Challenge to Prof. Gunning

["William B. Ryan" <william_b_ryan@xxxxxxxxx>]

<**>Regarding crop rotation and the horse harness, if
you wish to continue the dialog, you must keep the
discussion in context. You wrote that social
creditors argue that the gap between prices and
purchasing power is due to labor displacement. You
went on to equate this with the Austrian notion of a
lengthening of the structure of production.<**>
--------------------

I apologize for not making myself clear.  The concept
of the lengthening of the structure of production is
a useful concept.  I did not intend to imply that I
agree with the Austrian explanation for that
lengthening.
--

<**>In the Austrian literature, lengthening
ordinarily results from an increase in saving
relative to consumer spending -- a shift in time
preference.<**>
--------------------

In the Austrian literature it does say that.  We
totally disagree with that explanation.
--

<**>Consumers shift a larger proportion of their
incomes away from spending and toward saving.<**>
--------------------

They cannot do so in a system with a fixed quantity
of money without devastating effects *as a matter of
accounting*.  It appears that Austrians have no
concept of credit whatsoever.  They can't seem to
think beyond terms of commodity money.
--

<**>For convenience, Austrians represent this by
saying that the entrepreneurs shift resources away
from the production of consumer goods and toward the
production of capital goods.<**>
--------------------

The false assumption is that there is only a fixed
quantity of resources available to be exploited, and
it is entirely a matter of consumer preference as to
how they are to be exploited.  It somebody wants a
Rolls, others will have to make do without
Volkswagens.  But the choice you refer to is between
means of production and consumption in general.

The empirical approach, as opposed to the
praxeologic, will observe - let me emphasize the word
observe because it seems to be missing from the
Austrian vocabulary - that capital increases in
tandem with consumption as a general matter in market
economies.  There is observable no diversion
whatsoever from one to the other.  If there is I
challenge you to show me.  I gave you two contra-
historical examples and you belittled them.  I'm not
talking about debating points.  I'm talking about
difference in fundamental theory.  I challenge you to
show me examples outside systems of central planning
where consumption was sacrificed in favor of the
production of capital.  Certainly it did happen under
Stalin.

What is really happening is that production is
becoming more and more efficient per unit of
resources exploited.  That comes from discovery,
development and innovation in free markets.  I find
it particularly galling that Austrianism claims to be
the defender of free markets.

The lengthening to the structure of production is
enabled through credit, not saving.

The employment of labor is not only the exploitation
of labor as a resource consumed in production, it is
also the mechanism of distribution of the means of
purchasing that production into final consumption.
So the displacement of labor is uniquely different
than the displacement of any other resource.  That is
the contradiction.  As it is displaced an artificial
limit is placed on production itself because of wages
that are falling in respect to the accounted for
costs of production that are charged to consumers.
At the point where the wages curve and the costs of
production curve intersect, production ceases.  That
limit is purely financial and can easily be
corrected.
--

<**>How would crop rotation cause labor displacement?
And how would the substitution of horse plowing for
oxen plowing cause it?<**>
--------------------

Three field as opposed to two field required the
cultivation of a third less land to produce the same
amount of food.  The man behind the plow pulled by
his horse could cultivate twice as much land per day
than behind an ox.
--

<**>And what about the more normal state of affairs
when no innovation occurs?<**>
--------------------

It is not the more normal state of affairs.  It is
the more normal state of affairs in the rest of the
universe not impacted by the free will of man.
--

<**>You seem to regard "reductio ad absurdum" as some
kind of method. <**>
--------------------

Reductio is merely a tool in the logician's tool bag
that is apparently missing from the Austrian's tool
bag.
--

<**>The thought process you are describing is that of
making clear definitions of things. If you construct
a distinct definition of a thing as "A;" then, by
definition, all other things are "not A."
--------------------

By the rules of formal logic that is correct.  But
the human mind does not think that way, and neither
does the mind of God.  Formal logic is a tool but
only a tool in what is called the "Inclusive Logistic
Progression."  In the progression there is no
excluded middle.  Confining your thinking to formal
logic - as praxeology does - allows you to come to
the most absurd conclusions.  You must test your
conclusions against what you observe and experiment.

"The human mind functions logistically, through a
process combining metaphor with observation. When
observation conflicts with metaphor, then a new
metaphor is invented to bring sense to the new
observation. This does not necessarily invalidate the
earlier metaphor.

"For example, using the method of Newton, the long-
accepted Principle of Relativity could not be
reconciled with the newly observed constancy of the
speed of light. So the method of Einstein was
developed. But it cannot be said that Newton's method
is in any sense of the word "untrue." It remains the
best and most easily used method for predicting
physical phenomena within the usual range of human
experience.

"This concept is referred to as the Inclusive
Logistic Progression:

"There is a true statement X which may be deduced
from logistic system A, but there is a true statement
Y which cannot be deduced from A. There is an
INCLUSIVE logistic system B which can deduce both X
and Y, but there is a true statement Z which cannot
be deduced from B. There is an inclusive system C
which can deduce X, Y and Z, etc...

"The theoretical limit to the progression is the set
of all possible inclusive systems, which is
infinitely large.

"As a practical matter, what this means is that
models cannot "prove" anything; they can only
predict. Prediction must be verified by actual
observation."
--

Finally, let me say that you have not answered my
question about what policies you would recommend to
deal with the alleged gap between prices and
purchasing power.
--------------------

You've now asked this five times in succession.  I
thought I answered it the first time you asked.
Wally Klinck again answered it today.



---original message---
Date:   Mon, 03 Nov 2003 11:21:14 +0800
From:   Pat Gunning <gunning@xxxxxxxxxx>
Subject:   [SOCIAL CREDIT] Labor displacement and A + B
To:   socialcredit@xxxxxxxxxx
Reply To:   socialcredit@xxxxxxxxxx

Bill, I'm afraid that I am very close to quitting this discussion.
Although I appreciate the tone of your remarks, it seems to me that you
are playing some kind of a debating game. Although I have plenty of time
and patience to learn new things and to teach, debating for its own sake
has no appeal to me. In this note I discuss two things: (1) saving,
innovation and labor displacement and (2) the logic and relevance of the
A + B theorem.

*Saving, Innovation and Labor Displacement*

Regarding crop rotation and the horse harness, if you wish to continue
the dialog, you must keep the discussion in context. You wrote that
social creditors argue that the gap between prices and purchasing power
is due to labor displacement. You went on to equate this with the
Austrian notion of a lengthening of the structure of production. In the
Austrian literature, lengthening ordinarily results from an increase in
saving relative to consumer spending -- a shift in time preference.
Consumers shift a larger proportion of their incomes away from spending
and toward saving. The increase in saving, other things equal, reduces
the rates of interest, leading entrepreneurial profit calculations to
change. The entrepreneurs borrow additional money and use their
borrowings to shift some resources away from producing goods for the
nearer future and toward the production of goods for the more distant
future. For convenience, Austrians represent this by saying that the
entrepreneurs shift resources away from the production of consumer goods
and toward the production of capital goods.

I assumed that when you wrote about labor displacement, you were
referring to this process, since that was the context in which you
brought up the issue. I assumed that by "labor displacement," you meant
that less labor was used when such a shift occurs. So I wrote: "You seem
to be saying that an increase in saving relative to consuming would
cause a deepening of the structure of production. More resources would
be devoted to the production of capital goods and less to the production
of consumer goods."

In a later message, you took the statement out of its context. You
quoted the above statement as if I had used it in an argument against
social creditors. Here is the exact context:

Begin quote:

<**>More resources would be devoted to the production
of capital goods and less to the production of
consumer goods.<**>

Implicit is the false assumption that there is no
improvement to process, discovery or innovation and
there is only a fixed quantity of resources available
for exploitation.

Let me give you a just two dramatic examples of
technological innovation...

End quote.

In short, you tried to attack the very theory that you claimed to have
used to explain the reason why there would be a gap between prices and
purchasing power. In my last message, I defended the Austrian theory by
fitting the cases of crop rotation and the horse harness into the
framework to which I presumed you were referring. Now you say that these
cases will not fit into that framework. What happened to your claim that
lengthening the structure of production implies labor displacement and a
gap? Are you now claiming that these cases are not examples of the
lengthening of the structure of production and therefore do not cause
labor displacement and a gap?

I happen to believe that the inventors of crop rotation and the horse
harness did indeed expect to sacrifice immediate satisfaction both when
they employed the inventions and when they decided to invest in the
knowledge needed to produce the inventions. And I believe that you have
made false inferences from the history you have read. But this is not
relevant to the question of whether these innovations caused labor
displacement.

More likely than not, you simply don't know the Austrian theory, which
is quite understandable. However, taking the original argument out of
context is a debating ploy and not an effort to deal logically with the
issues.

How would crop rotation cause labor displacement? And how would the
substitution of horse plowing for oxen plowing cause it? And what about
the more normal state of affairs when no innovation occurs? That is, why
would labor displacement occur when entrepreneurs shift part of the
resources from the production of consumer goods to the production of
capital goods? Let's get back to the point at issue.

*Logic and Relevance of the A + B Theorem*

You seem to regard "reductio ad absurdum" as some kind of method. The
thought process you are describing is that of making clear definitions
of things. If you construct a distinct definition of a thing as "A;"
then, by definition, all other things are "not A." For example, if your
definition of a banking sector is distinct, it cannot be a consumer
sector. By exploring the characteristics of the other things, we can
learn something about A. (For example, we can find something out about
the banking sector by exploring the nature of the consuming sector.) If
one fails to make a distinctive definition of A, then the exploration of
the characteristics of other things will not help. "Reductio ad
absurdum," in the context in which you use it, simply means that if we
define A and B as distinct numerical values and additive, A cannot equal
A + B. Our definition of A does not enable us to benefit by exploring
the characteristics of B because the definition is not distinct.

Douglas was correct to argue that given his definition of A and B, A
could not equal A + B. However, the major economists of his time did not
define A and B in the way that Douglas did. They did not base their
definitions on an accounting identity. /They used a different starting
point/. So Douglas's argument was irrelevant as a criticism of the
economics of his time. One must evaluate his claims that there is an
economic problem independently of that criticism.

Finally, let me say that you have not answered my question about what
policies you would recommend to deal with the alleged gap between prices
and purchasing power.

--
Pat Gunning, Feng Chia University, Taiwan;
Web pages on Praxeological Economics, Democracy, Taiwan, Ludwig von Mises, Austrian
Economics, and my University Classes;
http://www.constitution.org/pd/gunning/welcome.htm
and
http://knight.fcu.edu.tw/~gunning/welcome.htm




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