Tuesday, June 24, 2008

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.

Sunday, June 22, 2008

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.

Saturday, June 21, 2008

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.

Friday, June 20, 2008

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.