Thank you to the folks who sent me the link to today's attack on my workThis comment speaks mostly for itself, though, I do want to point out I criticized Horwitz for taking a non-Austrian position, when he wrote:
by a member of the paleo/Mises Institute/Ron Paul crowd. I appreciate your
concern, but understand that I DO NOT CARE what those folks think of me or
my work and I will not be responding. I used to get angry at them. Not
anymore. And that's because they are part of libertarianism's dying past
not its vibrant future.
If anything, I feel only pity. I pity people who cling to a romanticized
past of liberty that never existed rather than working to create the
future of liberty that can and should be realized. And I pity people who
go through life that angry and hateful and closed to new ideas because it
must be a very unhappy existence to not experience the joy of the
evolution of ideas. Libertarianism should be joyous and open, not angry
and closed.
The people whose views of my work I care about are the members of the
community of serious scholars of political economy (and most of that crowd
are not) and the young, and young at heart, who see libertarianism's
progressivism and are who are taking both old and new ideas seriously in
their attempt revitalize our movement in its image.
So thank you for letting me know that the angry dogs are barking, but I do
not care. They are not worth the time it takes to respond. They are the
past. The future lies elsewhere. It's time to move on.
The argument that the slow recovery was due to a lack of aggregate demand that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]This is hardly an evolution in ideas.Paul Krugman, for example, has been spouting the same since he stopped using a pacifier. As for Horwitz's position as a "bleeding heart libertarian," this is hardly a new idea either, a new name perhaps, but coercion of the people for the "common good" is as old as government.
(ht Luis Rivera III)
So the Ron Paul wing of libertarianism is closed off and intolerant, but he is so open minded that he does not care what any of them think or defend his views.
ReplyDeleteRight, because Horwitz's work has been so well received among the community of scholars (Steve who?).
ReplyDeleteFunny, too, that he thinks his invisible wing of libertarianism is the one on the march.
Steve who ??
DeleteIt's Steve! Steve the True Austrain economist! Steve, the JoYouS libertarian.
Steve is the man who has DEFINED what Austrian economics is and what it is not. Here, take a look: https://www.youtube.com/watch?v=SLfnpwHu4Hw
You still don't know Steve? Bet you don't know Jack either.
http://www.coordinationproblem.org/2010/11/what-austrian-economics-is-and-what-austrian-economics-is-not.html
DeleteJust in case you prefer to read rather than watch the video that defines what austrian economics is and what it is not
I don't know where he gets the idea that paleocons believe in Austrian economics. Immigration central planning and trade tariffs are in no-way Austrian since they both rely on the government gun.
ReplyDeleteSounds like he did respond. Only his response was to belittle the educated pounts you made and make it seem political though it was nothing of the sort. So basically I can take the time to whine but cant take the time to discuss. What a pathetic and non scholarly way of facing that situation.
ReplyDeleteRon Paul is THE reason for libertarianism's massive growth in the last 5 years. I would have no clue who Horowitz is (or RW) if I'd never seen Dr. Paul in the Republican debates.
ReplyDeleteAs far as economics, Horowitz needs to learn one very basic truth; supply of X constitutes demand for Y, Z, etc.
Exactly. Cato and George Mason and Reason have been chugging along forever, yet they had pretty much zero impact on mainstream political debates, especially among the youth. The leather jacket guy from reason wasnt getting 7 or 8k screaming college students to show up on short notice, but someone else was.
DeleteIf he really didn't care, he wouldn't have responded at all.
ReplyDeleteI like the BLH'ers and find them quite interesting and helpful on theoretical arguments and philosophy.
ReplyDeleteBLH's are scholars. LRC is activist. Different strokes.
However, Horwitz is mistaken if he thinks people are put off by the curmudgeonly anger rising from LRC like fumes around a swamp. Uh, no.
That's the MAIN reason people read LRC.
Tea and crumpets and genteel arguments can be found at any university cafeteria. It won't wake America up. But a little revival preaching will. LRC supplies that.
Even when I disagree with them, I LOVE the pure hatred they work up for all the abuses, injustice, hypocritical twaddle and pure crap flying out of the media and government for which I do NOT want to feel any love or accommodation.
We are turning into Nazis as we speak. A little energetic hatred for that transformation is not only righteous, it's imperative.
I suspect hundreds of thousands feel exactly like me.
It's RAGE against the machine, not LOVE the machine...
I'm all for the thousands flowers approach.
I just happen to like prickly pears myself.
Very good post, Lila.
DeleteThe thousand flower approach has never worked (or the Libertarian Party, Reason mag et al would have been as successful in all their years as Ron Paul has been in about 6 years.)
Let them try to do it their way, if they want. But let's not pretend that those who see no evil in state aggression are libertarians. Every statist politician claims that what they're doing is for the "common good". None of them claim they are doing it for themselves or for the few. Their argument is completely indistinguishable from those of liberals and conservatives in all but the details of where to apply or accept the state force.
@ Lila Rajiva
DeleteHorowitz, not LRC, seems to be the one most filled with energetic hatred. And even though LRC might be activist, the Mises Institute, which Horowitz lambasts, is quite scholarly.
@AlanAnderson
DeleteThey had me fooled.
LRC is quite filled with anger and hatred (mostly of things deserving hate).
I wouldn't read it otherwise....I mean I can google survivalist stuff directly and the lefty blogs do the power-elite research better.
All this "left and right deviationism" mumbo-jumbo sounds like a Saul Alinksy training manual to me. Scholars should be willing to look at things more evenly and not march in lockstep. What happened to the love of learning?
EPJ is pretty good on the dirty day-to-day details, so, while I have differences, I am on the same side on concrete things, like taxes, minimum wage laws and so on.....
Fact is, Steve Horwitz is upset by the "Jewish banking elite" stuff, which he sees as racist paranoia, so his main gripe (the theoretical arguments are just a pretext) is that Ron Paul and Mises come attached to unwholesome conspiratorial "wing-nuts" who want to talk about who's controlling the banking system and what went down on 9-11.
He should be honest about it instead of pretending he has a theoretical bone to pick.
Possibly the most deluded thing I have ever read.
ReplyDeleteHorwitz is a pompous ass. He actually said Murray Rothbard was not a good economist. You don't have to be a fan of Rothbard or in the "Rothbard Cult" as Horwitz has stated but to say Rothbard wasn't a good economist is preposterous! Comparing Horwitz to Rothbard is the equivalent of an ant to an elephant. Hey, Steve, where is your Man, Economy, and State? Never mind the enormous body of work Rothbard left behind. He's remembered today and will be far long after Steve what'shisname is long gone. So will Ron Paul be remembered. Ron Paul, love him or hate him, has done more for libertarianism than any "bleeding heart libertarians" in the Horwitz camp.
ReplyDeleteHoly crap, that guy said that.?!?!
DeleteI know Horowitz, but never knew this animosity towards the simple respect due Murray Rothbard, nor that he would call current Mises 'SCHOLARS', anything but.
We will NO longer link to his products. Will he hear THAT?
First, I don't know who Steve Horwitz is and I DO NOT CARE.
ReplyDeleteThat said, I know he is no serious thinker through this thought experiment: Is this how Tom Woods responds to criticism? Or Lew Rockwell? Tom DiLorenzo? David Gordon? Gary North?
No. These gentlemen, agree with them or not, have a track record of defending their arguments. It is the sign of an insecure mind to respond to criticism in this way.
"Bleeding heart libertarianism" sounds like just another flimsy label for sloppy thinkers and emoting statist dweebs to hide behind.
I recall a debate (of sorts) between Woods, DiLorenzo, and Block as to what libertarians should call people who fancy themselves as libertarians, but are nowhere close to holding genuine libertarian ideas. Woods called them "sweetie-pie libertarians", DiLorenzo called them "sweetie pie crybabies", and Block proposed the idea of calling them "suck-up libertarians." I tend to prefer DiLorenzo's other name for them: "bootlickers".
ReplyDeletePassive-agressive much, Mr. Horwitz?
ReplyDeletePaleo crowd? When did a diet choice become a political/economic movement? Is there an Atkins movement pushing for more infrastructure spending?
ReplyDelete“The people whose views of my work I care about are the members of the community of serious scholars of political economy…”
ReplyDeleteFrom Encyclopædia Britannica:
http://www.britannica.com/EBchecked/topic/467600/political-economy
“Political economy, branch of social science that studies the relationships between individuals and society and between markets and the state, using a diverse set of tools and methods drawn largely from economics, political science, and sociology. The term political economy is derived from the Greek polis, meaning “city” or “state,” and oikonomos, meaning “one who manages a household or estate.” Political economy thus can be understood as the study of how a country—the public’s household—is managed or governed, taking into account both political and economic factors…”
The political economy…I guess to differentiate from the economy in which the productive operate; the economy where individuals are free to conduct business via contract, not coercion.
Horwitz’s quote captures the entire purpose of being for those tied in with Koch / Cato.
Associate me with those who remain “angry and closed” when it comes to any discussion of the political economy. It is legalized theft and murder, nothing more. Anyone with a moral center would be “angry and closed” regarding the subject of political economy.
Horwitz – another hollow man. He doesn’t realize he is laughed at by both the libertarian community and the mainstream community.
Basically the left libertarian, bleeding heart libertarian crowd are people who are smart enough to see that coercive government does not work, but still cling to Marxist and cultural leftism. They go in for all the left wing progressive tropes - gender inequality, racism, open borders, anti- capital accumulation, anti-discrimination rights e.t.c
ReplyDeleteWhile they focus on this Marxist class based nonsense, they constantly attack concepts like the non-aggression principle and private property rights. Their most hated foes intellectually are Murray Rothbard and Hans Hermann-Hoppe. That ought to tell you something.
Hell, even Horowitz himself is calling it 'libertarian progressivism'.
You write: "This is as far from Austrian theory as you can get. Austrian school economists see central bank monetary expansion as distorting the economy."
ReplyDeleteFact: Hayek was an Austrian.
Fact: Hayek favored a stable "total money stream" (i.e., MV)
Fact: The equation of exchange implies MV = PY, where PY is nominal income
Fact: Aggregate Demand is just another word for Nominal Income.
Fact: Nominal income growth collapsed in 2008. See here: http://research.stlouisfed.org/fredgraph.png?g=qpg
Fact: Increasing the supply of money will increase nominal income, ceteris paribus.
Let's walk through this slowly.
1. Steve wrote that: "The argument that the slow recovery was due to a lack of aggregate demand that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]"
2. Since "lack of AD" just means "contraction in nominal income," we can substitute: "The argument that the slow recovery was due to a [contraction in nominal income] that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]"
3. Since "nominal income" PY must be equal to "MV", we can substitute: "The argument that the slow recovery was due to a [contraction in [MV]] that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]"
4. Since MV just means total money stream, we can substitute: "The argument that the slow recovery was due to a [contraction in [the Total Money Stream]] that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]"
So, is this as far from Austrian theory as you can get? I don't think so. It seems to me that Steve was just articulating Hayek's position. I think you are confused by the language of "aggregate demand"--perhaps because (like a lot of Keynesians) you don't really understand what aggregate demand means. That's a shame for you; and, since outsiders probably lump all Austrians together, a shame for Austrian Economics.
There are two more things worth mentioning here. First, as anyone who actually read the article would know, Steve DID NOT support expansionary monetary policy in the article. The first line in the article is "The Federal Reserve’s recent decision to begin to taper off its quantitative easing (QE) program is long overdue." And in the line right before the one you quote, he writes: "More generally, the belief that monetary stimulus was important to recovery was misguided from the start." He only said that the collapse in nominal income was a *plausible explanation*. And, consistent with Hayek's thinking, it was indeed a plausible explanation.
Second, Steve's choice of the words "monetary expansion" is perhaps unfortunate. You are right that, ceteris paribus, "Austrian school economists see central bank monetary expansion as distorting the economy." But Austrian school economists see central bank monetary *contraction* as distorting the economy, as well. Steve might have just as well have described the policy as "offsetting a monetary contraction" or "offsetting a contraction in the total money stream," to use Hayek's term. He didn't use either of those phrases (probably because of the audience for which he was writing).
On Hayek's favoring a stable total money stream, see: Lawrence H. White, "Hayek's Monetary Theory and Policy: A Critical Reconstruction," Journal of Money, Credit and Banking, Vol. 31, No. 1 (Feb., 1999), pp. 109-120
Huh, all those paragraphs and you can't point to a direct quote from Hayek calling for a "stable total money stream". Give me a break, where does Hayek say this?
Delete2. You are way off the reservation if you think Hayek thought in terms of MV=PY.
A regular reader of EPJ.com would immediately reject any appeal to Hayek's authority. But good luck, mr. Luther.
DeleteAggregate demand? Wtf is that? Does supply of X, not = demand for Y, Z, etc.?
Sure, if you give money to home builders in the middle of a housing glut, they will demand more products. But at who's expense?
In other words, should we prop the bubble up??? I admit, in the very short term horizon, that will sustain the status quo.
Is this what Steve Horwitz advocates?
@Stanley: The short answer is Hayek (1935, p. 131). The long answer is that you should read the article by White before asserting that what I've written isn't true. That's what serious engagement looks like: checking sources and thinking a bit before responding. I'll get you started by providing a link to an open access version of the article. Good luck.
Deletehttp://econfaculty.gmu.edu/pboettke/summer/White%20-%20Hayek's%20Monetary%20Theory.pdf
Of course Hayek thought in terms of MV=PY. He was a monetary economist! Read Denationalization of Money and get back to me.
@steveZ: You do not have to believe Hayek was right on anything (let alone everything) to acknowledge that he was an economist working in the Austrian tradition.
Delete"Aggregate demand? Wtf is that? Does supply of X, not = demand for Y, Z, etc.?"
Aggregate demand is nominal income. It is any combination of prices (P) and output (Y) consistent with a given level of nominal spending (MV). Of course supply of x equals demand for y, z, etc... but one of those letters is money... and that matters. It means that you can have an excess supply of goods if you have an excess demand for money. It means you can have an excess demand for goods if you have an excess supply of money.
"In other words, should we prop the bubble up??? I admit, in the very short term horizon, that will sustain the status quo."
How is it that you believe that too much money can cause a short term increase in prices and output (i.e., a bubble) and not believe that too little money can cause a short term decrease in prices and output? It is as if you believe prices are sticky upward but perfectly flexible downward.
@Will LutherDecember 28, 2013 at 11:16 AM
DeleteOh please, Hayek wandered off the reservation so often that he is the last guy you want to reference for classic Austrian theory. Walter Block has done much to detail some of Hayek's wanderings: http://www.economicpolicyjournal.com/2013/12/walter-block-hayek-is-no-rothbardian.html
Further, if you buy completely into White's paper, you need to be honest and mention what White concludes in his paper. And I note this is the very last sentence of White's paper:
"Hayek (1978) was compelled to deny the practical relevance of his business-cycle theory."
So you reference Hayek to support Horwitz's "Austrian views of money printing", when Hayek, according to White, has wandered off the Austrian Business Cycle Theory reservation. Great.
Let me ask you then, do you hold the same view as White's Hayek, who favors consumer level price stabilization? Do you reject ABCT ? Is this your defense of Horwitz?
I can't wait for Will's reply and to follow the debate to it's logical conclusion!
DeleteI hope your subscribers will read White's paper for themselves. White concludes that "Hayek (1978) was compelled to deny the practical relevance of his business-cycle theory." because late in his career (see: Denationalization of Money) Hayek moved from arguing in favor of stabilizing the total money stream (i.e., Nominal Income) to stabilizing the price level. The former is consistent with Hayek's business cycle theory; the latter isn't.
DeleteTo recap: early Hayek favored stable nominal income and that is consistent with the ABCT while late Hayek thought price level stabilization was good enough, even though price level stabilization is inconsistent with ABCT---in particular, it generates malinvestments when productivity increases.
No kidding Will. The entire point of your comments here is defense of Horwitz where he is in favor of monetary expansion, which is more late Hayek than early Hayek. Or do you think that monetary expansion can occur without distorting the capital-consumption structure? Or do you make the absurd claim that early Hayek didn't believe monetary expansion distorted the capital-consumption structure?
DeleteAnd don't try to get a way with implying monetary expansion isn''t what Horwitz blessed. Here in black and white is what Horwitz wrote:
"The argument that the slow recovery was due to a lack of aggregate demand that could be remedied by monetary expansion had at least some plausibility for the first year or two[...]"
YOU need to re-read White, Hayek AND Horwitz.
But the most important point is that Hayek, as Block and White show, was very inconsistent. It would be very difficult to define Austrianism around his thought because he jumped around so much. Do you want to make the absurd claim that ABCT is not fundamental to Austrianism? Mises, Rothbard and Hoppe have all been consistent Austrians holding to ABCT and the view that any monetary expansion distorts. Horwitz's comment flies in the face of this. That you can only bring jumping bean Hayek to Horwitz's defense says a lot, but don't hold on to Hayek to hard, he may jump again.
So, no, I do not "hold the same view as White's Hayek, who favors consumer level price stabilization (sic)." And, no, I don't reject ABCT. And, no, that is not my defense of Horwitz. Because Horwitz didn't favor consumer price level stabilization. Indeed, he effectively argued for allowing a lower price level.
DeleteMy defense of Horwitz is that his claim that "the slow recovery was due to a lack of aggregate demand that could be remedied by monetary expansion had at least some plausibility" is not *necessarily* inconsistent with Austrian Economics.
How can this be, you ask? Simple. Because aggregate demand merely means nominal income. And (early) Hayek favored a stable nominal income. And a stable nominal income is consistent with the Austrian Business Cycle Theory.
Early Hayek favored a stable nominal income. In the event that velocity contracts, stabilizing nominal income requires monetary expansion. And it is consistent with ABCT. What's the problem?
DeleteAnd, for the record, White was my dissertation advisor and a coauthor; I've coauthored a paper with Horwitz; and I've read just about everything Hayek has ever written. So I am familiar with their works, thanks.
I have no doubt that you were influenced by Horwitz. I see his thinking has rubbed off.
DeleteAs to my point, let me see if I can get to it this way. Do you think there are circumstances under which monetary expansion does not distort the economy? Now, let's forget jumping jack Hayek, do you believe Mises or Rothbard would agree with you that at a call for "stabilizing nominal income" by monetary expansion is, under any conditions, consistent with ABCT and sound economic policy?
Let's go further, do you believe Mises or Rothbard would ever adopt the cocept "velocity" to discuss any part of ABCT?
In my view, you are positively Horwitzian in your muddying of consistent, orthodox Austrian business cycle theory.
Bob, he won't respond. You exposed the weakness of his "philosophy" and the solipsistic grounds in which is rests.
DeleteThere are no "first principles" or objective facts- just subjective and jejune "feelings".
Thank GOD these annoying gnats are being marginalized by Ron Paul and the real Austrians.
I will always be thankful that REASON magazine introduced me to Rothbard, but other than that they are useless tools.
Mises offered two primary complaints against the quantity theory of money (See TMC, starting around p. 131). First, he preferred to talk in terms of the demand for money rather than velocity. Most modern economists recognize that the demand for money is inversely related to velocity. If you'd feel more comfortable replacing all my "V"s above with "1/k"s, by all means, knock yourself out. When I use the term "velocity", I am referring to its standard modern use, which is just shorthand for talking about the demand for money.
DeleteSecond, Mises disagreed with the idea that an increase in M would cause a proportionate increase in P. This is irrelevant for our discussion since I have only used the equation of exchange (MV=PY), whereas the quantity theory further specifies that V and Y in the equation of exchange are constant. I have not made those additional assumptions so I am not subject to any criticisms levied at those assumptions.
I think Mises would agree that stabilizing nominal income by monetary expansion might be desirable (it isn't necessarily so...there are other factors to consider). Consider this quote from TMC p. 138.
"An increase in the amount of fiat or credit money is only to be regarded as an increase in the stock of goods at the disposal of society if it permits the satisfaction of a demand for money which would otherwise have been satisfied by commodity money instead, since the material for the commodity money would then have had to be procured by the surrender of other goods in exchange or produced at the cost of renouncing some other sort of production."
Of course, Mises is considering a commodity money context. But his analysis is consistent with what I have been saying. An increase in the amount of fiat or credit money can increase wealth if if it permits the satisfaction of an increased demand for money. How? Well, in the absence of the monetary expansion, the desired money balances can only be procured by the surrender of other goods in exchange. In the absence of monetary expansion, individuals will have to save, invest, or consume less in order to hold more money.
Do I think there are circumstances under which monetary expansion does not distort the economy? No. But I think that's the wrong question. The increase in money demand distorts the economy in much the same way as a decrease in money supply. Therefore, if there is an increase in money demand, distortions are unavoidable. The question is whether it is preferable to have the distortions from the increase in money demand (if we don't expand the money supply) or the distortions from the increase in money supply (if we do expand the money supply). I think reasonable people can disagree about the answer to that question. I don't think reasonable people can disagree about the question, though.
Unfortunately, I cannot spend the rest of my life trying to persuade you or the subscribers here that Steve's comment is consistent with an Austrian perspective (as are other statements to the contrary). No doubt Rick Fitz will take this as an admission of defeat. It isn't. It is the recognition of diminishing marginal utility.
Let me be clear. I will never pass your Mises-Rothbard purity test. You have the one true interpretation, against which to judge all facts. I, on the other hand, am willing to accept that these men were fallible and might have made some mistakes along the way. So, rather than asking whether your views are closer to Mises or mine are, I'd much prefer to consider which of us has better ideas; and, more importantly, how we both might increase our understanding of the world (Yes! Beyond that of Mises and Rothbard!). Unfortunately, I do not believe this is something you are interested in doing so I must bow out at this point.
You write:"When I use the term 'velocity', I am referring to its standard modern use, which is just shorthand for talking about the demand for money." Mathematical shorthand both Mises and Rothbard rejected (and one could argue your buddy Hayek in his book "The Counter Revolution of Science" did also)
DeleteYou write: "I think Mises would agree that stabilizing nominal income by monetary expansion might be desirable "
Hayek used the phrase "stabilizing nominal income" in 1935. Mises died in 1973, 38 years later. Yet despite having nearly 4 decades to do so, Mises never came out in favor of "stabilizing nominal income." Somehow though in your crystal ball you see Mises being in favor of stabilizing national income. Quite the crystal ball you have there.
You write: "Do I think there are circumstances under which monetary expansion does not distort the economy? No. But I think that's the wrong question. The increase in money demand distorts the economy in much the same way as a decrease in money supply. Therefore, if there is an increase in money demand, distortions are unavoidable. The question is whether it is preferable to have the distortions from the increase in money demand (if we don't expand the money supply) or the distortions from the increase in money supply (if we do expand the money supply). I think reasonable people can disagree about the answer to that question. "
I think that is the GREAT question. Central bank bank money printing causes huge misallocations of capital. Do you seriously think that there are regular changes in the demand for money by cash holders of such a gyrating nature to cause distortions and the business cycle "in much the same way" as central bank money printing ? Your view is pure Keynes.
You write: " I'd much prefer to consider which of us has better ideas; and, more importantly, how we both might increase our understanding of the world (Yes! Beyond that of Mises and Rothbard!). Unfortunately, I do not believe this is something you are interested in doing so I must bow out at this point."
1. Your crystal ball now tells you what I am and am not interested in, amazing crystal ball. You should become an entrepreneur.
2. More distortions. The point is that you guys continue walk around carrying an Austrian banner, while mouthing mainstream Keynesian thinking. (Not to mention Horwitz's bleeding heart coercive libertarianism)
If you want to hold non-Austrian views that is fine, but you should be honest and say, "I disagree with Rothbard when he attacks the use of velocity in economics" or "I disagree with Mises when he writes against mathematical economics." Instead, by claiming your views are from Austrian you are muddying Austrian theory and making it difficult for future students to understand the particular uniqueness of many Austrian insights. You may not think it is important to keep Austrian insights clear versus muddying them with mainstream thought, I do---so that future students can understand all sides to a debate.
@Will Luther:
DeleteWhile I definitely do appreciate the fact that you can not spend the rest of your life debating the issues here, it is somewhat unfortunate because this back-and-forth debate has been productive. Even if both sides do not come to agreement, the posts and counter-posts begin to illuminate where some of the differences are.
For instance, I found it interesting that you consider the concept of velocity to be conceptually the equivalent of the inverse of the demand for money. I wonder if your view on velocity accounts for your opinion as to the desirability of increasing the money supply in cases where the demand for money increases. From my perspective, the quantity of money demanded would be affected by the prices of what could be purchased. Thus, if there was an increase in the demand for money without an increase in the money supply and individuals therefore needed to reduce the amount that they saved, invested or consumed, it would be self limiting. The aggregate nature of the equation of exchange hides all of the action. The concept of supply and demand let one see what is happening. If one is going to replace the demand for money with velocity, it needs to be endogenous.
Another interesting difference that is highlighted by the debate, is that us Mises-Rothbard types are more interested in policies that get the economy off the QE merry-go-round. The GMU crowd seems to be more focused on prescribing the optimal, ad-hoc, temporary QE fix to hide the results of the previous optimal, ad-hoc, temporary QE fix, even if it creates the next round of undesirable results.
"Unfortunately, I cannot spend the rest of my life trying to persuade you or the subscribers here that Steve's comment is consistent with an Austrian perspective (as are other statements to the contrary)."
DeleteWeaving apologia can make one weary, indeed! Perhaps housing your intellect on the bedrock of liberty would be preferable to the shifting sands of coercion...
@Quaero Quero
DeleteThanks for the kind words.
"The GMU crowd seems to be more focused on prescribing the optimal, ad-hoc, temporary QE fix to hide the results of the previous optimal, ad-hoc, temporary QE fix, even if it creates the next round of undesirable results."
There is nothing ad-hoc or temporary about a nominal income level rule when there is a nominal income futures market. It's neutral monetary policy. See this post by Lars Christensen.
http://marketmonetarist.com/2012/07/19/the-ngdp-level-targeting-the-true-free-market-alternative-we-try-again/
Also, you and I must use the word "optimal" differently. It is very unlikely that a policy which "creates the next round of undesirable results" is optimal. And, in the unlikely event that such a policy is optimal, those undesirable results must be more desirable than the alternative...since that is what optimal means.
THIS: "If you want to hold non-Austrian views that is fine, but you should be honest and say, "I disagree with Rothbard when he attacks the use of velocity in economics" or "I disagree with Mises when he writes against mathematical economics." Instead, by claiming your views are from Austrian you are muddying Austrian theory and making it difficult for future students to understand the particular uniqueness of many Austrian insights. You may not think it is important to keep Austrian insights clear versus muddying them with mainstream thought, I do---so that future students can understand all sides to a debate."
DeleteWhy doesn't will answer this?
This reply clearly shows you are not an Austrian. Thanks for un-muddying the waters.
Delete@William Luther:
DeleteI don't know if there is a relation between Will Luther and William Luther, but I'll answer anyway.
I can not see how any sort of policy of government intervention in markets, even if it is based on an arbitrary rule such as NGDP targeting, could possibly be considered a neutral monetary policy. The link that you refer to makes claims to that effect, but does not provide any support.
I don't believe that there is some sort of optimal government intervention. That was my point. Will Luther argued that one needed to compare effects of changes in the public's demand for money with the effects of changes to the money supply, thus implying some type of optimality calculation. Since he does agree that changes in the money supply are not neutral, if we are to follow his policy, every time the demand for cash balances changes the government must jump into action and alter the supply of money, which will produce other negative effects. This in turn will create a "need" for another intervention.
Also lets not forget only very recently Horowitz had an article out that declared Mises to actually be a subjectivist. Not in the sense of subjective value preference, but in the sense of being able to know truth at all. If you even know the slightest thing about Austrian rationalist economics you would realise Mises definitely did not have this opinion.
ReplyDeleteTo understand why Horowitz, the GMU Austrians, Bleeding Heart Libertarians are the way they are, you must read this piece by Murray Rothbard.
http://mises.org/daily/2337/
The genesis of their ridiculous approach to libertarianism and Austrianism, comes from their teachers during the 1980's, Don Lavoie and Diedre McClosky. Basically they were taught a form of nihilistic scepticism, that man cannot know any objective truth, that ethics and economics cannot be rationally deduced from self evident first principles, because all knowledge is a subjective whim and emotion.
This is why they dismiss the rationalist method of Rothbard and Hoppe, pay lip service to Mises, and instead worship at the altar of FA Hayek.
So what is the logical end result of believing there is no objective truth or ethics? It leads directly to an pragmatic, social engineering, progressive, do gooder view of coercive institutions.
Rothbard:
DeleteIt must be noted that nihilism had seeped into current Austrian thought before Lavoie and his colleagues at the Center for Market Processes embraced it with such enthusiasm. It began when Ludwig M. Lachmann, who had been a disciple of Hayek in England in the l930s and who had written a competent Austrian work entitled Capital and Its Structure in the 1950s, was suddenly converted by the methodology of the English economist George Shackle during the 1960s.20 Since the mid-1970s, Lachmann, teaching part of every year at New York University, has engaged in a crusade to bring the blessings of randomness and abandonment of theory to Austrian economics. When Lavoie and his colleagues discovered Heidegger and Gadamer, Lachmann embraced the new creed at the 1986 first annual (and, if luck is with us, the last annual) conference of the Society of Interpretive Economics at George Mason University.
This guy Horowitz says RW is doing other things, "rather than working" ?
ReplyDeleteHow obviously wrong.
"(and most of that crowd are not) ... the members of the community of serious scholars of political economy"
That has to be the most insulting degradation I have ever read about a group whose done more for the youth, and for invigorating concern, rooted in the truth of logical science--to say they aren't serious scholars? Disgusting.
The 'scholars' sought for engagement in economic thought? The market...
Deletehttp://youtu.be/ZsenwJCsiQ8#t=6m20s
"And that's because they are part of libertarianism's dying past (aka consistent libertarianism)
ReplyDeletenot its vibrant future (aka sell-out libertarianism)."
Apparently Horwitz isn't aware that "bleeding heart libertarianism" is a complete anomaly in the - itself - not particularly large libertarian movement. I never heard of a SINGLE convert to "bleeding heart libertarianism" (well, maybe Cathy Reisenwitz) but Youtube is full of converts to the "angry, dying, old" version of libertarian.
Seriously, how many 'progressives' have we been hearing being open to libertarianism to begin with?
It has no future, and it can never have a future for the simple reason that it is inherently internally contradictory. Either you think there is justification for state aggression for the "common good" or you don't. You can't have it BOTH ways and think any argument you have would even begin passing the test of plain logic. It is argument from pity, plain and simple. They know it, that's why they use the phrase "bleeding heart". And that's also why you'll never get a logically consistent response from them (as can be seen above). Because it requires ideas that are consistent and not based on emotion. Whether an idea is "new" or "old" means NOTHING. It only matters if it is good or bad, consistent or flawed, moral or immoral. Horwitz proves with his argument he doesn't even understand basic common sense. Who gives a damn whether an idea is new or old? Who even gives a damn whether "our" version of liberty never existed? If it never did, then he must BY DEFAULT agree that "our" version is also new.
Was immediate abolitionism of slavery "old, angry, hateful, dying"? Maybe so, but SO WHAT? It was RIGHT because it fought evil!!! It was angry because it fought evil.
Horwitz is like the guy saying it's better to be part of a "new, open, vibrant" future of trying to find a middle way between abolitionism and slavery.
There is nothing "new" about their so-called ideas. They're preceded by Milton Friedman. What they support is not libertarianism. It is called neoliberalism.
No Austrian should ever use the loaded term "aggregate demand" without a major caveat about the term. In the context of the government or central bank increasing "aggregate demand", what is being described is a population of citizens who are either too poor or not inclined to purchase final goods in amounts that were anticipated by either the sellers or the government. Increasing "aggregate demand" refers to a process whereby the populace is given access to new funny money either via loans or gifts which provide them with purchasing power stolen from others in order to make purchases that they would not otherwise make. We know this logically and it is not testable. I suppose statistical analysis could help us guess-timate the impact of the policy but since the counter-factual consisting of the non-intervention version of reality was not allowed to come into existent, such analysis is always problematic. Further, the concept sneaks into the conversation the near total destruction of due process of law and any concept of property rights in one's money and savings. Wealth is being shifted willy-nilly without a specific legislative act (among other major problems).
ReplyDeleteWhile I have many concerns with Hayek, in 1975 he explained:
“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure [he basically means an unimpeded price structure]. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.
****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
"No Austrian should ever use the loaded term "aggregate demand" without a major caveat about the term."
DeleteNo one, Austrian or otherwise, should every use the term aggregate demand. It is a misleading term. It seems to imply that it is the sum of all demand or something to that extent. But that is nonsense. It is just the combinations of P,Y (i.e., nominal income) consistent with a given level of nominal spending (i.e., MV). We'd all be better off talking about nominal income or nominal spending than aggregate demand.
"In the context of the government or central bank increasing "aggregate demand", what is being described is a population of citizens who are either too poor or not inclined to purchase final goods in amounts that were anticipated by either the sellers or the government. Increasing "aggregate demand" refers to a process whereby the populace is given access to new funny money either via loans or gifts which provide them with purchasing power stolen from others in order to make purchases that they would not otherwise make."
This is not precisely true. As I've recently written in another thread:
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A decrease in velocity is an increase in the demand to hold money. Economic agents would like to hold more money; they do not want to save less, invest less, or consume less. They would prefer that there is more money to hold so that they can continue saving, investing, and consuming *while also* holding more money. If this isn't possible, then they will be forced to sacrifice some saving, investing, or consuming in order to increase money holdings. But this is a second-best solution for them. The first best solution is that they hold more money while continuing to save, invest, and consume as before, which is only possible if more money is created.
Thus far, I have assumed prices are somewhat sticky. Of course, there is no need to reduce saving, investing, or consuming (in real terms) if prices are perfectly flexible. And yet, monetary expansion might still be desirable in this case (though it is less likely to be). As Alex Salter and I have argued elsewhere, whether the best policy is to (1) wait it out or (2) increase the supply of money in the case where prices are perfectly flexible depends on the cost of adjusting prices and the cost of increasing the supply of money.
http://ssrn.com/abstract=1993182
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@ Will Luther
Delete"V [velocity] is an absurd concept." Rothbard, "Man Economy and State" 840 (in Chapter 11 - Money and Its Purchasing Power, Section 13 - The Fallacy of the Equation of Exchange.)
Also, it is easy to make a vague, passive-tense statement like "monetary expansion might still be desirable," while avoiding its nasty implications. How does one "increase the supply of money" without engaging in coercive, State-supported credit expansion that favors the first recipients of the new money and further distorts the production structure? The only fair alternative would be if an angel could magically give every person one additional dollar for, say, every $1,000 already possessed, and this would have no effect on the supposed problem.
AlanA--
DeleteAWESOME!
Until they can explain how giving new HOT money to the "elite" is not inherently distorting the capital structure their "philosophy" falls apart.
@Alan: See my comment above on the velocity of money. Rothbard's criticism (like that of Mises) is of an older conception of velocity that had no relation to the demand for money. I am using the term in its standard modern sense.
Delete"How does one "increase the supply of money" without engaging in coercive, State-supported credit expansion that favors the first recipients of the new money and further distorts the production structure?"
In a fiat money regime, you can't. But so what? The relevant question is whether this "evil" is better or worse than the alternative. Again, distortions will occur.
It is interesting to note that hard money types are quick to point out that fiat money expansion favors the first recipients and yet I rarely hear this criticism levied against a gold standard. But don't those digging up gold get the new money before everyone else? Is this fair? For the record, I think it is fine. I am just asking for some consistency.
"The relevant question is whether this "evil" is better or worse than the alternative."
DeleteIn other words, perpetuating the "evil" is more desirable than the facing the consequences which come as a result of the "evil"? Good thing no one has invented fiat heroin!
"It is interesting to note that hard money types are quick to point out that fiat money expansion favors the first recipients and yet I rarely hear this criticism levied against a gold standard. But don't those digging up gold get the new money before everyone else? Is this fair? For the record, I think it is fine. I am just asking for some consistency."
There is a huge difference between the mining of a scarce resource, and the printing of a currency unit- which can be done ad infinium. It is hard to satisfy your desire for consistency, when you offer an example of almost precise opposites!
"In a fiat money regime, you can't. But so what? The relevant question is whether this "evil" is better or worse than the alternative. Again, distortions will occur."
DeleteSo what? You are not an Austrian so what. If one wanted to make the world better based on economic learning and one should advocate against the fiat money system and central banking, NOT more monetary intervention as you are doing.
NOT AN AUSTRIAN.
This isn't even a purity test. It's not even close!
We are playing baseball at the park and you are playing cricket right in the middle of us. You keep telling everyone you are playing baseball. We are all shaking our heads at you.
@Zach:
DeleteMises occasionally "played cricket" as well.
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From Richard Ebeling:
"For almost a quarter of a century, from 1909 to 1934 (except during the First World War), Mises worked as an economic-policy analyst and advisor to the Vienna Chamber of Commerce. From the ages of 28 to 53 (when he moved to Geneva, Switzerland to accept his first full-time academic position, at the Graduate Institute of International Studies) he spent his working day as a "policy wonk." And I mean a "policy wonk" — someone immersed in the factual details and economic policy specifics of, first, the old Austro-Hungarian Empire and, then, the Austrian Republic between the two World Wars. His statistical knowledge of "the facts" relating to Austrian fiscal policy, regulatory legislation, and monetary institutions and policy was precise and minute."
"What comes out from reading Mises's policy writings from this period of his European career is that if you had asked him a fiscal, or monetary, or regulatory-policy question in the context of his role as analyst at the Chamber of Commerce, he would not have said, and did not simply say, "laissez-faire" — abolish the central bank, deregulate the economy, and eliminate taxes."
"In the give-and-take of everyday Austrian politics and policy decision-making, Mises accepts that there are certain institutional "givens" that must be taken for granted, and in the context of which policy options and decisions must be worked out."
http://mises.org/daily/4189/The-Other-Ludwig-von-Mises-EconomicPolicy-Advocate-in-an-Interventionist-World
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I don't think this is any different from the approach I've taken. Sure, I'd love to abolish the central bank. I'd much prefer free banking with a commodity base. And I've written academic articles about alternative currencies. But within the context of current US monetary policy, I think it is foolish to say that those working in the Austrian tradition have nothing relevant to contribute. It is OK to offer second-best policy advice when first-best solutions are not on the table. Given that we have a central bank, and it is highly unlikely to be abolished, the best we can hope for to avoid (or, at the very least, dampen) monetary disturbance and the boom-bust cycle articulated by Mises and Hayek is the strict adherence to a nominal income level rule, with a free market in nominal income futures contracts.
Here ya go, Will. I agree with Robert, Mosquito, and Miller's positions. Your's is a bit of a stretch, though I wasn't familiar with Mises being a policy wonk in those years. As Mises himself says, "...my only regret is my willingness to compromise... (thanks to Wenzel)." Perhaps we can learn from this great scholar's mistakes as well as his achievements?
Deletehttp://www.economicpolicyjournal.com/2014/01/on-mises-as-public-policy-wonk.html
"Libertarianism should be joyous and open, not angry and closed."
ReplyDelete"...understand that I DO NOT CARE what those folks think of me or my work and I will not be responding."
Thanks for the advice, hypocrite!
"The people whose views of my work I care about are the members of the
community of serious scholars of political economy (and most of that crowd
are not) and the young, and young at heart, who see libertarianism's
progressivism and are who are taking both old and new ideas seriously in
their attempt revitalize our movement in its image."
1. "...they are part of libertarianism's dying past not its vibrant future." "...taking both old and new idea seriously..." Contradiction?
2. I cannot believe someone who claims he only values the opinions of "serious scholars" would act in such a childish manner! Oh well, thanks for the laugh!
This is wonderful. I think this comment deserves to be made into a post of its own!
DeleteSo long as this is done politely but still very much publicly, this can put Steve in a real bind unless Steve wants to claim that pointing out logical errors and contradictions in Steve's thoughts is "being angry and closed" or some other ridiculous claim. Steve could admit he was in error and salvage something out of it though - please give him a chance.
Rick Miller---
Delete+100000!!!
Hypocrites suckling at the teat of the government. They should be ashamed.
Wow. That is one very angry, doubletalking econ professor. And the chairman of the department, too! Maybe he should find a new line of work or a better hobby.
ReplyDeleteNew discovery. A book of Rothbard essays including "THE NEW METHODOLOGY AND THE BURGEONING OF “AUSTRIAN” FALLACIES"
ReplyDeletehttp://www.rothbard.it/raccolte/economic-controversies.pdf
Give the guy a break. It's really unsettling to hear "the emperor has no clothes", and everyone's pointing at you...
ReplyDeleteHis coming out against the "Ron Paul crowd" speaks volumes. His insistence that his crowd is the future, inspiring the young, not "the Ron Paul crowd" belies delusions of grandeur and ignorance of the reality of the world. I am one of millions of the young inspired by Ron Paul, began reading the "old past" Mises crowd because of him, and am a part of libertarianism's' future. I have never heard of Horowitz before, and now reading what he has to say, I do not think his version of libertarianism has much of a future, and I don't think insulting RP will help him change that or make him more popular with "the youth."
ReplyDeleteI also find it so hard to believe that Horwitz was in Tom DiLorenzo's class. He must have been sleeping in class because he sure didn't learn much.
ReplyDelete