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Source link: http://archive.mises.org/10138/sorry-were-clothed/

Sorry, We’re Clothed

June 15, 2009 by

Prior to the great boom of the past decade, the jiggle business was localized. Politically unpopular, zoning for such establishments is confined to industrial areas, tucked away from mom and the kids. Financing to build such businesses was hard to come by as many bank boards frowned upon the morals of the operation, turning a blind eye to the abundant cash flows. Publicly traded strip-club operators were unheard of. The overexpansion of the strip-club business is yet another malinvestment created by the Federal Reserve’s monetary creation.

FULL ARTICLE

{ 20 comments }

happylee June 15, 2009 at 12:07 pm

A friend informs me that the entertainers at the strip clubs are making far more suggestive pitches for “contract work” outside the clubs. It used to be one out of twenty or so gals would touch this taboo topic that can, literally, cost the club its license. Now the number is running one out of three.

That’s a further sign of desperation. On the bright side, for many of these former realtors, it may be the first time they provide a service that truly ends happily for the client.

mikey June 15, 2009 at 12:36 pm

I do like to stay abreast of the entertainment industry.

Curious June 15, 2009 at 12:45 pm

“…profits made through stock market …must lead to a destruction of capital.”

Could somebody explain that statement? If I take a loan and invest in a stock market, causing the price to go up, that loan represents wealth that I will create in the future. Why would it lead to destruction of capital?

Donkey Hayes June 15, 2009 at 1:39 pm

Well, curious, I’ll take a stab at this. consider housing since it maybe easier to get a mental grasp on than 1/10,000 of the yahoo company. If you, and me, and bob, and every other person take out loans in order to buy homes, we drive up the cost of the houses. because we shouldn’t have gotten the loans, for one because the mortgages are sold off to other financial institutions, if your bank had to keep your debt they would never lend it out, and 2 because you would never get a loan if the interest rate was as high as it ought to be if it were not for the fractional reserve banking practices, we find the price of houses continually going to artificially high prices.

This for one is a destruction of capital, or savings. and in a second place the lending process itself is a destruction of capital, not in amount, because I still have the same $1,000. But because of the inflation created through fractional reserve lending, the value of my capital has been reduced, it is capital destruction.

Does this help?

Curious June 15, 2009 at 3:23 pm

Donkey Hays,

thanks for trying. Can you, me and Bob, take out our savings (instead of loans) and drive up the price of housing?

What’s the difference, if I work 30 years and save 100k and put a bid on a house or if I borrow 100k (I will have to work for 30 years to repay it) and put a bid on a house. The 100k in both cases represents 30 years of my work. Why is one OK and the other isn’t?

S Andrews June 15, 2009 at 3:40 pm

Curious,

So long as it happens in a free market, nothing is wrong. In both cases somebody saved the money first. In the first case you saved it, whereas in the second case some person X saved it. When someone save money, it is not just money that is getting saved, but the result of someone’s productive work. This saved product is what is available for investment/consumption to someone who borrows savings.

Ken Zahringer June 15, 2009 at 5:19 pm

Curious,

S Andrews gave you the first half of the answer, which was correct so far as he went. As long as loaned money represents real savings, all is OK.

The problem with the boom is that the loaned money was created out of thin air by the Fed, and doesn’t represent anybody’s savings, or any years of anybody’s work. This new money enables the recipients (you, me, and Bob) to consume without producing. The only way to do that is to consume (destroy) capital.

Donkey HayEs June 15, 2009 at 5:48 pm

Exactly, thats the lynch pin! I took it for granted that we were all on the same page as to what fractional reserve banking implied.

when we say that we are talking about banks lending out money of people who retain full ownership in that money. As opposed you saving up 100k of your own money, or banks lending out money which has actually been lent to them.

Instead with FRB (fractional reserve banking) the banks lend out 90% of my money that is in my checking account, that is redeemable on demand, so that now I have a property claim in $1.00 and a borrower has a property claim to .90 cents of the same dollar! This is fraud, and it is this that increases the money supply and creates artificially high prices.

I wish I were as clear as Rothbard was in “The Case Against the Fed” thats read by Dr. Lilley.
http://mises.org/media.aspx?action=category&ID=114
Rothbard and her make it so clear!

Donkey Hayes June 15, 2009 at 6:24 pm

Further curious,

If I actually saved 40k and Peter and Paul each saved 30k and we each lent it to a bank or directly to you, reliquishing our property rights to the money for a given time, and you used that money to buy a house, that would be okay. because there would be no increase in the money supply….

Alan Esworthy June 15, 2009 at 8:32 pm

“Sorry, We’re Clothed” is the best play on words I’ve seen or heard this year. Thanks, Doug, I’ll be grinning indefinitely. Keep up the good worth!

Curious June 16, 2009 at 1:28 am

Thanks for all the explanations.

Suppose I am in an economy with 0 savings (nobody has any savings at all). If I expect in the next 30 years to produce 100k, why shouldn’t I be able to trade that amount with someone else (which is what loan is, isn’t it)?

What I’m having hard time understanding is why to limit the amount of loans by the amount of savings?

S Andrews June 16, 2009 at 12:35 pm

Curious,

Since you are operating in an economy with no savings, what do you plan to do with the hypothetical 100k?

There is nothing that money can buy, because by your own admission, there is no savings of real goods. All that the hypothetical economy produces is being consumed, so everything that exists prior to your borrowing has already got identified customers. All you can do with your 100k is to drive up prices.

Curious June 16, 2009 at 1:13 pm

S Andrews,

I can give the money to a homebuilder to build a house according to my specification, for example. That wouldn’t drive up prices, would it?

S Andrews June 16, 2009 at 1:26 pm

Homebuilder needs building materials to build a house for you. Since there is no saving of building materials, all you will end up doing is outbid someone else to whom all the existing building material would have gone, in the absense of the newly created 100k.

Curious June 16, 2009 at 2:33 pm

S Andrews,

thanks for your answer. Who would I outbid and who would the building materials have gone to, since nobody has any savings?

S Andrews June 16, 2009 at 2:49 pm

You need to clearly define your hypothetical economy.

The building material would exist only if there was savings in the beginning that helped set up the building material production facility. Even then, it would only exist if there was enough income ( not savings ) whose preference for housing as a consumption good was already revealed in the market place. In other words, if it was profitable to produce building materials for those people in your hypothetical economy who had the preference and capability to pay for housing. They will be outbid by your newly created money. Once that 100k ripples through the hands of the builders to other sectors that the builder depends on for his daily needs, it will affect prices in most sectors.

Curious June 16, 2009 at 3:18 pm

I thought I did clearly define the economy – no savings. :-) No building materials or anything else, it all has to be created int he future.

Also you mention income (not savings). Isn’t income = money, so it implies savings?

S Andrews June 16, 2009 at 3:46 pm

If no savings has been a permanent state and not the current state, there will no building materials. There will be no division of labor, and it will most likely be a hunter gatherer society.

If economy has no savings, then it also means it has no savings of labor. In other words, there is no unemployment. Now if you put 100k into that economy, labor will have to be diverted from some other part of that economy into building a house, based on the preference you have shown for the house. Which means other people for whom this new builder was creating products, will go without it.

Abhilash Nambiar June 16, 2009 at 5:39 pm

This article got me wondering how many strip clubs would be supported by a society in which loaned money was saved money, where 100% reserve banking was practiced and easy loans where scarce? I am only guessing but I think not too many. People are less short sighted when they have to earn every penny they spend.

Shenpen June 20, 2009 at 9:09 am

Interesting that there wasn’t a strip club /lap dance boom here in Europe, despite that our morals are considered to be more relaxed, the population less religious and even when religious generally not of the Puritan type…

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