Macroeconomics...

[Treize]

I had economy lessons at school like we all did. Now my teacher was an obvious Keynesian and I pretty much understand the keynesian basics. But appearantly there is a big dispute today which is the best economic model, Keynes or the 'Austrian School'? I don't really understand the latter, it revolves about saving or something so could someone give me a short summary of the Austrian theory so I don't have to look up on Wikipedia.

The second purpose of this thread is to discuss macro economics in general.

[Claudius Gothicus]

I had economy lessons at school like we all did. Now my teacher was an obvious Keynesian and I pretty much understand the keynesian basics. But appearantly there is a big dispute today which is the best economic model, Keynes or the 'Austrian School'? I don't really understand the latter, it revolves about saving or something so could someone give me a short summary of the Austrian theory so I don't have to look up on Wikipedia.

The second purpose of this thread is to discuss macro economics in general.

There's no real debate between Austrians and Keynesians, in fact Keynesians reconciled themselves, methodologically, with Neoclassics back in the mid twentieth century when the ''Macroeconomic Neoclassical synthesis'' was completed. But Austrians and Keynesians debating is like Aristotelians vs Newtonians, simply not doable.

What we have nowadays are Neo-Keynesians(which are the mainstream of Heterodox economics)

-Paul Krugman.
-Paul Samuelson.
-John Hicks.
-James Tobin.
-Joseph Stiglitz.

And others, while on the other side of the mainstream specter there are the ''Orthodox Economic Schools'', people like:

-Milton Friedman.
-The Chicago School.
-Robert Mundell.
-Supply Side Economics and the like.

Austrians are in no place near any Ministry of Finances anywhere in the western world and have been pushed toward marginal(which is rather ironic since their most important contribution was the Systematization of the Marginal Utility theory) spaces within the economic schools.

Also, I'll expect Enemy of the State to show up in any minute to dispute what I've just said.

[Platon]

There is a third one also..

[Claudius Gothicus]

There is a third one also..

Marxian Economics, yes that's another School of Macroeconomic Thought as well, even though I tend to see Marx's wrtings as more of a Systemic apporach to capitalism and less of an ''economic theory''.

For me Marx's wrtings are the formalization of how does the whole Capitalist Society works like, in a systemic form, not a theory of economics per se.

But yeah the spectrum of school's would be something along the lines of

MARXIST SCHOOL----

INSTITUTIONALISM----

NEO-KEYNESIANS----
vs
NEOCLASSICAL----

CHICAGO SCHOOL----

AUSTRIANS----

[Enemy of the State]

How can Marxists still believe in the labor theory of value? I honestly can't grasp how someone could still believe value isn't subjective.

[Claudius Gothicus]

How can Marxists still believe in the labor theory of value? I honestly can't grasp how someone could still believe value isn't subjective.

It's an ontological compromise, you can't throw it down the toilet if you wish to stay within the School's boundaries.

The idea is that the ''subjective theory of value'' is nothing but a merely ''surface like theory'', highly important to the understanding of how do individuals act more or less ''ideally'' under the functioning of the Capitalist System. But of none importance to the grasping of how does the Capitalist System actually turn the ultimate force of material production(Labor) into what it is today, according to marxists.

What Marx did, like all Classical Economists before him, was to look at the ultimate form of value, he found out that labor was the only thing that really continued influencing through the ages the value of an object. Therefore the real value lied in labor and not in scarcity, demand or supply. The validity of turning that into surpluss value theory is rather questionable.

It's a rather interesting form of looking at things, specially considering how strongly do philosophical compromises and systemic thinking actually blend in Marx's Das Kapital. Not that I actually agree with it.

Another interesting point is that when it comes to debating the really important ontological compromises of Economic Knowledge the true debators should be Austrians Schoolers and Historical Schoolers, yet they hardly exist any more, I guess it has a lot to do with the rather pragmatic twist that economics made during the mid 30's.

[Basil II the B.S]

How can Marxists still believe in the labor theory of value? I honestly can't grasp how someone could still believe value isn't subjective.

Marxism is pretty much a religion nowadays. You have an evil to fight, and the promise of a reward at the end.
We are definitely not in the field of economics anyways.

[dogukan]

Nice thread, hoping to see enlightening arguments here

Marxian Economics, yes that's another School of Macroeconomic Thought as well, even though I tend to see Marx's wrtings as more of a Systemic apporach to capitalism and less of an ''economic theory''.

I think its more about a perspective on social change rather than an economic theory. The furthest, I'd say it is "criticisms of economy and why it will change."

the role of government in economy

As for the debate between Keynes and Hayek, I always thought Hayek was more of a classical-liberal compared to Keynes's interventionist approaches.

Marxism is pretty much a religion nowadays. You have an evil to fight, and the promise of a reward at the end.
We are definitely not in the field of economics anyways.

It is like that because people who do not know anything about it put up their own version of Marxism...and then those who become "Marxists" do that based on the wrong model placed into mainstream ideas by haters.
So then a very intelligent person can come to me and tell me "oh you are telling you are a Marxist and you like those shoes. Do you know where they are made?"
Which doesnt make any sense...

[Basil II the B.S]

It is like that because people who do not know anything about it put up their own version of Marxism...and then those who become "Marxists" do that based on the wrong model placed into mainstream ideas by haters.

Possible. The other reason it that while capitalism and studies on it evolved, marxism didn't; Lenin is probably the last one worthy reading, after that all you have is religious nonsense.

[dogukan]

Possible. The other reason it that while capitalism and studies on it evolved, marxism didn't; Lenin is probably the last one worthy reading, after that all you have is religious nonsense.

It did actually. Especially in the developing world(http://en.wikipedia.org/wiki/Raul_Prebisch), many criticisms were based on Marxism while the prescriptions suggested are highly arguable.
Such as
http://en.wikipedia.org/wiki/Dependency_theory
http://en.wikipedia.org/wiki/World-systems_theory

These are more associated with Neo-Marxists, but IMO they aren't strongly related to Marxism.
-
There are still Marxists around writing theoratical stuff. And as for the time-frame you are referring to, I'd strongly argue that Trotsky's writings are pretty significant. Especially since, it was for most of the time a criticism of Soviet Union and Stalin, it sheds a good light on the dark period of so called "communism".
-

Additionaly, Marxian thoughts, especially in the field of sociology are very much integrated and are in use commonly, even by non-Marxists.

[Enemy of the State]

Firstly, Austrians do not believe in a distinction between macro- and microeconomics. Economics is a social science that studies exchanges, we see no reason to make such a divide. Perhaps the most important difference between Austrian and "mainstream" economics such as Keynesianism is that Austrians do not believe mathematics and statistics can be used to prove economic theory. Instead, Austrians use praxeology, a study of human action. Economic theory must be logically deduced. Economics is after all a social science, not a natural science. While many economists use experiments to prove their theories, Austrians believe these "experiments" prove nothing. Different people react differently to different situations, and they might very well alter their behavior after being exposed to a situation for the first time. The ammount of factors that influence human behavior is so vast that it is utterly incomprehensible. People aren't machines, they are self conscious, and well aware that they are being observed, and they may alter their behavior because of it. Thus, markets cannot be modeled.

Austrian economics doesn't really have any effect on policymaking at the moment. Nevertheless, Austrian economics has had a profound influence on "mainstream economics". The founder of the Austrian school, Carl Menger, was after all the person who intitiated the marginalist revolution. Ludwig von Mises and the economic calculation problem has pretty much destroyed socialism intellectualy as a viable economic theory. Friedrich Hayek and Ludwig Von Mises also came up with the Austrian business cycle theory, which states that the cause of business cycles is excess credit creation. Interestingly, both Friedrich Hayek and Ludwig Von Mises predicted the great depression, and many Austrian economists predicted the current economic crisis. It's pretty much a textbook example of the Austrian business cycle theory. The school has experienced quite a revival since the crisis began. If you're interested in more, the Ludwig Von Mises institute website has lots of free material you can read. http://www.mises.org

[Sadreddine]

The main difference between the two systems would be their position about the validity, legitimacy and benefit of a central banking system, fractional reserve private banking, the role of government in economy and finance, and fiat money in general.

Essentially, Austrian theorists argue that the Keynesian system reliance of a central bank monitoring and controlling the economy and finance by monetary and fiscal policies is what has been causing the economic cycle of booms and crashes, that is, that such a trend is actually systemic. This would be explained by the fact that both the central bank itself, and the private banks it lends to by means of the discount rate, operate under the fractional reserve system which ultimately means that banks are lending money they actually don't have in the first place, and getting rich for it. To put one concrete example: in Spain, such a reserve amounts, as legally stablished, to 2% of the total of deposits a concrete bank has, which means that 98% of the money they lend they actually don't have, and also means that if at any time 3% of the clients of a bank claimed their money back, it would collapse - thus comparing the actual financial system to a state-sponsored pyramid scheme to justify artificial growth sustained by an ever growing debt of fiat money.

The cyclic crises would then be explained by the perpetual creation by the central banks of fiat money 'out of thin air' (that is, no longer backed by real value-money such as was the case with the gold standard) to sustain growth (or the creation of debt), producing ever rising inflation (economic boom as investment raises) only to reach a point when the system is 'overheated' and can only raise interest rates to cool it down (economic crash as many debt-ridden companies and institutions default).

As a solution they propose among other things to get back to a gold-backed, 100% reserve system, abolition of government-backed central banks, and the stablishment of alternative credit funds such as the Social Credit as envisioned by C.H. Douglas.

[Treize]

The main difference between the two systems would be their position about the validity, legitimacy and benefit of a central banking system, fractional reserve private banking, the role of government in economy and finance, and fiat money in general.

Essentially, Austrian theorists argue that the Keynesian system reliance of a central bank monitoring and controlling the economy and finance by monetary and fiscal policies is what has been causing the economic cycle of booms and crashes, that is, that such a trend is actually systemic. This would be explained by the fact that both the central bank itself, and the private banks it lends to by means of the discount rate, operate under the fractional reserve system which ultimately means that banks are lending money they actually don't have in the first place, and getting rich for it. To put one concrete example: in Spain, such a reserve amounts, as legally stablished, to 2% of the total of deposits a concrete banks has, which means that 98% of the money they lend they actually don't have, which also means that if at any time 3% of the clients of a bank claimed their money bank, it would collapse - thus comparing the actual financial system to a state-sponsored pyramid scheme to justify artificial growth sustained by an ever growing debt of fiat money.

The cyclic crises would then be explained by the perpetual creation by the central banks of fiat money 'out of thin air' (that is, no longer backed by real value-money such as was the case with the gold standard) to sustain growth (or the creation of debt), producing ever rising inflation (economic boom as investment raises) only to reach a point when the system is 'overheated' and can only raise interest rates to cool it down (economic crash as many debt-ridden companies and institutions default).

As a solution they propose among other things to get back to a gold-backed, 100% reserve system, abolition of government-backed central banks, and the stablishment of alternative credit funds such as the Social Credit as envisioned by C.H. Douglas.

Interesting, thank you.

[Copperknickers II]

I had economy lessons at school like we all did.

Did you? We don't study it until University in the UK, it's not offered as a subject and it's barely glanced over even in History and Modern Studies at A level.

[Treize]

Did you? We don't study it until University in the UK, it's not offered as a subject and it's barely glanced over even in History and Modern Studies at A level.

I did Economy and another free choice subject called Management and Organisation (revolving about balance sheets and all that). You can choose between 4 packages after the thrid year. Mine included History, Economy and Math A. I picked Geography and M&O as extra subjects (you need to pick two). Ofcourse next to the mandatory stuff like Dutch, English, Sports and such.

[Claudius Gothicus]

I did Economy and another free choice subject called Management and Organisation (revolving about balance sheets and all that). You can choose between 4 packages after the thrid year. Mine included History, Economy and Math A. I picked Geography and M&O as extra subjects (you need to pick two). Ofcourse next to the mandatory stuff like Dutch, English, Sports and such.

Yeah down here it works in the same way, only that I chose Biology, Genetics and Chemistry.

[Thorn777]

Did you? We don't study it until University in the UK, it's not offered as a subject and it's barely glanced over even in History and Modern Studies at A level.

We had such classes too. I guess the Eton boys dont want 12 years olds to learn about simple economics like the widening gap between rich and poor at age 12.

And its not like the teacher made any conclusions back then, he just asked the class what that might bring about, the good and bad etc. So people dont give me that lefty indoctrination bull.

IMO youngsters should be all up in it. At 14/15 I could even get marketing/accounting/administrative classes etc, which greatly helped me start up my own business, for most because of creating the self confidence to do so after having my professional career as a mere worker in construction, but I guess the Eton boys dont want the masses to be in that driving seat either, sharing the market with the cooperations to much, who are able to reach that 2.8% minimum growth at all costs our pettified system needs.

@IPA

parts of Austrian economics made its way into the govt departments though, and its largely whats behind the word "neo-liberal". its the chicago boys and friedman setting the trend, and finding great fans in reagan and thatcher, who then hired such sectarian fantasists like Greenspan who came from the Ayn Rand occult. So it was never full blown Austrian economics but bits and pieces, and those caused great damage, just like it did before 1928 when it also carried great influence, even among Keynes, but who then changed his mind. After the crisis till circa 1975 it was basically dead.

[Enemy of the State]

Thorn bring actual examples.

Austrians don't look too kindly on Friedman and the Chicago school by the way.

[Basil II the B.S]

We had such classes too. I guess the Eton boys dont want 12 years olds to learn about simple economics like the widening gap between rich and poor at age 12.

And its not like the teacher made any conclusions back then, he just asked the class what that might bring about, the good and bad etc. So people dont give me that lefty indoctrination bull.

The widening gap between the rich and poor is already a leftist topic. Even without making conclusion an accusation of indoctrinating kids is well founded.

I would personally point out to the kids the gap in grades between the hard working student and lazy one instead. And then ask how many of the hard working kids are willing to share part of their grades with the lazy ones, in the name of equality of course.

[Claudius Gothicus]

The widening gap between the rich and poor is already a leftist topic. Even without making conclusion an accusation of indoctrinating kids is well founded.

It's a topic of anyone, rightists have their own solutions as well. The widening gap of the social structure is a theme of social sciences in general(sociology and economics specifically), and none or them at the right or at the left actually hold a monopoly on the subject.

I would personally point out to the kids the gap in grades between the hard working student and lazy one instead. And then ask how many of the hard working kids are willing to share part of their grades with the lazy ones, in the name of equality of course.

Given that Societies and School Classes work differently I can't really see how your argument is relevant, at all.