Marx’s Capital, Volume 1, Chapter 2: A Critical Summary

Chapter 2 of volume 1 of Capital is called “The Process of Exchange,” and is essentially an analysis by Marx of the origins and nature of money.

Marx begins by pointing out that market exchange of commodities requires an orderly system of property rights and consensual exchange (Marx 1990: 178). Buyers and sellers are the “personifications” or “bearers” of the economic relations existing between them (Marx 1906: 97; Marx 1990: 179). Private property rights in commodities must be recognised and mutually respected (Marx 1990: 178). Commodities are therefore external and alienable things, and commodity exchange would not exist within a primitive community with wholly communal property (Marx 1990: 182).

The agent who offers a good for exchange derives no direct use value from it (except its ability to be exchanged for something else as a means of exchange), because if he did he would not bring it to market (Marx 1990: 179). Instead he wants a use value from some other commodity he can obtain in exchange (Marx 1990: 179).

Marx states that

“All commodities are non-use values for their owners, and use-values for their non-owners. Consequently, they must all change hands. But this change of hands is what constitutes their exchange, and the latter puts them in relation with each other as values, and realises them as values. Hence commodities must be realised as values before they can be realised as use-values.

On the other hand, they must show that they are use values before they can be realised as values. For the labour spent upon them counts effectively, only in so far as it is spent in a form that is useful for others. Whether that labour is useful for others and its product consequently capable of satisfying the wants of others, can be proved only by the act of exchange.” (Marx 1906: 97–98).

Marx also states that things only become commodities by means of the act of exchange (Marx 1990: 181). This is a crucial point: according to Marx, labour value in commodities can only be created if that commodity is demanded by some agent and has a use value to him or her. But this makes a nonsense of Marx’s earlier claims in Chapter 1 that he can establish labour value by completely abstracting from use value. There is a clear contradiction here, as discussed in this post.

Next, Marx notes that an owner of commodity sees that commodity as a universal equivalent for potentially all other commodities, but other people do not see it this way. Marx is alluding to the famous double coincidence of wants problem here. Where money is lacking, there is no universal equivalent commodity (Marx 1906: 180).

Money as a universal equivalent is brought into being as a social process. Marx goes on to discuss money:

“Money is a crystal formed of necessity in the course of the exchanges, whereby different products of labour are practically equated to one another and thus by practice converted into commodities. The historical progress and extension of exchanges develops the contrast, latent in commodities, between use-value and value. The necessity for giving an external expression to this contrast for the purposes of commercial intercourse, urges on the establishment of an independent form of value, and finds no rest until it is once for all satisfied by the differentiation of commodities into commodities and money. At the same rate, then, as the conversion of products into commodities is being accomplished, so also is the conversion of one special commodity into money.” (Marx 1906: 99).

“Objects in themselves are external to man, and consequently alienable by him. In order that this alienation may be reciprocal, it is only necessary for men, by a tacit understanding, to treat each other as private owners of those alienable objects, and by implication as independent individuals. But such a state of reciprocal independence has no existence in a primitive society based on property in common, whether such a society takes the form of a patriarchal family, an ancient Indian community, or a Peruvian Inca State.

The exchange of commodities, therefore, first begins on the boundaries of such communities, at their points of contact with other similar communities, or with members of the latter. So soon, however, as products once become commodities in the external relations of a community, they also, by reaction, become so in its internal intercourse. The proportions in which they are exchangeable are at first quite a matter of chance. What makes them exchangeable is the mutual desire of their owners to alienate them. Meantime the need for foreign objects of utility gradually establishes itself. The constant repetition of exchange makes it a normal social act. In the course of time, therefore, some portion at least of the products of labour must be produced with a special view to exchange. From that moment the distinction becomes firmly established between the utility of an object for the purposes of consumption, and its utility for the purposes of exchange. Its use-value becomes distinguished from its exchange value. On the other hand, the quantitative proportion in which the articles are exchangeable, becomes dependent on their production itself. Custom stamps them as values with definite magnitudes.

In the direct barter of products, each commodity is directly a means of exchange to its owner, and to all other persons an equivalent, but that only in so far as it has use-value for them. At this stage, therefore, the articles exchanged do not acquire a value-form independent of their own use-value, or of the individual needs of the exchangers. The necessity for a value-form grows with the increasing number and variety of the commodities exchanged. The problem and the means of solution arise simultaneously. Commodity-owners never equate their own commodities to those of others, and exchange them on a large scale, without different kinds of commodities belonging to different owners being exchangeable for, and equated as values to, one and the same special article. Such last-mentioned article, by becoming the equivalent of various other commodities, acquires at once, though within narrow limits, the character of a general social equivalent. This character comes and goes with the momentary social acts that called it into life. In turns and transiently it attaches itself first to this and then to that commodity. But with the development of exchange it fixes itself firmly and exclusively to particular sorts of commodities, and becomes crystallised by assuming the money-form. The particular kind of commodity to which it sticks is at first a matter of accident. Nevertheless there are two circumstances whose influence is decisive. The money-form attaches itself either to the most important articles of exchange from outside, and these in fact are primitive and natural forms in which the exchange-value of home products finds expression; or else it attaches itself to the object of utility that forms, like cattle, the chief portion of indigenous alienable wealth. Nomad races are the first to develop the money-form, because all their worldly goods consist of movable objects and are therefore directly alienable; and because their mode of life, by continually bringing them into contact with foreign communities, solicits the exchange of products.” (Marx 1906: 100–101).

“In proportion as exchange bursts its local bonds, and the value of commodities more and more expands into an embodiment of human labour in the abstract, in the same proportion the character of money attaches itself to commodities that are by nature fitted to perform the social function of a universal equivalent. Those commodities are the precious metals.

The truth of the proposition that, ‘although gold and silver are not by nature money, money is by nature gold and silver,’ is shown by the fitness of the physical properties of these metals for the functions of money. Up to this point, however, we are acquainted only with one function of money, namely, to serve as the form of manifestation of the value of commodities, or as the material in which the magnitudes of their values are socially expressed. An adequate form of manifestation of value, a fit embodiment of abstract, undifferentiated, and therefore equal human labour, that material alone can be whose every sample exhibits the same uniform qualities. On the other hand, since the difference between the magnitudes of value is purely quantitative, the money commodity must be susceptible of merely quantitative differences, must therefore be divisible at will, and equally capable of being re-united. Gold and silver possess these properties by nature.

The use-value of the money commodity becomes twofold. In addition to its special use-value as a commodity (gold, for instance, serving to stop teeth, to form the raw material of articles of luxury, &c.), it acquires a formal use-value, originating in its specific social function.

Since all commodities are merely particular equivalents of money, the latter being their universal equivalent, they, with regard to the latter as the universal commodity, play the parts of particular commodities.

We have seen that the money-form is but the reflex, thrown upon one single commodity, of the value relations between all the rest. That money is a commodity is therefore a new discovery only for those who, when they analyse it, start from its fully developed shape. The act of exchange gives to the commodity converted into money, not its value, but its specific value-form. By confounding these two distinct things some writers have been led to hold that the value of gold and silver is imaginary. The fact that money can, in certain functions, be replaced by mere symbols of itself, gave rise to that other mistaken notion, that it is itself a mere symbol.” (Marx 1906: 101–103).

Thus Marx explains the emergence and nature of money as a universal commodity. Money emerges by necessity from barter exchange of commodities between different communities (Marx 1990: 181–182). It must be a uniform, portable, fungible and divisible commodity.

This is very much in line with the Classical and neoclassical explanation of money as emerging from barter trades and the double coincidence of wants problem. Modern anthropology and history show us how this view has serious problems and is in need of revision (as discussed here). The one interesting insight Marx does have is that commodity money probably arose between different communities in international trade not necessarily within communities, a view examined by Graeber (2011: 29–30) who notes that historically barter seems to have been prevalent between one community and another, or between people who were strangers and where relationships were implicitly or explicitly hostile.

Also, for Marx as commodity exchange becomes developed and people produce things specifically for exchange, socially necessary labour time comes to determine exchange values (Marx 1990: 183–184). Marx is therefore committed to the view that at least in the distant past commodities exchanged directly in terms of equal abstract labour time. However, there is very little evidence for such a view, as noted in this post.

Even worse, Marx is a metallist (Rugina 1983: 233) and for him money is a commodity, and he does not allow the possibility of non-convertible fiat money utterly divorced from gold and silver, as we have today.

In Chapter 3 of Capital Marx even stated that money needs to be a commodity in order to itself have an abstract socially necessary labour value that can be equated with those of other commodities:

“The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value. And only by virtue of this function does gold, the equivalent commodity par excellence, become money.

It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realised human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values, i.e., into money. Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.” (Marx 1906: 106).

So only if money is a special commodity that itself has a labour value can it function as a universal medium of exchange and numéraire. In Marx’s own language, money can only be a universal equivalent because in a pure or ideal commodity exchange there is an equality in the quantities of abstract labour time needed to produce them, and the money commodity can have such a labour value as a produced commodity. The existence of fiat money destroys this argument, however. It is no wonder that Marx rejected fiat money or pure paper money unbacked by commodities.

Money, for Marx, has dual use value:

(1) a special use value merely as a commodity (e.g., gold used in dentistry), and

(2) a formal use value as its social function as a universal equivalent (Marx 1990: 184).

Marx thinks it is wholly mistaken to regard money as a “mere symbol” or that its value is merely imaginary (Marx 1990: 185). Marx seems to shun the view that the value of gold arises out of an ultimately subjective utility or “imaginary value” (Marx 1990: 185, n. 10). In a footnote to Chapter 2, Marx also rejects the Chartalist view that money’s value can be fixed by governments (Marx 1990: 185, n. 11). For Marx, the real value of commodity money arises not in the process of exchange but in the human labour expended in producing it (Marx 1990: 184–185).

Later in Capital Marx also shuns the idea that a paper currency can function without gold backing:

“Paper-money is a token representing gold or money. The relation between it and the values of commodities is this, that the latter are ideally expressed in the same quantities of gold that are symbolically represented by the paper. Only in so far as paper-money represents gold, which like all other commodities has value, is it a symbol of value.” (Marx 1906: 144).

“… gold serves as an ideal measure of value, only because it has already, in the process of exchange, established itself as the money-commodity. Under the ideal measure of values there lurks the hard cash.” (Marx 1906: 116).

Needless to say, the existence of fiat money all over the world since the 1930s refutes this view.

In the respect that Marx thought that money must ultimately be a commodity (though not in his explanation of why it needed to be), Marx has more in common with dogmatic Austrian school economists, and in other ways was mired in Classical economics in his thinking on money.

Marx holds that money is a commodity, but the difficulty is: how did it become a commodity with a certain value? (Marx 1990: 186). The answer is as follows. Marx explains the value of commodity money such as gold in terms of the abstract socially necessary labour time used to produce it:

“It has already been remarked above that the equivalent form of a commodity does not imply the determination of the magnitude of its value. Therefore, although we may be aware that gold is money, and consequently directly exchangeable for all other commodities, yet that fact by no means tells how much 10 lbs., for instance, of gold is worth. Money, like every other commodity, cannot express the magnitude of its value except relatively in other commodities. This value is determined by the labour-time required for its production, and is expressed by the quantity of any other commodity that costs the same amount of labour-time. Such quantitative determination of its relative value takes place at the source of its production by means of barter. When it steps into circulation as money, its value is already given. In the last decades of the 17th century it had already been shown that money is a commodity, but this step marks only the infancy of the analysis. The difficulty lies, not in comprehending that money is a commodity, but in discovering how, why and by what means a commodity becomes money.” (Marx 1906: 104).

“… gold and silver, just as they come out of the bowels of the earth, are forthwith the direct incarnation of all human labour. Hence the magic of money.” (Marx 1906: 105).

Marx is here clearly explaining the origin of money’s value by claiming that gold and silver were exchanged in barter with other commodities in accordance with their equivalent labour values (see Marx 1990: 186, n. 12). This entails that Marx must think that gold and silver were – at the very least – once exchanged at par with other commodities in terms of socially necessary labour time. But there is no evidence for this wildly speculative theory, and the reality is that the value of gold and silver money was established by subjective value, custom, their scarcity and the dynamics of supply and demand in the past.

It is also astonishing that, if Marx is merely assuming as a simplifying assumption that all commodities (including the money commodity) exchange at their labour values, he never says so in Chapter 2. In fact, Marx never even mentions that money prices of commodities in terms of gold or silver would hardly ever equal his imagined labour values. But if gold and silver never at any point in human history directly exchanged for other commodities in terms of equal abstract socially necessary labour time, Marx’s whole explanation of the value of money would collapse.

A final point is that, for Marx, people have a money fetish, because money is ultimately a commodity with a labour value, so that the money fetish is bound up with commodity fetish and the former explained by the latter (Marx 1990: 187).

From the Post Keynesian perspective, one can only conclude that Marx’s theory of money is severely flawed and antiquated. In short, Marx’s monetary theories are grossly out of date. No serious modern economist, certainly not a Post Keynesian one, could hold Marx’s views on money with a straight face.

Further Reading
“The Nature, Origin and History of Money 101.”

“Wicksteed on the Contradiction in Chapter 1 of Volume 1 of Capital on the Labour Theory of Value,” May 21, 2015.

“Engels’ Letter to Werner Sombart on the Labour Theory of Value in 1895,” May 14, 2015.

“A Devastating Contradiction in Marx’s Argument for the Labour Theory of Value,” May 19, 2015.

BIBLIOGRAPHY
Bellofiore, R. and Realfonzo, R. 2003. “Money as Finance and Money as Universal Equivalent: Re-Reading Marxian Monetary Theory,” in Louis-Philippe Rochon and Sergio Rossi (ed.), Modern Theories of Money: The Nature and Role of Money in Capitalist Economies. Edward Elgar, Cheltenham. 198–218.

Graeber, D. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Rugina, Anghel N. 1983. “There Are Two Karl Marxes!,” Eastern Economic Journal 9.3: 232–245.

Gillies’ Philosophical Theories of Probability, Chapter 2

Chapter 2 of Donald Gillies’ Philosophical Theories of Probability (2000) deals with the Classical interpretation of probability theory.

As Gillies notes, the “Classical” interpretation was the earliest theory of probability and its most important statement was by Pierre-Simon Laplace (1749–1827) in his Essai Philosophique sur les Probabilités [A Philosophical Essay on Probabilities] (1814). However, it is largely of historical interest now, and has no supporters today (Gillies 2000: 3).

Laplace’s Essai Philosophique sur les Probabilités (1814) made the assumption of universal determinism on the basis of Newtonian mechanics (Gillies 2000: 16). Laplace argued that an agent with perfect knowledge of Newtonian mechanics and all matter could predict the future state of the universe. It is only human ignorance that prevents perfect forecasting, and leads us to calculate probabilities (Gillies 2000: 17). Thus probability, according to Laplace, is a measure of human ignorance (Gillies 2000: 21).

Laplace’s formula for calculating probabilities is the familiar one where the probability P(E) of any event E in a finite sample space S, where all outcomes are equally likely, is the number of outcomes for E divided by the total number of outcomes in S.

But there is an obvious limitation with this, as pointed out by the later advocates of the frequency theory of probability like Richard von Mises: what if our outcomes are not equiprobable? (Gillies 2000: 18). Thus the Classical interpretation of probability has a serious shortcoming.

As probability theory came to be increasingly applied to phenomena in the natural and social sciences in the 19th century, its limiting assumption of equiprobable outcomes was exposed as a problem, and the relative frequency approach was developed as a new and alternative theory.

BIBLIOGRAPHY
Gillies, D. A. 2000. Philosophical Theories of Probability. Routledge, London.

Colin Rogers’ Money, Interest and Capital, Chapter 2

Chapter 2 of Colin Rogers’ Money, Interest and Capital deals with Wicksell’s monetary theory.

Wicksellian monetary theory was widely accepted in the period before Keynes’ General Theory, and indeed Keynes himself accepted the natural rate of interest in the Treatise on Money.

The real natural rate of interest lies at the heart of Wicksell’s version of loanable funds theory, and links Wicksell’s capital theory with his monetary theory (Rogers 1989: 22). Wicksell’s monetary theory was an attempt to extend the quantity theory to an economy with credit money and loans (Rogers 1989: 23).

Wicksell’s theory of capital was in turn developed from the work of Jevons and Böhm-Bawerk (Rogers 1989: 27).

The concept of capital can be divided into two ideas:

(1) real capital, or the physical goods themselves, e.g., machines, tools, or raw materials, or

(2) capital defined in terms of a sum of exchange value (or in monetary terms). (Rogers 1989: 27).

Real capital in sense (1) can be measured in technical units, but that would mean that there would be as many technical units as there are types of capital goods (Rogers 1989: 28).

But in order to calculate the rate of interest (the return on capital), capital has to be measured in monetary terms.

Rogers continues:

“Apart from pointing out the technical necessity of defining capital in value terms, Wicksell also suggests that it is necessary for theoretical reasons; namely, that in equilibrium the rate of interest must be the same on all capital. This condition is, of course, the classical condition of long-period equilibrium defined in terms of a uniform rate of return on all assets. It is the notion of equilibrium employed by Wicksell to define the natural rate of interest. To define such an equilibrium, however, capital must be treated as a mobile homogeneous entity so that it may move between sectors to equalize the rate of interest/profit. Capital defined as value capital (financial capital) can fulfil this role but capital defined in technical or quantity terms cannot.” (Rogers 1989: 28).

Wicksell consequently argued that all capital goods can be regarded as “saved up labour and land” (Rogers 1989: 29).

When the money rate of interest at which demand for investment credit and the monetary supply of savings is equal, there is a monetary equilibrium rate. And, when this monetary equilibrium rate is also equivalent to the expected yield on new capital, then the money rate of interest and the real Wicksellian natural rate of interest are equal (Rogers 1989: 39).

Rogers argues that the Cambridge capital critique applies to Wicksell’s theory of capital, and that it has proven that Wicksell’s natural rate of interest is untenable outside a purely abstract one-commodity world (Rogers 1989: 22).

Rogers reviews the Cambridge capital controversy (Rogers 1989: 30–39), and notes the problems with the aggregative (Wicksellian) neoclassical production function (Rogers 1989: 30–32).

In essence, the major issues raised by the Cambridge Capital controversy relevant here are as follows:

(1) the problems with the treatment of capital in the neoclassical production function Q = f(K,L), and the circularity involved in defining the quantity of capital K, when to determine K one needs to know the rate of interest, but to determine the rate of interest one needs to know the value of capital K (Rogers 1989: 31). The upshot is that K cannot be an exogenous variable in the production function.

(2) it is not possible, as noted above, to define the Wicksellian natural rate outside of a one commodity world (Rogers 1989: 32);

(3) the issue of reverse capital deepening, and

(4) capital reswitching (Rogers 1989: 32).

Rogers points to three modern neoclassical responses to the Cambridge capital controversy, as follows:

(1) those neoclassical economists who accept the critique and use an alternative neo-Walrasian analysis for general equilibrium theory that is not subject to the Cambridge capital critique, but that nevertheless has insolvable problems of its own (Rogers 1989: 34–35);

(2) those neoclassical economists who use a methodological defence of the neoclassical production function and Wicksellian general equilibrium theory applied to a one commodity world, which is supposed to be a useful pedagogical tool or “parable” teaching fundamental ideas of neoclassical interest theory, although it is untrue that such an unrealistic and empirically irrelevant model has any great lessons to teach (Rogers 1989: 34).

(3) those neoclassical economists who simply accept the neoclassical production function “on faith” (Rogers 1989: 33, n. 7).

Now the Classical loanable funds model of interest is supposed to relate how interest in a monetary economy still reflects the real forces of productivity and thrift (Rogers 1989: 40).

But in a monetary economy the act of saving money does not necessarily reflect real saving (Rogers 1989: 42).

The only viable model in which the Wicksellian neoclassical interest theory is possible is one which assumes a one commodity world where that single commodity can function either a capital good or a consumption good (Rogers 1989: 32, n. 6).

The natural rate can only be defined in a one commodity world, but not in a world with heterogeneous capital goods (Rogers 1989: 32, 43). The consequence is that only the monetary rate of interest in the loanable funds model is left after the untenable natural rate is cut out, and that the money rate of interest is cut free of the real forces of productivity and thrift (Rogers 1989: 43).

BIBLIOGRAPHY
Rogers, C. 1989. Money, Interest and Capital: A Study in the Foundations of Monetary Theory. Cambridge University Press, Cambridge.

Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 2

Chapter 2 of Paul Downward’s Pricing Theory in Post-Keynesian Economics: A Realist Approach (Cheltenham, UK, 1999) deals with methodological issues in Post Keynesian economics, and I will not go into too much detail here.

There are a few methods proposed in Post Keynesian methodology, as I have briefly sketched here, and they are as follows:

(1) Critical realism;

(2) the “Babylonian” or “pluralist” approach of Sheila Dow, which can be construed as a variant of (1), and

(3) Paul Davidson’s “generalising” methodology.

I myself see the Post Keynesian method as generally “realist” and heavily empiricist, although I increasingly see some merit in Karl Popper’s Critical Rationalism, and Popper’s ontological ideas.

At any rate, Downward sees critical realism – as in the work of Sheila Dow and Tony Lawson – as the basis for his methodological approach (Downward 1999: 11).

Critical realism, according to Downward, makes uses of induction, deduction and retroduction (Downward 1999: 12), and it is supposed to provide an “open system” approach to the study of phenomena in the social sciences, as opposed to the “closed system” approach of neoclassical economics, which sees events as having causes that are constant and unchanging and which relies heavily on deduction and formal axiomatic reasoning (Downward 1999: 15). In essence, this “closed system” method is appropriate for the natural sciences, but highly questionable when carried over into the social sciences (Downward 1999: 15–16).

For example, the theoretical core of neoclassical economics with its “closed system” approach assumes the following:

(1) rational agents (in the sense of having consistent transitive rankings of preferences);

(2) who are well informed;

(3) who strive to maximise ordinal utility;

(4) and who act in a system that has tendencies to coordination and equilibrium. (Downward 1999: 16).

For Downward, the essence of the realist “open system” approach is to reject these assumptions and to argue that they do not apply to the real world (Downward 1999: 17).

In contrast, one of the “core” tenets of Post Keynesianism is the empirically grounded notion that agents face fundamental uncertainty and that this affects economic life (Downward 1999: 21).

Downward is also clear that critical realism – even in Sheila Dow’s “pluralist” version – does not entail postmodernism (Downward 1999: 19; 24).

Critical realism implies a realist view of the external world and a correspondence theory of truth (Downward 1999: 23–24).

In trying to explain prices, Downward emphasises that economic agents face uncertainty, expectations are very important in decision making, and institutions, customs and conventions have a strong influence on economic life (Downward 1999: 39).

BIBLIOGRAPHY
Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Schwartz’s A Brief History of Analytic Philosophy: from Russell to Rawls: Chapter 2

Chapter 2 of Stephen P. Schwartz’s A Brief History of Analytic Philosophy: from Russell to Rawls (2012) examines the logical positivists and early Wittgenstein.

The Vienna Circle (or Ernst Mach Society) was a group of German-speaking scientists, mathematicians and philosophers based around the University of Vienna from 1922 until the mid-1930s, and included the following:

Moritz Schlick (1882–1936)
Rudolf Carnap (1891–1970), from 1926
Otto Neurath (1882–1945)
Friedrich Waismann (1896–1959)
Gustav Bergmann (1906–1987)
Hans Hahn (1879–1934)
Victor Kraft (1880–1975)
Karl Menger (1902–1985)
Philipp Frank (1884–1966)
Marcel Natkin
Olga Hahn-Neurath (1882-1937)
Theodor Radakovic

Associates
Herbert Feigl
Kurt Gödel

Hans Hahn, Otto Neurath, and Rudolf Carnap wrote the manifesto of the Vienna Circle in 1929, but, as noted above, the group had existed since 1922.

The members of the Vienna Circle had drawn inspiration from Ludwig Wittgenstein’s (1889–1951) book the Tractatus Logico-Philosophicus (Logical-Philosophical Treatise), which was first published in German in 1921, and then in an English translation prepared in Cambridge of 1922.

From 1926, Wittgenstein himself attended meetings of the Vienna Circle, although relations were not exactly amicable, not only because Wittgenstein did not get along with Rudolf Carnap (Schwartz 2012: 51), but also because of philosophical disagreements.

The importance of the Tractatus (as it is usually called) lies in the realm of philosophy of language, how language represents the world (Schwartz 2012: 52), and particularly in the picture theory of meaning. While the world is composed of all kinds of things and states of affairs, our language represents reality, and there is a fundamental structure embodied in formal logic that gives us an isomorphic relationship between our language (which we use in thought) and reality (Schwartz 2012: 52).

A simple and independent, or “atomic,” proposition represents a simple fact about the world, and larger complex or compound propositions are built up out of the truth functions of atomic propositions (Schwartz 2012: 53).

The fundamental logical concepts we call tautologies and self-contradictions are recognisable by the formal use of truth tables (Schwartz 2012: 53). Wittgenstein thought that tautologies are without meaning in the sense that they contain no new information (Schwartz 2012: 53). Thus the necessary truth they provide is “empty and formal,” so that Wittgenstein also saw mathematics as being tautological (Schwartz 2012: 53–54).

Wittgenstein also held that the “totality of true propositions is the whole of natural science,” so that philosophy itself is not science, but merely a technique aiming at “logical clarification of thoughts” (Schwartz 2012: 58).

The upshot of all this was the epistemologically revolutionary view (at least at the time) that analytic propositions, while they are certain, are tautologies and provide no informative new knowledge (Schwartz 2012: 54). This view invigorated the radical empiricism of the Vienna Circle, and led to the emergence of logical positivism.

The logical positivists came to think that there are ultimately two sources of human knowledge: (1) logical reasoning (yielding analytic a priori knowledge) and (2) empirical experience (yielding synthetic a posteriori knowledge). Like Frege, they rejected the existence of Kantian synthetic a priori knowledge, and saw mathematics as analytic tautologies (Schwartz 2012: 61).

The unusual twist in logical positivist epistemology is the verification criterion of meaningfulness, which, in the form stated by Ayer, holds that any non-analytic proposition must be empirically verifiable, either in practice or at least in principle, to be meaningful (Schwartz 2012: 60–61). If a proposition is not verifiable, then it is meaningless or without cognitive content. The logical positivists used the verification principles to reject metaphysics, theology and ethics as meaningless (Schwartz 2012: 61), a rather extreme view to say the least.

At the heart of the logical positivist program was the belief that many of the traditional issues of metaphysics are just confusions caused by improper use or misunderstanding of language (Schwartz 2012: 63). One of the most important of these confusions was the idea that existence is a property, when it is not a property at all, but simply expressed by the logic of quantifiers (Schwartz 2012: 63).

Logical positivism was spread to the English-speaking world by A. J. Ayer in his now classic book Language, Truth, and Logic (1936). Ayer had visited the Vienna Circle in 1933, and learned the principles of the logical positivists, though perhaps oversimplified them in process (Schwartz 2012: 59).

Ayer’s logical positivism had these seven tenets:

(1) that metaphysics, theology, ethics and aesthetics are meaningless by the verification principle;

(2) metaphysical issues are pseudo-problems caused by unclear or informal and misleading use of language;

(3) logic and mathematics are formal truths but tautologies;

(4) all propositions are divided into two classes: (i) analytic, a priori and necessarily true, but tautologous, and (ii) synthetic, a posteriori and contingent;

(5) the idea that all science forms a single unified system, and social sciences use the same methods as the natural sciences;

(6) reductionism (either phenomenalist or physicalist), and

(7) that ethical statements have no cognitive content, but express attitudes and emotions (Schwartz 2012: 61–67).

After the 1930s, however, many of the leading logical positivists came to modify or reject many of their core beliefs, and other philosophers such as the later Wittgenstein and the “ordinary language” philosophers at Oxford came to attack its principles (Schwartz 2012: 69).

Curiously, in 1932 – the year before Ayer’s own visit to Vienna – Willard Van Orman Quine had also visited the logical positivists, but, while Ayer was to become a leading exponent of logical positivism, Quine emerged after WWII as a severe critic.

Links
“Ludwig Wittgenstein,” Stanford Encyclopedia of Philosophy, 2002 (rev. 2009)
http://plato.stanford.edu/entries/wittgenstein/

Duncan J. Richter, “Ludwig Wittgenstein (1889–1951),” Internet Encyclopedia of Philosophy, 2004
http://www.iep.utm.edu/wittgens/

“Vienna Circle,” Stanford Encyclopedia of Philosophy, 2006 (rev. 2011),
http://plato.stanford.edu/entries/vienna-circle/

Mauro Murzi, “Vienna Circle,” Internet Encyclopedia of Philosophy, 2004
http://www.iep.utm.edu/viennacr/

“Logical Empiricism,” Stanford Encyclopedia of Philosophy, 2011 (rev. 2011)
http://plato.stanford.edu/entries/logical-empiricism/

Mauro Murzi, “Rudolf Carnap (1891–1970),” Internet Encyclopedia of Philosophy, 2001
http://www.iep.utm.edu/carnap/

“Moritz Schlick,” Stanford Encyclopedia of Philosophy (2013)
http://plato.stanford.edu/entries/schlick/

“Russell’s Logical Atomism,” Stanford Encyclopedia of Philosophy, 2005 (rev. 2009)
http://plato.stanford.edu/entries/logical-atomism/

“Wittgenstein’s Logical Atomism,” Stanford Encyclopedia of Philosophy, 2004 (rev. 2013)
http://plato.stanford.edu/entries/wittgenstein-atomism/

“Logical Atomism,” Wikipedia
http://en.wikipedia.org/wiki/Atomic_fact

BIBLIOGRAPHY
Ayer, A. J. 1936. Language, Truth, and Logic. Gollancz Ltd, London.

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

Lee’s Post Keynesian Price Theory: Chapter 2

The second chapter of Frederic S. Lee’s Post Keynesian Price Theory (Cambridge, 1998) continues to study the career and work of Gardiner C. Means, an American Institutional economist and researcher.

Means came to see “administrative coordination” as a fundamental concept for the internal operations of corporations (Lee 1998: 48).

Means identified three ways to conceptually categorise market economies as follows:

(1) the atomistic market economy or the competitive economy imagined by Marshall and in neoclassical theory, in which owner-worker enterprises pursing profit maximisation predominate and where these businesses produce one type of good for sale, and such sales were made by haggling and bargaining;

(2) the factory system, with significant market concentration and scale of production. In such a system, businesses can control wages and prices;

(3) the corporate economy, in which market concentration greatly increases with corporate businesses, with separate ownership and management, and “administrative coordination” of decisions and pricing within firms (Lee 1998: 50).

Means of course realised that markets in any real world economy are a mix of these three models, but (3) was especially important.

The business behaviour of large corporations where ownership and management are split came to be governed by the firm’s management and its increasing size and scale of production. Barriers to entry had become strong in many markets and firms were no longer as motivated by the idea of long-period maximisation of profits; instead, they were more concerned with not inducing new entries into their markets (Lee 1998: 54–55).

The most important type of “administrative coordination” was achieved by price administration: prices are set for a given period of transactions on the market and often held there (Lee 1998: 55).

An equally important practice was the “flow principle of production”: market activity and demand will cause the rate of production at a given administered price (Lee 1998: 55).

In determining the profit markup, the corporation calculated a target rate of return and then took account of market competition and the prices of competitors (Lee 1998: 56).

In addition, many corporations came to shun price wars or significant price competition since this would damage the corporation’s financial health (Lee 1998: 57). Instead, they preferred to focus on advertising and sales campaigns to attract more buyers (Lee 1998: 57).

Means also saw the ultimate source of the general procyclical nature of prices as lying in the flexprice markets, which, for example, would decline in a recession and cause factor input costs for administered price businesses to fall as well.

But in administered price markets demand falls would generally cause direct reductions of employment and output, and not price reductions (Lee 1998: 60–61). Thus Means saw that demand is the primary driver of business cycles (Lee 1998: 61).

Means also had a theory of inflation in the administered pricing sector, and identified three forms of inflation:

(1) demand side inflation (or monetary inflation) at full employment, which stemmed from the flexprice sector.

(2) reflation during an upswing in a business cycle whereby market flexprices rise and induce possible changes in administered prices, and

(3) administered inflation caused by corporate decisions to raise administered prices, caused by factors such as rising wages, or to increase the profit markup (Lee 1998: 61–63).

Means understood one of the most important trends in modern capitalism: the upwards rise in prices and general inflation that occurs because of the relative downwards rigidity in administered prices.


BIBLIOGRAPHY
Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

Robert Murphy’s Politically Incorrect Guide to the Great Depression, Chapter 2: A Critique

This is my critique of Chapter 2 (“Big-Government Herbert Hoover makes the Depression Great”) of Robert Murphy’s The Politically Incorrect Guide to the Great Depression and the New Deal (Washington, DC, 2009).

Again, let us review the problems with this chapter, as follows:

(1) Murphy has serious problems with his definition of “depression.” He cannot define the word “depression” and then stick to that definition.

At p. 162 (note 4), Murphy states that he sides “with the man on the street” in viewing the Great Depression as lasting “throughout the entire 1930s,” because unemployment never fell below 14% in that period.” Yet Murphy is wrong about unemployment, as I mentioned in the last post. When employment provided by government relief work is included in the employment figures, unemployment under Roosevelt came down from 25% to just over 9% by 1937 (Darby 1976). This is a much better record on unemployment than the official statistics reveal. The unemployment rate soared again when Roosevelt cut government spending in 1937, but the adjusted figures show it rising from under 10% to about 12.5% in 1938, and not to around 19% in the old figures.

But, to return to my main point, Murphy seeks to define a “depression” not only as (1) a period of serious real output collapse but also as (2) the aftermath of that real output collapse when unemployment is still high.

If we wish to define “depression” in this way, then we can prove that America had a seven year depression in the 1870s, and another seven year depression in the 1890s.

Let us take the 1870s as an example: the industrial index data of Joseph H. Davis (2004, 2006) shows serious industrial contraction from 1873–1875 and essentially stagnation until 1877 (Davis 2004: 1189), and then unemployment soared right down until 1878 and remained high in 1879:

Year | Unemployment Rate
1869 | 3.97%
1870 | 3.52%
1871 | 3.66%
1872 | 4.00%
1873 | 3.99%
1874 | 5.53%
1875 | 5.83%
1876 | 7.00%
1877 | 7.77%
1878 | 8.25%
1879 | 6.59%
1880 | 4.48%
1881 | 4.12%
(Vernon 1994)

Murphy claims that a liquidationist solution “worked” in the 1870s (Murphy 2009: 30): “the ‘liquidationist’ medicine eventually worked, and recovery kicked in apparently much faster than many observers had expected”! The figures we have do not support such a rosy interpretation of the 1870s.

(2) Murphy (2009 30–39) points out that Hoover was not an advocate of liquidationism.

At this point, Murphy is right and does a valuable service in correcting this myth.

Hoover often gets unfairly blamed as an advocate of the extreme liquidationist solution to the Great Depression, a solution which was actually recommended by Andrew Mellon (US Treasury Secretary from 1921–1931). In truth, Hoover rejected extreme liquidationism, and attempted to fight the onset of Great Depression with a number of limited interventions, including increased government spending. But we must not exaggerate the nature of Hoover’s interventionism. Hoover did not preside over a fiscal policy that could have counteracted the depression: his spending was much too small. Hoover was no modern Keynesian.

(3) After his remarks on Hoover, Murphy comes to an incredibly unconvincing conclusion:

“had Hoover followed the practice of his predecessors, we would not remember him today as presiding over the worst economic calamity in U.S. history” (Murphy 2009: 30).

I am assuming that Murphy here thinks that, if only a liquidationist solution to the depression had been adopted from 1929 onwards, then the depression would not have been as deep and would have ended much more quickly.

There is not a shred of convincing evidence for such an idea. Let us take a real world example that happened at exactly the same time as the US collapse of 1929–1933: Weimar Germany.

In Germany, the government responded with deflationary policies and fiscal contraction, and employers were able to implement very significant wage cuts (Welskopp 2009: 164). Yet Germany still suffered a devastating depression, with severe GDP loss and very high unemployment. In fact, it seems unemployment in Germany soared to over 30% by 1932 – higher even than in the US! (Balderston 2002: 79). How does Murphy explain this?

Another example is Australia in the 1890s: Australia had a gold standard, no Keynesian fiscal policy, no central bank, no capital controls, and light banking regulation (what little that existed was mostly ignored anyway). The 1880s saw a huge asset bubble in certain financial assets and land. When it collapsed, the economy was hit by a debt deflationary depression, and from 1891 to 1893 Australian GDP fell by 17.11%. High unemployment and economic stagnation persisted until the end of the decade. Why did Australia suffer such a depression with no quick recovery?

You can read more about Australia here:

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

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

(4) Murphy is also mistaken in thinking that, without Hoover’s limited interventions, the 1930s US depression would have been a “boom-slump, comparable to all earlier ones” (Murphy 2009: 30). In this strange world, apparently all slumps are essentially the same! There are no unprecedented factors like the scale and extent of private debt, the structure and leverage of financial institutions, the size of asset bubbles distorting an economy, and so on. The Great Depression was so severe precisely because it was a debt deflationary collapse caused by underlying economic factors not seen to that degree before in earlier periods. To this extent, 1929–1933 was a disaster different in degree, though not in kind.

And again Murphy never considers counterexamples: why did Germany and numerous other counties suffer even with contractionary fiscal polices?

Why did America plunge back into depression in 1938 when Roosevelt engaged in fiscal contraction and budget balancing?

(5) Murphy ridiculously exaggerates the extent and nature of Hoover’s interventions from 1929 to 1933. At one point, we read (hopefully a joke?) that Hoover tried to fight the depression with policies so destructive that, in retrospect, one almost wonders if he were a Soviet agent”! (Murphy 2009: 31).

(6) Murphy points to Hoover’s attempts to maintain wage levels during the early years of the depression as a major cause of the depth of the Great Depression. Yet, by his own admission (Murphy 2009: 39), many industrialists did not need to be forced into this move: many agreed with Hoover, so, even if one could demonstrate that wage inflexibility was a serious cause of the depression, the fault lay just as much with America’s private capitalists than with the government.

Murphy points to the recession of 1920–1921 as evidence for flexible wages and prices leading to rapid adjustment to full employment, yet for many reasons the recession of 1920 was unlike that of 1929–1933. In 1920, there was no massive asset bubble, nor was there very high private debt levels, and no financial sector collapse.

But one can question how significant Hoover’s high-wage policy really was. According to Murphy, “because … Hoover forbade businesses from cutting wages after the 1929 crash, unemployment went up and up, hitting the unimaginable monthly peak of 28.3 percent in March 1933” (Murphy 2009: 42). But wages were not maintained at high levels after 1931. First, even Rothbard admits that, despite Hoover’s high wage policy, wages began falling in 1931 (Rothbard 2008: 270). In fact, wages began falling significantly from 1931 and continued to fall in 1932 and 1933 (Wigmore 1985: 229), along with severe price falls. So why didn’t this arrest the depression?

Also, why didn’t wage and price falls in Germany prevent a very severe depression there?

It is here that Murphy reveals his true colours: the underlying assumptions behind his analysis are not really different from the way a mainstream neoclassical economist analyses economics. Neoclassicals think that, if only nasty government and unions would get out of the way, then we would have a set flexible wages and prices that would allow an economy to converge towards full employment equilibrium. This Walrasian idea sees markets as adjusting smoothly to shocks by automatic processes that adjust prices and wages to new levels that clear all markets, including the labour market. That vision of economics is utterly false and flawed. Markets do not tend to Walrasian general equilibrium, and there is no reason to think flexible wages and prices would clear markets.

For all the Austrian attempts to paint themselves as different from neoclassicals, at heart they share a common fantasy: the naïve belief in price and wage flexibility clearing markets.

There is yet another reason why wage cuts did not work when they happened in the 1930s: debt deflation. If a business or individual has debts fixed in nominal terms, cutting wages will simply made the real burden of debt soar, possibly causing bankruptcy to debtors and then creditors. For a business, its earnings/profits are analogous to workers’ “wages,” and if it cuts it prices and lowers profit, it will also make the real value of its debt soar.

But Murphy has no clue on the dynamics of debt deflation.

(7) In discussing Smoot-Hawley, Murphy exaggerates its effects on the US economy. 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.

Peter Temin explains:

“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 exports 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).

That does not mean that Smoot Hawley was good policy, of course. It clearly harmed world trade and many other countries. But this does not change the fact that the fall in the value of US exports from 1929 onwards – owing to Smoot Hawley, retaliatory tariffs, non tariff barriers, and trade war – does not explain the depth of the contraction of US GNP from 1929 to 1933.

(8) On pp. 45–55, Murphy attempts to paint Hoover as a big spending Keynesian and blames Hoover’s alleged “profligacy” for the seriousness of the depression.

The problem is that (to put it mildly) this is a cartload of garbage, as I have shown here:

“Steven Horwitz on Herbert Hoover: Mostly Misleading,” February 20, 2012.

“Herbert Hoover’s Budget Deficits: A Drop in the Ocean,” May 24, 2011.

“What Hoover Should have Done in 1931,” January 26, 2012.

Let us start with a simple observation.

What happened to total US government spending from 1929–1933? We can see the figures as follows:

Total (federal, state and local) US Government Spending
Year | Total Spending ($ bns) | Increase in Spending
1928 | $11.44 | $0.22
1929 | $11.68 | $0.24
1930 | $11.92 | $0.24
1931 | $12.18 | $0.26
1932 | $12.44 | $0.26
1933 | $12.62 | $0.18

In reality, total spending hardly deviated from its 1920s trend line and growth path. Also, in 1929 total federal expenditures were about 2.5 per cent of the GNP. Government spending as a percentage of GDP rose from 1929–1933 mainly because GNP collapsed not because of huge spending.

So where is Hoover’s huge profligate Keynesian spending? It doesn’t show up because there was no huge profligate Keynesian spending under Hoover.

Yet this is the myth that Murphy peddles and would have his readers believe:

“As with the evaluation of Hoover’s high-wages policy, his high-federal-budget policy can be usefully contrasted with the depression occurring at the end of Woodrow Wilson’s watch. With the conclusion of World War I, the U.S. government slashed its budget from $18.5 billion in FY 1919 down to $6.4 billion one year later. As the U.S. economy entered a depression at the turn of the decade, receipts fell. The Wilson Administration responded by cutting spending even more, down to $5.0 billion in FY 1921 and then following with a single-year slash of 34 percent, down to $3.3 billion in FY 1922. (Because of the fiscal/calendar year mismatch, it is debatable whether Wilson or Harding should be associated with the FY 1922 budget.)

So how do the two strategies stack up? We already know that Hoover faced 20+ percent unemployment after the second full year of his Keynesian stimulus policies. Wilson/Harding, on the other hand, was Krugman’s worst nightmare, taking the axe to federal spending in a way that would have given even Ron Paul the willies, and during a depression to boot! Yet as we already know, unemployment peaked at 11.7 percent in 1921, then began falling sharply. The depression was over for Harding, at the corresponding point when a desperate Hoover had decided to (try to) rein in his massive budget deficits” (Murphy 2009: 49–50).

Some basic facts should be stated first:

(1) In fiscal year 1930, Hoover actually ran a federal budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.

(2) The Federal Reserve raised the discount rate in 1931.

(3) In fiscal year 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. These were contractionary measures, and these two policies are the very antithesis of Keynesianism stimulus.

Murphy declares that Hoover engaged in “Keynesian stimulus policies.” If by this he means that the effect of federal government fiscal policy was weakly expansionary in 1931 and 1932 relative to the collapse of GNP, this is true enough. In 1931, for example, it is well known that fiscal policy was expansionary: one of the stimulative measures (passed over Hoover’s objections, however) included the Veterans’ Bonus Bill. The budget may have expanded demand by 2% of GNP in 1931 more than the 1929 budget, but this was not large relative to the collapse of GNP, which is the key (Temin 1989: 27–28). In 1931, GNP collapsed by 16.11% relative to its level in 1930, from $91.2 billion to $76.5 billion.

If by these words above, Murphy means that Hoover engaged in the type of Keynesian fiscal expansion designed to halt the depression to restore growth, he is wrong, and contemptibly wrong.

In fiscal years 1931 and 1932, Hoover did indeed raise federal spending (especially in 1932), but it was woefully inadequate. In no sense do these miserable increases compared to the scale of the GDP collapse contradict Keynesian economics. Once you factor in state and local austerity and surpluses, these total federal spending increases was significantly reduced.

In order to stimulate an economy back to its growth path and potential GDP, one has to do the following:

(1) calculate potential GDP and estimate how severely GDP is likely to collapse by,
(2) estimate the Keynesian multiplier and
(3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.

In 1931, US GDP collapsed by $14.7 billion dollars, in a debt deflationary spiral with bank failures and a collapse in consumption, employment and investment. If we assume a multiplier of 4 (which is very high), then Hoover’s federal spending increase of $257 million dollars in fiscal year 1931 might have generated at most $1.028 billion of GDP in fiscal year 1931 (the effect of state and local fiscal policy reduced this, however).

But GDP fell by $14.7 billion dollars, and it is the height of idiocy to seriously argue that Hoover’s increase in spending in fiscal year 1931 could have prevented the depression, to offset such a catastrophic fall in GDP. It could never have done any such thing.

To stop the downturn, Hoover needed to do the following:

(1) spend an additional $3.675 billion in fiscal year 1931 in stimulus;

(2) Hoover needed to at least stop fiscal contraction by states and local government, so some bailout of them was necessary to make (1) work.

He did no such thing. Not even close. $257 million dollars is not $3.675 billion. Hoover’s federal fiscal expansion was 6.9% of the sum required.

Of course, if Hoover had quickly stabilised the banking system in 1931, the GNP collapse would have been significantly reduced as well, and the scale of the needed stimulus would have been reduced too.

But Keynesianism did not fail, because Hoover never tried a proper Keynesian stimulus. Hoover’s fiscal policy in 1931 and 1932 was weak and feeble fiscal expansion, woefully inadequate.

(9) On p. 36, Murphy lazily assumes that extra income to producers will simply be spent on either consumption or capital goods investment, even though there is no reason to think this will happen when business expectations are shocked. It also ignores the fact that the richer you are the more likely you are to spend extra income on financial assets on secondary markets, rather than consumption or capital goods investment.

(10) On p. 37, Murphy badly misunderstands the cause of the Great Depression, invoking the unsound and false Austrian business cycle theory.

The main problem in the 1920s was massive debt-fuelled asset inflation in stocks and shares, not allegedly “unsustainable” real capital goods projects induced by Federal Reserve expansion of the money supply.

Unrelated Note

I was astonished to see this recent post where Jonathan Catalán agrees with me!:

Jonathan Finegold Catalán, “When Hell Froze Over,” 22 November, 2012 by
http://www.economicthought.net/blog/?p=3238

BIBLIOGRAPHY

Balderston, Theo. 2002. Economics and Politics in the Weimar Republic. Cambridge University Press, Cambridge.

Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16.

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

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

Murphy, Robert. 2009. The Politically Incorrect Guide to the Great Depression and the New Deal. Regnery Publishing, Inc. Washington, DC.

Rothbard, Murray N. 2008. America’s Great Depression (5th edn.). Ludwig von Mises Institute, Auburn, Ala.

Temin, P. 1989. Lessons from the Great Depression, MIT Press, Cambridge, Mass.

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

Welskopp, T. 2009. “Birds of a Feather: A Comparative History of German and US Labor in the Nineteenth and Twentieth Centuries,” in H.-G. Haupt and J. Kocka (eds.), Comparative and Transnational History: Central European Approaches and New Perspectives. Berghahn Books, New York and Oxford. 149–177.

Wigmore, Barrie. 1985. The Crash and its Aftermath: A History of Securities Markets in the United States, 1929–1933. Greenwood Press, Westport, Conn.