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jmherbener
ParticipantThere are several equivocations involved.
First, it’s not reasoning, but reason that is a requisite of thinking. As Mises puts it, the logical structure of the mind is a requisite for human thinking.
Second, by the term “thinking” Mises is referring to what you have called reasoning. He is not talking about having thoughts in our minds or contemplating certain abstract concepts. He is talking about the process of drawing conclusions about the cause and effect connections in human action.
David Gordon says that creatures who are not human beings may also be able to think even though they lack a human brain. An obvious example is God. But for human beings living in the world, which is the subject matter of economics, a person’s body, including his brain, is a scarce resource.
Indeed, your questions raise philosophical issue that are beyond the scope of praxeology.
ParticipantLudwig von Mises thought that thinking and acting were inseparable. Take a look at his book, Human Action, pp. 24-25 and 177.
http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf
David Gordon believes that thinking is an action because it is purposeful behavior. Take a look at his book, Introduction to Economic Reasoning, pp. 18-20.
http://library.mises.org/books/David%20Gordon/An%20Introduction%20to%20Economic%20Reasoning.pdf
I think that Rothbard, Mises, and Gordon would agree that reason is the precondition for thinking while knowledge or ideas themselves are the product of thinking. If thinking is considered an action, then, it would employ the scarce resource of the person’s brain.
ParticipantForeigners who obtain dollars by selling goods to us can use them to buy our goods or to buy our assets (either physical or financial), i.e., to invest in our economy or simply hold our dollars. As you point out, if they buy our goods this improves the standards of living of all concerned by extending the division of labor to encompass more people in more places. If they invest in our assets, this too improves the standards of living of all concerned. The capital structure of the world economy is built up more fully. If they hold dollars, then we benefit in having higher purchasing power of our dollar than otherwise. In all cases, we benefit.
August 13, 2014 at 6:45 pm in reply to: Border economics, Power & Market, Binary Intervention: Taxation #18393ParticipantEntrepreneurs are always arbitraging to take advantage of differences in prices. If prices were lower in states without sales taxes, then entrepreneurs would shift supply toward the higher priced state. The costs of production are not higher in the sales tax state because the sales tax is imputed backward to lower the prices of factors of production. Since it may be that entrepreneurs cannot pay less for materials, then wages would be lower.
These theoretical proposition are difficult to verify with superficial empirical evidence because the “other things equal” condition of the theory is rarely met in the world. Consider the following case, with which I’m familiar. Pennsylvania has no sales tax on clothing. Grove City, Pa. has a large Prime Outlet mall with many name-brand clothing stores. The prices for clothes in these stores are lower than normal retail. But, the reason is not that Rothbard’s analysis is wrong and the lack of sales tax permits lower costs of production and thus, lower prices. It’s because the clothes sold at Grove City Prime Outlets are “seconds,” i.e., clothes returned to other stores and repaired to be resold.
You would have a similar difficulty in empirical investigation of prices at restaurants in the two different states. If prices are lower in Portland, it might be because Vancouver is a more desirable location than Portland and not because Vancouver has a sales tax and Portland does not.
ParticipantThis ambiguity in the phrase “division of labor” has existed since Adam Smith used the pin factory example to illustrate the concept. David Ricardo did much to clear up the ambiguity with his exposition of comparative advantage. He demonstrated that specialization of labor according to efficiency raises productivity. Since Ricardo, then, economists tend to refer to the division of labor as the social arrangement of labor in which each person specializes in his area of comparative advantage. The assignment of tasks among different workers working with a given capital capacity is not, strictly speaking, the division of labor, but a technical condition of the capital capacity itself. An assembly line with six working stations is designed to operate with six workers, each one working at one station.
So, you are correct. The division of labor refers to a society in which each person forgoes self-sufficiency and produces for the consumptive ends of other people by specializing in his area of efficiency.
ParticipantYes, Schumpeter was wrong. Mises argued that any credit creation from the issue of fiduciary media generates mal-investments which must be liquidated later. People’s time preference determine both the pure rate of interest and the extent of saving-investing people prefer. People’s preferred saving-investing releases resources from lower-order to higher-order production. Credit creation from fiduciary media issue does not create more resources it merely diverts more of them from lower-order to higher-order production than people desire according to their time preferences.
Take a look at chapter 20 in Ludwig von Mises’s Human Action:
http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf
Here is Murray Rothbard on Schumpeter:
ParticipantFirst, a monetary system with commodity money and money certificates (i.e., 100 percent reserve money substitutes) would not have a fixed money stock. As an increase in the demand for money raised money’s purchasing power, it would make the production of coins more profitable and entrepreneurs would respond by increasing the production of coins. So, the money stock in a market economy would adjust to the demand for money in the same manner as the production of any good adjusts to the demand for it.
Second, if people were using a commodity for which it was not possible, say for technical reasons, to increase its production and this created difficulties for trading, then entrepreneurs would step in and provide a different commodity for which this problem did not exist. If gold is too restrictive in its production, then people will use silver.
Third, the claim that if the money stock were fixed, then there would not be enough money to pay interest is completely false. The structure of prices adjusts to the money stock, whatever it happens to be. Interest, which is the price spread between selling prices of output in the future and buying prices of inputs in the present adjusts with the level of prices overall. If people had twice as much money, then both buying prices of outputs and inputs would be twice as high. And if people had half as much money, then both buying prices of outputs and inputs would be half as high. Put another way, if there was not enough money to buy all the output to be produced, then prices of output would be lower, but so would the prices of inputs and therefore, interest would remain.
Fourth, the claim ignores the fact that money demand can change. With the same amount of money people can buy more goods at higher prices if their desire to hold money is less intense.
Here is Tom Woods on the Greenbackers:
ParticipantUnder Bretton-Woods, when the Fed inflated the dollar a portion of the new money would be acquired and held by foreign central banks who could then inflated their currencies proportionately. The pegged exchange rates were a gauge by which officials could tell whether or not a country had over- or under-inflated relative to dollar inflation. The IMF served as the enforcement wing of the system imposing “austerity” programs on over-inflating countries and extending them loans to make sure that U.S. banks would be paid regardless of the financial distress their profligate ways generated.
3. As long as foreign countries did not redeem dollars for gold in the U.S., the U.S. gained from the system. It could inflate without currency devaluation (since foreign currencies were inflated proportionately) or significant domestic price inflation (since dollars were held overseas). In the system, both the IMF and the World Bank extend loans. Officially, the IMF loans are short-term to help countries with balance-of-payments or exchange rate problems while the World Bank makes long-term loan for capital projects.
https://www.imf.org/external/np/exr/facts/imfwb.htm
4. There are different types of deflation. There is the forced monetary deflation of central banks, which harms economic efficiency. Then there is the market correction of a previous monetary inflation, which helps restore economic efficiency. Then there is so-called “growth deflation” in which prices decline as production of goods expands more than production of money. This, too, helps efficiency. Take a look at Joe Salerno’s article:
http://mises.org/journals/scholar/salerno.pdf
2. It might be the case that the regulation changed from the writing of one book to the other.
1. SDRs were introduced near the end of the Bretton-Woods system to increase the reserve positions of countries participating in the IMF. This was an effort to replace the gold being drained from the system through dollar redemption.
ParticipantHere are a few pieces on Krugman’s baby-sitting co-op model:
http://mises.org/journals/qjae/pdf/qjae3_1_9.pdf
http://bastiat.mises.org/2014/03/krugman-and-the-babysitters/
Here is Greg Mankiw on New Keynesian models.
http://www.econlib.org/library/Enc/NewKeynesianEconomics.html
You might consult his textbooks for an introduction to New Keynesian models.
ParticipantYour list is not quite right.
1. Demand for a consumer good increases.
2. Price of consumer good rises.
3. Profit for production of such consumer goods increases.
4. Entrepreneurs produce more of such consumer goods, which has two effects:
a. As they increase their supply of such consumer goods, the market-clearing price declines, which
reduces the profit from even more additional production.
b. As they increase their demand for the inputs used to produce such consumer goods, their market-
clearing prices rise, which also reduces the profit from even more additional production.If your friend is a neoclassical economist, what is probably tripping you up (and it appears in your item no. 6) is that supply in the Austrian view is not based on costs of production. Production decisions are made based on costs of production, but selling decisions are based on the opportunity cost of selling the output, not the opportunity costs of producing it. Only in neoclassical models are selling decisions and production decisions synchronous. In reality entrepreneurs made production decisions and incur production costs before they made selling decisions and receive revenues. Once a good is produced, then production costs are sunk and are no longer opportunity costs of using or selling the good. But in order to sell the good and receive the revenue from the consumer, the good must have already been produced and therefore, production costs aren’t relevant for making the decision to sell or not to sell to the consumer.
If these points aren’t clear from the Austrian Economics lectures, take a look chapter 11 in Bob Murphy’s book, Lessons for the Young Economist:
http://mises.org/books/lessons_for_the_young_economist_murphy.pdf
ParticipantYes, non-determinism seems necessary to have human action and therefore, economic theory.
Murray Rothbard takes Aristotle’s position that human nature includes volition. Take a look at his monograph, The Mantle of Science:
http://mises.org/rothbard/mantle.asp
Ludwg von Mises takes the “softer”position that natural sciences have not as yet provided a materialistic explanation of human action and, given our ignorance, we must treat human action as if it entails volition.
Take a look at his book Human Action, pp. 105-106.
http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf
ParticipantThe dynamic I described does not depend at all on entrepreneurs lowering costs through finding more efficient methods of production. It is set in motion by increased demand for the good produced by the entrepreneur. Higher demand will increase the price of the good. The higher price of the good will increase the net income of producing it (even if the cost structure stays the same). The entrepreneurs’ Increased supply of the good will then moderate its price and the entrepreneurs’ increased demand for factors of production will increase their prices. These changes will eliminate the extra net income from further increased production.
ParticipantEntrepreneurs base their production decisions on their anticipations of the array of prices of outputs and inputs that will occur over the period of production and sale of their output. They expand lines of production in which they anticipate profit and contract lines of production in which they anticipate losses.
So, not every case of increased demand driving up the price of some good right now will lead entrepreneurs to choose to expand its production. They might anticipate that other lines will generate more profit in the future from as yet unrealized increases in their demand. Also, as you imply, the economy is a lattice work of integrated production processes and therefore, prices are interrelated. Entrepreneurs might anticipate that other entrepreneurs bidding more heavily for inputs will drive their prices up and make unprofitable what would otherwise appear to be a profitable line of production. Another example how one must consider the integration of all economic activity is the specificity of capital goods used in production. If there is a highly specific capital good used as an input in the production of a good, then an increase in the price of the good from greater demand will dramatically increase the price of the specific capital good which raises the costs of production of the output. Entrepreneurs would then shift production toward the capital good which would moderate its price and bring the costs of production of the output down. The final effect on production of the output from an increase in its demand, therefore, may differ from the initial effect.
ParticipantCritiques like these ignore the human element. They view resources from the perspective of our given technological knowledge about their use. (Remember the Peak Oil scare from a few years ago, now forgotten in the shale oil boom.) But humans are creative, they learn. As so, we develop better resource using technology over time.
Take a look at the work of George Reisman on this issue:
http://mises.org/daily/1927/The-Toxicity-of-Environmentalism
http://mises.org/media/1508/Environmental-and-Resource-Economics
http://mises.org/media/1028/Resource-Economics-and-Environmentalism
ParticipantAs I understand the situation you describe: Duquesne Light is subsidizing certain light bulbs that can be purchased at Home Depot. I take this to mean that a customer can buy the brand of subsidized light bulbs at a lower price than before. Your friend says this is a good idea since it will lead to less power consumption. But if she thinks that the poor will not change their habits in buying things just because their prices change, then the Duquesne Light subsidy will not lead to less power consumption and therefore, it will not be a good idea by her own standard.
Setting aside the condescending tone of her remarks about the poor, what body of evidence can she cite that the poor are more subject to ruinous buying habits than the non-poor? If she lacks evidence, then what argument can she bring forth to show that unlike non-poor human beings, poor human beings do not economize their actions according to their own judgments of value, i.e, they do not value alternatives and choose from among them the alternatives they value more?
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