As for our conversation, such as it is, you seem to excel at putting in my mouth words I never said and ascribing to me positions I never held. That is, you are carrying on both sides of the “debate.” Now, I see no reason to interfere in a man’s pastimes. If that’s what you want to do, have at it–maximize your utility and all that. I just don’t see any role for myself in your inner monologue. So keep it, and let us know how it all comes out.

Yes, I did give some examples of differences between the branches of economics at the end of my reply. I did not know you wanted me to summarize the points.

(And by the way, Mises deals with action as such. He differentiates the psychological from what human action entails. Fine, disagree. But saying he thought psychological theories explain praxeology is wrong. He did not base his deductions about marginal utility on that. He makes this very clear in his books.)

Actually, we are talking about one right now(!), i.e., the non-neutrality of money. Since, it appears you implicitly assume that money’s value can be fixed, like a price control, by the government. But if peoples’ demand for money changes, the value of that money changes despite what the government wants the money to be fixed to. They are the users of it, recall. Bimetallism never worked, in part, for this reason. If we have a “commodity money,” I can use it just as a “paper money” and use it for nonmonetary tasks as well. It furthermore appears you assume that government fixed money is more stable than alternatives. (Maybe the price of water needs to be fixed, too. Or, for that matter, everything else that changes in supplies and demands.) But is funny that you can say that today’s system has brought about stability versus an “Austrian” system. (Have you seen a chart of the value of the dollar? Have you seen how much of dollar buys today versus what it bought, say, 70 years ago? I think so. And, of course, gold is going more up and down these days. What should one expect in these economic conditions?) Well, I would rather have a very scarce money which expands slowly than one that has no expansionist limitations and which exclusively depends on the good nature of the political class, and one that results in the rising of purchasing power than the lowering thereof. Something, too, that makes the poor investors, in uncertain and risky Wall-Street, something a lot of us do not have the ability to do instead of simply hoarding which can only be done with a commodity money. And, quite potentially, “paper money” can drop to a value that reflects the “worth” of paper and ink. Something scarce—something costly provides protection against this possibility, a possibility that has happened under paper. Also, money is a universal medium of exchange that does not depend on some fixed ratio between it and the goods in the market. It is relative, so to speak, to it. We would not use money otherwise.

You say fractional reserve banking is the result of a commodity money. No, it is the result of making it legal versus illegal. More money, after it is being used, does not result in more exchanges. And so also, growing money on trees this way does not create more wealth. The infinite relative array of exchange ratios reflects money. (And, even if gold’s purchasing power went sky high, people could still switch over to something like silver. This ability also protects people from fraud, abuse, and so on.) Guido Hulsmann argues that things like bimetallism encouraged such things due to artificial deflations. And Jesus Huerta de Soto argues as well that it were views more similar to yours on the economics of money that encouraged these practices.

Let me be free to pick my money and free to make contracts in this money. Let me protect myself and my family from devaluation. You can do the same. I’ll take gold and silver. You take government paper, or whatever. We will get rid of fractional reserve banking and the fed. And we will leave each other alone…

As for Mises, are you quite convinced that his liberalism is unconnected with his libertarianism? I have my doubts on that score. In fact, I think they are just alternate spellings of the same word.

There are no mengerian gold systems. Gold is either a commodity or money, but never both, at least not in the same market. If it is money, its value is always fixed by the state, and hence it is not a commodity. Anybody who is serious about “commodity money” ought to consult a KitCo gold chart and see if they would really like to do business under those circumstances; you would have to read the papers each morning to find out if your dollar will buy a loaf of bread or just a slice.

But I must confess, I owe Menger a great deal, since I speculate in gold markets. I know that there will always be enough Austrian euphoria to push to price up, at which time I sell them some (like today) and enough market realism about a fairly useless metal to push the price back down, at which point I buy it back cheap in anticipation of the next round. As long as there are Austrian investment letters, I’ll keep doing well.

And by the way, gold money and fractional reserve banking are intimately connected in that one always leads to the other. In any expanding economy, there is never enough gold to serve the needs of the expansion. Hence, the goldsmiths learn that they can lend credits against their gold reserves at a multiple of the actual reserves, and these credits can circulate in place of the gold. Letters of credit replace real coins, and this is a near-universal phenomenon. Paper money is far older than the printing press.

And yes, I said that Woods doesn’t know anything about economics. So what. I did not use the terms you accuse me of using.

And I did not ask you to state ALL of the differences that the Austrians have with the neoclassicals, just any of them. You made an assertion that there were many, but won’t tell us even one. Okay.

You might not have directly called Woods “stupid,” but you do state his understanding of economics is very weak and practically nonexistent. I guess one needs a degree in the subject otherwise they are unworthy. How is this charitable? Someone, who is clearly no dummy (and clearly has some real versus “imaginary” [!] skills in economics), disagrees with you and gives lots of reasonable arguments and then you seemingly act almost jerk-like in your review.

Marginal utility does not deny that there is, e.g., non-linear economies of scale. (Does “Man, Economy and State” say this? I guess I have to reread it.) And our different and repetitive actions are not detached from the physical world, anymore than our conceptual understandings of numbers are.

You say that there are no examples of Mengerian gold systems. But this is simply untrue. Money always develops because it has a non-monetary demand. It has never developed as, e.g., pure paper. It is not as if all of a sudden the genius law-maker said that such-in-such is money. A pricing system needs, so to speak, to exist so that people know how to use cardinal-calculating money. If this does not exist, no one would know how to use the money. Later it becomes legal tender. This is how money developed in America and elsewhere. (Why don’t you read, e.g., George Selgin’s work on an historical example in Britain of “private” money? Do you have an historical example of money with a non-monetary demand? Unless I do not understand, this does not seem to make any logical sense.)

Why should I state all of the differences between neoclassicism and Austrianism? There are tons of articles and books on the subject. It would take a very large essay to go through the major differences—and I do not have the time. I think you are very being disingenuous. I don’t want you to prove me right. I want you to prove me wrong. There are lots of differences from its understanding of methodology, mathematical modeling, money, the heterogeneous capital structure, etc. I do not see how the burden of all proof is on me in these matters.

As for normative and positive science, see http://www.frontporchrepublic.com/?p=3298

Marginal utility is a physical principle, Praxeology a psychological one. The two are unrelated. You get marginal utility because in a physical, finite world, all processes become non-linear at some point. Mises simply didn’t understand the term, and thought it had something to do with psychology.

As for the rest, you ask me to prove negatives. If you think there are other substantive differences with neoclassicism, then state them. Don’t ask me to prove your thesis for you. The same applies to Menger. There are no Mengerian gold systems in history. If you think there are, then you provide the example. Again, do not ask me to prove your thesis for you.

And I do find it ironic that a “Catholic Monarchist” becomes such a devoted acolyte of a man who declared himself a product of 1789, of the French revolution, of the declaration of the rights of man. The first acts of this revolution was to kill the Catholic monarchs. Go figure.

But I see its time to post my article, “Can Mises be Baptized?”

Claire incorrectly states that Distributists support the Fed. That is certainly not true of my writings, since I regularly rail against it, nor do I know of any distributist writers that fit her description. Perhaps she will enlighten us as to the identity of this mysterious writer that she has not cited.

But you cannot abolish the Fed without first abolishing FRB; otherwise the supply of money alternates between unlimited and zero, and always at inappropriate times. That is why all countries have a central bank; the economy tends to chaos without it, to gut-wrenching (and business destroying) alterations between inflation and deflation. That’s history.

And then she climbs on the favorite Austrian hobby horse (and their only real difference with neoclassical economics), gold buggery. But gold buggery is as “natural” as any other form of buggery. Of course, she rails against FIAT money (always in caps), which is silly, since all money is fiat money. In line with what your mother told you–and contrary to what Menger said–money does not grow on trees, nor in mines. Money is what Aristotle said it was: a unit of account to relate incommensurable products, answering such questions as “how many shoes equal one house?” It is called “money” (numisma) because it exists not by nature, but by nomos (law or custom).

There aren’t any Mengerian money systems; there never have been and never could be. Menger manages to write a “history” of money without a single historical footnote; he merely fantasizes about what the invention of money must have been if primitive men were all Austrian economists. On such fantases, Austrianism is built.

I prefer science.

Could it perhaps be that in the case of the lost farm, interference in the free market by taxation was what led to the unfortunate expropriation? Rosmini’s ‘Constitution under Social Justice’ decries consumption taxes levied on income that exceeds that needed for survival (p73.) and indeed appeals to right reason for demanding UNEQUAL indirect taxation (as just, whereas random EQUAL levies — as titles of compensation for for public services provided by the state — are unjust since it is *impossible to calculate* [ergo to claim one can calculate such a thing is hubris, the unforgivable sin against the Holy Spirit] a true proportion of the burden (and therein lies the moral hazard behind all ‘distributive’ public welfare). Distributive justice can only be “justly” attained by just means (you cannot do evil that good may come of it) for example, thus loss of the farm may have been the appropriate just means in the following scenario:

“A poor family with many children may consume and thus pay to the state more than stingy grand seigneur who lives alone. Tax should be levied by what comes in and not on what goes out, consumption is what goes out not what comes in.

Thus it is licit to tax profits of a sole proprietor farm in excess of sales taxes levied on the purchasers of the produce of that farm. Proprietorship is not immutable. Transfer of wealth goes up (prosperity) and down (dearth). Fraternal relationships of gratuitousness are the key to understanding “Roman pontiffs .. positions” not a facile reading of a just wage! Mr. Medaille stumbles at this hurdle every time… and I haven’t even begun to address the injustices of centrally-planned US Fed “credit” that (p. 81)

“is greater than that produced by the fortune of citizens, a fictitious credit and thus an immorality and a public calamity. This last type of credit is founded on appearances and cunning, while the government must not favor anything but the truth… therefore the government must… favor… only that credit which is firm and supported by real wealth… if this credit [of a national bank] were to stay hidden from the eyes of the public, its credit would go up in smoke…”

and this from an author writing one and a half centuries ago, prophetic words indeed.
AUDIT THE FED (HR1207 and S601)
but better yet
END THE FED!

which so far Distributists of his ilk have failed to denounce (fractional reserve banking they seem to recognize as evil, but not FIAT money..?)

http://www-stat.wharton.upenn.edu/~steele/Courses/434/434Context/EfficientMarket/AndyLoJPM2004.pdf

I think perhaps having to read such an article, or Soros’s Reflexivity theory, is the equivalent of eating glass for the libertarian conservative wing of the Republican party since regulation by some form of organisation with teeth is part of the cure and government shows up as the front-runner! It will be interesting to see long term how the Republican Party glosses over the Financial Crash with something more convincing than the CRA. Maybe it won’t bother on the reckoning that capturing the regulators is just really a matter of business as usual!

Wall Street announces it is reaching a record payroll this year, $140 Billion and I understand that the panic firings of last fall are now being re-hired at higher salaries than when they were fired.

Finance is our infrastructure now and the Emperors New Clothes our anthem. Checks and Balances are only effective if people have the judgement to observe them. The new generation of technocratic leadership think they can tinker their way out of systemic failure. Ho Ho Ho.

Jason, you correctly identify one of the major problems, the “externalities,” costs of a transaction not included in the price of a product. Loss of the topsoil is certainly a cost of our food system, but is not included in the price. I believe that on inspection, most of the “profits” and “efficiencies” of the current system will be shown to be merely externalities, which is to say, a failure in cost accounting. I believe that 3/4ths of social justice issues are simply proper cost accounting.

Junker, markets are man-made systems, not “natural” ones. Depending, of course, on what you mean by “natural.”

Albert and DW, Until about the 16th century, economics was a colony of philosophy and ethics. Indeed, even physical science was called “natural philosophy” up until Newton’s day. Without being a humane science, bound by ethics and teleology, economics cannot be a science at all. In its current state, it lags astrology in methodological rigor and predictive accuracy.

John W., the concerns you mention are the concerns of real persons, which seem to have no place in the “science,” since to do so would involve them in questions of value and ethics. But of course this stance of “objectivity” is just a cover for an ideology which serves a certain class, one that does not include you and me.

Bruce, the Efficient Market Hypothesis is at the intellectual basis of this meltdown. If the EMH was true, then the Black-Merton-Scholes formulas would also be true, a formula which states that you can eliminate risk from a portfolio using derivatives. Merton and Scholes received the so-called Nobel Prize for their work, but when they tried to apply it in an actual hedge fund (Long Term Capital Management) it collapsed, a clear warning. Greenspan bailed out LTCM, but still endorsed the methods. They became the basis for a quadtrillion (yes, QUADtrillion) in derivatives trading. Actual experience could not alter the mindset, because to question the EMH is to question the whole market edifice.

In the aftermath of the Great Depression of the Thirties elite capitalism took a great hammering. There was substantial regulatory intervention both by government and trade unions and redistribution of wealth actually took place and ownership of productive capital by the few was reduced to a limited degree by dissemination to the many through nationalization. The regulatory intervention, however, ran into trouble because of principal-agent problems in which power was used by government and trade unions in ways detrimental to economic production and the common good. This provided the opportunity in the late Seventies, early Eighties, for Manchester Libertarians such as Margaret Thatcher and Ronald Reagan (influenced by Friedrich Hayek and Milton Friedman) to reintroduce the ideas of market fundamentalism. They were assisted in this over the last thirty years by both Republican and Democratic governments including quasi government regulators like Alan Greenspan.

In the aftermath of the latest depression caused by the Sub-Prime Mortgage and Credit Crash market fundamentalism is again coming under intellectual attack most notably by the highly successful market manipulator George Soros with his concept of Reflexivity or “Self-Feeding Behavior.” Soros argues that the biases of individuals will always enter into market transactions and from time to time cause massive disequilibrium such as the bursting of a “property bubble” and its parent the “super credit bubble” caused by adverse global trading and fiscal and monetary management. For example, in the housing market according to Wikipedia’s article on George Soros:-

“Lenders began to make more money available to more people in the 1990s to buy houses. More people bought houses with this larger amount of money, thus increasing the prices of these houses. Lenders looked at their balance sheets which not only showed that they had made more loans, but that their equity backing the loans—the value of the houses, had gone up (because more money was chasing the same amount of housing, relatively). Thus they lent out more money because their balance sheets looked good, and prices went up more, and they lent more.”

In simple language there cannot always be an optimum working of the markets to achieve equilibrium, or its closely related cousin the Efficient Market Hypothesis, because investor’s objectivity is skewed by their actions. To counteract this situation there needs to be a cybernetic mechanism set up that chokes off investment when it over-heats and cybernetics means “steering” or regulation by somebody! I say “somebody” because Soros warns that government can on occasions also skew the markets. However, my main point is to say that since the purpose of an economy would be rationally defined by most of us as being for the benefit of the common good this does mean a need to regulate to avoid dominance by the few to the gross disadvantage of the many. I can also sum up by saying that Economics has now veered more towards being regarded as a social science than a natural science and today’s Nobel Prize Economics Awards clearly reflect this for the reasons I have outlined. Somehow I think if Adam Smith had been alive today he would have approved. I do not think he would have intended his “Invisible Hand” theory to be regarded with anything other than ambivalence, namely that the left hand (Many) would always have trouble working out what the right hand (Few) should be doing! That is after all our human nature having to be both self and other concerned, dominate or be dominated.

I know that taking the Framers at their word that “We hold these truths to be self evident that all men were created equal……” is perhaps a bit hasty and that there was no official groundbreaking for the edifice but what might you be asserting?

By the way D.W. Sabin, not only was the US not founded upon the proposition of equality, it was not “founded.”