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Date: | Fri Mar 31 17:18:46 2006 |
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I was delighted to read Hans Visser's excellent response to Prof. Lilia
Costabile. I do not have Lilia's original communication in front of me but =
my
thought at the time I read it was that von Mises insisted on holding to an i=
dea
that had become unpopular in the profession. Of course, the 18th century
thought less in terms of comparative statics and more in terms of sequential=
processes and as Hans Visser correctly points out Mises was "merely" carryin=
g forward
an older tradition. I know Hayek thought highly of Cantillon's contribution=
and Mises praised Senior on one or two occasions.
But to "merely" carry forward a tradition in the 1950s. 1960s and early 1970=
s
was no easy task. Aggregative economics seemed to plow forward with the
utmost contempt for microfoundations. When the "microfoundations of macro"
movement came of age, Mises's pioneering efforts were ignored by historians.
Mises's importance is that he kept repeating that idea about the importance
of understanding "where in the economy" the new money gets injected "first,"=
in
order to understand the consequences of such an increase. He and later
Austrians believed that when it was injected through the loanable funds mark=
et it
would mislead entrepreneurs about what types of projects should be undertake=
n
and which projects left untouched. Mises insisted on this when it became
unfashionable to think in any terms except aggregates and averages. Since I=
had
the pleasure of auditing von Mises's graduate classes a few years before he
stopped teaching, I remember how much we debated that idea before and after =
the
seminar.
I even asked Milton Friedman in the 1970s why (in his Monetary History and
other places) he (and Dr. A. Schwartz) did not pay any attention to "the pla=
ce"
where the new money entered the economy. His answer was a good one. To
paraphrase M.F. "Show where that assumption is needed in order to exp=
lain any
empirical regularities and I'll use the idea."
Von Mises and his students kept this particular line-of-argument about
"non-neutrality" alive throughout most of the 20th century! It also was con=
nected
to Mises's stubborn insistence that "inflation" means an increase in the
quantity of money which may or may not result in a rise in some measure (ind=
ex
number) of average prices or their changes.
I understand that modern Austrians have made some progress in responding to
Milton Friedman's challenge.
Laurence Moss
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