Patterico's Pontifications


Paul Krugman: Democrats Don’t Create Cults of Personality Around Politicians

Filed under: General — Patterico @ 10:39 pm

Well, at least not undeserving ones.

John Sexton’s post is classic John Sexton: hard-hitting, fair, and well-reasoned. I can’t do it justice with an excerpt. Go read it all.

UPDATE: Maybe they just come dangerously close?

Nadia Naffe Dismisses Lawsuit Against Me — Without Collecting a Penny

Filed under: General — Patterico @ 5:18 pm

Nadia Naffe and I have settled her lawsuit against me. I am paying her nothing. I am retracting nothing. There are no secret promises. The lawsuit has been dismissed, in exchange for my waiving any claims for attorneys’ fees or costs.

Throughout this lawsuit I have vigorously defended my First Amendment rights, and continue to do so. I stand by what I have said about Ms. Naffe, and I remain free to criticize her in the future. I continue to believe Ms. Naffe’s lawsuit was a vehicle designed to silence me. Ms. Naffe sued my wife. Ms. Naffe even sued Steve Cooley — who at the time was the Los Angeles County District Attorney, and my boss.

I continue to believe these were obvious attempts to misuse the court system, to punish me for my speech about a matter of public interest. Recall that the trial judge threatened to sanction Ms. Naffe and her lawyer Jay Leiderman for, as the judge put it, “Plaintiff’s (and/or her counsel’s) willingness to play fast-and-loose with the language that is actually at issue here.”

In the end, these tactics were unsuccessful.

It was interesting to be a defendant in a frivolous lawsuit. I went through the experience of watching media outlets publish stories about this case that repeated Ms. Naffe’s allegations as if they were true. It will be interesting to see whether any of them report that the lawsuit has been settled, with nothing retracted, and not one cent paid to Ms. Naffe. Frankly, I doubt it. Big Media loves to repeat wild allegations made in frivolous lawsuits — but the dismissal of those lawsuits is, all too often, not considered newsworthy.

While litigation is never pleasant, this litigation had some positive effects. For example, it set an important Ninth Circuit free speech precedent, holding that public employees are allowed to discuss matters of public concern on their own time. I am proud to have had a part in setting that precedent. The courts have ruled that I did not act under color of law. I did not blog or tweet about Ms. Naffe on taxpayer time.

The best part about the experience was the support I received. Not only did you, the readers, stand by me, but three lawyers stepped up and helped me throughout the process. I owe a huge debt of gratitude to attorneys Ronald D. Coleman (from Likelihood of Confusion) and Kenneth P. White (from Popehat), who both worked endless hours on this case for zero pay — and came up with the strategy that made this result possible. I would like to thank also Eugene Volokh of UCLA Law School and the Volokh Conspiracy blog at the Washington Post. Eugene wrote an amicus brief supporting my position in the Ninth Circuit, where I prevailed on the “color of law” claim.

These gentlemen all did outstanding work — not so much for me, but for the cause of free speech. I was just an incidental beneficiary . . . but a very pleased and grateful one.

Please join me in thanking Ken White, Ron Coleman, and Eugene Volokh for their efforts in bringing home this victory.

“Human Action” and Robert Murphy’s “Choice,” Part 11: Indirect Exchange and Money

Filed under: Economics,General,Human Action and Choice — Patterico @ 7:30 am

This is Part 11 of a 17-part series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action.” Like previous posts, this post is a summary of a summary.

The purpose of these posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.

This is one of the longest chapters in the book, and I think it’s the toughest post in the series (at least so far). Some paragraphs may need to be read twice, or perhaps you should just read them more slowly than you’d normally read a blog post. But I think the concepts are among the most fascinating. You should learn something today.


Murphy begins by explaining the difference between direct and indirect exchange. We have explored simple examples of direct exchange before, in post 7 (trading one flavor of ice cream for another) and post 10 (selling ice cream for money). Let me illustrate indirect exchange while sticking with the ice cream example.

Say Milton has chocolate, but wants vanilla. Murray has vanilla, but wants strawberry. Ludwig has strawberry, but wants chocolate. No two of these men can trade with one another and have both sides directly obtain they want. But any two of the three can trade directly, and thereby have one side get what they want directly, and have the other side obtain what he needs to successfully trade with the third party. The party that uses the first transaction to get what he needs for a second transaction is engaged in indirect exchange.

For example, if Milton trades his chococate for Murray’s vanilla, Milton is immediately happy, because he wanted vanilla. Murray, exchanging his vanilla for chocolate, is not happy yet — because Murray wanted strawberry, and he has chocolate. But now Murray can go to Ludwig, and exchange strawberry for chocolate. After two transactions, everyone’s happy.

Here, Murray used strawberry ice cream as a medium of exchange. Trading something of value for strawberry did not satisfy Murray immediately, but using that strawberry ice cream as a medium of exchange allowed Murray to get what he wanted.


Carl Menger, the father of Austrian economics, explained that money got its start with this sort of indirect exchange. People recognized that they could not always trade goods directly. But they also realized that if they could trade their goods or services in return for a widely accepted medium of exchange, they could get what they wanted.

Menger explained that money must of necessity emerge in this way. His was not a historical analysis, as there are no clear records of how this happened; rather, he argued from economic logic. Money could not have emerged because a wise ruler said: “everyone should start accepting these shiny rocks” (or pieces of metal, or whatever) “in return for the valuable stuff they have.” It seems very unlikely that people would have signed onto such a bizarre-sounding plan. And if a wise ruler had managed to pull this off, how would he know how many shiny rocks people should have to exchange for one sheep? for three cows? for one day’s labor picking crops? and so forth.

No: instead people started trading for things that they knew would be widely accepted, because they were useful commodities on their own. In some societies the initial medium of exchange was tobacco. It has been cocoa beans at times. (I explained the origins of money more fully in May 2014, and for a fuller description, I refer you to that post, but here we will just summarize it.) But over time, people gravitated towards previous metals like gold and silver, because they had the properties you would expect from a medium of exchange: they were recognizable, scarce, liquid, divisible, durable, easily stored, and transportable. The general idea, however, is that money was a commodity — and it cannot logically emerge any other way. (Gold is thus a “commodity money” — as contrasted with fiat money, which is money simply because government declares it to have value.)

Now comes the fun part — that I think is going to upset some of you, because it may run counter to the conventional way you have likely thought about money for most of your life. (Why “fun”? Well, where’s the fun if I’m not challenging your ingrained beliefs a little bit?)


Mises’s great insight into money (one of them, anyway) is that money is a good that is demanded by people, just as they demand any other good. It’s not just what’s left after you get through satisfying your other demands. It’s something you demand just as you demand traditional goods or services. Money is demanded, not so we can consume it (obviously), but because we can hold it, and it provides a flow of services to the person who holds it.

If you view money as a good, there are immediately some problems that need to be addressed. For one, how do you value it? Oranges might be said to be worth $2 per pound. Bicycles might be $200 each. What is money “worth”? The answer is: the reciprocal of all the goods and services it could purchase. If oranges are $1 for a half pound, then $1 is worth a half pound of oranges. If bicycles are $200, then $1 is worth 1/200 of a bicycle. Etc.

Viewing money in this way helps you to understand general price fluctuations as a function of the demand for money. If the price of money goes up (because the demand for money goes up), then the price of all these other goods goes down. When people demand money more, prices fall. Put another way, money’s purchasing power rises. Like any other good, as its price goes up, people will hold less of it, because they can get more for it. (As a side note — and this is my own observation, not endorsed by Murphy — this is why deflation is not worrisome. As people hoard money, it becomes more valuable, and naturally people will want to exchange it for goods, since they can buy more with it.)

By contrast, when money’s purchasing power (or price) falls, prices of other goods go up. This is what is typically thought of as “inflation” (price inflation, or rising prices) — and it is a function of money losing its purchasing power. Put another way, the price of money is falling, which is often a side effect of expansion of the money supply — the marginal utility of extra units of money decreases as the supply available increases.

Ultimately, then, the purchasing power of money is a function of the demand for money. (Remember, Mises liked to explain the economy in terms of demand.) The purchasing power of money throughout the economy adjusts so that the total quantity of money demanded by all people (taking into account what they would have to exchange to get it) equals the total amount of money in existence. (This is the same thing that happens with goods and services: the quantity of a good in an unhampered market economy tends towards the level equal to the total amount demanded at the market clearing price.)

Viewing money as a good collapses the artificial distinction between microeconomics and macroeconomics. It allows Austrian economists to analyze the macro economy according to the common-sense principles (incentives and purposeful behavior) that govern decisions on the individual level.


Other problems come to mind, however. Remember, we have said all value is subjective. How can we use subjective value theory to explain the value of money without engaging in circular logic? Before Mises, explanations of the purchasing power of money seemed to travel in a circle: money can buy stuff because people demand it . . . and people demand money it because it can buy stuff.

Mises introduced the time element to break the circle. He explained that money’s purchasing power today is based on people’s expectations of what money’s purchasing power will be in the future. We’re no longer explaining money’s current purchasing power by reference to money’s current purchasing power, but rather by referring to the purchasing power we expect it will have in the future. This evaluation of the future is crucially aided by knowledge of what money was worth in the recent past.

You might say: that breaks the logical circle, but it leads us into a another problem: of infinite regress. If today’s purchasing power is based on yesterday’s expectations, and yesterday’s purchasing power was based on the previous day’s expectations, where did the original purchasing power come from? That’s where Menger’s explanation of the origin of money, described above, comes in. Mises said all money started as commodity money, like gold. Mises called this the “regression theorem.” At some point in the past, the community was in a situation of direct exchange (as opposed to indirect exchange) and this explains the origin of the purchasing power of money.

Mises argued that, if everyone in the world suddenly forgot tomorrow what the prices had been for everything in the past, people could reconstruct the process of comparing the relative values of different goods or services (a Ferrari is worth more than an orange), but nobody would know what a “dollar” is worth anymore. This is why Mises says that money — a medium of exchange — must begin as an economic good for which people assign an exchange value. People who have commonly used nothing but fiat money in their lives may have a hard time accepting this. But there is no fiat currency in existence whose value can’t be traced backwards in time to a commodity money. (This may help explain why people are having such a hard time determining a stable value for Bitcoin. Murphy acknowledges in a footnote that Misesians are still debating whether Bitcoin can escape the logic of the regression theorem.)


Mises also argued that money is not “neutral.” As noted, many economists would explain prices through the examples of a barter system, and throw in money as an afterthought. Mises did not. One effect of this view is Mises’s views on the effects of new money entering the economy. Many people seem to assume that if you double the stockpile of money, prices will double and purchasing power will halve, but otherwise people’s relative economic positions will remain constant. First, it’s not so neat and mathematical as that — but more importantly, money enters the economy in different places, and the people who get to use it before the prices rise are benefited. So, during QE, for example, large investment banks received the new money injected in the economy first, and benefited at the expense of others.

Another Mises tenet was that the currently available quantity of money is sufficient. Many people assume that, as the population rises, it is necessary to expand the money supply to forestall that horrible bogeyman called “deflation.” Mises emphatically disagreed. Doubling the money supply does not make people richer, and halving it does not make people poorer.


Mises was also a fan of the gold standard, seeing it as a critical bulwark against government power — as important as a written constitution or bill of rights. (I hesitate to use the words “gold standard” in a post, as it is almost certain that the comment section will fixate on it, making arguments that have nothing to do with the points made in the post. Still, this is part of the chapter.) Mises did not want governments to have the power to take action (even war) without the political accountability that comes with raising the money for the government action through taxation or borrowing. Simply inflating the currency allows governments to pretend that the government action costs them nothing.

The gold standard sets an automatic brake on inflation. If countries tried to inflate their currency, gold would flow out of the country as the government would be forced to redeem the inflated currency for gold. The money supply would have to shrink (or, if you were insistent on inflating, you could just pull a Richard Nixon and kill the gold standard — the “to hell with everything” strategy — leading to the price inflation we saw in the 1970s).

This mechanism also keeps foreign trade in balance; if more Americans bought British products than vice versa, they would have to buy pounds to do so. The surfeit of dollars chasing pounds would cause pounds to increase in value relative to dollars. But the gold standard would keep this from getting out of control, because if the value of a dollar became too low vis-a-vis the pound (meaning it took more dollars to buy a pound), gold owners could simply sell gold to England, buy U.S. dollars with the pounds, exchange those dollars for gold in the U.S., and end up with more gold than they started with. The net effect is that gold would flow out of the U.S., causing U.S. prices to fall, which would cause the British to buy more American goods, bringing everything back into balance. This mechanism has been understood since the days of Hume and Ricardo.


Finally, Mises was very clear that we should use the term “inflation” to refer to the quantity of money, and not the rise in prices that an increased quantity of money causes. (In a slight concession to the widespread use of the term to refer to the latter concept, Murphy uses “price inflation” to refer to the rise in prices, and “monetary inflation” to refer to an expansion in the money supply, which is what Mises insisted inflation really means.) Mises reasoned: “It is impossible to fight a policy which you cannot name.” (Shades of Ted Cruz talking about radical Islamic terrorism!) The root cause of price inflation is monetary inflation, and if we call rising prices “inflation,” we are then left without a term to describe what the real problem really is.

That was a bear of a chapter; possibly the toughest one in the book. I may give you a few days to reflect on this one before moving ahead with the next post.


Remember When Hillary Clinton Said, “I’m confident that this process will prove that I never sent, nor received, any email that was marked classified”??

Filed under: General — Dana @ 5:23 pm

[guest post by Dana]

Well, so much for her confidence because this is the scandal that just keeps on giving:

The State Department has deemed roughly 150 more of Hillary Clinton’s email messages to be classified, a move certain to fuel the roiling controversy over her use of a private email server instead of an official government account when she served as secretary of state.

The new classifications will more than triple the previous total of 63 classified messages on Clinton’s account, but State Department spokesman Mark Toner stressed that the information was not marked classified at the time it was sent several years ago. He also said the decisions to classify the information did not represent a determination that it should have been marked or handled that way back then.

“That certainly does not speak to whether it was classified at the time it was sent, or forwarded, or received,” Toner said during the daily State Department briefing on Monday. “We stand by our contention that the information we’ve upgraded was not marked classified at the time it was sent.”

And more defense:

Toner batted away questions about whether State Department policy dictated that Clinton and other agency employees treat as classified information obtained in confidence from foreign officials or diplomats.

“Classification — we’ve said this many times — is not an exact science. It’s not, often, a black-and-white process,” Toner said. “There’s many strong opinions. … It’s not up to me to litigate these kinds of questions from the State Department podium.”

All of this comes in advance of the State Department’s pending release of 7,000 “additional pages” of her emails.

Also, not only did Clinton use a private server for official State Dept. business, a new report asserts that she also shared an email network with the Clinton Foundation:

Records reveal that Hillary Clinton’s private server shared an IP address with her husband Bill Clinton’s email server,, and both servers were housed in New York City, not in the basement of the Clintons’ Chappaqua, New York home.

Web archives show that the Web address was being operated by the Clinton Foundation as of 2009, when Hillary Clinton registered her own server.

Numerous Clinton Foundation employees used the server for their own email addresses, which means that they were using email accounts that, if hacked, would have given any hacker complete access to Hillary Clinton’s State Department emails, as well.

The bombshell revelation raises new concerns about the possible illegality of Hillary Clinton’s private email use. The former Secretary of State is under federal investigation for potentially violating the Espionage Act by allowing people without a security clearance to access classified information. The fact that Hillary was sharing an email network with a private foundation means that people without a security clearance almost certainly had physical access to her server while she was working at the State Department.

As a reminder, this was Hillary back in March, 2015:

“Well the system we used was set up for President Clintons office and it had numerous safeguards it was on property guarded by the Secret Service and there were no security breaches, so I think that the use of that server which started with my husband proved to be effective and secure,” Hillary Clinton said in a March 2015 press conference.

But hey, don’t make a big deal about her email issues, it’s all good:

The New York Times ‏@nytimes Aug 26

Hillary Clinton takes responsibility for email use, saying it “wasn’t the best choice”

What do you think it will take for her to suspend her campaign?

(I’m thinking nothing short of being escorted away in handcuffs…)


UPDATE BY PATTERICO: Yes, there is a vast right-wing conspiracy!

Screen Shot 2015-08-31 at 6.38.53 PM


“Human Action” and Robert Murphy’s “Choice,” Part 10: Where Prices Come From

Filed under: Economics,General,Human Action and Choice — Patterico @ 7:48 am

This is Part 10 of a 17-part series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action.” Like previous posts, this post is a summary of a summary.

The purpose of these posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.

This is another meaty chapter.

In explaining how the prices of consumer goods are determined, Murphy relies on preference rankings similar to the ones we used in post number 7, which gave examples of preference rankings in ice cream.

In that post, we showed that one person (Milton) who had two scoops of vanilla ice cream, but preferred one scoop of chocolate, could profitably trade with someone (Murray) who had one scoop of chocolate, but preferred two scoops of vanilla. Then if a third person comes along (Ludwig) who also has a scoop of chocolate, and is willing to settle for one scoop of vanilla instead of two, Milton will trade with Ludwig and not Murray. (See post 7 for a fuller discussion.)

If you substitute dollars for scoops of one of the flavors of ice cream (for example, vanilla), you can see how prices are determined. Murray will sell his scoop of chocolate for $2. Ludwig will sell his for $1. The market clearing price becomes $1.

The valuation is still subjective even though money has been introduced. As for the issue of why people would want little green pieces of paper (dollars) instead of scoops of ice cream, we can, of course, answer that by saying that people expect to be able to use those little green pieces of paper to obtain other things they want. Why this should be so, however, is a topic for a future post.

Mises distinguishes between valuation and appraisement. Valuation, according to Murphy, is “the significance that an individual places on a good or service because of its ability to confer happiness or utility on the individual.” Appraisement “assesses the amount of money for which a good or service can be sold.” Each influences the other, but they are separate concepts.

The next point is very subtle but worth understanding, because it was important to Mises, and misunderstood by even famous economists such as Joseph Schumpeter. For a single actor, the subject of valuation of a higher-order good depends on his own subjective valuation of the consumer good it helps produce. In a market economy, by contrast, the prices of higher-order producer goods are ultimately determined both by consumer preferences and by entrepreneurs — who appraise the prices of producer and consumer goods using economic calculation. Mises’s concern is that we always keep in mind the key role of the entrepreneur in allocating resources to produce consumer goods. This is a task that entrepreneurs do using economic calculation, which works only in a free market economy with accurate price signals.

Why was this important to Mises? Because if you ignore the key role of accurate price signals as used by entrepreneurs, then you might get fooled into thinking socialism is viable. More on this in a future post.

Murphy now stops to mention two “complications” that arise in assessing the role entrepreneurs play in determining the prices of the factors of production.

One is the ever-looming issue of time preference — the idea that people tend to prefer having their desires satisfied now, and not in the future. As entrepreneurs bid on the factors of production, they must remember that goods are always more valuable today than in the future. Thus, entrepreneurs always have to charge a mark-up. Because, even if you set aside the risks taken by entrepreneurs in trying to predict what consumers will value in the uncertain future, they also generally must use capital. Thus, they must contend with the fact that production takes time — and this means that capitalists’ investments in the production process must be recouped and then some, to make it worth their while to put the capital up for use by the entrepreneurs.

Also, Murphy notes that entrepreneurs choose to buy inputs according to anticipated marginal productivity — similar to the way consumers buy consumer goods according to the marginal utility they expect to receive from successive units of those goods in the production process. The only difference is the inclusion of the factor of the entrepreneur’s appraisement. The entrepreneur appraises how much extra revenue a producer good will bring in, and purchases (and thus appraises the value of) those producer goods accordingly. This applies to labor too. If you think an extra worker will bring in more money, you hire him. (Shockingly, this means a higher minimum wage could mean fewer workers hired on the margin!)

THE ROLE OF SUPPLY: Standard economics textbooks tend to mechanically portray prices as intersections of supply and demand curves. Now, Austrians don’t reject out of hand the role played by supply. Obviously scarcity affects your demand decisions on the margin; recall the example of water and diamonds offered in post 4:

[A]s the supply of a good increases, the marginal utility of the good decreases, and vice versa. You pay less for water than diamonds because there is plenty of water (currently) to satisfy our most critical desires, like satisfying thirst. If there were so little water that you had to pay $10,000 (more than you’d pay for a small diamond), just to get a drink and not die of thirst, you’d pay it (if you had the money).

But Murphy notes that Austrians tend to portray prices as fixed by subjective demand rather than by “objective cost” or by supply. Consumers determine demand for consumer goods, and entrepreneurs “sit on the demand side” for producer goods. The reason to emphasize the demand, Murphy says, is to keep in the forefront of one’s mind that subjective demand drives the whole process. To the extent that “supply” sits on one side of a transaction, it is really demand . . . reversed. What we call “supply” in a traditional transaction is really someone demanding money, and willing to exchange a good or service in exchange for money.

Put simply, the reason demand is king is because demand is what creates value to begin with. Without subjective demand for a good, it is worthless.

Murphy notes that, while creating consumer goods is a process, at the time of the exchange, “suppliers” have usually sunk their costs in the particular item being offered. They then have to get the best deal for the goods they have created, based on demand for those goods. Demand will also affect their decisions going forward, including whether to produce the same goods, how many to produce, and what to charge for them.

These are difficult concepts, and I hope I have summarized them accurately. Tomorrow, we address Mises’s brilliant insights regarding money, and how it is not a mere afterthought grafted onto the barter economy. Challenging stuff, but very worthwhile. Stick with it!


Texas County Sheriff’s Deputy Ambushed And Killed

Filed under: General — Dana @ 2:57 pm

[guest post by Dana]

In what is being referred to as a “cold-blooded execution,” Deputy Darren Goforth, 47 years old and a 10 year veteran of the Sheriff’s Dept., was ambushed and gunned down at a gas station in Houston last night.

Goforth, who was in uniform, was approached from behind by a man who said nothing as he opened fire on Goforth. Law enforcement officials said that the suspect fired more shots at Goforth even after he was already down on the ground.

Deputy Goforth was pronounced dead on the scene. Harris County Sheriff Ron Hickman said:

He was literally gunned down in what appears to be an unprovoked, execution-style killing. I have been in law enforcement for 45 years, I have never seen anything this cold-blooded

After the slaying, Texas Gov. Gregg Abbott said that “heinous and deliberate crimes against law enforcement will not be tolerated in the State of Texas. Texas reveres the men and women in law enforcement who put their lives on the line every day to protect and serve their communities.”

He expressed his belief in local law enforcement to “work tirelessly to apprehend the killer and ensure justice for Deputy Goforth is served.”

Harris County Sheriff Ron Hickman expressed law enforcement’s outrage while noting the current inflammatory rhetoric against America’s police officers. :

Hickman condemned what he characterized as “some of the very dangerous national rhetoric that’s out there today.”

“So any point where the rhetoric ramps up to the point that calculated, cold-blooded, assassination of police officers happen, this rhetoric has gotten out of control,” he added.

“We’ve heard ‘black lives matter,’ ‘all lives matter’ — well, cops’ lives matter too. So why don’t we just drop the qualifier and say ‘lives matter,’ and take that to the bank.”

Just moments ago it was announced that a suspect has been arrested in relation to the fatal shooting:

Earlier Saturday, investigators questioned a man they called a person of interest. They also executed a search warrant at a two-story brick home where they found a pickup truck that fit the description of the gunman’s getaway vehicle. The house was about a quarter-mile from the gas station.

The man being questioned was turned over to deputies by his mother, according to Fox affiliate KRIV in Houston.

ABC13 Houston is reporting that the Harris County Sheriff’s Office has released the name of the suspect as Shannon Jaruay Miles. ‪

Deputy Goforth leaves behind a wife and two children, 12 and 5. Our thoughts and prayers go out to his family at this difficult time.


UPDATE from Houston County Sheriff’s Office twitter feed:

CORRECTED Mugshot of Defendant Shannon J. Miles #HouNews #DarrenGoforth #ThinBlueLine

“Human Action” and Robert Murphy’s “Choice,” Part 8: What Monetary Calculation Can and Can’t Do

Filed under: Economics,General,Human Action and Choice — Patterico @ 1:11 am

This is Part 8 of a 17-part series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action.” (At the end of this short post, we’ll be about halfway home!) Like previous posts, this post is a summary of a summary. If you’re intrigued by what I discuss here, you’d do well to buy and read Murphy’s book.

The purpose of these posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.

Yesterday we introduced the concept of monetary (or economic) calculation. Today we’ll look a little bit more at that important concept, and talk about what it can, and cannot, do. Chapter 8 is a short chapter — and after the lengthy exercise we put the reader through yesterday, I am happy to do a shorter post today.

Although Murphy labels his chapter as being about what economic calculation can and cannot do, it seems to be principally about what it cannot do. Murphy starts by reminding us that a balance sheet (the key document in monetary calculation) seems so very precise . . . yet it is full of predictions about an uncertain future. You include, as an item of depreciation, 1/10 of the cost of a capital good expected to last 10 years . . . but for all you know, it will crap out tomorrow. You list your accounts receivable as an asset . . . but one of the businesses that owes you might go bankrupt next week, leaving you to receive pennies on the dollar.

Entrepreneurship is about predicting an uncertain future. Monetary calculation aids in this endeavor greatly — to the point where Goethe described double-entry bookkeeping as “one of the finest inventions of the human mind.” But no activity that involves predictions about the future can ever be exact.

Another point that I consider very important: remember that in Part 1 I said (in a comment) that

one thing I find very attractive about Mises and Austrian economics is that it is so much more realistic than classical economics, because it treats human beings as human beings.

In Chapter 8, Murphy makes the point that, according to the Austrian school in general, and Mises in particular, it is not assumed to be true “that people in a market economy are just out to make money.” The great thing about Mises’s broad view of “human action” is that it does not judge between people’s ends or desires — and in particular, it does not require that the desired goal be a goal to make more money. The altruism of a Mother Teresa is every bit as compatible with Mises’s theories of “human action” as are a CEO’s mass firing of employees to boost the bottom line. So economic calculation is not the be-all and end-all of the Austrian school, by a long-shot — and to me, that makes it the most realistic economic school of thought in existence.

By contrast, classical economics all too often reduces people to stick figures in a graph, robotically “maximizing utility under constraint.”

That’s it! See, I told you this would be a short post! Tomorrow, we act much more ambitiously, tackling the economics of the market society, beginning with defining and studying the market economy. Hope you’re enjoying the posts. See you tomorrow.


The “Extremely Serious” Investigation Into Hillary Clinton

Filed under: General — Dana @ 5:50 pm

[guest post by Dana]

I just have a couple of minutes to throw this up…

While Hillary Clinton was getting testy at a press conference today because that nervy Ed Henry dared to ask her about a report this morning that cited Bill Clinton’s “eyebrow-raising requests for information from her top aides while she was secretary of state in 2012,” it was also being reported that:

An FBI “A-team” is leading the “extremely serious” investigation into Hillary Clinton’s server and the focus includes a provision of the law pertaining to “gathering, transmitting or losing defense information,” an intelligence source told Fox News.

The specific provision in question is 18 USC Sec. 793.

A separate source, who also was not authorized to speak on the record, said the FBI will further determine whether Clinton should have known, based on the quality and detail of the material, that emails passing through her server contained classified information regardless of the markings. … It is not clear how the FBI team’s findings will impact the probe itself. But the details offer a window into what investigators are looking for–as the Clinton campaign itself downplays the controversy.


No doubt Clinton is standing by her carefully worded defense:

“I have said repeatedly that I did not send nor receive classified material and I’m very confident that when this entire process plays out that will be understood by everyone,” Clinton said.

‘“It will prove what I have been saying and it’s not possible for people to look back now some years in the past and draw different conclusions than the ones that were at work at the time. You can make different decisions because things have changed, circumstances have changed, but it doesn’t change the fact that I did not send or receive material marked classified.”

We are already being told that this isn’t really an email scandal, and you can just blow it off, because:

“Is it a crime? Technically, perhaps yes. But it would never be prosecuted.”

So stop making such a big deal about it. (Note: the source defending Clinton at the linked report is somewhat, questionable, to say the least.)

Exit question: Do you think Hillary Clinton will suspend her campaign, or just keep on keeping on with her denials and lies??


“Human Action” and Robert Murphy’s “Choice,” Part 7: The Importance of Monetary Calculation

Filed under: Economics,General,Human Action and Choice — Patterico @ 12:01 am

This is Part 7 of a 17-part series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action.” As a result, you are reading a summary of a summary.

The purpose of these posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.

We are now moving into the section of the book titled “Economic Calculation” and begin with a chapter on the importance of monetary calculation.

In an earlier post, we emphasized that preference rankings in human action are ordinal, not cardinal. You can say you prefer chocolate ice cream to vanilla, but you can’t assign a number of units to each: it makes no sense to say “I prefer chocolate ice cream three times as much as vanilla.” More importantly, you can’t compare the intensity of your preferences to the intensity of another individual’s preferences. But I told you that there was a subtlety involving buying goods with money that would come up in a future post. This is that post.

With the introduction of money, for the first time arithmetical operations can be applied to economic affairs. The importance of money to the workings of the free market can’t be overstated. Having price signals determined by the market and communicated in units of money allows society to allocate resources in the most efficient manner possible. Without money, and without prices set by a free market, this cannot happen — because (as previously noted) in a barter system one can only look to ordinal preference rankings which cannot be expressed in units. (As we will later see, this is the central reason that Mises said socialism could not work — his famous “socialist calculation problem,” which will merit its own post.)

Before we get to money, we must explain how “barter prices” emerge in a world without money, based on ordinal preference rankings. (These are my examples and not Murphy’s. Although they are loosely based on his examples, don’t blame him.)

Assume there is a fellow named Murray whose ordinal ice cream preferences line up this way:


1. Two scoops of vanilla
2. One scoop of chocolate (Murray possesses this)
3. One scoop of vanilla

#1 is his top preference. #2 is his second, and #3 is his last choice.

Clearly, Murray would trade his scoop of chocolate for two scoops of vanilla, but not for one.

Now, pretend a fellow named Milton has this ice cream preference rank:


1. One scoop of chocolate
2. Two scoops of vanilla (Milton possesses this)
3. One scoop of vanilla (obviously Milton possesses this too; if he has two, he necessarily has one)

Milton would trade two scoops of vanilla for one scoop of chocolate. We know that Murray would trade his own scoop of chocolate for two scoops of vanilla. So we can see that these two folks can do a direct trade — and both will be better off.

Now say there is a third guy, Ludwig, whose ice cream preference is as follows:


1. Two scoops of vanilla
2. One scoop of vanilla
3. One scoop of chocolate (Ludwig possesses this)

Now, Murray and Ludwig both have a scoop of chocolate, which Milton wants. But Ludwig has set a cheaper price. He will accept just one scoop of vanilla for a scoop of chocolate — while Murray is demanding two scoops of vanilla.

Milton, with his two scoops of vanilla, would rather trade with Ludwig, who will take only one of Milton’s two scoops of vanilla, as opposed to Murray, who insists on getting two scoops of vanilla in return for his one scoop of chocolate.

In this way, adding more people to the market helps establish an equilibrium barter price for the scoop of chocolate: namely, one scoop of vanilla, the lowest price that a vendor of chocolate scoops will demand.

Note well: we never once had to say anything like “Milton gets twice as much pleasure from chocolate as he does from vanilla” or anything of the sort.

Also note that we never once talked about how difficult it is to create or obtain one scoop of chocolate vs. one scoop of vanilla. From the time of Adam Smith there was something called the “labor theory of value” which posited that prices depend upon the cost of the inputs. This fallacy led directly to the fallacy that the laborer, and not the capitalist, was the person who imbued goods with their true value, and thus “deserves” the fruits of that production. You can easily see that, while the labor theory of value was taken as true by Adam Smith, it was seized upon by Karl Marx, and is still implicit in many of the complaints of socialists like Bernie Sanders.

Whenever someone like Bernie Sanders complains that McDonald’s workers are getting paid too little, their implicit argument is that the workers are the ones who are really adding value to the business, while the people running the company are just fat cats putting in cash and watching the profits roll in. When they refuse to give those profits to the workers, they are exploiting the workers, who really give the business its value. This exploitation theory is Marxism 101.

But once you understand that value is subjective, then you understand that the person who contributes the most to an enterprise is the entrepreneur, who correctly foresees what consumers will want. The entrepreneur who predicts the advent of streaming video like Netflix will add far more value to his company than all the sweat of workers tirelessly toiling away to build new Blockbuster outlets that are going to go out of business.

Getting back to ice cream: the creation of barter prices wowed economists so much that they treated money as an afterthought: as a kind of neutral factor that served as a kind of stand-in for the equilibrium barter prices that are reached through the operation of trades like those described above, following from simple ordinal preference rankings. This, Mises warned, was a huge mistake — and his recognition of that fact amounted to one of his key insights. (We’ll discuss this in later posts. The hint I’ll offer here, which will be elaborated on later, is that money is a good with its own demand and supply issues.)

For now, it is enough to understand (with subtleties to be added later) that money serves as the basis of economic calculation, which is the central device that allows man to determine how to most efficiently allocate his resources. You might not need monetary calculation (though it helps) to decide it actually makes more sense to grow oranges in Florida and ship them to Montana, rather than try to grow them in Montana. But without monetary calculation, how can a businessman decide how many oranges to grow? whether to ship them by truck or by plane? how many retail outlets should distribute them? and so forth.

To make complex determinations like this, you could never rely on something like the equilibrium barter prices such as we demonstrated above with our ice cream examples. There are just too many elements in the calculation: how much is a plane ride worth, compared to a truck shipment, compared to a box to put your oranges in, compared to a tractor to plow your grove, compared to an hour of labor offered by a retailer to sell your oranges . . . and so on? Without monetary calculation, this sort of analysis cannot possibly be done. It is just too complicated.

And (again jumping ahead), this is why a socialist economy, without real price signals, cannot possibly succeed.

With that observation, we have come full circle for this post, which has been a longer one, but (I hope) very satisfying and informative. Tomorrow we will further explore what economic calculation can do — and cannot do.


Fifth Circuit: DOJ Failed to Investigate Misconduct of Prosecutors Who Prosecuted James O’Keefe

Filed under: General — Patterico @ 8:45 pm

Well, they didn’t say it in quite those words, of course . . . but that’s the effect of their opinion.

I don’t have the time or energy to blog this that I once had, but regular readers will remember that I have written extensively about the perfidy of the New Orleans federal prosecutors who went after James O’Keefe.

Well, the Fifth Circuit came down with its opinion last week, and it wasn’t pretty. Power Line has more.

For my part, tonight, I’ll simply quote briefly from the Fifth Circuit opinion:

The reasons for granting a new trial are novel and extraordinary. No less [fewer — Ed.] than three high-ranking federal prosecutors are known to have been posting online, anonymous comments to newspaper articles about the case throughout its duration. The government makes no attempt to justify the prosecutors’ ethical lapses, which the court described as having created an “online 21st century carnival atmosphere.” Not only that, but the government inadequately investigated and substantially delayed the ferreting out of information about its in-house contributors to the anonymous postings.

It’s that last bit — the stonewalling by Eric Holder’s Justice Department — that I concentrated on in the past. Well, that, and the overlap (namely Jan Mann) between these prosecutors and the team that persecuted James O’Keefe.

But Holder’s gone. So what difference, at this point, does it make?


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