Economics Questions

Re: comments appreciated

Libertas est Veritas — Tue, 22 Jul 2008 10:17:11 GMT

Either this guy can't communicate, or he actually doesn't know what he is talking about. I've ran into more than a few marxists who just pick something they think refutes Austrian theories but neglect to take the time to actually understand the criticisms they are putting forward. And this guy is acting in precisely the same manner.

Anyway, I wasn't able to understand his point completely, but I got the impression that he was referring to Samuelson's (not Sraffa's) criticism of roundaboutness.

Personally I don't know enough about the subject to comment, but Murphy has an article on it, if it helps.

Re: comments appreciated

Jon Irenicus — Tue, 22 Jul 2008 02:09:21 GMT

So, I read it anyway... knew I shouldn't have. This guy is evasive as hell, and cryptic. I think he's touching upon a criticism Lachmann documented, that has been disposed of.

-Jon

Re: comments appreciated

David Z — Tue, 22 Jul 2008 01:49:21 GMT

nirgrahamUK:

i just want to clarify that i meant if a worker has been paid in advance to do a job of work , then he is olbiged to fulfil his half of the bargain.

in the sense that, if i turn up for work, and my boss says, heres 10£, your the guard of the front door for the next hour, and i said , sure cool, and took his 10£, and after 5minutes wondered off, i would be breaching my obligation.

Gotcha. That's a different story then. The worker's desire to be paid in advance would of course be discounted by a number of factors including opportunity cost (interest/time value) and default risk (the risk that the worker decides not to show up). The extent of such a futures market would be limited by (at least) these two constraints. I have a hard time imagining, for instance, that one might receive a year's salary in advance - the moral hazard risk is probably just too high. On the other hand, ostracism can go a long way to right these wrongs...

If Paul default on an agreement to work for Peter, and Peter already paid him, he might have a hard time collecting from Paul, but his friends down at the farmers' market might be inclined to tack on an "a$$hole tax" to anything Paul wanted to buy. In close-knit communities, it's not at all hard to imagine this sort of "justice" being meted out. One's reputation can carry a long way...

Re: comments appreciated

nirgrahamUK — Tue, 22 Jul 2008 00:49:59 GMT

i appreciate the response, im getting some good hints here, thanks guys

i want to pick up on this bit

"I also fear you're not thinking about a free enough market, if you say that workers can be obligated to remain in a particular job. The current market tolerates such things as "non-compete" agreements, and for instance my job made me sign a waiver of claim to any intellectual property I might develop working in a market-research capacity: any white papers to which I contribute, any algorithms I assist in developing, any insights at which I arrive, are the sole property of my employer. A free market doesn't tolerate these things"

i just want to clarify that i meant if a worker has been paid in advance to do a job of work , then he is olbiged to fulfil his half of the bargain.

in the sense that, if i turn up for work, and my boss says, heres 10£, your the guard of the front door for the next hour, and i said , sure cool, and took his 10£, and after 5minutes wondered off, i would be breaching my obligation.

this is in contrast to, my being offered 10£ to guard the door, with his promise to pay me contingent on my doing the guarding, whereby the end of the day rolls around and we just find out if i did the door guarding or not, and that determines if he is obliged to give me the cash or not.

am i making any sense? or am i way off? i might be way off.

Re: comments appreciated

David Z — Tue, 22 Jul 2008 00:40:32 GMT

You may want to read Murphy's critique of Carson's argument for the LTV. (sorry, no link)

In a nutshell, I think it says something like, "Look, in a free market the wages paid to labor tend (very closely) to approximate the value of goods produced. However, subjective valuation of final goods and services, coupled with a truly free market would tend towards this sort of equilibrium, and it's mistaken to assume that wages are the determinant of value and not vice versa."

Re: comments appreciated

David Z — Tue, 22 Jul 2008 00:37:25 GMT

Fred Furash:

The guy is coming off as talking complete nonsense to me.

I agree. It sounds like he doesn't know what he's talking about, and if he does, he's a piss-poor communicator.

But anyways, when he says, "because workers are free to leave their jobs under capitalism"
And you say, "No they aren't. if they have no obligations then they are free to do so. but if they have obligations then they have obligations"

I fear you're talking past one another, that you both have different assumptions about what is entailed by the term "capitalism." In the interest of not starting this particular discussion/debate again on this forum, let's leave it at that. I think it's important to hash out these assumptions before-hand, otherwise you'll never have any idea what one another is talking about.

I also fear you're not thinking about a free enough market, if you say that workers can be obligated to remain in a particular job. The current market tolerates such things as "non-compete" agreements, and for instance my job made me sign a waiver of claim to any intellectual property I might develop working in a market-research capacity: any white papers to which I contribute, any algorithms I assist in developing, any insights at which I arrive, are the sole property of my employer. A free market doesn't tolerate these things..

Re: comments appreciated

ViennaSausage — Mon, 21 Jul 2008 23:59:14 GMT

Funny, I am going to be having this discussion with a Marxist in a couple weeks.

One way to attack this would be via finding out what the Marxist position is, which wasn't too clear/explicit in the digression. Compare the two theories, in this example, it would be Subjective Theory of Value vs. Labor Theory of Value.

Re: comments appreciated

Jon Irenicus — Mon, 21 Jul 2008 23:32:14 GMT

I'm not reading that crap. I saw the word Sraffa, and that alerted me to the fact that he's probably a troll or someone who knows little economics but thinks he's found the ultimate solution to the Austrian School. In reality, Sraffa came at a time when the Austrian School was somewhat disoriented, and in retrospect, he left it mostly unscathed. Lachmann has a good article on the exchange between him and Hayek, and Robert Murphy has a couple of articles on the vicious little man.

-Jon

Re: comments appreciated

nirgrahamUK — Mon, 21 Jul 2008 23:09:13 GMT

ha, well, i hope you dont regret having invested the time reading it ex-post ;-)

is there such a thing as an orthodox position on austrian interest theory?

Re: comments appreciated

Solredime — Mon, 21 Jul 2008 23:02:31 GMT

That took some time to read :P

The guy is coming off as talking complete nonsense to me. He claims a load of fallacies, and then when shown the contradiction decides to change the definition of otherwise unambiguous words.

I think you may be wasting your time with him.

Edit: I looked up Hirshleifer. I don't think he was an Austrian economist at all (though I didn't look him up in much detail). He looks more like a neoclassical one to me. And Fisher is also from the mathematical school, known well for such enduring fallacies as the Equation of Exchange. So what that has to do with Austrian economics I don't know about either.

I think he's the one strawmaning you, and doing so on purpose...

comments appreciated

nirgrahamUK — Mon, 21 Jul 2008 22:01:10 GMT

howdy folks

for your consideration, here is a debate begun with a marxist fellow tht asked if id debate him in chat online.

i have changed his name to a pseudonym.

i would appreciate if you fellas could help me catch any howlers i might have made, let alone his. as i would like to be better educated in economic matters.

Nir says:

hello

KnowsMoreThanMe says:

are you familiar with sraffa?

7:57pmNir

i dont know him beyond what ive read on wikipedia and from casual mentions on forums similar to ours.

7:58pmNir

shall we pause talking about the marginal revolution, and maybe have that more general discussion on value first ?

KnowsMoreThanMe says:

the problem is that subjective value theories fail because of the reswitching paradox discovered by sraffa

Nir says:

please share

KnowsMoreThanMe says:

there's no way to measure the marginal productivity of capital, sraffa showed

Nir says:

is there a way to measure how much i like my friends, and how much i dislike my enemies (i dont have many). does this mean i have neither friends nor enemies?

KnowsMoreThanMe says:

I'm not talking about that

Nir says:

sorry

KnowsMoreThanMe says:

I am talking about commodity values

Nir says:

so am i

KnowsMoreThanMe says:

I am talking about the cambridge capital critique

Nir says:

alright

KnowsMoreThanMe says:

so, my question is, if you subscribe to a subjective value theory, how do you evade the cambridge capital critique and the paradox of reswitching in the measurement of the marginal productivity of capital?

Nir says:

is the cambridge capital critique distinct from the paradox ?

KnowsMoreThanMe says:

not in essence

Nir says:

i suppose i would have to understand the criticism well before i could dare to respond to it.

Nir says:

in the cambridge capital critique, were cambridgites critiqueing various mainstream concepts, or was it cambridge types who were finding themselves critiqued?

KnowsMoreThanMe says:

the cambridge school was critiquing the neoclassical mainstream

Nir says:

oh well, i think the neoclassical mainstream is closer to the truth than the multivarious marxist schools, however i find it problematic, and my intellectual allegiance as it were is with austrian economics a la Ludwig von mises, Rothbard, reisman et al. who find much to critque in neoclassical theory

Nir says:

so perhaps i needn't sweat too much joke

KnowsMoreThanMe says:

well, there is a different flaw in the austrian school

KnowsMoreThanMe says:

there can't be forward markets in human labor in capitalist societies

KnowsMoreThanMe says:

so austrian assumptions can only describe slave societies, societies where the only workers are horses, robot economies, etc

Nir says:

i dont believe that for a second. what makes you think austrians are against people entering into contacts which determine future behaviours?

KnowsMoreThanMe says:

it's not an ethical issue

KnowsMoreThanMe says:

it's an analytical one

Nir says:

why so

KnowsMoreThanMe says:

it's not normative but descriptive

KnowsMoreThanMe says:

it's a methodological assumption

Nir says:

in what description of economics do you find it, what methodological assumption entails it?

KnowsMoreThanMe says:

it's fundamental to austrian economics

KnowsMoreThanMe says:

that there can be forward markets in human labor

Nir says:

no its not

KnowsMoreThanMe says:

it is the explanation of the origin of interest

Nir says:

what are you trying to tell me about the austrian theory of interest?

KnowsMoreThanMe says:

that it assumes that there can be forward markets in human labor

Nir says:

i thought you said it denies that possibility. make your mind up

KnowsMoreThanMe says:

no, reality denies that possibility

Nir says:

what evidence can you provide for that?

KnowsMoreThanMe says:

well, it's obvious that under capitalism laborers are free to seek another labor contract

Nir says:

consider possible terms (and commonly actually existing terms ) of the kind of contracts that would (and do arise) in capitalist societies

Nir says:

when i purchased my contract to rent my flat (which i share with my brother). i was asked how long i wanted my contract to run, if i wish to exit the term early, i will have to pay penalty.

Nir says:

my current employer requests i work a notice period

Nir says:

you are free to close your bank account and seek banking elsewhere, with another bank, yet if you owe your previous bank money, you cant wipe your hands of it.

Nir says:

capitalism, private property rights, liberty, grant individuals the freedom to enter into contracts, and secure promises, and negotiate penalties for breaking of set promises.

Nir says:

i think i shall pause here now

KnowsMoreThanMe says:

I am talking about the wage rate

KnowsMoreThanMe says:

the future price of labor

Nir says:

have you heard of temporary employment contracts, (6 month say). wage of such an individual can thereby by periodically renegotiated

Nir says:

perhaps your criticisms are meant in a different way to how they are coming across, but they seem trivial. perhaps because you have favoured short phrases. what am i to make of "the future price of labor". i ask who's labor?

KnowsMoreThanMe says:

you'll have to forgive me

KnowsMoreThanMe says:

I thought you were well-versed in the theory

Nir says:

"the theory" , WHAT theory?

Nir says:

if you can name it, i cant try to tell you if i know it

KnowsMoreThanMe says:

austrian economics, neoclassical economics

Nir says:

i know austrian economics, perhpas you dont.

Nir says:

what assumption does REALITY make that does not allow for forward looking contracts to have any meaning ?

Nir says:

i meant to say, why do you believe austrians are thwarted by reality, in that their theories involve consider how human individuals form agreements with each other. do you deny that individuals enter into agreements?

KnowsMoreThanMe says:

because workers are free to leave their jobs under capitalism

Nir says:

no they arent

Nir says:

if they have no obligations then they are free to do so. but if they have obligations then they have obligations.

Nir says:

do you deny individuals enter into agreements ?

KnowsMoreThanMe says:

that has nothing to do with it

Nir says:

it has everything to do with it. i thought you were familiar with what a contract is

Nir says:

you'll just have to forgive me

KnowsMoreThanMe says:

I have never denied that there are labor contracts

Nir says:

you did say that reality denies the possibility of their being forward markets in human labour

KnowsMoreThanMe says:

yes, forward markets

KnowsMoreThanMe says:

not labor contracts

Nir says:

lets see if you can describe in a few lines what a forward market is

KnowsMoreThanMe says:

am talking about future prices versus present prices

KnowsMoreThanMe says:

future values discounted by the interest rate

Nir says:

A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future

Nir says:

a forward market would be the forum in which such agreements are formed and dissolved.

Nir says:

i see nothing in this that is stumped by reality

Nir says:

if i tell you i am willing to sell you my computer a week from now for 5 of your homemade cakes. and you agree. then we have a futures contract. and it is one of many in the futures market.... reality seems to tolerate this fairly well

KnowsMoreThanMe says:

I am talking about investment

Nir says:

i dont think you know what you are talking about

KnowsMoreThanMe says:

as production in exchange with nature

KnowsMoreThanMe says:

productive investment treated as forward exchange with nature

Nir says:

are you saying that nature is so unpredictable a farmer cant possibly know what to expect the earth to give it when he puts a seed in the earth and tends it regular? is that what you are 'hinting' at with ambiguous terminology?

KnowsMoreThanMe says:

I am using the austrians own terminology

Nir says:

what is the meaning "forwad exchange with nature" , hello mr nature id like to exchange this with you... can you think of another way to say it ?

KnowsMoreThanMe says:

production is exchange with nature

KnowsMoreThanMe says:

capital is then the present value of all future consumption goods

Nir says:

thats nonsense after nonsense

Nir says:

ive never read anyone but you say this

KnowsMoreThanMe says:

I am citing Hirshleifer

KnowsMoreThanMe says:

you can go read it yourself

Nir says:

is he an austrian economist?

KnowsMoreThanMe says:

"Investment, Interest, and Capital"

KnowsMoreThanMe says:

yes

KnowsMoreThanMe says:

page 2

KnowsMoreThanMe says:

and page 12

Nir says:

would you happen to know his first name perchance?

KnowsMoreThanMe says:

jack

Nir says:

what makes you think he is austrian, perhaps he is... but ive not heard if him

Nir says:

KnowsMoreThanMe says:

he uses fisherian assumptions

KnowsMoreThanMe says:

these are the same as in the austrian school

KnowsMoreThanMe says:

I can give you some texts to look at if you like

Nir says:

ive certainly heard of fisher

KnowsMoreThanMe says:

ok, well i'm talking about fisherian interest theories

KnowsMoreThanMe says:

as used by the austrian school

KnowsMoreThanMe says:

but I thought you were more well-versed in these, I'm sorry

KnowsMoreThanMe says:

if you'd like to learn more about these issues I can direct you to some readings

Nir says:

dont worry about it, lets pick at what he is saying then. you may have been unfortunate and found qoutes from an offshoot that you are taking as austrian canon, or i may have misunderstood the meaning of those short qoutes. cant we discuss the?m

Nir says:

you first said the you consider it a fisherian principle that production is exchange with nature. please expland on that, so that i might try to agree with you

KnowsMoreThanMe says:

it's not my theory

Nir says:

i know you said it was fisherian

KnowsMoreThanMe says:

I'm only describing the methodology of the modern approach

Nir says:

if someone asks me what production is , i say that transformation of materials/goods into materials/goods with higher subjective valuation, as measured from the standpoint of the producer

KnowsMoreThanMe says:

austrian theory had to be revised because of the failure of bohm-bawerk's theory of interest

Nir says:

yes, great austrians have certainly contributed much and developed on from what bohm-bawerk discovered, as eocnomics didnt finish with him.

KnowsMoreThanMe says:

but I'm talking about the theory of interest

Nir says:

are you talking about it from a macro or micro perspective?

KnowsMoreThanMe says:

it was actually sraffa who showed that bohm-bawerk's theory of interest was untenable

KnowsMoreThanMe says:

I'm talking about marginal productivity theory

Nir says:

no you were talking about the theory of interest

KnowsMoreThanMe says:

bohm-bawerk's approach couldn't provide an index common to heterogeneous capital goods

Nir says:

i assume when you say "theory of interest", you refer to theories as to why there is a prevailing market rate of interest, (thats macro)?

KnowsMoreThanMe says:

the rate of interest has to be known in order to determine the marginal productivity of the capital good

Nir says:

thats not true

KnowsMoreThanMe says:

this was bohm-bawerk's theory

Nir says:

so you want me to talk about theories that have been since revised, and agree with you about those?

Nir says:

wouldnt you rather discuss the 'cutting edge' ?

KnowsMoreThanMe says:

it's a two-stage critique

Nir says:

What is a two stage critique?

KnowsMoreThanMe says:

the orthodox austrian theory relied on bohm-bawerk's theory of interest

KnowsMoreThanMe says:

but sraffa showed that this led to the reswitching paradox

Nir says:

you seem to be predominantly interested in economic history, and in who said what, and when, and what school they werein. but i thought we were going to discuss ideas themselves. but you awlays shy away and tell me that some person already answered this. when you could do much better simply by saying what they said in response, if it is the case that you agree with them, and in that way we could

Nir says:

argue

KnowsMoreThanMe says:

no, you keep interrupting

Nir says:

ok, if you like we can have a signal , when youve said you piece, i wont interject until you write the word END in bold. then i'll know its my turn.

KnowsMoreThanMe says:

what I'm saying is that austrian theory had to be revised because of sraffa's critique

KnowsMoreThanMe says:

that is when fisherian interest theory displaced the orthodox theory

KnowsMoreThanMe says:

and it is fisherian theory which now underwrites the austrian theory of interest

KnowsMoreThanMe says:

but I had assumed that you were very well-versed in these issue, I'm sorry

KnowsMoreThanMe says:

so I'm not sure how to proceed now

KnowsMoreThanMe says:

*issues

Nir says:

(say END?)

KnowsMoreThanMe says:

yes, ok

Nir says:

ok so lets back up please.

Nir says:

i want to make sense of you saying that austrian economics is flawed. you said one of the many reasons its flawed, is that to be understood it requires that forward contracts be possible, specifically there must be a forward market in human labour. this assumption is a downfall, as reality simply will not allow this. i must say this confuses me. and if you could help me understand this point,

Nir says:

i would appreciate that. END

KnowsMoreThanMe says:

yes, I'd like to -- this is a critique of Fisherian interest theories

KnowsMoreThanMe says:

I can try to explain it as best as I can

Nir says:

pause,wait

Nir says:

does the possibility of forward market in human labour in reality, rely on any one particular interest theory?

Nir says:

please forgive my early interjection but i want to make sure this will be worthwhile

KnowsMoreThanMe says:

forward markets in labor are theoretically possible, just not forward markets in free human labor

KnowsMoreThanMe says:

because workers are free to leave their jobs

KnowsMoreThanMe says:

but this presupposes an understanding of what is meant by a forward market in fisherian theory

Nir says:

why does it presuppose it? what is the connection between workers leaving their jobs have with competing interest theories of which fishers theories are one?

KnowsMoreThanMe says:

well, either I can try to explain the background, or I can give you some readings

Nir says:

maybe give a line or two, the flavour of it?

KnowsMoreThanMe says:

it has to do with the idea of future prices determining present prices

KnowsMoreThanMe says:

because of discounting by the rate of interest

KnowsMoreThanMe says:

it's related to the notion of roundaboutness of production in bohm-bawerk

KnowsMoreThanMe says:

so let me know how you'd like to proceed

KnowsMoreThanMe says:

because I have to go offline in a minute or two

KnowsMoreThanMe says:

I can suggest some stuff to read or we can talk about what would be best to read or I can try to go into the background more next time

Nir says:

ok, before you go, can you just give me your impression, in this world, in reality, outside of the theories which we will explore later. do you see that there are individuals now who do form forward contracts? and then more specifically that a subset of these contracts involve trading of labour services?

KnowsMoreThanMe says:

yes, but that's not the issue

KnowsMoreThanMe says:

I'm not disputing that

Nir says:

were you yessing to both or just the first?

KnowsMoreThanMe says:

I am not disputing the existence of labor contracts

Nir says:

in these markets where these contracts exist, can the markets best be described as socialist markets, or capitalist markets, or what?

KnowsMoreThanMe says:

I am talking about capitalist labor markets

KnowsMoreThanMe says:

markets in human labor power

Nir says:

well, there is a different flaw in the austrian school

KnowsMoreThanMe says:

there can't be forward markets in human labor in capitalist societies

KnowsMoreThanMe says:

the critique has nothing to do with socialist relations of production

Nir says:

so here you say they cant exist, and also that they do exist. that seems like a contradiction to me

KnowsMoreThanMe says:

forward markets

KnowsMoreThanMe says:

not labor markets

Nir says:

perhaps you were imprecise how you answered before lets try again

Nir says:

in reality, outside of the theories which we will explore later. do you see that there are individuals now who do form forward contracts? and then more specifically that a subset of these contracts involve trading of labour services?

KnowsMoreThanMe says:

the answer to this question will depend on what you mean by a 'forward contract" as opposed to a 'contract'

Nir says:

A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future.

Nir says:

perhaps the buying and selling of labour such as i agree to hire you next week to wash my windows, and i will pay you then. example one of a futures contract in labour

KnowsMoreThanMe says:

that's a totally separate issue

Nir says:

no, its the issue in question.

Nir says:

KnowsMoreThanMe says:

if that's what you mean by "forward contracts", obviously such contracts exist

KnowsMoreThanMe says:

I don't see what that has to do with anything

Nir says:

well, there is a different flaw in the austrian school

KnowsMoreThanMe says:

there can't be forward markets in human labor in capitalist societies

Nir says:

there cant be and yet there are. contradiction

KnowsMoreThanMe says:

not, that's not what I mean by a forward market

Nir says:

oh................

KnowsMoreThanMe says:

so it's a straw man

KnowsMoreThanMe says:

but never mind

Nir says:

im not sure what meaning of forward market your giving up, or what youd give it up in favour of. perhaps you will know next time we talk

KnowsMoreThanMe says:

I know now

Nir says:

please share

KnowsMoreThanMe says:

I thought you were familiar with the theory

KnowsMoreThanMe says:

I apologize

Nir says:

well, it took you 3 attempts to answer the question beore you diagnosed it as strawmen. what does that tell you?

Nir says:

if you want to have your own personal meaning of forward market that i cant access like wittgensteins beetle then your entitled

KnowsMoreThanMe says:

I am talking about the fisherian meaning

KnowsMoreThanMe says:

not my meaning

Nir says:

are you adamant the fisher had his own distinct meaning to forward market than for example what wikipedia has written as an entry on 'forward market' ?

KnowsMoreThanMe says:

I will have to look at the wikipedia entry

KnowsMoreThanMe says:

but I can't do it now

Nir says:

fair enough

KnowsMoreThanMe says:

we can talk about it more next time

KnowsMoreThanMe says:

if you'd like

KnowsMoreThanMe says:

or i can tell you some stuff to read about it

Nir says:

if its available online then perhaps

KnowsMoreThanMe says:

no, I don't think so unless I scan in some stuff

Nir says:

im suprised it will take that much effort just to determine whether or not future markets CAN exist, and therefore that if they cant austrian economics is a failure

Nir says:

how many scholarly hours of research have you spent determining this, that i would need to budget for to catch up with you?

KnowsMoreThanMe says:

hundreds of hours, surely

KnowsMoreThanMe says:

but I could save you some time, probably

KnowsMoreThanMe says:

the critique is fairly simple

Nir says:

i shall have hope of understanding it then

KnowsMoreThanMe says:

yes, I'm sure you can understand it

KnowsMoreThanMe says:

we can talk about it more next time

Nir says:

fine

KnowsMoreThanMe says:

I have to go now

KnowsMoreThanMe says:

I'll be back later

Nir says:

bye then

KnowsMoreThanMe says:

bye

/////what japes!