[jmherbener]

The capital value of an asset is the present value of future revenues it generates. The present value is found by discounting the future revenue by the rate of interest. So a higher interest rate reduces the present value of an asset.

The lower interest rate during the boom makes lengthening out the production structure more profitable. Once it has been lengthened out, then higher interest rates make shortening the production structure profitable. For example, during the boom, the increased demand for iron makes expanding the capital capacity in mining equipment more profitable. Iron producers increase their capital capacity. When the bust comes, the demand for iron dries up and the capital value of the capital capacity declines. Part of the investment of the boom proves to be mal-investment.

[jmherbener]

Here is the Bureau of Labor Statistics data on textile workers:

http://www.bls.gov/iag/tgs/iag313.htm

If you go back to 1990, the level of employment in textiles was around 500,000. It started to decline in 1995. It has fallen steadily since then until 2009 when it leveled off.

http://data.bls.gov/pdq/SurveyOutputServlet

One aspect of the explanation for this is that as the Chinese were allowed to enter into the international division of labor through market oriented reforms there was a huge cost differences between production of textiles there and here (with our protected companies and unionized labor force). By purchasing textiles in China and selling them in America, Wal-Mart and other retailers set in motion a process of reallocating resources and capital investment to take advantage of the greater efficiency of production in China. It appears that the adjustment was complete by 2009. Since then, as you suggest, the cost structures seem to be the same as no more downsizing of our textile production has occurred.

Of course, a complete explanation would have to look at the details of the history of the industry over the last twenty years.

[jmherbener]

The purchasing power of money depends on the stock of money and money demand. The stock of money consists of money plus money substitutes. In our economy, money is Federal Reserve Notes printed by the Federal Reserve and a major money substitute is bank issued checkable deposits. Banks issue checkable deposits relative to reserves of FRN or deposits they hold at the FR.

In the last few years, the Federal Reserve has increased bank reserves tremendously by purchasing assets from banks. This has not led to tremendous price inflation because banks have chosen to hold the reserves as assets and not issue fiduciary media against them. They are doing this to improve their liquidity and solvency. Also, the demand for credit during downturns typically dries up pushing interest rates down. The banks calculate that the miniscule interest rates are not worth the risk of putting new loans on their balance sheets at this time.

Even so, the stock of money has been increasing modestly. The reason why this has not caused more price inflation is that demand for money has been rising. People typically hold more money during downturns to improve their liquidity and solvency. Investors are also holding cash waiting for the the uncertainty of current conditions to abate.

As soon as conditions move toward normalcy, then price inflation will begin pick up.

[jmherbener]

Monetary inflation cannot raise the standards of living of people in society because it doesn’t increase resources. It does, however, redistribute income and thereby, change the pattern of the use of existing resources.

People who receive the new money sooner gain income and those who receive it later lose income. Moreover, the pattern of redistribution depends on which prices change sooner and which change later and which prices rise more and which prices rise less. Those who sell things whose prices rise sooner and to a greater extent and buy things whose prices rise later and to a lesser extent gain income and those who sell things whose prices rise later and to a lesser extent and buy things whose prices rise sooner and to a greater extent lose income. Finally, those who anticipate the changing array of prices more accurate gain income and those who anticipate it less accurately lose income.

[jmherbener]

The law of one price operates for all goods, including money. Each unit of money will tend to sell at the same price in a given market at a given moment. However, the accuracy of different people’s speculation about the extent of future price inflation can lead to differential speed of movements in different parts of the market. With money, if international currency speculators make more accurate anticipations than the man on the street, when the money stock is increased the currency tends to devalue in foreign exchange markets before its purchasing power goes down domestically. When that happens exporters gain a temporary advantage.

As long as Japanese exporters sell their outputs in countries where the yen is devaluing against foreign currency and buy at least some of their inputs in countries where the yen is not depreciating commensurately, they would gain. I would guess that Japaneses companies buy some of their labor and rent or own some of their land area in Japan.

[jmherbener]

Lower demand for existing Treasuries is somewhat it not completely counter-balanced by increases demand for new Treasuries. It’s not necessary for demand for gold or any other asset to go up under such conditions.

Gold prices and interest rates can rise together. It depends on what causes interest rates to rise. If the cause is price inflation, then the two can rise together. This happened in the late 1970s.

[jmherbener]

Here is the classification system of goods in economics:

Circumstances of Action
1. General Conditions
2. Means (Goods)
**a. Directly Serviceable – Consumer Goods
**b. Indirectly Serviceable
****1. Producer Goods
******a. Original
********1. Land (Natural Resources)
********2. Labor (Human Effort)
******b. Produced – Capital Goods
****2. Media of Exchange

(After posting this I can see that it won’t indent. So I inserted the asterisks.)

All means are scarce. The law of association refers to the fact that surface area of the earth is (at least currently) greater than the human population has brought into use. In other words, there is idle land. If the human population grew past the point that every possible area on the surface of the earth was occupied with human activity, then there would be idle people. (Maybe future technology would allow human activity underground and underwater as well. In which case, human population would have to grow to surpass that limit as well.)

[jmherbener]

American Ph.D. programs in economics are grounded in modelling. Most of your coursework is devoted to mathematics, even in programs that have some Austrian courses. If your willing to accept that as a fact of life, Auburn University is starting up its Ph.D. in economics program after several years without one. Auburn, Alabama has the tremendous advantage of being the home of the Mises Institute. Drs. Mark Thornton, Joe Salerno, and Peter Klein are or soon will be at the MI. It’s likely that they will teach in the Ph.D. program or at least be able to oversee dissertations. Dr. Thornton is currently teaching in the program. I suggest you correspond with him (mthornton@mises.org).

There are two Austrian-friendly European Ph.D. programs. One is at the University of Angers. Dr. Guido Huelsmann teaches and directs dissertations in that program. Less coursework is required than in American Ph.D. programs. Contact Dr. Huelsmann (guido.hulsmann@univ-angers.fr) about it.

The other is at Rey Juan Carlos University. Contact Jesus Huerta de Soto (huertadesoto@dimasoft.es) about his program.

[jmherbener]

Human effort can be divided into two types: labor and leisure. Labor is human effort as a producer good. As you say, labor is valued indirectly from the value of the consumer good it helps produce (which in turn is valued directly for the end it helps attain) and the contribution it makes to the consumer good’s production. Leisure is human effort as a consumer good. Leisure is valued directly for the aid it renders in attaining an end. Both consumer goods and producer goods are means to an end and therefore, valued as such.

[jmherbener]

Here are a few titles:

John Chown, A History of Money (Routledge, 1994)

Arthur Burns, Money and Monetary Policy in Early Times (Augustus M. Kelly, [1927] 1965)

William Gouge, A Short History of Paper Money and Banking in the United States (Augustus M. Kelley, [1833] 1968)

Elgin Groseclose, Money and Man (Frederik Ungar, 1961)

A. Barton Hepburn, History of Coinage and Currency in the United States (Mcmillan, 1903)

Jonathan Williams, et al. Money: A History (Palgrave Mcmillan, 1998)

[jmherbener]

There are two reasons that problematic unemployment cannot occur on the unhampered market economy. The first is the diversity of resources in their productive capacities. Because of these differences in productivity, each person is the efficient producer (i.e., the low cost producer) of something compared to other persons. So each person can out compete other persons in his area of comparative advantage.

The second reason is that human person are scarce relative to the surface area of the earth. In other words, there are sub-marginally productive (and therefore, idle) land sites, but not sub-marginally productive persons. Each person who is willing to work in the division of labor can find employment at a wage commensurate with the value of his labor’s productivity. As the human population rises, more entrepreneurs can start up more enterprises to employ more persons as long as we don’t run out of surface area on the earth to put the additional people and their production processes.

These two reasons combined form the argument behind the law of association, i.e., that everyone who has any labor ability at all can participate in the division of labor.

The argument against those who claim that it benefits labor to prevent capital accumulation is that the principle cannot be generalized and hence, it is nothing more than special interest pleading. As soon as one generalizes the principle, i.e., no one should work with any capital goods whatsoever, one can see the fallacy. The argument then is really that all other workers must work with capital so that I and my workers in the weaving industry, say, can maintain our standards of living working without capital. But, standards of living depend on our productivity which depends on our capital stock. So the weavers who retain their jobs with the new capital goods will have a higher standard of living than before. The workers who move into other lines of production with have their wages determined in the same way as everybody does, by the value of their labor’s productivity, which depends heavily on the capital goods they have to work with. Hopefully for them, capitalists and entrepreneurs will continue the process of capital accumulation and thereby, raise their wages and standards of living in the future.

[jmherbener]

How widely traded a good is depends on the number of people who trade it. It’s possible that a large number of people trade in something because each of them puts the good to a different use, but it’s also possible that a large number of people trade a good who put it to the same use.

Of the small number of commodities that are most widely traded, precious metals are preferred because they possess properties that make them more suitable media of exchange: portability, durability, divisibility, and so on. Living things, like cattle, are inferior media of exchange on these grounds.

There’s no circularity, but there is an historical dynamic of money’s development. People trading in a barter world would select a widely traded good to make indirect exchanges. If they select cocoa beans, then they can come to replace cocoa beans as a medium of exchange with gold nuggets (once they perceive the superiority of gold over cocoa beans) by introducing gold as a redemption claim (i.e., a money substitute) for cocoa beans at the market rate of exchange. Then cocoa beans and gold nuggets as media of exchange would compete for users. At the next step, entrepreneurs could introduce gold coins as a form of certification, produce them and see if people preferred them over gold nuggets sufficiently to make their production profitable.

[jmherbener]

A few more articles on the Coase Theorem:

http://mises.org/journals/qjae/pdf/qjae13_4_3.pdf

http://mises.org/journals/qjae/pdf/qjae14_1_4.pdf

There will be relevant articles in the book, Rethinking Green: Alternatives to Environmental Bureaucracy, which is edited by Bob Higgs:

http://mises.org/journals/qjae/pdf/qjae10_1_7.pdf

Also, take a look at the book edited by Walter Block, Economics and the Environment:

http://walterblock.com/wp-content/uploads/publications/EconomicsandtheEnvironment.pdf

[jmherbener]

According to its official release, the Bank of England’s balance sheet has been shrinking since the first of the year:

http://www.bankofengland.co.uk/markets/Pages/balancesheet/default.aspx

[jmherbener]

The hammer is used up in production as are all tools, equipment, and so on. Entrepreneurs depreciate the market value of their plant and equipment to reflect this fact. They do not depreciate the monetary value of their cash holdings.

Perhaps Mises’s discussion of these matters in his book, Theory of Money and Credit, will help clarify things,

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

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