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Contra Robert Shiller on Cryptocurrencies – Article by Adam Alonzi

Contra Robert Shiller on Cryptocurrencies – Article by Adam Alonzi

Adam Alonzi


While warnings of caution can be condoned without much guilt, my concern is critiques like Dr. Shiller’s (which he has since considerably softened) will cause some value-oriented investors to completely exclude cryptocurrencies and related assets from their portfolios. I will not wax poetically about the myriad of forms money has assumed across the ages, because it is already well-covered by more than one rarely read treatise. It should be said, though it may not need to be, that a community’s preferred medium of exchange is not arbitrary. The immovable wheels of Micronesia met the needs of their makers just as digital stores of value like Bitcoin will serve the sprawling financial archipelagos of tomorrow. This role will be facilitated by the ability of blockchains not just to store transactions, but to enforce the governing charter agreed upon by their participants.

Tokens are abstractions, a convenient means of allotting ownership. Bradley Rivetz, a venture capitalist, puts it like this: “everything that can be tokenized will be tokenized the Empire State Building will someday be tokenized, I’ll buy 1% of the Empire State Building, I’ll get every day credited to my wallet 1% of the rents minus expenses, I can borrow against my Empire State Building holding and if I want to sell the Empire State Building I hit a button and I instantly have the money.” Bitcoin and its unmodified copycats do not derive their value from anything tangible. However, this is not the case for all crypto projects. Supporters tout its deflationary design (which isn’t much of an advantage when there is no value to deflate), its modest transaction fees, the fact it is not treated as a currency by most tax codes (this is changing and liable to continue changing), and the relative anonymity it offers.

The fact that Bitcoin is still considered an asset in most jurisdictions is a strength. This means that since Bitcoin is de facto intermediary on most exchanges (most pairs are expressed in terms of BTC or a major fiat, many solely in BTC), one can buy and sell other tokens freely without worrying about capital gains taxes, which turn what should be wholly pleasurable into something akin to an ice cream sundae followed by a root canal. This applies to sales and corporate income taxes as well. A company like Walmart, despite its gross income, relies on a slender profit margin to appease its shareholders. While I’m not asking you to weep for the Waltons, I am asking you to think about the incentives for a company to begin experimenting with its own tax-free tokens as a means of improving customer spending power and building brand loyalty.

How many coins will be needed and, for that matter, how many niches they will be summoned to fill, remains unknown.  In his lecture on real estate Dr. Shiller mentions the Peruvian economist Hernando De Soto’s observation about the lack of accounting for most of the land in the world.  Needless to say, for these areas to advance economically, or any way for that matter, it is important to establish who owns what. Drafting deeds, transferring ownership of properties or other goods, and managing the laws of districts where local authorities are unreliable or otherwise impotent are services that are best provided by an inviolable ledger. In the absence of a central body, this responsibility will be assumed by blockchain. Projects like BitNation are bringing the idea of decentralized governance to the masses; efforts like Octaneum are beginning to integrate blockchain technology with multi-trillion dollar commodities markets.

As more than one author has contended, information is arguably the most precious resource of the twenty first century. It it is hardly scarce, but analysis is as vital to making sound decisions. Augur and Gnosis provide decentralized prediction markets. The latter, Kristin Houser describes it, is a platform used “to create a prediction market for any event, such as the Super Bowl or an art auction.” Philip Tetlock’s book on superforecasting covers the key advantages of crowdsourcing economic and geopolitical forecasting, namely accuracy and cost-effectiveness. Blockchains will not only generate data, but also assist in making sense of it.  While it is just a historical aside, it is good to remember that money, as Tymoigne and Wray (2006) note, was originally devised as a means of recording debt. Hazel sticks with notches preceded the first coins by hundreds of years. Money began as a unit of accounting, not a store of value.

MelonPort and Iconomi both allow anyone to start their own investment funds. Given that it is “just” software is the beauty of it: these programs can continue to be improved upon  indefinitely. If the old team loses its vim, the project can easily be forked. Where is crypto right now and why does it matter? There is a tendency for academics (and ordinary people) to think of things in the real world as static objects existing in some kind of Platonic heaven. This is a monumental mistake when dealing with an adaptive system, or in this case, a series of immature, interlocking, and rapidly evolving ecosystems. We have seen the first bloom – some pruning too – and as clever people find new uses for the underlying technology, particularly in the area of IoT and other emerging fields, we will see another bloom. The crypto bubble has come and gone, but the tsunami, replete with mature products with explicit functions, is just starting to take shape.

In the long run Warren Buffett, Shiller, and the rest will likely be right about Bitcoin itself, which has far fewer features than more recent arrivals. Its persisting relevance comes from brand recognition and the fact that most of the crypto infrastructure was built with it in mind. As the first comer it will remain the reserve currency of the crypto world.  It is nowhere near reaching any sort of hard cap. The total amount invested in crypto is still minuscule compared to older markets. Newcomers, unaware or wary of even well-established projects like Ethereum and Litecoin, will at first invest in what they recognize. Given that the barriers to entry (access to an Internet connection and a halfway-decent computer or phone) are set to continue diminishing, including in countries in which the fiat currency is unstable, demand should only be expected to climb.

Adam Alonzi is a writer, biotechnologist, documentary maker, futurist, inventor, programmer, and author of the novels A Plank in Reason and Praying for Death: A Zombie Apocalypse. He is an analyst for the Millennium Project, the Head Media Director for BioViva Sciences, and Editor-in-Chief of Radical Science News. Listen to his podcasts here. Read his blog here.

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

The New Renaissance HatSteven Horwitz
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One of the perennial complaints about the US economy is that we don’t “make stuff” anymore. You hear this from candidates from both major parties, but especially from Donald Trump and Bernie Sanders. The argument seems to be that our manufacturing sector has collapsed and that all US workers do is to provide services, rather than manufacturing tangible goods.

It turns out that this perception is wrong, as the US manufacturing sector continues to grow and in 2014 manufacturing output was higher than at any point in US history. But even if the perception were correct, it does not matter. The measure of an economy’s health isn’t the quantity of physical stuff it produces, but rather the value that it produces. And value comes in a variety of forms.

Manufacturing is Up

The path to economic growth is not to freeze into place the US economy of the 1950s. Let’s deal with the myth of manufacturing decline first. The one piece of evidence in favor of that perception is that there are fewer manufacturing jobs today than in the past. Total manufacturing employment peaked at around 19 million jobs in the late 1970s. Today, there are about 12.5 million manufacturing jobs in the US.

However, manufacturing output has never been higher. The real value of US manufacturing output in 2014 was over $2 trillion. The real story of the US manufacturing sector is that we have become so much more efficient, that we can produce more and more manufactured goods with less and less labor. These efficiency gains are largely the result of computer technology and automation, especially in the last fifteen years.

The labor that we no longer need in order to produce an ever-increasing amount of stuff is now available to produce a whole variety of other things we value, from phone apps to entertainment to the expanded number and variety of grocery stores and restaurants, to the data analyses that makes all of this growth possible.

Just as the workers in those factories we are so nostalgic for were labor freed from growing food thanks to the growth in agricultural productivity, so are today’s web designers, chefs at the newest hipster café, and digital editors in Hollywood the labor that has been freed from producing “stuff” thanks to greater technological productivity.

Or, put differently: those agricultural, industrial, and computer revolutions collectively have enabled us to have more food, more stuff, and more entertainment, apps, services, and cage-free chicken salads served with kale. The list of human wants is endless, and the less labor we use to satisfy some of them, the more we have to start working on other ones.

But notice something: all of the things that we produce have something in common. Whether it’s food or footwear, or automobiles or apps, or manicures or massages, the point of production is to rearrange capital and labor in ways that better satisfy wants. In the language of economics, the point of production (and exchange) is to increase utility.

When we produce more cars that people wish to buy, it increases utility. When we open a new Asian fusion street food taco stand, it increases utility. When Uber more effectively uses the existing stock of cars, it increases utility. When we exchange dollars for manicures, it increases utility.

Adam Smith helped us to understand that the wealth of nations is not measured by how much gold a country possesses. Modern economics helps us understand that such wealth is not measured by how much physical stuff we manufacture. Increases in wealth happen because we arrange the physical world in ways that people value more.

Neither producing cars nor providing manicures changes the number of atoms in the universe. Both activities just rearrange existing matter in ways that people value more. That is what economic growth is about.

Misplaced Nostalgia

We’re richer because we have allowed markets to produce with fewer workers. When we are fooled into believing that “growth” is synonymous with “stuff,” we are likely to make two serious errors. First, we ignore the fact that the production of services is value-creating and therefore adds to wealth.

Second, we can easily believe that we need to “protect” manufacturing jobs. We don’t. And if we try to do so, we will not only stifle economic growth and thereby impoverish the citizenry, we will be engaging in precisely the sort of special-interest politics that those who buy the myth of manufacturing often rightly complain about in other sectors.

The path to economic growth is not to freeze into place the US economy of the 1950s. We are far richer today than we were back then, and that’s due to the remaining dynamism of an economy that can still shed jobs it no longer needs and create new ones to meet the ever-changing wants of the consumer.

The US still makes plenty of stuff, but we’re richer precisely because we have allowed markets to do so with fewer workers, freeing those people to provide us a whole cornucopia of new things to improve our lives in endless ways. We can only hope that the forces of misplaced nostalgia do not win out over the forces of progress.

Steven_Horwitz

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

Refuting Ayn Rand’s “Immortal Robot” Argument – Article by G. Stolyarov II

Refuting Ayn Rand’s “Immortal Robot” Argument – Article by G. Stolyarov II

The New Renaissance HatG. Stolyarov II

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Here I refute an argument that has been leveled against proponents of indefinite human longevity from a surprising direction – those sympathetic to the Objectivist philosophy of Ayn Rand. Some advocates of Ayn Rand’s philosophy believe that indefinite life would turn human beings into “immortal, indestructible robots” that, according to Ayn Rand, would have no genuine values. Both of these claims are false. Indefinite life would not turn humans into indestructible robots, nor would an indestructible robot with human abilities lack values or motivation for doing great things. In Ayn Rand’s own words, “Achieving life is not the equivalent of avoiding death.” (John Galt’s speech in For the New Intellectual, p. 135)

Rand’s “immortal robot” argument is found in “The Objectivist Ethics” (The Virtue of Selfishness, p. 15): “To make this point fully clear, try to imagine an immortal, indestructible robot, an entity which moves and acts, but which cannot be affected by anything, which cannot be changed in any respect, which cannot be damaged, injured or destroyed. Such an entity would not be able to have any values; it would have nothing to gain or to lose; it could not regard anything as for or against it, as serving or threatening its welfare, as fulfilling or frustrating its interests. It could have no interests and no goals.”

The “immortal robot” argument needs to be challenged because it originates from Ayn Rand, who otherwise espouses numerous rational ideas. I myself agree with most of the fundamental principles that Ayn Rand advocates. However, in some of her particular reasoning – at least, if applied to the wrong context – she can be off-target in such a way as to retard further progress. The often-leveled argument, derived by contemporary non-transhumanist Objectivists from the above-quoted passage, is that achieving indefinite longevity would turn human beings into Ayn Rand’s description of the “immortal, indestructible robot”.

In responding to Rand’s argument, several points can be made in relation to prolonging human life indefinitely and lifting the death sentence that hangs over all of us. First, at no point in time will human beings become the “immortal, indestructible robots” that Ayn Rand describes. The simple reason for this is that our existence is physical and contingent on certain physical prerequisites being fulfilled. The moment one of these physical prerequisites is lacking, our existence ceases. This will always be the case, even if we no longer have a necessary upper limit on our lifespans. For instance, biomedical advances that would greatly expand human lifespans – allowing periodic reversions to a more youthful biological state and therefore the possibility of an indefinite existence – would not turn humans into indestructible robots. There would still be the need to actively turn back biological processes of decay, and the active choice to pursue such treatments or not. People who live longer by successfully combating senescence could still get run over by a car or experience a plane crash. They would retain potential vulnerability to certain perils – such as death from accidents – although, as I have explained in “Life Extension and Risk Aversion”, they may be more diligent in seeking to greatly reduce the probability of such outcomes. If it is ever the case that death by senescence and the myriad diseases which kill many human beings today can be averted, then human beings will try to avert the other possibilities of death – for instance, by developing safer modes of transportation or engaging in fewer wars.

It is possible to significantly reduce the likelihood that one can be destroyed, without ever eliminating the theoretical potential of such destruction. Furthermore, because human beings have free will, they always have at least the hypothetical option of choosing to undermine the physical prerequisites of their own lives. In my view, no sane, rational being would actually choose to pursue that option, but the option is there nonetheless. For anybody who seeks to commit suicide by immediate or gradual means, or by refusing to take advantage of life-prolonging techniques once they become available, there is virtually nothing in the world that could prevent this, apart from rational persuasion (which may or may not be successful).

Even with indefinite longevity, human beings will always be vulnerable to some actual or hypothetical perils or poor choices. Moreover, when we manage to avoid one kind of peril, other kinds of perils may become more pressing as they come into the frame of awareness of longer-lived beings. If we do manage to live for hundreds of thousands of years, we will be far more subject to long-term geological changes and fluctuations of the Earth’s climate, such as the cycle of ice ages, whereas today humans do not live long enough to experience these massive shifts. Most of us today do not worry about the consequences of huge glaciers advancing over the continents, but humans who live for millennia will see this as a pressing problem for their own lifetimes. Likewise, the longer we live, the greater the likelihood that we will experience a global cataclysm, such as a supervolcano or an asteroid hitting the Earth. Human ingenuity and resources would need to be devoted toward confronting and even preventing these perils – a highly desirable outcome in general, since the perils exist irrespective of our individual lifespans, but most humans currently lack the long-term vision or orientation to combat them.

Moreover, the need to reject the “immortal robot” argument when discussing indefinite life extension does not stem solely from a desire to achieve philosophical correctness. Rather, we should recognize the potential for actually achieving meaningful, unprecedented longevity increases within our own lifetimes. For instance, the SENS Research Foundation is a nonprofit biogerontological research organization whose founder, Dr. Aubrey de Grey, has outlined an engineering-based approach to reversing the seven principal types of damage that accumulate in the human body with age. (SENS stands for “Strategies for Engineered Negligible Senescence”.) Dr. de Grey has stated that, with proper funding, there is approximately a 50 percent probability of these rejuvenation treatments being developed 20-25 years from now. (The 20-year figure is presented in this transcript from a recent NPR interview of Aubrey de Grey – quoted in “Discussing Science and Aging: Aubrey de Grey and Cynthia Kenyon at NPR” by Reason at FightAging.org.) The SENS Research Foundation is not the only entity pursuing radical life extension. Major commercial efforts toward research into reversing biological aging – such as Calico, created and funded by Google (now Alphabet, Inc.) – have been launched already. Thus, it is premature to conclude that death is a certainty for those who are alive today. Medical advances on the horizon could indeed turn many humans into beings who are still potentially vulnerable to death, but no longer subject to any upper limit on their lifespans.

It is therefore ill-advised to pin any ethical justifications for the ultimate value of human life to the current contingent situation, where it just so happens that human lifespans are finite because we have not achieved the level of technological advancement to overcome senescence yet. If such advances are achieved, common interpretations of the “immortal robot” argument and its derivative claims would suggest that life for human beings would transform from an ultimate value to some lesser value or to no value at all. This implication reveals a flaw in arguments that rely on the finitude of life and the inevitability of death. How is it that, by making life longer, healthier, and of higher quality (with less suffering due to the diseases of old age), humans would, in so doing, deprive life of its status as an ultimate value? If life is improved, it does not thereby lose a moral status that it previously possessed.

Yet another important recognition is that some animals have already attained negligible senescence. Their lifespans are de facto finite, but without a necessary upper limit. Suppose that evolution had taken a different course and rational beings had descended from tortoises rather than from primates. Then these rational beings would have negligible senescence without the need for medical intervention to achieve it. Would their lives thereby lack a type of value which the proponents of the “immortal robot” argument attribute to human lives today? Again, a conclusion of this sort illustrates a flaw in the underlying argument.

But suppose that a true immortal, indestructible robot could exist and be identical to human beings in every other respect. It would possess human biological processes and ways of thinking but be made of extremely strong materials that did not deteriorate or that automatically renewed themselves so as to rapidly, automatically repair any injury. Ayn Rand’s argument would still be mistaken. Even if death were not a possibility for such a being, it could still pursue and enjoy art, music, inventions, games – any activity that is appealing from the perspective of the senses, the intellect, or the general civilizing project of transforming chaos into order and transforming simpler orders into more complex ones.

The fear of death is not the sole motivator for human actions by far. Indeed, most great human accomplishments are a result of positive, not negative motivations. Rand acknowledged this when she wrote that “Achieving life is not the equivalent of avoiding death.” At least in the short term, you do not need to do much to avoid death. You could just sit there, stay out of trouble, eat, drink, keep warm, sleep – and you survive to the next day. But that is not a full life, according to Rand. Obviously, one needs to avoid death to have a full life. Survival is necessary, but it is not sufficient. Many thinkers sympathetic to the Objectivist school, such as Edward Younkins, Tara Smith, Douglas Den Uyl, Douglas Rasmussen, Tibor Machan, George Reisman, and Lester Hunt, have extended this insight to conclude that survival is not enough; one should also pursue flourishing. (Younkins provides an excellent overview of this perspective in “Flourishing and Happiness in a Nutshell”.)

I concur fully with the goal of flourishing and recognize the existence of numerous positive motivations besides mere survival. For example, the desire to see oneself create something, to witness a product of one’s mind become embodied in the physical reality, is a powerful motivation indeed. One can furthermore seek to take esthetic pleasure from a particular object or activity. This does not require even a thought of death. Moreover, to appreciate certain kinds of patterns in existence, which are present in art, in technology, and even in games, does not require any thought of death. Many people play games, even if those games do not contribute anything to their survival. This does not mean, however, that doing so is irrational; rather, it is another creative way to channel the activities of the human mind. Via games, the human mind essentially creates its own field of endeavor, a rule system within which it operates. By operating within that rule system, the mind exercises its full potential, whereas just by sitting there and only doing what is absolutely necessary to survive, the mind would have missed some essential part of its functioning.

Creating art and music, undertaking scientific discoveries, envisioning new worlds – actual and fictional – does not rely on having to die in the future. None of these activities even rely on the threat of death. The immortal, indestructible robot, of course, might not engage in precisely the same activities as we do today. It would probably not need to worry about earning its next meal by working for somebody else, but it could still paint a painting, just because it would like to see its mental processes – in this scenario, processes greatly resembling our own – have some kind of external consequence and embodiment in the external reality. Such external embodiment is a vital component of flourishing.

Fear of death is not the sole motivator for human action, nor the sole prerequisite for value, as Ayn Rand acknowledged. There is more to life than that. Life is not merely about survival and should be about the pursuit of individual flourishing as well. Survival is a necessary prerequisite, but, once it is achieved, an individual is free to pursue higher-order values, such as self-actualization. The individual would only be further empowered in the quest for flourishing and self-actualization in a hypothetical environment where no threats to survival existed.

While we will never be true immortal robots, such immortal robots could nonetheless flourish and truly achieve life. As a result, the “immortal robot” argument fails on multiple counts and is not a valid challenge to indefinite life extension.

This essay may be freely reproduced using the Creative Commons Attribution Share-Alike International 4.0 License, which requires that credit be given to the author, G. Stolyarov II. Find out about Mr. Stolyarov here.

Life Today – Article by Kyrel Zantonavitch

Life Today – Article by Kyrel Zantonavitch

The New Renaissance Hat
Kyrel Zantonavitch
November 22, 2015
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Altho’ it’s true that we in the early 21st century all live in a notably illiberal Dark Age culture of considerable sadness, sickness, ignorance, irrationality, malevolence, and tyranny, nevertheless: it’s still quite possible for those of us in the West to gain great knowledge about, and then practice, a highly liberal philosophy and lifestyle. And this intellectual system of reason and science in epistemology, individualism and self-interest in ethics, and dynamism and heroism in aesthetics and spirituality, can still easily foster a mostly good, great, magnificent, and happy life.

Today’s philosophical liberalism – massively influenced by the pure genius of Ayn Rand – can create a way of life which is deeply meaningful, purposeful, satisfying, enjoyable, and even ecstatic. Yes, some people around us are hugely irrational, illiberal, corrupt, hypocritical, foolish, and depraved. And yes, the political system around us is remarkably powerful, malicious, and authoritarian. But in the West you can still minimize contact with such people, and such a system. Life today is still potentially beautiful, wonderful, and almost unbelievably pleasurable.

Liberals who are relatively mature experienced, educated, smart, clever, and slick can mostly keep the forces of evil at bay. The illiberals haven’t ruined everything on this planet — or even come close. Aristotle, Epicurus, Cicero, Horace, Bacon, Locke, Smith, Voltaire, and Jefferson still have a lot of power and influence. Even Hayek and Rand.

There’s still plenty of good stuff in the world to enjoy: movies, t’v’ shows, music, dance, paintings, video games, comics, classic novels, sports, conversation, family, friends, and other sources of enjoyment. Properly understood and practiced, liberalism doesn’t just show the way to an outstanding, wondrous, and exalted lifestyle. It also provides a great shield against the Bad Guys. Soon enough, it’ll provide a great sword.

Kyrel Zantonavitch is the founder of The Liberal Institute  (http://www.liberalinstitute.com/) and author of Pure Liberal Fire: Brief Essays on the New, General, and Perfected Philosophy of Western Liberalism.

The Fallacy of “Buy Land — They’re Not Making Any More” – Article by Peter St. Onge

The Fallacy of “Buy Land — They’re Not Making Any More” – Article by Peter St. Onge

The New Renaissance Hat
Peter St. Onge
September 21, 2015
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“Buy land — they’re not making any more!” is an old investing chestnut, and a common sense one to boot. Economically, it’s also completely false.

As counterintuitive as it may seem, we make land all the time. It just doesn’t look like land.

Why? Because land’s value doesn’t come from its ability to cover up the naked earth. Land’s value comes from its economic usefulness. From the value of things that can be done using that land (Rothbard’s “marginal revenue product” of the land). And that value is, indeed, changing all the time. Economically, from a price perspective, then, we make land all the time.

Step back a moment and ask why land has value anyway. Why do people want land? Well, obviously, because you can put stuff there — including yourself — plus buildings, swimming pools, and factories.

Now, anybody who’s visited West Texas knows there is plenty of building space in the world. You could drive for hours and meet nobody. There’s lots of space for that factory of yours. But it’s not really space itself that makes land valuable. It’s location. As in, there’s only so much room in Manhattan. Or Central London.

Once again, though, it’s not the actual space that matters. It’s the access. Put a strip mall on Manhattan surrounded by crocodile-filled moats and snipers and it will have low value. The value is in access. So Manhattan is valuable because it’s easy to get to other parts of Manhattan. And it’s easy for other people to get to you. Customers, partners, and friends can all easily visit you if your apartment or office is in Manhattan, moatless and sniperless.

So if it’s the access that matters, are they making new access? Of course. They’re doing it all the time.

New highways, new exits, new streets, mass transit, pedestrian malls are being regularly constructed. These all effectively “make new land” because they offer access to existing space. They turn relatively “dead zones” into “useful zones,” or new land.

What are some of the meta-trends on land as investment, then?

First: roads. This was a bigger value-driver a generation ago in the US, as new roads made the suburbs more accessible, helping to drain many cities even as US population grew. Outside the US (Mexico, Thailand, Russia), new roads are still a big deal, and even in the US, new highways can reshape values — draining old neighborhoods and building value in new ones. The decline of cities like Baltimore or Detroit are partly thanks to those beautiful roads that redistribute access to the suburbs.

Second: population. In the US “rust belt” of declining manufacturing, many regions have dropped in price simply because people are leaving. Detroit homes for $100 is emblematic, although of course there are also political reasons some cities are so cheap — in particular, taxes and crime.

And that brings us to politics. Real estate can be cheapened shockingly quickly by taxes and crime, and those traditional drivers have been joined in recent decades by environmental politics.

Environmentalists, by taking land off the market, effectively squeeze the remaining accessible locations, driving up the price. Regions like Seattle or San Francisco are poster children of this environmental squeeze, with modest homes even in remote suburbs costing upward of a million dollars. On the other extreme, cities like Dallas or Houston have kept prices down despite exploding populations by allowing farmland to be converted to residential, commercial, or industrial use.

Beyond the access and political angles, land is also vulnerable to “network effects.” In other words, the neighbors matter. Gentrification or urban decay can be hard to predict. Even in a compact city with rising population like Washington, DC, it can be hard to predict where the middle class or rich want to colonize, and where they want to flee.

There are clues, of course — in large US cities, gays moving into a neighborhood, new coffee shops or art galleries are some leading indicators that property prices might swing up. But gentrification has it’s own mind; even in a booming city it might go into some other neighborhood. New York’s Harlem or Silicon Valley’s East Palo Alto are two very accessible locations with low prices because of perceptions of the neighbors.

So, while they’re not “making” land, they are constantly making things that affect land price: access, regulations, changing neighbors. These are the kinds of factors that make land valuable, not it’s ability to cover the earth.

And so land comes back to earth, joining boring old commodities like wheat or copper. Just as vulnerable to changing supply and demand factors.

And if you are looking for something they’re not “making more of?” Well, gold does come close – hence its appeal. They do mine new gold all the time, but the costs are high enough that gold is a very “inelastic” commodity. It comes close to “they’re not making more.”

Beyond that? Develop your ultimate resource: yourself.

Peter St. Onge is an assistant professor at Taiwan’s Fengjia University College of Business. He blogs at Profits of Chaos.
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This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.
Fooled by GDP: Economic Activity versus Economic Growth – Article by Steven Horwitz

Fooled by GDP: Economic Activity versus Economic Growth – Article by Steven Horwitz

The New Renaissance Hat
Steven Horwitz
May 4, 2015
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Even the smartest of economists can make the simplest of mistakes. Two recent books, Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast and Why Nations Fail by Daron Acemoglu and James Robinson both suffer from misunderstanding the concept of economic growth. Both books speak of the high growth rates in the Soviet economy in the mid-20th century. Even if the authors rightly note that such rates could not be sustained, they are still assuming that the aggregate measures they rely on as evidence of growth, such as GDP, really did reflect improvements in the lives of Soviet citizens. It is not clear that such aggregates are good indicators of genuine economic growth.

These misunderstandings of economic growth take two forms. One form is to assume that the traditional measurements we use to track economic activity also describe economic growth, and the other form is to mistake the production of material things for economic growth.

Often at the core of this confusion is the concept of gross domestic product (GDP). Although it is the most frequently used indicator of economic growth, what it really measures is economic activity. GDP is calculated by attempting to measure the market value of final goods and services produced in a particular geographic area over a specific period. By “final” goods and services, we mean the goods and services purchased by the end consumer, and that means excluding the various exchanges of inputs that went into making them. We count the loaf of bread you buy for sandwiches, but not the purchase of flour by the firm that produced the bread.

What GDP does not distinguish, however, is whether the exchanges that are taking place — even the total quantity of final goods — actually improve human lives.

That improvement is what we should be counting as economic growth. Two quick examples can illustrate this point.

First, nations that devote a great deal of resources to building enormous monuments to their leaders will see their GDP rise as a result. The purchase of the final goods and labor services to make such monuments will add to GDP, but whether they improve human lives and should genuinely constitute “economic growth” is much less obvious. GDP tells us nothing about whether the uses of the final goods and services that it measures are better than their alternative uses.

Second, consider how often people point to the supposed silver lining of natural disasters: all the jobs that will be created in the recovery process. I am writing this column at the airport in New Orleans, where, after Katrina, unemployment was very low and GDP measures were high. All of that cleanup activity counted as part of GDP, but I don’t think we want to say that rebuilding a devastated city is “economic growth” — or even that it’s any kind of silver lining. At best, such activity just returns us to where we were before the disaster, having used up in the process resources that could have been devoted to improving lives.

GDP measures economic activity, which may or may not constitute economic growth. In this way, it is like body weight. We can imagine two men who both weigh 250 pounds. One could be a muscular, fit professional athlete with very low body fat, and the other might be on the all-Cheetos diet. Knowing what someone weighs doesn’t tell us if it’s fat or muscle. GDP tells us that people are producing things but says nothing about whether those things are genuinely improving people’s lives.

The Soviet Union could indeed produce “stuff,” but when you look at the actual lives of the typical citizen, the stuff being produced did not translate into meaningful improvements in those lives.

Improving lives is what we really care about when we talk about economic growth.

The second confusion is a particular version of the first one. Too often, we think that economic growth is all about the production of material goods. We see this in discussions of the US economy, where the (supposed) decline of manufacturing is pointed to as a symptom of a poorly growing economy. But if economic growth is really about the accumulation of wealth — which is, in turn, about people acquiring things they value more — then material goods alone aren’t the issue. More physical stuff doesn’t mean that the stuff is improving lives.

More important, though, is that what really matters is subjective value. The purchase of a service is no less able to improve our lives, and thereby be a source of economic growth, than are the production and purchase of material goods. In fact, what we really care about when we purchase a material good is not the thing itself, but the stream of services it can provide us. The laptop I’m working on is valuable because it provides me with a whole bunch of services (word processing, games, Internet access, etc.) that I value highly. It is the subjective satisfaction of wants that we really care about, and whether that comes from a physical good or from human labor does not matter.

This point is particularly obvious in the digital and sharing economies, where so much value is created not through the production of stuff, but by using the things we have more efficiently and precisely. Uber doesn’t require the production of more cars, and Airbnb doesn’t require the production of more dwellings. But by using existing resources better, we create value — and that is what we mean by economic growth.

So what should we look at instead of GDP as we try to ascertain whether we are experiencing economic growth? Look at living standards: of average people, and especially of poor people. How easily can they obtain the basics of life? How many hours do they have to work to do so? Look at the division of labor. How fine is it? Are people able to specialize in narrow areas and still find demand for their products and services?

Economic growth is not the same as economic activity. It’s not about just making more exchanges or producing more stuff. It’s ultimately about getting people the things they want at progressively lower cost, and thereby improving their well-being. That’s what markets have done for the last two centuries. For those of us who understand this point, it’s important not to assume that higher rates of GDP growth or the increased production of physical stuff automatically means we are seeing growth.

Real economic growth is about improving people’s subjective well-being, and that is sometimes harder to see even as the evidence for it is all around us.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Freedom Encourages Goodwill to All – Article by Bradley Doucet

Freedom Encourages Goodwill to All – Article by Bradley Doucet

The New Renaissance Hat
Bradley Doucet
December 18, 2014
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“Christopher Hitchens on libertarians: ‘I have always found it quaint and rather touching that there is a movement in the U.S. that thinks Americans are not yet selfish enough.'”

A friend posted the above statement on Facebook a few weeks ago, along with a photo of the late Christopher Hitchens, and added the following comment of his own: “He was often a complete idiot (being a contrarian was his fatal, childish flaw), but in this case, he’s right on target.” I couldn’t help myself; I responded, no doubt unhelpfully, that although Hitchens was always an entertaining writer, he was as childishly wrong about this as he could possibly be.

In the spirit of the season, let me take a few moments here to try to be a bit more helpful. First of all, to clarify, far from thinking that Americans are not yet selfish enough, libertarians think that human beings are not yet free enough, whether they live in Bangor, Maine or Bangladesh. Whether you use the greater liberty libertarians want you to have to help your fellow man or to go off and live in the woods by yourself is strictly speaking immaterial. Freedom makes you free; what you do with that freedom is up to you, and has nothing really to do with libertarianism.

To be fair to Hitchens, though, there are some libertarians who explicitly endorse a form of selfishness, and these are probably the people to whom he was referring. They are fans and followers of Objectivism, the philosophy of Ayn Rand. Provocatively enough, Rand wrote a book entitled The Virtue of Selfishness, so part of the blame falls on her shoulders for preferring provocation over clarity. Because the selfishness to which this title alludes is more properly called rational or enlightened self-interest.

As anyone who has actually read Rand’s work will confirm, the selfishness that she advocated amounts to saying: Your life belongs to you. It does not belong to your parents, or your neighbour, or your honourable representatives in government. It is yours to live as you see fit. But as a direct and explicit corollary, neither does your neighbour’s life belong to you. Neither a slave nor a master be.

The alternative to dealing with other human beings through the use of force, as masters and slaves, is to deal with each other voluntarily, as traders, offering value for value. If your self-interested end is to become rich, the only way to do so while respecting the code of honour promulgated by Ayn Rand is to offer other people something they want and are willing to pay you for. What a rotten, selfish bitch, eh?

In fact, liberating people to enrich themselves through trade and innovation, and assigning dignity to this pursuit of material plenty, is precisely what has made large swaths of the world so fabulously wealthy by historical standards. Criticizing the “selfishness” of honest, hard-working, creative people who just want to improve their lot—as did a feature on the rise of China in this weekend’s Globe and Mail—therefore risks undoing the great material progress of modern civilization.

The notion that forcing people to be less self-interested would promote anything but resentment is really difficult for me to wrap my head around, Hitch’s wisecracks notwithstanding. If we want to promote a feeling of goodwill to all, we need to let people be free to enrich themselves by providing value to others. Only to the extent that we come to see each other primarily as sources of value rather than as threats to our security, as traders rather than as masters and slaves, will we approach that other Christmas ideal: peace on Earth.

Bradley Doucet is Le Québécois Libre‘s English Editor and the author of the blog Spark This: Musings on Reason, Liberty, and Joy. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness.
Cryptocurrencies and a Wider Regression Theorem – Article by Peter St. Onge

Cryptocurrencies and a Wider Regression Theorem – Article by Peter St. Onge

The New Renaissance Hat
Peter St. Onge
December 18, 2014
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The debate whether or not cryptocurrencies are “money” has put a spotlight on the Menger-Mises Regression Theorem. As stated, the theorem posits that a non-fiat money must have had value before it became a money. Some have used currencies’ lack of antecedent value as knocking it off the money pedestal or as forcing cryptocurrencies to ignominiously piggyback on fiat currencies’ own regressions.

In a 2013 post Konrad Graf makes the excellent point that such critiques misread the Regression Theorem. In reality, Graf argues, the theorem is not a hypothesis to be tested, rather the theorem tells us that cryptocurrencies such as Bitcoin indeed had some antecedent value. At which point our task is to discover what that antecedent value was. Graf suggests several alternatives, including utility of Bitcoin as a geek toy, as art, or as social marker. Because of these non-monetary uses, Graf writes, bitcoin and the theorem do not threaten each other, but “merely gaze across the intellectual landscape at one another with knowing smiles.”

While I agree with Graf on his main point that the theorem implies cryptocurrencies did have antecedent value, I believe that both the original critique and Grafs’ response fall into a trap of misreading the theorem as requiring non-monetary and previously realized (“bought and sold”) benefits.

Money Is a Useful Good

Among Menger’s greatest contributions in his Principles is the realization that money is fundamentally a good like any other — demanded for its usefulness in enabling transactions and store of value — with an actual price dictated by its scarcity.

If money, like any other good, derives its value from the benefits it offers, it’s hard to see why the money, even those benefits, require an antecedent. Just as the internet can be valuable without a “pre-internet,” a cryptocurrency enabling anonymous, irreversible, low-regulation transactions and savings can be valuable without a precursor. [1] If there is no regression requirement for value in any other good, why does money alone bear this burden?

Must Money Have a Non-Monetary Use?

Instead, I would argue for a reading of the Regression Theorem with two important liberalizations. First, benefits provided by a money needn’t be non-monetary. That is, the benefits can reside in the good’s use as money itself — no need for geek-chic art. Second, antecedent demand needn’t have been realized — the use needn’t have actually occurred. It’s the antecedent demand, even latent, not the previous buying and selling, which counts in importing value via the Regression Theorem.

To give an example that satisfies both liberalizations, a benefit such as anonymous wire transfers is both a money-related benefit and is also a service that didn’t previously exist. In a liberalized Regression Theorem, this benefit would count as the antecedent demand giving the spark of life to a scarce cryptocurrency.

A concrete historical example of a currency offering both mainly monetary value and offering it only at moment of birth is Tang China’s paper money. Called “flying cash,” paper offered the key benefit of portability, set against its other risks compared with bullion coins (flammability, uncertain redemption). We could surely seek out non-monetary antecedent value for Tang cash — toilet paper comes to mind. But it seems a stretch to reach for artistic or hygiene uses, compared to the natural conclusion that flying cash was demanded because of its monetary benefits. The fact that demand for portable money was unrealized would simply increase paper money’s value to the unfortunate customer who lacked alternative light-weight money.

This mistaken focus on non-money-related and realized antecedent value is understandable, since even Mises seems to be mixing historical and praxeological discussion in Human Action (chapter 17, sec. 4) where Mises writes, “No good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments.”

Here Mises seems to clearly state that Menger’s Regression Theorem requires a currency to have historically represented a commodity having non-money use. This is a natural interpretation, especially in context of Mises’s subsequent discussion of precious metals, clearly useful commodities that you can flash at parties.

But we must take care here to separate Mises’s historical generalization from the praxeological core of his statement. Because Mises has metal on his mind, he suggests the “other employments” must have been antecedent (“did not have”) and, in his subsequent discussion of metals, seems to imply the commodities should be both concrete and previously in use (realized) for non-money purposes.

Money Benefits Are as Useful as Non-Money Benefits

Again, praxeologically, none of these requirements are essential. Money benefits are as useful as non-money benefits, and a useful commodity could conceivably be created and become a medium of exchange at the same moment. So long as the commodity offers “employments” in the form of benefits to users. Cryptocurrencies’ anonymity, regulatory treatment, algorithmically fixed rate of growth, fee structure, and irreversibility of transfer are all money-related benefits, many unrealized before cryptocurrencies came along.

On this reading, and in agreement with Graf, cryptocurrencies are not at all a challenge to the Regression Theorem. They are a confirmation. At birth, cryptocurrencies offered useful features. These benefits function as “employments,” giving cryptocurrencies demand via transaction and store of-value benefits, which in turn import durable purchasing power.

Perceptions Are Important

That “seed” of demand can then be amplified by marketing — by framing the subjective benefits of the currency. Again like any other good, if individuals exert effort to communicate and frame the benefits of a cryptocurrency, then we might expect demand to increase. These individuals may be the owners of businesses that benefit from the currency, or they simply may be enthusiasts.

Now we can simply match these subjective benefits to scarcity to yield a price of a cryptocurrency. Below zero and the currency isn’t “good enough” — it’s not perceived to offer enough benefits. It’s not cool and it’s not art. Above zero and a currency is born: now Satoshi Nakamoto t-shirts are all the rage.

As technology lowers the costs of producing cryptocurrencies, broadening the Regression Theorem’s value requirement to accept novel money-related benefits opens up enormously the range of currencies that are possible in the future. It should be an exciting few decades in the world of currency innovation.

Notes

1. Cryptocurrencies benefit from a perception of anonymity, although whether or not there is actual anonymity in practice is another matter.

Peter St. Onge is an assistant professor at Taiwan’s Fengjia University College of Business. He blogs at Profits of Chaos.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Diversity in Goals Brings Diversity in Value – Article by Frank Shostak

Diversity in Goals Brings Diversity in Value – Article by Frank Shostak

The New Renaissance Hat
Frank Shostak
November 28, 2014
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A major problem with the mainstream framework of thinking is that people are presented as if a scale of preferences were hard-wired in their heads. Regardless of anything else this scale remains the same all the time. Valuations however, do not exist by themselves regardless of the things to be valued. On this Rothbard wrote,

There can be no valuation without things to be valued. 1

Valuation is the outcome of the mind valuing things. It is a relation between the mind and things.

Purposeful action implies that people assess or evaluate various means at their disposal against their ends. An individual’s ends set the standard for human valuations and thus choices. By choosing a particular end an individual also sets a standard of evaluating various means.

For instance, if my end is to provide a good education for my child, then I will explore various educational institutions and will grade them in accordance with my information regarding the quality of education that these institutions are providing. Observe that the standard of grading these institutions is my end, which, in this case, is to provide my child with a good education. Or, for instance, if my intention is to buy a car, and there are all sorts of cars available in the market, then I have to specify to myself the specific ends that the car will help me achieve. I need to establish whether I plan to drive long distances or just a short distance from my home to the train station and then catch the train. My final end will dictate how I will evaluate various cars. Perhaps I will conclude that for a short distance, a second-hand car will do the trick.

Since an individual’s ends determine the valuations of means and thus his choices, it follows that the same good will be valued differently by an individual as a result of changes in his ends. At any point in time, people have an abundance of ends that they would like to achieve. What limits the attainment of various ends is the scarcity of means. Hence, once a larger variety of means become available, a greater number of ends — or goals — can be accommodated (i.e., people’s living standards will increase).

Another limitation on attaining various goals is the availability of suitable means. Thus to quell my thirst in the desert, I require water. If no one willing to sell water is nearby, any diamonds in my possession will be of no help in this regard.

Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. See Frank Shostak’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Rational Argumentator Accepts Litecoin Donations – Post by G. Stolyarov II

The Rational Argumentator Accepts Litecoin Donations – Post by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
June 28, 2014
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Litecoin_LogoI am pleased to announce that The Rational Argumentator now accepts Litecoin donations, in addition to the previously accepted Bitcoin and Dogecoin donations. This development is in accord with TRA’s welcoming stance toward all cryptocurrencies and support for innovative approaches to creating truly decentralized media of exchange and stores of value.

You can donate Litecoin to The Rational Argumentator using the following donation address (also found in the “Cryptocurrency Donations” section of the sidebar of TRA’s interface): LbmbsP92kruVoAEcWD29PL1cQUnNdjhqzR