[jmherbener]

In a division of labor each person produces to satisfy the consumptive ends of other people and has his consumptive ends met by them. Naturally, each person will run trade deficits with every person from which he buys their outputs and trade surpluses with every person to which he sells his outputs.

A person’s overall trade balance with all other people could be either in deficit, surplus or balance. If it is in deficit, it means that he has traded capital funding to others in exchange for their output. If it is in surplus, it means that he has traded his output to others in exchange for their capital funding.

A trade deficit, then, doesn’t reflect an unproductive or uncompetitive person. It indicates that he prefers to obtain goods from others by paying them in goods and capital funding and others prefer to receive his goods and capital funding in payment for their goods.

There’s no correlation between trade deficits and the performance of the economy.

From 1790-1860, America ran trade deficits almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Tables 1 and 3)

After 1865-1900, America ran trade surpluses almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Table 27)

[jmherbener]

The national debt is still growing.

http://research.stlouisfed.org/fred2/series/GFDEBTN?cid=5

Here is the federal budget:

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf

The federal deficit has been falling and is projected to fall further (table S-1).

But the burden of the government on the economy is its expenditures, which continue to rise (table S-5). The size of the deficit is a secondary matter. It’s being reduced by raising taxes. If it were being reduced by cutting expenditures, then it would be significantly beneficial for the economy.

The merchandize trade deficit has nothing to do with the health of the economy. It merely reflects the different preferences people around the world have for goods, services, capital investments, and money holdings. When taking all factors into account, the balance of payments accounts always balance.

http://www.bea.gov/international/

Click on “”U.S. International Transactions, 1960-Present” under “Balance of Payments (International Transactions)” to see the data.

[jmherbener]

Other people must save in order to have funds to lend to entrepreneurs. Entrepreneurs can be either self-financing, in which case they use their own savings, or obtain funds from financial markets, in which case they use other people’s savings.

[jmherbener]

The 1950s was a period of restructuring the capital capacity of the economy from the war economy to normalcy. The wartime controls were removed, the monetary inflation subsided, the government’s taxes, expenditures and indebtedness were receding. It took a few years in the late 1940s to transform the capital stock and then, the freer economy could operate normally.

Take a look at the seminal work by Bob Higgs:

http://www.independent.org/newsroom/article.asp?id=138

[jmherbener]

As a sociologist, Nisbet is using the term “capitalism” to refer to the historical system called capitalism. As economists, we use tend to use the “free market economy” or “unhampered market economy” as a synonym with “capitalism.” Nisbet is a champion of liberty and order, an order brought about without the state..

David Gordon lists Nisbet’s book as one of the 100 most important works on liberty:

http://mises.org/daily/1830

Here are a few appreciations of Nisbet:

http://www.garynorth.com/public/10962.cfm

http://www.lewrockwell.com/2001/05/gary-north/nisbet-rushdoony-and-rothbard/

http://antiwar.com/stromberg/?articleid=3371

[jmherbener]

He points to the 1950s as a case in which the economy performed adequately while income inequality was being reduced by high marginal income tax rates. Here’s his argument:

http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html

There are many problems with this line of thinking.

First, Krugman implicitly denies that higher incomes on the market are earned by those who bring about superior satisfaction of the consumptive ends of other people. Letting people keep their incomes furthers the social goal of using resources to satisfies the most valuable consumptive ends people have in society at large. Consider this analogy to Krugman’s argument. Suppose the government had a mechanism for allocating grant money to the people who made the most valuable scientific breakthroughs. Given that the ability to make scientific breakthroughs was not evenly distributed across all scientists, would Krugman advocate that 91 percent of the grant money be taken from the top 1 percent of recipients?

Second, Krugman seems to think that higher tax rates on the rich mean they pay more tax revenue. But this is not necessarily true. The top rate on federal income tax in 1980 was 70 percent, in 1986 it was dropped to 50 percent, in 1991 it was down to 31 percent, then rose again in 2000 to 39.6 percent, and today stands at 35 percent. The following charts document that even though top income tax rates have fallen from the 1970 and 1980s, the percent of all income taxes paid by the highest quintile has increased from 65 percent in 1979 to 86 percent in 2007.

http://www.cbo.gov/sites/default/files/cbofiles/attachments/Tax_liability_Shares.pdf

Third, Krugman ignores the fact that the richest depend more heavily on their investments for their incomes than the non-richest do. Therefore, their incomes move up and down dramatically over the business cycle. Krugman is a hypocrite. He claims to desire to reduce income inequality but is one of the biggest advocates of Fed monetary inflation and credit expansion, which generates booms and is a leading source of the elevated incomes of the richest. Of course, when the bust comes, their income plummets. This explains why the richest saw their income fall during the Great Depression and the WWII.

[jmherbener]

TMS is up 8.4 percent over the last year.

Here’s the updated data:

http://www.forbes.com/sites/michaelpollaro/2013/11/16/global-monetary-watch-u-s-true-money-supply/

[jmherbener]

Rothbard developed a measure he called the True Money Supply:

http://mises.org/content/nofed/chart.aspx

Investors who are typically interested in large time deposits are currently interested in other financial assets.

[jmherbener]

Standard monopoly theory says that instead of producing output at the competitive level at which Price = Marginal Cost, a monopolist will restrict production to the point at which Marginal Revenue = Marginal Cost. Any producer, whether monopolist or competitive, maximizes profit by producing output at the point where MR = MC. For competitive firms P = MR and therefore, profit maximizing means P = MC. For monopolistic firms P > MR and therefore, profit maximizing means MR = MC which implies producing less output than the point at which P = MC.

This theory of monopoly cannot be applied to the production of fiat money because the MR always exceeds the MC for producing more. It costs around $0.25 to print a $1 bill. If the state took profit maximizing as its rule of determining how much fiat money to produce, it would continue to produce more $1 bills until the prices of paper and ink, etc. used to print them rose to $1, then it would print $5 bills and so on into hyperinflation. But the premise of monopoly theory is that the monopolist produces the amount of the good that maximizes profit. In the case of fiat money that rule will not lead to a restriction of production but to producing indefinite amounts.

[jmherbener]

There are several assumptions involved in the computation of consumer and producer surpluses as a measure of the subjective gains from trade:

1. Value scales exist for each technical unit of the good traded, e.g., gallons of gasoline.
2. We can acquire information about the range of such value scales in traders minds that are not demonstrated by them in action.
3. Money is a measure of value, e.g., $10 = 1 util.
4. The value of money is the same across all traders.
5. If integration is used, value scales must be complete so that demand curves are smooth and continuous.

Take a look at chapter four of Murray Rothbard’s book, Man, Economy, and State:

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

[jmherbener]

The total stock of money is the sum of money plus money substitutes. The total stock of money and the total demand for money determine the purchasing power of money or the array of prices. In the last few years, the total stock of money has been increasing significantly, but the total demand for money has also been increasing. The result has been a modest, but significant increase in prices.

The monetary aggregates computed by the government are M1, M2, M2 – small time deposits, MZM, and M3 (discontinued). M1 is too narrow, excluding deposits that banks redeemable on demand at par. M2 is too broad, including small time deposits, which banks do not redeem on demand at par. MZM is too broad, including money market funds. M3 is much too broad, including large and small time deposits.

http://research.stlouisfed.org/fred2/categories/24

In the current reflation engineered by the Fed, credit expansion has been going into stocks and real estate instead of large time deposits at banks.

From 1/1/2010 to 9/1/2013:

M2-STD has increased 29 percent from $7,275.5 billion to $10,215.2 billion.

M2 has increased 28 percent from $8,432,8 billion to $10,770.4 billion.

M3 has increased around 1 percent from roughly $15,000 billion to $15,200 billion.

[jmherbener]

Even Marxists have abandoned the labor theory of value. Bohm-Bawerk’s critique proved definitive. Take a look at David Gordon’s book Introduction to Economic Reasoning, chapter 5.

http://library.mises.org/books/David%20Gordon/An%20Introduction%20to%20Economic%20Reasoning.pdf

[jmherbener]

If by “predict” what Friedman means is “give relatively accurate quantitative magnitudes for certain economic variables in the future” then no Austrian economist has denied that such prediction requires empirical knowledge. As Mises put it, such prediction is based on “thymology” which is a blending together of economic theory (which is universal truths about cause and effect relationships in human action and can be known a priori) and the relevant contingent features of the particular case to be predicted (which can be known only by experience).

If by “predict” what one means is “give accurate qualitative changes for certain economic variables in the future” then theory can be sufficient. One could have accurately predicted the reduction in farm output from the Soviet collectivization of agriculture without knowing anything from experience about such events. In theory we can stipulate particular contingent factors and abstractly deduce what will occur under the stipulation.

What should be asked of Friedman is to name any prediction with meaningful predictive value made by an economist who accepts the empirical-hypothesis testing method that does not require abstraction in the formulation of its model.

[jmherbener]

It would matter if the shifts from one tax source to another were large enough. But even if this has happened it’s secondary to the main effect of taxation, which is transferring command over resources out of the realm of economic calculation and into the realm without economic calculation.

Table 2.2 at the following link compiles the percentage composition of federal tax receipts by source from 1934 -2012. It shows that since 1947, Individual Income Taxes have made up between 39 and 50 percent of the total; Social Security Taxes (which are also individual income taxes) between 9 and 42 percent; Corporate Income Taxes between 6 and 32 percent; and Excise Taxes between 2.5 and 19 percent.

http://www.whitehouse.gov/omb/budget/HISTORICALS

Disparate tax rates on a given source also have consequences, but they too are secondary to the amount of tax revenue transferred to the state.

The top rate on federal income tax in 1980 was 70 percent, in 1986 it was dropped to 50 percent, in 1991 it was down to 31 percent, then rose again in 2000 to 39.6 percent, and today stands at 35 percent. The following charts document that even though top income tax rates have fallen from the 1970 and 1980s, the percent of all income taxes paid by the highest quintile has increased from 65 percent in 1979 to 86 percent in 2007. That fact is more important than what the top rate happens to be.

http://www.cbo.gov/sites/default/files/cbofiles/attachments/Tax_liability_Shares.pdf

Murray Rothbard’s book Power and Market gives a thorough analysis of both primary and secondary effects of different tax regimes.

http://library.mises.org/books/Murray%20N%20Rothbard/Power%20and%20Market%20Government%20and%20the%20Economy.pdf

[jmherbener]

Yes, you are correct. Put another way, all banks together constitute a banking system in which the reserves held by all banks lead to a multiple expansion of fiduciary media issued by all banks. The distribution of reserves among the banks does not affect the ability of the system to maintain the overall issue of fiduciary media.

[Author]

Posts