Showing posts with label Economic History. Show all posts
Showing posts with label Economic History. Show all posts

Tuesday, February 9, 2016

Austrian Economics Forum Fall 2015 Recap Part 2

The third video from my three part lecture series at North Carolina State University  has been uploaded on to YouTube.  In this video, I extend the analysis of the Austrian Theory on capital and interest to that of the business cycle.  I then compare the Austrian Business Cycle Theory with several competitors.  Here is the link: Prof Paul Cwik: Austrian Business Cycle, Lecture #3

Tuesday, February 2, 2016

Austrian Economics Forum Fall 2015 Recap

After quite the hiatus, I suppose that I should try to get back to blogging.  

North Carolina State University is the location for the open to the public campus club: "Austrian Economics Forum."  Since its founding the idea was to promote the development of Austrian Economics from the Graduate-Student level and above.  This year we have decided to open it up to include undergraduate students and any other interested parties.  The idea is to go back and start filling in the foundations.

In an attempt to get back to the roots I presented several lectures. The first was on October 16, 2015. Here is the link: Dr. Paul F. Cwik 10-16-2016 NCSU - Menger & the Early Austrians  



(The preview picture, which was automatically edited by this cite, clearly thinks that I was excited about this point on the Methodenstreit.)

In this talk I cover the four most significant contributions made by Carl Menger.  I also take a look at Eugen von Bohm-Bawerk and Friedrich von Wieser. I present a little of who they were and I explore their most important contributions to the science of economics.  Additionally, I add some important points made by Philip Wicksteed, William Smart and David I. Green.

The second lecture that I presented took place on November 1, 2015.  Here is the link to that lecture: Dr. Paul F. Cwik on Austrian Capital and Interest Theory  



In this lecture, I build on the first lecture.  I begin with Bohm-Bawerk's review of others' ideas on Capital and Interest.  Then we build his positive theory and compare it with John Bates Clark.  In addition to this, I also look at the way in which the Austrians view interest rates (based upon the subjective notion of time preference) and compare it with the mainstream view, which is based upon both subjective and objective factors.

I then build the Structure of Production and stress the importance of not only capital substitution, but capital complementarity.

The third lecture was a presentation of the Austrian Theory of the Business Cycle, which builds upon the first two lectures.  At some point in the near future, it will be posted to Youtube and I will link it here.

Monday, September 24, 2012

Austrian Economics Forum Fall 2012 #1--Caldwell on Hayek

Sadly, this year started off with me getting rather sick, and as a consequence, I have not been able to update the blog as I would like.  Fortunately I am on the mend and new posts will be forthcoming soon.

The first AEF event at NC State University had Hayekian expert Bruce Caldwell as the speaker.  Unfortunately I was unable to attend, however Alex Gill, graduate student and coordinator of the AEF, was able to write up his notes of the event.  Here are his words...


Talk on "How to do Archival Research" with Caldwell's work on Hayek as the motivating example...

Caldwell began by explaining how his interest in methodology led to an interest in the Austrian school, which led to the Hayek's challenge project.  He became interested in the Austrians because disputes with socialism and positivism shaped their arguments.
 
As part of the Hayek's Challenge project, he went to the Hayek archives at the Hoover Institute at Stanford and met then current general editor for Hayek, Bartley and his partner Stephen Kresge.  He quickly learned the importance of personal relationships, both between the researcher and those he encounters as well as the relationships between the subject of research and the people the researcher interviews or otherwise encounters in the course of research.  
 
When Bartley died, the editorship of Hayek's collected works moved to Kresge, who soon requested that Caldwell take it over.  Caldwell's position changes from having to ask for permission to quote unpublished material to being in charge of who has said permission (and for what). 
 
Dr. Douglas Pearce at this point asked Caldwell to clarify rules on quoting from unpublished letters.
 
Caldwell explained that one can paraphrase unpublished material without the editor's permission, but to quote directly or extensively one needs the general editor's permission.
 
Prof. Caldwell went on to explain that being general editor requirs fundraising (for instance, to hire volume editors), a skill he learned by doing.  He credits part of his career success to fundraising talent.
 
Caldwell then began discussing Hayek's divorce, both to reinforce the point about personal relationships and to make a point about following through to correspondents' archives (to get the other halves of conversations).  He learned that Hayek's father (a medical doctor and botanist) was highly nationalistic and embraced many of the opinions associated with Nazism, as did Hayek's brother.  His mother blamed his father for making F.A. a liberal, as she believed said liberalism was a reaction to the father's nationalism.  Without following through to correspondents' archives, Caldwell never would have found this fact out (and others), which would have changed the story he will end up telling in the forthcoming biography, especially with regard to Hayek's family relationships.
 
Hayek's archives include notecards he made while studying the literature (where he would list quotes from others and citations, etc.)  Through the painstaking process of reading many boxes of these notecards, Caldwell gained insight into Hayek's thinking about his Nobel prize and the person he shared it with (Gunnar Myrdal).  Caldwell was previously curious about Hayek's apparent change of tone beginning in this period (from relatively passive and softspoken to more aggressive and willing to attack others), and he realized that Hayek in this period was incensed that he had to share the prize with Myrdal, and that furthermore Myrdal disparaged him (Hayek) and later Nobel recipient Friedman publicly, which to Hayek displayed a complete lack of class and professionalism.  Hayek was furthermore upset that his Nobel address was refereed when submitted to Economica, a journal Hayek used to edit while he was at LSE.  He was offended that it was not accepted as is without an editing process.  So in this period (1970s) Hayek struck back, and began, for instance, attacking Mill (unfairly, according to Caldwell's interpretation) and Mill's interpreters (more fairly, perhaps).
 
Caldwell met with Hayek's children Larry and Christine, and obtained much of interest from them.
 
Dr. Lee Craig then asked, "Were Hayek's children or wives ever interested in his work/economics?"
Answer (paraphrased): No

Dr. Roy Cordato asked, "Where did Hayek place himself intellectually among other Austrians?"
Answer: He was a student of Weiser, but called Mises his "mentor."  He wasn't too close personally with Mises and Popper, though intellectually these two were the closest to Hayek.
 
Dr.Roy Cordato then asked, "Are Hayek's mentions of public goods, welfare economics and the like an artifact of his studying under Weiser?"
Answer: Not that I see.
 
Tim G. then asked, "Is there a connection between Hayek's economics and The Sensory Order?"
Answer: There is not a connection between Sensory Order and Misesian economics.  There is a similarity between Hayek's capital and cognitive theories, though (both self-organizing systems).  Current science is  largely in accord with Hayek's psychological theories.  Read the book and see what you think (the book is hard to understand).
 

Tuesday, April 3, 2012

The South Sea Bubble

I recently finished reading a book on the South Sea Bubble. I was surprised at how fascinating it was. I have heard of the South Sea Bubble before, but I couldn’t really tell you much about it. I knew that it happened in the early 1700s and there was also something called a Mississippi Bubble. However, I couldn’t make a distinction between the two, until now.

The book is The South Sea Bubble: An economic history of its origins and consequences by Helen J. Paul (2011). She is an economic historian interested in Cliometric analysis (the application of statistical techniques to history). Using statistical analysis to analyze history is, from the Austrian point of view, entirely appropriate. In fact, it is really the only legitimate use of statistics.

Anyway, to the story…

Imagine a country that has been in and out of wars year after year. As a consequence, an enormous debt has accumulated and is difficult to pay off. (Stretches the imagination doesn’t it?) This was the situation that both England and France found themselves in the early 1700s. In England, some of the debt could be paid-off early, but not all of it and not without the permission of the creditor. Furthermore, this debt was between the King and the individual and could not be traded. In other words, if the King borrowed £1000 from you, he owed you. You could not sell that debt to another, and if the King died then the debt was cancelled. With all this debt hanging overhead, how does a King borrow more money to fight more wars? The solution came in three forms: the conversion of the King’s debt into the nation’s debt, the creation of paper money and with it the establishment of the Bank of England (as a central bank), and the chartering of a monopoly company.

The monopoly company was the South Sea Company. It offered equity shares in exchange for the previously untradeable debt. A creditor could exchange £1000 in government debt for shares in the company. These shares were tradable and the value would fluctuate on the open market. This allowed creditors to reduce their risk exposure to a government default or other inability to pay.

The company would collect the government debt from the creditors in exchange for shares. The company would then be the recipient of the government’s debt payments. As a result, the company was “guaranteed” a minimum amount of income each period. Furthermore, the South Sea Company was granted the exclusive right to trade in virtually all of South America. (Of course, other nations traded in South America so the grant of monopoly only stopped other English firms from competing with the company.) Additionally, the Spanish Asiento was granted to the company. The Asiento was a grant of monopoly to import African slaves into the Spanish colonies. (The agreement also allowed a limited number of “permission” ships to also trade in other goods.) So the South Sea Company would get the slaves from the Royal African Company, ship the slaves across the Atlantic under the full protection of the Royal Navy, and sell them in the Spanish Americas.

To try to put this into today’s terms, imagine if the US government sets up a company to buy up all the national debt. The company will have a positive cash flow as the US government pays the debt, and the company has a grant of monopoly to ship oil out of the Middle East, which is backed by the full power of the US Navy. The owners of the shares will collect the profits either through dividends or increased valuations of the stock. Many people thought that this arrangement was a good deal and sold their debt for shares.

But wait there’s more! The South Sea Company allowed owners of the stock to borrow money and use the stock as collateral. So, if I have £1000 in government debt, I could convert it into company stock and then borrow £1000 and use the stock as collateral. If the stock price falls, I could just walk away and let the company keep its stock while I pocket the cash.

But wait there’s even more! If you decide to purchase the stock, you could pay in installments. So if the price of the stock falls low enough, you could just stop paying the installments and forfeit the lower valued stock. Now combine this with the fact that you could borrow against the stock! You could purchase the stock and decide to pay in installments, borrow against it, and if the price falls, you could just walk away from it. What a deal!

No wonder there was a tremendous run up in the price of the South Sea Company! The result was a bubble that popped in September 1720. The French, under the direction of John Law, had a similar scheme. It was called the Mississippi Company. It, too, had a tremendous run up in price and also popped in the Spring of 1720.

For those history of economic thought buffs, you might recalled that John Law had a right-hand man that was able to get out of the Mississippi Company right before the collapse and walk away a rich man. He wrote a book about the experience and made other insights on the financial world and the economy in general. He was later murdered in London and his house set afire to cover up the treachery. His name was Richard Cantillon. Rothbard called him, “The Founding Father of Modern Economics.” Alas, that discussion is for another post.