[jmherbener]

Yes, 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.

[jmherbener]

Yes, 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.

[jmherbener]

If 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.

[jmherbener]

All 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.

[jmherbener]

You 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

[jmherbener]

Yes, 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.

[jmherbener]

You’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.

http://library.mises.org/books/Murray%20N%20Rothbard/Man,%20Economy,%20and%20State,%20with%20Power%20and%20Market.pdf

Also, take a look at Bob Murphy’s Study Guide to M.E.S.

http://library.mises.org/books/Robert%20P%20Murphy/Study%20Guide%20of%20Man,%20Economy,%20and%20State.pdf

[jmherbener]

After 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.

http://mises.org/money.asp

[jmherbener]

On 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.)

[jmherbener]

Having a gold coin money and 100 percent reserve banking would largely insulate an economy from the effects of monetary inflation and credit expansion elsewhere. Inflated fiat currencies from other countries would depreciate against the domestic gold coins and would not expand the reserves of 100 percent gold reserve banks,

Ludwig von Mises discusses such a case in his book, The Theory of Money and Credit, Part Four.

http://library.mises.org/books/Ludwig%20von%20Mises/The%20Theory%20of%20Money%20and%20Credit.pdf

For more on the working of international adjustments, take a look at Joe Salerno’s article:

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

And also, F.A. Hayek’s book, Monetary Nationalism and International Stability:

http://library.mises.org/books/Friedrich%20A%20Hayek/Monetary%20Nationalism%20and%20International%20Stability.pdf

[jmherbener]

I agree with you. Given that we don’t know all the details of the case, we may be wrong. But it seems likely that Wal-Mart anticipates that keeping its prices low and steady is preferred by customers over time than adjusting prices upward opportunistically. Additionally, it may be that Wal-Mart has long term contracts with it’s suppliers or prior agreements with them not to ask higher prices opportunistically during the term of the contract. It is the case that other retailers have raised their prices and maintain ammunition on their shelves. I’ve also read that at least one manufacturer is building a new, large production facility. So, the market seems to be coming around to the view that the increase demand is not just temporary.

http://www.thetruthaboutguns.com/2013/08/daniel-zimmerman/remington-breaks-ground-on-ammo-plant-expansion/

[jmherbener]

Here’s an introduction to game theory. It highlights the lack of affinity between games and human action in the world.

http://www.econlib.org/library/Enc/GameTheory.html

Mises makes the same point in human action, pp. 115-117.

http://mises.org/Books/humanaction.pdf

Here are a few articles on game theory and Austrian economics.

http://mises.org/journals/scholar/Fossgame.PDF

http://mises.org/journals/qjae/pdf/qjae12_3_2.pdf

As far as I know, Rothbard did not endorse game theory. In fact, he solicited a critique of game theory for a lecture at an early 1990s Mises University.

Here is Lucas Engelhardt’s talk on Game Theory at Mises University last summer.

http://mises.org/media/8024/Entrepreneurs-vs-Game-Theory

[jmherbener]

Bretton-Woods began to break down in the late 1960s. The Fed had been inflating the dollar more rapidly to help pay for rising federal expenditures such as those for the Vietnam war and Great Society programs. It collapsed altogether in August 1971. Here’s some material on Bretton-Woods:

http://mises.org/money/4s5.asp

http://mises.org/document/3967

http://mises.org/daily/3325

http://www.jstor.org/stable/30036415

[jmherbener]

Neoclassicals and Austrians have different conceptions of “economic laws.” Neoclassicals think that economic laws are empirical-hypothetical propositions like those in the natural sciences. Austrians think that economic laws are logical conclusions deduced from a priori concepts about human action.

For Austrians, economic laws are more like theorems of geometry than laws of motion. The proposition that “in a voluntary exchange each trader benefits” follows logically from the meaning of the terms and the concepts of human action understood by humans a priori. It would be pointless, at best, to treat this proposition as an hypothesis to be tested by gathering empirical evidence about voluntary exchanges. But, economic laws are not strictly speaking “independent of experience” as you put it. They are the framework of meaning for experience. .

For neoclassicals, economic laws are more like the inverse square law. If we abstractly model the force of gravity as being a constant multiplied by the product of the masses of the objects divided by the square of the distance between them, then it follows by mathematical proof, that the acceleration of objects of different mass that are attracted to the same third object will have identical acceleration. This law can then be indirectly tested by dropping objects of different mass and seeing whether or not they hit the ground at the same time. It would be pointless, at best, to treat this proposition as a conclusion deduced from from a priori knowledge.

Austrians further argue that there are no empirical-hypothetical laws of human action. The reason, as Mises put it, is that there are no constants in quantitative relationships of the data of human action. Neoclassicals claim that conclusions drawn from a priori concepts are mere tautologies that tell us nothing more about human action than what we already knew before. Austrians argue that to bridge the gap between our abstract knowledge of human action (i.e., economic theory) and our experience we need another body of knowledge called economic history. Economic history is a blending of the universal knowledge about human action attained by logic and particular knowledge about an event attained by experience. The blending employs judgments of the relevance of the causal factors that bring about a particular event.

The difference between Austrians and neoclassicals is not really qualitative v. quantitative. Both claim to make quantitative predictions, neoclassicals by using their models and Austrians by the method of economic history. And both develop only qualitative economic laws. Neoclassicals do not think that by empirically testing the demand for gasoline over time that the exact same magnitude for the estimates of the parameters in the mathematical equation would emerge. There will be a different quantitative magnitude for the parameter estimates with each data set. In this sense, what they do is not like what natural scientists do in testing the inverse square law. Economists testing the law of demand are just seeing whether or not the parameter estimate on the price variable is negative in each data set.

[jmherbener]

Income distribution is continuously being changed in the market economy as changes in underlying conditions bring forth adjustments in production. In each case, those who satisfy consumer demands more fully with their resources have higher incomes and those who do so less fully have lower incomes. Unless one looks at income distribution for everyone involved in the market, If one picks and chooses which persons to include in the calculation of income distribution, then one can render any result.

If there is a rich country isolated economically from a poor country and they integrate, then incomes for people in both countries will become more equal. If it’s legitimate to look at incomes in just one country in calculating the income distribution produced by some system, then it’s legitimate to look at incomes in just one province or one town or just between two persons. If the inequality of income in a system is to be calculated by taking a select group out of the whole, then it would be a simple matter to show extreme income inequality or perfect income equality in any system.

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