Why I Object to Austrian Economics

Anonymous asked me this in another sub-forum: 

Anonymous:

Nathyn:

Outside of here, I mostly ignore Austrian arguments, the same way I ignore Marxists.

 

Nathyn, could you briefly summarize for me what are your major problems with Austrian economics.  I'm curious because I have found that Austrian economics is the only study of economics that really makes sense.  Further, what study makes the most sense to you and why?  (Please don't tell me Keynes, but if so, that's your right.)  Just curious.

Here's my answer:

• Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)

• In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

• In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior
  

• A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

• Skewing economic history so as to give Austrian economics more credit than it deserves (diminishing the role of Neoclassical economics, misinterpreting Neoclassical concepts to conflate the contributions of Austrian economics)

• Spreading their ideas through the use of propaganda to non-economists rather than attempting to get published in academic journals 

• Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations 

• A misunderstanding of and general unwillingness to investigate mainstream concepts

• In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery and seems to be supported by conspiracy theorism (the Jewish Bankers, the Illuminati Bankers, and the New World Order)

• The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom. While Austrian economics is strictly a school of economics, it is used to support an entire worldview.

Much of this has been covered by Bryan Caplan, Justin Raimondo, Milton Friedman, David Friedman, Robert Nozick and others who are Libertarians themselves and don't have a particularly pro-government bias. 

It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy. It was this reason that Greenspan said in the 50's we should have a gold standard but acknowledges the benefits of fiat today. 

The failure of the predictions of Austrian economics to materialize -- like the failure of Marx's predictions about Capitalism to materialize -- have driven them out of the mainstream and towards political extremism, even though in their roots, the historical Austrian school contributed substantially to economic theory.

 "prices have been stable"....

 

Say what?!

 

Your posting is detailed and erudite, but I can't help but wonder what planet you live on if you really think prices have been "stable" since the advent of the Fed.

mormonchess:

 "prices have been stable"....

 

Say what?!

 

Your posting is detailed and erudite, but I can't help but wonder what planet you live on if you really think prices have been "stable" since the advent of the Fed.

 

We haven't had another Depression. On average, we've had rates of inflation of just a few percent a year. That's "stable," certainly better than the banking crises we faced before fiat.

All of your bullet points would be fine except for two problems:

1) They suffer from a presuppositional bias: to disagree with the Austrians on their research direction away from mainstream economics as a critique by itself, for example, is meaningles because of the presuppositional gap between Austrian economics and mainstream economics! That critique is absurd.

2) You continually make assertions such as "Austrians make sloppy use of citations". Yet you cite no instances of such.

Your assertion that recessions are not tied to monetary decisions also lacks support, whereas if you like I will go find the statistics supporting monetary decisions preceding to and subsequent with recessions, just like I have been for the past week on Facebook debates.

While I am unsure about prior Austrian predictions, I am familiar with the Austrian prediction of a massive mortgage bust over the last few years, which has occured. I read about it from three years ago to the current day all the time with writers like the Mogambo Guru. Austrians predicted the credit problems of the banks would lead to problems. They lead to problems. We are not seeing the end of the problems yet.

A lot of your assertions are in blatant contradiction of fact. I have to wonder whether you're serious or if you're a troll. 

I agree with your idea of stability - the stable theft of American savings. Also, your faith in the CPI is absurd. For example, the CPI includes rent but not housing costs. The inflation in housing over the last few years did not touch CPI! But now during the recession rent demand will rise, it will not rise as much as the housing bubble, but the BLS will report the situation like nothing! Not to mention that nobody looks at inflation including food and energy, even though the inflation of those is what is the most important thing evar, which is not nearly as 2%-stable as you like! You have got to be a troll going on like this.

Nathyn:

We haven't had another Depression.

The Great Depression of 1929-33 was the result of central banking.  The Federal Reserve Act was enacted in 1913.  What is a "lender of last resort" that can lend regardless whether it had gold or not?  It's the very definition of fiat money.  The FED as created in 1913 was a fiat money machine; if it had to be constrained by its gold reserves, it wouldn't be able to function as a lender of last resort come fire or high water.  It is the very existence of this "put option" that induced banks to lend more aggressively in the 1920's than they were able to do previously.  That's the root cause of the Great Depression.  Recessions are always about cleansing prior capital misallocations.  The introduction of central banking just made capital misallocation far more widespread than it had to be.

Nathyn:

On average, we've had rates of inflation of just a few percent a year.

  

That's certainly not correct.  You are ignoring the massive asset inflations that have been taking place, from junk bonds, to stocks, to real estate.  Manufactured goods inflation been kept low largely because of manufacturing going overseas and technological advance.  Normally technological advance and trade should bring price down.  Look at the goods and services that have to be produced in this country: healthcare and education, they have been going up at a very high price inflation rate.  That's what would have happened to all prices if we did not have imports to keep price down.  That's why manufacturing is disappearing in this country.

Nathyn:

certainly better than the banking crises we faced before fiat.

The banking crises of the 19th century were largely the result of fiat central banking.  The current FED is not the first attempt at fiat money.  The Greenbacks of the Civil War era produced run-away inflation and its eventual withdrawal resulted in massive contraction; before that, there was the Bank of United States doing the same kind of mischief to the economy.  Even before the 19th century, the fiat Continental Dollar issued during the 13-state secession from the British Empire eventually led to such a massive boom and bust cycle that Shays Rebellion resulted, and the Article of Confederation was sacrificed to give rise to the Constitution. 

The fundamental issue is that fiat central banking transfers wealth from savers to gamblers.  The gamblers being the financial institutions that win big during the boom cycle, and get bailed out by the central bank during the bust cycle at the expense of the savers.    Sure the savers can bet in the casino, too, but the central bank does not bail out their wrong bets like it bails out the financial institutions'; and when the savers do bet correctly, their winnings are diluted by the money printed up to rescue the financial insitutions.  The result is that a large proportion of the population can no longer save for their own retirement as the fiat central banking system cheat their savings away.  They become wards of the state.  That's why confiscation of gold and social security were inroduced back to back . . . just like Federal Reserve Act authorizing the money printing and Internal Revenue Act to artificially create a market demand for Federal Reserve Notes (to pay taxes) were introduced back to back.

I was curious about your claims, so I charted the London/New York market prices for gold in dollars and pounds from 1718-2006 for £ and 1791-2006 for $. 

It would be even more dramatic, but keep in mind that the Fed made gold hoarding illegal and seized private vaults in 1931, and so censored the consequences of its actions for decades.

The trend is clear. The creation of central banks in the U.S. and U.K. led to rapid and continual devaluation of money, unprecedented under the gold standard.

Source:  http://www.measuringworth.com/

 http://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States

http://en.wikipedia.org/wiki/Bank_of_England

I found this interesting regarding the panic of 1907:

"Within a few weeks the panic passed, with only minimal effects on the country.  By February 1908, confidence in the economy was restored."

http://en.wikipedia.org/wiki/The_Panic_of_1907

 

Nathyn:

mormonchess:

 "prices have been stable"....

 

Say what?!

 

Your posting is detailed and erudite, but I can't help but wonder what planet you live on if you really think prices have been "stable" since the advent of the Fed.

 

We haven't had another Depression. On average, we've had rates of inflation of just a few percent a year. That's "stable," certainly better than the banking crises we faced before fiat.

 

What a joke.

We haven't had another Depression? You mean since the first Fed created Depression? And what about stagflation?

Do you know why the dollar was severed from gold? It had nothing to with policy, it was because the US government had printed more dollars than it had gold. When countries started cashing in the dollars Nixon had no choice but to declare bankruptcy and severe the dollar.

You're right, the Fed was invented to end "boom-bust." Fractional reserve banking is self defeating, credit expansion ends in depression. The Fed was created as a "lender of last resort" so that any contractions in the monetary supply, brought about by consumers rejecting fractional reserve banking and initiating bank runs, could be "papered" over.

You're incapable of seeing the difference between economic growth and monetary growth. Bigger numbers = better numbers?

 

• Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)

Austrian economists do not disregard the scientific method. Praxeology is the framework, but I have never seen another framework that can compete with Praxeology. You would think that scientific economists would be able to disprove elements of Praxeology, but there is inadequate empirical evidence to disprove any part of current Praxeological theory, and there is no empirical evdence which supports alternate theories better. It is not the responsibility of theorists to disprove their own theory to prove their theory. Theories are just conglomerations of refutable hypotheses. It is the job of scientists to disprove the dominant scientific theory with empirical evidence. With respect to Austrian theories of economics, scientific economists have failed to do this. This failure on the part of economists indicates that Praxeology is a very strong theory indeed.

• In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

Praxeology does not reject social sciences. Just because empirical evidence is not able to disqualify Praxeology does not mean that Praxeology rejects the social sciences. In fact, I would expect the social sciences (including empirical economics) to disqualify Praxeology; but that is not what we see. Where are the psychologists and psychological theories that discount Praxeology?

• In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior

There is no such things as 'abstract empirical proofs'. Emprical evidence is not proof of anything and it is disingenuous to call anything both empirical and abstraction. What blatant physical evidence does Praxeology ignore?

• A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

'Cult-like worship' is a condemnation I would expect from a sophist. I don't think you would say that physicists have a cult-like worship of Einstein.

• Skewing economic history so as to give Austrian economics more credit than it deserves (diminishing the role of Neoclassical economics, misinterpreting Neoclassical concepts to conflate the contributions of Austrian economics)

To claim that Austrian economics has more credit than it deserves is to assume that its theories are incorrect. This may be so, but without proof, this point is illogical and 'begs the question'.

• Spreading their ideas through the use of propaganda to non-economists rather than attempting to get published in academic journals

Here is another aspect of your obvious bias. Instead of pointing to any other theory which fits better with the empirical evidence or, alternately, providing empirical evidence the disproves Austrian thought, you call the ideas 'propaganda' and claim that economists have not gotten the oportunity to properly dispute the theories because of the populist campaign to promote the ideas. But, even populist ideas have intellectual detractors. Where are they? What proof do they have that counteracts Austrian economic theory? 

• Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations
  

I don't think that the theories of Austrian economics can be held responsible for 'sloppy citations', but it doesn't seem like a legitiate criticism of Austrian economics can be attributed to the fact that it is redundant, since it redundancy might simply be a functon of its explanatory power and increases the chances that it will be disproved. The more times the Austrian economic academics attack other theories, the more evidence there should be of inconsistent theoretical thought or chances to disprove the theories with empirical evidence, yet you claim that this repeated attack as evidence that it is fallacy. This is obviously an inconsistency in your argument.

• A misunderstanding of and general unwillingness to investigate mainstream concepts

Again, this is obiously bias. Why should the proponents of a correct and internally consistent theory attempt to be proponents of other fallacious theories?

• In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery and seems to be supported by conspiracy theorism (the Jewish Bankers, the Illuminati Bankers, and the New World Order)

I haven't seen intellectual support for the theories of Austrian economics to be based in conspiracy theorism. Also, calling a theory crankery is pure sophistry.

• The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom. While Austrian economics is strictly a school of economics, it is used to support an entire worldview.

The fact that a theory accepts axioms is not a logical basis for criticism. All theories are based upon axioms. It would be better for your argument to attack the axioms or to attack the logical progression of the conclusions from the axioms, than to attack the fact that axioms exist. Also, it seems fitting that a social theory as broad as economic theories could lead to the development of a social world view. But where is the empirical evidence that discounts marginal theories of value or subject valuations? Where is the evidence that the theories of supply and demand fail when the good is money?

 

While learning the fundementals of neoclassical economics at my current graduate program and simultaneously pursuing my interest in Austrian economics I've had the oppurtunity to analyze the merits of both schools.  At the beginning of becoming aware of the Austrian School I was indeed skeptical.  Why has such a school remained on the fringes if it is indeed so much better than the neoclassical school?  Like you, I regarded the whole discipline as being cult like, but as I delved deeper into the work of Mises, Hayek, etc. it became increasingly clear that the Austrian school actually did have some valid points. 

 One error I made in my initial judgement with regard to Austrian economics was to mistakenly assume that the mere fact that it was not adhered to by the mainstream was evidence of its invalidity.  This was a mistake, especially with regard to economics since it is so intimately tied to politics and thus the state.  Because of this intimate relationship the discipline of economics has experienced incredible difficulty in it's ability to produce near universal agreement in its particular laws (in contrast to say...physics).  Becase this has hindered its progress so markedly it is no wonder that many consider it a rather unimportant discipline.  The theories produced by Keynes had already been debated and refuted in the 19th and early 20th century.  How could such theories suddenly make a comeback? 

 I don't really understand the criticism that Praxeology rejects sociology and psychology.  That would be synonymous to saying that mathematics rejects sociology and thus it cannot be valid.  It simply doesn't make sense.  Now it is true, Praxeology does not incorporate these disciplines but that's becuase praxeology itself is a discipline.  It is dinstinct from such disciplines.  It is indeed interesting to combine sociology and psychology with praxeology to perhaps come up with a more comprehensive and sophisticated hypothesis but you would no longer be able to derive fundamental laws.  This is all incredibly clear in Mises work which you have most obviously not understood.

I have read all of Caplan's criticisms as well as many of the others and like you, were initially convinced of all them.  But once again, as I contrasted the arguments of the Austrian side to the arguments of the others, it was quite clear who was victorious.  To list every neoclassical argument and every Austrian argument would be incredibly laborious but I will point you to what I think is perhaps the best elucidation of Austrian and Neoclassical differences(http://mises.org/multimedia/mp3/MU2007/12-Murphy.mp3).  Robert Murphy does an incredible job of accurately portraying neoclassical economics (he himself was educated in it) and while doing so he contrasts its methods to the methods of the Austrian School.  What struck me about someone like Caplan was that while he clearly possessed the intellect to retain the general principles of Austrian economics he did not really understand the insights implicit in its methods nor the true reasons why the Austrian school has rejected the general methods of the neoclassical school.  Caplan, like many, seems to have been swept away by the perceived superiority and magically validating properties of mathematical economics.   

For some reason many consider it shameful or insufficient to use the methods developed by Menger and Mises.  They do not consider it truly scientific.  Many individuals, because of this perception, have erroneously tried to use mathematics as the method for which their discipline is based on.  Such was the case of Walras.  The problem with using mathematics as the methodology for economics is that it's simply incapable of capturing the fantastic complexity of the market.  Further, it's simply not necessary.  We can already derive the fundamental laws of human action without making unrealistic assumptions.  Friedman's defense of such assumptions is adequate but it misses the point.  Sure, we may be able to develop a model capable of making fairly accurate predictions but what does it tell us about the causational forces which govern the precise changes its predicting?  Nothing.  It's hypotheses are terribly empty.  It may be a somewhat practicial method that firms could utilize in order to make better decisions but it is this the essence of economics?  I sure hope not.  I constantly found myself wondering how the hell many of the neoclassical concepts related to real life instances.  Upon my discover of Austrian economics I suddenly realized that neoclassical economics isn't really economics at all.   

The use of statistical methods in order to validate proposed economic hypotheses is a method which is incredibly difficult to use when applied to the complex phenomonen of human interaction and exchange.  I have developed numerous models and am very educated in econometrics and as a result have witnessed first hand the incredible impreciseness of the results produced.  Further, the ease with which these results can be manipulated is an incredibly dangerous tool when placed into to the hands of any scientist no matter how objective he may be.  What most often occurs is that the economist has a particular agenda and in order to support that agenda he simply uses a program like e-views to produce results which concurr with that agenda; it's incredibly simple and can be defended against relatively easy as long as one is sufficiently educated in the econometric technical knowledge. 

Praxeology does not blatantly ignore physical evidence.  In fact it would be more accurate to say that mainstream economics will sometimes blatantly ignore a priori economic laws.  You must understand that physical evidence cannot contradict those theories soundly derived via praxeology.  In reality it is often the case that the physical evidence which is cited as contradicting a certain law has been either manipulated or grossly misinterpreted.  If you truly understood the laws developed by Mises and the like you would understand this point. 

It has never been my understanding that the Austrians predicted a complete collapse or apocalypse as result of interest-rate manipulation.  They did however theorize that a liquidation process has to occur as a result of misdirected investment in intermediate goods.  Further, they do not claim on the basis of their theory to know exactly when this liquidation process will take effect as they cannot know the precise actions of the Fed.  They can know however that at some point a liquidation process will set in.  As you pointed out, recessions, like interest rate manipulation, have been reoccuring and consistent phenonomenon.  I don't see the contradiction here.  Their theory has been confirmed by every recession.  Further, the economic prosperity has occured despite the action of the Fed not because of the Fed.  I have never encountered an ABCT which posits that economic growth may not take place in the advent of interest rate manipulation.  It merely posits that a liquidation process will inevitably occur.  In fact, their theory of capital, that of which is overly ignored by mainstreamers, is incredibly accurate in its portrayal of economic growth. 

 With regard to the point that Austrian's skew economic history I must fervently disagree.  In listening and reading the works of Hayek, Rothbard, Mises, etc. I have been incredibly convinced of their historical accuracy.  In fact this aspect of mainstream economics is largely absent.  There is an incredible gap and disregard of its history.  This however, is merely an opinion but then again so is yours.

 In fact such seems the case for all of the reasons (they're merely impetuous regurgitations) for why you do not perscribe to Austrian economics.  Simply saying that  Austrain monetary theory should be regarded as crankery and overly paranoid shows incredible ignorance.  It's synonymous to a statist saying that libertarians are cranks with regard to the government and are overly paranoid with respect to the motives of the state.  Is this a good reason?  The state is the enemy; I doubt you'll disagree with that.  Why is the Fed so different? 

Referencing men like Friedman does not suddenly validate your arguments it merely shows your inability to produce rational arguments on your own. 

What strikes me about you and many other individuals who persistently regard Austrian economics as cult like is your inability to free yourself from the confines of the present cultural psychology of the populace.  

--Austrian economics is wrong becuase it isn't in the mainstream-- 

--Austrian economics is wrong because it doesn't employ "truly" scientific methods-- 

 --Austrian economics is wrong becuase it doesn't promote the glorious Fed--    

These ideas are all merely products of the present culture we live in.  I understand this because I approached it the same way.  What's difficult is removing these norms and evaluating something for what it truly is.  It's quite clear that you haven't done this as evidenced by your ignorant arguments.

Once again I suggest you listen to this (http://mises.org/multimedia/mp3/MU2007/12-Murphy.mp3) as a starting point for objectively evaluating the merits of both schools.

 Good luck. 

Nathyn:

 

• Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)

Mises has great respect for the scientific method, so I'm really not sure what you are saying.

Nathyn:

• In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

No it doesn't; such things are just beyond the scope pf praxeology. Some "Austrians" might reject the rest of the social sciences, but that doesn't make their opinion the "Austrian" one.

Nathyn:

• In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior

One cannot use statistics or empirical evidence to generate a proof. But in any case, I think you need to step back and look at the real differences in conclusions of Neoclassical and Austrian economics. There really aren't all that many disagreements.

Nathyn:

• A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

The cultishness of "lay-Austrians" effects the truthfulness of Austrian positions... how?

Nathyn:

• Skewing economic history so as to give Austrian economics more credit than it deserves (diminishing the role of Neoclassical economics, misinterpreting Neoclassical concepts to conflate the contributions of Austrian economics)

Examples?

 

Nathyn:

• Spreading their ideas through the use of propaganda to non-economists rather than attempting to get published in academic journals

How, precisely, do you know that Austrian economists aren't trying to get published in more mainstream journals? And exactly which group of scientists doesn't spread their ideas to non-scientists using propaganda? Certainly not any other group of economists. Physicists, maybe.

 

Nathyn:

• Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations

I can't say I've noticed citation usage much, but if you think those sorts of errors are unique to Austrian econ, you haven't been reading much.

 

Nathyn:

• A misunderstanding of and general unwillingness to investigate mainstream concepts

Would you like to bet against my assertion that most Austrians know more about Neoclassical economics than Neoclassical economists know about Austrian economics?

Nathyn:

• In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery and seems to be supported by conspiracy theorism (the Jewish Bankers, the Illuminati Bankers, and the New World Order)

Are you aware how much Friedman agreed with Austrians on monetary theory? He believed heavy inflation would cause business cycles, and wanted to steer towards a rate of inflation that was predictable by the marketplace.

Nathyn:

• The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom. While Austrian economics is strictly a school of economics, it is used to support an entire worldview.

Many sciences are used to support world-views. So what? Economists is uniquely suited to suggesting good political policies.

Nathyn:

It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy. It was this reason that Greenspan said in the 50's we should have a gold standard but acknowledges the benefits of fiat today.

Maybe you haven't been paying attention, but monetary manipulations did cause widespread depression and monetary collapse! We called it the "Great Depression". The economy has been prosperous, although not as prosperous as the era before the Federal Reserve was created (nor are prices as stable as they were then). In any case, I don't think any Austrian is going to claim that monetary manipulation is the only cause of the business cycle. By the way, if you are going to make assertions about the lack of empirical evidence of the ABCT, you should probably try to refute the papers published which disagree with you.

Unfortunately, we haven't seen the end of the housing bubble yet, either.

But, about currency... It is true that in America, we haven't had it as bad with the Fed as other countries have. However, Mises's arguments were not directed at any specific country. Does anyone know what the average lifespan for a fiat currency is?

Commenting on how fiat currencies are a success story according to some, here's a fun link with a list of hyperinflations through history (most in the 20th century): http://www.dollardaze.org/blog/?post_id=00107 Really shows how fiat promotes "stable" and "low inflation" economies :) Also in the western world, and in the US in particular, we have never had such high inflation in peace time as we've experienced since 1971. If we use the CPI calculation before it got "adjusted" by Clinton, Greenspan & Co, it shows that we're running at 4-7.5% for the last few years instead of the 1-4% as the government reports.

You've done a single year (?) of macroeconomics and now you think you're qualified to critique Austrian economics, seemingly oblivious that many here have also got an education in it (including myself.) What a joke. I'd respond to you in detail, but it's been done already. Suffice to say, you presuppose the predominant view of the scientific method is correct (offer no evidence for this), and then say praxeology is 'wrong' because it rejects the this so-called 'scientific method'. What is objected to is not the fact that logical positivism is still popular in the natural sciences - it isn't, and "Austrians" are aware that it is insufficient even for this much - but rather the fact that almost all advocacy for economics qua empirical science evokes logical positivism. You still have absolutely no understanding of Kantian rationalism or Aristoteleanism (think that one must reject all empirical studies if one is a rationalist - utter nonsense), have no idea why we use this method to develop economic theory.You incorrectly assume it considers the other social sciences worthless (it doesn't.) You then assume our monetary views are incorrect, offering as your only support accusations of crankishness and Friedman (who, by the way, later changed his mind on gold; and also, whose economics fell apart towards the end of his career.) You accuse Austrians of sloppy scholarship - then prove it. I have read rather widely, both mainstream and "Austrian" journals, and fail to see this at all. Most of the libertarians you mention have criticized Austrianism, and been responded to. It's not as if their critiques went unnoticed. Your silly accusation of 'spreading propaganda' can be reversed and applied to Friedman and Keynes as well, both more energetic than any "Austrian" in getting their views across - not that I consider this bad to begin with; scientists often do this.

So why, exactly, should we be 'intimidated' by you?

A few years ago I was checking my bank account and doing my usual end of month accountancy when I realized that something was wrong, really wrong.

My bank account gave me a fraction of the interests it gave me in the '80s, not even enough to pay for upkeep and taxes. Moreover I realized that my set budget for groceries and other fixed expenses was buying me less and less each month and why, despite having been a saver for all my life, it seemed that each month I had less money to be put away for the future (...call it capital accumulation if you like) or for my occasional peccadilloes.

I asked a friend with a BA in economics but he was unable (or unwilling) to help, so I turned to that vast source of knowledge that is the Internet. It did help.

I discovered many schools of economics, though I lack the time, knowledge and will to study them all as they deserve, but only the Austrian school seemed to be giving a solid explanation for what was going on under my very nose, or inside my pocketbook, if you prefer.

It has been more than 25 years since the last traces of golden standard were eliminated and if you, like me, has lived through all this you cannot but help to wonder how long we will be able to keep up the current economic trend.

When I turn on the TV (OK, I admit a certain partiality to some shows) and I see hundreds of commercials which seem stress that the only reason to buy the aforementioned product is 0% APR I wonder how long we will be able to go on: many, many persons are living well beyond their means and sooner or later the savers or the Chinese (probably the latter) will get fed up to keep on forking out the bill.

Of course there's a lot I don't like about Austrian economics (and they are probably far from perfect) but if you live in the real world and not in some magical faraway land where wealth is simply willed into existence it's the only way to go.

Nathyn:

Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)

"Lack of regard" because the scientific method of empiricism is inappropriate in the social sciences.  Unlike physical objects, human beings aren't governed by time-invariant  universal constants, like gravity or the speed of light, so the scientific method cannot be used.  Human beings think; objects don't.  And Austrian Economics does not use empiricism to prove any of its propositions.  That's simply wrong.

Nathyn:

In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

Rejects the social sciences?  Nonsense.  If it ignores pyschological and sociological impacts on human behaviour it does so because these things cannot be predicted with enough certainty.  Mainstream economics attempts to answer too many questions, and uses the wrong methodology to do so. 

Nathyn:

In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior

To the praxeologist, your "blatent" physical evidence isn't quite so blatent!  Statistical analysis works well in the realm of the physical sciences, for example, because operating principles generally work the same way on all similar objects regardless of time. (The speed of light isn't likely to change tomorrow or a million years from now).  But things like human attitudes, customs, mores, knowledge etc. change over time, and from person to person, so shoe-horning human action into mathematically precise equations isn't likely to succeed. 

Nathyn:

A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

  Oh, please!  I dare say Keynes had his cultists.  

Nathyn:

Spreading their ideas through the use of propaganda to non-economists rather than attempting to get published in academic journals 

  What propoganda?  I suppose you mean this website. 

Nathyn:

Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations 

So it's poor scholarship because it criticizes Keynes? 

 

Nathyn:

A misunderstanding of and general unwillingness to investigate mainstream concepts

And I guess the mainstream has infinitely more understanding of Austrian Economics and a total willingness to investigate Austrian concepts?

 

Nathyn:

In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery and seems to be supported by conspiracy theorism (the Jewish Bankers, the Illuminati Bankers, and the New World Order)

Do you actually know anything about Austrian Economic monetary theory?  Have you actually read MES from cover to cover, for example?  I don't see anything remotely connected to crankery or conspiracy theory.

Nathyn:

The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom.

  This is a total misrepresentation. You make it sound like Austrianism is nothing more than a political position in search of an economic theory.  For those who study and understand Austrian Economics, advocating free markets might become a logical position to adopt, but it's hardly true to say that its whole raison d'etre is to support such a position.

 

 

 

 

The cultishness of "lay-Austrians" effects the truthfulness of Austrian positions... how?

"Lay-Austrians"...good term.  I guess I'm one of those, since my formal training in economics is close to nil.

 

 

Nathyn:

Anonymous asked me this in another sub-forum:

I was the "Anonymous" who asked you the question.  I don't know why it put me as anonymous.  Anyway, I appreciate you taking the time to answer my question.  I will say that I concur with many of the comments posted in reply to your points.  I, like many of the others, have studied various schools of thought and I've found that Austrian economics is really the only school that accurately uses and applies information. 

 

 

Nathyn:

We haven't had another Depression. On average, we've had rates of inflation of just a few percent a year. That's "stable," certainly better than the banking crises we faced before fiat.

 

Economics tends to teach that prices should be more accurate than stagnant (stable).  

Though I wished you used evidence to back up your claims, I must admit that you have very good points, but your conclusion to relegate Austrian economics into a trash-bin with Marxist economics is quite tragic.

Nathyn:

Here's my answer:

 

• Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)

Scientific method is an overblown dogma that unsophisticated types treat like religion.

 

Oh! You didn't use scientific method, Stephen Hawking!

Get out of your high school chem. mind set.

Nathyn:

• In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

Really? Could you explain that?

Nathyn:

• In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior

I've never heard of an "empirical proofs. Any self-respecting, junior in high school will tell you that you don't truly know anything by an "empirical observation of statistical data." Even the amateur knows that correlation does not prove causation, and for causation you need something called logical explanations.

Think quick,

Why is there a perfect correlation between increases in the amount of churches and the amount of crime in neighborhoods?  

Nathyn:

• A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

I actually tend to agree with you here.

Nathyn:

• Skewing economic history so as to give Austrian economics more credit than it deserves (diminishing the role of Neoclassical economics, misinterpreting Neoclassical concepts to conflate the contributions of Austrian economics)

I consider Austrianism to be in the spectrum of the broader Neoclassical economists.

Nathyn:

• Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations

Redundantly critical of Keynesianism? I don't think it's about redundancy as much as it's about, you're looking at the same topic. Different topics in economics tend to have categories where they are usually about the same thing.

As for hubrism, any theory will have a thesis, the thesis in any school of thought will be that this particular theory is correct because...

Nathyn:

• A misunderstanding of and general unwillingness to investigate mainstream concepts

Where?

Nathyn:

• In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery

Don't take offense, though I know it's an offensive statement and I'm generally hostile towards you, but knowing what you think you "know" about monetary theory, but believing anything that you say about money is like putting faith in a fourth grader to write a brilliant review of Nostromo.

Nathyn:

• The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom. While Austrian economics is strictly a school of economics, it is used to support an entire worldview.

Axiom, eh? Which one? Humans act?

Nathyn:

Much of this has been covered by Bryan Caplan, Justin Raimondo, Milton Friedman, David Friedman, Robert Nozick and others who are Libertarians themselves and don't have a particularly pro-government bias.

 I've responded to Bryan Caplan on his, "Why I am Not an Austrian Economist." Though he possesses a good deal of knowledge about the science, in terms of his understanding of ABCT, I don't think he knows as much as he believes.

Nathyn:

It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular

This is a good thing?

 

Nathyn:

not particularly tied to monetary decisions

 

....?

 

Even the mainstream is saying that the Federal Reserve is at the base cause for the recent credit crisis. 

Nathyn:

prices have been stable,

Prices should be accurate, not stagnant.

Nathyn:

the economy prosperous

 For whom? Certainly not these people,

http://www.cbpp.org/6-20-06mw.htm

 Of course inflation is good for the very, very wealthy bankers. That's why Austrians harp on the cantillon effect.

Nathyn:

and the Federal Reserve trustworthy.

For whom?

Nathyn:

The failure of the predictions of Austrian economics to materialize

 

Which ones were those? The only predictions of Austrian economists I know of were the ones made by Mises in Austria about that depression that never happened... oh wait...

Nathyn:

-- like the failure of Marx's predictions about Capitalism to materialize -- have driven them out of the mainstream and towards political extremism, even though in their roots, the historical Austrian school contributed substantially to economic theory.

 

Regurgitating what Econlog says is nice, but really... think harder. 

laminustacitus:

Though I wished you used evidence to back up your claims, I must admit that you have very good points, but your conclusion to relegate Austrian economics into a trash-bin with Marxist economics is quite tragic.

 What points of his are good?

 

Seriously? I can see one. Where's the other(s)? 

HeroicLife:

The trend is clear. The creation of central banks in the U.S. and U.K. led to rapid and continual devaluation of money, unprecedented under the gold standard.

I don't expect any of you to accept Keynes, but I do expect you to at least understand and be able to dispute Friedman's Monetarism. 

The chart you use shows the price of money without recognizing two things:

1) The gold standard is a constant over-valuation of currency, because the supply of money is kept at a constant state below the equilibrium, so the demand must compenstate by causing the price of gold to shoot through the roof, along the elasticity of the demand curve (which isn't perfectly inelastic). Also, when I use the word"price," here I simply mean the equilibrium between the supply and demand for money -- obviously, people aren't buying money with money. The price of money should reflect the price of all goods in an economy, but the price of commodity-money can never go that far above the price of the single commodity -- thus a constant disequilibrium that's addressed through fiat. And even if it does, it's really, really bad, because the gold industry suddenly makes massive profits, not because they're providing any particular service, but just because the government says, "The gold industry's product is your money."

2) This one's more important: The demand for money increases with economic growth, because the demand for money reflects the demand for goods and services, and so one increases, they both do. Thus, using the monetary exchange equation MV=PQ, unless one side or the other is changed, economic growth in and of itself causes a drop in the price of money (inflation) if there is no corresponding increase of supply. Steady inflation reflects things like "built-in inflation" (once inflation starts, even a small amount, it has to keep going) and the fact that the Federal Reserve is run by human beings, with economic uncertainty about what should be done.

Overall, the economy in America has been stable. Appealing to charts -- where you don't even note the fact that it doesn't use inflation-adjusted statistics -- doesn't disprove this. 

Your charts above show changes in the absolute value of money, not its nominal value (aka "real" value) which is what's most important if you're a marginalist, which the Austrians claim to be. Adjust your charts in two ways: First, make sure that inflation is not exaggerated by making sure the evaluation is pegged to the price of currency in one year (something you should already be doing when using any economic statistics). Second, correlate those figures with real GDP growth in those respective countries.

Okay, a few things:

1) The gold standard is an over-valuation of currency? Since when? The gold standard simply states that for a bank or the government to issue a currency, it must be backed in gold. How does that over-value currency? In fact, by saying that, you have unwittingly admitted that a fiat currency is worth less than gold-backed currency.

2) A fiat currency has nothing to do with supply and demand of money. A fiat currency is simply a piece of paper worth nothing more than what banks and government say it's worth. In fact, if fiat money is so grand, why was it that there was a period in German and Austrian history alike where the government and central banks had printed so much fiat currency that a wheel-barrow full of money would not buy a single loaf of bread? No, fiat currency is inherently flawed and inherently proned to inflation. If enough money is printed to "keep up" with technological innovation and population growth, then prices MIGHT remain stable. However, the reality is that it is never "just enough." The result is that any time there is ANY fiat currency, the end result is an overabundance of the money supply. The end result, of which, is that prices will inevitably increase as the currency is increasingly debased.

3) If the economy is oh-so stable as you claim, then why is the housing market failing? Property values in Prince William Count, Virginia have fallen by nearly 50% in the past two years. Why is food getting more expensive than it was ten years ago? Ten years ago, my mother paid $150 per week to feed a family of five, today my wife and I pay $75-$100 per week just for the two of us. Why has more manufacture left the United States in the last ten years than in the preceeding hundred years?

4) If the economy is as stable as you claim it is, then THAT IS NOT A GOOD THING any way! The last time I recall seeing stable economy in my studies of history, we were burning witches at the stake, had no personal property rights, and lived under the thumb of self proclaimed "nobles" who in many states had the right to rape our wives and press our children into military service. As somebody pointed out, an economy is good when it is growing at a steady rate, including the growth of technology, et cetera. When the economy remains stable, that indicates stagnation.

5) Um...what part of Great Depression do you not understand? How about, oh, I dunno, the recession from the mid 1990s to the early 2000s after the DotCom bubble burst (geeze, you should remember that one, unless of curse you're only a high-schooler, in which case I pity you)? Or the other recession that started around 2002 and went on to about 2005? No, there have been depressions since the founding of the Fed. Get your facts straight. Here's an idea: remedial US history.

6) Okay, you've just admitted that the Fed is controlled by a group of human beings. Human beings are inherently flawed. Ergo, it is logically extendable to say that the Fed must therefore be flawed - just like any form of government is also inherently flawed. You're saying that I'm supposed to put my stake in investments, bonds, mortgages, et cetera all of which will be at the mercy of a group of inherently flawed human beings? Or do you actually secretly believe that as soon as a person is elevated to a position within the State that they somehow magically become better people?

By the way, I'm an electrical engineering student, I know my math, and I know how complex even the simplest of equations can become when you begin accounting for all variables. Human action will never be simplified to mathematical (and ergo truly scientific) terms. It is not physically possible, even with the most powerful computers in existence today. Why? Simple. Because there are too many variables. The simple truth is that people take what actions they see as being in their best interests at the point in time in which they are taking the action. Attempting to quantize the variables which control that action would be an exercise in futility. Even simply buying a drink at the local pub would become one of the most complex equations I would ever not want to look at. After all, you have variables of the law, variables of social stigma with regards to drinking, variables of peer pressure, quantizing how much the person cares about the law and the like (perhaps a scale of 1 to 10?), then quantizing the effect that each pint of ale has on that person's caring, then quantizing the effects of the alcohol on brain activity and blood chemistry, to quantizing the price of the ale against the amount of money the person does or does not have, affects of his possible addiction to the alcohol, yada, yada, yada. You could end up with a page-long equation just defining mathematically why the person buys a pint of ale!

And as for your "empirical proof" thing...okay, you're a college student I presume, so I must ask what sciences you are taking? Empirical proof does not exist. Empirical evidence is simply data which either tends to support or disprove a given hypothesis. To date, I have seen not one shred of empirical evidence that casts any doubt on the Austrian school. Show me some evidence, and I might be open to your opinion. As of this point in time, however, you have consistently flown in the face of what evidence you've been shown. In fact, I would like you to show any evidence at all outside of your opinion. The Austrian school, in fact does not deny or fly in the face of Psychology or Sociology. Quite the opposite, most psychology and sociology actually tend to augment the Austrian school by providing potential explanations for human action. (I have taken courses in both.)

By the way, with respect to the charts, they're already pegged to the price of currency by year. It's tracking a long period of time. If you had really studied any hard sciences you would know that you can't graduate by ones for extended periods of time (or other large measurements). Doing so causes large amounts of clutter and makes reading the chart a living nightmare. You should know that.

Further, the price of gold and its regards to currency has exactly what to do with the GDP? I dunno, but the word "nothing" leaps prominently to mind. Also, the GDP is a very new concept only established since 1934. Anything regarding trends before 1934 in the GDP, therefore, is nothing more than estimates which can only be remotely verified through archaeological evidence or records which are often times missing or incomplete. Furthermore, the GDP only accounts for registered, monetary transactions. It does not account for any form of "black" market, nor does the GDP account for barter systems of exchange, or people finding and using their own resources independently. The GDP regards purchases. It does not account for the durability of goods and therefore the possibility that a single, less-durable good may be purchased repeatedly or of a more durable good being purchased only once. Bah, not enough space or time to put down all the criticisms and limitations of the GDP. Go find the Wiki article on the GDP and look at it there. GDP is not an indicator of how well an economy is or isn't doing. Anyone who's taken high school economics knows that, let alone anyone who's taken University economics. GDP is used to measure the size of an economy. A large economy is not necessarily doing well (it can be over-extended), and a small economy is not necessarily doing poorly (it could be just right for its region).

 

Edit: By the way, if you object so strongly to Austrian economics, think you know all about it, and do not want to learn anything more about another point of view, then why are you here?

CShirk:

Okay, a few things:

1) The gold standard is an over-valuation of currency? Since when?

http://en.wikipedia.org/wiki/Deflation

Which goes back to my original point:

A misunderstanding of and general unwillingness to investigate mainstream concepts

Also, there's one more I forgot to add to the list:

*An implicit rejection of Marginalism and acceptance of the labor-theory of value 

Since Austrian economics is mostly based on Classical economics -- it seems to have the same pseudoeconomic methodology that Mises attempted to justify as "science" -- inherent in Austrian economics is the assumption of the labor theory of value and a reject of marginalism.

The proof: I had started to read What Has Government Done to Our Money but a certain paragraph confused the hell out of me:

This process: the cumulative development of a medium of exchange on the free market—is the only way money can become established. Money cannot originate in any other way, neither by everyone suddenly deciding to create money out of useless material, nor by government calling bits of paper "money." For embedded in the demand for money is knowledge of the money-prices of the immediate past; in contrast to directly-used consumers' or producers' goods, money must have pre-existing prices on which to ground a demand. But the only way this can happen is by beginning with a useful commodity under barter, and then adding demand for a medium for exchange to the previous demand for direct use (e.g., for ornaments, in the case of gold[1] ). Thus, government is powerless to create money for the economy; it can only be developed by the processes of the free market.

I was completely confused by this statement, but until I saw another Austrian here make the same argument, it occurred to me what it was: an assumption of the LTV.

"Embedded in the demand for money is knowledge of the money-prices of the immediate past," past prices are equilibriums between the suppliers and demanders for money. He implies that the demanders of money today base their decisions based on what the suppliers and demanders for money decided in the past. But there is no such intrinsic quality to consumer decisions, since consumer decisions are only based on present conditions, which reflect past conditions, but not the certain conditions surrounding past conditions, such as costs. Past costs only affect the suppliers, not the demanders, and demanders don't take into account suppliers' costs until they're reflected in price.

The result of this backwards view (literally) is that he assumes demand for money cannot increase, but then he contradicts himself by saying that free banking would be the best way to handle money. If the demand for money was so irrelevant, then for what reason should the supply matter? If the supply have money can simply be fixed, as Rothbard contends, then we could just never expand the money supply and there'd never be any deflation. That is false because an increase in production (including the increased production of money) requires an increased amount of available capital, and that extra capital wouldn't be so available without an expansion of the money supply, since it would need to be provided in-kind as a good instead of in the form of financial capital. This isn't something Rothbard apparently disagrees with himself, however, since he argues free banking would adjust the money supply to compensate for demand, while ironically and rather ridiculously asserting that the money supply could just remain fixed as it is. Many Austrians also seem to contradict their own monetary theory by saying acknowledging the existence of deflation under gold. Instead, they just say, "Oh, but inflation is worse than deflation. Deflation is a good thing." 

 In the "Introduction to the Fourth Edition," it starts off with this tidbit:

Monetary policy is—aside from war—the primary tool of state aggrandizement.

 

That statement doesn't seem to backed by a shred of evidence and it demonstrates the poor scholarship of the Austrians. For instance, take the Iraq war and Afghanistan wars. They're a large part of the budget, but non-war related spending far exceeds  them and this has held true, historically. Admitting this poses a problem, though, for those who want to treat the government like a "big bad collective" such as the Marxist bourgeoisie: Why exactly would such an evil government continually distribute funds from the wealthy to the poor?

The result: At a minimum, it affirms the Neoclassicalism of Bryan Caplan and the Monetarism of Milton Friedman.

What else do you call the constant expansion of the state under fiat currencies except aggrandizement.

Regardless. You have done a wonderful job of beating around the bush without answering any question. First, you - and others like you - have thus far totally failed to explain why the gold standard is supposedly "over valued" as you say it is. Second, what does Loan to Value (LTV) have to do with any of what is being discussed here? Please enlighten me.

More later.

 Is this some sort of big joke you're playing?  Honestly, it's difficult to take you seriously.

So does anyone else want to do a step-by-step refutation of Nathyn, or shall I? 

Nathyn I am curious have you read Jesus Huerta De Soto and his take on deflation of price which is something that tends to happen over the long run in the economy on various goods vs. deflation of the money supply by central bank policies such as the historical deflation which lead to depressions in the past. These were caused by fractional reserve policies and the central bank storing up the money. In the past the deflationary eras have been due to money "vaporizing" out of the economy, not money remaing constant. Essentially at one point there was a boom of credit and money and then there was a removal of money so to speak. The money did not remain constant in these historical scenarios.

 

And to clarify I am not saying it should remain constant I am merely saying the supply shifted drastically.

 In reply to Nathyn:

 

I don't expect any of you to accept Keynes, but I do expect you to at least understand and be able to dispute Friedman's Monetarism. 

Chicago-Keynesianism has been refuted already. It’s called, The Value of Money, by Benjamin Anderson.

The chart you use shows the price of money without recognizing two things:

The gold standard is a constant over-valuation of currency, because the supply of money is kept at a constant state below the equilibrium so the demand must compenstate by causing the price of gold to shoot through the roof, along the elasticity of the demand curve (which isn't perfectly inelastic).

Umm… Do you know what equilibrium is?

I can’t make heads or tails of what you’re saying here; perhaps it’s because of your poor grammar, or perhaps just that you don’t know what you’re talking about.

Supply = Demand: This is equilibrium price. Supply can not be under equilibrium; prices can be in disequilibrium – and often are – if that is what you mean, but I don’t think that supply can ever be under equilibrium price.

 

Also, when I use the word"price," here I simply mean the equilibrium between the supply and demand for money -- obviously, people aren't buying money with money. The price of money should reflect the price of all goods in an economy, but the price of commodity-money can never go that far above the price of the single commodity -- thus a constant disequilibrium that's addressed through fiat.

For one, the price of money is a largely superfluous concept and should be more applied as an inverse of prices for specific goods.

Two, prices in general are, as you seem to be coming to terms with, not simply determined in terms of one chart on supply and demand, but rather as factoring in many different qualities to define. All prices are merely, however, going to be the same thing, the value of money in relation to X on a supply/demand schedule.

As far as commodity-money can’t go far above the price of a single commodity, I’d like you to offer some explanation for that.

And with “disequilibrium,” yes, prices are often in disequilibrium, but the type of money doesn’t account for any of it, really.

And even if it does, it's really, really bad, because the gold industry suddenly makes massive profits, not because they're providing any particular service, but just because the government says, "The gold industry's product is your money."

OH NO! PROFITS!

 

2) This one's more important: The demand for money increases with economic growth, because the demand for money reflects the demand for goods and services, and so one increases, they both do.

The demand for money increases given time preferences and demand schedules. If an economy sees prices inflate – purchases increasing without changes in supply – then the demand for money will fall. If an economy sees prices deflate – purchases decreasing without a change in supply – then the demand for money will rise. This is basic 101 price equilibrium stuff.

The concept that gold standards cannot facilitate economic growth is a myth based on the idea that as demand grows, so too must the supply of money or else prices fall *gasp*.  

In any case, you have it wrong. As Md increases Gd (representing demand for aggregate commodities) usually falls; this causes the fall of prices. This is a basic fundamental in Keynesianism that everyone, but you, understands.

What is Md, the desire for shiny nickels and dimes? No, the demand for liquidity is a demand for future goods over demand for present goods. What will occur, ceteris paribus, in an economy as Md increases will reflect a decrease in Gd, at least at present; Hayek harped on this fact. As demand for money increases, the prices of goods decrease, thus applying upward pressure on the demand for current consumption over future consumption.

Please, tell me you’re an undergrad student in community college.

Thus, using the monetary exchange equation MV=PQ

Oh boy…

Just to warn you, you’re going into the same direction as Friedman with the mistaken concept that nominal price = value, done, end of story. When we talk like economists, we shouldn’t be talking in nominal, price stability mindsets, it’s time to graduate, son, it’s time to talk about The Value of Money

http://www.mises.org/books/valuemoney.pdf

unless one side or the other is changed, economic growth in and of itself causes a drop in the price of money (inflation) if there is no corresponding increase of supply.

Huh? Don’t you mean DEFLATION? In any case, you’re just humming the tune of an old, pure, quantity-theorist quack. Here’s what dear Dr. Anderson had to say about the [pure] quantity theory.

It is a mechanical theory, concerned simply with quantities, and the relations between them. The essence of the quantity theory comes out in the following brief statement: given a number of units of money; given a number of units of goods to be exchanged; assume these two numbers to be independent1 of each other; assume all the goods to be exchanged for all the money; then the average price will be a simple function of the quantities of goods and of money respectively, such that an increase in the amount of money will increase the average price per unit of goods proportionately, if goods remain unchanged in amount, or an increase in goods will lower the price per unit proportionately, money being assumed to remain unchanged in amount. The qualification is commonly added that if goods have to be exchanged more than once, the effect is the same on prices as if there were an added number of goods equal to the added number of exchanges, and that if money is used more than once in exchanging a given number of goods, the effect is the same as if there were proportionately more money, (Anderson, 123).

 

Overall, the economy in America has been stable. Appealing to charts -- where you don't even note the fact that it doesn't use inflation-adjusted statistics -- doesn't disprove this. 

By what standards? Would you consider continuous prosperity at a climbing rate to be stable?

I prefer growing as opposed to stagnation, myself.

Your charts above show changes in the absolute value of money, not its nominal value (aka "real" value) which is what's most important if you're a marginalist, which the Austrians claim to be.

Nominal value: An unadjusted rate, value or change in value. This type of measure often reflects the current situation, such as the current price of a car, and doesn't make adjustments to reflect factors such as seasonality or inflation, which provide a more accurate measure in real terms.
 

In most cases, value is measured in nominal terms rather than real terms, which make adjustments to give a more accurate measure, (Investopedia.com).

 

Adjust your charts in two ways: First, make sure that inflation is not exaggerated by making sure the evaluation is pegged to the price of currency in one year (something you should already be doing when using any economic statistics). Second, correlate those figures with real GDP growth in those respective countries.

At this point, Nathyn, you really aren’t in the place to be demanding anything…

 

Deist:

Nathyn I am curious have you read

 

It doesn't matter what book you put here, the answer is still no. 

 

Well, maybe a few Spot the dog books, but other than that...

Nathyn:

For embedded in the demand for money is knowledge of the money-prices of the immediate past; in contrast to directly-used consumers' or producers' goods, money must have pre-existing prices on which to ground a demand....

I suggest spending some time watching the stock market. You'll get the point soon enough.

Of course, in those parts of the economy where prices are not as volatile, the prices of the immediate past are the same as the prices of the present. Common-sensically, it's okay for the "man in the street" to assume that the prices of the immediate past will carry over to the present and the future, but theoretically, all data are informed by our memories unless we're in front of a specific price for a specific good. You can see this by going on a shopping trip, and noting when you use your memory to make a spending decision.

Common-sensically, it can be assumed by the "man on the street" that the price of an item already in the shopping basket is the present price, but that's because of a generally-observed courtesy by stores: once an item is in the shopping cart or bin, the price affixed is the price that the customer pays. Had this courtesy not been in place, the differences to Wall Street would be lessened, because a glaring exception to this common courtesy is found in the investment markets. I suggest spending some time asking market plungers about their experiences in selling a commodity contract whose price had been plummeting. You also would have your eyes opened by spending some time watching the commodities markets. (No, I don't mean the gold market.) 

Once done, you'll see how prices can change swiftly enough to make that quote from Rothbard make sense to you. Just remember: markets are markets. The "man in the street" can say that 'Wall Street' is just plain screwy because it's not like the 'real economy', but an economist really can't.    

Daniel M. Ryan:

Nathyn:

For embedded in the demand for money is knowledge of the money-prices of the immediate past; in contrast to directly-used consumers' or producers' goods, money must have pre-existing prices on which to ground a demand....

I suggest spending some time watching the stock market. You'll get the point soon enough.

Because of speculation, the stockmarket is the most volatile of all markets and doesn't represent the stability of the overall economy. As an example of what I mean: Go correlate the average daily change in the market with real GDP. The stockmarket jumps up and down, sometimes by hundreds of points, here and there, but it doesn't mean anything because the stockmarket is largely "a random walk." This idea is implicit in Austrian economics itself because of what Mises called "the uncertainty of human behavior."

Daniel M. Ryan:

Of course, in those parts of the economy where prices are not as volatile, the prices of the immediate past are the same as the prices of the present.

No they aren't, because economic relationships are not static. They are subject to constant change.

Daniel M. Ryan:

Common-sensically, it's okay for the "man in the street" to assume that the prices of the immediate past will carry over to the present and the future, but theoretically, all data are informed by our memories unless we're in front of a specific price for a specific good. You can see this by going on a shopping trip, and noting when you use your memory to make a spending decision.

You seem to be inappropriately invoking "common sense" to establish an advanced theory. Do you actually suggest that the human memory is so powerful that it accurately records every past spending decision?

How much did you pay for your last can of beans? Based on that knowledgeable, how much would be too much, right now?

This absurd assumption about human psychology is demonstrated in the  gameshow, The Price is Right. For the average human being, the price is wrong. This is precisely the reason that central-planning itself fails.

Nathyn, you told me that you are not marxist but other then that I am not sure where you are coming from on issues. You use Monetarist arguments who are generally pro capitalist and  Keynesian arguments as well yet you seem to have a generally negative view of capitalism. Even Keynesians realized the need for capitalist institutions. Overall you seem to draw upon oppossing and inconsistent view points to make your arguments. I am assuming your an anarcho socialist of some sort but that is only because you mentioned something about the rich history of freedom in that political viewpoint. I would appreciate it if you did make your views understood to me. And no I am not saying you have to fit into an exact political philosophy but it just seems to me you will throw any possible economic argument out there to support  what your proposing, which just makes it come off as ad hoc.

Playing devil's advocate...

Nathyn, Niccolo may correct me if I am wrong, but I am relatively certain Keynes's point was that as the demand for money increased, prices would not fall quickly enough to increase aggregate demand. He believed this happened, in a temporary reversal of Say's law, because hoarding money represents not only an increase in the demand for money, but a reduction in the demand for goods and services as well. Keynes believed that this fall in demand would reduce the productive output (aggregate supply?) of the economy before prices could fall to bring the aggregate demand back where it was.

I have little interest or use of this sort of macroeconomics, but the fact that a "hoarding" recession has, to my knowledge, never occurred makes me skeptical of it. The arguments over why interest rates can't fall quickly enough as savings increases never seemed persuasive to me at all.

Grant, you have the general concept down, that is that with an increase in the demand for liquidity no more liquidity exists for people to spend on goods, decreasing the demand for goods.

 

The fact that Nathyn got it SO backwards indicates to me that his level of economic understanding really is zero.  

Well, Nathyn, it looks like you've picked up a lot of applied math. Might as well have fun with it while you can.

Niccolo, he had to start a thread elsewhere begging for help. How very desperate.

Inquisitor:

Niccolo, he had to start a thread elsewhere begging for help. How very desperate.

Where, in the Austrian forum of old?