signals drive the market) are not at all a refutation of the existence of such tendencies and are in fact implicit in Austrian theory as can be demonstrated by looking at ABCT.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-75891998159640943752013-03-22T11:25:30.329-07:002013-03-22T11:25:30.329-07:00(1) We are now talking at cross purposes. You have...(1) We are now talking at cross purposes. You have conceded what I just said @March 22, 2013 at 10:39 AM.<br /><br />And, yes, if wages and prices were perfectly flexible, then it is generally admitted Mises and Hayek have difficulty explaining how their malinvestment happens. <br /><br />I think Hicks made the same point (J. Hicks, “The Hayek Story”, in J., Hicks (ed), <i>Critical Essays in Monetary Theory</i>. Clarendon Press, Oxford, 1967, 203-215, at 207-207) and most recently in Arash Molavi Vasséi's “Ludwig von Mises's Business Cycle Theory: Static Tools for Dynamic Analysis,” in Harald Hagemann, Tamotsu Nishizawa, Yukihiro Ikeda (eds.). Austrian Economics in Transition: From Carl Menger to Friedrich Hayek. Palgrave Macmillan, Basingstoke, 2010, 196–217, at p. 213, much the same point is made:<br /><br /><i>In this light, Mises's business cycle theory depends on a price-lag, on nominal wages increasing while the prices of final outputs remain temporarily constant (the boom)</i>.<br /><br />(2) But this does not invalidate what I am saying above.<br /><br />Mises and Hayek are positing an unrealistic tendency towards flexible, market clearing prices, not <i>perfect flexibility</i>.<br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-47301012304454782452013-03-22T10:56:01.837-07:002013-03-22T10:56:01.837-07:00OK - here is what ABCT claims happens:
1. The mo...OK - here is what ABCT claims happens:<br /><br />1. The money supply expands and disrupts interest rates and prices<br />2. This causes the capital structure to become distorted and the boom to be unsustainable<br />3. When the bust comes (due to the unsustainable nature of the boom) the fact that capital is non-homogeneous means that there will be unemployment while things adjust - and this will be unavoidable even if prices are flexible at this point.<br /><br /><br />So steps 1 and 2 would not happen with flexible prices. Steps 3 does not need flexible prices but obviously you don't get to step 3 without step 1 an step 2.<br /><br />The boom is dependent upon sticky prices - the bust is not. I don't see anything in your link that contradicts this view. Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67014737460677439042013-03-22T10:51:09.613-07:002013-03-22T10:51:09.613-07:00This whole debate seems kinda pointless in the end...This whole debate seems kinda pointless in the end, doesn't it? At best, the winner gets to refute Barone's little thought experiment. Not many cared a century ago, but it baffles my mind that somebody still cares about it now.Roman P.https://www.blogger.com/profile/17384153967221979673noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-31678593399331988722013-03-22T10:39:53.512-07:002013-03-22T10:39:53.512-07:00Rob Rawlings, once the typical Hayekian Austrian b...Rob Rawlings, once the typical Hayekian Austrian business cycle is underway and about to collapse, Hayek was quite clear that non-homogenous capital is the reason why there must be unemployment.<br /><br />See H. Klausinger (ed.), 2013, <i>The Collected Works of F. A. Hayek. Volume 7. Business Cycles. Part I</i>. Routledge, p. 31:<br /><br />http://books.google.com/books?id=dM-FiTao190C&pg=PA31&dq=%22Yet,+with+perfectly+flexible+prices,+including+wages,+and+a+completely+malleable+stock+of+capital+goods,%22&hl=en&sa=X&ei=hpVMUebzLcqeiAfCo4HoBQ&ved=0CDEQ6AEwAA#v=onepage&q=%22Yet%2C%20with%20perfectly%20flexible%20prices%2C%20including%20wages%2C%20and%20a%20completely%20malleable%20stock%20of%20capital%20goods%2C%22&f=false<br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-14889985648230571982013-03-22T09:38:24.039-07:002013-03-22T09:38:24.039-07:00In the standard version of ABCT the only reason t...In the standard version of ABCT the only reason there is a physically unsustainable structure of production is because inflexible pricing lead businesses to invest in the wrong areas. <br /><br />With totally flexible prices (say all goods were sold by auction every day and all participants had perfect knowledge) then there would be no "unsustainable production projects" as a result of unexpected increases in the money supply. Rob Rawlingsnoreply@blogger.com