I don\'t think anybody disagrees with that point; I just don\'t see the use in bringing it up. To me, there are different types of wrong.

Marx was behind his times, Mises was ahead of this times. Everybody will be wrong. The question is are they wrong in their interpretation of present theory, or are they wrong in their progression of theory.

I am not a full-fledge anarchist, anyways, due to different reasons than Mises. If I claim that I am not an anarchist, then I cannot claim that I am minarchist either. I consider myself a \"pragmatist\". That is, what is the most rational social outcome given what exists today.

Mises does because he believes certain things cannot be provided by the market; i.e. national defense, security, et cetera. I agree an anarchistic utilitarianism is better, but on a whole I don\'t consider Mises inconsistent (just ahead of his times).

Basing it off Mises's description of utilitarianism in Theory and History pp. 55–61, I am basically a Misesian utilitarian. However, I think that utilitarian is really the wrong word to use. The fact is that the consequence of freedom is higher utility, but Misesian utilitarians would never accept coercion in order to maximize utility. It, therefore, can be said that although I do not believe in natural rights, I do believe that subjective morality and ethics can positively guide human behavior (much like it can negatively guide human behavior, as well).

So, I do not (I am trying to avoid the use of the apostrophe, since for some reason this code translator adds back slashes whenever I do) necessarily discard the moral approach to libertarianism. I just do not recognize it as universal.

I think the idea is to make him look bad, since it\'s a charity event. I think Krugman is a good choice for a defender of Keynesianism, since he is at the vanguard of the school\'s non-academic façade. In regards to Murphy, there may be better scholars (Salerno, Garrison, Rizzo, et cetera) — although, Murphy\'s academic work is actually very good (I think he is judged too much by his non-academic articles) —, but Murphy is one of the better public speakers.

Yea, I definitely need an oversight commission now, to make sure this waste of gas never happens again. I mean, imagine if animal spirits take over, and everyone starts driving aimlessly.

The concept of equilibrium is valuable in the sense that it allows you to recognize and illustrate the consequences of pricing above and below equilibrium (surplus and shortage, respectively). The concept of general equilibrium, borrowing the definition from John Hicks (1934), is a theory of exchange (and one which has been developed over time). In the broadest sense, general equilibrium theory supposes that prices tend towards equilibrium, but I think this is inconsistent with the notion that any particular equilibrium model is static.

This inconsistency is actually highlighted by Hicks,

What, however, Walras does not make really clear is whether any exchanges do or do not actually take place at the prices originally proposed, when those prices are not equilibrium prices. If there is no actual exchange until the equilibrium prices are reached by bidding, then Walras\' argument is beyond reproach on the score of logical consistency, though it may be called unrealistic. (The market then proceeds under Edgeworth\'s principle of \"recontract,\" or provisional contract.) But if such exchanges do take place, then, in general, the final equilibrium prices will be affected by them.

Hayek attempted to correct this lacuna by introducing the concept of \"dynamic\" general equilibrium, but it makes more sense to dispense of general equilibrium theory altogether. Instead of seeing markets as tending towards equilibrium, the relationship should be seen as one in which supply and demand are consistently changing, where the relationships are not mechanistic, and where the primary motivation is not to reach equilibrium but to maximize utility/profit.

The best way to approach the dynamic nature of human interaction and coordination is therefore to forget about general equilibrium models (not equilibrium, mind you), and see it as a process in constant disequilibrium.

All the more, concerning price formation, prices are formed by the subjective valuations of the buyer and the seller, and neither party are interested or aware of reaching \"equilibrium\". Rather, both parties are interested in maximizing utility to the best of their ability. As a corollary, the notions of perfect and imperfect competition (products of general equilibrium theory) should also be dispensed with, because seeing the market in this fashion has no bearing on the real nature of society.

Moving on back to the topic of market failure, my analysis pivots on the use of the word \"market\" actually. The failure was a product of the individual market agents, not the market as a whole. Resource allocation is not a product of the market, but a product of individual market agents planning their own processes of production and consumption. If they inefficiently allocate resources it is based on their own imperfect information, or their own mistakes.

Also, I think Joe\'s point is valuable: who decides what is efficient? This neoclassical obsession with efficiency is another stain on economic science. It is as if one can calculate the most efficiency allocation of resources for each individual that operates within a market. There is no doubt that there is inefficiency, but this inefficiency should be presupposed to exist because of the lack of perfect information and the existence of error.

Finally, overall, I think it is important to discard the notion of \"market failure\" in favor of emphasizing the necessity of de-aggregating failure and recognizing why individuals failed, and not the market as a whole. In the case of business cycles, why did a large number of individuals make the same, or similar, mistakes? Not: why did the market not correct itself?

1. Regarding the first point, or money as being productive, I am afraid you’ve missed the point. Also, your assertion that “the only role it plays is to hedge the risk that results from uncertain human action” is astonishingly untrue — money’s only role is to facilitate indirect exchange. Regarding “future risk”, what money does is allow versatility in one’s savings, because of the fact that it eases indirect exchange. However, saving a chair, or saving bricks, would accomplish the same thing, if what we’re talking about is hedging against future risk. Even in a world of perfect information, it would be impossible for a society of high division of labor to coordinate without a price mechanism, because it would be impossible to fulfill the chains of transactions necessary if we lived in a barter economy.

Regarding your example of transportation versus money, Mises refutes the notion between pp. 95–102 of The Theory of Money and Credit (where he addresses the incorrect belief of money as a productive good). The difference is in the nature of money. Whereas the car has the ability to increase one’s productivity, money only allows man the ability to purchase the necessary goods to increase his productivity. One is a facilitator of exchange; the other is a capital good in and of itself. Mises argues that the confusion of money and capital goods stems from the inadequate division of economic goods (he borrows, and expands upon, the three-fold division of economic goods of Karl Knies — consumer, capital, and exchange).

Finally, regarding “[m]oney as an object of the market has value beyond what it can purchase”: I beg to differ. The value of money is in that it is a medium of exchange. That it can hedge against future risk is only because of the fact that it can be exchanged. Point in case, during episodes of hyperinflation, or even high inflation, people prefer consumer and capital assets over exchange goods, for the very fact that exchange goods are no longer useful for exchange.

2. Regarding investment and money, you are conflating savings and investment. An act of saving is not an act of investment (and this is the debate at hand). An act of investment is an act of investing goods into production. Saving money does not accomplish this end. When you save money it means that you believe that a future environment will be more conducive towards investment, or that the utility you will garner from this money in the future is greater than the utility you will garner from it presently. But, this is not an act of investment, it is an act of saving (and this is why the two terms have two separate definitions — definitions you are inexplicably conflating).

On the topic of investment as one of profitable returns, you are ignoring the key detail that what allows interest to be repaid on savings is the fact that others have invested the capital you’ve saved. What makes your savings profitable in the bank is the fact that you have essentially allowed the bank to loan the money to a third party, who will then invest it and ideally produce profitably. The value of money increases always due to external factors, not because of the money itself, and so to say that money is productive is erroneous.

3. I never said that money is saved unreasonably. We are not debating whether or not people save for a reason, but whether or not those savings can be considered an investment. Again, you are confusing the definition of an investment. An investment is a profitable enterprise in and of itself; money does not meet this requirement.

4. I find it amusing that you accuse me of being “too caught up with physical goods”. It is exactly the fact that you are impervious to this that disallows you to see the characteristic differences between money and capital goods, and what makes the former only valuable as a means of exchange and the latter valuable as a means of production. Going on, you are blatantly confusing meeting satisfaction as a means of investment — ignoring, therefore, the differences between consumption (the ultimate satisfaction) and investment (production for increasing the means one has to satisfy his desires). As such, consuming more food that is necessary to allow you to produce is consumption, as opposed to production. Again, I find it shocking that you are forgetting these basic economic tenets.

5. My argument regarding Austrian business cycle theory is that if it works one way, it works the other way too. In other words, if expansion is the supply of money creates distortions, so does a reduction in the supply of money (ceteris paribus). Holding money without it being lent is an act of reduction in the volume of expenditure, or congruous with a reduction in the supply of money in an economy. It will create distortions. This represents disequilibrium between the identity of S=I (which, I still hold is not really a central tenet of Say\'s Law — this, as has been pointed out before, was an oversimplification of Say\'s Law on Keynes\'s part).

To clarify, my usage of \"relative\" marginal utility is erroneous. It is the marginal utility of the good plus the amount of money saved that makes the cheaper good more satisfactory to the consumer. Nevertheless, my argument remains the same.

Wladimir,

Thank you, and for the most part I agree with the analysis. But, a couple of points, if I may:

1. I don\'t think that any of the above makes the consumer irrelevant. I understand that no matter how high the marginal utility of Good A, if technological advances and competition led to a reduction in the cost of production of Good A the price will follow (regardless if for the consumer marginal utility is high). Furthermore, I completely agree. However, it is the relative marginal utility of Good A₁ and Good A₂ that drives the need for competition. Assuming equal quality and that Good A₁ is cheaper than Good A₂, it follows that the consumer decides to buy the cheaper good based on his own subjective evaluations. If the consumer did not choose the cheaper good, then cutting prices (despite a reduction in the cost of production) would be irrelevant.

2. Concerning \"cost of production\" versus \"marginal utility\", it seems to me that Reisman is conflating the two. In Böhm-Bawerk\'s example what drove the cost of the final product was not the cost of production, but the marginal utility of the less valued good. I think this ultimately leads Reisman to come to an erroneous conclusion when he suggests that the classical labor theory of value can be saved if its applied as Böhm-Bawerk\'s \"law of cost of production\" is applied; but in the latter the price is decided on subjective value, while in the former the price is formed by objective imputed costs of the factors of production (viz., labor).

Good to know. ;)