[jmherbener]

Unlike households, entrepreneurs do not have to take out bank loans to capitalize on more equity in their enterprises. With greater equity, entrepreneurs can financially justify selling more bonds or attract venture capital funding. The other method entrepreneurs can use is to sell shares of their stock share holdings to fund projects out of their built-up equity. Of course, the later method is limited to them maintaining a controlling interest in their enterprises while the former method does not face that restriction.

[jmherbener]

Please forgive the delay in my response.

Certainly, the Federal Reserve could reorient monetary inflation to benefit groups other than bankers, the Federal Government, borrowers, etc. But, it would take a radical change in the manner in which the Fed inflates the money stock. Its hard to see how its current method of open market operations to by redirected to subsidize the poor. Logistical and behavioral problems aside, the Fed could print currency and hand it out to the poor at its Federal Reserve District Banks or open checking accounts at commercial banks for the poor and and then credit those accounts. Such a procedure would subsidize the poor at the expense of later recipients of the new money. Because such a policy would continue the ill-effects of monetary inflation, it would be more inefficient for the economy than a tax-and-transfer policy.

[jmherbener]

Yes, the course follows the line among the Austrian school economists from Carl Menger to Eugen von Bohm-Bawerk to Ludwig von Mises to Murray Rothbard. The difference between the Mises line and the Hayek line of Austrian economics is discussed here:

https://cdn.mises.org/rae6_2_5_2.pdf

[jmherbener]

Mises’s argument about the impossibility of economic calculation, and therefore economizing resource allocation, under central planning refers to socialism, i.e., state ownership of the means of production. If the state owns the means of production, then there can be no trade in the means of production and therefore no prices for the means of production. Without prices, all the central planners have on which to base their allocation decisions is their subjective valuations and the technical facts of production. These are inadequate for economizing decisions since the more efficient arrangement of factors of production cannot be determined by either adding up resources in-kind (e.g., labor hours with machines with materials) or imputing subjective value to the higher-order goods.

Market socialism fails to solve this fundamental problem. “Prices” set by the central-planners in their “currency” are completely arbitrary with respect to entrepreneurial problem, which is anticipating which lines of production and investment for which resource will be allocated today will prove to be justified by satisfying higher-value preferences in the future.

In addition to Mises’s discussion of Market Socialism in Human Action, take a look at Joe Salerno’s epilogue to Mises’s article on Economic Calculation:

https://mises.org/library/economic-calculation-socialist-commonwealth

In contrast, you seem to be posing a problem of interventionism, not socialism. Mises does not claim that it is impossible in an interventionist state, like France, for there to be economic calculation. If there is some outlet for private property and exchange in a general medium of exchange, then there will be money prices useful for economic calculation.

Alternatively, if all you are saying is that the three problems of socialism (incentives, knowledge, and calculation) are intertwined in applied analysis, then nobody disagrees with you.

[jmherbener]

Ludwig von Mises deals with this very case in his book, Human Action. As he points out, central planners allocate capital funding to the managers. The central planners, then and not managers, must perform the entrepreneurial function of anticipating what use of resources will economize for consumers at large not the managers. In a market economy this function of allocating capital funding is done by capitalists, i.e., private investors, who invest their saving into lines of production that they anticipate will render monetary profits and not losses. Central planners cannot refer to the structure of prices to determine how to allocate resources for the benefit of consumers at large.

Take a look at chapter 26 in Human Action:

https://cdn.mises.org/Human%20Action_3.pdf

[jmherbener]

Rothbard’s justification runs out as follows. Any act of saving-investing has earning a rate of return as motive. But holding money need not have such a motive. Money, like consumer goods, is a present good. In other words, the person holding money receives subjective value in the present, namely, the ability to deal more effectively with uncertainty than otherwise. Of course, holding a present good (whether money or a consumer good) entails an opportunity cost. But holding money does not entail foregoing present subjective value since it is a present good.

Rothbard also stresses “capitalist” saving, which entails an inter-temporal trade. An entrepreneur takes a present good (money) and buys a future good (resources) then produces output and sells it for a present good (money) at a future date. Holding money or other consumer goods in anticipation of their greater value in the future does not involve an inter-temporal trade of goods.

These points are not to deny that “plain” saving, i.e., acquiring and holding a good in anticipation of greater future value, can generate a money gain. But to call money holding “plain” saving of money involves its own theoretical difficulties. For example, since holding money involves no inter-temporal trade of goods it is unrelated to the rate of interest. To have a type of saving unrelated to the rate of interest introduces its own semantic problems.

[jmherbener]

As you imply, the phrase is expansive enough to include almost any business and therefore, in principle brings all businesses within the scope of regulation.

[jmherbener]

1. Yes, profit and loss accrue to a person for his superior foresight in anticipating the state of the market that is actually realized in the future. It is a pure residual after accounting for the payments for productive contributions made by the person. The theoretical treatment of these factors takes two steps.

First, economists identify four categories of generating income from an entrepreneur investing in his production process. He earns wage income from the productivity of labor services he provides. He earns interest income from capital funding he provides. He earns quasi-wages from leadership skill in organizing factors of production in the most productive combinations. He earns profit (suffers losses) from superior (inferior) foresight.

Second, interest income has four sources. The rate of time preference generates a positive pure rate of interest. The particular degree of uncertainty of the project invested in generates an uncertainty premium (inaccurately called a risk premium in finance). Cantillon effects from a change in the money relation. (For example, if the central bank generates a monetary inflation, the prices of some goods will rise to a greater extent than the prices of other goods and the prices of some goods will rise sooner and that of other goods later. The rate of return on investment in the former lines of production will be greater than in the later lines of production.) Changes in the purchasing power of money that are unanticipated will enhance the rate of return when the PPM goes down (with price inflation, interest rates are higher) and detract from the rate of the return when the PPM goes up (with price deflation, interest rates are lower).

So, all the sources except the first involve anticipating uncertainty and therefore have a profit and loss element to them.

2. Economists define these terms to facilitate understanding of certain theoretical aspects of human action. For economists, saving refers to the restriction of consumption while investment refers to the acquisition of goods (made possible by restricting consumption) with the intention of increasing the value of consumption in the future by more than that given up in the present (in others words to earn a rate of return). So, the basic distinction for economists is between “consumption” (acquiring goods for the purpose of obtaining the subjective value from attaining consumptive ends in the present) and “saving-investing” (acquisition of goods for the purpose of earning a rate of return. Obviously, a person could acquire some goods to satisfy both motives.

Economists further distinguish between “saving-investing” done to earn greater subjective value in the future directly (e.g., storing canned peaches in one’s pantry in August to eat in December) and “saving-investing” to earn a monetary rate of return (and, then use the monetary gain to obtain goods of greater consumptive value in the future). For the purpose of understanding the market economy, the later type of saving-investing is more important and so, this is what economists are usually referring to when they talk about saving-investing. Murray Rothbard calls this “capitalist” saving-investing.

With all of this as background, we can address your situation. First, the only difference between saving and investing is that they are two steps to a single action. They are never done separately. (Let me remind you that this is just the way in which economists define the terms.) Whether or not the acquisition and holding of money is an investment depends on the motive of the person holding the money. If the person is striving to earn a monetary gain from the appreciation of money relative to a good he intends to buy (at the then lower price), then it is an investment. Normally, money holding, however, is not capitalist saving-investing. Most of the time, people hold money to help them deal with the uncertainty of the future. If so, money holding is, at most the former type of saving-investing. Rothbard denies that money holding is saving at all, however, because it involve no sacrifice of present subjective value.

Second, economists do not use the terms “saving” and “investing” to refer to save and risky investments. We just refer to differing degrees of uncertainty that different investments entail.

[jmherbener]

They went both to hoards domestically and to foreign trade. I don’t know of any statistics on the magnitudes of the two alternatives.

[jmherbener]

Yes, the statistics are calculated for both the first and the second world wars. You will find them on the relevant lectures in Parts 1 (1st world war) and Part 2 (2nd world war).

The use of monetary inflation actually diminishes the government’s war effort by reducing the productive capability of the economy, more than either debt financing or taxation. You will find some comments on these points on the lectures mentioned above.

[jmherbener]

The Fugitive Slave Act of 1850 reduced the instances of runaway slaves and the resulting costs of their recapture by the slave owners. As a consequence, investors buying slaves were willing to pay higher prices. In a similar fashion, the Dred Scott decision also strengthened the legal claims of slave owners over slaves who were asserting their freedom. Investors were more willing to pay for slaves who lacked legal rights to their freedom (under certain conditions).

[jmherbener]

Good question. I’ll find out and post the answer here.

[jmherbener]

Here’s the data for manufacturing employment since 1939:

https://fred.stlouisfed.org/series/MANEMP

Manufacturing employment is sensitive to booms and busts for the entire data set. The Fed is clearly to blame for this volatility. The big drop-off in manufacturing employment, however, occurs between 2000 and 2010. From 2010 to 2019 there is a steady rise.

Here is the personal saving rate of Americans since 1959:

https://fred.stlouisfed.org/series/PSAVERT

There appears to be some correlation between MANEMP and PSAVERT. However, the correlation is not very strong. The time of falling MANEMP (2000-2010) doesn’t correspond completely with the time of falling PSAVERT (2004-2005). The Fed’s inflationary policy since 1971, however, is strongly correlated with the decline in personal saving rates.

In any case, I think the causation between MANEMP and PSAVERT is relatively weak. One reason for the weak causation is that manufacturers in the U.S. can access world capital markets. So, even though American’s save very little, this isn’t a binding constraint on American companies as foreigners save and invest in America too.

Here are a few other points:

https://www.stlouisfed.org/on-the-economy/2017/april/us-manufacturing-really-declining

https://mises.org/library/job-killing-labor-costs-and-manufacturing-sector

[jmherbener]

Any good that has value as a means in different lines of use will be allocated across the different uses so that its marginal value is the same in each line of use. Iron ore, e.g., is allocated across its use in steel production and iron fences so that the price of iron is the same in those two lines of use. If it were allocated as an input in steel and commanded a higher price than it fetched if sold into iron fencing, then iron producers would shift their supply to steel manufacturers. They would continue this reallocation until the price was the same in the two lines of use.

So, if a new gold mine adds 10% to the stock of gold, then the new stock of gold will be allocated into gold coins and jewelry so that the market exchange value of an ounce of gold is the same in gold coins as it is in jewelry. We can only know in retrospect what the percentages are in the two uses. But the factor that determines the percentages is the relative demands in the two uses.

[jmherbener]

Interesting. You might consult Rothbard’s treatment of Mill in the second volume of his history of economic thought, Classical Economics:

https://mises-media.s3.amazonaws.com/Austrian%20Perspective%20on%20the%20History%20of%20Economic%20Thought_2_Classical%20Economics.pdf

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