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.
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
To darkness I condemn you...
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.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap