[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

[jmherbener]

We have a monetary system with a central bank, which produces fiat money, and fractional-reserve commercial banks, which produce money substitutes only fractionally-backed by a reserve of money. In such a system, the central bank engineers monetary inflation through credit expansion. The central bank buys assets from commercial banks and pays them with reserves. With greater reserves, banks can issue more money substitutes, i.e., checking account balances, to their customers by extending them loans. The additional money that is created in this process tends to generate price inflation while the additional credit created tends to push interest rates down.

In short, monetary inflation is the cause of price inflation and credit creation is the cause of low interest rates.

[jmherbener]

Here is a ranking by Steve Hanke of the hyperinflations that have occurred in the world:

http://object.cato.org/sites/cato.org/files/pubs/pdf/workingpaper-8_1.pdf

[jmherbener]

Entrepreneurs will offer any financial product, which conforms to the rules of private property, that they anticipate will be profitable enough to justify their investment in it. If they think that savers’ time preferences are such that they will make nearly instantaneous loans at the lowest interest rate on the yield curve and that borrowers will take out and roll over extremely short term loans on such lending so that savers can be paid back without disruption, then they may choose to offer such deposits to savers. But these deposits are no different than any other certificate of deposit at longer terms on the yield curve. Banks are inter-mediating credit in all such cases. There is no credit creation in such inter-mediation. Moreover, such deposits would not be chosen by people at large in an unhampered market economy as a superior medium of exchange to money proper and money substitutes, i.e., 100-percent-reserve claims to money.

[jmherbener]

Typically, the government that caused the hyperinflation supplants the hyperinflated currency with a new currency.

The problem with destroying part of the existing money supply is that what causes prices to hyperinflate is a collapse of the demand to hold money. Once in a hyperinflation, people begin to use other media of exchange or revert to barter.

Here is Han Sennholz on the German hyperinflation of the 1920s:

http://mises.org/daily/2347

[jmherbener]

Rothbard is notable among economists for rejecting the “money in circulation” view and adopting the demand to hold money view. In this he follows Ludwig von Mises. They both claim that the entire stock of money is in someone’s cash balance or money holding at all times. The purchasing power of money is therefore determined in the same way as the price of other goods, namely, by the size of its stock and the total demand people have to hold it. Rothbard and Mises, then, reject the quantity theory approach, with its reliance on the concept of the velocity of money in circulation, to determining money’s purchasing power.

In chapter five, Rothbard, again following Mises, divides total demand for money into exchange demand, the demand people have to add to their existing money holdings, and reservation demand, the demand people have to hold onto their existing money holdings. But he does not use the concept of money in circulation when referring to people’s demand to hold money.

He uses the term “circulation” when referring to the use of money as a medium of exchange, but in this use he is not defining a concept for analysis. For example on page 58 he writes, “Government paper money, on the other hand, can decline…if inflation or loss of confidence causes it to depreciate or disappear from circulation.” Here “circulation” is synonymous with “use as a medium of exchange.”

In chapter seven on Deposit Banking Rothbard writes (p. 86), “Suppose, for example, that the initial money supply, when money is only god, is $100 million. Suppose now that $80 million in gold is deposited in deposit banks, and the warehouse receipts are now used as proxies, as substitutes, for gold. In the meanwhile, $20 million in gold coin and bullion are left outside the banking system in circulation.” Rothbard is again using the term to refer to money proper used as a medium of exchange, but in this case as distinguished from money proper used as reserves by banks against their money substitutes.

I presume in the quote you cite that Rothbard is making the same distinction. If so, then the ratio is the ratio of money proper to money substitutes. As Rothbard argues, (see p. 96) people determine in what form they will hold the medium of exchange, either as money or as money substitutes. But regardless of its form, the entire stock of the media of exchange is held by people in the money holdings.

[jmherbener]

One hundred percent reserve banks intermediate credit lent to them by savers. For example, customers buy Certificates of Deposit offered by banks. Banks, in turn, pool the funds provided by customers who buy their CDs and lend those funds to borrowers. The entrepreneurs who borrow such funds use them to buy inputs or assets or both and then use the inputs and assets to produce goods. Through their credit intermediation, banks help economize the pool of saving, directing it into the most profitable lines of production and investment. As the capital stock in the economy is built up by the investments in capital capacity, productivity rises and with it standards of living. By limiting their lending to the pool of funds supplied by savers, banks help to create a capital structure in the economy that satisfies people’s time preferences.

Fractional reserve banks have two pools of funds from which to make loans. The first is a pool is from savers as with 100 percent reserve banks. Banks intermediate this credit to borrowers. The second is fiduciary issue, i.e., the issue of fractionally backed checking accounts. The pool of credit is created out of thin air and therefore, does not correspond to people’s time preferences. The additional lending that the second pool makes possible funds some additional investment projects, However, the capital structure being built up by the new investments does not satisfies people’s time preferences. For this reason, the build up proves to be unsustainable. Credit creation by fractional reserve banks generates the boom-bust cycle. Malinvestments are made that must be liquidated later. Therefore, the capital structure, productivity, and standards of living cannot be enhanced by credit creation. In fact, they are worsened.

Eliminating fractional reserve banking would severely reduce the magnitude of boom-bust cycles. If central banking were also eliminated, then business cycles would disappear altogether.

Take a look at Murray Rothbard’s book, The Mystery of Banking:

http://library.mises.org/books/Murray%20N%20Rothbard/Mystery%20of%20Banking.pdf

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