Response to Mike Montagne

Mike Montagne has posted this on his website, concerning a “controversy” with me of which I was unaware until it was sent to me by someone else.

http://perfecteconomy.com/wp/2008/10/18/open-letter-to-global-research-on-the-controversy-with-ellen-hodgson-brown/

 

My sources on the Pennsylvania land bank are here: 
 
Alvin Rabushka, “The colonial roots of American taxation, 1607-1700: The low-tax beginnings of American prosperity,”  Policy Review (Hoover Institution, Stanford University, August/September 2002); “Representation without taxation: The colonial roots of American taxation, 1700–1754,” ibid. (December 2003 & January 2004); Stephen Zarlenga, The Lost Science of Money.
 
The math works like this: you print $105, lend $100 at 5% interest and spend $5 into the economy on government salaries, projects, etc.  $105 is now circulating in the economy, which comes back to the government bank as principal and interest on the $105 loan.  You lend THE SAME $100 all over again and spend $5, which returns to the government as principal and interest; etc.  The interest funds the government, replacing taxes.  No inflation, no government debt, no taxes — as proven by the Pennsylvania experience.
 
Ellen

133 Responses

  1. Right, I understand circular flow in normal business (and in logic), but not how you are trying to apply it to banking. Yes, interest money can be recycled and used again, but it has to start somewhere. There is money missing in the system unless the banks make some interest-free money to fill the gap. And your answer to the poker question implies that you say they do make it. You refer to that chart, but it is worthless to me; it is three lines on a slight slant…whatever that means??? All I know is that 2+2 doesn’t equal 5; it would be cool if it did, but it doesn’t. So, with no good references to back your position up and no good explanation, I’m just going to have to give up on your claim. Thanks anyway.

  2. There is money missing in the system unless the banks make some interest-free money to fill the gap. And your answer to the poker question implies that you say they do make it.
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    The banks lend 10 and spend 2, for a total of 12 units of money in circulation. The borrowers owe 10 plus 1 in interest back to the bank, for a total of 11. The 12 in circulation is MORE than enough to pay 11. What’s so hard to understand about that? The fallacy in your argument is your assumption that the only money in circulation is the 10 that was lent.

    Yes, interest money can be recycled and used again, but it has to start somewhere.
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    It starts with bank disbursements for their ordinary business expenses, including their salaries and wages, and the money they pay their stockholders. That money accumulates into account balances that are MORE than enough to pay interest back to the banks. What’s so hard to understand about that?

    All I know is that 2+2 doesn’t equal 5…
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    A brilliant observation. What does it have to do with our discussion?

    So, with no good references to back your position up and no good explanation, I’m just going to have to give up on your claim. Thanks anyway.
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    I’m quite impressed by your proud declaration to remain a complete ignoramus.

    Brock

  3. Brock,

    You obviously don’t understand the issue I have with your explanation. There is missing money, like a game of musical chairs, unless the banks make it to spend, but you can’t give me any proof that they do besides your same old rhetoric you’ve made in like 50 comments that I’ve read of yours saying they do in your obfuscated way. You are saying 2+2=5 to me because you are adding money to the system but without a good explanation of the mechanism for adding that money or any proof of it other than your own claim that it is actually what happens…and that any non-ignoramus should just know that because it is what all businesses do and part of economic 101 or something. Sorry, you just haven’t convinced me of anything. And if being an ignoramus means not buying into what some random dude on the net who seems full of crap is saying in blog comments, then I’m indeed a proud ignoramus.

  4. Dear Brock,

    I’m quite impressed by your MS-Paint graph you proudly link to in the majority of your comments. It seems the economics 101 book you refer to is made by Obfuscation Publications Inc. I don’t think any of the ignoramus’s in this forum has the wits to decipher such a seemingly simple piece of shite.

    When we request reputable sources from you, we don’t mean post a gif that looks like it was drawn by a blind quadriplegic 3rd grader with down syndrome.

    I’m going to have to agree with Alex in what seems like pure sophistry so far. It seems like much distraction has ensued in the posts above.

  5. I have to agree the ability to obfuscate the problems of our current banking system is the cornerstone of bank apologists everywhere and Brock has mastered it. This ability while being unable to comprehend anything outside of his understanding is mind boggling. The repeated assertions that the current banking system has been the state of affairs “for 40,000 years” is meaningless. Ptolemy most likely used the same argument for why the sun must revolve around the Earth. The “natural monopoly” comments are also laughable unless natural monopolies arise due to Government threats of incarceration. The belief that “promissory notes” trump what would normally be considered fraud also seems to be the product of a very sympathetic and uncritical thought process. I could go on and on but Brock has obviously already decided his allegiance is to perpetuating ideas that are created by those who are sympathetic to the status-quo so I won’t.
    I have seen no explanation why a system that would return profits to “the people” instead of giving it to bankers is a bad idea. The normal assertion that Government cannot be trusted is ridiculous especially in view of the massive abuses that have occurred with this ability in the hands of an enforced private monopoly which is the cause of the current meltdown. The only thing an enforced private monopoly has done is heaped the private banking abuses on the top of government abuses adding up to more abuses than if it was government alone while removing any chance at accountability or transparency. Lack of accountability and transparency creates an environment that is ripe for corruption which is what we have today.

  6. There is missing money, like a game of musical chairs, unless the banks make it to spend…
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    This is what banks actually do. They create money when they spend and when they lend. This is in fact what all firms do, except ordinary firms need the accommodation of the banks to do that. Ordinary promissory notes have limited recognizability and acceptability, whereas the banks through their clearing system have very broad recognizability and acceptability for their notes. So the borrowers exchange their individualized promissory notes for the promissory notes of the banks, greatly expanding the scope and utility of the market. This is the great innovation of modern banking. You may spend what you receive in your pay voucher at any store, not just the company store.

    Brock

  7. The repeated assertions that the current banking system has been the state of affairs “for 40,000 years” is meaningless.
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    Except I’ve never even once made this assertion. I have asserted that the economy has been CREDITARY for forty thousand years. Modern banking was a seventeenth century innovation that was very nearly complete by the end of the nineteenth century. That is a statement of fact for which I have as my authority A. Mitchell Innes.

    http://www.geocities.com/new_economics/innes/

    The “natural monopoly” comments are also laughable unless natural monopolies arise due to Government threats of incarceration.
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    Natural monopolies don’t arise from government coercion. Most monopolies are conspiracies against the public welfare. Natural monopolies arise because they are inherently the most efficient ways of doing certain things. Among natural monopolies are public water and electrical systems. But being monopolies, they must be regulated through public oversight so their monopoly power is not abused. The close cooperation that is required between the banks so that their clearing system can work is a natural monopoly.

    The belief that “promissory notes” trump what would normally be considered fraud also seems to be the product of a very sympathetic and uncritical thought process.
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    You simply do not know what the definitions of basic words like “fraud” are, the definitions found in ordinary dictionaries. Promissory notes are simply not fraudulent. Most trade has been conducted through promissory notes, of one description or another, for forty thousand years.

    I have seen no explanation why a system that would return profits to “the people” instead of giving it to bankers is a bad idea.
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    What about any profits going to any firm? It is the difference between the free market and socialism.

    The normal assertion that Government cannot be trusted is ridiculous…
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    The American system is a system of checks and balances between the various power centers. Limited government has always been an American principle.

    Brock

  8. —Except I’ve never even once made this assertion. I have asserted that the economy has been CREDITARY for forty thousand years. Modern banking was a seventeenth century innovation that was very nearly complete by the end of the nineteenth century. That is a statement of fact for which I have as my authority A. Mitchell Innes.

    http://www.geocities.com/new_economics/innes/—

    Then why bring it up, it is meaningless to the entire conversation if it doesn’t apply to our current system.

    Natural monopolies don’t arise from government coercion. Most monopolies are conspiracies against the public welfare. Natural monopolies arise because they are inherently the most efficient ways of doing certain things. Among natural monopolies are public water and electrical systems. But being monopolies, they must be regulated through public oversight so their monopoly power is not abused. The close cooperation that is required between the banks so that their clearing system can work is a natural monopoly.

    Coercion such as seizure of gold and silver backing liberty dollars and laws against describing anything as legal tender even if it is backed by a commodity? This would seem much more like an enforced monopoly than a “natural one” to me. Also there are multiple planks to socialism and the main one would be lack of property rights meaning everything belongs to the state. The constitution gave control of the money supply to congress so according to you America has socialism written into its constitution. I do not think you know what you are talking about.

    —You simply do not know what the definitions of basic words like “fraud” are, the definitions found in ordinary dictionaries. Promissory notes are simply not fraudulent. Most trade has been conducted through promissory notes, of one description or another, for forty thousand years.—

    So according to you if I am a real good con-artist and convince people my pieces of paper are worth something I am doing the world a favor. Even though there is not a chance in hell I would be able to satisfy those “promissory notes” without convincing other people to take them in order to fulfill my promise. Then I take a cut of the profits for being a good con-artist and people can say I am doing a honorable service for humanity. Nice

  9. Then why bring it up, it is meaningless to the entire conversation if it doesn’t apply to our current system.
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    It does apply to the current system. The current system is creditary.

    Coercion such as seizure of gold and silver backing liberty dollars and laws against describing anything as legal tender even if it is backed by a commodity?
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    The Liberty Dollars are a fraud, as alleged in the charges against that organization. Legal tender is defined in the law, which defines legal tender as the currency and coin of the United States. Most transactions are conducted through the transfer of commercial bank credit, which is NOT legal tender. Personal promissory notes and bank promissory notes in the form of deposits are NOT legal tender. The law does not require the use of bank credit, merely defines what it is. The law requires that debt be settled in legal tender if the creditor requires it.

    The constitution gave control of the money supply to congress so according to you America has socialism written into its constitution. I do not think you know what you are talking about.
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    Control of the money supply is NOT socialism. If you think that’s socialism then you don’t know what YOU are talking about.

    So according to you if I am a real good con-artist and convince people my pieces of paper are worth something I am doing the world a favor.
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    This another example of your crank ideology. Your personal promissory note may in fact be worthless, but promissory notes in general are NOT worthless.

    You’ve got to start reading real books and pay less attention to crank websites.

    Brock

  10. —It does apply to the current system. The current system is creditary.—

    You are comparing 40.000 years of creditary history to our current 17th century innovated banking structure which are obviously 2 different things so no they are not the same, just more obfuscation. You are trying to confuse the issue when it is obvious they are not the same. Tally sticks and modern banking may both be creditary but they are not comparable in the matters discussed here. No one here is arguing to go back to the barter system or to get rid of creditary systems so I have no idea why you keep bringing it up.

    —The Liberty Dollars are a fraud, as alleged in the charges against that organization. Legal tender is defined in the law, which defines legal tender as the currency and coin of the United States. Most transactions are conducted through the transfer of commercial bank credit, which is NOT legal tender. Personal promissory notes and bank promissory notes in the form of deposits are NOT legal tender. The law does not require the use of bank credit, merely defines what it is. The law requires that debt be settled in legal tender if the creditor requires it.—

    The fraud aspect I guess we will have to wait and see since the company is filing suits to regain the seizures that were taken which belong to the companies customers. That you can say all this crap about legal tender and then call it a “natural monopoly” is a sign of extreme inability for critical thought. Money is not comparable to utilities since utilities have insurmountable infrastructure costs and running a different electrical or phone line for each company is severely inefficient. People should have the right to use and promote whatever money they see fit especially if it is commodity backed the fact that this is discouraged obviously shows it is in no way the “natural monopoly” you assert.

    —Control of the money supply is NOT socialism. If you think that’s socialism then you don’t know what YOU are talking about.—

    I did not say it was socialism you did by saying that if the government gave the profits to “the people” it is socialism obviously without even really understanding what socialism is. Since the ability to control money was constitutionally given to congress it would be natural to assume the profits would too especially since they are the ones creating real goods not the banks.

    —This another example of your crank ideology. Your personal promissory note may in fact be worthless, but promissory notes in general are NOT worthless.

    You’ve got to start reading real books and pay less attention to crank websites.—

    A “Promissory note” that I cannot fulfill is worthless unless there is enough confidence in them that people believe they can be fulfilled. This is why the Goldsmiths “promissory notes” were fraudulent because the only thing that gave them value is the same thing that gives a con-artists scheme value, the confidence of the person he is defrauding. If this confidence disapears then the whole scam immediately falls apart. I am sure you somehow believe that this is moral but most people would not consider this ethical especially if they have been taken advantage of by a con-artist.
    My crank ideology, wow. Coming from you that would be the pot calling the kettle black. You are so wrapped up sophistry and obfuscation that you have lost the ability to understand the simplest concepts. You believe the banks and their clearing houses have some magical ability to impart value on to paper without the faintest notion of even trying to understand where the real value of money comes from. You have absolute;y no explanation for long term inflation and as soon as there is an argument that does not agree with your understanding you drop it to focus on more “safe” and “familiar” territory. You have got to unhinge yourself from your fixed world view and begin using some critical thought.

  11. Okay, since Brock wouldn’t give me second sources to back him up, I went looking for some myself. I’ve read the Edward Flaherty stuff trying to debunk Federal Reserve Myths before and went back and read this piece by him “Myth 11.” http://famguardian.org/Subjects/MoneyBanking/FederalReserve/FRconspire/antidote.htm Flaherty seems to explain the Brock claim better than Brock, but that still doesn’t mean I buy it. The things Flaherty says in his so-called debunking are often strawman arguments. http://fskrealityguide.blogspot.com/2008/06/compound-interest-paradox-revisited_14.html

    I first got into this subject from reading G. Edward Griffin’s Creature from Jekyll Island; the debt virus idea wasn’t an issue to him. For those who have his book, starting on page 191, he basically says the missing interest money is made up by people working directly or indirectly for the banks. That parallels with what Brock seems to be saying, but Brock explains it in his own confusing manner.

  12. That you can say all this crap about legal tender and then call it a “natural monopoly” is a sign of extreme inability for critical thought.
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    Not legal tender. Legal tender is a small subset of the money supply. As to banking, it is a natural monopoly because the existence of this monopoly benefits the public, under adequate oversight and regulation. The monopoly follows from the close cooperation between the competing banks required to make their clearing system work. This means that while they are organizationally independent, they are working together as a single unit in their clearing system. A bank that strikes out on its own will not last long as a bank.

    I did not say it was socialism you did by saying that if the government gave the profits to “the people” it is socialism obviously without even really understanding what socialism is.
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    The profits from banking now go to private investors, who operate the system competitively according to the rules of profit and loss. The diversion of profit to the government means the motivation to provide a service at a profit is eliminated. Under such a situation I doubt that we’ll see a more efficiently run banking system. What you cranks are really proposing is the financial system of the old Soviet Union. Which do you think is more efficiently run: UPS or USPS?

    Since the ability to control money was constitutionally given to congress it would be natural to assume the profits would too especially since they are the ones creating real goods not the banks.
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    Control means control and not necessarily ownership. I would prefer a system of competitive banking under public oversight and regulation.

    A “Promissory note” that I cannot fulfill is worthless unless there is enough confidence in them that people believe they can be fulfilled. This is why the Goldsmiths “promissory notes” were fraudulent because the only thing that gave them value is the same thing that gives a con-artists scheme value, the confidence of the person he is defrauding.
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    Do you not know what the words “con” and “fraud” mean, by that I mean how they are defined in ordinary dictionaries. You are simply not using the English language. All business relationships are built on the confidence that commitments will be fulfilled. Fraud involves deception. The goldsmith promissory notes were not inherently fraudulent. It just marks you as a stereotypical crank by repeating this nonsense. They were contracts that promised to be redeemed under certain terms and conditions.

    I am sure you somehow believe that this is moral but most people would not consider this ethical especially if they have been taken advantage of by a con-artist.
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    I really object to being called unethical by a looney toon like you.

    You believe the banks and their clearing houses have some magical ability to impart value on to paper without the faintest notion of even trying to understand where the real value of money comes from.
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    It’s called a contract, in the case of banknotes, contracts written on paper. In the case of bank deposits, the contract is written in the contract the depositor has with his bank. It not magic; it’s called a contract, my little looney toon.

    By the way, the ability to contract is uniquely a human characteristic. It is something that separates us from the animals.

    You have absolutely no explanation for long term inflation…
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    Again, you certainly don’t. The explanations you’ve given are at best simplistic, and at worse, ludicrous.

    Brock

  13. Once again Brock, despite what grandiose benefits fractional-reserve-banking has supposedly lent humanity, essentially, it seems to me like it is just legalized fraud. And just to make things easier I will post a definition of the word fraud so we can all quit masturbating semantics – if we all are indeed doing that as you so claim Brock…?

    Wiktionary – An act of deception carried out for the purpose of unfair, undeserved, and/or unlawful gain, esp. financial gain.

    Perhaps it is cliche to quote such, of what I’d call, an advocate of sound money; Rothbard writes:

    “…the British judge, Sir Wiliam Grant, ruled that since the money paid into a bank deposit had been paid generally, and not earmarked in a sealed bag, (i.e., as a ‘specific deposit’) that the transaction had become a loan rather than a bailment [a legal word meaning something that the depositor continues to own independently of the bank]. Five years later, in the key follow-up case of Dewaynes v Noble, one of the counsel argued correctly that a ‘banker is rather a bailee of his customer’s fund than his debtor…because the money in …[his] hands is rather a deposit than a debt, and may therefore be instantly demanded and taken up.’ But the same Judge Grant again insisted that ‘Money paid into the banker’s becomes immediately a part of his general assets; and he is merely a debtor for the amount.’ In the final culminating case, Foley v. Hill and Others, decided by the House of Lords in 1848, Lord Cottenham, repeating the reasoning of the previous cases, put it lucidly if astonishingly:

    “The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted.

    “The argument of Lord Cottenham and of all other apologists for fractional-reserve banking, that the banker only contracts for the amount of the money, but not to keep the money on hand, ignores the fact that if all the depositors knew what was going on and exercised their claims at once, the banker could not possibly honor his commitments. In other words, honoring the contracts and maintaining the entire system of fractional-reserve banking requires a structure of smoke-and-mirrors, of duping the depositors into thinking that ‘their’ money is safe, and would be honored should they wish to redeem their claims. The entire system of fractional-reserve banking, therefore, is built on deceit, a deceit connived at by the legal system.”

    Bank runs are not, as you claim, mere “results of inappropriate oversight, regulation, and poor management”, they are fundamentally inherent within the system, they happen when mass depositors lose confidence (irrationally or rationally) and decide to withdraw THEIR money. Better oversight, regulation, and management will not deter the ability of a depositor to withdraw HIS money when he feels like it.

    Things like the FDIC shouldn’t even have to exist. Bankers individualize the profits, but socialize the losses; a contributing factor of inflation. If you can’t accept this, then wait around in America for the next decade or so; all these “bailouts” (socializing losses) will have a major affect on you and me, even if WE didn’t do anything. Prepare to have your purchasing power raped by the magical hidden tax of inflation.

    It’s just probably too hard for you to notice. You’ve been raped by inflation your whole life, we all have, but it will be very very noticeable once the rest of the world stops transferring us their purchasing power. Humanities whole modern eCONomy is built around retaining wealth that inflation naturally rapes away, exacerbating the problem even further. The whole maxim of “Make money with money” is exaggerated by a system supposedly designed to keep us fighting the parasitical forces of inflation. But naturally this allows people with ABSURD amounts of money to make even more absurd amounts. A wall street fat cat can make more than I probably will in my whole life in one single transaction, essentially producing nothing, just transferring wealth around.

    Now I’m not so jealous, per say, as much as I just think a better system could exist that benefits everyone more and exploits everyone less. But don’t pay attention to that seemingly marxist sounding shit, it’s just the utopian dolt in me speaking again.

  14. So again you completely avoid the assertions of the 40,000 year creditary bull which I take as an admittance that it is completely irrelevant to the current conversation about banking.

    —Not legal tender. Legal tender is a small subset of the money supply. As to banking, it is a natural monopoly because the existence of this monopoly benefits the public, under adequate oversight and regulation. The monopoly follows from the close cooperation between the competing banks required to make their clearing system work. This means that while they are organizationally independent, they are working together as a single unit in their clearing system. A bank that strikes out on its own will not last long as a bank.—

    It may be a monopoly but your assertion that it is somehow “natural” makes absolutely no sense. Are you saying that competition which is discouraged through legal means leads to a natural monopoly? You believe that the nanny state that protects people from their right to choose what they would consider money is the basis for a “natural monopoly”. That makes absolutely no sense.

    —The profits from banking now go to private investors, who operate the system competitively according to the rules of profit and loss. The diversion of profit to the government means the motivation to provide a service at a profit is eliminated. Under such a situation I doubt that we’ll see a more efficiently run banking system. What you cranks are really proposing is the financial system of the old Soviet Union. Which do you think is more efficiently run: UPS or USPS?—

    Yeah they are so uncompetitive that the Alberta Treasury Branches has to figure out ways to become less efficient so the private banks can compete with them. You really nailed that one. Also Benjamin Franklins experiment seemed to be a complete failure that basically got rid of taxes while increasing prosperity. In case you cannot tell that is sarcasm. Meanwhile the “efficient” private”banks are in a complete meltdown and socializing losses after years of capitalizing on profits. Tax payers are getting the short end of that deal all the way around. That is not what I would call the complete efficiency of the private sector. Also who is to say that profit incentives cannot be created in a nationalized banking system?

    —Do you not know what the words “con” and “fraud” mean, by that I mean how they are defined in ordinary dictionaries. You are simply not using the English language. All business relationships are built on the confidence that commitments will be fulfilled. Fraud involves deception. The goldsmith promissory notes were not inherently fraudulent. It just marks you as a stereotypical crank by repeating this nonsense. They were contracts that promised to be redeemed under certain terms and conditions.—

    So I call it a “promissory note” instead of warehouse receipt and it turns from fraud to banking that is good to know.

    —I really object to being called unethical by a looney toon like you.—

    If you think it is ethical there is nothing to be insulted about. .Personally I would not consider it ethical to have 10 ounces of gold then give out 100 ounces of “promissory notes” and charge interest on it. Not even considering the fact that the “promissory notes” might be redeemed and I would be unable to fulfill the “contract” it still seems immoral and unethical. If you do not think that it is unethical that is your opinion. No insult intended.

    —It’s called a contract, in the case of banknotes, contracts written on paper. In the case of bank deposits, the contract is written in the contract the depositor has with his bank. It not magic; it’s called a contract, my little looney toon.

    By the way, the ability to contract is uniquely a human characteristic. It is something that separates us from the animals.—

    Yes a contract between the person who can FULFILL the contract and the person who wants the service is entirely reasonable. This would be in line with the 40,000 year creditary history you are always talking about since it obviously was not banks. A institution that administered these deals would also be understandable as long as it is not an enforced monopoly under central bank control that would stifle innovation and competition as much as any “old Soviet Union” government financial institution as far as consumers and charges are concerned. If it is an enforced monopoly under government control then the profits should not be privatized while the losses are paid for with tax payer money. Either privatize the industry completely with government oversight or nationalize it. The current system creates all the negatives with none of the positives. The banks are too big to fail so taxpayers end up paying for losses and profits, there is no real competition or innovation and no real accountability or transparency.

    —Again, you certainly don’t. The explanations you’ve given are at best simplistic, and at worse, ludicrous.—

    I can say the same about your assertion that banks spend all the interest which completely ignores money flows and whether or not it is actually available to borrowers to earn or tied up in investments that are not available to borrowers.

  15. Thanks for your reply, Coury. Rothbard in this quote demonstrates that not only was he a crank economist, he was a crank lawyer.

    You define fraud from the dictionary, but don’t identify even a single example of something in banking that is fraudulent. All you’ve done is illustrate something that Rothbard called fraudulent through specious reasoning. The fact that if every depositor demands to redeem his deposits at once, the banks could not comply, is not evidence of fraud. Not even close to it. It would be where the banks would be in contractual default, which is something quite different. Banks operate actuarially, like insurance companies, in that they do not expect that all of their depositors will demand redemption at the same time. Insurance companies that write life insurance policies do not expect that all of their policy holders will die at the same time. Banks and insurance companies maintain reserves to cover expected contingencies. Banking in this respect is a species of insurance. Surely you don’t claim that insurance is inherently fraudulent.

    Brock

  16. Your comparison between banks and Insurance companies shows that you are simply ignorant in almost every aspect of economics. I don’t also agree with some of the claims here, but you do not even seem to be acknowledge that there is a problem.

    Fractional reserve banking is the only business structure that does not observe a crucial rule of sound financial management – That the time structure of the firms’s assets should be no longer than the time structure of its liabilities. That is if a firm has $1 million dollars due to creditors on January 31, it will arrange to have assets of the same amount falling due on this date. Otherwise, it the firm will have to close it’s doors and file for bankruptcy. Banks do not and cannot observe this rule! Its liabilities are due instantly, on demand, while its outstanding loans to debtors are inevitably available only after some time period. A bank’s assets are always “longer” than its liabilities, which are instantaneous. A bank is always inherently bankrupt and would become so if for example all depositors woke up to this fact (in the absence of bailouts and FDIC) that the money they believe to be available on demand is actually not there.

    Liabilities of Insurance companies are NOT due instantly, for they are not due at all except for during the rare unexpected event, according to what has been covered by contract. The money you pay as “premium” to an insurance company is not yours to redeem or anything. It is a fee for a service, a service of risk mitigation. Just like any other service you pay for. The fact that they rely on statistical analysis in order to achieve a very low probability of having their liabilities exceed their assets does not make them unsound, because this is the case for every other type of business. You can pay a membership fee to your local health club or gym, only to have the club go out of business in the middle of your contract, because they could not obtain the assets they had relied on, in order to meet their liabilities. They have made a business miscalculation or a bad gamble, and they are forced to close the doors.

    Insurance company relies on real tangible assets, where a bank does not. A bank creates the money, where an insurance company or any other business must rely on “real” assets that already exist. They cannot simply create them!

    By creating money, banks extract resources from the public. This is where your ignorance is at its peak, since you do not understand this crucial point. They essentially do it in the same way of counterfeiters. Counterfeiters also create money out of thin air and put them into circulation. From an economics point of view, the only difference is that the law does not treat bank credit as counterfeit. Even the monetarists sitting at the Fed know this! A lot of the modern macro-economics is pure nonsense, but even this fact (inflation due to fractional reserve banking) is present in every modern Macro-economics text book! This is what the Fed claims he needs to control. You also don’t understand that because of this, the collapse of the credit will always happen. Unlike an insurance company, it is no a matter of good business planning. It is a sitting duck always waiting to collapse because of its unsoundness. In a sense, I agree with the analogies of “ponzi-scheme”. It is economically non-viable! You do not see this because you do not understand the economics.

    You continue to insist that wealth can be created by a printing press, and continue on you dogmatic view of “abstract” money.. No free lunch and the fact is that, the “wealth” is simply being transferred form real earners and savers to banks. That is the system! Yes, it is legal so it is not “fraud” in the legal manner. But I don’t need government to tell me what constitutes “fraud”. They can legislate legal “rape” as far as I’m concerned, but it will still be “evil”.

  17. So again you completely avoid the assertions of the 40,000 year creditary bull which I take as an admittance that it is completely irrelevant to the current conversation about banking.
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    No, John. Banking is fully a creditary institution.

    It may be a monopoly but your assertion that it is somehow “natural” makes absolutely no sense.
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    Natural monopolies are monopolies that are beneficial to the public by being monopolies. Monopolies that are not natural are detrimental in that they are conspiracies against the public.

    Yeah they are so uncompetitive that the Alberta Treasury Branches has to figure out ways to become less efficient so the private banks can compete with them. You really nailed that one.
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    I don’t know what you’re trying to say here. The Alberta Treasury Branches, which had their origin during the thirty-five year long Social Credit administration, have become entirely conventional banks.

    Meanwhile the “efficient” private”banks are in a complete meltdown and socializing losses after years of capitalizing on profits.
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    Except the banks are not in a “complete meltdown,” not even close to it.

    That is not what I would call the complete efficiency of the private sector.
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    I have not argued that the private sector exhibits “complete efficiency.”

    Also who is to say that profit incentives cannot be created in a nationalized banking system?
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    I do not say that it cannot. It has to do with decentralized management under the rules of double entry accounting, where the various departments are individually operating under the constraint of profit and loss. This allows decentralized managers to efficiently manage their departments.

    The Soviet Union was greatly harmed, in its early days, in outlawing double entry accounting, for ideological reasons. In their revolution there could be no “profit,” hence they had to outlaw double entry accounting, the only known system of calculating profit in large organizations. With the fall of the Soviet regime, some eighty years later, when the various enterprises were “privatized,” there were only a handful of people throughout that vast nation who understood the conventions and techniques of double entry. It was the recipe for disaster. The nation was plunged into a great depression.

    So I call it a “promissory note” instead of warehouse receipt and it turns from fraud to banking that is good to know.
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    Promissory notes and warehouse receipts are two different things. The goldsmiths issued promissory notes, not warehouse receipts for gold they did not have.

    If you do not think that it is unethical that is your opinion. No insult intended.
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    Not only do I think that it is not unethical, I think it is unethical to claim it is unethical. Such a claim is based on historical ignorance, and ignorance on how the system works. Of course, ignorance is a defense to the charge of conscious guilt.

    Brock

  18. You are relentless in your equivocations, it astounds me.

    I totally understand where you are coming from, and how you see it. The only difference is that the language in which you pose the arguments allows your myopically conditioned mind to see the whole system as justifiable and conscientiously rational.

    There is something wrong with the system in place, if you can not see this you must try or else you will remain blind. Of course there is something wrong, no system will ever be perfect, but we shall strive, and preferably without corrupt influence.

    Your complacency with the current system is idiosyncratic of the neophobes that have always hindered progression throughout history; you condemn Rothbard as a crank just as Galileo was a crank to the neophobic religious consensus. I view your rigid academic conditioning as a form of crank religious consensus.
    Pardon my candid opinion, but I will not withhold what I feel to be the truth. This derisive rant will likely not convince you, but at least it will poetically entertain all the other ignoramus’s who agree with me.

    Certainly within this subject, if you are not against the problem, then you are for it; it’s only a matter of being properly informed will you find your conscience having cognitive dissonance. If you are as indifferent (ie.sociopathic) as some greedy bastards, then this discord will not make it harder for you to sleep at night, in which case you would be a prime candidate for chairmen of the lovely Fed.

    Education is tricky. A majority are left-brained limited. We have become too logical for our own good, without the reciprocation we need from our creative/emotional/right-brain faculties which help keep us sane – we lack an integrated “big picture”. Too much yin, not enough yang; things are unbalanced. Specialization is for ants. We are in dire need of a more integral outlook, a way which transcends the limited scope of mere logic.
    For instance, it may seem more logical to split atoms in this fashion instead of that, but before we waste too much time bickering about it let’s step out and look at the big picture: the A-bomb we are constructing is being created to fucking MURDER a massive amount of innocent, loving, emotional, lively human beings.

    We must be informed into how this system you advocate affects humanity, not bicker about the petty logic using semantic fluffing.
    Our views part when you insist that it is not fraudulent. Perhaps semantically it “is” not “fraudulent”, but whatever it is, I still see it as wrong. It is as degenerative as the atom bomb, although much more subtle – ingeniously subtle I might say. So ingenious it has bred a whole spawn of individuals, such as yourself, that can conscientiously & cunningly defend the atrocity it is. You have glittered the turd so much it is blinding us; you have pampered and paraded the parasite just as the music industry has convinced millions that Brittany Spears is somehow music.

    You are the sycophant minister standing in denial next to a naked emperor, unable to hear the words of truth from a mere child… “But he is wearing no clothes!”.

  19. That is if a firm has $1 million dollars due to creditors on January 31, it will arrange to have assets of the same amount falling due on this date.
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    This is true as a rule of thumb for perhaps investment companies, Dan, but not for ordinary firms. An ordinary firm may expect sufficient sales to cover its obligation due on January 31.

    Banks do not and cannot observe this rule! Its liabilities are due instantly, on demand, while its outstanding loans to debtors are inevitably available only after some time period.
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    Because banks behave like insurance companies in this regard. They project actuarially when withdrawals will occur.

    A bank is always inherently bankrupt and would become so if for example all depositors woke up to this fact (in the absence of bailouts and FDIC) that the money they believe to be available on demand is actually not there.
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    But Dan, educated people already know that. They also know that their deposits are insured by the FDIC.

    Liabilities of Insurance companies are NOT due instantly, for they are not due at all except for during the rare unexpected event, according to what has been covered by contract…
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    They could be, if all their insureds die at the same time. That is unlikely but possible. But no more possible than all a bank’s depositors claiming redemption of their deposits at the same time. That is also “rare” and “unexpected.”

    The fact that they rely on statistical analysis in order to achieve a very low probability of having their liabilities exceed their assets does not make them unsound, because this is the case for every other type of business.
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    Including banks. Banks, insurance companies and joint stock companies are variations on a common theme, each with insurance aspects, based on the concept of pooling assets and sharing risks.

    Insurance company relies on real tangible assets, where a bank does not.
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    How do you reach this conclusion? I am curious to see your argument. Perhaps you have never seen an insurance “draft,” which has no bank name written on it, but only the insurance company’s name. It clears back to the insurance company exactly as if it were a bank. The assets of any bank are just as “real” and “tangible” as any insurance company.

    By creating money, banks extract resources from the public. This is where your ignorance is at its peak, since you do not understand this crucial point. They essentially do it in the same way of counterfeiters.
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    Oh, no, certainly not counterfeiters. Counterfeiting is the FORGING of promissory notes in the name of someone else. Banks tender the promissory notes of themselves, in the form of deposits. They have the right to do that in a free society. Please use the English language in the sense of the definitions of words as found in ordinary dictionaries. Otherwise, you will come off as the crank that you are. And this is indeed a crucial point.

    You also don’t understand that because of this, the collapse of the credit will always happen.
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    Which is an article of faith of Austrian Economics. It is a religious not a scientific statement. It is also a statement from a false religion.

    I agree with the analogies of “ponzi-scheme”.
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    Again, using words in something other than their ordinary dictionary definitions.

    You continue to insist that wealth can be created by a printing press…
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    Modern money is simply a generalized form of contract. Contracts may be written on pieces of paper. You simply don’t have the foggiest idea of what a contract is.

    No free lunch and the fact is that, the “wealth” is simply being transferred form real earners and savers to banks.
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    Another article of faith in your false religion. No, banking is an essential element of the creation of wealth in a mass production economy. Without fractional reserve banking, there would not have been an Industrial Revolution.

    But I don’t need government to tell me what constitutes “fraud”.
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    No, but you do need common sense and the ability to use words in their common definitions. You demonstrate that you have neither.

    They can legislate legal “rape” as far as I’m concerned, but it will still be “evil”.
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    That may be true for rape but it’s not true for banking. It is a false analogy to compare the two, and therefore it is a fallacy in thought.

    Brock

  20. Dan, your post was fantastically sound in my eyes, and very eloquent. Of course I am biased to think so, nonetheless, I have yet to hear a good refutation of it.

    Brock, your sentence by sentence refutations are verbosely pathetic, you marginalize the posts you reply to by scoping in on what you feel comfortable refuting.
    This whole bickering game is getting very monotonous. You are obviously not going to convince us by repetitiously expressing your contempt for the Austrian school, our crank views of history, and the ignoramus dictionaries we stock on our bookshelves. And in turn, we will obviously not convince you.
    You are as obstinate as Jerry Falwell debating with Richard Dawkins. You view our quackery as an economic religion, and vice versa – it is getting nowhere.

    Somehow the truth must be reached, but the method to this evades me, for unless you view all the material I have will you then have a chance of seeing it how I do – and vice versa. This is why we insist you show us sources (your 3 lined graph does not suffice). I need books that will break down your view to a laymen as myself, I will then proceed to weigh it out.

    On a side note, perhaps fractional reserve banking facilitated the industrial revolution (perhaps it hindered it, all this could be debated). But following your hypothesis, I see that as all the more reason to rid ourselves of that unsustainable system. The world is way overpopulated, over-polluted, and in general, unsustainable. If anything, we need a system that inhibits that reckless growth we blindly pursue. We are old enough as a species to recognize the futility of our urges for primal greed in contemporary society.
    (utopian doltness ahead)
    If we say everyone as we see ourselves, the golden rule, then we would realize ‘we are the world, and the world is us’. Perhaps this is too metaphysical and crank for you, but humanity seems in dire need of this crank outlook if we want to continue survival, and happily. It’s amazing how your relationship with other people changes when you engage them as if it was their last day to live.

    It is a very hard perspective to cultivate, but beneficial in the long run I imagine. Obviously I am being somewhat contradictory, as I have tried to treat you as an equal, but occasionally failed by treating you as a boob, and in turn, acting like a boob myself. Communication is only possible between equals, when this is compromised, truth can not be reached. I apologize for my arrogance, and only wish you could see my perspective on these matters, a perspective which I feel has come from a non-fallacious understanding which is genuine and sincere. I feel any apologist for the current system can perhaps do it sincerely, but I do not see it as genuine. Just as see various religious doctrines are pushed with compassionate sincerity, I find the fundamental step fallacious, and thus, not genuine.

  21. Coury, I’ll just have this single response to your latest posting:

    “The world is way overpopulated, over-polluted, and in general, unsustainable.”

    I reject categorically this Malthusian, negative attitude. The world is underpopulated, and in general it is sustainable. Pollution is something that we can control.

    Brock

  22. People often perceive realism as pessimism. Perhaps my opinion is fallacious, but either way I do not see it as negative. To be aware of a problem is positive, even if it is a very negative problem.

    I am not too familiar with Malthusian thought directly. But I find your opinion that the world is underpopulated to be absurd, we obviously have different concepts of a preferable population level. We live on a rock of finite resources, many are also “infinite”; when speaking of sustainability, the finite resources are an enormous factor. The lifestyle in which many humans live is not-sustainable beyond a relatively limited number of generations. Indeed, issues such as pollution, sustainability, and overpopulation (which does not seem to be an issue to you) are things we can control, and do control – but we have much more to learn and much more room to grow. We are but an infant life form awakening to a bigger view of reality, the last few hundred years have been very exciting for humans, the next few will be much more intense.

  23. Certainly Mike Montagne’s website and thoughts appear confused. The underlying principles are sound, however, there are several problems with the proposed solution – primarily interference with property rights.

    A similar system can be implemented using a Henry George Land Tax on the privilege of a property right.

    A tax invoice is issued by local government against land (approximately equal to the rent on undeveloped land i.e. the opportunity cost of not utilizing the land).

    An equal quantity of currency is issued – the currency to expire on the same date as the invoice becomes due.

    Currency circulates until it is returned to the issuer against payment of the tax invoice. The tax invoice should be issued approximately 90 days before becoming due.

    A stable monetary base results without interest – whilst providing a source of income for local government. Some of this money could be spent into the economy – the remainder distributed as a citizens income.

    No interference with property rights is necessary.

  24. The opposition to loan Interest rests in a misconception of what Interest really is and how it functions within an economy. Under the assumptions that wealth would increase under an interest-free economy, there are few examples of such prosperity under Interest Free economies. The reason behind the lack of prosperity is that Interest Free money is, for a lack of a better word: unemployed and barren. Barren or unemployed monies perform no productive function within a vibrant economy.

    Within the Interest Free community, including those of the Marxist persuasion, there is the misconception that the borrower is being defrauded by paying interest; nothing could be farther from the truth. The truth is that in an Interest Free society, the lender would be cheated and defrauded, for who would hand over the fruit of their own labor to another while taking the risk of no return on the money that represents the fruit of their labor.

    Why does anyone consent to pay Interest for money? Why does a tenant agree to pay rent for the use of land or other property? The primary source for such consent is a private contract between two parties without the intervention of government, whether by prohibition or regulation. Now, for those who advocate an Interest Free society there must, by necessity, be both heavy government intervention and legal regulation to impede the principle of a private contract, as well as private property rights.

    Those who advocate a prohibition of Interest in our economy ignore the most basic principle of not only a free market, but individual freedom. They deny the primary justification of Interest and that justification is the right of property which the creditor has in his money.

    Does not a person, a business or a lending institution, by the virtue of an inviolable right to dispose and use his money as he will, lay conditions on that money if it is loaned out to another? Essentially, Interest is the price of time, but contrary to the current managed market, in a free market the price of time is set by market forces instead of manipulated by a central bank, which will always, without exception distort the market of capital.

    The Interest Free advocates follow a very specific view of economic production, an egalitarian view that equalizes all goods and services by the exclusion of interest. It is a “value-based” economic system that has been propagated by Socialist under the name of the Exploitation Theory. Incidentally, socialist economists have always considered Interest as nothing but exploitation and not, as it really is, a private property right based on the fact that money is property that represents a portion of the owner’s life and energy in labor.

    The Socialist Exploitation Theory goes something like this: “All goods that have value are the product of human labor, and indeed, economically considered, is exclusively the product of human labor. The Laborers, however, do not retain the whole product which they alone have produced; for the capitalist take advantage of their command over the indispensable means of production, as secured to them by the institution of private property, to secure to themselves part of the laborers’ product. The means of doing so are supplied by the wage contract, in which the laborers are compelled by hunger to sell their labor power to the capitalists for a part of what they, the laborer, produce, while the remainder of the product falls as profits into the hands of the capitalists, without any exertion on their part. Interest is thus a portion of the product of other people’s labor, obtained by exploited the necessitous condition of the laborer.”

    “But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time…equal right is an unequal for unequal labor… In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and with it also the antithesis between mental and physical labor, has vanished, after labor has become not only a livelihood but life’s prime want, after the productive forces have also increased with the all-round development of the individual, and all the springs of cooperative wealth flow more abundantly — only then can the narrow horizon of bourgeois right be crossed in its entirety and society can inscribe on its banners: From each according to his abilities, to each according to his needs.” Karl Marx

    “Free, unimpeded barter allowed people to produce to natural capacities; and to obtain for our own production whatever we deemed to be equal, undiminished measures of the production of others… Because no one takes from the trade anything but the equal of what they contribute to it, each party receives the full, self-determined equivalent of their contribution to the overall pool of their wealth. We have in effect two conflicting philosophies. One wants earnings for its work equivalent to its work. The other wants unearned gain which can only be taken at the cost of earning equivalent to real work… We mature beyond the era of unearned gain… Like cannibalism, unearned monetary gain and all the manipulation which goes with it will one day disappear from history forever after.” Mike Montange’s People for Mathematically Perfect Economy.

    “Usury centralizes money wealth, where the means of production are disjointed. It does not alter the mode of production but attaches itself to it as a parasite, and makes it miserable.” Marx

    Here is yet another utopian visionary who has come to the conclusion that if only interest was completely eliminated that everything would be wonderful.

    “Envision a world without poverty or economic oppression, a place where humankind can attain its potential amidst the rest of the world, without hunger or homelessness, where educated societies enjoy all the fruits of their labors. In such a society it wouldn’t be necessary to hand over your hard-earned dollars to the government to pay ever-increasing taxes. Could you learn to live in a place where budgets were balanced, homes were affordable, and you kept all the money you earned?” Jacques Jaikaran.

    Like Montagne, Jaikaran adheres to the doctrine of an Interest Free society. I remember reading similar promises from the lips of Marx, Lenin, Trotsky and a long list of Socialists, who also advocated an interest free society where the “capitalist parasites” would be restricted from preying on the hapless proletariat.

    The pedigree of this theory, this prohibition of Interest is almost purely Marxian in origin. As the free market economist George Reisman stated: “For more than a century, one of the most popular economic doctrines in the world has been the exploitation theory. According to this theory, capitalism is a system of virtual slavery, serving the narrow interests of a comparative handful of businessmen and capitalists, who, driven by insatiable greed and power lust, exist as parasites upon the labor of the masses.”

    Interest, like money, arose from a need and it is vital to a free market economy, without it you not only would not have a free market you couldn’t have a free market. The workings of a free market are so dependent on the vital functions that interest accrual provides that it would be impossible for the economy to work.

    This Interest Free concept also stems for a total lack of understanding of what money is and what it represents. People work, they labor and part of the fruit of their labor is the money they earn in compensation for the time and effort they put into their jobs. In the most essential meaning money represents a portion of a person’s life. Now, if you earn money by your time and that money represents the time you took out of your life to earn it, is your life worth nothing if you lend it out in the form of money as opposed to the time you lend out in the form of work?

    Interest, under a Gold Monetary system is a vital function of monetary economics, not only domestically but also concerning the balance of trade. It provides so many signals, so many influences within the economy that it is almost impossible to explain given the space we have here. In fact, volumes have been written on the subject of how a free market economy is completely dependent for its health and for prosperity on interest value assessed by the time preference of money.

    So, how would an Interest Free economy work and how would you transition toward such an economy? Well, Das Capital gives a great deal of information on that subject in its Ideology of Dialectic Materialism. You want to read about an Interest Free economy, read Das Capital. You want to see Interest Free societies, look at some of the Socialistic societies which have impeded market forces by forbidding interest from their economic systems. In fact, it would take a massive STATE to both enforce it and to prop up the economy since the economy would have no gauge, no ability to self-regulate.

    There would be absolutely no incentive to lend money under such a system. Indeed, you would have to allow the massive STATE bureaucracy to expand to an extraordinary scope just to make the economy function to any degree at all and like Montagne advocates you would have to have the Government continue to maintain power over a Fiat Currency.

    “I suggest that money should be endowed with value based on the wealth that it represents. In my example, I assume the service life of the home is 40 years. The value is consumed (depreciation) in balance with the payments. In this system, every cent of the circulation is used to pay for the value of the original assets as they are consumed; thus the elimination of inflation or deflation which results when there is too little or not enough circulation.” Montagne

    Once again, that concept is taken, almost directly from Marx and his Monetary Expression of Value. Marx rejected the Credit theories of Money, in other words Interest and sought to bring about a Value Based Monetary system, which sounds eerily like that which Montagne supports.

    Montagne proposes an Interest Free society where “promise certificates” are provided throughout the economy for what amounts to IOUs. I find it very interesting, as well as completely unworkable since the supply chain would be filled with these promises to pay. Since there would be no incentive to lend, at any level, the producer of the most basic product would be forced to wait on payment from another up the line who would also be forced to wait on payment and so on. How would homes be built under an Interest Free economy, who would lend money for free? How would the suppliers be paid down the production ladder, would they, could they only accept a certificate of promise? How would any suppliers get operational capital?

    Under an Interest Free utopian economic model how do you suppose that anyone, whether it is an institutional lender, a small business extending credit, or anyone extending credit would be willing to voluntarily give up consumption [based on the money they have on hand] today in anticipation of consuming [the money they receive for lending their money] in the future without a corresponding compensation for the value [price] of time?

    What would be the incentive for anyone to lend under such circumstances?

    Now, in a free market, Interest rates are not only determined like other prices through the interaction of supply and demand, but it also is a determinate factor in providing both present and future supply and demand along with a stimulus for productivity, a vital timing signal and risk evaluator. Without Interest how will all those factors come into play in the “economy”? The answer is that there would be no mechanism to perform such functions in an Interest free economy.

    It all boils down to what money is and how money acts within a given economy, questions that you don’t address because you can’t address such questions in your economic modeling. Money, particularly asset money, provides a store of both present and future economic energy therefore there is a definite time value and time preference to money. Now, based on the assumptions of an Interest Free economy, it would take away elements of time value and time preference by the rejection of interest in such an economic model. There is therefore, no way to account for the lack of such vital elements and the effects such a lack will have on economic flows, both in active states of the market and in rest states of the market.

    Think about savers, what incentive to they have in an Interest Free economy and if there is no interest what about investments which pay, in the form of dividends, a type of interest on the investor’s money based on corporate earnings. Apparently such dividends must also be banned in a “mathematically perfect, interest free utopian economy”.

    Concerning savings, when a person places money in savings what he is doing is transferring real current resources or at least the means to purchase current resources to a bank or other entity with the anticipation that his money will have just as much or more, due to the Interest accrued on the savings account, more future purchasing power than when he deposited his money. How would an Interest Free economy provide incentives for savings? It could not.

    Savings, by the way, especially in a sound monetary economy, are the backbone for capital production, without it how would the economy function? How would the balances between savings, investment and capital production be achieved under an Interest Free economy? What mechanisms would you put into place to replace the vital role that interest plays between those balances?

    The same is true of someone lending money, when someone is willing to transfer his funds in the form of a loan, the basis of that loan if the promise of the borrower of those current resources to return those resources to the lender at a future time; in an Interest Free economy, the lender would not be compensated from the time value of his money and therefore there would be absolutely no incentive for anyone to lend present resources that could be readily placed into economic service today for those same resources at a future date without an expression of time value on those funds. In this case you are saying that there is no need in an economy for either time value or time preferences that would be a major and massive hindrance for any economic movement or productivity.

    Those who advocate such an Interest Free economy miss the entire premise of lending, of time value, time preference and the productivity associated with lending using interest as a measure of future value and timed usage. The borrower assesses risk based on the rate of Interest and a certain degree of faith in his ability to repay the loan. The borrower is using current resources of the lender in the belief that he will be able to produce future goods and or services to the extent that he will not only have enough to pay back the lender both principle and Interest, but that he will, through the process and his business acumen also have a profit at the end of the process. How therefore, do you deal with the transfer of qualified demand in such cases? The answer is you can’t.

    If there is no incentive for such practices, and apparently under the Interest Free “style” of economy such incentives would be banned by law. In such Usury Free economies, a person or lender would naturally keep their resources to themselves for present productive activities from which they could profit instead of lending those resources for a future return with no profit whatsoever. I mean if I were a lender who could make a profit today within my money, why would I lend it for 1 year, 5 years, 10, 15, 20 or 30 years with no return at all on it? Sorry, but few people would take such a risk with not hope of a return on the time value of their hard-earned money.

    I would assume that since there would be no Interest [which is nothing more than rent on money] allowed in an Interest Free economy that the practice of charging rent would also need be banned, since it is also interest on property. Rent is a form of Interest after all, you are lending out land, or merchandise or real estate in the estimation that you will get a return on those properties plus an excess if the property complete with clear title or not. The rental of money is no different than the rental of other properties that you own.

    Also, on a practical matter, how would you enforce an Interest Free economy, there would have to be a massive government machine to enforce this law, what will it be? It would be much more intrussive than anything we currently have today and it would have powers that would, by shear necessity, involve itself into every financial trasaction that took place in an Interest Free economy.

    Also, what role would the government have to take in terms of economic intervention since you are removing some of the most basic functions with an economy, primarily the role that interest plays in a vital economy? The government would replace the role of Interest in an economy otherwise such an economy would not function since all incentive is taken out of the system, time preference and time value will be no more. What mechanism would be used: government.

    Well, I can tell you that if you propose an Interest Free economy and a fiat monetary system along with it then you will definitely not have a prosperous future. The only way that can happen is if the government is completely restored to Constitutional Order, limited and severely restricted to its delegated powers as enumerated in the Constitution. A sound monetary system restored which will automatically limit the expansion and power of the government, restraining the politicians and eliminating special interest powers, monopoly favors and regulatory license. A free-market without any intrusion of government is just as important as the restoration of Constitutional Order, without economic freedom, the Right of Private Property and the Right of Private Contract then we will not have prosperity.

    In a free market, sound monetary system, the most wonderful thing happens to banks; they suddenly become responsible to their clients. Their fiduciary responsibility makes them compete and therefore keep their policies and practices above board. In a free market banks are allowed to fail just like any other business would be allowed to fail it they made bad business decisions.

    The key to understanding any economic proposal is what effect it actually has on the Rights of the Individual, the Right of Private Contract and the Right of Property. If it sounds too good to be true, it probably is nothing more than a wolf in sheep’s clothing.

    • Republicae, You have posted a fine exposition of classical or Austrian type economics, without all the table pounding that oft times accompanies such. A valuable contribution to the Join the Debate invitation. It fact, you could probably repost this in the Join the Debate section, and we will post it. There is a topic thread forum coming up very soon, and you should watch for it. Credit and Interest would be a great topic, as well as Gold Standard or NOT. The current debacle, or rather, end of the Ponzi, has given monetary theory back its rightful place at the top of society’s agenda.

      DT for Ellen Brown, who is currently overseas.

  25. Thank you very much, I appreciate the invitation and will be more than happy to contribute to the debate on several issues, especially that of credit and interest, and of course gold specie free money. There is, as you well know, numerous subjects that can be addressed, indeed that need to be addressed.

  26. Republicae:

    Your exposition was well written. I must agree that if usury is outlawed, eventually rent must also be outlawed. Since I am a landlord, I only hope that if such happens, rent on money goes away before rent on land – or I’ll soon be bankrupt.

    However, I am of the opinion that money is a public utility, like roads, bridges, and public schools. As such, I believe that either the public (all individuals) or the government should issue money – not a selected class of private citizens.

    Back to the topic: I’ve spent some time on Mike Montagne’s website and honestly, it is extremely difficult to understand. I catch bits of truth buried in his prose, but he seems intent upon verbally crushing anyone who does not immediately submit themselves to his ideas. Even to the point of verbally abusing those who might support his position – if only he communicated as an equal at their level.

    • IMO Republicae comes at the issue completely within the current private banking paradigm, and as Ellen pointed out is from the Austrian school which draws philosophically from Rand. Furthermore, unless I missed it he offers no solution or alternative to our current situation except more of the same pain, suffering and continued enslavement by the wealthy. Montagne quotes from Rand and yet comes up with a completely different solution which Republicae correctly notes uses violation of property rights, and Zarapheth senses (as did I) that the tone on Montagne’s site is overbearing (and I would add his solutions are devastatingly logical and sweeping and yet just as devastatingly impractical unless of course we all elected him president and gave him absolute and utter dictatorial powers).

      I do not wish to impune the character of either man. (And I’m sure they are decent people in most every area of their lives) However, monetarily speaking, to not be aware of these problems with his solutions in Montagne’s case, and to offer no solution to our current system in Republicae’s case shows these two “solutions” to mirror the two most damaging psychological effects of narcissism: Megalo-mania and insensitivity to the pain of others. Again, this is ONLY monetarily speaking, and not to be taken personally in any way. It IS however a psychological supposition in regard to the potential dangers of Randian Objectivism.

      We need more outside of the box thinking about, and/or more penetrating thought on the actual reasons for what and why we do things economically….along with a concerted effort to be as humanly sensitive as possible to the effect our philosophies have on others. Give me a C.H.Douglas pragmatic and well detailed plan and a Richard Cook attention to personal and human sensitivity
      combination and we’ll all be better off.

      • Right on target Steve. I had many very disappointing cyber-exchanges with Montagne, and you are right on the money, IMO. He is overbearing, and his plans would include making him an economic Czar, or dictator. Well said.

        If you haven’t yet read Henry George or Frederick Soddy, I highly recommend those resources. Soddy’s “The Role of Money” can be found online, as can George’s “Progress and Poverty”. I prefer Soddy over CH Douglas’ Social Credit ideas, but I don’t mean that Douglas is not a worthy study. I found him a useful stepping stone along my path.

        • I’ll be sure to read up on Soddy. Thanks Jere.

  27. The two propositions: capital has a cost, and; return to capital (interest) – do not mean the same thing.

    If capital does not have a cost, it will be misused – but this cost does not have to be in the form of interest. There are other ways of imposing costs on capital such as demurrage, pigouvian taxes (such as land tax) etc.

    There is also a difference between a bank of deposit and exchange, and a bank of issue (IMHO these two functions should not be tolerated in the same institution.) There is some justification for ‘owners’ of currency to earn interest, but why should the issuer of currency be the owner of such currency?

    The issue is better understood if it is understood that property (real capital) is a bundle of private privileges (and responsibilities), and that the ‘owner’ should pay compensation where liabilities are public. A bank as an issuer of currency creates a private privilege out of thin air, charges interest for this privilege, and then dumps the attached liabilities upon the public.

  28. mtxrfj Response to Mike Montagne | WEB OF DEBT BLOG mtxrfj mtxrfj mtxrfj

  29. +

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