Tag Archives: Investment

The parts of Böhm-Bawerk’s “Capital and Interest” that resonate most with me (updated as I read).

1. “Literally to ascribe to capital a power of producing value is thoroughly to misunderstand the essential nature of value, and thoroughly to misunderstand the essential nature of production. Value is not produced, and cannot be produced. What is produced is never anything but forms, shapes of material, combinations of material; therefore things, goods. These goods can of course be goods of value, but they do not bring value with them ready made, as something inherent that accompanies production. They always receive it first from outside—from the wants and satisfactions of the economic world. Value grows, not out of the past of goods, but out of their future. It comes, not out of the workshop where goods come into existence, but out of the wants which those goods will satisfy. Value cannot be forged like a hammer, nor woven like a sheet. If it could, our industries would be spared those frightful convulsions we call crises, which have no other cause than that quantities of products, in the manufacture of which no rule of art was omitted, cannot find the value expected. What production can do is never anything more than to create goods, in the hope that, according to the anticipated relations of demand and supply, they will obtain value.”

2. “There is no power in any element of production to infuse value immediately or necessarily into its products. A factor of production can never be an adequate source of value. Wherever value makes its appearance it has its ultimate cause in the relations of human needs and satisfactions. Any tenable explanation of interest must go back to this ultimate source.”

PDF here.


Why Inflation Is So Bad (As I Understand It)

One would initially think that inflation is no problem: if the money supply is increased, then wages increase, prices charged for goods increase, and there should be no net effect on the economy.

But the answer is that it discourages saving in favor of malinvestment.

That money that is printed goes into the economy, and when more money is out there, all of the businesses get the money, and therefore think they are doing better business.

So they invest that money into their “growing” business.

But the money didn’t come from increased business, so all of that money spent on capital goes to waste because the profits didn’t warrant the investment in the first place, and when you use the majority of your savings expecting markets to increase and profits to increase based on the false signal of inflation, you go bankrupt because you spent all your money on capital, which you have to keep up, with the expectation of making a profit. But if you don’t make a profit (the market didn’t increase: more currency was just printed), and you’re having to pay for upkeep, then you’re losing money and you’ll have to sell for a fraction of your investment if the market didn’t warrant that investment in the first place (which means that people aren’t going to pay that much for it because the market determined it wasn’t as profitable as you thought it would be, unless they falsely think the market is growing just as you did, and that’s how bubbles are created (which always crash)).

It’s the same thing that happened with the housing bubble: people bought houses with the expectation of selling them, and eventually, there were no other buyers, so people were stuck with the houses with no money to pay for them (because they used their savings and took out loans with the hopes of selling them later on for a profit) and they lost everything.

December 28, 2013.

A Short Message to People That Are Afraid of Machinery Taking Away Jobs

To the people that are afraid of machinery taking away jobs: would you not like machines to do everything for you and not have to work? Would you rather “be working” by washing clothes in a wash bin instead of being “unemployed” while your washing machine does the work?

Do you not see how you have more time freed up to do other things? Do you not see how productivity was increased with less effort? The same applies to a free-market capitalist system: when you are replaced, products become cheaper (which means easier for you to buy as well), and your time is freed up to find a new job which will be more beneficial for the economy, which means that it will be beneficial to you as well. Because everyone is looking for profit, inevitably, there will be markets created to replace old ones (whichever markets produce the most money will win out), which means that these new markets will employ people, replacing the old jobs. Things inevitably become easier in a free-market, capitalist system and that is exactly its purpose: to make things cheaper and easier.

Is that not what you want? To have things cheaper and easier? What happened when cell phones replaced rotary phones? Rotary phone employees lost their jobs, but they were replaced by cell phone employees. Why do you not hire a stenographer if you want more people employed instead of using a computer? If we discount the number of people required to initially build the computer, would you rather hire a stenographer for all of your writings or use a computer? Are you not better off by using the computer? Why? Did you increase productivity with less effort? Is this not what wealth is?

What if the stenographer now makes computers? What about all of the jobs that would have never been created without the invention of computers? What about all of the lost wealth and time that would have gone to wages and work for yourself? Why is increased profits and increased free time good for you, and a whole economy?

Because when you consume with your profits, you are employing your producer, and the more money you have to consume, the more money the producers you are buying from have to consume, and the more that they are buying for consumption. This is why everybody wins with free-market capitalism.

Learn more here: Henry Hazlitt – Economics in One Lesson.

August 18, 2013.

Things that I have for sale on Kindle.

Where you can financially support me if you so desire.

A Message to the “Middle Class”

The country with the wealthiest people in it are the best off. This may sound obvious to you, but what if I said that I meant a country with billionaires and trillionaires in it, and that because of people like this, the economy would be better off than if everyone was middle class? What if I told you that rich people are what grows an economy the fastest, and not the middle class? Would you be outraged?

Aside from the fact that you will not understand that the people who are the wealthiest in a free market, capitalist system have contributed the most to society because society did not give them the wealth for nothing, what if I told you that wealthier people are healthier for an economy than the working class? How is that so?

Envious people assume that the wealthy just sit on their money (they have the right to save), and they look at people with private jets and gold fountains and become outraged because they say that that money could have gone to the “needy.”

What they neglect to inform you of is that when that wealthy person consumes luxury items, he is creating luxury jobs. He is putting the people that created his golden fountain to work, as well as the ones that fly his private plane and the ones that built it. He is employing the maids and landscapers, employing the workers of fancy restaurants that he dines at, the tailors that make his fancy clothes. These are jobs that would not exist without his wealth. Because he has profited, this means that the actions that gave him profit are the actions that are the best for the economy because people would not pay him his profits if they did not believe the services and products that he gave them were less valuable than another product that they could have bought with that money. Because wealth is not acquired unless you offer something of value to the buyers that have decided to pay you, and because no one buys anything unless they believe that it will make them better off than they are now (i.e. “wealthier), then when one person becomes wealthy in a free market, capitalist system, everyone becomes wealthier. This is why, in a free-market, capitalist economy, no one benefits at the expense of someone else, despite the income disparities, because it is not a zero-sum game.

To put it in its most basic terms, if I am the CEO of McDonald’s, I am employing people who believe that McDonald’s is better than the alternative, I am providing sandwiches to the people that want them, and I am paying the people (therefore, “employing” them) that I buy things from. This is why economies work.

August 18, 2013.

Things that I have for sale on Kindle.

Where you can financially support me if you so desire.