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jmherbener
Participant1. I don’t know of a work that discusses taxes in a regime a competing currencies. Here is Bob Murphy on Hayek’s scheme for competing currencies:
2. Changes in the purchasing power of money are determined by changes in both the money stock and demand to hold money. It’s a matter of judgment as to how much each factor contributed to a change in the purchasing power of money during some historical period. It’s never either or. Would MMTers blame the German hyperinflation of the 1920s or the Zimbabwe hyperinflation of the 2000s solely on changes from the goods side (which can only change the PPM by changing demand to hold money).
3. The interest rate is the inter-temporal price of money. The price paid when one trades present money for future money. Any person or institution that makes a credit contract with another person or institution will pay interest to borrow present money or receive interest to acquire future money. This is true regardless of the circumstances of the inter-temporal trade, e.g., for consumer loans, producer loans, government loans, direct investment in production, and so on. The interest rate is determined by the overall demand for and supply of present money for future money. The government is both a demander of credit and the source of supply of credit, through bank credit expansion. So, it’s participation influences the interest rate. Obviously, overall supply and demand conditions can be such that the interest rate is low even though government demand is high or conditions can be such that the interest rate high even though government demand is low.
4. The price of the inter-temporal trade of money cannot be zero because people have time preference. So Mike must be talking about something else besides the interest rate. For example, (one that he didn’t talk about) if the central bank lends money to commercial banks it can set the “interest rate” of its loans at zero. But this is not the price of inter-temporal trade of money, but a mere policy. The Fed could even pay banks to borrow funds,. but that would not be a negative interest rate.
ParticipantIf the low rates were enforceable, it would create a shortages in credit markets. The quantity supplied of credit would shrink. The general rate of interest in the economy would still be determined by time preference and could still be earned by direct investment in production. Some savors, striving to earn the market rate of interest, would abandon credit markets and adopt other methods supplying capital funding like buying stock or entering into partnerships or coops. The efficiency of the time market would be impaired as the volume and type of different transfers of capital funding would not align with people’s preferences. The majority of capital funding in our economy, however, is through self-financing. So, usury laws would not devastate production.
Depending on how widespread the usury law was (e.g. only on mortgages, or only on consumer loans, or on all consumer and producer loans), the effects would be more or less damaging. It would not create a recession per se, however, since that is the liquidation of malinvestment from a boom and the reallocation of resources misallocated during the boom. Obviously, without credit expansion pushing interest rate below their market levels, a usury law would not generate a boom and therefore, no recession would follow. As mentioned above, usury laws reduce the supply of credit. They would result in a reallocation of resources and reinvestment of capital funding especially for businesses that have built their business model on access to credit, either short term or long term. They would have to find alternative arrangements for short term credit, like accounts receivable and payable, and long term credit, like stock. If they could not do so, they would be liquidated and their assets reorganized, albeit, less efficiently.
ParticipantThe reason the surplus decreased is that outlays increased faster than receipts after 2006. During the downturn the number of people on disability has risen. Social security is projected to be in deficit starting in 2016. There was still a $62 billion surplus in 2012. So the data in Table 1.1 do not prove that SS is in financial trouble. But, the trend is not favorable.
Clinton, like presidents before him, used the entire SS surplus. Each year the Treasury spends all the receipts from SS. It “pays” for the surplus by giving SS non-negotiable bonds. The holding of these bonds by the SS administration constitutes the SS trust fund.
In the 8 years of Clinton administration budgets (FY 1994 through 2001), total outlays of the federal government rose from $1,462 billion to $1,863 billion or 27 percent. In the 8 years of the Bush administration budgets (FY 2002 through 2009), total outlays rose from $2,010 billion to $3,518 billion or 75 percent.
ParticipantFor a chart of the federal government’s receipts, outlays, and budget surplus or deficit, click on the link for “Table 1.1” at the following website:
http://www.whitehouse.gov/omb/budget/Historicals
The chart shows that the federal government’s “Total Budget” was in surplus for the years 1998, 1999, 2000, 2001 and that its “On-Budget” was in surplus for only the years 1999 and 2000. The difference between the two is the “Off-Budget,” which is mainly social security receipts, outlays, and surplus or deficit. All administrations use the social security surplus to partially offset the “On-Budget” deficit. So Clinton did not “raid” social security, at least not in any manner different than previous presidents.
(As an aside, the chart shows why Reagan called on Alan Greenspan to save social security in 1983. It had been in deficit since 1976 and Greenspan’s tax increase quickly brought it back into surplus by 1985.)
For a chart of the government’s net interest outlays, click on the link for “Table 3.1” at the following website:
http://www.whitehouse.gov/omb/budget/Historicals
The chart shows that net interest outlays fell from $241 billion in 1998 to $206 billion in 2001. And the “On-Budget” net interest outlays (which is the amount the Treasury paid to government bondholders) fell from $288 billion in 1997 to $275 billion in 2001. This reduction is much to small to account for the corresponding budget surpluses. Although, Clinton did have a policy of changing the time structure of federal government debt to take advantage of lower rates, but the policy did not generate the budget surpluses which were $69 billion in 1998, $126 billion in 1999, $236 billion in 2000, and $128 billion in 2001.
ParticipantWherever financial markets exist, they constrain government finance. International gold redemption, however, placed a tighter constraint on government monetary inflation and debt financing. The 20th century saw a relaxation of that constraint. After Bretton-Woods was destroyed in 1971, the federal government exercised monetary inflation and debt financing more vigorously and the financial markets reacted more severely.
ParticipantI don’t know the details of the cases you mention, but there are a few general principles involved. The bust is a process of liquidation of malinvested capital and reallocation of misallocated resources. These activities require entrepreneurial foresight. As with any exhibition of superior foresight, entrepreneurs earn profit. During the bust, the configuration of capital capacity controlled by various entrepreneurial groups within their own enterprises must be rearranged. Capitalist-entrepreneurs create value by appropriate downsizing of some firms as well as appropriate upsizing of others.
ParticipantThis website breakdown the federal debt by who holds it. Of the $16.7 trillion in U.S. Treasury debt, $11.,9 trillion is held by the public and $4.8 trillion is “intergovernmental holdings.”
ParticipantClarence Carson was a Ph.D. historian who taught history at several colleges including Hillsdale and Grove City. He advocated liberty, though he was not a libertarian.
http://www.fee.org/the_freeman/detail/clarence-b-carson-rip#axzz2bQiqlTSr
On your first point, it’s not uncommon for economists to assert that government as defender of person and property is a precursor to the market economy. Ludwig von Mises makes the same claim in his book, Human Action.
On your second point, there are good points on both sides of the debate over whether or not to call the market economy “capitalism.” Historians tend to define “capitalism” as the historical system of government-business partnership that emerged in the West in the mid-nineteenth century. Karl Marx himself coined the term on the grounds you mention (it’s the system that favors capital over labor). On the other side, “capitalism” does describe an essential feature of the market economy, namely, that entrepreneurs can calculate “capital value” and thereby, efficiently allocate resources and invest in capital capacity.
Carson was not an Austrian economist, but his views on these two points don’t contradict Austrian economics.
More thorough introductory treatments of Austrian economics are David Gordon’s, Introduction to Economics Reasoning:
http://library.mises.org/books/David%20Gordon/An%20Introduction%20to%20Economic%20Reasoning.pdf
And Bob Murphy’s, Lessons for the Young Economist:
ParticipantOne would need to know the pay scale and employment pattern at Wal-Mart to determine the answer to your question.
However, if we make a reasonable guess, namely, that Wal-Mart pays wages below $12 an hour only to entry-level workers. (If this were not the case, then it’s hard to believe that computed prices would rise only 1.1 percent if Wal-Mart raised the minimum wage it pays workers to $12. Put another way, contrary to the bashing by the anti-Wal-Mart crowd, Wal-Mart must be paying reasonable high wages to most of its workers already if raising the minimum to $12 would only increase computed prices by 1.1 percent.) Then if Wal-Mart were forced to pay wages at $12 or above to all its workers, it would have to eliminate entry-level positions. Given that such a minimum wage restriction is the reason it refused to open its planned stores in the D.C. area, we can surmise that Wal-Mart’s current business model depends on these positions. It seems that Wal-Mart would have to significantly change the way it operated to survive a $12 minimum wage.
ParticipantBut that’s just the point. Entrepreneurs cannot pay workers less than the DMRP. Such is the conclusion of economic theory. In an unhampered market, each factor of production earns its DMRP. Of course, there are constant adjustments that entrepreneurs must make to changing underlying conditions, but they are always acting to exploit value differences and by so doing they eliminate them. And entrepreneurs can make mistakes, but they are corrected by entrepreneurs with superior foresight. So there is no systematic deviation of wages from DMRPs.
The problem in arguing about this topic is that people use the term “exploitation” ambiguously. In economic theory it refers only to the narrow point about whether entrepreneurs can systematically pay workers less than their DMRP. To others, exploitation means not paying a “living wage” or manipulating workers psychologically and so on. In economic theory, the only meaning one can give to “exploitation” is the case of involuntary exchange. The criminal gains at the expense of his victim. But voluntary exchange is mutual beneficial and therefore, involves no exploitation.
ParticipantI don’t think the socialists could take that line as effectively. After all sometimes business earns profit and sometimes it suffers losses. Karl Marx was trained as a classical economists and argued more tellingly from a general equilibrium position in which there are neither entrepreneurial profits nor losses. How then, could a classical economist who had no time preference theory of interest, explain the normal rate of return to investment?
You might try reading Boehm-Bawerk’s book to get an historical perspective:
ParticipantSuch estimates are difficult to come by because the conditions of generating empirical evidence do not often occur or, at least, are not often recorded. Entrepreneurs make such estimates in making business decisions, but the public data recorded is usually just the wage rate and the number employed.
Richard Vedder is a fellow-traveler of Austrian economics who has ventured to make estimates of MRP in the case of slave labor. Here is one Vedder article on teh topic:
ParticipantBoehm-Bawerk was arguing that revenues from selling output necessarily exceed costs from buying inputs in equilibrium. That is, even if there is no profit, revenue exceeds costs because of interest and not exploitation. The socialists claimed that exploitation explained any excess of revenues over costs.
ParticipantThe gold reserve act allowed FDR to devalue the dollar relative to gold. He did so by 70 percent, from $20.67 an ounce to $35 an ounce. This policy resulted in the “golden avalanche.” The gold stock tripled from 1934 to 1940. The Treasury department monetized the gold by issuing gold certificates, which banks could use as reserves. The Treasury also issued silver certificates from 1934 to 1938. The resulting monetary inflation re-inflated assets price bubbles, e.g., the stock market, but had little effect on the real production. When the monetary expansion slowed in 1937, the malinvestments were revealed and the apparent gains of 1934-1937 were exposed as such.
Robert Higgs’s paper on Regime Uncertainty tells the tale of real production during the Great Depression:
ParticipantYou’re on the right track. The Austrian view is that to make decisions about production that economize for society entrepreneur must use economic calculation. The use of resources in one line of production is justified if the revenues generated by satisfying consumer demands in that line exceed the revenues generated by satisfying consumer demands in another line of production. This occurs when an entrepreneur pays the opportunity costs of the resources (which are their prices) he uses to the resource owners and more than covers these costs with the revenues he generates from selling his outputs. Neither the production of fiat money nor fiduciary media is so regulated by profit. Their production does not require the producer to compensate for the opportunity cost others incur to allow for the satisfaction of the demand of those who issue fiat money and fiduciary media. Instead when they spend the fiat money or fiduciary media, people in general throughout the economy have their command over resources reduced to allow the issuers to have their command over resources augmented. And yet, no test has been passed to show that the value of the satisfactions gained relative to money to the issuers exceeds the value of satisfactions lost relative to money to people in general. The only test is voluntary exchange. But the issuers, who gain, do not compensate the people in general, who lose. They do not beat the opportunity costs of their actions.
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