We have just finished converting all of the 10 volumes of the Mises Institute’s run of The Review of Austrian Economics to ebook.

While it is important that attention be paid to the slow recovery and to “What is holding the economy back,” the two most recent boom-bust episodes should have more clearly focused attention of economists on the need for significant monetary reform. The major goal of reform should the replacement of a central bank controlled fiat monetary regime with a market chosen money, not rules rather than discretion (Garrison 2009 and Cochran 2011).

Fortunately in a recent Congressional hearing (A diverse and wide open hearing on Fed reform) led by Ron Paul is bringing attention to this issue with excellent testimony by Austrians  Peter G. Klein, The Ultimate Disorganizing Organization,” and Jeffrey M. Herbener, “Leave Money Production to the Market.”

But don’t miss Herman Cain in today’s Wall Street Journal, “We need a dollar as good as gold.” A highlight: “A gold standard is to moochers and looters in government what sunlight and garlic are to vampires.”

There was a lively and enlightening discussion this past Monday at NYU’s Colloquium on Market Institutions & Economic Processes (formerly named the Austrian Economics Colloquium), when Peter Klein presented an excerpt from his new book , Organizing Entrepreneurial Judgment, co-authored with Nicolai Foss and published by prestigious Cambridge University Press.   Israel Kirzner, who is the leading theorist of entrepreneurship in Austrian economics as well as in the broader economics profession was present.  Also present were NYU professors David Harper who wrote a notable book on the subject and Mario Rizzo whose co-authored book and subsequent articles on the cognate topics of time and ignorance are highly influential in Austrian circles   The engagement among these prominent Austrian theorists was highly anticipated among colloquium participants and none of us were disappointed.

In his presentation, Klein challenged Israel Kirzner’s influential alertness paradigm of entrepreneurship.  Kirzner argues that alertness to and discovery of  profit opportunities–conceived as objectively and simultaneously existing differences in the prices of resources and products–is the crux of entrepreneurship.  Thus for Kirzner the entrepreneur is essentially an arbitrageur who buys a given good where prices are low and sells the same good where prices are high.  He faces no uncertainty, risks no capital, and always profits from his superior alertness to the existing profit opportunity.  Foss and Klein propose instead an approach to entrepreneurship based on Frank Knight’s and Ludwig von Mises’s focus on the “judgment” of uncertain future market conditions.   Judgment is exercised in the act of investing in  and allocating resources to specific time-consuming production processes that are organized and controlled by the entrepreneur until the completion and sale of the product.  For Foss and Klein the entrepreneur is therefore a capitalist and owner.  The capitalist firm is the organization created by the entrepreneur to facilitate ownership and decision-making control  over the productive resource combinations that embody his judgment of future product prices and markets.

The difference between the Kirznerian and the Knight-Mises (and Foss-Klein) conceptions of the entrepreneur was neatly summarized  in an illuminating exchange between Klein and a pro-Kirzner colloquium participant.  The participant gave the example of an owner of an orange grove, in the pre-orange juice era,  who discovers the “fact” that orange juice is valued more highly than fresh oranges by consumers.  The owner acts entrepreneurially by alertly discovering and costlessly exploiting the profit opportunity afforded by the price differential between lower valued fresh oranges and higher valued orange juice.  In doing so he also improves coordination between production plans and consumption plans in the economy and thereby moves the economy closer to equilibrium.

Klein responded by denying that the orange grower had discovered any “fact” at all.  What the grower did was to  judge that under future market conditions the price of orange juice would exceed the the production cost of the inputs, including fresh oranges, and, based on this speculative judgment, to invest his capital in purchasing these resources and organizing them accordng to a specific production plan.   Because his judgment and his  investment and organizational decisions turned out to be correct, he earned profits.  Had they been incorrect he would have suffered losses.  So, Klein maintained, the profit opportunity was not an ex ante  fact waiting to be discovered;  rather the profit opportunity was only realized , ex post,  as the successful outcome of an action based on a speculative judgment.  Whether or not the plans of economic agents are better coordinated and the economy is closer to equilibrium than before is “irrelevant,” Klein explained; the important point is that ex post profits indicate that resources have been reallocated from less valuable to more valuable uses from  the point of view of consumers.

Klein also disputed Kirzner’s contention that the entrepreneur qua arbitrageur was merely a “metaphor.”  In the excerpt presented, Foss and Klein perceptively wrote:

At least in usual parlance, a metaphor is a figure of speech in which a term and concept is used as a reference to something that it does not literally denote so that a potentially illuminating similarity is revealed.  Isn’t Kirzner talking about real-world entrepreneurs?  . . . Arguing that a construct is a metaphor drives a wedge between the reality that the construct is supposed to throw light over and the construct itself.  In particular , use of metaphorical reasoning is different from using models, constructs, or ideal types meant  to capture essential qualities of real phenomena (which a metaphor need not do).

This statement was challenged by another colloquium participant, who asserted that constructs and models were metaphors in the same way that a map was a metaphor for the actual  highways, roads, and streets whose configuration it depicted.  After all, the map “abstracted from” some essential characteristics of the real phenomena that it represented.  Klein’s critic was misled into equating metaphors with models and constructs just because both were abstract.  But, of course, as Mises emphasized repeatedly, all thought is necessarily “abstract.”  When we say that a disruptive co-worker is a “hurricane,” a brave warrior is a “lion,” or an under-performing athlete is a “dog,”  these  are metaphors that refer to real  phenomena that we perceive and that are part of our living experience.  They are abstractions in that they do not call to mind  the multifarious characteristics of these  really existing things things in all their particularity; but neither do they deny them.  In these examples they  refer to one outstanding attribute of an animal or natural occurrence by which we wish to characterize a person’s behavior.  Metaphors may also employ mythical or literary figures such as unicorns, ogres, classical demigods, witches and so on, but their purpose is always to highlight an outstanding characteristic of the person or thing to which it is compared.

The purpose of an economic construct or model is completely different.   Let us take the construct of the evenly rotating economy.  It is an entirely fictitious construction in which change is completely absent and which is populated  by automatons  who repeat  the same round of activities over and over again and never experience surprise or regret, profit or loss  from the outcome of their endeavors.  This construct is completely imaginary and does not refer to any realizable state of affairs in our world.  In fact it  deliberately specifies conditions that falsify reality.  It is not a metaphor, it was not formulated to make our rhetoric more vivid, intelligible or compelling;  it is a tool of thought used by economists  to  analyze the cause and essence of profit and loss.  Other economic models, like the ”plain  state of rest,” are  also abstract, but do not falsify reality.  For example, the plain state of rest describes  the outcome of the  process by which real people acting under conditions of uncertainty interact to  bring about actual market prices and exploit the mutual benefits of exchange.   It is abstract in the sense that it does not refer to the actors’s hair color, weight, age,  religion, etc., but it does not make any false or contradictory analytical assumptions.  And it also is not a metaphor, comparing one thing to a different thing, but the description of the essence of a real process of human interaction.

Klein’s provocative presentation evoked many other thoughtful comments, challenges,  and objections during the colloquium, but in my judgment Peter expounded and defended his position superbly.

In a piece for Bloomberg, reporter Sanat Vallikappen begins, “Go away, American millionaires.”   Valliikappen then goes on to explain that wealth management firms the world over are declining to open offshore accounts for Americans.

“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

It hadn’t been easy for Americans doing financial business overseas, but since the 2010 passage of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts, opening a foreign bank account has become mission impossible.

Valliikappen writes,

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which could affect their ability to generate returns.

The Institute of International Bankers and the European Banking Federation said in an April 30 letter to the IRS, that the 400 pages of rules and regulations issued by the American tax authority create Unnecessary burdens and costs.”

Massachusetts Democrat Richard Neal says the government needs to crack down on offshore tax dodgers.  Mr. Neal wants tax money and doesn’t care much about privacy and all that.

“People should know, and the IRS should know, what money is being held offshore and for what purpose,” Neal said. “I don’t think there’s anything unreasonable about that.”

One young gentleman that believed Rep. Neal and the other thieves on Capitol Hill to be a bit too greedy and unreasonable is Eduardo Saverin, the billionaire co- founder of Facebook Inc.  Before Facebook does its public offering, and the price of Facebook stock is quoted daily, making Saverin’s wealth undistributable, he decided to renounce his American citizenship and head for Singapore.

Bloomberg reports,

Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in that country. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dorm and stand to reap billions of dollars after the world’s largest social network holds its IPO.

Singapore doesn’t have a capital gains tax. It does tax income earned in that nation, as well as “certain foreign- sourced income,” according to a government website on tax policies there.

Saverin has to pay the U.S. government an exit tax but doing it before the IPO was wise.  Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. “Once it’s public you can’t fool around with the value.”

There are a few Mises Institute supporters who have paid the American exit tax and now live in Singapore.  None I’ve spoken with regret it.

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, an attorney at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

While Mr. Neal chases away taxpayers, the only ones left will be tax eaters.

Victoria McGrane reports for the Wall Street Journal that the FDIC says it has it all figured out as to how it will unwind those huge, complicated, multinational financial institutions should the need arise.  McGrane writes,

The FDIC, known more for its bank deposit insurance, is working to persuade major investors, analysts, economists and bankers that it is building an apparatus that could cleanly guide a massive financial firm to failure without a taxpayer bailout.

“Critics argue that the FDIC doesn’t have the expertise to wind down a Lehman-like financial firm,” McGrane writes, “or they say that the international complexities would render the agency’s powers meaningless.”

Later in the day, after FDIC Chairman Martin Gruenberg gave a speech about all of this, J.P. Morgan’s wunderkind banker Jaime Dimon called an emergency press conference to announce that his bank’s CIO department booted $2 billion.  These weren’t a bunch of credit card loans gone bad.  The WSJ explains,

A massive trading bet boomeranged on J.P. Morgan Chase & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the “King of Wall Street.”

The losses stemmed from wagers gone wrong in the bank’s Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed “the London whale” had roiled a sector of the debt markets.

As the gang at Zero Hedge says, JPM’s CIO department is the world’s largest prop trading desk.   JPM wasn’t hedging but speculating,

because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.

Mr. Gruenberg, are you sure your troops are up to this?

Bookies in Britain have suspended betting on the “do” side of the proposition as to whether Greece leaves the Euro Zone.  Ladbrokes gave up cutting the odds on a Greek departure and has stopped taking action.  “It is safer for us to suspend betting than to keep cutting the odds,” a spokesman for Ladbrokes told CNBC. “We have been slashing the odds repeatedly over the last few days.”

“If we get some positive news we will open the book again,” he said.

Alexis Tsipras, the head Greece’s Radical Left Coalition (now that’s left), has been providing the sound bites that have punters hitting the windows hard, betting on a Greek euro exit stage left.  Mr. Tsipras says the Greek bailout agreement is “null and void.” He refers to the austerity program as “barbaric.”    “I fully disagree with what is at heart of the memorandum [austerity],” Tsipras said, adding that “further austerity will make us a third world country in the EU.”

Mr. Tsipras argues that the strong anti-austerity vote in Sunday’s election, which produced a hung parliament, stripped Greece’s bailout commitments of “political legitimacy.”

Michelle Caruso-Cabrera, CNBC’s goddess of all things Greek, reports, and Jennifer Parker writes,

Tsipras’s views are significant because a new poll on Thursday put him in first place to win snap elections if they are held in June. The elections may be necessary if none of the winners of Sunday’s elections are able to form a government so far.

For long-shot players, Ladbrokes is offering 33 to 1 odds that the euro ceases to exist by the end of this year.  For those wanting more time, the odds are a prohibitive 5/6 that the euro is gone by the end of 2015. Ladbrokes is offering 4 to 1 that two countries leave the euro by the end of this year.

It is unknown at this writing if Tragedy of the Euro author Philipp Baggus has money down on any of these propositions.

A Brooklyn bagel shop owner was assessed $1, 650 in fines by a New York City Health Inspector because–get ready for this–poppy and sesame seeds fall to the floor as he makes his bagels.  Alex Gormakh, the owner and a recent immigrant from Russia, opened  B & B Empire Bagel Cafe in June 2011.  Gormakh’s deli passed inspections both before and after he was cited for violations in October, and in the most recent inspection it received the highest cleanliness grade of “A.”   Nevertheless, his appeal of the fine has been denied at two separate hearings.   As a fellow Brooklyn bagel shop owner, whose establishment did pass inspection, points out, no matter how many times a day you sweep there will always be an accumulation of seeds on the floor.  To avoid future citations, Gormakh and his son have now invested almost $900,000 in larger stainless steel preparation tables in the hope of avoiding seed fall out and a water-filter vacuum to suck up any wayward seeds.

But Gormakh has learned a valuable lesson in doing business in the American mixed economy:  “If you want to work you have to pay.  In Russia, they call it corruption.  Here they call it something else.  Either way, you have to pay.”

There was one positive effect from this monstrous incident.  Judging by the heart warming vitriol of the  comments on the article, even jaded  New Yorkers were outraged.  Here is a small sample:

“somebody didn’t pay someone off ”

“Russia they call it corruption, over here, in New York City, they call it EXTORTION WITH A BADGE.”

“The city is right there for falling seeds but, somehow can’t stop cranes from hitting the floor.” [Referring to a recent deadly crane accident at a a city construction project.]

“Yea, doing business. Usually the Health Inspectors are on the take anyway.”

“Health Department?  Please… More like corruption Department! It is the duty of these inspectors to get money for the city.  If every busieness owner made their stories of violations public, it would most definitely change things a bit.”

“Another mindless bureaucrat. If he had a mind he would be considered over qualified for a city job.”

And my personal favorite:

“Again, nothing more than the tyranny of regulation.  My guess, Mr. Gormakh”s at fault for not offering a free bagel with a schmeer to the health inspector before the inspection occurred.  Had he fed the government pig first, he could have imported roaches into the shop and not have had any violations.”

If we want want laborers and employers to come together to  discover and create value-productive jobs, then the prescription is simple:  leave labor markets alone and let them churn.

Bloomberg.com columnist Caroline Baum reports some  interesting statistics drawn from the the Bureau of Labor Statistics’ job openings and labor turnovers survey, or JOLTS.  These figures illuminate the enormous flexibility and dynamism of U.S. labor markets.  Last year, 48.2 million Americans lost or left a job, while 50 million Americans found a new one.  The new hires represented 38.1 percent of total employment, which was down from 47.2 percent in 2005 at the peak of the Fed-fueled  bubble economy.   Now this figure does involve some double counting because some workers may have experienced multiple job separations and findings during the year.  Still in all this is a notable performance with the economy still languishing in the doldrums in the aftermath of a major financial crisis, the effects of which are being prolonged by government and central bank interventionism.   One can only imagine how much more creative job churning and productivity and employment growth we would have, if labor markets were completely freed from stifling government regulations and mandates as well as the massive uncertainty and distortions imposed by Fed monetary policy.

Not to worry 99 percenters, Ben Bernanke’s Fed policy of just-north-of-zero interest rates is starting to gain traction.  Sure, unemployment is still elevated, and the number of people on food stamps still enormous, but the news is out that the collateral loan obligation (CLO) market is starting to come alive.

Rest assured that more money rushing into CLOs won’t help unemployed and overendebted college graduates secure employment or make a dent in their student loans, but Grant’s Interest Rate Observer reports the sighting of a commercial mortgage-backed security sporting a loan-to-value ratio greater than 100%.  “It was the first such occurrence since credit went to the hospital in 2008,” says Grant’s.

Katy Burne and Matt Wirz make the point in the Wall Street Journal,

Left for dead after the financial crisis, the market for collateralized-loan obligations—pools of loans to “junk”-rated companies—is staging a comeback, driven by investors’ hunger for high-risk, high-return securities.

Sales of CLOs have topped $6.8 billion in the U.S. so far this year, according to S&P Capital IQ LCD. That is the busiest start to a year since 2008 and more than sales for the whole of 2009 and 2010 combined.

Axel Merk notes that it is Bernanke’s “humble” fixation with fighting deflation that creates a lot of debt–

whether that be out of thin air on the Fed’s balance sheet, or potentially across the economy as consumers, businesses and the government alike are enticed to borrow ever more money. So far, businesses are not taking the bait. But the government and some consumers are. What we consider monetary largess, as well as fiscal unsustainability, may ultimately lead to deterioration of the purchasing power of the U.S. dollar.

Businesses may well be taking the bait.  One CMBS professional told Grant’s “You’re seeing a re-leveraging of the market pretty quickly.”  It may not be 2007 again, but it’s not 2010 either.

While the Fed does all it can to make speaking of interest rates in percentage pointpassé, “Pensioners need to eat, and pension-plan managers must strive to provide them with the necessary income, the zero-percent funds rate notwithstanding,” writes Grant’s.

There is enough of an increase in the issuance of dodgy paper to lead Wall Street insider and CNBC favorite, Wilber Ross to say,  “It’s not unduly dangerous, but we’re moving in that direction.”

In a yieldless world, lemmings are enticed off the cliff looking for any sort of yield at all, with no thought to risk below.

As Mark Quinn explains,

Reaching foryield is dangerous for a number of reasons, but mostly because such straining is done at precisely the wrong time.   When people are fed up with low yields that the economy, or the profligacy rewarding Fed, provides them, they tend to do things…go out the curve at precisely the wrong time (when rates are low and headed higher) or take on more credit risk when the economy is slow and credit risk is therefore especially salient, as evidenced by the natural or Fed engineered low interest rate environment.   The current tidal wave of money into credit sensitive lending is, of course, an instance of the latter.

Some $5.07 billion of CLO paper was issued in April, reports Grant’s, the most active month since November of 2007.  It’s projected that CLO issuance may top $25 billion this year.  A far cry from 2006’s $97 billion, but more than double 2011’s $12.3 billion.

Here we go again.

At a hearing (going on NOW) of the House Financial Services Committee on the Federal Reserve, Ron Paul is dealing with Lacy Clay who in the past called Austrian Economics “unscientific” because it was deductive, a Keynesian Democratic congressman (Keith Ellison) who wants the Fed to inflate more to focus on the “employment” side of the dual mandate, a Friedmanite Republican congressman (Kevin Brady) who wants a “single mandate” of “price stability” (posing, of course, as a free market advocate), and Barney Frank, who defends the “dual mandate” as it is, and even just commended George W. Bush for appointing Ben Bernanke, and defended the Fed Chairman as having been “unfairly criticized.”

Fortunately Paul will be joined soon at the hearing by two of the soundest economic thinkers in the world: Peter Klein and Jeffrey Herbener.  (See their submitted testimonies here.)