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John McVey

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  1. My understanding was - as described in the movie anyway - that JJM
  2. I don't doubt that US libertarians are plagiarists (or at least those whose pedigree of learning and acceptance can be traced back to Rothbard et al), but I would not be so quick to say the same about UK or European libertarians. For instance, I recall reading several years ago an English book published in the late 19th century by some obscure classical-liberal (whose name escapes me) that expressly said that it was wrong to initiate force, ie some several decades before Miss Rand began writing anything. And, before that, one could also find the principle in Locke's Second Treatise on Civil Government. Similarly, US libertarians are a different breed entirely from those in the UK and the EU. I could easily see myself respecting many UK "libertarians" - most of whom are really just better described as updated classical liberals in need of philosophical training - but I will never respect either the Rothbard/Rockwell crowd or those who latch on to a poltical creed because it promises to let them get on with being a dope-fiend or paedophile. JJM
  3. The key problem you’ve very clearly displayed in this post and others – a problem in which you’re far from alone in having, I must add – is the failure to heed the advice I have been saying repeatedly in almost every post I have ever made on this subject. Always remember that the physical world, and our beliefs about, our responses to and preferences for the physical world, are paramount in human affairs. You – and not only all others who have no objection to fractional reserve banking but also all those whose objection is based on claims of fraud – will never understand why the practice is worse than worthless until you fully reduce all concepts back to the physical world and see how all the physical elements subsumed by those concepts interact with each other. Until and unless you’re willing to do that then any discussion on the matter is a waste of time. Without such understanding a discussion would be rationalism, and I believe that is where this would be going, just as Dr Peikoff once described the inevitable terminus of rationalism: into ever more detailed discussion of and deduction from minutiae without reference to principles grounded in observation of and induction from physical reality. Here is the case in point with your latest scenarios: I know you don’t realise it, but the whole essence of your problem is right there – not in what you’ve stated (which is mathematically – ie rationalistically – ‘sound’), but in what you have not. What’s glaringly absent is any consideration for who is spending how much on what and why. That flaw is fatal. The ‘how much’ part is your failure to distinguish between the ‘who’s relative spending preferences to buy consumer goods so as to the fruits of their labours now versus buying investments now so as to consume more in the future. The ‘on what’ part is your failure to distinguish between the supply of consumer goods on the one hand and the supply of inputs to production (land, labour and capital) on the other so as to physically enable the two elements in the ‘how much’ part for the benefit of the ‘who.’ The ‘why’ part is your failure to realise that: - a given level of total physical production requires the input of given quantity and structure of physical capital along with a certain amount and structure of labour; - the physical capital goods involved must constantly be replaced; - the larger part of total spending in an economy must be directed towards purchasing and installing those replacements just to maintain the same level of production; - people adjust their spending in the ‘how much’ part above by using the physical-world consequences of the above physical actions as evidenced to people in the form of their comparisons of the prices of consumer goods and the potential returns for labour on the one hand against the cost in time and effort for working and the cost of not consuming the fruits of that work now on the other. Here’s the physical reality. If people want to consume more now, they can only do so at the price of spending less on capital replacements and so must be content with consuming less later. On the other hand, if they want to consume more later then they must first direct spending to the purchase of more capital items than merely necessary as replacements, and so must be content with consuming less now. That is the bottom line. The physical reality of that consumption timing decision is put into effect via people acting in the finance world by using money and financial instruments as proxies. The signalling effect provided by the price of capital – not just rates of interest but all rates of return across the entire investment spectrum from bills to ordinary stocks – are the means by which people determine with reasonable precision what part of their claim to resources goes to present consumption and what part of their claim to resources goes to investment for future consumption. Remember that people’s core preferences for these are physical world phenomena, originating OUTSIDE the realm of finance. All this is made possible by the fact that a prime purpose for the use of money is that it is a unit of account, a single common value used as a basis on which to calculate all other values. People spend money to buy investments because they want to consume more in the future, where that spending is a financial-world proxy for the want of allocation of physical resources towards the production of what people will want in the future, where the financial world as intermediaries then goes on to pass the money on to businesses who actually buy and use the requisite physical resources. The validity of all the calculations involved depend on there being a definite and identifiable link between the real world of the physical resources used in business and the financial world that proxies that physical world in business. The value of a unit of money in terms of what it can buy relative to the value of the physical effort required and time constraints borne to earn a unit’s worth of that money is the link between them. The increase in the quantity of proxies – be that in the form of fiat-money expansion or credit expansion – cannot increase the real quantity of available resources for which they are proxies. All that happens is the link gets screwed with and the proxies are no longer valid tools of calculation until people properly identify the new nature of the link. The essence of the Austrian theory of the business cycle is that increasing the fractionality of the money supply acts only to distort that link. The reason why it distorts that link is because it is allowing both types of spenders to spend more money to purchase the same resources. This cannot do anything except cause the general prices of resources and products to rise and cause the structure of those prices to deviate from what people’s physical preferences would have them be. The result is the standard business cycle: - the boom phase is when the first recipients of extra spending mistakenly think they are the beneficiaries of real changes of preferences in their favour and begin allocating too much resources and of the wrong type to their lines of production - the peak is when the truth starts hitting people in the face through the structure of prices in the marketplace beginning to be forced back into line with what everyone’s aggregate real preferences actually are, and so the recipients of extra spending are no longer paying the low prices they once did for their various inputs - the decline phase is when people cease investing because they can no longer accurately calculate values for shorter and shorter time frames, which phase will be exacerbated by the link itself being redistorted in the opposite direction because of reductions in the money supply as the reserve ratios are raised again or banks fail - the depth of the bust is when the physical results of the mistaken beliefs are being undone through liquidation sales and scrapping unviable capital goods for saleable and/or recylable content - and the recovery phase – if there is one rather than merely a new boom phase – is when people begin to sort out what the new link between the real world and the financial world actually is. The structure will initially change depending on who exactly gets the money first, but even so in aggregate all businesses will be tempted into borrowing more because the cost of borrowing will go down. However, because all money soon makes its way into the hands of consumers who are also initially made to think that happy times are here, and because consumer borrowing goes up for the same reason that producer borrowing does, consumer spending goes up and so the retail frontages get the lion’s share of the benefits at the expense of the manufacturing businesses. That effect gets worse the further away from retail supply a business is, because the retail shops are in a better position to compete for the scarce business resources (primarily labour), which pulls the prices of labour up. The continued consumer spending boom allows the retailers to offer ever higher wages, which the manufacturers find it harder to match. Thus one of the markers of a peak (more or less, there are complications) is a continuing retail boom while manufacturing is reporting bottlenecks and shortages that it cannot afford to cover. Firstly, your changing of numbers served no purpose whatever, and acted only to invalidate what you set up as a baseline as comparative. A proper continuation would have meant that the money supply, average holdings, and velocity all remained constant from #1. You then should have said people spent their “static portions” on buying the bonds instead. Had you done that, figured out what would motivate such an action under those conditions, and then followed what would happen to the economy both physically and financially starting from #1, you’d find that this action had set in motion a chain of events whose importance is greater in the physical world than the financial. Secondly, you’ve made it very clear that you don’t know what velocity of money actually means and why a given number eventuates. That is, you have no clue why the average holding is what it is. The real reasons are things that exist in the physical world. One part you have heard of – the demand for money – but the other influence is dollar-weighted average time-period between various pay-cycles of all entities in the economy. For example, some people get paid weekly, others fortnightly, businesses remit invoices monthly, bondholders get paid half-yearly, taxes get paid on their own various schedules, and so on, and then also all manner of random possibilities for those without regular pay cycles. Once again, that is independent of what happens in finance, and it does not change either with any great speed or to any significant degree. Since this is the case, your decision to increase the velocity was totally arbitrary, done solely to make the numbers convenient for yourself rather than to represent reality, and so was completely without justification. Thirdly, your reference to people seeking to hold their “static portion” in bonds reveals your ignorance about what the demand for money is. The reason why people have a demand for money is that they are preparing for unexpected expenditure requirements, any of which could occur immediately. Suggesting that people would be buying bonds with their minimum preferred holdings of cash is ludicrous, because one cannot get one’s money back on even the world’s most liquid bond all that quickly (this includes bills, for that matter). Buying any investment at all defeats the purpose of having that ‘static portion’! If people actually wanted to invest for the future then they’d consciously do exactly that without ever thinking in terms of a “static portion” of cash, knowing full well that what they bought would not do for any spending needs that had to be met in a hurry. All you’ve got is a system of numbers you plucked out of nowhere and on no basis but convenience and rationalist-deductive connection, with nothing but a token reference to physical goods that isn’t actually taken anywhere important. By focusing solely on the financial numbers and calculations you’re completely missing what those numbers actually mean and why the numbers you picked are ridiculous. The result is that all you have to show for your efforts is a mathematical castle in the air. Sorry Cap, but this casual glossing over of the physical world and what it means for calculation in the financial world is totally unacceptable. A feat you’ve arbitrarily achieved because you picked velocity numbers to suit. In the real world, if the velocity without fractional banking is X then the only reason it will change is because of a change in the demand for money or in the average length of pay cycles. But as noted the latter doesn’t change very much, and your scenario #3 is keeping the former constant as per #2. Thus your halving of velocity does not stack up in the real world, because to have that eventuate everyone and every business would have to double every single pay cycle length! That’s just not going to happen. So, instead, if X were 8 as per #2, then the shift from non-fractional to fractional banking as per #3 would mean that X stay at 8 and result in MV shooting up by 100%, taking all prices with it. As that colossal inflation actually progressed over time it would cause massive upsets in every single market in that economy in a manner that goes beyond just what these aggregates describe. To make matters more interesting, if the inflation proceeded fast enough then people will start taking an active desire to get rid of money by buying stuff ASAP. This - which is a collapse in the demand for money, called the flight to values - then sees the velocity of money go up, not down. When people stop accepting the money in payment at all, the demand for it has finally hit zero, velocity is "infinite" and prices cease to have any meaning at all. All trade is then conducted either in another form of money or by barter - assuming anyone's still alive. One, don’t talk down to me, dammit. Two, the modern financial world has no need whatever of recourse to fractional reserve banking to provide us with the full panoply of financial and monetary services. The services you mention – brokerage, lending, financial planning services, funds transfers, ATM systems, credit card systems, and so on – can occur perfectly efficiently without resorting to, and whose practices have nothing inherently to do with, fractional reserves and credit expansion. Three, stand back and realise what you are actually saying about the financial system. The provision of equity and credit is a market just like any other, and whose sole purpose is to facilitate the provision of physical resources under certain legal conditions. The proper market prices for those resources under those conditions are set by the physical-world considerations that underlie all minimum required rates of return (of which interest rates are one subset). By saying that fractional banking adds something what you’re really saying is that the free markets are fundamentally incapable of bringing together those with more physical resources than they know what to do with and those who have more ideas for physical resources than they actually have, and fundamentally incapable of readjusting prices to match people’s relative preferences for consumption now versus consumption later – that is, you are saying that markets cannot clear - without resorting to credit expansion. That is one helluva charge, especially from one who accounts himself a capitalist! It is also one that does not stack up in a real world when there are no minimum wage laws, licencing laws, union powers, price controls, and so on. Again, the only reason why fractional reserve banking and credit expansion appears to be beneficial is because the consequent inflation is used as means to skirting around the barriers that those programs put up to market clearing. Sorry Cap, but I’m not going to answer any more of your questions or deal with your scenarios until it looks as though you’ve made a decent effort at trying to understand the physical-world roots of capital, interest, and every other financial-world concept you are depending upon. Feel free to ask about how to go about reducing and integrating those concepts, of course. Gold-foil-wrapped chocolates will have to do Thank you, season's greetings to you too, enjoy your trip, be safe on the slopes, and see you when you get back! JJM ps: yes, I have been skiing before, and yes, in Australia.
  4. We could go into a major discussion on what Jack’s actual intentions are and hence whether this is a rational action, but we’ll just run with it instead. We will further assume that if Jack deposits money to a fractional account he does so knowingly. If he doesn’t, then to that extent Paul (and others) is correct to condemn the bank’s action as fraud. The consequences of Jack’s actions don’t end with just a pile of coins sitting around. Circulation has reduced, as you note, but how you put it leaves much out. What happens is that spending is decreased. All those who would normally trade with Jack feel the pinch first, and the influence spreads out broader (and thinner) from there, until the markets stabilise again at a point were all prices have fallen. This is the standard effect of an increase in the demand for money, which is what Jack has done. Moreover, what Jack has done is not equivalent to a reduction in the money supply. The total money supply remains the same, because the pile of coins is still able to be spent at a moment’s notice. Instead, what has happened is that Jack’s increased demand for money has lowered the velocity of circulation. I could explain that further, but it’s a side issue compared to the present discussion. I will note, however, that this is not a fair baseline for comparison of what happens in non-fractional banking with what happens in fractional banking. In a fair comparison the demand for money is unchanged, so there is no change in transactional velocity to account for. That is, people are choosing between an already-existing holding of money kept aside or being put into a non-fractional account on the one hand (banks as storehouses) versus into a fractional account on the other (banks as debtors). One then looks at the effects the latter has in comparison to the former. A proper #1 scenario would be where Jack already holds $500 aside, not that he decides to add a new lot of $500 to his holdings of money. We'd then show that keeping it in a non-fractional account achieves the same thing as keeping in a deposit box or under the mattress. Correct, as far as it goes. What you’re missing is the actual nature of investment. It is not money that is invested, it is the resources that could be bought with them that are invested. Money is nothing more than a medium of exchange. What Jack had was an asset (the money) that people will trade away physical goods and services in return for. It is Jack’s ability to obtain those goods and services and use them as means to further production (whether on his own part or getting another to do the physical parts of it) that is the actual investment. When he buys a new bond what he’s trading is the ability to obtain goods now for the ability to gain a larger quantity of goods later, where the extra goods arise because the borrower will act to produce them. Getting back to the money part, in both #1 and #2 Jack retains an asset of equal value in the present. For Jack, the difference with #1 is that he now has the chance of getting a return in the future but at a higher level of risk. For the economy, the difference with #1 is that, because circulation is maintained in #2, total spending is maintained. What happens then is that the various prices of different actual resources will increase and decrease, arising from Jack’s change in spending habits. That change in composition of spending is what’s supposed to happen, because those signals will then make producers change the composition of purchases and production various goods accordingly. First up, if the banking system has a 50% reserve policy then the result will be that the system will have all $500 sitting in vaults. In addition, the system will have $500 worth of loans (total book assets $1000), then have deposit to the total of $1000 (total book liabilities $1000). The extra deposit liabilities will arise because of the decreasing loans made out of the original $500 deposit and repeatedly coming back as deposits when the borrowers spend it. Lend out $250 and all of it comes back as more deposits, then lend out $125 and that too comes back, until $250 + $125 + $62.50 + $31.25 … = $500. All those deposit liabilities are now part of the money supply because Jack et al can do transactions with them, so Jack’s $500 in gold has been turned into $1000 in fiduciary media by the banking system. What Jack’s non-spending achieves economically is the same as in #1: a reduction in the velocity of circulation. As it happens, you’ve picked a reserve ratio that works out to the banking system’s actions being functionally equivalent (as far as the economy is concerned) to Jack making the loans himself – so long as Jack doesn’t change his mind. If a different ratio were at work there’d be different circumstances, but we’ll go with your 50% to start with. Now, as Jack calmly views his constant bank balance, in the mean time what is the difference between #2 and #3 to the economy? The total spending is the same as before because Jill et al spend the proceeds as they would still do, the same amount of loans are made as before, and the same quantity of resources invested as before. Net benefit: none. But what else has happened? The fact that Jack can still withdraw every dollar when he so chooses has created additional risk to the economy. You’re assuming he doesn’t change his mind about spending, but if he does then two alternative things can happen. The first is that he spends money by say an EFTPOS transaction against his account. The result of that is extra spending total in the economy for that time period. Since the total amount of physical resources is unchanged, this extra spending cannot do anything except raise prices and mess around with people’s plans. Most people will identify this, or the effects of this, because they will know it will happen beforehand or will see an increase in variations of prices (including rates of return). This means an increase in risk and an increase in risk premium when people identify it. Benefit to the economy: none. Detriment to the economy: present to a degree that varies proportional to how strongly people react to the potential for Jack to change his mind. If the ratio were higher, say 75%, then there is less nominal lending and less nominal spending. In this case, all we have is a blend of #1 and #3. The total effect would be partly the neutral one from #1 and partly the detrimental one from #3. If the ratio were lower, say 25%, then there is more nominal lending and more nominal spending. In this case we have a blend of two detrimental effects, that of partly the risk generated as per #3 and further an immediately felt rise in general prices because there’s more money being spent on the same goods and services as always. No matter how you rearrange things, it remains that fractional banking adds NOTHING but more risk and, except in rare circumstances you’ve accidentally hit upon (the combination of the right ratio and the right demand for money), more inflation. Completely wrong. In #2, total spending and the total money supply remain constant where all that changes is the composition of spending. In #3, the money supply has increased by $500, and spending will increase by whatever amount Jack chooses to spend via some non-specie transaction. More precisely, transactional velocity goes up. That then has effects on prices until the effects are absorbed and spread out, in reverse to #1 above. Leaving aside a bunch of other assumptions that take us far afield (Jack’s sale competing with other’s new issues), that’s pretty much as correct as #2 above. What would be more instructive is to look at what happens when the bond matures and Jack decides not to renew it, but we’ll leave it at that for the time being. If we are supposing Jack withdrawing the lot, then the bank is required to take out all $500 in its vault, not $250, when Jack makes his demand (hence the term demand deposit). The bank then has no reserves left over for the other $500 in deposit liabilities! If it has a 50% ratio policy then it must either inject $250 in equity or long-term debt issue, liquidate some of its loan assets until it receives the needed $250, or not make any loans at all from new deposits in until reserves rise to meet the required ratio. That requires others to deposit in aggregate to deposit $500, replacing Jack’s withdrawal. In the meantime, loans mature and expire. If a bank is cutting back its lending activity because of the need to rebuild reserves then businesses (whether individually or in aggregate) are no longer getting the new loans they need to maintain their present level of business activity. This then means they can only produce less, or not at all, because they can less afford to buy the input resources they need. None of this would happen were Jack's account not fractional, because the banking system would never have made those extra loans in the first place (it would have made loans funded by equity or formal debt instruments, NOT out of deposits). It is this granting of improper loans that later cannot be renewed that is a major element in the boom-bust cycle, and reflects the fact that people don't actually seek to invest for the proper time frame as borrowers are lead to believe. Further, if the bank has reducing deposit liabilities the total money supply is also falling. Yes, $500 in fiduciary media will cease to exist. And that then gives a similar effect as the original #1 right at the very top, with the added kicker that it is happening at the same time as businesses' lines of credit being yanked as described in the previous paragraph. As I said before, the non-occurrence of the assumption of fair financial weather makes functional equivalencies break down, usually causing economic distress to some degree in the process. Sorry to leave it at that, but it's been a long day and I need to get to bed. I wont be able to reply for a few days at least, too, probably not until after Christmas. JJM
  5. Mhm, that's getting more common, but it is expensive. As it is, down here one will net pay several times as much for electricity (as a capital outlay plus odds n sods in maintenance) than one will save on electricity tariffs, and that's at the ridiculously high household tariff prices of 21 (Aus) cents per kWh. Industrial users pay 8 cents, and were we allowed to have inexpensive nuclear it would be about half that again (IIRC - real nuclear was about 1.5 US cents per kWh about 10 years ago, but it will be different now of course). Were I so inclined, I can get my local electricity supplier to install a 1kW peak system at a post-subsidy price of $A3,975 - the cost before Federal govt subsidy is $A11,975, and the SA State government further subsidises surplus power into the grid at 44 Aus cents per kWh. Nope, I'm not so inclined. JJM
  6. I don't know Spanish so I can't read the official text. The news articles I find say that there is no right to orgasm but a recognition of a woman's rights to pursue her own sexual happiness. It's a bizarre way of putting it, but women's equality and their ownership of their own lives is of course legitimate, and I am not even sold on the idea that such a thing shouldn't be in a Constitution. The 'right to orgasm' schtick sounds like a beat-up and a mockery of strange expressions that I figure are attempts to dance around what they really mean without openly saying it. In short, it's a trial-balloon for the advancement of abortion and divorce rights in a Catholic country. Not everything that socialist filth propose is to be rejected out of hand merely because it is they who propose it. I looked up the reference from Miss Rand I had in mind. It's in "Egalitarianism and inflation," published in June 1974 (so it's 34 years old, not 40+, but who's counting?) JJM
  7. I also forgot Miss Rand's "An untitled letter". Specifically it deals with John Rawls' Theory of Justice and related newspaper articles, but in doing so it touches on a lot of the crap used in the ZNet article. You'll find it in PWNI, or the original three parts in issues 9-11 in volume 2 (1972-3) of The Ayn Rand Letter. JJM
  8. I've not seen that one, I must look out for it as I expect to see it more often given what I ran across. BTW, another they will begin to raise is the harsh chemicals used in panel manufacture and the prodigious quantities of fresh water needed to run a semiconductor fab. While comparing algal farms to solar panels, I ran across an article mentioning a study done by some Italian academics into the economics of solar panels. Their methodology sounds a bit dubious, but our electrician at work said that solar panels have improved a fair bit it just the last few years. These guys are saying we have passed the point where the energy collected by solar panels exceed the total energy in their manufacture. That is a major threshhold, as it means systems for remote communities are no longer net drains. Ah hell no, if it works then there's no more vehicle for inducing guilt and so the viros can't put their penance services up for sale. Think of what this would do to the unemployment figures! JJM
  9. I can come up with a better doomsday scenario than that! GM algae escape saline ponds, enter ocean... "Superbugs breed prolifically! Atmosphere drained of CO2! Terrestrial plants suffocate! Crops wither! Mass famine! Deserts expand! Hills stripped of vegetation, mudslides ensue worldwide! Mass death! Doom and destruction everywhere!" Of course, it took me just a few seconds after that to think up the proper answer, but there you have my first prediction JJM
  10. There's the foundations in VoS (particularly the first chapter, The Objectivist Ethics), added to by OPAR, and then there's what I have written. That doesn't deal specifically with the bogus theory of social production, though. Getting to that from the theory of value takes reasoning and work from a pile of observations. I don't know of anyone who has dealt with that, though I know the answer in general and will write it down in detail at some point. That sounds like the Laffer Curve, or at least an inspiration for it. There's a point of taxation at which the government's take is maximised, where having a higher tax rate still leads to less tax revenue. There is also the theory of economic rents on investment returns as described by Frank Knight (in The Ethics of Competition, IIRC), who said there's an amount of return that 'serves no social purpose' and which society is justified in taking or otherwise curtailing. That lead to the marginal social benefit vs marginal social cost theory, used particularly in Antitrust cases where higher rates of profit than the bare minimum that prevents people from throwing in the towel are prima facie evidence of "restraint of trade" of some kind. That's all there is to it. It's wrong because it is theft, plain and simple. Any theory that tries to say there's a point at which it is the most beneficial for society is nothing more than an attempt at specification and quantification of what thieving people are able to get away with for a given state of culture that is yet to be accepting of rational selfishness as a matter of principle. "I earned it, it's MINE, dammit!" is all the justification you need. JJM
  11. Not so much that the living owe the dead, but that some of the living owe the rest of the living because the former are better able to make use of the knowledge left to us by our forebears and the latter aren't. The reference to the legacy of the dead is a cover for that, to declare certain high incomes as 'unearned,' and thus use it as a blunt instrument to be used against the living who might object to being made to cough up. The whole thing is just another variant (as you say) of using the bogus theory of social-production as rationalisation for pandering to envy. If you doubt Sophia's call on these guys' moral characters, check out this. They've even got a naked reference to how the highly productive love their work so much that they'd still produce even after being shackled! There's worse following that. You're right that it is about the theory of value and morality. The purpose of this trash is to use a crap value theory to disarm people who lack the proper moral knowledge required to defend themselves. There's nothing new here, at least as far as I can be bothered to pick through in detail. Maybe others could find stuff, but I don't feel like slumming it to see. JJM
  12. Because of the existence of Skype, and whatever competing equivalents may arise, none - not only in principle but in concrete fact, too. JJM
  13. Thank you, Tom, you've saved me $20, as I had planned to go see it after seeing the trailer (and I have seen the original). Now I'll wait till it reaches "new to weekly" and cost $1/wk at the video store, if I bother at all. JJM
  14. It's not the keeping that's the problem, it's the building up and drawing down, which over time will be more up than down because more gold will keep on being mined and partially monetised. The difference is that buying a bond does not increase the money supply as a fractional deposit does, nor does selling a bond lower it as drawing against a fractional account does. The variations - particularly the magnification that takes place on the back of the growth in specie - mess with the money supply beyond the travails of gold mining and increase the 'noise' content in the signal that is the price of credit. That is all that fractional banking achieves - an increase in the noisiness of the credit-price signal, and so causing misallocation of capital beyond mere error in business judgement. That increases general risk, and hence people's risk premiums, which raises the cost of capital generally, which lowers the grand total amount of capital people are willing to provide. In a free economy the magnification effect is there though somewhat minor (but still not worth a tinker's curse), whereas in an unfree economy it is magnified to great extents (and thus a major threat to our well-being). After people make their judgements, yes - which is why the Fed has to accelerate its expansion of the fiat money supply to maintain an under-market price of credit. However, there is still the gap between the time that credit is expanded and the time when people either notice that directly or figure it out from backwards-looking statistics. Without government to magnify the whole process to gigantic proportions, the response is quick and golds's check-against-expansion mechanism works fast, but even in a free economy it is not instantaneous. People will always have to take the time to get the facts and make their judgements accordingly, and therein lies the opportunity for what was initially fraud and now is just ignorance and delusion (and pitiful financial education). JJM
  15. Yup, it's happening already. Don't forget that this was based on diesel at $1.85 a gallon (admittedly before taxes, distribution, station mark-up). If diesel prices can be expected to go up back to $4/gal then even present efficiencies can be profitable without subsidisation. That's already within the realm of the presently foreseeable. With research into better algal strains the efficiency could be improved, bringing down the break-even price required further still. On top of that, after I did some more digging and thinking, I realised that there are legitimate grounds for at least some military research into it, justifying some grants, so long as it is properly for military purposes - if it happens also to have civilian benefits, so be it. The US Air Force, for example, apparently had an algal fuel project running from the 70's to the mid 90's. Despite the cancellation, the Air Force is still checking out all aircraft types in its fleet for certification to use synthetic fuel blends. Let that continue. The real issue is whether at those kinds of oil prices it is competitive with tar sands, then shale, then coal to liquids/gasses. Once those are exhausted, the issue then becomes whether it might not be just as worthwhile to cut to the chase (again as Matus noted): using cheap nuclear power, suck CO2 out of the air and water from the sea, then use the Sabatier process to get methane and oxygen, and then use Fischer-Tropsch to get higher alkanes. The technologies for all those processes have been around on large scales since the 1940's or earlier, are technically proven, and are financially viable under the right circumstances. It's just a matter of costs - who is more cost effective than whom for a particular set of market conditions? What I find satisfying about this whole debate is that we are concretely assured of being able to have our present (or better) lifestyles even if "fossil" fuels run out, at what is really not that much more of a cost than we're presently paying. At 20,000 gal/acre/year, all seven billion of us could, at present efficiencies, get a respectable amount of diesel each (including our share of commercial transport) by using just 640m acres of land. There's more barely-used desert than that in Australia alone. That being the case, viro hopes of using anti-fossil-fuels campaigns to curtail our lifestyles are dashed, so cue synthetic complaints about synthetic fuels in 3..2..1... JJM
  16. Gah, I couldn't stop thinking about it today. What I said isn't accurate. I left out one thing that makes things worse, but also made an error that makes things appear substantially worse than they are. What I left out of calculations for the bioreactors was consideration for gross margin. Including it at a plausible rate of 25% (retail shops get up to 50%, factories as little as 8%) gives a gross margin of 10.8 cents / sqm / day, rather than the gross revenue of 43.2 cents. The major error was to fail to then multiply that by 365 to get yearly gross figures. The gross margin is then $38.39 per sqm / year, which at a capital cost of 15%pa is then a maximum permissible construction cost of $263/sqm, or over $1m/acre. That's assuming 100% efficiency. Using the present research's 20,000 gal/acre/year, which is a solar yield efficiency of 5.94%, the maximum permissible construction cost comes down to $63,123 per acre (ie one has much less money to spend). At that rate, the maximum permissible price tag for setting up a facility that has an output of say 100,000 gallons of diesel per day is $115m and would take up 1826 acres plus the processing plant's area. The economic conclusion I had still remains the same, interestingly. I still doubt that bioreactors could achieve that, and that a lake system that size might yet though still wouldn't give much change from $55m and thus leaving $60m with which to build a petrochemical plant of that capacity. I'm not sure it is going to be doable at the present rates of efficiency (and at present prices of oil), but it could be if the research into higher yields pans out (and the price of oil goes back up). For comparison, solar panel yields are circa 20%, and better for the more expensive models. At $1.90/gal pre-tax for diesel and $30,000/acre to build lakes, if the solar yield efficiency from algal biodiesel were to reach 10% then the lakes take up 1085 acres and there is approx $83m left over to build the plant besides the lakes, and at 20% the lakes take up 543 acres and there is approx $99m left over. You'd have to ask a petrochemical engineer whether a 100,000 gal/day plant could be built for those kinds of figures (I suspect it can, at least for the biggest of the three), but still, let the research roll on, both into the solar yield efficiency and the operating costs efficiency - just not using government grants, please. JJM
  17. Dave? Dave's not here. G'day Dave, welcome to the forum! Cool! The bulk is perfectly straight forward, yes, and doesn't require expert knowledge. All it requires is honest reasoning and a bit of effort. Then, when you're up for it, go for the hard stuff. Enjoy! There's a cool search function here, too, so you can dive right in and see what has already been asked and answered instead of waiting ages for people to reply. If you can't find what you're looking for, ask away! JJM
  18. That still doesn't make fractional banking okay, as the issue of the misallocation remains. It - and more precisely the expectation of it - is one of the major determinants, but it is not the only one. Nor is there any set relationship between the growth rate in the money supply and the reduction in interest rates. If people become increasingly adept at predicting the growth of the money supply and its effects on prices (which includes consideration of the other determinants, too), they will incorporate that effect into their expectations of inflation and increase their required rates of interest to compensate. What the effect any particular rate of growth of the money supply will be on interest rates will be the product of people's thoughts and their ability to act upon them, not exclusively purely physical factors such as quantities of dollars. JJM
  19. During the whole time until I became an Objectivist I was all over the place economically, but always an atheist and socially pro-freedom from age 13 on. Economically, I was never communist but I have been from socialist on up. By the time I was early 20's I had already worked my own way towards capitalism, and was told about the existence of Objectivism because of what I was talking about on the Usenet. JJM
  20. I sure wouldn't challenge you on that one. Ye gods, some people really do need their heads examined. This is the power of ideas in action. In this case, bad ideas, very bad ideas. I am reminded of one of Dr John Ridpath's recorded lectures where he said in his big booming voice "Bad ideas KILL." I look at crap like this and see this as the first overt tentative steps in that direction by the green movement. You think you're joking, Zip? One of these days some twit will do neck spikes for real. JJM
  21. If the island is big enough for a plane-load of people to survive indefinitely on, then a proper property and trading system should have been instituted within 2-5 days of the crash, once it became apparent that rescue wasn't going to show up any time soon. The resources on the plane (including bits of the plane itself), other than those effects identifiably belonging to the survivors, should have been divided up equally among the survivors as best as could be done, along with horse-trading of what's indivisible. The reason is that no one person can claim to have any right to a share in the plane and its contents than any other, and homesteading doesn't apply because it is not a natural situation. The island itself, however, is natural so the ownership of it and resources gathered from it would be straight homesteading etc. After that, then, LFC and standard common law as most would already understand. JJM
  22. I suspect that at root they know exactly what they're doing and do expect to enjoy it - to make it an expensive place to live in, so all the merely middle class are compelled to leave, taking their factories with them, leaving behind the wealthy liberals to enjoy the California weather etc and low-skilled immigrants to do the house, farm and vineyard labour. JJM
  23. You've glossed over the part about there being the same spending rate as before. That's the key part of this section of the discussion. In the realm of the physical resources, you can't have your cake and eat it, too. Either you direct some part of available resources to generating consumption goods or to generating production goods. Everything alway comes back to this. If you can understand that, and what it means for rates of interest and profit, then you've got the essence. The physical world is paramount, and cannot be defied with impunity. In the realm of your spending, for each portion of resources you are entitled to direct, as proxied by your purchasing power, you either spend on consumption or spend on investment. You cannot both mean to invest and mean to spend the same one unit at the same time. What merely happens is that the extra money and spending generated by the banking system is divied up between the two in a manner that is both confusing and which jacks up the prices of resources and from there to the price of everything. By putting money into a non-fractional account, you're just changing the concrete method by which you make your directions that allocates resources to consumption. By putting money into a fractional account you (and the banking system) are just confusing the real-world allocation system. Yes, it is credit, and depositors become creditors, this has never been denied. What is denied is that this credit expansion constitutes real investment viable in the long term. This new credit is merely expansionary, and dilutory of both purchasing power and the real value of all outstanding investments. The on-investment in financial capital made by the bank does not and cannot increase the amount of resources available for investment in real capital, it merely shifts purchasing power into the hands of those who get the new money first. The first recipients then malinvest resources they got at now improperly low prices, those who get money later either pay higher prices bid up by the first or to some extent just go without. The only reason why in the modern world total real investment seems to increase is because minimum wages, union demands and the like are causing productive capacity (including people looking for work) to be held idle. The influx of new money devalues the real value of those demands because there are now more dollars chasing the same nominal minimum prices. The unemployment will thereafter stay low, and the investment remain viable, for so long as the nominal amounts demanded don't increase in response to the increase in the cost of living caused by the expansion of the money supply. Deliberately creating inflation for that purpose, to overcome the "downward stickiness of wages", is the shabby truth behind Keynes and those influenced by him in this regard. Once people realise the truth of the first real argument (credit expansion caused by furthering fractional banking or fiat money messes with allocation of real resources), the second real argument against fractional banking is that people will then price risk at a higher level than the nominal return generated. Once that happens, the remaining market for fractional accounts will start evaporating. And that is the fallacy of the idle gold. No matter what, that part of the money supply that individuals aren't planning to spend now but keep aside for unplanned expenditures in the future is always going to remain idle, always going to lie around unused, until consciously spent on either consumption on the one hand or on investment that is not immediately liquidatable on the other. Having the banking sector engage in credit expansion with it is not going to change this one litle bit. It is not real investment, financial appearances to the contrary notwithstanding. If you are keeping $500 in that account just in the same way as you would keep $500 in coin then it means your demand for money has remain unchanged and what the bank is doing is what I have already said: giving the various markets conflicting signals about what are the rightful proportions and individual contents of your share of the allocation of total available resources. If on the other hand you are keeping $500 in accounts but wouldn't keep that much in coin if cheque accounts did not exist then you are correct to point out that it is functionally equivalent to holding the same in liquid securities, where you're just getting the bank to do it for you. But, there is one big assumption most overlook when judging that functional equivalency - fair financial weather. If that does not hold then the equivalency breaks down. In a crisis the fractional system will cause the money supply to be reduced, itself making things worse until the reserve fraction rises to an acceptable level, while in a proper system of individuals non-fractionally owning liquid securities there is no threat to the money supply. I noted to Agrippa that if a market were sufficiently free then even a fractional system can proceed happily without incident. This lends credence to the functional-equivalence by allowing people to not be given reason to specify and question that assumption of fair weather. We are then left with the core issue of the misallocation of real resources. Obvious? I specified it outright. The fed extracts money from reserve accounts by selling assets at below-market prices (eg 25 basis points is the official difference used by the RBA) to banks with excesses in their reserve accounts. That leaves less money in the reserve account system to lend to banks with settlement shortfalls to cover, so those other banks have to offer to pay more interest to attract lending from the first banks instead of buying cheap assets. And with that, the actual rate of the moment rises to meet the target rate. I've already said that the natural rates of interest in a settled economy are independent of the size of the money supply. The core components are time preference and risk aversiveness. The first is entirely a real-world resource-usage-preferences phenomenon, and the second is a real-world phenomenon that is then added to by concern for political and other additional risks. It is only that on top of these that concern for movements in purchasing power is added. The day to day movements of market interest rates are then caused by the changes in weighted-average natural rates aggregated across all individuals, plus people acting for reasons other than price-based investment decisions, plus the influx of new money from gold finds that haven't yet spread out through the whole pricing structure or efflux of money because people decide they want more gold-bearing products. Moreover, interest rates are independent of what money supply is made up of. The same natural rates would prevail in the same economy were the money supply exclusively non-fractional specie versus the were money supply specie plus fractional money. Just as there is no permanent relationship between interest rates and the quantity of money, there is no concrete relationship between the rates of interest and the reserve ratio either. It is only when the money supply changes that interest rates change. It is only when banks reduce their minimum reserve ratios and engage in extra lending out of the now-deemed excess that interest rates fall. Once the markets have absorbed this expanded level of money and credit interest rates will return to where they were before, though added to by an increased risk premium because the stability of the banking system has gone down. Temporarily, yes, until the new situation with the money supply is understood by all and the core reasons for interest rates are pre-eminent again. The change in gold stocks wont permanently change rates. JJM
  24. I had a quick hunt around. Apparently, the best research on algal sourced fuels at the moment is leading towards 15-20,000 gallons per acre per year. That's a pathetic 51 mililitres per square metre per day, less than 6% of average daily insolation. On our 100kl diesel open-air lake system that means the maximum permissible construction cost can only be $2m tops. Even a trippling of that wont cover the cost of building the lake system. It that is the best that can be done then forget it. JJM
  25. For the hell of it, I did the sums on what could be produced with algae. Here's what I calculated. Feel free to stick it in a spreadsheet and play around. The peak direct insolation on Earth is 1000 W/sqm, but that's for direct and 24hour shine. In a sunny country on Earth with lots of land to convert to algal fields, such as Australia or the US southwest, it is about 400w/sqm average across the whole 24hour period, not including cloudcover and the like. If the capture rate is 100% (unrealistically high) then that means our facility can provide 34,560kj per square metre per day. If we take this fuel in the form of diesel (average molecular formula C12H23), which has a heat of combustion of 7,856kj per mol, that means 4.39 mol per square metre per day. That formulaic average translates to a molecular weight of 167 grams per mol, so we'd be producing 734 grams per square metre per day. The specific gravity (density) of diesel at room temperature is about 0.85, so we're producing 863 mililtres of diesel per square metre per day. Our facility is producing diesel as equivalent to post-crude and post-refinery costs, and before distribution and taxes. That is approximately 75% of the retail price, which means at $2 / gallon the present wholesale untaxed and unsubsidised market price for diesel is about 50 cents per litre. To be competitive, Our facility has to have an out-the-door-price to match, so, our gross revenue is 43.2 cents per square metre per day. If the average cost of capital is 15% (unrealistically low), that means the capital cost must be at or less than $2.88 per square metre. Now, looking at those pretty pictures and videos of pipes and glasshouses and pumps etc, can you honestly tell me that the construction cost is ever going to be anything remotely that low? Note also that this figure assumed some pretty unrealistic levels. In the real world they'd be much worse, meaning that the maximum capital cost per square metre has to be even lower. The enclosed bioreactor methods simply will NOT be viable for a product as comparatively inexpensive as fuel. That technology is for extremely high-value substances, such as specialty chemicals or vitamins. The alternative to bioreactors is an open-air lake system. Now, to have an output of say 100,000 litres (5,000 barrels) of diesel per day, that means processing 115,832 square metres (and at whatever depth) per day. A respectable ratio of amount processed per day to amount total is 1:15, so a healthy lake system would be 1.74 million square metres, or 174 hectares (about 430 acres). That alone will cost several million dollars to construct. On top of that is the processing plant and all that paraphernalia, costing millions more, and further still are the variable operating costs. The output will bring in a gross revenue of $50,000 per day, or $18.3m per year. If the all the variable cots are say 75%, leaving 25% to pay for capital charges, that's $4.5m per year to cover those charges. If the average cost of capital is still 15% that means the maximum supportable capital cost to set up this facility is around $30m. Such a thing might - just might - be doable... but recall that we were assuming some unrealistically high average insolation power inputs and collection efficiencies. As I've said before, I don't doubt the technology, but I'd be casting a very skeptical eye on the promoter's numbers. JJM
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