Hi, first post. Long time obsessor over economics and philosophy., but my academic training is in mathematics and ecology. I have a question, I know it is asking a bit much and quite a bit of speculation, but here goes... also, I am going to refer to the US economy, but the question could be generalized to the entire planet, maybe. The idea, is that there is alot of debt today, and the money supply has been inflated quite a bit. Simply put, the question is whether or not debt can increase productivity even if it also devalues currency and thus raises prices. Is there a time lag in the two effects so that productivity can actually increase? Or some other confounding effects that warrant discussion? Of course this is an overly simple question involving a complex system. Another way to phrase the question is this: There is alot of wealth in the US today. No matter how you slice it, Americans consume alot of stuff. This demand for products is tied in to the supply of the products, and thus the productivity of the economy. The hypothetical situation is: instead of having the current government structure, the US is a pure free market from it's founding as a nation (or choose a transition time, say starting in 1950 or so), or at least the US system has very minimal government intervention, say government activity is 1% of the economy rather than 20%. In this free market situation, consider the government to be as close to the libertarian/objectivist ideal as possible. So there is very little taxation, if any, and the money supply (& what is considered currency) is determined largely by the free market rather than by fiat. So all valuation of anything is determined by the market, no minimum wages, no fixed exchange rates, no dollar pegged to a fixed weight of gold (or maybe allow that we have the gold standard). In this hypothetical situation / alternate universe, would productivity or the size of the economy (however you choose to measure it... by sheer magnitude of consumption, GDP, or net biomass of resources transformed into goods... name your measure), be as large as it is today? Maybe the question put even more simply is: Can a pure free market system allow for a primitive society to develop into a complex technological society? If you think regulation is required, can you make the case the regulations today are either too strong or too weak, or just simply out of balance (e.g. we need more regulation of the financial industry, but less regulation of small businesses)? Thanks in advance for any thoughts. Even brainstorming on how better to flush out the question is appreciated.
Wed. 12/07/04 21:13 EDT.post #202Another way to answer your question is to try this thought experiment:Imagine the Total Redistributive State, the purpose of which is to make everyone, everywhere, at all times, financially equal.Incomes must be equal.Net worth must be equal.Profits and losses must be equal.The state has the power to transfer money between bank accounts instantaneously and without notice or even permission.It can sell your property if it becomes "overvalued" and redistribute the proceeds.No pay raises allowed. Everyone is paid an equal salary, no matter what his job is.If you win the lottery, proceeds are immediately distributed evenly throughout the population.If you make a bad investment and lose half your net worth, your bank account is "topped up" within a few minutes, by the state.And so on. Total financial equality, every minute, 24/7.Do you think this is likely to lead to a greater degree of overall wealth in the society than would result by simply allowing people to control their own wealth?If "no," then what is the argument that some degree of redistribution between 100% and 0% is likely to?
jodiphour:The question: Why is this much much ("blind throwing of a dart") more likely to be less "productive" than just leaving the wealth with the party who originally held it?
Values/preferences are subjective and they are not amenable to aggregation. They are also exclusively revealed through action. Voluntary (inter)actions reflect the subjective valuations of each participant in the economy. Each voluntary exchange makes both parties better off and, as such, is the "atom" of wealth creation (satisfaction of wants).
The problem with your above question is that it attempts to compare the aggregate "productivity" (wealth, aggregate satisfaction of wants) between two different states of the economy -- an impossible task. Would an outcome whereby everyone was paid to do 100 push-ups a day, be more "productive" than an outcome whereby 20% of the population refused to work for less than $4/hr and chose leisure instead (i.e. were "unemployed")? Sure, if you define productivity as "aggregate push-ups done per day", then the former would be more "productive" than the latter. So what?
About the "correct level of regulation". What I am wondering is if there is a feature of human behavior that warrants the necessity of regulation.
Again, values are subjective and your "warrants" above has no meaning. Of course, if you subjectively value a lot of order and structure, then perhaps putting 7 billion people in prison may be "warranted". If you subjectively value a lot of peace and quiet, then perhaps poisoning the 7 billion may be more "warranted", instead.
What feature of human behavior could possibly exist that would "warrant" the necessity of one group of humans to regulate another? What state of affairs would be brought about by such "regulation" and whose subjective valuations/preferences would it be reflecting the most?
Thurs. 12/07/05 12:12 EDT.post #204 z1235:Voluntary (inter)actions reflect the subjective valuations of each participant in the economy. Each voluntary exchange makes both parties better off and, as such, is the "atom" of wealth creation (satisfaction of wants).To your felicitous metaphor, I offer a slight revision:I suggest that production might be more aptly described as the "atom" of wealth creation, since it must occur prior to voluntary exchange.But since individuals, like atoms, also interact for mutual enrichment, I suggest that voluntary exchange might be the "molecule" of wealth creation.
z1235:Voluntary (inter)actions reflect the subjective valuations of each participant in the economy. Each voluntary exchange makes both parties better off and, as such, is the "atom" of wealth creation (satisfaction of wants).
MMMark: I suggest that production might be more aptly described as the "atom" of wealth creation, since it must occur prior to voluntary exchange. But since atoms, like individuals, also interact for mutual enrichment, I suggest that voluntary exchange might be the "molecule" of wealth creation.
I suggest that production might be more aptly described as the "atom" of wealth creation, since it must occur prior to voluntary exchange. But since atoms, like individuals, also interact for mutual enrichment, I suggest that voluntary exchange might be the "molecule" of wealth creation.
"Agent X producing" is wealth creation only to the extent that it is agent X's voluntary exchange of one (pre-production) state of affairs for another (post-production), or as Mises calls it, an autistic exchange. Agent X "producing" an empty hole in the ground then "producing" a filled out one while being paid with money stolen at the point of a gun is neither an atom nor a molecule of wealth creation. Only voluntary (inter)actions -- as reflections of every agent's subjective valuations/preferences -- can be the fundamental particles of wealth creation.
Values/preferences are subjective and they are not amenable to aggregation. They are also exclusively revealed through action. Voluntary (inter)actions reflect the subjective valuations of each participant in the economy. Each voluntary exchange makes both parties better off and, as such, is the "atom" of wealth creation (satisfaction of wants). ]
I think this is where I see one of the fundamental problems with the Austrian view.
(1) That a voluntary interaction makes both parties better off is completely false. People voluntarily make bad decisions all the time, and realize that a different decision would have made them better off. Of course you could argue that the bad decision was necessary to learn the lesson and therefore they are better off for it, but this is not a strictly relevant point to the discussion at hand.
(2) Declaring something as voluntary as opposed to involuntary is not black and white. Consider the use of marketing to influence people's decisions to buy products which do not live up to expectations as created by the advert. It is well known that misleading advertizing is knowingly used. We might call the decisions to buy those products voluntary, but we also know that the quantity sold would be less is the advertising was not misleading. So is the decision truly voluntary? I think it is grayer than we think.
That values being subjective and therefore not amenable to agregation... I don't think I totally buy either. Values are indeed subjective, but there are also what we might call, objective, parts of values as well. For example, gold may be $1500 an ounce and I may disagree with that and not be willing to pay any price for gold, but that doesn't take away the fact that gold actually has a broadly recognized value in society. So for the govt to force each citizen to buy some gold would not necessarily be a waste of money. Even though a particular citizen does not value that gold, they will still be able to exchange it at some point for something they do value.
It seems reasonable, that even though values are subjective on some level, we can still take a measure of the distribution of values at a particular time and ascribe something we might call aggregate value to the group. The rejection of statistics by Austrians is very unattractive...
) That a voluntary interaction makes both parties better off is completely false.
What if we changed this sentiment to "there is nothing that can be said one way or the other about such a transaction". We are not capable of calling it "good" or "bad"
Consider the use of marketing to influence people's decisions to buy products which do not live up to expectations as created by the advert. It is well known that misleading advertizing is knowingly used.
This would have more to do with legal and contract theory, rather than economic theory. And in the sense, if you are a Keynesian - I have no idea how a large federalized bureacracy is really all that desirable a place to live. That of course is an aesthetic though.
"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann
"When A Man Dies A World Goes Out of Existence" - GLS Shackle
That a voluntary interaction makes both parties better off is completely false.
It makes both parties better off before the fact, and since individuals are most likely to know what they themselves want, then it is, at least relatively speaking, efficient (though of course it isn't perfect). In other words, you are more likely to know what you want than anyone else (including, and especially some government official).
People voluntarily make bad decisions all the time, and realize that a different decision would have made them better off.
And this is precisely the point: the maket is an emergent, evolutionary dynamic process, where individuals learn through a continuous process of trial and error. This is a major element of AE.
(2) Declaring something as voluntary as opposed to involuntary is not black and white.
Sure it is. People like to equivocate in oder to defend their untenable and incoherent positions.
It is well known that misleading advertizing is knowingly used.
This is the sort of equivocation I was just referring to. How does persuasion eliminate the possibility of voluntary action? You are conflating persuasion with coercion.
Values are indeed subjective, but there are also what we might call, objective, parts of values as well. For example, gold may be $1500 an ounce and I may disagree with that and not be willing to pay any price for gold, but that doesn't take away the fact that gold actually has a broadly recognized value in society.
You cannot aggregate value because value is an ordinal ranking which, by definition, cannot be summated. Also, do not confuse value with prices; prices are determined by the interplay of subjective values, at the margin on the market, but they are two distinct phenomena. Prices, though, are indeed objective.
It's important to distinguish such elements in order to avoid confusion.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."