Scientific method is an overblown dogma that unsophisticated types treat like religion.
Oh! You didn’t use scientific method, Stephen Hawking!
Get out of your high school chem. mind set.
Really? Could you explain that?
I’ve never heard of an "empirical proofs. Any self-respecting, junior in high school will tell you that you don’t truly know anything by an “empirical observation of statistical data.” Even the amateur knows that correlation does not prove causation, and for causation you need something called logical explanations.
Think quick,
Why is there a perfect correlation between increases in the amount of churches and the amount of crime in neighborhoods?
I actually tend to agree with you here.
I consider Austrianism to be in the spectrum of the broader Neoclassical economists.
Redundantly critical of Keynesianism? I don’t think it’s about redundancy as much as it’s about, you’re looking at the same topic. Different topics in economics tend to have categories where they are usually about the same thing.
As for hubrism, any theory will have a thesis, the thesis in any school of thought will be that this particular theory is correct because…
Where?
Don’t take offense, though I know it’s an offensive statement and I’m generally hostile towards you, but knowing what you think you “know” about monetary theory, but believing anything that you say about money is like putting faith in a fourth grader to write a brilliant review of Nostromo.
Axiom, eh? Which one? Humans act?
I’ve responded to Bryan Caplan on his, “Why I am Not an Austrian Economist.” Though he possesses a good deal of knowledge about the science, in terms of his understanding of ABCT, I don’t think he knows as much as he believes.
This is a good thing?
…? [^o)]
Even the mainstream is saying that the Federal Reserve is at the base cause for the recent credit crisis.
Prices should be accurate, not stagnant.
For whom? Certainly not these people,
Of course inflation is good for the very, very wealthy bankers. That’s why Austrians harp on the cantillon effect.
For whom?
Which ones were those? The only predictions of Austrian economists I know of were the ones made by Mises in Austria about that depression that never happened… oh wait…
Regurgitating what Econlog says is nice, but really… think harder.
I don’t expect any of you to accept Keynes, but I do expect you to at least understand and be able to dispute Friedman’s Monetarism.
The chart you use shows the price of money without recognizing two things:
The gold standard is a constant over-valuation of currency, because the supply of money is kept at a constant state below the equilibrium, so the demand must compenstate by causing the price of gold to shoot through the roof, along the elasticity of the demand curve (which isn’t perfectly inelastic). Also, when I use the word"price," here I simply mean the equilibrium between the supply and demand for money – obviously, people aren’t buying money with money. The price of money should reflect the price of all goods in an economy, but the price of commodity-money can never go that far above the price of the single commodity – thus a constant disequilibrium that’s addressed through fiat. And even if it does, it’s really, really bad, because the gold industry suddenly makes massive profits, not because they’re providing any particular service, but just because the government says, “The gold industry’s product is your money.”
This one’s more important: The demand for money increases with economic growth, because the demand for money reflects the demand for goods and services, and so one increases, they both do. Thus, using the monetary exchange equation MV=PQ, unless one side or the other is changed, economic growth in and of itself causes a drop in the price of money (inflation) if there is no corresponding increase of supply. Steady inflation reflects things like “built-in inflation” (once inflation starts, even a small amount, it has to keep going) and the fact that the Federal Reserve is run by human beings, with economic uncertainty about what should be done.
Overall, the economy in America has been stable. Appealing to charts – where you don’t even note the fact that it doesn’t use inflation-adjusted statistics – doesn’t disprove this.
Your charts above show changes in the absolute value of money, not its nominal value (aka “real” value) which is what’s most important if you’re a marginalist, which the Austrians claim to be. Adjust your charts in two ways: First, make sure that inflation is not exaggerated by making sure the evaluation is pegged to the price of currency in one year (something you should already be doing when using any economic statistics). Second, correlate those figures with real GDP growth in those respective countries.
The gold standard is an over-valuation of currency? Since when? The gold standard simply states that for a bank or the government to issue a currency, it must be backed in gold. How does that over-value currency? In fact, by saying that, you have unwittingly admitted that a fiat currency is worth less than gold-backed currency.
A fiat currency has nothing to do with supply and demand of money. A fiat currency is simply a piece of paper worth nothing more than what banks and government say it’s worth. In fact, if fiat money is so grand, why was it that there was a period in German and Austrian history alike where the government and central banks had printed so much fiat currency that a wheel-barrow full of money would not buy a single loaf of bread? No, fiat currency is inherently flawed and inherently proned to inflation. If enough money is printed to “keep up” with technological innovation and population growth, then prices MIGHT remain stable. However, the reality is that it is never “just enough.” The result is that any time there is ANY fiat currency, the end result is an overabundance of the money supply. The end result, of which, is that prices will inevitably increase as the currency is increasingly debased.
If the economy is oh-so stable as you claim, then why is the housing market failing? Property values in Prince William Count, Virginia have fallen by nearly 50% in the past two years. Why is food getting more expensive than it was ten years ago? Ten years ago, my mother paid $150 per week to feed a family of five, today my wife and I pay $75-$100 per week just for the two of us. Why has more manufacture left the United States in the last ten years than in the preceeding hundred years?
If the economy is as stable as you claim it is, then THAT IS NOT A GOOD THING any way! The last time I recall seeing stable economy in my studies of history, we were burning witches at the stake, had no personal property rights, and lived under the thumb of self proclaimed “nobles” who in many states had the right to rape our wives and press our children into military service. As somebody pointed out, an economy is good when it is growing at a steady rate, including the growth of technology, et cetera. When the economy remains stable, that indicates stagnation.
Um…what part of Great Depression do you not understand? How about, oh, I dunno, the recession from the mid 1990s to the early 2000s after the DotCom bubble burst (geeze, you should remember that one, unless of curse you’re only a high-schooler, in which case I pity you)? Or the other recession that started around 2002 and went on to about 2005? No, there have been depressions since the founding of the Fed. Get your facts straight. Here’s an idea: remedial US history.
Okay, you’ve just admitted that the Fed is controlled by a group of human beings. Human beings are inherently flawed. Ergo, it is logically extendable to say that the Fed must therefore be flawed - just like any form of government is also inherently flawed. You’re saying that I’m supposed to put my stake in investments, bonds, mortgages, et cetera all of which will be at the mercy of a group of inherently flawed human beings? Or do you actually secretly believe that as soon as a person is elevated to a position within the State that they somehow magically become better people?
By the way, I’m an electrical engineering student, I know my math, and I know how complex even the simplest of equations can become when you begin accounting for all variables. Human action will never be simplified to mathematical (and ergo truly scientific) terms. It is not physically possible, even with the most powerful computers in existence today. Why? Simple. Because there are too many variables. The simple truth is that people take what actions they see as being in their best interests at the point in time in which they are taking the action. Attempting to quantize the variables which control that action would be an exercise in futility. Even simply buying a drink at the local pub would become one of the most complex equations I would ever not want to look at. After all, you have variables of the law, variables of social stigma with regards to drinking, variables of peer pressure, quantizing how much the person cares about the law and the like (perhaps a scale of 1 to 10?), then quantizing the effect that each pint of ale has on that person’s caring, then quantizing the effects of the alcohol on brain activity and blood chemistry, to quantizing the price of the ale against the amount of money the person does or does not have, affects of his possible addiction to the alcohol, yada, yada, yada. You could end up with a page-long equation just defining mathematically why the person buys a pint of ale!
And as for your “empirical proof” thing…okay, you’re a college student I presume, so I must ask what sciences you are taking? Empirical proof does not exist. Empirical evidence is simply data which either tends to support or disprove a given hypothesis. To date, I have seen not one shred of empirical evidence that casts any doubt on the Austrian school. Show me some evidence, and I might be open to your opinion. As of this point in time, however, you have consistently flown in the face of what evidence you’ve been shown. In fact, I would like you to show any evidence at all outside of your opinion. The Austrian school, in fact does not deny or fly in the face of Psychology or Sociology. Quite the opposite, most psychology and sociology actually tend to augment the Austrian school by providing potential explanations for human action. (I have taken courses in both.)
By the way, with respect to the charts, they’re already pegged to the price of currency by year. It’s tracking a long period of time. If you had really studied any hard sciences you would know that you can’t graduate by ones for extended periods of time (or other large measurements). Doing so causes large amounts of clutter and makes reading the chart a living nightmare. You should know that.
Further, the price of gold and its regards to currency has exactly what to do with the GDP? I dunno, but the word “nothing” leaps prominently to mind. Also, the GDP is a very new concept only established since 1934. Anything regarding trends before 1934 in the GDP, therefore, is nothing more than estimates which can only be remotely verified through archaeological evidence or records which are often times missing or incomplete. Furthermore, the GDP only accounts for registered, monetary transactions. It does not account for any form of “black” market, nor does the GDP account for barter systems of exchange, or people finding and using their own resources independently. The GDP regards purchases. It does not account for the durability of goods and therefore the possibility that a single, less-durable good may be purchased repeatedly or of a more durable good being purchased only once. Bah, not enough space or time to put down all the criticisms and limitations of the GDP. Go find the Wiki article on the GDP and look at it there. GDP is not an indicator of how well an economy is or isn’t doing. Anyone who’s taken high school economics knows that, let alone anyone who’s taken University economics. GDP is used to measure the size of an economy. A large economy is not necessarily doing well (it can be over-extended), and a small economy is not necessarily doing poorly (it could be just right for its region).
Edit: By the way, if you object so strongly to Austrian economics, think you know all about it, and do not want to learn anything more about another point of view, then why are you here?
Also, there’s one more I forgot to add to the list:
*An implicit rejection of Marginalism and acceptance of the labor-theory of value
Since Austrian economics is mostly based on Classical economics – it seems to have the same pseudoeconomic methodology that Mises attempted to justify as “science” – inherent in Austrian economics is the assumption of the labor theory of value and a reject of marginalism.
I was completely confused by this statement, but until I saw another Austrian here make the same argument, it occurred to me what it was: an assumption of the LTV.
“Embedded in the demand for money is knowledge of the money-prices of the immediate past,” past prices are equilibriums between the suppliers and demanders for money. He implies that the demanders of money today base their decisions based on what the suppliers and demanders for money decided in the past. But there is no such intrinsic quality to consumer decisions, since consumer decisions are only based on present conditions, which reflect past conditions, but not the certain conditions surrounding past conditions, such as costs. Past costs only affect the suppliers, not the demanders, and demanders don’t take into account suppliers’ costs until they’re reflected in price.
The result of this backwards view (literally) is that he assumes demand for money cannot increase, but then he contradicts himself by saying that free banking would be the best way to handle money. If the demand for money was so irrelevant, then for what reason should the supply matter? If the supply have money can simply be fixed, as Rothbard contends, then we could just never expand the money supply and there’d never be any deflation. That is false because an increase in production (including the increased production of money) requires an increased amount of available capital, and that extra capital wouldn’t be so available without an expansion of the money supply, since it would need to be provided in-kind as a good instead of in the form of financial capital. This isn’t something Rothbard apparently disagrees with himself, however, since he argues free banking would adjust the money supply to compensate for demand, while ironically and rather ridiculously asserting that the money supply could just remain fixed as it is. Many Austrians also seem to contradict their own monetary theory by saying acknowledging the existence of deflation under gold. Instead, they just say, “Oh, but inflation is worse than deflation. Deflation is a good thing.”
In the “Introduction to the Fourth Edition,” it starts off with this tidbit:
That statement doesn’t seem to backed by a shred of evidence and it demonstrates the poor scholarship of the Austrians. For instance, take the Iraq war and Afghanistan wars. They’re a large part of the budget, but non-war related spending far exceeds them and this has held true, historically. Admitting this poses a problem, though, for those who want to treat the government like a “big bad collective” such as the Marxist bourgeoisie: Why exactly would such an evil government continually distribute funds from the wealthy to the poor?
The result: At a minimum, it affirms the Neoclassicalism of Bryan Caplan and the Monetarism of Milton Friedman.
What else do you call the constant expansion of the state under fiat currencies except aggrandizement.
Regardless. You have done a wonderful job of beating around the bush without answering any question. First, you - and others like you - have thus far totally failed to explain why the gold standard is supposedly “over valued” as you say it is. Second, what does Loan to Value (LTV) have to do with any of what is being discussed here? Please enlighten me.
Nathyn I am curious have you read Jesus Huerta De Soto and his take on deflation of price which is something that tends to happen over the long run in the economy on various goods vs. deflation of the money supply by central bank policies such as the historical deflation which lead to depressions in the past. These were caused by fractional reserve policies and the central bank storing up the money. In the past the deflationary eras have been due to money “vaporizing” out of the economy, not money remaing constant. Essentially at one point there was a boom of credit and money and then there was a removal of money so to speak. The money did not remain constant in these historical scenarios.
Chicago-Keynesianism has been refuted already. It’s called, The Value of Money, by Benjamin Anderson.
Umm… Do you know what equilibrium is?
I can’t make heads or tails of what you’re saying here; perhaps it’s because of your poor grammar, or perhaps just that you don’t know what you’re talking about.
Supply = Demand: This is equilibrium price. Supply can not be under equilibrium; prices can be in disequilibrium – and often are – if that is what you mean, but I don’t think that supply can ever be under equilibrium price.
For one, the price of money is a largely superfluous concept and should be more applied as an inverse of prices for specific goods.
Two, prices in general are, as you seem to be coming to terms with, not simply determined in terms of one chart on supply and demand, but rather as factoring in many different qualities to define. All prices are merely, however, going to be the same thing, the value of money in relation to X on a supply/demand schedule.
As far as commodity-money can’t go far above the price of a single commodity, I’d like you to offer some explanation for that.
And with “disequilibrium,” yes, prices are often in disequilibrium, but the type of money doesn’t account for any of it, really.
OH NO! PROFITS!
The demand for money increases given time preferences and demand schedules. If an economy sees prices inflate – purchases increasing without changes in supply – then the demand for money will fall. If an economy sees prices deflate – purchases decreasing without a change in supply – then the demand for money will rise. This is basic 101 price equilibrium stuff.
The concept that gold standards cannot facilitate economic growth is a myth based on the idea that as demand grows, so too must the supply of money or else prices fall gasp.
In any case, you have it wrong. As Md increases Gd (representing demand for aggregate commodities) usually falls; this causes the fall of prices. This is a basic fundamental in Keynesianism that everyone, but you, understands.
What is Md, the desire for shiny nickels and dimes? No, the demand for liquidity is a demand for future goods over demand for present goods. What will occur, ceteris paribus, in an economy as Md increases will reflect a decrease in Gd, at least at present; Hayek harped on this fact. As demand for money increases, the prices of goods decrease, thus applying upward pressure on the demand for current consumption over future consumption.
Please, tell me you’re an undergrad student in community college.
Oh boy…
Just to warn you, you’re going into the same direction as Friedman with the mistaken concept that nominal price = value, done, end of story. When we talk like economists, we shouldn’t be talking in nominal, price stability mindsets, it’s time to graduate, son, it’s time to talk about The Value of Money
Huh? Don’t you mean DEFLATION? In any case, you’re just humming the tune of an old, pure, quantity-theorist quack. Here’s what dear Dr. Anderson had to say about the [pure] quantity theory.
It is a mechanical theory, concerned simply with quantities, and the relations between them. The essence of the quantity theory comes out in the following brief statement: given a number of units of money; given a number of units of goods to be exchanged; assume these two numbers to be independent1 of each other; assume all the goods to be exchanged for all the money; then the average price will be a simple function of the quantities of goods and of money respectively, such that an increase in the amount of money will increase the average price per unit of goods proportionately, if goods remain unchanged in amount, or an increase in goods will lower the price per unit proportionately, money being assumed to remain unchanged in amount. The qualification is commonly added that if goods have to be exchanged more than once, the effect is the same on prices as if there were an added number of goods equal to the added number of exchanges, and that if money is used more than once in exchanging a given number of goods, the effect is the same as if there were proportionately more money, (Anderson, 123).
By what standards? Would you consider continuous prosperity at a climbing rate to be stable?
I prefer growing as opposed to stagnation, myself.
Nominal value: An unadjusted rate, value or change in value. This type of measure often reflects the current situation, such as the current price of a car, and doesn’t make adjustments to reflect factors such as seasonality or inflation, which provide a more accurate measure in real terms.
In most cases, value is measured in nominal terms rather than real terms, which make adjustments to give a more accurate measure, (Investopedia.com).
At this point, Nathyn, you really aren’t in the place to be demanding anything…
I suggest spending some time watching the stock market. You’ll get the point soon enough.
Of course, in those parts of the economy where prices are not as volatile, the prices of the immediate past are the same as the prices of the present. Common-sensically, it’s okay for the “man in the street” to assume that the prices of the immediate past will carry over to the present and the future, but theoretically, all data are informed by our memories unless we’re in front of a specific price for a specific good. You can see this by going on a shopping trip, and noting when you use your memory to make a spending decision.
Common-sensically, it can be assumed by the “man on the street” that the price of an item already in the shopping basket is the present price, but that’s because of a generally-observed courtesy by stores: once an item is in the shopping cart or bin, the price affixed is the price that the customer pays. Had this courtesy not been in place, the differences to Wall Street would be lessened, because a glaring exception to this common courtesy is found in the investment markets. I suggest spending some time asking market plungers about their experiences in selling a commodity contract whose price had been plummeting. You also would have your eyes opened by spending some time watching the commodities markets. (No, I don’t mean the gold market.)
Once done, you’ll see how prices can change swiftly enough to make that quote from Rothbard make sense to you. Just remember: markets are markets. The “man in the street” can say that ‘Wall Street’ is just plain screwy because it’s not like the ‘real economy’, but an economist really can’t.
Because of speculation, the stockmarket is the most volatile of all markets and doesn’t represent the stability of the overall economy. As an example of what I mean: Go correlate the average daily change in the market with real GDP. The stockmarket jumps up and down, sometimes by hundreds of points, here and there, but it doesn’t mean anything because the stockmarket is largely “a random walk.” This idea is implicit in Austrian economics itself because of what Mises called “the uncertainty of human behavior.”
You seem to be inappropriately invoking “common sense” to establish an advanced theory. Do you actually suggest that the human memory is so powerful that it accurately records every past spending decision?
How much did you pay for your last can of beans? Based on that knowledgeable, how much would be too much, right now?
This absurd assumption about human psychology is demonstrated in the gameshow, The Price is Right. For the average human being, the price is wrong. This is precisely the reason that central-planning itself fails.
Nathyn, you told me that you are not marxist but other then that I am not sure where you are coming from on issues. You use Monetarist arguments who are generally pro capitalist and Keynesian arguments as well yet you seem to have a generally negative view of capitalism. Even Keynesians realized the need for capitalist institutions. Overall you seem to draw upon oppossing and inconsistent view points to make your arguments. I am assuming your an anarcho socialist of some sort but that is only because you mentioned something about the rich history of freedom in that political viewpoint. I would appreciate it if you did make your views understood to me. And no I am not saying you have to fit into an exact political philosophy but it just seems to me you will throw any possible economic argument out there to support what your proposing, which just makes it come off as ad hoc.
Nathyn, Niccolo may correct me if I am wrong, but I am relatively certain Keynes’s point was that as the demand for money increased, prices would not fall quickly enough to increase aggregate demand. He believed this happened, in a temporary reversal of Say’s law, because hoarding money represents not only an increase in the demand for money, but a reduction in the demand for goods and services as well. Keynes believed that this fall in demand would reduce the productive output (aggregate supply?) of the economy before prices could fall to bring the aggregate demand back where it was.
I have little interest or use of this sort of macroeconomics, but the fact that a “hoarding” recession has, to my knowledge, never occurred makes me skeptical of it. The arguments over why interest rates can’t fall quickly enough as savings increases never seemed persuasive to me at all.
Grant, you have the general concept down, that is that with an increase in the demand for liquidity no more liquidity exists for people to spend on goods, decreasing the demand for goods.
The fact that Nathyn got it SO backwards indicates to me that his level of economic understanding really is zero.