Typography

Noah Smith writes a somewhat facile post targeting internet Austrians. They're too easy of a target - and I doubt that thinkers like Mises, Menger, or Hayek would disagree with any of Smith's facts and calculations. They might disagree with the spirit of his post. His post paints a somewhat benign view of inflation. For instance, he pokes fun at the idea that inflation is akin to stealing by pointing out that a large component of the public (those with large debts) actually benefit from inflation. The "inflation as stealing" meme is a very old one that predates Austrian thinkers, as I pointed out in my comment : On a superficial level I agree with you. On a deeper note, the idea that altering the value of money can be equated to stealing is a very old idea that predates Austrian economics, and in attacking Austrians you're also attacking thinkers like Adam Smith, ARJ Turgot, and Richard Cantillon who wrote along similar lines and were reacting to very real circum...

David Glasner recently posted on the economist William Hutt and his book A Rehabilitation of Say's Law : Hutt’s insight was to interpret Say’s Law differently from the way in which most previous writers, including Keynes, had interpreted it, by focusing on “supply failures” rather than “demand failures” as the cause of total output and income falling short of the full-employment level. Every failure of supply, in other words every failure to achieve market equilibrium, means that the total effective supply in that market is less than it would have been had the market cleared. So a failure of supply (a failure to reach the maximum output of a particular product or service, given the outputs of all other products and services) implies a restriction of demand, because all the factors engaged in producing the product whose effective supply is less than its market-clearing level are generating less demand for other products than if they were producing the market-clearing level of output...

I had an interesting conversation with Miles Kimball at his blog concerning his idea of splitting the Euro into a North Euro zone and a South Euro zone. This seems like a far more realistic solution than reintroducing drachmas, punts, pesos, and lira. Nevertheless, there are some thorny issues here which Miles says he will address in future blog posts. In short, a South Euro will quickly depreciate. Because wages are sticky, exports from the southern Euro zone will be relatively cheaper than exports elsewhere, providing a short to medium term boost to Greece, Italy, Spain, and Portugal. One concern here is that the continued circulation of North Euros in South Euroland, as well as the North Euro's continued use as a unit of account in South Euroland, would make those living in South Euroland highly cognizant of nominal changes and therefore less likely to fall prey to the degree of money illusion that is necessary to drive an export-led recovery. Of course, as Miles points out, hi...

The discussion on own-rates, the natural rate, and Sraffa cropped again. Andrew Lainton blogged here , followed by Nick Rowe here , Daniel Kuehn here , and David Glasner here . It seems to me that Nick and David are more or less on the same side of the aisle. I commented on Nick's post here , and Nick provided a helpful response. I commented on Glasner here , and he gave me some good feedback.

Normally this blog is just a comment aggregator, but once in a while I write a substantial post. Here’s one. As a bit of a Bank of Canada watcher, I recently noticed that the Bank of Canada’s balance sheet is undergoing some interesting changes. Firstly, on the liability side of its balance sheet, government deposits held at the Bank have been growing quite quickly and are now at their highest level since the credit crisis. On the asset side of its balance sheet, BoC assets are growing at over 15% year over year after relative slow growth for the last few years. Before exploring the reasons for these changes, as always I like to put the data into charts for context. As my first chart entitled North of 10% shows, BoC assets have only grown this fast a few times over the last few decades, mostly during crisis points like Y2K and 9/11. Giddy stuff. click to zoom The chart entitled Flight of the loon decomposes the growth of the BoC’s balance sheet into various components since 1981. If y...

From here ( pdf ). Eccles is speaking about the Fed's ability (since withdrawn) to lend directly to the Treasury without the intermediation of the market: Mr. SPENCE. I assume the reason the authority was repealed in 1935 was because of the existing conditions, then, when there was no reason for the authority: is that correct? Mr. ECCLES. Well, as I remember the discussion—and I have referred to it in this statement—there was a feeling that this left the door wide open to the Government to borrow directly from the Federal Reserve bank all that was necessary to finance the Government deficit, and that took off any restraint toward getting a balanced budget. Of course, in my opinion, that really had no relationship to budgetary deficits, for the reason that it is the Congress which decides on the deficits or the surpluses, and not the Treasury. If Congress appropriates more money than Congress levies taxes to pay, then, there is naturally a deficit, and the Treasury is obligated to b...

The Austrian vs Keynesian end of the blogosphere often battle over the existence of a natural rate of interest. The Keynesian side typically points to Piero Sraffa's argument that there are many natural rates of interest, or own-rates, and therefore an Austrian sort of monolithic natural rate of interest simply doesn't exist. Over the last few weeks I've participated in the comments here at Jonathan Finegold Catalan's blog and here at Daniel Kuehn's blog. Here is an older comment in this vein on "Lord Keynes" blog. Bob Murphy also has a paper ( pdf ) on this subject and has commented on the above blogs on this subject. Sraffa's point that there are different own-rates was not a new one. Irving Fisher pointed this out many years before, in Appreciation and Interest (1896): If we seek to eliminate the money element by expressing the rate of interest in terms of real " capital," we are immediately confronted with the fact that no two forms o...