On Thursday, November 6, 2003, at 06:21 AM, Danny Van den Berghe wrote:
Don't worry, I remember your major points:
- an economy cannot function effectively without using fiat tokens.
[Note: A few quotes from your posts might help you to understand how I arrived at certain conclusions.]
"My position was and is that a paper money system alongside a free market has
all the advantages that paper money gives (extra liquidity in the system)
and all the advantages of gold too because is freely available and if the
paper currency system is abused people will flock to gold."
"When you have paper money alongside gold and silver and other stores of value, you have the best of both worlds."
"You also seem to forget that when 10% extra paper money is added in the
circulation, this money ends up in somebody's pockets and it could very well
be yours.
Even if the new money is wasted by stupid governments and goes to corrupt
government contractors in the first stage, these contractors will use the
new money again on equipment and materials they need, or blow it in the
casino, so somehow the new money spreads in the economy and becomes
somebody's new wealth."
"And the depositors are demonstrating in the streets asking for their gold:
8000oz of it...
In a paper economy you can do it because you print the cash if needed. But you cannot print more gold."
"If you have people who systematically spend less than they earn, then you
will need another group who systematically spend more than they earn.
The latter is not possible unless they can borrow unlimited.
So this economy will come to a halt when the 'spenders' cannot borrow any
more."
"And it is investment that has given us better health-care, better cars, a
better standard of living.
Saving gold in a vault has done nothing to that effect.
Thats why a growing money supply is better."
[Note: OK, maybe you're not saying the economy "cannot function effectively" in absolute terms -- you seem to be saying cannot function as effectively as it might.]
- using gold alone would hamper an economy because people would not invest enough.
"In a gold only economy, with a strictly limited supply of money(gold), it is
obvious that if more gold goes in vaults there is less gold to serve
transaction in the economy."
[Note: I have no idea why you attribute this characteristic to gold system only, when the same could be said for fiat tokens.]
"If you keep money supply fixed, the savings rise in value because
advancing technology works deflationary.
That actually encourages people to do nothing with their savings.
Just let others take the risks, let them develop the technology, and you
will reap the benefits because your gold will buy more and better stuff in
the future at lower prices.
These people who keep the gold in their vault get something for nothing
here, they don't do anything, and they are rewarded with increasing
purchasing power of the gold they kept in store."
"Or shorter:
A limited money supply system discourages investment and encourages saving.
A growing money supply system discourages saving and encourages investment."
[Note: Gee, sounds exactly like one of the "major points" I listed.]
- it is important to pump up the money supply to force people to invest.
"You inflate the currency just enough to offset the deflationary effect of
advancing technology.
That encourages people to do something with their money, invest it in
something useful.
If they do just average with the investment, they will catch their fair
share of the increased money supply.
If they make bad investments, they will not make a profit and not take their
share of the new money.
If they keep their money in a matress, they will also not catch a piece of
the new money.
The money they kept in the matress has stayed the same, but because there is
more money in circulation now, they are relatively poorer.
But why on earth would they deserve a part of the new wealth, as they have
not taken any part in creating it?"
[Note: Oh, excuse me, not "force" -- just "encourage," right? As in I "encourage" you to invest in order to avoid losing your purchasing power.]
"Or shorter:
A limited money supply system discourages investment and encourages saving.
A growing money supply system discourages saving and encourages investment."
I think these are false.
False indeed. These are not my points , but what you have made of them.. No blame on you.
Oh boy, here we go with the patronizing condescending paternalistic pat on the head. The good old reliable "You just don't get it" approach.
When one is not understood there are four possibilities: 1) One has it wrong 2) One fails to express it clear enough 3) The other simply doesn't get it 4) The other doesn't want to get it.
You took the time to condescend but not the time to illuminate.
Case 1 or 2, I have done what I could. Case 3 or 4, that is none of my business.
It seems that you have expressed your views fairly clearly in the quotes I listed above.
Re: the purpose of saving
This Von Miser seems to agree with me. Only a different use of words. What he calls 'saving', I call 'investing'. These capital goods are not created when people put money in a vault. Capital goods are created when this money is SPENT on capital goods.
Fair enough, I can understand a difference in terminology, after all, you have said this:
"And investing is not the same as saving. If you invest, you are also spending the money and it remains in circulation.
If you save, you just put the gold in a vault, where it does nothing. As a result there is less money to support economic transaction, causing recession."
However, as I noted above you have suggested that savings in the form of gold are less likely to be invested than savings in the form of fiat tokens. In another post you seem to argue that fiat tokens are even NECESSARY to sustain interest-bearing investments.
It is unfortunate he (and other economists) use the word 'saving' in this
context.
Not really unfortunate. Saving is a necessary precondition for accumulating capital, and capital is a necessary precondition for investing.
But the capital goods (which are the foundation of civilization, as he
says), are only created when money is 'spent' on them.
Nobody thinks he is 'saving' when he goes to the shop to buy a computer, or
a truck, or whatever tools,...
Computers, trucks, and tools are indeed counted as capital equipment on the company books. The company is not "saving" when it purchases these assets, the company is USING savings in order too purchase these assets.
As Mises points out, capital assets are valued on the company books in terms of monetary units. But that does not imply that there needs to be "enough" money simultaneously to purchase the entire book value of every company on earth. For those occasions where an entire company is purchased, a combination of money (e.g. gold) and barter (e.g. stock swap) can suffice.
So, this Von Mises is using the word 'saving' , while he is actually singing
the blues about 'capital spending', and the benefits it has.
The sad result of this wording is that people believe it is good when they
'save' money.
It is good when people spend their 'extra money' on new capital goods. Because that lays the foundation for increased future prosperity. It is not so good when people save their 'extra money' in a vault.
You are correct that it is good to invest in capital goods.
But it can also be very good for people to save some extra money in a vault. It gives them the ability to buy something in the future that they do not need today. That is a good thing. It is no business of politicians to try to coax this money out into investments, even as allegedly risk-free as bank deposits, CDs, or money markets.
In fact, I encourage everyone to avoid supporting the fractional reserve banking system whenever possible.
Definitely keep some extra gold, silver, or fiat tokens laying around for future purchases. Definitely invest assets in enterprises other than the big banking shell game.
You know, in spite of my opposition to Robert B.Z.'s suggestion that interest should be outlawed, I do appreciate some of what Robert is saying. There is a huge amount of evil associated with the credit and debt based economy. I like some of his ideas about using installment payments instead, for example in the purchase of homes or dairy cows. Again, I would never advocate outlawing lending with interest, but I favor the general trend toward weaning away from reliance on debt.
-- Patrick
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