Comments (68)

• speedmaster

• Absolutely great points Jim!

• Published: May 6, 2007 4:33 PM

• KY Leong

• "The result will not just be thousands upon thousands of bureaucrats, administrators, and teachers hitting the street. The result will include the loss of capital invested in private enterprises that exist solely to remedy the ills caused by the government-funded reading programs."

  In other words, the government simply CAN'T CALCULATE.

• Published: May 6, 2007 7:36 PM

• rtr

• Good article, but there's no such thing as "malinvestment".

  Jim Fedako: "In line with his warnings is the misallocation resulting from malinvestment by government in activities that are not the best use of scarce resources."

  By definition every single non-voluntary redistribution of subjective wealth creates net poverty/

  Jim Fedako: "These malinvestments create capital structures unsupported by real wants and desires."

  You can see how 19th century state socialism left its influence even in the more classically liberal west. The "State" invests in education etc. For Austrians to cry "mal" + "invest" is to cede the terms of violent theft.

  Jim Fedako: "Bust comes when resources are cutoff or shift to the lines that are truly productive from those lines which exist solely because of these government interventions."

  The "bust" is an *immediate* poverty causing shift of resources to lines which would not voluntrily be chosen in a free market. Every line which is voluntarily chosen increases real economic profit/wealth.

• Published: May 8, 2007 10:35 AM

• Kevin B.

• rtr,

  Every line which is voluntarily chosen increases real economic profit/wealth.

  Humans are infallible as long as they are not coerced?

  Sometimes we do get what we think we're getting, voluntary means or not.

• Published: May 8, 2007 12:21 PM

• Kevin B.

• *edit

  Sometimes we do not get what we think we're getting..

• Published: May 8, 2007 12:36 PM

• gene.berman

• Kevin:

  rts is stating the case exactly correctly--which is quite apart from declaring human choice and action to be--invariably--infallible.

  Free (and free to interact), people consistently get more of "what they're after" than under any other known system; further, every experience of interference of every sort with such interaction, to any degree exceeding that necessary to insure a modicum of peace, order, and security of private property and contract, has led to lesser all-round satisfaction, regardless of the intentions or the expertise of those instituting and performing such interfer

  Whether people could do (or not) without some form of "state" to perform the "peace, order, and security" functions is, presently a moot point: it is obvious that a far lesser magnitude of intervention can deliver far greater prosperity long before that ultimate determination need be answered.

• Published: May 8, 2007 12:40 PM

• Kevin B.

• gene,

  My remark was not that voluntary trade is at any time less desirable than forced "trade," but simply that mistakes are made even in voluntary trade. Given this, malinvestment is possible, contrary to rtr's statement.

  I have no argument otherwise with your comment.

• Published: May 8, 2007 3:46 PM

• rtr

• No, there's no such thing as "malinvestment".

  Kevin B.: "My remark was not that voluntary trade is at any time less desirable than forced "trade," but simply that mistakes are made even in voluntary trade. Given this, malinvestment is possible, contrary to rtr's statement."

  There is no such thing as omniscience either. All action, trade included, is conducted with given limited knowledge. Of course mistakes can be and are made. But nobody ever intentionally seeks to give away that which they value more for that which they value less. Therefore, "malinvestment" is a praxelogical *impossibility*. This is why the Austrian Business Cycle Theory has been *proven* false, by me.

  There's no such thing as constant non-changing subjective value either. But at the moment of trade, all trade increases the subjective wealth/profit of both parties to the exchange.

  Trade occurs because that which is given away is valued less than that which is recieved in exchange. *Why* does trade occur? That's the *only* reason trade occurs, ever. Therefore, "malinvestment" is impossible.

  "Investment" is a voluntary action with risks, just as is all other action. No action is intentionally undertaken that brings one to a state of greater dissatisfaction from a state of lesser dissatsifaction. It's a one way street from greater to lesser dissatisfaction only. Therefore, "malinvestment" is impossible for any voluntarily undertaken investment; all investment *is* voluntary. Therefore, there is no such thing as "mailinvestment" just as there is no such thing as a "trade deficit". See rtr Nobel Prize demonstrations #s 1-10. :P You get it quick, you get it clearly explained, you get it *proved*.

• Published: May 8, 2007 4:37 PM

• Kevin B.

• rtr,

  It is my understanding that "malinvestment" is a term that the Austrian School gives to investment errors. You are saying that I am mistaken?

  You surely are not arguing that no investment errors ever occur when trade is voluntary.

• Published: May 8, 2007 5:33 PM

• rtr

• Kevin B.: "It is my understanding that "malinvestment" is a term that the Austrian School gives to investment errors. You are saying that I am mistaken?"

  The Austrian School erred by labeling voluntary action, which is *always* undertaken with the purpose of increasing subjective wealth (and actually increases subjective wealth at the moment of action), a "malinvestment". That's a praxelogical impossibility, as I have *proven*. It was a pretty sizable chunk of an error, but now it's corrected. Amazing, huh?

  Kevin B.: "You surely are not arguing that no investment errors ever occur when trade is voluntary."

  1. I don't "argue", I *prove*. I wouldn't have already racked up 10 Nobel Prize quality demonstrations (all of which are the biggest advances in economics since sliced marginal utility) otherwise. 2.) Of course errors occur all the time in all sorts of action. But that doesn't change the fact the only reason trade occurs is because that which is received is valued more than that which is given away in exchange, errors and limited imperfect knowledge included, not sold separately.

• Published: May 8, 2007 6:16 PM

• Tom Rapheal

• rtr You did not disprove the Austrian Business Cycle Theory. You simply challenge one of its terms- malinvestment. People change their minds about events and soetimes label them as faliures from their perspective i.e. the speculator regerting an ill advised investment. Therefore from his CURRENT prepective, the investment was a faliure. If you notice, the whole thing is voluntary but is still labeled a faliure. So, from your point of view an economist can't veiw this as a faluire? ABCT states that the printing of money promotes investment faliure, or economic miscalculation. Do you say there is no economic miscalculation? Or do want the ABCT revised as to say that bankruptcies and insolventcies are promoted by the printing of money?

• Published: May 8, 2007 8:14 PM

• Jim Fedako

• rtr misses the whole concept of time; the idea of roundabout production. Investment is not the result of instantaneous trades, it the usage of scarce means to obtain an end; an end that will not appear until some time in the future.

  The consumer is looking to satisfy an immediate desire, so time is not an issue. I purchase the Pepsi simply because I want it now. I may chose to consume it later, but I want to possess it now.

  Not so with the entrepreneur.

  Assume Mr. Jones is an entrepreneur looking to earn a profit. He does not trade factors of production as a consumer, he instead trades in order to achieve his desired end: profit.

  When Jones trades capital in the form of cash for labor; he is trading in order to obtain a means to satisfy an end.

  Production is akin to a recipe. I desire chocolate chip cookies. After checking for necessary ingredients, I note that I am an egg short. Assuming that my neighbors will have one available for my use, I begin combining all other ingredients into the bowl and turn on the oven.

  As the oven is warming, I race over to my neighbors to obtain the missing egg. Bad luck, my neighbors are not home. No cookies, just a mess to clean up. A lot of ingredients wasted without the benefit of my chosen end. I malinvested in those ingredients.

  Go back in time when I purchased those wasted ingredients. I exchanged money for flour, salt, chips, butter, etc., for an end that was not immediate; the end would not appear for hours, or days later - or, and here's the key, the end may never appear. You can't say that I invested correctly when I voluntarily purchased the ingredients since I did not obtain the end I desired. I really had no use for the ingredients - factors of production - outside of the chocolate chip cookies.

  Think of the egg as the credit that the entrepreneur believes will be available days or years later, sometime after he begins his roundabout production, but before the ends could be produced.

  When the credit does not materialize and the roundabout production process goes bust, all the investments in factors of production are now shown to be a waste.

  rtr needs to put time back into his model and recognize that investment is another name for roundabout production. The obtaining of the means of production serve no other purpose than to generate the desired end. If the entrepreneur knew that credit would not exist when needed - at a price he can afford - he wouldn't have begun the process to begin with.

  And rtr needs to differentiate between consumer goods and factors of production.

• Published: May 8, 2007 10:10 PM

• rtr

• Tom Rapheal: "rtr You did not disprove the Austrian Business Cycle Theory."

  Actually I have numerous times and in different ways, just not all at once in this particular thread. At this point I'm just mining new possible insights and more efficient means.

  Tom Rapheal: "People change their minds about events and soetimes label them as faliures from their perspective i.e. the speculator regerting an ill advised investment. Therefore from his CURRENT prepective, the investment was a faliure. If you notice, the whole thing is voluntary but is still labeled a faliure. So, from your point of view an economist can't veiw this as a faluire?"

  Of course they can't view that as a post time "failure" without creating a whole host of other praxelogical absurdities. We going to say a week after I downloaded that copyrighted song for free but subjectively value it less a week later a "malinvestment" of time or anything else? All action, trade included, at the time of action, increases subjective wealth by definition of action.

  Tom Rapheal: "ABCT states that the printing of money promotes investment faliure, or economic miscalculation. Do you say there is no economic miscalculation?"

  Of course the ABCT is false, and easily provably false. Right, there is no economic miscalculation from printing money any more than there is "miscalculation" from any change in supply of any other subjectively valued good whatsoever.

  Tom Rapheal: "Or do want the ABCT revised as to say that bankruptcies and insolventcies are promoted by the printing of money?"

  The ABCT is scrap theory, I doubt it's capable of being revised as it's fundamentally in contradiction to the law of trade. But there's a lot of casualties from my advances, not just the ABCT.

  Every choice which involves investment *also* involves a choice to not invest, at all or just in that particular investment. The only reason an investment occurs as opposed to not occurs, is because the act of investment increases the subjective wealth of the investor at the the time of investment.

• Published: May 8, 2007 11:23 PM

• rtr

• Jim Fedako: "rtr misses the whole concept of time;"

  Even Mises, who is beneath me in terms of contributions to the field of economics (he's still a titan of epistemology), observed that the human mind is only capable of making decisions in an ordinal fashion. Only one decision can be made at a time, "even if they occur in rapid succession".

  Jim Fedako: "Investment is not the result of instantaneous trades,"

  Of course it is, all action is the result of instantaneous trades, even if it's the decision to post another reply to a thread rather than sleep at that moment in time.

  Jim Fedako: "it the usage of scarce means to obtain an end; an end that will not appear until some time in the future."

  The decision to save or the decision to invest is no different an allocation of scarce resources than the decision to consume, except that the decision to save means you prefer something in the future as opposed to preferring that something in the present. For example, choosing to eat your vegetables first and your dessert second is saving your dessert for a future time when you will value that dessert more. But by observation it is shown that a person did not eat their dessert before eating their vegetables because eating their dessert before eating their vegetables was not the most profitable action for them.

  Jim Fedako: "Production is akin to a recipe. I desire chocolate chip cookies. After checking for necessary ingredients, I note that I am an egg short. Assuming that my neighbors will have one available for my use, I begin combining all other ingredients into the bowl and turn on the oven.

  As the oven is warming, I race over to my neighbors to obtain the missing egg. Bad luck, my neighbors are not home. No cookies, just a mess to clean up. A lot of ingredients wasted without the benefit of my chosen end. I malinvested in those ingredients."

  Nope, you still valued the action of starting the cookie preparation in advance of obtaining the egg in spite of the risk that you might not procure the egg. It was more valuable to you to begin preparations before obtaining the egg instead of waiting until you actually had the egg. That's fundamentally no different than if you had all the ingredients in the oven cooking and an act of nature thunder storm cut off power and the ingredients were ruined. There's still no "malinvestment" whatsoever. The only thing which changes is your subjective valuation of ingredients cooking is greater than your subjective valuation of ingredients spoiling. But you could've even have had no problems whatsoever with the ingredients cooking and at the end after the cookies are done you no longer have an appetite for the cookies and feed them to your dog. There's still no "malinvestment" whatsoever.

  Jim Fedako: "You can't say that I invested correctly when I voluntarily purchased the ingredients since I did not obtain the end I desired. I really had no use for the ingredients - factors of production - outside of the chocolate chip cookies."

  We can say you purchased the ingredients because that was the best use of your purchasing power at the time of your purchase, no matter whether it was a means or an end. You could buy a Pepsi for consumption now, but it turns out the Pepsi is flat, or gets stuck in the vending machine. That too is not a "malinvestment". You put the quarters into the machine because you valued the can dropping down and you consuming it. If at a later time the Pepsi is flat or stuck in the vending machine, that just means you subjectively value your lost quarters more than the flat Pepsi or the Pepsi can stuck in the vending machine. Similarly all investment production is subject to non-constant subjective valuation and other risks. But you don't undertake something unless at the moment of undertaking you increase your subjective wealth, you *profit* in the strict economic sense at that moment, even if that profit consists of the current valuation of your future valuation of something, such as buying "low" now and picturing yourself selling "high" later.

  Jim Fedako: "If the entrepreneur knew that credit would not exist when needed - at a price he can afford - he wouldn't have begun the process to begin with."

  But he more or less assigned a subjective value to the likelihood of that credit being there or not, and acted on that given imperfect knowledge. Many people might not have bought SUVs when the price of gas was a $1.50 a gallon rather than $3.25 a gallon. But there is no "malinvestment" in a SUV because the price of gas increases. You can only act, trade, invest, save, in the present time. You can't act, trade, invest, save, in the past or in future time. And it is a praxelogical impossibility to do so in a "mal-" manner.

  But thank you for your reply. The field advances from the "posted" investment risk taking of give and take intellectual exchange.

• Published: May 9, 2007 12:29 AM

• Tom Rapheal

• rtr, as you have pointed out it is immpossible to spend in the future. However it is possible to regret what happened in the past. You are just saying that it sounded like a good idea at the time and is therefore was a good idea. As in Fedako's analogy, you pointed out that it was not a malinvestment because it was a good idea at the time. However humans have the capalbility of regret. So now Jim regrets his choice to make cookies. We seem to have a dissagreement on terms. So here I will define mine. Malinvestment is an investment which is regreted after the investment. Please define your idea of malinvestment even if you disagree.

• Published: May 9, 2007 2:46 PM

• rtr

• Tom Rapheal: "However it is possible to regret what happened in the past."

  Absolutely true. Regret, however, is a present tense expression or action.

  Tom Rapheal: "You are just saying that it sounded like a good idea at the time and is therefore was a good idea."

  Not just "saying", this is derived from the irrefutable law of trade, that which is received is valued more than that which is given away in exchange. This is true whether it is exchange of goods between people or autarkic choices of how one spends one's time.

  Tom Rapheal: "We seem to have a dissagreement on terms."

  I don't think so. You're fighting the implications of trade.

  Tom Rapheal: "Malinvestment is an investment which is regreted after the investment."

  I suppose I should list a whole host of praxelogical absurdities that defintion implies. Regretted *when*?

  Example 1: You buy stock in company XYZ for $10. One week from now the price of XYZ stock is $5. Two weeks from now the price of XYZ stock is $20.

  Do you regret buying the stock one week later? Two weeks later? Do you reget not waiting until the price bottomed at $5 one week later? Do you regret that the stock was not $30 two weeks later, as the stock price of company PWN rose from $10 to $30 two weeks later.

  Regret is potentially infinite as with future revelations of changing subjective value and changing knowledge and understanding one can always find that past action did not lead to a theoretical maximization of theoretical subjective wealth today. As nobody is perfectly omniscient every action would be "regrettable" and a "mal-investment" compared to some perfectly omniscient subjective wealth maximization crystal ball.

  Regardless, you cannot change past action. Accidents, mistakes, errors, failures, losses, etc., of course can occur. Regret is not unique to the action of investment either, but all action. At every moment in time one is in a state of regret, a state of dissatisfaction. One only acts to get to a state of lesser regret, lesser dissatisfaction. Thus, regret is a priori to action, is the impetus for action. And in the present time one can only trade goods or opportunity cost that increases one's subjective wealth, by definition of trade.

  Tom Rapheal: "Please define your idea of malinvestment even if you disagree."

  Mathematically, one divided by zero. Seriously, hmmmm, even a non-investment is a synthetically short investment from the point of view of potential future regret. (see Options theory)

  http://www.investopedia.com/terms/s/synthetic.asp

  "Synthetic

  A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets."

  Really, I don't know how to define something that I cannot think of a single example which fits into the category of that definition. Is (unintentionally) spilled milk a "malinvestment"? The milk wasn't intended to be spilled. Is a failed drug research project a "malinvestment"?

  At any rate, "malinvestment" cannot be caused by an increase in "money" or "credit" anymore than a malinvestment can be caused by a change in supply of anything else. Subjective valuations are not constant. Did people who divorce "malinvest" in their relationship? You can only act, you can only invest in the present tense. Whether the decision to begin a particular investment started in the past, the decision to continue with that particualr investment is also a present tense decision, whether or not it's done with more or less consciousness, even though subjective valuations of oneself and others may be different because subjective valuations are not constant. Neither is supply constant. Savings can disappear even though there is no change in supply but only a change in subjective valuation demand. What was worth more in the past can be worth less or even worthless in the future. One still acts through trade to increase one's subjective value in the present even given those risks of non-constant subjective valuation.

• Published: May 9, 2007 4:31 PM

• Tom Rapheal

• rtr Regret is mesured in the here and now. An investment can change from a malinvestment to a succesful investment.

  You did not define malinvestment. I will define Socialism in order to show you how to define something you disagree with. Socialism is an economic system where the government owns everything. Also, please define malinvestment from the this defintion of investment: investment is money spent for finacial gain.

  You disagree with ABCT. Could you please send a link where this point is elaborated? Thank you.

• Published: May 9, 2007 5:20 PM

• Michael A. Clem

• Wouldn't malinvestment be investment based upon false or misleading economic data? An exchange is not voluntary if fraud is involved.

• Published: May 9, 2007 5:40 PM

• Kevin B.

• rtr,

  Again, it is difficult to take you seriously when you revert to your manner of ostentatious ego-stroking, as if unawarded "awards" were something to be admired. Please try to appear to be serious.

  That being said, I agree with you that, in any moment, the voluntary action we take subjectively increases our wealth, if, at the time, we do not regret having to take the action. If you wonder what I mean by regretting the action while taking it, then imagine having to die by a choice of methods. Extreme, but something to consider.

  My question was whether a "malinvestment" is an Austrian term for investment error (mistake). You replied that voluntary action could not be a malinvestment, but never answered my question, for if it is indeed an investment mistake, then any failed investment would be considered a malinvestment. Is not a mistake an error in calculation? Could we miscalculate the investment at one point in time and realize the miscalculation at another?

  We can miscalculate for better or worse, and logically "mal-" is used because the investment was miscalculated for the worse.

  Our actions are subject to human error. Therefore our subjective valuations are subject to human error. Regret is usually felt after an action is taken because we realize that, had we known better, we would have made a different decision. It is truly ignorance, not inflation, that subjects us to mistakes, malinvestment, etc. Since inflation increases ignorance, then it follows that inflation precedes greater economic miscalculation.

  What do you call a subjective miscalculation?

• Published: May 9, 2007 6:59 PM

• rtr

• Tom Rapheal: "An investment can change from a malinvestment to a succesful investment."

  And for completeness then, a successful investment can change to a "malinvestment".

  Let's go back to the Example 1: You buy stock in company XYZ for $10. One week from now the price of XYZ stock is $5. Two weeks from now the price of XYZ stock is $20.

  One week from when you bought XYZ, you define your investment as a "malinvestment". But you are still actively in the present tense investing or not investing at that frozen moment in time one week later in company XYZ. You can sell one week later and book a loss. You can keep your XYZ stock. But if you choose to keep your XYZ stock one week later you are doing so because you are subjectively better off holding onto XYZ rather than selling XYZ. Your present action can never be defined as a "malinvestment". That would be in direct contradiction to the law of trade, which shows that a choice selected over a choice not selected means you are better off with the choice selected than the choice not selected at that moment in time, for whatever subjective value reasons.

  Tom Rapheal: "You did not define malinvestment."

  That's because it's like "equilibrium". It's an artificial construct which does not correspond to reality. Nobody can in the present tense "malinvest", because investing is action, which at the moment of action can only be an exchange of something receieved of more value than that which is given away.

  No suppose one week later you decide to sell XYZ at $5. That decision to sell XYZ for $5 means you prefer $5 to XYZ, means you trade. Whether you trade or whether you choose not to trade is an active decision at every moment in time. For there to be such a thing as "malinvestment" there would have to be such a thing as "mal-action".

  Tom Rapheal: "investment is money spent for finacial gain."

  This is not accurate. Does the guy who works out in the gym all day long to compete for a body building title invest for "financial gain"?

  Tom Rapheal: "You disagree with ABCT. Could you please send a link where this point is elaborated?"

  Sure, it's in this thread. Too lazy atm to search my posts on this site, when it's not really necessary right now.

  rtr: "there is no economic miscalculation from printing money any more than there is "miscalculation" from any change in supply of any other subjectively valued good whatsoever."

  It's praxelogically impossible to "miscalculate" when every voluntary trade only occurs because what is recieved is valued more than what is given away in exchange. That includes "money" and "credit", just as it includes "stories" and "promises". Q.E.D. Nobel Prize. If Mises got it for the ABCT, surely I get it for proving it false.

• Published: May 10, 2007 8:58 AM

• TLWP Sam

• I'm guessing here that rtr is saying that in a Libertarian gold-coins-only economy, the marketplace would still have volatility inasmuchas people would still not have magical foresight as to whether an investment was obviously good or obviously bad. Similarly in the spirit of non-coercion, if there was a mania going on, people could not theoretically be restrained from investing their gold coins even though many financial experts could foresee a cringe-worthy bust around the corner. And inevitably after the magical bubble burst and an economy slows right down many people might prefer to play it safe and hoard their gold coins yet they could not be coerced into spending even if a bit of spending would help stimulate the economy.

• Published: May 10, 2007 9:26 AM

• rtr

• Kevin B.: "Again, it is difficult to take you seriously when you revert to your manner of ostentatious ego-stroking, as if unawarded "awards" were something to be admired. Please try to appear to be serious."

  Just trying to keep the economic history, the evolution of ideas, accurate. :P

  Kevin B.: "If you wonder what I mean by regretting the action while taking it, then imagine having to die by a choice of methods. Extreme, but something to consider."

  Still a preferred choice. All exist in a state of more or less dissatsifaction, which is why action occurs. Parents may prefer the lives of their children to their own. Burning a Picasso painting while stranded in the wilderness to generate heat could happen.

  Kevin B.: "Is not a mistake an error in calculation?"

  Not necessarily. Accidents are errors too. That's why I asked is spilled milk a "malinvestment"?

  Kevin B.: "Could we miscalculate the investment at one point in time and realize the miscalculation at another?"

  Of course. Knowledge is not perfect. Omniscience does not exist. Information, as Hakek said, does not flow evenly. That's why prices send signals, more of this, less of that. Calculation is *ongoing*, not a definitive demarcated event of action. That's why I say "malinvestment" is like "equilibrium".

  Kevin B.: "We can miscalculate for better or worse, and logically "mal-" is used because the investment was miscalculated for the worse."

  Why "mis-" calcuate? Why not "mal-" calculate? And what was "calculated"? Was a crystal ball of omnisicience used to determine the future changing subjective valuations and the future changing supply? The free market is important for the reaction, the signals, more of this, less of that. Only voluntary free-market exchange can send those signals accurate. Nobody can calculate future changing subjective valuations like a mathematical formula, which to me calculate means "7" + "5" = "12".

  Kevin B.: "Our actions are subject to human error."

  Indeed.

  Kevin B.: "Therefore our subjective valuations are subject to human error."

  False. Subjective valuations *include* error, *include* imperfect knowledge. That's part of the reason why they are subjective valuations, and not objective valuations.

  Kevin B.: "It is truly ignorance, not inflation, that subjects us to mistakes, malinvestment, etc. Since inflation increases ignorance, then it follows that inflation precedes greater economic miscalculation."

  Inflation does not "increase ignorance". Inflation of what? Money? People? Ideas? Stuff? Nothing is subject to constant supply nor constant subjective valuation. Singling out "money" while excluding changes in everything else which exists doesn't prove anything.

  Kevin B.: "What do you call a subjective miscalculation?"

  A false misnomer. Calculation is subject to objective mathematical rules. That would be like trying to say "1" + "1" subjectively = "3".

• Published: May 10, 2007 9:33 AM

• rtr

• TLWP: "I'm guessing here that rtr is saying that in a Libertarian gold-coins-only economy, the marketplace would still have volatility inasmuchas people would still not have magical foresight as to whether an investment was obviously good or obviously bad. Similarly in the spirit of non-coercion, if there was a mania going on, people could not theoretically be restrained from investing their gold coins even though many financial experts could foresee a cringe-worthy bust around the corner. And inevitably after the magical bubble burst and an economy slows right down many people might prefer to play it safe and hoard their gold coins yet they could not be coerced into spending even if a bit of spending would help stimulate the economy."

  Tulipomania is a classic case of this. Though I would never use the phrase "stimulate the economy". Trading only occurs because it increases wealth. This book should be on every economists bookshelf. Extraordinary Popular Delusions and the Madness of Crowds

  http://www.amazon.com/Extraordinary-Popular-Delusions-Madness-Crowds/dp/1897597320

  Hell, this was published in 1841, and should be available for free at www.mises.org!

  "cases such as Tulipomania in 1624--when Tulip bulbs traded at a higher price than gold"

• Published: May 10, 2007 9:48 AM

• TLWP Sam

• Speaking of investments and creating wealth and stuff. Here's a site that tells the story of a deceased artist's creation with which I say he'd be a good contender for being a freaking genius:

  http://archives.tcm.ie/businesspost/2002/09/08/story489079528.asp

• Published: May 10, 2007 9:56 AM

• Scott D

• rtr,

  From the looks of it, your argument against ABCT and malinvestment is a straw man. On the other hand, I think you expose a fallacy that many people fall into when talking about malinvestment. Let me lay it out for you:

  Interest rates are a form of price. When people save at a higher rate, more money is available to invest. The supply of investment capital is greater, therefore the "price" of borrowing, the interest rate, is pushed down.

  People tend to save when things are going well for them, when they have satisfied their immediate financial needs and can think about their future. Therefore, a lower interest rate that results from higher savings is really a signal to entrepreneurs that more investment capital is available, and that the economy is ready to support their spending. In essence, people are wealthy enough to be ready to buy whatever will come of the entrepreneur's business opportunity.

  When government artificially lowers interest rates, what we get is controlled chaos. Entrepreneurs are getting the signal that there is sufficient investment capital to support their business proposition, when in reality the pool of capital has not grown. Since their commitment was predicated upon that wealth being there and the demand it would naturally entail, many businesses collapse when the demand does not materialize.

  Malinvestment, then, is what happens when there is widespread misinformation, and it is actively coordinated by the Federal Reserve. We label this activity malinvestment because it is a result of artificial tinkering that leads to greater misinformation and misleads entrepreneurs on a grand scale.

• Published: May 10, 2007 12:11 PM

• Michael A. Clem

• Thank you, Scott D. The fraud involved in the exchanges is based on the false, non-market interest rates. Thus, the exchanges are not truly voluntary, free market exchanges, and thus do not necessarily benefit both parties.

• Published: May 10, 2007 1:20 PM

• Kevin B.

• rtr,

  You are putting thought into this, and I appreciate it.

  Kevin B.: "Is not a mistake an error in calculation?"

  rtr: 'Not necessarily. Accidents are errors too. That's why I asked is spilled milk a "malinvestment"?'

  I was using the dictionary definition of the word "mistake." When I play pool, I intend to sink a particular ball. Since I am not very good, I frequently sink an unintended ball. Whether the unintended ball scores a point for me or my opponent, either way it was a mistake. If I put my resources toward a particular goal - invest - and fail to attain that goal, then what kind of investment is that?

  Kevin B.: "We can miscalculate for better or worse, and logically "mal-" is used because the investment was miscalculated for the worse."

  rtr: 'Why "mis-" calcuate? Why not "mal-" calculate?'

  Because as I pointed out, one may miscalculate for the better. Suppose in my pool game that I accidentally sink 3 extra balls. I did not plan to, but had I known I would still have taken the shot. A mis-calculation? Sure. A mal-calculation? Absolutely not.

  Kevin B.: "It is truly ignorance, not inflation, that subjects us to mistakes, malinvestment, etc. Since inflation increases ignorance, then it follows that inflation precedes greater economic miscalculation."

  rtr: 'Inflation does not "increase ignorance". Inflation of what? Money? People? Ideas? Stuff? Nothing is subject to constant supply nor constant subjective valuation. Singling out "money" while excluding changes in everything else which exists doesn't prove anything.'

  You were supposed to assume that I meant Fed money supply manipulation and the current variables associated with it.

  --

  Your responses were interesting. I look forward to receiving new input so that I may improve my position.

• Published: May 10, 2007 1:37 PM

• rtr

• Scott D: "Interest rates are a form of price. When people save at a higher rate, more money is available to invest. The supply of investment capital is greater, therefore the "price" of borrowing, the interest rate, is pushed down."

  Very True. The ABCT misses this too, claiming personal time preferences are all that matter. Not only are savings completely subjective, capable of disappearing as subjective material wealth in an instant, no matter whether its fiat paper currency or gold, or credit promises, but if nobody wants your savings, your savings are worthless to others no matter your personal time preferences.

  Scott D: "When government artificially lowers interest rates, what we get is controlled chaos."

  *How* does government artifically lower interest rates? Keep in mind, I expect *demonstrative proof*, in keeping with my own standards. :P You must show how all other potential effects on interest rates are moot, and how only government action effects interest rates.

  Scott D: "Entrepreneurs are getting the signal that there is sufficient investment capital to support their business proposition, when in reality the pool of capital has not grown."

  Capital is subjective too. Do consumers "malinvest", or "malconsume", when they buy an expensive plasma television when it is first sold in limited supply on the market, and a few years later those same plasma television sell for a third of the price in flooded supply?

  Here here for "malconsumption"! Whooo, I'm on a roll, now I just need to search for the hidden Nobel Prize egg #11 like it was in a multiculturally sophisticated children's Dora the Exlora educational show. Damn it, where's that stupid egg?! :P

  How then are entrepreneurs beginning business propositions if the "pool of capital" has not grown? Another praxelogical absurdity.

  Scott D: "Since their commitment was predicated upon that wealth being there and the demand it would naturally entail, many businesses collapse when the demand does not materialize."

  All action is "predicated" upon subjectively valued assumptions. All sorts of signals are sent and valuations change when those assumptions pan out differently than expected. This is not unique to interest rates, money supply, or credit. Therefore, one cannot maintain there is caused malinvestment from voluntary action unless one were also to embrace the praxelogical absurdity of "malaction", which is in direct contradiction to the law of trade.

  Scott D: "Malinvestment, then, is what happens when there is widespread misinformation, and it is actively coordinated by the Federal Reserve. We label this activity malinvestment because it is a result of artificial tinkering that leads to greater misinformation and misleads entrepreneurs on a grand scale."

  There's always "widespread misinformation", or "unkown information", or "changing infromation". The free market pricing signals sent by voluntary exchange are constantly addressing that "misinformation", or "unknown information", or "changing information". Tinkering is action, there is nothing "artificial" about it. Entrepreneurs are no more misled by Federal Reserve "tinkering" than they are misled by any individual's "tinkering" with supply or subjective valuation of absolutely anything else. This is why the ABCT is proved false.

  Scott D: "rtr,

  From the looks of it, your argument against ABCT and malinvestment is a straw man."

  You have failed to demonstrate this.

• Published: May 10, 2007 1:40 PM

• DC

• Kevin B and Scott D,

  You won't get rtr to agree with you on trade cycles and the majority of ABCT because he doesn't think "money" exists. In rtr's mind, people value bits of paper, and therefore the government's "inflation" is no different than Sony's "inflation" of TV's by manufacturing an extra 2 billion units.

  His criticism of money has its origins in his interpretation of the limits of praxeology. As far as I'm able to tell, rtr thinks that calling something a medium of exchange isn't coherent -- when people exchange, they value that which is valued, not something else.

  By the same logic, imagine for a moment Fred, who stands up from the couch, walks across the room, and sits at the table.

  One praxeologist might think "Oh, I see, Fred wanted to sit at the table -- his end -- so he got off of the couch and walked across the room."

  rtr interrupts and says "False. Fred valued standing up more than he valued sitting on the couch. That is all we can coherently say. Fred valued putting one foot in front of the other more than he valued leaving them be. That is all we can coherently say. Fred valued sitting at the table more than he valued standing beside it. That is all we can coherently say."

  If we follow rtr's ideas to their logical conclusion, it would seem that there is no such thing as exchange between two people. I don't give you the money for that apple; I give you the money because I value giving you money more than keeping it. If you withold an apple from me after I give you money, that doesn't change the fact that I valued giving you the money, and not the apple itself.

• Published: May 10, 2007 2:09 PM

• rtr

• Kevin B.: "rtr,

  You are putting thought into this, and I appreciate it."

  Thanks. I appreciate the replies to better allow my thoughts "to write themselves". Just trying to keep it lively and entertaining as we go along. And the examples are much better than boring amorphous terms like "production" and "investment", and serve to illumninate the concepts just as well if not better.

  Kevin B.: "When I play pool, I intend to sink a particular ball. Since I am not very good, I frequently sink an unintended ball. Whether the unintended ball scores a point for me or my opponent, either way it was a mistake. If I put my resources toward a particular goal - invest - and fail to attain that goal, then what kind of investment is that?"

  You choose to take the pool shot or not. You know in advance there is a possibility that you may miss the shot. If you were to be worse off from taking the shot, you would not take the shot in the first place, because you know there is a possibility you may miss. Therefore, missing a pool shot is not a "malinvestment".

  Even if you believed you were infallible at pool and could never miss a shot and then subsequently missed a shot, that too would not be a "malinvestment". That would change nothing of the reality that it was possible for you to miss a shot. If missing pool shots brought you to a state of greater dissatsifaction from a state of lesser dissatsifaction you would no longer take pool shots. You would thus send yourself a "personal price signal" that taking pool shots is not for you, to lessen or cease your production of pool shots.

  One poem I read in h.s. said, "to play a good game of pool is a sign of a well rounded education, but to play too good a game of pool is a sign of a misspent youth". So has Tiger Woods malinvested by focusing on being the best golfer he can be? If he loses a tournament, is that tournament a "malinvestment"? Goals are not guaranteed. Crystal balls don't exist (although "brass" ones are alleged to exist in Glengarry Glenn Ross).

  Kevin B.: "one may miscalculate for the better. Suppose in my pool game that I accidentally sink 3 extra balls. I did not plan to, but had I known I would still have taken the shot. A mis-calculation? Sure. A mal-calculation? Absolutely not."

  Sure, one may miscaluculate "for the better", as in an unexpected additional profit windfall occurs. "Calculation" or "Expectation" is never and never be "exact" when it comes to changing future subjective valuations and changing future supply. If exactness is impossible because omniscience does not exist, one cannot even objectively measure with any precision with which to define "mal-". It's subjective. But it's subjective at every moment in time from when an "original" decision is made and "stuck with" at all points in time until some arbitrary frozen moment in time where a "mal-" is declared.

  I imagine "miscaluculating for the better" is an extremely common occurence. You may think you are walking into Dairy Queen with a 25% off ice cream coupon, but when you present the coupon to the cashier she informs you the coupon was actually for %50 off. Marketers are always trying to make you feel like you are getting something "extra", as much "bonus" for as little actual cost as possible. Some women wear lipstick, of which "pseudo-Socrates" complained. It may be a sunny day today, and you feel subjectively wealthier because sunny days make you feel better even though you didn't plan for it to be a sunny day. You might invest in a tropical paradise vacation for the memories, but it turns out it rained the whole time. You can only invest or calculate with limited information. But everyone one does the best they can given their voluntary choices, by definition of trade.

• Published: May 10, 2007 2:44 PM

• rtr

• DC: "In rtr's mind, people value bits of paper, and therefore the government's "inflation" is no different than Sony's "inflation" of TV's by manufacturing an extra 2 billion units."

  People don't value "Tulips" too, and plant them? Soldiers and mercenaries aren't paid?

  DC: "As far as I'm able to tell, rtr thinks that calling something a medium of exchange isn't coherent -- when people exchange, they value that which is valued, not something else."

  That's why the free market works. Not only do you value what you value as an end, but you value what others value as ends in your means, and vice versa. Drop a $100 fiat note in the street and hide in the bushes nearby to see if anyone picks it up. Keep on doing this until you formulate a theory as to why people are picking up "'worthless' dead celebrity signed paper fiat notes with the number 100 printed on it".

  But that is correct, there is no "medium of exchange". There is always only this for that direct exchange in reality, even if they are done as steps for further goals. See the story of how a paper clip was traded for a house in steps. There are no magical ghostly "mediums". There is no "intermediate" in action, there is always just the present tense in which action occurs.

  http://www.cbc.ca/canada/story/2006/07/07/paperclip-house.html

  DC: "One praxeologist might think "Oh, I see, Fred wanted to sit at the table -- his end -- so he got off of the couch and walked across the room."

  rtr interrupts and says "False. Fred valued standing up more than he valued sitting on the couch. That is all we can coherently say. Fred valued putting one foot in front of the other more than he valued leaving them be. That is all we can coherently say. Fred valued sitting at the table more than he valued standing beside it. That is all we can coherently say."

  That was hilarious. I

  "Fred valued standing up more than he valued sitting on the couch. That is all we can coherently say."

  If you arbitrarily "pause" the moving picture of action at that moment, that is all you can say. Means by definition increase subjective value.

  Now with N.P. #11, I can discredit another big branch of economic fallacy, work vs. leisure. I told you a small error in overlooking the law of trade in the race for a holy grail artificial definition of "money" has caused more than a century's worth of massive fallacy.

  It's alleged that work increases "disutility", results in a state of greater dissatisfaction from a lesser state of leisurely dissatisfaction. If that was true, nobody would ever "work" or "labor". The aim of technological innovation is to make work more efficient, more produtive. Further means are always inclusively subjectively valued with closer means of lesser dissatisfaction, with more or less consciousness. So really, there are no praxelogical "ends", except the removal of greater dissatisfaction for lesser dissatisfaction. There are just closer and further means. If you ever satisfied an "end", you would then be done acting. Let's call that N.P. #12. Claiming a satisfied end begs an artificial frozen in time "equilibrium" state, which does not exist in reality. Yup, definitely, N.P. #12.

  DC: "If we follow rtr's ideas to their logical conclusion, it would seem that there is no such thing as exchange between two people. I don't give you the money for that apple; I give you the money because I value giving you money more than keeping it. If you withold an apple from me after I give you money, that doesn't change the fact that I valued giving you the money, and not the apple itself."

  Huh? Exchange is "this" for "that". A trades money to B for an apple. A values the apple more than that money and B values that money more than that apple. This is simple voluntary consensual exchange. That's why trade occurs. No Federal Reserve board action forces someone to start a business against their will. The decision is voluntary, as are the terms of trade.

  If "I value giving you money more than keeping it" was true, then there would be no expectation of an apple in return.

• Published: May 10, 2007 4:06 PM

• rtr

• That was hilarious. I ...

  Grrr, a key paragraph was ommitted after using a less than sign and numerical three as representation. Now I've gotta reconstruct N.P. #11.

  I love attempted parody. .... N.P. #11: All further means are *inclusively* subjectively valued within closer means, to moving to future time states of lesser dissatisfaction, with more or less consciousness. No wait, #11: Means by definition increase subjective value. Well, by an accidental occurance, a "mal-function" (which is not intentional purposeful voluntary action, whether it be wardrobes or messed up posts) :P, I now have N.P. #11A and N.P. #11B.

  Oh well, lost is some of the flavor of new (now old) live step by step praexlogical reasoning. A "malinvestment"? Of course not.

  But let me at least try and re-ellaborate a little. Means by definition increase subjective value. If they didn't, they wouldn't occur, by definition of action. Good enough? Means occur through specific moments in time, moving one closer to further means as closer means are satisfied. But satisfaction is ever fleeting, is never a completely ended end, as action is ever occuring. Thus, Mick Jagger's famous words, "I Can't Get No, Satisfaction". That's because you can only get lesser dissatsifaction.

• Published: May 10, 2007 6:03 PM

• Tom Rapheal

• rtr You can define things that do not exist. Unicorn- noun a mythical horse with a single horn extending from its forehead. Please also include if you think it is a noun or verb.

• Published: May 10, 2007 6:18 PM

• Kevin B.

• rtr,

  You choose to take the pool shot or not. You know in advance there is a possibility that you may miss the shot. If you were to be worse off from taking the shot, you would not take the shot in the first place, because you know there is a possibility you may miss. Therefore, missing a pool shot is not a "malinvestment".

  So you are saying that a "malinvestment" cannot be defined as a failed investment?

  The Austrian School erred by labeling voluntary action, which is *always* undertaken with the purpose of increasing subjective wealth (and actually increases subjective wealth at the moment of action), a "malinvestment". That's a praxelogical impossibility...

  Back to the pool table: You say yourself that the purpose is to increase subjective wealth. But does that always happen when you invest? I purpose to sink a certain ball. I expend resources. But sometimes I do not acquire what I valued higher than the expenditure. If you argue that I received something else, perhaps a chance to acquire the good, then I would reply that then "investment" is an absurd term, since in reality you always get what you want.

• Published: May 10, 2007 6:23 PM

• Tom Rapheal

• I did not state that my limited definition of investment is correct. I limited it for argument clarity. Defining your terms is an academic standard. Please use this definition for arguement clarity.

• Published: May 10, 2007 6:24 PM

• Kevin B.

• rtr,

  "You can't always get what you want."

  ;)

• Published: May 10, 2007 6:29 PM

• Scott D

• *How* does government artifically lower interest rates?

  I assume that you are familiar with the federal funds rate, the discount rate, and their relation to the prime rate?

• Published: May 10, 2007 7:03 PM

• DC

• rtr, please take no offense to this, but I think that you are being inconsistent. Here's where I think it breaks down:

  "Exchange is 'this' for 'that'. A trades money to B for an apple. A values the apple more than that money and B values that money more than that apple."

  Now, if I apply your principles, I think I can object and say no, A gives money to B because he values that state of affairs more than keeping his money. B values giving his apple over more than retaining it.

  Thus, when you write: "If 'I value giving you money more than keeping it' was true, then there would be no expectation of an apple in return."

  No, one could make that exchange -- i.e., giving the money to B over retaining it -- with an expectation that one will receive an apple. But, as you have pointed out many times, uncertainty is part of the package deal. You expect to receive an apple, it is a very likely possibility after all, but according to rtr's praxeology, we don't speak of that except as mere expectation. When it comes to the action, i.e., a purely praxeological analysis, you valued giving the money to B more than keeping it. That's all. (Heck, call that N.P. #13: There is no such thing as interpersonal exchange. Only human action.)

  Does that sound arbitrary? I think it does, but I see the same analysis applied when you attack the notion of money. As you write, "If you arbitrarily 'pause' the moving picture of action at that moment, that is all you can say. Means by definition increase subjective value."

  An analysis of indirect exchange and the history of money reveals that money serves a very specific purpose in praxeological behavior. It is the equivalent of walking in my Fred example -- Fred may want to get from his couch to any other part of the house, but walking is the means by which he will get to all of the others. Hence, we can coherently describe the activity of "walking" as a means to achieve further ends, and not simply as an end in itself.

  You have said that we can only say that people value trading for money because they value the money in itself, but I will appeal to your NP #11 to counter that this is only if we force an arbitrary pause onto our analysis of human action.

• Published: May 11, 2007 7:18 AM

• rtr

• Tom Rapheal: "rtr You can define things that do not exist. Unicorn- noun a mythical horse with a single horn extending from its forehead. Please also include if you think it is a noun or verb."

  It can be both a noun and a verb. I have no problem with the standard definition of "malinvestment".

  http://dictionary.reference.com/browse/mal

  mal-
  pref.

  1. Bad; badly: malpractice.

  http://dictionary.reference.com/browse/investment

  in·vest·ment

  –noun
  1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

  in·vest

  –verb (used with object)
  1. to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.

  ------------------------

  At the moment of action, at the moment of investing, you are increasing your subjective wealth, profiting in the strict economic sense, by deefintion of action and by definition of the law of trade. It you weren't by defintion profiting, if you weren't by definition increasing your subjective wealth, you wouldn't invest or hold an investment in the first place.

  To claim an arbitrary frozen in point time "equilibrium" "malinvestment" is as silly as claiming a rainy day is a malinvestment. You cannot control ever changing subjective valuations of others or yourself. To call for some standard of objective success or failure in such an endeavor is absurd, is as ridiculous as alleging "malaction" or "malconsumption". If you can't "malconsume", you can't "malinvest". They are praxelogical impossibilities. Now it may turn out that your investment is "consumed"/"dissappears" by future changing subjective valuations or changing future supply. But that can happen to your "savings" as well. That can happen to your "appetites" as well. The defintion of "malinvestment" is therefore anthropomorphic, a religious superstition of guilt from lack of perfection and omniscience searching for blood from stones.

  Not to mention it's competely absurd to measure "appreciation" against one arbitrary "money" commodity. If your stocks increase by 100%, but houses you were looking at purchasing increase by 200%, have you "malinvested"?

• Published: May 11, 2007 9:03 AM

• rtr

• Kevin B.: "So you are saying that a "malinvestment" cannot be defined as a failed investment?"

  Just as consumption or action or subjective valuation can never be defined as "failed".

  Kevin B.: "Back to the pool table: You say yourself that the purpose is to increase subjective wealth. But does that always happen when you invest?"

  Yes! By definition of the law of trade, that which is received is valued more than that which is given away in exchange.

  Kevin B.: "I purpose to sink a certain ball. I expend resources. But sometimes I do not acquire what I valued higher than the expenditure."

  That's a praxelogical impossibility. You cannot aquire anything that does not by definition increase your subjective wealth at the moment of aquisition.

  Kevin B.: "If you argue that I received something else, perhaps a chance to acquire the good, then I would reply that then "investment" is an absurd term, since in reality you always get what you want."

  Indeed you do always get exactly what you want from every voluntary trade. You just can't get no permanent satisfaction from it. Hey hey hey!

• Published: May 11, 2007 9:17 AM

• rtr

• Scott D: "I assume that you are familiar with the federal funds rate, the discount rate, and their relation to the prime rate?"

  Nope, explain it to me like I was a ten year old.

• Published: May 11, 2007 9:20 AM

• Kevin B.

• rtr,

  invest: to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value. (italics mine)

  Your argument suggests that the act of investing always results in profitable returns, but, by definition, investing does not always result in profitable returns.

• Published: May 11, 2007 1:12 PM

• rtr

• DC: "Now, if I apply your principles, I think I can object and say no, A gives money to B because he values that state of affairs more than keeping his money. B values giving his apple over more than retaining it."

  True, A values giving money to B because he values that state of affairs more than keeping his money along WITH the possibility that B won't trade the apple along WITH the possibility that B will trade the apple. But if A believes, or knows, in advance that B won't trade the apple after A trades the dollars, A won't trade the dollars in the first place, if the only reason A is trading the dollars is for an apple, and not making a charitable donation.

  Have you ever seen street scams, where "suckers" "voluntarily" fork over their money. Lemme tell you a story I witnessed one day riding the purple line "El" train to Northwestern University.

  At one stop, appears a guy dressed in a completely green suited outfit announcing that today is everyone's "lucky day" and he is giving away money. All you have to do is "bet" which hand he has a ball in. Of course, the green guy has plants on the train, with which to use to real in some "suckers". So the green guy will make it look like it's real easy to pick which hand the ball is in, and pay the 3 to 4 planted "winners", all the while announcing "bet what you want to win!" They're looking for a sucker who isn't part of the crew to "bet" $10 or $20 that he can pick which hand the ball is in, and of course when the sucker bets the ball isn't in that hand.

  Do you think the "sucker" is ever going to fall for that scam trick again? Did the sucker "malinvest"? The sucker thought he would "bet" $20 to get $40 back. His investment "goal" was to turn $20 into $40 but he ended up with $0, in rapid continuous time succession.

  The sucker subjectively valued the liklihood he would win $20 more than the liklihood he would lose $20, at the moment of the transaction. His information that it was a scam or not was imperfect. But his action was profitable for him at the moment of trade. Otherwise he wouldn't have handed over the $20. Of course at a future moment in time, his subjective valuation of the scenario changes. He has new information. If it was a malinvestment for him, he wouldn't have invested in the first place. No different then paying to see a movie in advance and then not liking the movie. It's precisely these possibilities which leads to further profit opportunity for other entrepreneurs to offer better deals, such as 50% back if you leave the movie within 30 minutes. "100% satisfaction guaranteed!" There are all sorts of trade possibilities.

  Sure he may "regret" his action. But that feeling of regret is just a display of differing subjective valuation at a later time. He could've even won $20 and still regreted if perhaps he read the next day in the paper the man was mentally ill and gave away his mothers savings in a green man giveaway splurge. Would that be a "malinvestment" too? Why didn’t everyone take advantage of the green man’s deal? Why did nobody avail themselves to the green man’s deal?

  Those who want repeat business of trading apples for dollars are likely to not renege. Because by definition B benefits from trading (even "the promise of") apples for dollars, he is likely to actually trade the apple, so that this customer will be a repeat customer, and other customers won't be scared away from trading with B.

  This is why TRUST, REPUTATION, CREDIT RISK etc. has market value, precisely because of these possibilities. That's why they are even economic, or praxelogical, concepts. How would you explain the existence of credit scores and credit ratings agencies?

  DC: "No, one could make that exchange -- i.e., giving the money to B over retaining it -- with an expectation that one will receive an apple. But, as you have pointed out many times, uncertainty is part of the package deal."

  Yes, uncertainty always exists. But at the moment we are talking about voluntary exchanges, not nor fraud. Voluntary exchanges only occur because that which is received is valued more than that which is given away in exchange. Trade, voluntary exchange, is an agreement, to exchange this for that.

  DC: "You expect to receive an apple, it is a very likely possibility after all, but according to rtr's praxeology, we don't speak of that except as mere expectation."

  By definition of omniscience and perfection not existing. By definition of action occurring.

  DC: "When it comes to the action, i.e., a purely praxeological analysis, you valued giving the money to B more than keeping it. That's all. (Heck, call that N.P. #13: There is no such thing as interpersonal exchange. Only human action.)"

  True, but it doesn't state "why", the subjective value reasons you valued giving the money to B more than keeping it. Pausing the picture at that moment is akin to "equilibrium". If B refuses to turn the apple over to A, then that no longer qualifies as a voluntary agreed upon trade. The terms of the prior agreed to exchange are broken.

  N.P. #13? You're on N.P. #13 as well? Or are you still going on #1? Nope, I don't see a N.P. here.

  DC: "An analysis of indirect exchange and the history of money reveals that money serves a very specific purpose in praxeological behavior. It is the equivalent of walking in my Fred example -- Fred may want to get from his couch to any other part of the house, but walking is the means by which he will get to all of the others. Hence, we can coherently describe the activity of "walking" as a means to achieve further ends, and not simply as an end in itself."

  And that way the key to the error of the false definition of "money". It attempts to assign an objective praxelogical purpose to an inherently subjectively valued thing. People value what others value because of what and how that value of others can be used to enhance value of their own.

  Thus the real defintion of money is the most commonly exchanged thing in trade. All actions, all subjectively valued things, are means to means, both closer and further, of both oneself and others.

  DC: "You have said that we can only say that people value trading for money because they value the money in itself, but I will appeal to your NP #11 to counter that this is only if we force an arbitrary pause onto our analysis of human action."

  Of course people value money in and of itself, even if it's just because other people value money in and of itself. We're still waiting for experiment reports from some posters out on assignment to drop $100 fiat notes on the street, while hiding in the bushes to observe if any passerbys pick them up and the theory forumalation as to why they are being picked up.

  This is no different from the division of labor whereby people specialize and trade surplus for other things. Plasma televisions made by Sony are a means to other means, in exactly the same way "money" is a means to other means.

  No matter where you were to put an arbitrary pause on human action, you would still only find means being traded for different means.

• Published: May 11, 2007 1:30 PM

• rtr

• Kevin B.: "Your argument suggests that the act of investing always results in profitable returns, but, by definition, investing does not always result in profitable returns."

  The *act* of investing always does result in a profitable return, by defintion of action, by definition of trade. This does not guarantee you that subjective valuation will remain constant. Do you own any movies or music which are collecting dust on your comnputer or home? Others don't value you or your property with the same unchanging constant level of subjectivity through time. They may want less of you or less of your stuff, or more of you or more of your stuff. Those are the signals.

  Where are the examples of malconsumption?

• Published: May 11, 2007 1:38 PM

• Kevin B.

• rtr,

  Investing is an act - an attempt to reach a goal. You may succeed or fail.

  I understand you are pointing out that we trade for an investment because we assign a greater value to the investment than the cost, but to invest is not to trade. When you trade, you are exchanging goods, increasing your net subjective value of goods. When you invest, by definition, you are making an expenditure for goods that may or may not be realized. The word "invest" is not a synonym for "trade."

  The act of investing, or the trade for the investment, increases our immediate subjective value, but the investment itself may turn out to be a failure - or else we must change the definition of the word "investment."

  Therefore:

  mal·in·vest·ment

  –noun
  1. the investing of money or capital which fails to yield profitable returns, as interest, income, or appreciation in value.

• Published: May 11, 2007 2:33 PM

• Kevin B.

• I didn't realize until now that mises.org has a glossary. Their definition of malinvestment is right there.

  "Malinvestment. An investment in wrong lines which leads to capital losses."

  rtr,

  Your argument that 'there's no such thing as "malinvestment"' defies the definition of the word "investment."

  Therefore, "malinvestment" is a praxelogical *impossibility*. This is why the Austrian Business Cycle Theory has been *proven* false, by me.

  I suggest you rethink your proof.

• Published: May 11, 2007 3:42 PM

• Tom Rapheal

• rtr It is immpossible to malinvest. All you can do is invest. However, this investment can turn into a malinvestment. Also, malconsumption (noun) a consumption that is regreted. It is still impossible to malconsume. Example of this, me taking a swallow of Buffalo Wild Wings Blazin' sauce. I consumed the sauce. However, I very soon regarded it as a malconsumption. I invest in a stock. It goes down hill. I regard it as a malinvestment. I do the action of running across ice. I slip, fall, and break my arm. I regard the running as a malaction. Have I clarifed myself?

• Published: May 11, 2007 3:48 PM

• rtr

• Kevin B.: "Investing is an act - an attempt to reach a goal. You may succeed or fail."

  Goals change as information changes.

  Kevin B.: "I understand you are pointing out that we trade for an investment because we assign a greater value to the investment than the cost, but to invest is not to trade. When you trade, you are exchanging goods, increasing your net subjective value of goods. When you invest, by definition, you are making an expenditure for goods that may or may not be realized. The word "invest" is not a synonym for "trade.""

  It is a synonym for trade, just as trade is a synonym for action. Every expenditure is a trade. Every action is a trade. How do you aquire "an investment"? By exchanging something for that investment. How do you do one thing and not another thing at a specific moment in time? By trading away the possibility of doing those other things at the moment you are doing that one thing.

  Kevin B.: "The act of investing, or the trade for the investment, increases our immediate subjective value, but the investment itself may turn out to be a failure - or else we must change the definition of the word "investment.""

  Failure and success in action are *subjective* terms, just as value is *subjective*. You can only move to states of lesser or greater dissatisfaction. You cannot attain a state of complete satisfaction. It'w completely arbitrary to declare success or failure of future goals when the subjective value which declared the goal in a past time must be reconciled with differing future subjective valuations.

  That's why I asked the question did you malinvest if your stocks increased by 100% but the house you were planning on buying with your stock profit increased by 200%, leaving you even further from that goal of attaining that house? You aren't the only one with goals. Others may increase their subjective valuations of that house you were planning to buy and outbid you. So there is no hard and fast rule about success. It's subjective. If you wear baggy jeans which look like they will fall down to your knees are you a fashion "failure"?

  Goals are goals because they require action and because they are not guaranteed. Not only are mistakes possible but circumstances beyond your control exist. Still at every moment in time in which action is occuring, in which trading is taking place, in which investments are in process, are only selected because subjectively one believes that is the most beneficial, the most wealth increasing, the highest profit to be had, use of their scarce resources.

  Kevin B.: "mal·in·vest·ment

  –noun
  1. the investing of money or capital which fails to yield profitable returns, as interest, income, or appreciation in value."

  "Appreciation" in value? Measured against *what*? As in something is valued in the future more than it was valued in the past, by you, or by others? Subjective value, now more than ever! It's about what people want in the here and now, and what they do in the here and now, even if that's setting aside as savings, or setting aside and employing as investments.

  If you open a sandwich shop, spend a lot of time, energy and capital, opening that sandwich shop and nobody comes, sure you misjudged what the subjective valuation of others of your sandwich shop would be. Yes, you can misjudge, especially misjudge arbitrary future subjective valuations, not only of yourself, but of unkown strangers, but you cannot malinvest. You cannot but fail to know with perfect certainty the future subjective valuations of your self and other strangers at every moment in time. They will let you know with economic precision through their own voluntary subjective valuations what they think of you and your stuff.

  It's absurd to start at an arbitrary point in time where a=b, and then at some future arbitrary point in time claim "malinvestment" if at that future time a

• Published: May 11, 2007 3:49 PM

• rtr

• Good post Tom Rapheal.

  Tom Rapheal: "It is immpossible to malinvest. All you can do is invest. However, this investment can turn into a malinvestment."

  If it is impossible to malinvest, it is impossible for there to be a malinvestment. You like something more, you like something less, you hate something more, you hate something less. Same for others. You like something you never tried before. You don't like something you never tried before. Subjective valuations change.

  Tom Rapheal: "Also, malconsumption (noun) a consumption that is regreted. It is still impossible to malconsume. Example of this, me taking a swallow of Buffalo Wild Wings Blazin' sauce. I consumed the sauce. However, I very soon regarded it as a malconsumption. I invest in a stock. It goes down hill. I regard it as a malinvestment. I do the action of running across ice. I slip, fall, and break my arm. I regard the running as a malaction. Have I clarifed myself?"

  Crystal. So do you "malinvest" if you don't purchase a stock and instead of going down hill it goes up the mountain? Do you "mailinvest" if you don't buy that stock at it's valley low and sell it at it's mountain peak? How about the length of time in between it's valley low and it's mountain peak?

• Published: May 11, 2007 4:06 PM

• rtr

• Kevin B.: "I didn't realize until now that mises.org has a glossary. Their definition of malinvestment is right there."

  Nice find.

  mises.org: "Malinvestment. An investment in wrong lines which leads to capital losses."

  By definition wrong. There are no "right" and "wrong" lines of action. Oh, the irony.

  There are more valued lines, less valued lines, new valued lines, no longer valued lines. None of these are "right" or "wrong". Capital can be "lost" purely by a future absence or lessening of subjective valuation of that which is called "capital", no matter how it may or may not be employed.

• Published: May 11, 2007 4:18 PM

• Kevin B.

• rtr,

  Kevin B: 'The word "invest" is not a synonym for "trade.'

  rtr: "It is a synonym for trade..."

  God, I'm using the dictionary. You are arguing with the dictionary.

  Kevin B.: "mal·in·vest·ment

  –noun
  1. the investing of money or capital which fails to yield profitable returns, as interest, income, or appreciation in value."

  rtr: '"Appreciation" in value? Measured against *what*? As in something is valued in the future more than it was valued in the past, by you, or by others?'

  I was using the definition that *YOU* took from the dictionary. I suppose I may have doubted your definition of "investment." Let's be all be silly:

  rtr: "in·vest·ment

  –noun
  1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value."

  Appreciation in value? Measured against *what*? As in something is valued in the future more than it was valued in the past, by you, or by others?...

  "In case you want to know, he went that way."

  "Who did?"

  "The white rabbit."

  "He did?!"

  "He did what?"

  "Went that way."

  "Who did?"

  "The white rabbit."

  "What rabbit?"

  "But didn't you just say...oh bother!"

• Published: May 11, 2007 4:30 PM

• rtr

• You can't invest something except by trading something else for that investment, or by trading the possible uses of the investment for a particular use of the investment. That is so at every moment in time the investment is held. Why do you think on-line brokerages call the executions of "investment" orders "trades"? There are buyers and sellers of investments. There are differing possible employments for investments, some which are chosen, and others which are forsaken. A purchase, a transaction, a lease, investments, etc. are all trades.

  The definition in the dictionary was a references, which was called for by Tom Rapheal. It wasn't written by me. It's subject to criticism and analysis.

• Published: May 11, 2007 4:47 PM

• Scott D

• Hi, Kevin.

  Does this mean that you, too, are growing tired of trying to reason with the unreasonable? Good grief, I'd rather go argue copyright/patents with Sasha at this point.

  rtr, I asked you a question and what I got in return was pure cheek, not worthy of further response. I'm done with you.

• Published: May 11, 2007 4:53 PM

• rtr

• You made some wild undemonstrated claimed assumption Scott D:, "When government artificially lowers interest rates, what we get is controlled chaos", without ever showing it. I've answered the questions and examples which were directed to me, and pulled two new N.P.s from them.

  If it is impossible to malinvest, it is impossible for there to be a malinvestment. Q.E.D.

  Scott D: "Does this mean that you, too, are growing tired of trying to reason with the unreasonable?"

  The irony. You, and all defenders of the ABCT are resoundly defeated. For if you make your claim of "malinvestment", likewise the absurd claim that Sony producing more plasma televisions causes "malconsumption" must also be granted.

• Published: May 11, 2007 5:15 PM

• Kevin B.

• Scott,

  I agree that it seems pointless when your opponent argues with dictionary definitions of words. How are you supposed to interpret what he is saying when he redefines words themselves?

  ...And that's why I get Nobel Prize #1,536 - because I *proved* that the English language is a praxeological impossibility!

  I couldn't resist the more subjectively valuable comment, rtr. ;)

• Published: May 11, 2007 5:26 PM

• Cents and Sense

• rtr,

  According to Mises Made Easier:

  Malinvestment. An investment in wrong lines which leads to capital losses. Malinvestment results from the inability of investors to foresee correctly, at the time of investment, either (1) the future pattern of consumer demand, or (2) the future availability of more efficient means for satisfying a correctly foreseen consumer demand. Example of (1): An investment of available savings in a manner that cannot produce as much consumer satisfaction as the same funds could produce if invested differently. Example of (2): An investment which, before the end of its expected useful life, becomes obsolete due to the unforeseen development of more efficient means for satisfying the same consumer demand. Malinvestment is always the result of the inability of human beings to foresee future conditions correctly. However, such human errors and the resulting malinvestments are most frequently compounded by the illusions created by undetected inflation (q.v.) or credit expansion (q.v.). From the viewpoint of attaining maximum potential consumer satisfaction, every political intervention, other than that needed for the preservation of the market society, must lead to malinvestment.

  Malinvestment is a reflective term that states, "Whoops, I made a previous error in forecasting since my capital structure is not in-line with consumer demands."

  Malinvestment is not an action, nor the result of an action. It is simply a subjective view of past decisions, though it is based on a real appraisal of the world versus a past expectation.

  Yes, there is malinvestment. rtr can create a different definition but he should coin a new term or phrase. In this blog, the convention for words has been established in Mises Made Easier - an option on the Resources/Classroom tab.

• Published: May 11, 2007 10:39 PM

• Michael A. Clem

• As I understand it, the Federal Reserve increases the money supply by making more money available to banks to lend out. This extra money thus reduces the interest rates for loaning this money out, a rate that is thus lower than the true, market-based rate that would come about simply from people's savings based upon their time preferences.
  
  Businesses get the signal from the lower interest rates that not only is there more money available, but that people have higher time preferences and are saving more money, and thus are willing to support increased production by business.
  
  That's the lie, however, because not only are people not saving more money, but the money they do have has been devalued by the Fed's inflationary process. Businesses are being misled into thinking that consumers are willing and able to support increased production when they are not. That is the cause of malinvestment. Without the Fed's inflationary interference, the interest rates would more closely reflect the amount of increased production that consumers are willing and able to support.
  
  The fraud is in the interest rates. Any exchange based upon fraud is not voluntary. Malinvestment, then, is investment based upon the fraudulent interest rates caused by the Fed. Of course, even if the interest rates weren't being tampered with, businessmen could still make mistakes and try to increase production more than is warranted by the rates. That would be bad investments of a different kind, though, not necessarily "malinvestment" as Austrians are talking about.
  
  Alas, I don't think they give Nobel Prizes for simply restating what other people have said...

• Published: May 12, 2007 1:38 PM

• rtr

• Well, well, well, as you *don't* understand it. But here's a balloon for you to play with.

  As *I* understandebly display it, you, as they colloquially say in the 21st century, "suk".

  And as "y'all" understand it, from some kindergarten knockoff spelling site, it spells P.,A.,T.,H.,E.,T.,I.,C..

  Please "conference" while you come to this determination a postieri, or whatever post apology you come up with, especially those who remained silent, out of respect for their *better*.
  
  I mean, really, do you want me to drag them through face first through the disproof carwash?

  Michael A. Clem: "Alas, I don't think they give Nobel Prizes for simply restating what other people have said..."

  What iz this, EZ Nobel Prize #3 or #4, you mock? I *already* put down everything on stringing youz through the "lose"/"loose".

  I mean Jesus H., "Austrians" talking about "The True interest rate"?

  Don't make me laugh, even more than ....

  Increased supply of something, not *even* ceteris paribus, reduces interest rates...

  They supposedly don't get the "signal" when government "changes" supply, because they are "S".,"T".,"U".,"P".,"I".,"D.". That's the *truth*. I mean, is there is an ethical dilemma regarding humiliation? Fine, have it *Lorded* over your dumb a$$es. With subjective pleasure.

  Michael "'A' still working on 'B'" Claim: "An exchange based upon fraud is not "voluntary" because the wannabee Austrian 'torchbearers'. What's next, being charged with a crime for picking up a loose fiat note on the street?

  Michael A. Clem: "Malinvestment, then, is investment based upon the fraudulent interest rates caused by the Fed."

  Just blow crap as much as you can, "an exchange based upon fraud is not an exchange", no duh, dummy.

  Persecution complex much? Any and every change in supply (not to even mention post subjective valuations of how weak your analyses are), are "confusing" if they are "caused" by "government"?

  Fine, let everyone observe with extra smearing on top. It does not get any more uncivil than a failure of acknowledgement of truth.

  Michael A. Clem: "Of course, even if the interest rates weren't being tampered with, businessmen could still make mistakes and try to increase production more than is warranted by the rates. That would be bad investments of a different kind, though, not necessarily "malinvestment" as Austrians are talking about."

  Is that the "Gospel", according to your dumb a$$?

  Michael A. Clem: "Alas, I don't think they give Nobel Prizes for simply restating what other people have said..."

  Alas, I believe I feel your subjective humiliation. But, dude, set me up again, I luv high lobs at the net ...

  Cents and Sense: "Malinvestment is not an action, nor the result of an action. It is simply a subjective view of past decisions." Yes, there is malinvestment, the friendly ghost.

  Cents and Sense: "rtr can create a different definition but he should coin a new term or phrase."

  I *can*, can't I? So be it. "Malinvestment" is the result of "Santa Claus", "the Tooth Fairy", the st00pid, the arrogantly stupid that *lost* debates*, the you fools.

  "Malinvestment is not an action ... because I'm too stupid to know what action is .."

  Or maybe you should just bow down, already. Isn't it great? It's already "coined". rtr can praxelogically prove your full of civilly defined "nonsense", from multiple points of reference.

  Cents and Sense: "In this blog, the convention for words has been established in Mises Made Easier - an option on the Resources/Classroom tab."

  Mises dot blog, pwned by Chicago Skewl, co-opted by Chicago Skewl, but neigh said the little fish. Bunch of posers running for Austrian "Bishop".

  /wave

  rtr + > you

  Alas, I get to humiliate y'all again and again. Gimme your tired disinterested pride. I need a new award.

• Published: May 13, 2007 3:40 AM

• Kevin B.

• rtr,

  I need a new award.

  I award you the Mises Weblog Malinvestment Award.

  Congratulations.

• Published: May 13, 2007 2:14 PM

• Tom Rapheal

• rtr Please argue, don't dismiss. Maybe you are the greatest thing since sliced bread, but you sure have confusing logic and explanations. Especially when you say, if you can't malinvest then there is no such thing as a malinvestment, without showing the logical error in my reasoning. (I INVEST in a stock. The the stock price goes down. I REGARD it as a MALINVESTMENT.)

• Published: May 13, 2007 9:39 PM

• DC

• rtr, it seem that once again, if we use your praxeological commitments, we see this:

  Trade, voluntary exchange, is an agreement, to exchange this for that.

  And we may replay, insofar as this relates to individual actors: True. Insofar as this relates to interpersonal exchange: False.

  Now, I said:

  DC: "When it comes to the action, i.e., a purely praxeological analysis, you valued giving the money to B more than keeping it. That's all. (Heck, call that N.P. #13: There is no such thing as interpersonal exchange. Only human action.)"

  To which you responded:

  True, but it doesn't state "why", the subjective value reasons you valued giving the money to B more than keeping it. Pausing the picture at that moment is akin to "equilibrium". If B refuses to turn the apple over to A, then that no longer qualifies as a voluntary agreed upon trade. The terms of the prior agreed to exchange are broken.

  I say, again, the voluntary agreement never happened, you are presupposing this with your answer. Adam valued looking at the apple more than not. Betty valued having the apples there with a sign more than not. Adam valued putting money on the counter more than not. Betty valued handing an apple to Adam more than not. This just happens to be one of the most common coincidences in human action, which we call "trade" for convenience (but would be foolish to think actually exists).

  So, if I may borrow some words, modified a bit, for a moment:

  "And therefore we see the key to the error of the false definition of 'trade'. It attempts to assign an objective praxeological purpose to an inherently subjectively valued thing. People value what they value because of what and how that value enhances their subjective value of their own actions.

  "All actions, all subjectively valued things, are means to means, both closer and further, of both oneself and others."

  That's a great praxeological critique of this vague notion of "trade." If you were a little more consistent in your application of praxeology, rtr, you'd have NP#13 by now. There is no such thing as interpersonal trade, only human action.

  You say: No matter where you were to put an arbitrary pause on human action, you would still only find means being traded for different means.

  And I completely agree, insofar as we use your praxeology. It completely fails to give us even an understanding of interpersonal exchange. Your critique of money is that it essentially reifies a non-existing thing; I see the same critique applying to trade.

  I guess you can consider that a challenge to show how interpersonal exchange exists given your methodology. I can explain everything you've described as "trade" sufficiently using only human (singular) action. So far you haven't given me a reason to think interpersonal trade actually exists -- just that it's a very common form of human action.

• Published: May 14, 2007 9:32 AM

• DC

• If I can speak for a moment outside of the rtr box that I've confined myself to, I want to comment that I think that money is defensible, even on the grounds that rtr is critiquing it.

  This can shown when we make the praxeological observation that people in an economically developing society prefer a more direct route to many goods through one medium rather than trading eggs for butter for meat for nails for a fishing hook. This medium, which is historically gold, is called 'money', but does not exclude the use of other media for exchange. Nevertheless, we can make useful observations about it in the same way that we observe other economic phenomena that aren't restricted to a one-time exchange of this action or inaction instead of that action or inaction. The very nature of having ends suggests that not every action is the end in itself of a person's intentions.

  rtr, your counter-argument seems to be two-fold. On the one hand, you point out there there doesn't exist a medium of exchange, only exchanges. I think this is flawed for the reasons I am citing in other posts above. I don't see a compelling argument that we should stop praxeological analysis at eggs for gold, and not see that an actor's intent was eggs for gold for X, where X is any range of goods (made possible by gold's convenience as a medium of exchange). The other problems are in other posts.

  Secondly, you point out that anything can be used in the same way that what we call "money" is used (e.g., plasma TVs). I don't think this is compelling because no Austrian has ever said that gold by its nature excludes anything else being used in an exchange. I might sing for a mansion, or trade water for apples. I see no contradiction.

• Published: May 14, 2007 9:50 AM

• rtr

• Tom Rapheal: "Especially when you say, if you can't malinvest then there is no such thing as a malinvestment, without showing the logical error in my reasoning. (I INVEST in a stock. The the stock price goes down. I REGARD it as a MALINVESTMENT.)"

  You can *never* in the present tense "malinvest", by definition of trade and by definition of action. By definition, at the moment you invest, you have already booked a profit, in the strict economic sense. You are better off with the investment than without the investment, than for some other use of your scarce resources. Thus, no voluntary trade can ever result in a "malinvestment" at the moment of trade. Both parties are by definition better off, wealthier from the trade. This is true, no matter what is voluntarily traded for, even if it's fiat dollars (when they are being voluntarily exhanged). Economics doesn't cease to apply to criminals when they too trade their ill gotten booty.

  Thus, correct economic science, the true explanation, says there is no malinvestment or misinformation generated by a change in "money" supply, any more than there is no malinvestment or misinformation generated by a change in supply in absolutely any other good or service as well.

  Thus, it is praxelogically incorrect to label something an action, or the result of an action, which can never occur at the moment of action. If an action can never occur, that action can never exist. Since it is a praxelogical impossibility to malinvest, malinvestment is also a praxelogical impossibility. Now subjective valuations of investments can certainly change. Investments may be undertaken with hoped for positive future subjective valuation changes. But those expected future subjective value changes will be presently valued with more or less consciousness, with more or less accuracy. But it is impossible to know how future subjective valuations will change, by definition of omniscience not existing, by definition of subjective valuations being in constant changing flux.

  Not only is it impossible for governments to plan with certainty, it is also impossible for individuals to plan with certainty. That's why voluntary exchange maximizes efficiency, sends signals for more of this, less of that. Only free exchange sends these signals.

  It is impossible to not make mistakes, it is impossible to know future changing subjective valuations with certainty. If one were to judge action according to the standard of perfection correlation to the future, every action would be a "malaction", would be "wrong". And that would be in contradiction to the definition of action itself. People acting are by definition increasing their subjective material wealth. That's true whether it's choices to do something or whether it's choices to not do that something. Just because you do something at an earlier time and value that thing you did in an earlier time less in the future, does not qualify that past action at the time of that action. Past action can never be a malaction; otherwise it wouldn't have occurred. Regret is a new action at the new time of the new action. As such, an "investment" is being undertaken or not undertaken at every moment in time. You cannot, under any circumstances, do so in a mal manner, when you are voluntarily doing so.

  Thus, you pay to see a movie, and you don't like the movie. If you leave early before the movie is finished, you value doing something else more than continuing to watch what you regard as a bad movie. And you might regard it as a bad movie, and continue to sit through it anyway, for whatever subjective valuation reasons, such as consideration for the person you went to see the movie with. Same with investments. You might value trading your investment for something else. Market subjective valuation changing price signals might well inform you the market wants less of this through lower price subjective valuations. And if you sell (at a loss), you are still booking some economic profit from that action of selling at that moment of selling.

  Thus, we conclude using the term "malinvestment" is quite like using the term "equilibrium". They do not correspond to reality. No malinvestment results from government interference changing the money supply any more than it does from any individual interference chainging the supply of any good or service, when what is being traded is being voluntarily traded for. Of course, violence causes poverty. Of course, violence preventing competition with the government fiat currency causes poverty as well. But nobody accepts anything, including fiat currency notes, unless by definition they are better off doing so.

  So the pinacle of Austrian achievment, in some minds, the ABCT, is destroyed. So sorry.

• Published: May 14, 2007 10:34 AM

• rtr

• DC: "I say, again, the voluntary agreement never happened, you are presupposing this with your answer."

  It's presupposed in the willingness, the expressed action willingness, of two parties to trade this for that. Putting a for sale at price X announcement in some form means person B, the apple seller, is willing to trade the apple for X. Likewise, person A is willing to trade X for an apple.

  Now you may be correct that in a strict praxelogical sense of time, the exchange of an apple for X dollars does not occur simultaneously. A may fork over the dollars first, and B may fork over the apple second. But this is not a problem, because lots of exchange involves future delivery, the promise of future delivery. In that sense, people are voluntarily willing to trade for promises. They do it all the time. That's why I was saying concepts like risk, reputation, credit, exist.

  DC: "Adam valued looking at the apple more than not. Betty valued having the apples there with a sign more than not. Adam valued putting money on the counter more than not. Betty valued handing an apple to Adam more than not. This just happens to be one of the most common coincidences in human action, which we call "trade" for convenience (but would be foolish to think actually exists)."

  All true. Trade is a type of action which occurs, which exists, both personally and inter-personally. I don't see how you arrive at:

  DC: "Insofar as this relates to interpersonal exchange: False."

  Exchange occurs. People do indeed trade this for that. Possession and Ownership of subjectively valued scarce things voluntarily occurs. The concept of trade explains why that exchange occurs, because what is received is valued more than what is given away in exchange. Exchange includes risk and credit, with more or less consciousness. Trade is a defined praxelogical action. Nobody maltrades, *by definition*. Likewise, nobody "malinvests". This is necessarily either/or. You trade because it increases subjective value. You invest because it increases subjective value.

  Thus, here is N.P. #13: even decreasing subjective valuation only occurs because people are by definition informing themselves of what is more or less profitable. You sample some super hot sauce. You don't like that hot sauce so you stop sampling that hot sauce. And you continue to not sample that hot sauce, because you are subjectively more wealthy not sampling that hot sauce. Is it not more profitable to know what you want *and* what you don't want?! Thus profit on a net societal level (as well as individually) is garnered by the signals which say to cease waste, to cease production, to cease effort, which are sent from the likes of your no longer purchasing that hot sauce, subjective valuation declines. You're better off doing something else, or at least better off taking a break from doing what you were doing. Thus, free trade sends profitable "stop loss" signals. It is impossible to "artificially" stimulate the economy. Free trade occurs because of subjective valuation reasons. Violence only by definition creates net poverty.

  DC: "I guess you can consider that a challenge to show how interpersonal exchange exists given your methodology."

  That's pure observation of good G being transferred from person A to person B, explained by trade, that which is receieved is valued more than that which is given away in exchange. Sure, lot's of people fail to correctly distinguish exactly what good G may always be. It can be wholly or partly promises and credit. If trade did not exist, goods and services would not be voluntarily exchanged between people.

  Here's some Mises on "poison":

  msHmA: Part 1, Chapter I. Acting man in paragraph 1.I.38

  The opposite of action is not irrational behavior, but a reactive response to stimuli on the part of the bodily organs and instincts which cannot be controlled by the volition of the person concerned. To the same stimulus man can under certain conditions respond both by reactive response and by action. If a man absorbs a poison, the organs react by setting up their forces of antidotal defense; in addition, action may interfere by applying counterpoison.

  msHmA: Part 1, Chapter IV. A first analysis of the category of action in paragraph 1.IV.20

  The importance of such doctrines is obvious. From his point of view the physiologist is right in distinguishing between sensible action and action contrary to purpose. He is right in contrasting judicious methods of nourishment from unwise methods. He may condemn certain modes of behavior as absurd and opposed to "real" needs. However, such judgments are beside the point for a science dealing with the reality of human action. Not what a man should do, but what he does, counts for praxeology and economics. Hygiene may be right or wrong in calling alcohol and nicotine poisons. But economics must explain the prices of tobacco and liquor as they are, not as they would be under different conditions.

  msHmA: Part 4, Chapter XV. The market in paragraph 4.XV.79

  Yet there is a far-reaching difference between the sequels resulting from a disregard of the laws of nature and those resulting from a disregard of the laws of praxeology. Of course, both categories of law take care of themselves without requiring any enforcement on the part of man. But the effects of a choice made by an individual are different. A man who absorbs poison harms himself alone. But a man who chooses to resort to robbery upsets the whole social order. While he alone enjoys the short-term gains derived from his action, the disastrous long-term effects harm all the people. His deed is a crime because it has detrimental effects on his fellow men. If society were not to prevent such conduct, it would soon become general and put an end to social cooperation and all the boons the latter confers upon everybody.

  msHmA: Part 4, Chapter XXIV. Harmony and conflict of interests in paragraph 4.XXIV.40

  The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but a deadly poison.

• Published: May 14, 2007 1:56 PM

• rtr

• DC: "This medium, which is historically gold, is called 'money', but does not exclude the use of other media for exchange."

  Because by definition "gold money" is not the only "media". You would necessarily be defining yourself out of explaining how and why exchanges which do not involve "money" occur. My approach is more thorough and rigorous, explaining all trade, "money" included.

  DC: "rtr, your counter-argument seems to be two-fold. On the one hand, you point out there there doesn't exist a medium of exchange, only exchanges."

  Correct, there is not a singular "a" or singular "the" in exchange.

  DC: "I don't see a compelling argument that we should stop praxeological analysis at eggs for gold, and not see that an actor's intent was eggs for gold for X, where X is any range of goods (made possible by gold's convenience as a medium of exchange)."

  Let "eggs" be E. Similarly E is as means to other means in exactly the same Gold "G" is, or Money "M" is. There is not a single universal "medium" of exchange. There is however the most commonly traded thing in exchange. Thus the intent of aquiring M or aquiring G is the same as the intent of producing E.

  DC: "Secondly, you point out that anything can be used in the same way that what we call "money" is used (e.g., plasma TVs). I don't think this is compelling because no Austrian has ever said that gold by its nature excludes anything else being used in an exchange. I might sing for a mansion, or trade water for apples. I see no contradiction."

  Because if "money" were a "medium" that would mean money is not subjectively valued in and of itself, by anyone. If money were truly a "medium", it would truly be a "medium" for all. It would be like a hot potato nobody would want to hold. There are subjectively valued means which are exchanged for other subjectively valued means.

• Published: May 14, 2007 2:32 PM

• TLWP Sam

• But even more interesting, from considering what rtr had said, is the funness that, in reality, every and all actions, regardless of morality attached to the actions, are carried out on the grounds that doing something presumes a greater reward than doing nothing. And it is from the chosen actions or inactions that determines behaviour. And, even more so, the complement of each invdividual's behaviour creates the societ