Standardized Tests Delude

The practicality of time is of the essence in imparting to us the success of an individual. Whether one allocates more or less time to an activity, will ultimately describe how well that person was able to ingurgitate fully the information studied or gleaned over. 

IQ tests do not measure anything but how well a person was able to regurgitate information on a standardized test.

After noticing the array of IQ scores, one tends to vet those which confer to us their position to the left hand side of the bell curve (or below average), confounding us on why those scores fell in that position. When attempting to correlate the IQ score with later success in life, there is a discrepancy which leaves many individuals befuddled. Indeed it is true that standardized test scores serve as a descriptor of taking only one test. They describe only but a small parcel of life's challenges.

The Intelligence Quotient is an average, which is based upon a certain sample size--the data available which includes those whom solely took that test. Averages do not reflect the proficiency of an individual to absorb information taught to them, which could include the protocol a new employee learns in order to perform the repeated processes of a certain job. Most importantly it does not evince the innovative capacity of one particular individual, as ideas burgeon spontaneously and due to experiential circumstances.

Placing people into certain groupings is deletarious to both the confidence of that group or those whom associate with them, even if those people score in the upper echelons. The array of outliers, if one can attribute this label to those not falling within the average, will then also have trouble living up to the stereotypes society has formulated about those which score highest.

All one can respectfully claim is that each unique individual appropriates the necessary amount of time to recursively imbibe the information they understand will be communicated on the test. It is therefore only the individual whom finally comprehends his own capacity, as studying for the test is confirmed within the guidelines given prior to the test.

For example, all people have a designated quantity of time to study, and a specific amount of time to complete the exam. This is not a conclusive affirmation of an individual's capacity to learn as some may require more time than others to eventually imbue the information toward full aptitude. Subjectively, an adept person does not necessarily exist, as one tends to continue to build knowledge and learn things over time during which they undertake these same tasks daily.

Additionally, a person who is diligent in their study habits tends to solidify the concepts in their mind for a longer period of time than a person which has a lack of desire to learn the information does. The theories of psychology tend to denote to both of these ideas, long-term and short-term memory, respectively. This is all theoretical.

From this what can be proclaimed is that tests should be used as a marker for those whom desire receiving a certificate or permission slip of some sort. This certificate would be used to enhance a resume, build renown, or to be permitted by law to undertake certain tasks. All other purposes of using standardized tests are impractical. The intelligence quotient is thus unnecessary and as abstract as any other average resulting factor.

Every job predominantly requires recursion often and constantly. Those employers looking to hire individuals desiring to perform these repeated processes, must find a reference point of proficiency and this is where the experience becomes so vital. Experience assists those whom are hired to select employees that will learn the protocol, and essentially the duties of the job, much quicker. The employer therefore needs to allocate less time toward training this new employee to perform those specific details.

Education is different than schooling, as experience is of the greatest educator in our lives.

What Is The Market Peak?

When considering the most effective way to refine the process of component valuation as well as market valuation, an investor can easily manage this by theoretically understanding what these valuations entail.

Firstly, there is the market price. This market price is set through contractual terms, either verbal or written, where two parties exchange; once they decide to act on their desired value subjectively itemized on their value scale.

Secondly, there is the process of gauging this rate of return, the difference between buying and selling prices which occurs over time. As well, this is a subjective decision. You purchase something at one point in time, and sell this good or set of goods at a later point in time.

The process of price discovery is using the available information to then purchase goods based upon their price, whilst also measuring the mark up you will offer to generate the proper amount of sales. This difference, or net amount, is a rate of return.

The best examples of rates of return are the Sales (Top Line) of the Income Statement, and all of the costs which are then subtracted in a descending fashion until one arrives at what is Net Income (Bottom Line). Net Income can be considered a Rate of Return.

Another Rate of Return would be more abstract, that which is the asset price. Assets include Securities (Stocks and Bonds) as well as Real Assets (Land, Edifices-Buildings and Homes). Each of these has future value, or better stated, can generate a rate of return. This means that the price will be different in the future as compared to it's current price. Indeed this is subjective.

Liabilities are obligations, simply put, anything that is owed. Moreover, anything that does not belong to you and which you are obliged to pay back in installments over time. The net amount, Assets minus Liabilities, is the value of the company or market capitalization. It is in other words the Net Worth; that which is what the claimants own.

Solvency is arrived at subjectively for a company. Corporate owners must manage their obligations, and allocate their funds to the proper returning assets. If Stockholder's Equity is elevated far above real value (overvalued), corporate owners presume the value of their company places them in a position of solvency. They therefore mismanage expenses.

The rate of interest (when this reference point is monopolized) creates a large amount of debt issuance due to their supposed ability to borrow cheaply. This is how entrepreneurs are deceived. Furthermore, lots of Credit Money (obligations) bid up prices during this speculative process. As it is an obligation for one, it becomes an asset for another.

Rates of return, as constantly mentioned, are everywhere. Thus, purchasing power itself is a rate of return. As more money enters the system (by issuing more Credit Money as well as Fed asset purchases), the rate of return shrinks.

The market sell-off occurs once investors realize their rates of return dwindling near zero. This is in actuality a shifting of money to a different sector. Systematic risk is this apogee in the market, a herd movement out of one group of securities into another. Many times it is a desperation by investors to preserve rates of return from diminishing during this process (shrinkage in value).

Conclusively, withholding consumption is this notion of which the mainstream economists over explicate as demand to hold. A ceasing of consumption, or consumption at a lesser rate, is the holding of money. It is, to chiefly reiterate, subjective.

The Gold Standard

The Gold Standard is a very complex issue for some to fathom. Many mainstream economists believe that reinstating this method of banking will revert us back to an outdated system that is no longer viable with the models given or the desires of the government thereof.

After contemplating the likelihood of a return to the Gold Standard, what gives me optimism is the deflationary period which would be required prior to it's arrival. This would culminate in the end of the monopoly of money (the Treasury), as well as the inessential functions of the great inflator, the central bank. Not even a public clearinghouse is needed these days with the remarkable advances in technology we lay witness to. Allow me to further elaborate.

The Fiat Dollar, which is an inconvertible money by decree, was instituted to allow for unlimited government credit expansion. This removal of the Gold reserve essentially begot what was an elastic currency and the continuous deterioration of our purchasing power. Ubiquitously evinced are the calamitous booms and busts since the introduction of government money, as well as the enhanced erosion to real wealth since the inception of the Federal Reserve Bank in 1913. There were also other forgoeing central banks along the way.

As I reviewed the common visuals provided to us on the world wide web, which to me are quite accurate in concordance with the historical data available, I found that the presumption of the manipulation of the Gold Spot Price as being very true.

A consistent announcement by the London Gold Market Fixing Ltd, of the spot price of Gold during the burgeoning years of the Fed, aided the US government in their desire to manage the world's money supply. As the above chart demonstrates, the manipulated price was fixed (constantly announced at or around a certain price) up until the peg was removed in 1971.

A Gold Peg is intended to aid a banking institution in preserving the value of it's medium. This means that with a precious metal, as aforesaid in the explanation of a medium of exchange arising on the free market, the price of the most commonly accepted unit (that of objective-use value) will tend to greatly affect the management of revenues and expenses for banks.

If one were to consider a simple example constituting ratios, the reason for the depegging of the dollar to Gold becomes more lucid. Allow me to simplify:

If the US were to peg the dollar to Gold at $1000/1oz., then issuing a Treasury would permit a person to purchase 1oz of Gold at the current spot price. If another Treasury were issued, then there would be more dollars in the system, now $2000 which would bid up the price of Gold in the open market.

For the purpose of codification in layman's terms, we can see that the issuance of more Treasuries would increase the number of dollars and reduce the purchasing power of the currency. This would in essence force up the Spot Price of Gold in the open market.

The $1000/oz Treasury needs to be paid back, but Gold is at a higher price. The further issuance of Treasuries is now needed. To pay the holder of the second Treasury that was issued, 2 must now be issued in the third round of debt issuance, since the price would be at $2000/oz. Indeed this process is much more complex.

Without a doubt it was the Bretton Woods Agreement in 1944 (which exacerbated globalism with the creation of the IMF and later the World Bank Group) that changed the monetary system the world was using. Prior to it, each country typically had a reserved currency (representing a certain weight of a commodity). Once the mainstream economists, lead by John Maynard Keynes, had their way, they finally believed that in order to control inflation (due to an ignorant perspective on money), the dollar should be the reserve currency. Every country would need to purchase Treasuries.

World currencies would then peg to the dollar, whilst the dollar continued to maintain it's conversion to Gold (Bretton Woods Gold Peg). Let us not forget that all central banks intervene in the Forex markets as well as purchase debt instruments in the same manner that the Fed does, this is global central bank manipulation. Currency pegs basically advocate this central bank manipulation.

During the years of the $35/oz Gold peg, the amount of debt issuance was excessive and therefore the denominator was much higher than the numerator. The Spot Price of Gold needed to have risen, but never did, so the central banks found themselves selling Gold and decreasing their Gold stock. The banks were attempting to remunerate the holders of claims to Gold (the dollar pegged to Gold and it's corresponding exchange). The London Gold Pool collapsed in 1968.

Due to the profound necessity of raising rates in 1961, resulting from a larger money stock, cash flows became more difficult to manage. When governments, and as well private companies, issue a frenzy of debt, it becomes difficult for them to manage the cash flows of debt instruments if there is not a sufficient Surplus (or high enough Net Income in the case of a private corporation).

In lowering the Fed Funds Rate, this debt frenzy abounds. For the government, debt issuance is already scheduled monthly. And with a lower rate the amount of debt issuance is exacerbated. Once it becomes clear that the enshrouded decrement of real profit margins (they would basically go negative) is elucidated in nominal terms, investors would pull their money out of the shrinking price spreads and move them into higher earning sectors. The need to entice investors with higher yields becomes clear for the Fed.

As the business failures amount and the dollar turnover effect manifests the rise in the money stock in market prices (by causing a shrinking of the price spreads), it becomes clear that the rate of interest must rise as Savings decreases. Indeed this process should be left to the private sector.

The Federal Reserve Bank is incapable of managing this system, and relies on its models to guide the economy. This perspective is utopian, and not at all in line with the Free Market approach of competing rates of return set contractually by private free-banks. As is noticed, the debt never disappears and the money stock grows. Lowering the rate of interest, as Socialists enjoy, is to restimulate the economy. The key question here is "How high is high, and how low is low?" Only the free market can decide.

It is essential to a Capitalist system that market prices fall to their required market level. For this to occur all government regulations must be removed, most specifically the minimum wage. Government needs to get out of the way completely.

When Corporations go bankrupt or fail, processes such as restructurings or flat out debt cancellation occurs. When a government desires perpetuating the existence of it's union or monopoly on money, the compromises end up being the iniquitous measures that constantly occur time and time again. One may now see why a Treasury is dangerous, as they are the entity that creates the government money. Extortion and currency devaluation are the confections of an economy reliant on public goods. All things should be privatized.

Money

When studying monetary theory what we are aware of is that money instituted by force has been an utter failure. Fiat money, as it is called, is an inconvertible medium of exchange that is worth only what the government professes it to be worth.

Allow me to elaborate, according to Mises' Regression Theorem the objective value of money is arrived at through human interchange stated in market prices. The subjective values of individuals, which are scaled within individual ordinal scales of value, will allow the individual to make his choice through his action.

As mentioned in a previous blog post, higher time preference denotes a higher ordinal ranking, while a lower time preference denotes a lower ordinal ranking.

Humans will exchange a good, when both parties within the trade benefit. This idea applies to all human exchanges. Indeed every transaction is subjective. The moment in time when a trade occurs is when contractually both parties arrive at concilliation. This is how a price is set, oftentimes the spot price. A proprietary protocol, or any system adhered to with a signature of some sort, would fortify the terms of the contract.

Preferably those partaking in the contractual agreements favor a third party to enforce the contract. In many cases, this is a person or entity reputable and knowledgeable in adjudicating (they render an opinion). No government need exist, as a contractual agreement is always voluntary.

Due to humans constantly desiring to act, and because of the processes undertaken by people to facilitate life's interactions, new technologies are created. A medium of exchange aids in facilitating the process of exchanging goods.

Ludwig von Mises (and earlier Menger historically alluded to it) deftly simplified the preferences of human actors, claiming and demonstrating theoretically that humans tend to always prefer precious metals as that very medium for it's scarcity and because it is portable, durable and divisible. Other factors were it's uniqueness and because it was ornate. Let us reiterate, choices are subjective yet they coalesce.

Gold or Silver have been the common choices of individuals desiring to accumulate value, whether it be when it became known as a highly desired good at the primitive stages of civilization, or now when investors use it as a hedge (strategically implied to move opposite the market), and some of us describing it as money itself.

The monetary definition ascribed to precious metals is evinced in the actions of investors. As price spreads open, meaning that as prices fall and the possibility of generating a higher rate of return or agio becomes more likely, investors look to move their money into what will aid them to increase their effective cash balances. Hence, Gold prices rise and money is worth more.

Another way of explaining this is that the money stock falls, purchasing power of the monetary unit you hold increases (less bank notes or electronic digits denoting the number of bank notes), and recrudescence is arrived at after time preference schedules readjust. Let us remember, that pulling one's money out of a low returning stage (detracted price spread) would insinuate hoarding or savings (lower time preference for the human actor).

At the individual level, time preference corresponds with the rate of interest, therefore withholding consumption may be higher on one's time preference schedule whilst they continue to consume. This may continue to suggest that the rate of interest is high, yet it will fall over time as quantity of savings increases.

Money is key in aiding individuals to make proper choices in the free market. Of course less resources being allocated improperly would occur more commonly if the price mechanism were properly accorded with a money stock of stable value (precious metal reserves).

Debasement

Reverting back to an old post, we can summarize the Austrian position of inflation as being a rise in the money stock.

Without a doubt, people do not have complete information. Positivists or those attempting to statistically predict the future, using events rendered in the past, which are each designated a numerical value. These symbols are cobbled together as an archive of numbers, this is known as historical data.

Surely one can try to assume that mathematics or the philosophical descriptions stacked on top of the fundamental principles of math theory are methods by which one can predict the future, but realistically this procedure is foundationally relativist.

Everything goes back to the basics. Further theory serves to aid the theoretician in building confidence when acting within the real world. Creativity is experimentation, which is discovering the world with physical application. Indeed math is necessary, but it is theory, and only helps us enhance our world acumen.

Due to the luring powers of mathematics, economics has suddenly become daunting for those who require more allocation of time when arriving at complete comprehension. This is unknown, and completely subjective. Standardized tests will not measure this human phenomenon.

The mechanics of economies to the mainstream economist presumptuously embraces hypostatization, and they therefore posit that inflation and other incidents can be measured without any doubts. Their measurements are arrived at with events from the past, the historical data previously mentioned. To their dismay, these measurements are not absolutes and only describe what occurred.

A rise in the money stock should and would filter through the structure of production at later points in time. In an economy absent of government intervention, real wealth would be built upon Savings.

No palliatives would be needed from a central authority. The individual would act, and the entrepreneur would evince to the market the necessity for demand toward his innovation. Indeed capitalist-entrepreneurs seize price spreads. Therefore the process of supplying savings, and the corresponding advancing of these factors to the various stages is heuristic.

Entrepreneurs in essence fill niches. They believe there is a demand for a product, or create a supply in hopes of a demand arising. This is all time preference.

In this aforesaid scenario, inflation would be quelled. Competing banking enterprises would bring forth their method based upon the central component of an economy, the commonly accepted medium by human actors.

In our present system, the central bank as well as other government institutions, monopolize a benchmark, whimsically expand credit, and therefore rapidly increase the money stock. This increase in the money stock is not market driven, it is government (coercively) induced.

An Austrian would measure the agio or mark-up in various ways if so needed when issuing debt instruments on the free market. The most obvious would be to watch, with the limited data given, the rise in the money stock from it's starting point, marking up the rate of interest accordingly.

A stock of Gold of 100 oz, could be parceled out and issued as loans. 10oz issued would leave 90oz. These 10oz would be apportioned to employees and other costs, if the loan were a business loan. Each of these smaller fragments would represent less quantities of Gold, even if the analogous Note (or numerical value in a digitized system) represents a fixed quantity of Gold.

This process continues whilst businesses use their best judgment to calculate other mark-ups and measure other costs to eventually pay back these loans. This would also be consistent with other types of loans or debt instruments as well.

On the free market, the rate of return is obvious. The rise in the bank money stock could be used to measure the agio, pertaining to the point in time used to measure it's increase. Clearly the Austrian understands the credo of subjectivity, and with this in mind, using theoretical measurements a bank could mark up the loan agio with the statistics at their disposal.

This attempt at discerning the rate of interest would be stated within their contractual covenant, and would assist the business in measuring their expenses. This competitive process would weed out bad practices, as well as vastly reduce moral hazards.

Indeed the rate of interest is the inverse of the rate of Savings, so within the free market, another approach could be to simply measure the available Gold stock and apply the inverse of this concept. My previous blog post explains the rate of return, using this process, whence one is given a certain amount of income.

Charity

The question of charity is not one that need be deliberated extensively. For an Austrian, charity is defined very simply.

Within the Savings=Investment ambit, by a Saver withholding consumption he is both attempting to seize the price spreads (receive a rate of return) as well as assisting in advancing factors (providing needed capital for a company to Invest with).

When a person withholds consumption, he is Saving. Savings is represented either as money within a demand deposit (both Checking and Savings accounts), which then provide capital for the bank to issue loans, Loans=Deposits. In your contemporary Banking system, this accounting tautology holds.

A loan provides needed funds (capital) for a business owner or any consumer to borrow with the terms requiring repayment in installments over time, plus an additional mark-up. Loan, Debt and Credit are all commensurate, as each vocable describes a form of borrowing.

Everything is contractual as well. An equity, or company stock, through indenture allows an Investor to allocate Savings (withheld consumption) into a liquid asset. This contractual claim to ownership of a parcel of a company, can be bought or sold quickly on an exchange. Equities can be converted to cash forthwith.

The equity or stock is a standard Savings instrument, as is the Debt instrument or Bond. Various euphemisms are given to the contractual form of borrowing, such as Bills (short-term), Notes (intermediate-term) as well as Bonds (long-term). Moreover, any label can be given to this Debt instrument which allows an issuer, typically a corporation, to borrow funds.

In these respects, a Debt instrument is Credit money (as is comporting to the aforementioned). One entity borrows--buys money, the other lends--sells money. Debt instruments are less liquid, meaning that the amount of time at which they can be converted into Cash is longer than an equity.

Everything is subjective, therefore the interlude at which someone waits in order to reap a larger profit is dependent upon time preference. Risk is indeed a subjective factor more easily reduced with more certain terms to the contract entered into, one example, collateral.

Some equities are riskier than others, while some bonds are more riskier than others as well. Subjectivity also is an important facet in describing the array of risks involved in Savings-Investing, as inflation causes malinvestments.

Charity, therefore, is tantamount to withholding consumption, because as Savings increases, more factors are advanced and new jobs appear in the market. Less government intervention, less inflation that is, will allow for more accurate price gauging. The price mechanism is less deceptive as the enshrouded decrement of wealth, due to a higher money stock, becomes less efficacious and thereupon less harmful to an economy as a whole.

A robust economy is built on real wealth, not on palliatives or vast reductions in purchasing power. Moreover, the rate of interest is key in the process of assistance to those most in need of building up a capital stock, or growing their wealth. It is profits, or the agio, that every human actor desires to grow their wealth, as those with more Savings become the greater benefactors.

Inflation would be the great deceiver which harms all decisions and causes vast misallocation of resources for all actors. Time preference is misgauged, and therefore more heedless decisions are rendered.

Charity is, ergo, the lack of government intervention, as government is the monopoly on coercion. Monopolizing money and law (a result of the existence of government), force out the needed competition in finding the stabilized market value of each. It is these dynamics which also complicate the natural confection of the agio, that being price discovery.

Market Fluctuations

In order to understand the process that takes place when market prices fluctuate, we must reconsider the existence of the various price spreads of the factors of the production process.

As Rothbard so deftly pointed out, Keynes had no idea what the rate of interest was. He believed it derived from the producer's loan market, and that a central authority needed to guide this supposed abstract concept. Rothbard laid to rest Keynes, as he incited the Austrians to the very fact of the mark up, the difference between buying and selling prices.

Keynes was so oblivious to this fact that his broad conjecture wound up contributing a convoluted method of mathematics which subscribed to the common present value formula. This formula is exponential, a fraction of a whole number (a percentage), multiplied by itself.

PV= Present Value (current market price)
FV= Future Value (or price at maturity-$1000)
R or i = Risk Free Rate (10 year Treasury)
N= Time or Number of Periods

Indeed these is your standard calculation when attempting to attribute value or a price to an obvious subjective factor. Evidently the most influential variable is the interest rate. The majority of financial theory requires the inclusion of the rate of interest, especially within the formulas concocted.

In the descriptions above, R or i is qualified as the commonly used instrument in all of finance, which is the instrument universally adopted by all financial theoreticians, that being the 10-year Treasury.

Applying the general moniker of "Risk-Free" to this instrument is solely due to the cajolery of governments, which resulted from that moment by which the US Dollar became the reserve currency for all central banks in the world. The Bretton Woods Conference led to the virulent Keynesian victory, which was to the world's detriment.

The elastic currency was able to thrive, all the while every other country in the world adopted the US dollar as it's reserve currency. A Gold-peg would be the aim of the US government in an attempt to make others believe they manage their expenses, or as some economists wangle, to stabilize the currency with the assistance of the central bank.

Time preference is so important to conceptualize because it tabulates the legerdemain of valuation theory. The theory of mathematics to the innumerate can seem daunting, and thus results in credulity. To those who believe they have mastered it, their persuasion is a result of embracing their theory as an absolute. One does not have perfect information.

Thus, Keynes' neophyte conclusions on the rate of interest, most specifically the Marginal Efficiency of Capital (MEC), led him to include a mark up within a mark up. Both mark ups, as aforementioned, are the subjective time preference us Austrians refer to as the rate of return or agio, time preference thereof. As Rothbard highlighted in an important footnote in his treatise on economics, the MEC is the rate of return itself.

To calculate the market, investors need to become numerates. What I refer to is that investors must understand that the lack of clear foresight (we are not God and cannot predict the future), leaves us with purview or experiences. Data is historical, they are numbers associated with occurrences that have already occurred in the past.

The more experience or information one gathers, perchance the enhanced the success of the wager.