Re: The Credit Theory of Money

royls_at_telus.net
Date: 11/25/04 

Date: Thu, 25 Nov 2004 22:13:59 GMT

On 24 Nov 2004 15:52:55 -0800, william_b_ryan@hotmail.com (Bill Ryan)
wrote:

>>>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.

No, just that contrary to your claims, they are not ipso facto
productive, and in fact are often not productive.

>>>>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.

No. Some seek to produce.

>You are saying that what entrepreneurs
>do is unproductive.

False. You evidently do not know the difference between profiting by
increasing production and profiting by placing yourself in the path of
production.

>By implication you are saying
>what planned economy bureaucrats do *is* productive.

False.
 
>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.

Right. And final consumers gain nothing from the profits of rent
seekers.

>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.

?? Why bring in planned economies? What has that to do with anything
I have written?

>>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.

That would be investment banking, where the bank acts purely as an
intermediary. The problem is, bankers have proved throughout history
that they are too greedy to be trusted to privately contract for
future performance when they have the privilege of creating money ex
nihilo. That's why government has to regulate the currency through
central banking and provide deposit insurance for private banks.
Unfortunately, that just shifts the risk to taxpayers. The deposit
insurance system could be an effective curb on banker greed and
privilege _if_ it was more like real insurance, and the premium rate
depended on risk -- i.e., the quality and maturities of each bank's
assets and liabilities.

>The alternative is some permutation of
>the old Soviet system, where credit was allocated
>"interest free" by bureaucratic fiat to favored
>enterprises.

?? False.

>>>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.

I have explained why it is not accurate in all cases: commodity money
is not credit; it is actual wealth that can be used to keep track of
credit without having to do any bookkeeping.

>Banks intermediate between debtors
>and creditors. It is a service they would not
>provide without remuneration.

But they effectively shift the risk associated with their excessive
creation of money onto taxpayers, while pocketing the profits
themselves.

>>>>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.

So in your view, there is no difference whatever between creating
money in order to charge interest on it and acting on commission as
agent for the owner of pre-exising money??? In the context of the
history of banking and currency, such a view is plainly idiotic.

>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?

They look close. I couldn't say without measuring them.

-- Roy L

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