Economics Dictionary of ArgumentsHome
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| Evenly rotating economy: An evenly rotating economy in economics is a hypothetical concept where all variables, such as prices, wages, and output, remain constant over time. There is no uncertainty, innovation, or change in the market. This idealized model is used to simplify analysis by assuming a static economic environment, often to contrast with real-world dynamic economies. See also Fictions, As if, Measurements, Economy._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Evenly Rotating Economy - Dictionary of Arguments
Rothbard III 322 Evenly Rotating Economy/Mises/Rothbard: (…) while a final equilibrium is the goal toward which the economy is moving at any particular time, changes in the data alter this position and therefore shift the direction of movement. Ethics/economy/equilibirum/Rothbard: Therefore, there is nothing in a dynamic world that is ethically better about a final equilibrium position. As a matter of fact, since wants are unsatisfied (otherwise there would be no action), such a position of no change would be most unfortunate, since it would imply that no further want-satisfaction would be possible. Furthermore, we must remember that a final equilibrium situation tends to be, though it can never actually be, the result of market activity, and not the condition of such activity. Cf. >As if/Philosophy. RothbardVsTradition: Far too many writers, for example, discerning that in the evenly rotating economy entrepreneurial profits and losses would all be zero, have somehow concluded that this must be the condition for any legitimate activity on the market. There could hardly be a greater misconception of the market or a greater abuse of the equilibrium concept. Rothbard III 328 Money/cash balance/Rothbard: Money is demanded and held only because it gives greater assurance of finding a market and because o fthe uncertainties of the person's demands in the near future. If everyone, for example, knew his spending precisely over his entire future - and this would be known under the evenly rotating system - there would be no point in his keeping a cash balance of money. It would be invested so that money would be returned in precisely the needed amounts on the day of expenditure. But if no one wishes to hold money, there will be no money and no system of money prices. The entire monetary market would break down. Thus, the evenly rotating economy is unrealistic, for it cannot actually be established and we cannot even conceive consistently of its establishment. But the idea of the evenly rotating economy is indispensable in analyzing the real economy; through hypothesizing a world where all change has worked itself out, we can analyze the directions of actual change. Rothbard III 348 Entrepreneurship: In an evenly rotating economy, where all the market actions are repeated in an endless round and there is therefore no uncertainty, entrepreneurship disappears. There is no uncertain future to be anticipated and about which forecasts are made. Rothbard III 354 Costs: If, for the moment, we include as money costs factor payments and interest(1), then in the Evenly Rotating Economy (ERE)., money costs equal total money sales for every firm in every line of production. A firm earns entrepreneurial profits when its return is more than interest, suffers entrepreneurial losses when its return is less. In our production process, consumers will pay 100 ounces (money sales), and money costs are 100 ounces (factor plus interest income) and there will be similar equality for all other goods and processes. What this means, in essence, is that there are no entrepreneurial profits or losses in the ERE, because there is no change of data or uncertainty about possible change. If total money sales equal total money costs, then it evidently follows that total money sales per unit sold will equal total money costs per unit sold. This follows from elementary rules of arithmetic. But the money sales per unit are equal to the money price of the good, by definition; while we shall call the total money costs per unit the average money cost of the good. It likewise follows, therefore, that price will equal average money cost for every good in the Evenly Rotating Economy (ERE). >Costs of production/Rothbard. Rothbard III 509 Evenly Rotating Economy/Rothbard: In the evenly rotating economy, there are only two ultimate categories of producers’ prices and incomes: interest (uniform throughout the economy), and “wages” - the prices of the services of various labor factors. In a changing economy, however, wage rates and the interest rate are not the only elements that can change. Another category of both positive and negative income appears: entrepreneurial profit and loss. >Entrepreneurship/Rothbard, >Capitalism/Rothbard, >Gain and Loss/Rothbard. Dynamic world: The difference in the dynamic, real world is this. None of these future values or events is known; all must be estimated, guessed at, by the capitalists. Rothbard III 766 Demand for money/Evenly Rotating Economy/Rothbard: Suppose the ERE has been established. In such a world of certainty, there would be no risk of loss in investment and no need to keep cash balances on hand in case an emergency for consumer spending should arise. Everyone would therefore allocate his money stock fully, to the purchase of either present goods or future goods, in accordance with his time preferences. No one would keep his money idle in a cash balance. Rothbard III 767 Money, in short, would either be useless or very nearly so in the world of certainty. >Money supply/Rothbard, >Demand for money/Rothbard, >Money/Rothbard. 1. For interest may be an opportunity cost for an individual investor, but it is not a money cost, nor is it an opportunity cost for the aggregate of capitalists. For the implications of this widely held error in economic literature, see André Gabor and I.F. Pearce, “The Place of Money Capital in the Theory of Production,” Quarterly Journal of Economics, November, 1958, pp. 537–57; and Gabor and Pearce, “A New Approach to the Theory of the Firm,” Oxford Economic Papers, October, 1952, pp. 252–65._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Evenly Rotating Economy
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