Who Were the Sea Peoples?

Here's a way explain the difference between the "classical" market for loanable funds and the "Keynesian" market for loanable funds, and bring home the important difference between market participants moving along a supply or demand curve and their moving the supply or demand curve. We start with a supply and demand diagram for loanable funds, with the equilibrium interest rate at 6%: Now, consumers decide to save more, increasing the supply of loans and dropping the equilibrium interest rate from 6% to 5%: Well done, market! Equilibrium achieved, end of story, right? Well, if all of our ceteris are paribus , yes, that's it. The market clears at 5% and our tale has ended. And that certainly could be what happens! But it doesn't have to be what happens. Firms are manned by human actors who themselves interpret , and based on that interpretation react to , events. What if they interpret that rise in savings as an ominous sign: consumers ...

"The market rates of interest on loans arc not pure interest rates. Among the components contributing to their determination there are also elements which are not interest." -- Mises, Human Action , p. 536 Note: I did not say "some good sentences" -- the sentences are not particularly eloquent. It is the thought behind them that is important.

I own the only salt mine in our area. Salt is a very widely used commodity, but it is not yet money, as it is not universally accepted in essentially all trades. (J.P. Koning might say it has a high degree of "moneyness.") As such, I have opened a side-business: I buy and lend-out all sorts of commodities by paying for them in salt, and when they are returned to me I trade them back in for salt. It is February, and I am looking at two possible loans. One borrower wishes to borrow tomatoes for six months, and the other ice. When I consider the tomato deal, I realize that in August tomatoes are plentiful and will fetch much less salt. In fact, although a pound in February fetches two pounds of salt, I expect that in August a pound of tomatoes will trade for only a pound of salt. Meanwhile, ice is in the reverse circumstances: in the winter, I can get only a pound of salt for a pound of ice, but in August the same amount of ice will fetch two pounds of salt. Since I do my a...

And in the same post noted just below, Kuehn puts his finger right on the crucial difference between Hayek and Keynes: For Keynes but not for Hayek, "those expectations of future profits are compared to an interest rate that is determined by liquidity preference and not the supply and demand of loanable funds." Just so! And they were both partially correct: the interest rate is influenced by both of these factors. So here is where we must get empirical: To the extent that the interest rate is determined by liquidity preference, to that extent Keynes was correct. To the extent the interest rate is determined by the supply and demand for loanable funds, Hayek was correct. As Olivia Newton-John would have put it: I've been patient, I've been good Tried to keep my data off the table It's gettin' hard this holdin' back If you know what I mean I'm sure you'll understand my point of view We know the scene theoretically You gotta know t...