I’m not sure what you mean. I was attributing to him that there are distortions, with some up, some down, and that all these are responsible for an ABC. I disagreed and sais, nope , it’s only interets rates that count.
Please elaborate on what you see in that quote from him.
BTW, stay tuned for the next post, where Uncle Mises explains in detail why Esuric is wrong yet again. when he wrongly asserts that inflation causes low interest rates. Note that Prof Thornton has already disagreed with him. But it’s Mises also. And remember, both explain why, so it’s not a q of appealing to authoority.
That money in one’s cash balance is performing a service demonstrates the fallacy in the distinction that some writers make between “circulating” money and money in “idle hoards.” In the first place, all money is always in someone’s cash balance. It is never “moving” in some mysterious “circulation.” It is in A’s cash balance, and then when A buys eggs from B*,* it is shifted to B’s cash balance. Secondly, regardless of the length of time any given unit of money is in one person’s cash balance, it is performing a service to him, and is therefore never in an “idle hoard.”
Esuric his opinion, as far as I see it, is that relative price differences cause discoordination. Inflation causes these kinds of discoordination. . One example of this - ‘the business cycle’ - is caused by the money rate of interest pushed below the natural rate.
Dave, read the chapters of Human Action on interest. A market rate of interest is a function of the relative prices of “sooner” goods vs. “later” goods. Distortions in relative prices do bring about the ABCT.
Interest rates must go up when there is a general tendency for prices to go up because, if you buy commodities instead of lending money and hold the commodities, you make an extra profit in such a situation by the increase in the prices of the commodities you have bought.Therefore, people will prefer not to lend money to anybody if there is not an in- demnification in the rate of interest which they are receiving for the profit they could make by buying commodities or stocks themselves and keeping them for a time until their prices went up.Therefore, the stateof affairs in which prices are going up is necessarily a stateof affairs in which the rate of
interest will goup also, because under such conditions the rate of interest must contain an element which I have called the “price premium,” that is an indemnification for the profit the money lender could earn himself by buying commodities instead of giving a loan.
Bottom line; Inflation produces a tendency for prices to go up, which means people can make money buying and selling commodities, which menas why should they lend you money when they can use it to buy commodities, which menas yiou will have to pay higher interest to get a loan.
This refutes for a second time [once by Prof Thornton, and now by Mises] Esuric’s assertion that inflation lowers interest rates.
Since I trust the good Prof Thornton when he says the only thing that will start and ABC is low interest rates, Esuric stands refuted on his claim that inherent in inflation is an ABC. It is not so. Also refuted is his claim that deflation can cause an ABC, for the same reason.
OK, I have to take a break and read HA on interest, because Mises says clearly here that inflation makes interest rates go up, not down. Which is of course common sense. People will charge higher interest so as not to lose from inflation.
Cy’all later.
BTW Adrian, my post on Cantillion and this last one show in detail why I disagree with Esuric.
Dave, the price premium is only one component of the market rate of interest. The market rate of interest is more fundamentally about relative prices of sooner vs. later goods. If the prices of later goods go up relative to sooner goods, the market rate of interest will go down.
Just got back from the gym so I’ve spome catching up todo. Still I noticed the following.
All you’ve done here is shown the contradiction that Mises has elaborated on, it’s entirely impossible for prices to go up in unison. If by some magic they could however, the problems that the ABCT presents would not exist.
Actually the end result really is an altered ipod condition, an altered bread condition, and altered shoe conditions. If this discoordination did not do anything real, we would have no reason to be concerned.
The point is that new money enters the economy unevenly at specific entry points. Some goods and services are bid up in price immediately while others lag or even show a sudden lack of interest causing a drop in relative prices. The relative ratios between goods and services are suddenly altered. This is what has been discussed for now several pages, and I am somewhat aghast that everyone takes such an issue with it.
As I posted above for Smiling Dave, I’ll post again for you as well.
Are you asking me to defend what I quoted from Mises?
It will need a lot of work, but I imagine the simplest explanation is that he is saying that given a general tendency for prices to rise, interest rates will be higher than they would have been otherwise, all other things being equal.
Dave, I’m saying that whatever effects the price premium may have on interest rates, it doesn’t discount the fact that distortions in relative prices effect market rates of interest and bring about the business cycle.
I admit I’m tentative here, waiting to read HA on interest. FWIW:
To have a business cycle, you need interest temptingly low. Otherwise the businessmen would not borrow to invest in long range capital goods. They would not have the money to do it, and would not think they will keep on having the money to continue for the many years they need to finish.
So we need these distortions to create a low interest rate, which I doubt they can do, for two reasons.
Firstly, they do not guarentee a lower rate, for who knows which way they will distort. It all depends on what the guys who get the money first will do with it. Not only that, I imagine they will want sooner goods. That’s why the money was printed in the first place, to pay for the war, to give people their welfare and SS checks, all things meant to be used right now. To convince people to part with their dough and lend it at interest, it would have to be a higher rate of interest.
Also, if the price premium is high enough, it will offset any lowering of interest rates caused by those distortions.
Bottom line, it is impossible to say with certainty that inflation will cause an ABC because of price distortions. Moreover it is unlikely to do so.
Do you reject what you said before? Do you want me to discard it for its poor wording? If it is poor wording, why are you being so evasive and hostile. Clarify your position and consider my remarks as constructive.
The issue here is not about a dispute whether cash-induced changes in the purchasing power affect or not affect economic calculations, for they certainly do. It is about two false ideas being advanced here:
That in the general case, a divergence from some imaginary equilibrium is “problematic” and is the cause for inter-temporal distortions. - This cannot be correct, unless one commits the fallacies of the mathematical economists and misconstrues entirely equilibrium analysis and the market process. This isn’t just wording or nit picking.
That the affects on the structure of relative prices of a a cash-induced change in one direction can be canceled out (or minimized in practice) by an equal cash-induced change in the other direction.
And you continue to make personal attacks, which is unfortunate.
If you’re that admittedly tentative, why have you been so aggressive and swaggering in debating Esuric, who has demonstrated so copiously on this forum such an impressively firm grasp on economic science?
DD5 can you quote where I, or anyone, endorsed point #2?
Do you remember us talking about you putting words in people’s mouths?
Ignoring point 1 for now, the rest of your post offers nothing constructive. Whether I am being rude, or you. We can go down this road infinitely, it’s pointless. I have stated my position, and gone out of my way to clarify myself for you once already. You are not my nanny, or my teacher. If you’d like to grade my post, gladly give me an F and move on.
For these reasons, I will remain, not hostile, but apprehensive to you my friend. I believe that:
A) You do not understand what is being discussed(And that is not a bad thing) OR
B) Your looking for mistakes in my wording to specifically instigate an argument, one that will bring about nothing constructive or positive.
EDIT:
@DD5. In my effort to mend any relationship we may have. You should know that I at least think that it is most likely that either you, or myself are mis-understanding each other. My history with you is nothing short of disappointing, but I am willing to ignore it and move forward for now. What I want to express to you is that needlessly attacking a mispoken statement(Of which I am not exactly sure which statement you take issue with), a statement that may not even be my position is not helpful to anyone here.
I have stated my points several times now. If you have a problem with those specific points, the ones I most recently clarified to you, then please address those. Everything else to me just seems like strawmanning, whether intentional or un-intentional.
You’re asking to do much more. You’re asking to ignore the causal elements in the changes in the money supply. In this particular case, a contraction, but it is just as well the case for expansion.
The use of “above the natural rate” or “below the natural rate” are valid in explaining the discoordination only on account of the economist’s assumption, made for simplicity of analysis, that the “natural rate” , as a given, is the present desirable rate of the market. (emphasis on desirable). Therefore, it automatically follows that any divergence from this “natural rate” (market rate) constitutes a disruptive divergence, or distortion. However,it also logically follows that this disruptive force must be exogenous. Assuming that the cause can also be indigenous, such as voluntary changes in cash holdings, results in a logical self-contradiction, i.e., if “natural rate” is the rate of the free market, how can there be a divergence from it in the free market?
That’s basically the crux behind MET, which is what this thread is basically about. Esuric has made his sympathetic case for MET analysis and its various conclusions such as MV stabilization, etc…
As for you, I don’t know what your position is. You’re being evasive and simply resorting to personal attacks. Frankly, I don’t care.
Im glad that my attempt at reconciliation with you was fruitful. This is why I hold you in the esteem that I do. Your a bully. Ironic too since you seemed to think you knew what my position was prior to this post.
So evasive that I politely spelled out my position to you a second time. The very points you insisted were counter-praxeological.
First, your previous (original) post contained remarks absent from your new revised post. So how was I being a “bully” when your personal attacks started before your new revision?
Second, you are misrepresenting Esuric’s position in your new “revised” post, for he is saying much much more then this.
Third, I think this is the 6th or 7th consecutive post you have made a personal attack against me.
You butted into the middle of a dialogue between Smiling Dave and I and inherently became confused.(Not my fault)
I do not represent Esuric’s position, he represents his own.(Honestly he doesn’t need my help) This behavior is extremely foolish.
In both cases you have allowed yourself to be confused. Neither of which is my fault.
Well let me help you bring your evening to closure. Now I may have been harsh with you, but I have absolutely no reason, which is confirmed above, to treat you with anything other then contempt. Especially after making an attempt at reconciliation with you. Please don’t act surprised by this considering my entire history with you has been on the receiving end of dis-respect. You reap, what you sew in this case. You have a very prominent history of being brash and crude. I hold the opinion that these methods are not appreciable and do not conduct affairs in a positive manner. Strawmanning an argument, whether intentional or not intentional does not progress the discussion any. By Strawmanning I mean, building an argument that is irrelevant or un-related to the point at hand. In my case, my argument against Smiling Dave was interrupted by you. I clarified my position to you, and you continued to call me evasive and dishonest. What did you expect exactly? I have observed this behavior from you directed at others as well. This is why I think your a bully who enjoys argumentation, more then the discovery of truths.
All I’ll concede to you is that I may have been harsh. That concession however is more then I can ever hope to receive from you.