Economics Questions

Re: Questions about Money Creation, Monetization,

Cluesaw — Wed, 17 Sep 2008 01:21:00 GMT

Read Rothbard's book: A History Of Money and Banking in the United States.

The creation of the US central bank in 1913 aligned two powerful interests:

The large NY banks desire to have a lender of last resort from bank runs, and to monopolize the industrial loan market of the time.

And

The Federal governments deep desire to obtain money without the politically unpopular move of collecting taxes from our citizens.

Both wanted to cheat the same target: the American taxpayer.

PS. Remember that when the Federal Reserve Act was passed, paper dollars was backed by gold and the act was promoted as banking reform.

Re: Questions about Money Creation, Monetization,

redeyez — Fri, 16 May 2008 22:34:58 GMT

In response to: "First of, I reject the idea that the person you offer the job is the one that is being enslaved. That person that gets the the 1 thousand dollar or whatever you pay him will buy the same motorbike whether that money was printed or earned."

The thing that you are not thinking about, is that when it is printed, you do not have to earn it. You seem to not see that a person who can print money has an advantage over someone who works for it.

In reply to "not slavery because it is not forced." The reality is people are currently working for money created out of nothing, for whatever reason, whether you think the situation meets the definition of forced or not. The question, and the implication of it, again is not that people are slaves because they're forced to work for money created out of nothing, but that they are working for money created out of nothing - they don't get to create it, while another does, they have to work for it.

Re: Questions about Money Creation, Monetization,

BlackSheep — Fri, 16 May 2008 18:39:15 GMT

scineram:
Not slavery because it is not forced.

Government says what's legal tender and what is not, so you pretty much have to use the money they tell you to use, otherwise you go through a lot of tax pain. Anyway, I guess you could put your savings in hard assets and avoid inflation, so you could say it's an avoidable tax...

Re: Questions about Money Creation, Monetization,

scineram — Fri, 16 May 2008 18:20:16 GMT

Not slavery because it is not forced.

Re: Questions about Money Creation, Monetization,

BlackSheep — Fri, 16 May 2008 17:57:32 GMT

redeyez:

If i scribble on a piece of paper, and give the paper to people, and these pieces of paper are the only money, and in return they work for hours and hours for these things that I effortlessly create, then am I enslaving them?

First of, I reject the idea that the person you offer the job is the one that is being enslaved. That person that gets the the 1 thousand dollar or whatever you pay him will buy the same motorbike whether that money was printed or earned. Only as the money circulates, people will get hurt -- that's why Venezuela and other countries that do a lot of inflation don't have a middle class. Not only do they lose their savings, but it takes time for their wage to adjust to the higher prices, and so when you do a lot of it, you completely erode them. The government contractors, that are friends of the politiceans -- will safeguard themselves from the inflation wave.

Anyway, I don't see why you should call it slavery, if that new money doesn't cause inflation. There are some cases where creating money is desirable. Imagine, there are a lot of Mexicans entering the country. They are going to work as maids, sell strawberries or some other job. Money must now be dispersed among more people. This means that each money unit will be more valuable because prices will be bid down (because the same money is chasing more stuff), and with the money you have you can get a lot more goods and services you couldn't get if it wasn't for the Mexicans. Now, if someone expands the money supply to cope with the influx of immigrants, it means you won't get the benefits of immigration right way, but they aren't enslaving you. They have just created money equivalent the ammount of new products available, and the money you are holding won't be more valuable, but it won't be less valuable either.

Note: wages, rent and etc are prices. The labor, producer, land and other markets have the same pressures you see in your everyday in the consumer market. If there was a product grow in one of these markets (vertical buildings make more land available, a new medicine college making health services cheaper, etc), then if money is created to cope with them, you don't lose your purchasing power, you just don't gain it immediatly (your savings will pay for you the same when you earned them, but wages will raise and you'll come to benefit from them). Now, if there was no product growth, and they have created money, then the available products will be more expensive, because the new money will bid prices up (the extra money is chasing the same stuff).

I think you could make the case that easy credit creates a slave society where everyone is in debt. When money is easy to borrow, then prices will be bid up, like you saw for housing (whose prices collapsed after credit was tightened), and people spent years to pay for that. Government will also borrow more and pay future interests to bankers from your taxes.

Re: Questions about Money Creation, Monetization,

redeyez — Fri, 16 May 2008 04:02:16 GMT

If i scribble on a piece of paper, and give the paper to people, and these pieces of paper are the only money, and in return they work for hours and hours for these things that I effortlessly create, then am I enslaving them?

Re: Questions about Money Creation, Monetization,

BlackSheep — Thu, 15 May 2008 21:55:30 GMT

With regard to the question, if there is gold in use as money, I think the Swiss Franc still uses gold reserves. I also read about in some under-developed country, people buy jewelry to fight inflation, and actually wear their wealth in the streets. ;) Anyway, the thing is that most countries adopted a US Dollar-standard, when the Dollar was on the gold standard. And I mean most countries -- from developed ones in Europe to under-developed in South America -- thus why a lot of currencies are called of Dollar. When the US Dollar got disconnected from gold, all these currencies lost their connection to gold. Nowadays, there is some pressure in under-developed to back the money to some commodity again -- they had to remove their peg to the US Dollar because the American central bank is being so irresponsable, and their government has proven to not be able of much more trust either. :P

Re: Questions about Money Creation, Monetization,

BlackSheep — Thu, 15 May 2008 21:30:44 GMT

redeyez:
BIacksheep, I don't know what your point is.

I don't know what your backround of economics is, so I was just throwing some information at you. No need to thank me that enthusiastically though. :P I also didn't quite got your rationale, but you developed it here, so I'll be happy to respond:

redeyez:
If I scribble on a piece of paper, give someone a grain of dirt, or give someone something else that took me no effort to create, and he works 10 hours to pay me for it, for whatever reason, don't I have the power to enslave him?

As long as that new money doesn't cause inflation (until there is product grow to sustain it), I don't really see enslavement. Even if it causes inflation, it surely doesn't enslave that guy, who got the money fresh, but the rest of us, especially those that get it after it circulates a few times, because then is when money gets to worth less as it bids prices up.

If there are enough product grow to sustain it, it doesn't bid prices down or up. If otherwise, that money wouldn't have been introduced, prices would have been bid down, as there is a lack of money to go around since it's chasing more stuff. In this last case, it means you'll have to lower the wages of your employees if you expect to continue in business, so some economists argue that maintaining the price level stable is good for the economy. How you inject money to the economy -- dropping it off from helicopeters or whatever -- is another matter. If you had a gold standard, gold miners would be the ones that would get the benefits whenever they have the opportunity to put money into the system.

I think in one of those movies they talk about banks enslaving the public, but I'm pretty sure they were thinking more in terms of government debt (aka public debt). Since the central bank lends money to the govermnent, so politiceans can extend themselves into welfare/warfare, the next guys will have to raise taxes (or create inflation) to pay it off. Anyway, they'd sell government bonds or borrow from foreign governments if it wasn't for the central bank, so the real issue is irresponsible politiceans not keeping their budget balanced. Of course a central bank makes it that more attractive for politiceans to borrow, and then you have to pay the bill. At times, the central bank just ends up monetizing the public debt (some of it at least): that is, printing the money to pay the debtors (they buy useless government bonds that nobody wants).

I guess you could say that the central bank also incentivates people to be in debt. Cheap money for this and that. Everybody must own a house, so they make loans cheap, then the price of housing goes through the roof; the central bank eventually has to raise interest rates, the price of house goes down, and people are faced with a bill for something that is worth way less than what they have to pay for it; people default on their loan. Likewise, education loans bids college prices up and people now spend years to pay that money back.

Anyway, I don't see why to call it enslavement unless it overloads and starts inflation, in which case it's a tax (mostly on savings). Their power to issue money without hitting inflation is limited by the grow of production. Eventually, that money will work its way through and your employer will manage to raise your wage. The problem is they are not even disciplined enough to follow Friedman's advice.

Re: Questions about Money Creation, Monetization,

redeyez — Thu, 15 May 2008 18:00:29 GMT

BIacksheep, I don't know what your point is. My question is not about inflation. Are you answering my question? If I scribble on a piece of paper, give someone a grain of dirt, or give someone something else that took me no effort to create, and he works 10 hours to pay me for it, for whatever reason, don't I have the power to enslave him? That's an analogy for when a bank creates money out of thin air and lends it to someone, and then the person has to work to pay it.

To try to put real life in general, simple terms so people can understand: If someone gets to create money, while everyone else has to work for money, then doesn't the money creator enslave everyone else? by getting to effortlessly create the thing which other people have to work for.

Re: Questions about Money Creation, Monetization,

BlackSheep — Thu, 15 May 2008 17:16:51 GMT

Anyway, redeyez, I very much dislike your suggestion that government isn't sealing for our best collective interest. This fine insitution, composed of the best individuals among us, carefully selected by our country men, how dare you suggest they would do anything but what's best for us, and employ any morality dubious methods? After subsidizing slavery for centuries, they prohibited it, how dare you to say they are enslaving us in any way? After all the free programs they provide for us? How generous of them! And the visionary Mao in China taught us the benefits of centrally planning all aspects of human activity. How dare you suggest that money, goods and services would better be provided by the jungle that are the markets? Dog-eat-dog capitalism, I tell, is what we must fight, or soon enough, there won't be any dogs left! Surely bankers know how to issue money better than the rest of us -- and surely you are not suggesting they are not motivated by anything other than their warmest selfless desire to help the rest of us?!

Re: Questions about Money Creation, Monetization,

BlackSheep — Thu, 15 May 2008 16:34:26 GMT

Remnant:
And there is no question, Taxation is Robbery.

It's understandable why people would call Slavery to Taxation. It's a nasty word, so I'd rather avoid it, but in a way it is, because it's a constant robbery, and so you now have to put in extra work to get the stuff you want.

Re: Questions about Money Creation, Monetization,

BlackSheep — Thu, 15 May 2008 16:32:29 GMT

redeyez:
I implied it's slavery because other people are working for the money that the money creators create.

Just to make sure we understand the role of money first. Money is merely a medium of exchange. Nobody consumes money; people work because others produce things they want: food for the family, vacations offers, material for their hobbies, sports clubs, etc. A lot of people in the west choose careers like biology, psychology, theatre acting and other stuff that may not pay so well, but there's a lot more than that, and they value those things more than the difference in wealth. If there was no scarcity -- like if we had robots that did everything for us -- then, we wouldn't of course work (at least in the sense of labor; most people I hope wouldn't just sit in the coach :P). Money is something everybody trusts to be able to exchange for something else they actually want. It also serves as a storage of value, you can save it to exchange for stuff you want in the future. The value of money is whatever you can exchange it for. Monopoly money has no value. One American Dollar can get you a candy, 1/10th of a potatoe, 1/100000th of a car, etc.

If you have a static ammount of money, then if there is some productive enhancement that allows more potatoes to be produced, they'll have to be sold for a cheaper price. If you print money and buy potatoes with it, of course, you aren't allowing consumers to benefit from the cheaper prices, but you're also not robbing them either.

Assuming there were also other productive enhacements that made the consumer price level cheaper, then this new money could just be avoiding a deflation, and not causing inflation. Of course, it would be better for you if your savings were all the sudden worth more in value than what you were counting on, but unless there is inflation, then you're not losing purchasing power -- you're just not gaining it.

That's why governments love the economy growing, and are always talking about those figures, because they have that ability to capture that new wealth for themselves, to redirect it to their programs. They are of course restricted in that capacity, if they don't want to cross the inflation line, and you're not worse off because of that (just not better off).

A lot of economists argue that stabilizing the price level is a good thing because people tend to associate money to wealth. If you had deflation, employers would be forced to reduce the wage of their workers because their business is getting less money. Of course, the real purchasing power of the workers wage could still be rising, only the amount of money gets decreased, but it's still a delicate position -- surely you understand how you would get pissed if your wage or bonuses decreased -- so, they argue a lot of employers would rather just fire an employee if they couldn't afford him, than risking losing morale and all that by decreasing everyone's wages.

Re: Questions about Money Creation, Monetization,

redeyez — Thu, 15 May 2008 16:26:01 GMT

What percentage of our time does "credit expansion" consume, and why doesn't it consume all of our time? and by credit expansion do you mean money creation? According to money masters documentary, quotes by central bankers and the quote by robert hemphill, all our money is created by it being borrowed. If 5 percent, 50 percent or 95 percent of our time is spent working for money that another created out of thin air, are each of those percentages serfdom or slavery?

Also, does anyone know of any sites with forums on money besides mises.org?

Re: Questions about Money Creation, Monetization,

Remnant — Thu, 15 May 2008 13:35:53 GMT

redeyez:
You haven't said why it's not enslavement.

Redeyez

I would suggest Serfdom rather than Slavery because the credit expansion you refer to does not consume 100% of our time.

And there is no question, Taxation is Robbery.

Regards

Remnant.

Re: Questions about Money Creation, Monetization,

redeyez — Thu, 15 May 2008 13:35:28 GMT

I didn't imply creation of money, which other people then have to work for, was slavery because it was forced, I implied it's slavery because other people are working for the money that the money creators create. In other words, regardless of whether they're forced to or not, if someone is working for money created out of nothing, he is a slave to the money creator. If you dont think that's slavery, then why not?