Puhleez, Bob. First what kind of critique is it when you write this:In the interest of evenhandedness, let me say that there are two areas where I think Tom may have not quite gotten what Jaitly was saying. This doesn’t excuse the other jaw-droppers, such as Jaitly claiming Mises was less subjectivist than Menger. (!) But here are the two things I have in mind (and I’m quoting from Tom’s original critiqueof Jaitly):Jaitly further contends that “Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a natural consequence of not having a present good.”
This claim is so at odds with Mises’ words that one is left breathless at its sheer daring. Mises never denied that interest is a market phenomenon. The whole point of his business-cycle theory is that deviation from market rates of interest by means of artificial credit expansion leads to malinvestments that culminate in a bust.Mises does not say interest is “a natural consequence of not having a present good.” Merely not having something yields no natural consequence. Mises says people prefer a good in the present to the same good in the future, such that they would opt for the future good only at a premium. This premium reflects their time preference, or their discount of the future. Interest rates that arise on the market reflect these time preferences of individuals in society.
To say that Mises did not believe interest was a market phenomenon because its origins lay in individuals’ time preferences is like saying he didn’t believe prices were a market phenomenon because their origins lay in individuals’ subjective valuations. In each case, the market takes a subjective factor (individuals’ value scales in the case of prices, and individuals’ time preferences in the case of interest) and gives it objective expression – market prices in the former case, and the interest rate in the latter case.OK, everything Tom says is perfectly true, but I think I get what Jaitly means. There are several places where Mises goes out of his way to beat down the conventional understanding of interest rates. I’m paraphrasing, but inHuman Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc. Instead, Mises says interest is due to time preference, which flows apodictically from the fact that humans act.
I’m paraphrasing, but inHuman Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc.How can one debate with you, when you are not referencing Mises directly and are merely "paraphrasing"?
Let's have a reference so we can see what Mises wrote and the context in which it was written.
Further, just because Mises spends considerable time explaining the origin of interest rates in time preference, it does not mean he doesn't understand that the market interest rate is formed, well, on the market---which is what Jaitly claimed . I quoted Mises saying as much in my original critique of Jaitly:
On a market, which is not disturbed by the interference of such an "inflationist" banking policy, interest rates develop at which the means are available to carry out all the plans and enterprises that are initiated. Such unhampered market interest rates are known as "natural" or "static" interest rates.Given some of Jaitly's other nutball conclusions, .e.g, that Mises rejected subjectivism,, I find it odd to go out of the way to attempt to stretch truth from Jaitly's comments. What is the point of this? I think it would be obvious that Mises would not reject the idea that interest rates are formed on the market by the ranking of how much quantity supplied for money and quantity demanded for money exists at different interest rates---even given that those rankings are caused by time preference. Jaitly appears not to understand any of this or he wouldn't have made the absurd comment that Mises doesn't believe interest rates are formed on the market, which in the paragraph I quote above, it's obvious that he does.
Murphy's second criticism of Woods also reads into Jaitlly comments things that Jaitly did not actually say. This time Murphy, however, uses his "reading in" to attack Jaitly.
I just don't get all this reading into Jaitly. If Jaitly states a position let Jaitly explain how he gets to it rather than creating a first derivative of Jaitly's comments that Jaitly may or may not agree with. From what I can tell Jaitly and Keiser aren't doing any deep analytical work. They are just picking stuff off willy nilly to support their case. For example, Woods has now conceded on the minor point that Murphy makes as to what Jaitly may have meant when Jaitly talked about gold and gold substitutes---a mark of an honest scholar. BUT it should be noted that Murphy after reading into Jaitly on this second point buries Jaitly for it, if indeed Jaitly was even thinking this way.
Fortunately, Max Keiser has come to the forefront in an new post to make my point that Keiser (and I believe Jaitly) just pick stuff off without any reference to deeper thinking, since Keiser is now using Murphy's critique to attack Woods as a fake, when the point of Murphy's "reading in" critique is that Jaitly is more confused than even Woods thought. Keiser mentions nothing about Murphy's critique of Jaitly, simply that Woods has conceded to Murphy on a point. Not that the point is that Jaitly is even more confused than Woods proposed! Bottom line: Keiser is just ripping stuff off here to advance his case, without putting it in context. My claim is that Keiser and Jaitly do the same thing when they attack Mises. Thus it makes no sense to "read in" to what they are saying, as though they are attempting to think out long threads of analysis. If they are doing show, lets see the analysis from them instead of their unreferenced charges against Mises. By "reading in" as to what they might actually be thinking is giving them to much respect, given the absurd conclusions they are making. They are either very confused or purposely distorting Mises thought, but there is no logical analysis going on here.