Profits Are Bad?

This is socialist indoctrination. Glorifying a man for his charity, yet implicitly criticizing all those that profit from their work. Perhaps if the people charged with the responsibility of educating the world's youth were better equipped with some sound economic understanding they would recognize that profits, or losses, are morally neutral. Profit is neither good nor bad. In fact, a world without capitalism and the market economy would still feature profit and loss. Every person engages in actions that strive to establish a superior state of affairs to whatever exists presently. Whether or not the chosen action achieves the desired result determines if there is a "profit" or a "loss". Profits and losses are psychic qualities that exist wherever human beings employ reason and will in determining particular modes of action. But only in the market economy--in capitalism--can people attribute specific values to the results of their actions and recognize which are more or less profitable. As Mises explained, profits and losses are ubiquitous.

HT: Captain Capitalism

Taxes: McCain vs Obama

Now, I wish I could state that I am completely unbiased and impartial when it comes to politics, but I just can't. Although I do think that both candidates, and more genereally all politicians, will implement poor policies that will undoubtedly have a negative impact on our economy and its prospects for growth, if someone were to point a gun to my head and say "CHOOSE!", I would vote for McCain. (Full disclosure: I have never voted before, nor am I likely to vote this coming November.)

That said, any prospective voter would be doing theirself an extreme disservice if they did not diligently investigate the specifics of each candidates policy proposals. Luckily, the folks at The Tax Foundation have already done much of the work pertaining to taxes for you! They have even produced it in nifty chart form. Ask yourself, which one will make the US a more attractive place to live and do business?

HT: CarpeDiem

Current Economics: Harvard's Larry Summers Perspective

Here's Larry Summers in the Financial Times.

Summers explains the current economic situation and provides context as to how it came about.

I really enjoy reading Summers as he tries to remain unbiased in the more government-less government debate. He simply addresses the problem and then attempts to provide an immensely pragmatic solution using his deep understanding of the effects of certain incentives. Few others who weigh in on these issues can remain as unbiased as Summers. Whether one wishes to admit it or not, our current economic situation is the product of years of complex intertwining of the public and private sectors, and any call for more or less laissez-faire must be conditioned on the potential consequences. Not many other experts--if any--understand that fact as well as Larry Summers.

Ethanol: It's Bad

This short Reason.tv video explains why.

Ethanol advocates claim that the biofuel is a cheap, renewable energy source that reduces pollution and our dependence on foreign oil. It sounds too good to be true—and it is.

Ethanol, especially the corn-based variety, is bad for taxpayers, bad for consumers, bad for the environment, and horrible for the world's poor. In fact, even environmentalists are critical of ethanol subsidies these days. The ethanol craze has distorted markets and increased the price of food worldwide. The only people who still support ethanol subsidies are the ethanol producers—and politicians from both sides of the aisle. Together, they make sure the subsidies keep coming.

In a recent interview about the current food crisis, Sen. Charles Grassley (R-Iowa) said, "If part of our problem is that the Chinese are going to eat meat and you've got to have corn and soybeans to feed the Chinese their meat, then why isn't it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?"

Let them eat rice? So that American taxpayers can continue to pay people to turn corn into fuel?

Silly senator, corn is for food.

The Definitive Case Against "Energy Independence"

It will make us poorer.

Robert Higgs satirizes the popular idea that we must achieve "energy independence" by comparing it to a need to attain "banana independence". Nobody is naive enough to suggest we must grow our own bananas, rather than ship our money to tropical plantations. It's accepted that our climate is not conducive to banana farming and that any attempt to grow bananas in the US would be a waste of resources. The same holds for energy independence. By substituting our importing of energy from elsewhere, we would have to apply more of our scarce resources in the production of energy instead of in some other form of production.

Resources are finite. Wealth is created and spread throughout the population by using our scare, finite resources in the most effective and efficient manner. Right now oil remains cheaper than most any other energy resource. Some may say this is due to the full costs of its utilization are not being captured by the market price. But any argument that argues we would be wealthier producing our own energy should be viewed with extreme skepticism. As Prof. Higgs stresses in his concluding paragraph: this is a fact that was clearly explained by David Ricardo nearly 200 years ago! Why so many people have yet to recognize it I cannot understand.

A Confession

I have a confession to make. I have developed an unhealthy hatred for all things Barack Obama. Living in Ohio, I've been bombarded with campaign commercials. McCain on how wimpy and inexperienced Obama is, Obama on the need to develop alternative energy and reform healthcare, you the get the drift, standard campaign stuff. But the most recent commercial had to be designed to give me a brain hemorrhage. Though I tried to find a link to the video (and failed), the commercial is roughly a 30 sec clip featuring Obama telling us all how "Speculators are bad, evil people" and that as a solution to the energy crisis he plans to give everyone a $1000 check to cope with the high prices, and to pay for all this he will introduce a "windfall profits tax" as retribution against those greedy oil gougers. Big Oil? Come on!

Now, I want to ignore the headspinning lack of coherent logic employed by the Obama campaign economically. (If you need a few reasons why those policies can be described as moronic at best, follow the links: On Speculation Here, Here, and Here; on "windfall profits" here.) What I want to focus on is my reaction to these commercials. I think it's obvious that Obama is a savvy guy. The man was a law professor at the University of Chicago. He is not stupid! Obama, and the folks running his campaign, make these commercials because it is what they believe the public wishes to hear from their president. The name of the game is to get elected, and rarely is it that a candidate comes onto the scene as a true reformer and driver of an entirely new political paradigm. (Reagan is a glaring example of this.) This is how democracy functions, for better or worse.

I guess what I find most unfortunate and distressing about these commercials is that there is an actual electorate that is eating this up. Barack Obama is the current favorite to be our next president! So these are not marginal ideas but, arguably, mainstream. I remain optimistic for the future, though this optimism is being challenged with each passing day knowing so many of my peers are susceptible to being duped by such contradictory and harmful ideas.

Orwell as Blogger

The people who manage George Orwell's trust had the brilliant idea to start posting Orwell's personal diaries online at their blogsite. The entries begin on Aug 9th, 1939 and each new post will be added on the same day, just nearly 70 years later. It should be interesting to learn more about someone who remains relavant nearly 60 years after his death.

Creative Capitalism

A few months ago Bill Gates made a speech at Davos imploring the world's corporations and civic leaders to help harness the powers of capitalism and use it to reduce inequity and poverty around the globe. This speech ignited a debate amongst many economists and other generally very smart people at the blogsite Creative Capitalism. There are many interesting perspectives on the issue, which makes the site worth sorting through, and I do think the overall goal of the project was to produce a book, but a few highlights can be found here, here, here, and here. There are many other good posts that I've failed to highlight (Nobel Laureattes too!).

Overall, I think the debate was informative, but it was obvious that many of the writers were arguing past one another. The variety of backgrounds that the writers were drawing from made it where many arrived with their own preconcieved--though very detailed and well supported--notions about what institutional structures and economic theories identify the best method for producing a well-functioning wealth generating society. Some of the posters merely provide nice sounding platitudes and high-minded ideas about reforming the system. Others slog through the gritty circumstances that exist where much of the world's poor live. I doubt anyone changed positions in the entire debate.

My view is this:

1) It was capitalism--only capitalism--that produced the awe-inspiring wealth found in most of the western world. Much of the world remains poor because they have yet to embrace this socio-economic system.

2) The extent of inequity and poverty throughout much of the rest of the world remains not due to any inherent defect found in the capitalistic economic system, but is instead the product of poorly structured institutions designed to maintain order and stability. In much of the world, governments frustrate the efforts of private individuals trying to increase and build wealth through forced expropriation of personal property, or other policies that erode the ability to calculate the relative values of things in the economy (Zimbabwe serves as a striking example). Much of the problems are created by and due to poor government.

3) Some cultures maintain beliefs that stigmatize wealth creation and hard work. This places a check on productive activity.

4) The first goal should be to seize at the low hanging fruit. Almost immediate improvements in the lives of the world's poor can emerge from the elimination of our agricultural subsidies and trade restrictions. By eliminating subsidies and embracing free-trade, we will provide to the world's poor access to the largest market in the world, as well as allow them to increase production in the areas where they already have an existing comparative advantage. Though this seems unlikely with the interest groups vying for control an influence in the US Government. Virtually everyone is aware of the ethanol debacle, yet we still have the ethanol subsidies after all.

Freedom, Inequality, Primitivism, and the Division of Labor

Everyone should take the time to read this essay by Murray Rothbard. Though fairly long, no other article makes the case for freedom and the inherently unequal nature of each person's physical and mental endowments as concisely and poignantly, as well as serving to recognize the impact of both on the division of labor. Our current civilization is the product of individuals, using their unique skills and talents, to create new and better things, and any attempt to aggravate the ability of individuals to take advantage of their unique endowments can only serve to frustrate the further extension of the division of labor, while potentially causing an overall reduction in the standard of living for all. And, if the restrictions are especially grievous, a significant portion of the current population could perish. Also, here is Rothbard's brief introduction to the essay.

The Subprime Solution

Robert Shiller--of Case-Shiller index fame--is coming out with a new book soon in which he discusses the causes of the recent subprime mortgage market, along with some suggested solutions. The book can be ordered HERE. Go HERE for a brief (20 min) interview where Dr. Shiller touches on some of the things to be found in the book.

My take on Shiller's view after watching the video (though without reading the book, which I most certainly will) is that he proposes an immensely practical solution. Shiller is a thoroughgoing Keynesian economist. But he makes a very strong case for government intervention in the housing market in order to help stem the tide of foreclosures that many families continue to face and will face in the future.

Unlike many of the ardent free-market economists, Shiller sympathizes with families who were caught up in the frenzy of the housing market and took out exotic mortgages, many of which they did not fully understand (or in some cases couldn't ever understand). Since many of the mortgages originated by independent brokers were later repackaged into complex financial securities, there became a misalignment of the incentives facing the originators. The circumstances became that it was in the interests of mortgage brokers to close and package as many mortgages as possible, to the detriment of developing a specific mortgage designed to fit the individual needs of each customer. Although it would be nice to say that those buying the products they could not understand should have done their own due diligence and be made to suffer the consequences of this mistake (and that any bailout should not be forthcoming as the funds which would finance such a bailout will inevitably come from people that had the foresight or presence of mind not to sign on to something they could not understand), Shiller dismisses this saying that this kind of punishment would be similar to the punishing of an average german after WWI for the transgressions of the Kaiser. In short, punishing people for the problems that developed from areas in which they had no control or influence would be incredibly unfair. But Shiller's most insightful reason not to allow such a large amount of people to be thrown out of their homes is that this will invigorate an unwarranted hostility toward capitalism, and this would be a much more unfortunate outcome than any potential bailout. Shiller believes that the common person who is not familiar with the Federal Reserve's bubble creation, or how such a thing could ever develop and effect something like the price of a house should not be made to pay for the mistakes of the so-called experts in charge of the organizations that attempt to steer the macro-economy.

I look forward to Shiller's book, and will further contemplate his argument. I had not yet considered the potential impact of a mass foreclosure on the overall public opinion toward our market economy, and, I must admit, this seems to be as good as any justification for the bailout as any I've yet come across.

Moral Philosophy

One of my newly favorite bloggers, Will Wilkinson, has a recent Bloggingheads podcast out where he discusses the relativity of our moral systems with author Jesse Prinz. Prinz is a professor of philosophy at UNC Chapel Hill and in his recent book, The Emotional Construction of Morals, he argues that what we consider moral and immoral are essentially reflections of our emotional attitudes towards those things or actions. This discussion is fascinating and I doubt I can convey how much so by attempting to reduce Prinz's conclusions into a few short paragraphs. Arnold Kling at EconLog says that "You could easily spend four years at an Ivy League college and not have a class as interesting as this one."

Check it out HERE.

Globalization and France

French wine makers and grape growers are facing increased competition from foreign producers as the wine market becomes more globalized. What do you think is their response to the increasing amounts of foreign imports?

Cut costs? Rationalize production? Innovate? Wrong.

TERRORISM!!!!!

A few excerpts:

"Too much wine, it is known, can cause violent behavior. But few have gone as far as the grape growers of France's Languedoc-Rousillon region, the world's biggest wine growing area by volume. Hurting from over-production and cheap imports, and punished lately by the rising cost of gas, a small group of local wine growers has resorted to "wine terrorism" in a violent attempt to shock the French government into helping them."

"Those incidents are just two of many in a series of violent and destructive acts by local grape growers over the past three years that has targeted public and private buildings, supermarkets, tanker trucks hauling cheap imported wine, and businesses accused of gouging growers with ever-shrinking prices. Claiming responsibility: a clandestine group known as the "CRAV", or 'Regional Committe of Viticulture Action'."

Quixotic as it may seem to outsiders, the group — and many Langeudoc-Rousillon growers who support its aims while condemning the violence used to achieve them — want the French government to protect them from a rapidly globalizing market. Foreign wine from cheaper producers such as Italy, Spain, Australia, the US, and South America — where costs can be one-fifth of those in France — has saturated the market, and driven down demand for locally-grown grapes. That has depressed the price Langeudoc-Rousillon growers get for their crops by up to 50% in recent years.

That doesn't impress locals. "Many of these vineyard owners are committed to production and investment plans spanning 20 or 30 years," says one member of the regional wine sector who asks not to be named due to "the vivid tension" the situation has created. "These aren't operations that can change strategy or cut production overnight."

So, in the face of competitive pressure from foreign producers--producers that can make a bottle of wine 5 times cheaper (!) in some cases--the French wine growers turn to terrorism in order to protect their abnormal profits. I wonder how the non-wine growing Frenchman feel about this. Maybe they enjoy paying more for their wine? It really wouldn't surprise me considering the overall French attitude toward competition and the market economy (they famously reprimanded Amazon.com for shipping books for free. FOR FREE! Because it undercut domestic booksellers.) I just love the last guy basically saying that the wine makers overestimated in their long-run investments and that should serve to help their case for protection.

I really wish the article would have closed by explaining that trade facilitates a more efficient and effective utilization of all available resources. Without any protective barriers, some French wine growers will go out of business while others may have to make undesirable adjustments. Such is life in any environment where the future is not completely knowable or predictable. But the by-product of cheaper foreign imports are lower prices and higher quality products for consumers, as well as the capability to produce other stuff with the newly freed up resources that come from the inefficient and now defunct producers.

With attitudes like this, it is not surprising that France continues to have limited economic growth.

300mpg Car

I found the link to this on one of my favorite blog sites, Division of Labor.

The Aptera is a hybrid car that looks like something from a sci-fi movie, yet it seems to be on the verge of becoming a viable alternative to the vastly inferior contemporary autos. Click the link to watch a brief video showing off the car and its impressive features.

Barack Obama's Plan to Save Social Security and Its Potential Ramifications

Senator Obama has proposed to extend the payroll tax on earned income to those making over $250,000 or more. Currently workers pay a percentage of their earned income to Social Security only up to $102,000. Anything earned beyond the first 102k is not subject to any Social Security taxes. The Cato Institute's Daniel Mitchell has a video posted on his blog where he discusses the plan and its likely effects on our economy and the prospects for future growth.




Obama is proposing a plan that will make the private sector $5 poorer for every $1 gained by The Government. If this is not indicative of one of the most terribly destructive and myopic policy proposals around, then I do not know what is.

EconTalk: Law and Legislation

I recently listened to an EconTalk podcast featuring Don Boudreaux discussing with host Russell Roberts another book by F.A. von Hayek titled Law, Legislation, and Liberty. The focus is on a subtle, yet extraordinarily insightful distiction between what Hayek terms "the law" and what is merely legislation. But the discussion does not stop there and touches upon several other concepts treated by Hayek regarding the common law, spontaneous orders, and the use of knowledge in society.

At the beginning of the podcast Dr. Boudreaux and Dr. Roberts try to stress the importance of language and the particular words we use to describe the orders that emerge through human actions yet are not the product of any one mind's deliberate construction. We tend to anthropomorphize things like "the market" and "society" when they have no sentience; they have no ability to act on their own volition. We typically say that "the market" determines the price of such and such, or that "society" should strive to establish a more fair and equitable distribution of resources, but these are just abuses of language. Society is the derivation of an incomprehensible multitude of seperate, yet interconnected human actions. The market is a term we ascribe to the results of the interplay of these human actions, and the prices that are determined on the market are not products of "the market" as such, but instead are established by these actions. The market determines nothing; it is the people that establish the relative prices of resources in the economy.

Like prices, according to Hayek "the Law" also emerges from the interplay of human actions apart from any deliberate design by any one mind. Law can only be codified by authorities, not established by them. Hammurabi's code is cited as an example. Also, Dr. Roberts and Dr. Boudreaux use another interesting example to illustrate the point. Think of a cafeteria someplace where a table has someone's backpack on a chair or books on the table. Most people would assume that this table is claimed and would move on to find another place to sit. Although no one in particular is sitting there at the moment, we commonly regard the seat to be taken. No one has codified this fact; there is no rule stating that "if a table has either: a) a backpack on a seat, or b) books on the table, then it is currently in use by the person owning any of those materials." But if someone came and sat at the place with either a backpack or books on the table, many would percieve this to be a wrong committed against the person who's stuff was there first. It took no authority or legislation to establish that taking someone's seat is wrong. It was established by no one person, but instead emerged spontaneously from the actions of many people over time. This is one of the most important insights I ever encountered in that it conveys a few simple facts: 1) that no legislation is necessary to establish laws to which people adhere to in their day-to-day lives; 2) Laws, to the extent that legislation can establish them, are merely codifications of existing behavior; 3) Any disequilibrium (excuse the economic terminology but I know no other way to express this) between "the Law" and what is legislated by the legislators can only serve to cause confusion amongst the people, and results in the wasting of resources and productive effort as people now need to discover what the legislation states and how it differs from the existing actions of people as they truly act.

Roberts and Boudreaux also touch on another interesting concept as they were explaining the spontaneous emergence of prices on the market. They cite the housing market to provide examples but leave a very keen insight untapped. I now believe that there are no specific "markets" per se, at least to the extent that one can say "the housing market" or "the automobile market". There is a market for something to the extent that the good or service is similar. The more homogenized a good or service, then the more one can call the trading of it a market, ie. according to this definition there is an oil market, though this is tenuous to the extent that the crude varies (Canadian crude differs from Saudi crude and that from Texas crude). So in the real world most any goods and services are monopolies, at least in a very loose sense (again, I cannot think of a more apt way to express this). There is no better example to illustrate my point then that which is typically called the "housing market". Only one house exists at such and such address. Each house differs in its relative quality, size, age, and numerous other characteristics that make a house unique. What creates the competition, the downward or upward price pressures that are commonly attributed to supply and demand, are the extents to which there exist satisfactory substitutes for a particular good or service. The competitiveness of a market consists in the relative distances between 1st, 2nd, and so on best choices. So long as alternatives exist, then a market is "competitive", at least in the only sense that this term can be used to describe anything pertaining to reality. There exists no specific market, only one great economy wide market.

Step Brothers

Will Ferrell has another comedy movie out with John C. Reilly called Step Brothers. Expecting it to be about as funny as their previous film poking fun at Nascar, I went with a few friends this afternoon for a matinee showing.

Although at times it's completely outrageous and, basically, just Ferrell and Reilly acting like childish idiots (the sleep-walking scenes), the film is worth watching for Will Ferrell's singing opera towards to end. He actually sings--without lipsinking--Por Ti Volare (Time To Say Goodbye), a song made famous by Andrea Bocelli. He did a surprisingly wonderful job and I think just watching him sing this song makes the movie worth seeing. Oh, and it's pretty funny.

Here's the song by Bocelli and Sarah Brightman:

Friedrich von Hayek: A Model Scholar

I want to excerpt a fairly brief paragraph from F.A. von Hayek's book Individualism and Economic Order not because I believe it to be particularly insightful passage but that I think it is indicative of Hayek's method of analysis and attentiveness to detail. Hayek took pains to use the most precise language when articulating his message, and I think that many aspiring scholars can learn a lot from Hayek's precision, as well as from his conceptions of economics and social order.

Without further ado, here it is:
"But if our conclusions on the merits of the beliefs which are undoubtedly one of the main driving forces of our time are essentially negative, this is certainly no cause for satisfaction. In a world bent on planning, nothing could be more tragic than that the conclusion should prove inevitable that persistence on this course must lead to economic decay. Even if there is already some intellectual reaction under way, there can be little doubt that for many years the movement will continue in the direction of planning. Nothing, therefore, could do more to relieve the unmitigated gloom with which the economist today must look at the future of the world than if it could be shown that there is a possible and practicable way to overcome its difficulties. Even for those who are not in sympathy with all the ultimate aims of socialism there is strong reason to with that, now that the world is moving in that direction, it should prove practicable that a catastrophe be averted. But it must be admitted that today it seems, to say the least, highly unlikely that such a solution can be found. It is of some significance that so far the smallest contributions to such a solution have come from those who have advocated planning. If a solution should ever be reached, this would be due more to the critics, who have at least made clear the nature of the problem--even if they have despaired of finding a solution."

This is Hayek commenting toward the end of an essay written in 1935 on socialist calculation. Although scientifically the arguments of the planners and collectivists were not anywhere near as detailed and comprehensive as those of the market theorists, public opinion and the overall societal zeitgeist, at least throughout Europe and among the so-called intelligentsia, was thoroughly imbued with notions derived from a crude conception of marxism (class conflict, capitalist exploitation, etc). A preponderance of the populace favored some form of collectivism and, indeed, some of the most fascinating writings on the history of thought attempt to break down and interpret the development of the ideas pertaining to the various forms of socialism. Unfortunately, for all the eloquent rhetoric and grandiose speeches, the theoretical foundations of socialism were essentially empty and exceedingly vague. It was commonly lamented that after WWI when the old forms of governance in Central Europe disintegrated and the parties espousing socialism assumed power, they had no conception as how they were to govern. Believing that socialism was an inevitable and inexorable stage of a future human organization they failed to develop an idea as to how it would function once in practice!

Few people recognized this cataclysmic gulf that seperated our understandings of the functioning of a society based upon private property and, ostensibly, free markets versus the functioning of a mysterious and hitherto untried system based on collective ownership. The more famous, at least to those living today, Ludwig von Mises and F.A. Hayek.

Hayek had the only system that was functional and understandable according to economic theory on his side. He wrote extensively on the unintended consequences associated with an economic system that would increasingly blur the distinction between remuneration for individuals based upon the value-in-exchange of their contribution to the economy against the rewards stemming from political favors, and he felt that this distinction would eventually be eliminated altogether. It stood in 1935 as it does today, socialism remains an economic system incapable of being used to maintain and grow our standards of living. Numerous examples from the past 100 years attest to this fact. Despite the overwhelming intellectual case for capitalism and the free market, rather than unabashedly declaring that the free market was the only functional method--Mises wrote that socialism would be chaos--Hayek carefully argued that, although today socialism is inpracticable, this does not necessarily imply that it will forever be impracticable. He wrote that in the future there could be discoveries that would show that socialism would be at least as efficient as the capitalist system. If it's not practicable today this does not preclude anyone from searching for a satifactory solution for the future, and any attempt to arrive at a solution can only be encouraged by those aspiring to uncover it. Even if there is no solution to a problem today, there may be one for it in the future. But it would be foolhardy to implement an untried and unknown social system that has no theoretical justification.

Quote of the day (#2)

"[W]hile is it easy to protect a particular person or group against the loss which might be caused by an unforeseen change, by preventing people from taking notice of the change after it has occurred, this merely shifts onto other shoulders but does not prevent it. If, e.g., capital invested in very expensive plant is protected against obsolescence by new inventions by prohibiting the introduction of such new inventions, this increases the security of the owners of the existing plant but deprives the public of the benefit of the new inventions. Or, in other words, it does not really reduce uncertainty for society as a whole if we make the behavior of the people more predictable by preventing them from adapting themselves to an unforeseen change in their knowledge of the world. The only genuine reduction of uncertainty consists in increasing its knowledge, but never in preventing people from making use of new knowledge."

This quote can be found in the 21st footnote of Friedrich von Hayek's essay titled "Individualism: True and False". The essay is taken from a lecture given by Hayek in 1945, and a copy of it can be found in his book, published in 1948, Individualism and Economic Order.

"Individualism: True and False" is a fabulous essay, one that is filled with many interesting thoughts pertaining to the debate over Socialism and Capitalism, as well as a brief, yet thoroughly fascinating, explaination of the subtle differences between the ideas on individualism orginating from the French physiocrats and British classical liberals. But the most important idea that Hayek discusses is that on the distiction between institutions and human societal organizations based upon Reason, with a capital R, and those that have orginated without any specific design by the human mind. Hayak argues that much of what contributes to the cohesiveness of modern society is essentially unknowable to any one person--the extent of these processes cannot be grasped by any one mind, making it impossible for society to be successfully managed by rules and regulations conceived by the human mind (Reason) and then implemented in a top-down fashion. Hayek concludes that the only basis for a truly free and prosperous system of social organization consists in the adherence to a set of principles that serve to solidify and codify commonly agreed to norms that facilitate peaceable social cooperation. Hayek's views are humbling; it takes a lot of courage to admit that there may be limits to the extent that the human mind can fully grasp the extensiveness and magnificence of modern civilization.

The goal is to develop principles that treat people equally before the law and in the protection of their personal property rights, not in any programs or policies that have the objective to make all people equal absolutely. It seems that modern civilization and our method of social cooperation depends upon it, as Hayek warned "while it may not be difficult to destroy the spontaneous formations which are the indispensible bases of a free civilization, it may be beyond our power deliberately to reconstruct such a civilization once these foundations are destroyed." Yikes!

Fannie & Freddie, The USD, and Jim Rogers

In an interview with Bloomberg, Jim Rogers spoke about many of the recent government bailouts of companies in the private sector (Bear Stearns, Freddie Mac and Fannie Mae, Fed Reserve actions in the credit markets) and the future implications of these bailouts and interventions. It's a shocking viewpoint, though most interviews I've seen featuring Jim Rogers have him panicking about something. But he has been relatively prescient about the recent run-up in gold and oil prices, which makes his opinion worth considering. I hope he's wrong, though much of the economic theory I have read indicates it is likely he'll be proven right, at least on the future value of the US dollar. It's probably a poor idea to rely on hope however.

If the USD plummets further, at least it would help me with paying off my student loans.

Perverse Government Incentives

I found this article in one of my favorite magazines, the Economist. So if you've ever wondered what happens to all that money and stuff police officers confiscate each and every year from drug runners and other so-called dregs of society then click the link.

Some highlights (lowlights?):

"[The confiscated money and stuff] was meant to help out and encourage local law
enforcement by giving officers some discretionary income. In most cases it
does...A district attorney in west Texas took his whole staff to Hawaii for a
training seminar. Another spent thousands of dollars on commercials for his
re-election campaign."

Vacations to Hawaii and TV commercials. Awesome.

"But the asset-forfeiture programme has various problems. Some poorer counties
have come to rely on drug money to pay for their basic operations. Even in
counties that are not strapped for cash, there is an extra incentive for
sheriffs to go after money, so they may have more interest in the southbound
traffic than in people heading north."

If the officers get to keep the stuff they take, then they're probably more inclined to take things. Apparently law enforcement in some counties is financed using much the same methods as those employed by 9th century Norseman. Erik the Red would be proud.

"Another concern is that the government has broad powers to seize assets. In
criminal cases, forfeiture follows a conviction and so it requires a guilty
person. In civil cases, the property itself is considered guilty, and the
government has only to show by “a preponderance of the evidence” that the money
or gun or car was somehow shady. That is a lower standard than the “beyond a
reasonable doubt” used in criminal cases."

It appears in some places in America you can be pulled over by an officer and have him/her take your stuff on a whim...*ahem*...I mean according to the "preponderance of the evidence". Surely we can trust our well-trained, dutiful officers not to abuse these obscenely powerful positions.

Opps.

"Sometimes the patrolman gets things wrong. In 2005, for example, Javier
Gonzalez was stopped in South Texas with about $10,000 in cash in a gym bag. He
was going to visit a sick aunt and planned to use the money to make funeral
arrangements. He was pulled over, and the cash was seized. The police report
said that he seemed nervous."

People make mistakes. Sure. But when "he seemed nervous" fits into the "preponderance of the evidence" it may be time to study more closely the sort of incentives facing our officers and to reformulate those incentives that lead them to expropriate otherwise law-abiding, peaceful citizens of their personal property.

The Business Cycle: A Brief Introduction

My interest in economic theory stems from a desire to learn about what is commonly called the "business cycle". Since the beginnings of the "Subprime Crisis" in the housing market and the credit market problems that have become associated with the meltdown in many structured investment products I've tried to familiarize myself with what were the causes of these problems. Was it a fundamental, though necessary, defect inherent to capitalism? Was it government mismanagement as many free-market propenents are wont to blame? Does the crisis represent a need for more regulation and intervention by government?

Unfortunately I haven't determined precisely what were the causes of the recent economic crises. I became sidetracked reading about economic theory. I began by reading Schumpeter and became acquainted with his book Business Cycles: A Theoretical, Historical, and Statistical Analysis (though the abridged version). Schumpeter's book is a suberb history of capitalism. Starting at the beginnings of industrialization up to the early 20th century when the book was published, Schumpeter applies his theory of cyclical waves that are inherent to the capitalist system and are caused by how fast (or slow) new innovations are adopted by the system and how the effects of these innovations cause adaptations in surrounding industries.

The Schumpeterian theory does not coincide with what I found elsewhere, like in the work of von Mises, and the man who expounded upon the Misesian conception of the Business Cycle, F.A. von Hayek. In Prices and Production, Hayek argues that the cyclical fluctuations that have been experienced throughout the history of modern capitalism up to that point were not caused by anything inherent to the capitalist system, but instead were products of what Mises termed in his 1912 monetary treatise, "Fiduciary Media", ie. credit. Hayek's chief new contribution in the book was his insight into the stages of productions. After Bohm-Bawerk, Hayek and Mises combated a misconception found in the work of American economists F.H. Knight and John Bates Clark, where they argued that "capital" was a homegeneous fund, a flow of goods that is for all intents and purposes perpetual. The Austrians view "capital" as being heterogenous, with differing capital goods according to their relative specificities. Some elements of capital are relatively easy to transfer from industry to industry, but others, such as specific machinery equipment, are basically fixed in their employment in a specific industrial pursuit. Hayek also built upon Bohm-Bawerk's roundabout process of production by explaining that a longer period of production represents more capitalistic (capital intensive) methods of building and creating things.

According to the fiduciary media argument, the business cycle is caused by monetary inflation, this monetary inflation distorts economic calculation depending on where it is injected within the economic system. Typically, new money is introduced through the banking system, with the newly created funds appearing on the loan markets (because that is the main business of banks--to loan money) the rate of interest is artificially lowered below the "natural rate of interest". The Natural Rate is an insight credited to the Swedish economist Knut Wicksell, in which he explained that the natural rate is derived from the relative time preferences of individuals in society, reflected in how willing or unwilling they are to save money. More savings implies a lower natural rate of interest and, therefore, a lower time preference, and vice versa. If the rate of interest is artificially lowered below the natural rate, then the more capital intensive industries will mistakenly believe that it is now profitable (and it temporarily is) to construct more specific capital goods. A lower interest rate implies a lower time preference, which tells entrepreneurs that it is now potentially profitable to lengthen the period of production. For a while this will cause booms in the prices of many raw materials and other resources needed in the construction of this new plant equipment. Unfortunately, once the newly created money has worked its way upon the whole system through the payments of wages and spending habits of those recieving them, as well as through the purchases of the companies that recieved the new money, the interest rate will tend to rise toward the rate that was previously present before the inflation (though its rare for it to be precisely the same rate, for reasons too detailed to get into here). Since the time preference of those in society did not shift radically enough to justify the construction of much of the newly created capital goods, they are no longer as profitable as previously thought (if profitable at all), and this then calls for a liquidation of many of the enterprises that were created during the boom, with the more non-specific capital goods being shifted toward enterprises that are closer to consumption. The economic crisis that creates the notion of the "business cycle" is essentially this process of liquidation of pursuits that were altogether unsustainable, and these pursuits would not have been pursued had there been no monetary inflation in the economic system that served to distort the economic calculations of entreprenuers. Some capital is forever squandered and workers employed in the unsustainable enterprises must find new jobs. This is the view of Hayek and Mises.

This just touches the surface of the varying opinions about what causes the business cycle (I neglected to mention the Keynesian view). To be sure, there is much more worth investigating. In a later post I'll write about Mark Skousen's book The Structure of Production and what it says about the Business Cycle and the many theories that attempt to explain it.

The Subjective Theory of Value

Over the past few days I've been reading George Reisman's translation from the German of Ludwig von Mises' book Epistemological Problems of Economics. In this book Mises formulated many of the building blocks of his comprehensive economic theory that would later be found in Human Action. Though I've encountered the subjective value concept elsewhere (Menger's pioneering work among many others), this book is reinforcing its importance to any possible systematic conception of exchange ratios, prices, wages, etc.

Although some contend that there are objective, universally consistent values, it has become apparent that this view is untenable for the formulations of economic theory. People everywhere have different tastes and preferences for different things. Indeed, every action contains some form of prefering one thing over another. Everyone is faced with opportunity costs surrounding how they determine to use their finite time, ie. Go to work or go to the beach, watch television or read a book, etc. From the fact that it is impossible to do two things at once, whatever one chooses to do involves prefering some A to some B. The source of this preference and why you chose A to B is immaterial for economic science. All that is important is that there exists a preference.

It has become abundantly clear to me that the Subjective Value Theory is the heart of economic science. Once one recognizes that always and everywhere people are exercising preferences (valueing one thing higher than another), it becomes easier to notice that the more people that prefer a certain thing to another than the more intensive is the demand for that thing. Since people have differing preferences, it becomes useful for people to trade with one another. Without getting into the specifics of monetary theory, once a medium of exchange is employed in the transactions of people in there transactions, money prices (exchange ratios) emerge, and from the emergence of these exchange ratios all other phenomena of modern economic life also develop, ie. interest rates, wages, etc.

Mises believed that the theories of economics were not subject to criticisms levied by those citing statistics that did not fit in with what the theory would have predicted. He believed that "A theory is subject to the tribunal of reason only." When I first read that sentence in Human Action I did not know quite what he meant by it. But now I've come to realize just why Mises believed that unacceptable theories could only be attacked through reason and not experience. Because all valueing is subjective, that is, unique to the mind and perception of the individual, then all economic value is inherent to the minds of human beings. They are psychic qualities; no object has value outside of that which we give to it in our own minds. So, because all economic value is of the mind, then all theories and conceptions of economics as such can only originate from our minds.

*I've spent a while working on this post, and I'm not confident that I have adequately conveyed precisely what I concieve of the integral part played by the subjective value theory in economic science. This muddiness only reflects my continuing attempts to wrestle with this concepts in my own mind. It's obvious that I still have much more thinking to do.*

What Is Seen and What Is Not Seen

Drake Bennett in the Boston Globe recently wrote an article arguing that natural disasters can help facilitate and sometimes embolden a country's drive for economic growth.

He argues,

Rebuilding efforts serve as a short-term boost by attracting resources to a
country, and the disasters themselves, by destroying old factories and old
roads, airports, and bridges, allow new and more efficient public and private
infrastructure to be built, forcing the transition to a sleeker, more productive
economy in the long term.

Aside from the often terrible after-effects of earthquakes, hurricanes, and tornados, Bennett disregards the fact that if it were not for the destruction caused by these events then the resources employed in reconstruction would instead be employed in some other pursuit. Natural disasters always result in the elimination of some resources. Bennett's view has already been proven fallacious by Frédéric Bastiat. Writing in 1848, Bastiat distinguished between What Is Seen and What Is Not Seen. In part 1, The Broken Window, he wrote that economic life is characterized by finite resources; all resources that are economic are essentially scarce, and the destruction of any of these limited resources can only make man poorer. This is true because more of the limited resources must now be used to replace what has been destroyed rather than be used to satisfy some other human need.

Bennett qualifies his view that natural disaster can be beneficial to the economy by saying that the recently eliminated resources can be replaced by more efficient and technologically superior methods, which then result in a less wasteful utilization of resources employed in any particular pursuit, ie. an older factory is leveled and replaced by a state-of-the-art factory. Although Bennett cites Schumpeter's concept of "Creative Destruction" he fails to recognize the role played by the entrepreneur in that "Creative Destruction"! Entrepreneurs determine when it is more or less profitable to replace older methods of production with newer, more techonologically up-to-date methods. Using the interest rate, they weigh the net present value of the expected earnings that would be generated from a more efficient mode of production against the net present value of the depreciating older capital stock. Once the value assigned to the former is larger than the latter, then older capital is replaced. There is a natural mechanism inherent to the capitalistic economy that determines when it is useful to replace older, less efficient modes of resource utilization with newer, more efficient modes. And this method is aligned with the demands of all consumers in the market economy (through the interest rate), rather than by the arbitrary effects of a natural disaster. Natural disasters do not result in economic growth, and any evidence to support such a claim is merely a trick of statistics.

Mises: The Last Knight of Liberalism

I recently finished reading Jorg Guido Hulsmann's new book titled Mises: The Last Knight of Liberalism. It's a detailed biography (1143 pages) of the economist Ludwig von Mises. Hulsmann does a superb job humanizing Mises by overlapping insightful explanations of his overall contributions to economic science, while also focusing on aspects of Mises' eventful personal life. This book is highly recommended for anyone interested in the development of the Austrian School of Economics post-Carl Menger Bohm-Bawerk, as well as serving as an introduction to the historical context of this development.


Few people not already versed in the history of economic thought are familiar with von Mises and his weighty contributions to general human knowledge. It is not altogether unreasonable to suggest that he was the top social philosopher of the 20th century, which makes it ever more unfortunate that more people have not familiarized themselves with his writings. Despite the publication of his first major theoretical treatise, The Theory of Money and Credit in 1912, it took nearly a decade before Mises was recognized as a top monetary theorist. By 1920, with the early release of an excerpted essay from his forthcoming book on Socialism, Mises set off what would later be called the Socialist Calculation Debate. In the essay Mises argued that Socialism was not merely an inferior method of economic organization than capitalism, but that socialism as an economic system was altogether impossible because under an order where all property had a sole owner--the government--there would be no basis for market exchange, the very thing that generates the relative exchange ratios so useful for determining the effective and efficient allocation of resources within an economy. Later in the decade Mises would go on to demonstrate through his theory of intervention that government restrictions (ie. price controls, minimum wage laws, etc) are both counterproductive and bad economic policies, not from his own value judgements but because the restrictive policies were unsuitable to achieve the very ends sought by the government in their justification to implement them. Mises would go on to do significant work on the epistemology of economics, while also developing a systematic, integrated whole of economic theory derived from his initial axiom that "humans act". His magnum opus Human Action: A Treatise on Economics was first published in 1949.


For some the above may be nothing new. I already had a familiarity with many of Mises' works prior to reading Hulsmann's book, but what I did not have much familiarity with was Mises' personal background and his life story, which I find interesting because, after all, no matter how significant his intellectual output, he was still just a man like any other.


Mises was born in an eastern province of the then still intact Austro-Hungarian Empire to a recently ennobled Jewish family. Mises moved, along with his family, to Vienna and attended one of the prestigious gymnasiums (equivalent to middle and high school) and then later the University in Vienna. It was at the University in Vienna that Mises became acquainted with economics after reading Menger's famous 1871 work, the same book mentioned in previous posts. At this time Mises was also fulfilling his military training requirements where he was later commisioned as an officer in an artillery unit of the Austro-Hungarian army. With the outbreak of WWI, Mises fought on the northeastern front against the Russians. After two years of intense fighting, Mises was transfered to an economic bureau in Vienna where he wrote a brief essay outlining what he believed to be the proper method for running the war economy, in which he spelled out that it would be best to maintain as many components of a capitalistic method of production as possible because it was this form that is most flexible and capable of adapting to the dynamic requirements of munitions output and weapons supply. I stop there, though the story is told in splendidly compelling detail in Hulsmann's book.

Mises did many other heroic and impressive things throughout the rest of his life. He stood up to, and spoke out against, some of the most evil and repressive regimes, as well as combating the intellectual ideas that drove them. He barely escaped Europe alive. In all of human history, I doubt there is a single person more impressive and admirable than Ludwig von Mises.

Chart of the Day: More Wealth Brings More Leisure

Despite occasional recessions (and one Great Depression), over the past 130 years there has been a consistent tendency for people to spend less and less of their finite time doing what has traditionally been termed "work". This development is solely the product of capitalism and the benefits of a free-market economic system.

HT: Carpe Diem

Creative Destruction in NYC

Follow the link to see a bunch of older photos of NYC and a few of the surrounding boroughs. Some of the pictures go back as far as the 1880s. In my view, getting a glimpse of pre-WWI shots of the economic capital of the world is worth taking a peak in and of itself. The architectural achievements of the people, in a time that pre-dated the automobile, where horsedrawn carriages were the primary mode of transportion, and seemingly every man wore some sort of bowler hat, are all the more impressive and spectacular. The degree of building development that existed back then is truly a marvel once one considers the, from today's perspective, primitive state of techonological development that existed in pre-WWI society.

Also, as I made my way through the collection it was interesting to read some of the advertisements. Many companies were featured that remain in existence to this day, though many in a far less vibrant position than they were surely in during the time of the photographs. Coca-Cola, Chevrolet, Ford, and Macy's are all still present in the current business scene. But there are numerous other companies, and even select services, that I had no idea ever existed and have since disappeared from the production scene altogether. These photos are a great indicator of Joseph Schumpeter's notion of Creative Destruction, and its influence on the progressive removal and replacement of old firms, obsolete processes of production, out-dated cultural norms, and upsetting of old social hierarchies, in favor of new enterprises, more efficient and effective utilization of resources, and newly formed and realigned social classes.

Again, check it out.

Friedman and the Austrians

Milton Friedman was often vilified by the Austrians and had a fairly well-known rivalry with Murray Rothbard. Rothbard even lectured about the shortcomings of Friedman. The Austrians took issue with his methodological practices and his willingness to compromise on certain policies and make political concessions that the Austrians would find untenable. Despite that, Friedman was no enemy of the Austrians, as this video would readily prove. In fact, I think the Austrians should acknowledge Friedman for the role he has played in forstalling the growth of government throughout his career and his continuous advocacy of everything that would promote liberty and freedom. Friedman likely preferred everything synonymous with complete laissez-faire. It would be fair to acknowledge that before criticizing him for his willingness to get his hands dirty in the thorny and contemptible world of politics. Friedman was not perfect; though none of us are.

Confused As Ever: The Theory of Interest

Continuing along with the Mengerian theme, I just finished reading his chapter on the theory of value. I must say that it is a supurb analysis, though dense at times, but an altogether essential passage for aspiring economists. My one problem originates from his brief references to the interest phenomena and its requisite causes. Menger echoes the views of the 20th century American economist F.H. Knight as he writes "Some economists represent the payment of interest as a reimbursement for the abstinence of the owner of capital. Against this doctrice, I must point out that the abstinence of a person cannot, by itself, attain goods-character and thus value." (p.156) and later on pages 158-59 and 172-74 Menger emphasizes interest as a type of price for the services of capital.

This view seems to be at odds with what I have already found in the writings of Ludwig von Mises, among other more recent Austrian economists. Mises writes that the interest phenomena originates from intertemporal preferences, ie. people prefer present consumption to some future consumption, and in order to forgo present consumption there must be some higher consumption possibility in the future. The interest rate, according to Mises, reflects the price at which it takes the marginal person to forgo present consumption in favor of consumption in some far-off future period. And off of this formulation of the interest concept Mises concocted the famous Austrian theory of the trade cycle. So if Mises' theory is the less acceptable version, then this could have far reaching effects on my views of a whole host of very important concepts (Hayek's work on the trade cycle, the idea that capital is heterogenous and not, as F.H. Knight and J.B. Clark argued, a homogeneous fund).

Perhaps this incongruity in Menger and Mises views on interest merely reflects the fact that Menger was writing a pioneering work, and like every work that blazes a newly divergent intellectual trail, there is likely to be some errors or misconceptions, which then need to be reformulated and expounded upon by future scholars. Regardless, what this discovery means for me is that I now must investigate F.H. Knight's conception of capital theory and all its attendent implications for the interest phenomena and the structure of production in a capitalistic economy. I hear Milton Friedman's conception of capital ran along the same lines as Knight, so it's not a completely bogus viewpoint.

Quote of the day (#1)

"Value is nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgement economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a "value," or for economists to speak of "values" as of independent real things, and to objectify value in this way. For the entities that exist objectively are always only particular things or quantities of things, and their value is something fundamentally different from the things themselves; it is a judgement made by economizing individuals about the importance their command of the things has for the maintenance of their lives and well-being. Objectification of the value of goods, which is entirely subjective in nature, has nevertheless contributed very greatly to confusion about the basic principles of our science."

This quote is taken from the last paragraph of the first part of chapter 3 in Carl Menger's book Principles of Economics (page 120-21). The italics in the qoute are Menger's, not mine.

It could probably be argued that the economics profession has yet to fully absorb Menger's insight on the value of things. All too often I notice in prominent debates concerning the economics of some such thing that the commenter tends to conflate the value of the thing with the perceived value of the thing. The more of this book I read, the more I regret not having picked it up sooner. If you want straightforward economic theory, then this book is the place to start.

Mengerian Wisdom

"[W]ith advancing civilization non-economic goods show a tendency to take on
economic character, chiefly because one of the factors involved is the magnitude
of human requirements, which increase with the progressive development of
civilization." Principles of Economics by Carl Menger (1871) [p. 103]

Carl Menger distinguished betweeen what he called economic and non-economic goods. The former being goods that have a higher demand than the available supply of that particular good. Non-economic goods would be like the air (though not so much anymore) we breathe, something that is utilized to fufill some necessary human need but is in such a large supply that it is essentially "free". Everyone has access and can consume non-economic goods however they see fit, but property rights are necessary to protect those that control the finite supply of what Menger termed "economic goods".

To get to the point, I think this brief excerpt helps explain many of the current issues concerning the environment. Before, "the environment" was considered a non-economic good. It was something that was percieved to be in a seemingly infinite supply. However, today many people consider it to be their personal duty to help protect "the environment", to preserve it and limit human impact on it. Typically these same people strive to use the strong armed coercion of government to force others to follow what they deem to be the most advisable and satisfactory solutions for environmental protections, often regardless of the economic costs.

What is missing from most debates about "the environment" is that no one attempts to strike at the center of the problem. In the 1800s, amidst the Industrial Revolution, few were concerned with environmental degradation. What was focused on was the satisfaction of daily life, a much harder life than the one we know in modern times. This all led to the tremendous growth in production and consumption possibilities, and the further extension and intensification of the division of labor in the industrialized world. Only recently have people turned their attention to "the environment" and the impact of humans upon it. This is because, like Menger explains above, as civilization becomes ever more developed people turn their attention to and develop new desires--"a greater magnitude of human requirements"--and this explains the growth in the aesthetic appreciation of "the environment" and the concomitant want to preserve it.

The main problem, I think, with the issues concerning "the environment" is that there is no price for it. Without a market price for "the environment", it is impossible to engage in any value calculus between the millions of other goods and services that would necessarily be curtailed in order to preserve it against the potential benefits of environmental preservation. Until we can derive some sort of method for determining the price of "the environment" it is foolish and potentially very destructive to engage in any attempt to forbid certain actions that are percieved as harmful to "the environment" by some but not all of the populace.

Economics 101

Demand for something rises as the price for it decreases. This is obvious stuff. So what do you think would happen when Papa John's decided to apologize to the greater Cleveland area for their decision to distribute 'crybaby' 23 t-shirts to Washington Wizards fans by offering all of northern Ohio 23 cent pizzas? If you guessed long lines and shortages then give yourself a gold star.

"Lines were so long Thursday at some of the 86 Papa John's stores offering a large one-topping pizza for 23 cents that police stood nearby to make sure people didn't get unruly."

Obviously.

Bummed Out

I've been in a melancholic mood the entire day. I woke up and, like I do every day, flipped on the television. I had apparently left the channel on MSNBC when I last turned the tv off, so I awoke to the speech this morning by Barack Obama on the current issues pertaining to our economy. Unfortunately Obama, like his Democrat counterpart Hillary Clinton, only argued for increasing what he termed "government oversight" to counteract "greed" along with various other populist talking points. Not only does he feel the need to disparage free trade (see the debate between he and Clinton at Cleveland State), a concept that no modern economist would dare argue to be an overall losing proposition and also a concept that was first popularized by David Ricardo nearly 200 years ago! Obama also feels that our economy would function more effectively with various government interventions, which would only be those which Obama and his cadre of policy makers deem appropriate. Ha! Surely it's not unreasonable to expect that, under the conditions without government distortion, people would be most capable of deciding what is best for them in their own respective transactions within the market. Surely one would not doubt the lessons of history, lessons that were cemented fairly recently with the falling of the Berlin wall and the unraveling of communism, which illustrate quite convincingly the failures of central planning and government micromanagement of an economy.

I'm sick of those who do not know of, nor have studied, the lessons of economics arguing against the free-market and all that the free-market system entails.

Dec 30 1948

The American Economic Association hosted their yearly conference in my home town of Cleveland, Ohio in 1948. December 30th was the final day of the conference (a friday) that featured the organizer of that years agenda, Joseph Schumpeter, giving his closing speech on the state of, and overall role played by economics within the society at large. By all accounts this was a wonderful speech that left no economist--no matter the personal persuasion be they an adherent of Keynes or some other school--untouched, and all that witnessed this event firsthand attest that the lively Schumpeter was in top form.

Being from Cleveland and knowing of the diligence that is so typically characteristic of the Plain Dealer, I set out to dig up their coverage of this speech in our library's stash of microfilm. In the paper published on Dec 30th they do have a few paragraphs featuring comments from Schumpeter's colleague at Harvard Seymour Harris on inflation, and they also highlight Fritz Machlup's warning to economists not to grow disheartened at the slow transmission of intellectual ideas to the voting public at large that is so characteristic of the democratic political system. Machlup was speaking from experience as he witnessed firsthand the experiences of Europe in the early 20th century. But this days paper covered the events of the previous day. So I scoured the December 31st and January 1st editions of the paper while finding nothing on Schumpeter or his rousing speech. How can this be? How can there be not even a tiny article detailing the events when one of the most eminent economists of the day happen to be in your town? And at this time his eminence was surely recognized, many contemporary accounts indicate Schumpeter was regarded as perhaps the most famous economist in the world at the time. Though I may have missed a snippet on Dr. Schumpeter, he may have been mentioned inconspicuously, it remains a disappointment that a larger article could not have been devoted to a subject as pertinent and influential as that which Schumpeter spoke about.

It is disappointing that in a paper that dedicated large amounts of space to the business and politics of the day (perhaps more so than today even) there was no space provided for commentary on Schumpeter the man, what he meant to the study of society and economics, and the overall lessons of his speech.

Why?

The reason why I created this blog was for me to have a place to refine and improve upon my own personal writing skills while addressing topics that I feel are important or interesting. Nothing more, nothing less.