tag:blogger.com,1999:blog-4491040877840120845.post2871161294612948147..comments2024-03-16T17:47:07.792-04:00Comments on Stationary Waves: Sumner Addresses the ConservativesRP Longhttp://www.blogger.com/profile/15028013805248797978noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4491040877840120845.post-37473116261569237812010-11-16T20:25:12.340-05:002010-11-16T20:25:12.340-05:00"What is capital stock?"
-- In the Austr..."What is capital stock?"<br />-- In the Austrian sense, capital stock is the physical means of production.<br /><br />"If higher nominal income leads businesses to invest more, then there are more inventories and machines."<br />-- Yes. If. The Misesean view is that a greater velocity of money does no such thing. (Nominal income as you have defined it is synonymous with velocity of money.)<br /><br />"Obviously the latter can happen without any real change in production, whereas the former indicates more production."<br />-- If you want to talk about increased production, then I think that's a good idea. But most Austrians would never call this "income."<br /><br />"When Monetary policy increases consumption and investment, it doesn't do so at the expense of alternative allocations of the resources. More resources are simply deployed overall."<br />-- Actually, Austrians completely reject this line of reasoning. Mises argued thoroughly and effectively that currency is not neutral. That is, changes in inflation impact different sectors of the economy differently. There are many reasons for this, but one obvious one is that the prices of some goods are more heavily impacted by interest rates, for example. Another important reason is that ordinary people are never the direct recipients of a money supply increase - only select investment banks.<br /><br />"Some of the capacity is obviously malinvestment, but there's no reason that a shift away from those sectors should induce a temporary idling of enormous numbers of workers, offices, and factories that will, once aggregate demand resumes, be employed profitably in voluntary exchanges."<br />-- First of all, the Misesean framework rejects the notion of "aggregate demand." Of what real meaning (like, in the physical world) is the sum total of all money-denominated transactions in an economy? It is largely a meaningless number. What's important is what new goods get produced and how real people employ them for satisfying their wants.<br /><br />Second of all, not all factories, offices, and other such things are perfectly equipped to move from one sector of the economy to the next. Malinvestment is disruptive for this reason. Part of the capital stock must be broken-down and re-designed before it can be re-deployed. This is a deadweight loss. (See also: the broken window fallacy.)RP Longhttps://www.blogger.com/profile/15028013805248797978noreply@blogger.comtag:blogger.com,1999:blog-4491040877840120845.post-60717228134159799592010-11-16T17:25:31.068-05:002010-11-16T17:25:31.068-05:00What is the capital stock? Is it machines and inve...What is the capital stock? Is it machines and inventory? If higher nominal income leads businesses to invest more, then there are more inventories and machines. <br /><br />I don't understand this line:<br />In my line of reasoning, "more goods and services were exchanged for money" is synonymous with "more money changes hands."<br />Obviously the latter can happen without any real change in production, whereas the former indicates more production.<br /><br />I think you have wrongly fixed capacity utilization. The point is there is lots of excess capacity. When Monetary policy increases consumption and investment, it doesn't do so at the expense of alternative allocations of the resources. More resources are simply deployed overall. Some of the capacity is obviously malinvestment, but there's no reason that a shift away from those sectors should induce a temporary idling of enormous numbers of workers, offices, and factories that will, once aggregate demand resumes, be employed profitably in voluntary exchanges.<br /><br />The whole Austrian idea seems pegged on an analogy about gravity or fluid or something: "what comes up must come down!" or "it's just moving water from one end of the pool to the other." That's useful sometimes, and it's very easy to understand, and it gives you kind of a wise, sober feeling to say it, but it doesn't mean the analogy accurately corresponds to reality.Lewisnoreply@blogger.comtag:blogger.com,1999:blog-4491040877840120845.post-53639322096871545802010-11-16T14:45:04.657-05:002010-11-16T14:45:04.657-05:00Lewis -
In my line of reasoning, "more goods...Lewis -<br /><br />In my line of reasoning, "more goods and services were exchanged for money" is synonymous with "more money changes hands." The real crux of the matter is whether or not the total capital stock has increased. If so, the economy is developing. If not, we are consuming our capital on inefficient means of production, and this is malinvestment.<br /><br />Likewise, if a massive influx of printed money falls from a helicopter with no synchronous increase in new capital stock, people will simply spend the money on existing inventories. This, too, is malinvestment and represents a consumption of capital rather than a production of capital.<br /><br />Capital is at the heart of ABCT, and it really is the added dimension that makes Monetarism and Keynesianism look short-sighted to me. Spending is more than just spending. There are real things and people involved. You can't just get money changing hands without some consumption of capital. You can call this real or nominal, but the result is the same: malinvestment of resources in less productive means of production.<br /><br />It is the flood of printed money that causes this market distortion and leads people to malinvest. Unless, as noted above, they see through the ruse and the boom does not occur.RP Longhttps://www.blogger.com/profile/15028013805248797978noreply@blogger.comtag:blogger.com,1999:blog-4491040877840120845.post-22900886146603122002010-11-16T14:27:22.995-05:002010-11-16T14:27:22.995-05:00The way to understand nominal spending vs real spe...The way to understand nominal spending vs real spending is to consider what changes in each mean.<br />A rise in real spending is a way to say more goods and services were exchanged for money. You can measure this by the volume of transaction or hours worked or changes in inventories. <br />A rise in nominal spending is a way to say more money changed hands. The effect is ambiguous. If more money changed hands, and prices stayed the same, then real spending rose. If more money changed hands, and prices rose exactly in proportion, then no real spending rose; there was only inflation.<br />Sumner's point is that if the fed committed to a higher rate of nominal spending tomorrow, whether it be through inflation or higher real growth, then nominal spending would rise today. Since wages and prices chase nominal spending with a lag, then the outcome of today's rise in nominal spending will be more exchanges of goods and services today, ie more real spending and thus lower unemployment.<br />I don't really see why one would assume that any additional transaction made today would be "malinvestment," as long as higher nominal spending really does lie in the future. People are choosing to buy things they think are good. No one forces them to choose certain transactions over others, and they can openly observe monetary policy.Lewisnoreply@blogger.com