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I've read this recalculation blogpost twice now, and I can't seem to find anything really all that different from the Austrian macroanalysis. My only 'problem' is that he doesn't really emphasize the process that creates the equitation between the two decks; which, in the terminology of the Austrians, would be something like entrepreneurial discovery, based on the profit and loss mechanism, made possible by economic calculation.

Yeah, Kling's post is pretty Austrian, at least in its broad outlines. I love the term "recalculation" and use it all the time.

As for Sargent, yeah that paper should be dealt with. Of course, it would be nice if he would recognize that there's been some stuff written on those topics that he's not acknowledging.

I agree with Prof. Horowitz. I was shocked to not see White, Selgin et al. cited in the biblio of Sargeant's paper. It really is a joke.

I don't don't even read Kling's 'recalculation' stuff anymore it is so obviously Austrian...yet, to me, he and others act like this all new in 2010!

It reminds me of paper Prof. Kirzner used to cite in the Colloquim called something like "Old Friends". It was an economist in the 20's? (Robertson?) writing how all the published journal articles were just re-worded or mathematized concepts he had read before. If anyone has that article or knows the cite I would love to re-read this article. I had it 10 years ago but have forgotten almost everything about it!

"First, with regard to Sargent's paper, am I being 'elitist' when I conclude that Larry, George and Steve would have a more productive conversation by concentrating on dealing with Sargent rather than Rothbard?"

Elitist or not, you are right, right, right!

Is Sargent being elitist not citing White & company?

von Pepe: Elsewhere (in an AER article), Sargent cites Selgin's (2003) work on coinage technology--which is more or less a refutation of Sargent and Velde (2002).


While Kling's storyline is clearly Austrian, labeling it as such is not going to give it a wider hearing. There are plenty of economists whose conditioned response to the word "Austrian" is sighing and eye-rolling. Call it AD (aggregate denial).

BTW, has any Austrian free banker dealt at length with this Becker unpublished paper on Free Banking that Sargent cites?

As it's unpublished, probably not, if only because we wouldn't have heard of it given that GB is not likely to have let us know it exists. :) At least not me anyway.


Maybe I am confused, but I think I read the Becker paper. It basically argued that laissez faire in banking should be expected to be best on general "micro" principles. From the point of view of a monetary theorist, it was bit empty. I started the new Sargent paper, moved to skimming, and read the conclusion. I plan to give it more study soon. (After the election?)

Steve: Perhaps you could (and should) have read the Becker piece. Many of your colleagues certainly have. :)

White acknowledges the Becker piece (via Friedman) on p. 284 in this 1983 piece:

It seems Becker's article was published in
Laine M. and G. Hu‡lsmann (2006), LƒHomme Libre – M„langes en lƒhonneur de Pascal Salin – Festschrift in honour of Pascal Salin, Paris: Les Belles Lettres, 529 pp.

Becker also published
"A Proposal for Free Banking," Free banking: Modern theory and policy, volume 3, L. White ed. (1993): 20-25.

Perhaps these two Becker articles are the same. If anyone has access to them (or it, if it is just the same piece published twice), please send it my way.

There is a lot of vagueness in Kling's recalculation "theory." First, why is recalculation necessary? Why did the original situation get distorted? Second, there seems to be a mixing up of secular trends with cyclical changes. Clearly, the flavor of Kling's approach is Austrian but he needs to be more precise in order to say more.

On Sargent. I KNOW he is familiar with Rothbard. He has read the Mystery of Banking and said (to me) that it was very interesting.

However, that he doesn't engage White and Selgin is probably illustrative of the fact that, unless you are in the methodologically approved group, you do not exist and your work does not exist. Ideas have to be stated in the right form.

So it may be unfair to criticize White and Selgin. BTW, has Sargent written on this topic before?

Sigh. Maybe Mario could politely bring to Sargent's attention the survey article on "How Would the Invisible Hand Handle Money?" that Selgin and I published in the 1994 Journal of Economic Literature. Instead Sargent's blanket literature reference is to Friedman and Schwartz 1986.

The "unpublished" Becker piece was in fact published in my 1993 collection cited above by Will Luther. Sargent needs a research assistant who is a little better at reference-checking.

I agree that Sargent's paper is worth addressing. I have in the past critically addressed (1987 JMCB) the "legal restrictions theory" that is partly due to Sargent in papers coauthored with Neil Wallace. But maybe that's why I'm snubbed in Sargent's current paper.

Mario and Larry,

Please don't misunderstand me, all I was suggesting is that I think it is promising that an economist of the professional stature of Tom Sargent was wanting to assess the arguments for free banking, and that perhaps this was a great opportunity. But there was no implied criticism intended.


"First, with regard to Sargent's paper, am I being 'elitist' when I conclude that Larry, George and Steve would have a more productive conversation by concentrating on dealing with Sargent rather than Rothbard?"

More than elitism, it appers to be an issue of focus. Is it better to do economics research or political sermons? Rothbard can be interesting as an economist when he speaks like an economist, and the copious "this is immoral!" literature is not economics.

"First, with regard to Sargent's paper, am I being 'elitist' when I conclude that Larry, George and Steve would have a more productive conversation by concentrating on dealing with Sargent rather than Rothbard?"

I don't know if it's elitist, but I think you'd be wrong.

In the immediate future, perhaps the next few decades, the mainstream are not likely to take the Austrian position seriously. I think it's foolish to hope that they will. Even if they do it will only be a passing fad because they are, more than anything, driven by the latest fashions and trends in research.

Persuading the Rothbardians that they are perhaps wrong about money has much more long term benefits. It would produce a more unified Austrian movement and allow clearer policy proposals.


Not sure I follow. It what way is the "mainstream" not listening anymore than they didn't listen to Armen Alchian, Harold Demsetz, Jim Buchanan, Ronald Coase, Doug North, V. Smith, Gordon Tullock, Oliver Williamson, and Lin Ostrom. I think the attitude implied in your comment is defeatist, and instead, our task as economists is simply to do GOOD economics (no hyphen required) and compete in the scientific process of discovery and explanation. If we fail to persuade our colleagues, we look in the mirror and work on how we can be better economists rather than complaining and creating our own discussion group online somewhere. Those of us who signed up for this business by getting our PhDs and competing for academic posts, implicitly agreed to the given hierarchy in the game and they way it is played. It is our task to play it better and accomplish more with the great ideas we inherited from Mises, Hayek and Kirzner.

We can be critical of the profession without eschewing professional engagement. That is what we are trying to do here at GMU. I cannot tell you full details, but there is also an emerging great opportunity at one of the leading institutions in the world and it is precisely the attitude that is implied in your comment that is threatening that possibility and thus why I am not just letting it pass. "We" need young people who are: (a) fully committed to pushing these ideas; (b) understand the rules of professional engagement and willing to compete in the scientific arena under those rules; and (c) except no excuse for failure other than their own shortcomings which they have to work on to improve; (d) and be willing to work their tail off to get a hearing for their ideas on their own terms in the most established periodicals and most prestigious institutions. In short, we need scrappers and fighters who are sophisticated scholars/scientists (not always an easy combination to find), and we need a "no excuses" rule to permeate the culture of the up and coming generation.

I think it is funny that someone who renamed his Austrian Economists blog "Coordination Problem" would be miffed that another economist is relabeling ABCT "Recalculation."

I agree that argument and criticism are a part of engagement with the economics profession. And, I agree that mainstream economists have listened to the economists you mention. Perhaps in the future they will engage Austrian Economics more.

Since you're a professional economist you'll know more about the situation in the economics profession than I do. It may be that the mainstream are on the cusp of listening and that all that is needed is some good advocates with good ideas.

But, I think you're missing the other side of it. Have a look over at the Mises Insititute site see how many comments some of the articles generate. Have a look at Jeff Tucker's posts where he mentions the number of books the Insitute has sold recently. Have a look at the number of blogs about Austrian Economics. Amateur interest in the subject is booming, and by far the majority of it is Rothbardian. Judging by the authorship of articles the Rothbardians are training quite a lot of PhD's too.

Take the Cobden Centre for example, they're pretty much all Rothbardians and mostly amateurs. One of them is an MP is Britain and he's probably in a position to influence future laws on money and banking there.

Like it or not this kind of thing does matter. In my view free banking supporters should take some time to try to persuade the 100% reservists that they are wrong because otherwise a larger proportion of the next generation (of amateurs and professionals) will be 100% reservists. It may be the case that this won't matter in the future because more mainstream economists will take a more Austrian position. But, that seems to me to be a more speculative path, like going off to conquer a foreign country while knowing that defenses at home are not secure. I think challenging the Rothbardians would be more likely to pay off, because both parties share much more at the start. Perhaps I would say that since Steve H converted me.

I'm with Current on this one. On a side note, let's try to label them as 100% Reservists, as opposed to Rothbardians

Thanks Current, but to be honest, you are one of the few exceptions. My typical experience is that arguing that issue with 100% reservists is akin to talking to a robot then banging my head against a brick wall. (Note: I mean the amateurs, not people like Bob Murphy, with whom I can have serious exchanges.) As important as I think it is to persuade future generations of libertarians that 100% reserves is wrong, I'm exhausted from the effort after 25 years.

What bothers me the most is that many I interact with in person and online either: a) do not really understand how banks and money work; or 2) just seem content to repeat Huerta De Soto or Rothbard in utterly uncritical ways, as if they were the final word; or 3) simply have not read a word of the free banking literature but feel perfectly entitled to say how wrong it is.

Some do all three. It's just extraordinarily frustrating to try to persuade people who have those traits and that frustration makes me just want to avoid the issue altogether. Conversations with them rarely feel like they are interested in actually *learning* something, only demonstrating how right they are and how they're on to the dirty little secret of fractional reserves that misguided sell-outs like me just keep denying. If there was any sense they were interested in real give and take and learning, I'd be less frustrated. I'm a teacher, and I'm not interested in "fight club for banking theory."

The only reason I keep going back for more frustration and pain is precisely because I think the 100% reserve position is so problematic, to the point of being embarrassing to Austrian economics and libertarianism, that I feel called to try to persuade people.


I see your point. I expect I'd feel the same if I'd been arguing against the 100% reservists for 25 years.

Steve, how about free bankers who hold that money is an asset? Do you agree with that? Most Rothbardians would be as frustrated over that statement as you are with them.

I'm sure they would be frustrated, but objecting to the notion that money is an asset in the balance sheet of individuals, firms, and households is, in fact, wrong. :) I'm proud to take the brave and controversial position that money is an asset in household and firm balance sheets.

Even a 100% reserve backed deposit/note is an asset to the household holding it, just as it is a liability to the bank that issued it.

Or did you mean something else?

accusations of elitism are rarely called for

Steve, you're using "asset" in a rather broad, generic sense (ie, unobjectionably), not in the sense of a financial asset or claim.

Steve's use of the term is normal.

Not all assets are financial assets.

Anyway, inside money is a financial asset to those holding it and a financial assets to those issuing it.

Machines are real assets. And with a metallic standard, metallic money is a real asset rather
than a financial asset.

I think fiat currency is more a matter of analytical choice.

Government bonds are financial assets to those holding them and financial liabilities of the government.

If fiat currency is unconstrained, or maybe only limited by rules regarding its own quantity, then I see no value in seeing it as a financial liability of the issuer (the central bank or government.)

On the other hand, if there is some rule that fixes its value relative to something outside, for example, a price level or inflation rule, or a nominal spending rule, then it has characteristics of a financial liability. But, of course, like every asset (real or financial) that serves as medium of exchange, it has special characteristics.

Over at the Mises blog I've been discussing this quite a lot. As the cuttlefish points out the classification of money is an important issue. I think it can be classified as an asset.

And search for "Yeager".

inside money is a financial liability to those issuing it. (Banks)

In the course of researching my papers and book on private coinage, I made everfy effort to get a "conversation" goping with Sargent: I sent him drafts of my papers and wrote warning that I had doubts about the "steam presses solved the counterfeiting thesis" as soon as I had enopugh evidence to justify doing so. Sargent never replied--unless of course he did so anonymously in one of several uncharitable reports I latter received from the journals. Yet I think I'm justified in saying that no one took Sargetnt and Velde's work on coinage more seriously than I did. I couldn't help it if by doing so I ended up finding what I considered to be serious shortcomings of his and Velde's thesis.

Of course I know that Sargent is extremely busy. But still the experience nevertheless counts as one of the more disappointing of my professional career. It's hard putting oodles of work into something and then having the person who ought to be most supportine respond instead the way normal people respond when someone farts in a crowded elevator.

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