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.

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 Only taxes that enforce the monopoly on private money creation, such as the capital gains tax, need be repealed.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.

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?

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.

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.

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.

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.

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.

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

“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).

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???

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!

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.

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.

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?