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jmherbener
ParticipantLudwig von Mises demonstrated that there is no single scientifically accurate way to construct a price index. Money is the general medium of exchange and therefore, its purchasing power can be expressed in terms of any set of goods. Each person will assess the purchasing power of money according to his own interest (i.e., according to the goods that he is interested in buying and selling). Each such construction of a price index has the same justification and therefore, the same scientific status as a measure of price inflation.
It follows that when the government constructs a price index it will be according to the interests of government officials and of the multitude of price indices they construct there is no way to demonstrate that one is scientifically more sound than the others in measuring price inflation.
Here’s a small sample of government computed price indices:
https://research.stlouisfed.org/fred2/categories/32455
There are a few non-government-agency computed price indices.
MIT compiles the billion prices project:
ShadowStats computes the CPI using the techniques employed by the government in 1980 and 1990.
February 29, 2016 at 8:30 pm in reply to: Doesn't Keynesianism work when you control the world's reserve currency? #21170ParticipantIt has long been realized that having the world’s reserve currency permits a country to engage in a policy of “inflation without tears.” The British did this when the pound was the world’s reserve currency before the First World War. The USA did this under Bretton-Woods and in the 1980s and 1990s.
Take a look at Murray Rothbard’s book, What Has Government Done to Our Money:
https://mises.org/library/what-has-government-done-our-money
For “inflation without tears” to operate, there must be an international monetary regime of pegged exchange rates and coordinated world inflation. Under Bretton-Woods, for example, monetary inflation and credit expansion of the dollar becomes the base of monetary inflation and credit expansion of the domestic currencies in other countries. Their central banks increase their holdings of dollars as a reserve upon which they inflate their own currencies. This increase demand for the dollar prevents price inflation from choking off the boom which is induced by credit expansion. When price inflation occurs in the domestic currencies the booms their collapse and there is a rush to liquidity in which the central banks hold even more dollars further insulating the US economy from price inflation.
Take a look at Henry Hazlitt’s book on Bretton-Woods:
https://mises.org/library/bretton-woods-world-inflation-study-causes-and-consequences
Keynesianism doesn’t work for the country having the world’s reserve currency, just look at the UK and the trajectory of the US economy. If the policy is pushed far enough we get world monetary inflation and credit expansion, as the title of Hazlitt’s book indicates, and as the booms and busts of the last several decades illustrate.
ParticipantThe wage for each type of labor service is determined by demand and supply.
The choice the worker makes to supply his labor to a particular entrepreneur is based on his assessment of the value of the alternative compared to the value of the employment opportunity with this entrepreneur.
The choice the entrepreneur makes to demand the labor services of a particular worker depend upon the entrepreneur’s assessment of the marginal revenue product generated by the labor service discounted by the rate of interest if the entrepreneur pays the worker in advance of selling the output he helps produce.
Because both supply of labor services and demand for labor services depend upon the workers’ anticipations and the entrepreneurs’ anticipations there is no way for an economist to accurately estimate what the wage would be under different conditions. The economists can determine whether the wage would be higher of lower under different conditions, but the quantitative magnitude of the difference cannot be objectively calculated.
Market wages will always reflect the DMRP and opportunity cost of the labor services given the circumstances, including government interventions, under which the trade of labor is conducted. But what the exact wage of a labor service would be in the absence of government intervention can only be estimated imprecisely.
ParticipantHistory is complex and so determined opponents can always find alternative explanations that they consider plausible. Very rarely are there historical cases that prove to knockdown all opposition. That’s why finding cases in which several plausible factors are similar is helpful. Hans Hoppe refers to this in comparing the economic performance of East Germany v. that of West Germany as demonstrating the superiority of a freer market system.
https://mises.org/library/de-socialization-united-germany
By extension, the comparison between the downturns of 1920-21 and 1929-1933 have a similar advantage as historical evidence.
One could point to the experience of Western economies in the 19th century, which experienced panics instead of depressions, the latter of which involved serious unemployment. The U.S. economy did not experience severe unemployment in a downturn until the depression of 1894. Bob Higgs, in his book Crisis and Leviathan, argues that the rise of labor union violence against private property contributed to the problem.
The colonial period in America experienced remarkable economic progress largely free from boom and busts and unemployment. Even though Great Britain had a central bank and credit expansion, the British did not allow banking to develop in the American colonies. Murray Rothbard chronicles this in his multi-volume work, Conceived in Liberty.
ParticipantTake a look at the laissez-faire policies of the Harding administration during the downturn of 1920-1921 compared to the interventionist policies of Hoover and Roosevelt during the downturn of 1929-1933.
ParticipantPerhaps the most famous case is Great Britain in the mid-nineteenth century.
http://personal.lse.ac.uk/schonhar/docs/books/Orourkes%20review.pdf
https://mises.org/library/what-crushed-corn-laws
Bastiat led the intellectual movement for free trade in France around the same time.
https://mises.org/library/comment-french-liberal-school-0
Chile is cited as a more recent case.
ParticipantYou’re correct. Unilateral free trade policy is beneficial to society-at-large. It allows the division of labor more room to develop naturally. Both production processes and capital investment become more efficient.
https://mises.org/blog/free-trade-benefits-vs-fears-foreign-goods
Even if the Chinese just held dollar currency permanently, this would transfer command over goods to those of us who do not hold cash but continued to spend it.
ParticipantWithout central bank monetary inflation and credit expansion, the supply of credit would be determined by people’s saving. Unless people decide to save more, the pool of credit available would stay the same. Any additional credit into consumer loans would have to come out of credit being supplied into producer loans. Production would then be stimulated in consumer goods, but suppressed in producer goods. This would be the effect of an increase in consumer credit without considering any other factor.
The facts of the boom of the 1920s, however, are quite different. Both consumer credit and producer credit expanded together. The cause of the overall expansion of credit was not more saving, but expansionary monetary policy by the Fed and the resulting credit expansion by the banking system. As interest rates were suppressed by the credit expansion, consumers saved less and consumed more. Their increased consumption was financed partially money they borrowed. Banks, looking to expand credit offered better terms for consumer credit (e.g., lower-interest-rate and longer-maturity mortgages) which was the cause of the expansion of consumer credit. At the same time, banks were extending cheap mortgage money to farmers who used it to buy capital equipment and make capital improvements on their land.
The monetary inflation and credit expansion process of the 1920s is chronicled in Murray Rothbard’s book, America’s Great Depression, and Benjamin Anderson’s book, Economics and the Public Welfare.
https://mises.org/sites/default/files/Americas%20Great%20Depression_3.pdf
https://mises.org/sites/default/files/Economics%20and%20the%20Public%20Welfare_5.pdf
Participant(1) The BoJ is only charging the fee of 0.1 percent on additional excess reserves. So the excess reserves balances that commercial banks had before the announcement a few weeks ago are not subject to the fee. Of course, commercial banks could choose not to increase their excess reserves, that is what the BoJ is trying to bring about with its new policy.
What concerns central banks is that allowing commercial banks to build up and run down excess reserves reduces the control a central bank has over the money supply. When banks are fully loaned up, holding no or minimal excess reserves, then open market operations by central banks have a more predictable impact on the money supply through the so-called money multiplier. But, if commercial banks sell securities to their central bank and hold the funds as excess reserves or part of the funds as excess reserves, then the effect of the central bank’s purchase of securities from commercial banks is less predictable, i.e., less under the control of the central bank.
By charging commercial banks for additional funds that they hold as excess reserves, the BoJ is trying to put an upper limit on the building up of excess reserves by commercial banks. The BoJ hopes that from now on when it buys securities from commercial banks, they will respond by extending loans on top of the additional reserves. In other words, the BoJ is hoping that commercial banks treat the funds received from selling securities to the BoJ as required reserves instead of excess reserves.
(2) U.S. commercial banks are not the only participants in the Federal Funds market. The residual activity in the Fed Funds market is likely being conducted by foreign banks, government-sponsored enterprises, or other eligible entities.
ParticipantAccording to the Bloomberg report, the BoJ has set the “interest rate” it charges commercial banks on “new” reserve balances that they hold at the BoJ.
The BoJ is not the only central bank that is currently charging commercial banks for adding to their excess reserve balances. These charges, the BoJ’s is 0.1 percent, are not interest rates at all but fees designed to prevent commercial banks from continuing to build their excess reserve positions. The BoJ hopes that commercial banks will begin to make more loans instead of building up their excess reserves.
The Federal Reserve has a similar policy of paying “interest” on commercial bank reserves. Like the BoJ, the Fed has two tiers of “interest” it pays, one rate on required reserves and one rate on excess reserves. Currently the Fed has both “rates” set at 0.50 percent.
http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
The Federal Funds rate is an actual interest rate, namely, the one on inter-bank, over-night loans. The Fed targets this interest rate when conducting monetary policy because they consider it a gauge of the scarcity of reserves in the banking system. Federal funds loans are the trade of reserves among banks. The Fed manipulates this rate by supplying more reserves to banks through open market operations. The Fed assesses the degree of monetary expansion from such policy by watching the Federal Funds rate.
ParticipantIt is the issuer of the money substitute who guarantees redemption. It is this objective fact that is a precondition for the bank customer to consider his checkable account funds as a money substitute. He has a reasonable expectation that merchants at large will accept his checking account funds in lieu of cash.
In similar fashion, certificates of deposit issued by banks are credit instruments, banks guarantee repayment of principle and interest, that do not function as a medium of exchange. When customers take money into and out of their CDs this doesn’t alter the objective fact that the CDs are credit instruments. Likewise when customers take cash into and out of their checking accounts this does not change the objective character of either cash or checkable deposits.
Banks guarantee redemption of checkable deposits into cash in order to increase the value to customers of such deposits by establishing the preconditions for such deposits to be a medium of exchange. Banks do not need to make any guarantees regarding cash itself to grant cash status as a medium of exchange.
ParticipantBecause this is a philosophical question, I asked my colleague David Gordon who supplied the following answer:
Thanks for this excellent question. If true premises led to contradictory conclusions, we would really be in trouble! Fortunately, your student has I think read Hollis and Nell wrongly. They do indeed defend economic laws as necessary truths,and Hans Hoppe has cited them in support of his own views on methodology. They don’t claim that their analysis of capitalism is based on deductions from self-evident axioms, though. Rather, they incorporate empirical claims about capitalism into their work.
ParticipantThere are items that people use as media of exchange themselves, like Federal Reserve Notes, bitcoins, and so on. And then there are items that people use as media of exchange that are redemption claims to money, like checkable deposits, passbook saving accounts, and so on.
The evidence that money substitutes require redemption as a condition of their continuing use as a medium of exchange is the fact of continuing redemption by the issuer of the money substitute. Banks could quit offering on-demand, at-par redemption for their checking accounts, etc. and, faced with such a prospect, people at large may or may not continue to accept such account balances in lieu of accepting money or money substitutes issued by non-bank institutions, but the fact of continuing redemption makes these deposits money substitutes and not money itself.
A money substitute has an objective definition that depends only on the fact of redemption and not on how people subjectively value the item. Whether or not people use some particular item as money or a money substitute depends on their subjective valuations, but the categories of money and money substitutes do not. They are definitions.
ParticipantMoney itself is whatever people choose to use as the general medium of exchange. Money substitutes function as a medium of exchange in lieu of money itself because they are redemption claims to money that can be exercised on demand at par. People will choose whether to use money or money substitutes according to their judgment of the relative advantages and disadvantages as a medium of exchange in the circumstances of their trades.
A particular item can serve as a money substitute as long as it is a redemption claim to money that can be exercised on demand at par. If a bank, then, so redeemed customer deposits that are credit deposits, such as passbook saving accounts, then those deposits are money substitutes. In fact, checking accounts in our day and age are also legally credit deposits. The bank owns the funds in customers’ checking accounts (customers have lent the funds to the bank) and the bank owes the customers immediate payment.
Before the financial crisis starting in 2007 and the ensuing economics downturn, the split between money itself (i.e., Federal Reserve Notes) and checkable deposits was approximately 25% to 75%. During the economic downturn the split moved to 50% to 50% as people desired to hold more cash itself.
The general trend (accentuated by governments), however, has been toward minimizing the use of cash.
https://www.mises.org/library/joseph-salerno-war-cash
This trend toward using money substitutes instead of money does not depend on what money itself is. This trend was also strong under the gold standard. Near the end of the classical gold standard, most transactions were done in bank notes or bank deposits and not in gold and silver coins. Even under a genuine gold standard, people may choose (for convenience, safety, and so on) to conduct the bulk of their transactions in money substitutes.
No matter how far this trend goes, it does not result in the money substitute becoming money. Its use as a medium of exchange remains entirely depend on redemption on-demand and at-par for money itself and thus, on the continuing existence of money. In order for the item used as a money substitute to become money, the government must either initiate legal disabilities against money itself or legal privileges for money substitutes.
Take a look at Rothbard on the history of switching monetary regimes.
https://mises.org/library/what-has-government-done-our-money
ParticipantThe greater productivity of the division of labor depends on a difference in the efficiency of the producers. If their efficiency differs, then specialization replaces a less efficient producer with a more efficient producer. With the same inputs, then, output will be greater.
In your example, the efficiency of Crusoe and Friday is the same. Each of them forgoes 2A to produce another unit of B. 40/20 = 20/10 = 2/1. If different persons are the same, then, they would be interchangeable in different production processes without a loss of productivity.
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