Re: The Credit Theory of Money

royls_at_telus.net
Date: 11/27/04 

Date: Sat, 27 Nov 2004 00:22:59 GMT

On 26 Nov 2004 09:01:33 -0800, william_b_ryan@hotmail.com (Bill Ryan)
wrote:

>>[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.
>-----------------------
>---------------------
>[11-26] I didn't say they are "productive" ipso
>facto.

Yes, well, you didn't give any other reason to think they were
productive, so....

>I disputed the assertion they are
>"unproductive" ipso facto.

I didn't say they were unproductive ipso facto, liar.

>Perhaps you should look
>up the meaning of "ipso facto."

Perhaps you should look up the meaning of "productive"?

>>>[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.
>-----------------------
>---------------------
>[11-26] Evidently, in your peculiar jargon, "seeking
>rent" is ipso facto "unproductive" and a form of
>theft.

It is not necessarily "theft" per se, but it is ipso facto
unproductive.

>Again, you need to look up the meaning of
>"ipso facto" to know what I just said.

IMO it is more likely we are not using "productive" in the same sense.

>In the English language, I am informing you, the
>terms "rent," "profit," "dividends," "interest"
>relate to different aspects of the same phenomenon.

No, they do not, and you are not "informing" me of anything of the
sort. Your claim is just false. At best, you are attempting to
_mis_inform other readers. Classical economists agreed more than 200
years ago that rent and interest are mutually exclusive: rent is the
return to ownership of land, interest the return to ownership of
capital. These two kinds of return are completely different, because
the owner of capital has directly or indirectly _caused_ the capital
he owns to be produced and productively employed, while the owner of
land has in no sense _caused_ the land to be produced or productively
employed.

>Economists use the terms pretty much interchangeably
>depending on the context.

No, they do not, if they are careful to be clear.

>It would be helpful if you
>would learn the conventions of the English language
>rather than relying on "definitions" from money
>cranks and extremists. In the free economy, "rent
>seeking" simply means entrepreneurial initiative.

Flat false. For one who boasts so loudly of his learning, you are
remarkably uninformed. Please Google "rent seeking" and begin to
inform yourself. You can start here:

http://www.econlinks.com/glossary/rent_seeking.php

>They attain "rent" through innovation that increases
>the quantity, variety and quality of the goods and
>services they supply from the perspective of final
>consumers in competitive markets.

Wrong.

>It is their share
>of the increasing wealth they help create through
>the financial services they supply.

The owner of land obtains a return without contributing anything
whatever to the increase of aggregate wealth: the land would have been
there, just the same, even had he never existed. That type of return
is what economists refer to as "economic rent," and the activity of
those who pursue it is called "rent seeking."

>That is at any
>rate the theory as opposed to the "statist" theory
>you seem to espouse.

You seem to have a comprehensively mistaken understanding of the
theory I espouse. Or is it just that in your world, reserving the
creation of money to government is enough to brand any theory
"statist"?

>>>>>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-existing money??? In the context of the history
>of banking and currency, such a view is plainly
>idiotic.
>-----------------------
>---------------------
>[11-26] You should look at the Innes papers for a
>different perspective on the historical narrative,
>which Hummel very tersely summarized in the
>initiation to this thread. The papers are archived
>at http://www.geocities.com/new_economics/innes/
>and elsewhere on the Internet.

I have seen them. Innes is constantly making false, confused, and
contradictory claims about value and money, such as pointing out that
the values of coins in medieval Europe were constantly fluctuating,
while simultaneously averring that there was never any standard of
value against which they could fluctuate.

He states:

"there is overwhelming evidence that
there never was a monetary unit which depended on
the value of coin or on a weight of metal; that there
never was, until quite modern days, any fixed
relationship between the monetary unit and any metal;
that, in fact, there never was such a thing as a
metallic standard of value."

That claim is flat false. As just one example, the gold aureus issued
by the Eastern Roman (later Byzantine) empire was of remarkably
consistent weight and fineness, and accordingly held its value for
seven centuries. So reliable was the value of this coin that it
became the most widely accepted and circulated monetary issue before
modern times, and examples have been found in coin hoards all over
Europe, Asia, Africa, and even at a pre-Columbian site in South
America (!).

Innes also states:

"As a general statement it
is true to say that all commerce was for many
centuries carried on entirely with tallies. By their
means all purchases of goods, all loans of money were
made, and all debts cleared."

This claim is also plainly false, because it is self-contradictory.
Of what possible use would a "loan of money" be for commerce conducted
"entirely with tallies"? Innes is evidently either a fool, or
convinced that his readers are.

>My argument is
>consistent with Innes's thesis, which is certainly
>not "plainly idiotic."

See above.

>It may be disputed, but it is
>not idiotic. Innes makes a persuasive case that
>takes more than simplistic assertion like yours to
>rebut.

Like his as-inine ad nauseam discussion of the weight of the ancient
Roman pound?

>As to the answer to your question, there is division
>of labor in the financial sector. That division
>could in concept be under one roof called a "bank,"
>or under two roofs called "bank" and "savings and
>loan," etc. The "banks" could in principle be
>prohibited from keeping anything but "checking"
>accounts for depositors, and the "savings and loans"
>could be prohibited from keeping anything but
>"savings" accounts for their depositors. Such an
>arbitrary demarcation would not change the
>fundamental creditary nature of market economies.
>All bankers no matter what they are called
>intermediate between creditors and debtors by
>becoming creditors and debtors to their customers.

But not all bankers create demand deposits ex nihilo.

>Transactions between producers supplying the retail
>market overwhelmingly involve offsetting balances
>involving debits and credits in the books of the
>banks following the rules of double-entry (accrual)
>accounting.

You should perhaps be aware that accounting is not economics, and
identical terms can mean quite different things in the two fields.

>Profit (rent, interest) in double-entry accounting is
>not the measure of the net gain of some arbitrarily
>specified commodity (like gold coins) or quasi-
>commodity (like Treasury notes), but the operational
>increase in the differential between assets of all
>types and liabilities.

As above.

-- Roy L

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