That recessions are caused by drops in ‘aggregate demand.’ He proposes ‘stabilizing’ the ‘aggregate demand schedule.’
http://www.econtalk.org/archives/finance; min 52.
He also believes that people will accept bank notes backed by a fiat currency, and that the currency school and the peel’s act went too far.
Wow, Giles was right! This guy really is an Austrian!
lol
Sure is. You point?
Ah, I see how this works. Whereas Hoppe is the self appointed “dean” of the Austrian school, you’re actually its Grand Czar. You’ve got the job of deciding who is sufficiently Austrian and who must be expelled.
You see, here’s the thing. If you’d read Selgin’s work you’d know that believes drops in AD can occur as a result of monetary disequilibrium (as do other Austrians such as Horwitz, Hutt, Boettke and others, or are they expelled also?). For example, if there occurs a collapse in the money supply and wage rates are held above market clearing levels due to union power or whatever else, there will be a drop in purchasing powers of others (akin to a drop in AD) that will follow as a result of Says Law (some Keynesian, right?).
Actually, what he says is that a frozen stock of fiat currency may be the outside money adopted after the disappearance of central banks. Now, when you take things out of context you’re prone to creating confusion, so I thought I’d clear it up. What he says is that in a fully matured free banking system, the form of outside money is irrelevant. He does, however, note that this may be problematic since when legal tender laws are repealed the value of a given fiat currency will drop to zero.
Funnily enough, your suprise at such a statement flies in the face of reality. Whilst its not exactly similar, in Somalia, people do use their fiat currency for smaller transactions (and American currency for larger transactions). And guess what the rate of inflation is in Somalia? Pretty close to zero on average.
Seriously, your Rothbardian witch-hunt against all those who disagree with you is exceedingly petty. I doubt you’ve so much read a single paper of Selgin’s (or any other free banker for that matter). But perhaps he’d be considered less heretical if he, like Hoppe, wrote 100 papers on how the state is evil a priori and how fractional reserve banking causes negative externalities and is therefore fraudulent (despite his confusion of pecuniary and technological externalities, I thought Hoppe denied they existed or were a problem altogether?). It’s funny, cause Selgin has probably done more work on why the Fed is inefficient than most other modern Austrians (White being the only one I can think of).
Why are advocates of fraudulent banking dishonestly labeled as ‘free bankers’ by you ? Is that a petty rhetorical trick ? Just a silly lie ? Or an example of the amazing scientific theories of amazing academic minds…like yours ?
No one buys your nonsense. Move on!
I’m anxious to hear a Misesian defense of the paradox of savings; I’m sure it’s in TMC, somewhere. Damn liquidity traps!
What nonsense sonny ?
What I qouted. It has beeb refuted by most prominent rothbradian legal theorist, so there.
I already explained what fraud means. Funny, I thought English was your native language ? Maybe you need to check out a dictionary.
As to making an argument by invoking the “most prominent rothbradian legal theorist” - thanks, it was a good joke and it made me laugh. By the way, isn’t Kinsella the same guy who thinks that children are owned by their parents or something along those lines ?
Is this supposed to be a refutation?
Anyway it is my second language.
Ah. Well, as I said, I’m using fraud in the colloquial sense, not the ‘legal’ sense. Banking relies on obfuscation and legal privileges. So, it’s both an informal fraud and a criminal activity.
Now, if fraudsters tried to operate their FR banks with NO legal privileges, something that of course they never did, they would soon find out that Selgin’s crappy macroeconomics and Kinsella’s legal opinions are irrelevant.
The problem with Selgin and Co. is their obsession with nominal rigidities that arise from fluctuations in money demand, the classification of which depend on arbirtrary time intervals. Like much of the mainstream they seem to think that anything that doesn’t adjust instantaneously is ipso facto detrimental to the economy and therefore in need of requiring some specially arising institution to solve the problem, i.e., fractional reserve banking.
My problem isn’t so much with the fact that they believe “let be whatever shall be”, but that they rationalize frb on the basis of poorly reasoned aggregated relationships that supposedly diminish “social welfare”. It should be clear that individuals are constantly shifting their money demand schedules so that others are constantly gaining and losing as a result of the consequent price shifts. The idea that frbanking smooths this process is completely mistaken in that it takes the market between lenders and borrowers to be a fluidly adjusting mechanism capable of performing its function. Yet the basis of their argument is that some other mechanism has failed, namely prices, so doesn’t it seem absurd that one mechanism is assumed to be capable of performing its function while the other not? It is reminiscient of the government interventionists who rationalize their actions on the basis of market failures yet seem to forget that government failures also exist. Of course, action is not being advocated in their case but the rationalization process is similar.
In any case, the theory further depends on ad hoc empirical generaliations mainly based on the supposed perfect working example of frb, i.e., Scotland. E.g., they seem to think that despite the money supply multiplier, there is, for the most part, no effective increase in the money supply in the presence of frb. Because any net withdrawal results in a diminished reserve, the bank must call on some loans, and thus decrease the effective money supply. It is obvious, though, that the simultaneous cancellation of deposit transferals can persist for some time and thus allow depositers to use their money indefinitely while other borrowers of the reserves also use their money, thus resulting in a larger money supply than would otherwise circulate. Unless you believe in Friedman’s helicopter analogy, the distortions should be obvious. The economic reasoning behind their theory is so silly it’s curious how it ever got going again; I suppose it was a niche to be filled.
That monster!
Maybe the Mises Institute should stop publishing his books and demand their scholarship money back from him.
Edward, thanks for your insightful remarks, but I think you’re framing the debate incorrectly. For example, you write "Like much of the mainstream they seem to think that anything that doesn’t adjust instantaneously is ipso facto detrimental to the economy and therefore in need of requiring some specially arising institution to solve the problem, i.e., fractional reserve banking. ". The problem with this line of thinking is that it presumes full reserves to be the “natural” institution and fractional reserves to be some sort of constructivist idea originating with professional economists (it also works on the assumption that the government can never correct the market, but let’s not get into that). I’m sure that a free banker would respond that, in fact, fractional reserves have spontaneously emerged from the market and that imposing centralized bans on fractional reserves would cause the rigidities. On a similar note, I wouldn’t say it’s an “obsession” on their behalf (nor do I think this is the crux of the argument), rather I see them as emphasizing the less than rigid prices do exist whereas other Austrians tend to take a long run, Humean view when it comes to price rigidities. They’re merely emphasizing what other Austrians have failed to do so, and noting where it affects the argument. The point is that free bankers realize that prices and wages aren’t perfectly flexible as some other Austrians would have them be, this isn’t a normative statement as it is in the new Keynesian view, just a theoretical and empirical observation.
Likewise, you write "Yet the basis of their argument is that some other mechanism has failed, namely prices, so doesn’t it seem absurd that one mechanism is assumed to be capable of performing its function while the other not? " and " It is reminiscient of the government interventionists who rationalize their actions on the basis of market failures yet seem to forget that government failures also exist. Of course, action is not being advocated in their case but the rationalization process is similar. ". In the case of the former I think the free bankers would say that, in fact, what is happening is full reserve bankers would stop the interest rate performing its function. In light of this other prices will have to change to bring consumer demands into equilibrium. Now, the point here is that the interest rate is a single price, it needn’t perform its function instantly. All that is necessary for the free banking argument is that the interest can adjust quicker than the price leve. This much, however, should be clear from the fact that the price level doesn’t adjust instantly, rather, it is a delicate array of millions of price. In regards to the latter quotation I think the point is not that FRB advocates think that we can tweak the market to make it work perfectly, rather, reserve requirements imposed by courts or governments will hamper the market process.
A final point is concerns this remark of yours " It is obvious, though, that the simultaneous cancellation of deposit transferals can persist for some time and thus allow depositers to use their money indefinitely while other borrowers of the reserves also use their money, thus resulting in a larger money supply than would otherwise circulate.". Whilst largely true, this misses the point. What’s important is that if there exists more money that the public wishes to hold, it will be known and adjustments will be made through adjustments of the interest rate. There’s enough work on this that I don’t think I need to explain, but how it is “silly” escapes me. To call anything that isn’t 100% reserve banking silly to the extent that it should never have taken off strikes me as arrogant.
A quick, somewhat offtopic, remark would be that whilst a high level of aggregation does obscure the nature of economic relationship, aggregation per se isn’t bad. Even Rothbard talks of the price level, the interest rate, the money supply. All of which abstract something. As I heard Roberts and Boudreaux discuss in a podcast the other day, the level of aggregation necessary is an art. As somebody who finds value in Austrian capital theory I think labeling it “K” is too simple, on the other hand a 1 to 1 depiction of the rust belt (to use Garrison’s example) isn’t very useful either.
Edward, thanks for your insightful remarks, but I think you’re framing the debate incorrectly. For example, you write "Like much of the mainstream they seem to think that anything that doesn’t adjust instantaneously is ipso facto detrimental to the economy and therefore in need of requiring some specially arising institution to solve the problem, i.e., fractional reserve banking. ". The problem with this line of thinking is that it presumes full reserves to be the “natural” institution and fractional reserves to be some sort of constructivist idea originating with professional economists (it also works on the assumption that the government can never correct the market, but let’s not get into that). I’m sure that a free banker would respond that, in fact, fractional reserves have spontaneously emerged from the market and that imposing centralized bans on fractional reserves would cause the rigidities. On a similar note, I wouldn’t say it’s an “obsession” on their behalf (nor do I think this is the crux of the argument), rather I see them as emphasizing the less than rigid prices do exist whereas other Austrians tend to take a long run, Humean view when it comes to price rigidities. They’re merely emphasizing what other Austrians have failed to do so, and noting where it affects the argument. The point is that free bankers realize that prices and wages aren’t perfectly flexible as some other Austrians would have them be, this isn’t a normative statement as it is in the new Keynesian view, just a theoretical and empirical observation.
Likewise, you write "Yet the basis of their argument is that some other mechanism has failed, namely prices, so doesn’t it seem absurd that one mechanism is assumed to be capable of performing its function while the other not? " and " It is reminiscient of the government interventionists who rationalize their actions on the basis of market failures yet seem to forget that government failures also exist. Of course, action is not being advocated in their case but the rationalization process is similar. ". In the case of the former I think the free bankers would say that, in fact, what is happening is full reserve bankers would stop the interest rate performing its function. In light of this other prices will have to change to bring consumer demands into equilibrium. Now, the point here is that the interest rate is a single price, it needn’t perform its function instantly. All that is necessary for the free banking argument is that the interest can adjust quicker than the price leve. This much, however, should be clear from the fact that the price level doesn’t adjust instantly, rather, it is a delicate array of millions of price. In regards to the latter quotation I think the point is not that FRB advocates think that we can tweak the market to make it work perfectly, rather, reserve requirements imposed by courts or governments will hamper the market process.
A final point is concerns this remark of yours " It is obvious, though, that the simultaneous cancellation of deposit transferals can persist for some time and thus allow depositers to use their money indefinitely while other borrowers of the reserves also use their money, thus resulting in a larger money supply than would otherwise circulate.". Whilst largely true, this misses the point. What’s important is that if there exists more money that the public wishes to hold, it will be known and adjustments will be made through adjustments of the interest rate. There’s enough work on this that I don’t think I need to explain, but how it is “silly” escapes me. To call anything that isn’t 100% reserve banking silly to the extent that it should never have taken off strikes me as arrogant.
A quick, somewhat offtopic, remark would be that whilst a high level of aggregation does obscure the nature of economic relationship, aggregation per se isn’t bad. Even Rothbard talks of the price level, the interest rate, the money supply. All of which abstract something. As I heard Roberts and Boudreaux discuss in a podcast the other day, the level of aggregation necessary is an art. As somebody who finds value in Austrian capital theory I think labeling it “K” is too simple, on the other hand a 1 to 1 depiction of the rust belt (to use Garrison’s example) isn’t very useful either.
Oh I see how this is going, Esuric chooses those answers that he agrees with to be correct, ignores the evidence against his opinion (of which he has a history of doing) and then chimes in with nonsensical taunts claiming that others can’t defend their positions!
Fuck science, that shits out of date. Dogmatism is way cooler!
You don’t know what science means Giles.
Of course I do! Science means agreeing with Rothbard and Hoppe!
I’ve never read Hoppe/Rothbard.