CW- “When it happens, we may feel like the astronomer who just watched a big meteor veer away from the earth.”

I just hope that the meteor actually misses the earth. At this point, I am not so confident it will. I appreciate your optimism. I am not a cynic. I just do not like such large meteors.

Here’s a quatrain for everyone’s enjoyment. Decipher it as you will:

The sand overwhelms, as 2 try to tame it
The one grows frustrated, alienation rains.
Worth is reduced as they battle.
Goods become scarce, riches diminish.

2nd Amendment

Economics involves two aspects: understanding factual economic concepts and institutional relationships (things like what is money, how does banking and central banking operate, how is money created, why each dollar of government spending means a dollar of taxes, how comparative advantage works, what do various balance of payments concepts mean, how do futures markets operate, what is output, what is income, what is the meaning of financial statements and how are they created, what do various concepts of cost mean, etc., etc.). None of these sorts of things involve any theory. But few people (voters), unfortunately, understand them and, because they don’t, can be bamboozled by politicians.

The second aspect of economics involves causal theory (what causes what to happen). What causes price increases, what causes unemployment, what causes interest rates to rise and fall, what causes economic growth, what causes increases in material standards of living, etc., etc. Of course, causal economic analysis also involves understanding economic factual concepts and institutional aspects.

There are no disputes about the first aspect I outlined above, but, there are disputes about the causal analysis. Nevertheless, it is important for people’s material welfare to understand both aspects. That’s why economics is an important subject in my view. Because a lot of people have a weak understanding of even the first aspect of economics it is easy for politicians to sell really bad economic arguments that harm people. For example: if prices are rising too high for some people, the solution is to simply outlaw price increases; if some people’s wages are too low, simply enact minimum wage laws; if some big companies are failing, simply use taxes to bail them out; if cars use too much gasoline simply force people to use government subsidized ethanol or simply force car companies to make cars that go 30 miles to the gallon (heck, why not 60 mpg?); if there is a large trade deficit (if too many American jobs are exported overseas), simply put big tariffs on imports; etc., etc.

I think another good analogy to the 100 court economists mentioned in the article would be the prior century witch trials. Here we saw people in power remaining in power by keeping the population in fear.

Our current inquisition has several bogey men to slay. They steal your wealth or the economic consequences will be worse than you could ever imagine. Somewhat older and stale wars on drugs and terrorism are giving way to fears of economic and climate disasters.

And the government controlled schools now have a whole slew of wasted (sexual orientation, gender, and racial) study programs to go along with alchemist economics programs. They finally have turned lead into gold, only they use paper and electronic bits today.

And don’t think those astronomers aren’t trying to get in on the game – after all, there really is a chance that another life extinguishing meteor is about to hit the earth. So, hand over your wealth so we can build a state of the art asteroid deflector system.

No, no, no. Silly simpleton. 1921 and 1982 were both economic flukes. Only by sheer luck did America avert economic disaster by not allowing government to meddle with it.

The perpetual motion machine could have stopped!

It seems the only ones prudent enough to care for our country’s finances are the chinese. Neither the voters nor politicians do. In yet another about-face, Obama claims to be a deficit hawk, and they sent Pelosi and Timmy over there to beg forbearance and continued lending.

I am arranging my finances to around expected high inflation. Not as smart as the chinese I guess.

Divine Microeconomy Consulting
Monday, June 01, 2009

Why Are Anti-Capitalists Against Profit?

It all stems from a misunderstanding of usury. Usury was maligned as ‘unproductive’ but that was because of economic ignorance and the same economic ignorance continues today.

Usury, or the charging of interest, is nothing more than an exchange of a present good for a future good. Which do you prefer: $100 now or $105 a year from now? How much would you be willing to accept one year from now instead of $100 today? The point is: all humans have a time preference, they prefer things now over the same thing in the future.

So to be on equal ground, to be able to compare values, the present value of future goods needs to be compared to the value of the present good. Charging interest is simply the cost associated with paying the lender back in full sometime in the future.

Capital as a resource is nothing more than borrowing what is needed to hire the productive resources now even though it will be sometime in the future before there is any revenue. The profit is the equivalent of full compensation for all of the resources needed in the production process, including the human resources of the entrepreneur and the ones who provide the capital. Without the entrepreneur and the capitalist none of the other factors (land and labor) would have received their incomes.

Profit is maligned and capital is maligned and usury has been maligned all because of economic ignorance. It is this ignorance that underlies socialism.

I think a fundamental tenet of austrian theory is the notion that there can be mal-investment when govt interferes with market forces. Though the gdp measure is simply a measure of overall activity without any way of evaluation how useful it is.

For instance, if a govt were to go into the auto business and make extremely expensive cars which are purportedly better for the environment but which nobody wants…. Never mind, I need to think of a more plausible scenario–that’s crazy talk.

“Without the entrepreneur and the capitalist none of the other factors (land and labor) would have received their incomes.”

Hi Bruce,
where might this mystical “capital” and profit you speak of originate from? Are they perhaps god himself? It is just as ignorant to misunderstand the “nature” of capital and profit than it is to “malign” it.

It may help to think of basic agriculture and the nature of surplus. not much there without the labor and land. capital itself has little taste and nutrition.

Bruce Koerber and Gene make good points…

Without the capitalist it is quite possible to have an economy. Workers must tolerate the waiting required to buy capital equipment directly without debt. What capitalists provide is a means of doing that sooner.

Entrepreneurs are different, and it depends on how entrepreneurship is defined. If you take it though to mean any attempt to build a new and unique business then it is not strictly necessary. Though it is clearly beneficial.

This is explained quite clearly in “Man, Economy and State” I think.

Well, that’s my point. Workers must save and buy equipment without debt.

Rothbard writes in Chapter 5 of ME&S “In the case of joint ownership, then, there does not arise any separate class of owners of capital goods. All the capital goods produced are jointly owned by the owners of the producing land and labor factors; the capital goods of the next lower order are owned by the owners of the land and labor factors at the next lower stage along with the previously co-operating owners, etc. In sum, the entire capital-goods structure engaged in any line of production is jointly owned by the owners of land and labor. And the income gained from the final sale of the product to the consumers accrues only to the owners of land and labor; there is no separate group of owners of capital goods to whom income accrues.”

current: “Workers must save and buy equipment without debt.”

That makes them capitalists. So it is not possible to have a market economy without capitalists.

Basically, any type of economy can exist without capital [besides capitalism!]. Workers work and exchange to sustain. Consumption is king. Saving is possible for consumption.

You must have a sustainence economy before capital can be produced and it is produced by land and labor. Capital “amplifies”, it cannot of itself produce.

Wage and resource are paid from the product, not capital. If they were paid from capital, it would quickly extinguish itself, there would be no reason for interest and it would never be necessary to repay a “loan”, which is almost always a capital product.

Capital makes things easier when it is allowed to go wherever it wants to go. when it is counterfeited and directed and forcibly concentrated, we have what we have today, a big mess.

Current, you’re correct about the differenct uses of capital. But what ties all of those uses of the term together is savings. Capital of any kind cannot exist without previous savings. Every society has some capital. Even the primitive tribes in the Papua New Guinea have some capital. Savings are necessary for them to take the time off from hunting/gathering/farming in order to have the food necessary to build houses and perform lengthy religious ceremonies that last for days.

Savings are necessary for any kind of development because it takes time to build the equipment necessary for greater production of goods. If the workers don’t save, then they must borrow the savings of others.

The form that capital takes doesn’t really matter. It could be machines, stocks, bonds, consumer goods, but the thing they all have in common is that they cannot exist without someone saving (not consuming) something.

Real capital consists of previously produced consumer goods and goods, or previously produced goods that can be used to produce other goods or services. Financial capital represents title to funds used to finance real capital.

Then there is intellectual capital consisting of learned skills and information that are useful in the production of goods and services.

yes, I agree with you all.

I think capital is any kind of surplus that is not used for consumption but used for future production.

of course, you could argue that everything is eventually consumed!

and fundamentalist is right that saving must occur first although you can save for consumption also, again definition and terms.

Did the Fed actually bail out LTCM? I was under the impression that the head of the New York Fed gathered together the hedge fund’s creditors and told them they needed to find a way to calmly take it over lest it bring them all down. That’s not exactly a bailout.