[jmherbener]

Like any other price, the purchasing power of money (which is the inverse of the prices of goods and services) depends on both demand and supply. Changes in the money stock and the demand to hold money determine changes in the purchasing power of money (which is the inverse of price inflation-deflation).

Here is a discussion of the TMS including links to a few charts:

http://wiki.mises.org/wiki/True_Money_Supply

Here is one of the TMS charts:

http://www.forbes.com/sites/michaelpollaro/2014/11/16/the-u-s-money-supply-decelerates-in-october-the-risk-of-an-economic-bust-just-went-up/

Here are more charts:

https://mises.org/markets-and-data

The BLS began to compute gross output in 2014. Its series only goes back to 2012:

http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=q&5102=15

[jmherbener]

To anticipate the state of the economy in the near future, I suggest you work out different scenarios based on sound economic theory and then choose the one you judge to be most likely.

The general theoretical principle is that movements toward stronger protection of private property, freedom of trade, free enterprise, sound money, etc. will result in higher and faster rising standard of living and movements away from these elements will lead to lower and slower rising or even falling standards of living.

To assess which direction our economy will be moving in over the next few years, one has to keep up with politics. What will be the impact of Dodd-Frank, Obamacare, and other regulations, what new regulations are pending, what will be the course of monetary policy and the likelihood of monetary reform, what will happen to government budgets (taxing and spending) and debt.

This is a daunting task, so I suggest you rely on the work of sound economists. Keep up with articles on mises.org and other outlets that publish their work. For an example of how this analysis has been done to explain economic history, take a look at Murray Rothbard’s book, America’s Great Depression.

https://www.mises.org/library/americas-great-depression

[jmherbener]

Austrian Business Cycle Theory does not assume that all information is known. It rests on the realistic view that people formulate expectations about the future, which is itself uncertain, as the basis for taking action.

Instead, ABCT argues that monetary inflation via credit expansion alters the pattern of demands in the economy, both by consumers and entrepreneurs, towards a build-up of capital structure at the lower stages to produce more consumer goods and the higher stages to produce more capital goods in extraction industries. Yet, the real resources in the economy are insufficient to accomplish both. Although the build-up of the capital structure can continue for some time, it cannot be completed for lack of resources. Take a look at the essay, “The Austrian Theory of the Trade Cycle,” by Ludwig von Mises in this book:

https://mises.org/library/austrian-theory-trade-cycle-and-other-essays

And the article by Joe Salerno:

https://mises.org/library/reformulation-austrian-business-cycle-theory-light-financial-crisis-0

The insights of behavioral economics are neither necessary nor sufficient to have a theoretical explanation of the business cycle. Here is Peter Klein on the Austrian theory of the entrepreneur:

https://mises.org/library/capitalist-and-entrepreneur-essays-organizations-and-markets

Here are additional resources concerning ABCT:

http://wiki.mises.org/wiki/Austrian_Business_Cycle_Theory

[jmherbener]

Neoclassical economists claim to respect the ordinal ranking of subjective valuation. Their claim relies on representation theorems in mathematics that demonstrate a correspondence between an ordinal rank of bundles of units of goods and the numeric utility generated by a utility function under certain assumptions. Of course, some of the assumptions are entirely unrealistic. For example, that a person can rank every possible bundle of units of different goods even if the amount of a good in a different bundle differs by only an infinitesimal amount. Gerard Debreu is credited with the proof:

https://en.m.wikipedia.org/wiki/Debreu_theorems

It seems to me that the Neoclassical technique of model building is what results in market failures which in turn can be corrected by government intervention. A particular market failure is simply a logic consequence of the assumptions of the model.

https://en.wikipedia.org/wiki/Market_failure

[jmherbener]

It isn’t safe to assume that vendors who sell tickets are uncontrolled by local governments. Concert halls, sports arenas, etc. are subsidized by governments and therefore, their policies are likely controlled. For an example of a somewhat hidden government control, consider anti-gouging laws that prevent gasoline stations from raising prices to clear markets in “emergencies.” The resulting excess demand isn’t a market generated result even though the man of the street might see it that way. The mere fact that it is illegal to resell a ticket at a price above face value is prima facie evidence, although not proof, that the government is controlling the pricing policy of the vendor.

But even if vendors set their own pricing policies and price tickets below market-clearing to give charity to some of their customers or to create buzz for the event, the market still clears. Secondary markets arise and generate this result if it doesn’t occur in primary markets.

[jmherbener]

Professor Manish was not discussing a business reporting to the government. He was referring to the method by which the categories of income (namely wages, rent, interest, and profit) can be applied to adding up everyone’s income. If Joe and Mary earn $80,000 in net income, how is that to be categorized? To do so, one needs to be able to calculate their imputed wages and imputed interest.

[jmherbener]

It’s more than just a construct for businesses to report to the government. It’s an aspect of economic calculation itself.

Let’s take a stylistic example. Joe and Mary Smith own the Main Street Diner, a mom and pop restaurant, in Grove City, Pennsylvania. For 2014, their net income was $80,000. During the year, Joe worked for 1,000 hours as a cook and Mary worked 1,250 hours as a waitress. They pay their cooks $12 an hour and their waitress $8 an hour. Considering the sources of their net income (i.e., what productive contribution did they make to the operation of their restaurant), $22,000 of their net income of $80,000 came from the value of their labor. They earned implicit or imputed wages since they could have earned $22,000 if they were hired elsewhere as a cook and waitress. Mary and Joe also invested $1 million of their own saving into the restaurant. The annual rate of interest on similar loans is 5 percent. Thus, $50,000 of their net income of $80,000 is implicit or imputed interest since they could have lent their $1 million to someone else and earned $50,000. Assuming that they make no other productive contribution, the residual $8,000 of their net income of $80,000 is profit for their entrepreneurship.

In making production decisions, it’s valuable for Joe and Mary to be able to calculate the sources of their income. If an economist wanted to compile everyone’s income, he would use these economic categories of sources of income: Wages for labor; Rent for land; Interest for capital; and Profit for entrepreneurship. Accurately compiling everyone’s income by source would require the economist to take account of implicit or imputed income earned in the four sources of income.

[jmherbener]

Professor Manish is referring to the opportunity cost of foregone interest income when a person self-finances his business. Instead of self-financing, if an entrepreneur borrows from the credit markets, then he pays interest to the lender. The rate of interest is determined by the market. If an entrepreneur self-finances, then he foregoes earning interest on the funds that he could have earned by lending them in the credit markets to a borrower. He must account for this opportunity cost of using his own funds by recognizing that his net income from production includes the interest income he could have earned by lending out the funds he used instead to self finance his operation. Whether he self-fiances or not, however, the rate of interest is determined by the market.

[jmherbener]

As a system of production, the economy is the division of labor. Each person produces to satisfy the consumptive ends of other persons and has his own consumptive ends satisfied by others. It follows that a “better economy” is one in which people use their resources to satisfy more valuable consumptive ends that they have. It also follows that the location, nationality, ethnicity, etc. of different persons are not relevant, per se, to the determination of who the best producers are in satisfying the consumptive ends of any person.

Productivity increases over time as persons accumulate capital. If productivity rises sufficiently in some area, then a smaller proportion of people may be needed to produce in that area to satisfy the consumptive ends of everyone. Such a process has occurred with agriculture starting in the second half of the 19th century. The percent of workers in agriculture has fallen from around 70 percent in 1840 to around 2 percent today. The same process started in manufacturing after the Second World War. The percent of workers in manufacturing has fallen since then from around 30 percent to around 10 percent today.

Non-farm employment data are in figure 5 of this article:

http://www.prb.org/pdf08/63.2uslabor.pdf

Here is a useful short analysis:

http://www.minnpost.com/macro-micro-minnesota/2012/02/history-lessons-understanding-decline-manufacturing

[jmherbener]

Don’t let the tail of formal analysis wag the dog of human action. MU analysis is used to explain human action, it has no other meaning. Sometimes a person trades one good for another, sometimes he does not do so. In the former case he ranks the first good higher than the second and in the latter case he ranks the second good below the first. If he has only one unit of each good, then a sizable gap might exist between the value of the the two units. If we stipulate that the goods remain scarce to him and yet are available to him in multiple units, each of which can be used to attain a different end, then he can trade between actions with units of the first and actions with units of the second good in a way that narrows the value gap between the last unit of the first and the last unit of the second good. Even if the goods were indefinitely divisible, however, the value difference (while shrinking to a minimum) would not disappear entirely because to reach his preferred outcome he must choose to give up action with the last unit of one good to obtain action with the last unit of the other good. At that point, he could not reallocate the units of the different goods further without reducing his overall satisfaction.

[jmherbener]

In a market economy there would be diversity of contractual terms across different occupations. Entrepreneurs would adopt the method of contracting that generated the greatest benefits. Every compensation system from piece rate to hourly to salary and from wages to benefits to profit sharing would exist in the economy, each one in the appropriate occupation. Here is a NBER article on the decline of piece rate pay, which the authors attribute to the rise of team production:

http://www.nber.org/digest/may11/w16540.html

State intervention can introduce inefficiencies in the pattern of contracting methods. One example is entrepreneurs shifting from wages to paid health care insurance in the wake of the federal government divergent tax treatment of the two imposed during wage and price controls of the Second World War.

One example of government intervention that could affect the balance between hourly and salary compensation is the Federal Labor Standards Act which mandates minimum wages and overtime for hourly workers. Some entrepreneurs and their workers might find it advantageous to have salary contracts, and longer working days, to avoid hourly compensation levels above the workers productivity.

http://smallbusiness.chron.com/salary-vs-hourly-employment-1770.html

[jmherbener]

Banks lend their reserves to other banks. This particular credit market is called the Federal Funds Market.

http://www.newyorkfed.org/aboutthefed/fedpoint/fed15.html

[jmherbener]

I don’t know the history of this case in particular, but there are several instances in which governments leased timber and mining rights to companies instead of privatizing the land. In those cases, the forests tend to be clear cut and mines wastefully exploited because there was no private owner of the land and therefore, no one had a monetary incentive to account for the market price of the land itself. This is a case of the so-called tragedy of the commons.

A famous illustration is the terrible Pishtigo fire of 1871 in Wisconsin.

http://www.peshtigofire.info/

In contrast, companies that own their forest and mine land do not damage the market value of the land in these ways, Georgia Pacific for example.

Alternatively, as you point out, government subsidies may be to blame. Also, if timber companies know that the government is buying land titles, they would have incentive to clear cut and then sell to the state. Governments might buy even if the market value of the land to commercial owners has been, at least temporarily, destroyed by clear cutting.

Here’s a brief history of land ownership in West Virginia. A fifth of the land in West Virginia is still owned by governments. The Monongahela National forest was established in the early 20th century on land owned by Senators Davis and Camden, among others.

http://www.wvencyclopedia.org/articles/1293

Here’s a nice introduction to free market environmental policy.

http://www.independent.org/publications/article.asp?id=1447

And here’s a more scholarly treatment of private property and land use.

http://www.independent.org/publications/tir/article.asp?a=453

[jmherbener]

Studies of poverty are notoriously shoddy. Cross-country studies are especially problematic. If you look at just the U.S., the poverty rate was declining until LBJ’s war on poverty. Take a look at the work at the Independent Institute:

http://www.independent.org/issues/google_results.asp?cx=018225991961863933630%3Awvyquibswjc&ie=UTF-8&cof=FORID%3A11&q=poverty

Charles Murray made this point in his book, Losing Ground.

Thomas Sowell has done some good work on poverty. Take a look at his book, Poverty, Wealth, and Politics:

http://www.amazon.com/Wealth-Poverty-Politics-International-Perspective/dp/0465082939/ref=sr_1_1?s=books&ie=UTF8&qid=1437685010&sr=1-1&keywords=wealth+poverty+and+politics

Here Sowell points out that market reforms have lifted hundreds of millions of people out of poverty in China in the last three decades:

http://www.realclearpolitics.com/Commentary/com-1_10_06_TS.html

Henry Hazlitt wrote an entire book on that point:

https://mises.org/library/conquest-poverty

Here is a Mises Institute wiki on poverty:

http://wiki.mises.org/wiki/Poverty

Here’s a recent Mises Daily article:

https://mises.org/library/freedom-global-poverty-and-failure-foreign-aid

Another point is that private charity actually works to reduce poverty whereas government programs do not. Here is Michael Tanner:

http://www.cato.org/publications/commentary/more-welfare-more-poverty

Marvin Olasky has written about this as well:

http://www.amazon.com/Tragedy-American-Compassion-Marvin-Olasky/dp/089526725X

[jmherbener]

The subjective value theory does not say that there can be no objective way of determining which course of action is ethical better.

Subjective value refers only to the fact that each person’s valuation of alternatives in action exist in his mind. It is an intensive state of mind that has no extensive property. Without an extensive property there can be no objective measurement of valuation since an objective unit of valuation cannot be defined. This fact implies that the subjective valuations of different persons cannot be objectively compared. Therefore, when a social interaction benefits some and harms others, there is no objective method to determine whether society has more or less utility.

Subjective value, however, does not imply that there can be no grounds whatsoever for an objective ethical system. Just because one cannot objectively demonstrate that a social interaction that benefits some and harms other is better in the sense of generating great social utility doesn’t imply that there are no other grounds on which the social interaction could be objectively deemed better.

Murray Rothbard, in his book The Ethics of Liberty, famously grounded an objective ethics in the human nature and natural law. Here is an article by Rothbard on the topic:

https://mises.org/library/justice-and-property-rights-failure-utilitarianism

Also, even though one cannot objectively determine the social utility of a social interaction, a person can make a judgment that it seems likely that the gain to one group outweighs the loss to another group. Such judgments are the basis for economic history as opposed to economic theory. Here is an article by Joe Salerno explaining how the economist uses his own judgments in doing economic history:

https://mises.org/library/how-do-economic-history

As you say, even if one judges the outcome of a social interaction to be socially beneficial, it doesn’t logically follow that violating property rights to bring about the social interaction is ethical.

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