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I Dare Paul Krugman To Debate Austrian Theory
How much would it be worth to you to see arch-Keynesian Paul Krugman debate a top-notch Austrian theory economist on business cycle theory?
Krugman has prattled for years about Austrian theory being a flawed dead-end of economics. My guess he has never read anything by Mises, Hayek, or Rothbard, the greatest scholars of the Austrian School. He doesn't understand it in any way; I have read his critiques and they are uniformed.
Robert Murphy, one of the bright young lights of Austrian theory economics, has challenged Krugman to a debate. Now let me say others have tried to draw Krugman out, but he won't do it. Murphy, who got his Ph.D at NYU, has made an offer of debate that Krugman will be hard pressed to refuse. Here's the challenge:
When Krugman agrees to debate Murphy at the Mises Institute, $100,000 will be donated to the Fresh Food Program of FoodBankNYC.org, a non-profit dedicated to feeding the hungry of NYC .
Murphy is soliciting donations for the debate through The Point, a web site that hosts campaigns. Launched only 4 days ago, they already have raised $22,000. I just pledged $100. If Krugman doesn't accept the challenge, I will not be charged. If he does, I get a charitable donation deduction to the Food Bank of NYC.
Here is where you can donate: Murphy-Krugman Debate. Please join me. This will be money very well spent.
Here is a video about it:
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I think the "debate" over Austrian-school economics was settled when the entire world started using fiat currency and did not immediately end.
But seriously, Austrian-schoolers have interesting points to make about the identity and value of money, but strict Austrian-school economics is fairly simply refuted. Austrianism relies on the same fallacy as Karl Marx's Labor Theory of Value. This makes sense because Austrian school economics are a reaction to Marxism, but they are just the other side of the same coin.
The fundamental misconception is that there is a direct, knowable, non-probabilistic correspondence between money and commodities. Marx posited such a correspondece between labor-hours and commodities. But just as a labor-hour does not deterministically represent a unit of value at the time of labor, neither does a unit of currency deterministically represent a unit of value at the time of transaction.
In reality, you can waste time and you can waste money. In the imaginary world of strict Marxian and Austrian theory, you can't.
"I think the "debate" over Austrian-school economics was settled when the entire world started using fiat currency and did not immediately end."
Nobody can accurately predict how governments will manipulate things to keep a fiat currency functioning, and they've been successful for a few decades now. But their ability to manipulate is coming to an end, and it will not end well.
Human Action. Get it in your face and rid yourself of those silly delusions with which you're wasting my processor cycles. Old Ludwig goes far out of his way to explain the characteristics of a given physical asset that people treat as money and in the process explicitly recognizes the relativity of all valuations. In a sense Austrian Economics is a study of how everything is valued in ratios to other things; Austrians and their "hard money" have absolutely nothing to do with Marx's poorly conceived notions of intrinsic value. Your description leads me to believe you've not read a single flick of Mises' pen.
The value of total Austrian "hard money" = "Marx's notions of intrinsic value".
Why?
The value of total (Austrian) money= goods/money = total exchange value = total "true" value = total value created by labor = goods / total labor hours = labor value = Marx's notion of intrinsic value.
Under Austrian and Marxian theories, hard money and labor hours are, respectively, the absolute metrics of value.
Now, what is the difference between labor hours and "human action"?
NO, absolutely not! Austrians emphatically deny that there is such thing as Absolute Value. Marxist Labour Theory of Value posits that value is created through labour hours, which clearly is false. Marx's attempts to use gold as a measure of said value created were erroneous because his framework didn't account for Subjective Value.
For Austrians the value of something is exactly what the other party is willing to part with to get it. Gold itself enters into the equation ONLY as a medium of intermediate exchange. It makes up for the inadequacies of pure barter by allowing the exchange of goods that aren't perfectly fungible. Mediums of intermediate exchange arise from market phenomena and Mises acknowledges that this function could be served by literally any good with the right characteristics. It is purely function of cosmic chance that gold has the properties that make it suitable for intermediate exchange which, one way or the other, lead humans to value it.
Indeed, it does boil down to Value of austrian money = goods/money but the Marxist premises you use to arrive at that conclusion are totally false. The mechanics of what leads goods to be valued in this way literally make all the difference. Again, if you had read Mises you would understand this.
Money is not value. When you start from an absurd assumption, the rest of the equation is meaningless. Total value does not equal value created by labor. Wrong, wrong, wrong, unless you're a Marxist.
Human action realizes that the value of any product changes based on the time at which an exchange is made and the value of the product to the traders. Labor hours are meaningless as a metric of value. It doesn't matter how many hours make up a product, it will only have the value given by the market- human action.
I think this is a big difference.
NICE TRY.
I did NOT contend that money IS value. I said that the value OF Austrian money, is, of course goods / hard money. That is the central hard money premise.
Now, try this on for size:
The total value OF gold = total gold/ total goods = total exchange value = total "true" value - net value of rents extracted by coercive or oppressive power = total value created by human action = total goods / (total labor hours + hours of value-producing activities not generally characterized as "labor") = labor value.
Look familiar? It's straight from Marx.
Austrian money? Total goods/ total gold?
Please read Mises's Theory of money and credit. It is a tough read, but it will give you the austrian explanation of the difference between money, value, credit and money substitutes.
"I think the "debate" over Austrian-school economics was settled when the entire world started using fiat currency and did not immediately end. "
You can also start smoking without your life immediately ending, but it sure won't be the same life you'd have had without smoking.
"But just as a labor-hour does not deterministically represent a unit of value at the time of labor, neither does a unit of currency deterministically represent a unit of value at the time of transaction.
In reality, you can waste time and you can waste money. In the imaginary world of strict Marxian and Austrian theory, you can't."
Austrian economics states that there is never an "equality" between a good and an amount of money, even during a trade. In fact the trade happens because the money is worth subjectively more to the holder of the good, and vice versa. Nor is there any knowable relationship between the money supply and prices, because there's no way to know what goods will be demanded with (for example) an increase in the money supply.
You can also waste time and money by making choices that turn out to be wrong in retrospect (i.e. making an investment that you thought would return 5%, which is your minimum, when it turns out to return 3%).
Apologies if I'm misunderstanding the points you're making.
Austrian economics relies on a stable concept of ordinal ranking of goods with gold/money as the reference commodity.
So the for Mises the relationship goes: Gold - Commodity Exchange (barter) Value - Mises's Action/Discontent construct (I think of it as Mises's version of the "Will to power" - the "Will To Choose" - Wille Zur Wahlen?)
For Marx it goes Gold - Commodity Exchange (barter) Value - Commodity Labor Value - Labor hours.
In Mises, the individual creates and recreates the true barter value of goods every time he acts in the market. For Marx the whole class of workers creates the true barter value of goods when they spend their labor hours producing them. However, both make these contentions with gold as the ultimate reference good.
You start well until you get to gold/money. Gold is a commodity, money is different. It is a means of encouraging trade by providing a medium acceptable to many different providers of goods. It simplifies the barter process and promotes more trade. Money can be anything. Biggest misconception about Austrian Economics there is.
Marx placed all the value of an end product in the labor- refusing to recognize the contribution of rents, capital and risk.
Gold is never the ultimate reference good. It is just a convenient one.
Yes, well, this is another important dodge common to both Mises and Marx, but it's pretty technical.
Marx invents an entire concept of "fetishization" to explain the super-liquidity of gold. Mises FAILS to explain the super-liquidity of gold, contending weekly that gold's super-liquidity is simply a product of ordinal ranking. It's one of the biggest technical problems in Austrian economics.
Because Austrians are SO doctrinaire and must explain everything from the point of view of the individual, they deny the simple obvious fact that many (if not most) things have value because other people tell us they do. Gold is valuable as a medium of exchange (or, was) not because it's valuable to ME but because it is valuable to US - but of course that undermines the entire premise of praxeology and hyper-libertarianism.
Wow, another person who has never read Austrian economics. Austrian economics has nothing in common with Marx's theory of labor value (or Smith's, Ricardo's or Keynes's). The Austrian school is not a reaction to Marx, but a refinement of the classical liberal school of Cotillion, Say and Bastiat.
There is a direct , knowable correspondence between commodities and value which takes place at the moment a trade is agreed upon. Money is a whole other issue. You have conveniently ignored the concept of human action which is central to Mises' construct.
Further, a unit of money does represent a unit of value at the point of the transaction if both parties are agreed- otherwise the transaction would never be carried out.
Finally, the choice to waste time or money is merely a reflection of the value of leisure over work.
Please read Austrian economics before you make a fool of yourself.
No, Sean, I mean literally "waste" money - as in "exchange it for nothing".
If and to the extent that I exchange my money for nothing - no benefit - then I've violated the fundamental precept of Austrian "praxeology". Either that or praxeology is trivial and says nothing meaningful about preference or utility.
A choice to waste money is the same as a choice to spend wisely? A choice of gold is the same as a choice of paper money? All choices. All subjectively valid. All equal?
No. A theory of value that is perfectly subjective is perfectly trivial. To trivialize utility is to render a value theory meaningless and invalid vis-a-vis actual humans and reality. By the same token, a theory of value that ignores utility (Marxian labor value) is also invalid.
To use a specious example to prove a point is perfectly trivial. Almost no one "wastes" value in that manner. To attempt to trivialize a school of thought based on the absurd is not an argument.
All theory is based on normal behavior. It attempts to explain extraordinary behavior. It never includes the bizarre. A choice of gold or paper money are the same, but the consequences may not be. It is not all subjective, but when you argue for argument's sake- the rhetorical can reduce the pragmatic to the ridiculous.
Austrians do not trivialize utility. You need to read the material. Try Murray Rothbard.
You use the term "equilibrium" to describe Austrian economics and then tell me to "read the material".
Austrians don't believe in equilibrium, Sean. It's the fundamental precept of Austrianism. Austrians believe that observations of equilibrium are post hoc and false.
But here is yet another similarity between Austrians and Marxists: whenever you tell them they don't understand the implications of their ideas, their answer is always that you haven't read enough of their ideas.
Now, if I haven't read the material and you have, then certainly you can provide quotes of Mises, Hayek or Rothbard to "prove" your point.
Austrians believe equilibrium is a moment in time, ever changing, based on human action. At the time of a transaction, for that moment equilibrium is established and then changes to a new equilibrium with the next transaction.
It is for this reason that mathematics are useless in economic- formulas are based on static models and static values of equilibrium are impossible to impose.
It is not subject to control, therefore, frustrating to those that must have a concrete foundation. Economics is fluid. Fluid common sense.
Glad to see your reading.
Sad to see you're not
Seriously, why the hell do your posts in this thread almost always end with some kind of bitchy little ad hominem snipe? Engaging in this class of logical fallacy doesn't help you make an argument, in fact people who do this are usually trying to defend an insecure foundation.
Here look, I can do it too...
You're a dick.
Just a little mediocre? Sounds like you're the whole enchilada and a bit more...
That is what Austrian-Schoolers claim. Because they claim it does not make it true.
There is a very well established history of economics. Just because you fail to do your research does not mean others don't. Please take your ignorance elsewhere.
The study of economics begins with Plato, if not earlier and can be traced throughout the millenium in between. The contributions of the French, German, Spanish, Italian and English schools are all well documented. There are names and written works.
The flow of information and the development of theory is quite rigorous.
You might think economics is a recent phenomenon, but to those whom actually pursue the subject- it has a long history.
You appear to have a problem with the Austrian school. Perhaps an attempt at study would solve your issues.
@Sean7k
A sells $10 worth of goods to B on credit; B sells $10 worth of goods to C on credit; C sells $10 worth of goods to A on credit.
They agree among themselves to simultaneously net out the balances.
No 'fiat' dollars or any other currency change hands during this instantaneous credit clearing process: instead goods and services have changed hands on credit terms by reference to an abstract unit of account aka the dollar.
How does Austrian economic theory deal with this? There is no money object or 'thing' as far as I can see, but there is a monetary relationship.
I'm not sure what you are expecting here. Credit implies a time preference relationship, but you have cancelled that out. Fine. You have three transactions with buyers and sellers in agreement and I'm assuming they all agree on the form of exchange for the transfer of goods.
This is just an example of human action operating in a free market. The worth in the worth of goods is an accepted value evidently by all parties.
If you are alluding to credit versus actual money, credit is based on the accepted value of the dollar in relationship to the goods traded.
You can trade credit just as easily as dollars. Money is just an agreed upon substitute for goods.
Hope I answered your question.
This is an analysis of Marxism from an Austrian perspective. As it turns out they agree on a few things.
http://mises.org/journals/jls/9_2/9_2_5.pdf
Here is an analysis of Austrian economics from a Marxist perspective (which IMO draws the wrong conclusions)
http://critiqueofcrisistheory.wordpress.com/responses-to-readers%E2%80%9...
It ends with this:
"What is needed is an “audit” of the entire banking system, including but not confined to the Federal Reserve System and the other central banks, carried out by the organized labor movement and its allies. This is not the same thing as an “audit” confined only to the central banks and carried out by Paul and his liberal, conservative and “socialist” allies—many of whom are the direct representatives of the private for-profit banks—in the U.S. Congress and their counterparts in other bourgeois parliaments."
That has a lot of hit and miss. The first sentence is completely correct except for the notion that organized labor needs to do it. Anyone who reads Mish's blog knows better than that. Unfortunately the author is correct in saying that Congress sure as hell shouldn't be the ones doing it either.
I've known a lot of Marxists and they talk about Austrians ALL the time.
Marxists have long-ago recognized the similarities in the two schools - as, of course, did Hayek.
Well, that must make it so. A one sided recognition? For their benefit?
Have you read Hayek? Road to Serfdom? Didn't think so.
Read it long ago and re-reading it on audio disk this past week. Just got back to Chapter 8 where Hayek contends that the concentration of wealth is no big deal.
Woops.
If Fred could only see that Giant Pool of Money now.
++
You don't know wtf you are talking about.
Its like you totally skipped over the human action part and its the most important.
"Human Action" includes a lot of Nietzschean nonsense. But the real critique is thatAustrian economists are by far the worst of all economists at explaining why humans act as they do. They explain why people who think balance sheets are reality behave as they do, but not humans.
And, once again, there is a parallel with Marxism. "Human Action" is where Mises finds his ultimate standard of subjectivist valuation. Marx begins with the idea of a natural minimum of "replacement" labor-time - the minimum "human action" necessary for a person to survive.
I assure you, Mises is very much a mirror-image Marx.
Both were goldbugs, certainly.
How so? Nietzschean nonsense? Really?
Mises recognizes the contribution of capital, rents and labor. Marx does not.
Human action is the definition of a free market, price setting, valuation and scarcity in a demand supply world.
Mirror-image? They could not be farther apart.
Goldbugs?As if slander will win your argument?
Your ignorance of economics is well demonstrated. Bravo!
"Human Action" is a reinterpretation of "The Will To Power", in my view - a special case. While Nietzsche emphasizes expansion of the sphere of existence generally (up, out, over and above), Mises emphasizes the special case of increase in the subjective quality of one's sphere of existence. But the place the concepts hold in the philosophy of the two men is the same, and the structure comes from Schopenhauer.
Marx talks about nothing but capital, rents and labor. Have you not read Marx?
Austrians say many things are "by definition". That does not make it so.
Marx and Mises posit exactly the same hierarchical structure of commodity exchange value. Marx and Austrians react to Marginalism by rejecting cardinal use value (utility) as the defining character of value. Marx labor value defines value while Mises makes his apodictic assertions a subjectivist epistemology, "praxeology" or whatever.
Both work outwards from naive notions about commodity equivalency, centered on the special equivalency between gold as fetishized money-commodity and other commodities.
Marx placed all value in labor, failing to recognize the contribution of rents, capital and risk. Mises did not. Big difference.
When you say things by definition you are defining the terms of the argument. For those arguments, it does make them so.
Austrians are sound money advocates, this can take any acceptable form as long as it does not allow fraud via fractional reserve warehousing.
It would really be helpful if you would read the material. Really.
Frankly, I suspect you're the one who has read the Reader's Digest version of "The Road to Serfdom", not me.
And as far as Marx, you have no idea what you're talking about.
Marx not only recognized the "contribution" of capital, it was the central insight in his theory. After all, he entitled is magnum opus "Capital".
Marx saw economic rents in a very similar way to the way Austrians view inflation - as a tax on honest producers created by a combination of the power of government and wealth.
About risk, Marx was making the point that while capitalism entails risk to th eindividual capitalist, capitalists as a class benefit from something very much like the "house odds" of a casino.
As I've said, I don't agree that Marx's LTV is valid - and I spend many years of youth arguing this with people who were then fellow Marxists. However, when you look at wealth concentration and the inability - particularly of the Austrian model - to explain the vast increase in wealth concentration, it's clear that some sort of "house odds" explanation is necessary.
Today's new, libertarian, neo-Austrians seem to believe that somehow inflation is the redistributive force upwards. This is...interesting...but yet to be fleshed out in any real way.
But he didn't value it, implying it was a subset of labor.
Austrians see inflation as they always have- the result of fiat money. The expansion of credit without savings for the purpose of benefiting a small class of people who have access to the credit before the general population.
It is not distributive as much as a transfer of wealth.
I don't think readers digest ever published a copy of the road to serfdom. Just so you know, there are many writers associated with Austrian economics, but whom hold differing opinions regarding government and it's role. Hayek was one.
Of course, you would have to study Austrian Economics first...
What you are saying is way too ambiguous to make much sense. You need to explain yourself more clearly if you want to engage others in a debate about economics.
(Or if you just want to condescende him, without actually expressing a fairly testable argument yourself, then your reply is fine of course, and can be ignored safely.)
"Austrianism relies on the same fallacy as Karl Marx's Labor Theory of Value"
Troll
Do you actually have anything to say about the notion of commodity equivalncy or are you just being obnoxious?
You're posting utter rubbish.
"neither does a unit of currency deterministically represent a unit of value"
Austrian theory does not say that the price of a good measures the value of the bought item. Rather, it says that the purchaser values the good more than the amount paid, while the seller values the amount paid more than the good.
This is another Austrian truism. Nobody denies it because it's a trivial assertion. It doesn't lead to any conclusion. It's a false stepping stone to what is supposed to be - but never has been observed to be - the inevitability of commodity money.
Again, it's not that Austrians don't have important things to say. I think skepticism about equilibrium models is growing all the time. But the fundamental idea that everything can be explained in terms of a value hierarchy of goods and services in simply not true. Pure subjectivism is no more value than pure labor-value.
If this was not true, then why would the trade be made? It is a truism because that is the basis of all trade. No one buys something at a price above its' value. No one sells at a price below its' value. There is agreement at a price or not. At that point in time- that is the value if the trade is made. One second later it might change, but for that moment in time- it is real. That is the equilibrium value. Otherwise, it would never happen.
You may not agree with the value, but you made the trade. Your opinion is a worthless commodity in the reality of the world of trade.
I'm sorry, you're mistaking a tautology for a point.
All you're saying is "people are doing trades".
By your own subjectivist standards you should know that it very well may have nothing to do with the thing being bought at all.
As for the things not being bought? it's a massively-large set, including things the would-be buyer doesn't even know about yet, with an infinite possible set of motivations.
Except there aren't an infinite set of motivations and neither is there a consistent profit-maximizing definition for motivation because we are talking about actual Homo sapiens, not Mises's uber-imaginary Uber-Homo economicus.
All I know is that I would prefer to keep the fruits of my labor to do as I wish. What I've seen over the 30 years or so that i've been paying taxes is that the government has grown in size and power, which has been done by my taxes and debt that will be paid by taxes on my children that don't even work yet. They've redistributed those tax dollars to a military who's primary function is to ensure a cheap oil supply, social programs to the poor and rich alike that promotes an attitude of entitlement, and pork to special interest groups to buy their votes. Then, when the economy grows, they don't generate a tax surplus to pay off the debt as John Maynard Keynes argued they must if his ideas are to work. No, I want to see government SHRINK and let me keep my own money. I'd be more than happy to help the poor, elderly, etc., but in my own way. Austrian economics will move us in that direction. Every other main stream economics moves us away from that direction.
Any real Austrian plan for the U.S. economy would entail (in rough figures) a $1.2-$1.5 trillion cut in government spending PLUS A $300-$500 billion TAX INCREASE!
Under the Austrian theory you HAVE to divert money away from consumption and towards debt-reduction.
Would you vote for $300-$500 billion in new taxes during a severe recession? Would you ever vote for them at all?
My worry is that this "Austrian" economics everyone is so interested in is just a re-branding of the RepubliKeynesianism we've seen for 30 years.
That is: cutting taxes in order to deliberately under-fund spending in order to generate a stimulus and political popularity among people who don't like taxes - replace revenue with deficits and debt.
You just don't get it. Austrians are not in favor of taxes. They are a distortion in the market. At the most, government expenditure would be in balance with the acceptable demands of the citizens who have approved the use of their funds. (in reality- no government at all).
Now, you are just getting desperate...
Yeah, that's what I thought. You think Austrian economics is another RepubliKeynesian free lunch. Austrianism is not Monetarism minus yet more taxes plus the magic of gold.
Given a country that has massive debt, Austrians would insist on either immediate default or an immediate diversion from consumption to debt repayment - meaning "taxes".
It's possible that the trade would be made because one has an immediate need of the product more than the money and the other has an immediate need of the money more than the product. Which makes more sense.
The need trumps the value/pricing ratio based on the degree of need.
I am Austrian but there are fallacies in Austrian economics as well, but a much lesser degree. Par example, if hard money policy is used (silver and gold) and the population is increasing, those in a position of capital or access to capital will eventually control a disproportionate amount of money and the poor and sick will always be slaves with no protection. Silver and gold production is not enough to accommodate for the newcomers.
Ancient kings knew that and therefore, every ten to twenty years when they were succeeded by their sons, they forgave all debt.
The point is that adjustments must be made to accommodate the point I made above.
Right now, all Austrians and some Keynesians agree that an adjustment will be made either by design or by default.
The debt, both sovereign and public can not be repaid. It will default, and based on the ancient kings reference, the modern kings (bond holders, banks, the illuminati, and the glitterati) will get a haircut, if not a crew-cut.
i disagree. unproductive individuals will not procreate because they will not be able to feed their children, and if they do, their children will starve (barring any philanthropic intervention). This fact will discourage unproductive, anti-social behavior, and encourage productive behavior. Productive individuals will be paid in the finite amount of gold/silver and move up the socioeconomic ladder.
conversely, productive individuals will have many children, and their gold/silver will be divided among those children. If the individual children are not productive themselves, then eventually (perhaps over several generations) they will eventually exhaust their inheritence and move down the socioeconomic ladder. The trajectory will continue until they demonstrate productive behaviour again so that they may be rewarded with gold/silver.
Of course, rewards can come in the form of other barter assets and services as well (besides gold/silver), but the outcome is the same.
Importantly, those productive individuals with gold/silver can make individual value judgements as they relate to helping their neighbors in need. Unlike the Welfare State, they can descriminate between the widow/orphan versus the drug addict.
A spirit of rewarding that productive behaviour, which perpetuates mankind, and punishing that bad behaviour, which burdens our progress, is the closet we can come to perfecting the organic efficiency of both peaceful free trade and the advancement of civilization within the boundries of earth and beyond.
What the modern kings are afraid though, (that's why they extend and pretend) is the noose.
However dull a man may be, he knows how to tell the difference between a cheaper shoe and a more expensive one, and to appreciate the usefulness of new products. But it is different in the field of social organization and economic policies. Here the best theories are useless if not supported by public opinion.