A Free-Market Perspective

[Inthemood]

Re: Free-Market Economics

Because interest rates are low, you have created artificially a demand for borrowing and people begin to take that money borrowed and invest it in all sorts of things and sectors of the economy. Because interest rates are low people all of a sudden started investing heavily into real estate, speculating, and creating a bubble.

But this money has to come from somewhere, right? The Federal Reserve simply prints it, out of thin air. This over time causes devaluation of the dollar, and an increase in prices (inflation).

I'm dissecting little by little... How do you create an artificial demand? What exactly is a bubble? (the same term was used to describe the events which precipitated 1890 and 1929. I don't think I fully understand the term.

I understand that the Fed, gets carried away and starts printing away the currency which consequently decreases the value of money. However, what about the expanding population? As the population is growing don't you need to print more money to sustain the economy? How would that work exactly? I assume you've read Human Action, so you probably have an answer forthat.

[Inthemood]

Re: Free-Market Economics

No ones "views" are theirs, if you want to be technical about it. Essentially everyone's idea is someone else opinion:

"Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation." -- Oscar Wilde

I love that quote, but I would probably say that people's views are influenced by various opinions of others, perhaps a collection of select ideas. Not necessarily a complete mimicry, not for everyone at least. I admire many thinkers and influential personalities and share their opinion, yet I disagree with many of their ideas as well. It's like an intellectual buffet, pick what you desire and leave the rest. What you end up with is your own unique arrangement which carries some components similar to others, but essentially is an individual composition as a whole.

[Anonymouse]

Re: Free-Market Economics

I'm dissecting little by little... How do you create an artificial demand? What exactly is a bubble? (the same term was used to describe the events which precipitated 1890 and 1929. I don't think I fully understand the term.

http://mises.org/story/3130

I understand that the Fed, gets carried away and starts printing away the currency which consequently decreases the value of money. However, what about the expanding population? As the population is growing don't you need to print more money to sustain the economy? How would that work exactly? I assume you've read Human Action, so you probably have an answer forthat.

Here is a summary of Mises view on money taken from Human Action

http://www.lewrockwell.com/north/north84.html

That all depends on what you mean by "money". Do you mean free-market generated money? Commodities? Paper currency per government fiat? In any event, money is subject to supply and demand like any other thing. First off, money in and of itself is not wealth as Mises points out. Creating more money does not translate to more wealth.

Because the federal reserve controls the supply of money and since money is not backed by anything other than fiat, any increase in the money supply produces uneven effects on prices. When the government prints more money and injects it into the economy, the new money appears in certain sectors of the economy. Those people to whom the new money reaches first benefit from the increase in money supply because they can use that new money and spend it before all other secondary users are aware of the new conditions created by the Fed. In other words, they buy goods and services with cheaper prices set from yesterday which is not reflective of an expanded supply of today. As news of more money spreads to other consumers in the economy, the value of money is lowered in peoples value scales because of increased bids for money, and this causes higher prices in goods and services.

But if we were in a free market scenario, if the market determined the money, and if changes in the value of money fluctuated greatly, the market would choose a superior currency able to adapt to the demand for money and therefore be a hedge against drastic inflation or deflation. Currently the market cannot do that because of the stranglehold on supplying money.

[Inthemood]

Re: Free-Market Economics

I understand the described above scenario, but I'm trying to bring it down to the very basic level. By money I mean currency, bills, paper money printed by the Gov't. There is already a level of circulation of current currency through whatever means, but since population keeps expanding and businesses keep growing, how do you keep a steady flow without having to supply more money (by printing that is). There is going to be a very high level of deficit.

If there is a concept of credit in existence wouldn't it be difficult to set a limit, which in essence would be regulated and monitored by whom? If the credit allowance keeps growing there has to be a sufficient supply of currency to match it, however if the credit is not regulated it can be exponentially increased to the level that it no longer matches the money supply. Isn't it when the government prints more?

I don't think that creating money translates to wealth, but doesn't it sustain it or lets say "evolves" with it?

[Inthemood]

Re: Free-Market Economics

http://mises.org/story/3130

I already saw this chart a long time ago and even watched a roller coaster it didn't really get me anywhere, but it describes the housing bubble. 1890 wasn't about a housing bubble, but about an economic one. What exactly is a bubble?

[Anonymouse]

Re: Free-Market Economics

I understand the described above scenario, but I'm trying to bring it down to the very basic level. By money I mean currency, bills, paper money printed by the Gov't. There is already a level of circulation of current currency through whatever means, but since population keeps expanding and businesses keep growing, how do you keep a steady flow without having to supply more money (by printing that is). There is going to be a very high level of deficit.

If there is a concept of credit in existence wouldn't it be difficult to set a limit, which in essence would be regulated and monitored by whom? If the credit allowance keeps growing there has to be a sufficient supply of currency to match it, however if the credit is not regulated it can be exponentially increased to the level that it no longer matches the money supply. Isn't it when the government prints more?

I don't think that creating money translates to wealth, but doesn't it sustain it or lets say "evolves" with it?

The money supply does not need to grow relative to the population, as this would do nothing except decrease the purchasing power of each monetary unit as inflation always does. If people nominally all have less money that doesn't mean they will experience a decreased standard of living. On the contrary, each monetary unit can buy more of a good or service because there is a higher value to the money (less of it). If for any reason the money supply needed to be increased the market would take care of it (gold mining, etc.) but there shouldn't be any concern with a "shortage" of the money stock simply due to a population growth. Regardless of population growth a change in the demand for money for whatever reason is supposed to be accompanied by a change in the supply of money to restore equlibrium.

Would you rather have money which nominally grows by 5% every year along with 10% inflation (-5% purchasing power) or would your rather have your nominal money remain the same or decrease slightly (storage fees maybe) and gain purchasing power? If you only care about numbers on a computer screen or piece of paper you may want to decrease your standard of living with the former; if you realistically want to buy more things with your money you will choose the latter.

As far as credit goes it would not be difficult to have the market create a limit on it. If there is an economy with many people having a low time preference and choosing to save and invest more the interest rates will be lower as there is a large base for the credit to expand from. This is sound credit that reflects market conditions. If people are consuming more today and saving less for the future there is a decreased amount of savings and investment so due to a lower supply the "price" or in this case interest rate on the money is higher. This is how there is, as you deemed it, a regulation on credit. This regulation is not governmental but rather a natural occurrence in the market. Picture something like a gold standard, as there is inflation within the country the inflation makes prices of domestic goods rise so people buy imports, and as they do so the gold will flow out of the country leaving a diminished money stock. With less money to base the credit off it must contract and rates will rise naturally, increasing the purchasing power of the money and letting prices come down which will then begin to reverse the trend. It's a beautiful equilibrating effect! And yes, you are correct that when the amount of credit is distorted it is due to the government creating money/credit artificially. When this happens capital is misallocated because what was previously not profitable at a certain rate is now proiftable at a lower one, yet when the chickens come home to roost and these go sour the capital is essentially lost and there is a contraction (the bust after the boom).

[Inthemood]

Re: Free-Market Economics

I've waited for quite some time for your reply, thanks. You made the money supply and it's relation to gold a little more clear. I didn't realize that you can mine gold for money "expansion," the first and the only thing I think of is printing, this way it does make sense.

Picture something like a gold standard, as there is inflation within the country the inflation makes prices of domestic goods rise so people buy imports, and as they do so the gold will flow out of the country leaving a diminished money stock.

I've read that buying domestic goods (especially food) may result in a disastrous economy. Yet according to you, buying more imports may be hazardous. Considering that 90% of our goods are produced abroad, can we blame the current financial state on international dependence when it comes to production? I just think that given globalization, sustaining economy on domestic production is unrealistic, simply because businesses will always seek out best financial route (and rightfully so).

[Hye_Psycho]

Re: Free-Market Economics

(1) If you are going to engage in personal attacks because you feel inadequate about your own failings and limited knowledge, I suggest you not do so and follow the rules, at least with the damn admin. Mmkay? I suggest that, because it's the path of least resistance and caution, as your above post displays your ignorance of economics. You did not even bother to read the article, because why bother, right? You did not raise one single point from the article, you instead railed about your own presumptions and misconceptions, and worthless opinions. Yet, you sit here lecturing others about broadening their reading base.

the Anon Doctrine 1: acccuse people of personal attacks (which i did), but then blindly continue to do so yourself. bravo.

no, i did not read the articles, and neither do i have to. if i want to read about clasical political economy, neo-classical economics, and it recent re-incarnation in neo-liberlism, i will read Marshal, the plethora of Friedmans, the work of Joan robinson and even right back to Smith, ricardo ect.. my initial point had nothing to do with the articles, and it was never my intention to respond to the said articles, only to make a point about liberal economics.

my problem: when somone disagrees with the you, you rsepond as such:

"He knows nothing about anything and he's trumpeting the same popular line of ignorance that a majority of people who don't understand economics trumpet."


"I can tell that those like you and hye moron that have no understanding of economics, nor have ready any economics"

so baisically Anon doctrine number 2, reveals your intellectual insecurity: when someone disagrees with you, you will accuse them of not knowing anything about the said topic, in this case economics. i dont proclaim to know everything, and i certainly dont have to hubris to accuse you of not knowing anything about economics.

in fact, Anon my point was very simple and non commital. you first accused me and others of "ignorance", and this offended me greatly so i did lash out and recomend you read more, because believe it or not Anon, you do not have all the answsers to sound economic managemnt *shock horror*. no one does.

There really is no difference between the economic "rationalists" (which is properly referred to as neo-Keynesians) and the Keynesianism of the 70s. Essentially, most of the Western world is steeped in this false notion of creating prosperity through central banks, fractional reserve banking, and consumer spending. But those that, like you, believe in something for nothing and believe they are entitled to take by force what others have produced by sweat, and redistribute it, you wouldn't understand these nuance

economic rationlism is a completely different creature. it is in fact neo-liberlism almost the complete opposite of traditional Keynesian economics. i really have no idea where you are coming from.

and dont assume anything about my economic positon. i did not reveal anything, so far as being critical of neo-liberlism (how dare i)

[Anonymouse]

Re: Free-Market Economics

the Anon Doctrine 1: acccuse people of personal attacks (which i did), but then blindly continue to do so yourself. bravo.

no, i did not read the articles, and neither do i have to. if i want to read about clasical political economy, neo-classical economics, and it recent re-incarnation in neo-liberlism, i will read Marshal, the plethora of Friedmans, the work of Joan robinson and even right back to Smith, ricardo ect.. my initial point had nothing to do with the articles, and it was never my intention to respond to the said articles, only to make a point about liberal economics.

my problem: when somone disagrees with the you, you rsepond as such:

"He knows nothing about anything and he's trumpeting the same popular line of ignorance that a majority of people who don't understand economics trumpet."


"I can tell that those like you and hye moron that have no understanding of economics, nor have ready any economics"

so baisically Anon doctrine number 2, reveals your intellectual insecurity: when someone disagrees with you, you will accuse them of not knowing anything about the said topic, in this case economics. i dont proclaim to know everything, and i certainly dont have to hubris to accuse you of not knowing anything about economics.

in fact, Anon my point was very simple and non commital. you first accused me and others of "ignorance", and this offended me greatly so i did lash out and recomend you read more, because believe it or not Anon, you do not have all the answsers to sound economic managemnt *shock horror*. no one does.



economic rationlism is a completely different creature. it is in fact neo-liberlism almost the complete opposite of traditional Keynesian economics. i really have no idea where you are coming from.

and dont assume anything about my economic positon. i did not reveal anything, so far as being critical of neo-liberlism (how dare i)

The fact that you mentioned "economic management" suggests to me you do not completely grasp economics. That is my opinion, and I am entitled to it, am I not? There is no assumption but that which you give me to rely on. All my opinions are based on things you have expressed in your posts. I have not insulted you without reason. I only return the favor in kind. If you go back you will see that it was you who started this.

If you're going to engage in a discussion about this topic (which I doubt you will, and if you do, cannot carry) at least formulate coherent sentences with capitalization and proper grammar. What makes you so sure that referencing that you read Friedman will add any more merit to your post? By choosing to self-limit your sources of economic knowledge you are only perpetuating the economic ignorance with which you abide by - only reading those economic fundamentals which reaffirm and agree with your positions.

"Economic rationalism" is a self-limiting concept that treats economics as nothing but a theoretical "dismal science" and assumes "economic actors" are nothing more than automatons with only rational ends-means. As all life is perceived subjectively, all values are subjective, hence some people will have "irrational" ends. Hence, economics is a science that is value-free (something which is foreign to the economic literature which you read). Although I doubt you will read this, here is what Mises had to say about this:

Economics, it is said, in its rationalistic prepossessions assumes that men aim only or first of all at material well-being. But in reality men prefer irrational objectives to rational ones. They are guided more by the urge to realize myths and ideals than by the urge to enjoy a higher standard of living.

What economics has to answer is this:

1. Economics does not assume or postulate that men aim only or first of all at what is called material well-being. Economics, as a branch of the more general theory of human action, deals with all human action, i.e., with man's purposive aiming at the attainment of ends chosen, whatever these ends may be. To apply the concept rational or irrational to the ultimate ends chosen is nonsensical. We may call irrational the ultimate given, viz., those things that our thinking can neither analyze nor reduce to other ultimately given things. Then every ultimate end chosen by any man is irrational. It is neither more nor less rational to aim at riches like Croesus than to aim at poverty like a Buddhist monk.

2. What these critics have in mind when employing the term rational ends is the desire for material well-being and a higher standard of living. It is a question of fact whether or not their statement is true that men in general and our contemporaries especially are driven more by the wish to realize myths and dreams than by the wish to improve their material well-being. Although no intelligent being could fail to give the correct answer, we may disregard the issue. For economics does not say anything either in favor of or against myths. It is perfectly neutral with regard to the labor-union doctrine, the credit-expansion doctrine and all such doctrines as far as these may present themselves as myths and are supported as myths by their partisans. It deals with these doctrines only as far as they are considered doctrines about the means fit for the attainment of definite ends. Economics does not say labor unionism is a bad myth. It merely says it is an inappropriate means of raising wage rates for all those eager to earn wages. It leaves it to every man to decide whether the realization of the labor-union myth is more important than the avoidance of the inevitable consequences of labor-union policies.

In this sense we may say that economics is apolitical or nonpolitical, [p. 885] although it is the foundation of politics and of every kind of political action. We may furthermore say that it is perfectly neutral with regard to all judgments of value, as it refers always to means and never to the choice of ultimate ends.

http://mises.org/humanaction/chap39sec2.asp

[Armanen]

Re: Free-Market Economics

Mouse if you wouldn't mind doing a little bit of typing, could you compare and contrast the views of Mises with those of classical economists like Smith and Ricardo?

The reason I'm asking is because it seems like Mises was very much influenced by classical liberalism but I'd like to know on what points he disagreed.