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Keynes ftw.

Eitan_Zohar
Posts: 2,697
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8/16/2013 1:41:46 PM
Posted: 3 years ago
You won't find any sort of self-criticism, anywhere, on an "Austrian" book or site. It's pretty obvious why they don't know about the criticism of their own theories- they're messianic, and believe that simply criticizing the mundane "broken window" fallacy that people on the street fall for is enough.

Keynes dismisses Mises in two sentences here:

"A peculiar theory of the rate of interest has been propounded by Professor von Mises and adopted from him by Professor Hayek and also, I think, by Professor Robbins; namely, that changes in the rate of interest can be identified with changes in the relative price levels of consumption-goods and capital-goods.[9] It is not clear how this conclusion is reached. But the argument seems to run as follows. By a somewhat drastic simplification the marginal efficiency of capital is taken as measured by the ratio of the supply price of new consumers" goods to the supply price of new producers" goods.[10] This is then identified with the rate of interest. The fact is called to notice that a fall in the rate of interest is favourable to investment. Ergo, a fall in the ratio of the price of consumers" goods to the price of producers" goods is favourable to investment.

By this means a link is established between increased saving by an individual and increased aggregate investment. For it is common ground that increased individual saving will cause a fall in the price of consumers" goods, and, quite possibly, a greater fall than in the price of producers" goods, hence, according to the above reasoning, it means a reduction in the rate of interest which will stimulate investment. But, of course, a lowering of the marginal efficiency of particular capital assets, and hence a lowering of the schedule of the marginal efficiency of capital in general, has exactly the opposite effect to what the argument assumes. For investment is stimulated either by a raising of the schedule of the marginal efficiency or by a lowering of the rate of interest. As a result of confusing the marginal efficiency of capital with the rate of interest, Professor von Mises and is disciples have got their conclusions exactly the wrong way round. "
"It is my ambition to say in ten sentences what others say in a whole book."
Wallstreetatheist
Posts: 7,132
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8/22/2013 11:19:08 PM
Posted: 3 years ago
At 8/16/2013 1:41:46 PM, Eitan_Zohar wrote:
You won't find any sort of self-criticism, anywhere, on an "Austrian" book or site. It's pretty obvious why they don't know about the criticism of their own theories- they're messianic, and believe that simply criticizing the mundane "broken window" fallacy that people on the street fall for is enough.

Keynes dismisses Mises in two paragraphs here:

Post it on mises.org so we can observe the reactions of the faithful.
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Primal Diet. Lifting. Reading. Psychedelics. Cold-Approach Pickup. Music.
Eitan_Zohar
Posts: 2,697
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8/23/2013 8:25:36 AM
Posted: 3 years ago
At 8/22/2013 11:19:08 PM, Wallstreetatheist wrote:
At 8/16/2013 1:41:46 PM, Eitan_Zohar wrote:
You won't find any sort of self-criticism, anywhere, on an "Austrian" book or site. It's pretty obvious why they don't know about the criticism of their own theories- they're messianic, and believe that simply criticizing the mundane "broken window" fallacy that people on the street fall for is enough.

Keynes dismisses Mises in two paragraphs here:

Post it on mises.org so we can observe the reactions of the faithful.

I don't see the forums anymore: http://mises.org...
"It is my ambition to say in ten sentences what others say in a whole book."
slo1
Posts: 4,361
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8/23/2013 9:14:37 AM
Posted: 3 years ago
At 8/16/2013 1:41:46 PM, Eitan_Zohar wrote:
You won't find any sort of self-criticism, anywhere, on an "Austrian" book or site. It's pretty obvious why they don't know about the criticism of their own theories- they're messianic, and believe that simply criticizing the mundane "broken window" fallacy that people on the street fall for is enough.

Keynes dismisses Mises in two sentences here:

"A peculiar theory of the rate of interest has been propounded by Professor von Mises and adopted from him by Professor Hayek and also, I think, by Professor Robbins; namely, that changes in the rate of interest can be identified with changes in the relative price levels of consumption-goods and capital-goods.[9] It is not clear how this conclusion is reached. But the argument seems to run as follows. By a somewhat drastic simplification the marginal efficiency of capital is taken as measured by the ratio of the supply price of new consumers" goods to the supply price of new producers" goods.[10] This is then identified with the rate of interest. The fact is called to notice that a fall in the rate of interest is favourable to investment. Ergo, a fall in the ratio of the price of consumers" goods to the price of producers" goods is favourable to investment.

By this means a link is established between increased saving by an individual and increased aggregate investment. For it is common ground that increased individual saving will cause a fall in the price of consumers" goods, and, quite possibly, a greater fall than in the price of producers" goods, hence, according to the above reasoning, it means a reduction in the rate of interest which will stimulate investment. But, of course, a lowering of the marginal efficiency of particular capital assets, and hence a lowering of the schedule of the marginal efficiency of capital in general, has exactly the opposite effect to what the argument assumes. For investment is stimulated either by a raising of the schedule of the marginal efficiency or by a lowering of the rate of interest. As a result of confusing the marginal efficiency of capital with the rate of interest, Professor von Mises and is disciples have got their conclusions exactly the wrong way round. "


If I read this right. Keynes is saying that the Austrian theory has a contradiction where lower ratio of cost of consumer goods to to producer cost of goods (aka, decrease profit margin) results in lower interest rates which results in increased investment. Is that a proper condensation of the point?

Did Keynes over represent the stated Austrian relationship between the consumer/producer costs ratio and interests rates in his argument?

I thought the Austrian stance was that when the banking interest rates are lower than the natural interest rate (aka cheap credit) this is what causes increased investment which leads to an unsustainable credit expansion and eventual credit bubble?
Wallstreetatheist
Posts: 7,132
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8/23/2013 1:56:38 PM
Posted: 3 years ago
At 8/23/2013 8:25:36 AM, Eitan_Zohar wrote:
I don't see the forums anymore: http://mises.org...

"Thank you for your participation and interest in the Mises Community. This software platform has seen its day, however, and so is now closed. We are redoing our entire site, so look for some exciting developments by the end of the year. Thank you for your support of Austrian economics, liberty, and peace."

Last post in the forums was on May 14th.
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Primal Diet. Lifting. Reading. Psychedelics. Cold-Approach Pickup. Music.