A little while back we were talking about "multiple rates of interest" and "own rates of interest", and I argued that "own rates", while they are going to be compared to the interest rate charged for credit in making any investment decision, don't matter in a Wicksellian sense at all. Andrew Laiton links to that discussion, and Nick Rowe links to Andrew.
I don't know Andrew's affiliations but he offers what I generally think of as an Austrian-flavored approach. Credit expansion changes real patterns of production, and so you can't just ignore credit expansion or pretend that the different production structure does not matter.
My respones to that has always been that the logic of it all makes sense, but I have a hard time believing that these real distortions of the capital structure matter all that much. Neat theory. I even "believe it" insofar as I'm sure there isn't absolutely no impact on the real structure of the economy. But it doesn't seem to explain the really crucial elements of macroeconomic fluctuations.
Nick takes a position closer to my initial position. Basically that while you can't preserve all the relative prices it doesn't really matter because that's simply not what is being targeted (and the reason why it's not being targeted is presumably related to the point I made earlier - that the primary concern here, unless you're an Austrian, is not preserving a particular structure of production).
Nick makes an interesting point at the end about how the Sraffa problem causes trouble if you change your target, and that a lot of the tacit knowledge central bankers amass about one target don't always carry over to others.
Wednesday, June 27, 2012
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Daniel: yep, I think you and I, and JP Koning, and maybe David Glasner too, are on the same page, roughly.
ReplyDeleteBob Murphy, as before, goes up in my estimation. Not because I think he's right (I think he's wrong), but because he says his political and historical enemies are right against Hayek. Gotta hand it to that guy.
Typo in your post, I think. Should be: "...and so you can't just ignore credit expansion or pretend that the different production structure DOES NOT matter."
Thanks for noting the typo.
DeleteBob is indeed a class act.
No Austrian I'm aware of is concerned with a particular structure of production, but the natural structure of production that would arise without coercive interference. Environmentalists don't espouse any particular environmental arrangement, for instance, but rather whatever-the-natural-one-is.
ReplyDeletere: "No Austrian I'm aware of is concerned with a particular structure of production, but the natural structure of production that would arise without coercive interference."
DeleteIs there presumably only one natural structure that would arise at any given point without coercive interference (btw - the hard part is in defining "coercive interference", as usual - but we'll let that be)?
Are there many structures that could arise as a result of interference?
OK, then you want "a particular structure", that structure being "the natural structure of production that would arise without coercive interference".
I didn't just come across this material yesterday, Mattheus.
Rather than the one "natural" structure of production, I would talk about Austrian capital theory as explaining "sustainable" versus "unsustainable" structures of production.
DeleteDaniel, I guess natural structure is sloppy language. It's more of a constellation or arrangement of production. At any moment in time, there is a particular arrangement of production in society, created by time preferences, involved in risk, uncertainty, etc. that exists. When I said natural structure of production, I meant the whole capital structure of the unhampered economy. I used the words coercive interference to mean interference with the voluntary exchange streams of market actors by government or crime.
DeleteOK, then you want "a particular structure"
That's not true. I don't want any particular structure of production or status-quo property rights arrangement. I want whatever structure that comes about from purely free markets. That's a general condition of a structure of production I want, it's not a particular preference for a given one.
Jon, in some sense those are the same things. Structures of production are sustainable only because they are natural. But you're right, it is better to speak in those terms.
re: "I don't want any particular structure of production or status-quo property rights arrangement. I want whatever structure that comes about from purely free markets. "
DeleteRight. What the hell did you think I was saying? That there's some particular arrangement that Austrians just like because...
You seem to be reading way too much into this.
I have gone up in my own estimation, as well. Now apparently I see things that escape even Nick Rowe's perception.
ReplyDeleteDoesn't Keynes talk about "multiple optimal rates of interest", or something along those lines in the General Theory?
ReplyDeleteIf so, what's the difference between that and this?
I don't know - where does he say it?
DeleteWhile this is a belated response, perhaps I might have been reading in between the lines a bit too much, but I think it's in Chapter 17.
ReplyDelete