While lying down something just hit me, something of a simplification about how two different economic systems work in an overly simplified way, but in a way that explains so much of the debate about economics. I know this will be controversial, but my point is not to say x is better than y but to compare and contrast two systems. These systems are Keynesianism and Austrian economics. What I'm not sure about is if these simplifications are in fact reasonably useful or if they generate more garbage than value. That is why I'm writing this out here to be challenged about 'general accuracy'. So on with the show.
Meta note: I'm posting this here rather than in Money as I think it has a bit too much politics in it and I also get the feeling in some sense I'm exploring a sort of moral relativism via economics in this and that maybe more personal than generalizable to all.
In essence both systems agree on everything but what is the most valuable (or of any value) signals we can use to determine what would be good activities to perform. All in all, they agree that this goodness involves economic transactions and that more wealth over the long run is better. Who owns the wealth and how that wealth is distributed... we'll get to that.
Both agree on the following signal proposition:
Violence >= Price
This might be violence of the state or violence of individuals, but both agree violence in general beats price signals, although it can equal it. That is to say, sometimes you can pay to stop violence, but not always and violence will signal control of wealth over price. An armed guard who applies sufficient violence will outstrip the desire for getting to the bank's money in most cases. The state's threat beats out the desire not to pay taxes. Etc. I'm sure some Austrians would say violence even has a price, but given the assumption of rules of law and contracts, I don't think that is the direction most would go. Since the rule of law requires a monopoly on violence, I think my above equation is pretty safe.
Where things break down is the following:
Price > All other signals sans violence
The Austrians seem to feel that the price signal is the most important signal. They reject generic systems like GDP and CPI. that is to say aggregate numbers because the important thing is individual decisions that impact pricing. They would say that contract law is how individuals agree on things and the market is what decides what things are worth. Allow me a quote:
"Prices are a market phenomenon. They are generated by the market process and are the pith of the market economy. There is no such thing as prices outside the market. Prices cannot be constructed synthetically, as it were....
Prices of the market are the ultimate fact for economic calculation. Attempts to eliminate monetary terms from economic calculation are delusive. No method of economic calculation is possible other than one based on money prices as determined by the market.
The pricing process is a social process. It is consummated by an interaction of all members of the society. All collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. Competing in cooperation and cooperating in competition all people are instrumental in bringing about the result, viz., the price structure of the market, the allocation of the factors of production to the various lines of want-satisfaction, and the determination of the share of each individual."
- Ludwig von Mises
I think Lord Keynes would not dispute prices generate information, but that they don't generate the only style of information nor is it clear to me that there is an equation for which one style of information is better than another. Let me give an example that the Austrians would say 'yes' to but Keynes would not:
Voting < Price
If this was not true, then the Austrians wouldn't object to voters voting in politicians who put in place CPI metrics or use GDP numbers. "The voters know what they are doing" is the sort of argument a pro-democratic system supporter would argue. Maybe Austrians wouldn't object to voting over moral issues like the death penalty, where price is not obvious, but it is hard to know what a Austrian would say about voting over the cost of a speeding ticket. Of course this does get into the entire problem of prices paid outside the market, like pollution The Austrians would argue that these ideas can be priced via market mechanisms, be it price for pollution or paying for the right to pollute. One might have "get out of jail" tickets that can be bought when you get a speeding ticket to determine the market price with scarcity leaving those with the least value in jail. Alternatively maybe they'd say you shouldn't have speeding tickets as that isn't something you can make a market around?
So what does Keynes say about voting? It would seem Keynes would see his ideas more as a policy, a sort of methodology for better outcomes, not an absolutist system. Keynes can't tell if Voting <, >, =, ~= or != Price regarding signals. His systems are technocratic. However, this is about signals, so where does Keynes propose signals come from? Keynes appears to believe aggregate outcomes generate signals. If GDP is going up, then things must be improving over all in all. Keynes says in bad times it is better to keep people alive and with hope than to ensure prices clear and to wipe out those entities damaging the economy. However, to be clear, Keynes also must, in his heart of hearts, have thought voting to be overrated because voters don't listen to global signals like GDP, they respond to local concerns. Think inflation in the supermarket, not CPI.
That being said, Keynes argued that his theory was in some sense about improving the lives of the citizenry:
"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the banknotes up again" ..., there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing". - The General Theory of Employment, Interest and Money
Keynes would argue that the signal isn't just the price, the signal is a mix of the effort and the output. We know effort doesn't always matter, but this is about reasonably efficient effort. The effort can matter by itself in regards to the idea that full employment is possible, even without real wealth generation (e.g. breaking windows to replace them). Output in Keynes's world is connected to effort in the sense of how many windows are generated requires human effort. As an aside, if complete automation ever showed up, Keynesian ideas would be in trouble. The output in Keynes's mind can be generalized into GDP as a way of measuring output from effort. Productivity metrics would be the effort for generating a certain level of output.
These two things, effort and output, seemed to create a sort of behavioral shift in Kaynes's mind, which is perhaps the third signal, the mental model of others. How you measure that is circularly the effort people think they are making and the output they are generating often measured via prices. Thus Keynes would say in the 1930s that a businessman would say it wasn't worth the effort to run the business (his hurdle rate wasn't being met, even if he was technically profitable) and thus would close up shop, lowering GDP. This could keep circularly happening until no one thought it was worth the effort to do anything. Animal Spirits are when this mindset magically changes, not specifically when it becomes clear hurdle rates have improved. Mindset maybe the difference between pre and post WW2: It isn't clear business prospects would be massively improved, but they clearly were based upon outcome.
Pragmatists everywhere then wish to attack these two perspectives. It is obvious that the Austrian system is a "heartless system" in that price is king and no consideration of people. See the luddites responding in non-economic ways when the system becomes too heartless. Other more moderates might point out the Graeberian challenge of BS jobs. Depending on the reading they might say that BS jobs shows how companies hire too many people-- price/profits is less of a signal that it would otherwise appear or they might say that while the companies do profit, that price doesn't generate correct estimates of "value" as those who do the work can attest to. Or you could attack Keynesianism just the same way saying that over time the gov't will end up having more and more useless jobs as the government props up companies that shouldn't otherwise exist(*). Yet one last attack is that either system may possibly end up with one entity that will end up controlling everything (think Amazon, totalitarianism, fascism or communism). If you buy Anirban Chakraborti's coin flip experiments, it seems prices are not enough to prevent this problem. It is equally obvious that if everyone is just digging useless holes for the government eventually those holes will become useful graves from starvation. So some sort of compromise is needed.
(*) I don't think Graeber would agree with this perspective in that he noted high powered, high income jobs like lawyers also were doing BS work, see "goons".
As a brief aside, let me address communism. The clearest issues with communism is that wealth must be concentrated in order to produce efficiently and that when credit/blame are distributed to groups, chances of things going wrong increase[citation needed, but I could have sworn I read some studies on the subject before
]. Generalist Tribes < Specialist Factories for producing general wealth(*). Thus "time saving" ideas like TV dinners are generated to keep people from having to think about cooking for themselves, keeping their mind and time on their factory work. But someone has to have the concentrated resources to build that factory. Surely the state can do that, but we know that state managers don't know enough about what goes on elsewhere to make good choices on what factories to build, where or when to conclude an idea or theory was wrong, etc. They also often have ways to avoid blame for bad ideas via clever politics since words have a less clear score than capitalists with assets/money/price systems seem to. Maybe AI or computers can solve it, but that is an open question for now.
(*) Obviously ERE-efficacy has some level of opinion on price as the only measure of value.
This is where the problem comes in, as there is no signal or even clear group of signals that the two theories agree upon for consistently generating value nor does communism generate any light on how to solve the problem. Each system has at least in some cases broken down, meaning their signal is sometimes noise. Thus it becomes a choose your own adventure and eternal debate. This is where everything goes from economic theory to economic politics, the politics of how to arrange the economy, including how to decide on politics.
My question is, what have I gotten wrong in general? Have I miss-characterized one viewpoint or another? Is the Austrian view in some deep sense more than prices? Is the Keynesian view more than a sort of personal and social "Is this worth doing?" behavioral overlay of classical economics along with some general, broadly measurable state based signals? Do any of these systems actually survive themselves when run in a pure fashion for a long time? If not, is there an economic way to decide how much of any given system to use, a sort of governor that either exists or has been seriously proposed? Last but not least, are these systems just value systems hidden behind a veneer of money and logic? Is preference of any given economic system just a mix of personality test, class/power/monetary position and value system rather than a genuine effort to guide the world towards "plenty for all"? What do you value and if you can answer in the meta sense I'm asking, why?
References:
Austrian's on Voting:
https://mises.org/wire/why-voting-doesn ... eally-want
Austrian's on Environment:
https://mises.org/library/austrian-theo ... -economics
Austrian's on Pricing:
https://mises.org/library/source-prices
Keynesian's on Voting:
https://www.econlib.org/book-chapters/c ... tics/#nn13
Old book on theory that by 2000 we'd all be run by entity, written in 1800's:
https://en.wikipedia.org/wiki/Looking_Backward
Anirban Chakraborti's coin flip experiments:
https://www.scientificamerican.com/arti ... nevitable/
Communists trying out computerized command and control economics before being killed off, in part by the US; Probably one of the most interesting but least relevant links included here:
https://www.damninteresting.com/nineteen-seventy-three/
Keynes's book:
https://en.wikipedia.org/wiki/The_Gener ... _and_Money
Graeber's book:
https://en.wikipedia.org/wiki/Bullshit_Jobs