What Has Government Done to Our Money

What Has Government Done to Our Money is a 107-page book by Murray Rothbard.  It was originally written in 1963 but has since been updated.

Rothbard begiwhat-has-government-donens the book by pointing out that monetary policy is often driven by day-to-day concerns rather than by adherence to principle, and he ends with a historical overview of the last 150 years he titles “The Monetary Breakdown of the West.”  The day-to-day planning of politicians and bureaucrats is thus exposed as the vehicle which drove us to the current circus of fiat currency and competitive devaluation.  This loudly echoes Austrian Business Cycle theory, where business cycles are shown to repeat because of repetitive bailouts and money printing (quantitative easing) rather than letting the economy reset.  This is, obviously, partly because of the nature of electoral cycles in most of the developed world.  Politicians, hoping for reelection, kick the can down the road on monetary issues.

With the beginning and then end in mind, we will now look
at some of the memorable parts in between.

The value of this book is that it serves as a primer on Austrian monetary theory.  As such, Rothbard traces the logical development of money from barter to indirect exchange to the complicated fiat system now in place.  The two problems with a barter economy are the indivisibility of certain goods and the lack of coincidence of wants.  For example, a Farmer, looking for food for the day, cannot trade his tractor for a pair of shoes because he is unable to divide his tractor into small increments to sell one at a time without losing the value of the tractor.  This is the problem of indivisibility.  The second problem with barter is that the two people making the exchange must have a coincidence of wants.  If the shoemaker doesn’t want what the farmer brings to exchange, the transaction reaches a stalemate.  To remedy this problem, indirect exchange develops.  Indirect exchange is when a person trades for one good, and then trades that good for what they really wanted all along.  The middle good used to exchange for the end good is chosen because of marketability, which essentially means that it will be easy to exchange with most people.  Over time, the most marketable good becomes the money in a given geographical area.  In some places this good has been coffee, cigarettes, or sugar, but the overwhelming choice in most of human history has been a dual system of gold and silver.

Following the discussion of how gold and silver come to be recognized as commodity money, the conversation turns to state intervention.  In typical Rothbardian fashion, the State is seen as a great enemy of the people, and he is particularly vicious when discussing the monetary sphere.  The most illuminating portion of this section lays inflation naked for all to see as a tool of the government and a hidden tax on the people.  Rothbard repeats that printing money, or even mining commodity money, does not incur a social benefit to mankind by raising the money supply.  In fact, this is shown to hurt the economy by distorting price signals and by effecting people unequally.  When the money supply is inflated, the first recipients of the new money purchase goods at the existing price level – they receive the most benefit.  On the flipside, prices are bid up as the new money circulates through the economy, and some people buy goods at the higher price before the changes affect their wages.  The is especially hurtful to people on fixed incomes like Social Security, teachers, and ministers.

Governments, which are usually in debt, find inflation a convenient way to pay off their creditors without raising taxes on the people, which is a politically unsavory solution.  This has been the case since before Romans governors shaved coins and will be so as long as governments have control over the creation and distribution of money.  On that note, Rothbard shows that as inflation causes business cycles, government action is floated as the only solution.  Chief among these solutions is the Central Bank, that dastardly and ungodly marriage of banks and the power of the state.  In collusion, the bankers profit and the State inflates at alarming rates to pay for its agenda, usually a war.  This is a cycle that has repeated many times since the inception of the Bank of England, the world’s first Central Bank.

Lastly, Rothbard quite presciently anticipates the Euro and concludes that the ultimate goal of the bankers and the State is a world currency and a world central bank.  This world fiat currency would not be tied to gold, and as such, the only hindrance on perpetual inflation would be the specter of hyper-inflation which would cause a worldwide crisis.

Rothbard offers the solution of ending government involvement with money altogether.  This would result in stable currencies – probably precious metals, that would be able to be freely exchanged, even over international borders.  Although this solution seems unlikely to occur, I am grateful to Rothbard for his book and for the depth of understanding it offers on the past, present, and future monetary order of the world.

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Man, Economy, and State Study Guide Answers Ch. 4

Ch. 4 – Prices and Consumption

  1. What is the significance of the fact that the “number of markets needed is immeasurably reduced” in a money economy? (pp. 233-35)A.  In a direct exchange economy (a hypothetical concept), each good has a price in terms of each and every other good on the market.  When one asks, what is the price of a horse, it begs the question, “In terms of what?”  When a commodity comes into “general use” (not a specifically definable time, see pg. 193), each good has a money price.  Goods relative values to each other can then be quickly estimated by referring to each’s money price.
  2. Why doesn’t every good have a purchasing power that consists of an array, i.e., what is so special about the money commodity? (pp. 236-37)A.  Money is the only good on the market that still possesses a nearly infinite array of prices in terms of each other good.  This was true of all goods in a barter economy, but when money emerged, these arrays were replaced with an individual money price for every good.
  3. What does it mean to “sell” money? To “buy” money?A.  To sell money is simply to exchange it for another marketable good.  This could be a consumer good, producers good, a labor service, or anything else.  To buy money is to exchange a good for money.  If one sells labor or a good on the market for a money price, one has bought money.
  4. Why do individuals hold cash balances? (pp. 264-65)A.  Individuals hold cash balances for multiple reasons, all of which stem from the concept of uncertainty.  Uncertainty is fundamental aspect of human action.  Typically, individuals will hedge against this uncertainty by holding a cash balance for emergencies, because they expect the purchasing power of money to increase, or to accommodate changing preferences in the future.
  5. Why does Rothbard argue that buying more eggs will make the marginal utility of butter increase? (p. 266)A.  As one spends more and more money on eggs, the marginal utility of each quantity of money increases.  The marginal utility of eggs decreases.  In essence, the individual is proceeding down their own value scale.  Eventually the first unit of butter will out rank the nth unit eggs.  This is why the marginal utility of the butter is said to increase as one buys more eggs.
  6. Are money prices a measuring rod of subjective value?A.  Money prices are not a measuring rod of subjective value.  One of the most important insights into economics by the Austrians is that utility is ordinal, rather than cardinal.  A goods utility can only be ranked, subjectively, in the mind of an individual, in comparison with other goods.  These utilities cannot be ranked between individuals and they cannot be quantified.
  7. Why did economists before Mises find difficulty with a marginal utility explanation of money demand? (p. 268)A.  The problem with a marginal utility explanation of money demanded is that both sides of the exchange depend on money prices in order to make their valuations.  The price of a good depends on individual demand schedules, which rely on subjective value rankings, which are determined by each good’s alternative uses, which are explained by the money prices that can be obtained by each good.  On the other side, a hypothetical demand for a good to buy with money assumes money prices in the first place.  This was seen as circular reasoning.  Mises theorem of money regression solves this problem by reasoning that money prices are determined by recent money prices from the past, ad infinitum, until the money economy ceased to be one and was a barter economy, and the commodity called money had value independent than that of being a medium of exchange.
  8. How does Mises’s money regression apply to fiat money?A:  Rothbard is careful to make the distinction that once a good becomes money, even if it loses its use value, the regression theorem still applies.  On the other hand, he is also careful to point out that money must come about first as a good with demand for direct use.  Mises’ regression applies to purely fiat money in this way:  money prices are determined by past money prices again and again, but there is nowhere to trace back to when fiat money had demand for direct use.  Therefore, its value is solely determined by its present demand as a medium of exchange.  Now venturing into speculation, this is a possible explanation of why the State consistently takes a monopoly of money production.  If only the State authorized fiat money can be legally used in an exchange, this stabilizes (so to speak) a nominally unstable currency.
  9. Can an individual really know the true cost of an action, even ex post? (p.277)A:  I find Murphy’s question unclear.  I do not think that an individual can truly know the true “cost” of an action.  Based on Rothbard’s description of the ex ante/ex post phenomenon, an individual can only decide if his or her psychic revenue has increased as a result of action.  This determination can further be used to inform future decisions.
  10. Does the diminishing marginal utility of money prove that a progressive income tax would increase total social utility?  (p. 302)A:  Since all valuations are subjective, it does not follow from the theory of diminishing marginal utility of money that a progressive income tax would increase total social utility.  As previously explained, social utility is a dubious concept because, since utility is ordinal rather than cardinal, it cannot be quantified and added together, especially between different individuals.
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Man, Economy, and State: Study Guide Answers Ch. 3

Chapter 3 – Indirect Exchange


  1. Name two different problems with direct exchange. (pp. 187-88)

    A:  One problem with direct exchange is the lack of “coincidence of wants.”  Exchange can only take place in a direct exchange economy if two individuals value the specific good the other holds, simultaneously.  Another problem is that in a direct exchange economy, no production structure can exist because capital cannot be accumulated.  Each individual must produce consumer goods, or he will not find a coincidence of wants.

  2. Explain the term medium of exchange. (p. 189)

    A:  A medium of exchange serves as a buffer between two parties that lack a coincidence of wants.  Rothbard shows that goods that become a medium of exchange become widely accepted and become known as money as a result.  A medium of exchange must have a high degree of marketability (see #3).

  3. Why are some goods more marketable than others? (p. 190)

    A:  Rothbard mentions four factors that contribute to a good’s marketability.  They are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances.  Thus gold is more marketable than a painting (to most people) because the art cannot be split into pieces, is less durable, and is in less demand, generally.

  4. In what sense is a telescope relatively unmarketable (i.e, difficult to sell)? Couldn’t the owner lower its price until he found a buyer?

    A:  One point Murphy makes in the study guide is that Menger  describes marketability as the ability to quickly sell at an economic price.  Surely one could sell a telescope quickly, given the price was allowed to drastically drop.  To the contrary, one could sell a small amount of coffee, tobacco, or gold for a fair (economic) price almost immediately.

  5. What does it mean to purchase money? (p. 194)

    A:  Purchasing money is when eventual consumers “sell” either durable consumer goods or services in production in order to obtain money.  Services in production could be a lease of their land, their personal labor, or a sale of capital goods.

  6. What is the price of money?

    A: The price of money is what an individual has to give up in order to obtain it.  This could include labor hours, sale of durable consumer goods, and psychic factors.  I have also heard the price of money described as the interest rate, since it relates to time preference (individuals value goods in the present more than equal goods in the future).  The price to obtain money in the present (possible in the form of a loan) can be described as the interest paid over the course of the loan.

  7. Rothbard says that the unit of money is a weight.  How does this apply to the U.S. dollar? (p. 197)

    A:  The U.S. dollar is no longer backed by a gold standard, and therefore can no longer be expressed as a unit of weight.  In crude terms, the U.S. dollar is only as valuable as the paper it is printed on.

  8. Why does the marginal utility of money decline as its supply increases? (p. 218)

    A: The marginal utility of money declines as its supply increases because money is a good.  Specifically, money represents what an individual will purchase with it.  Whether consumer or capital goods, or simply an increase to the cash balance, the law of diminishing marginal utility applies to the goods it represents, and thus to the money itself.

  9. How does a person decide whether to work for himself or an employer? (pp. 221-2)

    A: The crux of this decision lies on whether the person can sell his labor for more or less elsewhere than the value he provides working for himself.  Thus, ceteris paribus, if a man pays an employee $50 to do a job, while he earns $60 elsewhere, he will choose to hire out his labor and pay someone to work for him.  Rothbard makes an interesting note on page 223 that generally, these value scales tend to favor working for one self at low levels of production and smaller enterprise, while as the enterprise becomes larger and enters into higher orders of production, self-employment becomes less valuable as the individual begins to specialize in the management of the process.

  10. How does the owner of a durable good decide whether to rent or sell it?  (pp. 225-27)

    A:  This decision is made based on the individuals judgment of which alternative will yield him the largest present value of monetary income.  In the case of a producers good, the matter of nonexchangeable factors has already been dealt with when the original purchase is made, thus the decision to sell or rent comes down to a strictly monetary weighing of costs and benefits (which are, of course, partly estimated).

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Libertarianism Today Review

Huebert’s Libertarianism Today has received high praise as an introductory taste of libertarianism at its consistent, radical best by both David Gordon and Walter Block.  This praise is deserved.  In a concise 11 chapters, and under 250 pages, Heubert manages to survey nearly every aspect of libertarian philosophy, tie those theories to current events, and even add a hint of his own insight.

The most rewarding thing about reading this is that Heubert remains truly radical, even while explaining situations where some libertarians deviate from his own views.  He mentions paleoconservatives’ views on minarchism and immigration as deviations from libertarianism.  He also takes time to explain the nuanced view libertarians hold on morality (as it relates to government authority), especially within the context of gay marriage and abortion.  As a libertarian who is morally opposed to both, I appreciated this insight.  He argues that while many libertarians support both same-sex marriage and abortion, it is not strictly-speaking libertarian to do so.  The libertarian stance is that the government should not be involved in marriage at all, and of course libertarians’ view of abortion cannot be summarized.  They are just as divisive as any other group on the issue, albeit they take more time than most to philosophically analyze the dilemma.  As a believer in libertarian education and (gulp) conversion as a means to affect change, I cannot overstate the importance of these insights on social issues.  These issues, combined with war, are holding the libertarian movement back from reaching traditional conservatives who blindly vote Republican.  A gentle, page-long stab at Reagan’s iffy record on debt and spending also serves as a spoonful of medicine for right-wingers.

Another useful aspect of this book is the addition of topical reading lists at the end of each chapter.  These are not the footnotes, exactly, although there is some crossover.  For example, Chapter 3 on economics deals with the issues a decently read Austrian econ nerd might expect, such as economists who predicted the 2008 crisis, money and banking, and the Federal Reserve.  The “Further Reading” section lists Meltdown by Woods, End the Fed by Ron Paul, What has Government Done to Our Money by Rothbard, and Economics in One Lesson by Hazlitt.  These books may not be canonical contributions to libertarian thought, but they are all extremely valuable as introductions to further exploration for a beginner.

Huebert writes chapters on marijuana, healthcare, education, constitutional law, gun rights, war, and even intellectual property, describing these issues using application of libertarian theory of property rights and non-aggression.  It is a principled and up to date book that fits the needs of the current times. If you want to know what it means to be a libertarian, but don’t want to read What it Means to Be a Libertarian, read Libertarianism Today.

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Man, Economy, and State: Study Guide Answers Ch. 2

  1. Chapter 2 – Direct Exchange
    1. Do different praxeological laws apply to situations of isolation versus society? (p. 79)

      A:  No, the same praxeological laws apply.  Individuals in society seek to meet their needs simultaneously.

    2. What is Rothbard’s definition of society? (p.84.)

      A:  “The term ‘society’, then, denotes a pattern of interpersonal exchanges among human beings.”

    3. Give an example of autistic exchange. (p. 84)

      A:  An autistic exchange, as defined by Rothbard, is an exchange that does not involve interpersonal exchange.  Thus, all of the Robinson Crusoe examples in which he is the only actor are autistic.  One example of autistic exchange, as opposed to interpersonal exchange, is the exchange of leisure for labor on an individual basis.

    4. Suppose someone says, “In order for an exchange to be just, each person must give up an equal value for an equal value.”  What do you think Rothbard would say about this? (p. 85)

      A:  In order for an exchange to take place at all, each person’s valuation of the goods concerned must be unequal, at least concerning the value rankings of the two goods compared to each other.  To exchange a cup of coffee for $5, I must value the coffee more while the seller must value the money more compared to the coffee.

    5. What are three sources of ownership? (p. 93)

      A:  The three sources of ownership are “self-ownership”, “appropriation of unused nature-given factors”, and “production of capital and consumers’ goods”.

    6. What is the law of association?  How does it relate to Boulding’s example of the doctor and his gardener? (p. 98)

      A:   The law of association states that an exchange may take place even if one party is superior in both lines of production.  This law holds water because people are most productive doing the things in which they have the largest comparative advantage in for more time.  Although the doctor is a better gardener than his hired help, he is a greater degree more valuable as a doctor, and should therefore spend his time doing medical practice.

    7. In figure 16, how many horses will Smith demand at a price of 85 berries?  At that price, how many total berries will Smith offer in exchange? (p. 125)

      A:   He demands 3 horses at a price of 85 berries.  He will begin by offering his lowest possible offer of 84 berries/horse for a total of 252 berries.

    8. What will happen to the price if the total demand to hold is higher than the stock? (pp.137-40)

      A:  If total demand to hold is higher than the stock, then the buyers at the margin will bid up the price until it rises to equilibrium and clears the market.

    9. How can the principles of this chapter be applied to shares of ownership? (p.166)

      A:  A share of ownership is a claim to a certain percentage of ownership of property and therefore acts accordingly under the aforementioned laws of supply and demand.  The percentage (share) of ownership thus becomes the property of the holder and can be bought and sold as such.  The share of ownership also entitles the owner to a proportionate percentage of the revenue stream from the property.

    10. What is Rothbard’s response to Henry George? (pp. 171-72)

      A: Henry George argues against the Lockean premise of original appropriation, mixing ones labor with unused Nature, as a claim of ownership to the property.  George’s argument is that for one man to appropriate the gift of nature, he invades on the property of everyone else, since George regards land as a common, communal heritage.  Rothbard’s answer is that the concept of property is not possible without original appropriation.   Man cannot produce with his labor alone.  Even ,in the most elementary sense, he requires standing room and therefore ownership of the Nature that immediately surrounds him.  He makes a comparison of land to a wild animal, since it is more strikingly fallacious to argue that a man who obtains a cow and mixes his labor with it to produce milk does not own the cow.  Every other individual does not reserve a partial right to every piece of Nature by virtue of being born, according to Rothbard.

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Democracy: The God that Failed Review

Hoppe’s Democracy: The God That Failed is a gut-check to all serious libertarian and Austrian thinkers.  The task of defending a position other than Hoppe’s regarding the role of the State in society is simply insurmountable in light of the essays contained in this book, for it contains quite simply the single most systematically rational and relentless argument against the system of democracy ever put on paper.   Democracy, and even constitutionally limited government, while hailed as great cornerstones of society as we know it, is reduced to utter rubbish at the hands of the mighty Hoppe.

The book is a collection of essays regarding, and I’ll quote the subtitle, “The Economics and Politics of Monarchy, Democracy, and Natural Order.”  Its central theme involves the superiority of monarchy to democracy for both economic and cultural reasons.  Once he has the readers attention, he goes on to advocate another system altogether.  Hoppe compares the private State power of monarchy to the public State power of democracy and concludes that the former is much less dangerous to the individual.

The first, and more economic, reason for this Hoppe highlights is the time preference motives of the respective rulers.  Monarchs are incentivized to take care of their property in preparation for passing it down to a family member.  This mirrors the economic concept of capital maintenance, which preserves capital for future use.  Monarchs are not only more limited in wars (and the size and scope of the wars they fight), but in taxation and legislation against the subjects.   They seek to preserve the economic power of the citizens within their jurisdiction by refusing to tax them into submission.  Hoppe shows empirical evidence that no monarchy ever taxed its citizens more than 10%, and also that the demon of fiat money is a democratic invention in order to debt finance projects that would not have succeeded had the public been taxed to pay for them.

On the other hand, democratic rulers govern only for a short time, and are incentivized to do quite the opposite.  Their “property” as the government is not owned but stolen through coercion from individual taxpayers.  Hoppe argues that this causes not only the economic misfortunes of fiat money, over taxation, and total war with little regard for collateral damage, but cultural degradation as well.  The welfare state incentivizes poverty, undermines family and marriage, and legislation undermines the rule of natural law.  Thus, the population under democracy becomes duller, less moral, more prone to feel entitled, less family oriented, and more crime ridden.  It is  tough to argue that these changes have not taken place in America since the advent of our so called constitutional republic.

As the reader has presumed by now, Hoppe advocates for a system of “Natural Order”, which has aristocratic leanings and anarcho-capitalist principles.  Hoppe’s argument, I dare say, is every bit as forceful and biting, and quite more convincing than even Rothbard’s in For a New Liberty.   This is because he assumes knowledge of the non-aggression principle on the part of the reader, making the book less of an introduction to libertarianism and more of a systematic destruction of the philosophical principles of the state.  The essay entitled, “On Government and the Private Production of Defense” is by itself worth the price of the book.  The subject of national defense is a major hang-up for many self-described libertarians, especially “Tea Party” types. In the face of an intelligent adversary, debating the position of the “night watchman” State becomes impossible on philosophically consistent grounds.  Not to worry, for Hoppe grants an entire chapter each to the “Impossibility of Limited government and the Prospects for Revolution,” and “the Errors of Classical Liberalism and the Future of Liberty.”  Hoppe shows the fatal flaws of the philosophical reasoning behind limited government through the careful dismantling of Locke, Buchannan, and others on the subject.

The most thought-provoking section of the book was its twin chapters on immigration.  Hoppe’s argument against free immigration was completely new to me.  Until reading Hoppe’s argument, I had assumed the principled libertarian stance on immigration was free travel across arbitrary borders.  I had heard this position forcefully debated by Benjamin Powell recently.  One interesting aspect of this debate is that Powell argues in favor of free immigration policy, even today, on economic grounds, while Hoppe argues against it largely on philosophical grounds involving both property rights of individuals and the cultural slide he insists results from “forced integration.”  I very much look forward to engaging the debate within these two schools of thought on the issue of immigration.

Hoppe is without doubt as principled as Rothbard in his writing, and his book has given me a revelation.   Libertarians of all stripes must adopt the anarcho-capitalist position, since any other position can be torn apart as unprincipled.  As soon as we allow the slightest power of coercion or territorial monopoly of the rule of law to the State, it is Hoppe’s view and mine that we have already lost the argument for freedom.  Even (perhaps especially) the most ardent socialist will respect the consistency of the anarcho-capitalist position, and the debater will avoid the traps that a Hayekian or Freidmanite might find himself in.   If any Austrian thinker fells he or she lacks the ammunition to counter the prevalent Statist arguments, they need only to grace the pages of Democracy by Hoppe, in order to unlock to true absurdity of the countering  position.

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Man, Economy, and State Study Guide Answers Ch. 1

These are my answers to the questions, which I have thoughtfully considered.  I would appreciate any feedback on these.  I’ll be releasing these one chapter at a time.

Study Guide questions by Robert Murphy

Chapter 1 – Fundamentals of Human Action

  1.  If an infant cries immediately after birth, is this action in the praxeological sense? What if the infant, several months later, has learned that crying will often lead to attention from parents? (pp.1-2)A:  An infant crying immediately after birth can probably be categorized as an involuntary reflex, and not necessarily meaningfully interpreted by men.  Since the criteria Rothbard outlines for action excludes involuntary reflexes, an infant crying immediately after birth cannot be considered action.  After the infant has learned that crying will lead to attention, it is reasonable to assume that the infant acts with this purpose in mind, and that his purpose can be interpreted by his parents.  This, therefore, renders it action in the praxeological sense.
  2. When doctors in the 1800s used leeches in an attempt to help patients, was this an example of human action? (p.7)A:  Rothbard outlines one fundamental implication derived from the existence of human action as “uncertainty of the future”.  All action is taken while speculating about future conditions and how to best meet future needs.  A doctor in the 1800s may have speculated, rightly or wrongly, that leeches will heal his patient, but because he acts purposefully to achieve ends in an uncertain future, his actions can be considered human action.
  3. Suppose a man is strumming his guitar while sitting on the sidewalk in a large city, and that his only purpose is to listen to the enjoyable music.  How should the guitar be classified?  What if passerby begin giving the man loose change, so that he now views the guitar as a means to earning money?   (pp.8-9)A:  Because in the first example, the guitar is used in an immediately serviceable way, it is considered a consumer’s good.  In the second example, it becomes a producer’s good.   This distinction is made because the money he earns with his guitar is used to buy consumer’s goods, thus moving the guitar to a higher order of production.
  4. Suppose that a boy, on June 4, is offered the choice of seeing a fireworks show that day, or in exactly one month.  If the boy chooses the show in the future, has he violated the law of time preference? (pp. 15-16)A:  It is safe to say that the boy is not violating time preference.  He is merely making the choice that alternatives available to him today outweigh going to the concert in the present.  Although time preference tells us the value of the concert is less in a month than in the present, the real question to answer is the boys alternatives at any given time, and in what order are the respective utilities of those alternatives ranked.
  5. Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.”  What do you think Rothbard would say about this statement? (pp. 18-19)A:  Rothbard’s contention is that it is impossible and, indeed, inconsequential to numerate or measure utility.  Each end can only be ranked according to the others and satisfied according to those utilities.
  6. Imagine that a chemist measures two bottles of water, and finds that the first contains 8.002 ounces of water, while the second bottle contains 8.001 ounces of water.  The chemist concludes that the bottles of water are definitely different objects.  How should the economist treat them? (p. 23)A:  This question depends on who the actor is.  Certainly, most people would conclude that the two bottles of water are two equal units of a homogeneous supply.  In other words, they are considered the same good.  However, if our actor is the chemist, for his experiment he may consider these to be different objects and therefore different goods altogether.
  7. What are the two ways that capital increases productivity (p. 48)A:  The first way capital increases productivity is it “may provide a greater production of the same good per unit of time”.  The second is that is “may allow the actor to consume goods that are not available at all with shorter processes of production.”
  8. What are the definitions of consumption, savings, and investment? (pp. 48,53)A:  Consumption is “the enjoyment of consumer’s goods – the satisfaction of wants.”  Savings is “the restriction of consumption.”  Investment is “the transfer of labor and land to the formation of capital goods.”(Note: Distinguishing between savings and investment is difficult for me, especially when Rothbard further grays the area saying that there is basically no difference in “plain saving” (saving consumer goods for later) and “capitalist saving” (in which savings enter the process of capital formation) (pg. 69)
  9. If capital goods increase the productivity of labor, why don’t people create as many capital goods as possible? (pp.48-49)A:  The short answer to this question is time preference.  Because any actor prefers goods in the present to goods in the future, he must continually weigh future consumption with present consumption.  He must also weigh present labor for capital formation against present consumption.  Eventually, the actor will consume what he has.
  10. Suppose that a farmer normally sets aside 10 percent of his harvest as seed corn.  His son says, “That’s silly!  We should sell all of our harvest and make as much money as possible.” What would this policy lead to? (p. 55)A:  This policy would lead to a very short farming career.   The seed corn can be considered capital.  The farmer is merely adding to his capital structure in order to have more corn to sell in the future.  Capital is perishable, according to Rothbard, and must be maintained (at the expense of present consumption or other alternatives) in order to continually reap its benefits.
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