Comments on: The price of time

By: Shashank Gupta

Shashank Gupta — Sun, 20 Dec 2009 16:00:22 +0000

There`s one thing that still remains to be discussed. The price of time can only be taken into consideration if there was any method of determining the amount of time.

“The valuation of land being one important lesson this example teaches us, that’s not all about it. The example also shows us how the infinite value of land is ‘discounted’ to a finite value(price) based on the amount of time elapsed. So how does the price of time express itself in the market place?”

This is exactly what I`m trying to express. Suppose if, due to some circumstances, the farmer dies before 1 year and he has no heir left, then how do you take this time factor into consideration? In this case there is a loss and the value of productivity of land comes down form infinity to zero.

By: GP

GP — Mon, 07 Dec 2009 12:25:34 +0000

@Author
I don’t understand what makes you think that - in absence of Monetary and fiscal policies economies will keep running smoothly like perpetual motion machine. You have to accept the fact that - these policies are not fool proof as policy makers are humans who always learn through their experiences.
In simple terms all these policies help to regulate flow of money in country’s economy and there by address issues such as - inflation,unemployement,etc. These policies needs to be adapated after observing their effects on economy after certain period of time. Now, if you are saying - economy can run very well without
these policies then its like saying “Let the child have free play over the top of mountain so that he/she can enjoy but in turn forgetting the fact that his/her parents cannot just sit idle and take the risk of child falling from the clip of mountain - Just bcoz somebody is saying - “Your are enslaving your child by not allowing him/her runnning freely.” 2nd example - if u get sick and you take medicines in excess for cure but your condition gets deteriorated further due to side-effects of excess dosage of meds then will you blame the medicines OR yourself for not keeping a tab on its quantity? OR you will just say - I don’t take medicines at all coz there is risk of side-effects so I will just wait for my normal immunity to come back after regular diet and fight my disease? ( of course you can go far last choice but I hope u will get my point by now)

See the bottomline is - In absence of control mechanism - there will be chaos and anarchy.

By: prashanthguevara

prashanthguevara — Sat, 05 Dec 2009 19:07:29 +0000

GP, I am unable to get your point for once. You describe the process of interest rate determination quite well. But it’s surprising how you could still support government intervention, rooting from the blind trust that people in the high chairs must be right. The loanable funds market is just like any other market, and interest rate is a economic signal like any other, for instance, prices.

Businessmen decide on investment opportunities based on the prevailing interest rates. When the government is going to tamper with the interest rate then, it is going to surely affect businessmen’s investment decisions.

The government, with the help of the central bank, can artificially lower interest rates, but only temporarily. Once the original (higher) free market interest rate, determined by the savers’ time preference, is restored, business decisions taken during the low interest rate regime will turn out to be malinvestments.

So now, do you want to lower interest rates to fight the crisis that was caused by the low interest rates itself? You’re simply repeating the disastrous cycle once again when you do that. So, leave it to the market!

By: GP

GP — Fri, 04 Dec 2009 09:30:08 +0000

Are u saying Monitory policied adopted by Reserve Bank fo INDIA to encourage ppl to spend more rather than save - ( i.e. to increase cashflows in market) is wrong? and they don’t have to take any action and do nothing ( which ppl call - “waiting for market correction”)?
I think concept of “loanable funds” is based on two other parameters i.e. “Rate of return on capital” and “Equilibrium interest rate” which plays huge role in fluctuation of demand and supply of loanable funds.
The demand for loanable funds takes account of the rate of return on capital ( which is additional revenue that a firm can earn from its employment of new capital.) Firms will demand loanable funds as long as the rate of return on capital is greater than or equal to the interest rate paid on funds borrowed.
If capital becomes more productive—that is, if the rate of return on capital increases, it will cause equilibrium interest rate to rise
The supply of loanable funds reflects the thriftiness of households and other lenders. If households become more thrifty—that is, if households decide to save more ( instead of spending )—the supply of loanable funds increases. The increase in the supply of loanable funds will cause the equilibrium interest rate to fall.
I am not sure if you already aware of this but you can take a look at diagram( Determination of the equilibrium interest rate) in http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Capital-Loanable-Funds-Interest-Rate.topicArticleId-9789,articleId-9787.html
I am sure those wise guys sitting over there must have put into lot of thinking - about possible outcomes before coming up with monetary policy rather than advocating “Do nothing approach and waiting for -Right Time for market correction”