Austrian Students Scholars Conference

This Thursday I will be leaving for the Austrian Students Scholars Conference and will be presenting my paper named "A Basic Inquiry Into the Nature and Effects of Monetary Economics." Last year's ASSC was a great opportunity to meet intelligent people and mingle with the Austrian "crowd." I am always humbled to be in the presence of the Grove City economist such as Dr. Herbener and Dr. Ritenour who are continuing the great legacy of Austrian economics in American colleges. In addition, Grove City College's campus is beautiful and the area of Pennsylvania where it is situated is gorgeous.

I will be giving a speech on monetary economics, its importance within the Austrian school and its application to my main interest, business cycle theory. It will be a great time and I encourage all undergraduates who are interested in Austrian economics to write papers in subsequent years and submit them to Dr. Herbener if ASSCs continue. It really is alot a fun and a great opportunity to discuss serious issues with knowledgeable individuals.

Thoughts on Rolling and Capital Punishment

Being a University of Florida Sophomore, the Rolling murders strike very close to me. Yesterday evening the state of Florida put to death the notorious murder Danny Rolling. Though there is little evidence that Rolling didn't murder the students, there is still much debate with respect to capital punishment. Capital punishment is by no means the most gruesome form of state punishment. There may be other forms of punishment more degrading that may not cross the line of "cruel and unusual" but I am not here to discuss which type of punishment for serious murder crimes there should be but instead why capital punishment is incorrect.

There have been many individuals who have been executed by the State just so that a few years down the road investigators find out the accused did not commit the crime. The State, I believe, does a clumsy job of almost everything it tries to take control of. If we are to believe that monopoly privilege of law should remain in the hands of the State then we must understand the fact that the system is not flawless and that there will be tragedies. That said, we can not look the other way when addressing the problem of the State executing innocents. Instead, we must look for alternative ways to punish those convicted of heinous crimes without stripping them of life so that if evidence emerges that they did not commit the crime, perhaps they can at the very least regain their right to life.

Rolling was an evil man and quite haunting. His dying words was singing a Christian hymn in a way that witnesses found demonic and eerie. There is little question that Rolling did the crimes and that he received the proper punishment. That said, there have been far too many individuals put through this pain due to the State's carelessness and inefficiency. Capital punishment, especially when it is unmerited, does not only effect the victim but also their families. It must be difficult to deal with the fact that your son or daughter was executed by the State for a crime they did not commit.

It is time to leave execution behind and embrace a more sensible solution, possibly plans that involve hard labor and restitution. In addition, this should also call for a loosening of the government's tight hold on gun rights. There is no doubt in my mind that if these kids were allowed to own handguns or if the ownership of firearms was more easily accessible to the law-abiding citizens that Rolling would not had to have been executed by the State but instead would had received just punishment by his would-be victims. When a killer comes through the door it is going to be my gun, not the State, the will protect me.

Complications in the Bohm-Bawerkian Concept of Average Periods of Production

The importance of the marginal revolution is one that can not be side-stepped when speaking of serious contributions to economic analysis. William Stanely Jevons and Carl Menger are two of the greatest marginal economists, the latter being the father of the Austrian school of economics. Carl Menger in his epic Principles of Economics explained the origin of value, namely its subjectivity with respect to the differing valuations of individuals, and the importance of marginality when dealing with economic phenomenon. Though the marginal revolution may have altered much of economic theory and analysis for the better, there still have been less than optimal adherences to the importance of the marginal economics by both old and new economists. Many economists disregard what they have learned from the marginal revolution and think in terms of aggregates or averages; this is true when dealing with Keynesian and neoclassical economics. It is the marginal value of a good, not its average value, that determines its use and importance in production or consumption. When an individual consumes a product they are using it to fulfill their marginal desires, not their aggregate or average desire. This is something that is taught in many microeconomic classrooms and is adhered to by the Austrian school of economics. Though this may seem elementary, certain economists overlook the simplicity of this theory and consequently deal in averages. It is only by understanding marginal values can economist begin to understand the concepts associated with trade cycle theory and the impacts of marginal cost, marginal product, and marginal profit with respect to changes in the market rate of interest. Problems in dealing with averages is applicable even to the most productive follower of Carl Menger, Eugen von Bohm-Bawerk author of Capital and Interest.

The theory of capital and rent is one that is largely debated throughout the field of economics and is one of the more complex subjects in the study. It is by understanding capital and interest theory that economists can truly comprehend the workings of the business cycle and those functions which regulate the market from a macroeconomic perspective. Austrian capital theory was developed by Eugen von Bohm-Bawerk in his opus magnum, Capital and Interest. With Capital and Interest, Bohm-Bawerk set out to uncover the main element that decides the rent of capital or interest. The natural rate of interest, that rate of interest which is not altered by inflationary policy, must be determined by an endogenous factor that encompasses the market. Bohm-Bawerk isolated time-preference as the factor that determines the existence and extent of the natural rate of interest and is, therefore, a determinant of capital value. In addition, Bohm-Bawerk understood that there is a virtual lengthening of capital or the roundabout methods of production as there is a decrease in the real rate of interest and vice-versa with respect to an increase in the real rate of interest. By changing the real rate of interest there could be this shift in the length of capitalist production processes. Though Bohm-Bawerk solved one of the most important problems in economic theory, there were many detrimental strains of the productivity theory of capital valuation still found in his explanation of interest. Bohm-Bawerk, in Capital and Interest, did not completely divorce time-preference from the then outstanding explanation of capital valuations and this way weakened his theory in specific areas.

John R. Hicks, Nobel Laureate in Economics, has an argument worth elaborating on in his volume Value and Capital in which he criticizes the Bohm-Bawerkian concept of the “average period of production.” The average period of production is summed up correctly by the American economist, Frank Fetter, as being "not an average time in one industry, but an average period during which the value of the total productive force of the community is supposed to be embodied in the total existing body of capital" and "as that period which elapses between the application of productive agents and their reward in the form of satisfaction." This idea is used by Bohm-Bawerk as a way of explaining improvements in the overall productive possibilities of an economy by means of an average. That by taking an average of the length of time of all the productive capacities of industries, the movement or height of an economy's productive yield can be understood. Hicks has a somewhat different opinion with respect to the Bohm-Bawerkian analysis of the average period of production and views this failure by Bohm-Bawerk as the necessary downfall of his theory. Before moving into the discussions by Hicks on this concept, it must be noted that he does not disagree with Bohm-Bawerk on his time-preference analysis and believes that this is a vital contribution by the Austrian school. That said, Hicks does hold that the failure of Bohm-Bawerk's theory lies in the misuse of the concept of the average period of production.

John Hicks writes in Value and Capital that "[Bohm-Bawerk] was quite right to conceive of the process of capitalistic production as being essentially a process in time...there is no objection to this." To Hicks, the Bohm-Bawerkian theory of time-preference as a main determinant of capital value "does not generalize in the sort of way in which it might have been expected to be generalized." By this he means that the theory found in Capital and Interest can only go so far in its use and that the theory is only fully applicable to severely rare and limited situations. Hicks clarifies that there is nothing wrong with Bohm-Bawerk's theory when illustrating the fact that a change in the rate of interest either way may induce the entrepreneur to accelerate or postpone production. Yet, when addressing the issue beyond elementary examples, Hicks believes that the theory present in Capital and Interest stresses too much the average period of production as a unit of time and not enough on the average period of production as an abstract measurement of capital growth or decay. To Hicks, the "absolute length of the true average period has no significance whatsoever" but instead it is only a change in the average period due to an alteration in the rate of interest that is of importance. Where Hicks believes Bohm-Bawerk fails is in his adherence to the average period of production as being a length of time when in actuality it is the measurement of a crescendo, as Hicks puts it, of the production process; a difference in the "height" of the production process. In summation, what Hicks seems to be saying is that the actual length in time of the average period of production is not crucial to understanding the extent of overall "social" yield but instead what is important is a change in this average period of production via an alteration in the rate of interest. Here Hicks does not seem to realize the problems associated when dealing with averages in economic analysis. Average value does not illustrate the importance of an additional good to a production process and in fact misleads individuals into thinking in terms of averages.

This is a problem caught early on, circa 1904, and solved by the Austrian economist Frank Fetter. In analyzing Capital and Interest Fetter was taken by Bohm-Bawerk's explanation of capital valuation in terms of time-preference but soon found quarrel with the latter's attachment to strains of the productivity theory. Fetter, along with Wicksell and Fisher, excelled Bohm-Bawerk's theory of interest and produced strains of their own. Fetter went on to explain the totality of capital valuation and rent in terms of time-preference. By use of different essays mostly published in the Quarterly Journal of Economics and accumulated by Rothbard in Capital, Interest, and Rent, Fetter finally divorced the Bohm-Bawerkian theory of time-preference from any hint of the productivity theory. Frank Fetter's objections to the use of the "average production period" by Bohm-Bawerk lies in the fallacy that the average length of time of the totality of production processes found in an economy has any tie to the productivity of capital and the height of economic yields. Different industries have differing maturities with respect to their production inputs. Some industries may benefit greatly from a marginal increase in capital and some may not. The problem found in Capital and Interest is not that Bohm-Bawerk is not using the term "average" properly or is not identifying it with the correct economic elements. The issue lies fundamentally with the use of averages as a sampling of productivity or of real and current economic factors. What is important in the discussion of capital theory is an emphasis on the marginal yield of capital or as Fetter states "the marginal application" of capital and not on the average length of time of the totality of roundabout processes. Capital could be shifted from one industry to another to result in a higher yield but in effect lower the average period of production. By shortening the length of one production processes and moving the capital to other processes without an equal increase in the length of roundaboutness will, in turn, result in a decrease in the average production period.

Bohm-Bawerk also seems to use in Capital and Interest the term "average period of production" as a historical analysis of the structure of production. In this way, productive capabilities have been stacked, if you will, upon one another since the beginning of time. Capital and Interest suggests that improvements have bee made upon the capital of previous generations. Rothbard had problems with this aspect of the "average period of production" stating that "Bohm-Bawerk sowed confusion by giving an historical interpretation to the structure of production" and that this interpretation is "one of the weakest parts of [Bohm-Bawerk's] theory." In Man, Economy, and State, Rothbard tackles this aspect of the "average period of production" by expressing the Misesian critique that certain technological advancements, like those since the beginning of time, have been embodied into common knowledge or infused into land. Mises states that the "acting man does not look at his condition with the eyes of an historian" and thus "the length of time expended in the past for the production of capital goods available today does not count at all." Rothbard writes in Man, Economy, and State that land may include any alterations that are labeled as permanent or "not [having] to be reproduced or replaced." Under this category, economists can place land that has been altered by adding irrigation canals or trees that have been permanently cut down. These are all alterations to land that are permanent. Human action, as Mises writes, is concerned not with the past but the present and future in order to achieve the highest degree of satisfaction. Therefore, any permanent additions or subtractions from land before the individual has received the factor can be put under the heading of land and not capital. Capital does not socially appreciate over time for the use of later generations. Its value does not appreciate nor does it maintain its value. Capital depreciates as it is being used in production and therefore if an input to the production process does not exhibit this trait, one must be weary in calling it capital or that it necessarily has a rent.

This concept of land and capital can be traced back to one of the greatest followers of Eugen Bohm-Bawerk, Knut Wicksell. Wicksell wrote heavily on this topic in his book Value, Capital and Rent and expressed his differences with the Bohm-Bawerkian analysis of land and capital. In Value, Capital and Rent, Wicksell states that it is land that is permanent and does not need to be invested into in order to offset its depreciation. Land, as opposed to capital, is a natural resource that must be used properly in the process of production and does not require investment to replace its faculties. It is capital that requires investment due to its continuous depreciation and use during the production of given outputs. Wicksell believes that under the category of land falls structures that do not depreciate quickly overtime and need very little to no investment within the lifetime of a production process. Such structures can include fortified buildings, railroads, automobile roads, alterations to land such as irrigation, and so on. Wicksell states that in these cases "the original cost of construction no longer has any influence on the present-day level of rent of these buildings or on the freight charges of the railways in question" and that the returns of these seemingly permanent structures have "just as little significance for its present capital-value or profitableness." In Wicksell's opinion "it is precisely because of this that goods of greater durability (such as streets, railways, buildings, etc.) cannot be regarded or treated as capital in the narrower sense, but, once they are there must be placed, economically speaking, in the same category as land property itself." The value of these factors, to Wicksell, must be thought of as the value of the land itself and as a secondary phenomenon with respect to any rent earned on capital in a production process or in wage determination. Therefore, to conceive of the permanence of certain efforts expended by previous generations on land can not be categorized as capital or that its value can be averaged over centuries but instead must be associated with land value. These seemingly permanent structures do not have a rent nor do they lend to the determination of wages but instead are simply another factor and must therefore be added to the totality of costs in the process of production.

In sum, the Hicksian analysis of Bohm-Bawerk is incorrect and embraces the misconception associated with the use of averages. It is not through averages but marginal usage, as Fetter explains, that value can be understood. The average of any process, or any change therein, is useless as a measure of economic growth or capital accumulation. As Fetter shows, it is only through looking at present and future yields that an outward growth of production possibilities can be brought to light. The best illustration of this incorrect Bohm-Bawerkian concept can be found in both Human Action and Fetter's Capital, Interest, and Rent. These are two great analyzes that have been shared in this paper and argue against this mishap in Bohm-Bawerk's theory.

The history of economic thought teaches us much about the importance of those theorists who came before. It is with the help of their originality and genius that we are able to engage in the intellectual discussion of complex economic factors. Bohm-Bawerk paved the way for an abundant amount of research, including many theories of the trade cycle, by successfully deducing the main determinant of rent and the discounted nature of capital valuation. It is time-preference that gives us the discounted value of capital and which is the origin of the natural rate of interest. Though Bohm-Bawerk contributed immensely to capital theory, there were still a few minor flaws in his analysis. These flaws may be associated with lessons learned from the marginal revolution and the need to stay away from averages as a means of understanding value. What must be understood from this paper, if nothing else, is that we must celebrate the discoveries of prior theorists and understand, not ridicule, their failures. Only by the comprehension of the flaws of prior economists can modern economists alter theory so as to make it applicable to the present market. Knowledge is only perfected over time with the help of honest and diligent thinkers. Only through reverence for those who paved the way and an understanding of their flaws can we begin to improve upon our present conditions.

Sources:

1. von Bohm-Bawerk, Eugen. Capital and Interest. Libertarian Press, 1959.
2. Fetter, Frank A. Capital, Interest and Rent. Sheed Andrews and McMeel, Inc., 1977.
3. von Mises, Ludwig. Human Action. Contemporary Books, Inc., 1949.
4. Rothbard, Murray N. Man, Economy, and State. Ludwig von Mises Institute, 2004.
5. Wicksell, Knut. Value, Capital and Rent. Rinehart & Co. Inc., 1954.

Critique of 2006 Nobel Laureate in Economics, Edmund Phelps

There is an excellent article up today on Mises.org concerning the business cycle theories of Edmund Phelps, the 2006 Nobel Prize winner in Economics Science. The article correctly points out the problems inherent in Friedman's and Phelps' theory of stagflation and the business cycle. Mr. Shostak illustrates periods of time, mainly 1948-1969 and 2000-2006, where there has been price inflation and a fall in the rate of unemployment. This is counter to the Phelpian business cycle theory that states that there is no long term trade-off between inflation and unemployment. The article calls Phelps and Friedman out on their constant use of statistical observation to justify and manipulate economic theory to suit a specific framework. What is lost in this empirical process of "theory" creation is the knowledge that in other epochs there may have been different scenarios that have arisen. In essence, no economic theory can be based on statistical data gathered from a single or even multiple occurrences. What is needed is a fundamental theory, much like that of the Austrian theory of the trade cycle, that is beyond statistical calculation and strives to structure a set of theories around human action and given economic laws.

I hold empirical data higher than many Austrian economists I have encountered. Empirical data is powerful in identifying problems and may also possibly prove certain theories not to be incorrect, proving them in the negative. That said, empirical data and statistical analysis can not prove economic theory in the positive sense and can not give any detailed contributions to economic theory. The latter is view shared by Hayek in his monumental work Prices and Production and Monetary Theory and the Trade Cycle as well as Ludwig von Mises in his opus magnus Human Action. Hayek in Monetary Theory and the Trade Cycle on page 31 cites the once well-known economic statistician and empiricist E. Altschul stating that

"in economics, especially, the final decision about the significance of a certain phenomenon can never be left to mathematical and statistical analysis. The main approach to research must necessarily lie through theoretically obtained knowledge."

Where Phelps and Friedman fail is their insistent "in-the-box" approach to economic theory and an unwillingness to structure a theory that is stripped from positive statistical analysis. As Mr. Shostak states in the article, statistical data can not be relied upon to form economic theory. The events of a specific era can not be generalized to all occurrences. This empirical approach to economic theory is the failure of Friedmanite-Phelpsian understanding of stagflation and is why Phelps supposed discoveries can not be applied to any other instance but the 1974-1975 stagflation. A true economic theory is applicable to all circumstances. It can explain the problems and successes of specific monetary and fiscal actions. As von Mises has shown, in the tradition of Menger and Bohm-Bawerk, only through understanding human action and fundamental laws of economics can individuals begin to piece together a solid theory. Theory must be based in human action and not on statistical observation. When will economists learn that this field is not a natural science?

Elements of Nihilism and Anarcho-Primitivism in Fight Club

Nihilism and anarcho-primitivism play a large role in Fight Club and the story seems to endlessly revolve around these two elements. Violence is expressed as an attribute of masculinity and that in order for a male to fully experience life violence must be a large part of it. In the underground fighting arena, violence prevails and this gruesome activity is flaunted as the culmination of social interaction. Fight Club starts off as an underground fighting arena where normal, everyday individuals get together and barbarously decimate each other until only one individual is left standing. Though for much of the movie Fight Club was simply a weekly brawl that individuals looked forward too, it quickly became increasingly institutionalized as the movie progressed. Fight Club eventually turned into an institutionalized, nihilistic, anarcho-primitivistic organization of nameless individuals that participate in terrorist activities throughout the city.

The story of Fight Club and its nihilistic beginnings start with the narrator and his comments on life. The narrator points out the extent to which corporations have become ingrained into everyday life and suggests that corporations will rule space in the future. Corporations are seen by the narrator as the primary instigator of consumerism and that material culture is a negative influence upon society. The narrator then joins therapy groups in an effort to find the meaning of life by being in the presence individuals in pain. As he connects with Bob, one of the characters in the film played by the musician Meatloaf, the narrator states that "losing all hope was freedom." This is the beginning of the nihilistic strain found in Fight Club and illustrates the connection that the main character has with the absence of meaning. By having no meaning and hope whatsoever, the narrator was finally freed from a consumerist, individualistic shell that dominated his life.

Another prominent nihilistic strain in Fight Club is the fascination that Tyler Durden, played by Brad Pitt, has with explosive weaponry and crude, homemade destructive devices. This element of Tyler Durden, though it may not be nihilistic in nature, has strong connections to nihilistic behavior. Tyler's behavior in Fight Club is eerily similar to the teachings of Theodore Kaczynski, the infamous “Unabomber.” Kaczynski was well steeped in the knowledge of crude explosive devices and shares many of the ideological beliefs that Tyler Durden often speaks of in the film, such as contempt for modern civilization and its minimal focus on the primal nature of mankind. As the storyline progressed, the narrator became increasingly disgusted with consumerism and the modern outlook of social interaction. This is best shown by the narrator’s own criticism of his wardrobe: “AX ties, DKNY shoes, CK shirts, never mind.” The narrator realizes that he has been brought into the consumerist culture and seems to be increasingly disturbed by the affect it has had on his life. At a pivotal point in the plot of Fight Club, the narrator discovers that his apartment has been destroyed by an unknown terrorist and that all his belongings had been obliterated. This signals an end to the narrator's connection to consumerism and only through destructive behavior is he freed from a life of enslavement to corporate society. In a turn of events, the narrator begins to live with Tyler Durden in a disgusting and rundown house. The house has no clean running water, the walls are falling apart and leaks constantly appear throughout the household when rainy weather arrives. This stands in sharp contrast to the living quarters the narrator used to reside in and illustrates the freedom that he has obtained by placing himself in the filthy house. In essence, the film is trying to compare the absence of responsibility and cleanliness to masculinity and nihilistic freedom.

The relationship between Tyler Durden and the narrator seems to be quite dominant-submissive for most of the film. The narrator often takes a backseat to many of Tyler's antics and absorbs much of the latter's ideological stances on the various issues surrounding their relationship. In one of their first meetings, Tyler says to the narrator that he should let the “chips fall were they may,” that “things you own end up owning you” and states that “self-improvement is masturbation and self-destruction.” These ideas are quite nihilistic and anarcho-primitivistic in nature illustrating the deep ideological connection Durden has with these two identities. As the narrator introduces Tyler Durden more thoroughly to the audience, he mentions that Durden creates a significant amount of mischief at his jobs. For instance, the narrator speaks of times when Tyler urinates in the food that he prepares for a local restaurant and that he can often be found splicing pornographic imagines into films that he manages at regional cinemas. This is all categorized by the narrator as “guerrilla terrorism in the hospitality” industry and makes a connection between Tyler's ideology and his actions in life. In addition, Tyler's relationship with women is completely lustful and is void of any emotional connection whatsoever. This is another instance of Durden's underlying anarcho-primitivistic and nihilistic ideology that encompasses the film.

In one conversation Tyler Durden has with the narrator he points out the importance of hunter-gatherer societies and the disdain attributed to the fact that modern civilization has separated itself almost entirely from humanity's primitive foundations. Durden states that pain, fighting, and masculinity are fundamental to hunter-gatherer societies and that these are the elements that establish true human interpersonal relationships. In anarcho-primitivistic circles, the hunter-gatherer society is looked upon as the culmination of human interaction and that only with the onset of the agrarian revolution did human society truly begin to decline. This is another strong piece of evidence to suggest that Durden's ideology, though nihilistic in strategy, is quite anarcho-primivistic at its base.

At a climatic moment of the movie, Tyler Durden begins to pour the highly reactive chemical Lime onto the hand of the narrator. As the narrator screams in agony, Tyler Durden attempts to teach the narrator important lessons that must be incorporated into his life. Durden begins to explain that God must hate humanity because he has abandoned the world, just like the fathers of Durden and the narrator abandoned their families. Tyler tells the narrator that redemption is meaningless and that humanity does not need God. In one of the most passionate yet gruesome moments of the entire film, Durden says to the narrator, as he is burning the latter's hand with lime, that only “after we have lost everything are we free to do anything.” Again, this is a clear nihilistic belief that Durden finds so important that he must coercively imprint it into the narrator's mind. By the end of the movie, the narrator seems convinced of Durden's philosophy saying that he world love to “open oil tankers and smoother all the French beaches I had never seen.” The narrator is here endorsing a nihilistic approach to the destruction of a highly beloved element of modern consumerist, corporate society.

The underlying elements of Fight Club are as vast as they are vital in understanding the entirety of the film’s message. Though the storyline begins with an almost homosexual aurora of uber-masculinity and violence, it later alters these attributes into a nihilistic undertone. Fight Club is transformed from two different personalities brawling in the streets, expressing their masculinity, to a well institutionalized organization of anarcho-primitivistic, nihilistic terrorists. The story seems to take the position that nihilism and masculinity are somewhat compatible but the hypocrisies present in the delivery of the message blur the premises. Masculinity and violence, for the most part, are inseparable but the focus of the film illogically brings these primordial attributes to a largely undesired extreme. It is only through an end to all attachment to modern social consumerist chains that Durden and the narrator feel that freedom could finally be achieved.