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jmherbener
ParticipantActually, Ricardo assumed the immobility of both capital goods and labor across international boundaries. In his model, only produced goods can move from one country to another, not resources.
Here is Bob Murphy discussing this point which was raised as an objection to Ricardo’s argument for free trade by Paul Craig Roberts:
https://mises.org/library/free-trade-and-factor-mobility
Here is the debate between Vox Day and Bob Murphy:
Neither Bob nor Vox discusses the claim that the argument for free trade is negated by the immobility of capital goods. (I listened only to their opening statements, so maybe later on in the debate Vox does claim this.) The only reference to mobility in his opening statement, Vox claims that the same logic applies to free trade in goods as free immigration of persons. Then, he asserts that we see empirically that free immigration impairs the wealth of the country receiving immigrants. He concludes from these two propositions that free trade of goods can also impair the wealth of countries receiving goods. He is wrong to conclude this. Free trade moves more goods into the country (we obtain goods with less sacrifice of other goods) and leaves the population the same. So, per capita standards of living rise. Free immigration increases population. So, per capita standards of living increase only if that of immigrants is above the per capita standard before immigration. The logic of free trade and free immigration is not the same.
In the article replying to Roberts, Bob gives an example of the mobility of capital goods: an American capitalist ships a tractor to Brazil to take advantage of low wages. The only completely immobile factor, then, is land.
The argument you quote above confuses capital specificity with capital mobility. Capital goods are relatively specific, which means they cannot be shifted from one production process to another production process and maintain their productivity. Capital goods, however, can be moved from one location to another in the same line of production as Bob’s example illustrates. Even factories and other structures on particular land sites can be dismantled and reconstructed elsewhere. Of course, it’s typically less costly to invest capital funding in building a new factory in another location and re-allocating the existing factory to a different use. In such cases and in even more extreme ones in which capital improvements on land cannot be dismantled and moved (like a mine shaft), there is a dynamic mobility of capital structures brought about by the mobility of capital funding.
ParticipantThe chart below shows the price movements more clearly. Extend the time to “1 yr” and you can see the current speculative surge. Extend the time to “all” and you can see previous speculative excesses.
There is Mises’s book, Theory of Money and Credit:
https://mises.org/library/theory-money-and-credit
Also, Fritz Machlup’s book, Stock Market, Credit, and Capital Formation:
https://mises.org/library/stock-market-credit-and-capital-formation
ParticipantPrice deflation would not cause a special problem for gold production. In an economy of capital accumulation, which is what causes rising productivity, the prices of inputs decline. Falling input prices generate more profit from production of output and therefore, entrepreneurs produce more output which pushes down output prices. Prices of inputs in gold production, too, would be falling which would make gold production more profitable and it’s production would be increased. Thus, there is no special problem of production of gold during price deflation.
If gold production is inadequate to prevent price deflation at rates sufficient to impair credit transactions, then (as you say) entrepreneurs would simply switch to silver or some other commodity that is more readily produced.
In a growing economy, people’s wealth is increasing and they desire to hold a larger stock of goods, including money. Even if the demand for money didn’t increase, production of money would be stimulated by falling costs of production as described above. This is a general phenomenon for all goods: their production is stimulated by larger profit which can occur from a rising prices for their outputs or falling prices for their inputs.
ParticipantRothbard repeats this point made by David Hume many times. One place is What Has Government Done to Our Money, pp. 24-26.
For something to become money, it must displace the existing money as the general medium of exchange. People must become convinced that it serves as a general medium of exchange better than any thing else. Of course, government intervention can suppress people’s preferences to choose a market-produced money.
http://wiki.mises.org/wiki/Bitcoin
It seems likely, but it’s not logically necessary, that if Bitcoin became money it’s market price would rise. It may be that it’s current price is driven by what proves to be wild speculation.
https://bitcoincharts.com/charts/bitstampUSD#rg60ztgSzm1g10zm2g25zv
ParticipantLending at a negative interest rate would be like selling a product at a negative price. No one would do so there would be no supply of credit at all and therefore no loans and no rate of interest at all. It could be the case, as you suggest, that the most urgent borrowers might be willing to pay an interest rate that more than compensates for the price deflation, say 10%. In this case, the inefficiency of an excessively deflationary money is partial instead of total. There are many willing lenders and willing borrowers at the pure rate of interest who would supply and demand credit and thereby, satisfy their time preferences. But many lenders will not do so given the extent of price deflation.
What Rothbard means is that people can make all the trades they want to make with any amount of money (above a technical minimum). If they have twice as much money, prices will be twice as high and if they have half as much money prices will be half as high. But, they can make all their trades regardless.
Participant(1) Arbitrage moves the supply of any good into its various uses and among its various users so that its price is uniform (for homogeneous units of supply) across all the uses. If the price were higher in one use as opposed to another, profit would exist for moving it out of the other use and into the profitable one. It’s an empirical question as to whether or not the demand for gold as money would be sufficient to draw gold out of other uses and into a monetary use.
This story has a breakdown of the amount of gold in various uses:
http://www.encyclopedia.com/science-and-technology/chemistry/compounds-and-elements/gold
(2) The existence and timing of asset price bubbles is an historical, not theoretical, question. One cannot “know” when they exist. One can only make a judgment based on one’s entrepreneurial foresight. They can be known to exist ex post. What we can know about asset price bubbles theoretically is that they are caused by monetary inflation and credit expansion. We can use evidence of monetary inflation credit expansion, then, to guide our judgment concerning the existence and extent of asset price bubbles.
https://mises.org/library/can-asset-price-bubbles-be-harmless
(3) One argument is that as the crises arrives, entrepreneurs realize that demands will decline for their products. Their debt servicing, however, continues which squeezes their profit. In response, they shift away from long-term borrowing (so as not to increase their debt service) to short-term loans (so as to make up for lost sales revenue).
ParticipantPerhaps it’s more accurate to say that the will is the faculty by which a person exercises ownership over his mind and body. Ownership is controlling the use of means. Means are items used in action, not action itself. Action is applying means to attain ends.
Take a look at Murray Rothbard’s book, The Ethics of Liberty.
https://mises.org/system/tdf/The%20Ethics%20of%20Liberty_0.pdf?file=1&type=document
In chapter 6, “A Crusoe Social Philosophy,” Rothbard lays out the argument.
ParticipantIn the unhampered market economy, people are free to select whatever particular goods they think will best satisfy their preference and entrepreneurs are free to offer for sale whatever goods they anticipate will do so and thereby, render profit.
There are several desirable properties of money that narrow the range of goods that people would select. Widespread salability is the most fundamental since money, by definition, is the general medium of exchange. And, as you point out, it’s usefulness in performing economic calculation is another. Excessive price inflation or deflation is a detriment for something to be used as money. The volatility of bitcoin’s price, or the price of gold or that of silver, is always in terms of the dollar and so doesn’t imply volatility of overall prices in bitcoin, or gold or silver, if it were money. The fixed upper limit on bitcoin production, however, renders it much less desirable as money (as long as economic growth continues) compared to other goods, like gold or silver. In the 19th century, when the U.S. was under a gold standard prices fell mildly (even though gold production continued). But the decline was not large enough to interfere with credit transactions. With a fixed money stock, as under bitcoin, it might have been. For example, if an interest rate in the absence of price inflation or price deflation was 2% and price deflation under bitcoin was 6%, then there would be no loans. Lenders would hold money instead of lending it at a -4% rate of interest. Entrepreneurs would offer gold money or silver money instead of bitcoin to eliminate the potential problem of negative interest rates.
Here’s a wiki on bitcoin:
ParticipantMoney proper on the unhampered market economy, according to Mises, is a commodity, e.g., gold. The production of all goods in the market economy, including gold coins, is regulated by profit and loss. Each line of production of the various goods expands until no additional profit can be earned by further production. In the market economy, therefore, the only justification for an expansion of production of any good is if demand for it increases. Then, revenues will exceed costs for some expanded production. No entrepreneur expands production of a good if demand has not risen. If he did so, he would suffer losses. Gold miners don’t spontaneously start producing more gold. If they did the would suffer losses on such production. If demand has not increased, they would have to lower the price of gold to sell the added supply and their costs of production for the additional supply would rise (or at least, not fall). If Apple, Inc. increased production of the iPhone 7 by 20%, they could sell the larger supply only at a lower price. To ramp up production by 20%, they might have to pay overtime to labor or premiums to suppliers, etc.
Mises, then, is just applying this general principle, that production of a good is regulated by profit and loss, to money itself.
ParticipantYou are, most assuredly, on the right track.
Here’s another short piece on the economics of predatory pricing:
ParticipantThe argument your friends advance is called “predatory pricing” in the economics literature. A firm selling a similar product with a similar cost structure as a rival undercuts a rival by charging a price below its costs. This strategy forces losses on both firms, but the predator has deep pockets and can outlast his rival. The payoff for the losses the predator suffers in displacing his rival come if and only if he is able to recoup his losses (and more) by earning excessive profits in the absence of the competition of his rival. Obviously, for this strategy to work, it must be nearly impossible for a rival to arise in the wake of the excessive profits earned by the predator. The classic article showing how difficult this is to achieve is by John McGee. Here is a short article on the topic:
https://mises.org/library/100-years-myths-about-standard-oil
Predatory pricing cannot be done by a retail firm. If Amazon drove Diapers.com out of business by undercutting both of their costs (in particular, paying the wholesale price to buy diapers from say Pampers), then as soon as Amazon raised its retail price after pushing Diapers.com out it would also be profitable for another competitor to step in or even for Pampers to sell online.
Tom DiLorenzo has written extensively about antitrust, monopoly, and competition:
https://mises.org/library/anti-trust-anti-truth
Here is Dom Armentano’s book, Antitrust the Case for Repeal:
https://mises.org/system/tdf/Antitrust%20The%20Case%20for%20Repeal_1_0.pdf?file=1&type=document
ParticipantABCT, like all economic theory, gives us the general cause-and-effect structure of human action and interaction. To understand the particular, concrete aspects of human action and interaction requires human judgments, which vary from one person to another. Even if all entrepreneurs understood ABCT, each of them would have a different anticipation of how monetary inflation and credit expansion will be manifest in the particulars of time and place. Given that there is a spectrum of entrepreneurs from superior to inferior, the boom-bust will result from monetary inflation and credit expansion.
Take a look at Lucas Engelhardt’s article:
https://mises.org/library/expansionary-monetary-policy-and-decreasing-entrepreneurial-quality
ParticipantEvery action has a value gained and a cost foregone. The cost of any action is the value of the next best end that could have been achieved if the resources had not gone to attain the end that was achieved. An action is only justified when its value exceeds its cost. In society, the resources used to attain one end satisfy a particular group of people and the the same resources used to attain the next best end satisfy a different group of people. The only way to objectively compare the value to all the persons who benefit from one end attained with the value to all the person who forego the benefit from the next best end is the market, i.e., each person demonstrates his preference for each end relative to money. Outside of the market, i.e., without a market, it is impossible to objectively compare the preferences of different persons.
Money demand is fulfilled by the holding of a stock of money. This principle of action an be generalized to all goods. People participate in exchange to obtain a more valuable stock of goods. They give up what the value less to obtain what they value more. It is imprecise and unnecessary to say that money “circulates.” Metaphors are unnecessary in reasoning when the concepts themselves are clearer. Moreover, it makes little sense to generalize this metaphor for all goods. Of course, one can calculate all sorts of strange figures from market data. Would any economic-theoretical knowledge be gained by calculating the rate of circulation of automobiles per year or shoe factories per month that could not be gained in a more straight-forward manner. It is more meaningful to say that the demand to hold money has increased than to say that the circulation of money has slowed down. Money is actually held by people. It does not circulate.
Here is Henry Hazlitt on the velocity of circulation of money.
ParticipantThe value scale Rothbard uses on p. 123 of MES refers to a seller of horses. In other words, Johnson has four horses and no barrels of fish. Rothbard indicates this by putting what a person does not have in parenthesis. The first horse, then, for Johnson is the least-valuable use he has for a horse. The first horse sold is at the bottom of his value scale. His supply of horses at a price of 81 barrels of fish (in Rothbard’s chart) would be 1 and at a price of 88 barrels of fish would be 2 and so on.
Rothbard goes on to develop the value scale for a buyer, Smith, on p. 125. On this scale horses are in parenthesis and barrels of fish are not. The first horse is the most valued use to which Smith would put a horse. The first horse bought is at the top of the value scale. He’s willing to buy the first horse at a price of 100 barrels of fish and at a price of 94 barrels of fish he willing to buy 2 horses and so on.
In Rothbard’s example, fish is the analog to money in developing the demand for and supply of a good from preference ranks. It isn’t necessary to determine the preference rank use for units of money (barrels of fish). To the contrary, the second law of utility, that a person prefers a large stock of a good to a smaller stock, suffices for constructing the demand for horses and the supply of horses in terms of fish (or money).
ParticipantJackson’s translated value scale would be:
1. A – 3rd horse
2. D,E,F,G – 4 barrels of fish
3. D,E,F – 3 barrels of fish
4. B – 2nd horse
5. D,E – 2 barrels of fish
6. C – 1st horse
7. D – 1 barrel of fishThis value scale assumes that his horses come in equally-serviceable units and that his barrels of fish come in equally-serviceable units. Equally-serviceable units of a good mean that any one unit can satisfy any one end. So 4 barrels of fish allow Jackson to satisfy his four highest-valued ends (D,E,F,G).
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