Basic libertarian economics

 ‐basic libertarian economics
  ‐basically microeconomics, no conventional macro!
   ‐what is economics?
    ‐a theory self‐organization
    ‐a social science, not a natural one
    ‐a predictive/descriptive/statistical science, not an empirical one
    ‐a tool for other social sciences
    ‐an application of mathematics, psychology, etc.
  ‐common graphical and mathematical tools
   ‐demand and supply functions
    ‐in toto
    ‐in the margin
    ‐in average
   ‐substitution indifference maps
    ‐the budget constraint
   ‐utility functions
    ‐total utility
    ‐marginal utility
   ‐the method of Lagrange multipliers
    ‐constraints must delimit a compact and convex set with a real
     parametrizable, piecewise vector derivable boundary curve
    ‐the function to be maximized must be differentiable (stricter: second
     order continuously partially derivable in all variables)
    ‐in this case, a maximum is found where the differential is nil or where
     the gradient of the function to be optimized is normal to the boundary of
     the set, or at the isolated points where the boundary curve is not vector
  ‐the theory of subjective value
   ‐as opposed to any objective valuations, whatever they may be
     ‐not a bad economist, just badly mislead by earlier ones
     ‐he acknowledged competition as a measure of what is useful and what
      is not!
      ‐the problem is, competition on a free market can explain
       everything, including value!
  ‐the economical individual, Homo Economicus
   ‐common assumptions
    ‐an economical individual is modelled via his utility function
    ‐the utility function takes as parameters the amount, in some abstract
     unit, of each consumable, be it private or social, consumed by the
    ‐the individual utility function is commonly assumed to be monotonously
     increasing in each consumable separately
    ‐we assume that the principle of diminishing returns applies
     ‐this means that the marginal utility of each consumable approaches
      zero when the amounts grow without bound
     ‐this may or may not imply a limit on the amount consumed, given
      unlimited resources
    ‐analyses in a monetary economy usually restrict themselves to financial
     constraints on social consumables (the budget constraint for goods), and
     physical constraints on personal ones (e.g. work vs. leisure is
     constrained by the lenght of the physical day)
     ‐the common form assumes that the amount of resources to be spent on
      each consumable are commensurate, that the total maximum amount of
      resources will be a constant independent of the final allocation, and
      that we can normalize each the amount of everything consumed to yield a
      comprehensive linear scale
      ‐we are led to the form 0<=a_1*x_1+a_2*x_2+…+a_n*x_n<=b, a_i>0,
       x_i,b>=0, of the budget constraint, where b is the total amount of
       resources on the common scale, a_i the constant price per unit of a
       given consumable, and x_i the variable amount consumed of each
      ‐simpler analyses only incorporate market prices paid as a_i
     ‐these assumptions yield setting which is well suited to answering
      optimality questions e.g. via the method of Lagrange
      ‐in fact the set will be a polyhedron delimited by coordinate
       hyperplanes and the hyperplane given by the budget constraint
   ‐given these assumptions the Lagrange condition implies that an
    individual has reached optimum allocation of his resources when they are
    all expended (the utility function has a unique global maximum within the
    budget constraints; monotonicity implies that it is on the edge of the
    set), and the marginal utilities per price unit of all consumables equal
    (this is equal to saying that the gradient of the utility function is
    parallel to the normal of the budget constraint hyperplane)
  ‐the role of rights in economics
   ‐human rights and civil liberties
    ‐aimed at making transactions voluntary
     ‐taken only when there is personal benefit
     ‐leads to maximal total benefit, if we assume that
      ‐individual utilities are dependent only on the consumption of the
      ‐individuals’ consumption only includes goods which are not
       social in nature
      ‐total utility is the sum of individual utilities
     ‐rights then make personal utility maximization possible, and are
      essential to all efficiency arguments
    ‐in essence, the wider the limits of individual freedom, the laxer
     budget constraint of the individual
    ‐essential to solve the prisoner’s dilemma
     ‐this brings in game theory; game theory is Big in economics
     ‐increases the predictability of other people’s dealings
    ‐a way to make decisions in matter involving more than one person
   ‐this way rights are a matter of who gets to decide what and how
    decisions are made
    ‐much of libertarian thought (especially the Hayekian kind) is based on
     the fact that, while unbounded rationality is rare because of the
     complexity of affairs economic, the fewer the variables, the easier the
     problem of utility maximization
     ‐hence, the individual can maximize his affairs easier than a group of
     ‐also, group decisions incur additional transaction costs which
      individual decisions are supposed not to suffer from
      ‐hence, two people deciding two people’s affairs will do so
       less efficiently than both people optimizing their situations
     ‐social organization is then a matter of constructively adjoining
      personal decisions
      ‐this results in trade and commerce
      ‐the role of rights, then, is to delimit the utility maximization
       problem to the most logical size it can have and to help avoid a
       situation where decisions have to be made by more than one person; this
       is the rationale for Coasian rights allocation
      ‐we cannot go to units smaller than the individual, because of
       assumptions of rationality, individuality, conventional moral and the
     ‐we get individuals as the optimum decision unit
      ‐as this is the only viable decision unit in libertarian thought, we
       need to bring all conceivable decisions into the individual, or
       private, sphere
      ‐someone needs to make all these decisions; in other words, to have
       the final say
      ‐hence, we try to extend the private sphere as far as possible without
       bringing any single decision into the jurisdiction of more than one
     ‐thus, the classical liberal quest for maximum individual freedom not
      infringing on the same of others
      ‐we see that this can be viewed as a mathematical‐economical problem
       of partitioning (i.e. allocating without overlap) human/societal
       decision problems optimally among individuals
       ‐some decisions pertain to goods and behaviors inalienable from the
        individuals, i.e. automatically and without exception best decided by
        the individual himself, and become the province of basic rights
       ‐certain decisions could be made by anyone, and should be allocated
        to the one who is known to be the best one to decide; this is handled
        by the institution of property
       ‐the decisions left over either pertain to multiple individuals and
        must be decided commonly/despotically, or pertain only to the
        individual but are better made by someone else; these matters are left
        to voluntary contractual obligation and the transference of property
        rights into resources needed in the decision to individuals capable of
        acting, again via contracts
     ‐the result will not likely be optimal in any objective sense!
      ‐however, we would get even further from efficiency as calculated by
       our presumption of additive total utility if we tried to solve the
       larger, societal optimization task
       ‐this task is of course presumed to be wholly intractable even when a
        relatively small group of people is concerned
      ‐there is a greater accountability in the listed principles than in,
       say, a democratic decision system: people get to make decisions if and
       only if they are willing to put their money where their mouth
       ‐the individuals making the decisions always carry the risk, too,
        presuming nobody has contracted out their ability to choose; if they
        have, as they usually do have, they’ve voluntarily taken part
        in carrying the risk
      ‐libertarian economical thought is unique in that it does not
       presuppose omniscience on behalf of anyone/anything in the society, but
       instead works based completely on a dynamic meritocracy of imperfect
  ‐the ideal market
    ‐perfect competition; price‐taking
    ‐perfect, symmetrical information
    ‐unbounded rationality
    ‐perfect internalisation
   ‐the Invisible Hand Theorem
   ‐allocation of resources
    ‐basic models and arguments
     ‐Lockean land tenure
     ‐Coasian rights allocation
     ‐the determination of ownership can be fairly tricky
      ‐there can be overlapping claims to the same property
       ‐everyman’s rights in Scandinavia
       ‐conquered territories, like Northern Ireland and Israel
      ‐there are questions pertaining to whether efficient allocation can
       lead to genuine first‐come first‐served allocation, and whether this is
       morally permissible
      ‐there is no integral theory of what can and cannot be owned
     ‐there is no integral theory of how property rights cease to exist, or
      whether they do
     ‐there is no integral theory of efficiency in inheritance
   ‐price elasticity of demand
   ‐income elasticity of demand
   ‐entering markets
   ‐price elasticity of supply
   ‐efficiency of production
  ‐interaction with subjective valuations