August 2011


Full article posted here

I’m only going to address the common fallacy that appears below, as it continues our previous discussion with respect to monopoly and the monopoly price.

But this is nonsense – businesses are not really ‘consumers’ at all.

Nonsense indeed. Businesses are indeed consumers. If I sell coffee, unless I am 100% vertically integrated, viz. I own the land, grow the coffee beans, own the transport from land to port, own shipping, etc, etc, then I am a consumer, until I produce my product. If I employ a workforce, I am the consumer of labour. If I pay rent for the land, I am a consumer of land.

When prices are more than costs, the extra cash is available to further the prime business activity – maximising money revenue while minimising money costs.

Agreed.

For example, if we own a business, a cash surplus means we can manipulate the market by temporarily setting our prices lower than our cost of producing goods.

Agreed.

While our firm makes a loss in the short term, the surplus acts as a cushion as other firms go bankrupt.

Assuming that you can stay in business longer than they can. This assumes that you were the lowest cost producer in the first place. So for the sake of argument, let me grant that assumption.

Once they’ve been driven out of the market, our firm has a monopoly and can then put up prices again and increase profits further. And, as economists frequently forget, markets don’t float free but are part of the social fabric.

And herein lies the error and the fallacy. Let me suppose that the other firm went out of business due to losses. The fixed capital could be purchased by myself, at a discount, and I could re-enter the market, now that attractive pricing again exists, only this time, you are no longer the low price producer I am. Cutting selling costs again, would only put you out of business.

Simply stated: monopoly cannot exist on the free market. Monopoly can only exist when there is government intervention into the market granting privilege [monopoly] to a favored producer.

Diarmid Weir Says:

August 28, 2011 at 4:50 am e

If A gets control of B’s actions by threats or persuasion, then it would seem that the effect is precisely the same as if A controlled them directly. To say otherwise is a semantic distinction with no practical effect.

Incorrect.

There is a material difference between B gaining control of A through coercion and fear, and B gaining control of A through a method that limits A’s ability to think for himself and make choices. That is an enormous practical difference.

It is also possible with modern surgery that A could control a part of B’s body (eg: arm or face) without any interposition of B’s mind whatsoever. Interestingly, I think we would generally say that any actions carried out using that transplanted part were the actions of A rather than of B!

If that is true, then through the ability of A to remove choice from B we have a situation of true control. I agree that any actions taken by B under the control of A must redound to A.

Property rights do currently exist as law. They are the foundation of the common law. It is only that government violate them to achieve their ends.

Indeed. Both property rights and government have the property of currently existing. As such neither of them seem to be favoured by this line of argument. One could turn the argument round and say (as an argument against property rights) that it is only property rights that act as a limit to the actions of government!

Agreed. That is after all the purpose of Constitutional Law. The law that government ignores and runs roughshod over. The law that the Judiciary is supposed to enforce, but turns a blind eye to government violations of.

In fact, the more reasonable position would be that both exist in balance according to the consensus arrived at through social bargaining across various spheres (market, judicial, democratic and threat of force).

This is where we disagree. The balance has long been smashed through government usurpations under the rubric of threats of war, terrorism, crime, etc. What we are left with is a shadow of what we once had.

Then he’s bang out of luck son!

Precisely. Which leaves valuable assets with poorly defined a priori property rights. The decision that nobody, somebody or everybody should take these over can only be an empirical one.

The owner is the owner, unless it can be proven that in point of fact that he is not the owner. If this can be done, the legal title reverts to the correct owner of the legal title. Clear and simple.

We’re talking currently accepted usage. So living economists please.

Tsk, tsk Dr.D. You keep trying to change boats in mid-stream.

…a deductive argument is productive of necessary conclusions,..

Only if the starting premise is necessarily true – which is the point at issue.

Correct. And you have already accepted is as such. Or do you want to change boats again?

Diarmid Weir Says:

August 28, 2011 at 4:22 am e

That inflation is a monetary phenomenon, that reveals itself eventually in the symptom of higher prices, although not uniformly, the equation of exchange is invalid for performing an analysis.

I assume this is the conclusion. No idea what it means.

Simply that the causative agent for inflation is an expansion of the money and credit supply. That the equation of exchange is illegitimate and worthless.

You are right to draw attention to the problems of marginal analysis in determining and interpreting an average price level,

So far so good.

but you should be aware that inflation is a rate of change.

A rate of change in the money/credit supply.

Thus it is possible that conceptual and measurement errors in the price level may cancel out.

There is, as demonstrated, no such thing as the price level

In effect this is precisely the role of velocity (V) in the quantity equation.

Velocity. More nonsense.

Thus my take on the Quantity Equation is simply that given some stability of measurement and institutional factors, the average price level (= the average purchasing power of money) is likely to be the result of a relationship between the amount of money and the amount of goods and services available to purchase in any defined time period.

It has just been shown that the price level is an illegitimate construction. That it in no way = total money spent. Before you can use that nonsense, you need to prove it.

In general it would be anticipated that a rise in money greater than a rise in goods would cause a rise in the average price level (inflation),

And that is exactly what doesn’t happen. Newly created money flows to the goods and services demanded by the creators of the new money, not to some fictional average price level. Why do you think financial markets were rising on the back of QE1/2?

and a rise in money less than a rise in goods would cause a fall in the average price level (deflation). The exact nature of the relationship and its usefulness are entirely empirical matters.

Until you can prove the equation of exchange, any reference to it is simply incorrect and nonsense.

Market is trading higher. All my positions are up save one. The average is about 5%, so a good start to the week. I would imagine that if we close higher that SC’s TT will confirm the move. Saying that, we are still needing to trade above the resistance point of the initial bounce to generate some momo to get higher.

Catch up with you chaps later, I’m off to the gym for legs & delts.

…my missus is looking at me as if I am losing my mind.

She’s a photographer; she’s probably right.

But now she’s buggered off to get some wine and fags. Leaves me free to get back to the computer. I’ve added your photo blog to the blogroll.

As to B controlling A’s body, this can only be accomplished in two ways:…

If it can be accomplished at all, that supports my position. It is not logically or physically impossible, and no rights or law have been established prior. We have a wish, a belief, an opinion, masquerading as an ‘axiom’.

The question that is important however is can A be shown to control A’s body. Clearly it can. Therefore, the deduction is valid, as is the subsequent deduction. This then confirms the axiom, from which the ethic of property rights can be deduced. Property rights do currently exist as law. They are the foundation of the common law. It is only that government violate them to achieve their ends. That they can do so, and get away with it is due to their monopoly hold on the Courts and police, which transform from tools of justice into tools of coercion.

…if a claimant can show that his forebear worked as a contracted labourer…

And if he can’t? If there are no descendants to make the claim? What about Elizabethan literature, then?

Then he’s bang out of luck son!

The discipline is economics. Within that discipline how many schools of thought exist?

OK. Find me two economists who share your interpretation of the concepts of ‘revealed preference’, ‘monopoly’ and ‘inflation’.

For revealed preference we have [i] Fetter [ii] Jevons and [iii] Fisher
For monopoly [i] F.Wayland [ii] Lord Coke [iii] E.H.Chamberlain
For inflation [i] Friedman [ii] A.Smith

Assuming you start with an axiom…

But axioms are not part of the real world (unless tautologies), only of theories/models/representations of it. The testing of an ‘axiomatic’ statement or of a theory based on it may suggest that axiom to be generally true – but then it ceases to be an axiom.

Nonsense.

The fundamental difference between a deductive argument and an inductive argument is that a deductive argument is productive of necessary conclusions, while an inductive argument is only productive of probable conclusions. Thus an economic theory built from deductive arguments will be true in all times and places, while an inductive theory will only have probabilities attached to its conclusions. An axiom cannot be tested, and has no requirement to be tested. An axiom is not generally true it is always true, in all times and places.

Have you ever subjected your own theory to the test of logic…

To what theory are you referring? I didn’t espouse attachment to any theory here.

You provided your argument to my definition of inflation with the nonsense that is the equation of exchange, or MV=PT. I suppose it is true that you never claimed attachment.

One of the difficulties of autism is a failure to pick up typical indirect cues that indicate what other people are feeling and thinking. The fact that most people do respond appropriately suggests that there are common and particular patterns of human behaviour.

Which rather suggests the validity of the a priori approach over the inductive.

M*V = P*T or the equation of exchange has been presented by Dr.D as a refutation of my initial statement that an increase in money and/or credit, will result in an inflation.

A counterexample: production of goods increases at the same rate as the expansion of money and credit – no inflation.

To which my response was that this was simply the Real Bills doctrine.

No, it’s not the Real Bills Doctrine – but the Quantity Equation (MV=PT) I am invoking. (Although in fact the former follows from the latter under certain conditions.)

This fallacy is the work of Irving Fisher. Fisher places the goal of his work [The Purchasing Power of Money 1913] as “the causes determining the purchasing power of money” which addresses the issue obviously of inflation, or the diminishing purchasing power of money.

I am in agreement with the definition provided that; “the purchasing power of money is the quantity of goods which a given quantity of money will buy.” Fisher further expands by saying, [i] the lower the prices of goods, the more goods that can be purchased by a given quantity of money and [ii] the higher the price of goods, the less goods can be purchased with a given quantity of money. I have no disagreement with either of these statements.

Fisher however continues: In short, the purchasing power of money is the reciprocal of the level of prices; so that the study of the purchasing power of money is identical with the study of price levels.” This “in short” is a non sequitur.

The in short argument allows Fisher to move from a world of individual prices for individual goods, to a world where there exists a “price level.” This price level is caused by three concepts [i] the quantity of money in circulation [ii] velocity of circulation and [iii] the total volume of goods bought with money. Together they constitute the M*V = P*T equation.

Fisher first builds the argument based on two individuals A and B. The two individuals are to effect an exchange of goods and money; A who has $1.00 and B who has 1kg of salt, who exchange. A receives 1kg of salt, and B receives $1. This creates $1 = 1kg salt. Clearly this is incorrect. A and B exchange because both see an advantage to exchange. A values 1kg of salt higher than $1 and B likewise values $1 higher than 1kg of salt, thus the exchange is made. The two goods exchanged are unequal in the opposite direction. Therefore $1 does not equal 1kg salt. This violates the theory of subjective valuation.

The equation represents to Fisher an equality in value between between the money side and the goods side. That the equation yields information on how the price is determined by the total money spent. That the determinants are money which is $1 and salt which is 1kg. Where exactly do supply, demand and more crucially the individuals who hold these values fit into the determinants of price? Things, money and goods never act, they never create demand and supply schedules. This is the province of the individual.

Fisher extended his theory of equality in an individual exchange to the entire economy. “The equation of exchange is simply the sum of the equations involved in all individual exchanges.” within a time period. Therefore let me build a series of exchanges of individuals.

A exchanges $1 for 1kg of salt
B exchanges $1 for 2 apples
C exchanges $2 for 250g of butter
D exchanges $2000 for a plasma screen TV.

Total money spent = $2004
Total goods bought = $2004

Fisher refers to the p * Q, and p’ * Q’ where p = price and Q = the quantity of good, so that Total money spent [E] = pQ + p’Q’ + p”Q” etc. Fisher is looking for an equation to explain the price level, and he therefore uses the concept of an average price level, so that E =PT. This requires summing, and then division to arrive at the average. There is no problem on the money side, all money consists of money units and are fungible. This is not true of the goods. They are all different. You cannot add salt, apples and TV’s and end up with an average for goods. The methodology is simply not tenable.

Therefore the equation E = PT for the entire economy is incorrect. Therefore the equation cannot be used for making any true statements with regard to elucidating the determinants of prices. That inflation is a monetary phenomenon, that reveals itself eventually in the symptom of higher prices, although not uniformly, the equation of exchange is invalid for performing an analysis.

The TT turns bullish with two caveats: [i] the market is a bear market [ii] the long term breadth is still in bear or red territory. If you have been waiting on the signal, here it is.

Diarmid Weir Says:

August 27, 2011 at 4:29 am e

What does it mean to ‘own’ anything? We can’t define it here in terms of law or right because these are what we are seeking foundations for. Therefore we are looking for logical or physical blocks to transferring use and control. I can only see an argument for control of what I think. Here there does seem to be a genuine difficulty in the idea of someone else ‘thinking my thoughts’. I guess this would also apply to my sensations (qualia) as well.

But as soon as we go outside the mind, there doesn’t seem to be any logical or physical block to someone else using and controlling my body (or parts of it at any rate) or what my mind/body produce.

As to B controlling A’s body, this can only be accomplished in two ways: [i] B pays or seeks a favour through request for A to do his bidding with A’s body as the motive force or [ii] B coerces through fear or force A to provide the motive force. A cannot assume control of A’s body in any other way. Thus if A controls his mind, A also controls his own body. Through your medical knowledge you will also know that the pathway is via CNS upper motor neurones via lower motor neurones to effectors.

Staying outside of the mind. I am on unowned land where there grows an apple tree. I pick an apple and eat it. I own that apple. If a few hours pass, that apple, having being mixed with digestive juices, will have been absorbed through the small and large intestines, and is now stored as glycogen within my cells. It is mine.

As to joint enterprise, you should be more imaginative. If Canterbury cathedral, Stonehenge or the rights to Elizabethan literature were to be sold, how would you allocate the proceeds to all those who had played a part in their creation?

Let me take Canterbury Cathedral as one of your examples. If the workmen were in point of fact unpaid, but contracted for payment, and not compensated for their labour, then the perpetrator should be punished. Clearly that is not going to happen. If the Cathedral is to be sold by a legitimate owner, then if a claimant can show that his forebear worked as a contracted labourer, and was not paid for his work on the Cathedral, then the current owner must compensate for the work performed by the ancestor to his current line.

If however they were free men working for wages, then they were compensated for their labour, and have no claim to lodge.

Which brings us back to the system that you advocate, viz. government, and mine, viz. the free market. If neither exist, we have the Hobbesian nightmare of all against all, and in that case, might prevails.

Indeed, but I don’t understand why the ‘free market’ as envisaged by you is any different from the Hobbesian scenario.

Simply as I have argued, there is nothing the free market cannot provide that is currently provided by government. In addition the free market through competition adds a justness and fairness to the institutions that is significantly lacking through State provision.

If it is, then either there is some dominant power preventing a free-for-all, or no-one can see any advantage in attempting to dominate by physical force. In the latter case the Hobbesian scenario can be discounted. Yet this would seem to run counter to your understanding of the nature of government. So we have something of a contradiction. Under your free-market ‘utopia’, there are (at least apparent) advantages to dominating by physical force, yet no-one does so!

See above.

Accepted by who? You? That’s a rather arrogant position.

This is again, argument by equivocation. I’m sure you know perfectly well that ‘accepted’ in this sense means accepted by the discipline within which the terms and concepts are being used.

The discipline is economics. Within that discipline how many schools of thought exist? Quite a few, I couldn’t even name them all there are that many splinters. Hence my point, that you have claimed position of accepted orthodoxy, where none exists.

The thesis that you propose, that theoretical propositions are arrived at through induction, based upon the presupposition-less observation of facts, is simply untrue.

It isn’t ‘simply’ anything – it’s a complex philosophical area.

Accepted.

But we are not discussing how theories are ‘discovered’ but how they are ‘tested’. Unless the future can be assumed to be in some way like the past, you cannot test a theory. Without testing it, in what sense can we say it is true or not (even approximately)? Without this, what is its explanatory value?

But that is exactly what we are doing, and your fundamental error. In economics the causative agent is already known, it is man. An inductive approach is valid when you have historical data and seek the causative agent.

There is no need to test an a priori theory. Assuming you start with an axiom, each deductive proposition moving forward is true, as it is based on a true statement that preceded the statement. The problem that I accept is that some deductions can be incorrect, a failure of logic. These need to be identified and corrected.

A true theory is correct for all times and places. Thus a money inflation in Rome is accounted for by the theory in exactly the same manner as an inflation that we are currently experiencing today courtesy of the government and their Central Banks. Thus there is no requirement to test, as the theory for money is valid in all times and places.

No, it’s not the Real Bills Doctrine – but the Quantity Equation (MV=PT) I am invoking. (Although in fact the former follows from the latter under certain conditions.)

Good grief. Have you ever subjected your own theory to the test of logic to the degree that you have here? I’d wager not. That theory is so full of holes as to be obvious to non-economist. I’m not simply going to rest on such a statement, I’m going to provide you with a rebuttal, it just deserves it’s own post, and my missus is looking at me as if I am losing my mind.

Relativism in ethics was not at issue.

…individuals are not predictable in individual actions,…

What, never? Not even on a ‘most of the time’ basis? Why is autism a problem, then?

Other than it being a pathology, why are you stating that it is a problem?

Diarmid Weir Says:

August 26, 2011 at 12:44 pm e

By primary, I assume you mean first. As far as I could understand it, it just seemed to be a restatement of your previous argument.

Yes, the first argument. You claim a restatement? First I shall reproduce the argument that constituted the first argument in the previous post.

[i] If “A” does not own his body then “B” must own it, or a combination of A+B own the body. If “B” owns “A” then A is B slave. B would then own the goods/services appropriated by, produced by or acquired by A. A however could not own B. In this we have two distinct classes of humans: slaves and owners. This definition fails the “Universalization Test” and is disqualified as a human ethic as to be able to claim to be a law, or just, it must be valid in all times and places for all.

Now is that a restatement of my previous argument? No it is not. Is it supportive of my previous argument? Yes it is.

The thoughts that it produces are also my property.

This requires definition. If you don’t accept ‘you may think your own thoughts’ you’ll have to provide another to proceed.

Of course I accept that you may think your own thoughts. I’m trying to find the context of this statement. As it stands here, I have no issue with accepting that statement.

However that sentiment [that virtually no human endeavour is a sole enterprise] has nothing to do with the argument that I put forward with regard to property rights.

Ah, but it does if the parts played by different individuals are difficult (often impossible) to determine or allocate.

Nonsense. Let me return to the original objection.

Sadly, past tense required here. Well, the point is that I would want a share of the box-office. Pav’s teacher, cook, driver, mother and the orchestra would deserve their cut too. The point is, of course, that virtually no human endeavour is a sole enterprise.

How is it difficult to identify and allocate the different parts played here? For example, his mother is biologically determined. The driver is the individual who drove him, which might, or might not be his mother. I’ll stop there, the objection is simply nonsense.

Essentially the land mixed with my labour, and legal titles that can be traded, gifted, stolen and bequeathed.

But ‘land’ includes what here? Mining rights? Flyover rights? O2 issued by trees on the land? What else…?

Depends on the labour mixed. I for example am the first to mix labour with 100 acres of land on which I grow corn. The land is mine. Later an oil company are convinced that oil lies below the surface of my land. They wish to drill an exploratory hole. I agree to let them for a nominal fee to compensate me for the reduction of my ability to grow corn. Oil is found.

If the oil company wish to violate my property rights and drill directly for oil on my land, they need to compensate me for that right. This can be either outright purchase of my land, or a rent.

If however the oil company had not asked to drill an exploratory well, and had rather drilled horizontally from adjacent land, then no property rights of mine are violated assuming no damage to my crops.

The interesting question is: does the oil company create property rights to the oilfield under my land?

If the land that I own is critical to my survival, then to preserve my own life, I am ethically correct in denying you access to my property.

Assuming criticality to survival puts the right to life ahead. But if two groups each need an area of land to survive, what’s going to count? Right or might?

That depends on the strength of the legal system, the protection of property rights, which is dependent on how society, or lack thereof, is structured. Which brings us back to the system that you advocate, viz. government, and mine, viz. the free market. If neither exist, we have the Hobbesian nightmare of all against all, and in that case, might prevails.

I’m guessing you don’t agree with that conclusion.

I don’t think there is a sensible answer. I was just drawing attention to the pontifical nature of your considered judgment!

Fair enough. I believe that the logical reasoning is valid. If it is, then the conclusion is valid, pontificating or no.

..I’ll take it as a win.

You may take it as you like. You asked elsewhere why I wasn’t engaging with you on economic issues. This is because you misuse accepted terms, fail to understand standard economic concepts (deliberately or not, I don’t know

Accepted by who? You? That’s a rather arrogant position. Now I have nothing against arrogance as long as you can back it up.

and in any case, without induction no theory is relevant. So it’s a waste of my time and yours.

In economics we are theorising with regard to actions taken by individuals. Action can only be comprehended through the use of a priori theorems. The thesis that you propose, that theoretical propositions are arrived at through induction, based upon the presupposition-less observation of facts, is simply untrue.

The very weak objection put forward, viz. a misuse of accepted terms and concepts, is contradicted through our discourse and disagreement on terms and concepts with regard to philosophical subject matter.

By way of example you provided this.

A counterexample: production of goods increases at the same rate as the expansion of money and credit – no inflation.

This is simply the “Real Bills doctrine” presented as valid theory. Who exactly accepts this as valid? All schools of economic theory? Not even close. Your objection is without merit, and your argument remains incorrect.

Your last paragraph seems confused. The ‘relativity’ referred to the difference in analysis between social and physical sciences.

Let me clarify my position then. I am applying relativity to the social sciences, and in particular to this example, to ethics. In other words I maintain that an absolutism in ethics exists. Relativism in ethics, is insuperable.

If the mind is a material phenomenon,

I have been thinking on this. The CNS is certainly the material from which mind originates. However individuals, are individual, they think and react differently to the same stimuli. Thus the difference that is called ego

then there is no intrinsic reason why human actions cannot be predicted.

They cannot be predicted as we are individual in our cognitions. The anatomy and physiology are reasonably constant and consistent, allowing medical science, but reactions to economic stimuli, are not constant nor consistent, thus no predictability.

Herein lies the confusion: that individuals are not predictable in individual actions, they are predictable in that they must act. It is from this axiom that economics can be deduced. Thus economics knows the origin of effects a priori, the individual. Approaching the problem inductively is incorrect. It is incorrect because an inductive approach assumes no knowledge of the causative agent.

However, we do not have the technology and seem unlikely to have it any time soon. Nevertheless, it is certainly feasible that common patterns of behaviour can from time to time be observed among individuals and groups.

This is the central tenet that historicism and empiricism base their assertions and theory upon. That statistical investigation of history is in the case of human actions, a viable and correct approach. They are in error for the reasons elucidated above.

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