To the Austrians, the [economic] process is decidedly non-random, but operates (though in a non-deterministic way, of course) under the incentives of entrepreneurial “error-correction” in the economy. In a never ending series of steps, entrepreneurs homeostatically correct natural market “maladjustments” (as well as distinctly unnatural ones) back to what the Austrians call the evenly rotating economy.
Spitznagel is making the case that the Austrian economists treat the economy as a dynamical system. Rather than a wild beast to be mechanically broken and tamed, it is a quasicyclical system like an ecosystem. This system has attractor states, one of which is runaway inflation.
The underlying, critical point made is this: neoclassical general equilibrium assumes a static world-view. This assumption is wrong. The world is most definitely not static; rather, it is extremely dynamic and changing.
Entrepreneurs are perennially correcting these maladjustments back toward the “evenly rotating economy” (ERE). The ERE is similar to the neoclassical equilibrium but instead of being an actual state that the economy exists in, the ERE is more like a limit to which the economic process approaches.
“A firm earns entrepreneurial profits when its return is more than interest, suffers entrepreneurial losses when its return is less…there are no entrepreneurial profits or losses in the ERE.”
So the economic process is defined entirely by the cycle of entrepreneurial profits and losses. This is like a natural wealth-transfer program as some entrepreneurs profit, and some lose.
On the other hand, non-Austrian economists treat the world as static, homogenous, and decidedly not-complex (that’s “complex” as in non-linear). This simplistic perspective drives decisions in interest-rate changes.
When a central bank lowers interest rates, what essentially happens is a dislocation in the market’s ability to coordinate production.
“Coordinating production” sounds to me like a property of a self-organizing system, it would be interesting to see what the Austrians could add to the topic. DeLanda’s work deals with how societies self-organize (urbanity), and markets are a natural ingredient in societies. A search on arXiv turns up a lot of math work on this subject.
as Rothbard noted, “the stock market is the market in the prices of titles to capital,”
There is more in this about the dynamics of savings, interest rates, and replacement value, but without some graphical or equational representation of what he’s trying to say I can’t understand it.
Links and further reading to do:
- PDF archived here
- The Dao of Corporate Finance
- Carl Menger
- Ludwig von Mises
- Friedrich von Hayek
- Murray Rothbard