[jmherbener]

Each iteration of federal government intervention involvement more centralization. The First and Second Banks of the United States began to centralize the gold reserves of the banking system and allowed some degree of coordinated monetary inflation among the commercial banks. The NBS went further, as you point out, by forcing the state banks into the system through the destruction of state bank notes. After that, state banks used the notes of national banks as reserves against their issue of demand deposits. The NBS also required each national bank to accept the notes of other national banks on demand at par and thereby, created a national market for the notes of each national bank. The Federal Reserve went even further by providing Federal Reserve Notes as a national currency and as reserve for commercial banks instead of gold. The Fed also requires commercial banks to accept the deposits of other commercial banks on demand at par with currency.

[jmherbener]

American banks had the legal privilege to issue fractional-reserve notes and deposits from the beginning. Perhaps the last prominent example of a 100 percent reserve bank was the Bank of Amsterdam in the 17th and 18th centuries.

http://wiki.mises.org/wiki/Bank_of_Amsterdam

Also, take a look at Guido Huelsmann’s article on fractional-reserve v. 100-percent-reserve banks.

http://www.independent.org/pdf/tir/tir_07_3_hulsmann.pdf

[jmherbener]

I suggest you take a look at the first two chapters of Murray Rothbard’s account in his book, A History of Money and Banking in the United States:

http://mises.org/books/historyofmoney.pdf

From colonial days, Americans used both silver coins and gold coins as money. There were only a few banks in America until after the War for Independence. They were given the legal privilege of issuing bank notes only fractionally backed by a reserve of money and they were partially cartelized under the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836). During the War Between the States, the Federal government established the National Banking System which chartered national banks and brought state charted banks into a nation-wide banking system. This system was subject to booms and busts as banks would overextend their lending and issue of un-backed bank notes and deposits and then face bank runs and collapse when customers lost confidence in the redemption of their notes and deposits. This was the money and banking system on the eve of the establishment of the Federal Reserve System in 1913.

[jmherbener]

Here’s a popular article by Yuri Malstev, an economist who defected from the U.S.S.R.:

https://mises.org/daily/3105

It has a good bibliography at the end.

Also, take a look at the books by Paul Craig Roberts: Alienation and the Soviet Economy and Meltdown, Inside the Soviet Economy.

http://www.paulcraigroberts.org/pages/books/alienation-and-the-soviet-economy-the-collapse-of-the-socialist-era/

[jmherbener]

Yes, motives do not matter at all for the working of human action in general and the market economy in particular. Of course, if people have more altruistic motives, then their particular actions will differ from those they take if they have more selfish motives. Consequently, we would see more and larger charitable organizations in the economy of the former case and more and larger pleasure palaces in the economy of the latter case. Historically, we see this in the difference between the economy of the early republic period in America, described by Alexis de Tocqueville, and today’s economy.

What matters for the working of the market economy is monetary incentives. We must be free to offer monetary incentives to each other for an advanced market economy to develop. Money is a requisite of economic calculation and economic calculation is necessary for entrepreneurs to build an advanced capital structure.

[jmherbener]

First, it’s not the Austrian view, or at least the Misesian view, that interest rates are signals. Prices are not signals in the normal sense of the term. There are historical facts upon which people form expectations about the realization of their ends in the future through actions they take starting in the present.

Second, Austrians do not assume that entrepreneurs understand the economic theory of interest rates or what underlying factors are moving rates. Entrepreneurs neither care to know nor need to know the underlying phenomena, e.g., what’s happening to the pool of saving. They can make successful production decisions by perceiving the array of existing prices for things that affect the outcome of their production and selling decisions and formulating those decisions on the basis of their anticipations of the future. If interest rates are falling, then the calculation by entrepreneurs of the present value of future revenue streams increases. Therefore, more profit can be earned from longer term investments relative to shorter term investments.

Third, the unfinished projects don’t make the headlines. They will be scattered about the capital structure in various stages and emerge in various geographic locations. The half-finished housing developments in Las Vegas in 2008-2009 were on the news, but many of the partially-finished projects do not grab the attention of the media. Moreover, the conception of production being partially-finished in an economy-wide, not project specific idea. Credit expansion from monetary inflation sets in motion a lengthening of the capital structure of the entire economy that cannot be completed given people’s time preference. This is the import of Mises’s famous “Master Builder” metaphor:

https://mises.org/daily/4309

Finally, Austrian are analyzing the implication for the economy of Fed policy and not just the implications for the entrepreneur. When the Fed inflates the money stock through bank credit expansion, then the supply of credit must be larger than it would be on the basis of saving alone and interest rates must be lower than they would be on the basis of time preference alone. The economist must conceive of these facts in properly analyzing the boom-bust cycle. The entrepreneur does not need to conceive of these facts in running his business.

[jmherbener]

You might search Robert P. Murphy’s youtube channel:

http://www.youtube.com/channel/UC_KssmfZuR1oGMjBY5OhQSA

Also, take a look at the Mises Institute’s media:

http://mises.org/media

[jmherbener]

If you just want to learn economics and practice it as a vocation, then you can learn outside of formal university settings. You can read on your own and participate in various educational program such as the Mises University and Mises Academy.

http://mises.org/events/184/Mises-University-2014

http://academy.mises.org/

Graduate school earns you a credential that can be helpful in various career paths. But graduate degrees are not essential to learning economic thought.

[jmherbener]

You might look at P.T. Bauer’s books: Equality, the Third Worlds, and Economic Delusion; and Rhetoric and Reality. He argues that foreign aid does not improve standards of living, even if used to create technologically advanced assets, because the use of the funds has not been directed by entrepreneurship via economics calculation.

[jmherbener]

Yes, more proficient people will have higher standards of living than less proficient people. That obvious fact is not what the law of association is about. It shows that both the more proficient and the less proficient have higher standards of living by specializing in their areas of efficiency and trading with each other instead of remaining in self-sufficiency.

The law means nothing more and nothing less for groups of people. If people in one country are less proficient than those in another country, then their wages will be lower. The lower wages will attract capitalists and entrepreneurs who can gain by investing their production processes in the low wage areas. This process continues until there is no differential advantage for capital investment to move from one area to another. This is the process that was underway in colonial America and brought American wages from subsistence up to British standards in a century. This process has been underway in China for several decades, raising the standards of living of hundreds of millions of people there.

As long as the market is allowed to function, differences in the productivity of different factors of production will generate differences in their prices which will generate profitable arbitrage possibilities. By exploiting these opportunities by rearranging production, entrepreneurs and capitalists raise standards of living.

[jmherbener]

Take a look at these articles by George Reisman:

http://mises.org/daily/661

http://mises.org/daily/1927

[jmherbener]

Low time preference means a person places a small premium on the present or has a small discount of the future. This discount of the future is the (pure) rate of interest. So, lower time preferences means a lower (pure) rate of interest.

Low time preference implies that a person will save and invest more and consume less.

Money holding, e.g., hoarding cash, affects the purchasing power of money and not the interest rate. If people hold more money as a good in their stock of goods, then they are reducing their demand for other goods. As a consequence, prices of good fall and money’s purchasing power rises.

If demand for consumer goods declines, then their prices will fall and the quantity purchased will decline. As a result, the revenue earned by entrepreneurs selling the goods will decline. With less revenue their demand for producer goods will fall. The decline in demand for producer goods will cause their prices to fall. Cheaper inputs will restore the profitability of production even at lower output prices.

In the current downturn, business investment in capital capacity has collapsed, just as it did in the great depression. The reason is heightened uncertainty of the future, which has been aggravated by government policies. Here is the great Bob Higgs on regime uncertainty:

http://mises.org/daily/6275/

[jmherbener]

Your computation uses discrete units and the range of your computation is large relative to the entire demand curve. If you graph the entire demand curve implied by your calculation, it would have a y-axis intercept at $5 and 0 units and an x-axis intercept at ) dollars and 5 units. So your computation uses half of the demand curve. But the demand curve, technically, is only unit elastic at its mid-point.

If you shifted the demand curve parallel outward and to the right, the disparity in your elasticity computations would decrease. For example the demand curve with the y-intercept at $10 and the x-intercept at 10 units would have equal expenditures at at price of $6 and quantity of 5 and at a price of $5 and a quantity of 6. The elasticity computations would be 6/5 for lowering the price from $6 to $5 and 5/6 for raising it from $5 to $6, which are both closer to one. Technically, a linear demand curve is only unit elastic at its mid-point.

The way to reconcile the two computations when using discrete numbers is to use the average of the two numbers for calculating the base in the percent computation. This is a standard technique for such computations when using discrete numbers. For example, the percent change in quantity in your example would be 2-3 divided by the average of the numbers, that is 2+3 divided by 2. So the percent change in quantity is 0.4 (ignoring the minus sign) and the percent change in price would be 3-2 divided by 3+2/2, which is also 0.4.

[jmherbener]

Professor Mehrling defines banking as financial intermediation (swapping IOUs). Thus, by definition, for him banking cannot be money warehousing, or, for that matter, foreign currency exchange, or financial advice, all traditional activities of what are called banks. That’s fine, he can define terms as he likes. It doesn’t change the reality of institutions called banks that perform functions in addition to swapping IOUs, including providing a money warehouse.

The substantive issue he raises is whether or not so-called instantaneous-term IOUs (i.e., demand deposits) are in fact financial intermediation. Otherwise, I agree with what he said about swapping IOUs and the transfer of command over resources. There is a sizable literature on the question of whether or not demand deposits are financial intermediation. Huerta de Soto’s book is an example:

http://mises.org/books/desoto.pdf

Professor Mehrling’s view that it’s not possible to eliminate central banking is ahistorical. Setting aside the recent experiments with currency boards in some countries, there was banking in the western world long before the first central banks arose in the 17th century. It’s not only possible to have 100 percent reserve banking, such banks existed for long periods of time in Europe.

I agree that central banking is a natural outcome of a particular legal treatment of banking. The development of central banking is a natural outcome of following the logic of granting legal sanction to demand deposits as financial intermediation. As professor Mehrling puts it a swap of IOUs, the borrower issuing a term IOU to the bank and the bank issuing an instantaneous-term IOU to its customer. But it begs the question to assume that such a legal treatment merely extends financial intermediation to a hitherto overlooked realm. In any case, once this swap is given legal sanction, then central banks follow logically. Murray Rothbard’s book chronicles this development and its consequences:

http://mises.org/books/historyofmoney.pdf

[jmherbener]

1. If a bank is holding a loan on which the borrower defaults, then the bank’s equity is reduced. If enough of its loans are bad, then the bank becomes insolvent. This alone, separate from the bad loan problem inspiring bank runs (which it doesn’t seem to do in the age of government deposit insurance), can bankrupt a bank. You are correct that smaller banks tend to be more prudent than large banks and larger banks more prudent than the largest-politically-connected banks because only the latter have an implicit government bailout.

2. In principle, it’s possible for anyone to roll over debt and reschedule payments. Mortgage refinancing is a big market. Credit card debts can be shifted from higher to lower interest cards. And so on.

3. Whether the government puts the bailout funds into its budget or has the Federal Reserve issue new money, command over resources is shifted away from producers and toward the government and bailout recipients. Since the financial collapse in 2008, the bailout funds in the budget were paid for by debt, not taxes. This means that private investment was displaced instead of reducing taxpayer incomes. Monetary inflation by the Fed transfers income from later recipients of the new money toward early recipients of the new money.

4. In the unhampered market, an enterprise gets larger by satisfying the preferences of more customers better than other enterprises. In our hampered market economy, an enterprise can also take the political route to success, satisfying the desires of state officials and obtaining in return political privileges over its rivals.

Take a look at Murray Rothbard’s book, A History of Money and Banking in the U.S.:

http://mises.org/books/historyofmoney.pdf

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