What's the monetarist criticism of the austrian theory of the business cycle?

Discussion in 'Economics' started by Daal, Nov 27, 2006.

  1. Isn’t the goal of capitalism to maximize growth and freedom? Capitalism is a system, corporations are only profitmaximising parts owned by consumers. Profit is profit monopolistic or not, does it really matter? the amount of labour needed to produce is not affected by the nature of profits. In a free-market every business can be bought with $. Expected return from invested money is what matters.

    In an unregulated economic environment where money is separated from politics by banning forced taxation monopolies can only be protected by being enough competitive to keep competing companies from trying to compete. Further in this environment money is only money, not power to gain more money by paying politicians to regulate, tax (reduction) or subsidize favorably.

    How many different things and services is it possible to produce? I don’t know, but the number is increasing that’s for sure. Is it really reasonable to expect conglomerate corporations to produce more efficient than specialized corporations?

    I think the important question is if it’s possible to finance a powerful enough government to protect democracy, private property and rule of law without taxation. Maybe not today, but to those who don’t thrust human nature why thrust democracy?
     
    #61     Jan 3, 2007
  2. An excellent thread. My sincere compliments to the participants. You have written well-formed, constructively phrased comments.
     
    #62     Jan 3, 2007
  3. achilles28

    achilles28

    A poorly executed anti-trust act doesn’t imply the underlying concept is flawed.

    It just implies the mechanism proscribed to achieve its end are flawed.




    Only when a monopoly threatens to jeopardize continued human innovation or commandeer an undue proportion of the nations absolute GDP, that’s when Anti Trust laws should be used.

    No one cares if J.D. Tycoon corners the market in toilet paper or wing nuts.

    Countless products hold so little development value (or $$$) that a takeover in anyone bears no relevance to the market or the public at large.

    Its when the Big Boys consolidate – like the Standard Oil’s, Turner Broadcasting’s and Citibanks – then there’s a problem.

    When these guys consolidate, they arrest innovation in industries key to human progress, rape customers and accumulate vast fortunes under the direction of a handful of individuals.

    This represents a threat to the political and social stability of the country as a whole.



    They have too? Or they choose to because special interests own Politicians (and the purse strings to their re-election)?


    Yet, entrepreneurs and their dominating incumbents still continue to grow and mature business when the possibility of monopoly is removed or entirely nonexistent.

    Why?

    a) Because owners can still make vast fortunes along the way
    b) Challengers believe in their product – providing an unmet need in the marketplace the incumbent will not.
    c) Human desire to repel an oppressing force.
    d) ???


    Market monopolization isn’t the only motive driving humans to participate in the economy.

    You can’t pigeon-hole the broad spectrum of human desire for the sake of academic simplicity.
     
    #63     Jan 3, 2007
  4. achilles28

    achilles28


    Why not accept minimal consumption tax - say 10%?
     
    #64     Jan 3, 2007
  5. nevadan

    nevadan

    Well, hmmm... Where to begin; perhaps by examples of what is not a free market. What you call a free market still appears to me to be an invitation to plunder, and a closed invitation at that. There existed no mechanism to divest itself of assets when the pure socialist economy of Russia failed, since by definition the state owned all assets and resources, and only at the point of failure would the previously unthinkable action of sale occur. What happened was not a free market but simply theft by those with the ability to do so while hiding behind the pretense of auction. There was no action by government since the government had basically ceased to exist in its previous powers, i.e. they were broke.
    As for as the Johnson County Range Wars, that can hardly be called a free market since it was clearly outside the rule of law and respect for private property. I would classify it as nothing more than a predatory monopoly. Both these examples have one other thing in common, that being the active participation of official corruption.
    So what is a free market? A free market is where a skinny geek, starting out in his fathers garage, can become the richest man in the world. A free market is where one of his strongest competitors can lose market share to the point of losing control of his own company, only to come back several years later with new ideas and once again become a significant player in the industry. A free market is where a corporate giant can presume to control a new industry and fail because of the inability to produce what the consumer demanded and in sufficient quantities to satisfy that demand, eventually abandoning the market to its upstart competitors and leaving an architecture that no one remembers it designed as its lonely legacy to that market . How long has it been since anyone used the term clone to describe a PC? A free market is where a college student can develop a new business model of assembling components to a customers' specs and transacting by way of mail order, eventually becoming a giant in the industry. And all of this without a trace of help from Big Brother the hall monitor. There is an excellent video chronicling the adventures of Gates, Wozniak, Jobs et al entitled (if memory serves) "The Revenge of the Nerds" for those who might want more details on this.
    In a free market, as long as the rule of law and respect for private property rights are observed, the first job of a businessman is to squash his competition. He is quite within his rights to seek this. And in all this messy capitalism some win, sometimes spectacularly while others lose and possibly all. That's life....get used to it. Meanwhile the rest of us benefit greatly from all that winning and losing.
    As far as the big picture view, I have one but is bears no resemblance to the hallucinations you seem to be having. Free markets are the preferred scenario of those who have the choice. This fact is illustrated by one simple test: the Borders Test. The test consists of one simple observation. Given the choice, will people prefer to cross the border into or out of the country in question. It should be quite obvious that any country that erects physical barriers and posts armed guards at the borders has a problem with its population wishing to exit. And given that opportunity where do they prefer to go? To capitalistic countries where they rightly perceive greater liberty and improved economic prospects.
    Since you claim that some combination of socialism and capitalism must be better than free markets, a la western European socialism, I would simply say that they enjoy whatever prosperity they have in spite of their socialist agendas, not because of it. For instance, of the major nations in the area Germany's economy is stronger than France's because Germany has a more conservative banking tradition than France, among other things ( and I don't use the word conservative in any political sense). And isn't it interesting that their neighbors to the east are realizing significantly more prosperity since adopting free market policies.
    None of this is meant to suggest that the United States has much more in the way of free markets either. We are manipulated by a government monopoly that quite literally has a license to print money. Along with the Federal Reserve and a banking cartel it regularly distorts markets by fixing rates and increasing the supply of money to produce some effect deemed necessary by those with a vested interest in the system. It is a trickle down operation of the worst kind. The Federal Reserve authorizes member banks to create money out of thin air and collect interest for producing nothing of value. Those first in line reap the benefits of the new money immediately while all others see a benefit in direct correlation with their place in the chain, but also getting the disadvantage of inflation while they are waiting their turn. The market distortions produced in this process are many, including making long range business planning iffy at best due to uncertainty regarding cost of capital and forcing unwanted choices as an effect of tax planning.
    The upshot of all this is there really is no such thing as a free market, but whatever approximation can be created is superior to central planning.

    (And I admit that describing your views as hallucinations is a bit over the top, but I find your use of "get the point of capitalism yet", "Eventually you will get the big picture" etc. condescending and uncalled for. I prefer civil discourse to sniping and will happily consider your views, and as you can see am quite willing to debate these issues. Perhaps we could keep things at a higher level.)
     
    #65     Jan 3, 2007
  6. Nevadan.

    nice post. Just a couple of things I would like to point out.

    I think the movie you refer to is "pirates of silicon valley". or something like that... not the revenge of the nerds {that´s some cheesy comedy with no historical value}


    What happens when a country decides to stop citizens from another country from entering into their country, by use of tools no different than those used by the USSR. Doesn't a free market require a free labor market?


    I don´t believe that there has ever been such a thing as a free market, just like I dont believe that there has ever been such a thing as perfect competition, or a perfectly monopolistic market. Those are all theoretical constructs, we might attempt to get closer to those theoretical constructs, but they are mirages that keep moving away as we walk towards them.
     
    #66     Jan 3, 2007
  7. nevadan

    nevadan

    Thanks Eusdaiki, you are quite right. A google search produced this link
    http://www.amazon.com/Triumph-Nerds-Robert-X-Cringely/dp/B00006FXQO
    It is Triumph of the Nerds.

    As to your other point, it is an Austrian contention that freedom of movement, including the crossing of borders should be unimpeded. It is an excellent question and very relevant. I haven't studied it enough to have a very strong opinion one way or another.
     
    #67     Jan 3, 2007
  8. 5to12

    5to12

    Austrians confuse the credit cycle with the industrial cycle, which is easy to do since they have become so inter-related. Nevertheless, such conflating is then also to confuse the creation of new value in the direct processes of production (the basis for economic profit and growth) with a simple expansion/contraction of (credit)money, a confusion which moves the entire theory into the realm of circulation, a sphere that no matter how necessary is logically unable to create any new value whatsoever but simply distribute and redistribute that which already is.

    Monetarists (and Keynesians) make essentially the same type of error, which is typical of a static economics divorced from any objective theory of value.

    Neoclassic economics as a whole sufferes from its 19th c. origins in opposition to and as ideology against classical and Marxian political economists, both of which understood labour as the value creating moment, while also differentiating between unproductive and productive labour.
     
    #68     Jan 3, 2007
  9. Yeah... that´s the one... pretty cool movie.

    Speaking of movies with pretty cool nerds, try Hackers 2 Take Down...


    Regarding freedom of migration.

    I studied it in a couple of Micro courses and also in advanced economical mathematics, in several of the equilibrium models we developed we had to asume that workers where able to move from one place to the other without restriction in order for the model to make any sense. Many of this models, like the Euler Theorem are necessary for a free and efficient market to exist. Without free migration what you get is basically an inflated cost of labor, and that leads to an undervalue of capital in production, since you must define production in terms of k and k=K/L.

    Just a thought

    Since production can be measured in terms of money {$} and $ gets inflated too, then we could say that if $ gets inflated {along with k} then the inflation percieved in $ should be similar to the inflation percieved in k. Since, by limitating the migrations we inflate L and deflate K, those agents that represent L {aka, working class} will percieve a much stronger inflation that those that represent K {aka investors}, where the inflatory movement on both sides compensates to lead to the overall inflation rate.
    So if we have an inflation of say, 5%, we could argue that L perceived and inflation {or the loss of income associated to that inflation} higher than 5% and that K perceived an inflation lower than 5%.
    So by closing the border to stop immigrants you are actually hurting your own working class making them subject to a higher inflationary charge. While aiding your bankers by diminishing their inflationary charge.
     
    #69     Jan 3, 2007
  10. Could you care to explain what the industrial cycle is.

    [I understand that the industrial cycle, of growth and depression was created by the expansion and contraction of the aggregated demand that comes from the monetary cycle. ] But I could be wrong of course.
     
    #70     Jan 3, 2007