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International Conference of Prices & Markets Coming Soon

Reflective of the growing international participation at the Toronto Austrian Scholars Conference, the event will be rebranded as the International Conference of Prices & Markets in concert with the Mises Canada published Journal of Prices & Markets.

The 3rd iteration of the conference will be held on November 8th, with an opening reception the evening before, and the event continuing throughout the weekend.

Read the 2013 conference Papers & Proceedings here.

This year’s featured speakers are Dr. Jordan Peterson, filmmaker Jimmy Morrison, and Douglas French.

The International Conference of Prices & Markets is designed to combine the opportunities of a professional meeting, with the added attraction of hearing and presenting new and innovative research, engaging in vigorous debate, and interacting with like-minded scholars who share research interests.

Morals and Markets: A Response

Former Mises Summer Fellow Jonathan Newman has published “Morals and Markets: A Response” at Libertarian Papers which is edited by Matt McCaffrey:

Abstract: In their 2013 Science article, “Morals and Markets,” Armin Falk and Nora Szech presented experimental evidence that markets erode moral values.  The present paper addresses problems in their experiment design, treatments, and operational definitions. Laboratory settings are ideal for uncovering certain causal connections, but fall short when market participation is a treatment and moral erosion is a measured outcome. Markets are difficult, if not impossible, to simulate and moral erosion is difficult, if not impossible, to define and measure for the purposes of an experiment. Falk and Szech’s experiment may also suffer from more mundane issues like priming effects, experimenter effects, and changing more than one variable per treatment group.

An Austrian Economist Reports From a Mainstream Economics Conference

6922Mises Daily Thursday by Christopher Westley:

Christopher Westley reports from this year’s National Association of Business Economists Convention. He finds that the mainstream’s intellectual blinders are firmly in place, and that the “fatal conceit” Friedrich Hayek wrote about in 1988 is alive and well in 2014.

John Tamny on Money and Credit

B121Mr. John Tamny has kindly taken notice  of my review of Money by Steve Forbes and Elizabeth Ames. (Tamny’s comments are here.) In my review, I questioned the claim of Forbes and Ames that money is a measure of value. In doing so, Tamny thinks, I disagreed with Mises. Unlike me, Mises did not deny the obvious truth that money is a measure of value.

Is that so? Here is what Mises says about this exact point in The Theory of Money and Credit:


On the Measurement of Value

1 The Immeasurability of Subjective Use-Values

Although it is usual to speak of money as a measure of value and
prices, the notion is entirely fallacious. So long as the subjective
theory of value is accepted, this question of measurement cannot arise.
In the older political economy, the search for a principle governing the
measurement of value was to a certain extent justifiable. If, in
accordance with an objective theory of value, the possibility of an
objective concept of commodity values is accepted, and exchange is
regarded as the reciprocal surrender of equivalent goods, then the
conclusion necessarily follows that exchange transactions must be
preceded by measurement of the quantity of value contained in each of
the objects that are to be exchanged. And it is then an obvious step to
regard money as the measure of value.

In the plan of Forbes and Ames, the government would aim to keep the dollar price of gold constant. Doing this would require the government to issue or withdraw dollars, from time to time. Amazingly, Tamny says, “Von Mises seemed to agree. As he wrote in The Theory of Money & Credit, ‘No individual and no nation need fear at any time to have less money than it needs.’”  In other words, Forbes and Ames, seconded by Tamny, think that, depending on the dollar price of gold, a nation may have less money than it needs. The government should issue or withdraw enough dollars to restore the dollar price of gold which these authors want to maintain as a constant. A quotation by Mises that denies that a nation need fear having less money than it needs is taken by Tamny to support Forbes and Ames’s contrary opinion.

Evidently, in Tamny’s lexicon, “seems to agree” means “directly contradicts.” This is not the only unusual entry to be found there: “credit” means, as he uses the word, “real resources.” Some remarks from Through the Looking-Glass come to mind:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

A New One for the Photo Archives

Thank to Walter Block who recently posted this on his Facebook page:

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Walter Block Interviewed about His Book ‘Toward a Libertarian Society’

Summary by Luis Rivera III:

In this video, Walter Block briefly goes over where rights might come from. He mentions Murray Rothbard’s natural rights theory, the utilitarian argument for rights and Hans Hoppe’s argumentation of ethics. Block, goes over what libertarianism consists of, namely, abiding by the non-aggression principle which he defines.


For more, read Toward a Libertarian Society:

Is the Surge in Capital Goods Orders Due to Malinvestment?

6921Mises Daily Tuesday by Frank Shostak

Orders in capital goods have been going up since 2009. Normally, capital goods purchases suggest economic growth, but if the orders are a result of easy money, the purchases point not to wealth creation, but to a bubble.


The Rothbard-Paul Message

2801Mises Daily Tuesday by Darrell Falconburg.

A young libertarian tells where the liberty movement should go.


“Jean Tirole wins Nobel for a pseudo-problem”

The Financial Post picks up Joe Salerno’s blog post on the latest Nobel Prize winner in economics.

Dutch Treat Pension System

In the US, many pension plans are hopelessly underwater as the economy heads into troubled times. State employee pension plan are $1 trillion in the red, local government employee pensions are nearly $500 billion in deficit, and even employer-funded pensions (buoyed by rising stock and bond markets) are showing problems. Of course the Social Security, Medicaid and Medicare fiasco is showing red ink for as far as the eye can see. The combination of overly generous benefits and demographically declining tax bases means that there will have to be severe benefit cuts down the road.

In the Netherlands the pension system seems to work much better. Employee contributions are high, employer contributions are low, and each generation is expected to pay for its own benefits. The pensions themselves are required to faithfully assess the status of their financial conditions and if shortfalls arise, as they did in the 2008 financial crisis, then benefits are cut and contributions are raised to keep the system solvent on an ongoing financial basis. The payout is approximately 70% of your earned income rather than the 40% that Social Security pays.

According to Mary Williams Walsh:

The Dutch say their approach is, in fact, supposed to prevent a crisis — the crisis that will ensue if the boomer generation retires without fully funded benefits. Their $1.05 minimum is really just a minimum; pension funds are encouraged to keep an even bigger surplus, to help them weather market shocks. The Dutch sailed into the global collapse of 2008 with $1.45 for every dollar of benefits owed, far more than they appeared to need. But when the dust settled, they were down to just 90 cents. The damage was so bad that the central bank gave them a breather: They had five years to get back to the $1.05 minimum, instead of the usual three.

American public plans emerged from the crisis in worse shape, on the whole, and many allowed themselves 30 years to recover. But 30 years is so long that the boomer generation will have retired by then, and the losses will have been pushed far into the future for others to repay.

It’s a recipe for disaster if the employer happens to be a city like Detroit. The city’s pension system used a 30-year schedule to cover losses but reset it at “Year 1” every year, a tactic employed in a surprising number of places. In Detroit, it meant the city never replaced the money that the pension system lost. When Detroit finally declared bankruptcy last year, an outside review found a $3.5 billion shortfall, one of the biggest claims of the bankruptcy. Manipulating the 30-year funding schedule had helped to hide it.

Pentagon Says Global Warming Presents Immediate Security Threat

250px-The_Pentagon_January_2008With dollar signs in their eyes, Pentagon officials have jumped on the global warming bandwagon and   ”released a report Monday asserting decisively that climate change poses an immediate threat to national security, with increased risks from terrorism, infectious disease, global poverty and food shortages.” What’s the answer to these many woes? Why, to give the military-industrial complex lots and lots and lots of money.

Why is ISIS gaining ground? Because global warming. The climate experts at the DOD say so.

Not that the Defense Department was ever at risk of seeing any real cuts. What backers of the Pentagon call “draconian cuts” are never more than tiny trims to the rate of increase in Pentagon spending, and of course, the Pentagon is awash on money today, just as it has always been every single day since 1945.

Conservatives and other pro-military groups will likely take issue with this latest bid for more cash from the Pentagon, not because they think the Pentagon is already overfunded but because they’re against the acceptance of global warming/climate change as a real phenomenon. This will be mentioned in the right wing press, but largely overlooked, because for them, the Pentagon is to always be treated with deference and credulity whenever it demands more money.

Not that it will make much difference either way. This global warming report is just a way for the Pentagon to pile on its already huge lobbying effort to keep the money flowing, and there’s no shortage of right wing politicians and pundits calling for an even bigger river of cash flowing to the government in the name of “defense.” This latest report simply offers an opportunity to get a few center-left politicians on board who might have been reluctant to sign yet another balnk check for the Pentagon. It also offers a few talking points to the administration in its climate change efforts.

The generals, all of whom are political appointees and lifelong bureaucrats who haven’t held real jobs in decades, will be more than happy to come up with exciting new plans for dealing with global warming, and all the manpower and trillions of dollars that will require over the next 30 or 40 years. It would unpatriotic to do anything less. National security is at stake.

Rothbard on Self-Defense and War

back of a security guardMises Daily Tuesday by David Gordon:

Contrary to the claims of many advocates for expanding the already-huge war apparatus of the United States, Libertarians in general — and Murray Rothbard in particular — are not pacifists, but reject the killing of innocents and other unjustified forms of military aggression.

How Much Is Obama’s War on ISIS Going to Cost?

rsz_3040508093_a66a92cc59_o_1Mises Daily Tuesday by Daniel McAdams:

How much is Obama’s war on ISIS Going to Cost you? You don’t want to know.

Christopher Columbus, The New World, and Private Property

With the exception of a few ethnic Italian activists, no American appears to actually celebrate Columbus Day anymore (assuming it was ever “celebrated” in any meaningful sense). And unless you work for a bank or a government agency, you may not even notice it’s a “holiday” at all. Indeed, it’s quite possible that Columbus Day would be all but ignored, if it were not for a perennially enraged group of activists who take Columbus’s many acts of thievery and murder in the New World and use them to indict people born nearly 500 years after Columbus drew his last breath.

Even in his own day, Columbus was accused of inexcusable brutality, and even his friends had to admit he suffered from extreme vanity, ambition, and a lust to rule over other people. A politician par excellence, he continually lobbied for more and more political power, riches, and favors from the Spanish crown. His record was not impressive, and King Ferdinand refused to grant him the governorship of the West Indies which Columbus so longed for.


His own contemporaries noted with contempt that Columbus presided over the mass murder of the natives, and contrary to the current narrative among anti-Columbus crusaders today, it was hardly European gospel that the natives be treated as unpersons without property rights. Indeed, the natives were regarded by many as having the same rights as all human beings. Being non-European certainly did not bring with it sub-human status, and a papal envoy sent to Peking in the 14th century was  not sent to inform the Chinese that they were to surrender all their property.

In fact, this pro-property position was established clearly, at least among the Catholic countries, by 1537 when Pope Paul III issued the papal bull “Sublimus Dei” which stated that the American natives are rational beings while concluding:

…the said Indians and all other people who may later be discovered by Christians, are by no means to be deprived of their liberty or the possession of their property, even though they be outside the faith of Jesus Christ; and that they may and should, freely and legitimately, enjoy their liberty and the possession of their property; nor should they be in any way enslaved; should the contrary happen, it shall be null and have no effect.

Of course, people listened to the Pope back then about as much as they do now, so much of the New World nonetheless continued along the path of Might Make Right. The fact that the natives always retained their property rights (in the moral sense) did little to prevent them from losing their property in the face of vastly superior numbers and firepower.

Read More→

Bizarro-World Kirzner Awarded the 2014 Nobel Prize in Economics

KONICA MINOLTA DIGITAL CAMERAHere’s a real shocker:  The 2014 Nobel Prize in Economics was not awarded to Israel Kirzner, as many Austrians fervently hoped.  Instead the prize was given to Jean Tirole, a French engineer, mathematician and economist for advancing “The Science of Taming Powerful Firms,”  Tirole for all his technical proficiency and inventiveness is a garden variety neoclassical economist whose views on competition, efficiency and economic welfare are worlds apart from Kirzner’s.

Plus ça change, plus c’est la même chose.

Tirole won the prize for his work in devising new methods to improve regulation of industries dominated by a few large firms with “market power.”  Tirole uncritically accepts the long entrenched neoclassical view that “oligopolistic” firms commit the unpardonable sin against economic efficiency of being able to “influence the prices, volume and quality” of products in the markets in which they operate while planning production on the basis of expectations of each other’s decisions.   In other words they do not operate according to the assumptions of perfect competition under which each firm is infinitesimally small and unable to vary the price or quality dimensions of its product one iota from that of its equally teeeny-weeny competitors, whose actions it does not take account of in its own production decisions.

Compounding the ”market failure” of oligopoly is the fact that dominant  firms know more about the product that they are selling than the regulatory authority.   This is  a species of the  problem of “asymmetric information” in which each entrepreneur is, heaven forfend, more intimately familiar with the attributes of the product he is producing and selling than consumers of his product.

In any case, using game and contract theories, Tirole was able to contrive “a clever set of production contracts” between the regulator and dominant firms that solve the problem of asymmetric information while giving the firms an incentive to produce and cut costs while draining away “excessive profits—a bad thing for society. “

So, Tirole was awarded the Nobel prize for concocting complex technical solutions to what Austrians have long known and taught to be pseudo-problems for a dynamic market economy driven by rivalrous competition among entrepreneurs eager to earn profits by anticipating and serving ever-changing consumer demands.

Regarding oligopoly, Murray Rothbard in 1962 incisively clarified the phenomenon and showed that it was tractable to general economic analysis, which oligopoly theorists had long denied.  Furthermore, Rothbard demonstrated that game theory was inapplicable to oligopoly, at a time when game theory was still an arcane discipline in its infancy and a plaything of a handful of mathematical economists.  Thus Rothbard (pp. 725-26)  argued:

The relevant consideration is not the fewness of the firms or the state of hostility or friendship existing among firms. Those writers who discuss oligopoly in terms applicable to games of poker or to military warfare are entirely in error. The fundamental business of production is service to the consumers for monetary gain, and not some sort of “game” or “warfare” or any other sort of struggle between producers.  The jockeying and raising and lowering of prices that takes place in“oligopolistic” industries is not some mysterious form of warfare,but the visible process of attempting to find market equilibrium. . . . The same process, indeed, takes place in any market, such as the “nonoligopolistic” wheat or strawberry markets. In the latter markets the process seems to the viewer more “impersonal,” because the actions of any one individual or firm are not as important or as strikingly visible as in the more. “oligopolistic” industries. . . . And, in oligopoly situations, the rivalries, the feelings of one producer toward his competitors, may be historically dramatic, but they are unimportant for economic analysis.

As for “asymmetric information,” Ludwig von Mises and F.A. Hayek showed long ago that, far from a “market failure,” this phenomenon is one of the fundamental conditions for the very existence of markets.  The Mises-Hayek point was emphatically and eloquently expressed in  a recent article by Tom DiLorenzo (p. 252)

 Consider these questions: Who knows more about home building—home builders or home buyers? Who knows more about supplying grocery stores with fresh meat—ranchers and farmers, or average consumers? Who knows more about manufacturing automobiles—automotive engineers employed by automobile manufacturers, or car purchasers? Who knows more about producing and marketing articles of clothing—clothing manufacturers and distributors or clothing shoppers?

The point . . . is that all information about all products and services is asymmetrical in successful, capitalist economies because of the division of knowledge (and labor) in society. If we all had symmetrical information about all of the above tasks, none of the above-mentioned businesses and occupations would exist. It is neither desirable nor possible for everyone to have symmetrical information.  To paraphrase Mises, what distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the existence of asymmetric information and the division of knowledge in society. . . . Indeed, differences in information—and different interpretations of the meaning and importance of information to each individual—is the sole cause of trade and exchange.

Austrian Calls Central Bankers Incredible

Michael Pollaro writes in that the all-time high credibility that central bankers currently enjoy is about to change.

Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.

Here’s how we see it…

Pollaro shows that the monetary policy approach pursued by Keynesian central bankers is both wrong and dangerous.

We reject this unwavering belief in central banks and their policies, outright. As the Austrians teach, easy monetary policies sow the seeds of their own demise. Flooding the economy and financial markets with money (and credit) created out of thin air – thereby distorting interest rates and price signals and, in so doing, creating malinvestments – is no way to create sustainable, economic growth and ever rising equity prices. Sure, at first glance, the malinvestments and attendant booming equity prices look like genuine growth and wealth creation. But they are not. As we explored here, they are instead unsustainable bubbles that turn to bust when the growth in those money supply (and credit) footings decelerate; i.e., when the easy money abates.

Today we posit some questions we think every equity investor needs to answer. What if the Austrians are right? What if unconventional, all-in easy money policies do not produce sustainable, economic growth? Contrary to the expectations of nearly everyone, what if the next big event is in fact a bust? What will that mean to the equity markets going forward? And then, what will that say about the credibility of central banks?

Well, if the Austrians are right, as we wrote here, given the size of this monetary experiment, one can expect a pretty big swoon in equity prices if not an ugly crash. More important though is the very real possibility that a bust could put a dagger in central bank credibility, severely damaging if not destroying the belief that unconventional, all-in easy money policies can goose the economy and equity markets anywhere near as effectively as in the past. Maybe, in real terms, not at all. Truly a problematic situation the next time central banks step in to “save” us. This we think is especially true if a bust occurs right here in America. Consider this: The former Federal Reserve Chairperson Ben Bernanke (and world renowned expert on the Great Depression) and his closest adviser current Chairperson Janet Yellen birthed the largest, most heralded, monetary support apparatus in world history and it was found unable to produce sustainable, economic growth, unable to float equity prices ever higher. Instead, it did the exact opposite. How many investors/speculators will then put their unswerving faith in any central bank, at least for the foreseeable future? We’re thinking a lot, lot less than today.

Pollaro suggests that as events play out that central bankers will lose their credibility and will be considered “incredible” in the proper sense of the word.

Jean Tirole Wins Nobel Prize

JEAN TIROLEThe Nobel committee has chosen Jean Tirole, a leader in game-theoretic industrial organization analysis, for the 2014 economics prize. As I discuss in more detail here, Tirole’s approach to IO is probably an improvement over the old structure-conduct-performance literature of the 1950s, but it still rests on the naive concepts of “monopoly” and “competition” that the Austrians have attacked since the 1940s. Monopoly is defined as “market power,” i.e., the ability to set price over marginal cost, and it taken for granted that the government’s job is to reduce market power to “maximize social welfare.” The Austrian notion of competition as process of dynamic rivalry over time does not figure prominently in this style of analysis, and government regulators are treated as benevolent, fully competent (if not always perfectly informed) agents who run around correcting for market failures.

Many of my Austrian friends are disappointed that Israel Kirzner did not win but, as I noted last week, he never really stood a chance. Game theory has become the dominant language not only for IO but also for public-sector economics, corporate finance, and other fields and it was inevitable that the Nobel committee pick Tirole or someone like him. My guess is that Oliver Williamson will be the last Austrian-friendly Nobel laureate, at least for a while.

Scientific Progress Needs Entrepreneurial Progress

2593426985_21eb9aa4eb_oIn our age of technological marvels, it’s easy to be in awe of science, and even to believe that science in and of itself is responsible for the high living standards enjoyed in some nations. Likewise, it’s all too easy to see poverty and economic stagnation as stemming from a lack of scientific progress, and conclude that to make the world a better place, all we need are more breakthroughs and inventions.

However, the recent explosion of interest in “science” tends to overlook what is maybe the most important fact about human progress: it doesn’t happen without entrepreneurial progress. In other words, scientific breakthroughs don’t actually increase most people’s welfare until entrepreneurs figure out how to make them do something practical, at prices consumers find reasonable. As Peter Klein points out, such was the case of the internet, which had little value until it was integrated into the market economy.

Given the popularity of celebrity scientists like Neil deGrasse Tyson, or of pages like “I f@&%ing love science,” it’s vital to stress the common-sense economics of scientific research. It’s when science enters our lives through the market that it bestows the greatest benefits on humanity. Whether it’s a basic invention or the most advanced physical science, entrepreneurs make the wonders of the scientific world into commonplace conditions of everyday life.

What science needs then is a guiding hand (hint: an invisible one), a means to assess the social worth of new knowledge and inventions. And that’s exactly what the market provides through the indispensable tool of economic calculation. Because their mission is to improve the lives of consumers, entrepreneurs are the standard-bearers of scientific progress, looking constantly to the frontiers of knowledge for new ways to increase human well-being.

China Overtakes US

The IMF announced that the GDP of China has now exceeded the GDP of the USA. In this interview I explain some of the “back story” on this topic and also alert listeners of the implications of the current world currency war and looming economic crisis.

“In the US, the GDP growth has been driven largely through a process of large government deficits and the burgeoning national debt,” he said.

“An unprecedented radical monetary policy of keeping interest rates very low” also contributed to an unsustainable economic growth, Thornton told Press TV on Wednesday.

The American economist said China’s growth policies are also questionable and will not be sustainable in the future.

“They (China) have a lot of planned investment in infrastructure, housing, office space and the building of giant skyscrapers and they have a lot of inventory of all those products and under utilization of infrastructure investment,” he noted.

China remains the biggest foreign holder of US government debt, holding an estimated $1.27 trillion in US Treasury bonds.

The United States accuses China of lowering the price of its exports by manipulating its currency.

“Growth is a good thing, but in the case of China and the US, we have to question whether it’s natural, sustainable,” Thornton said.

First Trickle Through the Dam

The United Kingdom has announced that it will be the first government outside of China to issue bonds denominated in the Chinese currency, the Renminbi. Forbes reports that the bond sale will be tiny. For the UK it represents another attempt to become the eminent world financial center. For the US it represent another small blow to the status of the Dollar and US financial markets. The US Dollar has already lost its near monopoly position as a reserve currency and medium of international trade. The competitive position of the Chinese Renminbi continues to improve in small ways. The question is whether this will be a multiple decade competition between the Dollar and the Renminbi, or whether the “dam will break” like it did in WWI when the eminent currency status changed from the British Pound to the US Dollar.