Monday, November 28, 2011

Assault of Thoughts - 11/28/2011

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Brad DeLong continues the discussion on Mises and gold, quoting me again. This one is quite good. He pointed out some Misesian contradictions before, but reconciled it with a cost of production theory of value. He never actually thought that's how Mises reconciled the contradiction - I think he simply thought Mises ignored it. But a lot of people (myself included) mistakenly figured Brad was saying Mises actually held a cost of production theory of value. This post is much better in that it identifies the contradiction and simply calls it a contradiction, without any hypothetical reconciliation. Hopefully some Austrians will take it up.

- And speaking of Brad DeLong on the history of economic thought, I had always figured he was exaggerating when he used to talk about Marx as a real business cycle theorist. I figured he must be cherry-picking or exaggerating. Nope - as usual Brad is dead-on. I've had my nose in Theories of Surplus Capital, Capital, and Grundrisse all weekend absorbing Marx on Say's Law, and that's pretty much his position. Granted - he starts with some very interesting discussion of the whole C-M-C' "metamorphsis of commodities" model that gets to sounding a lot like an explanation you'd hear out of Nick Rowe. But then he essentially says "this is all abstract - let's get more concrete" and makes a series of RBC arguments.

- A great old post by Arnold Kling on labor shortages.

- Heeding his warning, I am linking to this Nick Rowe post without comment... I do have a few thoughts, but now I'm nervous about sharing them. His footnote about "political economy" may be the most valuable point in the post for some readers.

- And Nick Rowe's post reminds me of a fortune cookie I got just this weekend: "The wise man learns more from the fool than the fool learns from the wise man". Probably right.


  1. Daniel Kuehn: Did you get my e-mail containing the Brady stuff yet? I decided to send it now rather than wait a few more days. I said it would be sent in either late November or early December, and since it's late November, I figured I might as well do so.

  2. The idea of "Political Economy" has a pretty strong and important history among the classical economists. The idea that politics and economics are different comes out of the Marshallian tradition that assumes that everyone gets paid their marginal product so there is no reason to think about power relationships in markets.

  3. I posted this on Delong's page, whether or not he posts it (he never posted my quote of Mises where he explicitly says gold can cause a business cycle-after Brad so smuggly says he found no evidence in all his readings of Mises)

    I'm sorry Brad, you try so hard at appearing to understand Austrian economics but your biased views instill you into making straw man arguments. Mises never implied that an increase in gold would be effective in curing a depression. Also, you never posted my quote of Mises where he says an increase in the gold stock could cause a business cycle, after you said "You saw no evidence" of this occurring. A little smitten with your own interpretations, perhaps?

    Lets take a couple of more sentences from the page that you decided to cherry pick your quotes, okay?

    ”If gold production had been considerably greater than it actually was in recent years, then the drop in prices would have been moderated or perhaps even prevented from appearing. It would be wrong, however, to assume that the phenomenon of the crisis would not then have occurred.”

    Brad seems to have left out the sentence that comes right after his "proof", and right before the union quote. How convenient!

    And further on the page

    "“The error in equating the drop in prices with the crisis and, thus, considering the cause of this crisis to be the insufficient production of gold is especially dangerous. It leads to the view that the crisis could be overcome by increasing the fiduciary media in circulation.”

    I normally do not try to write like this, but Brad seems to put no thought into actually trying to carefully read Austrian arguments, let alone properly understanding them.

  4. 1. If your first comment was anything like this comment it's no wonder he didn't post it. The openness of the internet age has dulled some people (including you, apparently) to the fact that most people don't like providing a forum for people to come and mock them in.

    2. If you provide me with the passage where he Mises says that an overproduction of gold can provoke a crisis, I'll repost it here (without the mocking of DeLong). These quotes you provide don't seem to say that. Was there another one?

  5. I don't know where Mises says that Gold could theoretically cause ABCT. I can believe he said it though, since to him ABCT is caused by monetary expansion however that takes place. His main point is that central bank action is a much more likely cause in practice...

    "The Cause of Economic Crises" p.72... "The purchasing power of gold is not 'stable.' It should be pointed out that there is no such thing as 'stable' purchasing power, and never can be. The concept of 'stable value' is vague and indistinct. Strictly speaking, only an economy in the final state of rest—where all prices remain unchanged—could have a money with fixed purchasing power. However, it is a fact which no one can dispute that the gold standard, once generally adopted and adhered to without changes, makes the formation of the purchasing power of gold independent of the operations of shifting political efforts"

    "Theory of Money and Credit", preface to the 1934 English Edition: "Under the gold standard, the determination of the value of money is dependent upon the profitability of gold production. To some, this may appear a disadvantage; and it is certain that it introduces an incalculable factor into economic activity. Nevertheless, it does not lay the prices of commodities open to violent and sudden changes from the monetary side. The biggest variations in the value of money that we have experienced during the last century have originated not in the circumstances of gold production, but in the policies of governments and banks-of-issue. Dependence of the value of money on the production of gold does at least mean its independence of the politics of the hour. The dissociation of the currencies from a definitive and unchangeable gold parity has made the value of money a plaything of politics."

  6. 1)Daniel, I understand my reply was rude. He never posted my first reply, which was much more cordial. Do you think Delong ISN'T rude to Austrians? He clearly is. What gives him the right? PhD?

    Here is the quote. Delong is 100% wrong on this.

    "It is beyond doubt that credit expansion is one of the primary issues of interventionism. Nevertheless the right place for the analysis of the problems involved is not in the theory of interventionism but in that of the pure market economy. For the problem we have to deal with is essentially the relation between the supply of money and the rate of interest, a problem of which the consequences of credit expansion are only a particular instance.

    Everything that has been asserted with regard to the effects of any increase in the supply of money proper as far as this additional supply reaches the loan market at an early stage of its inflow into the market system. If the additional quantity of money increases the quantity of money offered for loans at a time when commodity prices and wage rates have not yet been completely adjusted to the change in the money relation, the effects are no different from those of a credit expansion. In analyzing the problem of credit expansion, catallactics completes the teachings of the theory of money and of interest."


  7. This comment has been removed by a blog administrator.

  8. Daniel: you know a lot more about money/macro than the people I was trying to scare off with that warning. I was just trying to scare off soi-disant "political economists" who don't have a clue about the distinction between long run neutrality/short run non-neutrality of monetary policy, and were likely to drag their knuckles all over my post. I felt I deserved a break from arguing with them.

  9. Daniel, how do you feel about the Mises quote I posted?Whether or not you disagree with Mises' reasoning, isn't DeLong patently false when he makes the claim that Austrians say gold can't cause a business cycle, based off his reading of Mises?


All anonymous comments will be deleted. Consistent pseudonyms are fine.