From the “Preface to the English Edition” of “The Theory of Money and Credit” by Ludwig von Mises: “All proposals that aim to do away with the consequences of perverse economic and financial policy, merely by reforming the monetary and banking system, are fundamentally misconceived. Money is nothing but a medium of exchange and it completely fulfills its function when the exchange of goods and services is carried on more easily with its help than would be possible by means of barter. Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.

Mathematicians of the day.

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Four Things the State is Not by Tom Woods

Tom Woods ridicules four mythical notions about the state. H/T The Ludwig von Mises Institute (Mises TV).

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A Weekly Dose of Hazlitt: That Capital-Gains Tax

That Capital-Gains Tax” is the title of Henry Hazlitt’s Newsweek column from April 4, 1955. Here, Hazlitt points out numerous problems relating to capital gains taxes. Note that US citizens can legally escape capital gains taxes by moving to Puerto Rico (see “For US Citizens: Expat to Puerto Rico? – Part 2“).

One good outcome of the Senate stock-market inquiry
may be the public education it has provided on the
effects of the capital-gains tax.

This is supposed to be a tax on capital gains. But as
it is only collected when an asset is sold, it is, in effect,
a tax on selling. An investor must pay, say, a tax of 25
percent on his capital gains on his shares in company
X—if he sells them. As long as he holds on, he need pay
nothing. If he could be sure that his X shares were going
to fall, or even that shares in company Y were going to
do relatively much better than X shares, he might make
the switch in spite of the heavy tax penalty. But as he
can almost never have such absolute assurance, he is
likely to stay put. This is what is meant when it is said
that many investors are “locked” into their investments.

The tax on long-term capital gains therefore raises
comparatively little revenue. But by so heavily penalizing
sales or exchanges of property, it makes holdings
less liquid and the economy less flexible. It discourages
people from acting in accordance with fresh knowledge
or new conditions. It thereby not only distorts the relative
prices of securities and other goods but prevents
much capital from flowing into new enterprises or into
the lines where it would be most productive. It is locked
up where it already happens to be.

A great injustice of the capital-gains tax is that in
an era of inflation it is a tax on gains that do not even
exist. If a man bought property in 1939 for $10,000
and sells it for $15,000 today, he is taxed on a supposed
profit of $5,000. But this “profit” exists only in paper
dollars. In terms of what he can buy with the proceeds
he actually has a loss. For the cost of living has gone up
92 percent in the meantime, and wholesale prices have
risen 120 percent.

Another injustice in the capital-gains tax is that it
is levied by the government on the cynical principle of
“heads I win, tails you lose.” For the government taxes
capital gains without allowing corresponding deductions
for losses. True, it allows deduction of capital
losses from capital gains. But though it taxes shortterm
capital gains, for instance, up to any amount just
as if they were income, it allows no more than $1,000
deduction of capital loss against income. This negligible
pretense of balance does not change the cynical unfairness
toward investors with heavier net losses. Continue reading

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Added the Tom Woods Show to Links

I added a link to the Tom Woods Show under Political Economy.

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Political Economy Quote of the Week for 20140728

“All of the services commonly thought to require the State—from the coining of money to police protection to the development of law in defense of the rights of person and property—can be and have been supplied far more efficiently and certainly more morally by private persons. The State is in no sense required by the nature of man; quite the contrary.” – Murray Rothbard

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Serial Transfer of Single-Cell-Derived Immunocompetence Reveals Stemness of CD8+ Central Memory T Cells

Serial Transfer of Single-Cell-Derived Immunocompetence Reveals Stemness of CD8+ Central Memory T Cells” is the title of a paper that describes properties of t-cells that can be used for immunotherapy. The full paper is behind a pay wall, below is a summary.

Maintenance of immunological memory has been proposed to rely on stem-cell-like lymphocytes. However, data supporting this hypothesis are focused on the developmental potential of lymphocyte populations and are thus insufficient to establish the functional hallmarks of stemness. Here, we investigated self-renewal capacity and multipotency of individual memory lymphocytes by in vivo fate mapping of CD8+ T cells and their descendants across three generations of serial single-cell adoptive transfer and infection-driven re-expansion. We found that immune responses derived from single naive T (Tn) cells, single primary, and single secondary central memory T (Tcm) cells reached similar size and phenotypic diversity, were subjected to comparable stochastic variation, and could ultimately reconstitute immunocompetence against an otherwise lethal infection with the bacterial pathogen Listeria monocytogenes. These observations establish that adult tissue stem cells reside within the CD62L+ Tcm cell compartment and highlight the promising therapeutic potential of this immune cell subset.

The research is described in “Experiments prove “stemness” of individual immune memory cells“:

Homing in on the “stemness” of T cells

After generating an immune response in laboratory animals, TUM researchers Patricia Graef and Veit Buchholz separated complex “killer” T cell populations enlisted to fight the immediate or recurring infection. Within these cell populations, they then identified subgroups and proceeded with a series of single-cell adoptive transfer experiments, in which the aftermath of immune responses could be analyzed in detail. Here the ability to identify and characterize the descendants of individual T cells through several generations was crucial.

The researchers first established that a high potential for expansion and differentiation in a defined subpopulation, called “central memory T cells,” does not depend exclusively on any special source such as bone marrow, lymph nodes, or spleen. This supported but did not yet prove the idea that certain central memory T cells are, effectively, adult stem cells. Further experiments, using and comparing both memory T cells and so-called naive T cells – that is, mature immune cells that have not yet encountered their antigen – enabled the scientists to home in on stem-cell-like characteristics and eliminate other possible explanations.

Step by step, the results strengthened the case that the persistence of immune memory depends on the “stemness” of the subpopulation of T cells termed central memory T cells: Individual central memory T cells proved to be “multipotent,” meaning that they can generate diverse types of offspring to fight an infection and to remember the antagonist. Further, these individual T cells self-renew into secondary memory T cells that are, again, multipotent at the single-cell level. And finally, individual descendants of secondary memory T cells are capable of fully restoring the capacity for a normal immune response.

Insights with clinical potential

One implication is that future immune-based therapies for cancers and other diseases might get effective results from adoptive transfer of small numbers of individual T cells. “In principle, one individual T cell can be enough to transfer effective and long-lasting protective immunity for a defined pathogen or tumor antigen to a patient,” says Prof. Dirk Busch, director of the Institute for Medicial Microbiology, Immunology and Hygiene at TUM. “Isn’t that astonishing?”

“These results are extremely exciting and come at a time when immunotherapy is moving into the mainstream as a treatment for cancer and other diseases,” says Prof. Stanley Riddell of the Fred Hutchinson Cancer Research Center and the University of Washington. “The results provide strong experimental support for the concept that the efficacy and durability of T cell immunotherapy for infections and cancer may be improved by utilizing specific T cell subsets.”

The entire article can be read here.

H/T Fight Aging!

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Bubble Psychology and Valuations by Pater Tenebrarum

In “Bubble Psychology and Valuations“, Tenebrarum takes a look at current economic conditions via the lens of Austrian school economics. As always, Tenebrarum makes a number of important observations in the article. Below are a couple that struck me as particularly apt.

One point on which we agree with Mr. Garnry is when he notes that one’s analysis of the market must differentiate between the pure fiat money system that has been established in 1971 and the time period preceding it. The fact that money supply and credit expansion have gone into overdrive ever since has altered a number of “tried and true” yardsticks that served as good rules of thumb back when at least still a gold exchange standard was still in place.

For example, prior to the asset bubble becoming greatly extended for the first time in the mid to late 1990s, the market’s overall dividend yield never fell much below 3%. This has changed, and the author is on the right trail when he blames the monetary system, or rather, when he points out that different monetary and institutional dispensations do make a difference to market analysis.

We disagree with a subsidiary assumption though, namely that therefore, anything that happened before 1971 is basically irrelevant. This is surely not correct. For instance, during the “roaring 20s”, the true US money supply increased by about 65% (see Rothbard’s “America’s Great Depression”, which contains a very precise calculation of the era’s money supply growth), which is a far cry from today’s monetary expansions, but was certainly extreme at the time. There are no fixed quantitative relations between the size of such an expansion and its effects, such as those on the prices of assets or on other goods. At the time, the bulk of the price effects was concentrated first in real estate and later in securities – just as is the case today. Surely we cannot say that everything that happened before 1971 is entirely irrelevant.

However, Mr. Garnry is correct when he states that every slice of economic and financial history is different, and that these differences often encompass major aspects of the contingent historical setting:


“We do not subscribe to the valuation analysis since 1870 being thrown around on Wall Street. This is because the period includes many regime shifts in inflation, real interest rates, nominal interest rates, economic growth, monetary policy, the nature of businesses and the government’s size relative to the economy. All these parameters have changed so much that going too far back distorts the overall conclusion and causes inferences that are wrong.”


Sure enough, predictions can not possibly be based solely on empirical data, as there can be no empirical causal constants in human action (thus, every historical boom and bust sequence looks different, even though there are many parallels between them as well). This is where economic theory comes in.  While it does not allow us to make precise “predictions” either, it can at least tell us what is and what isn’t logically possible. From this we can, in concert with historical understanding, deduce what is likely. The reason why many historical bubbles evince numerous parallels in spite of their differences is precisely that the same economic laws are in operation every time.

Current low government and corporate bond yields – which are a direct result of central bank manipulation of interest rates and the money supply – are not a reason to deem current valuations not excessive – quite the contrary. The losses following the 2007 peak were only booked in 2008 and 2009, but they were actually made long before that time. When market interest rates are distorted, economic calculation is falsified, hence the accounting profits booked during the boom period are actually to a large part fictitious – they effectively tend to mask capital consumption. It is easy to see why this must be so: the money supply expansion and artificially lowered market interest rates must lead to capital malinvestment, which by its very nature is destined to destroy wealth.

However, this is never immediately apparent, since it takes time for long term investments to turn out to have been misguided. Amid monetary inflation, businessmen inter alia reckon with depreciation rates that refer to the price structure that existed before the inflationary policy was set into motion. They therefore report a part of the funds that are actually required to maintain their capital as profits. It matters not in what form these funds are then distributed – whether as higher wages, higher dividends or as share buybacks. A large portion of them is paid out of the substance of companies, and as a general rule of thumb, we can say that the bigger the money supply inflation, the more distorted economic calculation will tend to be. Consequently, the errors will tend to be commensurately larger as well (again, no fixed quantitative relationships can be ascertained in this context, thus it is a “rule of thumb”).

This is what is meant by the saying that we are “eating our seed corn”, or are “heating the house by burning the furniture”. Mr. Garnry asked us what we meant by capital consumption and whether it could be measured. The answer is that it cannot be measured while it occurs. However, there will come a point in time when measurements will be taken.

The entire article can be read here.

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Malinvestment in China

The astonishing amount of money and credit that the Chinese government flooded into the economy has been creating ever more malinvestments. Pater Tenebrarum points out the latest that combines all of the hallmarks of malinvestment in our age of the twilight of fiat money: an offering to the coffers of the religion of environmentalism, construction on expensive land (land reclaimed from the ocean), and grandiosity ($100 billion).

Back in 2006, Hu Jintao was excited when he visited Caofeidian, the “the world’s first fully realized eco-city”, built on land reclaimed from the sea. Since construction began in 2003, it has devoured the princely sum of $100 billion, most of it provided by banks. One million resident were once supposed to live there. It is a ghost town today, sporting only a few thousand inhabitants. Practically no-one has ever stayed in the city, and the buildings are already deteriorating. In fact, many of the buildings have been left half-finished, as credit eventually ran out.

The Guardian published some great pictures of uncompleted building projects in Caofeidian.


Bridge to nowhere: a six-lane road span was abandoned after 10 support pylons had been erected.

Bridge to nowhere: a six-lane road span was abandoned after 10 support pylons had been erected.

A shopping mall modelled on a traditional Italian city was finished, but businesses haven’t moved owing to the small number of city residents.

A shopping mall modelled on a traditional Italian city was finished, but businesses haven’t moved owing to the small number of city residents.

Caofeidian eco-city was planned to accommodate one million inhabitants, yet only a few thousand live there today. It has joined the growing ranks of China’s ghost cities.

Caofeidian eco-city was planned to accommodate one million inhabitants, yet only a few thousand live there today. It has joined the growing ranks of China’s ghost cities.

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