From Robert Wenzel’s ‘David’ speech.
Please allow me to begin with methodology, I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the physical sciences.
In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.
There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.
And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist.
(h/t Me No Dhimmi)
Reader’s Digest version: The Emperor is buck naked, pass the mashed potatoes! By the way, do you want rampant inflation or economic collapse with that orthodoxy?
Best indicator of the economy? Just look in your wallet.
100% accurate (most of the time….same as the experts)
Nobody has ever been able to explain to me how charging interest on money could do anything else but devalue the currency.
If the economy begins with $100 dollars of debt money with interest attached, where does the interest come from?
Money only goes into circulation through debt with interest attached.
It’s a pyramid scheme.
About the only near constant I can figure out is that the lower the taxes the better the economy.
The point seems to be that, like the climate, the only constant in economics is change…
fiddle, if I borrow $100 at 5%, I am counting on the fact that I will invest it in some business activity that at the end of the year will earn more than the $5 I owe you in interest. If I lose the $100 investment, you lose your loan as well as the interest earnings. Interest is a way of handicapping risk.
Economics is not a zero-sum game. The purpose of loans and credit is to expand business activity.
No fiddle, it’s not a pyramid scheme. If I borrow $100 at some interest rate, I’m counting on using it for some business activity that will generate a better return than what I owe. Interest is a way of handicapping risk.
Interest doesn’t devalue currency. Issuing too much of it devalues currency.
If I borrow $100 at some interest rate, I’m counting on using it for some business activity that will generate a better return than what I owe.
Where does the interest come from? There’s only a $100 in the economy. And the only way to get more money in the economy is for it to be issued as debt burdened with it’s own interest.
“I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.”
Leftist policies will surely collapse your society and your economy. Hows that?
I spent a number of years forecasting soap demand for a prominent soap manufacturer. In all the time I was there, the public would do exactly opposite of what you had predicted. With nature you have no control over the random factor. This is why economic consensus and climate consensus are total bunk. If I can’t predict how many cases of soap I can sell with a sophisticated computer sytem, how can they predict the complex future of economics and climate?
If behavior could be accurately predicted, everyone – and no one – would make a killing in the stock market. The fact that it cannot be predicted makes for the fluctuations in the market.
fiddle- you don’t seem to understand that an economy isn’t a one-way street.
If I borrow $100 to set up my business, and the interest is, let’s say $10.00 per year, then I owe $110.00. But the 200 gadgets that I am now able to make give me a return of $210.00. So, I pay back the loan and repeat my year and maybe do even better.
That is, loans are vital in enabling the rapid development of new business. If there were no loans, then individuals wouldn’t be able to save up enough from their current job to start up that new venture.
And as cgh points out, interest covers the risk of someone making that loan. That’s because, in a certain percentage of cases, the lender doesn’t get his loan back; the borrower defaults. So, to keep the ‘loan bucket’ full for others, and cover the risks from the few who default, there has to be interest charged.
Fiat money has been tried various times throughout history and has always ended in disaster. When you couple fiat money with fractional reserve banking you are really playing with fire.
Add in sociopath companies like Goldman Sucks, who have the White House at their beck and call, you will end up with a worldwide fascist state.
Personaly I think the whole mess will collapse before they achieve their one world government but the Euro trash seem hell bent on going along with it.
CGH,
That model you put forward is what the central banks and Keynesian economists would like people to accept. The trouble is the financial markets decoupled from the real economy around 20 years ago. Now we live in a debt based economy rather than a productive manufacturing based economy.
There is more money to be made in CDS’s, MBS’s and other useless parasitic derivitives junk than actually producing goods. However it is a Ponzi scheme as fiddle pointed out. The debt on the books will never be repaid.
Very true …. not something that most people understand. I had to take economics as a non-science elective back in college. Aside from memorizing three formulas there was nothing to learn.
Economics is all about assumptions…..
Science is about measuring.
dave, I’m not sure what you are advocating. No interest?
Hayek, for example, warned about too much ‘money’, which would drive down interest rates, leading to a false high production cycle, which would be deflated by reduced market demand.
The trio of Investment, Production and Consumption is a complex triad. Investment is risk-taking, is long-term and thus, interest represents that long term ‘storage’ of free money in that enterprise. Interest represents the result of the enterprise, (profit) and enables more investment and production.
No, Dave, credit and debt is not a ponzi scheme. What has ruined the system is when it is simply spent on consumption. That is a ponzi scheme.
Think of your credit card. If you simply live off it with no income, sooner or later you go broke, and so does the credit card company if all its customers are like you. But if you use your credit card to buy business or equipment that makes you money, you can pay back your loan and keep whatever earnings you’ve made from your investment.
In the first case, new money was created, hard money based on real earnings. In the second case, money was destroyed when the debtor went bankrupt and the debt was written off.
ET, there is a universe of things that fiddle doesn’t understand. As for Dave, what he seems to be advocating is a gold standard, not realizing that the value of gold is as arbitrary and random as everything else.
ET, there’s a universe of things that fiddle doesn’t understand. As for Dave, he seems to be advocating something like a gold standard, not realizing that the value of gold is as arbitrary and changing as everything else. He also doesn’t realize that monetary systems like gold standards have failed even worse than artificial currencies. The Persian and Spanish Empires quite literally destroyed themselves because of a bullion monetary system.
It’s even more simpistic than that. Interest is the incentive to avail one’s capital with a modicum of return rather than hoarding it beneath the mattress. >Ideally win/win.
ET,
As Von Mises proposed interest cannot be artificialy regulated. Keneysian theory always puts forth a “target” interest rate. Usually far too high as can be seen by the Federal Reserve policy.
The US enjoys the advantage of the US dollar being the official reserve currency thanks to the Bretton Woods agreement. With all major economies having to store US dollars for trade purposes there is far more US dollars in circulation than otherwise would be needed.
When they, the US, print more money the inflation is spread world wide, minimizing the immediate effect on the US economy. When Euro economies suffer people turn to US treasury bills for safety even though the rate of return is less than the “target” rate of inflation. In other words they will invest money in T-bills even though they know it will be a losing proposition. That fact alone should indicate how serious the world economy is.
The fact the Chinese want to purchase oil from Iran using gold instead of US dollars has set off alarm bells in the banking cartel. The BIS [Bank of International Settlements] is whom you would normaly make international trade deals through which demands the use of US dollars. The use of gold as currency undermines the fiat system and is death to the cartels hegamony of US dollars.
The BRIC nations are talking of bypassing the BIS as well, and trading in their domestic currencies, using gold, or in some case agreeing on direct commodity exchange [eg. wheat for oil]
I firmly believe in interest on loans but artificial interest rates only undermine the real economy and create a scenario where merely dealing in debt vacuums money away from productive investment[the derivitave market]
If I borrow $100 to set up my business, and the interest is, let’s say $10.00 per year, then I owe $110.00. But the 200 gadgets that I am now able to make give me a return of $210.00.
Like all people who live in a world of words and theory, you’re just compounding the problem.
Where does the $210 come from? Remembering that the $210 is debt bearing interest as well as the original $100.
You’ve managed to accumulate $31 (at 10%) worth of interest for which there has been no money issued to cover.
snagglepuss,
Why would people/governments buy T-bills that yield less return than the rate of inflation?
The answer, of course, is that they are betting that the money will devalue even more. It is called deleverage.
cgh & ET
Quite right! Gold/Silver as a currency only works if there are limited supplies of each and adding additional gold/silver is difficult and resource intense. The Spanish Empire in the 16th century touched off massive inflation in Europe with the vast (and cheap) gold and silver from the New World. Gold rushes e.g California 1849 touched off inflation in the country of the gold rush.
Cheap money, such as that created by national central banks, the World Bank and the IMF result in marginal investments. If you can borrow money at 0.5000% from the Federal Reserve an investment in a term deposit paying 1.5% is great. If you must pay 9% on the money you need a much higher return (i.e. making something better or cheaper) to pay the interest. Mob loan sharks lend money at 6%/week because their customers by & sell narcotics with a 2,000% weekly return.
If printing money got you out of debt Zimbabwe would not be a basket case. The days of halfwits buying houses five times their annual income and expecting to have an “investment” are over.
A gold standard is stable because the quantity of gold in the economy shouldn’t fluctuate significantly. Examples like 17th century Spain and 1850s California are poor go-bys because they were regionally isolated and suddenly found themselves awash in “new gold”. In the modern world, it is highly unlikely anyone is going to find new gold deposits that can be produced cheaply enough and in sufficient quantity to “flood the market”. On the other hand, fiat money can easily be “printed” as was seen in Weimar Germany and many other 20-21st century examples.
fiddle:
Where does the interest come from? There’s only a $100 in the economy. And the only way to get more money in the economy is for it to be issued as debt burdened with it’s own interest.
This is wrong on so many levels, it’s hard to know where to start. First, your assertion that “there’s only $100 in the economy”. Well, where did that come from? What form is your “money” in? Is it gold or silver, banknotes, entries in a ledger?
If you’re using gold or silver, what happens if someone suddenly discovers a new mine? As the new gold and silver enters the economy, assuming production stays the same, prices inflate. cgh alluded to Spanish problems in the past; many economic historians have concluded that this was a direct result of the importation of vast amounts of silver and gold from South America. With all this new “money” chasing relatively flat production, inflation ran rampant.
But let’s go back to your “there’s only $100” in the economy. Assume that whatever you’re using as money is fixed and immutable, and there isn’t any more of it – let’s call it “unobtainium” – what happens as society produces more goods each year? For example, in year 1, you produce $100 worth of goods, some of which (food) get used up but others (bricks, furniture) last for many years. After year 2, isn’t society’s wealth worth more than $100? What about after years 2, 3, 10, 20? When your society has, let’s say, $20,000 worth of goods (figured at year 1 prices), and only $100 worth of “money”, what happens? Economics study suggests two things: the prices of stuff will fall (deflation) and the turnover (velocity) of money will increase. In the extreme case, people will start to use other forms of exchange, such as barter or commodity money, if there isn’t enough “official” money to go around.
Let’s remember the principal purposes of money: it’s meant to be a medium of exchange (to speed up trade), a standard of account (to allow easy settlements), and a store of value. Printing too much money doesn’t affect the first two, but it sure affects the third, as we’ve seen. Create too little money, and you end up with deflation, as I noted above. Now, some might say “What’s wrong with deflation? All my savings get more valuable everyday.” That’s fine if you’ve got something to start with. For the people who don’t have much, and are trying to work their way up, each year their labour and goods become worth less, and any form of debt becomes a crushing burden.
It’s late, I don’t have all the answers, and I don’t have the patience to go on, but to suggest, as fiddle does, that there’s some “right” amount of money in an economy, and adding to it will only cause problems, is obviously nonsense.
‘night all.
This is wrong on so many levels, it’s hard to know where to start. First, your assertion that “there’s only $100 in the economy”. Well, where did that come from?
You can add as many zeros as you like, the point is the same.
Assume that whatever you’re using as money is fixed and immutable, and there isn’t any more of it
I didn’t say it was fixed and immutable. I said it all is lent into circulation bearing interest, whether it’s gold or silver, banknotes, or entries in a ledger.
Where does the interest come from, since the only money that exists is the original principal? The money to pay the interest doesn’t exist.
Kevin, the Persian Empire in the 4th and 5th centuries BC did exactly the opposite to the Spanish. All of the bullion ended up in the King’s vaults through two centuries of taxation. The reasoning was that if the King had all the money, he had all the power. Stripped of any medium of exchange, the economic system of Asia Minor and Mesopotamia disintegrated. Where once their had been towns and cities in places like Cilicia, there was soon only howling wilderness. Xenophon’s Anabasis documents the effects, though not the cause.
Best thing that happened to the Persians was Alexander conquering it, looting the stockpiled bullion and spending it. Got the money back into circulation.
The other thing about bullion as currency is it lends itself to state fraud just as much as fiat currencies. The Roman Empire in the 1st Century AD had a growing import-export deficit, which it covered off by exporting bullion to pay for it. Soon, about the reign of Nero, it was running short of cash. So, it devalued the coinage by adding 30 per cent lead to the silver. Result was uncontrolled inflation just like in the Spanish case 1500 years later.
fiddle doesn’t seem to understand basic economics; a money-based economy isn’t steady-state. Simple economies such as hunting and gathering are steady-state; there’s no investment and no production of more goods. So, there is indeed only the ‘original principal’ (the existing land and animals) to use. Understand principal as ‘capital’.
Money, as pointed out by KevinB, is merely a symbol, an easy-to-carry symbol enabling the exchange of goods. Rather than carry around three goats to exchange for a bushel of wheat, I can sell the goats and hike over to the wheat farm with the symbol of this exchange, the money.
What fiddle doesn’t seem to understand is that the society produces more goods, ie, more principal or more capital. So, a farmer will plant some seeds this year, and grow a great crop of tomatoes, and these tomatoes and their seeds enable the farmer to grow even more tomatoes the following year. Money is merely the sign, the symbol, of this expansion of capital or principal.
Therefore, to assume, as fiddle seems to, that the only value is ‘the original principal’ ignores that a growth economy always produces more principal.
There goes ET, typical professor, babbling on about comments I didn’t make.
Talk about brainwashed…
Money, as pointed out by KevinB, is merely a symbol, an easy-to-carry symbol enabling the exchange of goods.
Expensive ‘symbol’ when it costs 20%, as it has in the past.
(sigh)
I didn’t say it was fixed and immutable…
Where does the interest come from, since the only money that exists is the original principal? The money to pay the interest doesn’t exist.
Don’t you see that your second sentence contradicts your first? If the supply of money isn’t fixed or immutable, it clearly changes. As others have pointed out, any society past cave dwelling produces new wealth. That’s where the new money comes from. The problem is the link between how much wealth society creates, and how much money to create, is not clear.
In agrarian societies, where 90% of the people were busy just trying to make enough food to eat, wealth was created at a slow pace, and the question of how much money to create wasn’t usually a problem. A fraction of newly mined precious metals became money, while the rest became jewelry, etc.
But after the Industrial Revolution, society began producing new wealth at incredible rates. And after the Information Revolution, that rate increased further. The question of how to match money growth to wealth growth moved out of academic circles into the real world, and we haven’t found a workable answer yet. The monetarists – well, some, anyway – said we should link money growth to GDP growth. Others think we should go back to a metal standard. Still others think the amount of money available is not as important as the cost of money (i.e. interest rates). Each theory has points in its favour; each has been shown to have flaws.
As I said, I don’t pretend to have “the answer”; if I did, I’d probably win a Nobel prize. (Of course, since Krugman, Gore, and Bambam have all won one, Nobels have been devalued almost as much as money. But I digress..) But, fiddle, you must learn that “money” is the cart, not the horse. It is society’s productive power that is the source of wealth, not some pieces of paper or metal (or bank entries); the latter are merely placeholders we use for convenience.
If money is lent at interest to a new enterprise (i.e. “investment”) that succeeds, society has new wealth created; a portion of that is used to repay the interest. If the enterprise fails, wealth is destroyed. Various carrion eaters will pick over the corpse of the failed business to salvage what they can, and so long as the business is small relative to the overall economy, and there are many new businesses being formed, society will continue to grow its wealth.
The truly devastating thing is, as we have debated here endlessly, what happens when the government borrows money at interest not to invest (I), but to consume (C). When the amount borrowed to finance C is small relative to I, society can shrug it off. However, when C grows so large that nearly 50% of the population requires it, overall wealth growth begins to disappear. Under our current infatuation with central banking, this decline is masked by printing ever increasing amounts of money not linked to anything – GDP growth, metals, unobtainium supply, nothing! – and we find ourselves in the mess we’re in today.
Geez, it’s not even 10 am, and now I need a drink.
There’s nothing actually wrong with equations, if their purpose is to actually clarify a concept that remains vague if put only into words. Major Douglas explained clearly with one “equation” (or rather relation), namely A have made a mistake in our calculations. Mind pointing it out, Congressman?”
Mises didn’t think that the gold standard was necessarily ideal. No human institution is, or can be. But he did think it was the best tried and true solution. Hayek argued for a “basket of commodities” standard, which I doubt Mises would favour due to his extreme skepticism of index constructions.
In his Theory of Money and Credit (1912, 1934) Mises argued that contractions caused by a return to the gold standard (Great Britain after WW1) were due not to the standard itself but to the fact that, perhaps out of national pride, it was priced at its much earlier level which no longer reflected current realities, i.e., inflation over the interim period.
Mises also strongly argued against the whole notion of an unvarying value of money and that no attempt should be made to “stabilize” prices.
As to inflationary gold output increases, Rothbard argued that productivity increases would likely exceed modest new gold production and that as a result prices would decline gently over time.
INTEREST reflects time preference in society at any one time. The difference in subjective valuations of present goods vs. future goods. We all value an apple now more highly than an apple a year from now. The intensity level of this desire determines interest rates (the discount).
High time preference — wanting it all now — means a smaller pool of savings and higher interest rates. Low time preference boosts savings which reduces interest rates.
Finally, after re-reading Mises’s Human Action and The Theory of Money and Credit I suddenly realized that there is not a single chart, table or graph in either book!
Small Picture:
As many have tried to point out, the idea of interest is simply a price placed on risk. If I have $100, I can do as I wish with it. If I decide to lend it to someone, I will do a risk analysis of their proposal to utilize my capital and attach an interest rate, the riskier the proposal, the higher the interest rate I will demand so as to compensate me for taking that risk.
Bigger Picture:
Yes, money is created through the use of interest. But, if not fiddled with by those who think they know best, the rate of interest will change in accordance with the rate of economic growth. It’s a feedback mechanism. Creating the appropriate money supply for the rate of growth of the economy.
The cause of the last crash was the creation of cheap money to keep the economy rolling after Sept 11th. All the other “causes” were either minimal or just symptoms.
The worst thing to ever happen to the US dollar was the so called dual mandate of the Fed. At one point the Fed’s role was to control the rate of inflation. Now, all of a sudden, the role has expanded to attempt to maximize employment. That is a pure recipe for disaster.
Part of my comment got eaten. Let me rephrase the part that got mangled:
There’s nothing actually wrong with equations, if their purpose is to actually clarify a concept that remains vague if put only into words. Major Douglas explained clearly with one “equation” (or rather relation), namely “A cannot purchase A plus B,” the simple idea that mainstream economist waste libraries trying to make seem complicated—namely, that economic crises are caused by a lack of purchasing power.
In the modern world, it is highly unlikely anyone is going to find new gold deposits that can be produced cheaply enough and in sufficient quantity to “flood the market”.
http://www.planetaryresources.com/
Contrary to widely-held opinion, money was NOT given to us by the state.
Money arose spontaneously.
It was originally a commodity and its value was the then value of that commodity at the time of its spontaneous adoption by the society. Over time money’s value increased above the pure value of the commodity itself to reflect its value for quick and easy exchanges. Many different commodities were used as money but over time gold and silver became the primary forms of money.
Fractional reserve banking arose as a fraud (embezzlement) by goldsmiths who gradually realized that only a small percentage of the people who had entrusted their gold to them, turned up for redemption.
Unfortunately this fraud became acceptable and even received the courts’ blessing.
BIG LIE. The Federal Reserve claims that its purpose is two-fold: 1. Price stability and 2. Full Employment. These are actually contradictory!
A BIG LIE to me is not just an untruth but the polar-oppositve of the truth.
It was NEVER the objective of the FED to stabilize prices — to fight inflation. Its purpose was actually TO INFLATE — to, in partnership with government, cartelize banking to allow a smooth across the board credit expansion and the creation of nearly unlimited amounts of new fiduciary money (money out of thin air) upon which to earn interest and with which the state could expand infinitely.
Central banking enabled the welfare and warfare states.
Were government limited to taxation or borrowing REAL savings they would be severly restricted in their ability to manufacture entitlements and to wage frivolous war.
It can be no accident that the US entered WW1 only 3 years after the creation of the Fed Counterfeiting Machine in 1913.
kevinb – excellent outline. I liked your explanation of matching money (the symbol, the cart) with wealth creation.
And liked your outline of the problem of government borrowing for Consumption rather than Investment – that’s what Obama is doing. Disastrous. Unbelievable that a nation would focus on Consumption of wealth and ignore Investment and Production needs for wealth creation.
@KevinB
Get your drink sir, well deserved!
Yes, a good and sober job as usual, KevinB. Would love to see you more in the Austrian camp!
ET too.
ET: “government investment” hides a multitude of sins. Same with “infrastructure” [see bridges to nowhere and highways that are far too good for the volume of traffic they carry; over-investment in railroads early on; the space programme, etc].
I prefer private investment with the government playing referee guaranteeing the rules of the free market with their police power.
Even if government “invests” in a good initiative, if it’s too early, it’s uneconomic. Just as “investing” in a excellent technology is a bad idea if it’s still not economically viable, robbing capital from more viable uses.
Sadly, the still-reigning ideology — Keynesianism (which KevinB is too beholding to!) — considers saving as BAD, unpatriotic even. [see Krugman and his favourite university lecture: the paradox of thrift].
But yeah, the distinction between consumption and investment is key. Sadly too much government economic interference is involved in demand-goosing ala Keynes.
mnd- by Investment, I certainly don’t mean government investment!
I mean leaving profit wealth in the control of private corporations and investors. Reduce taxes, reduce regulation. The Investment should be private. Not government.
Kate,
The laws of economics are as rock solid as the laws affecting your rocket with 500/gal of fuel. If a human goes in and fiddles with some adjustments in the rocket, your so called constants aren’t worth a damn. And yes you are right, we don’t have a Unified Field Theory for Economics, but then on the other hand we don’t have one for Physics either. Still we are pretty sure about some things such as the law of supply and demand, the law of diminishing returns, the law of economic rationality, etc.… It’s only when humans get in and start making adjustments that things go to hell.
Respectfully, Dale…
Yes, Dale, there are iron-clad laws of economics.
Apriori laws, says Mises.
Here’s one: if I set out now and cross the city of Vancouver in search of a free meal at a restaurant I know, apriori, that I won’t find one!
BUT Mises is also against the bogus use of mathematics in economics; against measurement and formulae utilized to predict human action which is really all economics is in the final analysis.
Don’t confuse LAWS with formulae and measurement. Neither Kate nor the the speaker intimated that there are no laws only that mathematical formulae are useless in economics.
I don’t necessarily ascribe to the idea that all government investments are bad. Roads are the classic example. Yes, in theory, you could leave it up to private enterprise, and have tolls on the roads, but that leads to roads that are not relatively straight and prices that can be much higher than can be justified.
Look at the 407 in Toronto – it would be impossible to build a competing road, since the surrounding areas are so built up no private group could ever get everyone agree to giving them right of way. As a result, the current 407 charges – $0.25 a km – are in no way related to their costs. In the most recent quarter, the company declared EBITDA of $126 million on revenue of $151, and net income of $31 million, or about 20% of revenue. Who else does that? The company that bought the road from Ontario is laughing all the way to the bank. That one decision to sell the road was reason enough to turf Ernie Eves.
Government, with its singular right of eminent domain, can build the most efficient roads, and, in Ontario at least, maintains them reasonably well as the provincial economy depends on them. The overall cost to the economy is much lower than if roads were owned and operated privately.
Not all government investment is bad. Defence is another area where government must, and should, be in control. But government borrowing to fund consumption is crazy. Any private firm that tried to do so would quickly perish.
Thanks for your response Me No Dhimmi. I believe I understand what you’re saying but I find it hard to give up on the idea that economic out comes cannot be rationally predicted using mathematics. Insurance Company’s predict large group behavior all the time. In any case I’m going to have to think on this for a while.
Thanks again, Dale…
KevinB, you make an excellent case there.
Truthfully, that’s one area of libertarian dogma that I have great difficulty with: private roads; that, and IP (intellectual property) rights which hard-core libertarians are against; and war.
Henry Hazlitt made an excellent observation: if someone’s in a medical emergency in the middle of the sidewalk, there needs to be instant response from a State agency — it would take too long for a private solution to be executed, including the on-the-post arrangement of terms of payment, etc.
Walter Block is one austrian economist who specializes in advocating the private ownership of roads. Certainly, from our current vantage point, it looks impractical, cumbersome.
Same deal with Hayek’s argument for the de-nationalization of money replaced by multiple private currencies. A mind-expanding idea but hard to see working in practice. I don’t think Mises would approve. But I’m convinced that there needs to be a total separation of Money and State.
OTOH, one thing I learned in business is that you can’t know in advance how an idea with play out. Sometimes you dive into a good idea and worry about execution later; or rather, execution will sort itself out over time. My best business idea which hugely impacted my life happened this way. I figure that if I had sat down to try to map out exactly how I’d do it, I would have abandoned it.
Obviously the military has to be government-run but I wouldn’t describe that as investment in the sense of our discussion. That said, hard-core anarcho-capitalists like Rothbard and Hans Herman Hoppe argue in favour of the private provision of security.
Dale, true. But acturial stats are based on historical data. They pretty well know, for example, how many 70-year olds will die in the next year simply from past experience, but not exactly who. Actuarial stats are not the kind of measurement the speaker was ridiculing in that speech. He was really referring to mathematical modelling of the economy, which is far too complex to be reduced in this way. A human being does not always respond in the same way to a particular stimulus.
It’s been danced all around but no one has explained where the money comes from to pay interest when all money is lent into circulation already bearing interest.
To pay the interest necessitates borrowing more interest bearing money.
I’ll let Benjamin Franklin speak for me;
http://www.historycarper.com/resources/twobf2/paper1.htm
2. All those who are Possessors of large Sums of Money, and are disposed to purchase Land, which is attended with a great and sure Advantage in a growing Country as this is; I say, the Interest of all such Men will encline them to oppose a large Addition to our Money. Because their Wealth is now continually increasing by the large Interest they receive, which will enable them (if they can keep Land from rising) to purchase More some time hence than they can at present; and in the mean time all Trade being discouraged, not only those who borrow of them, but the Common People in general will be impoverished, and consequently obliged to sell More Land for less Money than they will do at present. And yet, after such Men are possessed of as much Land as they can purchase, it will then be their Interest to have Money made Plentiful, because that will immediately make Land rise in Value in their Hands. Now it ought not to be wonder’d at, if People from the Knowledge of a Man’s Interest do sometimes make a true Guess at his Designs; for, Interest, they say, will not Lie.
During a visit to Britain in 1763, The Bank of England asked Benjamin Franklin how he would account for the new found prosperity in the colonies. Franklin replied.
“That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers.
In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.”
Benjamin Franklin
“The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War.”
Benjamin Franklin’s autobiography
It’s been danced all around but no one has explained where the money comes from to pay interest when all money is lent into circulation already bearing interest.
In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry
I really don’t understand what you mean by “all money is lent into circulation already bearing interest”. All money is not lent; some is kept to pay bills, socked away for a rainy day outside of a bank, etc. I don’t understand the phrase “lent into circulation”, and I think I’m reasonably financially literate. Finally, I don’t understand what you mean by “already bearing interest”. Perhaps these concepts are clear in your mind, but you need to explain them more fully, as they sound like the psycho-babble I hear in the humanities.
And then, as is your wont, you contradict yourself in your own post with the second sentence I quoted above. The colonies issued new money according to what they judged the economy needed. You keep asking “Where does the money come from to pay the interest?”. Well, there’s your answer.
It might have worked in a relatively small and cohesive society; not workable on a global scale, IMHO.
I really don’t understand what you mean by “all money is lent into circulation already bearing interest”.
How does new money come into circulation? Then consider that all money was put into circulation in that manner.
Answer that and your question is answered.
And then, as is your wont, you contradict yourself in your own post with the second sentence I quoted above.
You didn’t read far enough. There was no interest charge.
And, if money is only a medium of exchange, as you say, why would there be interest charged on it? That turns it into a commodity, not a medium of exchange.
Seems to me it is you who contradicts yourself.