A Close Look at The Theory of Inflation.

[tomozope]

The following article by Byron Dale nails the cause of Price Inflation smack dead with the hammer of logic.

A Close Look at The Theory of Inflation

By Byron Dale

Webster’s New World College Dictionary states: Inflation – (a) an increase in the amount of money and credit in relation to the supply of goods and services. (b) an increase in the general price level, resulting from this, specif., an excessive or persistent increase, causing a decline in purchasing power.

Let’s assume for the moment that Webster’s definition is correct. If it is we need to address the issue of how and on what basis did the amount of money and credit increase without there being an increase in the goods and services. This increase in money and credit could not arise due to the need to pay for any existing goods or due to the need for more money or credit to purchase any increase in goods or services.

Black’s Law Dictionary defines Credit as “Time allowed to the buy of goods by the seller, in which to make payment for them.” –“The right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.

According to this definition there would need to be an increase in the amount of goods and services coupled with a shortage of money needed to obtain those good or services before there would be any need for credit at all. All most every one has the lawful authority to create goods or provide a service. At this time only banks have the lawful authority to create money. As a general rule the goods are created and the services rendered before payment is made for the goods and services.

Therefore an increase in money needed only to gain a profit off of money in and of itself, without any ties to an increase in goods, is the only reason and the only way money could be created without there being an increase in goods or services.

The only way an increase in the money supply would increase prices would be if almost every thing was bought and sold at auctions where the price is determined by the bidding process. Personal observation and experience has shown me that ever few buyers offer to pay more than the seller’s asking price.

This fact in proven by the fact that so many things are now sold with the words on sale preceding the asking price, leading the buyers to believe they are buying the goods at less than the regular selling price. The fact that there is a shortage of money to buy all the goods that are for sale is proven by the fact that there is so many ads promising no money down and no interest for a certain length of time if one will only buy the goods right now.

Many writers use the example of the king taking the metal money he acquires through taxes and other means, then re-coining and debasing it by substituting less valuable metal for the more valuable metal. Therefore, the king is able to issue more coins with the same amount of the more valuable metals, thus inflating the money supply, resulting in increased prices. This only proves the king believed that he had a shortage of money.

There could only be truth to this line of thought if anyone was used to dealing in metal money where it would be possible to recognize that the new coins did not have the same metal composition as the old coins. The seller upon realizing that he was not receiving as much of the more valuable metal as he was expecting for his goods or services clearly might rise his prices to obtain the same amount of the more valuable metal as he was expecting.

Those facts are no longer in play today. We do not use metal money, if fact we don’t even use paper money. We only use bank generated numbers as our money. Everyone I know when given the amount of bank generated numbers that he was expecting is happy with his deal. No one can tell the difference in numbers like they can with metals.

Not one person in ten million truly understands how our money system works, the principle under which it functions and how it gets into circulation so the people can use it, and even fewer care. I doubt if one man in two million has any idea what the money supply is or whether it has increased or decreased, so why would people rise or lower there prices due to an increase or a decrease in the money supply when they didn’t even know that there had been one.

If we were using gold as money it is possible and in fact likely that in the area of a gold rush there could be a temporality rise in prices on the goods the gold miners needed. That rise in prices of goods would only last till people found out it is easier to get the gold by supplying the miners with more goods then it was trying to find more gold or when most of the new gold was mined out, harder to find or already owned by a few.

Webster’s Dictionary also states: Inflationary spiral - a continuous and accelerating rise in the prices of goods and services, primarily due to the interaction of increases in wages and costs.

A continuous and accelerating rise in the price of goods and services is clearing what we are experiencing. The question is why do costs keep increasing? To answer that question we have to truly understand how our money gets into circulation. Today all money goes into circulation as interest-bearing loans. When money is created as interest bearing debt, the debt owed goes up and the interest on that debt always drives up the cost of doing business. When governments borrow their interest cost increases follow by an increase in taxes. Interest always increases the cost of doing business. Interest also causes the debt increase but it does not increase the money supply nor does it increase goods or services. Interest on debt also increases the need for an increase in the money supply to pay added cost of the interest or someone must suffer a loss of money. Add to this when the principal of a loan is repaid the money is extinguished causing a decrease in the money supply until someone borrows more money. When money is loaned into circulation at interest, interest is the only cost that can’t be eliminated without stopping the increase in the money supply.

There are only three increases in the cost of doing business that courts will force you to pay, interest, taxes and rent. When one suffers from a rise in interest, taxes or rent they must raise their prices or cut your living standard. When your standard of living starts to suffer most people try to get an increase in wages.

Add greed and growing governmental regulations to interest and taxes and you have the true cause of price inflation. Do you really think that the price of gasoline went up to over $4 a gallon because there was a sudden increase in the money supply? If is clear that when the cost of gasoline went up over $4 a gallon the price of everything that was shipped had to go up or someone’s profit had to go down. The continuous increase in the nation’s interest bearing debt is the cause of our continuous and accelerating rise in prices.

[djsherin]

That was difficult to read. You don’t have to “know” that there is more money in the money supply. If more people are demanding your goods, and your inventories are falling, you raise the price. If more money is added to the system prices will likely rise across the economy though not all together nor by like amounts. It depends on to which industries most of the new money goes and on the specific supplies and demands of any given good or service. I thought it was pretty well known and accepted that an increase in the supply of money and a constant amount of goods and services leads to price increases.

This article is a mess. It’s obvious the guy only kind of knows what he’s talking about at best.

[nirgrahamUK]

Money Cranks are in season.

[tomozope]

@David Sherin

That was difficult to read.

It was written at the 6th grade level. Why was it hard to read?

@David Sherin

You don’t have to “know” that there is more money in the money supply.

Are you sure about that? When did the money supply begin to expand again?

@David Sherin

If more people are demanding your goods, and your inventories are falling, you raise the price.

But that works under the assumtion that all production stops, which just isn’t true.

@David Sherin

If more money is added to the system prices will likely rise across the economy though not all together nor by like amounts.

Because of the increase in the cost of doing business that is true because all money enters circulation as an interest bearing debt that further increases the cost of doing business.

@David Sherin

It depends on to which industries most of the new money goes and on the specific supplies and demands of any given good or service.

And how do those industries gain that new money? Do you believe that any business, nation, or individual can borrow themselves into prosperity?

@David Sherin

I thought it was pretty well known and accepted that an increase in the supply of money and a constant amount of goods and services leads to price increases.

Because we use credit for money (interest bearing debt) as the debt increases so does the cost of doing business, which in turn, does get shifted on down to the consumer through a decrease in wages, increase in product price, and/or cheaper raw materials. I think most people can understand you can only cut wages so much, increase your prices beyond the abilty of people to pay, or continue to find cheaper raw materials or use less of them and expect to stay in business (ahead of your interest payments).

[Conza]

@tomozope

@David Sherin

That was difficult to read.

It was written at the 6th grade level.

Oh, that makes much more sense then!.. Obviously it was thought of, at the same level too.

[Esuric]

Let’s presuppose the conclusion in our premises.

[Caley_McKibbin]

Your persistance in promoting this tripe here is puzzling. Perhaps you can find buyers elsewhere.

[tomozope]

@Caley McKibbin

Your persistance in promoting this tripe here is puzzling. Perhaps you can find buyers elsewhere.

I’m not selling anything LOL!

It’s just entertainment watching the younger generation who doesn’t have a clue about running a business try to make business decisions.

Like that one reader said…it was a hard read LOL

[djsherin]

@tomozope

It was written at the 6th grade level. Why was it hard to read?

Because it was all over the place and its economics was terrible.

@tomozope

Are you sure about that? When did the money supply begin to expand again?

Uh, for a long time now. What do you mean “when”? Pretty much whenever the government wants the money supply to expand, it does.

@tomozope

But that works under the assumtion that all production stops, which just isn’t true.

You are aware of static analysis right? You hold all variables constant to observe the effect that one variable has on the outcome. In physics, you create a frictionless world that exists in a vacuum so that you can see what an object will do when one force acts upon it. No one mistakes this world for a real world but it is necessary for more complex analysis. The unrealistic world establishes the basis for further study with the ultimate goal of being able to analyze the real world.

The same is true in economics. We know that production doesn’t stand still, but in order to see what an increase in the money supply does, we hold production constant. We then see what happens (prices rise) and then we apply that to the real world with a statement like “an increase in the money supply will lead prices higher than they otherwise would have been” or “ceteris paribus, an increase in the supply of money leads to an increase in prices”. In other words, we can find relative effects from static analysis.

@tomozope

@David Sherin

If more money is added to the system prices will likely rise across the economy though not all together nor by like amounts.

Because of the increase in the cost of doing business that is true because all money enters circulation as an interest bearing debt that further increases the cost of doing business.

No that’s not why my statement is true. No business needs to borrow to stay in business. In fact, it’s probably a bad thing if you’re borrowing to stay in business. If you have debt, your interest is already established so it won’t be affected more than likely by what’s currently going on in the market (unless you take on new debt). Regardless, it can’t explain a general rise in prices. If one business’s costs go up and its prices follow, less of its product is bought. It doesn’t necessarily have to affect any other industry.

@tomozope

And how do those industries gain that new money?

When money is spent on their goods.

@tomozope

Do you believe that any business, nation, or individual can borrow themselves into prosperity?

Borrowing can be very useful but only if it is supported by savings.

@tomozope

Because we use credit for money (interest bearing debt) as the debt increases so does the cost of doing business, which in turn, does get shifted on down to the consumer through a decrease in wages, increase in product price, and/or cheaper raw materials.

As debt increases the money supply increases not the cost of doing business. When someone obtains that new money the price of whatever they want to buy will start to rise because of an increase in demand. If it is consumers, consumer goods will rise in price. If it is producers, capital goods will rise in price. The costs of doing business do go up eventually, but not for the reasons you say. And while I agree that wages may go down if other costs go up, or prices go up when costs go up, I don’t understand why raw materials would become cheaper. That doesn’t really make sense.

@tomozope

I think most people can understand you can only cut wages so much, increase your prices beyond the abilty of people to pay, or continue to find cheaper raw materials or use less of them and expect to stay in business (ahead of your interest payments).

You can only cut wages until your employees leave and are hired elsewhere. What’s to assume businesses aren’t already using the cheapest raw materials they can find? Why would they waste money on more expensive materials? Are you saying they would lower the quality of their product? That would make more sense. Not all businesses have interest payments and these payments are already fixed amounts anyway. My interest payments don’t go up simply because someone else takes on more debt. The greatest costs to business are land, labor, and capital (the factors of production).

[djsherin]

@tomozope

Like that one reader said…it was a hard read LOL

It’s always difficult to read something written by someone who has no idea what they are talking about. There’s a difference between “hard to understand” and “difficult”.

Watching Barney is difficult in a very different sense than multi variable calculus is difficult.

[Smiling_Dave]

@tomozope

The following article by Byron Dale nails the cause of Price Inflation smack dead with the hammer of logic.

Let us examine this claim.

A Close Look at The Theory of Inflation

By Byron Dale

Webster’s New World College Dictionary states: Inflation – (a) an increase in the amount of money and credit in relation to the supply of goods and services. (b) an increase in the general price level, resulting from this, specif., an excessive or persistent increase, causing a decline in purchasing power.

Let’s assume for the moment that Webster’s definition is correct. If it is we need to address the issue of how and on what basis did the amount of money and credit increase without there being an increase in the goods and services.

The Fed wrote into their computers that the major banks have more money deposited in their accounts at the Fed than they did before. Now being a newbie, I do not know how this produces more money for the govt to spend, as opposed to the banks having more money to spend. So I will assume, for simplification, that the govt has an account in some bank and the govt just writes into their bank book that they have more money. And voila, they have it. If anyone can help me out here I will appreciate it.

This increase in money and credit could not arise due to the need to pay for any existing goods

Well, yes it did. Say General Dreedle comes in, hat in hand, to Pres Obama and says “I need another trillion to win the war.” Obama looks in his bank book and there is no money. But he needs to pay for the existing goods, i.e. for guns and planes and so forth. So he prints into the gov bank book that he has more money, cuts a check to Dreedle, and says, “Spend it, my son.”

or due to the need for more money or credit to purchase any increase in goods or services.

Well, yes it can. General Dreedle says “We need more men in the army. There are a few thousand loafers who would join if we quadrupled the salary being paid. We need an increase in their service to our country.” See above paragraph to see how Obama handles it.

Black’s Law Dictionary defines Credit as “Time allowed to the buy of goods by the seller, in which to make payment for them.” –“The right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.

According to this definition there would need to be an increase in the amount of goods and services coupled with a shortage of money needed to obtain those good or services before there would be any need for credit at all.

There lurks in this paragraph a confusion that it is important to clarify. There is a huge difference between an individual and the country as a whole. For example, the country as a whole has several trillion dollars to play with. I, as an individual, have much less. OK now let us ask ourselves, who is Black’s Dictionary talking about, me with my few bucks, or the country, that has trillions? Me, of course. There is a good or service out there, say a yacht, that i want to buy, But my wallet doesn’t have the moolah to buy it. So Mr Yacht owner says, don’t worry, you can have it on credit.

All most every one has the lawful authority to create goods or provide a service. At this time only banks have the lawful authority to create money. As a general rule the goods are created and the services rendered before payment is made for the goods and services.

All very true.

Therefore

I feel a non sequitor coming on.

an increase in money needed only to gain a profit off of money in and of itself,

I am sorry. i dont know what it means to gain a profit off of money in and of itself

without any ties to an increase in goods, is the only reason

the reason the gov gives itself money is to be able to spend it. Just as I didnt have the money to buy a yacht, general dreedle didnt have the money to buy weapons. so he got obama to print some , and he went out and spent it. I am not sure if this is called “gaining a profit off of money in and of itself”

and the only way money could be created without there being an increase in goods or services.

money is always created without there being an increase in goods or services. a baby is born without there being an increase in goods or services. the moon rises and sets without etc. So what? Im not sure what the author is driving at.

The only way an increase in the money supply would increase prices would be if almost every thing was bought and sold at auctions where the price is determined by the bidding process.

Huh? tell that to Zimbabwe, or the weimar republic, or Argentina. I guess the author is picturing this scenario. Mr Grocer sells his apples at 99 cents a pound. general dreedle walks in with his new money and wants to buy every last apple for the new recruits. Mr Grocer sells them all to general dreedle and is very happy. why should the price go up, right? In fact it didn’t. all the apples were sold for 99 cents a pound. author’s case proven, right?

The answer is that indeed general dreedle got his apples for cheap. the other potential buyers of apples walk in and see all the apple are gone. descending like a hungry horde of locusts, they buy more of other stuff, say pears. the pear buyers walk in and see empty shelves etc. it takes a while, but eventually the extra money general dreedle has put into the system is spread around to alot of hands. say that before the general got his money there was 100 tons of stuff to buy and 100 dollars to pay for it. a year has passed. now there is still 100 tons, but 200 dollars to pay for it. what is going to happen? clearly the price of everything will double. because people have extra money, and are telling themselves, this year Im gonna get those apples, dammit, even if i have to pay double. after all, i do have all that extra cash this year. astute mr grocer knows this [you shoulda seen those people last year, fighting over the few apples dreedle didnt notice. well this year dreedle and everyone else will be willing to pay double. and thats exactly what I’ll charge them. why not?]

Personal observation and experience has shown me that ever few buyers offer to pay more than the seller’s asking price.

Very astute.

This fact

which fact? the one his personal observation and experience has shown him? Im not clear here what he is talking about.

in proven by the fact that so many things are now sold with the words on sale preceding the asking price, leading the buyers to believe they are buying the goods at less than the regular selling price. The fact that there is a shortage of money to buy all the goods that are for sale is proven by the fact that there is so many ads promising no money down and no interest for a certain length of time if one will only buy the goods right now.

yes people have lost a lot of money lately, and some have lost their jobs, and cant afford to pay for things, so they have to be enticed by sales and no money downs etc.

Now this is a shortage of money in the wallets and purses of individual people. They have a shortage of money, like I have a shortage of money to buy my yacht.

I guess the author is trying to say, “and therfore there cannot possibly be inflation. There is a shortage of money, right? therefor no inflation is possible, because thats caused by an excess of money.” Well i have a shortage of money, and everyone in town does too, EXCEPT FOR GENERAL DREEDLE. he is taking baths in the stuff, like uncle scrooge mcduck used to do in the comic books. And when he walks into the stores and gobbles everything up, all those for sale signs are gonna disappear. He hasnt arrived yet, thats why the for sale signs are out there. but he will sooner or later. And then prices will shoot up. Ask Zimbabwe, ask Aregntina.

Many writers use the example of the king taking the metal money he acquires through taxes and other means, then re-coining and debasing it by substituting less valuable metal for the more valuable metal. Therefore, the king is able to issue more coins with the same amount of the more valuable metals, thus inflating the money supply, resulting in increased prices. This only proves the king believed that he had a shortage of money.

There could only be truth to this line of thought if anyone was used to dealing in metal money where it would be possible to recognize that the new coins did not have the same metal composition as the old coins. The seller upon realizing that he was not receiving as much of the more valuable metal as he was expecting for his goods or services clearly might rise his prices to obtain the same amount of the more valuable metal as he was expecting.

Those facts are no longer in play today. We do not use metal money, if fact we don’t even use paper money. We only use bank generated numbers as our money. Everyone I know when given the amount of bank generated numbers that he was expecting is happy with his deal. No one can tell the difference in numbers like they can with metals.

Not one person in ten million truly understands how our money system works, the principle under which it functions and how it gets into circulation so the people can use it, and even fewer care. I doubt if one man in two million has any idea what the money supply is or whether it has increased or decreased, so why would people rise or lower there prices due to an increase or a decrease in the money supply when they didn’t even know that there had been one.

Because general dreedle is gobbling everything up, at the same time spreading dollars around, so by the law of supply and demand, apples will be more expensive

If we were using gold as money it is possible and in fact likely that in the area of a gold rush there could be a temporality rise in prices on the goods the gold miners needed.

SO he admits that if there is more money running loose, prices go up. glad we are on the same page.

That rise in prices of goods would only last till people found out it is easier to get the gold by supplying the miners with more goods then it was trying to find more gold

please explain this hammer blow of logic to me. I dont get it at all.

or when most of the new gold was mined out, harder to find or already owned by a few.

the hammer has struck, but I dont get this line either. please explain

Webster’s Dictionary also states: Inflationary spiral - a continuous and accelerating rise in the prices of goods and services, primarily due to the interaction of increases in wages and costs.

A continuous and accelerating rise in the price of goods and services is clearing what we are experiencing.

I thought there are for sale signs out there. Whats going on here? has the hammer of logic hit the author on the thumb, making him contradict himself? no wait. i didnt read things carefully enough. there are for sale signs "leading the buyers to believe" things are cheaper. But the author is not fooled. clearly we are experiencing a continuous and accelerating rise. But shh, dont tell anyone that those for sale signs are all frauds. let the people believe what they want. trick them.

The question is why do costs keep increasing?

because general dreedle and all his friends who also buy things for the govt are getting those fat checks to spend, as explained above

To answer that question we have to truly understand how our money gets into circulation. Today all money goes into circulation as interest-bearing loans. When money is created as interest bearing debt, the debt owed goes up and the interest on that debt always drives up the cost of doing business. When governments borrow their interest cost increases follow by an increase in taxes. Interest always increases the cost of doing business. Interest also causes the debt increase but it does not increase the money supply nor does it increase goods or services. Interest on debt also increases the need for an increase in the money supply to pay added cost of the interest or someone must suffer a loss of money. Add to this when the principal of a loan is repaid the money is extinguished causing a decrease in the money supply until someone borrows more money. When money is loaned into circulation at interest, interest is the only cost that can’t be eliminated without stopping the increase in the money supply.

Ahhh, now we see.. This has been covered in another thread. Mr tomazope has threshed this out at length in the other thread, and has been refuted [to my satisfaction anyway] over there.

There are only three increases in the cost of doing business that courts will force you to pay, interest, taxes and rent.

huh? so if I buy something on credit and pay off all the interest [say 5 dollars] but not the principal [say 100 dollars], the courts wont force me to pay?

When one suffers from a rise in interest, taxes or rent they must raise their prices or cut your living standard.

I heard a tape just last night that refuted this. say Mr Greedy Grocer is charging 99 cents a pound for apples. If he could sell at $1.10 a pound and make more money, would he? you bet your a ss he would. he is not in business to run a charity, but to make as much money as possible. So when he gets hit by a tax on apples, he is not going to raise his prices. that will just get him less money from his customers, as he has already calculated. he will just have to swallow the loss. The tape said Rothbard came up with this argument.

When your standard of living starts to suffer most people try to get an increase in wages.

Really? Most people I know just tighten their belts, especially the now unemployed ones.

Add greed

Which comes and goes in spurts, it seems. From 2000 to 2008 no one was greedy. Suddenly, like an outburst of swine flu, a wave of greed swept across the land. please, grow up. Greed is a constant in human nature. And put that hammer away.

and growing governmental regulations to interest and taxes and you have the true cause of price inflation.

nope.

Do you really think that the price of gasoline went up to over $4 a gallon because there was a sudden increase in the money supply?

Yes.

I just heard a tape about this one too. Say the citizens have [to keep things simple] one hundred dollars in all their wallets combined. gas is $2 a gallon. they spend all their 100 dollars on the things they need, including say 20 bucks for gas. everyone is happy. then the next paycheck comes. gas is now $4 a gallon. having no choice, or because they want to buy the same amount of gas even if it costs that much, they spend 40 bucks on gas. they now have 60 dollars left to buy what used to cost them 80 bucks. obviously they cant buy 80 bucks worth of stuff with 60 bucks, can they? so the demand [which means what people want THAT THEY CAN AFFORD TO PAY FOR] for the other stuff goes down. By the iron law of supply and demand, the prices of the other stuff will go down.

Bottom line, the only thing that can make the price of EVERYTHING go up is an increase in the amount of paper money flying around.

If is clear that when the cost of gasoline went up over $4 a gallon the price of everything that was shipped had to go up or someone’s profit had to go down.

yes

The continuous increase in the nation’s interest bearing debt is the cause of our continuous and accelerating rise in prices.

no

[tomozope]

@David Sherin

Uh, for a long time now. What do you mean “when”? Pretty much whenever the government wants the money supply to expand, it does.

Do you realize that the government creates no money in our system? Please tell me you’re not being serious about the government expanding the money supply. Only the private banking system does that.

@David Sherin

The same is true in economics. We know that production doesn’t stand still

I know, then why is your argument based on the notion that all production stops? Normally when businesses sell more they like to produce more because it is profitable, otherwise your argument would be true.

@David Sherin

In other words, we can find relative effects from static analysis.

Please provide. Which business(es) are you getting this information from?

@David Sherin

No business needs to borrow to stay in business. In fact, it’s probably a bad thing if you’re borrowing to stay in business.

Can you name me one business that has expanded out of only profit?

@David Sherin

If you have debt, your interest is already established so it won’t be affected more than likely by what’s currently going on in the market (unless you take on new debt).

Do you understand that nearly all successful businesses are constantly going deeper and deeper into debt each year? The business debt in the USA is the highest and it close to 40 trillion now. Go tell them guys that they don’t have to borrow to stay in business. I’m sure that sounds great in theory, but in reality it doesn’t hold water, because ALL MONEY only comes into exisistance through and extention of credit by a private commercial bank.

@David Sherin

Regardless, it can’t explain a general rise in prices. If one business’s costs go up and its prices follow, less of its product is bought. It doesn’t necessarily have to affect any other industry.

So if taking on new debt doesn’t affect their bottom line, then why wouldn’t every business go hog nuts and get billions into debt, then they would have lots of money to do business with. You said it doesn’t affect their prices. This debt must be a blessing then, otherwise it’s the cancer that is rotting america.

I run an auto shop and it took a 1000 dollar loan to get it going. My interest load is 100 bucks. Easy to service, low cost of doing business.

The guy across the street also opened an auto shop and took a 1 million dollar loan. 100,000 dollars in interest to service, or he is out of business.

Who is going to be able to provide cheaper service? Can you honestly tell me he isn’t going to have to pass that interest load on down to his customers?

@David Sherin

When money is spent on their goods.

Where did those people get that “new” money? Where is this “new” money coming from?

@David Sherin

Borrowing can be very useful but only if it is supported by savings.

How can anyone save if you have to borrow all the money into exsistance first? Can you borrow enough from Banker Bob to pay me and expect to get out of debt? Can you borrow 100 dollars from the bank, pay back 110 to the bank and keep 10 bucks for yourself?

@David Sherin

As debt increases the money supply increases not the cost of doing business.

What if we just hold the money supply constant, and merely allow the magic of compound interest to work for 20 years? We would have a money supply of 7-8 trillion and a debt load of 200 trillion. Are you trying to tell me a 200 trillion dollar debt load wouldn’t crush every business in America? If you’re such a math god (you keep talking about calculus) then how about you start doing some math.

@David Sherin

When someone obtains that new money the price of whatever they want to buy will start to rise because of an increase in demand.

The only way I know of that “new money” is created is by an extention of credit by a private commercial bank and those banks make you put up collateral where the value(price) was already agreed to before the new money is created. You’re a perfect Austrain you know that? You can’t even tell me how money is created in our system because you swear up and down that the government creates the money.

@David Sherin

I don’t understand why raw materials would become cheaper. That doesn’t really make sense.

Because the producers of the raw materials cannot shift any interest costs down any lower and they get all the interest costs shifted onto them.

Any amount of study on how much raw materials have changed in price over the last 100 years shows this. 1920 a bushel of wheat $2. Fast forward to today, $2.61 per bushel. OMG Look at the price inflation on something that has had so much growing demand! I bet those farmers are feeling so rich and famous with their $2.61 a bushel wheat. Wow. Good thing fuel prices have gone down so much since 1921 too, along with less of an interest load, and less taxes, and lower costs all around. I bet it’s great to be a farmer today. They are getting so rich from an ever increasing demand. I know how those farmers could get even more rich. Only plant 50% of their crops. They don’t have any interest load to stay ahead of. Matter of fact, they should quit planting at all, because a decrease in production and an increase in demand will solve their economic crisis. I want you to run our country. You should run for president. Clearly you know how to run a business better than anyone I’ve met. When will I be able to vote for you? You’re the kind of leader I want. One who so clearly understands how businesses are ran in America.

Go tell that garbage that interest doesn’t affect prices to any business in America and you’ll be laughed right out the front door.

@David Sherin

You can only cut wages until your employees leave and are hired elsewhere.

And this great job market clearly proves you are 100% correct. i bet people are flocking for these better paying jobs by the millions.

@David Sherin

What’s to assume businesses aren’t already using the cheapest raw materials they can find?

They probably are.

@David Sherin

Why would they waste money on more expensive materials?

You’re starting to make some sense here.

@David Sherin

Are you saying they would lower the quality of their product?

Yes.

@David Sherin

Not all businesses have interest payments and these payments are already fixed amounts anyway.

It’s true not all businesses have any interest payments but can you name me one successful business that doesn’t have any interest bearing debt? Every business in America is paying interest on either their business debts or the interest bearing debts on the government side (taxes). Increase in government debt, increase in the tax load. You may not have any personal debt but someone is in debt in order for you to be able to do any business at all.

@David Sherin

My interest payments don’t go up simply because someone else takes on more debt.

That’s true but their interest costs will get shifted onto you if your purchasing anything from them.

@David Sherin

The greatest costs to business are land

Since when have we ever made a payment to the earth?

@David Sherin

capital (the factors of production)

Capitol in our system only referrs to money. How could money cost us anything if what you said is true and the government just prints it? It’s just a number on a peice of paper right?

[djsherin]

@tomozope

Do you realize that the government creates no money in our system? Please tell me you’re not being serious about the government expanding the money supply. Only the private banking system does that.

Do you realize the “private” banking system and the federal reserve both exist in their current form due to the government? You are aware of the Federal Reserve Act correct? You realize that if the government wanted it could end the Federal Reserve or assume its operations at any time right? Calling it private is a vast disservice to the actual private sector. Our current system exists because the government likes it that way. I never said the government directly expands the money supply. What I said was that the money supply is expanded when the government wants it to be, and that is pretty much true. It doesn’t mean they have to be the ones who actually expand it.

@tomozope

I know, then why is your argument based on the notion that all production stops? Normally when businesses sell more they like to produce more because it is profitable, otherwise your argument would be true.

Really? Did you read anything I wrote? Did you understand anything about static analysis? Do you understand relative effects? That’s what I was talking about. When you add in the fact that there is production, you say that an increase in the money supply leads to prices being higher than they otherwise would have been. Come on now, this is basic stuff.

@tomozope

Please provide. Which business(es) are you getting this information from?

It has nothing to do with business! I’m talking about static analysis and relative effects. This isn’t limited to the study of economics. Did you really not understand what my point was? Why do you think I brought up the analogy in physics?

@tomozope

Can you name me one business that has expanded out of only profit?

I never said “expanded”. A business doesn’t need to expand in order to exist. And I’m sure it is possible to expand from profits alone, but it would be very difficult and require a lot of savings on the part of the business owner.

@tomozope

Do you understand that nearly all successful businesses are constantly going deeper and deeper into debt each year? The business debt in the USA is the highest and it close to 40 trillion now. Go tell them guys that they don’t have to borrow to stay in business. I’m sure that sounds great in theory, but in reality it doesn’t hold water, because ALL MONEY only comes into exisistance through and extention of credit by a private commercial bank.

Yes I understand that people go into debt. Do you understand why they go into debt? No one takes on debt unless he believes that the money he makes from that investment will bring in enough money to cover more than the principal and interest (thus leaving him profit). Debt in and of itself is not a bad thing. My Dad owned a business. He didn’t need to borrow to stay in business. Now he is in a partnership with his Mom. They don’t need to borrow to stay in business. Let’s say I take on no new debt as a business owner. How does the creation of new debt for someone else by the banking system affect me besides the diminution of my purchasing power?

@tomozope

The only way I know of that “new money” is created is by an extention of credit by a private commercial bank and those banks make you put up collateral where the value(price) was already agreed to before the new money is created. You’re a perfect Austrain you know that? You can’t even tell me how money is created in our system because you swear up and down that the government creates the money.

Huh? Putting words into my mouth, nice. No I never said the government creates the money. I already stated that earlier in this response so I won’t go into it again. I don’t deny that the banking system creates new money as debt. That is true. I’m not sure why you think I think otherwise. It’s really annoying and really confusing. What I maintain is that the banking system is not “private” in the sense you seem to be using the term. It is held up and supported by government even if the government doesn’t directly control its actions. You’re arguing against a straw man with a series of non-sequiturs. It’s getting old, so please stop.

@tomozope

Because the producers of the raw materials cannot shift any interest costs down any lower and they get all the interest costs shifted onto them.

So that lowers their price? What?

@tomozope

Any amount of study on how much raw materials have changed in price over the last 100 years shows this. 1920 a bushel of wheat $2. Fast forward to today, $2.61 per bushel. OMG Look at the price inflation on something that has had so much growing demand!

You understand that price is influenced both by demand and supply don’t you? You think maybe supply has gone through the roof since then? Costs of production have also plummeted with the invention of new technology.

@tomozope

I bet those farmers are feeling so rich and famous with their $2.61 a bushel wheat.

Just because your product is more expensive doesn’t mean you’ll be more profitable. You will sell less units so it depends on what the market for your product is like. Besides, I don’t ever remember claiming that farmers would be much richer today than in the 1920s so I’m not sure what you’re attacking here. Not to mention the fact that the dollar has lost much of its purchasing power so $2.61 now is worth much less than $2 back then.

@tomozope

Only plant 50% of their crops. They don’t have any interest load to stay ahead of.

How would only having 50% of a crop lead to lower interest payments? Destroying half your property doesn’t lead to a decrease in interest payments. If you already have debt, you still have to pay it back.

@tomozope

Matter of fact, they should quit planting at all, because a decrease in production and an increase in demand will solve their economic crisis.

What? When did I say that? If you really believe that, you don’t know economics. If you believe that’s what I think then I have no idea why you think that. Demand doesn’t increase when supply decreases. Prices increase when supply decreases.

@tomozope

I want you to run our country.

I don’t.

@tomozope

Clearly you know how to run a business better than anyone I’ve met. When will I be able to vote for you? You’re the kind of leader I want. One who so clearly understands how businesses are ran in America.

We’re not talking about business, we’re talking about monetary economics.

@tomozope

Go tell that garbage that interest doesn’t affect prices to any business in America and you’ll be laughed right out the front door.

I didn’t say interest doesn’t affect prices. I said issuing new debt to some random person won’t have an effect on what you’ve already borrowed. You have to pay back what you’ve borrowed regardless of what debt anyone else takes on.

@tomozope

And this great job market clearly proves you are 100% correct. i bet people are flocking for these better paying jobs by the millions.

What are you talking about? If you cut all your employees wages to a dollar, chances are they are going to leave. I didn’t say at what wage they will leave, but if you cut wages enough, they will eventually leave. If you have a flexible labor market, the labor will eventually be absorbed by someone else. If you have minimum wage laws and onerous regulation as well as arbitrary and perverse legal incentives, labor will not be absorbed as quickly as on the unhampered market. Our system is closer to the latter. The point is however that most people will not work below a certain wage, depending on their own preferences, their alternative choices, and the type of work being done.

@tomozope

It’s true not all businesses have any interest payments but can you name me one successful business that doesn’t have any interest bearing debt?

No, but then again I couldn’t tell you any company that does have debt simply because I don’t know. I’m sure a google search could cure that, but it’s kind of pointless for me. I also couldn’t tell you how much of that debt is owed to regular people who can’t create money and to banks that can. Just because debt is created in our system doesn’t mean the money supply increased. If a business sells bonds to a bunch of people, they aren’t allowed to create new money. Only the banks can do that. But it’s entirely possible that the business gets all its borrowed money from investors and not banks.

@tomozope

Every business in America is paying interest on either their business debts or the interest bearing debts on the government side (taxes).

Taxes aren’t interest.

@tomozope

Increase in government debt, increase in the tax load.

Not if the government borrows or prints the money.

@tomozope

You may not have any personal debt but someone is in debt in order for you to be able to do any business at all.

Why does someone have to be in debt for me to sell something to a consumer?

@tomozope

That’s true but their interest costs will get shifted onto you if your purchasing anything from them.

His costs will go up if his interest payments go up but it’s not as if he can pass all that cost onto the consumer. If costs go up, less of his product will be bought and chances are he will be less profitable than before. Of course he could keep his prices the same if his interest rate goes up for some reason since ultimately that debt will be paid down. If he takes on new debt, I highly doubt he would be planning to raise his prices. In that case he would expect future profits to go up (why invest and take on new debt if not?), which may mean having to make interest payments that lessen his short term profit margin. There’s no reason his prices have to go up.

@tomozope

Since when have we ever made a payment to the earth?

Land is considered a factor of production and includes all natural resources (land, water, animals, rocks, etc.). That’s basic econ. You don’t pay land, you pay the owner of it. Acquiring the resources necessary to accomplish your goals as an entrepreneur means paying for the factors of production (land, labor, and capital). These are the most basic and important costs of doing business.

@tomozope

Capitol in our system only referrs to money. How could money cost us anything if what you said is true and the government just prints it? It’s just a number on a peice of paper right?

Capital can refer to money in the context of money markets, investment, loans, etc. But it also refers to goods used in the production of other goods. Machines are capital. Tools are capital. The meaning of the word depends on the context and as I have used it, refers to machines, tools, etc. and not to money. I never said the government just prints the money. Even when we use the term “printing the money” it’s not a literal figure of speech. Money in our current system costs very little to make. Borrowing money does have a cost though. That cost is interest.

[djsherin]

@Smiling Dave

I just heard a tape about this one too. Say the citizens have [to keep things simple] one hundred dollars in all their wallets combined. gas is $2 a gallon. they spend all their 100 dollars on the things they need, including say 20 bucks for gas. everyone is happy. then the next paycheck comes. gas is now $4 a gallon. having no choice, or because they want to buy the same amount of gas even if it costs that much, they spend 40 bucks on gas. they now have 60 dollars left to buy what used to cost them 80 bucks. obviously they cant buy 80 bucks worth of stuff with 60 bucks, can they? so the demand [which means what people want THAT THEY CAN AFFORD TO PAY FOR] for the other stuff goes down. By the iron law of supply and demand, the prices of the other stuff will go down.

Bottom line, the only thing that can make the price of EVERYTHING go up is an increase in the amount of paper money flying around.

BINGO!

This hits the nail on the coffin. Only an expansion of the money supply can cause a general rise in prices.

The rest of your post was good too lol

[Smiling_Dave]

@David Sherin

BINGO!

This hits the nail on the coffin. Only an expansion of the money supply can cause a general rise in prices.

Wily ole Rothbard gets the credit for this one too.

The rest of your post was good too lol

Thanks!

[tomozope]

It’s just amazing how much you guys will defend this banking system’s debt money.

I have to give you credit where it’s due.

I’ve never seen a group of people so in love with being a debt slave.

[Amanojack]

Still waiting for that $2,000 you were gonna loan me interest-free for five years!

[djsherin]

@tomozope

It’s just amazing how much you guys will defend this banking system’s debt money.

I have to give you credit where it’s due.

I’ve never seen a group of people so in love with being a debt slave.

It’s amazing how well you don’t listen. No Austrian defends this current system. No Austrian thinks that fiat money created out of thin air BY ANYONE is a good thing economically, morally, philosophically, whatever. Many people on this forum have tried again and again to tell you that we favor a free market monetary system.You think that because we go after what you say that we somehow favor the status quo, which is ridiculous and logically unsound.

What’s your alternative? All I hear from you is a bunch of economically ignorant statements. Please, propose a system you think would work.

[Esuric]

I’m a debt slave, but all of my property is entirely paid for, and I don’t owe any money to anyone.

[tomozope]

@David Sherin

No Austrian thinks that fiat money created out of thin air BY ANYONE is a good thing economically, morally, philosophically, whatever.

Except we don’t have a fiat money system. We have a bank credit system with a fiat component.

@David Sherin

Many people on this forum have tried again and again to tell you that we favor a free market monetary system.

Can you please explain this free market monetary system? What makes it different than what we have right now?

@David Sherin

You think that because we go after what you say that we somehow favor the status quo, which is ridiculous and logically unsound.

You sure seem to want to avoid talking about how our current system operates, and only want to talk about a theory. Can you tell me how the austrain theory would get rid of the 57 trillion dollar interest bearing debt?

@David Sherin

What’s your alternative? All I hear from you is a bunch of economically ignorant statements. Please, propose a system you think would work.

Revoke and destroy the ability of the banking system to create the medium of exchange as interest bearing loans created out of a mortgage on all the property in the united states of america and replace it with a wealth based monetary system where our monetary system increases when our total wealth increased, instead of right now, where our wealth only increases with an increase of interest bearing debt.

In other words, the principles of gold/silver under the 1972 free coinage act, only I want those principles applied to our current monetary system because what we use for money (numbers) clearly works, and I doubt we could find something that would work better. The problem is it’s all based on interest bearing debts owed to the banking system and created out of a mortgage on all the property in the USA and all the banking system gives us is some numbers in a checking account.

If you really want to understand this idea, which has its roots based on what made this country great then you’ll just have to get the book Modern Money Secrets. I can’t put 300 pages of materials into one forum. Its impossible.