Excellent description of where money comes from:

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  • Thu, Feb 11, 2010 - 05:30pm

    #11
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    Re: Excellent description of where money comes from:

Hello Carl,

We are finding some common ground and I’ll concede an important point that you made but first…

Carl wrote:

Stating and disproving are two different things.    You have not disproven any Austrian economic theory here or in your exchange with the  Austrian school linked above in my  post .

1.  My big point that invalidates Austrian and Kenysian economics is that they totally miss the most important fundamental, that is the exponential growth of interest debt.  By ignoring this, it seems to me that their beliefs are fatally flawed from a mathematical perspective. 

2.  They ignore a critical point which is how new money is put into circulation.

3.  Mathematics should be a large integral part of the “science” of money, Austrian expert,  Murry Rothbard dismisses “mathematical economics.”

Rothbard states “The mathematical method, like so many other fallacies, has entered and dominated present-day economic thought because of the pervading epistemology of positivism. Positivism is essentially an interpretation of the methodology of physics ballooned into a general theory of knowledge for all fields.

The reasoning runs like this: Physics is the only really successful science. The “social sciences” are backward because they cannot measure, predict exactly, etc. Therefore, they must adopt the method of physics in order to become successful. And one of the keystones of physics, of course, is the use of mathematics.”

I suggest that mathematics is a key to economics – it lifts the subject from conjecture to science.  The Austrians are wrong, economics may be predicted and more importantly, theories may be mathematically modeled to determine the performance or outcome.

4.  Austrians preach that “gold is money” and they blame our woes on the boogeyman “fiat money.”  They contend that the species of currency trumps all else while in actuality it is a secondary concern at best.  This is the part that bothers me the most as they are obfuscating the truth and denying actual solutions. 

First of all, we don’t have near enough gold and silver to consider using it as our national currency.  Ron Paul recognizes this and in response, he suggests PMs be used for “complimentary” currencies where we may be able to back up less than 1% of our money with gold.  While Ron Paul is more realistic than most Austrians, he ignores 99% of our required currency.  Austrians make the absurd claim that the amount of gold doesn’t matter. 

This is not a comprehensive plan, it isn’t even a starting point.  He and the Austrians should step out of the way and stop criticizing viable monetary experts like Ellen Brown, Byron Dale, Steve Zarlingo, Henry C K Liu, Margrit Kennedy, Bill Still, Thomas Edison, Louis Even, Henry Carey and Abraham Lincoln over the phony gold solution. 

Carl wrote:

How will Larry the central planner decide or coordinate which production (and employment that comes with it) to fund that would be considered fair to all?  With math?

I agree this is a big issue with monetary reform that is not adequately addressed.  Zarlinga for example, suggests central planning should be part of the solution.  I don’t think we should take this route though I do think it would be better than the usury we have now.

Humbly, I think I have a unique solution to this potential problem.  My idea is to have the Federal government create all new money but I would separate the power to issue the vast majority of it.  For example, I would have private banks continue to determine the credit worthiness of borrowers and I would give the states the power issue money for infrastructure projects.  The Treasury would provide, but not decide.

Larry

  • Thu, Feb 11, 2010 - 10:27pm

    #12
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    Re: Excellent description of where money comes from:

omrad Larry,

Again you have not disproved any theory because you have not explained how that theory works and how a mathematical equation could better it

You have exposed the mechanics and  fraudulent nature of our current monetary system but I have said government is there to protect that system.    Your claim that government does not have a say has been addressed so please don’t post that again.   It’s counterproductive to learning.         

  Money, Bank Credit And Economic Cycles.    

http://mises.org/books/desoto.pdf

If you say a theory is flawed,  you should first explain how it works  so we could determine if you have simply misunderstood it.

 Your understanding of how the gold standard worked—for example– should be explained before you start typing your prepared script.

  Specially about how it ended,   then make a critique.       This was explained to you by Esuric in your thread at mises.org forum .  

 

My post above regarding production  (jobs come with production)  in our  economy is without  a mathematical modeling guide and you seem to agree that any new monetary system will have to address it.     

   It is my belief (theres a belief finally)   that the more you explore how a new monetary  order could work,  the more you’ll slide in issues the Austrian school have been dealing with since the days of Thomas Aquinas, a jesuit priest from the University Of Salamanca in the 16th century   Price ceilings,  ‘just price’  as matters of justice and equality,   private property etc  .          http://www.answers.com/topic/school-of-salamanca

I’m going to make a pastrami sandwich now.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  • Fri, Feb 12, 2010 - 04:11pm

    #13
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    Re: Excellent description of where money comes from:

Carl wrote:

Again you have not disproved any theory because you have not explained how that theory works and how a mathematical equation could better it

The Austrians and Keynesians totally miss the fallacy of interest debt.  Both of these belief systems eschew simple mathematics; instead they operate off theories and suggest the human factor negates mathematical predictions.  Our debt based system (interest) is mathematically flawed.

It may be algebraically expressed:

a = the amount of a loan contract (the sum of principal + interest)
p = the principal amount
r = the rate of interest as a percentage
t = time (duration)

  • “p” is created as a loan contract
  • “a” must be repaid
  • p + prt/100 = a
  • p < a (as long as the rate of interest is greater than 0)

This formula shows that the contract is impossible, that prt/100 calls for a production of money and cannot be canceled by a production of values. Neither can it be eliminated by a contraction of t, which constantly increases pr/100.  This being true of one contract it must be true of any number of contracts with the credit system may contain. This formula solves one of the important problems of the age and is presented to the scientific people of America for inspection.

The mathematical conclusion which must be drawn from this formula is that the interest on our circulating medium is imaginary and impossible, and under our present system must be satisfied by securities, which is legalized robbery.

The great robber of all our financial prosperity is the legalized power of the dollar to draw interest. It is only legalized power because the dollar is a dead, inanimate piece of matter utterly destitute of the power of increase and when we give it the power to draw interest we give it the power to disturb our business, bankrupt our merchants, to foreclose our real estate and to rob labor of its just rewards. To substantiate these statements we need not at all resort to theory. There is an abundant mathematical proof. Whenever we operate with numbers we have mathematical law and the operations which we perform with numbers must conform to mathematical law and be susceptible of mathematical proof.

Our present monetary system was established by legislation, without any reference to the mathematical science of numbers. Our legislators did not understand that their mandate could not set aside the immutable laws of the universe, and most terribly have the people of this country and England suffered for their stupidity. It is a universal belief that our system is founded in harmony with mathematical law. Turn the pages of all the political economies from Adam Smith to Henry George, and you will search in vain for a single sentence stating that interest is an imaginary quantity, or that a contract calling for interest is a contract calling for the production of money.

This condition corresponds precisely to the past history of the credit system.  It has centralized the real estate of Great Britain into the hands of the noble(?) few and converted her hardy yeomanry into tenant farmers and paupers.  One half of England is said to be actually owned by twelve persons and the other half by less than 20,000.  What this system has done for Great Britain it will do for America.

No one who has not given this subject a thorough and exhaustive investigation, can form any just conception of the vast accumulative power which money derives from interest…This enormous debt is a monument of our ignorance and stupidity. We possess the intelligence to measure vast distances of suns and worlds, to weigh their masses and determine their chemical compositions, but we have utterly failed to frame a system by which we can adjust and balance our social debts and credits without leaving an evidence of debt behind in the form of bonds, mortgages and interest.  – Mary E. Hobart, A Scientific Exposure of the Errors in Our Monetary System, 1891

Mary Hobart recognized the terminal flaw back in 1891.  Surely, over the past 100 years, the Austrians would have seen her work and have had plenty of opportunity to state their case.  Instead, they have ignored the financial quandary of our age.  This mathematical flaw has caused unimaginable suffering and debt slavery over the past 2.5 centuries.  It is a Frankenstein monster assembled in the bowels of the Bank of England.

Carl wrote:

It is my belief (theres a belief finally) that the more you explore how a new monetary order could work, the more you’ll slide in issues the Austrian school have been dealing with since the days of Thomas Aquinas

Belief is not required, allow mathematical facts to guide your understanding.  The Austrian school is either very wrong or very complicit – either way it is extraneous and irrelevant.

Larry

  • Fri, Feb 12, 2010 - 10:10pm

    #14
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    Re: Excellent description of where money comes from:

Komrad,

No theories  explained,      and none refuted.    

 

Unless you’re telling us these do not exist,

Give us a for  example on how a mathematical formula can be used to resolve issues with:

 

Private Property

Production (employment)

Markets

Prices

Contracts

 

 

 

 

 

 

 

 

 

  • Fri, Feb 12, 2010 - 11:15pm

    #15
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    Re: Excellent description of where money comes from:

As much as I admire Bill Still, I have some major problems with “The Money Masters”.  Nowhere in the presentation does Still make the connection between the economy and the environment.  The physical economy is a subset of the environment.  Energy drives all processes in the environment and by extension the physical economy.  Abolishing the Federal Reserve, ending fractional reserve banking, returning the power to issue to the Treasury, and eschewing gold or silver as a monetary standard are all good ideas for keeping the monetary system stable and fair.  Sound money will bring price stability, reward thrift, and encourage saving.  All well and good, but not enough.

Still continues to be caught up in the paradigm of growth.  In this warped version of reality, money paid now will always have a claim on future labor.  That’s how money is supposed to work.  Of course, we have to be careful about what it is that we call labor.  Most useful work today is not human labor.  It’s machine operations on materials that adds value.  Most humans only control machines that perform the actual tasks.  Take away the energy to run the machine and what happens to productivity?  Worse still, take away the energy and how are the machines fabricated in the first place.  This is the dilemma of Peak Oil.  Expensive oil reduces productivity.  Now a worker  must be paid more for making less.  Productivity declines.  In the not too distant future the absence of oil means the abandonment of that particular productive activity.  Don’t hold your breath waiting for the alternatives that aren’t coming.  Those are decades away if ever.  And there are sum fundamental problems with the so-called alternatives.  They are energetically expensive.  When the hydrocarbon inputs fail, they will be more so.  The upshot is that money paid in the not too distant may not serve as a claim on future labor that does not exist.

To be successful in the long haul, a monetary system must cope with the coming reductions in the stocks of commodities whatever they will be.  Obviously it starts with the total energy available for useful work.  Then comes the reduced productivity.  Last and far from least, the humans in this economy will still require food, water, shelter, clothing, heat, transport, medical services, etc., in a long list of diminishing priorities.  How is this accomplished in a token economy with little left to buy?

Well, I’ll tell you how.  More useful work will be accomplished by human labor.  The first five items on the above list of priorities will occupy most of our waking consciousness.  Millions of Americans will be headed back to the land.  People will have to choose between a house full of plastic gizmos and eating.   As transport is more difficult, people will live closer to their sources of sustenance.  No more tangerines from Chile or avocados from Mexico.  A lot of human labor will be taken up with carrying water.  Without pumps run off the electrical grid, water won’t move.  Expect to get a lot of your heat from your clothing.  Sweaters will be in vogue when your house is only 55 degrees in the winter.  Wood for the stove?  Sorry, that’s being rationed.  Yes, there’s lots of gas but building the pipeline is taking a bit longer than we expected.  Horses and other draft animals can help, but they require land for their food, too.

This won’t come overnight.  There will be a more or less steady decline after oil depletion kicks in and squeezes production ever lower.  There will be events that punctuate the decline with sudden shifts in conditions that in turn demand new ways of coping.  On the upside, fewer commodities mean less waste and pollution.  Fewer distractions mean getting to know your neighbors as if your life depends on it because it will.  Less time stuck on the freeway means more time working shoulder to shoulder with friends and relatives.  Cooking all your meals in an extended family household means the youngsters will know their elders.

Stills proposals won’t fix the coming energy famine.  When it arrives, I’d much prefer a monetary system that has the aim serving everyone instead of turning everyone into its slaves.

  • Sat, Feb 13, 2010 - 12:43am

    #16
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    Re: Excellent description of where money comes from:

DurangoKid wrote:

As much as I admire Bill Still, I have some major problems with “The Money Masters”. Nowhere in the presentation does Still make the connection between the economy and the environment.

You make some great points in your post and I can only add with respect to Bill Still, that he was focused on history more than solutions.  He rushes the last few minutes of the film with some quick solutions and concerns.  But clearly, his strength is history more than economics.

Carl wrote:

Give us a for example on how a mathematical formula can be used to resolve issues with:

Private Property, Production (employment),  Markets, Prices, Contracts

Let me walk you through this formula again:

a = the amount of a loan contract (the sum of principal + interest)
p = the principal amount
r = the rate of interest as a percentage
t = time (duration)

  • “p” is created as a loan contract
  • “a” must be repaid
  • p + prt/100 = a
  • p < a (as long as the rate of interest is greater than 0)

The formula tells us that collectively, we cannot pay our debt.  It means that many loan contracts are impossible to meet and this fact should terminate the obligation.  It means many will lose their jobs.  It means that we will enslave future generations to debt just to have a medium for exchange.  It means most economists are ignorant of money and math.  It means that mankind cannot figure out that we have been taken by a giant scam.

Larry 

 

  • Sat, Feb 13, 2010 - 12:51am

    #17
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    Re: Excellent description of where money comes from:

DK,

You are describing a scenario of scarcity,     whereby there exists  unlimited wants and needs in a world with limited resources which requires choices.

We make choices by comparing benefits from all options.   Alternatively,  choosing an option can be viewed as the cost of rejecting the other options.

Or eliminate want   (Buddhists).       

http://ingrimayne.com/econ/Introduction/Utopias.html

http://ingrimayne.com/econ/Introduction/ScarcityNChoice.html

 

 A  system that allows individuals  to make such choices serves everyone.

  • Sat, Feb 13, 2010 - 01:44am

    #18
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    Re: Excellent description of where money comes from:

Komrad Larry,

 

Okay,   debt is bad.     Most economists are ignorant of money and math,  and mankind is the victim of a giant scam.     

 

What is the correct mathematical equation to solve  declining newspaper subscriptions?

 

  • Sat, Feb 13, 2010 - 04:27am

    #19
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    Re: Excellent description of where money comes from:

May I ask who cares about a “theory”.  How about we just discuss the facts about how our monetary system works and what is wrong with it.  All theory is fine and dandy, but if we fail to really study what is wrong with out monetary system how could we ever come up with a workable solution.

  • Sat, Feb 13, 2010 - 07:01am

    #20
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    Re: Excellent description of where money comes from:

 

 

Declining newspaper subscriptions is a theory?

Under your new monetary order ……

 

If Geithner was the money czar,    should he print a few million of the new dollar   (under new management)    to help  increase newspaper subscriptions?    

How and which company?

 

 

 

 

 

 

 

 

 

 

 

 

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