Wednesday, August 3, 2011

Rothbard in My Corner says Murphy

Bob Murphy has put up a post stating that he believes Rothbard would agree with my definition of savings, versus the definition that Murphy was using. Murphy writes:
Rothbard Sides With Wenzel on Cash Balances

Such is my devotion to truth, integrity, and the scientific status of Austrian economics, that I am unilaterally reporting the following footnote that I discovered while preparing tomorrow’s lecture for my online tour of Man, Economy, and State....

The fact that Rothbard is putting “save” in quotation marks, in conjunction with Wenzel’s other quotes that he dug up from Rothbard the last time we had this argument, makes me think that Rothbard probably would largely side with Wenzel in our spat, especially if he heard that I had said nice things about Keynes’ views on interest and money.
While I appreciate Bob's gracious notation, I continue to believe that the even bigger problem is that Keynes used the term savings simultaneously in the now infamous Chapter 13 in two different senses. By using the word savings simultaneously to mean investment and hoarding, Keynes ends up giving bad policy recommendations (in other parts of the General Theory) because he is confused as to what savings is.

I must also note that Murphy continues to dispute the correctness of my view (and Rothbard's). My response to this would be that we are simply disputing definitions and that once understood in that context, it should be understood that anyone can define a word anyway they want. However, my definition (and Rothbard's) is more enlightening in identifying the differences between hoarding and investment, versus Murphy's definition which lumps the two together, since hoarding and investment have two very different impacts on the economy.

All that said, there is a reason they call Murphy a class act. Thanks, Bob.


  1. Bravo, Murphy. After years of watching the unscrupulous media-academic complex in its petty and not-so-petty intellectual frauds, it's great to know there are people who are still intellectually honest.

  2. Mr Wentzel,

    what Murphy probably wants to achieve by this “addmision” is what Selgin, Horwitz and co regularly do: they take some standard Austrian doctrine they do not like and portray anyone who shares it as a crazy "Rothbardian", implying, or insinuating (sometimes explicitly stating) that Mises or Hayek would not share the same assumption. So finaly, we have two guys - a “Rothbardian” who asserts the obvious Austrian points, and a "Misesian" or "real Austrian" who asserts essentially what Keynes or Friedman could accept.

    Similarly, what Murphy does here is to imply that Mises or someone else in the Austrian tradition would deny that money has three different purposes – saving, consumption and insurance against uncertainty (by saying that hoarding is a form of saving) and to ascribe this view exclusively to Rothbard and “Rothbardians”. However, the three-fold definition in question is provided by Mises himself and only accepted by Rothbard. So, you should not be congratulating Murphy at all because he us a very dishonest guy. Not, only that he uses the same rhetorical ploy as Selging and Horwitz, he additionally says that Rothbard would probably criticize him especially once he saw Murphy's affirmative comments on Keynes (you know that crazy, intolerant sectarian Rothbard). Expect Murphy to join Selgin soon by praising Friedman and trashing Rothbard (that would not be too hard, since he already trashes Rothbard and praises Keynes).

  3. It's not uncommon for intelligent people to argue over the meaning of words and labels (the subjective) when they already agree on the things that matter. For example, see the never ending debate over the label "capitalist" between 2 sets of people who both think the state is the problem and freed markets are the solution.

  4. Now that you guys have settled the battle, lets win the war. hehe

  5. @Dr. Navaro,

    Even if Murphy wanted to differentiate between Rothbard and Mises, so what? Are either of these two men so intellectually fragile, that they cannot withstand someone's interpretation?

    Someone likes Rothbard more, someone likes him less. So what? Ideas about liberty did not begin and end in twentieth century America.

    It's a big word. It deserves big minds and hearts.

  6. Does this mean we get to have another Murphy / Wenzel seminar?

  7. Navaro, you're being obtuse. Murphy is certainly NOT "a very dishonest guy." He is just doing what we all do: defend one's convictions and occasionally take arguments over definitions further than is probably necessary.

    Arguing over definitions is healthy, because it enables people to understand what other people are meaning to say when they use words that mean different things to different people. We all know that we're arguing over definitions. The crucial point here is why definitions are important, and why certain definitions have a tendency to lead to confusion, while other definitions have less of a tendency to do so.

    Murphy argues that reducing one's consumption, and accumulating cash, should be considered saving, because it seemingly satisfies all the conditions for saving, namely, there is an abstaining from consumption, a reducing/delaying one's consumption in the present so as to increase one's consumption in the future, an acquiring of an "asset" (money) that is held for a period of time after which it is then used in exchange to acquire consumer goods, a generation of a positive "saving = income minus consumption," etc. It plausibly does look like one is saving by hoarding cash.

    "Rothbardians" would instead say that this is all just "holding more cash," and not saving. Money in the Misesian/Rothbardian framework is that it is a medium of exchange, and so the emphasis is on what uses money is put towards in exchange. That means saving relates only to some use of money as a medium of exchange.

    My definition of saving is: the USE of sales revenues and income for purposes other than purchasing consumers goods and services.

    The context I declare this definition is that money is a medium of exchange. Saving, in my treatment, therefore relates to what people do with money in an exchange framework, specifically, it is a use in exchange for purposes other than consumption. In other words, it is abstaining from consuming and investing instead.

    Murphy's treatment of saving goes outside the exchange framework. He includes non-exchange. He treats the mere holding of that which is money to be a property of money itself. I find that treatment to be sloppy and cause for confusion, not only because it leads to bad policy perscriptions a la Keynes, but also because it simply denies that money is by nature a medium of exchange.

    People also "hold" houses, cars, and computers. But are these commodities a money? No, because they are not mediums of exchange. They are held, they are exchanged, usually for money, but they are not themselves money, because they are not mediums of exchange.

  8. Money, in my treatment, is not a concept that has meaning external to an exchange context, let alone a medium of exchange context. Money must have an exchange attribute. Thus, saving money, in my treatment, only makes sense if the act of "saving" relates to exchange.

    Murphy's treatment of savings implies that his definition of money is that it contains an additional attribute of something more than just a medium of exchange. To him, the concept of money does not exclude the attribute of non-exchange.

    I can't see the concept of money as anything other than a medium of exchange. I don't acquire money for any other reason than to make future exchanges. If I acquired gold, or federal reserve notes, with the intention not to use it in exchanges, then I am not acting consistent with that commodity being a money. I would instead be acting consistent with treating that commodity as a consumer good that gives me final utility, like a sandwich, or a car.

    Sure, others may be using it in exchanges and acting using their identical copies of the commodity I own to be a money. They far outnumber me however, and money is an economy-wide concept that means (universal) medium of exchange.

    I honestly don't know what universal means exactly. Is it 99% of the population accepting a commodity as a means of payment that makes it a money? Is it 95%? 90%? At what percentage of the population does an accepted means of payment make that commodity not a money? If my friend and I accept cigarettes as means of payment for each other's goods and services, then we could not call cigarettes a money, because only a tiny minority of other people would accept it as a medium of exchange. But what if 1000 people accepted it? Would it be a money then? No? How about 1 million people? Ten million? 20 million? I worry that nobody, to my knowledge, has ever narrowed down the meaning of money. Maybe money is a concept that has no strict boundaries? I'm writing this and having a bout of woah, I don't even know what money truly is.

    What I do know is that one individual, two individuals, even a million individuals, cannot violently overrule a market of hundreds of millions when it comes to the concept of voluntary mediums of exchange, and call the violence backed commodity a legitimate money. (This is, incidentally, why I don't consider federal reserve notes to even be a legitimate money, because it is not an individual-based, market driven medium of exchange commodity). I just use the word money as a lazy way to refer to the commodity that violence has wrought upon humanity to make it a medium of exchange artificially.

    I would argue that in order to call the commodity that one has a "money", one has to take part in exchanges with others using that commodity as a medium of exchange.

    But then there is the Austrian idea that in all things economics, it is individual action that is the ultimate foundation. Thus, is somebody making an exchange with themselves by abstaining from consuming now, holding cash, and then consuming later using that cash? I know Mises thought so. He called it autistic exchange. Rothbard agreed with Mises in MES.

    If then we consider that entire societies of people all use their bodies to make autistic exchanges with themselves everyday, like brushing their teeth to achieve a goal of whiter and healthier teeth, then can we argue that human bodies are a universal means of (autistic) exchange, and hence a money? Bodies are after all universally accepted as a means to make (autistic) exchanges. What about ideas? Same thing. Ideas are also universally accepted as a means to make autistic exchanges.

    So I think the question becomes: does money have to be alienable? If not, then I would have to agree with Murphy's treatment of savings. If it does have to be alienable, then money only makes sense in an exchange framework, and saving money can only relate to some use of money in exchanges.

  9. "Reunited and it feels soooo goooood..."
    ~Peaches and Herb
    circa 1979

  10. Doctor Navaro,

    If you're right, things would be worse than you realize. I would be the Anakin Skywalker of Rothbardianism. Do you realize that just last week, the foolish Mises Institute allowed me to teach hundreds of young students about the contributions of Mises and Rothbard? You should warn them about my ulterior motives.

  11. I'm with Joe Nelson, it's time to have another Murphy/Wenzel (or would it be Wenzel/Murphy?) seminar! Specifically in the Boston area again.

  12. Bob Murphy,

    I don't know whether Mises institute allows you to teach kids or not, I know only that you trashed Rothbard as a silly and intolerant guy (who would attack your theory of savings as soon as he understands that you have ANYTHING positive to say about Keynes).

    Just the other day I saw a video of the lecture delivered by George Selgin at the Mises institute a year ago or so. I assume that some kids also were present during that lecture. Does that mean that Selgin is a great admirer of Rothbard or Mises?