Money as Debt - Basic layman's question..

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Money as Debt - Basic layman's question..

 if I have savings of £1000 in the bank and I do not owe anybody anything (except next months rent and bills etc) and I am not in any debt, how is my money 'debt'?

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Redwoods....

Your money is debt because that is the creation mechanism behind most money in our fiat currency systems.. in the US, the only bit that is not debt-created is the coinage.  The amount of money in the system increases as more debt is taken on, by individuals, businesses, towns, and sovereign states.  If everyone stopped taking on debt, and started paying down existing debt, the amount of money in the system would contract.  

      

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Thanks Jim, I've watched

Thanks Jim, I've watched money as debt and Vrabels debunking money and I thought I followed it at the time....however, whenever I go to explain to my friends that 'all money is debt' I seem unable to get around the fact 

that if I have a lot of savings how can this money possibly be debt!? 

As I understand it now, in general money is debt as there is more debt than there is money in existence, so if a few people have savings it doesnt outweigh the fact that most people/businesses/govt's are hugely in debt.

I'm probably talking rubbish here so please correct me if i'm wrong!

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Read up on fractional reserve

Read up on fractional reserve banking.  your "savings" of 1,000 has allowed for 10,000 in debt.  It's actually a much larger number than that, but I have no idea, and not sure anybody has any idea how to identify the actual number.  The debt and money printing being done by central banks compounds the issue

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or read this free ebook

You Don't Own Money, But Money Can Own You by Roger A Sorenson. SPecifically read pages 5 though 9.

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I read pages 5-9, I

 I read pages 5-9, I understand if there's a run on the bank then my £1000 is then worthless...but its still not easy to translate that into my savings as 'debt'.

Is it, Money is debt because.....money is no longer backed by anything?

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Redwoods... thinking about money

You hit on some very good points.. and you really help to illustrate a point that I have tried to make many times in the past.. in Bitcoin threads, etc,... that being that we all need to wrap our heads around what money is... how it works.. how is acts..  and I very much believe that the compare/contrast exercise of thinking about debt based fiat vs. Gold and Silver vs. Bitcoin vs. MMT (aka modern monetary theory, aka chartalism, aka "The trillion dollar Platinum coin idea") can be very enlightening.  

I think we should all strive to be monetary philosophers.  The fact that you are striving to do this Redwoods means you are an important part of the viral wave that is going to sweep the world as savers are forced to wake up and take responsibility for their fate.  

Money is not magic.  Regular people can understand it.  Regular, non-economist, non-PhD people should understand it.

I don't think money is evil.. and I don't think debt based money is necessarily all bad.. but I do believe that great evil can and always will be done by those who can get their hands on the creation mechanism and use it for their own enrichment.  Absolute power... well, you know.  

So, I could opine on and on.. but my own conclusion at this point is that the creation mechanism for any future, post collapse money system must be off limits to man.  It must be somehow mechanical, transparent, and system based.  This is one reason I have taken such a great interest in Bitcoin.. because it breaks the mold in terms of the creation mechanism for a useful money... for a monetary philosopher, it is very, very interesting.  

One argument that folks will make against the use of a currency whose supply cannot be expanded rapidly at times by some mechanism (as debt based money is during a rapid economic growth phase like the housing bubble) is that the money system will somehow impede growth.  This is rubbish.. and shows a lack of simple, logical thinking.  Many folks have been indoctrinated by the bankers, without even recognizing it, and they will parrot this line about growth.  The simple fact is that the money available can grow in two ways;

1)  Print more

2)  Allow for the buying power of existing money to increase (aka deflation)

Now you would think that #2 does not exist.. and in fact, in practice, it has not in the US for almost sixty years of systemic banker market manipulation... as can be seen easily in this fabulous chart by Doug Short (deflation is red areas below the zero line) ;

Link to chart:   http://www.advisorperspectives.com/dshort/updates/Inflation-Since-1872.php      

So we know that debt based money works best when the system is continually expanding.. and this is pretty simple to understand once you realize that the creation mechanism makes the principle for a loan, but not the extra increment of money necessary to pay the interest on that loan.  If the system is continually growing, either organically, or via inflation, or both, then the system (the bankers mainly) are happy.  Do we have to have such a system?  No, we don't.  Could we have a system that is geared more toward deflation?  One where the purchasing power of a saver's money could tend to increase over time (#2 above)?  Yes, we could.. and don't let any banker-indoctrinated fool tell you it can't.  For now, Bitcoin is the currency that is deflationary by design.. and the free market is really, really liking it.  Do you see why?      

 

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Money is debt because that is how new money is created.

Holding debt based money does not mean you are in debt.  It speaks to the system of money you are living in.  It speaks to the mechanism by which new money in your system is created. 

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Good question Redwoods. The

Good question Redwoods. The straight-forward questions are key.

Some time ago, I was talking about attempts to kick-start economic growth. My wife simply asked me: "But how can economies just grow forever?" Trying to answer led me to where I am now - seriously concerned about the state of the world and saving to buy a homestead.

As Jim implied in his last post, the phrase "money is debt" is not very accurate when you peek into your wallet. The phrase is thrown around too much, I suspect.

I am saving as much as I possibly can right now and spending extremely little. If money really is debt, this is the recipe for accumulating massive amounts of debt.

Yeah, don't try to explain that to your friends.

I think you were right enough when you said "there is more debt than there is money in existence."

Or, perhaps, the taking on of debt creates money. That debt eventually has to be paid, with interest. The money to pay the interest, though, doesn't exist.

Like me, you're just confused by the annoying phrase "money is debt."

If anybody clears this phrase up, I'll happily take all your debt. Or not.

 

 

 

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I dont know much about

I dont know much about bitcoin, or markets, economics, politics etc, I've been highly skeptical of how everything was 'run' even from when I was a small kid, so much so that I wanted virtually nothing to do with it (i wanted to learn about it but it was never taught, it wasnt part of the curriculum to question how the world works/didnt work)

but its gotten to the stage now that everything seems so rotten that I have to start learning.

 

So,  I might not be in debt but the monetary system is.    Is this statement accurate ?

 

 

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Is the monetary system itself in debt?

No, all that debt is owed by somebody, some business, some local government, or the US itself (that little $16B + debt we owe as a nation).  And we owe it all to banks... or to the FED itself (now that they have embarked on unbridled balance sheet growth).

Debt is the way new money is created.  The debt that is left behind, as a marker for that money supply growth, is owed by all of us to the banks.  You may have no personal debt... and more power to you if that is the case.. .but you and yours have a share in the $16B + national debt, whether you like it or not, and indeed this is one of the more perverse outcomes lately (the socialization of much of the banker bailout costs).  

Let's make a simple chart;   

Money System                   How is New Money Created

US Dollar                           Debt created in the banking system creates new (digital) dollars .

----------------------------------------------------------------------------------------------------------------------

Gold and Silver coin           New money can be created as new Silver and Gold is mined.

-----------------------------------------------------------------------------------------------------------------------

Bitcoins                             New Bitcoins are mined, or earned, as owners of specialized computers

                                         put their computing power to task in supporting the Bitcoin network function.

----------------------------------------------------------------------------------------------------------------------------

MMT idea                          Dollars are created as needed by Gov't to fund Gov't spending.. and this layer

                                        of money creation functions over the existing debt-based system.  New sovereign

                                        debt is not created in this imaginary world.

 

 

 

 

 

 

 

 

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Usury based money is debt

I would argue that usury based money is debt. Just saying Money is Debt leaves out the modifier before money that gives money it's conscious orientation within our world. Change the modifier and money will change along with it. 

When there is no standard of value, different humans want different things. When money is exchangeable for anything, then all people want the same thing: money.

As socrates put it "There is only one right currency for which we ought to exchange all these other things - intelligence."

Charles Eisenstein writes in his book Sacred Economics:

Money is homogeneous making quality not important only quantity, because money is convertable into all other things, it infects them with the same feature, turning them into commodities-objects that, as long as they meet certain criteria, are seen as identical. In the commodity world, things are equal to the money that can replace them, Their "value" an abstraction. I feel a distancing, a letdown, the the phrase, "You can always buy another one." Can you see how this promotes a detachment from the physical world in which each person, place, and thing is special, unique? No wonder to this day we treat the physical world so cavalierly. No wonder, after two thousand years' immersion in the mentality of money, we have become so used to the replaceability of all things that we behave as if we could, if we wrecked the planet, simply buy a new one.

Just as money homogenizes the things it touches, so also does it homogenize and depersonalize its users: "it facilitates the kind of commercial exchange that is disembedded from all other relations."

Almost any time someone gets an exciting creative idea, the thought, "How can we make money from this?" follows close behind. When profit becomes the aim, and not a mere side effect, of artistic creation, the creation ceases to be art, and we become sellouts.

Rose

 

 

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Usury

Is usually a term used to mean money loaned at excessive or abusive interest rates, such as this;

  Here are Western Sky's current rates. Please be aware that not all applicants will qualify for every loan product or the lowest interest rate for a particular loan product. Some applicants will not qualify for any of the products. Western Sky reserves the right to change the rates and loan products listed below without notice.

What state do you live in?    
Loan Product Borrower Proceeds Loan Fee APR Number of Payments Payment Amount
$10,000 $9,925 $75 89.68% 84 $743.49
$5,075 $5,000 $75 116.73% 84 $486.58
$2,600 $2,525 $75 139.22% 47 $294.46
$1,500 $1,000 $500 234.25% 24 $198.19
$850 $500 $350 342.86% 12 $150.72

Link:  http://www.westernsky.com/General/Rates.aspx

Note that these rates are only possible because the loans stem from "outside" the US.. on an American Indian reservation.  

Rose,  I do resonate with some of Eisenstein's thinking.. but how would you translate this into the system of money we use?  Assuming that we still want money, since it is quite utilitarian to have some form of it.. what would it be?  What is a better form of money from the standpoint of your thinking?  For me, some kind of post-money world is just too idealist.      

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The million dollar question

Interesting question Jim H. Here is my best, should be better thought out, dream.

In the spirit of permaculture farming techniques Instead of answering only one very difficult question why don't we try to come up with a solution that answers many.

First I would suggest putting an emphasis on bio-regions letting those regions figure out the best way to govern and coalesce, getting rid of state and country boundaries, which don't seem to offer any advantages, thus putting an emphasis on building indiginous cultures creating community and spirituality. Next I would foreclose on all government corporations and traditional corporations as well, freeing resources such as gold and silver to be used by the local bio-regions for backing up wealth and commerce. Each person on earth would have the same amount of gold/silver held in their name in the trust of the bio-region that they claim. (all men are created equal) Finally all debts would become credits and all credits debts, everything all at once simply changes from a negative to a positive and vice versa. Now you would find yourself re-organized within society with new rules and motivations. The bill from the utility group becomes a check in the mail. Each person or group would pay to work because the motivational force backing this system has changed, the most wealthy person or group would have close to or zero money in their bank accounts making more room to acquire services and goods that are needed, immediately. This would effectively at least in my view eliminate traditional greed and the need for wall street or other similar wasted uses of humanities energy. In today's terms there is no specific amount of money that creates satiety and that leads to "I can never have enough money", or greed. So building satiety into the new money system is of great importance.

Why would anyone do work they have to pay for? To understand this you have to first agree to think from the perspective of interdependence and not from independence. That utility group that is paying all its customers to use its services is going to need its employees (haven't thought of a better word to use yet) to fund those payments, and do the work. Lastly all jobs would have a built in intrinsic value system and the greater the good you are providing to all life the more you would GET to pay to do that work and the lower your bank account goes. Now global warming becomes an opportunity for massive job creation, lots of work to do. The food industry would be motivated to serve nutritional healing foods. The education system would be motivated to truly educate.

Kind of like a collaborative race to better the world and the space you hold putting money motivated thru humanities gifts as the motivational force for doing good and creating beauty. Hopefully this isn't too idealist for you, because I always have been a bit of a dreamer.

Rose

 

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Try this Redwoods
redwoods wrote:

if I have savings of £1000 in the bank and I do not owe anybody anything (except next months rent and bills etc) and I am not in any debt, how is my money 'debt'?

Redwoods

All money is backed by debt.  Your $1,000 deposit allows the bank to lend up to $900 to other people.  (Sorry, no pound sign on my keyboard.)  They can legally say the full amount is still in your account.  This mechanism of “fractional reserve banking” pretends the money is in both places at the same time.  In practice it works well unless too many people want their deposits back at the same time.  That’s called a bank run and is a bankers worst nightmare.  If they have to pay out over 10% of deposits they are broke and are closed by regulators. 

Your money was originally created by someone else’s debt.

The concept is simple once you understand it.  Your money is not debt, it is backed by debt.

Travlin

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Thanks for that and all the

Thanks for that and all the other answers..I asked Paul Grignon (money as debt author) the same question, he was kind enough to respond thus...

"For one thing your bank balance is what the bank owes you in legal tender if you demand it. Thus a "deposit" is actually a DEBT of the bank to you.

The second thing is... where did the £1000 come from in the first place? It was created when someone else took out a loan, ie. a DEBT of £1000 from a bank. So the SAME £1000 is simultaneously owed by your bank to you and by some borrower to his/her bank.

P money in existence < 2P total debt of this money.
If all money is in the same predicament how is the borrower to pay off his/her debt of £1000 if you don't spend it so the borrower can earn it? Isn't that simple and obvious?
Apparently not to economists, who continue to ignore that money is created as debt in the first place and teach us that savings created "stability". "

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Grignon quote

Very cool Redwood!  Paul's video played an important role in my own awakening process.  Indeed.. this debt based money system is inherently non-stable unless it is allowed a good old, deflationary, mal-investment crushing creative destruction every once in a while.     

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Rose

First off, I have to commend you on the title of your post.. delicious in its irony.  

First I would suggest putting an emphasis on bio-regions letting those regions figure out the best way to govern and coalesce, getting rid of state and country boundaries, which don't seem to offer any advantages, thus putting an emphasis on building indiginous cultures creating community and spirituality.

Although I know you probably don't subscribe to any moniker that includes the word, "capitalism"... this part sounds to me fundamentally like anarcho capitalism... relocalizing most certainly must happen. 

What I don't understand about the rest of the world you paint is this;  How do the industries we "work" at, including things like power generation (clean coal with carbon sequestration, of course) continue to function since you have essentially blown up the existing corporate structures, and atomized the wealth away from the corporations and out to the people.  I realize that things like power plants, etc, could operate on models other than corporate, i.e. cooperatives... but still.. how does trade happen in this system?  Since we have a relocalized world from an organizational standpoint, but still have to live with in many cases very distant sources of raw materials... how does trade work in this world?  Certain metals only come from Africa... certain rare earths used in magnets only from China (or what was China).  I don't think you can "spread the wealth" for every raw material.. and if you did.. then nobody would have enough Neodymium in one place to do anything with.   

My dreams are much less ambitious than yours Rose... I only wish that the money system was one that did not allow a select few to operate and exploit it.   

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Yet another installment of

Yet another installment of the Austrian/Objectivist/Libertarian argument of returning to a gold standard vs. everyone else. There is no shortage of superficially attractive arguments for a gold standard, so I find it useless to re-litigate these tired concepts.

 

The facts are that the gold standard was rejected by virtually every country immediately after the Great Depression, and there is strong historical evidence that the faster a given country rejected the gold standard, the faster they recovered from the effects of the depression, directly attributed to increased monetary supply. There is no country today currently on the gold standard. None, nor is there any (realistic) possibility of returning to the gold standard for some very good reasons.

 

To expand on Rosehips’ excellent points in a direction not recognized by the Austrian school is that the social relations of our society are no longer governed by individual relations, rather, by commodity relations.

 

Expanding from the description of money as backed by debt creation (which is certainly true) it is generally accepted that debt based money is a “claim on future labor”. This is an important attribute which deserves greater examination.

 

I shall make the point that the monetary system is inexorably tied to the means of production, specifically, the way in which labor is utilized.

 

Agrarian cultures connected specifically and uniquely to individual labor (as opposed to social labor) have monetary systems tied to this means of production. The same with feudal economies, and to the point- most certainly so do capitalist economies.

 

Economic systems based on capitalist commodity production have, and always will have, monetary systems, currency and banking structures sympathetic to the means of production. Period. Full stop.

 

The tail does not wag the dog, as intellectually appealing as this may seem.

 

To illustrate this we can separate the subject of labor into two generalized categories, 1.) Individual labor, and 2.) Social labor.

 

Individual labor is labor which you use to provide for yourself. This can best be described as self sufficiency, e.g. growing your own crops for sustenance, sewing your own clothes, in general providing for yourself, your family and your immediate community.  If this sounds at all familiar- it should, these principles are the backbone of the PP community, resilience and self sufficiency.

 

However, the principle and embodiment of individual labor is decidedly anti-capitalist.

 

It is important to note that producing something yourself and selling the surplus in the free market is not capitalism- an important distinction often overlooked.

 

A societal bias to predominantly individual labor has profound effects on the monetary system and means of distributing this money. Agrarian (farming) cultures have a very different system of money, they can for example, realistically engage in barter, which does not require money at all, something not possible in a purely capitalist economy. For example, turn of the (20th) century general stores provided credit accounts for farm customers that required goods they could not produce themselves in periods between harvests, with no banks required. Large purchases for land and farm equipment were handled by banks, (or often equipment suppliers) but these were community banks and loans were based on personal relations (not commodity relations) in a very different paradigm. The role, importance, and supply requirements of money were profoundly different then they are today. Nostalgic attempts to return to the halcyon days of rural existence cannot be achieved by modifications to the monetary system, this was dictated by the allocation of labor and the means of production.

 

Social Labor, with its associated monetary system is what we have today. The difference is hugely significant. Today, virtually no one creates their own sustenance as a result of their individual labor. Almost no one.

 

Rather, we are in a wage labor system. A system wherein we sell our individual labor to someone else, in return for wages, which we use to buy the commodities that we require for sustenance. In such a system, there is no other way to access these commodities, and of course money is the conduit and common value denominator that is used to buy these essential commodities. This means money has a very different role in society.

 

Barter is largely an impossibility, as you have to face the double coincidence of needs without having a reproducible commodity to trade for (other than your own labor). In fact, the entire monetary system is impacted by this profound change brought about by wage labor. Further, although off point, it must be said that this exchange of labor is also by its very definition exploitative.

 

Another attribute of wage labor very much on point is that fact that its value is determined socially, hence the moniker social labor. This means that labor value is contextual as determined by the greater society.

 

In plain English this means that if you spend your day making mud pies, your labor has virtually no value, and if it has no value than you cannot survive. The reason it has no value is not because you did not work hard, it is because no one in the community has any need or desire for mud pies, so they won’t pay you a penny for them. If however, you expend the same labor to produce a commodity that can be converted to value, someone will pay you for your labor. The amount and extent for which they will pay is socially determined, e.g. the laws of free market exchange and supply/demand apply here. If lots of people do the same thing you do, then your labor value declines, if few do, than your labor value increases. In addition, labor redistributes itself to chase the higher value activities, and shifts away from lower value activities. This can and does complicate the need for everyone to exchange labor (of now fluctuating and socially determined value) to access critical to life commodities.

 

What does this have to do with money?

 

The monetary system is designed to be sympathetic to this use profile. The consumer credit system, the banking system, the wage labor system, and the means by which new money is injected into the economy for business efforts is built specifically to accommodate these needs- and none other.

 

You will never change the monetary system nor modify it any meaningful way in a manner that is not profoundly sympathetic to the generalized and mainstream  means of economic production.

 

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RoseHip wrote: I would argue
RoseHip wrote:

I would argue that usury based money is debt. Just saying Money is Debt leaves out the modifier before money that gives money it's conscious orientation within our world. Change the modifier and money will change along with it. 

 

how do you mean the modifier before money ?

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if anyone can shed some light

if anyone can shed some light on darbikrash's post please feel free to do so..

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You said it Redwoods....

if anyone can shed some light on darbikrash's post please feel free to do so..

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Jim H wrote: One argument
Jim H wrote:

One argument that folks will make against the use of a currency whose supply cannot be expanded rapidly at times by some mechanism (as debt based money is during a rapid economic growth phase like the housing bubble) is that the money system will somehow impede growth.  This is rubbish.. and shows a lack of simple, logical thinking.  Many folks have been indoctrinated by the bankers, without even recognizing it, and they will parrot this line about growth.  The simple fact is that the money available can grow in two ways;

1)  Print more

2)  Allow for the buying power of existing money to increase (aka deflation)

(...................)

So we know that debt based money works best when the system is continually expanding.. and this is pretty simple to understand once you realize that the creation mechanism makes the principle for a loan, but not the extra increment of money necessary to pay the interest on that loan.  If the system is continually growing, either organically, or via inflation, or both, then the system (the bankers mainly) are happy.  Do we have to have such a system?  No, we don't.  Could we have a system that is geared more toward deflation?  One where the purchasing power of a saver's money could tend to increase over time (#2 above)?  Yes, we could.. and don't let any banker-indoctrinated fool tell you it can't.  For now, Bitcoin is the currency that is deflationary by design.. and the free market is really, really liking it.  Do you see why?      

No.

1.) It is not nececcary for the "monetary system" to grow to pay the interest on loans. Conflation of stocks vs flows.

2.) Debt based money is a claim against future labor. Labor must expand to provide value to service loans.

3.) To understand debt based money you must understand labor, and the way labor is valued.

4.) You can't change the monetary system if you dont change the way labor value is exchanged.

Simple.

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Darbikrash

You are good at stating "laws" without backing them up with examples.

Let me address your first point;

1.) It is not necessary for the "monetary system" to grow to pay the interest on loans. Conflation of stocks vs flows

Thought experiment.. let's think about the opposite of my purported need for growth:  Our monetary system is based on the creation of debt.  If everyone were to start living within one's means... saving the money necessary for each purchase before buying, be it a house or car (for the individual), a sewer system (for the town) or an aircraft carrier (for the Fed. Government) then the money system would begin contracting as existing loans are paid off and new ones are not created.  The total debt chart turns downward.  Eventually there is no more money.  

Do you argue that this is not true?  Because unless you do, I don't see how you justify your point above?  The stocks vs. flows argument may work in an idealized Steve Keen system where he can show some kind of equilibrium, but we don't live in farmville  .. and the last four decades of debt growth, being exponential as Chris often points out, sure don't act like growth is not a monetary imperative... and Ben Bernanke's targeting of a 2% positive inflation rate, even though his stated goal is "price stability" sure does not belie the idea that growth, whether real or even nominal, is not an imperative.  

I am not an academic.. I am an engineer.  I don't live in the farmville land of ideas.  I live in the real world of demonstrable cause and effect, where historical track records speak to the nature of systems.      

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Spaceship Earth

Largely humanity has been fueling our Spaceship Earth (love ya bucky!) with debt based money, and now there are enough examples within the interference pattern of life for the average citizen of average intelligence to begin to questioning the world about them. No matter what direction or orientation you argue it doesn't take many degrees of separation to come to the conclusion that Debt based money and all of its cascading relationships are the fuel that is exchanging our resources for pollution and many other free radicals currently floating around Mother Earth.

I agree with most of what darbikrash brings to the conversation, with this one insight. Life experience has taught me that when someone provides a hard line perspective like....

"You will never change the monetary system nor modify it any meaningful way in a manner that is not profoundly sympathetic to the generalized and mainstream means of economic production."

They are actually communicating the other perspective in addition, which would look like this....

There is opportunity to change the monetary system modifying it in meaningful ways that is profoundly sympathetic to the nature of all life, by changing our relationship to the means of economic production. 

So what I heard darbikrash communicating is that he/she has part of the answer or relationship to, ways this might be accomplished. I would encourage darbikrash to expand you are really making some great points.

Side note; by making it the birthright of every single human born onto earth 1/8th billion of the world's gold reserve, this is not backing the monitary system with gold but it is backing life with gold, serving to communicate directly that all men are created equal. Meaning the most fundamental relationship is between man with his creator, not man and his creation of money.

Rose

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I love your comments Rose

I also love Bucky.. have a signed edition of Synergetics on my shelf. 

You said,

Largely humanity has been fueling our Spaceship Earth (love ya bucky!) with debt based money, and now there are enough examples within the interference pattern of life for the average citizen of average intelligence to begin to questioning the world about them. No matter what direction or orientation you argue it doesn't take many degrees of separation to come to the conclusion that Debt based money and all of its cascading relationships are the fuel that is exchanging our resources for pollution and many other free radicals currently floating around Mother Earth.

I am not sure how I can be agreeing with you so clearly.. and you agreeing with Darbi.. while I still don't know  what the heck Darbi is talking about.. but that being said.. I think Debt based money is behind many of our ills, and you seem to be saying that as well.  

Side note; by making it the birthright of every single human born onto earth 1/8th billion of the world's gold reserve, this is not backing the monitary system with gold but it is backing life with gold, serving to communicate directly that all men are created equal. Meaning the most fundamental relationship is between man with his creator, not man and his creation of money.

This is a nice thought.  I have no problem paying forward into a total reset of the system.. i.e. I would give every ounce of Gold I own back to the cause of a reset that insures a new system where psychopathic bankers, industrialists, and politicians can no longer run the show for their own amusement and enrichment. The details of this reset are beyond my comprehension. 

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RoseHip
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Left brain vs right brain

Jim H you just brought a tear to my eye, and my hope in humanity just got a boost. I love that you had the realization of giving your gold for something bigger than yourself. That communicates a large aspect of what kind of person you truly are. I'm very impressed!

Most of the discussions, but not all here on PP are mostly engrained from the perspective of the left hemisphere a science proof based literally interpritation of the world. That is not my strenght and frankly gives me a head ache, so I perfer a more abstract creative inclusive approach, that seaks to hear authenticity rather than correctness. It's more important to grow relationships than to be right. But if someone is completely wrong please implode their perspective completely for the sake of everyone.

(still can't figure out Aurthur Robey, which is why I love and am interested by him so much, how can someone communicate so much with so little? He has a true gift I guess ).

Rose

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Jim H
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Arthur Robey

Oh man... you really gave me a long deep belly laugh there Rose in talking about our exalted community member Arthur.  Indeed, a man of deep thoughts and few words.  I will owe him a beer (or four) if LENR ever pans out as a future energy source.      

As one rooted more in the sciences, I still can see both sides to some degree (I write and draw left handed).  It is my observation that at the edge of our understanding of science, the questions turn back to philosophy;  Why do the photons know if they are being observed by us in the classic two slit experiment?  By what means do entangled particles communicate their connectedness?  Does intention really have power?  (I think so)

I assert that the Universe is incredibly humbling. 

http://www.youtube.com/watch?v=9QcKDvcnZrE   

 

 

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gillbilly
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Social labor

Darbikrash's post is explaining that the monetary system we have is in direct relationship to the socially agreed upon system we've created. He states that debt is a claim on future labor (CM would say a claim on future wealth, basically the same thing). He's going back to Marx, Smith, and Ricardo (as we all do when discussing capitalism). The relation between labor and the capitalist is essential to understand:

Darbikrash wrote: Social Labor, with its associated monetary system is what we have today. The difference is hugely significant. Today, virtually no one creates their own sustenance as a result of their individual labor. Almost no one.

Rather, we are in a wage labor system. A system wherein we sell our individual labor to someone else, in return for wages, which we use to buy the commodities that we require for sustenance. In such a system, there is no other way to access these commodities, and of course money is the conduit and common value denominator that is used to buy these essential commodities. This means money has a very different role in society.

The word "social" is key. When capitalism was forming there was a need to have the farmer (the individualized laborer working to support himself/family) to come into the city and work as a social laborer (creating goods for others).  This creates the conditions for commoditization. Marx states that a commodity's value is equal to the amount of labor it has within itself. Labor does not have to be direct manual labor, but can be indirect labor as well (such as overhead, labor to create the machinery that creates the product, etc.). If it takes twice as much labor to create a computer chip as it does a pair of shoes, then it has twice the value. CM would probably replace the word labor with energy since all labor requires energy (the same thing). Please understand I'm using Marx's example, and that Marx was rigorously analyzing a "pure" capitalist system, one without monopolies, unions, misinformation, etc.

When we moved to a social labor system, the value of someone's labor became subjected to the values of the society by supply and demand, i.e. the mudpie example. If you are strictly working as an individual laborer to support yourself, how others value your labor doesn't matter.

Darbikrash wrote: This can and does complicate the need for everyone to exchange labor (of now fluctuating and socially determined value) to access critical to life commodities.

This is what creates market inefficiencies. Social values are constantly changing (beanie babies anyone?) and technology plays its role in creating inefficiencies (in labor/unemployment). Through these inefficiencies comes profit. Marx, Smith, and Ricardo would all agree that a laborer's salable energy is worth the  amount of socially required labor it takes to keep the laborer alive. This value is not equal to that of the socially commoditized value of a product, hence, you get profit from the difference. That's a little simplistic, but you get the idea.

So what does this have to do with the monetary system based on debt (future claim on wealth/labor)? This debt based money system directly reflects the inherent relationship between the capitalist and the laborer. The claim on future wealth/labor is needed to keep the worker coming back to work tomorrow so that he/she will continue to produce the goods the capitalist needs to continue making profits. I'm not implying a judgement on it since many of the products produced go to maintaining the life and quality of life of all in the society, but it comes down to these social contracts, belief systems, narratives, etc. that drive our economy and the money system.  Marx called all the non-economic stuff the superstructure component of an economy...stuff like religious beliefs, making laws and creating government to help maintain the economic system, they all have to align with the organization that a society creates to survive, i.e. the structure (material commoditization) and superstructure (beliefs, laws, govt.) need to be alignment for an economy to function properly.

Hope that helps.

 

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RoseHip
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Wait what did you say?

Gillbilly thank you so much for this information, I have some questions if you will

Gillbilly wrote: This debt based money system directly reflects the inherent relationship between the capitalist and the laborer. The claim on future wealth/labor is needed to keep the worker coming back to work tomorrow so that he/she will continue to produce the goods the capitalist needs to continue making profits.

Have you just confirmed that our entire system is predicated upon a form of debt bondage slavery?

Gillbilly wrote: I'm not implying a judgement on it since many of the products produced go to maintaining the life and quality of life of all in the society, but it comes down to these social contracts, belief systems, narratives, etc. that drive our economy and the money system.

Maybe you should, we all should imply a judgment because of how important this underlying motivational force is to our future ability to exist as a species! If you where to let your hair down, Gillbilly, what would your judgment look or feel like? I am genuinely interested.

Gillbilly wrote: Marx called all the non-economic stuff the superstructure component of an economy...stuff like religious beliefs, making laws and creating government to help maintain the economic system, they all have to align with the organization that a society creates to survive, i.e. the structure (material commoditization) and superstructure (beliefs, laws, govt.) need to be alignment for an economy to function properly

So everything else is also influenced by this form of debt slavery???? I am really freaking out here, especially the part for an economy to function properly. Shouldn't the greater concern be for how the system is working for the people/planet and not directly about the economy? Ahhh now I understand the true reasons for wealth accumulation in the hands of a few and the world view of infinite growth paradigm on a finite planet. Are these not just not the most obvious unavoidable symptoms of the system that you just described? 

Rose

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darbikrash
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Posts: 573
Jim H wrote: You are good at
Jim H wrote:

You are good at stating "laws" without backing them up with examples.

Let me address your first point;

1.) It is not necessary for the "monetary system" to grow to pay the interest on loans. Conflation of stocks vs flows

Thought experiment.. let's think about the opposite of my purported need for growth:  Our monetary system is based on the creation of debt.  If everyone were to start living within one's means... saving the money necessary for each purchase before buying, be it a house or car (for the individual), a sewer system (for the town) or an aircraft carrier (for the Fed. Government) then the money system would begin contracting as existing loans are paid off and new ones are not created.  The total debt chart turns downward.  Eventually there is no more money.  

Do you argue that this is not true?  Because unless you do, I don't see how you justify your point above?  The stocks vs. flows argument may work in an idealized Steve Keen system where he can show some kind of equilibrium, but we don't live in farmville  .. and the last four decades of debt growth, being exponential as Chris often points out, sure don't act like growth is not a monetary imperative... and Ben Bernanke's targeting of a 2% positive inflation rate, even though his stated goal is "price stability" sure does not belie the idea that growth, whether real or even nominal, is not an imperative.  

I am not an academic.. I am an engineer.  I don't live in the farmville land of ideas.  I live in the real world of demonstrable cause and effect, where historical track records speak to the nature of systems.      

Of all the points mentioned, I find it curious that you have focused on just the first point. The thought exercise that you propose cannot be accurately analyzed without using system dynamics, which as an engineer, you will no doubt appreciate the significance of this remark.

The key principles that will guide you (or anyone else) to the correct answer are found in system dynamics, namely models in the time domain. Trying to solve this within an Austrian framework without mathematics capable of recognizing simultaneous differential equations means you are going to get a wrong answer.

If you want to “do the math” here is a link to one of Steve Keen’s papers on this very subject. The laws you seek are verifiable mathematics, not hand waving. He speaks (with equations to back it up) of static economies in equilibrium (as you suggest) as well as dynamic economies that receive frequent and multiple infusions of money capital. But don’t take his word for it, if your differential calculus is rusty, avail yourself of a grad student with a good scientific calculator and see for yourself……

Link

Repayment of debt: ‘negative money’ or a bank asset?

 

Table9.2 models the conventional treatment of debt as‘negative money’

and of the repayment of debt as necessarily destroying money. A flow is repaid,

which results in a deduction from the firms’ deposit

account and an identical deduction from the firms’ loan account. Both

bank liabilities (the sum of deposit accounts, including the bank’s own

deposits) and bank assets fall.

 

 

As Figure 9.2 shows, all accounts gradually taper to zero over time, and

hence economic activity ceases – whereas if firms do not repay their debt,

economic activity can continue indefinitely. This makes the repayment

of debt rather foolish from everyone’s point of view: if debt really is

negative money, then it is in everyone’s interests (bankers, capitalists,

and workers alike) that it never be repaid.

 

 

However, if debt is in fact a record of a legal obligation, and money

is not destroyed when debt is repaid, but instead stored as an asset of

the bank – in the bank vault, so to speak – then a very different

picture emerges. The repayment of debt keeps bank assets constant, but

alters their form from active loans to passive reserves. Once the bank

has reserves, they can be relent at the rate, enabling a constant

level of economic activity to be maintained, as in the original model without debt repayment (though at a lower level of activity, since the

level of active deposits falls).

 

 

 

In contrast to the ‘debt as negative money’ model, the model shown

in Table 9.3 behaves similarly to the previous model without debt

repayment, in that a constant level of economic activity is sustained from a single injection of money.

 

 

Unfortunately, this leads to the far more interesting point as to where the intrinsic growth imperative in capitalism comes from…..and effectively defeats the notion of decoupling the monetary system from the means of production.

By the way Jim, I am on your side regarding debt based currency, living within one’s means, etc. I disagree that the system as we now observe it can be contained by simple (or even complex) modifications to the monetary system alone. There is a fair body of work from economists and mathematicians alike that suggest that the minimum allowable global (!) growth rate for capitalism is on the order of 3-3.5%- in perpetuity. This has nothing to do with monetary growth. Just not sure where this is all going to come from….

 

As it stands, this model shows that the circuitist vision fills its objec-

tives of showing the essentially monetary nature of capitalism, and

explaining how the surplus generated in production is monetized by

the process of monetary circulation.

 

 

Many thanks to Gillbilly for the (previous) clear and insightful post.

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