The Paradox of Interest Revisited

Courtesy of Antal E. Fekete @ ProfessorFekete.com

The classical formulation of the paradox of interest is due to Böhm-Bawerk and Schumpeter. Its modern formulation is due to Hausman and Kirzner. I quote Kirzner:

Much – perhaps all – will turn out to depend on the way in which the interest problem is formulated. For present purposes we adopt a modern formulation of the problem, but wish to emphasize that this formulation is very similar in spirit and character to classic formulations… The modern formulation we cite is that of Hausman. Hausman points out that an “individual’s capital . . . enables that individual to earn interest. If the capital is invested in a machine, the sum of the rentals the machine earns over its lifetime is greater than the machine’s cost. Why?” Common observation, that is, tells us that possession of a given stock or capital funds can, by judicious investment (say, in a machine) yield a continuous flow of income (annual rentals net of depreciation) without impairing the ability of the capital funds to serve indefinitely as a source of income. The problem is, how this can occur. Why is not the price of the machine (paid by the capitalist at the time he invests in the machine) bid up (by the competition of others eagerly seeking to capture the net surplus of rentals over cost) – to the point where no such surplus remains? We are seeking, then, an explanation for an observed phenomenon which is, in the absence of a theory of interest, unable to be accounted for. Absent a theory of interest, no interest income ought to be forthcoming, except as a transient phenomenon; competition ought to squeeze it out of existence.

In this note I propose to solve the paradox by suggesting that the exchange of wealth and income should be made the cornerstone of the theory of interest, replacing the exchange of a present and a future good.

To say that the capitalist “invests” his wealth is too simplistic. Investing is bound to confuse the issue. Moreover, possession of wealth does not automatically guarantee access to income. There is an implicit exchange of wealth and income interposed between the capitalist and entrepreneur that needs to be made explicit. Here is what happens.

The capitalist exchanges wealth for income. Income is yielded by the entrepreneur, who converts wealth into capital goods (such as a machine or a fruit tree) and hires a manager to tend them (including the task of setting depreciation quotas in anticipation of having to replace the capital goods at the end of their useful life without further charges to the capitalist). The entrepreneur sets up three accounts for the distribution of the yield after depreciation, namely, one for each of:

(1) a fixed interest income payable to the capitalist,
(2) wages payable to the manager,
(3) the remainder, or entrepreneurial profit, payable to himself. Continue reading

Fossil Pushes Back Human Origins 400,000 Years

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This partial lower jaw from Ethiopia is the oldest example of our genus Homo.

Courtesy of Ann Gibbons @ Sciencemag.org:

On a hot January morning 2 years ago, Chalachew Seyoum was searching for fossils at a desolate site in Ethiopia called Ledi-Geraru, where no human ancestor had turned up in a decade of searching. But Seyoum, an Ethiopian graduate student at Arizona State University (ASU), Tempe, was upbeat after a week off. “I had a lot of energy and fresh eyes,” he says. “I was running here and there. I went up a little plateau and over the top when I spotted this specimen popping right out.”

He sat down and closed his eyes. When he opened them, he could more clearly see the gray fossil poking out of the bleached sand and mudstone, and he realized that he had found the jawbone of a hominin—a member of the human family. He called out for the ASU expedition leader: “Kaye Reeeed!” Reed scrambled up the steep slope on her hands and knees, saw the fossil, and yelled “Woo-hoo!”

Their excitement was justified. In two papers online this week in Science, the ASU team and co-authors introduce the partial lower jaw as the oldest known member of the genus Homo. Radiometrically dated to almost 2.8 million years ago, the jaw is a window on the mysterious time when our genus emerged. With both primitive and more modern traits, it is a bridge between our genus and its ancestors and points to when and where that evolutionary transition took place. As a transitional form “it fits the bill perfectly,” says paleontologist Fred Spoor of University College London.

Together with a reassessment of known fossils, published in Nature this week by Spoor and colleagues, the find is stimulating new efforts to sort out the mixed bag of early Homo remains and to and to work out which forms emerged first. “This causes us to rethink early Homo,” says paleoanthropologist Bernard Wood of George Washington University in Washington, D.C. Continue reading

It’s Time to Cancel Unpayable Old Debts

The concept of odious or illegitimate debt is something generally not discussed by politicians, media or economists. By it’s very definition, all debt denominated in fiat is odious as it is created out of nothing and will be cancelled by the re-emergence of a sound tri-metallic monetary system backed by bills of exchange. This article is from 2012 and the issues in Greece have not and will not resolve themselves, debt is control and they will not quietly go into the night. Courtesy of Aditya Chakrabortty @ The Guardian:

In the week between Christmas and New Year, those bleary few days when the world has better things to do than catch up on news or check its Twitter account, The Guardian carried a story that bears repeating. It was about Dimitris and Christina Gasparinatos and their kids in the Greek port of Patras. For ever hard up, the parents had been pushed by the economic crisis into outright poverty; and just before Christmas Dimitris and Christina put four of their children into care.

Nor is the Gasparinatos’ case an isolated one. Greece must be the most family-centric society in western Europe, yet its media is full of reports of newborns dumped outside clinics, or infants shunted into foster homes.

Such stories almost never come up when politicians and economists debate Europe’s meltdown; implicitly, they are categorised as fall-out, for journalists and campaigners to highlight. Yet the abandoned children of Greece are not merely coincidental to those discussions about how to tackle the debt; they are integral to it.

Strip away the technicalities and you are left with two ways to think about the debt crisis. One is as a battle between the past and the future. The vast majority of Greece’s debts are historic commitments made to creditors by previous governments, sometimes in very dubious circumstances. Yet Athens has been forced to prioritise repaying these old loans over generating economic growth, or future income. One result of that policy has been to snatch away whatever chance the Gasparinatos kids might have had of decent lives.

Something similar is happening in Britain. David Cameron came to office with the primary goal of paying down debt. Less than two years later, his ministers are now obliged to go on the BBC at regular intervals to explain why more than a million young people are out of work. Study after study shows that a young adult unemployed at the outset of his or her career suffers permanent damage to their prospects, yet this government’s economic policy favours the past even though it means ruining the future.

Continue reading

Four American Journalists Dead Inside the US Within the Past 24 Hours

SyesWideShut:

*3 Confirmed American Journalists

Originally posted on sharia unveiled:

4 US Journalists Dead in 24 Hours - 2

Pictured as follows: Ned Colt w/NBC (Top Left) – Bob Simon w/CBS (Bottom Left) – David Carr w/NY Times (Bottom Right) – Bob Hager w/NBC (Top Right). Photo courtesy of: J. Schuyler Montague | sharia unveiled

What did they know..and ‘who’ is trying to silence them?

by, IWB 

Ned Colt of (NBC) dropped dead of a stroke yesterday.. he was “supposedly” kidnapped during the Iraq war for several days, then freed?

Bob Simon of (CBS) died in a car crash yesterday.. he was “supposedly” kidnapped held captive for 40 days in an Iraq jail

David Carr (NY Times) just died suddenly after interviewing Edward Snowden, and had just come out against Brian Williams from NBC while on CBS… calling Williams out for lying about being shot down in the Iraq war.

Bob Hager the NBC aviation expert now has a head on crash. hmm.

And of course Brian…

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