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January 7, 2016 at 12:02 pm in reply to: Austrian textbooks on finance, business, or investing #18649
jmherbener
ParticipantYou might consult the book by Joseph Calandro, Applied Value Investing.
Also, read Mises Daily articles by Frank Shostak.
https://mises.org/profile/frank-shostak
Finally, Guido Huelsmann is working on a book on finance.
ParticipantAny and all action is taken by a person to obtain something the anticipate will be more valuable by foregoing an alternative considered less valuable. If two persons each anticipate a gain by exchanging what they have for what they want, then it’s in the interest of both of them to cooperate by finding a mutually agreeable price. The basic point of exchange between a buyer and a seller is for them to realize its mutual benefit. Sellers and buyers are free in a market economy to use whatever method they think best in formulating asking and offering prices. However, to make their trade and realize its mutual benefit, they must settle on prices that generate mutual benefit, i.e., prices above the minimum that the seller is willing to accept and below the maximum the buyer is willing to pay. The existence of billions of exchanges every day throughout the world illustrates the truth of this claim.
Of course, government coercive force can attempt to impose legally mandated prices. The NRA cartelized various industries during the Great Depression. The point was not to make prices inflexible, but to raise them back to their pre-depression levels. By the time the NRA was in force in 1933, prices had already fallen dramatically. Price were clearly not rigid downward as they fell 30 percent from 1929 to 1933. Prices were not sticky downward during the depression. Moreover, the NRA was declared unconstitutional by the Supreme Court in 1935. So, at most, the NRA codes only administered prices for two years.
http://fee.org/freeman/the-nra-how-price-fixing-perpetuated-the-great-depression/
As Joe Salerno has argued, the changeability of prices are one part of an entrepreneur’s strategy to cater to buyers. If buyers want prices that change rapidly in response to changes in demand, then entrepreneurs employ the technology to make this possible as in financial markets like the NYSE. If buyers want prices to change more gradually regardless of the moment to moment changes in demand, then entrepreneurs give buyers that result as in retail stores like Wal-Mart.
https://mises.org/blog/whos-afraid-sticky-prices
The billions of successful exchanges that occur every day belie the claim that the behavior of person in unpredictable. Moreover, the laws of demand and supply do not refer to predicting people’s changing preferences over time. The laws take a person’s preference as it is demonstrated in action and conjecture at that moment what would be logical for the person to have done had the price been different than it was while every other relevant factor involve in the person’s behavior remained the same.
ParticipantMost central banks attempt to hit a target rate of price inflation of around 2 percent. If price inflation is below the target, the central bank accelerates monetary inflation and if price inflation is above the target, the central bank decelerates monetary inflation.
I suggest Joe Salerno’s book, Money Sound and Unsound:
https://mises.org/library/money-sound-and-unsound-1
Although I don’t know the details of Cruz’s proposal for gold in the monetary system, he’s clearly not calling for a return to even the classic gold standard, let alone a genuine gold standard.
http://www.cnn.com/2015/12/22/politics/ted-cruz-gold-standard/index.html?iid=EL
ParticipantThe classical work is Henry Hazlitt’s book, Economics in One Lesson:
http://fee.org/files/doclib/20121116_economicsinonelesson.pdf
You might consult, Ludwig von Mises’s book, Planning for Freedom:
https://mises.org/library/planning-freedom-and-twelve-other-essays-and-addresses
Also, take a look at Robert Murphy’s book, Lessons for the Young Economists:
ParticipantThe story assumes that banks will lend their excess reserves when market interest rates rise. To prevent the excess reserves from getting into the hands of people, the Fed will have to raise the interest rate it pays on reserves. But this is not the normal way that banks operate. When banks have excess reserves, they normally convert them into required reserves by issuing fiduciary media by creating credit. To prevent this process, the Fed must create a spread between the interest rate it pays on required reserves and the interest rate it pays on excess reserves.
Excess reserves are around $2.5 trillion and the interest on them, according to the story is $12 billion. The interest payments to banks, then, are a drop in the bucket in a $18 trillion GDP. But, the excess reserves are much more than a drop in the bucket and the fiduciary media that could be created on the excess reserves are more than the bucket.
ParticipantAuto loan statistics are compiled by Equifax. Here’s a piece on Equifax’s October 2014 report.
It shows that in the fall of 2014 financial institutions had 31.4 million auto loans worth $453 billion and auto companies had 34.1 million auto loans worth $471.2 billion.
Here’s an Equifax report on subprime auto loans.
http://www.equifax.com/assets/corp/subprime_auto_economic_commentary.pdf
ParticipantA person voting does not bear the opportunity cost of obtaining the alternative he votes for. A person paying the market price to buy a good does bear the opportunity cost of having his preference satisfied. Whatever made be said in its favor, voting is not an action that demonstrates that a person voting for one alternative values it more relative to the value placed on the alternative given up by a voter who favored it. All voting demonstrates is that each voter values the alternative he votes for more than he himself values the other alternative. But a person who buys a good pays a price that other persons are unwilling to pay and thereby demonstrates that he values the good relative to money more than other persons value the good relative to money. Moreover, a person who votes for an option has his vote nullified by a person voting against his option regardless of how intensely each voter values the option he favors. A person who values something more than another person can, however, outbid him by paying a higher price. Voting does not register the intensity of a person’s preference, bidding prices for goods does.
ParticipantThe Fed is paying 0.25% interest on both required reserves and excess reserves. Therefore, banks do not lose any interest payment from the Fed if they convert their excess reserves to required reserves by creating credit, i.e., extending more loans and writing the loan balances into their customers’ checking accounts. Banks are more reluctant to extend loans than they are in normal times and the Fed thinks it can regulate the banks’ extension of loans as it normalizes by paying a higher interest rate on excess reserves than on required reserves. In any case, QE (Fed purchase of securities) does increase bank reserves. Whether or not banks extend loans on top of their reserves is their option. Currently they are not fully exercising that option.
ParticipantThe conclusion that the purchasing power of a given money is the same in every location where the money can be exchanged for goods is a particular case of a general “law of one price.” If a good is divisible into homogeneous units, say troy ounces of pure gold, then each unit will sell for the same price in the same market at the same moment. If, to the contrary, gold was selling for $1,500 an ounce in London and $1,200 an ounce in New York today, then arbitragers could earn profit by buying in New York and selling in London. As they continued to do so the profit would shrink for additional arbitrage because they are increasing the demand in New York, driving the price up there, and increasing the supply in London, driving the price down there. The arbitrage will cease only when there is no additional profit to be earned, that is, when the prices in the two locations are the same, net of transaction costs.
Money is a nearly perfect example of the law of one price because every unit of money is homogeneous and the transaction costs of transferring money from one location to another is nearly zero. We can, therefore, infer that the purchasing power of a given money is the same in every location where it can be traded for goods.
It follows that if the price of a given good is higher in one location than another, then there must be a difference in the subjective value people place on the good in one location relative to the other.
Ludwig von Mises uses the following example to illustrate. The price of a room at a hotel on the top of a ski-resort mountain is higher than an equivalent room at a hotel at the bottom of the mountain. The purchasing power of money, however, is the same at the top and bottom of the mountain.
The price of goods is higher in Hawaii because the people who live there value living there more highly than living on the mainland. For that reason, they are willing to pay the costs for transportation to have the goods shipped to them.
Price inflation, however, does not refer to the prices of some goods being higher in one place and lower in another. It refers to changes in the purchasing power of money, that is, in the prices of goods rising all around both in places where they are higher and in places where they are lower. It is true that when the money supply is increased with a given money demand, the prices of some goods will increase more and the prices of other goods with increase less and the prices of some goods will increase sooner and the prices of other goods will increase later, however, price inflation refers to the circumstance that prices overall are higher. Think of the prices in an economy as a swarm of bees. Individual bees are constantly changing their positions relative to each other with some rising and others falling, whether the swarm is stationary, upward moving, or downward moving. Price inflation occurs when the swarm is moving up and price deflation when the swarm is moving down.
ParticipantExchange rates are the actual prices that exist among different currencies. Market baskets are makeshift computations and not market prices. Suppose there is a market basket made up of one Yen and one USD against which changes in the market-basket value of the RMB is to be determined. If the RMB appreciates 10 percent against the Yen and depreciates 15 percent against the USD, then the market-basket value of the RMB would decline 5 percent. If the Bank of China desired to keep the market-basket of the RMB stable it would have to sell RMB for Yen to devalue the RMB by 10 percent and buy RMB with USD to appreciate the RMB by 15 percent. If instead, the Bank of China sold the market-basket for RMB to appreciate the RMB by 5 percent against the market-basket, it would leave the RMB overvalued against the Yen and undervalued against the USD.
ParticipantThe proper use of models or equations or both depends on what body of knowledge one is trying to discover. Austrian economists claim that the most fundamental body of knowledge about human action and interaction is the conceptual structure of human action and its logical implications. This body of knowledge can be acquired with a system of verbal logic. Within this “logic of action” thought experiments are used, such as the ceteris paribus stipulation you mention. One could call this a model, but it’s different than the models of neoclassical economics.
They claim that the most fundamental body of knowledge about human action are empirical regularities. It requires empirical-hypothesis testing to acquire this knowledge. The models used must be quantitatively definite, and hence their reliance on mathematics.
Austrian economists are skeptical of the possibility of discovering quantitatively definite empirical regularities in human action and interaction. It would seem, to the contrary, that the quantitative magnitude of the correlation between variables generated by human action is in constant flux. To paraphrase Ludwig von Mises, the problem is that there are no quantitative constants but only variables in the correlations among data sets generated by human action.
Austrians, then, would reject quantitatively precise, mathematical models but not reject verbally deduced, qualitative “models.” For example, Austrians would accept the “model” of demand and supply by which we can deduce that a larger demand for a good, with supply held constant, will result in a higher market-clearing price. Austrians would reject the model: D = a + bP and S = c + dP where a, b, and d are greater than 0 and b is less than 0 which results in a numeric magnitude for the market-clearing price determined by P = (a-c)/(d-b).
ParticipantHere is the text of HR 1207 in the 111th Congress:
https://www.opencongress.org/bill/hr1207-111/text
Threat of the passage of HR 1207 led to the legal change you cite. It seems reasonable to conclude that the audit the fed bill would go further. For example, it stipulates the Federal Reserve District Banks also be audited. Moreover, it pits the Comptroller of the Currency against the Fed as a check on the Fed.
ParticipantBloomberg News sued under the freedom of information act to obtain the list of recipients of Fed loans during the downturn.
Here’s the bloomberg story mentioning Dodd-Frank:
Here is a comprehensive account of Ron Paul’s Audit the Fed bill:
November 27, 2015 at 2:01 pm in reply to: Chart showing a correlation between the TMS and inflation #18623ParticipantGross Domestic Product attempts to measure the production of all final goods and services in the economy. Gross Output attempts to measure all production, both of final and intermediate goods and services, in the economy. Although it might seem that the different components of these aggregates should move together, they do not do so in the face of time and uncertainty. For example, it might seem that Consumption and Investment expenditures should move up and down together making GDP = C + I a rather smoothly increasing statistic, one easily predicted by past trends. But the judgments persons make of their best courses of action change as they attempt to penetrate the fog of uncertainty. It’s well known that Investment expenditures vary more than Consumption expenditures over the business cycle. So a chart of Consumption would not correlate all that well with a chart of GDP over the cycle. The same thing can occur with respect to GDP and GO.
Take a look at the seminal work on Regime Uncertainty by Robert Higgs:
November 25, 2015 at 11:15 am in reply to: Chart showing a correlation between the TMS and inflation #18621ParticipantMoney supply growth does not correlate with price inflation rates because price inflation depends not only on money supply but money demand. The growth rates of the money supply have been much higher than rates of price inflation in the last 8 years because people are holding onto money instead of spending it as readily as they normally do. The demand to hold money normally increases in a bust because people want to have liquid assets. Here is a story on the money holding of Apple, Inc.
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