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The new issue of The Freeman is available online, and it includes contributions by Gene Callahan, Jerry O'Driscoll, and yours truly writing on "Unintended Consequences."
Posted by Steve Horwitz on February 24, 2010 at 09:59 AM | Permalink
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It shouldn't be called a "monetary stimulus."
Suppose that the demand for cars increased, and in response Honda began manufacturing more cars, would that be called an "automobile stimulus"?
The excess demand for money and the paradox of thrift are exogneous to the free market system. Someone should write a paper about that!
Oh, and the articles are all good. I especially like Horwitz's little matrix. Btw, the antonym of "negligent" is ... "attentive." In other words, you *must* intend (or at least be aware) of the positive consequences for them to exist!
Lee Kelly |
February 24, 2010 at 10:51 AM
Well, an excess demand for money is not exogneous to the free market, but rather a *persistent* excess demand is. However, the paradox of thift is nothing but a product of government intervention into money and banking.
It seems that for many people, the paradox of thrift is just there, like death and taxes, an inexorable part of the way life works, and government must do something about it. The case needs to be made that it is, in fact, the consequence of misguided government intervention. I've not encountered this argument before, but it would seem quite important.
Lee Kelly |
February 24, 2010 at 11:02 AM
The paradox of thrift is a fallacy. Keynes conflated savings and the deamnd for money, and then did not allow interest rates to clear the market. It is economics without prices.
Jerry O'Driscoll |
February 24, 2010 at 12:36 PM
The paradox of thrift has a grain of truth to it, but, like Gresham's law, it is all too often assumed to hold generally, when it actually only holds in particular circumstances. In particular, for the paradox of thrift to hold, increased savings must take the form an higher demand to hold money, and a monetary monopolist must fail to match that increased demand with supply. In a free market for money and banking, for any particular issuer of money, a shortage would quickly be exploited by competitors, and any surplus would soon drive away customers and reduce demand. However, most people, including economists, seem to assume that the paradox of thrift is an inherent feature of the free market; it's as though they cannot imagine a monetary order without a monetary monopolist regulated by the government.
Lee Kelly |
February 24, 2010 at 02:10 PM
I currently teach a high-school government/free-economics class.
Will you be holding any essay competitions in the near future? Where might I go to find the rules and deadline information?
February 24, 2010 at 02:12 PM
The blog doesn't hold any essay contests, but you should check out fee.org and soundmoneyproject.org as well as the independent.org and apee.org and fraserinstitute.org among others. They all run various contests at various times.
Steve Horwitz |
February 24, 2010 at 02:49 PM
Then Keynes should have called it an increase in the demand for money. If he had, it would have been a story familiar to every economist. And it wouldn't be a "paradox." Of course, it would have lost its novelty.
Jerry O'Driscoll |
February 24, 2010 at 06:50 PM
A nice example of unintended consequences is the son of Carl Menger who became a logical positivist.
Rafe Champion |
February 24, 2010 at 09:02 PM
But "the paradox of thrift" is more interesting. The trouble with economics is that it isn't as clever and unintuitive as proper sciences--like physics. What economists needed was something inaccessible, specialised, and counterintuitive--the paradox of thrift stepped into that role admirably. Educa'ed types could then announce that common wisdom is wrong, and that their long and costly education has allowed them to see beyond the obvious.
Lee Kelly |
February 25, 2010 at 02:53 PM
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