Austrian & Keynesian Theories Vs. Mathematical Facts

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Austrian & Keynesian Theories Vs. Mathematical Facts

George Orwell’s classic 1984 describes “doublethink” as holding two contradictory beliefs simultaneously and accepting both.  To do so denies the existence of objective reality. A good example is the belief in economic theories that contradict mathematical facts.

Both Austrian and Keynesian economic theories hold fundamental beliefs that do not square up with math.  The exponential growth of debt in our debt based money system is ignored and refuted by both theories.  In place of math, we are offered beliefs such as the “quantity theory of money.”

To deny the exponential growth of debt cuts to the very core and credibility of monetary theories.   If the exponential growth can be proven, then equally, Austrian and Keynesian theories are dis-proven.  Economic theories hide the fact that a debt based money system is usury by definition and neither Austrian nor Keynesian theories are sustainable.  Both systems create bankruptcies and defaults while enriching banks at the expense of the people.

The inherent and terminal mathematical flaw of debt based systems can be proven anecdotally.  Our total money supply (M3) is around $15 trillion while our national and private debt total around $55 trillion.  How do we pay an existing $55 trillion in debt with a total of $15 trillion?  We are short $40 trillion, where will that money come from?

In our debt based monetary system there is only one way to add money and that is through new debt.  Eventually, the $40 trillion must be borrowed.   If the money is borrowed, it will add new debt of over $40 trillion (principal + interest).  The debt can only grow, it can never be repaid as the gap between money and debt will continue to increase.

The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions.  This is true when we spend money but it is not true when we repay debt.  When debt is repaid it is extinguished, that is that the money ceases to exist which means that money can only be used to repay principal debt once.  Most of the interest debt returns to circulation but never the less, the gap between money and debt will still increase since only the principal is created through new debt which brings new interest.

The specie of money doesn’t matter.   If our money were backed by gold, the gold would simply be transferred to those who collect the interest.  We saw this in 1933 when the gold standard collapsed and we lost most of our gold.

The two prevailing economic theories give us a false sense of choice just like the two party system of Democrats and Republicans.  The science of money has been replaced by a belief system just like in the dark ages when science was dominated and defined by religious beliefs.  If the next renaissance is to happen, it will come when the science of money displaces unfounded beliefs.

We are suffering from an intellectual amnesia.   The Babylonians of antiquity understood the destructive power of debt interest and at one time Christianity and Judaism forbid it as sinful usury.   The Islamic faith still forbids debt interest and perhaps that is a reason that we are clashing. 

Our debt based monetary system is a form of usury that will result in the transfer of all wealth from the many to the few.   The intended outcome is debt slavery and tyranny under the cruel boots of oligarchs - a financial aristocracy. 

People are becoming discontent and they sense that something is terribly awry.  To rebel against the status quo invariably leads to another tyranny as we have seen through democratic elections and third world rebellions. 

If a successful peoples revolution is to happen it will really be an awakening.  A higher consciousness where we come to understand how and why the game has been rigged by flawed monetary theories.

Larry

Note: For real solutions stop by Money Talk$ by Byron Dale and Thomas Hedin - discover the difference between debt and wealth based money - take the red pill.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

 At the risk of appearing under the influence of the blue pill I'd like to ask a question regarding the debt vs. money supply. Please be patient as all this macro econ stuff is new to me.

If you owed me $1,000, and your brother owed you $1,000, and his neighbor Fred owed him $1,000, and I owed Fred $1,000 would the total debt of our "economy" be calculated at $4,000 when in reality it's really zero? If so then this might offer an alternative explanation how $15 trillion in money supply might satisfy $55 trillion in debt.   For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Just a thought.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

earthwise,

Interesting question - let me try to answer.  Personal loans to others does not create new money.

The $1,000 was created as an electronic entry on a banks computer.  The repayment of that debt is what will cancel the bank entry.   Before it is repaid, it can be personally lent or spent over and over.

All of our money is temporary as it must eventually be repaid or written-off through default.  If new loans are not created, the money supply will decrease every day by the amount of principal repaid (or greater).  Money is being destroyed constantly which means that new loans are required to offset the "leakage." 

Eventually, there will not be enough wanting and worthy private borrowers.  That's when the government steps in to act as the borrower of last resort.  That's where we are today.  If the government stops running huge deficits, the system will contract, that is how depressions happen.

BTW, what you were describing is exactly what banks do.  They create money for free to lend out to others and expect to be paid back with interest.

Larry 

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thanks Dr.

So if I understand it correctly the M3 money supply is the remainder of what was loaned into existance but not yet repaid and so is yet in circulation. What happened to the other 40 trillion that was loaned into existance (55 trillion in debt minus 15 trillion still extant) that constitutes the debt? If it was loaned into existance and not repaid to extinguish the debt where did it go? (I sure as heck didn't get any of it!!)

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

earthwise wrote:

So if I understand it correctly the M3 money supply is the remainder of what was loaned into existance but not yet repaid and so is yet in circulation.

Yup, that's the way I understand it. 

earthwise wrote:

What happened to the other 40 trillion that was loaned into existance (55 trillion in debt minus 15 trillion still extant) that constitutes the debt? If it was loaned into existance and not repaid to extinguish the debt where did it go? (I sure as heck didn't get any of it!!).

Hahahah, I didn't get any either! 

The $40 trillion shortage is the result of years of debt growth.  The gap grows slowly at first but the growth isn't linear - it grows exponentially  (H/T CM Crash Course).

One way to reduce the gap is to incur lot's of bankruptcies and defaults.  This creates a great deal of hardship and high unemployment but it helps to "reset" the system.  We are beyond the point of canceling the debt out through defaults.  For example, most of our private debt is in mortgages (residential and commercial).  And, at the end 2007, the total private mortgage debt was around $14.5 trillion.  So, if every private mortgage in the country defaulted, we'd still have a $25 trillion shortage.

Below are a couple charts borrowed from CM, they help show the exponential growth of debt:

   

1) Money supply growth (see chart above). It took us from 1620 until 1973 to create the first $1trillion of US money stock (measured by adding up every bank account, CD, money market fund, etc). Every road, factory, bridge, school, and house built, together with every war fought and every other economic transaction that ever took place over those first 350 years, resulted in the creation of $1 trillion in money stock [1]. The most recent $1 trillion? That has been created in only 4.5 months. The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. The fit is nearly perfect (with a correlation of 0.98, for those interested). Data from the Federal Reserve.

3) Total credit market debt (that’s all debt) had finally exceeded $5 trillion by 1975, but has recently increased by $5 trillion in just the past 2 years (from 2006 - 2008), and now stands at nearly $50 trillion. In order for the next twenty years to resemble the last twenty years, debt would have to expand by another 3 to 4 times, to somewhere between $150 trillion and $200 trillion. How likely do you think this is? Data from the Federal Reserve.

Larry

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Here is a radio interview with Byron from Saturday November 7th, 2009.

http://podcast.gcnlive.com/podcast/erskine/1107093.mp3

If you owed me $1,000, and your brother owed you $1,000, and his neighbor Fred owed him $1,000, and I owed Fred $1,000 would the total debt of our "economy" be calculated at $4,000 when in reality it's really zero? If so then this might offer an alternative explanation how $15 trillion in money supply might satisfy $55 trillion in debt.   For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Just a thought.

If I owed you $1,000 dollars and you were a private individual then the only way you could have gotten that money in the first place is for you or someone else to go to a private commercial bank and get an interest bearing loan.  Now if you loaned me the 1k at interest that same money is now drawing interest twice and when I paid you back, that money would not be extinguished.

If I owed you 1k and you were a commercial bank as a pay back the principle part of the loan that part of the loan is written off the books and destroyed.  The biggest problem here is that as soon as time and interest kick in, the debt grows but the money supply does not making it impossible for that loan to be repaid, if that loan has to stand on it's face.  It's true that individually we can get out of debt, but only by capturing somebody else's borrowed principle, leaving them even shorter on money to get out of debt.  Eventually this system transferes all the property of the people over to the banking system.

Indivually we can owe each other money, but currently ALL money is owed to the banking system as the banking system owns all the money all the time.

 

For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Banks don't lend money they get from anyone else.  Banks lend brand new 'money' every time there is borrower available and the bank wants to create new money.

 

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thanks DrKrbyLuv and Thomas Hedin

Your posts were quite helpful, depressing but helpful. Now I know why ignorance is bliss. We're screwed.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

We aren't screwed.  There is legislative tools in action right now to put debt free, wealth money into circulation as we speak.  What we need is for people like you to demand that our legislators start passing laws to benifit the people, instead of laws that only benifit the banking system.

The MTA is a great first step and it's a bill i'm personally lobbying for.  Read from the bottom to the top if you're interested.  I would love to hear your opinion some day.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Hello Thomas,

I greatly enjoyed the Erskine interview with Byron Dale.  It's always great when the interviewer has read the book and Erskine sure did his homework with Byron Dale's "Modern Money Secrets."

  Link to Book 

I urge anyone who wants to learn about money to listen to this interview.  It will open your eyes and give you some hope that there are solutions.

In the interview gold backed money comes up and Byron Dale references a "Harvard Journal" that evidently discusses the amount needed; which greatly exceeds what we have - do you have a link for that publication?

Byron gives an interesting answer to the question "if the banks create money, how can they go under?"  That answer alone is worth the listen.

One thing that never ceases to amaze me is how little economists, accountants, investors and policy makers understand the mechanics of money.  I agree that things can be fixed IF people start to understand that they are being fleeced.  Many spend a lot of time preparing for the inevitable but no time in understanding how and why we are deep in crisis.

Larry

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Here is a link to the document from Harvard.

http://www.wealthmoney.org/documents/CoinageClause.pdf

Also here is the link to the Erskine Overnights Radio Interview.

http://www.wealthmoney.org/ErskineNovember0709.html

Here is a video series from the same day he did the Erskine Interview.  Very informative.

 If you have the time to watch all the parts it's a must see.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

I know that few here will defend Austrian or Keynesian economics and most agree with the exponential growth of debt.  This is a key to the Crash Course.

I thought some might be interested in what the Austrian proponents have said in response to this post.  Here are two links, both have generated a big response:

Larry

Note:  Special thanks to Chris Martenson, I used his excellent graphs from Exponential Money in a Finite World

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

WOW! Larry! What fantastic work you've done. Really enjoyed reading this thread. You've got a gift for explaining things clearly.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts
DrKrbyLuv wrote:

George Orwell’s classic 1984 describes “doublethink” as holding two contradictory beliefs simultaneously and accepting both.  To do so denies the existence of objective reality. A good example is the belief in economic theories that contradict mathematical facts.

Both Austrian and Keynesian economic theories hold fundamental beliefs that do not square up with math.  The exponential growth of debt in our debt based money system is ignored and refuted by both theories.  In place of math, we are offered beliefs such as the “quantity theory of money.”

To deny the exponential growth of debt cuts to the very core and credibility of monetary theories.   If the exponential growth can be proven, then equally, Austrian and Keynesian theories are dis-proven.  Economic theories hide the fact that a debt based money system is usury by definition and neither Austrian nor Keynesian theories are sustainable.  Both systems create bankruptcies and defaults while enriching banks at the expense of the people.

I have been Icelanded (grounded due to the ash cloud) for the weekend so I guess I have some time to burn...

Larry,

You are making some assumptions in this premise that I don't think that you ever make any attempt at proving.  I know you would love to associate Keynesian and Austrian theories together because it would make disproving Austrian theory much easier, but you have done no such thing.  Until you can somehow prove that they deserve to be associated together, I will ignore any premise that groups them.

Now can you explain how the Austrian theory is somehow disproven by the current debt based monetary system?  I would assume a proof would have to be along the lines of:

  1. All Austrians believe in debt based money
  2. All debt based monetary systems are unsustainable
  3. Therefore the Austrian theory is mathematically invalid

Seems to me until you prove premises 1 and 2, you certainly cannot claim 3.

 

I will now try and make a counter claim against your wealth based monetary systems.

  1. Any monetary system that requires FORCE for its continued existence is immoral or invalid.
  2. All proposed "wealth money" / "sovereign credit" / ... (whatever you want to call them) monetary systems require the use of FORCE for their continued existence.
  3. Therefore all proposed "wealth money" systems are immoral or invalid.

Do you disagree, and if so, with which premise?

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

 

Larry and Thomas,

 

Suppose for a moment that  banks stopped expanding credit,    and the government stopped issuing bonds.     Now lets ask your question------

Where are we going to get the money to pay the interest on all those  outstanding bank loans?

Where is the government going to get the money to pay the interest  and principal on those bonds?

 

And an off topic question if you please:

How much gold will it take for people to accept them as money?

 

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

 

Goes211,

And who do we know  is able to provide such force?       Hint:   it's not the evil international banking cartel.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

okubow, thanks for the nice words, really appreceate it.  Hopefully people will look deeper into the money issue than Kenysian and Austrian economics.  Both are fatally flawed and both will lead to exactly what we have now - perpetual and unsustainable debt.

Carl Veritas wrote:

Suppose for a moment that  banks stopped expanding credit,    and the government stopped issuing bonds.     Now lets ask your question------

Where are we going to get the money to pay the interest on all those  outstanding bank loans?

Where is the government going to get the money to pay the interest  and principal on those bonds?

The government should stop issuing bonds immediately and begin issuing money instead.  Both are options of sovereign credit.  The national debt is a national fraud.  The IRS, like the Fed is NOT a government agency, both were created in 1913 to drain the wealth of America.

Larry

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts
Carl Veritas wrote:

Goes211,

And who do we know  is able to provide such force?       Hint:   it's not the evil international banking cartel.

Carl,

I absolutely agree.  That is what really bothers me about all this talk about "sovereign money".  As a serf in the current monetary system, I am not interested in merely choosing a new lord.  What I want is freedom to be my own master.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

goes211 wrote:

...I know you would love to associate Keynesian and Austrian theories together because it would make disproving Austrian theory much easier, but you have done no such thing. Until you can somehow prove that they deserve to be associated together, I will ignore any premise that groups them.

Now can you explain how the Austrian theory is somehow disproven by the current debt based monetary system? I would assume a proof would have to be along the lines of:

1. All Austrians believe in debt based money

2. All debt based monetary systems are unsustainable

3. Therefore the Austrian theory is mathematically invalid

Hello goes,

I associate Austrian and Kenyesian beliefs in that both miss the mathematical problem of a debt based money system.  The exponential growth in debt cannot be sustained (check CC).  There is little math in either which is amazing since economics is mostly about numbers.

Ignoring this terminal flaw is like designing a ship to slowly sink.  Both should be designed to stay afloat.

I have asked many Austrian buffs if they can provide a link or a reference that addresses the exponential growth of debt, an ineveitable part of the dogma that they preach.  They avoid math at all cost because it quickly disproves their theories.

Austrian and Keynesian theories have taken science out of economics.  The Austrians are more anti-science than the Keynesian:

Wiki Criticism..."modern Austrian economics generally lacks scientific rigor,[7][79] which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,[80] but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.

A related criticism[81][82] is applied to Austrian School leaders; these leaders have advocated a rejection of methods which involve directly using empirical data in the development of (falsifiable) theories; application of empirical data is fundamental to the scientific method.[83] In particular, Austrian School leader, Ludwig von Mises, has been described as the mid-20th century's "archetypal 'unscientific' economist."[84] Mises wrote of his economic methodology that "its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts."

Also, Murray Rothbard was an adherent of Mises's methodology (and though Rothbard assigned a sort of empirical description to it, he comments that "it should be obvious that this type of 'empiricism' is so out of step with modern empiricism that I may just as well continue to call it a priori for present purposes"[86]). Additionally, the prominent Austrian, F. A. Hayek, stated his belief that social science theories can "never be verified or falsified by reference to facts."[87] Such rejections of empirical evidence in economics by Austrian School leaders have led to the school being dismissed within the mainstream.[81]

Another general criticism of the School is that although it claims to highlight shortcomings in traditional methodology, it fails to provide viable alternatives for making positive contributions to economic theory.[88] In his critique of Austrian economics, Caplan stated that Austrian economists have often misunderstood modern economics, causing them to overstate their differences with it. He argued that several of the most important Austrian claims are false or overstated. For example, Austrian economists object to the use of cardinal utility in microeconomic theory; however, microeconomic theorists go to great pains to show that their results hold for all monotonic transformations of utility, and so are true for purely ordinal preferences.[7][15]

Caplan has also criticized the school for rejecting on principle the use of mathematics or econometrics. In response, Austrians argue that neoclassical economists fail to recognize hidden (and not necessarily true) assumptions they make to arrive to tractable mathematical models.[89] Austrians also claim that econometrics is fundamentally based on mathematically and logically invalid summation and averaging of demonstrably non-additive personal utility functions, and therefore is subjective.

BTW, the exponential growth of debt was known before Mises was born.  I don't think it's an accident that intelligent people Mises misses the obvious.  Austrian economics is a bought phony science to help perpetuate the status quo.

Larry

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Larry,

Why won't you allow  the people to decide what money they want to use?   

 

 

 

 

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

All Austrians believe in debt based money

I guess there may be 1 or 2 out there that do no, but I've yet to meet or talk to any of them but if they got away from advovated specie backed money wouldn't they cease to be a austrian?

All debt based monetary systems are unsustainable

If you have to borrow the prinicple into exsistance, then in order to be able to pay the interest on your loan somewhere else in the economy someone has to borrow that too, eventually with society mortgaged to the hilt all debt money systems collapse.  They have a lifespan not greater than 300 years.

Therefore the Austrian theory is mathematically invalid

Basically because they absolutely avoid the subject on how all new money will be created and moved into circulation.

Any monetary system that requires FORCE for its continued existence is immoral or invalid.

There is no law called check book entry 'money' nor is there any law forcing its acceptance.  The reason why our monetary system is invalid is because its all based on interest bearing debt.  The only reason if any reason you're forced to use this 'money' is because there is no other kind. 

All proposed "wealth money" / "sovereign credit" / ... (whatever you want to call them) monetary systems require the use of FORCE for their continued existence.

Can you show any historical proof to back this up? 

Therefore all proposed "wealth money" systems are immoral or invalid.

Are you trying to say a money system where its impossible to pay the interest unless you force someone else deeper into debt or go through forecloser is a moral and valid system? 

Are you trying to say that allowing the people to earn their medium of exchange into circulation based on their production, as a payment, with no debt, where it can only be used to enhance fair trade is immoral?  Please explain.

 

 

 

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Suppose for a moment that  banks stopped expanding credit,    and the government stopped issuing bonds.

As soon as the banks stopped creating new money, there would be no new creation of money, and as people continued to pay on their mortagages the money supply would begin to dry up.  We would soon hear of mass foreclosers, and eventually, in time the nation as a whole would slide into complete financial ruin.

Bonds are not money, and basically are just a way for people to be tricked into believing that all money simply must be borrowed into exsistance.

Where are we going to get the money to pay the interest on all those  outstanding bank loans?

It was never created and therefor it does not exsist.

Where is the government going to get the money to pay the interest  and principal on those bonds?

Carl, there is one flaw in this statement.  The government (federal) never pays the principle on the bonds.  It only pays the interest.  Hence this is why there is an ever growing debt.  If just the federal government paid off its share of this fraudulent debt it would wipe out 100% of the money supply in the USA, and still leave over 50 trillion dollars of interest bearing debt, with 0 money.

To answer your question though, since the government creates no money, and the people can't create any, the only place the government could get the money is by taxing the people.  The only place the people can get the money to pay the taxes is by going to a private commercial bank and taking out an interest bearing loan.  Or the government could borrow again from private commercial banks.

Since your question is around a complete cutoff of credit, the real answer is it is impossible because the shortage of money in the USA is staggereing.  $59 trillion dollars of debt, and only a 7.7 trillion dollar money supply.  If even 1 in 10 loans were paid off, it would completely destroy the money supply in the USA.

Only someone completely insane could think this is a sustainable system.

Thanks for those questions Carl.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

And who do we know  is able to provide such force?       Hint:   it's not the evil international banking cartel.

There is no law requiring that you accept bank credit (the true money in this system because no currency or coin can enter circulation without the bank credit exsisting first).

There actually isn't even a law calling bank credit money.  It's only accepted as money by pure mental deception and common acceptance.  This is exactly what the Austrian School advocates.  No laws on how money functions, they just want people to focus on what money is (specie, ect.)

I suspect, but can't prove, the reason we hear so much propoganda about letting the people just choose is because the banking system does not want the people to start thinking about how to design a monetary system that doesn't give a select few an unfair advantage over the rest.

Laws should be about making things fair and work for everyone.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Goes211

I absolutely agree.  That is what really bothers me about all this talk about "sovereign money".  As a serf in the current monetary system, I am not interested in merely choosing a new lord.  What I want is freedom to be my own master.

How can you ever be free when no matter how much you produce or how high your income you're permanantly indebted to people who didn't loan you anything and collect interest on it?

If you aren't able to own your medium of exchange, and money is power, then how can you ever be free?

Here is an article you may find interesting on serf, slave, ect.

http://moneyaswealth.blogspot.com/2010/04/are-you-free-or-are-you-serf-or-are-you.html

If you want to be free you're going to have to start working at becoming the master over your money, instead of the money being the master over you.  The only way to accomplish this is to transfer ownership of the medium of exchange to the people (spend) instead of having it created as a tool to control you (loan).

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Why won't you allow  the people to decide what money they want to use?

The people absolutely accept check book entry as their preffered money.  The preffer it over currency and coins hands down, and they are free to choose check book entry since it is not legal tender, nor is there even a law calling it money.

Carl, it appears you have exactly as you wish.

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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thomas,

I admit that I am not an Austrian expert but as usual I am confused by your reponses.  Are you claiming that all Austrians believe in debt based money?  Unless a comodity backed currency, without central banking and fractional reserve lending, is somehow debt based, I don't see how you can claim that. 

I do agree with your observation that Austrians believe that it is OK to charge interest on a loan.  I just don't have a problem with that because interest is just the cost of moving future consumption forward in time.  If the monetary system is debt based like it is now, I agree that growth is a necessary economic component or the system will become unstable and collapse.  I don't believe that a commodity backed system, even with interest rates, necessarily has to suffer the same fate.  It certainly is possible that if people misjudge their future ability to repay loans + interest, their will be loan defaults.  The risk of default is why the lender is justified charging interest when he loans his capital out (not creates it out of thin air).

As for how the money would be created, I don't their is a consensus on this but I would imagine that repayment terms would be specified in the loan contracts.  It might be in some bullion but it could even be in the form of some 3rd party credit.  My general understanding of Austrian theory is that details like this are not assumed because the market may find solutions to these problems that are outside of ideas that central planners can think up at this time.

There is no law called check book entry 'money' nor is there any law forcing its acceptance.  The reason why our monetary system is invalid is because its all based on interest bearing debt.  The only reason if any reason you're forced to use this 'money' is because there is no other kind.

That is not entirely true.  As I have pointed out in other threads, the government has cracked down on some attempts at alternative currencies like the Liberty Dollar.  I belive that the government also requires that local currencies like the PLENTY be donominated in some way that is convertible to USD so that they can charge taxes.  Also currently PMs are taxed at short term capital gains rates which makes it difficult to use them as a currency.

In short, you may be right that there is no other kind, but that is due to government interference and not to market forces.

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goes211
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Re: Austrian & Keynesian Theories Vs. Mathematical Facts
DrKrbyLuv wrote:

goes211 wrote:

...I know you would love to associate Keynesian and Austrian theories together because it would make disproving Austrian theory much easier, but you have done no such thing. Until you can somehow prove that they deserve to be associated together, I will ignore any premise that groups them.

Now can you explain how the Austrian theory is somehow disproven by the current debt based monetary system? I would assume a proof would have to be along the lines of:

1. All Austrians believe in debt based money

2. All debt based monetary systems are unsustainable

3. Therefore the Austrian theory is mathematically invalid

Hello goes,

I associate Austrian and Kenyesian beliefs in that both miss the mathematical problem of a debt based money system.  The exponential growth in debt cannot be sustained (check CC).  There is little math in either which is amazing since economics is mostly about numbers.

Ignoring this terminal flaw is like designing a ship to slowly sink.  Both should be designed to stay afloat.

I have asked many Austrian buffs if they can provide a link or a reference that addresses the exponential growth of debt, an ineveitable part of the dogma that they preach.  They avoid math at all cost because it quickly disproves their theories.

Larry,

Once again you assume point 1. which is that somehow Austrians are for a debt based monetary system which is not clear in my understanding of Austrian theory.   Your current argument amounts to a logical falicy similar to the following

  1. Canibalism is wrong
  2. Austrian Theory does not adress canibalism
  3. Austrian Theory must be wrong
DrKrbyLuv wrote:

Wiki Criticism..."modern Austrian economics generally lacks scientific rigor,[7][79] which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,[80] but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics....

One thing I do agree with is that Austrian Economics is almost closer to an economic philosophy then to a traditional economic theory.  Their relative lack of math is largely due to their belief that the economic dynamic cannot be easily captured by simple fomulas.  I consider it largely a philosophy of economic common sense and against central control.  Perhaps you feel differently.

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Thomas Hedin
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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

I admit that I am not an Austrian expert but as usual I am confused by your reponses.  Are you claiming that all Austrians believe in debt based money?  Unless a comodity backed currency, without central banking and fractional reserve lending, is somehow debt based, I don't see how you can claim that.

The part they always leave out is how all that currency is moved into circulation.

I do agree with your observation that Austrians believe that it is OK to charge interest on a loan.

If I was able to capture just 10% of the gold supply and loan out my supply at 10% interest it would only take me 25 years to own all the gold in the world and hence all of the money.  Very few people have ever really thought about the effects of interest.  The end result is the same weather it is gold, or anything else.  If you have your monetary system based on interest bearing debt, eventually in time the lender will own everything in the world.....much like today.

I just don't have a problem with that because interest is just the cost of moving future consumption forward in time.

Interest is a fee charged for the use of money that has disasterous effects for the many while enriching the very few.

If the monetary system is debt based like it is now, I agree that growth is a necessary economic component or the system will become unstable and collapse.

You're correct, the debt must constantly grow in order for this system to function, but have you ever considered the possiblilty that in time the debt will grow to be so large that just the interest alone would become greater than the total consumer income?

I don't believe that a commodity backed system, even with interest rates, necessarily has to suffer the same fate.

Does gold, silver, or any other commodity posses magical properties that define mathematical rules?

It certainly is possible that if people misjudge their future ability to repay loans + interest, their will be loan defaults.

Does it really matter what substance is used for money if you have to borrow it all into circulation and pay interest on it?  The question still remains where is the money going to come from to pay the interest on all that borrowed money.

The risk of default is why the lender is justified charging interest when he loans his capital out (not creates it out of thin air).

What risk does the lender have when he only loans a promise to pay that he never has to make good on?

My general understanding of Austrian theory is that details like this are not assumed because the market may find solutions to these problems that are outside of ideas that central planners can think up at this time.

Can you please explain to me how the market may find a solution to these problems?

That is not entirely true.

I'm sorry but it is.  Check book entry is not called money by any law.

The liberty dollar was not a currency, it was merely a private minted coin.  Anyone is free to mint their own private coins, but they cannot mint legal tender or money.

I belive that the government also requires that local currencies like the PLENTY be donominated in some way that is convertible to USD so that they can charge taxes.

And who is going to convert this over to U.S. Dollars?

Also currently PMs are taxed at short term capital gains rates which makes it difficult to use them as a currency.

I think we can both agree that PM's are not money anymore.

In short, you may be right that there is no other kind, but that is due to government interference and not to market forces

Everything I've read shows that it's the bankers interfering with our government to make sure they can hold onto this money system just as long as possible by making sure no real money ever gets into circulation.  It's like when they began the movement to demonetize silver/gold they removed all the money from the system and switched us over to bank credits (debt) as our pure medium of exchange.  Bank credit has been the primary medium of exchange in the USA from the day this country was founded.

What we need is for the government to do its job and secure the rights of the people and the rights of the people to OWN their meduim of exchange and be free from unwanted obligations.  The last thing the parasitic debt lords want is for the people to begin to use their collective power and start having the government pass laws to benifit the people in reguards to this monetary system.  The only solution to this mess is through the government because if you or I try to create money we'll go to jail for counterfiting or fraud, but nobody gets upset when the banks commit massive fraud and theft by deception on the people.

The fraud = loaning a promise to pay that you can't pay

The theft by deception = Interest charged on the fraud because now it's impossible to get out of the fraudulent debt.

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goes211
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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thomas,

A few observations. 

  • Your replys that dissect the original post  line by line very quickly become unreadable and unpleasant.  I have seen many threads die because you insist on using this tactic to every question posted.
  • You ignore or are oblivious to any response that is at all contradictory to your thinking which is very frustrating.  I would like to give you the benefit of the doubt and assume this is accidental.
  • I do appreciate your passion, sincerity, and willingness to take controversial stands on these issues but my patience is not endless so I might just have to give up at some point.

In my original post I believe I stated that Austrians are against central banking and fractional reserve lending.  If that is the case, and a loan is 100% real money (not created out of thin air), I believe it is appropriate to charge interest to compensate for the risk of default.  I assume you disagree.

My general understanding of Austrian theory is that details like this are not assumed because the market may find solutions to these problems that are outside of ideas that central planners can think up at this time.

Can you please explain to me how the market may find a solution to these problems?

No because that is the point.  In 1900 could the smartest man in the world tell me how we were going to put people on the moon in 1968?  I don't think so.  Solutions to these problems will be found as they are needed as long as we don't constrain the various solutions that the market may discover.  This is not to say that there is no room for regulation, only that this regulation must be created to punish fraud and to keep the market from pushing externalities like polution off onto the general population.

Can you explain to me why the market is incapable of solving these problems?

If you want to be free you're going to have to start working at becoming the master over your money, instead of the money being the master over you. 

I absolutely agree to this statement.  I merely disagree as to how to go about such a change.

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Thomas Hedin
Status: Platinum Member (Offline)
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Posts: 815
Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Can you explain to me why the market is incapable of solving these problems?

Because the market has no way of creating money

The banks who do not produce anything are not part of the actual market.  They just control and manipulate it through their monopoly over the creation of the medium of exchange as interest bearing loans.

I absolutely agree to this statement.  I merely disagree as to how to go about such a change.

What do you think is the best process to go about such change?

goes211's picture
goes211
Status: Diamond Member (Offline)
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Posts: 1114
Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thomas,

Our circular arguments continue....

Because the market has no way of creating money

Did money exist at the begining of time?  Obviously not because it is a man made construct to solve the problems of barter.  Why do you think that market forces can not improve a man made construct like money?

NOTE: I don't want the banks to create money so stop implying that to be the case.

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Carl Veritas
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Posts: 294
Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thomas,

(a)   The price of a good is derived from the labor expended in producing that good.

(b)   The value of a good is subjective, varying from person to person,  regardless of labor input.

Which statement would you tend to agree,   and where does mathematical 'facts' fit in.

http://en.wikipedia.org/wiki/Subjective_theory_of_value

 

Compare your assumptions with this and let me know

http://en.wikipedia.org/wiki/Austrian_School

 

 

 

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