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Market Oracle FREE Newsletter

Category: Economic Theory

The analysis published under this category are as follows.

Economics

Sunday, November 09, 2014

Why The Theory of Money and Credit Is More important Than Ever / Economics / Economic Theory

By: MISES

Richard Ebeling writes: Eighty years ago, in the autumn of 1934, Ludwig von Mises’s The Theory of Money and Credit first appeared in English. It remains one of the most important books on money and inflation penned in the twentieth century, and even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations, and depressions.

Mises insisted that the economic rollercoaster of the business cycle was not caused by any inherent weaknesses or contradictions within the free market capitalist system. Rather, inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system.

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Economics

Thursday, November 06, 2014

The Errors in Liquidity Preferences / Economics / Economic Theory

By: Frank_Hollenbeck

The theoretical construct of Keynes’s monetary view of the world is known as the liquidity preferences theory of money. This theory is the foundation of many macroeconomic models and stands in stark contrast to the classical view of interest rates, the loanable funds theorem.

Much of Keynes’ work, including this theory, disproportionately elevated the importance of holding cash as a key economic variable. Income can be consumed, saved or held in cash. Consumption is for personal satisfaction. Saving is a transfer of claims on goods and services from consumers to investors. Holding cash, or hoarding, is the equivalent of stuffing money in your mattress.

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Economics

Tuesday, October 28, 2014

Functional Economics - Getting Your House in Order / Economics / Economic Theory

By: Dr_Jeff_Lewis

Old Habits Reappear
Fighting the Fear of Fear
Growing Conspiracy
Myself Is after Me
Frayed Ends of Sanity
Hear Them Calling
Frayed Ends of Sanity
Hear Them Calling
Hear Them Calling Me
- Frayed Ends of Sanity, Metallica

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Economics

Wednesday, October 22, 2014

The Last Days Of The Economic Growth Story / Economics / Economic Theory

By: Raul_I_Meijer

I am thinking about the similarities between a financial crisis and for instance a family crisis, the death of a loved one or close friend, a divorce, or a personal bankruptcy.

And I wonder why in the case of our recent (aka current) financial crisis, we allow nothing to enter our communications, and our train of thought, but the idea of recovery and a return to growth. Has everyone always reacted that way after earlier financial crises – history is full of them -, or is something else going on?

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Economics

Monday, October 20, 2014

Challenge to Keynesians 'Prove Rising Prices Provide an Overall Economic Benefit' / Economics / Economic Theory

By: Mike_Shedlock

The ECB has been concerned about falling consumer prices. I propose that's 100% stupid, yet that's the concern.

When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.

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Economics

Tuesday, October 14, 2014

Price Deflation and Price Inflation Are Always “Optimal” / Economics / Economic Theory

By: MISES

Mateusz Machaj writes: Recently, the Polish economy experienced its first price deflation since the 1980s, which sparked in the country deflationphobia (or, as Mark Thornton calls it, apoplithorismosphobia).

Media sources and many economists focus on price inflation and price deflation as the source of various economic ills, but, contrary to much of the rhetoric, price inflation and price deflation are always “optimal” in the economic sense. At first, such a claim may seem controversial, since virtually all economists have something negative to say about either inflation or deflation. This concerns almost all schools of economic thought, mainstream and heterodox, including the Austrians.

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Economics

Monday, October 13, 2014

When The Economy Went Ponzi / Economics / Economic Theory

By: Andrew_McKillop

Adam Smith and the Ponzi Economy
Like the archetypal images of love that were handed down by early Greek philosophers, of Erotic love, Parental love, and what later became Christian or Dutiful love towards fellow persons and living things of all kinds, the supposed “classic image” of the economy is the “Wealth of Nations”. Taken by the “Neolibs” of the 1980s and their surviving throw-offs as a timeless ode to invisible but all-powerful “market forces”, this classic model was handed down by their guru – Adam Smith.

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Economics

Thursday, October 09, 2014

The Truth About Economic Boom And Bust Cycles - Video / Economics / Economic Theory

By: Submissions

Claudio Grass writes: Most believe that expansionary monetary policy helps ease crises. Austrian School economists argue that central banks don't help in smoothing the amplitude of the cycles, but rather are the cause of cycles. In this microdocumentary video, we look back at four major busts in the last 100 years and explain how central banks created them. We also clarify why we believe the next bust is just around the corner. This video will not explain the mainstream view, but rather the view of the Austrian Business Cycle Theory (ABCT).

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Economics

Tuesday, September 30, 2014

Economists Economic Atonement / Economics / Economic Theory

By: Peter_Schiff

This Friday is Yom Kippur, the day when Jews around the world ask forgiveness for their transgressions from the year past. Rabbis remind the penitent to dwell on their sins of omission, in which they did nothing when a more thoughtful and proactive action was needed, and sins of commission, in which they actively participated in an unjust action. And while not all economists are Jewish, Gene Epstein the economics editor at Barron's, offered his thoughts on how this applies to the group.

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Economics

Friday, September 26, 2014

Where’s the Economic Growth? / Economics / Economic Theory

By: John_Mauldin

In 1633 Galileo Galilei, then an old man, was tried and convicted by the Catholic Church of the heresy of believing that the earth revolved around the sun. He recanted and was forced into house arrest for the rest of his life, until 1642. Yet “The moment he [Galileo] was set at liberty, he looked up to the sky and down to the ground, and, stamping with his foot, in a contemplative mood, said, Eppur si muove, that is, still it moves, meaning the earth” (Giuseppe Baretti in his book the The Italian Library, written in 1757).

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Economics

Wednesday, September 24, 2014

The Poison Eating at the Heart of Macroeconomics / Economics / Economic Theory

By: Frank_Hollenbeck

Mario Draghi, in one of his latest speeches, prodded governments to ease austerity to spur aggregate demand (an oxymoron). The IMF director, Christine Lagarde, recently urged the ECB to continue its easy monetary policy until aggregate demand picks up. U.S. Treasury Secretary, Jack Lew, has, for years, suggested government actions to boost aggregate demand. He has in turn lectured Germany, Japan, and China on the need to encourage demand.  It is sad that such economic nonsense is constantly promoted by some of the world’s most influential people, including many leading economists, and that this continues to serve as the foundation of much of contemporary macroeconomic theory.

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Economics

Tuesday, September 23, 2014

Regime Uncertainty Weighs on U.S. Economic Growth / Economics / Economic Theory

By: Steve_H_Hanke

Shortly after the current Great Recession started, I wrote a Globe Asia column, “A Great Depression?” (December 2008). In it, I stressed the findings contained in Robert Higgs’ important book Depression, War and Cold War: Studies in Political Economy (Oxford University Press, 2006). Higgs concluded that, because of regime uncertainty, investors were afraid to commit funds to new projects. They simply didn’t know what President Roosevelt and the New Dealers would do next.          

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Economics

Sunday, September 14, 2014

The Ethics of Entrepreneurship and Profit / Economics / Economic Theory

By: MISES

Hans-Hermann Hoppe writes: In the most fundamental sense we are all, with each of our actions, always and invariably profit-seeking entrepreneurs.

Whenever we act, we employ some physical means (things valued as goods) — at a minimum our body and its standing room, but in most cases also various other, “external” things — so as to divert the “natural” course of events (the course of events we expect to happen if we were to act differently) in order to reach some more highly valued anticipated future state of affairs instead. With every action we aim at substituting a more favorable future state of affairs for a less favorable one that would result if we were to act differently. In this sense, with every action we seek to increase our satisfaction and attain a psychic profit. “To make profits is invariably the aim sought by any action,” as Ludwig von Mises has stated it. (Mises, 1966, p. 289)

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Economics

Monday, September 08, 2014

Why Economic Growth Is Finished / Economics / Economic Theory

By: Andrew_McKillop

By Pure Economic Decision
Firstly Tweeted by journalist Peter Spiegel, late Sunday, September 7, a leaked copy of proposed and agreed new EU28 sanctions against Russia, dating from September 5 confirmed that Russia's energy giants Rosneft, Gazprom and Transfeft will all be hit by European capital market bans:

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Economics

Friday, September 05, 2014

Two Questions for Krugman / Economics / Economic Theory

By: Brady_Willett

Paul Krugman is at it again. That is, Mr. Krugman continues to myopically attack anyone who has warned that money printing could lead to 'inflation'.

"...as I have written many many times, this inflation paranoia has proved remarkably resilient, enduring despite five-plus years of utter empirical failure." Three Roads to Hard Money

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Economics

Tuesday, September 02, 2014

The Wages Fuel Economic Demand Fallacy / Economics / Economic Theory

By: Alasdair_Macleod

In recent months talking heads, disappointed with the lack of economic recovery, have turned their attention to wages. If only wages could grow, they say, there would be more demand for goods and services: without wage growth, economies will continue to stagnate.

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Economics

Monday, September 01, 2014

Marx And The Capitalist Cancer Of Overproduction / Economics / Economic Theory

By: Andrew_McKillop

Thomas Piketty Tried
Unremarked by most reviewers of Piketty's book “Capital” earlier this year, he also tried to “square the circle” on this longstanding subject. Marx argued that capitalist blind faith in ever-growing markets on the back of ever-growing populations in ever-growing economies could and would try to increase industrial production “until the last moment”. To do this, not only would they need more credit at lower interest rates – harming their pure financial banker brethren – but they would have to pay ever-lower real wages to their slavish workers. With lower real incomes, unsurprisingly, their workers would buy less - but the capitalists “could not understand”. So crisis was hard-wired into the system.

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Economics

Tuesday, August 26, 2014

A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? / Economics / Economic Theory

By: John_Mauldin

“To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.”
– Adam Smith, The Wealth of Nations

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Economics

Wednesday, August 20, 2014

Dawn of the Planet of the Apes and Austrian Capital Theory / Economics / Economic Theory

By: MISES

Mark Tovey writes: During an early scene of Dawn of the Planet of the Apes, in which the hyper-intelligent apes were depicted hunting for deer in the forestsurrounding their settlement, someone behind me interjected “if those apes are so smart, how come they’re hunter-gatherers?” While a decent question, he received nothing but a shush from his more etiquette-conscious companion for raising it. While there are many factors other than intelligence that are relevant to a society’s choice of an agricultural or hunter-gather economy, Austrian capital theory can go a long way in helping to explain why the apes featured in the film can be both highly-intelligent and hunter-gatherers.

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Economics

Sunday, August 17, 2014

Time Decay And No Escape For Abenomics / Economics / Economic Theory

By: Andrew_McKillop

Abenomics Does Not Work
So-called Abenomics is also (so) called Pure Keynesian. Two physics-related analogies help explain why neither Abenomics nor Keynesian economics will work. There is the concept of escape velocity – that is escape from recession - and the time rate of decay of plenty of things, for example of prices if deflation sets in. As we know, economists like to dress up their works on what is a subject that can never be scientific – economics – using mathematical formulae purporting to show neat functional relationships between “key aggregates”, but in several science domains, from astrophysics to subatomic physics firstly these terms have a real meaning. Secondly, ambiguity has to be allowed into the party. Multiple outcomes are perfectly possible.

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