Tagged: Economics

Quotes

Adam Smith, Lectures on Jurisprudence (1763)

• This is one great cause of the slow progress of opulence in every country; till some stock be produced there can be no division of labor, and before a division of labor takes place there can be very little accumulation of stock.#

Ahmed Zaki Yamani, “” (2000)

• The Stone Age came to an end not for a lack of stones, and the oil age will end, but not for a lack of oil.#Quoted in Jay Richards, Money, Greed, and God (2010)

Alfred Marshall, Principles of Economics (1890)

• The chief use of pure mathematics in economic questions seems to be … to make sure that [a person] has enough, and only enough, premisses for his conclusions (i.e. that his equations are neither more nor less in number than his unknowns).#Quoted in John Hicks, Value and Capital (1939)

Alfred Schutz, Phenomenology of the Social World (1932)

• Mises’ argument [against the use of ideal types in economic theory] really turns out to be a defense against the intrusion of ideal types of too great concreteness and too little anonymity into economics.#Quoted in Roger Koppl, Big Players and the Economic Theory of Expectations (2002)

Allyn Young, “Increasing Returns and Economic Progress” (1928)

• The mechanism of increasing returns is not to be discerned adequately by observing the effects of variations in the size of an individual firm or of a particular industry, for the progressive division and specialisation of industries is an essential part of the process by which increasing returns are realised.#

Armen Alchian, “Uncertainty, Evolution, and Economic Theory” (1950)

• Where foresight is uncertain, “profit maximization” is meaningless as a guide to specifiable action.#
• The greater the uncertainties of the world, the greater is the possibility that profits . . . go to venturesome and lucky rather than to logical, careful, fact-gathering individuals.#
• Although [profit maximization] is a far more extreme objective when definable, only [realized positive profits] is the sine qua non of survival and success.#
• Neither perfect knowledge of the past nor complete awareness of the current state of the arts gives sufficient foresight to indicate profitable action. . . . [T]he consequence of this is that modes of behavior replace optimum equilibrium conditions as guiding rules of action.#
• Imitation affords relief from the necessity of really making decisions and conscious innovations, which, if wrong, become “inexcusable.” Unfortunately, failure or success often reflects the willingness to depart from rules when conditions have changed; what counts, then, is not only imitative behavior, but the willingness to abandon it at the “right” time and circumstances. Those who are different and successful “become” innovators, while those who fail “become” reckless violators of tried-and-true rules.#
• If profit maximization (certainty) is not ascertainable, the confidence about the predicted effects of changes, e.g. higher taxes or minimum wages, will be dependent upon how close the formerly existing arrangement was to the formerly “optimal” (certainty) situation.#
• Like the biologist, the economist predicts the effects of environmental changes on the surviving class of living organisms; the economist need not assume that each participant is aware of, or acts according to, his cost and demand situation.#
• It is straightforward, if not heuristic, to start with complete uncertainty and nonmotivation and then to add elements of foresight and motivation in the process of building an analytical model. The opposite approach, which starts with certainty and unique motivation, must abandon its basic principles as soon as uncertainty and mixed motivations are recognized.#

Armen Alchian, “Why Money?” (1977)

• It is a general prevalence of double coincidence of information rather than wants by both parties that would avoid the use of money.#

Axel Leijonhufvud, “Costs and Consequences of Inflation” (1975)

• Monetary exchange systems have not evolved out of non-monetary exchange (“barter”) systems but out of non-exchange systems. . . . “Custom and Command”, in the terms of Classical Economics, or “Reciprocity and Redistribution”, in those of Anthropology, – not barter exchange – are the alternatives to monetary exchange.#
• In largely non-monetary economies, important economic rights and obligations will be inseparable from particularized relationships of social status and political allegiance and will be in the same measure permanent, inalienable, and irrevocable.#
• There can be no epistemological guarantee that interactions between the “economic”, the “political”, and the “social” spheres of the system we study will be negligible. . . . It may be the case that in the world we inhabit, before the “near-neutral” adjustments can all be smoothly achieved, “society unlearns to use money confidently” and reacts by restrictions on “the circles people shall serve, the prices they shall charge, and the goods they can buy.” If such reactions are in fact endogenous to the social system, we misidentify the consequences of inflation to the extent that we regard them as fortuitous “political” events exogenously impinging on “the economy.”#
• If our political institutions allow unemployment to grow, the feedback will be in unmistakable clear text: You’d better do something about unemployment or else…! If they err on the side of inflation, there will be widespread and general complaining about rising prices to be sure, but that diffuse message is quite drowned in the rising babble of specific demands and concrete proposals from identifiable interest groups – to compensate me, to regulate him, to control X’s prices, and to tax Y’s “excess profits,” etc., etc. The political demands triggered by unemployment are to reduce unemployment; those triggered by inflation are for the most part not obviously identifiable as “instructions” to stop inflating. There is an informational bias to the process.#
• My own “hunch” with regard to present day conditions would be that the price distortions [from inflation] are apt to be less systematic than in the Austrian view but nonetheless serious.#
• To assume that agents generally possess the independent information required to filter the significant messages from the noise would, I think, amount to assuming knowledge so comprehensive that reliance on market-prices for information should have been unnecessary in the first place.#
• Finding what variables will give a good proxy for the excess supply of labor and thus provide an equation predicting wage-inflation is one research task. Finding a stable reduced form relating inflation and unemployment is a completely different one.#
• The Samuelsonian “necessity” of imagining a social welfare function follows only from prior acceptance of the “necessity” of conceptualizing any problem of policy in choice-theoretical terms.#

Axel Leijonhufvud, “The Wicksell Connection: Variations on a Theme” (1981)

• If saving and investment are always equal, they cannot govern the rate of interest, nor can the interest rate possibly serve to coordinate saving and investment decisions. Hence the [liquidity preference] theory: money demand and money supply govern the interest rate.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)

Axel Leijonhufvud, “Whatever Happened to Keynesian Economics?” (1986)

• Under quantity control, the monetary authorities fix the quantity of money and allow the markets to determine the corresponding equilibrium level of nominal prices. Under convertibility, the government fixes the nominal price of gold (for example) and leaves it to the banks and their customers to determine the corresponding equilibrium stocks of money and other liquid assets. From the standpoint of the government, the first is a “quantity-fixing, price-taking” and the second a “price-fixing, quantity-taking” strategy.#

Axel Leijonhufvud, “Capitalism and the Factory System” (1986)

• [Adam] Smith’s division of labor—the core of his theory of production—slips through modern production theory as a ghostly technological-change coefficient or as an equally ill-understood economies-of-scale property of the function.#Quoted in Peter Lewin, Capital in Disequilibrium (1999)
• As one subdivides the process of production vertically into a greater and greater number of simpler tasks, some of these tasks become so simple that a machine could do them. … [We are led to] the discovery of … opportunities for mechanization.#Quoted in Peter Lewin, Capital in Disequilibrium (1999)

Benjamin Anderson, The Value of Money (1917)

• The development of money, while it adds to the saleability of the money-commodity, also adds to the saleability of other goods.#Quoted in Randall Kroszner, “On The Microfoundations of Money” (1990)
• The money economy has made barter easier rather than harder. . . . The feature of the money economy which has thus refined and improved barter is the standard of value (common measure of value) function of money. This standard of value function, be it noted, makes no call on money itself, necessarily. The medium of exchange and ‘bearer of options’ functions of money are the chief sources of such addition to the value of money as come from money use. But the fact that goods have money-prices, which can be compared with one another quite easily, in objective terms, makes barter, and barter equivalents, a highly convenient and very important feature of the most developed commercial system.#Quoted in Randall Kroszner, “On The Microfoundations of Money” (1990)

Benjamin Klein, “The Competitive Supply of Money” (1974)

• If confidence for fiduciary [fiat] money costs as much to produce as the commodity, the social savings [from replacing commodity-money backed liabilities with fiat money] would be zero.#Quoted in George Selgin, The Theory of Free Banking (1988)

Benjamin Klein, “Money, Wealth, and Seignorage” (1978)

• The major way in which monetary confidence is produced is successful past performance.#Quoted in Lawrence White, Free Banking in Britain (1995)

Bruno Leoni, Freedom and the Law (1961)

• No legislator would be able to establish by himself, without some kind of continuous collaboration on the part of all people concerned, the rules governing the actual behavior of everybody in the endless relationships that each has with everybody else. No public opinion polls, no referenda, no consultations would really put the legislators in a position to determine these rules, any more than a similar procedure could put the directors of a planned economy in a position to discover the total demand and supply of all commodities and services.#
• The economists take it for granted that “misproductive” work [i.e., work that is useful for the worker, but not for those for whom, or against whom, he works] is usually against the law.#
• International trade could not emerge as a simple consequence of the theorem of comparative costs, but required some kind of international legal organization to ward off the enemies of international free trade, who, to a certain extent, are comparable to such enemies of the free market within a nation as robbers or thieves.#
• A purported analogy between scarce things like arable land and abundant things like moonlight has always been a good reason in the eyes of many people for maintaining that the “have-nots” have been “constrained” by the “haves”, that the latter have illicitly deprived the former of certain things originally “common” to all men.#
• The fact that the central authorities in a totalitarian economy lack any knowledge of market prices in making their economic plans is only a corollary of the fact that central authorities always lack a sufficient knowledge of the infinite number of elements and factors that contribute to the social intercourse of individuals at any time and at any level.#

Bruno Leoni, The Law and Politics (1964)

• The voter under unanimity rule is in a position which may be closely related to that of a discriminating monopolist who can realize the whole benefit of the exchange of the commodities or of the services he is able to sell, and can therefore acquire the whole, or almost the whole, of the so-called consumer’s surplus.#

Carl Menger, Principles of Economics (1871)

• Wherever we turn among civilized peoples we find a system of large-scale advance provision for the satisfaction of human needs.#Quoted in Erwin Dekker, The Viennese Students of Civilization (2016)

Carl Menger, “On The Origin of Money” (1892)

• it is an error in economics, as prevalent as it is patent, that all commodities, at a definite point of time and in a given market, may be assumed to stand to each other in a definite relation of exchange, in other words, may be mutually exchanged in definite quantities at will. . . . The most cursory observation of market phenomena teaches us that it does not lie within our power, when we have bought an article for a certain price, to sell it again forthwith at the same price.#

Charles Franklin Dunbar, “The National Banking System” (1897)

• Experience has shown that we can rely upon no principle or policy as a safeguard against the caprice or the temptation, which at intervals must surely beset any legislative body having control of the direct issue of paper.#
• That a currency may be responsive to demand, it is necessary that the forces, tending respectively to expand or to restrict, should be forces at work in the daily business of the bank, where it is brought into contact with the community by the stream of loans, deposits, and payments.#

Clark Warburton, “Co-ordination of Monetary, Bank Supervisory, and Loan Agencies of the Federal Government” (1950)

• Flexibility (elasticity) in currency—not in total bank credit—was the aim of the founders of the Federal Reserve System, and this flexibility was desired as a means of producing stability in total bank credit by providing stability in bank reserves.#Quoted in Milton Friedman, A Monetary History of the United States, 1867-1960 (1963)

Dani Rodrik, “Goodbye Washington Consensus, Hello Washington Confusion?” (2006)

• The conventional package of reforms was too obsessed with deadweight-loss triangles and reaping the efficiency gains from eliminating them, and did not pay enough attention to stimulating the dynamic forces that lie behind the growth process. Seeking efficiency gains does not amount to a growth strategy. #
• We know that growth happens when investors feel secure, but we have no idea what specific institutional blueprints will make them feel more secure in a given context.#
• China was able to elicit inordinate amounts of private investment under a system of state ownership (township and village enterprises), something that Russia failed to do under Western style private ownership. Presumably this was because investors felt more secure when they were allied with local governments with residual claims on the stream of profits than when they had to entrust their assets to private contracts that would have to be enforced by incompetent and corrupt courts. #

Daron Acemoglu, “Why Not a Political Coase Theorem?” (2003)

• Underlying the Coase theorem is the ability to write enforceable contracts. Therefore, any enforcement problem potentially limits the applicability of the Coase theorem.#

David Laidler, “Georg Simmel’s Philosophy of Money: A Review Article for Economists” (1980)

• If we take the view that money is best understood “as if” it were one among a complex of social institutions, then we would expect the consequences of anticipated inflation to be not just an increase in the consumption of shoe leather, but an adaptation of the social order away from money and markets towards a greater reliance on one form or another of command organization. That would inevitably involve an increase in the dependence of individuals upon other “specific personalities,” and hence a diminution of freedom.#
• The principal authors of the “shoe leather” approach to analyzing the costs of inflation such as Friedman have expressed far more concern about the importance of controlling or avoiding inflation than their theories could possibly justify, as their opponents have been quick to point out. In this their instincts have, in our view, run far ahead of their analysis.#
• The bulk of the General Theory is devoted to showing how monetary instability, in the absence of price level flexibility, will lead to determinate fluctuations in real income and employment, and these are at least as destructive of trust in the individualistic socioeconomic order as price level fluctuations.#
• Keynes, being a good Marshallian, had considerable faith in the capacity of an essentially Fabian state to carry out discretionary policy in the public interest, and he advocated that it do so. The modern monetarist believes that the aggregate demand for money function is rather stable and that other sources of macro- instability are hard to predict, and opts for a k percent growth rule. The gold standard advocate distrusts the abilities and the motives of bureaucrats and perhaps also doubts the stability of the demand for money function; hence he prefers to peg the price of money in terms of gold and to rely on the stability of the relative price of that commodity in terms of goods in general.#

Debra Satz, “Rational Choice and Social Theory” (1994)

• The [traditional] theory of rational choice is most powerful in contexts where choice is limited.#Quoted in Doug North, Understanding the Process of Economic Change (2005)

Dierdre McCloskey, The Rhetoric of Economics (1985)

• Economics is unsuccessful as social weather forecasting, a role forced on it by the rhetoric of politics and journalism. But it is strikingly successful as social history.#
• If a 5 percent tax on gasoline is said by some congressman or journalist to be “designed” to fall entirely on producers the economist will complain, saying “It’s not an equilibrium.” “Not an equilibrium” is the economist’s way of saying that she disputes the ending proposed by some untutored person.#
• Much of economics turns on quarrels of characterization. Is America monopolistic? Were medieval peasants selfish? Is the market for goods worldwide? Is capitalism stable? These are quantitative questions, all depending on answers to the question, “How large is large?”#

Don Lavoie, Rivalry and Central Planning (1985)

• The use of the unconscious ordering mechanism of the price system and money calculations has led to such an advance in the complexity of the social production process as a whole that it is no longer possible for the human mind to directly subsume this process under conscious control.#
• The labor theory approach essentially reduces all scarcities to scarcity of labor time, but the practical task before the central planners is to husband all scarce goods.#
• A basic problem with marginal cost rules is that they depend on costs being objectively known, whereas when property is privately held, costs are estimates that are “verified” only by the earning of profits. Thus there is a fundamental difference between, on the one hand, the tendency for producers, impelled by competitive profit seeking, to equate price to marginal cost and on the other the explicit instruction to directly attain this marginal “cost equals price” result.#
• The question [of market socialism] is no longer whether a nonrivalrous conscious plan can supplant the coordinating function of rivalrous competition among private owners but the related question of whether rivalrous competition can perform its function when the competitors are not private owners.#

Don Lavoie, “Economics and Hermeneutics – Intro” (1990)

• Succeeding in restricting macro to its Walrasian micro foundations would amount to a destruction of macro, precisely because time and money would cease to be taken seriously.#

Doug North, Understanding the Process of Economic Change (2005)

• The richer the artifactual structure, the wider the range of routine decisions that can be made. . . . Modern western societies like the United States embody a rich cultural heritage which has led to the immensely complex artifactual structure that not only gives us command over nature in an unparallelled fashion but equally extends our range of “easy” decision making over space and time in ways that would be beyond the comprehension of our ancestors. In effect this artifactual structure has converted uncertainty into certainty or at least risk over an ever wider domain of human activity.#
• When economic markets are so structured that the players compete via price and quality rather than at non-productive margins then the Smithian result [division of labor and increasing returns] ensues.#
• The movement from personal to impersonal exchange always increases total transaction costs but the consequence is a drastic reduction in production costs, which more than offset the increased resources going into transacting – and was responsible for the dramatic growth of modern economies.#
• [The institution of] trade will make the individual better off only if the increased uncertainty due to specialization is more than compensated for by the reduction in uncertainty resulting from the availability of wider variety.#

Doug North, Violence and Social Orders (2009)

• As long as landownership serves both a political and an economic purpose, it will serve its economic purpose less well than if ownership responds more closely to economic incentives.#
• [Adam Smith’s] low opinion of corporations in general reflected less on the economic and organizational aspects of joint-stock businesses than on the natural state’s political effects of chartering – the corrosive effects of corporate privileges given to towns, guilds, and monopolies. Although much of the debate about Smith’s view of corporations has focused on his view about their efficiency, Smith saw corporations in a traditional Whig manner: grants of economic privilege used to secure political advantage. As late as 1776, the founder of modern economics viewed corporations largely in natural-state terms – as tools for the political manipulation of the economy.#

Douglas Knoop, The Riddle of Unemployment (1931)

• Because wages are forced up in some sheltered industry, it does not follow that that industry will be the one to experience unemployment; the prejudicial consequences may affect other industries.#Quoted in W.H. Hutt, The Theory of Idle Resources (1939)

Elinor Ostrom, “Beyond Markets and States: Polycentric Governance of Complex Economic Systems” (2010)

• While utility was originally conceived of as a way of combining a diversity of external values on a single internal scale, in practice it has come to be equated with one externalized unit of measure—such as expected profits.#

F.A. Hayek, “The Trend of Economic Thinking” (1933)

• It is probably no exaggeration to say that economics developed mainly as the outcome of the investigation and refutation of successive Utopian proposals.#Quoted in Erwin Dekker, The Viennese Students of Civilization (2016)

F.A. Hayek, Monetary Theory and the Trade Cycle (1933)

• The rate of interest at which, in an expanding economy, the amount of new money entering circulation is just sufficient to keep the price-level stable, is always lower than the rate which would keep the amount of available loan-capital equal to the amount simultaneously saved by the public: and thus, despite the stability of the price-level, it makes possible a development leading away from the equilibrium position.#Quoted in Lawrence White, The Clash of Economic Ideas (2012)

F.A. Hayek, Prices and Production (1935)

• Anyone who has studied the monetary literature of the first half of the nineteenth century will agree that there is hardly any idea in contemporary monetary theory which was not known to one or more of the writers of that period.#

F.A. Hayek, Monetary Nationalism and International Stability (1937)

• The effects of keeping the quantity of money in a region or country constant when under an international monetary system it would decrease are essentially inflationary, while to keep it constant if under an international system it would increase at the expense of other countries would have effects similar to an absolute deflation.#
• Without stability of exchange rates it is vain to hope for any reduction of trade barriers.#

F.A. Hayek, The Pure Theory of Capital (1941)

• In the sphere of capital theory, as we have seen, the construction of a stationary state is particularly useless because the main problem, that of investment, arises just because people intend to do in the future something different from what they are doing in the present.#
• A given stock of capital goods does not represent one single stream of potential output of definite size and time shape; it represents a great number of alternatively possible streams of different shapes and magnitudes.#Quoted in Roger Garrison, “Reflections on Reswitching and Roundaboutness” (2003)

F.A. Hayek, Individualism and Economic Order (1949)

• In a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan.#
• Economic problems arise always and only in consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan.#
• The real content of the assertion that a tendency toward equilibrium exists… can hardly mean anything but that, under certain conditions,… the expectations of the people and particularly of the entrepreneurs will become more and more correct.#Quoted in Israel Kirzner, How Markets Work (1997)
• All the possible differences in men’s moral attitudes amount to little, so far as their significance for social organization is concerned, compared with the fact that all man’s mind can effectively comprehend are the facts of the narrow circle of which he is the center.#
• Another misleading phrase, used to stress an important point, is the famous presumption that each man knows his interests best. In this form the contention is neither plausible nor necessary for the individualist’s conclusions. The true basis of his argument is that nobody can know who knows best and that the only way by which we can find out is through a social process in which everybody is allowed to try and see what he can do.#
• The concept of equilibrium itself and the methods which we employ in pure analysis have a clear meaning only when confined to the analysis of the action of a single person and we are really passing into a different sphere and silently introducing a new element of altogether different character when we apply it to the explanation of the interactions of a number of different individuals.#
• Correct foresight is then not, as it has sometimes been understood, a precondition which must exist in order that equilibrium may be arrived at. It is rather the defining characteristic of a state of equilibrium.#
• [T]he assertion that a tendency toward equilibrium exists . . . can hardly mean anything but that, under certain conditions, the knowledge and intentions of the different members of society are supposed to come more and more into agreement.#
• The real problem in [the question of competition] not whether we will get given commodities or services at given marginal costs but mainly by what commodities and services the needs of the people can be most cheaply satisfied. The solution of the economic problem of society is in this respect always a voyage of exploration into the unknown, an attempt to discover new ways of doing things better than they have been done before.#
• Where we have a highly organized market of a fully standardized commodity produced by many producers, there is little need or scope for competitive activities because the situation is such that the conditions which these activities might bring about are already satisfied to begin with.#
• It is only in a market where adaptation is slow compared with the rate of change that the process of competition is in continuous operation. #
• There is no sense in talking of a use of resources “as if” a perfect market existed, if this means that the resources would have to be different from what they are, or in discussing what somebody with perfect knowledge would do if our task must be to make the best use of the knowledge the existing people have.#
• Much more serious than the fact that prices may not correspond to marginal cost is the fact that, with an intrenched monopoly, costs are likely to be much higher than is necessary. A monopoly based on superior efficiency, on the other hand, does comparatively little harm so long as it is assured that it will disappear as soon as anyone else becomes more efficient in providing satisfaction to the consumers.#
• The increasing preoccupation of the modern.world with problems of an engineering character tends to blind people to the totally different character of the economic problem and is probably the main cause why the nature of the latter was less and less understood. #
• To admit the possibility of changes in the legal framework is not to admit the possibility of a further type of planning in the sense in which we have used the word so far. There is an essential distinction here which must not be overlooked: the distinction between a permanent legal framework so devised as to provide all the necessary incentives to private initiative to bring about the adaptations required by any change and a system where such adaptations are bro’ught about by central direction.#
• In no sense can costs during any period be said to depend solely on prices during that period. They depend as much.on whether these prices have been correctly foreseen as on the views that are held about future prices.#
• It is only because, in consequence of [economic frontiers], the standard of life of all the people in a country will tend to move in the same direction that concepts such as the standard of living or the price level of a country cease to be mere statistical abstractions and become very concrete realities.#
• If goods, men, and money can move freely over the interstate frontiers, it becomes clearly impossible to affect the prices of the different products through action by the individual state.#
• in order that a particular industry should benefit from a tariff, it is necessary that the tariff on its products should be higher than the tariffs on the commodities which the producers in that industry consume.#
• Which of these systems [central or decentral planning] is likely to be more efficient . . . depends on whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional knowledge as they need in order to enable them to fit their plans with those of others.#
• Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.#
• To make a monopolist charge the price that would rule under competition, or a price that is equal to the necessary cost, is impossible, because the competitive or necessary cost cannot be known unless there is competition.#

F.A. Hayek, The Counterrevolution of Science (1955)

• The objects of economic activity cannot be defined in objective terms but only with reference to a human purpose.#Quoted in Roderick Long, “Wittgenstein, Austrian Economics, and the Logic of Action” (2001)
• If social phenomena showed no order except insofar as they were consciously designed, there would indeed be no room for theoretical sciences of society and there would be, as is often argued, only problems of psychology. It is only insofar as some sort of order arises as a result of individual action but without being designed by any individual that a problem is raised which demands a theoretical explanation.#

F.A. Hayek, The Constitution of Liberty (1960)

• It is misleading to think of those new possibilities as if they were, from the beginning, a common possession of society which its members could deliberately share; they become a common possession only through that slow process by which the achievements of the few are made available to the many.#
• A large part of the expenditure of the rich, though not intended for that end, thus serves to defray the cost of the experimentation with the new things that, as a result, can later be made available to the poor.#
• As long as the graduation is more or less continuous and all the steps in the income pyramid are reasonably occupied, it can scarcely be denied that those lower down profit materially from the fact that others are ahead.#
• The experience of the United States at least seems to indicate that, once the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed toward the needs of the masses.#
• The changes to which such people must submit are … an illustration of the fact that not only the mass of men but, strictly speaking, every human being is led by the growth of civilization into a path that is not of his own choosing.#
• To prevent progress at the top would soon prevent it all the way down.#
• What later enabled those who did not inherit land and tools from their parents to survive and multiply was the fact that it became practicable and profitable for the wealthy to use their capital in such a way as to give employment to large numbers.#
• A free system can adapt itself to almost any set of data, almost any general prohibition or regulation, so long as the adjusting mechanism itself is kept functioning.#
• Monopoly is certainly undesirable, but only in the same sense in which scarcity is undesirable; in neither case does this mean that we can avoid it. It is one of the unpleasant facts of life that certain capacities (and also certain advantages and traditions of particular organizations) cannot be duplicated, as it is a fact that certain goods are scarce.#
• Because unions are most powerful where capital investments are heaviest, they tend to become a deterrent to investment – at present probably second only to taxation.#
• The dominant “full-employment” doctrines explicitly relieve the unions of the responsibility for any unemployment and place the duty of preserving full employment on the monetary and fiscal authorities.#
• While the task of combating the serious diseases which befall and disable some in manhood is a relatively limited one, the task of slowing down the chronic processes which must bring about the ultimate decay of all of us is unlimited. The latter presents a problem which can, under no conceivable condition, be solved by an unlimited provision of medical facilities and which, therefore, must continue to present a painful choice between competing aims.#
• We must not overlook the fact that the market has, on the whole, guided the evolution of cities more successfully, though imperfectly, than is commonly realized and that most of the proposals to improve upon this, not by making it work better, but by superimposing a system of central direction, show little awareness of what such a system would have to accomplish, even to equal the market in effectiveness.#
• The housing problem is not an independent problem which can be solved in isolation: it is part of the general problem of poverty and can be solved only by a general rise in incomes.#
• Since the chief contribution of any individual is to make the best use of the accidents he encounters, success must to a great extent be a matter of chance.#

F.A. Hayek, Studies in Philosophy, Politics, and Economics (1968)

• Nobody would probably seriously contend that statistics can elucidate even the comparatively not very complex structures of organic molecules, and few would argue that it can help us to explain the functioning of organisms. Yet when it comes to accounting for the functioning of social structures, that belief is widely held.#

F.A. Hayek, “Competition as a Discovery Procedure” (1968)

• Competition represents a kind of impersonal coercion that will cause many individuals to change their behavior in a way that could not be brought about by any kind of instructions or commands.#
• A high growth rate is more a sign of bad policies in the past than good policies in the present.#

F.A. Hayek, Liberalism (1973)

• The endeavours to prolong the prosperity and to secure full employment by means of the expansion of money and credit, in the end created a worldwide inflationary development to which employment so adjusted itself that inflation could not be discontinued without producing extensive unemployment.#

F.A. Hayek, Denationalisation of Money (1976)

• As regards Professor Friedman’s proposal of a legal limit on the rate at which a monopolistic issuer of money was to be allowed to increase the quantity in circulation, I can only say that I would not like to see what would happen if under such a provision it ever became known that the amount of cash in circulation was approaching the upper limit and that therefore a need for increased liquidity could not be met.#Quoted in Lawrence White, Competition and Currency (1989)

F.A. Hayek, “A Free-Market Monetary System” (1977)

• The monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money.#

F.A. Hayek, Law, Legislation, and Liberty (1978)

• So long as collaboration presupposes common purposes, people with different aims are necessarily enemies who may fight each other for the same means; only the introduction of barter made it possible for the different individuals to be of use to each other without agreeing on ultimate ends.#
• In a sense it is even true that such a [market] system gives to those who already have. But this is its merit rather than its defect, because it is this feature which makes it worthwhile for everybody to direct his efforts not only towards immediate results but also towards the future increase of his capacity of rendering services to others.#

F.A. Hayek, “The Moral Imperative of the Market” (1986)

• If it is true that prices are signals which enable us to adapt our activities to unknown events and demands, it is evidently nonsense to believe that we can control prices. You cannot improve a signal if you do not know what it signals.#
• The essential function of prices [is] to tell people what they ought to do in the future and … prices [can] not be based on what they [have] done in the past.#

F.A. Hayek, The Fatal Conceit (1988)

• Priding itself on having built its world as if it had designed it, and blaming itself for not having designed it better, humankind is now to set out to do just that.#
• This delusion [that macroeconomics is useful] is encouraged by its extensive use of mathematics, which must always impress politicians lacking any mathematical education, and which is really the nearest thing to the practice of magic that occurs among professional economists.#
• The disdained middleman, striving for gain, made possible the modern extended order, modern technology, and the magnitude of our current population. The ability, no less than the freedom, to be guided by one’s own knowledge and decisions, rather than being carried away by the spirit of the group, are developments of the intellect which our emotions have followed only imperfectly.#

Finn Kydland, “Business Cycles: Real Facts and a Monetary Myth” (1990)

• Theories with deterministic cyclical laws of motion may a priori have had considerable potential for accounting for business cycles; but in fact, they have failed to do so. They have failed because cyclical laws of motion do not arise as equilibrium behavior for economies with empirically reasonable preferences and technologies—that is, for economies with reasonable statements of people’s ability and willingness to substitute.#

Frank Fetter, “Recent Discussion of the Capital Concept” (1900)

• Interest is looked upon as connected with a special class of goods; it must be recognized to be connected with everything of value.#

Frank Knight, “Capital, Time, and the Interest Rate” (1934)

• As regards economic—not technical—rôle in production and distribution, no classification of productive factors has any validity.#
• All capital is inherently completely mobile with respect to any change foreseen as to date and character at the time the investment is made… the mobility of capital is overwhelmingly a matter of planning for either a particular transfer or for mobility in the abstract, through general availability.#
• Income is the primary economic reality, wealth being merely a source of or title to future income.#
• [It is a fallacy] that capital is produced (and reproduced in any sort of cycle) by labour or “primary factors” in any sense. This is palpably absurd; “labour,” “capital instruments,” and “land” are in the first place categories of no homogeneity within themselves and of extensive overlapping, and in the second place, however productive agencies may be classified, it is evident that each is produced and continuously reproduced (when at all) by the co-operation of all, including itself.#
• We may give a fairly realistic or defensible meaning to either the beginning or the end of a production process, but if we do identify either, it is never possible to say what would be meant by the other boundary… If production is regarded as a process occupying time, its only beginning is the beginning of time, and its only end is the end of time.#
• The quantity of capital in an existing thing depends on the rate of interest and its earning power in any field in which it may have earning power.#

Frank Knight, The Economic Organization (1934)

• The cost of any alternative (simple or complex) chosen is the alternative that has to be given up; where there is no alternative to a given experience, no choice, there is no economic problem, and cost has no meaning.#Quoted in James Buchanan, Cost and Choice (1969)

Frank Knight, “Intellectual Confusion on Morals and Economics” (1935)

• The familiar diagram showing the intersection of an ascending and a descending curve (typically called “supply” and “demand”) is a picture of the action of any two opposed elastic forces.#

Frank Knight, “AEA Presidential Address” (1950)

• The serious fact is that the bulk of the really important things that economics has to teach are things that people would see for themselves if they were willing to see.#Quoted in Daniel Klein, “A Plea to Economists who Favor Liberty” (2001)

Fritz Malchup, “The Problem of Verification in Economics” (1955)

• Mill does not propose to put the assumptions of economic theory to empirical tests, but only the predicted results that are deduced from them. And this, I submit, is what all the proponents of pure, exact, or aprioristic economic theory had in mind, however provocative their contentions sounded.#Quoted in Gabriel Zanotti, “The Epistemological Implications of Machlups Interpretation of Mises’s Epistemology” (2013)

G. Poulett Scrope, Principles of Political Economy (1833)

• A general glut—that is, a general fall in the prices of the mass of commodities below their producing cost—is tantamount to a rise in the general exchangeable value of money; and is a proof, not of an excessive supply of goods, but of a deficient supply of money, against which the goods have to be exchanged.#Quoted in Leland Yeager, “The Significance of Monetary Disequilibrium” (1986)

G.L.S. Shackle, Epistemics and Economics (1972)

• To claim (as the present writer does) that these questions which can be divorced from considerations of time are essential to our understanding, and the answers to them necessary for full illumination of the economic field, is to say that the field, of its nature, cannot be served by a completely general, undivided theory springing from one sole set of presuppositions. Economics, concerned with thoughts and only secondarily with things, the objects of those thoughts, must be as protean as thought itself. To adopt one rigid frame and appeal exclusively to it is bound to be fatal. It is as though we should draw up a plan of exploration of an unknown country, and rule out any change of that plan, even one suggested by what the explorers actually find.#
• The paradox of rationality is that it must concern itself with choosing amongst things fully nown; but in the world of time, only that is fully known which is already beyond the reach of choice, having already become actual and thus knowable.#
• The strength of the timeless system is that it can be self-contained, totally independent of any world outside itself. Any system which exists in time and includes expectation is exposed to the whole conceivable range of non-economic events. For how can we limit the classes of events which can offer suggestions to expectation?#
• If the price of any durable or storable good is to remain even briefly at rest, it needs to have attained a level which divides the potential holders of this asset into Bulls and Bears of its price. For if all of them suddenly come to think alike, at that moment the price will change abruptly.#
• That language of ex ante and ex post was the key which released economic theory from its subservience to that conception of time which prevails in celestial mechanics, the time which is a mere dimension where the distinction between past and future is meaningless.#

Gabriel Zanotti, “The Epistemological Implications of Machlups Interpretation of Mises’s Epistemology” (2013)

• Since Austrians and non-Austrians work under different paradigms constructed over a different set of non-observable fundamental assumptions, the debate between Austrian economics and non-Austrian economics is not, or should not be, an empirical one, but a foundational one. The underlying question is which economic geometry – the Austrian, the non-Austrian, or a third one – is a more plausible reflection of the real world.#

Gary Becker, “Competition and Democracy” (1958)

• It may be preferable not to regulate economic monopolies and to suffer their bad effects, rather than to regulate them and suffer the effects of political imprfections.#

Gary Becker, “Comments on Competition, Monopoly, and the Pursuit of Money” (1962)

• Controls placed on the money incomes that can be received by discriminators, such as the income tax, reduce the cost of discrimination below the difference in wages and thus encourage discrimination; controls placed on the wage difference, such as equal pay for equal work legislation, directly reduce the cost of discrimination and encourage discrimination.#

Gary Miller, Managerial Dilemmas (1992)

• Hierarchies, unlike markets, institutionalize long-term mutual commitments that make it easy to trade off social acceptance and esteem against wealth.#
• Incentive systems such as profit sharing and gain sharing can be easily criticized on economic grounds. Each individual’s share in the extra profits generated by his or her own marginal effort is so tiny as to have no effect whatsoever on that individual’s self-interested behavior. However, these criticisms miss the point. The notion of plans such as the Scanlon plan is not to harness individual self-interest in the interest of the firm; it is rather to serve as a symbolic commitment of managers to a shared ownership in the firm.#

Georg Simmel, The Philosophy of Money (1907)

• Exchange is just as productive and value-creating as is production itself. In both cases one is concerned with receiving goods for the price of other goods in exchange, in such a way that the final situation shows a surplus of satisfaction as compared with the situation before the action.#
• Exchange, i.e. the economy, is the source of economic values, because exchange is the representative of the distance between subject and object which transforms subjective feelings into objective valuation.#
• The functional value of money exceeds its value as a substance the more extensive and diversified are the services it performs and the more rapidly it circulates.#
• Economic interactions take place with such admirable expediency, by subtly organized dovetailing of innumerable details, that it would be necessary to assume that they were integrated by a superior mind, operating with superhuman wisdom, if one did not fall back upon the unconscious power of adaptation of the human species. The conscious intentions and foresight of individuals would not suffice to maintain the harmony that economic activity displays alongside its fearful discords and inadequacies. We have to assume that there are unconscious experiences and calculations which accumulate during the historical development of the economy and which regulate its course.#
• The lending of money divides its activity into two parts and increases enormously the product of its economic energy. But the intellectual abstraction on which this process rests can attain its results only in a firmly established and civilized social order, in which it is possible to lend money with relative security and to base economic activity on this partial function of money.#
• If the profit from debasement of the coinage had not been contingent upon the size of the area, the chaos of coins in Germany would have been much worse, because of the terrible frivolity with which the privilege of coinage was granted to every monastery and every small town.#
• If we suppose that the usefulness of money is the reason for its acceptance, its material value may be regarded as a pledge for that usefulness.#
• The growing certainty that coin will be accepted at its face value makes possible a diminution in the intrinsic value of the metal content without altering the total value.#
• Credit and cash do not simply replace each other, but that each produces a more lively activity of the other#
• The more precise the form in which money renders its services, the smaller is the quantity of money required and the more easily can its place be taken by a more rapid circulation.#
• The general tendency [of the money economy], however, undoubtedly moves in the direction of making the individual more and more dependent upon the achievements of people, but less and less dependent upon the personalities that lie behind them. Both phenomena have the same root and form the opposing sides of one and the same process: the modern division of labour permits the number of dependencies to increase just as it causes personalities to disappear behind their functions, because only one side of them operates, at the expense of all those others whose composition would make up a personality.#
• The more people develop relationships with one another, the more abstract and generally acceptable must be their medium of exchange; conversely, if such a medium exists, then it permits agreements over otherwise inaccessible distances, an inclusion of the most diverse persons in the same project, an interaction and thereby a unification of people who, because of their spatial, social, personal and other discrepancies in interests, could not possibly be integrated into any other group formation.#

George Selgin, The Theory of Free Banking (1988)

• Changes in the desire to hold inside money reflect the public’s willingness to lend “real capital” to and through the banking system.#
• Offsetting price changes due to changes in productive efficiency would not preserve monetary equilibrium.#
• It is perfectly possible that fiduciary media may arise from loans or investments involving transfer credit only [as opposed to created credit]. The expansion of bank liabilities may represent a response to greater abstinence by money holders and, hence, to a fall in the “natural” rate of interest.#
• A general increase in the demand for inside money is equivalent to a general decline in the rate of turnover of inside money.#
• A price index does not itself reveal whether its movements reflect changes in the conditions of real output or are symptoms of monetary disequilibrium.#
• Relative inflation does not reveal itself in a rising consumer price index, although it does result in an upward movement in the prices of factors of production.#
• Central banks’ ability to cut short the supply of currency once they possess a monopoly of note issue creates the need for them to serve as lenders of last resort in the first place.#
• The Bank of England was in a sensitive position: if it overissued, it lost specie abroad, which eventually necessitated either contraction or suspension of payments. If it underissued, it made the conversion of deposits to notes at other English banks impossible.#
• Competition in the supply of base money is no less desirable than competition in the supply of bank liabilities, including bank notes, redeemable in base money.#
• Bank borrowers generally acquire money balances only to spend them immediately on goods and services. The demand for money, properly understood, refers to the desire to hold money as part of a financial portfolio. A bank borrower contributes no more to the demand for money than a ticket agent contributes to the demand for plays and concerts; only holders of money or actual occupants of concert seats contribute to demand.#
• The aggregate demand to hold balances of inside money is a reflection of the public’s willingness to supply loanable funds through the banks whose liabilities are held. To hold inside money is to engage in voluntary saving. As George Clayton notes, whoever elects to hold bank liabilities received in exchange for goods or services “is abstaining from the consumption of goods and services to which he is entitled. Such saving by holding money embraces not merely the hoarding of money for fairly long periods by particular individuals but also the collective effect of the holding of money for quite short periods by a succession of individuals.”#
• When the expansion or contraction of bank liabilities proceeds in such a way as to be at all times in agreement with changing demands for inside money, the quantity of real capital funds supplied to borrowers by the banks is equal to the quantity voluntarily offered to the banks by the public. Under these conditions, banks are simply intermediaries of loanable funds. Thus a direct connection exists between the conditions for equilibrium in the market for balances of inside money and those for equilibrium in the market for loanable funds. #
• Many past and present American monetarists would probably agree with the theoretical views [that money supply should counteract changes in velocity]. Their preference for other policies—for price-level stabilization or a fixed money growth rate rule—stems, not from any theoretical disagreement, but from their view that these policies provide the best achievable approximation to the ideal of a truly demand-elastic money supply.#
• Precisely what Mises means by commodity credit is not clear. If the phrase refers to bank issues backed 100 percent by reserves of commodity money (which would make it the complement of what Mises calls “fiduciary” or “circulation” credit) then it does not refer to a form of credit at all. A bank holding 100 percent reserves against all of its liabilities is not a credit-granting institution, but a warehouse.#

George Selgin, Praxeology and Understanding (1990)

• The continuing existence of action is proof that equilibrium proper is never achieved. It is equally proof that it is constantly being striven for.#
• The process of price adjustment can only be comprehended by viewing it as a dynamic process of prices which are at once equilibrium prices in relation to those that they have replaced and disequilibrium prices in relation to those that will follow.#
• The only meaningful sense in which action can be said to be equilibrating is the dynamic one which assumes continually changing means and ends and the absence of equilibrium proper.#
• Calculation makes possible a link between equilibrating action and entrepreneurs’ satisfaction of the wants of others. It allows entrepreneurs to perceive the wants of others as if they were the means toward fulfillment of their own ends. Monetary surplus represents a reward to enterprise for the successful satisfaction of consumers. But this ex post surplus is not itself to be confused with the ex ante concept of entrepreneurial profit: it is a confirmation of the fact that entrepreneurs’ imagination and understanding (of means and ends, including their own, possibly unique, capabilities) were not based upon illusion or incorrect anticipation of the future.#

George Selgin, “Bank Lending ‘Manias’ in Theory and History” (1992)

• Historical banking booms have typically involved falling rather than rising rates of interest until their final stages. This means that banking booms have usually been driven, not by changes in the demand for credit, but by rightward shifts in bank credit supply schedules.#

George Selgin, “The Rise and Fall of the Gold Standard in the United States” (2012)

• [A] gold standard can be genuine without being “pure,” that is, despite the presence of paper money (or spendable bank deposits) backed by assets apart from gold itself.#

George Selgin, “Synthetic Commodity Money” (2013)

• Monopolistic provision is thus a necessary condition for fiat money to command a positive value in equilibrium, and thereby potentially serve as the foundation for macroeconomic stability. But monopolistic provision is not sufficient, for a profit-maximizing monopoly supplier of fiat currency would also find it profitable to expand the nominal stock of such money at a rate far in excess of that required to preserve its purchasing power. For this reason, the scarcity of fiat money must be contrived, not merely by monopolizing its production, but by having the monopoly producer supply a less-than profit-maximizing quantity.#
• The distinction between discretionary and rule-based fiat-money regime is largely hypothetical, and has been so precisely because the existence of fiat money presupposes that of a monetary authority that, being materially capable of actively managing its quantity, is bound to be tempted to make use of that capacity.#

Gordon Tullock, “The Welfare Costs of Tariffs, Monopolies, and Theft” (1967)

• As a successful theft will stimulate other thieves to greater industry and require greater investment in protective measures, so each successful establishment of a monopoly or creation of a tariff will stimulate greater diversion of resources in attempts to organize further transfers of income.#

Gregory Mankiw, “The Growth of Nations” (1995)

• It is not that we have to stop asking so many questions about economic growth. We just have to stop expecting the international data to give us all the answers.#Quoted in Peter Boettke, Calculation and Coordination (2000)

Harold Demsetz, “The Exchange and Enforcement of Property Rights” (1964)

• The provision of a market (for the side effect [externality]) is itself a valuable and costly service.#
• If [a] service is not bring produced some inequalities (instead of the equalities required for produced goods) among our marginal rates of substitution and marginal rates of transformation may be consistent with efficiency, as will be the case if the cost of taking account of side effects through either the market or the government exceeds the value of realigning resources.#
• If we insist wither that all actions (services or commodities) be priced in the market or that the government intervene, we are insisting that we do not economize on the cost of producing exchanges or government services.#
• The value of what is being traded depends crucially on the rights of action over the physical commodity and on how economically these rights are enforced.#
• If we assume that it costs nothing to police property rights, it follow that there exists a direct relationship between the degree to which private benefits approach social benefits and the degree to which the conveyed property rights are enforced.#
• [Property rights’] existence is probably due in part to its great practicality in revealing the social values upon which to base solutions to scarcity problems.#
• A proper definition of a right of action include the degree to which the owner or the community is allowed to enforce the right.#
• It is, of course, necessary to economize on police cost, so that we will not always want to guarantee full control to the purchaser.#
• Even though extending the use of an existing bridge to additional persons adds nothing to the direct cost of operating the bridge, there is good reason for charging persons for the right to cross the bridge. Excluding those who do not pay for the use of the bridge allows us to know whether a new bridge is likely to generate more benefit than it is likely to cost.#
• If we must distinguish among goods, we had best do away with the “public goods” vs. private goods dichotomy and instead classify goods according to whether they are truly free or economic and classify economic goods according to whether marketing costs are too high relative to the benefits of using markets and to the costs of substitute non-market allocation devices.#
• Is not valuation information one of the most important public goods?#
• There exist no qualitative differences between side effects and what we may call “primary” effects. The only differences are those that are implicitly based on quantitative differences in exchange and police cost.#

Harold Demsetz, “Toward a Theory of Property Rights” (1967)

• Property rights are an instrument of society and derive their significance from the fact that they help a man form those expectations which he can reasonably hold in his dealings with others.#
• An increase in the number of owners is an increase in the communality of property and leads, generally, to an increase in the cost of internalizing.#
• What converts a harmful or beneficial effect into an externality is that the cost of bringing the effect to bear on the decisions of one or more of the interacting parties is too high to make it worthwhile.#Quoted in Tom Palmer, “The Hermeneutical View of Freedom” (1990)

Harold Demsetz, “Information and Efficiency” (1969)

• Moral hazard is a relevant cost of producing insurance; it is not different from the cost that arises from the tendency of men to shirk when their employer is not watching them. And, just as man’s preference for shirking and leisure are costs of production that must be economized, so moral hazard must be economized in shifting and reducing risk. . . . The moral hazard problem is no different than the problem posed by any cost. Some iron ore is left unearthed because it is too costly to bring to the surface. But we do not claim ore mining is inefficient merely because mining is not “complete.” Some risks are left uninsured because the cost of moral hazard is too great and this may mean that self-insurance is economic.#

Hernando De Soto, The Mystery of Capital (2000)

• Formal property’s contribution to mankind is not the protection of ownership; squatters, housing organizations, mafias, and even primitive tribes manage to protect their assets quite efficiently. Property’s real breakthrough is that it radically improved the flow of communications about assets and their potential.#

Irving Fisher, The Theory of Interest (1930)

• Just as there is a prevalent idea among the economically illiterate that all interest should be zero—should be abolished—so among the economically literate there is a prevalent idea that the rate of interest could under no imaginable conditions ever be zero or below.#
• Spending and investing differ only in degree, depending on the length of time elapsing between the expenditure and the enjoyment.#
• Strictly speaking, in making up our income statistics, we should always calculate the value of services, and never the value of the objects rendering those services.#

Israel Kirzner, Competition and Entrepreneurship (1973)

• At any given time, an enormous amount of ignorance stands in the way of the complete coordination of the actions and decisions of the many market participants. Innumerable opportunities for mutually beneficial exchange . . . are likely to exist unperceived. . . . The normative question raised by Hayek is how well the market succeeds in bringing together those uncoordinated bits of information scattered throughout the economy.#Quoted in Ludwig Lachmann, Capital, Expectations, and the Market Process (1940)

Israel Kirzner, Essays on Capital and Interest (1996)

• The ability to define usefully the terms used in theoretical economic discussion turns out invariably to call for the very same insight into economic processes that is required for the enunciation of theoretical propositions themselves.#
• Capital reversal erodes the notion of a demand curve for capital and thus the view of interest as a “true scarcity price”.#
• In exactly the same way as Austrian value theory had no place for “cost of production” as an independent explanatory element in the causation of economic value, a Mengerian capital and interest theory could have no place for the productivity of capital as an independent explanatory element in accounting for the structure of prices.#

Israel Kirzner, How Markets Work (1997)

• the long-run equilibrium of perfect competition is not an appropriate policy target because it does not represent competition at all but an end-state in which competition has been exhausted. #
• A science of ‘human action’ must be a science of the equilibrative properties of entrepreneur-driven market processes.#
• It is true that Mises did not draw special attention to the mutual learning that must occur during the entrepreneurially-driven process of equilibration. Nor did Hayek emphasise the speculative, entrepreneurial character of the market process. But . . . these two ways of articulating a theory of market process turn out to be two sides of the same coin.#
• Once one appreciates the Hayekian insight that an attained state of equilibrium means universal perfect knowledge, it becomes obvious that no model in which perfect knowledge is assumed can be of direct assistance in explaining how an equilibrating tendency might occur.#
• The mere failure of a theoretical picture to replicate with precision all features of the reality it seeks to explain, is not necessarily fatal for the usefulness of that theoretical picture. But mainstream theory filters out of the picture those aspects of reality which are the core of an adequate explanation for market phenomena.#
• The success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of productive action to be replaced by newly discovered superior ways of serving consumers.#
• The social advantage provided by dynamic competition is the incentive it offers for the discovery and correction of earlier entrepreneurial errors. This social advantage does not consist in an assurance of ‘optimal’ allocation of resources. It consists of a systematic process of discovering and correcting entrepreneurial errors, especially errors which have left open opportunities for as yet unexploited mutual gain through trade among market participants. Consequently, departures from the optimality conditions of perfectly competitive equilibrium are not a threat to any relevant notion of economic efficiency.#
• The shape of the demand curve facing a producer at a given point in time has virtually nothing to do with the competitive character of the market for his product.#

Israel Kirzner, “Entrepreneurial Discovery and the Competitive Market Process” (1997)

• The economic problem facing any society . . . is primarily that of how, in a world of incessant changes in tastes, resource availabilities, and technological possibilities, to generate mutually sustaining expectations on the part of agents in the economy, such that (a) the series of actions taken are in fact able to be completed as planned, and (b) that that series of actions tends to reveal and exhaust all the available opportunities for social economic gain.#

Jacob Frenkel, “Purchasing Power Parity: Doctrinal Perspective and Evidence from the 1920s” (1978)

• Those who advocate the use of traded good prices [in bringing about purchasing power parity] emphasize the role of commodity arbitrage as the mechanism which governs the relationship between prices and the exchange rate, while those who advocate the broader price index emphasize the role of equilibrium in asset markets as a major factor governing the relationship between prices and the exchange rate. #
• This pattern of ‘causality’ [that exchange rates granger-cause prices, rather than vice versa] is consistent with the hypothesis that speeds of adjustment in asset markets exceed those in the commodity markets. Thus, to the extent that exchange rates and commodity prices are influenced by common factors, the differential speed of adjustment may yield the observed pattern of ‘causality’.#
• The relationship embodied in the traditional formulations of [purchasing power parity] should not be viewed as a theory of the determination of exchange rates. Rather, it describes an equilibrium relationship between two endogenous variables. As such, the PPP relationship should be viewed as a short-cut rather than a substitute for a complete model of the determination of prices and exchange rates. #

Jacob Frenkel, “Flexible Exchange Rates, Prices, and the Role of “News”: Lessons from the 1970s” (1981)

• The reversal of the relation between the U.S. interest and the external value of the dollar which has taken place since mid 1979, indicates that currently the prime cause for fluctuations in U.S. interest rates is not variations in inflationary expectations but rather variations in the real rate of interest which are occasioned by large U.S. budget deficit.#
• To some extent the overall poor performance of the purchasing power parities doctrine is specific to the 1970s. During the floating rates period of the 1920s, the doctrine seems to have been much more reliable.#

Jacob Viner, “Cost Curves and Supply Curves” (1931)

• The only significance of the equilibrium concept for realistic price theory is that it offers a basis for prediction of the direction of change when equilibrium is not established.#

Jacob Viner, “Mr. Keynes on the Causes of Unemployment” (1935)

• In a world organized in accordance with Keynes’ specifications there would be a constant race between the printing press and the business agents of the trade unions, with the problem of unemployment largely solved if the printing press could maintain a constant lead and if only volume of employment, irrespective of quality, is considered important.#Quoted in George Selgin, The Theory of Free Banking (1988)
• If . . . the supply schedule of labor with respect to real wages is, for part of its range at least, negatively inclined,the volume of employment could conceivably be much greater when there was “involuntary” unemployment than when there was “full” employment, and Keynes’ conditions of “full” employment might be met at an indefinite number of levels of employment.#
• The relation between the period of investment intended by the saver and that intended, or in fact resulting, by the borrowing entrepreneur is not a simple one of necessary equality. It is highly flexible and approaches to free variability at the discretion of the borrower. Every money market has an elaborate machinery for transmuting short-term loans into long-term investments and long-term loans into short-term investments, to suit the convenience of original lenders and ultimate borrowers. . . . The modern money market is fortunately equipped to some extent with procedures for satisfying liquidity-preferences without providing genuine liquidity.#

James Buchanan, The Calculus of Consent (1962)

• If the terms of trade are set independent of the individual participant’s own behavior, no ethical question can arise concerning his “fairness” in dealing with other parties to exchange, ruling out fraudulent behavior. Thus we find that ethical issues about market behavior present themselves only when individuals or groups are in noncompetitive positions, when they possess some power to influence the terms of trade in their favor.#

James Buchanan, The Demand and Supply of Public Goods (1968)

• With production externalities there is a particular efficiency reason for considering publicly managed or controlled supply of service facilities. With consumption externalities, the type of organization should be determined strictly by more orthodox efficiency criteria. The argument for “public schools” (as opposed to “public financing of education”) must rest on a different footing from the argument for “public police protection”.#
• [A] multiplicity of optima is a characteristic of all interaction processes where gains-from-trade are possible [i.e. sharing of the inframarginal gains]. The apparent uniqueness present under perfectly competitive conditions in the private-goods market should be treated as a bizarre exception, not as a characteristic to be mirrored in other settings.#

James Buchanan, Cost and Choice (1969)

• If idealized market interaction process—pure or perfect competition—is used as the standard for deriving conditions which are then to be employed as norms for interference with actual market process, the question of objective measurement must be squarely faced. If prices ‘‘should’’ be brought into equality with costs of production, as a policy norm, costs must be presumed objective, in the sense that they can be measured by others than the direct decision-maker.#
• Cost is relevant to decision, and it must reflect the value of foregone alternatives. A budget, however, reflects the prospective or anticipated revenue and outlay sides of a decision that has been made. It is erroneous to consider such prospective outlays as appear in a budget as costs. The budget must, however, also be distinguished from the account, which measures realized revenues and outlays that result from a particular course of action.#
• There is necessarily a close correlation between the relevance of objectively measured costs for a theory of choice in either long-term or short-term equilibrium and the presence or absence of uncertainty. In the face of uncertainty, the evaluation of alternatives by the actual decision-taker may differ from the evaluations of any external observer, even if the qualifying conditions are met. The inherent subjectivity of cost in any theory of choice reasserts itself here.#
• The cost-benefit expert cannot have it both ways. He cannot claim ‘‘scientific’’ precision for his estimates unless he restricts himself rigidly to objectively observable magnitudes. But if he does this, he cannot claim that his estimates reflect reasonable norms upon which ‘‘social’’ choices should be based.#
• The familiar statement, ‘‘The post offices built during the 1930’s cost very little in terms of sacrificed alternatives’’ tends to be misleading. These projects did involve genuine opportunity costs to the decision-makers, and these were represented as the prospective values of other public and private projects that were never undertaken. The issue of currency, to the extent that this was carried out in the conditions of the 1930’s, was the choice that should have cost very little in terms of sacrificed alternatives.#
• So long as individuals on either side of the market are allowed to express their preferences by continuous adjustments in behavior, nonpecuniary elements will be fully embodied in the solution that emerges. Prices will tend to equal marginal opportunity costs. What is destroyed by the presence of nonpecuniary elements in choice is the spurious objectivity of costs, as measured by prices of resource services.#
• To the extent that the consideration of prospective harm to others, or, in fact, any moral restraint upon the decision, varies with the location and incidence of the offense contemplated, the opportunity cost of the offense varies. Hence, we should expect that crimes committed within the local community of the perpetrator against persons with whom he has close contacts would normally involve a higher cost barrier due to the moral restraint upon the actor in such a situation. From this it follows that fines or penalties required to achieve any given level of deterrence can be somewhat lower for these cases than for others. That is, crimes committed locally should bear lower fines than those imposed for identical crimes committed outside the community and on ‘‘foreigners.’’#
• If the ‘‘true costs’’ of employing resources could be measured (let us say by an omniscient observer who can read all preference functions) along with the ‘‘true benefits,’’ allocative efficiency in nonmarket resource usage could be ensured only if the effective decision-maker acted in accordance with artificial criteria for choice. That is to say, allocative efficiency will emerge only if the effective choice-maker acts, not as a behaving person, but as a rule-following automaton.#
• Only if costs can be objectified can they be divorced from choice, and only if they are divorced from choice can the institutional-organizational setting that the chooser inhabits have no influence on costs.#
• Nonmarket choice cannot, by its very nature, be made to duplicate market choice until and unless the ownership-responsibility pattern in the former fully matches that in the latter, an achievement that would, of course, eliminate all institutional differences between the two.#
• The individual whose payoff structure is only some proportionate share of that which he might confront under full ownership will tend to take more risks. The reason is obvious. Since the nonpecuniary differential arises only because of the declining marginal utility of income, the fact that the outcome range is lower under proportionate share payoffs than under full responsibility and ownership ensures some lessening of this differential.#

James Buchanan, “Order Defined in the Process of Its Emergence” (1985)

• Individuals do not act so as to maximize utilities described in independently-existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post, in terms of ‘as if’ functions that are maximized. But these ‘as if’ functions are themselves generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange.#Quoted in Tom Palmer, “The Hermeneutical View of Freedom” (1990)

James Buchanan, Economics: Between Predictive Science and Moral Philosophy (1987)

• An externality is defined to be Pareto-relevant when the extension of [another party’s] activity may be modified in such a way that the externally affected party, A, can be made better off without the acting party, B, bring made worse off. That is to say, “gains from trade” characterize the Pareto-relevant externality, trade that takes the form of some change in the activity of B as his part of the bargain.#
• So long as the process of economic growth and development serves to increase the opportunity costs arising from failure of individuals to act privately more than it serves to increase the private cost of the activity itself, there will surely be some tendency for the independent or private adjustment equilibrium to shift toward the social optimum in the process, “optimum” being defined by the standard Paretian criteria. The external economies become less relevant as the society becomes more affluent. At some point in the process of development, these may become irrelevant, and, if they do, the activity should be returned to private organization providing it has been previously collectivized.#
• As people get richer, they need to rely less and less on their neighbors to cooperate in securing the indivisible benefits of possible joint activities, but they may need to rely more and more on some collective mechanism to prevent themselves, and their neighbors, from imposing mutually undesirable costs on each other. In its broadest sense, “congestion” replaces “cooperation” as the underlying motive force behind collective action.#
• If there is, in fact, no relationship between income and wealth levels and the evaluations that individuals place on public goods, almost all of the institutions on general taxation must produce serious distortion in the allocation of economic resources.#

James Buchanan, The Logical Foundations of Constitutional Liberty (1998)

• A felicific calculus becomes absurd in this setting [where man can choose what pleases him], as does all talk of such things as “national goals;’ “national priorities;’ or even such familiar things as “university objectives.” Traditionally, many of us who have been critical of such talk remark that “only individuals can have goals.” But I am here advancing the more radical notion that not even individuals have well-defined and well-articulated objectives that exist independently of choices themselves.#
• For the increase in the extent of the market, for all tradeable goods, to generate increases in economic value, properly measured, returns must be increasing (costs must decrease) somewhere in the economy, but the identification of the location of this source of gain may not be possible until after the expansion of demand that calls additional production (in such an industry and elsewhere) into being.#
• If the extent of the market limits the potential for deriving the advantages of specialization, at least one industry in the totality that describes the production-exchange nexus must exhibit increasing returns of the sort indicated.#
• Perhaps the single most familiar statement in The Wealth of Nations is that which tells us that “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest” (I, ii, 2). We understand Adam Smith’s argument here, but if we take the conventional theory of distribution in the competitive economy seriously we immediately sense an apparent contradiction. If the butcher, and everyone else, takes from the economy precisely the equivalent of the value added to the economy by their efforts, how do we benefit from individuals’ self-interested behaviour?#
• For the best part of three decades, economists tried to use a perception designed to isolate features of a macroeconomy in deflationary expectational chaos to look at a macroeconomy in postwar boom. The supreme folly of the Keynesians was perhaps the genuinely held but arrogant opinion to the effect that the surge in unemployment and output was itself a consequence of the application of the Keynesian policy tools.#

James Buchanan, Economic Inquiry and its Logic (2000)

• The paucity of billboards in the Moscow of 1990 was not primarily attributable to regulatory prohibition. This result emerged directly from the fact that no seller-supplier of any good or service felt any economic pressure to respond to customer interests or to expand the demands for products.#
• If the extent of the market limits the potential for deriving the advantages of specialization, at least one industry in the totality that describes the production-exchange nexus must exhibit increasing returns.#
• The statement that individual utilities or productivities are interdependent is equivalent to saying that some resource which is commonly used is not centrally owned. But from this it does not follow that a change in ownership alone is always sufficient to produce the necessary conditions for attaining a Paretian utility frontier. . . . In many cases it is impossible to secure the centralization of ownership required to make the external diseconomies of usage internal to a single owner without at the same time providing the single owner with a degree of monopoly control over the total supply of resource services.#
• Statistical inquiry may reveal the existence of parallel increases in minimum wages and in employment. But to rely on such empiricism to invalidate the economists’ scientific enterprise is equivalent to making the observation that Peter Pan really does fly because one’s vision does not disclose the existence of the supporting wires from the rafters.#

James William Gilbart, “The Currency: Banking” (1841)

• When a few more theories have been tried – a few more ”pressures” have been experienced – a few millions more of opulent families have been reduced to beggary, and our Union work-houses are thronged with starving artisans, then we may discover that all our attempts to regulate the currency have been productive of mischief, and we shall be willing to let the currency regulate itself.#Quoted in Lawrence White, Free Banking in Britain (1995)

Jason Potts, The New Evolutionary Microeconomics (2000)

• The fundamental critical advance of the heterodox school [of economics], as they have done and continue to do, is to challenge the concept of an integral geometry of economic space by constructing theories that are fully explicable only in combinatoric or network spaces.#
• Once it is recognized that the essence of the neowalrasian microtheory is the field construct [of n-dimensional integral space] it becomes readily apparent that all major points of heterodox critique reduce to this single criticism.#
• As critics have often argued, it remains something of a travesty of investigation to interpret the economic problem as a problem of choice and then to abstract from all the essential features of choice in the human context.#
• Interactions, knowledge, and structure are specific connections between points in space and therefore the very existence of these concepts is excluded by the assumption that all points relate, a priori, to all other points directly; that is, with a single mathematical operation. In a world of omniscience there can be no such concept as knowledge, as in a world of omnipresence there can be no such concept as organization: both knowledge and organization, along with structure and processes, are meaningful only in the particular. That is, they are phenomena of particular interactions, not generalized actions. Particular interactions cannot be defined in an integral space. Interactions exist only in non-integral space.#
• These functions (the utility/preference fields and the technology/production fields) are assertions about the nature of economic space. They are not statements about the nature of the things that populate the space (as the concept of a function seemingly implies); which is to say that they are not statements about consumers or firms, as they are almost exclusively sold.#
• Which metatheoretical construct is primary—the elements, or the space of connections between the elements? For instance, underneath the contrast between the orthodox conception of a firm as a production function and the New Institutional conception of a firm as a governance structure are the two sides of this basic ontological issue: is a firm a set of factors or is it a set of interactions? Similarly, the sometimes subtle difference between the Austrian school of economics and the broad neoclassical school turns on this same point: is an agent a set of behaviors or a set of endowments? In other words, is knowledge (including technology) a thing or a relation between things? Do the fundamental units of an economic system exist in space, or are they in fact the structure of space?#
• As the neowalrasian microtheory assumes, everything must be directly connected to everything else. But it also invokes something much stronger: these connections must then be understood to constitute the essential reality of the system. Yet this is in direct contradiction with the other pillar of the theory, namely that the economic system is simply the aggregate of free agents who are themselves the basic unit of analysis. This is the hypothesis of methodological individualism, and is the keystone for all formulations and interpretations of the theory. Thus the fundamental problem of the orthodox microtheory is that the set of operations that connect all elements in the space together, and which by the mandate of field theory must be the ultimate locus of existence, yet has no basis for existence.#
• Disequilibrium trading cannot be logically defined within the context of a field because a disequilibrium trade is by definition in non-integral space: each agent interacts with only some other agents.#
• The concept of a competitive selection process effecting optimal outcomes was once the paradigm of orthodox evolutionary biological theory and economics leant heavily upon this argument to buttress the analogue of a competitive market process. Biology, however, has now collected far too many exceptions to sustain this belief, and has reworked its underlying theory of the selection mechanism to reject the concept of global maximization applied to the concept of fitness. The theoretical reason for this rejection amounts to the fact that ‘biological space’ is not integral.#
• The orthodox meaning of rationality, which pivots about consistent and transitive rankings in the instance of choice, presupposes the concept of an integral space over which choice occurs. Indeed, the two concepts of rationality that Simon calls substantive and procedural are in the present context integral and non-integral referents.#
• It was not so much that the neowalrasian paradigm could not consider such factors [as knowledge, structure, coordination, uncertainty, and history], but that the way it considered them abstracted from the very properties that were most of interest from a dynamic, evolutionary perspective. When organizational structure, knowledge, uncertainty, institutions and suchlike were read into an integral space, these concepts were denied their nature as complex webs of interactions, that is, as systems.#
• The way in which expectations are treated is not an addendum to an otherwise well-defined analytical framework, but effectively determines the ultimate nature of that framework.#
• [Rational Expectations] is not a theory of how expectations are formed, but rather is the theoretical conjecturing of an ex ante data set consistent with the assumption of an exhaustive list of possible outcomes, each, ultimately, correctly weighted.#
• Efficiency is a smudge, and all endeavors to bring this into point-like focus do so by pushing the dynamic aspect of quality further out of balance.#
• Selection as a filtering mechanism favors not the fastest, but the sufficiently fast; not the most profitable, but the sufficiently profitable. This is readily observable in nature and economy, whereby even the harshest selection environment yet still contains some measure of variety.#
• Order and change must be traded off against each other; we cannot have both. The more we adapt ourselves to a given circumstance, the less we are suited to changed circumstances. The more we prepare for all possible contingencies, the less we have devoted ourselves to the extant circumstance.#

Jeffrey Frankel, “Empirical Research on Nominal Exchange Rates” (1995)

• Positive U.S. money surprises [in the early 1980s] were associated with appreciations of the dollar at the same time that they were associated with increases in interest rates, leading the authors to conclude that: (1) during this period the Federal Reserve was expected to correct any deviations of the money supply from its target path; and (2) expectations of monetary contraction tend to raise real interest rates and cause the currency to appreciate . . . [But] the money announcements lost much of their impact later in the 1980s, after the Fed began to put less emphasis on its M1 targets.#
• No macroeconomic variable other than the exchange rate demonstrates regime-varying volatility.#
• Expectations can be described as stabilizing when the effect of an appreciation today – relative to some long-run path or mean – is to induce market participants to forecast depreciation in the future. . . . Expectations can be described as destabilizing, on the other hand, when the effect of an appreciation is to induce market participants to forecast more appreciation in the future.#

Jeffrey Hummel, “Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner” (2011)

• A bank panic that causes a drastic decrease in such measures of money as M2 and M1 stems from an increased demand for currency and reserves, the two forms of base money. In this case, a fall in the broader money stock and a fall in the velocity of the monetary base are exactly the same thing, and they become alternative ways of describing what happened during the Great Depression. . . . Thus, whether we label a particular decline in aggregate demand a monetary shock or a velocity shock can depend on how broadly or narrowly we define the money stock. #

Joan Robinson, The Rate of Interest and Other Essays (1952)

• A “change in methods of production in a given state of knowledge” is, strictly speaking, a contradiction in terms.#Quoted in Ludwig Lachmann, Capital and Its Structure (1956)

Joan Robinson, “The Unimportance of Reswitching” (1975)

• There is no such phenomenon in real life as [capital] accumulation taking place in a given state of technical knowledge. The idea was introduced into economic theory only to give a meaning to the concept of the marginal productivity of capital, just as the pseudo-production function was constructed in order to show that it has no meaning.#

John Rawls, “Two Concepts of Rules” (1955)

• An institution which is set up to “punish” the innocent, is likely to have about as much point as a price system (if one may call it that) where the prices of things change at random from day to day and one learns the price of something after one has agreed to buy it.#

Joseph Ostroy, “The Transactions Role of Money” (1990)

• The transactions role of money cannot be separated from its function as a store of value. If after the sale of one commodity for money, but before the purchase of another commodity with it, money perished, it could hardly serve as a medium separating purchase from sale. #
• In an exchange economy, putting money, even real money balances, into the utility function is an unreliable choice-theoretic short cut for modelling the transactions role of money.#
• For trades to be enforceable they must be dependent on one’s actual trading history and not on ex ante expected values while for trades to be efficient the reverse must be true.#
• the Arrow-Debreu theory establishes sufficient conditions for money to be useless and positively denies it any intertemporal allocative function. Though striking, this conclusion is unsurprising; money has no job to perform here because its job is being done by futures markets. . . . Conversely, if the conditions that allow the futures markets so fully to exercise their function are absent, we may expect a role for money and for futures markets in money (debt instruments). #

Joseph Schumpeter, Business Cycles (1939)

• Expectations cannot be used as part of our ultimate data in the same way as taste for tobacco can. Unless we know why people expect what they expect, any argument is completely valueless which appeals to them as causae efficientes.#Quoted in Ludwig Lachmann, Capital, Expectations, and the Market Process (1940)

Joseph Schumpeter, Capitalism, Socialism, and Democracy (1943)

• A system that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time, because the latter’s failure to do so may be a condition for the level or speed of long-run performance.#
• The problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them.#
• The position of a single seller can in general be conquered – and retained for decades – only on the condition that he does not behave like a monopolist.#
• Was not the observed performance [of the economy] due to that stream of inventions that revolutionized the technique of production rather than the businessman’s hunt for profits? The answer is negative. The carrying into effect of those technological novelties was of the essence of that hunt.#

K. Mittermaier, “Mechanomorphism” (1986)

• A scientist engages in anthropomorphism when he ascribes human attributes to what is otherwise recognized as inanimate or at least not human. By analogy we may say that an economist engages in mechanomorphism when he ascribes mechanical properties to what is otherwise recognized as an aspect of human affairs or when he treats an economic system as though it were a mechanical system. #Quoted in Peter Boettke, “Beyond equilibrium economics: reflections on the uniqueness of the Austrian tradition” (1994)

Kevin Dowd, The Experience of Free Banking (1992)

• Price-level changes depended primarily on the monetary standard . . . rather than on the regulatory regime under which the banking system operated#

Kevin Dowd, “Currency Competition, Network Externalities, and Switching Costs” (1993)

• It seems to be a well-established ‘stylised fact’ that a currency has to perform very poorly indeed – to be more precise, it must inflate very rapidly – to induce its widespread abandonment in favour of some other currency. A related ‘stylised fact’ is that though it is reduced, the demand for a currency is often still quite substantial even when it hyperinflates. . . . If rapid inflations produce only limited substitution towards other currencies, the monetary authorities can ‘get away’ with a great deal of monetary ‘misbehaviour’ before the loss of market share to competing currencies poses any significant problem.#
• Traditional welfare analyses of inflation might be misplaced because they typically use a representative agent approach that ignores the network externalities involved in the use of a particular currency. . . . [T]raditional welfare triangles of the economic costs of inflation then give way to welfare rectangles that could be much larger, and we might at last be able to explain why the ‘established’ welfare losses of inflation are so low and yet most monetary economists continue to treat inflation as a serious problem. Network externalities might be the key to the economic costs of inflation.#

L Randall Wray, “The Credit Money, State Money, and Endogenous Money Approaches: A Survey and Attempted Integration” (2004)

• It has long been speculated that money predates writing because the earliest examples of writing appear to be records of monetary debts—meaning that the closely intertwined chronology of the development of writing and money will make it impossible to find a written history.#

Lawrence Berger, “Self-interpretation, Attention, and Language” (1990)

• Since detailed reputations exist only when there are a small number of producers (due to limits on attentional capacity), entry can result in a decline in elasticity of demand and a higher equilibrium price.#

Lawrence White, Competition and Currency (1989)

• The rules-discretion conundrum presupposes the existence of a monetary authority whose behavior must be either dangerously inflexible or dangerously flexible. An evident means of resolving this dilemma is to cultivate a monetary system not under the rule of a central authority.#
• Bank note producers did not gain a foothold in the currency industry until they could produce trustworthy currency cheaply enough in competition with specie.#
• The question of a natural monopoly in the production of money is distinct from the question of an inherent market tendency toward convergence on a single monetary standard. . . . That all coins are manufactured of like metals in like weights, and that all notes and deposits are redeemable for standard coin, no more indicates a natural monopoly in money production than that the standardization of brick composition and size indicates a natural monopoly in brick production.#
• From a subjectivist perspective, it is clear that the defining set of attributes of money is to be sought in the role that money plays (and alone plays) in the plans of individual economic agents. This immediately rules out approaches that focus on the statistical behavior of an aggregate as the essential criterion for deciding whether components of that aggregate ought to be considered money. Moneyness is a property conferred an item by individuals’ plans, not by the econometric performance of an aggregate containing that item relative to an aggregate omitting it.#

Lawrence White, Free Banking in Britain (1995)

• The larger the share of total circulation and deposits supplied by the expanding banks, the greater will be the role of the relatively disruptive process of external drain in bringing the expansion to an end.#
• The English ‘one-reserve system’, whereby the Bank of England alone held substantial specie, was, as Bagehot explains, the product neither of conscious design nor of natural market evolution. It was instead ‘the gradual consequence of many singular events, and of an accumulation of legal privileges on a single bank’.#
• If Scottish banks did not hold Bank of England liabilities, or deposits at London banks (which in turn held Bank of England liabilities) as reserves, then the Scottish money stock was not specifically geared to the quality of Bank of England liabilities. In the long run, Scotland’s money stock was determined by the quantity of money demanded at the given purchasing power of the monetary unit. The purchasing power of the monetary unit was in turn determined by global supply and demand for gold.#
• In the crisis of 1839 the Bank of England turned to the Bank of France for an emergency extension of credit, to meet severe liquidity needs that had brought the BOE close to suspending payments. The Bank also arranged for sizeable credits in Hamburg. Yet no one would say that the London banking system customarily ‘depended’ on the Bank of France, or the Hamburg market, as a lender of last resort. Still less would anyone say that the London banking system was a ‘satellite’ to the Paris centre.#
• The issue of notes flowed naturally out of the business of receiving money in deposit and relending it. The great and widespread reputation of trustworthiness necessary to conduct that business made the banker’s promissory notes more generally acceptable in transactions than the commercial notes or bills of other merchants, thereby putting the banker in a position profitably to exchange his notes for commercial bills. #
• The function of an issuing bank was not so much to produce and sell money . . . Its function was rather to exchange recognised for unrecognised credit, or to provide a credit-certifying service based on its superior reputation. The substitution of bank notes for private bills of exchange as a circulating medium was to Scrope ‘a simple step in the division of labour’.#
• Rival banks of issue were correspondingly obliged to compete in cultivating public confidence in the redeemability of their notes. The creation and maintenance of that confidence was the production of a scarce good, subject like any other to limited economies of scale.#
• A monopoly supplier of currency must of necessity resort to ‘arbitrary assumptions and empirical expedients’, as ‘the elements necessary for the precise determination’ of its proper balance-sheet composition ‘are within no man’s reach’. #
• The primary weakness of any trade cycle theory invoking a ‘wave of optimism’ as its initiating impulse is that it begs the question of the origin of the wave of general optimism. Unless it answers that question it offers no account of why, from a state of equilibrium, there should occur a general shift in the demand curve for loanable funds, rather than simply a relative shift from declining to expanding industries. Secondly, it does not explain why such a shift would not simply raise the entire structure of interest rates – deposit as well as loan rates – in the market for loanable funds, leaving equilibrium in the market for currency balances undisturbed except insofar as the demands for currency and specie reserves are interest-elastic.#
• [The currency school’s] proposed rule for regulating the volume of a mixed currency would accomplish their stated aim of keeping the value of the monetary unit the same under a mixed currency as it would be under a purely metallic currency only under the supposition that the velocities of bank notes and specie were identical. #
• To suppose that competing banks could obey the currency principle, even were it a sound rule, was to suppose an impossible degree of collusion among them. Only a monopoly bank could act upon that sort of rule.#
• Imports and exports of gold bullion were not necessarily analogous to imports and exports of specie under a purely metallic currency. Gold bullion has non-monetary uses, so that some imports of bullion would not naturally affect the money stock. For the Bank of England to link its issues to international bullion movements would result in its over-issuing while gold flowed in, creating a boom, and later over-contracting when gold flowed out, creating a recessionary panic.#
• In recommending that the Bank of England exercise discretion by distinguishing one case of adverse balances from the other and treating the two differently, Gilbart was in effect recommending that the Bank of England should act toward (e.g.) the Bank of France in the way that a competitive issuer acted toward its co-participants in a note-exchange system. Persistent reserve losses signalling a fundamentally excessive circulation should be met by contraction, but random week-to-week variations need not.#
• Linking the volume of money to a nominal magnitude such as the nominal quantity of bills offered for discount, itself a consequence of the volume of money via the price level, left the volume of money and the price level indeterminate.#
• The type of transactions by which notes are put into circulation is irrelevant to the question of whether the stock of notes is excessive.#
• The currency principle, as formulated to apply to the nation as a whole, operated at an irrelevantly high level of aggregation.#
• Free banking as a monetary regime thus comprises two conceptually distinct elements: (1) unregulated issue of transferable bank liabilities, and (2) unmanipulated supply of base money or basic cash.#
• It is hardly appropriate to use the supposed need for a lender of last resort as an argument for central banking if it is the legislation fostering central banking that creates the need.#
• In an unregulated system one bank would choose to hold another’s notes as reserves in place of specie, assuming zero interest yield on both assets, only in the event that such extensive economies of scale characterised the issue of bank notes that the market for notes supported fewer firms than the market for deposits. #
• Free banking thought has little in common with the sort of argument for a pseudo-gold standard that depicts stabilisation of the exchange rate between a distinct national currency and gold as the optimal rule for central bank policy. #

Lawrence White, The Clash of Economic Ideas (2012)

• The quantity theory is not the right theory for analyzing endogenous changes in M and P brought about by a shift in the world supply or demand curves for silver or gold.#
• The quantity theory of money assumes a vertical supply curve for money units, whereas the supply of silver is upward sloping.#
• A likely contributing factor to measured velocity’s going off its previous track was the deregulation of interest on bank accounts. If so, then the adoption of a banking reform that Friedman supported ironically undermined the case for monetary reform he had supported to that point.#

Leland Yeager, “A Cash-Balance Interpretation of Depression” (1956)

• Apparent overproduction in some industries shows not general overproduction but only disharmony between the relative outputs of various industries and the pattern of consumers’ investment preferences. . . . The catch is this: While an excess supply of some things does necessarily mean an excess demand for others, those other things may, unhappily, be money.#

Leland Yeager, “Essential Properties of the Medium of Exchange” (1968)

• Demand for current output cannot be excessive or deficient unless, at the same time, the opposite is true of the medium of exchange in particular: at not-yet changed levels of income and prices, people must be wanting to hold less or more money than exists.#
• An economywide excess demand for money shows up not as specific frustration in buying money but as dispersed, generalized frustration in selling things and earning incomes.#

Leland Yeager, “The Significance of Monetary Disequilibrium” (1986)

• Any particular output thus constitutes demand, either at once or eventually, for other (noncompeting) outputs. Since supply constitutes demand in that sense, any apparent problem of general deficiency of demand traces to impediments to exchange, which discourage producing goods to be exchanged. #
• Price changes tend to correct or forestall the monetary disequilibrium but do not and cannot occur promptly and completely enough to absorb the entire impact of the monetary change and so avoid quantity changes.#
• One cannot consistently both suppose that the price system is a communication mechanism—a device for mobilizing and coordinating knowledge dispersed in millions of separate minds—and also suppose that people already have the knowledge that the system is working to convey.#
• A businessman’s difficulties in finding profitable customers or a worker’s in finding a job are unlikely to trace wholly, and perhaps not even mainly, to his own pricing policy or wage demands.#
• One of the market system’s virtues is that it does not require or impose collective decisions. The dispersion of knowledge and the fact that certain kinds of knowledge can be used effectively only through decentralized decisions coordinated through markets and prices—rather than coordinated in some magically direct way—is one of the hard facts of reality. It forms part of the reason why monetary disturbances can be so pervasively disruptive: they overtax the knowledge-mobilizing and signaling processes of the market.#
• Taking the lead in downward price and wage adjustments is in the nature of a public good, and private incentives to supply public goods are notoriously inadequate.#
• In tackling questions about the long-run effects on prices and outputs of specified changes in wants, resources, technology, and legislation, one may legitimately neglect intervening disequilibrium to get on with the analysis. But when questions of macroeconomics are at issue—essentially, questions concerning disruptions or imperfections or delays in processes working to coordinate the plans and activities of many different people—then attention properly turns to how quickly and smoothly markets respond when disturbed, to transitional stages, and to the frictions of reality.#
• The very fact that no one sees himself as having any appreciable influence over the value of the money unit helps explain the sluggishness of the pressures working to correct a disequilibrium value.#

Ludwig Lachmann, Capital, Expectations, and the Market Process (1940)

• The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use that confers it. Not ownership but the use of resources is the source of income and wealth.#
• In a market economy a process of redistribution of wealth is taking place all the time before which those outwardly similar processes that modern politicians are in the habit of instituting, pale into comparative insignificance, if for no other reason than that the market gives wealth to those who can hold it, while politicians give it to their constituents who, as a rule, cannot.#
• The market process derives its rationale from, and has its place in, a world in which general equilibrium is impossible. But to deny the significance of general equilibrium is not to deny the significance of equilibrating forces. It is merely to demand that we must not lose sight of the forces of disequilibrium and make a comprehensive assessment of all the forces operating in the light of our general knowledge about the formation and dissemination of human knowledge.#
• Once we abandon the notion of capital as homogeneous, we should be prepared to find less substitutability and more complementarity.#
• Divergent rates of profit in a multicommodity world are both a result of change and a cause of further change.#
• An economic plan as an observed fact does not lose its significance for us when it fails. On the contrary, we owe to such a plan our criterion of success, which alone allows us to speak of failure.#
• If we say that we wish to “explain” an action, what we mean is not merely that we wish to know its purpose, but also that we wish to see the plan behind the action. Plan, a product of the mind, is both the common denominator of all human action and its mental pattern, and it is by reducing “action” to “plan” that we “understand” the actions of individuals.#
• The [economic] problem is usually stated in terms of (objective) “resources” and (subjective) “wants.” In a stationary world these terms may have an unambiguous meaning, but in a dynamic world what is a resource depends on expectation, and so does what constitutes a want worth satisfying.#
• Whenever we observe large transactions taking place at little price change this indicates a case of conflicting expectations.#
• In a world of change no one type of expectation [elastic or inelastic] can be relied upon to provide stability. Neither a gullible capital market nor an obstinate one, nor, we may add, any intermediate variety is in itself a bulwark against crises of every kind. They each provide us with protection against some afflictions while leaving us unprotected against others.#
• The impossibility of prediction in economics follows from the facts that economic change is linked to change in knowledge, and future knowledge cannot be gained before its time.#
• It is not the subjective nature of expectations, any more than that of individual preferences, which makes them such unsuitable elements of dynamic theories, it is the fact that time cannot pass without modifying knowledge which appears to destroy the possibility of treating expectations as a data of a dynamic equilibrium system.#
• The market process promotes the spreading of knowledge through the promotion of those capable of interpreting market data and of thus transforming them into market knowledge, and the elimination of those who cannot read the signs of the market.#
• The existence of unemployment and idle resources does not necessarily indicate “lack of effective demand”; it may indicate lack of complementary capital.#
• The absence of forward markets does not by itself imply an unsatisfied demand for the services of specialized risk takers. In general, the market economy generates the institutions it needs. The lack of an institution may be attributable to the fact that it is not needed.#
• The decisive question is whether the market can offer methods for the quick and effective liquidation of malinvestments, even though it cannot prevent thwarted expectations and the failure of plans. For the market economy the revision of plans has no less significance than their original conception.#
• Ex ante it is by no means sure which technological changes will signify “progress” and which not.#
• The stock exchange may be viewed as the central forward market for future capital yields of indefinite horizon. Buyers and sellers on the exchange express their expectations about the chances of various plans, and thereby also evaluate the underlying capital combinations.#
• The function of the stock exchange, as of any market, is not to guess the future but to reconcile, as much as possible, present actions that extend into an uncertain future.#
• Two phases may be discerned in the process of competition, which constantly alternate. . . . Without innovation and product differentiation there would be nothing to imitate, and competition could not exist. Without constant competitive pressure from imitators of successful innovations, innovations would remain a permanent source of monopolistic or oligopolistic income.#
• The Keynesian model fits reasonably well any world in which we find the various classes of factors of production in approximately similar conditions, and where they therefore can be treated as though they were homogenous.#
• The merits of a particular model have to be judged by comparison with those of another model, actual or potential, not by comparison with “reality” which is, and always must remain, beyond our theoretical grasp. The common sense case for the equilibrium method is that if we wish to survey a constellation of diverse forces, the easiest method of doing so is to perform the mental experiment of imagining that state of affairs which would be reached when all these forces have unfolded all their implications.#
• Instead of studying the process by which men in a market exchange knowledge with each other and thus gradually reduce the degree of inconsistency by their actions, [Keynes] roundly condemned the most sensitive institution for the exchange of knowledge the market economy has ever produced!#
• Competition is not a market form, but the very process by which one market form evolves into another.#
• All new knowledge, technical or otherwise, is at first necessarily the possession of a few on whom it will probably confer a temporary monopoly position. Gradually, as the new knowledge is tested in the workshop as well as in the market, more and more people come to know about it, and thus the spreading knowledge of it gradually undermines the erstwhile monopoly. In the course of progress we may expect that as one “wave of knowledge” reaches the periphery of the system, becomes “common knowledge”, a new wave will emanate from somewhere else, and the process starts all over again. This, we need not doubt, is the real meaning of Schumpeters “process of creative destruction.”#
• Methodological individualism, in its backward-looking form, means simply that we shall not be satisfied with any type of explanation of a social phenomena which does not lead us ultimately to a human plan.#
• It is hardly an exaggeration to say that without a stock exchange there can be no market economy. What really distinguishes the latter from a socialist economy is not the size of the “private sector” of the economy, but the ability of the individual freely to buy and sell shares in the material resources of production.#
• Technical problems can also be stated in terms of means and ends, but they only arise when we have one end and more than one means. How to produce gold is therefore a technical problem; whether to produce it at all, or to devote our resources to other ends, is essentially an economic one.#
• The business of the economist consists in very little else but asking what human choices have caused a given phenomenon, say a change in price, or output, or employment.#
• Economics has more nearly approached the ideal of a closed theoretical system in which all propositions are linked to each other and the number of fundamental hypotheses reduced to a bare minimum, than any other social science. This can hardly be an accident. No doubt such an achievement was easier for a science which deals with a sphere of life in which conduct has to be rational, on penalty of bankruptcy, and which can thus use the Logic of Action as the logical cement of its own edifice.#
• Factor complementarity and substitution are phenomena belonging to different provinces of the realm of action. Complementarity is a property of means employed for the same end, or a group of consistent ends. All the means jointly employed for the same end, or such ends, are necessarily complements. Factor complementarity presupposes a plan within the framework of which each factor has a function. . . . Substitution, on the other hand, is a phenomenon of change the need for which arises whenever something has gone wrong with a prior plan. Substitutability indicates the ease with which a factor can be turned into an element of an existing plan. . . . The importance of substitutability lies in that it is usually possible to pursue the same end (output) with a different combination of factors. The importance of complementarity lies in that “technical rigidity” (invariability of the mode of complementarity) may often make it necessary to change the end rather than the means; an existing combination of factors is used to produce a different output.#
• Every major change is bound to upset some plans and disrupt some complementarities. On the other hand, it is impossible to speak of substitutable factors without defining the kind of change we wish to provide for.#
• In the world of our daily experience all unexpected change entails more or less extensive capital regrouping.#
• Contrary to what appears to be a widely held view, Böhm-Bawerk’s chief contribution to the theory of capital was not the introduction of time, but of complementarity over time.#
• There can be no major change which leaves the existing structure and composition of capital intact. All such change tends to create situations in which there is too much of some capital assets and too little of others. In this fact lies the ultimate reason for that instability of the “capitalistic” economy which so many deplore and so few understand.#
• In a world of dynamic change unused resources have two functions. Firstly, they act as shock-absorbers when combinations disintegrate. Secondly, their existence provides an inducement to invest in those capital goods which are complementary to them. . . . The production of new capital instruments will have different effects on the earnings of different existing capital resources. Those to which they are complements will earn more, those for which they are substitutes will earn less and often nothing at all. To ask what is the effect of the accumulation of capital on “the” rate of profit is to ask a meaningless question, since one of its main effects is to make rates of profit diverge.#
• The attempt to find in a changing world somewhere an unchanging entity to serve as a measure of change is bound to fail. Economic change affects the economic significance of hours of work along with everything else. Labour hours have no “intrinsic qualities” which do not change and have economic significance.#
• Technical progress does not mean merely the introduction and diffusion of new and better machines, it also means the more efficient use of existing resources.#
• Whatever the merits of such a [cheap money] policy in depression or during the early stages of revival, there is one aim it cannot achieve: to maintain the level of investment activity under boom conditions.#
• Ownership is a legal concept which refers to concrete material objects. Wealth is an economic concept which refers to scarce resources. All valuable resources are, or reflect, or embody, material objects, but not all material objects are resources.#
• The more fixed capital there is, and the more durable it is, the greater the probability that such capital resources will, before they wear out, have to be used for purposes other than those for which they were originally designed. This means practically that in a modern market economy there can be no such thing as a source of permanent income. Durability and limited versatility make it impossible.#
• The market process tends to produce a coherent complementarity pattern throughout the economic system ex post, but it does its work by compelling the scrapping of those capital goods which do not fit into this pattern, or at least their removal to other spheres of production where a pigeon-hole can be found for them, usually with a concomitant capital loss. The market process tends to eliminate the results of malinvestment but cannot prevent its occurrence.#
• The knowledge we gain from economic study is not knowledge about things but knowledge about knowledge.#

Ludwig Lachmann, Capital and Its Structure (1956)

• As long as we cling to the view that all capital is homogeneous, we shall only see, as Keynes did, the unfavourable effects of investment on the earning capacity and value of existing capital goods, since all the elements of a homogeneous aggregate are necessarily perfect substitutes for each other. The new capital competes with the old and reduces the profitability of the latter. Once we allow for heterogeneity we must also allow for complementarity between old and new capital. The effect of investment on the profitability of old capital is now seen to depend on which of the various forms of old capital are complementary to, or substitutes for, the new capital.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)
• Money is largely, so to speak, a capital good ‘by proxy’. It symbolizes, at the initiation of the plan, those current services we shall need later on but which, owing to their ‘current’ character, we cannot store until we need them. We store the money instead.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)
• The business man who forms an expectation is doing precisely what a scientist does when he formulates a working hypothesis. Both business expectation and scientific hypothesis serve the same purpose; both reflect an attempt at cognition and orientation in an imperfectly known world, both embody imperfect knowledge to be tested and improved by later experience.#Quoted in Steven Horwitz, “From The Sensory Order to the Liberal Order: Hayek’s Non-rationalist Liberalism” (2000)
• The two greatest achievements of [economic] science within the last hundred years, subjective value and the introduction of expectations, became possible only when it was realized that the causes of certain phenomena do not lie in the ‘facts of the situation’ but in the appraisal of such a situation by active minds.#
• The generic concept of capital without which economists cannot do their work has no measurable counterpart among material objects; it reflects the entrepreneurial appraisal of such objects. . . . Something is capital because the market, the consensus of entrepreneurial minds, regards it as capable of yielding an income.#
• A progressive economy is not an economy in which no capital is ever lost, but an economy which can afford to lose capital because the productive opportunities revealed by the loss are vigorously exploited.#
• It is quite wrong to say . . . that continuous investment will lower the marginal efficiency of capital. What continuous investment will do is to destroy the capital character of some resources for which the new capital is a substitute, while increasing the incomes from labour and capital resources complementary to it.#
• It is possible to define the economic forces engendering investment in terms which avoid the quantification of capital, or even the very concept of capital.#
• In general, investments will tend to take such concrete forms as are complementary to the capital already in existence.#
• The shape in which new capital goods make their appearance is determined largely by the existing pattern, in the sense that ‘investment opportunities’ really mean ‘holes in the pattern’.#
• The econometricians have thus far failed to explain why in an uncertain world the meaning of past events should be the only certain thing, and why its ‘correct’ interpretation by entrepreneurs can always be taken for granted.#
• Expectations, [as opposed to preferences], always embody problematical experience, i.e. an experience which requires interpretation.#
• Equilibrium analysis can tell us whether courses of action are, or are not, consistent with each other. It cannot, except in rather special circumstances, explain how inconsistencies are removed.#
• [In equilibrium analysis,] while the failure of each successive plan conveys significant additional knowledge to the individuals concerned, it does not affect the shape of the demand and supply curves. It merely induces individual actors to choose other points on them for testing. It is usually assumed that as a result of the accumulating experience gained from a series of unsuccessful tests, a consistent solution is sure to be found in the end, in other words, that in the ‘real world’ there does exist a ‘tendency towards equilibrium’.#
• Process analysis, we may say, combines the equilibrium of the decision-making unit, firm or household, with the disequilibrium of the market.#
• Just as the profitability of all capital goods in a combination depends inter alia on the wages of the co-operant labour, so the rate of profit on each capital good depends on the cost at which complementary capital goods can be secured.#
• Idle capacity is economically a form of scrap kept in physical existence by optimistic expectations of future value which may or may not be fulfilled. To understand why this capacity is kept in existence we need to understand, not merely why the original plans failed, but why no alternative use for it has been found.#
• Rigid prices are ‘administered’ prices in a situation in which the ‘administrators’ regard the knowledge they can withhold (from buyers and competitors) as more valuable than the knowledge they might gain by experimenting with price variations. ‘Fear of spoiling the market’ is essentially fear of what consumers and competitors will do in the future with the knowledge derived from price change now.#
• Böhm-Bawerk’s ‘third ground’ [of a positive rate of interest, viz. the higher productivity of roundabout methods] is an important element of the theory of economic progress which somehow, by mistake, its author put into the wrong pigeonhole and inserted into his theory of interest.#
• For Adam Smith the division of labour was the most important source of progress. The same principle can be applied to capital. As capital accumulates there takes place a ‘division of capital’, a specialization of individual capital items, which enables us to resist the law of diminishing returns. As capital becomes more plentiful its accumulation does not take the form of multiplication of existing items, but that of a change in the composition of capital combinations. . . . Complementarity plus indivisibility are the essence of the matter. It will not pay to install an indivisible capital good unless there are enough complementary capital goods to justify it. Until the quantity of goods in transit has reached a certain size it does not pay to build a railway. A poor society therefore often uses costlier (at the margin) means of transport than a wealthy one. The accumulation of capital does not merely provide us with the means to build power stations, it also provides us with enough factories to make them pay and enough coal to make them work. Economic progress thus requires a continuously changing composition of the social capital. The new indivisibilities account for the increasing returns.#
• It is quite wrong to say, for instance, that continuous investment will lower the marginal efficiency of capital. What continuous investment will do is to destroy the capital character of some resources for which the new capital is a substitute, while increasing the incomes from labour and capital resources complementary to it. In conditions of capital change the ‘marginal efficiency of capital’ . . . is thus seen to be a meaningless notion implying, contrary to common observation, that the earning capacity of all capital resources will be affected in the same way.#
• Böhm-Bawerk also made it clear that his thesis did not mean that capital could not be increased in any other way than by ‘lengthening’, but only that, where this is possible, we would soon encounter diminishing returns. . . . Where existing capital is merely duplicated (‘widened’), operated by a given labour force, diminishing returns will soon appear. Where new capital resources, but of the type employed before, are being substituted for existing labour (‘deepened’), we may have to wait a little longer for diminishing returns to make their appearance, depending on the elasticity of substitution, but appear they will in the end. The only way in which we can hope to resist the pressure of diminishing returns is by changing the composition of capital and enlisting an indivisibility which, with fewer complementary capital resources, could not have been used. ‘Higher roundabout productivity’ therefore has to be interpreted in terms of this case. The only circumstances which permit it are those circumstances which permit a higher degree of division of capital.#
• The fundamental difference between labour and capital as ‘factors of production’ is of course that in a free society only the services of labour can be hired while as regards capital we usually have a choice of hiring services or buying their source, either outright or embodied in titles to control. The chief justification for a theory of capital of the type here presented lies in the fact that in the buying and selling of capital resources there arise certain economic problems, like capital gains and losses. In a world in which all material resources were inalienable, for instance entailed on the state, but where their services could be freely hired, there would be no more scope for such a theory of capital than there is today for a theory of labour.#
• Why gramophone records with the music of Irving Berlin find a readier sale than those with the music of Schoenberg is a question about which the economist has nothing to say, but why in an inflation people come to prefer the most illiquid assets to money is a question he can hardly shirk. ‘Asset preference’ is not an ultimate determinant in the sense in which a taste for tobacco is.#
• It is true that the modern shareholder rarely takes the trouble of opposing managerial decisions with which he happens to disagree at the company meeting. But this is so because he has a much more effective way of voting against these decisions: He sells.#
• If by entrepreneurial decisions we mean decisions involving the making and revising of plans, there is no difference between changing a production plan and changing the composition of an investment portfolio. They are both exactly the same type of action.#
• A certain excess capacity, for instance in transport and power production, is necessary if a position is to be avoided in which any increase in capital in one industry requires a corresponding decline in another. It is just such an excess capacity that makes a large number of capital changes in secondary industries consistent with each other. But all this means is that there is, in an industrial economy, as a rule a fairly wide range over which variations in the different rates of investment would be consistent changes. It does not mean that inconsistent change cannot exist.#
• The distinction between the long and the short run referred originally to the change in resources which occurs in the former, but not in the latter, where such change means purely quantitative change. The distinction between ‘given resources’ and ‘resources adapted to demand’ is unambiguous only where the adaptation means addition or subtraction. Where regrouping exists as an alternative mode of change the matter is no longer quite so simple. The whole notion is clearly linked to a purely quantitative conception of capital.#
• Time is germane to [the problems of capital], but not merely as the dimension in which the ‘quantity of Capital’ changes, but also as the dimension in which capital resources are turned from one mode of use to another.#
• This distinction [between economic growth and fluctuations] finds a place in a theory which confines itself to asking whether and to what extent existing resources are being used, whether, and perhaps at what speed, such resources can be augmented, and what are the circumstances in which such augmentation is likely to take place. Once we have learnt to ask how, and in what order, existing resources are being used, and what are the implications of such multiple use, once we have begun to understand the importance of the concrete form of resources in limiting the scope of multiple use, we can easily dispense with the all too simple distinction between economic growth and cyclical fluctuations.#
• Where interest rates are kept constant, no hint of ex ante disequilibrium between savings and investment can transpire. Where raw material prices are ‘controlled’ and no rising wages give a hint of approaching labour shortage, we need not be surprised if we hit the ceiling with full force. The sensitive mechanism which emits the storm signals has been switched off; the deviation of actual prices from their normal and expected levels can no longer serve as a measure of disequilibrium and a signpost for action.#
• That the economy ‘hits the ceiling’ may mean that a new railway line cannot be completed, or cannot be completed within the time planned, or at the cost planned. But it may also mean that even if it is completed as planed, it will lack complementary factors in the rest of the economy. Such a lack of complementary factors may well express itself in a lack of demand for its services, for instance where these factors would occupy ‘the later stages of production’. To the untrained observer it is therefore often indistinguishable from ‘lack of effective demand’.#

Ludwig Von Mises, “Economic Calculation in the Socialist Commonwealth” (1920)

• Money is no yardstick of value, nor yet of price. Value is not indeed measured in money, nor is price. They merely consist in money.#
• Calculation in natura, in an economy without exchange, can embrace consumption goods only; it completely fails when it comes to dealing with goods of a higher order. And as soon as one gives up the conception of a freely established monetary price for goods of a higher order, rational production becomes completely impossible.#
• Every graded system of pricing proceeds from the fact that men always and ever harmonized their own requirements with their estimation of economic facts.#
• The entrepreneur’s commercial attitude and activity arises from his position in the economic process and is lost with its disappearance.#

Ludwig Von Mises, Bureaucracy (1944)

• In the capitalist system all designing and planning is based on the market prices. Without them all the projects and blueprints of the engineers would be a mere academic pastime. They would demonstrate what could be done and how. But they would not be in a position to determine whether the realization of a certain project would really increase material well-being or whether it would not, by withdrawing scarce factors of production from other lines, jeopardize the satisfaction of more urgent needs, that is, of needs considered more urgent by the consumers.#
• The ultimate basis of economic calculation is the valuation of all consumers’ goods on the part of all the people. It is true that these consumers are fallible and that their judgment is sometimes misguided. We may assume that they would appraise the various commodities differently if they were better instructed. However, as human nature is, we have no means of substituting the wisdom of an infallible authority for people’s shallowness.#
• It is true that the appraisal of the various commodities sold and bought on the market depends no less on discretion, that is, on the discretion of the consumers. But as the consumers are a vast body of different people, an anonymous and amorphous aggregation, the judgments they pass are congealed into an impersonal phenomenon, the market price, and are thus severed from their arbitrary origin.#

Ludwig Von Mises, Omnipotent Government (1944)

• There can be protectionism in a country with domestic free trade, but where there is no domestic free trade protectionism is indispensable. . . . Where there is free trade, foreign competition would even in the short run frustrate the aims sought by the various measures of government intervention with domestic business. . . . The further a nation goes on the road toward public regulation and regimentation, the more it is pushed toward economic isolation.#
• The further a nation goes on the road toward public control of business, the more it is forced to withdraw from the international division of labor.#

Ludwig Von Mises, Human Action (1949)

• The term entrepreneur as used by catallactic theory means: acting man exclusively seen from the aspect of the uncertainty inherent in every action.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)
• The money equivalents as used in acting and in economic calculation are money prices, i.e., exchange ratios between money and other goods and services. The prices are not measured in money; they consist in money. Prices are either prices of the past or expected prices of the future. A price is necessarily a historical fact either of the past of the future. There is nothing in prices which permits one to liken them to the measurement of physical and chemical phenomena.#
• It is not labor legislation and labor-union pressure that have shortened hours of work and withdrawn married women and children from the factories; it is capitalism, which has made the wage earner so prosperous that he is able to buy more leisure time for himself and his dependents. The nineteenth century’s labor legislation by and large achieved nothing more than to provide a legal ratification for changes which the interplay of the market factors had brought about previously. As far as it sometimes went ahead of industrial evolution, the quick advance in wealth soon made things right again. As far as the allegedly prolabor laws decreed measures which were not merely the ratification of changes already effected or the anticipation of changes to be expected in the immediate future, they hurt the material interests of the workers.#
• Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better, from the viewpoint of the government and those backing its interference.#
• If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed.#
• The end of science is to know reality. It is not mental gymnastics or a logical pastime. Therefore praxeology restricts its inquiries to the study of acting under those conditions and presuppositions which are given in reality.#Quoted in Gabriel Zanotti, “The Epistemological Implications of Machlups Interpretation of Mises’s Epistemology” (2013)
• The impracticability of measurement [in economics] is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.#
• Issuing money-certificates is a ruinous business if not connected with issuing fiduciary media.#
• The mere information conveyed by technology would suffice for the performance of [economic] calculation only if all means of production – both material and human – could be perfectly substituted for one another according to definite ratios, or if they all were absolutely specific. In the former case all means of production would be fit, although according to different ratios, for the attainment of all ends whatever . . . In the latter case each means could be employed for the attainment of one end only.#
• Not that prices are fluctuating, but that they do not alter more quickly could fairly be deemed a problem requiring explanation.#
• The notions of stability and stabilization are empty if they do not refer to a state of rigidity and its preservation. However, this state of rigidity cannot even be thought out consistently to its ultimate logical consequences; still less can it be realized.#
• There is never in the whole sequence of events an instant in which the advantages derived from the increase in the amount of capital available and from technical improvements benefit the entrepreneurs only. If the wealth and the income of the other strata were to remain unaffected, these people could buy the additional products only by restricting their purchases of other products accordingly. Then the profits of one group of entrepreneurs would exactly equal the losses incurred by other groups.#
• Production for profit is necessarily production for use, as profits can only be earned by providing the consumers with those things they most urgently want to use.#
• While debt abatement improves the conditions of those who were already indebted at the moment, it impairs the position of those eager or obliged to contract new debts.#
• In an economic system in which there is no private ownership of the means of production, no market, and no prices for such goods, the concepts of capital and income are mere academic postulates devoid of any practical application. In a socialist economy there are capital goods, but no capital.#
• It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way.#
• An excess of the total amount of profits over that of losses is a proof of the fact that there is economic progress and an improvement in the standard of living of all strata of the population. The greater this excess is, the greater is the increment in general prosperity.#
• In their endeavors to strive after the highest profit attainable, entrepreneurs are forced to allocate to each branch of business only as much capital as can be employed in it without impairing the satisfaction of more urgent wants of the consumers. Thus the entrepreneurial activities are automatically, as it were, directed by the consumers’ wishes as they are reflected in the price structure of consumers’ goods.#
• Entrepreneurial errors result in losses for the inefficient entrepreneurs which are counterbalanced by the profits of the efficient entrepreneurs. They make business bad for some groups of industries and good for other groups. They do not bring about a general depression of trade.#

Ludwig Von Mises, Planning for Freedom (1952)

• [The socialist] assumes that the only thing required is to continue in the various plants production of those goods they are producing at the moment of the socialization in the ways they were hitherto produced. No account is taken of the necessity to adjust production daily anew to perpetually changing conditions. The dilettante-socialist does not comprehend that a socialization effected fifty years ago would not have socialized the structure of business as it exists today but a very different structure. he does not give a thought to the enormous effort that is needed in order to transform business again and again to render the best possible service.#

Ludwig Von Mises, The Theory of Money and Credit (1953)

• The development of the clearing system and of fiduciary media has at least kept pace with the potential increase of the demand for money brought about by the extension of the money economy, so that the tremendous increase in the exchange value of money, which otherwise would have occurred as a consequence of the extension of the use of money, has been completely avoided.#Quoted in Lawrence White, The Theory of Monetary Institutions (1999)

Ludwig Von Mises, The Ultimate Foundation of Economic Science (1962)

• No technological and therapeutical improvements can be practically utilized if the material means for its utilization have not been previously made available by saving and capital accumulation.#

Mark Taylor, “The Economics of Exchange Rates” (1995)

• A credible target zone is stabilizing in the sense that the range of variation in the exchange rate will be smaller, for any given range of variation in the fundamentals, than under a free float.#

Max Weber, The Protestant Ethic and the Spirit of Capitalism (1905)

• The universal reign of absolute unscrupulousness in the pursuit of selfish interests by the making of money has been a specific characteristic of precisely those countries whose bourgeois-capitalistic development, measured according to Occidental standards, has remained backward.#

Milton Friedman, “Lerner on the Economics of Control” (1947)

• If a number of random disturbances, each varying by about the same amount, are added, their mean tends to fluctuate less than any one of the disturbances, and in this sense, the errors tend to cancel out; but their sum tends to fluctuate more than any one of the disturbances, and the larger the number of disturbances added, the larger the fluctuations in the sum. The effects of countercyclical actions of government are added to, not averaged with, the economic movements that would otherwise take place.#
• The most that can be expected [of an institutional arrangement] is a reasonable approximation to the economic optimum. They must, therefore, be judged in part by (1) the practical administrative problems entailed in so operating them as to approximate the economic optimum and (2) as a corollary, the extent to which they lend themselves to abuse, i.e., the ease with which they can be used for objectives other than the general welfare.#

Milton Friedman, “The Methodology of Positive Economics” (1953)

• A fundamental hypothesis of science is that appearances are deceptive and that there is a way of looking at or interpreting or organizing the evidence that will reveal superficially disconnected and diverse phenomena to be manifestations of a more fundamental and relatively simple structure. . . . If a class of “economic phenomena” appears varied and complex, it is, we must suppose, because we have no adequate theory to explain them.#

Milton Friedman, A Program for Monetary Stability (1960)

• So long as the fiduciary [fiat] currency has a market value greater than its cost of production… any individual issuer has an incentive to issue additional amounts. A fiduciary currency would thus probably tend through increased issue to degenerate into a commodity currency – into a literal paper standard – there being no stable equilibrium price level short of that at which the money value of currency is no greater than that of the paper it contains.#Quoted in George Selgin, “Synthetic Commodity Money” (2013)

Milton Friedman, Capitalism and Freedom (1962)

• The substitution of contract arrangements for status arrangements was the first step toward the freeing of the serfs in the Middle Ages.#
• The widespread use of the market reduces the strain on the social fabric by rendering conformity unnecessary with respect to any activities it encompasses.#

Milton Friedman, A Monetary History of the United States, 1867-1960 (1963)

• The distinction [between demand deposits and time deposits] became of major importance to banks (and so reliable data became available on a continuous basis for the two categories separately) only after 1914, when the Federal Reserve Act introduced differential requirements for demand and time deposits.#
• Though national bank notes were nominally liabilities of the banks that issued them, in effect they were indirect liabilities of the federal government thanks to both the required government bond security and the conditions for their redemption.#
• The existence of two kinds of money would presumably increase, other things being the same, the money balances people would want to hold, i.e., would tend to make the velocity of the combined money total lower than if all elements of the money stock were perfect substitutes. #
• The sharp rise in the stock of money from 1868 to 1872 was primarily a consequence of the spread of deposit banking#
• The forces making for economic growth over the course of several business cycles are largely independent of the secular trend in prices.#
• Silver agitation had its major economic impact through this effect on expectations rather than through the direct contribution that silver purchases made to the expansion of the money stock.#
• Until the establishment of federal deposit insurance in 1934, there was no more sensitive indicator of the state of public confidence in the banks than the deposit-currency ratio.#
• The Federal Reserve System therefore began operations with no effective legislative criterion for determining the total stock of money.#
• For every dollar created by the government, several dollars can be created by the banking system, since only part of the extra dollars of high-powered money go into circulation, and part go into bank reserves. In effect, as it were, the government engages in a sharing arrangement with the banking system whereby the two divide between them the amount the public is willing to lend at zero interest rate (or in the case of deposits bearing interest, at an interest rate below that on other types of loans) and also the proceeds of the implicit tax on money balances involved in a price rise. The sharing formula, Le., the number of dollars the banking system can create per dollar created by the government, depends on the banks’ reserve ratio (in terms of high-powered money) and the public’s deposit-currency ratio. The public’s shift to currency reduces the share of the banking system and increases the share of the government, which thereby acquires resources with less of an increase in the money stock.#
• There seems to be no necessary relation between the direction of movement of prices over a period covering several business cycles and the corresponding secular rate of growth of real output. Apparently the steadiness of the price movement is far more important than its direction.#
• Cyclical fluctuations in credit quality, arising out of fluctuations in the standards used by lenders to assess risk and by borrowers to assess the prospects of ventures, may well play a part in the cyclical process. But it is the fluctuations, not the level of credit quality, that play a part; and it is fluctuations in the standards, not in the ex post outcome, that alone are a separate contribution of the credit mechanism toward the amplification of disturbances. Fluctuations in the ex post outcome without a change in standards are a consequence of other forces, and will have their impacts in turn elsewhere; they involve simply the transmission of impulses through the credit mechanism. In the 1929-33 episode, changes in the ex post outcome were far more dramatic than in the standards adopted.#
• The composition of Federal Reserve assets matters only as it may affect the attitudes of banks or other participants in the money market.#
• In retrospect, it probably would have been better either to have permitted the gold-standard rules to operate fully, once something like an international gold standard was adopted, or to have replaced them completely by an alternative criterion. The compromise of disregarding minor movements but reacting to major ones may have promoted stability during the twenties but, if so, only at the cost of great instability at either end of the decade. The result was that the policy, as carried out, achieved neither the internal objective of domestic stability nor· the external objective of a stable international gold standard.#
• The difficulties giving rise to financial panics in earlier periods resulted much less from the absence of elasticity in the total stock of money than from the absence of interconvertibility of deposits and currency.#
• Velocity tends to rise during the expansion phase of a cycle and to fall during the contraction phase#
• The impairment in the market value of assets held by banks [during the Great Depression], particularly in their bond portfolios, was the most important source of impairment of capital leading to bank suspensions, rather than the default of specific loans or of specific bond issues.#
• Because there was an active market for bonds and continuous quotation of their prices, a bank’s capital was more likely to be impaired, in the judgment of bank examiners, when it held bonds that were expected to be and were honored in full when due than when it held bonds for which there was no good market and few quotations. So long as the latter did not come due, they were likely to be carried on the books at face value; only actual defaults or postponements of payment would reduce the examiners’ evaluation. Paradoxically, therefore, assets regarded by the banks as particularly liquid and as providing them with a secondary reserve turned out to offer the most serious threat to their solvency.#
• The use of the gold-exchange standard did mean, however, that there was less leeway in the adjustments among countries—the rough equilibrium could not be quite so rough as under the full gold standard. The gold-exchange standard rendered the international financial system more vulnerable to disturbances for the same reason that the rise in the deposit-reserve ratio rendered the domestic monetary system more vulnerable: because it raised the ratio of claims on the relevant high-powered money—in this case, ultimately, gold—to the amount of high-powered money available to meet those claims. #
• Perhaps the best description of the role of gold in the United States since 1934 is that, rather than being the basis of the monetary system, it is a commodity whose price is officially supported in the same way as the price of wheat, for example, has been under various agricultural programs. The major differences are that the support price for agricultural products is paid only to domestic producers, the gold-support price to foreign as well as domestic; the agricultural products accumulated are freely sold at the support prices to anyone, the gold only to certain foreign purchasers and not to any domestic ones. In consequence, the gold program has set a floor under the world price of gold in terms of dollars.#
• it takes some seven months for banks to adjust to an unanticipated discrepancy between their actual and desired reserve positions produced by a change in their actual position, and some three years for banks to carry through a thoroughgoing revision of their actual reserve position as a result of a change in the desired position. #
• It seems likely that any direct effect of price control [on the velocity of money] was less important than the unavailability to consumers of automobiles and other consumer durable goods, after wartime cessation of their production in 1942, and than the restrictions imposed on construction and on private capital formation. Both consumers and business enterprises were prevented from using their funds to purchase kinds of goods they regard as increasing their wealth, which ordinarily absorb a large fraction of increases in income and an especially large fraction of transitory increases. The blocking of these channels of spending induced consumers and business enterprises to increase the stock of other assets—in particular, as it turned out, money and government securities—to a much higher level than otherwise, relative to income. #
• The difference [in government finance between the two World Wars] was largely formal. Perhaps half the World War I increase in loans to customers was secured by government obligations; in World War II, the banks purchased the securities directly.#
• It is an elementary economic truism, applicable to the money market as elsewhere, that one cannot simultaneously control both the price and the quantity of a good without some explicit rationing mechanism. If the price is fixed, the quantity must be permitted to be whatever is consistent with that price, and conversely.#
• The tax on money balances implicit in inflationary money creation was a much more productive tax in World War II than in World War I, because of the lower velocity prevailing during World War II than during World War I (Table 24, line 3). Money balances averaged 45 per cent of one year’s national income in 1914-20, 69 per cent in 1939-48. A 1 per cent tax on money balances—if we ignore the reflex influence of the tax on the amount of money balances held—therefore yielded 0.45 per cent of a year’s national income in World War I, 0.69 per cent, or about 1 times as much, in World War II.#
• A rise in prices can have diametrically opposite effects on desired money balances depending on its effect on expectations. If it is interpreted as the harbinger of further rises, it raises the anticipated cost of holding money and leads people to desire lower balances relative to income than they otherwise would. In our view, that was the effect of price rises in 1950 and again in 1955 to 1957. On the other hand, if a rise in prices is interpreted as a temporary rise due to be reversed, as a harbinger of a likely subsequent decline, it lowers the anticipated cost of holding money and leads people to desire higher balances relative to income than they otherwise would. In our view, that was the effect of the price rises in 1946 to 1948. #
• Failure has marked every attempt we know of to find a systematic relation between the quantity of money demanded in the United States and either the current rate of change in commodity prices or a weighted average of the past rates of change in prices, taken as an estimate of the rate of change expected to prevail in the future. Yet Cagan has found a close relation for other countries for periods marked by substantial price movements. The most plausible reason for the difference, in our view, is the small size of price changes in the United States except in wartime periods. . . . The looked-for effect may have been too small in magnitude to be revealed by such blunt tools as multiple correlation analysis and the simple expectational model involved in taking a weighted average of past occurrences as an indicator of the future.#
• There is a long lag between the occurrence of substantial price rises and the development of widespread expectations of further price rises.#
• Before 1914 a rise in interest rates could raise the stock of money only through a rise in the deposit-reserve ratio or through the attraction of capital and thereby gold from abroad. After 1914, a rise in interest rates could also raise the stock of money by inducing banks to borrow more heavily from the Federal Reserve System.#

Milton Friedman, The Optimum Quantity of Money (1968)

• Real cash balances are at least in part a factor of production. To take a trivial example, a retailer can economize on his average cash balances by hiring an errand boy to go to the bank on the corner to get change for large bills tendered by customers. Then it costs ten cents per dollar per year to hold an extra dollar of cash, there will be a greater incentive to hire that errand boy, that is, to substitute other productive resources for cash. This will mean both a reduction in the real flow of services from the given productive resources and a change in the structure of production, since different productive activities may differ in cash-intensity, just as they differ in labor- or land-intensity.#

Milton Friedman, “Monetary Policy: Theory and Practice” (1982)

• Were it feasible for the Federal Reserve to adopt and achieve a target interest rate, it is inconceivable that the prime rate would ever have risen to over 20 percent. In principle, given sufficient knowledge about market behavior, it is possible to use money market instruments to achieve monetary aggregate targets. However, experience has demonstrated that monetary authorities are in practice unable to achieve in this way the degree of control over monetary aggregates that seems hypothetically possible. #
• Short-term swings in monetary growth do no great harm if they are not only actually reversed but also widely expected to be reversed.#
• The conduct of monetary policy does not require that the Federal Reserve System have any member banks. . . . The latter requires simply that the monetary authority have a monopoly on the printing press or its equivalent to control the total amount of high-powered or base money. Control over the base exerts about as much influence on nonmember commercial banks as on member banks, on thrift institutions as on commercial banks, and so on in unending circle.#

Niall Ferguson, The Ascent of Money (2008)

• The Dutch Republic prevailed over the Habsburg Empire because having the world’s first modern stock market was financially preferable to having the world’s biggest silver mine.#

Nicholas Kaldor, “The Irrelevance of Equilibrium Economics” (1972)

• For [Adam] Smith the existence of a “social economy” and the existence of increasing returns were closely related phenomena.#
• The extent to which capital is used in relation to labour is predominantly a matter of the scale of operations—the capital/labour ratio in production is a function of the extent of the market rather than of relative factor prices.#
• The very notion of “general equilibrium” carries the implication that it is legitimate to assume that the operation of economic forces is con- strained by a set of exogenous variables which are “given” from the outside and stable over time. It assumes that economic forces operate in an environment that is “imposed” on the system in a sense other than being just a heritage of the past-one could almost say an environment which, in its most significant characteristics, is independent of history.#
• Once we allow for increasing returns, the forces making for continuous changes are endogenous—”they are engendered from within the economic system”—and the actual state of the economy during any one “period” cannot be predicted except as a result of the sequence of events in previous periods which led up to it.#
• Competitive markets are inconceivable without intermediaries—merchants or “dealers”—who are both buyers and sellers at the same time (at different prices) and who carry stocks so as to make “a market” that enables producers to sell and consumers to buy.#
• What differentiates a merchant from other economic agents (such as a “producer”) is that his natural response to “outside” influences is to vary the size of his stock—to absorb stocks in the face of excess supplies and to release stocks in the face of excess demand. The merchants’ function in other words is to create and preserve an “orderly” market which they can only do through their willingness to act as a shock-absorber: through their readiness to enlarge their commitments when prices are sagging and to curtail commitments when they are rising. The very notion of “merchanting” or “commercial” activities involves therefore the assumption that there is a certain elasticity of demand for holding stocks by the traders: an elasticity which is ultimately governed by the traders’ expectations concerning prices and selling opportunities in the future.#
• It is a hen-and-egg question whether historically it was the growth of commerce which continually enlarged “the size of the market” and thereby enabled increasing returns to be realised, or whether it was the improvement of techniques of production and the improvement in communication which led to the growth of commerce. In the process of the development of capitalism the two operated side by side. And it involved a tendency for a continual rise in the value (and not just the volume) of stock carried by traders in the markets, which meant in turn that the growth of production resulting from any favourable change on the supply side led to a growth in incomes which in turn generated an increase in effective demand for commodities.#
• This is the real significance of the invention of paper money and of credit creation through the banking system. It provided the pre-condition of self-sustained growth. With a purely metallic currency, where the supply of money is given irrespective of the demand for credit, the ability of the system to expand in response to profit opportunities is far more narrowly confined. #
• The sharp distinction made by Keynes between a “full employment” situation where real income is confined by resource-endowment, and an unemployment situation where it is limited by effective demand, disappears in the presence of increasing returns.#
• If indivisibilities were the sole cause of increasing returns, there would always be some level of production at which such scale economies were exhausted and “optimum scale” production reached.#
• There is no reason to suppose that “economies of scale” become inoperative above certain levels of production.#
• The existence of a non-linear relationship between costs and capacity is inherent in the nature of space, and there is nothing “indivisible” about space as such.#

Paul Samuelson, “Parable and Realism in Capital Theory: The Surrogate Production Function” (1962)

• Because of a Gresham’s Law that operates in economics, one’s easier expositions get more readers than one’s harder. And it is partly for this reason that such simple models or parables do, I think, have considerable heuristic value in giving insights into the fundamentals of interest theory in all its complexities.#
• Solow, in the interest of empirical measurements and approximation, has been willing occasionally to drop his rigorous insistence upon a complex-heterogeneous- capital programming model; instead, by heroic abstraction, he has carried forward the seminal work of Paul H. Douglas on estimating a single production function for society and has had a tremendous influence on analysts of statistical trends in the important macro aggregates of our economy. One might almost say that there are two Solows – the orthodox priest of the MIT school and the busman on a holiday who operates brilliantly and without inhibitions in the rough-and-ready realm of empirical heuristics.#

Perry Mehrling, “What Is Monetary Economics About?” (2000)

• Although the exchange rate and the price level are both prices of money, they are very different kinds of prices. Central banks could and did try to fix exchange rates by standing ready to buy and sell gold, but never could they or did they try to fix the price level by standing reading to buy and sell the relevant basket of commodities. #
• Even though in principle the gold standard central banker stood ready to buy and sell gold at a fixed price, swelling or depleting his gold reserve depending on the balance of demand and supply, in practice he operated by manipulating the discount rate in order to obviate the need for substantial gold flows.#

Perry Mehrling, “The Inherent Hierarchy of Money” (2012)

• What counts as money and what counts as credit depends on your point of view, which is to say that it depends on where in the hierarchy you are standing. . . . Best therefore not to reify the concepts of money and credit, and to rest instead with the more general idea that the system is hierarchical in character.#
• From the point of view of the [monetary] system as a whole, every liability is someone else’s asset. That means that the entire pyramid would disappear if we consolidated balance sheets, as most standard aggregative macro models do, to one extent or another. . . . By contrast, . . . important macroeconomic variables, such as interest rates and GDP, are affected both by the gross quantity of inside credit and also by who is issuing it and who is holding it, which is to say by the precise location of that inside credit within the hierarchy of money and credit.#
• In the expansion phase, the qualitative difference between credit and money becomes attenuated; credit expands while the hierarchy flattens. In the contraction phase, the distinction between more money-like and less money-like forms of credit is re-established; credit contracts while the hierarchy steepens.#
• Credit is a promise to pay money, and relaxation today comes at the price of a greater constraint some time in the future. The important point is that the system involves at all times a balance between discipline and elasticity, with sometimes one and sometimes the other aspect serving as the more dominant feature. #
• The prices in the simple hierarchy are three: the exchange rate (the price of money in terms of gold), par (the price of deposits in terms of currency), and the rate of interest (the price of securities in terms of deposits or currency, assuming par). These prices are the quantitative link between layers of qualitatively differentiated assets.#
• The whole point of deposit par is that it is a price that does not change, and under a fixed exchange rate system the same is true internationally. The banking system thus is especially vulnerable whenever the hierarchy steepens because it is bound to defend a fixed price between layers of an increasingly differentiated hierarchy.#

Peter Boettke, “Beyond equilibrium economics: reflections on the uniqueness of the Austrian tradition” (1994)

• The equilibrium benchmark can only be justified if we take “equilibrium” to mean market clearing, rather than general equilibrium. Certainly market clearing is essential for a theory of market order. In any given market there is a tendency for supply to meet demand, but this is quite different from the mechanical metaphor of equilibration. While equilibrium implies market clearing, market clearing does not imply equilibrium, with all of its questionable assumptions. #
• Market clearing arises when quantity supplied equals quantity demanded. Market equilibrium is achieved when the above holds, as well as an equality of marginal rates of substitution across all goods and factors, thus allowing price to equal marginal cost.#
• Consider what it would mean for human evolution to tend toward a final state. No biologist would ever say that we need to have a concept of a “fully evolved” human to understand the process of evolution. It would also seem questionable to attempt to explain evolution as a process “tending toward” such a being. That would necessitate both constructing the being and explaining the process. Similarly, the evolutionary process in economics does not refer to an end-state, but instead explains how creativity leads to complexity, while retaining a sufficient degree of coordination to make the complexity beneficial.#

Peter Boettke, “Rational Choice and Human Agency in Economics and Sociology: Exploring the Weber-Austrian Connection” (1998)

• Since the scientific goal in interpretative sociology (i.e., praxeology) is Verstehen, not prediction and falsifiability, broadening of the concept of rationality to near tautological status does not present the problem it would in alternative concepts of science. #
• Economic calculation provides economic actors with vital knowledge which enables the social system of production to separate endeavors which are economically feasible from those which are technologically feasible.#

Peter Boettke, Calculation and Coordination (2000)

• Markets do not need a de jure sanction to exist, but, for market activity to serve as the basis of general economic prosperity in a given society, they must exist within a body of law. Political institutions and the structure of law provide the framework for economic behavior.#
• Despite the formal similarity of the choice problem across time and place, the fact remains that the institutional context of choice changes the margins on which economic decisions are based.#

Peter Boettke, “From The Philosophy of Mind to the Philosophy of the Market” (2002)

• The argument that cuts against the case for conceiving of the economic problem that society confronts as one in principle capable of solution through centralized planning is strikingly similar to the one that cuts against conceiving the mind as a hierarchical system under the command of a single unifying will.#
• General equilibrium theory was able to capture in abstract form the interconnectedness of all markets in an economic system, but it did so at the cost of assuming away the processes through which the division of knowledge in society is coordinated so that the interconnectedness can be realized. . . . Similarly, work in hard AI is able to replicate the mind as a ‘thinking machine’ and the interconnectedness of different parts of the brain, but at the cost of losing the human attributes of meaning and intentionality.#

Peter Boettke, “The New Comparative Political Economy” (2005)

• Privatization without price liberalization, or price liberalization without tight monetary policy, or deregulation without fiscal restraint, would all result in outcomes even less desirable than the current system.#
• Technological change [is] actually accorded too much attention in the economic theory of development. Technology does not work itself but must always work through an investment of capital.#
• The visible manifestation of underdevelopment is poverty and its immediate cause is lack of saved capital. The underlying cause, however, is the lack of credible institutions in the realms of politics, law, economics, finance, and society. This lack of credible institutions manifests itself in the inability to ward off predation by either private or public actors. Perhaps one of the most important empirical lessons we have learned from the transition from socialism and the problem of development assistance more generally is that efforts to supply the saved capital in terms of loans are counter productive except in areas where credible institutions which constrain predation are already in place.#
• Schooling is not the answer any more than technology transfer unless members of the indigenous population are secure in their knowledge that if they place a bet on an economic idea, they will be able to reap the rewards should that bet pay off.#

Peter Boettke, “Introduction to Handbook on Contemporary Austrian Economics” (2010)

• Since money is the link for almost all transactions in a modern economy, monetary distortions affect those transactions. The goal of monetary policy, therefore, should be to minimize these monetary distortions, precisely because money is nonneutral.#

Peter King, Thoughts on the Restriction of Payments in Specie (1804)

• When we consider the nature of the banking system, of all other branches of trade the most complex and delicate and deriving its very essence and existence from the confidence of the public, it will appear that there is no subject upon which legislative interference would be more improper or more pernicious.#Quoted in Lawrence White, Free Banking in Britain (1995)

Peter Lewin, Capital in Disequilibrium (1999)

• Equilibrium is not only a relationship between individuals at a point in time, it is necessarily also a relationship between actions over time.#
• The [average period of production] is crucially dependent on being able to identify the stages of production. It is assumed that the process begins at stage 1 and ends at stage n. In this way any kind of “looping” (coal is used in the production of iron and vice versa), where the output of one stage becomes available as an input of an earlier stage, is ruled out. Second, if the output is a flow (as it usually is), then we must also have some way to connect inputs that occur at time periods n—t with precisely that output that arrives at time period n and separate them from those that need to be connected to outputs occurring at time periods n+j where j is an index of time periods occurring after n. In other words, if the production process is a flow input—flow output process, a set of inputs are used to produce jointly a set of outputs occurring over time and the measuring of T becomes more problematic. Similarly, we must be able to identify the amount of labor time l that is used. This obviously presumes that it is possible to reduce any labor heterogeneity to comparable terms, like efficiency units, and then to measure the number of such units supplied per period of time.#
• Production plans, considered as a whole, are typically in disequilibrium—are based, at least in part, on inconsistent expectations, not regarding the “rules of the game,” but regarding the viability of the product or the productive technique. There is no way to derive an aggregate measure of capital in this situation. The net present values as (assumed to be) computed by each individual planner are based on inconsistent futures.#
• Whereas the “wealth effects” of Neoclassical economics are usually assumed to be small enough to be neglected, the capital gains and losses of Lachmann’s world are the most important forces driving changes in the capital structure. #
• Lachmann’s view of capital accumulation and economic progress is in many ways very prophetic of the revolutionary kind of economic change that has characterized the twentieth century, including the last quarter of the century. It is, in this view, impossible to separate the phenomena of technical progress and capital accumulation; capital accumulation always proceeds hand in hand with technical change.#
• An asset is specific when its opportunity cost is substantially below the value of its current contribution to production. In other words, the price that the asset could fetch in the market for employment in its next best use is substantially below (the discounted sum of) its current marginal value product(s)#
• The institutional (organizational) structure overlays and is intimately related to the production structure in such a way that it is impossible to characterize accurately the production structure without bringing in business organizations.#
• The more dynamic the environment, the more abstract the nature of the organization’s constitution needs to be for it to survive, the more it needs to be like an order.#
• Organizational changes themselves can sometimes bring improvements in productivity. This underlines the problems associated with physical notions of the capital stock.#
• Firms derive their rationale from the fact that the organization of production matters for its results.#
• For measuring the (contribution to) output, there is no avoiding certain elements of convention (judgment). What the institution of the firm does (together with the institutions of money and accounting) is to provide these conventions.#
• Market prices emerge when assets are generic enough, have enough multiple uses in the market, that people’s judgments of their worth become embodied in the stock of information available to decision-makers in general.#
• The finiteness of the payoff period [i.e. the human lifespan] is an important reason for the existence of diminishing returns to investments in human capital.#
• [The] institutional structure encompasses and gives meaning to the financial structure, the set of financial instruments and practices that facilitate the formation and mutation of the capital structure. The financial structure is volatile and cannot be designed; but in its absence the capital structure has no meaning and no value.#

Ralph Rector, “The Economics of Rationality and the Rationality of Economics” (1990)

• From an interpretive point of view, rational agents cannot respond automatically to ‘objective’ events, such as price changes, because there are no events that could elicit such responses.#

Randall Kroszner, “On The Microfoundations of Money” (1990)

• Rather than providing a basis for ‘representation’ of economic phenomena, the GE construct may be more usefully considered as a moneyless comparison point which is used to sharpen other approaches.#
• The desire to isolate the essence of money led to an excessive emphasis on cleanly demarcating it from other goods, even though this impulse ran contrary to the role of relative marketability in the theory of the origin of money. Money is then distinguished from other commodities by being not simply the most marketable good but my being ‘absolutely’ marketable. The special property of ‘perfect’ saleability comes to define money itself. The initial criterion that identified money’s saleability relative to other goods gave way to a strict zero-one distinction that has hindered the investigation of the evolution processes that could result in the separation of the media of exchange from the accounting unit. The achievement of perfect saleability thus becomes the final stage in monetary evolution. Categorizing money in this way obscures the very important observation that even in a monetary economy some items are easier to ‘turn over’ than others (that is, goods may be placed on a continuum from least to most saleable).#
• Drawing on this analogy with Mises’ account, we might characterize this explanation of the further evolution towards separation and refined barter as a ‘progression theorem’. Thus, a decentralized decision-making process can explain, first, the emergence of a ‘money’ combining both the unit of account and medium of exchange to overcome the inconveniences of ‘crude’ barter, and, second, the separation of functions as ‘money’ enhances the saleability of other goods.#

Richard Timberlake, “The Significance of Unaccounted Currencies” (1981)

• If [unaccounted currencies] were more than trivial in quantitative terms, it would help to explain the decline in the measured velocity of money during the nineteenth century. For if the stock of accounted money were supplemented by an unperceived quantum of unaccounted money, measured velocity – money income divided by the stock of accounted money – would be higher than the true velocity of money. As unaccounted money gradually was replaced by accounted money, the measured velocity of circulation would fall.#
• The general and rapid rise in prices in 1862 due to the first issue of greenbacks during the Civil War was perhaps the most acute example of government-inspired paper money inflation and suspension [in the pre-Fed U.S.]. Commodity values of most metallic coins rose sharply above their monetary values, and coins then went out of circulation, leaving the North’s economy with almost no currency denominations below $5. . . . After 1865, private coinage as well as issues of state bank notes were effectively prohibited. But government coinage of fractional currency was still inadequate until after 1880.#
• The key to an equilibrium in a laissez-faire monetary system is the understanding that private money would have to be accepted as well as issued, just as privately produced shoes or bankchecks would have to be demanded as well as supplied.#

Richard Wagner, “Boom and Bust: The Political Economy of Economic Disorder” (1980)

• By virtue of the law of conservation, all engines are necessarily 100 percent efficient. To say that an engine is less than perfectly efficient requires a normative judgment that separates the output into useful or desired output and waste. A pump that moves water uphill to a house can be said to be less than 100 percent efficient only as a result of someone’s having judged that such things as the water lost in transit and the heat dissipated in the pump house are unwanted and hence represent waste. It is the same with society. . . . The efficiency of an economy cannot be judged without placing some valuation upon different uses of time, any more than the efficiency of an engine can be judged without placing some valuation upon different transformations of energy.#
• The way that [national income] accounts are constructed, resources devoted to the correction of error are valued equivalently with resources devoted to other production.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)

Richard Wagner, “Austrian Cycle Theory: Saving the Wheat while Discarding the Chaff” (1999)

• If there is any merit in Austrian cycle theory, it resides not in an explanation of booms and busts but rather in an explanation of structural shifts in the pattern of economic activity without aggregate implications.#
• The specific Austrian story of a shift in the structure of prices due to an expansion of credit is simply one particular way of recognizing that the central focus of macro theory should be on coordination, because macro variables are not objects of choice but only emergent outcomes.#
• A cycle theory that depends on the inability of people to distinguish, in the aggregate, between an increase in personal saving and an increase in central bank holdings of government debt must rightfully be dismissed on the grounds that it fails to incorporate any reasonable requirement of individual rationality in economic action.#
• Walras’ Law does not deny the possibility of miscoordination, but only notes that miscoordination will always have a kind of symmetrical character.#
• The standard variables of macroeconomics, rates of growth, levels of employment, and rates of inflation, are not objects of choice for anyone, but rather are emergent outcomes of complex economic processes. Governments may do things that might influence the subsequent measures that are assigned to those variables, but this is a very different thing from choosing values for those variables.#
• Observed variability in aggregate data might be a sign of avoidable and correctable miscoordination, but it can also be a sign of progress in an interdependent world with capital complementarity.#
• An increase in the volume of miscoordination in a society will shift the pattern of activity in a society, but it need not alter the total volume of activity,and would represent a meaningful notion of waste instead.#
• It does not follow that nonsustainable price signals must show up as variations in aggregate series through time. It is conceivable that miscoordination could increase without any impact on aggregate time series. Miscoordination induces revisions in plans. Labor is shifted from the execution of plans to the revision of plans. It is conceivable that this shift of labor can be accommodated within an unchanged aggregate volume of employment.#

Richard Wagner, Mind, Society, and Human Action (2010)

• Plans require some degree of inflexibility in pricing, as well as in other attributes of a plan. Information must be accumulated and processed before it can be acted upon. Accumulation and processing are activities that require the passing of time. During any such interval, prices will be inflexible for that entity. . . . The very idea of plans and an ecology of plans means that some degree of inflexibility is part of a well-working catallaxy.#
• As a tool of thought, the neo-Walrasian metaphysics of general equilibrium is surely indispensable for economic theory because it conveys the general interdependence among economic relationships in a society. As a description of reality, the situation is not so clear. It is possible to set forth necessary conditions for the existence of a general competitive equilibrium. What comes out of these formulations is mostly a sense that reality does not match these conditions.#
• The neo-Walrasian program provides a view of society as an equilibrated structure of relationships that is characterized by a set of prices that is consistent with market-clearing in light of consumer demands. You cannot get any more orderly than this. Much work in economic theory involves claims of market failure, which brings in claims that the observed degree of orderliness is not as complete as it could be. This claim of market failure, however, cannot be rendered intelligible without an ontological effort that would account for plausibility regarding the actual degree of orderliness within a society. The neo-Walrasian program makes no effort to develop such an account of plausibility.#
• The core of economic theory explains how complex patterns of economic organization emerge through interactions among people whose individual actions are governed by adherence to the disjunction between mine and thine that we characterize as private property.#
• When economic theory is constructed within an analytical window that uses closed concepts to portray economic phenomena as reflections of static equilibriums, it is hard to see how U-max could be displaced because it is a construction that is perfectly suited for characterizing static relationships among variables: the value of any variable is what it is and not something else because that is where the opposing forces in play neutralize one another; the only question at issue is how to identify and account for these other forces.#
• What is called “vision” becomes more significant for nonprofit enterprises of all forms [including states] because vision is a vector of characteristics that is not reduced to a scalar through transferrable ownership.#
• A restriction on alienability for one service will tend to induce a bundling of services to secure economic calculation in the absence of alienability for the controlled service.#

Robert Barro, “United States Inflation and the Choice of Monetary Standard” (1982)

• Telling the Federal Reserve to select substantially different values – usually lower values – for monetary growth seems similar to urging firms and households to choose different numbers for prices, unemployment, production, and so on. As in the private sector, it is reasonable to view the Fed’s monetary decisions as emerging from a given structure of constraints and rewards.#Quoted in Lawrence White, Competition and Currency (1989)

Robert Clower, “On The Origin of Monetary Exchange” (1995)

• We know of no society historically in which “money” and “markets” did not coexist: in common parlance the term “money” has always meant objects that are routinely treated as acceptable means of payment by marketors. In the last century, money was often described by economists as a “veil,” because it was thought to mask the “true” nature of trade, which was thought “really” to consist in “the exchange of commodities for commodities”; but that view obscures a more important truth: in every civilized community for more than three centuries specialized media of exchange have served to enable private marketors efficiently to coordinate individual economic activities over an ever-wider diversity of areas of economic and geographical experience.#
• If controversy seems especially common in economics and other social sciences, that is probably because they use language closer to ordinary speech than do, say, mechanics or biochemistry. With respect to exact sciences, one must feel expert (or be mildly demented) to quarrel comfortably with professionals; but one has merely to be alive to quarrel comfortably with economists and their kind – or so one infers from the remarks of media pundits and politicians.#

Robert Frank, “If Homo Oeconomicus could Choose his Own Utility Function, Would He Choose One with a Conscience?” (1987)

• Consider, for example, a person with the capacity to experience strong feelings of guilt upon breaking a promise—that is, a person with a conscience. This person will often honor his promises even when material incentives favor breaking them. It is precisely this capacity of emotional forces to override rational calculations that makes them candidates for commitment devices.#

Robert Lucas, “Some International Evidence on Output-Inflation Tradeoffs” (1973)

• Nominal output is determined on the aggregate demand side of the economy, with the division into real output and the price level largely dependent on the behavior of suppliers of labor and goods.#
• In a stable price country like the United States, then, policies which increase nominal income tend to have a large initial effect on real output, together with a small, positive initial effect on the rate of inflation. Thus the apparent short-term tradeoff is favorable, as long as it remains unused. In contrast, in a volatile price country like Argentina, nominal income changes are associated with equal, contemporaneous price movements with no discernible effect on real output. These results are, of course, inconsistent with the existence of even moderately stable Phillips curves. On the other hand, they follow directly from the view that inflation stimulates real output if, and only if, it succeeds in “fooling” suppliers of labor and goods into thinking relative prices are moving in their favor.#

Robert Murphy, “The Labor Theory of Value: A Critique of Carson’s Studies in Mutualist Political Economy” (2006)

• The cost theory of value does not, therefore, build up price from more fundamental building blocks; instead, it merely spells out relationships that must obtain (in the long-run) among the prices of certain goods and services.#
• The long-run tendency for a reproducible good’s price to equal the money expenditures (including interest on invested capital) necessary for its continued production is entirely compatible with the marginal utility explanation.#

Robert Nozick, Anarchy, State, and Utopia (1974)

• It is ironic that pollution is commonly held to indicate defects in the privateness of a system of private property, whereas the problem of pollution is that high transaction costs make it difficult to enforce the private property rights of the victims of pollution.#

Roderick Long, “Wittgenstein, Austrian Economics, and the Logic of Action” (2001)

• Just as the kinematic diagram does not assert that the machine’s parts really are rigid, but only says that if, and to the extent that, they are rigid, the machine will behave as predicted, so likewise a economic theory does not assert that human beings have any particular aims, but only that if, and to the extent that, they have such-and-such aims, they will behave in certain ways.#

Roderick Long, “Realism and Abstraction in Economics” (2006)

• Those who criticize neoclassical models for their lack of realism are not seeking a precisive abstraction that more closely approximates reality; rather, they are seeking an abstraction that is not precisive at all. The right question to ask is not “How closely should our theories approximate reality in order to yield useful predictions?” but rather “How much specificity should our theories incorporate in order to yield useful explanations?”#

Roger Garrison, Time and Money: The Macroeconomics of Capital Structure (2001)

• If the economy could be usefully modeled as the market for a single service, there would not likely be any issues that would give macroeconomics a distinct subject matter. #
• Expectations can be regarded as endogenous in a special sort of way when the market process has been set against itself by policies that affect the intertemporal allocation of resources.#
• The adjective “rational” [in rational expectations] refers neither to a characteristic of the market participant whose expectations are said to be rational nor to a quality of the expectations per se. It refers only to the relationship between the assumption about expectations and the theory in which it is incorporated. #
• Expectations are not rational in the strong sense of that term, but they do become more rational with increased levels of policy activism and with cumulative experience with the consequences of it.#
• If we think in terms of market solutions to economic problems, we must accord expectations a crucial role. But that role is overplayed if it is assumed that expectations come ready-made on the basis of information that is actually revealed only as the market process unfolds; it is underplayed if it is assumed that expectations are and forever remain at odds with economic realities despite the unfolding of the market process. Either assumption would detract from the equally crucial role played by the market process itself, which alone can continuously inform expectations. #
• To the extent that an increase in saving is accompanied by an increase in liquidity preferences, it does not substantially increase the supply of loanable funds and hence has little effect on the rate of interest.#
• What manifests itself on the demand side of the loan market as a loss of business confidence manifests itself on the supply side as an increase in liquidity preference.#
• Although a typical technological innovation occurs in one or a few markets, it allows, through resources reallocation, for increases in the production possibilities all around.#
• In general and for any given stage of production, [in response to a change in the interest rate] the specific factors undergo price adjustments; the nonspecific factors undergo quantity adjustments.#
• The change in the interest rate affects the pattern of employment and not the magnitude.#
• The idea that entrepreneurs know enough about their respective positions in the Hayekian triangle to hedge against the central bank is simply not plausible. It all but denies the existence of an economic problem that requires for its solution a market process.#
• The Austrian theory of the business cycle is a theory of the unsustainable boom. It is not a theory of depression per se. In particular, it does not account for the severity and possible recalcitrance of the depression that may follow on the heels of the bust.#
• When [Keynes] deals with cyclical unemployment, the high demand for money is a secondary phenomenon; the primary problem is a collapsed marginal efficiency of capital. When he deals with high money demand as a primary problem, he links it to secular and not cyclical unemployment.#
• [According to Monetarists, during a monetary expansion] firms perceive the real wage to be falling; workers (initially) perceive it to be rising. . . . To the firm, the “real wage” means the wage rate in comparison to the price of the firm’s output. Changes in this classical, or Ricardian, real wage are not difficult to perceive. To the worker, the “real wage” means the wage rate in comparison to the prices of all the goods and services that the workers buy. Changes in this more neoclassical, or Fisherian, real wage are relatively difficult to perceive.#
• With the direct cash-balance effect in play and the consequent increase in the derived demand for labor, it is not clear that the possible misperception of the real wage has any claim on our attention. Monetarism could easily do without this particular twist.#
• Unlike the Keynesian and Austrian visions, then, the Monetarist vision can be stated in terms of changes in output Q or real income Y/P without special reference to the individual objects of expenditure or components of output V and I. In effect, Monetarism is virtually framework-independent. As long as a framework gives sufficient play to the variables included in the equationof exchange, the Monetarist vision can be expressed in that framework. #
• In the judgment of the Austrians, Keynes had disaggregated enough to reveal potential problems in the macroeconomy but not enough to allow for the identification of the nature and source of the problems and the prescription of suitable remedies. By contrast the Monetarists, in the Austrians’ judgment, have not disaggregated enough even to reveal the potential problems.#
• Austrian theory may best account for some nineteenth-century downturns and for the downturn at the end of the 1920s easy-money boom; Monetarist theory may best account for the prolonged contraction that followed the initial downturn in 1929 and for the subsequent downturn in 1937, which seems to be wholly attributable to an unexpected and ill-advised monetary contraction.#

Roger Garrison, “Reflections on Reswitching and Roundaboutness” (2003)

• The particular temporal profiles of reswitching-prone techniques are sufficiently quirky as to warrant neglect in setting out fundamental supply-side principles – an argument that has its parallel in the neglect of the Giffen good in setting out fundamental demand-side principles.#
• Essential to the projects [which exhibit reswitching] is an interspersing of revenues and outlays. Any project for which all outlays are made before any revenues are received cannot have multiple internal rates of return.#
• What is the justification for a rarified unit of capital (dated labor) whose utilization is unwarranted outside the context of the most abstract models?#

Roger Koppl, Big Players and the Economic Theory of Expectations (2002)

• Cognitive expectations are our ideas about the future. They are “subjective.” The “long-term expectations” of the General Theory are cognitive expectations. In this meaning, the economic concept of “expectation” is about the same as the common-sense meaning of “expectation.” Cognitive expectations emerge from processes of learning. Acognitive expectations [on the other hand] are implicit in our actions. They are “objective.” Rational expectations are acognitive, at least in some interpretations. In this meaning, the economic concept of “expectation” differs from the common-sense meaning of “expectation.” Acognitive expectations emerge from natural selection.#
• The presence of Big Players tends to produce “Keynesian” behavior in financial markets. This behavior includes herding. Stability and atomism encourages a more “neoclassical” result.#
• Big Players divert each trader’s attention from underlying conditions of supply and demand towards the personality of the Big Player. It is hard to know what a Big Player will do. Market participants must base their expectations on a picture of the market in which a highly non-anonymous ideal type is prominent. But this picture is always more or less dubious. Thus, the overall reliability and prescience of economic expectations is reduced.#
• In Mises’ methodology, only the most completely anonymous ideal types are admitted into economic theory. But the sorts of predictions Mises thought economics to give require ideal types that are not completely anonymous. They are highly anonymous, but not perfectly anonymous. With Schutz we can and should admit such imperfectly anonymous types into economic theory.#
• Agents with bounded rationality are guided by general rules and rules of thumb. They have, nevertheless, some cunning and the disposition to seek out and follow their incentives. Natural selection can turn this cunning disposition into a good approximation of rational maximizing, but only in the right institutional setting.#

Roger Koppl, “Does The Sensory Order Have a Useful Economic Future?” (2003)

• The epistemological uncertainty in Hayek’s theory is not simply (and in some sense, trivially) a result of uni-directional calendar time, as emphasized by Shackle and Lachmann, but also a result of abstract and inherent constraints on what can be known cognitively.#

Ronald Coase, “The Nature of the Firm” (1937)

• The distinguishing mark of the firm is the supersession of the price mechanism.#
• If we consider the operation of a sales tax, it is clear that it is a tax on market transactions and not on the same transactions organised within the firm.#
• A firm, therefore, consists of the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur.#
• The costs of organising and the losses through mistakes will increase with an increase in the spatial distribution of the transactions organised, in the dissimilarity of the transactions, and in the probability of changes in the relevant prices.#
• It is perhaps the main achievement of economic science that it has shown that there is no reason to suppose that specialisation must lead to chaos.#

Ronald Coase, “The Problem of Social Cost” (1960)

• The problem which we face in dealing with actions which have harmful effects is not simply one of restraining those responsible for them. What has to be decided is whether the gain from preventing the harm is greater than the loss which would be suffered elsewhere as a result of stopping the action which produces the harm.#

Roy Baumeister, “Conscious Thought Is for Facilitating Social and Cultural Interactions: How Mental Simulations Serve the Animal–Culture Interface” (2010)

• Division of labor can be achieved without theory of mind, as ant colonies show, but it must rely on fixed action patterns and therefore is limited.#

Samuel Bailey, A Defence of Joint-Stock Banks and Country Issues (1840)

• Any system which involves the necessity of any arbitrary, speculative, or deliberate adjustment of the sum total of a credit-note currency to the supposed commercial condition of the country is essentially wrong.#Quoted in Lawrence White, Free Banking in Britain (1995)
• No wisdom, short of omnipotence, could so well proportion the number and extent of these establishments to the wants of the community, as those principles of human nature which spontaneously work out the result.#Quoted in Lawrence White, Free Banking in Britain (1995)

Steven Horwitz, “Monetary Exchange as an Extra-Linguistic Social Communication Process” (1992)

• A market characteristic of a good, such as saleability or scarcity in comparison to wants, is not a piece of objective information in Menger’s theory. Rather, such knowledge can only be discovered and constituted through the actual process of economic exchange.#
• Not only is saleability itself not inherent in goods, knowledge of such saleability is not given to those who trade such goods. Saleability is ultimately determined by the mental processes of market actors, and the discovery of degrees of saleability is a process of drawing out and interpreting accessible traces of the contextual knowledge of those other minds, rather than uncovering some objective (outside the human mind) piece of information.#
• The “accuracy” of a specific price then is not a matter of corresponding to qualities in a good – or the non-monetarily expressed wants of humans – but simply a matter of finding itself in an orderly relationship with the complex of other prices that constitute a market.#

Steven Horwitz, “Monetary Calculation and Mises’ Critique of Planning” (1998)

• Economic calculation is only necessary in a world where capital goods are understood to be heterogeneous and only possible where those heterogeneous capital goods are privately owned and exchanged for money in a genuine market.#
• The Mises notion of appraisement is simply the entrepreneur spotting what he perceives as current disequilibria by creatively imagining a more equilibrating future constellation of prices. This, of course, is also the role of Kirzner’s entrepreneur.#
• Regimes that avoid inflation and deflation are to be desired not just because they stabilize the aggregate price level and ease the expectational burden on actors, but because they prevent socially unnecessary disturbances to individual money prices that undermine their ability to serve as knowledge providers in disequilibrium.#

Steven Horwitz, Microfoundations and Macroeconomics (2000)

• The concept of capital refers to the place of particular physical objects within the plan of the actor in question. Thus capital cannot be defined in terms of the physical qualities of the object, but rather its purpose or role in the plans of its possessor.#
• In Keynesian models, any excess supply of money that finds its way into the hands of consumers will be put into the bond market, driving up bond prices and driving down interest rates.#
• In a world where money was absent, the kinds of intertemporal exchanges we see in a monetary economy, not to mention the very capital goods that are the ultimate objects of those exchanges, would simply not exist. Conducting such a thought experiment seems to assume that the introduction of money would not change the (intertemporal) structure of the economic system. In other words, the system with money would look essentially like the system without it. This seems fundamentally at odds with an Austrian theoretical perspective that views the monetary economy as fundamentally different from a barter world. The existence of money enables the kind of calculative behavior that characterizes successful economic action and would be absent in any ‘realistic’ barter economy. Whatever validity there might be to the intuition behind the idea of the natural rate, from an Austrian perspective it should not be grounded in a money-barter comparison.#
• The value of capital is often more dependent on the overall complementarity of the capital structure (or its composition) than on the sheer quantity of physical equipment.#
• The assumption in most textbook Keynesian models of a fixed price level, or of a one-commodity world, is completely consistent with Keynesian treatments of the money- interest relationship. If the results of monetary excesses and deficiencies are all borne by the interest rate, where can one fit in the price level? Conversely, if one assumes the price level is fixed, then the adjustments to monetary disequilibria must take place through some other variable. #
• Forced savings are the forced reduction in the purchasing power of non-recipients of excess supplies of money.#
• The analog of forced saving during inflation, is that there is what we might term ‘forced investment’ during deflation. That forced investment takes the form of unplanned inventory accumulations and unintended excess productive capacity.#
• We can talk of money’s ‘income velocity’, which refers to the demand to hold money relative to income, and we can talk of the ‘demand for money’ in the sense of the absolute amount of money people hold.#
• Where Keynesian approaches would see the difficulty as an inability to demand (a lack of ‘aggregate demand’), Hutt’s approach would argue that it is an unwillingness or inability to supply (at the market clearing price) that is starting the process.#
• Keynes’ theoretical framework is constructed on the two assumptions of wage and monetary rigidity, without ever asking whether institutional changes that would make those assumptions inappropriate might better address the problems Keynes is trying to solve.#
• Fundamentally, the advantage of free banking over central banking in maintaining monetary equilibrium is that free banking is not dependent on the centralization of information in order to generate the appropriate supply of money.#
• By rigidly tying the quantity of money in use to the costs of producing specie, rather than the demand to hold money, 100 percent reserve banking uses signals from another market to guide the production of money, rather than relying on signals that could be provided about the demand for what they are producing in their own market. #

Steven Horwitz, “From The Sensory Order to the Liberal Order: Hayek’s Non-rationalist Liberalism” (2000)

• If the mind can never exhaustively describe and know itself, any one mind or group of minds can surely never direct economic processes that can only be understood in terms of the phenomenal pictures (i.e., expectations) held in the minds of all of the actors in the economy.#
• Changes in the prices of capital goods signal changes in the knowledge that underlies entrepreneurial plans and expectations.#
• If indeed we were all the hyper-rational agents that general equilibrium theory assumes we are, then the very need for market institutions would disappear.#

Steven Landsburg, The Armchair Economist (1995)

• An economist with a theory has at least a chance that his theory is the right one. An economist who relies on nothing but statistical extrapolations has no chance at all.#

Steven Landsburg, Fair Play (1997)

• If your behavior can’t affect your tax bill, then your tax bill won’t affect your behavior.#
• Efficiency is a mixed blessing. When governments can tax efficiently, they are likely to tax excessively. If the power to tax is the power to destroy, then the power to tax efficiently is the power to destroy with dispatch.#

Sydney Chapman, Work and Wages (1914)

• To augment the quantity of displacement (of labour) is not to augment the quantity of lengthy unemployment, for the very forces which create the additional displacements induce the re-absorbtion of the labour displaced.#Quoted in W.H. Hutt, The Theory of Idle Resources (1939)

Taylor Dennen, “Some Efficiency Effects of Nineteenth-Century Federal Land Policy: A Dynamic Analysis” (1977)

• Where prices are inhibited in their role of allocating commodities, consumers will use up valuable resources such as capital equipment or labor time in order to obtain commodities. From the point of view of those interested in maximizing the value of output, such resource expenditure is pure waste.#Quoted in Terry Anderson, “Privatizing the Commons: An Improvement?” (1983)

Terry Anderson, “Privatizing the Commons: An Improvement?” (1983)

• As the potential rents from resources rise, as the value of the resource increases, more efforts will be devoted to definition and enforcement activity. The worth of perfectly defined and enforced rights is represented by the net present value of the rents and individuals would be willing to spend up to that amount to obtain these rights. If the rents can be obtained for less than this amount, net rents will be positive and society’s output will be greater.#
• While private property rights are a necessary condition for efficient market allocation, they are not a sufficient condition. The definition and enforcement process can simply shift the inefficient allocation of resources from the resource commons to the property rights commons.#

Thomas Sowell, Knowledge and Decisions (1980)

• The merits or demerits of such a change in any specific case are simply bypassed by metaphors which proceed as if “society” is doing this now and ought to do that instead – when in fact one set of decision-making units is operating under one structure of incentives now and the advantages and disadvantages of an alternative decision-making unit and the alternative set of incentives is precisely what needs to be explicitly analyzed, not covered up by metaphors about “society”.#
• No expert can say from 100 miles away, and signet unseen, what this year’s grape crop is good, or even that last week’s good grapes are still good this week. By contrast, an expert on the manufacture of steel can specify the exact quality of steel that will be produced by given combinations of iron ore and coal at given temperatures. For these reasons, steel production has been successfully centrally planned and controlled in various countries, whereas agricultural production has had such chronic problems and periodic disasters in centrally planned economic systems that even the most centralized communist governments have had to make major exceptions in agriculture, allowing decentralized decision-making of various sorts.#
• The advantages of market institutions over government institutions are not so much in their particular characteristics as institutions but in the fact that people can usually make a better choice out of numerous options than by following a single prescribed process.#
• It is not merely the enormous amount of data that exceeds the capacity of the human mind. Conceivably, this data might be stored in a computer with sufficient capacity. The real problem is that the knowledge needed is a knowledge of subjective patterns of trade-off that are nowhere articulated, not even to the individual himself. . . . There is no way for such information to be fed into a computer, when no one has such information in the first place.#Quoted in George Selgin, The Theory of Free Banking (1988)

Thomas Sowell, Basic Economics (2004)

• How much of any given natural resource is known to exist depends on how much it costs to know.#Quoted in Jay Richards, Money, Greed, and God (2010)

Trevor Coombes, “What Central Banks May Legitimately Do” (2007)

• The conflict between monetary policy and the integrity of the banking system is only relevant to a system where central banks cultivate moral hazard.#

Tyler Cowen, “Public Goods Definitions and their Institutional Context: A Critique of Public Goods Theory” (1985)

• When most economists discuss the goods that are traditionally labeled ‘public’ (e.g., national defense, roads, etc.) they usually take a very broad definition of the marginal unit. When ‘private’ goods are discussed, institutions are ignored in a similar manner by considering a very small marginal unit.#

Tyler Cowen, “The Costs of Cooperation” (1999)

• A public good for a small group may be a public bad for the larger community, as illustrated by the example of monopolistic cartels. #
• Free market economists typically express confidence in the ability of markets to produce public goods. They cite norms, sanctions, and repeated small group interactions as mechanisms encouraging public goods production. At the same time, free market economists tend to be pessimistic about the stability of cartels in an unregulated market. If markets successfully produce local public goods, however, why are stable cartels not more prevalent? Critics of the market tend to take the contrary positions, leading to tensions in the opposite direction. Left-wing economists doubt the ability of markets to produce public goods, but they also fear that free market cartels possess great stability and power.#

Vernon Smith, “Constructivist and Ecological Rationality in Economics” (2003)

• Our bounded rationality as economic theorists is far more constraining on economic science, than the bounded rationality of privately informed agents is constraining on their ability to maximize the gains from exchange.#

W.H. Hutt, The Theory of Idle Resources (1939)

• To permit a machine to wear out may be socially (or privately) the most profitable way of scrapping it.#
• In the first and second cases [where children are being educated] they do not happen to be in the labour market, but they are employed in the sense in which capital equipment in the course of its own production is employed.#
• In any given state of knowledge and institutions, there are resources which perform their most wanted services through their mere passive existence – the service of availability.#
• We cannot say that a fire station has provided no services in a month in which there have been no fires.#
• [Pseudo-idleness] can arise when the unit of equipment can provide more services than it is economic to utilize, whilst it is impossible to obtain at all, or impossible to obtain except at a higher cost, a smaller piece of equipment providing fewer services.#
• When an unemployed linotype operator becomes a shop assistant, it is evidence of a much smaller loss of capital than is indicated when a linotype machine is completely scrapped and the steel turned into shop fittings.#
• To the extent that any trade is known to be risky from the point of view of continuity of employment, so must an increment to compensate the workers for such idleness as is liable to be experienced be reckoned as forming part of the remuneration.#
• Improved institutions which reduced the delays of labour transference . . . would undoubtedly cheapen labour.#
• If the standards of living which earnings can command from [casual labor] are deplorably low, it is the causes of the cheapness of the labour and not the methods by which it mays to utilize it which must be blamed. And the labour is cheap because other opportunities of employment are barred to those who provide it.#
• The cause of unemployment in this case [of vagrancy] is a preference. It implies no wrong use of resources, given the social will. If it is a condition which we happen to deplore on moral grounds, then the method of reform lies either in changing the preferences directly (through preaching or teaching) or in changing the environment which apparently gives rise to the despised preferences.#
• The physical side of poverty has been greatly overstressed because the propagandist has found it easier to win support by emphasizing that side than by arguing the superficially less plausible case against environmental factors which are not in such concrete evidence.#
• A taste as such can hardly be ‘irrational’; but that term can be applied to a choice or preference because it may be based upon a false expectation due to its consequences having been wrongly thought out.#
• We seem usually to be much more vigilant in respect of the price of a thing that we buy than we are in respect of its quality.#
• Their objection as wage-earners to downward wage-rate adjustments seems to be much more serious than their anger as consumers to price increases.#
• In ‘pure theory’, the irrational origin of preferences may be taken as part of the data in the light of which a particular result may be explained. As soon as we bring the question of ‘irrationality’ into discussion as a phenomenon to be deplored, we have, strictly speaking, left the field of economic controversy.#
• In relation to the individual’s own ‘real welfare’ and that of his family, is it not clear that his attitude towards his income-status (or whatever else happens to be the cause of his indifference to ‘real’ wage-rates) must be a relatively negligible factor?#
• There are no determinants in the price mechanism which apportion output among those who share in the benefits of monopoly. From the social standpoint the division must be arbitrary.#
• When we think of ‘idleness’ in one of the senses in which the condition can be deplored, it is simply a conception which enables us to distinguish the most conspicuous (certainly not the most serious) forms of waste from others.#
• The absence of idleness does not imply the absence of waste.#
• A monopoly is ‘natural’ when it does not depend on any amalgamation of interests through the purchase of competing resources or any other form of contractual or tacit collusion.#
• The object of public utility control is presumably to restrict entrepreneurial powers in such a way as to convert a monopolistic situation into a competitive one.#
• The free movement and utilization of resources, regardless of private interests which are thereby injured, is what orthodox economists have in fact meant by competition.#
• Natural monopoly can be observed in practice to be of relatively small importance in comparison with collusive monopoly. In the absence of collusive monopoly (in conspicuous or unrecognized form) there can be little withholding of capacity.#
• In a ‘pure’ strike between two parties, each side believes that the other will be the more burdened or inconvenienced, and counts on the other side’s continued waste of its services forcing it to acquiesce.#
• Restriction schemes are threatened less from internal quarrels than from the danger of competition from outside. . . . The greater part of that divergence of interest within . . . would cease entirely if the permanence of a cartel could be assured by the suppression of all external competition.#
• The recognition of certain deficiencies in an existing regime may lead us to suppose that the right system of money, if we could only find it, would automatically correct the results of the refusal to make otherwise desirable adjustments in many spheres.#
• Both in the practical selection of monetary policies under political systems dominated by ‘pressure groups’, and in the less tangible psychological influences determining typical preference for or tolerance of inflationary theories, the distributive effects have subconsciously loomed more important than the productive.#
• Regrettable idleness, like other forms of ‘waste’, seems to be the product of arrangements which allow private interest to triumph over social interest. It arises, in other words, because our laws permit competition to be restricted. Hence, no improvement of the monetary system alone is capable of eliminating causes of idleness whilst other existing institutions remain.#

W.H. Hutt, The Keynesian Episode (1979)

• The demand for any commodity is a function of the supply of noncompeting commodities.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)

Wesley Mitchell, “The Role of Money in Economic History” (1944)

• When money is introduced into the dealings of men, it enlarges their freedom. . . . By virtue of its generalized purchasing power, money emancipates its users from numberless restrictions upon what they do and what they get. As a society learns to use money confidently, it gradually abandons restrictions upon the places people shall live, the occupations they shall follow, the circles they shall serve, the prices they shall charge, and the goods they can buy. Its citizens have both a formal and a genuine freedom in these respects wider than is possible under an organization in which services and commodities are bartered. Adam Smith’s “obvious and simple system of natural liberty” seems obvious and natural only to denizens of a money economy.#Quoted in Axel Leijonhufvud, “Costs and Consequences of Inflation” (1975)

William Easterly, The Elusive Quest for Growth (2001)

• Are terms of trade of developing countries going up or down? The best answer I’ve seen is “both.” Experts on the left often warn simultaneously about the declining terms of trade of poor countries and the coming shortages of raw materials (which would improve the terms of trade of poor countries).#

Yuval Harari, Sapiens (2014)

• History’s first known money – Sumerian barley money – appeared in Sumer around 3000 BC, at the same time and place, and under the same circumstances, in which writing appeared. Just as writing developed to answer the needs of intensifying administrative activities, so barley money developed to answer the needs of intensifying economic activities.#
• Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised.#