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jmherbener
ParticipantYes, just like anybody else, the Fed can finance its purchase of something by selling an asset it already owns and using the funds to buy what it wants or it can incur a liability to pay for what it buys.
When the Fed literally prints money or when it credits deposits that banks hold at the Fed it is incurring liabilities for itself. But the Fed can also fund its purchases by selling assets.
As I pointed out in a post above, the Fed bought $58 billion in securities in the week of Dec. 4 and created only $4 billion in new bank reserves.
So, the answer to your question is no the Fed does not necessarily print money or create bank reserves each time it purchases treasuries.
ParticipantDavid Colander, “The Stories We Tell: A Reconsideration of AS/AD Analysis,” Journal of Economic Perspectives (Summer 1995), pp. 169-188.
http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.169
And here is his assessment of economists and the financial crisis, “The Financial Crisis and the Systemic Failure of Academic Economists.”
http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Dahlem_Report_EconCrisis021809.pdf
Colander is a professor of economics at Middlebury College:
http://www.middlebury.edu/academics/econ/facultyofficehours/node/51761
ParticipantThe $58 billion is for the week of Dec. 4-11. We will have to wait and see if the monthly total comes to $85 billion. (I inadvertently wrote “million” in my post, which is now corrected.)
ParticipantEconomizing has two dimensions: choosing higher valued ends to attain with given means and choosing lower-valued means to use to attain a given end. As long a stretching is just one alternative end you can pursue with given means and as long as using the boards in combination with other means is just one alternative combinations of means, then you have choice in both dimensions of the action.
Hypothetically, there could be actions for which there is only one combination of means that can attain the end. In that case, a person has only one dimension of choice. In choosing the end he simultaneously chooses the means. But, even in this case, the means are still scarce.
Every action takes place in the set of circumstances. These circumstances are either general conditions, i.e., elements of the situation that a person does not control in the action, or means, i.e., elements of the situation that a person does control in the action. If something is abundant to a person, i.e., if he has more than enough of it to satisfy all his ends, then it is a general condition. He does not need to integrate a general condition into his valuing and choosing when he acts. He may technically or physically employ it, but he does not act with respect to it. If we could imagine a situation in which all elements were general conditions for a person (which is obviously impossible in our world), then he would not engage in human action. He would be engaged in activity but his behavior would not be categorized as human action.
ParticipantIf we accept the premise of his argument that “we agree that children should not starve” then the libertarian solution of private charity will work to take care of the problem of the poor as best as it can be taken care of in a world of scarcity. This was, more or less, how America was before the welfare state. He should read de Tocqueville’s book, Democracy in America or Marvin Olasky’s book, The Tragedy of American Compassion.
ParticipantTo buy securities, the Fed must either sell other assets or incur liabilities. It has several asset categories it could use and a few liability categories. So, it can buy securities without expanding base money.
For the week Dec. 4-11, Federal Reserve Banks increased their Securities $58,443 million, The Federal Reserve Bank incurred liabilities of $26,149 in Reverse Repurchase Agreements and $29,095 in Deposits. Deposits Held by Depository Institutions (i.e., Commercial Bank Reserves) increased by $30,096.
http://www.federalreserve.gov/releases/h41/current/h41.htm (Table 8)
So the Fed’s purchase of securities of $58 billion was roughly neutral to base money. It expanded bank reserves by $30 billion and contracted them by $26 billion. In its reverse repos, the Fed sells securities to counter parties with an agreement to buy them back.
http://www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm
ParticipantYes, Fed monetary inflation can be, and has been, exported under a dollar reserve system.
Fed monetary inflation is used to expand the supply of credit which permits the government to increase its demand for credit. But the Fed does not use monetary inflation directly for government expenditures. So monetary inflation is not, directly, a substitute for taxation. Indirectly, it is by permitting the government to borrow more.
The system generates domestic credit expansion and stimulates foreign demand for dollars. So monetary inflation and credit expansion allows the government to borrow more without much domestic price inflation.
ParticipantYes, the displaced line of production no longer earns the going interest rate of return because costs have risen and revenues have not. The value of having the input in the expanded line exceeds its opportunity cost in the alternative displaced line of production. That is what justifies allocating the input into the expanded line of production and away from the displaced line of production.
ParticipantIf you really have only one end for the machine and the machine fully satisfies that end, then the machine is not scarce. But, machines wear out and therefore, they do not fully satisfy even a single end as long as at end continues beyond the useful life of the machine.
Furthermore, for almost any valuable good one could imagine, there is always another end to which it could be put besides personal use and that is trading it to obtain something else.
ParticipantAll values and costs considered in action are anticipations of the future, not facts of the past. The current prices of factors of production reflect entrepreneurs’s predictions of the revenue that will be generated in the future by their use in production today. Thus, any entrepreneur who buys an input today pays for the value that will be lost in the future from not using it in other lines of production today.
Monetary costs are not a method of estimating social opportunity costs, but the only manifestation of such costs because the subjective valuations made by different persons cannot be compared. There is no other method to determine the economizing use of resources for society at large.
ParticipantYou are correct, there hasn’t been much written about the “great moderation” period from Austrian economists.
You might take a look at James Grant’s book, Money of the Mind.
http://www.amazon.com/Money-Mind-How-1980s-That/dp/0374524017
The oil crisis analysis was done by Dwight Lee. I can’t find the citation, but he might have reproduced it in his book, Common Sense Economics.
http://www.amazon.com/Common-Sense-Economics-Everyone-Prosperity/dp/B005ZO6UGY
Here is a Gordon Tullock article that presupposes the wealth transfer to the OPEC producing countries during the 1970s:
http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1986/5/cj6n1-7.pdf
ParticipantYes, the price an entrepreneur pays for a unit of a factor of production is the same price being paid by all the other entrepreneurs who are using the factor in their lines of production. If consumers increase their demands for one line of an entrepreneur’s production, then he can attract more of a factor of production buy offering a higher price. The higher price will then become the new market-clearing price that must be paid by all entrepreneurs. (In other words, the market demand for the factor has increased.) Units of the factor will move into the higher demand line of production and out of the least valuable alternative lines of production, which are being produced by other entrepreneurs. As output declines in the alternative lines of production, prices of output there will rise and the higher costs can once again be covered by revenues.
In the division of labor, economizing decision must take account of economic calculation, which can be done only in monetary terms. Economizing in society cannot be done in subjective valuations alone. Fundamentally, in making choices people are always comparing the subjective value of alternatives. But, to do so successfully, they must take into account the technical, objective features of the different means they might use in attaining their ends. When acting in the division of labor, people must also make use of monetary prices, which are objective features of the world, in making economizing choices.
ParticipantYou’re not alone. Learning the technical language of a new discipline can be a daunting task. Several decades ago, Percy Greaves compiled a glossary of terms for use with Ludwig von Mises’s book, Human Action.
http://mises.org/easier/easier.asp
Alternatively, you might look up the definition of terms in Rothbard’s book, Man, Economy, and State.
Also, take a look at Bob Murphy’s Study Guide to M.E.S.
ParticipantAfter the breakup of Bretton-Woods, from the early 70s until the early 80s, the world had no international monetary system.It was freely-floating exchange rates. In the early 80s, the U.S. decided to reconstitute an international dollar standard in Asia and Latin America. In the 70s, Europe was trying to create an European monetary system which eventually became the Euro. So American power in the world was augmented by by this arrangement. Just like under Bretton-Woods, the U.S. could have “inflation without tears.”
The global monetary instability in the 70s was the result of the absence of an international monetary system, i.e., freely-floating exchange rates. Price controls were an ignorant response to the instability in the U.S. by the Nixon administration. The oil crises was an assertion of power by the middle-east, oil- producing countries against the large oil companies of the first world countries.
Rothbard provides a brief overview of monetary history in What Has Government Done to Our Money, Section IV.
ParticipantOn your first question, it’s not an oversimplification but a stipulation made in the concept of the production structure for analytical purposes. If one did not make such a stipulation, then the capital structure would encompass all acts of production since the beginning of human history. Then the highest stage of production, i.e., the first stage of production, would involve only labor and natural resources. But we wish to use the production structure to analyze the existing processes of production. So we stipulate that the highest stage of production is the extraction of natural resources even though it involves the use of prior produced capital goods and not just labor and natural resources themselves.
On your second question, the length of the production structure is the time it takes to perform all the stages of production from the highest to the lowest. Additional saving and investing adds stages to the production structure and thereby lengthens it out in time. For example, let’s say additional saving-investing will be directed by entrepreneurs into new factories to produce consumer goods. In order to increase their production, natural resources must be diverted to producing factories instead of moving down the existing production structure to produce consumer goods. To extract raw material and use them to first produce factories and then extract more raw materials and use them to produce consumer goods with the new factories takes more time. There may, in fact, be more factories built in the various stages throughout the production structure, but the overall structure must be lengthened by additional saving-investing.
A clarifying note: in Rothbard’s trapezoid diagrams illustrating this process, each stage represents the monetary value of all expenditures in that stage. Therefore, even though the monetary expenditures shrink in the lower stages to make room for additional higher stages, the physical amount of goods produced in each stage can be increasing. The entire purpose of saving-investing and lengthening the production structure is to produce more consumer goods in the future even though the total expenditure on consumers goods declines. This is made possible by falling prices for consumer goods. The same processes can occur at other stages as well, e.g., more factories to produce consumer goods even though the total expenditures on factories declines. (Rothbard is stipulating that the additional saving-investing is taking place without any change in the total demand for or the total stock of money, i.e, total spending on all goods stays the same. Therefore more spending on higher stage capital goods necessitates less spending on lower stage capital goods and consumers goods.)
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