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fisharmor
09-23-2009, 11:46 AM
Hey, all, how about we list things that weren't the result of legislation, that we can point to as a result of market success?

I'll start....

1) My daughter's preschool asked us Monday not to bring nuts for snacks... without a law banning nuts.

2) The National Fire Protection Association, a private organization initially started by insurance firms, produces over 300 code standards, including the National Electric Code, which is adopted unaltered as electric code by most US localities.

3) In the wake of the Tylenol murders of 1982 (http://en.wikipedia.org/wiki/1982_Chicago_Tylenol_murders#Aftermath), consumer product companies developed tamper-evidence seals before the FDA mandated their use.

4) The favorite example-du-jour, lasik surgery. A friend of mine paid around $3000 five years ago for traditional PRK. I got quoted a couple months ago for custom wavefront, which is 4x more accurate than traditional, for under $2600. Traditional would have set me back about $800. (Plus I didn't wait at all for my consult, it was in a nice office, it was free, and the doctor was hella cute, too.)

5) Another favorite... computers. My parents paid something like $2400 for an Apple IIe in 1984. It's an oversimplification to say our 2006 Macbook is over 1000 times faster, but it cost under a grand... none of those figures are adjusted for inflation. (Would Moore's Law still apply?)

6) When I was a kid, we leased two rotary phones from a government sanctioned monopoly. That monopoly was broken up, and within 15 years people were carrying their own phones around in their pockets. Not long after that they were dialing them by voice.

7) Also, there's the bit about how it took 60 years for government to get phone service to 70% of American houses, but it took the market 10 years to get internet to 70% of way more houses than that.


That's all I can think of off-hand... anyone got any environmental stuff in particular?

erowe1
09-23-2009, 11:53 AM
I know this is cheating, but for a better set of answers to this than I could come up with on the spot or care to type, everyone here should watch as much as they can of the 10 part series (plus later updates as I understand) of Milton Friedman's, "Free to Choose."
http://www.ideachannel.tv/

heavenlyboy34
09-23-2009, 11:54 AM
uhh...could the division of labor count in this list?

TGGRV
09-23-2009, 11:57 AM
Division of labor, ideal allocation of capital, improves quality and decreases prices... I can go on. You can see these results in all the unregulated or barely regulated parts of the economy.

fisharmor
09-23-2009, 11:58 AM
I wouldn't say division of labor, considering that an old statist argument is that it would be more efficient to centralize an industry (and centralize its labor), as opposed to having competitors.

fisharmor
09-23-2009, 11:59 AM
Well, I'm mainly looking for showpieces - concrete examples - as opposed to intellectual material.

erowe1
09-23-2009, 12:25 PM
One great concrete example of what the free market does right is sweat shops.

TGGRV
09-23-2009, 12:33 PM
I wouldn't say division of labor, considering that an old statist argument is that it would be more efficient to centralize an industry (and centralize its labor), as opposed to having competitors.

Actually it isn't. Competition is the thing that leads to specialization(aka division of labor).

heavenlyboy34
09-23-2009, 01:11 PM
Actually it isn't. Competition is the thing that leads to specialization(aka division of labor).

qft! :cool:

noxagol
09-23-2009, 01:51 PM
One great concrete example of what the free market does right is sweat shops.

Which allows people to stop drudging through piles of garbage for things to sell (where a lot get run over by garbage trucks) or off the farm where they barely subsist. Sweat shop looks bad to you, but great to the guy who is tired of mucking around in other people's shit (quite literally). And yay for your ignorance!

amonasro
09-23-2009, 01:54 PM
How about the electronics and cell phone industry. They're cheap, amazing and everyone has them.

RedStripe
09-23-2009, 02:29 PM
One great concrete example of what the free market does right is sweat shops.

Sweatshops aren't a product of the free market, and neither are most of the examples in this thread.

The free market is the way people interact in the absence of government interference, but government interference is ubiquitous even though it may vary in degree from one area to another.

Even if government was stripped down to the basic functions of security, adjudication and rule-making, it would still be interfering with the free market and thus produce 'artificial' human relations.

I personally think that the differences between highly regulated and lightly regulated industries tend to illustrate the general principle that less government means greater social welfare, but we really can't say that they are the product of a free market which would probably only come to exist in a society radically different from our own (more advanced :P ).

heavenlyboy34
09-23-2009, 02:42 PM
Sweatshops aren't a product of the free market, and neither are most of the examples in this thread.

The free market is the way people interact in the absence of government interference, but government interference is ubiquitous even though it may vary in degree from one area to another.

Even if government was stripped down to the basic functions of security, adjudication and rule-making, it would still be interfering with the free market and thus produce 'artificial' human relations.

I personally think that the differences between highly regulated and lightly regulated industries tend to illustrate the general principle that less government means greater social welfare, but we really can't say that they are the product of a free market which would probably only come to exist in a society radically different from our own (more advanced :P ).

some good points there. :cool:

1000-points-of-fright
09-23-2009, 02:44 PM
In 2005, I paid over $1000 for a 39" off-brand LCD HD flat screen TV. My dad just bought a 42" RCA with more inputs and control options for less than $500.

YumYum
09-23-2009, 02:46 PM
Sweatshops aren't a product of the free market, and neither are most of the examples in this thread.

The free market is the way people interact in the absence of government interference, but government interference is ubiquitous even though it may vary in degree from one area to another.

Even if government was stripped down to the basic functions of security, adjudication and rule-making, it would still be interfering with the free market and thus produce 'artificial' human relations.

I personally think that the differences between highly regulated and lightly regulated industries tend to illustrate the general principle that less government means greater social welfare, but we really can't say that they are the product of a free market which would probably only come to exist in a society radically different from our own (more advanced :P ).

: "Sweatshops aren't a product of the free market."

Sweatshops were at their zenith when America was at its free market peak in the late 1800's. Nobody made ten year old kids and women work 14 hours a day, six days a week. They could have found another job. Did the government make them work in sweatshops?

erowe1
09-23-2009, 05:05 PM
Which allows people to stop drudging through piles of garbage for things to sell (where a lot get run over by garbage trucks) or off the farm where they barely subsist. Sweat shop looks bad to you, but great to the guy who is tired of mucking around in other people's shit (quite literally). And yay for your ignorance!

Hold on a second. I think you might think I was being sarcastic. I wasn't. I seriously believe that sweat shops are a great example of the greatness of the free market. I agree with what you said. Sweat shops are a good, not bad, thing. It is to the discredit of our nation that we don't allow them. People should be allowed to offer their labor according to whatever terms they decide are best for them. We should get rid of OSHA, the minimum wage, and all child labor laws. When my wife moved here from Vietnam at the age of 13, she and her family had nothing, and they couldn't fathom why she was not allowed to work. I can't either. Such self-righteous meddlesome laws are unequivocally evil.

I realize that's a shocking thing for someone to say. And that's why I said it. But I meant it 100%.

thasre
09-23-2009, 05:34 PM
I know this is cheating, but for a better set of answers to this than I could come up with on the spot or care to type, everyone here should watch as much as they can of the 10 part series (plus later updates as I understand) of Milton Friedman's, "Free to Choose."
http://www.ideachannel.tv/

I discovered these over the summer and THEY ARE AWESOME. I've always respected Milton Friedman, but this made him into something of a hero in my eyes.

Maverick
09-23-2009, 06:00 PM
Consumer electronics like computers, cell phones, televisions, etc are all nice examples and do make sense in a context of making the argument that competition lowers prices and improves quality. However, there is a certain level of government meddling even in these areas, so presenting these examples as part of your argument to a socialist will be met with something like "well, that's because the government has found the right way to regulate these industries, so if they keep working at it they can perfectly regulate health care, environmental issues, CEO pay, etc. too!"

We have to be able to demonstrate why even the lesser regulation in some industries is still detrimental to further improvements in price and quality. And most socialists usually have to be held by the hand and shown why General Mills won't suddenly start pissing in your Cheerio's absent any government bureaucrat telling them not to.

mczerone
09-23-2009, 08:45 PM
My personal favorite: shoes.

How may people would say that the private market, without any specific regulations, failed in creating a standard, safe, human-friendly product at cheaper and cheaper prices and better and better quality? And none of these effects can be explained away as being in spite of non-centralization (where some might argue that the internet and electronics are by-products of State "science" efforts).

RedStripe
09-23-2009, 08:57 PM
: "Sweatshops aren't a product of the free market."

Sweatshops were at their zenith when America was at its free market peak in the late 1800's. Nobody made ten year old kids and women work 14 hours a day, six days a week. They could have found another job. Did the government make them work in sweatshops?

Yes, the government did all sorts of things which artificially increased the labor supply, such as making it harder, via a myriad of legal rules, to be self-employed.

The late 1800s weren't an example of the free market - not even close. Big business was able to secure all sorts of regulations and controls in its favor. This caused inequities and conditions that helped spawn the progressive movement which, as a backlash, demanded that government likewise intervene on the behalf of the laborers.

If my only choice is to work in a sweatshop because the government taxes me too harshly if I farm my land, or because the government makes it too difficult for me to start my own business (via control/regulation of a particular industry or by regulation of how capital is allocated (banking/lending controls)) or because the government's monopolized legal system doesn't recognize a legal business 'personhood' other than the corporation, or because the government has granted exclusive monopolistic rights to particular organizations or individuals to use certain technologies or produce certain products (intellectual property), then it's obviously not a "choice" I'm making in a free market.

YumYum
09-23-2009, 10:13 PM
Yes, the government did all sorts of things which artificially increased the labor supply, such as making it harder, via a myriad of legal rules, to be self-employed.

The late 1800s weren't an example of the free market - not even close. Big business was able to secure all sorts of regulations and controls in its favor. This caused inequities and conditions that helped spawn the progressive movement which, as a backlash, demanded that government likewise intervene on the behalf of the laborers.

If my only choice is to work in a sweatshop because the government taxes me too harshly if I farm my land, or because the government makes it too difficult for me to start my own business (via control/regulation of a particular industry or by regulation of how capital is allocated (banking/lending controls)) or because the government's monopolized legal system doesn't recognize a legal business 'personhood' other than the corporation, or because the government has granted exclusive monopolistic rights to particular organizations or individuals to use certain technologies or produce certain products (intellectual property), then it's obviously not a "choice" I'm making in a free market.

Yeah, but to the immigrant child working in extremely harsh conditions, all these points you mentioned don't apply. He had to work or starve. In the free market a child will work for less than an adult. In the free market, this is good, because it will translate into cheaper prices for the consumer. Since Free Market Utopia doesn't allow for government regulation to protect children from working below a certain age or in hazerdous conditions, would it permit children to work in porn or prostitution?

RedStripe
09-23-2009, 10:20 PM
Yeah, but to the immigrant child working in extremely harsh conditions, all these points you mentioned don't apply.

But they do apply, because the 'harsh conditions' are a result of the fact that government interference in the economy has shifted the balance of power in favor of the capital owners and has suppressed the opportunities of the middle and lower classes.


Since Free Market Utopia doesn't allow for government regulation to protect children from working below a certain age or in hazerdous conditions, would it permit children to work in porn or prostitution?

Well, does the U.S. Federal Government "permit" children to work in porn or prostitution? The answer is a resounding YES - both inside the United States and abroad. The U.S. government "permits" these things to occur in many other countries. In other words, it does absolutely nothing to stop them. Is that wrong? It sounds similar to the limitations on private institutions to enforce social justice policies on third parties.

shams_alwa'ezeen
09-23-2009, 10:24 PM
The free market is only good if some sort of governing body bans usury/interest.

RedStripe
09-23-2009, 10:34 PM
The free market is only good if some sort of governing body bans usury/interest.

The free market is only good if some sort of governing body bans people who believe that the free market is only good if some sort of governing body bans usury/interest.

shams_alwa'ezeen
09-23-2009, 10:36 PM
The free market is only good if some sort of governing body bans people who believe that the free market is only good if some sort of governing body bans usury/interest.

dividing by zero is also good.

YumYum
09-23-2009, 11:11 PM
But they do apply, because the 'harsh conditions' are a result of the fact that government interference in the economy has shifted the balance of power in favor of the capital owners and has suppressed the opportunities of the middle and lower classes.



Well, does the U.S. Federal Government "permit" children to work in porn or prostitution? The answer is a resounding YES - both inside the United States and abroad. The U.S. government "permits" these things to occur in many other countries. In other words, it does absolutely nothing to stop them. Is that wrong? It sounds similar to the limitations on private institutions to enforce social justice policies on third parties.

So what you are telling me is that when we enter into that new promised land of Free Market Utopia, we will have child pornography and child prostitution if the consumer demands it?

NYgs23
09-24-2009, 05:40 AM
It's not quite the market under the strictest sense of the term, but you can't beat Wikipedia as an example of spontaneous organization.

shams_alwa'ezeen
09-24-2009, 05:45 AM
It's not quite the market under the strictest sense of the term, but you can't beat Wikipedia as an example of spontaneous organization.

Wikipedia? That is communist encyclopedia.

NYgs23
09-24-2009, 09:34 AM
Wikipedia? That is communist encyclopedia.

Huh? It was inspired by F A Hayek: "What Is Wikipedia and What Is It Good For?" (http://www.lewrockwell.com/orig8/clark-d1.html)

TGGRV
09-24-2009, 12:18 PM
If you ban interest, then I don't see why anyone would lend money. If I don't have any gain in lending someone money to start a business, then I won't give him a loan and his business will simply not exist. And banning interest is anti-free market anyway. As long as both sides agree with the terms, obviously.

You're probably one of those people who think inflation of the money supply is bad. First of all, you NEED inflation of the money supply to keep up with the increase in production. For example, let's suppose that the money supply is constant. I could invest today and open a car manufacturing company, which will cost me 100 billion. Due to the money supply staying constant, it will take me decades to have my investment money recuperated(amortization of the investment) because the goods I am manufacturing are "losing value". So, it would be in my best interest to not invest in anything and just keep the money. Obviously, some people will still produce things, but the improvements of the goods and their price in real terms will be bigger. This doesn't mean that the way the money supply is inflated now is good. It is a disaster. But a fixed money supply leads to economic stagnation. Economic growth means sacrificing current consumption in order to lead to future production, through investments. If the future production is worth less, there's a way smaller incentive to produce. It is a really complicated thing to get right.

Truth-Bringer
09-24-2009, 02:54 PM
You're probably one of those people who think inflation of the money supply is bad. First of all, you NEED inflation of the money supply to keep up with the increase in production.

Not necessarily.

What we desire is a free market in money. Yes, if I agree to the terms of money creation, then as a result of that voluntary contract between myself and a lender, they can print as much money as we agree to.

However, no one agreed to have the government and Fed print as much money as they desire. And they also forbid competing currencies. We are all forced to use their fiat federal reserve notes for all public and private debts - which amount to trillions of dollars in transactions - which results in a de facto monopoly.

Choosing a currency is a peaceful, honest, voluntary action. The government should have no control over money. Let the people freely decide what they want to use as money.

familydog
09-24-2009, 05:34 PM
One great concrete example of what the free market does right is sweat shops.

Not all sweat shops are an example of the free market. Many libertarians lose sight of the bigger issue in these cases.

Bucjason
09-24-2009, 06:11 PM
Things the free market does well :

Everything.

noxagol
09-24-2009, 06:25 PM
You're probably one of those people who think inflation of the money supply is bad. First of all, you NEED inflation of the money supply to keep up with the increase in production.

No, not at all. As other things increase in supply compared to money, money will gain value and prices will gradually decrease as a result.

TGGRV
09-25-2009, 04:20 AM
No, not at all. As other things increase in supply compared to money, money will gain value and prices will gradually decrease as a result.That's the whole point. Why invest today when the money I have now will be worth more tomorrow? The investment made today will be cheaper tomorrow. You will get to amortization rates of decades and nobody will see a point in it. It will lead to lower competition due to it and lower standards.

This is why it is enough to have interest rates set by the free market. This will always lead to savers being protected and inflation being kept down, while also not leading to super long amortization rates, making investing stupid. The problem is your reasoning is that you assume the same investment patterns.

YumYum
09-25-2009, 07:46 AM
That's the whole point. Why invest today when the money I have now will be worth more tomorrow? The investment made today will be cheaper tomorrow. You will get to amortization rates of decades and nobody will see a point in it. It will lead to lower competition due to it and lower standards.

This is why it is enough to have interest rates set by the free market. This will always lead to savers being protected and inflation being kept down, while also not leading to super long amortization rates, making investing stupid. The problem is your reasoning is that you assume the same investment patterns.

You make excellent points. In the scenerio you are describing, the consumer benefits and those hording their money in a high interest account benefit. The manufactuer/retailer, and anyone who holds onto goods are at risk. I see the downside as you have pointed out, but the upside would be that the market would demand newer/better/cheaper, which is good for the consumer. Another downside is pollution. People will be buy stuff so cheap that they will throw it away when it is still usable. I can see it now; computers for ten dollars. That plastic land fill in the Pacific will be the size of North America.

silverhandorder
09-25-2009, 07:54 AM
That's the whole point. Why invest today when the money I have now will be worth more tomorrow? The investment made today will be cheaper tomorrow. You will get to amortization rates of decades and nobody will see a point in it. It will lead to lower competition due to it and lower standards.

This is why it is enough to have interest rates set by the free market. This will always lead to savers being protected and inflation being kept down, while also not leading to super long amortization rates, making investing stupid. The problem is your reasoning is that you assume the same investment patterns.

Wait I am confused. The money will be spent eventually. What does it matter if it is not spent for investing purposes? This would simply be another check against malinvestment. Where people who invest will be the ones who know what they are doing. Why does there need to be competition in investing? People who own capital and want to make it more productive will still continue to do what they do (competition).

Why would some one hoard money without ever meaning to spend it?

YumYum
09-25-2009, 08:09 AM
Wait I am confused. The money will be spent eventually. What does it matter if it is not spent for investing purposes? This would simply be another check against malinvestment. Where people who invest will be the ones who know what they are doing. Why does there need to be competition in investing? People who own capital and want to make it more productive will still continue to do what they do (competition).

Why would some one hoard money without ever meaning to spend it?

With inflation, the last thing you want to do is hold onto cash; in deflation it is the opposite. Goods become worthless, money becomes more valuable. The upside is the demand for newer/better/cheaper. If my $100 dollars today is worth $110 next week, why would I buy goods that will rapidly go down in value? I would buy them because I am an American consumer. I would buy something cheap, use it for a couple days, then throw it away and go buy the newer/better/cheaper version.

silverhandorder
09-25-2009, 08:23 AM
With inflation, the last thing you want to do is hold onto cash; in deflation it is the opposite. Goods become worthless, money becomes more valuable. The upside is the demand for newer/better/cheaper. If my $100 dollars today is worth $110 next week, why would I buy goods that will rapidly go down in value? I would buy them because I am an American consumer. I would buy something cheap, use it for a couple days, then throw it away and go buy the newer/better/cheaper version.
I don't disagree with your premises. I don't understand the conclusion. All that you describe simply shows that we are more wealthy. If some one can afford the luxury of throwing things away then what does that have to do with the fact on how the money works.

Lisle16
09-25-2009, 08:28 AM
Where I live, which is in the Silicon Valley in CA, the high-tech industry has flourished quite well without government intervention, and there is much competition.

fisharmor
09-25-2009, 08:36 AM
Regarding lending at interest... if currency deflation, because of commodity-backed money, was the norm, why would any of the assumptions listed so far be relevant?
If currency supply deflated, then it would not be necessary to have usury laws. There would be a market for 1% simple interest loans.

My understanding of our current situation is that interest rates get so high in order to overcome a snowballing effect of inflation. Car loans and other short-term loans can be of a much lower rate than home loans. The reason is that there is less time for the effects of inflation to snowball.

However, home loans need to have much higher rates of interest (which are concealed through financial trickery) in order to overcome drastic inflation. People who started mortgages in 1979 are paying them off this year, and you can't tell me that even the usurious 12% rape they got back then ended up being a great deal for the bank over the course of 30 years.

If currency deflated, then the snowball effect would be reversed... lenders would have no reason, other than gouging, to charge higher than a few percentage points. The market would favor much lower rates.
A 5-year auto loan for $20k at 2% would get a lender $2000 by the end of the loan. However, if we assumed that the currency deflated by 1% per year, that $2000 would in five years have the same spending power of $2100 today.

(edit: at 6% inflation, for a 7% loan, the lender makes $7000, which in 5 years would have the purchasing power of $5137.33 today. Remember that the $7000 also has to recoup the losses the lender sufferers on the original $20k as well, from not having that money to spend - which is $5321.92.
On the other hand, in a deflating situation, all of the original $20k has its purchasing power plus another 1% per year, or $812.08 over the life of the loan.)

That's an oversimplification, and the numbers would likely be different, but you see that the rules we all take for granted would be turned on their heads if we didn't have to overcome 6% inflation every year the way investment advisers say we do.


Also, thanks for the shoes example... otherwise, thread fail.

mczerone
09-25-2009, 08:44 AM
Also, thanks for the shoes example... otherwise, thread fail.

No problem. And I don't think the rest of the thread was a total waste, it just didn't focus on the things you were looking for.

YumYum
09-25-2009, 09:08 AM
I don't disagree with your premises. I don't understand the conclusion. All that you describe simply shows that we are more wealthy. If some one can afford the luxury of throwing things away then what does that have to do with the fact on how the money works.

According to Peter Schiff, if money is backed by gold, then interest rates would be high, rewarding the saver, and punishing the borrower. In this scenerio, people wouldn't borrow, but only purchase goods with cash. This was the problem in the late 1800's with the debate of silver verses gold. There is only so much gold, and the bankers, who were for the gold standard, would only give loans to other wealthy borrowers. The little guy, like the farmers, couldn't get loans, and they wanted money backed by silver, of which there was an abudence. Short supply of money; business is stagnet with deflation. Too much money; hot economy with inflation. What the Fed promised to do was to keep a check and balance of inflation/deflation so the economy could grow with the increase of the population and the demand for goods and services. But as we know, they failed. If the population remains the same, and the demand remains the same, then stagnation would work. But when the population grows and the demand for products and goods increases there has to be an increase in the money supply. So, what is the problem? As LBJ, realized: "There isn't enough gold in the whole world to back the American dollar." Neither is there enough silver. That is why we have fiat money.

TGGRV
09-25-2009, 09:31 AM
According to Peter Schiff, if money is backed by gold, then interest rates would be high, rewarding the saver, and punishing the borrower. In this scenerio, people wouldn't borrow, but only purchase goods with cash. This was the problem in the late 1800's with the debate of silver verses gold. There is only so much gold, and the bankers, who were for the gold standard, would only give loans to other wealthy borrowers. The little guy, like the farmers, couldn't get loans, and they wanted money backed by silver, of which there was an abudence. Short supply of money; business is stagnet with deflation. Too much money; hot economy with inflation. What the Fed promised to do was to keep a check and balance of inflation/deflation so the economy could grow with the increase of the population and the demand for goods and services. But as we know, they failed. If the population remains the same, and the demand remains the same, then stagnation would work. But when the population grows and the demand for products and goods increases there has to be an increase in the money supply. So, what is the problem? As LBJ, realized: "There isn't enough gold in the whole world to back the American dollar." Neither is there enough silver. That is why we have fiat money.Actually no, there's enough gold. You can just set an ounce of gold being worth 10 000$. lol

silverhandorder, it would be stupid to invest because material things will be a depreciating asset and having money will be an appreciating asset. It's common sense and the reverse of the current situation. This means that investing is stupid since your investment will be worth less as a factory than keeping cash.

fisharmor, if I have 20 000$ and the market deflates, why would I lend it? It will grow with the same value as if I lent it. :| And this thread is mute. I thought we need to take the government out of the private lives of people - usury laws aren't that.

YumYum
09-25-2009, 09:43 AM
Actually no, there's enough gold. You can just set an ounce of gold being worth 10 000$. lol

silverhandorder, it would be stupid to invest because material things will be a depreciating asset and having money will be an appreciating asset. It's common sense and the reverse of the current situation. This means that investing is stupid since your investment will be worth less as a factory than keeping cash.

fisharmor, if I have 20 000$ and the market deflates, why would I lend it? It will grow with the same value as if I lent it. :| And this thread is mute. I thought we need to take the government out of the private lives of people - usury laws aren't that.

: "Actually no, there's enough gold. You can just set an ounce of gold being worth 10 000$. lol."

Yes, you could, but if you set the value of paper to an ounce of gold, their would be a huge demand for gold that would drive its price up into the stratosphere. If this were to happen, the points you are making would have even more validity. Who would want to spend cash that is appreciating everyday by %1000?

fisharmor
09-25-2009, 10:07 AM
Actually no, there's enough gold. You can just set an ounce of gold being worth 10 000$. lol

Well, it's not really an lol-type of thing... that's what would happen. And it would be a good thing.
As Murry Rothbard points out in The Case Against the Fed:
any supply of money is the right amount.
It doesn't matter whether there are seventy trillion dollars in the world, or only one. Any supply of dollars is the right supply. The trouble always comes when that supply fluctuates wildly.
We can put up with mild inflation, and we can even put up with mild deflation (though it would screw debtors over, who would then vote inflationists back in.)
The problem is when it is not mild.


silverhandorder, it would be stupid to invest because material things will be a depreciating asset and having money will be an appreciating asset. It's common sense and the reverse of the current situation. This means that investing is stupid since your investment will be worth less as a factory than keeping cash.

As opposed to what we have now, where both are depreciating?
Plus, I subscribe to Robert Kiyosaki's point of view on this... a thing can only be an asset if it makes you money. If money by itself deflates 1% per year (which I use as an example but consider to be quite a lot), then all you have to do with your factory is make a 2% profit with it to beat the deflation-based appreciation.

You seem to be mistaken as to the purpose of factories... one does not buy a factory to then sell it later at a profit. One buys a factory to make something with it, and then sell that.


fisharmor, if I have 20 000$ and the market deflates, why would I lend it? It will grow with the same value as if I lent it. :| And this thread is mute. I thought we need to take the government out of the private lives of people - usury laws aren't that.

What do you want? I already laid some math down on it. I'm also arguing against usury laws - they would be unnecessary if currency deflated, since there would be market pressure (again, note the math) to keep interest rates very low.

If anything, there is more of a reason for me to lend the money in a deflation situation than to buy a factory - since once I account for all the BS and overhead, the factory has to make far more than 2% profit for it to be worth my while. If I lend it, and it deflates, then I'm guaranteed a profit from deflation (the same as sitting on it), any interest the borrower pays is gravy on top of that, and I haven't done a damned thing but write a check.

The bottom line is that, again, few of our assumptions on how the game would be played would be valid, since the rules would be turned on their head.
I'm making the argument that there are very, very large hidden costs of doing business based on inflation which we do not regularly consider, and which would not be applicable in a deflationary situation.
I'm also admitting that there would be hidden costs of doing business in a deflationary situation, but that those hidden costs would be much, much smaller than what businesses currently put up with.

YumYum
09-25-2009, 10:31 AM
Well, it's not really an lol-type of thing... that's what would happen. And it would be a good thing.
As Murry Rothbard points out in The Case Against the Fed:
any supply of money is the right amount.
It doesn't matter whether there are seventy trillion dollars in the world, or only one. Any supply of dollars is the right supply. The trouble always comes when that supply fluctuates wildly.
We can put up with mild inflation, and we can even put up with mild deflation (though it would screw debtors over, who would then vote inflationists back in.)
The problem is when it is not mild.



As opposed to what we have now, where both are depreciating?
Plus, I subscribe to Robert Kiyosaki's point of view on this... a thing can only be an asset if it makes you money. If money by itself deflates 1% per year (which I use as an example but consider to be quite a lot), then all you have to do with your factory is make a 2% profit with it to beat the deflation-based appreciation.

You seem to be mistaken as to the purpose of factories... one does not buy a factory to then sell it later at a profit. One buys a factory to make something with it, and then sell that.



What do you want? I already laid some math down on it. I'm also arguing against usury laws - they would be unnecessary if currency deflated, since there would be market pressure (again, note the math) to keep interest rates very low.

If anything, there is more of a reason for me to lend the money in a deflation situation than to buy a factory - since once I account for all the BS and overhead, the factory has to make far more than 2% profit for it to be worth my while. If I lend it, and it deflates, then I'm guaranteed a profit from deflation (the same as sitting on it), any interest the borrower pays is gravy on top of that, and I haven't done a damned thing but write a check.

The bottom line is that, again, few of our assumptions on how the game would be played would be valid, since the rules would be turned on their head.
I'm making the argument that there are very, very large hidden costs of doing business based on inflation which we do not regularly consider, and which would not be applicable in a deflationary situation.
I'm also admitting that there would be hidden costs of doing business in a deflationary situation, but that those hidden costs would be much, much smaller than what businesses currently put up with.

: "If anything, there is more of a reason for me to lend the money in a deflation situation than to buy a factory - since once I account for all the BS and overhead, the factory has to make far more than 2% profit for it to be worth my while. If I lend it, and it deflates, then I'm guaranteed a profit from deflation (the same as sitting on it), any interest the borrower pays is gravy on top of that, and I haven't done a damned thing but write a check."

This scenerio has some holes. First of all, if you lend money you have to take into account risk. You admit that a factory has to make "far more than 2% profit for it to be worth my while." So, you would lend the money to whom? To do what? Build a factory? A factory in this scenerio would be a high risk investment, and if it wasn't, you would build and operate your own factory. If you lend money in deflation, you would only make loans that are low risk, and that would be to people who are rich, people that you know that can pay you back. This is what the eastern bankers of the late 1800's were faced with. In this case, the rich get richer and the poor get poorer.

TGGRV
09-25-2009, 10:51 AM
: "Actually no, there's enough gold. You can just set an ounce of gold being worth 10 000$. lol."

Yes, you could, but if you set the value of paper to an ounce of gold, their would be a huge demand for gold that would drive its price up into the stratosphere. If this were to happen, the points you are making would have even more validity. Who would want to spend cash that is appreciating everyday by %1000?
Obviously only a moron would announce how much they're going to buy and when - or well, the PM of the UK, Gordon Brown, but on the reverse.

And yes, a fixed money supply will lead to stagnation.

fisharmor, I don't advocate what the Fed is doing and how garbage their monetary policy is. I don't support inflation that causes prices to rise constantly, like they do now. What I am saying is that a fixed money supply isn't the solution to anything. And yes, I know that it isn't a laughing thing about the 10 000$ for an ounce and I know that this would be the way it would be done if some country would want to get back to the gold standard. The idea that there isn't enough gold was the amusing part.

And I know the purpose of factories, but they aren't short term investments. It's like saying that 107% CPI isn't THAT bad, but this in 10 years means a doubling of prices. Same with deflation. It's an exponential function. It is the same drag on both consumers and producers because on one hand people are less likely to invest(produce goods and employ people) and on the other hand consumers will be less likely to consume because the goods will be cheaper tomorrow. I can really go on forever about this, but my point has been proven by economists before. And not Keynesians. Heh. In order for this to work, as more goods are produced, the speed of transactions would have to increase constantly.

Good, for some reason I thought you were for usury laws. And the extra interest rate is also a function of risk. You might not really get repaid, you know? :P

And as I said, I don't advocate the current monetary policy of any country in the world. The money supply is out of touch with the real economies.

fisharmor
09-25-2009, 10:53 AM
This scenerio has some holes. First of all, if you lend money you have to take into account risk.
Of course you do. That is why it is lent at a higher interest rate than if repayment was guaranteed. Think of it this way: the 1% deflation gets subtracted from the 6% interest rate. Though as the math shows, that's an oversimplification, and the 1% deflation actually mitigates more than 1% of the interest rate.
The risk portion of the interest rate is, I submit, much less than the inflation-based part of the interest rate.


You admit that a factory has to make "far more than 2% profit for it to be worth my while."
Well, this assumed the scenario that I use one of two options: a) sit on the money, b) buy a factory. There are many other scenarios, like c) pool my money with stockholders to help a third party buy a factory, d) if I really want a factory, then save up for it - modern financing is, after all, a consequence of a consistently inflationary situation, isn't it? The fact that we could actually save for large purchases seems to get lost in this discussion, but it is quite significant.

What I meant by it, though, is that the factory operator needs to make enough money off the factory to pay employees, utilities, get raw materials, etc. If I'm sitting on money, and I don't want to engage in all those activities, then I can either get the 1% deflation value on it, or I can lend it to someone interested in undertaking those activities - at a much lower rate, like 1-3%. I would have an incentive to lend it, and charge interest based on risk only, instead of lending it based on the inflation-based loss of value of the money itself.

At that point, it is the factory operator's problem how to come up with 4% or so of debt service... but even though it looks like he's screwed, I submit that he is at most equally screwed as he would be in the inflationary situation.


So, you would lend the money to whom? To do what? Build a factory? A factory in this scenerio would be a high risk investment, and if it wasn't, you would build and operate your own factory. If you lend money in deflation, you would only make loans that are low risk, and that would be to people who are rich, people that you know that can pay you back. This is what the eastern bankers of the late 1800's were faced with. In this case, the rich get richer and the poor get poorer.

Um... I am certainly not rich, and I have a credit score in the mid-700's. My wife also has a credit score in the same neighborhood.

DING DING DING - BACK ON TOPIC FOR A SECOND.... Credit ratings agencies! There's something government didn't invent, right?

Where was I... right, I didn't have that rating from the beginning. I had to get a little money lent first, and build up to the point of being able to get new cars. If I wanted to, I could go get a significant amount of money for a business venture, at a reasonable rate, with my rating to back me up.

So I'm not sure where you're going with this... are you advocating that people not have to work and prove their trustworthiness before they get lent money?
Isn't this part of what the whole credit meltdown was about? That government was backing loans that shouldn't have been made?

Moreover, even if a venture is high-risk, it would still carry a rate based on risk... but remember that we're removing the hidden inflation part of the rate, so it would still be lower than what we have now.

fisharmor
09-25-2009, 11:05 AM
And yes, a fixed money supply will lead to stagnation.
....
The idea that there isn't enough gold was the amusing part.
....
And I know the purpose of factories, but they aren't short term investments. It's like saying that 107% CPI isn't THAT bad, but this in 10 years means a doubling of prices. Same with deflation. It's an exponential function. It is the same drag on both consumers and producers because on one hand people are less likely to invest(produce goods and employ people) and on the other hand consumers will be less likely to consume because the goods will be cheaper tomorrow. I can really go on forever about this, but my point has been proven by economists before. And not Keynesians. Heh. In order for this to work, as more goods are produced, the speed of transactions would have to increase constantly.


But what about the argument that new gold is consistently added to the supply?

What about the argument that this supply was in the 1800s shown to consistently lead to MILD deflation? We're not talking about halving prices on 10 years, at least not because of deflation.

You mention a drag on consumers and producers, and I hear what you're saying about no economy being a great idea, but what I think other people might read into your statement is that it's the government's job to dictate what type of economy we have. I realize that you're arguing from a philosophical standpoint of which is better than which here, but it bears mentioning that the type of money we have is still none of the government's business. They have a constitutional mandate to coin money, not to make it the only money in the land.

Also, I frequently go without products because they will be cheaper tomorrow. If everyone did, then yes, there would be no innovation. But America is chock-full of people buying shit they don't need for way too much money. That some people might act responsibly doesn't really concern me.

Also, just as the graphs show that gold backed money is gently deflationary, history does show that as more products are created, transactions get faster. When was the last time you ordered something advertising 6-8 weeks for delivery? When was the last time you wrote a check? These things happened in our lifetimes, and it was 100% market driven.

People find a way.

TGGRV
09-25-2009, 03:38 PM
But what about the argument that new gold is consistently added to the supply?

What about the argument that this supply was in the 1800s shown to consistently lead to MILD deflation? We're not talking about halving prices on 10 years, at least not because of deflation.

You mention a drag on consumers and producers, and I hear what you're saying about no economy being a great idea, but what I think other people might read into your statement is that it's the government's job to dictate what type of economy we have. I realize that you're arguing from a philosophical standpoint of which is better than which here, but it bears mentioning that the type of money we have is still none of the government's business. They have a constitutional mandate to coin money, not to make it the only money in the land.

Also, I frequently go without products because they will be cheaper tomorrow. If everyone did, then yes, there would be no innovation. But America is chock-full of people buying shit they don't need for way too much money. That some people might act responsibly doesn't really concern me.

Also, just as the graphs show that gold backed money is gently deflationary, history does show that as more products are created, transactions get faster. When was the last time you ordered something advertising 6-8 weeks for delivery? When was the last time you wrote a check? These things happened in our lifetimes, and it was 100% market driven.

People find a way.
Can the new gold keep up with the increases in production? If yes, I agree with you, the system is perfect.

And yes, I'm not saying the government should dictate the type of money and policy you have. I agree with this. Probably competing currencies would work the best, but it would be confusing.

And now you have an inflationary situation for decades. There's no comparison to the price drops you'd get - well, if you had a sound economy. So more people wouldn't buy and less people would invest.