The Myth of ‘Involuntary Unemployment’

Since layoff is necessary to allow obsolete firms to decline or disappear in favor of new firms that tend to conform to the changes of individual preferences, a frictional unemployment emerges.

Obviously, unemployment caused by regulations (e.g., minimum wage, unemployment benefits, labor unions) is considered as involuntary unemployment. Economists do not deny this. But some still subscribe to the idea that frictional unemployment could be labelled involuntary unemployment as well.

As we will see, this definition of involuntary unemployment does not hold. Though he did not believe in that definition, John M. Keynes gives his own definition, in The General Theory, chapter 2, in writing :

Clearly we do not mean by ‘involuntary’ unemployment the mere existence of an unexhausted capacity to work. An eight-hour day does not constitute unemployment because it is not beyond human capacity to work ten hours. Nor should we regard as ‘involuntary’ unemployment the withdrawal of their labour by a body of workers because they do not choose to work for less than a certain real reward. Furthermore, it will be convenient to exclude ‘frictional’ unemployment from our definition of ‘involuntary’ unemployment. My definition is, therefore, as follows: Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods [i.e., consumer goods] relatively to the money-wage [i.e., nominal wage], both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.

Hazlitt’s direct reply to Keynes reads :

Keynes’s statement overlooks the fact that such an increase of employment could have been brought about equally well by a lowering of money wage-rates, with commodity prices remaining the same. To recognize this possibility, however, would have been to recognize that the unemployment was not in fact involuntary.
(The Failure of the New Economics, 1959, p. 30)

Or Huerta de Soto’s discussion, which is worth quoting in full :

However there are two possible routes to a relative reduction in wages: either a worker may accept lower nominal wages, or he may agree to work in an environment where nominal wages remain unchanged, but the prices of consumer goods rise. The latter is the more indirect route. In neither case is unemployment involuntary: it is purely voluntary in both. In the first, a worker remains unemployed because he voluntarily chooses not to work for a lower nominal wage. In the second, he only agrees to work if he has deceived himself, since his real wages fall even though his nominal wages remain the same. (In other words, in the second case he agrees to work in an environment in which the prices of consumer goods and services increase faster than wages). In fact most of Keynes’s policy prescriptions amount to an attempt to reduce unemployment by lowering real wages via the indirect route of increasing inflation, and thus the prices of consumer goods, while maintaining nominal wages constant. This remedy has failed, not only because workers are no longer fooled by the money illusion and demand nominal wage increases which at least compensate for decreases in the purchasing power of money, but also because the proposed “medicine,” apart from being ineffective, entails the enormous social cost of the economic crises and recessions credit expansion provokes. Furthermore we must realize that to a great extent, Keynes’s own prescriptions, which consist of boosting effective demand through fiscal and monetary measures, are the main culprits in keeping labor markets rigid and even in making them gradually more so, since economic agents, specifically workers and unions, have come to believe that adjustments in real wages must always take the form of increases in the general price level. Hence Keynesian doctrine, rather than a “remedy” for the disease, has become an aggravating factor which worsens it.
(Money, Bank Credit, and Economic Cycles, 2009, p. 554)

And indeed, as Huerta de Soto suggests, insofar as price level is kept increasing over time, even at a low rate, people are obviously reluctant to wage cuts even in normal times, since they could anticipate inflation in the future if they are used to price increases. Thus they would rather choose (nominal) wage increases for which they are accustomed.

The fact that a drop in real wages (due to inflation) could lead to an increase in employment does not mean that those workers were previously willing to work. It could be argued that a drop in real wages allows employers to loosen (even a little bit) the conditions, other than salary, at which they are willing to hire, those conditions at which the previously unemployed were reluctant to accept. But a refusal is a personal choice : “that one can change one’s mind over time hardly implies that one’s earlier choice was involuntary” (Dissent on Keynes, 1992, p. 211). It would make no sense to speak of involuntary unemployment. Also, William H. Hutt, in The Theory of Idle Resources, made the suggestion that when a woman stopped working, for whatever reason, her situation should not be considered as idle, nor as preferred idleness, but as employed. She prefers to do household tasks rather than tasks in a wage-paid job :

… Thus, if a wife leaves the wage-paid labor market when her husband succeeds in earning more, it may be to devote more time to the adequate performance of household services. If so, it would be most realistic to regard her condition not as “preferred idleness” of the leisure variety but as employed, she having exercised a new preference not involving idleness in any sense. More domestic services are purchased at the cost of the wife’s money-income foregone.
(The Theory of Idle Resources, 1939, pp. 40-41 footnote 5)

As William Hutt explained, Keynes did not even understand that what he called “involuntary unemployment” denotes in fact “the condition in terms of willingness to work” (Hutt 1939, p. 47). That is to say, people would not accept a job at any conditions but rather require certain conditions before accepting a job, such as a wage level at which both employees and employers accept. Ludwig von Mises, in his Human Action, clearly states :

The piling up of excessive inventories and the catallactic unemployment of workers are speculative. The owner of the stock refuses to sell at the market price because he hopes to obtain a higher price at a later date. The unemployed worker refuses to change his occupation or his residence or the content himself with lower pay because he hopes to obtain at a later date a job with higher pay in the place of his residence and in the branch of business he likes best. Both hesitate to adjust their claims to the present situation of the market because they wait for a change in the data which will alter conditions to their advantage. Their hesitation is one of the reasons why the system has not yet adjusted itself to the conditions of the market.
(Human Action, 1996, p. 579)

The various considerations which may induce a man to decide for unemployment can be classified in this way:

1. The individual believes that he will find at a later date a remunerative job in his dwelling place and in an occupation which he likes better and for which he has been trained. He seeks to avoid the expenditure and other disadvantages involved in shifting from one occupation to another and from one geographical point to another. There may be special conditions increasing these costs. A worker who owns a homestead is more firmly linked with the place of his residence than people living in rented apartments. A married woman is less mobile than an unmarried girl. Then there are occupations which impair the worker’s ability to resume his previous job at a later date. A watchmaker who works for some time as a lumberman may lose the dexterity required for his previous job. In all these cases the individual chooses temporary unemployment because he believes that this choice pays better in the long run.

2. There are occupations the demand for which is subject to considerable seasonal variations. In some months of the year the demand is very intense, in other months it dwindles or disappears altogether. The structure of wage rates discounts these seasonal fluctuations. The branches of industry subject to them can compete on the labor market only if the wages they pay in the good season are high enough to indemnify the wage earners for the disadvantages resulting from the seasonal irregularity in demand. Then many of the workers, having saved a part of their ample earnings in the good season, remain unemployed in the bad season.

3. The individual chooses temporary unemployment for considerations which in popular speech are called uneconomic or even irrational. He does not take jobs which are incompatible with his religious, moral, and political convictions. He shuns occupations the exercise of which would impair his social prestige. He lets himself be guided by traditional standards of what is proper for a gentleman and what is unworthy. He does not want to lose face or caste.

… The fact that a worker discharged on account of changes occurring in the arrangement of production processes does not instantly take advantage of every opportunity to get another job but waits for a more propitious opportunity is not a consequence of the tardiness of the adjustment to the change in conditions, but is one of the factors slowing down the pace of this adjustment. It is not an automatic reaction to the changes which have occurred , independent of the will and the choices of the job-seekers concerned, but the effect of their intentional actions. It is speculative, not frictional.
(Human Action, 1996, pp. 598-600)

Because a man is not omniscient, the equilibrium is not achieved automatically. This is the very reason why wages need time to adjust even without regulations (e.g., minimum wage, unemployment benefits, labor unions). If agreement did not take place, this would mean that employees have pretentions (to better pay or working conditions) that employers do not accept : “He judges that the search for a better opening is worth the risk of immediately foregone income” (Hutt 1939, p. 24). The popular idea that employees have no bargaining power over the employer is debatable, as discussed earlier :

‘Minimum Wage Laws Increase Unemployment’ : A Misunderstanding

But even on the extreme assumption that the wage workers tend to accept is not sufficient to avoid starvation, the unwillingness to accept this wage reflects one’s desire even though people have no reason to refuse a wage-paid work in that situation : “Those seeking employment would be ready to go to work for any wages, however low, even if insufficient for the preservation of their lives. They would be happy to delay for awhile death by starvation.” (Human Action, p. 136).

It could be said however that the lack of information about job opportunities makes it more difficult to find a job. Again, this idea neglects the very heart of the entire matter. As discussed above, unemployment in an unhampered economy is necessarily speculative, therefore voluntary. What individuals really want is not a job per se, but a job at a certain wage, which reflects the condition in terms of willingness to work. Then, Rothbard writes :

For if what a man wants is simply a “job,” he could work for zero wages, or even pay his “employer” to work for him. In other words, he could earn a “negative wage.” Now this could never happen, for the good reason that labor is a disutility, especially as compared to leisure or “play.” Yet all the worry about “full employment” makes it appear that the “job,” and not the income from the job, is the great desideratum. If that were really the case, then there would be negative wages, and there would be no unemployment problem either. The fact that no one will work for zero or negative wages implies that in addition to whatever enjoyment he receives, the laborer requires a monetary income from his work. So what the worker wants is not just “employment” (which he could always get in the last resort by paying for it) but employment at a wage.
(Man, Economy, and State, 2009, p. 583)

Thus, that there are information asymmetries do not imply that we should accept the concept of involuntary unemployment. To say otherwise would mean that any failure to concur with someone else is necessarily involuntary. Hans Hermann Hoppe highlights the complete nonsense of this idea :

The claim that involuntary unemployment is possible in the framework of a private property economy as characterized above is due to an elementary logical-conceptual confusion: It ignores the fact that employment is a two-party affair; i.e., an exchange which, like any voluntary exchange, can only take place if it is deemed mutually, bilaterally beneficial. It makes no more sense to classify someone as involuntarily unemployed if he cannot find anybody willing to meet his unilaterally fixed demands for employment, than to call a person in search of a wife, a house, or a Mercedes involuntarily wifeless, homeless, or Mercedesless because no one wants to marry him or supply him with a house or a Mercedes at terms which this person has unilaterally determined as agreeable to him. Absurdity and contradiction would result if one were to do so. For then one would not only have to accept, as the other side of the same coin, that the boycotting employer, woman, or owner of a house or a Mercedes in turn would have to be regarded as an involuntary nonemployer, nonwife, or nontrader of a house or a Mercedes because his/her unilateral demands had not been met by the would be employee, would-be husband, or would-be house or Mercedes owner just as much as they had not met his. Moreover, with both the would-be employee as well as the would-be employer classified as involuntarily being what they are because no mutual agreement had been reached between them, to create “voluntary employment” would imply coercing either one or both parties to accept an exchange whose terms one or both of them regard as unacceptable.
(The Economics and Ethics of Private Property, 2006, pp. 141-142 footnote 7)

What Keynes would meant by involuntary unemployment does not matter since we have shown in what the concept of “involuntary unemployment” is meaningless. Unemployment, as well as employment, is necessarily voluntary in a free market economy. To put it another way, unemployment is not a concern in an unhampered economy.

17 comments on “The Myth of ‘Involuntary Unemployment’

  1. Wouldn’t unemployment caused by unemployment benefits be considered voluntary? Keynes’s definition of involuntary unemployment was that which occurred because current wage levels were stuck (for whatever reason — minimum wage, unions, general reluctance of employer’s to announce wage cuts or of employees to accept them) above the level necessary to clear the market. Keynes’s solution, part of it, was to lower real wages by decreasing the value of monetary wages via inflation — ie, increases in the prices of things wages would by (which he called “wage goods”). Sectors of the economy which needed more labor could then raise nominal wages, etc.. Personally I think that should be part of the solution right now since it would also have the side benefit of decreasing personal and government indebtedness. In fact I think that is what the world’s central bankers have decided to do, though of course they can’t say so.

  2. Sorry, I see you already know this stuff — I had only read the first sentence of your post! Wasn’t the context of Keynes’s theory the situation in England, where, according to Keynes, wage rates were largely controlled by powerful labor unions? In that situation an unemployed person who decides they need a job would not be able to find anyone who would (or could) hire him — or at least that is the general idea behind insufficient demand. Wages were downward sticky as an institutional and historical fact. Under those circumstances the would-be worker would be involuntarily unemployed. Absence of flexibility in wage rates is at the root of it all. Of course there are all sorts of short and long term nuances, many of which I’ve forgotten but which you seem to be more than familiar with. As a parting observation let me say men — even educated men, even educated economist — will never agree about economics, anymore than they will ever agree about religion? I base this on a lifetime of experience. The most you can hope for is persuade an influential group of policy makers for a brief period of time, and even then whatever you persuade them of is as likely to wrong as right, of if right only right for that moment in time. All other thoughts are utopian.

    Still you might be interested in something I wrote when I was your age. See Appendix II: A Note on Wages and Prices:

    https://docs.google.com/document/d/1GgMHLVyrgZStqiddmaS7cON8Z-bFjNB5NIBZaNxN438/edit

  3. 猛虎 says:

    Luke Lea,

    “Wouldn’t unemployment caused by unemployment benefits be considered voluntary?”

    This could be possible, indeed. But there are two kinds of people : those who perceived benefits while searching a job and those who perceived benefits without searching a job.

    “Wages were downward sticky as an institutional and historical fact. Under those circumstances the would-be worker would be involuntarily unemployed.”

    This is exactly my point. In a free market, there is no such thing as “involuntary unemployment”. Keynesians believe that because wages are sticky, we need monetary inflation. But insofar as prices increase, people demand a parallel increase in nominal wage. And, insofar as price level is kept increasing over time, people are obviously reluctant to wage cuts, since they could anticipate further inflation if they are used to price increases. Then, wages could be sticky even in the absence of regulations. See Huerta de Soto (I have edited my post by the way) :

    However there are two possible routes to a relative reduction in wages: either a worker may accept lower nominal wages, or he may agree to work in an environment where nominal wages remain unchanged, but the prices of consumer goods rise. The latter is the more indirect route. In neither case is unemployment involuntary: it is purely voluntary in both. In the first, a worker remains unemployed because he voluntarily chooses not to work for a lower nominal wage. In the second, he only agrees to work if he has deceived himself, since his real wages fall even though his nominal wages remain the same. (In other words, in the second case he agrees to work in an environment in which the prices of consumer goods and services increase faster than wages). In fact most of Keynes’s policy prescriptions amount to an attempt to reduce unemployment by lowering real wages via the indirect route of increasing inflation, and thus the prices of consumer goods, while maintaining nominal wages constant. This remedy has failed, not only because workers are no longer fooled by the money illusion and demand nominal wage increases which at least compensate for decreases in the purchasing power of money, but also because the proposed “medicine,” apart from being ineffective, entails the enormous social cost of the economic crises and recessions credit expansion provokes. Furthermore we must realize that to a great extent, Keynes’s own prescriptions, which consist of boosting effective demand through fiscal and monetary measures, are the main culprits in keeping labor markets rigid and even in making them gradually more so, since economic agents, specifically workers and unions, have come to believe that adjustments in real wages must always take the form of increases in the general price level. Hence Keynesian doctrine, rather than a “remedy” for the disease, has become an aggravating factor which worsens it.

    Also, I tend to agree that people are generally ignorant about economics – especially french people. I don’t know why, but I have the feeling that french are really stupid when it comes to economics (and their english is awful). But I could be wrong.

    As for your document, i have sent a request.

    • Agreed, in a free market there is no such thing as involuntary unemployment. In particular, if there were a free market in labor. I’ve enabled share on that Note on Wages and Prices, which attacks the problem by replacing fixed hourly wage contracts with a contract based on net shares. The first part is purely theoretical under perfect competition — no surprises there really. Everything is the same. But under imperfect competition it has some advantages if I remember. It’s been a long time and I can’t say I have the brain power anymore to think about these things rigorously. You do though. I only remember that Milton Friedman liked it, which, considering I was a professional carpenter at the time, I thought was pretty good.

  4. When I said a contract based on net shares I should have written a formula based on net shares. The formula would be agreed, just like hourly wages are agreed, with or without unions.

  5. “. . . most of Keynes’s policy prescriptions amount to an attempt to reduce unemployment by lowering real wages via the indirect route of increasing inflation, and thus the prices of consumer goods, while maintaining nominal wages constant. This remedy has failed, not only because workers are no longer fooled by the money illusion and demand nominal wage increases . . .”

    Here in the US at least a big part of the reason was that strong industrial trade unions negotiated automatic annual cost-of-living-adjustments (COLAS). This, in my judgment, is what caused the Phillips curve to move away from the origin back in the 1970’s (i.e., the trade-off between the rate of inflation and the unemployment rate kept getting worse and worse). Since then, for a number of reasons, primarily trade with low-wage countries and automation, labor unions have largely disappeared outside the public sector. Thus an inflationary policy might work — this would be my prediction anyway — because, in my view, unorganized labor lacks the power or the will to raise nominal wages to keep up with inflation. Real wages have been falling in this country for several decades now and will continue to fall. Unfortunately the 2008 financial crisis — which, in my opinion, was largely a Minsky/Fisher type debt crisis — means that wages will need to fall further and faster than a non- or low-inflationary environment will allow in a politically acceptable time-frame. This is a judgment call obviously. Higher inflation would also help under-water homeowners with fixed 30 year mortgages obviously and (to the extent it is unanticipated?) would lower the federal governments debt to GDP ratio. Which is not to deny the many disadvantages of higher inflation nor the difficulty of hitting an inflationary target (which is a little like trying to carry a tray of water over a rough landscape). Thus I predict a period of rising inflation and falling living standards in the period ahead, but also a falling rate of unemployment. It won’t be a happy time and will have an even unhappier ending, namely a very sharp recession at the end when the next Volker slams on the monetary brakes. All that notwithstanding this may be the least bad alternative before us. It will hasten a more efficient reallocation of labor between various sectors of the economy, getting more people to work and increasing the total size of the economy. This is all short-term stuff and only applies to this particular moment in history. I may be wrong. It should be obvious in the next several years.

    • 猛虎 says:

      My main problem with monetary policy is that the ultimate goal of such a policy, clearly, is to “maintain” the actual structure of employment.

      I don’t think that job destruction during a recession is necessarily a bad thing. It depends. Without public intervention, the industries which have previously experienced a boom, due to monetary overexpansion, must contract. Then, it follows that losses are unequal. This is a good thing, because job destructions following the end of the bubble allow job reallocations. During the boom, as the ABCT tells us, it is the industries located furthest from the consumption (such as mining, refining, and more precisely the industries producing capital goods, that is, machines, tools, etc.), as opposed to the industries closest to consumption (such as retailing), that experience the highest growth. When a bubble collapses, there were not enough savings to allow those industries to pursue their investment. This is because when the interest rates are artificially reduced by the central bank, while industries could make additional borrowings, there was in fact absolutely no additional private savings. So, when industries expand their investment, they are expecting additional demand for their product. But people actually do not save more, so that there would be no additional demand in the future. This is why in an economic crisis, the industries furthest from consumption experienced the biggest contraction.

      Because of the shortage of savings, jobs located in the industries producing capital goods must be reallocated. Some jobs must be abandoned. In the present crisis, we have seen a housing bubble. Then, it was those jobs that are previously misallocated.

      Huerta de Soto writes in his book (page 407) :
      http://mises.org/books/desoto.pdf

      if consumption is directly encouraged through credit expansion, the existing productive structure furthest from consumption clearly ceases to be profitable in relative terms, creating a trend toward the liquidation of these stages and the general flattening of the productive structure.

      If H. de Soto was right, it follows that even though the employment in the industries closest to consumption increases at the expense of employment located at the industries furthest from consumption, the economy will be poorer because the industries producing capital goods have contracted. Less capital per worker means less productivity.

      There is a great disagreement between austrian economists (such as H de Soto, Robert Murphy, or Hayek, Mises, Rothbard, etc.) and neoclassical or keynesian economists with regards to the many possible alternatives in a recession.

      Austrians think that monetary policy (and public intervention as a whole) is useless, because it will distort the structure of production, whereas neoclassical/keynesians think we should inflate the money supply in time of crisis, even though neoclassicals disagree with keynesians when it comes to the keynesian fiscal stimulus.

  6. And as I said previously people almost NEVER agree on the subject of economics! There is just something about it — likely evolution didn’t fit us to think about these things very well, and vested interests make it even more difficult to think dispassionately, to say nothing of the absence of good, reliable information. Thus the number of (consensus) first-rate economists is very small compared to, say, the number of first-rate theoretical physicists despite the fact that the latter is a more difficult subject.

    • 猛虎 says:

      However, people usually agree that race does not exist, even though they are wrong. But they don’t care about what is right or wrong. They don’t care about science. And I don’t care about these people.

  7. A further factor contributing to the difficulty of economics of course is the vagary and lability (labileness?) of human behavior.

  8. 猛虎 says:

    Ok. Given what you have said in “A Note on Wages and Prices” :

    Because in the neoclassical theory of production it is tacitly assumed that a firm can freely add or subtract units of labor or capital without directly disturbing the wage rates of the rest of the labor force. This is certainly the case when the remuneration of each individual worker is set in the customary way at a fixed hourly rate, agreed to ahead of time. But when labor’s collective share is determined by a ratio of the net product, to be re-apportioned among the individual workers according to a formula, this assumption no longer holds, and it becomes necessary to adopt a new proof in order to establish these familiar results.

    It seems to me that what the neoclassical theory assumes is that if we add a unit of labor, the productivity of workers could fall because the ratio capital/labor diminishes, at least in the short run. But insofar as the additional workers are supposed to save a part of their earnings, the industries can make additional borrowings and expand investment in capital goods, restoring the previous ratio capital/labor.

    Also, I’m not certain to have grasped your thoughts here :

    if instead of the traditional fixed wage contract it were agreed by convention to divide the net product of a firm between labor and capital according to a fixed arithmetic ratio. That is, instead of a fixed hourly wage rate which forms the object of negotiation, a simple ratio would be used: two numbers (m and n, m:n, m parts to labor, n parts to capital) which divide the net product of the firm (as defined below) into proportional shares on a periodic basis. Labor’s collective share would then be re-apportioned among the individual members of labor force on a weighted basis, according to the number of hours each worker contributed during that period, the skill required, and the degree of difficulty or responsibility of the jobs performed.

    • Keep in mind that I am an old man now. So let me do as best I can. You should regard these remarks as hints at best. It might be up to you to save the argument (if possible) another way. Also keep in mind the assumptions behind perfect competition.

      One general point is that as relative prices for goods change under changing historical circumstances (as they always do due to new technology, capital deepening, changing tastes, etc) workers’ average hourly wages in a particular firm will automatically move up and down as the market value of that firms net product moves up and down, causing some of them to voluntarily move out of and into various firms in order to equalize wage rates for various skill levels.

      As for “reapportionment” I think I was imagining (as best I remember) a situation in which, with perfect information, every employee and employer would know the average real wage rate for each skill set throughout the economy. Thus as workers come and go labor’s share of the net product (the n in the numerator) in a particular firm would be adjusted accordingly, not by total number of units of labor, but by the total number weighted by these known wage differentials. If in a particular firm a particular worker’s productivity turned out to be higher or lower than the average (because of personal qualities unique to him) then, I believe, through a process of negotiation with his fellow employees his wage rate could be adjusted accordingly. Their might be an auction process in which workers compete for various jobs that would cause this to happen — ie set each worker’s share of labor’s total share to reflect relative abilities (skills, stamina, what not). But all this is beyond me now.

      Anyway all the interesting stuff is under imperfect competition. Among the imperfections is an absence of free mobility of labor between towns: workers in a particular township would have exclusive rights to work in the factories in their area. Capital mobility would be the mechanism to bring about an efficient allocation of investment on a global level: corporations would withdraw capital from areas with below average rate of return and vice versa. Dysfunctional or marginally functional communities might collapse altogether, forcing its inhabitants to migrate to the big cities which would operate as population sinks (lots of decadence, drugs, etc) which is the way natural selection would work — through economic rather than military competition. (Communities could also recruit skilled or more functional immigrants from these cities also, thus allowing escape from the cities for qualified families, individuals, groups, or what not.)

      This net share idea is embedded in a much larger context described in the first three chapters of the book. My suggestion was this might make for a more flexible price system not only for wages but also for manufactured goods, the latter because employers would not have to bare the entire cost of price reductions. This is a standard argument for profit sharing, of which this is a theoretically pure form, at least that is what I was trying to make it.

    • 猛虎 says:

      Interesting. On top of what you have said about capital mobility, I could say that housing bubble tends to reduce geographical mobility due to the ever-increasing prices of houses. Especially for the poors.

      The fact that “corporations would withdraw capital from areas with below average rate of return and vice versa” is exactly what austrians usually say. From H de Soto, we have “In the market there exists a trend (driven by the force of entrepreneurship) toward the equalization of the “rate of profit” in all economic activities” – this, of course, is due to opportunities. About this, I have heard that in the U.S. capital is more mobile than it is in Europe, probably because US labor market is more flexible, and because in european countries the Welfare state is prominent.

      I wil read your book more carefully when I have more time. (I have just read the chapter 3, + your appendix II)

  9. Is it possible to reply to a reply? I am generally sympathetic to the Austrian school as best I understand it, though I’ve never “identified” with it or with any other particular school. Have read a little Rothbard, dipped into Human Action, but am also aware of some craziness here and there, a certain cultishness, though I can’t remember the details. I like Hayek, respect Greenspan, respect Friedman even more. Viner is a favorite economist of mine, also the early essays of John Bates Clark. I like Fisher. For all his flaws I think Keynes was still a great economist, as did Friedman and Viner for that matter, and for the same reasons. Keynes is particularly good in his criticisms of the over use of mathematics in economics, there’s a great essay on econometric models he wrote which is free on the web, criticizing Tinbergen. Right now I think economics is in a high state of decadence, for which I blame Paul Samuelson. I don’t think it can reform itself. I’m for a return to political economy, a moral not a positive science, whose goal is to identify policies that could be expected to increase the general welfare. A good knowledge of the history of political economy is required along with a knowledge of human nature, the limitations of economic data (Morgenstern), etc, etc.

  10. Keep in mind that I think you are a very interesting and subtle thinker or I wouldn’t bother to have this conversation with you. Plus you are a good writer. I think differential population genetics is important along with bio-cultural interactions. Griffe is good.

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