5) ABCT assumes that newly created credit money is mainly loaned out to businesses (causing malinvestments in capital goods), and not to consumers to a significant degree.In the housing bubble, loans were made to people who clearly were unlikely to pay them back. Debt was used bid up asset prices in property, allowing yet more debt (via refinancing) for purchasing of commodities (whether durable or non-durable). ABCT in the form examined above does not explain this process.
I'm not going to read all of your comments, but the very first sentence in this passage is simply incorrect. Specifically, the assertion that "ABCT assumes that newly created credit money is mainly loaned out to businesses (causing malinvestments in capital goods), and not to consumers" is false. Hayek deals with both situations in his work.
@Questfortruth86 1) The Austrian business cycle theory (ABCT) is a credit-based explanation of the business cycle used by Austrian economists. ABCT has, however, come in different forms and was developed over many years by Mises, Hayek, Rothbard and more recently by modern Austrians like Roger Garrison. It is not monolithic,and some Austrians like Israel M. Kirzner have even criticised Hayek’s development of ABCT as not entirely consistent with Mises’ exposition in 1912.
The vast majority of your lengthy response contains either entirely irrelevant information (such as the fact that there were disagreements among varying austrian economists regarding trade cycle analysis) or shows a fundamental misunderstanding of the positions held by those economists. I will respond to each comment one by one.
@Questfortruth86 2) "ABCT is unique in including real capital goods among its elements in a manner which does not assume away their essential heterogeneity.The theory demonstrates the connection between this structure of capital and monetary policy by way of Wicksell’s natural rate of interest theory and Mises’s integration of money into general economic theory" Batemarco,R. J. 1998 Austrian Business Cycle Theory,in P. J.Boettke,The Elgar Companion to Austrian Economics 216–336
@Questfortruth86 3) Here are some of the major works by Austrians where different forms of the ABCT are expounded:
(1)The version of Mises in Human Action: A Treatise on Economics 1998. .
(2)Hayek’s first version of ABCT in Prices and Production (London, 1931).After Nicholas Kaldor’s attack on it in “Capital Intensity and the Trade Cycle” (Economica n.s. 6.21 (1939):)Hayek had to re-write his theory in:
(3)Hayek’s second version of ABCT in Profits,Interest and Investment.1939
@Questfortruth86 4)However,both Lachmann and Schumpeter did not think that Hayek’s business cycle theory could be used to explain all business cycles (Batemarco 1998).More importantly, I.Kirzner has also made the following remarks on Hayek’s theory:
KIRZNER: I've never felt that the Hayekian business cycle theory was essentially Austrian.In fact,Mises,who was the originator of this whole idea in 1912,didn't see it as particularly Austrian either.It goes back to Knut Wicksell"
Schumpeter's position or critique of the Austrian theory of cycles is irrelevant as far as Austrians are concerned. He had his own, entirely independent theory which was really the amalgamation of 6 different theories (long waves and short waves, technological shocks, etc).
Lachmann believed that in addition to the Austrian theory, there were certain cycles that were the result of monetary disequilibrium, which resulted in what appeared to be inadequate effective demand.
Additionally, it's simply a fact that Wicksell (Interest and Prices) was the pioneer of what is now referred to as the Austrian theory of cycles. Mises himself states that the latter part of his "Theory of Money and Credit" is primarily devoted to exposing the fact that Wicksell's "theoretical construct" of a banking system that is entirely monopolized, and therefore unconstrained in the issue of fiduciary media, is not theoretical at all. It characterizes most banking systems.
This, as you mention, became problematic, and Hayek attempted a more rigorous treatment later in his career. My position is that the whole issue is overstressed and I don’t think that the elegance present in his earlier work is sufficient grounds to discard it. Indeed, Lachmann further elaborated, included expectations and uncertainty, and reached almost identical conclusions.
In other words, I reject the assertion that “The existence of subjective expectations in the real world and the non-existence of equilibrium states are severe stumbling blocks to Hayek’s theory.”
@Questfortruth86 5) What appears to me to be the most important form of ABCT: the form postulating distortions in the capital goods sector (for a good summary of this form of ABCT, see Garrison 1997: 23–27), and how this simply cannot be invoked as a serious or fundamental explanation of the US housing boom in the 2000s and financial crisis of 2008.
The Austrian response to this question would be that goods are not defined or characterized by their physical properties but rather by how they are employed by individuals in their attempt to satisfy their subjective desires. Sugar can be, and is, both a consumer good in some circumstances, and a producer good in others.
Houses are typically considered long-term durable goods, and therefore share many characteristics with capital goods. Sometimes houses are indeed capital goods proper.
Because the nature of the good depends on the intention of the buyer.. it really depends whether the goods are capital goods or not. For example, look at what Tiger Woods' ex-wife did to that 12 mil palatial home... She demolished it! For her it was a consumption good.
In his popular pamphlet Economic Depressions: Their Cause and Cure written in 1969, Rothbard sets out a form of ABCT which seems typical of the general form of it. He points to malinvestments in capital goods by businesses as the fundamental cause of recessions.“And there is a third universal fact that a theory of the cycle must account for.Invariably,the booms and busts are much more intense and severe in the “capital goods industries”Rothbard 2009 (1969)
I's true that Austrians distinguish between business cycles and recessions. Not all recessions are the result of a credit expansion primarily funneled into the "higher order" capital goods sectors which create unsustainable booms and therefore busts. But thats precisely the point. Hayek specifically deals with the situation where the newly created sums take the form of consumer credits in P&P. He claims that it leads to a relatively immediate bust (contracts the structure of production).
@Questfortruth86 1)It is well known that Hayek abandoned general equilibrium theory after the 1940s for the concept of a “spontaneously emerging market order.”But Hayek’s views on equilibrium also evolved over time,and some scholars feel it is necessary to divide Hayek’s career into 3 phases in his views on equilibrium - In the first phase down to 1937,Hayek thought that “all legitimate economic explanations should be based upon an analysis of equilibrium” (Gloria-Palermo 1999)
@Questfortruth86 2) The second phase from 1937 to the 1940s involved Hayek’s attempt to redefine equilibrium as plan co-ordination, which occurred in his important paper “Economics and Knowledge” (Hayek 1937)From the 1940s, there was a third phase where Hayek broke with equilibrium analysis and created a new concept of “spontaneous order” as a method for studying coordination processes in market economies.
@Questfortruth86 3) While Hayek developed an intertemporal equilibrium theory in 1928 in his paper “Intertemporal Price Equilibrium and Movement in the Value of Money” (Hayek 1984 [1928]),he did not use this in Prices and Production (1931). Instead, he reverted to the stationary equilibrium approach, by adopting the simple stationary-equilibrium model put forward by Wicksell in Interest and Money as the starting point for his analysis.
@Questfortruth86 4) In Prices and Production, an initial stationary state moves to disequilibrium and then moves via boom and bust into a new stationary state. This might be viewed as an application of Hayek’s intertemporal equilibrium theory of 1928 where perfect foresight is needed as an assumption. Hayek’s definition of monetary stability is a state where voluntary savings equal voluntary investment.The unique natural rate of interest is taken over from Wicksell.
In fact, Wicksell took the concept of natural interest from Bohm-Bawerk, Mises’ professor at Vienna. Bohm-Bawerk referred to the pure rate of interest as the “natural rate.” In other words, Wicksell was employing the Bohm-Bawerkian capital framework though it is true he would later modify it. This is absolutely crucial to understanding WIcksell’s trade cycle theory, and it’s something that Keynes entirely missed (Hayek deeply stressed this in his critique of treatise on money).
@Questfortruth86 5) An equilibrium state is the starting point of a real world economy allegedly subject to Hayek’s Austrian trade cycle (Loasby 1997: 54: “Hayek began ... with a monetary expansion ... impinging on a perfectly co-ordinated economy”). Hayek explicitly stated that he had assumed full employment equilibrium in Prices and Production (1931). U. Witt has identified the severe problem running through Hayek’s reliance on general equilibrium for his trade cycle theory.
@Questfortruth86 6) "It is an irony that the perfectionist endeavour turned out to run into troubles which, it is claimed here, developed into a crisis of the whole program.In Mises’s understanding (general) equilibrium is a fictitious, imaginary construction useful as a logical basis of comparative statics.Though often arguing similarly in this respect,Hayek takes a different position.While Mises’s did not require empirical hypotheses it is quite clear,from Hayek" Witt,U.1997
@Questfortruth86 7) In other words, Hayek came to see that perfect information and foresight were necessary to explain the convergence back to an equilibrium state as the upswing turned to a bust. The existence of subjective expectations in the real world and the non-existence of equilibrium states are severe stumbling blocks to Hayek’s theory.
@Questfortruth86 8) Hayek’s assumptions go much further than the idea of a starting equilibrium state.They also assume:(1) The flexibility of prices and perfect or near perfect adjustments in prices in response to demand and supply(2) frictionless markets,and perfect price information on the part of agents.But prices are not perfectly flexible,and in reality agents ex ante expectations can be severely disappointed ex post,and Knightian uncertainty causes subjective expectations
@Questfortruth86 9)Gunnar Myrdal had already levelled this criticism against Hayek in a paper in 1933 and Hayek’s famous paper “Economics and Knowledge”(1937) can be seen as the beginning of his attempt to answer these criticisms.Lachmann heard of the work of the Stockholm school from Rosenstein-Rodan:the Stockholm school at this time was being influenced by Myrdal’s incorporation of Knightian uncertainty into economic theory and Lachmann came to examine the role of expectations
In fact, Hayek delivered a lecture called “Price Expectations, Monetary Disturbances and Malinvestments” on December 7, 1933 in Copenhagen (first published in German in 1935; English trans. Hayek 1939) where he responded to Myrdal’s criticisms. Here he began to modify his ideas on the equilibrium interest rate and the concept of equilibrium more fully developed in his paper “Economics and Knowledge” (Hayek 1937).
@Questfortruth86 11) Hayek needed to free himself from the stationary equilibrium approach and construct a dynamic approach suitable for his trade cycle theory (Donzelli 1993: 5) others like Myrdal, Ohlin, Lindahl, and Hicks also freed themselves from the stationary equilibrium approach in the 1930s, and rediscovered the Walrasian instantaneous equilibrium approach.) Hayek had revived his “intertemporal equilibrium” idea,“a temporary equilibrium notion with perfect foresight”
@Questfortruth86 12) “Hayek’s changing assessment of the importance of equilibrium theory has some consequences for our story. The most telling of these concerns Hayek’s trade cycle theory, a paradigmatic example of equilibrium theory, one that Witt (1997, 48) describes as ‘an impressive example of allied price theoretical reasoning that may even delight a Chicago equilibrium economist ” (Bruce Caldwell, 2004: 228).
@Questfortruth86 13) "But,as Witt goes on to observe,if one rejects the usefulness of equilibrium analysis,then Hayek’s step-by-set story of how the cycle unfolds,one in which ‘each single stage necessarily had to be followed by the next one’,can no longer be maintained..Witt concludes that Hayek’s cycle theory may well be incompatible with his later theory of spontaneous orders a concern that others have voiced”
(Bruce Caldwell-An Intellectual Biography of F.A. Hayek,2004 )
It is true that Hayek’s conception of equilibrium did indeed evolve or at least change over time. It is also true that he employed static general equilibrium analysis in his earlier works, i.e., ignored the role of expectations and uncertainty altogether, but I tend to think he did this primarily for pragmatic purposes. He wanted to demonstrate a fundamental concept in a manageable way. His triangles, for example, were never meant to accurately depict the real macroeconomy.
4) In Economic Depressions: Their Cause and Cure written in 1969, Rothbard sets out a form of ABCT which seems typic general form of it.He points to malinvestments in capital goods by businesses as the fundamental cause of recessions:
“And there is a third universal fact that a theory of the cycle must account for. Invariably, the booms and busts are much more intense and severe in the “capital goods industries”—the industries making machines and equipment" (Rothbard 1969: 32–33)
3) ABCT in the form examined above with its emphasis on malinvestments in the real capital goods sector is not an even remotely relevant explanation of 2000s boom and bust, and the 2008 global financial crisis.
2) This is something that is forgotten by many people: Keynesianism is not just about stimulating the economy during times of recession or depression; the important other side of Keynesian demand management is to stop inflationary outbreaks during boom times by reducing the level of aggregate demand.
1) I´ts a very important point to notice,that governments around the world first started to adopt Keynesian economic principles during the Second World War, and they did so to control inflation and excessive aggregate demand, by eventually contracting demand when wartime command economies had been implemented (a point made in by the Austrian economist Ludwig Lachmann).
@Goodatconnect4 as I understand it's pretty symbolitic and Mr. Garrison just showed that more money are invested in early stages of production when increasing in savings occurs.
" I've never felt that the Hayekian business cycle theory was essentially Austrian. In fact, Mises, who was the originator of this whole idea in 1912, didn't see it as particularly Austrian either. There are passages where he notes that people call it the Austrian theory, but he says it's not really Austrian. It goes back to the Currency School and Knut Wicksell. It's certainly not historically Austrian." Israel M. Kirzner,” Austrian Economics Newsletter, vol. 17.1 1997
The Austrian school is obsolete. The modern free market economists are those of the Chicago school (Friedman, Becker, Stigler, and dozen others). The Chicago school economists have won more John Bates Clark medals and Nobel prizes than any other school. It's about time libertarians changed to Chicago school economics.
The Helocentric model of the solar system is obsolete. The modern solar model astronomers are those of the Earth Centered model has been around for 1000's of years. (copernicus etc.) Earth Centered school astronomers have won more Nobel prizes than any other school. Its about time everyone realized that earth centered model is more popular and there for correct.
The more I learn about the Austrians, the more it is absolutely obvious that Keynes is nothing other than a statist, simple-minded fake. An enabler of government money-printing.
Rather than parror the phrase "unsustainable investemnt" isn't it worth thinking about why investment not matched by voluntary savings actually does take place? Wicksell gave a possible reason why investment not matched by "real savings" can take place. If easy credit is directed mainly to investment, and prices rise generally, consumers are "forced" to save, because their income buys less. And why assume that no one ever made a mistake in investing, even when the saving was voluntary?
Wow amazing thank you!!!! I get tired of the quick excuses, "animal behavior", "human emotion", "Nothing we could do", "No way to know", "Did everything imaginable", "thought of everything", and "had our best minds 'trying' to figure this out".... I have been listening to Tom Woods and the others give their convincing talks and examples, it's amazing to feel my mind open now that I see it all layed out. I'll be sure to watch this video repeatedly! Thank you, Gracias, Arigato, Xie Xie ni. !!!!
@shadowgeyser Rules, there are no rules sunshine. But I ask you one question. if I mean everyone besides you guys, don't know how to debate, always makes a fallacious statement and are always wrong, why is it that your views are not in the intellectual mainstream. Why is it that in reality, the only place your opinions are regarded as well fucking valid is when you talk to someone who agrees with you? I disagree with lots of people but you guys simply are so lost it is pointless
@franks2732 Whilst I almost fully disagree with Austrian economics, your beliefs(from what I could surmise from your channel) are even more incorrect.
@shadowgeyser Go away idiot. besides the fact I have made none, It would not make one iota if I made 300, because this is a general conversation and no rules of debate have been set, your point is void. Our comments live or die on their own. What a fuckwit
@shadowgeyser Fuck off imbecile, you have been ass whooped all over town, I have had enough of you. Your comments are nonsense, stupid and beyond the pale. You have little understanding of any social or political ideology besides your own, very little understanding of the world and your source information is contain solely to those who agree with your already held POV. Your an indoctrinated MORON. And you want me to continue to placate you NO I SAY. Invest in your local library and read
@shadowgeyser Fuck dude, even when people are taking the piss out of your sorry ass, you have got to continue. Don't you have one shred of pride in yourself
@shadowgeyser funny if one would conclude it is only those who support your ideology who have the availability to access an evaluate evidence but sorry LMFAO. I am bored with you
@shadowgeyser I wold like to inform you of the well over 500 or so websites, books and leatures that refute everything you say. What could be a reason for that, perhaps, just perhaps like me they conclude your a fuckwit
@shadowgeyser On that i don't think i have called you a liar, an imbecile, a moron and a intellectual whelp come to mind, I do think I called you a fuckwit, someone who does not know what he talks about, a revisionist who manipulates 'evidence" to support your Narrow POV and lost in your own delusion. But Not a liar, if I did well and good but your still a dick
@shadowgeyser NO, see we read stuff and learn, you read stuff and well try to claim it supports your point. Still have not seen you present one fact to support your ideology. Not one. And I love how you accuse me of lying. You should also know I am getting PM's about you, it is hilarious. I might actually start posting then next to your comments. It should bring a fresh perspective LMFAO. And a lie is where I tell an untruth and know it, opinion is not a lie. I have never lied to you
@shadowgeyser dude just give it up you imbecile, you have been called out and ass whooped all over YT, funny enough half of the people doing it would be considered "very close" to you politically. Your such a pussy you don't even have the strength of character to open your YT channel to scrutiny. What is most funny about you morons is the thought of actually reading philosophy as a whole school not simply your own train of thought is beyond your ability. Hayek is such a lightweight it is a joke
@shadowgeyser Your makin a fool out of your self.Time after time.But go on prozelyte.Don´t stop.Your the true face of Austrian School of economics.The face of a clown. A psycopath with no knowledge in economics.Keep on posting.Soon the school is diminished because of you!Lew Rockwell should pay you to shut up!
@shadowgeyser =Psykoclown! "Such a theory cannot be tested by comparing its “assumptions” directly with “reality.” Indeed, there is no meaningful way in which this can be done. Complete “realism” is clearly unattainable, and the question whether a theory is realistic “enough” can be settled only by seeing whether it yields predictions that are good enough for the purpose in hand or that are better than predictions from alternative theories." Milton Friedman - Essays in Positive Economics"
@shadowgeyser =(Clownface!)This is Friedman your fool!!
"A theory or its “assumptions” cannot possibly be thoroughly “realistic” in the immediate descriptive sense so often assigned to this term. A completely “realistic” theory of the wheat market would have to include not only the conditions directly underlying the supply and demand for wheat but also the kind of coins or credit instruments used to make exchanges;" Clear as water!!Read Friedman your Insulent Psycopathic Clown!
@shadowgeyser What all people do who are not Austrians, Collect data, interpret data, draw conclusion. What Austrians do-Draw Conclusion, Interpret only favorable data put favorable data next to predisposed opinion and "prove" (LMFAO) a predetermined "Prediction". Which naturally will automatically agree with the already predetermined Conclusion. Fucking funny that. I have never met a Austrian who has ever been wrong. But Keynesian's and Chicago boys I have met heaps because they accept reality
@shadowgeyser I think you fail to see the point and Friedman left the libertarian party because his views that Austrians are dicks. It is also funny and somewhat refreshing to see the Monetarists attacking you as well (they normally don't comment as they agree with the greedy fuck attitude of Austrians, so it is sort of like shitting on their own lounge. But credit were credit is due. At least they base their ideas in the real world, not in fairly land. They are still a bunch of fucks
@franks2732 Your absolutly right! Austrian cranks(no other economists,) use deduction as a approach to derive conclusions from premises,based on a number of assumptions and deduces a conclusion, such as:"from A and B are C". Deduction says nothing about if the premise or the conclusion is TRUE or not, only that they can be linked to conclusions!Because of that they never get hired in any firm or academia!It´s true!Do you want to put your money in the hand to such morons,?I would sure not!!
@treddas851 You should hear the moron assign Kant as some latter day saint of Austrian economics. he was on another channel calling Hayek a Positivist LMFAO.
@treddas851 That is the reason why "on issues of economics" although me and you may differ we can at least argue with some level of certainly and provide evidence to back our claims. If you are unwilling to do that you are arguing that your ideology is akin to atheism. You are arguing from a "negative" premise to conclude a positive. You are arguing that just like atheism, your premise requires no proof, but in the same breath asking others to prove it wrong. tbc
@treddas851 As another guy tried to claim recently to me (Another Austrian). The funny thing is as Dawkins said. It was really great to have the Logic, but he is fairly glad the evidence (well lack of it for a god etc) now supports the negative claim. So as Dawkins is postulating Atheism now loosely "can be proven to be true" making it not so much a negative anymore. That will offend most Logicians lol, but where does that leave the claim of "gods" or for that matter Austrians
@shadowgeyser Keynsianism and Hayek was a failure and a anglophile invention.It´s sorry to see you young englishmen fall for that economic disaster in pure patriotism.You should read some Milton Friedman like Essays in Positive Economics,that debunk both the Austrian and Keynsian crap.
The Austrian framework is anything but Anglo (it's uniquely Austrian, in fact), and this is especially true of its business cycle analysis (which was first formulated by the Swedish economist Knut Wicksell). The Austrian method essentially takes the general equilibrium approach (developed by the continental economists) but adds (a) methodological individualism and (b) causal realism.
Mark Blaug,one of the foremost historians of economic thought,proclaim that Knut Wicksell “more or less founded modern macroeconomics”(Blaug 1986,274).
Wicksell’s work inspired directly to three major traditions in economic theory:
the quantity theory of money and its implications for allowing an analysis of aggregate macro outcomes as well as their appropriate monetary policies;
the Austrian theory of business cycles,which uses Wicksell’s concept of a natural rate of interest
"the Austrian theory of business cycles,which uses Wicksell’s concept of a natural rate of interest."
This is actually a Bohm-Bawerkian conception (he called it "natural interest," and "surplus value"). Wicksell explicitly cites Bohm-Bawerks' "Positive Theory of Capital" (1888) when he first introduces the concept in "Interest and Prices" (1896).
@Questfortruth86 Yes it´s true.Wicksell’s work was an attempt at integrating general equilibrium theory earned from Leon Walras,the Austrian theory of capital (but i think he learned more from Eugen von Böhm-Bawerk’s,1884, classic,Capital and Interest,but i am not sure?) and the marginal productivity theory of income distribution from David Ricardo’s 1817 treatise On the Principles of Political Economy and Taxation.He was working on a grand synthesis of these three theoretical approaches.
@Questfortruth86 Wicksell made improvements for which he is remembered today.The most important is probably his distinction between the natural and money rates of interest.The Money,or market, rate of interest is the observed rate at which banks carry on credit transactions.The natural rate is a bit more complicated.Wicksell defined it as the rate that is neutral for commodity prices and the rate at which the supply and demand for capital are in equilibrium in an economy not using money at all
@Questfortruth In Wicksells business cycle theory,a boom emerges when the natural rate of interest is higher than the market rate,which is subject to manipulations by humans using sophisticated financial institutions & credit instruments that drive the market rate below the natural,equilibrium rate.It´s "Wicksell’s Cumulative Process” model of business cycles.When the loan rate of interest is below the natural rate,the demand for loans by entrepreneurs exceeds quantity of savings in the economy
@Questfortruth86 In Wicksell’s model, the interest rate divergence phenomenon was crucial for understanding the differences between Wicksell’s quantity theory of money and the view held by his rival Irving Fisher.For Fisher,changes in the quantity of money fully explained changes in long-run prices; for Wicksell,the quantity of money was but one aspect of the mechanism that changed prices because the flow of goods and services worked its way through the economy by first changing interest rates
@Questfortruth86 Ludwig von Mises and Hayek adapted Wicksell’s cumulative cycle process. Keynes no doubt read and appreciated Wicksell’s approach and then built on it, stressing that cycles were generated by changes in real factors such as investment spending and interest rates and not by monetary changes. The seeds of the Keynesian–monetarist debates that began in the 1960s were planted first in the differences between Fisher and Wicksell.
@Questfortruth86 Another Wicksell connecting is “real shock” cyclic view,also emphasized by Joseph Schumpeter,who saw innovators and entrepreneurs as an often destabilizing shock to the market economy,giving rise to what he called “creative destruction.”In this sense,there is a continuous thread that runs from Wicksell,through Schumpeter,and on to Keynes nonmonetary model cycles.The Keynesian–monetarist dispute on money & effects its rooted in Fisher–Wicksell differences in causes of cycles
@shadowgeyser Keynsianism and Hayek School was failures and a anglophile invention.It´s sorry to see you young englishmen fall for that economic disaster in pure patriotism.You should read some Milton Friedman like Essays in Positive Economics,that debunk both the Austrian and Keynsian crap.
[cont] In fact, Friedman is really the Anglo economist, since he employs (a) broad and general aggregates that abstract from the mechanics of change and (b) partial equilibria analysis. He said it himself: he's a Marshallian! I think I’ve spoken to you before. You’re the one who believes that Friedman was the first to introduce the equation of exchange, are you not?
@Questfortruth86 Your right.Treedas wrong.There are, two broad lines in macro economics.One "European", comes from Knut Wicksell, another "American" is in the tradition of Irving Fischer.Milton Friedman did not for sure introduced any new equation of exchange in any of his 3 books.Milton Friedman was a follower of Irving Fischers,and his monetarism is a development of Fischers work.Knut Wicksell inspired Austrian,& Stockholm school of economics as well as Keynes early monetary theory.
@shadowgeyser I am highly educated in economics and Neo-Classical,but this Austrian crackpots with their Bow-ties is a danger to society if they get influence!! Austrian economics, differs to al other schools by singing the praises of capitalism as a Disequilibrium System!!Even Keynesian types understand that the economic goals is to maintain an Optimal Equilibrium!Pure lunatics!
First of all, don't confuse Keynes (the actual Keynes) with the new Keynesian framework. The latter is merely the amalgamation of many spurious frameworks and assumptions (neo Keynesian, Monetarist, and New Classicism). But you're partially correct; Austrians are, in fact, monetary disequilibrium theorists. But Keynes was a general disequilibrium theorist (he simply denied that markets work in the GT). He said that the economy was in equilibrium either by chance or by design.
@shadowgeyser In A Theory of the Consumption Function—Milton Friedman argued that the best way to make sense of saving and spending was not,as Keynes(or von Mises)had done,to resort to loose psychological theorizing,but to think of individuals as making rational plans about how to spend their wealth over their lifetimes.This was an anti-Keynesian idea—and return to classical ways of thinking—and it worked,and remain the foundations of how economists think to this day.What have Mises-Hayek done?"
Mises incorporated monetary theory into marginal utility theory, something that all other neoclassical economists were simply incapable of doing (this was seen, at the time, as a major problem with subjective theories of value). He also explained, in great detail, how money emerges, the nature of inflation (it's not a uniform and/or measurable variable), and built upon Bohm-Bawerk's capital theory. (I purposely ignored business cycles for the moment)
@Questfortruth86 They also were involved in economic restructuring of a few different countries after ww2. Milton and Hayek were helping economic restructuring up until 1990s-including Britain, some Latin countries and others. Socialism and communism were dominating the scene until about 1980. High prices, because of inflation, were sending most countries into Chaos, price controls. People believe that money is wealth. Wealth is production not the medium of exchange-dollar.
1) As austerity policies roll out across the Western world, markets await the next shock and central bankers’ moves command the headlines, thoughts naturally turn to comparisons with the last great global meltdown. Liaquat Ahamed’s blockbuster, Lords of Finance, is undoubtedly the most engaging narrative of the run-up to the 1929 Crash to have appeared in recent years.
2a) The elements that Ahamed synthesizes here are not especially novel. Like Peter Temin, in Lessons from the Great Depression (1989), and Barry Eichengreen, in Golden Fetters (1992), Ahamed traces the disequilibria of the 1920s and 30s back to the First World War.
2) As per Milton Friedman’s and Anna Schwartz’s account of the period in their Monetary History of the United States (1963), monetary policy is the crucial determinant: problems of international capitalist production remain distant from the action. And as in Eichengreen, again, the dysfunctional inter-war gold standard plays a central role.
The U.S., on the other hand, in order to prevent the dollar from becoming the vehicle currency, pursued an inflationary policy aimed at keeping U.S. interest rates arbitrarily low (which also lead to monetary and inter-temporal disequilibrium). Hayek writes about this extensively in his "Monetary Nationalism and International Stability" (1937).
No one supported the gold standard that existed during the inter-war period. That international monetary system could hardly be considered a gold standard anyways (the pound was tied to gold, the dollar was tied to the pound, and all other currencies were tied to the dollar). Additionally, the British attempted to re-establish the pre-war exchange rate of 4.88USD/1GBP by arbitrarily elevating interest rates (causing monetary and intertemporal disequilibrium).
Wow. That was awesome. Really appreciate the Mises Institute posting this. It helped me a lot to have a visual component in my understanding of the ATBC.
Austrians assume that savings (energy surplus) invested into the funds market will always produce greater capital gains (increased energy efficiency that results in a net energy gain) and not just more consumption (production requires increasing energy supply to an economy) The end result is the same, the requirement to consume energy at exponential rates will always hit a physical limit. Growth is never sustainable without infinite supply of energy or perfect energy efficiency. Both impossible
@johnTconover Nuclear fusion is 3 years away according to Dr. Cox. Also Austrians don't deny that non-renewable energy is finite so I don't know why you mention it.
@bonfirejovi Where did I imply that Austrians were in denial of our energy production limits? I'm just stating a simple fact , that all economic systems that use profit as the modus operandi require infinite growth, thus resource consumption. As economics is bound by the laws of thermodynamics I see this as a fatal flaw to Keynesian and Austrian economics alike. Also, whilst Dr. Cox may be correct, I wonder how much thought he has given to fusions applicability in time and scale constraints.
1) According to the probarly most credited post WW2 economist Paul A Samuelson,at MIT in his famous oscillator model economic trends and cycles works as follows: A- Damped monotonic B - Constant monotonic C- Explosive monotonic D -Explosive oscillations E - Constant oscillations F - Damped oscillations How do his multiplier-accelerator reveal "cycles"? In fact, only parameter ranges (B , C) which are in situation E (constant oscillations) will yield constant cycles.
@zsylvana Lol what was it that Samuelson had to say about the Soviets? Also was this the same Paul Samuelson that was discredited after his interpretation and development of the Phillips Curve was proved completely wrong by the 1970s Stagflation. I would take what he says with sack of salt.
The 'multiplier effect' literally means nothing. You base your admittedly superficially impressive mathematical models on the most primitive (and I do mean atavistic) presumptions such as the idea that the nominal level of money spending is what allows employment (not true even with real term spending) and that consequently you assume a link between savings and disemployment and therefore deflation is your pathetically crude answer to the malinvestment clearing bust at the business cycle.
2) All other parameter constellations will result in something else -- either complete stability or complete instability - (whether monotonic or oscillating).Thus, regular cycles are "structurally unstable" in the sense that they emerge only if there is a precise parameter constellation and any slight movement or displacement of the economy from these parameter values will end the regular cycle dynamics and enter into either explosive or damped oscillations.
But inflation will ofc create a spending multiplier therefore more jobs, just as deflation destroys jobs (haven't you looked at the data, that's scientific laboratory testing versus silly logic based Austrian economics!) and that productivity will soak up price increases, so up till full employment inflation is great and this Keynesian insight validates the TRUISM (i.e. stupid presumption) that banks printing 10 units of money for 1 M deposit make prosperity and must be forced 2 be solvent!
3) A type of multiplier-accelerator model was employed by Lloyd Metzler in his famous "inventory cycle". Metzler's essential idea was that producers desire to keep inventory stock as some proportion of expected sales but, relying on lags between production and sales similar to that of Erik Lundberg ,Metzler contended that the precise inventory policy chosen by producers might have profound effects on the economy - particularly, in generating various different dynamics.
4) Besides Samuelson Oscillator and Metzler Inventory Cycle
there also a lot other theories about Cycles like:Hicks's Trade Cycle,Duesenberry-Smithies Ratchet Effects, Growth Cycles by Duesenberry-Pasinetti, Extensions: Shocks and Money Cycle, Kaldor's Non-Linear Cycle, Kalecki's Distribution Cycle,Goodwin's Non-Linear Accelerator and Goodwin's Class-Struggle Model.In all this Cycle Theories was Federal Banking just playing an minor part in case of development of a cycle.
@BachGuitar3 He's referring to his 2001 book "Time and Money: The Macroeconomics of Capital Structure". It's mentioned on a slide that's shown at the very beginning (in the background where they show the classroom) and at the very end.
I'm not going to get into the jibber jabber of the conversation below, but instead I'm just going to say how awesome this video is...here it comes...this video is awesome because all I've learned in school is Keynesianism and Monetarism and this is refreshing to see economics in a different way. MISES ROCKS!
You sir are an excellent teacher! Loved the lecture. I have actually watched is several times just to try to absorb all of it well. Thanks for a really great class!
I agree with garrison, Austrians need to utilize more graphs, it would make their ideas more easily accessible. As far as Austrian economics lectures, this is the most beautiful economic lecture I have ever seen.
What do you define as "scientific method"? Praxeological logic is the best method for economic analysis! End of story! Positivism fits very well with physics but not with rational acting individuals. To every science its methodology! Positivism became a cult in the early 20th century and has destroyed countless of social science by it focus on "matter" rather than acting individuals within a define environment. You got to apply to each given science its APPROPRIATE METHODOLOGY!
@AFRIKTODAY So let me get this straight... you can construct a theory based on a set of axioms that you assume to hold in all cases. The model which is based on that set of "self evident"axioms is then stated to be correct even if it produces results that are empirically incorrect.
What do you mean by empirically incorrect? If the axioms are true ( anybody can elaborate axioms), then they must be verifiable as well. The foundation of economics is centered around acting individuals living within the confine of a given society and trying to improve their lot. That's very basic! Look around you and tell me that people do not function in this fashion everyday around you.
This is verifiable and you don't need to design a curve to observe this fact.
I have never said that empirical elements cannot to be utilized along the process of praxeological analysis; but statistics for example are merely " historical" elements rather than the " foundation" for our methodology. We might use statistics to display a verifiable evidence. The Fed Lower the interest rate at 1%, this led to the real estate bubble. The trade cycle theory doesn't "specify" the "rate" within which the interest rate should be lowered in order to create a bubble!
@AFRIKTODAY You cant engage in empirical verification without statistical analysis so no there is no empirical verification in your method. In your own words, you cant use historical elements...then why are you trying to do that in your last sentence. They must be self evident. Thus, Austrian economics is not science.
I do not see the rapport between statistical verification and empirical methodology" Those two system are not necessarily twins! When you trace an equation, you do not at the same time calculate the " statistical probability of correctness"! I mean, that is quite irrelevant! Statistical analysis merely shows a measure by which to display evidence/non evidence of our theory! And it is also used by case scenario, not systematically!
@AFRIKTODAY Statistical analysis is crucial in performing empirical verification. For example, If the difference (from zero) is within the bounds of random fluctuations, the theoretical model is utterly useless(w/ high probability) How can you quantify, absent of statistical analysis, if differences are significant enough to warrant the acceptance/rejection of a theoretical model.
@AFRIKTODAY "Statistical analysis merely shows a measure by which to display evidence/non evidence of our theory!"
What do you think verification is :P . Repeated verification of a theoretical construct increases the probability that it is a good approximation to the true dynamics being modeled.
I don't understand you at all. My friend, you are dealing with interacting individuals within the sphere of a market. you cannot construct a model since individuals make choices and act differently accordingly with their most pressing desires and needs. That's what "positivists" do not understand. You cannot model human nature!
Statistics enrich economics by displaying the evidences of an economic law; but statistics do not define economics! That's what fail to understand.
@AFRIKTODAY We are not ignorant about the complexity of economics. Complex adaptive system are based on a quasi-evolutionary framework (quasi because the process is not blind, its based on N period discounted FCF's) of dynamic concentration of dynamically interacting heterogeneous agents(w/ long memory and emergent preferences) . A slight generalization of normal statistical analysis solves the problem (the accounting for of dynamic higher moments is necessary & sufficient)
Check out this lecture from Hayek. Google: Friedrich August von Hayek Prize Lecture. It will give you a better understanding of the austrian's theory...in relation to the complexity of market rates being outside the range of aggregation.
@cclodfe I speak of complexity, not in a general manner, but in terms of mathematics. It is logical to construct a macroeconomics model which is based on a complex adaptive system. It is logical to utilized a CAS based framework because there is a sufficiently large number of heterogeneous sufficiently interconnected agents dynamically interacting and because it matches the stylized facts of the macro-economy.
Did you read the lecture? Human action is too complex to develop a CAS to influence the future economy. Even if we were able to develop such a complex mathematical model, by the time the central bank received the output it would be outdated and useless.
@cclodfe "Did you read the lecture? Human action is too complex." If one can match all the stylized facts in such a manner that throughout a sufficiently long time series, the error is unco-dependent and within the bounds of random fluctuations, one would have a sufficiently "true" description of the dynamics of a system.
@AFRIKTODAY You didnt answer this. "How can you quantify, absent of statistical analysis, if differences are significant enough to warrant the acceptance/rejection of a theoretical model." How can you state that a difference( lets say of slope) warrants a significant linear relationship?
@AFRIKTODAY For all our disagreement, I think its great that you support freedom and the free markets. I will also like to state the positives of Austrian economics. The view that the market cannot be simply aggregated is reigning true. The disaggregation of capital and agents (although I believe the dynamics are far more complex than presented in this video) was a step in the right direction.
You're not quite on the right page here axe. Verification via facts works only if all the facts are known and if cause and effect are properly understood. You sound like a neoclassical who's trying to escape the Keynesian mould of anti-price theory, fallaciously aggregative economics that conflates 'animal spirits' in a certain sector with the propensity for economic growth via increased production. Such anti-Say's Law BS. And statistical analysis is prone to post-hoc-ergo-propter-hoc fallacy.
@Nintendomanwill Before I refute your points, I have a question for you. How is it that agents can be hyper-rational about the extremely complex macro-economy but fail in a prolonged systematic manner at comprehending a simple mean reversion in the interest rate?
Nobody said that agents can be hyper-rational about what you arguably correctly name the 'extremely complex macro-economy.' The point is to allow proper price signals and this requires sound money because inflation distorts intersectoral prices & divorces rates from fund avalability
Whatever you say, you cannot convince me or anyone else that mathematics contains lessons on economic theory. It is a language. It is not used to DEVELOP theories in social science but can be great 4 displaying them
Because money media created that increases the quantity of money against goods and services whose prices were adjusted to the previous quantities of money spent in their sectors, causes an uneven rise in prices as the inflation (the new money) is not distributed equally. If price rises were even (100% hypothetical concept obviously) then inflation could not distort investment. Along with fiat money divorcing proliferate loans from saving levels this enables malinvestment in gluts that must clear
@Nintendomanwill There exists a complex negative relationship between inflation & investment/growth. Inflation can alter the very structure of the complex system. You are again assuming that individuals cannot grasp a mean reversion of the interest to a "long rung average" ( I understand that convergence to a LR average is a simplistic concept but it would be a much better approximation) You think those businessmen wouldn't dominate the market in a competitive landscape.
Come on, that's nonsensical. Inflation is the devaluation of the money unit that if it means anything, refers to increase in the money supply. This does not 'drive investment.' Investment is the accumulation and dispensation of various factors of production, i.e. it is based on the deference from destruction of resource which therefore helps human divisions of labour to expand material welfare and reduce unease. Inflation drives suboptimally premature investment of indirect exchange.
@Nintendomanwill "There exists a complex negative relationship between inflation & investment/growth." When did I say inflation drives investment.? Uncertain inflation posses a systematic risk for individuals. Individual are risk averse to systematic fluctuations, they require a risk premium etc.
On your queries about the POSITIVISTIC connection of money supply & output:
Deflation comes after falling output because it follows the bankruptcy of bust inflators who go bust for the same reason that output must necessarily fall in restructuring after the revelation that a ‘boom’ was a glut siphoning resources from other sectors thanks to inflation distorting entrepreneurial cognition of relative scarcities This does NOT mean deflation causes falling output-Post Hoc Ergo Propter Hoc my friend!
@Nintendomanwill I was asking why money supply has a hump shaped response to output. I also asked why there is short run non-neutrality of money but apparent neutrality of money in the long run. Please explain. Also, please explain how otherwise fully rational individuals cannot possibly comprehend mean reversion of interest rates. On one side agents are geniuses but in the other they are mentally deficient. How is it that those inefficient allocators are removed by market forces?
Do you know what market forces can remove? The mere existence of issuers of fiat money, if they use it to invest depositors' money on margin after embezzling non-fiat market money in the past, can be and is destroyed by the market for reasons that a basic analysis of the business cycle will explain.
If by mean reversion of interest rates you mean people will predict rises after consumption on booms from low rates, they won't if loanable funds aren't linked to savings from production.
@Nintendomanwill Superior predictors can nullify fluctuations by their allocations. If the main cause of the business cycle was simply prolonged artificially low interest rates, investors would have learned of this investment opportunity and nullified its effects. You are assuming that basically all individuals can deduce complex interactions and fully optimize but can't possibly create a utterly simple model which reverts back to the long run rate.
I believe I have already posted a retort to that accusation that bankers operating under Moral Hazard and a system of investing deposits on margin because the media is transferable with fiduciary fiat assets, who are also ignorant of why relative prices are distorted by inflation, should recognise malinvestment before the critical mass of overproduction disables clearing without reduced prices in that sector wiping out leveragers. It's like why fools bought bonds with returns manufactured by QE!
@Nintendomanwill You dont understand my point. If there are even a limited number of individuals who understand that prolonged artificially low interest rates caused business cycle, they would eventually amass enough market power to nullify its effects. This would occur if the inferior predictors made prolonged systematic errors.
5) ABCT assumes that newly created credit money is mainly loaned out to businesses (causing malinvestments in capital goods), and not to consumers to a significant degree.In the housing bubble, loans were made to people who clearly were unlikely to pay them back. Debt was used bid up asset prices in property, allowing yet more debt (via refinancing) for purchasing of commodities (whether durable or non-durable). ABCT in the form examined above does not explain this process.
zsylvana 2 months ago
@zsylvana
I'm not going to read all of your comments, but the very first sentence in this passage is simply incorrect. Specifically, the assertion that "ABCT assumes that newly created credit money is mainly loaned out to businesses (causing malinvestments in capital goods), and not to consumers" is false. Hayek deals with both situations in his work.
Questfortruth86 2 weeks ago
@Questfortruth86 1) The Austrian business cycle theory (ABCT) is a credit-based explanation of the business cycle used by Austrian economists. ABCT has, however, come in different forms and was developed over many years by Mises, Hayek, Rothbard and more recently by modern Austrians like Roger Garrison. It is not monolithic,and some Austrians like Israel M. Kirzner have even criticised Hayek’s development of ABCT as not entirely consistent with Mises’ exposition in 1912.
zsylvana 2 weeks ago
@zsylvana
The vast majority of your lengthy response contains either entirely irrelevant information (such as the fact that there were disagreements among varying austrian economists regarding trade cycle analysis) or shows a fundamental misunderstanding of the positions held by those economists. I will respond to each comment one by one.
Questfortruth86 2 weeks ago
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zsylvana 2 weeks ago
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@Questfortruth86 2) "ABCT is unique in including real capital goods among its elements in a manner which does not assume away their essential heterogeneity.The theory demonstrates the connection between this structure of capital and monetary policy by way of Wicksell’s natural rate of interest theory and Mises’s integration of money into general economic theory" Batemarco,R. J. 1998 Austrian Business Cycle Theory,in P. J.Boettke,The Elgar Companion to Austrian Economics 216–336
zsylvana 2 weeks ago
@Questfortruth86 3) Here are some of the major works by Austrians where different forms of the ABCT are expounded:
(1)The version of Mises in Human Action: A Treatise on Economics 1998. .
(2)Hayek’s first version of ABCT in Prices and Production (London, 1931).After Nicholas Kaldor’s attack on it in “Capital Intensity and the Trade Cycle” (Economica n.s. 6.21 (1939):)Hayek had to re-write his theory in:
(3)Hayek’s second version of ABCT in Profits,Interest and Investment.1939
zsylvana 2 weeks ago
@Questfortruth86 4)However,both Lachmann and Schumpeter did not think that Hayek’s business cycle theory could be used to explain all business cycles (Batemarco 1998).More importantly, I.Kirzner has also made the following remarks on Hayek’s theory:
KIRZNER: I've never felt that the Hayekian business cycle theory was essentially Austrian.In fact,Mises,who was the originator of this whole idea in 1912,didn't see it as particularly Austrian either.It goes back to Knut Wicksell"
zsylvana 2 weeks ago
response to point 4)
Schumpeter's position or critique of the Austrian theory of cycles is irrelevant as far as Austrians are concerned. He had his own, entirely independent theory which was really the amalgamation of 6 different theories (long waves and short waves, technological shocks, etc).
Lachmann believed that in addition to the Austrian theory, there were certain cycles that were the result of monetary disequilibrium, which resulted in what appeared to be inadequate effective demand.
Questfortruth86 2 weeks ago
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Questfortruth86 2 weeks ago
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@zsylvana
Additionally, it's simply a fact that Wicksell (Interest and Prices) was the pioneer of what is now referred to as the Austrian theory of cycles. Mises himself states that the latter part of his "Theory of Money and Credit" is primarily devoted to exposing the fact that Wicksell's "theoretical construct" of a banking system that is entirely monopolized, and therefore unconstrained in the issue of fiduciary media, is not theoretical at all. It characterizes most banking systems.
Questfortruth86 2 weeks ago 2
@Questfortruth86 14) And by the way it is as always interesting to read your comments,all the best to you!
zsylvana 2 weeks ago
[continued]
This, as you mention, became problematic, and Hayek attempted a more rigorous treatment later in his career. My position is that the whole issue is overstressed and I don’t think that the elegance present in his earlier work is sufficient grounds to discard it. Indeed, Lachmann further elaborated, included expectations and uncertainty, and reached almost identical conclusions.
Questfortruth86 2 weeks ago
@zsylvana
In other words, I reject the assertion that “The existence of subjective expectations in the real world and the non-existence of equilibrium states are severe stumbling blocks to Hayek’s theory.”
Questfortruth86 2 weeks ago
@Questfortruth86 5) What appears to me to be the most important form of ABCT: the form postulating distortions in the capital goods sector (for a good summary of this form of ABCT, see Garrison 1997: 23–27), and how this simply cannot be invoked as a serious or fundamental explanation of the US housing boom in the 2000s and financial crisis of 2008.
zsylvana 2 weeks ago
@zsylvana
Are houses consumption goods or capital goods? Many people who bought houses bought them as capital goods.
utubehayter 2 weeks ago
The Austrian response to this question would be that goods are not defined or characterized by their physical properties but rather by how they are employed by individuals in their attempt to satisfy their subjective desires. Sugar can be, and is, both a consumer good in some circumstances, and a producer good in others.
Houses are typically considered long-term durable goods, and therefore share many characteristics with capital goods. Sometimes houses are indeed capital goods proper.
Questfortruth86 2 weeks ago
@Questfortruth86
Because the nature of the good depends on the intention of the buyer.. it really depends whether the goods are capital goods or not. For example, look at what Tiger Woods' ex-wife did to that 12 mil palatial home... She demolished it! For her it was a consumption good.
utubehayter 2 weeks ago
@Questfortruth86 6.)
In his popular pamphlet Economic Depressions: Their Cause and Cure written in 1969, Rothbard sets out a form of ABCT which seems typical of the general form of it. He points to malinvestments in capital goods by businesses as the fundamental cause of recessions.“And there is a third universal fact that a theory of the cycle must account for.Invariably,the booms and busts are much more intense and severe in the “capital goods industries”Rothbard 2009 (1969)
zsylvana 2 weeks ago
I's true that Austrians distinguish between business cycles and recessions. Not all recessions are the result of a credit expansion primarily funneled into the "higher order" capital goods sectors which create unsustainable booms and therefore busts. But thats precisely the point. Hayek specifically deals with the situation where the newly created sums take the form of consumer credits in P&P. He claims that it leads to a relatively immediate bust (contracts the structure of production).
Questfortruth86 2 weeks ago
@Questfortruth86 1)It is well known that Hayek abandoned general equilibrium theory after the 1940s for the concept of a “spontaneously emerging market order.”But Hayek’s views on equilibrium also evolved over time,and some scholars feel it is necessary to divide Hayek’s career into 3 phases in his views on equilibrium - In the first phase down to 1937,Hayek thought that “all legitimate economic explanations should be based upon an analysis of equilibrium” (Gloria-Palermo 1999)
zsylvana 2 weeks ago
@Questfortruth86 2) The second phase from 1937 to the 1940s involved Hayek’s attempt to redefine equilibrium as plan co-ordination, which occurred in his important paper “Economics and Knowledge” (Hayek 1937)From the 1940s, there was a third phase where Hayek broke with equilibrium analysis and created a new concept of “spontaneous order” as a method for studying coordination processes in market economies.
zsylvana 2 weeks ago
@Questfortruth86 3) While Hayek developed an intertemporal equilibrium theory in 1928 in his paper “Intertemporal Price Equilibrium and Movement in the Value of Money” (Hayek 1984 [1928]),he did not use this in Prices and Production (1931). Instead, he reverted to the stationary equilibrium approach, by adopting the simple stationary-equilibrium model put forward by Wicksell in Interest and Money as the starting point for his analysis.
zsylvana 2 weeks ago
@Questfortruth86 4) In Prices and Production, an initial stationary state moves to disequilibrium and then moves via boom and bust into a new stationary state. This might be viewed as an application of Hayek’s intertemporal equilibrium theory of 1928 where perfect foresight is needed as an assumption. Hayek’s definition of monetary stability is a state where voluntary savings equal voluntary investment.The unique natural rate of interest is taken over from Wicksell.
zsylvana 2 weeks ago
@zsylvana
In fact, Wicksell took the concept of natural interest from Bohm-Bawerk, Mises’ professor at Vienna. Bohm-Bawerk referred to the pure rate of interest as the “natural rate.” In other words, Wicksell was employing the Bohm-Bawerkian capital framework though it is true he would later modify it. This is absolutely crucial to understanding WIcksell’s trade cycle theory, and it’s something that Keynes entirely missed (Hayek deeply stressed this in his critique of treatise on money).
Questfortruth86 2 weeks ago
@Questfortruth86 5) An equilibrium state is the starting point of a real world economy allegedly subject to Hayek’s Austrian trade cycle (Loasby 1997: 54: “Hayek began ... with a monetary expansion ... impinging on a perfectly co-ordinated economy”). Hayek explicitly stated that he had assumed full employment equilibrium in Prices and Production (1931). U. Witt has identified the severe problem running through Hayek’s reliance on general equilibrium for his trade cycle theory.
zsylvana 2 weeks ago
@Questfortruth86 6) "It is an irony that the perfectionist endeavour turned out to run into troubles which, it is claimed here, developed into a crisis of the whole program.In Mises’s understanding (general) equilibrium is a fictitious, imaginary construction useful as a logical basis of comparative statics.Though often arguing similarly in this respect,Hayek takes a different position.While Mises’s did not require empirical hypotheses it is quite clear,from Hayek" Witt,U.1997
zsylvana 2 weeks ago
@Questfortruth86 7) In other words, Hayek came to see that perfect information and foresight were necessary to explain the convergence back to an equilibrium state as the upswing turned to a bust. The existence of subjective expectations in the real world and the non-existence of equilibrium states are severe stumbling blocks to Hayek’s theory.
zsylvana 2 weeks ago
@Questfortruth86 8) Hayek’s assumptions go much further than the idea of a starting equilibrium state.They also assume:(1) The flexibility of prices and perfect or near perfect adjustments in prices in response to demand and supply(2) frictionless markets,and perfect price information on the part of agents.But prices are not perfectly flexible,and in reality agents ex ante expectations can be severely disappointed ex post,and Knightian uncertainty causes subjective expectations
zsylvana 2 weeks ago
@Questfortruth86 9)Gunnar Myrdal had already levelled this criticism against Hayek in a paper in 1933 and Hayek’s famous paper “Economics and Knowledge”(1937) can be seen as the beginning of his attempt to answer these criticisms.Lachmann heard of the work of the Stockholm school from Rosenstein-Rodan:the Stockholm school at this time was being influenced by Myrdal’s incorporation of Knightian uncertainty into economic theory and Lachmann came to examine the role of expectations
zsylvana 2 weeks ago
@Questfortruth86 10)
In fact, Hayek delivered a lecture called “Price Expectations, Monetary Disturbances and Malinvestments” on December 7, 1933 in Copenhagen (first published in German in 1935; English trans. Hayek 1939) where he responded to Myrdal’s criticisms. Here he began to modify his ideas on the equilibrium interest rate and the concept of equilibrium more fully developed in his paper “Economics and Knowledge” (Hayek 1937).
zsylvana 2 weeks ago
@Questfortruth86 11) Hayek needed to free himself from the stationary equilibrium approach and construct a dynamic approach suitable for his trade cycle theory (Donzelli 1993: 5) others like Myrdal, Ohlin, Lindahl, and Hicks also freed themselves from the stationary equilibrium approach in the 1930s, and rediscovered the Walrasian instantaneous equilibrium approach.) Hayek had revived his “intertemporal equilibrium” idea,“a temporary equilibrium notion with perfect foresight”
zsylvana 2 weeks ago
@Questfortruth86 12) “Hayek’s changing assessment of the importance of equilibrium theory has some consequences for our story. The most telling of these concerns Hayek’s trade cycle theory, a paradigmatic example of equilibrium theory, one that Witt (1997, 48) describes as ‘an impressive example of allied price theoretical reasoning that may even delight a Chicago equilibrium economist ” (Bruce Caldwell, 2004: 228).
zsylvana 2 weeks ago
@Questfortruth86 13) "But,as Witt goes on to observe,if one rejects the usefulness of equilibrium analysis,then Hayek’s step-by-set story of how the cycle unfolds,one in which ‘each single stage necessarily had to be followed by the next one’,can no longer be maintained..Witt concludes that Hayek’s cycle theory may well be incompatible with his later theory of spontaneous orders a concern that others have voiced”
(Bruce Caldwell-An Intellectual Biography of F.A. Hayek,2004 )
zsylvana 2 weeks ago
@zsylvana
It is true that Hayek’s conception of equilibrium did indeed evolve or at least change over time. It is also true that he employed static general equilibrium analysis in his earlier works, i.e., ignored the role of expectations and uncertainty altogether, but I tend to think he did this primarily for pragmatic purposes. He wanted to demonstrate a fundamental concept in a manageable way. His triangles, for example, were never meant to accurately depict the real macroeconomy.
Questfortruth86 2 weeks ago
4) In Economic Depressions: Their Cause and Cure written in 1969, Rothbard sets out a form of ABCT which seems typic general form of it.He points to malinvestments in capital goods by businesses as the fundamental cause of recessions:
“And there is a third universal fact that a theory of the cycle must account for. Invariably, the booms and busts are much more intense and severe in the “capital goods industries”—the industries making machines and equipment" (Rothbard 1969: 32–33)
zsylvana 2 months ago
3) ABCT in the form examined above with its emphasis on malinvestments in the real capital goods sector is not an even remotely relevant explanation of 2000s boom and bust, and the 2008 global financial crisis.
zsylvana 2 months ago
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2) This is something that is forgotten by many people: Keynesianism is not just about stimulating the economy during times of recession or depression; the important other side of Keynesian demand management is to stop inflationary outbreaks during boom times by reducing the level of aggregate demand.
zsylvana 2 months ago
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1) I´ts a very important point to notice,that governments around the world first started to adopt Keynesian economic principles during the Second World War, and they did so to control inflation and excessive aggregate demand, by eventually contracting demand when wartime command economies had been implemented (a point made in by the Austrian economist Ludwig Lachmann).
zsylvana 2 months ago
phew phew
trapedd 3 months ago
Thank you very much for this amazing presentation. My comprehension of ABCT increased dramatically and now I'm ready for apdating my knowledge :)
123kirill123 4 months ago
That was an excellent video. Question: What is the sixth category added to the Hayekian triangle when saving occurs in the PPF?
Goodatconnect4 5 months ago
@Goodatconnect4 as I understand it's pretty symbolitic and Mr. Garrison just showed that more money are invested in early stages of production when increasing in savings occurs.
123kirill123 4 months ago
" I've never felt that the Hayekian business cycle theory was essentially Austrian. In fact, Mises, who was the originator of this whole idea in 1912, didn't see it as particularly Austrian either. There are passages where he notes that people call it the Austrian theory, but he says it's not really Austrian. It goes back to the Currency School and Knut Wicksell. It's certainly not historically Austrian." Israel M. Kirzner,” Austrian Economics Newsletter, vol. 17.1 1997
zsylvana 8 months ago
The Austrian school is obsolete. The modern free market economists are those of the Chicago school (Friedman, Becker, Stigler, and dozen others). The Chicago school economists have won more John Bates Clark medals and Nobel prizes than any other school. It's about time libertarians changed to Chicago school economics.
LogicalFlawDetector 8 months ago
@LogicalFlawDetector by that standard surely Keynesianism must be the superior theory??
mrpetermjohnston 8 months ago
@mrpetermjohnston - Chicago school wasn't entirely Keynesian. Friedman was a monetarist.
thomaserossi 8 months ago
@LogicalFlawDetector
The Helocentric model of the solar system is obsolete. The modern solar model astronomers are those of the Earth Centered model has been around for 1000's of years. (copernicus etc.) Earth Centered school astronomers have won more Nobel prizes than any other school. Its about time everyone realized that earth centered model is more popular and there for correct.
BenBurkley07 6 months ago 2
@LogicalFlawDetector Good luck with that one!
tewj57 3 months ago
4 people:
1) like to have their savings stolen by inflation
2) want endless wars
3) want to support a permanent political upper class
FanofFormerPresident 8 months ago
The more I learn about the Austrians, the more it is absolutely obvious that Keynes is nothing other than a statist, simple-minded fake. An enabler of government money-printing.
FanofFormerPresident 8 months ago 3
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chocolatediet11 9 months ago
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850Nexus 9 months ago
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TheHcgdietplan 9 months ago
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pheromoneaction 9 months ago
LOL why all the sound effects. The Star Wars Theory of the Business Cycle.
Daniel44125 9 months ago
Rather than parror the phrase "unsustainable investemnt" isn't it worth thinking about why investment not matched by voluntary savings actually does take place? Wicksell gave a possible reason why investment not matched by "real savings" can take place. If easy credit is directed mainly to investment, and prices rise generally, consumers are "forced" to save, because their income buys less. And why assume that no one ever made a mistake in investing, even when the saving was voluntary?
macroman52 11 months ago
Wow amazing thank you!!!! I get tired of the quick excuses, "animal behavior", "human emotion", "Nothing we could do", "No way to know", "Did everything imaginable", "thought of everything", and "had our best minds 'trying' to figure this out".... I have been listening to Tom Woods and the others give their convincing talks and examples, it's amazing to feel my mind open now that I see it all layed out. I'll be sure to watch this video repeatedly! Thank you, Gracias, Arigato, Xie Xie ni. !!!!
Forsakren 1 year ago 2
@shadowgeyser Rules, there are no rules sunshine. But I ask you one question. if I mean everyone besides you guys, don't know how to debate, always makes a fallacious statement and are always wrong, why is it that your views are not in the intellectual mainstream. Why is it that in reality, the only place your opinions are regarded as well fucking valid is when you talk to someone who agrees with you? I disagree with lots of people but you guys simply are so lost it is pointless
franks2732 1 year ago
@franks2732 Whilst I almost fully disagree with Austrian economics, your beliefs(from what I could surmise from your channel) are even more incorrect.
axe863 1 year ago
@shadowgeyser fuck off moron, it has gotten well beyond a joke. Go away.
franks2732 1 year ago
@shadowgeyser Go away idiot. besides the fact I have made none, It would not make one iota if I made 300, because this is a general conversation and no rules of debate have been set, your point is void. Our comments live or die on their own. What a fuckwit
franks2732 1 year ago
@shadowgeyser Fuck off imbecile, you have been ass whooped all over town, I have had enough of you. Your comments are nonsense, stupid and beyond the pale. You have little understanding of any social or political ideology besides your own, very little understanding of the world and your source information is contain solely to those who agree with your already held POV. Your an indoctrinated MORON. And you want me to continue to placate you NO I SAY. Invest in your local library and read
franks2732 1 year ago
@shadowgeyser Fuck dude, even when people are taking the piss out of your sorry ass, you have got to continue. Don't you have one shred of pride in yourself
franks2732 1 year ago
@shadowgeyser funny if one would conclude it is only those who support your ideology who have the availability to access an evaluate evidence but sorry LMFAO. I am bored with you
franks2732 1 year ago
@shadowgeyser I wold like to inform you of the well over 500 or so websites, books and leatures that refute everything you say. What could be a reason for that, perhaps, just perhaps like me they conclude your a fuckwit
franks2732 1 year ago
@shadowgeyser On that i don't think i have called you a liar, an imbecile, a moron and a intellectual whelp come to mind, I do think I called you a fuckwit, someone who does not know what he talks about, a revisionist who manipulates 'evidence" to support your Narrow POV and lost in your own delusion. But Not a liar, if I did well and good but your still a dick
franks2732 1 year ago
@shadowgeyser NO, see we read stuff and learn, you read stuff and well try to claim it supports your point. Still have not seen you present one fact to support your ideology. Not one. And I love how you accuse me of lying. You should also know I am getting PM's about you, it is hilarious. I might actually start posting then next to your comments. It should bring a fresh perspective LMFAO. And a lie is where I tell an untruth and know it, opinion is not a lie. I have never lied to you
franks2732 1 year ago
@shadowgeyser dude just give it up you imbecile, you have been called out and ass whooped all over YT, funny enough half of the people doing it would be considered "very close" to you politically. Your such a pussy you don't even have the strength of character to open your YT channel to scrutiny. What is most funny about you morons is the thought of actually reading philosophy as a whole school not simply your own train of thought is beyond your ability. Hayek is such a lightweight it is a joke
franks2732 1 year ago
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@shadowgeyser Your makin a fool out of your self.Time after time.But go on prozelyte.Don´t stop.Your the true face of Austrian School of economics.The face of a clown. A psycopath with no knowledge in economics.Keep on posting.Soon the school is diminished because of you!Lew Rockwell should pay you to shut up!
treddas851 1 year ago 10
@shadowgeyser =Psykoclown! "Such a theory cannot be tested by comparing its “assumptions” directly with “reality.” Indeed, there is no meaningful way in which this can be done. Complete “realism” is clearly unattainable, and the question whether a theory is realistic “enough” can be settled only by seeing whether it yields predictions that are good enough for the purpose in hand or that are better than predictions from alternative theories." Milton Friedman - Essays in Positive Economics"
treddas851 1 year ago
@shadowgeyser =(Clownface!)This is Friedman your fool!!
"A theory or its “assumptions” cannot possibly be thoroughly “realistic” in the immediate descriptive sense so often assigned to this term. A completely “realistic” theory of the wheat market would have to include not only the conditions directly underlying the supply and demand for wheat but also the kind of coins or credit instruments used to make exchanges;" Clear as water!!Read Friedman your Insulent Psycopathic Clown!
treddas851 1 year ago
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@shadowgeyser What all people do who are not Austrians, Collect data, interpret data, draw conclusion. What Austrians do-Draw Conclusion, Interpret only favorable data put favorable data next to predisposed opinion and "prove" (LMFAO) a predetermined "Prediction". Which naturally will automatically agree with the already predetermined Conclusion. Fucking funny that. I have never met a Austrian who has ever been wrong. But Keynesian's and Chicago boys I have met heaps because they accept reality
franks2732 1 year ago
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@shadowgeyser I think you fail to see the point and Friedman left the libertarian party because his views that Austrians are dicks. It is also funny and somewhat refreshing to see the Monetarists attacking you as well (they normally don't comment as they agree with the greedy fuck attitude of Austrians, so it is sort of like shitting on their own lounge. But credit were credit is due. At least they base their ideas in the real world, not in fairly land. They are still a bunch of fucks
franks2732 1 year ago 3
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@franks2732 Your absolutly right! Austrian cranks(no other economists,) use deduction as a approach to derive conclusions from premises,based on a number of assumptions and deduces a conclusion, such as:"from A and B are C". Deduction says nothing about if the premise or the conclusion is TRUE or not, only that they can be linked to conclusions!Because of that they never get hired in any firm or academia!It´s true!Do you want to put your money in the hand to such morons,?I would sure not!!
treddas851 1 year ago
@treddas851 You should hear the moron assign Kant as some latter day saint of Austrian economics. he was on another channel calling Hayek a Positivist LMFAO.
franks2732 1 year ago
@treddas851 That is the reason why "on issues of economics" although me and you may differ we can at least argue with some level of certainly and provide evidence to back our claims. If you are unwilling to do that you are arguing that your ideology is akin to atheism. You are arguing from a "negative" premise to conclude a positive. You are arguing that just like atheism, your premise requires no proof, but in the same breath asking others to prove it wrong. tbc
franks2732 1 year ago
@treddas851 As another guy tried to claim recently to me (Another Austrian). The funny thing is as Dawkins said. It was really great to have the Logic, but he is fairly glad the evidence (well lack of it for a god etc) now supports the negative claim. So as Dawkins is postulating Atheism now loosely "can be proven to be true" making it not so much a negative anymore. That will offend most Logicians lol, but where does that leave the claim of "gods" or for that matter Austrians
franks2732 1 year ago
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@shadowgeyser Keynsianism and Hayek was a failure and a anglophile invention.It´s sorry to see you young englishmen fall for that economic disaster in pure patriotism.You should read some Milton Friedman like Essays in Positive Economics,that debunk both the Austrian and Keynsian crap.
treddas851 1 year ago
@treddas851
The Austrian framework is anything but Anglo (it's uniquely Austrian, in fact), and this is especially true of its business cycle analysis (which was first formulated by the Swedish economist Knut Wicksell). The Austrian method essentially takes the general equilibrium approach (developed by the continental economists) but adds (a) methodological individualism and (b) causal realism.
Questfortruth86 1 year ago
@Questfortruth86
Mark Blaug,one of the foremost historians of economic thought,proclaim that Knut Wicksell “more or less founded modern macroeconomics”(Blaug 1986,274).
Wicksell’s work inspired directly to three major traditions in economic theory:
the quantity theory of money and its implications for allowing an analysis of aggregate macro outcomes as well as their appropriate monetary policies;
the Austrian theory of business cycles,which uses Wicksell’s concept of a natural rate of interest
zsylvana 1 year ago
@zsylvana
"the Austrian theory of business cycles,which uses Wicksell’s concept of a natural rate of interest."
This is actually a Bohm-Bawerkian conception (he called it "natural interest," and "surplus value"). Wicksell explicitly cites Bohm-Bawerks' "Positive Theory of Capital" (1888) when he first introduces the concept in "Interest and Prices" (1896).
Questfortruth86 1 year ago
@Questfortruth86 Yes it´s true.Wicksell’s work was an attempt at integrating general equilibrium theory earned from Leon Walras,the Austrian theory of capital (but i think he learned more from Eugen von Böhm-Bawerk’s,1884, classic,Capital and Interest,but i am not sure?) and the marginal productivity theory of income distribution from David Ricardo’s 1817 treatise On the Principles of Political Economy and Taxation.He was working on a grand synthesis of these three theoretical approaches.
zsylvana 1 year ago
@Questfortruth86 Wicksell made improvements for which he is remembered today.The most important is probably his distinction between the natural and money rates of interest.The Money,or market, rate of interest is the observed rate at which banks carry on credit transactions.The natural rate is a bit more complicated.Wicksell defined it as the rate that is neutral for commodity prices and the rate at which the supply and demand for capital are in equilibrium in an economy not using money at all
zsylvana 1 year ago
@Questfortruth In Wicksells business cycle theory,a boom emerges when the natural rate of interest is higher than the market rate,which is subject to manipulations by humans using sophisticated financial institutions & credit instruments that drive the market rate below the natural,equilibrium rate.It´s "Wicksell’s Cumulative Process” model of business cycles.When the loan rate of interest is below the natural rate,the demand for loans by entrepreneurs exceeds quantity of savings in the economy
zsylvana 1 year ago
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zsylvana 1 year ago
@Questfortruth86 In Wicksell’s model, the interest rate divergence phenomenon was crucial for understanding the differences between Wicksell’s quantity theory of money and the view held by his rival Irving Fisher.For Fisher,changes in the quantity of money fully explained changes in long-run prices; for Wicksell,the quantity of money was but one aspect of the mechanism that changed prices because the flow of goods and services worked its way through the economy by first changing interest rates
zsylvana 1 year ago
@Questfortruth86 Ludwig von Mises and Hayek adapted Wicksell’s cumulative cycle process. Keynes no doubt read and appreciated Wicksell’s approach and then built on it, stressing that cycles were generated by changes in real factors such as investment spending and interest rates and not by monetary changes. The seeds of the Keynesian–monetarist debates that began in the 1960s were planted first in the differences between Fisher and Wicksell.
zsylvana 1 year ago
@Questfortruth86 Another Wicksell connecting is “real shock” cyclic view,also emphasized by Joseph Schumpeter,who saw innovators and entrepreneurs as an often destabilizing shock to the market economy,giving rise to what he called “creative destruction.”In this sense,there is a continuous thread that runs from Wicksell,through Schumpeter,and on to Keynes nonmonetary model cycles.The Keynesian–monetarist dispute on money & effects its rooted in Fisher–Wicksell differences in causes of cycles
zsylvana 1 year ago
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@shadowgeyser Keynsianism and Hayek School was failures and a anglophile invention.It´s sorry to see you young englishmen fall for that economic disaster in pure patriotism.You should read some Milton Friedman like Essays in Positive Economics,that debunk both the Austrian and Keynsian crap.
treddas851 1 year ago 5
@treddas851
[cont] In fact, Friedman is really the Anglo economist, since he employs (a) broad and general aggregates that abstract from the mechanics of change and (b) partial equilibria analysis. He said it himself: he's a Marshallian! I think I’ve spoken to you before. You’re the one who believes that Friedman was the first to introduce the equation of exchange, are you not?
Questfortruth86 1 year ago
@Questfortruth86 Your right.Treedas wrong.There are, two broad lines in macro economics.One "European", comes from Knut Wicksell, another "American" is in the tradition of Irving Fischer.Milton Friedman did not for sure introduced any new equation of exchange in any of his 3 books.Milton Friedman was a follower of Irving Fischers,and his monetarism is a development of Fischers work.Knut Wicksell inspired Austrian,& Stockholm school of economics as well as Keynes early monetary theory.
zsylvana 1 year ago
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treddas851 1 year ago
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@shadowgeyser I am highly educated in economics and Neo-Classical,but this Austrian crackpots with their Bow-ties is a danger to society if they get influence!! Austrian economics, differs to al other schools by singing the praises of capitalism as a Disequilibrium System!!Even Keynesian types understand that the economic goals is to maintain an Optimal Equilibrium!Pure lunatics!
treddas851 1 year ago
@treddas851
First of all, don't confuse Keynes (the actual Keynes) with the new Keynesian framework. The latter is merely the amalgamation of many spurious frameworks and assumptions (neo Keynesian, Monetarist, and New Classicism). But you're partially correct; Austrians are, in fact, monetary disequilibrium theorists. But Keynes was a general disequilibrium theorist (he simply denied that markets work in the GT). He said that the economy was in equilibrium either by chance or by design.
Questfortruth86 1 year ago
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@shadowgeyser In A Theory of the Consumption Function—Milton Friedman argued that the best way to make sense of saving and spending was not,as Keynes(or von Mises)had done,to resort to loose psychological theorizing,but to think of individuals as making rational plans about how to spend their wealth over their lifetimes.This was an anti-Keynesian idea—and return to classical ways of thinking—and it worked,and remain the foundations of how economists think to this day.What have Mises-Hayek done?"
treddas851 1 year ago
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@treddas851 mmm after the global finacial meltdown, which policies were introdued and adopted around the western world. Not Old Milt's.
franks2732 1 year ago 2
@treddas851
"What have Mises-Hayek done?"
Mises incorporated monetary theory into marginal utility theory, something that all other neoclassical economists were simply incapable of doing (this was seen, at the time, as a major problem with subjective theories of value). He also explained, in great detail, how money emerges, the nature of inflation (it's not a uniform and/or measurable variable), and built upon Bohm-Bawerk's capital theory. (I purposely ignored business cycles for the moment)
Questfortruth86 1 year ago 6
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Questfortruth86 1 year ago
@Questfortruth86 They also were involved in economic restructuring of a few different countries after ww2. Milton and Hayek were helping economic restructuring up until 1990s-including Britain, some Latin countries and others. Socialism and communism were dominating the scene until about 1980. High prices, because of inflation, were sending most countries into Chaos, price controls. People believe that money is wealth. Wealth is production not the medium of exchange-dollar.
tadaa11 3 weeks ago
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treddas851 1 year ago
1) As austerity policies roll out across the Western world, markets await the next shock and central bankers’ moves command the headlines, thoughts naturally turn to comparisons with the last great global meltdown. Liaquat Ahamed’s blockbuster, Lords of Finance, is undoubtedly the most engaging narrative of the run-up to the 1929 Crash to have appeared in recent years.
zsylvana 1 year ago
2a) The elements that Ahamed synthesizes here are not especially novel. Like Peter Temin, in Lessons from the Great Depression (1989), and Barry Eichengreen, in Golden Fetters (1992), Ahamed traces the disequilibria of the 1920s and 30s back to the First World War.
zsylvana 1 year ago
2) As per Milton Friedman’s and Anna Schwartz’s account of the period in their Monetary History of the United States (1963), monetary policy is the crucial determinant: problems of international capitalist production remain distant from the action. And as in Eichengreen, again, the dysfunctional inter-war gold standard plays a central role.
zsylvana 1 year ago
@zsylvana
[cont]
The U.S., on the other hand, in order to prevent the dollar from becoming the vehicle currency, pursued an inflationary policy aimed at keeping U.S. interest rates arbitrarily low (which also lead to monetary and inter-temporal disequilibrium). Hayek writes about this extensively in his "Monetary Nationalism and International Stability" (1937).
Questfortruth86 1 year ago
@zsylvana
No one supported the gold standard that existed during the inter-war period. That international monetary system could hardly be considered a gold standard anyways (the pound was tied to gold, the dollar was tied to the pound, and all other currencies were tied to the dollar). Additionally, the British attempted to re-establish the pre-war exchange rate of 4.88USD/1GBP by arbitrarily elevating interest rates (causing monetary and intertemporal disequilibrium).
Questfortruth86 1 year ago
RABLE RABLE RABLE I'M A TROLL ATTEMPTING TO DISTRACT FROM THE TOPIC OF THIS VIDEO RABLE RABLE RABLE!!!!!!!!!
Bernankegreenspan 1 year ago
Great insights! Thanks misesmedia!
invertedinvert 1 year ago
Wow. That was awesome. Really appreciate the Mises Institute posting this. It helped me a lot to have a visual component in my understanding of the ATBC.
mwells109 1 year ago 14
As Dr Albert Bartlett says : Sustainable growth is an oxymoron.
An exponential function as growth can't be sustained in a finite world with finite resources !
LestatDK 1 year ago
Keynesians are a bunch of looting retards.
suedeslounge 1 year ago
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suedeslounge 1 year ago
Austrians assume that savings (energy surplus) invested into the funds market will always produce greater capital gains (increased energy efficiency that results in a net energy gain) and not just more consumption (production requires increasing energy supply to an economy) The end result is the same, the requirement to consume energy at exponential rates will always hit a physical limit. Growth is never sustainable without infinite supply of energy or perfect energy efficiency. Both impossible
johnTconover 1 year ago
@johnTconover Nuclear fusion is 3 years away according to Dr. Cox. Also Austrians don't deny that non-renewable energy is finite so I don't know why you mention it.
bonfirejovi 1 year ago
@bonfirejovi Where did I imply that Austrians were in denial of our energy production limits? I'm just stating a simple fact , that all economic systems that use profit as the modus operandi require infinite growth, thus resource consumption. As economics is bound by the laws of thermodynamics I see this as a fatal flaw to Keynesian and Austrian economics alike. Also, whilst Dr. Cox may be correct, I wonder how much thought he has given to fusions applicability in time and scale constraints.
johnTconover 1 year ago
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1) According to the probarly most credited post WW2 economist Paul A Samuelson,at MIT in his famous oscillator model economic trends and cycles works as follows: A- Damped monotonic B - Constant monotonic C- Explosive monotonic D -Explosive oscillations E - Constant oscillations F - Damped oscillations How do his multiplier-accelerator reveal "cycles"? In fact, only parameter ranges (B , C) which are in situation E (constant oscillations) will yield constant cycles.
zsylvana 1 year ago 30
@zsylvana Lol what was it that Samuelson had to say about the Soviets? Also was this the same Paul Samuelson that was discredited after his interpretation and development of the Phillips Curve was proved completely wrong by the 1970s Stagflation. I would take what he says with sack of salt.
bonfirejovi 1 year ago
The 'multiplier effect' literally means nothing. You base your admittedly superficially impressive mathematical models on the most primitive (and I do mean atavistic) presumptions such as the idea that the nominal level of money spending is what allows employment (not true even with real term spending) and that consequently you assume a link between savings and disemployment and therefore deflation is your pathetically crude answer to the malinvestment clearing bust at the business cycle.
Nintendomanwill 1 year ago
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2) All other parameter constellations will result in something else -- either complete stability or complete instability - (whether monotonic or oscillating).Thus, regular cycles are "structurally unstable" in the sense that they emerge only if there is a precise parameter constellation and any slight movement or displacement of the economy from these parameter values will end the regular cycle dynamics and enter into either explosive or damped oscillations.
zsylvana 1 year ago 28
But inflation will ofc create a spending multiplier therefore more jobs, just as deflation destroys jobs (haven't you looked at the data, that's scientific laboratory testing versus silly logic based Austrian economics!) and that productivity will soak up price increases, so up till full employment inflation is great and this Keynesian insight validates the TRUISM (i.e. stupid presumption) that banks printing 10 units of money for 1 M deposit make prosperity and must be forced 2 be solvent!
Nintendomanwill 1 year ago
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3) A type of multiplier-accelerator model was employed by Lloyd Metzler in his famous "inventory cycle". Metzler's essential idea was that producers desire to keep inventory stock as some proportion of expected sales but, relying on lags between production and sales similar to that of Erik Lundberg ,Metzler contended that the precise inventory policy chosen by producers might have profound effects on the economy - particularly, in generating various different dynamics.
zsylvana 1 year ago 3
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4) Besides Samuelson Oscillator and Metzler Inventory Cycle
there also a lot other theories about Cycles like:Hicks's Trade Cycle,Duesenberry-Smithies Ratchet Effects, Growth Cycles by Duesenberry-Pasinetti, Extensions: Shocks and Money Cycle, Kaldor's Non-Linear Cycle, Kalecki's Distribution Cycle,Goodwin's Non-Linear Accelerator and Goodwin's Class-Struggle Model.In all this Cycle Theories was Federal Banking just playing an minor part in case of development of a cycle.
zsylvana 1 year ago 4
This video was really awesome. I have done some reading, but this condensed, simplified, intuitive version was extremely helpful. Thanks!!
EdgeRetro 1 year ago
Im in the Netherlands,bitches :P
axe863 1 year ago
WHATS THE BOOK THAT HE KEEPS REFERRING TO?????
BachGuitar3 1 year ago
@BachGuitar3 He's referring to his 2001 book "Time and Money: The Macroeconomics of Capital Structure". It's mentioned on a slide that's shown at the very beginning (in the background where they show the classroom) and at the very end.
rob3c 1 year ago
I'm not going to get into the jibber jabber of the conversation below, but instead I'm just going to say how awesome this video is...here it comes...this video is awesome because all I've learned in school is Keynesianism and Monetarism and this is refreshing to see economics in a different way. MISES ROCKS!
BachGuitar3 1 year ago
You sir are an excellent teacher! Loved the lecture. I have actually watched is several times just to try to absorb all of it well. Thanks for a really great class!
frailtruths 1 year ago 7
I agree with garrison, Austrians need to utilize more graphs, it would make their ideas more easily accessible. As far as Austrian economics lectures, this is the most beautiful economic lecture I have ever seen.
Shadyhunter04 1 year ago
@Shadyhunter04
No!! Praxeological logic is much better!
AFRIKTODAY 1 year ago
@AFRIKTODAY Fine, you can utilize praxeological logic but dont call it scientific because it doesnt utilize the scientific method.
axe863 1 year ago
@axe863
What do you define as "scientific method"? Praxeological logic is the best method for economic analysis! End of story! Positivism fits very well with physics but not with rational acting individuals. To every science its methodology! Positivism became a cult in the early 20th century and has destroyed countless of social science by it focus on "matter" rather than acting individuals within a define environment. You got to apply to each given science its APPROPRIATE METHODOLOGY!
AFRIKTODAY 1 year ago
@AFRIKTODAY So let me get this straight... you can construct a theory based on a set of axioms that you assume to hold in all cases. The model which is based on that set of "self evident"axioms is then stated to be correct even if it produces results that are empirically incorrect.
axe863 1 year ago
@axe863
What do you mean by empirically incorrect? If the axioms are true ( anybody can elaborate axioms), then they must be verifiable as well. The foundation of economics is centered around acting individuals living within the confine of a given society and trying to improve their lot. That's very basic! Look around you and tell me that people do not function in this fashion everyday around you.
This is verifiable and you don't need to design a curve to observe this fact.
AFRIKTODAY 1 year ago
@AFRIKTODAY By verifying the axioms through empirical verification(statistical analysis), you are violating praxeology...are you not?
axe863 1 year ago
@axe863
I have never said that empirical elements cannot to be utilized along the process of praxeological analysis; but statistics for example are merely " historical" elements rather than the " foundation" for our methodology. We might use statistics to display a verifiable evidence. The Fed Lower the interest rate at 1%, this led to the real estate bubble. The trade cycle theory doesn't "specify" the "rate" within which the interest rate should be lowered in order to create a bubble!
AFRIKTODAY 1 year ago
@AFRIKTODAY You cant engage in empirical verification without statistical analysis so no there is no empirical verification in your method. In your own words, you cant use historical elements...then why are you trying to do that in your last sentence. They must be self evident. Thus, Austrian economics is not science.
axe863 1 year ago
@axe863
I do not see the rapport between statistical verification and empirical methodology" Those two system are not necessarily twins! When you trace an equation, you do not at the same time calculate the " statistical probability of correctness"! I mean, that is quite irrelevant! Statistical analysis merely shows a measure by which to display evidence/non evidence of our theory! And it is also used by case scenario, not systematically!
AFRIKTODAY 1 year ago
@AFRIKTODAY Statistical analysis is crucial in performing empirical verification. For example, If the difference (from zero) is within the bounds of random fluctuations, the theoretical model is utterly useless(w/ high probability) How can you quantify, absent of statistical analysis, if differences are significant enough to warrant the acceptance/rejection of a theoretical model.
You cant.
axe863 1 year ago
@AFRIKTODAY "Statistical analysis merely shows a measure by which to display evidence/non evidence of our theory!"
What do you think verification is :P . Repeated verification of a theoretical construct increases the probability that it is a good approximation to the true dynamics being modeled.
axe863 1 year ago
@axe863
I don't understand you at all. My friend, you are dealing with interacting individuals within the sphere of a market. you cannot construct a model since individuals make choices and act differently accordingly with their most pressing desires and needs. That's what "positivists" do not understand. You cannot model human nature!
Statistics enrich economics by displaying the evidences of an economic law; but statistics do not define economics! That's what fail to understand.
AFRIKTODAY 1 year ago
@AFRIKTODAY We are not ignorant about the complexity of economics. Complex adaptive system are based on a quasi-evolutionary framework (quasi because the process is not blind, its based on N period discounted FCF's) of dynamic concentration of dynamically interacting heterogeneous agents(w/ long memory and emergent preferences) . A slight generalization of normal statistical analysis solves the problem (the accounting for of dynamic higher moments is necessary & sufficient)
axe863 1 year ago
@axe863
Check out this lecture from Hayek. Google: Friedrich August von Hayek Prize Lecture. It will give you a better understanding of the austrian's theory...in relation to the complexity of market rates being outside the range of aggregation.
cclodfe 1 year ago
@cclodfe I speak of complexity, not in a general manner, but in terms of mathematics. It is logical to construct a macroeconomics model which is based on a complex adaptive system. It is logical to utilized a CAS based framework because there is a sufficiently large number of heterogeneous sufficiently interconnected agents dynamically interacting and because it matches the stylized facts of the macro-economy.
axe863 1 year ago
@axe863
Did you read the lecture? Human action is too complex to develop a CAS to influence the future economy. Even if we were able to develop such a complex mathematical model, by the time the central bank received the output it would be outdated and useless.
cclodfe 1 year ago
@cclodfe "Did you read the lecture? Human action is too complex." If one can match all the stylized facts in such a manner that throughout a sufficiently long time series, the error is unco-dependent and within the bounds of random fluctuations, one would have a sufficiently "true" description of the dynamics of a system.
axe863 1 year ago
@cclodfe You obviously have no idea what a CAS really is.
axe863 1 year ago
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@cclodfe Thanks for elevating human action to the level of a god of infinite complexity. :P
axe863 1 year ago
@AFRIKTODAY You didnt answer this. "How can you quantify, absent of statistical analysis, if differences are significant enough to warrant the acceptance/rejection of a theoretical model." How can you state that a difference( lets say of slope) warrants a significant linear relationship?
axe863 1 year ago
@AFRIKTODAY For all our disagreement, I think its great that you support freedom and the free markets. I will also like to state the positives of Austrian economics. The view that the market cannot be simply aggregated is reigning true. The disaggregation of capital and agents (although I believe the dynamics are far more complex than presented in this video) was a step in the right direction.
axe863 1 year ago
You're not quite on the right page here axe. Verification via facts works only if all the facts are known and if cause and effect are properly understood. You sound like a neoclassical who's trying to escape the Keynesian mould of anti-price theory, fallaciously aggregative economics that conflates 'animal spirits' in a certain sector with the propensity for economic growth via increased production. Such anti-Say's Law BS. And statistical analysis is prone to post-hoc-ergo-propter-hoc fallacy.
Nintendomanwill 1 year ago
@Nintendomanwill Before I refute your points, I have a question for you. How is it that agents can be hyper-rational about the extremely complex macro-economy but fail in a prolonged systematic manner at comprehending a simple mean reversion in the interest rate?
axe863 1 year ago
Nobody said that agents can be hyper-rational about what you arguably correctly name the 'extremely complex macro-economy.' The point is to allow proper price signals and this requires sound money because inflation distorts intersectoral prices & divorces rates from fund avalability
Whatever you say, you cannot convince me or anyone else that mathematics contains lessons on economic theory. It is a language. It is not used to DEVELOP theories in social science but can be great 4 displaying them
Nintendomanwill 1 year ago
@Nintendomanwill "inflation distorts intersectoral prices" Please tell me why you think it distorts prices?
axe863 1 year ago
Because money media created that increases the quantity of money against goods and services whose prices were adjusted to the previous quantities of money spent in their sectors, causes an uneven rise in prices as the inflation (the new money) is not distributed equally. If price rises were even (100% hypothetical concept obviously) then inflation could not distort investment. Along with fiat money divorcing proliferate loans from saving levels this enables malinvestment in gluts that must clear
Nintendomanwill 1 year ago
@Nintendomanwill There exists a complex negative relationship between inflation & investment/growth. Inflation can alter the very structure of the complex system. You are again assuming that individuals cannot grasp a mean reversion of the interest to a "long rung average" ( I understand that convergence to a LR average is a simplistic concept but it would be a much better approximation) You think those businessmen wouldn't dominate the market in a competitive landscape.
axe863 1 year ago
@axe863
Come on, that's nonsensical. Inflation is the devaluation of the money unit that if it means anything, refers to increase in the money supply. This does not 'drive investment.' Investment is the accumulation and dispensation of various factors of production, i.e. it is based on the deference from destruction of resource which therefore helps human divisions of labour to expand material welfare and reduce unease. Inflation drives suboptimally premature investment of indirect exchange.
Nintendomanwill 1 year ago
@Nintendomanwill "There exists a complex negative relationship between inflation & investment/growth." When did I say inflation drives investment.? Uncertain inflation posses a systematic risk for individuals. Individual are risk averse to systematic fluctuations, they require a risk premium etc.
axe863 1 year ago
On your queries about the POSITIVISTIC connection of money supply & output:
Deflation comes after falling output because it follows the bankruptcy of bust inflators who go bust for the same reason that output must necessarily fall in restructuring after the revelation that a ‘boom’ was a glut siphoning resources from other sectors thanks to inflation distorting entrepreneurial cognition of relative scarcities This does NOT mean deflation causes falling output-Post Hoc Ergo Propter Hoc my friend!
Nintendomanwill 1 year ago
@Nintendomanwill I was asking why money supply has a hump shaped response to output. I also asked why there is short run non-neutrality of money but apparent neutrality of money in the long run. Please explain. Also, please explain how otherwise fully rational individuals cannot possibly comprehend mean reversion of interest rates. On one side agents are geniuses but in the other they are mentally deficient. How is it that those inefficient allocators are removed by market forces?
axe863 1 year ago
@axe863
Do you know what market forces can remove? The mere existence of issuers of fiat money, if they use it to invest depositors' money on margin after embezzling non-fiat market money in the past, can be and is destroyed by the market for reasons that a basic analysis of the business cycle will explain.
If by mean reversion of interest rates you mean people will predict rises after consumption on booms from low rates, they won't if loanable funds aren't linked to savings from production.
Nintendomanwill 1 year ago
@Nintendomanwill Superior predictors can nullify fluctuations by their allocations. If the main cause of the business cycle was simply prolonged artificially low interest rates, investors would have learned of this investment opportunity and nullified its effects. You are assuming that basically all individuals can deduce complex interactions and fully optimize but can't possibly create a utterly simple model which reverts back to the long run rate.
axe863 1 year ago
I believe I have already posted a retort to that accusation that bankers operating under Moral Hazard and a system of investing deposits on margin because the media is transferable with fiduciary fiat assets, who are also ignorant of why relative prices are distorted by inflation, should recognise malinvestment before the critical mass of overproduction disables clearing without reduced prices in that sector wiping out leveragers. It's like why fools bought bonds with returns manufactured by QE!
Nintendomanwill 1 year ago
@Nintendomanwill You dont understand my point. If there are even a limited number of individuals who understand that prolonged artificially low interest rates caused business cycle, they would eventually amass enough market power to nullify its effects. This would occur if the inferior predictors made prolonged systematic errors.
axe863 1 year ago