lunes, 6 de mayo de 2013

Sraffallacies: An Abridgment

Hi guys! I have seen my post about Mises-Sraffa have been seen a lot of times and given that it is sooo long, I have decided to put a condensed version of the original post. If you want to see the full story with all footnotes, references and details just click here. If you are a Post-keynesian and you want to criticize me, please read the full story, not just this post.


One of the most repeated anti-Austrian cliché of the internet blogosphere is the one that says basically: “Sraffa destroyed Hayek and Austrian Business Cycle Theory (ABCT)”. After that, I started to read ABCT’s original developer and creator, a guy called Ludwig von Mises, and all I found was that the reports of this death have been greatly exaggerated.
1. Misesian fully developed “natural rate of interest” was not a “barter-rate” 
Misesian ABCT is not about a monetary “natural rate of interest” deviating from barter rate of interest because of this:

a) In a barter non-monetary economy there is no space for monetary economic calculation. Without people’s monetary calculation which can be falsified, there cannot be any cluster of malinvestments and without malinvestments there is no crisis and depression.

b) In an economy without money and monetary economic calculation there is no way to even insulate interest (the value difference between present and future goods) in a unitary rate.

c) A barter economy is just a “fictitious concept”. Mises and today’s Austrians know perfectly well that you cannot calculate a barter rate.

d) An economy with money is totally different from an economy without money, because money is not just a veil (as Mises demonstrated from his very first book). You cannot compare or use one as a benchmark for the other.

e) To determine a barter rate, we need the aggregative concept of “real capital”. A concept totally rejected and criticized by Mises, so it is useless to “determine” a barter rate.

f) In his “barter wheat” example, Sraffa demonstrated that he did not grasp the essence of the theory he was trying to criticize in the first place. 

2. Misesian ABCT did not use a “unique rate”

Mises explicitly rejected the idea that in a changing economy (in a non-long-run equilibrium economy) there could be a uniform-unique-equilibrium rate of interest:

a) Originary interest is determined by (temporal) valuations of humans, as well as the price of any other good is determined by valuations interacting. As valuations are different in one determined moment and fluctuates along successive moments, also interest does (the discount of future goods). It varies as varies any other price in a changing economy.

b) The gross market rate of interest, which includes other things that are not interest, is also non-uniform in a changing economy. Actually in a changing economy we can “observe” only gross rates, we cannot “see” the pure originary rate.

c) In dealing with credit expansion we must know that it is not an equilibrium that is broken, but it is a process that is disturbed. It is the process what is perturbed, the appearance of new fiduciary media (credit expansion) makes the process deviates from what would have been without that perturbation.

3. Mises did never look for an “equilibrium-neutral rate” and actually there never can be a “neutral money”

Neither Mises nor Hayek were looking for a neutral money to avoid cycles, neutral money cannot exist in our world: 

a) Assuming neutral money is a (wrong and unreal) starting point of analysis, but it is not a goal to achieve. 

b) ABCT is based on a non-neutral money and its effect on different prices in different proportions at different moments. Assuming money neutrality means to assume a neutral rate of interest, no deviation can exist, and with no relative deviation of monetary rate there cannot be ABCT. The reason why market rate can be affected first and in a great proportion is the non-neutrality of money. In assuming neutral money, you assume away any possibility of ABCT. 

c) In order for money to be neutral, you need an unchanging economy. Non-neutrality is an essential feature of a changing economy, in a changing world there cannot be neutral money. 

d) Neutral money is an unreal, self-contradictory and faulty concept.

4. The policy for banks is NOT to target any “natural rate” 

You can forget the 3 points above if you like, because this last section is the ultimate demonstration of the failure of Sraffa’s “refutation”. Sraffa’s victorious final comment was that (Hayek’s interpretation of) ABCT recommended to the banks a policy of targeting the “natural rate”, but because he said that in a growing (changing) economy there are multiple rates of interest, then it is an impossible task. But that was not true at all:

a) Mises did not ask for a policy to target any “natural rate”.

b) Misesian “policy” was not that banks must not lower interest, but that they must not expand credit out of thin air. Banks can lower the interest if they want to or there can be as many as one jillion of different rates of interest, but as long as they do not expand fiduciary media they will not produce a cycle. The problem was not and has never been a problem of “accommodate” bank’s interest rate to “the” natural rate. Sraffa’s problem of multiple rates is totally irrelevant to Mises’ construction.

c) Understanding point 2) is so important that we can think in a situation where it is possible to initiate a boom-bust cycle even raising monetary rate. How? Only by expanding credit.

d) The reduction of the monetary interest rate that boost a boom-bust cycle is not a reduction in absolute terms, or in terms of a “barter rate”. What initiates a cycle is a reduction relative to a rate of interest that would have prevailed in a market without credit expansion. This is the reason why ABCT is compatible even with a situation in which the rate of interest is raising in absolute terms, because is raising less than it would rise in an environment without credit expansion.

Sraffa’s critique of Hayek is totally irrelevant for the fully developed ABCT in Misesian sense. The canonical exposition of ABCT is safe from the Ricardian critique. Not only Sraffa did not refute ABCT, he even overlooked some of the most important aspects of it. This only reinforce Austrian's interpretation about that ABCT was never refuted in the 30s and after, it was simply ignored against Keynesian revolution.

No hay comentarios:

Publicar un comentario