We are very privileged to have Steven Horwitz as a guest blogger today. Dr. Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY. He is the author of two books, Microfoundations and Macroeconomics: An Austrian Perspective (Routledge, 2000) and Monetary Evolution, Free Banking, and Economic Order (Westview, 1992), and he has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and macroeconomics. He is a frequent guest on TV and radio programs, particularly on the Great Recession and monetary policy.
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I appreciate the time and care with which Lorenzo has read my paper and his willingness to engage as a serious and fair-minded critic of Austrian economics. His long post of April 24th raises a whole host of important issues, all of which I would like to respond to. However, I may not get to all of them in what follows, so omission should not be interpreted as agreement. With that said, let me try to tackle some of his claims in the order that he offers them.
1. I don’t think any Austrian believes heterogeneity is “all there is.” In the paper in question, that was the focus because I do think it’s the most important difference between the Austrians and Keynes, or at least the difference that explains the most in terms of why they end up at such different places. Austrians have written a fair amount on capital in the last decade or two and Lorenzo might wish to read some of that work to see the bigger picture. The place to start is Peter Lewin’s Capital in Disequilibrium, which can be found for free at that link.
2. Lorenzo notes that Austrians don’t have much to say about the heterogeneity of labor. This is a fair point, though more is being said about it, including in Lewin’s book and some work of my own. However, this claim very much misunderstands the Austrian argument:
Conversely, heterogeneity of labour would suggest that labour markets also have adjustment delays and constraints, which sits rather poorly with Austrian confidence in fully flexible wages if there were no regulatory interventions.
Austrians do not believe wages would be “fully flexible” in a free market. In fact, we don’t believe that about any prices in a free market. From the very beginning of the Austrian school with Carl Menger in 1871, the market has been understood as an iimperfect discovery process, subject to error all the time, thanks to the imperfect knowledge of human beings among other things. The case for getting rid of such interventions is not that markets would be perfect and prices and wages “fully flexible” without them, but rather that markets just work “better” without intervention. Less imperfect if you will. The Austrian case for the market has, for almost 150 years, not rested on a belief in market perfection. (And Lorenzo’s later claim that I make such a claim myself reflects a misreading.)
One other element of this claim: often critics of markets leap on the cases when markets produce less than perfect outcomes as if they were ipso facto cases for government intervention without ever asking whether the intervention will be even more imperfect than the imperfect market. Critical thinking demands that we engage in a comparison of the “real” to the “real:” real markets are imperfect and so is real government intervention. Austrians have reasons, both theoretical and historical, to believe that markets will be systematically less imperfect than government. We can argue about those, but let’s avoid thinking that any evidence that markets are less than perfect somehow condemns the case for markets and ipso facto justifies government intervention.
3. Lorenzo takes my phrase “fitting those pieces [of capital] together as correctly as possible” to be the same as believing there is “single correct outcome.” I think that’s a misreading. Again, the phrase “as correctly as possible” suggests that neither perfection nor a “single correct outcome” is the goal here. “Correctly” in this context does not refer to some objective pattern that the economy strives for, but rather its ability to meet the wants of consumers as well as possible (hence “correctly as possible”). Austrians have been very critical of the equilibrium orientation of modern economics and have, instead, tried to understand markets as open-ended evolutionary systems. There’s no objectively correct pattern of resource allocation out there. Rather, as James Buchanan put it, “order is defined in the process of its emergence.” Just as biological evolution doesn’t produce the “perfect squirrel” but one well-adapted to its environment, the same is true of markets.
4. Lorenzo’s points 4 and 5 about prices, inflation, and deflation, are preaching to the choir at least on his point 5 about the damage of deflation. He might wish to read my Microfoundations and Macroeconomics: An Austrian Perspective, in which I talk about the dangers of monetary disequilibria, devoting a chapter each to inflation and deflation. That book was explicitly written (in 2000 I might note) to reject the sort of characterization of the Austrian position that Lorenzo lays out: “But the Austrian view of business cycles is so focused on finding reasons for busts in the previous booms (those money over-supplying central banks) that it, in effect, blames the effects of deflation on previous inflation. Yet inflation and deflation are equally monetary phenomena, one is not causally dominant over the other.” The last sentence is precisely the argument I make in the book, which I would love for him to read and comment on.
Two other thoughts:
a) Austrians emphasize inflation more because it has been and will be far more the real-world problem in a world of government central banks that have a strong incentive to err in the direction of inflation as a way to reduce the burden of government debt and raise revenue. After all, historically, that’s where central banks came from: governments created them when they could not raise revenue, especially for wars, through other means such as taxation or bond issues. Lorenzo is right that in theory inflation and deflation are “equally” important phenomena, and my book argues that case, but in practice? Not so much.
b) Much of Lorenzo’s perception of Austrian economics, particularly on this issue it seems, is colored by who he’s reading. There are lots of “internet Austrians” who are really consumers of Austrian economics not producers. He finds me refreshing, which I appreciate. But there are dozens of scholars like me producing serious nuanced work in the professional journals. I’m not so unique. We don’t cover the internet with our work in the way some folks do, but in passing the test of peer-review, we are way ahead of the game. Critical thinking advocates might wish to consider which sources on what constitutes “Austrian economics” would be the better place to learn about it.
5. Austrians do not deny the role of risk in interest rates. Real world rates include a variety of factors beyond time preference, but the reason there is interest at all is due to time preference, and rates still say important things about time preference. In his discussion of these issues (his #6), Lorenzo once again seems to suggest that sticky prices undermine the Austrian argument. I think that criticism goes nowhere because Austrians have not argued that perfectly flexible prices are a necessary or sufficient condition for the market to be the preferred resource allocation process.
6. Lorenzo’s thoughts in his 7 and 8 are appreciated. But let’s be clear: no Austrian has ever said the depths/lengths of the bust depend on the size of the boom alone. The argument has always been a ceteris paribus claim: imagine two booms in which the only difference was the height/length of the inflation. In that case we would expect a worse bust from the bigger boom. Historically, of course, ceteris is never paribus. The Great Depression was awful not because of the size of the boom, but because of the intervention of the Hoover Administration, especially trying to prop up nominal wages as prices were falling, the Fed for allowing a destructive 30% decline in the money supply, and FDR for prolonging matters with both the actual content of his Hoover-like interventions and the uncertainty generated by his constant experimentation. There is ample historical evidence for all of these claims and this Austrian economist, at least, has written about the Great Depression invoking all of them. The same is true of the Great Recession. Yes, easy money was a factor, but so were a whole bunch of other things, especially housing policies and the government backing of Fannie and Freddie. I have written about this as well. Again, no serious Austrian makes the argument Lorenzo seems to attribute to them. I am not exceptional in this way.
7. In his 8, Lorenzo once again accuses Austrians of being subject to “strong equilibration” thinking. In fact, it is the Austrians who have been the most critical of equilibrium modeling in economics, and have been so for decades. Yes, Austrians believe markets have self-correcting forces in them, but those do not lead to equilibrium because: a) exogenous change is constant, preventing any actual move toward equilibrium and b) endogenous change can, in the short run, push us away from equilibrium. Yes, markets are excellent epistemological ecosystems in which people can learn from their mistakes. But the case for markets is only that they are better at this than the alternatives, not that they do so in the ways many economists talk about with respct to equilibrium.
8. Lorenzo writes: “But, in keeping with the Austrian approach being overly systematic, there is too strong a presumption that a monopoly provider of money will oversupply.” As I noted earlier, there are very strong theoretical and historical reasons to do so as an empirical matter. Central banks were born in the crucible of inflation – it is their raison d’etre. They do make systematic errors in that direction because virtually every incentive they face is to do so. I think Lorenzo’s mistake here is, as also noted earlier, to not take the internal processes of politics seriously enough. Central banks are political institutions and political actors face knowledge and incentive issues just as market actors do. Yes, deflation can cause real problems and can’t be ignored (I’ve taken heat from other Austrians for paying too much attention to deflation), but Austrians are living in the real world more than Lorenzo by recognizing the historical fact that central banks are almost always inflators, not deflators. Their mistakes are not random; they are in fact systematic because the incentives are there to make one type of error and not the other.
9. Austrians do not deny the possibility of a “general glut.” Like J. B. Say, we recognize that a general glut, meaning a general oversupply of goods, can happen if there is an undersupply of money combined with less than perfectly flexible prices. We deny that such a glut can happen without a monetary cause, but should the monetary system fail to produce enough money, then goods and labor will not get sold because prices cannot adjust immediately. The result is a “general glut.” This is why avoiding deflation is so important – it helps avoid such gluts in the real world of imperfectly adjusting prices. I would point Lorenzo to my book or to this paper of mine on Say’s Law from an Austrian perspective.
10. Finally, Lorenzo writes near the end: “For example, it was the deflationary policies of the Fed and the Bank of France that caused the 1929-32 Depression not some mythic inflationary boom.” I would first note that there’s no reason that the Great Depression considered as a whole could not be the result of both an inflationary boom and the Fed’s deflationary policies. I have written extensively on the Great Depression, as noted above, and have taught a senior seminar on it for several years. I know the drill. Let me suggest thinking about any “bust” with the following three questions:
a. What caused the turning point toward the bust, i.e., why is there a bust at all?
b. Why did the bust get as deep as it got?
c. Why did the bust last for as long as it did, or why was recovery so fast or slow?
This allows us to separate the cause of the bust per se from the factors that explain why it was so bad. With the Great Depression, any explanation of its severity and length will, as I argued earlier, have to invoke the deflation and other policy errors. But that does not exclude the possibility that the 20s involved an inflationary boom that produced the original downturn in August of 1929 (which precedes the stock market crash of course).
The problem with saying that the Fed’s deflation that caused the Great Depression is that the recession/depression is dated from August of 1929, which is before, even by Friedman and Schwartz’s narrative, the Fed started making its deflationary errors. Austrians are interested (though not exclusively) in explaining why the turning point happens in the first place. The typical Austrian business cycle story is sufficient, but not necessary, cause of a bust. But saying that other factors were in play, such as in the Great Depression, does not, by itself, exclude the possibility that the origins (though not depth and length) of the bust are to be found in prior inflationary boom. Let’s go look and find out!
And with that I will leave matters. Again, I appreciate Lorenzo’s serious engagement with my work and with Austrian economics in general. I am always happy to respond to criticisms of this sort. I would simply close by encouraging Lorenzo and readers here to look for the best work in Austrian economics, not the easiest to find. Critical thinking demands no less of you.
There’s a lot to unpack here, but I have two quick reactions on the initial points:
1. While I also found Steve’s APEE paper on capital very interesting, I think a lot of Keynesians would contest it (myself included). That’s just to say that one should approach this as how Austrians view the difference between Keynes and Hayek’s macro – not how everyone views it. I personally don’t see how Keynes’s theory could work without heterogeneous capital.
2. On heterogeneous labor – recognizing that when we’re talking about labor we’re really talking about human capital, I think a lot of what Austrians have to say about capital applies pretty naturally to labor. You could look at Walter Block’s article on marginal productivity in the Elgar Companion to Austrian Economics for an example of this.
On heterogeneous labor – recognizing that when we’re talking about labor we’re really talking about human capital, Speaking as someone who employs people, so not (unless we are going to extend the definition of ‘capital’ way beyond the useful). Natural aptitudes are not really “capital” in any interesting sense. Nor are things like reliability and helpfulness. But boy do they matter when you are deciding to employ people. (And we work on an offer-and-accept roster system with our presenters, so we are making marginal employment decisions all the time, while the key bit of human capital for us–learning our presentations–we are happy to provide, to the right folk.)
Nice response. You showed a great deal of restraint. Clearly, Lorenzo doesn’t understand Austrian economics. I’m beginning to think that Austrian econ is too complex for many economists. Either they don’t want to understand, or they simply can’t.
In the hope that mainstream economists are trying to understand Austrian econ and just can’t, yet, I would suggest to them that they pretend not to know anything about economics when reading Austrian econ. Understand the fundamental assumptions of the science and how it builds on those assumptions. Don’t hold every Austrian thought up to the yardstick of mainstream econ. If you do, you’ll never get it.
Try to understand Austrian econ on its own terms first then compare it with mainstream econ. You’ll find that each emphasizes different aspects of the economy. You may not agree with Austrian econ, but at least you won’t make the many errors of misrepresenting it that Lorenzo makes.
“I would simply close by encouraging Lorenzo and readers here to look for the best work in Austrian economics, not the easiest to find.”
And by what objective standard should we determine what is “best“?
Right – and I think part of Lorenzo’s point (which I agree with, unfortunately) is that the noise machine is not restricted to pimply teenagers parroting what they think they know about Austrian economics.
You should look for peer-reviewed work in the economics journals and the blogs and other writing by Austrian economists who have passed that test.
Dr. Horwitz overstates the case for government intervention in markets when he says “let’s avoid thinking that any evidence that markets are less than perfect somehow condemns the case for markets and ipso facto justifies government intervention.” Yes, overstates. Government intervention does not happen in a vacuum, where you can pick and choose your interventions. Politics is a market also, where legislators “buy” and “sell” support for each other’s project. We call the prices “votes”, and different legislators control different amount of votes.
Thus, we can expect that a “good” intervention saving a failing market can be accompanied by a “bad” intervention increasing the amount of corporatism. So EVEN IF you have a good case for market intervention, that might be accompanied by some intervention which has a bad case, so a more holistic accounting must be made than even Horwitz describes.
To be clear on “There’s no objectively correct pattern of resource allocation out there.” Horwitz is simplifying. There are zero, one, or many objectively correct patterns of resource allocation. For example, if I want a doughnut, and there is no doughnut to be had, there are zero correct patterns. If I get my doughnut, there is one correct pattern. If I would be satisfied with a doughnut or a cruller, there are multiple correct patterns.
How do we know this? Because the problem is of order 1. Increase the problem to the size of a tribe (order 300). This is very likely the largest quantity of social grouping for which one can state anything authoritative about patterns of resource allocation. And it’s likely the reason why traditional (non-market) socialism can only work in small groups.
Make the order any larger and you start to have an NP-complete problem, which can only be solved in exponential time. Since we can’t even come up with one solution, it’s not possible to say how many objectively correct solutions there are. You can start guessing, but then you get away from objectively correct into subjectively correct.
Can you see why Steve jumped to the end of this story? Oh, and I had three doughnuts, not one.
“Dr. Horwitz overstates the case for government intervention in markets when he says “let’s avoid thinking that any evidence that markets are less than perfect somehow condemns the case for markets and ipso facto justifies government intervention.” Yes, overstates. Government intervention does not happen in a vacuum, where you can pick and choose your interventions…
Thus, we can expect that a “good” intervention saving a failing market can be accompanied by a “bad” intervention increasing the amount of corporatism.” (Russ)
It seems to me that Dr. Horwitz is NOT making a case for government intervention and especially a “good intervention”. He states:
“Critical thinking demands that we engage in a comparison of the “real” to the “real:” real markets are imperfect and so is real government intervention. Austrians have reasons, both theoretical and historical, to believe that markets will be systematically less imperfect than government. We can argue about those, but let’s avoid thinking that any evidence that markets are less than perfect somehow condemns the case for markets and ipso facto justifies government intervention.”(Dr. Horwitz)
Rather than a case for a “good intervention” he states, “real markets are imperfect and so is real government intervention”. He further states that, “Austrians have reasons…to believe that markets will be systematically less imperfect [sort of a Greenspanism] than government”. “Less imperfect” indicates that systemically, Austrians believe that markets do a better job than governments. I do not see a case for a concerted, “good” intervention of government here – quite the contrary.
I would add that the market is essentially about interventionism. The market is theoretically suppose to be about a perpetual war of all against all to compete in which the field is ‘leveled’ by a sort of ‘perpetual revolution’ that is suppose to regulate itself, throw up obstacles against monopolies, price fixing and collusion (which might constitute a kind of ‘corporatism’ of sorts between corporations even with regard to ‘private markets REGULATING themselves’ instead of governments and corporations).
I wonder if there is a sort of unacknowledged purity of market interventions that can never be true of any type of government intervention. Thus, markets essentially can never err on the side of ‘over exuberance’ and large corporations never instantiate themselves as the defacto ‘governmental body’ for a market segment. This would also imply that ‘government’ is by nature essentially a monopoly that can never relinquish its grip on the market either by elections or by revolution. I find these to be ‘simples’ as well that SHOULD require questioning.
…which leads me to another question, do you consider monetary policy a function of ‘government’? You state:
“Government intervention does not happen in a vacuum, where you can pick and choose your interventions. Politics is a market also, where legislators “buy” and “sell” support for each other’s project. We call the prices “votes”, and different legislators control different amount of votes.”
The Fed can intervene without a ‘vote’ or ‘politics’ so it CAN pick and choose its interventions. If the Fed can be thought of as ‘government’ in some way then it can focus its interventions and the side you bring up of unfocused intervention is only half the story. The common critiques of ‘printing money’ or conversely promoting austerity are also commonly thought as happening in a ‘vacuum’. So, on the one hand:
“Thus, we can expect that a “good” intervention saving a failing market can be accompanied by a “bad” intervention increasing the amount of corporatism.”
…we have a logical necessity (that should also be questioned) “good” government intervention must lead to a “bad” increase in the amount of corporatism (as if corporatism is only correlated to government intervention in the market and not market or corporate intervention in the government or in itself) AND on the other hand, we have “bad” government intervention in the form of the unilateral (vacuous) Fed that will also result in a “bad” government intervention (in the form of inflation I suppose or the “bad” intervention of printing money on this side of the Atlantic but the “good” intervention (ECB) of much needed austerity on the other side of the Atlantic)…all the while, pure market to market interventions are not interventions but always assigned the “good” of ‘free market’ competition. It seems that what we have here is a simple definition market=good and government=bad – therefore, by definition, market and government are opposites. It seems to me that the more complicated and realistic understanding would give more credence to the pros and cons of each side.
I would like to comment on Lorenzo’s point #4 , which I think captures some of the difference between Austrians and monetarism (that I take him to represent).
Lorenzo says:
“Yes, the various “swap values” of money (for goods and services) matter, but what entrepreneurs are really interested in is expected income; that is, price x transactions. It is not that there is no concept of demand/expected income in the Austrian analysis, it is that, at crucial points in the argument, price is emphasized to the extent that transaction levels, and so income expectations, disappear from view”
Its easy to read into this a view that all that matters for an economy is the volume of transactions and that if they can be driven high enough then incomes will meet expectations and everyone will be happy. From an Austrian perspective this is only partially right. If the price of money is too high relative to all other goods then increasing the money supply will decreases it value and will indeed increase the volume of transactions and income levels – Austrians and monetarists would be in agreement.
However I think that an over-focus on income expectations can end up undermining the importance of monetary calculations and that this would be dangerous if used as a policy tool. For example: If the economy faces issues that are structural in nature (demand has shifted away from a certain product area) then Austrians would see that the best policy is to let prices adjust so that business would use this information in their economic calculations , which would lead the structure of production to adapt. A policy that focuses just on transaction level might – seeing that these structural changes have caused overall transaction levels to drop – be tempted to set expectations about future demand levels so that transaction levels even in the declining industry would rise. This would provide temporary relief but slow down the required structural changes needed in the economy.
In conclusion: I don’t think one can view “swap values” as important for monetary calculation but somehow irrelevant for “transaction levels”. If one allows the economy to adjust to the correct “swap values” then not only do we get the right structure of production but also the optimum transaction levels. Part of this is allowing market processes to set the correct value of money , another part is allowing relative prices of non-money goods to adjust without intervention.
Rob; Your argument seems to assume there is no issue with monetary supply and demand which cannot be dealt with by price adjustments. First, what happens if you have “sticky” prices? These are clearly a real feature of the economy and cannot be wished away. Saying “prices should be let deal with it” does not really cut it if sticky prices are a continuing feature of the economy.
Second, people can choose to hold money rather than spend it. If they have strong expectations about the value of money but weak expectations about income, then they will tend to hold onto money. If the money supply does not expand to deal with this, transactions will fall, feeding back into the adverse income expectations.
The response “but we should have a monetary system which does not do that” is a wish-fulfilment argument. Well, yes, we should but, in the meantime, we have to understand what the consequences are when that does not apply and what policy has to deal with. Either way, income expectations will matter.
Lorenzo,
You are correct – I do believe that there is no problem that cannot in theory be dealt with by price adjustments. I also agree that so-called price stickiness without a flexible money could slow down the adjustment process to the point where the economic system would become seriously sub-optimal.
If the issue is simply that money has become over-valued then in theory increasing the money supply would address this issue. I think a free market would throw up institutions that would act to stabilize the value of money by increasing supply in response to increased demand. Such institutions don’t exists in today’s CB world – with the result that we have periods of monetary expansions that generate artificial booms, followed by period of artificial monetary retraction that lengthen the recovery. I agree that one cannot simply wish into existence the ideal conditions to deal with the current situation – and as a result I would probably hold views quite similar to yours in regards to policy for today’s real-world conditions. But I also recognize that addressing today’s situation via increasing the money supply will likely have some negative consequences (causing relative prices to become further mis-alligned due to the random effects of inflation) as well as positive effects of allowing money to be valued closer to equilibrium with other prices.
Nice piece Steve. I’m not an Austrian and do find them to be quite insufferable often as Lorenzo suggests-in more tactful language than me. Try hanging out at Money Illusion and get to hear some “consumer Austrians” to get an idea.
Your point is well taken though even so Austrian consumers seem to be generally partiuclarly bad.
Appreciate your point about Austrains not believing in perfecdt markets. The idea of imperfect price discovery is very in interesting and promising. I have noitced when reading some “Austrian producers” that Austrians are quite different than the Neoclassical school in not beliieving in equilibrium etc.
Roger sounds more like an consumer:
“You showed a great deal of restraint. Clearly, Lorenzo doesn’t understand Austrian economics. I’m beginning to think that Austrian econ is too complex for many economists. Either they don’t want to understand, or they simply can’t.”
If you think Lorenzo understands Austrian econ then you’re sadly mistaken. I earned an masters degree in mainstream econ from a good state school. It took me a couple of years to understand Austrian economics. My main obstacle was trying to fit it into the mainstream structure. It doesn’t fit.
Horwitz’s rebuttal is basically telling Lorenzo that he misunderstands. It’s one thing for non-econ majors to not get it. But I hold people like Lorenzo to a higher standard.
It’s not intellectually acceptable to criticize a theory you clearly don’t understand.
Roger, I think you are perhaps being a bit uncharitable towards Lorenzo. Clearly he did think he understood what he was criticizing, and as Steve acknowledged, Lorenzo was engaging “as a serious and fair-minded critic” of Austrian economics. As has been pointed out, there is much “mainstream” information on Austrian economics that is not entirely accurate, so it’s not hard to see how someone would be misinformed about certain aspects.
I’m sorry but for someone in Lorenzo’s position I don’t think there is an excuse for not knowing Austrian economics if you’re going to criticize it. I suggest people start with Garrison’s “Time and Money” because he compares and contrasts Austrian econ with Keynesian and neo-classical. Hayek has an interesting comparison between “Anglo” econ and “Austrian” in the first couple of chapters of “Pure Theory of Capital”.
Austrian economics has different assumptions, emphasis and goals. You’ll never understand it by trying to force it into a mainstream structure.
Mark: I know that Steve is not making the case for government intervention. He’s making a case against government intervention, but even as strong as he makes that case, it’s actually stronger than that. To interfere with market transaction means that you are expending resources to change the way trades occur. You have to change people’s behavior. That consumes resources. Thus, a market intervention cannot be neutral but must make a positive change. And yet, how can you make people better-off if you take away the choice they actually make (which is what every market intervention seeks to do)? (that’s a separate point from the one I made earlier, but it’s buttresses my point, as the next paragraph shows.)
But having the power to command those resources does not mean that you will always use them to create positive chances. You can use those resources to transfer a *greater* amount of market resources into your own pocket. Why do people who suggest market interventions never suggest that this might be the outcome? Of the two — correcting other other people so they are better off vs intervening to direct resources to yourself — which do you think is the most likely to occur?
Russ,
I think institutional buyers are always playing with the market to make themselves and their investors better off…that is capitalism. If you are referring to government intervention in the market, are you including selling government bonds on the open market as a form of intervention? It seems to me that when rates are as low as they are it would be a good time for the government to intervene in this sense and take advantage of this to address much needed infrastructure issues and put people to work. If you are referring to the kind of intervention that started (this time) with Bush and Paulson, I suppose I am a little ambivalent about whether or not it was needed. In principle, I am against that kind of intervention but when what is suppose to be free market advocates make a case for that kind of intervention it does make you think. I prefer to see the government investing in pure R&D and handing off patent free technology to the private market. I do believe that too big to fail is a systemic problem that needs to be addressed with regulation of some type. I am not as deeply in the details as you folks are but the issues I have addressed from my own engineering business and management experiences (see previous post on this site) make me think that big is really the issue not private market versus government. I know for a fact that when I was in middle management in a very large corporation we did all the adverse things that some want to reserve only for bad government economic behavior (defacto regulation that prohibited competition, buying and destroying companies for market share, monopolizing resources that prevented competition, etc.). I am not in love with government intervention any more than big, monopolizing corporations. I only think that when two titans clash they can effectively limit each other better than the odds that David will be able to kill Goliath x number of times. I am still curious about what you think about monetary market interventions by the Fed?…
[...] is a guest post by Steven Horwitz which was originally posted at Critical Thinking Applied but which Dr Horwitz has kindly agreed to be also posted here. Dr. Horwitz is the Charles A. Dana [...]
[...] Horwitz’s thoughtful and generous response to my original post is useful in clarifying what a serious Austrian school economist thinks and [...]
[...] to what my above comments about his response may imply, many parts of it are great. For instance, in response to Lorenzo’s (2), Horwitz [...]
Dr. Horwitz overstates the case for government intervention in markets when he says “let’s avoid thinking that any evidence that markets are less than perfect somehow condemns the case for markets and ipso facto justifies government intervention.” Yes, overstates. Government intervention does not happen in a vacuum, where you can pick and choose your interventions. Politics is a market also, where legislators “buy” and “sell” support for each other’s project. We call the prices “votes”, and different legislators control different amount of votes.
Thus, we can expect that a “good” intervention saving a failing market can be accompanied by a “bad” intervention increasing the amount of corporatism. So EVEN IF you have a good case for market intervention, that might be accompanied by some intervention which has a bad case, so a more holistic accounting must be made than even Horwitz describes.