Bob Murphy said [Haven’t watched the whole video, yet]:
“Something that the Austrian School talks about more specifically, is that money allows for economic calculation …”
“… If you didn’t have money – if everything were just barter … How would they know, when the year was up, if they had a good year or not?”
The reason they would know whether or not they had a good year is the same reason anyone would know whether or not they benefitted from buying the goods and tools required to make a sandwich: Opportunity costs.
All costs can be restated in terms of opportunities foregone – and that’s the first and foremost cost that everyone, in all kinds of economies – barter, as well as money, economies – are basing their assessment of whether or not they’ve profited (and all profits, likewise, can be restated in terms of psychic profit).
So, for your car manufacturer example, where everything is just barter, the owner simply assesses, subjectively, whether or not he is in a subjectively better position in life with all these new cars, given that he expended all the effort to make them.
That’s what *all* economic calculation consists of, even when it is attempted (not guaranteed, mind you) with the use of money. Only when money represents an underlying good can it be used to price other goods properly in terms of it.
(Amd, yes, I understand the argument that Mises used the term “economic calculation” in the context of a money economy. But if the purpose of economic calculation is to determine whether or not one has profited, this can be done in terms of foregone opportunities.)
What is the market socialist position on this? I’m unfamiliar.
By the way, the reason we can’t have “advanced societies” without money, as per Mises’ argument, is not because there’s not a common calculable (?) medium of exchange, but because you can’t solve the problem of double coincidences of wants – which enables greater divisions of labor and specialization – without one.
Thought experiment: Everyone has transporters, so that we can remove transportation costs from our experiment; And everyone has something to barter that everyone else wants, so that we can remove the double coincidence of wants problem.
Why would economic calculation be impossible without money in this scenario? You just have the other guy transport the barter good, and both parties profit.
(Aside: Transporters will never exist; 3d copiers, maybe – they do this with chocolate, already)
And just for proof, I’ve got some thoughts about some other things that were brought up.
You said that Hayek thought that price predictability was favorable, but that’s just another way of saying “stable prices”, which, as a goal, must necessarily ignore consumer preferences to maintain, and therefore cause the business cycle.
So, using your example of an asteroid crashing to earth and providing multiple times the amount of gold that happens to be used as money in your scenario, yes prices in terms of gold would skyrocket.
But the high prices would be the correct prices since they would reflect consumers’ lowered marginal utility for a more abundant commodity.
Producers, investors, and savers who used gold for these purposes would have vastly less purchasing power, but all changes in consumer preferences are the prerogative of the consumer, and to say that prices should be maintained for the producer, et al, is to say that consumers owe them patronage (or a particular rate of return, or liquidity in the case of investors or savers).
In short, you actually *want* wildly fluctuating prices so long as they reflect wildly fluctuating changes in consumer preferences – because its the consumer for whom producers are producing.
You also said that anything that’s being used as money is in a bubble, since it has a higher value as a money than as a commodity.
The reason this is wrong is the same reason bartered goods don’t all of a sudden have higher values to the sellers when they’re traded, versus if they just kept it for themselves: value is subjective.
It’s also the reason that one kid in that one article I posted awhile back was able to make a series of trades, beginning with an old cell phone, such that he ended up with a Porche.
Did the cell phone gain around the same value as a Porche after having been traded that one time?
No, things have different value for different people. And the same thing happens when gold coins are used as money.
They don’t gain a separate source of value when traded as a medium of exchange; Rather, the user of gold as a commodity simply doesn’t have the information necessary to know that he can trade his commodity for something he values far more.
Its value as a medium exchange is still being derived from its value as a commodity.
And I’m proud to say that I haven’t fallen into the trap of the guys you talked about who say that if a commodity money lost its value as a commodity, then it could still be used as money.
As you alluded, that’s inconsistent of them.
I’ve always maintained that if a commodity money lost its value as a commodity, it would therefore cease to be money, since it’s no longer communicating use-values of consumers. It’s true value woutld become zero.
[Tom Woods:] “If we were living under a gold standard, let’s say, a lot of people wonder, if we had a big gold discovery, would that lead to a business cycle?
“I get that question all the time, and this basically answers that question.”
Joseph Salerno responds, basically saying that mere increases in the money supply do not cause the business cycle, it just causes price inflation.
And that fiduciary media is required to artificially lower the interest rate, which causes the business cycle.
“In issuing fiduciary media, by which I mean bank notes without gold backing or current accounts which are not entirely backed by gold reserves, the banks are in a position to expand credit considerably.
“The creation of these additional fiduciary media permits them to extend credit well beyond the limit set by their own assets and by the funds entrusted to them by their clients.
“They intervene on the market in this case as “suppliers” of additional credit, created by themselves, and they thus produce a lowering of the rate of interest, which falls below the level at which it would have been without their intervention.”
Bob Murphy said [Haven’t watched the whole video, yet]:
“Something that the Austrian School talks about more specifically, is that money allows for economic calculation …”
“… If you didn’t have money – if everything were just barter … How would they know, when the year was up, if they had a good year or not?”
The reason they would know whether or not they had a good year is the same reason anyone would know whether or not they benefitted from buying the goods and tools required to make a sandwich: Opportunity costs.
All costs can be restated in terms of opportunities foregone – and that’s the first and foremost cost that everyone, in all kinds of economies – barter, as well as money, economies – are basing their assessment of whether or not they’ve profited (and all profits, likewise, can be restated in terms of psychic profit).
So, for your car manufacturer example, where everything is just barter, the owner simply assesses, subjectively, whether or not he is in a subjectively better position in life with all these new cars, given that he expended all the effort to make them.
That’s what *all* economic calculation consists of, even when it is attempted (not guaranteed, mind you) with the use of money. Only when money represents an underlying good can it be used to price other goods properly in terms of it.
(Amd, yes, I understand the argument that Mises used the term “economic calculation” in the context of a money economy. But if the purpose of economic calculation is to determine whether or not one has profited, this can be done in terms of foregone opportunities.)
OK but you just agreed with the market socialists, guest. Doesn’t mean you’re wrong, but make sure you realize you did that.
What is the market socialist position on this? I’m unfamiliar.
By the way, the reason we can’t have “advanced societies” without money, as per Mises’ argument, is not because there’s not a common calculable (?) medium of exchange, but because you can’t solve the problem of double coincidences of wants – which enables greater divisions of labor and specialization – without one.
Thought experiment: Everyone has transporters, so that we can remove transportation costs from our experiment; And everyone has something to barter that everyone else wants, so that we can remove the double coincidence of wants problem.
Why would economic calculation be impossible without money in this scenario? You just have the other guy transport the barter good, and both parties profit.
(Aside: Transporters will never exist; 3d copiers, maybe – they do this with chocolate, already)
Or, you know what? I haven’t watched the rest of your video, yet, and it wouldn’t be right if you responded without me having done that.
I won’t be offended (I never am) if you don’t respond before I’ve watched it, but let me watch the rest, first.
Thank you for your time.
Ok, I’ve watched the whole video.
And just for proof, I’ve got some thoughts about some other things that were brought up.
You said that Hayek thought that price predictability was favorable, but that’s just another way of saying “stable prices”, which, as a goal, must necessarily ignore consumer preferences to maintain, and therefore cause the business cycle.
So, using your example of an asteroid crashing to earth and providing multiple times the amount of gold that happens to be used as money in your scenario, yes prices in terms of gold would skyrocket.
But the high prices would be the correct prices since they would reflect consumers’ lowered marginal utility for a more abundant commodity.
Producers, investors, and savers who used gold for these purposes would have vastly less purchasing power, but all changes in consumer preferences are the prerogative of the consumer, and to say that prices should be maintained for the producer, et al, is to say that consumers owe them patronage (or a particular rate of return, or liquidity in the case of investors or savers).
In short, you actually *want* wildly fluctuating prices so long as they reflect wildly fluctuating changes in consumer preferences – because its the consumer for whom producers are producing.
You also said that anything that’s being used as money is in a bubble, since it has a higher value as a money than as a commodity.
The reason this is wrong is the same reason bartered goods don’t all of a sudden have higher values to the sellers when they’re traded, versus if they just kept it for themselves: value is subjective.
It’s also the reason that one kid in that one article I posted awhile back was able to make a series of trades, beginning with an old cell phone, such that he ended up with a Porche.
Did the cell phone gain around the same value as a Porche after having been traded that one time?
No, things have different value for different people. And the same thing happens when gold coins are used as money.
They don’t gain a separate source of value when traded as a medium of exchange; Rather, the user of gold as a commodity simply doesn’t have the information necessary to know that he can trade his commodity for something he values far more.
Its value as a medium exchange is still being derived from its value as a commodity.
And I’m proud to say that I haven’t fallen into the trap of the guys you talked about who say that if a commodity money lost its value as a commodity, then it could still be used as money.
As you alluded, that’s inconsistent of them.
I’ve always maintained that if a commodity money lost its value as a commodity, it would therefore cease to be money, since it’s no longer communicating use-values of consumers. It’s true value woutld become zero.
Again, thank you for your time.
Joe Salerno, my man:
[Time stamped]
Economist Goes Very Wrong on Business Cycles; We Correct Him
http://www.youtube.com/watch?v=gu1WjHZ_k28#t=14m51s
[Tom Woods:] “If we were living under a gold standard, let’s say, a lot of people wonder, if we had a big gold discovery, would that lead to a business cycle?
“I get that question all the time, and this basically answers that question.”
Joseph Salerno responds, basically saying that mere increases in the money supply do not cause the business cycle, it just causes price inflation.
And that fiduciary media is required to artificially lower the interest rate, which causes the business cycle.
The context of this response starts back at 12:35
Ludwig von Mises defines “fiduciary media”, just for a helpful reference (line breaks mine):
The Austrian Theory of the Trade Cycle and Other Essays
“The ‘Austrian’ Theory of the Trade Cycle” by Ludwig von Mises (p. 28)
https://mises.org/library/austrian-theory-trade-cycle-and-other-essays
“In issuing fiduciary media, by which I mean bank notes without gold backing or current accounts which are not entirely backed by gold reserves, the banks are in a position to expand credit considerably.
“The creation of these additional fiduciary media permits them to extend credit well beyond the limit set by their own assets and by the funds entrusted to them by their clients.
“They intervene on the market in this case as “suppliers” of additional credit, created by themselves, and they thus produce a lowering of the rate of interest, which falls below the level at which it would have been without their intervention.”