Austrian Economics

Liberation Theology

Ron Finch — Mon, 23 Nov 2009 18:20:18 GMT

Current revision posted to Austrian Economics by Ron Finch on 11/23/2009 12:20:18 PM

Marxist socialist populist ideas have become the mainstream view of the entire world over the last century. People who should know better say that Christianity is communism because the disciples of Jesus held a common purse. No one ever asks why Christianity has flourished and is the world's largest religion after two millennium while Marxist communism could not last a century in Russia and is a catastrophic failure wherever it is implemented.

The obvious answer is Freedom. People are free to chose to join or leave the churches but communists do not allow their sheep much latitude in any sphere. Consequently the slaves of communism risk their very lives buying the necessities of life on the black market or attempting to run away.

So it is that supporters of the state are advocates of slavery. Liberation Theology is an Orwellian name for an egalitarian slavery. It's supporters would exchange the current winner-takes-all spoils system for a communist tyranny.

The Moral Imperative

Ron Finch — Mon, 23 Nov 2009 17:39:07 GMT

Current revision posted to Austrian Economics by Ron Finch on 11/23/2009 11:39:07 AM

We often hear talking heads telling us that we have a "Moral Imperative" to expand the state. These statements are never challenged by the press. Such ideas are the intellectual foundation of the omnipotent state and must be attacked at every opportunity.

the economic calculation argument

fakename — Sun, 22 Nov 2009 00:55:55 GMT

Current revision posted to Austrian Economics by fakename on 11/21/2009 6:55:55 PM

the economic calculation argument

Filed under: Money, FAQ, Mises, socialism, hayek

The calculation argument is probably the most difficult to understand piece of Austrian theory in the whole corpus of austrianism. Indeed it is true that many Austrians themselves, at present and certainly in the past, have failed to understand it fully. The purpose of this article then, is to process the argument into a more understandable summary and to show some of the causes that have contributed to its apprehensive difficulty. <o:p></o:p>

<o:p></o:p>

Mises delivered the calculation argument in 1920 and sparked what is known as the socialist calculation debate. That debate lasted until the 1950s. One fact worth mentioning is that most opponents of Austrian economics consistently misstate the calculation argument. The calculation argument which they attack is in reality the Hayekian, not the Misesean, version. Hayek’s calculation argument had more to do with the allocation of information under a command economy, an emphasis which, as we shall see, was far and away from that of Mises. <o:p></o:p>

<o:p> </o:p>The Argument Itself<o:p></o:p>

<o:p> </o:p>

What Mises said was, if one is to build a railroad, under socialism, how would one go about doing it given that there are a thousand ways to organize the workers, mine the metals, harvest the coal, etc. Under free markets, such a problem is already solved; one just adds up the costs and profits of a project and its materials and one can begin or stop depending on the loss/gain ratio. The inability to do this under socialism, Mises maintained, would be an insurmountable obstacle to socialism which would render it impossible in the strict sense. <o:p></o:p>

Mises also is unconvinced by the possible methods of accounting under socialism. He specifically disagreed with the idea of basing the value of products on labor since it is not true that all labor is of the same usefulness –ditchdiggers would be paid hugely incomparison with government directors who would be paid little. He also disagreed with the possibility of basing the allocation of goods in the socialist economy on technological efficiency. This was chiefly because he believed that not all values were reducible to, or necessarily connected with, technological efficiency –that is –technological efficiency was just one in a number of values that the acting man has to balance. So for instance, for any given thing, it could be said that it could be made more technically efficient –using less resources, less movements, less space to produce more output –but it is not at all known whether an acting man would prefer more output or if he has the resources necessary to produce such an efficient machine. <o:p></o:p>

Perhaps, too the socialist state could use money to establish prices but here again Mises would be unconvinced. He responded that money is useless in uncovering the exchange ratio of goods under socialism. The assignment of money prices to items would be totally arbitrary since the state, already controlling all supplies, could hardly be under the necessity or incentive to negotiate market prices for them. <o:p></o:p>

The famous opponent of the Misesean argument, and the winner of the calculation argument, was the socialist-leaning economist Oskar Lange who accepted that a socialist state could use money but that it could solve the impossibility of calculation by just acting like a firm does and through trial and error in setting prices, establish just what the right price of consumer goods would be. This solution also assumes that the state is the owner of capital and the people are freely allowed to buy consumer goods. This is the market socialist solution. <o:p></o:p>

But once more, mises continued in his objections. If the socialist state controlled capital –like bridges, factories, etc. –then the original problems of socialism are just rolled back one more level and still exist but in a more limited scope. Secondly the trial and error method is gravely mistaken about the differences and roles of the entrepreneur and the bureaucrat. The bureaucrat runs the department and makes sure that it is operating within budget and optimizing potential, given certain directives, but the entrepreneur doesn’t just operate within budget but is on the look out for new profit. He realizes that nothing is merely given in reality (but needs action to be discovered) and he looks upon the “given directives” of the bureaucrat as an unreachable ideal for himself. The langean plan envisions the role of markets as a bureaucratic machine which distributes goods at an equilibrium price whereas the correct theory of markets also sees the market as an entrepreneurial machine which makes goods that were hitherto unknown, and finds ways not just to optimize the given but to find new ends to reach for. This is the essential missing factor of the market socialist solution and one that it could not possibly overcome because entrepreneurs, who gain profits by exploiting the differences in value between means and ends (e.g. inventions), implicitly need a private market in capital which is precisely what lange, as we have noted, could not allow. <o:p></o:p>

<o:p> </o:p>

But is it possible to, perhaps through punishments and rewards, motivate the directors of state bureaus to buy and sell as if they were on the market and so, to produce profit that way? Mises would object that it is impossible because whoever is administering these punishments/rewards would become more important than what is more traditionally thought of as the customer. It would become more important for the leaders of socialist firms to perform to the standards of whoever is regulating them, than to the customers who are buying from them. And secondly, what is the point of acting like an entrepreneur and taking risks when you yourself are not buying or selling your own property? It makes no sense to believe that such a system would approximate the free market one –where a person’s personal property is always at risk. <o:p></o:p>

<o:p> </o:p>This was what Mises belittled as “playing market”. <o:p></o:p>

<o:p> </o:p>But again, could a socialist society use the equations of mainstream economics to solve its allocation needs? Here too, Mises would’ve said no. These equations are only descriptions of equilibrium conditions –conditions where all materials are already allocated to their most important use and where no possible change towards or away from this position is thinkable –as such they leave unanswered the question of what is the most efficient course to reach equilibrium nor can they describe the almost universal fact of life which markets are supposed to overcome namely disequilibrium. So here we see Mises’s emphasis lays not in information allocation but in the subjective value of property. That is, his emphasis lay on ownership since it is the preamble and premise of any allocation including information allocation. This is what allowed him to concede that the socialist central planners could have perfect information of consumer wishes, yet inspite of this, they could still fail in planning the economy. <o:p></o:p>

<o:p></o:p>

And that was the calculation argument in summary. But why did this Misesean argument fall out of favor with the academic community in favor of hayek’s and why is it that this theory is so hard to grasp, even for Austrians? <o:p></o:p>

<o:p> </o:p>

An Inquiry Into the Reasons for the Rise of the Hayekian Version<o:p></o:p>

<o:p> </o:p>

The Hayekian version of the argument was raised to such importance ultimately because of two things: the victory of Lange and the scholarship of Joseph Schumpeter. The former, by presenting answers to Mises’s objections which were accepted by all orthodox economists, and the latter; by recording and transmitting Lange’s answers throughout the academic world, completely steamrolled and indeed, erased any memory of the Misesean argument. Also, Hayek’s vision of the scarcity and value of information implied the existence of an economics of information and an economics of evolution. These implications were drawn out, becoming two new fields of economic inquiry. His impact on academia, and the consequent perpetuation of his theory of the market as information allocator; within the bodies of two new scholarly areas, maintained the popularity of his version of the calculation argument. <o:p></o:p>

<o:p> </o:p>

Reception of Mises’s Argument <o:p></o:p>

<o:p></o:p>

Quite oppositely the reception of Mises’s argument was nothing but negative. Firstly, Hayek himself, before Lange, felt that Mises’s argument was weak and was already answered by Pareto and Barone in the late 1800s. The fact was, he thought, that equations could be used to calculate as the mainstreamers thought. Later even his argument, that the central planners could never accumulate all the knowledge needed to calculate, was considered defeated by the Langean solution where the planner could just use trial and error to find the right price. Of course Hayek would retort that such a solution already assumed that information was in one place (“implication is a logical relationship which can be meaningfully asserted only of propositions simultaneously present to one and the same mind”). After the largely unexpected fall of the soviet union though, the Misesean argument has been revived and become a subject of study once more. <o:p></o:p>

<o:p> </o:p>

Of the Difficulty of Mises’s Argument<o:p></o:p>

<o:p></o:p>

Indeed one can also say that the difficulty of Mises’s calculation argument also doomed it and here one can analyze why his argument was especially difficult. For one, most economists including Hayek believed that Mises had left himself exposed to attack by the mathematical economists who argued thusly: “If a human can solve the equations which describe free markets, then central planners could solve the same equations, solving the problem of calculation under any central system.” What these economists did not understand was that their equations were not to be taken literally as a guide precisely because these equations simplified economic reality too much such that any knowledge that could be gained from them, was only analogous and not unequivocal, information. For instance, the equations for equilibrium, if taken literally, describe a person or group of people who simply use given resources to maximize their satisfaction. But since resources must be discovered, and since satisfaction can never last, the model erases and absorbs the uniquely Austrian theory of the entrepreneur who searches for resources and discovers new preferences –as we have seen, a very important point of the calculation argument. <o:p></o:p>

Another source of misunderstanding is the fact that once someone reads the calculation argument for the first time, they are led into thinking, since the argument hinges on the correct use of money, that the only problem with socialism is a lack of money or bookkeepers or accountants. But Mises is not emphasizing the role of these latter (though they are important) but is rather emphasizing the correct use of their services. To try and solve economic problems of scarcity and choice, the planner, without profit and loss, has to go and solve it by some objective means -whether philosophical, political, or scientific but never based on the subjectivity of buying/selling. But to try to do this is the same as trying to answer the question, “is the cup half-full or half-empty” without any recourse to thirst. When water has no physical meaning, one will simply adjust the levels arbitrarily, when property has no economic meaning, one will simply adjust its relations arbitrarily. So the lack of profits and losses in socialism is in fact the crux of the issue.<o:p></o:p>

The final reason why the calculation argument is hard to grasp is that people hold a wrong view of capital. To most people capital is the money value of machinery and tools or money itself. Also, since it is expressed as a number, capital is an essentially uniform substance. But for Austrians, capital is a very diverse thing and is best seen under the aspect of its real (e.g. as tools, machines, etc.), not nominal (e.g. money), manifestation. The diversity of capital is illustrated in the fact that capital is simply machines, tools, etc. But it is in this that another implication that is momentous for the calculation argument can be seen –namely that capital is unspecific or can be used to make many different things. This fact, that there are many ways to skin a cat, makes it impossible for the planner of an economy to know, without money and private ownership of capital; what the most efficient use a capital good is. So the complexity of capital items is another indispensable piece to the calculation argument. <o:p></o:p>

<o:p> </o:p>

In summary, having explored the argument, and the reasons for its unpopularity, and the reasons for its difficulty; even among Austrians, I now come to the answers for my original topic and to the end of this article.

<o:p></o:p>

<o:p>sources: economic calculation in a socialist commonwealth, economic calculation in a socialist commonwealth: Postscript, The Socialist Calculation Debate Revisited, Wikipedia: Joseph Schumpeter, Wikipedia: FA Hayek, Wikipedia: Information Economics, Wikipedia: Evolutionary Economics</o:p>

<o:p></o:p>

<o:p> </o:p>

the economic calculation argument

fakename — Sun, 22 Nov 2009 00:53:26 GMT

Revision 3 posted to Austrian Economics by fakename on 11/21/2009 6:53:26 PM

the economic calculation argument

Filed under: Money, FAQ, Mises, socialism, hayek

<o:p></o:p>

<o:p></o:p>

   Mises delivered the calculation argument in 1920 and sparked what is known as the socialist calculation debate. That debate lasted until the 1950s. One fact worth mentioning is that most opponents of Austrian economics consistently misstate the calculation argument. The calculation argument which they attack is in reality the Hayekian, not the Misesean, version. Hayek’s calculation argument had more to do with the allocation of information under a command economy, an emphasis which, as we shall see, was far and away from that of Mises. <o:p></o:p>

<o:p> </o:p>

The Argument Itself<o:p></o:p>

<o:p> </o:p>

What Mises said was, if one is to build a railroad, under socialism, how would one go about doing it given that there are a thousand ways to organize the workers, mine the metals, harvest the coal, etc. Under free markets, such a problem is already solved; one just adds up the costs and profits of a project and its materials and one can begin or stop depending on the loss/gain ratio. The inability to do this under socialism, Mises maintained, would be an insurmountable obstacle to socialism which would render it impossible in the strict sense. <o:p></o:p>

Mises also is unconvinced by the possible methods of accounting under socialism. He specifically disagreed with the idea of basing the value of products on labor since it is not true that all labor is of the same usefulness –ditchdiggers would be paid hugely incomparison with government directors who would be paid little. He also disagreed with the possibility of basing the allocation of goods in the socialist economy on technological efficiency. This was chiefly because he believed that not all values were reducible to, or necessarily connected with, technological efficiency –that is –technological efficiency was just one in a number of values that the acting man has to balance. So for instance, for any given thing, it could be said that it could be made more technically efficient –using less resources, less movements, less space to produce more output –but it is not at all known whether an acting man would prefer more output or if he has the resources necessary to produce such an efficient machine. <o:p></o:p>

   Perhaps, too the socialist state could use money to establish prices but here again Mises would be unconvinced. He responded that money is useless in uncovering the exchange ratio of goods under socialism. The assignment of money prices to items would be totally arbitrary since the state, already controlling all supplies, could hardly be under the necessity or incentive to negotiate market prices for them. <o:p></o:p>

   The famous opponent of the Misesean argument, and the winner of the calculation argument, was the socialist-leaning economist Oskar Lange who accepted that a socialist state could use money but that it could solve the impossibility of calculation by just acting like a firm does and through trial and error in setting prices, establish just what the right price of consumer goods would be. This solution also assumes that the state is the owner of capital and the people are freely allowed to buy consumer goods. This is the market socialist solution. <o:p></o:p>

   But once more, mises continued in his objections. If the socialist state controlled capital –like bridges, factories, etc. –then the original problems of socialism are just rolled back one more level and still exist but in a more limited scope. Secondly the trial and error method is gravely mistaken about the differences and roles of the entrepreneur and the bureaucrat. The bureaucrat runs the department and makes sure that it is operating within budget and optimizing potential, given certain directives, but the entrepreneur doesn’t just operate within budget but is on the look out for new profit. He realizes that nothing is merely given in reality (but needs action to be discovered) and he looks upon the “given directives” of the bureaucrat as an unreachable ideal for himself.   The langean plan envisions the role of markets as a bureaucratic machine which distributes goods at an equilibrium price whereas the correct theory of markets also sees the market as an entrepreneurial machine which makes goods that were hitherto unknown, and finds ways not just to optimize the given but to find new ends to reach for. This is the essential missing factor of the market socialist solution and one that it could not possibly overcome because entrepreneurs, who gain profits by exploiting the differences in value between means and ends (e.g. inventions), implicitly need a private market in capital which is precisely what lange, as we have noted, could not allow.     <o:p></o:p>

<o:p> </o:p>

But is it possible to, perhaps through punishments and rewards, motivate the directors of state bureaus to buy and sell as if they were on the market and so, to produce profit that way? Mises would object that it is impossible because whoever is administering these punishments/rewards would become more important than what is more traditionally thought of as the customer. It would become more important for the leaders of socialist firms to perform to the standards of whoever is regulating them, than to the customers who are buying from them. And secondly, what is the point of acting like an entrepreneur and taking risks when you yourself are not buying or selling your own property? It makes no sense to believe that such a system would approximate the free market one –where a person’s personal property is always at risk. <o:p></o:p>

<o:p> </o:p>

This was what Mises belittled as “playing market”. <o:p></o:p>

<o:p> </o:p>

But again, could a socialist society use the equations of mainstream economics to solve its allocation needs? Here too, Mises would’ve said no. These equations are only descriptions of equilibrium conditions –conditions where all materials are already allocated to their most important use and where no possible change towards or away from this position is thinkable –as such they leave unanswered the question of what is the most efficient course to reach equilibrium nor can they describe the almost universal fact of life which markets are supposed to overcome namely disequilibrium. So here we see Mises’s emphasis lays not in information allocation but in the subjective value of property. That is, his emphasis lay on ownership since it is the preamble and premise of any allocation including information allocation. This is what allowed him to concede that the socialist central planners could have perfect information of consumer wishes, yet inspite of this, they could still fail in planning the economy. <o:p></o:p>

   <o:p></o:p>

   And that was the calculation argument in summary. But why did this Misesean argument fall out of favor with the academic community in favor of hayek’s and why is it that this theory is so hard to grasp, even for Austrians? <o:p></o:p>

<o:p> </o:p>

An Inquiry Into the Reasons for the Rise of the Hayekian Version<o:p></o:p>

<o:p> </o:p>

      The Hayekian version of the argument was raised to such importance ultimately because of two things: the victory of Lange and the scholarship of Joseph Schumpeter. The former, by presenting answers to Mises’s objections which were accepted by all orthodox economists, and the latter; by recording and transmitting Lange’s answers throughout the academic world, completely steamrolled and indeed, erased any memory of the Misesean argument. Also, Hayek’s vision of the scarcity and value of information implied the existence of an economics of information and an economics of evolution. These implications were drawn out, becoming two new fields of economic inquiry. His impact on academia, and the consequent perpetuation of his theory of the market as information allocator; within the bodies of two new scholarly areas, maintained the popularity of his version of the calculation argument. <o:p></o:p>

<o:p> </o:p>

Reception of Mises’s Argument <o:p></o:p>

   <o:p></o:p>

   Quite oppositely the reception of Mises’s argument was nothing but negative. Firstly, Hayek himself, before Lange, felt that Mises’s argument was weak and was already answered by Pareto and Barone in the late 1800s. The fact was, he thought, that equations could be used to calculate as the mainstreamers thought. Later even his argument, that the central planners could never accumulate all the knowledge needed to calculate, was considered defeated by the Langean solution where the planner could just use trial and error to find the right price. Of course Hayek would retort that such a solution already assumed that information was in one place (“implication is a logical relationship which can be meaningfully asserted only of propositions simultaneously present to one and the same mind”). After the largely unexpected fall of the soviet union though, the Misesean argument has been revived and become a subject of study once more. <o:p></o:p>

<o:p> </o:p>

Of the Difficulty of Mises’s Argument<o:p></o:p>

<o:p></o:p>

  Indeed one can also say that the difficulty of Mises’s calculation argument also doomed it and here one can analyze why his argument was especially difficult. For one, most economists including Hayek believed that Mises had left himself exposed to attack by the mathematical economists who argued thusly: “If a human can solve the equations which describe free markets, then central planners could solve the same equations, solving the problem of calculation under any central system.” What these economists did not understand was that their equations were not to be taken literally as a guide precisely because these equations simplified economic reality too much such that any knowledge that could be gained from them, was only analogous and not unequivocal, information. For instance, the equations for equilibrium, if taken literally, describe a person or group of people who simply use given resources to maximize their satisfaction. But since resources must be discovered, and since satisfaction can never last, the model erases and absorbs the uniquely Austrian theory of the entrepreneur who searches for resources and discovers new preferences –as we have seen, a very important point of the calculation argument. <o:p></o:p>

   Another source of misunderstanding is the fact that once someone reads the calculation argument for the first time, they are led into thinking, since the argument hinges on the correct use of money, that the only problem with socialism is a lack of money or bookkeepers or accountants. But Mises is not emphasizing the role of these latter (though they are important) but is rather emphasizing the correct use of their services. To try and solve economic problems of scarcity and choice, the planner, without profit and loss, has to go and solve it by some objective means -whether philosophical, political, or scientific but never based on the subjectivity of buying/selling. But to try to do this is the same as trying to answer the question, “is the cup half-full or half-empty” without any recourse to thirst. When water has no physical meaning, one will simply adjust the levels arbitrarily, when property has no economic meaning, one will simply adjust its relations arbitrarily. So the lack of profits and losses in socialism is in fact the crux of the issue.<o:p></o:p>

    The final reason why the calculation argument is hard to grasp is that people hold a wrong view of capital. To most people capital is the money value of machinery and tools or money itself. Also, since it is expressed as a number, capital is an essentially uniform substance. But for Austrians, capital is a very diverse thing and is best seen under the aspect of its real (e.g. as tools, machines, etc.), not nominal (e.g. money), manifestation. The diversity of capital is illustrated in the fact that capital is simply machines, tools, etc. But it is in this that another implication that is momentous for the calculation argument can be seen –namely that capital is unspecific or can be used to make many different things. This fact, that there are many ways to skin a cat, makes it impossible for the planner of an economy to know, without money and private ownership of capital; what the most efficient use a capital good is. So the complexity of capital items is another indispensable piece to the calculation argument. <o:p></o:p>

<o:p> </o:p>

In summary, having explored the argument, and the reasons for its unpopularity, and the reasons for its difficulty; even among Austrians, I now come to the answers for my original topic and to the end of this article.

<o:p></o:p>

<o:p>sources: economic calculation in a socialist commonwealth, economic calculation in a socialist commonwealth: Postscript, The Socialist Calculation Debate Revisited, Wikipedia: Joseph Schumpeter, Wikipedia: FA Hayek, Wikipedia: Information Economics, Wikipedia: Evolutionary Economics</o:p>

   <o:p></o:p>



<o:p> </o:p>

the economic calculation argument

fakename — Sun, 22 Nov 2009 00:49:46 GMT
Revision 2 posted to Austrian Economics by fakename on 11/21/2009 6:49:46 PM

the economic calculation argument

Filed under: Money, FAQ, Mises, socialism, hayek

<o:p></o:p>

   The calculation argument is probably the most difficult to understand piece of Austrian theory in the whole corpus of austrianism. Indeed it is true that many Austrians themselves, at present and certainly in the past, have failed to understand it fully. The purpose of this article then, is to process the argument into a more understandable summary and to show some of the causes that have contributed to its apprehensive difficulty. <o:p></o:p>

<o:p></o:p>

   Mises delivered the calculation argument in 1920 and sparked what is known as the socialist calculation debate. That debate lasted until the 1950s. One fact worth mentioning is that most opponents of Austrian economics consistently misstate the calculation argument. The calculation argument which they attack is in reality the Hayekian, not the Misesean, version. Hayek’s calculation argument had more to do with the allocation of information under a command economy, an emphasis which, as we shall see, was far and away from that of Mises. <o:p></o:p>

<o:p> </o:p>

The Argument Itself<o:p></o:p>

<o:p> </o:p>

What Mises said was, if one is to build a railroad, under socialism, how would one go about doing it given that there are a thousand ways to organize the workers, mine the metals, harvest the coal, etc. Under free markets, such a problem is already solved; one just adds up the costs and profits of a project and its materials and one can begin or stop depending on the loss/gain ratio. The inability to do this under socialism, Mises maintained, would be an insurmountable obstacle to socialism which would render it impossible in the strict sense. <o:p></o:p>

Mises also is unconvinced by the possible methods of accounting under socialism. He specifically disagreed with the idea of basing the value of products on labor since it is not true that all labor is of the same usefulness –ditchdiggers would be paid hugely incomparison with government directors who would be paid little. He also disagreed with the possibility of basing the allocation of goods in the socialist economy on technological efficiency. This was chiefly because he believed that not all values were reducible to, or necessarily connected with, technological efficiency –that is –technological efficiency was just one in a number of values that the acting man has to balance. So for instance, for any given thing, it could be said that it could be made more technically efficient –using less resources, less movements, less space to produce more output –but it is not at all known whether an acting man would prefer more output or if he has the resources necessary to produce such an efficient machine. <o:p></o:p>

   Perhaps, too the socialist state could use money to establish prices but here again Mises would be unconvinced. He responded that money is useless in uncovering the exchange ratio of goods under socialism. The assignment of money prices to items would be totally arbitrary since the state, already controlling all supplies, could hardly be under the necessity or incentive to negotiate market prices for them. <o:p></o:p>

   The famous opponent of the Misesean argument, and the winner of the calculation argument, was the socialist-leaning economist Oskar Lange who accepted that a socialist state could use money but that it could solve the impossibility of calculation by just acting like a firm does and through trial and error in setting prices, establish just what the right price of consumer goods would be. This solution also assumes that the state is the owner of capital and the people are freely allowed to buy consumer goods. This is the market socialist solution. <o:p></o:p>

   But once more, mises continued in his objections. If the socialist state controlled capital –like bridges, factories, etc. –then the original problems of socialism are just rolled back one more level and still exist but in a more limited scope. Secondly the trial and error method is gravely mistaken about the differences and roles of the entrepreneur and the bureaucrat. The bureaucrat runs the department and makes sure that it is operating within budget and optimizing potential, given certain directives, but the entrepreneur doesn’t just operate within budget but is on the look out for new profit. He realizes that nothing is merely given in reality (but needs action to be discovered) and he looks upon the “given directives” of the bureaucrat as an unreachable ideal for himself.   The langean plan envisions the role of markets as a bureaucratic machine which distributes goods at an equilibrium price whereas the correct theory of markets also sees the market as an entrepreneurial machine which makes goods that were hitherto unknown, and finds ways not just to optimize the given but to find new ends to reach for. This is the essential missing factor of the market socialist solution and one that it could not possibly overcome because entrepreneurs, who gain profits by exploiting the differences in value between means and ends (e.g. inventions), implicitly need a private market in capital which is precisely what lange, as we have noted, could not allow.     <o:p></o:p>

<o:p> </o:p>

But is it possible to, perhaps through punishments and rewards, motivate the directors of state bureaus to buy and sell as if they were on the market and so, to produce profit that way? Mises would object that it is impossible because whoever is administering these punishments/rewards would become more important than what is more traditionally thought of as the customer. It would become more important for the leaders of socialist firms to perform to the standards of whoever is regulating them, than to the customers who are buying from them. And secondly, what is the point of acting like an entrepreneur and taking risks when you yourself are not buying or selling your own property? It makes no sense to believe that such a system would approximate the free market one –where a person’s personal property is always at risk. <o:p></o:p>

<o:p> </o:p>

This was what Mises belittled as “playing market”. <o:p></o:p>

<o:p> </o:p>

But again, could a socialist society use the equations of mainstream economics to solve its allocation needs? Here too, Mises would’ve said no. These equations are only descriptions of equilibrium conditions –conditions where all materials are already allocated to their most important use and where no possible change towards or away from this position is thinkable –as such they leave unanswered the question of what is the most efficient course to reach equilibrium nor can they describe the almost universal fact of life which markets are supposed to overcome namely disequilibrium. So here we see Mises’s emphasis lays not in information allocation but in the subjective value of property. That is, his emphasis lay on ownership since it is the preamble and premise of any allocation including information allocation. This is what allowed him to concede that the socialist central planners could have perfect information of consumer wishes, yet inspite of this, they could still fail in planning the economy. <o:p></o:p>

   <o:p></o:p>

   And that was the calculation argument in summary. But why did this Misesean argument fall out of favor with the academic community in favor of hayek’s and why is it that this theory is so hard to grasp, even for Austrians? <o:p></o:p>

<o:p> </o:p>

An Inquiry Into the Reasons for the Rise of the Hayekian Version<o:p></o:p>

<o:p> </o:p>

      The Hayekian version of the argument was raised to such importance ultimately because of two things: the victory of Lange and the scholarship of Joseph Schumpeter. The former, by presenting answers to Mises’s objections which were accepted by all orthodox economists, and the latter; by recording and transmitting Lange’s answers throughout the academic world, completely steamrolled and indeed, erased any memory of the Misesean argument. Also, Hayek’s vision of the scarcity and value of information implied the existence of an economics of information and an economics of evolution. These implications were drawn out, becoming two new fields of economic inquiry. His impact on academia, and the consequent perpetuation of his theory of the market as information allocator; within the bodies of two new scholarly areas, maintained the popularity of his version of the calculation argument. <o:p></o:p>

<o:p> </o:p>

Reception of Mises’s Argument <o:p></o:p>

   <o:p></o:p>

   Quite oppositely the reception of Mises’s argument was nothing but negative. Firstly, Hayek himself, before Lange, felt that Mises’s argument was weak and was already answered by Pareto and Barone in the late 1800s. The fact was, he thought, that equations could be used to calculate as the mainstreamers thought. Later even his argument, that the central planners could never accumulate all the knowledge needed to calculate, was considered defeated by the Langean solution where the planner could just use trial and error to find the right price. Of course Hayek would retort that such a solution already assumed that information was in one place (“implication is a logical relationship which can be meaningfully asserted only of propositions simultaneously present to one and the same mind”). After the largely unexpected fall of the soviet union though, the Misesean argument has been revived and become a subject of study once more. <o:p></o:p>

<o:p> </o:p>

Of the Difficulty of Mises’s Argument<o:p></o:p>

<o:p></o:p>

  Indeed one can also say that the difficulty of Mises’s calculation argument also doomed it and here one can analyze why his argument was especially difficult. For one, most economists including Hayek believed that Mises had left himself exposed to attack by the mathematical economists who argued thusly: “If a human can solve the equations which describe free markets, then central planners could solve the same equations, solving the problem of calculation under any central system.” What these economists did not understand was that their equations were not to be taken literally as a guide precisely because these equations simplified economic reality too much such that any knowledge that could be gained from them, was only analogous and not unequivocal, information. For instance, the equations for equilibrium, if taken literally, describe a person or group of people who simply use given resources to maximize their satisfaction. But since resources must be discovered, and since satisfaction can never last, the model erases and absorbs the uniquely Austrian theory of the entrepreneur who searches for resources and discovers new preferences –as we have seen, a very important point of the calculation argument. <o:p></o:p>

   Another source of misunderstanding is the fact that once someone reads the calculation argument for the first time, they are led into thinking, since the argument hinges on the correct use of money, that the only problem with socialism is a lack of money or bookkeepers or accountants. But Mises is not emphasizing the role of these latter (though they are important) but is rather emphasizing the correct use of their services. To try and solve economic problems of scarcity and choice, the planner, without profit and loss, has to go and solve it by some objective means -whether philosophical, political, or scientific but never based on the subjectivity of buying/selling. But to try to do this is the same as trying to answer the question, “is the cup half-full or half-empty” without any recourse to thirst. When water has no physical meaning, one will simply adjust the levels arbitrarily, when property has no economic meaning, one will simply adjust its relations arbitrarily. So the lack of profits and losses in socialism is in fact the crux of the issue.<o:p></o:p>

    The final reason why the calculation argument is hard to grasp is that people hold a wrong view of capital. To most people capital is the money value of machinery and tools or money itself. Also, since it is expressed as a number, capital is an essentially uniform substance. But for Austrians, capital is a very diverse thing and is best seen under the aspect of its real (e.g. as tools, machines, etc.), not nominal (e.g. money), manifestation. The diversity of capital is illustrated in the fact that capital is simply machines, tools, etc. But it is in this that another implication that is momentous for the calculation argument can be seen –namely that capital is unspecific or can be used to make many different things. This fact, that there are many ways to skin a cat, makes it impossible for the planner of an economy to know, without money and private ownership of capital; what the most efficient use a capital good is. So the complexity of capital items is another indispensable piece to the calculation argument. <o:p></o:p>

<o:p> </o:p>

In summary, having explored the argument, and the reasons for its unpopularity, and the reasons for its difficulty; even among Austrians, I now come to the answers for my original topic and to the end of this article.

<o:p></o:p>

<o:p>sources: economic calculation in a socialist commonwealth, economic calculation in a socialist commonwealth: Postscript, The Socialist Calculation Debate Revisited, Wikipedia: Joseph Schumpeter, Wikipedia: FA Hayek, Wikipedia: Information Economics, Wikipedia: Evolutionary Economics</o:p>

   <o:p></o:p>



<o:p> </o:p>

the economic calculation argument

fakename — Sun, 22 Nov 2009 00:49:46 GMT
Revision 1 posted to Austrian Economics by fakename on 11/21/2009 6:49:46 PM

<o:p></o:p>

   The calculation argument is probably the most difficult to understand piece of Austrian theory in the whole corpus of austrianism. Indeed it is true that many Austrians themselves, at present and certainly in the past, have failed to understand it fully. The purpose of this article then, is to process the argument into a more understandable summary and to show some of the causes that have contributed to its apprehensive difficulty. <o:p></o:p>

<o:p></o:p>

   Mises delivered the calculation argument in 1920 and sparked what is known as the socialist calculation debate. That debate lasted until the 1950s. One fact worth mentioning is that most opponents of Austrian economics consistently misstate the calculation argument. The calculation argument which they attack is in reality the Hayekian, not the Misesean, version. Hayek’s calculation argument had more to do with the allocation of information under a command economy, an emphasis which, as we shall see, was far and away from that of Mises. <o:p></o:p>

<o:p> </o:p>

The Argument Itself<o:p></o:p>

<o:p> </o:p>

What Mises said was, if one is to build a railroad, under socialism, how would one go about doing it given that there are a thousand ways to organize the workers, mine the metals, harvest the coal, etc. Under free markets, such a problem is already solved; one just adds up the costs and profits of a project and its materials and one can begin or stop depending on the loss/gain ratio. The inability to do this under socialism, Mises maintained, would be an insurmountable obstacle to socialism which would render it impossible in the strict sense. <o:p></o:p>

Mises also is unconvinced by the possible methods of accounting under socialism. He specifically disagreed with the idea of basing the value of products on labor since it is not true that all labor is of the same usefulness –ditchdiggers would be paid hugely incomparison with government directors who would be paid little. He also disagreed with the possibility of basing the allocation of goods in the socialist economy on technological efficiency. This was chiefly because he believed that not all values were reducible to, or necessarily connected with, technological efficiency –that is –technological efficiency was just one in a number of values that the acting man has to balance. So for instance, for any given thing, it could be said that it could be made more technically efficient –using less resources, less movements, less space to produce more output –but it is not at all known whether an acting man would prefer more output or if he has the resources necessary to produce such an efficient machine. <o:p></o:p>

   Perhaps, too the socialist state could use money to establish prices but here again Mises would be unconvinced. He responded that money is useless in uncovering the exchange ratio of goods under socialism. The assignment of money prices to items would be totally arbitrary since the state, already controlling all supplies, could hardly be under the necessity or incentive to negotiate market prices for them. <o:p></o:p>

   The famous opponent of the Misesean argument, and the winner of the calculation argument, was the socialist-leaning economist Oskar Lange who accepted that a socialist state could use money but that it could solve the impossibility of calculation by just acting like a firm does and through trial and error in setting prices, establish just what the right price of consumer goods would be. This solution also assumes that the state is the owner of capital and the people are freely allowed to buy consumer goods. This is the market socialist solution. <o:p></o:p>

   But once more, mises continued in his objections. If the socialist state controlled capital –like bridges, factories, etc. –then the original problems of socialism are just rolled back one more level and still exist but in a more limited scope. Secondly the trial and error method is gravely mistaken about the differences and roles of the entrepreneur and the bureaucrat. The bureaucrat runs the department and makes sure that it is operating within budget and optimizing potential, given certain directives, but the entrepreneur doesn’t just operate within budget but is on the look out for new profit. He realizes that nothing is merely given in reality (but needs action to be discovered) and he looks upon the “given directives” of the bureaucrat as an unreachable ideal for himself.   The langean plan envisions the role of markets as a bureaucratic machine which distributes goods at an equilibrium price whereas the correct theory of markets also sees the market as an entrepreneurial machine which makes goods that were hitherto unknown, and finds ways not just to optimize the given but to find new ends to reach for. This is the essential missing factor of the market socialist solution and one that it could not possibly overcome because entrepreneurs, who gain profits by exploiting the differences in value between means and ends (e.g. inventions), implicitly need a private market in capital which is precisely what lange, as we have noted, could not allow.     <o:p></o:p>

<o:p> </o:p>

But is it possible to, perhaps through punishments and rewards, motivate the directors of state bureaus to buy and sell as if they were on the market and so, to produce profit that way? Mises would object that it is impossible because whoever is administering these punishments/rewards would become more important than what is more traditionally thought of as the customer. It would become more important for the leaders of socialist firms to perform to the standards of whoever is regulating them, than to the customers who are buying from them. And secondly, what is the point of acting like an entrepreneur and taking risks when you yourself are not buying or selling your own property? It makes no sense to believe that such a system would approximate the free market one –where a person’s personal property is always at risk. <o:p></o:p>

<o:p> </o:p>

This was what Mises belittled as “playing market”. <o:p></o:p>

<o:p> </o:p>

But again, could a socialist society use the equations of mainstream economics to solve its allocation needs? Here too, Mises would’ve said no. These equations are only descriptions of equilibrium conditions –conditions where all materials are already allocated to their most important use and where no possible change towards or away from this position is thinkable –as such they leave unanswered the question of what is the most efficient course to reach equilibrium nor can they describe the almost universal fact of life which markets are supposed to overcome namely disequilibrium. So here we see Mises’s emphasis lays not in information allocation but in the subjective value of property. That is, his emphasis lay on ownership since it is the preamble and premise of any allocation including information allocation. This is what allowed him to concede that the socialist central planners could have perfect information of consumer wishes, yet inspite of this, they could still fail in planning the economy. <o:p></o:p>

   <o:p></o:p>

   And that was the calculation argument in summary. But why did this Misesean argument fall out of favor with the academic community in favor of hayek’s and why is it that this theory is so hard to grasp, even for Austrians? <o:p></o:p>

<o:p> </o:p>

An Inquiry Into the Reasons for the Rise of the Hayekian Version<o:p></o:p>

<o:p> </o:p>

      The Hayekian version of the argument was raised to such importance ultimately because of two things: the victory of Lange and the scholarship of Joseph Schumpeter. The former, by presenting answers to Mises’s objections which were accepted by all orthodox economists, and the latter; by recording and transmitting Lange’s answers throughout the academic world, completely steamrolled and indeed, erased any memory of the Misesean argument. Also, Hayek’s vision of the scarcity and value of information implied the existence of an economics of information and an economics of evolution. These implications were drawn out, becoming two new fields of economic inquiry. His impact on academia, and the consequent perpetuation of his theory of the market as information allocator; within the bodies of two new scholarly areas, maintained the popularity of his version of the calculation argument. <o:p></o:p>

<o:p> </o:p>

Reception of Mises’s Argument <o:p></o:p>

   <o:p></o:p>

   Quite oppositely the reception of Mises’s argument was nothing but negative. Firstly, Hayek himself, before Lange, felt that Mises’s argument was weak and was already answered by Pareto and Barone in the late 1800s. The fact was, he thought, that equations could be used to calculate as the mainstreamers thought. Later even his argument, that the central planners could never accumulate all the knowledge needed to calculate, was considered defeated by the Langean solution where the planner could just use trial and error to find the right price. Of course Hayek would retort that such a solution already assumed that information was in one place (“implication is a logical relationship which can be meaningfully asserted only of propositions simultaneously present to one and the same mind”). After the largely unexpected fall of the soviet union though, the Misesean argument has been revived and become a subject of study once more. <o:p></o:p>

<o:p> </o:p>

Of the Difficulty of Mises’s Argument<o:p></o:p>

<o:p></o:p>

  Indeed one can also say that the difficulty of Mises’s calculation argument also doomed it and here one can analyze why his argument was especially difficult. For one, most economists including Hayek believed that Mises had left himself exposed to attack by the mathematical economists who argued thusly: “If a human can solve the equations which describe free markets, then central planners could solve the same equations, solving the problem of calculation under any central system.” What these economists did not understand was that their equations were not to be taken literally as a guide precisely because these equations simplified economic reality too much such that any knowledge that could be gained from them, was only analogous and not unequivocal, information. For instance, the equations for equilibrium, if taken literally, describe a person or group of people who simply use given resources to maximize their satisfaction. But since resources must be discovered, and since satisfaction can never last, the model erases and absorbs the uniquely Austrian theory of the entrepreneur who searches for resources and discovers new preferences –as we have seen, a very important point of the calculation argument. <o:p></o:p>

   Another source of misunderstanding is the fact that once someone reads the calculation argument for the first time, they are led into thinking, since the argument hinges on the correct use of money, that the only problem with socialism is a lack of money or bookkeepers or accountants. But Mises is not emphasizing the role of these latter (though they are important) but is rather emphasizing the correct use of their services. To try and solve economic problems of scarcity and choice, the planner, without profit and loss, has to go and solve it by some objective means -whether philosophical, political, or scientific but never based on the subjectivity of buying/selling. But to try to do this is the same as trying to answer the question, “is the cup half-full or half-empty” without any recourse to thirst. When water has no physical meaning, one will simply adjust the levels arbitrarily, when property has no economic meaning, one will simply adjust its relations arbitrarily. So the lack of profits and losses in socialism is in fact the crux of the issue.<o:p></o:p>

    The final reason why the calculation argument is hard to grasp is that people hold a wrong view of capital. To most people capital is the money value of machinery and tools or money itself. Also, since it is expressed as a number, capital is an essentially uniform substance. But for Austrians, capital is a very diverse thing and is best seen under the aspect of its real (e.g. as tools, machines, etc.), not nominal (e.g. money), manifestation. The diversity of capital is illustrated in the fact that capital is simply machines, tools, etc. But it is in this that another implication that is momentous for the calculation argument can be seen –namely that capital is unspecific or can be used to make many different things. This fact, that there are many ways to skin a cat, makes it impossible for the planner of an economy to know, without money and private ownership of capital; what the most efficient use a capital good is. So the complexity of capital items is another indispensable piece to the calculation argument. <o:p></o:p>

<o:p> </o:p>

In summary, having explored the argument, and the reasons for its unpopularity, and the reasons for its difficulty; even among Austrians, I now come to the answers for my original topic and to the end of this article.

<o:p></o:p>

<o:p>sources: economic calculation in a socialist commonwealth, economic calculation in a socialist commonwealth: Postscript, The Socialist Calculation Debate Revisited, Wikipedia: Joseph Schumpeter, Wikipedia: FA Hayek, Wikipedia: Information Economics, Wikipedia: Evolutionary Economics</o:p>

   <o:p></o:p>



<o:p> </o:p>

Gold as Money: FAQ

Snowflake — Tue, 17 Nov 2009 14:31:50 GMT
Current revision posted to Austrian Economics by Snowflake on 11/17/2009 8:31:50 AM

Gold as Money: FAQ

Filed under: Gold, Money, Gold Standard, FAQ, Deflation, Investment

Some responses to common objections about the use of gold as money:

1. There simply is not enough gold for it to be used as money.

This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”

Hoppe writes:

Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs. [Source]

The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.

2. At current market prices, all the mined gold on earth is worth $4.5 trillion. This is much less that all the currency that has been printed in the whole world!

The price of gold in terms of pieces of paper is irrelevant. After all, fiat currency notes can be printed with very little effort at all. For purposes of transition, the price of gold can be adjusted (by fiat if necessary) to that all central bank money holders can convert their money into gold.

3.What’s stopping you from using gold as money now?

Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in dollars or euros (e.g. if somebody defaults on a gold contract, compensation may be payable in central bank money)

4. The money supply must grow at the same rate as the economy.

No it doesn’t. Prices are not independent of the money supply. The quantity of the money supply overall does not matter (See 1.). If the amount of goods and services increases, while the money supply stays fixed, prices of all goods and services will fall.

5. But deflation is bad, isn’t it? If the purchasing power of money constantly rises, doesn’t that mean an end to investment? Entrepreneurs will surely prefer to safely hide their money under the matress instead of taking the risk of investing.

Falling prices are surely a good thing!

The answer to the second question is no. While it is certainly “risk-free” to keep your money under the bed, it comes with a very real opportunity cost. Investors have a peculiar trait: they prefer goods in the future to goods in the present. In other words they forego consumption today and prefer a larger return later.

So a deflationary economy a nominal return (i.e., $1) becomes $1.10 when repaid compounds the real return (i.e., the purchasing power of $1.10 is now $1.21)

The desire for future goods will increase the desire for investment.

6. When did falling prices ever coincide with economic prosperity?

The period between 1873 and 1896 in Germany and the United States was a time of deflation. Prices for goods fell at an annualised rate of 1.6%. Gross Domestic Product grew at an annualised rate of 3.6%.

Innovations in manufacturemanufacturing, chemistry and railroads made the 1880s the most productive decade in the history of the United States - and one of the most prosperous.

Further Reading

Rothbard, Murray N.; The Case for a 100 Percent Gold Dollar

Hulsmann, J. G.; Deflation and Liberty

Sources

Hoppe, Hans-Hermann; The Misesian Case Against Keynes

Measuringworth.com (charts and figures)

Hat tip to Graham of the Irish Liberty Forum for his insights here.

Cheers to David Z for his insghts here.

Gold as Money: FAQ

MatthewWilliam — Sat, 28 Feb 2009 05:05:06 GMT
Revision 2 posted to Austrian Economics by MatthewWilliam on 2/27/2009 11:05:06 PM

Gold as Money: FAQ

Filed under: Gold, Money, Gold Standard, FAQ, Deflation, Investment

Some responses to common objections about the use of gold as money:

1. There simply is not enough gold for it to be used as money.

This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”

Hoppe writes:

Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs. [Source]

The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.

2. At current market prices, all the mined gold on earth is worth $4.5 trillion. This is much less that all the currency that has been printed in the whole world!

The price of gold in terms of pieces of paper is irrelevant. After all, fiat currency notes can be printed with very little effort at all. For purposes of transition, the price of gold can be adjusted (by fiat if necessary) to that all central bank money holders can convert their money into gold.

3.What’s stopping you from using gold as money now?

Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in dollars or euros (e.g. if somebody defaults on a gold contract, compensation may be payable in central bank money)

4. The money supply must grow at the same rate as the economy.

No it doesn’t. Prices are not independent of the money supply. The quantity of the money supply overall does not matter (See 1.). If the amount of goods and services increases, while the money supply stays fixed, prices of all goods and services will fall.

5. But deflation is bad, isn’t it? If the purchasing power of money constantly rises, doesn’t that mean an end to investment? Entrepreneurs will surely prefer to safely hide their money under the matress instead of taking the risk of investing.

Falling prices are surely a good thing!

The answer to the second question is no. While it is certainly “risk-free” to keep your money under the bed, it comes with a very real opportunity cost. Investors have a peculiar trait: they prefer goods in the future to goods in the present. In other words they forego consumption today and prefer a larger return later.

So a deflationary economy a nominal return (i.e., $1) becomes $1.10 when repaid compounds the real return (i.e., the purchasing power of $1.10 is now $1.21)

The desire for future goods will increase the desire for investment.

6. When did falling prices ever coincide with economic prosperity?

The period between 1873 and 1896 in Germany and the United States was a time of deflation. Prices for goods fell at an annualised rate of 1.6%. Gross Domestic Product grew at an annualised rate of 3.6%.

Innovations in manufacture, chemistry and railroads made the 1880s the most productive decade in the history of the United States - and one of the most prosperous.

Further Reading

Rothbard, Murray N.; The Case for a 100 Percent Gold Dollar

Hulsmann, J. G.; Deflation and Liberty

Sources

Hoppe, Hans-Hermann; The Misesian Case Against Keynes

Measuringworth.com (charts and figures)

Hat tips tip to Graham of the Irish Liberty Forum for his insights here.

Cheers to David Z for his insghts here.

Gold as Money: FAQ

MatthewWilliam — Sat, 28 Feb 2009 05:04:12 GMT
Revision 1 posted to Austrian Economics by MatthewWilliam on 2/27/2009 11:04:12 PM

Some responses to common objections about the use of gold as money:

1. There simply is not enough gold for it to be used as money.

This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”

Hoppe writes:

Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs. [Source]

The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.

2. At current market prices, all the mined gold on earth is worth $4.5 trillion. This is much less that all the currency that has been printed in the whole world!

The price of gold in terms of pieces of paper is irrelevant. After all, fiat currency notes can be printed with very little effort at all. For purposes of transition, the price of gold can be adjusted (by fiat if necessary) to that all central bank money holders can convert their money into gold.

3.What’s stopping you from using gold as money now?

Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in dollars or euros (e.g. if somebody defaults on a gold contract, compensation may be payable in central bank money)

4. The money supply must grow at the same rate as the economy.

No it doesn’t. Prices are not independent of the money supply. The quantity of the money supply overall does not matter (See 1.). If the amount of goods and services increases, while the money supply stays fixed, prices of all goods and services will fall.

5. But deflation is bad, isn’t it? If the purchasing power of money constantly rises, doesn’t that mean an end to investment? Entrepreneurs will surely prefer to safely hide their money under the matress instead of taking the risk of investing.

Falling prices are surely a good thing!

The answer to the second question is no. While it is certainly “risk-free” to keep your money under the bed, it comes with a very real opportunity cost. Investors have a peculiar trait: they prefer goods in the future to goods in the present. In other words they forego consumption today and prefer a larger return later.

So a deflationary economy a nominal return (i.e., $1) becomes $1.10 when repaid compounds the real return (i.e., the purchasing power of $1.10 is now $1.21)

The desire for future goods will increase the desire for investment.

6. When did falling prices ever coincide with economic prosperity?

The period between 1873 and 1896 in Germany and the United States was a time of deflation. Prices for goods fell at an annualised rate of 1.6%. Gross Domestic Product grew at an annualised rate of 3.6%.

Innovations in manufacture, chemistry and railroads made the 1880s the most productive decade in the history of the United States - and one of the most prosperous.

Further Reading

Rothbard, Murray N.; The Case for a 100 Percent Gold Dollar                                                                                        Hulsmann, J. G.; Deflation and Liberty

Sources

Hoppe, Hans-Hermann; The Misesian Case Against Keynes                                                                             Measuringworth.com (charts and figures)                                                                                                                              Hat tips to Graham of the Irish Liberty Forum for his insights here.                                                                                  Cheers to David Z for his insghts here.

A World Without Intellectual Property

Snowflake — Tue, 17 Nov 2009 14:26:09 GMT
Current revision posted to Austrian Economics by Snowflake on 11/17/2009 8:26:09 AM

A World Without Intellectual Property

There are many good reasons to completely repeal patents and copyright laws. They : they are too complex ; they cannot to be understood or obeyed by anybody except a highly trained IP Intellectual Property (IP) attorney. They , they are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They they impede innovation ; since a patented invention cannot be improved by a third party. In addition

Additionally, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on diminishes bringing with it the product. Intellectual property cannot be enforced without spying on consumers' habits high prices and impeding their usage low quality of products they have bought and paid forall monopoly services. Consider, for example, DRMs and the draconian measures agencies like the RIAA take Intellectual property is also very expensive to crack down enforce since it requires surveillance and enforcement on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirablemillions of consumers.

Nevertheless, some continue to ask how we could live without support IP . Like,

...but then how would authors and performers get rights under the following mantras:

Authors of IP should be paid ?

... but then who would invest in important R&D if somebody else could copy for their work?

...but then authors

IP supports investment and performers innovation in R&D departments

An industry with no IP would simply be relying on goodwill donations!lose productivity

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

This happened with the invention of the steam engine. James Watt made important improvements and secured a patent for them, but then blocked many further improvements, which could be applied only when his patent expired.

"During the period of Watt's patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; while between 1810 and 1835 it is estimated to have increased by a factor of five." (*)

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreneur who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Further Reading

http://www.micheleboldrin.com/research/aim/anew02.pdf

James Watt: Monopolist

The Cathedral and the Bazaar -an essay on open software

A World Without Intellectual Property

Peter Sidor — Sat, 18 Apr 2009 14:41:00 GMT
Revision 5 posted to Austrian Economics by Peter Sidor on 4/18/2009 9:41:00 AM

A World Without Intellectual Property

There are many good reasons to completely repeal patents and copyright laws. They are too complex; they cannot be understood or obeyed by anybody except a highly trained IP attorney. They are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They impede innovation; a patented invention cannot be improved by a third party. In addition, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on the product. Intellectual property cannot be enforced without spying on consumers' habits and impeding their usage of products they have bought and paid for. Consider, for example, DRMs and the draconian measures agencies like the RIAA take to crack down on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirable.

Nevertheless, some continue to ask how we could live without IP. Like,

...but then how would authors and performers get paid?

... but then who would invest in important R&D if somebody else could copy their work?

...but then authors and performers would simply be relying on goodwill donations!

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

This happened with the invention of the steam engine. James Watt made important improvements and secured a patent for them, but then blocked many further improvements, which could be applied only when his patent expired.

"During the period of Watt's patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; while between 1810 and 1835 it is estimated to have increased by a factor of five." (*)

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreneur who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Further Reading

http://www.micheleboldrin.com/research/aim/anew02.pdf

http://mises.org/story/3280

James Watt: Monopolist

The Cathedral and the Bazaar -an essay on open software

A World Without Intellectual Property

Peter Sidor — Sat, 18 Apr 2009 11:26:07 GMT
Revision 4 posted to Austrian Economics by Peter Sidor on 4/18/2009 6:26:07 AM

A World Without Intellectual Property

There are many good reasons to completely repeal patents and copyright laws. They are too complex; they cannot be understood or obeyed by anybody except a highly trained IP attorney. They are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They impede innovation; a patented invention cannot be improved by a third party. In addition, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on the product. Intellectual property cannot be enforced without spying on consumers' habits and impeding their usage of products they have bought and paid for. Consider, for example, DRMs and the draconian measures agencies like the RIAA take to crack down on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirable.

Nevertheless, some continue to ask how we could live without IP. Like,

...but then how would authors and performers get paid?

... but then who would invest in important R&D if somebody else could copy their work?

...but then authors and performers would simply be relying on goodwill donations!

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

This happened with the invention of the steam engine. James Watt made important improvements and secured a patent for them, but then blocked many further improvements, which could be applied only when his patent expired.

"During the period of Watt's patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; while between 1810 and 1835 it is estimated to have increased by a factor of five." (*)

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreurs entrepreneur who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Further Reading

http://www.micheleboldrin.com/research/aim/anew02.pdf

http://mises.org/story/3280

A World Without Intellectual Property

freedom_seek — Sun, 15 Feb 2009 13:25:36 GMT
Revision 3 posted to Austrian Economics by freedom_seek on 2/15/2009 7:25:36 AM

A World Without Intellectual Property

There are many good reasons to completely repeal patents and copyright laws. They are too complex; they cannot be understood or obeyed by anybody except a highly trained IP attorney. They are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They impede innovation; a patented invention cannot be improved by a third party. In addition, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on the product. Intellectual property cannot be enforced without spying on consumers' habits and impeding their usage of products they have bought and paid for. Consider, for example, DRMs and the draconian measures agencies like the RIAA take to crack down on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirable.

Nevertheless, some continue to ask how we could live without IP. Like,

...but then how would authors and performers get paid?

... but then who would invest in important R&D if somebody else could copy their work?

...but then authors and performers would simply be relying on goodwill donations!

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, in the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreurs who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Further Reading

http://www.micheleboldrin.com/research/aim/anew02.pdf

A World Without Intellectual Property

ama gi — Thu, 12 Feb 2009 08:42:39 GMT
Revision 2 posted to Austrian Economics by ama gi on 2/12/2009 2:42:39 AM

A World Without Intellectual Property

There are many good reasons to completely repeal patents and copyright laws. They are too complex; they cannot be understood or obeyed by anybody except a highly trained IP attorney. They are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They impede innovation; a patented invention cannot be improved by a third party. In addition, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on the product. Intellectual property cannot be enforced without spying on consumers' habits and impeding their usage of products they have bought and paid for. Consider, for example, DRMs and the draconian measures agencies like the RIAA take to crack down on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirable.

Nevertheless, some continue to ask how we could live without IP. Like,

...but then how would authors and performers get paid?

... but then who would invest in important R&D if somebody else could copy their work?

...but then authors and performers would simply be relying on goodwill donations!

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, in the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreurs who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Further Reading

http://www.micheleboldrin.com/research/aim/anew02.pdf

A World Without Intellectual Property

ama gi — Sun, 25 Jan 2009 04:49:10 GMT
Revision 1 posted to Austrian Economics by ama gi on 1/24/2009 10:49:10 PM

There are many good reasons to completely repeal patents and copyright laws. They are too complex; they cannot be understood or obeyed by anybody except a highly trained IP attorney. They are often used for predatory purposes; some companies exist that purchase patented inventions and then, rather than place them into production, use the patents to initiate lucrative litigation against productive firms. They impede innovation; a patented invention cannot be improved by a third party. In addition, because one firm holds a monopoly on the patented product, no competition exists, and hence, no incentive to improve on the product. Intellectual property cannot be enforced without spying on consumers' habits and impeding their usage of products they have bought and paid for. Consider, for example, DRMs and the draconian measures agencies like the RIAA take to crack down on file-sharing. Ironically, in order to be enforced equitably, IP laws would have to be enforced globally--which is neither feasible nor desirable.

Nevertheless, some continue to ask how we could live without IP. Like,

...but then how would authors and performers get paid?

... but then who would invest in important R&D if somebody else could copy their work?

...but then authors and performers would simply be relying on goodwill donations!

This article attempts to answer those and other objections.

Books & Newspapers

Imagine you run a major book publisher. You publish a book, but then --whoops-- somebody clear across the country (or across the world) starts printing the same work. Because you don't have exclusive control over your content, you cannot pay your authors.

Major newspapers, on the other hand, produce new content on a daily (or weekly) basis, print millions of copies, and have them on their customers' doorsteps before anybody else has a chance to copy their work. Because of this, they don't need a government-enforced monopoly on their content.

In centuries past, authors used to have their books published one chapter at a time in major periodicals. Readers had to purchase multiple issues to read the entire book.

In a world without copyright laws, authors would probably follow a similar protocol. Then, after the last chapter has been published, other printers could copy the author's work and distribute it far and wide.

Authors have two main interests: to be paid for their work, and to have their work widely read and enjoyed so as to make a name for themselves. Those two interests sometimes run contrary to each other. However, in the system discribed above, works for everybody. Authors can get paid by the newspapers. The newspapers make a profit by selling multiple, successive issues. Printing companies can "free ride" by printing the book without paying royalties. Authors are promoted by having their works published by multiple firms. Consumers get the best deal of all: they can read a few chapters in the newspaper, then purchase the entire book at a competitive price.

Movies

Movie makers receive most of their revenues from motion-picture theatres, not DVD sales. Motion-picture theatres, unlike DVDs, are at low risk of piracy. Therefore, movie piracy is not nearly as harmful to the movie industry as they would have you to believe.

Broadcasting

Broadcasters are funded by advertising revenues, not by selling content. Hence, broadcasting would continue as usual without IP laws.

Music

Musicians could still get paid, even without copyright. They would still be able to sell concert tickets, even if they did not make a thin dime from CDs and MP3 downloads. In fact, file-sharing might actually make them more famous! They could then cash in on their new-found fame in other ways (increased ticket sales, T-shirts and promotional items, product endorsements, movie deals...)

Of course, people would still buy CDs, even with unrestricted file sharing networks in place. If you hear a CD being played in a store, and you like it, what are you going to do:

a) spend a few dollars, get a dozen good songs in your possession, or

b) spend the next four hours on the Web trying to find those songs performed by some obscure local artists.

The answer is obvious.

Inventions

When Thomas Edison (or, more accurately, Edison's company) invented the light bulb, he was three steps ahead of anybody who would try to manufacture light bulbs of their own. He had the technical know-how, he had the necessary equipment to manufacture light bulbs, and his name was known in every household. Because of these three major advantages, he did not need a legal monopoly on light bulbs to get a return on his investment. He must, however, remain three steps ahead of the competition.

Let's invent a a parallel universe, however, where Edison invents the light bulb, and then does not bother in any way to improve it or reduce the cost of manufacturing it. After several years, a rival inventor reverse-engineers the light bulb and build his own on his garage. He then discovers a way to manufacture the light bulb for cheaper than Edison's. He would quickly capture Edison's market share. In the absence of patents, Edison's laziness is punished and his rival's ingenuity is rewarded.

Software

Even without copyright laws, programmers would continue to produce software. They might engineer the software to work only with permission from the software firm, requiring the consumer to pay for it.

A second profitable business model is to allow consumers to use to the software for free, courtesy of advertisers. Google follows this model.

A third option, and probably most preferable from the consumer's perspective, is the open-source freeware/shareware model, or software written by volunteers/hobbyists and made freely available without difficult licensing restrictions. Users may copy, edit, modify, sell, or pretty much do anything with the software. (For-profit entrepreneurs are able to take a piece of shareware, add useful features, and sell copies with tech support.)

Brands & Trademarks

Let's take it a step further. Why do we need to have registered trademarks? The conventional answer is that it helps consumers recognize a familiar product and distinguish it from other manufacturers' products. Without corporations having legal monopolies on their respective trademarks, though, consumers would still be able to distinguish one producer's products from another's.

Imagine that you are an entrepreurs who makes O-shaped cereal similar to General Mills' Cheerios. Without legal trademarks, it would be perfectly legitimate to call your product Cheerios.

Even though you would have the right to call your product Cheerios, grocery stores may refuse to carry your product. They might object to the name and request you to call it something else. In the absence of intellectual property laws, general consensus would determine which words refer to a specific firm and which words refer to a generic product.

There you have it. Without patents and copyright, we would still have books, music, software, and world-changing inventions. We could still watch movies, and authors would still get paid for their work. There would by less mind-numbing regulation, and more competition in the market. Plus, you wouldn't need to feel guilty for downloading audio files from your next-door neighbor.

Disregarded Principles, a Falling Empire

larry — Thu, 09 Jul 2009 17:57:29 GMT
Current revision posted to Austrian Economics by larry on 7/9/2009 12:57:29 PM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

          The United States of America is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even by means of force; the Middle East is not happy about our crusade for democracy, I assure you.

Lately, the president does what he wants regardless of the laws of the land, or the Constitution.

He holds power far more supreme than that intended by the country's fathers who drafted created our government. We attack without the consent of the governed (represented by the Congress) and we allow freedom of speech but act upon what people say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

                   THE ROMANS DID THE SAME

          When the Romans broke their fundamentals of organization, they were smothered like a candle's fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

CHECKS AND BALANCES

          What are the principles of the United States? We have our "checks and balances" that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

          "Checks and balances" is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is are their property rights?

Just recently Barrack Obama censored out images from prisons that he didn't deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in America's Guantanamo Bay as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury?

The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped.

Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract?

The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on.

Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us,

"Any society that would give up a little liberty to gain a little security will deserve neither and lose both."

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 17:52:15 GMT
Revision 9 posted to Austrian Economics by laissez-faire on 6/8/2009 12:52:15 PM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

          The United States of America is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, evenwhen it's by means of force; the Middle East is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country's fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon whatthey people say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

          When the Romans broke their fundamentals of organization, they were smothered like a candle's fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

          What are the principles of the United States? We have our "checks and balances" that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

          "Checks and balances" is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn't deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in America's Guantanamo Bay as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, "Any society that would give up a little liberty to gain a little security will deserve neither and lose both."

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:37:56 GMT
Revision 8 posted to Austrian Economics by laissez-faire on 6/8/2009 11:37:56 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

          The United States of America is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it's by force; the Middle East is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country's fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

          When the Romans broke their fundamentals of organization, they were smothered like a candle's fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

          What are the principles of the United States? We have our "checks and balances" that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

          "Checks and balances" is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn't deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in America's Guantanamo Bay as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, "Any society that would give up a little liberty to gain a little security will deserve neither and lose both."

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:37:10 GMT
Revision 7 posted to Austrian Economics by laissez-faire on 6/8/2009 11:37:10 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

The <st1:country-region w:st="on"><st1:place w:st="on">United United States of America </st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s 's by force; the <st1:place w:st="on">Middle Middle East </st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s 's fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

When the Romans broke their fundamentals of organization, they were smothered like a candle’s 's fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United United States</st1:place></st1:country-region>? ? We have our “checks "checks and balances” " that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

          “Checks

"Checks and balances” " is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t 't deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> America's Guantanamo Bay as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any "Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”"

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:34:46 GMT
Revision 6 posted to Austrian Economics by laissez-faire on 6/8/2009 11:34:46 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

          The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

<o:p> </o:p>

          When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

<o:p> </o:p>

          What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

          “Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:22:52 GMT
Revision 5 posted to Austrian Economics by laissez-faire on 6/8/2009 11:22:52 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire



            The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

<o:p> </o:p>

<o:p> </o:p>

When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

<o:p> </o:p>

<o:p> </o:p>

What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

           “Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:21:44 GMT
Revision 4 posted to Austrian Economics by laissez-faire on 6/8/2009 11:21:44 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

            The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

<o:p> </o:p>

When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

<o:p> </o:p>

What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty.

“Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”<o:p></o:p>”

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:17:36 GMT
Revision 3 posted to Austrian Economics by laissez-faire on 6/8/2009 11:17:36 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

             The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down.

<o:p> </o:p>

When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows.

<o:p> </o:p>

What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty. <o:p></o:p>

“Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”<o:p></o:p>

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:16:11 GMT
Revision 2 posted to Austrian Economics by laissez-faire on 6/8/2009 11:16:11 AM

Disregarded Principles, a Falling Empire

Filed under: United States principles fundamentals falling empire Obama administration economy economic rights liberty freedom libertarian austrian property checks balances contract rule law laissez faire

            The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down. <o:p></o:p>

<o:p> </o:p>

            When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows. <o:p></o:p>

<o:p> </o:p>

            What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty. <o:p></o:p>

            “Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”<o:p></o:p>

Disregarded Principles, a Falling Empire

laissez-faire — Mon, 08 Jun 2009 16:14:14 GMT
Revision 1 posted to Austrian Economics by laissez-faire on 6/8/2009 11:14:14 AM

            The <st1:country-region w:st="on"><st1:place w:st="on">United States of America</st1:place></st1:country-region> is essentially an empire. We have troops stationed around the world and we tell other nations what to do. We have political power over many, even when it’s by force; the <st1:place w:st="on">Middle East</st1:place> is not happy about our crusade for democracy, I assure you. Lately, the president does what he wants regardless of the laws of the land, the Constitution. He holds power far more supreme than intended by the country’s fathers who drafted our government. We attack without the consent of the governed (represented by the Congress) and we allow the freedom of speech but act upon what they say about sensitive topics to Big Brother. Our empire of the fifty states and its protectorates are going down. <o:p></o:p>

<o:p> </o:p>

When the Romans broke their fundamentals of organization, they were smothered like a candle’s fire pinched out of life by two effortless fingers. They stopped their traditional tactics of war and mixed their lines, diluting it with foreigners (commonly referred to as barbarians). The U.S is following the same footsteps as previous empires, following them to the gallows. <o:p></o:p>

<o:p> </o:p>

What are the principles of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>? We have our “checks and balances” that form the relationship of the three branches of government. In addition we hold close to us our property rights, freedom of information, freedom of speech, individual rights, right to trial by jury, the rule of law, right of contract, and, just as importantly, reliability of contract, as well as a general base of liberty. <o:p></o:p>

“Checks and balances” is a shrinking system as the president is grabbing at more and more power from the other branches. As I mentioned, the president now has a tradition of calling war by himself. What happened to the representation of the people calling war (the congress)? Corporate executives went to the White House in May to watch the President, Barrack Obama, give away their money. Is their money not their property that they worked for; where is their property rights? Just recently Barrack Obama censored out images from prisons that he didn’t deem appropriate for the public to see. Where is my right to freedom of information? On NPR there was a program talking about how a woman, among many others, realized the government was listening to her phone calls and she therefore censored what she said on the phone. What happened to her right to freedom of speech? Untried, occasionally innocent, suspects sit indefinitely in <st1:country-region w:st="on">America</st1:country-region>’s <st1:place w:st="on"><st1:placename w:st="on">Guantanamo</st1:placename> <st1:placetype w:st="on">Bay</st1:placetype></st1:place> as we speak. If rights are unalienable amongst humans as we say, where are their rights to trial by jury? The government formatted a plan to tax 90% of AIG bonuses that had been in contract legitimately for months because they thought it was unfair to the people. Where is the guarantee of contract? Its sanctity has been stripped. Millions of people are unemployed but they could get a job if minimum wage was abolished. Give the people the right to decide if they prefer low wage employment or unemployment. Where is their right of contract? The rule of law is being ignored, individual rights ravaged, and liberty traded away as a society for security: security of your job, security from terrorism, security from racism, security from competition, the list goes on. Our principles are broke, our empire is falling. Just be aware of what Benjamin Franklin taught us, “Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”<o:p></o:p>

The natural level of profit in a free market.

Livemike — Sun, 22 Feb 2009 11:49:20 GMT
Current revision posted to Austrian Economics by Livemike on 2/22/2009 5:49:20 AM

The natural state of affairs when market entry is free is for net utility gain from profit-orientated investment to tend to zero. This is not the same thing as average monetary gains because the marginal utility of money declines as the amount of money an individual or group has increases. Therefore the utility of money that might be gained in profit is less than the utility of the same amount of money that might be lost. An investment would only make sense from a utility point of view if the potential profit was large enough to cancel out the greater value of dollars lower on the graph of $ vs. marginal utility. The difference between the marginal value of higher dollars and lower dollars tends to zero as the difference in the level decreases, at a small enough margin the derivative is almost a flat line. The rate of profit in a free market is therefore positive and indeterminable in advance, assuming people have no preference for gaining income by profit compared to wage labor. This however cannot be assumed. People may have a preference for recieving income as profits, as wages or in some other way. Therefore the average rate of profit could be negative if there is a general preference for undertaking entrepreneurial tasks rather than wage tasks. .

Comparetively rich people would probably be able to make bigger investment will staying in a comparatively straight area of the graph. The value of higher dollars would not be significantly greater than lower dollars until the gap between them was quite large. Therefore rich people would make larger investments for the same level of profit or make the same size investment for lower levels of profit than poor people and would therefore tend to make more smaller profits more often.