There is no obligation to answer these but if you have the time/interest I would appreciate insights on the following:
- GENERAL OVERPRODUCTION, paragraph 2, "If [businessmen] wish to sell their 'surplus' stock, they need only cut their prices low enough to sell all of their product."
Does this mean that people will buy things they don't really want if the price is low enough? If so, is that really true?
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 3, "If total consumption increases due to population growth (and there is no particular reason why it should)..."
How could it not? Does each person not have a baseline requirement for consumption, so each additional person would mean an increase in total consumption by at least that baseline?
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 4, "Austrian theory teaches us that investment is always less than the maximum amount that could possibly exploit existing technology."
Don't understand what this means. Example?
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 6, "In a free market, prices determine costs and not vice versa, so that reduced final prices will also lower the prices of productive factors-- thereby lowering the costs of production."
This is counter to what I've understood up until now. Example?
Regarding the next meeting - I think I'm free all Tuesdays in July.
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We had many similar questions. Unfortunately I didn’t take notes so any answers I may be able to provide won’t be indepth.
ReplyDelete- GENERAL OVERPRODUCTION, paragraph 2,
Does this mean that people will buy things they don't really want if the price is low enough? If so, is that really true?
Some people buy things they don’t need/want just because they’re suckered in by the price. I’m not sure that’s what Rothbard means. If that is what he means, I contend he is wrong. Some idiots will, but not enough to get rid of all inventory. In the last paragraph of this section he states:
“In fact, there was overproduction of specific, not general, goods. The malinvestment caused by credit expansion diverted production into lines that turned out to be unprofitable (i.e., where selling prices were lower than costs) and away from lines where it would have been profitable. So there was overproduction of specific goods relative to consumer desires, and underproduction of other specific goods.”
That makes sense, but it doesn’t prove that a low enough price will get rid of the excess inventories. It kind of supports the opposite. Even at free, some items will go unsold. If I produce a million pet rocks, I won’t be able to sell them no matter how low the price is.
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 3,
Does each person not have a baseline requirement for consumption, so each additional person would mean an increase in total consumption by at least that baseline?
Each person does have a baseline requirement for consumption. Humans tend to produce and consume much more than the baseline need. Measured in dollars, lets say my baseline need per year is $40k, my salary is $100k, and my consumption in $100k. I have a kid. The kid’s baseline need is $10k. If I’m spending $60k each year in non-essentials, I now have to curb my spending by at least $10k to care for my kid. The total consumption for me & the newborn is still $100k.
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 4
Don't understand what this means. Example?
Rothbard didn’t give examples but stated, “there are always some firms which are not using the latest possible equipment, which are still using older methods. This fact indicates that there is a narrower limit on investment than technological knowledge.” That doesn’t mean there has to be less investment than required to exploit technology, just that people have always chosen to invest less. He doesn’t prove that it is impossible, just implies that it is from current situations.
- DEARTH OF "INVESTMENT OPPORTUNITIES," paragraph 6,
This is counter to what I've understood up until now. Example?
Rothbard doesn’t seem to explain this well. But in my view he doesn’t explain anything well in this book. The only example he gives is wages. If you sell something for $100 for which the materials cost $60 and the labor cost is $50 you won’t produce it until labor lowers its cost. Therefore the price determines cost. While this is true in many situations, the opposite is also true.
I had a couple additional issues in the Qualitative Credit Doctrines. On p. 78 he says, “If A buys a new security issue, then the funds are directly invested; if he buys an old share, then (1) the increased price of stock will encourage the firm to float further stock issues . . . ”
Corporations by definition are suppose to increase shareholders’ wealth. Issuing more stock would dilute the shareholders’ wealth. So I’m not sure #1 will take place.
On p80 he states, “But loans to consumers qua consumers have no ill effects. Since they stimulate consumption rather than business spending, they do not set a boom–bust cycle into motion. There is less to worry about in such loans, strangely enough, than in any other.” This seems totally false in light of the current housing market crash.
Responses to your questions:
ReplyDelete1. Here, Rothbard might be engaging in a bit of hyperbole. Of course we can surmise that no price, no matter how low, would be sufficient to entice people to buy Antrhax-laced baby formula. There are some goods which people simply don't want, in any quantity. And there are many goods for which people have relatively inelastic demands. If the price of milk fell to $1/gallon tomorrow, how much more of it would you drink?
What he's arguing is that any complaints leveled by businessmen about "surplus" stock are nonsense until they've exhausted all other possibilities, including those possibilities which require them to sell at a loss or scrap their entire production. Some ventures simply aren't profitable. But by-and-large, there is a market-clearing price for most things, most of the time.
2. If we are currently producing more than the baseline requirement for survival, then at least theoretically speaking, we can conceive of population growth with stagnant, or shrinking levels of gross consumption.
3. I'm still writing macros in Excel 2003 and using a 5-year old laptop for work, in a 30-year old building.
4. I've written about the Labor Theory of Value and why prices approximate costs of production. You might also like FSK's analysis, The Free Market Labor Arbitrage Process