mike montagne: Leave it to an Austrian to lecture a software engineer not only on how computers work, or what they process, but on software they have written which does just what you say cannot be done or they do not understand, and which you yourself obviously do not understand. Visit our pages and download the source code to models I provided the Reagan Administration in 1983 which accurately projected by the very *comprehensible* process I described... the very debt we have accumulated to this moment.
Leave it to an Austrian to lecture a software engineer not only on how computers work, or what they process, but on software they have written which does just what you say cannot be done or they do not understand, and which you yourself obviously do not understand.
Visit our pages and download the source code to models I provided the Reagan Administration in 1983 which accurately projected by the very *comprehensible* process I described... the very debt we have accumulated to this moment.
Damnit!!!
Not only a software engineer (who's arguments I refute on a regular basis with relative ease because I understand both software engineering and economics) but an advocate of Voodoo Economics to boot.
And y'all scared him away before I got to have any fun...
But yeah, someone along the thread correctly pointed out that his assertions were based on the monetizing debt model that causes the problems he correctly describes of an ever increasing debt due to interest payments to maintain this debt being unfunded.
Others also correctly pointed out that he doesn't know jack about the capital/time theories that are the basis of the Austrian School but little surprise there since he admits he was a court economist.
It's amazing how quickly some people resort to ad hominem attacks when you question the very basis of their theories. Oh, wait, I forgot I don't understand what that term means because I recognize that 'attack' isn't limited to personal insults.
My favorite is to point out the Economic Calculation Problem when dealing with programmers because it just rankles them that there exists a problem that can't be solved no matter how many CPU cycles are dedicated to the problem. The very idea that something is 'impossible' is just so foreign to them.
The worst part is they eventually find something that quotes Hayek's incorrect statement that it was impossible because there is no way that many variables could possibly be calculated, a mere technological limitation, and then you get to give them the final smackdown by showing how Hayek was wrong and Mises was correct in stating that economic calculation is impossible due to the lack of price signals.
Not only that but I managed to answer the OP's original question about a mathematically perfected economy by some strange twist of fate.
So ok Mr. Reaganomics I accept your challenge, I can't program to save my life but I am literate in C/C++ so that I can understand what's going on. I will look at your code and see if you have managed to finally put the Socialist Calculation Debate to rest.
Mind you many brilliant minds have been trying to do this for almost a hundred years now since that's the one thing that stands in the way of a Socialist Workers Paradise so don't get your hopes up for a phone call from the Nobel committee or anything...
Anonymous Coward:My favorite is to point out the Economic Calculation Problem when dealing with programmers because it just rankles them that there exists a problem that can't be solved no matter how many CPU cycles are dedicated to the problem. The very idea that something is 'impossible' is just so foreign to them.
Hey! Don't lump as all in with that guy!
Anonymous Coward:I am literate in C/C++ so that I can understand what's going on. I will look at your code and see if you have managed to finally put the Socialist Calculation Debate to rest.
I bet his code is as bad as his theories.
BTW, I've seen the term "calculation problem" a lot, and am not sure what it refers to. I'm sure I know the concept, I just don't know it by that name, nor am I familiar with Mises' and the Austrians' formulation of it. Got a link handy?
The state won't go away once enough people want the state to go away, the state will effectively disappear once enough people no longer care that much whether it stays or goes. We don't need a revolution, we need millions of them.
Just google it on Mises.org. You'll find a ton. Mises advances the argument in Human Action and in Socialism. Hayek offers his argument in Individualism and The Economic Order. Of the two, Mises' is the more robust - and correct - argument. At any rate, it's a very important argument.
-Jon
To darkness I condemn you...
Thanks, Jon. I'll do that. I assume I'll also get to it eventually in Human Action, which I've just started digging into. I'm finding that, even though I am new to Austrian economics per se, each concept I come across is something I'm already familiar with in general terms, and that the Austrian arguments give it a better foundation and/or greater detail.
It's frustrating at first because the Austrian view on things tends to be different (and more well-grounded) than mainstream concepts. I had no idea how different it is from the neoclassical economics I had learnt until I read Callahan's Economics for Real People and Menger's Principles of Economics. Talk about a Copernican shift.
If you have not seen his site at all, or lately, you may find it interesting that Mr. Mathematically Perfect Economy has repudiated "Austrian economists" objections to his "theory" here: http://perfecteconomy.com/pg-example-austrian-school-rejections-of-mpe.html He further puts the smack down on Austrian Economics here: http://perfecteconomy.com/pg-fatal-flaw-of-austrian-economics-rejection-of-mathematics.html and here: http://perfecteconomy.com/pg-regarding-interest-austrian-school-reverses-liberty-and-right.html
If you have not seen his site at all, or lately, you may find it interesting that Mr. Mathematically Perfect Economy has repudiated "Austrian economists" objections to his "theory" here:
http://perfecteconomy.com/pg-example-austrian-school-rejections-of-mpe.html
He further puts the smack down on Austrian Economics here:
http://perfecteconomy.com/pg-fatal-flaw-of-austrian-economics-rejection-of-mathematics.html
and here:
http://perfecteconomy.com/pg-regarding-interest-austrian-school-reverses-liberty-and-right.html
I think that about settles it, time for mises.org to close up shop, burn all the books.
I will credit him for giving me an afternoon of entertainment out of this.
Yeah, a bunch of cute, colorful assertions. Hilarious. What one would expect from mathematical "economists".
Jon Irenicus:It's frustrating at first because the Austrian view on things tends to be different (and more well-grounded) than mainstream concepts.
I'm way beyond mainstream concepts. My friends think I'm crazy, other objectivists and libertarians think I'm crazy. Even some ancaps think I'm at least a bit off. I've worked out a lot of this on my own, starting from those general schools of thought, with some extras thrown in. So it's no problem getting over the cognitive hump of going against the mainstream, even against several very differen kinds of "mainstream". I've found nothing in Austrian thought so far that is too far off from what I'm bringing to it, but I like the more solid grounding, and finding some angles I hadn't gotten around to deducing myself.
Anonymous Coward: My favorite is to point out the Economic Calculation Problem when dealing with programmers because it just rankles them that there exists a problem that can't be solved no matter how many CPU cycles are dedicated to the problem. The very idea that something is 'impossible' is just so foreign to them.
Weird, because I'd think this would fall under Undecidability.
"Keynesianomics is a Ponzi scheme."
"You are correct in that Capitalism does not help with poverty, because it eliminates poverty altogether..."
"That wonderful strawman: greed."
Inequality bad.
So I just wanted to say that this entire debate was highly illuminating to one such as myself. I have yet to take anything but the most cursory of economics courses. I was hoping that he would continue attempting his debate. Having the mathematical economist resort to invectives was.. surprising. Maybe it shouldn't have been. Go fig that logic ultimately confounds the amateur mathematician. He wasn't even willing to continue the debate. =)
"Ordo est ordinem non servare."
I have had some dealings with Montagne, he is, to say the least one of the more obtuse and emotionally erratic people I have encountered on the web.
His opposition to loan Interest rests in a misconception of what Interest really is and how it functions within an economy. Under the assumptions that wealth would increase under an interest-free economy, there are few examples of such prosperity under Interest Free economies. The reason behind the lack of prosperity is that Interest Free money is, for a lack of a better word: unemployed and barren. Barren or unemployed monies perform no productive function within a vibrant economy.
Within the Interest Free community, including those of the Marxist persuasion, there is the misconception that the borrower is being defrauded by paying interest; nothing could be farther from the truth. The truth is that in an Interest Free society, the lender would be cheated and defrauded, for who would hand over the fruit of their own labor to another while taking the risk of no return on the money that represents the fruit of their labor.
Why does anyone consent to pay Interest for money? Why does a tenant agree to pay rent for the use of land or other property? The primary source for such consent is a private contract between two parties without the intervention of government, whether by prohibition or regulation. Now, for those who advocate an Interest Free society there must, by necessity, be both heavy government intervention and legal regulation to impede the principle of a private contract, as well as private property rights.
Those who advocate a prohibition of Interest in our economy ignore the most basic principle of not only a free market, but individual freedom. They deny the primary justification of Interest and that justification is the right of property which the creditor has in his money.
Does not a person, a business or a lending institution, by the virtue of an inviolable right to dispose and use his money as he will, lay conditions on that money if it is loaned out to another? Essentially, Interest is the price of time, but contrary to the current managed market, in a free market the price of time is set by market forces instead of manipulated by a central bank, which will always, without exception distort the market of capital.
The Interest Free advocates follow a very specific view of economic production, an egalitarian view that equalizes all goods and services by the exclusion of interest. It is a “value-based” economic system that has been propagated by Socialist under the name of the Exploitation Theory. Incidentally, socialist economists have always considered Interest as nothing but exploitation and not, as it really is, a private property right based on the fact that money is property that represents a portion of the owner’s life and energy in labor.
The Socialist Exploitation Theory goes something like this: “All goods that have value are the product of human labor, and indeed, economically considered, is exclusively the product of human labor. The Laborers, however, do not retain the whole product which they alone have produced; for the capitalist take advantage of their command over the indispensable means of production, as secured to them by the institution of private property, to secure to themselves part of the laborers’ product. The means of doing so are supplied by the wage contract, in which the laborers are compelled by hunger to sell their labor power to the capitalists for a part of what they, the laborer, produce, while the remainder of the product falls as profits into the hands of the capitalists, without any exertion on their part. Interest is thus a portion of the product of other people’s labor, obtained by exploited the necessitous condition of the laborer.”
"But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time...equal right is an unequal for unequal labor... In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and with it also the antithesis between mental and physical labor, has vanished, after labor has become not only a livelihood but life's prime want, after the productive forces have also increased with the all-round development of the individual, and all the springs of cooperative wealth flow more abundantly -- only then can the narrow horizon of bourgeois right be crossed in its entirety and society can inscribe on its banners: From each according to his abilities, to each according to his needs." Karl Marx
“Free, unimpeded barter allowed people to produce to natural capacities; and to obtain for our own production whatever we deemed to be equal, undiminished measures of the production of others… Because no one takes from the trade anything but the equal of what they contribute to it, each party receives the full, self-determined equivalent of their contribution to the overall pool of their wealth. We have in effect two conflicting philosophies. One wants earnings for its work equivalent to its work. The other wants unearned gain which can only be taken at the cost of earning equivalent to real work... We mature beyond the era of unearned gain… Like cannibalism, unearned monetary gain and all the manipulation which goes with it will one day disappear from history forever after.” Mike Montange’s People for Mathematically Perfect Economy.
“Usury centralizes money wealth, where the means of production are disjointed. It does not alter the mode of production but attaches itself to it as a parasite, and makes it miserable." Marx
Here is yet another utopian visionary who has come to the conclusion that if only interest was completely eliminated that everything would be wonderful.
“Envision a world without poverty or economic oppression, a place where humankind can attain its potential amidst the rest of the world, without hunger or homelessness, where educated societies enjoy all the fruits of their labors. In such a society it wouldn’t be necessary to hand over your hard-earned dollars to the government to pay ever-increasing taxes. Could you learn to live in a place where budgets were balanced, homes were affordable, and you kept all the money you earned?” Jacques Jaikaran.
Like Montagne, Jaikaran adheres to the doctrine of an Interest Free society. I remember reading similar promises from the lips of Marx, Lenin, Trotsky and a long list of Socialists, who also advocated an interest free society where the “capitalist parasites” would be restricted from preying on the hapless proletariat.
The pedigree of this theory, this prohibition of Interest is almost purely Marxian in origin. As the free market economist George Reisman stated: “For more than a century, one of the most popular economic doctrines in the world has been the exploitation theory. According to this theory, capitalism is a system of virtual slavery, serving the narrow interests of a comparative handful of businessmen and capitalists, who, driven by insatiable greed and power lust, exist as parasites upon the labor of the masses.”
Interest, like money, arose from a need and it is vital to a free market economy, without it you not only would not have a free market you couldn’t have a free market. The workings of a free market are so dependent on the vital functions that interest accrual provides that it would be impossible for the economy to work.
This Interest Free concept also stems for a total lack of understanding of what money is and what it represents. People work, they labor and part of the fruit of their labor is the money they earn in compensation for the time and effort they put into their jobs. In the most essential meaning money represents a portion of a person’s life. Now, if you earn money by your time and that money represents the time you took out of your life to earn it, is your life worth nothing if you lend it out in the form of money as opposed to the time you lend out in the form of work?
Interest, under a Gold Monetary system is a vital function of monetary economics, not only domestically but also concerning the balance of trade. It provides so many signals, so many influences within the economy that it is almost impossible to explain given the space we have here. In fact, volumes have been written on the subject of how a free market economy is completely dependent for its health and for prosperity on interest value assessed by the time preference of money.
So, how would an Interest Free economy work and how would you transition toward such an economy? Well, Das Capital gives a great deal of information on that subject in its Ideology of Dialectic Materialism. You want to read about an Interest Free economy, read Das Capital. You want to see Interest Free societies, look at some of the Socialistic societies which have impeded market forces by forbidding interest from their economic systems. In fact, it would take a massive STATE to both enforce it and to prop up the economy since the economy would have no gauge, no ability to self-regulate.
There would be absolutely no incentive to lend money under such a system. Indeed, you would have to allow the massive STATE bureaucracy to expand to an extraordinary scope just to make the economy function to any degree at all and like Montagne advocates you would have to have the Government continue to maintain power over a Fiat Currency.
“I suggest that money should be endowed with value based on the wealth that it represents. In my example, I assume the service life of the home is 40 years. The value is consumed (depreciation) in balance with the payments. In this system, every cent of the circulation is used to pay for the value of the original assets as they are consumed; thus the elimination of inflation or deflation which results when there is too little or not enough circulation.” Montagne
Once again, that concept is taken, almost directly from Marx and his Monetary Expression of Value. Marx rejected the Credit theories of Money, in other words Interest and sought to bring about a Value Based Monetary system, which sounds eerily like that which Montagne supports.
Montagne proposes an Interest Free society where “promise certificates” are provided throughout the economy for what amounts to IOUs. I find it very interesting, as well as completely unworkable since the supply chain would be filled with these promises to pay. Since there would be no incentive to lend, at any level, the producer of the most basic product would be forced to wait on payment from another up the line who would also be forced to wait on payment and so on. How would homes be built under an Interest Free economy, who would lend money for free? How would the suppliers be paid down the production ladder, would they, could they only accept a certificate of promise? How would any suppliers get operational capital?
Under an Interest Free utopian economic model how do you suppose that anyone, whether it is an institutional lender, a small business extending credit, or anyone extending credit would be willing to voluntarily give up consumption [based on the money they have on hand] today in anticipation of consuming [the money they receive for lending their money] in the future without a corresponding compensation for the value [price] of time?
What would be the incentive for anyone to lend under such circumstances?
Now, in a free market, Interest rates are not only determined like other prices through the interaction of supply and demand, but it also is a determinate factor in providing both present and future supply and demand along with a stimulus for productivity, a vital timing signal and risk evaluator. Without Interest how will all those factors come into play in the “economy”? The answer is that there would be no mechanism to perform such functions in an Interest free economy.
It all boils down to what money is and how money acts within a given economy, questions that you don’t address because you can’t address such questions in your economic modeling. Money, particularly asset money, provides a store of both present and future economic energy therefore there is a definite time value and time preference to money. Now, based on the assumptions of an Interest Free economy, it would take away elements of time value and time preference by the rejection of interest in such an economic model. There is therefore, no way to account for the lack of such vital elements and the effects such a lack will have on economic flows, both in active states of the market and in rest states of the market.
Think about savers, what incentive to they have in an Interest Free economy and if there is no interest what about investments which pay, in the form of dividends, a type of interest on the investor’s money based on corporate earnings. Apparently such dividends must also be banned in a “mathematically perfect, interest free utopian economy”.
Concerning savings, when a person places money in savings what he is doing is transferring real current resources or at least the means to purchase current resources to a bank or other entity with the anticipation that his money will have just as much or more, due to the Interest accrued on the savings account, more future purchasing power than when he deposited his money. How would an Interest Free economy provide incentives for savings? It could not.
Savings, by the way, especially in a sound monetary economy, are the backbone for capital production, without it how would the economy function? How would the balances between savings, investment and capital production be achieved under an Interest Free economy? What mechanisms would you put into place to replace the vital role that interest plays between those balances?
The same is true of someone lending money, when someone is willing to transfer his funds in the form of a loan, the basis of that loan if the promise of the borrower of those current resources to return those resources to the lender at a future time; in an Interest Free economy, the lender would not be compensated from the time value of his money and therefore there would be absolutely no incentive for anyone to lend present resources that could be readily placed into economic service today for those same resources at a future date without an expression of time value on those funds. In this case you are saying that there is no need in an economy for either time value or time preferences that would be a major and massive hindrance for any economic movement or productivity.
Those who advocate such an Interest Free economy miss the entire premise of lending, of time value, time preference and the productivity associated with lending using interest as a measure of future value and timed usage. The borrower assesses risk based on the rate of Interest and a certain degree of faith in his ability to repay the loan. The borrower is using current resources of the lender in the belief that he will be able to produce future goods and or services to the extent that he will not only have enough to pay back the lender both principle and Interest, but that he will, through the process and his business acumen also have a profit at the end of the process. How therefore, do you deal with the transfer of qualified demand in such cases? The answer is you can't.
If there is no incentive for such practices, and apparently under the Interest Free “style” of economy such incentives would be banned by law. In such Usury Free economies, a person or lender would naturally keep their resources to themselves for present productive activities from which they could profit instead of lending those resources for a future return with no profit whatsoever. I mean if I were a lender who could make a profit today within my money, why would I lend it for 1 year, 5 years, 10, 15, 20 or 30 years with no return at all on it? Sorry, but few people would take such a risk with not hope of a return on the time value of their hard-earned money.
I would assume that since there would be no Interest [which is nothing more than rent on money] allowed in an Interest Free economy that the practice of charging rent would also need be banned, since it is also interest on property. Rent is a form of Interest after all, you are lending out land, or merchandise or real estate in the estimation that you will get a return on those properties plus an excess if the property complete with clear title or not. The rental of money is no different than the rental of other properties that you own.
Also, on a practical matter, how would you enforce an Interest Free economy, there would have to be a massive government machine to enforce this law, what will it be? It would be much more intrussive than anything we currently have today and it would have powers that would, by shear necessity, involve itself into every financial trasaction that took place in an Interest Free economy.
Also, what role would the government have to take in terms of economic intervention since you are removing some of the most basic functions with an economy, primarily the role that interest plays in a vital economy? The government would replace the role of Interest in an economy otherwise such an economy would not function since all incentive is taken out of the system, time preference and time value will be no more. What mechanism would be used: government.
Well, I can tell you that if you propose an Interest Free economy and a fiat monetary system along with it then you will definitely not have a prosperous future. The only way that can happen is if the government is completely restored to Constitutional Order, limited and severely restricted to its delegated powers as enumerated in the Constitution. A sound monetary system restored which will automatically limit the expansion and power of the government, restraining the politicians and eliminating special interest powers, monopoly favors and regulatory license. A free-market without any intrusion of government is just as important as the restoration of Constitutional Order, without economic freedom, the Right of Private Property and the Right of Private Contract then we will not have prosperity.
In a free market, sound monetary system, the most wonderful thing happens to banks; they suddenly become responsible to their clients. Their fiduciary responsibility makes them compete and therefore keep their policies and practices above board. In a free market banks are allowed to fail just like any other business would be allowed to fail it they made bad business decisions.
The key to understanding any economic proposal is what effect it actually has on the Rights of the Individual, the Right of Private Contract and the Right of Property. If it sounds too good to be true, it probably is nothing more than a wolf in sheep’s clothing.
In Liberty and Eternal Vigilance,Republicae
Got it. It's cool that you actually post the implementation of your models. What I see is a program that takes some data, asks for more data, and then performs some calculations based on them in order to get a result. Your basic code may or may not perform the calculations exactly the way you intended. In fact, I'm absolutely positive there's bugs in your code, but I'm going to give you the benefit of the doubt and accept that none are encountered during the correct operation of your code. (whatever that is, there's no documentation.)
Any spreadsheet can do what your basic code did, plus other cool things like generating charts. I'm sure that's why you're using excel now. Again, your formulas may or may not do exactly what you expect them to.
i could go after you for not using a revision control system and giving us access to that so we can see each bug you've fixed so far, but going in that direction won't help anyone understand the economy better.
Your basic program and spreadsheets are as good as a program or spreadsheet that attempts to calculate a budget for something. No more, no less.
That leaves one way to judge it: Predictive power.
Can you point to some past and/or future predictions you have made in public that are based on your models?
mike montagne:Speaking as a software engineer, computers run on equations.
Speaking as both a software engineer and an Austrian, I can see a number of problems in your post.
mike montagne:Thus if the currency is debt subject to interest, a circulation must be maintained to service the debt.
True, but debt (and interest) are both possible using a monetary system that is not based on debt. Nor does the existence of debt or interest require, in any way, that the money supply should be required to expand in order that the interest on debts might be serviced.
mike montagne:the sum of debt multiplies by ever greater increments of ever greater sums of periodic interest on an ever greater sum of debt
There is no problem inherent in the system. If we're in an economy of two (you and me) and you have all the money (say $10) and you lend me $5 at $1 interest, I now have $5 but I have to give you back $6. If I give you a haircut and charge you $1 for it then I'll have the $6 that I owe you, and so I can pay you back the $6 that I owe you.
The only prerequisite for the system to be stable is that the bankers have to buy enough goods and services from the economy to cover the interest that they're charging. So effectively those borrowing money pay off their interest in the form of goods and services that they provide to the bankers (which makes sense).
Indeed, in view of the fact that interest is paid in terms of goods and services, at no point does the particular quantity of money in the system make it impossible to make interest payments, providing productivity remains high (and perhaps grows by enough to offeset any nominal losses brought about on the part of borrowers as a result of deflation).
In fact, monetary inflation has nothing to do with any "requirement" for a certain amount of money to be present in order to pay off debts, pay for bread or conduct any other form of exchange activity for which money would be required. Monetary inflation is carried out quite simply to benefit those doing the inflating at the expense of those doing the saving.
mike montagne:The only way to do that is to introduce only just so much circulation as will sustain or is equivalent to the wealth; and to pay the resultant obligation at the rate of consumption or depreciation (which are to be understood to be equal).
OK, well we have already demonstrated that a money supply which does not expand in proportion to the total quantity of goods and services available in the economy (as measured in monetary units) is not a big problem. But even supposing that you wanted to maintain 0% inflation for some reason, you are left with the extremely difficult task of calculating inflation. Do you include houses? Do you include them at "market" value or at the value they were purchased at or at "renter's equivallent value"?
Fundamentally, trying to sum up all the goods and services in the economy in terms of money is an extremely difficult task - you're trying to add a pear to an apple and you're asking how many tomatoes that equals. Money is not a measuring unit like meters of kilograms. It can ONLY give you comparative value (and typically what you're comparing is the value of money vis a vis whatever goods it is traded for). For example, if I give $50 to the local store for some jeans, this indicates that I value the jeans MORE than $50 (otherwise I wouldn't have forked over the $50) and the store values them LESS than $50 (since they'd rather have the money). As such, the jeans aren't WORTH $100 - they are worth both more and less than this, depending on who you ask. I, for example, might have been quite happy to pay $60 for them and the store might have been happy to sell them for $40. What we are dealing with is not equals operators, but greater than and less than operators.
mike montagne:So likewise we can readily solve inflation and deflation, irrespective of any possible influence of human decision, because the matter is resolved by mathematic solution of the definitions.
You're trying to stabalize prices... which is to say, you're trying to target 0% price inflation. The whole system hinges on the definition that you give to inflation and thus the formula you're using to calculate this. All of this is irrelevant though since neither inflation nor deflation would actually be a problem if it were not for the redistributive effects of these.
mike montagne:This is mathematically perfected economy.
I like the fact that you've aimed to eliminate the redistributive effects of inflation/deflation. Interest itself is not a problem though - indeed it's an absolutely essential tool to balance supply and demand intertemporally and if you try to squash it out of existence then people will starve.
Oops... sorry. I see I'm way behind on this thread. I didn't see all the other replies before posting - my bad.
Here's a little spreadsheet I made to show to people who claim that charging interest on loans requires borrowing yet more money to cover the interest: http://spreadsheets.google.com/ccc?key=p7jSfNelm7FDJ47ek1DvxEQ&hl=en
Each line is a step in time, which is extremely important. No one borrows money just to instantly pay it back...they use that borrowed money for something at pay it back at some point in the future. On top of that, unless the person borrowing the money already has what they need to pay back (loan+interest) saved up, they are assumed to be productive (producing wealth, such as having a job or owning a business). It is also assumed that anyone lending money has expenses that result in them spending money, which means some of what they're collecting in interest is being traded back into the economy (people get money to save/invest and spend, not to just sit on it for eternity...what would be the point of that?). The outcomes of Person's A, B, and C in my example are the result of purely arbitrary trades (I didn't spend a lot of time to make sure the trades made sense as that would have been largely irrelevant to the purpose of this spreadsheet). The amount of money that each person ends up with could be anywhere from $0 to $1000, depending on what trades each party agrees to within the time frame of this example. The primary goal was to demonstrate that money borrowed at interest does not require more money to be borrowed to pay it off.
Feel free to copy the spreadsheet and play around with it. Hopefully everything that's supposed to autocalculate will copy properly. I'll consider allowing anyone to make changes my actual speadsheet if anyone of you would like to, if you think it could be improved to better make the point.
gcopenhaver: Here's a little spreadsheet I made to show to people who claim that charging interest on loans requires borrowing yet more money to cover the interest: http://spreadsheets.google.com/ccc?key=p7jSfNelm7FDJ47ek1DvxEQ&hl=en
Cheers - that should make it explicit to anyone who is having a bit of difficulty getting their head around the ability of a dollar to do more than a dollar's work.
About the only caveat that I would add is that if the total quantity of interest payements that need to be made by borrowers exceeds the total quantity of money spent by lenders, and if this situation persists, then you do end up with a situation in which defaults become a mathematical necessity.
This seems to be a bit of a conundrum though. The rate of repayment on the loans can never exceed the rate of consumption by the lenders (as a logical necessity). And yet, over the long term (ignoring bank fees and other revenues) the bank's incomes cannot exceed the total quantity collected in interest - so the two must be equivallent rather than one being more or less than the other.
Two special cases worth considering are defaults and additional forms of income. If lenders charge fees or take commissions on M&A deals or whatever, this gives them additional revenue to spend and enable interest repayments by non-lenders. If they sustain losses (due to defaults) then this gives then less money to spend and thus stiffle's the ability of interest repayments to be made by non-lenders.
Essentially though, providing that lending activities remain "profitable" on aggregate (which is to say they make more profits than they incur losses) I dont think there should be a problem... I haven't thought this one through fully yet.
Gentalmen,
I've now read this entire thread, from the beginning to the end. What I am constantly reminded of, over and
over again, is a quote from page 74, of "the Origin of Conciousness in the Breakdown of the Bicameral Mind",
by Julian Jaynes. Jaynes says:
"Greek gods cannot create anything out of nothing, like the Hebrew god of Genesis."
Here, gentlemen, is what I mean: when our banking system creates a principal for a loan, out of thin air,
as debt, notice how they haven't created enough money to pay the interest.
So, where does the money to pay the interest, which was never created in the first place, come from?
Better yet, lets assume that were subject to a Gold Standard: If I lend you money at interest...
Then, where does the money to pay the interest, which was never created in the first place, come from?
Question: Why couldn't the Greek gods create anything out of nothing?
The Answer: Because they never studied Austrian economics!
And here, gentlemen, is a quote from Friedrich Hayek:
"I am more convinced than ever, that if we ever again are going to have a decent money, it will not come
from government. It will be issued by private enterprise. Because providing the public with good money,
which it can trust, and use, can not only be an extremely profitable business ..."
Translation: We currently got a monetary scheme, where private enterprise, not government, charges
interest on principals for loans, which are created out of thin air, as debt----an extremely profitable business.
So, what we need to do is get rid of that monetary scheme, and replace it with a new, different, monetary
scheme, where private enterprise, not government, charges interest on principals for loans, which are
created out of thin air, as debt----an extremely profitable business.
Heh heh heh. And the Austrian Monetary Genius didn't even know that?
So, gentlemen, Friedrich Hayek, the Austrian Monetary Genius, is a Guppy Fish.
Question: What then, gentlemen, does that say about you?
mike montagne: Oh, so because you can't refute solution, deflation is a good thing? And you need help answering to that question? What if there was no money suddenly, and yet we have all these debts to pay *in money*? That's just fine, because you don't see the problem? It's just fine, because you don't see the problem of ever less money all the while competing to service ever greater debt, while at the same time, more of every unit of currency is dedicated to servicing debt, versus sustaining the commerce which is compelled to service the debt or fail? Well, we should all really be impressed.
Oh, so because you can't refute solution, deflation is a good thing?
And you need help answering to that question?
What if there was no money suddenly, and yet we have all these debts to pay *in money*? That's just fine, because you don't see the problem?
It's just fine, because you don't see the problem of ever less money all the while competing to service ever greater debt, while at the same time, more of every unit of currency is dedicated to servicing debt, versus sustaining the commerce which is compelled to service the debt or fail?
Well, we should all really be impressed.
The purpose of money is first and foremost to facilitate exchange, and then act as a store of value. Money allows for the formation of a price system, that is, market signals sending out constant flows of information to actors, allowing them to engage in economic calculation. This means that the price system must be accurate and unhampered. Preventing prices from falling during periods of increased production is to hide or conceal vital information. Furthermore, increasing the supply of money alters the interest rate (another price) and causes intertemporal disequilibrium. The interest rate is there to assure accurate information so that producers can correctly allocate resources through time (since the production process happens through time). Altering this interest rate, say, by lowering it during production runs, must mean inevitable bubbles and overproduction. Of course, all of this ignores the fact that your putting more money into circulation, and that those who get it first will have their subjective purchasing behaviors arbitrarily altered, further increasing relative price distortions. Interest is not exploitative just because Marx says so (M-M'), the prime here only means that Marx misunderstood interest (what you call profit).
Learn about Austrian economics before you try to criticize it.
Markets cannot be "perfected" by mathematics because markets take subjective desires into consideration.
Example: If actor Alice makes twice as much as actor Bob, it is because movie-goers prefer Alice to Bob. Maybe Alice is funnier. Maybe Alice is really good-looking. etc. etc. All of those things are extremely subjective, and can't be mathematically, objectively measured.
The entire market is built on people spending their time and money according to their own subjective desires. Which is better, pepsi or coke? Which is better, SUVs or sports cars? And as soon as you start throwing people's diverse job skills, diverse time preferences, and diverse investment strategies into the mix---"perfecting" an economy becomes damn-near impossible.
Which is why central planning always fails. Even infrastructure projects, which we take for granted, cannot take the entire market into consideration.
Suppose the government builds a road.
Good, right?
wrong.
A dollar the government spends building a road is a dollar that the government can't spend building maglev, train tracks, bike trails, airports, etc. There is limited money, and a limited workforce.
So how do we decide what kind of infrastructure should be built?
Firstly, we could let it be settled in backroom-deals, where representatives of the rail, auto, and airline industries vie to pay off politicians.
OR
Secondly, we could allow private ownership of roads and transport, and voluntary investment in various projects. Then, whichever project best serves the needs the economy will produce the most profits. The profits can be reinvested and used to expand the operation, while the non-profitable projects shut down. Employees of the non-profitable projects will then go to work for the ones making profit. No coercive taxation is needed.
Does that make sense?
"As long as there are sovereign nations possessing great power, war is inevitable."
Why did you ressurect this horrible thread?
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