Forum Replies Created
-
AuthorPosts
-
jmherbener
ParticipantI cannot speak to the contemporary situation concerning the Catholic Church’s teaching on speculation, but the history of it has been chronicled by the economist, Murray Rothbard, in his book “Economic Thought Before Adam Smith.”
https://www.mises.org/library/austrian-perspective-history-economic-thought
Rothbard shows how the scholars of the Catholic Church moderated and eventually overcame the restrictions placed on speculative gain initiated under Charlemagne. He cites Rufinus in his Summa (1157-59) of Gratian’s Decretum as the first scholar to justify arbitrage gain or profit from speculation coupled with the labor and expense of the lay merchant (p. 38). He did so on the same grounds as he justified profit to artisans as a result of their labor and expenses.
As Rothbard points out, Thomas Aquinas explicitly justified uncertainty of the future as a source of gain for a merchant (pp. 53-54).
The Late Scholastics tended to be even more favorable toward merchant activity. For example, Rothbard cites Thomas Cajetan in his treatise on foreign exchange, De Cambiis (1499), as the founder of expectations theory in economics (pp. 100-101).
ParticipantThere are two lines of argument that were advanced against central planning in the calculation debate that began the 1930s: one from Mises and another from Hayek.
Mises argued that without private property in the means of production there can be no prices for the factors of production and without prices for the factors of production the efficient technique of production in a given line of production cannot be determined. Different technically possible methods of production which use different machines, natural resources, and labor skills cannot be compared in the units of the inputs themselves to determine which technique uses the least inputs. An automobile, for example, can be built with a more capital-intensive or an more labor-intensive process, it can be powered by an internal-combustion or electric engine each of which requires a different configuration of inputs to produce, etc. The number of machines cannot be added to the number of labor hours to determine minimum input use. Linear programming does nothing to solve this problem. And, as Mises pointed out, this is a fundamental conceptual problem that exists regardless of the complexity of production across the entire economy.
The other fundamental problem that Mises raised with central planning, which also exists regardless of the complexity of production throughout the economy, is the uncertainty of the future. Efficient use of resources cannot rely solely on existing knowledge. Production aims at the realization of ends in the future. Efficiency, therefore, requires accurate entrepreneurial anticipation of how given courses of action will play out into the future. This is why central planners cannot rely on the existing prices of capitalism on the day of the revolution to guide their production decisions. Linear programming, obviously, does not solve, or even address, this problem.
On the calculation argument, take a look at Joe Salerno’s epilogue to Mises’s original 1920 article:
https://www.mises.org/library/economic-calculation-socialist-commonwealth
Hayek introduced a second line of argument, namely, the problem of obtaining the information sufficient for the central planners to make efficient production decisions. His main point was that such information is, at least partially, tacit. It consists of production know how that is contingent on person, place, and time. There is no process, Hayek argued, except market prices that can compile and transmit this information to production decision- makers. Linear programming does not address this problem.
Hayek also stressed that the knowledge necessary for central planners to make efficient production decisions is complex and constantly changing. There is no known method to compile such information into useful form except the pricing process of the market. The advocates of central planning took this last point, on which they thought faster, bigger computers could provide a solution, and asserting a theoretical solution declared victory over Mises and Hayek.
Lucas Engelhardt has called into question the veracity of such a procedure on its own grounds:
https://mises.org/library/central-plannings-computation-problem-0
ParticipantYes, the same item can be both a consumer good and a producer good to the same person at the same time. Your example illustrates this nicely. The classic example is a person using his human effort in a particular task. He can get both direct benefit, the pleasure of the work, and indirect benefit, the income from what is produced. Professional athletes often express such sentiments claiming to play for the love of the game.
There is a general principle involved which is that a person can achieve more than one end with given action. Whether or not a person achieves both a consumptive end and a productive end depends on whether or not the asset he owns generates a capital gain when he sells it. Another example is Jay Leno, who owns a stable of collector automobiles. He loves owning them and probably reaps a capital gain by selling one that he bought previously.
ParticipantIn economic theory, the term “preference” has a narrow, technical meaning. It refers to the rank order of the two alternatives a person chooses between in taking an action.
In common discourse, “preference” has a broader, non-technical meaning. It refers to what a person favors.
For example, out of all the means of transportation, I favor a Mercedes S-Class Sedan. However, I prefer a Honda Accord. We know this because I own an Accord.
Conclusions about policy issues are not preferences in the narrow sense. They are the last step of an argument. When someone states that he favors or prefers open borders, he is saying that his analysis reaches this conclusion for the various reasons outlined in the argument he makes for open borders.
It would be a mistake, as you point out, for a person to assume that everyone else must have the same preferences that he has for alternatives in taking an action. For example, for me to assume that everyone must prefer, and hence own, a Honda Accord just as I do. It would also be a mistake for a person to assume that everyone else must be persuaded by an argument that he favors.
A person cannot be indifferent between the alternatives of choice in his own action. To act, he must choose and to choose, he must prefer. A person, however, can be indifferent about policy issues or the actions of other people or even his own potential actions.
While a person can be indifferent about policy issues, advocating a policy is an action and thus, requires a choice and a preference. I don’t see why a person couldn’t advocate against all state activity even if he thought that open borders was a good policy. Whether or not his position was logically consistent or wise would be an open question, but it would certainly be “rational” in the praxeological sense.
Participant(1) A government has three sources of monetary revenue: taxes, debt, and monetary inflation. Without monetary inflation, or a decline in the demand for money, there can be no price inflation, i.e., no decline the in the purchasing power of money.
Bond holders are anticipating monetary inflation or a decline in money demand or both. They know full well that the Fed will accommodate larger debt-financed government expenditures with monetary inflation.
https://fred.stlouisfed.org/series/M2MNS
(2) If a person is not demonstrating action to the satisfaction of an observer, it does not follow that the person is no longer human. He may be, in fact, successfully acting. Passivity can be a means to an end. He may be, as you suggest, unsuccessfully acting. He may be temporarily unable to perform demonstrable action (he is rendered unconscious by a blow to the head) but not permanently incapable of demonstrable action. He is able to demonstrably act, potentially, and will demonstrably act once the temporary condition is removed.
Participant(1) It’s not the Treasury selling more bonds, it’s investors who bought them in the past and have been holding on to them until now.
Holders are selling in anticipation of higher rates of price inflation from more fiscal expenditures in the future. Higher rates of price inflation will mean higher interest rates on new bonds issued by the Treasury and thus, lower prices for the older bonds they have been holding.
http://www.reuters.com/article/usa-bonds-idUSL1N1DF0JM
(2) Ludwig von Mises wrote that “Thinking and acting are inseparable.” Take a look at Human Action, p. 177. No observer of a person can know the thoughts of a man, whether or not there are outward signs of action.
https://mises.org/library/human-action-0
Furthermore, a person who shows no outward sign of action is not by that fact alone demonstrably incapable of action. He can still act, potentially. For example, we would not declare a man unconscious from intoxication a non-human until he wakes up or even a man in a coma.
http://www.dailymail.co.uk/health/article-187920/Coma-man-wakes-19-years.html
A similar point could be made about newborn babies.
ParticipantIndeed, there is a relationship and arbitrage is a connection. It is arbitrage that directs the flow of credit expansion from its primary areas which is generated by bank credit creation into related areas.
ParticipantHere is Stockman on Fed policy and jobs:
http://www.newsmax.com/Finance/DavidStockman/donald-trump-fed-rate-economy/2016/09/20/id/749137/
He seems to be arguing that Fed inflation generates disparate effects on various groups of prices. Jobs that are easier to outsource have lower nominal wage increases (I assume because of the competition of foreigners) than jobs that can’t be outsourced. The former, therefore, have stagnant real wages while the real wages of the latter go up.
ParticipantWhen Americans pay in dollars for imports from China, the Chinese have two alternatives: they can hold the dollars or spend them. If they hold dollars, then the purchasing power of the dollar is higher than otherwise. As a consequence, Americans can buy goods at prices lower than otherwise. If the Chinese spend dollars, then they can either buy goods from Americans, in which case there would be neither a trade surplus nor deficit, or they can buy American assets, in which case the current account deficit would be matched by a capital account surplus.
More than half of dollar currency is held by foreigners overseas. The following Fed study is dated, but the analysis of currency holdings is interesting.
https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf
Participant(1) Here is a story that claims the BOJ has realized that pushing interest rates down across the yield curve has removed the incentive for banks to lend long-term. As a result, less spending on capital capacity takes place and aggregate demand slumps. The story has a Keynesian bias, but makes a valid point about the supply of credit.
(2) The Fed desires to control the broader money stock and credit supply in society, but it only directly controls the monetary base. The monetary base = currency + bank reserves. The banks have discretion in issuing fiduciary media (i.e., checking account balances) on top of their reserves. Bank checking accounts, as money substitutes, are part of the money supply. In normal times banks tend to stay fully loaned out, carrying almost no excess reserves. They do so because they earn interest on their loans and do not feel the need for liquidity beyond their required reserves. In such times, the Fed can control the money supply fairly well. But when the financial crisis hit, the Fed bailed out banks with QE1 and QE2, buying their MBS and paying with reserves. The banks desired liquidity and given the collapse of demand for credit and consequent low interest rates and heightened uncertainty of the investment climate, they built up their excess reserves to levels not seen since the Great Depression. In such times, banks can increase the money supply independently of Fed policy by issuing more fiduciary media via new loans to customers. Doing so will reduce their excess reserves, but they can continue to expand until they are fully loaned up again. The Fed instituted payment on reserves to manage that process. The Fed has one rate it pays on required reserves and another rate it pays on excess reserves. So, if banks are issuing too much fiduciary media and converting their excess reserves into required reserves too vigorously, then the Fed can raise the rate it pays on excess reserves to entice banks to slow down the conversion.
Here is the official Fed release on interest payments on reserves.
https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
ParticipantHere are my thoughts.
1. This argument rests on a false premise. Tropical fruit can, in fact, be produced anywhere. Entrepreneurs in Norway, for example, could build greenhouses, import soil, install misting equipment, heaters, artificial lighting, and so on. The only reason they don’t do this is comparative advantage, i.e., their relative costs are too high compared to costs in tropical areas.
Of course, if the critic of comparative advantage means that there are cases in which one country has a natural resource unavailable in another country, say diamond deposits, then his criticism misses the point. The theory of comparative advantage addresses only cases in which various goods can be produced either domestically or in foreign lands because there is no difficulty in explaining why people in different countries who desire goods produced exclusively in other countries would trade with each other, selling what they produce domestically for what they cannot produce domestically. It is a more difficult case to analyze when the various goods can be produced either domestically or in foreign countries.
2. This arguments fails to recognize that entrepreneurs build the consequences of catastrophic events into their production costs. Including the costs associated with catastrophic events occurs in all lines of production. There is nothing distinctive about agriculture in this regard. If a manufacturing area is subject to earthquakes, then entrepreneurs will including re-building costs or the extra expense of sturdier construction into their costs. If an agricultural area is subject to drought, then entrepreneurs would include in their costs, the expenses of irrigation equipment and other drought mitigation. They would store some of their product during good times to have it available to sell during droughts. Alternatively, they could pool some of their income during good times to get them through droughts. In fact, other entrepreneurs would start up insurance companies to make the pooling more efficient.
3. This is a form of the old “infant industry” argument advanced in the late 18th century by Alexander Hamilton. It overlooks the fact that the corollary of free trade in goods is free movement of capital funding. Entrepreneurs in the world economy invest in technology and capital capacity that will be profitable. So, production of technology and capital capacity is also subject to comparative advantage. The entrepreneurs in the developed world have the expertise and the saving to invest right now. They will do so in underdeveloped areas if it is profitable. Witness western investment in China over the last 30 years.
ParticipantThe reserve held by a bank is either cash or a deposit at the Federal Reserve. Suppose, then, that a bank has $1,000 in cash. It can extend a loan to a customer for $10,000 and credit the customer’s checking account for $10,000. The bank would be meeting a 10% reserve requirement. The customer’s checking account balance cannot serve as a reserve for another bank. Another bank would have to obtain either cash or a credit by the Federal Reserve to the bank’s account at the Fed. A bank normally does this by selling securities to the Fed.
Take a look at Murray Rothbard’s book, Mystery of Banking.
ParticipantWhat Mises says in Human Action is that in our current state of knowledge we must accept methodological dualism. The deterministic cause-and-effect in the material world and the scientific method of discovering the quantitative magnitudes of cause and effect relationships in the material world have not been successfully applied to the realm of human action. There is no theory describing the quantitatively precise relationship between material factors in the world and ideas in the mind that has been established, or not falsified at least, by the scientific method. We must, therefore, conceive of the cause and effect relationships between ideas in the mind and things in the world in a different way and discover cause and effect relationships between the mind and the material world with a method other than the scientific method. Mises calls this method, praxeology.
ParticipantI suggest Murray Rothbard’s books:
For a New Liberty
https://www.mises.org/library/new-liberty-libertarian-manifesto
The Ethics of Liberty
ParticipantEconomics majors with BA and BS degrees get hired in all business fields, especially finance. Economics is a top major for law school. Holders of MA and MS degrees in economics teach in community colleges, do research in think tanks, and entry-level forecasting. PhD economists teach and do research in universities, do high-level forecasting and consulting.
Here’s what the AEA says about careers:
-
AuthorPosts