No Seumas

Blaming the crisis on individual greed or ethical lapses also fails to address its systemic character. No surprise, then, that it\’s a favourite theme of market fundamentalists who find it impossible to accept that capitalism\’s regular breakdowns might be in any way built into its DNA.

Err, no, sorry, you\’ve got this entirely the wrong way around. The boom and bust nature of capitalism is generally accepted. You\’ve even got those, (The Austrians) who insist that it\’s a vital part of the system. That without the occasional bust we don\’t get the ongoing, decade by decade, 2% a year growth in per capita GDP that capitalism, alone amongst economic systems, provides.

It\’s not, in this view, that the breakdowns are built into the DNA….they are the DNA.

10 comments on “No Seumas

  1. Isn’t this why DNA has been so successful? Its ability to mutate. Some mutation cause abominations and fail; others are successful and it is from these successful mutations that produced me!

  2. Every time I hear this argument I can’t help but think that a system has small growth interspersed with small breakdowns must still inevitably be better than a system that makes people continously poorer with app. the same rate every year. For that is the alternative

  3. Sorry to differ on this. Austrian theory has NEVER maintained that periodic crises are part of the very system of the capitalist free market.

    The Austrian view is that the crises are the unavoidable result of the manipulation by authority of the quantity of currency and credit available in a system of fractional reserve banking (all of which amounts to a continuous effort by such authority to influence the rate of interest–downward–from that which would prevail in the absence of such interference).

    I don’t know where anyone would get the idea floated here but it’s certainly not from anyone “Austrian.”

    From some of the wording in Tim’s piece, this may hearken to the half-baked nonsense of someone like Schumpeter with his catchy “creative destruction.”

  4. Emil:

    See above. The choices aren’t what you’ve posited but others, so far not seen well even partially by the very many and completely by almost no one except myself.

    Mises showed (nearly 90 years ago) that not only was socialism completely unrealizable as any other than a temporary and extraordinarily wasteful system of society’s productive organization (due to the absence of a market for “producers’ goods and, therefore, an inability to perform basic economic calculation).

    But, furthermore, he argued and proved (in the same era) that there were only two systems, the free and the unfree. No “middle” or “Third” way exists that is not bound to fail and require return to freedom or, failing, stimulate the intensification of interference and hastening en route to socialism, already revealed as impossible of realization. This recognition, except among Austrians, has never been paid more than lip service (Even though, nearly 30 years later, the core idea was expanded by Friedrich Hayek as the subject of his book, THE ROAD TO SERFDOM, for which he received recognition of a Nobel prize.)

    It is my own hypothesis that even these interferences (i.e., gov’t. authority over money and the value thereof, the establishment of “legal tender” legislation, controls or their potential enactment in matters of foreign exchange, and favored–especially central–banking providing for “fractional reserve” assault on market superiority in formation of discounting of the future, i.e., interest rates) are limited in applicability to reality by other, previously unconsidered influences. I emphasize that these are entirely conjectural–at least at this time. It is my present opinion that the population of the market is an influential force; not, I would insist, in anything resembling
    a mathematical relationship. More simply put, I’m of the opinion that the management of currencies, of purchasing power, and of rates of interest, impossible to begin with without periodic crises, become ever-more problematic with the wider spread and number of market participants and especially as specialization of function is more properly fragmented. One might say that, although the more widely fragmented (and located) production system offers the very greatest total delivery of satisfactions and the very greatest allocation
    of resources to their most advantageous application, the system itself becomes both more fragile and more vulnerable, especially to the type of interferences which have proven destructive in the past.

  5. Given what a fucking shambles the Economics profession has turned out to be, the least we can do is refrain from burnishing their egos by referring to their pretendy prize as “the Nobel”.

  6. The posters here are correct, the only Austrian who thought periodic crises were beneficial was Schumpeter. The mainstream of the Austrian School think of them as destructive and identify the cause with the banking system.

    Gene Berman: Hayek was given his prize for his work on business cycles. What you are referring to is the “thin skull” interpretation of market economics. I think you’re right about it.

  7. Current:

    The “posters” to whom you refer are both myself, the first as a general correction to the idea advanced and the second as an elaboration of that idea and the adddition of my own hypothesis.

    I’m not familiar with the “thin skull” idea. Could you give me a reference (in the meantime, I’ll try googling for it).

    My own hypothesis finds a “root” cause in the ancient development of media of exchange. I believe that, at some point early in the time when precious metals were being introduced in the form of bullion and coin, a certain class of inefficiencies or difficulties manifested. On the one hand, the determination of weight and fineness is less expensive (on a unit basis) the larger is the example in question. (It’s roughly 100 times more onerous to verify 100 coins of 1 oz. apiece than to ascertain the same of a regular solid of 100 oz., leading to at least a negotiating position in trade devaluing the smaller unit by some “charge”, offset, in some cases, by a similar negotiation favoring the smaller unit as “more widely marketable and requiring less
    change in smaller units being available.” It is my “reasonable conjecture” that such difficulties both in ordinary sales via direct payment and those of deferred payment are likely dissatisfactions leading people in one or more locales to view the general idea of “legal tender” as an advancement of the general interest of all (and thus to “push” such responsibility onto the back of authority–the sovereign–where it would quickly be recognized as generative of income in the the form of seniorage and of celebration of the legitimacy of the specific reign of the particular authorities themselves. The rest, as they say, “is history.”)

    As a matter of fact, the system performed adequately wherever employed, and except for specific adventures into debasement, lasted almost unchanged until relatively recent times, which saw introduction of money certificates and the spread in use of bills and notes (which might be “fractional,” even if sub rosa) and then the further tendency (especially for efficiency’s sake) toward concentration of “reserves” and the issuance of frankly fiduciary media and, finally, the completely contrary-to-reality insistence of all governments (in conspiratorial opposition to the desires and interests of the overwhelming bulk of their subjects) that the “values” of absolutely everything arise as a result of their political authority and the force they are enabled to deploy (rather than as the resultant of interplay of subjective valuations of market participants themselves).

    I might also add that the original difficulties with the currency forms would have produced distinct, recurring phenomena of the type we associate with “Gresham’s Law,” which would have been entirely understood in those much more ancient times.

    In the development of my theory, it happened incidentally that I became aware of of a very common misperception in the reception (in common knowledge) of a key contribution to scientific knowledge made by Archimedes–that of “specific gravity.” It is commonly believed that identifying substances by comparing their relative densities was Archimedes’ discovery.
    But that cannot be true; what is true is that such system had to have already been centuries old (or Archimedes could not have been able to make his discovery at all. He proceeded in his thought process from the wide–at least scientific and professional–acceptance of that regular relationship in densities.) What he discovered (pun recognized) specifically was
    “specific gravity,” the system of using a fluid (water) as a systematic comparison because of its displaceability and wide availability. If the king had asked him to check the purity of a molded brick (rather than a crown), he’d have thought the king a dunce: it was only the irregularity that posed a problem (solved, we are told, in the bathtub). A refiner two millenia before Archimedes would have had no problem with the brick; Archimedes gave us the tool to regularize their earlier scientific discoveries.

    Stated another way, the regular relationship of definite, comparative densities of different substances was long known; that was Archimedes’ starting point, not his discovery.
    I came to appreciate this over 20 years ago but only later found (when I had access to a search engine) that the same had been remarked by others; it’s not so much a mistake in the known history of science as in the teaching of that subject, especially to popular audiences.

  8. Current:

    OK–“thin skull” derives from legal liability applicable even when the victim is particularly or accessorably vulnerable and when that is unknown to the perpetrator of an assault or trespass; knew the law–just had never heard the phrase.

    In my view, the “skull” in the case, the behavior of market participants, is neither “thin” nor thick–it is what it is and cannot be other than it is: a minute-by-minute “sense” available to all participants by their observation of the price structure in comparison with individual “list” of satisfactions desired and resources available.

    The behavior, moreover, of individuals, even in groups, within various segments (nations, for instance or trading markets, for another) of the overall market, can have but limited effects, most usually far outweighed by the behavior of the large mass of others. Savvy investors recognize certain disadvantages arising from disproportionate activity in thinly-traded markets; everyone is familiar with the rush for “neccessities” in emergency events, etc. (and those less prepared are often appreciated as
    lacking in judgement).

    The comparison to be made is not the dealing of a crushing blow to the skull of a baby by an older child with a book or of one adult upon another with a crowbar but rather with the result of going at the skull of an elephant or rhinoceros with a piledriver and mountain-tunnel boring augers. The market is not “vulnerable” in any ordinary sense but the reasonably honest, straightforward, and flesh-and-blood personages who constitute it are no match for the deliberate employment, first, of near-secret conspiracy of motives, fraudulent
    intent and production of counterfeit “value,” supported not only by the well-oiled display of political and economic rationale by both the “intelligentsia” and media, but, ultimately by “legitimate” resort to the violence of courts, prisons, etc., including the spectre of impoverishment, starvation, and a return to barbarism as the alternative to their employ.

  9. The idea of “stimulus” is not only self-contradictory but ridiculous on its very face.

    A downturn in general business activity, whether of consumers with respect to goods of the market or of investors seeking to profit by satisfying those desires can be generated by either: 1.) a general perception on the part of these that their desires are mainly super-satiated and cannot be advanced by the expenditures required; or, 2.) that their savings are more important to be kept in cash or equivalents as a bulwark against future conditions reckoned less well-provisioned than formerly realized.

    There is no “cure” for the apprehension (which consists in the idea that one has less “put by for emergency” than formerly thought necessary) other than for economic circumstances to reveal the apprehension as either mistaken or overcome (as the result of such saving having furnished the “enough” originally thought necessary). And the process of individuals’ arrival at either conclusion cannot be assisted by the addition of paper or credit to the existing supply.

    Human desires change, albeit slowly. But, while life exists, so do desires, and thus “demand.” The existence of demand can be said to suggest supply, especially to those to whom the demand of their fellows presents opportunity to profit by the fulfillment; demand cannot “cause” supply, no matter the intensity.

    Whatever the state of supply, its increase depends on the diversion of resources (including time and labor) from either disuse or current employment: thus, except in the case of discovery (and in some of those cases as well), all improvements in current modes and patterns of production, i.e., supply, require either the diversion of already-existing productive assets into the now-more-important employments OR (the much more likely possibility) the extension of productive assets brought about by reduced consumption and investment of such reduction in the assets promising potential improvement in supply.

    The “stimulus” intended by legislation cannot improve overall conditions in any economy. All perceived improvements in the fortunes of some (politically-favored, for the most part and their purveyors) are offset by losses in the accounts and purchasing power of others: it’s essentially a zero-sum game except that it comprehends actual activities which would have taken place in its absence. That is true even though some, who profit extensively (at the expense of others who lose) may ultimately invest some of those large gains in actual productive assets; but whether those will prove profitable or further waste cannot be known.

    The simplest, cheapest solution to the “crisis” (and the one least likely to be harmful) is to do nothing whatever by political means. Let those with investments in foreclosed (or due to be foreclosed) housing endure their loss in value; let those who will protect those assets from reduction in value through vandalism, etc., do so, either overtly, or by restructuring payment terms in view of the reduced value and the payoff deemed entrepreneurially likely: that was their job prior to the crisis and, freed from the political pressures under which they made their previous decisions, it’s at least somewhat likely they’ll return to the functions at which they were formerly thought “expert.”

    Let “chips fall where they may”: bankruptcies, unemployment, pay cuts, and the attendant reduction in spending on the part of those in fear of the future; any other policies (including the extension of unemployment benefits) will only prolong the period of malaise and distort the pattern of production from that which the consumers will likely prefer even after the crisis has passed and they resume more “ordinary” patterns of spending behavior.

    They’ve got it all backwards and most will suffer from it to one or another degree. It’s enough to make one believe that they are, indeed, living in an insane asylum.

    One more thing. It is IMPOSSIBLE to saddle the future generation with the debts of this one. The very use of this phrase, even by those seeming to rail against it, must be seen for what it is: the suggestion that, somehow, those of the present can escape paying for whatever is required by way of remedy. All the assets and services bought in the present are also paid for in the present and, if there’s significant reduction in the “productive plant” of the present, it merely means that the present generation will leave a smaller “inheritance” of that accumulated wealth (a good part of which has been inherited from our ancestors) for those who follow. Whether or not they formally repudiate such debts, actually pay them, or repudiate them through hyperinflation of the monetary unit, the damage is already done and can only be made worse by the current proposals.

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