Category: CafeHayek

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Cafe Hayek: About prices

Bonus Quotation of the Day…

by Don Boudreaux on September 12, 2017

… is from the opening paragraph of Chapter III, section 5, of James Mill‘s 1821 Elements of Political Economy (original emphases):

The benefit which is derived from exchanging one commodity for another, arises, in all cases, from the commodity received, not from the commodity given.  When one country exchanges, in other words, when one country traffics with another, the whole of its advantage consists in the commodities imported.  It benefits by the importation, and by nothing else.

DBx: UPDATE: There is one modification to make to Mill’s statement: when producers – domestic and foreign – are better able to take advantage of economies of scale in production and distribution because of access to larger numbers of consumers, consumers – domestic and foreign – also gain in the form of greater output and lower prices of those goods and services.  That is, by allowing the prices of some domestically produced goods to fall, freer trade that enables domestic producers of those goods to take advantage of the economies of scale that enables production to take place at lower per-unit costs benefits domestic consumers in a way in addition to greater access to imports.

MD: This has always perplexed me about the Mises Monks and their Austrian Economics. Why are they so fixated on prices. Prices are strictly a perception between two parties in a trade. When they have negotiated a trade to the satisfaction of both, that perception is the same for both. It has nothing to do with any other trader or trade (unless the traders themselves choose it to be).

A “proper” MOE process cares absolutely nothing about prices … ever. And by its very process, it guarantees that the money in and of itself has zero influence on prices … perpetually … and everywhere.

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Cafe Hayek: Public Interest

From Quotation of the Day

[I]ndividuals within the bureaucratic structure often possess wide discretionary powers to lay down rules of procedure, allocate the funds among the competing demands, or develop standards for performance.

MD: This reveals an obvious flaw in bureaucratic structures. It reveals an obvious reason why governments and their bureaucracy are not the way to address issues.

In each case, the bureaucrat who makes the decision will be motivated to some extent by his own private cost and private benefits rather than those of Congress or those which might be genuinely defined as public interest.

MD: Actually it’s much worse than stated here. Special interests now actively pursue positions in bureaucracies (being subsidized by their special interest) to further those special interests. They become an “attachment” to an existing government … and eventually take it over from within.

Bureaucrats are themselves no different from anyone else, and they will act so as to preserve and to advance their own career prospects.

MD: Actually they are very different from anyone else. They are under-skilled, competitive yet incapable of competing, and they are power hungry. It takes a special personality with a defect to be a government worker. Anyone given a choice of work in the private sector or public sector will choose the private sector … unless they are power hungry.

Hence, unless these prospects are tied directly to the public interest, the inherent inefficiency in bureaucratic process will tend to dissipate, at least to some degree, almost any collective effort to achieve social betterment.

MD: The “public interest” can never be ascertained. All that acting in the public interest does is to declare some individuals as being outside the public domain. Every action taken in one person’s interest is an action against another person’s interest.

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Cafe Hayek: An Odd Tic

An Odd Tic

by Don Boudreaux on September 12, 2017

MD: I really don’t have much to add to embrace the concept being discussed here. It is right on. Anyone who has read the Federalist Papers and particularly the Anti-Federalist papers will know the Federalists had two principle reasons for forming a union: (1) To use the union to bully the merchant’s competition. (2) To use the union to protect the merchant’s practices. It was all about what was good for the merchants … not for the people. They only thing they needed the people for was to pay for it.

Government is “never” the solution to such issues. Governments create the problem in the first place and government  applied to the solution just exacerbates the problem … and leads to wars.

One of oddest tics exhibited by protectionists who otherwise have pro-free-market sympathies is to insist that the government of their country (say, the United States) use punitive tariffs and other trade restrictions in order to countervail the market-distorting effects of the policies of foreign governments.  There are many problems with this specific argument for protectionism (again, not least that, in practice, it is aimed only at those policies of foreign governments that are believed to artificially lower the prices of those countries’ exports; it is never aimed at those policies of foreign governments that make the prices of those countries’ exports higher).

But here I note only that it is especially odd for people who allegedly understand and celebrate the virtues of free markets to justify protectionist restrictions on the grounds that these restrictions will allegedly countervail or “adjust for” whatever market distortions are (or are asserted to be) unleashed by the economic interventions of foreign governments.  It is odd because these particular protectionists – in the U.S., many conservatives – generally distrust their government to act wisely, prudently, skillfully, knowledgeably, and apolitically when meddling in the economy.  And yet as soon as the stated particular reason for intervention is foreign-government misdeeds that allegedly distort the American market, these free-market types – these free-market conservatives – lose all of their skepticism of their own governments’ abilities to intervene wisely, prudently, skillfully, knowledgeably, and apoloticially.

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Cafe Hayek: Should There Also Be “Queue Controls”?

MD: What Cafe Hayek says in this article is so obviously true it is scary that they even have to say it. But then Cafe Hayek doesn’t know what “real” money is either … and that is scary too.

Should There Also Be “Queue Controls”?

by Don Boudreaux on September 7, 2017

in Prices, Reality Is Not Optional, Seen and Unseen

Here’s a letter to another person who caught a radio interview with me this morning:

Mr. Kasim Wagner

Mr. Wagner:

Thanks for your e-mail.

You write that “it plainly is wrong for anyone to force people to pay higher prices for supplies in disaster areas” and, therefore, “government’s duty is to protect people from this greed.”

First, I agree that it’s wrong to force people to pay higher prices.  But we’re not talking about forcing people to pay higher prices.  Every buyer is free not to pay higher prices.  Of course, those people who don’t pay higher prices don’t get the goods.  Yet people are no more forced to pay whatever prices they pay because of natural disasters than they were forced to pay whatever prices they paid before any natural disaster became a reality.  All of those prices are paid voluntarily – a fact that is both economically and ethically relevant.

Second, if you truly believe that it’s unethical for anyone self-interestedly to cause consumers’ costs of acquiring much-needed goods to rise significantly, then you must believe that it’s unethical for people to rush into, and to stand in, the long lines that occur whenever there are shortages of goods.  Every person standing in front of Jones in a line of consumers hoping to buy, say, bottled water self-interestedly puts his or her own welfare ahead of that of Jones.  Each of those persons standing in front of Jones – both by increasing the chance that the store will run out of bottled water by the time Jones reaches the front of the line, and by increasing the amount of time that Jones waits in line – raises Jones’s cost of acquiring bottled water.

Do you believe that the individuals standing in line in front of Jones are unethical?  Should government, in addition to imposing a ceiling on the monetary price that people pay for bottled water, also impose a “queue ceiling” on the number of people who stand in line to buy bottled water?  If, as I suspect, your answer to each of these questions is “no,” why do you believe that government should prohibit only those increases in the costs of acquiring a good that take the form of increases in the monetary price of the good?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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Cafe Hayek: in Complexity & Emergence, Economics, Hayek, Philosophy of Freedom

 

MD: This article illustrates how poorly the Mises Monks write. It also illustrates how they analyze a problem to death … totally failing to recognize that the problem they are analyzing is totally irrelevant.

Quotation of the Day…

by Don Boudreaux on September 4, 2017

in Complexity & Emergence, Economics, Hayek, Philosophy of Freedom

… is from page 60 of one of F.A. Hayek’s greatest essays, his 1945 lecture “Individualism: True and False,” as this essay is reprinted in Studies on the Abuse & Decline of Reason, Bruce Caldwell, ed. (2010), which is volume 13 of the Collected Works of F.A. Hayek (original emphases):

To the accepted Christian tradition that man must be free to follow his conscience in moral matters if his actions are to be of any merit, the economists added the further argument that he should be free to make full use of his knowledge and skill, that he must be allowed to be guided by his concern for the particular things of which he knows and for which he cares, if he is to make as great a contribution to the common purposes of society as he is capable of making.  

MD: One sentence … 91 words … no concepts … no coherent thesis … and he mixes two fictions … religion and economics. What’s not to love about the Mises Monks. What it does seem to properly say is: A society must be very advanced for an economist to be perceived of value. No society can get large enough for an economist to “really” be of value.

Their main problem was how these limited concerns, which did in fact determine people’s actions, could be made effective inducements to cause them voluntarily to contribute as much as possible to needs which lay outside the range of their vision.  

MD: See what I mean about analyzing a problem to death … a problem that is irrelevant? I guarantee you, in the olden days before anyone could even say “economist” or “christian”, someone struggling with a tree branch too large for them to place would immediately get help from another human standing by. No instruction manual, advanced inbred degree, or analysis required.

What the economists understood for the first time was that the market as it had grown up was an effective way of making man take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’.

MD: I wonder if the Mises Monks ever stand back and realize: It takes a very very large society indeed to find anything about the Mises Monks to be of redeeming value. If you need sand poured out of a boot, you’re sure not going to go to a Mises Monk … even in an advanced society.

DBx: Here’s Sheldon Richman on “Individualism: True and False.“

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Cafe Hayek: How much government … how much force.

 

Quotation of the day …

by Don Boudreaux on September 3, 2017

in Reality Is Not Optional

MD: To the “gold is money” folks, reality sure seems to be optional.

… is from page 719 of the 2007 Liberty Fund edition (Bettina Bien Greaves, ed.) of Ludwig von Mises’s 1949 treatise, Human Action:

MD: Mises Monks quoting from their bible.

The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.  Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

DBx: You might believe, as Mises himself believed, that a peaceful and prosperous society requires some minimum amount of government.

MD: And you might believe that the camel requires some minimum amount of his head under the tent.

Or you might believe, as most people believe, that a peaceful and prosperous society requires a great deal of government.  Or you might be a comrade who longs for complete and detailed government design of, and control over, all of our economic activities.  Wherever you stand on the spectrum of “minimum, nightwatchman government to Soviet-style state control,” you must never forget that the ultimate distinguishing feature of the state is its ability to issue dictates that are enforced with coercion.  And this reality does not disappear when state decisions are made democratically.

Every state erects statues to its most successful operatives, flies its flags gloriously high in the sky, conducts its business in imposing buildings, adorns its officials with impressive titles and honorifics, and – above all – assures its subjects that it possesses a superhuman capacity to know and to care, and that it uses this capacity always and only in ways that make the state an indispensable boon to everyone over whom it reigns.  Yet behind all this pomp and fine display are iron fists and spiked boots.

MD: … and money that is not real.

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Cafe Hayek: insurance against exploitation,

MD: I wonder if Boudreaux and Buchanan have read the Anti-Federalist Papers.  Let’s see if they have clue.

Quotation of the Day…

by Don Boudreaux on August 28, 2017

in Myths and Fallacies, Virginia Political Economy

… is from pages 171-172 of my late Nobel-laureate colleague Jim Buchanan‘s 1987 paper “Man and the State,” as this paper is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:

The monumental folly of the past two centuries has been the presumption that so long as the state operates in accordance with democratic procedures (free and periodic elections; open franchise; open entry for parties, candidates, and interests; majority or plurality voting rules) the individual does, indeed, have quite apart from any viable exit option.  

MD: That is a badly constructed … long sentence. It ends “individual does have”. Does have “what”?  And then adds “quite apart from any viable exit option” has nothing to refer to. If it means the individual has a viable exit option to leave the government, he certainly doesn’t. Neither does a state. The Constitution is obviously flawed with its failure to include a buy/sell clause.

Modern states have been allowed to invade increasing areas of “private space” under the pretense of democratic process.

MD: We here at MD of course know that democracy … and thus the democratic process … has no chance of working with more than 50 people involved. And our USA process has 500,000 people involved at our “most” representative level.

From Anti-Federalist Papers #17: Federalist Power Will Ultimately Subvert State Authority:

DBx: People whose understanding of democracy is no more advanced than what they learned in fifth grade believe that the democratic procedures listed above by Buchanan are both necessary and sufficient to ensure a free, open, vibrant, and prosperous society.  And when such people – people such as Duke historian Nancy MacLean – encounter serious discussions of the need for constraints on majoritarian rule, these people leap to the conclusion that those who counsel such restraints are undemocratic enemies of the People.  Whatever you think of democracy, such leaping is a sign of terrific ignorance of both intellectual and political history.  And yet displays today of such ignorance are unthinkingly celebrated in “Progressive” circles as signs of deep wisdom and moral superiority.

MD: Boy is this the pot calling the kettle black. DBx seems to be clueless about democracy too. Earth to DBx! Democracy can’t work with more than 50 people involved!

For democracy to work, the voters must be intimately familiar with the issues on which they are voting. For democracy to function in a republic, those choosing the representative for the next lower level must personally know the person they choose … and that person must personally know them to represent them (the individual being at the top level and himself dealing himself with all issues under his control … like his own welfare) .

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Cafe Hayek: Prosecuting price gougers

MD: Every once in a while, even the Mises Monks get it right.

An Open Letter to the Attorney General of Texas

by Don Boudreaux on August 26, 2017

in Prices, Reality Is Not Optional, Seen and Unseen

 

Mr. Ken Paxton, Attorney General
State of Texas
Austin, TX

Mr. Paxton:

You boasted today on Fox News that your office, in the wake of hurricane Harvey, will prosecute so-called “price gougers” – that is, merchants who charge prices deemed to be too high by Texas politicians.  I urge you to quit your witch hunt.

MD: Hear hear!!

Because each ‘gouging’ price paid for any item is paid voluntarily by a consumer spending his or her own money – and because that consumer cannot conveniently find that item elsewhere at a lower price – the consumer clearly doesn’t deem the price to be too high.  That is, while the consumer would, as always, prefer to pay a lower than a higher price, the consumer prefers to pay the high price and actually get the item than to save money by going without the item.  Formal legalities asides, why should the judgment of politicians about what prices in the aftermath of natural disasters ‘should’ be override the judgments of on-the-spot consumers about the appropriateness of prices?

Government intervention is often justified as a means of correcting “market failure.”

MD: Government itself is a “sanity” failure. No government at any level, even at the bottom (the individual being at the top) should do anything the level above it cannot do itself. Big government is for wide cooperation … not wide control. The individual clearly is able to make their own decision here … and implement it.

But by enforcing prohibitions on “price gouging” your office causes market failure.  Penalizing merchants who raise the prices of goods and services prevents markets from truthfully conveying an unfortunate but undeniable truth – namely, the natural disaster caused available supplies of goods and services to fall significantly relative to the demand for those goods and services.  By forcibly keeping ‘legal’ prices lower than their actual market values, you not only encourage black markets and other corrupt and corrupting processes, you obstruct the information and incentives that are necessary both to encourage consumers to now use those goods and services more sparingly, and to encourage suppliers from around the world to rush to the devastated areas additional supplies of those goods and services.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

MD: Congratulations Cafe Hayek. Even the blind squirrel sometimes finds a nut.

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Cafe Hayek: Degrees of Explanation

Quotation of the Day…

by Don Boudreaux on August 25, 2017

in Curious Task, Economics, Hayek, Scientism, Seen and Unseen

Degrees of Explanation

… is from page 201 of the 2014 collection, The Market and Other Orders (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s deep 1995 article “Degrees of Explanation,” which first appeared in the British Journal for the Philosophy of Science:

In ordinary usage we are inclined to admit as predictions only statements which narrow down the admitted phenomena fairly closely, and to draw a distinction between ‘positive’ predictions such as “the moon will be full at 5h 22′ 16″ tomorrow”, and merely negative predictions such as “the moon will not be full tomorrow.”  But this is no more than a distinction of degree.  Any statement about what we will find or not find within a stated temporal and spatial interval is a prediction and may be exceedingly useful: the information that I will find no water on a certain journey may indeed be more important than most positive statements about what I will find.  Even statements which specify no single specific property of what we will find but which merely tell us disjunctively that we will find either x or y or z must be admitted as predictions, and may be important predictions.  A statement which excludes only one of all conceivable events from the range of those which may occur is no less a prediction and as such may prove false [and, because it can be proven false, is ‘scientific’].

MD: Ok. We have a pretty straight forward assertion of the obvious. But we don’t know anything yet about what this assertion is supporting. Let’s see if that comes out in DBx treatment. Hint: No it doesn’t

DBx: I have always found “Degrees of Explanation” to be Hayek’s most challenging article, yet one that repays close study handsomely.  No summary statement by me can do this article justice, but it’s one of Hayek’s attempts to explain (!) why the method of the social sciences must differ from the method of the physical sciences (especially from physics) and why social scientists must be more modest in their claims about what they can explain or predict.

MD: The first thing that should be ruled out is that “social” can ever be “science”. We see empirical evidence that it cannot be science on a daily … hourly basis.

Applying the insight in the passage above to economics, we rediscover the most important practical role for the economist – namely, to warn the general public that much of what they suppose government action can achieve is, in fact, not achievable (or, at least, not achievable at the zero, low, or finely targeted costs that the general public supposes).

MD: Wait? The role of the economist is to “warn”? This leaves me wondering what we have to warn us of the nonsense that economists bring to the table? How can you trust a collection of people to warn you about anything, when down to last member of that collection, there is disagreement … major major disagreement? There is no science. There is not even a trace of a scientific method. There is just incestuous circular references in footnotes.

The economist is much like someone who follows a quack doctor around to warn the quack-doctor’s gullible audiences that none of the quack’s miracle cures will work and that many, or even most, of them will actually result in greater illness and injury.

MD: Actually, it’s more about “my quack doctor is better than your quack doctor.” I have yet to engage a single economist who knows what money is. And when presented with the obvious definition and proof, they will not embrace the obvious fact. If they were scientists, they would accept and support the obvious. Or they would easily prove the fallacy. They do neither. They are all going in different directions and cannot agree on anything.

The quack, of course, denies the ‘negativity’ while his gullible audiences, eager to believe in miracle cures, discount the economist as an unimaginative or mercenary naysayer.  And the real world, being far more complex than either the quack or his audiences realize, easily find reasons to reject the economist’s counsel.

MD: Gullible … yeh …. like gold-is-money, even though there is only 1oz per person on Earth and miners are willing to create new ounces for about $2,000 …. and to be money, that $2,000 per person on Earth has to be used for “all” in-process trading promises … plus all savings (i.e. trading processes that will be in process for an indeterminate period of time). And knowing an average person making just $50,000 /year (3/4ths of which is taken from them by governments without their ever seeing it)  … they will go through that $2,000 in less than a month … and never have it again. It will forever after, be held by the money changers to restrict trade over time and space … and it will always be in the wrong place at the wrong time.

And when these people (a faction of so called economists) are confronted with the obvious proof that gold has never been money, that it is just a hopeless, inefficient, expensive, insufficiently supplied clumsy stand-in for real money (real money which they use the slur “fiat” to dispel), they resort to religion: gold has been money for 5,000 years.

You gotta love them. They all live in very nice houses and drive very nice cars. Quack quack quack.

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Cafe Hayek: the “art of association”

Quotation of the Day…

by Don Boudreaux on August 24, 2017

in Civil Society, Complexity & Emergence, Myths and Fallacies

… is from page 353 of my GMU Econ colleague Chris Coyne’s excellent 2011 paper “Constitutions and crisis” (typo corrected):

The notion of the “art of association” can be traced back to Tocqueville, who noted America’s robust civil society that consists of an array of social associations and networks.  These associations and networks were not the result of government design or legislation, but instead evolved through the ingenuity of self-reliant citizens acting entrepreneurially.

MD: Yeh … like they didn’t have taverns before then? Sheeeesssssh.

 Associations stand between the government and the market.  They allow people to come together and solve common problems without relying on government.  In doing so, they serve as a check on government power because private individuals do not become overly reliant on government to solve the problems they face.  The emergence of a robust civil society is only possible when people’s right to free association is established and protected.  Where this right exists, people can invest in establishing social associations and networks, which can potentially play a crucial role in the wake of crises.

MD: Put more simply, if the solution to any issues is found to be government, well, you’re still looking for a solution.

DBx: Society is not government.  And while reasonable people can and do disagree over the degree to which government is necessary to a thriving society, indisputably false is the notion that society is created by government and is sustained only by the detailed directions – or, more accurately, detailed diktats – of government.

MD: Government is instituted by money changers. Society is just the fodder … the feedstock … the slaves … the putty in the hands of the money changers and government is what they institute to discipline that fodder. Religion is another form of that discipline.

Unfortunately, the creationist-engineering mindset is dominant in the general public and even more so in the ranks of social scientists.

MD: “Social scientist”:  The ultimate oxymoron.

Even among economists, who are the least likely of all social scientists to fall for the social-creationist myth, the social-creationist myth seems to me to be gaining ground.

MD: Since fully 96% of the worlds population is religious, it’s ridiculous to suppose economists only exist among the remaining 4%.

Were it not so laden with danger, it would be amusing to witness the typical professor who so often, with one breath, sneers at those who deny that the orderly complexity of the natural world is the result of unplanned evolution, and, with the next breath, cheers those who deny that the orderly complexity of the social world is the result of unplanned evolution.

MD: Delusion, oxymoron, myths, religion, self deception … you name it … human beings are the epitome of it all.