Archive | Economic Theory


Money, Exchange, and Robinson Crusoe

Money can be defined as the general medium of exchange, or the most widely traded good. However, it is neither a consumer nor a producer good. Suppose Robinson Crusoe, Friday, and Jackson are all on their island. Crusoe wants a rabbit from Friday’s collection, but he knows that Friday will not accept the fedora that…
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Minimum Wage Distorts Reality

A price control is a legal price established by the government that forbids the selling of a good or service above some maximum or below some minimum price. It is an example of triangular intervention—the state coerces two parties to exchange at a certain price. The direct consequence of the effective maximum price control is…
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Does Immigration Cause Unemployment?

It’s not uncommon for the zero-sum fallacy to crop up in a discussion on the economics of immigration.  Many individuals assume that immigrants will necessarily “steal” jobs from domestic workers.  That’s exactly what this article about Canadian immigration concludes.  But can immigrants realistically be blamed for increased unemployment rates?  If they do cause joblessness, why…
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Time Interest

What Is Interest?

There is a large consensus among microeconomists that “messing with” prices is not good. Among these prices, there is greatest consensus that rent control distorts the efficient allocation of resources. Despite the relative consensus among economists about price controls, there is seemingly no recognition that tinkering with interest rates will similarly distort the efficient allocation…
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The Origin of Money

A few weeks ago a blogger at CNBC discussed the relative merits of Austrian monetary theory in comparison to modern monetary theory (MMT). The issue at stake is the origins of money: Austrians highlight the fact money comes into existence as the medium of exchange, while MMT points to governments requiring people to pay taxes…
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Do Bad Forecasts Mean Bad Economics?

Proper methodology is often debated in economics. Inevitably, one side points out that the other side has made some very embarrassing predictions. Pro-market folks love to reference WWII era Keynesians who thought that the United States would go back into depression after the government stopped spending vast amounts of money on war goods. As it…
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Keynesianism is Against the Law, Say’s Law

As the recession continues, economists like Laura D’Andrea Tyson, the Chair of the Council of Economic Advisors under President Clinton, advocates spending as the pathway out of our economic banana. In her latest post on the New York Times economics blog, Tyson tells us that in order for the economy to recover we need an…
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Unlearning Economics

The Unlearning Economics blog offers a supposed list of inconsistencies inherent in the free market. Unfortunately, the reasons are themselves a convoluted, inconsistent collection of strawmen. Below is a response to each of his twenty four points. 1. Credit expansion does, indeed, cause boom-bust cycles. Many Austrians agree that outlawing fractional reserve banking would eliminate…
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Romney is Wrong on Minimum Wage

When asked about the minimum wage over the weekend, leading GOP presidential candidate Mitt Romney gave the following response: “My view has been to allow the minimum wage to rise with the CPI [Consumer Price Index] or with another index so that it adjusts automatically over time. I already indicated that when I was governor…
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