Capital Consumption

Everything in our society is measured in nominal prices. Nominal prices are given prices, prices which are stated by all vendors.

Real prices are prices which take inflation into account. Austrians believe that inflation is a rise in the money stock. The rate at which the money stock rises would be a subjective measurement once the money starts being consumed within the free market.

Mainstream economists believe that inflation can be measured using a commonly accepted average which is a year over year measurement of the change in prices. Basic mathematics can be used to describe the change in the group of generally accepted goods from one year to the next.

The problem with using these types of averages to measure the abstract idea of a rise in prices from two different points in time, is that math theory's substrate assumptions leave the premise of subjective factors in the hands of those designing the formulas and cobbling the data.

Nobody has perfect information, and data is historical, thereupon the averages arrived to are best and most assuredly safest when used in the private sector. When in the hands of government, they become tools of artifice intended to seduce the voters to emphatically support the very coercive institutions which amplify and bring about poverty, crime and all other iniquities in our society.

Mainstream economists tend to use the consumer price index (CPI) or producer price index (PPI). Both of these averages are broad assumptions. The CPI measures prices at the final stage of production, the lower order goods, while the PPI combines all prices within a wide array of other stages aside from the consumer stage, higher ordered goods.

As the money stock rises, so will prices at a later point in time. This could either be gradually or more precipitously. In either case, inflation is in effect. Gauging this phenomenon is the daunting task of the market actors, particularly the captialist-entrepreneurs.

Consequently, we can conjecture that inflation is subjective at every stage of the structure of production.

As was previously described, the consumption-savings/investment ambit is gauged by all actors, individuals found in all sectors: families, corporations, et cetera. Humans are imperfect and make bad choices frequently, so as inflation is imparted on the market, the enshrouded effects of rising prices causes these human actors to delve into their consumption withheld.

This type of over consumption of savings can come as a surprise to people whom abruptly realize that due to a deceptive monopolized benchmark rendering cost wariness feeble, have also undertaken an unsustainable amount of debt.

Capital consumption is essentially a subjective over consumption of savings. As discussed in a prior post, a malinvestment is a poor decision endeavored. Generally, when describing the activities of the capitalist-entrepreneur, a malinvestment is a bad business investment. This poor decision can be realized in the form of a monetary loss, which is similar to capital consumption.

It is important to hearken the quite common Austrian pithy saying of "the seen and the unseen," as this will allow for enhanced chary decision-making. Theory gives us this elemental acumen, and indeed I am also referring to the so often misunderstood theory of mathematics.