JCT: These
are the Ed Flaherty Debt Virus posts on a poker game I
will be working from at my presentation
defending my LETS Banking
Systems Engineering Analysis on Wednesday
Nov 12 1997 at 6pm. in
classroom #3208 in the Russell Sage Bldg
at Rensselaer Polytechnical
Institute in Troy, New York.
Article #78780 (79187 is last):
From: "name" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: why interest? a poker game.
Date: Tue Oct 14 07:53:21 1997
In a poker game between ten players, each
player borrows 10 'chips' to play,
from the banker (who charges 10% interest
per game and doesnt play). At the
end of the game, each player has to repay
11 'chips' to the banker. There
are only 100 'chips' in circulation for
the whole game on the table.
At the end of the game, the assets of
all the players equal 100 'chips' (the
money created/loaned from the banker),
however their total liabilities to
the banker equal 110 'chips'.
It is obvious that not everyone will be
able to repay their individual debts
to the banker. There will have to be winners
(those who can pay back) and
losers (those who owe 'chips' to the bank).
Not everyone can play again.
This is structural. Eventually after several
games one player will have all
the 'chips', and the rest will be forced
to vacate the table for the bankers
largesse.
Even if the players were all socialists,
and nationalized everything, there
is absolutely no way for their 'state'
to repay their national debt to the
banker.(incidentally, they cant play another
game because they returned all
the 'chips' to the banker and still owe
him 10 'chips')
Where are the losers, or the state going
to find 10 nonexistant 'chips'
after their game to repay the banker before
starting their next?
They cant, UNLESS:
1. they secure unlimited debt refinancing
from the bank. ie the debt never
gets paid, the banker just accumulates
bigger zeroes, which he uses to
threaten foreclosure. Eventually though,
the banker tires waiting, making
his debtors suffer and decides he wants
to sleep on the table, so he
forecloses and forces all the players
to leave.
2. they entice more/other/new players
to join their game, and force them to
loan money from the banker to play. The
original ten players win money from
the novices to repay their debts as they
are more experienced. Eventually
the novices realized they have been tricked,
but cant do anything about it
but to recruit more unsuspecting players
to the table to offload their
obligations to the banker.(pyramid scheme)
At some point the game will run
out of new players and the players will
be forced to take option 1. or 3.
3. the losing players decide to steal
from other players to repay their
debts or revolt at the banker. Eventually
full blown arguments result which
the transgressors lose. They are forced
to pay impossible fines or war
repatrations to the victims and banker
(who finances the war/justice
system). The banker always wins because
he controls the money. This
continues indefinitely.
Now contrast the above poker game with
interest, with a typical poker game
where no interest is charged by the banker.
where players only lose to those
who deserve it, the best players instead
of to the banker. compare a poker
game to the world economy.
what purpose does charging interest on
money serve for the economy? why dont
banks charge no interest on their loans?
I can see no other purpose than to
maintain the unhealthy influence of the
bankers, and the rich over the poor.
Bevan Chan, byc11@student.canterbury.ac.nz
-------------------------------
Article #78803 (79187 is last):
From: eflahert@garnet1.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Tue Oct 14 15:33:03 1997
"name" <byc11@student.canterbury.ac.nz>
writes:
[poker game snipped since gambling is
illegal in my State]
* Now contrast the above poker game with
interest, with a typical poker game
* where no interest is charged by the
banker. where players only lose to those
* who deserve it, the best players instead
of to the banker. compare a poker
* game to the world economy.
* what purpose does charging interest
on money serve for the economy? why dont
* banks charge no interest on their loans?
I can see no other purpose than to
* maintain the unhealthy influence of
the bankers, and the rich over the poor.
Your poker game story does not accurately
describe the banking system.
Yes, banks charge interest on loans, and
the deposits created from
these loans form the bulk of the money
supply. However, banks also
create a measure of money from transactions
which do not involve the
create of new loans. It is as if
the banker in your poker story
occasionally threw debt-free chips into
the system.
The banking system does essentially the
same thing. Whenever the
banking system pays its operating expenses,
purchases assets from
the non-bank public, or pays dividends
to its shareholders, it
puts additional debt-free money into the
economy. In other words,
unlike your poker game, there is enough
money in the system to
repay all the bank loans. Money
supply and loan data demonstrate
this empirically. Thus, the economy
is not short of money.
More generally, interest is charged for
credit because credit has
competing uses and is in scarce supply,
meaning simply that there is not
an infinite amount available relative
to all possible uses. Therefore,
some sort of rationing mechanism is required.
Interest performs
this function. Also, interest serves
to compensate and reward
savers for postponing their consumption
plans, thereby permitting
capital formation. Saving and capital
formation would still take
place in a no-interest economy, but at
a much lower level than
in the present system.
--
Edward Flaherty
School of Business & Economics
University of Charleston
eflahert@garnet.acns.fsu.edu
OR flahertye@cofc.edu
-------------------------------
Article #78841 (79187 is last):
From: "name" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Tue Oct 14 21:01:36 1997
Edward Flaherty wrote in article <620hdf$8mk$1@news.fsu.edu>...
*Your poker game story does not accurately
describe the banking system.
*Yes, banks charge interest on loans,
and the deposits created from
*these loans form the bulk of the money
supply. However, banks also
*create a measure of money from transactions
which do not involve the
*create of new loans. It is as if
the banker in your poker story
*occasionally threw debt-free chips into
the system.
So the banker can choose to 'occasionally'
throw debt free chips into the
system. At his discretion? ie is
there no 'concrete' relationship, formula
governing the amount to be created
given the interest rate and principal
(eg every $10 lent at 10%, one new dollar
is created) ?
Even so, it is in the bankers interest
NOT to do so. Or to create the
smallest amount possible to keep the system
alive and perpetuate his job. In
the short term it may be expedient for
bankers to create 'all' the interest,
to pay the debts, (making them even more
obscenely profitable) as dividends,
salaries, fringe benefits disguised as
inefficiencies but this would spark
political unrest, and in the long term,
as everyone paid their debts
quicker, they would not need to use the
majority of the banker's services.
The bankers would have much less influence,
power in the economy. They would
become 'unemployed'.
It is a matter of survival to the banker
that people need his loans. More
loans, more profits, more bankers.
Bankers may create money, but never
enough to repay the original loans without
the need for new loans.
I think it is extreamly naive to think
that bankers will altruistically do
what is best for everyone to their detriment.
*The banking system does essentially the
same thing. Whenever the
*banking system pays its operating expenses,
purchases assets from
*the non-bank public, or pays dividends
to its shareholders, it
*puts additional debt-free money into
the economy. In other words,
*unlike your poker game, there is enough
money in the system to
*repay all the bank loans. Money
supply and loan data demonstrate
*this empirically. Thus, the economy
is not short of money.
so the banking sector will always
maintain a large influence on the
economy. by virtue of money creation as
a function of debt. it has less
motivation to become more efficient, smaller
(by charging less interest, as
money creation is determined by the discount
rate) than to grow bigger, with
highest interest rates possible.
*More generally, interest is charged for
credit because credit has
*competing uses and is in scarce supply,
meaning simply that there is not
*an infinite amount available relative
to all possible uses. Therefore,
*some sort of rationing mechanism is required.
Interest performs
*this function. Also, interest serves
to compensate and reward
self rationing through trust,( the capacity
to pay back) ?, as opposed to
greed, (who can pay me the highest interest
rate ?). Maybe the majority of
loans we have now are superfluous. eg
to build rainforest pulp, munitions,
automobile factories.
*savers for postponing their consumption
plans, thereby permitting
*capital formation. Saving and capital
formation would still take
savers should also be penalised for not
releasing money back into the
economy. economist John Hobson cites income
inequality as a cause of
business cycles.
*place in a no-interest economy, but at
a much lower level than
*in the present system.
perhaps, a lower and more environmentally
sustainable level.
Bevan Chan byc11@student.canterbury.ac.nz
-------------------------------
Article #78902 (79187 is last):
From: eflahert@garnet1.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 15 11:41:44 1997
"name" <byc11@student.canterbury.ac.nz>
writes:
* So the banker can choose to 'occasionally'
throw debt free chips into the
* system. At his discretion? ie
is there no 'concrete' relationship, formula
* governing the amount to be created
given the interest rate and principal
* (eg every $10 lent at 10%, one new dollar
is created) ?
There is a very simple principle which
governs this relationship.
The interest a bank collects on its loans
constitutes the bank's
revenues. There are only three possible
places a firm's revenues
can go: (1) to pay operating costs,
(2) to purchase assets, or
(3) dividends/profits to the firm's owner(s).
A bank is no
different from any other firm in this
respect. In each case,
the money paid to the bank as interest
is put back into the
economy without the creation of new loans
being necessary.
Your argument is entirely based on the
idea that money paid to
a bank vanishes into an economic black
hole. This is incorrect.
Once this error is pointed out, the rest
of your argument
collapses.
For more details on this "Debt Virus"
fallacy, read
http://garnet.acns.fsu.edu/~eflahert/virus2.html
Edward Flaherty
School of Business & Economics
University of Charleston
eflahert@garnet.acns.fsu.edu
OR flahertye@cofc.edu
-------------------------------
Article #78943 (79187 is last):
From: "name" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 15 17:37:40 1997
Edward Flaherty wrote in article <622o7o$hvs$1@news.fsu.edu>...
*There is a very simple principle which
governs this relationship.
*The interest a bank collects on its loans
constitutes the bank's
*revenues. There are only three
possible places a firm's revenues
Thats obvious enough but beside my point.
(I think we have a definition confusion,
what i mean by bank is the total
sector as a whole; central, commercial,
retail. I dont mean as in just
retail banks, where the above may apply.
Dont confuse it with there being
savers, bankers and lenders. My original
situation was like when money first
came into existance, where there is only
the banker and cutomer/lenders.
There are no savings.)
What I wanted to know is, is there a fixed
money printing (new circulation)
formula governing the amount created with
regard to the amount i borrow and
the interest rate?
So when i lend $10 at 10% from the bank,
not only does the bank get back $1
interest/year , but it also gets to print
the $1 i chase each year(new money
into circulation) . this gives the bank
potential revenue of $2 from my $10
loan. The bank has two sources of revenue,
interest and printing.
So in effect, the bank 'can' (can being
the operative word) make up to 20%,
double the interest rate from my borrowings.
(Which banks should if we
intend to repay them. have you noticed
that the banks favourite customer is
the government? Because they are unlikely
to ever repay their debts)
What i say is this, if the bank does not
exercise its 'full' (full being
another operative word) rights to revenue
double the interest rate (via
printing), then we have a debt virus situation.
True or not?
And as I have also previously stated,
it is in the bankers interest not to
exercise up to her/his 'full' printing
rights. Can you deny this?
I think you should give credit where credit
is due. Bankers are not stupid!
Of course they will exercise this right,
but never to its full capacity,
only the minimal needed for self perpetuation.
ie new loan creation.
*can go: (1) to pay operating costs,
(2) to purchase assets, or
*(3) dividends/profits to the firm's owner(s).
A bank is no
*different from any other firm in this
respect. In each case,
*the money paid to the bank as interest
is put back into the
*economy without the creation of new loans
being necessary.
But is the bank exercising ALL its money
printing rights? ie new money into
general ciculation as opposed to recycling.
*Your argument is entirely based on the
idea that money paid to
*a bank vanishes into an economic black
hole.
A hole whose size is determined solely
at the bankers descretion!
*This is incorrect.
incorrect when words and meanings are
misconstrued. everyone chooses to see
only what they want to see. To say
that the economics profession does not
have a vested interest in maintaining
the status quo is very naive. And to
assume interlocutors without bias is even
more so.
-------------------------------
Article #78945 (79187 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 15 19:30:05 1997
"name" <byc11@student.canterbury.ac.nz>
writes:
* What I wanted to know is, is there
a fixed money printing (new circulation)
* formula governing the amount created
with regard to the amount i borrow and
* the interest rate?
Yes, and I already gave it to you.
When a loan is created an equivalent
amount of money is created from deposit
formation. As interest is paid
to the bank, money is destroyed because
the deposit disappears. The
bank then uses the liberated reserves
to create additional deposit
liabilities to pay its expenses, dividends,
or buy new assets. Each
of these uses adds "debt-free" money to
the system, enabling the system
to repay both the principal and the interest
of the original loan.
It's an identity; there's no way it cannot
be so unless the bank
gets its jollies by sitting on a literal
pile of cash.
This is evidenced by the fact that the
total bank credit in the economy
is less than the M3 money supply.
* So when i lend $10 at 10% from the bank,
not only does the bank get back $1
* interest/year , but it also gets to
print the $1 i chase each year(new money
* into circulation) . this gives the bank
potential revenue of $2 from my $10
* loan. The bank has two sources of revenue,
interest and printing.
No, this is not correct. "Revenue"
is money received for providing
goods, services, or financial capital.
Deposit creation by banks
is not the same thing. A bank's
ability to create money to pay its
operating costs, dividends, or to purchase
assets derives primarily
from the revenues received as interest
on its loan portfolio.
Before a bank can create a deposit to
pay its light bill, first it
must have the free reserves to do so.
When interest is paid on a
loan, the bank's deposit liabilities fall,
enabling it to create
new deposit liabilities payable to the
electric company. Money
flows in; money flows out. There's
no evaporation.
The rest of your questions stem from this
basic misunderstanding.
Again, read my Debt Virus essay.
-------------------------------
Article #79043 (79187 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Fri Oct 17 09:05:32 1997
Edward Flaherty wrote in article <623jlt$7av$1@news.fsu.edu>...
*No, this is not correct. "Revenue"
is money received for providing
*goods, services, or financial capital.
Deposit creation by banks
*is not the same thing. A bank's
ability to create money to pay its
*operating costs, dividends, or to purchase
assets derives primarily
*from the revenues received as interest
on its loan portfolio.
*Before a bank can create a deposit to
pay its light bill, first it
*must have the free reserves to do so.
When interest is paid on a
*loan, the bank's deposit liabilities
fall, enabling it to create
*new deposit liabilities payable to the
electric company. Money
*flows in; money flows out. There's
no evaporation.
*The rest of your questions stem from
this basic misunderstanding.
Thank you for clarifying my knowledge
of the banking system. I will desist
from that line of argument.
However, the way that you have described
it, would imply that we already
live in a non-usury* ( interest
free by another name) economy. With
Interest rates having the SOLE function
of fees, for the banks services.
Interest payments used SOLELY for profits
and operating expenses are then a
function of a banks efficiency in market)
True or Not?
[*BTW, by usury, I mean explotative lending
of money with reduced capacity
to pay back- like 'debt virus', charging
interest without concomittant money
creation.]
Dont respond with 'interest rates also
attract depositers to loan more money'.
Because the majority of money is held
in the form of checkable deposits
(which are increasing as a percentage
relative to physical currency) on
computers. It wont be long before all
money is digital. In which case it
wont be neccessary to induce depositers
to use banks by offering more
interest than the mattress. banks
will be currency.
This will allows banks to know instantaneously
how much is on deposit. so
that they will know how much to loan (debits=credits).
In a sense,
depositing will be compulsory.
no interest on deposits may actually increase
money lent, the necessity of
having retirement income will mean more
money needs to be saved since there
is no compounding.
Bevan Chan, byc11@student.canterbury.ac.nz
'I know nothing' -socrates, who was proclaimed
the wisest of athens
-------------------------------
Article #79057 (79187 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Fri Oct 17 10:14:26 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
* However, the way that you have described
it, would imply that we already
* live in a non-usury* ( interest
free by another name) economy. With
* Interest rates having the SOLE function
of fees, for the banks services.
* Interest payments used SOLELY
for profits and operating expenses are then a
* function of a banks efficiency in market)
True or Not?
* [*BTW, by usury, I mean explotative
lending of money with reduced capacity
* to pay back- like 'debt virus', charging
interest without concomittant money
* creation.]
The way you define usury is not much different
from the conventional
definition. What is an "exploitive"
interest rate? How high is
too high? The answer can only be
a subjective one. Economics is
not much use in evaluating subjective
claims, so I cannot address
the question of whether we currently have
a non-usury system. I can
only point out in this case that if the
interest rate on a loan
were too high, then no one would borrow
at that rate. Even if one
borrower were to contract at a very high
rate, then we must assume
that the borrow feels better off with
the loan than without it,
otherwise he would not sign the note.
To him, then, the interest
rate would not constitute usury.
If usury is the charging of any interest,
then we have a usury
system. But if it is defined as
an excessively high interest
rate, then there's no way to determine
objectively if usury
exists.
I would not go as far as to say that interest
rates are used "solely"
for the purpose of covering bank expenses
and earning a profit.
Interest rates also compensate the bank
for the default risk in
a loan and for the expected loss of purchasing
power of the
principal due to inflation. However,
one could argue these last
two purposes are really just other types
of expenses.
Edward Flaherty
-------------------------------
Article #79135 (79187 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest?
Date: Sat Oct 18 08:40:18 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
* Even so, I think this is the root of
all evil, no self restraint. That you
* want the unlimited, to be god, when
clearly king Canute has a better chance
* dictating the tides. To hold the above
idea is non acceptance of your
* finiteness, an exercise in futility.
I find protestants deliciously ironic.
* Economics, being a SOCIAL science, should
steer people closer to reality, to
* accept limitations by levying no interest
on debt. That money cannot expand
* infinitely.
This is an absurd idea. It may very
well be the case that as a species
we would be better off if we exercised
more "self restraint" in
intertemporal consumption decisions.
But this is not what economics
is about. Economics, like any social
science or natural science,
studies the world as it is, not as we
would like it to be. Wishing
it were different will not make it so.
The fact of the matter is
that all people have a time preference
for consumption. The only
useful activity in this narrow sense is
to study how this fact
affects actual decision making, not how
the world would be if only
this fundamental 'law' of human behavior
were different.
Edward Flaherty
-------------------------------
Article #79162 (79187 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Sat Oct 18 19:23:53 1997
Edward Flaherty wrote in article <627rs2$r64$1@news.fsu.edu>...
*The way you define usury is not much
different from the conventional
*definition. What is an "exploitive"
interest rate? How high is
*too high? The answer can only be
a subjective one. Economics is
I would have thought it was objectively
obvious. let me explain my
understanding with three examples from
best to worse. I hope you correct it.
bear with me.
INITIALLY (constant in all examples)
there are 3 entities.
'bob' is 1 gherkin picker with $0 who
picks 12 gherkins/year
'bob' sells gherkinless burgers
for $1 each.
'burger co' has 10 people and $10 and
make 12 burgers/year
'burger co' sell 12 gherkin burgers
for $10
'bank' is 1 bean counter with $0 and a
printing press.
there are 12 people in total
each person needs 1 burger to be fed.
NON-USURY (using zero interest rate)
'burger co' deposit $10 at bank
'bob' borrows $11at no interest from 'bank'
($1 new circulation)
'bob' keeps $10, and gives $1 to the 'bank'
for services
'bob' buys 12 burgers from 'burger co'
for $10.
'bob' picks the gherkins out.
'bob' sells burgers for $1 each and eats
1 burger
'bob' sells to 'burger co' who eat 10
burgers
'bob' collects $10 from 'burger co'
'bob' sells 'bank' last burger who
eats it.
'bob' collects $1 from 'bank'
'bob' repays 'bank' $11 at end of year.
'bank' deducts $1 from circulation.
Analysis: 'bob' no debt and is fed. 'bank'
is fed . 'burger co' is fed
Next year they can restart the same cycle.
system is stable.
NON-USURY (with 10% interest rates)
'bob' would loan $10 at 10%. same as above
except 'burger co's initial
deposit would be used to purchase a $10
bond which grows at 10%.
BTW I believe this infinite nominal growth
leads to more instability with
each year. Eventually, the bonds will
collapse in value from a 'system
shock'. system is unstable.
USURY. (at 10%)
'burger co' deposit $10 at bank
'bob' borrows $10 from 'burger co'
'burger co' have a $10 IOU from 'bob'
yielding 10%
'bob' buys 12 burgers from 'burger co'
for $10.
'bob' picks the gherkins out.
'bob' sells burgers for $1 each and eats
1 burger
'bob' sells to 'burger co' who eat 10
burgers
'bob' collects $10 from 'burger co'
'bob' throws last burger into rubbish
bin.
'bank' can not afford to be fed. he has
no customers
'bob' repays 'burger co' $10 at end of
year.
'bob' still owes 'burger co' $1 outstanding.
Analysis: 'bob' has unrepayable debt but
is fed. 'bank' starves . 'burger
co' is fed. 'burger co' have a exploitative
position of power over 'bob'
from his IOU's.
With each year that follows, the system
will get more unstable. system is
unstable.
So in summary, usury is unrepayable debt
that exploits. non-usury is
repayable debt that does not exploit.
sorry about the verbiage of the
examples but i wanted to make them clear
as possible.
On second thoughts, I think a usury (my
defn) system is better than the
non-usury interest rate system. Because
in usury it is much more obvious
what happens. 'bob' and 'bank' get exploited.
Wheras in the latter, there is the illusion
of nominally high value of
bonds. and nobody knows whose being exploited
(everyone) until the bonds get
redeemed.
<snipp>
*I would not go as far as to say that interest
rates are used "solely"
*for the purpose of covering bank expenses
and earning a profit.
*Interest rates also compensate the bank
for the default risk in
*a loan and for the expected loss of purchasing
power of the
*principal due to inflation. However,
one could argue these last
*two purposes are really just other types
of expenses.
which I would argue, that they are expenses.
So we agree on this point? If
they arent, what are they then? rents/profits?
Is income divided into 3
categories?
Bevan Chan, byc11@student.canterbury.ac.nz,
'I can explain'
-------------------------------
Article #79164 (79187 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest?
Date: Sat Oct 18 21:29:00 1997
Before i reply, I wish to apologize publicly
for my unintentional negativity
and defamation of Markku Stenborg's good
name. I am sorry if I offended any
protestants in my posts. But I used the
word 'protestant' because it seems
to sum up to me the people who make saving
money, collecting interest, a
virtue, which I dispute. I used the word
in this regard, but I shall cease
it. Please accept my sincerest apologies.
Edward Flaherty wrote in article <62aani$dtq$1@news.fsu.edu>...
*This is an absurd idea. It may
very well be the case that as a species
*we would be better off if we exercised
more "self restraint" in
*intertemporal consumption decisions.
But this is not what economics
*is about. Economics, like any social
science or natural science,
*studies the world as it is, not as we
would like it to be. Wishing
(cough, cough) It is more true to say,
that we see, what we would like to
see, by being selective about what we
see, when we see the world as it is.
I offer this argument. when a idea
is believed true, you may say that it is
so because it is empirically truthful.
and that is the SOLE reason.
WRONG.
an idea has at least TWO MEANS of surviving
(the ENDS).
1, empirical validity. ie closeness to
'reality'
2. changing the believers 'perspective'
without the believers self
realization. by perspective, i mean selective
vision. not apportioning equal
weight to all the evidence. instantly
dismissing as irrelevant any evidence
posing a threat to the survival of belief
without further investigation. and
attaching too much belief to the evidence
that ensures the idea's survival.
The existance of implies the changability
of perspective. tautology.
If you deny the existance and changability
of perspective, bias, partiallity
etc. then there are only 2 conclusions.
1, you have no perspective because you
are unconscious. ie the rock is your
equal
2. you have no perspective because you
are omniscient. you are GOD, and you
see everthing fairly and equally as it
is.
A scientific theories END is to survive.
There is only one way to survival,
convince others to believe in it. And
it convinces others through the MEANS
of psychological devices afore mentioned.
NOT the other way round, (ie empirical
evidence leads to belief) because you
can see the truth, and still not believe
it, cant you? eg round earth vs
flat earth.
As an example, consider Newtonian physics,
with its fixed 'flat' space. This
is patently true from a NARROW local perspective.
When we view space with a
WIDER, larger Einsteinian perspective,
we see that space is curved. While
both theories a relatively true, Einsteins
theory is more truthful because
it has a larger perspectve 'space'
Verifiability as a condition of belief
is the last concern of any
theory/idea/ology. Least important. Verifiability
is only prominant because
we have chosen to not accept something
unless it is verifiable. The idea
'Verifiability' itself cannot be verified.
(read any critiques of logical
positivism)
Most important is belief in the theory.
science is no different to religion
in this regard.
I do not expect a reply to this
argument (and some of my others)
because you have already dismissed it
as irrelevant (<snip>'d) as you cant
argue against it. ( a localised perspective
prevents one from seeing a bigger
picture) If you do reply in agreement
with the above, I shall be pleasantly
surprised. I await my self immolation
at your hands.
*it were different will not make it so.
The fact of the matter is
*that all people have a time preference
for consumption. The only
Yes, ASAP. It is not different between
people. we would all like more,
faster. eg more retirement savings now
(even at no interest)
My main criticism is with the distribution
of the fruits of labour, which is
biased to older people (through interest
rates), and does not reflect
reality as closely as my interest free
proposal. which will increase the
'velocity' of circulation which i am debating
with your help.
*useful activity in this narrow sense is
to study how this fact
*affects actual decision making, not how
the world would be if only
*this fundamental 'law' of human behavior
were different.
what one sees, is what one bees
no offence intended. Bevan Chan, byc11@student.canterbury.ac.nz
We are at the dawn of a new age.
-------------------------------
Article #79201 (79655 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Sun Oct 19 10:49:36 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
*USURY. (at 10%)
*'burger co' deposit $10 at bank
*'bob' borrows $10 from 'burger co'
* 'burger co' have a $10 IOU from
'bob' yielding 10%
*'bob' buys 12 burgers from 'burger co'
for $10.
*'bob' picks the gherkins out.
*'bob' sells burgers for $1 each and eats
1 burger
*'bob' sells to 'burger co' who eat 10
burgers
* 'bob' collects $10 from 'burger
co'
*'bob' throws last burger into rubbish
bin.
* 'bank' can not afford to be fed.
he has no customers
Why can the bank not be fed? The
bank currently has a $10 customer
deposit from Burger Co. and has made a
$10 loan to Bob. Its
balance sheet looks like
assets
liabilities
------------------------------------------
cash $10
| Burger Co.'s deposit $10
loan $10
| Bob's deposits 10
It has total deposits of $20 and cash reserves
of $10. If the bank
wanted to keep just 20% of its deposits
as cash, then it could still
create an additional $30 in new deposits.
If the bank wants to be
fed, then it could just create a new deposit
for $1 and purchase
as asset called 'burger' from the Burger
Co.
------------------------------------------
cash $10
| Burger Co.'s deposit $11
loan $10
| Bob's deposits 10
burger $1
|
Ta-da! Everybody is fed and there
is enough money in the system to repay
all the principal and the interest.
Again, you are missing the fundamental
error in the Debt Virus hypothesis:
the banking system creates money when
it pays its operating expenses,
pays dividends to its shareholders, or
buys assets from the non-bank
public. There is no shortage of
money in this sense in a positive
interest rate system.
Take a look at http://garnet.acns.fsu.edu/~eflahert/details.html
for a thorough description of how the
banking system creates and
destroys money.
Debt Virus advocates get hung up on the
fact that the lending process
creates money while repayment destroys
money. This is all completely
true, but it's only part of the story.
Other money is created by the
banking system through transactions that
do not create additional debt.
Edward Flaherty
-------------------------------
Article #79255 (79655 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Sun Oct 19 18:46:12 1997
Edward Flaherty wrote in article <62d6m0$7nb$1@news.fsu.edu>...
*Why can the bank not be fed? The
bank currently has a $10 customer
*deposit from Burger Co. and has made
a $10 loan to Bob. Its
*balance sheet looks like
I think you made a mistake. Nobody used
the bank in this situation
'burger co' privately lent through no
middlemen. ie 'burger co' exchanged
$10 for a signed interest yeilding IOU.
the 'bank' (retail) has NO
CUSTOMERS. the currency was never deposited
or withdrawn and stayed
only in wallets.
In light of this clarification, i urge
you to re-examine and critique it.
It tautologically follows that the bank
starves in my usury example.
UNLESS the banker happens to know the
amount in circulation (probaly), and
learns from word of mouth that 'bob' is
being charged 10% interest by
'burger co'. ie bank overcomes INFORMATION
problems. (which can be overcome
through completely digital bank money
like eft-pos, credit cards, mondex,
smart cards which download every transaction
back to the bank INSTEAD of
interest rate induced circulation)
In which case 'bank' will be obligated
to print and spend $1 and buy a
burger to allow 'bob' to repay his debt
to 'burger co'.
BUT once the banker has done this, there
will be in circulation, $11. the
banker cannot cancel the $1 created or
change it into a bond. (bank has NO
CUSTOMERS) therefore you have my theory
for inflation. private lending.
<snip> Your critique completely ignores
the INFORMATION problem i posed.
you have assumed that everyone uses the
bank, which allows the bank to
gather financial INFORMATION, which you
tacitly acknowledged in your counter
example. In case i didnt explain properly,
the counter example you offered
is identical to my previous NON-USURY
(with interest rates) example.
*Again, you are missing the fundamental
error in the Debt Virus hypothesis:
NO. your counter example ignored the significance
of 'lack of INFORMATION'
in my example. which was the point of
the usury example. Have I not freely
admitted to the errors of my advocation
of the debt virus? Now why do you
expect me to back peddle?
No offence intended
Bevan Chan
You dont want to know my views on private
property, politics, law ....
-------------------------------
Article #79387 (79655 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Tue Oct 21 12:01:24 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
* I think you made a mistake. Nobody used
the bank in this situation, NB
*'burger co' privately lent through no
middlemen. ie 'burger co' exchanged
*$10 for a signed interest yeilding IOU.
the 'bank' (retail) has NO CUSTOMERS.
*the currency was never deposited or withdrawn
and stayed only in wallets.
Yes, you're right.
*In light of this clarification, i urge
you to re-examine and critique it.
*It tautologically follows that the bank
starves in my usury example.
*UNLESS the banker happens to know the
amount in circulation (probaly), and
*learns from word of mouth that 'bob'
is being charged 10% interest by
*'burger co'. ie bank overcomes INFORMATION
problems. (which can be overcome
*through completely digital bank money
like eft-pos, credit cards, mondex,
*smart cards which download every transaction
back to the bank INSTEAD of
*interest rate induced circulation)
*In which case 'bank' will be obligated
to print and spend $1 and buy a
*burger to allow 'bob' to repay his debt
to 'burger co'.
*BUT once the banker has done this, there
will be in circulation, $11. the
*banker cannot cancel the $1 created or
change it into a bond. (bank has NO
*CUSTOMERS) therefore you have my theory
for inflation. private lending.
Inflation is caused by excessive growth
of the money supply
relative to production. Most money
is created via the private lending
process, ergo, excessive private lending
is the source of inflation.
This is not *your* theory of inflation;
it's been in the economics
literature for at least 4 centuries.
Nevertheless, the bank in your example
did not lend the $1 into
existence; it spent it into the economy.
The effect on inflation
is the same -- a distinction without a
difference.
But even if the bank did not print $1,
there is no reason for the
banker to starve. I imagine that
any firm, bank or non-bank, when
faced with the dismal prospect of having
no customers would not
be in business very long. The banker
would close-up shop and
do something else.
Also, faced with a surplus the Burger
Co. may wish to reduce its
price rather than toss its output into
the garbage. So even if the
money supply did not change, the economy
can still support the
same level of economic activity via a
combination of lower prices and
higher velocity.
The direct financing you described in
your example is a common form
of financing. Bonds and commercial
paper form the bulk of non-bank
financing. This type of lending
does not affect the money supply because
the market has not chosen to use commercial
paper or bond certificates
as a medium of exchange.
But this does not render banks obsolete.
For most persons and firms,
it is cheaper to use banks as financial
intermediaries than to use
a direct financing alternative.
In other words, middlemen serve
a useful function, be they in finance
or truck delivery.
However, this example does nothing to
define objectively your notion
of usury. How is anyone exploited
in your example? Was anyone
forced to do something he did not want
to do? Was anyone tricked
into doing something he did not want to
do? No. You are replacing
the subjective term 'usury' with another
subjective term 'exploitation'.
Edward Flaherty
-------------------------------
Article #79471 (79655 is last):
From: eflahert@garnet1.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 22 07:21:46 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
* I agree with your meaning of interest
as distinguished between 'bank loan'
*and 'non-bank' loan. but i posit the
question, why is it neccesary in a 'non
*bank' loan to charge interest? (assume
no inflation, and no bank loans
*available. just a debtor and creditor.
ie there is no outside determinant of
*interest rates).
There are many reasons to charge interest.
First, there is risk of
default. People are risk-averse,
meaning they do not like to take
chances unless they are compensated in
some way. Interest is a
reward for taking risks. Second,
there are alternative uses for the
money loaned to the borrower. The
owner of the funds could use them
for consumption or to invest in a business
and earn a return. Interest
serves to coax the creditor to lending
to the borrower as opposed to
the alternative uses.
*This seems to me, a creditor is taking
unfair advantage of
*the fact that a debtor, needs the creditor's
credit to pay for the debtor's
*debit. (credits= debits). Unfair because,
the debtor in need, has no choice
*about where to get the credit/debits
from.( tautological). so the creditor
*can charge interest on the loan.
Not so. There are many, many creditors
in an economy, so the borrower
would have many choices of lenders.
However, the worse the borrower's
credit history is, the dimmer his prospects
for repayment, then the
more narrow and more expensive his choices
will become.
*so in a zero sum game, the creditor gets
*back a larger slice of the pie than before.
I think that inflation, is a
*natural consequence of this relationship,
ie charging interest in a zero-sum
*environment. The debtor will seek to
equalize the slices of the pie
*If, in the above example, the creditor,
charged no interest on his loan, the
*debtor would not be as inclined to cause
inflation.
Why would the borrower not also be better
off? If the borrower believed
he would be *worse* off for taking the
loan, then why would he do it?
A business may borrow, say, from the bond
market, because it wants to
expand its production capacity and become
more profitable. The
economic pie becomes larger; it does not
stagnate. Your error here
is assuming it is a zero-sum game; it
most certainly is not.
Moreover, interest does not cause inflation.
Edward Flaherty
-------------------------------
Article #79478 (79655 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 22 10:05:31 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
*The positive fair levels of interest
I believe should pay only for the
*banker's services and to maintain value
with inflation. I don't agree on
*paying 'bribes'.
A little later today I plan to go sit
in a restaurant and hope
they give me food. If that fails,
then I'll try bribing them.
For my convienence the minimum bribe necessary
to get each dish
is listed on something called a 'menu'.
-------------------------------
Article #79530 (79655 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Wed Oct 22 18:16:12 1997
Edward Flaherty wrote in article <62knka$29t$1@news.fsu.edu>...
*There are many reasons to charge interest.
First, there is risk of
*default. People are risk-averse, meaning
they do not like to take
*chances unless they are compensated in
some way. Interest is a
*reward for taking risks. Second,
there are alternative uses for the
I think the current system and laws give
the creditors too much protection.
if we assume that a creditor assumes the
default risk for a loan, then this
will give him a motivation to extract
a 'fair price' from the sale of his
house for example. whereas with banks
assuming that risk, the creditor has
only the motivation to sell it as high
as possible.
in a zero interest environment, the cost
of holding a defaulting loan is
zero.
however there would then be no motivation
to do anything, this can be
remedied by changing the nature of 'property'
into a liability -asset,
'social property'. and giving anybody
the right to take someone else's
'property'. read the other post 'property
and interest'
I think instituting zero interest will
requires 'property reform'
*money loaned to the borrower. The
owner of the funds could use them
*for consumption or to invest in a business
and earn a return. Interest
*serves to coax the creditor to lending
to the borrower as opposed to
*the alternative uses.
[BTW if no interest (no 'bribes') was
paid on deposits, and the central bank
had information on the exact amount of
money under mattress', it would know
how much to lend out. (debits=credits)
ie, as if the money under the
mattress was part of its bank deposits]
{ssnipph} The rest of the post is very
similar to Markku's
objections which I have attempted to answer.
check out that post.
Bevan Chan
-------------------------------
Article #79555 (79655 is last):
From: eflahert@garnet2.acns.fsu.edu (Edward
Flaherty)
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Thu Oct 23 08:31:23 1997
"Bevan Chan" <byc11@student.canterbury.ac.nz>
writes:
*however there would then be no
motivation to do anything, this can be
*remedied by changing the nature of 'property'
into a liability -asset,
*'social property'. and giving anybody
the right to take someone else's
*'property'. read the other post 'property
and interest'
*I think instituting zero interest will
requires 'property reform'
Why don't we begin by having you ship
all your property and all
your parent's property over to me?
OK?
At this point your responses have become
so absurd, they no longer
are worthy of my time. My recommendation
to you is this: learn
some economics before pretending like
you know what you're talking
about, and especially before you begin
arguing with people who
really do know what they are talking about.
-------------------------------
Article #79596 (79655 is last):
From: "Bevan Chan" <byc11@student.canterbury.ac.nz>
Newsgroups: sci.econ
Subject: Re: why interest? a poker game.
Date: Thu Oct 23 19:15:49 1997
Edward Flaherty wrote in article <62ng2r$rdc$1@news.fsu.edu>...
*At this point your responses have become
so absurd, they no longer
*are worthy of my time. My recommendation
to you is this: learn
*some economics before pretending like
you know what you're talking
*about, and especially before you begin
arguing with people who
*really do know what they are talking
about.
Point taken. I am just trying to say that
since 'interest' has been with us
for such a long time, we have built our
society around it. And if we were to
change that, by neccesity we will have
to change other things. I will desist
from proposing a alternative and let experts
answer for the current system.
My main objection with interest is, how
do you justify a person who spends
less than they receive from their 'interest'
alone, does nothing and still
has enough to continue gross capital formation.
ie if this person lived long
enough, he could own the world (or his
capital will). eg he has $100 million
in bonds, he receives $5 million in interest
each year but only spends $1
million a year
This person does nothing except spend
less than he receives from others. He
is like a vacuum cleaner. What benefits
come from this action? Why should he
be rewarded with capital formation for
doing nothing?
You might say that this is to reward him
for giving others what they want
now instead of having it later himself.
I would contend that if he started spending
out of his capital, and
satisfying what he wants now, it would
give others the chance to EARN the
money to acquire their goods now, instead
of having to BORROW money from him
while he accumlates bonds. ie if he satisfied
his wants now, others can too,
while if he saves, he accumulates bonds
living off others, while others
satisfy their wants now.
But more often than not, to get in the
above position, one has no wants
except financial security. Bevan Chan