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Thomas M. Miovas Jr.
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I've decided not to get into endless arguments with the likes of Crow Epistemologist who has no conception of money and who thinks that by selling one's gold to a store the store is accepting the gold as some sort of payment and is dealing with gold as money in the transactions.

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  • 8 months later...

Getting back to the main topic of fractional reserve banking (FRB):

I see two contradictions that occur at different times using your example in the OP (the same one I'd use myself): one, there are more notes that are said to equal gold than gold, and inflation was said not to exist even though more notes exist than does gold.

The first contradiction seems self-evident. As for the second, I understand inflation to mean an increase in the supply of money over the supply of services (Bastiat's definition of value). The notes taking gold's place indicate inflation is occurring. (Even if deflation occurs due to advances in technology, making more notes than gold will reduce the amount of deflation that would have occured otherwise, so the trend of creating more notes is toward inflation)

Are these two contradictions identified properly? If so, how can Objectivists support a system of banking built on them? And remember contradictions do not exist.

Not that Objectivists go for the utilitarian approach, but inflation does damage an economy to the degree that it occurs. Also having more claim checks than things to be claimed creates the risk of bank runs; also damaging to some.

The biggest issue I see for Objectivists is the violation of property rights both inflation and "double selling" can create.

Double selling is obvious, but am I making an equivocation here when referencing more notes than gold? I don't think so. Timing of the shuffle and meeting demands is irrelevant. Multiple owners own the same object even if unidentified until a bank run occurs.

Inflation syphons wealth from those who earned it and transfuses it to the source of inflation when an increase in the supply of money occurs; sometimes this is legit (e.g., finding gold) and other times its not (counterfeiting money). Which is this case?

I would like to hear your thoughts. Mine are that these contradictions are insurmountable and a gov should outlaw FRB for the same reason it outlaws double selling.

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Inflation syphons wealth from those who earned it and transfuses it to the source of inflation when an increase in the supply of money occurs;

 

It is impossible for inflation to siphon earned wealth from those who do not use Federal Reserve Notes as their store of wealth. While government currency is just fine for transient financial transactions, it's wise to regard it as if it were rapidly blackening bananas.

 

I couldn't care less that banks operate with fractional reserves because I have absolutely no power to dictate their monetary policy... only my own fiscal policy. So I act in my own best interests to protect myself from the effects of their swindle simply by refusing to participate. They do not have my sanction to become their victim, and they will never get it.

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I would like to hear your thoughts. Mine are that these contradictions are insurmountable and a gov should outlaw FRB for the same reason it outlaws double selling.

Objectivism holds that fraud is a form of initiation of force, and therefor should be illegal. Double selling is fraud because the seller lies to the second buyer about what they are buying: nothing, rather than a house/car, etc..

You have not demonstrated why FRB is fraud. It in fact does not involve lying to anyone, the inner working of FRB are well documented and publicly available. I think a financial institution telling customers that they do not engage in FRB, but engaging in it, should be outlawed as fraud. I don't think FRB should be outlawed, because it is not fraud.

It is impossible for inflation to siphon earned wealth from those who do not use Federal Reserve Notes as their store of wealth. While government currency is just fine for transient financial transactions, it's wise to regard it as if it were rapidly blackening bananas.

 

I couldn't care less that banks operate with fractional reserves because I have absolutely no power to dictate their monetary policy... only my own fiscal policy. So I act in my own best interests to protect myself from the effects of their swindle simply by refusing to participate. They do not have my sanction to become their victim, and they will never get it.

This is contrary to Objectivism, and moralist is not an Objectivist, he's a Christian fundamentalist who has on this forum expressed his opposition to things like money-lending, homosexuality, single women, television, etc., all obviously out of religious superstition.

Edited by Nicky
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 I don't think FRB should be outlawed, because it is not fraud.

Since neither of us possesses the power to set Bank policies, the only thing that really matters is how we each order our own finances.

This is contrary to Objectivism, and moralist is not an Objectivist, he's a Christian fundamentalist who has on this forum expressed his opposition to things like money-lending, homosexuality, single women, television, etc., all obviously out of religious superstition.

...and yet I'm the one living by the sound ethical Capitalist economic principles Ayn Rand described existed in Galt's Gulch... while you support the fraudulent monetary policies of the government controlled banks. It's perfect moral justice that each of us gets what they deserve as the consequences of what each of us has chosen.

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Moralist, I think Nicky was addressing FRB as such, not FRB as practiced by the US (or other) governments. As practiced by the US, FRB is actually not fraud, but rather an example of a state-sanctioned coercive monopoly (which is bad, obviously).

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Since neither of us possesses the power to set Bank policies, the only thing that really matters is how we each order our own finances.

...and yet I'm the one living by the sound ethical Capitalist economic principles Ayn Rand described existed in Galt's Gulch... while you support the fraudulent monetary policies of the government controlled banks. It's perfect moral justice that each of us gets what they deserve as the consequences of what each of us has chosen.

The only polite reply to this type of post is to say "I counter-assert that you are wrong... so there!" Edited by softwareNerd
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Thank you all for your feedback. If I am wrong about FRB, I'm sure we'll discover where. I used to be a theist and the individuals presenting rational arguments in this forum helped change that. I don't mind being wrong, but I won't change my mind until I identify where. Just thought you should know what you're getting into if you decide to try and discover where my error is.

Objectivism holds that fraud is a form of initiation of force, and therefor should be illegal. Double selling is fraud because the seller lies to the second buyer about what they are buying: nothing, rather than a house/car, etc..

You have not demonstrated why FRB is fraud. It in fact does not involve lying to anyone, the inner working of FRB are well documented and publicly available. I think a financial institution telling customers that they do not engage in FRB, but engaging in it, should be outlawed as fraud. I don't think FRB should be outlawed, because it is not fraud.

This is contrary to Objectivism, and moralist is not an Objectivist, he's a Christian fundamentalist who has on this forum expressed his opposition to things like money-lending, homosexuality, single women, television, etc., all obviously out of religious superstition.

The fraud is in plane sight. Everyone knows it. The example in the OP uses notes that say equal to 1 Oz of gold. If more notes exist than gold, then not every note can equal 1 Oz of gold. If this is the case the fraud is on the note itself. The note is telling those who use it that its equal to 1 Oz of gold, but it has to be a lie.

In the double selling scenario, let's say that neigther buyer comes to claim the object in question yet. According to the principles of FRB, nothing is astray. Each buyer continues beleiving they own the object in question. Now let's also assume the seller tells both buyers the whole situation and both buyers are aware of eachother. They still don't lay claim to the object because the reciept is what they want for now. This is in a sense what you're saying, Nicky. This isn't fraud? Telling two seperate people that they can own the same object in the same way, and are able to claim it whenever they want even though this transaction is impossible due to the nature of contradictions? I don't think frauds are limited to lies.

But regardless of the question of legality, do you at least see the same contradiction I do? If so, aren't you the least bit curious? Where does your mind go after identifying any contradiction?

Now as to a second form of fraud. If notes and gold are in circulation, assuming the scenario in the OP, then those that choose not to engage in FRB have the buying power of their gold manipulated by FRB regardless. If 100 units of gold are in circulation and the buying power fluctuates due to progress or decline, that's one thing, but FRB isn't that. It's something else. It generates more units of gold due to the number of notes exceeding the ammont of gold, and that each note is said to equal an certain amount of gold. This form of fraud is similar to the first, in that notes are said to equal gold but can't, however, the victim is a non-participant. This lie that notes are equal to gold is in fact reducing the value in physical gold by transfusing it to the extra notes that are created. We're not talking a small percentage either; it's like 90% reduction, which is "sustainable". If the notes were indeed equal to gold, then this wouldn't happen because as gold is taken out of circulation a note would replace it. But as it is the gold isn't really taken out of circulation when it is replaced by a note; only a percentage of the gold is left in reserve.

Edited by m082844
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The fraud is in plane sight. Everyone knows it.

Is it a lie if everyone knows it? Depending on what is written on the note, it may be a lie. This much is true. However, put the specific words on a specific note aside for a moment and consider the following scenario:

Consider a person who is putting gold in a fractional reserve bank ("FRBank"). The FRBank tells the person what they plan to do with his gold. They tell him that they plan to keep a certain fraction on hand and lend the rest out. Despite this, they promise to pay him 100% of his gold whenever he wants, because all depositors typically do not want to withdraw all their gold at the same time. They add a warning that if all depositors want their gold at the same time (i.e. a "run"), then the FRBank will be unable to pay it out immediately unless they liquidate loans. Further, they explain that a distress liquidation might involve a loss of principle which will first be made up from the FRBank's capital, and will then fall upon the general creditors of the bank. Any further losses from liquidation would fall on the depositors, who are the remaining (most "senior") creditors.

Since the 1700's, people have known that this is how FRBanks operate. Typically, notes just promised to pay the bearer a certain sum of gold. However, everyone was aware that it was a note, a promise from an FRBank.

So, consider this: suppose an honest summary of these facts were printed on the note. Also, these terms would be printed on all checks. The depositor thus has explicit knowledge of the deal, and everyone who agrees to accept checks also explicitly accepts the terms.

Now, under these conditions, where is the fraud and deception?

Edited by softwareNerd
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Is it a lie if everyone knows it? Depending on what is written on the note, it may be a lie. This much is true. However, put the specific words on a specific note aside for a moment and consider the following scenario:

Consider a person who is putting gold in a fractional reserve bank ("FRBank"). The FRBank tells the person what they plan to do with his gold. They tell him that they plan to keep a certain fraction on hand and lend the rest out. Despite this, they promise to pay him 100% of his gold whenever he wants, because all depositors typically do not want to withdraw all their gold at the same time. They add a warning that if all depositors want their gold at the same time (i.e. a "run"), then the FRBank will be unable to pay it out immediately unless they liquidate loans. Further, they explain that a distress liquidation might involve a loss of principle which will first be made up from the FRBank's capital, and will then fall upon the general creditors of the bank. Any further losses from liquidation would fall on the depositors, who are the remaining (most "senior") creditors.

Since the 1700's, people have known that this is how FRBanks operate. Typically, notes just promised to pay the bearer a certain sum of gold. However, everyone was aware that it was a note, a promise from an FRBank.

So, consider this: suppose an honest summary of these facts were printed on the note. Also, these terms would be printed on all checks. The depositor thus has explicit knowledge of the deal, and everyone who agrees to accept checks also explicitly accepts the terms.

Now, under these conditions, where is the fraud and deception?

I see that everyone can be honest about the dealings, so that aspect wouldn't be the fraud. Were the note to say that it can be traded for a certain amount of gold, however, then it would be a fraud so long as more notes existed than gold, as it must with FRB even if everyone is honest. Having more notes that equal gold than actual gold is a contradiction. Can we at least agree on this point?

I really cannot proceed in my own thinking until we address this issue. If it is a contradiction, then why is this not a form of fraud? If it's not a contradiction, then what did I miss or add inappropriately?

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Sorry, I'm a little embarassed for being this slow. So you're essentially saying the note can say "we will pay x amount of gold unless we can't"?

So the note is equal to a certain amount of gold in one respect and not in another respect? This seems to resolve half the issue -- bank runs but what about normal situations of non-bank runs?

Analyzing both respects leads me to the same contradiction and here is how. In one respect, say a bank run scenario, the note is not equivalent to a certain amount of gold. In the other respect, say a non-bank run scenario, the note is understood to equal a certain amount of gold. In the first respect, I don't see a contradiction, and in the second respect I do.

In the second respect the notes are in effect equal to gold until the first respect overrides the second. So while we opperate in the second respect notes equal gold but the fact is they all can't.

If somehow the notes had a variable value so that they (the total number of notes) can only equal the actual ammount of gold out of circulation at any given time, then the contradiction would be resolved. The notes would essentially equal the total amount of gold that is in the reserve at any given time. This leads me to full reserve banking and the elimination of FRB, which is another reason why I see FRB as the cause of the contradiction.

Getting back to the contradiction, is it a correct identification of one or not?

Edited by m082844
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In one respect, say a bank run scenario, the note is not equivalent to... ...

In the scenario I described, the note is not equivalent to gold. It is really not exactly equivalent to anything.

In law, there is a type of legal relationship called a "bailment". The best argument against FRB says: a bank deposit is a bailment. Therefore, a banker cannot legally lend the gold to someone else. Imagine if I parked my car in the garage at 9am every day and took it out at 5pm. If I learned that the parking garage was renting out my car for a few hours during the day, on the "principle" that I wouldn't miss it, I wouldn't be happy. even if they were just doing a few miles each day, it is not the miles that count... I considered the relationship to be a bailment, and they broke those terms.

Now, imagine that the parking garage did this with my consent. Also, they said that they would rent out only 90% of the parked cars so that 10% were available for anyone who suddenly had to drive home. Being a car, and not fungible gold makes the example a stretch... but, the larger point is this: if I enter into this arrangement voluntarily, my parking ticket is no longer a bailee's warehouse receipt. Nor is it "equivalent" to a car. It is simply a token of the specific type of contract I have agreed to. No fraud is involved.

Is a bank deposit a bailment? Or is it this other type of arrangement? Well, it is whatever the two contracting people want it to be. Historically, there has been confusion and ambiguity about this. The ambiguity was created by governments -- like the British government, repeatedly standing behind the Bank of England in various ways. There is a lot of valid criticism about how the FRB has been run and how it evolved. However, that does not mean a clean system of FRB is fraudulent.

What one needs is clear contractual terms. If I want to put my money into a bailment-type of contract with a bank, they should keep it and not lend it out. Period. However, if i want to keep my money in a FRB-type account -- which will be cheaper for me, and might even generate some income -- that should be my choice as well.

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You make some great points, but I can't get past that the note has to equal gold at some point. So when the depositor exchanges his gold for the note, or the other way around, it's considered an even trade (one for one). But I think I understand you to mean the person holding the notes after the exchange is holding something that is not equal gold. And if a bank run occurs, it's not equal gold. I'm not sure one can say the note is not equal gold while holding it, and it magically equals gold during an exchange -- that seems to be another contradiction. What's the essential difference?

To draw another analogy, let's consider a pyramid scheme. If everyone is honest about all the terms and rules, is that acceptable activity in capitalism? If so, why? There might be a connect here between honest pyramid scheme and honest FRB.

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You make some great points, but I can't get past that the note has to equal gold at some point. So when the depositor exchanges his gold for the note, or the other way around, it's considered an even trade (one for one). But I think I understand you to mean the person holding the notes after the exchange is holding something that is not equal gold. And if a bank run occurs, it's not equal gold. I'm not sure one can say the note is not equal gold while holding it, and it magically equals gold during an exchange -- that seems to be another contradiction. What's the essential difference?

If a paper note does not accurately represent gold, it's a denial of fiscal reality, and denying reality is a lying. This is similar to the A = B lie that credit is capital, when it is only the lack of it. This A = B lie causes economic depressions which are the inevitable return to the A = A reality that only capital is capital.

 

The economic pain of 2008 taught people nothing, so same thing will happen again... and again.

 

 

To draw another analogy, let's consider a pyramid scheme. If everyone is honest about all the terms and rules, is that acceptable activity in capitalism? If so, why? There might be a connect here between honest pyramid scheme and honest FRB.

 

In my view, there is no such thing as an honest pyramid scheme, and it has nothing to do with Capitalism. People will willingly participate in a Ponzi scheme if they believe that it is in their own selfish interest, but that is also a lie because it's not in their selfish interest when their gain comes at the loss of others, rather than working to create wealth honestly.

 

This is why a Ponzi scam is always zero sum. It does not actually create wealth. It only creates the illusion of wealth because gain that can only come from the loss of others produces nothing. Transferred wealth produces no wealth, and  living off of transferred wealth is living off of others. This is a violation of the ethical code of Galt's Gulch:

 

"I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine."

 

 

And this is why in 2008, people got exactly the fleecing they deserved, because they had violated this ethical code... and they didn't even bother to ask. Ponzis are not Capitalism which is not zero sum, because Capitalism creates wealth that does not come at the loss of others.

 

 

 

Contrast the two economic systems Ayn Rand described in great detail in Atlas Shrugged. One was based on denying reality, while the other was based on affirming reality. Today, everyone still has exactly that same choice of the system in which they will participate. Choosing the ethical one brings real prosperity, while choosing the unethical one only brings the illusion of prosperity which is eventually destroyed by the return to reality called Depression. If people learned to live by the ethical Capitalist vaues Ayn Rand promoted, they would never have to worry about money for the rest of their lives.

Edited by moralist
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The fraud is in plane sight. Everyone knows it. The example in the OP uses notes that say equal to 1 Oz of gold. If more notes exist than gold, then not every note can equal 1 Oz of gold.

There's no point in debating something, if you're not gonna bother using precise language that accurately describes it.

The word "equal" would never be printed on a piece of paper, to suggest that that note is equal to an ounce of gold. It's not. It's a piece of paper. A piece of paper doesn't "equal" anything, except a piece of paper. It may be redeemable, under certain conditions, for gold, but it doesn't "equal" anything.

Please, look up FRB, learn what the various terms mean, use them correctly, and then we can debate whether the practice is fraud or not.

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If a paper note does not accurately represent gold, it's a denial of fiscal reality, and denying reality is a lying.


Money doesn't *have* to be defined as accurately representing gold. It's a form of exchange. As far as I know, FRB in general is not fraud because it really just stands for money in such a way that people are trading when they need to trade. No need to wait until the bank itself has enough money. But as long as withdrawals and deposits are balanced, there is no real issue. You aren't making sense at all, because there is no intrinsic value to gold, it's just typically a good way to represent value in trade. If a paper note doesn't represent gold, it's not denying fiscal reality, it just shows why a store of value that is *paper* is a stupid idea.

If people learned to live by the ethical Capitalist vaues Ayn Rand promoted, they would never have to worry about money for the rest of their lives.



Uhh, capitalism isn't some utopia. You make it sound like some communist utopia where good people don't need to worry about money, while the bad people are exterminated by their own evil because they violate ethical principles declared by the leaders. Anything contrary to the utopian ideal is declared heretical and denied, regardless of how it really works (such as: if money isn't based on gold, it's all one big fat lie!). Please don't treat Objectivism as some kind of reverse-Marxism; Galt's Gulch is not The Ideal.
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Money doesn't *have* to be defined as accurately representing gold.

It sure doesn't any more.

 

In 1970 foreign countries were demanding gold for their dollars and the US didn't have enough gold to back them (fractional reserve banking) so to prevent a run, the government cut the dollar exchange rate from gold and allowed it to "float". 

 

In 1971 gold cost $40 an ounce.

 

In 2013 gold costs $1,570 an ounce.

 

Exactly the same one ounce of gold... only the amount of dollars needed to buy it has changed. And that is why the dollar is such a poor quality store of wealth.

 

Same

It's a form of exchange. As far as I know,

Money works just fine for immediate transient transactions, as long as you aren't holding onto it for longer periods of time..

FRB in general is not fraud because it really just stands for money in such a way that people are trading when they need to trade. No need to wait until the bank itself has enough money. But as long as withdrawals and deposits are balanced, there is no real issue.

Fractional reserve banking uses the same quality of principles as a floating dollar.

You aren't making sense at all, because there is no intrinsic value to gold

What an silly statement, Eiuol. Of course there is. The intrinsic value of gold is the labor and material costs mining and refining it into uniform units fit to trade. The market value is driven by demand.

, it's just typically a good way to represent value in trade. If a paper note doesn't represent gold, it's not denying fiscal reality, it just shows why a store of value that is *paper* is a stupid idea.

It's always a stupid idea to deny reality.

Uhh, capitalism isn't some utopia. You make it sound like some communist utopia where good people don't need to worry about money, while the bad people are exterminated by their own evil because they violate ethical principles declared by the leaders.

I don't believe your description any more than you do because what I said is nothing even close to that. What I am saying is that anyone who follows Ayn Rands ethical economic principles in Atlas Shrugged will consistently prosper in business regardless of political or economic cycles.

Anything contrary to the utopian ideal is declared heretical and denied, regardless of how it really works (such as: if money isn't based on gold, it's all one big fat lie!). Please don't treat Objectivism as some kind of reverse-Marxism;

 

I'm not talking about the othrodoxy of Objectivism. I am specifically referring to the ethical American Capitalist economic business principles in Atlas Shrugged.

 

 

Galt's Gulch is not The Ideal.

 

It's true that it is not the ideal for you... but it is certainly an ideal worthy of aspiration for anyone who freely chooses to work to make it real.

Edited by moralist
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To draw another analogy, let's consider a pyramid scheme. If everyone is honest about all the terms and rules, is that acceptable activity in capitalism? If so, why?

I'm going to take this example, because I think it is important to distinguish between things that are stupid and ignorant, and -- on the other hand -- things that should be illegal.

Let's assume we have a pyramid scheme that was absolutely transparent. Suppose someone gave you a letter saying the following:

Pay $1,000 to the guy who gave you this letter plus $1000 to Mr. SoftwareNerd. If you make these two payments, we authorize you to make 3 copies of this letter and pass it to three other people. if they accept the terms, they will each pay you $1,000. So, even though you paid out $2,000 you will receive $3,000 from them. That means, you will net $1,000 just for making 3 copies of this letter.

As a fully functioning adult, if you accept these terms, why should the law stop you?

Take money. Suppose I go to a store with monopoly money and ask "Can I pay in monopoly money?" Should the law say that the person is not allowed to accept? Should his stupidity be illegal?

Actually, FRB done properly is *not* a pyramid scheme. Under proper FRB notes have value. However, before going into the argument of "how much value do they have", I think its important to find out where the law must draw the line between stupidity and actual illegality. I'm willing to concede that many FRB systems were ambiguous in what notes actually represented. So, for now, I'm not defending some particular concrete system. Right now, my point is simply this: if a person wants to accept something that has a value of "X" to any sensible person, and is willing to give value (say) 2 times X, in return... why should this be illegal?

Edited by softwareNerd
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I'm not talking about the othrodoxy of Objectivism. I am specifically referring to the ethical American Capitalist economic business principles in Atlas Shrugged.

Ayn Rand did not write about "the ethical American Capitalist economic business principles", she wrote about rational principles of egoism. Your posts *imply* what I said it does. All you said basically is "I don't mean that" but it does fit with what I said. Not much else to say. At least stick to the topic, or don't bother posting. I'm going off topic too, so I won't say more on this here, either.

Edited by Eiuol
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moralist said #90

If a paper note does not accurately represent gold, it's a denial of fiscal reality, and denying reality is a lying. This is similar to the A = B lie that credit is capital, when it is only the lack of it. This A = B lie causes economic depressions which are the inevitable return to the A = A reality that only capital is capital.

I am not an economist, but as a layman I would suggest that this line of reasoning is an incorrect view of what happens in capitalism. Capital or wealth (values in addition to what is needed for sustanance) are created by productive means. A capitalist that uses the wealth he created by lending it to another for a productive/profitable purpose will gain assuming his is repaid from the profits of the second person. It could also be that the same capitalist takes his profits from year x and uses it to further expand his own business in year x+1 in essense he has 'lent it' to himself. How then, can credit be the evil thing you claim it to be?

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Ayn Rand did not write about "the ethical American Capitalist economic business principles"

I believe you. Eiuol.

I'm completely convinced that from your point of view, Ayn Rand had nothing to say to you about the principles of Capitalism. For me she did, and I've been using her ideas in business for decades. So each of us takes away from her writings what they find most useful in their own lives.

 

There are pitfalls to holding currency which represents nothing real except a fractional reserve banking system based upon illusion. This system mirrors the personal finances of many people who live by leveraged debt. the government uses the same system of debt except it can "create" money by diluting its value.

 

And this explains why, from 1971 to today, the price of gold has gone up by 3,900%.

 

The only reason people have eagerly granted their sanction to the fractional reserve system, is because they believe thay can profit from it. Except for the fact that their gain in that zero sum system can only come from another's loss, and not from any wealth they had worked to create for themselves. Sure, it ~seems~ like getting something for nothing, but no one bothers fo consider what they have to become to get it.

Edited by moralist
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It is impossible for inflation to siphon earned wealth from those who do not use Federal Reserve Notes as their store of wealth. [cut]

 

Can I stop you right there? Do you care to give us an estimate of exactly what portion of our population does use FRNs as a store of wealth? Do any of these people have a portfolio of over about nine hundred bucks? Hiding cash in mattresses might have been common in 1900, but today we make use of "banks" and "mutual funds" and "diversified portfolios". I keep trying to find potential victims of US inflation and I still can't find any that I particularly care about...

 

And just to pile on here, Ayn Rand did not write about economics in Atlas Shrugged nor did she ever write about economics ever save a few disparaging remarks about LVM's psycho-epistemology...

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moralist said #90

If a paper note does not accurately represent gold, it's a denial of fiscal reality, and denying reality is a lying. This is similar to the A = B lie that credit is capital, when it is only the lack of it. This A = B lie causes economic depressions which are the inevitable return to the A = A reality that only capital is capital.

I am not an economist, but as a layman I would suggest that this line of reasoning is an incorrect view of what happens in capitalism. Capital or wealth (values in addition to what is needed for sustanance) are created by productive means. A capitalist that uses the wealth he created by lending it to another for a productive/profitable purpose will gain assuming his is repaid from the profits of the second person. It could also be that the same capitalist takes his profits from year x and uses it to further expand his own business in year x+1 in essense he has 'lent it' to himself. How then, can credit be the evil thing you claim it to be?

And what happens when credit comes to be regarded as if it was capital... and not the lack of capital?

 

2008

 

You'll have another chance to understand first hand the next time the pyramid scam collapses. I've lived long enough to see this cycle occur a few times and learned how to protect myself from becoming collatoral damage.

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Can I stop you right there? Do you care to give us an estimate of exactly what portion of our population does use FRNs as a store of wealth? Do any of these people have a portfolio of over about nine hundred bucks? Hiding cash in mattresses might have been common in 1900, but today we make use of "banks" and "mutual funds" and "diversified portfolios". I keep trying to find potential victims of US inflation and I still can't find any that I particularly care about...

 

And just to pile on here, Ayn Rand did not write about economics in Atlas Shrugged nor did she ever write about economics ever save a few disparaging remarks about LVM's psycho-epistemology...

 

Actually, that is not quite true. She did write about economics, actually inflation and the Federal Reserve in particular.

The government should not be able to manipulate and inflate the currency because it does steal from us - it is a tax. In fact, the government shouldn't be choosing which currency we must trade in. I know many people that use the dollar as a store of wealth, and they are losing its value everyday.

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