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Felix

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...Midas would have to spend John's entire interest within the 12 years...
But, Midas would spend the entire amount. The amount would be completely paid out unless he wants to increase his money balance. he would pay out some to employees, some to customers and the rest to the owners of his corporation.
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Yes, but you don't need to pay interest in new money, interest can be paid because money becomes worth more; i.e. the buying power of a dollar increases. Sure, it would require an overhaul of the current system, but I think it would remove most, if not all, of the problems you are pointing out.

That would mean that no interest is being paid and that you are glad that prices just go down. Interest means that you pay additional money (or at least additional stuff). What you describe is deflation, not interest.

And how, exactly, can gold money be lent into existence? It's not like someone has a molecular nanofactory that is creating atoms of gold out of thin air. Gold has to be produced, and I fail to see how you can speak of lending money into existence in a gold-economy.

That's right. Gold can't be created out of thin air. That's why a gold standard is ten times better than a fiat system. You can read a description of this in Trudy's borrowed gold scenario. He described what I mean here.

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But in theory it could work as an alternate form of paying interest. It really does not matter how much money you have in the end, what matters is how much it will buy.

There are still other problems in a borrowed money scenario.

First of all, since all money is borrowed, you don't really benefit from a rise of its value. Because you spent it when it was worth less (at the time you borrowed it) and not only have to get it back but also now (since time has passed) it has also become more valuable, so you have to try really hard to get it back.

People will also want to save money. But since you have to pay your entire principal back on time, you'd have to work really hard to make these people spend it on your products instead. This pressure is it which makes ordinary people produce extraordinary results in capitalism.

The third thing we have neglected is that all you will be doing is breaking even. You work like hell to get the principal back, but then all that happened is that you break even and have nothing to show for it. In all these discussions we have not discussed profit. And if some profit, they will have the money in their hands others desperately need to pay back their debt. They are like the people who want to save money and are in the position of having the others with debt work like hell just to get hands on their money. Remember, as long as all money is borrowed, once it's paid back, it's out of circulation.

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But I don't see why money has to be borrowed into existence. I thought you said that it was impossible to do that with gold money, so why are you now saying it is a problem?

People will also want to save money. But since you have to pay your entire principal back on time, you'd have to work really hard to make these people spend it on your products instead. This pressure is it which makes ordinary people produce extraordinary results in capitalism.

I disagree. In an economy that runs on barter you would not have this problem, and gold money is just another type of good you trade, as a sort of intermediary between the real goods that are changing hands. It may require a change of perspective in how most people view this issue for it to work, but that is only reasonable considering this type of economy is very different from what we have today.

It is in everyone's best interest to spend most of their money regularly, to improve their productive capacity (besides buying the things they need to survive) and it is in this way that such a group of individuals reaches a continuous growth in productivity. In the end, it comes down to the fact that the basic unit upon which economics depends is wealth, and not money. It doesn't matter if I am not rich, if I have a much higher living standard. The amount of goods available to you is all that really matters in the end.

Don't you agree that normal people have a much better life than even the richest monarchs in the middle ages, who arguably had almost infinitely more money in their possession?

Money is not inherently valuable, it derives its value from the (unconsumed) goods backing it. You can't simply take money as a primary, and start arguing from that point onwards, without looking at what money actually entails.

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But I don't see why money has to be borrowed into existence. I thought you said that it was impossible to do that with gold money, so why are you now saying it is a problem?

It's impossible to create gold out of thin air. But it is possible to have a monopoly on borrowing gold coins. Read Trudy's Borrowed Gold Scenario.

I disagree. In an economy that runs on barter you would not have this problem, and gold money is just another type of good you trade, as a sort of intermediary between the real goods that are changing hands. It may require a change of perspective in how most people view this issue for it to work, but that is only reasonable considering this type of economy is very different from what we have today.

In a barter economy, this problem wouldn't exist, because money would just be yet another good. We don't live in a barter economy. You can't explain a non-barter system with barter.

It is in everyone's best interest to spend most of their money regularly, to improve their productive capacity (besides buying the things they need to survive) and it is in this way that such a group of individuals reaches a continuous growth in productivity. In the end, it comes down to the fact that the basic unit upon which economics depends is wealth, and not money. It doesn't matter if I am not rich, if I have a much higher living standard. The amount of goods available to you is all that really matters in the end.

Okay, in the end. But still saving allows you not to have to work when you are old. This also has nothing to do with the problems we are discussing. It's another issue.

Don't you agree that normal people have a much better life than even the richest monarchs in the middle ages, who arguably had almost infinitely more money in their possession?

We live in a technically more advanced world, yes. That allows us to buy things that weren't in existence in earlier times. The queen of England has both.

Money is not inherently valuable, it derives its value from the (unconsumed) goods backing it. You can't simply take money as a primary, and start arguing from that point onwards, without looking at what money actually entails.

In today's system, money derives its value from the fact that it has to be paid back or else. It is not backed.

I take money as primary, because in today's system it is - as it is in any system where the means of exchange has to be borrowed.

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Money is not inherently valuable, it derives its value from the (unconsumed) goods backing it. You can't simply take money as a primary, and start arguing from that point onwards, without looking at what money actually entails.
This is a very salient point Maarten. Behind what you say is the fact that this discussion has proceeded without a proper definition of money. I've held off providing the correct definition because it is better understood in the context of the scenarios I laid down earlier.

Here it is:

Money is an obligation expressed in terms of a value unit and issued by a buyer in exchange for value from a seller. It is transferable and acceptable to other sellers for equivalent value, and is ultimately redeemed for equivalent value by the issuer.

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I don't think it is at all likely that someone can get a monopoly on gold if it is actively used as currency. As far as I know the manipulation of the gold price mostly occurred when the majority of countries had left the gold standard. If you pay with gold coins, so to speak, it is very difficult for one person to get them all, even if he owns the sole source of gold in the world.

If one person holds all the means of exchange in the world, then it is not a very good means of exchange anymore, and people would simply use something else instead. I really don't see the problem you are sketching here.

I mean, why would someone want to stockpile money if spending it would bring far greater returns to him? As long as people keep spending their profits to further improve future production, there is really no problem. The only thing that changes is the magnitute of the flow of money. Where in a primitive case you might only spend X amount of gold coins in a week, now you might spend them (and get them back) every hour. This increase in flowrate enables everyone to make much more profit on a yearly basis.

Even those people that save money for a later time will eventually spend it; that is simply the way money works. It's pretty much useless if you keep sitting on it forever and ever. I am not sure how much today's savings are in contrast to how much money we have floating around in the economy, but I cannot imagine that it is a significant portion.

The only thing such a system requires people to realize is that it is in their best interest to spend money even if it will be worth more in the future, exactly because it will be worth more. It's called thinking long-term, and that many people nowadays refuse to do so is not a valid argument against a gold-standard economy.

*edit* I reread the Borrowed Gold example and I don't think it is a very realistic one. The way I consider it is that some people own gold mines, and they produce gold just as others produce their goods. The people who initially have gold use it to buy goods they need, and by those method it enters the economy. I think it is a very weird scenario to suppose that one person owns all the gold, and then proceeds to loan it to others, instead of simply spending it as he requires.

Edited by Maarten
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... what is the advantage of this clearinghouse system over a gold system? As far as I can immediately remember, the benefit of this clearinghouse system is that it's supposed to eliminate boom/bust. But if the above are the distinctive ways it does so, it seems to me that they aren't distinctive - couldn't the above outside-of-clearinghouse transactions equally be done outside of a gold market?
Boom/bust is a consequence of the overlaying of additional functions onto money's primary function of mediating exchange. The act of lending money into availability places greater emphasis on the media of investment function (a.k.a store of value), than on the media of exchange function. The particular characteristic of clearing is the complete purity with which it serves the media of exchange function.

Five years ago, in the country where I live, all bank accounts were frozen for all amounts above $2k for many months. You can imagine the dire consequences for the economy. It was instant bust. If you can "thought experiment" a productive sector clearinghouse in that environment you can easily see that it would operate in total insulation from reigning conditions.

At that time I had the privilege to have my children in a school that had already instituted a clearing exchange for parents and teachers with the school as a "motor" to keep it going. The school paid the teachers a 35% bonus on their salary ($60 bonus over $180) with clearing credits. The teachers used them to acquire the goods and services of the parents. The parents paid tuition fees with them. Thus, a private school of 200 kids created for itself a gross domestic product of roughly $6M per year without so much as a nod of obeisance to the public sector or the financial sector.

(I hope I've answered your question)

To the extent that a clearinghouse truly gave its participants unlimited funds, I suppose it'd eliminate boom/bust, though at the significantly worse cost IMO of alienating the most productive members. And, as far as I can tell, if the clearinghouse has any real limitations from negative balances (a prereq for the most productive ones?) it loses whatever is uniquely supposed to prevent boom-bust. Is this correct?
The school director was insistent on operating without such restraints. There were abuses. They did harm the system. Interestingly, the consequence was price inflation! His view was that the more prosperous had a duty to assist the less prosperous! Many of us argued that that was an individual decision and that it was very wrong to build it into the clearing exchange. He prevailed -- until the whole thing fell apart as a direct result of that error.

The root of the error was his attempt to overlay a spurious "media of charity" function on top of the media of exchange function.

As far as boom/bust being somehow proportional to credit limits is concerned -- I think you'll find instead that the proportionality is with the percentage of their business that participants can run through clearing. If they can do 0% they are fully exposed to reigning conditions. If they can do 100% they are fully insulated.

Personally, I find much less to fault the service-based system (e.g. Larkin, the airline) you've exampled. I'm still mulling over that, and some other things that've been said, but I am more suspicious of, not only whether a clearinghouse system (as presented) is boom/bust free, but whether it'd have any significant advantages over gold in the first place.
If you go back to the matrix I posted and consider the problem of $330 costs to move $200, and how the exchange eliminates it, I think you'll find clearing more convincing (technically speaking) even than private paper. My experience with clearing however convinced me of the collectivist risk entailed in mutual-monetization and gives me a strong preference for private paper and strict rules in clearing.
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*edit* I reread the Borrowed Gold example and I don't think it is a very realistic one. The way I consider it is that some people own gold mines, and they produce gold just as others produce their goods. The people who initially have gold use it to buy goods they need, and by those method it enters the economy.
I've already explained my reasons for the apparently stilted scenario. I don't mind repeating myself because you are obviously willing to be polite and thoughtful about it. F=ma is no more "realistic", than my scenario. It fails to take into account friction, drag, viscosity, etc. My scenario is not presented as anything close to reality. It is presented in raw form in order to show the underlying behaviour of the medium of exchange lent into circulation.

I think it is a very weird scenario to suppose that one person owns all the gold, and then proceeds to loan it to others, instead of simply spending it as he requires.
In my scenario the monopoly is there to symbolize (for the later variants) the role of the Fed's legal monopoly.
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That is one small part of the point I'm trying to raise -- that self-monetization and mutual-monetization are greatly to be preferred over mediated monetization.
So that I'm clear, what is meant by self-monetization, mutual-monetization, and mediated monetization?

As far as boom/bust being somehow proportional to credit limits is concerned -- I think you'll find instead that the proportionality is with the percentage of their business that participants can run through clearing. If they can do 0% they are fully exposed to reigning conditions. If they can do 100% they are fully insulated.
Agreed, but for those who can't reach 100%, the Clearing Economy does not insulate them from boom/bust?

I agree that clearing is beneficial, I just don't think it solves the boom/bust difficulties. For one reason, take the borrowed gold system. As Midas doesn't have any debts, could clearing solve anything there?

As I understand things, there are two aspects of clearinghouse as you presented: clearing functions and a medium of exchange that isn't strictly limited. I fully agree with clearing functions in and of themselves (particularly as applied to a gold system,) but if there is a finite amount of the medium of exchange, lending (and thus boom/bust?) can and will occur. Without removing limits on the amount of a medium of exchange, clearing functions alone don't seem to remove boom/bust. And it's removing those limits (through e.g. no hard limits on negative balances) that I oppose, moreso than clearing functions themselves.

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The issue is whether bank debt deserves to be the preferred technique for creation of the medium of exchange. I've been comparing three different techniques: mediated monetization (bank debt), self monetization (private paper) and mutual monetization (clearing). Clearing exchanges provide every one of the capabilities in your list above, (in proportion to their size), just the same as banks.

This is from an earlier post, hunter :worry:

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But Midas has to pay part of that interest to his customers and can therefore not spend it. And they won't spend it because they want to save it for retirement, for example. In addition to that, a bank is a company, trying to grow, that is to make more and more money over time. So if Midas just spent all the money, his bank wouldn't grow. He would, in fact, be a bad banker.

This is based on an equivocation on "money."

The definition of money (Trudy's little exercise in Kantianese notwithstanding) is a liquid asset. Depending on what standard of liquidity you use, its meaning can range from "gold, and only gold" (using the strictest standard of liquidity) to "material wealth" (using the laxest standard). The borrowers have to repay the loans with money in the former sense (or something close to it). The purpose of a bank is to make money in the latter sense.

When economists say "money," they typically mean means of exchange, as opposed to savings. As such, money yields no dividend and no (or very little) interest, and for that reason, people try to keep as little of it as possible on their hands. When you have more money than you want to spend soon on purchasing goods, you will want to invest it into Certificates of Deposit and bonds and stocks as soon as possible. And when you do that, your money will end up being spent on capital goods, real estate, R&D, and so on--so it will stay in circulation. Thanks to banks and stock markets, saving money is simply saying "I will let somebody else spend it." A penny saved is a penny spent!

The only way to withdraw money from circulation is to keep it all in gold or in notes. A checking account won't do, as banks can even invest that money, keeping only a fraction in reserve. How many people do you know who have all their tens of thousands of dollars (euros, what not) stuffed under their mattresses in specie? Nobody does that, except perhaps for dumb lottery winners, and the fictional characters in Trudy's third-rate doomsday scenarios.

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Once more for effect,

I utterly reject the "borrowed gold scenario." It parallels neither the origins of money nor of banking, and I have no idea why anyone would play that game, when real alternatives are available. One must tie economic actions to values, not arbitrary scenarios that seem to kind of resemble real institutions, but actually don't.

The tip off to the arbitrariness of the borrowed gold scenario should be obvious from the first sentence in which productive titans are supposed to sit on their hands waiting for Midas Mulligan to show up with a bag of coins. This scenario does not simply omit some details or frictions, IT IS A RIGGED GAME that nobody would play, and which has nothing to do with an actual economy or the purpose of banking and finance.

Menger's "Principles of Economics" still remains free to download off of the internet, and the book has a chapter on the origins of money that is much better grounded in reality than this rationalistic web-spinning.

http://www.mises.org/etexts/menger/principles.asp

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... so it will stay in circulation. Thanks to banks and stock markets, saving money is simply saying "I will let somebody else spend it." A penny saved is a penny spent!

A penny saved is a penny lent.

Banks don't spend your deposits. They lend it. If they spent it, it would be gone. The money doesn't just "remain in circulation", instead it is lent at interest. That lent money is then spent on R&D etc., yes. But -again- more money is owed than is entering circulation (via lending).

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So that I'm clear, what is meant by self-monetization, mutual-monetization, and mediated monetization?
Does the quote Maarten mentions, serve?

Agreed, but for those who can't reach 100%, the Clearing Economy does not insulate them from boom/bust?
It's proportionate. The greater the percentage of their business they can pass through clearing the further they can insulate themselves.

I agree that clearing is beneficial, I just don't think it solves the boom/bust difficulties. For one reason, take the borrowed gold system. As Midas doesn't have any debts, could clearing solve anything there?
I'm not sure I understand your question.

As I understand things, there are two aspects of clearinghouse as you presented: clearing functions and a medium of exchange that isn't strictly limited. I fully agree with clearing functions in and of themselves (particularly as applied to a gold system,) but if there is a finite amount of the medium of exchange, lending (and thus boom/bust?) can and will occur. Without removing limits on the amount of a medium of exchange, clearing functions alone don't seem to remove boom/bust. And it's removing those limits (through e.g. no hard limits on negative balances) that I oppose, moreso than clearing functions themselves.
You are right about this if you consider the limits to be a fixed amount. However, there are a host of ways of achieving infinitely adjustable limits. For example, you could set a member's limit 10% further below zero than it was before he last went positive by an amount equal to it. So, a new member might go -50, +50, -55, +200, -60.5, +61, -66.55, +1,234, etc. If the member's business is productive enough to go that amount above zero it is quite unlikely that he'd intentionally drive his credit limit extremely low and then abscond.

If you recall my earlier discussion of the initial and subsequent behaviour of the USA in the IMF, you will easily understand what I'm getting at with the above. The US demanded a veto (with Britain) over IMF policies, in respect of its role as principal creditor. Later, in large part due to the Vietnam War, it descended to the level of becoming the fund's principal debtor, has continued on downwards ever since, and yet continues to have veto privilege! This is unbelievably dangerous.

If you can imagine all countries being subject, uniformly, to a hard initial floor of $10B, and a "pass as high above zero" rule before the floor could be lowered by 10%, the US gov't would have been much more effectively curtailed in running up its current lunatic volume of debt.

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Menger's "Principles of Economics" still remains free to download off of the internet, and the book has a chapter on the origins of money that is much better grounded in reality than this rationalistic web-spinning.

http://www.mises.org/etexts/menger/principles.asp

I read the part on money. He says that money is a good (produced and traded practically like every other good) which is used to make barter easier. I reject this as a model of today's money, which is something I have already stated right in my subtitle. If you want to join the discussion, you can do so. Please explain how, according to you, today's money enters circulation. But please refrain from just saying "this is all stupid, nobody would do it."

It's a rigged game? Sure it is. But so is taxation. And the lottery. Both systems that exist today despite being rigged and stupid. "I don't like it." and "It is stupid." are unfortunately not arguments to reject the reality of a fact. Why do the titans sit down at the table to just hand over money to Mr. Thompson? This is just as stupid and I don't like it either. But that's not an argument against the existence of the fact that it actually happens.

So what?

So the saved money doesn't just go back into circulation. It has to be borrowed for this to happen. And again you have money in circulation demanding interest payment. Which was one of my points right from the beginning of this thread.

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But you can't take man-made facts as some primary and treat them like the metaphysically given. It is important to evaluate them, and reject them if necessary for a better alternative.

It may not be your intention, but you make it sound like we should just accept it because it

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But you can't take man-made facts as some primary and treat them like the metaphysically given. It is important to evaluate them, and reject them if necessary for a better alternative.

It may not be your intention, but you make it sound like we should just accept it because it

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But, Midas would spend the entire amount. The amount would be completely paid out unless he wants to increase his money balance. he would pay out some to employees, some to customers and the rest to the owners of his corporation.

Oops, your post got lost in a flood.

Well, why should he? Why doesn't he lend some of that money at interest?

Edited by Felix
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So the saved money doesn't just go back into circulation. It has to be borrowed for this to happen.

With CDs and bonds, yes. With stocks, no. But I still don't understand why this matters. I was simply arguing that the money does go back into circulation--and it does eventually, doesn't it? And by doing so, it refutes your statement that "they won't spend it because they want to save it for retirement," doesn't it?

And again you have money in circulation demanding interest payment.

No, the money in circulation doesn't bear interest. The savings do.

Let's say you have a thousand gold coins. You take them to a bank or stockbroker, and he gives them to a company. The company spends them on a new robot. The robot's manufacturer then gives some of them to his employees, some of them to his suppliers, and the rest to his banker or stockbroker--and the circle closes. The money just goes around and around, serving as a means of exchange, always buying newer and newer goods.

Meanwhile, the robot allows the company to produce more goods, and thus collect more coins per year (that is, to circulate them faster, if you like). When the time comes to pay you interest or dividend, they will have enough coins to give back to you. Which you then again take to a bank or stockbroker ... and so on.

When you step on the gas pedal of your car, do you worry about whether there will be enough electricity to fire the spark plugs at the higher RPMs? Do you have nightmares about how the greater and greater speeds will require a stronger and stronger current, and where will all that extra electricity come from? You needn't worry about that, because the faster your engine goes, the faster your alternator will be generating electricity, and the result will simply be that the electrons will circulate faster through the system. Even though every electron represents a debt of energy owed by one atom of your car to another, since they move in circles, these debts cancel out eventually--but while they do so, they help convert the energy stored in your fuel tank into forward motion. What you should worry about is that there should always be a steady supply of fuel available to your engine.

Money is like these electrons: it is small pieces of debt moving in circles, faster and faster as productivity grows, facilitating the conversion of an economy's fuel--individual ingenuity--into advancement. What we should worry about is not whether there will be enough money to cover the growth of the economy (which interest and dividends reflect) but whether reason will be able to flow into business activity freely.

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I read the part on money. He says that money is a good (produced and traded practically like every other good) which is used to make barter easier. I reject this as a model of today's money, which is something I have already stated right in my subtitle. If you want to join the discussion, you can do so. Please explain how, according to you, today's money enters circulation. But please refrain from just saying "this is all stupid, nobody would do it."

It's a rigged game? Sure it is. But so is taxation. And the lottery. Both systems that exist today despite being rigged and stupid. "I don't like it." and "It is stupid." are unfortunately not arguments to reject the reality of a fact. Why do the titans sit down at the table to just hand over money to Mr. Thompson? This is just as stupid and I don't like it either. But that's not an argument against the existence of the fact that it actually happens.

So the saved money doesn't just go back into circulation. It has to be borrowed for this to happen. And again you have money in circulation demanding interest payment. Which was one of my points right from the beginning of this thread.

Felix, you are shifting the issue again, from banking to fiat money. I criticized the borrowed gold scenario, which was implied by Trudy to be the starting point for a refutation of the practicality of free banking under a gold standard. I don't think Objectivists need your help in understanding the evils of fiat money, and that's not what I was talking about. A system of fiat money combined with central banking is an entirely different subject.

BTW, do you still believe that one man's gain must always result in another man's loss, in monetary units? Also, when you say barter is not a valid way to understand today's economy, what do you mean? That today's economy is not primarily about exchanging value for value? It must be exciting to be some sort of Keanu Reeves who sees through the matrix of lies that is a financial system and observes the pathetic futility of other people's productive efforts, perhaps chuckling or crying at the way they get cheated on every transaction they foolishly make, and every hour of labor they idiotically waste away.

I'm not yet prepared to offer a formal thesis on the source of value for fiat money. Tentatively, I'd suggest that the value comes from the government's derivative claim on the productive effort and productive assets of its taxable base, sort of like the barter of the weath/effort that can be taxed from one person for that of another person.

However, more than anything, I am critiquing the method involved in arguing for "Debitism" as I find it wholly deductive, floating, and rationalistic. I have learned that arguing with rationalists is pointless, as is time spent poking through word-salads. What is missing here is the inductive method. The problem is that financial system is an extremely high-level concept, built upon layer after layer of inductively grounded lower level concepts. It would take quite a long book to properly convey knowledge of the proper or improper workings of a financial system.

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I was simply arguing that the money does go back into circulation--and it does eventually, doesn't it?

My point is that it isn't just spent. As it reenters the market the debt rises.

Let's say you have a thousand gold coins. You take them to a bank or stockbroker, and he gives them to a company. The company spends them on a new robot. The robot's manufacturer then gives some of them to his employees, some of them to his suppliers, and the rest to his banker or stockbroker--and the circle closes. The money just goes around and around, serving as a means of exchange, always buying newer and newer goods.

And everytime it reenters the circulation, the total debt owed to the bank rises. You only look at the coins and ignore the debt. But the debt is the point.

Meanwhile, the robot allows the company to produce more goods, and thus collect more coins per year (that is, to circulate them faster, if you like). When the time comes to pay you interest or dividend, they will have enough coins to give back to you. Which you then again take to a bank or stockbroker ... and so on.

Circulating them faster doesn't work. This only drives people into deeper and deeper debt.

That "enough money" you talk about can only come into circulation if someone else takes on debt in the meantime. Otherwise the money to pay the interest wouldn't leave the bank. There may, then, be enough money in circulation for that very first person to pay back his debt on time. But not for the new debtors.

When you step on the gas pedal of your car, do you worry about whether there will be enough electricity to fire the spark plugs at the higher RPMs? Do you have nightmares about how the greater and greater speeds will require a stronger and stronger current, and where will all that extra electricity come from? You needn't worry about that, because the faster your engine goes, the faster your alternator will be generating electricity, and the result will simply be that the electrons will circulate faster through the system. Even though every electron represents a debt of energy owed by one atom of your car to another, since they move in circles, these debts cancel out eventually--but while they do so, they help convert the energy stored in your fuel tank into forward motion. What you should worry about is that there should always be a steady supply of fuel available to your engine.

Money is like these electrons: it is small pieces of debt moving in circles, faster and faster as productivity grows, facilitating the conversion of an economy's fuel--individual ingenuity--into advancement. What we should worry about is not whether there will be enough money to cover the growth of the economy (which interest and dividends reflect) but whether reason will be able to flow into business activity freely.

This description is completely missing the point. As I said, you think that money is like coins, just circulating and moving around like the electrons in your example. You completely neglect the main point of piled up debt in the process.

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