[patriciacolling]

Attention Jeffrey M. Herbener
How does the UME allocate resources where they are valued most? Is the value based on money? Does the monetary function really determine value? For example, I may value something to the extent that I am willing to produce in the best way that I can for a whole day to obtain it. Someone else may value that same thing for a half day’s work but obtain it because he has more money. Perhaps I can obtain it with direct barter with the person who currently possesses it over the person who is offering money. I am not suggesting that prices should be based on labor but I am regressing on how to reconcile this. Maybe I answered my own question. If someone can’t compete for something with the amount of money he possesses, perhaps he can compete through his direct barter. Also, in the general discussion I inquired about some private property issues. I’m still not sure if I have them ironed out if you want to give the discussion some light. Thank you for taking the time to answer my last question on bonds–that’s how far I am in the Austrian Economics course.

[patriciacolling]

The private property discussions are under Life and Property and Private Property in General Discussion forum.

[swalsh81]

UME?

[patriciacolling]

Unhampered Market Economy

[jmherbener]

The value a person places on a good is not “based” on money, but expressed against the value he places on money. If I value an iPad more than I value $500, then I gain if someone sells me an iPad for $500. The seller must also gain by the trade, i.e., he must value $500 more than he values the iPad, otherwise he would not trade. If there is another person who values the iPad more than $400 but less than $500, then we can conclude that if the seller sells to the first buyer instead of the second buyer, the iPad has been allocated to the person who values it the most compared to money.

If people do not use money in trade but whatever barter goods they happen to have, then it cannot be determined which of the buyers values the good he has to sell more than another. One offers two beaver pelts for the iPad and another offers a chord of wood. The seller can tell which offer by the buyers he himself values more. But which buyer values the iPad more highly is indeterminate.

Labor, also, cannot be used to determine who values something more highly. The units of labor are different from person to person. If one person values the iPad for 6 hours of his labor and another person values the iPad for 12 hours of his labor, nothing can be inferred about which person values it more. The different units of money, however, are homogenous. So it is possible to say whether one person values something more highly relative to money compared to someone else.

[patriciacolling]

I think where I’m confused is that we do not have an unhampered market. I think it’s possible, with an inflating money supply, that someone might value your barter more than paper and one might have a better offer with their barter than what he has been able to accumulate in currency +/or money. A bit of a regression do to central banking, I’d say. Even if we do not call currency money–currency can still be used to attain money for a store of value–which gives the current wealth accumulators–that may have participated in the use of government aggression, as well as fraud–an advantage in trade. This may be something we’re just going to have to accept. In Iceland, I hear, some people went to jail but who can say justice was served? Having exceptional foresight and practicing austerity are not the only ways people get rich–again, not an unhampered market phenomenon. Furthermore, people with exceptional foresight and that exercise austerity aren’t always able to get ahead. However, currently we are all forced to participate in fraud because we trade in dollars, which is fiat. I have no way of knowing my value to the economy because I am paid in fiat. Many think I am paid too much–who is to say? I do know I provide some value in aiding in the transport of mail, but I do not know how much. Even people in the private sector that do not depend on subsidies are still paid in fiat; and, therefore, cannot say they are rightly compensated when you acknowledge the world market…let alone bureaucrats, central bankers and welfare recipients. I do think that I understand your answer, but I also see a role for barter, albeit small and rare, in any economy. Thank you.

[jmherbener]

It is true that the pattern of prices, production, and income on an unhampered market would be entirely different than the pattern of prices, production, and income on a market economy hampered by a central banking that issues fiat money.

But it doesn’t follow from that conjectural claim that the pattern of prices, production, and income on a market economy hampered by a central bank issuing fiat money bears no relationship to people’s preferences.

By exercising its legal monopoly of printing fiat money, the state unjustly transfers resources from producers in the economy to itself. State officials and those who produce goods for the state, then, earn income unrelated to the satisfaction of people’s preferences in society. But this effect cannot extend to every producer in the economy unless the state adopts central planning. So in a hampered market economy their are lines of production support by the coercive power of the state and other lines of production not so supported. In the latter lines, the producers do earn incomes from the value of their productive services in satisfying the preferences of others and entrepreneurs do earn profit from their superior foresight in satisfying the preference of others. Consumer electronics would be an example of such a line of production.

The coercive taint on fiat money is not a character trait of the money as a medium of exchange it is in the use of the money by the state to unjustly transfer resources from producers to itself. And this effect is limited unless the state takes over all production.

[patriciacolling]

I’m sorry–trying to understand the second paragraph…”it doesn’t follow…that the pattern of prices…bears no relationship to people’s preferences”?
As I was writing my last post, I understood that entrepreneurs are still satisfying consumer preferences; but, I’m reading the Great Deformation and I think it is arguable that the loose monetary policy has created non-productive trades and that much of the market’s foresight is in response to the easy money. Therefore, many people are getting rich that aren’t necessarily in government but conceivably shape government to protect their ends; and, they are probably not providing net value to the economy. Moreover, the preferences of these people that possess so much disposable money create markets in the private sector. Do you believe we can improve the economy by privatizing things that are currently under government purview and by reforming the tax code? I’m of the opinion that all bets are off as long as we have government issuing currency, particularly fiat. Sorry if I seem to be getting off track. I guess I just worry about so much of the debate being on taxes, interventionism and the mixed economy, which I am against, while only paying lip service to the monetary system, which I believe is the source of all the other distortions. I want to be satisfied with your answers and not waste your time–I have a lot to learn so this must be frustrating for you. Thank you for engaging me all the same.

[jmherbener]

The state’s policies, both fiscal and monetary, generate unjust wealth transfers through trade. But not everyone is tainted by these policy sins. When my wife and I bought lunch at Hot Head Burritos today both we and HHB benefited. The value of the lunch to us relative to money exceeded the value of the lunch relative to money to others who did not buy it. The nature of our trade was not altered because we used fiat money.

I agree that fiat money and fractional reserve banking empower the state more than the power to tax. Ending the Fed and turning production of money over to private enterprise would restore more of our liberty than any other single reform. Even so, the power to issue fiat money is not the source of the other distortions. If we had a private monetary system, the state would still distort the economy by taxing and regulating our activity and running its own production facilities.

Economics helps us to discern the effects of each of the state’s activities.

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