Man, Economy, and State w/ Power and Market

I was just wondering if anyone else is reading/has read this, and would like to discuss it. 

I'm almost 200 hundred pages in.  I'm hoping to finish it over winter break.

Is anyone reading/discussing it for Jan 2010?

I am.

Bill

 

Can anyone recommend additional reading on intellectual property?  His support of copyrights and not patents seems a bit weak.  This is my first experience with a free market perspective on IP, so if someone could recommend a more in depth examination of the subject I would appreciate it.

Against Intellectual Monopoly by Boldrin and Levine

Against intellectual Property by Kinsella

The first is not exactly Austrian,  but close, well documented and a very good read.  Kinsella seems to be leading the charge against this issue.  Both are available free as pdfs.

 

I'm only a few hundred pages in... got interrupted by college classes. I'm enjoying it though.

I really am enjoying this book quite a bit. But I do have one comment that perhaps someone can help me come to terms with? Rothbard loves to discuss the evenly rotating economy, which excludes profits, loss, and uncertainty; as a means to make his message clear. In many ways this has helped with my understanding of what goes on in the market. One thing I am uneasy about, however, is that capitalists and entrepreneurs do what they do to gain profits... that is a praxeological deduced fact of human action. For this reason, I find it difficult to believe the market moves towards the elimination of profits all-together. People usually don't build things like cars without getting something in return. I do believe the demand curves in the market will ultimately limit the amount of profits available, as the consumer sets prices... but not the loss of all profits. This doesn't negate using the evenly-rotating-economy as a way to make it easier to understand, and Rothbard does say that the ERE is something that is realistically impossible. I suppose what i'm saying is the market doesn't move towards the ERE because of the facts of human action (not just uncertainty). Should it not be stated that the market always moves towards new goods and therefore in and out of equilibrium? I just finished Chapter 10 on monopolies; maybe more will be said on the matter as the book goes on. I think it's a great book :)

I was slightly confused about this as well, until I read this:

http://mises.org/journals/qjae/pdf/qjae5_4_7.pdf

"In a recent survey on interest theory, Professor Sennholz (1996, p. 127) reminded his readers that, as “was the case a century ago, the phenomenon of interest income continues to be enmeshed in much controversy, which makes it one of the most open and demanding subjects of economic inquiry.”

 What is this controversial phenomenon of interest income? In the most general way, it can be described as follows: Successful business is characterized by a positive spread between the sum total of prices paid for its factors of production and the sum total of prices received as proceeds for its products. The entrepreneur earns more money by selling his products than he spends on the factors of production that bring these products into being. The customers pay more money for his products than he pays for the factors of production of these products.

This phenomenon raises the fundamental question whether the entire spread between selling proceeds and cost expenditure can be “arbitraged away” through entrepreneurial competition, or whether at least a part of this spread cannot be so arbitraged away (see Kirzner 1993, p. 167f.). In other words, does the entire spread consist of entrepreneurial profit, which can be eliminated as a consequence of the competition of other entrepreneurs, or does it contain a component that cannot be so eliminated—does it also contain an interest component? And if it does contain an interest component, what is its cause?"

Thus, interest (not how we usually think of interest - as the difference between present and future satisfaction - but very similar) is different from entrepreneurial profit; and it cannot be simply arbitraged away. Competition can only reduce entrepreneurial profit to a certain level - the natural rate of interest. Of course, this is a subjective value - it does not have to be of any particular size and it will be different from individual to individual and it will change over time.

ohhh, so you're saying money made from interest will still satisfy entrepreneurs... that makes a few things more clear. I will have to check out your link, thanks!

Right. The way I think of it is that entrepreneurial profit is more of a risk component of the overall profit spread, whereas interest is the component that exists even where there is no risk (which is technically impossible...but one can hypothetically imagine). Innovative production will mostly derive its total profit from entrepreneurial profit - there are no or few competitors in the field, and little knowledge if the product will actually be profitable given consumer demand.

Ya, I agree... because of the way our system works I often think about risk and its affect on interest rates, but our bankruptcy laws are not what they should be; if they were it wouldn't seem like risk would play as big a part as it does. Although I've read many books that have come out of the Mises Institute, this is really the first one i've got in to that really explains the fundamentals of the market place, so perhaps you could help with one other issue... The business owners, as I understand them, which may be wrong; get capital from either investors or loans (if not from themselves). What I am having trouble with is seeing where the business owners themselves receive interest payments, rather than make them to the those who loaned and/or invested. They have the profits they make from selling consumers goods that they've produced, but they also seem to earn interest... I don't understand where interest comes into play, because I tend to think of them as being borrowers who would make payments on interest, rather than receive them. So I get that in the ERE there would still be profit due to interest; but I don't get why... unless of course i'm to take the word entrepreneur to strictly mean provider of capital in that sense...

When I say "interest", I am not talking about what is commonly referred to by that term, which actually refers the compensation demanded in sacrificing present means for future means. This was confusing at first to me as well, because I had always heard the term "interest" in reference to interest rates, the expression of time preference in terms of money. Hulsmann is referring to something different when he refers to "interest". Read that link I posted, and by the end of it, you'll understand. Just pretend for a minute that you've never heard the term "interest" before.

Will do, I'll read it tonight and come back if I don't understand something. Thanks again!

I think I understand what he's getting at now... I'm not sure if I agree with this theory of interest as of yet... I will say that it makes more sense the more I think about it, but I get what Rotbard is referring to now. Thank you very much for the link!

He seems simply to say that means are less valuable than ends, which is axiomatic rather than derived from existing axioms of praxeology. It makes sense that no one will work for free. If a business's primary end is profit rather than the benefit of its customers or enjoyment of the work itself, it will not choose to engage in behavior that will not accomplish its ends. But yes, it's such an abstract thing, it's difficult to simply agree with just because he says so. I found myself on the fence with it, as I read it, but if anything else, he is on the right track.

I understand what he's saying, but it seems like in saying what he is saying, he missed other praxeological points, such as "man acts to exchange the current state of affairs for a better state of affairs"... which would negate any logic behind providing labor/capital etc. without expecting to gain from it, also the idea of a negative interest rate... At the same time, I do think that the time preference factor is a little short on explaining interest rates; I do think interest rates are a way of selling capital. It's an interesting topic to say the least.

Just started the book, only 30 pages in. Everything's good so far, but I think I found a significant 'typo' on the graph on page 30 (I'm reading hte Man, Economy, and State with Power and Market, Scholars Edition.) The graph represents marginal utility for two goods, Good X and Good Y (which here he refers to as cows and horses.) Rothbard many times refers to the marginal utility of X-4 and Y-3, and claims that X-4 has a lower marginal utility than Y-3, even though they both take up the '6th' line from the top. Am I misinterpreting the two graphs? I imagine that X-4 is just suppose to be one line lower, but can someone confirm?

That's a good question. I think you might be right. I'm going to email one of the Austrians about it.

Kris, just came across your post. Labor and capital are by definition means that achieve ends. Thus, labor and capital as such are logical ways to achieve ends. If an entrepreneur does not expect to gain from the employment of labor and capital in specific instances, then he will not do so. This is assumed during any sound economic analysis. Interest rates aid in the purchase and sale of capital because they are the piece of information in the market that reflects time preference, i.e. the markup on present goods over future goods. It is not strictly a capital-based phenomenon. The reason why it has anything to do with capital at all is because capital, when durable, i.e. lasting into the future, will not allow the owner to derive all of its services in the present. Thus, it's future services (rents) must be discounted by the interest rate since those rents can only be earned by waiting. The interest rate is the income one would earn by selling a consumer good to a consumer (the markup on the cost of production.) The consumer will pay the interest rate because he prefers the finished product now rather than owning all of the factors of production that produced it. This is so because he would have to wait for the factors to produce it, which takes time. In the ERE, the markup on final products does not disappear, just the uncertainty component placed on top of it. This praxeological fact is what would make entrepreneurs continue to employ the land, labor and capital to produce consumer goods in the ERE.

I emailed Walter Block and quoted your question. He emailed a group of Austrian scholars. They came to the conclusion that in the hardback edition there is indeed a typo. They mentioned that it would be corrected in the next printing.

Matthew - ya, I came to that same conclusion since i've been continuing my studies. What has helped me to also understand interest is to think of it as the exchange rate between current and future money, as Bob Murphy wrote in Lessons for the young Economist, as well as time preference.