If a bank has $1K in reserve, with no loans outstanding, and Bob wants a new house that Tom built, which is for sale at $5K, then presumably, if Bob has a good standing with this small bank, it would lend him the $5K. Tom takes the $5K in trade and Bob moves in to his bank-financed home.

Now Tom has $5K that simply never existed before. Bob is slowly, over thirty years, paying back the $5K, but Tom either requested to be paid in cash, or he can go to the bank right then and request a ‘cash’ withdrawal of the $5K. This CASH money can be spent on anything. The bank loan to Bob has resulted in an additional, new amount of $5K that might be spent on various commodities, such as materials Tom would use to build another house. Certainly, it doesn’t necessarily, in this example, result in any price inflation, since real goods were created for which the $5K was spent, but nonetheless, $5K was created.

Now, the govt. starts to create incentives and encourage new lending rules that effectively increases demand for houses. Bob finds that if he were to put his house on the market, it would fetch $10K, and his bank agrees with this assessment. (The small bank sold Bob’s govt-guaranteed mortgage to investors, or perhaps to the central bank under a quantitative easing program, so it now has the ability to loan out another $5K or more under the fractional reserve banking rules.) Realizing he could utilize this equity, he goes to the bank and refinances his mortgage, and ends up with an additional NEW $5K in his DEMAND DEPOSIT bank account. This new $5K was not created in conjunction with some new creation of goods. Bob decides to remodel his house a bit, and goes out and buys lumber, tile, shingles, paint, drywall, etc., all of which are the same things Tom is buying to build new homes. The prices of all those things begin to edge upward. Despite the higher prices, Tom willingly continues to buy these products since he is able to raise the prices of the homes he builds in the face of the higher demand. In fact, he expands the rate at which he builds houses, doubling and tripling his output. Bob continues to see his home’s valuation rise for awhile, making him feel rich and secure. The balance of his $5K gets spent on stuff and consumables, and Bob even runs up a bit of credit card debt, knowing he is sitting pretty in a house that is doubling in value every 5 years.

We all know the conclusion of the story, but note that Bob ended up being the recipient of $10K of money that was created in the process of taking out and then re-financing his home loan.

Is this not the creation of money? It’s out in the economy purchasing things. Those that receive it, deposit it in demand deposit accounts or else turn around and spend it again. (Some percentage of it may be used right away for paying down other people’s loans, so some small portion might immediately evaporate back to the FRB Ether from whence it came.) It didn’t exist before Bob and the bank acted.

Is not ‘M1′ one of the measurements of ‘money’ in our economy, which is defined as all currency and demand deposits, and when the above loans are transacted, the demand deposits of Bob are ‘injected’ with new ‘money’. Am I not able to buy something with a credit card, sell it to a passerby for cash, and then deposit this in a demand deposit? In what way did an increase in my CC debt not effectively increase ‘M1′ by possibly the same amount in this case? Does the CC bank actually have reserves equal to all the outstanding CC debt?

Jaycephus. Excellent post! Bravo!

If only the lessers commenting from this blog would follow your lead. Alas, you have smarts. They do not.

You trolling hypocrite. ‘Butter’-up much, Smack? Sneaking around and dropping ad-hominems?

It appears that those things you most accuse others of doing and the motivations you attribute to them are the ones of which you yourself are most guilty.

The scat you fling is the scat you bring.

Considering their debt-to-GDP ratio and the BoJ’s heavy handed interventionist policy, we’ll see.

179 comes before 182.

And saying “you are spreading falsehood” is not ad hominem. It is an evaluation of your comments. As I said elsewhere, you do not get English.

The first time that you begged for my attention, you did so with an ad hominen

Bala October 23, 2010 at 2:04 am Smack has sole rights to spread falsehood.

You chose not to discuss economics, which now it is clear as to why you did not — you do not get at all money, credit, banking, central banking and thus the whole of economics.

Yet, no one called you an idiot, at least I did not.

I wrote in the abstract, mentioning no one. To quote myself,

Smack MacDougal October 29, 2010 at 6:07 pm
To an idiot, truth seems to be falsehood. Cognitive dissonance and the subsequent defense of false beliefs is a most pernicious disease.

And from that moment, you revealed to the world through this Mises blog that you are unhinged.

Bala October 29, 2010 at 6:56 pm Yes you idiot. I fully agree that falsehood appears like truth to you…Your cognitive dissonance must be especially strong, judging by the vehemence with which you state your false beliefs.

Again, you made no effort to discuss economics, which all of us know why — you lack knowing anything about economics, especially anything related to money, credit, banking and central banking.

With each passing moment, you became increasingly enraged.

Bala October 30, 2010 at 6:42 am Hey Smack …It takes a really special numbskull to come along and say “Beliefs about economics”. Nitwit…What a prize Moron (once again, with a capital “M”)!!

Bala October 30, 2010 at 7:14 pm Smack you Moron…You really proved that you are a Retard…You great big Moron… I am fully justified in calling you a Moron or a Retard… the statement of a prize [sic] idiot…you are a Moron

Bala October 31, 2010 at 2:29 am Smack, you must truly be retarded… you must really be retarded… You moron.

Bala October 31, 2010 at 10:34 pm
Smack you prize Moron,…you are still a Moron and a Retard…The exalted retarded Moron…nincompoop

Bala October 31, 2010 at 10:39 pm
Smack, … I am sure you have bigger and more repulsive cr@p left.

Bala November 1, 2010 at 6:46 pm
Smack,…You were interrupting it by persisting on putting out gibberish and displaying vacuousness in an arrogant, messianic tone all over the place.

I’ve asked you to seek the mental health help that you need, desperately. I offered kind suggestion to you in hopes that you would cease. I’ve even recommended that you get a life.

Yet, here you are, still obsessing on all things me. Thankfully, this is only a virtual medium. I suspect that you are a danger to those around you. From your unstable behavior, all could surmise that you could be a child molester, pedophile or a rapist of elderly women.

For the last time, get help. You would do yourself a great favor seek competent, professional mental health help, although in India, perhaps such sophisticated Western resources go lacking.

Good luck with your treatments! Hopefully, someone can find a cure to your mental illness, Bala.

Here’s the sequence of our exchanges. The first was this

http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733375

Then came comments numbered as below. Replace the number and check it all out.
733430
733435
733585
733592
733595
735140
735179
735182

The record (thank goodness for the record) shows that you called me a toady in 735140 and an idiot in 735179. It was only then that I called you an idiot in 735182. All the other names I called you followed this one. My previous messages to you are all here in the order in which I posted them. In all those, I had been very civil to you. So to claim that I started it is a bare-faced lie. It comes as no surprise to me that you engage in such behaviour.

Just wanted to nail your lie. Now, go seek psychiatric help.

p.s. I don’t know why my comment went into “moderation”. Maybe it was because I had given the link for every comment. I am trying again giving the link for just 1 and the comment number for the rest. The falsehood in your claim would become apparent to anyone who bothers to go through the list of comments.

Here’s the sequence of our exchanges.

http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733375
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733430
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733435
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733585
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733592
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733595
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735140
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735179
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735182

The record (thank goodness for the record) shows that you called me a toady in 735140 and an idiot in 735179. It was only then that I called you an idiot in 735182. My previous messages to you are all here in the order in which I posted them. In all those, I had been very civil to you. So to claim that I started it is a bare-faced lie. It comes as no surprise to me that you engage in such behaviour.

Just wanted to nail your lie. Now, go seek psychiatric help.

Here’s the sequence of our exchanges.

http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733375
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733430
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733435
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733585
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733592
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-733595
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735140
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735179
http://blog.mises.org/14321/qe2-and-the-alleged-deflation-threat/#comment-735182

The record (thank goodness for the record) shows that you called me a toady in 735140 and an idiot in 735179. It was only then that I called you an idiot in 735182. My previous messages to you are all here in the order in which I posted them. In all those, I had been very civil to you. So to claim that I started it is a bare-faced lie. It comes as no surprise to me that you engage in such behaviour.

Just wanted to nail your lie. Now, go seek psychiatric help.

Here, for you, in expression that you can understand:

I am right. You are mentally ill. Life’s time is far too precious to waste sorting out your many illogical claims, all of which are so far removed from truth of economics.

My comment about you being a Mises toady came long after you began your childish name calling. Get a life, dude.

Your response shows that you do not have anything of value to say except to call my arguments all names without pointing out why they fit the bill. Thanks for the revelation. In any case, you do not have the locus standi to complain about ad hominem. As someone else said, live by the ad hominem, die by the ad hominem. And I wasn’t “defending” Murphy. I was just treating my headache. I like reading these boards, you see. I come here to read and learn. I have surely learnt a lot. You were interrupting it by persisting on putting out gibberish and displaying vacuousness in an arrogant, messianic tone all over the place. And you weren’t going away when people ignored you. So there!!!!

p.s. I never laid any claim to originality. I only lay claim to being correct. You have not been able to show the error in my arguments while I have shown the error in every one of yours. Pretending like you are just the victim of sustained ad hominem is not a good route to salvage your pride.

p.p.s – You started it all by calling me “the Mises institute toady”. I was trying to ignore you until then. So stop whining.

… I am capable of discourse without ad hominem, here’s a reply without any name calling … Your last reply at least sounded less arrogant, though you still sound extremely condescending and messiah-like.

That’s ad hominem, still. You have not changed.

All good friends of the Mises Institute need only go to the top of the comments section of this blog post and begin reading the comments from the top. Soon, they shall come to see your obsession with all things me.

You come across as lonely, in desperate need of attention. Turn off your computer. Get out of your house. Go try to make friends. And stop by the mental health unit of your local hospital to do something about your obsession fetish as well as your Tourette’s like name calling problem.

For some bizarro reason, you donned a cape and felt the need to act as the Caped Crusader, trying to defend Robert P. Murphy, as if that man needs to be defended by some kid on a message board.

You do not get economics, at all, Bala. You offer nothing worthy to read to give up the time to read it.

You present illogically connected thoughts, mostly because lack precision in meaning by overloading words with more than one definition. None of your thinking is original. You do a weak job of parroting the expressed beliefs of other economists, notably Mises, precisely because you have yet to see, fully, what these economists mean and how off they are from truth.

Courteously, I might have taken the time to help you if you had approached me in a public, polite manner. Yet, from the start, you began name calling.

Seriously, go away.

Just to show you that I am capable of discourse without ad hominem, here’s a reply without any name calling. In fact, even this is prompted by a sudden lowering of the ante from your side. Your last reply at least sounded less arrogant, though you still sound extremely condescending and messiah-like. if you are wondering what prompts that statement, read this.

” Your thirst for knowing shall not go unquenched ”

Now coming to your points.

” A Standard of Measurement ……. per hour, per day ”

Before you come to the point of standard or units of measurement, a more fundamental point to be considered is the fundamental nature of the measurement that we are doing, i.e., are we talking of an ordinal number or a cardinal number.

Action in a world of scarcity automatically implies choice of one means over another. This “preference” means that acting man necessarily values one thing over another. This subjective preference is one of the 2 meanings of the term “value”. This meaning is what you are failing to understand.

” Valuation is calculation and not judgment as Mises says, wrongly (“Valuation is a value judgment”). ”

There are 2 forms of “valuation”. One is what I have identified above (and that’s the one Mises is referring to). The other is the valuation of, say, a durable good such as a house. If I expect a house to give me a future stream of possible rental income on the market and if that rental income stream, when discounted, amounts to $200,000 today, then we say that the house is “valued” at $200,000 today.

” Judgment is pronunciation of an opinion, often criticism. Yet, what profoundness does Mises deliver to anyone when he claims,

price reflects preference but not a standard of measurement or subjective value (worth) ”

The profoundness (and the thing you are missing) is simply the point that the buyer valued the good he has received more than he valued the amount of money he paid for it. At the same time, the seller valued the amount of money more than he valued the good he was giving away. It is profound because it explains what drives the very act of voluntary exchange on a free market.

” Value arises from mathematics and not subjective belief, ”

Valuation of a durable good requires the use of Mathematics. Valuing one thing over another requires just a value scale on which every means is assigned a rank.

” As I stated elsewhere, through valuation, someone derives a value in the course of exchange, when one thing gets traded for another thing. ”

You have it all backwards. It is because A values a units of X over b units Y while at the same time time B values b units of Y over a units of X and A and B are ready to exchange a units of X for b units of Y (in that order) that the exchange happens. The price of X is then (b/a) units of Y while the price of Y is (a/b) units of X. The “valuing” happens prior to the exchange and hence cannot arise from the exchange.

” Said another way, value results from the expression of a ratio of between two commodities ”

Wrong again. Valuing as in preferring is primary. It becomes the reason for the exchange. Since any exchange has to take place in some ratio of the goods being exchanged, a ratio emerges. This ratio can then become the basis of valuation of the 2nd type (as in the case of a durable good).

” Yet, value does not measure any economic quantity. ”

Yes. It measures a subjective assessment that is not an economic “quantity”.

” Any price arises from the expression of value ”

So a value cannot emerge from a price. (You are contradicting yourself in the same post)

” Every drinker in the pub paying the same price for a pint has agreed that at the moment of purchase, a pint is worth more than the money given up to get the pint. ”

Of course. I don’t think anyone out here will have a problem with this statement.

” Because each customer does not engage in haggling (bidding) with the bartender, we cannot know what the upper bounds of worth would be for each customer ”

Even if they haggle, it does not tell you anything like an upper bound because the concept subjective value is an ordinal number and concept such as “upper bound” are not applicable to it.

” Said another way, if pints get sold for US$7, every customer drinking a pint has agreed, implicitly, of course, that to themselves a pint is worth at least US$7 ”

Not “at least” but “more than”, for otherwise an exchange is impossible at $7 (given that no 2 means can take the same rank in the value scale).

Hope this clarifies.

Thanks for being agreeable and in want of discourse. Your persistence in discussion reveals that you are unlike the toadies, the followers, those whose only means of gaining attention is through shouting ungrounded insults. Your thirst for knowing shall not go unquenched.

A Standard of Measurement requires someone deciding what is going to be the unit of measure and then someone or others enforcing the decided standard or everyone accepting such a standard, voluntarily. Units of measures for economic quantities arise from taking measure in these manners: linear measure, area measure, cubic measure, measure by weight, measure by time. Typical units of measure include:
units of measurement by weight, e.g., ton, pound; by volume, e.g., quart, bushel, cubic foot; by area, e.g., square food, acre; by length, e.g., feet, yards; by count, e.g., dozen, gross; bu time; e.g., per hour, per day.

Valuation is calculation and not judgment as Mises says, wrongly (“Valuation is a value judgment”). Judgment is pronunciation of an opinion, often criticism. Yet, what profoundness does Mises deliver to anyone when he claims,

price reflects preference but not a standard of measurement or subjective value (worth)

.

Value arises from mathematics and not subjective belief, unless of course, one starts from the belief that by belief all mankind accepts mathematics as useful and truthful. As I stated elsewhere, through valuation, someone derives a value in the course of exchange, when one thing gets traded for another thing. Said another way, value results from the expression of a ratio of between two commodities.

Yet, value does not measure any economic quantity. Only accepted measures are useful ways of arriving at measurement, which of course means the final state of measuring, that is the result of measuring.

Any price arises from the expression of value — the ratio of money for an economic quantity. Prices make it so men and women can compare offerings of measured economic quantities, but any price never measures anything.

In a purchase and sale, which is a legal an exchange of goods by mutual consent, one of the goods being money, men and women express price in terms of money, always.

Worth is subjective as worth happens in the mind of each man or woman.

Go into any tavern or pub. Customers are price takers. Every drinker in the pub paying the same price for a pint has agreed that at the moment of purchase, a pint is worth more than the money given up to get the pint.

Because each customer does not engage in haggling (bidding) with the bartender, we cannot know what the upper bounds of worth would be for each customer. Yet, we can say with certainty, that all drinkers came to the same belief in the lower bounds of worth. Said another way, if pints get sold for US$7, every customer drinking a pint has agreed, implicitly, of course, that to themselves a pint is worth at least US$7.

We can’t say much about individual preference for everyone in existence, which is a far better way to say it than the misleading “subjective preference” as said by many, because we cannot know what are the preferences of individuals who are not customers in the pub. We lack omniscience.

Okay, let me run it by: Exchange ratios, money prices, are based on valuations. But these prices cannot represent subjective “worth”. Mises writes, “Valuation is a value judgment expressive of a difference in value”. I could then conclude that price reflects preference but not a standard of measurement or subjective value (worth).

One more point I just noted. You mentioned that I could get treatment in India, the emphasis on the “India”. The implies that you have read my rebuttal to your nonsensical claim that India does not have restrictions on Capital flow. However, you have not addressed it yet. So I take it that you accept your error. What a graceful way to do it!!

” Value arises from ratio. That’s what value means. Value is a result. ”

Here’s more nonsense. You are a perfect example of how to have it all backwards. This is the biggest load of cr@p you have unloaded on these boards yet. I am sure you have bigger and more repulsive cr@p left. Give it to us. We all need a laugh…. badly.

Your attempt to use the word “worth” is laughable. When I say I value something, it does not need to have anything to do with an exchange. I can “value” a loaf of bread for the satiation of hunger that it can offer me. To mix “value” and “valuation” requires a very special Moron. That’s you.

Your inability to distinguish 2 different uses of the word “value” shows you up for what I am calling you – a Retard.

When a logical explanation appears like it’s gibberish, that’s a tell-tale sign of insanity. Go bury your head in the nearest pile of sand you can find.

And you still haven’t addressed any of my objections to your nonsense and you are still a Moron and a Retard.

Oh!! I’ve been “told” to get help, haven’t I? By whom? The exalted retarded Moron? And you expect me to follow that? What a nincompoop!!!