What is the Regressive Left?

The term “regressive left” was supposedly coined in 2012 by Maajid Nawaz to describe leftists who make shameful apologetics for Islamist religious bigotry and fanaticism, as Nawaz explains in the video below.



The regressive left in 2016 is increasingly made up of millennials, who have been profoundly influenced by, and steeped in, the core ideas of Postmodernism, which they have no doubt learned at universities.

However, many of these millennials do not consciously self-identity as Postmodernists, but that is only because they do not properly understand the philosophy of Postmodernism, lack an understanding of the history of the left and where their ideas have come from.

In point of fact, those on the regressive left often have these characteristics:

(1) intolerance of free speech and free expression;

(2) strong influences from Postmodernism (even though many regressive leftists probably do not consciously self-identify as Postmodernists) and its related ideas such as cultural relativism, truth relativism, moral relativism, the idea that all cultures are equal etc.;

(3) probably some vulgar Marxism economics (though not necessarily);

(4) hatred of science, and bashing of “white male science”;

(5) anti-Enlightenment thinking and bizarrely irrational hostility to Western civilisation, including views on foreign policy influenced by Noam Chomsky;

(6) extreme social constructivism and the “blank slate” view of human beings, and extreme identity politics;

(7) incredible abuse of the word “racism,” and applying it to trivial things that are not inherently racist, such as wearing sombreros or “culturally insensitive” Halloween costumes.

(8) following from (7), identifying culture with race, and militant hostility to people who criticise immoral or illiberal religious or cultural ideas of non-white people.

Now the trouble is that the conventional definition of the “regressive left” is mainly confined to (7) and (8), but the fact is that “Regressive leftists” often also subscribe to (1), (2), (3), (4), (5) and (6), or a selective combination thereof.

And here is the fundamental point: ideas (7) and (8) can naturally emerge right out of ideas (1), (2), (4), (5) and (6).

Although Noam Chomsky has certainly influenced the regressive left as in (5), it is important to note that he rejects many aspects of their thinking, as shown here.

If the left is going to develop any rational, intellectually honest and effective political program, the regressive left needs to be utterly rejected and defeated.

What is “Austerity”?

I mean in an economic context.

People sometimes seem confused about what it means, but I don’t find it problematic. In an economic context, “austerity” has this sense:

(1) a situation where the net effect of a government budget (in all its aspects whether spending or taxation, etc.) is contractionary fiscal policy in which aggregate demand is reduced or drained from the economy. E.g., the fiscal policy of Greece and Ireland after 2008 was an example of this type of austerity.

However, sometimes people use the word “austerity” in a secondary, looser sense:

(2) a situation in which a government reduces a previously expansionary fiscal policy to a much weaker one but where the net effect of fiscal policy is actually expansionary rather than contractionary. In this sense, the government “austerity” consists in the reduction of the expansionary effect of fiscal policy. E.g., it would seem that the Tory-Liberal Democrat government that ruled Britain from 2010–2015 more or less pursued this type of austerity.

When people talk of “austerity,” they usually think of type (1), and so confusion is frequently caused in political and economic debates when people use the word in sense (2).

Type (2) “austerity” means that a government is refusing to create stronger aggregate demand in an economy by cutting the strength of its fiscal stimulus to a weaker level, though in reality its fiscal policy is still (even if only weakly) expansionary. This means that the economy is forgoing a higher level of output and employment: unemployment, for example, will be higher than it needs to be. But type (2) austerity is still a form of fiscal expansion, and this should not be forgotten. An economy may well continue to have positive GDP growth and continue on a less robust growth path under type (2) austerity, since the government is not actually reducing aggregate demand in the way it would in type (1) austerity.

To avoid confusion, one has to distinguish these two senses of “austerity.”

Austrians and the Definition of “Inflation”

Certain Austrians are running to defend their idiosyncratic definition of “inflation” as an increase in the money supply, instead of (as people normally use it) a general increase in prices.

The fact is that the word “inflation” has always been used to describe a general increase in prices, as well as an expansion of the money supply. This can be clearly seen to anyone who does a few minutes of searching on Google Books for the word “inflation” in the 19th century.

Even in the 19th century, people frequently spoke of an “inflation of the currency” or “inflation in (the) currency” and “inflation of prices” or “inflation in prices.” These expressions appear in the English language from about 1834. When referring to monetary expansions, people in the 1800s also often used the phrases “expansion of credit,” “over-issue of credit,” or “over-issue of (the) currency,” and so on.

Just looking at this graph of usage (better viewed in a separate window) from a search on Google Ngram Viewer, the expression “inflation of prices” is very common in the 19th century, and in some years more common than the expression “inflation of the currency.” As already noted, both appear around 1834.

Furthermore, as we can see in this next graph, the expression “inflated prices” appeared in the late 1790s at the time of the French Revolutionary wars, and so the use of the cognate word “inflated” in an economic sense referring to prices preceded the phrases above.

Even single uses of the word “inflation” in sources from the 1800s can have either meaning, depending on the context.

Examples of “inflation” in the sense of “price inflation” are easy to find:

“The question recurs, what were the causes of the unusual mania of speculation — the excessive and long continued inflation of prices, and the confidence that this inflation, after it was known to be excessive, would continue, and the expectation that it would still further increase?”
Nathan Hale (ed.), Chronicle of Events, Discoveries, and Improvements, for the Popular Diffusion of Useful Knowledge Nathan Hale. S. N. Dickinson, Boston. 1840. p. 11.

“Now, however, without any inflation, and in some important articles under a contraction of prices, the excess of exports is not only more than was ever known before, but quite threefold greater, ...”
William Hanby Crump, The World in a Pocket Book: Or, Universal Popular Statistics. J. Dobson, Philadelphia, 1841. pp. 118–119.

“The expression ‘war prices,’ so commonly used in the past, implied the inflation in values of all kinds of property rated in such representative money, the volume of money largely controlling the degree of inflation in values, but not absolutely, ... ”
John Smith, Hard Times: A Few Suggestions to the Workers and a Broad Hint to the Rich. 1885. p. 45.

“But such a currency so handled cannot cause inflation. Prices remain, as before, at the gold level.”
Littell’s Living Age, Volume 186, T.H. Carter & Company, 1890. p. 648.

“Taking inflation to mean a rise in prices, unaccompanied by a corresponding rise in values, inflation can never be brought about by a mere increase in the volume of gold employed in commerce.”
Blackwood’s Edinburgh Magazine, Volume 149, 1891. p. 401.

“This increase in prices we call inflation, and I do not understand how such an inflation can be repudiated, as has been done to day, while the entire remedy proposed, imaginary or real, evidently is intended to produce a notable increase of prices called forth by inflation.”
Berlin Silver Commission, 1894: Proposals Submitted and Debate on the Proposals. Report of the Proceedings, to which is Appended the Report of the Proceedings of the International Bimetallic Conference at London May 2 and 3, 1894, Volume 2, U.S. Government Printing Office, 1895. p. 775.

The Natural Rate of Interest in the ABCT: A Definition and Analysis

This seems appropriate in light of this post at Robert Murphy’s blog.

It is well known that Wicksell’s unique “natural rate of interest” was taken over by Mises and Hayek in their early formulations of the Austrian business cycle theory (ABCT).

Consider this passage from Hayek’s Prices and Production (2nd edn.; 1935):

“Put concisely, Wicksell’s theory is as follows: If it were not for monetary disturbances, the rate of interest would be determined so as to equalize the demand for and the supply of savings. This equilibrium rate, as I prefer to call it, he christens the natural rate of interest. In a money economy, the actual or money rate of interest (“Geldzins”) may differ from the equilibrium or natural rate, because the demand for and the supply of capital do not meet in their natural form but in the form of money, the quantity of which available for capital purposes may be arbitrarily changed by the banks.

Now, so long as the money rate of interest coincides with the equilibrium rate, the rate of interest remains “neutral” in its effects on the prices of goods, tending neither to raise nor to lower them. When the banks, however, lower the money rate of interest below the equilibrium rate, which they can do by lending more than has been entrusted to them, i.e., by adding to the circulation, this must tend to raise prices; …” (Hayek 2008 [1935]: 215).

Let us set out the analysis in the following points:

(1) The “natural rate of interest” is a non-monetary theory of the interest rate, and is independent of money and credit (Rogers 1989: 27). It is supposedly the centre of gravity towards which the monetary rate converges (Rogers 1989: 27).

(2) The condition where loans are made in natura is a barter state (or, more correctly, a credit/debt transaction where real goods are lent out, and then repayed with interest in terms of other goods later). What would a rate of interest be when loans are made in goods?

The “natural rate of interest” would be the rate on loans of a physical commodity or commodities (Sraffa 1932: 49–51). In a world of heterogeneous capital goods which is out of general equilibrium, there could be as many natural rates on each commodity considered as a capital good as there as such commodities (Barens and Caspari 1997: 288).

(3) The significant thing is that the “natural rate” is an “equilibrium rate” for Hayek: it is the rate that clears the various loan markets for real goods lent out as capital goods (whether durable or non-durable capital). These capital loan markets in natura – the markets in real capital goods lent out without money – will have market clearing with a natural rate.

This point is brought out by Lachmann in his observations on the Hayek–Sraffa debate:

“One thing is clear: when Hayek and Sraffa use the word ‘equilibrium’ they use it to denote quite different things. For Hayek it means market-clearing demand-and-supply equilibrium, for Sraffa long-run cost-of-production equilibrium.” (Lachmann 1994: 153).

(4) Therefore real savings and investment are equated: no intertemporal discoordination (or future lack of capital goods in relation to current plans) will result.

But the natural rate of interest can only be a single rate inside general equilibrium (or in some other equilibrium state such as Mises’s “final state of rest” or the ERE). Outside of general equilibrium, there can be as many natural rates as there are capital goods commodities lent out.

(5) therefore (by the internal logic of Hayek’s theory) no monetary system where capital goods investments are made by means of money can hit the right equilibrium natural interest rate on each in natura loan of various capital goods, because there is no such thing as a unique “natural rate.”

(6) therefore (by the internal logic of Hayek’s theory) no monetary system where capital goods investments are made by means of money can hit the right multiple natural interest rates either on each in natura loan of various capital goods, because the banks’ monetary interest rates – even in a free banking system – converge in a spread, yet there could be vast differences between the spread of banks rates and many individual commodity natural rates.

(7) According to the logic of Hayek’s theory, it follows that there is therefore no way in principle for a monetary system of lending for capital goods purposes to achieve ideal or consistent intertemporal coordination.

The only way is: to abolish money and return to a barter system (but even then there is no reason why “own commodity equilibrium rates” must exist on each type of capital good available for investment).

(8) Furthermore, the whole theory is dependent on unrealistic assumptions about real world tendencies to general equilibrium. There is no reason to think that there are equilibrium interest rates that will clear all loan markets just waiting to be discovered by entrepreneurial activity.

A possible and likely mismatch between planned investment and available real future savings is perfectly possible in a world of uncertainty, subjective expectations, entrepreneurial error, and even investment financed via retained earnings.

But question is: do these possible intertemporal discoordination problems really cause severe economic problems in real world market economies, and do they produce the type of trade cycle imagined in the Austrian business cycle theory?

The Austrian business cycle theory requires that booms develop with full employment and a lack of resources, but ignores the fact that virtually all modern economies are open to international trade and even at full employment still have idle capacity in many sectors (which overcome scarcity problems for many investments made in the past).

The theory requires a full use of resources (modelled in a closed economy) that only really occurs in fictitious states of general equilibrium.

The theory also requires a real world tendency to general equilibrium that does not exist in modern market economies.

FURTHER READING

“The Natural Rate of Interest: A Wicksellian Fable,” June 6, 2011.

“Austrian Business Cycle Theory (ABCT) and the Natural Rate of Interest,” June 18, 2011.

“Austrian Business Cycle Theory: The Various Versions and a Critique,” June 21, 2011.

“Hayek on the Flaws and Irrelevance of his Trade Cycle Theory,” June 29, 2011.

“Robert P. Murphy on the Sraffa-Hayek Debate,” July 19, 2011.

“Bibliography on the Sraffa-Hayek Debate,” July 20, 2011.

“Robert P. Murphy on the Pure Time Preference Theory of the Interest Rate,” July 13, 2011.

“Lachmann on Trade Cycle Models,” August 27, 2011.

“ABCT without a Unique Natural Rate of Interest?,” September 22, 2011.

“ABCT and the Flow of Credit,” October 6, 2011.

“Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT,” December 27, 2011.

“Hayek’s Trade Cycle Theory, Equilibrium, Knowledge and Expectations,” January 4, 2012

“Equilibrium Amongst the Austrians,” January 28, 2012.

“Hülsmann on Mises’s Business Cycle Theory,” February 11, 2012.

“Why Isn’t the Boom of 1946-1948 a Problem for Austrians?,” June 2, 2012.

“Bruce Caldwell on the Flaw in Hayek’s Early Business Cycle Theory,” July 8, 2012.

“Repapis on Hayek’s Business Cycle Theory,” October 10, 2012.

“Hayek on his Simplified Capital Theory Assumptions in Prices and Production,” October 15, 2012.

“Critics of the Classic Hayekian Business Cycle Theory,” December 13, 2012.

BIBLIOGRAPHY

Barens, I. and V. Caspari, 1997. “Own-Rates of Interest and Their Relevance for the Existence of Underemployment Equilibrium Positions,” in G. C. Harcourt and P. A. Riach (eds.), A “Second Edition” of The General Theory (vol. 1). Routledge, London. 283–303.

Hayek, F. A. von, 2008. Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard. Ludwig von Mises Institute, Auburn, Ala.

Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. by D. Lavoie), Routledge, London. 141–158.

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

Rogers, C. 2001. “Interest Rate: Natural,” in P. Anthony O’Hara (ed.), Encyclopedia of Political Economy. Volume 1. A–K. Routledge, London and New York. 545–547.

Sraffa, P. 1932. “Dr. Hayek on Money and Capital,” Economic Journal 42: 42–53.