Monday, June 24, 2013

The very disturbed Keynesian liar "Lord Keynes" lies again (and again) - this time about the Austrian concept of capital goods.

The very disturbed personality "Lord Keynes" appears to be the only Keynesian in the galaxy to actually read Austrian writings. All other Keynesians purposefully distort Austrian analysis without actually having read any Austrian writings. "Lord Keynes" is different in that he reads the Austrians before distorting them.

His latest distortion is here:

The Austrian system of classification of capital goods cannot be considered a universal, clear cut, or strictly useful one, if many capital goods’ classification is simultaneously to be included under different orders. 

Also, the classification system obscures another point about capital: while capital goods are heterogeneous, many can have a significant degree of substitutability, flexibility and durability. A capitalist economy in which we find some important degree of adaptability, versatility and durability in the nature of capital goods also means that the Austrian capital theory underlying the Austrian business cycle theory (ABCT) is not a realistic vision of modern economies.

The problem with this analysis is that Austrians already know that a particular item can, in different situations, be considered a consumer good or a capital good, depending upon the state of mind and plans of the economic actor:

Although Rothbard’s discussion of the ham sandwich (pp. 8–9) is a useful introduction the concept of stages of production, even here the classification of goods ultimately relies on the subjective plans of individuals. There is not an objective “fact of the matter” about the order (first-, second-, third-, etc.) in which a certain good should be placed. The classification depends upon the means-end framework as conceived by the relevant individual. See Robert P. Murphy: "Study Guide to Man, Economy and State", pages 11-12.

Murphy further notes that:

The structure of production concept is also a particularly Austrian feature. By classifying goods as first-, second-, third-order, and so on, the Austrians never lose sight of the fact that production takes time. Murphy at page 9.

A purpose of the "structure of production" analysis is to emphasize that production takes time AND that the structure and how to analyze it must be based upon the subjective valuations of the participants. 

Finally, as a general observation, the Austrian concept of "economic calculation" is ubiquitous in the real world and in Austrian analysis. No Keynesian anywhere seems to understand it (or wants to) and "Lord Keynes" is always adamant about distorting it while failing to understand it. Economic calculation is what allows that market participants to accurately price each of the zillions of factors that make up the structure of production as it develops over time. Keynesian policies are based upon providing funny money and government spending subsidies which MUST distort economic calculation because the resulting transactions could not have been based upon purchases derived from the actors' own savings. Even the Keynesians admit that THE RESULTING TRANSACTIONS WERE INDUCED BY THEIR KEYNESIAN POLICIES (or else there would have been no point to imposing the polices). 

The impact of Keynesian policy is distortion analogous to a company owner directing his 2 million employees to purchase his daughter's latest popular music CD which few people actually enjoyed. No sane person would claim that the sales totals and proceeds for this CD had provided an accurate measure of what types of popular music the public would be willing to VOLUNTARILY purchase with their own savings. Similarly, Keynesian interference in the pricing process seriously distorts the pricing process of complex capital projects that are completed over time. 

Likewise, Keynesian interference in the pricing process produces asset bubbles which result in horrific "debt deflation" when the bubbles pop. This is a simple and straight forward application of basic Austrian concepts. Keynesians seem to recognize that the current system results in bubbles and debt deflation but suppress and obfuscate the cause, economic miscalculation induced by their own foolish policies. A bizarre result of this purposeful denial and obfuscation of the basic Austrian concept of economic calculation is the Minsky-ites.

Keynesians like "Lord Keynes" cannot allow the public to understand these basic truths so he does what he does to obscure those truths.