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Source link: http://archive.mises.org/16633/money-cant-buy-you-economic-prosperity/

Money Can’t Buy You Economic Prosperity

April 26, 2011 by

We cannot eat money. We cannot wear money. We cannot live in money. Money can’t buy you love. FULL ARTICLE by Shawn Ritenour

{ 42 comments }

Don Levit April 26, 2011 at 10:12 am

If you need turnip soup, you don’t need vouchers – you need enough turnip growers.
Don Levit

billwald April 26, 2011 at 10:25 am

The point of the essay should be that “money” is no longer a store of value but functions as an “official” IOU that can be exchanged for goods and services. It is no longer possible to “get ahead” by saving money. The only use of cash money is as a reserve for natural and personal disasters . . . and, of course, for dealing sub rosa, tax cheating, bribing, and dope selling.

Daniel April 26, 2011 at 6:27 pm

Awwwww…

And you were doing so well until the very end

Lee Kelly April 26, 2011 at 11:09 am

“Money is a veil, but when the veil flutters, real output sputters” – John G. Gurley

Of course, “We cannot eat money. We cannot wear money. We cannot live in money.” However, nobody is making that argument. It is a pithy but irrelevant observation.

The ability of money to facilitate exchange is frustrated when in excess supply or demand. The consequences of each type of distortion are different. The unwillingness of Austrians to even acknowledge the possibility of a excess demand for money is the source of constant strawmen. No, supporters of QE2 or further monetary expansion do not believe that money itself contributes to greater wealth. Rather, they believe that an excess demand for money has frustrated the ability of money to facilitate exchange, and so more units of money are desirable. It is the mutual gains from voluntary exchange that supporters of QE2 expect to contribute to greater wealth — not the creation of money in and of itself.

Whether there was an excess supply of money before the Great Recession is irrelevant to the present circumstances. Neither an excess supply nor demand for money is desirable. Both have deleterious consequences; that an excess supply preceded the excess demand is no reason to leave the excess demand unchecked. The primary evidence for an excess demand for money in the present circumstances is the low level of nominal spending, a simple logical consequence of the supply and demand for money of which NGDP is the best measure we have.

There are plenty of good arguments against these views, but none are present in this article. Instead we are subject to another strawman and more dire warnings about impending hyperinflation. But how long do we have to wait for hyperinflation before you consider these predictions, and the theories they are derived from, refuted or problematic? I would have bought these arguments in 2008, but the imminent hyperinflation everyone here was predicting never came.

I decided to put my opinions to the test: if inflation was below 3 percent by mid-2009, then I would begin looking for alternate explanations and answers. Maybe I made a mistake, but one must always risk error if one is to learn anything at all.

Señor Peligro April 26, 2011 at 11:33 am

Go tell someone who gives half a shit what you think.

Lee Kelly April 26, 2011 at 11:37 am

Perhaps it’s the people who don’t give a shit that need to be told it most.

Señor Peligro April 26, 2011 at 12:13 pm

Not by you, that’s for god-damn sure.

Inquisitor April 26, 2011 at 6:20 pm

Agreed.

Lee Kelly April 27, 2011 at 9:14 am

Pissing off people like you makes it all worth it.

F. Beard April 27, 2011 at 9:31 am

Thanks for your dissenting opinions.

However, the whole issue of too much or too little money can be avoided if we simply agree to multiple money supplies – 1 (or 51 if the States get into the act) government money(s) and any number of private monies. Government money would only be legal tender, in fact as well as law, for government debts and private monies would only be acceptable for private debts.

This solution, besides according with libertarian principles, also accords with Scripture – Matthew 22:16-22.

Sean April 26, 2011 at 3:12 pm

“…Rather, they believe that an excess demand for money has frustrated the ability of money to facilitate exchange, and so more units of money are desirable…”

This argument rests upon the premise that market prices either (a) can’t; (b) won’t; (c) shouldn’t adjust to changes in money supply/demand realities. So-called “excess” in this argument occurs in relation to the inflexibility of market prices.

But, theoretically, free market prices are highly flexible and therefore “excess” is a temporary phenomenon in a free market context. Indeed, “excess” in the market is the very source of profit, and responding to “excess” is the motivating factor of entrepreneurship. Successful entrepreneurs, in an environment of free markets and flexible prices, respond to and successfully eliminate excess.

The problem is we don’t have free markets. The problem is not that we have “excess”.

Lee Kelly April 27, 2011 at 9:35 am

Sean,

The excess is a temporary phenomenon. It can be addressed by either changes in the supply of money, demand for money, or the cost of money (i.e. prices). Unfortunately, the market has little control over the supply and demand for money, because the Fed monopolises the supply of legal tender. The price system is left alone to do all the heavy lifting unless the Fed gets its monetary policy right, which it all too often does not.

This is not a historically normal situation. Even when gold coins were commonly used as media of exchange, money would be imported into countries where money demand was highest, and any increase in demand would encourage gold mining.

A further problem is that relative prices are more flexible than the general level of prices, because money has no market of its own where its price can rise and fall. Instead, money is traded on all markets, its price the inverse of the multiple goods and services it is traded against. In other words, the “price” of money is just not as flexible as other prices, because it is a qualitatively different kind of price.

Prices become interdependent on the general level, i.e. producers who lower prices first are likely to suffer in the short run, because their inputs are still priced at the higher level. This is different to a change in relative prices where the producer expects an immediate benefit. Thus there is a “who goes first” problem that frustrates a general fall in prices instigated by changes in the supply and demand for money.

F. Beard April 27, 2011 at 9:49 am

Prices become interdependent on the general level, i.e. producers who lower prices first are likely to suffer in the short run, because their inputs are still priced at the higher level. Lee Kelly

Well said! Contrary to Austrian doctrine, the economy does not run well backwards. Deflation is just as unjust as inflation is since they are both phases of the wicked fractional reserve (new money for debt) lending scheme.

Sean April 27, 2011 at 11:01 am

Seems to me there are several contradictions in your reasoning.

John P. Cunnane April 27, 2011 at 7:11 pm

Mr. Kelley,

The Fed prints money and then uses it to buy treasuries, (they have been the major purchaser of treasuries since last fall), the Feds charter prevents them from making a profit so it remits the profits from these treasuries to the Federal government or perhaps uses the payments to reinvest in more treasuries. This enables the government to float its debt at abnormally low rates. This weakens the dollar as the low return on the dollar reduces international demand. Tge weak dollar creates commodity price increases, a silent tax is thereby assessed. The government gets to borrow money to fight its wars, pay its pensions, salaries, et al. The value of savings is reduced as a dollar dividend has been issued but the dividend wasn’t paid to the dollar holder.

It’s not capitalism, it’s illiberal, and it only inflates certain classes of assets.

Inquisitor April 28, 2011 at 9:55 am

This. I cannot fathom who in their right mind would consider current monetary expansion as even remotely related to greater demand for money, as opposed to a greater demand to get rich at the expense of everyone else (hence my reductio.)

CT April 26, 2011 at 4:23 pm

Nonsense. There are two distinct consequences to an increase demand for money. Under fractional reserve banking, an extreme upswing in the demand for money will result in bank runs, and a recession/depression. Once the FRB-related malinvestments have been purged out of the system, demand for money is not harmful and should actually help lead to economic recovery as other goods and services (and financial assets) become more affordable versus money. Individuals will respond by purchasing ever cheaper products and services (and financial assets). In fact, there is no reason to believe that under a 100% reserve requirement that an increase in the demand for money would result in significant unemployment. Don’t believe me? Read Allan Meltzer’s “History of the Federal Reserve Volume I”; who is hardly an “Austrian”.

And the author of this post is correct, you can’t eat money (nor can you do any of the other things he has listed). If you print money and spend it, prices will go up. If you print money and invest it, unless you think the beginning and the end of the production process occur simultaneously, all you will get is a bubble coupled with investments which are not sustainable and will have to be liquidated eventually (see effects of increase in demand for money under FRB).

F. Beard April 27, 2011 at 9:56 am

If you print money and invest it, unless you think the beginning and the end of the production process occur simultaneously, all you will get is a bubble coupled with investments which are not sustainable and will have to be liquidated eventually (see effects of increase in demand for money under FRB). CT

False, at least in the case of private monies such as common stock. Suppose a corporation’s owners, the stock holders, vote to issue new common stock to construct new assets. Initially the value of the stock may go down due to share dilution but after the new assets come on line then demand for the stock should go up in order to purchase the products of the new assets. Where is the mal-investment? There is none if the corporation invested wisely.

CT April 27, 2011 at 11:30 am

I will respond to your other comment later, but I have to respond to this. Huh? Common stock is not “private monies”. It represents ownership of a future and very uncertain stream of dividends. The value of a firm is whatever returns it can generate to its investors discounted at a subjective and ever-changing rate. But one thing common stock is not, is money.

“Suppose a corporation’s owners, the stock holders, vote to issue new common stock to construct new assets. Initially the value of the stock may go down due to share dilution but after the new assets come on line then demand for the stock should go up in order to purchase the products of the new assets. Where is the mal-investment?”

Stockholders don’t just decide to issue new common stock. They almost always issue new common stock when the stock price is rising (it’s a price signal). A common stock will rise when there is a new demand for it (while supply remains the same). Demand either comes from savings or it can come from fiat money. When it comes from savings, there are actually real savings to purchase the future production. When it is conjured out of thin air, there is not.

Furthermore, you seem to be ignorant of how investors evaluate new projects. They estimate future cash flows and discount them using current interest rates. If someone saves and buys common equity, for example, the stock price will rise. If the stock price rises, the discount rate, by definition, must fall. This very same discount rate is used to evaluate future projects. The lower the discount rate, the more a long term project with huge future payoffs will seem attractive. Investors simply do not start projects without the relevant pricing information (in this case interest rates).

The malinvestment comes from the fact that as money is being created unbacked by savings, interest rates are driven down leading entrepreneurs and investors to undertake long term projects that have no chance to succeed given that the so-called capital is not backed by savings. Interest rates eventually will have to rise again to reflect the real level of sustainable investment (i.e. that are backed by savings) and all of those projects with huge long term gains will be show to be unprofitable (if you run NPV models you’ll know what I’m referring to).

F. Beard April 27, 2011 at 12:41 pm

I will respond to your other comment later, but I have to respond to this. Huh? Common stock is not “private monies”. It represents ownership of a future and very uncertain stream of dividends. ct

With common stock as money, there are no dividends. The common stock itself is a private money. It would simply appreciate or depreciate in value depending on the wisdom of its investments. What good would paying dividends do since they would reduce the growth prospects of the corporation? If a stock owner trusted the company management, he would not want a dividend and if he did not trust the management and could not vote them out then he would sell his stock for a better money (in his opinion).

But one thing common stock is not, is money. ct

Suppose for a moment that the government backed counterfeiting cartel, the fractional reserve banking system, was abolished. Then how would corporations raise money once artificially cheap loans from the counterfeiters were not available? From internal savings? Yes, but they might also find it necessary to issue new common stock and spend it as money. Thus common stock is a private money form.

“Suppose a corporation’s owners, the stock holders, vote to issue new common stock to construct new assets. Initially the value of the stock may go down due to share dilution but after the new assets come on line then demand for the stock should go up in order to purchase the products of the new assets. Where is the mal-investment?” FB

Stockholders don’t just decide to issue new common stock. They almost always issue new common stock when the stock price is rising (it’s a price signal). A common stock will rise when there is a new demand for it (while supply remains the same). Demand either comes from savings or it can come from fiat money. ct

Or (currently) from loans via fractional reserves.

When it comes from savings, there are actually real savings to purchase the future production. ct

So far so good.

When it is conjured out of thin air, there is not. ct

With genuine private currency alternatives then I would bet that the government would be forced by competition in the private sector to keep spending very close to taxation. Thus there would be little expropriation of savings from the real economy without explicit taxes – the stealth inflation tax would be abolished.

Furthermore, you seem to be ignorant of how investors evaluate new projects. They estimate future cash flows and discount them using current interest rates. If someone saves and buys common equity, for example, the stock price will rise. If the stock price rises, the discount rate, by definition, must fall. This very same discount rate is used to evaluate future projects. The lower the discount rate, the more a long term project with huge future payoffs will seem attractive. Investors simply do not start projects without the relevant pricing information (in this case interest rates). ct

I’ll have to think about that. I’m somewhat rusty. However, without the government enforced counterfeiting cartel, the fractional reserve banking system, then interest rates would rise, would they not? And if they rose high enough then they might be prohibitive. In that case, new stock issue might be the only option to raise funds for a corporation.

The malinvestment comes from the fact that as money is being created unbacked by savings, interest rates are driven down leading entrepreneurs and investors to undertake long term projects that have no chance to succeed given that the so-called capital is not backed by savings. Interest rates eventually will have to rise again to reflect the real level of sustainable investment (i.e. that are backed by savings) and all of those projects with huge long term gains will be show to be unprofitable (if you run NPV models you’ll know what I’m referring to). ct

I would remove all government privilege for fractional reserve lending. And as for the problem of excess government spending, that is solved with genuine private currencies. That would entail eliminating legal tender laws for private debts and the capital gains tax.

CT April 27, 2011 at 3:49 pm

“With common stock as money, there are no dividends. The common stock itself is a private money. It would simply appreciate or depreciate in value depending on the wisdom of its investments. What good would paying dividends do since they would reduce the growth prospects of the corporation? If a stock owner trusted the company management, he would not want a dividend and if he did not trust the management and could not vote them out then he would sell his stock for a better money (in his opinion).”

Common stock with no dividends ever is worthless. As I have explained, the future value of a common stock is its future dividends discounted by a certain rate. If a corporation were to say that they would never pay a dividend, investors would pay exactly $0 for it. Investors are willing to accept lesser dividends if the company reinvests in a project that would generate more dividends in the future than what someone else could generate for them. But it’s all about future dividends. Even with corporations which don’t pay dividends and don’t plan to, investors assume that one day there will be dividends.

“Suppose for a moment that the government backed counterfeiting cartel, the fractional reserve banking system, was abolished. Then how would corporations raise money once artificially cheap loans from the counterfeiters were not available? From internal savings? Yes, but they might also find it necessary to issue new common stock and spend it as money. Thus common stock is a private money form.”

Why would they find it necessary? Firms would respond to the current amount of savings in the system because of the information inherent in the rate of interest. Issuing more stock to expand production would result in higher interest rates, and simply make their project look less attractive (especially if it was a long term one).

“I’ll have to think about that. I’m somewhat rusty. However, without the government enforced counterfeiting cartel, the fractional reserve banking system, then interest rates would rise, would they not? And if they rose high enough then they might be prohibitive. In that case, new stock issue might be the only option to raise funds for a corporation.”

Have you ever read Tom Wood’s book “Meltdown”. It gives a real simple explanation of what I’m talking about. I will attempt to explain. When people save and invest, supply of (let’s call it) “loanable funds” enters the market driving down interest rates. This sends a signal to entrepreneurs that there is more demand for projects. In fact, it leads to entrepreneurs favouring more long term projects over short term ones (again you’d need to be familiar with discounted cash flow models to undertand what I am referring to). Entrepreneurs respond to this by embarking on longer term projects. It all works because people have saved and can purchase these new products. With FRB, all of this happens but people do not have the savings to purchase the new products. This sends a false signal to entrepreneurs. In essence, they are tricked (by the low interest rate) into thinking that the savings are there to purchase their widgets in the future. But what also occurs is that other entrepreneurs begin slowly changing from short term to long term projects because of the false price signal. When they realize the savings do not exist, panic ensues and investors pile out of those investments, driving interest rates higher. This leads to the realization that all kinds of other long term projects were started were also unsustainable. The long term projects are cancelled and reallocated to short term projects. This a recession/depression.

A rise in interest rates is not the “kiss of death” most people assume. It simply means that there will be a shift from long term to short term projects. When done in an orderly fashion (i.e. what would occur with no FRB), this would result in a slight increase of frictional (read temporary) unemployment. When this occurs in a violent fashion (i.e. as a result of an FRB implosion), we have a recession. I would really recommend you read the Allan Meltzer book. He’s not an Austrian, but he provides the proof without realizing it.

Anyway, I’m out of time for today. Nice discussing this with you.

CT April 27, 2011 at 3:51 pm

Oh and btw, no company can grow forever. At one point, it has to pay a dividend or else it will embark on projects that do not meet investors’ criteria in terms of return and trust me, that company will be punished for it.

Inquisitor April 26, 2011 at 6:29 pm

“No, supporters of QE2 or further monetary expansion do not believe that money itself contributes to greater wealth. Rather, they believe that an excess demand for money has frustrated the ability of money to facilitate exchange, and so more units of money are desirable. It is the mutual gains from voluntary exchange that supporters of QE2 expect to contribute to greater wealth — not the creation of money in and of itself.”

I want more money constantly. Why can’t the Fed sate my “excess demand” and print a trillion $ for me? Why should Goldman Sachs alone benefit?

Lee Kelly April 27, 2011 at 9:42 am

Inquisitor,

Your desire to have greater access to wealth is not your demand for money. Making this argument is like blaring from a megaphone that you do not understand basic concepts in monetary economics. The use of the concept of money demand I use above is little or no different than used by eminent Austrian scholars like Rothbard, Mises, and Hayek. If you do not understand that concept, then I am sure that you do no understand the aforementioned authors.

Inquisitor April 28, 2011 at 9:50 am

I am not sure what any of those authors (save Hayek) would have to say in favour of a central bank trying to “accommodate” consumer demand for additional currency; particularly legal tender currency which the central bank can manufacture ex nihilo, with nothing but the promise of future taxation to back it. What is the currency issuer getting in return to satisfy this “excess demand”? Well, we know what the government is getting, that’s for sure…

The solution would be to liberalise banking entirely, not to have the central bank trying to throw darts blindfolded at guessing what level of currency accommodates consumer demand thereof, when it has virtually no incentive to do so accurately, and when its largest client is also its employer (guess who.) Or do you think that QE/QE2/QEx is a legitimate operation as opposed to blatant robbery of the productive American citizenry?

Patrick Barron April 26, 2011 at 2:57 pm

Excellent essay! You hit all the right points.

Sean April 26, 2011 at 3:11 pm

see above

F. Beard April 26, 2011 at 6:20 pm

Actually the government should create and spend what the market will bear but it’s fiat should only be legal tender in fact as well as law for government debts, taxes and fees, not private ones.

That way, if the government overspent wrt to given taxation level then only the government and those who were paid with its fiat would suffer. The private sector would in fact benefit since many taxes would be easier to pay since the government’s fiat would be cheaper.

CT April 27, 2011 at 7:20 am

More nonsense. If the gov’t prints fiat and attempts to purchase the same goods and services that private citizens are attempting to purchase, prices will go up and the poor and those on fixed incomes will suffer.

F. Beard April 27, 2011 at 7:33 am

“If the gov’t prints fiat and attempts to purchase the same goods and services that private citizens are attempting to purchase, prices will go up … ct

Wrong. Assuming government spending and taxation levels were transparent, the free market would anticipate any price inflation in the government’s fiat and adjust prices accordingly in the government’s fiat. Prices in private currencies would be unaffected. The real tax rate would also go down since excise taxes would be easier to pay with cheaper government fiat.

and the poor and those on fixed incomes will suffer.” CT

That depends on what their income consists of. If it consists of government fiat then yes they will suffer loss but if their income is exclusively private currencies then they will not.

Inquisitor April 27, 2011 at 9:44 am

“Wrong. Assuming government spending and taxation levels were transparent, the free market would anticipate any price inflation in the government’s fiat and adjust prices accordingly in the government’s fiat. Prices in private currencies would be unaffected. The real tax rate would also go down since excise taxes would be easier to pay with cheaper government fiat.”

Yet if the government wants the same things the private sector is after? It can just print up money and buy it. Demand for those resources will therefore be more acute and their costs higher.

F. Beard April 27, 2011 at 10:02 am

Yet if the government wants the same things the private sector is after? It can just print up money and buy it. Demand for those resources will therefore be more acute and their costs higher. Inquisitor

Without the “stealth inflation tax”, any excess spending by government would only dilute the value of its money; the value of private monies would be unaffected. The government could print like crazy but prices in its fiat would always grow faster as the free market applied an inflation premium to its prices in fiat.

Inquisitor April 28, 2011 at 9:46 am

Why should any government tolerate such a scenario at length, when they can merely compel purchases at any price they so please? We’re not talking about a state here but a private firm…

CT April 27, 2011 at 9:55 am

“Assuming government spending and taxation levels were transparent”

That’s one hell of an assumption. I don’t buy it.

“the free market would anticipate any price inflation in the government’s fiat and adjust prices accordingly in the government’s fiat.”

Perhaps you would care to explain, but I don’t think I’m quite understanding where you’re going with this. How can the gov’t print and spend what the market will bear? How can the gov’t possibly know this? If the gov’t prints and spends, and production stays the same (which it has to), the private sector either ends up with less goods and services or pays a higher price to bid against gov’t spending. Either way, the private citizen loses. Why would gov’t need to buy goods and services that the private citizen could purchase for himself with sound money? And why would private producers accept gov’t fiat (read worthless) money anyway?

I can perhaps see your point if you’re speaking of an ultra-minimal state where gov’t purchases are limited to military and perhaps legal expenses. But why in the world would these players accept to provide these services with money that no one else will accept?

F. Beard April 27, 2011 at 10:18 am

“Assuming government spending and taxation levels were transparent” FB

That’s one hell of an assumption. I don’t buy it. CT

Fine but any non-transparency would add a “non-transparency ” cost to the price of goods in fiat. It would pay the government and any other money creator to be transparent.

“the free market would anticipate any price inflation in the government’s fiat and adjust prices accordingly in the government’s fiat.” FB

How can the gov’t print and spend what the market will bear? How can the gov’t possibly know this? ct

By looking at prices in its fiat. At some point, particularly by comparing the growth rate of prices (which might be zero or negative) in other currencies, particular private ones, it would become obvious to government (and everyone else) that the government was overspending.

If the gov’t prints and spends, and production stays the same (which it has to), the private sector either ends up with less goods and services or pays a higher price to bid against gov’t spending. ct

No. Eventually, by comparing costs in fiat to other currencies, the private sector would wise up and apply an inflation premium to its prices in government fiat.

Either way, the private citizen loses. ct

No. Private citizens should be unaffected. In fact, they might be rewarded with discounts for buying with sound private currencies.

And why would private producers accept gov’t fiat (read worthless) money anyway? ct

Government fiat is not worthless; it enables one to pay his taxes. By spending less than the taxation level the government could easily increase the cost of its fiat. However, that is not a normal concern as we all know!

CT April 27, 2011 at 10:19 am

“Assuming government spending and taxation levels were transparent”

You can assume that if you wish, but I certainly never will.

“the free market would anticipate any price inflation in the government’s fiat and adjust prices accordingly in the government’s fiat.”

So assuming that the market understands the dynamics involved (which is doubtful) and also assuming that production does not increase (it can’t with increased gov’t spending), you’re saying that the value of fiat would fall versus sound money. I agree. But I still don’t see where you’re going with this. If fiat money falls, but still retains some of its “value”, the gov’t will purchase some goods and services resulting in less goods and services available for the private sector. But why would the gov’t do this? To redistribute those goods and services to the same private sector it deprived them of in the first place? If the private sector decides to bid against gov’t spending in order to keep the goods and services for itself, prices will go up. If fiat money becomes worthless because no one will accept it, then what is the point of the endeavour? For this scheme to work, you have to assume that production increases with an increase of fiat. In fact, what do you hope to achieve with this?

I can perhaps see your point if your talking about an ultra-minimal gov’t that only spends on defending our rights. But again, why would private producers of those services willingly accept money that would be worth much less or might even be worthless outside of gov’t payments???

F. Beard May 13, 2011 at 5:33 pm

If fiat money falls, but still retains some of its “value”, the gov’t will purchase some goods and services resulting in less goods and services available for the private sector. CT

Unless the governemnt raised taxes to compensate for its increased spending then there would soon be a glut of government money and its purchasing power would diminish rapidly. With genuine private money alternatives available merchants might soon refuse government money totally. What good would it be once they had more than sufficient to pay their taxes?

But why would the gov’t do this? To redistribute those goods and services to the same private sector it deprived them of in the first place? If the private sector decides to bid against gov’t spending in order to keep the goods and services for itself, prices will go up. CT

Prices in what? Prices would only go up in the government’s money assuming that private currencies were unchanged.

If fiat money becomes worthless because no one will accept it, then what is the point of the endeavour? CT

The point is a check on government overspending wrt a given taxation level. Those in charge of government spending would quickly learn that it was pointless to overspend. The “stealth inflation tax” would be abolished.

For this scheme to work, you have to assume that production increases with an increase of fiat. CT

It is no scheme. It is called liberty in the choice of money for private debts.

In fact, what do you hope to achieve with this? CT

An optimum economy leading to minimal government.

I can perhaps see your point if your talking about an ultra-minimal gov’t that only spends on defending our rights. CT

Minimal governemnt is my goal. However, government can not and should not be shrunk overnight since there is the mess of the current system to deal with.

But again, why would private producers of those services willingly accept money that would be worth much less or might even be worthless outside of gov’t payments??? CT

Taxes are a big part of the economy and a uniform national currency is also a big convenience. Merchants would just as soon use government money for all debts not just government ones IF THE GOVERNMENT MONEY SUPPLY WAS WELL MANAGED. And genuine private money alternatives would ensure that it was well managed.

Freedom Fighter April 27, 2011 at 12:11 pm

“Money can’t buy you love.”

What “love” are you talking about ?
Unconditional Agape love ?
Sexual love ?
Parental love ?
Patriotic love ?

I wonder if love ever exists or if, like rights, love is a fiction in the human mind. You cannot buy what doesn’t exist.

Love seems to be a very egotistical thing where you seek to be with people that give you pleasure, comfort, aid. In that case you don’t really “love” the other people, you love what they bring to yourself and how they make you feel.

What about the love of money. If you love money, then you have both of good worlds. You own the money, you love the money and you don’t need to spend it to buy love, you already love the money and how it makes you feel and you just need to keep it to feel that way.

Avarice is great, LOL :-D

F. Beard April 27, 2011 at 4:12 pm

Common stock with no dividends ever is worthless. ct

No. Common stock is a share in the unencumbered assets of a corporation. It could easily be worth a great deal.

If a corporation were to say that they would never pay a dividend, investors would pay exactly $0 for it. ct

I disagree because 1) the common stock is a share in the corp’s unencumbered assets and 2) the common stock itself could serve as money – the corporation could agree to accept the common stock for products of the corporation – completely bypassing the need for conventional money. Thus no dividends would be required in a “foreign” currency because the common stock would serve as both a share and as a currency. And no bankers or usury is required either.

Investors are willing to accept lesser dividends if the company reinvests in a project t ct

Then the investors should be willing to accept 0 dividends forever since that would result in the maximum growth rate of the corporation.

F. Beard April 27, 2011 at 4:46 pm

A rise in interest rates is not the “kiss of death” most people assume. It simply means that there will be a shift from long term to short term projects. ct

With common stock as money there is no borrowing or lending. Assets are simply bought with new stock issue. Interest rates are therefore irrelevant. (Mind-boggling, no? The usury class has trained us well.)

When done in an orderly fashion (i.e. what would occur with no FRB), this would result in a slight increase of frictional (read temporary) unemployment. When this occurs in a violent fashion (i.e. as a result of an FRB implosion), we have a recession. ct

Common stock as money requires no fractional reserves. Nor is the money creation rate dependent on the mining rate of a PM.

I know it’s a mind-blowing concept – common stock as money – but it really would work. And corporations might really be forced, in the absence of the government enforced counterfeiting cartel to borrow from, to resort to it for financing.

Of course, as a libertarian I would never force anyone to use anything for money but I certainly insist that ALL private money forms including common stock be allowed to compete equally wrt government. That means in practice that the capital gains tax must be completely abolished, not just on PMs as Ron Paul advocates, that government money be pure fiat to avoid favoritism, and of course, that legal tender laws for private debts be abolished.

F. Beard April 28, 2011 at 10:03 am

Why should any government tolerate such a scenario at length, Inquisitor

Enlightened self interest. A healthy economy generates more tax revenues. Only taxes that enforce the monopoly on private money creation, such as the capital gains tax, need be repealed. The income tax could remain. Plus, many people work in government not from real choice but necessity. They would be pleased to work in a healthy private sector.

when they can merely compel purchases at any price they so please? Inquisitor

No. That would lead to run-away inflation and currency destruction as the private sector anticipated the money printing and raised prices in advance of it.

Don Milton July 26, 2011 at 4:49 pm

Don’t go through life, let life go through you.

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