Tag Archives: prices

Why Is A Raven Like A Writing Desk

Two recent Wall Street Journal articles point to similar problems in both the housing and stock markets: although prices are up relative to late 2008/2009, liquidity has suffered noticeable decreases.

It would seem that government policies aimed at propping up nominal prices in both markets have succeeded, in the short term. (Although not without consequence.)

Not coincidentally, IRS statistics on all top wealthholders show that 70% of the increases in wealth enjoyed by all top wealthholders between 1992 and 2004 (most recent data available, and prior to the market peaks) can be attributed to securities (55%) and real estate (15%). The data on real estate include all debts and mortgages (-5%), which partially masks the increase in nominal asset prices.

Consolidation of net wealth also occurred during this span, increasing from $1.34 billion to $3.74 billion per wealthholder. In other words, although the net worth increased 106%; this increase was shared by 26% fewer individuals.

Inflation and other policy-induced asset bubbles have clearly benefited the wealthy, and it should be clear to the layman that the Occupy Wall Street protests are misdirected. Instead they should be excoriating people like Paul Krugman, who continue to advocate for persistent inflation, eroding the value of their paychecks and savings.

WSJ: Traders Warn of Market Cracks (Oct 18, 2011)

Hedge-fund traders and mutual-fund managers say it has become increasingly tough to trade an individual stock without causing a big swing in its price. That’s led many large investors to step back from the market instead of risking being stung by the trading difficulties.

The problem is a lack of liquidity—a term that refers to the ease of getting a trade done at an acceptable price.

Markets depend on there being many offers to buy and sell a particular stock, across a range of prices. But as investors have gotten nervous, many of those offers have dried up.

WSJ: Slim Pickings Are Latest Headache for Home Sales (Oct 17, 2011)

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory…

The report is the latest sign of how the U.S. housing market can’t seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn’t the case right now.

Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today’s discounted prices.

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Mises on Value

An inveterate fallacy asserted that things and services exchanged are of equal value. Value was considered as objective, as an intrinsic quality inherent in things and not merely as the expression of various people’s eagerness to acquire them. People, it was assumed, first established the magnitude of value proper to goods and services by an act of measurement and then proceeded to barter them against quantities of goods and services of the same amount of value. This fallacy frustrated Aristotle’s approach to economic problems and, for almost two thousand years, the reasoning of all those for whom Aristotle’s opinions were authoritative. It seriously vitiated the marvelous achievements of the classical economists and rendered the writings of their epigones, especially those of Marx and the Marxian school, entirely futile. The basis of modern economics is the condition that is precisely the disparity in the value attached to the objects exchanged that results in their being exchanged. People buy and sell only because they appraise the things given up less than those received. Thus the notion of a measurement of value is vain. An act of exchange neither preceded nor accompanied by any process which could be called a measuring of value. An individual may attach the same value to two things; but then no exchange can result. But if there is a diversity in valuation, all that can be asserted with regard to it is that one a is valued higher, that it is preferred to one b. Values and valuations are intensive quantities and not extensive quantities. They are not susceptible to mental grasp by the application of cardinal numbers.


There is no method available to construct a unit of value. Let us remember that two units of a homogeneous supply are necessarily valued differently. The value attached to the nth unit is lower than that attached to the (n – 1)th unit.

In the market society there are money prices. Economic calculation is calculation in terms of money prices. The various quantities of goods and services enter into this calculation with the amount of money for which they are bought and sold on the market or for which they could prospectively be bought and sold. It is a fictitious assumption that an isolated self-sufficient individual or the general manager of a socialist system, i.e., a system in which there is no market for means of production, could calculate. There is no way which could lead one from the money computation of a market economy to any kind of computation in a nonmarket system.

Human Action, P. 205f

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Henry Hazlitt, sticking it to Keynes, 1959 style

I’m only 24 pages in to Hazlitt’s book, The Failure of the “New Economics”: An Analysis of Keynesian Fallacies, and already I’ve come across some juicy quotes criticizing price levels and macro-economics.

In the same way, “the general level of wages,” like “the general level of prices” (both of which concepts are central to Keynes’s thought), has no existence in reality. It is a statistician’s construct, a mathematical average which has a limited value in simplifying certain problems. But it simplifies away some of the chief dynamic problems in economics. –p.24

The word “level” can give rise to an additional false assumption–that prices and wages rise or fall evenly or uniformly. It is precisely their failure to do so that creates most of the problems of inflation or deflation. It is also the failure of specific prices or wages to rise or fall as much as the average that permits the continuous structural changes in production and in the labor force necessary for continuous economic efficiency and progress.  –p.25

Keynes is constantly falling into this fallacy of averages or aggregates. His “aggregate” or “macro-economics” is not a step in advance; it is a retrograde step which conceals real relationships and real causation and leads him to erect an elaborate structure of fictitious and relationships and fictitious causation. –p.28

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