In previous posts, I have explained that the judgments of individuals provide the only Source of Economic Value, and the ordinal preferences of individuals provide the only Measure of Economic Value. So, how can these individual subjective values provide any useful information to those actors and any outside observer? The subjective values of individuals become useful to … Continue reading Economic Value and Exchange

I have long believed that people misinterpret the behavior of markets because they don't understand the systemic structure of those markets. A lot of economists treat "the economy" as if it were stagnant. They talk a lot about "equilibrium." Well, markets like other living systems achieve "equilibrium" only in death. The complexity of markets provides … Continue reading Introduction to Systems Thinking

Yesterday I posted a publication (There Is No Market) that made the case that no such thing as "the market" exists. The complexity of markets makes it impossible to treat them as a collective. They can only exist as a network of connected transactions made by individuals. To further demonstrate that point I have created … Continue reading Economic Measurement

Newscasters fill the airwaves with dramatic statements about “The Economy.” “The Economy’s doing great.” People suffer because of “Inflation.” “The Fed will raise interest rates.” And much more... The Magnitude of the System I do not believe that the people who make these statements realize the magnitude of the system about which they speak. When … Continue reading There Is No Market: Errors of Aggregation

In my preceding article (Reserves Are Not Money), I described why “dollars” cannot act as bank reserves and bank “deposits” at the same time. I based that publication on a 100% reserve requirement in which, although money can be transferred from one bank to the other, banks cannot create new money. In this article, I … Continue reading Bank Reserves Dollars at Fed & Money Dollars at Banks

Dollars cannot be reserves and money at the same time. All Dollars Not Used as Money A widely held belief exists that dollars are always money. This belief leads to the erroneous assumption that the Federal Reserve controls the quantity of money in the US economy. I will show you that people do not use … Continue reading Reserve Dollars vs. Money Dollars

In any market exchange, participants trade goods for other goods or for money. The exchange price consists of the quantity of the good given in relation to the quantity of the good received. This means that each party to the transaction has a unique perspective on the price. When the exchange involves money, the parties … Continue reading Principle of Exchange Prices

Most economists, particularly those who claim to be macroeconomists, underestimate the importance of the consumer. They don’t seem to understand that all economic activity exists to satisfy consumers' wants and needs. Ludwig von Mises even coined the phrase “consumer sovereignty” to indicate the importance he placed in consumers' actions. Even the notorious John Maynard Keynes … Continue reading Principle of Consumer Sovereignty

When I say that I have adopted the principle of dependent variables, I refer to a relatively simple but wide-ranging concept. When you dig into nearly every subject, it almost always refers to a dependent variable at some level. It’s closely related to the concept in systems thinking that everything relates to everything else. I … Continue reading Principle of Dependent Variables

The concept of value plays a vital role in economic thinking. If you attempt to describe the actions of any person, you must make assumptions about what they value. All market activity depends on assumptions about value, whether implicit or explicit. I will discuss value frequently in my writing, and I want to make my … Continue reading The Value Principle