tag:blogger.com,1999:blog-62453811939931537212024-03-17T00:23:24.916-07:00Social Democracy for the 21st Century: A Realist Alternative to the Modern LeftLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger2211125tag:blogger.com,1999:blog-6245381193993153721.post-38974805607020504792021-08-14T09:13:00.004-07:002022-01-28T23:19:06.879-08:00Bibliography on Marx’s Law of the Falling Rate of ProfitI present below a bibliography on Marx’s Law of the Falling Rate of Profit. The list is not meant to be exhaustive, but includes the most important or interesting discussions.<br>
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In essence, the text of volume 3 of <i>Capital</i> was taken from the manuscripts of volume 3 from 1864–1865 which were in a draft and fragmentary form (Vollgraf and Jungnickel 2002: 68). Engels began editing volume 3 for publication around 1885 but it took him nearly 10 years before that volume was published in 1894 (Vollgraf and Jungnickel 2002: 40). In 1993, Marx’s main 1864–1865 manuscript for volume 3 of Capital which Engels used was published and allowed scholars to compare this with what Engels published in 1894 (Vollgraf and Jungnickel 2002: 36).<br>
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Engels’ changes to Marx’s material on the Law of the Falling Rate of Profit, including his three chapters and subdivisions, suggested that this work was much more structured and complete than it in fact was (Vollgraf and Jungnickel 2002: 47, 62). Michael Heinrich argues that Engels’ editing <a href="http://monthlyreview.org/2013/04/01/crisis-theory-the-law-of-the-tendency-of-the-profit-rate-to-fall-and-marxs-studies-in-the-1870s/">obscured Marx’s views on the falling rate of profit.</a> For Heinrich, the idea that Marx’s theory of crisis was based on the Law of the Falling Rate of Profit is a misinterpretation of Marx’s thought that has arisen from Engels’ editing of the third volume of <i>Capital</i>. Whether this is true or not, the Law of the Falling Rate of Profit has been vehemently defended by many generations of Marxists.<br>
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However, the Law of the Falling Rate of Profit did not actually play a fundamental role in Marxist crisis theory until the work of E. Preiser (1924) and Henryk Grossmann’s book <i>The Law of Accumulation and Breakdown of the Capitalist System</i> (1929).<br>
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<a href="https://en.wikipedia.org/wiki/Okishio%27s_theorem">Okishio’s Theorem</a> (Okishio 1961), which was partly based on earlier work like Shibata (1939), is often cited as a refutation of Marx’s Law of the Falling Rate of Profit, but even Okishio’s Theorem is a highly theoretical refutation which itself makes unrealistic assumptions in its model, such as constant real wages, equalised profit rates and equilibrium convergence to new prices of production. Okishio himself later admitted that his original theorem required these “questionable assumptions” (Okishio 2001: 501). Moreover, it is not difficult for Marxists to respond to Okishio’s Theorem, as Paul Cockshott does below in this video: <br>
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<iframe width="400" height="225" src="https://www.youtube.com/embed/_BkMiZze4ak" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
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A much better refutation of Marx’s Law of the Falling Rate of Profit should start with the fundamental objection that, firstly, the very concept of “surplus value” is irrelevant for real-world capitalist economies, since it is based on the incoherent, undefinable notion of homogenous units of “socially-necessary labour time” that can aggregate all different forms of heterogeneous human labour. Imaginary “surplus value” does not determine the rate of profit in any sense in modern capitalist economies.<br>
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Secondly, even if one, for the sake of argument, grants that the concept of “surplus value” has validity, the “organic composition of capital” (c/v) would itself still be a flawed and often poor measure of productivity. Recall that Marx postulated that there is a rising organic composition of capital as a necessary effect of capital accumulation and productivity growth. But, as Blaug (1960) argued, rising technical innovation and productivity in capitalism involves <i>both labour-saving innovations and capital-saving innovations</i>. This means that capital-saving innovations can lower prices of machines and non-labour factors (see also Hodgson 1991: 34–40). So the technical composition of capital may rise, but the value composition of capital c/v, as Marx defines it, may fall as (1) both money wages and real wages rise, and (2) prices of capital goods fall. Thus it is theoretically possible for productivity growth and technological advancement in firms to occur along with a decline in the organic composition of capital, if the prices of non-labour factor inputs fall fast enough.<br>
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Attempts to empirically measure Marx’s long-run rising organic composition of capital via proxies have found that the UK – the greatest capitalist economy in the relevant period – had a <i>falling</i> organic composition from 1855 to 1895! (Cockshott, Cottrell, Michaelson 1995). Secondly, Gillman (1958) found a falling/stable organic composition of capital in the US from 1919 to 1952, despite a brief spike in the Great Depression.<br>
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Clearly, there is something rotten about the very concept of the organic composition of capital. One can only agree with Ian Steedman that “neither the value composition nor the organic composition is a significant concept for the analysis of capitalist economies” (Steedman 1977: 136).<br>
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It follows that, even within the terms of Marx’s own theory, the Law of the Falling Rate of Profit is fundamentally flawed if the prices of constant capital goods themselves fall to a sufficient extent.<br>
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But, from a Post Keynesian perspective, a straightforward empirical refutation of the Law of the Falling Rate of Profit is simply that most profits are attained as a mark-up on total average unit costs, and many capitalists will charge whatever profit mark-up they can get away with, sometimes very large mark-ups indeed. Moreover, there is no strong evidence that the rate of profit has a tendency to equalise throughout a capitalist economy (Glick and Ehrbar 1990; Zacharias 2001; Gschwandtner 2005; Cable and Jackson: 2008; Zachariah 2006: 18), and even if one granted hypothetically that surplus value existed, it would not govern the rate of profit given the use of persistent, divergent profit mark-ups on costs by capitalists. <br>
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In the long-run, we should expect the average rate of profit to rise or fall randomly. The profit rate would be mainly reduced by money wage rises in many industries. Any long-run falling trend – even if it could be demonstrated – would not even vindicate Marxism, but would have to have another explanation, because Marx’s theory of profit is profoundly and inescapably both theoretically and empirically flawed. <br>
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The bibliography below is presented in <i>chronological order</i>, not alphabetical order, since I think a chronological order from the earliest discussion to most recent is more useful. I include occasional comments about the significance of certain articles or books.<br>
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<b>BIBLIOGRAPHY</b><br>
Croce, Benedetto. 1899. “Una obiezione alla legge marxistica della caduta del saggio di profitton,” <i>Atti dell’Accademia Pontaniana</i> 29 (May 1899). <br>
Remarkably, Croce already in this 1899 paper pointed out that, as technical progress and productivity increase under capitalist production, this is likely to <i>decrease</i> the value/price of constant capital, which effectively refutes Marx’s law of the falling rate of profit. See the English translation in Croce (1914).<br>
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Baranovsky, Michael Tugan. 1901. <i>Studien zur Theorie und Geschichte der Handelskrisen in England</i>. G. Fischer, Jena. pp. 230–231.<br>
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Baranovsky, Michael Tugan. 1905. <i>Theoretische Grundlagen des Marxismus</i>. Duncker & Humblot, Leipzig. Chapter 9.<br>
Tugan-Baranovsky concluded that the falling rate of profit law was questionable in the face of capital-saving innovation. <br>
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Bortkiewicz, L. von. 1907a. “Wertrechnung und Preisrechnung im Marxschen System II,” <i>Archiv für Sozialwissenschaft und Sozialpolitik</i> 25: 10–51. <br>
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Bortkiewicz, L. von. 1907b. “Wertrechnung und Preisrechnung im Marxschen System III,” <i>Archiv für Sozialwissenschaft und Sozialpolitik</i> 25: 445–488. <br>
In this paper, Bortkiewicz agreed with the argument of Tugan-Baranovsky and questioned why capitalists would introduce labour-saving machines if the profit rate fell.<br>
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Charasoff, Georg von. 1909. <i>Karl Marx über die menschliche und kapitalistische Wirtschaft: eine neue Darstellung seiner Lehre</i>. H. Bondy, Berlin.<br>
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Charasoff, Georg von. 1910. <i>Das System des Marxismus: Darstellung und Kritik</i>. Hans Bondy Verlag, Berlin.<br>
Charasoff rejected the law of the falling profit rate in this book as erroneous, for reasons similar to those of Tugan-Baranovsky and Bortkiewicz.<br>
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Croce, Benedetto. 1914. “A Critique of the Marxian Law of the Fall in the Rate of Profit,” in Benedetto Croce, <i>Historical Materialism and the Economics of Karl Marx</i> (trans. C. M. Meredith). The Macmillan Company, New York. [article first published in 1899].<br>
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Preiser, E. 1924. “Das Wesen der Marxschen Krisentheorie,” in R. Wilbrandt, A. Löwe, G. Salomon (eds.), <i>Wirtschaft und Gesellschaft. Beiträge zur Ökonomik und Soziologie der Gegenwart</i>. Frankfurter Societäts-Druckerei, Frankfurt am Main. 47–76.<br>
Preiser appears to have been one of the first early Marxists who emphasised the falling rate of profit as the fundamental cause of capitalist crisis.<br>
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Grossmann, Henryk. 1929. <i>Das Akkumulations- und Zusammenbruchsgesetz des kapitalistischen Systems: Zugleich eine Krisentheorie</i>. C. L. Hirschfield, Leipzig. <br>
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Moszkowska, Natalie. 1929. <i>Das Marxsche System: Ein Beitrag zu dessen Aufbau</i>. Verlag Hans Robert Engelmann, Berlin. <br>
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Shibata, K. 1934. “On the Law of Decline in the Rate of Profit,” <i>Kyoto University Economic Review</i> 9.1 (17): 61–75. <br>
Along with Shibata 1939, this was an important theoretical discussion of the falling rate of profit.<br>
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Bauer, Otto. 1936. <i>Zwischen zwei Weltkriegen?</i>. E. Prager, Bratislava.
In this book, Bauer discussed the relationship he postulated between the business cycle and the falling rate of profit.<br>
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Shibata, Kei. 1939. “On the General Profit Rate,” <i>Kyoto University Economic Review</i>14.1 (27): 40–66.<br>
This paper was an important theoretical discussion of the falling rate of profit. Shibata concluded that innovations that are capital-saving (that is, that reduce the price of constant capital) can lead to a rising profit rate, as long as real wages are constant. His work was developed by Okishio 1961.<br>
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Dobb, Maurice Herbert. 1940. <i>Political Economy and Capitalism: Some Essays in Economic Tradition</i> (rev. 2nd ed.). Routledge & Kegan Paul, London. pp. 94–99, 108–114.<br>
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Robinson, Joan. 1941. “Marx on Unemployment,” <i>The Economic Journal</i> 51.202–203: 234–248.<br>
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Sweezy, Paul M. 1942. <i>The Theory of Capitalist Development. Principles of Marxian Political Economy</i>. Oxford University Press, New York. <br>
In this book, Paul Sweezy dismissed the law of the falling rate of profit theory as a general law.<br>
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Robinson, Joan. 1942. <i>Essay on Marxian Economics</i>. Macmillan, London. <br>
See the 2nd edition of Robinson 1966. <br>
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Bortkiewicz, L. von. 1952. “Value and Price in the Marxian System,” <i>International Economic Papers</i> 2: 5–60.<br>
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Rosdolsky, Roman. 1956. “Zur neueren Kritik des Marxschen Gesetzes der fallenden Profitrate,” <i>Kyklos</i> 9.2: 208–226. <br>
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Dickinson, H. D. 1957. “The Falling Rate of Profit In Marxian Economics,” <i>The Review of Economic Studies</i> 24.2: 120–130. <br>
In this article, Dickinson adopted Neoclassical theory to analyse the falling rate of profit law.<br>
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Samuelson, P. A. 1957. “Wages and Interest: A Modern Dissection of Marxian Economic Models,” <i>The American Economic Review</i> 47.6: 884–912. <br>
Along with Shibata 1934 and Okishio 1961, this paper was very important in technical discussions of the falling rate of profit law. <br>
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Gillman, Joseph M. 1958. <i>The Falling Rate of Profit: Marx’s Law and its Significance to Twentieth Century Capitalism.</i> Dobson, London. <br>
In this book, Gillman found empirical evidence that his proxy for the US organic composition of capital had increased from 1849 to 1919, but – contrary to Marxist theory – had been stable or fallen from 1919 to 1939 (despite a rise during the Great Depression). <br>
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Robinson, Joan. 1959. “‘The Falling Rate of Profit’: A Comment,” <i>Science & Society</i> 23.2: 104–106. <br>
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Blaug, M. 1960. “Technical Change and Marxian Economics,” <i>Kyklos</i> 13.4: 495–451.<br>
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Okishio, Nobuo. 1961. “Technical Changes and the Rate of Profit,” <i>Kobe University Economic Review</i> 7: 85–99. <br>
Okishio’s paper is the classic statement of Okishio’s Theorem. <br>
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Okishio, Nobuo. 1963. “A Mathematical Note on Marxian Theorems,” <i>Weltwirtschaftliches Archiv</i> 91: 287–299.<br>
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Robinson, Joan. 1966. <i>An Essay on Marxian Economics</i> (2nd edn.). Macmillan, London. pp. 35–42.<br>
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Meek, Ronald L. 1967. “The Falling Rate of Profit,” in Ronald L. Meek, <i>Economics and Ideology and Other Essays: Studies in the Development of Economic Thought</i>. Chapman & Hall, London. 129–142.<br>
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Steedman, Ian. 1971. “Marx on the Falling Rate of Profit,” <i>Australian Economic Papers</i> 10: 61–66.<br>
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Heertje, A. 1972. “An Essay on Marxian Economics,” <i>Schweizerische Zeitschrift für Volkswirtschaft und Statistik</i> 108.1: 33–45.<br>
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Yaffe, David S. 1973. “The Marxian Theory of Crisis, Capital and the State,” <i>Economy and Society</i> 2.2: 186–232.<br>
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Heertje, A. 1976. “An Essay on Marxian Economics,” in M. C. Howard and J. E. King (eds), <i>The Economics of Marx</i>. Penguin, Harmondsworth. pp. 219–232.<br>
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Mandel, Ernest. 1973. <i>Der Spätkapitalismus: Versuch einer marxistischen Erklärung</i>. Suhrkamp Verlag, Frankfurt am Main.<br>
See Mandel 1976 for an English translation.<br>
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Hodgson, Geoff. 1974. “The Theory of the Falling Rate of Profit,” <i>New Left Review</i> 84: 55–82.<br>
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Mandel, Ernest. 1976. <i>Late Capitalism</i> (trans. Joris De Bres). NLB, London. <br>
In this book, Mandel argued that the falling rate of profit was important in the Marxist explanation of the post-WWII boom and its breakdown.<br>
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Steedman, Ian. 1977. <i>Marx after Sraffa</i>. NLB, London. pp. 116–136.<br>
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Rowthorn, Bob. 1976. “Late Capitalism,” <i>New Left Review</i> 98: 59–83.<br>
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Croce, Benedetto. 1981. <i>Historical Materialism and the Economics of Karl Marx</i>. Transaction Books, New Brunswick, N.J. [reprint of the 1914 edn].<br>
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Groll, Shalom and Ze’ev B Orzech. 1989. “From Marx to the Okishio Theorem: A Genealogy,” <i>History of Political Economy</i> 21.2: 253–272.<br>
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Dietzenbacher, Erik. 1989. “The Implications of Technical Change in a Marxian Framework,” <i>Journal of Economics</i> 50.1: 35–46.<br>
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Catephores, George. 1989. <i>An Introduction to Marxist Economics</i>. Macmillan, Basingstoke. pp. 166–189.<br>
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Glick, Mark and Ehrbar, Hans. 1990. “Long-Run Equilibrium in the Empirical Study of Monopoly and Competition,” <i>Economic Inquiry</i> 28.1: 151– 162.<br>
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Moseley, Fred. 1991. <i>The Falling Rate of Profit in the Postwar United States Economy</i>. Macmillan, Basingstoke.<br>
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Hodgson, Geoffrey M. 1991. <i>After Marx and Sraffa: Essays in Political Economy</i>. Macmillan, London. pp. 28–55<br>
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Grossmann, Henryk. 1992. <i>The Law of Accumulation and Breakdown of the Capitalist System: Being also a Theory of Crises</i> (trans. Jairus Banaji). Pluto Press, London.<br>
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Howard, Michael Charles and John Edward. 1992. <i>A History of Marxian Economics: Volume II: 1929–1990</i>. Macmillan, London. Chapter 7 (pp. 128–148).<br>
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Cockshott, Paul, Cottrell, Allin and Greg Michaelson. 1995. “Testing Marx: Some New Results from UK Data,” <i>Capital & Class</i> 19.1: 103–130.<br>
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Zacharias, Ajit. 2001. “Testing Profit Rate Equalization in the US Manufacturing Sector 1947–1998,” Working Paper No. 321<br>
http://www.levyinstitute.org/publications/testing-profit-rate-equalization-in-the-us-manufacturing-sector <br>
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Okishio, Nobuo. 2001. “Competition and Production Prices,” <i>Cambridge Journal of Economics</i> 25.4: 493–501.<br>
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Vollgraf, Carl-Erich and Jürgen Jungnickel. 2002. “‘Marx in Marx’s Words’? On Engels’s Edition of the Main Manuscript of Book 3 of ‘Capital,’” <i>International Journal of Political Economy</i> 32.1: 35–78. <br>
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Gschwandtner, Adelina. 2005. “Profit Persistence in the ‘very’ Long Run: Evidence from Survivors and Exiters,” <i>Applied Economics</i> 37.7: 793–806. <br>
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Kliman, Andrew. 2006. <i>Reclaiming Marx’s ‘Capital’: A Refutation of the Myth of Inconsistency</i>. Lexington Books, Lanham. pp.113–138. <br>
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Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” <i>Indian Development Review</i> 4: 1–20. <br>
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Cable, John R. and Richard H. G. Jackson. 2008. “The Persistence of Profits in the Long Run: A New Approach,” <i>International Journal of the Economics of Business</i> 15.2: 229–244.<br>
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Heinrich, Michael. 2012. <i>An Introduction to the Three Volumes of Karl Marx’s Capital</i> (trans. Alexander Locascio). Monthly Review Press, New York. pp. 149–154. <br>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com9tag:blogger.com,1999:blog-6245381193993153721.post-15440498844082731722021-07-07T04:45:00.006-07:002021-07-07T09:59:53.410-07:00Zachariah’s “Labour Value and Equalisation of Profit Rates”: A Critical ReviewD. Zachariah’s paper “Labour Value and Equalisation of Profit Rates: A Multi-Country Study” (<i>Indian Development Review</i> 4 [2006]: 1–20) seeks to prove Marx’s Labour Theory of Value (LTV) by examining empirical data on factor input costs and final prices of finished goods from 18 nations in a period from 1968 to 2000. <br>
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Zachariah concludes that “market prices and labour value of industry outputs are highly correlated for a fairly broad sample of economies” (Zachariah 2006: 18), and that the idea of “prices of production” (used by Marx in volume 3 of <i>Capital</i>) is an inferior theory to the simple Labour Theory of Value in explaining prices, especially since Zachariah finds strong evidence <i>against</i> a tendency to equalisation of profit rates (Zachariah 2006: 18). In essence, Zachariah also concludes that the Transformation Problem appears to be irrelevant, given his findings. <br>
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So it is clear that Zachariah is trying to defend a version of the LTV used by Marx in volume 1 of <i>Capital</i>. <br>
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We must remember that Marx had no single, consistent Labour Theory of Value. The “law of value” (a phrase which Marx used to refer to the LTV) in volume 1 of <i>Capital</i> contradicts the “law of value” in volume 3. <br>
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In order to clarify this problem, we can review Marx’s two versions of the Labour Theory of Value, as follows: <BLOCKQUOTE><b>(1) The “Law of Value” in volume 1 of <i>Capital</i></b><br>
In volume 1 of <i>Capital</i>, Marx defended in his text a “law of value” in which <i>homogeneous socially-necessary labour time units</i> were the anchor for the price system in modern capitalism. That is to say, individual commodity prices are supposed to gravitate towards their labour values (but volume 1 contained two footnotes hinting at the different theory of price determination in Marx’s draft of volume 3, so that volume 1 was not even internally consistent). <br>
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By volume 3 of <i>Capital</i>, Marx thought this only happened in the pre-modern world of commodity exchange, but he describes the process as follows:<blockquote>“The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).</blockquote> For this LTV to work and be empirically proved, all human labour of different kinds must be measurable in a homogenous unit of basic socially-necessary labour time and then compared. <br>
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<b>(2) The “Law of Value” in volume 3 of <i>Capital</i></b><br>
In volume 3 of <i>Capital</i>, Marx abandons the view that commodity prices tend to equal pure labour values. Instead, Marx defended the view that the “law of value” only <i>ultimately and indirectly</i> explains prices, and defended three aggregate equalities:<blockquote><b>(1)</b> the sum of surplus value = sum of profits;<br>
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<b>(2)</b> the sum of values = sum of prices, and<br>
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<b>(3)</b> the value rate of profit = the money rate of profit. </blockquote>These aggregate equalities were asserted as true as Marx’s attempt to defend labour value. But Classical “prices of production” became the anchors for the real-world price system. </blockquote> Now Zachariah in his article is essentially rejecting the “law of value” in volume 3, and trying to defend the crude LTV in volume 1. <br>
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The trick that Marxists like Zachariah use is this: by showing empirically that there is a high correlation between the labour cost of <i>fundamentally different labour types</i> to the prices of their respective output goods, Marxists think they have proven the LTV. But this is a spectacular <i>non sequitur</i>. The reason is this: Marx’s Labour Theory of Value is <i>much more than this simple correlation</i>. <br>
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Zachariah’s contends that it is “the need for companies to meet the wage-bill that forces market prices to gravitate around prices proportional to labour values” (Zachariah 2006: 4). But this does not follow at all, because we cannot even properly measure the objective labour values of all different goods produced by heterogenous kinds of human labour. The very concept of labour value as used by Zachariah <i>has not been properly defined in the way Marx used it</i>.<br>
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No Marxist has ever convincingly shown how to overcome the problem of reducing all different types of human labour-time and measuring it in a homogeneous unit. For example, one hour of labour by a highly-skilled engineer is different from one hour of labour by a brick layer on a construction site. <br>
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This devastating problem with even properly defining the LTV has been noted by economists from different schools. Joan Robinson correctly pointed out that Marx needed to <i>reduce all heterogeneous human labour time to a meaningful homogenous unit</i> (Robinson 1966: 12), but this “leaves open the problem of assessing labour of different degrees of skill in terms of a unit of ‘simple labour’” (Robinson 1966: 19). <br>
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Marx faced the problem of reducing all heterogeneous human labour to a homogeneous abstract socially-necessary labour time unit, but <a href="http://socialdemocracy21stcentury.blogspot.com/2016/03/bohm-bawerk-on-marxs-problem-of.html">Marx did not properly explain how this happens.</a> You cannot prove a theory when your fundamental concept cannot be empirically defined or measured. <br>
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Eugen von Böhm-Bawerk identified the same problem. Böhm-Bawerk stated:<blockquote>The fact with which we have to deal is that the product of a day’s or an hour’s skilled labor is more valuable than the product of a day's or an hour's unskilled labor; that, for instance, the day's product of a sculptor is equal to the five days’ product of a stone-breaker. Now Marx tells us that things made equal to each other in exchange must contain ‘a common factor of the same amount,’ and this common factor must be labor and working time. Does he mean labor in general? Marx's first statements up to page 45 would lead us to suppose so; but it is evident that something is wrong, for the labor of five days is obviously not ‘the same amount’ as the labor of one day. Therefore Marx, in the case before us, is no longer speaking of labor as such but of unskilled labor. The common factor must therefore be the possession of an equal amount of labor of a particular kind, namely, unskilled labor.<br>
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If we look at this dispassionately, however, it fits still worse, for in sculpture there is no ‘unskilled labor’ at all embodied, much less therefore unskilled labor equal to the amount in the five days’ labor of the stone-breaker. <font style="BACKGROUND-COLOR: yellow">The plain truth is that the two products embody <i>different kinds</i> of labor in <i>different amounts</i>, and every unprejudiced person will admit that this means a state of things exactly contrary to the conditions which Marx demands and must affirm, namely, that they embody labor of the <i>same kind</i> and of the <i>same amount!</i>.”</font> (Böhm-Bawerk 1949 [1896]: 81–82).</blockquote> Marxists like Zachariah cannot even defend the “law of value” in volume 1 of <i>Capital</i> without solving this problem, but there is no convincing solution to the problem even mentioned in Zachariah’s paper. <br>
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The normal technique used by Marxists is to correlate mere labour costs in money prices with output prices, but this is a practice that cannot possibly overcome the problem of aggregating the different types of labour with a homogenous unit. To prove that prices are determined by labour values, you would have to calculate the <i>homogeneous socially-necessary labour time units</i> required to produce every commodity where all skilled labour and unskilled labour can be measured in the same homogenous unit, and then compare these quantities with prices. But Zachariah and other Marxists do not do this. <br>
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What Zachariah has proven is that there is, indeed, a very high correlation between labour factor input costs and prices, since labour costs are, generally speaking, a huge part of total production costs in most sectors. But Post Keynesian economics also accepts this, as do all non-Marxist cost-based theories of price determination. <br>
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The problem with all these Marxist attempts to empirically prove the LTV is identified by Nitzan and Bichler: <BLOCKQUOTE><FONT style="BACKGROUND-COLOR: yellow">“The other problem with [sc. Marxist] empirical studies has to do with values – or rather the lack thereof. To our knowledge, all Marxist models that purport to correlate prices with values <i>do no such thing</i>. Instead of correlating prices with values, they in fact correlate prices with . . . prices! </FONT><br>
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The reason is simple enough. <FONT style="BACKGROUND-COLOR: yellow">Recall that, according to Marx, the value of a commodity denotes the abstract labour time socially necessary for its production. Yet, as we already mentioned …, this quantum is impossible to measure. </FONT> And so the researcher makes assumptions. <br>
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The most important of these assumptions are that the value of labour power is proportionate to the actual wage rate, that the ratio of variable capital to surplus value is given by the price ratio of wages to profit, and occasionally also that the value of the depreciated constant capital is equal to a fraction of the capital’s money price. In other words, the researcher assumes precisely what the labour theory of value is supposed to <i>demonstrate</i>. ….<br>
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Since values are forever unknown, we need to first convert prices into ‘values’ and then correlate the result with prices. It seems reasonable to expect the outcome to be positive and tight. After all, we are correlating prices with themselves. What remains unclear is why one would bother to show this correlation and, more puzzling still, how the whole excise relates to the <i>labour</i> theory of value.” (Nitzan and Bichler 2009: 96–97).</BLOCKQUOTE> Apart from labour-time data from Sweden, Zachariah states clearly that the rest of his data simply uses monetary “labour costs... as a proxy for labour input” (Zachariah 2006: 6), so that virtually all Zachariah’s data is subject to the critique above. <br>
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While some Marxists have in fact used labour hours or labour time in trying to calculate value, not even this proves Marx’s LTV, because the Marxists never calculate the <i>homogeneous socially-necessary labour time units</i> necessary for comparing different types of labour. <br>
<br>
In reality, the finding that labour costs are strongly correlated with output prices is actually one of many strong proofs of the Post Keynesian <i>cost-based mark-up theory of pricing</i>, which has no need for a Labour Theory of Value at all. <br>
<br>
And one can only note that when Marxists try and prove the crude LTV in volume 1 of <i>Capital</i>, they are in effect admitting that the aggregate identities that constitute the “law of value” in volume 3 must be false, which Zachariah effectively does. <br>
<br>
However, one very interesting finding from this paper, as noted above, is that Zachariah found strong evidence <i>against</i> a tendency to equalisation of profit rates (Zachariah 2006: 18). It logically follows that Classical “prices of production” cannot be anchors for the real-world price system, because a tendency towards an equal profit rate is a <i>necessary condition</i> of “prices of production.” So the Classical, Sraffian and Marx’s theory of price determination as used in volume 3 of <i>Capital</i> cannot be true.<br>
<br>
<b>Further Reading</b><br>
<a href="http://socialdemocracy21stcentury.blogspot.com/2016/02/the-critical-responses-to-volume-3-of.html">“The Critical Responses to Volume 3 of Marx’s <i>Capital</i> and the Early Development of Marxism,” February 9, 2016.</a><br>
<br>
</b> <a href="http://socialdemocracy21stcentury.blogspot.com/2015/08/joan-robinson-on-marxs-labour-theory-of.html">“Joan Robinson on Marx’s Labour Theory of Value: A Few Points,” August 11, 2015.</a><br>
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<a href="http://socialdemocracy21stcentury.blogspot.com/2016/02/marxs-law-of-value-in-volume-1-of.html">“Marx’s ‘Law of Value’ in Volume 1 of <i>Capital</i>,” February 4, 2016.</a><br>
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<a href="http://socialdemocracy21stcentury.blogspot.com/2015/06/why-marxs-labour-theory-of-value-is.html">“Why Marx’s Labour Theory of Value is Wrong in a Nutshell,” June 28, 2015.</a><br>
<br>
<a href="http://socialdemocracy21stcentury.blogspot.com/2015/12/empirical-studies-showing-that-prices.html">“Empirical Studies showing that Prices are Correlated with Labour Costs do not Prove the Classical Marxist Labour Theory of Value,” December 23, 2015.</a><br>
<br>
<a href="http://socialdemocracy21stcentury.blogspot.com/2016/03/bohm-bawerk-on-marxs-problem-of.html">“Böhm-Bawerk on Marx’s Problem of Aggregating Heterogeneous Human Labour,” March 7, 2016.</a><br>
<br>
<a href="http://socialdemocracy21stcentury.blogspot.com/2016/02/marxs-capital-volume-1-chapter-11.html">“Marx’s <i>Capital</i>, Volume 1, Chapter 11: A Critical Summary,” February 7, 2016.</a><br>
<br>
<a href="http://socialdemocracy21stcentury.blogspot.com/2016/02/alexander-gray-on-two-contradictions-in.html">“Alexander Gray on the Two Contradictions in Marx’s Theory of Surplus Value in Volume 1 of <i>Capital</i>,” February 8, 2016.</a>.<br>
<br>
<b> BIBLIOGRAPHY</b><br>
Böhm-Bawerk, Eugen von. 1949 [1896]. “Karl Marx and the Close of His System,” in Paul M. Sweezy (ed.), <i>Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx</i>. August M. Kelley, New York. 3–120. <br>
<br>
Marx, Karl. 1909. <i>Capital. A Critique of Political Economy</i> (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.<br>
<br>
Nitzan, Jonathan and Shimshon Bichler. 2009. <i>Capital as Power: A Study of Order and Creorder</i>. Routledge, Milton Park, Abingdon, UK and New York. <br>
<br>
Robinson, Joan. 1966. <i>An Essay on Marxian Economics</i> (2nd edn.). Macmillan, London. <br>
<br>
Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” <i>Indian Development Review</i> 4: 1–20.
Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com17tag:blogger.com,1999:blog-6245381193993153721.post-55157993282716481542021-04-04T03:27:00.010-07:002021-04-08T03:08:28.463-07:00Academic Agent versus “Adam Friended” on Price Inflation and MMTAcademic Agent has got into another row on MMT, but this time with someone called “Adam Friended.”<br>
<br>
In brief, “Adam Friended” responded to Academic Agent in the following video on the issue of MMT and price inflation:<br>
<br>
<iframe width="400" height="225" src="https://www.youtube.com/embed/3NIVG38XN94" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
<br>
Academic Agent then produced this response on MMT here:<br>
<br>
<iframe width="400" height="225" src="https://www.youtube.com/embed/8BybZB2Uezg?start=220" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
<br>
Academic Agent is correct that Covid welfare payments and furlough schemes were not the fundamental drivers of inflation in some goods. It is also true that the Western world is far from full employment (though wage rises clearly can be a driver of price inflation through cost-based mark-up prices).<br>
<br>
Unfortunately, “Adam Friended” did not correctly describe the causes of the price inflation in certain goods at the moment, and worse still he does not himself properly understand MMT or Post Keynesian economics, and fails to understand that the naïve Quantity Theory of Money is rejected in MMT and Post Keynesian economics. So this debate between Academic Agent and “Adam Friended” stems from the failure of the latter to correctly state MMT or Post Keynesian theories.<br>
<br>
The fundamental causes of the inflation seen in certain goods recently are as follows:<BLOCKQUOTE><b>(1)</b> disruption to supply chains because of Covid and lockdowns has caused supply-side inflation, especially in factor inputs. Some nations have also restricted exports of key goods, and lockdowns, in some cases, badly affected production in places like China. In other cases, some nations hoarded supplies of certain food and medical supply products, which restricted overseas exports and caused some inflation.<br>
<br>
<b>(2)</b> the price of oil has been rising sharply since last year, and since energy is a fundamental factor input cost, the rise in costs is passed on via cost-based mark-up prices;<br>
<br>
<b>(3)</b> there has been disruption of agricultural production and inflation in certain food products and in some agricultural inputs. For example, lockdowns and closing of borders have disrupted production and processing of agricultural goods.</BLOCKQUOTE> The evidence for this can be seen in <a href="https://www.imf.org/-/media/Files/Publications/covid19-special-notes/en-special-series-on-covid-19-the-impact-of-covid-19-on-inflation-potential-drivers-and-dynamics.ashx">this IMF paper called “The Impact of COVID-19 on Inflation: Potential Drivers and Dynamics”.</a><br>
<br>
So, in other words, the recent inflation in certain goods prices is mainly and fundamentally caused by <i>real factors</i> like supply disruptions, lockdowns, hoarding and shortages, <i>not</i> monetary factors.<br> Some demand-pull inflation after supply disruptions has happened, but the real factors are more important, and, as we will see below, Austrians like Academic Agent fail to understand the true extent of demand-pull inflation.<br>
<br>
However, it is important to put this into perspective via the general price indices.<br>
<br>
American and UK inflation is historically low, as we can see <a href="https://tradingeconomics.com/united-states/inflation-cpi">here for the US</a> and <a href="https://tradingeconomics.com/united-kingdom/inflation-cpi">here for the UK</a> (just click on the “25Y” or “Max” tabs above the graphs to see the long-run historical inflation rates). None of this has caused high or even moderate general price inflation.<br>
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Academic Agent’s fundamental claim in his video (see his comments from 35:18 and 36:09) appears to be that expansion of the money supply via central banks is the fundamental driver of the price inflation in some goods today. This is absurd, and the actual evidence, as I stated above, shows <i>real factors</i> were the driver of the inflation because of supply disruptions, lockdowns, hoarding and shortages.<br>
<br>
Worse still, Academic Agent in his reply video makes other errors and fails to understand MMT and even his own Austrian theory.<br>
<br>
Let’s review these errors below.<br>
<br>
<b>The Austrian Theory of Price Inflation</b><br>
Academic Agent is so ignorant he actually states in his video that the “Austrian theory would say ... inflation is <i>always</i> a monetary phenomenon” (see 11:36–11:42). By “inflation” Academic Agent clearly means “price inflation” and not merely expansion of the money supply.<br>
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Academic Agent is <i>blatantly wrong</i> about Austrian theory.<br>
<br>
The idea that “inflation is always and everywhere a monetary phenomenon” is a <i>Monetarist</i> theory on the basis of the Quantity Theory of Money.<br>
<br>
In reality, the Austrian school does not wholly subscribe to the Quantity Theory of Money, but have their own criticisms of it, because of the issue of Cantillon effects, as well as other criticisms.<br>
<br>
Academic Agent is apparently unaware that the Austrian school actually has serious criticisms of the orthodox Quantity Theory of Money.<br>
<br>
First let us take the view of Ludwig von Mises:<blockquote>“ [sc. Mises] … agreed with the classical ‘quantity theory’ that an increase in the supply of dollars or gold ounces will lead to a fall in its value or ‘price’ (i.e., a rise in the prices of other goods and services); <font style="BACKGROUND-COLOR: yellow">but he enormously refined this crude approach and integrated it with general economic analysis. For one thing, he showed that this movement is scarcely proportional; an increase in the supply of money will tend to lower its value, but how much it does, or even if it does at all, depends on what happens to the marginal utility of money and hence the demand of the public to keep its money in cash balances.</font> Furthermore, Mises showed that the ‘quantity of money’ does not increase in a lump sum: the increase is injected at one point in the economic system and prices will only rise as the new money spreads in ripples throughout the economy. If the government prints new money and spends it, say, on paper clips, what happens is not a simple increase in the ‘price level,’ as non-Austrian economists would say; what happens is that first the incomes of paperclip producers and prices of paper clips increase, and then the prices of the suppliers of the paper clip industry, and so on. So that an increase in the supply of money changes relative prices at least temporarily, and may result in a permanent change in relative incomes as well” (Rothbard 2009: 15).</blockquote>In other words, Mises <i>denied</i> that a given increase in the money supply (say, 5%) would lead to a direct, proportional and mechanistic rise of 5% in the general level of prices.<br>
<br>
Strictly speaking, then, Mises denied the orthodox Quantity Theory of Money.<br>
<br>
The naïve monetarists believe that there is a “monocausal” explanation of inflation: money supply growth which will cause <i>direct, proportional</i> increases in the price level, at the very least in the long run, even if Monetarists will accept short-run non-neutrality of money.<br>
<br>
Friedrich von Hayek believed that a simple form of the quantity theory was a “helpful guide,” but was nevertheless a critic of the theory, both in the version of it propounded by Irving Fischer and the restatement of it by Milton Friedman (Arena 2002).<br>
<br>
In particular, “Hayek criticized Friedman for concentrating too much on statistical relationships (between the quantity of money and the price level), claiming that matters are not quite that simple” (Garrison 2007: 3).
Modern Austrians continue to be critical of Quantity Theory of Money, like Jesús Huerta de Soto, who has the following to say:<blockquote>“[sc. The equation MV=PT of the quantity theory] contains an undeniable element of truth inasmuch as it reflects the notion that variations in the money supply eventually influence the purchasing power of money (i.e., the price of the monetary unit in terms of every good and service). Nevertheless its use as a supposed aid to explaining economic processes has proven highly detrimental to the progress of economic thought, since it prevents analysis of underlying microeconomic factors, forces a mechanistic interpretation of the relationship between the money supply and the general price level, and in short, masks the true microeconomic effects monetary variations exert on the real productive structure” (Huerta de Soto 2009).</blockquote>The Austrians think that quantity theory is inadequate because it ignores their theory that increases in the money supply distort relative price and the productive structure of an economy, which is, in essence, the Austrian Business Cycle Theory (ABCT).<br>
<br>
If we dig deeper into Austrian view of inflation, we can find some surprisingly sensible analysis.<br>
<br>
Frank Shostak has this view:<blockquote>“the essence of inflation is not a general rise in prices but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services .... <font style="BACKGROUND-COLOR: yellow">While increases in money supply (i.e., inflation) are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors. Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place.</font> In other words, while money growth is buoyant – i.e., inflation is high – prices might display low increases.”<br>
<a href="http://mises.org/daily/908">Frank Shostak, “Defining Inflation,” <i>Mises Daily</i>, March 6, 2002</a>.</blockquote> The statement that prices “are determined by real and monetary factors” is empirically correct, but requires that the Monetarist view – defended by Academic Agent – that “inflation is always and everywhere a monetary phenomenon” is false. <br>
<br>
So Academic Agent does not even understand the Austrian theory he comically defends!<br>
<br>
Of course, even the Austrian view of Frank Shostak is seriously flawed in that it does not understand endogenous money or the widespread existence of cost-based mark-up prices.<br>
<br>
In reality, most prices are cost-based mark-up prices which are relatively inflexible with respect to demand, either as compared with the 19th century or in the grossly unrealistic models of the worst sort of Neoclassical economics and Austrian theory. This means that increases in demand or purchases of goods via new money (most of which is simply created by private banks anyway via new loans) simply do not bid up prices rapidly or significantly in the way Austrians imagine, precisely because of relative price rigidity. This means that the extent of demand-side price inflation – though it does exist – is grossly exaggerated by Austrians.<br>
<br>
To be clear: demand-pull inflation certainly exists, but it is often not the main cause of price inflation in the modern world, and its extent is much more limited.<br>
<br>
Changes in the general price level are a highly complex result of many factors, and not a simple function of money supply.<br>
<br>
Businesses will raise their prices for all sorts of reasons independently of a money supply expansion.<br>
<br>
Often general price inflation is a <i>cost-push phenomenon</i>, in which<blockquote><b>(1)</b> workers or unions demand higher wages and businesses agree to these increases and/or<br>
<br>
<b>(2)</b> prices of other factor inputs rise, and then businesses raise prices to reflect higher unit costs.</blockquote>While a long-run, sustained price inflation does need a growing money supply to sustain it, the money supply is often <i>not</i> the causal factor in such price inflations, but the <i>intermediary factor</i>. Often, it is business and corporate use of cost-based mark-up prices and their pricing decisions, on the basis of the need for more profit or higher unit costs, which drive price inflations.<br>
<br>
Monetarists make the mistake of thinking that the intermediary medium (money supply) is the only and fundamental driver of price inflation, when real factors underlie many movements in prices.<br>
<br>
<b>The MMT Job Guarantee</b><br>
Academic Agent asks how a Job Guarantee will not cause high inflation under MMT.<br>
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The answer is that the MMT job guarantee is designed to pay a <i>minimum wage</i>, so that workers can be bid away from it to the private sector with higher private sector wages.<br>
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In cases where private sector employment already pays above minimum wage (which is very many sectors), there is no significant inflation issue.<br>
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It is true that there might be some wage inflation where private sector employment already pays a minimum wage and private businesses have trouble finding workers, but this process happens already, and is not going to cause the type of huge or significant inflation Austrian-school supporters like Academic Agent pretend will happen.<br>
<br>
Quite simply, low-level price inflation is better for a modern economy than price deflation, since price deflation causes devastating macroeconomic effects, like profit deflation in the face of money wage rigidity, debt deflation, deferral of purchases of goods, and pessimistic business expectations.<br>
<br>
The Austrian complaint that the MMT job guarantee might cause some low-level inflation is utterly spurious, since low-level price inflation is far better than price deflation.<br>
<br>
<b> BIBLIOGRAPHY</b><br>
Arena, R. 2002. “Monetary Policy and Business Cycles: Hayek as an Opponent to the Quantity Theory Tradition,” in J. Birner, P. Garrouste, T. Aimar (eds.), <i>F. A. Hayek as a Political Economist: Economic Analysis and Values</i>. Routledge, London.<br>
<br>
Garrison, R. 2007. “Hayek and Friedman: Head to Head”<br>
http://www.auburn.edu/~garriro/hayek%20and%20friedman.pdf<br>
<br>
Huerta de Soto, J. 2009. “A Critique of the Mechanistic Monetarist Version of the Quantity Theory of Money,” Economicthought.net<br>
http://www.economicthought.net/2009/07/a-critique-of-the-mechanistic-monetarist-version-of-the-quantity-theory-of-money/<br>
<br>
Rothbard, M. N. 2009. <i>The Essential von Mises</i>. von Mises Institute, Auburn, Alabama.<br>
<br>
Shostak, F. 2002. “Defining Inflation,” Mises Daily, March 6<br>
http://mises.org/daily/908
Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-21194622068618842432021-02-05T01:27:00.014-08:002021-02-06T22:37:24.291-08:00Reply to Academic Agent on Austrian Economics and Price RigidityAcademic Agent lost a bet to me on Twitter and was forced to respond to my post <a href="https://socialdemocracy21stcentury.blogspot.com/2020/09/relative-price-rigidity-and-austrian.html">here</a> on Austrian economics and the reality of relative price rigidity. He has now produced two videos in this debate.<br>
<br>
Here is Academic Agent’s first video response to my post:<br>
<br>
<iframe width="400" height="225" src="https://www.youtube.com/embed/ecDoL14EYgs?start=20" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
<br>
Before he uploaded the video, I predicted that his video would contain the following:<BLOCKQUOTE><b>(1)</b> he would misrepresent the actual theories of Austrian economics;<br>
<b>(2)</b> he would attack straw-man misrepresentations of my post;<br>
<b>(3)</b> he would focus on minor arguments and weak evidence and largely ignore major arguments and strong evidence. </BLOCKQUOTE> These predictions are largely correct.<br>
<br>
First, Academic Agent misrepresents my argument and states that I think the word “rapidly” in relation to price flexibility means I think prices must change “immediately.” He is a pure liar. I do <i>not</i> interpret “rapidly” to mean “instantly” or “immediately,” but reasonably quickly in the short run (which might be days or perhaps a few weeks).<br>
<br>
In my original bet with Academic Agent on Twitter, I asked him to also comment on this graph of historical inflation rates in the US:<br>
<div class="separator" style="clear: both;"><a href="https://1.bp.blogspot.com/-HEqw_RTkBqk/YB0NAb7aSNI/AAAAAAAAA_c/BwpCGc-0GL05_5WK_VQVWwS3va9b3_6fwCLcBGAsYHQ/s1024/pricerig.jpg" style="display: block; padding: 1em 0; text-align: center; "><img alt="" border="0" width="400" data-original-height="502" data-original-width="1024" src="https://1.bp.blogspot.com/-HEqw_RTkBqk/YB0NAb7aSNI/AAAAAAAAA_c/BwpCGc-0GL05_5WK_VQVWwS3va9b3_6fwCLcBGAsYHQ/s400/pricerig.jpg"/></a></div>
As we can see, this graph provides irrefutable evidence of the main point of my post which was illustrated via a quotation from Ludwig Lachmann: that, since the 19th century, the modern world has come to have a high degree of relative price rigidity, especially downwards relative price rigidity.<br>
<br>
The graph shows, after the late 1930s, a sharp decrease in volatility of price movements as compared with the 19th century, and the virtual disappearance of deflationary episodes even during recessions.<br>
<br>
In short, this is clear, explicit, definitive proof that we live in a world of relative price rigidity, as stated in the quotation of Lachmann. You could find similar graphs from every Western nation where the same trend is perfectly evident.<br>
<br>
Academic Agent chose to ignore this graph and the evidence it provides, which can only demonstrate what a dishonest hack he is, and proves that he chose to ignore the strongest evidence. Later he was forced to produce a second video dealing with this point, as we will see below.<br>
<br>
Of the twelve quantitative studies on the average duration of price changes I cited, Academic Agent picked three, and ignored the most recent, best studies with massive data sets. He then selected some random commodities in his three cherry-picked studies and attempted to show that their price movements were driven by demand changes by reference to their sales data over time, correcting, he believed, for the rise in the general price level in particular relevant time periods.<br>
<br>
But his attempt to disprove my original post by this tactic is utterly flawed. Academic Agent examined a handful of prices of some goods like steel and magazine prices and thought he showed that their price rises were determined by demand changes. But he simply <i>begged the question</i> and refused to consider that the price changes in question may have been caused simply by changes in the total average unit costs of the producers, which is entirely in line with cost-based mark-up pricing theory.<br>
<br>
Worse still, Academic Agent refuses to even state whether he thinks cost-based mark-up prices exist or not. For a very long time on Twitter, Academic Agent vehemently refused to accept that cost-based mark-up prices even exist, then in the face of massive evidence presented to him hinted that maybe they exist, and then when pressed again evaded the issue or reverted to his original absurd position that they do not exist. <br>
<br>
Notably, in an act of obvious dishonesty, he completely ignored the best evidence in the quantitative studies I cited. Consider these studies:<BLOCKQUOTE> <b>(1)</b> Baudry, Laurent, Le Bihan, Hervé, Sevestre, Patrick, and Sylvie Tarrieu. 2004. “Price Rigidity. Evidence from the French CPI Micro-Data,” ECB, Working paper series No. 384<br>
https://ideas.repec.org/p/ecb/ecbwps/2004384.html<br>
This paper uses a large dataset of prices from the non-farm business sector of the French economy. More than 750,000 products were tracked for price changes (that is, the time duration between two price changes of a product) from July 1994 to February 2003 (Baudry et al. 2004: 5). <FONT style="BACKGROUND-COLOR: yellow">This study finds significant rigidity of consumer prices.</FONT> The weighted average duration of prices was 8 months, but the authors calculate that extension of the data to include the whole French CPI would yield a weighted average duration of price change <i>higher than 8 months</i> (Baudry et al. 2004: 5–6). <FONT style="BACKGROUND-COLOR: yellow">The study found that service prices are especially sticky: they typically last for a year</FONT> (Baudry et al. 2004: 6).<br>
<br>
<b>(2)</b> Dhyne, Emmanuel, Álvarez, Luis J., Le Bihan, Hervé, Veronese, Giovanni et al. 2006. “Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data,” <i>The Journal of Economic Perspectives</i> 20.2: 171–192.<br>
This paper analyses large quantitative price data sets from numerous European nations, including Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The major finding is that in the Euro area that average duration of price changes is 13 months (Dhyne et al. 2006: 176). <FONT style="BACKGROUND-COLOR: yellow">The sectors that have the most price rigidity are services, non-energy industrial goods, and even processed food (Dhyne et al. 2006: 189). In particular, the services sector (the largest sector in most nations today) shows very strong downwards price rigidity: on average, only 2 price changes out of 10 are downwards in the services sector (Dhyne et al. 2006: 181). On average throughout various sectors, just 4 price changes out of 10 are decreases in prices (Dhyne et al. 2006: 180), which shows that there is a bias towards price rises in modern capitalist economies.</FONT></BLOCKQUOTE> There is not a word about these in Academic Agent’s video, and, worse still, he completely rejected the qualitative studies of face-to-face interviews, surveys and questionnaires of business-people, managers, CEOS and price administrators on the absurd objection that none of these studies has any validity.<br>
<br>
What is especially ridiculous here is that, in the past, Academic Agent has rejected a study by A. Blinder called <i>Asking about Prices: A New Approach to Understanding Price Stickiness</i> (1998) with the objection that its sample size was only 200 US businesses. Yet Academic Agent himself makes the sweeping conclusion that prices are flexible with a sample size of less than a dozen products!!<br>
<br>
Moreover, there is another devastating problem with Academic Agent’s method of selecting of random prices in the video and analysing them, which is from the perspective of Austrian economics itself. <br>
<br>
First, Austrians believe in Cantillon effects. A Cantillon effect is the idea that price level changes caused by increases in the quantity of money depend on the way new money is injected into the economy and where it affects prices first. Austrians think that new money spreads out altering the level of prices and structure of relative prices in a non-uniform way. Another way of saying this is that, although prices rise as the quantity of money increases, contrary to the naive Quantity Theory of Money, prices do <i>not</i> rise proportionally, but in a complex manner that depends on who received the money and how they spent it. (I would point out that, to the extent that money supply changes can induce price changes, Cantillon effects no doubt do happen, and in this respect Cantillon effects can be real, but the whole Quantity Theory of Money is itself flawed, so this point is rendered moot.)<br>
<br>
But Academic Agent makes the assumption that all prices must have risen at the same rate as the general price level over time, which his own Austrian theory tells him is false. <br>
<br>
Thus Academic Agent has fallen back on a vulgar Quantity Theory of Money view of inflation, which even the Austrian economists he appeals to reject. <br>
<br>
So even if Academic Agent could overcome the devastating contradictions and problems with his original video, he <i>still</i> would not prove that most prices are rapidly responsive to demand changes, since, logically, his method for analysing how prices changed in response to demand is invalid by his own Austrian theory!<br>
<br>
After selecting some random commodities like magazine prices and attempting to show their price movements were driven by demand changes, Academic Agent then absurdly claims victory and made the conclusion to his first video here:<br>
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<iframe width="400" height="225" src="https://www.youtube.com/embed/ecDoL14EYgs?start=3501" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
<br>
As we can see, Academic Agent’s conclusion – which is a questionable sweeping generalisation given his tiny sample size even if we put aside the other criticisms – is that “Fluctuations in supply and demand are reflected in real-world prices” (note carefully that he specifies he really is talking about real-world prices here).<br>
<br>
But within a few hours his whole conclusion collapsed when I challenged him on Twitter to explain the graph of historical US inflation rates above and to explain the downwards price rigidity clearly evident in the graph.<br>
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His reply was predictable:<br>
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So Academic Agent effectively admitted that he himself thinks that central banks, through their money creation, impede downwards price flexibility in a very significant way. <br>
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I then challenged him to explain how he could possibly defend these two mutually contradictory propositions: <BLOCKQUOTE><b>(1)</b> real-world prices are highly flexible upwards and downwards in response to supply and demand changes as required in Austrian economics, or<br>
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<b>(2)</b> there is massive downwards price rigidity caused by central banks. </BLOCKQUOTE> Of course, this charlatan pretended there was no contradiction, refused to even state which one he thought was correct.<br>
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Later he produced this comical second video in response to the paradox:<br>
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<iframe width="400" height="225" src="https://www.youtube.com/embed/JvgoFeqAEd0?start=20" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
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In video 2, Academic Agent now utterly contradicts his original video and argues that only purely abstract or imaginary prices as imagined in Austrian economics in the absence of central banks are highly flexible upwards or downwards in response to demand changes.<br>
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But in his original video he was perfectly explicit that he was attempting to defend the proposition that real-world prices (not abstract or imaginary ones) were flexible upwards or downwards in response to demand changes:<br>
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<iframe width="400" height="225" src="https://www.youtube.com/embed/ecDoL14EYgs?start=164" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br>
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So Academic Agent has switched the terms of his argument in the second video in a blatant contradiction analogous to (but not exactly the same as) the Fallacy of Equivocation. In fact, Academic Agent has committed a grossly dishonest violation of basic standards of honest argumentation, because in the standard Fallacy of Equivocation a crucial term is used in a slippery, non-explicit manner where it can have ambiguous or multiple meanings. But Academic Agent is such a lazy hack and charlatan he blatantly switches the explicit meaning of the key term in the debate between the two videos.<br>
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In the first video, the key term is “real-world prices” (that is, actual prices in the real world). In the second video, Academic Agent switches to “abstract or imaginary prices” as imagined in Austrian economics in the total absence of central banks (and presumably other state interventions).<br>
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Anybody rational can see that this is a contemptibly dishonest intellectual tactic that allows him to evade answering the question whether real-world prices are actually and really highly flexible, both upwards and downwards, in response to demand changes.<br>
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Finally, even though there certainly <i>is</i> significant relative price rigidity downwards, the fundamental cause of this is not, as Academic Agent thinks with his lazy Quantity Theory of Money fable, the money creation of central banks. <br>
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In reality, the fundamental driver of relative price rigidity downwards are these two factors: <BLOCKQUOTE><b>(1)</b> the institutional reality that most prices are cost-based mark-up prices with a bias to move upwards rather than downwards, and<br>
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<b>(2)</b> widespread relative downwards money wage rigidity, which feeds into (1). </BLOCKQUOTE> The fact is that money supply growth is simply an intermediary factor here.
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Long-run inflation of the money supply is necessary to sustain long-run inflation, so, in that respect, central-bank money expansion is a <i>necessary condition</i> for long-run inflation, but central-bank money creation is <i>not</i> the primary causal origin of upwards movements in prices and downwards relative price rigidity. The primary causal factors are the two listed above. So Academic Agent doesn’t even understand the fundamental cause of downwards relative price rigidity. Instead, he is a lazy Quantity Theory of Money advocate. He is even too stupid – as we have seen above – to understand and properly apply the Austrian objections to the Quantity Theory of Money via Cantillon Effects in his analysis!<br>
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If Academic Agent were an honest intellectual, he would be capable of giving direct, explicit, non-evasive answers to these questions:<BLOCKQUOTE><b>(1)</b> do cost-based mark-up prices exist in the sense described <a href="https://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html">here</a>?<br>
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<b>(2)</b> if Academic Agent thinks cost-based mark-up prices exist, to what extent are they used in modern Western market economies?<br>
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<b>(3)</b> why did Academic Agent ignore the best, most recent quantitative studies I cited in my original post, especially Dhyne et al. 2006 and Baudry 2004, which both show significant price rigidity?<br>
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<b>(4)</b> Are real-world money prices (<i>not</i> abstract or imaginary prices in the absence of central banks) highly flexible downwards or not, given his Quantity Theory of Money view, in the presence of central banks?<br>
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<b>(5)</b> if the answer to question (4) is “no,” then how can actual, real-world money prices (as observed in the real world, such as in the graph above) be highly flexible, both downwards and upwards, in response to demand changes? </BLOCKQUOTE> Of course, Academic Agent will never provide clear answers to these questions, because being minimally honest and clearly answering them would refute his two videos.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3tag:blogger.com,1999:blog-6245381193993153721.post-6812377886258638022020-10-31T02:43:00.002-07:002020-11-01T04:49:00.377-08:00Austrians and Full EmploymentIn this video, the Austrian libertarian “Radical Liberation” claims that “full employment” is not a term used in Austrian economics:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/qnxtX-pL1dU?start=8159" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
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While it is true that Austrians rarely speak of “full employment” (which is a very low level of involuntary employment, and does <i>not</i> mean zero unemployment) as a policy goal, the claim that Austrians do not think in terms of the <i>concept</i> of “full employment” is actually rubbish, because Austrians just use expressions such as “no involuntary unemployment,” “clearing of the labour market” or a “tendency to clearing of the labour market.”<br />
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To see this, consider these passages from Austrian economists:<BLOCKQUOTE><b>(1)</b> “Similarly, most economists would readily admit that keeping the price of any good above the amount that would clear the market will cause unsold surpluses to pile up. Yet, they are reluctant to admit this in the case of labor. …. In a free market, <font style="BACKGROUND-COLOR: yellow">wage rates will tend to adjust themselves so that there is no involuntary unemployment, i.e., so that all those desiring to work can find jobs.</font> Generally, wage rates can only be kept above full-employment rates through coercion by government, unions, or both.” (Rothbard 2008: 43).<br />
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<b>(2)</b> “Unemployment in the unhampered market is always voluntary. In the eyes of the unemployed man, unemployment is the minor of two evils between which he has to choose. The structure of the market may sometimes cause wage rates to drop. <font style="BACKGROUND-COLOR: yellow">But, on the unhampered market, there is always for each type of labor a rate at which all those eager to work can get a job. The final wage rate is that rate at which all job-seekers get jobs and all employers as many workers as they want to hire. Its height is determined by the marginal productivity of each type of work.” </font> (Mises 2008: 596–597).<br />
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<b>(3)</b> “We know from ‘microeconomic’ analysis that if there is a ‘surplus’ of something on the market, if something cannot be sold, the only reason is that <font style="BACKGROUND-COLOR: yellow">its price is somehow being kept too high. The way to cure a surplus or unemployment of anything, is to lower the asking price, whether it be wage rates for labor, prices of machinery or plant, or of the inventory of a retailer.”</font> (Rothbard 2006: 44).<br />
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<b>(4)</b> “A worse problem is that, since the 1930s, government and its privileged unions have intervened massively in the labor market to <font style="BACKGROUND-COLOR: yellow">keep wage rates above the market-clearing wage, thereby insuring ever higher unemployment.”</font> (Rothbard 2006: 45).<br />
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<b>(5)</b> “There is always work to do at some price. <font style="BACKGROUND-COLOR: yellow">For that reason, there can be no such thing as involuntary unemployment in a free market. Everyone who wants to work is working and everyone who does not want to work is in that position by choice. </font> This is a truth that follows from the universal reality of scarcity.<br />
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There are only two reasons for unemployment: <font style="BACKGROUND-COLOR: yellow">legal restrictions that forbid contracts from forming (France has plenty, and the United States does too) and price restrictions that prevent the market for labor from clearing properly</font> (France has that too, as does the US). In other words, involuntary unemployment is always and everywhere brought about by the same cause: government restriction of the market.” (Rockwell 2006).</BLOCKQUOTE> For Austrians, the whole point of flexible money wages is that it is supposed to cause a strong tendency towards the <i>clearing of the labour market</i>, which is just another way of saying that free markets are supposed to have a strong tendency towards <i>elimination of involuntary unemployment</i> and high levels of employment (“full employment”).<br />
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So we can see here how ignorant and incompetent Austrians are if they claim that they do not understand the concept of “full employment.”<br />
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<b>Bibliography</b><br />
Mises, L. 2008. <i>Human Action: A Treatise on Economics. The Scholar’s Edition</i>. Mises Institute, Auburn, Ala.<br />
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Rockwell, Jr., Llewellyn H. 2006. “The French Employment Fiasco,” 11 April
http://www.mises.org/story/2113<br />
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Rothbard, Murray N. 2006. <i>Making Economic Sense</i> (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.<br />
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Rothbard, Murray N. 2008. <i>America’s Great Depression</i> (5th edn.). Ludwig von Mises Institute, Auburn, Ala.<br />Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-55256009146193108082020-09-24T04:20:00.019-07:002020-09-24T07:05:55.510-07:00Relative Price Rigidity and Austrian EconomicsThe purpose of this post is to examine and provide a critique of Austrian price theory, and in particular the Austrian denial of relative price rigidity in the real world.<br />
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In the Austrian economist Ludwig Lachmann’s book <i>Capital, Expectations, and the Market Process</i> (Kansas City, 1977) there is a section where Lachmann reviews John Hicks’s book <i>Capital and Growth</i> (Oxford, 1965).<br />
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The significance of Hick’s discussion is described by Lachmann:<blockquote>“Two other matters of great significance are dealt with in the first part of the book. As others have done before him, Professor Hicks finds it necessary to stress, in his chapter on Marshall’s method, that our world differs from that which Marshall took for granted <font style="BACKGROUND-COLOR: yellow">in that we live in a world of prices ‘administered’ by manufacturers, ‘but in those days even manufactured goods usually passed along a chain of wholesalers and retailers, each of whom was likely to have some independent price-making opportunity.’ (55) Again, like others before him, our author attributes the cause of this change to the virtual disappearance of the wholesale merchant and his price-setting function after 1900.</font> Formerly ‘the initiative would come from the wholesaler or shopkeeper, who would offer higher prices in order to get the goods which, even at the higher price, he could re-sell at a profit. Similarly, when demand fell, it would be the wholesaler who would offer a lower price. The manufacturer would have to accept that price if he could get no better.’ (56) <font style="BACKGROUND-COLOR: yellow">Hence, while Marshall’s was a world of flexible prices, even though not of ‘perfect competition,’ ours is a ‘fixprice world’ with prices set on a ‘cost plus’ basis and wage rates as ultimate price determinants. </font><br />
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The analytical significance of this historical change lies, on the one hand, in the fact that the ‘Temporary Equilibrium Method’ which Hicks himself, following Lindahl, used in <i>Value and Capital</i> in 1939, has lost much of its validity. <font style="BACKGROUND-COLOR: yellow">‘The fundamental weakness of the Temporary Equilibrium method is the assumption, which it is obliged to make, that the market is in equilibrium—actual demand equals desired demand, actual supply equals desired supply—even in the <i>very</i> short period.’ (76) Hence we have to look for another method of dynamic analysis. To find it we must move nearer to Keynes and his successors who are here given credit for having understood, earlier than others, that a fixprice world requires a fixprice method of analysis.”</font> (Lachmann 1977: 238–239).</blockquote> Lachmann was well aware of the significance of fixprices, and discussed them in <i>The Market as an Economic Process</i> (Oxford, 1986), pp. 122–136.<br />
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Now, while Lachmann seems to have thought that the reduction in the role of wholesalers as compared with the 19th century was a major factor here, Post Keynesians would also point to other factors such as the role that relatively stable prices have in reducing business uncertainty and stabilising profits. But we can put these points aside for the time being.<br />
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Crucially, Lachmann said this:<blockquote><font style="BACKGROUND-COLOR: yellow"> “Those who glibly speak of ‘market clearing prices’ tend to forget that over wide areas of modern markets it is not with this purpose in mind that prices are set. </font> They seem unaware of the important insights into the process of price formation, an Austrian responsibility, of which they deprive themselves by clinging to a level of abstraction so high that on it most of what matters in the real world vanishes from sight.” (Lachmann 1986: 134).</blockquote> Lachmann even concluded that his own fellow Austrians had badly neglected the task of studying real-world price formation (Lachmann 1986: 130–131).<br />
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There is even an interesting anecdote about Lachmann from Bruce Caldwell: <blockquote>“I first met Ludwig M. Lachmann on February 4, 1982 at the first spring semester meeting of the Colloquium in Austrian Economics at New York University. ….<br />
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During that first meeting I had an exchange with Mario Rizzo about the concept of market-clearing. I argued that though the speed of adjustment problem was an empirical issue, it was not something that could be tested as a general proposition. I drew the implication that one’s view of the rapidity of clearing was a matter of faith, nothing more than a metaphysical assumption, though obviously a crucial one. Lachmann nodded his head vigorously as I was finishing up, which pleased me immensely.” (Caldwell 1991: 140). </blockquote> While that story does in fact seem to tacitly accept that there is an equilibrium structure of prices and wages that would clear all markets (something that can be doubted), the point of the story is well taken: the belief in the market’s tendency to any such state in rapid price adjustments is mostly “a metaphysical assumption.”<br />
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Lachmann was correct, and the ignorance of Austrians and advocates of Austrian economics on the issue of real-world prices continues to this day.<br />
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By the early 20th century, economists like Gardiner C. Means studied price setting by modern corporations in the United States in the 1920s and 1930s, and he concluded, after extensive empirical research, that prices of goods produced in many industrial corporations are set by a mark-up on cost of production (Downward 1999: 50), and simply are <i>not</i> flexible in the way required by Neoclassical theory. In other words, there is relative price rigidity that presents a severe problem for Neoclassical and Austrian theory.<br />
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<b>(1) What is “Relative Price Rigidity”?</b><br />
First of all, what do we mean by “relative price rigidity”?<br />
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It means this:<blockquote>In the real world, there is a high degree of <i>relative price rigidity</i>, but <i>relative</i> to the models of Austrian or the most unrealistic versions of Neoclassical theory, where all or the vast majority of prices are assumed to be highly flexible, rapidly responsive to demand changes, and are flexible enough to cause <i>a rapid and effective tendency towards market clearing in product markets</i>.</blockquote>Note well: this does <i>not</i> mean there is no flex-price sector (where prices are highly flexible) or no auction or auction-like markets. <br />
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This does <i>not</i> mean there are no goods whose production is inelastic and hence supply and demand have a greater role in determining prices.<br />
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Some goods like fresh produce, petrol, and seafood clearly have much more flexible prices than other goods, especially when goods are perishable.<br />
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In the retail sector, there is a higher degree of flexible prices, given retail sales. However, in the service sector and manufacturing sector, many prices are highly inflexible with respect to demand changes. Since both the service and manufacturing sectors together dominate most market economies, the use of widespread cost-based mark-up prices in these sectors are the fundamental cause of relative price inflexibility.<br />
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<b>(2) Austrian Theory and Price Flexibility</b><br />
Austrian economic theories absolutely require a high degree of price flexibility and nominal wage flexibility to be accurate models of the real world.<br />
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If the majority of real-world prices are relatively inflexible, not properly set by supply and demand dynamics, nor set to converge to market-clearing levels, Austrian economic theory encounters insuperable difficulties, for the following reasons:<blockquote><b>(1)</b> there is no strong, economy-wide tendency to Misesian “economic coordination” by which full use of resources is achieved as product markets and labour markets have a tendency towards clearing, so that unused resources offered for sale are eliminated.<br />
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<b>(2)</b> there can be no strong, effective, economy-wide tendency towards Mises’ shifting, dynamic “final states of rest” general equilibria in a modern economy (the “final state of rest” is Mises’ general equilibrium state).<br />
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<b>(3)</b> the idea of rapid and smooth recovery from recessions/depressions will not work, if there are widespread price and money wage rigidities, and firms adjust their output to demand changes, since adjustment will occur mainly via production output and employment changes, <i>not</i> via price and money wage adjustment.<br />
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<b>(4)</b> the whole Misesian argument against price controls collapses – at least in administered price markets – if a price control simply mimics an administered price already set by a private firm, allowing it a sufficient profit for the firm and allowing it continue to adjust its output to demand. If a firm’s total average costs change, government price controls can always be reviewed and changed, when necessary. There is no clear theoretical reason why such price controls could not work and be effective in those markets <i>already subject to private capitalist administered prices</i>, especially when production of the goods under price control is highly elastic, which, it turns out, many goods actually are in modern capitalist economies, except in primary sectors producing raw materials and agricultural products (Nell 1996: 108), and so on.<br />
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<b>(5)</b> Mises’s argument against socialist economic calculation is also rendered highly questionable if many firms already shun his flexible price mechanism.<br />
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Even if all consumer prices and prices for factor inputs were set by costs of production plus profit mark-up by a planning board, profit and loss could still be calculated by means of administered prices. If the production system had state-owned firms with unused excess capacity and stocks and inventories, they would simply adjust output quantity to the quantity demanded by consumers, as modern capitalist firms do.<br />
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Supply shocks in primary commodities and other crucial factor inputs could be dealt with through government buffer stocks, just as in fact Western capitalist nations did in the Golden Age of Capitalism and, to some degree, even to this day (e. g., think of the US <a href="http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_%28United_States%29"> Strategic Petroleum Reserve</a>).</BLOCKQUOTE> For these reasons, Austrian theories would be clearly inaccurate and highly flawed models of real-world economies, if we can show that relative price rigidity is a significant factor of reality.<br />
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<b>(3) Responses to the Reality of Price Rigidity by Austrians</b><br />
The standard response by libertarians and Austrians to evidence for price rigidity usually takes the following forms:<BLOCKQUOTE><b>(1)</b> libertarians deny that there is any evidence of relative price inflexibility;<br />
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<b>(2)</b> libertarians pretend that there is only minor relative price rigidity;<br />
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<b>(3)</b> libertarians will throw up all sorts of strawman misrepresentations of your arguments.</BLOCKQUOTE> So, first of all, what is the empirical evidence of significant relative price rigidity?<br />
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<b>(4) The Evidence for Relative Price Rigidity</b><br />
We can lay out the evidence as follows:<BLOCKQUOTE><b>(1)</b> the evidence of stickiness in aggregate price movements in Consumer Price Indices (CPIs) and Producer Price Indices (PPIs), and the fact that <i>price levels generally even rise in recessions</i>;<br />
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<b>(2)</b> the quantitative data and quantitative studies of how frequently prices change;<br />
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<b>(3)</b> survey data and empirical investigation of firms and how and why they set prices, and how frequently.</BLOCKQUOTE> First of all, it is well known that stickiness in aggregate price movements are observed in every modern Western capitalist economy.<br />
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Crucially, during most recessions since 1945 general price inflation <i>continues even in the face of general negative demand shocks</i> and we hardly ever see price deflation in a recession. That is, the general price level in recessions generally still rises, and generally recessions are just disinflationary (disinflation is a type of inflation, just inflation at a lower rate than in the previous year). In the United States since 1945, for example, virtually every recession has been inflationary: the only exceptions are 1949–1950, 1954–1955, and 2009.<br />
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For example, in the second quarter of 2020 <a href="https://tradingeconomics.com/united-states/gdp-growth">American GDP collapsed by 32.9%</a> in the face of the coronavirus pandemic and lockdowns. This kind of massive negative demand shock would require massive price deflation under Austrian theory, but instead <a href="https://tradingeconomics.com/united-states/inflation-cpi">the US economy has continued to experience price inflation, albeit at lower rates.</a><br />
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How can it be that when the economy suffers moderate to strong negative demand shocks in a recession, the general price level keeps rising if prices are highly flexible? The answer is that prices are not highly flexible in the way imagined by Austrian theory.<br />
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Now let’s move to the other quantitative data.<br />
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<b>(5) Quantitative data on How Frequently Prices Change</b><br />
Secondly, we have quantitative data and quantitative studies of how frequently prices change from various nations. Such research has been done for over 40 years and the results are very clear.<br />
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Moreover, central banks from various nations have recently made available their huge data sets on prices and price changes so that samples of quantitative data on price changes are very large. For example, a French study had a data set of more than 750,000 products tracked for price changes from 1994 to 2003 (this is Baudry et al. 2004 as described below), over a period of nearly 10 years.<br />
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Here is a sample of the quantitative data on price rigidity:<BLOCKQUOTE><b>(1)</b> Means, G. C. 1936. “Notes on Inflexible Prices,” American Economic Review 26 (Supplement): 23–35.<br />
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<b>(2)</b> Carlton, Dennis W. 1986. “The Rigidity of Prices,” The American Economic Review 76.4: 637–658.<br />
This paper presents an analysis of price rigidity in America, and finds that for “many transactions, prices remain rigid for periods exceeding one year” (Carlton 1986: 637) and it “is not unusual in some industries for prices to individual buyers to remain unchanged for several years” (Carlton 1986: 638).<br />
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<b>(3)</b> Cecchetti, Stephen G. 1986. “The Frequency of Price Adjustment: A Study of the Newsstand Prices of Magazines,” <i>Journal of Econometrics</i> 31: 255–274.<br />
This is a study of price rigidity in the prices of magazines.<br />
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<b>(4)</b> Kashyap, Anil K. 1995. “Sticky Prices: New Evidence from Retail Catalogs,” <i>Quarterly Journal of Economics</i> 110: 245–274.<br />
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<b>(5)</b> Bils, Mark and Peter J. Klenow. 2004. “Some Evidence on the Importance of Sticky Prices,” <i>Journal of Political Economy</i> 112.5: 947–985.<br />
This paper shows a higher degree of price flexibility but only by including mere temporary price cuts (as in retail sales). Their method is disputed by Nakamura and Steinsson (2008) who point out temporary sales not affecting long-run prices of a good are abnormal and make prices appear more flexible than they really are.<br />
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<b>(6)</b> Baudry, Laurent, Le Bihan, Hervé, Sevestre, Patrick, and Sylvie Tarrieu. 2004. “Price Rigidity. Evidence from the French CPI Micro-Data,” ECB, Working paper series No. 384
https://ideas.repec.org/p/ecb/ecbwps/2004384.html<br />
This paper uses a large dataset of prices from the non-farm business sector of the French economy. More than 750,000 products were tracked for price changes (that is, the time duration between two price changes of a product) from July 1994 to February 2003 (Baudry et al. 2004: 5). This study finds significant rigidity of consumer prices. The weighted average duration of prices was 8 months, but the authors calculate that extension of the data to include the whole French CPI would yield a weighted average duration of price change <i>higher than 8 months</i> (Baudry et al. 2004: 5–6). The study found that service prices are especially sticky: they typically last for a year (Baudry et al. 2004: 6).<br />
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<b>(7)</b> Dhyne, Emmanuel, Álvarez, Luis J., Le Bihan, Hervé, Veronese, Giovanni et al. 2006. “Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data,” <i>The Journal of Economic Perspectives</i> 20.2: 171–192.<br />
This paper analyses large quantitative price data sets from numerous European nations, including Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The major finding is that in the Euro area that average duration of price changes is 13 months (Dhyne et al. 2006: 176). The sectors that have the most price rigidity are services, non-energy industrial goods, and even processed food (Dhyne et al. 2006: 189). In particular, the services sector (the largest sector in most nations today) shows very strong downwards price rigidity: on average, only 2 price changes out of 10 are downwards in the services sector (Dhyne et al. 2006: 181). On average throughout various sectors, just 4 price changes out of 10 are decreases in prices (Dhyne et al. 2006: 180), which shows that there is a bias towards price rises in modern capitalist economies.<br />
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<b>(8)</b> Sabbatini, Roberto, Álvarez, Luis J., Dhyne, Emmanuel et al. 2007. “What Quantitative Micro Data Reveal about Price Setting Behavior,” in S. Fabiani, C. Suzanne Loupias, F. M. Monteiro Martins and Roberto Sabbatini (eds.), <i>Pricing Decisions in the Euro Area: How Firms set Prices and Why</i>. Oxford University Press, New York.<br />
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<b>(9)</b> Nakamura, Emi and Jón Steinsson. 2008. “Five Facts about Prices: A Reevaluation of Menu Cost Models,” The Quarterly Journal of Economics 123.4: 1415–1464.<br />
This paper shows that without mere temporary price cuts (as in retail sales where prices revert to the normal, higher level after a sale) average US prices change infrequently: only about every 7–11 months.<br />
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<b>(10)</b> Klenow, Peter J. and Benjamin A. Malin. 2011. “Microeconomic Evidence on Price-Setting,” in Benjamin M. Friedman and Michael Woodford (eds.), <i>Handbook of Monetary Economics Volume 3A</i>. North Holland, Amsterdam and London. 231–284.<br />
This chapter provides a table on p. 239 (Table 4) that summarises quantitative data from 19 nations on price rigidity. The data mostly comes from service and industrial sectors (and sometimes in addition also other sectors). For most nations, prices change “on average” at least once a year (Klenow and Malin 2011: 242). If merely short-lived prices (such as mere temporary price discounts) are excluded, prices change closer to once a year (Klenow and Malin 2011: 232).<br />
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<b>(11)</b> Nakamura, Emi and Jón Steinsson. 2013. “Price Rigidity: Microeconomic Evidence and Macroeconomic Implications,” <i>Annual Review of Economics</i> 5: 133–163.<br />
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<b>(12)</b> Kehoe, Patrick and Virgiliu Midrigan. 2015. “Prices are Sticky after All,” <i>Journal of Monetary Economics</i> 75: 35–53.<br />
This paper responds to Bils and Klenow (2004) who looked at US consumer prices. Kehoe and Midrigan show that Neoclassical apologists cannot appeal to temporary sales or temporary price discounts in US consumer goods to justify the idea of high price flexibility, because after such temporary price changes the nominal price usually just reverts back to pre-existing nominal price, and one also needs to take account of producer prices. Kehoe and Midrigan find that, without temporary sales, prices change about once a year.</BLOCKQUOTE> In many nations, prices change on average once a year (e.g., Carlton 1986: 637; Klenow and Malin 2011: 242, 232; Kehoe and Midrigan 2015). Of especial interest is the recent finding that in the Euro area that average duration of price changes is 13 months (Dhyne et al. 2006: 176).<br />
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In view of this evidence, a libertarian cannot refute the evidence for relative price rigidity by simply looking at random prices and finding price changes. As we can see, quantitative studies have already been done of large data sets of prices by Neoclassical economists and the overwhelming finding is a world of relative price rigidity, that is, relative to the price models of Neoclassical economics.<br />
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<b>(6) Survey Data and Empirical Investigation of Firms</b><br />
Surveys of and face-to-face interviews of price administrators, managers and CEOs of firms also reveal a great deal about price setting and price rigidity.<br />
<br />
Here are some of the most important studies:<BLOCKQUOTE><b>(1)</b> Hall, R. L. and C. J. Hitch. 1939. “Price Theory and Business Behaviour,” <i>Oxford Economic Papers</i> 2: 12–45.<br />
This early important paper by R. L. Hall and Charles J. Hitch from research in the 1930s concluded that UK businessmen did not generally estimate the elasticity of the demand curves for their products or equate marginal revenue with marginal cost, but instead set prices by means of “full cost pricing” (Lee 1998: 90), which we would now call cost-based mark-up pricing. They also concluded businesses found that frequent price changes were unpopular with customers, that often price reductions would not induce significant additional market sales, and that they feared price wars (Lee 1998: 91).<br />
<br />
<b>(2)</b> Andrews, P. W. S. 1949. “A Reconsideration of the Theory of the Individual Business,” <i>Oxford Economic Papers</i> n.s. 1.1: 54–89.<br />
<br />
Andrews, P. W. S. 1949. <i>Manufacturing Business</i>. Macmillan, London.<br />
<br />
Andrews, P.W.S. 1964. <i>On Competition in Economic Theory</i>. Macmillan, London.<br />
Andrews noted the existence of excess capacity in many firms and how cost-based mark-up prices were normal even in markets where competition exists, or that is, “irrespective of the degree of competition which the firm has to meet” (Andrews 1949: 58–59). When firms wish to increase market share, it will often be by means of superior quality and reputation, rather than price cuts (Downward 1999: 50).<br />
<br />
<b>(3)</b> Bhaskar, V., Machin, Stephen and Gavin C. Reid. 1993. “Price and Quantity Adjustment over the Business Cycle: Evidence from Survey Data,” Oxford Economic Papers n.s. 45.2: 257–268.<br />
This paper reports data from a questionnaire posed to managers of 73 small UK firms in 1985. It shows quantity adjustments “are overwhelmingly more important than price adjustments over the business cycle” (Bhaskar 1993: 257) and “[m]ost firms do not increase prices in booms or reduce them in recessions, and when they do, managers suggest that these are relatively unimportant” (Bhaskar 1993: 266).<br />
<br />
<b>(4)</b> Blinder, A. S. et al. (eds.). 1998. <i>Asking about Prices: A New Approach to Understanding Price Stickiness</i>. Russell Sage Foundation, New York.<br />
This book reports a well-sampled survey of 200 US businesses. It was found that a typical good in the US is repriced roughly once a year, and prices are most sticky in the service sector, but the least sticky in wholesale and retail trade (Blinder et al. 1998: 105). Over 50% of firms said that they would not increase their prices when demand increased (Downward and Lee 2001: 476). Blinder et al. (1998: 200–201) also found that 56.8% of the firms they surveyed said that the idea that prices and price changes depend mainly on costs of production ranked as “very important” (38.8%) or moderately important (18%).<br />
<br />
<b>(5)</b> Downward, Paul. 1999. <i>Pricing Theory in Post-Keynesian Economics: A Realist Approach</i>. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.<br />
This book reports a survey conducted by P. Downward involving 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). When asked whether the firm sets prices to create price stability on the market, 65.5% of firms said “very often” (17.3%) or “often” (48.2%) (Downward 1999: 160).<br />
<br />
<b>(6)</b> Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” <i>Oxford Economic Papers</i> 52.3: 425–446.<br />
This paper reports the results of a survey of 654 UK companies in 1995. When asked what happens when there is strong demand and this cannot be met from inventories or stocks, only 12% of firms said they would increase the price of their goods (Hall, Walsh, and Yates 2000: 442).<br />
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<b>(7)</b> Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” <i>Bank of Canada Review</i> 2004/2005: 29–40.<br />
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/<br />
This paper examines price setting in a survey of 170 private, unregulated, non-primary sector Canadian firms. An impressive 67.1% of firms surveyed attributed price inflexibility to “cost-based pricing,” that is, to mark-up pricing (Amirault, Kwan, and Wilkinson 2004: 21).<br />
<br />
<b>(8)</b> Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2004. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” ECB Working Paper Series No. 333
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp333.pdf<br />
This paper reports a survey in 2003 of 333 industrial and service firms in Italy (Fabiani et al. 2004: 8). It was found that about 60% of firms review prices once a year, and around 50% only actually change prices once a year too (Fabiani et al. 2004: 21).<br />
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<b>(9)</b> Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2005. “Price-Setting Behavior of Austrian Firms,” ECB Working Paper Series no. 464
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp464.pdf<br />
This paper reports a 2004 survey of 873 Austrian firms mainly in the manufacturing sector. The firms were asked how often they changed prices on average in a given year:<br />
No change: 22.1%;<br />
Once a year: 54.2%;<br />
2 to 3 times a year: 13.9% (Kwapil, Baumgartner and Scharler 2005: 18).<br />
Moreover, 63% of firms said they would leave their prices unchanged in response to a large positive demand shock, and 52% would leave prices unchanged in response to a large negative demand shock (Kwapil, Baumgartner and Scharler 2005: 33). In the face of small demand shocks (either positive or negative), 82% of firms simply leave prices unchanged (Kwapil, Baumgartner and Scharler 2005: 33).<br />
<br />
<b>(10)</b> Parker, Miles. 2017. “Price-Setting Behaviour in New Zealand,” <i>New Zealand Economic Papers</i> 51.3: 217–236.<br />
An earlier version is online here:<br />
Parker, Miles. 2014. “Price-Setting Behaviour in New Zealand”<br />
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf<br />
This paper reports a survey of 5,300 firms selected as a representative sample of all sectors of the New Zealand economy (Parker 2017: 217). It was found that the average firm reviews prices twice a year but changes its prices only once a year (Parker 2017: 229). When asked whether temporary price reductions were important, 44% of firms said “not at all,” and 17% said “a little important” (Parker 2014: 17). Parker also finds that mark-up prices account for about 54% of business prices.<br />
<br />
<b>(11)</b> Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” <i>Journal of Money, Credit and Banking</i> 37.2: 313–338.<br />
This paper reports results from a survey of about 600 private-sector firms in Sweden. When asked to report how often prices were changed, the weighted results were that 40.3% of firms change prices once per year, and 27.1% adjust their prices less than once a year (Apel et al. 2005: 318).<br />
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<b>(12)</b> Aucremanne, Luc and Martine Druant. 2005. “Price-Setting Behaviour in Belgium. What can be learned from an ad hoc Survey?,” ECB Working Paper Series No. 448.<br />
This paper report the results of a survey of 1,979 firms in the industrial, construction, trade and services sectors, in a sample that should represent about 60% of Belgian GDP. It was found that 55% of firms changed prices once a year, 18% less often, and 27% more than once a year (Aucremanne and Druant 2005: 31).<br />
<br />
<b>(13)</b> Martins, Fernando. 2007. “How Portuguese Firms set their Prices,” in S. Fabiani, C. Suzanne Loupias, F. M. Monteiro Martins and Roberto Sabbatini (eds.), <i>Pricing Decisions in the Euro Area: How Firms set Prices and Why</i>. Oxford University Press, New York. 152–164.<br />
This chapter reports a 2004 survey by the Banco de Portugal of 1,370 Portuguese firms, mainly from manufacturing. The survey found that 75% of firms generally changed their prices but once a year (Martins 2005: 24).<br />
<br />
<b>(14)</b> Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” <i>Norges Bank Economic Bulletin</i> 79.2: 13–34.<br />
This reports a well-sampled survey of 725 firms throughout many sectors of the Norwegian economy: nearly 50% of firms said that they only changed their product price once a year, and about 23% of firms said that they changed the price twice a year (Langbraaten et al. 2008: 18).<br />
<br />
<b>(15)</b> Levy, Daniel. 2007. “Price Rigidity and Flexibility: New Empirical Evidence,” <i>Managerial and Decision Economics</i> 28.7: 639–647.<br />
This review article summarises 14 empirical studies of price rigidity in a special issue of Managerial and Decision Economics.<br />
<br />
<b>(16)</b> Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.<br />
This paper reports a survey of 1,000 Irish firms. When firms were asked how likely it was that they would adjust prices downwards in response to a negative demand shock, 66.5% of firms said that negative demand shocks were of little or no relevance to pricing decisions.<br />
<br />
<b>(17)</b> Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” <i>International Journal of Central Banking</i> 2.3: 3–47.<br />
<br />
Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. <i>Pricing Decisions in the Euro Area: How Firms set Prices and Why</i>. Oxford University Press, New York.<br />
The wide-ranging survey of Fabiani et al. (2006) and (2007) on prices in the Eurozone from many central bank studies finds that the average for mark-up pricing throughout the Eurozone is 54%, a majority of firm prices. In industrial goods markets in Germany, the largest economy in Europe, a strikingly high 73% of firms have administered prices (Fabiani et al. 2006: 18, Table 4).<br />
<br />
<b>(18)</b> Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” <i>Management Accounting</i> 65: 30–34.<br />
<br />
Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” <i>Management Accounting</i> 76.8: 37–39.<br />
Govindarajan and Anthony (1986) conducted a survey in which over 500 US industrial companies answered a questionnaire on how they set prices. They found that 85% of companies surveyed used full cost pricing (Govindarajan and Anthony 1986: 31). Shim and Sudit (1995: 37) conducted a survey in 1993 of US industrial companies, and found that 69.5% used full cost pricing.</BLOCKQUOTE> This evidence of surveys and face-to-face interviews of business people has been going on since the 1930s, and it consistently finds that cost-based mark-up prices (sometimes called “full cost prices,” “normal cost prices,” or “cost-plus prices,” or “administered prices”) are a plurality, or even a majority, of prices in modern Western nations and even in Third World nations (where evidence exists).<br />
<br />
Mark-up prices are set by businesses through their cost accounting conventions in an <i>ex ante</i> manner before transactions take place, on the basis of<BLOCKQUOTE>
(1) total average unit costs plus
(2) a profit mark-up, at a given, estimated, projected or target quantity of output or level of sales (from which of course the <i>ex post</i> or actual quantity of output produced or sold in a given time period might differ).<br></BLOCKQUOTE> Empirical evidence shows us that mark-up prices are generally inflexible with respect to demand, but tend to change – though it is by no means a necessary or universal process – when total average unit costs change or when the business wants to change its profit mark-up. Importantly, cost-based mark-up prices are <i>not</i> set with the primary purpose of clearing markets nor creating a tendency towards supply and demand equilibrium in product markets.<br />
<br />
One typical Austrian response to all this data is pretend it doesn’t exist! A second response is to focus on some studies like Blinder et al.’s <i>Asking about Prices</i> (1998) and claim that because they have what looks like small sample sizes (Blinder’s research looked at about 200 US businesses, for example), somehow the research is invalid. But this is all desperate dishonest apologetics. Blinder’s sample was carefully selected to be generally representative of large swatches of the goods in US GDP, and one cannot simple dismiss it because it was a small sample. Worse still for Austrians, there are dozens of survey studies from over twenty-one nations on how businesses set prices and they all come to the same conclusion: that cost-based mark-up prices exist and are often a majority of prices. For example, Parker (2017: 217) examined an impressive 5,300 firms selected as a representative sample of all sectors of the New Zealand economy. One cannot simply dismiss this evidence.<br />
<br />
In fact, to reject this vast body of evidence that extends back to the 1930s as being false or inaccurate would require Austrians to believe in some vast conspiracy theory, which is obviously absurd.<br />
<br />
Finally, let us run through some other strawman responses by Austrian charlatans: <BLOCKQUOTE><b>(1) Austrians will misrepresent the Post Keynesian argument and pretend their Post Keynesian opponent has said that “prices never change at all, or most prices never change.”</b><br />
This is an obvious and dishonest lie. This is <i>not</i> what Post Keynesians say. Of course, cost-based mark-up prices do change over time, either upwards or downwards. But what was said is that <i>relative to Neoclassical and Austrian models</i>, most prices have a high degree of inflexibility, and are <i>not</i> set with the primary purpose of clearing markets and creating a tendency towards supply and demand equilibrium in product markets. Showing that prices do in fact change over time does <i>not</i> refute the critique above in any manner.<br />
<br />
<b>(2) Austrians will say Post Keynesians have said there is no flex-price sector where prices are highly flexible.</b><br />
Once again, this is an obvious lie. There <i>is</i> a flexprice sector in all nations, where prices are highly flexible, for example, in auction-like markets, but the extent and significance of this flexprice sector are grossly exaggerated.<br />
<br />
<b>(3) Austrians will say their Post Keynesian opponent has said there are no sales in retail stores done temporarily to clear certain stock.</b><br />
This is a straw man. Retail sales obviously occur, but their existence does not refute the massive evidence of relative price rigidity, relative to the models of Neoclassical and Austrian theory. Furthermore, the extent of sales is much less significant in the service sector and the sector that produces intermediate goods and factor inputs.</BLOCKQUOTE> None of these arguments deployed by libertarians and Austrians are anything but dishonest misrepresentations of the Post Keynesians argument offered to them.<br />
<br />
In short, the accusation of Ludwig Lachmann that his fellow Austrians had failed to understand real-world prices was entirely correct, and remains correct to this day, and the quotation in question deserves to be repeated:<blockquote><font style="BACKGROUND-COLOR: yellow"> “Those who glibly speak of ‘market clearing prices’ tend to forget that over wide areas of modern markets it is not with this purpose in mind that prices are set. </font> They seem unaware of the important insights into the process of price formation, an Austrian responsibility, of which they deprive themselves by clinging to a level of abstraction so high that on it most of what matters in the real world vanishes from sight.” (Lachmann 1986: 134).</blockquote><b>BIBLIOGRAPHY</b><br />
Bils, Mark and Peter J. Klenow. 2004. “Some Evidence on the Importance of Sticky Prices,” <i>Journal of Political Economy</i> 112.5: 947–985.<br />
<br />
Caldwell, Bruce J. 1991. “Ludwig M. Lachmann: A Reminiscence,” <i>Critical Review</i> 5.1: 139–144.<br />
<br />
Downward, Paul. 1999. <i>Pricing Theory in Post-Keynesian Economics: A Realist Approach</i>. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.<br />
<br />
Hicks, John Richard. 1965. <i>Capital and Growth</i>. Oxford University Press, Oxford.<br />
<br />
Lachmann, Ludwig M. 1966. “Sir John Hicks on Capital and Growth,” <i>South African Journal of Economics</i> 34: 113–123.<br />
<br />
Lachmann, Ludwig M. 1977. <i>Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy</i> (ed. Walter E. Grinder). Sheed Andrews and McMeel, Kansas City.<br />
<br />
Lachmann, L. M. 1986. <i>The Market as an Economic Process</i>. Basil Blackwell. Oxford.<br />
<br />
Nell, Edward J. 1996. <i>Making Sense of a Changing Economy: Technology, Markets, and Morals</i>. Routledge, London and New York.<br />Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3tag:blogger.com,1999:blog-6245381193993153721.post-55906118800742669252020-04-27T03:52:00.002-07:002020-04-29T02:30:00.551-07:00Response to Academic Agent on Modern Monetary Theory (MMT) Part 2Academic Agent had a livestream here criticising my blog post that was a critique of his original video against MMT:<br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/qnxtX-pL1dU" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
<br />
This stream is a train wreck. Academic Agent and his Austrian-school libertarians struggle to even accurately grasp Modern Monetary Theory (MMT).<br />
<br />
I will not correct all the errors and misrepresentations here, or bother to correct every strawman argument.<br />
<br />
But, first of all, let us just provide a knockout blow to Academic Agent and his minions. Throughout the earlier part of this stream, Academic Agent cannot understand how in a fiat money world, taxes and bonds do not, technically speaking, finance government spending. It appears that Academic Agent cannot imagine a state of affairs where a central bank directly monetised part of a government budget deficit, without concomitant bond issues, <i>even though this has happened on numerous occasions since the abolition of the gold standard</i>, as in Japan, Germany and New Zealand in the 1930s, America in World War II, and in post-1945 “tap systems” at central banks.<br />
<br />
Under the historical “tap system” of issuing government bonds after the abolition of the Gold Standard after WWII, a number of Western countries (like Australia) for many years actually had their central banks purchase government bonds directly when such bonds were not all bought by private bondholders.<br />
<br />
The system is explained by MMT economist Bill Mitchell at his blog:<blockquote>“[around 1981] the Australian Office of Financial Management was set up as a special part of the Federal Treasury to manage federal debt. Previously, bond issues were made using the “tap system”, whereby the government would announce some volume of debt it wanted to issue at a particular rate and then sell whatever was demanded at that yield. <font style="BACKGROUND-COLOR: yellow">Occasionally, given other rates of return in the financial markets the issue would not be fully subscribed – meaning some of the Government’s net spending would be covered in an accounting sense by central bank buying treasury bills (government lending to itself!).</FONT> The neo-liberals hated this system and regarded it providing no fiscal discipline on government. They knew that by linking deficits $-for-$ with private debt they could more easily mount the debt hysteria and maximize their pressure on government to cut deficits and withdraw from the market.”<br />
<a href="http://bilbo.economicoutlook.net/blog/?p=3416">Bill Mitchell, “D for Debt Bomb; D for Drivel,” Bill Mitchell - Modern Monetary Theory, July 13, 2009</a>.</BLOCKQUOTE>That is to say, Australia once had a “tap system” of direct purchases of Treasury bonds by the national central bank when the private sector did not wish to buy all bonds at some issue of government debt, which means, in layman’s terms, on various occasions the Australian central bank was just “printing money” to fund part of the government’s budget deficit. Did Australia collapse into hyperinflation when this happened? Did the Australian dollar totally collapse? No.<br />
<br />
Even the US Federal Reserve originally had the power to <i>directly buy US government debt</i>, and this was done in 1942 (during WWII) and some other years after WWII as well.<br />
<br />
Most recently, in Britain as hit by the coronavirus pandemic, the Bank of England has increased the “Ways and Means facility” (a kind of government overdraft with the central bank) that can allow the British Treasury to finance spending <i>without direct and immediate bond issuing</i>. This would effectively be short-term “printing money” to finance UK government spending and allow the British Treasury to temporarily bypass the bond market:<blockquote><a href="https://www.nakedcapitalism.com/2020/03/at-long-last-the-government-can-borrow-straight-from-the-bank-of-england-as-modern-monetary-theory-has-always-suggested-it-should.html"> Yves Smith and Richard Murphy, “At long last the Government can Borrow straight from the Bank of England – As Modern Monetary Theory has always suggested it should,” Nakedcapitalism.com, March 24, 2020.</a><br />
<br />
<a href="https://www.ft.com/content/664c575b-0f54-44e5-ab78-2fd30ef213cb"> Chris Giles and Philip Georgiadis, “Bank of England to directly Finance UK Government’s Extra Spending, Financial Times, April 9 2020.”</a><br />
<br />
<a href="https://www.theguardian.com/business/2020/apr/09/bank-of-england-to-finance-uk-government-covid-19-crisis-spending">Larry Elliott, “Bank of England to Finance UK Government Covid-19 Crisis Spending,” The Guardian, 9 April 2020.</a></BLOCKQUOTE>While at the moment, the British government says it will later this year borrow any money spent now unbacked by private bond issues, this is effectively a type of short-term MMT in action right now! How does Academic Agent explain all this if MMT is impossible?<br />
<br />
Now let us go on to address the following major points:<br />
<br />
<b>(1) Quantitative Easing (QE)</b><br />
Post Keynesians and MMT advocates do <i>not</i> advocate QE as a major policy tool. <br />
<br />
The primary tool is fiscal policy. In a serious recession/depression, Keynesian deficit stimulus in the form of new, or improved, public infrastructure, public utilities, R&D and social spending is the primary method to get people back to work, and stimulate private investment and employment growth.<br />
<br />
Money would be paid directly to any unemployed people hired by the state or to any business from which the state buys resources, and hence money would be spent into the economy as newly-hired workers and businesses spend money.<br />
<br />
<b>(2) The Purpose of Taxes in MMT</b><br />
According to MMT, taxes function to:<blockquote><b>(1)</b> regulate aggregate demand;<br />
<b>(2)</b> free up real resources for the government to purchase when there is a high level of economic activity, or for people to whom government pays money (that is, state employees, or welfare recipients)<br />
<b>(3)</b> dampen inflation at times of inflationary pressures<br />
<b>(4)</b> address moral issues like gross inequality of wealth, and prevent a plutocratic system where highly wealthy people have so much money they can control democracy and governments. </BLOCKQUOTE>MMT does <i>not</i> advocate the abolition of taxes because they still have an important role to play.<br />
<br />
<b>(3) Relative Price Rigidity</b><br />
First of all, Academic Agent persistently commits a comical strawman argument when he is confronted with the reality of relative price rigidity: Academic Agent pretends this means that no prices ever change, or that all prices are rigid for long periods of time.<br />
<br />
This is a pathetic and pathologically dishonest tactic. Academic Agent, at this point, is simply forced to use this tactic, probably because he cannot think of a plausible response to the widespread reality of relative price rigidity.<br />
<br />
This strawman leads Academic Agent to his risible attempt to refute me by citing price data from 1972 (which, in point of fact, was a period of strong supply-side inflation!). Merely showing that prices change does <i>not</i> refute anything I said about relative price rigidity, because “relative price rigidity” doesn’t mean that no prices ever change. Of course, cost-based mark-up prices do change, but often because unit costs rise or businesses demand higher profits.<br />
<br />
Moreover, what does widespread “relative price rigidity” actually mean?<br />
<br />
It means this:<blockquote>In the real world, there is a high degree of <i>relative price rigidity</i>, but <i>relative</i> to the models of Austrian or Neoclassical theory, where prices are assumed to be highly flexible, rapidly responsive to demand changes, and are flexible enough to cause <i>a rapid and effective tendency towards market clearing in product markets</i>.</BLOCKQUOTE>Note well: this does <i>not</i> mean there is no flex-price sector (where prices are highly flexible) or no auction or auction-like markets. <br />
<br />
This does <i>not</i> mean there are no goods whose production is inelastic and hence supply and demand have a greater role in determining prices.<br />
<br />
For example, on world markets for many years oil prices were set by the cartel OPEC. But in recent decades, OPEC’s power has weakened and prices are much more influenced by production decisions by “swing producers”. Thus oil prices are much more flexible than cost-based mark-up prices used in industrial manufacturing and the service sector.<br />
<br />
Some goods like fresh produce, petrol, and seafood clearly have much more flexible prices than other goods, especially when goods are perishable.<br />
<br />
In the retail sector, there is a higher degree of flexible prices, given retail sales. However, in the service sector and manufacturing sector, many prices are highly inflexible with respect to demand changes. Since both the service and manufacturing sectors together dominate most market economies, the use of widespread cost-based mark-up prices in these sectors are the fundamental cause of relative price inflexibility.<br />
<br />
So the fundamental point here is that the size and prevalence of flex-price markets are grossly exaggerated.<br />
<br />
Academic Agent’s fellow Austrian called “Radical Liberation” in this stream also commits gross strawman arguments. “Radical Liberation” claims that I asserted or showed that there is only “a little bit of [price] stickiness.” This is utterly false. <br />
<br />
“Radical Liberation” also claims I assert that I think prices need to change instantly to changes in demand. This is also false. In Austrian theory or more dogmatic Neoclassical models, prices must change <i>relatively quickly and rapidly</i> to achieve an effective tendency to supply and demand equilibrium in product markets, not instantly.<br />
<br />
In the real world, there is a very high degree of relative price rigidity, and this has been admitted for decades even in mainstream Neoclassical research literature. For example, here is some literature on the empirical evidence for relative price rigidity:<blockquote>Means, G. 1935. “Industrial Prices and their Relative Inflexibility,” Senate Document 13, 74th Congress, lst Session, US Government Printing Office, Washington, DC.<br />
<br />
Means, G. C. 1936. “Notes on Inflexible Prices,” <i>American Economic Review</i> 26 (Supplement): 23–35.<br />
<br />
Means, G. C. 1939–1940. “Big Business, Administered Prices, and the Problem of Full Employment,” <i>Journal of Marketing</i> 4: 370–381.<br />
<br />
Hall, R. L. and C. J. Hitch. 1939. “Price Theory and Business Behaviour,” <i>Oxford Economic Papers</i> 2: 12–45. <br />
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Stigler, G. J. and J. K. Kindahl. 1970. <i>The Behavior of Industrial Prices</i>. New York.<br />
<br />
Means, G. C. 1972. “The Administered Price Thesis Reconfirmed,” <i>American Economic Review</i> 62: 292–306.<br />
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Beals, R. 1975. “Concentrated Industries, Administered Prices and Inflation: A Survey of Empirical Research,” Council on Wage and Price Stability, Washington.<br />
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Carlton, Dennis W. 1986. “The Rigidity of Prices,” <i>The American Economic Review</i> 76.4: 637–658.<br />
This paper presents an analysis of price rigidity in America, and finds that for “many transactions, prices remain rigid for periods exceeding one year” (Carlton 1986: 637) and it “is not unusual in some industries for prices to individual buyers to remain unchanged for several years” (Carlton 1986: 638).<br />
<br />
Cecchetti, Stephen G. 1986. “The Frequency of Price Adjustment: A Study of the Newsstand Prices of Magazines,” <i>Journal of Econometrics</i> 31: 255–274.<br />
This is a study of price rigidity in the prices of magazines.<br />
<br />
Bils, M. 1987. “The Cyclical Behaviour of Marginal Cost and Price,” <i>American Economic Review</i> 77: 838–855.<br />
<br />
Bhaskar, V., Machin, Stephen and Gavin C. Reid. 1993. “Price and Quantity Adjustment over the Business Cycle: Evidence from Survey Data,” <i>Oxford Economic Papers</i> n.s. 45.2: 257–268.<br />
This paper reports data from a questionnaire posed to managers of 73 small UK firms in 1985. It shows quantity adjustments “are overwhelmingly more important than price adjustments over the business cycle” (Bhaskar 1993: 257) and “[m]ost firms do not increase prices in booms or reduce them in recessions, and when they do, managers suggest that these are relatively unimportant” (Bhaskar 1993: 266).<br />
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Kashyap, Anil K. 1995. “Sticky Prices: New Evidence from Retail Catalogs,” <i>Quarterly Journal of Economics</i> 110: 245–274.<br />
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Blinder, A. S. et al. (eds.). 1998. <i>Asking about Prices: A New Approach to Understanding Price Stickiness</i>. Russell Sage Foundation, New York.<br />
This book reports a well-sampled survey of 200 US businesses. It was found that a typical good in the US is repriced roughly once a year, and prices are most sticky in the service sector, but the least sticky in wholesale and retail trade (Blinder et al. 1998: 105). Over 50% of firms said that they would not increase their prices when demand increased (Downward and Lee 2001: 476).<br />
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Downward, Paul. 1999. <i>Pricing Theory in Post-Keynesian Economics: A Realist Approach</i>. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.<br />
This book reports a survey conducted by P. Downward involving 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). When asked whether the firm sets prices to create price stability on the market, 65.5% of firms said “very often” (17.3%) or “often” (48.2%) (Downward 1999: 160).<br />
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Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” <i>Oxford Economic Papers</i> 52.3: 425–446.<br />
This paper reports the results of a survey of 654 UK companies in 1995. When asked what happens when there is strong demand and this cannot be met from inventories or stocks, only 12% of firms said they would increase the price of their goods (Hall, Walsh, and Yates 2000: 442).<br />
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Bils, Mark and Peter J. Klenow. 2004. “Some Evidence on the Importance of Sticky Prices,” <i>Journal of Political Economy</i> 112.5: 947–985.<br />
This paper shows a higher degree of price flexibility but only by including mere temporary price cuts (as in retail sales). Their method is disputed by Nakamura and Steinsson (2008) who point out temporary sales not affecting long-run prices of a good are abnormal and make prices appear more flexible than they really are.<br />
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Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” Bank of Canada Review 2004/2005: 29–40.<br />
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/<br />
This paper examines price setting in a survey of 170 private, unregulated, non-primary sector Canadian firms. An impressive 67.1% of firms surveyed attributed price inflexibility to “cost-based pricing,” that is, to mark-up pricing (Amirault, Kwan, and Wilkinson 2004: 21).<br />
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Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2004. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” ECB Working Paper Series No. 333<br />
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp333.pdf<br />
This paper reports a survey in 2003 of 333 industrial and service firms in Italy (Fabiani et al. 2004: 8). It was found that about 60% of firms review prices once a year, and around 50% only actually change prices once a year too (Fabiani et al. 2004: 21).<br />
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Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2005. “Price-Setting Behavior of Austrian Firms,” ECB Working Paper Series no. 464<br />
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp464.pdf<br />
This paper reports a 2004 survey of 873 Austrian firms mainly in the manufacturing sectors. The firms were asked how often they changed prices on average in a given year: No change: 22.1%; Once a year: 54.2%; 2 to 3 times a year: 13.9% (Kwapil, Baumgartner and Scharler 2005: 18). Moreover, 63% of firms said they would leave their prices unchanged in response to a large positive demand shock, and 52% would leave prices unchanged in response to a large negative demand shock (Kwapil, Baumgartner and Scharler 2005: 33). In the face of small demand shocks (either positive or negative), 82% of firms simply leave prices unchanged (Kwapil, Baumgartner and Scharler 2005: 33).<br />
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Parker, Miles. 2017. “Price-Setting Behaviour in New Zealand,” <i>New Zealand Economic Papers</i> 51.3: 217–236.<br />
An earlier version is online here:<br />
Parker, Miles. 2014. “Price-Setting Behaviour in New Zealand”<br />
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf<br />
This paper reports a survey of 5,300 firms selected as a representative sample of all sectors of the New Zealand economy (Parker 2017: 217). It was found that the average firm reviews prices twice a year but changes its prices only once a year (Parker 2017: 229). When asked whether temporary price reductions were important, 44% of firms said “not at all,” and 17% said “a little important” (Parker 2014: 17).<br />
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Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” <i>Journal of Money, Credit and Banking</i> 37.2: 313–338.<br />
This paper reports results from a survey of about 600 private-sector firms in Sweden. When asked to report how often prices were changed, the weighted results were that 40.3% of firms change prices once per year, and 27.1% adjust their prices less than once a year (Apel et al. 2005: 318).<br />
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Aucremanne, Luc and Martine Druant. 2005. “Price-Setting Behaviour in Belgium. What can be learned from an ad hoc Survey?,” ECB Working Paper Series No. 448.<br />
This paper report the results of a survey of 1,979 firms in the industrial, construction, trade and services sectors, in a sample that should represent about 60% of Belgian GDP. It was found that 55% of firms changed prices once a year, 18% less often, and 27% more than once a year (Aucremanne and Druant 2005: 31).<br />
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Martins, Fernando. 2007. “How Portuguese Firms set their Prices,” in S. Fabiani, C. Suzanne Loupias, F. M. Monteiro Martins and Roberto Sabbatini (eds.), <i>Pricing Decisions in the Euro Area: How Firms set Prices and Why</i>. Oxford University Press, New York. 152–164.<br />
This chapter reports a 2004 survey by the Banco de Portugal of 1,370 Portuguese firms, mainly from manufacturing. The survey found that 75% of firms generally changed their prices but once a year (Martins 2005: 24).<br />
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Nakamura, Emi and Jón Steinsson. 2008. “Five Facts about Prices: A Reevaluation of Menu Cost Models,” <i>The Quarterly Journal of Economics</i> 123.4: 1415–1464.<br />
This paper shows that without mere temporary price cuts (as in retail sales where prices revert to the normal, higher level after a sale) average prices change infrequently: only about every 7–11 months.<br />
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Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” <i>Norges Bank Economic Bulletin</i> 79.2: 13–34.<br />
This reports a well-sampled survey of 725 firms throughout many sectors of the Norwegian economy: nearly 50% of firms said that they only changed their product price once a year, and about 23% of firms said that they changed the price twice a year (Langbraaten et al. 2008: 18).<br />
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Levy, Daniel. 2007. “Price Rigidity and Flexibility: New Empirical Evidence,” <i>Managerial and Decision Economics</i> 28.7: 639–647.<br />
This review article summarises 14 empirical studies of price rigidity in a special issue of <i>Managerial and Decision Economics</i>.<br />
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Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.<br />
This paper reports a survey of 1000 Irish firms. When firms were asked how likely it was that they would adjust prices downwards in response to a negative demand shock, 66.5% of firms said that negative demand shocks were of little or no relevance to pricing decisions.<br />
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Klenow, Peter J. and Benjamin A. Malin. 2011. “Microeconomic Evidence on Price-Setting,” in Benjamin M. Friedman and Michael Woodford (eds.), <i>Handbook of Monetary Economics Volume 3A</i>. North Holland, Amsterdam and London. 231–284.<br />
This chapter provides a table on p. 239 (Table 4) that lists surveys and studies from 19 nations on price rigidity. The data mostly comes from service and industrial sectors (and sometimes in addition also other sectors). For most nations, prices change “on average” at least once a year (Klenow and Malin 2011: 242). If merely short-lived prices (such as mere temporary price discounts) are excluded, prices change closer to once a year (Klenow and Malin 2011: 232).<br />
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Nakamura, Emi and Jón Steinsson. 2013. “Price Rigidity: Microeconomic Evidence and Macroeconomic Implications,” <i>Annual Review of Economics</i> 5: 133–163.<br />
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Kehoe, Patrick and Virgiliu Midrigan. 2015. “Prices are Sticky after All,” <i>Journal of Monetary Economics</i> 75: 35–53.</BLOCKQUOTE>The reality of relative price rigidity is why even Monetarists and other more realistic Neoclassicals are forced to take account of short-run price and money wage stickiness in their models, and why many advocate activist monetary policies in a recession or depression.<br />
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Yet another crucial piece of evidence of relative price rigidity is that during most recessions since 1945 general price inflation <i>continues even in the contraction of demand</i> and we hardly ever see price deflation in a recession. The general price level in recessions still rises, and generally recessions are just disinflationary (lower rates of infation). In the United States since 1945, for example, virtually every recession has been inflationary: the only exceptions are 1949–1950, 1954–1955, and 2009.<br />
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Secondly, Academic Agent’s claim that Austrian theory is only looking at the prices of a good across a whole economy is a bizarre and blatant falsehood. <br />
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While Austrian price theory and the Austrian Theory of the Firm are of course not predicting what all firms do, they nevertheless <i>must</i> predict what the majority of firms do, or the average firm does, because otherwise they would be empirically false.<br />
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Murray Rothbard says the following about price determination:<blockquote>“Private business prices its goods and services to ‘clear the market,’ so that supply equals demand, and there are neither shortages nor goods going unsold.” (Rothbard 2006a: 259). </BLOCKQUOTE>If Rothbard isn’t talking about the average real-world firm here, or the majority of real-world individual firms, then what the hell is he even talking about?<br />
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During this pandemic crisis, some good prices have risen where production is inelastic (such as in fresh fruit and vegetables) or where supply-side issues have happened, but, as I stated, in many cases large supermarkets and retailers have maintained the prices of goods like toilet paper, tissues and hand sanitiser, even when shelves are empty.<br />
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More flexible prices on eBay or marginal small shops are obviously <i>not</i> representative of all prices, since only small quantities of the products in question are sold at the margins at these places. <br />
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The large supermarkets and retailers are where the vast majority of sales happen, and it was not “evil” government that is forcing them to maintain prices: the producers and retailers are largely choosing themselves to maintain prices, since this is their normal behaviour anyway with respect to many goods and services when demand changes: if demand increases, often production is simply ramped up and prices remain unchanged. <br />
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<b>(4) Cantillon Effects</b><br />
Academic Agent fails to understand my critique of the Cantillon Effect. My position is <i>not</i> Cantillon effects never happen at all. <br />
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My original position is that in the face of widespread relative price rigidity, Cantillon effects are likely to be minor and marginal, and, on their own, cannot possibly be a serious objection to government spending based on increasing the money supply, because <i>all private sector activity that also increases spending by increasing the money supply would also cause the same type of minor or marginal Cantillon effects</i>.<br />
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At this point in the discussion, “Radical Liberation” falsely claims I asserted that prices need to change instantly to changes in demand. Again, this is wrong. For major Cantillon effects to happen, most prices must be highly flexible in response to demand, and change relatively quickly and rapidly.<br />
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Also, Academic Agent totally misses my point about the gross contradiction in his reasoning in relation to the orthodox Quantity Theory of Money <i>and</i> the existence of Cantillon effects at the same time, since <a href="https://mises.org/library/fallacy-superneutrality-money">Austrian economics requires the rejection of short and long-run money neutrality</a>, but money neutrality is a fundamental assumption of the Quantity Theory of Money.<br />
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<b>(5) The Quantity Theory of Money</b><br />
Here it appears that Academic Agent refuses to defend the orthodox Quantity Theory of Money. <br />
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At least this is in line with the most important Austrian economists, who did <i>not</i> defend the orthodox Quantity Theory of Money either, but had serious criticisms. <br />
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However, changes in the general price level are a highly complex result of many factors, and not some simple function of money supply. Real factors also are an important factor in driving inflation.<br />
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If we dig deeper into the Austrian view of inflation, we can find some surprisingly sensible analysis.<br />
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Curiously, the Austrian economist Frank Shostak has a surprisingly sensible view on inflation:<blockquote>“the essence of inflation is not a general rise in prices but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services .... <font style="BACKGROUND-COLOR: yellow">While increases in money supply (i.e., inflation) are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors. Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place.</font> In other words, while money growth is buoyant – i.e., inflation is high – prices might display low increases.”<br />
<a href="http://mises.org/daily/908">Frank Shostak, “Defining Inflation,” <i>Mises Daily</i>, March 6, 2002</a>.</blockquote>The statement that prices “are determined by real and monetary factors” is, essentially, empirically correct (although, from the Post Keynesian perspective, still needs qualification), but requires we reject the Monetarist superstition that “inflation is always everywhere a monetary phenomenon,” which Academic Agent appears to defend.<br />
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As I said, while a long-run, sustained price inflation <i>does</i> need a growing money supply to sustain it, the money supply is often not the causal factor in such price inflations, but the <i>intermediary factor</i>. Monetarists mistake the intermediary medium (money supply) for the only and fundamental driver of price inflation, when real factors underlie movements in prices. <br />
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To put this another way, in serious depressions, the falling money supply (when so much of the money supply is understood to be credit money) was not so much the cause of the collapse of economic activity, but <i>the consequence of the collapse in economic activity</i> as credit demand collapsed (though, of course, when banks failed and depositors lost their money savings, this affected economic activity too).<br />
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In fact, this is the whole point of the Post Keynesian insight into capitalism: the ability to increase production in an historically unprecedented way is achieved in modern capitalism not simply by superior technology and production methods, but also by an <i>endogenous money supply</i>: a banking and monetary system where capital investment can be financed by new credit money, not backed by prior “saved” money.<br />
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As Nicholas Kaldor said in “The Irrelevance of Equilibrium Economics” (Economic Journal 82 [1972]: 1237–1252):<blockquote>“This is the real significance of the invention of paper money and of credit creation through the banking system. It provided the pre-condition of self-sustained growth. With a purely metallic currency, where the supply of money is given irrespective of the demand for credit, the ability of the system to expand in response to profit opportunities is far more narrowly confined.” (Kaldor 1972: 1250).</blockquote>Money supply growth, then, is a necessary condition of not only long-run, sustained price inflation, but also a dynamic, highly-productive capitalist economy, because most money is credit money created by banks and, in earlier pre-1930s capitalist eras, by private sector agents who created bills of exchange, promissory notes, negotiable cheques, fractional reserve credit money (book money) and private bank notes.<br />
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In this sense, at a fundamental level, in a modern advanced capitalist economy, economic activity and demand for credit drives money supply growth, although in commodity money systems, exogenous growth in the money supply did happen via new gold discoveries, which could then cause demand-side inflation.<br />
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The more a modern capitalist economy has an endogenous money system, the more that the Quantity Theory fails to apply.<br />
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<b>(6) Full Employment and William H. Hutt</b><br />
Here Academic Agent appears to largely concede my critique is valid.<br />
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However, when Academic Agent (at 2.14.11) states that “the economy does not have the goal of full employment,” he appears to have forgotten the whole point of flexible money wages in Neoclassical and Austrian theory: a flexible money wage (and absence of other alleged harmful interventions) <i>is</i> supposed to cause <i>a strong tendency towards the clearing of the labour market</i>, which is just another way of saying that free markets are supposed to have a strong tendency towards elimination of involuntary unemployment and high levels of employment.<br />
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Moreover, Academic Agent makes the insane charge (from 2.17.29) that Post Keynesians wish to create something like Mises’ “Evenly Rotating Economy” (a fictitious general equilibrium state) when nothing is further from the truth: Post Keynesians totally reject general equilibrium analysis or the idea that a dynamic capitalist economy that faces uncertainty and constant change could ever have a tendency to general equilibrium, or could ever reach that state.<br />
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<b>BIBLIOGRAPHY</b><br />
Kaldor, N. 1972. “The Irrelevance of Equilibrium Economics,” <i>Economic Journal</i> 82: 1237–1252.<br />
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Rothbard, Murray N. 2006a. <i>For a New Liberty: The Libertarian Manifesto</i> (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com6tag:blogger.com,1999:blog-6245381193993153721.post-39712718591837136082020-04-24T07:29:00.000-07:002020-04-27T00:43:45.486-07:00A Refutation of Academic Agent’s “Debunking Modern Monetary Theory (MMT)”Academic Agent – a YouTube libertarian and unusually ignorant advocate of Austrian economics – tries to refute Modern Monetary Theory (MMT) in this video:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/qSYlzxczAY4" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
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Let us run through this video and refute Academic Agent’s arguments point by point:<br />
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<b>(1) Academic Agent fails to Refute the Three Core Principles of MMT</b><br />
There are three fundamental principles in Modern Monetary Theory (MMT), as follows:<blockquote><b>(1)</b> Most sovereign governments today are the monopoly issuers of their own fiat currencies (since the gold standard has been abolished);<br />
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<b>(2)</b> Because of (1), the government is not revenue-constrained in the way it was under the gold standard, because it is the creator of its own fiat money; <br />
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<b>(3)</b> In a fiat money world, taxes and bond issues do not, technically speaking, finance government spending.</BLOCKQUOTE>Even if Academic Agent thinks that a central bank creating money directly to fund a government budget deficit results in excessive inflation or hyperinflation (which is one of his arguments), he still has failed to refute these three core principles of MMT.<br />
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In fact, it is difficult to see how any sane libertarian would deny propositions (1) and (2), because these are their primary objections to fiat money!<br />
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<b>(2) Emergence of Commodity Money in modern POW Camps or Prisons does not vindicate Menger’s Theory of the Origin of Money</b><br />
Academic Agent notes (from 1.34 in the video) that commodity money has emerged in modern jails and thinks this confirms Menger’s theory of the origin of money.<br />
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In reality, this does no such thing. Ultimately, libertarians like Academic Agent rely on such things as the work of R. A. Radford (“The Economic Organization of a POW Camp,” Economica 12.48 [1945]: 189–201) that demonstrates the emergence of a cigarette money in a POW camp. But situations in which barter is observed in groups of human beings in modern times where some good emerges as a medium of exchange can hardly be regarded as confirming the barter-origin-of-money theory, because the people concerned in these cases were already <i>perfectly familiar with money and a price system</i> (Graeber 2011: 37; see also Ingham 2006: 264–265), and were <i>not</i> like ancient people who lacked a monetary system.<br />
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<b>(3) Carl Menger’s Theory of the Origin of Money is False as a Universal Theory</b><br />
Carl Menger’s theory of the origin of money is defended by Academic Agent against Chartalist theories, often used by advocates of MMT.<br />
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However, it is important to note that even if Chartalist theories of the origin of money are false, then this still does <i>not</i> refute the macroeconomic theories and policy recommendations of MMT applied to modern capitalist economies, since these things are, logically, two separate things.<br />
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However, there are good reasons for rejecting Carl Menger’s ideas as a universal theory of the origin of money.<br />
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Briefly, Menger imagines a pre-monetary world where people exchange goods for goods in spot transactions (barter). The famous problem of the <i>double coincidence of wants</i> is overcome as certain goods with a high degree of saleableness (that is, that are much more likely to sell than other goods) are desired to overcome the double coincidence of wants, and eventually the most saleable good (or goods) becomes the medium of exchange (Menger 1892: 249). This is taken to be a universal theory of how money emerges on markets by many modern Austrians and libertarians, although <a href="https://socialdemocracy21stcentury.blogspot.com/2012/07/a-note-on-menger-on-nature-and-origin.html">Menger’s own position was much less extreme than this.</a><br />
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If we read Menger’s classical article of 1892 in its English translation by C. A. Foley published in the <i>Economic Journal</i>, we find an interesting qualification that Menger makes to his theory:<blockquote>“<font style="BACKGROUND-COLOR: yellow">It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. </font> But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).</blockquote>That leaves open the possibility that money can be instituted by a modern government, but no doubt libertarian halfwits like Academic Agent are blissfully ignorant of this more reasonable opinion of Menger.<br />
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The trouble with Menger’s theory is that, while it is probably true that money in some historical circumstances can emerge from barter (especially in long distance trade), money can arise in other ways, and Menger’s theory is therefore flawed and <i>cannot be considered a universal theory</i>.<br />
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Historically speaking, money might arise in various ways, as follows:<blockquote><b>(1)</b> money can arise from so-called “ceremonial money” that was originally prized as a prestige good, or for magical power (and not as the most saleable good), and first used mainly for social reasons, but then used in wergild (compensation for murder) and other penalty systems, where penalties are calculated in terms of a common unit of account;<br />
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<b>(2)</b> money can arise as an abstract unit of account imposed from above by ancient government-temple institutions using weight units of metal from their economic planning systems.</blockquote>We can review these points below.<br />
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First, in pre-monetary societies, we find that barter spot trading <i>within that community</i> is far less prevalent than is imagined in Austrian and Neoclassical economics. Sometimes money – in the true modern sense – does not even develop at all. Primitive societies can overcome the double coincidence of wants problem by a system of gift exchange and debt–credit exchanges, and many such societies without money can function quite well, and limit significant barter trade to trade between geographically distant regions and people. <br />
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In some such pre-monetary societies studied by modern anthropologists, there emerges what anthropologists call “non-commercial money” or “ceremonial money,” which is non-commercial in the sense that it is not used for everyday purchases of goods and services, or only rarely for such ordinary goods: thus it is <i>non-commercial</i> in the sense that it is not a universal medium of exchange. Such “primitive ceremonial monies” include shell money in the Americas or Papua New Guinea, cattle money in Africa, bead money, feather money, and so on. These were rarely used to buy everyday items in the societies that used them. Instead, they are employed in social relations like marriages and to settle disputes (Graeber 2011: 60).<br />
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Such “non-commercial money” (or “ceremonial money”) is most frequently used in social interactions, often formal social events such as marriage, wergild and bloodwealth payments (that is, compensation for murder), political relations (e.g., potlatch, moka), and fines and other compensations (compensation for adultery, or for things lost), and may only be rarely used, if at all, for everyday purchases or commercial transactions (Grierson 1977: 15–16).<br />
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In time, some societies move to the next stage where a prescribed and traditional system of compensation payments are calculated in terms of “ceremonial money” as a common unit of account to simplify calculation of payments, which later spread to the wider community in economic transactions as a modern form of money (Grierson 1977: 29). So it is possible that in some societies money arises from its previous role in systems of legal compensation.<br />
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Secondly, we have evidence from ancient Babylonia and ancient Egypt that money arose there from an abstract money of account in the temple and palace institutions.<br />
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In ancient Mesopotamia, for example, an abstract money of account seems to have been developed in the temple and palace institutions. These temples and palaces were institutions with large internal centrally-planned economies, with complex weights and measurements for internal accounting of the products produced, received and distributed, and rent and interest owed. Many prices were set and administered in the money of account which developed from weight units. The two units of account were (1) the shekel of silver (which was equal to the monthly grain ration) and (2) barley (Hudson 2004). <br />
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Silver money of account spread to the private economy mostly as a means of reckoning debts to temples and palaces (Hudson 2004: 115). But many ordinary people could pay in commodities, and the administered pricing system in terms of silver/grain that was developed in the temples was to assist in calculation of payments in kind.<br />
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And it is likely precious metals were used as non-commercial money or ceremonial money in ancient societies before they became abstract units of account. Given their scarcity, it is unlikely that silver would have arisen as a unit of account and medium of exchange in, say, Mesopotamia from internal barter trade as the most saleable good precisely because there wasn’t enough of it.<br />
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Finally, the first metal coinage in ancient Lydia and Greece was an invention of the state, and the first Lydian coinage was struck in electrum (not gold or silver) and used to pay soldiers and mercenaries. This was most probably a high prestige object and perhaps even non-commercial money. At most, it was simply one of many goods used in conventional barter trades: there is no convincing evidence that it was the reigning medium of exchange (money) that had already emerged as the most saleable good in spot barter trades before it was adopted by the Lydian state.<br />
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Much more detailed analysis of the origins of money with scholarly citations can be found in these posts:<blockquote><a href="https://socialdemocracy21stcentury.blogspot.com/2012/01/menger-on-origin-of-money.html">“Menger on the Origin of Money,” January 5, 2012.</a><br />
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<a href="https://socialdemocracy21stcentury.blogspot.com/2012/11/mengers-nuanced-view-on-origin-of-money.html">“Menger’s Nuanced View on the Origin of Money,” November 6, 2012.</a><br />
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<a href="https://socialdemocracy21stcentury.blogspot.com/2016/03/george-selgin-versus-david-graeber-on.html">“George Selgin versus David Graeber on the Origin of Money,” March 30, 2016.</a><br />
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<a href=" https://socialdemocracy21stcentury.blogspot.com/2017/08/larry-white-on-origins-of-coined-money.html ">“Larry White on the Origins of Coined Money: A Critique,” August 26, 2017.</a><br />
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<a href="https://socialdemocracy21stcentury.blogspot.com/2017/09/reply-to-selgin-on-origin-of-electrum.html">Reply to Selgin on the Origin of Electrum Coinage, Part 1, September 3, 2017.</a><br />
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<a href="https://socialdemocracy21stcentury.blogspot.com/2017/09/the-majority-view-in-modern-scholarship.html">The Majority View in Modern Scholarship on the Origin of Electrum Coinage: An Update, September 4, 2017.</a><br />
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<a href="https://socialdemocracy21stcentury.blogspot.com/2017/09/reply-to-selgin-on-origin-of-electrum_72.html">“Reply to Selgin on the Origin of Electrum Coinage, Part 2,” September 5, 2017.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2013/04/the-origin-of-money-and-coins-in.html">“The Origin of Money and Coinage in Western Civilisation: The Case of Ancient Greece,” April 5, 2013.</a></BLOCKQUOTE><b>(4) Academic Agent fails to Understand Widespread Relative Price Rigidity</b><br />
Academic Agent’s major argument against government spending and MMT-style deficit spending is Cantillon effects (from 9.42 in the video). <br />
<br />
The Cantillon effect is the idea that price level changes caused by increases in the quantity of money depend on the way new money is injected into the economy and actually where it affects prices first. New money will then spread out altering the level of prices and structure of prices or relative prices (Blaug 1996: 21). Another way of saying this is that, although prices rise as the quantity of money increases, contrary to the naive quantity theory of money, prices do not rise proportionally, but in a complex manner that depends on who received the money and how they spent it.<br />
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Libertarians are fond of using this “Cantillon effect” argument against government spending where money supply rises: the argument is essentially that only those who first receive the new money will benefit from it, and all other people who latter receive the new money will suffer rapid and serious inflation.<br />
<br />
But this argument is absolutely dependent on the false view that <i>all or most prices in modern capitalist economies are highly flexible and rapidly responsive to changes in demand</i>. This is utterly false, and the reality is that even mainstream Neoclassical economists recognise that modern capitalist economies have a high degree of relative price rigidity.<br />
<br />
Most prices are cost-based mark-up prices, relatively inflexible with respect to demand, and the empirical evidence for this as given in the post below is overwhelming:<blockquote><a href="http://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html">Mark-up Pricing in 21 Nations and the Eurozone: the Empirical Evidence </a>.</BLOCKQUOTE>So the idea that goods prices rapidly respond to demand increases is a falsehood. Cantillon effects are largely mythical precisely because of relative price rigidity, and to the extent there are marginal or minor Cantillon effects this would occur in response to any type of new spending in an economy, whether this was new foreign purchases of domestic goods or new spending from money creation by private capitalist fractional-reserve banks. Since minor Cantillon effects would also occur from privately-induced changes in the quantity of money, as well as from government-induced ones, it cannot be a serious objection on its own against government intervention raising the quantity of money unless <i>it also invalidates all private causes of the expansion of the money supply</i>, such as, for example, foreigners bringing in new money via large flows through a country’s capital account into financial markets, foreign direct investment, purchases of exports, or spending on tourism, etc.<br />
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To turn to the evidence for relative price rigidity, we can look at some data.<br />
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Blinder et al.’s <i>Asking about Prices: A New Approach to Understanding Price Stickiness</i> (New York, 1998) reported the results of one of their survey questions, asked of 200 firms selected to be representative of total US GDP, which was as follows:<blockquote>“How often do the prices of your most important products change in a typical year?” (Blinder et al. 1998: 84).</blockquote>The results were: <blockquote><b>(1)</b> less than 1 | 10.2%<br />
<b>(2)</b> 1 | 39.2%<br />
<b>(3)</b> 1.01 to 2 | 15.6%<br />
<b>(4)</b> 2.01 to 4 | 12.9%<br />
<b>(5)</b> 4.01 to 12 | 7.5%<br />
<b>(6)</b> 12.01 to 52 | 4.3%<br />
<b>(7)</b> 52.01 to 365 | 8.6%<br />
<b>(8)</b> more than 365 | 1.6%. <br />
(Blinder et al. 1998: 84).</blockquote>It follows that 78% of US GDP consists of goods that are repriced quarterly or less. But of this fully 49.2% of firms reprice their goods <i>only once a year or within a period over more than a year</i>.<br />
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Blinder et al. (1998: 84) conclude that the US does have an auction-like market sector where prices are highly flexible, but it is very small indeed.<br />
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In fact, we have just seen massive relative price rigidity in response to increased demand in many goods prices during this pandemic crisis. Although of course some goods prices have risen where production is inelastic (such as in fresh fruit and vegetables) or where supply-side issues have happened, in many cases large supermarkets have maintained the prices of goods like toilet paper, tissues and hand sanitiser, even when shelves are empty.<br />
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Academic Agent is an idiot who denies the price rigidity in many goods right before his eyes.<br />
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As an aside, Academic Agent also commits a gross contradiction in his reasoning if he wants to defend the orthodox Quantity Theory of Money <i>and</i> the existence of Cantillon effects at the same time, since <a href="https://mises.org/library/fallacy-superneutrality-money">Austrian economics requires the rejection of short and long-run money neutrality</a>, but money neutrality is a fundamental assumption of the Quantity Theory of Money (more on this in the next section).<br />
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For more refutation of the libertarian concept of Cantillon effects, see this post:<blockquote><a href="http://socialdemocracy21stcentury.blogspot.com/2011/09/are-cantillon-effects-argument-against.html">“Are Cantillon Effects an Argument Against Government Spending?, September 27, 2011.”</a></BLOCKQUOTE><b>(5) The Quantity Theory of Money is Empirically Wrong</b><br />
Academic Agent relies on the flawed Quantity Theory of Money as his explanation of inflation. Now nobody denies that demand-side inflation is real, nor that hyperinflations can happen. But the Quantity Theory of Money is much more than the claim that demand-side inflation occurs.<br />
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This section is, unfortunately, highly technical.<br />
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The Quantity Theory of Money is the theory that, when the money supply expands or contracts, this is the cause – when other variables are constant – of proportional or equal changes in the price level. The standard equation often used to express the Quantity Theory of Money is the <i>Cambridge Cash Balance Equation</i>.<br />
<br />
The standard form of the Cambridge Cash Balance Equation as used today is usually given as follows: <blockquote><i>M</i> = <i>kPY</i> or<br />
<i>M</i> = <i>k</i><sub><i>d</i> </sub><i>PY</i><br />
where <i>M</i> = the quantity of money;<br />
<i>k</i> or <i>k</i><sub><i>d</i></sub> = the amount of money held as cash or money balances;<br />
<i>P</i> = the general price level;<br />
<i>Y</i> = real value of the volume of all transactions entering into the value of national income (that is, goods and services).</blockquote>In the Cambridge approach, the variable <i>k</i> was held to be superior to Irving Fisher’s “velocity of circulation” concept <i>V</i>, because, unlike <i>V</i>, <i>k</i> is supposed to be empirically measurable.<br />
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The Quantity Theory of Money makes the following assumptions:<blockquote><b>(1)</b> the size of the money supply is exogenously determined by the central bank, and there is an independent money supply function;<br />
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<b>(2)</b> the assumption of long-run money neutrality; <br />
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<b>(3)</b> the direction of causation as assumed in the quantity theory equation is <i>from left to right</i> (that is, from the money supply to the price level). That is to say, an exogenously-determined money supply is the fundamental cause, or driver, of price level changes.</blockquote>But these assumptions are wrong.<br />
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First, price inflation is a complex phenomenon, and there is no simple, monocausal explanation of price inflation, because one major factor is the high degree of relative price rigidity that happens in modern economies. An increase in the money supply does <i>not</i> necessarily cause corresponding increases in the general price level, either in the short run or long run, when so many prices do not automatically respond to increased demand. Thus assumption (2) above is simply false!<br />
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Secondly, the Quantity Theory of Money makes the false assumption of an exogenous, independent money supply under the direct control of the central bank. But in reality the modern money supply is <i>endogenous</i>.<br />
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What this means is that normally broad money creation is credit-driven. That is, most money is created by private banks in the form of demand deposits (denominated in the fiat currency of their nation) and its quantity is determined by the private demand for credit or demand deposits. This is the essence of endogenous money: in an endogenous money system, even the “monetary base” is normally endogenous too, given that the central bank must accommodate the banks’ demand for high-powered money to avoid financial crises and banking panics. Of course, the central bank <i>does</i> control the ability to create fiat money and is the monopoly issuer of its national fiat currency, but a lot of the money supply in any nation is actually <i>credit money</i> in the form of private-bank demand deposits, which is denominated in the national fiat currency. <br />
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A truly independent money supply function does not actually exist in an endogenous money world, because private-bank credit money comes into existence because it has been demanded (Rogers 1989: 244–245). So the broad money supply is not independent of money demand, but can be demand-led (Ingham 2004: 53). Thus assumption (1) above is false.<br />
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Thirdly, assumption (3) is also false. In an endogenous money system, the direction of causation is generally from credit demand (via business loans to finance labour and other factor inputs) to money supply increases. Therefore the direction of causation generally runs:<blockquote><b>(1)</b> business demand for credit (to pay for goods and labour factor inputs, whose prices may have risen against previous production periods) + demand for demand deposits<br />
<br />
→ <b>(2)</b> increases in broad money supply (driven by changes in the level of demand deposits)<br />
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→ <b>(3)</b> banks’ demand for more reserves (high-powered money) when they need to clear obligations.<br />
<br />
→ <b>(4)</b> the central bank creates the needed reserves.</blockquote>Changes in the general price level are a highly complex result of many factors, and not some simple function of money supply. Businesses will raise their prices for all sorts of reasons independently of a money supply expansion.<br />
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Often general price inflation is a <i>cost-push phenomenon</i>, in which<blockquote><b>(1)</b> workers or unions demand higher wages and businesses agree to these increases and/or<br />
<br />
<b>(2)</b> prices of other factor inputs rise, and then businesses will need to obtain higher levels of credit from banks. </BLOCKQUOTE>While a long-run, sustained price inflation does need a growing money supply to sustain it, the money supply is often <i>not</i> the causal factor in such price inflations, but the <i>intermediary factor</i>. Often, it is business and corporate use of cost-based mark-up prices and their pricing decisions, based on the need for more profit or changes in unit costs, which drive price inflations.<br />
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So inflation might be driven by demand for higher wages or supply-side factors. Hence broad money supply growth rates rise in an endogenous money world which generally accommodates the demand for credit, but this rise precedes further price increases because businesses will generally raise mark-up prices to maintain profit margins at a later time, given that most firms engage in time-dependent reviews and changes of their prices at regular intervals. In extreme situations, a wage–price spiral might break out: this involves the same process as above but in a vicious circle.<br />
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In short, with (1) the Quantity Theory of Money being a false theory and (2) the real world having a high degree of relative price rigidity, virtually all libertarian objections to MMT based on inevitable and rapid inflation fall apart.<br />
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Of course, this does not mean demand-side inflation never happens nor that hyperinflation never happens, but then MMT does not advocate causing excess demand-side inflation or hyperinflation.<br />
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A full refutation of the Quantity Theory of Money, with citations, is here:<blockquote><a href="https://socialdemocracy21stcentury.blogspot.com/2014/09/why-is-quantity-theory-of-money-wrong.html">“Why is the Quantity Theory of Money Wrong and can Anything be Salvaged from it?,” September 15, 2014</a></BLOCKQUOTE>For some other links against the Quantity Theory, see here:<blockquote><a href="https://fixingtheeconomists.wordpress.com/2014/08/04/inflation-is-not-always-and-everywhere-a-monetary-phenomenon/">“Inflation is NOT Always and Everywhere a Monetary Phenomenon,” August 4, 2014</a><br />
<br />
<a href="https://fixingtheeconomists.wordpress.com/2014/08/07/so-called-long-run-monetarist-correlations-and-non-ergodicity/">“So-Called ‘Long-Run’ Monetarist Correlations and Non-Ergodicity,” August 7, 2014.</a><br />
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<a href="https://fixingtheeconomists.wordpress.com/2014/08/05/what-is-a-long-run-trend/">“What is a ‘Long-Run Trend’?,” August 5, 2014.</a></BLOCKQUOTE><b>(6) Academic Agent relies on a Strawman Argument from William H. Hutt</b><br />
Academic Agent cites the work of William H. Hutt, who is one of the most ignorant and stupid critics of Keynesianism ever produced by libertarianism.<br />
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Hutt’s criticism of Keynes and Keynesian concepts are often ridiculous strawman misrepresentations. <br />
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To take one example, the concept of “full employment” was never meant to include normal frictional and seasonal unemployment as a problem to be ended. “Full employment” does <i>not</i> mean a 0% unemployment rate, and never did.<br />
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This is completely absurd. Rather, frictional and seasonal unemployment are of course always going to happen, and “full employment” actually means <i>persistent involuntary unemployment</i>. In a modern capitalist economy, “full employment” has often been estimated as somewhat below a 4% unemployment rate.<br />
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Academic Agent’s entire attack on “full employment,” based on Hutt, is a ludicrous parody, and not to be taken seriously.<br />
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All in all, Academic Agent fails to refute MMT, and reveals the profound flaws in Austrian economics.<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Blaug, M. 1996. <i>Economic Theory in Retrospect</i> (5th edn), Cambridge University Press, Cambridge.<br />
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Blinder, A. S., Canetti, E. R. D., Lebow, D. E. and J. B. Rudd (eds.). 1998. <i>Asking about Prices: A New Approach to Understanding Price Stickiness</i>. Russell Sage Foundation, New York.<br />
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Graeber, David. 2011. <i>Debt: The First 5,000 Years</i>. Melville House, Brooklyn, N.Y.<br />
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Grierson, P. 1977. <i>The Origins of Money</i>. Athlone Press and University of London, London.<br />
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Hudson, M. 2004. “The Archaeology of Money: Debt Versus Barter Theories of Money’s Origins,” in L. R. Wray (ed.), <i>Credit and State Theories of Money: the Contributions of A. Mitchell Innes</i>. Edward Elgar, Cheltenham. 99–127.<br />
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Ingham, G. 2006. “Further Reflections on the Ontology of Money: Responses to Lapavitsas and Dodd,” <i>Economy and Society</i> 35.2: 259–278.<br />
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Menger, C. 1892. “On the Origin of Money,” <i>Economic Journal</i> 2: 238–255.<br />
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Rogers, Colin. 1989. <i>Money, Interest and Capital: A Study in the Foundations of Monetary Theory</i>. Cambridge University Press, Cambridge.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-77655616805017327052020-02-10T20:40:00.003-08:002020-02-10T21:22:57.350-08:00Academic Agent on Excess CapacityThe libertarian <a href="https://www.youtube.com/channel/UCyawG3aTE7RmNQcFQskDWcw">“Academic Agent”</a> examines the concept of excess capacity here:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/1pmpy6yMqZE" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
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First, Academic Agent is utterly wrong to claim that Austrian theory is only looking at the “price of a good across a whole economy,” and that my analysis of how real-world individual firms behave is somehow irrelevant to Austrian theory.<br />
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Austrian economics has a “Theory of the Firm,” just like Neoclassical economics, and Austrian theory says the average firm should be engaged in flexible pricing of its products, in order to clear markets and equate supply with demand. <br />
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Academic Agent’s claim that “Austrian theory…. as regards price responsivity to supply and demand does not predict the behaviour of individual firms” (at 5:33–5:36 in the video) is a bizarre and blatant falsehood. While Austrian price theory and the Austrian Theory of the Firm are of course <i>not</i> predicting what all firms do, they nevertheless must predict what the majority of firms do, or the average firm does, because otherwise they would be empirically false.<br />
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Austrian theory makes both prescriptive and descriptive claims about how most firms, or the average form, should be behaving.<br />
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Consider these statements by Austrian economists:<blockquote><b>(1)</b> “Private business prices its goods and services <font style="BACKGROUND-COLOR: yellow">to ‘clear the market,’ so that supply equals demand, and there are neither shortages nor goods going unsold.”</font> (Rothbard 2006a: 259).<br />
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<b>(2)</b> “… selling prices will tend toward the market-clearing level, and need not hit the mark every time the firm sets it price. <font style="BACKGROUND-COLOR: yellow">Despite the firms’ lack of perfect knowledge of [demand] and [supply] conditions, they are motivated to seek market-clearing outcomes and avoid disequilibrium outcomes.<br />
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For one thing, there is the economic incentive to maximize profits. As we have seen, surplus and shortage outcomes cause the firm less profit than otherwise under the given demand and supply conditions. Thus, in the case of a surplus, the firm will have to slash its [price] below the planned level, whereas in the case of a shortage the firm has missed an opportunity for greater profits by setting its [price] too low or producing less than the market was ready to absorb.<br />
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On the other side of this coin is the fact that, of the three possible market outcomes—market-clearing, surplus, or shortage—only market-clearing outcomes validate the firm’s expectations and strengthen its confidence in its ability to judge market conditions. </font> In contrast, surpluses and shortages are truly disappointments—sources of regret and diminished confidence.” (Shapiro 1985: 208). </BLOCKQUOTE>If Rothbard and Shapiro aren’t talking about the average real-world firm here, or the majority of real-world individual firms, then what the hell are they even talking about?<br />
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Furthermore, Austrian economics <i>requires</i> that the majority of individual real-world firms are engaging in flexible pricing to clear markets, because otherwise there would be no real-world tendency to market clearing, and towards shifting “final state of rest” equilibrium states (for Mises’ general equilibrium concept, see <a href="http://socialdemocracy21stcentury.blogspot.com/2013/12/austrians-and-markets-tendency-to.html">here</a>).<br />
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Secondly, Academic Agent’s claim that equilibrium “does not take into account what is happening in the inventories of individual firms or at the producer-good level” is a bizarre statement.<br />
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Here is what Austrian economics has to say about inventories or buffer stocks: <blockquote><b>(1)</b> <font style="BACKGROUND-COLOR: yellow">“Competitive prices are the outcome of a complete adjustment of the sellers to the demand of the consumers. Under the competitive price the whole supply available is sold</font>, and the specific factors of production are employed to the extent permitted by the prices of the nonspecific complementary factors. <font style="BACKGROUND-COLOR: yellow">No part of a supply available is permanently withheld from the market,</font> and the marginal unit of specific factors of production employed does not yield any net proceed. The whole economic process is conducted for the benefit of the consumers.” (Mises 2008: 354). <br />
<br />
<b>(2)</b> <font style="BACKGROUND-COLOR: yellow">“We know from ‘microeconomic’ analysis that if there is a ‘surplus’ of something on the market, if something cannot be sold, the only reason is that its price is somehow being kept too high.</font> The way to cure a surplus or unemployment of anything, is to lower the asking price, whether it be wage rates for labor, prices of machinery or plant, or of the inventory of a retailer.” (Rothbard 2006b: 44). <br />
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<b>(3)</b> “There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. <font style="BACKGROUND-COLOR: yellow">If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their ‘surplus’ stock, they need only cut their prices low enough to sell all of their product.</font> But won’t they then suffer losses? Of course, but now the discussion has shifted to a different plane.” (Rothbard 2008: 56).</BLOCKQUOTE>As we see, Austrian economics makes specific claims about buffer stocks and inventories, and they are contemptibly wrong. In real-world capitalism, firms set their mark-up price based on average unit costs of production, and then normally adjust production to match demand, while keeping inventories and significant unused capacity at factories and plants available to meet increases in demand. When demand falls, businesses fire workers and cut production.<br />
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It is absurd to say, as Austrians do, that firms aim to sell their whole supply, or that businesses only have inventory or stocks because they are “speculating on an imminent rise in market prices.”<br />
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Thirdly, the final devastating problem with this video is that, in the last few minutes, it unintentionally and rather comically sets out to refute me, but ends up confirming and vindicating my main points in Academic Agent’s points about his imaginary firm “Baker Bros.” <br />
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In essence, Academic Agent admits that his imaginary firm would cut production and employment (and hence change his variable capital and labour) to match production output to expected demand, and would not bother to cut prices to clear his supply every production cycle.<br />
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But this now raises the following issues:<blockquote><b>(1)</b> if the majority of real-world firms normally use relatively-inflexible cost-based mark-up prices and vary production to meet demand and shun highly flexible money prices to clear markets, then<br />
<br />
<b>(2)</b> how can real-world capitalism have a strong tendency to market clearing (that is, equilibration of supply and demand by flexible prices) and a tendency to general equilibrium? (or, in Austrian terminology, Mises’ “final state of rest”).</BLOCKQUOTE>Without a real-world tendency to market clearing and full employment general equilibrium, Austrian economics collapses: this is true because Mises’ idea of economic coordination and his idea of a real-world tendency to shifting “final state of rest” general equilibrium states are absolutely dependent on a flexible system of money wages and prices.<br />
<br />
Libertarians like Academic Agent have no answers to these questions, and have nothing but evasions, lies and sophistry to offer in response to such critiques.<br />
<br />
<b>Further Reading</b><br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/vulgar-austrians-do-not-understand.html">“Vulgar Austrians do not Understand Austrian Price Theory (Updated),” July 10, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2013/11/price-average-total-cost-average.html">“Price, Average Total Cost, Average Variable Cost and Marginal Cost,” November 28, 2013.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2013/12/mises-on-marginal-cost-critique.html">“Mises on Marginal Cost: A Critique,” December 3, 2013. </a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2013/12/reality-refutes-mises-on-costs-and.html">“Reality Refutes Mises on Costs and Prices,” December 9, 2013.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2013/12/administered-prices-discredit-austrian.html">“Administered Prices Discredit the Austrian Economic Theories of Mises,” December 10, 2013.</a><br />
<br />
<b>BIBLIOGRAPHY</b><br />
Mises, Ludwig von. 2008. <i>Human Action: A Treatise on Economics. The Scholar’s Edition</i>. Mises Institute, Auburn, Ala. <br />
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Rothbard, Murray N. 2006a. <i>For a New Liberty: The Libertarian Manifesto</i> (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.<br />
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Rothbard, Murray N. 2006b. <i>Making Economic Sense</i> (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.<br />
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Rothbard, Murray N. 2008. <i>America’s Great Depression</i> (5th edn.). Ludwig von Mises Institute, Auburn, Ala.<br />
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Shapiro, Milton M. 1985. <i>Foundations of the Market Price System</i>. University Press of America, Inc. Lanham, MD and London.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com0tag:blogger.com,1999:blog-6245381193993153721.post-79943089139695829302019-11-30T00:01:00.000-08:002019-11-30T00:01:15.872-08:00Steve Keen on Keynes and KeynesianismThis is an older and short video in which Steve Keen is interviewed, and gives a short summary of Keynes’ economic ideas:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/XWZ1JrxEkQ0" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
<br />
An important issue is Steve Keen’s point that Neoclassical synthesis Keynesianism was a misguided and distorted development of the <i>General Theory</i> and Keynes’ later articles, even though Keynes did allow this to happen in Chapter 18 of the <i>General Theory</i>, where he played down the role of uncertainty (as had been stressed in Chapter 12). As King notes, if Keynes had strongly maintained the crucial role of uncertainty, this would simply have “ruled out any stable functional relationship between investment and the interest rate” (King 2002: 14). The door was thereby left open for neoclassical synthesis Keynesians to reformulate the <i>General Theory</i> as a general equilibrium model where the interest rate has a pivotal role (King 2002: 14). On this issue, see my post <a href="https://socialdemocracy21stcentury.blogspot.com/2013/05/keyness-mistakes-in-general-theory.html">here</a>.<br />
<br />
<b>BIBLIOGRAPHY</b><br />
King, J. E. 2002. <i>A History of Post Keynesian Economics since 1936</i>. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com0tag:blogger.com,1999:blog-6245381193993153721.post-79841577115099823182019-07-19T08:06:00.000-07:002019-07-19T08:58:36.723-07:00Keynes’ Life: 1931I give an account below of Keynes life in 1931.<br />
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<b>January–May 1931</b><br />
On 27 January 1931, Friedrich Hayek arrived in London at the London School of Economics (LSE). Hayek gave four evening lectures at 5 p.m. from 27 to 30 January 1931 on “Prices and Production” (Howson 2011: 196), and these lectures were later published in England as the book <i>Prices and Production</i> (September 1931), an exposition of the Austrian Business Cycle Theory (ABCT). Hayek himself had returned to Austria by 14 February 1930, but he moved to Britain to take up a visiting professorship at the LSE in October 1931. Keynes did not attend Hayek’s LSE lectures, but Nicholas Kaldor had been at the LSE since April 1927 (to undertake a BSc. in economics), and presumably attended.<br />
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From winter 1930–1931 and the spring of 1931, Keynes was involved in drafting the report of the Macmillan Committee (Moggridge 1992: 509). This report was signed by Keynes on 29 May and made available on the 13 July 1931 (Moggridge 1992: 511).<br />
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On 15 January 1931, in a radio broadcast, Keynes pointed to the problem of a lack of public and private spending as a major role in causing the depression, and urged increases in public and private spending to lower unemployment (Skidelsky 1992: 383–384). <br />
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Keynes helped to organise the merger of the <i>New Statesman</i> and the <i>Nation</i> in January–February 1931, and Keynes himself became chairman of the combined board in February until he died (Moggridge 1992: 508). On the 7 March 1931, Keynes published an article called “Proposals for a Revenue Tariff” in the <i>New Statesman and Nation</i>, which presented the case for protectionism in Britain (Moggridge 1992: 509). Keynes proposed a tariff of 15% on manufactured and semi-manufactured imports and 5% on foodstuff imports, mainly to reduce the need for budget cuts or tax increases (Moggridge 1992: 512–513). Lionel Robbins wrote a reply to Keynes’ case for protectionism, published on 14 March 1931 (Howson 2011: 198).<br />
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In late February Keynes became ill with tonsillitis and influenza (Skidelsky 1992: 389).<br />
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On 4 May 1931, Piero Sraffa was appointed as Marshall Librarian at Cambridge.<br />
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From May to July 1931, Nicholas Kaldor attended the summer term at the University of Vienna as part of his research studentship at the LSE (Thirlwall 1987: 23), and on 1 August 1931, Kaldor was first appointed to a temporary lecturing position at the LSE (Thirlwall 1987: 27; in October 1932, Kaldor became a permanent Assistant Lecturer). <br />
<br />
<b>June–11 July 1931: Keynes in America </b><br />
On 30 May 1931, Keynes sailed for New York with his wife and his visit lasted from June–11 July 1931. Keynes spent two weeks in New York and met numerous officials and bankers including Walter Case and Eugene Meyer (president of the Federal Reserve Board) (Skidelsky 1992: 390). <br />
<br />
Keynes had been invited to the Harris Foundation seminars at the University of Chicago (an annual event) where he was to give a talk called “Unemployment as a World Problem” (Moggridge 1992: 518), and he gave three lectures on 22 June, 26 June, 2 July 1931 (Skidelsky 1992: 391).<br />
<br />
Keynes was in Chicago from 22 June to 2 July 1931 (Moggridge 1992: 518). Curiously, Keynes, at this stage in his thinking, did not advocate a large-scale public works program in America, but thought interest rate policy should be the main tool for fighting the depression (Moggridge 1992: 518), and Keynes found that some Chicago economists were more supportive of public works programs to bring down unemployment than he was (Skidelsky 1992: 392). Skidelsky has suggested that some Chicago school economists were more “Keynesian than Keynes” in 1931 (Skidelsky 1992: 392).<br />
<br />
Keynes spent his last weekend in America in New Hampshire, and on 11 July 1931 Keynes and his wife left New York for England, and during his return voyage Keynes wrote a memorandum called “Economic Conditions in the United States” which was later circulated to the Prime Minister, the Economic Advisory Council (EAC) and the Bank of England (Moggridge 1992: 519).<br />
<br />
<b>18 July–December 1931</b><br />
When Keynes returned to England on 18 July, the 1931 world financial crisis was in progress, and Keynes was generally at Tilton over the months from July to September. On 11 May 1931 (before Keynes had left for America), the Austrian bank Kreditanstalt had collapsed. By late May 1931, the financial crisis had spread to Germany, where the Reichsbank suffered from serious losses of reserves. On 20 June 1931, Herbert Hoover announced the Hoover Moratorium, which was a one year moratorium on German debt re-payments, approved by Congress and, after some initial resistance by France, by fifteen other nations. Hoover also provided $100 million for the Reichsbank. But this did not prove sufficient and by late June and early July a severe external run on foreign exchange hit Germany (Moggridge 1992: 521).<br />
<br />
By 13 July 1931, Germany was forced to introduce a two-day bank and stock exchange holiday, after the collapse of the Danat Bank (Moggridge 1992: 521). Britain was also hit by a severe outflow of capital: from July to September the Bank of England lost over £200 million in reserves in its attempt to maintain the pound sterling on the gold exchange standard (Moggridge 1992: 522).<br />
<br />
In response to a request for advice from the Prime Minister, Keynes replied on 5 August 1931, and opposed austerity measures and declared that it is “now nearly certain that we shall go off the existing gold parity at no distant date” (Moggridge 1992: 523).<br />
<br />
The crisis was so serious that Ramsay MacDonald (British Prime Minister) returned from summer holidays on 11 August, and held emergency meetings and a full Cabinet meeting on 19 August 1931 (Moggridge 1992: 534). Remaining on the gold standard was now impossible for Britain as borrowing in foreign currencies required severe cuts to government spending and tax increases, as the price of borrowing from the Bank of France, the Federal Reserve of New York and J. P. Morgan was their demand to balance the budget (Skidelsky 1992: 395). The conflict within the Labour party also destroyed the Labour government, as the Cabinet voted by 15 to 5 in favour of a revenue tariff, and also a majority would not support more than £56 million of budget cuts (Skidelsky 1992: 395).<br />
<br />
In August 1931, there appeared the first of a two-part review of Keynes’ <i>A Treatise on Money</i> by Friedrich von Hayek in the journal <i>Economica</i>. The second part appeared in February 1932. Keynes did reply to Hayek, but the criticisms of Hayek were mostly irrelevant since Keynes soon came to repudiate many of the ideas in the <i>Treatise</i>.<br />
<br />
On 24 August 1931, Ramsay MacDonald formed a National Government with the Conservatives, Liberals and a new National Labour group.<br />
<br />
The history of governments in Britain in these years can be summarised as follows:<blockquote>5 June 1929–24 August 1931 – Labour government with Ramsay MacDonald as British Prime Minister<br />
24 August–27 October 1931 – First National Government with Ramsay MacDonald as British Prime Minister with Conservatives, Liberals and a new National Labour group<br />
27 October 1931 – United Kingdom general election<br />
5 November 1931–7 June 1935 – the Second National Government <br />
7 June 1935–28 May 1937 – Stanley Baldwin is Prime Minister of Britain.</BLOCKQUOTE>On 27 August, the new National coalition government decided to implement a program of austerity, with expenditure cuts and tax increases, and by 10 September 1931 it began to implement these measures.<br />
<br />
On 16 September, Keynes addressed a group of MPs in the House of Commons, and he condemned the austerity budget as folly (Skidelsky 1992: 395–396).<br />
<br />
But none of the measures adopted by the new National government stopped the capital flight from Britain, and when the Bank of England lost over £18 million on 18 September, it was decided to suspend the gold convertibility of the pound sterling after noon on 19 September 1931 (Moggridge 1992: 527).<br />
<br />
On 20 September the government announced that Britain would abandon the gold exchange standard the next day, which then happened on Monday (21 September 1931) when a Gold Standard (Amendment) Bill was passed in Parliament (Moggridge 1992: 527).<br />
<br />
Keynes went to London and stayed from 21 September to 10 October 1931, when he attended three meetings of the Economic Advisory Council’s Committee on Economic Information as well as a meeting of the Other Club (Moggridge 1992: 528). Keynes dined with the Prime Minister on 5 October 1931 and then visited Lloyd George at Churt (Skidelsky 1992: 400).<br />
<br />
On 30 September, Keynes recorded a British Movietone newsreel, where he defended the suspension of the gold standard and predicted that British trade would benefit from the currency depreciation that resulted (Moggridge 1992: 528). This newsreel was screened in October 1931 and Keynes appeared in many cinemas in Britain, and can be seen here: <br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/0PYSFqCSsGU?start=5" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
<br />
It was also in September 1931 that Ludwig von Mises visited London for an annual meeting of the British Association for the Advancement of Science, and Mises attended a dinner held for him at the LSE on 24 September (Howson 2011: 210). In September 1931, Friedrich Hayek also published <i>Prices and Production</i>.<br />
<br />
From autumn 1931, a number of students and economists at Cambridge began to meet informally in Richard Kahn’s rooms in King’s College, Cambridge, to analyse and discuss Keynes’ <i>A Treatise on Money</i>. These included Piero Sraffa, Richard Kahn, Austin Robinson, James Meade, Joan Robinson, and Dennis Robertson (Moggridge 1992: 531).<br />
<br />
By Lent term 1932 (January–March 1932), these meetings became a formal seminar held in the Old Combination Room of Trinity College, Cambridge, and were known as the “Circus,” though Keynes himself did not attend these meetings and Richard Kahn acted as an intermediary for Keynes (Moggridge 1992: 531–532).<br />
<br />
On 5 October 1931, Hayek began teaching at the London School of Economics (LSE) as a visiting professor (Howson 2011: 206). Hayek and his family lived in Constable Close in Hampstead Garden Suburb (Howson 2011: 206). <br />
<br />
From late October to November 1931 (in the course of the Michaelmas term at Cambridge), Keynes was ill with heart problems (Skidelsky 1992: 432–433).<br />
<br />
Late in the year on 5 November 1931, Philip Snowden stood down as Chancellor of the Exchequer and was replaced by Neville Chamberlain (Chancellor of the Exchequer from November 1931–May 1937). On 27 November 1931, Keynes’ book <i>Essays in Persuasion</i> was published, which included many of his writings and essays from the 1920s onwards.<br />
<br />
On 13 December 1931, Keynes addressed a socialist group on “The Dilemma of Modern Socialism.”<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Howson, Susan. 2011. <i>Lionel Robbins</i>. Cambridge University Press, New York.<br />
<br />
Moggridge, D. E. 1992. <i>Maynard Keynes: An Economist’s Biography</i>. Routledge, London and New York.<br />
<br />
Skidelsky, Robert. 1992. <i>John Maynard Keynes: Volume Two. The Economist as Saviour 1920–1937</i>. Macmillan, London.<br />
<br />
Thirlwall, A. P. 1987. <i>Nicholas Kaldor</i>. Wheatsheaf, Brighton.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com1tag:blogger.com,1999:blog-6245381193993153721.post-63523743155249322872019-07-17T07:37:00.000-07:002019-07-19T06:18:19.867-07:00Keynes’ Life: 1930I give an account below of Keynes life in 1930, the second year of the Great Depression.<br />
<br />
<b>January–May 1930</b><br />
In January 1930, the second Hague Conference adopted the Young Plan on German reparations, and, as we saw in the <a href="https://socialdemocracy21stcentury.blogspot.com/2019/07/keynes-life-1929.html">last post</a>, Keynes had corresponded with the leading members on the issue of German reparations. By early 1930, Keynes was beginning to think that an international slump was a possibility (Moggridge 1992: 483).<br />
<br />
On 19 January 1930, Keynes’ friend Frank Plumpton Ramsey died after an operation for jaundice, which deeply saddened Keynes (Skidelsky 1992: 380).<br />
<br />
On 24 January 1930, the British government established an “Economic Advisory Council (EAC),” chaired by the Prime Minister, which included the Chancellor of the Exchequer, the President of the Board of Trade, the Minister of Agriculture, Hubert Henderson (as senior economist), and Keynes, among others (Moggridge 1992: 481–482). This council had its first meeting on 17 February 1930 (Moggridge 1992: 482), and seems to have met once a month (Skidelsky 1992: 363). At the council’s first meeting a further “Committee on the Economic Outlook” was created and Keynes as the chairman (Skidelsky 1992: 363). To add to the confusion, yet another small committee of economists was established on 24 July 1930, with Keynes as the chairman, and Arthur Pigou, Hubert Henderson, Sir Josiah Stamp and Lionel Robbins as the other members, and Richard Kahn as one of the secretaries (Skidelsky 1992: 364). This committee met for the first time on 10 September 1930 (Skidelsky 1992: 364).<br />
<br />
We can list these committees in which Keynes was involved in these years as follows:<blockquote><b>(1)</b> <a href="https://en.wikipedia.org/wiki/Macmillan_Committee">the <b>Macmillan Committee (Committee on Finance and Industry)</a> (21 November 1929–31 May 1931)</b>, chaired by Lord Macmillan (Dostaler 2007: 192).<br />
This committee included Ernest Bevin, Lord Bradbury, R. H. Brand, Theodore Gregory, Keynes, and Reginald McKenna. The Macmillan Committee’s report was completed in May 1931, and published on 13 July 1931.<br />
<br />
<b>(2)</b> <b> Economic Advisory Council (EAC)</b> (24 January 1930–1938)<br />
<br />
<b>(3)</b> <b>Committee on the Economic Outlook</b>, created on 17 February 1930 with Keynes as the chairman.<br />
This committee held meetings on the 21 March, 3 April, and 1 May 1930 (Moggridge 1992: 495).<br />
<br />
<b>(4)</b> <b>Committee of Economists</b> (which met from the 10 September–23 October 1930), established on 24 July 1930, with Keynes as the chairman. This committee produced a report on 24 October 1930 (Dostaler 2007: 192).</BLOCKQUOTE>In 1930, Keynes also participated to a great extent in the Macmillan Committee (which included Ernest Bevin). He was active in the examination of witnesses and in the production of the final report (Skidelsky 1992: 345), and it was in the debates within the Macmillan Committee that Keynes summarised his current economic thinking as he had developed it in the yet unpublished <i>A Treatise on Money</i>. Keynes also criticised general equilibrium theory by pointing to the relative rigidity of money wages in Britain in the 1920s, and Keynes even came to question whether money wages had ever been highly flexible even in the 19th century (Skidelsky 1992: 347; Keynes did, however, sometimes slip into Neoclassical explanations of money wage rigidity when he invoked the role of unemployment relief in February 1930: Skidelsky 1992: 347).<br />
<br />
On 30 March 1930, Heinrich Brüning became Chancellor of Germany, an office which he held from 30 March 1930–30 May 1932. Brüning inflicted an austerity regime on the Weimar Republic, which exacerbated the Great Depression, and which effectively destroyed democracy in Germany.<br />
<br />
Meanwhile in March 1930 in Britain, Keynes proposed deficit-financed public expenditure as a remedy to Britain’s economic malaise to the Macmillan Committee (Skidelsky 1992: 353). On 26 March 1930, Sir Ernest Harvey (deputy governor of the Bank of England) appeared before the Macmillan Committee, and Keynes’ role in questioning him, along with others, was considered a disaster for the Bank of England (Skidelsky 1992: 356). Curiously, as a defence against Keynes’ attack on bank policy, Harvey retreated into a version of the Real Bills doctrine and the idea that the Bank of England was mainly responsive to the needs of trade and could not directly control the volume of credit demand, which drifts into the modern endogenous theory of money (Skidelsky 1992: 357). It was in May 1930 that the Treasury official Sir Richard Hopkins appeared before the Macmillan Committee, and used an altered form of the now famous “Treasury View” against Keynes: Sir Richard Hopkins claimed that government deficit-financed public works might cause “psychological crowding out,” that is to say, a blow to business confidence and expectations (Skidelsky 1992: 361). Keynes now was forced to think more explicitly about the role of business “confidence” (or what would later be called “subjective expectations”) in determining investment (Skidelsky 1992: 361).<br />
<br />
Skidelsky (1992: 362) notes that the inspiration for Keynes’ <i>General Theory</i> was in part a response to the opposition that Keynes had encountered to his ideas from the British Bank of England and Treasury officials during the Macmillan Committee.<br />
<br />
On 23 April 1930, Keynes sent Ralph Hawtrey drafts of the <i>Treatise</i>, but Keynes himself did not have time to mull over Hawtrey’s criticism until November 1930 after the book was published (Moggridge 1992: 483).<br />
<br />
In May 1930, the ruling Labour party was split in a great controversy over government policy in relation to the depression and the need for unemployment relief. The crucial figure within the British Labour party was the MP Oswald Mosley, who strongly supported deficit-financed public works programs. On 23 January 1930, Mosley had sent a memorandum to the Prime Minister in which he advocated direct government control of banking, protectionism, and large-scale public works programs financed by deficits (Dorril 2007: 130). These policies, along with an abandonment of the gold standard (which soon happened anyway in 1931), would certainly have cured the Great Depression in Britain. Mosley, influenced by Keynes, was therefore effectively proposing his own “New Deal” for Britain (Skidelsky 1992: 378).<br />
<br />
On 8 February 1930, Mosley’s memo was leaked to the newspaper the <i>Telegraph</i> and provoked a minor crisis within the Labour party (Dorril 2007: 131). However, leading figures in the Labour party opposed this. In particular, Philip Snowden (1st Viscount Snowden), who was Chancellor of the Exchequer from 7 June 1929–5 November 1931 – despite being a socialist – favoured free trade, balanced budgets, and rejected public works programs to reduce unemployment. He also favoured export-led growth as a primary solution to the depression. This crisis within the Labour party in May 1930 is dramatised in this movie scene where Mosley appears before the Cabinet and his proposals are dismissed by Snowden:<br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/YZAdBs1LDxs?start=55" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
<br />
These bizarre and Neoclassical policies held by influential figures in the Labour government – and in particular the appeal to export-led growth – destroyed the Labour government of 1929–1931, and, remarkably, also wiped out the German Social Democratic Party in Germany by 1933, as they too supported balanced budgets, sound money and crackpot Marxism.<br />
<br />
On 28 May 1930, Oswald Mosley gave a powerful resignation speech in the House of Commons (Skidelsky 1992: 364), in which he attacked the Labour government’s “do nothing” policy. That speech can be read <a href="https://api.parliament.uk/historic-hansard/commons/1930/may/28/privy-seal-office">here</a>, and Mosley rightly condemned “the belief that the only criterion of British prosperity is how many goods we can send abroad for foreigners to consume” (that is, by export-led growth).<br />
<br />
<b>June–December 1930</b><br />
As the Great Depression deepened, Keynes rejected Marxist dogma that this was the final crisis of capitalism (Skidelsky 1992: 379).<br />
<br />
His fundamental optimism – despite the disaster of the depression – can be seen in his essay “Economic Possibilities for our Grandchildren,” which was first given to the Winchester Essay Society, and then as a public lecture in Madrid on 9 June 1930 (Skidelsky 1992: 379). Keynes spent some ten days in Spain and returned to his home at Tilton, South Downs, where he continued to work on the <i>Treatise</i> over the summer (Skidelsky 1992: 380).<br />
<br />
Keynes continued to be involved in the Macmillan Committee, which heard witnesses until the end of July 1930 and then adjourned until 16 October 1930 (Moggridge 1992: 495). It was also in July 1930 that Keynes came to endorse industrial protectionism as a policy to protect British industry (Moggridge 1992: 500).<br />
<br />
On 25 September 1930, the British Cabinet of the Labour government rejected any further fiscal stimulus by public works and even accepted the need for limiting unemployment insurance (Moggridge 1992: 507).<br />
<br />
In September and October 1930, Keynes also continued his work as chairman of the “Committee of Economists,” but the final report on 24 October 1930 was a complex mix of analysis and possible solutions to the economic problems faced by Britain because of the intense disagreements between Keynes, Pigou, Hubert Henderson, and Lionel Robbins (Skidelsky 1992: 374–377; Dostaler 2007: 192). The report was undoubtedly a failure in either advocating or urging any sensible Keynesian policy. Lionel Robbins, in particular, had been advocating the Austrian Business Cycle Theory (ABCT) in his analysis. Astonishingly, leading figures in the Labour party government favoured austerity and free trade, and rejected Keynes’ thinking (Skidelsky 1992: 377).<br />
<br />
On 16 October 1930, the Macmillan Committee resumed its meetings normally for two days a week (Moggridge 1992: 507). Keynes took the lead in discussions by November and early December 1930 (Moggridge 1992: 507).<br />
<br />
In October 1930, Keynes finally published his short essay “Economic Possibilities for our Grandchildren” in two parts in the <i>The Nation and Athenaeum</i> (see Keynes 1930a and 1930b), which was later reprinted in <i>Essays in Persuasion</i> (London, 1933). I have previously analysed Keynes’ essay <a href="https://socialdemocracy21stcentury.blogspot.com/2014/04/keynes-economic-possibilities-for-our.html">here</a>.<br />
<br />
Keynes’ <i>A Treatise on Money</i> was published on 24 October 1930. I will not describe Keynes’ arguments in this book in detail. In brief, Keynes still assumed in this book that there were long-run forces bringing an economy to full-employment equilibrium; he assumed that investment was the most important driver of a capitalist economy, and that the rate of interest was in turn the main driver of investment (Moggridge 1992: 484–486). Keynes also adopted versions of Knut Wicksell’s concepts of the natural rate of interest (the rate at which savings would equal investment) and the market rate of interest (Moggridge 1992: 486).<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Dorril, Stephen. 2007. <i>Blackshirt: Sir Oswald Mosley and British Fascism</i>. Penguin Books, London and New York.<br />
<br />
Dostaler, Gilles. 2007. <i>Keynes and his Battles</i>. Edward Elgar, Cheltenham.<br />
<br />
Keynes, John Maynard. 1930a. “Economic Possibilities for our Grandchildren II,” <i>The Nation and Athenaeum</i> 48.3 (October 18): 96–98.<br />
<br />
Keynes, John Maynard. 1930b. “Economic Possibilities for our Grandchildren II,” <i>The Nation and Athenaeum</i> 48.2 (October 11, 1930): 36–37.<br />
<br />
Keynes, John Maynard. 1933. <i>Essays in Persuasion</i>. Macmillan, London.<br />
<br />
Moggridge, D. E. 1992. <i>Maynard Keynes: An Economist’s Biography</i>. Routledge, London and New York.<br />
<br />
Skidelsky, Robert. 1992. <i>John Maynard Keynes: Volume Two. The Economist as Saviour 1920–1937</i>. Macmillan, London.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com0tag:blogger.com,1999:blog-6245381193993153721.post-49840536483873311412019-07-13T06:02:00.000-07:002019-07-13T06:21:09.195-07:00Keynes’ Life: 1929I give an account below of Keynes life in 1929, the year in which the Great Depression began.<br />
<br />
<b>January–May 1929</b><br />
Keynes taught at Cambridge in the first half of the year. The teaching periods at Cambridge were divided into three terms:<blockquote>October–December – Michaelmas<br />
January–March – Lent or January term<br />
April–June – Easter term.</BLOCKQUOTE>On 18 January 1929, Ludwig Wittgenstein returned to Cambridge, and Keynes met him when he arrived, and allowed Wittgenstein to share his rooms at Cambridge until February 1929 (Skidelsky 1992: 291).<br />
<br />
From 9 February to 7 June 1929, an international committee met to propose changes to the German reparations system, which was chaired by Owen D. Young, and called the Young Committee (Moggridge 1992: 476). Keynes corresponded with the leading members on German reparations and published a famous article called “The German Transfer Problem” in the <i>Economic Journal</i> of March 1929 (Moggridge 1992: 476–478). <br />
<br />
Keynes also visited the Treasury on 7 March 1929 and recommended raising the bank rate to attract more capital from abroad (Skidelsky 1992: 302).<br />
<br />
From March 1928 until the UK general election of May 1929, Keynes strongly supported David Lloyd George’s Liberal program of deficit spending and public works to cure the problem of high unemployment in Britain (Skidelsky 1992: 297). It was at this stage that the British Treasury formulated its so-called “Treasury View” opposing debt-financed public works. Curiously, the ruling British government included some ministers like the Home Secretary (Joynson-Hicks) who favoured large public works programs in February 1929, and so the Treasury fought both these proposals and those of Keynes and Lloyd George (Skidelsky 1992: 299). Keynes attacked the “Treasury View” in an unsigned article in the <i>Nation</i> of 23 February 1929 called “The Objections to Capital Expenditure” (Skidelsky 1992: 299). Keynes identified two “leakages” of savings which caused disequilibrium between savings and investment, as follows:<blockquote><b>(1)</b> leakage of savings into financial asset markets (that is, the stock, share and bond markets) where this money is not spent on real capital investment, and<br />
<br />
<b>(2)</b> leakage of savings overseas into foreign investments (Skidelsky 1992: 299).</BLOCKQUOTE>Keynes maintained that therefore there were savings available in Britain for deficit-financed public works programs (Skidelsky 1992: 301). Winston Churchill, as Chancellor of the Exchequer, also defended the Treasury view in his budget speech of 15 April 1929 (Moggridge 1992: 462). <br />
<br />
On 10 May 1929, Hubert Henderson and Keynes published <i>Can Lloyd George do it?</i>, a pamphlet in support of Lloyd George before the UK general election of 1929. In this pamphlet, Keynes and Henderson pointed to the “cumulative force of trade activity” as a further argument in favour of deficit spending, and this eventually inspired the concept of the “multiplier” formulated by Richard Kahn in the summer of 1930 (Moggridge 1992: 464).<br />
<br />
In the <a href="https://en.wikipedia.org/wiki/United_Kingdom_general_election,_1929">UK general election of 30 May 1929</a>, Keynes expected the Liberal party to do well in the election and win at least 100 seats (Skidelsky 1992: 306), but the results, summarised below, disappointed him:<blockquote><b>Party | Leader | Seats Won</b><br />
Conservative | Stanley Baldwin | 260<br />
Labour | Ramsay MacDonald | 287<br />
Liberal | David Lloyd George | 59.</blockquote>The UK Labour Party under Ramsay MacDonald won 287 seats, and formed a government, with Ramsay MacDonald as British Prime Minister from 5 June 1929–7 June 1935, but proved disastrously inept and stupid, as it supported austerity when the Great Depression hit Britain.<br />
<br />
Keynes was so disappointed that he never attended a Liberal Summer School event ever again (Moggridge 1992: 464).<br />
<br />
<b>June to December 1929</b><br />
Since summer 1924, Keynes had been occupied in writing <i>A Treatise on Money</i>, and his work continued into the summer of 1928 and 1929. With his Easter teaching term over at the end of June 1929, Keynes returned in summer to working on the <i>Treatise on Money</i>. Keynes spent much of the summer at his house in Tilton, South Downs near Lewes, and engaged in writing his <i>Treatise</i> (Skidelsky 1992: 338).<br />
<br />
Keynes had taken possession of Tilton house on 3 March 1926, rented on a 21 year lease (Skidelsky 1992: 214). It was in Tilton house that Keynes and his wife Lydia would spend their Christmas and Easter holidays and two and a half months during the summer (Skidelsky 1992: 217).<br />
<br />
From 19 to 29 July 1929, Keynes travelled to Geneva, where he gave four lectures at the School of International Studies (Moggridge 1992: 479), having been invited by the Financial Section of the League of Nations (Skidelsky 1992: 338). He and his wife Lydia then had a holiday in Burgundy in August (Skidelsky 1992: 338).<br />
<br />
After his return to Britain during summer, Keynes had an active social life, and he appears to have taken part in a BBC broadcast, a dinner with Lloyd George at his house in Churt, and a meeting with Oswald Mosley (the new Chancellor of the Duchy of Lancaster). This was long before Oswald Mosley became a fascist, and at this time Mosley was a rising figure in the British Labour Party (which he had joined in March 1924), and a Member of Parliament for Smethwick (21 December 1926–27 October 1931). In 1929, Mosley was appointed by Ramsey MacDonald to the position of Chancellor of the Duchy of Lancaster (a post without Portfolio and outside the Cabinet), but was tasked with solving the unemployment problem in Britain, which had been high since the early 1920s. On 4 September 1929, Keynes met Mosley in London and discussed the problem of unemployment (Skidelsky 1992: 339).<br />
<br />
In August, Keynes decided that many chapters of <i>A Treatise on Money</i> needed to be re-written and he also decided to divide the work into two volumes (Moggridge 1992: 479). In mid-November, Keynes allowed Arthur Pigou and Dennis Robertson to read and comment on his new draft of the <i>Treatise</i> (Moggridge 1992: 480). However, it was not until the next year that Keynes’ <i>A Treatise on Money</i> was published, on 24 October 1930.<br />
<br />
Before August 1929, Richard Kahn, who was Keynes’ student, also began to assist Keynes in the development of his thinking on economics (Moggridge 1992: 480). Moreover, it was in October 1929 that Joan Robinson and Austin Robinson returned to Cambridge, and from 1929 to 1930 Joan Robinson attended Piero Sraffa’s lectures (Sraffa had arrived in London in July 1927 after fleeing Italy).<br />
<br />
Keynes did not predict, or foresee, the Great Depression of 1929–1933 (Moggridge 1992: 478; Skidelsky 1992: 338).<br />
<br />
It was in October that two severe corrections hit the New York stock exchange, as follows:<blockquote>24 October 1929 – “Black Thursday” on the New York stock exchange, the beginning of the US Stock Market Crash of 1929<br />
<br />
29 October 1929 – “Black Tuesday” on the New York stock exchange.</blockquote>When the first Wall Street Crash occurred on 24 October 1929, Keynes was surprised. Indeed, in an article in the New York <i>Evening Post</i>, Keynes appeared to think that monetary policy would eventually correct the problem (Moggridge 1992: 480).<br />
<br />
Keynes’ investments also suffered heavily from falling stock and commodity prices, so that by late 1929 his new worth dropped from £44,000 to £7,814 (Skidelsky 1992: 342).<br />
<br />
On the 5 November 1929, the UK Treasury created a “Committee on Finance and Industry,” chaired by Lord Macmillan (and therefore called the “Macmillan Committee”), to which Keynes was appointed, and its first meeting was on 21 November 1929 (Moggridge 1992: 481). This committee was an inquiry into banking and finance, amongst other things. Keynes even met Ramsey MacDonald, the British Prime Minister, on the 25 November, the 9 December and 16 December, to discuss economic issues (Moggridge 1992: 481). <br />
<br />
Later on 24 January 1930, the British government established an “Economic Advisory Council (EAC),” chaired by the Prime Minister, which included the Chancellor of the Exchequer, the President of the Board of Trade, the Minister of Agriculture, Hubert Henderson (as senior economist), and Keynes, amongst others (Moggridge 1992: 481–482).<br />
<br />
Keynes was now a government adviser, and he had to attend sixty-five meetings related to these committees between November 1929 and September 1930 (Moggridge 1992: 482). Keynes was especially active in the Macmillan Committee (which included Ernest Bevin), both in the examination of witnesses and in the production of the final report (Skidelsky 1992: 345).<br />
<br />
From 1929 to 1931, Keynes lost interest in the now small Liberal Party and its politics (Skidelsky 1992: 344).<br />
<br />
Keynes gave the Ludwig Mond Lecture at Manchester University on 7 November 1929, and noted the relative rigidity of money wages, and particularly how money wages were determined by “social and historical forces,” and not by marginal labour productivity (Skidelsky 1992: 347).<br />
<br />
In December 1929, Richard Kahn, Keynes’ student, submitted his dissertation called “The Economics of the Short Period,” and Kahn became a Fellow at King’s College in March 1930 (Moggridge 1992: 480).<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Moggridge, D. E. 1992. <i>Maynard Keynes: An Economist’s Biography</i>. Routledge, London and New York.<br />
<br />
Skidelsky, Robert. 1992. <i>John Maynard Keynes: Volume Two. The Economist as Saviour 1920–1937</i>. Macmillan, London.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-40577689037832247242019-07-11T02:51:00.002-07:002019-07-11T02:53:32.080-07:00 Victoria Chick on the History of Post-Keynesian EconomicsVictoria Chick gives a talk here on some aspects of the history of Post-Keynesian economics. This talk appears to have been given in 2018:<br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/uO1XG5M_4ac" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-54601947233787706872019-01-17T23:25:00.001-08:002019-01-18T03:54:15.069-08:00Proto-Keynesians in the Last Years of Weimar Republic GermanyIt is well known that the Great Depression hit Weimar Republic Germany particularly hard. There was severe unemployment, and the wage and price deflation was also severe, as can be seen in these graphs (with data from Mitchell 1992):<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://2.bp.blogspot.com/-3q8k48AN42s/XEF8iukBnFI/AAAAAAAAA60/cnm3uZA-mtwbkZRKWWdfCA4w2_F23yd1gCLcBGAs/s1600/HourwageindexGermany.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-3q8k48AN42s/XEF8iukBnFI/AAAAAAAAA60/cnm3uZA-mtwbkZRKWWdfCA4w2_F23yd1gCLcBGAs/s400/HourwageindexGermany.jpg" width="400" height="242" data-original-width="1600" data-original-height="968" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://3.bp.blogspot.com/-k3hbX_nUCmA/XEF8oXx92YI/AAAAAAAAA64/Tm7AsYMJOQ0gYGR2VzTamn0xVNUp4ZHTQCLcBGAs/s1600/PriceIndices1930sGermany.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://3.bp.blogspot.com/-k3hbX_nUCmA/XEF8oXx92YI/AAAAAAAAA64/Tm7AsYMJOQ0gYGR2VzTamn0xVNUp4ZHTQCLcBGAs/s400/PriceIndices1930sGermany.jpg" width="400" height="234" data-original-width="1600" data-original-height="937" /></a></div><br />
Moreover, the wage and price deflation did not bring about a rapid or effective recovery. Austerity policies clearly failed in the Weimar Republic, and a number of German businessmen, bureaucrats, journalists, and unorthodox economists were driven to advocate the only real policy solution that had not been tried: namely, unemployment relief and stimulus of the economy by large-scale deficit spending and public works programs.<br />
<br />
Proto-Keynesian ideas were already being advocated in Germany before 1933 by the following people:<blockquote><b>(1)</b> Wilhelm Grotkopp (a business journalist) and Heinrich Drädger (a businessman) through the organisation they created in November 1931 called the <i>Studiengesellschaft fur Geldund Kreditwirtschaft</i> (Society for the Study of Money and Credit).<br />
Both Grotkopp and Drädger held PhDs in economics, and advocated countercyclical fiscal policy in various meetings of their society in 1931 and 1932 and in writings for the public (Garvy 1975: 398).<br />
<br />
<b>(2)</b> <a href="https://en.wikipedia.org/wiki/Wladimir_S._Woytinsky">Wladimir S. Woytinsky</a> (a statistician of the German Trade Union Federation). <br />
Wladimir S. Woytinsky had been a Russian Bolshevik and then Menshevik who had fled to Germany in 1922. In 1931, Woytinsky published a paper in a German trade union journal supporting a credit-financed public works program for Germany (Garvy 1975: 399). This paper was called “Aktive Weltwirtschaftspolitik” (<i>Arbeit</i> 6 [June] 1931). In 1931 and 1932 Woytinsky continued a public campaign thorough the media to support his proposals, and he enlisted the support of Fritz Tarnow (who had already endorsed expansionary spending in a book) and Fritz Baade (head of a government agency for agricultural marketing). The plan was dubbed the “WTB Plan” (from the initials of Woytinsky, Tarnow and Baade). <br />
<br />
<b>(3)</b> Ernst Wagemann (the head of both the Reich’s Statistical Office and the Institute of Business Cycle Research). <br />
In 1932, Ernst Wagemann advocated a plan for reducing unemployment by deficit-financed public works programs in a book called <i>Geld- und Kredit Reform</i> (Berlin, 1932).<br />
<br />
<b>(4)</b> Wilhelm Lautenbach (an official in the Ministry of Economics).<br />
Wilhelm Lautenbach had in September 1931 advised the Weimar government to use bank credit for public works programs to relieve unemployment in a memorandum called “Moglichkeiten einer Konjunkturbelebung durch Investition und Kreditausweitung” (Opportunities for Economic Recovery through Investment and Credit Expansion).</BLOCKQUOTE>These proposals to use fiscal stimulus and public works received varying degrees of support from other intellectuals in Germany such as Adolph Lowe, Emil Lederer, Werner Sombart, F. Baade, and G. Colm (Garvy 1975: 398).<br />
<br />
In particular, the deficit-financed public works proposals of W. S. Woytinsky are interesting, and deserve further analysis. <br />
<br />
Woytinsky had even corresponded with Keynes in December 1931, and requested that Keynes participate in an international trade union committee which Woytinsky thought would endorse his ideas (though the Board of the International Labour Federation failed to endorse or examine Woytinsky’s plan: see Garvy 1975: 400). <br />
<br />
Keynes replied that his spoken German was not good enough and he was too busy to be involved in this endeavour (Garvy 1975: 401). A modified version of Woytinsky’s plan was later formally adopted by the German Trade Union Federation in April 1932 (Garvy 1975: 401), but, astonishingly, the German Social Democrats and their prominent Marxist intellectual Rudolf Hilferding refused to give Woytinsky’s plan any support (Garvy 1975: 401). <br />
<br />
One can only marvel at how stunningly worthless the German Social Democrats were during the last years of the Weimar Republic in Germany, in that they shunned the only real economic policy that could have rapidly ended the Great Depression. A similar state of affairs occurred in Britain, where the British Labour party endorsed Neoclassical austerity and also shunned Keynesian policies to end the Great Depression in Britain.<br />
<br />
In a meeting between Wladimir S. Woytinsky and the German Social Democrats in August 1932 in which Woytinsky’s plans for public works programs were discussed, the monumentally stupid Marxist Rudolf Hilferding rejected Woytinsky’s ideas to end unemployment by public works, because, he maintained, this was not a Marxist policy (Berman 2006: 114).<br />
<br />
Wladimir S. Woytinsky later wrote an account of the meeting in his autobiography:<blockquote>“The [sc. WTB] Plan gained more and more popularity in the nation [sc. in 1932], but the S-D party remained adamant and refused to use the slogan of public works in the Reichstag election campaign in July, 1932. It preferred to stick to Brüning’s guns — defense of the currency. The results of the election were catastrophic for the Republic. The Nazis gained more than one third of all the votes and 230 seats out of the Reichstag’s 568. The new Reichstag had a clear anti-republican majority of Nazis and Communists and was unable to form a republican government. All parties began to brace themselves for a new appeal to the voters. <br />
<br />
Leipart called me to his office. ‘The party,’ he told me, ‘has agreed to meet with us to discuss the plan of public works. There will be forty party representatives and as many from the labor unions. Will you prepare our case for the conference?’ <br />
<br />
I asked Gerhard Colm, a scholar of national reputation, not connected with the labor movement, to be our reporter. The party named [sc. Rudolf] Hilferding as its spokesman. I was slated to open the panel discussion with a rebuttal of Hilferding’s arguments. <br />
<br />
The conference was held in a large room in the Reichstag building. Everyone sat around a horseshoe-shaped table covered with green cloth. Wells occupied the chair, with the union people at his right and the Reichstag members at his left. Red in the face, he opened the discussion grimly. ‘It is time to end this silly dispute. Inflation-deflation, public works ... I do not know what. . . . This non-sense must be stopped.’ <br />
<br />
Colm spoke in an academic way, developing a theory that since has become commonplace. The price level and volume of economic activities can be regulated by monetary and credit measures. Public works is the best, and politically the most expedient, approach to the problem. <br />
<br />
<font style="BACKGROUND-COLOR: yellow">Hilferding was the next speaker. ‘Colm and Woytinsky,’ he said, ‘are questioning the very foundations of our program, Marx’s theory of labor value. Our program rests on the conviction that labor, and labor alone, creates value. Prices deviate from labor values under the impact of the interplay of supply and demand. Depressions result from the anarchy of the capitalist system. Either they come to an end or they must lead to the collapse of this system. If Colm and Woytinsky think they can mitigate a depression by public works, they are merely showing that they are not Marxists.’</FONT> <br />
<br />
My first thought was that Hilferding could not have taken that nonsense seriously. Obviously, he had a limitless contempt for his listeners and did not condescend to argue before them but appealed to the cliches in their brains. A score of deputies listened to him as to an oracle. Wells sat motionless in his armchair, his eyes closed and his head sunk on his breast. <font style="BACKGROUND-COLOR: yellow">Hilferding ended with an appeal to the party to rise united to the defense of a sound currency and Marxism.<br />
<br />
I began my rebuttal. ‘The flood of unemployment is rising, the people are at the end of their patience. The workers, holding us responsible for their misery, are deserting the party to join the Communists and Nazis. We are losing ground. There is no time to waste. Something must be done before it is too late. Our plan has nothing to do with any particular value theory. Any party can execute it. And it will be executed. The only question is whether we take the initiative or leave it to our enemies.</FONT> It is not true — ’<br />
<br />
I felt that I was gaining the audience, but suddenly a deafening noise came from the head of the table. Wells was pounding the desk with both fists and shouting, ‘Shut up! I will not permit — ’<br />
<br />
‘You will not permit what?’ I asked in consternation. <br />
<br />
‘You said it is not true.’ If what Hilferding said is not true he must be a liar! I will not permit — ’<br />
<br />
Hell broke out, a dozen people shouting. Wells fell back into his chair, with closed eyes and his head sunk on his breast, sound asleep. Leipart asked me to continue, but the effect of my speech was completely lost. I elaborated the technical and financial aspects of the Plan. Nobody listened — for the union people this was old stuff and the Reichstag deputies did not care. After a few remarks from both sides, Leipart put the ADGB plan to a vote. All the representatives of the unions raised their hands in favor of it, all the representatives of the party except Baade voted ‘nay.’ <br />
<br />
The break between the party and the unions was complete.” (Woytinsky 1961: 470–472).</BLOCKQUOTE>So, at this meeting, the Social Democratic party doomed itself to continuing electoral disaster, and revealed itself to be in the grip of deranged Marxists, who, urged on by Hilferding, were united in the defence of “sound currency [!] and Marxism.”<br />
<br />
In contrast, the left-wing of the Nazi Party led by Gregor Strasser supported a large-scale public works program called the “emergency program” in May 1932, when Strasser had given his famous “Work and Bread” speech in the Reichstag. Here we must remember that the actual name of the Nazi party was the “National Socialist German Workers’ Party” (Nationalsozialistische Deutsche Arbeiterpartei or NSDAP), and it did have a real anti-capitalist wing around Gregor Strasser called the <a href="https://en.wikipedia.org/wiki/Strasserism">Strasserites,</a> who were purged in the Night of the Long Knives (29 June 1934).<br />
<br />
The endorsement by Gregor Strasser of a proto-Keynesian policy to end unemployment in Germany in May 1932 was surely one factor in the electoral success of the Nazi party in July 1932, when the party won 37.3% of the vote in the Reichstag elections.<br />
<br />
Of course, it is well known that when Hitler became chancellor of Germany in 1933, he began to enact large-scale deficit spending which financed public works programs, civilian spending and rearmament. <br />
<br />
Years later, the Post Keynesian economist Joan Robinson – in an article in 1972 – pointed out the following:<blockquote>“I do not regard the Keynesian revolution as a great intellectual triumph. On the contrary, it was a tragedy because it came so late. <font style="BACKGROUND-COLOR: yellow">Hitler had already found how to cure unemployment before Keynes had finished explaining why it occurred.”</FONT> (Robinson 1972: 8).</BLOCKQUOTE>However, Joan Robinson was not quite right here, because the inspiration for these policies, as we have seen, did not originally come from the Nazis, but from German businessmen, bureaucrats, journalists, unorthodox economists and from Wladimir S. Woytinsky, who had been, before coming to Germany, a literal Russian Bolshevik and Menshevik in the Soviet Union.<br />
<br />
The Nazi deficits from 1933 were hidden and kept secret by means of special bills called <a href="https://en.wikipedia.org/wiki/Oeffa_bills">Öffa bills</a> and <a href="https://en.wikipedia.org/wiki/Mefo_bills">MEFO bills</a> which were redeemable at the Reichsbank for reserves by German banks. The most important of these bills was the MEFO bill, issued by a dummy company called the <i>Metallurgische Forschungsgesellschaft, m.b.H.</i> (MEFO). For an extended discussion of MEFO bills and Hjalmar Schacht’s ingenious controls on foreign exchange and trade, see <a href="https://fixingtheeconomists.wordpress.com/2013/12/11/hjalmar-schacht-mefo-bills-and-the-restoration-of-the-german-economy-1933-1939/">here.</a><br />
<br />
The real lesson here is that the sheer catastrophe of the Great Depression in Germany forced original thinkers to the only solution left that could actually work: large-scale deficit spending and public works programs.<br />
<br />
As I outlined in a previous post on pre-1938 fascist Austria <a href="https://socialdemocracy21stcentury.blogspot.com/2018/09/austerity-in-pre-1938-fascist-austria.html">here</a>, history ran a most fascinating experiment for us from 1933 to 1939: in Austria, the clerical fascists pursued austerity with wage and price deflation from 1934 to 1937, partly under advice from Ludwig von Mises, while in Germany from 1933 the National Socialist government of Hitler implemented deficit-financed stimulus and public works programs and other highly effective economic interventions (such as restrictions on imports and rationing of foreign exchange to overcome balance of payments problems). Germany rapidly recovered from the Great Depression.<br />
<br />
The best way to illustrate this is simply by looking at a graph of both Austrian and German unemployment from 1928 (with German unemployment rate from Mitchell 1992: p. 160 and 163, B2, and Austrian unemployment from Stiefel 1979: 29): <br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://3.bp.blogspot.com/--rnwq8AUnW8/XEF72VX5AOI/AAAAAAAAA6s/vzzZPL-8-RAiYQ26BmeAuPN1SMqTMuWoQCLcBGAs/s1600/AustriaversusGermany.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://3.bp.blogspot.com/--rnwq8AUnW8/XEF72VX5AOI/AAAAAAAAA6s/vzzZPL-8-RAiYQ26BmeAuPN1SMqTMuWoQCLcBGAs/s400/AustriaversusGermany.jpg" width="400" height="240" data-original-width="1600" data-original-height="958" /></a></div><br />
This speaks for itself. <br />
<br />
<b>BIBLIOGRAPHY</b><br />
Berman, Sheri. 2006. <i>The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century</i>. Cambridge University Press, Cambridge.<br />
<br />
Garvy, George. 1975. “Keynes and the Economic Activists of Pre-Hitler Germany,” <i>Journal of Political Economy</i> 83.2: 391–405.<br />
<br />
Mitchell, Brian R. 1992. <i>International Historical Statistics: Europe 1750–1988</i> (3rd edn.). Stockton Press, New York.<br />
<br />
Robinson, Joan. 1972. “The Second Crisis of Economic Theory,” <i>The American Economic Review</i> 62.1–2: 1–10, at p. 8<br />
<br />
Stiefel, Dieter. 1979. <i>Arbeitslosigkeit: soziale, politische und wirtschaftliche Auswirkungen – am Beispiel Österreichs 1918–1938</i>. Duncker & Humblot, Berlin.<br />
<br />
Woytinsky, Wladimir S. 1961. <i>Stormy Passage: A Personal History through Two Russian Revolutions to Democracy and Freedom: 1905–1960</i>. Vanguard Press, New York. Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3tag:blogger.com,1999:blog-6245381193993153721.post-62747913673869400082018-11-20T23:22:00.001-08:002018-11-20T23:56:43.771-08:00Three Cheers for Tucker Carlson!: Heroic Economic PopulistTucker Carlson channels left-wing economics in this debate with the free market, Neoconservative charlatan Ben Shapiro: <br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/z3E1I4lu6u0" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><br />
<br />
You have to admire Tucker Carlson for this, despite the gushing praise for the ill-defined concept of “capitalism.” Shapiro, in response, mouths utterly dumb, empty, meaningless drivel.<br />
<br />
Tucker Carlson is easily the best thing to ever happen to the brain-dead Conservative media in America, probably in living memory. <br />
<br />
Tucker has morphed from a pointless beltway libertarian (who even supported the Iraq war!) into a Nationalist, anti-war, economic populist, broadcast on – of all places – Fox News.<br />
<br />
Tucker has discovered the magic formula that actually represents what the majority of people in the Western world want, which is as follows:<blockquote><b>(1)</b> closed borders and an end to the tidal wave of illegal and legal immigration causing utterly catastrophic demographic change (for example, the coming disaster of the Islamisation of Europe);<br />
<br />
<b>(2)</b> an end to the sheer insanity of the Cultural Leftist/Cultural Marxist onslaught on everything decent, healthy and normal in the social and cultural sphere, and<br />
<br />
<b>(3)</b> left-wing economics: either the old-fashioned post-WWII Western European welfare states and full employment economies, or some kind of populist economics.</BLOCKQUOTE>If the Western world’s truly dumb and worthless Conservatives ever actually offer the public this political program and implement it, they could probably win for a whole generation.<br />
<br />
Perhaps we are even seeing the first signs of such a shift in Italy, where the Nationalist Lega party of Matteo Salvini in coalition with the populist Five Star Movement is moving toward just such a program. <br />
<br />
But, to get back to the video, Tucker may be a bit extreme in what he says about trucks! The solution to driverless trucks is to phase them in slowly, and use the power of government to find economically-productive employment for the men made unemployed. <br />
<br />
Naturally, we also need a strong industrial policy to rebuild manufacturing, severe regulation of parasitic, rentier finance capitalism, and Keynesian full employment policies to ensure a booming economy.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com6tag:blogger.com,1999:blog-6245381193993153721.post-84463663648824277152018-09-26T05:52:00.000-07:002018-09-26T09:25:15.508-07:00Austerity in Pre-1938 Fascist AustriaFrom 1933 to 11 March 1938, Austria was ruled by the clerical fascist <a href="https://en.wikipedia.org/wiki/Fatherland_Front_(Austria)">Fatherland Front</a> in a regime called the <a href="https://en.wikipedia.org/wiki/Federal_State_of_Austria">Austrian Federal State</a>.<br />
<br />
The two dictators of Austria in this period were as follows:<blockquote><b>Dictators of the Austrian Federal State</b><br />
5 March 1933–25 July 1934 – Engelbert Dollfuss<br />
29 July 1934–11 March 1938 – Kurt Schuschnigg</BLOCKQUOTE>Although the <a href="https://en.wikipedia.org/wiki/Fatherland_Front_(Austria)">Fatherland Front</a> had some anti-capitalist elements, the fact is that in power Engelbert Dollfuss and Kurt Schuschnigg pursued spending cuts, austerity, budget balancing and wage and price deflation.<br />
<br />
In this period, Ludwig von Mises had a fascinating relationship with the clerical Austro-fascist regime.<br />
<br />
Already around 1930, before the Austrian fascists seized power, Mises joined an Austrian government economic commission to study the causes of the depression in Austria, along with (interestingly enough) the future Austro-fascist leader Engelbert Dollfuss (Hülsmann 2007: 614), to whom Mises was later to give economic advice. The report of the committee blamed (1) inflationary expectations in Austria and (2) rises in taxation and government spending and increased wage rates (which had all squeezed business profits) for the inability of Austria to attract foreign capital needed to facilitate quicker adjustment and recovery from the depression (Hülsmann 2007: 614–615).<br />
<br />
On February 28, 1931, Mises gave a lecture called “The Causes of the World Economic Crisis” in Czechoslovakia (Mises 2006 [1931]), and, as a remedy for the depression, Mises advocated eliminating unemployment relief (presumably forcing the unemployed to starve and accept lower wages), cutting government spending and taxes (Mises 2006 [1931]: 175), not only to cut wages, but also to make wage determination free from labour unions (Mises 2006 [1931]: 169).<br />
<br />
Hans-Hermann Hoppe (an Austrian economist) relates that Mises was later a close adviser of Dollfuss:<blockquote>“Engelbert Dollfuss [sc. was] ... the Austrian Chancellor who tried to prevent the Nazis from taking over Austria. During this period Mises was chief economist for the Austrian Chamber of Commerce. Before Dollfuss was murdered for his politics, Mises was one of his closest advisers.”<br />
Hans-Hermann Hoppe, “The Meaning of the Mises Papers,” April 1997<br />
https://mises.org/library/meaning-mises-papers</blockquote>Even after his move to Geneva in 1934, Mises was still employed by the Austrian government, visited Austria periodically, and continued to do work for the government (Hülsmann 2007: 884). And, as late as February 1938, the Austro-fascist regime of Schuschnigg asked Mises to become Chief of the Department for Monetary and Financial Affairs, and Mises came to Vienna to discuss this offer in February 1938 as well (Hülsmann: 2007: 723).<br />
<br />
The clerical fascist pursued many of the policies Mises had advocated:<blockquote><font style="BACKGROUND-COLOR: yellow"> “In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. …. In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people.</font> On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War” (Bukey 2000: 17).<br />
<br />
<font style="BACKGROUND-COLOR: yellow">“Beginning in in 1931, [Austrian] unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work .... When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value. This had a devastating effect on the legitimacy of the Austrian system .... As the Austrian government sustained its reluctance to apply Keynesian policies, the economic recovery never entered a serious tale-off phase in the second half of the 1930s. </font> Linked to an exhausted determination of the Austrian government to resist the pressures from Germany, the economic crisis of the 1930s should be seen as an additional reason why the Austrian society was receptive to the annexation by Germany in March 1938” (Gerlich and Campbell 2000: 55). </blockquote>The Austrian clerical fascists also smashed trade unions and banned the Social Democratic party.<br />
<br />
We can see the spending cuts and attempts to balance the budget in the graph below of budget deficits in pre-1938 Austria from 1934–1938 in millions of schillings (data from Fibich 1977: 170 ff.; to get a high quality version of the graph, click on it or open it in another tab).<br />
<br />
<a href="https://1.bp.blogspot.com/-rtkr8qjOIhs/W6t-mFzHjpI/AAAAAAAAA58/pV-eKX3W2EYFPpj-QbM-3-ojZsuwcNMnACLcBGAs/s1600/Austriandeficits.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-rtkr8qjOIhs/W6t-mFzHjpI/AAAAAAAAA58/pV-eKX3W2EYFPpj-QbM-3-ojZsuwcNMnACLcBGAs/s400/Austriandeficits.jpg" width="400" height="239" data-original-width="1600" data-original-height="954" /></a><br />
<br />
As we can see, the budget deficit was radically cut right down until 1936, and was virtually eliminated, since by October 1936 the budget deficit was about 0.5% of GDP (Berger 2003: 90).<br />
<br />
Some of the austerity policies included:<blockquote><b>(1)</b> the elimination of the works council in 1934;<br />
<br />
<b>(2)</b> a series of cuts to welfare, and<br />
<br />
<b>(3)</b> slashing of unemployment benefits to the point where only 50% of the unemployed in 1936 received benefits (Obinger 2018: 86).</BLOCKQUOTE>How did the economy perform under this austerity?<br />
<br />
The Austrian economy was awful.<br />
<br />
Real GNP growth was mostly feeble in the 1930s in the years after the actual contraction ended as we can see here:<blockquote><b>Real GDP in Austria 1928–1938<br />
Year | GNP* | Growth Rate</b><br />
* in millions of international Geary-Khamis dollars<br />
1928 | 24 295 | 4.64%<br />
1929 | 24 647 | 1.44%<br />
1930 | 23 967 | -2.75%<br />
1931 | 22 044 | -8.02%<br />
1932 | 19 769 | -10.32%<br />
1933 | 19 113 | -3.31%<br />
<font style="BACKGROUND-COLOR: yellow">1934 | 19 277 | 0.85%<br />
1935 | 19 652 | 1.94%<br />
1936 | 20 238 | 2.98%<br />
1937 | 21 317 | 5.33%</font><br />
1938 | 24 037 | 12.75%<br />
(Maddison 2003: 50).</blockquote>In fact, by 1937 real GDP had still not recovered to its 1929 level.<br />
<br />
Austrian unemployment was also a disaster. There are two estimates of Austrian unemployment I have found: Maddison (1982: 206, Table C6) and Stiefel (1979: 29), but I would assume that Stiefel’s estimates are better, given that he is an Austrian scholar and his estimates are cited in Emmerich Tálos’s <i>Das austrofaschistische Herrschaftssystem: Österreich 1933–1938</i> [The Austro-Fascist Regime: Austria 1933–1938] (2nd edn. 2013, Vienna; p. 330, Tabelle 1).<br />
<br />
We can see the two estimates of Austrian unemployment in the 1930s in the graph below (to get a high quality version of the graph, click on it or open it in another tab):<br />
<br />
<a href="https://4.bp.blogspot.com/-u4t3s6BHUhw/W6t_OnjOvYI/AAAAAAAAA6E/WBO-1jtU_iUfCCRAO1BWbOEcy_WqYRVRQCLcBGAs/s1600/Austrianunemployment.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-u4t3s6BHUhw/W6t_OnjOvYI/AAAAAAAAA6E/WBO-1jtU_iUfCCRAO1BWbOEcy_WqYRVRQCLcBGAs/s400/Austrianunemployment.jpg" width="400" height="242" data-original-width="1600" data-original-height="969" /></a><br />
<br />
As we can see, unemployment soared to high levels by 1933, and remained stubbornly high until 1937, by either measure.<br />
<br />
History also ran a most fascinating experiment for us from 1933 to 1939.<br />
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While in Austria, the clerical fascists pursued austerity and wage and price deflation from 1934 to 1937, in Germany the National Socialist government of Hitler implemented a series of economic interventions that involved large government deficits, direct public works programs, and rearmament. This program was undoubtedly Keynesian in its fiscal effects, despite some modern attempts to deny this like Tooze (2008) (on the simulative nature of Germany’s deficits and policies after 1933, see Cohn 1992; Fremdling and Stäglin 2015; Overy 1996). The fact that German military spending was higher by 1935 than some historians have thought does not change the reality that military Keynesianism is still Keynesianism. It is clear that German policy down to 1936 was a mix of military and civilian Keynesian spending.<br />
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So how did Austrian unemployment compare to unemployment in Germany?<br />
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We can see this in the graph below (with German unemployment rate from Mitchell 1992: p. 160 and 163, B2, and Austrian unemployment from Stiefel 1979: 29; to get a high quality version of the graph, click on it or open it in another tab):<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-V3VEYfVZRdI/W6us3nfV5DI/AAAAAAAAA6g/1G4VZ8ZOB_Y59l_UNDoYzB6_VnbnZIEBQCLcBGAs/s1600/AustriaversusGermany.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://1.bp.blogspot.com/-V3VEYfVZRdI/W6us3nfV5DI/AAAAAAAAA6g/1G4VZ8ZOB_Y59l_UNDoYzB6_VnbnZIEBQCLcBGAs/s400/AustriaversusGermany.jpg" width="400" height="240" data-original-width="1600" data-original-height="958" /></a></div><br />
While Austrian unemployment remained high, German unemployment fell rapidly.<br />
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Popular support for the Austro-fascist regime collapsed by 1938 given the economic disasters and high unemployment, and when Hitler annexed Austria in March 1938 there was no doubt a great deal of support for the Anschluss within Austria.<br />
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Paradoxically, Mises – even though he declared that Italian fascism “saved European civilisation” from Communism (Mises 1978: 51) – had a real role in killing Austrian fascism through his policy advice to pursue austerity and wage and price deflation, which failed to induce any real recovery from the high unemployment.<br />
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I have rarely seen Austrians and other libertarian supporters of Mises address the question of why their cult leader’s austerity policies failed so miserably to produce any serious recovery in Austria.<br />
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<b>BIBLIOGRAPHY</b><br />
Berger, Peter. 2003. “The League of Nations and Interwar Austria: Critical Assessment of a Partnership in Economic Reconstruction,” Günter Bischof, Anton Pelinka, Alexander Lassner (eds.), <i>The Dollfuss/Schuschnigg Era in Austria: A Reassessment</i>. Transaction Publishers, New Brunswick, N.J. 73–92.<br />
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Bukey, E. B. 2000. <i>Hitler’s Austria: Popular Sentiment in the Nazi Era, 1938–1945</i>. University of North Carolina Press, Chapel Hill, North Carolina.<br />
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Cohn, R. L. 1992. “Fiscal Policy in Germany during the Great Depression,” <i>Explorations in Economic History</i> 29: 318–342.<br />
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Fibich, Alexander. 1977. <i>Die Entwicklung der österreichischen Bundesausgaben in der Ersten Republik (1918–1938)</i>. Dissertation, Wien.<br />
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Fremdling, Rainer and Reiner Stäglin. 2015. “Work Creation and Rearmament in Germany 1933–1938: A Revisionist Assessment of NS-Economic Policy Based on Input-Output Analysis,” IDEAS Working Paper Series, Discussion Papers 1473<br />
https://www.diw.de/documents/publikationen/73/diw_01.c.502764.de/dp1473.pdf<br />
<br />
Gerlich, P. and D. Campbell, 2000. “Austria: From Compromise to Authoritarianism,” in D. Berg-Schlosser and J. Mitchell (eds). <i>The Conditions of Democracy in Europe, 1919–39: Systematic Case Studies</i>. Macmillan, Basingstoke. 40–58.<br />
<br />
Hülsmann, J. G. 2007. <i>Mises: The Last Knight of Liberalism</i>. Ludwig von Mises Institute, Auburn, Ala.<br />
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Maddison, Angus. 1982. <i>Phases of Capitalist Development</i>. Oxford University Press, Oxford.<br />
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Maddison, Angus. 2003. <i>The World Economy: Historical Statistics</i>. OECD Publishing, Paris.<br />
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Mises, Ludwig von. 1978 [1927]. <i>Liberalism: A Socio-Economic Exposition</i> (2nd edn; trans. R. Raico). Sheed Andrews and McMeel, Mission, Kansas.<br />
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Mises, Ludwig von. 2006 [1931]. “The Causes of the Economic Crisis,” in Percy L. Greaves (ed.). <i>The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression</i>. Ludwig von Mises Institute, Auburn, Ala. 155–181.<br />
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Mitchell, Brian R. 1992. <i>International Historical Statistics: Europe 1750–1988</i> (3rd edn.). Stockton Press, New York.<br />
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Obinger, Herbert. 2018. “War Preparation, Warfare, and the Welfare State in Austria,” in Herbert Obinger, Klaus Petersen and Peter Starke (eds.), <i>Warfare and Welfare: Military Conflict and Welfare State Development in Western Countries</i>. Oxford University Press, Oxford. 67–98.<br />
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Overy, Richard James. 1996. <i>The Nazi Economic Recovery, 1932–1938</i> (2nd edn.). Cambridge University Press, Cambridge.<br />
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Stiefel, Dieter. 1979. <i>Arbeitslosigkeit: soziale, politische und wirtschaftliche Auswirkungen – am Beispiel Österreichs 1918–1938</i>. Duncker & Humblot, Berlin.<br />
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Tálos, Emmerich. 2013. <i>Das austrofaschistische Herrschaftssystem: Österreich 1933–1938</i> (2nd edn.). Lit Verlag, Vienna.<br />
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Tooze, Adam. 2008. <i>The Wages of Destruction: The Making and Breaking of the Nazi Economy</i>. Penguin, London and New York.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com4tag:blogger.com,1999:blog-6245381193993153721.post-78619124856878294522018-09-21T08:51:00.001-07:002018-09-21T09:06:48.287-07:00Academic Agent versus Reality on the US Industrial Recession of 1873–1878In this recent stream on economics, Academic Agent attempts to defend Rothbard’s views on the American economy in the 1870s.<br />
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In my Twitter debates on this issue with Academic Agent – who is an unusually ignorant libertarian – I directed him to my post <a href="http://socialdemocracy21stcentury.blogspot.com/2015/10/the-1870s-economic-crisis-in-america.html">here.</a><br />
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I said <i>explicitly</i> in that post that, while Rothbard was correct that there was no depression in the sense of a fall of GDP/GNP of 10% or more, Rothbard was nevertheless <i>wrong</i> to claim that the 1873–1878 period saw “extraordinarily large expansion of industry.”<br />
<br />
Here is what Rothbard said:<blockquote><font style="BACKGROUND-COLOR: yellow"> “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? </FONT> 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 <i>contraction</i>. <br />
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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 <i>must</i> result in depression: <font style="BACKGROUND-COLOR: yellow">hence their amazement at the obvious prosperity and economic growth during this era.</FONT> 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).</blockquote>The central claims of Rothbard about the 1870s are therefore as follows:<blockquote><b>(1)</b> there was no “depression” in GDP/GNP between 1873–1879.<br />
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<b>(2)</b> in the period between the panic of 1873 and 1879, there was an “extraordinarily large expansion of industry”. </BLOCKQUOTE>While assertion (1) is true on the basis of the most recent GNP/GDP estimates, assertion 2 is false. <br />
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To see this we need only look at the best indices of industrial/manufacturing output in these years.<br />
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First, a graph of Frickey’s manufacturing index (Frickey 1947; for a high quality version of the graph, click on it or open it in a new window):<br />
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<a href="https://4.bp.blogspot.com/-u4u6WEaSL60/W6USaqnKZbI/AAAAAAAAA5Y/iaW935GuRy8q5cLpciCdXOR5RDG-5VTBQCLcBGAs/s1600/1860-1885Frickey.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-u4u6WEaSL60/W6USaqnKZbI/AAAAAAAAA5Y/iaW935GuRy8q5cLpciCdXOR5RDG-5VTBQCLcBGAs/s400/1860-1885Frickey.jpg" width="400" height="243" data-original-width="1600" data-original-height="971" /></a><br />
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The data from Frickey shows an industrial recession from 1873–1876 in which there was a 9.67% fall in manufacturing output (almost a depression in the manufacturing sector).<br />
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Next, a graph of the data from Davis’s US industrial index (Davis 2004: 1189), which uses 43 annual components of the manufacturing and mining industries in the US, which represented about 90% of manufacturing output in the 1800s (Davis 2006: 105; for a high quality version of the graph, click on it or open it in a new window):<br />
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<a href="https://1.bp.blogspot.com/-yJRzkmnxW0k/W6USnWXg1iI/AAAAAAAAA5c/ZB8iPHeN_-cG2LAkyqq-66gIKof8kzviACLcBGAs/s1600/1870s1.png" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-yJRzkmnxW0k/W6USnWXg1iI/AAAAAAAAA5c/ZB8iPHeN_-cG2LAkyqq-66gIKof8kzviACLcBGAs/s400/1870s1.png" width="400" height="249" data-original-width="1600" data-original-height="997" /></a><br />
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We can see the data here in table form from Davis’s US industrial index:<blockquote><b> US Industrial Index, 1870–1880<br />
Index base is 1849–1850 = 100<br />
Year | Index</b><br />
1870 | 242.97<br />
1871 | 255.29<br />
1872 | 275.74<br />
<font style="BACKGROUND-COLOR: yellow">1873 | 302.17<br />
1874 | 300.7<br />
1875 | 284.2</font><br />
1876 | 294.0<br />
<font style="BACKGROUND-COLOR: yellow">1877 | 297.8</font><br />
1878 | 314.0<br />
1879 | 356.4<br />
1880 | 400.9<br />
(Davis 2004: 1189).</blockquote>So the data is clear: there was a real industrial recession and stagnation until 1877. Both industrial indices, whether the older data of Frickey (1947) or newer, better index of Davis, show serious problems in the manufacturing sector.<br />
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By contrast, it is true that the real GNP estimates of Balke and Gordon (1989: 84) on the annual growth rates in the US in this period only show a recession in 1874, and low growth in 1876:<blockquote><b>Year | GNP* | Growth Rate</b><br />
1869 | 78.2 |<br />
1870 | 84.2 | 7.67%<br />
1871 | 88.1 | 4.63%<br />
1872 | 91.7 | 4.08%<br />
1873 | 96.3 | 5.01%<br />
<font style="BACKGROUND-COLOR: yellow">1874 | 95.7 | -0.62%</font><br />
1875 | 100.7 | 5.22%<br />
1876 | 101.9 | 1.19%<br />
1877 | 105.2 | 3.23%<br />
1878 | 109.6 | 4.18%<br />
1879 | 123.1 | 12.31%<br />
* Billions of 1982 dollars<br />
Average real GNP growth rate, 1870–1879: 4.69%.<br />
(Balke and Gordon 1989: 84). </blockquote>But given our data from Frickey and Davis that shows a manufacturing recession, the data of Balke and Gordon – if accurate – can only mean that it was agriculture and services that continued to grow in order to provide positive real GNP in 1873 and in 1875–1877.<br />
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But this is the <i>precise opposite of what Rothbard said</i>: Rothbard wanted us to believe that there was an “extraordinarily large expansion of industry” from 1873 to 1877. That is clearly false.<br />
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There is also considerable contemporary evidence from the 1870s of serious unemployment in the manufacturing sector as catalogued by Bernstein (1956).<br />
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A report of the Bureau of Statistics in Pennsylvania in 1875 reported the following: <blockquote>“… <font style="BACKGROUND-COLOR: yellow">in October, 1873, occurred the revulsion in trade (known as the panic) which immediately checked industrial operations, and which, although it was generally supposed its effects would be temporary, has continued to grow in force and intensity ever since. </FONT><br />
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This has materially obstructed the operations of the Bureau in its attempts to procure returns that could be used for tabular statements, in fact making it impossible. Those who have not given particular attention to this phase of the subject, would be astonished in making anything like an extended inquiry among our industrial establishments this year, to find in how large a proportion of them, there was so little being done that detailed reports would be impracticable.<br />
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<font style="BACKGROUND-COLOR: yellow">Very many are entirely closed, having given up the attempt to keep their machinery moving at all. Many more just doing sufficient to have the appearance of running, while those doing what could be called sufficient business to cover expenses, were so very small a proportion of the whole as to constitute them exceedingly rare exceptions to the general rule. Probably never in the history of the country has there been a time, when so many of the working classes skilled and unskilled, have been moving from place to place seeking employment that was not to be had—never, certainly for so long a time.” </FONT> (Commonwealth of Pennsylvania 1875: 433).</BLOCKQUOTE>The unemployment data in Vernon (1994) shows rising unemployment from 1873 to 1878 (for a high quality version of the graph, click on it or open it in a new window):<br />
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<a href="https://1.bp.blogspot.com/-BJ1vXZnj7l8/W6US6rN2fbI/AAAAAAAAA5o/k6VR1RfXWw8lfoNPjomBzZHssuW9ZKrhgCLcBGAs/s1600/Unemployment1870s.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-BJ1vXZnj7l8/W6US6rN2fbI/AAAAAAAAA5o/k6VR1RfXWw8lfoNPjomBzZHssuW9ZKrhgCLcBGAs/s400/Unemployment1870s.jpg" width="400" height="255" data-original-width="1600" data-original-height="1019" /></a><br />
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This would strongly confirm problems in the US economy in these years. Another point is that, on the basis of <a href="http://socialdemocracy21stcentury.blogspot.com/2013/12/us-unemployment-in-1890s-who-is-right.html">analysis of the 1890s and the likelihood that 19th century labour force participation rates were countercyclical in the sense of rising during recessions</a>, 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.<br />
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Finally, we can look at immigration into the US in the 1870s (data from <i>Historical Statistics of the United States: Colonial Times to 1970. Part 1</i>, 1975, pp. 105–106, Series C 89–119; for a high quality version of the graph, click on it or open it in a new window):<br />
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<a href="https://2.bp.blogspot.com/-saelnhAdhes/W6UTD1m_fXI/AAAAAAAAA5s/XiwBd9RBJbozw0ELQDPuwzsS_f883ReZgCLcBGAs/s1600/Usimmi2.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-saelnhAdhes/W6UTD1m_fXI/AAAAAAAAA5s/XiwBd9RBJbozw0ELQDPuwzsS_f883ReZgCLcBGAs/s400/Usimmi2.jpg" width="400" height="253" data-original-width="1600" data-original-height="1011" /></a><br />
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As we can see, immigration fell in every year from 1873 to 1878, which suggests a bad economy which discouraged immigration. The falling periods of US immigration in the late 19th century generally line up with recessions.<br />
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So, all in all, our data shows that the United States from 1873 to 1877 had a recession within the manufacturing sector, even if GDP (with the exception of 1874) continued to grow owing to agriculture and services. <br />
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Unemployment seems to have risen in every year down to 1878 (consistent with contemporary evidence reporting bad industrial unemployment), and there cannot have been a healthy economy in these years if manufacturing – the most important sector – was internally in recession. Rothbard was wrong to think there was an “extraordinarily large expansion of industry” between 1873 and 1879, and that there was some economy-wide boom in these years.<br />
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<b>BIBLIOGRAPHY</b><br />
Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” <i>Journal of Political Economy</i> 97.1: 38–92.<br />
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Bernstein, Samuel. 1956. “American Labor in the Long Depression, 1873–1878,” <i>Science & Society</i> 20.1: 59–83.<br />
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Commonwealth of Pennsylvania. 1875. <i>Second Annual Report of the Bureau of Statistics of Pennsylvania, for the Years 1873–1874</i>. B. F. Meyers, Harrisburg.<br />
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Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790–1915,” <i>The Quarterly Journal of Economics</i> 119.4: 1177–1215.<br />
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Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” <i>Journal of Economic History</i> 66.1: 103–121.<br />
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Frickey, Edwin. 1947. <i>Production in the United States, 1860–1914</i>. Harvard University Press, Cambridge, Mass.<br />
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Rothbard, Murray N. 2002. <i>A History of Money and Banking in the United States</i>. Ludwig von Mises Institute, Auburn, Ala.<br />
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U.S. Department of Commerce. 1975. <i>Historical Statistics of the United States: Colonial Times to 1970. Part 1</i>. US Government Printing Office, Washington, DC.<br />
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Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” <i>Journal of Macroeconomics</i> 16: 701–714.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com1tag:blogger.com,1999:blog-6245381193993153721.post-13175319120740134142018-09-12T12:23:00.001-07:002018-09-13T02:54:32.988-07:00Academic Agent on Herbert Hoover: A CritiqueAcademic Agent’s video on Herbert Hoover is below:<br />
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First of all, it is true that Hoover was not a strict liquidationist. He supported limited interventionism, and was – for his time – a type of corporatist Republican. But was Hoover an “interventionist” relative to the interventions that became commonplace in Western mixed economies after 1933 and certainly after 1945? The answer is: no, Hoover was relatively <i>non-interventionist</i> in relation to the mixed economies of the post-1945 period. <a href="http://socialdemocracy21stcentury.blogspot.com/2013/04/herbert-hoover-rejected-keynesianism.html">Hoover himself rejected effective Keynesian economics</a>, which was the key to escaping the Great Depression.<br />
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What is wrong in this video?<br />
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Let us break it down as follows:<br />
<br />
<b>1. Hoover’s “high wage” policy</b><br />
Hoover’s “high wage” policy was largely limited to certain industrial markets, and was not generally <i>forced</i> on industrialists, contrary to libertarian myths. Academic Agent (citing Rothbard) is wrong. Most of the industrialists of Hoover’s day <i>agreed with his high wage policy</i>.<br />
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The proof can be seen below.<br />
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On November 21 1929, Hoover met with business leaders and labor representatives in the White House. The press release makes interesting reading:<blockquote><font style="BACKGROUND-COLOR: yellow">“The conference this morning of 22 industrial and business leaders warmly endorsed the President’s statement of last Saturday as to steps to be taken in the progress of business and the maintenance of employment. The general situation was thoroughly canvassed, and it was the unanimous opinion of the conference that there was no reason why business should not be carried on as usual; that construction work should be expanded in every prudent direction both public and private so as to cover any slack of unemployment.</FONT> It was found that a preliminary examination of a number of industries indicated that construction activities can in 1930 be expanded even over 1929. ….<br />
<br />
It was considered that the absorption of capital in loans on the stock market had postponed much construction and that the flow of this capital back to industry and commerce would now assist renewed construction.<br />
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It was the opinion that an indirect but very substantial contribution could be made to the extension of credit for local building purposes and for conduct of smaller business if the banks would freely avail themselves of the rediscount privilege offered by the Federal Reserve Banks.<br />
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The meeting considered it was desirable that some definite organization should be established under a committee representing the different industries and sections of the business community, which would undertake to follow up the President’s program in the different industries.<br />
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It was considered that the development of cooperative spirit and responsibility in the American business world was such that the business of the country itself could and should assume the responsibility for the mobilization of the industrial and commercial agencies to those ends and to cooperate with the governmental agencies. ….<br />
<br />
<font style="BACKGROUND-COLOR: yellow">The President was authorized by the employers who were present at this morning’s conference to state on their individual behalf that they will not initiate any movement for wage reduction, and it was their strong recommendation that this attitude should be pursued by the country as a whole. They considered that aside from the human considerations involved, the consuming power of the country will thereby be maintained.<br />
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The President was also authorized by the representatives of labor to state that in their individual views and as their strong recommendation to the country as a whole, that no movement beyond those already in negotiation should be initiated for increase of wages, and that every cooperation should be given by labor to industry in the handling of its problems.” </FONT><br />
<a href="http://www.presidency.ucsb.edu/ws/?pid=22009">http://www.presidency.ucsb.edu/ws/?pid=22009</a></BLOCKQUOTE>So the “high wage” policy was not some alien, evil government intervention imposed on unwilling and hostile business people and industrialists: it was a policy they largely agreed with. <br />
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Vedder and Galloway (1997: 92) – who themselves think that the high wages were the major cause of the unemployment during the depression – nevertheless point out that Hoover received “wholehearted support” from businessmen at his White House meeting on November 21, 1929. Even Henry Ford agreed with it (Vedder and Galloway 1997: 92).<br />
<br />
Furthermore, even though there was some degree of “jawboning” of certain business people who wished to cut wages, <blockquote>“In a survey of business leaders in mid-1930 by <i>Printer’s Ink</i> magazine, <font style="BACKGROUND-COLOR: yellow">corporate executives were near-unanimous in their support of the high-wage policy coming out of the November 1929 conference at the White House. </FONT> Howard Heinz, the ketchup maker, said: ‘In this enlightened age, large manufacturers . . . will maintain wages ... as being the far-sighted and . . . the constructive thing to do.’ Carleton Palmer, president of E. R. Squibb & Son, advocated increasing hourly wages by reducing the workweek and maintaining weekly wages constant. William Wrigley, the gum magnate, said he would not reduce wages, while Charles C. Small, president of the American Ice Co., said he believed in ‘good wages to aid purchasing power.’ George F. Johnson, president of Endicott Johnson Corp., echoed that sentiment, declaring that ‘reducing income of labor is not a remedy for business depression; it is a direct and contributing cause.’ <br />
<br />
<font style="BACKGROUND-COLOR: yellow">Big business felt it had a duty to carry through the high-wage-policy.”</FONT> (Vedder and Galloway 1997: 94)</BLOCKQUOTE>Now let us assume for the sake of argument that the “high wage” policy really was the single worst policy endorsed by Hoover. But why aren’t Austrians blaming the private industrialists and business people who <i>supported and endorsed</i> this “high wage” policy, since it was clearly their fault as much as Hoover’s? It is doubtful that the “high wage” policy could have been carried out without so much support from the private sector: in fact, very many corporate leaders <i>already</i> held the same opinion as Hoover.<br />
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Secondly, Gardiner Means, in his own contemporary work on prices in the 1920s and 1930s, noted how it was in fact industrial prices that had already become relatively less flexible than other prices in the US economy during the early years of the Great Depression (Lee 1998: 28). <br />
<br />
So, given that relative inflexibility in industrial prices, to what extent did the high wages per se with (less severe) price cuts in those industries really exacerbate the depression? Although it stands to reason that, when industrial prices did start to fall significantly, this would have squeezed profits in the relevant industries, the fact is that output and employment was already <i>directly reduced</i> in many firms anyway as a response to the demand shocks, which were the primary cause of the increased unemployment.<br />
<br />
Most important of all, far from being the solution to the depression, severe wage cuts even in 1929 would have severely <i>worsened</i> the debt deflationary spiral and increased the real burden of debt for debtors, putting pressure on them and eventually driving many into bankruptcy, and in turn driving creditors into bankruptcy. Of course, that is exactly would did happen in the depression as nominal wages fell after 1931 and continued to fall in 1932 and 1933.<br />
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Moreover, as is now well known, the extent of nominal wage flexibility in the West before 1929 is grossly exaggerated. In reality, wages had already started to become relatively inflexible downwards in recessions after the late 1880s, as can be seen <a href="http://socialdemocracy21stcentury.blogspot.com/2014/12/nominal-wage-rigidity-in-us-and-uk.html">here.</a> It is a complete myth that US recessions were cured by flexible wages, because there were numerous recessions after the 1880s where this was not the case.<br />
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<b>2. Comparing the Recession of 1920–1921 with the Great Depression</b><br />
Academic Agent compares the money wage falls in the recession of 1920–1921 with the less flexible money wage data in the early years of the Great Depression (whose contractionary phase ran from 1929 to 1933). <br />
<br />
Unfortunately, the recession of 1920–1921 was highly anomalous, coming as it did after the First World War and the extensive wartime inflation which eroded the value of private debt, and cannot be usefully compared with the situation in 1929–1933, as I have shown <a href="http://socialdemocracy21stcentury.blogspot.com/2014/02/debt-deflation-19201921-versus-19291933.html">here</a>. In short, in 1929–1933 wage and price deflation caused a severe debt deflationary spiral, which was avoided in 1920–1921, because of the different conditions then.<br />
<br />
And, of course, libertarians like Academic Agent cannot explain why severe wage and price deflation in Weimar Germany or in Austria in the 1930s did not lead to a rapid recovery there.<br />
<br />
<b>3. The Smoot Hawley Tariff</b><br />
Academic Agent makes much of the Smoot Hawley Tariff and argues that it was a “massive” cause of the depression, and even that it was the major cause. This is a blatant falsehood, contrary to the data we have.<br />
<br />
The Tariff Act of 1930 (or Smoot–Hawley Tariff) became law on June 17, 1930. While Smoot Hawley undoubtedly hurt foreign export-led growth nations dependent on the US market, it was not a major factor in the US contraction from 1929–1933.<br />
<br />
Peter Temin explains:<blockquote>A tariff, like a devaluation, is an expansionary policy. It diverts demand from foreign to home producers. It may thereby create inefficiencies, but this is a second-order effect. The Smoot-Hawley tariff also may have hurt countries that exported to the United States. The popular argument, however, is that the tariff caused the American Depression. The argument has to be that the tariff reduced the demand for American <i>exports</i> by inducing retaliatory foreign tariffs … Exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years. Given the fall in world demand in these years from the causes described here, not all of this fall can be ascribed to retaliation from the Smoot-Hawley tariff. Even if it is, real GNP fell over 15 percent in these same years. With any reasonable multiplier, the fall in export demand can only be a small part of the story. And it needs to be offset by the rise in domestic demand from the tariff. Any net contractionary effect of the tariff was small (Temin 1989: 46).</blockquote>America was <i>not</i> an export-led economy in the 1920s and 1930s, and export growth was <i>not</i> the primary engine of American growth at all. As noted by Temin, exports were just 7% of US GNP in 1929.<br />
<br />
Contrary to Academic Agent, it is a complete myth that the United States suddenly faced economic collapse because foreign companies suddenly left and closed factories in America after Smoot Hawley.<br />
<br />
Worse still for Academic Agent, the Smoot Hawley Tariff was not some exception in American history. The United States had a long history of high tariffs, as can be seen <a href="https://socialdemocracy21stcentury.blogspot.com/2014/06/protectionism-and-us-economic-history.html">here</a>. In fact, the average level of duties on manufactured goods in 1875 in the United States was about 40–50%, and the Republicans in September 1922 had returned to a high tariff policy with the <a href="https://en.wikipedia.org/wiki/Fordney%E2%80%93McCumber_Tariff">Fordney–McCumber Tariff</a>, which raised the <i>ad valorem</i> tariff rate to an average of about 38.5% for dutiable imports, which was years before the Great Depression even happened (Bairoch 1993: 38). <br />
<br />
Why, then, didn’t the Fordney–McCumber Tariff of 1922 crash the US economy if high tariffs had such a bad effect?<br />
<br />
Nor, contrary to Academic Agent, was the Smoot Hawley tariff or the collapse in agricultural production the primary cause of the banking failures in the US Great Depression. Those were caused largely by rapid insolvency of banks and then the large-scale bank runs triggered by panic.<br />
<br />
The severe worsening of the depression in America was caused to a great extent by the <a href="https://en.wikipedia.org/wiki/Panic_of_1930">banking panic of 1930</a> from November 1930 to August 1931, which could have been easily halted by Federal Reserve actions to protect depositors while liquidating bad debts. <br />
<br />
<b>4. Hoover’s Spending</b><br />
Hoover did not in fact massively increase government spending. Total US federal government spending in 1929 was about 2.5% of GDP (Stein 1966), and the rise in US federal government spending as a percentage of GDP from 1929 to 1933 was partly the result of the collapse in GDP, and not huge increases in government spending relative to GDP. <br />
<br />
Given that US GDP collapsed by 28.52% between 1929 to 1933, the rise in US spending under Hoover was feeble and far short of what was need to stabilise GDP and end the depression.<br />
<br />
We can see in this graph the absurdity of saying that Hoover massively increased government spending (with the circle showing the size of government spending in the 1920s to about 1933):<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://4.bp.blogspot.com/-ef0GrehHS8I/W5lntn6MQCI/AAAAAAAAA5M/fxqrQP3itb05Cn7UwklDIYcv7FvzYLXFQCLcBGAs/s1600/222.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-ef0GrehHS8I/W5lntn6MQCI/AAAAAAAAA5M/fxqrQP3itb05Cn7UwklDIYcv7FvzYLXFQCLcBGAs/s400/222.jpg" width="400" height="256" data-original-width="1600" data-original-height="1023" /></a></div><br />
If huge government spending was a serious cause of depression, then why didn’t the US collapse after 1945 given the huge levels of spending that now occurred relative to the pre-1929 period?<br />
.<br />
Finally, let consider Hoover’s fiscal policy. Hoover’s fiscal policy in fiscal years 1930 and fiscal year 1933 was actually <i>contractionary</i>:<blockquote><b>(1)</b> In fiscal year 1930 (July 1, 1929–June 30, 1930), Hoover actually ran a federal budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.<br />
<br />
<b>(2)</b> In fiscal years 1931 and 1932, fiscal policy was mildly expansionary, but feeble compared to what was needed.<br />
<br />
<b>(3)</b> The Federal Reserve raised the discount rate in 1931.<br />
<br />
<b>(4)</b> In fiscal year 1933 (July 1, 1932–June 30, 1933), total federal spending was cut in relation to fiscal year 1932. Hoover introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years.</blockquote>These were contractionary measures, and these policies are the very antithesis of Keynesianism stimulus.<br />
<br />
<b>5. Other Interventions</b><br />
Most of the other interventions Academic Agent lists were taken in 1932 and cannot possibly explain the severity of the depression from 1929–1931, with one exception: the Revenue Act of 1932 (June 6) which increased taxes. <br />
<br />
However, Academic Agent is blissfully unaware that blaming this measure for exacerbating the depression (which is no doubt did do) is nothing but a <i>vindication of Keynesian theory</i>, which does <i>not</i> advocate raising taxes in recessions or depressions.<br />
<br />
Finally, let us consider here the Reconstruction Finance Corporation (RFC). Blaming the RFC as some evil government intervention that made the depression worse is absurd. Why? Because the RFC was only established in January 1932, and it did not even exist in 1929, 1930 and 1931 when the US economy was collapsing badly. In 1932, the RFC spent about $1.5 billion in loans to states and businesses, and there are very good reasons for thinking that this policy per se would have aided the economy, not exacerbated the depression. But of course whatever good the RFC did was destroyed by Hoover’s contractionary fiscal policy in fiscal year 1933 – the exact opposite of a Keynesian policy response.<br />
<br />
<b>6. Counterexamples where Keynesian interventions worked</b><br />
I have yet to see any libertarian explain why government interventions and Keynesian stimulus rapidly ended the Great Depression in a number of nations in the 1930s. <br />
<br />
For we must ask the question: what nations emerged quickly from the Great Depression to have a strong recovery where unemployment fell to low levels?<br />
<br />
Those nations that recovered rapidly and successfully from the Great Depression were New Zealand, Germany and Japan. They did so by large-scale fiscal stimulus and numerous other intervention far more extreme than what Hoover did. <br />
<br />
More on the Keynesian policies in New Zealand, Germany and Japan is given in these posts: <blockquote><a href="http://socialdemocracy21stcentury.blogspot.com/2011/09/keynesian-stimulus-in-new-zealand.html">“Keynesian Stimulus in New Zealand: 1936–1938,” September 23, 2011.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2011/08/takahashi-korekiyo-and-fiscal-stimulus.html">“Takahashi Korekiyo and Fiscal Stimulus in Japan in the 1930s,” August 27, 2011.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2011/09/fiscal-stimulus-in-germany-19331936.html">“Fiscal Stimulus in Germany 1933–1936,” September 3, 2011.</a></blockquote>It is also notable that some Scandinavian nations also left the gold standard quickly, devalued their currencies, stabilised their banking systems, implemented loose monetary policy, and perhaps some degree of fiscal stimulus to escape the worst ravages of the depression (although the question whether the Scandinavian countries pursued fiscal expansion and how strongly is disputed by some economists).<br />
<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Bairoch, P. 1993. <i>Economics and World History: Myths and Paradoxes</i>. University of Chicago Press, Chicago.<br />
<br />
Bernanke, Ben S. 2000. <i>Essays on the Great Depression</i>. Princeton University Press, Princeton, N.J. <br />
<br />
Keynes, J. M. 1939. “Relative Movements of Real Wages and Output,” <i>Economic Journal</i> 49: 34–51.<br />
<br />
Lavoie, Marc. 1992. <i>Foundations of Post-Keynesian Economic Analysis</i>. Edward Elgar Publishing, Aldershot, UK.<br />
<br />
Lee, Frederic S. 1998. <i>Post Keynesian Price Theory</i>. Cambridge University Press, Cambridge and New York.<br />
<br />
Stein, H. 1966. “Pre-Revolutionary Fiscal Policy: The Regime of Herbert Hoover,” Journal of Law and Economics 9: 189–223.<br />
<br />
Temin, P. 1989. <i>Lessons from the Great Depression</i>. MIT Press, Cambridge, Mass.<br />
<br />
Vedder, Richard K. and Lowell E. Galloway. 1997. <i>Out of Work: Unemployment and Government in Twentieth-Century America</i>. New York University Press, New York.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3tag:blogger.com,1999:blog-6245381193993153721.post-27405612284653644512018-09-06T06:25:00.002-07:002018-09-06T06:25:52.465-07:00Ludwig M. Lachmann on the History of the Austrian School of EconomicsAn interesting talk on the history of the Austrian School by Ludwig M. Lachmann:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/QdymByxT1Gg" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe><br />
<br />
For more on the history of the Austrian school, see here:<BLOCKQUOTE><a href="http://socialdemocracy21stcentury.blogspot.com/2011/06/why-are-there-no-austrian-socialists.html">“Why are there no Austrian Socialists?,” June 3, 2011.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2011/06/neoclassical-wing-of-austrian-school.html">“The Neoclassical Wing of the Austrian School,” June 5, 2011.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2013/06/vaughn-on-early-history-of-austrian.html">“Vaughn on the Early History of the Austrian School,” June 23, 2013.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2013/11/the-early-austrians-and-walrasianism.html">“The Early Austrians and Walrasianism,” November 7, 2013.</a><br />
<br />
<a href="http://socialdemocracy21stcentury.blogspot.com/2013/04/axel-leijonhufvud-interviews-hayek-on.html">“Axel Leijonhufvud Interviews Hayek on the History of the Austrian School,” April 25, 2013.</a></BLOCKQUOTE>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com0tag:blogger.com,1999:blog-6245381193993153721.post-84962689204803849792018-08-18T06:54:00.001-07:002018-08-18T06:54:12.675-07:00Tony Thirlwall’s Lecture on Nicholas KaldorA video of Tony Thirlwall’s lecture on Nicholas Kaldor, given in Hungary in 2017, is below:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/IfUUrYWpXsg" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com0tag:blogger.com,1999:blog-6245381193993153721.post-35007361270375150002018-08-11T07:17:00.001-07:002018-08-12T10:13:41.740-07:00Darwin, Evolution, the pre-1960s Left and Human RacesCharles Darwin – the discover of evolution by natural selection – wrote a book called <i>The Descent of Man and Selection in Relation to Sex</i> (1871), with a second edition of the book published in 1874.<br />
<br />
Chapter 7 of <i>The Descent of Man</i> is called “On the Races of Man.”<br />
<br />
There is no doubt that Darwin thought evolution applied to human beings, and that all humans descended from a common ancestry and species. But he also thought that there were distinct races or sub-species of man (Darwin 1874: 162, 176).<br />
<br />
Darwin is of course worshipped by much of the modern Liberal and even radical Left, but his actual views about evolution and human beings would probably get him arrested for “hate speech” in much of Western Europe.<br />
<br />
Shockingly for the modern Left, Darwin also accepted racial differences:<blockquote>“There is, however, no doubt that the various races, when carefully compared and measured, differ much from each other,—as in the texture of the hair, the relative proportions of all parts of the body, the capacity of the lungs, the form and capacity of the skull, and even in the convolutions of the brain. But it would be an endless task to specify the numerous points of difference. The races differ also in constitution, in acclimatization and in liability to certain diseases. Their mental characteristics are likewise very distinct; chiefly as it would appear in their emotional, but partly in their intellectual faculties. Every one who has had the opportunity of comparison, must have been struck with the contrast between the taciturn, even morose, aborigines of S. America and the light-hearted, talkative negroes. There is a nearly similar contrast between the Malays and the Papuans, who live under the same physical conditions, and are separated from each other only by a narrow space of sea.” (Darwin 1874: 163–164).<br />
<br />
“The variability or diversity of the mental faculties in men of the same race, not to mention the greater differences between the men of distinct races, is so notorious that not a word need here be said. So it is with the lower animals. All who have had charge of menageries admit this fact, and we see it plainly in our dogs and other domestic animals.” (Darwin 1874: 26).</BLOCKQUOTE>So Darwin clearly did believe in racial differences, although he tended to prefer the term “sub-species” to race (Darwin 1874: 176).<br />
<br />
How long will it be before the insane Cultural Left demands that we ban Darwin’s works, tear down Darwin’s statues, or ban the teaching of evolution? <br />
<br />
For Darwin, quite clearly, thought that there were general, or average, differences in certain cognitive, mental and behavioural traits between the races. So did Thomas Henry Huxley, Darwin’s friend and scientific colleague, who was a famous 19th century British Liberal (see Huxley 1895 [1865]: 66–67).<br />
<br />
Contrary to the modern blank-slate Left, these views were normal up until about the 1950s, and even normal and widely believed on the Left itself (though, of course, many people also did have some absurd and false ideas on the issue).<br />
<br />
For example, <a href="https://socialdemocracy21stcentury.blogspot.com/2017/08/breitbart-on-racist-socialists.html">Karl Marx and Friedrich Engels believed in the reality of races</a> (even if they seem to have been confused and slipped into Lamarckian evolutionary ideas at times), and so did many of the Marxists who led the Socialist Party of America such as Ernest Untermann and Victor L. Berger. And even the radical leftist anarchists Pierre-Joseph Proudhon (Proudhon 1869: 221–222) and Mikhail Bakunin noted racial differences (see Bakunin’s book <i>God and the State</i>: “The idealists, all those who believe in the immateriality and immortality of the human soul, must be excessively embarrassed by the difference in intelligence existing between races, peoples, and individuals” [Bakunin 1910: 46, n.]).<br />
<br />
Bertrand Russell – who was one of the most radical (but non-Marxist) Leftists/Liberals of his day – thought that racial differences existed (Russell 1929: 266).<br />
<br />
John Maynard Keynes, too, also accepted race was real (Toye 2000: 151).<br />
<br />
In one respect, Libertarians like Thomas Sowell and Murray Rothbard – though their economics and general political beliefs are flawed and charlatanry – were correct when they noted that much of the early 20th-century progressive Left did in fact endorse the view that race was real and racial differences were real (see <a href="https://www.ocregister.com/2013/03/13/thomas-sowell-disparities-not-always-race-based/">here</a> and <a href="http://www.unz.com/print/RothbardRockwellReport-1994dec-00001/">here</a>).<br />
<br />
So were the 20th-century progressive Leftists correct when they thought that race was real and some evolutionary racial differences in average mental traits were real?<br />
<br />
The answer is: yes, they probably were, and now the genetic evidence is accumulating rapidly from science, even if there is a desperate attempt to suppress it:<blockquote><b>(1)</b> For objective classifications of races based on differences in “tandem repeats” or DNA repeats, see:<br />
<br />
Rosenberg, N. A., J. K. Pritchard, J. L. Weber, H. M. Cann, K. K. Kidd, L. A. Zhivotovsky, and M. W. Feldman. 2002. “Genetic Structure of Human Populations,” Science 298: 2381–2385.<br />
<br />
<b>(2)</b> For classification of races based on Single Nucleotide Polymorphism (SNPs), see:<br />
<br />
Li, J. Z., Absher, D. M., Tang, H., Southwick, A. M., Casto, A. M., Ramachandran, S., Cann, H. M., Barsh, G. S., Feldman, M., Cavalli-Sforza, L. L., and Myers, R. M. 2008. “Worldwide Human Relationships inferred from Genome-Wide Patterns of Variation,” Science 319.5866: 1100–1104.<br />
<br />
<b>(3)</b> Admission of the existence of race by a leading geneticist (but with the absurd, dishonest and desperate lie that it is still just a “social construct”):<br />
<a href="https://www.nytimes.com/2018/03/23/opinion/sunday/genetics-race.html"> David Reich, “How Genetics is Changing Our Understanding of ‘Race’,” March 23, 2018, https://www.nytimes.com/2018/03/23/opinion/sunday/genetics-race.html </a><br />
<br />
<b>(4)</b> For the shocking suppression of genetic evidence of racial differences in IQ by the academic world:<br />
<br />
<a href="https://vdare.com/articles/this-will-not-stand-academic-establishment-suppresses-italian-anthropologist-s-proof-that-race-iq-differences-are-genetic-for-now">Lance Welton, “‘This Will Not Stand’: Academic Establishment Suppresses Italian Anthropologist’s Proof That Race IQ Differences Are Genetic—For Now,” May 5, 2018, https://vdare.com/articles/this-will-not-stand-academic-establishment-suppresses-italian-anthropologist-s-proof-that-race-iq-differences-are-genetic-for-now<br />
</a></BLOCKQUOTE>When the Leftist media is increasingly faced with such evidence of the objective reality of race, there are horrified cries that this “vindicates” the far right.<br />
<br />
In reality, it can just as easily be seen as a vindication of early 20th-century progressive Leftists and Liberals, who accepted race realism. It could even be seen as a vindication of early American race-realist Marxists like Ernest Untermann and Victor L. Berger.<br />
<br />
And the trouble is this: at some point, the modern Left will be faced with an overwhelming mountain of genetic evidence about the objective reality of race, and the only people honestly talking about it will be libertarians like Stefan Molyneux (who holds crackpot economic ideas) or the far right (some of whom support outright authoritarianism). As on many issues (like its irrational opposition immigration restriction), the modern Left will be utterly humiliated and defeated.<br />
<br />
At some point, the Left will have to rediscover its own earlier intellectuals and intellectual tradition that accepted the reality of race, and think up humane and civilised new ideas about the policy implications of such truths.<br />
<br />
<b>BIBLIOGRAPHY</b><br />
Bakunin, Mikhail Aleksandrovich. 1910 [1882]. <i>God and the State</i>. Freedom Press, London.<br />
<br />
Darwin, Charles. 1874. <i>The Descent of Man and Selection in Relation to Sex</i> (2nd edn.). Merrill and Baker, New York and London.<br />
<br />
Huxley, Thomas H. 1895 [1865]. “Emancipation–Black and White,” in Thomas H. Huxley, <i>Science and Education: Essays</i>. MacMillan and Co., London. 66–75.<br />
<br />
Proudhon, Pierre-Joseph. 1869. <i>La guerre et la paix</i> (new edn.). A. Lacroix, Verboeckhoen & Cie. Paris and Brussels.<br />
<br />
Reich, David. 2018. <i>Who We Are and How We Got Here: Ancient DNA and the New Science of the Human Past</i>. Oxford University Press, Oxford.<br />
<br />
Russell, Bertrand. 1929. <i>Marriage and Morals</i>. Liveright Publishing Corporation, New York.<br />
<br />
Toye, John. 2000. <i>Keynes on Population</i>. Oxford University Press, Oxford.<br />
<br />
Wade, Nicholas. 2014. <i>A Troublesome Inheritance: Genes, Race and Human History</i>. The Penguin Press, New York.Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com1tag:blogger.com,1999:blog-6245381193993153721.post-87965652480291881972018-08-05T05:31:00.000-07:002018-08-11T12:57:29.255-07:00Dinesh D’Souza as a CharlatanCould there be anything more absurd than the spectacle of Dinesh D’Souza? <br />
<br />
His new movie is called <a href="https://en.wikipedia.org/wiki/Death_of_a_Nation:_Can_We_Save_America_a_Second_Time%3F"><i> Death of a Nation: Can We Save America a Second Time?.</i></a><br />
<br />
Some videos below give us a summary of his ideas:<br />
<br />
<iframe width="400" height="225" src="https://www.youtube.com/embed/zYriRbBSqoM" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe><br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/f5slRBGv_88" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe><br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/ZCviP6A2C1Q" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe><br />
<br />
The fundamental thesis of Dinesh D’Souza is, in essence, that the Democratic Party and American progressive Liberalism are linked to Nazism and are, by implication, on a moral level with Nazism. Furthermore, D’Souza thinks that Nazism (or German National Socialism) was a fundamentally left-wing ideology. <br />
<br />
D’Souza’s narrative and his “arguments” plumb the depths of idiocy. <br />
<br />
Dinesh D’Souza is really nothing more than a free market Classical Liberal, as are much of the so-called American “Conservatives” who represent the pre-Trump GOP. D’Souza’s ideology stems from Classical liberalism, which was a 19th-century <i>left-wing movement</i>.<br />
<br />
If anything, one could make a much stronger case that Dinesh D’Souza and his free market, individualist “Conservatives” are really just a modern manifestation of 19th-century Leftism, and, furthermore, they are infected with fundamental Cultural Leftist ideas of the late 20th century, e.g., that ethno-nationalism is evil, and that genetic and biological factors that cause individual and group differences do not exist.<br />
<br />
First of all, let us take some fundamental points that Dinesh D’Souza never addresses. He strongly implies that the Democrat Party of the early 20th century was somehow unique and anomalous within the American political spectrum for supporting racial segregation and being a kind of “white nationalist” movement.<br />
<br />
But what kind of nation did the American founding fathers actually envisage?<br />
<br />
We need look no further than <a href="https://en.wikipedia.org/wiki/Naturalization_Act_of_1790">United States Naturalization Law of March 26, 1790</a>, passed by the first Congress of the United States:<blockquote>“Be it enacted by the Senate and House of Representatives of the United States of America, in Congress assembled, <font style="BACKGROUND-COLOR: yellow">That any Alien being a free white person, who shall have resided within the limits and under the jurisdiction of the United States for the term of two years, may be admitted to become a citizen thereof on application to any common law Court of record in any one of the States wherein he shall have resided for the term of one year at least, and making proof to the satisfaction of such Court that he is a person of good character, and taking the oath or affirmation prescribed by law to support the Constitution of the United States, which Oath or Affirmation such Court shall administer, and the Clerk of such Court shall record such Application, and the proceedings thereon; and thereupon such person shall be considered as a Citizen of the United States. </font> And the children of such person so naturalized, dwelling within the United States, being under the age of twenty one years at the time of such naturalization, shall also be considered as citizens of the United States. And the children of citizens of the United States that may be born beyond Sea, or out of the limits of the United States, shall be considered as natural born Citizens: Provided, that the right of citizenship shall not descend to persons whose fathers have never been resident in the United States: Provided also, that no person heretofore proscribed by any States, shall be admitted a citizen as aforesaid, except by an Act of the Legislature of the State in which such person was proscribed.”<br />
http://www.indiana.edu/~kdhist/H105-documents-web/week08/naturalization1790.html</blockquote>As even the basic discussion of the 1790 United States Naturalization Law <a href="https://en.wikipedia.org/wiki/Naturalization_Act_of_1790">here</a> points out, this legislation excluded “American Indians, indentured servants, slaves, free blacks, and Asians” from US citizenship. So the founding fathers of America envisaged the United States as a colony for European people, and if the Democrats of the early 20th century were “Nazis” or “white nationalists” than so were the American founding fathers. Obviously, the founding fathers of America would never have even given Dinesh D’Souza citizenship.<br />
<br />
Furthermore, D’Souza’s account of the US <a href="https://en.wikipedia.org/wiki/Immigration_Act_of_1924">Immigration Act of 1924</a> is also laughable. The Immigration Act of 1924 essentially limited immigration to Europeans, and excluded Africans, Arabs and Asians, and was quite clearly designed to preserve the white European majority in America. This was signed into law by the Republican president Calvin Coolidge (president from 2 August 1923 to 4 March 1929) and passed in both houses by a <a href="https://en.wikipedia.org/wiki/68th_United_States_Congress">Republican-controlled 68th United States Congress (4 March 1923–4 March 1925).</a> D’Souza lamely falls to mention this and pretends that it only passed because of “progressive Republicans” (who mysteriously were not real Republicans at all).<br />
<br />
Secondly, Dinesh D’Souza compares Donald Trump with Abraham Lincoln, but what did Abraham Lincoln – the first Republican party president – actually think about African Americans?<br />
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On 14 August, 1862, Abraham Lincoln received a deputation of African Americans at the White House. This is what Abraham Lincoln said:<blockquote>“… President [Lincoln], after a few preliminary observations, <font style="BACKGROUND-COLOR: yellow">informed them that a sum of money had been appropriated by Congress, and placed at his disposition for the purpose of aiding the colonization in some country of the people, or a portion of them, of African descent, thereby making it his duty, as it had for a long time been his inclination, to favor that cause; and why, he asked, should the people of your race be colonized, and where? Why should they leave this country? This is, perhaps, the first question for proper consideration. You and we are different races. We have between us a broader difference than exists between almost any other two races. Whether it is right or wrong I need not discuss, but this physical difference is a great disadvantage to us both, as I think your race suffer very greatly, many of them by living among us, while ours suffer from your presence. In a word we suffer on each side. If this is admitted, it affords a reason at least why we should be separated.</FONT> You here are freemen I suppose.<br />
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A VOICE: Yes, sir.<br />
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The President – Perhaps you have long been free, or all your lives. Your race are suffering, in my judgment, the greatest wrong inflicted on any people. But even when you cease to be slaves, you are yet far removed from being placed on an equality with the white race. You are cut off from many of the advantages which the other race enjoy. The aspiration of men is to enjoy equality with the best when free, but on this broad continent, not a single man of your race is made the equal of a single man of ours. Go where you are treated the best, and the ban is still upon you.<br />
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I do not propose to discuss this, but to present it as a fact with which we have to deal. I cannot alter it if I would. It is a fact, about which we all think and feel alike, I and you. We look to our condition, owing to the existence of the two races on this continent. I need not recount to you the effects upon white men, growing out of the institution of Slavery. I believe in its general evil effects on the white race. See our present condition – the country engaged in war! – our white men cutting one another's throats, none knowing how far it will extend; and then consider what we know to be the truth. But for your race among us there could not be war, although many men engaged on either side do not care for you one way or the other. Nevertheless, I repeat, without the institution of Slavery and the colored race as a basis, the war could not have an existence.<br />
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<font style="BACKGROUND-COLOR: yellow">It is better for us both, therefore, to be separated. </FONT> I know that there are free men among you, who even if they could better their condition are not as much inclined to go out of the country as those, who being slaves could obtain their freedom on this condition. I suppose one of the principal difficulties in the way of colonization is that the free colored man cannot see that his comfort would be advanced by it. You may believe you can live in Washington or elsewhere in the United States the remainder of your life [as easily], perhaps more so than you can in any foreign country, and hence you may come to the conclusion that you have nothing to do with the idea of going to a foreign country. This is (I speak in no unkind sense) an extremely selfish view of the case.<br />
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But you ought to do something to help those who are not so fortunate as yourselves. There is an unwillingness on the part of our people, harsh as it may be, for you free colored people to remain with us. Now, if you could give a start to white people, you would open a wide door for many to be made free. If we deal with those who are not free at the beginning, and whose intellects are clouded by Slavery, we have very poor materials to start with. If intelligent colored men, such as are before me, would move in this matter, much might be accomplished. It is exceedingly important that we have men at the beginning capable of thinking as white men, and not those who have been systematically oppressed.<br />
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There is much to encourage you. For the sake of your race you should sacrifice something of your present comfort for the purpose of being as grand in that respect as the white people. ….<br />
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The colony of Liberia has been in existence a long time. In a certain sense it is a success. The old President of Liberia, Roberts, has just been with me – the first time I ever saw him. He says they have within the bounds of that colony between 300,000 and 400,000 people, or more than in some of our old States, such as Rhode Island or Delaware, or in some of our newer States, and less than in some of our larger ones. They are not all American colonists, or their descendants. Something less than 12,000 have been sent thither from this country. Many of the original settlers have died, yet, like people elsewhere, their offspring outnumber those deceased.<br />
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The question is if the colored people are persuaded to go anywhere, why not there? One reason for an unwillingness to do so is that some of you would rather remain within reach of the country of your nativity. I do not know how much attachment you may have toward our race. It does not strike me that you have the greatest reason to love them. But still you are attached to them at all events.<br />
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<font style="BACKGROUND-COLOR: yellow">The place I am thinking about having for a colony is in Central America. It is nearer to us than Liberia – not much more than one-fourth as far as Liberia, and within seven days' run by steamers. Unlike Liberia it is on a great line of travel – it is a highway. The country is a very excellent one for any people, and with great natural resources and advantages, and especially because of the similarity of climate with your native land – thus being suited to your physical condition. </FONT><br />
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The particular place I have in view is to be a great highway from the Atlantic or Caribbean Sea to the Pacific Ocean, and this particular place has all the advantages for a colony. On both sides there are harbors among the finest in the world. Again, there is evidence of very rich coal mines. A certain amount of coal is valuable in any country, and there may be more than enough for the wants of the country. Why I attach so much importance to coal is, it will afford an opportunity to the inhabitants for immediate employment till they get ready to settle permanently in their homes.<br />
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If you take colonists where there is no good landing, there is a bad show; and so where there is nothing to cultivate, and of which to make a farm. But if something is started so that you can get your daily bread as soon as you reach there, it is a great advantage. Coal land is the best thing I know of with which to commence an enterprise.<br />
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To return, you have been talked to upon this subject, and told that a speculation is intended by gentlemen, who have an interest in the country, including the coal mines. We have been mistaken all our lives if we do not know whites as well as blacks look to their self-interest. Unless among those deficient of intellect everybody you trade with makes something. You meet with these things here as elsewhere. ….<br />
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I shall, if I get a sufficient number of you engaged, have provisions made that you shall not be wronged. If you will engage in the enterprise I will spend some of the money intrusted to me. I am not sure you will succeed. The Government may lose the money, but we cannot succeed unless we try; but we think, with care, we can succeed.<br />
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The political affairs in Central America are not in quite as satisfactory condition as I wish. There are contending factions in that quarter; but it is true all the factions are agreed alike on the subject of colonization, and want it, and are more generous than we are here. To your colored race they have no objection. Besides, I would endeavor to have you made equals, and have the best assurance that you should be the equals of the best.<br />
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The practical thing I want to ascertain is whether I can get a number of able-bodied men, with their wives and children, who are willing to go, when I present evidence of encouragement and protection. Could I get a hundred tolerably intelligent men, with their wives and children, to ‘cut their own fodder,’' so to speak? Can I have fifty? If I could find twenty-five able-bodied men, with a mixture of women and children, good things in the family relation, I think I could make a successful commencement.<br />
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I want you to let me know whether this can be done or not. This is the practical part of my wish to see you.”<br />
<a href="https://quod.lib.umich.edu/l/lincoln/lincoln5/1:812?rgn=div1;view=fulltext"> https://quod.lib.umich.edu/l/lincoln/lincoln5/1:812?rgn=div1;view=fulltext </a></BLOCKQUOTE>So, in other words, Abraham Lincoln was what would now be called a race realist and an ethno-nationalist, who thought that African Americans should be given their own nation in Africa or Central America, and that they should all immigrate to that new home. Lincoln favoured racial separation, much like the Democrats of the early 20th century, except that Lincoln was more extreme and wished to see African Americans immigrate overseas.<br />
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And then we have the bizarre attempt to blame the 19th century American colonisation of the West and dispossession of Indians on the Democratic Party (which supposedly inspired Hitler’s colonial ambitions in the East), even when the Republican administrations were also deeply involved in this project: Republican Presidents ruled America between 1869–1885, and presided over the Comanche Wars (1867–1875), the Battle of the Little Bighorn (1876), the Nez Perce War (1877), the Great Sioux War of 1876–1877, Bannock’s War (1878), the White River War (1879) and Geronimo’s War (1881–1886), all of which dispossessed Native Americans.<br />
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Naturally, Dinesh D’Souza cannot discuss any of these points. There are also numerous other dishonest and simply hare-brained narratives that D’Souza has, such as the idea that Nazis were “left-wing.” This usually hinges on the idea that the German National Socialists had some left-wing economic ideas. This is true, but it is a complete myth that Conservatives cannot support left-wing economics. For example, the American Republican president Eisenhower once said: “Anyone who questions the New Deal doesn’t belong in the political system.” <br />
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In fact, most mainstream Conservatives after 1945 accepted the Keynesian Social democratic consensus right up until the early 1970s. And even from the 19th century until today, Conservatism has had its anti-capitalist factions, though their influence has waxed and waned.<br />
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By D’Souza’s retarded logic, all such Conservatives were really Leftists.<br />
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D’Souza also argues that the Nazis took some of their ideas from progressive American Democrats, like eugenics. <br />
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Now the essence of German National Socialism was as follows:<blockquote><b>(1)</b> an authoritarian ideology hostile to democracy and Classical Liberalism;<br />
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<b>(2)</b> extreme hostility to Communism/Marxism, German Social Democracy, and all other left-wing political ideologies and anti-Semitism;<br />
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<b>(3)</b> an extreme German ethno-nationalism and militarism, which extended to the idea of colonising the lands of other Europeans to the east of Germany; <br />
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<b>(4)</b> a blend of social conservatism with certain other ideas which were often widely held in the early 20th century like racial theories and eugenics;<br />
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<b>(5)</b> an animus towards free market capitalism but not to the extent of abolishing private property or nationalising all industries.</BLOCKQUOTE>American progressive Democrats did not hold (1), (2), or (3). At most, progressive Democrats supported (5) and of course many would have endorsed race realism and eugenics, which were widely believed all over the political spectrum by the 1920s or 1930s. <br />
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In particular, eugenics had prominent Conservative supporters in America and Europe, such as Reginald Ruggles Gates, Madison Grant and Lothrop Stoddard. Indeed, the <a href="https://en.wikipedia.org/wiki/International_Eugenics_Conference#The_First_International_Eugenics_Congress_(1912)">First International Eugenics Congress</a> (held at the University of London in 1912) had the former Conservative Prime Minister of Britain Arthur Balfour deliver its inaugural address – and in the audience was none other than Winston Churchill, who was at that time a Liberal and First Lord of the Admiralty. <br />
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If anything, the eugenics movement of the early 20th century was a bipartisan movement, which included Conservatives, Liberals, socialists, and even some Marxists.<br />
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Notably, the Americans Madison Grant and Lothrop Stoddard were both Republicans, and Dinesh D’Souza is forced to invoke the “No True Scotsman” fallacy in his book <i>Death of a Nation</i> and pretend that they were RINOs (Republicans in Name Only). <br />
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So the idea that eugenics was somehow only an early 20th century progressive idea is ridiculously false. In reality, eugenic ideas were widely held by diverse figures all over the political spectrum, including Conservatives.<br />
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In fact, free market conservative supporters of eugenics used Social Darwinian ideas to attack Leftist proposals for a welfare state and free health care, because they believed such policies would be dysgenic. Paradoxically, it was the die-hard Classical Liberal free market individualists who were fanatical supports of Social Darwinism, the very same people who are arguably the intellectual forefathers of Dinesh D’Souza’s own dumb free market, individualist “Conservatism.”Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com2tag:blogger.com,1999:blog-6245381193993153721.post-90327843669367068552018-07-30T07:06:00.000-07:002018-07-30T12:15:59.741-07:00Robert P. Murphy on Rothbardians versus Free BankersRobert P. Murphy recently gave a talk on fractional reserve banking and free banking:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/U69Qrz0xtbI" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe><br />
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Listening to this video really brings home what a lame cult of losers American libertarians actually are.<br />
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Murphy repeats the same tired lies about fractional reserve banking we have all heard before: e.g., that a demand deposit involves two entities (the bank and depositor) owning the same money (when this is a blatant falsehood), and the fake legal history of fractional reserve banking peddled by Rothbard and Huerta de Soto.<br />
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A bank is, by nature, an institution that borrows money from “depositors” (a misleading word) by means of the <i>mutuum</i> contract, so that the bank becomes the legal owner of all money “deposited.” The bank client legally forfeits all property rights in the money. In return, the bank customer becomes a creditor to the bank and receives a promise to repay the debt on demand (or whatever specific terms are used): in other words, the bank client simply receives an IOU from the bank. There is nothing fraudulent about this relationship. <br />
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The <i>mutuum</i> contract goes back to the ancient Roman law and banking practice, and was the basis of Western banking. <br />
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The Rothbardian charlatans failed to understand the nature of the <i>mutuum</i> contract and have falsified the history of fractional reserve banking (see <a href="http://socialdemocracy21stcentury.blogspot.com/2012/08/chapter-1-of-huerta-de-sotos-money-bank.html">here</a>, <a href="http://socialdemocracy21stcentury.blogspot.com/2012/09/huerta-de-soto-on-justinians-digest.html">here</a>, <a href="http://socialdemocracy21stcentury.blogspot.com/2012/09/huerta-de-soto-on-banking-in-ancient.html">here</a>, <a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/carr-versus-carr-1811-and-history-of.html">here</a>, <a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/mutuum-versus-bailment-and-banking.html">here</a>, <a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/foley-versus-hill-and-history-of.html">here</a>).<br />
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By creating 100% reserve banks or warehouses, Austrians like Murphy would create an inherently deflationary economy that would tank private sector investment, and cripple the endogenous money system on which capitalism relies.<br />
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On the economic consequences of fractional reserve banking, the real problem is poorly regulated financial systems that can blow asset bubbles and create excessive private debt used for speculative purposes. The solution to this is rigorous financial regulation, not abolishing fractional reserve banking.<br />
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The few decent points Murphy makes come at the end, when he points out that the claim of free bankers that Canada and <a href="http://socialdemocracy21stcentury.blogspot.com/2013/04/free-banking-in-scotland.html">Scotland</a> had stable free banking systems is not credible. Worse still, free bankers fail to <a href="http://socialdemocracy21stcentury.blogspot.com/2012/05/free-banking-in-australia.html">look at Australia, where free banking was a disaster.</a><br />
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As for free banking in Canada, this was the reality of Canada’s pre-1935 bank system:<blockquote><b>(1)</b> the “Canadian Bank Act of 1871” regulated banks and prohibited banks from lending on real estate, a sensible regulatory measure that is hardly in line with free banking;<br />
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<b>(2)</b> in 1907, the Canadian government lent $5 million in Dominion notes to the private sector banks to end a credit squeeze that threatened the agricultural sector and wider economy;<br />
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<b>(3)</b> the Finance Act of 1914 permitted Dominion banks to borrow notes directly from the Canadian Department of Finance with no gold-reserve requirement;<br />
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<b>(4)</b> the consequences of (3) were that from 1914 onwards Canada had <i>a lender of last resort in the form of government-issued money</i>;<br />
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<b>(5)</b> in 1924, the Dominion and Imperial Banks experienced runs and turned not just to other banks, but to the Department of Finance for liquidity to avert a crisis. </BLOCKQUOTE>One can hardly speak of a free banking system when Canada had a de facto government lender of last resort from 1914.<br />
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<b>Addendum</b><br />
In response to George Selgin’s comment below, there is a straightforward response: in order to test whether any particular pre-1933 – or relatively free market – banking system was better than the system I advocate, you need to compare the latter with the period from c. 1945 to the early 1970s, when the finance sector in the Western world was (generally) subject to effective financial regulation. In this period, there were hardly any financial crises, serious asset bubbles largely absent, and the banking sector much more stable than the more laissez-faire periods that preceded it and the Neoliberal era that followed.<br />
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I could post all sorts of data here, but let us just look at this graph:<br />
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<a href="https://4.bp.blogspot.com/-kf2IZyn0mQo/W19hrZhpdgI/AAAAAAAAA5A/WhrhWMtUPqwzFLAn4e5QWKUa-fxV_wthwCLcBGAs/s1600/DKKP-eDUEAAAOTu.jpg%2Blarge.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-kf2IZyn0mQo/W19hrZhpdgI/AAAAAAAAA5A/WhrhWMtUPqwzFLAn4e5QWKUa-fxV_wthwCLcBGAs/s400/DKKP-eDUEAAAOTu.jpg%2Blarge.jpg" width="400" height="255" data-original-width="1600" data-original-height="1019" /></a><br />
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This speaks for itself.<br />
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<b>Further Reading</b><br />
Here are my posts on fractional reserve banking refuting the Rothbardian nonsense below:<blockquote><a href="http://socialdemocracy21stcentury.blogspot.com/2012/02/hayeks-original-view-of-fractional.html">“Hayek’s Original View of Fractional Reserve Banking,” February 29, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/01/fractional-reserve-banking-option.html">“Fractional Reserve Banking, Option Clauses, and Government,” January 31, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/are-public-ignorant-of-nature-of.html">“Are the Public Ignorant of the Nature of Fractional Reserve Banking?,” December 17, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/why-is-fractional-reserve-account.html">“Why is the Fractional Reserve Account a <i>Mutuum</i>, not a Bailment?,” December 17, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/callable-option-loans-and-fractional.html">“Callable Option Loans and Fractional Reserve Accounts,” December 16, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/future-goods-and-fractional-reserve.html">“Future Goods and Fractional Reserve Banking,” December 15, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/rothbard-on-bill-of-exchange.html">“Rothbard on the Bill of Exchange,” December 11, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/hoppe-on-fractional-reserve-banking.html">“Hoppe on Fractional Reserve Banking: A Critique,” December 11, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/monetary-production-economy-and.html">“The Monetary Production Economy and Fiduciary Media,” December 11, 2011</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2010/06/fractional-reserve-banking-evil.html">“Fractional Reserve Banking: An Evil?,” June 26, 2010.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/02/romans-and-fractional-reserve-banking.html">“The Romans and Fractional Reserve Banking,” February 23, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/02/gene-callahan-on-fractional-reserve.html">“Gene Callahan on Fractional Reserve Banking,” February 18, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/02/lawrence-h-white-refutes-huerta-de-soto.html">“Lawrence H. White refutes Huerta de Soto on Fractional Reserve Banking,” February 22, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/06/selgin-on-fractional-reserve-banking.html">“Selgin on Fractional Reserve Banking,” June 1, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/06/schumpeter-on-fractional-reserve.html">“Schumpeter on Fractional Reserve Banking,” June 12, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/09/if-fractional-reserve-banking-is.html">“If Fractional Reserve Banking is Fraudulent, Why isn’t the Insurance Industry Fraud?,” September 29, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/09/mutuum-contract-in-american-law.html">“The <i>Mutuum</i> Contract in Anglo-American Law,” September 30, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/10/rothbard-mangles-legal-history-of.html">“Rothbard Mangles the Legal History of Fractional Reserve Banking,” October 1, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/10/more-historical-evidence-on-mutuum.html">“More Historical Evidence on the <i>Mutuum</i> Contract,” October 1, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/10/what-british-law-says-about-fractional.html">“What British Law Says about the <i>Mutuum</i> Contract,” October 2, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html">“If Fractional Reserve Banking is Voluntary, Where is the Fraud?,” October 3, 2011.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/08/huerta-de-soto-on-mutuum-contract.html">“Huerta de Soto on the <i>Mutuum</i> Contract: A Critique,” August 11, 2012. </a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/08/a-simple-question-for-opponents-of.html">“A Simple Question for Opponents of Fractional Reserve Banking,” August 17, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/08/chapter-1-of-huerta-de-sotos-money-bank.html">“Chapter 1 of Huerta de Soto’s Money, Bank Credit and Economic Cycles: A Critique,” August 31, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/09/huerta-de-soto-on-justinians-digest.html">“Huerta de Soto on Justinian’s Digest 16.3.25.1,” September 1, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/09/huerta-de-soto-on-banking-in-ancient.html">“Huerta de Soto on Banking in Ancient Rome: A Critique,” September 2, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2012/09/bibliography-on-irregular-deposit.html">“Bibliography on the Irregular Deposit (depositum irregulare) in Roman Law,” September 6, 2012.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/rothbard-on-deposit-banking-critique.html">“Rothbard on ‘Deposit’ Banking: A Critique,” July 22, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/carr-versus-carr-1811-and-history-of.html">“Carr versus Carr (1811) and the History of Fractional Reserve Banking,” July 23, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/mutuum-versus-bailment-and-banking.html">“<i>Mutuum</i> versus Bailment in Banking,” July 24, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/foley-versus-hill-and-history-of.html">“Foley versus Hill and the History of Fractional Reserve Banking,” July 29, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/a-critique-of-murray-rothbard-on.html">“A Critique of Murray Rothbard on the Origins and Legal Basis of Fractional Reserve Banking,” July 30, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/07/coggs-v-bernard-and-history-of-english.html">“Coggs v. Bernard and the History of English Bailment Law,” July 31, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/08/henry-de-bracton-on-mutuum-contract.html">“The <i>Mutuum</i> Contract in Henry de Bracton and English Law,” August 1, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/08/fractional-reserve-banking-is.html">“Fractional Reserve Banking is a Fundamental Part of Capitalism,” August 8, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/08/a-critique-of-rothbard-on-history-of.html">“A Critique of Rothbard on the History of English Bailment Law,” August 11, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2014/08/the-banking-contract-in-19th-century-us.html">“The Banking Contract in 19th Century US Law,” August 16, 2014.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2016/03/rothbard-on-how-fractional-reserve.html">“Rothbard on how Fractional Reserve Banking would be illegal in Anarcho-Capitalism,” March 2, 2016.</a><br />
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<a href="http://socialdemocracy21stcentury.blogspot.com/2015/10/the-filthy-anti-capitalist-mentality-of.html">“The Filthy Anti-Capitalist Mentality – of Austrian Economics,” October 17, 2015.</a></BLOCKQUOTE>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3tag:blogger.com,1999:blog-6245381193993153721.post-3677080531167116332018-06-27T01:56:00.004-07:002018-06-27T01:56:30.481-07:00Steve Keen on how Private Debt and Credit cause Financial CrisesA recent talk by Steve Keen on how private debt/credit causes financial crises:<br />
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<iframe width="400" height="225" src="https://www.youtube.com/embed/Zc2t6X-gla0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe>Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.com3