Mark McGrath: The Adaptive Entrepreneurial Method: VUCA, OODA, IOT


Austrian economics is distinctive in its recognition and, indeed, embrace of continuous change: customer preferences change, competitors’ actions change, markets change, technology changes, prices change, business methods change. New knowledge is continuously created and accumulated. And Austrian economics equally recognizes that entrepreneurial businesses must change in response: capital combinations change, supplier and customer relationships change, organization structure changes, business portfolios and value propositions change. Continuous change is required — which is something business has not traditionally been designed for. How do businesses manage continuous change?

In the current digital age, the rate of change in the external business environment is accelerating, largely as a consequence of rapid technological evolution and the ways in which customer behavior and preferences change in response. We plan to cover the issue of continuous change from multiple angles in the coming weeks and months.

This week, Mark McGrath joins us to review a tool for value creation amidst continuous, roiling change. It has been around for a while and so is proven in multiple arenas and situations. It goes by the name of OODA.

Key Takeaways and Actionable Insights

The OODA loop is a deeply sourced tool that draws on eastern philosophy, western science, and aligns with Austrian economics.

When a firm as a network of individuals, knowledge, ideas, tools, processes and resources works with clients and customers and their systems, all should be better off as a result of their co-ordinated action. The better the capacity to learn and make adjustments together, the better the capability to recognize and seize opportunities, and to act at co-ordinated speed. Those who can handle the rate of change fastest will be the most successful.

The originator of the OODA loop model, John Boyd, synthesized thinking from multiple sources about this problem. In business, we can call it the Adaptive Entrepreneurial Method.

The loop is triggered by uncertainty, or what is referred to in the model as VUCA:

Volatility — circumstances change abruptly and unpredictably;

Uncertainty — knowledge is incomplete and the future is indeterminate;

Complexity — we are individuals in a dynamic interconnected whole with emergent outcomes;

Ambiguity — multiple interpretations from multiple observers, and multiple conclusions.

VUCA enters the OODA loop as unfolding interaction with the ever-changing external environment or market, as information and data coming into the company, and as unfolding circumstances, whether these are the company’s own sales trends and customer relationships or the activities of competitors.

VUCA is the state of the universe. It’s the normal condition that entrepreneurs should assume as the basis for action. It also creates an exciting state of opportunity in which dynamically adaptive entrepreneurial businesses can thrive.

OODA is a feedback loop.

OODA stands for observing, orienting, deciding, acting — a continuous process.

Orientation is critical to successful operation of the model. For a firm or for an individual entrepreneur, orientation is a mélange of inputs: mindset, personality, our way of thinking and interpreting, previous experiences and how we’ve processed them, our ability to process new information, our ability to handle change, our ability to analyze and break things down while simultaneously piecing things together and synthesizing them into an insight or construct that never existed before.

Orientation houses all our biases, and all our cognitive models. It’s how we perceive and how we experience the world. It determines how we process all the information we observe.

Decisions are hypotheses.

From our orientation-determined analysis and synthesis of incoming data, we envision a future state: what could happen if we did something? In Misesian terms, we imagine what it would be like in the future if we were able to address our own uneasiness — if we were to change our current state and trade it for another one. Any action that follows must be preceded by a decision, a hypothesis of what we think might happen.

Action is an experiment to test the hypothesis.

In applying the OODA loop, entrepreneurs demonstrate a bias for learning and a bias for action. We learn by testing what happens when we act and making new observations of the outcomes of the action. These outcomes will give us new signals to employ in re-orienting to ensure that our decisions and actions are well-aligned with reality.

The OODA loop model is consistent with the Explore and Expand approach to business strategy.

At Economics For Business, we have frequently urged entrepreneurial firms to abandon business school strategic thinking and replace it with an Explore-And-Expand approach, running many fast, low-cost exploratory experiments and quickly expanding investment in those that work, discarding others. In OODA loop, experiments are decisions and actions, and re-orientation results in expanding application of the successful ones.

In OODA, we continuously build and re-build our perception of the VUCA world and attempt to match our perception with reality through exploration and expansion. We aim to ensure our orientation is attuned to the way the world is and not to the way we want it to be or imagine it to be.

The more we learn, the more we build and re-build, the faster we can advance. Speed of learning is important, so long as it is based on well-processed information.

Guidance and control.

In the OODA loop graphic, there are two areas designated “implicit guidance and control”: our actions and our observations. Our orientation implicitly guides and controls both. Our orientation as entrepreneurs or as economists will always affect how we perceive things. Where some might see an obstacle, others see an opportunity. That’s orientation at work. On the action side, orientation implicitly guides and controls our actions. There are some things we can do automatically, employing heuristics or procedures that we don’t stop to think about. This also is orientation at work — and at speed.

Continuous testing.

The OODA loop, processing VUCA information into decisions and action via continuous reorientation, is a test. An entrepreneur is always being tested. As time moves unstoppably forward, new challenges continuously emerge. It’s the ceaseless flux of human affairs, as Mises put it in Human Action.

If we maintain an open and flexible or agile approach or orientation to this continuous testing, we’ll avoid failure.

Focusing on a well-understood purpose will eliminate wasted time and wasted action.

The Adaptive Entrepreneurial Model has three major elements: VUCA, the way the world is; OODA, as described above; and IOT. IOT stands for In Order To: the purpose or mission. As we deal with VUCA, and continuously change our orientation as we learn from our decisions and experiments, quickly finding out what works and what doesn’t, we must never lose sight of our purpose and our intent. What are we trying to accomplish?

Everyone in our firm, or on our team, must share the same purpose and be able to articulate it in the same way. When that’s the case, creative and co-ordinating action can move forward without instruction: we don’t have to tell people what to do when they’re in the middle of VUCA so long as they have the same shared purpose in mind. Everyone focuses on what needs to happen and why. There’s never action for action’s sake; it’s always with a shared purpose. If team members do not share the same understanding of purpose, then they’re creating more VUCA. If they do share understanding, the orchestration of their individual efforts produces harmony.

People, ideas, things — in that order.

All action is human action, all decisions are human decisions, all teams are human teams. When orientations are aligned, harmonious co-ordinated action is possible. There’s a high priority on relationships — with teammates, colleagues, customers, vendors, partners.

In a business utilizing the OODA model, people always come first because they are the ones who act. Ideas follow, judged through the lens of helping people to decide and act. Things — technology, property, money — are at the third priority level to ensure they support people and enable their ideas.

“A sound understanding in application of these comments will yield geometric results.”

Improved results are the repayment for the effort expended to study the Adaptive Entrepreneurial Method.

Additional Resources

“The Adaptive Entrepreneurial Model — Core Thesis” (PDF):

John Boyd’s “OODA Loop Graphic” (PPT):

“The Epistemology of the OODA Loop” (PDF):

“Destruction And Creation” by John R. Boyd (PDF):

The Theory Of Dynamic Efficiency by Jesús Huerta De Soto:

The Ultimate Foundation Of Economic Science by Ludwig von Mises:


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Why Businessmen Make Such Unimpressive Politicians


In 2016, we watched time and time again as polls stated that people liked Donald Trump because he is a businessman and came from outside the world of politics. Dozens of factors led to his election but there is no doubt that among voters this mindset of the potential for a savvy businessman in charge was at play. However, looking at it in hindsight, can we really say that a savvy businessman was ever in charge? Perhaps the most successful libertarian there has ever been, the great Dr. Ron Paul, wrote explaining that when it comes to spending the argument was always “Trump vs. Trump.” He’d speak seeking to cut taxes and then would ask for raises on spending and print money to close the gap. Dr. Paul goes as far as to say, “Following the President’s constantly changing policies can make you dizzy.” So why is it that this businessman would come into office and then act in direct opposition to the business-oriented nature he claimed he’d demonstrate? The easy answer would be that it turned out that he was never really a good businessman to begin with. There may or may not be merit to this argument. But it does not matter whether or not he was a competent businessman, because the minute he took his oath of office, he became part of a bureaucracy and any expectations of fiscal or monetary responsibility were immediately lost. This is because it is impossible to run a government “like a business.” There’s no economic calculation and no way of measuring profit.

What makes an entrepreneur so successful is his ability to allocate scarce resources to their most profitable ends. This is achieved through economic calculation. Under normal market conditions, prices allow a bright entrepreneur to take the necessary risks to direct resources where he understands they would be most profitable. Some are unsuccessful in their attempts but the ones that do this correctly are the people we as a society end up deeming as savvy businessmen and businesswomen.

The difference between such an individual and a bureaucrat is described by Ludwig von Mises in his book Bureaucracy: a bureaucrat is one who manages “affairs which cannot be checked by economic calculation.” A government official finds him-/herself in a completely different environment where prices do not adequately reflect market conditions, and as a result, even one who would’ve been the most successful of entrepreneurs is now stripped of his most useful tool and can no longer calculate successfully. This is one of the most pressing reasons that governments time and time again make such atrocious decisions. It is also why the minute a businessman/-woman takes an oath of office, he/she is no longer a bright entrepreneur but is immediately dropped to the level of bureaucrat. This is explained best by Mises, later in Bureaucracy:

It is vain to advocate a bureaucratic reform through the appointment of businessmen as heads of various departments. The quality of being an entrepreneur is not inherent in the personality of the entrepreneur; it is inherent in the position which he occupies in the framework of market society. A former entrepreneur who is given charge of a government bureau is in this capacity no longer a businessman but a bureaucrat. His objective can no longer be profit, but compliance with the rules and regulations. As head of a bureau he may have the power to alter some minor rules and some matters of internal procedure. But the setting of the bureau’s activities is determined by rules and regulations which are beyond his reach.

It is for this reason that I claim it never mattered whether Donald Trump is a savvy businessman or not. If he is not, then the point is moot; but even if he is, no bureaucrat has the tools to steer in the right direction. This, however, is most important not looking back at Donald Trump, but rather looking forward at future elections. In 2024 we are likely to see presidential candidates explaining their past experience, in 2022 we are likely to see candidates in the midterm elections leaning on the same kinds of credentials, and most certainly in your own local elections you will hear budding young bureaucrats claim their business experience will give them the ability to more successfully lead your town. This is not to say one must never support business-experienced candidates—plenty of them do understand a great many things and may be skilled in other ways. But it’s also helpful to remember that business experience is not an especially helpful tool that a candidate brings to the table. 


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COMMON SENSE: The Case for an Independent Texas


Bob covers some of the key points in his new pamphlet on restoring the Republic of Texas.

Mentioned in the Episode and Other Links of Interest:
  • Bob’s new pamphlet, COMMON SENSE: The Case for an Independent Texas
  • Bob’s recent appearance on Tim Pool’s show
  • Bob’s article on opting out of Social Security

​For more information, see The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.



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How being unvaccinated against Covid-19 can impact your wallet


A patient receives a Covid-19 vaccine booster shot at a Pfizer-BioNTech vaccination clinic in Southfield, Michigan, on Sept. 29, 2021.

Emily Elconin | Reuters

Some people are still holding off getting vaccinated against Covid-19, even as mandates increase for the immunization.

Those who aren’t yet vaccinated have been barred from some restaurants, travel and more. There could also be significant financial costs for those that have not yet gotten their shots.

Of course, incentives and mandates have worked to help raise the country’s vaccination rate. For example, United Airlines, which mandated that its employees receive the Covid-19 vaccine this summer, now has a nearly 100% worker vaccination rate.

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And, more guidelines are coming — the Biden Administration said it will require all employers with 100 or more workers to ensure they are vaccinated or tested weekly. It will also require all federal workers and contractors and health-care workers to get the Covid-19 vaccine.

Here’s how being unvaccinated will hit your wallet.


Many employers are now mandating that workers be vaccinated against Covid-19 and are laying off employees that refuse to get their shot.

Airlines such as United, Southwest, American, JetBlue and Alaska have required vaccinations. This week, Northwell Health, New York state’s largest health-care system, laid off 1,400 workers who didn’t get vaccinated against Covid-19.

“The biggest cost is losing your job,” said Cynthia Cox, vice president at the Kaiser Family Foundation and director for the program on the Affordable Care act. “That’s become an issue that more people face as more and more employers implement vaccine mandates.”

In some cases, mandates even extend to family members. A health system in Louisiana said this week that it would charge workers an additional $200 per month to insure their unvaccinated spouses or partners.  


Other companies are taking a different approach and passing the cost of higher insurance onto employees who remain unvaccinated.

Delta Air Lines, for example, hasn’t mandated that employees get the Covid-19 vaccine — it’s the only major carrier not to have such a requirement — but will make unvaccinated workers pay an additional $200 per month.

There could be additional insurance costs on the horizon. Many health insurance providers already assess a surcharge for smokers, which they could do for those who remain unvaccinated.

Medical costs

There will also be a higher price tag on medical treatment for Covid-19 going forward , and it’s more likely to hit the unvaccinated, who now account for about 97% of those hospitalized for the illness.

In the early days of the pandemic, most major insurers waived payments for coronavirus treatment. Now, those waivers are expiring, meaning that patients will be on the hook for any bills they rack up during a hospital stay for Covid-19.

Hospitalization for Covid-19 by the unvaccinated — categorized as preventable — have added $5.7 billion in costs to the health-care system from July to August, according to the Kaiser Family Foundation.

“The cost is mostly born by taxpayers and people who are paying health insurance premiums,” said Cox.

The unvaccinated will also potentially be required to pay for any testing they need to prove they don’t have Covid-19. Of course, this is an expense that will also be passed on to those that are vaccinated and still need to be tested — the cost generally ranges from about $20 to $1,419 for a single test, according to the Kaiser Family Foundation. In some cases, however, tests can cost much more.  

“There’s no requirement that those tests have to be covered or have to be free,” said Cox, referring specifically to tests at work for the unvaccinated. “That could add up over time if you’re having to get a test every week.”


Schools across the country are also now requiring that all teachers, staff and eligible students be vaccinated against Covid-19.

That includes some 500 colleges. For college students who aren’t vaccinated, refusing to get the inoculation could lead to them being unable to attend school in person and miss out on some of the benefits of being on campus.

“This disrupts the value of face-to-face, residential education if you can’t engage in co-curricular activities,” said Lynn Pasquerella, president of the Association of American Colleges and Universities. “That’s a real loss.”

They may also have to foot the bill for extra testing if they are allowed on campus. In some extreme cases, they may lose scholarships — one student at Brigham Young University lost $200,000 in scholarships because she wouldn’t get the vaccine, the Daily Mail reported.


Being unvaccinated may also add costs to vacations. Cruise lines such as Carnival, for example, are requiring that all unvaccinated passengers have travel insurance and cover the $150 price for their own tests for Covid-19.

The required travel insurance must be a minimum of $10,000 per person in medical expense coverage and $30,000 for emergency medical evacuation and without Covid-19 exclusions, according to the cruise line.

“That is something that vaccinated passengers don’t have to pay for,” said Laura Ratliff, senior editorial director of TravelSavvy.

In addition, restrictions are soon to become more stringent for travelers due to legislation going into effect in November. Previously, international travelers returning to the U.S. needed to show proof of a negative Covid test 72 hours before their flight. Next month, unvaccinated Americans returning to the U.S. will have to have a negative test within 24 hours of travel.

Even now, testing requirements can add hundreds to thousands of dollars in expenses to a vacation. That will likely get worse for those who remain unvaccinated.

“It’s very costly,” said James Ferrara, president of the InteleTravel network of home-based travel advisors. “And maybe the bigger cost is the trouble, the concerns, the inconvenience, frustration and confusion.”

Death costs

The unvaccinated may also need to cope with the costs of death, as so far Covid-19 has killed more than 700,000 Americans, making it the deadliest pandemic ever in the U.S.

Unvaccinated people are 11 times more likely to die of the virus than those with the vaccine, according to the Center for Disease Control and Prevention.

“There’s a real risk of death,” said Cox. “Then your family is left with the cost of your funeral, end-of-life care and the loss of your income.”

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Why Americans Would Benefit from a Government Default


In 2021 the US government plans to spend $6.8 trillion. Of which about half is borrowed — $3 trillion. So if they can’t raise the ceiling, they’d have to cut that $3 trillion.

Mainstream media, naturally, claims this is the end of the world. CBS estimates it would cost 6 million jobs and $15 trillion in lost wealth—comparable to the 2008 crisis, which was also caused by the federal government. CNN, more colorfully, claims cascading job losses and “a near-freeze in credit markets.” They conclude, falsely, that “No one would be spared.”

Considering the source, we can guess these predictions are overblown. So what would happen?

Well, $3 trillion is a lot of money—roughly 15% of America’s GDP. But we have to remember where that $3 trillion came from. The government, after all, doesn’t actually create anything, every dollar it spends came out of somebody else’s pocket. Whose pocket? Part of the $3 trillion was bid away from private borrowers like businesses, and the rest was siphoned from peoples’ savings by the Federal Reserve creating new money.

This means that, yes, GDP would decline sharply. But wealth would actually grow, perhaps substantially. The businesses would be able to buy things they need, while the savers keep their money that was doing useful things like paying their retirement.

So GDP drops, wealth soars.

Now, there will be near-term pain, simply because the GDP drop comes before the private borrowing ramps up, while those retirement savings are no longer being siphoned to pay for parties at strip clubs or, say, another trillion for farting cows.

So, yes, it will be a sharp drop in GDP. But so long as government stays out of the way, choosing the prudent 1920 response of doing nothing, the recovery will be very rapid. Why would they do nothing? After all, governments don’t like staying out of the way these days. Because a government that suddenly loses half it’s budget is going to find a lot of things not worth doing. Given a choice between defunding government workers’ pensions or defunding economy-crushing Green New Deals, governments will choose their own.

So that’s short-term: pain, but less than it seems. And that’s where the magic begins. Because ending deficits fundamentally reduces governments’ long-term ability to prey on the people’s wealth.

This is because debt and money printers are much less obvious than taxes, which are painful and make more enemies. So a default becomes a “back door” to move government back towards its traditional “parasite” role rather than the “predator” role it’s taken on since Nixon unleashed the money printers. Especially since Covid-19, when lockdowns were bought with fresh money and deficits. I wrote about this predatory evolution a few months ago, but the bottom line is government default is a tremendous investment in our future prosperity.

Ultimately, when a media pundit or Janet Yellen predicts the end of the world if debt doesn’t continue to skyrocket ever upward, they are simply calling for a continuation of the status quo.

And what does the status quo mean? It means a world in which the US government continues to spent trillions of dollars it doesn’t have, made possible through monetizing massive amounts of debt and forcing taxpayers to devote ever more of their own wealth and income to paying off an ever-more-huge chunk of interest. 

It also means more government spending, which—regardless of whether it’s funded by debt or by taxes—causes malinvestment and, through the redistribution of wealth, rewards the politically powerful at the expense of everyone else. In other words, its keeps Pentagon generals and Big Pharma executives living in luxury while the taxpayers are lectured about the need to “pay America’s bills.” 

Rather, as Mark Thornton noted in  2011, the right thing to do is lower the debt ceiling. Thornton explains the many benefits, ranging from effective deregulation to freeing up capital for the private sector: 

If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources.

Congress would have to cut the pay and benefits of its employees (FDR cut them by 25 percent in the depths of the Great Depression) as well as the number of such employees. Real wage rates would decline, allowing entrepreneurs to hire more employees to produce consumer-valued goods.

Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations. A recent study by the Phoenix Center found that even a small reduction of 5 percent, or $2.8 billion, in the federal regulatory budget would result in about $75 billion in increased private-sector GDP each year and the addition of 1.2 million jobs annually. Eliminating the job of even a single regulator grows the American economy by $6.2 million and creates nearly 100 private-sector jobs annually.

Under a reduced debt ceiling, the federal government would also have to sell off some of its resources. It has tens of thousands of buildings that are no longer in use and tens of thousands of buildings that are significantly underused—about 75,000 buildings in total. It also controls over 400 million acres of land, or over 20 percent of all land outside of Alaska, which is almost wholly owned by the government. There is also the Strategic Petroleum Reserve and many other assets that could be sold off to cover short-term budget shortfalls.

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government’s regulatory apparatus. This would put Americans back to work producing consumer-valued goods.

Unfortunately, the public has been fed a steady diet of rhetoric in which any reduction in government spending will bring economic Armageddon. But it’s all based on economic myths, and Thornton concludes:

Passing an increase in the debt ceiling merely perpetuates the myth that there is any ceiling or control or limit on the government’s ability to waste resources in the short run and its willingness to pass the burden of this squander onto future generations.


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Norwegian Cruise Line set to launch full fleet by April, CEO says


The Norwegian Dawn cruise ship arriving in the French Mediterranean port of Marseille, July 27, 2021.

Gerard Bottino | SOPA Images | LightRocket | Getty Images

Norwegian Cruise Lines CEO Frank Del Rio said Tuesday that his full fleet of 28 ships will resume service by April 1 for the first time since the pandemic anchored most of the cruise industry across the world — with 75% of the company’s vessels returning to regular operations by the end of the year.

Norwegian currently has eight ships in service across its three cruise brands, and all onboard must provide proof of full vaccination before setting sail.

“If anything, the world is opening up, more people are getting vaccinated,” Del Rio told CNBC’s “Closing Bell.” “Pent up demand continues to be very, very strong for the sailings we’ve operated thus far.”

The company currently requires all passengers and crew to be vaccinated before boarding and isn’t allowing unvaccinated children who aren’t yet eligible for the shots to sail, he said.

Those under 12 are not yet allowed to receive their Covid shots, but Pfizer submitted data to the Food and Drug Administration last month in hopes of receiving an emergency use authorization to administer vaccines to 5- to 11-year-olds. If approved, Del Rio said fully immunized children in that age group would be allowed to cruise.

The FDA will review Pfizer’s findings at a meeting on Oct. 26, and vaccines could roll out to 5- to 11-year-olds as soon as Halloween.

“Are we missing some customers? Possibly,” Del Rio said of the vaccine mandate. “But today, we believe that our mandate is a competitive advantage.”

Miami-based Norwegian clashed with Florida Gov. Ron DeSantis this summer over the state’s law banning businesses from demanding proof of vaccination from customers. Norwegian said on Aug. 8 that a federal judge issued a temporary injunction to preserve the company’s proof of vaccination requirement.

Despite the cruise line’s stringent vaccine protocols, Del Rio said Covid booster shots are not yet required for passengers and employees. But he said Norwegian could either mandate boosters if the pandemic worsens or adjust the company’s existing vaccine guidelines as the pandemic wanes and more people immunize against the virus.

“I myself got the booster two weeks ago because I qualify,” Del Rio said. “And so when the timing’s right, if the pandemic continues to be a threat to mankind, then we’ll have to consider that.”


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How the West Adopted China-Style Lockdowns


Mitch Nemeth

Mitchell Nemeth is a Risk Management and Compliance professional in Atlanta, Georgia. He holds a Master in the Study of Law from the University of Georgia Law School, and he has a BBA in Finance from the University of Georgia. His work has been featured at the Foundation for Economic Education, RealClearMarkets, Merion West, and Medium.


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PepsiCo (PEP) third quarter 2021 earnings beat


PepsiCo on Tuesday raised its full-year forecast after its latest quarterly earnings and revenue topped analysts’ expectations, despite higher costs and snarls in the supply chain.

Pepsi shares rose less than 1% in early trading.

Executives said supply chain disruptions and inflationary pressures for labor, commodities and transportation weighed on its fiscal third-quarter results. CFO Hugh Johnston told CNBC’s “Squawk Box” the company has been raising prices on its beverages and snacks, and he expects another price hike in the fiscal first quarter of 2022.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.79 adjusted vs. $1.73 expected
  • Revenue: $20.19 billion vs. $19.39 billion expected

Net income for the quarter ended Sept. 4 came in at $2.22 billion, or $1.60 per share. That’s down from $2.29 billion, or $1.65 per share, a year earlier.

Excluding items, the food and beverage giant earned $1.79 per share, topping the $1.73 per share expected by analysts surveyed by Refinitiv.

Net sales rose 11.6% to $20.19 billion, beating expectations of $19.39 billion. The company’s organic revenue, which strips out the impact of acquisitions and divestitures, climbed 9% in the quarter.

Pepsi’s North American beverage business reported organic revenue growth of 7% for the quarter. While the unit’s organic sales have risen 10% on a two-year basis, growth has moderated since bouncing back 21% in the prior quarter. The company said that it saw double-digit net revenue growth for its food service business, which includes sales to restaurants, stadiums and college campuses. Worldwide, the company’s away-from-home drink business is down just 10% from 2019 levels.

Frito-Lay saw its organic revenue increase by 5% as consumers maintained many of their pandemic snacking habits. Pepsi said that it gained market share in the salty and savory snack categories during the quarter.

Quaker Foods North America, which has been the most challenged of Pepsi’s business units, saw its organic revenue increase by 1%. It was the only segment to report shrinking volume, which excludes the impact of price changes, and reported the largest drop in operating profit.

For the full year, Pepsi said it expects its organic revenue to increase by 8%, up from its prior forecast of 6% growth. The company reiterated its forecast for core constant currency earnings per share of 11% growth. Analysts were forecasting full-year earnings growth of 13% and a revenue increase of 9.5%.

Looking ahead to 2022, executives said they expect organic revenue growth and core constant currency earnings per share growth to be in line with the company’s long-term objectives.


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How Fiat Money Made Beef More Expensive


In my article on the gold standard published in the Journal of Libertarian Studies back in May, I suggested that the destruction of the gold standard led to changing consumption patterns, specifically to a drop in the consumption of beef. The eminent economist George Selgin was kind enough to suggest that this was a novel argument, although in truth, in that essay I did no more than hint en passant at a possible connection between fiat money and changing consumption patterns, without explaining what the causal factors at work are. Therefore, I think the thesis bears restating and expanding upon.

Changing Food Consumption Patterns in the Twentieth Century

The change in meat consumption was a global phenomenon, but for present purposes, I will focus on the American case, although the same causal factors are at work, and probably to a greater extent, in the rest of the world. The US Department of Agriculture’s Economic Research Service (ERS) compiles and publishes copious data on food availability, that is, how much of various foods are available to the American consumer. Various kinds of meat are partial substitutes for each other, as are, of course, other foodstuffs; however, it seems a fair assumption to say that, in general, people would consider beef, pork, and poultry (the top three meats) the closest substitutes. Only in extreme cases would one consider, say, soy a substitute for tasty beef.

The ERS dataset for meats covers the period 1909–2019 and measures availability in pounds per capita. In 1909, there were 51.1 pounds of beef, 41.2 pounds of pork, and 10.4 pounds of chicken available per capita, for a total of 102.7 pounds of all meats per capita. In 2019 the figures were, respectively, 55.4, 48.8, and 67.0 per capita, for a total of 171.2 pounds of all meats per capita. While meat consumption had gone up, the composition of the diet had changed drastically. If we add the fact that veal and delicious lamb, minor components in 1909 at 5 and 4.4 pounds per capita, respectively, had virtually disappeared from the diet in 2019, the change becomes even more noticeable.

The following graph indexes the changing composition of meat availability over the century (1971=100). As we see, there is a steady and drastic rise in chicken availability from about the early 1950s, while the expansion of beef availability peaks in 1976 and then drops steadily back toward the 1909 level. While availability of all meats expands until about 1970, it stagnates thereafter.

Source: Kristoffer Mousten Hansen, “The Populist Case for the Gold Standard,” Journal of Libertarian Studies 24, no. 2 (2020): figure 6. Data from ERS Food Availability (Per Capita) Data System.

If we look at changes in the relative prices of the various foodstuffs over the long run, a similar picture emerges. Beef prices have increased since the middle of the twentieth century, while other prices have fallen.

Source: Data from David S. Jacks, “From Boom to Bust: A Typology of Real Commodity Prices in the Long Run,” Cliometrica 13, no. 2 (2019): 202–20, Data on Real Commodity Prices, 1850–present online dataset.

Unfortunately, poultry prices are not listed in the dataset. However, we can approximate them by looking at grain prices, as this is a main input in the raising of chicken.

Source: Jacks, Data on Real Commodity Prices, 1850–present.

I have here chosen barley and corn prices, but it does not matter much, since the trend is similar for the prices of all grains. Prices have decreased since midcentury despite some fluctuations in the seventies and are now far below the level that prevailed for decades. Beef prices, on the contrary, have trended much higher and were in 2020 about double the level in 1900 or 1850. If we consider the relative price of beef, it is much, much higher, so we should not be surprised that meat consumption has shifted to cheaper substitutes: pork and especially chicken. It is clear that a fundamental change has happened in modern food production.

The Monetary Causes of Changing Food Production

The price data presented above might itself suggest that this change originates in the monetary order. Until the second decade of the twentieth century, prices were, overall, pretty stable. There were fluctuations from each year to the next, but not the kind of long-term changes that set in afterward. This coincides with the era of sound money, when money was a commodity (silver or, from 1870 almost exclusively, gold) and had to be produced as any other commodity: if you wanted more money, you had to give something else in exchange for it. It did not matter if you chose to acquire more money by producing other goods and exchanging them or investing your own labor and capital in gold mines; the economic consequences were the same.

This changed, as is well known, with the destruction of the gold standard in 1914 and the introduction of increasingly inflationary monetary systems after the world wars. However, inflation cannot, in itself, explain the changing pattern of food production. Inflation, after all, leads to redistribution of wealth and short-term dislocations and malinvestments—but long term, it results in higher prices for all goods. Since what we have experienced is a much greater supply of and lower price for chicken especially relative to beef, simply positing inflation does not explain anything.

Another way of conceiving the change is as a trend of productivity increases and lower costs in the production of grains and chicken relative to beef. As simple inflation is a demand-side phenomenon—more money chasing fewer goods, in the Friedmaniac phrase—looking at the supply side might seem to exclude the possibility of monetary causes. However, as Ludwig von Mises clearly explained, in the modern fiat system, the creation of money is intimately connected with the extension of credit. While credit expansion was possible under the gold standard, the need for gold redemption put an inevitable brake on the process after a few years, ensuring that it was always kept within narrow bounds. In the monetary system set up after World War II, however, there are essentially no such brakes. Banks now have a much wider scope for credit expansion, as the central bank stands ready to supply them with reserves as needed and to bail them out when the inevitable, but now much delayed, bust arrives. Instead of intermediating credit, banks create the money they lend, and they can therefore consistently charge a rate of interest lower than the natural rate, as contrary to appearances, their profits accrue not from credit intermediation, but from money creation.

This necessarily leads to a change in investment patterns, as bank credit increasingly dominates. Some sources of capital, such as cash savings, are now made virtually impossible due to the inherently inflationary nature of the system, and equity financing is generally discouraged, as bank loans at low interest rates are so much more attractive. Not does only the source of capital change, but also the kind of investment: enterprises become more “capitalistic” as it were; they invest in capital goods and new production processes that increase the physical productivity of their plants. Present productivity is boosted at the cost of long-term plans that might have been more value productive.

This is true in agriculture as well, and is evidenced by the huge increase in physical productivity in agriculture since the late 1940s. However, such productivity increases are simply not possible in the case of cattle and beef production. A cow needs a certain minimum acreage of land to live; she needs a grass-based diet, which in turn requires extensive pastures and hay fields and so on. While it is possible to supplement with other feeds, and while it is, of course, possible to increase the productivity of more extensive cultivation as well, such possibilities are dwarfed by the developments in the production of pork, chicken, and other commodities. An area of land which previously could be used to raise a herd of cattle or produce a quantity of grain can after ten or twenty years’ time be used to raise a herd of the same size—or two or three times the quantity of grain. The opportunity costs of raising cattle are thus constantly increasing.

Looking more narrowly at poultry and pork production, here we have also witnessed huge increases in productivity due to bank-fueled investment. New production methods and investment in modern plants have tamed the natural life cycles of piglets and chicks alike and brought them almost completely under human control, opening the way to mass production. So far, at least, this has proved impossible in the case of cattle rearing. Despite hyped stories about feedlots, the modern factory farm is real only when it comes to pork and poultry production. These enterprises and plants have a much wider scope for investment of the kind that banks are willing to finance, and hence they will continue to expand and increase productivity relative to beef production.


Once we recognize the intimate connection between credit expansion and money production in the modern financial system, we can see how deeply fiat money and privileged banking distorts the economic order. Banks earn seigniorage—the profit from money creation—by extending loans, and can therefore outcompete other sources of financing, be it people’s personal savings or independent lenders. As a result, credit is centralized in the system of credit-expanding banks and investment decisions are dictated by the short-term logic of said system. Changing diets is just one consequence of the distortions engendered, albeit one that no one, pace Selgin, has investigated until now.

Since investment has flown into the production of grains, pork, and poultry, productivity in these fields has increased more than in beef production, and the supply of these foodstuffs has risen while their prices have fallen relative to the supply and price of beef. People’s food budgets are generally pretty fixed, meaning that even though incomes rise the extra income goes to the purchase of other consumer goods, not food, a generalization known as Engel’s law. Beef therefore increasingly becomes a luxury, something only regularly consumed by the well-to-do, which working-class and lower middle-class people only enjoy on special occasions. Had the gold standard endured, this distortion of production patterns and diets might not have happened. We might then, perhaps, have had to do without KFC and Chick-fil-A, but then again, Chick-fil-A is only a palliative when a man is constrained to subsist principally on chicken, the broccoli of meats.


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