The author makes no connection between the Fed, fractional reserve banking, fiat money, and government policy of endlessly inflating the money supply on the one hand, and the moral and social consequences of all these on the other hand. It is as if the GFC mysteriously arose out of nothing; and as if the arguments against monopoly government control of the money supply have no basis in the theory of value. However these policies of government control of the money supply have enormously negative moral and social consequences; the proof of which is in the economics.

It is a fallacy to distinguish between “extrinsic” and “instrinsic” motivations. All human action is in an attempt to produce a result that is more satisfactory from the point of view of the acting person’s subjective values. Value is not “out there” in things, as Smith mistakenly assumed. All value is subjective; from which arises the law of marginal utility.

Printing more money, lowering interest rates, and inflating the money supply, are just different versions of the same thing. It is fraud. The Fed is a machine for legal fraud. Fiat money is an institution for perpetrating fraud against the population. The law of marginal utility applies to money as much as to other things. Government cannot repeal it.

Smith thought the great virtue of paper money is that it would economise on the use of resources that would otherwise be wasted digging up gold. It never occurred to the classical economists that governments would deliberately inflate the money supply, given the machinery. Yet why should we be surprised? Kings had been debauching the money supply for centuries, by clipping coins. Central banking delivers them the perfect machinery – and one which even many trained economists don’t understand.

Government production of money originates enormous moral risk. It is an utter superstitious fallacy that it increases society’s net wealth. Keynes merely dressed up in acceptable mathematics the inflationist fallacies that economists had already refuted a thousand times.

Inflation takes from the productive and gives to the privileged. It causes money to lose its purchasing power. It penalises savings by robbing savers. It encourages debt. It encourages consumerism – consuming the future for the present. It lowers real wages. It robs the poorest most. People, in order to get ahead and provide for their retirement, must go into debt to buy appreciating assets. Those with greater financial sophistication profit most, through inflation and manipulating tax law; while those with lesser financial sophistication are exposed to much more risk. It diverts resources from production, into trying to get get other people’s wealth through legal privileges. It causes the great artificial boom – which no economist has ever denied. And it causes the following bust, with all its attendant depression, unemployment, bankruptcies and hardship. It destroys capital on a vast scale. It sends millions of people into retirement, broke. It makes the entire population more dependent on government. It benefits government and those in a position to get their hands on the newly issued money first – like banks and speculators. It is used to fund aggressive imperial wars for which the people would refuse taxation: like Vietnam, Iraq, and Afghanistan. It increases the expansion of government into any and every corner of our lives, destroys liberty. And then the government, and the ignorant, blamed “unregulated capitalism”.

The next great moral revolution, after the abolition of slavery, is to end its modernised version and end the Fed, fiat currency, fractional reserve banking and central banking.

The result would be: an end to the cycle of booms and busts; money steadily gaining in value, instead of losing value; production based on savings instead of debt; a return to the value of work and savings instead of speculation and debt; an increase in our freedom; a great reduction in privilege and speculation; a reduction in people dependent on government; a great increase in people providing for themselves and others through productive work.

The next great moral revolution is to end slavery's modernised version: end central banking, fiat currency, and fractional reserve banking.

There is little point in trying to restore faith in a financial and economic system that does not recognise ecological limits and, therefore, is destined to fail. The best thing that could happen for us would be for the "discipline" of economics to be disbanded and for thinking to be based on ecological principles.

I guess that to a hammer, Peter Hume, everything looks like a nail. So your immediate reaction to an article on the GFC is to reach for your trusty Austrian School mantra, and beat us to death with it.

>>The author makes no connection between the Fed, fractional reserve banking, fiat money, and government policy of endlessly inflating the money supply on the one hand, and the moral and social consequences of all these on the other hand<<

Did you read this bit?

>>The near meltdown has shaken people’s faith in the financial system and its institutions.<<

The words "financial system" would, I suggest, include "the Fed, fractional reserve banking, fiat money, and government policy".

Having thus demolished the straw man you set up, the rest of your observations are pure advertorial.

The author - unlike you - does not jump to conclusions about which particular failing caused the problem. He casts a wide net, including our own attitude towards money as well as the distorted view held by bankers and the financial institutions they worked for.

Although he does so in slightly more pious terms than I would use, he makes the point that we also require an attitude adjustment, before we can again be entrusted with our small part in the process.

The question he poses whether we lead or follow.

Whether we as a society are simply looking for an opportunity to go back to the old days of laissez-faire borrowing against a future that we see as free from threats, or whether we intend to acknowledge that we are part of the problem, and mend our profligate ways.

Makes sense to me. Even though I don't see the answer too clearly.

But then, I'm not a hammer.

An interesting debate - Ian Harper's position that economic decisions have moral components fits experience. Perhaps this aligns to what has been ascribed to Peter Costello (amongst many) – the good of society emerges from allowing individuals to maximise their personal interests.

William Dilthey created the idea of Weltanschauung (world view, http://en.wikipedia.org/wiki/World_view) which “is the fundamental cognitive orientation of an individual or society”. In essence how one looks at life dictates how one behaves.

To identify the operational Weltanschauung of individuals/groups one sets up a range of scenarios and see which one fits. In the case of the GFC and ongoing debate about executive remuneration the thing that fits is a belief individual’s should maximise their personal benefit with those who hold economic power being free to achieve greatest gain.

This is a moral position irrespective of whether one agrees with it or not.

It is also interesting to note those promoting such a belief also oppose the creation of opposing powers (such as trade unions) which could gain and use power to benefit their members on the basis of society’s greater good. The whole is a morality of convenience.

The sting in Ian’s tail is the behaviour of those of lower socio-economic clout is not different to the executives/corporations being criticised. Their behaviour is identical. Their beliefs are the same.

Change must be system wide in order for the fundamental approach to change – everyone has to be included. Having worked with a number of people facing serious problems I have found those who exercise empathy and act in others interests are the ones most likely to make progress and find satisfaction in life.

I wonder if a fundamental truth of life is being ignored? A car bumper sticker gave in insightful portrayal of this – “he with the most toys when he dies wins!”

Paul@Bathurst
The most fundamental moral error is to confuse war with peace; rape with love; and social relations based on aggressive violence and threats, with those based on consent. With aggression, it is a zero-sum game, and the one gains at the expense of the other. With consensual relations, the benefit is mutual – otherwise the parties wouldn’t do it.

Power means you can force someone to do what you want, even if they don’t consent. The language of power does not describe economic ie consensual relations. It describes political relations, which are always based on a legal monopoly of force and threats of force.

The remuneration of highly-paid executives comes from the actions of consumers in voluntarily handing over money in exchange for the company’s goods, and shareholders voluntarily handing over money in exchange for the company’s shares. Both classes of payers have the right and freedom to withhold payment.

The issue with trade unions is not freedom of association, nor the right to strike. It is with using coercion to violate others’ freedom of association; it is about using violence or threats to force other people to strike.

The purpose of trade unions is to benefit their members. But it is important to understand that restricting competition forces those excluded into unemployment or lower-paying jobs. Excluding competition and reducing production do not increase society’s wealth nor confer any other net social benefit. So far as unions rely on legally tolerated coercion, the higher wages they obtain are at the expense of everyone else in society.

Those who use coercion to benefit themselves at the expense of everyone else employ a morality of convenience; not those who benefit themselves through benefiting others in voluntary transactions.

Pericles
>>The near meltdown has shaken people’s faith in the financial system and its institutions.<<

>The words "financial system" would, I suggest, include "the Fed, fractional reserve banking, fiat money, and government policy".

It depends on what people’s actual understanding is. Most people have only the vaguest understanding about these things. If they understood what they are, they would abolish them immediately.

But certainly the government, the banksters, and the economists cannot be accused of assisting them to understand the truth – that fiat money is fraud.

It is not enough for people to understand that there are issues of morality involved in the financial system and its institutions.

If, for example, public concern translates into calls for government to take action, which translates into stimulus packages, price controls, government take-overs of industry, printing more money, wars and rumours of war, it can only make matters worse, not better, which is exactly what has happened . Gadzooks, it’s like a re-run of the 1930s.

We can’t “mend our profligate ways’” at the same time as the government inflates the money supply. That’s the whole point. To talk in those terms is to misunderstand the problem as being one of morality, divorced from other social values as it were, without seeing the connection back to debauching everyone’s money.

The consequences of inflationism cannot be remedied by more interventions. They can either lead to depressions sooner, or the complete collapse of the money system later. All fiat money systems in history have eventually collapsed, usually in a miasma of fascism and war.

The only thing that will stop the problem, is to stop doing what’s causing it.

Therefore my argument does not attack a straw man.

The power struggle is between those who get their money by violence and fraud, and those who get it by production and consent. The pretense to create net wealth by stamping pieces of paper is fraudulent and should be abolished now.

The Austrian theory of the trade cycle is not a “mantra”, it’s an unrefuted economic theory that alone:
a) explains the cause and cure of the trade cycle of boom and bust in manipulation of the money supply;
b) predicted both the Great Depression and the GFC years in advance; and
c) identifies specific remedies in ending the immoral policies that are causing the problem.

Central banking and fiat money should be abolished now.

It is possible that you may be right, Peter Hume, when you say that...

>>Most people have only the vaguest understanding about ["the Fed, fractional reserve banking, fiat money, and government policy"].

But I suggest they may be equally, if not more, ignorant of the "Austrian theory of the trade cycle", and the whole rigmarole of Mises "I-told-you-so" economics.

But no matter. We are required to deal with the here-and-now. Pretending that it would have been far better if we had all suffered in silence and lived only off our savings, doesn't actually help us with anything real. It's just another piece of abstract philosophising by after-the-event abstract philosophers.

As far as I can tell - and you might help me understand better if I have it wrong - the Austrian School is vehemently opposed to credit.

It throws up its little hands in horror at the notion of borrowing, and would prefer that we all cut up our credit cards, paid off our mortgages, and lived off bread-and-dripping for the rest of our lives.

Ok, so I exaggerate a little.

But what is fascinating, is that this view is closely aligned with the sentiments expressed in the article under discussion. Which makes your protestations about it even more difficult to understand.

Yes, of course, if we didn't borrow, there wouldn't be a problem with credit. Duh.

The most frustrating aspect of the Austrian School is that it doesn't say "how". It can tell us why this or that happened the way it did in the past.

But exactly how do we move away from a system that has for centuries been built upon borrowing, to a system where capital is only available from existing stock?

Secondly - and this probably illuminates the first as well - if there are to be no borrowings other than from existing available physical stock, how does it get there in the first place?

And in answering that last one, don't forget that Karl Marx, as well as Thomas Aquinas, is looking over your shoulder.

<<All value is subjective>> is the same as saying people want what they want, buy what they buy and value what they value. In other words it is total BS and as circular as reasoning can get.
There is no "law" of marginal utility it is nothing more than a fraudulent fantasy that is used to justify the current inequality of wealth, power and consumption.

<<Inflation takes from the productive and gives to the privileged.>>
No more than capitalism as a whole does. Deny the reality! Who holds most of the wealth? Who does most of the work? It is capitalism that rips off the workers and makes the parasite class into billionaires. And it is your phony, unreal, faith of an economics theory that you use to justify the current unfair, unsustainable and frankly evil state of the worlds economies and the ordinary people they subjugate.

<<The Austrian theory of the trade cycle is not a “mantra”, it’s an unrefuted economic theory>>. Only to you mate. The rest of us can see it for the greedy, elitist, soul destroying, planet destroying ideology of the rich that it really is and slowly people are realising they can change it. The great are only great because we are on our knees.

The state, capitalists and the godbotherers are the holy trinity of oppression and exploitation that underlines this world and the results are the debt and wageslavery that afflicts most middle class people and the endless treadmill of consumerism, environmental destruction and social decay and crime that is now the norm for most people in the west. Your efforts to blame it all on government and inflation are disingenuous to say the least.

Without the state and its monopoly on violence and property protection you capitalists would be at the mercy of the poor and powerless who would refuse to recognise your theft of all the land and resources and their reduction to little more than serfs. It is the state and its laws and enforcers that keep people subjugated and in poverty, landless and at the whim of the rich.

No moral dilemma expressed by the author about he and his ilk hanging out for such crises. His enjoyment is barely moderated by a passing comment about not downplaying the real hardships people have suffered. Hope the whole disaster has given him something to get his proverbial teeth into. He can barely contain his glee while running to get his soapbox and loud haler. BTW What are Economists hoping for next?

Well another example of economists missing the point again.
Did you not notice that the price of oil was $US147 a barrel shortly
before the crash occurred ?

Recessions occurred after four out of the previous five oil price spikes.
Everyone who is asleep is running around blaming the sub prime loans
but have not asked why they all crashed at the same time.

The price of oil started rising early in 2007 and this put pressure
on fuel prices and subsequently on food production and then made
worse via ethanol production using food crops.
The borrowers then had the choice of driving to work and eating or
paying their mortgage.

Pehaps Ian Harper has heard the saying;

If one believes in continuous growth in a finite world he is either
a madman or an economist.

I suggest Ian that you go and do a search on the oildrum.com
for oil price spikes and recessions.

Peter, the next great moral revolution is to end global poverty. Our international financial institutions have worsened the situation from the GFC.

World Bank and IMF loans have in the past gone to elites in generally corrupt governments. Loan conditions are sadistic including user pays schools and up-front hospital payments that have caused unneccessary school drop outs to the many families living below $2 a day.

Even worse, is the needless deaths of the most vulnerable lives that could be saved with a simple medical intervention such as hyration salts or anti-biotics.

What the world needs now, is a reformed World Banking System with a single currency that applies well targetted finance to help train and then finance small business entrepreneurs, lifting millions of people into a sustainable and fullfilling lives.

The new World Bank could be financed by a small transaction tax on all global financial transactions, making achievment of the UN's millenium goals a realistic objective rather than a whistful pipedream. Our world leaders can do it, it just needs true leadership.

Isn't Ian Harper the Howard acolyte who had no moral issue with keeping wages down to inflate dropped profits?

No doubt for the greater good of the 'trickle down' effect on 'the poor folk'.

A generous soul.

Wasn't he appointed to the job primarily for being a Xtian? And for supporting that great Howard moralism, 'fambly values'?

And who has ever heard of economics being an ethical area?

Oh yes, the great Adam Smith who gets quoted all the time by moralising economists.

Ian Harper supports capitalism, as do most of his ilk, and that needs booms and busts, low wages, high profits, wars, and 'the poor folk' to make it all work.

Remember that poor old duffer, Santamaria, who, just before he died, finally realised he'd been wasting his life fighting the Commo scourge as 'globalisation' unfolded in front of him and he suddenly realised that he had been promoting 'the enemy within' for all those years?

Capitalism, he decided, was a bigger scourge than any bunch of Commo's ever were.

And there is a comment somewhere here from someone about our environment... capitalism has done this, state or otherwise, the search for constant growth of the form we have will undo us all.

And let's not pretend that the Rudd crocodile tears will turn up any changes. He STILL wants a return to massive growth of the order we had prior to the GFC. As do all world leaders.

If Ian Harper were the least bit serious, he'd denounce the current form of capitalism outright, and admonish all industry leaders and al politicians who call for 'more of the same'.

He won't, of course, and will continue to present the fibs of religion as being the way out of the folly of the system.

An empty article from a flawed starting point

I hesitate to venture here, but who can resist such parabolic prose; not just the article, but the respondents as well! Considering the moral bankruptcy of capitalism, the passions are certainly inflamed. I do (did?) hope medical practitioners are not so objective as economists!
This is a very “economical” view of human morality you take btw, Ian Harper (and a hyperbolic view of human credulity!), whose predicate is that “the life-blood of the financial system is trust”—I never worshipped at the ANZ, CBA or Westpac in my life! Nor anywhere else come to think of it. Sorry, but lenders were never my priests—not since Shylock, whose usury is instructive of both morality and economics!
However, we do have common ground; I agree that the problem lies in the human breast (Smith was an enlightenment optimist to have ever put such faith in it—the human breast).
Ultimately, I think redemption is a personal thing, worthless in a cultural context. What I mean is that capitalism exacerbates innate human propensity; conversely, a more ethical system might awaken the human capacity for love, compassion etc., that the likes of Smith, Hume and Hutcheson naively assumed to be dominant. But let’s not conflate the Enlightenment with Christianity; they were at odds then and its anachronistic to try to meld them now.
The point is that if morality can be so easily fashioned, en masse, what’s the use of it? Who takes the credit/blame for a following? History’s hero’s were all individuals. Integrity is compromised in a crowd.

Pericles, “But exactly how do we move away from a system that has for centuries been built upon borrowing, to a system where capital is only available from existing stock?”
By keeping the money in circulation; piling it up ‘incurs’ interest.

No-one is saying that people should not be able to lend or borrow money, nor that we should live off our savings. The Austrian argument is merely that the ordinary law against fraud should apply to money and banking.

“If there are to be no borrowings other than from existing available physical stock, how does it get there in the first place”

It gets there the same way all physical capital gets there: people produce more than they consume. The savings goes into capital equipment, which, if employed at a profit and not a loss, increases output per unit of input ie productivity.

(Note that inflation doesn’t change this: it doesn’t really create physical capital out of thin air.)

“… how do we move away from a system that has for centuries been built upon borrowing, to a system where capital is only available from existing stock?”

Lending and borrowing still go on. It’s just that you can’t take money on terms to give it back on demand, and then lend it out to someone else at interest.

So a depositor has two basic options. He can choose to deposit money redeemable on demand. This has the advantage of security. It has the disadvantage that, as it must be repaid on demand, it is not available for lending out at the same time, and therefore pays no return.

Or he can choose to lend money to the bank for interest. The bank lends it out on terms that it be repaid at such and such a rate. When and *if* the borrower repays it, the lender gets his interest payment. Higher risk, higher return, and all that.

That’s it.

Rights and responsibilities are aligned with each other. The moral solution is also the economic solution.

What would it look like? Instead of wild upswings and depressing downswings, there would be an ongoing and compounding increase in wealth. The buying power of money would go steadily up, not down. Wages would go steadily up, just as they did in the west compared to the socialist countries.

Government would have to pay for all its expenditures either by tax, or by borrowing. No more inflating to pay for bombing the moon and bombing the Afghans. Investment would go into things that people actually want and need instead of war and privileges for politicians’ pets and animal farms. Failed businesses would go broke. Their capital would go to businesses that serve the consumer better.

All the utilitarian arguments for the “benefits” of inflation disregard the fact that they are advocating fraud. And they still turn on the fallacy that we can create real net wealth, like roads and hospitals, by stamping pieces of paper.

We can’t. What causes the general rise in wealth and wages, is the general increase in output per unit of input, which is caused by capital accumulation.

This wealth is what the redistributionists are trying to get their hands on. Yet inflation and booms retard capital accumulation. Redistributionists think that the way to a general rise in the level of wealth for the poor and the workers, is by a process that destroys capital, and robs the poor to give to the rich. The *means* they are using are not expedient to the *ends* they are trying to achieve. But they don’t understand so, because they don’t understand the economics.

All Quickresponse’s suggestion would do is enlarge the fraud to include the whole world.

No-one ever refutes the argument. They just dream of a society in which productivity is improved by legalised stealing, and everyone can get paid what they think they deserve, while no-one has to produce anything that the consumers are actually willing to pay for.

It is not a coincidence that the arguments of socialists like mikk, bluecross and squeers, consist of passionate invective and bitter sneering. That is all they have.

In 1924 Mises definitively exploded Marx’s jumble of fallacies in “Socialism” http://mises.org/books/socialism/contents.aspx .

mikk, bluecross and squeers, after you have refuted Mises, and not before, you will be in position to re-run the arguments from socialism. Go ahead: try. As it is, you are only displaying your sniveling ignorance.

Peter Hume (Mises' obstreperous representative on Earth?),
perhaps you should wipe the slobber from your gob and read my post again. I threw in a few axioms I suspect Mises would have applauded. With only one hand, perhaps; nevertheless my comments would sound like heresy in the ears of a socialist!
Just because your own thinking (or Mises') rests on unwavering conviction, it doesn't follow that the rest of us are similarly constituted. My attitude to the article was equivocal; some of Harper's points are worth pondering, just as some of yours (Mises') no doubt are. But to paraphrase Emerson, consistency (for you {and Mises}, read 'dogmatism') is the hobgoblin of small minds.
You begin and end with a prejudice that creates its own ferocious content---hence it's being devoid of method, as well as parabolical, as I allude above---and you set-off like a rabid dog at anyone who doesn't hold the same convictions.
You and Harper stick to your respective Bibles and I'll continue on without one.

Aye, there's the rub, Peter Hume.

>>It [surplus capital] gets there the same way all physical capital gets there: people produce more than they consume. The savings goes into capital equipment, which, if employed at a profit and not a loss, increases output per unit of input ie productivity.<<

But how was the original capital created, from which the profits are made? If you track back along the line of "only existing capital may be used", the only place you can wind up is back in the feudal system, where landowners exploited the labour of the masses to generate their own personal surpluses.

Which was, of course, why I mentioned Marx.

The vast majority of twentyfirst century businesses have their foundations in borrowed money. The system may not be perfect, and it does indeed suffer from the various diseases that Mises and others attribute to it, but it has been going on for a very long time now.

This doesn't make it any more "right", just infinitely more difficult to wean onto another system.

Your proposed "solution" demonstrates this beautifully.

>>a depositor has two basic options. He can choose to deposit money redeemable on demand... as it must be repaid on demand, it is not available for lending out at the same time, and therefore pays no return. Or he can choose to lend money to the bank for interest. The bank lends it out on terms<<

The first - using the Bank as a form of mattress under which to store money - is both impractical and pointless. The cost of servicing your virtual mattress would slowly but surely drain your account dry.

Think about it.

The second has the basic flaw that it can only operate in theory, not in practice.

For example, how do you kick-start such a process, given the significant amount of debt presently sloshing around the system? And how can you tell whether the money lent to the Bank has not itself been borrowed?

Apart from that, reducing the money flow in such a manner would kill 95% of Australian businesses within a year.

Dear oh dear Master Hume, what an 'attitude' you do display.

Foot stomping, hair pulling, and demanding your birthday, NOW.

I am as cautious of embracing one Messiah as I am of another, and their evangelists and acolytes, for that matter

Harper and his very unChristian crew of 'faith' driven economists, who tend to forget the tale of the money lenders, perhaps focusing on 'the Talents' instead- John Howard's favourite parable- are as dodgy as your Messiah sounds to me, from reading the snippet of book blurb you posted for us all to rush out and read.

He sounds like another version of that misfit Hayek, from what I read there.

I am not sure that I mentioned any form of 'socialism' at all. I can just recognise a 'crock' when I see it, and particularly so when I read it, whether written by Harper, or yourself.

I am vaguely aware of a system, run in Switzerland perhaps?, during the '29 Depression era, or was it the War?, that taxed unproductive monies, lent at no interest, and created a booming economy with no inflation. So successful was it, that it was not allowed to continue. I doubt it had anything to do with your hero, from what the book blurb says of him. It does sound enticing, for sure.

As Squeers suggests, your blindness cramps your ability to walk breezily with others, your colour blindness afflicts you too with a scarlet haze covering all you read that does not click instantly into line with your hero's scribblings.

I suspect 'socialism' was more of a mild human condition than a despotic ideology prior to Marx and Engels being lifted for base power reasons- as religion is- whereas capitalism, as we can see before us all now, has always been a rapacious system that steals from the future at a faster rate than can be justified by anyone but economists, vote seeking politicians, and the social misfits who our community embrace as epitomising 'success': those who serve their own interests above the community in 'organised crime', better known as 'the business community'

hehehe
I started reading Mises book that you linked Peter but I had to stop when I read

"People often fail to perceive the fundamental difference between the liberal and the anarchistic idea. Anarchism rejects all coercive social organizations, and repudiates coercion as a social technique. It wishes in fact to abolish the State and the legal order, because it believes that society could do better without them. It does not fear anarchical disorder because it believes that without compulsion men would unite for social co-operation and would behave in the manner that social life demands. Anarchism as such is neither liberal nor socialistic: it moves on a different plane from either. Whoever denies the basic idea of Anarchism, whoever denies that it is or ever will be possible to unite men without coercion under a binding legal order for peaceful co-operation, will, whether liberal or socialist, repudiate anarchistic ideals. All liberal and socialist theories based on a strict logical connection of ideas have constructed their systems with due regard to coercion, utterly rejecting Anarchism." Ch 2.1

Since I am a committed Anarchist Mises writings dont apply to me. Indeed I agree with quite a lot of his critisisms of (state)socialism and have plenty more that I could add.

The funniest bit is "Anarchism as such is neither liberal nor socialistic:" funny in that Anarchism is alternatively called Libertarian Socialism. http://www.infoshop.org/faq/secA1.html#seca13
But he is right in that it does operate in a different plane from either socialism or libertarianism the main difference being that all others are authoritarian and only Anarchy rejects all hierarchy and coercion. http://www.infoshop.org/faq/secA2.html#seca22

A reasonable article; I certainly have to agree that we are all ultimately to blame.
From amoeba to cows getting their heads stuck in fences, to the dole receiver who could just use a few dollars more, to the billionaire...
If there is one unifying aspect of all Life on earth, it is that 'consuming' desire for just a little bit more.
How much is enough?
A discussion such as this must be incomplete without any mention of Victor Lebow.

"Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption. The measure of social status, of social acceptance, of prestige, is now to be found in our consumptive patterns. The very meaning and significance of our lives today expressed in consumptive terms. The greater the pressures upon the individual to conform to safe and accepted social standards, the more does he tend to express his aspirations and his individuality in terms of what he wears, drives, eats- his home, his car, his pattern of food serving, his hobbies."
"These commodities and services must be offered to the consumer with a special urgency. We require not only “forced draft” consumption, but “expensive” consumption as well. We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing pace. We need to have people eat, drink, dress, ride, live, with ever more complicated and, therefore, constantly more expensive consumption. The home power tools and the whole “do-it-yourself” movement are excellent examples of “expensive” consumption."

That was written the year I was born; 1955. I have spent my entire life under the shadow of this heinous philosophy, which has done so much to (mis)shape our economy and destroy our ecology.

Oh Grim, how grim!

While many might label you a 'Baby boomer', you are in fact a 'Black and Decker'.

This is the first time I have considered this change of nomenclature, but it is significant, as you point out.

Whereas in 1955, your parents may have felt plush in a Standard Vanguard, perhaps the 'shooting brake' version, yet aspired to a Morris Minor 1000, the new kid-on-the-block, these days young parents are not happy unless they have a Mazda 3 for the missus and a WRX for 'im even before they tie the knot.

Levels of consumption skyrocket when the plasma, pool, cinema room, present wrapping room, 5 bedrooms with 6 ensuites and two bathrooms combine to create the large garage with small house attached.

And some here regard all that as normal, and what we need to keep the economy going, while cringing at the few who aspire somewhat lower down the Richter Scale of 'consumo d'struction'.

It is significant that with all Rudd's empty rhetoric, the end of neo-liberalism, he still supports exactly this 'progress' as 'the Australian way', while his treasurer continues to spruik a 35 million population count, in order to keep AV Jennings and Co., going.

Yet, where I live, in the second largest inland city, we have no water, and no prospect of water from this catchment area, unless it pours with rain for months.

Our dams sit at 10% capacity, and we steal from the GAB, along with uranium mines and farmers, to keep ourselves afloat.

We should stick with the farmers, but we don't need uranium mines, whose contribution is less than their cost to the public purse.

Sadly though, this perceptive Vic' is a consumption acolyte, rather than a warning post for the future?

I'm reminded of that post-War book, 'The Man in the Grey Flannel Suit', whose author was warning us of what the bosses gymps now refer to as 'The Work-Life Balance', always very careful to stress 'work' as the first priority, and who would shrink at having it around the right way as 'The Life-Work Balance'.

The movement to sound money need not involve any more economic dislocation than is involved in weathering the current depression, which cannot be avoided in any case.

The market liquidates the malinvestments and re-allocates the capital to productive purposes – as long as government doesn’t actively prevent it.

No-one remembers the depression of 1920-21 because President Harding, and the Fed, did nothing to bail out loss-making businesses, and it was over in a year: http://www.lewrockwell.com/woods/woods125.html By contrast, Hoover’s price-fixing interventions in 1927 on a thousand fronts just happened to precede the biggest destruction of wealth ever.

Losses mean the people en masse value the finished product *less* than they value the factors of production that went into it. This capital should be released for employments to satisfy wants the people consider more urgent - commonly known as ‘going broke’. People have no moral right to make wagon-wheels forcibly subsidised by people unwilling to pay for them.

Storing money in a bank should no more be prevented by policy than storing goods in safe storage. It is not for you to say people should take them out and use them, nor lend them out for a fee. They will when they want to. It is not a reason to impose a chaotic and immoral monetary system on society.

Similarly, with sound money, there is no need to prevent lending nor trace the provenanc
e of loans. The requirement is only that money-substitutes cannot be multiplied out of proportion to the money base; and the money base cannot be multiplied so as to change the market price for money as determined by supply and demand.

The reluctance to abandon fiat money and fractional reserve banking fears that we would have worse economic outcomes. But what makes everyone richer is capital accumulation, and inflation destroys capital on a massive scale.

Marx considered himself an economist first and foremost. But in the humanities, the economics departments were the first to abandon his theories. His cachet lingered on in academic philosophy, history, sociology etc. where people simply do not understand the economic issues and disproofs.

Marx’s entire theory was that workers’ wages under capitalism would decline to subsistence level. The opposite happened: they rose to the highest levels in the history of the world. Marx’s exploitation theory is wrong, and was already refuted by the 1890s. He ignores the time preferences of the parties. The employee gets a certain fixed income now, while the capitalist must wait for an uncertain variable income in the future. He considers the workers as equally entitled to the total product as if they had worked with their bare hands without tools, machines, factories or direction. Marx treats as unproblematic the problem of *how* to combine the factors of production in a changing world so as best to satisfy the wants that the consumers consider most urgent. He ignores the fact that economic calculation is impossible where there is no market for capital goods; hence the planned chaos that results from socialism. He ignores the problem that the knowledge needed to achieve what he wants is dispersed in the minds of billions of people, and cannot be known to any central planning authority, ever. He got the economics upside-down, inside-out, and back-the-front.

The ordinary people trust that the educated people in government understand the crisis, but the armies of humanities graduates, most of whom go into government, are steeped in Marxian fallacies refuted a thousand times. We see this in bald assumptions that capital or economics are intrinsically unethical, and employment exploitative.

And the so-called neo-liberal economists, who reject central planning of shoes and wheat, think it’s somehow necessary and desirable for the production of money. The resulting planned chaos is blamed on freedom instead of bad ideas about omnipotent government.

Sound money would promote steadily compounding capital, savings, delayed gratification, responsibility for one’s own actions, faith and credit, making money by work and enterprise, higher living standards for all, and freedom. It would end the boom-bust cycle, and reduce the culture of debt, institutionalised fraud, making money by speculation and tax-jiggery-pokery, privilege, dependence on government, the military-industrial complex, and aggressive war.

Just a few points Peter.

<<The market liquidates the malinvestments and re-allocates the capital to productive purposes – as long as government doesn’t actively prevent it.>>
translation-- We liquidate hundreds of businesses and households and throw them and the people behind them on the scrapheap and start again. We dont ever notice or mention the pain and hardship that these REAL people will suffer. And governments cant be called upon by them to help relieve their pain.

<<He ignores the time preferences of the parties. The employee gets a certain fixed income now, while the capitalist must wait for an uncertain variable income in the future.>>

How ridiculous to say this. The employee NEEDS their income now that is why they value it so much. Without it they will starve. To equate this with the wealthy capitalist who hardly can be said to be deprived of anything and only lends his money precisely because they have more than they need and lending it does not deprive them of anything is pretty twisted and typical of the state of capitalist logic and debate.

<<He considers the workers as equally entitled to the total product as if they had worked with their bare hands without tools, machines, factories or direction.>>
1. Who made those tools, machines, factories etc? Other workers thats who. That some "boss" managed to appropriate them for themselves does not change the fact that it is the workers who do ALL productive work not capital which without workers to use it would remain sterile and useless.
2.Workers are perfectly able, if allowed, to provide "direction" and management for themselves without someone lording over them and taking a huge slice of the workers production for the privilege.

Your narrow focus on government money supply and control is totally absurd and ignores all the other distortions, assumptions, vested interests, power relationships and inequalitys inherent in capitalism that all act together to do exactly the opposite of what economics is supposed to be about. i.e. the efficient and responsible application of scarce resources so as to progress and advance all of humanity.

I would appreciate if any commentators could actually suggest what would or might replace "central banking system" when this is mentioned as significant cause of the problems. I'm interested in practical steps forwards for ordinary folk.

Thanks mikk, right on the button.

If this is your idea of practical steps, Peter Hume, you have a lot to learn about the word "practical"

>>The market liquidates the malinvestments and re-allocates the capital to productive purposes – as long as government doesn’t actively prevent it.<<

This suggests that a "malinvestment" has actually some kind of flag on it, that says "I am a malinvestment".

But if it is, who will take it off your hands in exchange for capital that can be reallocated to "productive purposes"?

In any event, this is what markets do today, all the time. Nobody voluntarily indulges in "malinvesments"

Except governments, I forgot them. They do it all the time. But they are not the market, are they, whom you have nominated to perform this ritual.

The relevance of Marx in this equation is not his economic policies. But it was relevant to my question - which you carefully ignored - "where did the capital come from in the first place?"

Your theories completely and utterly ignore the existence of the real world, and propose that we can go back to some prelapsarian world, where all money is real money, but devil take the hindmost.

Cluestick: we've moved on.

Quite a long way.

So the question still remains - and will remain forever - that all the puritanical theories in the world, however logical, cannot be implemented without causing the most massive dislocation of society since the industrial revolution.

Except it will be in reverse. Industry will die, and people will be forced out of the dark satanic mills, back onto the land, to practice subsistence farming.

The point is, the ethics of money production are central to the moral issues the author discusses, and the economic issues follow from that. No-one is disputing that. The question is the utilitarian one: how to fix it up.

BB
Ordinary folks can’t fix it unilaterally, because the original problem is that government makes it illegal for people producing sound money, to compete with the government monopoly producing dodgy money.

The only way to fix it, is for people to understand that the government monopoly of money production is causing these major economic and moral problems, and demand that politicians abolish it. Money, like wheat or shoes, is a market phenomenon that should be supplied by businesses competing for voluntary custom subject to the laws against fraud, not a government monopoly imposing institionalised fraud.

The problem is the plain people are clueless, and the educated class adhere to Marxian and Keynesian fallacies that just happen to serve their interests as against the working population who are the main victims of the scam.

Are you asking what a sound money system would look like?

Pericles
I repeat, the problem is not debt itself. So long as the borrower can service the loan, no issue arises.

Malinvestments do have an identifying flag: net losses. I doubt the real figure is 95% of Australian business because if it were, it would mean 95% are insolvent.

It is absurd to claim that debauching the money supply is economically preferable from a *pragmatic* point of view. It’s what’s causing the GFC. It is also absurd to claim that legal counterfeiting is responsible for the positive difference between agrarian subsistence, and the standard of living now.

Saying the move to sound money would result in an economic apocalypse, is like saying that the abolition of collectivised agriculture in socialist Russia and China would have resulted in worse food shortages.

More inflation and interventions cannot fix the problem and re-inflate the bubble; nor should they.

Why are you defending so baselessly the legal fraud that is causing the problem?

Mikk
If it were really true that the value of capital comes from the value of all the labour that goes into it, as you and Pericles have suggested, then no business would ever make a loss, and the GFC would not exist.

Are you making an argument in favour of fractional reserve banking and fiat currency? If so, why?

The hardship to real people is an argument against, not in favour of doing what’s causing it.

If you were really concerned about unemployment, you would not be calling for policies to cause more of it, so those in work can get paid above the market rate to produce things people don’t want.

We should instead be calling for the repeal of all laws that prevent people from getting work at the market rate.

Your conclusion that employment is intrinsically exploitative is based on your premise that it is intrinsically exploitative. But you don’t establish that it is.

It is no more the necessary fate of the worker, than it is of the capitalist, that he will starve without income. According to your theory, any time the capitalist is earning less than the worker, or is making a loss, the worker is exploiting him, yes?

Why don’t Australian workers outcompete Chinese workers by taking jobs for $1/hour? Because they don’t have to. In practice, the choice is between a higher wage and a lower wage, not between employment and starvation.

According to you, employment saves the employee from starvation.

But if the employer doesn’t employ him, the employer is no more responsible for the employee’s starvation than you or I or anyone else in the world. Why don’t you, out of your property, pay the unemployed guy an income over and above the market rate for what he can produce? If you won’t, why should the employer? He does not benefit from the employee’s costs above the market rate any more than you do.

No-one has shown reason to defend fiat money or fractional reserve banking

The value of Capital is the amount of labour that creates it. Unfortunately, the *price* of capital is what someone is prepared to pay for it.
Obviously, the price of capital can always be driven up by those with the most money.
As I'm sure you must know, I'm as implacably opposed to fractional reserve banking as you are. Where we differ, and what continues to mystify me, is why you would prefer to trust a handful of totally self interested mega rich assholes (who effectively control your 'free' marketplace) to the 'Government' (of the people, by the people, for the people).
As to fiat currency, your alternative is to base or gear the value of money to a commodity, which means money effectively becomes a commodity -just as it is now.
The only way to achieve a sustainable economy is for money to be reduced to a means of exchange, instead of an end in itself.
Misians and Hayekians believe basing currency on gold will stop the fluctuations in the value of money. Us sceptics tend to believe money will simply increase the fluctuations in the value of gold.
So, if we can't gear the value of money to a commodity, what can we base it on?
How about people? The only truly justifiable reason for increasing money supply -without debasing the value- is an increase in population.
I suggest you try this simple exercise, Peter Hume. Every time you get an urge to use the word 'regulation', replace it with the word 'Law'. Equally, when you get the urge to use the word 'Government', replace it with the words 'the People'.

Grim's grand theory: - the explanation of economic phenomena is that they are determined by "assholes".

Yep.

Excuse me, Peter Hume. Where did I say that?

>>If it were really true that the value of capital comes from the value of all the labour that goes into it, as you and Pericles have suggested<<

Please don't put words into my mouth, and then extrapolate an argument from an imaginary position.

What I did point out that capital surpluses - of the kind that you would like to constitute the entire borrowing/lending bandwagon - are derived principally from the surplus created by "the workers".

This has been a bone of contention for several centuries.

Personally, I think that the different contributions of capital and workers have now found quite a reasonable balance, so there's little need any longer for a peasants' revolt. But that does not disguise the fact that capital surpluses don't just "happen"; there are contributing factors.

>>Are you making an argument in favour of fractional reserve banking and fiat currency? If so, why?<<

I hold the view that the ability to borrow in order to build a business that creates new wealth for the working population has contributed a great deal to the stability that now exists between capital and labour.

The two sides - business borrowing to grow the supply of goods and services, and consumer credit to soak them up - have grown synergistically.

Without the ability to extend credit beyond that which is secured in the bank's vaults, economic growth would have been far, far slower.

Admittedly, we would have been spared the GFC, which was caused - if there can be said to be a single underlying cause - by an over-enthusiastic expansion of credit lines, in all sorts of directions.

But that has always been a matter of degree, not principle as you like to suggest.

To destroy the world economy simply to rebuild it without credit would seem just a little extreme, and more than a little perverse.

Grim

“The only way to achieve a sustainable economy is for money to be reduced to a means of exchange, instead of an end in itself.”

So when you acquire money, or withdraw it from the bank, you do it as an end in itself do you, not as a means of later exchanges?

You are opposed to fractional reserve banking, but think the cure is more governmental meddling with the money supply. What makes you think they’re going to do any better job of it in the future, than they have in the past?

And where is the evidence that government represents society at all, let alone more and better than the voluntary transactions of “the People” themselves?

Voting is compulsory; you cannot build any theory of consent on that. People get one vote for government every three years; but every dollar is a vote in the market, and people vote multiple times every day. It is true that people in market relations transact on unequal terms; however the greatest inequality in market relations, is still less than the least inequality between the state and one of the subjects of its power. Some market actors may come near to monopolistic, though almost all market actors do not; however all political states are based on their monopoly of violent force. You have the right to enter, or not enter, every single market transaction; try withholding payment from the state and you’ll be locked in a cage. Policies are always presented for electoral vote in a bundle; you can’t separate out policies you want from those you don’t. There is in fact no way of knowing whether a majority voted for a given policy or not. All acts of government apply to you whether or not a majority wanted them in fact, and whether or not you wanted them. The laws against fraud and deceptive conduct do not apply to politicians, and you have no legal remedy for damages for breach of promise. Much of politics consists of trying to bribe vested interests in marginal seats at everyone else's expense.

(cont.)
What is your evidence that government represents the people more or better than the people represent themselves and the greater social good through their voluntary transactions?

Pericles
In producing the capital goods that are then devoted to increasing productivity, the relevant comparison is between the productivity of workers working with capital equipment – tools, machines, factors etc. – supplied by capitalists, and the productivity of workers without them – ie with their bare hands, or with self-supplied capital goods.

I don’t know how one concludes that the difference in productivity and product is “principally” derived from the workers rather than from their use of the capital equipment, unless one reasons that without the workers there would be no product, but in that case, surely the conclusion must be that *all* the product and all the productivity is derived from the workers, and you are back to the Marxian fallacy of labour theory of value.

For the fourth time, I am explicitly not arguing that there should be “no credit”. To use your own expression: Please don't put words into my mouth, and then extrapolate an argument from an imaginary position.

Why do you oppose the Austrian view when you don’t even understand it?

“Without the ability to extend credit beyond that which is secured in the bank's vaults, economic growth would have been far, far slower… Admittedly, we would have been spared the GFC…”

In that case, we have found a way to create real net wealth by multiplying money substitutes, haven’t we? Haven't we?

So why not just keep printing money substitutes until everyone is rich and no-one has to do any work?

The appearance of wealth generated by FRB is from capital consumption. It’s like burning the furniture in a party to celebrate how clever we are in discovering a way to make wealth out of thin air.

The deep structure of these beliefs is the same as with the Aboriginal belief in the Dreamtime, and the Christian belief in Genesis. It is superstitious creationism.