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Wednesday, February 23, 2011

Wednesday, February 16, 2011

The Inflation Addiction

The premise of the Keynesian Business-Cycle analysis is that there is too little aggregate demand in the economy. To solve this issue, government needs to take measures by inflating the dollar through actions such as discretionary spending and low interest rates. However,

Keynesian ways of thinking were quite wide spread in England (and indeed, the United States) before the publication of Keynes' General Theory. What has caused the misunderstanding is that in 1936 Keynes turned on many of his former supporters precisely because they had, directly or indirectly, argued that wage-rate reduction could restore the flow of wages and income, although they had been careful to insist that such a solution was 'unrealistic'. (Hutt 1971)

The argument that “undercomsuption” was the cause of the economic downturn served the interest of politicians who hoped to obtain the support of the voting masses. It means that politicians now have the economic justification to buy votes and avoid telling the voting public that the problem of economic recovery stems from sticky-wages imposed by big unions. “It implies income transfers to 'the poor' will restore a declining economy because 'the poor' are less thrifty than the rich, and so will 'spend' not 'save' the income diverted to them.”

To further sell this point, Keynes made the argument that pumping more money in the economy will not cause price inflation. Instead of calling the government's actions inflationary, Keynes was careful to call his economic plan “the maintenance of effective demand”. However, the true goal was to cause price inflation so as to lower the real wages of workers indirectly, instead of taking the more direct approach of allowing businesses to restore the wages of workers to their market value during the period of deflation.

The effects of this indirect approach on the economy is something similar to the effect crystal meth has on its user. At first it seems there really is economic recovery and wealth is being created. However, the effects are only temporary as resources are misallocated and then from the boom must come the bust . Like any good drug dealer, the Keynesian pushes, “just a little more inflation and your economy will be back on track.” Once again malinvestment and over consumption causes another boom and then another bust. This process continues on and on, with the effects of the bust getting worse each time and the Keynesian pusher always calling for more inflation.

The voting public is addicted to inflation. Any attempt to solve the real problems of economic disorder are thrown aside as being unrealistic. Try to take away their handouts, their free tuition, their bailouts, and their minimum wage laws. What will result is protests, violence and calls for impeachment and change of government. Any attempt to decrease the bureaucracy and government programs is met with howls of anger. Heaven forbid one cuts the military, the police, or the education budget. Just like any drug addiction, purging easy money from the system is a difficult and painful task.

All the while, the economy just gets sicker as the new overdose of inflation pours through its system. The people want a quick fix which only results in a temporary high but leave them worse off in the end than when they started. This addiction is unsustainable.

What is required is for strong politicians to stand up and end this addiction for easy money. They must be honest with the people. Instead of inflating the economy and lowering wages through trickery, they must take the honest approach. Allow businesses to adjust in times of recessions to reallocate resources in a sustainable and upfront manner.

To continue to demand the “quick and easy” fixes of the Keynesian school will only destroy the economy in the long run. It takes time for entrepreneurs to reallocate the economy and restore real price signals. It is time to purge the economy of easy money otherwise society will rot in its own disease.

(1971) Hutt, William H.; Politically Impossible ;Institute of Economic Affairs

Monday, February 14, 2011

Economics and the History of Marriage

By: Ludwig von Mises
Excerpt from Socialism

Nowadays only one opinion is expressed about the influence which the "economic" has exercised on sexual relations; it is said to have been thoroughly bad. The original natural purity of sexual intercourse has, according to this view, been tainted by the interference of economic factors. In no field of human life has the progress of culture and the increase of wealth had a more pernicious effect. Prehistoric men and women paired in purest love; in the pre-capitalist age, marriage and family life were simple and natural, but Capitalism brought money marriages and mariages des convenances on the one hand, prostitution and sexual excesses on the other. More recent historical and ethnographic research has demonstrated the fallacy of this argument and has given us another view of sexual life in primitive times and of primitive races. Modern literature has revealed how far from the realities of rural life was our conception, even only a short while ago, of the simple morals of the countryman. But the old prejudices were too deep-rooted to have been seriously shaken by this. Besides, socialistic literature, with the assistance of its peculiarly impressive rhetoric, sought to popularize the legend by giving it a new pathos. Thus today few people do not believe that the modern view of marriage as a contract is an insult to the essential spirit of sexual union and that it was Capitalism which destroyed the purity of family life.

For the scientist it is difficult to know what attitude he should take to a method of treating such problems which is founded on high-minded sentiments rather than on a discernment of the facts.

What is Good, Noble, Moral, and Virtuous the scientist as such is not able to judge. But he must at least correct the accepted view on one important point. The ideal of sexual relations of our age is utterly different from that of early times, and no age has come nearer to attaining its ideal than ours. The sexual relations of the good old times seem thoroughly unsatisfactory when measured by this, our, ideal; therefore, this ideal must have arisen from just that evolution which is condemned by the current theory as being responsible for the fact that we have failed to attain our ideal completely. Hence it is clear that the prevailing doctrine does not represent the facts; that, indeed, it turns the facts upside down and is entirely valueless in an attempt to understand the problem.

Where the principle of violence dominates, polygamy is universal. Each man has as many wives as he can defend. Wives are a form of property, of which it is always better to have more than few. A man endeavours to own more wives, just as he endeavours to own more slaves or cows; his moral attitude is the same, in fact, for slaves, cows, and wives. He demands fidelity from his wife; he alone may dispose of her labour and her body, himself remaining free of any ties whatever. Fidelity in the male implies monogamy. A more powerful lord has the right to dispose also of the wives of his subjects. The much discussed Jus Primae Noctis was an echo of these conditions, of which a final development was the intercourse between father-in-law and daughter-in-law in the "joint-family" of the Southern Slavs.

Moral reformers did not abolish polygamy, neither did the Church at first combat it. For centuries Christianity raised no objections to the polygamy of the barbarian kings. Charlemagne kept many concubines.By its nature polygamy was never an institution for the poor man; the wealthy and the aristocratic could alone enjoy it. But with the latter it became increasingly complex according to the extent to which women entered marriage as heiresses and owners, were provided with rich dowries, and were endowed with greater rights in disposing of the dowry. Thus monogamy has been gradually enforced by the wife who brings her husband wealth and by her relatives—a direct manifestation of the way in which capitalist thought and calculation has penetrated the family. In order to protect legally the property of wives and their children a sharp line is drawn between legitimate and illegitimate connection and succession. The relation of husband and wife is acknowledged as a contract.

As the idea of contract enters the Law of Marriage, it breaks the rule of the male, and makes the wife a partner with equal rights. From a one-sided relationship resting on force, marriage thus becomes a mutual agreement; the servant becomes the married wife entitled to demand from the man all that he is entitled to ask from her. Step by step she wins the position in the home which she holds today. Nowadays the position of the woman differs from the position of the man only in so far as their peculiar ways of earning a living differ. The remnants of man's privileges have little importance. They are privileges of honour. The wife, for instance, still bears her husband's name.

This evolution of marriage has taken place by way of the law relating to the property of married persons. Woman's position in marriage was improved as the principle of violence was thrust back, and as the idea of contract advanced in other fields of the Law of Property it necessarily transformed the property relations between the married couple. The wife was freed from the power of her husband for the first time when she gained legal rights over the wealth which she brought into marriage and which she acquired during marriage, and when that which her husband customarily gave her was transformed into allowances enforceable by law.

Thus marriage, as we know it, has come into existence entirely as a result of the contractual idea penetrating into this sphere of life. All our cherished ideals of marriage have grown out of this idea. That marriage unites one man and one woman, that it can be entered into only with the free will of both parties, that it imposes a duty of mutual fidelity, that a man's violations of the marriage vows are to be judged no differently from a woman's, that the rights of husband and wife are essentially the same—these principles develop from the contractual attitude to the problem of marital life. No people can boast that their ancestors thought of marriage as we think of it today. Science cannot judge whether morals were once more severe than they are now. We can establish only that our views of what marriage should be are different from the views of past generations and that their ideal of marriage seems immoral in our eyes.

When panegyrists of the good old morality execrate the institution of divorce and separation they are probably right in asserting that no such things existed formerly. The right to cast off his wife which man once possessed in no way resembles the modern law of divorce. Nothing illustrates more clearly the great change of attitude than the contrast between these two institutions. And when the Church takes the lead in the struggle against divorce, it is well to remember that the existence of the modern marriage ideal of monogamy—of husband and wife with equal rights—in the defence of which the Church wishes to intervene, is the result of capitalist, and not ecclesiastical, development.

Tuesday, February 8, 2011

Ideology and Society

Society is founded upon a worldview. A “worldview is … an interpretation of all things, an opinion concerning the best means for removing uneasiness as much as possible.”(Mises) World views are the primary ends of an ideology which are “doctrines concerning our individual conduct and social relations.” An ideology is an idea of how society should be shaped in order to achieve a world view.

By society it is meant to mean a group of interacting individuals who cooperate in complex network of cooperation and neutrality. Only individuals can have ideologies. “Society is a collective concept and nothing else... [Society] conveys the idea of a purpose or point of contact in which each individual, while retaining, his identity and pursuing his private concerns”(Chodorov) form a collective group which is held together for various purposes which are only known to the individual.

Worldviews, weather its peace, prosperity, freedom or religion, is the end goal of an ideology. All society is formed by various ideologies and is guided by various worldviews. Ideologies act as a means for attaining an individual's worldview. Conflict is the result of an ideological struggle. However, unlike the Marxist concept of an ideological struggle, ideology comes before economic considerations. The Industrial Revolution came with a set of ideological planning that made it possible. Basically, the concept of Capitalism did not come after the Industrial Revolution, but preceded it and made it possible.

An ideological struggle refers to conflict in society as to the direction that it should move to achieve a goal. It is here that both Marxists and Libertarians agree. After all, both Marxists and Libertarians believe in the well being of people, but their means of attaining that well-being differs. A society cannot both have property rights and revoke them entirely. Intervention is also not a middle ground but an ideological struggle that pushes and pulls at the two poles of the ideological spectrum either towards or away from economic freedom. Eventually, as Ludwig von Mises pointed out, society must choose one way or the other.

Quotations are from

Frank Chordorov “The Rise and Fall of Society”

Ludwig von Mises “”Human Action”

Thursday, February 3, 2011

Entreprenurial Analysis in Literature

By: Michael Richards

In continuing my thoughts on Troy Camplin's novel discovery on the profitability of artwork for its audience, I would like to continue on exploring the entrepreneurial character of the audience in how they judge quality and thus profit from art. According to Camplin, “Beautiful works are those which are complex...Something is complex if it appears simple but is, in fact difficult.”
I later commented Troy, who did a brilliant job expounding upon my thoughts, that it appeared that the individuals in the audience were really entrepreneurs who judge a piece of work hoping to obtain some profit from it. I will like to continue that not only are readers entrepreneurs, but judge works of art based on their entrepreneurial nature.
Entrepreneurs work in a world of uncertainty. What makes a work interesting to an audience is the uncertainty the viewer gets once he views the piece. In continuing Camplin's analysis of the beauty of art is found in its complexity, a work of art begins with a known, its seeming simplicity. What ends up drawing the audience member to the work is the fact that he begins to notice a web of uncertainty that surrounds this seemingly simple piece of art and begins to attempt to unravel it.
Entrepreneurs in the economy work in the same type of environment. Making a product is by far the easiest part of running a business. What the company actually does is the known from which all entrepreneurial activity starts. The part which generates profit and loss is the uncertainty of whether or not the consumer, with his subjective values, will decide to actually purchase the product. It is from this uncertainty that the entrepreneur speculates how to allocate those resources in the most profitable manner.
Literature works much in the same way as this process of dealing with uncertainty. A reader begins to read a story as he begins to wonder how the characters deals with situations that are unpredictable. What draws the audience into the work is how the characters handle the uncertainty and begin to attract themselves to different characters whom they value more highly than other characters. Basically, the more the reader is attracted to a character and the more uncertain the scenario the character is placed under, the more interested the reader will be in the story. If the reader is not feeling uncertain as to the fate of the characters, the story will become uninteresting.
For example, let's take the timeless hero, Superman and his weakness to the material, Kryptonite. Imagine if Superman did not have this weakness (or any other weakness for that matter). Any struggle Superman is placed in would become boring as he will always be declared the winner in the struggle regardless of who he is against. What makes the story of Superman so fascinating to its readers is not Superman's powers but the uncertainty of whether or not he will win in the face of his weaknesses.
Another aspect to this realm of uncertainty and the quality of art is the concept of means and ends. An entrepreneur employs means to achieve their ends. Now when it comes to making profit, the entrepreneur is never sure if his means will achieve his ends. However, he speculates that his ends are well worth the means, otherwise he would not act.
A reader looks at the ends that the artist is trying to achieve with his artwork. Literature once again shows this principle more clearly. After all, the reader will not enjoy the work of literature if he finds that the character's ends are not important or the means to attain those ends are certain. For example, Superman's ends are to save the day, but the uncertainty of his means are his weaknesses which the villain employs to stop him. Note that the reader is just as likely to judge the villain whom they don't like in the same way that they judge the hero in terms of the villain's importance to the story. Both protagonist and antagonist act and these actions are judged by the reader in terms of their uncertainty, their actions and their importance.

Wednesday, February 2, 2011

Epistemology, Part II

By David Grzybowski

In my last post, I discussed the failures of logical positivist epistemology.  In this post, I will finish off logical positivism and explain how we actually can know at least some things.

Michael made an interesting observation that allows us to segue nicely from positivism to rationalism: can someone know that they think without first experiencing thought?  There are a couple ways to answer this.  Firstly, what does it mean to experience thought?  What can it mean other than simply to think?  Of course, one might simply object that this is a limitation of our language, but surely if such a concept as "experiencing thought" exists distinct from "thinking", there is at least one human language with a word for this concept.  While those who think so look it up, I will move on to the next point.  Supposing that it is possible to experience thought without thinking, is it conceivable that I can experience without existing?  The answer is as before, "No", and so instead of saying "I think, therefore I am", we can say "I experience, therefore I am."  This statement has the same result--I know something about the world (that I exist), that is not empirically determined and that cannot be refuted by any kind of experience (since even if I cease to experience, I may not cease to exist).  Thus, no matter how you look at it, there are truths that logical positivism does not account for.

The central flaw of logical positivism is that it allows for only two kind of statements: analytic a priori (tautologies) and synthetic a posteriori (empirically verifiable statements).  But there is a third category: synthetic a priori statements, claims that we can know to be true without measuring them against the yardstick of experience.  An example is "I think, therefore I am," but it is not the only such statement.  Other synthetic a priori claims are "man acts" and "men can argue."  These statements are indubitably, in fact indisputably, true; that is, in order to deny them, one must first assume them.  In order to claim that man does not use specific means to achieve definite ends, one must do so, calling upon one's physical body and the space it inhabits and the time required to make a statement to achieve the intended goal of denying a statement.

The claim "men can argue" is a bit more complicated.  The most straightforward way of demonstrating it is simply to point out that if someone truly believed that they could not argue, they would not be arguing.  This is not very satisfying, but fortunately, there is a superior demonstration.  First, can one deny that one can make a claim?  No; the very statement, "I cannot make a claim", is itself a claim, so it must be false.  Second, is it possible to deny that one can make a counter-claim?  Or, if I claim that you can make a counter-claim, can you deny this?  Again, No; the very act of denying that you can make a counter-claim constitutes making a counter-claim.  We know that you can make a claim and that I can make a counter-claim mutatis mutandis.  Thus, we have two people who are indisputably able to make claims and make counter-claims, in other words, to argue.  One might legitimately object that this presupposes that there exists a physical reality and that there exist other people, but I will deal with solipsism and philosophical zombie-ism later.

The statements "man acts" and "men can argue" are the starting points praxeology and ethics respectively.  Further axioms can, of course, be proven--in fact, praxeology and ethics consist solely of these indisputably true claims--but I will leave that for another day.

Thursday, January 27, 2011

Austrian Economics and Literature: Say's Law and Literature

Austrian Economics and Literature: Say's Law and Literature: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. ...the ..."