“Entrepreneurs know perfectly well about the free punch-bowl and that money is much easier than it otherwise would be.”
huh??? when you say money do you mean current dollars???
does the easy dollar come from a federal reserve purchase of a bank asset…a purchase made with dollars created from fed governor discretion and nothing more???
is it this process that lets the entrepreneur get a cargo van at 0 percent interest instead of 12 percent interest???
similarly, if the fed process that i mentioned is actually true, could a low interest rate allow a cargo van manufacturer to purchase a better assembly line to vastly lower the cost and price of cargo vans???
gaining more market share without any bubble taking place???
Yes. A Fed-less free market would signal him: “I like your product/idea but at 12% interest, so if you can swing it, be my guest.”. A Fed-driven market signals him: “Yes, I like your product/idea, no matter what. Just go for it, real capital/savings be damned!”. The price of this false signal gets paid during the inevitable bust when the value of the capital, time, and labor invested into the idea go “puff!” into thin air. He may as well have borrowed the money and paid himself a salary for doing push-ups in his living room, and created less damage that way.
And what’s with the “???” ? Is your ‘?’ key stuck? Avoid posting a deluge of messages, one after another. You may get more questions answered that way. Finally, stop asking (“Is this true?”). It’s your own responsibility to discern the truth for yourself. No one else can tell you what is true and what isn’t.
Z.
Z, “cret” was previously known as SThomper and Caravel (previously banned). What you’re attempting to point out to him has been attempted many times before.
Thx chloe. The style did look familiar. Oh well, one of these times it’ll probably work. He sure likes sticking around. ;^) Z.
It would make a difference. However, there would still be disruption due to the impossiblity of economic calculation.
I came across this: http://mises.org/journals/aen/aen19_3_1.asp
Here’s the relevant quote:
SHOSTAK: Writing in Economica in 1943, Lachmann criticized Mises’s theory of the business cycle on grounds that expectations could prevent it from taking place. The idea is that businesses expect the bust and refrain from investment expansion, thereby muting the impact of new money coming into the economy. Hence, the business cycle is recast as an information- coordination problem rather than a theory about cause and effect.
The incorrect assumption here is that bad expectations are somehow the cause of the business cycle. The actual cause is the introduction of counterfeit money, which redistributes wealth and leads businesses to make calculation errors. You can have any kind of expectations you want but they will not and cannot obviate past events. This new money is an economic error which must work itself through the economy in some way.
You cannot use psychology to explain the consequence of real events. What people believe about the future cannot change the reality of cause and effect. The business cycle is a consequence of a real act of damage that, once set in motion, cannot be undone. Guido H�lsmann prefers to recast the business cycle theory into a general theory of error cycles, which gets to the core of the issue at hand: government intervention leading to bad decisions.
Wish I could ask him more about this. Like, whats the difference between “information-coordination” and “bad decisions” and “calculation errors”.
.“” Just go for it, real capital/savings be damned!“. The price of this false signal gets paid during the inevitable bust when the value of the capital, time, and labor invested into the idea go “puff!” into thin air.”“”"
why would it necessarily be a false signal??? would an entrepreneur not do some research???
would a lender not do some research before lending out fed created dollars? couldnt valid investmetns be funded this way as well???
. It’s your own responsibility to discern the truth for yourself. No one else can tell you what is true and what isn’t…
i would also say its a responsibility of those who have a solid notion of the truth to not lie about it.
i thought these forums were for distributing and querying.
i beleive some of the posters her eto have econo9mics degrees and versed in teh field. if not, then my malcalulation. if i get a response to a question asking iof somethign is true i then try to confirm it with other sources. much of the federal reserve webpages i do not understand.
The most they could know is how much money exists above what existed before. This does not tell them what the interest rate should be. Also, remember that an interest rate bring supply of credit and demand for loans into equilibrium (it’s a type of price, which always brings things into equilibrium). Even if they were somehow able to determine what the market interest rate should have been, this will reduce the demand for loans leaving them with Fed inflation sitting in their accounts. They must pay the Fed interest for these securities, and indeed the Fed operates off of these interest payments. Furthermore, each bank faces a dilemma: hold onto the inflation, pay the interest and become less profitable, or jump out and make loans quickly and try to grab market share, which is almost certainly is what the competitors would do?
In practice, even knowledge of the ABCT would not prevent it. Inflation will distort the market, and the correction will inevitably come.
There was a business cycle, and malinvestments, but a bit different from how Mises mapped it out, I believe.
You believe wrongly.
Hard to say that a dot.com stock or a house is a high order capital investment.
Houses are durable consumer goods, and the dot.com stock fits right in with what he was saying.
There was a business cycle, and malinvestments, but a bit different from how Mises mapped it out, I believe.
You believe wrongly.
Hard to say that a dot.com stock or a house is a high order capital investment.
Houses are durable consumer goods, and the dot.com stock fits right in with what he was saying.
Are you unacustomed to supporting your assertions with facts and such like? It’s a usefull habit to get into.
To get you started, show me where my mistake lies, to back up your first claim.
And for your second, quote me where Mises says there will be malinvestments in durable consumer goods.
Also, for completeness, where he says entrepeneurs will invest in companies that pay no dividends and sell no products, and in companies that have the brilliant idea to charge shipping and handling for every individual item, instead of having people pick it up in a store. Or where Mises writes they will do anything remotely similar in level of stupidity.
3 simple things, beneficial to us both, and to the readership at large, if you can do them.
does the federal reserve loan dollars to banks with the OMO function (if true, its what i was told occurred) or are those dollars a purchase of banks assets with newly formed dollars that arent loans???
“I agree that the credit expansion will inevitably lead to the new money being snatched up and utilized, but shouldn’t entrepreneurs be able to realize that investing this money in long-term projects would be a mistake?”
wont all new money be snatched up and utilized?? why would long term projects be any more of a mistake than a non-long term project???
" The actual cause is the introduction of counterfeit money, which redistributes wealth and leads businesses to make calculation errors. You can have any kind of expectations you want but they will not and cannot obviate past events. This new money is an economic error which must work itself through the economy in some way."
does it matter if its counterfeit or just new in this description???
does the buying of anything in anyway redeistribute wealth??? do you claim wealth redistribution to be somethign other than exchange???
Hayek, Mises, and Wicksell all explicitly say it. I’m not going to go quote mining now, and it’s unreasonable for you to expect one to do this, but here’s Wicksell:
“An abnormally large amount of investment will now probably be devoted to durable goods (a result of an artificially reduced rate of interest). There may result a relative overproduction of such things as houses and a relative underproduction of other commodities” (Interest and Prices, pp. 96)
I don’t know why you’re fixated on the stock market. Stock market bubbles are the result of malivestments. There were far too many tech companies taking vital resources from other, more warranted economic activities. The tech bubble is a classic example of the ABC. (1) Economy is hit with a technological innovation; (2) banks don’t elevate the rate of interest, and central bank actually lowers interest rates; (3) too much investment in technology and media, and (4) interest rates rise, bringing about a correction (recession).
TY for the Wicksell quote.
There is, however, a huge difference. The dot.com bubble was not a case exclusively of higher order capital goods being invested in. In many instances none of Wicksell’s durable consumer goods were there either. The companies invested in existed on paper. Some paid no dividends and made no profits. Their essential premise was absurd. How does a low interest rate “mislead” the entrepeneur into an “honest error” of thinking that to charge shipping and handling for every individual item, instead of having people pick it up in a store, is a money maker.
I’m not sure how your 4 step summary is relevant to the point I was raising. I’ll make myself very clear. The quibble I have with the classic ABCT from the dot.com bubble is this: Mises says that low interest rates “fool” the normally sophisticated entrepeneur, who has gotten to where he is by his business acumen, into acting upon misinformation. Given his acceptance of the wrong facts through no fault of his own, he acts sensibly.
However both of our two recent bubbles had people acting foolishly, not wisely. The housing bubble was predicated on an assumption in most people’s minds that houses only go UP in price, never down. That idea is foolish. it is not the result of a message from low interest rates that people are investing and are interested in higher order goods.
Same thing with the dot.com bubble. The mistakes made were not of misinformation, but of foolishness, as I explained above.
One more point. A house may be a durable good, but many people were not buying houses because they needed one. They were buying second and third houses TO SPECULATE WITH. Because they believed a house is not a place to live in. It is an investment that will never go down. These aren’t wily ole entrepeneurs. These are people making a foolish mistake.
The point to remember is that after a bubble bursts, the first question asked is “What were they thinking?” Is a TULIP really worth 10 years of income? And those stocks people bought in the 20’s, NOT KNOWING ANYTHING ABOUT THEIR TRUE VALUE because the paperwork was a secret?
I think the reason there is such resistance here to this very obvious historical fact [that given cheap money, people will do stupid things with it], is because is doesn’t follow from any praxeological axiom. It will have to be thrown in as a seperate postulate. Is this a bad thing? I don’t think so. It is akin to the motivation [not calculation] problem of Socialism. But I’ve written about this before.
One more point. A house may be a durable good, but many people were not buying houses because they needed one. They were buying second and third houses TO SPECULATE WITH. Because they believed a house is not a place to live in. It is an investment that will never go down. These aren’t wily ole entrepeneurs. These are people making a foolish mistake.
People bought the houses with money and expected to make a profit from selling the house later. We can agree this is an investment. Whether it can be considered capital or not depends on what makes something capital. Is it necessary to mix labor with the durable good in order for it to be capital, or could they just do nothing with it for 6 or 12 months and sell it later, and still consider it capital? Either way, there were people who bought the houses, performed work on them, and expected to get a positive return from them. I suppose one could argue that since they were treating houses as capital, the houses were capital.
As for the .com boom, companies were created on paper, but they were also using a large portion of new credit and money to start up and grow. They still bought computers, offices, hired employees, etc. If a dump truck from a mining operation could be considered a higher-order capital good, couldn’t new tech companies (or a part of those new companies) be considered the same?