[jmherbener]

The old Keynesians left out micro-economics altogether. By doing so they implicitly assumed that prices and wages were sticky, i.e., did not adjust rapidly. They were criticized by the New Classical economists who asserted that if prices and wages adjust rapidly, then changes in aggregate demand with not adversely affect production in the economy. The New Keynesians came up with micro-economic arguments for sticky prices and wages.

Here is Greg Mankiw, a leading New Keynesian, on New Keynesianism:

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

[jmherbener]

Rothbard was referring to old Keynesianism that ruled the intellectual roost in the 1950s and 1960s. Stagflation made that version of Keynesianism unpalatable to intellectuals. So they invented sophisticated versions, New Keynesianism, Post-Keynesianism, and so on. The old orthodox Keynesianism still lives on in the textbooks. But until Paul Krugman appeared on the scene, intellectuals considered old Keynesianism fit only for undergraduates as a gateway to their more sophisticated versions. And even in the era of Krugman, the sophisticated Keynesians tend to cringe at his old Keynesianism.

Whatever the debates on arcane points of contention between them, all Keynesians agree that aggregate demand is the key to economic prosperity. Thus, their policy prescriptions are much more uniform than their explanations of why the market system fails to sustain prosperity. Politicians are never loath to accept the advice that the government must spend more to keep the economy prosperous.

[jmherbener]

The money stock decreases only if the bank decides not to issue fiduciary media by extending another loan to another borrower. As long as the bank desires to hold no excess reserves, then the money stock will not shrink.

Even if there is no central bank increasing the reserve of money upon which the banking system issues fiduciary media, the banking system can still steadily increase the money stock by reducing the reserve ratio. In a fractional-reserve system, the reserve ratio is set by the practical limits of redemption of bank money substitutes. Under some configurations of fractional-reserve banking, the banking system can progressively lower the reserve ratio even without a central bank.

Take a look at the relevant sections (e.g., chs. 16-18) of MIses’s Theory of Money and Credit:

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

For a configuration of free banking on 100 percent reserves, take a look at Joe Salerno’s article in Guido Huelsmann’s new book, Theory of Money and Fiduciary Media:

http://mises.org/document/7018/Theory-of-Money-and-Fiduciary-Media

[jmherbener]

Fundamentally, international trade is no different than domestic trade. The principles of economics transcend political boundaries.

The reason two persons trade with each other is that they both benefit from obtaining something they value more highly. In other words, they recognize a difference in the value of two alternatives and act to gain from this difference. In trade all moveable goods, consumer goods, producer goods (i.e., labor and capital goods), and money move from where they have less value to where they have more value. This process continues until there are no more value differences to exploit. Trade statistics merely account for (but are not the cause of) these movements.

If a government has a policy with respect to international trade it’s typically to help exporters and not importers. It usually does this through protectionism, i.e., high tariffs on competing foreign produced imports or artificial devaluation of the countries currency to stimulate foreign purchases of domestic exports.

I’ve never heard of a government that inflates its money with the intention of stimulating imports, although one could conceive of such a policy. Perhaps one reason governments attempt to stimulate exports and not imports is that net exports (exports minus imports) are part of GDP, i.e., the production of final goods and services in the economy. So to make the economy appear more productive, the government could attempt to stimulate exports or restrict imports.

[jmherbener]

The purchasing power of money (i.e., the inverse of prices) is determined by the stock of money and the demand for money. The stock of money consists of money proper and money substitutes. In a fractional reserve banking system, banks issue fiduciary media, i.e., money substitutes for which they hold only a fraction of money in reserve for redemption. It follows that the banking system can expand the money stock by issuing fiduciary media and thereby, generate price inflation.

Your friend has not thought through the logic of his example. If the 1st bank keeps $100 dollars and lends out the other $900 of the original $1,000 in cash deposited, then the borrower spends the $900 and the merchant receiving the money deposits it in his bank. The 2nd bank then keeps $90 and lends $810 (now the banking system has created $1,900 of money substitutes already on the $1,000 in cash). And so on the process continues until the banking system creates $10,000 in fiduciary media on top of the $1,000 cash reserve. So even if the original depositor doesn’t spend his $1,000 deposit, the fractional-reserve banking system is inflationary. Of course, instead of going through this indirect process, it’s more likely that the 1st bank simple issues a loan of $10,000 to a customer and puts the funds in his account in which case it would be meeting the reserve requirement ratio of 0.10 and yet it has created $9,000 additional dollars of money substitutes.

[jmherbener]

Here’s a short piece addressing consumer protection on the free market. Take a look at the citations for more sources.

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

[jmherbener]

Just like any other good, money will be arbitraged for profit by moving it from where its price (i.e., its purchasing power) is low to where it is high. The arbitrage stops at the point where the purchasing power of money is the same everywhere. There is no more reason to think that gold money would not be distributed across the face of the earth according to the demand people have for it than that gasoline is distributed across the face of the earth in the same manner.

If people in a country had insufficient demand for gold money to attract gold there, then they would adopt another more common commodity like silver. The free market monetary system is one in which people are free to choose what to use as money and entrepreneurs are free to produce what money they wish. So even if there wasn’t enough gold to serve as money, it would be no argument against private enterprise money.

[jmherbener]

Here’s a simple breakdown of the balance of payments account:

http://www.newyorkfed.org/aboutthefed/fedpoint/fed40.html

As it explains, since 1993 merchandise and services are combined into the trade deficit or surplus, which is calculated as exports minus imports. So the two calculation you refer to give the same result.

[jmherbener]

Standards of living refer to the quantity and quality of consumer goods we have. We are wealthier if we have more and better consumer goods. We have consumer goods produced in the past and newly produced consumer goods. The spending on newly produced consumer goods during the year is consumption expenditures (C). Consumption expenditures are included in GDP. So C does not indicate our wealth. It only refers to additional consumer goods purchased this year. It also does not tell us the quantity and quality of consumer goods, but only how much was spent to buy them. So C can be larger without the quantity and quality of consumer goods rising.

[jmherbener]

The purchasing power of money is the inverse of the prices of goods. So if the government sets general maximum prices this is equivalent (since it applies to all prices) to a minimum PPM.

[jmherbener]

The government has legal privileges for some monies and legal disabilities for others. Legal tender laws are one type legal privilege. Here is a statement by the Treasury on legal tender:

http://www.treasury.gov/resource-center/faqs/currency/pages/legal-tender.aspx

On the legal disability side, U.S. courts will not enforce gold contracts:

http://www.treasurydirect.gov/instit/statreg/fraud/fraud_adams.txt

Without such legal support, fiat money would not be chosen by people over commodity money.

[jmherbener]

Gross Domestic Product includes only final goods produced, i.e., goods in the hands of their final users. Consumer goods make up 70 percent of GDP while Investment goods make up 15 percent.

GDP does not include intermediate goods produced. For example, the production of cars are included in GDP, but the production of iron, steel, rubber, tires, and so on are not.

Obviously, consumption is a much smaller portion of overall production than it is GDP. Treating GDP as overall production in the economy exaggerates the importance of consumption to overall production in the economy.

[jmherbener]

A Balance of Payments Account simply records the transactions between people in one country and people in other countries. In the unhampered market, such accounts would indicate the differing preferences of people. For example, if Americans preferred foreign made goods relative to Chinese preferences for American made goods, then the BoP Account would show a Trade Deficit (i.e., net inflow) for the U.S. and a Trade Surplus (i.e., net outflow) for China. To take another example, if Americans have high time preferences and the Chinese low time preferences, then the BoP Account for the U.S. would show a net inflow in the Capital Account and the BoP Account for China would show a net outflow in the Capital Account for China. These are examples of natural and healthy results of the division of labor.

A BoP Account always balances. The account is split into the Current Account and the Capital Account. Any deficit in the Current Account is balanced exactly by a surplus in the Capital Account. Here is a brief discussion of the BoP:

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

The problems we face are created by government policy, at most the BoP are a symptom of bad policy. The BoP are always “settled,” i.e., always in balance. The government has to settle its own financial affairs, not the BoP.

If interest rates rise back to historical levels, capital values will collapse. This will reveal the extent of mal-investments and set in motion a liquidation and reallocation process. Whether this process is smooth and quick or rough and prolonged depends on the extent of government interference with it.

If the dollar were redeemable for gold again, foreigners would have incentive to drain our gold reserves if the government undervalued the dollar in terms of gold. If the government redeemed an ounce of gold for $35, then its gold hoard would be quickly redeemed. But if the government redeemed the dollar at the current ratio of currency outstanding (which is around $1 trillion) to its gold hoard (which is 250 million ounces), then an ounce of gold would be redeemable at $4,000. Given gold’s current price of around $1,600 an ounce, it would be ruinous to redeem.

Take a look at Joe Salerno’s article on BoP:

http://mises.org/daily/6050/

[jmherbener]

It would mean that the MU of the 4th unit of A, the 3rd unit of B, 7th unit of C, and 8th unit of D are roughly the same. In other words these units are ranked close together on his preference rank. Close enough together that he does not choose a different configuration.

Pref. Rank
.
.
.
4th unit of A
3rd unit of B
7th unit of C
8th unit of D
5th unit of A

With the preference rank above, he is unwilling to give up the end attain with the 8th unit of D to get the end attain with the 5th unit of A.

[jmherbener]

What evidence does your brother have for his claim? For a fuller treatment of monopoly, take a look at Dominic Armentano’s book, Antitrust and Monopoly.

Here is an article by Armentano discussing various arguments about monopoly:

http://mises.org/daily/1800

Here is Thomas DiLorenzo on the idea of “natural” monopoly, which in the jargon of economics is the claim your brother is making:

http://mises.org/daily/5266/

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