MES, Chapter 11

 I have been reading and enjoying "Man, Economy and State" by Dr. Rothbard. However, the chart on page 780 has me stumpted. It plots "Money Income" vs. "Money Income", with a 45 degree line for "Social Income" and a line with less slope for "Social Expenditures".   This is part of Rothbard's critique of the Keynesian analysis, and in this plot he is trying to illustrate a Keynesian concept. I think the (flawed) concept is that if there if social income is greater then social expenditures, then the difference is made up by increases in cash balances ("Hoarding"). If social income is less then social expenditures, then there is net dishording. But I can't really make sense of the plot, since it seems to plot "x vs. x", which is nonsensical. Is the y axis supposed to be "Money income" in the next time period or something?

 Thanks for any help...

I had a quick look at the graph in question (http://www.mises.org/rothbard/mes/chap11b.asp) Underneath it, it is mentioned that the graph is being used in an unconventional fashion, with a rationale given for it later on in the book. Perhaps you ought to check that reference?

It does plot "x" vs "x". What makes the graph make sense, though, is because social expenditure isn't "x" but it's measured in the same unit as "x" is and is also part of "x". Prof. Rothbard did so in order to flesh something out. The second paragraph on p. 863, as pointed out in the Publisher's Note on p. 778, explains why:

 "Moreover, a stable relation was not even established. Income was correlated with consumption and with investment. Since consumption is a much larger magnitude than (net) investment, no wonder that its percentage deviations around the regression equation were smaller! Furthermore, income is here being correlated with 80–90 percent of itself; naturally, the “stability” is tremendous. If income were correlated with saving, of similar magnitude as investment, there would be no greater stability inthe income-saving function than in the “income-investment function.”

 The key phrase is the one which says that Keynes tried to correlate something with 80-90% of itself. I hope this note helps.  

I should have mentioned the references. I couldn't find much help from the reference to the later section in the book...

 Dan,

  Thanks very much for clarifying that... I didn't get what I was supposed to find on page 863 before. I see now that Rothbard in some way meant the graph to be nonsensical, much like Keynesianism :)

Cheers!

Glad to. I myself read the same point in Hazlitt's "The Failure Of The 'New Economics" back in 1988. I still remember wondering why I didn't see it myself.