Friday, July 15, 2011

Murphy Declares Victory Against Me by Attacking Someone Else

Well here's a new trick in beating Mike Tyson in a boxing match. Beat up on someone else and declare victory against Mike Tyson.

In the comments section of the back and forth between Bob Murphy and me, someone  has been having a parallel debate with Murphy. That debater identifies himself as Major_Freedom. This parallel debate has nothing to do with me. ZERO. I don't know Major_Freedom, have not read all his comments (especially those that appears at Murphy's site) and neither approve nor disapprove his arguments. I don't even know what they are.

Yet, this is what Murphy tries to pull off in his latest post:


I lied when I said I was done posting on this topic. But now I’m truly done. If the following doesn’t convince you folks that Wenzel/Major Freedom got off on the wrong footing, I don’t know what else would.

Major Freedom in one thread writes: “Investment and consumption, THOSE are commensurable concepts. They are both stock concepts…”

But then in the other thread he writes:
Income is flow, because it compares (say, yearly) revenues to (say, yearly) expenses over a time period. 
Consumption spending is stock, because it is just the act of spending not for the purposes of making subsequent sales. Sure, you can look at consumption events over time, just like you can look at cash balances over time. But so what.
Investment is flow, because it is spending for the purpose of making subsequent sales.
I think we should all take a breather and collect our thoughts.
This argument has nothing to do with me. I have never said a word about stock versus flow in my argument. To link my argument with Major_Freedom is over the top (to be extremely polite about it).

Now, Murphy is slick because he goes on to discuss Mises and Rothbard with regard to their definition of savings, which I have already pointed out I am fine with the points made by Mises and Rothbard since Mises and Rothbard make a distinction between savings as hoarding and savings as investment. It's fine to use savings as non-consumption, when you further go on to make the distinction bewteen hoarding and investment. Keynes on the other hand mixes the two uses of the words savings as if they were the same thing, which is what is at the heart of Keynes's error on the topic. This is the essence of the debate between Murphy and me. Yet, Murphy has not addressed the Keynes sloppy definition of savings at all, other than to pull in two quotes from Mises and Rothbard, where they make the exact differentiation that Keynes fails to do.

To repeat, here is what Murphy said about Keynes:
Keynes is brilliant in Chapter 13 of the General Theory...on his neutral, scientific assessment of what interest is, I actually agree with him more than Mises.
Here is the Keynes quote he pulls to justify Keynes "brilliance" (I have added the numbers to identify sentences)
It should be obvious that the rate of interest cannot be a return to saving or waiting as such. [1]For if a man hoards his savings in cash, he earns no interest, though he saves just as much as before. [2]On the contrary, the mere definition of the rate of interest tells us in so many words that the rate of interest is the reward for parting with liquidity for a specified period. For the rate of interest is, in itself, nothing more than the inverse proportion between a sum of money and what can be obtained for parting with control over the money in exchange for a debt for a stated period of time.
In sentence 1, Keynes is talking about hoarding, in the first half of the sentnece, but in the second half lumps this together with all savings (including investment) to reach the conclusion that savings doesn't earn interset. He is talking about two different things, which Mises and Rothbard clearly differentiate. No one earns interset via hoarding, and no one invests (or loans out) without at least expecting interest for losing immediate access to money.

In sentence 2, it seems to me that Keynes is simply dicussing time preference but calling it liquidity. What really is the difference between dispalying time preference, i.e., loaning (investing) money for interest, by lending it out for a future payment verus "liquidity" which is giving up current access to money over time for a payment? It's the same thing. Yet by Keynes' initial use of savings to mean two different things at the same time, and reaching the conclusion that you don't earn interest for savings, results in Keynes being forced to seek another reason to explain payments above interest and comes up with "liquidity", which is really the same thing as time preference.

In other words, Keynes's sloppy use of the term savings, with a failure to differentiate between hoarding and loaning money out (investing), causes him to toss over board the idea that one can earn interest when saving, which forces him to come full circle and invent the term liquidity, which is a round robin method to get back to acknowledging that one gets paid because of time preference when giving up immediate access to money.

This is the essence of the debate, which Murphy continues to fail to discuss, while absurdly declaring "checkmate" over some Wenzel-Major_Freedom argument that doesn't exist. Amazing.


  1. I hope you two girls kiss and make up at some point in time.(plus girls kissing is hot!)

    Let's not forget that you both align in the majority of your viewpoints.

    I'm not going to debate how important the issue of savings versus hoarding as I'm simply not as well versed as both on you...nor do I fully understand the implications of the debate in the bigger picture.

    That being said, it is still monetary theory which will never be an "exact" maybe it's time to move on to the larger issues that have more impact on the cause of Liberty.

    I intensely listen to Schiff, Rogers, & Faber and they have some minor differences of opinion on where to "save" (or hoard! lol) your money.

    I've chosen for now to stay with physical bullion, which is best for my circumstances. The reason was that Faber has made one statement that made a little more sense to me than Schiff(pushing overseas investments) and Rogers(pushing commodities like Sugar).

    Faber said(paraphrasing very loosely) that in an economic environment like this most everyone is losing money and sometimes the best strategy is to minimize your losses...and you come out a "winner" compared to others taking higher risk.

    I would say that 4 or 5 years ago Schiff never discussed the idea that the rest of the world might print up money just like the U.S.-and from that perspective the complexity of exchange rates coupled with global monetary manipulation has made me personally decide for something I know holds value no matter what.

    Am I "hoarding"? I think so....but if one constrains a defintion of "savings" to that which is earning interest you would have to concede that many people are probably earning NEGATIVE REAL INTEREST rates on their money(unknowingly obviously) even though some might call it savings.

    While I on the other "hoarding" but probably doing much better because of my instrument choice.

    One area I disagree with Faber on is his claim the other year that "real estate" was a good protection asset for your money. I almost laughed when he said it because he is so brilliant in so many areas...but it just goes to show that no one is right all the time.

    Maybe he should have clarified and said "In some markets real estate may be a good hedge against inflation"...instead of a blanket statement.

    I would say anyone choosing that asset class in the U.S. or China is going to get burned(if not already)....especially when you factor in desperate US counties/municipalities reaching for cash anywhere they can get it(aside from STILL overblown value)....all of a sudden your "assets" look like a pretty damn easy target....

  2. When Faber punts real estate, he's talking about high-end real estate or farm land, not your average residential. He's also not saying everyone should buy these properties, but those with (and you should read his gloom, boom, doom report where he is clearer on this, or listen to some of his interviews where he says this) lots of cash that is on deposit in the banking system. Faber argues that it is better to own these types of real estate than to own CD's earning zero interest.

    Oh, and please leave the Bob's alone to fight this battle... for some of us the argument is worth following!

  3. Murphy is definitely going to want you to remove at least one of his remarks from your "What They Say About EPJ" page. :p

  4. It's a intellectual battle trying to define what is what. I'm sure they are still great friends.

  5. "When Faber punts real estate, he's talking about high-end real estate or farm land, not your average residential." let's say I might agree with him on farm land(for now) and disagree on "high-end real estate" assuming that you have clarified his comments accurately.

    That is a present day assumption...looking forward both Faber and Rogers extol the virtues of farming but who says what the local tax authorities will or won't do on land?

    It's much easier to retain wealth on something gov't can't get their hands on....

    But if you want to argue in favor of real estate feel free....I'm not convinced personally but I can always see other sides of things.

    As far as me leaving the "Bob"'s alone; I merely wanted to point out that in the course of their arguments they should remember that they closely align and argue constructively for the benefit of everyone....I know that I implied that and didn't state it excplicitly-obviously I erred in assuming what deductions some people might make.

    Never did I suggest they "not argue". Go back and re-read my comment.

  6. Yes, and friends don't let friends become Keynesians.

  7. If he is already moving to the dark side then this means that Wenzel could try to take over Murphy's website traffic.

  8. Ok, this is getting out of hand, forcing me to overcome my reluctance to comment.

    1) Does saving exist in a barter economy? Of course. Saving is the choice to produce while abstaining from consuming all that one has produced.

    2) Introduce money. Money serves as a receipt for goods produced that entitles one to a certain amount of consumption now or in the future.

    3) Whether you "invest" or "hoard" those receipts is irrelevant. You have already provided the real goods to society. Saving was the choice not to consume.

    4) Mises' point in the quotation in an earlier post was to show that whether you "invest" or "hoard" money, both have a similar effect on the capital structure, although through different mechanisms. And therefore, both constitute savings in the technical-economic sense, not merely in the popular mind.

    I have to side with Murphy on this one.

  9. When Wenzel discontinues the free EPJ Alert to Murphy, we will know it's gotten personal.