It is worth recalling Ludwig von Mises’ words in his brilliant book on, Liberalism: The Classical Tradition:
“The propensity of our contemporaries to demand authoritarian prohibition as soon as something does not please them, and their readiness to submit to such prohibitions even when what is prohibited is quite agreeable to them shows how deeply ingrained the spirit of servility still remains within them. . . . A free man must be able to endure it when his fellow men act and live otherwise than he considers proper. He must free himself from the habit, just as soon as something does not please him, of calling for the police.”
Ok, say the house building man agrees to 5.1% and the machine making man agrees to 5%. Congratulations you have now deprived the community of a potentially substantial increase in their wealth for a measly 0.1% extra return on your “investment”. You’d better walk out the back door of the bank in case you get lynched by the angry villagers.
Sorry, I don’t understand. What is the “this” refer to in your sentence?
The answers are not “wrong” or “right”, they are just different degrees of good. I’d say that my “solution” is better than what we have now. Sure there may be even better solutions involving entirely different monetary systems, but if they are so radically different and uncharted, then they will probably never be employed.
“high-quality bonds”, what is that? How is Joe the plumber going to distinguish between a high quality bond and a low quality bond? US government bonds are supposed to have zero risk! Would you want to hold on to one for them for 30 years?
One of the favorite tricks of pensions companies is to employ selection bias. That is to say, continuously bury poorly performing funds leaving only high performing ones “on show” there by distorting the statistics. Is Joe the plumber going to be wise to that trick?
Sorry, I don’t understand how you derived that from what I’ve said.
the manager is not a fool and will disregard the applicant who has no plan on how to return the food, but only consume it, and is in effect promising to break the contract even before it starts.
if the manager is a fool, then it sucks for the villagers to have put their faith in a fool.
naturally from your perspective as designer of their universe, you are best placed to centrally plan their whole economy. what does this tell us about reality? nothing.
You don’t escape the problem that easily! No, the house man is a young strong farmer. He can work hard and produce more food than he consumes. He is perfectly willing and able to pay back the food+“interest”.
so no one is ‘harmed’ regardless who is chosen, even by your abritray definition of harm, as the little village kiddies getting enough food to not starve.
what you are missing is, if the machine is really that much more productive and worth doing, then the would be machine producer would be willing to bid higher price to buy in his factors of production.
“Deprived of an opportunity to have your welfare improved” is harm in my book.
Not necessarily… but without getting tied up in the details of the exact bidding process (if there is one at all, the house man may simply have walked in to the bank first)… it is unquestionable that a policy allowing the lending of food for non-productive investments (like building the house) reduces the pool of resources available for productive investments like making the machine.
Are you telling me that the villagers don’t care what their food-savings are used for? In a small barter community, the villagers are going to know all about what “investments” are being made. If they hear that some people got loans to consume while some people had plans to build productive machines refused, they will be angry. How couldn’t they be?
ok; im going to elaborate some to try to resolve disagreement and point the way.
government intervention in the banking system, does drive a wedge between entrepeneurs and consumers, and frustrates the proper allocation of resources. Doug French has an article on Mises Daily about ‘productive and non-productive lending’
the problem is you merely advocate further interventions to patch the particular problem you perceive, this will have secondary effects; you will want to remedy these too. your interventionism will inevitably lead to the complete socialisation of the economy by such logic.
the proper response to such problems is to roll back the state.
He should (and will if unhampered by government) act in his own best interest, lending to whom and for such rates as he will most expect to benefit. In your example since it is so obvious to you which would be better, so it would be that obvious to him. In less obvious cases the lender’s self-interest on a case-by-case basis will be much more effective in assessing “better” than you or your centralized god-like bureaucracy would be.
Similarly, for you to suggest (in a previous post) that lending to someone to expand a business is categorically “better” than lending to someone to go on vacation, is incredibly arrogant IMO. The lender acting in self-interest can sort can individually sort through that with his array of potential borrowers quite nicely without your help, thank you
Thanks for the article. Unless I’ve misunderstood the article, it appears to be on my side! the article hints that productive investments are better than non-productive ones (I don’t know how you can square that with all the complaints I’ve received in this thread for suggesting such an evil communist idea). So the only difference between me and Doug French is how you go about achieving this.
Your phrase “further interventions” implies that i will somehow be adding to the sets of banking regulations. This is not the case. If non-productive investments were eliminated/reduced then a vast amount of regulations could be removed. The sets of rules governing the entire system would probably be far smaller. As a computer programmer, I know myself that the smaller and simpler the program, the less likely it is to contain bugs.
If instead of just one food bank, there were three. One which lent unproductively only, one just chased the highest return, and another productively only (and this policy is made clear to everyone). Now remember this is a small community, so everyone will know who’s borrowing and why. Everyone will be able to see the results of the borrowing. After a while people will realize that the direct rate of return to the bank is not the only factor to consider when choosing which bank to store their spare food in. They will also be considering the likely consequences of the banks actions.
does it? doesn’t it really tell you that whilst entrepreneurs are striving to pander to consumer sovereignty in the most rational way,. government intervention leads them to make entrepreneurial errors so that consumers are not pandered to. the interest rates do not reflect the availability of saved capital and the demand to use it in projects; hence it will not be economised correctly
if no human was allowed to trade , every other law concerning trade could be done away with. its not about counting laws. its about freedom.
Each customer will likely choose their bank according to their own assessments of each banks’ future performance w.r.t. their own (the customer’s) interests. I.e. will the bank be around? Will it charge me lower fees, or pay me higher dividends? Does it otherwise loan to “obviously” “better” borrowers? Remember, if it is so obvious that some types of loans are “obviously” more “productive” than others, it will be similarly obvious to the customers as well. Otherwise, if things are quite less obvious (as they always are in the non-contrived case) I think the aggregate assessment of this “neural network” of customers/banks/borrowers, will be superior to yours in assessing the possible future “productivity” of the loans.
“Unfortunately, the federal and state governments constantly enact legislation that makes the employment of workers more costly and in turn makes business expansion riskier. So wealth-producing businesses, like metal fabrication and the like, have every incentive not to borrow money from a bank to expand their operations and not to wander into a wider thicket of onerous employment rules by hiring more workers. Instead, the entrepreneur puts energy into obtaining a low-interest mortgage and buying a big house, or dabbling in real-estate development and speculation.”
Note the use of the word unfortunately at the start and the word speculation at the end. Presumably he’s implying that “speculation” (non-productive, pseudo investment) is somehow not as good a thing to do as employing workers (productive investment)… and I’d wholeheartedly agree.
no; he says explicitly that under the regime of government enacting legislation that makes the workers more costly and in turn makes business expansion riskier the speculative ‘risky’ thing to do is invest in ‘technologically productive’ enterprises, whilst the better bet is to consume capital (be ‘technologically unproductive’)
