Economics Dictionary of ArgumentsHome
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| Investments: Investments refer to assets acquired with the expectation of generating income or appreciating in value over time. They encompass various vehicles such as stocks, bonds, real estate, and commodities. The aim is to achieve future financial gain through capital appreciation, dividends, interest, or rental income. See also Income, Economy, Value theory, Interest rates, Dicisions, Decision-making processes, Assets._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Investments - Dictionary of Arguments
Rothbard III 62 Investments/Rothbard: Thus, the investment decision will be determined by which is greater: the present value of the future good or the present value of present goods forgone. The present value of the future good, in turn, is determined by the value that the future good would have if immediately present (say, the “expected future value of the future good”); and by the rate of time preference. >Production/Rothbard, >Capital goods/Rothbard, >Factors of production/Rothbard. Rothbard III 63 The greater the former, the greater will be the present value of the future good; the greater the latter (the rate of discount of future compared to present goods), the lower the present value. At any point in time, an actor has a range of investment decisions open to him of varying potential utilities for the products that will be provided. As he makes one investment decision after another, he will choose to allocate his resources first to investments of highest present value, then to those of next highest, etc. As he continues investing (at any given time), the present value of the future utilities will decline. On the other hand, since he is giving up a larger and larger supply of consumers’ goods in the present, the utility of the consumers’ goods that he forgoes (leisure and others) will increase - on the basis of the law of marginal utility. >Consumer goods/Rothbard, >Marginal Utility. Rothbard III 316 Investments/Rothbard: Not only do the renting and selling of consumers’ goods rest on appraisement and on hope of monetary profits, but so does the activity of all the investing producers, the keystone of the entire productive system. (…) that the term “capital value” applies, not only to durable consumers’ goods, but to all nonhuman factors of production as well—i.e., land and capital goods, singly and in various aggregates. The use and purchase of these factors rest on appraisement by entrepreneurs of their eventual yield in terms of monetary income on the market, and it will be seen that their capital value on the market will also tend to be equal to the discounted sum of their future yields of money income.(1) >Capital value/Rothbard. Rothbard III 537 Investments/production structure/Rothbard: (…) there is only one way by which man can rise from the ultraprimitive level [of production]: through investment in capital. But this cannot be accomplished through short processes, since the short processes for producing the most valuable goods will be the ones first adopted. >Production structure/Rothbard. Any increase in capital goods can serve only to lengthen the structure, i.e., to enable the adoption of longer and longer productive processes. Men will invest in longer processes more productive than the ones previously adopted. They will be more productive in two ways: (1) by producing more of a previously produced good, and/or (2) by producing a new good that could not have been produced at all by the shorter processes. Within this framework these longer processes are the most direct that must be used to attain the goal (…). >Production/Rothbard. Rothbard III 538 Time preference/production: (…) if there were no time preference, the most productive methods would be invested in first, regardless of time, and an increase in capital would not cause more productive methods to be used. The existence of time preference acts as a brake on the use of the more productive but longer processes. Any state of equilibrium will be based on the time-preference, or pure interest, rate, and this rate will determine the amount of savings and capital invested. It determines capital by imposing a limit on the length of the production processes and therefore on the maximum amount produced. A lowering of time preference, therefore, and a consequent lowering of the pure rate of interest signify that people are now more willing to wait for any given amount of future output, i.e., to invest more proportionately and in longer processes than heretofore. A rise in time preference and in the pure interest rate means that people are less willing to wait and will spend proportionately more on consumers’ goods and less on the longer production processes, so that investments in the longest processes will have to be abandoned.(2) Rothbard III 540 (…) the limits at any time on investment and productivity are a scarcity of saved capital, not the state of technological knowledge. In other words, there is always an unused shelf of technological projects available and idle. This is demonstrable by the fact that a new invention is not immediately and instantaneously adopted by all firms in the society. >Technology/Rothbard. Rothbard III 547 Labour/investments/Rothbard: The benefits to land factors, (…) accrue only to particular lands. Other lands may lose in value, although there is an aggregate gain. This is so because usually lands are relatively specific factors. >Production factors/Rothbard. For the nonspecific factor par excellence, namely, labor, there is, on the contrary, a very general rise in real wages. These laborers are “external beneficiaries” of increased investment, i.e., they are beneficiaries of the actions of others without paying for these benefits. Rothbard III 547 Investments/entrepreneurs/Rothbard: What benefits do the investors themselves acquire? In the long run, they are not great. In fact, their rate of interest return is reduced. This is not a loss, however, since it is the outcome of their changed time preferences. Their real interest return may well be increased, in fact, since the fall in the interest rate may be offset by the rise in the purchasing power of the monetary unit in an expanding economy. >Economy/Rothbard, >Interest rates/Rothbard, >Purchasing power/Rothbard. The main benefits gained by the investors, therefore, are short-run entrepreneurial profits. These are earned by investors who see a profit to be gained by investing in a certain area. But the short-run benefits earned by the workers and landowners are more certain. >Profit/Rothbard, >Rate of profit/Rothbard. 1. On appraisement and valuation, cf. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 328–30. 2. It should be clear that, as Mises lucidly put it, „Originary [pure] interest is not a price determined on the market by the interplay of the demand for and the supply of capital or capital goods. Its height does not depend on the extent of this demand and supply. It is rather the rate of originary interest that determines both the demand for and the supply of capital and capital goods. It determines how much of the available supply of goods is to be devoted to consumption in the immediate future and how much to provision for remoter periods of the future.“ (Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 523 - 24)_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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