The Instigator
Hayek
Con (against)
Tied
0 Points
The Contender
Objectivity
Pro (for)
Tied
0 Points

Keynesian Economics vs Austrian Economics

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Voting Style: Open Point System: 7 Point
Started: 3/17/2014 Category: Economics
Updated: 2 years ago Status: Post Voting Period
Viewed: 1,333 times Debate No: 49303
Debate Rounds (5)
Comments (3)
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Hayek

Con

Keynesian Economics - Pro
Austrian Economics - Con

Terms:
1. All facts and figures must be clearly sourced (not Wikipedia) and should be accessible to all.

2. Round 1 is only for acceptance.

Definitions:

Keynesian Economics - Keynesian economics is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy).

Austrian Economics - The Austrian School is a school of economic thought that is based on the analysis of the purposeful actions of individuals.
Objectivity

Pro

I gracefully accept my opponents challenge and look forward to a stimulating debate.

I would like to add a few points of my own in regards to the BOP.

Most economic systems have to be measured by a mixture of morality and objective success. For example, a nation of 9 million could have a GDP of $2 trillion, but if 2% of the population own 90% of that wealth, can we really say that the nation's economic system is sound? It is my belief that economic success should be measured by 14 categories of well being, these categories can be found here:

http://www.partnershipway.org...

On pages 14-18.

If my economic system (Keynesian) is proven to do a better job of providing people with the things mentioned in the fourteen categories, it is my belief that I have won the debate, this also applies to my opponent.our

Thank you and I look forward your reply.
Debate Round No. 1
Hayek

Con

First of all, it is not for you to judge who has won the debate. It is for the people viewing this debate that get to vote and decide who has won. Although it's not surprising from a Keynesian viewpoint which always looks at economic problems from the top down rather than the bottom up. Speaking of looking at things from the bottom up, it is surely better and morally superior for individuals to be able to run their own lives without being coerced into their decision making by bullying government bureaucrats. All 14 categories you refer to have to be imposed by a higher bureaucracy.

My first point is employment. Man works because he prefers the anticipated result of doing so to the disutility of labour and the psychic income to be derived from leisure. This is standard economics. Employment will increase and wages rise so long as entrepreneurs perceive existing wages as lower than the marginal value product (discounted by time preference which a corresponding increment in the employment of labour can be expected to bring about. On the other hand, unemployment will result and increase so long as a person values the marginal value product attained through self-employment or the satisfactions of leisure more highly than a wage that reflects his labour services' marginal productivity.
In this construction there is simply no logical room for such a thing as "involuntary unemployment". A person is not employed, that is, not working as a hired worker, either because he prefers leisure or because he is self-employed. In either case the person is unemployed voluntarily. But may it not be true that, on the free market, BOTH PARTIES must participate willingly in the exchange, that is, he is seeking work and cannot find a job? But such a contrast raises many problems. For example, I might be seeking a position as a manager of Waitrose, and this employer, for some obscure reason, may refuse to hire me for that post. We could say that I am "involuntarily unemployed", but this would distort any sensible meaning of the term. In any wage agreement, as in any exchange on the free market, BOTH PARTIES must participate willingly in the exchange, that is, both must participate voluntarily. If half of the labour force should take it into heir heads that each of them should be hired as president of Harvard, and each insists on this employment and no other, then indeed half of the labour force minus one person will be permanently and "involuntarily unemployed". But is this as Pro and John Maynard Keynes would say it, " a failure of the free market", or is it a failure of the mental processes and values of these workers? And since this problem is clearly a failure internal to the workers themselves, we must conclude that such unemployment is "voluntary" in the realistic sense that it is the consequence of the internal mental processes and choices of those workers, even though each would "voluntarily" prefer to be manager of Waitrose rather than be without work.
Similarly, and coming closer to the reality of unemployment during depressions, workers might insist on not allowing themselves to be hired at a wage below a certain rate, that is, imposing on themselves a minimum wage below which they will not be hired. This usually happens during business-cycle recessions, when, as Austrian business cycle theory tells us, there is a sudden revelation, at the onset of a depression, that businessmen have been led by inflationary credit expansion, and the consequent drop in interest rates below the free-market level, to make unsound malinvestments. Such investments bid up wage rates and other costs too high, compared to the genuine market willingness to buy those capital goods at a profitable price. The end of, or significant slowdown, in bank credit expansion reveals these malinvestments and causes sudden business losses, leading to a sharp decline in the business' firms' demand for labour, land and raw materials. Generally, the prices of land and materials are free to fall on the market, but often workers allow their wage rates to fall, the sooner will unemployment disappear. Again, we may suppose that I go to my Waitrose employer and insist that I will not be employed unless they raise my salary to "1 million a year. They wish me Godspeed with a "have a nice rest of your life". Am I then "involuntarily" unemployed? Yes, in the sense that I would like to be employed at my present post for "1 million per year and my emplyer refuses to make such a contract. But no, in the sense that I am stubbornly insisting on not continuing employment at less than "1 million a year, I am "voluntarily" unemployed in the surely coherent sense that my unemployment is the result of my own internal mental processes.

Ludwig von Mises (an Austrian Economist) says: "The individual believes that he will find at a later date a remunerative job in his dwelling base and in an occupation which he likes better and for which he has been trained. He seeks to avoid the expenditure and other disadvantages involved in shifting from one occupation to another. There may be special conditions increasing these costs... In all these cases the individual chooses temporary unemployment because he believes that this choice pays better in the long run"

"Unemployment is a phenomenon of a changing economy. The fact that a worker discharged on account of changes occurring in the arrangement of production processes does not instantly take advantage of every opportunity to get another job but waits for a more propitious opportunity... is not an automatic reaction to the changes which have occurred, independent of the will and the choices of the jobseekers concerned, but the effect of their intentional actions. It is speculative, not frictional."

Of course this does not mean that all unemployment is "voluntary" but only that in a free and unhampered market. When the market is subject to the coercion of external intervention, specifically when an external coercive institution, whether a union or a government , imposes wage rates above the market-clearing level, then there will be "involuntary" unemployment, and that unemployment will last so long as the wage rate is held above the marginal productivity of labour in that occupation. An alternative way in which the government may coerce unemployment is to subsidise that unemployment by paying workers to the extent that they are unemployed or as welfare payments. In either case, the net psychic return from employment over leisure is sharply reduced by such a subsidy, and the incentive to accept the proffered market wage is reduced by the same extent. Mises refers to such unemployment as "institutional" unemployment. Thus, involuntary unemployment is only logically possible once the free market economy is fundamentally changed and a person or institution is introduced which can successfully exercise control over resources that he or it has not acquired through voluntary exchange from workers.

Keynes sets out a false theory of employment. Contrary to the Austrian view, he claims that there can be involuntary unemployment on the free market and, further, that a market can reach a stable equilibrium with persistent involuntary unemployment. Finally, in claiming such market failures to be possible, he professes to have uncovered the ultimate economic rationale for interference in the operations of markets by extra market forces. Since the free market is defined in terms of produced private property and the voluntary nature of all interactions between private property owners, it should be clear that what Keynes claims to show is roughly equivalent to a squaring of the circle.
Keynes begins with the false statement that the classical liberal theory assumed "that there is no such thing as involuntary unemployment in the strict sense". In fact, it assumed no such thing. Austrian theory assumes that involuntary unemployment is logically/praxeologically impossible as long as a free market is in operation. That involuntary unemployment, indeed any degree of it can exist in the presence of an extra market institution such as minimum wage laws, has never seriously been doubted. After stating this falsehood, Keynes proceeded to give his definition of involuntary unemployment: "Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relative to the money wage, both the aggregate supply of labour willing to work for the current money wage and the aggregate demand for it at that wage would be greater than the existing volume of employment". In plain and simple English, Keynes is saying that men are involuntarily unemployed if an increase in prices relative to wage rates leads to more employment. Yet such a change in relative prices is logically equivalent to fall in real wage rates; and a fall in real wages can be brought about on the unhampered market by wage earners at any time they so desire simply by accepting lower nominal wage rates, with commodity prices remaining where they are. If workers decide not to do this, there is nothing involuntary in their remaining unemployed. Given their reservation demand for labour, they choose to supply that amount of labour which is actually supplied. Nor would the classification of this situation as voluntary change a bit if, at another time lower wage rates increased the amount of employment. By virtue of logic, such an outcome can be brought about only if, in the meantime, workers have increased their relative evaluation of a given wage rate versus their labour reservation demand (otherwise if change does not occur then employment will decrease instead of increasing).

Sources: Human Action
The General Theory

All 14 categories you refer to have to be imposed by a higher bureaucracy
Objectivity

Pro

Objectivity forfeited this round.
Debate Round No. 2
Hayek

Con

Hayek forfeited this round.
Objectivity

Pro

Objectivity forfeited this round.
Debate Round No. 3
Hayek

Con

Hayek forfeited this round.
Objectivity

Pro

Objectivity forfeited this round.
Debate Round No. 4
Hayek

Con

Hayek forfeited this round.
Objectivity

Pro

Objectivity forfeited this round.
Debate Round No. 5
3 comments have been posted on this debate. Showing 1 through 3 records.
Posted by labarum 2 years ago
labarum
was going to debate you, but I am Austrian school. Sorry.
Posted by Hayek 2 years ago
Hayek
After this debate I'll do a Chicago vs Austrian one =)
Posted by Topkek 2 years ago
Topkek
I was going to debate ya but I'm Chicago school, so no dice.
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