Hi,
Thanks for the web site. I am just learning Austrian Economics and it makes a lot of sense.
Re: Broken Window, I have a quick question:
I agree that repairing the window is not production. However, if in the process of repairing the window, the person invents a new way to make windows or , to seal a glass window, doesn't that count as production?
Thanks in advance.
brucelee: What is the Austrian economic answer to this question: Is it possible that inventions made by a government project actually are more productive than the inflation caused by the increase in fiat money? Yes or No? If the answer is no, I would like to know why not? If the answer is yes, then does it matter if the funds came from government or private enterprise?
What is the Austrian economic answer to this question: Is it possible that inventions made by a government project actually are more productive than the inflation caused by the increase in fiat money? Yes or No?
If the answer is no, I would like to know why not? If the answer is yes, then does it matter if the funds came from government or private enterprise?
The economic answer to this question is that there is no answer. What's productive to someone depends on his subjective valuations, and we can only know someone else's valuations when they act upon them by making free choices. So when the government takes money from someone to produce something, and then claim that they really did want it, all that we know from this is that the government preferred what it produced to its other choices, but we certainly don't know that the people forced to pay for it prefer it as much as the government does.
The fallacies of intellectual communism, a compilation - On the nature of power
"...But individuals do know their own preference scales, and the free market is the only way they can demonstrate their preferences..."
As long as you agree that free markets may lead to a more or less prosperous society(because the subjective preferences of the people may not be to become prosperous in the first place) than what Singapore turned out to become, I agree too.
Now apply to broken window fallacy to your example.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
"...Now apply to broken window fallacy to your example..."
Sorry what do you mean by that statement?
brucelee: "...Now apply to broken window fallacy to your example..." Sorry what do you mean by that statement?
What I meant was why would it be more likely that the window maker might find a new way to make windows than say the shoe maker (from whom the baker is buying shoes) to find a new way of buying shoes?
It does not matter to me whether the shoe maker or window maker invents it. What I am ultimately leading to is this: The author contends that repairing a window is not production. I agree with this. But if by randomness, an invention came out of this window reparation, then would that not be production?
If a government issues fiat money to launch a program to invent the best alternative energy and unleashes human intellect to spend time thinking about this, and out of this program, comes several inventions. The Austrian economist would say this is credit expansion and it is not good. But if the invention actually saves the society a trillion a year from spending on fossil oil, would the value of the product to society possibly be worth more than the amount of inflation (fiat money created)?
brucelee:I agree with this. But if by randomness, an invention came out of this window reparation, then would that not be production?
What if a man goes out, shoots a hundred people, and then as a result one of the survivors invents a slightly better bullet proof vest, is it production?
brucelee:The Austrian economist would say this is credit expansion and it is not good. But if the invention actually saves the society a trillion a year from spending on fossil oil, would the value of the product to society possibly be worth more than the amount of inflation (fiat money created)?
Why would it be greater than the amount of inflation, if it was of such high importance to society government wouldn't need to subsidize it.
I would say the new bullet proof is productive to the society. It is probably not worth the lives lost, so net-net, it is not productive to the society. But in my example, I am not talking about lives lost, I am just unleashing the intellect of the people.
In a sense, internet came out of the Defense budgets (fiat money) of the government. No one can argue that the internet has unleashed a lot of productivity and growth.
"... Why would it be greater than the amount of inflation, if it was of such high importance to society government wouldn't need to subsidize it ..."
How do you unleash and guide the entire population to think about solving a problem? Incentivize right? You can say that a private organization can do that without government subsidizing - which I agree. My only point is that if the invention is entirely revolutionary (internet which saves paper, wood, time, access to information), the invention's productivity can actually offer value to society higher than the absolute increase of fiat money.
Now, if the fiat money increase only caused people to decorate more of their house and throw away the decorations after a few months, then that is not good.
"... if it was of such high importance to society government wouldn't need to subsidize it ..."
There is no way to tell in advance how important an invention could be. The internet was an accidental invention of DARPA. Post-it notes was an accidental invention. Nobody could tell in advance where it was going to go.
You're merely arguing counterfactuals here. What if...? There's absolutely no reason to assume the market would not have directed the money to more efficient ends, directly desired by consumers. Invention for the sake of invention is pointless, and moreover, one cannot really say that government "investment" is a good over and above what private investment might've been.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
brucelee:But in my example, I am not talking about lives lost, I am just unleashing the intellect of the people.
Fine, money stolen. If I go break into 1000 houses and as a result somebody comes up with a better type of alarm, is it justified? The point is this, if society valued what these minds were being "unleashed" upon, then governemnt subsidies wouldn't be necessary.
brucelee:In a sense, internet came out of the Defense budgets (fiat money) of the government. No one can argue that the internet has unleashed a lot of productivity and growth.
Government intervention has been extremely detrimental to the internet as far as I know, but there are others who know more about this than myself.
Well, take the internet. If left to private enterprise, the internet may not have been invented until year 2100 instead of 1960. How about all the inventions of the NASA technology etcetera. How about all the patents made during the WWII years as a result of government budget? These government projects were done without profit in mind, which allowed for lower time preference, which then created all these inventions.
I think all the arguments are missing the point.
This is the main question.
Giles:
Is it possible that inventions made by a government project actually are more productive than the inflation caused by the increase in fiat money? Yes or No?
If no, can you prove to me that the internet's productivity is less than the government subsidies that have been spent?
brucelee:If the answer is no, I would like to know why not?
Because it's theft. If I rob a few hundred million people's homes and some minor goods come out of it is it justified?
brucelee:Well, take the internet. If left to private enterprise, the internet may not have been invented until year 2100 instead of 1960. How about all the inventions of the NASA technology etcetera. How about all the patents made during the WWII years as a result of government budget? These government projects were done without profit in mind, which allowed for lower time preference, which then created all these inventions.
You missed the whole point of the broken window fallacy.