Wednesday, September 7, 2011

Three interesting looking posts I wish I had the energy to consider in more depth

- Paul Krugman on why gold prices fit his understanding of what's going on.

- Karl Smith on what I'm going to call private Keynesian governance. I have reservations along the lines he raises at the end - but his point is good. Thinking about incentives in this way will help to explain Keynesian claims and get past this cop-out that we just love government.

- Robert Blumen at the Mises Institute discussing Rothbard's views on inventories. I think he levels a very thoughtful critique of Rothbard - a thoughtfulness I often find lacking there (I can't remember the last post there I liked that wasn't by Bob or Jonathan). One major shortfall of the piece was a sin of omission. Two words that never appeared were "interest rate". The decision whether to hold inventory or not is intimately related to the interest rate, and if Rothbard doesn't understand this, then people need to approach anything Rothbard says about ABCT or Hayek with caution.


  1. I am not trying to pose an argument, rather I wish to understand your reasoning. Why and how is the decision to hold inventory intimately related to the interest rate?

  2. A word of caution because after some confirmatory googling the connection between the two in discussions of ABCT is not as common as I would have thought it would be.

    When something is held in inventory you are holding it for a period of time (something Blumen does go over), and because you're holding it over time the opportunity cost of selling that inventory includes the interest that could have been earned on the revenue from the sale. So in low interest periods the opportunity cost of holding inventory is low and firms will be less willing to supply inventory to the market. When interest rates are high they will be more likely to because the opportunity cost of holding it for one more period is higher. This is essentially the elongation of the capital structure. You could really think of a "good in process" in ABCT as an inventory that gains some value over time.

    Firms aren't indifferent to the price of inventories because there is an implicit time structure to that type of capital (which should be obvious because all capital has a time structure), and therefore its use by firms is going to be influenced by the interest rate.

  3. So you're suggesting that Keynesian prime the pump stuff is some sort of social insurance?

    Anyway, calling it "private Keynesianism" is a bit odd; laborers, etc. have banded together for centuries do that very thing - put money into a collective fund that is later used during rough patches, etc. The difference is that it has a moral sanction associated with it that modern government sponsored employment insurance lacks.

  4. Regarding inventories...

    You're right. In some presentations of Austrian capital theory it places quite a lot of emphasis on "circulating capital" and discuss inventories.

    But, in discussions of ABCT it tends to get sidelined. I think that's a mistake. I'd like to write something about that if I have the time one day.

  5. Well now I am offended Daniel, I have written plenty of thoughtful things over at Mises including a glowing review of Krugman's "Pop Internationalism"

  6. Ah ha - now that you remind me I do remember that review, and I did enjoy it.

    I have a lot of trouble with this idea that there's a good Krugman and a bad Krugman. I just don't see the contrast between him then and him now. I think he's largely the same guy, we're just facing issues on which you all disagree with him more now.

    Ron Paul was probably more palatable to me in the early 2000s than he is now too, but Ron Paul hasn't really changed.

  7. I'm somewhat hesitant about the extent to which Krugman's invocation of Hotelling holds true, but the gold price is certainly subject to seemingly contradictory forces at play, which only begin to make sense upon deeper examination.

  8. Daniel,

    If neither haven't changed then that doesn't speak well of them at all. Anyway, his nostalgianomics sort of is kicked off in 1990 and goes from there, so that hasn't changed as far as I can tell. Indeed, it is in the 1990s that I first recall people of a non-modern liberal bent disagreeing with him over his claims regarding economic inequality, etc. in the U.S.

  9. Gary -
    A topic like the gains from trade is a topic that you DON'T want people to change over time. There are some things we want people to affirm.

    One doesn't congratulate the evolutionary biologist for turning to creationism on his open mindedness.

  10. Daniel,

    But change regarding that particular issue wasn't what I was getting at, and there was plenty to disagree with him re: his views of wealth distribution, etc. in the before time.


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