The Devil's Advocate Thread

Miscellaneous General
1

Seeing as how these keep popping up, I am going to make a small scale one for minor things.

Pick a topic that Keynesians/Socialists/etc would use to oppose Austrian economics/anarcho-capitalism/etc and argue from their point of view while other people shoot down their arguments/examples.

The idea here is to prevent the Mises forum from (in certain topics) devolving into an abyss of circle-jerking (See RevLeft or RedState). So long as we are busy arguing things (you can even whip out your own personal objections to get some decent answers), we aren’t being complacent. It also helps when a live Socialist crawls out of his cave on a non-Misesian forum and begins whipping out the “exploitation” garbage.

Unfortunately, I can’t start this (very busy weekend), but it would be nice if someone else could start something up.

2

Anarchy never lasts. Anarchic communes are dirt-poor. How could, then, one be an anarchist and still hope for civilization? Moreover, I’ve never heard of modern anarchy without some sort of mob taking over. Is Mafia-like government better than modern democratic government?

3

How can we trust business to protect and progress humanity? Big business only cares about money, not general consequences to public. If a company could sell poison and get away with it, they would and have. How can we trust the free market if some businesses end up killing some folks, I prefer we stop such problems before they happen. Corporations screw people over, and have screwed people over. Government can be bad, but how can we blame the government for all it’s bad actions?

(I hear these arguments from my lefty friends all the time, but it’s hard to attack them front on, when there is so much to it, it’s hard to just explain to them in so few words)

4

Same with me. I can barely even form one simple paragraphy to explain everything when someone has a question. It always ends up going back to some economic problem they don’t understand and then it lasts forever.

The argument I hear a lot is that we wouldn’t have running water or electricity because pipes underground and above ground are all part of government infrastructure, and that we’d still be using wells for water in a free society. Same thing with the internet being government infrastructure, satellites for television, and city planning. A lot, but kind of similar.

5

This is a horrendous double standard. It’s true, non-government actors are capable of causing great harm. But those given the reigns of the state have the potential to do far more: Look at history. Nearly every great tragedy and social problem can be traced directly to the actions of some government.

6

Okay, my topic: (1) The Austrian theory of cycles, (2) Monetary Equilibrium Theory (MET):

  1. The Austrian theory of cycles is fundamentally flawed because it fails to acknowledge the untenability of Say’s law, i.e., the law of markets (at least the way that Say formulated it). I’m not referring to Keynes’ failed refutation of various strawmen (which most closely resemble Walras’ law), but rather the fact that Say failed to comprehend that money was also a good. When the demand for money rises (an excess demand for money), and because money constitutes one-half of all economic exchanges, you can theoretically have an excess supply of all other commodities, also known as a general glut. Again, there isn’t an excess supply for all goods in general (including money); there’s an excess supply of all goods with the exception of money.

This manifests itself as inadequate aggregate effective demand and, when faced with price rigidities, will yield involuntary unemployment and disinvestment (the prices of final outputs will fall faster than costs). Thus, there’s no reason to bother with the overly complicated ABCT since this explanation is both elegant and can completely account for the phenomena that we empirically observe during recessions.

  1. MET Austrian’s are simply confused Monetarists. They claim that they want to prevent “bad deflation” by “keeping MV stable.” In other words, they want the supply of money to be elastic and responsive to changes in the demand for money. At the same time, though, they claim that they don’t want to prevent “good deflation” from occurring, which is the inevitable result of productivity gains, i.e., higher rates of output. But this proposition is entirely incoherent. The reason why the value of money rises during periods of economic growth is because there are additional goods available which, ipso facto, makes money scarce relative to all other commodities. This, in turn, increases the demand for money and yields general price deflation. If the monetary equilibrium theorists want to remain completely consistent, then they should support an expansion in the supply of money in order to satiate the higher demand for money, brought about by higher total output. In other words, there is essentially no difference between a higher demand for money brought about by heightened uncertainty (which usually occurs during recessions), or a higher demand for money brought about by productivity gains/higher rates of total output.

The market does not differentiate between the two, and there’s no reason for economists to separate this phenomena in two distinct categories (a higher demand for money is a higher demand for money). Thus, if MET Austrians were really consistent, they would support complete price stabilization; they would realize that they were Monetarists.

7

The Austrian School is guilty of using its theories as substitute religion rather than grounds for analysis. The 2007 financial crisis is the only crisis of its kind, but every school of thought has tried to use it as a proof of their theory, rather than trying to understand the given crisis in the first place. But the Austrian School is by far the worst and the most guilty of it. The housing crisis relates to a housing bubble, while the Austrian Business Cycle Theory relates to capital assets. Even the most prominent Austrian economists have thoroughly discredited themselves and their reputations forever by trying to fit the Austrian Business Cycle Theory, a theory about capital assets, to a housing crisis, when houses are not capital assets. This is religion, not analysis.

The Austrian School has thoroughly discredited itself by making useless claims of hyperinflation. Normally, this blatantly self-destructive act should only indicate that a supposed Austrian has not read the theories of the Austrian School. However, when the likes of Peter Schiff, Robert Murphy, and all the rest shout hyperinflation from the top of their throats for several months, they are guilty of pure political posturing, downright lying, and even trying to gain attention. When Rothbard himself said that inflation (as a mere increase in monetary base) does not have to result in a price level increase and often has not resulted in a price level increase (something observed equally well by anybody who lives in Japan), why do Austrians repeat nonsensical predictions of hyperinflation? Inflation can merely take the form of poorer quality of goods, increased savings from uncertainty about the future, and several other factors. The only reason Austrians shout hyperinflation is so they can sell you their snake oil and gold certificates. And ironically, for a school that prides itself in its understanding of uncertainty and inability to predict, they will be as full of certainity as Saudi Arabia is full of oil.

The most astonishing thing about the Auburn Subschool of the Austrian School is that it is the most hostile, unprofessional group of economists known - who have called Paul Krugman alone a “political operative”, a “crank”, an “idiot who does not know economics”, and far worse insults never returned by Krugman and they have done so at a frequency greater than Krugman’s admirers read his blog. While it may be so the Auburners can not be discredited simply because they are of dubious character and lack manners, they have certainly felt so no less about other economists, which is why the Auburners frequently cite “Keynes The Man” as proof of the rotten character of Keynes and thus of his economics. So why not vice versa? Maybe those Auburners need to do some quid pro quo and learn some manners?

Lastly, it never made sense to me that when one criticises Objectivists and Rand on the Mises forums, it is denounced as sectarianism. But when it comes to the cruel marginalisation of leftist Austrian analysts, they are denounced as Austro-Punks, and the libertarian branch is proud to do so. Does the Austrian School’s modern day adherents know that the teachers who inspired Bohm Bauwerk and von Mises were infant industry protectionists and wonks responsible for charting out industrial policy? Do they know that Friedrich Hayek started out as a moderate Fabian socialist, and was so in a large part of his young years? Do they know that von Mises was pro-welfare-state and pro-labour-reforms, but merely opposed aggressive statist interventions as ways of improving worker’s standards of living, because he saw them as ineffective? Do they know that initially, the prime purpose of the Austrian School was to provide for pro-middle class policies that would ensure a rapid increase in their incomes and standard of living through more productive industry under modest state sponsorship, and that the political party which supported their ideas in Germany were called Progressives?

8

Ha. That was an interesting argument. I would like to see what your austrian response would be Eusuric

9

Very nicely done. Your writing is clearer and friendlier lately. Keep it up.

I’ll take a stab at 1].

It’s all true, as far as it goes. But the elegantly painted picture is missing two vital components:

First, how did this mass hysteria for money become so huge that it shut down the economy? Is there an economic reason for it, which you fail to mention? Is it the work of witch doctors stirring up the animal spirits? AE has an answer, but you don’t.

Second, all the various fixes to the situation you describe that have been proposed by other schools of economics over the decades can be proven [in fact and in theory] not to work by AE. And “doing nothing” can be shown by AE to work [in fact and in theory].

10

Esuric,

How does an increase in aggregate supply relative to money increase money demand?

11

Yeah, this is, in my opinion, the best and only way to go. As you mentioned, there are reasons why the economy is experiencing mass hysteria, i.e., a sudden and dramatic spike in the demand for money. In fact, Hayek explicitly deals with such “secondary phenomena,” where the demand for money rises so fast, that the market rate of interest rises above the natural rate. But this condition can only occur (if we ignore the mysterious animal spirits) after a dramatic correction (recession/depression)/banking crisis (at least to any significant degree).

12

Protip: cicumvent monetary discourse by observing that USDs are not the only liquid asset. Any problems associated with fiat currency can be anticipated and avoided by the market. Firms can switch currencies, go to scrip, go to barter, whatever. In short:

A: “The market’s exchange mechanisms might get messed up”
B: “The market will find another way to exchange”

I usually run this under all my other counterarguments against inflation/deflation, which btw, focus on the asymmetry of monetary distribution rather than nominal effects like falling prices.

13

Well, it seems to have gotten brushed under the rug now, with only one response.

14

Prateek, your future is assured. That’s scary good stuff.

summarizing the actual content, as opposed to the mud slinging, you seem to be saying:

Paragraph 1. ABCT is about capital assets, not houses. Austrians conflate the two. FAIL.

Par 2. Where’s the hyperinflation?

Par 3. Austrians call people bad names, when they themselves deserve to be name called.

Par 4. They criticize Austrian leftists, but their great leaders had some leftiness hiding in their closets.

I don’t think we need a big gun like Esuric to handle this one.

As for Par 1., ABCT’s essential argument is money printing causes a boom, which will have to burst.

Think of it as a Macy’s Thanksgiving Day Parade float being inflated. If you keep pumping air into the beast, it will explode at some point. But where? Pluto’s nose? Mickey’s tail? It’s hard to say in advance, but it will obviously be at the weakest link.

In Mises’ time, the weak point in that float was assets. But recently new laws and circs made housing the weakest leak.

Par 2,3,4 are just ad hominems. I mean, if Euclid was a pedophile, does that make his geometry wrong?

EDIT: I forgot about Par 2, where’s the hyperinflation? Nobody said it’s coming today or tomorrow for sure. But like death itself, it’s coming for sure.

15

Help me with this one: “The post-war, pre-fed era saw frequent and severe recessions/depressions, this was due to the gold standard and a decentralized banking system.” http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

16

“The post-war, pre-fed era saw frequent and severe recessions/depressions, this was due to the gold standard and a decentralized banking system.”

It’s not like there was no government involvement in the economy post-war, pre-fed. There were central banks, which might have caused the recessions. And actually I think post-war, pre-fed the economy was more stable than post-fed. Just seven years after the fed first engaged in open market operations we had a giant, decade-long depression.

17

Stats used to measure recessions today are completely different to those used in the 19th Century, and they’re all largely bogus anyway. The orthodoxy has it that the Great Depression ended in 1933. Right…

Aside from that problem, the entire period from the end of the War Between the States through to the last years of the Century were marked by economic problems instigated by the War, the dodgy greenbacks issued to pay for it, and the speculative bubbles that followed in its inflationary wake.

“Black Friday”, 1869. The US government had issued large quantities of paper “greenbacks” to pay for its invasion and conquest of the Southern states. It was, however, commonly understood by the plebs that these greenbacks would eventually be redeemed for gold. In 1869, speculators took advantage of the situation and began to buy gold like it was going out of fashion, attempting to corner the market. President Grant’s government responded by dumping $4 million of government gold onto the market, causing the gold bubble to pop and severely damaging trust in US treasury bonds. It did, however, put the speculators’ plot to rest. This was not a result of a gold standard, or decentralised banking. It was a result of Lincoln printing a whole lot of phony government greenbacks to pay for his war. The speculators’ and Grants’ reactions were inevitable once the pieces were set in motion.

While this nonsense was going on, there was a massive railway construction bubble growing larger and larger as a result of government grants and subsidies. The single bank - Jay Cooke & Company - which had effectively been established by the Republican Party just prior to the War to sell US treasury bonds all over the place and finance the whole sordid endeavour, was forced by the events of Black Friday to seek some other form of attaining capital. It made the deadly decision to invest in the railroad construction industry.

In 1873, events in Europe broke the camel’s back. Germany decided to stop minting silver coins, which had the effect of driving down silver prices worldwide. This harmed the US silver industry as it was, but more dangerously, it caused the US government to decide to abandon the mixed silver-gold standard in favour of just gold. They didn’t want to have to buy up silver at the statutory prices they’d promised people they always would. The effect of abandoning silver was a huge rise in interest rates, which precipitated the crash of 1873. The railroad bubble burst, Jay Cooke and Co went belly-up, setting off a chain reaction of bank failures and precipitating the Long Depression of 1873-1879. This was not caused by a gold standard, or decentralised banking. It was largely caused by a massive bubble in the railroad industry funded directly by government subsidy, in combination with the events of Black Friday four years earlier.There was another goddam railway boom funded by government idiocy from 1879-1882, which resulted in another recession from 1882-85, and yet another goddam railway boom after this, which resulted in the Panic of 1893. The 1893 panic was helped along by the “Free Silver” movement, which was spearheaded by silver industry lobbyists in the young Western states, who’d been mighty annoyed ever since the Treasury had stopped buying their silver. The ‘Sherman Silver Purchase Act’ was passed in 1890, requiring the Treasury to purchase vast fixed amounts of silver with paper money which sellers promptly tried to redeem for gold. This insane silver bubble was burst under President Cleveland in 1893, when the Democrats repealed the Silver Purchase Act.

Then there’s the 1907 crash… JP Morgan and John D. Rockefeller’s buyout of the United States, essentially. Does anyone have more info on this crash in particular? All I can find is that it was supposedly caused by copper speculation, but the whole thing seems mighty strange, what with these sorts of people flying in to “rescue” the American economy so quickly afterwards. What caused the dumping of copper onto the market that precipitated the crash? Why was the Knickerbocker Trust Company trying to corner the market in the first place?

Anyway, these problems had nothing to do with an inability of the government to dump worthless fiat onto the market… It’s plain to see that they were caused by the Treasury finding ways to screw around with the money supply, as well as ill-informed government spending on repeated bubble projects.

18

Anarcho-Capitalism is an oxymoron. it is impossible to fully support anarchy and to fully support capitalism because capitalism is a tool used by the government. Wealth would not be equal, which causes social domination and the creation of an involutary and coericive hiearchy is formed due to the wage system