[bradticus]

Not long ago while starting my research into what got us to the economic place we are in I found myself in contact with a man who was talking all about a “matematically perfected economy”. He claimed that he had figured it all out and that even the Austrians have it completely wrong. After glancing through it, I quickly dismissed it due to the fact that they had to change the real definition of deflation and inflation in order for it to make “sense”.

I was wondering if one of the wonderful faculty members would be able to really break down the major issues in this “mathematically perfected economy” nonsense and shed some light as to what is really going on with it.

The website is http://www.perfecteconomy.com/

[glenn.jacobs]

While I’m not a faculty member, I pursued the website and would like to offer some observations. If I am mistaken by some of my assumptions about what this guy is saying, please forgive me.

First, the biggest problem that I have with anyone who “has a plan” is: what happens if I choose not to participate? In other words, will you use coercion to force me to take part in your plan? If your plan is not based on the free market, the answer is yes and your plan should be rejected out of hand.

Second, we should always be suspicious when the words “mathematics” and “perfect” are used in the same sentence as “economy.” Economics is not a mathematical science. Numbers and statistics are useful in economic history, but not in a prescriptive or predictive way. And the economy can never be perfect. The economy is a dynamic system, always imperfect, but always moving towards a greater degree of perfection or equilibrium. It never achieves this state since conditions are always changing. The Evenly Rotating Economy is great for understanding how the economy works, but it is an imaginary construct which holds no validity in the real world.

Third, this guy seems to be completely ignorant of the role interest plays in market economy. Interest is a necessary and vital component of the market. Without interest, there would be no lending. Without lending, there would be no concentration of capital. Hence, a very small division of labor and specialization. Yes, the State concentrate capital with its chosen recipients, but it can only do so by 1) increasing the money supply or 2) taking it from someone else and thus destroying their capital. In addition, the interest rate provides entrepreneurs and investors with important signals that help to effectively allocate resources. The problem with interest today is that the interest rate is fixed by the State or its proxy the central bank. This is simply another form of price controls. It also seems that the gentleman is confused by interest and price inflation as he keeps talking about how much more things like houses cost in dollars than they did 30 or 40 years ago.

Fourth, the gold standard is not perfect, but so long as the State is going to be involved in monetary affairs, something like the gold standard is necessary to impose discipline on government spending. Monetary and price inflation in the US really took off after Nixon closed the gold window in 1971. Austrians do not believe in a gold standard per se. In general, we agree with Hayek that the market will determine what the best money is. As with everything else, the market is vastly superior to central planners. Trusting the State to issue fiat currency without any checks is bound to lead to disaster. While this disaster may manifest itself in different ways, once you come to the root of the problem THIS is the reason that the world is in the situation that it is.

Thanks!!

[bradticus]

As a new Austrian this analysis really helps me pick through some of the garbage out there. I’m at the point where I understand completely what is being said when I read or listen to speeches/lectures but explaining it to people makes it difficult. Thank you for taking the time to look at this, I really appreciate it!

[miljacic]

With all due respect I’d discourage our faculty members to look into this at all. It seems to be a nonsensical mess. Each of us happen to meet from time to time a person like this where one can’t even be sure the person is fully sane.

He uses words and terms very vaguely and puts the burden on the reader to, I guess metaphysically, understand his assumptions and definitions, instead of explaining anything, plus bogs down everything under a ton of irrelevant chatter. From such a mess anything can follow.

[bradticus]

@hayek_novice, I completely understand where you are coming from and I believe glenn.jacobs helped me more than enough. I suppose I should update saying that the faculty members are no longer needed to assist me in this matter but are of course more than welcome to give their analysis. Thank you for considering my question hayek_novice and taking time to look at even part of the material.

The help (limited as it has been) from the community here is far beyond anything I ever expected and truly something worthy of praise.

[Vampiro27]

Mr. Jacobs, you said “but so long as the State is going to be involved in monetary affairs, something like the gold standard is necessary to impose discipline on government spending”. Wouldn’t it be far more effective if individuals were free in monetary matters? A gold standard would not prevent the government from adopting a pseudo gold standard such as the Bretton Woods agreement. A far more effective measure would be to repeal all unconstitutional legal tender laws, thereby allowing individuals to be free in monetary matters. This also brings up other roadblocks to liberty, such as taxes being collected in dollars, which still could be inflated at the behest of the state. There too, changes would have to be made, to include the elimination of the income tax, and subsequently a government that is funded voluntarily. Though the latter are far off due to a liberty minded individual not having the pulpit of the presidency to promote and defend liberty, repealing legal tender laws is something that could possibly pass due to the nature of it’s unconstitutionality.

To the perfect economy website, I find this quote “Yet this very moment you have your finger on proof of singular solution” rather illogical due to the nature of the economy being dynamic as it is. For the author to label interest as causing a perpetual debt is I believe wrong.

He constantly misrepresents Ron Paul as well. Ron Paul has advocated for complete freedom in monetary matters, and a gold standard only as an option for government based upon the constitution, along with removing the coercive force of government and central banks in relation to money as well. The author also mentions that gold’s limited supply is a problem, when historically it has been an asset. It’s no wonder that gold has a 6,000 year history as a media of exchange.

Take this quote: “In the case of a $100,000 home with a hundred year lifespan, we would pay for the home/debt at the overall rate of $1,000 per year or $83.33 per month — a mere fraction of present costs.

Simply by re-financing all debt under mathematically perfected economy, we would immediately achieve full employment and *multiples* of our present “prosperity,” because so much *existent* cash could be devoted to commerce, versus its present dedication to servicing debt.”

This is nonsensical. So, not only is the individual unable to charge interest for the money loaned out, but they are now forced to accept a payment of only 1,000 dollars per year for 100 years. How a payment plan would achieve full employment and prosperity goes beyond logic. Also, contracts would be rendered null and void through force, therefore causing individuals to go bankrupt in the process, as other contractual obligations were based off of the lending agreement, which now could not be fulfilled, and myriad of economic problems would stem from this.

Where would this freed up money that “would immediately be available to sustain all the industry we are capable of” wind up? How would it be distributed? What about the new unemployed? How would they be compensated for the theft that took place against them? Why should the builder make a profit on building the home in the first place?

We have individual A whom works hard, and expends energy in order to earn money. This individual then saves money. Individual B doesn’t work nearly as hard as individual A, yet desires a loan in order to make a purchase. So what happened to the “but to the very economic justice of receiving for an equal measure of our own work, the equivalent work of others” So if individual A lends out 100,000 dollars, they only are allowed to receive in return 100,000 dollars. This therefore invalidates the equal measure of individual A’s work, as it was far greater than individual B’s efforts in acquiring the 100,000 dollars, and individual B need not expend much effort in order to receive the 100K. Individual A would be compensated for their efforts through interest on the earned $100,000. It is up to individual B to accept the terms, if not the transaction never takes place. This “mathematically perfected economic system just doesn’t add up.

[glenn.jacobs]

Vampire,
Yes, legal tender laws should be repealed and individuals should be free to trade with whatever they wish. That being said, we should differentiate between a 100% gold coin standard and the faux gold exchange standards. I agree with you absolutely that the State should not be at all involved in monetary affairs.

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