Natural economic order

[niphtrique]

@corpus delicti

Lastly, don’t judge a book by its cover, nor the title of a chapter. It’s the contents that count. Now, I’ve read some of your’s, any chance you will return the favour and read some of mine?

I will.

@corpus delicti

[EDIT: I’m sorry to say this, but I do not think this is the right forum for you. The more I read naturalmoney.org, the more I see how it differs utterly and completely from Austrian Economics. It simply does not make sense to just about anyone on these boards. An important question: Have you ever discussed your Natural Money with a person sharing ideas from The Austrian School of Economics?]

For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time.

I am a frequent observer of gold sites and aware of Austrian economics in general. It makes sense to me to a great extent, but it is also denying human nature in some extent, just like socialism does. In naturalmoney.org I wrote:

Problems with free markets in the current money system

If the government did not interfere with the economy and interest rates, markets will correct the problems, but in a rude way, with banks going bankrupt, economic recessions and even economic depressions. Since we live a democratic society, such issues will automatically lead to a strong call for government intervention and regulation.

Maybe you can educate people that free markets are the best, but when they are confronted with the disadvantages, percieved or real (thats a debate between socialists and capitalists, I will not go into), people will ask for government intervention.

There is another observation I made, when you are thinking about going Austrian:

Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.

Again, I do not want to go into a debate about right and wrong. I see a stability issue here. People paying interest are getting poorer money wise, which is an important observation. If capitalism is creating enough value by economic growth, those poor people may after al get richer in terms of goods and services, because of falling prices. But if money is accumulated by the rich, poor people could end with nothing at all in the end. This is the stability issue. The money stops to flow in the economy and capitalism breaks down because of demand destruction. Also capital gets destroyed which could otherwise be of productive use.

[niphtrique]

@JonBostwick

Are you asking, would people be better off if you prevented them from borrowing money they can’t afford to pay back? No, they obviously value present cash over future consequence.

You can’t impose your value system on others. This is an issue between lender and lendee.

For me it is a stabilty issue, not a question of right and wrong. My value system is that I prefer a stable monetary system with no or little government intervention.

If you forbid interest charges, this value system is imposed. But if you allow interest charges, you impose the consequences of interest charges on the public by economic recessions, which could harm people that did not lend or borrow irresponsibly.

[niphtrique]

@Eduard - Gabriel Munteanu

Hmm… I don’t think Austrian Economics supporters have this homo economicus assumption. It’s rather that we believe the market rewards those that go with it. So it’s quite simple: you provide service to the market, you win; you cause harm (e.g. waste resources etc.), you lose. More likely natural selection than belief in a good human nature.

Isn’t it so?

That is what we agree on and why Austrian economics does make sense to me to some extent.

But there is a believe in good human nature hidden in Austrian economics, I think. Natural selection will result in success and failure. People having succes can become very wealthy (which is no problem at all) but also very powerful (which is the problem) and Austrian economics assumes they will not change the rules of the game (good wealthy powerful capitalist assumption).

[niphtrique]

@TropicalK

Let’s say the tax rate is X% a month.

If you hold money, then you are taxed P*((1+x)^12 -1).

If you instead lend out the money to someone else for no interest, than they will be taxed instead. Or whomever they spend/give the money to will be taxed. Through game theory, nobody will want to hold money on the taxation date, as they can just buy goods/gold now. This is violently increasing inflation as demand for money decreases. If the second proposal exists where it is covered by a basket of goods and services, then everyone would call it in near the taxation date.

Note that mathematically, the taxation rate model would be identical to the inflation model. People would be hesitant to hold money in both situations. Money under your matress does not earn any interest under the system NOW. The only difference would be the elimination of the OPTION of charging different interest rates based on credit default probabilities. Instead the only possible interest rate would be 0 or synthetically equal to the tax rate X. If you want to get picky, it might be possible to have an interest rate less than 0, but then you are better off sticking your money in gold.

Under game theory, the quick result would be abandonment of this currency unless the gov criminalizes any unauthorized transaction, leading to a police state. Hardly “good” in my book.

I think there are solutions for this:

• all money could be on accounts at banks and taxation can be done every hour (or any period of time) or
• you could redeem the currency for the basket but you still have to pay the tax of the current month.

Anyway, money should not be accumulated, only capital should be accumulated. If money stops flowing in the economy, because of people hoarding cash, the economy could weaken, and this could start a vicious cycle. Therefore, people not keeping the money is a good thing in this system.

[MatthewWilliam]

@niphtrique

Problems with free markets in the current money system

If the government did not interfere with the economy and interest rates, markets will correct the problems, but in a rude way, with banks going bankrupt, economic recessions and even economic depressions. Since we live a democratic society, such issues will automatically lead to a strong call for government intervention and regulation.

Maybe you can educate people that free markets are the best, but when they are confronted with the disadvantages, percieved or real (thats a debate between socialists and capitalists, I will not go into), people will ask for government intervention.

You should be well aware then that Austrians beleive that it is government intervention that creates the misleading signposts in an economy - fooling economic actors into making unprofitable actions. This is most obvious when the government manipulates the interest rate.

The market is correcting the problems created by government. Huge “Bubbles” just can’t form in a free market.

@niphtrique

There is another observation I made, when you are thinking about going Austrian:

Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.

Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money’s supply is not fixed.

As to interest, there is indeed nothing evil or morally wrong about it - despite all major religions forbidding it. The Austian view of interest emphasises the importance of time (from Mises quiz):

Interest payments reflect the higher value of present goods over future goods. Other things equal, everyone wants to consume sooner rather than later. The current price of a computer might be $1,000, but the price of a claim to a computer delivered in one year would currently sell for less than that, say $900. An entrepreneur might invest $900 in labor and raw materials in order to sell a product next year for $1,000; his implicit interest return is due to the fact that the factors of production represent technological “claims” on future consumption goods, and thus their current price (the $900) is less than their ultimate sale price ($1,000). Obviously the government need not interfere with the market interest rate, since it merely reflects the subjective premium individuals place on a marginal present good over a marginal future good.

[niphtrique]

@Solomon

Who in his right mind would give a loan to someone who can’t afford to pay for it?.. (Well, I guess a banker in a fractional reserve financial system).

One who gives out a loan is making an investment in the person who receives the loan. Hence the lender, as well as the borrower, is responsible when the borrower cannot make payments (since it was his choice to make the loan).

This is an interesting question, because interest is a allowance for risk. If someone is a debtor of dubious quality, a creditor might be enticed to lend him money at a higher interest rate, which further erodes the ability of the debtor to repay. You can argue that this is good or wrong, but for me this is a stabililty issue.

Interest payments are pressing the hardest on the weakest parts of the economy. I am a system designer, and from an engineering perspective, you would never stress the weakest points the hardest. If you build planes this way, they will fall from the sky. But economists consider this to be a good thing. But I question this because I am not an economist.

[niphtrique]

@Jon Irenicus

So you’re advocating a price control over loanable funds markets, because money is the most important good of all? Hah, what backwards reasoning!

Yes, this is a form of price control of money. To me, money is not a good or a service, but a means of exchange. So there is no price control on goods and services. Anyway, there is still a market for money. If demand is high relative to supply, only the best lenders can lend the money. This would of course block a sudden economic boom from happening, and a bust would therefore not follow.

It is a stability issue. Of course, markets will get very boring, no wild swings, only a steady accumulation of capital. Everybody will own stocks because stocks are less risky to invest in. Debt levels are very low. Society will not be like anything we have seen before.

[corpus_delicti]

@niphtrique

For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time.

Fair enough. I can respect that.

Also, just to throw you a bone, I can see where you are coming from. I can tell you worry about the evils of the present banking and monetary systems, about the poor and middleclasses of this world being ripped off etc. All I can say is: “Welcome to the Club.”

With that said, you simply do not know what money is. Perhaps someone on this board can help in giving you some references, if you want to learn more. At any rate there is a chapter, “What is Money?”, in The Bastiat Collection. As I recall there is not much about the history of money, but rather its function, in this chapter, so I’m quite sure it is not enough to read just that.

Ludwig von Mises’, “Human Action”, would obviously be a great read, but not the best to start out with. As Mises tells us, you cannot just, from one day to another, decide which money people should use. This alone makes your whole theory impossible, unless of course you are advocating full on totalitarianism, in which case you will just end up with two markets, like in the USSR; the enforced and planned “government market” and a black market. That is in total disregard to all the human suffering it would cause!

[niphtrique]

@MatthewWilliam

You should be well aware then that Austrians beleive that it is government intervention that creates the misleading signposts in an economy - fooling economic actors into making unprofitable actions. This is most obvious when the government manipulates the interest rate. The market is correcting the problems created by government.

This is what we agree on.

@MatthewWilliam

Huge “Bubbles” just can’t form in a free market.

This is what I do not agree on. Huge bubbles can form in a free market and a free market can eventually correct them, if the market is really “free”. But here again lurks the good wealthy powerful capitalist assumption: that when people are successful they become very rich (no problem) but also very powerful (this is the problem) and therefore markets in the real world tend to become less free.

@MatthewWilliam

Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money’s supply is not fixed.

I think Rothbard is wrong on this, because according to him fiat money systems cannot exist at all. And here we are in reality observing something else. Money, therefore is not a commodity, I think.

@MatthewWilliam

As to interest, there is indeed nothing evil or morally wrong about it - despite all major religions forbidding it.

I agree but I am not religious man. If you are a christian, a jew or a muslim, you may question the wisdom of God, but you must not ignore His eternal wisdom.

@MatthewWilliam

The Austian view of interest emphasises the importance of time (from Mises quiz):

Interest payments reflect the higher value of present goods over future goods. Other things equal, everyone wants to consume sooner rather than later. The current price of a computer might be $1,000, but the price of a claim to a computer delivered in one year would currently sell for less than that, say $900. An entrepreneur might invest $900 in labor and raw materials in order to sell a product next year for $1,000; his implicit interest return is due to the fact that the factors of production represent technological “claims” on future consumption goods, and thus their current price (the $900) is less than their ultimate sale price ($1,000). Obviously the government need not interfere with the market interest rate, since it merely reflects the subjective premium individuals place on a marginal present good over a marginal future good.

Natural money system does interfere with time preference. That is for sure. With money tax and no interest, money in the future has a higher value than money in the present. This has dramatic consequences, one of them is encouraging long term investment decisions.

[MatthewWilliam]

Chapter 8 of Menger’s Principles of Economics is a good 30 pages on the origins and nature of money.

Chapter 3 of Rothbard’s MES is also good.

[niphtrique]

@corpus delicti

@niphtrique

For me this is the right forum. I do not like to exchange ideas with people that agree with me. That would be a waste of time.

Fair enough. I can respect that.

Also, just to throw you a bone, I can see where you are coming from. I can tell you worry about the evils of the present banking and monetary systems, about the poor and middleclasses of this world being ripped off etc. All I can say is: “Welcome to the Club.”

With that said, you simply do not know what money is. Perhaps someone on this board can help in giving you some references, if you want to learn more. At any rate there is a chapter, “What is Money?”, in The Bastiat Collection. As I recall there is not much about the history of money, but rather its function, in this chapter, so I’m quite sure it is not enough to read just that.

Ludwig von Mises’, “Human Action”, would obviously be a great read, but not the best to start out with. As Mises tells us, you cannot just, from one day to another, decide which money people should use. This alone makes your whole theory impossible, unless of course you are advocating full on totalitarianism, in which case you will just end up with two markets, like in the USSR; the enforced and planned “government market” and a black market. That is in total disregard to all the human suffering it would cause!

Some theorists of natural money systems think that they will evolve to become dominant by free will. Maybe.

If a majority of the people chooses this after a strong debate, it is not totalitarianism to me. You cannot impose this. But anyway, as is the case in the Austrian school, it assumes enlightenment of the people. This is clearly a weak point.

I have read many articles of the Mises Institute on gold sites. Real free markets only exist in Utopia. Free markets tend to become less free after time, because of people becoming rich and gaining power.

I think socialists will have strong case on this point.

If you end with a black market, the system clearly has failed. But I do not think this will happen if it is chosen and not imposed.

[niphtrique]

@MatthewWilliam

Chapter 8 of Menger’s Principles of Economics is a good 30 pages on the origins and nature of money.

Chapter 3 of Rothbard’s MES is also good.

I will look into it, to see if there is anything new for me. But I have studied this subject for years now, so please do not think I am ignorant. Austrian economics is also just a simplification of reality, just as Natural Money is.

[corpus_delicti]

[EDIT: I have removed a lengthy reference to a chapter in Human Action. This is because I acknowledge you saying you have read a lot of this before. In this case I do not want to clog up this discussion with any more references to literature. Instead, let us focus on a discussion of Natural Money.]

[2nd EDIT: The reference was this.]

[niphtrique]

@niphtrique

Yes, this is a form of price control of money. To me, money is not a good or a service, but a means of exchange. So there is no price control on goods and services. Anyway, there is still a market for money. If demand is high relative to supply, only the best lenders can lend the money. This would of course block a sudden economic boom from happening, and a bust would therefore not follow.

It is a stability issue. Of course, markets will get very boring, no wild swings, only a steady accumulation of capital. Everybody will own stocks because stocks are less risky to invest in. Debt levels are very low. Society will not be like anything we have seen before.

Linguistical error, because I am Dutch:

If demand is high relative to supply, only the best lenders can lend the money.

must be

If demand is high relative to supply, only the best borrowers can borrow the money.

[niphtrique]

@corpus delicti

The Epistemological Import of Carl Menger’s Theory### of the Origin of Money

I have read this. Very interesting and I will come back on this later. Crucial notion: it states that you cannot invent money, it must evolve from a natural process. But someone wants to use this computer right now.

[MatthewWilliam]

@niphtrique

@MatthewWilliam

Huge “Bubbles” just can’t form in a free market.

This is what I do not agree on. Huge bubbles can form in a free market and a free market can eventually correct them, if the market is really “free”. But here again lurks the good wealthy powerful capitalist assumption: that when people are successful they become very rich (no problem) but also very powerful (this is the problem) and therefore markets in the real world tend to become less free.

I disagree. Speculative activity speeds up the course to equilibrium. There is no defence of the “irrational exhuberance of the market” for instance. Where do actors get the money and credit to bid up resources? I stated a discussion on this here.

IMHO I don’t beleive in the good rich capitalist assumption, but I also think that there is no way that a rich capitalist can screw everybody over without the help of a big powerful government.

@niphtrique

@MatthewWilliam

Rothbard makes the point that people make the mistake of thinking that money is a magical thing that operates differently to any other good. Money is just another commodity that people trade goods against. And of course, money’s supply is not fixed.

I think Rothbard is wrong on this, because according to him fiat money systems cannot exist at all. And here we are in reality observing something else. Money, therefore is not a commodity, I think.

Money has historically a commodity. I see you have watched the Money As Debt video, where they briefly discuss what money historically was: cattle, sheep, feathers, stones, gems, gold, silver.

Historically, the commodities that have the ideal characteristics emerge as money. Those characteristics being durability, marketability, fungibility, divisability, etc. Gold satisfies all of them. Money has historically been a commodity. It isn’t anything special that operates diffrently to other commodities. The way I think of it is “production of goods” > “purchase” of money > “sale” of money for goods.

According to Rothbard, if I read it correctly, fiat money cannot exist in a free market. I could decide I can give up production of goods to trade for money, and create my own money. I could print 10 rothbards and use them in exchange for goods and services. The only way I could get this to work is if I can somehow legally forbid people to use commodities as money and violently imposed legal tender laws.

I’m getting a lot of this off Rothbard’s Case for a 100 Percent Gold Dollar, by the way.

Also, after glancing through naturalmoney.org, I agree with your analysis of the current monetary system.

[corpus_delicti]

Okay, I will allow for the assumption that enlightened people choose Natural Money as their new medium of exchange. As long as we are clear that this is an if-then proposition, the truth of which is highly contestable.

I think I need to understand your setup a little more then. Let us name the currency “Natural Medium of Exchange”, NME, no pun intended [:P]

The supply of NMEs are constant you say and so is the value of each NME. Also, this value represents a basket of goods and services.

Let us imagine the amount of goods and services increases exponentially, i.e. more rapid than the constant supply of NMEs.

1. How so do you make sure the value of each NME remains constant, i.e. doesn’t diminish?
2. Conversely, if the value is to remain constant, how do you ensure this without changing the supply of money?

In short, how can both the supply and value of NME’s remain constant?

My intention at this point is to discuss the setup without discussing the zero-interest part. Thus, if it is possible for you to not bring this up, right now at least, I would appreciate it. However, if this zero-interest of NMEs, cannot be seperated from supply and value, so be it.

[Jon_Irenicus]

Yes, this is a form of price control of money.

No, it’s a price control on loanable funds.

To me, money is not a good or a service, but a means of exchange.

It is both a good and a medium of exchange.

So there is no price control on goods and services.

There is a price control on the rate at which savings may be lent.

It is a stability issue.

More like instability, which is precisely what this will cause. There’s no economics behind this, just wishful thinking.

I think Rothbard is wrong on this, because according to him fiat money systems cannot exist at all. And here we are in reality observing something else. Money, therefore is not a commodity, I think.

I think you have no idea what you’re talking about.

If a majority of the people chooses this after a strong debate, it is not totalitarianism to me. You cannot impose this. But anyway, as is the case in the Austrian school, it assumes enlightenment of the people. This is clearly a weak point.

Rubbish. No Austrian assumes this. And it is totalitarianism, even if it is a majority imposing its will on a minority.

I have read many articles of the Mises Institute on gold sites. Real free markets only exist in Utopia. Free markets tend to become less free after time, because of people becoming rich and gaining power.

Assertion/nonsense.

You say you’ve read Austrian works, yet I do not see it.

-Jon

[niphtrique]

@niphtrique

I have read this. Very interesting and I will come back on this later. Crucial notion: it states that you cannot invent money, it must evolve from a natural process. But someone wants to use this computer right now.

I have some difficulty defining “the natural process” or the “free election of money”. The text is ideological in a sense as it opposes socialism, and rightly so, but I think the socialism-capitalism discussion is a false debate, allowing people to engage in bitter arguments and relieving them from the obligation to think independently.

You can argue that when people choose a leader or a government, this is a natural process. If the leader or the government chooses to introduce fiat money, by the will of the people, I consider this to be natural. We must not forget, pres. Roosevelt was re-elected three times after abolishing the gold standard.

What I do not consider to be natural however, is that you cannot use the money because people do not accept it. But this is not the case with fiat money we see today. We can buy all the goods and services we want with fiat money.

Therefore, as a systems engineer, I observe what actually happens, not what should happen in my version of utopia.

[Jon_Irenicus]

By natural he means the outcome of the voluntary action of individuals. A minority/majority imposing its views on others is not “natural” in that sense.

What I do not consider to be natural however, is that you cannot use the money because people do not accept it.

It’s perfectly natural. If someone does not value a given money-good, they will not use it. End of story.

Therefore, as a systems engineer, I observe what actually happens, not what should happen in my version of utopia.

Relevance?

-Jon