Returns to true scale

If you think you have a case of either increasing or decreasing returns to scale, check again your list of inputs. In the true long run, there are only constant returns to scale.

What you really have when you apparently have either increasing or decreasing returns to scale is an instance of not taking into account that some input(s) can be "fixed" in the sense that they are collective for some range of output production, but this in advance is an instance of short- not long-run production, and therefore, not liable to be analyzed through the returns to scale perspective, which is only applicable to long-run, i.e. all-inputs-varying, cases.

This means that you can never justify that in the long run there are natural monopolies due to increasing returns to scale. What you may have in this sort of cases, it is a firm operating in the short-run first stage of production, where there can be increasing marginal returns on some inputs while keeping fixed others.

See also this post of mine on the same topic.

False dichotomy between profit and utility

The whole difference between the economic analysis of a consumer and that of a producer for the market is this: when you analyze a consumer you only pay attention on how the consumer tries to optimize value for himself while when you analyze a producer for the market you pay attention on how the producer tries to optimize value for buyers as a means to optimize value for himself.

About Hayek's "Economics and Knowledge"

This paper by Hayek is of the utmost importance for understanding the key difference between pure Misesian economic theory and the positivism of Popper/Friedman. Indeed, they do not contradict each other. One way of seeing it, and this is precisely what is illuminated by Hayek, is: Misesian economic theory would say that there are supply and demand curves, and why they are of such and such shape and so on. But Misesian theory could never assure that an equilibrium is going to be achieved. That is not pure logic of choice (theory, in Mises terminology) but history (or empiricism or behavior, according to neoclassic parlance).
Given that some individuals have in their minds at a specific instant a certain maximum price to pay and/or a minimum price to be paid, the actual process of groping is achieved by specific individuals in specific situations in time and space: they are empirical!
What Hayek says is akin to: "hey guys, economics is not only what Mises calls theory (pure logic of choice) but is also history (and then empiricism, positivism, etc.).

Irrational market

"The market is irrational" is Economist for "I don't have a fricking idea of what is causing such and such behavior on this market".

"The market is irrational" can be translated into Noneconomist as "I am either stupid enough or lack enough training as to understand what the heck is going on with this damned market, but I'm also a little too arrogant as to acknowledge it."

The right to sell my freedom

Freedom includes the right to sell one's freedom.

Economic decisions

By definition of "economic" every decision is economic.

A true capitalist

A true capitalist is devoted to make money not to make politics.

Not really an exception

Markets failures are to market law as hydrogen globes are to gravity law.

My summary of Knight's "Risk Uncertainty and Profit"

There is not such a thing as "systematic uncertainty". That's an oxymoron.

Market failure

If you find that markets fail, that's a proof of you lacking reading.

Two sorts of arbitrage

There are both commercial and productive arbitrage.

Commercial arbitrage is the typically-seen arbitrage consisting in buying cheap and selling dear commodities without incurring in transaction costs.

Productive arbitrage occurs always that there is a difference between the value of a finished good on the one hand, and a set consisting of an input plus a transaction expenditure on the other. In this sense, it is the most convenient to conceive of the set of inputs as a synthetic, such as the term is used in finance.

Since productive arbitrage is less obvious and require expectations on more issues, it is conceivable that there is easier to find businesses opportunities this way.

Productive arbitrage is the reason behind producing.

Always that the ratio between output and inputs through production is perceived as different from the price ratio between these two sets of commodities which can be expected to be achieved in the market, a decision to change the current level of production will occur.

Freedom

Freedom is always and necessarily, freedom to buy, which is akin to freedom to sell.

Apodicticity of theories

A theory, if correctly constructed from a logical viewpoint, can be useful or useless, but never empirically wrong. The test on a theory is exclusively on its logical correctness on the one hand, and on a useful identification of parts of the reality with concepts of the theory.

Transaction cost

1. By implication of the definition of input, any good requires more than one inputs to be produced.

2. Let's group inputs to produce a good g into two groups: on the one hand input i, and on the other hand all the rest of inputs, which we will call (composite) input j. Let's don't call it input i anymore. Since now on, let's call it good i.

3. Transaction cost from good i to good g, or good g's transaction cost from good i, or beginning with good i, is the value of input j.

4. The fact that the term "transaction cost" is mostly used when the value of good i is much dearer than the value of good j doesn't introduce anything analytically relevant to the analysis.

Market is the most efficient mechanism

The interaction of the information of agents with, in principle, different plans is the very definition of what a market is. It is true that a market could incorporate not all conceivable information, but markets do incorporate all possible information. If information is not already in the market, nobody (in particular, not the government authorities) can incorporate further information.

A market reaches all possible efficiency. There is no further informational, operating, or allocative efficiency beyond the market. In that sense, if you accuse the market of being inefficient, automatically you neglect the possibility of any further possibility whatsoever of improving that inefficiency.

If you do find a possibility of improving efficiency, you automatically become part of the market, not something beyond it.

There is, for instance, no way of reflecting new information faster than through the market. To put another way, the quickest way in which new information can be reflected is precisely what a market is.

No risk free assets

If

1) A security's risk is defined as the variability of return, and
2) US government T-bills' return is not fixed, and
3) a risk-free asset is defined as one with zero risk,

then

T-bills are not risk-free assets.

Governance versus profit

No failure in corporate governance disproves the apodictic axiom of aiming at profit maximizing in every and all properly defined firm or entreprenurial project. What a failure in corporate governance demonstrates is merely the coexistence within the company of several differenciated firms, at least one of which exerts what from the ownership's point of view of the other firms is seen as coercion. This coercion, just to be clear, is different from market competition.

Planned or spontaneous?

Picture 1

Look at the first picture. Can you say, just by seeing this Rubik's cube, whether that combination is purposeful or not?

Picture 2

Now, take a look at the second picture. Is it sorted? Is there order in it?

After seeing the second picture, take another look at the first one again and answer again the first question. Did your opinion change?

Picture 3

Now an (apparent) easy one. Take a look at the third picture. Is the cube on it solved?

Picture 4

Now, observe the fourth picture; this is: for God sake, take an actual look at the damn color disposition of the sub-cubes!

Does this fourth picture somehow change your answer to the question with respect to the third photo? (Once again, compare the third and fourth pictures.)

How many "disordered" cubes there are out of the two?


Is one of them already solved? If so, can you say which one?

Can it be that both are already solved?

Can it be that none is already solved?

Picture 5

Finally (we're almost done), take a look at the fifth picture. Is there a chance that the cube depicted there is disordered? Is there a chance that the cube in Picture 3 is more "ordered" than the cube in Picture 5?

A manifesto on the epistemology of economics

1. The prime cause of economic phenomena is purposeful behavior. Economics qua economics doesn't have any more to explain once it arrives at this prime cause.

2. Every economic phenomenon is caused ultimately caused by the prime cause. Something not linkable to the prime cause is, ex definitione, not economic.

3. Through logic, it is possible to develop explanations about economic phenomena whose logic concatenation could not be obvious at first sight.

4. The interaction of the purposeful behavior of different agents or of the same agent through time or of the same agent with regard to different goals could generate the emergence of spontaneous orders which are themselves purposeless.

5. The method of economic logic is useful to explain economic orders and, through this, to arrive at pattern predictions, empirically falsifiable.

6. Economic logic is logically falsifiable in the sense that the chain of reasoning can be proven wrong by not obeying the logic method.

7. Economic logic is empirically falsifiable in principle, in the sense that its primitive assumptions can be proven not to be present in a factual situation.

8. Economic logic is often empirically not falsifiable in practice, in the sense that there is empirically impossible sometimes or always to falsify some primitive assumptions. For instance, it is impossible to empirically falsify that an assumed agent is not such. At the end, the attribution of some assumptions to facts is often a matter of faith. For instance, there is an ultimate impossibility for you to falsify whether this text is the work of an agent (i. e. the external successful fruit of a will) or just characters randomly disposed. Under a model which assigns equal chance to a list of characters to be randomly disposed in each position for a string of some positions, the chance that this exact text be the fruit of pure chance is higher than zero. So, at the end there is an inextricable, this is a necessary, portion the faith, even if small, in your hypothesis that this text is a fruit of some will, a purposeful behavior, an economic phenomenon.

9. Whichever which is not logically and therefore generally modelable is history, is particular.

10. The particular can be approached through statistics, but this, to be sure, is not economic logic.

Profits

Profits are themselves free but impose a cost on every further related action.