Libertarian macroeconomics

 ‐libertarian macroeconomics
  ‐conventional macro rethought on micro; general equilibrium; micro foundations
   ‐critique of conventional and Keynesian macroeconomics
  ‐monetary economy
   ‐supply of money
    ‐optimum currency areas
     ‐money, inflation and the economy
      ‐first, let’s treat money as a commodity of which there is a fixed amount
       ‐it’s only useful if traded for other goods and services
       ‐the relative amounts of money wrt to goods and services available
        determines the mean exchange rate of money for goods/services, that is, the
        value of money
        ‐of course, money is not perishable so we have to capitalize the future
         expectations related to its value, and also take account of individual
         time preferences, before seeing how much money a given person will hold
         ‐we see that money is both a stake in future production, and a liquid
          asset which can be used to in exchange for previously produced goods
         ‐in this sense, both Keynesians and Austrians view money rather
       ‐we can deduce all common mechanisms of inflation/deflation easily starting
        from this description
     ‐zero inflation
     ‐the theory of optimum deflation
      ‐is this the same as complete deflation?
   ‐the external value of a currency
   ‐money substitutes
    ‐e.g. bonds, gold, certificates of deposit
    ‐like money, they are something which can be traded for something else
     either now or later on
    ‐we again need to capitalize their values, take into account their liquidity
    ‐e.g. holdings in gold or gold funds seem to be pretty stable
    ‐most of the problems with the above kinds of alternative inflation
     mechanisms do not touch such holdings
     ‐however, falling average per capita production *will* lead to diminished
      value of each and every money substitute; the exchange rate will be
      expected to fall
     ‐the amount of future production available per unit of money substitute
      owned will always be related to both total production and the
      entitlement to it created via previous investment; the instrument does
      not matter
      ‐the only thing a change of financial instrument does is to vary the
       potential for higher relative return (a microeconomic impact) and the
       potential for higher growth based on intelligent investment (a
       macroeconomic impact)
   ‐little to do with inflation
    ‐the Phillips curve is indeed horizontal, because of rational expectations
    ‐even if it wasn’t, the trade‐off would be between higher total growth and
     aggregate employment, since the extra employment would be a result of
     misallocation of labor
   ‐the real reasons for unemployment are systemic, and have to do with
   government intervention into the labor market
     ‐drive a wedge between how much a consumer is willing to work for a given
      sum of money and what a producer is willing to pay for the labor
     ‐a 50% aggregate tax rate necessitates a doubling of productivity in
      order not to cause the producer to lay off the marginal worker
    ‐minimum wages
     ‐establish a hard floor to productivity below which employment is not
      ‐especially harmful to those with the lowest productivity, i.e. the
       young, the uneducated, the handicapped, and the chronically ill
     ‐especially harmful in connection with high tax rates: taxes multiply the
      floor set by minimum wages!
     ‐makes reemployment difficult
     ‐causes inefficiency which must be paid by the worker before hiring him
      is profitable
     ‐often makes a new worker a high risk, and thus causes opportunity costs
      to enter the picture
      ‐the worker can no longer sell his labor by assuming the risk!
  ‐cycle theory
   ‐Austrian variant
    ‐attributes cycles to misjudgements in allocation, and the subsequent
     correction after the losses accumulate to a far enough degree
   ‐Keynesian cycles
    ‐attributes cycles to fluctuating total demand

 ‐presume a stable, closed economy, with no technological progress and only
  services without physical property
  ‐relative prices give the relative valuations in people’s preferences for
   the services
  ‐the quantity theory of money
   ‐within the above assumptions, increases and decreases in the total supply
    of money will cause inflation and deflation, respectively
  ‐Keynesian theory
   ‐increases in the total consumption and decreases in the total production
    will cause inflation
    ‐Barr’s example with baby‐boomer pensioners and their unhappy offspring
   ‐decreases in the total consumption and increases in total production will
    cause deflation
   ‐demand/supply inflation/deflation are all in principle possible
    ‐the net effect in this case will be the increase or decrease,
     respectively, of the rate of circulation of money
   ‐their only allocative effect will arise out of injection effects
   ‐we likely *do* have rational downward rigidity of the price of work
 ‐how about the situation where there is more than one currency?
  ‐if there are strict laws over where each currency is acceptable, we have
   well‐defined currency areas
   ‐in this case, imbalanced trade will always draw towards an equilibrium
    where the external value of the currency is determined by the actual
    productivity of the currency area
    ‐cf. Hume’s PSF mechanism
   ‐however, we *will* have injection effects because the price of money is
    determined via import and export prices upon currency exchange, and only
    then propagated to the rest of the economy after some considerable latency
   ‐trade over the edge of a currency area will tend to equilibrium
    ‐hence, currency areas tend to contain movement of physical capital
  ‐if no such laws are in place, currency areas are not well‐defined, and
   money can be seen as an ordinary investment instrument/good
   ‐it is likely that a single currency will be the end result ‐‐ it minimizes
    costs having to do with currency exchange, and maximizes liquidity
 ‐presume a stable, closed economy with no services but a fixed amount of
  ‐now exchange will only occur to get the resources to those who need them
  ‐once the distribution process flattens out, we will get infinite inflation:
   nothing can be bought with money anymore; one cannot increase total utility
   by trade, and as money has no intrinsic value, its value in trade now
   approaches zero
 ‐presume a stable, open economy with services and a fixed amount of
  physical resources flowing through it, but no fixed property
  ‐trade will occur to keep the flow optimal
  ‐prices will reflect the valuations of flows of property and services
  ‐demand inflation is possible
 ‐presume a stable, closed economy with some fixed property
  ‐now money valuates property as well
  ‐at each time, in the absence of capitalization, the value of money will
   depend only on the total value of things which can be bought at that moment
   and the total supply of money
   ‐capitalization only adds future expectations of what can be bought and
    individual time preferences

 ‐essentially things acquire a value when they’re sought after *and* traded
  ‐if no trade occurs, there are no monetary values for non‐monetary things
  ‐we can essentially regard thoroughly distributed physical property as
   having left the economy
  ‐similarly, hoarding of cash removes money from the economy, and the economy
   will subsequently adjust to the diminished quantity of currency via