Wednesday, December 23, 2015

106. Bastiat

"The Law" A MUST read for any serious student of Economics (and all Mancosa Economics students - especially MBAs)

“We hold from God the gift which, as far as we are concerned, contains all others, Life — physical, intellectual, and moral life.”

But life cannot maintain itself alone. The Creator of life has entrusted us with the responsibility of preserving, developing, and perfecting it. In order that we may accomplish this, He has provided us with a collection of marvelous faculties. And He has put us in the midst of a variety of natural resources. By the application of our faculties to these natural resources we convert them into products, and use them. This process is necessary in order that life may run its appointed course.

Life, faculties, production--in other words, individuality, liberty, property -- this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it.

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.”

Monday, December 21, 2015

105 ?


Friday, December 18, 2015

104. Counterfeit is fraud. Fraud is dishonest and wrong.

If the government wants to eliminate counterfeit products and return to honesty, it should start with its own money system. If only one coin - say a R100 coin was manufactured from a metal that at a particular point in time was worth R 100 and this coin was freely convertible with the paper money, we will not have inflation, will have an honest currency and we will become a true and honest society.

The rationale behind an honest coin is that people will not care to be in possession of these coins while the paper money retains its value - a hundred rand note will be of the same value as the coin. But as soon as the note starts losing its value people would want the coin (either hoarding it or melting it). The only way then to counteract this is for the government to maintain the value of the paper currency - this can only be done by not creating more money than is warranted by the production of real goods, services and value in the economy. As soon as people realise that the paper money has regained its value and is the same as the coin again they will revert back to using the paper money again and be indifferent to whether they use paper or coin.

Such a "honest coin" will act as a discipline on government and severely restrict government in creating currency to finance politically expedient schemes. We will become an "honest" country. Honest in currency and honest in the values that we uphold.

Until we do this, politicians will create money to run their schemes - including running expensive conferences with NGOs, church leaders and leaders of the community to improve the "moral fibre" of the nation.

This in itself is a sham - gorging themselves on the money extracted from the poor through "inflation tax", tax and other schemes based on a dishonest fiat currency. The reason that the government will be reluctant to introduce an honest coin is that they know that it will cost them to maintain the value of the fiat currency - it is however that very cost that will act as an automatic brake to inflation. As soon as people start melting the coin because they can earn more rands that way than by using it at its face value, the government will have to spend more paper currency to purchase the metal to manufacture the coin - this will only act as break to inflation if the money supply is not expanded to make such purchases possible! Otherwise the price of the metal in relation to the currency will continue to increase. An "honesty coin" is a sure way of preventing government increasing the money supply. A freely convertible "honesty coin will keep inflation in check and signal a return to fundamental moral values. C.M. Heydenrych

December 2015

(articles on this website may be reprinted without alteration and with acknowledgement)

Here is another article on Counterfefeit:

Wednesday, December 16, 2015

103. Trade unions*

The following is mentioned in the school curriculum statment:

The economy

Trade unions

Concept of trade unions; business and labour; brief historical development of trade unions; the role of trade unions; the responsibilities of trade unions; the role of women in trade unions; contribution of trade unions to sustainable growth and development

I do not know what teachers have to say about the last sentence. I do not believe that they will give learners a balanced view. The statement itself is biased since we know that many trade union actions, while beneficial to their members are not beneficial to the country and the populace as a whole. One aspect that is particularly damaging is the minimum wages that big business and big labour force onto non-consenting parties. Many small businesses cannot afford to comply with the wage agreements forced on them by collective agreements of which they do not form part but have to comply with since the Minister of Labour has to accept and enforce these industry agreements. This is damaging to workers that wish to enter the market at lower wages just to get a foot in the door. This is one reason why we have such huge youth unemployment figures - they are simply not able to be accepted by businesses at the enforced high wage levels.

S32 specifically is the clause which compels the Minister of Labour to extend private bargaining council agreements across an entire sector to control the unemployed and companies, usually SMEs, which were not party to the negotiations and cannot afford to pay higher wages and offer conditions agreed by larger firms and unions. The FMF seeked to change just one word from “must” to “may”, to allow the minister to apply her mind to what she does, especially concerning the wider socio-economic conditions within an industry, and to think about whether extending an agreement will harm new and existing jobs.

It also affects special and designated groups - The only competitive advantage that a disabled person a young person or a woman has in certain cases, is being able to work at a reduced rate - in a free economy this would be possible - but where unions are able to dictate minimum wages, their competitive advantage is removed and they will not be employed.

Now with the National Minimum wage being introduced the picture is eaven bleaker for those on the bottom rung. They will find it even more difficult to find employment.

So if you are an unemployed graduate or unemployed younger person (or any unemployed person for that matter) your choices are being limited by these arrangements...arrangements that the government make with parties "because they have your interests at heart", then they blame "white monopoly capitalists" for the situation. C.M.Heydenrych February 2017

Tuesday, December 15, 2015


101. The Gold Standard

From Wikipedia Havenga was a leading member of Hertzog's government and indeed with Oswald Pirow he formed the basis of Hertzog's 'inner cabinet' which controlled decision making.[2] As Finance Minister he was responsible for the decision to take South Africa off the gold standard, one that led to a significant economic upturn.[3] Havenga had formerly been a harsh critic of this move, reflecting populist opinions that gold-producing South Africa should refuse to follow the United Kingdom off the gold standard as a piece of nationalist posturing against the British.[4] In 1932 however rumours had been circulating that Tielman Roos was intending to split from the government over the issue and form a new party that would go into coalition with Jan Smuts, forcing Havenga to abandon his earlier stance to save the government.[5]

Monday, December 14, 2015

100. Ministers of Finance - South Africa

Wednesday, December 9, 2015

99. Unemployment When economists talk about unemployment they are referring to ALL the production factors and not only labour. Because labour is such an important ingredient of the economic mix, the focus is usually placed there. Economists group (labour) unemployment into four categories according to the cause. The goal is “full employment” so the goal is for the economy to create an appropriate a job for every willing and able worker. If we now find in the economy that there is unemployment, we ask "why hasn’t the economy produced that job for each person?"

We then in answering the question classify the economy’s failure in to one of four reasons.





From a policy standpoint, only two are worrying - the other two non-troubling causes or types are seasonal and frictional unemployment.

Here is a short video on these classifications.

Seasonal unemployment simply means the worker is unemployed because it’s the wrong time of year. A classical example are the fruit pickers in the Western Cape. there are no policy that could be implemented to fix it.

Frictional unemployment means those people looking for jobs that they have not found yet. Again, policy, at the macro level is not needed here. At any point in time in a healthy market economy there will always be some people between jobs.

That leaves cyclical unemployment and structural unemployment.

Cyclical unemployment is workers who are out-of-jobs because employers cannot sell enough goods. In other words, the economy is depressed. If it grows faster these people will get hired. Cyclical unemployment will be fixed when the economy picks up the slack again (In interventionist economies by some macro-level stimulus policy if it becomes really serious - Like in the US in 1930's).

Another way of putting it will be to say that Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand (AD). If the decline in aggregate demand is persistent, and the unemployment long-term, it is called either demand deficient, general, or Keynesian unemployment.

Structural unemployment is of interest to policy-makers but cannot be fixed at all by fiscal (cutting tax rates) or monetary (eg. cuting interest rates) stimulus policies . Structural unemployment occurs when there is a mismatch at the individual worker-level between the skills, experience, qualifications, and location of the unemployed workers and what’s required for the open job opportunities. Examples of structural unemployment at the national level include:

technological obsolescence – Employers no longer need those skills (or as many with those skills). The classic example is the proverbial "buggy whip" manufacturer when there was a switch to automobiles around 1910. A more modern example might include photographers or developers of film (the old silver-halide, analog stuff) after the world has switched to digital photography. The workers either did not yet train for new emerging opportunities or update their skills.

location mismatch – the unemployed workers live in one geographical area and the open job opportunities exist somewhere else and they do not wish to locate at that point.

educational mismatches – the jobs being created require higher or different educational qualifications or degrees or specific training, but the unemployed workers don’t have those qualifications or are not prepared at that point to work for less than what they want.> inexperience – the firms hiring often want highly experienced workers or only workers who are currently employed. The unemployed workers either don’t have experience or don’t have recent/current experience. Often however employers are prevented by minimum wage laws to employ persons in these categories.

legislative barriers- the jobs exist, but perhaps at a lower wage rate than the legal minimum wage, or like in the old South Africa with job reservation that prevented the entry into certain jobs by certain people. Then there are legislative minimum qualifications that are protected by interest groups such as medical doctors preventing qualified nurses to prescribe medicine. These barriers exist in many industries and are are said to be designed to keep the "riff-raff" out, but these measures are nothing else than ways to protect vested interests and in so doing keeps rates at a high level and causing unemployment. The very high "Western Standards" imposed on many industries - building codes, health codes, FICA, the credit act, etc. all contribute to inflexibility and make it difficult for people to gain the necessary experience to contribute to the economy. There are powerful vested interests that are using high entry requirements to protect their turf. One example of this phenomenon has been the Real Estate industry and the Insurance industry who, in their attempt to "professionalise"their industry, have obliterated thousands of jobs.

Jim Luke ( says "Structural unemployment can be reduced through policy actions, but they are different, more micro-level policies. For example job retraining programs can reduce technological obsolescence. Programs to help people move and relocate will address location mismatch. Educational support and grants will address educational mismatches. Both government direct-hire jobs guarantee programs and employer willingness or incentives to do on-the-job training can address technological, educational, and inexperience issues."

I however see that most causes of involuntary unemployment are examples of the job market not clearing. If you see a market not clearing at optimal level, you should look for the government intervention (use of some coercion) to find the cause. In a completely free and unregulated labour market there would be "full" employment to the degree that satisfy the participants at the price level that they are willing to transact. I disagree with Keynes when he says that the economy can be at "equilibrium" in the face of unemployment.

I do agree with him that the price level of labour is what he referred to as "sticky" because of the presence of unions and collective bargaining involved in the process of wage determination in the real world. It is however safe to say that in a free and unfettered market the is no such thing as unemployment.

Tuesday, December 8, 2015

98. Definintion of Economics

C.M. Heydenrych - Lecurer in Economics. Mancosa. December 2015

Economics is the social science that describes the factors that determine the creation of value through the production, trading, allocation and consumption of goods and services. According to many web resources the term comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") and νόμος (nomos, "custom" or "law"), hence "rules of the house hold for good management".

One might find the term "distribution" in some definitions. I prefer not to use the term since it carries the connotation that the products are "handed out" in some mechanical way without the dynamic concept of voluntary exchange playing a key role. The technical definition however is something else: Samuelson (1948) defines Economics as the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people." He then defines distribution as the way total output, income, or wealth is distributed among individuals or among the factors of production (such as labour, land, and capital)(Samuelson and others, 2004). Distribution in this latter sense relates more to the statistical distribution or spread among the different categories of people.

Also let us briefly look at what we mean by a "social science" - it is the scientific study of hum an society and social relationships - how individuals behave in relation to others.

The Oxford English Dictionary defines the scientific method as "a method or procedure that has characterized natural science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses."

It is at this very point that two distinctive approaches in looking at economics emerge. One group that say that human actions cannot be studied in the same way as we do with phenomenon in the natural world (Austrian School) and others that say that we can and should (Keynes and others).

Since I believe that there is nothing else than the natural world and therefore we should use the same methodologies as the physical sciences, but also that one should be careful in ones application not to confuse the essential differences between the natural world and humans. The distinction would be similar to the distinction found in the natural sciences between quantum mechanics and Newtonian principles. There is a place for each in practice and it is unlikely that a unified theory would be found.

REFERENCES Paul A. Samuelson, Economics (New York: McGraw-Hill, 1948) Samuelson Paul A. Samuelson and William D. Nordhaus (2004). Economics, 18th ed., [end] Glossary of Terms, "Distribution."

Question: Give, or create a textbook definition of economics and discuss (8).

Monday, December 7, 2015

Sunday, December 6, 2015

96. AS and AD