Archive for the ‘Social Sciences’ Category

What is a Divorce?

Divorce is the ending of a marriage, which can be contrasted with an annulment, a declaration that a marriage is void, though the effects of marriage may be recognized in such unions, such as spousal support, child custody and distribution of property. Divorce is rarely good news and it takes a lot of pragmatism and good will to accomplish a “good” divorce. Although divorce is an extremely traumatic experience for any parent to go through, the first steps are always the most important and the main priority is to keep a level head. Divorce means everything you once took for granted as a child is going to change. The bad thing about divorce is that you no longer share the same friends (in most situations).

In developed countries, divorce rate have increased markedly during the twentieth century. Among the states in which divorce has become commonplace are the United States, Japan, Korea and European Union countries. In Anglo-American jurisdictions this boom in divorce developed in the last half of the twentieth century, corresponding, more or less, with the abolution of such concepts as illegitimacy and the development of the equality of the sexes. The area of divoce as a social phenomenon is is an important research topic in sociology.

Some researchers, although, argue that divorce rate does not always reflect actual interaction among people; that is, some countries may show a low divorce rate because in such countries, people rarely get married in the first place. Heavily depending on cultural values and tax system with marriage, people start marriage and end it. In countries such as France, people who have romatic relationships or children tend to avoid marriage, thus, divorce rate has remained low.

In quite a few countries, divorce might involve economical difficulties. Because women can get a job with lower wages than men in almost all countries, wives tend to avoid divorce, being afraid of economical trouble. Single mothers are often produced after divoce and often they suffer from financial problems. Many national and local governments provide some kind of welfare system for them. See single mother for detail.

Divorce in some jurisdictions is relatively recent phenomenon. In Canada there was no divorce law until the 1960s. Before that the only way to get divorced was to apply to the Canadian Senate where a special committee would undertake an investigation of a request for a divorce and if they founded it was merited the marriage would be dissolved by an Act of Parliament.

Many countries in Europe, such as France prohibited divorce as it was not condoned by the Catholic church. Sometimes citizens would travel to other jurisdictions to obtain a divorce.

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What is Time Preference?

Time preference is the economist’s assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well.

The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. The Austrian School sees time as the root of uncertainty within economics.

In his book Capital and Interest, the Austrian economist Eugen von Böhm-Bawerk built upon the time-preference ideas of Carl Menger, insisting that there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Furthermore, the value of future goods diminishes as the length of time necessary for their completion increases.

Böhm-Bawerk cited three reasons for this difference in value. First of all, in a growing economy, the supply of goods will always be larger in the future than it is in the present. Secondly, people have a tendency to underestimate their future needs due to carelessness and shortsightedness. Finally entrepreneurs would rather initiate production with goods presently available, instead of waiting for future goods and delaying production.

Hans-Hermann Hoppe elaborates on time-preference as a gauge of the degree of civilization of a given society in his book Democracy: The God That Failed. Laws in a society in violation of property rights increase time-preference, whereas a tradition of respect for property rights decreases time-preference.

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What are Economics?

Economics is a social science that studies society’s allocation of scarce resources to meet desires and wants. Economics therefore starts from the premise that resources are in limited supply and that it is necessary to choose between competing alternatives.

Economics is “positive” when it attempts to explain the consequences of different choices and “normative” when it prescribes a certain route of action. Aspects receiving particular attention in economics are trade, resource allocation and competition.

Unlike most social sciences, economics can involve advanced mathematics, although the basics of economics can be taught with no more than simple arithmetic and graphs. Mathematical economics has developed as a field in itself.

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What is Business?

The term business refers to activities or interests.

By extension the word became (as recently as the 18th century) synonymous with “an individual commercial enterprise” and has also sometimes taken on the meaning of “the nexus of commercial activities” or of “the representatives of commercial activity”.

Specifically, business can refer, collectively, to individual economic entities. In some legal jurisdictions, such entities are regulated by law to conduct operations on behalf of entrepreneurs. A manufacturing business is commonly referred to as an industry: for example: the “entertainment industry”, or the “dairy industry”, or the “fishing industry”.

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What is a Store of Value?

To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved – and be predictably useful when it is so retrieved.

This is distinct from the standard of deferred payment function which requires acceptability to parties one owes a debt to, or the unit of account function which requires fungibility so accounts in any amount can be readily settled. It is also distinct from the medium of exchange function which requires durability when used in trade, and a minimum of opportunity to cheat others.

When currency is stable, money can serve all four functions. When it isn’t, such as during times of hyperinflation or when complex and volatile forms of financial capital are involved, it becomes important to identify alternative stores of value, of which common ones are:

  • real estate – actual deeds in protectible land
  • gold – once the basis of the gold standard
  • silver – once the basis of the silver standard
  • precious stones, and other precious metals
  • more stable currencies, e.g. Swiss franc or digital gold currency
  • collectibles, e.g. original art by a famous artist or antiques
  • livestock (see African currency)

While these items may be inconvenient to trade daily or store, and may vary in value quite significantly, they rarely or never lose all value. This is the point of any store of value, to impose a natural risk management simply due to inherent stable demand for the underlying asset. It need not be a capital asset at all, merely have economic value that is not known to disappear even in the worst situation. In principle, this could be true of any industrial commodity, but gold and precious metals are generally favored because of their demand and rarity in nature, which reduces the risk of devaluation associated with increased production and supply.

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What is Credit Money?

Credit money is any future claim against a physical or legal person that can be used for the purchase of goods and services . Examples of credit money include personal I.O.U.’s, and in general any financial instrument (such as a treasury bond, savings bond, corporate bond or bank money market account certificate) which is not immediately repayable (redeemable) on demand. In certain cases, banknotes which are not legal tender may be seen as credit money, inasmuch as they are simply promisory notes issued by the bank (for example, see Pound Scots).

In terms of the money supply, credit money is generally associated with that part of M2 which is not M0.

During the Crusades in Europe, precious goods would be entrusted to the Roman Catholic Church’s Knights Templar, who effectively created a system of modern credit accounts. Over time this system grew into the credit money that we know today, where banks create money by approving loans – although the risk and reserve policies of each national central bank set a limit on this.

Sometimes, as in the United States during the Great Depression, trust in bank policies drops very low, and there is the risk of a bank run without government or other intervention. In the United States, the Federal Deposit Insurance Corporation was created in 1933 to prevent bank insolvency from affecting depositors.

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What is Risk?

Risk is the potential future harm that may arise from some present action. It is often combined or confused with the probability of an event which is seen as undesirable. Usually the probability and some assessment of expected harms must be combined into a believable scenario combining risk, regret and reward probabilities into expected value. There are many informal methods which are used to assess (or to “measure” although it is not usually possible to directly measure) risk, and (for some applications) formal methods such as value at risk.

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What is Usury?

Usury (from the Latin usus meaning “used”) was defined originally as charging a fee for the use of money. This usually meant interest on loans, although charging a fee for changing money (as at a bureau de change) is included in the original meaning. After moderate-interest loans became an accepted part of the business world in the early modern age, the word has come to refer to the charging of unreasonable or relatively high rates of interest.

Usury laws are state laws that specify the maximum legal interest rate at which loans can be made. This makes most loansharking, another name for usury, illegal. Often, loansharks use illegal “scare” tactics to ensure that the lent money is paid back.

Usury (in the original sense of any interest) is scriptually and doctrinally forbidden in many religions. Judaism forbids a Jew to lend at interest to another Jew. It’s forbidden in Islam. The most recent Catholic teaching on usury is by Pope Benedict XIV in his Vix Pervenit from 1745 which strictly forbids the practice, though many Jews, Catholics and Muslims break their own laws in this matter.

While Jewish law forbids the charging of interest to another Jew, Jews are not forbidden to charge interest on transactions to non-Jews. Throughout history, the interest attached to loans by Jews to non-Jews is widely considered to have been a central issue in causing a perception of usury, and contributing to a climate of anti-Semitism: Forceful confiscations of property, and discrimination toward Jews in business practice. Ethnic-based distinctions surrounding the application of interest charges are often perceived as pronounced, discriminatory and unjust, and can inflame existing ethnic divisions.

Usury has been denounced by almost every major spiritual leader and philosopher of the past three thousand years. Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Jesus, Mohammed and Moses are just a few.

Cato in his De Re Rustica said:

“And what do you think of usury?”
“What do you think of murder?”

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What is Interest Rate?

An interest rate is the “rental” price of money. When a resource or asset is borrowed, the borrower pays interest to the lender for the use of it. The interest rate is the price paid for the use of money for a period of time. One type of interest rate is the yield on a bond.

When money is loaned the lender defers consumption (or other use of the money) for a specific period of time. The lender does this in exchange for an expected increase in future income. The expected increase in real income (relative to the amount loaned) is the real interest rate. Note that the real interest rate is calculated by adjusting the actual rate charged (known as the money or nominal interest rate) to take inflation into account. (See real vs. nominal in economics.) A first approximation for the real interest rate for a one-year loan is:

ir = in — pe

where:

in = nominal interest rate
ir = real interest rate
pe = expected or projected inflation over the year.

After the fact, there is the realized or ex post real interest rate:

ir = in — p

where p = the actual inflation rate over the year.

Thus, if the (expected) inflation rate is 5% and the nominal interest rate is 7%, the (expected) real interest rate is 2%.

If financial markets have adjusted for the effects of expected inflation and the real interest rate is given, then the nominal rate approximately equals:

ir + pe

Thus, if the real interest rate is 3% and the inflation rate equals 5%, the nominal interest rate = 8%. The theory of rational expectations is sometimes applied to say that this equation applies in most cases. Most economists would agree that it applies over several years, as financial markets adjust: higher inflation leads to higher nominal rates, all else being equal.

Irving Fisher proposed a better approximation of the relationship between nominal interest rate, inflation and real interest rate. For a one-year bond, the expected real rate equals

ir = [(1 + in)/(1 + pe)] — 1

Using the first numerical example above, the expected real rate equals [1.07/1.05]-1 = 0.19 or 1.9%, which is similar to (but not the same as) the 2% calculated above.

When comparing different interest rates on different kinds of loans, a different kind of formula is used. For the nominal rate on a single type of asset,

in = i*n + d + mrp + lp

 

i*n = the nominal interest rate on a short-term risk-free liquid bond (such as U.S. Treasury Bills).
d = default premium (reflecting the likelihood of default by the borrower)
mrp = maturity risk premium (risk factor for length of borrowing period)
lp = liquidity premium (reflecting the perceived difficulty of converting the asset into money and thus into goods).

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What is a Debenture?

In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is similar to a bond except the securitization conditions are different. A debenture is unsecured in the sense that there are no liens or pledges on specific assets. It is however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.

The advantage of debentures to the issuer is they leave specific assets unencumbered, and thereby leave them open for subsequent financing.

In practice the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa.

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