> In what sense do you equate increasing the money supply with taxation?

Both involve government taking other people’s wealth without their consent: tax by monopoly force, inflation by fraud based on monopoly force.

> One puts money into the economy, the other takes it out.

You are confusing money – meaning paper notes - with money – meaning real wealth. Increasing the money supply puts more paper notes into the economy, not more real wealth. Taxation doesn’t ‘take money out’ of the economy, since tax moneys are still exchanged for goods; it confiscates and re-directs it.

>>Obviously the government can confer a net increase in wealth on someone by giving him someone else’s wealth.<<

> Please explain

It’s only a net increase of wealth to the privileged recipient. Inflation is a zero-sum game for society as a whole, that’s the whole point of the argument.

>>[Pericles says he gave an example of increasing the money supply creating a net real increase in wealth:] “if the new money is put to productive use"

That’s not an example, it’s an evasion.

What would be an *example* of printing more paper notes resulting in a net increase of real wealth to society as a whole?

> But they can dig [gold] out of the ground. Or they can refrain from digging it out of the ground, as a deliberate fiscal policy.

Who’s ‘they’? Why would private diggers refrain from digging it out of the ground as a ‘deliberate fiscal policy’?

But yes, the supply of gold as money would affect the price. However gold would be as much more stable than fiat money, as the value of gold has been stable compared to the value of fiat money. Gold would not intrinsically involve systematic fraud, as fiat money does.

>On the topic of "Private competing currencies", would they be allowed to declare bankruptcy?

Yes

Peter, printed pieces of paper only make up a very small fraction
of the money supply. All that we need is enough notes and coins,
so that there is not a shortage.

The way I understand is this, point out to me where my thinking
is wrong:

The very nature of modern banking, with banks holding 8% as
reserves etc, means that lending and borrowing by banks, increases
the money supply. Govts don't actually need to print anything.

Now if we never had that system, credit would be virtually
impossible to obtain. I happen to think that would be a bad thing,
for it would deny people huge economic opportunities of starting
expanding businesses etc. In other words, the shortage of money
would be the problem, we would be worse off because of it.

Only in your imagination, Peter Hume.

>>Look you’re getting hit all over the park<<

And we've only just started.

>>Both [taxation and an increase in money supply] involve government taking other people’s wealth without their consent: tax by monopoly force, inflation by fraud based on monopoly force<<

"Without consent"?. If I hired you tomorrow, I would require your consent to withhold tax from your wages.

"By fraud"?

fraud n. A deception deliberately practiced in order to secure unfair or unlawful gain

There's no deception, no unfairness and it is not unlawful.

You may be starting from the premise that our present system is evil, and working backwards from there to examine its components. Neither taxation nor inflation is inherently bad, as you appear to believe.

Both would be a concern, of course, if they got out of hand.

>>[re taxation takes out, while an increase in money supply puts in] You are confusing money – meaning paper notes - with money – meaning real wealth.<<

I don't believe that I am.

Let's say for a moment that I increase the tax on business to 80% of profits, leaving just enough to keep going, but taking away any opportunity to invest in growth.

Now let's say instead I ease money supply, allowing those businesses to borrow money to expand.

Which is more beneficial to the economy?

That is what I meant when I asked "In what sense do you equate increasing the money supply with taxation? One puts money into the economy, the other takes it out."

>>Why would private diggers refrain from digging it out of the ground as a ‘deliberate fiscal policy’<<

To force up the price. As OPEC does with oil. Is this a good thing?

>>gold would be as much more stable than fiat money, as the value of gold has been stable compared to the value of fiat money.<<

Really?

When the US came off the gold standard in August 1971, the price was $35 an ounce. Today it is $1,120. That is a 9.3% per annum inflation rate.

Even without the "GPEC" factor.

I maintain that that line of reasoning is wrong. It results not in providing huge economic opportunities that would otherwise be unavailable, but in consuming capital on a vast scale thus making society poorer than it would otherwise be, at the same time as it causes injustice and exploitation on a huge scale.

We can approach the problem either in terms of real things, or in terms of paper.

In terms of real things, the capital – tools and machines etc. – to increase productivity must come from consumption foregone. If we consumed all we produced, there would be nothing left over to produce capital goods. Thus it is the accumulation of real capital, not borrowing per se which is the necessary foundation of increased productivity. Whether people obtain the use of these capital goods by savings or by borrowing, ultimately the increase of paper does not increase the real capital available. Real capital like other economic goods is scarce, and that scarcity cannot be conjured away by increasing the number of paper tokens that stand for capital.

In terms of paper, we need to distinguish between:
a) Money properly so-called (gold, where people are free to choose; government “banknotes” and coin under government fiat)
b) Money certificates – paper which stands for real money, and is redeemable on demand in real money, (e.g. banknotes under a gold standard ie the receipt you get on depositing your gold; and under a fiat system, the paper backed up by the 8% reserve deposits)
c) Money substitutes – paper which stands for, but is not redeemable on demand in real money (e.g. the paper lending out the 92% unbacked by real assets). This includes the zillions of dollars in problematic derivates etc.

Yes, to inflate the currency, government doesn’t “need” to increase fiat money banknotes and coins, because they can increase the “money” (substitute) supply by granting permission to banks to increase their money substitutes. In fact under a fiat money and central banking system, government inflates *both* the supply of money in the narrow sense, and money substitutes, especially the latter.

(This spreads both inflation and confusion, causing the population to think of worthless paper as “money”. When gold is money, no-one ever confuses money with money substitutes.)

Since interest rates reflect the time preferences of savers and borrowers for future as against present dollars, therefore manipulating interest rates sends (false) signals as to these time preferences. It also misrepresents the amount of physical capital that is available. Entrepreneurs start out on ventures (the boom) and the Keynesians are all happy. But the falsification of economic calculation is like a builder who miscalculates how many bricks he needs. When he’s finished half the walls, it becomes clear there isn’t enough physical capital to finish the job. The project must be aborted, and the malinvested allocates liquidated – converted to cash at a loss. We get the bust, and then the Keynesians all blame the capitalists.

Thus the effect of the inflation is to deceive people, on a massive scale, into starting projects for which neither the underlying real capital of savers, nor the underlying real demand of consumers is enough. (That is why ‘greed’ is not an explanation of the boom or bust. Greed is always there. The question is, why is there a cluster of entrepreneurial success during the boom, and of entrepreneurial failure during the bust?)

If people were free to choose, and anyone could supply money, would you accept my Peter Hume paper dollars which I could increase at will? Probably not. The market would tend to choose as money something whose virtue is that it could *not* be increased at will – like gold.

Under free competition, savers or banks could still lend either money (say, gold) itself, or paper notes backed 100% by gold, or paper notes backed only fractionally by reserves in gold, e.g. 90%, or 50% or 8%. Different risk, different return. The risk-averse could deposit their money at 100% backing, with no return (because it couldn’t be lent out). And others expecting higher returns for higher risk could expect no public bail-out when things go pear-shaped, which is as it should be.

*The risk-averse could deposit their money at 100% backing, with no return (because it couldn’t be lent out).*

Ah Peter, but you have the choice to do that very thing right now!
In fact you can play it even safer. Buy gold bullion and have the
Perth Mint store it for you, as your very own gold. They will charge
you a fee of course, for keeping your gold safe, but that is
fair enough. They will buy some or all of it from you and the
daily price, should you need to access banknotes to pay your bills.

The very reason that we went to the system that we have today, is
because it was realised how limiting credit limits economic opportunity.
Think of all those plumbers, electricians etc, who
borrowed a few $ to set up their own businesses. Even micro credit
in the third world, changes peoples lives for the better.

We don't need more machines to make more products, what we need is
more innovation. Think of the venture capital that was thrown around
for the internet and everything from Google to Amazon to be created.
All positive for humanity in terms of information transfer and communication.

The only way you will land up with more innovation, is to have
more innovators, with more available capital, competing in the
market place.

Your idea of limited captial, due to limited gold, would stifle
the economy, stifle innovation, would limit little people with
bright ideas, from dreaming their dreams.

All because you have this fixed idea that banknotes should be a
store of value, rather then just a medium of exchange. Its not
as if you don't have other options, as I have pointed out.

So your theories are flawed Peter, I am sorry to say.