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December 7, 2013 at 8:58 pm in reply to: Interlinking of global markets and it's effect on the business cycle #18134
jmherbener
ParticipantHaving 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:
ParticipantI 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.
December 6, 2013 at 10:23 am in reply to: Methodology of Economics – Austrians vs. Neo-classical #18132ParticipantHere’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.
ParticipantBretton-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
December 5, 2013 at 4:13 pm in reply to: Methodology of Economics – Austrians vs. Neo-classical #18130ParticipantNeoclassicals 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.
ParticipantIncome 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.
ParticipantCertainly, our time preferences can be raised by government policies, social security being a prime example. Trade deficits could be caused by currency manipulations of the government. Monetary inflation and credit expansion can increase our consumption by lowering interest rates.
And, hypothetically, if everyone in the world had extremely high time preferences, then we would begin to consume our capital stock and our standards of living would collapse. But our world economy is not like that, at least not yet. As we would expect, there is a spectrum of time preference that people have from extremely low, like the Chinese who currently save 45 percent of their incomes, to extremely high, like those in Denmark who have slightly negative saving rates.
So, in our world, people with different time preferences mutually satisfy them through lending and borrowing. Because all these different people live in an integrated market economy, they all enjoy the standards of living that the division of labor and capital stock built from the past produce. Those with higher time preferences shift their lifetime income from the future toward the present. By borrowing. they are able to consume more than they otherwise could sooner and must consume less than they otherwise could later. But their lifetime consumption is determined by their lifetime production. Those with lower time preferences shift their lifetime income from the present toward the future. By lending, they must consume less than they otherwise could sooner and get to consume more than they otherwise could later. But their lifetime consumption is also determined by their lifetime production.
ParticipantIf globalization means the further integration of everyone in the world into the system of private property and contract, then globalization will reduce income inequality for two reasons. First, differences in the price of the same things tends to be arbitraged away in the market. If wages are higher in one country and lower in another for the same labor, then globalization will bring them together. This would be true for all types of labor, including that of CEOs. The same is true of interest returns on capital investment. capitalists would tend to earn the same rate of return on similar investments anywhere in the world. Second, profits earned by entrepreneurs are imputed to wages and land rents over time. If an entrepreneur is earning sizable profit, then other entrepreneurs strive to earn them also by producing similar products. To do so, they bid up the prices of inputs. In this process, the profits diminish as wages and land rents rise.
These processes have been manifest in China for several decades. The capital accumulation processes has lifted half a billion people out of poverty in China over the last 30 years. It’s perverse to interpret such facts as claiming that the rich are getter richer and the less capable are being left behind.
Here are a few articles:
ParticipantOur economic problems are the result of Fed monetary inflation and credit expansion, government regulation, and government expenditures, taxes, and debt. None of our problems are the result of trading with the Chinese or having higher time preferences.
I suggest you read Tom Woods’s books, Meltdown and Rollback.
ParticipantHere is a brief comment by the philosopher David Gordon on someone’s objection to a priori knowledge in economics.
http://mises.org/daily/6582/Human-Reason-and-A-Priori-Economics
Here are a few defenses of a priori knowledge in economics.
http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf (chapter 2)
ParticipantEconomic progress occurs when we have more and better consumer goods to enjoy. Because consumer goods are heterogeneous, it isn’t possible to scientifically measure economic growth. GDP is a crude attempt at a metric of our capacity to produce final goods and services. Private Product Remaining is a better metric, because it nets out of GDP, the influence of government.
GDP in 2012 was $16.2 trillion. In other words, the production of final goods and services in the United States during 2012 was $16.2 trillion. We do produce things. Exports minus Imports in 2012 was -$535 billion. So our trade deficit was 3.3 percent of GDP. Surely, these facts do not warrant the conclusion that “we don’t produce anything.”
ParticipantThat’s correct. When the Fed lowers interest rates artificially, it causes entrepreneurs to invest in the wrong lines of capital capacity and consumers to increases consumption. The boom is a period of mal-investment and over-consumption.
ParticipantIf some people have higher time preferences and others lower time preferences and they are willing to engage in mutually advantageous lending and borrowing, the the market is “healthy” if the trades are made and “unhealthy” if the government prevents the trades from being made. Whether or not those with higher time preferences are wise to take on the debt is not a question that can be answered by economics reasoning alone.
At best, economics can explain the distinction between sustainable indebtedness and unsustainable indebtedness. In the unhampered market, the lenders will assess the likelihood of the borrowers to pay back their loans. They will lose if they overestimate the willingness and ability of the borrowers to pay back and they will gain if they accurately estimate. Thus, indebtedness is regulated in the market by the same profits and losses that regulate the production and exchange of anything. As I cited in a previous post, the average American household is much more indebted today than a hundred years ago. But, the bulk of that debt is sustainable because the average American household hold more assets. There is nothing unsustainable about a young person borrowing to buy a house and using his future earnings to pay for it.
Unsustainable indebtedness comes about when the Federal Reserve engages in monetary inflation and credit expansion. Some of the creation of credit is extended to borrowers who have neither the willingness nor the ability to pay back their loans. Banks are willing to do this because Fannie Mae and Freddie Mac created massive secondary markets for these sub-prime mortgages. The banks would earn the fees to write mortgages they knew would not be paid back and then sell them to Fannie and Freddie. The Fed is the source of unsustainable indebtedness in our economy, both private and governmental.
ParticipantNo, a person with high time preference will not live as well as a person with low time preference. But you were asking about the performance of the economy not about a person’s life. The economy’s performance is judged by how well we satisfy our preference in arranging a division of labor in production. Whether we have high time preferences or low time preferences, the market’s performance is judged by how well the market satisfies those preferences. Faster growth rates of GDP do not indicate a better performing economy than slower growth rates of GDP. If people have high time preferences, then slower growth rates of GDP indicate a well performing economy and if people have low time preferences, then faster growth rates of GDP indicate a well performing economy. But if people have high time preference, a faster growth rate of GDP does not indicate a better performing economy. It more than likely indicates that the Fed has generate a boom.
ParticipantI think Rothbard was stipulating, as I also did in my previous post, that the value of the output was staying the same in the adjustment process.
In general, however, such a stipulation does not hold (which is what I implicitly assumed in my first post) and both output and input prices would adjust. In your example, then, the price of the mall would fall below $10 million when the economy reached the ERE and the reproduction costs would rise above $8 million.
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