Why not diamonds?
“Will you take half this diamond for your laptop?”
“brb gotta try and cut this damn thing in half.”
Not to mention that even if the diamonds were easily divisible, they would not retain their value. A single diamond of 1 karat is worth more than four diamonds of a quarter karat each (of the same quality).
Unlike gold, diamonds lack the characteristics that make emergent money stable and suitable as currency. As I’ve noted, such ‘money’: “(1) must be relatively imperishable (retain its value over long periods of time without decay), (2) must be easily divisible without losing value, (3) must be malleable and ductile, able to be shaped into more convenient and portable forms, (4) must remain stable in a wide range of temperatures and climates, (5) has never been worth nothing (has intrinsic value, or rather value as something other than an intermediary of exchange), (6) must be fungible (an ounce from one source would be equal and identical to an ounce from another source), (7) supply is finite without being so rare as to be difficult to use (relative scarcity), (8) new supply is relatively uncommon and difficult to acquire, (9) has a long-standing history of being used as currency, and above all else (10) free people have used it as a medium of exchange or intermediary of trade.”
Old fashioned Keynesianism, as practiced by the likes of [Paul] Krugman, resembles a set of religious dogmas, not scientific propositions. Austrians view economics as a science, a body of theory and application that helps us understand the world. Keynesians see economics as a set of political tools useful to rationalize and justify an a priori faith in unlimited government. Krugman, like Keynes himself, dislikes businesspeople, consumers, and especially entrepreneurs and investors, and prefers a world in which an elite cadre of intellectuals and bureaucrats controls most investment, production, and consumption decisions. Fine, everyone has a right to his personal belief system. But let’s not pretend there’s anything scientific about the multiplier, the marginal propensity to consume, the liquidity trap, and the other relics and sacraments of the Keynesian religion.
The law requires large employers offering health insurance to include part-time employees working 30 hours a week or more. But rather than provide healthcare to more workers, a growing number of employers are cutting back employee hours instead.
The result: Not only will these workers earn less money, but they’ll also miss out on health insurance at work.
As Don Boudreaux notes: “Wow. What a surprise. I’m shocked. Shocked, I tell you. Just shocked. It’s simply astonishing that employers don’t just pay these higher mandated costs out of their ubiquitous pots’o’gold.”
Libertarians often speak about what Bastiat called “the seen and the unseen” or the danger of what Sowell refers to as “not thinking beyond Stage 1.” These are the inevitable unintended consequences we warned of: diminished access and quality coupled with increased prices and other negative economic effects.
Naturally, the same economically-illiterate statists who caused this mess will blame “the market” and present us with a solution that is more of the same.
Even more astonishing to some – but an indubitable economic fact – natural resources are increasingly less important with each passing decade. The crucial capital nowadays is “human capital” – people’s skills plus the stock of knowledge – and migrants bring this human capital with them.
— Julian Simon, The Economic Consequences of Immigration
don’t reveal preferences, they reveal expectations.
No they reveal preferences ex ante. Whether said preferences actually end up meeting those expectations is an ex post consideration.
But how do you determine if the preferences were based on the actual result or a different expected result? People don’t prefer making one decision to making another decision, they prefer the expected payoff of a particular decision.
For example, back before the FDA or any kind of medical regulation, there were “doctors” who went from town selling snake oil - a remedy that they alleged cured all sorts of ailments. People bought it with the expectation that it would cure those ailments. More often than not, the snake oil did absolutely nothing. If you’re seriously suggesting that people’s purchase of snake oil demonstrated that they preferred snake oil itself to whatever else that money could have gone to buying (food, for instance) - rather than the expected benefit they believed that they could derive from the snake oil - you’re just ignoring truth in order to make reality fit your preconceived theory.
herp derp but when Austrian economists speak of action they are referring to action and preference at a specific moment in time. So when people were buying snake oil they were indeed revealing a preference over food at that given moment in time.
But it wasn’t for snake oil. That’s the point. It was for the expected value they believed the snake oil was going to give them. The problem with the Austrian view is that it leaves no room for disappointment.
Again, as has been repeatedly noted: there is a distinction between ex ante and ex post. Every action reveals preferences ex ante, meaning at that moment of action based on expected results. The future is inherently uncertain. This is a fundamental principle of economics, which - since you claim to be an economics instructor yourself - is something I imagine you understand.
As Ludwig von Mises notes in his opus, Human Action:
The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing one thing. … [T]o acting man the future is hidden. If man knew the future, he would not have to choose and would not act. He would be like an automaton, reacting to stimuli without any will of his own.
So, man acts because the future is uncertain and wishes to lessen some perceived unease or to attain a greater level of happiness or contentment. As such, every action reveals a chosen means to a specific end but the action cannot guarantee that end: ‘If I buy this water, my thirst will be quenched’, ‘If I wink at this girl, she’ll come home with me,’ ‘If I vote to outlaw guns, there will be no crime,’ ‘If I buy this alarm system, my home will be safer,’ ‘If I invest in this company, I will become rich,’ ‘If I go to the gym, I will lose weight,’ ‘If use this lotion, I will grow 6 inches,” etc.
Mises, ibid. (emphasis added):
Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. …
Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one. We call such a willfully induced alteration an exchange. A less desirable condition is bartered for a more desirable. What gratifies less is abandoned in order to attain something that pleases more. …
Action is purposive conduct. It is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means. …
Action is always directed toward the future; it is essentially and necessarily always a planning and acting for a better future. Its aim is always to render future conditions more satisfactory than they would be without the interference of action. The uneasiness that impels a man to act is caused by a dissatisfaction with expected future conditions as they would probably develop if nothing were done to alter them.
So action is hopefully clear, but Austrians do not take for granted the results. To the contrary, that distinction is discussed thoroughly. The nature of humanity itself, beyond an uncertain future, is imperfect human actors and the ubiquity of imperfect knowledge and imperfect calculation (see my post on The Calculation Problem and Price Theory). Austrians discuss this imperfection ad nauseam, and indeed it is why they note that a decentralization of decision-making would yield optimal results.
It happens again and again that an action does not attain the end sought. Sometimes the result, although inferior to the end aimed at, is still an improvement when compared with the previous state of affairs; then there is still a profit, although a smaller one than that expected. But it can happen that the action produces a state of affairs less desirable than the previous state it was intended to alter. Then the difference between the valuation of the result and the costs incurred is called loss.
The Austrian approach does not make the perfect-knowledge assumption the foundation for [the market-clearing price] proposition; quite the contrary, Austrians base the proposition squarely on the insight that its validity proceeds from market processes set in motion by the inevitable imperfections in knowledge, which characterize human interaction in society.
Murray Rothbard not only fleshes out this distinction between ex ante and ex post, but he compares the market in this sense to democracy/government (and dedicated a fair chunk of Power & Market to this discussion):
Error can always occur in the path from ante to post, but the free market is so constructed that this error is reduced to a minimum. In the first place, there is a fast-working, easily understandable test that tells the entrepreneur, as well as the income-receiver, whether he is succeeding or failing at the task of satisfying the desires of the consumer. For the entrepreneur, who carries the main burden of adjustment to uncertain consumer desires, the test is swift and sure—profits or losses. Large profits are a signal that he has been on the right track; losses, that he has been on a wrong one. Profits and losses thus spur rapid adjustments to consumer demands; at the same time, they perform the function of getting money out of the hands of the bad entrepreneurs and into the hands of the good ones. The fact that good entrepreneurs prosper and add to their capital, and poor ones are driven out, insures an ever smoother market adjustment to changes in conditions.
Consumers are not omniscient, but they do have direct tests by which to acquire their knowledge. They buy a certain brand of breakfast food and they don’t like it; so they don’t buy it again. They buy a certain type of automobile and they do like its performance; so they buy another one. In both cases, they tell their friends of this newly won knowledge. Other consumers patronize consumers’ research organizations, which can warn or advise them in advance. But, in all cases, the consumers have the direct test of results to guide them. And the firm that satisfies the consumers expands and prospers, while the firm that fails to satisfy them goes out of business.
On the other hand, voting for politicians and public policies is a completely different matter. Here there are no direct tests of success or failure whatever, neither profits and losses nor enjoyable or unsatisfying consumption. In order to grasp consequences, especially the indirect consequences of governmental decisions, it is necessary to comprehend a complex chain of praxeological reasoning… Very few voters have the ability or the interest to follow such reasoning, particularly, as Schumpeter points out, in political situations. For in political situations, the minute influence that any one person has on the results, as well as the seeming remoteness of the actions, induces people to lose interest in political problems or argumentation. Lacking the direct test of success or failure, the voter tends to turn, not to those politicians whose measures have the best chance of success, but to those with the ability to “sell” their propaganda. Without grasping logical chains of deduction, the average voter will never be able to discover the error that the ruler makes. Thus, suppose that the government inflates the money supply, thereby causing an inevitable rise in prices. The government can blame the price rise on wicked speculators or alien black marketeers, and, unless the public knows economics, it will not be able to see the fallacies in the ruler’s arguments. …
Another critical divergence between market action and democratic voting is this: the voter has, for example, only a 1/50 millionth power to choose among his would-be rulers, who in turn will make vital decisions affecting him, unchecked and unhampered until the next election. In the market, on the other hand, the individual has the absolute sovereign power to make the decisions concerning his person and property, not merely a distant, 1/50 millionth power. On the market the individual is continually demonstrating his choice of buying or not buying, selling or not selling, in the course of making absolute decisions regarding his property. The voter, by voting for some particular candidate, is demonstrating only a relative preference over one or two other potential rulers; he must do this within the framework of the coercive rule that, whether or not he votes at all, one of these men will rule over him for the next several years. …
While success is the engine that accelerates us toward our goals, it is failure that steers us toward the most valuable goals possible. Once failure is recognized as being just as important as success in the market process, it should be clear that the goal of a society should be to create an environment that not only allows people to succeed freely but to fail freely as well.
To suggest that “the Austrian view… leaves no room for disappointment” reveals a gross misunderstanding (or, more likely, straw-manning) of the “Austrian view.”
The whole Keynesian edifice was constructed on the preposterous supposition that economic advice is offered to a genuinely benevolent despot, an entity devoid of its own interests, and presumably willing and able to implement, without resistance, the advice offered to it. The early monetarist challenge was directed to the Keynesian analysis and, in itself, did not question the implicit political supposition. …
Effective authority lodged with an hereditary monarch might represent the closest historical parallel to the implicitly presumed Keynesian model of politics.
— James M. Buchanan
Needs arise from our drives and the drives are imbedded in our nature. An imperfect satisfaction of needs leads to the stunting of our nature. Failure to satisfy them brings about our destruction. But to satisfy our needs is to live and prosper. Thus the attempt to provide for the satisfaction of our needs is synonymous with the attempt to provide for our lives and well-being. It is the most important of all human endeavors, since it is the prerequisite and foundation of all others.
— Carl Menger, Principles of Economics
Experts may indeed have more knowledge than the average amount of knowledge among individuals in the general population but the total amount of knowledge among millions of people in the general population vastly exceeds the total knowledge that any group of experts can assemble.
— Thomas Sowell, Basic Economics
Those who expect employers to adjust to a 24% increase in costs for their lowest-skilled/marginally-productive workers (precluding consensual exchanges) without any adverse consequences are the same people who agitate that calamity has befallen society because of a 3% “cut” on a budget increase (facilitated on non-consensual funding).
If borders were such an engine of growth, the economist points out, then one could draw an international border in England from Dover to Wroxeter, calling “foreign” all trade across the Watling Street border thus created, into and out of the ancient Danelaw, and thereby make trade within England into an engine of growth. Or you could call left-handed English people “foreigners,” and achieve the same result. The accounting reductio shows that there cannot be something special about foreign trade.
— Deirdre McCloskey, Bourgeois Dignity
If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to dis-employ, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be dis-employed and devastated by this prohibition will be precisely the ‘marginal’ (lowest wage) workers … the very workers whom the advocates of the minimum wage are claiming to foster and protect.
— Murray Rothbard
When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available. Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves. They work harder and put up with more abuse from the boss because the minimum wage reduces the alternatives that are available.
When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.
Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves. They work harder and put up with more abuse from the boss because the minimum wage reduces the alternatives that are available.
Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do?
The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.
The example was deliberately extreme as an illustration. But, in the real world, the same general pattern can be seen in local, state and national government responses to budget cuts.
At the local level, the first response to budget cuts is often to cut the police department and the fire department. There may be all sorts of wasteful boondoggles that could have been cut instead, but that would not produce the public alarm that reducing police protection and fire protection can produce. And public alarm is what can get budget cuts restored.
The Obama administration is following the same pattern. The Department of Homeland Security, for example, released thousands of illegal aliens from prisons to save money — and create alarm.
The Federal Aviation Administration says it is planning to cut back on the number of air traffic controllers, which would, at a minimum, create delays for airline passengers, in addition to fears for safety that can create more public alarm. …
When Obama was offered the authority to make the spending cuts wherever he chooses, anywhere in the government’s multi-trillion dollar budget, it was the only power that this power-grabbing president has rejected.
Why? Because with this new power would go responsibility for the consequences of his choices. And responsibility for consequences is precisely what both the Obama administration and the Senate Democrats have been avoiding for years, by refusing to pass a federal budget, as required by the Constitution of the United States.
Democrats prefer to get the political benefits from handing out goodies, while Republicans can be blamed for not subsequently raising enough taxes to pay for the Democrats’ spending spree. …
The sequester creates more visible damage and more public alarm than if the [budget were trimmed] a little here and a little there in the vast trillions of dollars spent by the government, in order to make a relatively small “cut” that still leaves total federal spending higher than last year.
Only in Washington is a reduction in the rate of growth of spending called a “cut.”
Related: Make it hurt.
Central planners cause chaos; free people create order. - Tom Woods
Start video at 7:30. Worth your time, particularly if you haven’t read Woods’ Rollback and Meltdown.