Note to Jonathan: Why make up clumsy new names for things?
What’s clumsy about it? It’s a pretty exact description of what “Austrian business cycle theory” actually is.
I will grant you that it may be exact. Not going into that.
But exact and clumsy are not mutually exclusive.
For example, contrast “warm-blooded vertebrate of the class Aves, having a body covered with feathers, forelimbs modified into wings, scaly legs, a beak, and no teeth, and bearing young in a hard-shelled egg” and “bird”. One is exact and clumsy, and one is inexact and adroit.
- Why prefer the adroit to the clumsy? Because the purpose of a word is to communicate.
Meaning your first priority when writing is the reader. You have to make sure things are as easy and pleasant as possible for him. Otherwise you risk losing him. He either will not understand you, or will not be interested in what you have to say, or will find what you say a burden. In the best case, he will read with the feeling of a mosquito flitting around, ready to bite him.
An immediate consequence of this insight is that the easy word is better than the hard word.
- In addition, in this particular case, they will misunderstand you. When he sees intertemporal etc, he thinks, “Well he can’t mean ABCT, or he would come right out and say so. I wonder what he does mean?”
Of course, some small class of people are impressed by the pretensious. Maybe some journals want submissions to them to be obscure and ponderous. But do you really want to speak to them, or to those who are interested in ideas?
Maybe when people see ‘Austrian’ they think, “You’re always playing psychologist with us!” and ignore it.
But the whole point is that many people don’t actually understand what Austrian Business Cycle Theory is. It does not communicate much of anything, because many of those who hear/read it simply interpret it with their faulty understanding and straw mans of Misesian and Hayekian arguments. “Intertemporal discoordination theory” actually says something. Those who challenge it cannot do so without explicitly addressing the influence of time and coordination in the functioning of the market economy.
Glad that we can untangle all their confusions withthose three words.
Overproduction is not necessarily inherent to capitalism (private property). Overproduction is due to error. Error is inherent to uncertainty. Uncertainty is inherent to humanity. Since we are talking only of humans living within a capitalistic system, then overproduction is inherent to capitalism, i.e. as it exists in the real, human world. But then it is inherent to any human system. The question is - which system results in the least overproduction? Please consult Say’s law.
This is all true. Any system will be prone to overproduction; wants are fickle, fads are the norm. But capitalism encourages banking. Banking is a centralization of money. Centralization of money causes systemic misallocation (banks are businesses too, and they fail just like businesses do). The government probably fudges things up trying to protect the banks, but the systemic problem inherent to for-profit banking will still be there.
I don’t have an answer to this, I don’t think Say did, and I don’t think any socialist has a valid one either. But the problem exists.
I think Epicurus/Lao cites Rothbard extremely out of context. Rothbard would never claim that the “capitalist system” (whatever that may be) is “prone to overproduction”. In fact, that’s a very ambiguous statement.
It wouldn’t be the first time someone didn’t take their work to its logical conclusions; see, Marx
I agree with the next part of your post. I just disagree and think the government aggravates the problem often, rather than causing it.
Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place (Rothbard).”
Mises made it exceedingly clear in the section on indirect exchange that a free market banking system (especially sections 12 and 17 as I skim through) would have automatic restraints against credit expansion
Yes but (from one of the posts earlier):
popular opinion towards cheap credit isnt a problem business would have to deal regardless of what government or style of rule.
“If there had never been government interference with the banks, the whole problem would never have appeared.” I think this bases on the assumption, or should I say the general “feeling” that businessmen and bankers inherently know whats good for both them and the general public. Mises states in other places that he knows this is not true.
But I still see this general feeling in statements like “Businessmen are not so stupid as to say that a business which was good yesterday will necessarily be good tomorrow also. A man embarking on a new business asks himself if there are already enough plants. People do not enter into business as morons (emphasis added).”
I make the argument that it happens more often than one would like
Have I summarized you accurately, Lao?
I think that’s pretty close.
You’re on an economics website and you enjoy writing long posts purporting to correct others’ mistaken understanding of economic theory. So why are you writing as if you’re totally ignorant of trade-offs and marginal value?
Not all confusions need be untangled for us to consider IDT as having some merit. Likewise, there is a broad range of alternatives between “warm-blooded vertebrate…” and “bird.” Surely there might be some ‘optimal’ term to use between those two extremes, especially if people are unfamiliar with the word “bird” but are familiar with words like “winged,” “beak” and “eggs.”
Michael,
Allow me to elaborate. The world can be divided in three groups. Those who know ABCT, those who don’t but will learn somehing from the use of the phrase intertemporal etc, and those who dont and will not gain anything from the use of the phrase.
I’m guessing that the middle group is small, perhaps bordering on the nonexistent. The other groups stand to lose from the renaming for reasons I elaborated on.
But hey, it’s a free country to some extent. You like using IDT. Kewl.
This is all true. Any system will be prone to overproduction; wants are fickle, fads are the norm. But capitalism encourages banking. Banking is a centralization of money. Centralization of money causes systemic misallocation (banks are businesses too, and they fail just like businesses do). The government probably fudges things up trying to protect the banks, but the systemic problem inherent to for-profit banking will still be there.
I don’t have an answer to this, I don’t think Say did, and I don’t think any socialist has a valid one either. But the problem exists.
I’m not sure what any of this actually means. What centralization of money occurs with banking? How does isolated bank failure translate into extreme economy-wide failure? You’re not connecting the dots.
Imperfect information. Overproduction is also natural to socialism.
I have been familiar with the so called “overproduction” inherent noxious feature of capitalism for some time now. But I still haven’t read or heard a coherent explanation of its nature. What is the essence of its manifestation? One thing that I have heard is the relationship between the “overproduction” concept and the Great Depression. According to this account the cause for the GD was overproduction, which translated physically, for example, in the production of too much cars and other consumer goods. Would Lao care to elaborate on the concept?
I think liberty student pretty much covered it: Imperfect information. The entrepreneur cannot know ex ante the exact amount of his product that will sell. Investors and entrepreneurs take on a risk by producing first with the hopes of selling later. Essentially, the entire stock of never-sold goods is overproduction.
Overproduction/misallocation is a sympton of monetary instability. The root cause, imo (as I elaborated in that thread) is public demand for cheap credit and high wages.
I don’t think it’s coincedence that the first recession to take place after the inplementation of hte american FED turned into a depression. BUt I also don’t think the FED caused it.
There is no such thing as “overproduction”, i.e., wide-scale economy overproduction, or too many articles produced in the aggregate, etc…
If A is produced more, then B is produced less. No overproduction can ever occur.
More of some articles that are less urgent can be produced at the expense of other articles that are produced in less quantities that are deemed more urgent from the point of view of the consumers. Profit and Loss is the process that constantly works to eliminate any such discrepancies.
Ahh, yeah, I agree with that. It’s basically a separate definition of “overproduction” than what I was writing about above (and I believe LS and Lao are both using the term in the same way as I was). I’m not entirely certain, but I think in Austrian writings (Mises, Rothbard, etc.) m**isallocation is a more typical term to describe it, at least when looking at an aggregate of production.
Who do you think caused it?
Caused the recession, or caused it to turn into a depression?
I really have no answer. I think FED policy played a large role in it. But I think it would have been pretty bad regardless. Consolidation of wealth usually preceeds economic collapse, if Im not mistaken. And the 20s experienced large amounts of economic consolidation.
I unfortunately don’t remember where I read this, but during the 1920s I believe that income of lower quintile earners grew faster han higher quintile earners. I want to say DiLorenzo’s How Capitalism Saved America, but every time I try to look it up I can’t find it and the book is not well indexed. Maybe someone else can vouch, or provide other statistics.
‘I have never read Rothbard’s book on the crisis of 1819 (Panic of 1819), so maybe a quote would help put things into context. I don’t have time to scour the book myself right now, but I searched for the word “overproduction” and there’s only one find. It’s actually an opposing argument, which Rothbard critisizes (that of an agricultural overproduction).’
Rothbard discusses the overproduction thesis in America’s Great Depression if you are looking for his views on it.
I was looking to confirm the claim that Rothbard endorsed an overproduction theory in his book on the panic of 1819. I did it precisely because he critisizes overproduction in America’s Great Depression.