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Patricia

http://forextradin-g.net

Keep the comments coming… I have a feeling I'll be hearing from you Mondays and Thursdays when I put up OpEds.

–Kyle

The point of the toothbrush example is to point out that firms will not grow indefinitely. In fact, marginal cost has to go up eventually (http://wp.me/pzMgT-f for a novel demonstration of this as well as a very brief introduction to Marginal Cost graphing). This is an extreme example, but because MC has to increase eventually, no firm will be able to (in a profit maximizing way) take over the world (this has been demonstrated historically by the fact that not even any government has managed to take over the world), and that only under very specific conditions can a firm even take over an entire market (and their ability to do that is limited by the size of that market, which is to say competition and free-trade are great ways to limit monopoly).

Fun discussion Kyle!

I'll also agree with your toothbrush market example, but in the “real world” of larger products and financials, that situation doesn't exist in very many places that matter – if any.

I wish it did though.

–Kyle

–Kyle

“There is no “perfect competitive market”, in any arena or field. A semblance of one may exist for a short time, but it's soon eclipsed by large conglomerates with more power, more money, and more influence that bend the rules, and those that make the rules, to their interests.”

This is a good point for three reasons.
First: a concentration of power is a prime target for corruption and rent seeking (e.g. If the government regulates what kind of coal can be used, coal companies will soon be lobbying congress). Take a look at topics like rent-seeking and regulatory capture (if and when you've got time).
Second: There is a perfectly competitive market where there is no conglomeration because there are significant dis-economies of scale. The market I'm thinking about is tooth-brushing. Nobody comes to anyone's house to brush their teeth for money. The point is, given institutional frameworks, a business will only get as big as is efficient. Monopolies rarely happen outside a government framework. This points to research by industrial organization economists.
Third: Although there is no “perfect competition”, a market that is imperfect can still pretty closely approximate it's outcomes.

“I'm not drafting a proposal for a new system of currency, but rather trying to sow the seeds in others who are in a position to affect change.”

I understand now. I'm some of that fertile ground that's caught one of your seeds, so to speak. Mind you (as you may have noticed), monetary theory isn't a primary interest of mine; I like public choice and constitutional economics.

Kyle (and any readers), if you would like me to point you toward at least some of the economic discussion, I would be more than happy to. I understand that you're busy and I won't be disappointed if you don't ask me for a few months, if ever.

This discussion has been enlightening for me, thank you and Andy too. I look forward to reading more of your stuff. I hope having another economist read your blog won't become too much of a bother.

Cheers,
Rick

RE: My (4) –> My real point was that a more legitimate currency (i.e. a bottom-up currency rather than a top-down currency) may encourage at least a little bit more economic activity. If it's 0.1%, that means $10B more activity in a $10T economy (maybe it's not so much…).

I think it's pretty clear that digital currency is viable, the question is how can we build an incentive structure that minimizes foolish actions and corruption? Big regulation seems appealing, but it only creates a great deal more opportunity for corruption. The Fed and the federal government are the two biggest players in the financial market in America; that's a lot of power to put in the hands of humans who have many of the same cognitive limitations as me (Hell! It'd be a lot of power to put in the hands of people with the cognitive limitations of Einstein, and he was a smart cookie).

What are your thoughts as to how to address some of these problems?

Once again, I haven't had the chance to read every comment, but I'm moving through. I saw that Andy mentioned Public Choice. I can't emphasize enough how important this is; just as corporations will try to be corrupt (to the extent that customers won't leave them) bureaucrats will tend to be corrupt (and collude with corporations so they can get a cushy job when they leave gov't) to the extent that people will stick with that government.

But I have to go! First day of school!

Kyle, if you want to embark on a tangental trip into Economics, I think you might like the Austrian School, and especially (though he isn't fully “Austrian”) Joseph Schumpeter.

I am at SJSU as well. I know Andy through Econ and have met a few CS people through him.

I agree with you more than I do/did Andy.

In response to your disclaimer, I'm not either – I'm just an intelligent outside observer who wanted to share an opinion.

For your (4), you should remember that the U.S. Dollar is no longer backed by gold – a fiat currency. And this is true for most of the modern currencies. But I don't really see much bartering in the Western World…

For your (5), I agree. Except with the caveat that the banks are in collusion, either directly or by implied agreement, and so they all have, generally, the same policies, fees, restrictions, rules, etc. So your example of every bank scamming people is more appropriate, because that's what happens and consumers largely have no choice.

I also agree that it's partially a government failure – I recognize in the article that the Fed has failed to do its job properly, and that the entity I suggest would hopefully do better. The same goes for the regulation of banks (which you state) – I think regulation of the banking and investment industries needs to be larger, heavier, and more enforced. However, I think that without the rules we have in place, we'd be even more screwed than we currently are… your Scrooge analogy is exactly why.

Thanks for commenting though… it's nice to see that someone in the collegiate Economics world agrees with me, and doesn't want to just lord their class curriculum over me. ;-)

–Kyle

p.s. How'd you find this? I'm assuming you know Andy since you reference him?