Abstract: In this article, two separate aspects of Mises’ famous economic calculation argument are identified. The first concerns the fact that the profit-and-loss calculations that drive economic decisions regarding factors of production under capitalism cannot, by definition, take place under socialism since there cannot be any prices on which to base such calculations. The second concerns that idea that, owing to the nature of value, there is no alternative means of allocation, such as a calculus in terms of value. Although both of these points are well-known and frequently invoked to pass a decisive judgment against socialism, they are in fact separate arguments which have thus far been inadequately distinguished in the Austrian literature. The objective of this paper is to highlight this distinction. I further illustrate the point by emphasizing the role of monetary calculation, which nonetheless plays a real role in capitalist economies.

Download Paper: “Mises’ Calculation Argument: A Clarification”

Abstract: In this article we consider the theories of utility developed by Rothbard and Kirzner in their respective treatises on economic theory (Man Economy and State, and Market Theory and the Price System). We argue that while both authors were strongly influenced by Mises’ ordinalist conception of utility and in fact both authors affirm this conception in their initial expositions of utility theory, their subsequent developments diverge quite sharply. In particular, Kirzner adopts an approach that is neoclassicist in its essentials, and we discuss how this approach conflicts with the approach developed by Mises (and continued by Rothbard). We thus give further support to Salerno’s (2011) contention that there exists a tension within Austrian price theory today, falling between two camps: Rothbard’s furtherance of the Mengerian “causal-realist” tradition, and Kirzner’s “dynamic” version of the standard Hicksian indifference-based framework.

PAPER HERE: “A Comparison of the Utility Theory of Rothbard and Kirzner”

Abstract: In this article we consider an argument put forth by Selgin (1988) in support of the claim that there exists a mechanism for limiting coordinated expansions of fiduciary media under a system of fractional reserve free banking. Selgin argues that such banks hold risk-adjusted reserves against expected losses, and even if the expectation of reserve losses remains zero, the variance of such losses (adverse clearings) increases under an in-concert expansion (if such expansion is unwarranted by demand). It is this increased variability that is claimed to act as a brake on the expansion. We take issue with this argument on the basis of the fact that such a characterization of observed clearings would require that characteristics of the underlying data-generating process be obtainable from pathwise realizations of that process. In other words, there is an implicit assumption of stationarity (or more strongly, ergodicity) in Selgin’s argument, and this assumption is at odds with well-known empirical facts of non-stationarity associated with most economic time series. We also point out ways in which techniques of risk management commonly found in the modern financial industry are unlikely to be effective in addressing this problem.

Download Paper: “Free Banking and Precautionary Reserves: Some Technical Quibbles”

Abstract: In this paper we extend an argument originally developed in Hülsmann (2009) to analyze changes to the structure of production that occur when the demand for money changes. In particular, we show that Hülsmann’s argument, which contrasted such changes under commodity and fiat systems, applies as well to the case of 100% reserve systems contrasted with fractional reserve free banking systems (FR/FB). Specifically, we argue that under a 100% reserve system, the structure of production will change in response to a change in demand for money, and that it will not under FR/FB. In fact, such changes are beneficial. Since one of the central arguments in defense of FR/FB is precisely the fact that it avoids such changes to the structure of production (at least more readily than 100% reserve systems), we conclude that this argument amounts to comparing different mechanisms for attaining different equilibrium states, and hence is invalid as a defense of that mechanism (FR/FB) as such.

Download Paper: “Free Banking and the Structure of Production: A Contrast of Competing Banking Systems”