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The Pretense of Knowledge

2011-03-04T02:29:32Z

Tnunn: stub

{{stub}}'''The Pretense of Knowedge''' is the title of the speech delivered by [[Friedrich Hayek]] upon receiving the 1974 Nobel Memorial Prize in Economic Science.

==Links==
*[http://nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lecture.html "The Pretense of Knowledge"] on http://nobelprize.org

Capital

2011-02-26T05:24:30Z

Tnunn: punctuation

{{RightTOC}}{{Stub}}

'''Capital''' are the [[good]]s that were produced by previous stages of production but do not directly satisfy [[Consumption|consumer's needs]]; they are used in [[production]] to eventually produce consumer goods.<ref name="Rothbard_Means">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1c.asp#9._The_Formation "9. The Formation of Capital"], ''[[Man, Economy and State]]'', referenced 2009-05-19.</ref>

==The Formation of Capital==
In the simplest example of an economy (the "[[Robinson Crusoe economy]]"), a person can spend [[time]] producing consumer goods and consuming them. In order to produce capital goods, he must [[Saving|save]], i.e. ''consume less'' than his means allow in the present. With capital, he can produce more and so ''consume more'' in the future.

The creation of capital goods is called [[investment]].<ref name="Rothbard_Means" />

==Capital in Production==
Capital makes the [[production]] process more "roundabout"; in general are these methods are more productive than shorter, more direct methods. An actor will opt for longer, more roundabout methods so long as the enhanced output more than offsets the increased waiting time, which in itself is a disadvantage because of [[Time#Time preference|time preferences]].

Without the aid of capital, only goods with the shortest period of production are available. Goods with longer periods of production are not available unless capital goods are acquired.

There are two ways in which longer processes of production through the use of capital may increase productivity:
# by making possible a greater production of the same good per unit of time; or
# by making possible the production of consumer goods that were not available ''at all'' with a shorter process of production<ref name="Rothbard_Means" />

==The perishable nature of capital==
All capital goods are '''perishable'''. The few products that are not perishable but permanent become, to all intents and purposes, part of the [[land]]. Otherwise, all capital goods are perishable, used up during the processes of production. It can be said that capital goods are transformed into their products during production.

Some capital goods are used up in each production-event. Other capital goods are also used up, but not as suddenly; they may last many years. Each particular capital good has a different useful life and therefore a different rate of ''depreciation'', of being used up.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

==Reallocation of capital and capital as sunk costs==
The prevailing view assumes that capital is simply one of many factors used in equations, functions, and models. Capital is homogenous, so the greater the amount of capital, the better off society is. And it does not even matter how capital has taken shape in the past, since, once formed, it can be reformed wherever and whenever needed. It could be likened to clay, ready for the potter to reshape it in a moment's time.

But, in reality, capital is always a historic relic, a product of previous efforts and most of the time a '''sunk cost'''. It is not some mass that can be modified free form to fit the needs of today and tomorrow. As an example, note an old abandoned factory. It may be evidence to the massive investment of resources - but now it is evidence of the unyielding nature of most capital, a sunk cost with little to no alternative use.

If a company has (say) $100 million invested in technology, and the cost of a new system is $110 million, it does not mean that the effective cost is just an additional $10 million ($110 million minus the current capital of $100 million). The $100 million cannot be simply dipped into the new system. Some components of the current system may be portable to the new system, and reduce the total expenditure. But capital is, for the most part, fixed and sunk. This is especially true when it is mature and integrated into other systems.

In the Austrian view, the current structure of capital is a given, something that the entrepreneur must take into consideration when formulating his plans. If an entrepreneur wants to change the current structure of capital, he will wield dynamite and dozer, not water and wheel.

If the capital was malleable, there would be no real concern of credit expansion (see [[Inflation]]) leading to a [[Malinvestment|misallocation]] of capital, it would be just a minor inconvenience. In reality, misallocations are wasted resources, including precious and scarce [[time]]. Misallocated capital is of no use to anyone. It is a loss to the entrepreneur, the investor, and the consumer.<ref name="Fedako_potter">Jim Fedako. [http://mises.org/daily/3812 "The Austrians versus the Mainstream Potter and His Wheel"], Mises Daily, November 02 2009, referenced 2010-01-10.</ref>

===Reallocation of capital===
If one believes that prices work to allocate resources, there is always the possibility that a misguided, bankruptcy-inducing investment by one entrepreneur will represent a profit opportunity for another. If there's a market for used cement trucks, why should a cement truck purchased under incorrect price signals lie idle
when its original owner has gone under?<ref name="Machlachan_Hayek">Machlachan, Fiona. Correspondence on a Hayek Related Research email list. See [http://web.archive.org/web/20031117173425/http://maelstrom.stjohns.edu/CGI/wa.exe?A2=ind0112&L=hayek-l&P=R9559 archived copy]. 14 December 2001, referenced 2010-01-10.</ref>

Let’s imagine that a construction company in [[Silicon Valley]], at the height of the [[Dot-com bubble|dot-com building spree]], purchased a cement truck. When the bust came, construction work in the Valley dried up, and the company went bankrupt. Whither now the truck?

It is very unlikely that another construction company in Silicon Valley would want it. They had all over-expanded as well, and now they may be looking to sell some of their own equipment. But let’s assume that somewhere—say, Texas—there is a company that can use the truck. The first thing that has to happen is that the buyer and seller must find each other. Rather than occurring on the very day the Silicon Valley company goes bust, such a process may take weeks or months. The courts will have their say about which creditors are entitled to what portion of the remaining assets of the bankrupt company. Then the truck is likely to move to a reseller of used construction equipment. It will advertise the truck’s availability. The downturn probably will necessitate a drop in the price of cement trucks, but by how much? Unlike in mathematical models, where supply and demand curves shift and a new price simply appears, in a market process view, buyers and sellers must undertake a process of price discovery. The seller will be reluctant to lower the price too rapidly, and so he may be overly optimistic for a time, delaying a sale. Eventually, when a potential buyer hears of the availability of the truck, he may want to inspect it before putting out the money to buy it. Once the transaction is complete, the truck will have to travel from California to Texas.

All of the above actions take time, and all of them have associated costs. Furthermore, note that none of them involve employing any cement workers. Eventually, a worker laid off in Santa Clara may find work in Dallas, but his change of residence will also involve time and expense.<ref name="Callahan_Dot">Gene Callahan and Roger W. Garrison. [http://mises.org/journals/qjae/pdf/qjae6_2_3.pdf "Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?"], ''The Quarterly Journal of Austrian Economics'', Vol. 6, No. 2 (Summer 2003). Referenced 2010-01-10.</ref>

===Capital and new technology===
Not every technological improvement is immediately applied - but then, not everybody throws away his old car or his old clothes as soon as a better car is on the market or a new fashion trend. In these considerations are people are motivated by the [[scarcity]] of available goods.

Let's say a new machine is constructed, more efficient than currently used machines. Should the plants replace the old machines, while they are still usable, and replace them with the new model? Only if the additional expenses are compensated for, is the scrapping of the old equipment economically sound. The same considerations apply for the moving of an existing plant to a location with more favorable conditions.<ref name="Mises_technology">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec6.asp XVIII. Action in the passing of Time], 6. The Influence of the Past Upon Action, [[Human Action]], online version, referenced 2010-02-05.</ref>

==Maintenance of capital==
A large part of [[investment]] must be spent simply to offset wear and tear and obsolescence of the existing capital stock.

In a country such as the United States, with an enormous fixed capital stock built up over the centuries, a great amount of funds must be allocated simply to maintain that stock. According to an estimate, in 2006, gross private domestic investment reached its most recent peak, at $2.33 trillion (in constant 2005 dollars). After remaining almost at this level in 2007, this measure of investment fell substantially during each of the next two years, reaching $1.59 trillion, in 2009. The "private capital consumption allowance" that attempts to measure these maintenance costs, has ranged from $1.29 trillion in 2005 to $1.46 trillion (in constant 2005 dollars) in 2009. Thus, even in the boom year 2006, about 60 percent of gross private domestic investment was required merely to maintain the economy’s productive capacity, leaving just 40 percent, or $889 billion in net private domestic investment, to increase that capacity.

From that level, net private domestic investment plunged during each of the following three years, it fell in 2009 to only $54 billion (in constant 2005 dollars), having declined altogether by 94 percent from its 2006 peak! In 2009 only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the [[The Great Recession|recession]]; it virtually disappeared - while the '''maintenance costs''' kept increasing.<ref name="Higgs_Divergence">Robert Higgs. [http://www.independent.org/blog/index.php?p=7882 "The Great Divergence: Private Investment and Government Power in the Present Crisis"], ''The Independent Institute '', on Sep 18, 2010. Data taken or derived from the National Economic Accounts prepared by the Commerce Department’s ''Bureau of Economic Analysis'' (Tables 1.1.5, 1.1.6, and 5.2.6 - see a [http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N list of tables] for information. Referenced 2010-09-20.</ref>

==Capital consumption==
Because [[capital]] is perishable, it must be renewed, if man wishes to enjoy the fruits of higher production. Saving must be repeated over and over, capital could break down and be replaced in whole or be repaired and kept in shape.

Man can avoid the trouble of saving and enjoy a higher consumption now. But if the capital is not replaced, [[production]] will later drop. Instead of saving and maintaining capital structure, capital is '''consumed'''. In this case, [[time preference]] has led man to prefer more present consumption, in exchange for greater losses in future consumption.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

Workers use capital goods to augment their labor to create consumption goods. Because of the [[time]] structure of [[production]], it is possible to temporarily boost everyone's consumption, but only at the expense of maintaining the capital goods, which are so "consumed." At some point, reality sets in, and no "stimulus" policies can prevent a sharp drop in consumption.

In the boom period of the [[business cycle]], people consume more - even while new, unsustainable investment projects are started. Sustainable projects initially require, that investors reduce their consumption and channel their savings into new projects. But during a boom induced by a [[central bank]], there hasn't been real savings to fund the new investments. That's why the boom is unsustainable, but also explains why consumption increases at the same time as investment in new projects. This is impossible in the long run, but possible in the short run. What happens is neglect of maintenance on critical intermediate goods. A modern economy is very complex, and it can take years for an unsustainable structure to become recognized as such.

During the [[recession]] following the artificial boom period, resources need to get rearranged; certain projects need to be abandoned; and critical intermediate goods need to be replenished since they were ignored during the boom. It takes time for all the different types of materials, tools, and equipment to be furnished to resume normal growth. During that transition, the contribution of the labor of some people is so low that it's not worth it to hire them (especially with [[Minimum wage|minimum-wage]] laws and other regulations). The result is [[unemployment]].<ref name="Murphy_Capital">Robert P. Murphy. [http://mises.org/story/3155 "The Importance of Capital Theory"], posted in Mises Daily on Monday, October 20, 2008, referenced 2009-10-02.</ref>
{{See also|Austrian Business Cycle Theory}}

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Capital (economics)|Capital]] on Wikipedia
* [http://www.auburn.edu/~garriro/b4mismac.htm Austrian Capital Theory And The Future of Macroeconomics] by Roger W. Garrison, 1991
* [http://mises.org/daily/4788 Thinking Clearly about Capital, Interest, and Income] by Robert P. Murphy, November 2010
[[Category:Economic concepts]]

American Civil War

2011-02-26T05:13:25Z

Tnunn: list states

[[File:US Secession map 1865.png|thumb|300px|Map (1865) shows Union free states in dark blue, Union slave states in yellow, and Confederate states in dark brown. Disputed territories are in lighter shades.]]
The '''American Civil War''' (1861–1865), or '''War Between the States''' (see also "[[#Names|Names]]," below), was a sectional conflict in the [[United States]], in which 11 states attempted to [[secession|secede]] from the nation against the wishes of the others. South Carolina, Georgia, Florida, Alabama, Mississippi, and Texas seceded and formed the [[Confederate States of America]] (the "confederacy") upon the election of [[President of the United States|President]] [[Abraham Lincoln]] in 1860. Virginia, North Carolina, Tennessee, and Arkansas followed suit when Lincoln began raising an army to invade the Southern states.

The causes of the South's desire for secession were high tariffs imposed by the federal government that disproportionally hurt the southern economy, and violations of state [[sovereignty]], especially regarding the institution of slavery. The causes of the North's aggression, on the other hand, were a rejection of the [[compact theory]] of the [[United States Constitution|Constitution]], nationalism, a desire for consolidated federal power, and, among some, to free the slaves in the seceding states.

During the war, Lincoln fought to prevent the border states, especially [[Maryland]], from seceding, and to do so he suspended the writ of [[habeas corpus]] and jailed pro-secession activists and journalists. He also welcomed the secession of [[West Virginia]] from [[Virginia]], accepting it as a new state in the Union in 1863. In 1861 he had expressed support for the pro-slavery [[Corwin Amendment]], but as the war progressed, his anti-slavery rhetoric increased, culminating in the [[Emancipation Proclamation]], which decreed the slaves free who remained in areas outside the control of the Union army but did not affect the status of slaves held in Union states.

Early in the war the confederacy enjoyed major victories, but the south's weak navy, limited industrial capacity, lack of foreign allies, and several costly battlefield losses later in the war resulted in a Union victory. Estimates of the total dead range from 600,000 to 1,000,000.

In the war's aftermath, the [[Thirteenth amendment to the United States Constitution|thirteenth amendment]] to the [[United States Constitution|Constitution]] was ratified, outlawing slavery. As a condition for readmission into the union, the confederate states were forced to ratify the [[Fourteenth amendment to the United States Constitution|fourteenth amendment]], broadly defining citizenship and consolidating federal power.

==Names==
The most common name for the war is the "American Civil War," and a popular alternative in the Southern United States is the "War Between the States." However, many classical liberals and others have rejected these terms as inadequate. The first is considered inaccurate and unhelpful because the war was waged to put down a secession movement, not to overthrow the central government in Washington, DC, as is suggested by the term "[[civil war]]".<ref name="DiLorenzoAudio">DiLorenzo, Thomas. [http://mises.org/media/1699 Lincoln's Tariff War], speech delivered 06-05-2006.</ref> The second, while less objectionable, is rejected because it suggests that each state was an independent belligerent fighting against all others, rather than there being two distinct groups of states who fought against only those states in the other group.

Other names proposed include the "Second American Revolution" and the "War to Prevent Southern Independence."<ref name="DiLorenzoAudio" />

==References==
*[[Jeffrey Rogers Hummel|Hummel, Jeffrey Rogers]]. ''[[Emancipating Slaves, Enslaving Free Men]]''.
*[[John Acton|Acton, John]]. ''Historical Essays and Studies'', "[http://en.wikisource.org/wiki/Historical_Essays_and_Studies/The_Civil_War_in_America The Civil War in America]".

==Notes==
<references />

==Links==
*[http://mises.org/media/1063 Two Just Wars: 1776 and 1861], by [[Murray Rothbard]]
*[http://mises.org/media.aspx?action=category&ID=71 Economics of the Civil War], by [[Mark Thornton]] (audio series)
*[http://mises.org/daily/1168 Gods, Generals, and Tariffs] by Thomas J. DiLorenzo, February 2003
* [[Tariff of 1828]]

[[Category:History of the United States]]
[[Category:Interventions]]

New Jersey

2011-02-25T05:15:43Z

Tnunn: spelling correction

'''New Jersey''' is a [[state]] located in the Northeastern [[United States]]. It was the third state to ratify the [[Constitution of the United States|US Constitution]], doing so on December 18, 1787. Its capital city is [[Trenton]], and as of 2010, its population is 8,791,894.

==Links==

*[http://www.newjersey.gov Official state website]

[[Category:States of the United States]]

Ohio

2011-02-25T05:14:59Z

Tnunn: spelling correction

'''Ohio''' is a [[state]] located in the Midwestern [[United States]]. It was the seventeenth state to join the United States, doing so on March 1, 1803. Its capital city is [[Columbus]], and as of 2010, its population is 11,536,504.

==Links==

*[http://www.ohio.gov Official state website]

[[Category:States of the United States]]

Oregon

2011-02-25T05:14:11Z

Tnunn: spelling correction

'''Oregon''' is a [[state]] located in the Western [[United States]]. It was the thirty-third state to join the United States, doing so on February 14, 1859. Its capital city is [[Salem]], and as of 2010, its population is 3,831,074.

==Links==
*[http://www.oregon.gov Official state website]

[[Category:States of the United States]]

Panic of 1837

2011-02-24T05:47:58Z

Tnunn: updated referenced pages from Rothbard's 'A History of Money and Banking...'

{{TOC right}}
The price inflation began long before the '''panic of 1837'''. The wholesale prices reached a trough of 82 in July 1830 and then rose by 20.7 percent in three years to reach 99 in the fall of 1833. The reason for the price rise is simple: The total money supply had risen from $109 million in 1830 to $159 million in 1833, an increase of 45.9 percent, or an annual rise of 15.3 percent. Breaking the figures down further, the total money supply had risen from $109 million in 1830 to $155 million a year and a half later, a spectacular expansion of 35 percent. This monetary expansion was spurred by the still-flourishing [[Second bank of the United States|Bank of the United States]], which increased its notes and deposits from January 1830 to January 1832 from a total of $29 million to $42.1 million, a rise of 45.2 percent. The total money supply rose from $150 million at the beginning of 1833 to $267 million at the beginning of 1837, an astonishing rise of 84 percent, or 21 percent per annum.<ref name="Rothbard_History">Murray N. Rothbard. [http://mises.org/books/historyofmoney.pdf A History of Money and Banking in the United States: The Colonial Era to World War II] (pdf), p.95-96. Referenced 2011-01-13.</ref>

During the first three weeks of April 1837, 250 business houses failed in New York. Within two months the losses from bank failures in New York alone aggregated nearly $100 million. "Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered." <ref name="Bancroft_panic">Hubert H. Bancroft. [http://www.publicbookshelf.com/public_html/The_Great_Republic_By_the_Master_Historians_Vol_III/thepanic_ce.html The financial panic of 1837], from the ''The Great Republic By the Master Historians Vol. III''. Referenced 2011-01-13.</ref>

==References==
{{Reflist}}

==Links==
* [http://mises.org/daily/4667 Democracy and Laissez-Faire: A New York Case Study] by Arthur A. Ekirch Jr., 1977
* [https://mises.org/journals/jls/2_2/2_2_7.pdf The Jacksonians, Banking, and Economic Theory: A Reinterpretation] (pdf) by Jeffrey Rogers Hummel, 1978
* [http://mises.org/journals/jls/10_1/10_1_5.pdf An Austrian Perspective on Some Leading Jacksonian Monetary Theorists] (pdf) by James P. Philbin, 1991
* [http://mises.org/journals/scholar/trask1.pdf The Panic of 1837 and the Contraction of 1839-43: A Reassessment of its Causes from an Austrian Perspective and a Critique of the Free Banking Interpretation] (pdf) by H.A. Scott Trask, March 2002
* [http://mises.org/pdf/asc/2002/asc8-trask.pdf The Independent Treasury: Origins, Rationale, and Record, 1846-1861] (pdf) by H.A. Scott Trask, March 2002
* [http://mises.org/daily/1389 In Defense of Bank Failures] by H.A. Scott Trask, December 2003
* [http://mises.org/daily/3632 The 19th-Century Bernanke] by Daniel James Sanchez, September 2009
* [http://mises.org/daily/2201 Martin Van Buren: The American Gladstone] by Jeffrey Rogers Hummel, from [http://mises.org/resources/3358/Reassessing-the-Presidency-The-Rise-of-the-Executive-State-and-the-Decline-of-Freedom Reassessing the Presidency: The Rise of the Executive State and the Decline of Freedom]
* [[Wikipedia:Panic of 1837|Panic of 1837]] on Wikipedia

[[Category:Financial crises]]
[[Category:History of the United States]]
{{Stub}}