Thoughts on Something Milton Friedman Said

[Nielsio]

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One market inefficiency occurs in the case of fraud.

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Elaborate plz.

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Let's imagine that there is an investment bank named Rule Through Monetary Manipulation. Rule Through Monetary Manipulation has all this money and needs to generate a return on that money by lending it out to business enterprises in the form of capital investment. Naturally the members of the board of Rule Through Monetary Manipulation would like to get the best return on the money they invest so the can have more of it and better Rule Through Monetary Manipulation.

They find a little company called Son of a Preacher Man whose president is Ken Lay. Ken Lay has lots of smart boys who work for him and a crack auditing firm that provides him with consulting services and financial statements. Son of a Preacher Man is the most profitable company in the universe. All the auditors, employees, board of directors, and investors say so.

Naturally, the board of Rule Through Monetary Manipulation wants to invest their money with Son of a Precher Man. Only, Son of a Preacher Man isn't honest. It isn't profitable at all. The only cash flow that they in fact have at Son of a Preacher Man is the investments made by greedy banks like Rule Through Monetary Manipulation. Upon this discovery, the board of Rule Through Monetary Manipulation recieves an offer from Ken Lay stating that they will get part of their investment back if they help Son of a Preacher Man persuade other investors to give their money to Son of a Preacher Man. As a result, this false investment deprives the market of efficiency in the reinvestment of capital in truly profitable ventures. Therefore, fraud leads to market inefficiency.

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Let's simplify.

Let's say there a company who sells chicken meat. Company A requires two live chickens to sell 100 grams of processed meat. They buy chickens from the market.


Is that what you would call a 'market inefficiency'? If so, why.


Remember that you state the reason for governmental invervention because of 'market inefficiency'; so clearly those actions cannot contain the same problems.

[Exsubmariner]

I think that you ignore something here, in that the US was still on a monetary standard at the time of the 1929 crash. I think it might have been the bimetallic standard or the gold standard. Not sure.

Regardless. I think this is obfuscation. This conversation about what the causes of the great depression were ignores the reaction of the government to the market inefficiencies that were the cause. Be those inefficiencies monetary inflation or what have you, the net result was the creation of the SEC and banking regulation.

Government wasn't interested in messing up the efficiencies, it wanted the efficiencies because it benefited from them. It was intervening to eliminate the inefficiencies caused by false financial statements and overextended banks.

[Zygote]

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There will always be fraud. I said that it was an inefficency not a failure.

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you said it was MORE a failure of the market than government. We have only seen the government fail to properly prosecute fraud and externalities. The market theoretically should perform better if instituted like all other services.

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Your last statement sums up my premise pretty well. You can't change the human factor in the market. The human factor making the market inefficient necessitates remedies to those inefficiencies.

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do you recognize no human factor to the government? If man has inefficiencies why would you centralize them?

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The fact that the government has monopolized the punishment of fraud is a result of businesses externalizing their costs to taxpayers because its cheaper for them that way as opposed to policing the market themselves.

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source? i dont know when private businesses were given the option to police the market themselves and that this failure resulted in monopolized government services that fulfilled their inadequacies?

[Exsubmariner]

How could you possibly conceive that I would think the purchase of two live chickens on the open market is inefficient in any way shape or form? I ask that question with the caveat that you are informing everything about the particular transaction and there were in fact chickens purchased at market prices.

[pvn]

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Monetary inflation caused the Great Depression, and the New Deal exacerbated and lengthened it.

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What's a good place to start reading about stuff like this (fiat money and the great depression/new deal in particular, but all other aspects of the fed)?

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What Has Government Done to Our Money

I'd read this first, then America's Great Depression.

[pvn]

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So if it doesn't matter how much money there is, how do you get a great depression out of monetary inflation?

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It's not the *amount* of money, it's *how* the new money gets injected into the economy.

[Borodog]

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I think that you ignore something here, in that the US was still on a monetary standard at the time of the 1929 crash. I think it might have been the bimetallic standard or the gold standard. Not sure.

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Read the reference above. Being on a hard standard does not prevent inflation of the money supply in the presence of fractional reserve banking. That was the cause of bank failure; printing more notes (receipts for gold) than gold existed in the vaults.

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Regardless. I think this is obfuscation.

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Of course you do. You don't even understand it yet. Typical.

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This conversation about what the causes of the great depression were ignores the reaction of the government to the market inefficiencies that were the cause.

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In other words, you are just assuming your conclusion.

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Be those inefficiencies monetary inflation or what have you,

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How is the Fed printing money out of nothing a "market inefficiency"?

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the net result was the creation of the SEC and banking regulation.

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Government will use any trumped up excuse that it can to try to regulate anything it possibly can, because regulation is power.

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Government wasn't interested in messing up the efficiencies, it wanted the efficiencies because it benefited from them. It was intervening to eliminate the inefficiencies caused by false financial statements and overextended banks.

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Lol. Those in government make up "inefficiences" so that they can justify taking control and increasing their power.

[Exsubmariner]

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you said it was MORE a failure of the market than government.

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I don't think I said that.

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do you recognize no human factor to the government? If man has inefficiencies why would you centralize them?


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What if I said "You can't change the human factor in the government. The human factor making the Government inefficient necessitates remedies to those inefficiencies."

This is also true and something I believe.

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i dont know when private businesses were given the option to police the market themselves and that this failure resulted in monopolized government services that fulfilled their inadequacies?

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I think it happened shortly after King George got kicked out of the colonies.

[Nielsio]

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How could you possibly conceive that I would think the purchase of two live chickens on the open market is inefficient in any way shape or form? I ask that question with the caveat that you are informing everything about the particular transaction and there were in fact chickens purchased at market prices.

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I would expect you to say that processing 100 gramms of meat out of 2 live chickens to be wasteful. yes/no?


We can take another example if you want, but we have to keep it simple otherwise there's no way to think clearly about it. Your example included 5 levels of interaction and complexity and god knows what.


Given that it's up to you to provide what *exactly* is wrongful and what *exactly* needs to be done about it, I expect you to be very precise in your definition of the problem, and to provide a clear and understandable example.

[Zygote]

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you said it was MORE a failure of the market than government.

I don't think I said that.


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then why did you imply government was the answer to market inefficiencies?

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What if I said "You can't change the human factor in the government. The human factor making the Government inefficient necessitates remedies to those inefficiencies."

This is also true and something I believe.

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Humans are here by default. Why should we create/sustain government if this is the case?

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I think it happened shortly after King George got kicked out of the colonies.

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will look it up.