John McVey

I got 30 out of 33, having gotten wrong questions 7, 10, and 12. Pretty fly for an Antipodean, but then again I am old enough to have been educated in a public school at a time when public schools were still at least partly genuinely concerned about educating rather than indoctrinating. My father is a high-school teacher in the public sector and the majority of the stories he has to tell about it are horror stories, including but not limited to the dumbing down of content. Wasn't it Jefferson who said public education was necessary for liberty to be preserved? Whoever it was got the issue 100% dead wrong. JJM

Well, that depends on what you mean by "work". It can "work" in the sense that the financial system can continue to function without incident indefinitely if the banks et al keep their ratios high and rarely changed. With today's advanced financial systems I imagine that there would not be much in the way of a boom-bust cycle caused by such a low level of practice because what would be a significant boom-bust in one little region would be smoothed out through reinsurance diversifying it throughout the whole economy. Only the active decision against it by a bank's customers, and those customers' own other trading partners in turn, will occasion that bank to put the reserve ratio back to 100%. But it doesn't work in the sense of its practice conferring a net benefit that would be gained if only the practice were kept to a more modest level. Part of Paul's argument is that the practice takes value from and imposes risk upon third parties (the bank's customers' customers) against their will. That is correct, and Paul only errs in his moral assessment of it. What this consequence does suggest is that rational people will begin to revolt against this simply by discounting sufficiently to eliminate the benefit (zeroing the gap I mentioned) or rejecting payment in fractional notes entirely. Yes. If fractional banking were to die out, the mechanism would be by the extra costs either in interest payable to depositors or in running the risk mitigation system (ie reinsurance etc) exceeding the interest earned on the extra loans made possible through reducing the reserve ratio. The only way to avoid the costs is to cease being fractional. JJM

Time preferences are asserted in the first place by the process of individuals, first, looking at their existing investments (if any) and their incomes, and second, then deciding whether to add to, maintain, or draw down their investments and altering their spending habits to suit. To add means to direct the resources received as income towards investment, while to draw down means to take resources out of investment and add to final consumption instead. The root criterion is people's varying preferences to consume now versus consuming in the future. Everyone, to varying degrees, prefers to consume sooner rather than later, but we can be induced to consume later (ie induced to invest instead), by the promise of getting a return on the resources we could use for either purpose. The core component of interest rates is the numerical manifestation of that time preference, which exists even before consideration of risk. Thus different people have different core risk-free rates of return that must be on offer in order for them to invest. On top of that comes a risk premium for the amount of risk associated with an investment being contemplated. Most people are risk averse, that the more risk there is in a given investment the higher the return that people will want from it as compensation for bearing that risk. Just as there are different degrees of time preference for different individuals so are there different degrees of risk aversiveness for different individuals. Lastly, in addition to the two core elements there is a third important element. There must also be a premium to compensate for a decline in (or, more rarely, a discount for an increase in) - the purchasing power of money. In short, there must be an inflation premium. The more that people expect the purchasing power of money to decline by the future time they will spend that money at, the higher the premium they will require as compensation. Those three combined - the risk-free rate, the risk premium, and the inflation premium - are the great bulk of what makes up interest rates on loans and expected ROE's on stocks. The market rates of return, whether in the form of debt interest or equity profits, are the aggregate of all individuals acting to supply or demand capital based on their time preferences, degrees of risk aversiveness, and expectations of changes in purchasing power. The actual ROR goes down as capital supplied goes up (ceteris paribus, of course), because that capital is funding more competition both for custmers and suppliers. The required ROR goes up as capital goes up because there is less need felt to invest and because as consumption goes down the per-unit value attached to what consumption is retained goes up. If the actual RORs are above the required RORs, people will invest more until the actual RORs come down and the required RORs go up to match. Likewise, if actual RORs are below the required RORs, people will withhold or withdraw investments until the actual returns rise and required returns fall to match. A financial institution is a medium by which this aggregation process can take place more efficiently than would occur without it. However - and here is an important point - the actions of a financial institution cannot alter the two fundamental determinants, though it can alter the third through its influence on the money supply. Those two core determinents are the entirely province of the judgements of individuals, who are the true owners of all resources. All that an institution can do, through its taking resources from those individuals and investing them, is either speed up or slow down the adjustment of what actual returns are generated to line up with what kind of returns people would prefer to have for the varying risk levels. "Assertion" and "reassertion" is just reference to the aggregate of individuals' preferences being eventually reflected in how investments are made. Ultimately, individuals producers and consumers will not be denied, irrespective of what intermediating institutions do in the short term. A reassertion will start forming in the works when an institution (including government) starts acting to increase investment in a manner that is not warranted by aggregate time preference and risk aversiveness. An institution can only do this either by, first, lowering its reserve fractions, or, second, the central bank inflating the fiat currency and giving the new money to the financial institutions. The mechanics of the reassertion start churning even before the funds exit the bank. The institution is in competition with others, so to fend off that competition it lowers its interest rates for given risk levels, yet increases its profits through an increased volume made possible by raiding the reserves or free booty from the central bank. Other institutions follow suit to meet that competition (many do, some don't), and so returns are eventually lowered across all risk levels. The reassertion becomes due because the risk-return profile actually receivable in the marketplace is at now odds with what the individuals who own the resources would prefer, but the process must play itself out for the reassertion to be made manifest. This is the process. The insitution then gets a business customer who borrows extra funds from it. The business then spends the funds to buy extra labour and capital goods. The revenue from the purchase of capital goods then becomes yet more income to other labourers, plus additional profit for the suppliers, interest revenue for debt investors, and more spending on yet more capital goods by them in turn. That process goes on and on, over time, until all spending can be resolved into personal income as wages, profits, or interest. As those funds make their way into the hands of individuals as personal income, those individuals must then decide what they are going to do with their money. That decision, in aggregate, is the beginnings of the reassertion itself. They decide as described above, by chosing whether to invest or borrow depending on the prevailing actual RORs and their required ROR's. But, the actions of the originating institutions caused actual returns to fall, so that inclines people to save and invest less on the one hand and to disinvest (including borrow) to spend on consumption on the other. This action means that financial institutions start experiencing a drain on their funding sources, because people aren't saving and investing at the same level as before. However, they don't notice it straight away because they are initially getting additional funding either by raiding the reserves or getting a cut of central bank largesse and because as noted it takes time for the funding to fully make its way to the hands of individuals (there are also other capital goods and labour markets difficulties, but that's secondary to the question at hand). That means at the start of a boom they can afford to lower their interest rates and creditworthiness criteria, but without an increase in the raiding or booty-gathering the assertion of individuals' time preferences and risk premiums will force them to undo it to cover the cost required in regaining that funding. To make matters worse, the extra consumer spending causes consumer prices to rise. When this happens the inflation that was generated by the government or the fractional bank starts to show up. This then occasions people to start expecting more price rises in future, which then inclines them to increase their inflation premiums required to invest. In turn, that makes them increase their overall required ROR's quite substantially, in turn worsening the drain on financial institutions' deposits etc. So, now we have a problem: the action of instititions has artificially lowered actual ROR's while increasing required ROR's, with the consequences of the inflation making this situation harder and harder for the institutions to maintain. The only way that this can be maintained is by an acceleration of the reserves raiding or fiat currency expansion - but that only eventually acts to increase general prices and expectations of future inflation, increasing actual-required gap even more. The whole thing collapses when the institutions relent and allow the market rates rise to match required rates, ending the raiding party and so curtailing lending to business. The reassertion of time preferences in this context is that part relating to financial institutions curtailing their lending activities down to the level warranted by the funding that individuals will provide. There is a local zinc smelter project that opened earlier this year and was forced to close down just a few weeks ago because they projected zinc prices to remain high (they fell) and coal prices to remain low (they rose). They whined in the local paper that they would never have opened up the smelter had they known that prices would change. Why is it so hard to expand that kind of mentality to others doing likewise in consideration of interest rates? Not every manager is always completely rational. Yes, but without intereference in the financial markets through manipulation of interest rates and the money supply all the different markets' variations as you speak of would largely diversify against each other, leaving behind a rather minor "noise" signal on top of what would otherwise be an orderly non-boom period of smooth growth that would follow the changes in time preference and risk aversiveness, both of which would change slowly in a laissez-faire economy. The issue is why there is such an enormous correlation of everyone investing and disinvesting at the same time, why everyone's expectations of risk and changes in purchasing power all move in unison across the whole economy. In a laissez-faire economy the only vehicle for that is the financial sector through changes in reserve ratios down or up, while in a fiat-currency economy it is currency expansion and contraction, either scenarios of which move interest rates down or up accordingly and messing with people's plans. Intervention interferes with investment because it lowers actual returns through jacking up costs and raising expected returns through making people increase their risk premiums to compensate or expectation of more such costs in future (which may go all the way to mean total loss of capital). One of the reasons why the markets are jittery right now is because the government officials haven't sorted out exactly what they are going to do, which makes for risk and uncertainty that are too difficult to pin down all that well, making it much harder to evaluate existing and potential investments in the current economic climate. This definitely makes a contribution to the economic cycle, but it is not the originator of the core cycle at work. The offending banks must eventually raise rates because it cannot keep on doing what it has to do to keep them that low. If the offender is the central bank, it cannot keep on accelerating fiat currency expansion because that is leading to general price increases. It is partially doing the right thing, but only as a hyper-crude approximation of what would happen in a free market. If the offender is a normal bank, it cannot keep rates low because this it must eventually run out of reserves to raid, or have its profits cut because it raises offered rates to get more reserves in, or face a run (starting with a mere walk, so to speak) because it is losing customers. JJM

I think you're missing the distinction between gold in general and gold-as-money, which is why I will make a point of uing the term specie (as well as it not being gold-specific). Even in a proper economy there would be a difference in value between one 400-ounce standard bar and 400 one-ounce gold coins, even if both are fully certified by a trustworthy body. The reason is that the latter is money while the former is not. The latter are generally accepted by the public as media of exchange, that one individual can pay it to another because that other can take it for granted that a third will too, and so on ad infinitum. No such acceptance exists for bars, and it is unlikely that it ever would even for major B2B transactions. Thus the coins will have a premium in the marketplace that the bars will not, a premium attachable because of their acceptance as media of exchange. The other uses for gold provide the bedrock for the value of the coins, and make it objective to use gold, but are not synonymous with the value of the coins. What the use of gold as money does is add one more potential use for the bar. The premium for coins over bar exists because the coins possess a separate additional value in their own right - their ready acceptability to others with little or no fuss. This helps pull up the value of gold in general because the mints are additional customers to the suppliers of raw gold. Mints make money by buying bars and minting them, with their buying action helping pull up the value of raw gold but never so that the margin between the bar and the coins is eliminated. Along comes notes. It is a grave mistake to make the shortcut of going directly saying that notes have value because they're redeemable, of thinking they are merely substitutes for gold. That is wrong - notes have value because they are acceptable as means of payment, which then in turn has an objective basis because they are redeemable for a hard asset. It is the acceptability, not the redeemability, that is the immediate source of their value as media of exchange. Keeping this chain in mind then allows one to keep in mind the importance of information and its spread through a given economy, and thus how acceptability can change in a different pattern to how actual likelihood of redeemability changes. Now, if more notes are issued than there is coin in reserve, certainly those notes will be hit with a discount against their face value because the likelihood of redemption falling, but, as I said before, unless everyone rejects the practice of fractional reserve banking the acceptability of those notes will not fall all the way required to match the fall in actual redeemability. For example, if there are initially 200 notes issued on 200 coins and then 50 more notes issued the market value of a note may not fall all the way to 80% of face value, but instead to say 85%. In that event, even though the banknotes have indeed been devalued as you note this 5% gap constitutes a net addition to the money supply. If this gap did not exist the fractional issuer would not gain anything by being fractional. The argument in favour of fractional reserve banking depends on that gap existing, new money actually created even after including discount effects, because that is what then funds the extra loans the advocates speak of being forwarded by the fractional issuer. The money supply is the totality of units that are always accepted by the public as media of exchange - M1 in either way I specify it. An increase in it - whether because of new real gold or an increase in fractional notes - adds nothing to production for reasons I wont go into again, and so cannot do anything other than raise prices in general. Thus if the supply of units of media of exchange is increased even after applying discounts to the face values of some units, the value per unit must go down. The issue of extra fractional banknotes will devalue all notes from that issuer, but unless the discount is large enough the acceptablity-redeemability gap left behind makes for an addition to acceptable-units and will act to dilute the value of what else is acceptable-units - that is, gold coins. The lowering of the value of gold coins then cuts into the profits of mint operations. They must then cut back on those operations, which includes cutting back on their purchases of gold from the refineries. That in turn then necessarily reduces the total market for gold, causing its value in general to fall, until the profitability of mint operations rises back to an acceptable level at the reduced level of coin output. This will then help mitigate the fall in value of the remaining gold coins in circulation, but it cannot fully do so for so long as fractional reserve banking is still taken seriously and the discount does not fully eliminate the acceptability-redeemability gap. There are two good reasons why notes are in and debts are out. The first I mentioned when I said that I wasn't much concerned with the higher M's, in that an individual instrument can drop in and out of use as a medium of exchange whereas a banknote is always a medium of exchange. The second relates to the first: banknotes do not possess a maturity. They are presentable on demand for their full face value, with any discount attached to them being attached to compensate for the possibility that the issuer will be declared bankrupt and only pay out yay many cents on the dollar (if any). An interest-bearing instrument is not redeemable at its full face value until on or after maturity, prior to which time it has a separate market value that fluctuates both with the riskiness of the issuer and the general market for interest-bearing instruments of that maturity. A businessman does not make calculation in terms of debts as media of exchange for that reason, while he can and does in terms of banknotes because they can be direct substitutes for specie in the marketplace. I had another block of text in that original post I made which I withheld, and now wish I hadn't. In that block I noted that debts were indeed nevertheless often used as media of exchange, with the higher the frequency of that use for a given class translating to that class's inclusion in a lower M number - but also that one could keep on going and going such that this could be taken to include any long-lasting item that could conceivably bartered and rebartered to complete strangers a few times over the course of their lives - a used car, for instance, can be offered directly to settle a debt. So, in terms of a literary discussion for understanding the influences of prices their use as media of exchange had to be taken into consideration, even though it is meaningless to try to make numerical measurements of them ("M63 = M62 + used cars of a given quality range"?). A definite cut-off line has to be drawn to delineate what is and is not ready money, and I accept Boyd's - the cut-off line is that only those items that are always media of exchange and tools of calculation are money, which in a free economy are specie and notes that are immediately redeemable for specie from their issuer. I think you have the cart before the horse here. Fiat currency got off the ground because banknotes were money and accepted as such. Over the course of many decades ever more regulations forced the notes of different issuers to become more and more similar in appearance, all the while still being accepted by the public, until eventually it was easy for the Fed to monopolise their issue without making the public endure a massive change in its habits all at once. Fiat money is still money, because it retains the essential feature: widespread acceptability as use as a medium of exchange, which is why it can last despite non-redeemability. The gun can only do so much. Were actual acceptability to fall there is nothing the government could to do stop the matching fall in the value of that currency as people's demand for it begins to fall. JJM

No, credit cards aren't part of the money supply because a merchant who accepts payment on credit card cannot turn around and use the signed slips as means of payment to his suppliers or employees. Unlike ye olde goldsmith's receipts the slips are non-transferrable (*) claims upon the institutions that issue the cards and cannot circulate, so your initial suspicion is correct. (* I'm ignoring certain types of financial transactions as complications that don't change anything relevant to this topic) It wouldn't be dealt with by adding them into the supply of money but noting their effect instead on the demand for money. Their introduction and growth acts to lower the purchasing power of money because the ease of their use lowers the demand for money itself. The ability to make purchases with a credit card enables an individual to get through a personal pay cycle or business through a petty-cash reimbursement cycle with much lower initial and average floats of purchasing power in the form of actual cash. It is that desire for a float of a certain amount of purchasing power that is the demand for money - lower that demand with all else remaining equal and its value drops. The how is that as the use of cards grows people will act to spend away (for either consumption or investment) what they now deem excess purchasing power - leading to more demand for goods and services as you note, pushing up their prices - and will on average keep on getting the actual cash back because of others' spending, until eventually the purchasing power of cash has fallen (ie general prices rises) such that people are content to have the same amount of cash as a float as before which now embodys a lower amount of purchasing power. In the quantity of money equation it is V that increases, not M, because of credit cards. JJM

Ah, I apologise, I'm muddled in whose idea I meant. If not Bastiat, then I think it was Hazlitt. Whoever it was, it was reference to the fact that that it is the task of the real economist to look past the immediately obvious effects of some action and into what also happens elsewhere as another consequence, which the non-economist frequently fails to identify. Actually, I repudiated the idea of the money being totally unbacked in a response I made to Tom yesterday. I explained that all fractional money could be completely settled in specie by selling the assets prior purchased with that fractional money, if the process were orderly. The problem isn't fractional money allegedly being "unbacked" but a mismatch between the repayment-requirements profiles of the bank's assets portfolio on the one hand and the liabilities and equities portfolios on the other. It isn't the pooling function of retail banking I was referring to, it was the creation of new money to purchase investments with in the face of a lack of change in the fundamentals that determine the total capital in the economy (primarily time-preference). I explained what I meant in the other thread - not too well, I admit, but all the information you need is there. In those circumstances the new investments in one area as made possible by the new money lead to other investments elsewhere being cancelled because the total market for investments in real terms hasn't changed. You're also conflating the issue of fractional banking in particular with the general practice of banking. Every one of the services of retail banking you describe can take place perfectly efficiently without any recourse to fractional banking. I even once looked up the actual statistics for the Australian financial system when I was doing a series of posts to HBL and I noted that even today the supply of loanable funds from non-fractional sources outweighed fractional sources - all sourced from retail-level investors like you and I - by about seven to one. JJM

M0 = Specie in circulation, but excluding specie held in reserve for notes or deposits. The reason for the exclusion is that specie held in reserve is withdrawn from circulation, physically kept inactive in vaults, until redemption of notes or deposits, because those notes and cheques are being circulated in their stead (which is the point of having them). M1 would be as you state. The bank notes and demand deposits would be the entire amounts outstanding, not just that portion which has an associated reserve. After that I am not fussed about the higher M's, a position in which I'm not alone. The higher the M number the more frequently the instruments being referred to would drop in and out of use as media of exchange, making it pointless to try to be accurate in measuring their quantity to determine the money supply. For instance, a customer may choose to hold a bill of exchange to maturity as a low-risk-low-return investment or negotiate it away to pay for something. Similarly, if that customer moves from region A to region B, the residents of B may not be in the habit of accepting bills directly as means of payment, necessitating the customer to liquidate it for cash instead. Thus whether the intruments in higher M's constitute media of exchange depends on the intentions of customers and others who might or might not accept them as a means of payment. I take M1 as the main figure of interest because its components are always media of exchange. They are what constitute ready money, always available to be spent and accepted because it can be taken for granted that others will act similarly. Additionally, the more sophisticated a financial system and its customers become, the more sense it would make to include savings deposits in M1 rather than M2 because of the increasing acceptance of paperless direct-debit transactions and the eventual disappearance of savings accounts not having any of the various forms of that facilty. JJM Update: Alternatively, M0 can be all specie whether in circulation or in reserve, while M1 is M0 plus the portion of notes and demand deposits that isn't backed by specie held in reserve. In this scheme M1 comes to the same number as the above scheme anyway.

To begin with, what I said stands. The extra fractional notes increases the aggregate money supply, and as it is the exchange of that which determines prices (along with velocity) those notes will reduce all prices unless their face value is sufficiently discounted. On a technical note, I have always understood M to be the aggregate of that which is used as ready money as a common medium of exchange. I concur with a quote on the matter by William Boyd in a letter he wrote to William Pitt the Younger, which quote is regularly provided by local Austrian Gerard Jackson: Notice that this definition includes a reference to your (correct) statement that commercial paper is not part of the money supply, but that all notes are. In a modern context, this would be expanded to include cheque accounts (which are a variant on notes) and demand-deposits from which direct debits can be made (effectively electronic notes). All of those together are used as ready money, circulating as media of exchange, and whose separate vicissisudes affect the prices of what they may pay for and consequently altering the value of the different components of the total available media of exchange. JJM

I've argued this point elsewhere extensively. The problem with that argument is that it commits the fallacy that Bastiat identified in his argument on the seen versus the unseen. What is seen is the particular investments made with the new unbacked money supply - and what is not seen is the crowding out of other investments elsewhere (actually a slightly greater amount's worth, too, resulting in a small net negative). The root of what determines the amount of real capital in existence is people's relative preferences to consume now versus later, which becomes manifested in the financial markets as the natural rates of interest and profit demanded by potential investors for the various associated risk levels. Issuing loans based on fractional reserves does not alter those preferences. It acts to lower the rate of interest on loan assets temporarily, pushing it below what the market demands for that risk level, thereby encouraging people to pull some of their investments out or merely to amend downwards plans to invest in the future, which in turn acts to pull interest rates back up again until the aggregate result is little different from what would exist had no fractional issuance been made (actually, slightly worse off, growing more so to the extent of new risk generated). The only thing that results is a shift in the composition of real assets and who owns them. Not quite. The reference to futures was simply to put to bed the notion that selling what one does not own is fraud. The trade in futures is not an example of fractional banking if the purchaser is forwarding money (ie making a loan plus purchasing risk from the farmer) that either is or is 100% backed by specie. JJM

Because even taking into consideration the discount placed on fractional notes the total money supply has been increased. This then lowers the value of an individual unit of that money supply independently of how a particular unit may be constituted. The issuance of redeemable notes thus dilutes the purchasing power of gold because they are a substitute for gold. This effect would only not occur if the discount on the notes was so great that the total trading value of the money supply was not increased. That result that is of course possible through the market value of a note being set to match the reserve ratio of the issuer (eg a 90% reserve note will trade at 90% of its face value), but that wont occur for so long as at least some people still think there is some merit in the practice and don't demand a discount of sufficient magnitude to cause that. V and Y need not change. It's just a matter of recognising that there are other media of exchange being used besides specie and 100% reserve. If we say M = G + F, where G is gold (including the portion of fractional tokens that are backed by actual gold) and F is the unbacked portion of fractional tokens' face value, an increase in M because of an increase in F will still act to raise P even if G is constant. Since G and F are interchangeable in the market place the ratio of G/P falls and so the extra F thus devalues G. It's the same effect were another form of specie to grow popular alongside gold, say silver for small change. JJM

A pair of Persian Princesses... Sarah Shahi, who I first saw on Life. Anousheh Ansari, frequent technology entrepreneur, founder of the Ansari X-Prize, and first female space tourist. JJM

Fractional Reserve Banking is having less reserves of specie on hand to settle all claims thereto if they were to be presented all at once. It does not mean that a bank has insufficient assets, only that its other assets aren't money. If there were to be an orderly shut-up of the bank those other assets could be sold for specie and then the claims settled in full. Were this done equally orderly across the whole economy, including where all prices are free to change according to market forces, even the entire fractional system could 100% settle its demand-deposit debts. The problem arises when the shut-ups aren't orderly and banks are forced to offload their assets at fire-sale prices, resulting in the inability to satisfy depositor demands through insufficient funds. No it isn't, no more than a farmer selling rights to a crop he does not have now but will have in the future is fraud. And, by the way, those rights - called futures - are also liquid and regularly traded on financial markets. There's no fraud involved in those markets any more than there is fraud in the juggling act of fractional banks trading with each other and covering each other's minor shortfalls through clearinghouses etc. Indeed, which is why you should be sure of the soundness of the practices of a bank you're considering having accounts with. As it happens, that includes eschewing fractional banking completely, but as I've noted elsewhere the reason for that action is not the erroneous claim of fraud. JJM

As to the legality, I completely concur with Hunterrose and Kendall - banks should be allowed to offer fractional accounts, and customers who take them do so on their own heads. As I have argued before, and as Paul himself notes early on in his video, in the past much of it (but not all) was definitely fraud and theft that should have been nipped in the bud by the government of the day, but today everyone knows more or less what the situation is. From the perspective of trading practice, fractional banking is no more automatically immoral than short-selling, as both are the issuing for value of a claim for what you do not own. That being said, fractional reserve banking is totally without merit. The extra nominal lending does not lead to lasting additions to total real capital because it does not alter the actual fundamentals that determine that total. The only result (at best) is a privately-caused inflation that increases the mere nominal value of that total capital, and increases the total risk in the economy using that money supply. That being the case, there are no sound principles by which a bank can determine an appropriate reserve fraction because there is no appropriate fraction other than 100%. And of the inflation element? Yes, it lowers the purchasing power of a unit of money, and yes it even lowers the purchasing power of gold itself (sorry Adrock), but again that is not automatically grounds for reaching for your protest signs and bullhorns (or video cameras). It is the result of private action of private individuals, not engaging in any fraud. Not even a third party is defrauded as Paul argues, the a reason similar to how shareholders are not defrauded by naked short-sellers: you own objects or claims thereto, but you do not own the market value of those objects or claims thereto, and are not the victim of robbery merely because that market value is decreased. The resulting decrease in the purchasing power of the money supply is no more immoral in that context as the same happening as a result of a rich gold-find coming on stream (or as in Paul's example of tobacco, a bumper crop being harvested). Given that fractional banking is without merit, the smart thing to do is simply either to demand payment in specie or to slap discounts on the tokens issued by banks that indulge in it, just as was done in times past. Beyond that, fluctuations in the purchasing power of the currency are to be just lived with and dealt with in whatever way people judge appropriate (eg derivatives to transfer risk). So, leaving aside the issue of government involvement, fractional reserve banking isn't immoral in the sense that it is some heinous fraud, not immoral in the way that is grounds for getting all riled up and itching to storm the citadels of high finance to chase out mighty evildoers - but it is immoral in the more humdrum manner of being impractical because it is irrational and doesn't contribute to the production of value. Without government its presence would be minimal even without recognition of its complete lack of merit, and in that light the immorality of it is not a case of embezzlement of billions through skim scams and more along the lines of a case of a mostly-harmless loser with a gambling problem and who most people eventually learn to avoid. Take away the government involvement in finance and the immorality concerned thereafter is for customers to deal with on their own according to their own judgement. It is no more to be outlawed than slot machines are. JJM

Check out this thread, and my own efforts. JJM

The inference would only be drawn by those who weren't paying attention, or worse. Miss Rand was talking about the state of the American Indians' culture at the time and the amount of respect due (ie none) to their territorial claims. Other writings of Miss Rand make it perfectly clear that people are people, and if they act like it then they are due proper recognition, and so forth. If any Indians of the day said "Okay, we realise our previous ways were unacceptable and now we're going to learn from you" etc, and they then claimed individual property in the proper manner, then that should have been honoured and respected just the same as for anyone else - white or otherwise - who did the same. Americans here can correct me on the details (I'm Australian) but I read that some group of Indians did just that, set up proper farms and ranches, and traded with other settlers. Then, however, to their shame some of the settlers decided to steal that land from the Indians, and got the US Army to do their dirty work. If that is indeed what happened, then what those settlers committed was a grievous crime against those Indians - and, if that is indeed what happened then Miss Rand would concur with my judgement of those particular settlers' actions and side with those particular Indians. JJM

The core of the idea makes perfect sense, although it does have some rather bizarre interpretations and often have dubious assumptions thrown in to make the detail. The essential core is straight forward: a very large number of people are constantly and eagerly seeking out information about businesses, and use that information to make their investments. That investment process then incorporates the information into the prices of those investments, and so prices move to the 'proper' levels accordingly very fast. Those who figure out the right investments to make first make money, while those with less information or who learn it later do not make money. It only gets stupid when people introduce those ludicrous assumptions and draw conclusions accordingly. They say that markets should act instantly to new information becoming available, so the path of prices is called a "random walk", following deviations that nobody predicts in advance. However, if this were true then nobody would make money (ie over the ordinary cost of capital for a given risk level) other than by luck or wrong-doing. Without those two, nobody could make money, but that would then eliminate the movitation for people to do research and price investments accordingly. With that, just as SNerd points out the strong-version of the EMH breaks down because nobody is acting to bring the efficency about, leaving behind just vicious accusations. What really happens is that people in markets do not act instantaneously but are very quick. There must be at least some small possibility of making money through research and investment - derided as the continued existence of some 'inefficiency' - to continue to motivate people to research and act accordingly. There can never be "100% efficiency", but it can get close to it. In this fashion it could be said that a form of the Peter Principle is at work: people rise to the level of their incompetence. In the finance world, that means people make money up to the point that their speed and quality of interpretation of information allows them to. And with that, true effort and ability, and the fruits thereof, are recognised. Since people *are* highly educated, as you note, this then makes market efficiency very high indeed. What explains Buffet, therefore, is his superior ability to interpret information and not be swayed by emotion. JJM

Properly, nobody, that instead they should be homesteaded like land once was - but in today's context I was thinking that they should be sold by the government to the highest bidders and the proceeds used to pay off some debt (unless you advocate repudiation) because it's a good a way as any to get rid of some of that debt without taxes. JJM

There's your problem right there - that you have such little regard both for the public and the fact that media outlets are in business to make money by providing the members of the public with what they value. What you are after is some means of turning media into an altruistic affair unsullied by money and popularity. That ain't happening, is precisely what we do NOT want to happen (part of the problem with media bias is that many "journalists" are motivated to distort the truth by holding "higher causes" to which the public are to be made subservient), nor need anything like that happen. Change what people want, how they view and interpret what is presented. If you want more objectivity in the media, promote more objectivity in the audience. Media outlets will then start supplying more of it. To do both, promote objectivity in the universities. From them objectivity will eventually get to the public, both directly and indirectly through it being taught to the suceeding graduates of J-schools. Also, get rid of the barriers to increased competition. For example, open up every single radio and television frequency for purchase, replacing the licencing system with proper ownership. Put an end to limited franchising on pay-tv systems. Allow cable operators free reign to negotiate with property owners for rights of way for their cables. Institute proper ownership regimes for satellite positions. Privatise the satellite launching business. And so on. JJM

All inflation is caused by government. Inflation is inflation of the money supply with something whose true economic value bears no relation to the face value stamped on the units of that something, which can only happen when that face value is given weight of law (that is the meaning of the word 'fiat'). (Usually the face value is waaaaay above the value of the commodity, such as in paper notes whose actual economic value is less than that of a sheet of toilet paper, but for low value coins the reverse can be true for a short while). The associated decline in purchasing power - which happens at a rate distinct from that of the rate of inflation - is a consequence of inflation, not the inflation itself. There are other causes of a decline in purchasing power besides inflation, which includes for example all those things that reduce the total productive output, but these are not properly called inflationary just because general prices rise. Inflation can take place even when prices are falling, which happens when the rate of expansion of the fiat money supply is so low that it is outstripped by increase in output. This is improperly labelled an example of deflation, as in the case of Japan recently. Nope and nope. There's not even any justification for the government merely defining the monetary unit, never mind having a hand in producing those units. This means not only that the government should not print notes but shouldn't mint coins either, including real gold and silver to be traded at their proper metallic value. The only thing the government should be doing specifically in relation to the money supply is upholding contract law and prosecuting fraud. Yes, there are other motives and intended goals for it besides stealth taxation. A common one is manipulation of the exchange ratio of the currency to foreign currencies (sometimes to change that ratio and sometimes to maintain it at a fixed point), usually intended to "promote international competitiveness". Another is to attempt to keep or push interest rates down by injecting the new money into debt capital markets - this is the most common reason and mechanism for inflation in western countries. Another again is to reduce the real value of hourly-wage incomes so as to "reintroduce wage-flexibility" while allowing labour bodies to keep up the pretense they're increasing the well-being of their members. And so on. JJM

I definitely agree with that in relation to citizenship (both for the born-local and the immigrant alike), though not to an immigrant, on the grounds of presumption of innocence because doing otherwise would mean the government initiating force against those locals who choose to allow on to their properties foreign people who haven't demonstrated any criminality. So, I would say to have no immigration quotas, and borders open except to those who have criminal records of any significant degree (which excludes non-crimes such as tax-evasion) and those who have demonstrably actively promoted the initiation of force (which is itself properly a crime). Another thing that would be for real in such a country is that as free people we'd be perfectly capable of criticising what we want, as loudly as we want, and so on. With that in place you'd find that a lot of immigrants who'd hate our freedoms wouldn't come in the first place. Another again is that the government of such a country would not be squeamish about protecting the rights of all persons within its borders - which would include, for example, not being afraid of race or religion when rescuing abused children from parents inflicting physical aspects of nutty beliefs on their children (I agree with Dr Peikoff that the pedagogy alone is not sufficient). The consequence of this would be many of the children of those who do would be apt to tell their nutty parents where to go once they realised that their rights would be respected properly. Nurture is not destiny, and I share Dr Dawkins' outrage at the idea of a "Christian child", a "Muslim child" and so on. I've heard it said - and I tend to believe it - that a lot of fear and hate on the part of Muslims is precisely because their children would be "corrupted" by western ways if it weren't for the threat of violations of their rights to keep them in thrall. With something like that in place, I find it hard to imagine a country being swamped by people with bad cultures to any great degree without that being part of a definite plan, in which case such a thing might constitute an act of war since there is deliberate intent to violate rights eventually. However, for that to work it would have to be so quick as to be obvious because otherwise the rebellion of their youth would set in, in which case it would be a matter of dealing with individual criminal immigrants as necessary. So, if there is no sign of a deliberate swamping, the more the merrier. So long as I would be confident that their rights would be respected, why should it bother me if my great great grandchildren were to speak Spanish, Swahili, Cantonese, Arabic or Urdu as their first language because of a large trend in immigration patterns? JJM

Are you referring to the Obamacropolis? Ye gods, it's more than just a bit creepy, that thing screams megalomania. The journalists at the NY Post here have it right: In other words, this was Barack Obama Gerald Starnes happily accepting his DNC Presidential Candidate nomination Presidency at the 20th Century Motor Co, making his speech in a football field main hangar, saying that we are our brothers' and sisters' keepers, and receiving thunderous applause from people whose real aim is to muscle in on the wealth of others. JJM

I wouldn't be so quick to judge just on that basis. I recall a case from just a few years or so ago about ice-cream. The judges arbitrarily defined a market down so tightly - "super-premium ice-cream" - that there were only two or three producers at that level. On that basis they then decided to hammer one of those ice-cream companies for violations of anti-trust laws even though there are many producers in the total ice-cream market and the victim in question was a relative pipsqueak. It would be a good idea to investigate things further by those capable of it on the grounds that the judges involved in the Apple case may decide to pull a similar stunt, precisely because Apple is known to have a high mark-up on its hardware and could be argued to be having a monopoly on the usability of that hardware. JJM

No. Sport is supposedly ritualised combat, but even in real combat people do recognise a brave fight put up by losers. This is - or should be - even more pronounced in sport, because it is not just about the race or game of the moment but demonstration of skill and commitment over the long term. These are objective human values, and should be hailed. Consequently, decent people expect sportsmanship as well as wanting to see their particular favourite win, and decent folk do still recognise the merits of the runners-up. For instance, I don't know about US football, but in the Australian Football League the ladder placings for the whole league are remembered by all concerned. People remember if a given team makes the top-eight, then if it makes the quarter-finals, semis and then the Premiership. I think that is unfair. I recall an advert (by Nike I think?) that was extremely controversial because it said "You don't win silver, you lose gold." It caused major offence not just among competitors but among the fans of a wide variety of sports as well - clearly a recognition for runners-up is widespread. Quite right, too. There are more than just a few exceptions. Sponsorships and endorsement deals can and does cover a lot of expenses for players of a large number of sports, both team-oriented and individual-oriented alike. The key is just to make a sufficient show to make the sponsor think that sponsorship is worthwhile. In most cases that can cover a sizeable proportion of the whole field and not just the top few players or teams. I also think you're focussing too much on the televising of these sports to enormous general audiences who aren't committed fans, giving too much attention to adulation by people concerned solely for the competition of the moment. I think that for most participants, as long as there are sufficient crowds to justify keeping the grounds open and sponsorships to defray enough of the costs, they will continue to plug hard at it for so long as they love it and are able to improve, with or without wide-spread adulation, content to be known among and applauded by their own particular fan-bases who follow the progress of their chosen teams and players. That is all that justice requires. He does, and it does. JJM

I read it in a UK newspaper website late last year. Apparently it takes just one sheep to figure it out, and when it does it the rest learn by observation pretty quickly. That's when you try to figure out which was The One and then break out the mint sauce. JJM