[jmherbener]

What stopped the bank runs and failures was deposit insurance, not FDR’s bank holiday.

The Federal bank holiday lasted from March 6-13, 1933. On March 9, congress passed the Emergency Banking Act which, along with the Federal Reserve’s promise to provide liquidity to the banks, provided federal deposit insurance.

https://www.newyorkfed.org/medialibrary/media/research/epr/09v15n1/0907silb.pdf

Deposit insurance was formalized with the passage of the Banking Act in June 1933, which established the FDIC.

[jmherbener]

Subjective value just means that the goods being valued are arrayed by a person in rank order. The highest-valued good ranked 1st, the second-highest valued good ranked 2nd, and so on.

Let’s say Crusoe has 1 quart of berries and Friday 2 coconuts and that Crusoe ranks Friday’s 2 coconuts above his own 1 quart of berries and that Friday ranks Crusoe’s 1 quart of berries above his own 2 coconuts. Because their ordinal rankings are in reserve order, they can mutually benefit from trade and they will trade at the objective exchange ratio of 2c/1b.

For an extended discussion, see Murray Rothbard’s book, Man, Economy, and State in Chapter 2.

https://mises.org/library/man-economy-and-state-power-and-market

[jmherbener]

1. I’m not sure about the overall losses, but the volatility of cycles has not been lower under the Fed than before the Fed:

https://www.cato.org/policy-report/novemberdecember-2012/has-fed-been-failure

2. This seems unlikely because for bank runs to occur the banks must have extended fiduciary media. But extending fiduciary media through credit expansion is what causes the boom-bust cycle.

If banks were 100% reserve, then customers cashing out their checking deposits would affect neither the supply or money nor the supply of credit. It would be trading one form of the medium of exchange (checking deposits) dollar-for-dollar with another form (cash). Banks would only be intermediating credit, borrowing from savers in savings accounts and lending those funds to investors.

3. The Amsterdam banks of the 1600s were 100% reserve for over century. The problem with isolating the consequent Dutch production processes from credit expansion is the existence of world credit market which have fiduciary media.

https://wiki.mises.org/wiki/Full_reserve_banking

4. Like no. 2 above, this seems unlikely. There can be no credit expansion without fiduciary issue. Even if money proper increases (say the 1849 gold rush in California), without fiduciary issue there is no credit expansion and therefore, no inter-temporal malinvestments.

[jmherbener]

First, the Fed only influences interest rates. It only determines the discount rate. And it’s influence is strongest on the federal funds rate. When the Fed buys securities from banks it pays by crediting the banks’ checking accounts which they have at the Fed. Since the balances in these accounts are bank reserves, the Fed increases bank reserves with expansionary monetary policy. The federal funds rate is the interest rate for banks when they borrow reserves over-night from other banks. The effect expansionary monetary policy has on other interest rates depends on what banks do with the greater reserves.

Here is the spread between 10 year T-bonds and 3 month T-bills:

https://fred.stlouisfed.org/series/T10Y3M

There are tendencies, but not a uniform effect on interest rates across the yield curve from a given expansionary policy of the Fed.

Second, entrepreneurs adapt as best they can to government intervention. They economize as fully as possible given the interference of Fed policy. Of course, entrepreneurs would economize more fully if there was no Fed, but they do the best they can in the face of the additional difficulties the Fed generates.

The Taylor rule proposes a feedback mechanism which requires assessing the rate of price inflation against an ideal rate and the rate of growth against an ideal rate in order to set the target fed funds rate.

[jmherbener]

Yes, I think it is fair to say that interest rates have not been left to the market since before the dot-com boom.

Here is the commercial paper rate:

https://fred.stlouisfed.org/series/CPN3M

Here is the corporate bond rate:

https://fred.stlouisfed.org/series/AAA

Fed monetary inflation and credit expansion makes interest rates lower than they otherwise would be. So even if interest rates are moving up, asset price inflation may be taking place. This is likely in our current situation where the Fed has suppressed interest rates for so long below the market rates.

Also, interest rates are rising mainly on the short end of the yield curve as the Fed reduces expansionary policy.

Here is the interest rate spread between long and short:

https://fred.stlouisfed.org/series/T10Y3M

I haven’t made a careful study of the impact of Trump’s policies. It’s likely that they are having their effects, but that these effects are intertwined in complex ways that are difficult to disentangle. For example, the impact of tax cuts and tariff increases on farm incomes and production.

On tariffs:

The Impact of Trade and Tariffs on the United States

Update: The Impact of Enacting President Trump’s Tariffs

On taxes:

Details and Analysis of Donald Trump’s Tax Plan, September 2016

[jmherbener]

Metrics for investment can be found here:

https://fred.stlouisfed.org/categories/112

The BLS link does not work for me. So here’s the unemployment data from another source:

https://fred.stlouisfed.org/series/UNRATE

The unemployment rate has fallen steadily from its peak in Oct. 2009 of 10% to current rate of 3.9%. The reason for this is that the Fed under Obama kept monetary inflation going straight through the bust and so the economy went into another boom without experiencing a significant period of normalcy (i.e., a genuine recovery). You can see that this has been the general pattern of Fed behavior since the collapse of Bretton-Woods in 1971. Before then, there were plateaus for the unemployment rates at normal levels after recessions. For example, after 1955 unemployment stays steady for several years at 4% and again in the late 1960s. But since 1971, there are no significant period of steady, normal unemployment rates. (The plateaus in the 1970s and 1980s are short and at historically high rates around 7%.) And since the mid-1980s, unemployment is either steadily rising or steadily sinking. The Fed is the cause of this pattern.

[jmherbener]

Loan interest is just one category of the general phenomenon of present money trading at a premium for future money. The other category is the production structure of the economy. Entrepreneurs pay to buy factors of production in the present to earn a rate of return by selling their output at higher prices in the future. So, if this assertion about expanding money were true it would apply to all production in addition to contract loans.

There are two basic problems with this assertion. First, it fails to account for the demand for money or, as the neoclassical economists say, the velocity of money. The total expenditures in an economy over some time period depend both on the stock of money and how many times each unit of money is spent over the same time period, i.e., the demand for money. With a given money stock, total expenditures can be larger if the velocity of money increases, i.e., the demand for money declines.

Second, the interest rate, i.e., the price spread between input prices and output prices is independent of the stock of money. If the money stock in an economy were twice as large, then both buying prices of inputs and selling prices of outputs would be twice as high leaving the price spread the same. If the money stock were half as large, then both buying prices of inputs and selling prices of outputs would be half as high leaving the price spread the same. Put another way, prices adapt to any stock of money. So, even if the money stock shrinks, prices can fall sufficiently to allow every exchange to take place that took place before the money stock fell, including loans.

Take a look at Tom Woods on the issue:

Why the Greenbackers Are Wrong (AERC 2013)

Here’s Tom and Bob Murphy:

Ep. 1166 Everyone Is Wrong About Money Except the Austrian School

And Gary North:

https://www.garynorth.com/public/department141.cfm

[jmherbener]

Here is a short OECD piece on Sweden with links to the data it used:

https://www.oecd.org/sweden/OECD-Income-Inequality-Sweden.pdf

[jmherbener]

Recovery from a bust does not occur until entrepreneurs return to normal investment activity. Longer, drawn-out recessions or depressions (like the Great Recession or Great Depression) are characterized by a dearth of investment and the build-up of cash holdings.

The Obama administration, like that of FDR, adopted policies that aggravated the problem. Take a look at the work of Robert Higgs:

http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

https://fee.org/articles/regime-uncertainty-then-and-now/

The unprecedented policies of fiscal and (esp.) monetary expansion under Obama generated uncertainty that suppressed investment and retarded recovery. The official dating of the recovery to 2009 proved to be abortive (just as the “recovery” from 1934-1937) as GDP growth rates failed to cracked the 2% level for nearly a decade. In the so-called, slow-growth recovery the economy has been held back by a lack of investment.

[jmherbener]

A liquidity trap is the Keynesian notion that when interest rates are very low monetary policy is ineffective. With interest rates so low, Keynes argued, investors all expect interest rates to rise, and therefore when the Fed inflates the money stock investors will not invest but instead hold cash. In other words, Keynes thought the demand for money would be indefinitely large.

The reduced demand that the Federal government would have for debt it it balanced its budget is far to small to push interest rates so low that a liquidity trap would ensue. The Federal deficit is around $1 trillion but global credit markets are well over $150 trillion in 2011.

Moreover, as interest rates fell private borrowing and investment would increase. The world in not in a liquidity trap now and so credit markets would work normally. Keynes invented the notion of a liquidity trap to explain why expansionary monetary policy could not stimulate an economy that was in depression. Keynes did not think it was a normal condition of credit markets.

The $20 trillion Federal debt did not prevent economic instability in 2008. It seem apparent, then, that preventing the Federal debt from increasing from $20 trillion to $21 trillion will have no ill effect on economic stability.

Take a look at the article by Bob Murphy on MMT:

https://mises.org/library/upside-down-world-mmt

[jmherbener]

First, I agree with the basic point of the story posted on ZeroHedge. Freeing the Fed from the final gold fetter on its monetary inflation with Nixon’s repudiation of Bretton-Woods was a watershed event. The American economy has been worse since 1971.

Second, in order to see whether or not a particular worker’s wage correlated with his DMRP you would have to look at data specific to that person and the production process he works within. The data in the graph are highly aggregated and deeply controversial. Productivity data are especially problematic.

https://www.bls.gov/lpc/

Most of the respectable data sets at least limit aggregation as much as possible.

https://fred.stlouisfed.org/categories/2

Wages are not a reliable guide to whether or not a person’s standard of living is rising, falling, or stagnant. At a minimum, one must know what’s happening to the prices of goods also.

The most reliable way to tell whether or not a person’s standard of living has risen is to look at how the set of consumer goods the person has changes over time. If he accumulates more and better consumer goods in the set that he owns, then his standard of living is rising. By this measure, I think it’s safe to say that standards of living have risen significantly over the last 50 years.

Rising standards of living result from rising productivity which is caused by a combination of 1) acquiring more and better producer goods: labor, land, and capital goods; 2) improving technology; 3) lowering time preferences to have more saving-investing [including in 1 and 2] which results in building up the capital structure of production; 4) enacting pro-market reforms; 5) fostering a culture of entrepreneurial initiative.

Which of these causes are most important may vary across person, place, and time. But, in general, capital accumulation seems to be the most important.

https://www.mises.ca/the-importance-of-capital-accumulation-for-economic-growth

[jmherbener]

I suggest you read Mises’s article from 1920 and see for yourself if McMullen characterizes Mises’s argument correctly.

Then, for a more scholarly treatment of the back-and-forth of the economic calculation debate in the 1930s, I suggest you read Joe Salerno’s epilogue to Mises’s article.

https://www.mises.org/library/economic-calculation-socialist-commonwealth

Here is the article by Robert Heilbroner, who was sympathetic to socialism, in which he conceded that Mises was right:

https://www.newyorker.com/magazine/1989/01/23/the-triumph-of-capitalism

[jmherbener]

Income inequality as an argument against the market economy is typically based on some assumption of the morality of egalitarian outcomes and not the zero-sum fallacy.

Some Marxists, for example, claim that capitalists are able to pay workers subsistence wages and extract their “surplus labor” for themselves. They don’t deny, necessarily, that workers do not gain subjectively from labor contracts they enter into. But, capitalists prevent them from sharing in the productivity gains that their labor creates in a growing economy.

Take a look at Murray Rothbard’s book:

https://www.mises.org/library/egalitarianism-revolt-against-nature-and-other-essays

[jmherbener]

You might take a look at this excerpt from Murray Rothbard’s history of economic thought:

https://mises.org/library/skeptic-absolutist-michel-de-montaigne

As Rothbard points out, the view that trade is a zero-sum game is entirely false. While it’s true that trade is merely the exchanges of existing goods and therefore, appears to be a zero-sum game, instead what actually occurs is that both parties gain what they subjectively value more highly than what they give up. The zero-sum fallacy wasn’t conceived to apply to the case of economic growth. It seems hard to deny that if two parties engage in a division of labor which increases efficiency so that more goods are produced (i.e., they enjoy economic growth), that both of them benefit or at least can benefit by sharing in the larger stock of goods. Growth, by definition, increases the pie.

[jmherbener]

Economic theory deals with universal principles. Regarding the competition among entrepreneurs, economic theory says that an entrepreneur anticipates a profit when making an investment in resources used to produce the output and sell it to customers. If entrepreneurs in a particular line are earning profit, then other entrepreneurs will invest in the profit earning line and push down selling prices of outputs and push up buying prices of inputs. This competitive pressure continues until no profit is anticipated in further expansion of output. At that point, entrepreneurs will earn merely an interest return on their investments.

Entrepreneurs can also compete by attempting to lower their cost structures (say, by innovation or more efficient combinations of inputs) or raise their revenue structures (say, by marketing or differentiating their products). Entrepreneurs with a lower cost structure can successfully undercut entrepreneurs with higher cost structures.

Finally, since entrepreneurs invest in resources only with an anticipation of earning profit by selling their output in the future, they may be surprised by the unanticipated competitive pressure placed on them when they try to sell.

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