Economics Questions

Re: improving capitalism--a lot

Smiling Dave — Sat, 09 Jan 2010 04:41:24 GMT

I read the whole thread with great interest and was very enlightened. No one addressed specifics of your plan, so I'll do that as best as I, a newbie, can.

From the website:

The solution would be a profound yet relatively simple change in our approach to the money supply. It would enter the economy in the form of individuals' incomes. It would be purely fiat money, but that part would hardly be anything new. Those being paid that income would be retirees, people old enough to work but genuinely too incapacitated to work, and those who had jobs that were paid that income. In businesses, the rank-and-file workers would receive that income; only those paid more than that amount would be paid out of the revenue of a business. (To be perfectly clear, anyone who received any pay out of the revenue of a business would not be paid the allotted income.) Everyone who worked in government would be paid teh allotted income (and legislative bodies at all levels of government would doubtlessly award additional income to various offices from the revenue of government). The cost of all common labor would at any rate be zero. No one, however, would be required to earn the allotted income; people would be at least as free as they are at present in capitalism to do whatever they wanted to earn money.

In other words, there is a minimum amount of fiat money everyone would get whether they worked or not. This is really the same as giving everyone a minimum of nothing, by the laws of supply and demand which apply to paper money as well as everything else.

The amount of the allotted income for each individual who was paid it would be the average income at the time this change was instituted. Thus, instead of the size of the money supply being determined by a handful of individuals trying to 'manage' a chaotic economy, it would merely be the total of the incomes received by those who were paid the allotted income. The size of the money supply would therefore be exogenously determined—basically, by the size of the adult population. The size of the money supply would in turn determine total output.

Total output of what? I don't get this at all. If a tree on a farm can yield, I dunno 300 apples [I'm a city boy] how would that change depending on the total money supply?

Instead of a relatively small money supply that circulates many times over in the generation of total output, the economy would have a huge money supply and a very tiny 'multiplier effect'.

Being a total newbie, I have no idea what this means.

The general idea is that the money supply would be passed along to businesses via consumers' purchases, get transferred to government, then get transferred back to the monetary agency from government. Both businesses and individuals would transfer money to government, at the end of each quarter for the former and each month for the latter. Both businesses and individuals would be allowed to retain some amount of money: For businesses, it would be a (fixed) percentage of the money in their accounts; for individuals, it would be an absolute amount—say, three months' worth of the allotted income. Before the transfer occurred people and businesses would be free to spend all of their money beyond the amount they were permitted to keep in their accounts, meaning they would contribute nothing to the transfer. (Though for a business to avoid the transfer it would have to have zero money in its account, "spending" would include pay to employees not receiving the allotted income, to include quarterly bonuses.) Even if someone insisted on calling the transfer of money to government a tax, it would be avoidable, and, if not avoided, would require no paperwork. There would in any event be no payroll taxes, no property taxes, no sales taxes, and no excise taxes.

If you had money that you knew would be taken away if you didn't spend it by the end of the week, what would you do with it? What would anyone in his right mind do in a similar situation?

Of course, who on the other hand who would sell anything if he knew the paper money he got from the sale would be taken away?

Who knows what will happen with such a scheme? People hiding it under the pillow until after tax day [after all there is no paperwork, right?]

Perhaps some clever japanese fellow would have a day before tax day sale, taking his paper money out of the country.

There is a phrase bandied about here a lot, "unintended consequences." Who knows what unintended consequences this never before tried thing will have?

The transfer of money from government to the monetary agency would also be quarterly.

I don't get this part. Why not just eliminate the middle man, and have the agency collect the money? Better yet, put a date on the money they print, having it become void after a certain date?

It would complete the circulation of the money supply, preventing an accumulation of money in the economy, which would cause inflation. The amount transferred by government would be equal to the total amount of money spent on purchases by consumers plus net exports.

It’s important to understand that the monetary agency would have no discretionary authority whatsoever. It would merely be the paymaster for the economy. Again, money would simply be printed as needed, but its total amount could not be arbitrarily determined. It could be a cashless economy, but the existence of cash does contribute to liberty. The monetary agency could be a national agency, with each nation having its own currency, or an international agency, with every nation that joined the system sharing the same currency. There are pros and cons to each of those options. The latter option would not in any way threaten the sovereignty of any nation in the system. The monetary agency would have no standing to get involved in the domestic politics of any nation. If the former option were instituted, the currencies of all nations using this system would have to be exchanged 1:1. That would preclude speculation in those currencies and prevent differentiated exchange rates from artificially skewing international trade.

Why do you think differentiated exchange rates artificially skew international trade? Are you saying that the Zimbabwe dollar would be equal to a US dollar? And Mr Zimbabwe could walk into any bank and force them to take his money in exchange for US dollars? What could be bought with his Zimbabwe dollar? They don't make anything.

Re: improving capitalism--a lot

JosephBright — Sat, 09 Jan 2010 02:17:29 GMT

Stephen Yearwood:

If I am now understanding correctly, Austrians hold that even the determination of the money supply should be outside the scope of any formal organization or institution, but purely the result of the interplay of market forces, in which some proffered monies flourish and some perish. Am I at least starting to catching on?

Re: improving capitalism--a lot

Spideynw — Sat, 09 Jan 2010 01:16:54 GMT

Stephen Yearwood:
If I am now understanding correctly, Austrians hold that even the determination of the money supply should be outside the scope of any formal organization or institution, but purely the result of the interplay of market forces, in which some proffered monies flourish and some perish. Am I at least starting to catching on?

Impressive.

Re: improving capitalism--a lot

filc — Sat, 09 Jan 2010 01:08:11 GMT

Stephen Yearwood:
Austrians hold that even the determination of the money supply should be outside the scope of any formal organization or institution, but purely the result of the interplay of market forces, in which some proffered monies flourish and some perish. Am I at least starting to catching on?

Bingo

This works out to consumer sovereignty.

Re: improving capitalism--a lot

nirgrahamUK — Sat, 09 Jan 2010 01:08:09 GMT

Stephen Yearwood:
Am I at least starting to catching on?

quite.

I hope that in time you come to believe that Tucker did you a service recommending you to visit us

Re: improving capitalism--a lot

Stephen Yearwood — Sat, 09 Jan 2010 00:59:37 GMT

Re Filc, "competing monetary units:"

Thank you for your specificity. That and Cuyler's previous post have been given me some good information. You see, I came to this forum ignorant of Austrian economics--or at least what it has evolved into. (A Survey of the LIterature on "neutral money," which was the starting point for those who would establish Austrian economics, was part of my Master's Thesis, so I thought I knew the basics of it, but I was wrong about that.) But I thought I was addressing libertarians, you see. I've learned that adherents of Austrian economics are libertarians, but not politically oriented in the sense that I assumed libertarians to be. If I am now understanding correctly, Austrians hold that even the determination of the money supply should be outside the scope of any formal organization or institution, but purely the result of the interplay of market forces, in which some proffered monies flourish and some perish. Am I at least starting to catching on?

Re: improving capitalism--a lot

JosephBright — Fri, 08 Jan 2010 21:38:07 GMT

Stephen Yearwood:

Re JosephBright's most recent scolding:

It seems to me that posters here have consistently misunderstood what I'm saying.

No, we have not. You seem to think that if you repeat that enough times, it will become true. We completely understand the consequences of your proposal, which is why we are critical of it.

I'm not saying Austrian economics is wrong.

Then why not take the time to understand what Austrian economics says about money?

I'm saying there are possibly other routes to the goals that its implementation would achieve (which I have listed numerous times), one of them being the route I propose In "How to Improve Capitalism."

And we are saying that there aren't any other routes other than the market. And this is by the very definition of what money is, which you refuse to inform yourself about.

I thought that the idea of an exogenously determined money supply that can't be manipulated

Money emerges on the market, not in the minds of economists and social planners.

I thougtht that, at a minimum, it would lead to some fruitful discussion of the topic of money, especially given the reference to F.A. Hayek and "neutral money" in my original post.

But it is you who doesn't seem to be interested in a discussion on the topic of money. Whenever we try to explain to you how your thoughts on money are flawed, you dismiss these points. Please, try to understand money before you go around trying to fix the monetary system. Read this: http://mises.org/money.asp

Re: improving capitalism--a lot

Angurse — Fri, 08 Jan 2010 21:07:59 GMT

Stephen Yearwood:
It seems to me that posters here have consistently misunderstood what I'm saying. I'm not saying Austrian economics is wrong. I'm saying there are possibly other routes to the goals that its implementation would achieve (which I have listed numerous times), one of them being the route I propose In "How to Improve Capitalism."

There is a route around economics like there is a path around physics. With that in mind, let me show you my plans on how you can improve your gas mileage via water and magnets.

Re: improving capitalism--a lot

JackCuyler — Fri, 08 Jan 2010 19:43:59 GMT

Stephen Yearwood:

Re McKibbin's quote of Farmer, regarding the locationof my original posting.

I contacted.Tucker expressing a desire to disseminate my ideas, and he asked if I had posted on the Mises forum.

Were you looking for honest appraisals, discussions and critiques of your ideas, or were you expecting people to tell you what a great idea you've had?

Re: improving capitalism--a lot

filc — Fri, 08 Jan 2010 19:12:27 GMT

What I think many here would tell you is we encourage competing monetary units. A unit of exchange is a market good just like a banana or anything else. We encourage you to fill that entrepreneurial roll of speculating other forms of units of exchange. We can only give you advise from an economic stance as to whether your speculation is likely to succeed or not.

Remember that it's speculation on our parts as well. The actual methods by which units of exchange develop in a free market is to be decided by entrepreneurs, and consumers, not economists. Still, it is in your best interest, especially as a business dealing with money, to understand money and credit first. Many folks here have posted some good texts! GL Stephen.

Re: improving capitalism--a lot

Stephen Yearwood — Fri, 08 Jan 2010 18:30:10 GMT

Re McKibbin's quote of Farmer, regarding the locationof my original posting.

I contacted.Tucker expressing a desire to disseminate my ideas, and he asked if I had posted on the Mises forum.

Re: improving capitalism--a lot

Caley McKibbin — Fri, 08 Jan 2010 14:52:06 GMT

K.C. Farmer:

Am I correct in assuming that you wished to post your article on Mises.org, but Mr.Tucker wisely directed you to this forum?

He's politer than I am.

Re: improving capitalism--a lot

kiba — Fri, 08 Jan 2010 14:43:59 GMT

Stephen Yearwood:

Re JosephBright's most recent scolding:

It seems to me that posters here have consistently misunderstood what I'm saying. I'm not saying Austrian economics is wrong. I'm saying there are possibly other routes to the goals that its implementation would achieve (which I have listed numerous times), one of them being the route I propose In "How to Improve Capitalism."

You can't implement Austrian economics.

I thought that the idea of an exogenously determined money supply that can't be manipulated would be interesting to people who see the nature of the money supply as being the most central concern of the structure and functioning of the economy. I thougtht that, at a minimum, it would lead to some fruitful discussion of the topic of money, especially given the reference to F.A. Hayek and "neutral money" in my original post. To say it hasn't worked out that way is quite the understatement.

To Austrians, neutral money doesn't exist.

Re: improving capitalism--a lot

kiba — Fri, 08 Jan 2010 14:42:05 GMT

Stephen Yearwood:

Re Jack Cuyler's list of my misundertandings of Austrian theory:

Thank you. Sincerely. That clarifies lots of things. Again, I came to this forum assuminng it was a place where libertarians gathered. I was completely ignorant of the important difference between Austrians and (at least some) libertarians regarding political action. While I was completely off base, I did address "libertarians" in my greeting; had someone written this post at the start, we could all have been spared a fair amount of aggravation.

It is not about Austrian. It is anarchists who happens to be libertarian.

Re: improving capitalism--a lot

Stephen Yearwood — Fri, 08 Jan 2010 14:36:04 GMT

Re Jack Cuyler's list of my misundertandings of Austrian theory:

Thank you. Sincerely. That clarifies lots of things. Again, I came to this forum assuminng it was a place where libertarians gathered. I was completely ignorant of the important difference between Austrians and (at least some) libertarians regarding political action. While I was completely off base, I did address "libertarians" in my greeting; had someone written this post at the start, we could all have been spared a fair amount of aggravation.