Commenter "Patch" provides this passage from Human Action:
"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.”
You can read it in context here.
I think this supports my premise to DeLong initially. Gold is given something of a free pass because it doesn't fluctuate all that much, and certainly not at political whim. If paper money increased at the same pace as the gold supply, you would not see Mises upset about paper money. The whole point (the whole reason why we like it) is that it is more flexible than the gold supply. The sweat of the gold miner's brow has little to do with the matter at hand (and I don't think DeLong ever seriously thought it did).
At Bob Murphy's blog, Danny Sanchez (of the Mises Institute) notes that this is how Rothbard read Mises too. In America's Great Depression, Rothbard writes:
"In his Human Action, Mises first investigated the laws of a free-market economy and then analyzed various forms of coercive intervention in the free market. He admits that he had considered relegating trade-cycle theory to the section on intervention, but then retained the discussion in the free market part of the volume. He did so because he believed that a boom–bust cycle could also be generated by an increase in gold money, provided that the gold entered the loan market before all its price-raising effects had been completed. The potential range of such cyclical effects in practice, of course, is severely limited: the gold supply is limited by the fortunes of gold mining, and only a fraction of new gold enters the loan market before influencing prices and wage rates.”
Another relevant point to emphasize here is that this whole discussion really highlights the reason why Austrians insist on talking about inflation in a way that nobody else talks about inflation. If this is how you think about the business cycle, it clearly matters whether we're talking about price increases or a money supply increase in general. If money "enters the loan market" you're clearly going to have some bidding up of prices as a result of increased borrowing, but the primary impact of the money supply inflation is going to be on the capital structure, not on prices and wage rates. And it's precisely that impact on the capital structure that presents the problem for Austrians.
A much longer discussion is available here.
I don't agree with all of Patch's criticism of DeLong. In my comment section, Patch accuses DeLong of selective quotation. Patch writes:
"Lets take a couple of more sentences from the page that you [DeLong] 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!"
Now this bothers me, because Patch himself is now cherry picking and cutting off his passage at convenient times. If you read the entire passage it's clear that DeLong still has caught Mises making a problematic claim. If you keep reading past where Patch stops, we have:
"It is true that there is a close connection between the quantity of gold produced and the formation of prices. Fortunately, this is no longer in dispute. 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. The attempts of labor unions to drive wages up higher than they would have been on the unhampered market and the efforts of governments to alleviate the difficulties of various groups of producers have nothing to do with whether actual money prices are higher or lower."
Mises essentially says "don't think you're out of the woods yet - even if we're on gold the unions are still going to f*#% it up". He gives no indication that he thinks that "it would be wrong... to assume the phenomenon of the crisis would not then have occurred" because gold could cause the crisis. He says it's wrong because there are other causes outside of monetary causes. That's quite an omission on your part, Patch! He continues to discuss labor unions for another paragraph, and then he discusses another danger of being sanguine about how an increase in the gold supply would have moderated the crisis. He says that it "leads to the view that the crisis could be overcome by increasing the fiduciary media in circulation."
So my view is that DeLong has not cherry picked here and he has stumbled upon a genuine gold fetish on the part of Mises in this particular book. I am not convinced by Patch that DeLong has cherry picked because it seems clear to me that the one sentence DeLong picked out is truer to the entire passage than the two sentences that Patch picked out.
That having been said, my view is also that the passages from Human Action provided by Patch do show Mises telling a different story - and being more cautious about gold. That's fine by me - people can change their views over time. But clearly Brad has identified a problematic viewpoint from 1931, at the very least.
*****
In the same collection of essays that DeLong quotes from, an essay of Mises on The Stabilization of the Monetary Unit appears that was published in 1923. This is intriguing to me because Keynes's Tract on Monetary Reform was also published in 1923 and it was on essentially the same topic. Does anyone know if anyone has written a head-to-head comparison of the two, or looked into their comparative influences. Keynes was deeply involved in the German situation at this time too, which I'm sure influenced Mises's thought as well, which is why this comparison seems particularly interesting... I may have to finally add Mises to the reading list. He hasn't quite intrigued me enough up until now.
While I do plan on reading Ludwig von Mises, I do have a comment on your comment on Keynes's "A Tract on Monetary Reform".
ReplyDeleteKeynes had not applied the distinction between risk and uncertainty in that book into the equations. As for Ludwig von Mises, there are problems with the way he views uncertainty. The probability theory (which is of the subjectivist/frequentist strand) that his brother came up with isn't that applicable to the real world.
The only equations I remember in Tract on Monetary Reform were in the discussion of purchasing power parity and in the discussion of the quantity theory.
ReplyDeleteWhere would you apply the distinction in those?
It's a fantastic book - I highly recommend it to people.
Indeed, it is a fantastic book.
ReplyDeleteUncertainty in the demand for money itself would be one place - because Keynesian uncertainty or Ellsbergian ambiguity can lead to liquidity preference. Remember, Keynes had written his "A Treatise on Probability" two years before he wrote this book. Keynes in "A Tract on Monetary Reform" was describing a situation that only involved risk.
Do you remember Keynes's "weight of evidence" index that have mentioned to you before? It's possible to incorporate that into the equations.
In Mises there is a demand for money and a supply of money. Together they determine the aggregate price of all transactions. That is we have:
ReplyDeleteMV=PT
M is money supply and V is the inverse of money demand. (Notice this is *everything*, not just GDP transactions).
In some of his books Mises defines inflation as a rise in money supply beyond demand, and deflation as a fall in money supply below demand. That is a change can occur from the demand or supply side to alter the balance and the price level. That's almost a monetary equilibrium way of thinking (though MET folks are concerned with NGDP).
So, why doesn't he advocate a rise in the supply of money when demand rises? It seems to me that he doesn't because he's fearful of arbitrary monetary policy from central banks (or commercial banks for that matter). He wants free banking in the long term because he thinks it will keep a tight lid on money issuance from fiduciary media (not for the same reason Selgin and Horwitz give that it will provide flexibility). He recommends stopping booms as the solution to stopping busts.
I don't think Mises view on gold really became more nuanced between the essay in "The Stabilization of the Monetary Unit" and "Human Action". I think it's just that in Human Action he had more space to detail everything. In "The Theory of Money and Credit" (which came earlier) his view is quite nuanced too.
I've read DeLong's post 2 or 3 times and I am missing that contradictions he and Daniel are seeing..
ReplyDelete- Mises obviously believes that the cause of the Great Depression can be explained by the ATBC as played out in the 1920s.
- He believes that union power was preventing the necessary adjustments that would be needed to address the structural problems caused in the 1920's.
- Increased gold production might have prevented the price deflation in the 1930 but would not have addressed the structural problems that caused the Great Depression (I believe De Long has simply mis-understood Mises if he takes that quote to imply that Mises thought increased gold production would have meant no Great Depression.)
- It clear from the HA quotes that Mises did happen to believe that increased gold production could (if it hits the economy via the loan market) cause a boom/bust cycle - so
that adds further consistency to his views.
rob, you're right but I'm not sure this is what Daniel is talking about. The section of "The Stabilization of the Monetary Unit" Delong and Daniel are discussing isn't about ABCT, it's about what Mises saw as special circumstances that exacerbated the Great Depression. Mises is saying that what we would now call the "secondary depression" could be solved by monetary policy, but the "primary depression" could not be. That's consistent.
ReplyDeleteBut I think what Daniel is saying is that a the near fixed quantity of money that a full-reserve gold standard would create could not cope with rises in the demand for money.
Daniel doesn't know what he's talking about. He's just blindly defending Delong. He should of put Mises on the reading list before pulling that stint over at the Mises Blog.
ReplyDeletehttp://blog.mises.org/19166/a-note-on-delongs-interpretive-mental-disorder/
Perhaps - but its worth noting that the Delong quote come from a section of Mises' essay explicitly aimed at refuting a "popular doctrine [that] blames the crisis on the insufficiency of gold production."
ReplyDeleteHe refutes this doctrine by arguing that even if gold production had increased (presumably during the time of the deflation rather than in the 1920's) then (as you state) only the secondary depression would have been avoided.
Im still not seeing how Daniel (and Delong) can categorize this as evidence of "a genuine gold fetish on the part of Mises".
Daniel, I appreciate your (qualified) defense of Mises. However, I don't think there's even a problem with him in 1931.
ReplyDeleteFirst of all, do you see that the whole section from which these quotations come, is devoted to refuting the popular claim that it was an insufficiency of gold production that had caused the crisis? So it would be pretty weird, if you and DeLong are right, and Mises in this very section is actually saying (at least in one spot) that more gold, per se, would have alleviated things.
Here's what I think is going on:
When Mises says "It is true..." he isn't conceding anything about the economics. DeLong (and apparently you) seem to jump from his admission about prices being higher, to thinking that Mises means "other things equal, then, there would be no crisis."
But that's not what's happening. For Mises, the crisis persists because governments and labor unions are trying to prevent liquidations, and they are holding various wages and prices above the new market-clearing levels.
So Mises is saying, "Sure, if we had more gold, we could raise prices across the board by x%, but the individual prices would still be out of whack with respect to each other."
I don't see even a hint of a contradiction here. Instead, I see Mises explicitly denying the view that you and DeLong are attributing to him.
Oh OK, now I think I see your point Daniel. You're saying, you didn't want Mises just to say, "It's true, more gold would mean higher prices, but we'd still be in a crisis."
ReplyDeleteYou want him to go further, and say, "In fact, if a bunch of new gold had been dug up in the last few years, and some of it went into the loan market first, then our current crisis would be even worse than it is now."
Right?
Current -
ReplyDeletere: "(Notice this is *everything*, not just GDP transactions)."
Ya why does the GDP transactions quantity theory even exist. It doesn't make that much difference in a lot of discussions, but it really doesn't make much sense ever, in any context.
That's just a gripe on my part - I enjoyed the rest of your comment. Very helpful for someone not all that familiar with Mises.
rob -
I think your bullets are all fine. My problem (and DeLong's problem) is that the sentence that starts "If gold production..." seems to indicate that money expansion via gold is somehow different from money expansion via fiat money. Nothing else that he says in the passage seems to explain why he thinks that. I know why he likes gold better than fiat currency - that is clear. I know that he thinks there are other causes of the crisis - I said as much in the post. I'm not sure exactly why he thinks a money expansion from gold would have such a different effect from a money expansion from fiat currency. That's the issue. In Human Action, he seems to think they will have the same effect. Here he seems to think they won't. That's our concern.
Perhaps I should put it this way. This passage seems to suggest Mises thinks monetary expansion could be a good thing if it came from gold. My point to DeLong has always been that it's a question of political economy - it's not the theory behind monetary expansion he would be opposed to, it's the risks involved with doing it with fiat currency. That's legitimate. But I still think this can be interpreted as Mises accepting monetary expansion of one sort but not of another. We would be right to say "wait a minute - so when you call us "inflationists" you're really an inflationist too in that sense?"
Anonymous -
Stop commenting anonymously. But thanks for omitting the scatological and sexual references this time. You're a real gent.
First, I would like to thank you for responding to my post and taking the time to critique it.
ReplyDeleteMy problem with Delong, as I’m sure many other people, is essentially this. He seems to get a free ride when he argues about Austrian economics. He can mock it and rip it apart, attaching strawman positions to Mises’ ideas, accuse Mises of “blathering” (See his comment in Murphy’s reply), and some of the things he says comes solely from his own interpretation and nothing more. He then refuses to post some intelligent responses (or quotes that may prove him wrong), and personally cuts out and comments inside people’s responses (See Murphy’s). Frankly, I find that rude.
Delong originally said this:
(http://delong.typepad.com/sdj/2011/11/austrian-monetary-mental-mysteries-for-what-i-hope-is-the-one-last-time.html)
“From my perspective, the interesting thing is that von Mises and his remarkably and strikingly unmannerly present-day acolytes appear to believe all of the following:
1. Increases in the real money stock produced by decreases in the wage and price level are efficacious at pulling the economy out of a depression.
2. If labor unions push-up wages and prices so that they are "too high"--not, mind you, that real wages are too high (with nominal wages being high relative to consumer prices), but simply that the nominal wage is too high given the money stock--then a union-busting program that does not change relative prices but simply raises the real money stock is efficacious at curing a depression.
3. Moreover, an increase in the real money stock that comes about from people spending time energy and resources digging gold from the ground and refining it is equally efficacious in curing a depression.
4. However, a credit expansion caused by government money printing (or by leverage expansion by private fractional-reserve banks) is always, invariably, and inescapably poison.”
Aside from his insults at the “unmannerly present-day acolytes” (as if Professor Delong is always courteous and mannerly towards his opponents) Delong based on his interpretations tries to characterize the Austrians and their “fetish” for gold as one based on people “working” for it, and that gold is “honest” while paper money is “poison”.
So people then ask him where on earth he gets 3, which is patently wrong. I try to respond to his post with the Mises quote that shows Mises clearly thought a gold inflation could cause a business cycle. Aside from a sentence saying hes wrong (nothing mocking), nothing else. It never gets published. I think it’s a very revealing quote, and I was a little upset that DeLong never posted my reply.
Brad then posts his reply to you and Murphy with:
ReplyDelete(http://delong.typepad.com/sdj/2011/11/yet-another-note-on-gold-mining-and-cyclical-unemployment-in-austrian-economics.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BradDelongsSemi-dailyJournal+%28Brad+DeLong%27s+Semi-Daily+Journal%29)
“So I went back to my notes and found it:
If gold production had been considerably greater than it actually was in recent years, then the drop in prices [in the early 1930s] would have been moderated or perhaps even prevented from appearing…
If the increase in the money stock in the 1920s had taken the form of an increase in gold rather than of paper money, there would have been no big deflation in the early 1930s. No big deflation in the early 1930s, no Great Depression.
That's the source of my belief that, in von Mises-world, that if nominal wages are constant--if nominal wages are sticky--then expanded gold mining is an efficacious way of curing and avoiding depressions without major adverse consequences.”
DeLong’s main error when interpreting Mises is using his own theory that falling prices=depression. Falling prices, in Mises’ framework, does not mean depression. A depression, in Mises framework, has nothing to do with nominal prices or price levels, but with relative prices and the capital structure. Theoretically a depression in the Austrian sense can occur even if prices do not fall one iota. Secular deflation in the Misesian framework is perfectly compatible with growth. Whether or not Delong thinks this is true is immaterial, because it is what Mises thinks, and this idea obviously influences what he writes. Delong will obviously draw very different conclusions if he reads Mises with this idea.
“Another relevant point to emphasize here is that this whole discussion really highlights the reason why Austrians insist on talking about inflation in a way that nobody else talks about inflation. If this is how you think about the business cycle, it clearly matters whether we're talking about price increases or a money supply increase in general. If money "enters the loan market" you're clearly going to have some bidding up of prices as a result of increased borrowing, but the primary impact of the money supply inflation is going to be on the capital structure, not on prices and wage rates. And it's precisely that impact on the capital structure that presents the problem for Austrians.”
I am including this passage here because it refers to what I am talking about above. If money enters the loan market it will impact the capital structure by influencing the relative “prices and wage rates.” Aggregate wages and prices that don’t capture the relative price effects do not matter in this scenario. For Mises, changes in the relative prices are what matters for booms and busts.
Furthermore, on the same vein that price declines do not equate to Depressions, just on the previous page Mises emphatically states:
ReplyDelete“The basic error in this attempt to explain the crisis rests on equating a drop in prices with a crisis. A slow, steady, downward slide in the prices of all goods and services could be explained by the relationship to the production of gold. Businessmen have become accustomed to a relationship of the demand for, and supply of, gold from which a slow steady rise in prices emerges as a secular (continuing) trend. However, they could just as easily have become reconciled to some other arrangement—and they certainly would have if developments had made that necessary. After all, the businessman’s most important characteristic is flexibility. The businessman can operate at a profit, even if the general tendency of prices is downward, and economic conditions can even improve then too.”
Clearly, Mises did not believe that falling prices=depression. Delong is wrong is his conclusion that
“If the increase in the money stock in the 1920s had taken the form of an increase in gold rather than of paper money, there would have been no big deflation in the early 1930s. No big deflation in the early 1930s, no Great Depression.”
With this view, DeLong can characterize the Austrians as holding a gold fetish and being inconsistent because they can espouse reducing real wages via gold inflation, but not the “posion” of fiduciary media and central/FRB intervention. He is wrong. This adds a little bit more “fire” to the claim that DeLong strawman’s Mises’ positions. Clearly, despite what Delong believes about deflation during depressions, Mises’ views were very different, and it is improper to suggest that Mises believed deflation=depression. This is why I made my second response a little bit more “mean”, because Delong does indeed straw man Mises’ ideas.
When Mises says:
“"It is true that there is a close connection between the quantity of gold produced and the formation of prices. Fortunately, this is no longer in dispute. 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. The attempts of labor unions to drive wages up higher than they would have been on the unhampered market and the efforts of governments to alleviate the difficulties of various groups of producers have nothing to do with whether actual money prices are higher or lower."”
And Kuehn’s response:
ReplyDelete“Mises essentially says "don't think you're out of the woods yet - even if we're on gold the unions are still going to f*#% it up". He gives no indication that he thinks that "it would be wrong... to assume the phenomenon of the crisis would not then have occurred" because gold could cause the crisis. He says it's wrong because there are other causes outside of monetary causes. That's quite an omission on your part, Patch! He continues to discuss labor unions for another paragraph, and then he discusses another danger of being sanguine about how an increase in the gold supply would have moderated the crisis. He says that it "leads to the view that the crisis could be overcome by increasing the fiduciary media in circulation."”
In Mises’ framework, the cause of depressions is credit expansion, gold inflows, a change in the money relation that affects the interest rate before affecting the capital structure (This is obviously an incomplete and brief way of putting it). This is what causes the busts and recessions, which occur because the economy needs to correct itself (in Mises’ view). What can make these corrections very long and painful is if prices don’t adjust and necessary liquidations don’t occur (again, in Mises’ views). Mises isn’t saying that if gold supply increased and prices didn’t fall, the bust and crippling depression wouldn’t have occurred because unions would have kept wages high and aggravated unemployment. Mises is saying that if the gold supply increased and prices didn’t fall, the crippling depression that came after the bust induced by intertemporal disequilibrium would have still occurred because unions, other wage interferences and governments propping up businesses would have still occurred.
Note that the bust and crippling depression are two separate things. An increase in the gold stock in Mises’ framework can cause a bust, and despite the lack of aggregate falling prices, the crippling depression would have occurred because unions and governments propping up the economy.
Also - could someone clarify this talk about the secondary depression. This paper was delivered in February 1931, right? I thought Ropke said the secondary depression was later than that and I thought Haberler and others agreed with him on that. When Mises talked about "the last few years" and the "drop in prices" that early in 1931, I figured he was talking about the primary depression or the crash itself. Why are you guys acting as if this is just some secondary, after the fact thing (which I didn't think Mises was supposed to have agreed with Haberler on anyway).
ReplyDeleteI need clarification on this.
Secondary Depression can refer to the government/union imposed rigidities that affect the restructuring process. It doesn't necessarily have to mean the downward spiral of consumption, income and prices (This seems to be more of a Hayekian thing).
ReplyDeleteBob -
ReplyDeleteYour second comment gets at what we're scratching our heads over.
I understand he's not saying if we mine that gold we'd be fine - he's identifying other problems. But he does seem to offer that gold might alleviate the problem. So why doesn't he grant the same for fiat currency?
I think the ultimate answer is a political answer - fiat currency introduces other risks, politically. But it's still either a contradiction or a major concession - that a well managed currency expansion can be good macroeconomic policy.
When he seems to clarify the point in Human Action he steps back off that ledge: he affirms that a gold increase would be as bad a fiat currency increase.
rob and Current seem to be looking for another way out - by making Mises into Haberler and hoping that's still far enough from Keynes to please your buddies in Auburn.
ReplyDeleteI really don't see any reason to think that in February 1931 he's talking about any sort of secondary depression of that sort. But (1.) I'm not expert on the current thinking on secondary depressions, and (2.) I did not read the entire essay - which is why I asked for clarification.
But he doesn't! (See my review above).
ReplyDeleteFalling prices does not equal depression for Mises. Gold reducing price declines would not alleviate the depression in Mises' view, because the absolute price declines are not the cause or the reason for its prolonged state, in Mises' view.
Thanks for the clarification - I suppose it is just about possible to interpret this as Mises being less harsh on inflation caused by gold than inflation caused by unbacked money - even if it is in a section whose purpose is to explain that increased gold production would not in fact have solved the crisis.
ReplyDeleteAnd Secondary depression for Mises is different than Haberler/Hayek (see above)
ReplyDelete*that "buddies in Auburn" thing is a joke, btw - don't take it personally or anything.
ReplyDeleteI just used "secondary depression" as a convenient handle for separating falling prices (caused by increased demand for money) from the real structural issues cause by the boom/bust itself. I see no evidence from the essay that Mises was thinking in those terms at the time he wrote it.
ReplyDeleteI used the term "secondary depression" too, which may have been confusing. As far as I know Mises doesn't use the term secondary depression, so we probably shouldn't talk about him describing something like a secondary depression. As Patch says what Mises does describe is a little different to Hayek's view. In Mises simple treatment rigid nominal wages cause output to fall because real wages have risen. In Hayek's more complex treatment it's a sort of cumulative feedback effect where rigid wages in one place cause output to fall and that reduces real income elsewhere which causes further problems. I think there's one place where Mises gives an explanation closer to Hayeks.
ReplyDeleteFor what it's worth, yesterday I found a passage in "The Theory of Money and Credit" where Mises says that for ABCT it doesn't matter what source an increase in the money supply comes from. Though I can't find it again today.
"Ya why does the GDP transactions quantity theory even exist. It doesn't make that much difference in a lot of discussions, but it really doesn't make much sense ever, in any context."
I don't know if you're being sarcastic here. I don't think that the GDP quantity equation MV=PY is useless. It's a complex issue. As I may have mentioned before Anthony Evans and I have written a paper on it...
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1898962
There are lots of relationships between the view we outline in that paper and Keynesianism which it doesn't explore.
I understand he's not saying if we mine that gold we'd be fine - he's identifying other problems. But he does seem to offer that gold might alleviate the problem. So why doesn't he grant the same for fiat currency?
ReplyDelete-Daniel Kuehn
He does. In the same passage that DeLong quoted from originally:
“…the banks are asked to stimulate business conditions with the issue of additional banknotes and an additional credit expansion through credit entries. At first, to be sure, a boom can be generated in this way.”
Something we haven't mentioned so far is the international gold standard. We could talk a lot more about that if anyone is interested ;)
ReplyDeleteIf there is an international gold standard (and there was for some of the period we're discussing) then there are important differences between specie and fiduciary media.
Current, Mises called the equation of exchange uselessly tautological, and the conclusions derived from it fallacious. So to say that "in Mises" MV=PT is completely off-base. Although Free Bankers often picture him as such, Mises was NOT an Austro-Monetarist.
ReplyDelete^^^I would agree with Dan on this as well. Shown by the Mises quote above, if he believed that any money which hit the loan market first without affecting prices and wages caused a business cycle, then he was not an Austro-Monetarist.
ReplyDeleteFurthermore, despite some of his quotes where he praises fiduciary media, if he thought that over time FRB would be eliminated through increasing reserve ratios, how could he possibly be an Austro Monetarist? The beneficial market mechanism that allows the market to adjust to changes in money demand would be eliminated by the market?
Anyway, I want to apologize again for my mocking reply to DeLong (that Kuehn quotes). I did that because DeLong himself was straw manning Mises, as evidence of his "deflation=depression" quote that I cited in my reply above. Regardless of what Delong thinks about deflation, he can't superimpose those views on Mises and hold him accountable for something he didn't believe in, calling this a "contradiction".
Here are some portions of "Human Action" on the subject of the quantity theory:
ReplyDeletep.38 "In the concept of money all the theorems of monetary theory are already implied. The quantity theory docs not add to our knowledge anything which is not virtually contained in the concept of money. It transforms, develops, and unfolds; it only analyzes and is therefore tautological like the theorem of Pythagoras in relation to the concept of the rectangular triangle. However, nobody would deny the cognitive value of the quantity theory."
p.402 "The insight that the exchange ratio between money on the onehand and the vendible commodities and services on the other is determined, in the same way as the mutual cxchange ratios between the various vendible goods, by demand and supply was the essence of the quantity theory of money. This thcory is essentially an application of the general theory of supply and demand to the special instance of
money. Its merit was the endcavor to explain the determination of money's purchasing power by resorting to the same reasoning which is cmployed for the explanation of all other exchange ratios. Its shortcoming was that it resorted to a holistic interpretation. It looked at the total supply of money in the Volkswirtschaft and not at the actions of thc individual men and firms. An outgrowth of this erroneous point of view was the idea that there prevails a proportionality in the changes of the-total-quantity of money and of moncy prices.
But the older critics failed in their attempts to explode the errors inherent in the quantity theory and to substitute a more satisfactory
theory for it. They did not fight what was wrong in the quantity theory; they attacked, on the contrary, its nucleus of truth. They were intent upon denying that there is a causal relation between the movements of prices and those of the quantity of moncy. This denial led them into a labyrinth of errors, contradictions, and nonsense. Modern monetary theory takes up the thread of the traditional quantity theory as far as it starts from the cognition that changes in the purchasing power of money must be dealt with according to the principles applied to all other market phenomena and that there exists a connection between the changes in the demand for and supply of money on the one hand and those of purchasing power on the other. In this sense one may call the modern theory of money an improved variety of the quantity theory."
Mises says roughly the same thing in "The Theory of Money and Credit" too and as far as I remember that's what we quoted in the paper.
Now, I'm not in the business here of getting into the whole FRB vs 100% reserve argument. If we want to get down into the details of that we should do it elsewhere.
Though I agree with the modern Free Banking view myself I don't think that Mises did. But I do think that Mises was a quantity theorist, in the sense he describes in the quotes I give here. Notice that this sense doesn't preclude what you're saying about money injections. Mises never says that any method of supplying the right quantity of money is free of problems.
re Patch: "Anyway, I want to apologize again for my mocking reply to DeLong (that Kuehn quotes). I did that because DeLong himself was straw manning Mises, as evidence of his "deflation=depression" quote that I cited in my reply above. Regardless of what Delong thinks about deflation, he can't superimpose those views on Mises and hold him accountable for something he didn't believe in, calling this a "contradiction".
ReplyDeletePatch,
I'm not defending DeLong per se, but perhaps there's an alternate explanation then him being deliberately malicious? He could, for instance, have so internalized the debt-deflation theory of depressions that he forgot there was question of these ideas (particularly in books by other schools of thought).
Now whether that or some other positive spin is correct is open to interpretation, but I felt that needed to be pointed out.
A couple of things
ReplyDelete1)Even if he thought that was true, thats still poor research on his part. That means he isn't spending enough time to read and understand the material. I think what probably happened he is had these views from before, and then superimposed them on Mises without a second thought.
2)I think Delong was just being sloppy and purposefully malicious, judging by his tone from other sentences. He says Mises is "blathering", derides Austrians as Mises's "unmannerly present day acolytes", says his monetary theory is "mammoth #economictheoryfail", and so on and so forth. I am grateful for Kuehn to take the time on his blog to comment and criticize my post. However, I await his response to my reply (posted in this thread).
Based on a Deeper Reading of Mises, my claim is that 1)Delong misunderstand/purposefully misrepresented Mises for his own benefit, and 2)Delong himself is being extremely rude to Austrians, and Mises in particular.
I agree with Patch about Delong, I think he was being malicious.
ReplyDeleteI have posted comments on Delong's blog before and so have many reasonable opponents of his point of view. What happens is quite simple, when a comment presents a valid argument against the position Delong has stated he deletes it. He is a little more cunning with big names... If I written the long comment I put in the previous thread quoting Mises on Delong's blog then he would have simply deleted it. If Bob Murphy had written something similar he would have taken out the substantive parts to make Murphy look like fool.
Delong is not interested in the truth. He sees what he's doing as a sort of intellectual war, as propaganda. He is prepared to say whatever is necessary for his side to win.
"But he does seem to offer that gold might alleviate the problem. So why doesn't he grant the same for fiat currency?"
ReplyDeleteWha?
Where does Mises 'seem to offer that gold might alleviate the problem'? The chapter you're quoting from is dedicated to arguing the exact opposite. The only thing I can think of is that you're subconsciously reading your own views about deflation into Mises argument. I cant seee any other way youve got yourself into such a muddle.
Sure, Patch and Current, I was just trying to make sure you had a reason for dismissing the various possibilities.
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