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Here we have Keynes, then: the twentieth century’s most famous “economist.” Out of false theories of employment, money, and interest, he has distilled a fantastically wrong theory of capitalism and of a socialist paradise erected out of paper money. Moreover, Keynes has offered no theory of stagnation at all (and with this, of course, no theory of how to get out of stagnation either). He has merely given a perfectly normal phenomenon, such as falling prices (caused by an increased demand for money or by an expanding productive economy), a bad name in calling it “stagnation,” or “depression,” or the result of a lack of effective demand, so as to find another excuse for his own inflationary schemes. FULL ARTICLE
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This essay is included in Hoppes’s Economics and Ethics of Private Property, which complements his Democracy the God that Failed very nicely. Excellent essay, which alongside Hazlitt’s Failure of Keynesian Economics thoroughly discredits Keynes and his nonsensical diatribes.
I wonder how long it will take for strict Austrianism to ‘catch on’ in the general economics profession in much the same way that Marxism and later Keynesianism (and arguably Monetarism later) did. The sooner we have a steady supply of Austrians in Ivy Leagues, major economic journals, newspapers, etc., the better. The less Krugmans, and the more Hoppes in the world, the better.
Sorry, in the above, Hazlitt’s book is “Failure of the New Economics.”
Even though I have read this twice before, it still startles me with its clarity. A must read for anyone with an interest in economics.
Michael Woods,
“The sooner we have a steady supply of Austrians in Ivy Leagues, major economic journals, newspapers, etc., the better.”
Indeed, especially with the collapse of what Keynes wrought all but upon us:
http://www.abc.net.au/worldtoday/content/2005/s1446716.htm
A wonderful essay, and in reading it I couldn’t help but think of the actions of the British government/Bank of England over the last few years (and possibly further). I get the distinct impression the UK is one great big experiment in Keynesian ecomonics and probably has been for some time.
Even though I have read this twice before, it still startles me with its clarity.
Devotees of Hoppe’s corpus of work have come to expect nothing less.
“… produced factors of production. These goods have no value except as intermediate products in the process of turning out final (consumer) goods later.”
This is an overstatement and oversimplification that I feel could have unfortunate consequences on downstream analysis. Virtually all capital goods are potential consumption goods, while all consumption goods are subject to becoming capital goods depending on how they are applied/extinguished. For now, I’ll desist from citing examples (they’re as easy to think of as they are common).
The preallocation of some consumption goods to capital uses and vice-versa tends in many cases to be nominal, depending on who owns them, where they are located, and the economic outlook at the moment of observation.
Suffice it to say, capital goods are those goods whose expected or planned use in capital formation appears at the moment of observation to be of higher present value than prospective uses of those same goods in direct consumption. This badly lacks the sweep and clarity of the earlier formulation, but it entails nuances that can be critical at times of change in the surrounding economic data.
N. Joseph Potts’ point seems to be the
observation that there is a gray area separating
pure consumption goods from pure capital goods,
and he tweaks Hoppe for allegedly failing to
appreciate this point in his strongly phrased
exposition. But Hoppe’s point, of course, is
that we understand or classify actually existing
goods only by reference to categories such as
consumption or time preference, and that no
appeal to empirical contingencies can change
this fact, much less overturn (praxeological)
economic science based on such categories, a la
Keynesianism.
Doubtless any physical object can be consumed to
some extent, or applied in production to some
extent. It always remains the case, however,
that an object can be incorporated into a
structure of production only if those who would
make that incorporation understand the
categorical difference between means and ends.
(Potts’ conception of a capital good also
presupposes the possibility of a value calculus
across *all* goods, whereas Hoppe’s does not;
indeed, the rejection of such a universalist
value calculus is the essence of Mises’
calculation argument against socialism.)
I agree with Dan. Ultimately, any capital good could be considered a consumer good in the extreme case of consuming it e.g. scrapping a machine into scrap metal. The point is the end for which it is planned for. A car can be a consumer good (kids lets go on a road trip) or a capital good (we deliver!). It is not any inherent physical property of a good that will define its category, but rather the subjective valuation placed upon the ends it is intended for.
Of course, capital goods will tend to have certain characteristics vis a vis, and we can generally venture a guess that say, a specific piece of machinery at a car factory is a capital good whereas a cake with my name on it is a consumer good. But it is not the physical properties in and of themselves that determine the category.
An important but subtle distinction.
It seems more like Michael Woods is agreeing with me. All goods are subject to valuation constantly at a minimum by their owners and often by prospective buyers as well. A thing not subject to valuation is not a good. Valuations can be made only with respect to one envisioned use or another (and typically with respect to multiple such uses). The use sought or adopted is that with the highest valuation, and this is always subject to change.
The classification of any good as capital or consumption is not possible with absolute confidence until the good has been extinguished – the positive classification is possible only ex post. Ex ante classifications are essential, but they are ultimately speculative.
As exchange becomes more pervasive in an economy, the incidence of capital goods becomes greater, ceteris paribus. As individual autarky becomes more pervasive (as in collectivized regimes), more goods that would be capital become consumption goods (earlier). This process characterizes the consumption of capital that is everywhere observed in regressing economies, but it is, of course, not the entirety of the capital consumption phenomenon.
Exchange, of course, is the exchange of PROPERTY TITLES, so where property rights are derogated, exchange declines, the capital structure erodes, and the incidence of capital goods declines even faster than the overall incidence of goods in toto.
N. Joseph Potts,
I think for Hoppe’s purposes, he decided a clean distinction between capital and consumer goods was the easier choice, but the rest of his analysis would have been unaffected had he chosen to treat them more thoroughly. Now, I agree with you that the distinction is not clear in reality, and I think not recognizing this has caused a lot of faulty economic analyses in regards to investment and consuming in the United States, for example.
I don’t think the overstatement threw off any of Hoppe’s analysis, I agree.
At the same time, other than sparing some words, the overstatement did not, so far as I noticed, streamline or facilitate his later analysis.
We’re also agreed that relying on the invalid binary schema (“either this or that”) seems likely to throw off other analyses in a serious way. Capital theory is subtle – rather like monetary theory, praxeology, etc.
There is at least one other important invalid binary structure, in the way Austrians distinguish between Oppenheimer’s “political means” (theft) and “productive means.” I intend to attack that when the occasion arises.
I am increasingly under the impression that the UK has been experimenting with Keynes’ economic theories for quite some time… but I am not sure if it’s working or not. Let’s face it, it certainly is working to some degree, but whether it will continue working is the real question and debate (or, whether it has been working in it’s entirety.)
Economics still needs to address worldview properly, in my opinion… but this is for another whole debate.
Way back in college, my Economics Professor introduced to us some false and correct theories on capitalism. I can still remember the debate that my classmate and my Professor had when we touched Keynes ideas. Although there are points by Keynes that are right, most of them are actually on the wrong side no matter how well you think about it.
Ah.. what did Keynes know anyway!
Regardless of all this speculation, any individual with common sense can dismiss Keynes simply on the grounds that he believes that socialization of investment is the only way to prosperity. One needs only look at history to see that even some of the most anarchist societies have prospered economically when people were allowed to invest for themselves. No one will ever be able to convince me that someone else cares more about spending my money wisely than I do.
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