Mark Mancino on Keynes vs. Mises

Mark Mancino has always been an avid researcher and historical fan of economic strategy and theory. Recently there has been a big talk about John Keynes and Ludwig von Mises.  Here’ s brief history of the two.  What do you think of their policies and beliefs?

John Maynard Keynes and Ludwig von Mises are two of the most well-known economists in history. The two men both lived in the same era, being born in the 1880’s, but had different economic ideas. Mises is considered a neo-classical economist, while Keynes founded a more modern movement which took his name: Keynesian economics.

Mises, along with his most famous student Friedrich August von Hayek, was one of the most prominent members of the Austrian school of economic thought. Though born and educated in Austria, Mises moved to the United States during the 1930’s to escape Nazi oppression. Many historians believe that this event greatly impacted his economic thinking. Mises believed that governments are unable to efficiently direct a nation economy due to the complexity of the economy and the slow nature of government response. He believed that economies performed best without government interference.

Keynes is the most influential economist of the modern era. Keynes was born and lived in England. Though Keynes also lived during the rise of Nazism in Europe, most historians believe he was most influenced by the Great Depression. Keynes believed that governments could make decisions regarding monetary policy and other factors to influence the economy in order to smooth out economic cycles. In the United States, the policy decisions of the Federal Reserve to raise and lower interest rates to increase or decrease economic activity to manage inflation is an example of Keynesian intervention in the economy.

The most simplistic explanation of the differences between Keynes and Mises is that Keynes believed that governments could play an active and beneficial role in a nation’s economy, while Mises believed that government intervention caused more harm than good. Though the governments of most European nations and the United States have used Keynesian practices in the late 20th and 21st centuries, there is still considerable debate in these countries as to the effectiveness of these policies.

By Mark Mancino

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Tracking Mortgage Payments of Capital and Interest

When you take out a mortgage, you repay it over a predetermined amount of time.  Generally speaking, the majority of mortgages are over a 30 year life, although there is a great deal of variation in the terms of the agreements.  Either a fixed or variable interest rate is agreed upon when you enter the mortgage loan agreement which will impact the amount of your overall mortgage payments, as well as how quickly you pay off the balance.  The interest rate that is set on your mortgage greatly depends upon the prevailing interest rates currently existing in the market at the time of your home purchase, but also take into account the market where you are buying the home as well as your credit risk.   If you have poor credit history, even if you get a loan, you may have to pay higher interest than someone who has a lower risk assigned to them due to their credit history.  A mortgage loan is secured by real property and is typically repaid with monthly loan payments, which relays into lower risk to lenders than other unsecured loans. Lenders can be found everywhere, in every market, and some offer better rates than others.

Each loan payment consists of both principal (capital) payments against the outstanding balance of the mortgage and interest payments on the amount that you have outstanding on your mortgage.  The amount of each payment that relates to capital and the amount that relates to interest will fluctuate as you pay off the loan.  As the loan balance decreases, a higher portion of your mortgage payments will be applied against the capital outstanding on your mortgage.  As such, many of your earlier payments will be mostly to pay off interest to lender, while your later payments will be more devoted towards repaying the principal on the loan.

If you want to determine how much of each payment goes towards repaying the interest and how much is devoted towards a repayment of the principal, you should set up a mortgage loan amortization schedule.  This schedule will allocate each payment based upon the outstanding balance and interest rate into portions relating to principal and interest. Many online mortgage calculators are also available which assist and greatly simplify the matter.

Mortgages can be hard to keep track of if you don’t pay attention to them and devote the time and resources towards insuring that you properly keep track of your mortgage payments.  Calculate each payments to see the impact of each payment to reduce your capital mortgage payment to save money on interest in the future.

Mark Mancino NJ