Economics Questions

Re: Time value of money

Andrew Cain — Wed, 22 Jul 2009 02:35:18 GMT

ViennaSausage:

Thanks for the clarification on Rothbard vs. Mises. Is there one accepted view from contemporary Austrians.

Nice ScreenName btw.

It varies. The Utilitiarians/ Misesians here are usually both proponents of explanatory and normative subjective value while the Natural Rights theorists/ Rothbardians are proponents of explanatory.

Re: Time value of money

Jon Irenicus — Tue, 21 Jul 2009 22:51:47 GMT

He's not referring to value as in utility there. He does clarify this at some point in MES. That's merely capital value. Confusing, but the term can refer to either.

Re: Time value of money

nirgrahamUK — Tue, 21 Jul 2009 20:34:51 GMT

ViennaSausage:
One could argue that the value is the present value at the time of calculation, but is dynamic and contingent upon future present circumstances and valuations.

yes, ones subjective valuations arent fixed in perpetuity but can change. but when the mind ranges over objects that it must value in order to set on some human action, it must fix on the values as they appear

Re: Time value of money

ViennaSausage — Tue, 21 Jul 2009 20:31:58 GMT

Thanks for the clarification on Rothbard vs. Mises. Is there one accepted view from contemporary Austrians.

Nice ScreenName btw.

Re: Time value of money

ViennaSausage — Tue, 21 Jul 2009 20:31:08 GMT

Thanks for continuing the conversation. My objection is in the following table:

I don't quite understand how present value of year 1, 2, 3, etc. can be calculated, because isn't value subjective? How is the decline in value from recurring years calculated? One could argue that the value is the present value at the time of calculation, but is dynamic and contingent upon future present circumstances and valuations.

Re: Time value of money

Andrew Cain — Tue, 21 Jul 2009 18:56:29 GMT

ViennaSausage:
But isn't value subjective? How can something be objectively be valued less in the future, if value is subjective. Could I not value something more in the future for the possibility of what that something will bring me in the future?

There are actually two forms of subjective value: Explanatory subjective value and normative subjective value.

Mises believes in both, Rothbard only believes in explanatory.

Explanatory subjective value is appealing to the value system of the individual's actions you are trying to deduce points from. If I hate chocolate ice cream and I am trying to explain why someone would buy chocolate ice cream it would be irrational for me to state 'He is buying chocolate ice cream because I don't like it' and it would be rational to say 'He is buying chocolate ice cream because he likes it'

Normative subjective value states that values themselves are no better then the next. Therefore one value cannot be trumpeted over another and all have 'equality'

http://mises.org/story/2103

Re: Time value of money

nirgrahamUK — Tue, 21 Jul 2009 18:46:17 GMT

subjective just means that it is determined by the subject, not that it is not determined, or not bounded by any rules.

ViennaSausage:
How can something be objectively be valued less in the future, if value is subjective

if its necessary for human action to be comprehendable...

ViennaSausage:
Could I not value something more in the future for the possibility of what that something will bring me in the future?

could you value a gold piece more in the future than in the present for the possibility of what that gold piece will bring you in the future.?

well if the gold piece can persist through time, then it can persist from now the present into the future, and if you want to have it for a purpose that you have in mind in the future, then having it now, not only is it presently valued greatly because you have a high value future purpose with it in mind, but also you have whatever value you gain by having the gold piece in the present, which might be value in its 'contingency' providing qualities.

are you comparing having the goldpiece now and then putting it to a high value project in the future, with not having a goldpiece now and then putting it to a high value project in the future?

maybe I misunderstood your objection....

Re: Time value of money

ViennaSausage — Tue, 21 Jul 2009 04:16:18 GMT

I thought that made sense, but after reading further, I am further confused.

In Chapter 4, Section 7 of MES, Rothbard goes over present value of the future. He states, "As the date of time recedes into the future, the compounded discount becomes greater, finally reducing the present value to a negligible amount."

But isn't value subjective? How can something be objectively be valued less in the future, if value is subjective. Could I not value something more in the future for the possibility of what that something will bring me in the future?

Re: Time value of money

nirgrahamUK — Mon, 20 Jul 2009 21:20:16 GMT

cashbalance is odd in that it is a present utility but it is forward looking too. its kind of a weird blend.

cashbalance is excentric because it is there to be spent 'right now' if i need it to be .

but also it is a production good, it is a future good. since if i dont use it know but keep it aside to use it later,
i can turn things that other people own into things that i own.

Re: Time value of money

ViennaSausage — Mon, 20 Jul 2009 21:07:16 GMT

The time preference with regards to money confuses me. In MES, Rothbard goes about the three ways the money can be allocated.

Rothbard (numbering added by me) said:

"Every man must allocate his money resources in three and only three ways:

1) in consumption spending,

2) in investment expenditure,

3) and in addition to his cash balance."

This statements implies time preference, but does not explicit state so. 1) is used for consumption now, 2)+3) are used for consumption later.

Re: Time value of money

nirgrahamUK — Mon, 20 Jul 2009 19:41:16 GMT

i think its simply time preference but in the particular case of money

Time value of money

ViennaSausage — Mon, 20 Jul 2009 19:36:56 GMT

What is the time value of money?