On the benefits of productive vs non-productive loans.

[mickanomics]

@z1235

1. “Unhelpful” to whom?

Society. i.e. the total benefit is less than it would be without the bias.

@z1235

2. In a free market, there can neither be “too much” consumption without enough investment to produce what’s being consumed, nor can there be “too much” investment without enough consumption to absorb the products of those investments. The free market is self-clearing.

Errmm, I’m not quite sure how that contradicts my original assertion. Which of the three sentences does it contradict?

@z1235

3. If not free-market lending (or anything else related to the market), then what/who decides about the most “helpful” allocation of capital? What’s is your suggested alternative?

That’s a very interesting and important question - but forgive me if I don’t discuss that yet, because I’m already having great difficulty trying to keep this thread focussed. As I said in an earlier post, if my assertion is false then there is no need at all to discuss “what to do about the bias” because there is no bias. If it is generally conceded that I am right, and there is a bias, then I am more than happy to discuss whether or not anything should be done about it. Lets leave that as phase 2.

[filc]

FYI The reason why my posts are lengthy is because I care enough to make an effort to teach you something. Consider that. I’ll start from the top. First responding to your previous post then re-addressing again your argument.

@mickanomics

Your lengthy post included a ludicrous claim… … remember what I said about “zooming in”. That’s exactly what you are not doing.

Red Herring.

@mickanomics

Yes, I readily confess that I have ignored several posts by various people.

The funny thing is, had you read everyone’s post you would have seen they are all generally saying the same thing.

@mickanomics

I have ignored many posts which I consider to be flawed simply because I consider them flawed for uninteresting reasons.

And as a result it is you who become flawed, because you fail to recognize the importance of their argument. That is like a socialist discounting a capitalist, simply because he is a capitalist.

Analyzation

I’d like to simplify your statements to remove obfuscation so we can really get to the nuts and bolts of we’re discussing. Would you agree to re-wording your statements as follows.

Productive Investment

The total benefit is a summation of the borrowers profits, the trade between the borrower and the community, and the final completed investment.

A = The borrowers benefit is equal to the borrowers profit. (A = Borrowers Profit)

B = Communities benefit of trade with Borrower during investment phase. (B = Trade during investment period)

C = Benefit of borrowers completed investment amongst himself and community.

TB = Total Benefit

The total benefit is a summation of A, B, and C.

Thus

TB = A + B + C

The total benefit is a summation of the borrowers profits, the trade between the borrower and the community, and the final completed investment.

Do you agree to this re-worded comprehensible version of your “Product Investment”.

Now for Non-Productive Investment:

The total benefit is a summation of the borrowers profits and the trade between the borrower and the community.

A = The borrowers benefit is equal to the borrowers profit. In other words (Benefit = Profit)

B = Benefit of borrowers completed investment amongst himself and community. In other words (B = Trade during investment period)

C = There is no benefit to the community after the borrower’s investment is completed. (allegedly)

Thus

TB = A + B

The total benefit is a summation of the borrowers profits and the trade between the borrower and the community.

Am I misconstruing what you are saying?

Thus the difference between Productive Investment and Non-Productive Investment is C.

[Esuric]

@mickanomics

My assertion makes no mention of any kind of intervention. I have proposed no “cure” for the problem. All I am trying to establish in this thread is whether or not a free market lending contains within it, a bias in favour of non-productive investment. If I am shown to be incorrect in my assertion then we need not even have any discussion of interventions. Is your position that I have made a mistake in my assertion? Or are you conceding that my assertion is correct, but that there is nothing that can be done about it without doing more harm than good?

Keep ignoring me. Don’t think I haven’t noticed. Your assertion is pure fantasy, it could never (ever) happen in a free market. Either the entrepreneur would get the loan, or both would get loans.

[z1235]

@z1235

2. In a free market, there can neither be “too much” consumption without enough investment to produce what’s being consumed, nor can there be “too much” investment without enough consumption to absorb the products of those investments. The free market is self-clearing.

@mickanomics

Errmm, I’m not quite sure how that contradicts my original assertion.

It is impossible to contradict something that makes no sense to begin with (A+B+C > D+E , where A,B,C,D and E are ALL conceptual non-quantities pulled out of your own backside). Try contradicting this first: UHI UBYGVY VCYCY. My quote above directly explains how any perceived bias of (“non-productive”) consumption vs (“productive”) investment (or vice versa) exists in your head only. If too much has been allocated to consumption (at the expense of investment) then pretty soon there’d be NOTHING left to consume. So even if your “bias” does exist, the free-market will take care of it splendidly.

Finally, what’s the benefit to society when Bill Gates borrows $1billion and blows it on a glorious blowjob from a prostitute? Would that “bias” rub you the wrong way, and urge you to start a thread seeking a “cure”?

Z.

[Amanojack]

@mickanomics

…plus (C) The benefit to the community from having cheaper goods available to purchase as a result of the completed investment.

What if the entrepreneur fails? Then there is a detriment to the community. I’ve heard 9 out of 10 first businesses fail.

The central point you’re missing is that the “benefit to the community” is unknowable by a central planner. Only a price system can allocate resources (yes, including loan money) to best satisfy demand.

[chloe732]

@mickanomics

As I said in an earlier post, if my assertion is false then there is no need at all to discuss “what to do about the bias” because there is no bias. If it is generally conceded that I am right, and there is a bias, then I am more than happy to discuss whether or not anything should be done about it. Lets leave that as phase 2.

mick - I want to thank you for helping me understand the mindset of the mathematical economist, the type of economist that asserts “mathematics is the language of economics” as I have read in other threads (not this one). First, you start with a muddled premise. Then, you define precise mathematical terms and place these terms in an equation. The assertion is that the equation(s) must be true given how the terms are defined, therefore, the premise must be true! WRONG! This mathematical mindset that you display has helped me understand why mainstream economists failed to see the current crisis coming, while it was obvious to the Austrians.

Regarding your OP: If you had started with a solid premise, then your mathematical assignments of value could at least be considered for serious evaluation. Numerous replies here have addressed your questions; you simply do not understand why your premise is invalid. It has been explained to you in detail. Go back and read.

Austrian economics seeks to start with sound economic reasoning. It is clear from your replies you have no sincere desire to understand the Austrian framework. I got a good laugh when you said that if your original post is correct (ie, the “bias”), then the foundation of Austrian economics would be undermined. This thread has been both educational and amusing! Thanks.

[mickanomics]

@filc

Analyzation

I’d like to simplify your statements to remove obfuscation so we can really get to the nuts and bolts of we’re discussing. Would you agree to re-wording your statements as follows.

First of all, I commend you for addressing my original post.

@filc

Productive Investment

The total benefit is a summation of the borrowers profits, the trade between the borrower and the community, and the final completed investment.

A = The borrowers benefit is equal to the borrowers profit. (A = Borrowers Profit)

B = Communities benefit of trade with Borrower during investment phase. (B = Trade during investment period)

All good so far.

@filc

C = Benefit of borrowers completed investment amongst himself and community.

Sorry, but that’s not right because it is counting ‘A’ for a second time. We have already listed the benefit to the borrower. Your sentence needs to be modified to become simply:

C = Benefit of borrowers completed investment to the community.

@filc

TB = Total Benefit

The total benefit is a summation of A, B, and C.

Thus

TB = A + B + C

The total benefit is a summation of the borrowers profits, the trade between the borrower and the community, and the final completed investment.

Do you agree to this re-worded comprehensible version of your “Product Investment”.

Subject to the correction; yes.

@filc

Now for Non-Productive Investment:

The total benefit is a summation of the borrowers profits and the trade between the borrower and the community.

A = The borrowers benefit is equal to the borrowers profit. In other words (Benefit = Profit)

I think it slightly odd that you call it a profit… but I’m nit-picking. I will live with that if you like. I would also suggest that we label this ‘D’ because not-to do so will make the explanation of other things down the line more complicated (you’ll notice in one of my early posts I switched the non-productive labels from A&B to D&E).

@filc

B = Benefit of borrowers completed investment amongst himself and community. In other words (B = Trade during investment period)

Errmmm.. this sentence seems a bit muddled as to whether it is discussing benefits during the investment period or after completion. I would correct it as follows: “E = Benefit to the community of trade between themselves and the borrower during investment period”.

@filc

C = There is no benefit to the community after the borrower’s investment is completed. (allegedly)

Thus

TB = A + B

The total benefit is a summation of the borrowers profits and the trade between the borrower and the community.

Am I misconstruing what you are saying?

Subject to the label changes, i.e. TB = D+E that’s fine.

@filc

Thus the difference between Productive Investment and Non-Productive Investment is C.

I’d like to be slightly careful about that sentence… but my explanation as to why is rather complex and may cause confusion. For the sake of argument I’ll let it go for now. So yeah, that’s all ok.

So now what’s your next part?

[mickanomics]

@chloe732

This mathematical mindset that you display has helped me understand why mainstream economists failed to see the current crisis coming,

I hope you would not count me as a mainstream economist. I challenge you to read my blog and still hold that view.

@chloe732

Numerous replies here have addressed your questions; you simply do not understand why your premise is invalid. It has been explained to you in detail. Go back and read.

I’ve already had this debate on several other threads. It all boils down to the bizarre 17th century, mystical view of how the brain works that so many Austrians cling to.

@chloe732

This thread has been both educational and amusing! Thanks.

I aim to please.

[z1235]

@AJ

@mickanomics

…plus (C) The benefit to the community from having cheaper goods available to purchase as a result of the completed investment.

What if the entrepreneur fails? Then there is a detriment to the community. I’ve heard 9 out of 10 first businesses fail.

The central point you’re missing is that the “benefit to the community” is unknowable by a central planner. Only a price system can allocate resources (yes, including loan money) to best satisfy demand.

Or what if the “productive” loan went toward liposuction machines at a Beverly Hills clinic, while the “non-productive” one went toward a baby-room addition to a scientist’s house – a room which would allow the scientist a good night’s sleep necessary for his impending invention of cold fusion?

The planned (socialist) economy where People’s Councils allocate resources toward perceived maximal “benefits” to society (“Comrades, many people complain there aren’t enough shoes in stores, so let’s emphasize lending to shoe-making factories in the next 5-year plan!”) has proven to be an utter failure - both in theory and in practice.

Z.

[filc]

@mickanomics

@chloe732

Numerous replies here have addressed your questions; you simply do not understand why your premise is invalid. It has been explained to you in detail. Go back and read.

I’ve already had this debate on several other threads. It all boils down to the bizarre 17th century, mystical view of how the brain works that so many Austrians cling to.

I am quiet interested in your explanation on this? Austrian’s don’t pretend to know how the Brain works. I’d like to know how you think the brain should work? This is somewhat of an off topic point though an interesting one.

@mickanomics

First of all, I commend you for addressing my original post.

Please spare me. I’m wasting alot of time here to address your cognitive errors.

Semantics aside we need to settle this so we can discuss the numerous errors.

Productive

A = Borrowers Profit

B = Trade during investment period

C = Benefit after investment is complete

TB = A + B + C

I realize you want to change Non-Productive to D & E but doing so would make the two equations non-comparrable. We wish to isolate the benefits of Productive correct? It makes mroe sense to keep Productive as A + B. You have defined D & E as being the same as A & B with a few detailed differences.

Non-Productive:

Total Benefit = A + B

or

TB = D + E

Discrepencies

I want to do these discrepancies one at a time with you.

Using the Non-Productive productive model we created please give us an example of a non-productive investment.

[mickanomics]

@filc

I am quiet interested in your explanation on this? Austrian’s don’t pretend to know how the Brain works. I’d like to know how you think the brain should work? This is somewhat of an off topic point though an interesting one.

Obviously this is way beyond the scope of this thread… but this lecture by Jeff Hawkins would be a good place to start:

http://video.google.com/videoplay?docid=-2500845581503718756&q=jeff+hawkins#

@filc

Productive

A = Borrowers Profit

B = Trade during investment period

C = Benefit after investment is complete

TB = A + B + C

Well you’ve swapped my much more precise definitions of the labels to rather imprecise and ambiguous ones… but whether that turns out to be crucial or not will depend on what you’re going to do next. So maybe I should bite my lip for now and see what you’re going to say.

@filc

I realize you want to change Non-Productive to D & E but doing so would make the two equations non-comparrable.

When I asked whether you were comfortable with basic algebra you should have answered no, because clearly you are not. It seems that your are assuming that if I give two features different letters then I’m implying that they MUST be different in value. This is not the case, and only someone who is not very confident with algebra could have made such an error. Labelling all the different parts with different letters gives us the flexibility in future debate to unambiguously refer to the different parts with a single letter.

And as for the idea that “doing so would make the two equations non-comparrable”… sorry but that is quite laughable. You appear to have the mathematical skills of a 12 year old. To what level of mathematics have you studied?

But for the sake of argument I shall let this all go and allow you to leave the labels however you want. Now lets hear your argument.

[filc]

@mickanomics

Well you’ve swapped my much more precise definitions of the labels to rather imprecise and ambiguous ones…

Actually it was you who changed the variables not me. I wanted to keep an apples to apples comparison but its not relevant.

@mickanomics

but whether that turns out to be crucial or not will depend on what you’re going to do next.

So you can conveniently change the meaning of the variables when someone refutes you? This is what I am trying to avoid, additional time wasted of you talking yourself into circles.

@mickanomics

When I asked whether you were comfortable with basic algebra you should have answered no,

This is not Algebra. This is Human Action. My algebra skills are not on trial but your reading comprehension is.

Do us all a favor and save us some time. Keep your red herringgs and Ad Hominem attacks to yourself. They don’t benefit the discussion and get us no where.

@mickanomics

Labelling all the different parts with different letters gives us the flexibility in future debate to unambiguously refer to the different parts with a single letter.

So as it turns out I do know what I am talking about. I am trying to keep you from introducing further strawmen in the future. Based on our experience with you, you have demonstrated to us that you have a bad habbit of going off on strawman tangents. Stop that.

@mickanomics

But for the sake of argument I shall let this all go and allow you to leave the labels however you want. Now lets hear your argument.

So you have again wasted our time. Your entire response was one large strawman and red herring. You also proved yet again that you did not read my entire post. Had you read my post you would have seen my question to you.

@filc

Using the Non-Productive productive model we created please give us an example of a non-productive investment.

Please answer that question and stop making me repeat myself.

I have shown you the respect in engaging you in your mathanomics. Return the favor with the following.

• When responding to threads read the whole thing
• Keep your red herrings and strawmen tactics out of this

Also Esuric is awaiting a response from you as well.

[mickanomics]

Your attempts to re-phrase my original definitions have been so abysmal, and have not shown signs of improvenet after I pointed out your errors, that I have decided that I’m going to stick to my guns and insist on the following definitions.

========================================================================

Productive investment: The total benefit derived from borrowing X units
is equal to (A) the benefit to the borrower in profits after the machine
is built plus (B) The benefit to the community of trade between the borrower
and the community during the investment phase, as the borrower spends the X
units plus (C) The benefit to the community from having cheaper goods available
to purchase as a result of the completed investment.

Non-productive investment: The total benefit derived from borrowing X
units is equal to (D) the benefit to the borrower of having his new house
extension plus (E) The benefit to the community of trade between the borrower
and the community during the investment phase as the borrower spends the X
units.

========================================================================

If you wish to claim that my definitions are somehow not clear enough to proceed, then I choose to discontinue our discussion.

@filc

please give us an example of a non-productive investment.

Sorry I missed that question. Anyway an example would be Borrowing money to buy a larger television.

@filc

Also Esuric is awaiting a response from you as well.

I have already discussed my motivations for not replying to every point in every post.

[nirgrahamUK]

micka what do you make of this ?

@Mises

The notions of total satisfaction or total happiness are empty. It is impossible to discover a standard for comparing the different degrees of satisfaction or happiness attained by various individuals.

[mickanomics]

@nirgrahamUK

micka what do you make of this ?

@Mises

The notions of total satisfaction or total happiness are empty. It is impossible to discover a standard for comparing the different degrees of satisfaction or happiness attained by various individuals.

I’d say Mises is overstating his case. The word impossible is far too strong. Heisenberg’s uncertainty principle tells us that it is impossible to measure length with absolute certainly, but surely you would not jump from that to a statement that it is imposable to determine which is the longest of two pieces of string. Would you? If the two pieces were extremely close in length then you may have to phrase your determination of which is longest in terms of a probability. But if one piece was about an inch long and the other about a yard long then I think it quite reasonable to simply state that the yard long piece of string is longer than the other.

How about this thought experiment. Say you were presented with two buttons A and B. And we have an experimental subject in a room. If you pressed one then a certain action A is preformed on the person. If you press button B then a different action B is performed on the person. You are compelled to press one of the buttons. You are not allowed to ask the person which button he would prefer you to press. Presumably Mises (and you too?) would toss a coin to choose the action, regardless of what the actions were, because it is impossible for him to determine the amount of happiness caused by the action. Now what if action A is to administer a large electric shock (calculated to be just short of enough to kill him) and action B was to offer him a bar of chocolate. Do you still want to select with the coin toss? And if not why not?

[nirgrahamUK]

If your question had any bearing on Mises statement then I might be inclined to answer it.

[mickanomics]

@nirgrahamUK

If your question had any bearing on Mises statement then I might be inclined to answer it.

Maybe I have misunderstood mises statement. Would it be possible to give a concrete but simple example of his statement in action? Or a concrete but simple example of a consequence of his statement, just to help me get a grasp of what he means.

[nirgrahamUK]

firstly you misunderstand the Heisenberg principle :the Heisenberg uncertainty principle states that certain pairs of physical properties, like position and momentum, cannot both be known to arbitrary precision.

but therefore if one disregards knowledge of the atoms velocity one can determine its position. to stick with the analogy I would expect you to say things about particles. but you want to talk about strings…

as far as strings are concerned we have SI units of length. it is a purely technical challenge to determine whether a certain string (macro well above the particulate level) is a particular length along the various SI scales.

In economics there is no SI unit of UTILITY or DEGREE OF WANT or SUBJECTIVE VALUE. Hence the technical issue of trying to ascertain how many particular units of something some phenomenon is cannot even be set out upon, for there is no appropriate unit to measure with. Then further; to compound the issue and to try to add/sum phenomena that cannot even be seperatley measured is to heap absurdity onto absurdity.

[chloe732]

@mickanomics

Would it be possible to give a concrete but simple example of his statement in action? Or a concrete but simple example of a consequence of his statement, just to help me get a grasp of what he means.

Read Human Action Comics…PLEASE! You will find concrete but simple examples of subjective marginal utility value theory there.

[nirgrahamUK]

http://mises.org/journals/scholar/stringham4.pdf

This is pretty short and easy to read