Economics

Richard Cantillon (1680-1734), an Irish-French banker/merchant predating Adam Smith, is arguably the founder of modern economics. The book he wrote shortly before his demise, Essay on the Nature of Trade in General, officially published in 1755, was an influential and highly citied document, before it was overshadowed by the retardation of economics that would follow in the form of Adam Smith’s Wealth of Nations (1776). Cantillon rescued economic analysis from its traditional conflation with politics and ethics. In the words of Friedrich Hayek, “this gifted independent observer, enjoying an unsurpassed vantage point in the midst of the action, coordinated what he saw with the eyes of the born theoretician and was the first person who succeeded in enterating and presenting to us almost the entire field which we now call economics.” ...

Passages From The Wealth of Nations The following passages from Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations have received enormous attention over the centuries following their publication in 1776. “[A man] will be more likely to prevail if he can interest their self-love in his favour, and show that it is for their own advantage to do for him what he requires of them … It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages.” “As every individual, therefore, endeavours as much as he can both to employ his capital in the support of. . .industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. . .(B)y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” “Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.” These passages are seen as evidence of Adam Smith promoting laissez-faire capitalism. Note the introduction of the “invisible hand” meme in the second passage, one that has been propagated around without much regard for context. These famous quotes convey the idea that it is through the selfish pursuit of our own goals that the good of the economy results, and this is more desirable than a direct, motivated pursuit of social good. The anti-free market positions advocated by Adam Smith, therefore, come as a shock to those who imagine him as the paragon of the laissez-faire paradigm. ...

There are two opposing thoughts regarding money I am considering at the moment. On the one hand, we have the idea that to the extent it serves a nonmonetary purpose, it is an inferior form of money. For example, gold, which is a form of money, also has various other use cases as jewelry, industrial raw material, etc. These use cases compete against the monetary use case. Until Bitcoin, there was no contender for pure money. That Bitcoin lacked any other utility was hurled as a criticism. The idea was something like this: gold has various other utilities (and corresponding demand), so its price is unlikely to fall below a certain level; Bitcoin, on the other hand, due to absence of such alternate uses, would see its price collapse to zero some day. ...

The Question That Stumps Libertarians The libertarian, upon pointing out the excesses of the state, is confronted by the inevitable question from the statist: “Are you an anarchist?” The connotations of anarchy are such that the libertarian, if he says yes, finds himself defending ‘chaos.’ If, on the other hand, he says no, he legitimizes a degree of state intervention, and from that point, having ceded ground to the statist, he consigns himself to the defensive for the remainder of the debate. ...

John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936. In it, he advocated for dirigistic inflationary policies to stimulate the economy and aid economic recovery. Idle resources—money, labor, capital—had to be employed; otherwise, they were being wasted. William H Hutt provided one of the earliest rebuttals of the general theory. His book, The Theory of Idle Resources (1939), lists several valid reasons for resource unemployment: ...

Anne Robert Jacques Turgot, in his criticism of usury laws, described the concept of time-preference and its role in lending at interest. Time-preference refers to the discounting of the future, and the concomitant placing of a premium upon the present. If this rate of discounting is high, the time-preference is high. If the discounting rate is low, the time-preference is low. Since we prefer a present good to an equivalent amount of the good at some point in the future, lenders will demand, and borrowers will accept, an interest on a loan. Interest is the price of time-preference. ...

In my previous discussion about the effects of inflation, I missed an important point. This might be the most pernicious of its cultural effects: inflation discourages productivity and encourages speculation. The distortions generated by inflation are not immediately apparent. While an inflationary episode is underway, labor is tricked into accepting the same nominal wage (that is, accepting a lower real wage), since price levels have not risen yet. Soon, prices rise and the decline in purchasing power becomes apparent. Long after the prices have risen are the labor able to negotiate a (nominal) wage increase. This increase is also likely to be lower than the rate of inflation, thus the real wage continues to be lower than what it was prior to the inflationary episode. A decline in real wages discourages productivity. ...

The Price-Specie-Flow Mechanism The price-specie-flow (PSF) mechanism is the extension of the quantity theory of money (QTM) to a multi-country scenario. Proponents of the end-neutrality of QTM often implicitly assume a closed economy. But when nations trade amongst each other, the injection of monetary units in a nation can, instead of putting upward pressure on local prices, promote imports, and thus cause an outflow of money, in the short term. The price-specie-flow mechanism accounts for these dynamics. ...

Statement The level of prices depend on the quantity of money. Early discussions on this matter can be found in the essays of John Locke, David Hume and Irving Fisher (see Reference). Discussion Provided that the item used as money can be divided and combined as necessary, any amount of money is sufficient for running an economy. Ideas about bringing lasting changes to an economy by expanding the money supply are invalid. Should the money supply increase, all else equal, the prices of goods and services would increase proportionately. Thus, the outcome would ultimately be neutral. ...

Setting aside the question of morality as it relates to coercing citizens to part with their property, let us consider a tax regime based solely on the stock market. Equity-Based Tax System In this system only top publicly traded companies are taxed. Taxation takes place in-kind, through shares. Only, say, the top 500 companies (by market capitalization) in the country are in consideration for taxation. And the taxation occurs thus: ...