Sunday, November 28, 2010

A Refutation of Mosler Economics and Mosler's 7DIF, Part V

The following is Part V in a seven part series, "A Refutation of Mosler Economics and Mosler's 7DIF", which seeks to critically examine the fiscal and monetary policy solutions offered by Warren Mosler [PDF], a former candidate for the US Senate in Connecticut in the 2010 election.

Warren Mosler:
Deadly Innocent Fraud #5:
The trade deficit is an unsustainable imbalance
that takes away jobs and output.
Facts:
Imports are real benefits and exports are real
costs. Trade deficits directly improve our standard of
living. Jobs are lost because taxes are too high for a
given level of government spending, not because of
imports.
As it stands on its face, there is nothing I disagree with here. Let's dig deeper and see if there is anything controversial.

Mosler:
A trade deficit, in fact, increases our real standard of living.
How can it be any other way? So, the higher the trade deficit
the better. The mainstream economists, politicians, and media
all have the trade issue completely backwards. Sad but true.
To further make the point: If, for example, General MacArthur
had proclaimed after World War II that since Japan had lost the
war, they would be required to send the U.S. 2 million cars a year
and get nothing in return, the result would have been a major international uproar about U.S. exploitation of conquered
enemies. We would have been accused of fostering a repeat
of the aftermath of World War I, wherein the allies demanded
reparations from Germany which were presumably so high
and exploitive that they caused World War II. Well, MacArthur
did not order that, yet for over 60 years, Japan has, in fact,
been sending us about 2 million cars per year, and we have
been sending them little or nothing. And, surprisingly, they
think that this means they are winning the “trade war,” and we
think it means that we are losing it. We have the cars, and they
have the bank statement from the Fed showing which account
their dollars are in.
Same with China - they think that they are winning because
they keep our stores full of their products and get nothing in
return, apart from that bank statement from the Fed. And our
leaders agree and think we are losing. This is madness on a
grand scale.
Mosler is right to assert that there is nothing controversial or problematic about receiving something for nothing. This is, in fact, the economic objective of all individuals who routinely try to pay as little as they can for whatever it is they determine they might need. Of course, government is the only actor in the economy (aside from petty private thieves) which ever manages to achieve such an arrangement, something for nothing, on a routine basis. Government simply steals from one person and then grants the property to another. It gives no compensation to its original victims.

And this is the central issue with Mosler's point interpreted more technically. He makes his arguments and assertions in terms of collective entities and aggregate accounting identities but he does so erroneously.

The reality is that "Japan" doesn't send "us" 2 million cars a year. Instead, a Japanese company, such as Toyota, sends individual cars to individual buyers in America. Because the Bank of Japan acts as a settlement house for foreign currency exchange, Toyota's dollar revenue ultimately gets remitted to the Bank of Japan, in return for yen, which Toyota then uses to pay its employees and suppliers who in turn utilize their local currency to secure real goods and services for themselves. The Bank of Japan remits the dollars to the Fed and chooses to keep those balances in US treasuries as savings.

It would be inaccurate to say that the car company Toyota gives cars away to Americans in a quest to accumulate growing US treasury balances, that is to say, that Toyota trades cars for "paper" or nothing. Toyota trades cars to Americans in hopes of acquiring currency which it can eventually exchange for real resources (either in its own country, with yen, or in America or other countries, with their respective local currencies).

The Bank of Japan, then, trades nothing for nothing (yen for dollars, dollars for US treasuries). Meanwhile, Japanese individuals and firms decidedly do trade something for something.

Mosler is correct to state that the "trade deficit" is merely the result of accounting identities related to these transactions. However, he is not correct to imply that aggregate, social entities are trading with one another, such as "China sends X to the US in return for nothing."

Mosler:
I’ve heard it all, and it’s all total nonsense. We are
benefiting IMMENSELY from the trade deficit. The rest of
the world has been sending us hundreds of billions of dollars
worth of real goods and services in excess of what we send to
them. They get to produce and export, and we get to import
and consume. Is this an unsustainable imbalance that we need
to fix? Why would we want to end it? As long as they want to
send us goods and services without demanding any goods and
services in return, why should we not be able to take them?
Again, Mosler is only able to make such an assertion by examining the collective accounting identities of "aggregate" economic activity. When you dig a little deeper to the individual exchanges being made in reality, there are qualitative differences between the various exchanges and these differences are important.

The Chinese government, by manipulating their currency via their dollar peg, is assisting the US government in financing its deficit spending (that is, debt-driven spending). In other words, in terms of real resources, along with the exchanges of private individuals in China and the US making exchanges of real wealth for real wealth, there are some exchanges being made which result in the US government acquiring real wealth in return for promises to pay back the lenders of that real wealth in the future, ostensibly with real wealth. Realize this is necessarily the intent of someone, somewhere along the line because in the absence of coercion, no one would exchange a material something for material nothing unless as an act of charity.

As discussed in previous installments, government expenditure is consumptive, not productive. All government can accomplish by its spending is to redistribute resources from those who would control it following voluntary exchange, to those it has decided to favor by bestowing them with its largess. Anyone who contests this principle is invited to review the following: Government Produces Nothing, Ever. I won't spend time further defending this principle as I have already elaborated on the fact that it logically follows from an understanding that a.) value is subjective, b.) all voluntary exchanges are wealth-enhancing or else they wouldn't be made and all involuntary exchanges are redistributive of existing wealth, at best, which is why they require force to occur. Because the government is in the business of redistributing wealth via involuntary exchanges (taxation), the government's expenditures can not result in a net economic benefit to society in comparison to the arrangements which would've occurred voluntarily on a free market.

Therefore, it is alarming if government debt is growing and it is alarming if the government manages to find a way to fool more and more individuals, through the complicated machinery of the economic and global financial systems, into giving it more and more real resources in exchange for promises to pay back that it has no ability to fruitfully do so without first stealing from someone else. It is wonderful if people really did want to send real resources to individuals in the US with no intent of being given any real resources in return. It is not desirable if the recipient of such charity happens to be the government. That increases the chances that such wealth will ultimately be squandered, to be of no material, productive benefit to future generations.

If Mosler disagrees and believes that government expenditure is equivalent to private expenditure in quality, or that it may even be superior to it in terms of economic benefits, he is again operating off an economic theory whose principles he does not clearly state, in order that his readers might be able to judge the validity of those claims for themselves.

Mosler:
And domestic credit creation - the bank loan - has
funded the Chinese desire to hold a $U.S. deposit at the
bank which we also call savings. Where’s the “foreign
capital?” There isn’t any! The entire notion that the U.S.
is somehow dependent on foreign capital is inapplicable.
Instead, it’s the foreigners who are dependent on our
domestic credit creation process to fund their desire to
save $U.S. financial assets. It’s all a case of domestic credit
funding foreign savings. We are not dependent on foreign
savings for funding anything.
Mosler is continuing a discussion based upon an example whereby a US individual purchases a Chinese car via a loan created by a US bank.

It is interesting and perhaps instructive that Mosler does not examine the dynamics of such a transaction involving a cash payment by the US individual, rather than a credit-based transaction requiring the creation of a new loan. One wonders why Mosler fails to examine the implications of such a potentiality.

Mosler:
Again, it’s our spreadsheet and if they want to save
our dollars, they have to play in our sandbox. And what
options do foreign savers have for their dollar deposits?
They can do nothing, or they can buy other financial
assets from willing sellers or they can buy real goods
and services from willing sellers. And when they do
that at market prices, again, both parties are happy. The
buyers get what they want - real goods and services, other
financial assets, etc. The sellers get what they want - the
dollar deposit. No imbalances are possible. And there is
not even the remotest possibility of U.S. dependency on
foreign capital, as there is no foreign capital involved
anywhere in this process.
Where does the capital come from, then? According to Mosler, it is simply summoned into existence via bank credit-creation and spreadsheets.

This confusion will be treated more concretely in Part VI, which deals directly with the role of savings in investment.

28 comments:

  1. “He makes his arguments and assertions in terms of collective entities and aggregate accounting identities but he does so erroneously.”

    True. It’s called macro economics.

    “Toyota's dollar revenue ultimately gets remitted to the Bank of Japan, in return for yen”

    Exactly. The dollars are useless to Toyota, and are immediately sent back to the US. The dollars ultimately find their back to the Fed as reserves. No dollars have left the US, yet a new car has entered the US.

    “The Chinese government, by manipulating their currency via their dollar peg, is assisting the US government in financing its deficit spending “

    False. The Chinese are not bankers. They do not fund anything. The US does not finance itself with debt like a household. Answer this: if the Chinese truly funded the US government, then why don’t they have input in how the money is spent.? All good bankers know where the money they are lending is going. How come TARP, the Iraq War, and the stimulus was not passed on condition of funding from China? Or contingent on a successful bond auction? It is 100% false to believe the US government funds itself like a household or a corporation.

    “As discussed in previous installments, government expenditure is consumptive”

    False. Government expenditure adds income to the private sector. It’s called double entry accounting and unless you have disproven thousands of years of mathematics, it still holds. Exacty what is the government consuming when it pays out a social security check?

    “All government can accomplish by its spending is to redistribute resources from those who would control it following voluntary exchange, to those it has decided to favor by bestowing them with its largess.”

    Mostly false. Yes government spending redistributes resources. But government spending also regulates aggregate demand, and ultimately inflation/deflation.

    “government's expenditures can not result in a net economic benefit to society in comparison to the arrangements which would've occurred voluntarily on a free market.”

    False. Again, it’s double entry accounting. No way around it.

    “Therefore, it is alarming if government debt is growing and it is alarming if the government manages to find a way to fool more and more individuals, through the complicated machinery of the economic and global financial systems, into giving it more and more real resources in exchange for promises to pay back that it has no ability to fruitfully do so without first stealing from someone else”

    Growing government debt is irrelevant. It is the deficit that matters and the deficit is not a stock, it’s a flow. And nobody is fooled into buying government securities. Government ‘debt’ issuance is nothing more than a monetary operation. If individuals and/or the Chinese wish to participate in a bond auction that is their voluntary choice, but bond issuance is nothing more than a monetary operation soaking up reserves in the banking system. Government securities are not required to fund the government. The US government is not a household.

    “It is interesting and perhaps instructive that Mosler does not examine the dynamics of such a transaction involving a cash payment by the US individual”

    Because it’s irrelevant. The cash will ultimately find its way back into the banking system as reserves, whether the original transaction funded with credit or paid in cash. The cash paid to Toyota ultimate finds it way back into the backing a system. Fyi – nobody uses the barter system anymore.

    ReplyDelete
  2. All very good points AP Lerner. However I would caution you that you are wasting your breath on this blog. I've attempted to engage Mr. Conant in a reasonable discussion of the facts and he is incapable of defending his positions without resorting to ad hominem's and random redefinition of terms. Last I knew, he refused to even debate my rebuttals. In summary, Mr. Conant is not looking for dialogue but rather appears content to erect and dismantle straw men.

    Should you wish to see an exapmle of the level of discourse please refer to the comments section beneath Mr. Conant's first entry in his series of "refutations". Very telling.

    Regards,

    A Banker

    ReplyDelete
  3. I find it very strange that these various Chartalist characters have been commenting on Austrian School blogs in support of their wacky religion without having the faintest familiarity, much less understanding, of basic Austrian concepts, such as subjective value and the problem of economic calculation. Never mind the law of scarcity. Talk about a gang that does not want to engage in a debate.

    When I have pointed out to AP “Hut Tax” Lerner that his ideas come from Georg Friedrich Knapp who was eviscerated by Von Mises in 1917 for failing to even address the concept of "Catallactics", I was told by Dr. Hut Tax that “that essay is irrelevant since it was written in a period of time when the current monetary system did not exist. The rules changed in 70’s. The US left the gold standard.”

    See here and

    here and


    here and


    here.

    In Chartalist-land, there are no humans, no catallactics, no capital structure, no economic calculation and no economic scarcity. Oh, and no morality.

    Mr. Mosler excitingly explains how to “monetize” some oppressed Africans by the British in the 1800s. It’s quite an example of the grisly, immoral nature of the Chartalist mind:

    The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.

    http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf

    When challenged that he has no understanding of Austrian School concepts, AP “Hut Tax” Lerner NEVER responds. Such a debate.

    ReplyDelete
  4. I followed your links and read all the comments. LOL...If that's the Austrian School's Silver Bullet; i.e. if that's the best argument you've got against chartalism than you've got a problem. Looks to me like the chartalists handed you your asses on a silver platter. If those debates were a football game it would have been a 45 to 7 thrashing by the chartalists on your home field!

    ReplyDelete
  5. Anonymous

    Your silly boasting is about as reliable as that of Warren Mosler himself- that is loud and ignorant.

    Check it out- Warren Mosler boasted he built the best performing sportscar available in the USA. While it is not super difficult to build a one-off to achieve huge performance, it is much more difficult to serial produce said car in the thousands and meet Federal mandates. Anyway, a car enthusiast magazine got a copy of a Mosler car and tested it back to back anginst a stock-standard Corvette. The Corvette won the comparison. It was measuarably faster.

    Moral: Boasting is all very well, but you need to have some substance behind it all. Else all you have is..... empty boasting. And that's all you chartalists have got. Lots of loud nothing.

    Sione

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    Replies
    1. Anonymous. You are right about Mosler - look at his common assertions and assumptions, namely the assertion that government shreds tax dollars it collects. Totally absurd and untrue. Taxes collected from the taxpaying public are used for government spending on all of their programs. That difference between income and expenditure is what a what determines the budegt deficit or surplus.

      Another incorrect asertion is that tax puts value into new money. Totally absurd since if that were the case more tax would make more value and 100% tax would make the US dollar infinitely valuable not a percentage of the price of the Euro.
      The whole MMT theory is a joke for instance one part of their platform is to eliminate taxes. Not only that how is that part of their theory reconciled with their assertion that tax makes the dollar worth more so adds value to their dollar? That tax reduction policy would make the dollar worth less. To sum MMT up up one foot doesn't know what the other is doing !!

      Delete
  6. Chartalist L.Randall Wray going "mainstream" in Salon today:

    http://salon.com/a/szSkfAA

    Let us start with honesty about budget deficits and government debt. There is no honest economic argument against running budget deficits when the economy is below full employment. While we can debate about which programs government ought to fund, and at what level, and about who ought to pay taxes, and how much, there is no legitimate concern about the size of the resulting budget deficit or growth of government debt.

    These guys still have no underlying economic theory and seem to have never heard of the law of scarcity or are simply scarcity deniers.

    ReplyDelete
  7. Bob Roddis,

    That's (one of) my points, exactly!

    And nevermind the moral implications of theft.

    "Theft? Not my department, guy, check with the philosophy/legal guys, I just do the numbers and the charts."

    ReplyDelete
  8. Mr. Conant:

    Also, the Chartalists NEVER respond to these two major criticisms and NEVER exhibit the slightest familiarity with the basic Austrian axioms.

    ReplyDelete
  9. Warren “Hut Tax” Mosler finally explains his “economic theory":

    If I just keep saying monetary sovereignty over and over again, the Austrians will eventually see how foolish they are.

    Modern Monetary Theory recognizes that certain people need to be empowered to force others into involuntary exchanges. This is an operational reality.


    http://tinyurl.com/4sgqqw8

    ReplyDelete
  10. Bob Roddis,

    Fascinating. Anyway we can tell if that's the "real" Warren Mosler? I notice there is a "Paul Krugman" on there as well, not to mention the go-to troll, AP Lerner.

    ReplyDelete
  11. Taylor,

    Have you seen Bob Murphy's take on MMT?

    http://blog.mises.org/16854/the-upside-down-world-of-mmt/comment-page-1/#comment-778664

    http://consultingbyrpm.com/blog/2011/05/my-critique-of-mmt.html

    These people are hopeless and helpless. Here's Cullen Roche:

    http://pragcap.com/the-austrians-are-intrigued

    Check out Roche's comments to his own blog post about how "We don’t live in solitude". Amazing.

    ReplyDelete
  12. Hi Bob,

    I love Bob Murphy but after reading that article, I wish Mises were around. I have this odd feeling that whereas Bob tried to be polite, Mises would've just stood up their argument in an impersonal manner and proceeded to eviscerate it.

    I almost forgot that I still had to write up a few more parts in this saga. Hopefully I will find time to do it soon.

    Bob, do you think there's any benefit to trying a Socratic approach with these people (or any others)? I am thinking about just establishing mutual agreement over definitions and base premises, one at a time, and slowly building up to a conclusion which is irrefutable by either side.

    I think that definitions are where people like Daniel Kuehn (barf), Cullen Roche (ick) and Warren Mosler (ugh) find their wiggle room. I believe denying these people wiggle room is the only way to force them to confront the illogic of their own ideas.

    Other than that, I agree, it's hopeless and they're helpless and that's one reason I guess why it hasn't been a huge priority of mine to finish up these posts.

    ReplyDelete
  13. Taylor,

    I think we all have our own style and there's no right or wrong way to approach this. I remain flabbergasted that our opponents still can't comprehend basic concepts like economic calculation.

    Somehow we have to reach average people and help them to understand their natural inclination to believe that common sense prevails in economics. Our opponents are a lost cause.

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  14. I just noticed that Mr. Mosler seems to have answered me in the comments to Bob Murphy's MMT article and claims:

    I had never read or even heard of Lerner, Knapp, Inness, Chartalism, and only knew Keynes by reading his quotes published by others. I ‘created’ what became know as ‘MMT’ entirely independently of prior economic thought. It came from my direct experience in actual monetary operations, much of which is also described in the book.

    http://blog.mises.org/16854/the-upside-down-world-of-mmt/#comment-780135

    ReplyDelete
  15. Bob,

    This is fascinating. It is becoming more and more clear that Mosler and the MMT-theorists are self-admitted economic ignoramuses.

    Mosler really seems to believe he can and did create a specific economic theory based off of empirically observing one specific part of the economy, and that it doesn't matter if his specific theory is challenged or contradicted in any way by economic theory and laws in general.

    It also explains why his theory is so abstract and esoteric-- it's derived from a specific branch of the economy which nowadays relies heavily on abstractions, intangibles and confidence to "work."

    This brings us right back to square one with some of the criticisms I have leveled: that MMT amounts to nothing more than a description of present facts, rather than an elucidation of timeless, unbending economic laws. Mosler and his adherents believe they have found a way to explain "how stuff works" by simply observing THAT it "works", for the time being.

    ReplyDelete
  16. I know I’m beating a dead horse here, but it’s still simply amazing to me that ABSOLUTELY no Keynesian or MMTer has the slightest familiarity with even basic Austrian concepts. And no matter how many times I tell them that or insult them, they appear to have no interest in learning. They do this even as they whine about our supposed influence on restraining new “stimulus”. If we’re so wrong, just refute us already! And you really can’t get them to discuss in detail their Keynesian theories. Everything is about those sector balances.

    This guy in the Murphy comments asked the MMTers some good questions which they failed to answer. Of course.

    http://blog.mises.org/16854/the-upside-down-world-of-mmt/#comment-779785

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  17. Bob,

    You really know how to give the hard sell! Okay, okay, I'll try to find some time to write parts VI and VII...

    In the meantime, I'd just like to see Keynesians/MMTers explain how the involuntary exchanges of the government build wealth when we know that private theft redistributes it and, according to subjective value theory, only voluntary exchanges can possibly build it.

    ReplyDelete
  18. The MMTers originally started out as a really bad joke. But now, in their stupidity and deep deep ignorance, they have gone too far.

    Sounds like the FBI may be concerned about Ron Paul's campaign supporters [ ;) ] or perhaps more generally they are concerned about extreme Libertarians of the Right from a law enforcement perspective.

    This is where ignorance about our modern monetary systems can lead: extremism, threats of violence, and accordingly, surveillance. I'm sure many (but probably not all the "hard cases") of these people would not be driven to this form of anti-social behavior and rebellion if they could see their way into the MMT paradigm and truly reach an understanding of how our monetary system operates.

    It's really a shame, and many so-called "experts" that these people listen to are very much to blame for provoking these heavy handed policies.


    http://mikenormaneconomics.blogspot.com/2012/02/fbi-warns-of-threat-from-anti.html

    Then there is this:

    I believe Rockwell basically doesn't understand how our Treasury and related monetary system operates, he is out of the MMT paradigm for sure and flying blind. This has him in effect "grasping for straws" and leaves him to believe that somehow "doing less is doing more" in what I have come to view as classic Libertarian ignorance really. This overall Libertarian policy of "I can't understand things so let's do nothing" is truly the policy of a moron.

    This ignorance we can see here leads him right into recommending a "do nothing" policy that would largely benefit the same elites he purports to oppose.


    http://mikenormaneconomics.blogspot.com/2012/02/contrast-lew-rockwell-on-rt.html

    Be sure to read the comments too.

    ReplyDelete
  19. Again, you guys are being sincere, I can see the hatred of the government and hatred of the public purpose. It is ironic that people who call taxation a theft, want more of It(higher net taxes than Mosler proposes).
    For some people It is very hard to accept the truth. I remember seeing a youtube video where Alan Greenspan after US credit rating downgrade told the world that US credit rating is not an issue since US can always print money to pay any debt denominated in US dollars. There was a bunch of comments under that video stating that Greenspan was a dumb ass and idiot. Greenspan told people the truth and some of the people clearly coldn't handle the truth.
    Now Mosler has told you the truth and some people cannot handle the truth.
    It is sad in a way that people cannot accept reality. Bob Murphy started talking about people saving coconuts etc.

    ReplyDelete
  20. Bob and Taylor,

    I appreciate that you let it all hang out here @ Part V.

    What's intersting is when you complain about people not understanding Austrian economics.

    Yes, I don't understand Ptolemy's epicycyles either but I'm quite confidant that they're obsolete as scientific theory.

    Besides, according to Wapshott (Keynes vs Hayek) even Milton Friedman was stumped: "I am an enormous admirer of Hayek, but not for his economics. I think 'Prices and Production' was a very flawed book. I think his capital theory book is unreadable."(pg 183)

    One of course can't make this criticism of Keynes' General Theory and how he rigorously treats economic aggregates. So it became the consensus of working economists (and apparently Hayek himself) that his "unreadable book" (The Pure Theory of Capital) never got around to "refuting" Keynes. Who simply said the Austrian theory was a special case of his General Theory.

    And BTW thanks for revealing another deep secret of the Austrian School - that "scarcity" is a law of nature for all time.

    These days one sees mentalists of all stripes, so kudos if you guys can still get paid for this particular hat trick.

    However, I don't appreciate the trance you've managed to place both major parties in.

    Has it ever occurred to you that Austrian economic ideology is a perfect set of trance-blinders that caused the Wall Street Casino operatives to ignore the systemic and FORSEEABLE risk (see below re systems analysis) which did in fact cause the 2008 economic collapse?

    Thus, I like Mr Moesler because he's a trance breaker who's pushed all of your buttons ...

    So you can indeed in all honsety declare victory by denying that operations research/systems analysis/cybernetics (whatever you want to call it) - both top-down (Keynes) and bottom-up (Hayek) - has subsumed "economics".

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    Replies
    1. I’m always amazed at people who are so proud of their deep and profound ignorance. In February 2011, The American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:

      Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.

      http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1

      “Knowledge in society” is the core concept of Austrian School thought. You guys haven’t a clue as to even the subject matter of the Austrian School, but, my goodness, you are just so proud of your ignorance.

      So, go ahead. Call The American Economic Review a fringe publication.

      Delete
  21. Wrong Bob - you're taking to an engineer.

    So believe it or not, I do take Hayek seriously. I'm quite familiar with the implementation of "round-about production" from my experience in the petrochemical industry. What you need to get are the inherent limitations in his core critique of macroeconomics here in 2012:

    "What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses.

    "This, however, is emphatically not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. The reason for this is that the 'data' from which the economic calculus starts are never for the whole society 'given' to a single mind which could work out the implications and can never be so given.

    "The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate 'given' resources—if 'given' is taken to mean given to a single mind which deliberately solves the problem set by these 'data.' It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality."

    Again, this was written BEFORE (1945) the cyber age we now live in. "(O)nly these individuals know" - obsolete. "(N)ot given to anyone in its totality" - again obsolete. First sentence of last quoted paragraph - I can't see how that can be true today.

    I'm simply asking that Austrians take off their blinders (Hayek - "... does not YET* ...") and realize that terabytes of data + artifial intelligence go quite a long way towards resolving Hayek's "single mind" challenge.

    Of course freedom lovers can and should fear the totalitarian implications of such power, (which should be under democratic control), but this threat comes from too-big-too-fail banks who've captured our government - a triumph of collectivism.

    This victory creates a road to serfdom in the actual world we live in, apparently invisible to "conservatives" of today as long as the banksters express as a token their belief in "free markets".

    Speaking of "fringe" - don't really care about that - here's a radical take in a fascinating debate between Alex Jones (defender of Ron Paul) and Webster Tarpley (economic historian) here:

    http://tarpley.net/2012/06/11/ron-paul-son-betray-their-supporters/

    *emphasis added

    ReplyDelete
    Replies
    1. Again, this was written BEFORE (1945) the cyber age we now live in. "(O)nly these individuals know" - obsolete. "(N)ot given to anyone in its totality" - again obsolete. First sentence of last quoted paragraph - I can't see how that can be true today.

      Right. The internet allows us to read everyone else's mind. That's how they knew everyone wanted to see "Rock of Ages" before they made it.

      Delete
    2. Eugene Semon:

      I'm simply asking that Austrians take off their blinders (Hayek - "... does not YET* ...") and realize that terabytes of data + artifial intelligence go quite a long way towards resolving Hayek's "single mind" challenge.

      Hayek's criticism of central planning is weaker than Mises' criticism. You're right, with enough information, a central agency can know what everyone wants.

      But Mises' criticism is much more powerful. Mises argued that central planning, because it abolishes private property, undermines the price system to the extent that central planning replaces private property.

      The information provided by the prices inherent only in the private property system, CANNOT be duplicated or replicated or discovered by central planners in a central planning society. With central planning, prices for the means of production do not exist, and as such, central planners do not have a common denominator with which to compare the value of outputs in relation to the value of inputs used up.

      No cyber age utilized by central planners can ever replace the private property price system.

      You need to take off your blinders and realize that socialism fails not because the central planners lack enough information of people's desires, but rather because this information simply does not exist, as the people themselves communicate their desires via the price system, where subjective values become objective price data.

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  22. Major Freedom, I appreciate your response. But I need your help if I'm going to take off my blinders, as you put it.

    Please explain to me how split-second computerized totally opaque trading (which according to Max Keiser now accounts for 70% of prices in the Stock Market) reflects "the people themselves communicat(ing) their desires via the price system".

    And are we not under a collectivist top down economic nightmare given the financial sector's domination and extraction of wealth from real economies? At least under Bolshevism there was redistribution, one could not charge them with neofeudalism.

    Thus the road to serfdom is a better analogy for today's crisis of freedom. I do think, as alluded to previously, that "central planning" vs freedom is an obsolete dichotomy. Consider Webster Tarpley's point on democratic control of the Fed and the ideas of Minsky: http://www.levyinstitute.org/pubs/wp_543.pdf

    So considering: "No cyber age utilized by central planners can ever replace the private property price system." Check out Catherine Austin Fitts, (not an advocate of replacing "the private property price system"), who disagrees with your phobia re central planners. See:

    http://www.youtube.com/watch?feature=endscreen&v=oUlQ7vElqqo&NR=1

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  23. Bob, perhaps like Patrick Jayne, the mentalist (TV Show), "reading minds" can be simulated by artificial intelligence. I.e., we only have to get close enough. And surely we don't need theory or AI to realize that everyone wants clean water and air, safe drugs and food, and efficient and safe public transportation systems.

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  24. Webster Tarpley, really?

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