To briefly summarize my positon for anyone whose interested:
1)Rothbard’s exclusion of changes in the demand side for P.G (factors supplying ffuture money for present money) and its effects on the production structure/interest rate/quantity of savings mislead him to erroneously conclude that lower interest rates=higher savings while higher interest rates=lower savings. He only focused on the supply side of the time market, which although provided for some nice explanations of how economies can grow via time preference, he did not provide all of the explanations for how economies can grow through changes in time preference.
2)This focus on supply side changes in time preference (the quantity of savings supplied in the P.S), as well as a couple other overgeneralizations, made him incorrectly deduce that either the aggregate proportion of consumption versus investment or the individual proportion of consumption versus investment reflects the time preference rate (i.e the rate of interest in society). There are a couple of reasons why this is incorrect
A. Consumption in and of itself (excluding consumer loans) has nothing to do with formation of the interest rate. As illustrated on p418, nowhere in the determination of the interest rate is consumer spending present. Granted, if consumption decreases and savings increases (a shift in the supply of P.G to the right), then the interest rate is lowered. But if consumption decreases and savings does not increase, how is the interest rate lowered? Rothbard clearly mentions on p789 that a decrease in consumption spending due to an increase in hoarding will lower the interest rate. But how is this possible given that the diagram on p418 hasn’t changed at all? Rothbard does not mention this, and his argument suffers.
B.The inclusion of shifts in the demand side means that an increase in savings can come about not only through a decrease in time preference (a shift in the supply curve to the right) but also through an increase in the quantity supplied of P.G from movements along given savings schedules (brought about by an increase in demand). This is no different than any other price formed by supply and demand. If more workers enter the labor market and demand P.G (bidding up the interest rate), then the quantity supplied of savings will increase. For the capitalists, this means that their savings has increased while their consumption has decreased or stayed the same (supplied funds drawn from hoards). But have their time preferences increased? Not at all, because this increase in the quantity of savings reflects merely a shift along their time preference schedule, not a decrease (as Rothbard implies). The time preference rate (the interest rate, or the premium on Present money as opposed to future money) has not decreased, in fact it has actually increased!
I’ve taken a more critical approach to this in the past couple of days, mainly because upon further review of what Rothbard wrote, he made some serious mistakes. Hopefully this post will spark some forum discusion, as I was disapointed with the lack of turnout in this thread before (I think it was bad timing with the thread on demand for money that got pretty heated).
Thanks for responding. I have read that piece before, and found it very interesting. I’m not sure I’m ready to agree with him on all of his points though, mainly when he talks about money and its status as a present good. I think that money is a Present Good, or a Future Good, only when it is being forgone for money at a different point in time. Money is a present good when it is being considered to save for the expected benefit of more money receieved in the future (future money). Money is not a “present good” in the sense of time preference when an individual hoards it, since an individual isn’t forgoing his availability of it, nor is he receiving new “Future Money” from it.
as i understand hülsmann, money is a present good, offering immediate piece of mind services (even if the piece of mind be directed towards some future contingency). i haven’t yet read the salerno book.
i’ve read all of hülsmann’s literature and find it amazing that most people in the lvmi galaxy haven’t tapped into his important and substantive criticisms of rothbard, mises and hayek’s economic and monetary analyses.
Technically money does offer present services (relieves uncertainty and cash balance demand), but holding money isn’t actually buying any present or future goods, the “real deal” type of goods (if that makes sense). Holding money isn’t just abstaining from consumer spending, but also investment spending. I think its a good useful distinction to make on money only with regards to a time transaction. Its also interesting to note that in the Austrian framework present money isn’t money spent on consumer goods, its money that could be spent on consumer goods. My opinion on this could change though.
Thanks for the Bagus paper, I’ll try and look at it sometime today. Do you know if Salerno’s book deals with Hulsmann’s criticisms? Also, do you know how well Hulsmann is received in the Austrian academic community? Thanks.
i’ve not read the salerno book. on money, salerno is in the same misesian camp as hoppe, herbener, hülsmann. the latter’s views are in stark contrast to the money equilibrium/freebanking school (selgin, dowd, horwitz, and the gmu crowd).
i thought hülsmann’s paper on garrisonomics devastating:
the other must-reads are the papers on error cycles, and interest (both of which point out and correct logical errors made by mises).
whilst i’m on the soapbox, i also try and read everything that phillip bagus and nikolay gertchev write. they have a strong affinity to hülsmann, or so it seems to me. take this paper by bagus, which shows just how inconsistent the austrians giants have been on deflation. the literature section has most of their papers.