We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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A reminder… …. of what we are up against:
If Labour had suggested the return of Credit Controls can you imagine the wails of protests from the Tories with their cries of ‘You can’t buck the market’ and ‘We want to be free’ and other libertarian bollocks like that.
– a commentator on Guido Fawkes’ blog.
In the lexicon of some people who can be regarded as within the Westminster village, ‘libertarian’ is a pejorative modifier, and, “We want to be free,” is a discreditable sentiment.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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Comparisons between Barings and Northern Rock (NRK) are a bit silly. NRK originated more mortgages than any other UK lender in the first six months of the year and are, theoretically, still a company with a tangible value of £2bn. A far cry from Barings.
The government is likely to make a profit out of lending to NRK at a punitive rate so the whole “bailing out” is overwrought and it was the actions of the Bank of England (BoE) that have led to NRK requiring the emergency cash in the first place.
If the BoE had followed the Fed and allowed emergency funding at 0.5% above base rate none of this would have happened. Instead, the BoE have a stated base rate of 5.75% while the real interest rate for banks, LIBOR, is at circa 6.9%.
NRK may be a seat of the pants operation but its highly efficient and well run. NRK made the mistake of believing the the BoE wouldn’t allow LIBOR to become so out of kilter with the Base Rate. Northern Rock has tumbled due to an implicit belief in a government institution.
Of course, a free market without a central bank in which “demand deposit” actually meant “specie available upon demand” (that is, was treated as a bailment) wouldn’t get into these messes in the first place.
Rich Paul is on the right lines.
Although “specie available upon demand” might (although it also might not) be interpreted to mean that fractional reserve banking was O.K. as long as there was the formal promise to honour notes in whatever commodity was held to be money.
Central banks are very bad things, but one can have boom-busts without them. There are many examples from American history before the Federal Reserve system was set up in 1913 (although the Fed did make things worse).
The “bottom line” here is that borrowing should be 100% from real savings (not from book keeping tricks called “savings”). And that efforts to “reduce interest rates” (by any of the complex methods) eventually end in tears.
This is true under “gold as money” (I hate the term “gold standard” as it implies that the money is the notes which are only “backed” by gold, and this is used as a excuse for credit-money bubbles). But it is just as true if neither gold or silver (or any other commodity) are used as money.
If “money” simply means notes and coins produced by the government (fiat money) then borrowing must still be of these notes (not “based on” them) and the same Pound or Dollar can not be spent by different people on different things at the same time.
There is nothing “free market” about fraud, any more than there is about theft.
One of our great historical defeats is that people have come to associate the “free market” with credit money bubbles and the boom-busts they lead to.
As the late F.A. Hayek was fond of pointing out, “increasing the money supply” is not like turning on a great tap with water going everywhere (as in, say, a “ten percent increase in the money supply” meaning that everyone finds that they have ten percent more money in their wallets).
It is, said Hayek, more like “treacle” that water – with the treacle (the increased money supply) pileing up in certain places (rather that rushing to everyone). And certain rich, politically connected, people end up with sticky sweet smelling fingers.
The public do not understand the financial world, but they suspect things work so that wealthy people get more wealthy (at the expense of other people) and the brutal fact is that they are correct.
More funny money for people in certain special areas means that the value of other people’s money is less than it would have been.
And the distortions of the capital structure caused by malinvesments financed by increasing the money supply also work to increase inequality.
The feeling that wealth has been gained dishonestly (rather than the fact of wealth itself) is the cause of dislike of the wealthy amongst otherwise decent people.
Of course ending the absurdity that borrowing can be greater than real savings (rather than 100% from real savings) is the last thing that the “credit controls” person had in mind.
I find it interesting how often critics of libertarianism often denounce libertarian suggestions that government stop interfering in financial markets as evidence of hypocrisy on the part of libertarians.
The Libertarian philosophy does allow the government to act against force or fraud. I consider making any contract, while knowing that you will be unable to honor the contract, to be fraud. The idea behind fractional reserve is that the bank will probably be able to honor most of it’s contracts. This implies that the banks knows that even if nothing untoward happens (e.g. robbery), they will be unable, sometimes, to meet their contractual obligations. This strikes me as criminal fraud.
Note that money for investment would be available for loan either through money marketish accounts, with a bald statement by the lender that they will pay specie on demand if they can, but that they lender (in this case, the depositor is a lender, and the relationship is not a bailment) may not be able to pay on demand, and the depositor will have to wait. The same with CD’s, though it seems that they should be able to guarantee payment with CD’s.
The problem is not lending borrowed money per se, but rather lending money that you have under what the original lender thought was equivalent to a bailment arrangement.
If Labour had suggested the return of Credit Controls people wouldn’t be complaining due to Libertarian principles (unfortunately) but just because they would be acting completely insane. Having to go to some bureaucrat programmed to say ‘no’ to everything because you need a loan to start or improve your business look like a pretty sure-fire way to turn what could be a downturn into a permanant economic stagnation. So much should be obvious to even the most knuckle dragging members of the ‘stupid party’.
Northern Rock made some duff business decisions, and these have come back to bite them. The markets will absorb this information and price anybody that look like repeating the same mistakes appropriately. Just another Darwinian selection, not pleasant for those caught up in it but Capitalism marches on.
Paul, are you seriously suggesting the end of fractional reserve banking?
If so, you are therefore implying, AFAICT, that the economy cannot grow unless someone centrally prints more money. Ever. If you cannot lend more than is saved, the only cash that can be used for expansion is that already saved by people. This means the amount of money and so wealth in the world becomes fixed. It could even cause deflation.
Yes, lending does tend to result in wealth travelling from the many to the few (as I have often said), but without fractional reserve banking the system will become incredibly slow, unpredictable and will, frankly, grind to a halt.
If I want to start a business I can only get capital if somebody else takes money out of their business and hands it to me. I can only expand if someone else does not and I will most certainly pay a far higher rate of interest for the privilege.
An alternative, I suppose is to allow the expansion of commercial paper, which was in part nationalised to make currency, IIRC (Bank of England cornered the IOU market) and then we could see more money around than there is cash, easing payments, speeding up the economy.
Paul – how would you see the ending of Fractional Reserve Banking playing out?
This means the amount of money and so wealth in the world becomes fixed.
Money is not the same thing as wealth Roger.
It could even cause deflation.
Indeed, that is how we all get richer, prices falling as production becomes more efficient.
First I have put two long comments on J.P.s post above (one has been held up for some reason – but it will turn up). So I will not repeat all the points I made on that thread here (I am too lazy – and I have a council meeting with the local police in an hour or so).
Paul Coulam is correct – gradually falling prices are not a problem. Indeed this is a sign that better ways of doing things are being found (economic progess) – just as he says.
A sudden drop in all prices is a problem – it means there was big credit money bubble and it has just burst.
However, the way to deal with this is not to try desperatly to prop up the bubble – it is not to create the bubble in the first place.
For example, the way to stop the crash of 1929 is not to fling in yet more credit money.
It is to not pump up the credit-money in the late 1920’s.
Governor B. Strong of the New York Federal Reserve worked directly with Governor M. Norman to try and support the rigged exchange rate of the British Pound to the American Dollar (the exchange rate was the pre First World War one, and it ignored the greater wartime inflation in Britain) – and Mr Strong did this by pumping up the American money supply.
He should not have done so.
Rich Paul is quite correct – if everything is done openly (“up front” as the saying goes) it is NOT fraud.
However, as Rich Paul would be the first to point out, it is normally not done openly.
Mr Smith the banker does not go round saying:
“You know, when someone deposites one Dollar with me I play all sorts of complex games so I can lend out ten Dollars”.
Nor do people say (a different but related matter):
“Here we have a silver standard not silver-as-money – this means that for every bit of silver we have we issue lots and lots of notes”.
Roger Thornhill:
Let us say that there was no extra gold (or whatever commodities or commodities that people were choosing to use as money – and remember PLEASE DO NOT RIG THE EXCHANGE RATES OF THE COMMODITIES).
Or let us say that there is fiat money (government paper) – and the government chooses not to print any more.
Can the economy grow?
Depends on what you mean by “grow” (sorry to get all W.J. Clinton on you).
If you mean “can everyone have lots more money in their wallets” the reply is “NO”.
But if you mean “can people buy more and better stuff over time” the reply is “YES”.
Of course “I would not start from here” (as the Irish side of my family would say).
We have a credit bubble financial system – so trying to get rid of fractional reserve banking would cause some problems (to put it mildly).
However, it will get rid of itself one day – one way or another.
Mr Smith the banker does not go round saying:
“You know, when someone deposites one Dollar with me I play all sorts of complex games so I can lend out ten Dollars”.
Indeed not, but does he need to? It would entirely depend on what it would be reasonable for the public to expect. Given that fractional reserve banking is almost universally used, then I would expect the public to know what is going on.
knirirr
Basic rule of economics (as opposed to the crap taught in university “economics” deparments) – investment must be financed from savings (100%).
This is also the correct response to Mr Thornhill – no taking money from another business is not the only way you can get investment money.
People can (and should) not consume all their income. They should save some of it – invest it, either themselves or via specialists (such as a bank).
If a person comes up with a clever scheme that allows someone to borrow money without someone else consuming less, that clever scheme is going to end in tears.
Even if the government comes along and says “we will pay out for every bank deposit in every bank” which they just have in Britain (every bank, not just Northern Rock).
By the way, how is this bottomless pit of moral hazard corporate welfare a “free market”?
School me, Mr. Marks.
You would not start from here, given a choice. Given the choice, I would personally start about one foot from the finish line.
However, here is where we actually are. If you could make one fix, and then have to wait for a year for everybody to see it working, what would you fix?
Very well Sunfish.
Let us take the example of a man who was not a “gold bug” (or anything like that), indeed the man (who when in the Nixon Treasury Department) helped take the United States off what some (mistaken) people still called the “gold standard” (not that I think much of even the pre 1933 system – but the post 1933 system was a farce).
As Fed Chairman Paul Volker (spelling alert) got lots of desperate cries in 1981.
“Do not cut off our credit money subsidies [not that these were the exact words of course], the economy will fall off a cliff if you do”.
But Mr Volker cut back on the supply of funny money anyway – and the economy did indeed fall off a cliff (the recession of 1981- 1982).
And I am such a son-of-a-bitch I think Paul Volker was RIGHT to do what he did (or rather not to do what people asked of him) – and I would act the same way now.
In short yesterday I would not have cut rates – I might well have put UP.
“But you would have caused a recession”.
I know (see above for what I am).
Of course the clever people who think they have just avoided a recession do not understand that they have just put it off – and made it (when it does eventually come) WORSE.
Cheap credit (as in, “cheap enough to be extended to the non-creditworthy”) is an addiction. Breaking addictions is a profoundly unpleasant experience: I’ve quit smoking. I have a friend who ended up on powerful pain medicines after an injury and needed a lot of help getting off of them. And society is full of people who end up on the glass pipe.
Failing to break the addiction will eventually prove far more unpleasant. I think I used this analogy a week or so ago to refer to government spending, but it applies here as well. From your story about Mr. Volcker, it sounds like he recognized the same concept.
If I could only make one change to finance in the USA between now and September 2008, it would be: I would put Social Security, Medicare, the US Postal Service, and every other dime collected or held or spent by any component of the Federal government[1] back into the published budget.
The first step to solving any problem is recognizing that one exists, recognizing its scope, and identifying the problem correctly. Accurate and complete information will not, by itself, fix anything. However, I am skeptical that problems can be fixed if we’re not all clear as to what they are.
Passing a Federal version of our state Taxpayer Bill of Rights was a close second. However, I’m a little iffy on subjecting Federal matters to referendum. Not totally opposed, but there are questions I’d need answered. Holding elections on April 16th was not far behind.
And exiling all of the silly bastards to whatever place in sub-Saharan Africa would take them, but there are practical difficulties.
[1]..and let’s not kid ourselves about the Federal Reserve: if the governors are appointed by the President and confirmed by the Senate, it’s an agency of the government.
First monetary policy – yes “cold turkey” is the only way (even if it kills you at least you die a man).
Now other stuff.
I hear that Colorado has watered down its limitations on government spending – but at least you still have some.
At the Federal level the Tenth Amendment has been made a dead letter by the Supreme Court declaring that the “common defence and general welfare” is not the PURPOSE of the various spending powers granted to the Congress but is a catch-all “general welfare spending power” in its own right (which even A. Hamilton would have blushed at).
This meaning that the Feds can spend as much money as they feel like – on anything.
The oft attacked Ronald Reagan (attacked by purists who like to say he did nothing at all) did cut back on the amount of money the Federal Government dished out to the States and local governments (at least as percentage) and got rid of some Federal programs.
But the next three Presidents were not interested in Federalism.
Fred Thompson says he is (he has been saying this for many decades). But he has got to win the nomination and the election before we anyone can see if he means it.
You are correct, the entitlement programs are a dagger at the heart of the Republic (as they are for all Western nations).
At least the Australians do not pretend that “social security is not a tax” or “there are trust funds”.
It is all in income tax there.
Of course the threat is the same – but at least it is out in the open.
Just as the Australians amended their constitution when they wanted the government to set up Welfare State progams – they did not “interpret” their constitution.
There have been a few holes poked in TABOR. Another amendment (Amendment 23) mandated that state funding to K-12 education increase by a fixed amount each year for something like five years, even if we couldn’t afford it. The problem is twofold: There’s a lot of things that an ill-behaved legislature can spend money on, and not enough dollars for all of them. Every dollar spent on K-12 education is a dollar that isn’t available to operate the courts/prisons/roads/whatever. Also, most K-12 funding actually comes from property taxes assessed by the local school districts, and not out of the state budget. That means that we’ve thrown the state budget into chaos for limited benefit.
(To say nothing of whether education should be funded by the state as opposed to solely by a local district, or should even be a government function to begin with: most Americans don’t live in a meta-context where those questions are asked.)
Also, TABOR contained another hole: the “de-Bruce-ing” process (named for TABOR’s author, tax freedom activist Doug Bruce). A government can ask its voters for permission to retain funds and expand spending beyond the limit, and it’s rare for such a vote to lose. Referendum C, back in 2005, is a prime example.
There’s talk that our legislature will be putting something else on the 2008 ballot: eliminating the TABOR growth restriction entirely and permanently. So far, it’s only a rumor.
With regard to “cold turkey,” I guess it depends on what kind of drug government spending and bad monetary policy actually are. Quitting nicotine cold turkey was unpleasant but still probably the best way. If they’re more like barbituates, cold turkey could literally kill the patient or whatever would be the analog of killing the patient. I don’t know what the analog of killing the patient would be, but I don’t think I’d like it either way.
I don’t even know if the analogy is any good at this point. Whether we go cold turkey or give supportive care while tapering off, the current situation is badly unsustainable.
To Paul Coulam -Yes I do know the difference and no, I do not mean increase in efficiency, I mean deflation as in a reduction in output and production and sudden mass unemployment (but no certainty of long term unemployment – that depends on individuals and other factors).
Paul Marks,
You did suggest only lending against deposits, but you then talk about Fed issuing T-bills, which is not quite the same thing, is it?
Truly, you are actually suggesting an end to fractional reserve banking. When all the existing loans are repaid and the fiat money is cancelled/destroyed (which it is, always) and no new loans are issued, vast amounts of money out there will disappear for ever, never to be replaced.
This is more than just not expanding the economy – ending FRB will significantly contract the economy, for loans once repaid do not result in the principle + interest remaining with the lender – it basically results in just the interest, for the principle has been cancelled and no longer exists “out there”.
Do not get me wrong here. As I said before, lending tends to result in the transfer of wealth from the many to the few, from the rich to the poor. I am not in favour of fractional reserve banking, just that, right now, I see it as the least-worst mechanism. I am open to new ideas. I would like to think so, always.
Yes, we could see material growth via automation. The thing is, we are in that cooling bath in a frosty bathroom and the water is getting colder. I can see your advice is to stand up, dry off and tough out the inevitable.
However, what mechanism would you suggest to use to manage the money supply? Social Creditors rail against fiat money and put forward ideas about some Statist QANGO, which I tend to be very wary of. How can we manage the need to match the increase in production, or are we saying that we keep the amount of money constant and, via automation, push down prices ever lower as the means to make the poor materially better off? I do not like the idea that money supply is somehow managed via the channel of State spending. Dracula. Blood bank.
BTW – As an SME, fiat money is mostly unavailable and has been the case for a long time, so it does not affect me directly, except in terms of a mortgage. SMEs tend to run from directors loans (from savings) and share capital, not lending. Banks don’t like SMEs anymore, but then again nor to VCs, who have become like banks due to, I suspect, the fiat nature of the funds they now put forward.
p.s. To clarify the remark I made about one business “taking” – by this I meant that only one entity can ever borrow the sum (100% savings) and so it means that one company borrows it means another cannot – finite money.
Mr Thornhill I never mentioned “T. Bills” or any of the other ways that the Fed plays games.
This is because I am not interested in the methods – I am against the whole game. It is the oldest trick in the world to try and divert a debate to technicalities (to try and obscure the issue).
One of the reasons that Lord Keynes was respectable and other “print more money and we will be better off” guys (such as Major Douglas) were not – is that Lord Keynes did not suggest just printing money and handing it out.
He supported lots of complex stuff with Treasury bills (and other such). This was respectable partly because certain financial interest people get the benefit (the F.A. Hayek point), but also because the whole confidence game sounds “scientific”.
As for fractional reserve banking and so on:
Paul Volker (spelling alert) did NOT end it in 1981, he just cut back on the extra credit money issued to the various financial institutions.
“And the economy fell off a cliff”.
Yes it did, but just carrying on shoving yet MORE money into the credit bubble would not have “saved the country from recession” – it would just have put it off, and made the recession WORSE when it eventually came.
This is an old story:
Way back in 1921 the post First World War credit-money bubble went pop, the Federal Reserve did not really “help” much, and the Administration of President Harding actually CUT government spending (no wonder the establishment historians hate Harding – even though his Administration was no more corrupt than most Administrations, indeed it was less corrupt than most of the recent ones such as the one of Saint F.D.R. and Saint Truman).
The economy was in recovery within six months – because prices and wages were allowed to adjust.
In 1929 (when the late 1920’s credit-money bubble, created by Governor Strong of the New York Federal Reserve, went pop) the Administration of President Herbert “The Forgotten Progressive” Hoover rushed to help.
More spending, price supports, “voluntary” agreements with industry not to cut wages (in order to “maintain demand”) and later other stuff (such as the higher taxes on imports).
The results of all this compassion were not so good as the could-not-care-less policy of Warren Harding in 1921.
“But what about fractional reserve banking?”
There is nothing wrong with being a money lender, as long as you actually have the money you are lending out.
Nor can two people spend the same Dollar on different things at the same time (at least not without fraud).
If Mr A. lends money to Mr B. (whether directly or via a bank) Mr A. does not have that money any more – till when (and IF) Mr B. pays him back.
In short borrowing has to be from real savings – i.e. other people not spending all their income.
“But if people are not spending all their income my business will be hurt because they will not be spending the money on my products”.
Or
“Without credit creation there would be no money for investment”.
When I was young I would carefully examine statements like these, should someone come out with them, these days I am not likely to.
Of course there is no need to “abolish fractional reserve banking”.
Without government allowing “suspension of payments” (and other violations of the laws of contract) and without government support (in the endless different ways), it is quite likely to abolish itself eventually – one way or another.
But if it does not, it does not.
You have asked some respecable questions Mr Thornhill and I should show you the decency of trying to reply – although I have grown into a rather nasty person in my old age.
A shrinkng money supply is not the same thing as a shrinking economy – as what matters is not how much money one has, but what one can buy with it.
However, I fully accept that a credit-money bubble going pop is not a nice experience. This is one of the reasons I am against creating credit-money bubbles in the first place.
“But that does not alter the fact that you would not help if a credit money bubble did go pop – you would ignore all the terrible distress caused by the sudden drop in the money supply”.
Gulity as charged.
The pain of other people is not likely to lead me to make policy choices I regard as stupid (my own pain is another matter – if the extra credit money was going directly to me, well then…..), I am not the sort of person who is upset at things he sees on television (this may well be a character flaw – unkind people have called me a sociopath before now).
“Where does the money for investment come from?” (not your words, but perhaps a thought of yours).
From savings.
“But if people are not spending the money demand will fall and the investement projects will fail”.
Errr NO – not unless they are malinvestments.
I will not go through all the reasons as to why this is so. Bastiat and especially J.B. Say (and the rest of the Say family) were rather good on this.
Automation.
One way to get economic growth – but not the only way. If people learn to run their business enterprises better (even without any new tech) that is “economic growth”.
Remember “economic growth” means people being able to buy more and better goods and services (not more money).
“How would I manage the money supply”.
I would not.
If people want to use gold as money that is up to them, and if they want to use silver as money that is up to them (and so on and so on).
It is a matter of what they agree in their contracts. Although the really important thing to remember is PLEASE DO NOT TRY AND FIX THE EXCHANGE RATES (whether of commodities or fiat currencies).
“Let us get back to the real world, how would you manange the fiat money that we have actually got?”
I would not do anything apart from…..
Apart from replace the coins and notes as there wore out (the MB or M0 if one wises to use the technical terms – although MB and M0 are not quite the same thing).
If the various other “M”s (i.e. measures of credit money) continued they continued – and if they did not they did not.
I would not do anything to destroy them or undermine fractional reserve banking in any way. Although I would not support it in any way either.
I wonder what would happen.
As for fiscal policy, I would run a balanced budget – I would only spend money the government took in taxes.
Any shortfall would be met by cutting government spending.
“That would undermine the economy” (the followers of Lord Keynes), no it would not.
Paul Marks said:
A supporting example, if I may (And partly a self-check to make sure I’m understanding this thread correctly):
Back in April I planted tomato seeds in my backyard. I ended up with six viable Roma vines. Total cash investment was seventy-nine cents for a packet of seeds, plus the small margin of my water bill spent on watering. Plus time and effort that would have been otherwise spent sitting in front of the computer reading Samizdata. If we’re to be pedantic, we can count slight wear and tear on a shovel, one that cost twenty bucks ten years ago. And the cost of buying that particular six square feet of backyard.
I’ve taken about nine pounds of tomatoes off of those vines with no end in sight. That’s twelve or fifteen bucks worth of goods that did not exist six months ago. Even if the exact price shifts due to the money supply expanding or not expanding, the economy has grown because of an increase in goods which may be sold or consumed.
And so, the supply of money is not as important. We can have bolognese sauce for our spaghetti because those tomatoes grew regardless of what the central banks do or don’t do.
“The economy” is just the sum total of people creating goods and services and offering them for sale, trade, barter, hell, even as gifts. Whether Ben Bernanke is screwing up the money supply or not, nine pounds of Roma tomatoes still came out of the ground and supplied X calories, Y milligrams of lycopene, and made Z pints of sauce.
Now, if only the garlic and basil had done nearly as well…
Thanks, Paul, for the replies. I am not trying to be awkward, defend FRB or obscure/divert to technicalities (the T-bill was my own accidental, internal mapping error due to my understanding of how the Fed manages money and I apologise), but just to understand your thinking by asking questions. I want to know and one thing I do know is you are knowledgable in these areas.
I have alot of admiration for Say and spent some time wrestling with Social Creditors who kept stating and misquoting Say to somehow discredit him. It made me smile about the “reset button” comment recently, as they also had this problem! Major D was faultless and correct in their eyes. If it did not fit into that box it was wrong. Period. Most irritating! Most “Islamic”!
I am still undecided if Say was exactly right in all things, but he makes alot of sense. Douglas does make sense in parts but then he falls for the three card trick of his own making (I really must fisk the Shoemaker’s house and the Car Maker examples one day) and it just does not work for me.
I do agree that FRB is not essential, but if we have it we need to either stop more of it, reduce what we have or leave all alone. It is the transition that concerns me.
I am certain that an end to FRB will not stop new inventions and new companies being formed. FRB/Banks are USLESS to such organisations because they only care about getting their interest and new companies are too risky for them. Maybe it will be to the SME’s advantage, for then the vast, bloated multinationals would have to compete on a more equal footing. Not sure. If it does, then I think it is a good thing for many people. I am one of those who thinks employees are treated better in SMEs operating on a personal, human scale. They are less likely to house vast numbers of sociopathic, career-obsessed, talentless politicking scumbags.
The problem there, Sunfish, is when you sell some tomatoes to a neighbor for money so that in the fall, you can buy some acorn squash from yet another neighbor. A good plan except that in the mean time the government printed some more money. Now you can’t buy as much acorn squash as the tomatoes were worth. Where did the missing value go? To whoever the government gave the newly printed money to.
The problem is not that the government is fiddling the money supply. It is that the government is enforcing their absolute monopoly on who can issue money, forbidding all competition.
Midwesterner:
Believe me, I’ve got nothing against putting the Federal Reserve board and their monopoly on a slow boat to China. My point didn’t have too too much to do with them either way: Where I was going was, growth in the economy happens when goods and services are produced and offered. For all of the government-enforced incompetence, today we have tomatoes and squash that we didn’t have yesterday.
Sunfish: I’ve taken about nine pounds of tomatoes off of those vines with no end in sight. That’s twelve or fifteen bucks worth of goods that did not exist six months ago. Even if the exact price shifts due to the money supply expanding or not expanding, the economy has grown because of an increase in goods which may be sold or consumed.
In a fixed money environment the price of tomatoes should fall because there are more on the market. This might then mean more people can afford to buy them, so none go unsold if the logistics are good (“air flown Sunfish hand-picked tomatoes”). It also means the existing purchasers of tomatoes now have more spare cash to buy something else as well. It might mean that those originally selling to those unable to previously buy fresh tomatoes – those selling turnips, for example – are not selling as many turnips because their customers can now afford tomatoes, so the turnip sellers either have to reduce their prices or stock goes unsold. Turnip sellers get upset and have to get more efficient. Tomato sellers have to, as well, if they are to maintain their margins. However, because tomato buyers now have more spare cash, they are able to buy more from the market as a whole, so it is likely that the work available for ex-turnip eaters grows as well because tomato buyers splurge on their newly achieved surpluses and can afford to buy more services from the likes of Baldrick, who might be an ex-turnip-eating shoemaker who sells more shoes or the same for a higher price.
Baldrick the turnip eater becomes Baldrick the tomato eater
Sunfish the tomato seller slowly gets less per tomato until the narrow margins force out inefficient producers.
Blackadder the turnip mogul has to evolve or die.
What often happens, though, is Blackadder, the turnip mogul leans on the government to produce Health and Safety regulations preventing Sunfish from entering the Tomato market, so keeping tomatoes expensive and enabling turnips to still be in demand from the oppressed masses.
I.e. I am suggesting that Multinationals can more easily oppress and exploit the poor in a sustained manner if the State is there to be bribed or coerced into protecting their margins.
Sunfish, Roger Thornhill and Midwesterner have all said good things (what nothing I can find to bitch about – ah wait I think I have found something).
“Multinationals” (“transnational” is the latest term for a large company that operates in more than one country) oppressing and exploiting poor people.
Not normal behavour for a company (regardless of how corrupt the local government is), sure the company may offer “low wages” (by American standards), but they will still be higher than the wages anyone else is paying (and higher than income from self employment).
“But the multinational may steal the land of poor people” – in my lifetime (indeed since the 1930’s) it has been more normal for govenrments to steal the land of the “mulitnationals” in the name of the poor.
I’m hungry.