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Source link: http://archive.mises.org/4807/binary-economics-paradigm-shift-or-cluster-of-errors/

Binary Economics: Paradigm Shift Or Cluster of Errors?

March 17, 2006 by

Binary economics is a theory of economic growth that places emphasis upon the distribution of capital, writes Timothy Terrell, rather than the quantity of capital or the productivity of labor. But the binary economists’ plan for capital dispersion would produce a massive business cycle. Moreover, the plan is in no way compatible with a free market economy. FULL ARTICLE

{ 57 comments }

Paul Marks March 21, 2006 at 2:24 pm

Brian Drum – you guessed right. I do not know who the Brtish man bought the forest from – he may not (for all I know) have bought it from the Indians.

But would you prefer that he had NOT bought it – and that the local Indians had been used for dog food? After all after the Brazilians move in to an area (either as loggers, or just as slash and burn farmers) they tend to shoot the Indians – and the bodies are eaten by dogs (or other animals).

To Lambert.

I apologize.

So “binary economics” does NOT hold that there is anything wrong with the structure of income and wealth.

At least you do not hold that there is anything more wrong with it than libertarians do – i.e. that is wildly twisted by such things as taxes and regulations, and by the government backed fiat money and boom-bust fractional reserve banking system.

O.K. then I was wrong, and I should have read “the original source” (rather than just the article that this thread is actually about).

So “binary economists” hold that real savings (i.e. people choosing not to consume) are vital for investment and that such investment is vital for an advanced economy.

“Binary economists” also hold that there should be no effort to move income or wealth away from very rich people towards the “mass of citizens”.

Well if that is all true, I (again) apologize to you Lambert.

Paul Marks March 21, 2006 at 2:45 pm

So the “credit expansion is inappropriately used today”.

So we ARE in monetary crank land.

“credit expansions” (i.e. lending out money that no one really saved – i.e. “money” that has been created by the printing press, or by book keeping tricks) is always “inappropriate” Lambert (indeed “inappropriate” is a rather mild word).

True it would be more open if money was just printed and handed out (Major D. style) rather than the banking system used (as with Lord Keynes) – but any way of playing this game is going to cause economic harm not economic benefit.

As for the above being “dogmatic” (or some such word) – sure it is. But it is also true.

Although, I must admit, there would be one big advantage to cutting out the elite (the magic circle of financial institutions and other politically connected corporations) from the credit expansion. No government backing for the banks – and strict enforcement of the laws of contract (i.e. if a “bank run” shows you do not have in your bank what you, the owner or high manager, said you had – you go to jail for fraud).

The absurdity of handing out Dollars directly to the voters (neither in the form of benefits which they have supposedly earned, or indirectly via the banking system) would be so blatent that even most voters might see it.

The “expansion of the money supply” is done in Western nations these days in ways that not one person in a thousand understands (and, I agree, the elite love it that way).

So the causes of such things as booms and busts are kept out of the understanding of ordinary people.

Paul Marks March 22, 2006 at 2:29 pm

The “not one man in a thousand” line above was (of course) supposedly from Lenin – via Keynes (“Economic Consequences of Peace”).

F.A. Hayek was fond of quoting the full line – something like how there was no more subtle way to overthow the existing basis of society than by debauching the currency, as this would be doing it in a way that not one man in a thousand could recognise of diagnose.

By the way I am certainly NOT claiming that I understand all the details of the various ways the financial game is played.

Of course the details of credit expansion change over time. As Goodheart (once Governor of the Bank of England)was fond of pointing out, almost as soon as one tries to measure one form of credit money expansion at least one other form of expansion is created.

However, the whole thing is based upon a desire that lending be greater than real savings.

And however complex the games that are played, that is just not a good thing to do.

Not good economically (in the long run you may be dead Lord Keynes, but we are still here), or good in moral terms (no I am not scared of Paul Krugman saying that some Austrians have a moral ojection to the shell game – I do have a moral objection to it).

The United States may have had fractional reserve boom-bust cycles since at least 1819 – but government stands behind these games. And the players could not get away with their games without government support.

anarkhos March 23, 2006 at 11:22 pm

The whole hole-digging analogy pretty much sums it up for me.

Suppose instead of trying to measure the productivity of the shovel, you had a gas-powered hole-digger:

One hole-digger with zero people equals zero holes an hour.

One hole-digger with one person equals one hole an hour.

One hole-digger with two people (one on each side) equals six holes and hour.

Does this mean that person #1 is less productive than person #2? Does this mean that the productivity of labour is paramount? After all, the way binary economics measures the productivity of the shovel is to compare the productivity of the person with the shovel and sans shovel (although curiously not sans person).

Binary economics is begging the question.

The very idea of measuing the productivity of the shovel as oposed to how it is employed is ludicrous.

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