Continued:
>>77873
>Non-neutrality of money
>Mises describes how inflation affects prices unevenly but I am still a little unclear exactly how it does this.
The money has to be introduced into the economy somehow. It's not like everyone suddenly has twice as much money as the day before, as in Humes famous example with the Archangel Gabriel. Instead, inflation works like printing counterfeit money. The counterfeiter has more money than everyone else, but prices haven't adjusted yet to what they should be under the new money supply. That happens gradually, as the newly printed money goes from person to person. This way, the purchasing power of everyones money supply sinks, so they're poorer than before. So inflation works like a distribution of income from those who get the money later to those who have it first. It's more complicated in practice how the Fed works, but based on the same principle. Hope that was understandable.
>Consumption of capital goods
>I just don't get this like in general, how do you consume capital goods? By just letting them deteriorate or something?
Whenever you produce something, you put stress on the capital goods, and in the long run, that destroys them. So every capital good is consumed in the process of production, but they're constantly being replaced. Not so when you cannot rationally allocate capital goods. In that case, capital is consumed faster than it is replaced, and so we can talk about there being consumption of capital goods in the economy as a whole. Call it a quirk of the language.
>The role of theory and empirical evidence
>Mises critiques the mathematical economist and econometric for their reliance on empirical data that can only describe economic history but I was wondering if that Mises considered empirical evidence useful for proving or demonstrating economic theories. He doesn't seem to oppose it completely but I was wondering to what extent can historical or empirical data be used in economics according to Mises.
Empirical data can neither prove nor disprove any economic theory. It is useful for economic history, as you said, and it also makes it easier for us to grasp economic theory. However, it can never overthrow economics. If we make a false prediction or fail to understand some economic phenomenon, then we must conclude that our observations are factually incorrect, or that we made a mistake in our a priori reasoning. If we know that our reasoning checks out, then by necessity, our data was incorrect.
In some rare cases, Mises did use empirical data, but never extensively. The one example I can think of is in his theory of labor, which has the "disutility of labor" as one of its premises. That labor has a disutility is not an a priori truth, but a trivial empirical fact.
>Credit expansion
>If a country embarks on credit expansion by issuing money substitutes or credit money (or something) then the gold reserves of the nation will flow out of the country leaving only the worthless bank notes. I remember this being brought up but the specifics were lost on me.
>I am also shaky about the differences between fiduciary media, money substitutes, bank notes, and commodity money and how they effect the market economy.
They all serve as mediums of exchange, but have different origins. Commodity money naturally emerges out of a barter economy when one commodity emerges that is more exchangable than all the rest, so that it gradually comes to be exchanged not for its usefulness as a commodity, but its usefulness as a medium of exchange. Examples are gold and silver.
Bank notes are essentially warehouse receipts for such a commodity money. Instead of one ounce of gold, you can pay with one paper bill, which you can then exchange for an ounce of gold at a bank. Bank notes are substitutes for the commodity money. They're also perfectly harmless by themselves, and even useful.
Fiduciary media are money substitutes that are not really backed by gold, silver or another commodity money. They're like normal bank notes, but cannot be exchanged for real money. There is nothing backing them, and that's what makes them dangerous. Unlike gold or silver, fiduciary media can be created from nothing, and that means there is no check on how much you can inflate them.