https://usapangecon.com/2018/09/20/mga-dapat-mong-malaman-tungkol-sa-exchange-rate/

 

 

Exchange rate

 

 

 

 

 

 

 

 

 

 

Mainam ang pagpapaliwanag ni Ginoong Jefferson Arapoc hinggil sa exchange rate, o yung katumbas na halaga ng pera ng isang bayan sa salapi ng isa pang bayan.

Sa ating mga Pinoy, ang pinakababantayan nating exchange rate ay yung palitan ng ating pera, ang piso, kontra sa dolyar ng Estados Unidos. Sa ngayon ay naglalaro ang palitan na yan sa halagang P54.00 sa isang dolyar.

Tulad ng ating naunang ginawa hinggil sa inflation o yung bilis ng pagpalit ng mga presyo ng mga batayang bilihin, bubusisihin natin ngayon ang exchange rate o yung palitan ng isang salapi, katulad ng piso, sa isa pang salapi, katulad ng dolyar bilang isang usaping pampulitika.

Mag-kabit at mag-kaugnay ang inflation at exchange rate hindi lamang sa larangan ng ekonomiya kundi maging sa larangan ng pulitika.

 

Peso dollar exchange rate

 

 

 

 

 

 

Magsimula tayo sa pagkilala na ang isang bansa ay nakikipag-kalakalan sa mga banyagang bansa. Una’y dahil ang isang bansa ay nangangailangan ng mga produkto at serbisyo na di nito kayang gawin o kaya’y kulang ang kaya niyang gawin kumpara sa kabuuang pangangailangan ng kanyang ekonomiya.

Pangalawa, nais ng mga lokal na kapitalista na palawakin ang palengke para sa kanilang mga produkto. Hindi sila kuntento na maibenta lamang ang kanilang mga produkto at serbisyo sa loob ng isang bansa. Gusto nilang makabenta sa ibang bansa sapagka’t mangangahulugan ito ng higit ng maraming benta at mas malaking kita’t tubo.

Pangatlo, kailangan din nating maunawaan na kapag bumili tayo ng mga produkto at serbisyo mula sa ibang bansa (yung tinatawag na import), hindi natin maaring gamitin ang ating sariling pera, ang piso, bilang pambayad sa ating mga import. Hindi katanggap-tanggap ang piso na pambayad sa ating mga import. Kailangan nating magbayad sa pamamagitan ng mga katangap-tanggap na salapi tulad ng dolyar, Euro, yen, at pound sterling.

Saan kukunin ng mga Pinoy tulad natin ang mga dolyar at Euro na kailangan natin para pambayad sa ating mga import?

E di sa pagbenta ng sarili nating mga produkto’t serbisyo sa mga banyaga!

Magkakaroon din tayo nga mga dolyar at iba pang mga banyagang salapi mula sa mga dayuhang turista dumadalaw sa ating bayan.

Nagkakaroon din tayo ng dolyar sa pamamagitan ng mga padala ng mga Pinoy na nag-tatrabaho sa ibang bayan (yung tinatawag nating mga OFW).

Kung nagbenta tayo sa mga Amerikano, magkakaroon tayo ng mga dolyar. Kung nagbenta tayo sa mga Europeo, magkakaroon tayo ng mga Euro at yen kapag nagbenta tayo sa mga Hapones.

 

Trade balance

 

 

Kaya mahalagang malaman kung mas marami ang kita natin sa pagbenta ng ating mga produkto at serbisyo sa mga banyaga kesa sa ating gastusin sa pagbayad ng ating mga binili o inangkat mula sa mga ibang bayan. Itinuturing na mainam kung mas maraming dolyar na pumasok kesa sa lalabas bilang pambayad sa ating mga import.

Kung kulang ang imbak nating dolyar mula sa benta ng ating produkto sa mga banyaga para pambayad sa ating mga inangkat, kakailanganin nating makakuha ng dagdag dolyar sa ibang paraan tulad ng pangungutang sa mga banyagang pamahalaan at bangko kasama na rin ang mga multilateral tulad ng International Monetary Fund (IMF).

Hindi tiyak na mas marami tayong kikitaing dolyar kesa sa kailangan nating pambayad sa ating mga import. Hindi tiyak o garantisado na makakahiram tayo ng sapat na dolyar para matustusan ang ating mga pangangailangan sa dolyar.

Kung may kakulangan sa kailangang dolyar ang isang ekonomiya, malamang na babagsak ang halaga ng kanyang salapi laban sa dolyar.

Maaring matuwa ang pamilya at kamag-anak ng ating mga OFW dahil mas marami silang makukuhang piso kapag nagpapalit sila ng ipinadalang dolyar.

Kaso, di natatapos dun ang usapin.

Alam natin na ang pagtaas ng halaga ng dolyar laban sa piso ay may masamang epekto sa presyo ng mga batayang bilihin sa loob ng bansa. Tataas tiyak ang presyo ng gasolina at diesel dahil kailangan tayong umangkat nito mula sa ibang bansa, lalo na sa mga bansang nasa Gitnang Silangan tulad ng Saudi Arabia. Alam din natin na ang pagtaas ng presyo ng gasolina at krudo ay magdudulot ng pagtaas ng presyo ng mga batayang bilihin tulad ng bigas at iba pang pagkain, kuryente, tubig, pamasahe, atbp.

 

Pump prices

 

 

 

Nauna na nating naipaliwanag ang epektong pulitikal ng pagtaas ng presyo ng mga batayang produkto at serbisyo.  Maaring basahin ito sa pamamagitan ng pag-click sa sumusunod na link:

 

https://bongmendoza.wordpress.com/2018/09/20/inflation-usaping-pampulitika/

 

 

Liban sa epekto sa presyo, ano pa ang maaring epekto ng pagbabago ng exchange rate sa ating pulitika?

 

 

 

 

Itutuloy…


Ang post na ito’y isang reaksyon sa isang bago at mahusay na blog, Usapang ECON, na inumpisahan ng mga mag-aaral ng Ph.D. Economics sa UP School of Economics at iba pang mga pamantasan sa labas ng bansa.

Nandito po ang kauna-unahang blog ng Usapang ECON:

 

https://usapangecon.com/2018/09/17/ano-ang-katotohanan-sa-inflation/

 

________________________________________________________

 

 

Duterte inflation

__________________________________________________________________

 

 

Ang inflation ay di lamang usaping pangecon(omiya). Maliwanag na usaping din itong pampulitika.

Hindi masaya ang isang sambayanang nakakaranas ng inflation lalo na kung walang humpay at habas ito. Lalong di masaya ang isang pamayanan kung magkakaroon ito ng pagtingin na hindi kaya ng kasalukuyang pamahalaan na bigyang lunas ang inflation bagkus patakaran pa mismo ng pamahalaan ang malaking dahilan ng inflation.

Hindi din masaya ang pamayanan kung naririnig nila ang pagwawalang-bahala o di kaya’y pagmamaliit ng mga opisyal ng gobyerno sa hirap ng inflation na dinadanas nila. Sino ang matutuwa sa pahayag ni Kalihim Benjamin Diokno na masyadong tayong ma-reklamo at ‘sinok’ lang ang pag-taas ng presyo ng mga bilihin?

https://www.manilatimes.net/the-crisis-is-govts-lack-of-empathy/442660/

https://www.rappler.com/views/animated/203983-benjamin-diokno-high-prices-joke-hypocrisy

Magagalit sila kung sa tingin nila ay umiiwas sa responsibilidad o kaya’y nagkakalat ng kasinungalingan ang mga opisyal ng pamahalaan hinggil sa inflation.  Halimbawa, sino ang maniniwala kay Pangulong Duterte nang isinisi niya ang inflation sa Pilipinas sa inumpisahang pakikipagtalo ng Estados Unidos sa Tsina hinggil sa kalakalan sa pagitan ng naturang dalawang bansa?

 

https://news.abs-cbn.com/news/09/07/18/duterte-blames-trump-for-high-inflation-in-ph

Kapag umangal ang isang pamayanan dahil sa hirap ng inflation, malamang ay kikilos sila sa larangan ng pulitika.

Ang una nilang maaring gawin ay mag-ingay at mag-reklamo.

Maaring ding maapektuhan ang approval o trust rating ng pamahalaan sa mga surbey na isinasagawa ng SWS at Pulse Asia. Sa kabila ng pagtanggi ng mga tagapagsalita ng pamahalaan, di maaring ipagwalang-bahala ang pagbagsak ng nakaupong pamahalaan ang mga rating nito sa mga surbey.  Napabalitang bumaba sa pinakamababang antas ang trust rating ni Pangulong Duterte noong Hunyo 2018.  Ang tantiya ng ilang analyst lalo pang bababa ito sa Setyembre dahil sa suliranin ng inflation at kawalan ng sapat na suplay ng murang bigas.

 

https://www.rappler.com/nation/211476-duterte-trust-ratings-sws-june-2018

Kung tuloy-tuloy ang inflation at aabot ito hanggang sa halalan sa 2019, malamang na magiging mahalagang isyu ito na pag-uusapan ng mga botante. Sisingilin ng mga botante ang mga kandidato kung ano ang nagawa nila para masugpo ang inflation at ano ang kanilang panukala para ito’y maiwasang umusbong ito muli.


The felicitous relationship between human development, preference for democracy, and other positive or modern political values has been argued in extant literature.

 

Christian Wellzel

Christian Welzel

Welzel, Inglehart and Klingemann (2003) demonstrated that socioeconomic development, emancipative cultural change and democratization constitute a coherent syndrome of social progress – a syndrome whose common focus has not been properly specified by classical modernization theory.  They specified this syndrome as ‘human  development’, arguing  that  its three  components have a common  focus on broadening human  choice.

https://nsf.gov/news/news_videos.jsp?cntn_id=111725&media_id=62521

Socioeconomic development gives people  the objective  means  of  choice  by  increasing  individual  resources; rising  emancipative  values strengthen people’s  subjective  orientation towards  choice; and  democratization provides  legal  guarantees  of  choice  by  institutionalizing  freedom   rights.  Analysis  of  data   from the  World  Values  Surveys  demonstrates that  the  linkage  between  individual  resources, emancipative values and freedom rights is universal  in its presence across nations, regions and  cultural  zones; that  this  human  development  syndrome is shaped  by a causal  effect of  individual  resources and  emancipative values  on  freedom rights; and  that  this  effect operates  through its impact  on  elite integrity, as the  factor  which  makes  freedom  rights effective.

 

H. D. Klingemann

Hans-Dieter Klingemann

In a related work, Welzel and Inglehart (2005) examined democratization as an aspect of human development: human development progresses when people attain greater autonomous choice in shaping their lives. Democratization promotes this process in so far as it institutionalizes freedom of choice based on civil and political liberties. This perspective allows one to integrate modernization-based explanations and civic culture-based explanations of democratization under a common theoretical umbrella.

Both types of explanations reflect aspects of human development. Modernization provides socioeconomic resources that increase people’s capabilities to act in accordance with their autonomous choices; and the rise of a civic culture promotes post-materialist values that increase people’s emphasis on autonomous choices.

Linked through their common focus on autonomous human choice, socioeconomic resources and post-materialist values provide overlapping sources of pressure for the growth of freedom. Within the limits set by the extent to which freedom is not yet present, socioeconomic  resources and post-materialist values are conducive to the growth of political freedom in interchangeable ways. These hypotheses are tested against the massive wave of democratization processes that occurred from the 1980s to the 1990s, using data from 62 nations of the World Values Surveys. We find that democratization is driven by social forces that focus on the growth of autonomous human choice, reflecting human development. From this perspective, modernization-based and civic culture-based explanations of democratization are manifestations of the same theme: the expansion of autonomous human choice.

It is obvious that a culture of dependence and fear reflects scarcity of socio-economic resources and instrumental/materialist values.  The love, nay need for, of a strong leader, betrays a society that is fundamentally authoritarian even if garbed in democratic integuments. The newest term for this socio-cultural complex is offered by North, Wallis and Weingast (2010): the natural state. For the trio, the natural state is a limited access society that limits violence by political manipulation of a few powerful actors but doing so hinders both economic and political development.  In contrast, modern societies create open access to economic and political organizations, fostering political and economic competition.  And this is supposedly good!

 

Amartya Sen

Amartya Sen

The Indian economist-philosopher Amartya K. Sen (2000) raised the ante and argued that freedom is both the end and most efficient means of sustaining economic life and the key to securing the general welfare of the world’s entire population. Releasing the idea of individual freedom from association with any particular historical, intellectual, political, or religious tradition, Sen demonstrated its current applicability and possibilities. In the new global economy, where, despite unprecedented increases in overall opulence, the contemporary world denies elementary freedoms to vast numbers–perhaps even the majority of people–he concludes, it is still possible to practically and optimistically retain a sense of social accountability.

In a newer book, Welzel (2013) presented a more comprehensive theory of why human freedom gave way to increasing oppression since the invention of states–and why this trend began to reverse itself more recently, leading to a rapid expansion of universal freedoms and democracy. Drawing on a massive body of evidence, the author tests various explanations of the rise of freedom, providing convincing support of a well-reasoned theory of emancipation. Welzel’s study demonstrates multiple trends toward human empowerment, which converge to give people control over their lives. Most important among these trends is the spread of “emancipative values,” which emphasize free choice and equal opportunities. He author identifies the desire for emancipation as the origin of the human empowerment trend and shows when and why this desire grows strong; why it is the source of democracy; and how it vitalizes civil society, feeds humanitarian norms, enhances happiness, and helps redirect modern civilization toward sustainable development.

In sum, the human development sequence (HDS) theory, proposed by Inglehart and Welzel (2005) is one of the most prominent modernization theories (Wucherpfennig and Deutsch 2009), stating that economic development, changes in emancipative cultural values and democratization are intimately linked. These three processes are hypothesized to follow a common causal direction, with economic resources providing the means for emancipation, which in turn provides motivation for more democratic institutions. Over time countries undergo a transition as their citizens’ values change from reflecting the need to survive to the need to live a self-determined life. Ultimately, the way a country is governed changes to reflect these emancipative values (Inglehart and Welzel 2005; Welzel 2013). 

However, the HDS theory has not remained unchallenged (Duch and Taylor 1993; Hadenius and Teorell 2005; Teorell and Hadenius 2006; and Teorell 2010). Recent empirical analysis show that the assumed sequence of economic development, emancipation, and democratization is not entirely supported by the data. Spaiser et al. (2014) show that cross-country time-series data suggest that the implementation of human rights and democratization in fact precedes the emancipation of the wider population.[1]  However, data seems to suggest that the emancipation of wider segments of the population requires not only existential security in terms of basic economic well-being but includes also personal security granted by human rights (Spaiser et al 2014).

Notwithstanding the challenge to HDS theory, the notion that good things–human development, democratization, and other positive human values–go together remains robust.

 


Note:

[1] Spaiser et al (2014) argued that over the past decades, many countries have experienced rapid changes in their economies, their democratic institutions and the values of their citizens. Comprehensive data measuring these changes across very different countries has recently become openly available. Between-country similarities suggest common underlying dynamics in how countries develop in terms of economy, democracy and cultural values. The authors applied a novel Bayesian dynamical systems approach to identify the model which best captures the complex, mainly non-linear dynamics that underlie these changes. They show that the level of Human Development Index (HDI) in a country drives first democracy and then higher emancipation of citizens. This change occurs once the countries pass a certain threshold in HDI. The data also suggests that there is a limit to the growth of wealth, set by higher emancipation. Having reached a high level of democracy and emancipation, societies tend towards equilibrium that does not support further economic growth. The findings of Spaiser et al (2014) give strong empirical evidence that implementation of human rights and democratization precede increases in emancipative values.

References

Duch, R. M. and Taylor, M. A. 1993. “Postmaterialism and the economic condition”. American Journal of Political Science 37(3): 747–779.

Hadenius, A. and Teorell, J. 2005. “Cultural and economic prerequisites of democracy: Reassessing recent evidence”. Studies in Comparative International Development 39(4): 87–106.

Inglehart, R. and Welzel, C. 2005. Modernization, Cultural Change, and Democracy: The Human Development Sequence. Cambridge University Press.

North, D., Wallis, J. J., and Weingast, B. 2010. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Cambridge University Press.

Sen, Amartya K. 2000. Development as Freedom. New York: Knopf.

Spaiser, V., Ranganathan, S., Mann, R.P., and Sumpter, D. 2014. “The Dynamics of Democracy, Development and Cultural Values”. PLoS ONE 9(6): e97856. https://doi.org/10.1371/journal.pone.0097856

Teorell, Jan. 2010. Determinants of Democratization: Explaining Regime Change in the World, 1972-2006. Cambridge: Cambridge University Press

Teorell, J. and Hadenius, A. 2006. “Democracy without democratic values: A rejoinder to Welzel and Inglehart”. Studies in Comparative International Development 41(3): 95–111.

Welzel, Christian. 2013. Freedom Rising: Human Empowerment and the Quest for Emancipation. Cambridge University Press.

Welzel, C., Inglehart, R. and Klingemann, H.D. 2003. “The theory of human development: A cross-cultural analysis.” European Journal of Political Research 42: 341-379.

Wucherpfennig, J. and Deutsch, F. (2009). “Modernization and democracy: Theories and evidence revisited”. Living Reviews in Democracy 1(1): 1-9.


 

 

 

Hitler in 1939

Adolf Hitler at a 1939 Nazi political rally

 

 

What a “post-truth” world is — a place where shared, objective standards for truth have disappeared.

Is it the same as a post-modern world which refuses to privilege any truth claim supposedly because there is no way or no acceptable standard to test competing truth claims?

Close but not the same!

At least, the post-modern analyst admits that not one truth claim, except that back by power, is “true”. And the true-blue po-mo will even accept that whatever claim he himself makes is not superior in any way. It is a reading just like anybody else.

When Trump, Duterte, and other political leaders lie and pass their lies as truths and their political bases accept these same ‘truths’, this phenom simply affirms the common-sense that “victors write history”. Or Michel Foucault’s observation of a strong ‘power-knowledge’ nexus. It also recalls Goebbels’ claim that if one repeats a lie a gazillion times, it will be accepted as truth.

Furthermore, powerful men go on spouting lies because they are not punished for doing so. Their credibility does not decrease and they are egged on by their political bases.

In contrast, when an ordinary person lies and he is found out, he suffers social disapproval and could even be fined or sent to jail.

In truth, human societies can live with and in fact need beliefs that are less-than-truths. Foundational myths are necessary to form human communities and societies. Benedict Anderson earlier asserted that nations are ‘imagined communities’. The Weberian state is another myth that current states aspire for. Economists use the fiction of ‘perfect competition’ to assess real-world economies, mimicking physicists of the 18th century who started heuristically with friction-less motion in the study of dynamics.

Doubt may be painful and for this reason, people are willing to accept as truth the claims made by authorities. For instance, if a child refuses to believe his mother’s warning that we cannot fly unaided, that child will die if he tries to test his ability to fly unaided by jumping out a window from the family condo unit located at the 69th floor of a 100-storey building.

The inability to live with and tolerate doubt and uncertainty is the principal reason why lies asserted as truths, specially by the powerful, get accepted by many.

The powerful liar is now a source of comfort and assurance.

Examples:

The Third Reich will last a thousand years!

This nation can be great again!

I hate drugs!

The truth may be the truth but usually, it is painful.

Given that truth, it may be legitimate to ask the question: why seek truth if it causes pain, discomfort, and inconvenience?

Living with and accepting truth’s pain seems to be the challenge that we face in these trying times!

 

FM in his 1986 inauguration

 

 

 

 

 

©Amado M. Mendoza, Jr. 19 August 2019


 

Marx

Karl Marx (1818-1883)

 

 

 

https://www.marxists.org/archive/marx/works/1867-c1/p1.htm

 

 

 

What was Marx’s transformation problem? In Volume I of Das Kapital, Marx starts his dissection of capitalism with the concept of value and builds on it his theory of surplus value. Marx declared that capitalism’s secret is the commodification of labor power. Labor power is the only commodity that creates surplus value, the value in excess of labor power’s exchange value–that is, the workers’ wage rate. In that same volume of his magnum opus, Marx explained the profits of capital as resulting from surplus value. He left open the problem of explaining how capitalists with differing ratios of labor to machinery can have similar profits, a contradiction to be resolved in further works. Marx, in Capital Vol III, takes up the matter again, but according to Eugen von Böhm-Bawerk’s essay, does not resolve the issue logically.

 

 

Marx’s transformation problem exists simply because of another problem he noted with capitalism–the so-called realization problem. Workers might create surplus value in the realm of production but unless goods are sold (in the realm of commerce), profits cannot be realized by the capitalists and surplus value remains just potential profit. In the realm of commerce where prices are important, the price level of commodities are important to the extent that they define the size of the profit rate that will be enjoyed by particular capitalists which will in turn serve as a signal to other capitalists if a particular industry is an attractive investment site. Capitalist competition brings profit rates down, However, Marxist political economy also points out that an increasing capital/labor ratio or what Marx called organic composition of capital (the ratio between living and dead labor) will lower profit rates since only living labor can create surplus value. Dead labor simply transfers its exchange value to the total price of the commodities. Dead labor (like capital goods and raw materials) cannot create surplus value.

 

If Marx had to transform value into prices, the marginals had to transform their ‘utils’–a measure of utility to explain why consumers demanded or liked to consume commodities–to exchange values or market prices. Second generation marginalists like Alfred Marshall worked on theories of marginal physical productivity as the explanation for product costs/prices while third generation marginalists like Francis Ysidro Edgeworth and Eugen Slutsky, while believing that utility represents some quantity, developed the concept of indifference curves which did away with the need to quantify utility.

 

Alfred Marshall

Alfred Marshall (1842-1924)

 

In a work published in 1907, the Russian economist and statistician Ladislaus Bortkiewicz identified the transformation problem in Marx’s work. He proved that the data used by Marx was sufficient to calculate the general profit rate and relative prices. Though Marx’s transformation procedure was not correct—because it did not calculate prices and profit rate simultaneously, but sequentially—Bortkiewicz has shown that it is possible to get the correct results using the Marxian framework, i.e. by using the marxian variables constant capital and variable capital, it is possible to obtain the profit rate and the relative prices in a three-sector model. His “correction of the Marxian system” has been the great contribution of Bortkiewicz to classical and Marxian economics but it was completely unnoticed until Paul Sweezy’s 1942 book “Theory of Capitalist Development”. Piero Sraffa’s Production of Commodities by Means of Commodities (1960) has provided the complete generalization of the simultaneous method for classical and Marxian analysis.

 

Bortkiewicz

Ladislaus Bortciewicz (1868-1931)

 

What was the transformation problem of the first generation theoreticians of the Marginal school of economics? The marginalists (marginal analysts) sought to resolve a conundrum that flummoxed Adam Smith: the so-called diamond-water paradox. How come diamonds, which humans do not need to live, are most costly than water, without which humans will die? Menger figured this out at about the same time as Jevons and Walras. He said that the first pail of water satisfied the strongest want (thirst), while succeeding pails satisfied lesser wants, such as cleaning. In a small village next to a large river, all of the people’s uses of water would be filled, making the value of one additional pail of water zero. This is the essence of marginal analysis: look at the value or cost of the last additional unit, the unit “at the margin”.

 

Edgeworth

Francis Ysidro Edgeworth (1845-1926)

This theoretical innovation moved economic theory away from Adam Smith’s supply-side “cost-of-production” theory of commodity prices. The marginalists argued that commodities are valuable more because of their ability to satisfy consumers’ demand (to make them happy, in other words) rather than the costs incurred in producing them. And why and how do commodities satisfy consumers or make them happy? They satisfy because they are useful. For this reason, first generation marginals valorized utility to explain commodity prices–marginal utility however rather than total utility.

 

 

 

 

Slutsky

Eugen (Evgeny) Slutsky (1880-1948)

Utility, while difficult to measure, was conceived by the first marginalists as a quantity. Happiness or usefulness, of course, cannot be quantified. But there are methods and assumptions in microeconomics for calculating a reasonable approximation of this elusive concept. In microeconomics, happiness is measured by a concept called utility. The standard unit of measurement that microeconomics uses to measure utility is called the util. The util has no concrete numerical value like an inch or a centimeter. Instead, it’s an arbitrary and subjective – yet convenient – way to assign value to consumer choices and to measure the consumer utility of one choice against another. A number of the first generation marginals were quite bothered by the inability to measure utility. Subsequent marginal analysts innovated theoretically to move from using (marginal) utility to explain commodity price determination. This was the marginal school’s transformation problem.


 

CarlMenger

Carl Menger (1840-1921)

 

I.

The Austrian School of economics, founded by Carl Menger and popularized by Ludwig von Mises and Friedrich A. Hayek, is the champion of libertarianism, apostle of free markets and the laissez faire state, and of course, the bane of Marx and Marxist political economy.  Together with the Englishman William Stanley Jevons, Menger and the French economist Leon Walras were considered the first generation of the so-called marginalists (or marginal analysts) in the history of economic thought.  Another Austrian, Eugen von Böhm-Bawerk, published in 1898 the English translation of his Zum Abschluss des Marxschen Systems (1896)–Karl Marx and the Close of His System–a critique of Marx’s political economy.  The third volume of Marx‘ Das Kapital was published posthmously in 1894 by his closest associate, Friedrich Engels, in 1894.  Earlier, the English disciple of Jevons, Philip Wicksteed wrote two short essays criticizing Marx’s labor theory of value.  Wicksteed is credited to have steered George Bernard Shaw and the other Fabians from Marxism.

 

Bohm Bawerk

Eugen von Bohm-Bawerk (1851-1914)

 

However, the Austrian School started first as a theoretical counterpoint to the German Historical School, which dominated economic thinking in German-speaking countries in the second half of the 19th century.  Menger is the acknowledged founder of the Austrian School with the publication in 1871 of his Grundsätze der Volkswirtschaftslehre (Principles of Economics).  Menger dedicated his 1871 book to his German colleague Wilhelm Roscher, the leading figure in the German Historical School.

 

Wilhelm Roscher

Wilhelm Roscher (1817-1894)

 

Ushering what is now known as the Marginal Revolution in the history of economic thought, Menger argued that economic analysis is universally applicable and that the appropriate unit of analysis is the individual human being and his choices. These choices, he wrote, are determined by individual subjective preferences and the margin on which decisions are made. The logic of choice, he added, is the essential building block to the development of a universally valid economic theory.  The key argument of marginal analysis is to insist that the market price of a commodity depends more on the demand (which is based on the good’s usefulness or utility) for the same rather than the total cost of producing it.  In fact, the market price (or exchange value) of a commodity depends upon the marginal utility of the last unit of a given commodity purchased and consumed by buyers in a market.

F A Hayek

F. A. Hayek (1899-1992)

Ludwig von Mises

Ludwig von Mises (1881-1973)

 

Marginal analysis explained this conundrum: why are necessities like water cheap, while luxuries like diamonds are expensive? It seems backward in terms of necessity and utility.   Menger figured this out at about the same time as Jevons and Walras. He said that the first pail of water satisfied the strongest want (thirst), while succeeding pails satisfied lesser wants, such as cleaning.  In a small village next to a large river, all of the people’s uses of water would be filled, making the value of one additional pail of water zero. This is the essence of marginal analysis: look at the value or cost of the last additional unit, the unit “at the margin” (https://www.forbes.com/sites/billconerly/2017/11/22/business-planning-with-austrian-economics-marginal-analysis/#75e1c5315d24).

 

W S Jevons

William Stanley Jevons (1835-1882)

 

In essence, the marginalists sought to explain the exchange value (or market price) of a commodity by emphasizing consumer demand rather than the cost of production (or supply-side) theory adhered to earlier by Adam Smith in his Wealth of Nations (1776).  Smith had to confront the ‘diamond-water paradox’ which was why he moved away from any theory that explained exchange values or market prices based on the utility of commodities.  The diamond-water paradox pointedly amplified the truth that while water was more useful to humans than diamonds (given that humans cannot exist without water but can live on without diamonds), water commanded a very much lower market price than diamonds.

 

Leon Walras

Leon Walras (1834-1910)

 

The German Historical School, in contrast, argued that economics is incapable of generating universal principles and that scientific research should instead be focused on detailed historical examination. The historical school thought the English classical political economists were mistaken in believing in economic laws that transcended time and national boundaries.  Menger’s Principles of Economics restated the classical political economy view of universal laws and did so using marginal analysis.  Roscher’s students, especially Gustav von Schmoller, took great exception to Menger’s defense of “theory” and gave the work of Menger and his followers the derogatory name “Austrian school” because of their faculty positions at the University of Vienna. The term stuck (https://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html).

 

Gustav von Schmoller

Gustav von Schmoller (1838-1917)


 

The controversial TRAIN (Tax Reform for Acceleration and Inclusion) proposal is now law of the land  since this year’s beginning.  At least, TRAIN 1, that is.  From what I have heard and read, there’s a TRAIN 2, 3, 4, and 5.

The supposed focus of TRAIN 2 is a further reduction in corporate income taxes.  But what is this I also hear that not one senator is willing to sponsor said measure?  Until known Duterte ally and newly minted Senate President Vicente “TitoSen” Sotto III agreed recently to be the proposal’s champion.

Why the new reluctance compared to the earlier alacrity among legislators to be associated with TRAIN 1?  I believe the principal reason is, rightly or wrongly, TRAIN 1 is blamed for the unprecedented inflation that gripped the economy since the beginning of 2018.

 

Politicians, being politicians, know how to behave specially if elections are near.  Sotto is quite bold since he is not up for re-election in May 2019.  Senators up for re-election next year like Senator Sonny Angara, who sponsored TRAIN  1, was candid enough to admit that he will not touch TRAIN 2 with the traditional ten-foot pool given the 2019 elections.

Nobody loves taxes and the tax collectors. The latter were often killed and robbed in the ancient days.

Woe to the politician who campaigns for or is associated with a tax increase.

 

Sen Recto

Senator Ralph Recto aka Mr. Vilma Santos

 

 

 

Exhibit A: Senator Ralph Recto, who was not re-elected at some point as he was strongly associated with the increased VAT.

 

 

In the final analysis, a tax is an extortion since nobody will pay taxes voluntarily. People have to be coerced to pay taxes and reduce their disposable income. For that reason, Charles Tilly and other scholars of European state building cynically observed that there is not much difference between a neighborhood toughie–who threatens to break a window if the shop-owner does not hand over some cash for ‘protection’–and the state who imposes and collects taxes.

 

https://www.pinoymoneytalk.com/bir-tax-law-philippines/

 

bir-tax-revenue-regulation-memo-circular

 

Both the toughie and the state are ‘selling’ the same (public) good–security of life and property–in exchange for money. Both ‘sales’ are involuntary and force (or the threat to use force) underpin them.

In that sense, taxation is an exchange transaction. In exchange for the payment of taxes, citizens get to enjoy public goods.

The capability to free ride is one reason why individuals will not pay taxes if payments were decreed to be paid on a voluntary basis.

While it is indeed an exchange transaction, it is not a straightforward (kaliwaan) one unlike sales involving private goods.

To enjoy a burger, a consumer must first pay before he can have the first bite of the juicy sandwich. That is not the case with taxes.

 

Charles Tilly

Charles Tilly

 

There’s an obvious time lag between the payment of taxes and the ‘consumption’ of a public good. This time lag is another reason why people want to avoid paying taxes.

In addition, taxation may not be a pari passu (equal footing) arrangement. The taxpaying public may not enjoy or obtain the full value of their money since government officials retain the ability to determine the quantity and quality of public goods they will supply.

For example, a concrete road may be built but it may be lacking in the promised length, or built with sub-standard materials, or built over an extremely long period.

Another reason behind the citizens’ reluctance is the impact of taxes on consumer good prices. The payment of taxes already reduces their disposable income. If taxes were increased on key inputs such as fuel, electricity, water,sugar, food packaging, interest income, and the like, these increases will raise consumer goods’ prices and will thus further reduce disposable incomes.

For all these reasons, taxation should be understood as primarily a political act.

The collection of taxes are socially necessary for they fund socially necessary public goods. Without public goods, a human community cannot exist. Thus, the payment of taxes finance human community building.

Government officials, policy makers, and tax collectors must be fully aware of the collective action problems (CAPs) associated with taxes, specially in societies with pronounced poverty and wide income/asset disparities like the Philippines.

The time gap between the collection of taxes and the provision of public goods must be as short as possible.

The quality of public goods must be high and its quantity must be adequate for a growing population.

The collection of taxes must be equitable because none grates the ire of citizens more than the knowledge that some evade or do not pay the rightful amount of taxes.

Last but not least, we must all help develop a healthy tax culture in our country: that we must pay our taxes promptly and properly; that government must provide adequate and high quality public goods; and that both the tax burden and the supply of public goods must be equitable and judicious.

We must also be chastened by the truth that the ability to provide public goods is not the monopoly of governments. Non-state actors can and do provide ‘public’ goods in exchange for ‘payments’ that are akin to taxes.

 

NPA guerillas

NPA fighters in parade formation

 

 

 

The ‘revolutionary taxes’ collected by the New People’s Army (NPA) comes to mind in this regard.  The ‘kotong’ collected by erring police officers is of the same genre.  The Catholic Church and other charities are enabled by donations to provide public goods.  Governments must therefore make sure that the tax-public good exchange transactions with their citizens must be as equal and equitable as possible.