First of all, I would like to introduce myself. I am a computer programmer from the Netherlands. I am working on a theory of money and banking derived from the "Natural Economic Order" of Silvio Gesell.
"Natural Economic Order" clearly states that the root the economic and monetary problems we have today, is the charging of interest on money.
I have had several discussions with people on message boards in the Netherlands. There were of course many disagreements and objections to my plan, which helped me to improve my thinking. Not all people objecting to the plan did understand it.
Now I would like to discuss my work with people on this site.
If you are interested, my theory is posted on the link below.
http://www.naturalmoney.org/
Rule number one: You can't make people better off by taking away their options.
By prohibiting interest you make it harder to borrow.
You want to have both a constant money supply and "always money available to be borrowed by creditworthy companies and people." The two can not coexist. With interest set at 0 the demand to borrow will increase while the supply of borrowable money will decrease. Either you will have create new money or people who want to be borrow will be unable to. There is no third option.
Here's a novel solution: Abolish all laws that require people to use government money and let them choose their own currencies.
Peace
Charging interest on loans is not bad at all. This is actually the revenue for the one taking the risk to lend money.
Instead, the whole fiat money + fractional reserve + state regulations is the bad thing. Actually, if you remove state regulations alone, the market can deal with the other crap and reject it.
(State regulations = those laws that forbid one to hold gold, 100% gold reserves and to loan money. Though gold by itself is not mandatory, any other durable good can do if the market likes it.)
JonBostwick:Rule number one: You can't make people better off by taking away their options.
This is true... so there is a problem. I never said the system was perfect.
JonBostwick:By prohibiting interest you make it harder to borrow.
... for people who cannot afford to.
JonBostwick:You want to have both a constant money supply and "always money available to be borrowed by creditworthy companies and people." The two can not coexist. With interest set at 0 the demand to borrow will increase while the supply of borrowable money will decrease. Either you will have create new money or people who want to be borrow will be unable to. There is no third option.
There is always money available at 0 interest for people and business with low credit risk because there is a tax on money. But there might be a problem when demand suddenly increases.
JonBostwick:Here's a novel solution: Abolish all laws that require people to use government money and let them choose their own currencies.
It could be chaos, but this might happen if the system if failing.
niphtrique:"Natural Economic Order" clearly states that the root the economic and monetary problems we have today, is the charging of interest on money.
Please have a look at The Bastiat Collection - Volume 1: Chapter V: Capital and Interest.
It has been a while since I read it myself, but it is quite concise, if I recall correctly.
Eduard - Gabriel Munteanu:Charging interest on loans is not bad at all. This is actually the revenue for the one taking the risk to lend money.
The natural money system is about eleminating risk of system failure. Therefore taking risk with money is a bad thing in this theory, because we all need it and society depends on it.
Eduard - Gabriel Munteanu:Instead, the whole fiat money + fractional reserve + state regulations is the bad thing. Actually, if you remove state regulations alone, the market can deal with the other crap and reject it.
I completely agree, but in a democracy people are asking for goverment intervention, when the creative destruction process creates a depression. That might be wrong, but they will do that.
corpus delicti: niphtrique:"Natural Economic Order" clearly states that the root the economic and monetary problems we have today, is the charging of interest on money. Please have a look at The Bastiat Collection - Volume 1: Chapter V: Capital and Interest. It has been a while since I read it myself, but it is quite concise, if I recall correctly.
Thank you, but it is not a question of lawfullness. I try to be practical and prevent system failures.
Capital and money are different things in this theory. Capital may grow, even if there is no interest on money at all.
A business can expand, regardless of the nature of the money system. "Natural Economic Order" will not in any way forbid the interest on capital, only the interest on money.
If we take the extreme example of predarory lending, would this still be true?
niphtrique: JonBostwick:By prohibiting interest you make it harder to borrow. ... for people who cannot afford to.
With no interest it becomes much easier to afford it.
niphtrique: JonBostwick:Here's a novel solution: Abolish all laws that require people to use government money and let them choose their own currencies. It could be chaos, but this might happen if the system if failing.
It would be anarchy, but it would not be chaos. We use a pair of terms here: Planned Chaos and Spontaneous Order.
What we have in our current government directed financial system is Planned Chaos; none of the plans had meant to cause this but this what all the planning has caused.
Where people are allowed to interact voluntarily we see Spontaneous Order; exchanges that are mutually beneficial take place, the common good is being furthered because no individual is prevented from pursuing his individual good.
niphtrique: JonBostwick:Rule number one: You can't make people better off by taking away their options. If we take the extreme example of predarory lending, would this still be true?
Are you asking, would people be better off if you prevented them from borrowing money they can't afford to pay back? No, they obviously value present cash over future consequence.
You can't impose your value system on others. This is an issue between lender and lendee.
From naturalmoney.org:
Characteristics of the money of the natural economic order Silvio Gesell is the founder of the theory on the money of the natural order. The naturalness of this money, lies in the fact that it is taking into account human nature. Greed is on the one hand, a motivator for people to perform, but on the other hand it is a force that can lead to deception, destruction of nature, society and economy. The economy should work in a way that these matters are resolved, while achieving a desirable result for individuals, society and nature. Money from the natural order has the following characteristics: 1. The money supply is constant. There is no money creating activity by financial institutions. The value of the money is also constant. There is basically no inflation. The money supply can only be changed by the government based on democratic decision making. 2. Natural money is not a form of debt, but a medium of exchange which may be covered by a basket of goods and services. 3. Money may only be lent without charging interest. Charging of interest in any form is prohibited. 4. A tax is levied by the government on the money in circulation. This is a tax on money, and this money comes back into circulation by government expenditures.
The valuation of the natural money unit The valuation of the natural money unit is one of the most important topics. The money supply should be constant, but you can never trust the government, so when you lend your money for any period of time, the same value should be paid back. The guarantee of value is essential in a system without interest. That means that when lending money, additional provisions must be made that guarantee the value of the loan. The value of the money should be expressed in a basket of goods and services, and the value of the basket of goods and services should be paid in cash when the loan matures. These baskets should include a wide range of goods and services, in order to prevent price fluctuations of individual goods and services or manipulations of prices of individual goods and services, affecting the value of the loan.
Lastly, don't judge a book by its cover, nor the title of a chapter. It's the contents that count. Now, I've read some of your's, any chance you will return the favour and read some of mine?
[EDIT: I'm sorry to say this, but I do not think this is the right forum for you. The more I read naturalmoney.org, the more I see how it differs utterly and completely from Austrian Economics. It simply does not make sense to just about anyone on these boards. An important question: Have you ever discussed your Natural Money with a person sharing ideas from The Austrian School of Economics?]
I asked:
corpus delicti:Have you ever discussed your Natural Money with a person sharing ideas from The Austrian School of Economics?
Question: Why did economists not see this coming? Answer: There have been economists, who have seen it coming, but most economists did not expect this to happen. Economics is a complex pseudo-science, with all kinds of irrational assumptions, the most important of which is: the existence of the homo economicus (economical thinking human). On the existence of the homo economicus all economic theory is based. The homo economicus does not exist, and a lot of economic theory is dubious at best, but actually politically motivated. As economists are mostly paid for by special interests, they rarely manage to have an independent view.
The answer to my question must be: No.
Hmm... I don't think Austrian Economics supporters have this homo economicus assumption. It's rather that we believe the market rewards those that go with it. So it's quite simple: you provide service to the market, you win; you cause harm (e.g. waste resources etc.), you lose. More likely natural selection than belief in a good human nature.
Isn't it so?
So you're advocating a price control over loanable funds markets, because money is the most important good of all? Hah, what backwards reasoning!
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
Money from the natural order has the following characteristics:1. The money supply is constant. There is no money creating activity by financial institutions. The value of the money is also constant. There is basically no inflation. The money supply can only be changed by the government based on democratic decision making.2. Natural money is not a form of debt, but a medium of exchange which may be covered by a basket of goods and services.3. Money may only be lent without charging interest. Charging of interest in any form is prohibited.4. A tax is levied by the government on the money in circulation. This is a tax on money, and this money comes back into circulation by government expenditures.
Let's say the tax rate is X% a month.
If you hold money, then you are taxed P*((1+x)^12 -1).
If you instead lend out the money to someone else for no interest, than they will be taxed instead. Or whomever they spend/give the money to will be taxed. Through game theory, nobody will want to hold money on the taxation date, as they can just buy goods/gold now. This is violently increasing inflation as demand for money decreases. If the second proposal exists where it is covered by a basket of goods and services, then everyone would call it in near the taxation date.
Note that mathematically, the taxation rate model would be identical to the inflation model. People would be hesitant to hold money in both situations. Money under your matress does not earn any interest under the system NOW. The only difference would be the elimination of the OPTION of charging different interest rates based on credit default probabilities. Instead the only possible interest rate would be 0 or synthetically equal to the tax rate X. If you want to get picky, it might be possible to have an interest rate less than 0, but then you are better off sticking your money in gold.
Under game theory, the quick result would be abandonment of this currency unless the gov criminalizes any unauthorized transaction, leading to a police state. Hardly "good" in my book.
Sure, many economists assume Homo Economicus, but what other options are there? Assuming people are dumb and irrational? Natural Order assumes people are dumb. Then the smart people will take advantage of the system. It doesn't take too long before dumb people see the smart people. In experimental economics, it almost always concludes that people are close to perfectly rational. The longer an experiment, the more people involved, the more rational people seem.
Who in his right mind would give a loan to someone who can't afford to pay for it?... (Well, I guess a banker in a fractional reserve financial system).
One who gives out a loan is making an investment in the person who receives the loan. Hence the lender, as well as the borrower, is responsible when the borrower cannot make payments (since it was his choice to make the loan).
Diminishing Marginal Utility - IT'S THE LAW!
niphtrique: "Natural Economic Order" clearly states that the root the economic and monetary problems we have today, is the charging of interest on money.
*sigh* The heart of monetary crankism.
I might be misreading him, but I am sure he means it'll be harder only on those who can't afford to borrow (and my guess is because of the scarcer loanable funds relative to a situation where interest is charged and thus rationally priced.) Indeed, that is perfectly consistent with price control theory.
JonBostwick:With no interest it becomes much easier to afford it.
This is true but no one will lend you the money if you cannot afford to pay the loan back or if you are irresponsible. This is the magic.
JonBostwick:It would be anarchy, but it would not be chaos. We use a pair of terms here: Planned Chaos and Spontaneous Order.
It would be chaos I think, after which new power structures will emerge.
JonBostwick:What we have in our current government directed financial system is Planned Chaos; none of the plans had meant to cause this but this what all the planning has caused.
Spot on. So less government planning should work better.
JonBostwick:Where people are allowed to interact voluntarily we see Spontaneous Order; exchanges that are mutually beneficial take place, the common good is being furthered because no individual is prevented from pursuing his individual good.
I think you still believe in the goodness of human nature, just like socialists do. Reality is, there are people longing for power and becoming very powerful, and they will enforce their will on other people.
niphtrique:Reality is, there are people longing for power and becoming very powerful, and they will enforce their will on other people.
Some will surely try. In fact, they are the ones who control the state today. Who else would want to?
But there is a large body of work thats shows that they don't have to continue to succeed.
corpus delicti:Lastly, don't judge a book by its cover, nor the title of a chapter. It's the contents that count. Now, I've read some of your's, any chance you will return the favour and read some of mine?
I will.
corpus delicti:[EDIT: I'm sorry to say this, but I do not think this is the right forum for you. The more I read naturalmoney.org, the more I see how it differs utterly and completely from Austrian Economics. It simply does not make sense to just about anyone on these boards. An important question: Have you ever discussed your Natural Money with a person sharing ideas from The Austrian School of Economics?]
For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time.
I am a frequent observer of gold sites and aware of Austrian economics in general. It makes sense to me to a great extent, but it is also denying human nature in some extent, just like socialism does. In naturalmoney.org I wrote:
Problems with free markets in the current money systemIf the government did not interfere with the economy and interest rates, markets will correct the problems, but in a rude way, with banks going bankrupt, economic recessions and even economic depressions. Since we live a democratic society, such issues will automatically lead to a strong call for government intervention and regulation.
Maybe you can educate people that free markets are the best, but when they are confronted with the disadvantages, percieved or real (thats a debate between socialists and capitalists, I will not go into), people will ask for government intervention.
There is another observation I made, when you are thinking about going Austrian:
Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.
Again, I do not want to go into a debate about right and wrong. I see a stability issue here. People paying interest are getting poorer money wise, which is an important observation. If capitalism is creating enough value by economic growth, those poor people may after al get richer in terms of goods and services, because of falling prices. But if money is accumulated by the rich, poor people could end with nothing at all in the end. This is the stability issue. The money stops to flow in the economy and capitalism breaks down because of demand destruction. Also capital gets destroyed which could otherwise be of productive use.
JonBostwick:Are you asking, would people be better off if you prevented them from borrowing money they can't afford to pay back? No, they obviously value present cash over future consequence. You can't impose your value system on others. This is an issue between lender and lendee.
For me it is a stabilty issue, not a question of right and wrong. My value system is that I prefer a stable monetary system with no or little government intervention.
If you forbid interest charges, this value system is imposed. But if you allow interest charges, you impose the consequences of interest charges on the public by economic recessions, which could harm people that did not lend or borrow irresponsibly.
Eduard - Gabriel Munteanu:Hmm... I don't think Austrian Economics supporters have this homo economicus assumption. It's rather that we believe the market rewards those that go with it. So it's quite simple: you provide service to the market, you win; you cause harm (e.g. waste resources etc.), you lose. More likely natural selection than belief in a good human nature. Isn't it so?
That is what we agree on and why Austrian economics does make sense to me to some extent.
But there is a believe in good human nature hidden in Austrian economics, I think. Natural selection will result in success and failure. People having succes can become very wealthy (which is no problem at all) but also very powerful (which is the problem) and Austrian economics assumes they will not change the rules of the game (good wealthy powerful capitalist assumption).
TropicalK:Let's say the tax rate is X% a month. If you hold money, then you are taxed P*((1+x)^12 -1). If you instead lend out the money to someone else for no interest, than they will be taxed instead. Or whomever they spend/give the money to will be taxed. Through game theory, nobody will want to hold money on the taxation date, as they can just buy goods/gold now. This is violently increasing inflation as demand for money decreases. If the second proposal exists where it is covered by a basket of goods and services, then everyone would call it in near the taxation date. Note that mathematically, the taxation rate model would be identical to the inflation model. People would be hesitant to hold money in both situations. Money under your matress does not earn any interest under the system NOW. The only difference would be the elimination of the OPTION of charging different interest rates based on credit default probabilities. Instead the only possible interest rate would be 0 or synthetically equal to the tax rate X. If you want to get picky, it might be possible to have an interest rate less than 0, but then you are better off sticking your money in gold. Under game theory, the quick result would be abandonment of this currency unless the gov criminalizes any unauthorized transaction, leading to a police state. Hardly "good" in my book.
I think there are solutions for this:- all money could be on accounts at banks and taxation can be done every hour (or any period of time) or- you could redeem the currency for the basket but you still have to pay the tax of the current month.
Anyway, money should not be accumulated, only capital should be accumulated. If money stops flowing in the economy, because of people hoarding cash, the economy could weaken, and this could start a vicious cycle. Therefore, people not keeping the money is a good thing in this system.
niphtrique: Problems with free markets in the current money systemIf the government did not interfere with the economy and interest rates, markets will correct the problems, but in a rude way, with banks going bankrupt, economic recessions and even economic depressions. Since we live a democratic society, such issues will automatically lead to a strong call for government intervention and regulation. Maybe you can educate people that free markets are the best, but when they are confronted with the disadvantages, percieved or real (thats a debate between socialists and capitalists, I will not go into), people will ask for government intervention.
You should be well aware then that Austrians beleive that it is government intervention that creates the misleading signposts in an economy - fooling economic actors into making unprofitable actions. This is most obvious when the government manipulates the interest rate.
The market is correcting the problems created by government. Huge "Bubbles" just can't form in a free market.
niphtrique: There is another observation I made, when you are thinking about going Austrian: Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.
Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money's supply is not fixed.
As to interest, there is indeed nothing evil or morally wrong about it - despite all major religions forbidding it. The Austian view of interest emphasises the importance of time (from Mises quiz):
Interest payments reflect the higher value of present goods over future goods. Other things equal, everyone wants to consume sooner rather than later. The current price of a computer might be $1,000, but the price of a claim to a computer delivered in one year would currently sell for less than that, say $900. An entrepreneur might invest $900 in labor and raw materials in order to sell a product next year for $1,000; his implicit interest return is due to the fact that the factors of production represent technological "claims" on future consumption goods, and thus their current price (the $900) is less than their ultimate sale price ($1,000). Obviously the government need not interfere with the market interest rate, since it merely reflects the subjective premium individuals place on a marginal present good over a marginal future good.
Irish Liberty Forum
Solomon:Who in his right mind would give a loan to someone who can't afford to pay for it?... (Well, I guess a banker in a fractional reserve financial system). One who gives out a loan is making an investment in the person who receives the loan. Hence the lender, as well as the borrower, is responsible when the borrower cannot make payments (since it was his choice to make the loan).
This is an interesting question, because interest is a allowance for risk. If someone is a debtor of dubious quality, a creditor might be enticed to lend him money at a higher interest rate, which further erodes the ability of the debtor to repay. You can argue that this is good or wrong, but for me this is a stabililty issue.
Interest payments are pressing the hardest on the weakest parts of the economy. I am a system designer, and from an engineering perspective, you would never stress the weakest points the hardest. If you build planes this way, they will fall from the sky. But economists consider this to be a good thing. But I question this because I am not an economist.
Jon Irenicus:So you're advocating a price control over loanable funds markets, because money is the most important good of all? Hah, what backwards reasoning!
Yes, this is a form of price control of money. To me, money is not a good or a service, but a means of exchange. So there is no price control on goods and services. Anyway, there is still a market for money. If demand is high relative to supply, only the best lenders can lend the money. This would of course block a sudden economic boom from happening, and a bust would therefore not follow.
It is a stability issue. Of course, markets will get very boring, no wild swings, only a steady accumulation of capital. Everybody will own stocks because stocks are less risky to invest in. Debt levels are very low. Society will not be like anything we have seen before.
niphtrique:For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time.
Fair enough. I can respect that.
Also, just to throw you a bone, I can see where you are coming from. I can tell you worry about the evils of the present banking and monetary systems, about the poor and middleclasses of this world being ripped off etc. All I can say is: "Welcome to the Club."
With that said, you simply do not know what money is. Perhaps someone on this board can help in giving you some references, if you want to learn more. At any rate there is a chapter, "What is Money?", in The Bastiat Collection. As I recall there is not much about the history of money, but rather its function, in this chapter, so I'm quite sure it is not enough to read just that.
Ludwig von Mises', "Human Action", would obviously be a great read, but not the best to start out with. As Mises tells us, you cannot just, from one day to another, decide which money people should use. This alone makes your whole theory impossible, unless of course you are advocating full on totalitarianism, in which case you will just end up with two markets, like in the USSR; the enforced and planned "government market" and a black market. That is in total disregard to all the human suffering it would cause!
MatthewWilliam:You should be well aware then that Austrians beleive that it is government intervention that creates the misleading signposts in an economy - fooling economic actors into making unprofitable actions. This is most obvious when the government manipulates the interest rate. The market is correcting the problems created by government.
This is what we agree on.
MatthewWilliam:Huge "Bubbles" just can't form in a free market.
This is what I do not agree on. Huge bubbles can form in a free market and a free market can eventually correct them, if the market is really "free". But here again lurks the good wealthy powerful capitalist assumption: that when people are successful they become very rich (no problem) but also very powerful (this is the problem) and therefore markets in the real world tend to become less free.
MatthewWilliam:Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money's supply is not fixed.
I think Rothbard is wrong on this, because according to him fiat money systems cannot exist at all. And here we are in reality observing something else. Money, therefore is not a commodity, I think.
MatthewWilliam:As to interest, there is indeed nothing evil or morally wrong about it - despite all major religions forbidding it.
I agree but I am not religious man. If you are a christian, a jew or a muslim, you may question the wisdom of God, but you must not ignore His eternal wisdom.
MatthewWilliam:The Austian view of interest emphasises the importance of time (from Mises quiz): Interest payments reflect the higher value of present goods over future goods. Other things equal, everyone wants to consume sooner rather than later. The current price of a computer might be $1,000, but the price of a claim to a computer delivered in one year would currently sell for less than that, say $900. An entrepreneur might invest $900 in labor and raw materials in order to sell a product next year for $1,000; his implicit interest return is due to the fact that the factors of production represent technological "claims" on future consumption goods, and thus their current price (the $900) is less than their ultimate sale price ($1,000). Obviously the government need not interfere with the market interest rate, since it merely reflects the subjective premium individuals place on a marginal present good over a marginal future good.
Natural money system does interfere with time preference. That is for sure. With money tax and no interest, money in the future has a higher value than money in the present. This has dramatic consequences, one of them is encouraging long term investment decisions.
Chapter 8 of Menger's Principles of Economics is a good 30 pages on the origins and nature of money.
Chapter 3 of Rothbard's MES is also good.
corpus delicti: niphtrique:For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time. Fair enough. I can respect that. Also, just to throw you a bone, I can see where you are coming from. I can tell you worry about the evils of the present banking and monetary systems, about the poor and middleclasses of this world being ripped off etc. All I can say is: "Welcome to the Club." With that said, you simply do not know what money is. Perhaps someone on this board can help in giving you some references, if you want to learn more. At any rate there is a chapter, "What is Money?", in The Bastiat Collection. As I recall there is not much about the history of money, but rather its function, in this chapter, so I'm quite sure it is not enough to read just that. Ludwig von Mises', "Human Action", would obviously be a great read, but not the best to start out with. As Mises tells us, you cannot just, from one day to another, decide which money people should use. This alone makes your whole theory impossible, unless of course you are advocating full on totalitarianism, in which case you will just end up with two markets, like in the USSR; the enforced and planned "government market" and a black market. That is in total disregard to all the human suffering it would cause!
Some theorists of natural money systems think that they will evolve to become dominant by free will. Maybe.
If a majority of the people chooses this after a strong debate, it is not totalitarianism to me. You cannot impose this. But anyway, as is the case in the Austrian school, it assumes enlightenment of the people. This is clearly a weak point.
I have read many articles of the Mises Institute on gold sites. Real free markets only exist in Utopia. Free markets tend to become less free after time, because of people becoming rich and gaining power.
I think socialists will have strong case on this point.
If you end with a black market, the system clearly has failed. But I do not think this will happen if it is chosen and not imposed.
MatthewWilliam: Chapter 8 of Menger's Principles of Economics is a good 30 pages on the origins and nature of money. Chapter 3 of Rothbard's MES is also good.
I will look into it, to see if there is anything new for me. But I have studied this subject for years now, so please do not think I am ignorant. Austrian economics is also just a simplification of reality, just as Natural Money is.
[EDIT: I have removed a lengthy reference to a chapter in Human Action. This is because I acknowledge you saying you have read a lot of this before. In this case I do not want to clog up this discussion with any more references to literature. Instead, let us focus on a discussion of Natural Money.]
[2nd EDIT: The reference was this.]
niphtrique:Yes, this is a form of price control of money. To me, money is not a good or a service, but a means of exchange. So there is no price control on goods and services. Anyway, there is still a market for money. If demand is high relative to supply, only the best lenders can lend the money. This would of course block a sudden economic boom from happening, and a bust would therefore not follow. It is a stability issue. Of course, markets will get very boring, no wild swings, only a steady accumulation of capital. Everybody will own stocks because stocks are less risky to invest in. Debt levels are very low. Society will not be like anything we have seen before.
Linguistical error, because I am Dutch:
If demand is high relative to supply, only the best lenders can lend the money.
must be
If demand is high relative to supply, only the best borrowers can borrow the money.
corpus delicti: The Epistemological Import of Carl Menger's Theory of the Origin of Money
I have read this. Very interesting and I will come back on this later. Crucial notion: it states that you cannot invent money, it must evolve from a natural process. But someone wants to use this computer right now.
niphtrique: MatthewWilliam:Huge "Bubbles" just can't form in a free market. This is what I do not agree on. Huge bubbles can form in a free market and a free market can eventually correct them, if the market is really "free". But here again lurks the good wealthy powerful capitalist assumption: that when people are successful they become very rich (no problem) but also very powerful (this is the problem) and therefore markets in the real world tend to become less free.
I disagree. Speculative activity speeds up the course to equilibrium. There is no defence of the "irrational exhuberance of the market" for instance. Where do actors get the money and credit to bid up resources? I stated a discussion on this here.
IMHO I don't beleive in the good rich capitalist assumption, but I also think that there is no way that a rich capitalist can screw everybody over without the help of a big powerful government.
niphtrique: MatthewWilliam:Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money's supply is not fixed. I think Rothbard is wrong on this, because according to him fiat money systems cannot exist at all. And here we are in reality observing something else. Money, therefore is not a commodity, I think.
Money has historically a commodity. I see you have watched the Money As Debt video, where they briefly discuss what money historically was: cattle, sheep, feathers, stones, gems, gold, silver.
Historically, the commodities that have the ideal characteristics emerge as money. Those characteristics being durability, marketability, fungibility, divisability, etc. Gold satisfies all of them. Money has historically been a commodity. It isn't anything special that operates diffrently to other commodities. The way I think of it is "production of goods" > "purchase" of money > "sale" of money for goods.
According to Rothbard, if I read it correctly, fiat money cannot exist in a free market. I could decide I can give up production of goods to trade for money, and create my own money. I could print 10 rothbards and use them in exchange for goods and services. The only way I could get this to work is if I can somehow legally forbid people to use commodities as money and violently imposed legal tender laws.
I'm getting a lot of this off Rothbard's Case for a 100 Percent Gold Dollar, by the way.
Also, after glancing through naturalmoney.org, I agree with your analysis of the current monetary system.
Okay, I will allow for the assumption that enlightened people choose Natural Money as their new medium of exchange. As long as we are clear that this is an if-then proposition, the truth of which is highly contestable.
I think I need to understand your setup a little more then. Let us name the currency "Natural Medium of Exchange", NME, no pun intended
The supply of NMEs are constant you say and so is the value of each NME. Also, this value represents a basket of goods and services.
Let us imagine the amount of goods and services increases exponentially, i.e. more rapid than the constant supply of NMEs.
In short, how can both the supply and value of NME's remain constant?
My intention at this point is to discuss the setup without discussing the zero-interest part. Thus, if it is possible for you to not bring this up, right now at least, I would appreciate it. However, if this zero-interest of NMEs, cannot be seperated from supply and value, so be it.
Yes, this is a form of price control of money.
No, it's a price control on loanable funds.
To me, money is not a good or a service, but a means of exchange.
It is both a good and a medium of exchange.
So there is no price control on goods and services.
There is a price control on the rate at which savings may be lent.
It is a stability issue.
More like instability, which is precisely what this will cause. There's no economics behind this, just wishful thinking.
I think you have no idea what you're talking about.
Rubbish. No Austrian assumes this. And it is totalitarianism, even if it is a majority imposing its will on a minority.
Assertion/nonsense.
You say you've read Austrian works, yet I do not see it.
niphtrique:I have read this. Very interesting and I will come back on this later. Crucial notion: it states that you cannot invent money, it must evolve from a natural process. But someone wants to use this computer right now.
I have some difficulty defining "the natural process" or the "free election of money". The text is ideological in a sense as it opposes socialism, and rightly so, but I think the socialism-capitalism discussion is a false debate, allowing people to engage in bitter arguments and relieving them from the obligation to think independently.
You can argue that when people choose a leader or a government, this is a natural process. If the leader or the government chooses to introduce fiat money, by the will of the people, I consider this to be natural. We must not forget, pres. Roosevelt was re-elected three times after abolishing the gold standard.
What I do not consider to be natural however, is that you cannot use the money because people do not accept it. But this is not the case with fiat money we see today. We can buy all the goods and services we want with fiat money.
Therefore, as a systems engineer, I observe what actually happens, not what should happen in my version of utopia.
By natural he means the outcome of the voluntary action of individuals. A minority/majority imposing its views on others is not "natural" in that sense.
What I do not consider to be natural however, is that you cannot use the money because people do not accept it.
It's perfectly natural. If someone does not value a given money-good, they will not use it. End of story.
Relevance?