[jmherbener]

One thing we can say a priori about income distribution is that market economies generate a prosperous middle class and non-market economies do not. In non-market economies there are only rich and poor, but the bulk of income in market economies is earned by the middle class.

[jmherbener]

Speculation would dampen any actual price increases in emergencies. Anticipating higher prices, entrepreneurs would be prepared to shift supply from other markets into the disaster area. Their increased supply of goods would moderate the price increases necessary to clear markets under the new conditions.

[jmherbener]

Here is Murray Rothbard on Milton Friedman:

http://www.lewrockwell.com/rothbard/rothbard43.html

As you can see, differences on money is just part of the distinction between the two schools.

[jmherbener]

The money stock would not be constant in a market economy with commodity money. Money production would be regulated by profit. If the purchasing power of money was anticipated to rise, then entrepreneurs could profit by producing more commodity money. This process would moderate any price deflation.

People are also free to select which commodity they want to use as money. If they thought gold would be less suitable because it would result in modest price deflation and thereby raise the problem of appreciating real value of debt, they could chose silver instead. In fact, silver (which is not as restrictive in production) not gold is the most widely used commodity money in history. People could even contract their debts in silver and use gold for other purchases. Using more than one commodity as money is called a parallel standard, which has historical precedent as well.

[jmherbener]

Saving is postponing consumption. Investing is making capital goods. Obviously S=I in all cases.

In self-sufficiency, Robinson Crusoe, to devote resources to making capital goods by which he makes consume goods more indirectly, he must divert them from making consumer goods more directly. He gives up picking coconuts to make a net and then use the net to catch fish. His saving is the reduction in his coconut consumption that is done to release his labor into making the net, which is his investment.

In the division of labor, one person postpones his consumption by lending present money (called financial investing or making an investment expenditure) to an entrepreneur who uses the funds to bid for the production of capital goods, which is making an investment. (If one person saves and makes a financial investment to someone else who uses the funds to bid for the production of a consumer good, then no social saving-investing has taken place.)

Saving and investing are two steps to a single process called capital formation. You are correct, consumption competes with S-I. A person’s time preference determines the split between S-I and consumption.

[jmherbener]

Here is Bob Murphy’s reply to Glasner:

http://consultingbyrpm.com/blog/2012/10/david-glasner-needs-to-re-read-mises.html

On the second point, you’re correct. Glasner doesn’t account for the fact that prices of capital goods move disproportionately, depending on their degree of specificity, in response to a change in output prices. Those that fall the most, will not be profitable to produce once the downturn starts.

He doesn’t seem to acknowledge that unsustainability refers to inter-temporal malinvestments. The capital structure has been built up during the boom in a manner that does not satisfy people’s time preferences. (Any production process that doesn’t satisfy people’s preferences is unsustainable.) Once this fact is manifest in the financial crisis, there are profits to be earned by reconfiguring the capital structure in the way that best does satisfy people’s preferences.

[jmherbener]

Sorry for my imprecision. Yes, the PPM would be rising not falling and yes, nominal wages, not real.

No, real wages would tend to rise as nominal wages fell more slowly than prices of output. Capital goods prices would be falling more than the prices of output. like the computer industry. The price of a massage is not the same as the wage of the masseur. The price of the massage must cover the prices of all the inputs used to produce it. The prices of more specific factors of production will adjust more to changes in the price of output than the prices of less specific factors.

[jmherbener]

Right, we can’t ignore compensation, but there is no “scientific” way of handling it. We must use our judgment. We are in the realm of economic history, not theory.

I don’t think there is a single index to indicate living standards. We have to look at all the relevant data and make a judgment call.

The Sowell quote said that HH income rose slowly because the average number of people in a HH declined. My point is that it’s precisely because of such problems with HH income that economists don’t use it. They use measures standardized for population, like per capita real income and real wages. Some of those statistics indicate stagnation others do not.

[jmherbener]

In the unhampered market, the production of money and money substitutes would be regulated by profit. If the PPM was anticipated by entrepreneurs to rise during economic progress, then they would produce more money to earn the profit. The increased production of money would moderate the rise in the PPM.

The classical gold standard of the nineteenth century permitted the issue of fiduciary media. Also, there were issues of silver money as well until the Gold Standard Act of 1900. Of course, price inflation and booms and busts occurred as a result.

Once the prices of the houses, for which mortgages are claims, collapses, then banks must judge whether it is wise to quickly renegotiate the terms of the mortgage to make it feasible to get the most payments possible. Whether they renegotiate or not depends in part on their anticipation of the restoration of housing prices. If they think the prices will rise again soon, they will be reluctant to renegotiate. This is another source of inefficiency introduced by government attempts to prop these prices up again through monetary inflation. Another factor is the likelihood of the homeowner to pay back the mortgage on the old or new terms.

[jmherbener]

To succeed entrepreneurs must act as agents for consumers at large arranging production in the manner people prefer. If experts can convince people of the perils of global warming, then entrepreneurs can profit by arranging their production in ways that minimize its effect on global warming. There are countless examples of businesses adopting socially acceptable practices because consumers make them profitable.

The burden of convincing others of the perils of global warming would be on the experts. Like everyone else who is trying to convince other people of the truth of their claims, in a free society the experts would have to rely on the power of their ideas and their rhetorical skills, In the free society, no one would have the power to coerce others into accepting his views on anything.

As to global warming, the evidence doesn’t look all that convincing:

http://blog.independent.org/2012/10/27/its-official-no-global-warming-since-1997/

[jmherbener]

Here’s a conventional piece on the Phillip’s Curve:

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

The Phillip’s Curve doesn’t get anything exactly right. Monetary inflation can generate lots of different combinations of price inflation and unemployment depending on the contingencies of the situation in which it occurs. Sometimes, like the boom of the 1960s, it generates both more price inflation and less unemployment. Other times, like the 1970s, it generates more price inflation and more unemployment. Clearly, there is nothing like a constant relationship between price inflation and unemployment. Even Fed economists are skeptical.

http://www.federalreserve.gov/pubs/feds/2001/200130/200130pap.pdf

[jmherbener]

First, the claim about wealth transfers isn’t true unless capitalists and entrepreneurs fail to anticipate the changes in money’s PP, If they correctly anticipate higher prices in the future, they bid more heavily for factors of production today and factor prices rise today keeping rates of return the same, i.e., interest rates are unaffected. If they correctly anticipate lower prices in the future, they bid less heavily for factors of production today and factor prices fall today keeping rates of return the same, i.e., interest rates are unaffected.

Second, price deflation in today’s world would cause widespread default on debt obligations. However, this has little effect on production. After the defaults, capitalists would still find it better to fund superior entrepreneurs and not inferior ones. If superior entrepreneurs are currently in charge, then they would likely remain. For example, if Apple defaulted on its debt because of its increasing burden during price deflation and capitalists thought Tim Cook was still the best person to run Apple, why wouldn’t they just renegotiate a partial default and continue with production they anticipate will be profitable in the future? Why wouldn’t banks simply renegotiate mortgages to relieve part of the debt homeowners who are likely to continue paying back on new terms? The point is that asset values need a one time reduction to come in line with the new anticipated deflationary future. The best way to deal with this is to take the loss and move on.

[jmherbener]

The argument about government goods and services is that we can’t know their monetary value to consumers because they are not voluntarily purchased on the market. Of course, our use of them indicates that we value them, but it doesn’t indicate how much we value them. Therefore, it is a fallacy to add government expenditures used to provide their goods with consumer purchases of privately produced goods as if government expenditures had the same meaning as consumer purchases.

I’m not disagreeing with what you’re asserting Mises claimed. No index could ever be formed in comparing one set of goods to another because there is no common unit in which the goods can be added up that doesn’t itself change over time. Assessing whether or not standards of living have risen is economic history not economic theory. By nature, it’s not scientific. But who would deny that if you look at the set of consumer goods a typical family had in 1912 in America and compared it to the set of consumer goods a typical family has in 2012, that standards of living have risen in the past hundred years.

Your quote by Sowell illustrates why economists look at real wages and per capita income. If you look at real wages there is evidence of stagnation. The question is what are the causes? My contention would be that the 1970s and the 2000s were periods of dramatic booms and busts while the 1980s and 1990s were more normal periods of economic progress. The reason for this pattern has to do with the USA going off the international gold standard in 1971, re-establishing a dollar-reserve standard in the early 1980s, and having the dynamics of that international arrangement play themselves out in the 2000s in a way similar to the collapse of Bretton-Woods in the 1960s.

[jmherbener]

Real wages have been declining, or at least stagnant, since the 1970s. But overall compensation has been rising.

http://www.econbrowser.com/archives/2005/12/declining_real.html

As the linked blog discusses, it’s controversial to claim that government mandated benefits constitute part of standard of living in the same way that voluntarily chosen goods and services do.

Standards of living consist in the set of consumer goods and services that people have to use. So the direct measure of standards of living is to investigate what set of goods and services households have and see how it changes over time.

While doing so is difficult and reasonable people can disagree in their judgments, it’s much clearer that capital accumulation in America has slowed since the 1970s.

[jmherbener]

A rising purchasing power of money and falling prices for things traded against money are just two ways of saying the same thing. If money’s purchasing power is falling because of increased production of goods, then the prices of those goods will be falling relative to the prices of other things traded against money. So even if wages for labor services decline during economic progress, prices of goods decline to a greater extent and real wages, i.e., standard of living, rise.

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