expected tangible consequences get factored into prices; your problem is you stipulated that the tangible consequences arent so exciting as to choose to invest in production over consumption. thats your fault given its your story of entrepeneurial error.
There is profit & loss in any size & type economy, but in the absence of money, there is no way calculate costs and proceeds in order to do what you want: to “consider the consequences of the loan”, at least not beyond a very small and primitive community of a few people. But that is why they are primitive and you are advanced.
So how does the government decide in any non-arbitrary way what are ‘real’ and what are ‘pseudo’ investments? And no, I don’t think your prior point that “it’s obvious” along with a completley subjective assertion that vacations aren’t “productive” is a satisfactory response.
This has already been addressed pretty well. Esentially, if the budding businessman is unwilling to outbid the other guy, his business really doesn’t create more wealth.
Monetary manipulation. Isn’t this in the preceding sentance?
But is your solution even a degree of good? All I see is ‘solutions’ based on unfounded assumptions that you can non-arbitrarily decide what is ‘good’ for the economy. You can’t effectively plan an economy like that.
Private bond rating companies exist, and iif you don’t want to trust them there are the previosly mentioned term deposits.
Possibly, and if he isn’t willing to try and find any such ‘tricks’ there are other options.
Your paragraph in the pensions blog starting with “Now of course the people who really pay…”
I see what you’re getting at. But I still have two issues, one with ABCT things, which are not modeled in my barter-village thought experiment (I may come back to ABCT later)… the other issue is this:
With the machine-man, there are three components to the overall benefits:
A. The benefit of interest to the bank.
B. The benefit to the man of his profits once he has the machine up and running.
C. The benefit to the village of cheaper food.
Withe the house-builder-man, there are two components to the benefits:
D. The benefit to the man of getting his house early.
E. The benefit of interest to the bank.
Under your system, the choice of who gets the loan is dependent on A&B compared to D&E, now admittedly B will correlate with C, but be does not fully include C.
in my system I would like to consider A&B&C compared to D&E.
Henry Hazlitt said that it was very important in economics to consider all the affects of an action. He said that many economic errors came about through only considering the immediate local effects.
what part of C is not accounted for within B?
if there was a law against villagers enjoying more or cheaper food. how would that effect B…
again, you don’t get to have a system AND respect the institution of private property.
you can have your system if you want to own everything and give people whatever control you deem proper… but then you destroy economic calculation, degredate consumer sovereignty and act tyrannically.
More thoughts on ABCDE…
Generally in the case of borrowing to consume, the full benefits of the entire deal are considered by the bank.
In the case of borrowing for production, at lest some of the total benefits are not considered.
So in your free market there will be an unwarranted bias towards borrowing to consume that will result in an overall loss to society.
false and absurd. plus you equivocate on the notion of benefit. the same physical phenomenon for some is a benefit; for some is a penalty. you need to sort out your perspective, and stop away from your godly one.
Sorry, let me slightly adjust C to being: “The benefit to the villagers, other than the machine man, of cheaper food.”
the machine is no good to the villagers unless the machine man gives them access to it. why should he unless they pay him,. the benefits to the villagers are factored into the prices. this happens in an economy. perhaps not in your artificial example. but that’s a problem with your artificial example.
If someone develops a cheaper production process then he can undercut the competition whilst keeping a good profit margin. The undercutting benefits the consumers. The good profit margin benefits the entrepreneur. Both benefit. But the banker only considers the entrepreneur’s part of the total.
would this be true if consumers did not change who they bought from and at what price? if they were ignorant of this machine man; he did his machining on the moon and didn’t bring to market. its clear he would not get customers, customers would not benefit from him.
to the extent he gets customers and they benefit from him, they pay him money that they would not have paid him otherwise. it is the promise of this extra money that leads him to bid for loanable funds…
i.e. you dont understand the relationship between consumer soveriengty and entrepeneurs. consumers communicate their expected benefits to entrepeneurs by buying from entrepeneurs, this causes entrepeneurs to purchase factors…
This and your previous post do not appear to be arguing against my claim. So I’m at a loss as to how to respond.
the Bankers are enabling consumers indirectly via entrepeneurs !!!
what consumers want dictates what entrepeneurs do, dictates what entrepeneurs approach banks about !
it is not the case that bankers wishes are not aligned to consumer wishes because entrepeneurs are bad joints. they are in a competative struggle to be the best joints possible!
when the government continuously interferes is when things go wrong.
honestly, i do feel you are wasting my time since you seem committed to the approach of thinking up artificial one-shot thought epxeriments where you have perfect knowledge of all relevant facts and arrange them so as to necessitate a degree of entrepeneurial error that would be avoided under conditions of perfect knowledge or of an intervention specifically designed for the case yet destructive of economic calculation in general.
and you think you are doing something worthwhile and learning economics…
read a book.
None of that is arguing against my claim.
you claimed that the consumer benefits were not fully ‘factored into’ the entrepeneur and the banks decisioning. you alleged a&b& no c.
Correct.
This is an odd one, but bear with me… Imagine that there are two inventors in the village. One of them invents a machine that will produce 10 loaves of bread that (for some unexplained bizarre reason, involving magic/whatever) only he is able to eat. The other inventor invents a machine which produces 9 loaves of bread which only he can eat plus 5 loaves of bread which he can not eat, but the other villagers can, and he will be compelled to give those loaves away for free. Under your system, the guy with the 10 loaf machine will get the loan and the guy with the 9+5 machine will fail because the banker will not be considering the 5 loaves the inventor would give to the other villagers. The net cost to society would be 4 loaves.
I hope that this illustrates the point that if there were to be any benefit whatsoever to the other villagers, that was not part of the benefit to the machine maker, then that component would not be considered by the banker.
In real life, an entrepreneur shares the benefits of his invention with society. But the banker only considers the entrepreneur’s slice of that share.
Bankers are entrepreneurs.
it illustrates that without the price system one could not hope to rationally allocate resources without perfect knowledge as to every individuals subjective valuations over material items.
it illustrates that in a society based on exchange, the benefit to the ‘villagers’ is demonstrated by the villagers by what they exchange for it. (as an inequality) and this has consequences for the allocation of factors of production.
in real life the banker only considers the benefits to him of an investment. it is through the price system that (you would undermine) that the benefits to him reflect the valuations of consumers as to what consumer goods are valued and what the most rational allocation of resources would be to bring them about. to the extent that as you say what presents itself to the banker for appraisal is a reflection of the valuations of the entrepeneur, by regression this is mere reflection of the ultimate valuations of the consumers.
i think you would do better to post less and read more, this would raise the marginal value of your posts in the future. i personally would benefit from such an investment on your part. sadly, i do not value it so much as to bribe you to do it for me. but perhaps you will want to do it for you. regardless; i think i have had enough of this for the time being.