Monday, September 23, 2013

Natural economic laws

Once, during a speech which he was making at a statistical congress in Bern, [Vilfredo] Pareto spoke of 'natural economic laws,' whereupon [Gustav] Schmoller, who was present, said that there was no such thing. Pareto said nothing, but smiled and bowed. Afterward he asked Schmoller, through one of his neighbors, whether he was well acquainted with Bern. When Schmoller said yes, Pareto asked him again whether he knew of an inn where one could eat for nothing. The elegant Schmoller is supposed to have looked half pityingly and half disdainfully at the modestly dressed Pareto - although he was known to be well off - and to have answered that there were plenty of cheap restaurants, but that one had to pay something everywhere. At which Pareto said: 'So there are natural laws of political economy!'
From Rothbard's Austrian Perspective on the History of Economic Thought, Volume II (p. 459). And what a gold mine this book is! It almost makes one think that history teaches us nothing, that all the mistakes of the past are doomed to be repeated again and again, and every time this happens, something of the good of human thought is lost. One of the mistakes is to consider humans as mere robots, programmable and acting only according to the dictates of the State. This is a fallacy, and an old one. Humans have a "nature", something that you can try to stamp on, force or manipulate, but which you cannot change. The sooner we acknowledge this, the sooner we are on the highway to prosperity, peace and harmony of interest.

Tuesday, September 17, 2013

GDP and monetary pumping

In an age where "the GDP" is usually considered the all-important parameter to measure the "health" of an economy, the following should be kept in mind:
Remember that changes in GDP are a reflection of changes in monetary pumping: the more is pumped the greater the rate of growth of GDP. (#)
Therefore, it is sad to see robust and solid companies base their forecasts on forecasts on GDP. This is pure guess-work. An increase in GDP is more often than not harmful. A lowering GDP could even be a surer sign of an improving health of an ecomony, as monetary contraction is in many ways a cleaning process rather than the other way around.