Austrian Business Cycle Theory Redux (long)

[WillMagic]

"No they don't. They own a subset of it. There is organizational skill and knowledge, which the company owns. This is a much larger percentage of intangible capital."

Organizational skill and knowledge is indeed owned by the laborers - unless it is owned by the actual owner of the company, in which case it falls under that fourth factor of production: entrepreneurship.

"Austrian theory only inherently includes it under its accounting model. Which is where I think there will be future divergence."

Why? As Boro pointed out, it just leads to obfuscation. Again, this intangible capital is accounted for by labor and entrepreneurship.

Any time someone tells you that there is a fifth factor of production...doubt them.

[tolbiny]

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Thus, it is readily conceded that (a) expansionary monetary policy reduces interest rates, and (b) lower interest rates stimulate investment in more round-about projects. Where then does the disagreement emerge? What I deny is that the artificially stimulated investments have any tendency to become malinvestments. Supposedly, since the central bank's inflation cannot continue indefinitely, it is eventually necessary to let interest rates rise back to the natural rate, which then reveals the underlying unprofitability of the artificially stimulated investments. The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account.

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A major point in the ABC explanation is that when credit is expanded the money supply is expanded and this leads to inflation .... If the interest rate is tied to savings

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The real level of IR is not tied to 'savings,' you don't honestly believe that do you?

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Of course it is (or should be) how can you loan something that doesn't exist?

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Are you going to explain how you can loan something that hasn't been saved?

[Zygote]

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this is patently wrong.

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which part?

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if they feel they can forgo present consumption for an unlikely but large gain in the future, they'll do that.

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Why do you think i said they can't? Because I did not. That is time preference and ive been talking about this through every conversation we've had.

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just because the "present level of enjoyment resides in the current level of consumption" doesn't mean individuals or companies won't take chances to invest for large gains in teh future even if the time preference says they shouldn't

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Yes it does. I think you should re-read this a few times and think about what you're saying.

You're saying if people have a given time preference they wont act in accordance with their preference. How could the original preference have been called a 'preference' if this was the case?

Do you think if the world was ending tomorrow, and everyone knew that forsure, people would invest in the future?

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in other words, risk/reward on aggregate does a poor job of explaining or predicting outlier events. and it is in these outlier events that the largest gains in society are made. history is punctuated by these massively impactful, unpredictable creations/inventions/events that "aggregate" economics and the time preferences you speak of do a very poor job explaining.

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Why dont you twiddle your thumbs for the rest of your life? Its possible some indirect benefit comes from this.

From the outset however, the indirect benefit is not worth the reward.

The only way an outlier could be benefitial is if this outlier replaces by priority level a former core-valued production process whose benefits make up for any costs incured throughout as well. Sure this is possible. If you try apply this principle to any other process though youll see how this is reduced to an absurdity.

If you play 72 as your only hand, since this is a real long shot investment in terms of profiting, its possible the outlying chances of hitting enough great flops that make you a winner enough of the time versus your opponents could happen. This does not make 72 a worthy hand to play from the outset.

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again, this statement is just wrong if you intended it like you wrote it. you have convinced yourself that this is so far from being wrong that you state it like it is obvious.

the best entrepreneurs (i suck at spelling) CREATE demands!!! they don't see a niche demand and fill it (though some do) no matter how deep that demand may be or may be projected to be, they flip the paradigm on its head and say "everybody will want a computer on their desk when i make it good enough and cheap enough for them...trust me, you'll see"

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Im away but wanted to answer as much as i could. Ive run out of time at the net cafe, but will answer this rest later.

Quickly i want to tell you to read some Carl Menger. Principles of Economics covers this stuff.

gtg - didnt have time to edit either so hope everything makes sense


[img]/images/graemlins/laugh.gif[/img]

[Leaky Eye]

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"No they don't. They own a subset of it. There is organizational skill and knowledge, which the company owns. This is a much larger percentage of intangible capital."

Organizational skill and knowledge is indeed owned by the laborers - unless it is owned by the actual owner of the company, in which case it falls under that fourth factor of production: entrepreneurship.

"Austrian theory only inherently includes it under its accounting model. Which is where I think there will be future divergence."

Why? As Boro pointed out, it just leads to obfuscation. Again, this intangible capital is accounted for by labor and entrepreneurship.

Any time someone tells you that there is a fifth factor of production...doubt them.

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Is data an asset?

PS. If you answer no you are stuck in the industrial age.

[DcifrThs]

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Barron,

I've been skipping it, but I will get caught up and give you my thoughts.

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bump just to remind [img]/images/graemlins/tongue.gif[/img]

if the more structured approach to the discussion of cuture consumption too annoying to get through, let me know and i'll try a much shorter version.

thanks,
Barron

[WillMagic]

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"No they don't. They own a subset of it. There is organizational skill and knowledge, which the company owns. This is a much larger percentage of intangible capital."

Organizational skill and knowledge is indeed owned by the laborers - unless it is owned by the actual owner of the company, in which case it falls under that fourth factor of production: entrepreneurship.

"Austrian theory only inherently includes it under its accounting model. Which is where I think there will be future divergence."

Why? As Boro pointed out, it just leads to obfuscation. Again, this intangible capital is accounted for by labor and entrepreneurship.

Any time someone tells you that there is a fifth factor of production...doubt them.

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Is data an asset?

PS. If you answer no you are stuck in the industrial age.

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Data is capital.

And in other news, the pope is catholic.

[Borodog]

Barron,

I haven't forgotten; semester started.

[DcifrThs]

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Barron,

I haven't forgotten; semester started.

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<3

thanks, and GL...

Barron

[Borodog]

Barron,

Ok, this is going to sound lame, but I've read both your posts and can't really make heads or tales of the argument. I feel like this is the middle of an argument from another thread, yes? Can you summarize the two positions and the nature of the disagreement? Because:

[DcifrThs]

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Barron,

Ok, this is going to sound lame, but I've read both your posts and can't really make heads or tales of the argument. I feel like this is the middle of an argument from another thread, yes? Can you summarize the two positions and the nature of the disagreement? Because:



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sure, man...i'll do my best.

you mention that malinvestment during fed induced low rate periods incent companies to produce more than they otherwise would as consumers consume more than they otherwise would.

then, at some time in the future, there will not be enough demand to consume the extra goods produced above what would have been had interest rates not been artificially low to incent that extra production.

my contention is that there may be some offsetting force in the form of individuals investing for consumption in the future. i use individuals as the example. but more generally, companies with marketable securities or anybody investing passively in risk premia generating asset classes would be adding to the "consumption ability" for future time periods.

that investment (i.e. in equities & other risky assets with a risk premium) will grow beyond originary interest even taking default premiums et.al. into account.

that growth in wealth will increase future consumption ability (defined in my maths post) and thus be able to mop up a bit (or a lot, maybe even enough) of the "extra goods" produced during "boom times."

i thought this was a simple assertion. here is the initial comment i made in the thread:

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the first question i have is with respect to future consumption. how does increased wealth (and thus an increase in consumption ability) as a result of housing price increases (due in part to those low interest rates) and increased investment holdings (again due in part to lower interest rates) play into the theory.
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one aspect you stated was that the dislocation of future consumption to the present due to low interest rates eventually leads to an inability of companies to sell the increased production they realized. but icnreased wealth (even if NOT used to borrow unsustainably via responsible mortgages or investment gains) definitely does lead to increased consumption.
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is it the theory here that this increased consumption in the future isn't enough?

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i went on to say :

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and just to head off a rebuttal: zygote has mentioned before that "investments in stocks don't result in real gains." i believe this issue has been put to rest that the capitalist system demands excess returns given to investors in order to compensate them for taking the risk of owning those shares. otherwise, they wouldn't hold shares. so investment in stocks (and other similar investments) do result in real gains, not just movement of savings into the future by the discounted value of that money.
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therefore, real gains as a result of investment lead to increased consumption abilities in the future and increased aggregate demand...maybe enough to offset the dislocations you discussed...

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zygote then jumped in and our discussion ensued.

thanks,
Barron