Find counter arguments by entering NameVs… or …VsName.
The author or concept searched is found in the following 14 entries.
| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Interest Rates | Classical Economics | Rothbard III 997 Interest rate/money supply /Rothbard: Equilibrium: It should not be surprising that the market tends to revert to its preferred ratios. The same process (…) takes place in all prices after a change in the money stock. Increased money always begins in one area of the economy, raising prices there, and filters and diffuses eventually over the whole economy, which then roughly returns to an equilibrium pattern conforming to the value of the money. Rothbard III 998 The market therefore reacts to a distortion of the free-market interest rate by proceeding to revert to that very rate. The distortion caused by credit expansion deceives businessmen into believing that more savings are available and causes them to malinvest - to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly – as soon as owners of factors receive their increased incomes and spend them. Market interest rate/money supply/Economic theories/Rothbard: This theory permits us to resolve an age-old controversy among economists: whether an increase in the money supply can Iower the market rate of interest. Rothbard III 998 Mercantilism/Keynesianism: To the mercantilists - and to the Keynesians - it was obvious that an increased money stock permanently Iowered the rate of interest (given the demand for money). Classical economics: To the classicists it was obvious that changes in the money stock could affect only the value of the monetary unit, and not the rate of interest. RothbardVsMercantilism/RothbardVsKeynesianism: The answer is that an increase in the supply of money does Iower the rate of interest when it enters the market as credit expansion, but only temporarily. In the long run (and this long run is not very "long"), the market re-establishes the free-market time-preference interest rate and eliminates the change. In the long run a change in the money stock affects only the value of the monetary unit. >Time preference/Rothbard, >Savings/Rothbard, >Inflation/Rothbard, >Credit expansion/Rothbard. |
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 |
| Interest Rates | Thomas Aquinas | Mause I 30 Interest Rates/Thomas Aquinas: Taking interest rates is generally condemned as a sin. Reason: the value yardstick function of money is impaired by taking interest. (See Money/Thomas). Thomas' theory is normative. BuridanusVsThomas, Nicolaus OresmiusVsThomas/OresmeVsThomas: presented the first non-normative, analytical-descriptive economic treatises. |
Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Interest Rates | Keynes | Rothbard III 790 Interest rates/speculation/Keynes/Rothbard: Uncertainty: A demand for money to hold stems from the general uncertainty of the market. Keynesianism: Keynesians, however, attribute liquidity preference, not to general uncertainty, but to the specific uncertainty of future bond prices. RothbardVs: Surely this is a highly superficial and limiting view. In the first place, this cause of liquidity preference could occur only on a highly imperfect securities market. >Risks/Rothbard. LachmannVsKeynes: As Lachmann pointed out years ago in a neglected article, Keynes' causal pattern - "bearishness" causing "liquidity preference" (demand for cash) and high interest rates - could take place only in the absence of an organized forward orfutures market for securities. If such a market existed, both bears and bulls on the bond market „could express their expectations by forward transactions which do not require any cash. Where the market for securities is fully organized over time, the owner of 4% bonds who fears a rise in the rate of interest has no incentive to exchange them for cash, for he can always "hedge" by selling them forward.“(1) Rothbard III 792 Rothbard: Bearishness would cause a fall in forward bond prices, followed immediately by a fall in spot prices. Thus, speculative bearishness would, of course, cause at least a temporary rise in the rate of interest, but accompanied by no increase in the demand for cash. Hence, any attempted connection between liquidity preference, or demand for cash, and the rate of interest, falls to the ground. >Bonds/Rothbard. Security/interest/RothbardVsKeynes: The fact that such a securities market has not been organized indicates that traders are not nearly as worried about rising interest rates as Keynes believes. Ifthey were and this fear loomed as an important phenomenon, then surely a futures market would have developed in securities. Loans/Rothbard: Furthermore (…) interest rates on Ioans are merely a reflection of price spreads, so that a prediction of higher interest rates really means the expectation of Iower prices and, especially, Iower costs, resulting in a greater demand for money. And all speculation, on the free market, is self-correcting and speeds adjustment, rather than a cause of economic trouble. >Loans/Rothbard. 1. L.M. Lachmann, "Uncertainty and Liquidity Preference," Economica, August, 1937, p. 301. Mause I 56 Interest Rates/Keynes: According to his liquidity preference theory, interest is a monetary phenomenon, not a real one as in Neoclassicism. >Neoclassical economics. Interest rates are therefore mainly determined by money supply and demand - less by real factors such as capital supply and demand. >Money supply, >Demand for money. For this reason, monetary policy can influence real variables (such as the level of investment) via the level of interest rates. On the other hand, as a result of nominal wage rigidity, the money supply and price levels have an impact on the level of real wages and thus on the level of employment. Unlike neoclassicism, Keynes' system cannot see real and monetary aspects of economic activity independently.(1) >Monetary policy, >Keynesianism. 1. Cf. .J. M. Keynes, The general theory of employment, interest and money. London 1936. |
EconKeyn I John Maynard Keynes The Economic Consequences of the Peace New York 1920 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 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Interest Rates | Hayek | Boudreaux II 69 Interest rates/Hayek/Boudreaux: [Context Monetary supply, relative prices, information] (…) if enough new money is created and continually injected into the economy for a long-enough period of time, the prices of automobiles will rise by enough - and stay artificially high for long enough - to cause entrepreneurs and investors to shift some resources out of other industries and into automobile production. >Money supply, >Monetary policy/Hayek, >Relative prices, >Information/Hayek, >Inflation. Boudreaux II 69 Beginning inflation: Automobile producers will be the next in line to spend the newly created money. If automobile producers spend all ofthe additional money they get on, say, clothing, the prices of clothing will be the next to rise. Clothing sellers will, in turn, spend the new money that they get in some particular ways- say, on children's toys and kitchen appliances. The prices of children's toys and kitchen appliances will then rise. Interest rates/Hayek: What's true for distortions in the relative prices of consumer goods (such as automobiles and motorcycles) is true also for distortions in the prices of consumer goods relative to the prices of capital goods (such as bulldozers and skyscrapers). Indeed, Hayek argued that distortions in the prices of capital goods in relation to consumer goods are the chief source of booms and busts. >Capital goods, >Goods, >Investments, >Booms, >Economic cycle. The reason has to do with the central role of one particular set of prices: interest rates. Interest rates: Interest rates reflect people’s “time preference” - that is, their preference for consuming today rather than delaying consumption until tomorrow. The lower is people’s time preference, the more willing they are to delay consumption. >Time preference. And the more willing people are to delay consumption, the more they save. More savings, in turn, mean lower interest rates. (Banks have more money on hand to lend.) The lower are interest rates, the more attractive are long-term investments. >Saving. Boudreaux II 70 Example: (…) a transcontinental railroad that takes ten years to build is a more attractive investment for the potential builder ifthe interest rate is 3 percent than ifit's 10 percent. That's because the amount of interest that must be repaid when the railroad finally starts to operate and generate revenue will be much Iower if the railroad builder borrows funds at an interest rate of 3 percent than at a rate of 10 percent. So although this railroad might not be profitable to build at the higher interest rate, it will perhaps be profitable to build at the Iower interest rate. Information: Low interest rates signal to entrepreneurs that people in general are very willing to forego consuming today so that resources can be used to produce, not MP3 players, hot tubs, and other consumer goods today, but instead steel rails, locomotives, bulldozers, and other capital goods. Consumption: But what if people really don't want to delay their consumption for very long? Information: What if interest rates "lie" - telling entrepreneurs that people are saving more than they really are saving? Business cycles/Hayek: Hayek argued that such a lie plays an especially critical role in business cycles. When the money supply is increased, the new money typically enters the economy through banks - and to Ioan this new money, banks Iower the rates of interest they charge borrowers. Interest rates/Hayek: In Hayek's view, the prices that are most dangerously distorted by expansions ofthe money supply are interest rates. The artificially Iow interest rates prompt entrepreneurs and businesses to borrow too much - that is, to borrow more than people are really saving. Artificially Iow interest rates lead producers to undertake more time-consuming - "longer" - production projects than they would undertake at higher rates of interest. Boudreax II 71 Unfortunately, interest rates are Iower not because people are saving more but only because the creation of new money pushed these rates Iower. In this case, plans to build long-run projects - such as, again, a railroad that takes ten years to complete - will eventually run into trouble. With people saving too little to allow all of the necessary steel rails, workers' barracks, and other capital goods to be produced, the railroad builder in time finds that he cannot complete his project profitably. He must lay off his workers. |
Hayek I Friedrich A. Hayek The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2) Chicago 2007 Boudreaux I Donald J. Boudreaux Randall G. Holcombe The Essential James Buchanan Vancouver: The Fraser Institute 2021 Boudreaux II Donald J. Boudreaux The Essential Hayek Vancouver: Fraser Institute 2014 |
| Interest Rates | Neoclassical Economics | Rothbard III 424 Interest rate/Neoclassical economics/Rothbard: In sum, the neoclassical doctrine maintains that the interest rate, by which is largely meant the producers’ loan market, is co-determined by time preference (which determines the supply of individual savings) and by marginal (value) productivity of investment (which determines the demand for savings by businessmen), which in turn is determined by the rates of return that can be achieved in investments. >Productivity/Rothbard, >Structure of production/Rothbard. But (…) these very rates of return are, in fact, the rate of interest and that their size is determined by time preferences. >Time preference/Rothbard. Rothbard: The neoclassicists are partly right in only one respect - that the rate of interest in the producers’ loan market is dependent on the rates of return on investment. They hardly realize the extent of this dependence, however. It is clear that these rates of return, which will be equalized into one uniform rate, constitute the significant rate of interest in the production structure.(1) 1. For brilliant dissections of various forms of the “productivity” theory of interest (the neoclassical view that investment earns an interest return because capital goods are value-productive), see the following articles by Frank A. Fetter: “The Roundabout Process of the Interest Theory,” Quarterly Journal of Economics, 1902, pp. 163–80, where BöhmBawerk’s highly unfortunate lapse into a productivity theory of interest is refuted; “Interest Theories Old and New,” pp. 68–92, which presents an extensive development of time-preference theory, coupled with a critique of Irving Fisher’s concessions to the productivity doctrine; also see “Capitalization Versus Productivity, Rejoinder,” American Economic Review, 1914, pp. 856–59, and “Davenport’s Competitive Economics,” Journal of Political Economy, 1914, pp. 555–62. Fetter’s only mistake in interest theory was to deny Fisher’s assertion that time preference (or, as Fisher called it, “impatience”) is a universal and necessary fact of human action. For a demonstration of this important truth, see Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 480ff. |
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 |
| Interest Rates | Keynesianism | Rothbard III 787 Interest rates/Keynesianism/Rothbard: A fall in the rate of interest, according to the Keynesians, means that less interest is being earned from bonds, and therefore there is a greater inducement to hold cash. This is correct (as long as we allow ourselves to think in terms of the interest rate as determining instead of being determined), but highly inadequate. Rothbard III 788 RothbardVsKeynes: For if a Iower interest rate "induces" greater cash holdings, it also induces greater consumption, since consumption also becomes more attractive. In fact, one of the grave defects of the liquidity-preference approach is that the Keynesians never think in terms of three "margins" being decided at once. They think only in terms of two at a time. >Liquidity preference/Keynes, >Liquidity preference/Modigliani. Interest/RothbardVsKeynesianism: The rate of interest (…) is determined by time preferences, which also determine the proportions of consumption and investment. To think of the rate of interest as "inducing" more or less saving or hoarding is to misunderstand the problem completely.(1) >Time preference/Rothbard. Time preference: Admitting, then, that time preference determines the proportions of consumption and investment and that the demand for money determines the proportion of income hoarded, does the demand for money play a role in determining the interest rate? Rothbard III 789 Keynesianism: The Keynesians assert that there is a relation between the rate of interest and a "speculative" demand for cash. Should the schedule of the latter rise, the former rises also. RothbardVsKeynesianism: But this is not necessarily true. A greater proportion of funds hoarded can be drawn from three alternative sources: (a) from funds that formerly went into consumption, (b) from funds that went into investment, and (c) from a mixture of both that leaves the old consumption-investment proportion unchanged. Condition (a) will bring about a fall in the rate of interest; condition (b) a rise in the rate of interest, and condition (c) will leave the rate of interest unchanged. Thus hoarding may reflect either a rise, a fall, or no change in the rate of interest, depending on whether time preferences have concomitantly risen, fallen, or remained the same. >Speculative demand/Keynesianism. Rothbard III 789 Speculative demand/interest/Keynesianism/Rothbard: Admitting (…) that time preference determines the proportions of consumption and investment and that the demand for money determines the proportion of income hoarded, does the demand for money play a role in determining the interest rate? >Time preference/Rothbard, >Demand for money/Rothbard. The Keynesians assert that there is a relation between the rate of interest and a "speculative" demand for cash. Should the schedule of the latter rise, the former rises also. RothbardVsKeynesianism: But this is not necessarily true. A greater proportion of funds hoarded can be drawn from three alternative sources: (a) from funds that formerly went into consumption, (b) from funds that went into investment, and (c) from a mixture of both that leaves the old consumption-investment proportion unchanged. Condition (a) will bring about a fall in the rate of interest; condition (b) a rise in the rate of interest, and condition (c) will leave the rate of interest unchanged. Thus hoarding may reflect either a rise, a fall, or no change in the rate of interest, depending on whether time preferences have concomitantly risen, fallen, or remained the same. >Hoarding/Keynesianism. Keynesianism: The Keynesians contend that the speculative demand for cash depends upon and determines the rate of interest in this way: if people expect that the rate of interest will rise in the near future, then their liquidity preference increases to await this rise. Equilibirum theory/Keynes/RothbardVsKeynes: This, however, can hardly be a part of a long-run equilibrium theory, such as Keynes is trying to establish. Speculation: Speculation, by its very nature, disappears in the ERE (Evenly Rotating Economy), and hence no fundamental causal theory can be based upon it. >Evenly Rotating Economy/Rothbard. Interest: Furthermore, what is an interest rate? One grave and fundamental Keynesian error is to persist in regarding the interest rate as a contract rate on Ioans, instead of the price spreads between stages of production. >Production structure/Rothbard. The former (…) is only the reflection of the latter. A strong expectation of a rapid rise in interest rate means a strong expectation of an increase in the price spreads, or rate of net return. Speculation: A fall in prices means that entrepreneurs generally expect that factor prices will fall further in the near future than their selling prices. >Factors of Production, >Factor market, >Structure of production/Rothbard. But it requires no Keynesian labyrinth to explain this phenomenon; all we are confronted with is a situation in which entrepreneurs, expecting that factor prices will soon fall, cease investing and wait for this happy event so that their return will be greater. This is not "liquidity preference," but speculation on price changes. >Liquidity preference/Keynesianism, >Speculation/Rothbard, >Investments/Rothbard, >Demand for money/Keynesianism. Rothbard III 997 Interest rate/money supply /Rothbard: Equilibrium: It should not be surprising that the market tends to revert to its preferred ratios. The same process (…) takes place in all prices after a change in the money stock. Increased money always begins in one area of the economy, raising prices there, and filters and diffuses eventually over the whole economy, which then roughly returns to an equilibrium pattern conforming to the value of the money. Rothbard III 998 The market therefore reacts to a distortion of the free-market interest rate by proceeding to revert to that very rate. The distortion caused by credit expansion deceives businessmen into believing that more savings are available and causes them to malinvest - to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly – as soon as owners of factors receive their increased incomes and spend them. Market interest rate/money supply/Economic theories/Rothbard: This theory permits us to resolve an age-old controversy among economists: whether an increase in the money supply can Iower the market rate of interest. Rothbard III 998 Mercantilism/Keynesianism: To the mercantilists - and to the Keynesians - it was obvious that an increased money stock permanently Iowered the rate of interest (given the demand for money). Classical economics: To the classicists it was obvious that changes in the money stock could affect only the value of the monetary unit, and not the rate of interest. RothbardVsMercantilism/RothbardVsKeynesianism: The answer is that an increase in the supply of money does Iower the rate of interest when it enters the market as credit expansion, but only temporarily. In the long run (and this long run is not very "long"), the market re-establishes the free-market time-preference interest rate and eliminates the change. In the long run a change in the money stock affects only the value of the monetary unit. >Time preference/Rothbard, >Savings/Rothbard, >Inflation/Rothbard, >Credit expansion/Rothbard. 1. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 529-30. Mause I 225 Interest Rates/Keynesianism: In Post-Keynesian models in the tradition of Keynes (1) and Kalecki (2) it is often assumed that interest rates will have little influence on demand for goods in the real economy. In particular, there is skepticism about the interest rate response of investment demand. However, monetary policy is regarded as relevant to distribution policy because it is also assumed to have an influence on long-term interest rates and thus on the income generation of asset owners. >J. M. Keynes, >M. Kalecki, >Economic cycle, >Investment trap, >Monetary policy. 1. J. M. Keynes, The general theory of employment, interest and money. London 1936 2. Michal Kalecki, In Collected works of Michal Kalecki, Hrsg. Jerzy Osyatinski. Oxford 1973. |
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 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Interest Rates | Kalecki | Mause I 225 Interest Rates/Kalecki: In post-Keynesian models in the tradition of Keynes (1) and Kalecki (2) it is often assumed that interest rates will have little influence on demand for goods in the real economy. In particular, there is skepticism about the interest rate response of investment demand. In the so-called investment trap, changes in interest rates have no influence on investment demand. The possibility of a so-called fine-tuning of the economy by monetary policy is therefore viewed with skepticism. Rather, fiscal policy is seen as playing an important role in stabilising economic development. >J.M. Keynes, >M. Kalecki, >Economic cycle, >Investment trap, >Monetary policy. 1. J. M. Keynes, The general theory of employment, interest and money. London 1936 2. Michal Kalecki, In Collected works of Michal Kalecki, Hrsg. Jerzy Osyatinski. Oxford 1973. |
EconKale I Michal Kalecki The political aspects of full employment Oxford 1973 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Interest Rates | Summers | Summers I Interest rates/Inflation targeting/secular stagnation/central bank/Summers/Stansbury: Conventional policy discussions are rooted in the (by now old) New Keynesian tradition of viewing macroeconomic problems as a reflection of frictions that slow convergence to a classical market-clearing equilibrium. The idea is that the combination of low inflation, a declining neutral real interest rate, and an effective lower bound on nominal interest rates may preclude the restoration of full employment. According to this view, anything that can be done to reduce real interest rates is constructive, and with sufficient interest-rate flexibility, secular stagnation can be overcome. With the immediate problem being excessive real rates, looking first to central banks and monetary policies for a solution is natural. The near-universal tendency among central bankers has been to interpret the coincidence of very low real interest rates and nonaccelerating inflation as evidence that the neutral real interest rate has declined and to use conventional monetary policy frameworks with an altered neutral real rate. The share of interest-sensitive durable-goods sectors in GDP has decreased. The importance of target saving effects has grown as interest rates have fallen, while the negative effect of reductions in interest rates on disposable income has increased as government debts have risen. Declining interest rates in the current environment undermine financial intermediaries’ capital position and hence their lending capacity. To take the most ominous case first, with interest-rate reductions having both positive and negative effects on demand, it may be that there is no real interest rate consistent with full resource utilization. Even if interest-rate cuts at all points proximately increase demand, there are substantial grounds for concern if this effect is weak. From a macro perspective, low interest rates promote leverage and asset bubbles by reducing borrowing costs and discount factors, and encouraging investors to reach for yield. Almost every account of the 2008 financial crisis assigns at least some role to the consequences of the very low interest rates that prevailed in the early 2000s. From a micro perspective, low rates undermine financial intermediaries’ health by reducing their profitability, impede the efficient allocation of capital by enabling even the weakest firms to meet debt-service obligations, and may also inhibit competition by favoring incumbent firms. These considerations suggest that reducing interest rates may not be merely insufficient, but actually counterproductive, as a response to secular stagnation. (…) the role of particular frictions and rigidities in underpinning economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand. If reducing rates will be insufficient or counterproductive, central bankers’ ingenuity in loosening monetary policy in an environment of secular stagnation is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means. ((s) For interest policy see also >Neo-Fisher Effect/Uribe.) Summers, Lawrence H. & Anna Stansbury: Whither Central Banking?, in: Project Syndicate (23/08/19), URL: https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08 Counter arguments against Summers and Stansbury: Taylor III Inflation targeting/interest rates/central banking/wages/economics/TaylorVsSummers/TaylorVsStansbury/Lance Taylor: Regarding inflation, both central banks and [Summers and Stansbury] ignore the facts that inflation is a cumulative process driven by conflicting claims to income and wealth and that for the past five decades profits have captured almost all the claims. Consider the real “product wage,” the nominal or money wage divided by a producer price index (PPI) to correct for cost inflation confronting business. Suppose that there is an initial inflation equilibrium (…). The [Summers and Stansbury] proposal to use fiscal policy to stimulate aggregate demand would shift the inflation locus upward (…) with more rapid inflation and a somewhat lower wage share in macro equilibrium (…) along the stable share schedule. In light of the vanishing NAIRU [Non Accelerating Inflation Rate of Unemployment] over the past two decades, it is not clear how strong this upward shift could be. >Inflation targeting/Taylor. Taylor, Lance: Central Bankers, Inflation, and the Next Recession, in: Institute for New Economic Thinking (03/09/19), URL: http://www.ineteconomics.org/perspectives/blog/central-bankers-inflation-and-the-next-recession |
Summers I Lawrence H. Summers Anna Stansbury Whither Central Banking?, in: Project Syndicate (23/08/19), URL: https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08 23.08. 2019 |
| Interest Rates | Stansbury | Summers I 1 Interest rates/Inflation targeting/secular stagnation/central bank/Summers/Stansbury: Conventional policy discussions are rooted in the (by now old) New Keynesian tradition of viewing macroeconomic problems as a reflection of frictions that slow convergence to a classical market-clearing equilibrium. The idea is that the combination of low inflation, a declining neutral real interest rate, and an effective lower bound on nominal interest rates may preclude the restoration of full employment. According to this view, anything that can be done to reduce real interest rates is constructive, and with sufficient interest-rate flexibility, secular stagnation can be overcome. With the immediate problem being excessive real rates, looking first to central banks and monetary policies for a solution is natural. The near-universal tendency among central bankers has been to interpret the coincidence of very low real interest rates and nonaccelerating inflation as evidence that the neutral real interest rate has declined and to use conventional monetary policy frameworks with an altered neutral real rate. The share of interest-sensitive durable-goods sectors in GDP has decreased. The importance of target saving effects has grown as interest rates have fallen, while the negative effect of reductions in interest rates on disposable income has increased as government debts have risen. Declining interest rates in the current environment undermine financial intermediaries’ capital position and hence their lending capacity. To take the most ominous case first, with interest-rate reductions having both positive and negative effects on demand, it may be that there is no real interest rate consistent with full resource utilization. Even if interest-rate cuts at all points proximately increase demand, there are substantial grounds for concern if this effect is weak. From a macro perspective, low interest rates promote leverage and asset bubbles by reducing borrowing costs and discount factors, and encouraging investors to reach for yield. Almost every account of the 2008 financial crisis assigns at least some role to the consequences of the very low interest rates that prevailed in the early 2000s. From a micro perspective, low rates undermine financial intermediaries’ health by reducing their profitability, impede the efficient allocation of capital by enabling even the weakest firms to meet debt-service obligations, and may also inhibit competition by favoring incumbent firms. These considerations suggest that reducing interest rates may not be merely insufficient, but actually counterproductive, as a response to secular stagnation. (…) the role of particular frictions and rigidities in underpinning economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand. If reducing rates will be insufficient or counterproductive, central bankers’ ingenuity in loosening monetary policy in an environment of secular stagnation is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means. ((s) For interest policy see also >Neo-Fisher Effect/Uribe.) Summers, Lawrence H. & Anna Stansbury: Whither Central Banking?, in: Project Syndicate (23/08/19), URL: https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08 |
Summers I Lawrence H. Summers Anna Stansbury Whither Central Banking?, in: Project Syndicate (23/08/19), URL: https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08 23.08. 2019 |
| Interest Rates | Taylor | Taylor III Inflation targeting/interest rates/central banking/Wages/Economics/TaylorVsSummers/TaylorVsStansbury/Lance Taylor: Regarding inflation, both central banks and [Summers and Stansbury] ignore the facts that inflation is a cumulative process driven by conflicting claims to income and wealth and that for the past five decades profits have captured almost all the claims. >Inflation targeting/Summers. Consider the real “product wage,” the nominal or money wage divided by a producer price index (PPI) to correct for cost inflation confronting business. A little algebra (…) shows that the labor or wage share of output, which equals real “unit labor cost,” is equal to the real wage divided by productivity or the output/labor ratio. The profit share equals one minus the wage share. (…) the profit share and growth rates of real wages and productivity have varied over time (…). The growth rate of nominal unit labor cost is the difference between rates of wage and productivity growth. As with the other labor market indicators, cost growth slowed after 2000. To unravel the dynamics, we need a theory of inflation. Around the turn of the 20th century the Swedish economist Knut Wicksell pointed out that inflation is a “cumulative process” involving feedback between price and wage inflation rates. Even after their long decline [it] shows that labor payments still make up 55% of production costs and have to enter inflation accounting. The “real balance effect” (or the “inflation tax” in a dynamic version) says that a jump in the price level will reduce the real value of assets with prices fixed in nominal terms – money is the usual example. Wealth is eroded and households are supposed to save more as a consequence. Along with a wage lag, the real balance effect is the key adjustment mechanism in Milton Friedman’s (1968) “inflation” model which still underlies contemporary monetary policy. “Forced saving” happens when a price jump against a constant money wage reduces real payments to wage-earners. If their capacity to borrow is limited, they have to cut consumption, sliding the demand curve downward. If an expansionary package does drive up the price level, middle class and low income households who rely on wages would be the ones to suffer. Conflict arises because price increases are controlled by business while the money wage is subject to bargaining between business and labor. Both sides seek to manipulate the labor share as a key distributional indicator. In an overall inflationary environment, business can respond immediately to increases in the wage share or output by pushing up the rate of price increase in Phillips curve fashion along the “Inflation” schedule (…). Money wages on the other hand are not immediately indexed to price inflation so that they will follow with a lag. Labor will push for faster wage inflation when the wage share is low. Suppose that there is an initial inflation equilibrium (…). The [Summers and Stansbury] proposal to use fiscal policy to stimulate aggregate demand would shift the inflation locus upward (…) with more rapid inflation and a somewhat lower wage share in macro equilibrium (…) along the stable share schedule. In light of the vanishing NAIRU [Non Accelerating Inflation Rate of Unemployment] over the past two decades, it is not clear how strong this upward shift could be. The way that expansionary policy could pay off in terms of inequality and (possibly) faster inflation would be though an upward movement in the stable share schedule if the labor market tightens, leading to greater bargaining power for labor. The new Keynesian inventors are now the ruling elders of macroeconomics, unlikely to change their minds. (…) [Summers and Stansbury] might remember with Max Planck that science advances one funeral at a time. They are certainly correct in saying that “the role of particular frictions and rigidities in underpinning economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.” (…) many of the correct observations that [Summers and Stansbury] make about the likely ineffectiveness of interest rate changes were raised almost 90 years ago by Keynes’s colleague Piero Sraffa (1932a(1), 1932b(2)) in a controversy with Friedrich von Hayek. Sraffa’s main emphasis was on the inapplicability of a “natural rate” of interest, a point amplified by Keynes in the General Theory. The natural rate, nevertheless, remains a topic of great interest to left-leaning new Keynesians. How they reconcile that idea with the fiscalist Keynesian perspective adoped by [Summers and Stansbury] remains to be seen. >Central banking/Summers. 1. Sraffa, Piero (1932a) “Dr. Hayek on Money and Capital,” Economic Journal, 42: 42-53. 2. Sraffa, Piero (1932b) “Money and Capital: A Rejoinder,” Economic Journal, 42: 249-25. Taylor, Lance: Central Bankers, Inflation, and the Next Recession, in: Institute for New Economic Thinking (03/09/19), URL: http://www.ineteconomics.org/perspectives/blog/central-bankers-inflation-and-the-next-recession |
EconTayl I John Brian Taylor Discretion Versus Policy Rules in Practice 1993 Taylor III Lance Taylor Central Bankers, Inflation, and the Next Recession, in: Institute for New Economic Thinking (03/09/19), URL: http://www.ineteconomics.org/perspectives/blog/central-bankers-inflation-and-the-next-recession 9/3/2019 TaylorB II Barry Taylor "States of Affairs" In Truth and Meaning, G. Evans/J. McDowell Oxford 1976 TaylorCh I Charles Taylor The Language Animal: The Full Shape of the Human Linguistic Capacity Cambridge 2016 |
| Interest Rates | Rothbard | Rothbard III 347 Interest rates/Rothbard: We here assume that the pure capitalists never purchase as a whole a factor that in itself could yield several units of service. They can only hire the services of factors per unit of time. >Factors of production/Rothbard, >Costs of production/Rothbard. E.g., A laborer cannot be bought, then, but his services can be bought over a period of time; i.e., he can be rented or hired. Rothbard III 349 Production/factors of production/investments/Rothbard: In the monetary economy, since money enters into all transactions, the discount of a future good against a present good can, in all cases, be expressed in terms of one good: money. This is so because the money commodity is a present good and because claims to future goods are almost always expressed in terms of future money income. The concept of rate of return is necessary in order for [the producer or investor] to compare different potential investments for different periods of time and involving different sums of money. For any amount of money that he saves, he would like to earn the greatest amount of net return, i.e., the greatest rate of net return. The absolute amount of return has to be reduced to units of time, and this is done by determining the rate per unit of time. Rothbard III 350 Pure interest rate/Evenly rotating economy/Rothbard: [in an evenly rotating economy], there is no entrepreneurial uncertainty, and the rate of net return is the pure exchange ratio between present and future goods. This rate of return is the rate of interest. This pure rate of interest will be uniform for all periods of time and for all lines of production and will remain constant in the evenly rotating economy. >Evenly rotating economy (ERE)/Rothbard. Rothbard III 351 Production: Suppose that at some time the rates of interest earned are not uniform as between several lines of production. If capitalists are generally earning 5 percent interest, and a capitalist is obtaining 7 percent in a particular line, other capitalists will enter this line and bid away the factors of production from him by raising factor prices. Rothbard III 370 Evenly rotating economy (ERE) /Rothbard: (…) in the ERE the interest return on monetary investment (the pure rate of interest) is the same everywhere in the economy, regardless of the type of product or the specific conditions of its production. Not only must the interest rate be uniform for each good; it must be uniform for every stage of every good. For suppose that the interest rate were higher in the higher stages than in the lower stages. Then capitalists would abandon producing in the lower stage, and shift to the higher stage, where the interest return is greater. Interest rate/production: It is important to realize that the interest rate is equal to the rate of price spread in the various stages. Too many writers consider the rate of interest as only the price of loans on the loan market. In reality, (…) the rate of interest pervades all time markets, and the productive loan market is a strictly subsidiary time market of only derivative importance.(1) Duration/time/production: We may now remove our restrictive assumption about the equality of duration of the various stages. (…) suppose that the uniform interest rate in the economy is 5 percent. This is 5 percent for a certain unit period of time, say a year. A production process or investment covering a period of two years will, in equilibrium, then earn 10 percent, the equivalent of 5 percent per year. The same will obtain for a stage of production of any length of time. Thus, irregularity or integration of stages does not hamper the equilibrating process in the slightest. Rothbard III 374 Production: The capitalists’ function is thus a time function, and their income is precisely an income representing the agio of present as compared to future goods. This interest income, then, is not derived from the concrete, heterogeneous capital goods, but from the generalized investment of time.(2) It comes from a willingness to sacrifice present goods for the purchase of future goods (the factor services). Rothbard III 375 Time preference/Rothbard: (…) a good at present is worth more now than its present value as a future good. Because money is the general medium of exchange, for the time market as well as for other markets, money is the present good, and the future goods are present expectations of the future acquisition of money. It follows from the law of time preference that present money is worth more than present expectations of the same amount of future money. In other words, future money (as we may call present expectations of money in the future) will always exchange at a discount compared to present money. This discount on future goods as compared with present goods (or, conversely, the premium commanded by present goods over future goods) is the rate of interest. Rothbard III 388 The time-market schedules of all individuals are aggregated on the market to form market-supply and market-demand schedules for present goods in terms of future goods. The supply schedule will increase with an increase in the rate of interest, and the demand schedule will fall with the higher rates of interest. Aggregating the supply and demand schedules on the time Rothbard III 389 market for all individuals in the market, we obtain (…) [a] demand curve for present goods in terms of the supply of future goods; it slopes rightward as the rate of interest falls. (…) the supply curve of present goods [is indicated] in terms of the demand for future goods; it slopes rightward as the rate of interest increases. The intersection of the two curves determines the equilibrium rate of interest—the rate of interest as it would tend to be in the evenly rotating economy. This pure rate of interest, then, is determined solely by the time preferences of the individuals in the society, and by no other factor.(3) >Evenly Rotating Economy, >Time preference/Rothbard. Rothbard III 405 It seems likely that the demand schedule for present goods by the original productive factors will be highly inelastic in response to changes in the interest rate. With the large base amount, the discounting by various rates of interest will very likely make little difference to the factor-owner.(4) Large changes in the interest rate, which would make an enormous difference to capitalists and determine huge differences in interest income and the profitableness of various lengthy productive processes, would have a negligible effect on the earnings of the owners of the original productive factors. Rothbard III 773 Interest rates/Rothbard: In the determination of the interest rate, we must (…) take account of allocating one's money stock by adding to or subtracting from one's cash balance. A man may allocate his money to consumption, investment, or addition to his cash balance. Time preference: His time preferences govern the proportion which an individual devotes to present and to future goods, i.e., to consumption and to investment. Cash balance: Now suppose a man's demand-for-money schedule increases, and he therefore decides to allocate a proportion of his money income to increasing his cash balance. There is no reason to suppose that this increase affects the consumption/investment proportion at all. Time preference: It could, but if so, it would mean a change in his time preference schedule as well as in his demand for money. >Cash balance/Rothbard. Demand for money: If the demand for money increases, there is no reason why a change in the demandfor money should affect the interest rate one iota. There is no necessity at all for an increase in the demand for money to raise the interest rate, or a decline to Iower it - no more than the opposite. In fact, there is no causal connection between the two; (…). >Demand for money/Rothbard. Rothbard III 997 Interest rate/money supply/Rothbard: Equilibrium: It should not be surprising that the market tends to revert to its preferred ratios. The same process (…) takes place in all prices after a change in the money stock. Increased money always begins in one area of the economy, raising prices there, and filters and diffuses eventually over the whole economy, which then roughly returns to an equilibrium pattern conforming to the value of the money. Rothbard III 998 The market therefore reacts to a distortion ofthe free-market interest rate by proceeding to revert to that very rate. The distortion caused by credit expansion deceives businessmen into believing that more savings are available and causes them to malinvest - to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly – as soon as owners of factors receive their increased incomes and spend them. Market interest rate/money supply/Economic theories/Rothbard: This theory permits us to resolve an age-old controversy among economists: whether an increase in the money supply can Iower the market rate of interest. Rothbard III 998 Mercantilism/Keynesianism: To the mercantilists - and to the Keynesians - it was obvious that an increased money stock permanently Iowered the rate of interest (given the demand for money). Classical economics: To the classicists it was obvious that changes in the money stock could affect only the value of the monetary unit, and not the rate of interest. RothbardVsMercantilism/RothbardVsKeynesianism: The answer is that an increase in the supply of money does Iower the rate of interest when it enters the market as credit expansion, but only temporarily. In the long run (and this long run is not very "long"), the market re-establishes the free-market time-preference interest rate and eliminates the change. In the long run a change in the money stock affects only the value of the monetary unit. >Savings/Rothbard, >Inflation/Rothbard, >Credit expansion/Rothbard. Rothbard III 1002 Interest rate/Rothbard: (…) credit expansion does not necessarily Iower the interest rate below the rate previously recorded; it Iowers the rate below what it would have been in the free market and thus creates distortion and malinvestment. >Business cycle/Rothbard. Market interest rate/purchasing power: Recorded interest rates in the boom will generally rise, in fact, because of the purchasing-power component in the market interest rate. An increase in prices (…) generates a positive purchasing-power component in the natural interest rate, i.e., the rate of return earned by businessmen on the market. >Natural interest rate. Rothbard III 1003 Free market: In the free market this would quickly be reflected in the Ioan rate, which (…) is completely dependent on the natural rate. But a continual influx of circulating credit prevents the Ioan rate from catching up with the natural rate, and thereby generates the business-cycle process.(5) Loans: A further corollary of this bank-created discrepancy between the Ioan rate and the natural rate is that creditors on the Ioan market suffer losses for the benefit of their debtors: the capitalists on the stock market or those who own their own businesses. The latter gain during the boom by the differential between the Ioan rate and the natural rate, while the creditors (apart from banks, which create their own money) lose to the same extent. 1. In the reams of commentary on J.M. Keynes’ General Theory, no one has noticed the very revealing passage in which Keynes criticizes Mises’ discussion of this point. Keynes asserted that Mises’ “peculiar” new theory of interest “confused” the “marginal efficiency of capital” (the net rate of return on an investment) with the rate of interest. The point is that the “marginal efficiency of capital” is indeed the rate of interest! It is a price on the time market. It was precisely this “natural” rate, rather than the loan rate, that had been a central problem of interest theory for many years. The essentials of this doctrine were set forth by Böhm-Bawerk in Capital and Interest and should therefore not have been surprising to Keynes. See John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt, Brace & Co., 1936), pp. 192–93. It is precisely this preoccupation with the relatively unimportant problems of the loan market that constitutes one of the greatest defects of the Keynesian theory of interest. (RothbardVsKeynes). 2. As Böhm-Bawerk declared: Interest . . . may be obtained from any capital, no matter what be the kind of goods of which the capital consists: from goods that are barren as well as from those that are naturally fruitful; from perishable as well as from durable goods; from goods that can be replaced and from goods that cannot be replaced; from money as well as from commodities. (Böhm-Bawerk, Capital and Interest, p. 1) 3. The importance of time preference was first seen by Böhm-Bawerk in his Capital and Interest. The sole importance of time preference has been grasped by extremely few economists, notably by Frank A. Fetter and Ludwig von Mises. See Fetter, Economic Principles, pp. 235-316; idem, “Interest Theories, Old and New,” American Economic Review, March, 1914, pp. 68-92; and Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 476-534. 4. The rate of interest, however, will make a great deal of difference in so far as he is an owner and seller of a durable good. Land is, of course, durable almost by definition - in fact, generally permanent. So far, we have been dealing only with the sale of factor services, i.e., the “hire” or rent” of the factor, and abstracting from the sale or valuation of durable factors, which embody future services. Durable land (…) is “capitalized,” i.e., the value of the factor as a whole is the discounted sum of its future MVP’s ((marginal value product), and there the interest rate will make a significant difference. The price of durable land, however, is irrelevant to the supply schedule of land services in demand for present money. 5. Since Knut Wicksell is one of the fathers of this business-cycle approach, it is important to stress that our usage of "natural rate" differs from his. Wicksell's "natural rate" was akin to our "free-market rate"; our "natural rate" is the rate of return earned by businesses on the existing market without considering Ioan interest. It corresponds to what has been misleadingly called the "normal profit rate," but is actually the basic rate of interest. |
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 |
| Interest Rates | Ellis | Rothbard II 136 Profit/interest/William Ellis/Rothbard: A particularly important contribution (…) was an article by William Ellis ((s) 1800-1881) in the Benthamite Westminster Review for January 1826. In a highly sophisticated analysis of saving and investment, Ellis pointed out that saving is induced by ‘the expectation of greater enjoyment from deferred than immediate consumption’, while, on the other hand, investment is called forth by the expectation of profit. In the course of analysing investment, Ellis, with great perceptiveness, distinguished between profit as a return to risk taking as against interest as a return on savings that may also carry a risk premium. >Time preference. Profit: Particularly interesting was Ellis's pioneering risk theory of profits. ‘The largeness of the profit’, he maintained, ‘must be proportioned to the risk incurred in drawing treasure from the hoard and employing it in production’. He also keenly stressed the importance of a large expected profit for undertaking technological innovation. New technology is ‘untried’ and its introduction must overcome ‘the loss of superseded machinery, the want of skill and practice, in workmen and the uncertainty of the result, all unite in preventing the adoption and application of that which is untried’. >Technology, >Innovation. Chiding previous writers for ignoring innovation and its problems, Ellis pointed out that its difficulties ‘are only conquered... by the prospect of the great additional profit, with which the adopted invention is expected to be accompanied’. |
Ellis W I William Ellis Outlines of Social Economy 1846 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 |
| Interest Rates | Schumpeter | Rothbard III 449 Evenly Rotating economy/interest rates/Schumpeter/Rothbard: (…) Joseph Schumpeter pioneered a theory of interest which holds that the rate of interest will be zero in the evenly rotating economy. >Evenly Rotating Economy (ERE)/Rothbard. RothbardVsSchumpeter: It should be clear (…) why the rate of interest (the pure rate of interest in the ERE) could never be zero. It is determined by individual time preferences, which are all positive. To maintain his position, Schumpeter was forced to assert, as does Frank Knight, that capital maintains itself permanently in the ERE. >Frank H. Knight. If there is no problem of maintenance, then there appears to be no necessity for the payment of interest in order to maintain the capital structure. Rothbard III 450 This view (…) is apparently derived from the static state of J.B. Clark and seems to follow purely by definition, since the value of capital is maintained by definition in the ERE. But this, of course, is no answer whatever; the important question is: How is this constancy maintained? And the only answer can be that it is maintained by the decisions of capitalists induced by a rate of interest return. If the rate of interest paid were zero, complete capital consumption would ensue.(1) The conclusive Mises-Robbins critique of Schumpeter’s theory of the zero rate of interest, which we have tried to present above, has been attacked by two of Schumpeter’s disciples.(2) SchumpeterVsVs: First, they deny that constancy of capital is assumed by definition in Schumpeter’s ERE; instead it is “deduced from the conditions of the system.” What are these conditions? There is, first, the absence of uncertainty concerning the future. This, indeed, would seem to be the condition for any ERE. But Clemence and Doody add: “Neither is there time preference unless we introduce it as a special assumption, in which case it may be either positive or negative as we prefer, and there is nothing further to discuss.” With such a view of time preference, there is indeed nothing to discuss. The whole basis for pure interest, requiring interest payments, is time preference, and if we casually assume that time preference is either nonexistent or has no discernible influence, then it follows very easily that the pure rate of interest is zero. The authors’ “proof” simply consists of ignoring the powerful, universal fact of time preference.(3) 1. See Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 527–29. Also see Lionel Robbins, “On a Certain Ambiguity in the Conception of Stationary Equilibrium” in Richard V. Clemence, ed., Readings in Economic Analysis (Cambridge: Addison-Wesley Press, 1950), I, 176 ff. 2. Richard V. Clemence and Francis S. Doody, The Schumpeterian System (Cambridge: Addison Wesley Press, 1950), pp. 28–30. 3. As has been the case with all theorists who have attempted to deny time preference, Clemence and Doody hastily brush consumers’ loans aside. As Frank A. Fetter pointed out years ago, only time preference can integrate interest on consumers’ as well as on producers’ loans into a single unified explanation. Consumers’ loans are clearly unrelated to “productivity” explanations of interest and are obviously due to time preference. Cf. Clemence and Doody, The Schumpeterian System, p. 29 n. |
EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 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 |
| Interest Rates | Mercantilism | Rothbard III 997 Interest rate/money supply /Rothbard: Equilibrium: It should not be surprising that the market tends to revert to its preferred ratios. The same process (…) takes place in all prices after a change in the money stock. Increased money always begins in one area of the economy, raising prices there, and filters and diffuses eventually over the whole economy, which then roughly returns to an equilibrium pattern conforming to the value of the money. Rothbard III 998 The market therefore reacts to a distortion of the free-market interest rate by proceeding to revert to that very rate. The distortion caused by credit expansion deceives businessmen into believing that more savings are available and causes them to malinvest - to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly – as soon as owners of factors receive their increased incomes and spend them. Market interest rate/money supply/Economic theories/Rothbard: This theory permits us to resolve an age-old controversy among economists: whether an increase in the money supply can Iower the market rate of interest. Rothbard III 998 Mercantilism/Keynesianism: To the mercantilists - and to the Keynesians - it was obvious that an increased money stock permanently Iowered the rate of interest (given the demand for money). Classical economics: To the classicists it was obvious that changes in the money stock could affect only the value of the monetary unit, and not the rate of interest. RothbardVsMercantilism/RothbardVsKeynesianism: The answer is that an increase in the supply of money does Iower the rate of interest when it enters the market as credit expansion, but only temporarily. In the long run (and this long run is not very "long"), the market re-establishes the free-market time-preference interest rate and eliminates the change. In the long run a change in the money stock affects only the value of the monetary unit. >Time preference/Rothbard, >Savings/Rothbard, >Inflation/Rothbard, >Credit expansion/Rothbard. |
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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