[patriciacolling]

Dear Jeffrey,
I had a thought on a certain topic of this debate and want to be set straight. This is what I wrote, as convoluted as it sounds, on Bob Murphy’s site:
A fractional reserve system, being inflationary, is synonymous with counterfeiting, no?–regardless of whether the contract is fraudulent because of the multiple claims on the same property? Anyway, even if fractional reserves served the purpose in defraying the cost to mining gold, why forget to acknowledge that the production cost is important in developing the proper supply of the particular form of money on which the market has decided? I think it was David’s point that it is bad that the fractional reserve system today has no costs to defray–production of money doesn’t cost anything??? I think the Austrian view would be that it was always bad because in order to defray the cost to mining before, the system had to fundamentally change what kind of money is used because the notes would not be certificates of the real money, anymore. In other words, doesn’t the cost of producing money create the mechanism to have the correct supply of money?; and, if fractional reserves were used to defray mining costs but not printing costs then doesn’t that in and of itself distort the market?–because it is making money out of something that wasn’t decided on by the market. Is this making sense to anyone–if it does, then why didn’t Bob suggest it? Where am I getting this wrong?

I would appreciate any feedback. Thank you. Tricia

[jmherbener]

You’re on the right track. The Austrian view is that to make decisions about production that economize for society entrepreneur must use economic calculation. The use of resources in one line of production is justified if the revenues generated by satisfying consumer demands in that line exceed the revenues generated by satisfying consumer demands in another line of production. This occurs when an entrepreneur pays the opportunity costs of the resources (which are their prices) he uses to the resource owners and more than covers these costs with the revenues he generates from selling his outputs. Neither the production of fiat money nor fiduciary media is so regulated by profit. Their production does not require the producer to compensate for the opportunity cost others incur to allow for the satisfaction of the demand of those who issue fiat money and fiduciary media. Instead when they spend the fiat money or fiduciary media, people in general throughout the economy have their command over resources reduced to allow the issuers to have their command over resources augmented. And yet, no test has been passed to show that the value of the satisfactions gained relative to money to the issuers exceeds the value of satisfactions lost relative to money to people in general. The only test is voluntary exchange. But the issuers, who gain, do not compensate the people in general, who lose. They do not beat the opportunity costs of their actions.

[drphil0001]

I saw that debate and thought Murphy talked much too much about praxeology. It would’ve, as an undergrad science major, been VERY off-putting for me to hear him droning on about philosophy when I came to hear about “what happened to our economy”.

Yes, I believe in praxeology and yes I believe philosophy is important for the understanding of economics. But I feel the austrians are making a mistake by making pushing action axioms front and center. Murphy would’ve done better by picking a simple topic (IMHO: the failures of the monetarists’ predictions) and repeatedly reinforcing it. Pound Friedman on his failures, again and again and again.

Here are some examples:
1. As a potential convert to ABCT would I rather watch Peter Schiff’s or Tom Wood’s versions of educational entertainment -OR- hear about action axioms and subjective marginal utility?

2. From my business: Would a new student be more interested in seeing MRI images of grotesque tumors -OR- learn about the real and imaginary components of the longitudinal magnetization (MRI) vector. Hint: If you don’t know the answer: 1. you’re a nerd and 2. the answer is the former. (Once we’ve drawn you in–then we can hit you with the boring nuts and bolts)

Hey austrians: When in a public forum SELL YOURSELVES!!! It may be beneath you…but I discovered Mises because of the charisma of Peter Schiff. Mark Thornton is a super-great guy, but seriously, (call me a Philistine), but I wouldn’t be giving away money to Lew Rockwell and buying Tom Woods’ books because I happened to find a Thornton lecture on the net.

[Author]

Posts