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'.