Loading...
 

Catallactics (Austrian Economics)

Catallactics, or Austrian Economics, is the field of study created after Ludwig von Mises invented Praxeology, thereby subsuming, or grounding, traditional classical economics as a branch, or special application of the laws of action to the market economy.

"The analysis of those actions which are conducted on the basis of monetary calculation." "The theory of exchange ratios and prices." "The theory of the market economy." (Mises, HA, need pg #)


Despite these contrasts, a commonality between Reisman's and Rothbard's definitions is that economics deals with the production of goods. The difference is in how goods are defined. I suggest that while praxeology is defined as the deductive consideration of the categorical concept of action and its implications, economics is the field that applies these insights to the production of goods, whether tangible or intangible. (Graf, ABJ, pg 10)


Catallactics, like Praxeology, is a deductive science. Starting from the axiom of action, a few general laws can be deduced about human action. Whenever the conditions surrounding the deduction are present, the deductive law applies.




The Austrian Method:


At first I thought I could briefly describe the Austrian methodology using such terms as metaphysical causal realism, epistemological foundationalism, methodological individualism, solving the problem of controlled experiments in the social sciences by using the logical-deductive method, grounding in a theory of action, subjectivism, etc.. While these terms are accurate and applicable, my review of the literature led me to believe that there's more to the methodology than I'm ready to summarize at this time. Therefore, I'm limiting this section to a reading list of topics that I think will allow me to create that summary at a later date.

1. https://mises.org/esandtam/pes1.asp
2. http://mises.org/esandtam/pfe2.asp
3. http://mises.org/esandtam/pfe3.asp
4. http://mises.org/rothbard/praxeology.pdf
5. http://mises.org/books/methodprocess.pdf
6. http://mises.org/rothbard/praxeologymethod.pdf
7. http://mises.org/etexts/austrian.asp
8. http://mises.org/journals/qjae/pdf/qjae3_2_3.pdf
9. http://mises.org/mofase/ch7.asp
10. http://mises.org/etexts/methodenstreit.pdf
11. http://mises.org/mofase/ch6.asp
12. http://mises.org/apriorism.asp
13. http://mises.org/journals/scholar/Wutscher.pdf
14. http://mises.org/journals/scholar/azad2.pdf
15. http://mises.org/journals/qjae/pdf/qjae8_3_3.pdf
16. http://library.mises.org/books/Ralph%20Raico/Classical%20Liberalism%20and%20the%20Austrian%20School.pdf
17. http://mises.org/philorig/main.asp
18. http://mises.org/books/prax-and-understanding.pdf
19. http://bastiat.mises.org/2012/09/reply-to-the-empirics-of-austrian-economics/
20. http://mises.org/pdf//asc/2004/long.pdf
21. http://www.cato-unbound.org/2012/09/12/antony-davies/complementary-approaches
22. http://mises.org/journals/qjae/pdf/qjae10_3_4.pdf
23. http://mises.org/journals/scholar/younkins.pdf
24. http://mises.org/journals/jls/12_1/12_1_9.pdf
25. http://mises.org/journals/rae/pdf/rae7_2_7.pdf
26. http://mises.org/apriorism.asp
27. http://mises.org/misesreview_detail.aspx?control=59
28. http://ontology.buffalo.edu/smith/articles/menger.html


Austrian Property Theory

In the Intentional WorldView, Austrian property theory is a subset of deontology.
http://intentionalworldview.com/Deontology+%28Right+and+Wrong+Action%29#The_Normative_Truth_Propositions_of_Argumentation_Ethics_Property_Theory_:


The Laws of Economics


The Law of Subjective Value


1. Axiom of Action: Humans Act.

2. Every action will include the following categories:

a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. All action employs the employment of scarce means to attain the most valued ends.

4. The ends that he chooses are the ones he values most highly.

5. Corollary: The less urgent wants are the ones that aren't satisfied.

6. Assumption: Actors can be interpreted as ranking their ends along a scale of values, or scale of preferences.

7. Stipulation: The choice of which ends to include in the actor's value scale and the assignment of rank to the various ends constitute the process of value judgment.

8. Stipulation: These scales of preference may be called happiness or welfare or utility or satisfaction or contentment.

9. Whenever an actor has attained a certain end, he has increased his happiness, satisfaction, etc.

10. Corollary: Whenever an actor fails to achieve his ends, he has decreased his happiness, satisfaction, etc.

11. Assertion: Values / Utility / Happiness / Satisfaction is ordinal and cannot be measured, only ranked.

12. All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one.

13. An actor knows which of his ends is more urgent.

14. An actor knows when his ends are met.

15. Therefore, all action involves exchange; an exchange of one state of affairs, X, for Y, which the actor anticipates will be a more satisfactory one (and therefore higher on his value scale).

16. A correct anticipation results in a psychic profit.

17. Corollary: An incorrect anticipation results in a psychic loss.

18. An actor knows when he has experienced psychic profit or loss.

19. Therefore, human actors value means strictly in accordance with their valuation of the ends that they believe the means can serve.

20. Thus, the process of imputing values to goods takes place in the opposite direction to that of the process of production. Value proceeds from the ends to the consumers' good to the various first-order producers' goods, to the second-order producers' goods, etc.

21. The original source of value is the ranking of ends by human actors, who then impute value to consumers' goods, and so on to the orders of producers' goods, in accordance with their ability to contribute toward serving the various ends.

22. Value is subject to a continually shifting matrix of 2 party valuations, and is, therefore, subjective.

23. General Notes:
a. Properly understood, an objective theory of valuation is one which recognizes two fundamental facts. The concept value presupposes a valuer, a conceptual consciousness. And goods possess specific and identifiable attributes. In short, objective values are relational. They result from an individual actor's attempt to achieve certain goals within the limits of external reality. (Sechrest, PEL, pg 28)
b. Austrians should abandon all talk of subjectivism and, instead, describe their approach to valuation as being relational and objective.  (Sechrest)

Sources:
Rothbard, MESPM, pgs17-21, http://mises.org/Books/mespm.PDF
http://mises.org/journals/qjae/pdf/qjae14_2_4.pdf
http://mises.org/journals/qjae/pdf/qjae7_4_3.pdf
http://mises.org/journals/scholar/stringham4.pdf


The Law of Marginal Utility


1. Axiom of Action: Humans Act.

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. Things are necessarily valued as means in accordance with their ability to attain ends valued as more or less urgent.

4. Each physical unit of a means (direct or indirect) that enters into human action is valued separately.

5. Value or utility can not be measured, and therefore can not be added, subtracted, or multiplied. This holds for specific units of the same good.

6. Specific units of a good are interchangeable from the point of view of an actor.

7. By choosing a means, an actor demonstrates that he values it higher than the means that were not chosen.

8. If additional means of the same good are chosen later, their choice demonstrates a decreasing value on the actors preference scale.

9. Thus, for all human actions, as the quantity of the supply of a good increases, the utility (value) of each additional chosen unit decreases.

10. Corollary: As an actor gives up units of a good, he gives up the least valued ends to which they could be put.

11. The unit an actor must consider giving up is the marginal unit. Its utility is the marginal utility.

12. Therefore the Law of Marginal Utility can be deduced: The greater the supply of a good, the lower the marginal utility; the smaller the supply, the higher the marginal utility.

13. We may conceive a praxeological law establishing a necessary relationship between supply and value in the following way.
a. We assume person A strives for something X. The striving for X is identical to the not having of a wanted X. This is the "short supply."
b. The striving for X, is identical to the valuing of X.
c. Thus, when A strives for X, this is identical to both the not having of a wanted X (the low supply), and a valuing of X (the increase in value).
d. And thus, a decreased supply and a increased value, are necessarily related. Because in striving for X, actor A does that which is to value it, and does that which is to increase his supply of it.
e. http://mises.org/community/forums/t/30217.aspx?PageIndex=2

Source: Rothbard, MESPM, pgs21-33, http://mises.org/Books/mespm.PDF

The Law of Returns (Diminishing Returns)


This law is deduced directly from the law of diminishing utility, only applying that utility to producers' goods, using more than one complementary good.

The Law of Returns (or Diminishing Returns) (law of decreasing marginal productivity): Given a fixed amount of some input, when ever more amounts of the variable input are added, eventually, the marginal product (the last unit's contribution to output) declines. For the combination of economic goods of the higher orders (factors of production) there exists an optimum. If one deviates from this optimum (ratio) by increasing the input of only one of the factors, the physical output either does not increase or at least not in the ratio of the increased input.


1. Axiom of Action: Humans Act.

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. the value of each unit of any good is equal to its marginal utility at any point in time

4. this value is determined by the relation between the actor's scale of wants and the stock of goods available

5. Tautology. Consumers' goods: directly serve human wants

6. Tautology. Producers' goods: aid in the process of production eventually to produce consumers' goods

7. the utility of a consumers' good is the end directly served

8. The utility of a producers' good is its contribution in producing consumers' goods

9. the very fact of the necessity of producing consumers' goods implies a scarcity of factors of production

10. at each stage of production, the product must be produced by more than one scarce higher-order factor of production

11. These factors co-operate in the production process and are termed complementary factors

12. Factors of production are available as units of a homogeneous supply

13. he will evaluate each unit of a factor as equal to the satisfactions provided by its marginal unit; in this case, the utility of its marginal product.

14. The marginal product is the product forgone by a loss of the marginal unit, and its value is determined either by its marginal product in the next stage of production, or, if it is a consumers' good, by the utility of the end it satisfies.

15. Since man wishes to satisfy as many of his ends as possible, and in the shortest possible time (see above), it follows that he will strive for the maximum product from given units of factors at each stage of production

16. the actor can know when they are in greater or lesser supply

17. Assume that a product P (which can be a producers' good or a consumers' good) is produced by three complementary factors, X, Y, and Z. These are all higher-order producers' goods. Since supplies of goods are quantitatively definable, and since in nature quantitative causes lead to quantitatively observable effects, we are always in a position to say that: a quantities of X, combined with b quantities of Y, and c quantities of Z, lead to p quantities of the product P.

18. Now let us assume that we hold the quantitative amounts b and c unchanged. The amounts a and therefore p are free to vary. The value of a yielding the maximum p/a, i.e., the maximum average return of product to the factor, is called the optimum amount of X.

19. The law of returns states that with the quantity of complementary factors held constant, there always exists some optimum amount of the varying factor.

20. The relationship that always holds mathematically between the average and the marginal product of a factor is that as the average product increases (increasing returns), the marginal product is greater than the average product. Conversely, as the average product declines (diminishing returns), the marginal product is less than the average product.

21. a change in the value of the product causes a greater change in the value of the specific factors than in that of the relatively nonspecific factors

Source: Rothbard, MESPM, pgs33-40, http://mises.org/Books/mespm.PDF


The Ricardian Law of Association:


Concepts:

The subjective valuation explanation fails to address how it is that division of labor, in and of itself, increases the tangible output- material wealth-of the participants, even when individual productivity remains constant. The answer, unfortunately, is not obvious: In their quest for satisfaction, people base their decisions on the comparison of alternative opportunity costs at the margin. And naturally, they choose the least costly option.  (Ayau, pg 30)


In our example, the premise is that both individual productivity and time invested remain constant throughout the example. Therefore, it must be the combined effort that increased the wealth of the group (productivity). 


In a nutshell: division of labor, in and of itself, increases the productivity of the group by reducing everyone's opportunity cost in objective, real terms. 


The ever present incentives of higher rewards tend to steer the community toward maximizing each person" particular knowledge, experience, and ability to manage and economize. This continuous process of reallocation is coordinated by the principle of comparative costs. 


As specialization increases, the individual productivity of each participant in his own field in turn increases the differences in abilities, lowering the opportunity costs for each. As opportunity costs decrease, everyone can offer more in exchange, increasing the benefits and wealth for all. 


Definitions:

Opportunity cost: the value attributable to the best alternative foregone. In other words, it is the opportunities an actor has given up for something else.

Productivity: The rate at which goods or services are produced especially output per unit of labor.

Absolute advantage: A country, individual, or firm has an absolute advantage in producing a good if production of the good absorbs fewer resources (or less time, in the case of an individual) than are required in other countries or by other individuals or firms.

Comparative advantage: A comparative advantage in producing or selling a good is possessed by an individual or country if they experience the lowest opportunity cost in producing the good.


1. Assumption: Men are unequal with regards to their ability to perform various kinds of labor (Mises, HA)

2. Assumption: There exists unequal distribution of the nature-given, nonhuman opportunities of production on the surface of the earth.

3. Assumption: There are undertakings whose accomplishment exceeds the forces of a single man and requires the joint effort of several.

4. Axiom of Action: Humans Act.

5. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

6. Stipulation: Value is the importance acting man attaches to ultimate ends. Value is preferring a to b.

7. If man acts, he necessarily values, or prefers, the end he acts toward, over his previous state, ex ante.

8. Trading, or exchange, is an action.

9. Person A produces X with a comparative advantage, and Person B produces Y with a comparative advantage.

10. Person A trades X to Person B for Y, voluntarily.

11. Therefore, value for Person A is: Y > X.

12. Therefore, opportunity cost for A is Y < X.

13. Therefore, value for Person B is: X > Y.

14. Therefore, opportunity cost for B is X < Y.

15. Anytime voluntary trade occurs between 2 agents with comparative advantage, the outcome is mutually beneficial, ex ante.

16. The Law of Comparative Advantage: Mutually beneficial exchange is possible whenever relative production costs (comparative advantages) differ prior to trade.

17. For the production of good X and good Y, a lowering of their opportunity cost is equivalent to an increase in productivity.

18. Person A and Person B decide to make a division of labor into their lowest opportunity cost production lines (X and Y, respectively).

19. Therefore, the division of labor leads to an increase in productivity.

20. The Ricardian Law of Association: The division of labor between two unequally endowed areas (individuals, cities, states, nations, firms) increases the productivity of labor for both areas. The better endowed area should focus on its strength, while the lesser endowed area will focus on the other area.

21. Example (Let's Stay Together, Callahan):
a. Person A earns $10000 / hr at job X, and $40 / hour at job Y
b. Person B earns $1 / hr at job X, and $20 / hour at job Y
c. Person A and Person B work 20 hours per week
d. Person A has a comparative advantage of 10000/1 at job X, and a comparative advantage of 2/1 at job Y
e. Person A's opportunity cost of X is $40 and of Y is $10000
f. Person B's opportunity cost of X is $20 and of Y is $1
g. Person A earns $100,400 in isolation (10 hrs X $10000, and 10 hrs X $40)
h. Person B earns $210 in isolation (10 hrs X $1, and 10 hrs X $20)
i. Total production in isolation is $100,610
j. Person A earns $200,000 in a division of labor (20 hrs X $10000)
k. Person B earns $400 in a division of labor (20 hrs X $20)
l. Total production in a division of labor is $200,400
m. Person A hires, or trades, with Person B
n. Person A earns $199,600 ($200000-$400) in a division of labor
o. Person B earns $400 in a division of labor
p. Both Person A and Person B earn more money after the division of labor and trade and are therefore better off.

Sources:
Ayau, http://library.mises.org/books/Manuel%20F%20Ayau/Not%20a%20Zero-Sum%20Game%20The%20Paradox%20of%20Exchange.pdf
Rothbard, MESPM, pgs95-102, http://mises.org/Books/mespm.PDF
Callahan, http://mises.org/daily/3441/
Mera, http://mises.org/journals/qjae/pdf/qjae16_1_5.pdf

Supply and Demand Laws


Definitions:

Supply: the relationship between various hypothetical market prices for a good or service, and the total number of units that producers want to sell at each hypothetical price. As with demand, we can construct a supply schedule and a supply curve to illustrate this relationship for an individual or group, at a particular snapshot in time.  (Murphy, LFTYE)

Demand: the relationship between various hypothetical market prices for a good or service, and the total number of units that consumers want to purchase at each hypothetical price. To remind us that demand is not a specific number, but rather a relationship among many numbers, economists often use the term demand schedule.  (Murphy, LFTYE)

Concepts:

Again, the reason is the law of utility; as the seller disposes of his stock, its marginal utility to him tends to rise, while the marginal utility of the money acquired tends to fall. Of course, if the marginal utility of the stock to the supplier is nil, and if the marginal utility of money to him falls only slowly as he acquires it, the law may not change his quantity supplied during the range of action on the market, so that the supply curve may be vertical throughout almost all of its range.  (Rothbard, MES)


Each supplier ranks each unit to be sold and the amount of money to be obtained in exchange on his value scale. 


This result is always true, and stems from the law of utility; as he adds pounds of butter to his ownership, the marginal utility of each pound declines. On the other hand, as he dispenses with grains of gold, the marginal utility to him of each remaining grain increases. Both these forces impel the maximum buying price of an additional unit to decline with an increase in the quantity purchased.


1. Axiom of Action: Humans Act.

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. Things are necessarily valued as means in accordance with their ability to attain ends valued as more or less urgent.

4. Each physical unit of a means (direct or indirect) that enters into human action is valued separately.

5. Value or utility can not be measured, and therefore can not be added, subtracted, or multiplied. This holds for specific units of the same good.

6. Specific units of a good are interchangeable from the point of view of an actor.

7. By choosing a means, an actor demonstrates that he values it higher than the means that were not chosen.

8. If additional means of the same good are chosen later, their choice demonstrates a decreasing value on the actors preference scale.

9. Thus, for all human actions, as the quantity of the supply of a good increases, the utility (value) of each additional chosen unit decreases.

10. Corollary: As the quantity of the supply of a good decreases, the utility (value) of each additional remaining unit increases

11. Let the producer have a supply of goods for sale, and let these goods be disposed of one at a time.

12. Let the producers utility (value) of his goods be expressed in monetary terms.

13. Therefore, as the producer's supply of goods increases, his monetary value for the first good to be sold will decline.

14. Therefore, as the producer's supply of goods decreases, his monetary value for the remaining goods will increase.

15. Law of Supply: as the market price of a good or service rises, producers offer the same or greater number of units

16. Let the consumer desire a supply of goods.

17. Let the consumer's utility (value) of these desired goods be expressed in monetary terms.

18. Therefore, as a consumer's supply of goods bought increases, his utility (value) for the next unity to buy will decrease.

19. Law of Demand: holding other influences constant, a lower price will lead a consumer to buy either the same or a greater amount of the good or service.

20. If the supply and demand schedules intersect, there exists a market clearing price.

21. The Law of Supply and Demand: In a free market, the equilibrium price of a good is that at which the quantity supplied equals the quantity demanded.

Source: Murphy, LFTYE, http://mises.org/books/lessons_for_the_young_economist_murphy.pdf

The Austrian Theory of Money


1. Axiom of Action: Humans Act.

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. Origin of Money: Menger theorized that money is an emergent phenomenon:
a. Individuals experimented with barter of one discrete good for another
b. Individuals discovered that some goods have a higher demand than others, and called these goods commodities.
c. Individuals experimented with commodities in indirect exchange until one commodity emerged as universally acceptable for all exchange.
d. Individuals called this universally acceptable commodity money.

4. Mises' Regression Theorem:
a. Individuals trade away real goods for money because they have a higher marginal utility for the real good than they do for the commodity.
b. Individuals value money because of its expected purchasing power.
c. The expected purchasing power of money explains its current purchasing power.
d. Today's purchasing power of money is derived from the memory of yesterday's purchasing power of money, regressively, to when that money was valuable for its use in barter.

5. Properties of money:
a. Unit of account
b. Store of value
c. Medium of exchange
d. Common denominator of all other prices
e. The money commodity is in a state of barter against all other goods and services
f. The price of a good is the same as its purchasing power in terms of other goods and services
g. The price or purchasing power of money is an array of what the money unit can buy

6. The supply of money is the total stock of the commodity available at a given time.

7. Money is not acquired to be consumed. Money is acquired and held for use in future exchange. Monetary demand, therefore, is a demand-to-hold. If money still has a consumption use, then it can have a dual source of demand: consumption and demand-to-hold.

8. An individual demand to hold cash balances is an ordinal marginal utility on an individual value scale.

9. Individual cash balances are determined on the margin when compared against consumption goods available.

10. The purchasing power of money is determined at the intersection of the money stock and demand for cash balance schedule.

11. The total supply of money equals the sum of individual cash balances.

12. Money, therefore, is subject to the law of supply and demand.

13. Money reaction to supply changes is not neutral because each individual may react differently to changes in money supply.

14. Inflation of new money follows from the point of injection, where early spenders get full purchasing power and later spenders get decreased purchasing power.


Austrian Interest Theory


Hulsmann Theory of Interest


What are the questions asked by interest theory? What set of problems is interest theory trying to solve?

This phenomenon raises the fundamental question whether the entire spread between selling proceeds and cost expenditure can be arbitraged away through entrepreneurial competition, or whether at least a part of this spread cannot be so arbitraged away (see Kirzner 1993, p. 167f.). In other words, does the entire spread consist of entrepreneurial profit, which can be eliminated as a consequence of the competition of other entrepreneurs, or does it contain a component that cannot be so eliminated. Does it also contain an interest component? And if it does contain an interest component, what is its cause? (Hulsmann, Theory of Interest)


Eugen von Bohm-Bawerk's great achievement was to formulate the problem of interest theory as a value problem. He sought to explain interest as resulting from human choice and exchange, rather than as being caused by some factor outside of human action. The crucial point was that, if interest sprang from some feature of human choice, then it sprang from a fundamental value inequality, because choice involved the preference in action of a more valuable alternative over a less valuable one. Accordingly, observable interest rates manifested an inequality between the value of products and the total value of the corresponding means of production, including waiting or the use of capital.  (Hulsmann, Theory of Interest)


Whereas in Menger's eyes, interest was the value of a component part of the factors of production, Bohm-Bawerk saw it as the fruit of a value differential. (Theory of Interest)


If future goods were not bought and sold at a discount as against present goods, the buyer of land would have to pay a price which equals the sum of all future net revenues and which would leave nothing for a current reiterated income. (Mises, Human Action)


1. What are the necessary and sufficient conditions for the formation of an interest rate (the essentialist question)?

2. Once an interest rate is formed, what other conditions affect the market rate of interest (the functionalist question)?

Definitions:

Time Preference (Mises, Human Action, 480-481): Satisfaction of a want in the nearer future is, other things being equal, preferred to that in the farther distant future.

Originary Interest (Mises, Human Action, 521, 523):

i. the discount of future goods against present goods.

ii. Originary interest is the ratio of the value assigned to want satisfaction in the immediate future and the value assigned to want satisfaction in remoter periods of the future. It manifests itself in the market economy in the discount of future goods as against present goods. It is a ratio of commodity prices, not a price in itself. There prevails a tendency toward the equalization of this ratio for all commodities. (Mises)

Time Preference (Cwik): All other things being equal at the time of decision, the actor makes a comparison of the value of a satisfaction of a want against the opportunity cost of waiting. It is the ratio of the benefit derived from acting in the present relative to the opportunity cost of waiting.

Originary Interest (Hulsmann):

i. "the fundamental spread between the value of an end and the value of the means that serve to attain this end."

ii. originary interest is only a universal feature of human labor because the means has to be used to attain the end, and using is labor

iii. When an action's end and means are coincident at the same time, in other words, when an end is for its own sake, there is no time gap between means and end, and originary interest is not present (dancing, playing, listening to music, etc)

iv. It is possible for a means and end to be distinguishable, yet not encompass a passing of time (One person sings (means), and another hears (ends)); therefore, the passing of time is not necessary for originary interest

v. It follows that originary interest, to the extent that it is manifest in the passing of time at all, concerns value spreads between future ends and present means and value spreads between present ends and future means.

Money Interest (Hulsmann): Money interest appears when ends and means are physically homogeneous to the point that one can calculate a quantitative difference between the two, that is, between monetary proceeds from selling a product and monetary expenditure for the corresponding factors of production.

1. Axiom: Humans act.

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Uncertainty
h. Time
i. Causality

3. Stipulation: Time preference occurs when an actor compares the value of the satisfaction of a want against the opportunity cost of waiting. Positive time preference occurs when the actor values the satisfaction of the want higher than the opportunity cost of waiting.

4. Every action demonstrates a positive time preference.

5. Stipulation: Originary interest is the value spread between an end and its means. Originary interest is positive when the end is valued greater than the means and when the means is an end for its own sake.

6. Every action uses a means to attain an end.

7. An action can either have a means which is also its end and be called an action for its own sake, or have an end which is materially different from its means and be called labor.

8. If an action has an end which is also its means, then that action does not have originary interest.

9. If an action is labor, then that action demonstrates that its end is valued higher than its means.

10. Every action that is labor demonstrates that its originary interest is positive.

11. If an action contains positive originary interest, then originary interest can't be arbitraged away.

12. The conditions necessary for the emergence of monetary interest are the following:
a. There is a money economy
b. There is division of labor
c. There exists a relative difference between various actor's originary interest values

13. If 12a-c exist, an actor values positive money interest, and the actor guesses correctly in his entrepreneurial calculation, then an actor will receive positive money interest

14. If 12a-c exist, an actor values positive money interest, and the actor guesses wrong in his entrepreneurial calculation, then an actor will receive negative money interest

15. If 12a-c exist, and an actor values negative money interest (philanthropy), then an actor will receive negative money interest

16. If 12a-c exist, then a supply and demand curve will form.

17. If a supply-demand curve is present, then a monetary interest rate will emerge.

Source: http://mises.org/journals/qjae/pdf/qjae5_4_7.pdf


Gunning Theory of Interest


Definitions:

Originary Rate of Interest:

i. Under the conditions of a market economy the rate of originary interest is, provided the assumptions involved in the imaginary construction of the evenly rotating economy are present, equal to the ratio of a definite amount of money available today and the amount available at a later date which is considered as its equivalent. (Mises)

ii. The fact that we do not provide more amply for the future is the outcome of a weighing of satisfaction in nearer periods of the future against satisfaction in remoter periods of the future. The ratio which is the outcome of this valuation is originary interest. (Mises)

iii. Originary interest is the ratio of the value assigned to want satisfaction in the immediate future and the value assigned to want-satisfaction in remoter periods of the future. It manifests itself in the market economy in the discount of future goods as against present goods. It is a ratio of commodity prices, not a price in itself. There prevails a tendency toward the equalization of this ratio for all commodities. In the imaginary construction of the evenly rotating economy the rate of originary interest is the same for all commodities. (Mises)

iv. Originary interest is a category of human action. (Mises)

v. The rate of interest is the inter-temporal price of money. (PTPT, pg 45)

Praxeological Time Preference: a systematic preference for (1) sometime rather than never and for (2) some later rather than all sooner. (Gunning); the notion that individuals evaluate alternatives in terms of the time at which they expect the effects to be felt

Social Time Preference: refers to a relationship between the valuation of current goods, taken in the abstract, and the valuation of future goods, also taken in the abstract, for each participant in the market economy. The concept of social time preference is akin to that of a natural rate of interest. Equivalent to originary interest in Mises usage.

Market Rate of Interest: The gross rate of interest which includes three components:
i. Time Preference
ii. Entrepreneurial Premium
iii. Price Premium

1. Axiom: Humans act

2. Every action will include the following categories:
a. Value
b. Means
c. Ends
d. Choice
e. Preference
f. Cost
g. Risk: Profit or Loss
h. Time
i. Causality

3. All human action necessarily occurs in, during or through time

4. All human action in time necessarily demonstrates a Praxeological Time Preference:
a. A systematic preference for sometime rather than never, and
b. A systematic preference for some later than all sooner

5. Assumption: Either of these two conditions exist:
a. There are differences among individuals in their time preferences
b. There is specialization in the satisfaction of wants through time

6. The Entrepreneurial Assumption: Individuals acting entrepreneurially do not make systematic errors in their efforts to use their means to achieve their ends. Entrepreneurship avoids systematic errors; it tends to appraise, make decisions, and bear uncertainty in ways that are more likely than not to satisfy consumer saver wants, in light of production possibilities.

7. The existence of 5a or 5b necessarily produces a supply and demand curve.

8. Entrepreneurs acting in the time preference market necessarily produce a positive market rate of interest.

Source: http://mises.org/journals/qjae/pdf/qjae8_3_5.pdf

The Errors of Neo-Classical Economics:


The Market Failure Myth:


1. http://mises.org/daily/1035
2. http://mises.org/daily/4906
3. http://wiki.mises.org/wiki/Market_failure
4. http://mises.org/daily/1806
5. http://archive.mises.org/10051/
6. http://www.fee.org/the_freeman/detail/book-review-the-theory-of-market-failure-edited-by-tyler-cowen/#axzz2NezPU2kV
7. http://www.lewrockwell.com/rozeff/rozeff79.html

The Monopoly Myth:


1. http://mises.org/daily/5266/
2. http://mises.org/daily/621/
3. http://mises.org/daily/1800
4. http://www.youtube.com/watch?v=PSIUkKnGYP0
5. http://www.youtube.com/watch?v=-J9BbWxOo3Q

The Externality Myth:


1. http://mises.org/freemarket_detail.aspx?control=367
2. http://mises.org/daily/1360/
3. http://mises.org/daily/5085/
4. http://mises.org/Journals/jls/7_1/7_1_1.pdf
5. http://mises.org/Books/efficiencyexternalities.pdf
6. http://mises.org/community/blogs/thecritiques/archive/2009/02/03/a-critique-of-externalities.aspx
7. http://mises.org/pdf/asc/2003/asc9simpson.pdf
8. http://mises.org/journals/scholar/murphy6.pdf

The Public Good Myth:


1. http://wiki.mises.org/wiki/Public_goods
2. https://mises.org/journals/jls/9_1/9_1_2.pdf
3. http://mises.org/journals/rae/pdf/rae10_1_1.pdf
4. http://mises.org/journals/scholar/Sechrest7.pdf
5. http://mises.org/journals/jls/20_4/20_4_2.pdf
6. https://mises.org/journals/jls/4_1/4_1_6.pdf
7. http://wiki.mises.org/wiki/Private_alternatives_to_public_goods
8. http://mises.org/journals/jls/3_3/3_3_4.pdf

Problems with The Coase Theorem:


1. http://mises.org/journals/jls/16_4/16_4_5.pdf
2. http://mises.org/journals/jls/1_2/1_2_4.pdf
3. http://mises.org/media/1473/Ronald-Coase-A-Libertarian-Critique
4. https://mises.org/journals/scholar/Jankovic2.pdf
5. http://library.mises.org/books/Walter%20Block/Coase%20and%20Kelo%20Omnious%20Parallels%20and%20a%20Reply%20to%20Lott%20on%20Rothbad%20on%20Coase.pdf
6. http://mises.org/journals/qjae/pdf/qjae3_1_8.pdf
7. http://mises.org/journals/scholar/Cordato3.pdf
8. http://mises.org/journals/qjae/pdf/qjae14_1_4.pdf
9. http://mises.org/journals/qjae/pdf/qjae13_4_3.pdf
10. http://mises.org/journals/rae/pdf/rae8_2_4.pdf
11. http://archive.mises.org/10572/the-libertarian-approach-to-negligence-tort-and-strict-liability-wergeld-and-partial-wergeld/



Critiques of Austrian Economics and Replies to Those Critiques:


1. http://mises.org/Community/forums/p/3841/52624.aspx
2. http://econfaculty.gmu.edu/bcaplan/whyaust.htm
3. http://www.huppi.com/kangaroo/L-ausmain.htm
4. http://www.slate.com/articles/business/the_dismal_science/1998/12/the_hangover_theory.html
5. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1024311
6. http://www.mises.org/journals/qjae/pdf/qjae2_4_1.pdf
7. http://www.mises.org/journals/qjae/pdf/qjae2_4_2.pdf
8. http://www.mises.org/journals/qjae/pdf/qjae2_4_9.pdf
9. http://www.mises.org/journals/qjae/pdf/qjae4_2_3.pdf
10. http://www.mises.org/journals/qjae/pdf/qjae4_2_6.pdf
11. http://mises.org/journals/qjae/pdf/qjae6_3_4.pdf
12. http://mises.org/journals/qjae/pdf/qjae6_3_5.pdf
13. http://mises.org/journals/jls/19_1/19_1_5.pdf
14. http://mises.org/daily/103
15. http://mises.org/daily/105
16. http://mises.org/daily/630
17. http://mises.org/misesreview_detail.aspx?control=53
18. http://www.auburn.edu/~garriro/d1bohm.htm
19. http://www.auburn.edu/~garriro/garrison.pdf
20. http://mises.org/daily/1148

Additional Reading:
http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html

Contributors to this page: toddj .
Page last modified on Sunday 06 of April, 2014 15:02:15 CDT by toddj.

Online Users

1 online user

Last Visitors

  1. You
    04:23