The Battle of the Toms

Steve Horwitz

Since we haven't had a good post on intra-Austrian issues in awhile, I thought I'd weigh in on the quickly escalating Battle of the Toms taking place out in the libertarian blogosphere.

Said battle began yesterday when Tom Palmer of Cato and Atlas posted a review of Johan Norberg's new book Financial Fiasco.  In that review, Tom veered off the road a bit to take a shot at Tom Woods' book Meltdown.  Palmer wrote:

It’s far better than the other works I’ve read, not only because Norberg is a smart guy, a meticulous researcher, and a good writer, but because it’s an exercise in economic analysis and financial journalism, with no religion thrown in. (As an example of the latter, the book Meltdown by Thomas Woods insists, contrary to the evidence, that the artificially induced boom resulted in a lengthening of the capital structure through overinvestment in too many “long-term projects.” [p. 68] In fact, what we saw was a bubble in housing, which is not a “long-term project” that will “bear fruit only in the distant future,” but a speculative investment in a durable consumer good, with an additional twist: the low refinancing rates and the inducements to refinance led many to treat their homes as ATM machines and withdraw cash to finance, not “long-term projects,” but consumption. But Mises and Hayek explained a previous boom-and-bust cycle in terms of a lengthening of the capital structure, so we must believe — we must, a priori! — that all boom-and-bust cycles must — they must! — follow the same process. That’s religion, not analysis.

Now for those who don't know the history, Palmer is a long-standing and severe critic of the Mises Institute, with whom Woods is associated.  

Woods appeared to be replying in this post over at LewRockwell.com.  Woods writes:

An observer unfamiliar with Austrian business-cycle theory might claim housing isn’t a “long-term project” and thus doesn’t fit into the Mises-Hayek story, but that would just underscore his lack of acquaintance with the Mengerian framework in which Mises and Hayek operated.  Housing is a long-term consumer durable, interest rate sensitive, that is time-consuming to build and is very capital intensive.

Bob Murphy puts it this way: “E.g., seeing a laser light show in the planetarium versus watching a street musician are both non-durable consumer goods (services); the enjoyment they provide to consumers is fleeting. But obviously to produce the planetarium show takes a much longer investment of factors of production, etc.”

The fact that people took out home-equity loans to finance consumption also fits perfectly into the Mises-Hayek framework, certainly in the Garrisonian rendering of the theory that finds both investment and consumption expanding simultaneously and incompatibly during the boom.

Stephan Kinsella, also associated with the Mises Institute, jumped into the fray with this post earlier today [UPDATE:  Stephan has since removed the post].  That post links a comment that Mario Rizzo made about Palmer being in error, but the link shows no such comment by Mario.

In addition, Palmer had emailed me last night asking for my opinion of his view of Woods.  I responded by largely defending Woods more or less on the same grounds that Woods (and Murphy) do above:  housing is interest-sensitive and takes time to build, plus the enhanced consumption we saw is consistent with Garrison's version of the theory.  I said to Palmer that the traditional Austrian story has elements that are core and others that are historically contingent, including who gets the funds and in what industry.  I said that the story Woods appears to be telling is an application of ABCT to the unique historical features of this boom.  That's how Austrians have done business since Menger and Mises, not to mention O'Driscoll and Rizzo's "typical/unique" distinction.

I also looked at the page reference Palmer cites in Woods (p. 68).  In that section of the book, Woods is simply retelling the generalized Austrian story.  He is not explicitly applying it to the current recession on that page.  He does so later in that chapter and in an earlier one, although in both cases very "lightly."  His statements in the blog posts quoted above are actually in more analytical depth than anything I could find in a quick re-skim of the book.  (Of course Woods is a historian by training - and Palmer's not an economist either, which makes this all the more amusing.)

Then to top it all off, one of Palmer's commenters shared an email that Palmer got wherein Woods wrote to Palmer's boss at Atlas complaining about Palmer's complaints about his book.

So, for the record, here's a few thoughts on this whole mess, since Palmer cares about my opinion and Woods is invoking my review in support of his view.

1. Woods is largely right on substance.  The ABCT is certainly compatible with this boom/bust, as I've argued here.  As Gene Callahan and I wrote, we need to use the language of ideal types to distinguish the typical and unique features of particular cycles.  It seems like Palmer is just assuming that the version of ABCT that came handed down from Mises and Hayek is the last word.  Roger Garrison's work suggests it's not (as perhaps does my own).

2. Palmer's reference to Woods' comments on p. 68 is somewhat misleading as it's taken a bit out of context.  That said, Woods never says as clearly, that I can find, the relationship between ABCT and the boom as he does in the blog post noted above.

3. All that said, Palmer's comments on Woods' book, even if he sort of veered on to the sidewalk to take the time to address it in a review of another book, were totally fair game.  His use of "religion" to describe Woods' Austrianism is tough language but not over the line, and certainly has to be read in light of Palmer's long-standing criticisms of the Mises Institute (criticisms which, in the interest of full disclosure, I am on record as largely seconding).

4.  Woods' letter to Palmer's boss is over the line.  If you can't take the critical heat, stay out of the intellectual kitchen.  Palmer's comments were tough, but in bounds.  Writing to someone's boss for something like that is just not how this game should be played.

5.  Palmer's comments on Norberg's book are largely spot on.  I read it on the plane this week and it's very good.  It does indeed have more depth, detail, and sophistication on the financial markets than Woods' book does.  But that's no surprise, given that Woods was writing for a more general audience than Norberg's targeted intellectuals and that Woods was hustling to get it out first.  We just know more now than we did then.  I think both books are well worth reading and complement each other in some interesting ways.

6. My review of Woods has served well for PR purposes for his book, and I appreciate his thanks in the blog post.  But folks should know two things:  a) the published version of the review does raise some criticisms and b) the original version that was too long to be published in The Freeman expanded on those and was somewhat more critical in tone than the final version.  I really do think it's a book well worth reading and that it's largely right, so when I had to cut, I cut the critical bits.

7. Kinsella should fix his link.  If he's going to write that Rizzo said something that critical of Palmer, he better have the evidence.  I can't find it at that link.

Bottom line: read both Woods and Norberg.  They are both very good books, though neither perfect.  Together, they provide a really terrific look at the Great Recession. 

Comments

[Lee Kelly]

Steve said: "Palmer is a long-standing and severe critic of the Mises Institute."

Is there anywhere I can find these severe criticisms? My preliminary search hasn't revealed anything.

[Stephan Kinsella]

Steve, "over the line" etc. is a bit too amorphous of a standard here, IMO. The question is not whether dismissing Woods's views as "religious" is "over the line"--the question is whether it's accurate. The fact that he Palmer has a fixation on the Mises Institute might explain his attack but does not justify it.

Likewise, you say Woods's letter is "over the line." Well, hey, there's freedom of speech. People are entitled to write each other letters. I think you only mean by "over the line" that you do or do not disapprove.

"Kinsella should fix his link. If he's going to write that Rizzo said something that critical of Palmer, he better have the evidence. I can't find it at that link."

What does this advice possibly mean? fix what? my link is not broken. You know the dynamic nature of the Internet. The words I quoted are now gone. The only way to fix it is to remove my post. Why would I do this? I quoted something that was on the Internet. It's not now. Its removal was not my doing. Why would I go along with other people's edits? Should the wayback machine likewise cease to exist?

[Peter Boettke]

Steve Horwitz,

I would think you would defend Tom Woods book a bit stronger against Tom Palmer's critique. First, as you point out, Tom Palmer's claim about ABCT is the elementary presentation, not the more sophisticated presentations. Second, as you point out, Tom Palmer's citation to Woods's presentation is to Woods presenting the elementary presentation of ABCT not his effort at application. Third, as you point out, Tom Palmer is wrong to think housing is not a long term process of production that is sensitive to interest rates.

In short, Tom Palmer went out of his way to take a swipe at Tom Woods for no real apparent reason of argumentative quality. Woods wrote his book quickly on the heels of financial crisis--- his was the first book out there. It was remarkable.

Of course, as time passes and additional information comes to light, more recent presentations will add more details. But Woods book has really stood the test of time so far for the purposes it served.

I have issues, but those are issues related to refined academic talk, things I would also find wanting in Norberg's treatment.

I actually think this incident demonstrates once again how the libertarian movement has become not only dysfunctional but counter-productive to the advancement of the ideas of liberty and serious intellectual thought. Everything is about chosing sides and taking shots at this or that party.

It is a waste of intellectual energy and sends the wrong signal to the young minds who are attracted to the great ideas in the history of liberalism from Locke to Nozick, and Smith, Say, Mises, Hayek, Rothbard and Kirzner --- let alone modern political thinkers such as Schmidtz and Lomasky.

Anyway, lets keep from chosing sides and instead focusing on ideas. Lets reject the modern libertarian movement as dysfunctional and counter-productive and instead talk about the real ideas of classical liberalism and radical libertarianism. Lets move beyond the politics of a political movement, and instead focus on ideas that can topple political power and usher in an era of free and responsible individuals and a true self-governing citizenry.

Lets move beyond politics.

[David Stinson]

I'm an Austrian neophyte but Palmer's remark about housing being a consumer durable and therefore inconsistent with the traditional ABCT story strikes me as superficial, for two reasons.

First, the timeframe over which houses are "consumed" (i.e., over which housing inputs are converted into consumption goods) is very very lengthy. There are few physical assets that whose economic life is longer. Presumably, therefore, a housing boom is consistent with a lengthening of the capital structure.

Second, it is generally agreed that there are too many houses in the US and other boom countries. As argued above, houses represent largely future consumption. In other words, there was overinvestment in capacity for producing future consumption goods and insufficient savings to support that future consumption. That sounds consistent with ABCT to me.

[RickC]

Steve and Stephan,

I actually saw Dr. Rizzo's comment at Bob Murphy's blog. It said something about the shallowness of Palmer's understanding of ABCT. It is gone now. Don't know what that is about.

Rick

[Adam]

Rizzo asked Murphy to remove the comment. No skullduggery there.

Contra Steve, given the context of Palmer's previous invectives I can't read "religious" as anything but an ad hominem. Quite out of bounds. That doesn't mean I think Woods should have emailed his boss, but you can't look me in the eye and say that Palmer's attack wasn't personal.

[Greg Ransom]

Hayek created the ABCT construct, and Hayek is very specific. Hayek classifies houses as production goods -- long-term capital goods. See Hayek's _The Pure Theory of Capital_.

Palmer just doesn't know his Hayek or his ABCT.

Palmer writes:

In fact, what we saw was a bubble in housing, which is not a “long-term project” that will “bear fruit only in the distant future,” but a speculative investment in a durable consumer good,

[Mario Rizzo]

I asked Bob Murphy to take down what was just an unfortunate and impolite ad hominem on my part. I was displeased with Tom Palmer's "aprioristic mockery" of ABCT (or perhaps just Woods's statement of it). My views on the ABCT have been posted over the past months at ThinkMarkets. That is that.

Better people should read my new posts at ThinkMarkets on the "recovery" and "swine flu panic."

[Greg Ransom]

Note well: Hayek's account of the ABCT does not even require the causal involvement of a central bank -- private banks and investors can set the thing in action, creating bandwagon bubble effects across the time structure of the economy, etc. See _Monetary Theory and the Trade Cycle_.

And in a later version of the malinvestment / disequilibrium story, Hayek put profits at the center of the causal story, and not interest rates, and made essential reference to changing trade offs between labor and capital goods at different relative prices.

The malinvestment / disequilibrium story can be complex in many different causal / relative price / time dimensions, and Hayek was well aware of that.

[Barkley Rosser]

Whew! What a lot of carrying on.

Well, housing is a consumer durable, the most durable of them all, whatever Hayek or the national income accounts say (and the latter include residential construction as part of capital investment, therefore technically a capital good). The only reason for doing that is if one is simply focusing on time horizons, and of course housing is probably the most interest-rate sensitive of all sectors due its long horizon (and all those 30-year mortgage involved).

That said, the bubble argument cannot be so easily dismissed. The bubble began in 1998, as I have argued here before based on data from Shiller, even though nobody noticed it for some time (we were near the peak of the dot.com bubble back then, which had everybody transfixed). The housing bubble was certainly aggravated during the 2003-04 period when Fed policy was especially expansionary. But the bubble was happening without any particular goosing from low interest rates.

As has been shown by experimental evidence, people have a strong propensity to engage in speculative bubbles way beyond the availability of financing, although easier financing makes it easier to bubble, of course.

[Current]

I agree with Greg and others....

It's obvious that houses should be included alongside long-term investments. I live in a rented one and buy it's services for a monthly fee, that's real consumption. Anybody who thinks houses are just like other consumer goods either hasn't read about ABCT properly or has an agenda.

[Steve Horwitz]

All,

I assumed that Mario's comment was there and had been taken down, but I wasn't sure. I think Stephan could have updated his post to indicate that, rather than leave Mario's comment on his blog with no evidence that Mario actually said it. Good internet etiquette would suggest that Stephan should update his post to indicate that Mario's quote is gone. It's just odd to hit the link and not have it there.

Read in historical context, TGP's use of "religious" was most likely an ad hominem shot. But in the blogosphere, that's small potatoes.

Yes, people can write letters to their friends (Woods to Alex C) and that's freedom of speech alright. But when the recipient has structural power over the subject of the letter, it's never "just a letter." That won't convince Stephan, but then again I rarely do. ;)

I would have defended Woods more strongly if I could have found more clear evidence *in the book* of the argument he made in the blog post. The book isn't nearly as clear.

And, yes, Pete is right. My point in going through this little exercise was to try to find the Garrisonian middle ground and see what was true and not true in this little spat, and try to get both Toms to see that they each over-reacted in their own way. And to point out that, on substance, Woods is right and Palmer is wrong.

Both Toms let their mutual dislike get in the way here. TGP's dislike of the MI crowd surely is part of his unwillingness to admit that Woods might have got it right and TW's dislike of Palmer is no reason to react to a book review (even a somewhat nasty one) by writing a letter to the author's boss, friend or not, free speech or not.

I'll be quite honest: I was pre-disposed to not like Woods' book given my own history with the MI folks and problems I had with other of his books. Given my very vocal criticisms of the MI, it would have been easy to have taken Meltdown to the woodshed. But it's a very good book and intellectual integrity (sorry for sounding self-serving here) demands that we say so when it's true. As Pete says, the ideas have to take precedent over movement politics, period end of sentence. And I appreciate that the MI folks have linked to my review in turn.

So, yes, Stephan, my point is that both have behaved badly here. Which is what happens when, as Pete said, we put internecine politics over substance. That's one takeaway message here.

On substance, Woods is right and Palmer is wrong. If we're going to keep using ABCT to try to understand the world, that's the other takeaway message.

[Stephan Kinsella]

Pete: Nice post. I agree: "Anyway, lets keep from chosing sides and instead focusing on ideas." That means, we libertarians who favor sound, free-market economics--in particular Austrian economics--ought to cheer and support those in our ranks who put in the toil and effort to spread our ideas on all fronts. Tom Woods and his work are utterly heroic, and we all know it. Likewise, it's important to identify and criticize those who don't focus on ideas for the sake of politic and choosing sides--as you, yourself, did in your comment when you rightly note that Palmer "went out of his way to take a swipe at Tom Woods for no real apparent reason of argumentative quality."

You wrote, "I actually think this incident demonstrates once again how the libertarian movement has become not only dysfunctional but counter-productive to the advancement of the ideas of liberty and serious intellectual thought. Everything is about chosing sides and taking shots at this or that party."

I think you are right to highlight unhelpful tendencies in our movement. I don't think this means it's all about this, or that we are completely dysfunctional; to an extemt, I think the perceived dysfunction is endemic to movements, especially marginal ones. But I think we should be heartened to see works like Woods garnering popular support. This is a positive thing in our movement.

[Greg Ransom]

Barkley, no this isn't the only reason for classifying housing as a capital good. Read Hayek's _The Pure Theory of Capital_ for better reasons.

You write:

"Well, housing is a consumer durable, the most durable of them all, whatever Hayek or the national income accounts say (and the latter include residential construction as part of capital investment, therefore technically a capital good). The only reason for doing that is if one is simply focusing on time horizons."

[Greg Ransom]

Barkley, BIS chief economist William White identified the housing bubble, massive Wall Street investment pathologies, and a Hayekian disequilibrium in the economy as early at 2003 -- and personally informed Greenspan and other central bankers of the problem in that year.

GOOGLE is your friend. You can find William White's BIS reports for 2003, 2004, 2005, 2006, 2007 and 2008 on line.

Both William White and John Taylor present all sorts of date pointing to a Fed & interest rate role in producing the disequilibrium / artificial boom and inevitable bust. White did it in real time.

It's an embarrassment to the economics profession that you guys aren't familiar with his work.

Barkley:

"the bubble began in 1998, as I have argued here before based on data from Shiller, even though nobody noticed it for some time (we were near the peak of the dot.com bubble back then, which had everybody transfixed). The housing bubble was certainly aggravated during the 2003-04 period when Fed policy was especially expansionary. But the bubble was happening without any particular goosing from low interest rates."

[Stephan Kinsella]

Steve,

We cross-posted. I would not say that you rarely convince me. An outsider might say rather that we rarely disagree, and of course talk more about the parts where we do. In fact you kindly mailed me hard copies years ago of some of your and Hayek's work on the calculation/knowledge problem, before such things were readily available online, and I've always appreciated it (and learned from that).

I agree with much of your post. Our subject here is not the propriety of Woods's method of responding to an unjustified attack on him. Our interest here as Austrians--and, I think, as sincere people interested in human liberty--is to recognize and spread sound economics and libertarian principles. And to recognize those among us who labor to do so, and, as humans and fellow men of good will, to admire and express gratitude to them. What else can we do, but to try to push for liberty where we can, to spread its message, and to foster it and support those among us who rise to the challenge to try to be beacons of economic literacy and human liberty? And if, as humans--we are not merely libertarians and not merely Austrians, after all--this makes us recoil against those (especially our own, who ought to know better), then maybe we should also work against this negative reaction too, even if it's understandable.

As for my own post quoting Rizzo's public comment: such is the age we live in that I am criticized for reposting a public comment, and for not providing a sufficient clarification mere hours later, even though I did link within a couple hours to this very thread where the interested reader can easily see all the discussion one could want. What further open disclosure could be asked for on my part, I am not sure.

[Juan Fernando Carpio]

It's rather amusing to see S. Kinsella list T. Palmer as a principled scholar on the issue of IP, but Mr. Palmer never being anything even resembling friendly to anything LVMI related. While it's part amusing, part embarrassing to watch those two gentlemen go at it, at least they should use the same standards.

[slavisa]

Greg, I'm confused, which bubble are you talking about, construction boom or housing prices bubble? ABCT in my understanding would say that lax monetary policy would cause a construction boom, but here you are citing data on the price bubble.

[Roger Koppl]

I remember somone (Schumpeter? Kaldor? Sombart?) putting down Mises' theory of the cycle as a generalization of a particular Viennese housing crisis. I'm sorry I can't recall who or just when the supposed housing crisis happened. The put down suggests, however, that housing was always recognized as a "higher order good" in the sense relevant of ABCT.

[Anonymous libertarian]

Blessed are the peacemakers.

[Stephan Kinsella]

BTW, out of respect for Dr. Rizzo, and in recognition of some of the wise comments of Drs. Horwitz and Boettke, I've removed my post as well.

[Steve Horwitz]

@anonymous: does that include manufacturers of any sort of dairy product? ;)

@Stephan: thank you Stephan.

[GilesS]

Good thing there are only two Toms (as far as I know) because "The Battle of the Petes" could have been seriously confusing.

[Bill Stepp]

Tom Palmer takes too narrow a view of real estate. RE also involves investment in land, which is an interest sensitive originary (as Mises would say) factor of production. Moreover,
a lot of real estate investment went into commercial real estate, which is certainly not a consumer durable good.
If you followed the fortunes of the home building stocks the last five years, you know that many of them got caught out with land inventory that they overpaid for, which was bought on spec in anticipation of building homes for which the demand later evaporated. Las Vegas, Phoenix, and Florida were three areas where this happened.

[Bill Stepp]

Barkley is correct that the real estate bubble began in '98; it was overlooked, as he says, because everyone was focused on the dot com bubble. And by their nature, bubbles are hard to detect in their very early stages; it's not like bubbles appear on the horizon with balloons and dunce caps floating through the sky.
That said, I followed the early stages of the home building stocks outsized price gains; Investors Business Daily was on the case by early 2000, a couple years before Professor Krugman said in the New York Times that the Fed should blow a housing bubble, which it was doing all the time.
Ron Mullenkamp, a mutual fund manager, was the poster boy for the builders in the financial press. His mantra was bring me "fresh money" and I'll buy the builders, no questions asked.
In May 2005, well after a corporal's guard of Austrians had publicly called the real estate bubble for what it was, I emailed him saying I was going to short them and head for the hills. He responded that they were "good value." In his dreams.
In the real world, they should sell for no more than the growth rate of the economy plus a small fudge factor to account for the inevitable consolidation of the industry. A pe of 15 (his call) or even 12 is ridiculous.

[Tom G. Palmer]

Thanks for the link, Steve. I'm a bit surprised at the horror with which a critical comment about a book (which I called "ok," but inferior in comparison to another book, which I doubt the Woods boosters have bothered to read), not to mention amused that Woods's commitment to the life of the mind had him try to have me fired for not being enthusiastic about his book.

In any case, I have written some responses to the claims that speculation in housing is a case of lengthening or deepening the capital structure in the comments and responses to my original rather modest post praising Johan Norberg's book:
http://tomgpalmer.com/2009/11/01/norberg-on-the-financial-crisis-great/

[Bill Stepp]

I haven't read Norberg's book, but I hope he isn't claiming that the most recent boom-and-bust cycle was strictly a real estate event.
It wasn't, not by a long shot. The prices of several other asset classes got out of whack, including commodities (remember oil at $147?), stocks (housing, mortgage, and financial stocks led the way, but there were other overextended groups too), some types of bonds (debt in general was overpriced at the top), and art, to name several.

[Bob Murphy]

Tom Palmer wrote:

"I'm a bit surprised at the horror with which a critical comment about a book (which I called "ok," but inferior in comparison to another book..."

Just to clarify, no one was horrified that you said you preferred a particular book to Tom's. What bothered some of us was that you went out of your way to attack Tom on a point on which you were totally wrong, and further that you attributed it not to a simple mistake on Woods' part but because of his fanaticism.

I think everyone reading this thread realizes it, but I want to make sure someone says it to you since this seems to be how you want to frame what happened here.

[Francois]

I posted this on Tom Palmer's blog in response to his response, but it is still "awaiting moderation."

Can you tell me how it is a “disservice to the great intellects (Menger, Boehm-Bawerk, Wieser, Mises, Hayek, Kirzner, et al)” to encourage reading and teaching the insights of “great intellects (Menger, Boehm-Bawerk, Wieser, Mises, Hayek, Kirzner, et al)?

Where is the dogma, cult, church? The use of these terms is quite distasteful.

The Norberg book may well be a fine book. The critiques I have read about your post have been about your misunderstanding of the business cycle theory, including by Dr. Horwitz and Dr. Rizzo.

[Tom G. Palmer]

To clarify for those who are interested thus far: I used the term "religion" (not "fanatacism") and I stand by it. When you have a theory that is in search of events, it's a religion. Slavisa asked a very smart question above that might enable us to test the claims in Wood's book, viz., "The pool of real savings turns out to be smaller than entrepreneurs anticipated, and thus the complementary factors of production they need wind up being scarcer than they expected. The prices for these parts, labor, and other resources will therefore be higher than entrepreneurs expected, and business costs will rise. Firms will need to borrow more to finance these unanticipated increases in input prices. This increased demand for borrowing will raise the interest rate. Reality now begins to set in….” That's how he says cycles work. Did it work in this case? Did we see a construction boom and a massive shift in resources to the housing sector that collapsed, or a boom in prices, on which a house of cards had been built? As Randall O'Toole notes, the biggest price rises and subsequent falls were in the areas where construction was the most difficult. The financial crisis does not seem to have started in the construction industry and then spread outward, does it? It was a financial crisis because huge paper fortunes were built on difficult-to-value mixes of non-producing ("toxic") and producing assets; it looks a lot more like it was primarily a financial crisis, and not an unsustainable lengthening of the capital structure. Monetary causes were no doubt at the base, but what reason is there to believe that the account that Woods gives is right? It's cribbed from books written decades ago to explain other crises.

Is it "going out of one's way" to compare two books on the same topic? Really? Just how odd is it to say "I liked this book, which is better than another book on the same topic that I also read"? I read several books on the issue. I found that Woods's book is not as good as Norberg's, which I gather others on this list have not bothered to read. The reason I cited for the superiority of the Norberg book is that Norberg is more sophisticated, "with no religion thrown in." Mr. Murphy, you really need to think about your standards. It's simply shameful to think that if someone has unfavorably compared a book to another on the same topic, he has "gone out of his way." As to whether I am "totally wrong," I dispute that and ask for the evidence that we did not see an asset bubble that popped, easily explained by Anna Schwartz, for example, without having recourse to any of Mises's theories of the nature of roundabout production. Your behavior is that of a priest-inquisitor, not a scholar.

And as for dogmatism, how many of the readers of this list think it appropriate to seek to have someone fired from his job because he said of your book "it’s ok, but it does not compare well with the much more rigorous and financially sophisticated treatment offered by Norberg."? Just what do you call that? What terms come to mind?

[Tom G. Palmer]

Oops. One more point I had intended to add:

It’s sad to see smart people devote themselves to defending a theory, rather than trying to figure out the world. When Mises wrote the Theory of Money and Credit in 1912, he was trying to understand new developments in institutions. But his followers merely try to understand him. That’s the difference between scholarship and religion. It’s a disservice to great minds when the results of their investigations and thinking, debates and discussions, are treated as texts to be pored over for the truth, rather than as spurs to further investigation, thought, debate, and discussion.

[Barkley Rosser]

Greg,

Of course the Austrian tradition has long defined capital in terms of time, with Bohm-Bawerk's average period of production being the foundation of this. Curiously, while not fully abandoning that approach, Hayek also showed its limits in his Pure Theory of Capital.

Feel free to include housing in the capital stock if you like, but do keep in mind that building a house does not have the same impact on the growth of the economy as producing goods that can produce other goods, which is a competing definition of capital.

Oh, and White was hardly the first to spot the housing price bubble. I think Dean Baker beat him to the punch by at least a year.

[Juan Fernando Carpio]

But Mr. Palmer you say "When you have a theory that is in search of events, it's a religion." dismissing Mises's own account as Economics as a discipline having a nucleus that is apodictic and a method that is precisely that: the realization that even the search for data (events) implies some previous theory. Economics being what it is (a study of a complex phenomenon, with a huge number of variables) it does not allow for facts to tell us about cause and effect. They can't. Subtler points like capital or monetary theory can't be induced from data (events). They require -gasp- a theory in search of events. Events themselves won't provide us a theory. There is nothing wrong with refining that nucleus both theoretically and empirically of course, but there isn't either with trying to understand current events in the light of classic economic doctrines.

[Tom G. Palmer]

Mr. Carpio, you misunderstood my comment. Setting aside the interesting issue of the relationship between theory, history, and evidence, I find it unsettling that so many people insist that a theory regarding complex phenomena (whether business cycles or the rise and fall of empires or the spread of languages) must be true, independently of confirmation or disconfirmation by evidence, and so it's really just a matter of jiggering the facts right to show that the theory accounts for them. I'll go out on a limb for you now: if such a theory isn't testable, it's not science. If you start by saying that the theory must be right because it is deduced from absolutely certain premises, you're not "doing science." Karl Popper had some valuable things to say on the matter, as have some others who have pondered the nature of the relationship between theories and facts. You might take a look at them.

[Greg Ransom]

Tom, this is just bad philosophy of sicence you are giving us -- so bad that all of your comments could equally be said of Darwinian biology.

And you seem utterly unaware of the research and explanatory efforts of people like William White.

You are attacking cartoons -- and you are attacking these cartoons with an even more cartoonish understanding of science.

Who is this suppose to pursuade?

[OS]

Tom G Palmer,

Let's keep it very simple. Tom Woods has authored several best sellers, that level of accomplishment often attract vitriol from envious onlookers.

[Greg Ransom]

Barkley, your history of thought is wrong, the APP model was derivative, it wasn't the source of the time element in Austrian econ., not even in Bohm-Bawerk's economics. And if you'd actually have read White, you'd know that he did much more than identify a housing bubble.

Barkley wrote:

"Oh, and White was hardly the first to spot the housing price bubble. I think Dean Baker beat him to the punch by at least a year."

[Ryan M]

Before this becomes a conversation about Popperian falsification versus a priori, I would like to see Mr. Palmer respond to ABCT with respect to interest rate sensitivity rather than with respect to the misalignment of the capital structure. The former, to my knowledge, best represents modern ABCT. If his arguments are only against the Mises-Hayek ABCT, it is not relevant and are a straw man. He can't attack the oldest form of ABCT and accuse modern Austrians of not getting with the times, while ignoring the relevant modern scholarship.

[Francois]

Tom G. Palmer, it is not really people trying to defend a theory, but rather people pointing out that history does fit the theory if one takes the time to correctly understand it. Steve, Mario, Greg, and Bob back up that point.

As for some anonymous post on your blog discussing some letter sent to your boss, please provide all the proof and we can all judge that accordingly. I don't know how private correspondence has any relevance to your blog post.

The question still stands, where is the dogma, cult, church? You have proven no inkling of religiosity.

I see a lot of discussion and disagreement, but the culminating interest is to spread the message of the philosophy of liberty and the understanding of how institutions of free markets and private property lead to furthering the pursuit and achievement of human health, liberty, and happiness in ever increasing margins.

Moreover, you spoke of "loving Austrian economists," but not wanting to "study Austrian economics." So to use your own words, can you tell me how it is a “disservice to the great intellects (Menger, Boehm-Bawerk, Wieser, Mises, Hayek, Kirzner, et al)” to encourage reading and teaching the insights of “great intellects (Menger, Boehm-Bawerk, Wieser, Mises, Hayek, Kirzner, et al)?

I would hope you read the insights of Peter Boettke in this comment section and act accordingly. Even Stephan Kinsella is acting like the better man at this point which is quite a surprise.

http://austrianeconomists.typepad.com/weblog/2009/11/the-battle-of-the-toms.html?cid=6a00d83451eb0069e20120a6a156f2970c#comment-6a00d83451eb0069e20120a6a156f2970c

I must re-iterate that it is a waste of intellectual energy and sends the wrong signal to the young minds who are attracted to the great ideas in the history of liberalism.

Lets move beyond politics and the petty "the Cato book on the fiasco is better than the Mises Institute book on the crisis! No religion thrown in and it was translated from Swedish!"

Dysfunctional and counter-productive indeed. And look who started up the firestorm again? who are the cultists? Who are the incoherents?

[Avram Colak]

Barkley,

You said

"keep in mind that building a house does not have the same impact on the growth of the economy as producing goods that can produce other goods"

I maintain that a house is a good that produces other goods. Namely the other good of a "home"

A more traditional example of a good that produces other goods may be a toy factory.

To make a toy factory you have to divert resources away from present consumption and into factory creation so you can enjoy more toys in the future.

Similarly to make a house you have to divert resources away from present consumption and into the creation of a house to enjoy more of the satisfaction a home provides in the future.

You could always alternatively not build a house and enjoy whatever home you have out in the wild in the same way you could not build a factory and enjoy whatever toys may currently be in your possession.

The creation of both houses and toy factories have similar impacts on the availability of the respective consumer satisfactions they are responsible for. Creating more houses means there is a higher production/day of the consumer satisfaction of "home" creating more toy factories means there is a higher production/day of the consumer satisfaction of "playing". Notice too that eventually these same toy factories that once produced "playing" might, due to a shift in consumer preferences, no longer be able to produce that. Just as the same building that once provided the satisfaction of a "home" might do the same.

In the sense that all creating more houses and factories results in is the creation of more of some kind of consumer satisfaction/day than previously, I think saying "creating more houses doesn't have the same impact on the growth of an economy" isn't necessarily correct.

More houses provide more people with more of their wants than less houses. And the more houses accumulate (providing that technological or demand shocks don't make them non productive goods, just as technological or demand shocks can do to any tool, material or factory) the wealthier society is in much the same way as if more tools and equipment were accumulated.

[Stephan Kinsella]

"I'll go out on a limb for you now: if such a theory isn't testable, it's not science."

One problem with this scientistic-positivistic view is that on its own terms it's not science, since this theory is not itself testable.

Likewise, Mises writes in Ultimate Foundation of Economic Science, p. 5: "The essence of logical positivism is to deny the cognitive value of a priori knowledge by pointing out that all a priori propositions are merely analytic. They do not provide new information, but are merely verbal or tautological, asserting what has already been implied in the definitions and premises. Only experience can lead to synthetic propositions. There is an obvious objection against this doctrine, viz., that this proposition that there are no synthetic a priori propositions is in itself a—as the present writer thinks, false—synthetic a priori proposition, for it can manifestly not be established by experience."

See also on this topic Hoppe's Economic Science and the Austrian Method, In Defense of Extreme Rationalism, p. 199, and The Economics and Ethics of Private Property, pp. 271-72.

[KurtP]

Mr Palmer,

Under a Popperian view of science, the disciplines of math, logic, and economics, aren't sciences either. I think Michael Oakeshotte's idioms of understanding - differing between intelligent and mechanical theorising - explain it all very well. Or maybe all you economists out there really are just "religious nuts".

[Stephan Kinsella]

"I'll go out on a limb for you now: if such a theory isn't testable, it's not science."

One problem with this scientistic-positivistic view is that on its own terms it's not science, since this theory is not itself testable.

Likewise, Mises writes in Ultimate Foundation of Economic Science ( http://mises.org/books/ufofes/prelim4.aspx ), p. 5: "The essence of logical positivism is to deny the cognitive value of a priori knowledge by pointing out that all a priori propositions are merely analytic. They do not provide new information, but are merely verbal or tautological, asserting what has already been implied in the definitions and premises. Only experience can lead to synthetic propositions. There is an obvious objection against this doctrine, viz., that this proposition that there are no synthetic a priori propositions is in itself a—as the present writer thinks, false—synthetic a priori proposition, for it can manifestly not be established by experience."

See also on this topic Hoppe's Economic Science and the Austrian Method ( http://www.mises.org/esandtam.asp ), In Defense of Extreme Rationalism ( http://www.mises.org/journals/rae/pdf/rae3_1_16.pdf ), p. 199, and The Economics and Ethics of Private Property ( http://www.hanshoppe.com/publications/#econ-ethics ), pp. 271-72.

[Barkley Rosser]

Greg,

Every history of thought work I know of identifies Bohm-Bawerk as the source of the APP theory, and Hayek spent a great deal of time worrying about it and in the end coming to be frustrated with it. Do you wish to correct this story? Is Menger really the source here? Be my guest. (Oh, and I do know that Nassau Senior emphasized the role of time and impatience, if you want to drag that non-Austrian into the story.)

Looked at White. He did not call the housing buble until 2006. Duh. Lots of us called it well before then. Oh, back in 2003 he warned about CDSs. Good for him, but they are not stopped by raising interest rates, which was his fuss with Greenspan back in the 90s.

Of course you see raising interest rates as the way to stop bubbles, but given the strong propensity to bubble out there, the degree to which they must be raised may be so great as to cause deep recessions or depressions.

Avram Cook,

Um, but producing machine tools allows one to build more houses. Building a house simply allows one to consume housing services from that one house for its lifetime. Real capital investment grows the eocnomy more than building houses. Indeed, this has long been one of the problems with the US economy, all the tax breaks to stimulate the housing sector have led to way too much building of houses and not enough investment in other industries.

[Avram Colak]

Barkley,

You can also produce more machine tools that produce more machine tools that produce more housing, and you can always produce more tools that create these machine tools that produce the machine tools required to create housing.

When do you stop going up this chain?

Its sorta like asking which came first the chicken or the egg?

When you look at the amount of "home" you have a day with no new housing being produced you have some constant amount lets and it never changes. Similarly, if you look at how many consumable apples you have a day considering no new orchards are produced you have some other constant amount (assuming all apples made are consumed). Now with houses being produced at a rate of 1/day you will have the amount of "home" consumable increasing daily by one. If you have the amount of apple orchards increasing by one a day you'll have the amount of consumable apples/day increase as well.

Sure you can say "well if we produced the tools required to make houses we'll be able to make more houses a day, leading to even more home/day/day" and that's true, but you're just sorta saying the second derivative of home/day should be increased before the first.

You could similarly say yeah well the real capital goods in apple production aren't the orchards but that goods that produce the orchards.

However I think this is silly

I like to think of capital goods as anything that first requires the actor or some group of actors to engage in a temporary reduction in present consumption, in order to enjoy greater consumption in the future. I think this is a good simple definition that entails the Austrian time dimension of capital. Houses, for the reasons I explained above, fit this bill.

[Bob Roddis]

I have been a reader of LRC and Mises.org since at least 2000 or 2001. In that time, I’ve heard Lew Rockwell explain many times (especially in his podcasts) that fiat money creation causes many insidious ill-effects beyond simply distorting interest rates and long term capital investments. Clearly, fiat money creation distorts all prices making rational economic calculation very difficult. The most obvious (and most important) price that is distorted would be interest rates. Also, it seems obvious that one ill-effect of fiat money would be that many investors over-estimate the number of potential BUYERS for their various projects. (Some projects run out of bricks, others find they have no customers). Many people bought houses as a hedge against the falling dollar but overestimated the number of potential buyers BECAUSE OF FIAT MONEY DISTORTION. This is clearly another insidious effect of fiat money that should be mentioned more often, especially for the general public which has no understanding of these effects whatsoever.

I would agree that if someone’s criticism of the Fed leaves out these other ill-effects and only mentions interest rate distortion then that person is not giving a full explanation of what’s wrong with the Fed. However, such a superficial explanation is not due to religious fanaticism at LCR or Mises.org. Mr. Palmer’s statement suggesting that there is some irrational fanaticism at LCR or Mises.org that forbids mention of the ill-effects of fiat money beyond interest rate distortion is simply a baseless gratuitous ad hominem attack worthy of someone like DeLong (see http://www.auburn.edu/~garriro/mainstreammacro.pdf) who has no familiarity whatsoever with ABCT.

[Bob Roddis]

This is hopefully a better link to Roger Garrison discussing DeLong:

http://tinyurl.com/m2zo2l

[Sheldon Richman]

Isn't the question whether housing is a consumer or investment good a side issue? (It's two, two, two mints in one!) What seems to count more is that a housing boom will activate early stages of production: tree-growing, glass-making, brick-making, machine-manufacturing, iron-ore mining, architectural work, etc. There's the lengthening of the structure of production in the Mises-Hayek story. Houses aren't built in a day with inputs lying around on the ground. The inputs have to be produced. There might be inventories of some inputs but not enough to make a boom.

Stephan's free-speech comeback is odd, yet people do this all the time. One cannot blunt the criticism of some speech act by invoking the First Amendment, since the criticism was not directed at the speaker's rights but rather at the propriety of the act. (To say Woods shouldn't have written to Chafuen is not to say that Woods had no right to write to Chafuen.) The fallacy implies a form of moral relativism -- that anything one has the right to do is proper and beyond criticism -- which is ridiculous.

[Bill Stepp]

Re: the APP, Rothbard blew it to smithereens in Man, Economy, and State.

[Steve Horwitz]

Let me just ask that folks keep this discussion to matters of substance to the degree possible. There's plenty of really good issues being tossed about here and we should be able to tackle them while avoiding personal stuff. I won't hesitate to delete comments that head this off into ugliness.

[Current]

Regarding this Average period of Production (APP) discussion....

Greg is fairly much right about this... The early marginalists Jevons, Menger and Senior all discussed the association of time and capital. Bohm-Bawerks created the idea of the average-period-of-production to deal with the problem. Later Austrian economists, including Hayek, Mises and Machlup found the concept inadequate. They then did two things, they went back to earlier work. Hayek began using Jevon's triangles. And they developed new and better ideas themselves. It isn't the case that Bohm-Bawerk's APP introduced the connection between time and capital, which was later refined, the connection was already there.

As Bill mentions the problems with APP are discussed in MES. That discussion though is mainly from "The Pure Theory of Capital". I think Rothbard references TPTOC there.

Regarding Barkley's comment:
"Um, but producing machine tools allows one to build more houses. Building a house simply allows one to consume housing services from that one house for its lifetime. Real capital investment grows the eocnomy more than building houses."

As Avram Cook points out this doesn't really make sense.

If a houses is built then it provides a service of shelter each month. This is not that different from a capital good. Compare it to a warehouse that shelters products. The warehouse helps to produce goods certainly, rather than producing a consumer service. But, there is no way to be certain which is the most beneficial to overall economic growth.

[George Selgin]

Tom Palmer is essentially correct in his criticism of those who insist on the a-priori "truth" of the ABCT. There is no end to the number of potential theories of the business cycle that would all be equally true according to this criterion. The a- priorists confuse the truth of a theory with its logical validity.

[Lode Cossaer]

If I get this right, Mr. Palmer (who I respect) has methodological problems with the ABCT and calls it 'religion'. Woods (and others) (who I respect just as much) disagree and really dislike the term 'religion'. Since I'm more on the Woods side on the methodological debate, I understand their anger. I hate it when people talk about the methodology I use as being 'a religion'. I have no problem accepting that Mr. Palmer didn't want to insult the A priorist (you-know-who-I-mean), but I hope Mr. Palmer in return can accept that it can be interpreted quite insulting - even if that was no part of his intention! - if the method one follows and tries to argue for, is called 'a religion'.

I think that started the whole problem and if we can get this fixed, then we can move on in defending liberty.

[Lode Cossaer]

And it might be a good thing to add to just establish that there are methodological differences. I think we have figured it out by now.

Now; can we please move on?

[K Sralla]

"When you have a theory that is in search of events, it's a religion."

That is a statement of nonsense, unless you think science itself is a religion.

What you define as "religion" is exactly what many scientists spend their professional lives doing. We eagerly search out real-world examples to test theory and see how well it might be applied. This is in fact the method by which most scientists determine if a theory is in fact robust, or may require further tweeking. Did you ever see the movie Twister? Remember all those meteorologists eagerly putting their lives on the line chasing tornadoes?

Tom Woods wrote a very interesting popular book which highlights to the layman how Austrian Cycle Theory might be a robust explanation for a real-world case study. You criticized the book, apparently based on your own faulty understanding of the theory itself. You should repent!

One of the dangers in religion is that emotional fervor can cloud sound reasoning and create intellectual bias. Could it be that it is your emotion, and not that of Tom Woods, that has clouded the analysis in this particular case?

[Josh]

Go Tom!

[Steve Horwitz]

It’s ironic Tom that you would refer to (some? many? all?) Austrians as “religious” and concerned only with “studying” Austrian economics and then find yourself being, rightly in my view, criticized for an outdated, “fundamentalist” understanding of the theory. The point that all sides within AE are making in this debate is that Austrian economics is NOT a dead set of ideas from the 30s to be “studied” but rather a set that has evolved and been improved upon on the decades since. Thus the theory as you understand it and the theory as it has come to be understood are different, thanks mostly to new scholarship and applications in the last 20 or 30 years.

The comments on your own blog that condescendingly reduce Roger Garrison's contributions to "powerpoints" also reveals your ignorance of these advances in Austrian theory that demonstrate that it need not be "religious" dogma. Roger's Routledge book and numerous refereed articles, including ones outside Austrian outlets (see his 2004 HOPE paper on over-consumption, which would help clarify the criticisms of your view that many have made), have advanced the theory in major ways. Your "he's a nice man" acknowledgment aside, those contributions deserve far more respect that your condescending powerpoint comment. Taking that sort of swipe at Roger is one good way to ensure that even your friends are going to abandon you on this one Tom.

The very thing you are being criticized for is evidence that your charge of “religious” belief and AE just being “studied” is misguided. The more this continues, the more it seems that YOUR understanding of ABCT is the fundamentalist one, not those of us who are trying to understand if, when, and how it might illuminate the world.

[Sheldon Richman]

George Selgin writes, "There is no end to the number of potential theories of the business cycle that would all be equally true according to this [a priori] criterion."

I don't see how this can be true if they begin with the action axiom and proceed without logical flaw. Please elaborate, George.

[Lode Cossaer]

I second Sheldon's comment.

[Greg Ransom]

The issue of the truth status, logical status and empirical applicability of complex scientific theories is very different and much more complex than you think, George.

The "logical" status of the elements which go into economic theory don't fit into Kant's categories -- (in fact, even language and logic and physical science don't fit, read some Wittgenstein).

Darwinian biology can't be "tested" the way folks with a bogus image of science demand, and "there are no end to the number of potential theories" of adaptation and the origin of species which might be true, which don't offer causally non-magical explanations -- (ditto most of the rivals to Hayekian macro).

Darwinian biology is very much like Hayekian macro -- it consists of a logically and causally connected set of familiar elements well known to our experience. And the connected problems to be explained are similarly well known to everyday experience, and often unperceived outside of theory and a special way of looking at the problem, developed over time by people thinking things through.

Much of Darwinian biology is about applying that explanatory template to the world -- a practice the scientifically ignorant deride at "just so" stories.

Is entrepreneurial learning in the context changing local conditions and global relative prices an "a priori" understanding or is it a causal element in the world we know "empirically"?

More pointedly, what is the "Kantian logical status" of the fact that other humans share a common logical structure of mind we can recognize (e.g. the capacity for ordering their plans within the structure of marginalist valuation). Is all this stuff empirical, a priori, analytic .. what?

Wittgenstein gives us a hint -- these categories place us in a pathological fly bottle, they produce 5th wheel conceptions, they give us doors without hinges for turning.

The fact is, Tom Palmer's "philosophical" criticisms of the ABCT are far more off target than are those with an un-subtle "a priori" picture of explanatory economic constructions.

And I'd equally suggest that only a very confused view of what Hayekian macro is about can imagine that there are "rival" accounts of the business cycle which don't at there core implicate the causal features of Hayekian macro -- discoordination in heterogenous production processes, heterogeneous labor inputs, interest rates & profits, consumption, and resources that the economic or non-economic depending on the structure of relative prices across the time structure of the economy.

Hayekian macro IS NOT Rothbard -- and I'm continually shocked at how many "Austrian" mistake Rothbard's crudest "ABCT" constructs for all the stuff on cycle theory Hayek produced between 1925 and say 1948.

Hayekian micro is about working out the micro details of discoordination across the time structure of the economy in all of the important interrelated dimensions -- heterogeneous labor, profits, consumption, heterogeneous production, relative price sensitive economic / non-economic inputs, interest rates, etc.

Read Hayek's works of 1941, 1937, 1929, etc. and you will see all of this various stuff -- most of which people LEAVE OUT when they provide their cartoon accounts of "ABCT" theory. The problem isn't with Hayekian macro, the problem is with the cartoon which passes as Hayekian macro.

George writes:

"Tom Palmer is essentially correct in his criticism of those who insist on the a-priori "truth" of the ABCT. There is no end to the number of potential theories of the business cycle that would all be equally true according to this criterion. The a- priorists confuse the truth of a theory with its logical validity."

[Dave Prychitko]

A progressive science, as I understand it, tries to explain new events/discoveries while retaining that which allowed it to explain previous events. I agree with Steve that the developments in Austrian macroeconomics over the past two decades preserve that which Mises/Hayek tried to explain while also accounting, for example, for issues of recognizable over-investment and over-consumption, as in Garrison's HOPE article. I don't think we have here dogmatic insistence and hand waving. With the evolution of new institutions and events we have an evolution of theory.

[Lode Cossaer]

Greg Ransom,

When you say that Hayekian Macro is not Rothbard, do you mean that Rothbard was just flawed, or just not in dept enough in most presentations or what exacly? (I'm just curious, because I'm a student trying to learn AE and if there are (important) differences of flaws or whatever, then it can come in handy if I know them beforehand. :p)

[Stephan Kinsella]

@Sheldon:

I had written: "you say Woods's letter is "over the line." Well, hey, there's freedom of speech. People are entitled to write each other letters. I think you only mean by "over the line" that you do or do not disapprove."

You replied: "Stephan's free-speech comeback is odd, yet people do this all the time. One cannot blunt the criticism of some speech act by invoking the First Amendment, since the criticism was not directed at the speaker's rights but rather at the propriety of the act. (To say Woods shouldn't have written to Chafuen is not to say that Woods had no right to write to Chafuen.) The fallacy implies a form of moral relativism -- that anything one has the right to do is proper and beyond criticism -- which is ridiculous."

I agree with your latter point. I do not mean to imply that just because speech is rightful that means it is not criticizable. I was instead pointing out that "over the line" is an amorphous complaint, and that all I can tell from it is that Steve didn't like it or disapproved of it. It was not clear what ethical line Steve meant, etc. But I agree with Steve we should stick to substance so I won't dwell on this any more. But I did want to note that I do agree with you on the relativism point.

[Sheldon Richman]

There could potentially be more than one sound (a priori) explanation for boom-busts in a particular industry or set of industries. The economist's task would be to examine an event and see which one applied. A bad economist would assume a priori that Explanation A applied, when it might have been Explanation B.

[Greg Ransom]

Barkley, Karen Vaughn and others have written on the ways in which Carl Menger originally put the "time" element into marginalist economics.

Bohm-Bawerk developed the logic of choice over time in the first instance in the individual choice situation -- pointing out that people will only to employ production processes with take more time when that process produced superior output.

Only later did Bohm-Bawerk go "Ricardian" -- making the mistake of undermining his marginalist logic by attempting to stuff his marginalist logic within an non-marginalists "objective" aggregate construction of the backward looking "classical" kind pioneered most famously by Ricardo.

The Austian/Bohm-Bawerkian macroeconomist Knut Wicksell discovered problems with this construct at an early date. Hayek was aware of those problems in the 1920s (he wrote his dissertation on this stuff). Into the 1930s Hayek believed the APP construct had at least limited pedagogical utility -- he gave up on that thought when other economists became obsessed with thinking about the implications and flaws in the construct.

Hayek himself then found new fatal flaws in the construct -- e.g. Hayek discovered the "Cambridge" problems, among many other things.

It took a long time to see how Ricardian backward looking macro is incompatible with forward looking marginalist micro -- a lesson most economist still haven't learned. And note well -- the insight is the very heart of Hayek's case against Keynes and the British and American traditions in economics.

[K Sralla]

"It’s sad to see smart people devote themselves to defending a theory, rather than trying to figure out the world"

The trouble is that it is very hard for us mortal humans to understand the universe without some kind of theory as a starting place. No scientist actually starts tabula rasa. That is a very popular but incorrect layman's perspective of how science works. Obviously, the true scholar is always open to modify theory in the face of contrary evidence, or even replace old theory with new theory.

[Greg Ransom]

Imagine Tom Palmer telling this to Ernst Mayr or Richard Dawkins or Niles Eldrege or Alex Rosenberg or Michael Ruse:

"It’s sad to see smart people devote themselves to defending a theory, rather than trying to figure out the world"

Imagine Tom telling this to Charles Darwin ...

[Peter Boettke]

Look, this is just another case in point where internet discussion is making everyone involved stupid.

Why doesn't everyone involved go back to their own business of actually DOING intellectual work. I don't need anyone to tell me what science is or isn't, I am busy DOING economics --- the thinking, teaching, speaking and writing of economic papers.

We don't need 8th grade versions of philosophy of science bouncing around to tell us who is and who isn't doing science --- especially from people who don't do science themselves.

And Austrian economists don't need people scolding them about testing, or about how sad it is that they don't try to figure out the world. The fact is those of us who are ACTUALLY engage in the scientific community of economics are trying to figure out the world everyday and figure out what the best way to communicate what we have learned from our studies to our students and to our peers.

As I said in my original comment to this thread, this entire episode is symptomatic of the entire dysfunctionality of the libertarian movement. Lets stop wasting time on nonsense.

How sad it is that a movement that is so well endowed with great ideas has been so impotent in the face of the challenges this past year has presented us.

[Lee Kelly]

I agree with George. A lot of Austrians seem to confuse validity with truth. However, since, most of the time, the premises Austrians begin with are true, the confusion doesn't generally result in erroneous conclusions. There is a lot of insight to be had from analysing the logic of human action, in my opinion. However, Austrians seem to mistake this with doing science (or just employ an unconventional definition of "science"); in either case, Austrians are often not doing science as it is normally understood.

Science begins when Austrians take these logical constructs, replace the variables with specifics, and begin trying to describe the facts. At this point their claims usually become falsifiable hypotheses, or at least in principle. It is always possible to evade recalcitrant evidence with ad hoc maneuvers which, though logically viable, alter the original terms of testing. Neither logic nor experience will force upon scientists a conclusion; the experimenter must *decide* to put his theories at risk, otherwise nothing can be learned by empirical testing.

[Greg Ransom]

Pete -- core-deep "philosophical" pathologies in the our intellectual tradition have OFTEN shaped the content and development every one of the special sciences, and perhaps NONE more than economics. I'm guessing in a long conversation we'd be on the same page here.

We can't understand the research programs of Schumpeter, Friedman, or Samuelson without looking at the central role of problem of "philosophy" in their work -- problems with making sense of the use of empirical data, mathematics, etc. in economic. For example, Friedman's central work -- his monetary theory -- grapples at a core level with the problems raised by Columbia University economists attempting to do the empirics of demand schedules. Hayek directly connects Schumpeter's Machian picture of science to Schumpeter's massively influential picture of the future direction economics and how micro can help us understand the economy and socialist calculation.

Do I even need to rehearse theSamuelson story?

It's brain dead to claim that "science" is independent of our sometimes deeply pathological "philosophical" pre-conceptions -- when we "discover" these and toss them "out of science" we stop thinking of this stuff as part of "science" and begin insulting it as "philosophy" (part of why we can't talk about this stuff sensibly, the language spins the conversation). We STILL call many of the hardest and unresolved problems at the core of our sciences problems in "the philosophy of X", etc., and when they get solved we call the solution "science" and the confusions and mistakes "philosophy" -- even while the hardest scientific/conceptual problems are often called "philosophy of X problems" (read the philosophy of biology for examples, e.g. the work of David Hull or Alex Rosenberg).

There is NO principled "demarcation" line between "science" and "philosophy" -- this is perhaps the central lesson of the work of Kuhn (or even of the work of Quine, Rosenberg, and the other "Mill/Mach/Carnap/Hempel" tradition analytic philosophers).

Tom Palmer's remarks on the nature of science are laughably false and unsophisticated and off target, but this subject of the relations between "philosophical assumptions" and how to provide sound casual explanations in economics (or even what that means) is not a problem outside the core of the problem with is good economics (or the project of diagnosing the self-evident and widely exposed pathologies of the "science" as it is now practiced and taught -- do I need to provide references for this?).

[Tom G. Palmer]

A quick note responding to Steve's comments above:

I don’t usually check my blog during working hours, but I’m eating pizza, so why not.

Steve, I certainly did not intend to be condescending to Roger Garrison, who’s a fine man. I was referring to the citation by Woods of a powerpoint on a faculty website as what everyone should have seen. My intention was not to dismiss Roger Garrison, but to refer to the Woods defense, which links to a powerpoint presentation that’s not mentioned in his book. That’s what’s relevant here — it’s not the case that’s made in the Woods book. There he just gives us old-time religion. If someone somewhere else made a different case, fine, but I was comparing two books, one of which is sophisticated and one of which is religious, not two theories.

So, did we see a price bubble, with a lot of bad mortgages that went sour and led to a financial collapse, or did we see the scenario that Woods outlines in his book for the “classical” (if you will) business cycle theory advanced in the 1930s? Woods offered us a rehashing of a theory that doesn’t seem to describe what happened. If someone else updated the theories he cites or added some improvements or epicycles, fine. But what I found in the Woods book was (on this issue) mainly religion, and not any updated or revised version. As I noted, it was ok on the tinkering in the mortgage markets, but not very sophisticated when compared to Norberg’s better treatment. Why would someone get his knickers so knotted up over that?

[Lee Kelly]

Dave: "A progressive science, as I understand it, tries to explain new events/discoveries while retaining that which allowed it to explain previous events."

No, no. A progressive science tries to explain how a free market in healthcare cannot work, why the government should control the means of production, and which technocrats are better at allocating resuorces than the price system. Check out Paul Krugman's recent work for a taste of a real progressive science in action.

[Tom G. Palmer]

The above comment was clipped from my blog at http://tomgpalmer.com/2009/11/01/norberg-on-the-financial-crisis-great/comment-page-1/#comment-14471

[Current]

What Tom Palmer seems to be saying here is that we had a bubble in house prices. We didn't have a "lengthening" or "more capital intensive" production process.

But, surely there is very little difference between these two ideas.

As we've said earlier, a house provides a service each particular day or month. We can rent the service or buy the house in order to obtain it in a longer term.

So, a house is a durable consumer good and a capital good. In a house price bubble the price of houses increases. How is this different from the price of other capital goods increasing?

[Greg Ransom]

Tom, BIS chief economist William White's work 2003-2008 is a direct counter-example to your suggestion that Hayekian macro didn't apply to the current situation, and White's work is also an adequate counter to your suggestion that your own erroneous account of ABCT or Woods' cartoon explication for the masses comprehensively limns what those using Hayekian macro have done, are doing, or can do with the Hayekian macro explanatory enterprise in the current explanatory context.

Why would someone get his knickers so knotted up over your misrepresentations? Because they misreport the actual situation, they misrepresent a vital and active current in economic science, and they attempt to marginalize the work of good scientists and economists.

[Tom G. Palmer]

My comment was on Woods's book, which you characterize yourself as "Woods' cartoon explication for the masses." That's my point. If someone else does a better job, fine. Woods didn't. You just made my point for me.

[Lee Kelly]

Greg said: "There is NO principled "demarcation" line between "science" and "philosophy"

Whether or not this is the "central lesson" of Kuhn, Quine, Rosenberg, etc., it strikes me as silly. Science is defined by how we *choose* to demarcate it from everything else -- there is no essential thing called "science" out there to be discovered. I cannot even imagine what a "principled" demarcation between science and non-science would look like. Surely we want a *useful* demarcation between science and non-science, i.e. something that is informative and relevant to the experimenter. For that, I have encountered no better demaraction than falsifiability; the objections I am aware of against it seem to miss the point entirely.

I think it comes down to what you expect a demarcation rule for science to achieve. Most seem to judge them by extremely high -- if not impossible to satisfy -- standards. In other words, what problem is a demarcation rule for science intended to solve? It seems to me that most philosophers would answer that question differently.

[Greg Ransom]

The premise of Steve's whole remark above, Tom, is that you did more than this -- Tom writes:

"My comment was on Woods's book, which you characterize yourself as "Woods' cartoon explication for the masses." That's my point. If someone else does a better job, fine. Woods didn't. You just made my point for me."

Steve conceded at the git-go that what Woods produced was a mass popular work rushed to print. One-one thinks it's anything other than that, and I can't image anyone has a problem with mass popular works, when the alternative for many is Reality TV.

Your problems really weren't with Woods, they were with ABCT theory (as you mistakenly conceive it) and any economist working with Hayekian macro. This seemed obvious to Steve, and it seems obvious to me.

Are you going to say now that you don't have a problem with ABCT theory, you did misconceive ABCT theory, and you support and encourage the work of people like William White on the current macro explanatory problem?

[Tom G. Palmer]

Read my post. The case you wish someone had made is not made in Woods's book, on which I commented. If someone else does a better job, then I'm happy. My point is not to criticize Hayek, or Mises, or you, but to compare one book with another. The book by Woods offers us what you (very harshly) term a "cartoon explication for the masses." That's strong language. The other book does not offer a "cartoon explication for the masses." It's a better book. You seem to be straining for a fight. I want someone to make a case that we should understand the crisis in this way or that that is better than a "cartoon." If you can do it, or someone else does or has, that's fine with me.

[Tom G. Palmer]

By "it's a better book" I am referring to Norberg's. When I compare two books, I usually try to recommend the better one, rather than the one that is "ok."

[OS]

Hey Tom G Palmer,

What do you call somebody who spents half of his life taking snipes at, or digging up dirt on, someone or some organization ( let's say...Tom Woods or Mises Institute)? Get help tom. Your criticism was not that Tom Woods book is a cartoon, but something specific in p.68 where he draws insights from experts on ABCT. Your problem is with Tom Woods, and your religious denial of something you know very little about - a.k.a ABCT.

[Gregory Rehmke]

When a fight breaks out it draws out attention, whether in sports, politics, or academia. We find it hard to turn away from a fight, or change channels during a long television car crash. Probably our brain deep down looks for lessons that could help in future conflicts. Fights are fun to watch and generally a waste of time. But for young academics, maybe it isn't a waste of time to try to identify avenues of thought that might consume years of study and research. Going to the wrong summer seminar or internship can set a young scholar on a path of narrowing passion to decode some long-forgotten academic issue, and losing valuable months or years from more fruitful research.

[K Sralla]

Tom Wood's book was an unusually sound popular work from a public intellectual who is not an economist. From what I am hearing, the real economists here seem to agree that it was a worthwhile educational effort for the masses, and your technical point upon which you (also not an economist) attacked it was faulty. I think I might take the advise of the pros, admit you might be wrong on the technical merrits of your argument, and move on.

The major cause of the fight however, is your stubborn labeling of the Woods book as "religion". That is deeply offensive, even to your friends. It is also a tired, cheap blog trick to discredit someone who you publically disagree with. As an observer without a dog in this fight, may I humbly suggest that the only religion that I see here is that you are mad as hell at Tom Woods.

[Current]

Gregory Rehmke,

Actually, I've found some of the long flamewar's here very enlightening. No Joke.

See the ones on fiduciary media for example. (Not that we need any more of those, they *were* interesting).

[Steve Horwitz]

Once again, let's please watch the rhetoric. I've already deleted one comment and blocked the commenter and I won't hesitate to do so again or close comments on this thread.

I think there's issues worth discussing here, for those who think their opportunity cost is low enough, but only if it can be done civilly and without ad hominems.

[Greg Ransom]

Tom, I pointed out that William White already did this -- using Hayek -- in 2003 ... and again in 2004, 2005, 2006, 2007, and 2008. Very sophisticated stuff is out there, if you are truly interested.

Tom writes:

"I want someone to make a case that we should understand the crisis in this way or that that is better than a "cartoon." If you can do it, or someone else does or has, that's fine with me."

We're learning lots more all the time. I posted over 50 articles going into details of the current episode on my "Taking Hayek Seriously" web site over 6 months ago.

Most of what has come out since is just more detail filling out the story identified in those 50+ articles.

[GilesS]

"Your problems really weren't with Woods, they were with ABCT theory (as you mistakenly conceive it) and any economist working with Hayekian macro. This seemed obvious to Steve, and it seems obvious to me."

That's not particularly fair, I don't think he did take issue with the ABCT per se, just an incorrect application of it.

If I recall correctly Steve and somebody else (I don't remember who) had a discussion on the comments of another post not long ago whether the traditional Austrian story was the main cause for this recession. I think Steve said that it was the main cause and the other factors merely exacerbated it, but the point remains that it's not beyond dispute.

As far as I can see a lot of dispute concerns the use of the word "religious". Perhaps there's some truth in the use of the term, I don't think it was necessary. But it's not worth the fuss it has caused.

[Nikolaj]

What is obvious here is that Steve and Tom Palmer basically agree that Mises's and Hayek's original work was a religion (fundamentalist, "outmoded" dogma), except that Steve still wants (sometimes, not in this post) to be called a Misesian (just like Selgin, another "Misesian" who trashes the idea of apriori economic science here!).

So, Dear Tom, (I am trying to translate the message in a plain language) we are not so bad and dogmatic aprioristic fanatics as those guys from Alabama, we abandoned extreme dogmas and outmoded oversimplifications of Mises and Hayek you so dislike, we like Friedman and prefer his explanation of Great Depression to that of Mises and Hayek (didn't you know that, just see our previous posts), we trash these Alabama Talibans even better than you, (can't you see? we emphasize that even in the post where we "criticize" you), we also think Woods's version of AE is a religion, not science, check this post again if you don't believe us... But, that is over, we refurbished Austrian economics, we created a new, better, nicer AE, you would certainly like us, just if you were able to spend some time studying our teachings...So, don't attack the outmoded Straw Men, Hayek and Mises, (and their dogmatic followers today), but do familiarize yourself with our nicer Friedman-compatible AE.

[Stephan Kinsella]

I would bet you that even if there was unfair criticism made of Woods's book here, the effort has probably backfired, in a sort of Streisand effect ( http://en.wikipedia.org/wiki/Streisand_effect ) and helped to sell even more copies. As Rehmke says above, "When a fight breaks out it draws out attention, whether in sports, politics, or academia." So, this is probably all to the good.

[Barkley Rosser]

I would say that it is more scientific to argue that speculative bubbles might be able to arise without being fundamentally caused by overly easy monetary policy based on repeated laboratory experiments that show robustly that such bubbles can arise even with stringent financing conditions, although the bubbles will be bigger if there is looser financing, than it is to declare that bubbles can only arise due to overly easy monetary policy because that is what Mises and Hayek wrote, along with some other more recent people in this or that location. Indeed, experimentalists, including the very pro-free market Nobelist Vernon Smith, has found exactly what I first described above: people will generate bubbles robustly and repeatedly, even in the face of stringent financing, although they will bubble more the looser the financing.

Regarding the housing price bubble, there were other things going on besides simply low interest rates set by the Fed. Important in all this was the spread of the higher order derivatives and such things as credit-default swaps, not at all regulated by anybody, with leverage ratios as high as 35 to 1. With this sort of thing impinging on the housing market, the interest rates set by the Fed basically became an irrelevant and pathetic joke. Indeed, because of the US current account deficit and inflows of finance through multiple channels into longer term bonds from China, even when the Fed tightened, which raised short-term rates, longer term rates continued to stay low, those on which housing mortgages are based.

Regarding housing as a consumer or capital good, well, let me simply note that indeed US society has long favored building housing over "real capital goods investment" through such things as the tax deduction for mortgage interest, along with many other policies.

Greg,

Will give White credit that he was aware of the problems with CDSs and other stuff, but otherwise remain somewhat unimpressed.

I do agree with most of your account of the history of thought on APP. Yes, Menger and some others were fiddling with time before Bohm-Bawerk, with in my view Senior doing the best job, although neoclassicals would say that it was Irving Fisher who really pinned things down. It should be kept in mind that Bohm-Bawerk's excursion into Ricardianism was in fact part of his attack on Marx, the first non-socialist to directly address his labor theory of value. A major motive for the APP was in fact to establish that capital was an independent source of value beyond labor (although of course, traditional Austrianism ultimately posits a subjectivist view).

While indeed Austrianism can be viewed as a single source theory of value based on marginal utility, it is also possible using B-B arguments to turn it into a "capital theory of value," with capital being time. So, even neoclassicals speak of "human capital," and one can capitalize rent into a present value from its future stream.

Other single source theories have to pull off this trick, reducing the other factors to the single factor. Thus, Marx drew on Ricardo to eliminate rent through the theory of differential rent (although there was always this messy problem of "ground rent"), and reduced capital to labor by viewing capital goods as "indirect labor." Physiocrats and ecological economists reduce everything to land by taking the Marx/Ricardo view of capital and then reducing labor to food inputs from the land. B-B turned all this on its head, in principle reducing labor (and land) to indirect time or capital through the APP idea (which later ran into problems, initially with Wicksell as you accurately note).

I conclude wiht a quotation I think I have posed here before (three gold stars to anyone who knows the source).

"What really is capital and what does it mean for value, growth, and distribution? Is it a pile of produced means of production? Is it dated labor? It is waiting? Is it roundaboutness? Is it an accumulated pile of finance? Is it a social relation? Is it an independent source of value? The answers to these questions are probably matters of belief."

[Steve Horwitz]

Nikolaj completely misses the irony that he is doing to me exactly what he accuses Tom Palmer of doing.

Nikolaj: sometimes the people you disagree with on lots of things are actually right. Really, it's okay to admit it. Your blind hatred of me has prevented you from having a clue what I've been arguing here.

Point of fact, I never called Mises or Hayek's work "fundamentalist" or "religious." And I take great exception to you even suggesting I do.

I called Tom P's version of ABCT "fundamentalist" because it refers only to the original texts and not to the later developments. Those developments, I should note, were *explicitly* referring to Roger Garrison's work and nothing else. Nowhere in this conversation have I said anything about Friedman and all the rest. My whole point is that Tom P has not read the best work on ABCT that has been done by people like Roger.

Are you really arguing that Mises and Hayek had it all right back then and that modern Austrians should dismiss Roger's contributions? If you think I'm wrong, then that's what you are arguing by implication.

Here I am defending ABCT and Tom Woods and Nikolaj is so blinded by hatred that he has to read into it arguments from weeks ago that are nowhere to be found just so he can try to make me look foolish. Physician, heal thyself.

[Roger Koppl]

I think one of the original issues here was whether housing counts as a higher order good in ABTC. It's a shame I can't recall who criticized Mises for modeling all trade cycles on a particular Viennese housing crisis. Alas! But I did find Roger Garrison using a housing boom to illustrate ABTC in 1989.
http://mises.org/journals/rae/pdf/RAE3_1_1.pdf
See pp. 9-10.

I think it has always been recognized that housing "counts" in the relevant sense. It seems like "philosophy" in the pejorative sense to quibble over whether an unsustainable housing boom entails a "lengthening the structure of production," when such booms have always been understood to be "included" by the theory. If Tom Palmer is right to say that a housing boom does not entail a lengthening of the structure of production, then we can criticize the standard statements of ABTC for not making the inclusion explicit. That would be a criticism of the exposition of the theory, however, and not the substance. On this particular point, I'm afraid it's 1 for Woods and 0 for my sentimental, Palmer.

My dismissal of that aspect of Tom Palmer's criticism should not be taken as an endorsement of language such as "order of good" and "lengthening the production process" in ABCT. I have long thought we should abandon that stuff and use the idea of duration instead.

Final note: Walras was very clear about stock vs. flow. You don't consume a house, you consume the flow of services provided by the house. Building a house today provides a flow of services now, but also a flow available only 30, 40, or 100 years from now. Notions such as APP are hard to operationalize and they lack analytical rigor. Nevertheless it is not unreasonable to say that an artificial housing boom makes for an unsustainable lengthening of the production process.

[Lee Kelly]

Barkley,

Some people seem to claim that all monetary expansion distorts prices and has a propensity to produce bubbles, but does anyone actually claim that *only* monetary expansion causes bubbles? I can't recall reading anything like that.

Even the most amatuer Austrians on the Mises.org forum seem to understand that people can get drunk without the government; the claim is merely that monetary expansion helps ignite and feed bubbles -- making the eventual bust that much more painful. Perhaps I am wrong; I just never got the impression from anyone that bubbles can only arise due to expansionary monetary policy.

[Roger Koppl]

Oops. That was supposed to be "my sentimental *favorite*, Palmer."

[DixieFlatline]

Peter wrote;
"How sad it is that a movement that is so well endowed with great ideas has been so impotent in the face of the challenges this past year has presented us."

I agree. Everyone get back to publishing as many papers as quickly as possible or the movement will collapse.

[George Selgin]

For Sheldon and others wanting examples from me: concerning the many non-Austrian theories of the business cycle, whatever their other shortcomings (and they are legion), hardly any can be said to be inconsistent with the "axiom of action" and deductions from it. The idea that the ATBC is the one theory of fluctuations that you can work out from the starting observation that people act purposefully is really very far-fetched.

For Greg Ransom: Thanks for advising me to read Hayek. I've always intended to check him out. I am also glad to learn that philosophy of science can get really complicated, and concede that this is something that the philosophers you mention have done an excellent job proving.

Still, notwithstanding all the fancy arguments out there, logical validity isn't truth in the common understanding of that term, that is, as implying coherence with or correspondence with evidence. Deductive theory tells us how there can be such a thing as an ABC. It can't tell us whether there actually has ever been such, or whether the ATBC explains even an important part of any actual cycle. That requires empirics. And please don't try the silly trick of pretending that saying this means that I'm being a Popperian (sticks and stones...) or declaring that you have to run some goddam regression. It means, simply, that you have to do some real old fashioned history as in story-telling and see whether the theory is really useful for doing it.

By the way, I happen to think the ATBC very useful for telling at least part of the story of a number of major US cycles, including the most recent ones.

[Barkley Rosser]

Roger,

Looked at Roger Garrison's paper. Certainly a well done piece. Had forgotten that he uses the Jevonsian triangles.

A few problems though. The biggie is that not only is there no mention of any housing price bubble (in Vienna or elsewhere) as advertised, there is no mention at all of speculative bubbles, which were a big deal for Keynes, and the origin and role of which is central to much of this discussion, especially housing price bubbles. Is this not what lies at the heart of the argument between these two peeping Toms?

Secondly, he falls back on the natural rate of unemployment (which I recognize is implied by the idea of the natural rate of interest). However, I would suggest that the natural rate of unemployment is a nearly empty concept, despite its dominance in the textbooks. The problem, recognized by Phelps from Day One, is that the natural rate is endogenous on the actual rate due to labor skills endogeneity on employment. Remember when the actual rate went plunging through the supposed natural rate back in the mid-1990's without an increase in inflation (indeed, a decrease in the rate of inflation, except for the stock market bubble, of course)?

[Peter Boettke]

Selgin is 100% correct. I wish everyone would read and fully understand what he is saying.

It would actually save a lot of wasted intellectual energy.

The point isn't to publish as many papers as quickly as possible, but to advance truth in economic science. That requires some understanding of what is what in economics. The fact that so many individuals who claim to be "Austrian" or "libertarian" don't understand the slightest about what is going on in the profession or in the world of economic affairs, but feel free to pontificate regardless just reinforces the impression that the school of thought and its ideological warriors and policy wonks is little more than a collection of nut jobs.

[Roger Koppl]

Barkley,

I'm being more shallow than you allow! On Roger's paper: I directed readers to pp. 9-10. There he images a credit expansion that stimulates only housing. "suppose that an aggressive and sustained monetary expansion is accomplished solely through the purchase of home mortgages." That's all. The point is just to give a bit of textual support to the idea that housing was always included in the "higher order goods" given an artificial boost when "the" interest rates falls below its natural rate. I didn't intend to make any larger claims. I think I was careful to identify the scope of my comment. I said, "I think one of the original issues here was whether housing counts as a higher order good in ABTC." Sorry if I needed to be more explicit.

I wasn't defending everything Roger said or the natural rate of unemployment. I confess, however, that I don't really see the problem. Well, I can see a problem if you're trying to measure the natural rate of unemployment or say it's time invariant. Both would be a problem, especially the latter. I don't see why that prevents anyone from using it as a analytical construct in a macro model, however. As long as the conclusions do not require the natural rate to be constant over time or invariant to its own past levels, you should be okay, right?

[Stephan Kinsella]

Well this has been interesting, but taking a cue from Pete's hortations, I'm going to take a pause from arguing about what libertarianism is or isn't and get back to being busy DOING libertarianism. (Say: I might title my next book that. :)

Chow for now!

:)