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Author Topic: Help me understand deflation scenario (of fiat)  (Read 2467 times)
DeathAndTaxes
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March 22, 2012, 03:30:20 PM
 #21

I don't say that I'm right, I'm merely repeating the argument as I understand it.  And I do find it convincing -- slavery has vanished all around the world; and only the USA needed a civil war to sort it out (and there were alternatives as mentioned above).  To me, that's strong evidence that slavery inherently doesn't work.

Slavery "vanished" (although human trafficing, forced prostitution, sweatshops, forced labor camps, etc still exist) because it is a societal and humanitarian issue.  You haven't proved that slavery isn't economical.  It was very economical.  If it wasn't then farmers in the south would have simply paid freeman and profited more.   Are you saying plantation owners intentionally sacrificed their profits in order to keep slaves?

Simpler analogy.  Dinosaurs vanished too.  It likely wasn't economics which caused them to vanish.  At best your theory that economics ended slavery is unproven, at worst it is wrong.
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March 22, 2012, 03:36:40 PM
 #22

I don't say that I'm right, I'm merely repeating the argument as I understand it.  And I do find it convincing -- slavery has vanished all around the world; and only the USA needed a civil war to sort it out (and there were alternatives as mentioned above).  To me, that's strong evidence that slavery inherently doesn't work.

Slavery "vanished" (although human trafficing, forced prostitution, sweatshops, forced labor camps, etc still exist) because it is a societal and humanitarian issue.  You haven't proved that slavery isn't economical.  It was very economical.  If it wasn't then farmers in the south would have simply paid freeman and profited more.   Are you saying plantation owners intentionally sacrificed their profits in order to keep slaves?

I wasn't trying to "prove" anything.  There are plenty of economists who have written about the subject who will offer far better explanations of the argument than I.

What do you understand "economical" to mean?  I think it means optimum use of resources.  Slavery is manifestly not economical, since you can get more production from a free man.

I'm saying that the market would sort out plantation owners who don't recognise the value of paid labour.  They weren't "intentionally" sacrificing their profits (and I don't believe I said that anywhere -- in fact the evidence from yourself is that people believe that slavery is more efficient today and wouldn't free them on economic grounds); but they were sacrificing profit for the economy as a whole -- how could they not be, slaves produce less than freemen?

Simpler analogy.  Dinosaurs vanished too.  It likely wasn't economics which caused them to vanish.  At best your theory that economics ended slavery is unproven, at worst it is wrong.

It's not "my theory", it is Nobel Prize winner, Ludwig von Mises' theory.  Take it up with him.

(Here's a starting point for people for you to argue with about proof http://mises.org/journals/rae/pdf/RAE7_2_2.pdf)

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March 23, 2012, 01:18:23 PM
 #23

We have already made machine, petroleum and computer our slaves, slavery really bring benefits!!!  Grin

Economy is not everything, efficiency is not either, the problem is that a few people who controlled lots of above mentioned slaves produced almost everything and rest of the people need a legal way to acquire the utility of those products

The best way to solve this problem is that those rich people voluntarily contribute their products to others, but this is very unlikely. To force them by using high tax is a way, to serve them with interesting new products is even better

In a time that market expands quickly and there are lots of demands, all these problems will not show, but through time, market will be occupied, demand  will be filled one by one and it is more difficult to find new demand, wealth will again accumulated to those people who can control the most slaves

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March 23, 2012, 01:55:48 PM
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@realnowhereman: From what I read, Mises` own argument is that you literally can't extract above-animal performance from human slaves, and that the generalized demise of slavery in the world had to do with slave owners being unable to compete with capitalists for productivity and quality reasons. This position is one of right-wing bigotry in it's purest form and sheer historical ignorance: slavery was always fought on humane and ethical terms, and always against wealthy slave owners who've seen their profits threatened. Unsurprisingly, Mises never won any Nobel.

You make a more convoluted argument: you admit that a slave might be coerced to produce economic goods of 5$/hour, but you assert that the same free man will produce 10$/h when he applies himself, and there's no way for a slave owner to exert that productivity by force  alone - you are basically making a psychological argument. That may be true, but you need to understand that most of the productivity of the slave goes to his owner (minus the bare essentials for keeping him alive), while the productivity of the free man on a competitive market will tend to go mostly to the man himself. What I am saying is that even allowing - for the sake of argument - the idea that a free man is more productive than a slave, a slave owner has no incentive to become a capitalist: by owning two slaves he keeps the better part of 2x5$/hour, while the capitalist must compete on price for the labor of free men, and keep much less of the 10$/hour each employee fetches.

There are also human activities that can't reasonably be expected to follow your incentives argument: if I coerce my slave to become a blood donor and sell the blood on the free market, there's no way I can convince him to become a better producer of blood by sharing the profits with him. Quite contrary, a slave with free time and money to burn is likely to score high for alcohol, drugs and VDs, diminishing the quality of the "product".
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March 23, 2012, 03:38:21 PM
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@realnowhereman: From what I read, Mises` own argument is that you literally can't extract above-animal performance from human slaves, and that the generalized demise of slavery in the world had to do with slave owners being unable to compete with capitalists for productivity and quality reasons. This position is one of right-wing bigotry in it's purest form and sheer historical ignorance: slavery was always fought on humane and ethical terms, and always against wealthy slave owners who've seen their profits threatened. Unsurprisingly, Mises never won any Nobel.

Quite so: von Mises didn't win a Nobel. My bad. (some argue that Hayek won the Nobel by extending von Mises work though.

Also true that slavery was always fought on humane grounds.  That wasn't the question though.  The question is whether slavery is more "economic" than non-slavery.  It interesting to note that only the USA went to war over slavery; other countries found other ways to get rid of it.

I'd also appreciate it if you didn't throw ad-hominems like "right wing bigotry" into what, has up to now, been an exceedingly polite debate.  I don't believe I am either right wing or a bigot; nor do I believe that "historical ignorance" is the only explanation for my position.

You make a more convoluted argument: you admit that a slave might be coerced to produce economic goods of 5$/hour, but you assert that the same free man will produce 10$/h when he applies himself, and there's no way for a slave owner to exert that productivity by force  alone - you are basically making a psychological argument.

I suppose I (or rather all the economists I'm parroting are; I don't claim to be able to be in their or any other economic league) am.  It's not an unreasonable assumption though. If you are a paid worker; with the chance of promotion as a reward are you more or less likely to tell your employer that he's wasting half his production because a bolt is loose on his production line than if you are his slave?

That may be true, but you need to understand that most of the productivity of the slave goes to his owner (minus the bare essentials for keeping him alive), while the productivity of the free man on a competitive market will tend to go mostly to the man himself.

The question though; is which is the bigger "productivity".  In either case, that productivity ends up in the economy.  If a country populated with free men produces more than the country filled with slaves (regardless of which particular individuals in the country are receiving the profit from that productivity), then the free country will become gradually richer.

There is strong evidence for this being the case: in the American civil war, if slavery was such an economic boon, why was the south so much poorer than the north?

What I am saying is that even allowing - for the sake of argument - the idea that a free man is more productive than a slave, a slave owner has no incentive to become a capitalist: by owning two slaves he keeps the better part of 2x5$/hour, while the capitalist must compete on price for the labor of free men, and keep much less of the 10$/hour each employee fetches.

I've never argued that the slave owner has an (obvious) incentive.  Just as the man stealing from his company has no incentive to stop (other than him getting caught).  The argument is that the company without that drain will do better than the one with it.  The businessman employing 20 free men will produce more than the slave owner whipping 20 slaves.  The slave owner will therefore eventually go bust.  All the while the slave owner will be convinced that he his better off owning slaves.

It's analogous to the businessman who, seeing his sales falling, thinks it would be wrong to lower his prices.  Rather he increases them and finds his sales drop more.  All the while reasoning that it would be suicide to lower his income by selling cheaper.

There are also human activities that can't reasonably be expected to follow your incentives argument: if I coerce my slave to become a blood donor and sell the blood on the free market, there's no way I can convince him to become a better producer of blood by sharing the profits with him. Quite contrary, a slave with free time and money to burn is likely to score high for alcohol, drugs and VDs, diminishing the quality of the "product".

This is to miss the point again.  The question is not production-of-a-particular product, it is whether that individual could be more productive at something else as a free man.  Can you seriously not think of a single better use for a human than simply extracting his blood?  Let's say I have 1000 slaves.  I'm extracting their blood for profit.  My neighbour is paying 1000 people to work on creating an artificial form of blood (it's pretty much a given that you can't whip someone into creativity).  Assuming he succeeds, which of us has made better use of that 1000-person resource?

I realise it's a silly argument, but I've been extreme to demonstrate the point: there are better ways to use human resource than slavery.  Without payment and the market providing price signals to direct that work, you will not find it.  Hence slavery will, inevitably lose.

(Note: in case it's not obvious; I don't think that an economic argument is necessary -- it would be morally correct to abolish slavery regardless of whether it is economically right or not; this is simply an interesting argument)

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March 23, 2012, 03:41:08 PM
 #26

I don't say that I'm right, I'm merely repeating the argument as I understand it.  And I do find it convincing -- slavery has vanished all around the world; and only the USA needed a civil war to sort it out (and there were alternatives as mentioned above).  To me, that's strong evidence that slavery inherently doesn't work.

Slavery "vanished" (although human trafficking, forced prostitution, sweatshops, forced labor camps, etc still exist) because it is a societal and humanitarian issue.  You haven't proved that slavery isn't economical.  It was very economical.  If it wasn't then farmers in the south would have simply paid freeman and profited more.   Are you saying plantation owners intentionally sacrificed their profits in order to keep slaves?

Simpler analogy.  Dinosaurs vanished too.  It likely wasn't economics which caused them to vanish.  At best your theory that economics ended slavery is unproven, at worst it is wrong.

At the time when slavery was at its peak, it was very profitable for two reasons:
1: Labor in the American colonies was in short supply, so even the half-assed labor of slaves was better than nothing.
2: Cotton was very expensive at the time, and farmers had a large incentive to grow it (to the demise of the delicate soil in Georgia, in fact).

However, towards the end of the American Civil War, cheap Egyptian cotton started pouring onto worldwide markets and killed the price of cotton. This was one of the main factors (along with their lack of industry) which lead to the fall of the confederacy. I should also point out that "freeing of slaves" during the civil war was not an issue of ethics, but rather they were turned around and used as cannon fodder by the union.

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March 23, 2012, 04:58:27 PM
 #27

The ad-hominems were not directed to you. Let's agree to disagree on the issue of Mises being a fanatical ideologue.

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Just as the man stealing from his company has no incentive to stop (other than him getting caught).  The argument is that the company without that drain will do better than the one with it.  The businessman employing 20 free men will produce more than the slave owner whipping 20 slaves.  The slave owner will therefore eventually go bust.

You are switching playing fields mid-sentence. The company without thieves will do better, and the society without slaves owners (thieves of another man's own body) will also fare better. On the micro level, the businessman employing 20 free men will produce more than the owner of 20 slaves, but the businessman will have to price his goods at a level sufficient to pay the salaries. This means the slave owner will always have an opportunity to undercut his competition: he will price the products of slave work lower than a free man will accept to work. The freemen will flee to other countries or fields where there are no slaves, and the slave owner will continue to thrive in his labor intensive market. He will never go bust because he has free labor. The invisible hand  will never correct this by itself, unless you believe revolutions, wars and coups to also be free market manifestations.

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The question is not production-of-a-particular product, it is whether that individual could be more productive at something else as a free man.  Can you seriously not think of a single better use for a human than simply extracting his blood? 

I've given you an extreme example of the kind of product a completely free market can produce. If my slaves are good architects or programmers, there's an opportunity cost for me to leech them for blood, I'm not making the best use of the resources. So I will use the most inferior and retarded (=cheap) slaves in the blood farm, those who definitely can't perform medical research. Until your 1000 scientists can develop a blood substitute (which might very well never happen), my slave farm is the cheapest way to deliver blood products on the market.

Therefore a society that allows ownership over individuals will have blood-farms, sex slaves, slave breeding and just about every sick and perverted use of human beings for benefit of the economic elite. The free market is a morally neutral device, as long as there is somebody willing to pay a certain price on some immoral product, the market will deliver if we as citizens don't do something about it. We must stop wrong deeds that happen now, and we should not settle for the hope that perpetrators will eventually go bankrupt.
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March 23, 2012, 06:10:18 PM
 #28

The ad-hominems were not directed to you. Let's agree to disagree on the issue of Mises being a fanatical ideologue.

Quote
Just as the man stealing from his company has no incentive to stop (other than him getting caught).  The argument is that the company without that drain will do better than the one with it.  The businessman employing 20 free men will produce more than the slave owner whipping 20 slaves.  The slave owner will therefore eventually go bust.

You are switching playing fields mid-sentence. The company without thieves will do better, and the society without slaves owners (thieves of another man's own body) will also fare better. On the micro level, the businessman employing 20 free men will produce more than the owner of 20 slaves, but the businessman will have to price his goods at a level sufficient to pay the salaries. This means the slave owner will always have an opportunity to undercut his competition: he will price the products of slave work lower than a free man will accept to work. The freemen will flee to other countries or fields where there are no slaves, and the slave owner will continue to thrive in his labor intensive market. He will never go bust because he has free labor. The invisible hand  will never correct this by itself, unless you believe revolutions, wars and coups to also be free market manifestations.

Quote
The question is not production-of-a-particular product, it is whether that individual could be more productive at something else as a free man.  Can you seriously not think of a single better use for a human than simply extracting his blood?  

I've given you an extreme example of the kind of product a completely free market can produce. If my slaves are good architects or programmers, there's an opportunity cost for me to leech them for blood, I'm not making the best use of the resources. So I will use the most inferior and retarded (=cheap) slaves in the blood farm, those who definitely can't perform medical research. Until your 1000 scientists can develop a blood substitute (which might very well never happen), my slave farm is the cheapest way to deliver blood products on the market.

Therefore a society that allows ownership over individuals will have blood-farms, sex slaves, slave breeding and just about every sick and perverted use of human beings for benefit of the economic elite. The free market is a morally neutral device, as long as there is somebody willing to pay a certain price on some immoral product, the market will deliver if we as citizens don't do something about it. We must stop wrong deeds that happen now, and we should not settle for the hope that perpetrators will eventually go bankrupt.

You would require a very large number of slaves to compete with people who will donate blood for a reasonable fee. It might be possible, but you're talking nonsense. I don't believe any such thing exists in the world today.

Also, consider a car factory. Prior to Toyota's development of the Kaizen system, it required 2-3 days in order to raise, align, and preheat the stamps used for fabricating the various parts of each kind of car they produced. Every time they had to change over and produce something else, they had to change out the stamps, which occurs multiple times per week since each factory produces everything that Toyota makes.

After Kaizen, it now takes them only 2-3 hours. In order to achieve this, it requires that the workers all contribute, both to eachother's working environment, and to the smooth flow of operation.

Consider a slave-run car company, Slavola. If the giant 20 ton 3000 degree metal stamp falls on the manager, crushing him and melting him into a puddle, will the slaves care? If every bolt on the cars is loose and they literally disintegrate within a week of driving, will the slaves care? If the braking system or the engine or whatever is put together wrong and the cars either run into a wall or off a cliff or seize and stop working randomly, will the slaves care?

EDIT: Or if it takes a week and a half, or perhaps a month to change out the stamp.

Who the hell is going to buy a car like that, period, no matter how many they are able to produce?

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March 26, 2012, 01:55:16 PM
 #29

Little bit off topic, but increase the efficiency IMO is a dead end, it will make those who have the most resource and intelligence (it is now super multinational enterprise) control all the productions on the earth, and drive those less rich and intelligent people into poverty

Deflation is a very clear sign of over-production, and it will be further amplified by efficiency driven activities


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March 26, 2012, 03:14:53 PM
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Prices actually going down all across the economy is an extremely rare phenomenon. It might had happen 100 years ago, in the age of precious metals, but people nowadays don't realistically expect prices to go down, and they don't "hoard" money in order to buy more stuff later. You might see it in some asset classes, say real estate, but not enough to cause a generalized and significant price drop in the whole economy.

What actually happens when deflationary expectations set in is not really a drop in prices, but a sharp drop in the velocity of money. It's intuitive: if the total monetary mass changes hands half often than it used to, the total economic output of the economy halves, even if prices stay the same. Because of the lower aggregate consumption, businesses start failing and credit becomes scarce. Mass unemployment and underemployment ensues. People start to consider themselves "lucky" to have a job at all, setting in motion the recessionary feedback loop: households and business defer consumption and investment because they anticipate "hard times" ahead, and holding onto their savings, preferably in the most liquid form possible, becomes an issue of survival. This reduces velocity further, in a self-fulfilling prophecy.

It important to underline that people don't deffer consumption for the sake of speculation, i.e "money will be worth more in the future". Most economic agents are risk averse and they hoard money to ensure continuity and survival, not to seek future profit. That's why simply injecting liquidity (preventing price deflation thus denying the future profit) does not solve the economic crisis. As governments around the world grudgingly start to realize, economic recovery is an issue of confidence, pure and simple. Unlike inflation, you can't manufacture confidence in the printing press - you need good policies and credible leaders.


Wonderfully put.  Tinkering with the machinations of the economy should not be regarded as a single solution to any problem.  We must fear ourselves in our collective inability to make systemically positive, effective decisions.

As long as our pseudo free market economy focuses on what lies 6, 12 months or, rarely, 5 years ahead, compounded with strong government policy bias towards the top 15% of earners who set the near-term, high gain agenda we will lack certainty and stability.

As stated I see this as a collective inability.  That collective inability is reflected in how the US government operates.  Very simply put, an elected government is only as enlightened as the people it represents.
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March 26, 2012, 03:38:03 PM
 #31

Little bit off topic, but increase the efficiency IMO is a dead end, it will make those who have the most resource and intelligence (it is now super multinational enterprise) control all the productions on the earth, and drive those less rich and intelligent people into poverty

Deflation is a very clear sign of over-production, and it will be further amplified by efficiency driven activities




Very true.  Examples.... well, there are examples everywhere.

Let's not forget the best examples of this super multinational "efficiency" may be only a superficial facade that in reality derives this so called efficiency from lack of equilibrium between national economies.  Taken from a single perspective the biggest boon to these efficiency powerhouses is taking from poor populations on the cheap while selling to the rich population.

It's great capitalism, but it's a far cry from true intelligence.

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