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Interest (something that is frustrating me)

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Pdrum posted on Sat, Apr 14 2012 2:19 PM

Here Rothbard is saying,

"After data work themselves out and continue without change, the rate of net return on the investment of money capital will, in the ERE, be the same in every line of production."  is he talking about equilibrium?

 

Maybe I'm over thinking this.

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Yes, the ERE (Evenly Rotating Economy) is the Austrian analogue of the concept of equilibrium in mainstream economics. And he's making the analogous claim to mainstream economics that - in equilibrium - all lines of investment are equally profitable (unfortunately, the mainstreamers have to conclude, using their flawed methodology, that the profitability of all lines of investment is zero in equilibrium).

Also, can you please cite where you're quoting from? Thanks.

Clayton -

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Clayton, does not Mises also state that profit does not exist in an evenly rotating economy? http://mises.org/daily/2321

Profits are never normal. They appear only where there is a maladjustment, a divergence between actual production and production as it should be in order to utilize the available material and mental resources for the best possible satisfaction of the wishes of the public. They are the prize of those who remove this maladjustment; they disappear as soon as the maladjustment is entirely removed. In the imaginary construction of an evenly rotating economy there are no profits. There the sum of the prices of the complementary factors of production, due allowance being made for time preference, coincides with the price of the product.

"...I feel, for instance, that I have the right to do anything I please. But, if I do something you don't like, I think you have the right to kill me." -George Carlin
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@ThreeTrees: Hm, OK, I'll shut up now.

Clayton -

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Just to bring out a point that needs to be mentioned.

Mises is using a technical definition of profit there. See HA, Chapter 15, section 8. Also section 2 [= The Distinction Between Profits and Other Proceeds] of this page: http://mises.org/daily/2321

Bottom line, profit as he uses it means the extra money someone makes by being cleverer than everyone else in giving the consumers what they want. The highly theoretical model called the ERE assumes, by definition, that there are no surprises and that everyone knows everything. So that kind of profit doesn't exist in the ERE.

But there are plenty of other things the layman calls profits and Mises calls proceeds that exist in an ERE. One is the payment one is willing to hand over for having a bird in the hand and not two in the bush. That is what Rothbard is talking about in the OP.

I don't know what the mainstream definition is of profit.

 

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Mainstream definition is Revenue - (Costs + Opprtunity Cost)

Or maybe this is too simplistic.

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TY Wheylous.

So that means the mainstream definition includes what Mises would call proceeds. In which case it sounds like Clayton was right the first time.

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Wheylous replied on Sat, Apr 14 2012 10:21 PM

Though I am not sure how you tabulate Opprotunity Costs...

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In MES, chapter8, Rothbard clearly distinguishes entrepreneurial profit (and loss) from rate of interest.

While the former is zero in ERE, the latter is not.

The Voluntaryist Reader - read, comment, post your own.
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