Keynes versus Hayek Rap Video

[Havet]

This one is for the lulz

Economists Keynes and Hayek each explaining the core fundementals of their theories about boom and bust cycles in a rapper manner.

http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded

Any Keynesians or Hayekians wanna comment further on this? Olaf, what do you make of the video?

[Skooma Addict]

That was a pretty sweet video, and it was of surprisingly good quality. Not only that, but it actually gave a pretty impressive introduction to ABCT.

[Havet]

That was a pretty sweet video, and it was of surprisingly good quality. Not only that, but it actually gave a pretty impressive introduction to ABCT.

By the way, how would you respond to the criticisms that the ABCT does not explain the existence of business cycles prior to the establishment of the Federal Reserve in 1913 (eg: panic of 1873, crash of 1869, 1882, 1896, 1901 and 1907), wherein there was no central bank or national monetary policy in the U.S.A ?

[Skooma Addict]

By the way, how would you respond to the criticisms that the ABCT does not explain the existence of business cycles prior to the establishment of the Federal Reserve in 1913 (eg: panic of 1873, crash of 1869, 1882, 1896, 1901 and 1907), wherein there was no central bank or national monetary policy in the U.S.A ?

Well a federal reserve is not required for the business cycle to occur. However there was most definitely monetary policy long before the FED. I can't go through every single event you listed individually, but as for 1873...

Orthodox economic historians have long complained about
the “great depression” that is supposed to have struck the

United States in the panic of 1873 and lasted for an unprecedented

six years, until 1879. Much of this stagnation is supposed

to have been caused by a monetary contraction leading to

the resumption of specie payments in 1879. Yet what sort of

“depression” is it which saw an extraordinarily large expansion

of industry, of railroads, of physical output, of net national

product, or real per capita income? As Friedman and Schwartz

admit, the decade from 1869 to 1879 saw a 3-percent-perannum

increase in money national product, an outstanding

real national product growth of 6.8 percent per year in this

period, and a phenomenal rise of 4.5 percent per year in real

product per capita. Even the alleged “monetary contraction”

never took place, the money supply increasing by 2.7 percent

per year in this period. From 1873 through 1878, before

another spurt of monetary expansion, the total supply of bank

money rose from $1.964 billion to $2.221 billion—a rise of 13.1

percent or 2.6 percent per year. In short, a modest but definite

rise, and scarcely a contraction.

It should be clear, then, that the “great depression” of the 1870s
is merely a myth—a myth brought about by misinterpretation of

the fact that prices in general fell sharply during the entire

period. Indeed they fell from the end of the Civil War until 1879.

Friedman and Schwartz estimated that prices in general fell

from 1869 to 1879 by 3.8 percent per annum. Unfortunately,

most historians and economists are conditioned to believe that

steadily and sharply falling prices
must

result in depression:

hence their amazement at the obvious prosperity and economic

growth during this era. For they have overlooked the fact that

in the natural course of events, when government and the banking

system do not increase the money supply very rapidly, freemarket

capitalism will result in an increase of production and

economic growth so great as to swamp the increase of money

supply. Prices will fall, and the consequences will be not depression

or stagnation, but prosperity (since costs are falling, too)

economic growth, and the spread of the increased living standard
to all the consumers.

I am not sure if I fully agree with Rothbard here, but it is something interesting.

[Havet]

Well a federal reserve is not required for the business cycle to occur. However there was most definitely monetary policy long before the FED. I can't go through every single event you listed individually, but as for 1873...

Orthodox economic historians have long complained about
the “great depression” that is supposed to have struck the

United States in the panic of 1873 and lasted for an unprecedented

six years, until 1879. Much of this stagnation is supposed

to have been caused by a monetary contraction leading to

the resumption of specie payments in 1879. Yet what sort of

“depression” is it which saw an extraordinarily large expansion

of industry, of railroads, of physical output, of net national

product, or real per capita income? As Friedman and Schwartz

admit, the decade from 1869 to 1879 saw a 3-percent-perannum

increase in money national product, an outstanding

real national product growth of 6.8 percent per year in this

period, and a phenomenal rise of 4.5 percent per year in real

product per capita. Even the alleged “monetary contraction”

never took place, the money supply increasing by 2.7 percent

per year in this period. From 1873 through 1878, before

another spurt of monetary expansion, the total supply of bank

money rose from $1.964 billion to $2.221 billion—a rise of 13.1

percent or 2.6 percent per year. In short, a modest but definite

rise, and scarcely a contraction.

It should be clear, then, that the “great depression” of the 1870s
is merely a myth—a myth brought about by misinterpretation of

the fact that prices in general fell sharply during the entire

period. Indeed they fell from the end of the Civil War until 1879.

Friedman and Schwartz estimated that prices in general fell

from 1869 to 1879 by 3.8 percent per annum. Unfortunately,

most historians and economists are conditioned to believe that

steadily and sharply falling prices
must

result in depression:

hence their amazement at the obvious prosperity and economic

growth during this era. For they have overlooked the fact that

in the natural course of events, when government and the banking

system do not increase the money supply very rapidly, freemarket

capitalism will result in an increase of production and

economic growth so great as to swamp the increase of money

supply. Prices will fall, and the consequences will be not depression

or stagnation, but prosperity (since costs are falling, too)

economic growth, and the spread of the increased living standard
to all the consumers.

I am not sure if I fully agree with Rothbard here, but it is something interesting.

Could you link me to where he said this? I'd like to take a look at the sources of this historical data.

[Skooma Addict]

http://mises.org/books/historyofmoney.pdf

Unfortunately I am not sure where exactly in the 510 pages the quote I mentioned is from. Ill tell you if I find it though.

[Havet]

http://mises.org/books/historyofmoney.pdf

Unfortunately I am not sure where exactly in the 510 pages the quote I mentioned is from. Ill tell you if I find it though.


I can save you some trouble; i think i found it:

Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the
United States, 1867–1960 (New York: National Bureau of Economic
Research, 1963), pp. 33–44. On totals of bank money, see Historical
Statistics, pp. 624–25.

[IcarusAngel]

A critique of the Austrian school of economics. Invalid assumptions, failed methodology, etc.
2P_Yq1AIDjM

A critique of the Austrian school of economics, the scientific method:
rMn2R5txO28

[Skooma Addict]

The fist video is terrible, and it is plagued with misrepresentations of both neoclassical and Austrian economists. Even if the information in the video were correct (which it isn't), there is still no critique to be found in it.

For starters, the creator takes beliefs held by individuals who adhere to Austrian economics which are completely unrelated to economics, and then subscribes these beliefs to Austrians as a whole. So all of these can be rejected on the spot.

The creator proves his ignorance when he claims that Austrian economics and Neoclassical economics completely oppose eachother. They do not. They are in fact very similar. Overall, terrible video.

The second video is painful to listen to as it appears it was created for 3rd graders. It is just as bad. The creator ought to read this.

http://www.peterleeson.com/Was_Mises_Right.pdf

[Zanthorus]

Steve Keen on the weakness of ABCT:


...while they believe that the money supply should be determined endogenously... they argue that the current stystem of state money means that the money supply is entirely exogenous and under the control of the state authorities. They then attribute much of the cyclical behaviour of the economy to government meddling with the money supply and the rate of interest.

The Post-Keynesian schoool...argues that though it may appear that the state controls the money supply, the complex chain of causation in the finance sector actually works backwards. Rather than the state directlly controlling the money supply via it's control over the issue of new currency, private banks and other credit-generating institutions largely foce the state's hand. Thus the money supply is largely endogenously determined by the market economy, rather than imposed upon it exogenously.

...Statistical evidence about the leads and lags between the state-determined compnent of money supply and broad credit show that the latter 'leads' to the former (Kydland and Prescott 1990). If the Austrians were correct, state money creation would instead precede private credit creation.

[IcarusAngel]

How much math is required to read Debunking Economics? I've known of that book for years and have always wanted to read it. Keep in mind though that I don't have much practice with economics' calculations and NOTATION, outside of a few examples in calculus.

I remember Trystan posting some really interesting data from Debunking Economics but I'm too lazy to find it right now.

[Zanthorus]

How much math is required to read Debunking Economics? I've known of that book for years and have always wanted to read it. Keep in mind though that I don't have much practice with economics' calculations and NOTATION, outside of a few examples in calculus.

I remember Trystan posting some really interesting data from Debunking Economics but I'm too lazy to find it right now.

You don't really need to know any maths to read through the book. Most of the analysis is a combination of writing and some basic tables and diagrams. There's some more mathematically complex material on his website though.

[REVLEFT'S BIEGGST MATSER TROL]

How much math is required to read Debunking Economics? I've known of that book for years and have always wanted to read it. Keep in mind though that I don't have much practice with economics' calculations and NOTATION, outside of a few examples in calculus.

I remember Trystan posting some really interesting data from Debunking Economics but I'm too lazy to find it right now.

You should definitely get it, right away.

You'll adore it, going by your posts here.

[Qwerty Dvorak]

By the way, how would you respond to the criticisms that the ABCT does not explain the existence of business cycles prior to the establishment of the Federal Reserve in 1913 (eg: panic of 1873, crash of 1869, 1882, 1896, 1901 and 1907), wherein there was no central bank or national monetary policy in the U.S.A ?
I'm no expert on economics but speaking in general terms, surely monetary policy would have been possible, in theory at least, at least since the emergence of fractional reserve banking, because by regulating reserves you regulate money flow. Fractional reserve banking has been around since (it is estimated) approximately 1750. The legal basis for it goes back at least to 1811. My understanding is that the Fed was created in response to the crises brought about by fractional reserve banking, not vice versa.

[Bud Struggle]

Here Hayek was right on the money:



The place you should study isn’t the bust
It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key.
Malinvestments wreck the economy
The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it’s just inflation that’s driving the ones
Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too
And the grasping for resources reveals there’s too few
So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact
Now its devalued capital that makes up the slack.

(And the blonde was really cute.)

[Left-Reasoning]

That new money is confused for real loanable funds

The one thing that has bothered me about the ABCT is that rational expectations theory would seem to refute this. But I have heard that it can be set up as a prisoner's dilemma.