Don Boudreaux recently tried to spin Farmer as being anti-Keynes, which I tried to shut down in the comments and to which Roger Farmer himself later responded "Daniel Kuehn gets my position exactly right." It's not the first time libertarians have thought my interpretation of modern Keynesians was wrong, only for those modern Keynesians to turn around and personally endorse what I've said.
Farmer shares some important thoughts later on in the comment thread:
"The debate is too often couched in terms of free markets versus state control. But markets cannot exist outside of the institutional supports provided by government. These include the courts, the police and the army, institutions that are typically accepted as necessary by even the most ardent supporters of free markets. But should we move beyond these minimalist institutions?
Once one recognizes that the courts are legitimate institutions, it becomes necessary to provide a mechanism to define what contracts are enforceable and what are the boundaries that legitimize property rights. Slavery for example, was a legitimate institution at the inception of the American experiment in democracy. It is now widely considered to be repugnant. The boundaries change. What is obvious to men and women in one era is by no means clear to others.
Democratic countries evolve. Not all new institutions are successful and reasonable men and women can and do disagree about the proper boundaries to state intervention in markets. Central banks, like the Fed in the US, developed over the course of two centuries in response to a series of financial crises, similar to the one we are now experiencing.
Is there an alternative to the active management of the money supply by a committee of experts? Perhaps. But a system in which the value of a nation’s currency is subject to the exigencies of gold discoveries is manifestly not the solution. The gold standard was discarded by previous generations because it failed to generate price stability and the fact that the US adhered to the gold standard in the early years of the Great Depression is one of the major reasons that unemployment in that period was so devastatingly high.
It is tempting to pose the following dichotomy. Is high unemployment a systemic problem of unregulated markets? Or is it caused by over active government intervention? This is an overly simplistic way of organizing a complicated question. Every system of trade exists within a set of legal institutions. Some institutional arrangements lead to higher welfare for most citizens than others. The right question to ask of a democracy is: Which set of minimally invasive institutions will lead to the highest standard of living for the largest possible number of citizens?"
Saturday, September 17, 2011
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The last line echoes the age-old adage made by the statesman Edmund Burke. Unfortunately, it isn't coming to my head at the moment. -.-
ReplyDeleteAs for the comment on stagflation - a closer reading of Keynes's track record was that he was always opposed to the two ugly heads of inflation and deflation. During the inter-war years, Keynes was advocating for REFLATION, *not* INFLATION. The one consistent thing he advocated was always price stability.
Price stability is not only contingent upon interest, but also employment and money. While Keynes didn't get a chance to properly iron out how to deal with stagflation, I'm sure that he would have dealt with it in a better way than Friedman's policies. Whether or not he would have had the energy to deal with it is another matter. I've always wondered how he would have dealt with the Soviet Union had he lived longer into the Cold War...but that's for another topic.
Nevertheless, Daniel, I don't think you can look at this from a merely national perspective. According to a recent article in The Economist, the central banks of the emerging markets (especially the BRICS group) have to deal with inflation instead of deflation. In this increasingly globalized world, we're too interconnected not to feel the aftershocks. This is a Gordian Knot that would have tried even Keynes...
I doubt you'll get far with Boudreaux and Roberts. They're the paid shills of a billionaire. They're like Exxon's climate scientists: They're paid to keep the 'controversy' alive.
ReplyDelete"But markets cannot exist outside of the institutional supports provided by government."
ReplyDeleteThis is a unexamined mantra we often here; and indeed, it is generally just stated and people move on from it. In Aristotelian terms it is an axiom from which one builds; we need the state for markets to exist and from that follows all sorts of things. But is that really the case? Or is the state merely a bit of technology which may or may not be needed depending on historical circumstances? One can think of other objections along the line of a genus of criticisms of this claim about the need for a state.
But a system in which the value of a nation’s currency is subject to the exigencies of gold discoveries is manifestly not the solution. The gold standard was discarded by previous generations because it failed to generate price stability and the fact that the US adhered to the gold standard in the early years of the Great Depression is one of the major reasons that unemployment in that period was so devastatingly high.
ReplyDeleteBahaha I really laughed out loud at this one.
The only people I've heard argue that the value of gold is tied to "exigencies of gold discoveries" are brainless undergraduates who repeat what their 7th grade social studies teacher taught them. Even the most cursory examinations of US banking history reveal that the value of US currency had been steadily climbing - with few exceptions and interruptions - until the end of the classical gold standard in 1913, at which point the purchasing power of the $US has fallen by 98% in 100 years.
Really? Gold discoveries? Nothing about secular deflation on a gold standard, stable money supply, international media of exchange? Could a noninflationary business environment have anything to do with the increase in the value of a nations currency?
And then there's the heroic bit about "saving" capitalism from the shackles of gold. This is JM Keynes all over again. What he fails to realize is that there had been a decade of credit expansion leading to 1929 and massive deflation and unemployment always accompanies bankruptcies. It's a causal mechanism, not a morality tale. This man's understanding of economic history (and theory) parallels grade school textbooks. What a joke.
The gold standard was discarded by previous generations because it failed to generate price stability and the fact that the US adhered to the gold standard in the early years of the Great Depression is one of the major reasons that unemployment in that period was so devastatingly high.
ReplyDeleteThat's a lie. It makes me suspect of the rest of his comments to see him regurgitate a piece of propaganda that is easily dispelled with the slightest bit of historical research.
Was that a dig over at Cafehayek about the RAE? I looked it up and there's an article by you in it...
ReplyDeletehttp://www.springerlink.com/content/5683j4v650187261/
A more pertinent query is why the heck are you still reading Cafe Hayek?
ReplyDeleteA dig on RAE? I complimented RAE recently at Cafe Hayek for having an efficient review process. Is that what you're thinking is a dig??? Publishing RAE was a great experience - they're prompt getting back to you, I had a good experience with the reviewers, and they put out interesting stuff.
ReplyDeleteDaniel,
ReplyDeleteI'm sort of surprised that you've left Anonymous' comment about Roberts and Boudreaux being paid shills of a billionaire stand.
I would be curious to read the arguments that the gold standard did not play a role in making the GD worse.
ReplyDelete