I will reprint a review of Keens book from 2003(Review of Austrian Economics), for a variety of reaons mainly that it is not well known.
Steve Keen (2001) Debunking Economics, Annandale, NSW, Australia: Pluto Press,
335 + ix pp., $27.50
Debunking Economics is a bold attempt to shake the foundations of the neoclassical
economic mainstream. Embarking on this review, we had suspected we might find large
areas of agreement with a fellow apostate. However, Keen’s work suffers from many of the
very faults of which he accuses the mainstream. The most troublesome is that Keen’s work
is quite frequently ideologically motivated, even while criticizing neoclassical practitioners
for ideological economics. In the end we find it a brave but flawed effort to dethrone the
current economic orthodoxy.
Methodological Holism Versus Methodological Individualism
Keen demonstrates that many attempts to aggregate quantities applying to individuals, so
as to come up with a measure for “society’s utility” or “society’s indifference curves,” lack
coherence. Fair enough. But the conclusion he draws from that fact is an ideological one.
After pointing out the flaws in certain aggregate measures, Keen says, “society must exist
as an entity in its own right” (p. 40). But that doesn’t follow from his argument; indeed,
we would say Keen hasn’t taken the argument far enough. “Social utility” is a meaningless
concept, period, and so it is not surprising that (as Keen shows) it cannot be calculated from
individual utilities.
“Society” is one of many useful concepts with which individuals comprehend their world.
It is true that there are many aspects of individual experience from which we can usefully abstract a social aspect. But it is purely metaphysical speculation to imagine that an abstraction
from individual experience exists apart from the individual experience itself. (Ironically,
Keen immediately follows the quote above with a criticism of the mainstream for its “unscientific nature.”) As we see it, society is a network of practices, practices whose existence
is entirely dependent upon their being subscribed to by individuals.
Keen goes on to say, “society is something more than the sum of its individual members”
(p. 47). Keen believes that his truism explodes the economist’s traditional “atomistic”
method of focusing on the individual (e.g. p. 261 and p. 306). But this doesn’t follow at
all: All “social” outcomes are the composite of individual actions, even if such actions
are influenced by the existence of others. One does not show the limitations of physics by
pointing out the influence of The Communist Manifesto.
The idea of society as an independent being above and beyond its members is, of course,
a key element in many collectivist ideologies. Keen, in reaching conclusions that do not
follow from the arguments he presents, is letting his ideological slip show.
Mathematical Economics
Keen’s critique of mathematical economics is emblematic of the book as a whole: he
takes many shots at the mainstream, and some of them hit the target. For instance, we
think his suggestion that mathematical economics pursue research in dynamic systems and
simulations is sound.
We especially liked the discussion (pp. 178–183) of dynamic versus static models, and the
example of a dynamic system with multiple, unstable equilibria that nonetheless oscillates in
the neighborhood of those equilibria. We feel this is a good metaphor for the real economy,
which possesses what may be called equilibrating forces—forces that keep the economy
from going too far “awry”—but never actually achieves equilibrium. As Keen puts it, “rather
than equilibrium being where the action is, equilibrium tells you where the model will never
be” (p. 183).
In addition, Keen does a good job in highlighting some of the contradictions at the heart
of the theory of perfect competition. The elementary problem with the theory is that rather
than employing the limit analysis implicit in its equations to examine conditions as perfect
competition is approached, analysis proceeds as if the system were at its limit, leading to
various conundrums.[1]
Keen offers a clever analogy to explain the problem: one can “prove” that the Earth
is flat if one is allowed to treat the tiny local deviations from flatness as non-existent
(p. 86). All of these contiguous, flat segments of the Earth must yield a flat Earth as
well.
In fairness to Keen, we note that he is willing to follow his theorizing even when it
leads him onto ideologically foreign territory. Keen, who clearly sees himself as more
interventionist than his neoclassical colleagues, here attacks an argument for anti-trust
laws. And Keen admits that the neoclassical mainstream follows their own logic to argue
for intervention to control monopolies.
However, in his zeal to attack mainstream economics, Keen often overshoots. After
“debunking” the notion that the production of a firm is constrained by rising marginal
costs, Keen asks what does constrain a firm’s production? Quite oddly, his answer is “rising
marketing and financing costs” (p. 73). But those are rising marginal costs themselves!
Keen has fallen prey to the fallacy, exposed by Mises ([1949] 1998:319), that there is any
important economic difference between “production costs” and “sales costs.”
The Uniqueness of Labor
His ideological bias is epitomized in Keen’s analysis of labor. He repeats the clich´e that
labor is a unique commodity, and is therefore exempt from the traditional laws of supply
and demand (pp. 111–112).
But there is nothing to distinguish the supplier of labor (who ceteris paribus prefers
leisure) from a supplier of wood pulp (who ceteris paribus prefers the beauty of his virgin
forest). The fact that the laborer depends on his wages for sustenance is irrelevant, since all
sellers of commodities use their income to obtain life’s necessities. (After all, couldn’t the
proverbial “bond coupon clipper” claim that she is “forced” to accept whatever interest rate
prevails on the market, since she relies on her coupons to eat, and is therefore also subject
to “exploitation”?)
Keen (2002a) argues that there truly is a difference, since the supply of labor is fixed
at 24 hours per day, while the sellers of other commodities can increase their output. But
this rejoinder relies on the very same assumptions of convenience that Keen ostensibly
abhors. The short-run supply of trees is just as fixed as the short-run supply of labor hours;
the owner of a forest can’t cut down more trees today than are standing on his property.
Furthermore, Keen’s model of labor is every bit as unrealistic as the neoclassical model of
firm production (which Keen ridicules). In truth, a person’s body is a machine that produces
a variable amount of “service,” just as a plot of land can be cultivated intensively to squeeze
more trees out (at future cost). A worker certainly cannot supply 24 hours of labor per day
for any extended period.
We thus see that Keen’s attack on the mainstream, “apologist” belief in wages equaling marginal productivity, is unfounded. Like his orthodox opponents, Keen has used
a simplified model that yields the conclusion (labor is exploited by capitalism) that he
wants.
Heterodox Schools
Keen includes interesting sections on various heterodox schools, including Marxism, evolutionary economics, complexity theory, Post-Keynesian economics, Austrian economics,
and Sraffian economics. He seems to come down on the side of evolutionary economics as
having the most promising future (p. 311).
Keen has an excellent discussion of Marx’s labor theory of value (pp. 278–295), in which
he demonstrates that it is not even internally consistent. However, Keen instead posits a
real-cost theory of value, ignoring the Austrian insight that costs themselves are subjective.
He never addresses the theory of subjective value, but instead baldly states the somewhat
stunning proposition that “the subjective utility of the buyer and seller are irrelevant to the
price” (p. 273). What in the world could Keen mean? If one just drives one’s cost in making
mud pies high enough, one can charge an arbitrarily high price for them?
Keen is not unsympathetic to the Austrian School, but it does not seem to us that he fully
understands it. For instance, Keen gets the posited effect of interest rates on the “roundaboutness” of production backwards. (Keen has later acknowledged that the section is in
error [2002b].) He is also wrong in implying that the Austrians depend on an equilibrium
analysis of returns to factors of production to defend distribution in the market economy.
(In fact, the Austrian analysis of the return to entrepreneurs relies entirely on disequilibrium
conditions.)
Furthermore, Keen’s debunking of the “equilibrium always” view of Say’s Law does not
refute Say’s Law (pp. 189–199), but only an equilibrium-always treatment of it. The work
of Mill et al. (see Hazlitt, [1960] 1995) show that Say’s Law is perfectly sound if seen
as expressing a prevailing tendency in the market economy, rather than as an equilibrium
relationship that always holds true.
Keen concludes that the Austrian school is “too close to its neoclassical cousin to make a
major contribution to reformed economics.” But, in at least one fundamental critique, that
of the limitations of all formal modeling of economic activity, the Austrians are further
from the neoclassicals than any of the other schools Keen discusses.
Despite our criticisms, we are glad Keen wrote the book, and glad that we had the chance
to read and review it. Keen is raising important questions, even if we cannot go along with
him on all of his answers.
[1] By way of illustration: The limit of 1/n as n approaches infinity is zero. But we cannot assume that 1/n iszero, because then we get nonsense like n ∗ 1/n = 0!
References
Hazlitt, H. (Ed.) ([1960] 1995) The Critics of Keynesian Economics. Irvington-on-Hudson, NY: The Foundation for Economic Education.
Keen, S. and Murphy, R. (2002a) E-mail discussion of March 23 archived at: http://maelstrom.stjohns.edu/
CGI/wa.exe?A2=ind0203&L=hayek-l&P=R21116.
Keen, S. (2002b) E-mail discussion of March 18 archived at: http://maelstrom.stjohns.edu/CGI/wa.exe?A2=ind0203&L=hayek-l&P=R13866&D=0&H=0&O=T&T=1.
Mises von, L. ([1949] 1998) Human Action. Auburn, AL: Ludwig von Mises Institute.
Robert P. Murphy
New York University
Gene Callahan
Ludwig von Mises Institute
onsdag 26. desember 2012
mandag 24. desember 2012
Minsky: a Keynesian Sockpuppet
This is a decent post by a former teaching assistant to Minsky, Eric Falkenstein. He sums up why Keynesianism is discredited:
"Economists did not abandon Keynesianism because they are capitalist dupes, rather, it was inconsistent, generated poor models of economic growth, and it neglected the micro economic factors that make all the difference between a North Korea and South Korea: free markets, property rights, decentralized incentives. A Keynesian thought he could steer the economy via two controls, the budget deficit and the Fed Funds rate, and indeed in the short run these are very powerful tools, but in the longer run, rather unimportant." - Minsky a Keynesian Sockpuppet
"Economists did not abandon Keynesianism because they are capitalist dupes, rather, it was inconsistent, generated poor models of economic growth, and it neglected the micro economic factors that make all the difference between a North Korea and South Korea: free markets, property rights, decentralized incentives. A Keynesian thought he could steer the economy via two controls, the budget deficit and the Fed Funds rate, and indeed in the short run these are very powerful tools, but in the longer run, rather unimportant." - Minsky a Keynesian Sockpuppet
Kirzner on Joan Robinson & "Perfect competition"
Post-Keynesian usually make a great deal of and almost set up a false dichotomy of "Post-Keynesianism" vs Neo-classicism, when in reality the view of equilibrating being a process was alot better known pre-Keynesian revolution.
Entrepreneurship was the hallmark feature of classical economists such as Say and others, and many textbooks included this. It was only until the harmful influence of such writers as John Maynard Keynes, Paul Samuelson, Joan Robinson and others that aggregative and the purely British walrasian view of economics dominated completely. They were of course critiquing it, but in critiquing it they went to far and dropped all nuances of different authors.
"AEN: But if a neoclassical economist told his class about Kirzner's theory of entrepreneurship, that would be an improvement.
[Israel] KIRZNER: Certainly, given today's rigid environment. Once, however, I gave a talk on the Austrian view of the market process, and the late Abba Lerner was there. He said that what I was calling the Austrian view is precisely what he had been taught in school and had long accepted. I'm sure it's true. The perfectly competitive model was never dominant in neoclassical economics until E.H. Chamberlin and Joan Robinson brought us imperfect competition. Then, they retroactively attributed perfect competition to those that preceded them."
The book is called "The Economics of Imperfect Competition"(1933) and "The Theory of Monopolistic Competition" (1933).
Entrepreneurship was the hallmark feature of classical economists such as Say and others, and many textbooks included this. It was only until the harmful influence of such writers as John Maynard Keynes, Paul Samuelson, Joan Robinson and others that aggregative and the purely British walrasian view of economics dominated completely. They were of course critiquing it, but in critiquing it they went to far and dropped all nuances of different authors.
"AEN: But if a neoclassical economist told his class about Kirzner's theory of entrepreneurship, that would be an improvement.
[Israel] KIRZNER: Certainly, given today's rigid environment. Once, however, I gave a talk on the Austrian view of the market process, and the late Abba Lerner was there. He said that what I was calling the Austrian view is precisely what he had been taught in school and had long accepted. I'm sure it's true. The perfectly competitive model was never dominant in neoclassical economics until E.H. Chamberlin and Joan Robinson brought us imperfect competition. Then, they retroactively attributed perfect competition to those that preceded them."
The book is called "The Economics of Imperfect Competition"(1933) and "The Theory of Monopolistic Competition" (1933).
fredag 21. desember 2012
Austrians predicted the Housing Bubble - "Lord Keynes" lies again
The blogger Lord Keynes has attempted to show that Austrians did not predict the housing bubble, that it doesnt matter and that Post-Keynesians predicted it (better or something). In it he employs lies, fallacies and hides information from his readers.
1. Dean Baker recognized the Housing bubble (Fallacy)
That is correct, and even earlier Fred Harrison recognized the housing bubble in 1997. And he is Georgist (meaning a free-marketeer who makes an exception for land). This is fallacy because it is not a proper argument that shows why specific Austrians did not predict the bubble.
This is a fallacy that runs through the whole article, "Austrians didnt predict the housing bubble because other predicted it later or at the same time". And he also refers to these people as ordinary "Keynesians", which is a mislabeling. Minskyites are essentially Austro-Keynesian, whether their political ideology likes it or not.
Anyway, I will critique Dean Bakers analysis later.
2. Socialists recognized a Housing Bubble (Fallacy)
"Now does anyone seriously think that these correct identifications of an asset bubble in housing vindicates the Marxist theory?"
True, but the aforementioned articles linked to by Socialdemocracy21st do not show and nor do the socialist/marxist have a theory that explains how credit causes cycles, so they basically cannot account for this fact.
3. "Identifying a housing bubble after 2003 is not a prediction" (Fallacy):
"It is obvious that Austrians identifying a housing bubble from 2003–2004 onwards should not regarded as having any special predictive power. They were merely identifying an on-going phenomenon. It is, furthermore, notable that when some Austrians identified a housing bubble in the first half of 2002, so too did the Keynesian economist Dean Baker.
We must remember that any “predictions” after 2002 are not even predictions at all: they represent people identifying an existing asset bubble that was becoming worse."
By the same token then, any "predictions" by Keen, Hudson etc. are not "predictions". Furthermore, all predictions after 1997 are also just "identifying an on-going phenomenon" since Harrison had already predicted it.
Anyway this is wrong, what is being predicted is that the housing prices are unsustainable and that an oversupply of houses are building which will lead to a quick drop in housing prices, and trigger an economic recession.
The fact is that it is usually identifying an on-going phenomenon such as a bubble, that is hard to do. Which asset class is bloated ? No, formula or scientific theory exists to accurately predict this.
4. Critique of Ron Pauls predictions (Misinformation)
"
Well, the FED responded by aggressively lowering interest rates, that can postphone recessions and price bubbles from crashing. Instead of the housing market crashing, the stock market bubble collapsed, and basically Ron Paul got the timing wrong. Only the stock market bubble burst.
But here Lord Keynes is deceiving his audience, he ignores the fact that Ron Paul made several predictions on the housing bubble:
"The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing.
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged overinvestment in housing." - Paul, Ron, 2002. Testimony to U.S. House of Representatives
"The Federal Reserve must stop inflating the currency merely for the purpose of artificially lowering interest rates to perpetuate a financial bubble. This policy allows government and consumer debt to grow beyond sustainable levels, while undermining incentives to save. This in turn undermines capital investment while exaggerating consumption." - The Coming Category 5 Financial Hurricane, Dr. Ron Paul, September 15 2005
"The Fed tries to keep the consumer spending spree going, not through hard work and savings, but by creating artificial wealth in stock markets bubbles and housing bubbles. When these distortions run their course and are discovered, the corrections will be quite painful." - What the Price of Gold is Telling Us, Dr. Ron Paul, April 25 2006
There are almost endless quotes like this, so I will stop here.
Furthermore, Ron Paul focuses on Fannie Mae & Freddie Mac, which in themselves were the biggest bubbles of them all.
5. William Andersons predictions
He shows that Anderson talked about a mini-boom and a stock market bubble. We did have a stock market bubble and a big boom. I agree that Anderson did not pinpoint housing, even though I feel that is a hatchet requirement that "Lord Keynes" addded in.
I take issue with this statement though:
"Unfortunately, it was the deregulated financial sector that was the main cause of the 1990s and 2000s bubbles."
Unfortunately, the existence of the FED, FDIC, and a plethora of federal and state agencies that delineate rules for banks, brokers, stock exchanges etc. preclude anyone from claiming that it is "deregulated".
One can talk about changes in regulation, but not such a sector being deregulated or unregulated.
6. Recognizes correct Austrian predictions but makes bad arguments
He reviews another Ron Paul prediction (4), Gary North prediction (6) whilst not having read it, Hans Sennholz (9). He makes two arguments against these correct predictions, again that Dean Baker has also predicted it and that several of them argue there is a bubble in US treasuries.
Now US treasury rates have not risen, and Post-Keynesians(atleast MMTs and Minskyites) have pretty much staked their theory on them not rising and they did rise immensely in the crisis but have since fallen. A caveat here is that the FED has been supporting that market immensly, so when rates rise we shall see who is really right.
7. His flawed conclusion from this (Misinformation)
"When we review the various alleged Austrian “predictions” of the 2000s housing bubble most of them collapse. Of the eleven claims made, six (54%) do not even identify the housing boom, and certainly do not predict any such thing. Two (18%) identify the bubble, but after Dean Baker did (in August, 2002)."
He has not really shown this, he is simply selectively chosing an arbitrary year to cut off reading predictions.
8. What about after 2003 ? (Lie)
"The Austrians showed no great predictive power in 2003 or afterwards in identifying the bubble and the economic effects of a crash."
This is wrong, here is a list of Austrians articles predicting the housing bubble that Bezemer (himself a follower of Keen) has not even tried to review:
"Paul Kasriel(http://www.ntrs.com/library/econ_research/daily/us/dd040805.pdf /
http://www.ntrs.com/library/econ_research/weekly/us/pc033105.pdf)
Frank Shostak (Housing Bubble: Myth or Reality?) - 2003
James Grant (Un-Real Estate)
Christopher Mayer (The Housing Bubble) - 2004
Robert Wenzel (SUPER ALERT: Dramatic Slowdown In Money Supply Growth /
Government Isn't God: FDIC Sticks Banks With Bad Loans and Sticks
Borrowers With Subprime Junk / A Letter to a Friend on the Logic of Real
Estate Investing ) - 2004/2008
Eric Englund (When Will America's Housing Bubble Burst? / Monetizing Envy
and America's Housing Bubble / Houses Are Consumer Durables, Not
Investments)
Stefan Karlsson (America's Unsustainable Boom)
Thorstein Polleit (Sowing the Seeds of the Next Crisis)
Hans Sennholz (The Fed is Culpable)
Mark Thornthon (Housing: Too Good to Be True)
Robert Blumen (Fannie Mae Distorts Markets)
"
So by simply ignoring predictions Bezemer and here "Socialdemocracy21st" reaches the conclusion he wishes. But the picture he paints is even more disingenious, Keen has nowhere predicted the US housing bubble, even though he claims this himself numerous times. I show that here.
9. The claim that "Austrian Business Cycle Theory" does not explain the financial crisis (Lie)
He makes this claim thinly, first be repeating the "natural rate of interest" does not exist and that it does not deal with reckless lending by banks to buy consumer goods and mortgages.
"The Austrian Business Cycle Theory (ABCT) holds that central bank fiat money or fractional reserve banking-induced increases in credit (unbacked by commodity money) drives down the monetary rate of interest, causing it to go below the Wicksellian natural rate of interest. This causes malinvestment in capital goods sectors. However, the unique Wicksellian natural rate of interest does not exist, and is a pure fantasy (see here and here). The ABCT does not explain or deal with reckless lending by banks to people for mortgages or consumer goods, and nothing about financial or real asset bubbles, and nothing about financial crises. "
This is completely wrong, and all major books on the Austrian Business Cycle Theory deals with just these things.
1. The natural rate of interest is the term used by austrians for the interest rate, if all credit creation were backed by prior savings. Such a rate of interest does exist, if and when all loans are backed by prior saving.
I fully admit that the term carries some unfortunate neoclassical baggage, but this has been dropped in all modern expositions(basically all the ones between 1970-2012).
2. He repeats the claim he has made earlier that since Rothbard does not include inflationary credit buying consumer goods, the ABCT does not hold. But the problem is that many Austrians authors, all the way back to Hayek Prices and Production emphasizes durable consumer goods. I have debunked this claim earlier.
In fact in one of the prediction articles mentioned Eric Englund (an Austrian) emphasizes precisely the point that houses bought for consumption are durable consumer goods and not investments. Which makes them particularly bad investments.
Conclusion
Lord Keynes lies and misinforms his readers about the facts, and disingeniously ignores articles that are precise in their description of the problem.
His numbers were by using Dick Bezemers flawed study:
"So in other words eight (72%) of the eleven made accurate predictions about the bubble and crisis and were non-Austrians. The largest group (45%) were actually Heterodox Keynesians."
If one simply adds the Austrians I know of and have checked (and there are more I have not bothered to include), the numbers become slightly different:
1. Post-Keynesian/Minskyites (22 %): Baker, Godley, Keen and Sorenson.
2. Maverick neoclassical (9 %): Roubini and Shiller.
3. Austrians (68 %): Richebächer, Schiff, Paul Kasriel, Frank Shostak, James Grant, Christopher Mayer, Robert Wenzel, Eric Englund, Stefan Karlsson, Thorstein Polleit, Hans Sennholz, Mark Thornthon, Ron Paul and Robert Blumen.
4. Georgist (4,5 %): Fred Harrison, should get more brownie points for being early.
5. Austrian & Post-Keynesian(4,5 %): Janszen
Total: 22
I will count Janszen as part of both camps and thereby improving the numbers for the Post-Keynesians/Minskyites.
And I have not even removed Keen, who hasnt predicted the US housing bubble and the "Great Financial Crisis", and as I said I didnt even add all the Austrians ( such as Faber, Jim Rogers, William White, Gary Shilling etc.)
Given how Dick Bezemers study is flawed when it comes to Keen, I have not even checked and revised the numbers for these other Post-Keynesians either. It is also curious that he has ignored all academic Austrians, and only included finance analysts with a background in Austrian economics.
This picture is even more dismal when one counts the fact that all universities teach Kindleberger/Minsky view of the crisis when they teach about financial crises, and that they teach traditional Neo-Keynesian economics when they teach macro. Almost no universities(three I believe and scattered individuals) taught Austrians prior to 2009, and they made up about less than 1 % of the academic profession according to Mark Thornthon.
I am not of the opinion that one should use lies and deceit, in order to unseat wrongheaded ideas but "Socialdemocracy21st" is more than willing to do so.
1. Dean Baker recognized the Housing bubble (Fallacy)
That is correct, and even earlier Fred Harrison recognized the housing bubble in 1997. And he is Georgist (meaning a free-marketeer who makes an exception for land). This is fallacy because it is not a proper argument that shows why specific Austrians did not predict the bubble.
This is a fallacy that runs through the whole article, "Austrians didnt predict the housing bubble because other predicted it later or at the same time". And he also refers to these people as ordinary "Keynesians", which is a mislabeling. Minskyites are essentially Austro-Keynesian, whether their political ideology likes it or not.
Anyway, I will critique Dean Bakers analysis later.
2. Socialists recognized a Housing Bubble (Fallacy)
"Now does anyone seriously think that these correct identifications of an asset bubble in housing vindicates the Marxist theory?"
True, but the aforementioned articles linked to by Socialdemocracy21st do not show and nor do the socialist/marxist have a theory that explains how credit causes cycles, so they basically cannot account for this fact.
3. "Identifying a housing bubble after 2003 is not a prediction" (Fallacy):
"It is obvious that Austrians identifying a housing bubble from 2003–2004 onwards should not regarded as having any special predictive power. They were merely identifying an on-going phenomenon. It is, furthermore, notable that when some Austrians identified a housing bubble in the first half of 2002, so too did the Keynesian economist Dean Baker.
We must remember that any “predictions” after 2002 are not even predictions at all: they represent people identifying an existing asset bubble that was becoming worse."
By the same token then, any "predictions" by Keen, Hudson etc. are not "predictions". Furthermore, all predictions after 1997 are also just "identifying an on-going phenomenon" since Harrison had already predicted it.
Anyway this is wrong, what is being predicted is that the housing prices are unsustainable and that an oversupply of houses are building which will lead to a quick drop in housing prices, and trigger an economic recession.
The fact is that it is usually identifying an on-going phenomenon such as a bubble, that is hard to do. Which asset class is bloated ? No, formula or scientific theory exists to accurately predict this.
4. Critique of Ron Pauls predictions (Misinformation)
"
the housing market has been grossly distorted. We can soon expect a major downward correction in the housing industry, prompted by rising interest rates.”Yet it is obvious that Paul is here thinking of a correction of existing 2000 housing prices, not a massive 2000s bubble in real estate and a financial crisis in 2008. The word “soon” strongly suggests Paul was expecting the correction in the next year or two after 2000, as from 1999–2000 the Fed had raised the Federal Funds rate and was widely expected to raise it further in 2000, owing to the dot.com boom. This speech shows no prediction of the 2000s housing bubble."
Well, the FED responded by aggressively lowering interest rates, that can postphone recessions and price bubbles from crashing. Instead of the housing market crashing, the stock market bubble collapsed, and basically Ron Paul got the timing wrong. Only the stock market bubble burst.
But here Lord Keynes is deceiving his audience, he ignores the fact that Ron Paul made several predictions on the housing bubble:
"The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing.
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged overinvestment in housing." - Paul, Ron, 2002. Testimony to U.S. House of Representatives
"The Federal Reserve must stop inflating the currency merely for the purpose of artificially lowering interest rates to perpetuate a financial bubble. This policy allows government and consumer debt to grow beyond sustainable levels, while undermining incentives to save. This in turn undermines capital investment while exaggerating consumption." - The Coming Category 5 Financial Hurricane, Dr. Ron Paul, September 15 2005
"The Fed tries to keep the consumer spending spree going, not through hard work and savings, but by creating artificial wealth in stock markets bubbles and housing bubbles. When these distortions run their course and are discovered, the corrections will be quite painful." - What the Price of Gold is Telling Us, Dr. Ron Paul, April 25 2006
There are almost endless quotes like this, so I will stop here.
Furthermore, Ron Paul focuses on Fannie Mae & Freddie Mac, which in themselves were the biggest bubbles of them all.
5. William Andersons predictions
He shows that Anderson talked about a mini-boom and a stock market bubble. We did have a stock market bubble and a big boom. I agree that Anderson did not pinpoint housing, even though I feel that is a hatchet requirement that "Lord Keynes" addded in.
I take issue with this statement though:
"Unfortunately, it was the deregulated financial sector that was the main cause of the 1990s and 2000s bubbles."
Unfortunately, the existence of the FED, FDIC, and a plethora of federal and state agencies that delineate rules for banks, brokers, stock exchanges etc. preclude anyone from claiming that it is "deregulated".
One can talk about changes in regulation, but not such a sector being deregulated or unregulated.
6. Recognizes correct Austrian predictions but makes bad arguments
He reviews another Ron Paul prediction (4), Gary North prediction (6) whilst not having read it, Hans Sennholz (9). He makes two arguments against these correct predictions, again that Dean Baker has also predicted it and that several of them argue there is a bubble in US treasuries.
Now US treasury rates have not risen, and Post-Keynesians(atleast MMTs and Minskyites) have pretty much staked their theory on them not rising and they did rise immensely in the crisis but have since fallen. A caveat here is that the FED has been supporting that market immensly, so when rates rise we shall see who is really right.
7. His flawed conclusion from this (Misinformation)
"When we review the various alleged Austrian “predictions” of the 2000s housing bubble most of them collapse. Of the eleven claims made, six (54%) do not even identify the housing boom, and certainly do not predict any such thing. Two (18%) identify the bubble, but after Dean Baker did (in August, 2002)."
He has not really shown this, he is simply selectively chosing an arbitrary year to cut off reading predictions.
8. What about after 2003 ? (Lie)
"The Austrians showed no great predictive power in 2003 or afterwards in identifying the bubble and the economic effects of a crash."
This is wrong, here is a list of Austrians articles predicting the housing bubble that Bezemer (himself a follower of Keen) has not even tried to review:
"Paul Kasriel(http://www.ntrs.com/library/econ_research/daily/us/dd040805.pdf /
http://www.ntrs.com/library/econ_research/weekly/us/pc033105.pdf)
Frank Shostak (Housing Bubble: Myth or Reality?) - 2003
James Grant (Un-Real Estate)
Christopher Mayer (The Housing Bubble) - 2004
Robert Wenzel (SUPER ALERT: Dramatic Slowdown In Money Supply Growth /
Government Isn't God: FDIC Sticks Banks With Bad Loans and Sticks
Borrowers With Subprime Junk / A Letter to a Friend on the Logic of Real
Estate Investing ) - 2004/2008
Eric Englund (When Will America's Housing Bubble Burst? / Monetizing Envy
and America's Housing Bubble / Houses Are Consumer Durables, Not
Investments)
Stefan Karlsson (America's Unsustainable Boom)
Thorstein Polleit (Sowing the Seeds of the Next Crisis)
Hans Sennholz (The Fed is Culpable)
Mark Thornthon (Housing: Too Good to Be True)
Robert Blumen (Fannie Mae Distorts Markets)
"
So by simply ignoring predictions Bezemer and here "Socialdemocracy21st" reaches the conclusion he wishes. But the picture he paints is even more disingenious, Keen has nowhere predicted the US housing bubble, even though he claims this himself numerous times. I show that here.
9. The claim that "Austrian Business Cycle Theory" does not explain the financial crisis (Lie)
He makes this claim thinly, first be repeating the "natural rate of interest" does not exist and that it does not deal with reckless lending by banks to buy consumer goods and mortgages.
"The Austrian Business Cycle Theory (ABCT) holds that central bank fiat money or fractional reserve banking-induced increases in credit (unbacked by commodity money) drives down the monetary rate of interest, causing it to go below the Wicksellian natural rate of interest. This causes malinvestment in capital goods sectors. However, the unique Wicksellian natural rate of interest does not exist, and is a pure fantasy (see here and here). The ABCT does not explain or deal with reckless lending by banks to people for mortgages or consumer goods, and nothing about financial or real asset bubbles, and nothing about financial crises. "
This is completely wrong, and all major books on the Austrian Business Cycle Theory deals with just these things.
1. The natural rate of interest is the term used by austrians for the interest rate, if all credit creation were backed by prior savings. Such a rate of interest does exist, if and when all loans are backed by prior saving.
I fully admit that the term carries some unfortunate neoclassical baggage, but this has been dropped in all modern expositions(basically all the ones between 1970-2012).
2. He repeats the claim he has made earlier that since Rothbard does not include inflationary credit buying consumer goods, the ABCT does not hold. But the problem is that many Austrians authors, all the way back to Hayek Prices and Production emphasizes durable consumer goods. I have debunked this claim earlier.
In fact in one of the prediction articles mentioned Eric Englund (an Austrian) emphasizes precisely the point that houses bought for consumption are durable consumer goods and not investments. Which makes them particularly bad investments.
Conclusion
Lord Keynes lies and misinforms his readers about the facts, and disingeniously ignores articles that are precise in their description of the problem.
His numbers were by using Dick Bezemers flawed study:
"So in other words eight (72%) of the eleven made accurate predictions about the bubble and crisis and were non-Austrians. The largest group (45%) were actually Heterodox Keynesians."
If one simply adds the Austrians I know of and have checked (and there are more I have not bothered to include), the numbers become slightly different:
1. Post-Keynesian/Minskyites (22 %): Baker, Godley, Keen and Sorenson.
2. Maverick neoclassical (9 %): Roubini and Shiller.
3. Austrians (68 %): Richebächer, Schiff, Paul Kasriel, Frank Shostak, James Grant, Christopher Mayer, Robert Wenzel, Eric Englund, Stefan Karlsson, Thorstein Polleit, Hans Sennholz, Mark Thornthon, Ron Paul and Robert Blumen.
4. Georgist (4,5 %): Fred Harrison, should get more brownie points for being early.
5. Austrian & Post-Keynesian(4,5 %): Janszen
Total: 22
I will count Janszen as part of both camps and thereby improving the numbers for the Post-Keynesians/Minskyites.
And I have not even removed Keen, who hasnt predicted the US housing bubble and the "Great Financial Crisis", and as I said I didnt even add all the Austrians ( such as Faber, Jim Rogers, William White, Gary Shilling etc.)
Given how Dick Bezemers study is flawed when it comes to Keen, I have not even checked and revised the numbers for these other Post-Keynesians either. It is also curious that he has ignored all academic Austrians, and only included finance analysts with a background in Austrian economics.
This picture is even more dismal when one counts the fact that all universities teach Kindleberger/Minsky view of the crisis when they teach about financial crises, and that they teach traditional Neo-Keynesian economics when they teach macro. Almost no universities(three I believe and scattered individuals) taught Austrians prior to 2009, and they made up about less than 1 % of the academic profession according to Mark Thornthon.
I am not of the opinion that one should use lies and deceit, in order to unseat wrongheaded ideas but "Socialdemocracy21st" is more than willing to do so.
Did Keen predict the US housing bubble ? - Dick Bezemers flawed study
I believe that Keens model of the business cycle is basically correct (though some of his interpretation is wrong) and that is simply because it is a rehashing of the Austrian Business Cycle Theory in Keynesian language.
So it doesnt matter to me whether Keen has accurately forecast the global financial crisis or not, if his view of the cycle is correct (and it basically is correct with some caveat to that).
But the dishonest blogger "Lord Keynes"/"Socialdemocracy21st" has made a blog input(several in fact), which I demolish completely here, claiming that Austrians did not in fact predict the housing bubble. Instead he selectively quotes articles until 2003 and when they do predict it properly he simply dismisses them.
But more importantly here, he uses Dick Bezemers study (a post-keynesian) to prove that Keen predicted the US housing bubble and worldwide financial crisis more correct or better or something like that. Similiarly does Unlearningecon, another post-keynesian blogger. But this claim is wrong.
Keen has never predicted the US housing bubble (EDIT: Unlearningecon has pointed me to his debtwatch reports and in april 2007 he starts showing graphs of US debt levels and even though he does not "predict" anything specific, I will accept this is an indication that he was showing that the US would have private credit contraction, but the Bezemer study is still flawed). He has predicted an Australian housing bubble in the article Dick Bezemer refers to. Here is the name: "The lily & the pond".
Here is what Dick Bezemer quotes from him:
"Long before we manage to reverse the current rise in debt, the economy
will be in a recession. On current data, we may already be in one.” (2006)" - Stephen Keen
But here Keen is talking about Australia, and that has not happened yet (5 years, soon 6). His "aggregate demand+change in debt" model has failed to predict accurately. According to post-keynesian methodology this makes the model, unscientific.
I have asked Dick Bezemer whether he has analyzed the following Austrian articles which predict a housing bubble and financial crisis:
"Paul Kasriel
He has not responded yet.
Keen also repeatedly uses this study(in his book[1], website and journal article), and has nothing else to show to (EDIT: He can show to his theory and his graphs of US debts as indications that he understands the problem, but if kept to the same standard "Socialdemocracy21st" holds Austrians to, he hasnt in fact predicted anything correctly).
[1] Debunking Economics, 2011.
So it doesnt matter to me whether Keen has accurately forecast the global financial crisis or not, if his view of the cycle is correct (and it basically is correct with some caveat to that).
But the dishonest blogger "Lord Keynes"/"Socialdemocracy21st" has made a blog input(several in fact), which I demolish completely here, claiming that Austrians did not in fact predict the housing bubble. Instead he selectively quotes articles until 2003 and when they do predict it properly he simply dismisses them.
But more importantly here, he uses Dick Bezemers study (a post-keynesian) to prove that Keen predicted the US housing bubble and worldwide financial crisis more correct or better or something like that. Similiarly does Unlearningecon, another post-keynesian blogger. But this claim is wrong.
Keen has never predicted the US housing bubble (EDIT: Unlearningecon has pointed me to his debtwatch reports and in april 2007 he starts showing graphs of US debt levels and even though he does not "predict" anything specific, I will accept this is an indication that he was showing that the US would have private credit contraction, but the Bezemer study is still flawed). He has predicted an Australian housing bubble in the article Dick Bezemer refers to. Here is the name: "The lily & the pond".
Here is what Dick Bezemer quotes from him:
"Long before we manage to reverse the current rise in debt, the economy
will be in a recession. On current data, we may already be in one.” (2006)" - Stephen Keen
But here Keen is talking about Australia, and that has not happened yet (5 years, soon 6). His "aggregate demand+change in debt" model has failed to predict accurately. According to post-keynesian methodology this makes the model, unscientific.
I have asked Dick Bezemer whether he has analyzed the following Austrian articles which predict a housing bubble and financial crisis:
"Paul Kasriel
(http://www.ntrs.com/library/econ_research/daily/us/dd040805.pdf / http://www.ntrs.com/library/econ_research/weekly/us/pc033105.pdf) Frank Shostak (Housing Bubble: Myth or Reality?) - 2003 James Grant (Un-Real Estate) Christopher Mayer (The Housing Bubble) - 2004 Robert Wenzel (SUPER ALERT: Dramatic Slowdown In Money Supply Growth / Government Isn't God: FDIC Sticks Banks With Bad Loans and Sticks Borrowers With Subprime Junk / A Letter to a Friend on the Logic of Real Estate Investing ) - 2004/2008 Eric Englund (When Will America's Housing Bubble Burst? / Monetizing Envy and America's Housing Bubble / Houses Are Consumer Durables, Not Investments) Stefan Karlsson (America's Unsustainable Boom) Thorstein Polleit (Sowing the Seeds of the Next Crisis) Hans Sennholz (The Fed is Culpable) Mark Thornthon (Housing: Too Good to Be True) Robert Blumen (Fannie Mae Distorts Markets)"
He has not responded yet.
Keen also repeatedly uses this study(in his book[1], website and journal article), and has nothing else to show to (EDIT: He can show to his theory and his graphs of US debts as indications that he understands the problem, but if kept to the same standard "Socialdemocracy21st" holds Austrians to, he hasnt in fact predicted anything correctly).
[1] Debunking Economics, 2011.
Why was Hayek given the Nobel Prize ?
Socialdemocracy21st has another baseless, pretty much mudslinging blogpost claiming that Hayek "didnt" deserve the prize".
He claims two things:
1) That ABCT developed by Hayek is completely wrong (even though basically a watered down version is the Minsky business cycle theory, only 50 years late)
"It is astonishing that one of the two main reasons given for Hayek’s Nobel Memorial Prize was his business cycle theory: for this was precisely that part of his research program that was a clear failure. Hayek never succeeded in creating a monetary theory of the trade cycle that evaded the serious criticisms his opponents levelled against it, which included the non-existence of the Wicksellian natural rate of interest, the role of subjective expectations, and the questionable role of general equilibrium theory in his theory. "
These claims are endlessly recycled on this webpage, so I thought I might critique them shortly.
1) The wicksellian natural rate is simply a representation for what would be the interest rate if no unbacked credit creation took place, or more easily understood if all monies were a commodity.
The fact that there exist no 1 interest rate, does not concern this.
Neither does the fact that futures prices differ, as that has to do with the demand and supply schedules for each product (grains, shares etc.). No "futures" market existed for gold under the gold standard, and gold was the common medium of exchange. Interest rates in a pure gold standard, is thereby the "natural rate".
I admit that the notion of a natural rate as inaccurate modern expositions of the theory, but it does not take away from the essence of the theory.
2) Subjective expectations is not really a useful term. All action is foreward looking, and all goals are subjective. This is basic Austrian ideas, and thereby all actions regarding saving, investment and spending are ALWAYS foreword looking.
3) General equilibrium is used, unfortunately in Hayeks exposition. But that is in Prices and Production, when he was a visiting professor in England trying to teach neoclassically trained economists the Austrian Business Cycle Theory.
Furthermore, he is trying to show how the slump is what is experienced in trying to go from one point, boom phase, to another point, the bust.
The Economic Settings of 1973-74
In over 40 years, the Keynesians led by men like Kaldor, Hansen, Samuelson and Lerner had taught the world that credit expansion was positive as long as one "controlled" price-inflation.
Furthermore they had vigirously attacked the gold and proposed exchanging it for the government paper money. Their Frankenstein was the supposedly "eternal" Bretton Woods System.
After Nixon closed the gold window to avoid devaluation or honest default, largely as a necessity for his upcoming reelection, the world was led precisely into a pure fiat money system. Nixon, had also in the heat of the moment imposed price controls which was mainly advocated by Keynesians and Marxists.
The resulting social chaos made it seem the world was on the verge of breakdown. Furthermore, the enormous boost given to credit expansion and resulting price inflation that the economy contracted and had quickly resulted in a worldwide financial crash in a classical Austrian fashion.
Most Keynesian economists had their models of public control of employment etc. completely shattered and there seemed to be an opening for wheening of the socialist economics of John Maynard Keynes.
The Professor of Economics at Lund University, Ingemar Ståhl, was well-versed in Wicksellian theory and Hayekian business cycle theory. He sat on the board of Nobel Prize in Economic Science and believed he needed to get the Austrian perspective into circulation. Therefore he pushed for and achieved a consensus to award him the prize, given that the worldwide crisis illustrated clearly the correctness of Austrian Business Cycle Theory.
Added: Paul Samuelson also seems to confirm my story:
"Hayek was the seventh to receive the Bank of Sweden’s new Nobel Prize in economics. In my judgment his was a worthy choice. And yet in the 1974 senior common rooms of Harvard and MIT, the majority of the inhabitants there seemed not to even know the name of this new laureate. (By contrast, the following year when I was in Stockholm to celebrate the 75th anniversary of the original five Nobel Prizes, it was my vague impression that the Royal Swedish Academy electors paid greater deference to Hayek than to their own native son Myrdal."
Philip Plikington(supposedly a journalist) and Socialdemocracy launch straight into an attack on Hayek, trying to make him out as a political hack. But in fact it was Myrdal who was the political hack, necessary to avoid the Swedish socialist authorities vicious attacks on a "reactionary"(marxist term for anyone opposing socialism). Because in fact it was very dangerous to be a free-marketeer pre-1980 carriere wise, alot more than being a marxist professor in the US.
Conclusion
Hayek was awarded the prize, because his (ABCT) perspective on the causes of the cycle was shown to be spectacularly correct and because the Keynesian framework was shown to be spectacularly incorrect.
He claims two things:
1) That ABCT developed by Hayek is completely wrong (even though basically a watered down version is the Minsky business cycle theory, only 50 years late)
"It is astonishing that one of the two main reasons given for Hayek’s Nobel Memorial Prize was his business cycle theory: for this was precisely that part of his research program that was a clear failure. Hayek never succeeded in creating a monetary theory of the trade cycle that evaded the serious criticisms his opponents levelled against it, which included the non-existence of the Wicksellian natural rate of interest, the role of subjective expectations, and the questionable role of general equilibrium theory in his theory. "
These claims are endlessly recycled on this webpage, so I thought I might critique them shortly.
1) The wicksellian natural rate is simply a representation for what would be the interest rate if no unbacked credit creation took place, or more easily understood if all monies were a commodity.
The fact that there exist no 1 interest rate, does not concern this.
Neither does the fact that futures prices differ, as that has to do with the demand and supply schedules for each product (grains, shares etc.). No "futures" market existed for gold under the gold standard, and gold was the common medium of exchange. Interest rates in a pure gold standard, is thereby the "natural rate".
I admit that the notion of a natural rate as inaccurate modern expositions of the theory, but it does not take away from the essence of the theory.
2) Subjective expectations is not really a useful term. All action is foreward looking, and all goals are subjective. This is basic Austrian ideas, and thereby all actions regarding saving, investment and spending are ALWAYS foreword looking.
3) General equilibrium is used, unfortunately in Hayeks exposition. But that is in Prices and Production, when he was a visiting professor in England trying to teach neoclassically trained economists the Austrian Business Cycle Theory.
Furthermore, he is trying to show how the slump is what is experienced in trying to go from one point, boom phase, to another point, the bust.
The Economic Settings of 1973-74
In over 40 years, the Keynesians led by men like Kaldor, Hansen, Samuelson and Lerner had taught the world that credit expansion was positive as long as one "controlled" price-inflation.
Furthermore they had vigirously attacked the gold and proposed exchanging it for the government paper money. Their Frankenstein was the supposedly "eternal" Bretton Woods System.
After Nixon closed the gold window to avoid devaluation or honest default, largely as a necessity for his upcoming reelection, the world was led precisely into a pure fiat money system. Nixon, had also in the heat of the moment imposed price controls which was mainly advocated by Keynesians and Marxists.
The resulting social chaos made it seem the world was on the verge of breakdown. Furthermore, the enormous boost given to credit expansion and resulting price inflation that the economy contracted and had quickly resulted in a worldwide financial crash in a classical Austrian fashion.
Most Keynesian economists had their models of public control of employment etc. completely shattered and there seemed to be an opening for wheening of the socialist economics of John Maynard Keynes.
The Professor of Economics at Lund University, Ingemar Ståhl, was well-versed in Wicksellian theory and Hayekian business cycle theory. He sat on the board of Nobel Prize in Economic Science and believed he needed to get the Austrian perspective into circulation. Therefore he pushed for and achieved a consensus to award him the prize, given that the worldwide crisis illustrated clearly the correctness of Austrian Business Cycle Theory.
Added: Paul Samuelson also seems to confirm my story:
"Hayek was the seventh to receive the Bank of Sweden’s new Nobel Prize in economics. In my judgment his was a worthy choice. And yet in the 1974 senior common rooms of Harvard and MIT, the majority of the inhabitants there seemed not to even know the name of this new laureate. (By contrast, the following year when I was in Stockholm to celebrate the 75th anniversary of the original five Nobel Prizes, it was my vague impression that the Royal Swedish Academy electors paid greater deference to Hayek than to their own native son Myrdal."
Philip Plikington(supposedly a journalist) and Socialdemocracy launch straight into an attack on Hayek, trying to make him out as a political hack. But in fact it was Myrdal who was the political hack, necessary to avoid the Swedish socialist authorities vicious attacks on a "reactionary"(marxist term for anyone opposing socialism). Because in fact it was very dangerous to be a free-marketeer pre-1980 carriere wise, alot more than being a marxist professor in the US.
Conclusion
Hayek was awarded the prize, because his (ABCT) perspective on the causes of the cycle was shown to be spectacularly correct and because the Keynesian framework was shown to be spectacularly incorrect.
tirsdag 11. desember 2012
Quick reply to a Marxist
I think Marxists should have been extinct in 1950. Not at least after 1990, but oh well unions must have some excuse for their exploitation.
A Marxist called, Zak Drabzyk has tried to critique Hoppe`s class theory.
Some fallacies in Drabzyk argumentation:
"The only way to understand why a person acts is to understand the environment which shapes that action. Thus, time preference can only be seen as a valid explanation if you presume the legitimacy of private ownership."
No, time preference requires presuming time exists. Time would still be scarce in a communist or propertyless society, and people would prefer things sooner rather than later.
"The material conditions of depravity that pressure the laborer to sell his labor-power do not affect the capitalist who owns the means of production (aside from the obvious duty of a capitalist being to produce and sell commodities). The capitalist class is the sole class with any feasible sense of flexibility as they exclusively access the means by which one may subsist. Therefore the statement that “After all, he could also decide not to sell his labor services to the capitalist and then reap the “full value” of his output himself” is utterly nonsensical."
The point is, Zak, that the material "conditions"(I need food, housing, a car etc but they are scarce) arise out of nature not imposed scarcity. Furthermore the whole point is, Marx, tried to claim that because the capitalist didnt physically labor, then he is given an exploitative share. But the worker, could have done manual labor (as many do) directly for customers and thereby reap the "full reward". He would have to be an entrepreneur and worker at the same time (many people, again, exist in this position).
"However, to suggest that capitalism somehow uniquely proposes mutual benefit compared to previous property relations, is ridiculous. Capitalist property relations are mutual only insofar as they allow the capitalist to prosper and provide the worker with subsistence, paid piecemeal."
Two things. Why do free-market economies (not the current West) tend to have rising wages ?
Why not simply "piecemeal" ie. a the least the capitalist has to pay ?
Why are all Hong Kong workers (prior to labor legislation) being paid higher wages than in many other countries(socialist countries and even western countries) ?
Simple, reason is as the capitalist and worker all want as much as possible for as little as possible. The choice(and thereby preferences) each has in choosing each other(that is absent in slavery, feudalism, socialism) creates the lower and higher limit for wages.
He backs this up with quoting Engels:
" The individual proletarian, property as it were of the entire bourgeois class which buys his labor only when someone has need of it, has no secure existence. This existence is assured only to the class as a whole.” – Friedrich Engels, Principles of Communism"
Well, the capitalist engaging in business is also only secured existence if someones buys his product.
On capitalism:
"The truth is much different. The entire system of capitalism is based on a social context, an interrelated conundrum of values and productive units. In fact, exchange value, the locomotive of market interaction, is dependent on society as it is a social expression. This is because the exchange value of commodities is impossible to determine unless contrasted against other commodities."
And where do these exchange values of commodities themselves arise ?
Out of the "subjective valuation", which is largely conclusively proven by the Austrian School (that is why Hoppe does not justify subjectivism in the evaluation of goods).
"Genuine social ownership seeks to empower the worker by including him in a direct control over the product of his labor and the fixed capital he employs."
How can he reasonable own "fixed capital" that he has not produced, bought or not been voluntarily given ? Only through aggression and violence, against person and property.
"as if the property barons of today not only obtained their power through socio-economic coercion (I mean contractual agreement) but also through their own personal saving, producing, or homesteading. Such a nonsensical interpretation of capitalist accumulation really draws Mr. Hoppe’s perspective into question."
Several famous capitalists and many more (unknown) entrepreneurs , have personally produced, saved themselves into wealth. You are not arguing here, you are simply stating things contrary to fact.
"Admitting that the same bourgeois, drawn here as distinguished from the ruling class, are indeed the ruling class, would be catastrophic to Austrian theory. This is, however, the historical truth on the matter. "
The average businessman, is not part of the ruling class. But rather its victims. That is, historical fact. In fact as the state, and its marxist apologists, have been enlarged, the ruling classes domain have been enlarged at the expense of other entrepreneurs.
"The state serves to protect the interests of the capitalist class, not exploit them. A quick reading of US Presidential history will make that very clear. Even small business interests are not exactly pitted against those of the state. Many small business owners enjoy a predictable rate of profit and market stability. The state through its suppressive functions helps maintain both a constant pool of uneducated and unemployed persons, as well as a stable market environment with minimal competition. All the factors necessary for a moderately successful capitalist enterprise."
A quick reading of European tax and regulation history makes clear that, the state serves to exploit producers. Usually for the benefit of the ruling class, of idle non-capitalists (kings, politicians, corporatists, unionists).
Most, small business owners have seen unprecedent inflation, taxation etc. and cannot be said to enjoy a predictable rate of profit. Furthermore, new restrictions enter everyday (Obama for instance has created several thousands of laws the last six months).
"This[need for property protection] is why even the petit bourgeois anarcho-capitalist still supports private institutions of violence such as ‘private defense forces’ against none such institutions at all. This is because they recognize, subconsciously perhaps, the need for a violent and suppressive tool which can essentially mimic most of the functions of the modern state; only then more tailored to their preference. "
Austrian anarco-capitalists recognize that people want and need as a service, self-defense against criminal aggressors. If they do not want such a service, they are free to defend themselves or even to establish some kind of "undefended" society.
"Perhaps this is only my rudimentary understanding of modern economics speaking, but for something to be produced, must not there be a demand for it? The demand is clear and present, and my analysis has shown that this demand comes precisely from the propertied classes."
People with property have not demanded a ruling class or a state, but rather have been and are attacked by it, and constantly brainwashed by it (usually with marxist propaganda).
Secondly, no. Supply enables demand. You do have a poor understanding of economics.
"The disagreement I will draw is with the denial of the tendency for the rate of profit to fall. The tendency for the rate of profit to fall is a critical measure of understanding the internal contradictions within capitalism and attempting to denounce it in a brief conclusion did Hoppe no good. Without anymore analysis, allow me to cite some empirical evidence to the contrary:"
The Austrian Business Cycle Theory (See for example, "Money, Bank Credit and Economic Cycles"), also presupposes falling profit rate in the contractionary phase of the cycle.
But the graph shown, is not an example of "clean capitalism", that Marx, and Zak want to critique.
I do not think anything written here, has been able to bring Zak to the conclusion he comes to and in particular he has not been able to debunk the classical liberal/libertarian class theory that preceded Marx.
A Marxist called, Zak Drabzyk has tried to critique Hoppe`s class theory.
Some fallacies in Drabzyk argumentation:
"The only way to understand why a person acts is to understand the environment which shapes that action. Thus, time preference can only be seen as a valid explanation if you presume the legitimacy of private ownership."
No, time preference requires presuming time exists. Time would still be scarce in a communist or propertyless society, and people would prefer things sooner rather than later.
"The material conditions of depravity that pressure the laborer to sell his labor-power do not affect the capitalist who owns the means of production (aside from the obvious duty of a capitalist being to produce and sell commodities). The capitalist class is the sole class with any feasible sense of flexibility as they exclusively access the means by which one may subsist. Therefore the statement that “After all, he could also decide not to sell his labor services to the capitalist and then reap the “full value” of his output himself” is utterly nonsensical."
The point is, Zak, that the material "conditions"(I need food, housing, a car etc but they are scarce) arise out of nature not imposed scarcity. Furthermore the whole point is, Marx, tried to claim that because the capitalist didnt physically labor, then he is given an exploitative share. But the worker, could have done manual labor (as many do) directly for customers and thereby reap the "full reward". He would have to be an entrepreneur and worker at the same time (many people, again, exist in this position).
"However, to suggest that capitalism somehow uniquely proposes mutual benefit compared to previous property relations, is ridiculous. Capitalist property relations are mutual only insofar as they allow the capitalist to prosper and provide the worker with subsistence, paid piecemeal."
Two things. Why do free-market economies (not the current West) tend to have rising wages ?
Why not simply "piecemeal" ie. a the least the capitalist has to pay ?
Why are all Hong Kong workers (prior to labor legislation) being paid higher wages than in many other countries(socialist countries and even western countries) ?
Simple, reason is as the capitalist and worker all want as much as possible for as little as possible. The choice(and thereby preferences) each has in choosing each other(that is absent in slavery, feudalism, socialism) creates the lower and higher limit for wages.
He backs this up with quoting Engels:
" The individual proletarian, property as it were of the entire bourgeois class which buys his labor only when someone has need of it, has no secure existence. This existence is assured only to the class as a whole.” – Friedrich Engels, Principles of Communism"
Well, the capitalist engaging in business is also only secured existence if someones buys his product.
On capitalism:
"The truth is much different. The entire system of capitalism is based on a social context, an interrelated conundrum of values and productive units. In fact, exchange value, the locomotive of market interaction, is dependent on society as it is a social expression. This is because the exchange value of commodities is impossible to determine unless contrasted against other commodities."
And where do these exchange values of commodities themselves arise ?
Out of the "subjective valuation", which is largely conclusively proven by the Austrian School (that is why Hoppe does not justify subjectivism in the evaluation of goods).
"Genuine social ownership seeks to empower the worker by including him in a direct control over the product of his labor and the fixed capital he employs."
How can he reasonable own "fixed capital" that he has not produced, bought or not been voluntarily given ? Only through aggression and violence, against person and property.
"as if the property barons of today not only obtained their power through socio-economic coercion (I mean contractual agreement) but also through their own personal saving, producing, or homesteading. Such a nonsensical interpretation of capitalist accumulation really draws Mr. Hoppe’s perspective into question."
Several famous capitalists and many more (unknown) entrepreneurs , have personally produced, saved themselves into wealth. You are not arguing here, you are simply stating things contrary to fact.
"Admitting that the same bourgeois, drawn here as distinguished from the ruling class, are indeed the ruling class, would be catastrophic to Austrian theory. This is, however, the historical truth on the matter. "
The average businessman, is not part of the ruling class. But rather its victims. That is, historical fact. In fact as the state, and its marxist apologists, have been enlarged, the ruling classes domain have been enlarged at the expense of other entrepreneurs.
"The state serves to protect the interests of the capitalist class, not exploit them. A quick reading of US Presidential history will make that very clear. Even small business interests are not exactly pitted against those of the state. Many small business owners enjoy a predictable rate of profit and market stability. The state through its suppressive functions helps maintain both a constant pool of uneducated and unemployed persons, as well as a stable market environment with minimal competition. All the factors necessary for a moderately successful capitalist enterprise."
A quick reading of European tax and regulation history makes clear that, the state serves to exploit producers. Usually for the benefit of the ruling class, of idle non-capitalists (kings, politicians, corporatists, unionists).
Most, small business owners have seen unprecedent inflation, taxation etc. and cannot be said to enjoy a predictable rate of profit. Furthermore, new restrictions enter everyday (Obama for instance has created several thousands of laws the last six months).
"This[need for property protection] is why even the petit bourgeois anarcho-capitalist still supports private institutions of violence such as ‘private defense forces’ against none such institutions at all. This is because they recognize, subconsciously perhaps, the need for a violent and suppressive tool which can essentially mimic most of the functions of the modern state; only then more tailored to their preference. "
Austrian anarco-capitalists recognize that people want and need as a service, self-defense against criminal aggressors. If they do not want such a service, they are free to defend themselves or even to establish some kind of "undefended" society.
"Perhaps this is only my rudimentary understanding of modern economics speaking, but for something to be produced, must not there be a demand for it? The demand is clear and present, and my analysis has shown that this demand comes precisely from the propertied classes."
People with property have not demanded a ruling class or a state, but rather have been and are attacked by it, and constantly brainwashed by it (usually with marxist propaganda).
Secondly, no. Supply enables demand. You do have a poor understanding of economics.
"The disagreement I will draw is with the denial of the tendency for the rate of profit to fall. The tendency for the rate of profit to fall is a critical measure of understanding the internal contradictions within capitalism and attempting to denounce it in a brief conclusion did Hoppe no good. Without anymore analysis, allow me to cite some empirical evidence to the contrary:"
The Austrian Business Cycle Theory (See for example, "Money, Bank Credit and Economic Cycles"), also presupposes falling profit rate in the contractionary phase of the cycle.
But the graph shown, is not an example of "clean capitalism", that Marx, and Zak want to critique.
I do not think anything written here, has been able to bring Zak to the conclusion he comes to and in particular he has not been able to debunk the classical liberal/libertarian class theory that preceded Marx.
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