[tony.destro]

Thank you. Your reply was enlightening.

[tony.destro]

You might like this thread, it’s an interesting empirical argument against stimulus spending.

Stimulus spending and timing.

[tony.destro]

Perhaps I am wrong, but I do not think he has been exposed to these arguments before. He has yet to reply to me (usually he does). So, unless he’s constructing some giant retort, I think he realizes the Austrian theory is internally consistent. He buys into most of what Austrians have to say anyhow, perhaps this is just another step.

[tony.destro]

My friend is trying to make sure he understands what you’re saying, he says this is what he gathers from your comments.

1. Demand for output up.
2. Price up –> Profit up.
3. Profit up –> Supply up.
4. Supply up –> Price down (by a lesser amount than in 2)
5. Demand for inputs up –> Price of inputs up.
6. Price of inputs up –> Supply down (by a lesser amount than in 4).

This doesn’t seem quite right to me. I’ve done some thinking and now it seems totally wrong, but I need help explaining it. Prices of inputs increase to the point where there is no longer profit potential

[tony.destro]

I was at the bar this weekend with another economist who normally agrees with 95% of what I say, and we discussed this topic.

He basically said: Now, what you appear to be arguing is that entrepreneurs will respond to an increase in demand by finding more efficient ways to produce the product.

You create a causal link between the increase in demand and the increase in supply by saying that entrepreneurs anticipate the increase in demand. The fact is that the causality you are implying is artificial. If entrepreneurs can find more efficient ways of producing, they’ll do so regardless of whether demand increases (or is anticipated to increase) or not.

Now I don’t know which end is up.

But I’m thinking the argument is not that entrepreneurs become more efficient, they build more machines, factories, etc. They expand production.

[tony.destro]

Thanks again Professor Herbener.

[tony.destro]

Just a note: It seems your encounter (or a similar one) has created a bit of a stir with David Friedman in the comments on Bob Murphy’s blog where it seems to me he’s asking the same question posted here. http://consultingbyrpm.com/blog/2013/11/answering-david-friedmans-questions-about-austrian-economics.html#comments

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