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jmherbener
ParticipantTake a look at Joe Salerno’s articles in his debate with Richard Timberlake:
http://www.thefreemanonline.org/featured/inflation-and-money-a-reply-to-timberlake/
If it is still unclear, you might consult Timberlake’s articles in the debate.
ParticipantThe reason for the dichotomy is that monetarists, who are otherwise favorably disposed toward the free market (like Friedman) because of their microeconomic analysis, accept the Keynesian aggregate demand framework in macroeconomics. If one presupposes that aggregate demand determines production and employment it seems to follow that war spending must lift an economy out of depression.
Here is Roger Garrison’s article on Friedman and Keynes:
Check the references in Robert Higg’s seminal article for fellow travelers with the Austrians against the claim of war prosperity:
ParticipantIndeed, that is the case. Thailand, Malaysia, Indonesia, and other southeast Asian countries over-inflated their domestic currencies on top of the reserves provided by dollar inflation.
ParticipantHere is a limited historical analysis of capital flows from the World Bank:
http://siteresources.worldbank.org/INTGDF2000/Resources/CH6–118-139.pdf
Since the mid-1800s governments have set up and attempted to manage an international monetary system. The classic gold standard of the second half of the nineteenth century was designed by governments to manage monetary inflation by punishing countries that inflated their currencies excessively. The fatal flaw of the system is that it required redemption of each currency into gold and yet governments continuously inflated their currencies faster than the gold stock increased through production. When their monetary inflation produced booms and busts, they blamed markets and the free-flow of capital. Governments destroyed the classic gold standard to inflate their currencies to pay for spending during the First World War. They cobbled together the gold exchange standard in the 1920s. but their inflation destroyed it in the early 1930s. After the Second World War, governments erected the Bretton-Woods System, in which all other currencies were redeemable into the dollar and the dollar was redeemable into gold. Their inflation destroyed this system in 1971 and ushered in the miserable decade of the 1970s. The U.S. government cobbled together another dollar reserve standard, without gold, in the 1980s. We will see if this system will survive the inflation, and consequent boom and bust, governments generated in the last decade.
Of course, markets always constrain government activity whether they are international or not. In these international monetary systems, capital flows are a means of punishing wayward governments. A more recent example of this was the fall of the Asian tigers in the 1990s. Thailand over-inflated its currency, the baht, in response to the Fed’s inflation of the dollar after the recession of 1990-91.
Rothbard has written about some of this:
Also, consult James Grant’s book, Money of the Mind.
Finally, government borrowing has dominated bond markets throughout this entire period. Today, for example, bond markets in the U.S. are $70 trillion and $40 trillion of that is government debt at all levels. Governments want to support bond markets because they are the biggest borrowers of all. The Federal government wants to borrow from foreigners, so its demand helped create and support international bond markets. Complaining about how such markets constrain its financing is not objective science but merely special interest pleading.
ParticipantAs you imply, the term neoliberal is practically useless since it is defined differently by various groups. It’s often associated with Prime Minister Margaret Thatcher in England, who famously held up a copy of Hayek’s The Constitution of Liberty declaring “this is what we believe” as she slammed it down on a table. Reagan is often taken as her American counterpart.
Reagan cut the capital gains tax in his tax reform bill of 1981 to 20 percent and then raised it again in his tax bill of 1986 to 28 percent. The tax burden during the Reagan administration shifted from upper-income to middle-income taxpayers, mainly because of the sizable increase in payroll taxes in 1983 to fund social security.
There was some re-regulation during the Reagan years. Politicians are willing to sell legislation and regulation to the highest bidders, so naturally there is re-regulation in every administration. But to characterize Reagan’s administration as reducing regulating is dubious. The Garn-St. Germain Act, often cited as “deregulating” the S&Ls in the early 1980s, for example, is clearly re-regulation. Here’s the FDIC page on it:
http://www.fdic.gov/regulations/laws/rules/8000-4100.html
In contrast to new regulations whose net effect on the regulatory state is controversial, the Monetary Control Act of 1980 increased the regulatory power of the Fed.
ParticipantThe effect Intellectual Property has on the overall extent of invention and innovation is unclear. What we can conclude from economic theory is that the composition of invention and innovation will be different in a world with IP compared to one without IP.
In a world without IP, the monetary gain from invention and innovation will accrue to entrepreneurship instead of being imputed to patented machines or copyrighted works. Inventors and innovators earn profit from their creativity in the period before other entrepreneurs enter the field and to the extent that they cater their products to satisfy consumer preferences more fully than those of other entrepreneurs.
In a world with IP, the monetary gain from inventions and innovations will accrue to the goods receiving IP protection. But this extra monetary value will not stimulate production of the same goods by other entrepreneurs, since IP makes doing so a crime, but on alternative inventions and innovations that do not violate IP but produce similar goods that attempt to satisfy the same consumer preferences.
You might take a look at the Mises Institute wiki on IP:
Participant1. The law of diminishing marginal utility requires the stipulation of units of a good that are equally-serviceable to a person. A unit of a good is the amount of it a person chooses as suitable to attain an end. Equally-serviceable means that any one unit can satisfy any one end a person has. If a person has more than one equally-serviceable unit of a good, the marginal unit is the one that satisfies the least-valued end.
For example, if a person selects a gallon of water as the suitable amount to attain either his end for drinking, his end for watering his plants, or his end of washing his hands during the day and if he has two equally-serviceable gallons of water, then the marginal unit of water for him is the one he uses to water his plants and the marginal utility of water is the value the aid that unit renders in attain his end of watering his plants.
2. When a person uses a unit of means to attain an end he gives up the value of next most valuable end he could have attained with that unit. This is the dis-utility of his choice. In the above example, the dis-utility of the second gallon of water is the value of the aid in renders in attain the end of washing the person’s hands.
The term “dis-utility” is typically confined to choices a person makes in allocating his human effort. When a person chooses to apply his human effort to labor, he gives up leisure. The value of the leisure he gives up is the dis-utility of labor. A person allocates a unit of human effort to labor, then, when the marginal utility of the good produced by the unit of labor exceeds the the dis-utility of that labor.
The distinction being made here is between the distasteful aspects of performing a labor task and the opportunity costs of doing so. The distasteful aspects are included in the labor’s marginal utility and not its dis-utility. Similarly, a person might enjoy performing a labor task. Such pleasure would be included in the labor’s marginal utility.
ParticipantThe extent of assets under the supervision of an entrepreneurial group, just like all other production decisions, is subject to the constraint of economic calculation. Larger combinations of assets are sustainable if they increase net worth, i.e., if the acquired assets have greater monetary value under the supervision of acquiring entrepreneurial group than they did under the supervision of the dis-investing entrepreneurial group. The market value of different combinations of assets under the control of an entrepreneurial group is determined by investors at large and not by either the acquiring or dis-investing entrepreneurial group.
Moreover, for a business enterprise to remain efficient once its combination of assets is too large for the entrepreneurial group that formed it to directly oversee it, the entrepreneurs must divide it into profit centers and hire managers over each center with the instruction to earn profit and pay each manager a share of the profit earned by the center he oversees. In this way, collectivism is not implied in bigness of private enterprise.
In the unhampered market economy, if an enlarging enterprise or an emerging cartel of enterprises is becoming less efficient in satisfying consumer preference, then the monetary value of the assets of these enterprises will decline. Profit and equity can then be earned by breaking up combination. In contrast, if government intervention supports enlarging enterprises, then inefficiency and collectivism (or at least, bureaucratization) will go along with bigness.
ParticipantCharts of various data sets relevant to the business cycle are available at the St. Louis Federal Reserve Bank’s website.
Here is GDP:
http://research.stlouisfed.org/fred2/graph/?id=GDPA
Once you get to the page, click on “edit graph” and you can set the years included, restricting them to 1929-1941 and the graph will be redrawn.
The NBER is the organization that officially dates business cycles:
ParticipantTime preference refers to the universal preference every person has for a given satisfaction sooner instead of later. It operates in every inter-temporal choice, regardless of the goods involved. Whether or not a particular good renders the same or a different satisfaction when used at one moment in time instead of another is a separate question. But, as Rothbard puts it, the value scale is unitary. The human mind is able to compare all considerations relevant to choice when deciding to act. A person discounts, according to his time preference, the different future satisfaction to make it comparable to the present satisfaction.
Thus, in your example, it is time preference that dominates the choice between a greater satisfaction later and a lesser satisfaction sooner. After discounting the future satisfaction to take account of his time preference, the person prefers the present satisfaction.
This basic consideration of discounting future valuations is the ground for calculating the present value in money of future revenues to be earned from an investment in the market. If the discount is large enough and the future revenue small enough, then a person will not invest money today into such a project.
ParticipantTake a look at the Vedder and Galloway article:
http://mises.org/journals/rae/pdf/RAE5_2_1.pdf
Check the references in Higgs’s article the V and G article for proponents of the war prosperity view. Higgs has a list in footnote 3. V and G have a section in their article on such proponents starting on page 14.
ParticipantOn an unhampered market economy, the production of every good is regulated by profit. More gold would be mined and minted into coin only if the revenues it generated more than covered its production costs. Gold mining and minting “add more money to the economy” in the same way that all production adds more goods to the economy.
Issuing fiat money and fiduciary media cannot be regulated by profit since doing so always generates more revenue than costs. Producing more fiat money and issuing more fiduciary media cannot add more money to the economy in the way production of others goods do so. Such monetary inflation is categorically different than production of gold coins on the unhampered market.
The reason real wages fall during monetary inflation is that the processes of the boom-bust that it sets in motion consumes part of the capital structure. Labor, therefore, becomes less productive.
ParticipantOverall prices fall because of a change in the money relation. The money stock fall relative to money demand or money demand increases relative to the money stock. The former is more common during a bust.
The link between prices of consumer goods and producer goods is the rate of interest. Typically, then the price spread falls during the boom and then moves up in the crisis. During the bust, it can move either up or down depending on how time preferences change.
Here is the Bank of Japan page on prices:
http://www.boj.or.jp/en/statistics/pi/index.htm/
Here is the BOJ statistics on corporate prices from 1980 to the present:
http://www.stat-search.boj.or.jp/ssi/cgi-bin/famecgi2?cgi=$graphwnd_en
The website will make other graphs by selecting a series, like “wholesale prices.”
ParticipantThe money stock in a country is money proper plus money substitutes, i.e., on demand at par redemption claims for money.
In the U.S., the most accurate official measure of the money stock is MZM, i.e., money of zero maturity. M1 is too narrow (it doesn’t include all on demand at par redemption claims) and M2 is too broad (it includes credit instruments) and M3 has been discontinued.
Movements in M2 and M3, then are capturing part of the credit expansion instead of monetary inflation.
Here is the Bank of Japan statistics on M2 and M3 from 1980 to the present:
http://www.stat-search.boj.or.jp/ssi/cgi-bin/famecgi2?cgi=$graphwnd_en
Here is the BOJ page on monetary statistics:
ParticipantPeople’s time preferences determine both the pure rate of interest and the amount of present money exchanged for future money. The same pure rate of interest is earned on every exchange of present money for future money, whether loans in the credit market or investments in production. If time preferences become higher, then interest rates will be higher and the amount of present money exchanged for future money will be smaller. In your example, since investors can earn 10 percent instead of 2 percent by lending into credit markets, they will reduce their demands for capital goods which reduces their prices. Capital goods prices will fall until investing in them also earn the 10 percent interest rate.
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