[jmherbener]

I’m no expert on labor laws, so I might be missing something. But, in no particular order, I would say:

The Occupational Safety and Health Act

The Fair Labor Standards Act

Title VII of the Civil Rights Act 1964

[jmherbener]

First, a few clarifications. Genuine insurance is a pooling against the risk of a non-intentional, adverse outcomes. Risk itself means that there is a known frequency distribution of the adverse outcomes. Given these conditions, it’s possible to provide a pool of funding large enough to cover the expense of the entire class of adverse outcome, if each person who chooses activity subject to such risk is willing to pay a fee such that, when added up, the fees constitute a large enough pool of funding.

Take a look at Peter Klein’s book, chapter 6:

https://mises.org/library/capitalist-and-entrepreneur-essays-organizations-and-markets

Genuine insurance is not possible if persons who obtain insurance can intentionally act to trigger a payout. This moral hazard is the main problem with “insurance” schemes backed by government coercion. By stimulating demand for such government-backed “insurance,” the price of the good increases and resources are mis-allocated. So-called “health insurance,” then, is a vast government-forced subsidy program that results in an enormous waste of resources.

Now, there are two aspects to whether or not genuine insurance involves a similar process of increasing demand for and therefore, prices of goods being insured. One is that, even if it did have these effects, they would not involve mis-allocation of resources. The other is that the existence of these effects depend on whether or not the existence of insurance changes people’s behavior towards the insured activity. I don’t think there is a general principle involved here. If the existence of insurance stimulates demand for the activity, then prices for the goods will likely rise and resources will shift toward the activity. But, if it does not stimulate demand for the activity, then prices will not rise and resources will not shift.

As an example of the first case, suppose there is no hurricane insurance is offered to people who live along the Atlantic coast of Florida and, then, a company offers genuine insurance (accurately assessing what will happen and the requisite premiums). It may be that more people build on the Florida coast. Of course, even in this scenario housing prices may not rise, but the resources devoted to building houses on the Florida coast will increase.

As an example of the second case, suppose there is no insurance for accidental breakage of cell phone screens and, then, a company offers genuine insurance. It may be that no additional demand for new screens occurs at all since everyone who breaks a screen has it repaired or buys a new phone.

Take a look at Hans Hoppe on risk and insurance:

https://www.mises.org/library/uncertainty-and-its-exigencies-critical-role-insurance-free-market

[jmherbener]

This statement on Investopedia is a classic case of the loose use of terminology leading to error. By “demand” economists mean the entire demand schedule or curve. By “quantity demanded” economists mean the amount bought at each price in the demand schedule or along the demand curve. And similarly for “supply” and “quantity supplied.” When a supply curve shifts to the right or left, it has no impact on the demand curve (as you point out.) But the larger (smaller) supply does push the market-clearing price down (up) as the supply curve slides down (up) the given demand curve and price does affect the quantity demanded.

The correct statement would be: “A more of good is available, the increase supply pushes the market-clearing price down which increases the quantity demanded of the good.”

An even better statement would be: If sellers want to make more of a good available to buyers, they must offer the good at lower prices to give incentive to buyers to purchase more of the good. The market clears at a lower price and larger quantity demanded.

[jmherbener]

The claim is that Fed policy of providing bank reserves through open market operations and other asset purchases, must decrease the fed funds rate since that is the rate for trading bank reserves. How the ensuing credit expansion affects other interest rates depends on bank lending, not on Fed policy. And the interest return on longer projects in production also depend on entrepreneurial decisions to invest.

Without monetary inflation and credit expansion, banks are constrained to intermediate credit across the yield curve according to underlying factors, e.g., the intensity of savers’ time preferences for shorter v. longer lending, differences in uncertainty, etc. The resulting yield curve, then, would reflect these underlying factors.

1. With monetary inflation providing more bank reserves, banks have no constraint from savers’ time preference in creating credit across the time structure. They are not intermediating savers’ lending, but creating loans. With Fed bailout guarantees, banks tend to leverage credit creation flattening the yield curve.

When longer-term credit interest rates decline, then arbitrage opportunities exist for shifting capital funding into longer production processes until the rate of return on those projects conforms to the lower long-term interest rates.

Since the Fed cannot control but only influence these broader interest rates and rates of return, it tends to excesses in monetary policy as its initial monetary stimulus may have little effect. In this way, the Fed is the source of volatility of the yield curve slope.

2. The reason changes in underlying time preferences do not cause booms and busts is because the ensuing building up and tearing down of the capital structure is sustainable. The built-up capital structure caused by lower time preference is sustained by the greater saving-investing. The torn-down capital structure caused by higher time preference is sustained by the smaller saving-investing.

The boom is set in motion by credit expansion without any additional saving-investing from people and therefore, results in a built-up capital structure that cannot be sustained and must be torn down to match people’s underlying time preference.

[jmherbener]

An inverted yield curve, i.e., when short rates are above long rates, is associated with downturns.

Here is a short piece by Bob Murphy showing that inversions occur because short rates spike upward relative to long rates.

https://consultingbyrpm.com/blog/2016/01/inverted-yield-curve-and-recessions.html

Here is a paper by Murphy explaining the yield curve, see section IV.

http://consultingbyrpm.com/uploads/Multiple%20Interest%20Rates%20and%20ABCT.pdf

Because of arbitrage across the yield curve, normal movements in long rates tend to be matched by movements in short rates. Since the Fed manipulates the short end of the yield curve, the abnormal steepening and flattening typically occur from short rate movements not long. Take a look at figure 2 on p. 33 of Murphy’s paper.

[jmherbener]

In today’s fractional-reserve banking systems, the government (through its central bank) prints money. Dollar bills are printed by the Federal Reserve System, Euro bills are printed by the European Central Bank, Yen bills by the Bank of Japan, and so on. Printed money is sometimes called currency or cash.

Commercial banks do not print or create money. Commercial banks create checking account balances for customers. The reason checking account balances are accepted everywhere as a medium of exchange is that banks always stand ready to redeem the account balances of their customers for cash money on demand at par value. So checking account balances are money substitutes, but not money itself.

Commercial banks are required by the government’s central bank to keep a fraction of the total checking account balances they issue to their customer as reserve, which can be cash, on hand. If the reserve ratio is 10%, then a commercial bank can have 10 times the amount of checking account balances as reserves.

If a commercial bank acquires $1,000 in cash as reserve, then it can issue $10,000 in new checking account balances to its customers. The simplest way for a bank to do so is to extend new loans to its customers and put the loan amounts in their checking accounts. So, banks create new money substitutes (by creating credit or loans) but not new money.

Take a look at Murray Rothbard’s treatment of the money inflation process in his book, The Mystery of Banking.

https://mises.org/library/mystery-banking

[jmherbener]

First, my apologies for the delay in responding. I just returned from vacation without technology.

Austrian Business Cycle Theory (ABCT) is built-up from, and hence integrated into, general price theory whereas neoclassical business cycle theories (NBCT) are not. Technically, I don’t think NBCT contradict general price theory. As the neoclassical economists see it, the two theories are trying to answer different questions. General economic theory explains the array of prices and allocation of goods whereas BCT explains booms and busts in the overall economy. Neoclassical economists typically assume that aggregate demand is a primary causal factor in generating booms and busts. Aggregate demand plays no role in general economic theory.

In the quote, Rothbard is highlighting the underlying difference between the Austrian approach and that of the neoclassical school. For neoclassical economists, economic theory requires formulating a model for each and every phenomenon they wish to analyze. Each model estimates the quantitative magnitude of effect produced by its cause and is tested by empirical evidence of the phenomenon at hand. They see no reason to investigate how the various models relate to each other. For Austrian economists, economic theory requires discovering the conceptual structure of human action. Because this is done by logical deduction from basic facts about human action, the entire edifice must hang together.

[jmherbener]

First, my apologies for the long delay in addressing your question. I just returned from a vacation without technology.

In economic theories, economists try to discover cause and effect relationships within human action. Doing so requires stipulating a given state of mind of the person acting. The demand curve, for example, stipulates a given preference rank for the good relative to money in the mind of the buyer. Then the law of demand follows logically: only at some lower (higher) price would a person buy more (less) of a good than he actual buys at the market price, ceteris paribus.

Economists are not so bold as to claim to be able to model the human mind, i.e., to have a theory of the cause and effect structure of the human mind itself. For example, how fear rises in a person’s mind. This is a question left to psychology.

An economist who is trying to give an economic-historical (instead of an economic-theoretical) explanation of an event must rely on psychology to add to what can be know from economic theory.

The classic work in this area is Ludwig von Mises’s book, Theory and History:

https://mises.org/library/theory-and-history-interpretation-social-and-economic-evolution

[jmherbener]

Rothbard is dealing with the logical implications of time preference in this paragraph, i.e., the preference to have a given satisfaction sooner instead of later. Each consumer good has a period of production, i.e., the length of time necessary to produce the consumer good, and a duration of serviceability, i.e., the length of time the consumer good can be used before it is rendered useless.

The first case Rothbard looks at is between two consumer goods that have the same period of production and render the same satisfaction for each use, but one outlasts the other.

Symbolically, for two goods the period of production is days 1-5, the satisfaction per day of use is X.

Good 1: Day 1, day 2, 3, 4, 5; X, X, X, X, X, X.
Good 2: Day 1, day 2, 3, 4, 5; X, X, X, X, X, X, X, X, X.

Good 2 would be chosen over good 1. In other words, a person would choose the more durable good.

In the second case, the two consumer goods again have the same period of production, but now the same satisfaction for all uses (instead of the same satisfaction from each use).

Symbolically, production takes from day 1-5 for either good, the total satisfaction from using each good for its entire usable life is X:

Good 1: Day 1, 2, 3, 4, 5; X (evenly acquired each day over 5 days).
Good 2: Day 1, 2, 3, 4, 5; X (evenly acquired each day over 3 days).

Good 2 would be chosen over good 1. In other words, a person would chose the good that rendered the same satisfaction sooner rather than later.

[jmherbener]

Economic theory concerns the logic structure of human action. It seeks to find the universal, causal laws of human action. The law of demand, for example, states that at a lower price for a good, the quantity demanded would have been at least as large as it actually was at the actual price at which the good was traded.

Economic history adds to economic-theoretical knowledge, knowledge of contingent features of human action. Economic-theoretical knowledge is necessarily true while contingent knowledge is true in some cases but not in others. Fear is the latter. Sometimes human action is driven by fear, sometimes it is not. Some people are paralyzed by uncertainty, others thrive on it. Blending theoretical and contingent knowledge together into a full explanation of human action is economic history.

An excellent example of economic history is Bob Higg’s insight about regime uncertainty in explaining the length of the Great Depression.

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

[jmherbener]

Wages, like all other prices, are determined by supply of and demand for labor services. Demand for labor services by entrepreneurs depends upon the productivity of workers, which in turn depends upon the capital goods workers have. It is correct (as you say) that a larger supply of labor will result in lower wages; but it is correct only with a given (or at least a not larger) demand for labor.

As you can see in the following graph, employment has been steadily rising from 1960 to 2000.

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

In the same time period, the percent of women in total employment only rose until 1990, since then it has been level.

https://fred.stlouisfed.org/series/CES0000000039

As the labor force participation rate of women rose, that of men fell.

https://fred.stlouisfed.org/series/CES0000000039

https://fred.stlouisfed.org/series/LNU01300001

The stagnation of wages since the 1970s has been on the demand, not the supply, side of the market. There has been much slower capital accumulation than previously and the less rapid capital accumulation has been the result of the final breakdown of a gold-based, international monetary system that occurred in 1971.

https://mises.org/system/tdf/What%20Has%20Government%20Done%20to%20Our%20Money_3.pdf?file=1&type=document

[jmherbener]

Cost is always related to action. So one must first identify the action a person is taking before assessing its cost.

If the action is continuing to own land that a person already has, then the cost is the current market price because selling the land is the alternative foregone if one holds onto it.

If the action is buying land by an investor with the intention of selling it later for a monetary gain, then the cost is the market price at the time of purchase.

If the action is using land an entrepreneur owns as an asset in production, then the cost is the amortized portion of the current market price of the land. The market price he paid for the land when he acquired it in the past is not relevant for his decision to use the land in production now.

An entrepreneur running a business enterprise continues to own assets and then buys inputs and uses both assets and inputs in production. So today when an entrepreneur decides to use his owned assets and acquire inputs to produce output and sell it in the future with the intention of earning profit, the appropriate costs are the current market prices of inputs and the amortized portion of the current market prices of assets. A year later, When the entrepreneur makes the next production run, the appropriate costs are the current market prices of inputs and the amortized portion of the current market prices of assets. Last year’s market price of assets is no longer relevant for this year’s production decision.

[jmherbener]

Cost refers to opportunity cost, i.e., the value of the alternative foregone when taking an action. In production, an entrepreneur uses assets he owns and buys inputs from others. Both owned assets and bought inputs impose costs on the entrepreneur. This is true for any entrepreneur, not just one who owns the entire supply of a resource. Any entrepreneur who has a rising demand for his product will have a rising cost structure for his owned assets. That is how he gains a monetary reward for superior entrepreneurship. The prices of assets he owns rises.

Any competitor who purchased a mine from Alcoa would have to pay the higher price (i.e., the price that incorporates the monopoly price of output) and therefore, would not be able to stay in business by undercutting Alcoa’s price. Because Alcoa can obtain the higher price by selling the mine, the cost of retaining ownership of the mine is also higher.

Consider another example: Government price supports for corn push up prices for corn. An investor who wants to get into farming would find that the price of corn-growing land has risen to the point at which no extra profit can be earned. The competitive bidding of outside investors to obtain higher profits generates this result. (Technically, it generates a tendency toward this result. Actually, all investment is uncertain and therefore, investors with superior foresight can buy assets before their prices fully rise and so earn extra profit.) Farmers who owned land before the price supports were raised do not earn extra profit (at least not after the adjustment of the market). Instead, they earn a capital gain in the market price of their assets.

[jmherbener]

Many thanks for your kind comments. In fact, I agree with your sentiments.

Here is a piece I wrote surveying the rise of the market economy in Christendom:

https://mises.org/library/small-states-global-economy-empire-necessary

[jmherbener]

I don’t know the particulars, but it must be possible to hold a bank account in foreign currency. You could trade in the currency of a foreign stock market and convert your holdings to Swiss Francs.

Here is how the Swiss Franc has done against the dollar:

Swiss Franc History: The Gold Standard and Bretton Woods

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