Re: The Credit Theory of Money

From: Bill Ryan (william_b_ryan_at_hotmail.com)
Date: 11/24/04 

Date: 24 Nov 2004 15:52:55 -0800

>Evasion. We're not talking about what the borrower
>gets in return for paying interest. We're talking
>about the interest the bank gets for creating money
>out of nothing.
>-------------------------
>As to the interest "the bank gets," the bank "gets"
>only the differential between the interest the bank
>pays and the interest it receives. That is its gross
>profit from which it pays ordinary business expenses
>and dividends.

I.e., predictable rent seeker expenses.
-----------------------
-------------------------
[RESPONSE] The meaning of this ideologically driven
statement is perhaps known only to you. 

---
>The power to create money is vested in the 
>financial sector as a whole rather than any one 
>particular corporate entity.
Wrong.  Only banks get to create money by creating 
checkable deposits not balanced by reserves.  
Insurance companies can't, stockbrokers can't, 
intermediaries can't.
-----------------------
-------------------------
[RESPONSE]  Any entity that can draw upon its line of 
credit in writing a check to you is "creating money" 
in the form of "checkable deposits" when it does so.
---
>>The money that they lend 
>>accumulate into deposits which are used to purchase 
>>stocks, bonds, mortgages, etc.
>
>And obtain interest.
>-------------------------
>----------------------------
>[REJOINDER] Which is another name for dividends from 
>the increasing wealth their savings as funding 
>sources helped create.
Wrong.  There is nothing to say that all loans result 
in increased production.  Most bank lending is for 
mortgages, consumer loans and rent seeking 
"investments" that _do_not_ result in any additional 
production.
-----------------------
-------------------------
[RESPONSE]  And here we have the absurdity that 
"mortgages, consumer loans and rent seeking" are 
"unproductive" ipso facto.
---
>>>The banks accomplish that by exchanging 
>>>their notes in the form of deposits transferable by 
>>>check or electronically for those of the 
>>>entrepreneurs, which they individually assess for 
>>>credit risk as agent in public service to the 
>>>community.
>>
>>If that was all there was to it, banks would just 
>>charge service fees. But of course they don't.  They 
>>also charge interest in direct proportion to 
>>_the_amount_of_money_they_create_.
>>---------------------------------
>>-------------------------------
>>[REPLY]  They also pay interest in direct proportion 
>>to the amount of money they create.  Or didn't you 
>>know that?
>
>They rate they pay is less than the rate they charge, 
>of course.  Duh.
>-------------------------
>----------------------------
>[REJOINDER] Duh?  Are you really so clueless?  Of 
>course they pay less than the rate they charge.  
>Banking is a business.
It is a rent seeking "business," not a productive 
one.  You evidently do not know the difference.
-----------------------
-------------------------
[RESPONSE]  But entrepreneurs "seek rent."  That's 
what they do.  You are saying that what entrepreneurs 
do is unproductive.  By implication you are saying 
what planned economy bureaucrats do *is* productive.  
The difference you can't see is the perspective from 
which productivity is judged.  In the entrepreneurial 
sense it is judged from the perspective of final 
consumers in free markets.  In the planned economy 
sense it is from the perspective of the bureaucrats 
who determine what is "best" for consumers.  It is 
the difference between freedom and servitude.
---
>But 
>banking is a natural monopoly where the profit is 
>unconstrained by ordinary market forces,
Only when banks get the privilege of creating money.
-----------------------
-------------------------
[RESPONSE]  Banking is not a "privilege" but derives 
from the right to privately contract for future 
performance.  The alternative is some permutation of 
the old Soviet system, where credit was allocated 
"interest free" by bureaucratic fiat to favored 
enterprises.
---
>which is why 
>we need regulation.
We need to eliminate the private privilege of money 
creation.
-----------------------
-------------------------
[RESPONSE]  Sieg Heil!
---
>>Their gross profit is the differential 
>>between what they receive and what they pay.
>
>Which kinda puts the lie to your claim that banks do 
>not transfer wealth to themselves by creating money, 
>doesn't it?
>-------------------------
>----------------------------
>[REJOINDER] The "lie"?  Again, are you really so 
>clueless?  They are earning a profit in remuneration 
>for services rendered.  What's wrong with that?
It's not a service.  It's rent seeking.  A service 
would be acting strictly as an intermediary between 
savers and borrowers.  Banks do that, but mainly they 
_create_ new money and charge interest on it.
-----------------------
-------------------------
[RESPONSE]  Quite obviously you object to the credit 
theory of money.  Banks intermediate between debtors 
and creditors.  It is a service they would not 
provide without remuneration.
---
>>>Sales of goods and services to consumers 
>>>commence the "reflux" back to the banks in the 
>>>lending-investing-amortization cycle.  The 
>>>informational feedback mechanism from consumers to 
>>>entrepreneurs and their financiers is profit-loss.
>>
>>That would be true for investment banks that created 
>>no money and effectively just acted as agents to 
>>their depositors, like mutual funds.
>>---------------------------------
>>-------------------------------
>>[REPLY]  It is true for all banks.
>
>Wrong.  There is a difference between lending money 
>as an agent for its owner and creating money ex 
>nihilo in order to obtain interest on it.
>-------------------------
>----------------------------
>[REJOINDER] Again, assertion without argument.
???  What "argument" is needed to support a self-
evident fact?
-----------------------
-------------------------
[RESPONSE]  It is "self-evident" to a self-educated 
ideologue too stubborn to learn or even to listen.  I 
say "self-educated" because you couldn't have picked 
up the peculiar jargon you are exhibiting from the 
formal economics curriculum at any school that I am 
aware of, or at any rate any school with 
accreditation.  I suppose there are unaccredited 
"Marxist" or "Georgist" "schools" that spout such 
nonsense.
Innes was presenting an alternative to the standard 
economic wisdon of his time.
http://www.geocities.com/new_economics/innes/
It was evident to uneducated people (like yourself?) 
in Galileo's time that a falling object falls at a 
constant rate.  It looks like they do to the naked 
eye.  It's not possible to see the increase in 
velocity.  Educated people of the time thought that 
the speed of a falling object was proportional to the 
distance it has fallen according to the prevailing 
"impetus" theory.  It took Galileo to demonstrate 
through rigorous experimentation that the speed of a 
falling object is proportional to the time it has 
fallen, not the distance it has fallen.  It took 
Newton, born the same year that Galileo died, to 
develop the mathematics that enabled the 
generalization of the concept.  "Self-evident" facts 
are thereby displaced progressively by superseding 
"self-evident" facts.  It is progression through the 
scientific method.
But the concept of the scientific method is 
completely alien to you.  You're just too stubborn.
As to "self-evident" truth, take a look at the 
diagram at
http://www.geocities.com/socredus/compendium/vertical-lines.gif
Tell me, which vertical line is longer, the one on 
the right, or the one on the left?
-

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