Debitism

[softwareNerd]

If ...[interest] creates a problem, then I think ...[profit] would as well.

True. How about wages, though? Take the following proposition. Every wage earner earns and saves. Let's assume that wage-earners are rational in the aggregate, and end their lives with at least a small positive money balance. The same apparent paradox rears its head: if the bankers are accumulating more money [from interest], and the entrepreneurs are accumulating more money [from profits], and the wage-earners are accumulating more money [via their meagre savings], then... well, how can they all do that if we assume a constant supply of money?

We know they all can't be increasing their money balances in a constant-money economy. Yet, when we consider things from the perspective of any one of them, we think they must be the ones who will continue to accumulate money at the cost of the others, until we focus on those others.

The bottom-line is that businessmen consume. George Reisman explains the mathematics of aggregate profits in his "Capitalism" book. In a nutshell, profits arise "because" businessmen consume. Businessmen, qua consumers, buy consumer goods that make up the differenec between Consumer-Goods revenues and Consumer-Goods wage-costs. (A more complete treatment would require a separate thread.)

[Maarten]

That's what I mean, though. I can't really see the difference between these cases, and it seems utter folly to say that wages or profits cause the economy to fail ultimately.

[Trudy Cool]

For anyone who was considering whether to accept this dentist's notes, it'd be hard to know how many notes this dentist has circulated to other people over the last hour. Inflation could thus enter this private paper economy.

Once again there are different techniques for all of these things. The problem you are addressing is one of "governance". Small issuances don't really need it, but as the volume increases, increased security is necessary. Beyond some threshold determined by the market, preference would be given to issuers who submitted their issuance efforts to an independant mint. The mint would insist, to preserve it's own commercial reputation, on strict contractual terms that specify control and transparency. They might also insist on payment of some small percentage into a redemption insurance fund.

Hmm, I suppose you're right. To be more accurate, I should say that everyone cannot simultaneously increase their limit. Does this not mirror the borrowed gold situation, in that everyone at the party cannot simultaneously pay their debts?

How stringently do you define simultaneously? Per second? Per day? Per month?

I'm unclear what you mean by mirror.

This touches on an fundamental fact that I have held off mentioning. Is it possible for all clearinghouse particpants to be positive simultaneously? The implications of the answer have far-reaching consequences for this entire thread. I'll get to that when I have more time -- can you anticipate what I am referring to?

Can all of this occur without reference to the mutal/self monetization of others e.g. if a group of individuals aspire to infinitely increase their limits by alternately maxing each other's positive balances out, or the above dentist circulates more notes than he can redeem?

There is certainly a risk of this. But if you think of the network bandwidth bubble of the late nineties (where balance sheets were fudged with cross-leasing agreements between carriers), you will see that this is a risk that goes beyond the localized case of a mutual monetization. Almost makes you want to call in the government to referee, doesn't it?

Ultimately it is a question of the rules the clearinghouse members set for themselves, don't you think?

[hunterrose]

The problem you are addressing is one of "governance".

Ultimately it is a question of the rules the clearinghouse members set for themselves, don't you think?

To a large extent I agree, but IMO the extra layers of rules (and governance) of such a system would be more detrimental than the gains from attempting to alleviate boom/bust.

This touches on an fundamental fact that I have held off mentioning. Is it possible for all clearinghouse particpants to be positive simultaneously? The implications of the answer have far-reaching consequences for this entire thread. I'll get to that when I have more time -- can you anticipate what I am referring to?

I'm interested in where you are going with this.

For the moment, I'll say that I don't think it possible for everyone to be positive simultaneously in the clearinghouse, and I think that this would have negative consequences (as opposed to positive ones.)

[Trudy Cool]

To a large extent I agree, but IMO the extra layers of rules (and governance) of such a system would be more detrimental than the gains from attempting to alleviate boom/bust.

Can you explain? In my experience the governance is no more onerous on the clearinghouse as a whole than the due diligence normally practiced by the auditors who act on behalf of shareholders. A "rule" could be as simple as "practice periodic audits with these (x, y, z) extra criteria and provide the CH with a copy."

The reigning money system is created by banks that use clearing between them, while imposing an expensive and unstable system on non-members. Clearing is drastically cheaper, free from boom/bust and autonomous (with respect to gummint). Personally, I see a lot of room for justifying some extra governance costs.

For the moment, I'll say that I don't think it possible for everyone to be positive simultaneously in the clearinghouse, and I think that this would have negative consequences (as opposed to positive ones.)

In fact it is a mathematical impossibility, at least one member must remain below zero to an amount equal to the sum of all positive accounts. The total of all accounts can only ever be zero.

The "far-reaching consequences" I refer to earlier derive from these observations:

1) Clearing is the purest medium of exchange

2) Clearing shows, that all symbolic (non-commodity) media of exchange require debtors in order to function. No debtor, no money creation!

Obviously, debtors alone cannot bring about money creation; their debits must be accepted. But this is not the point.

The point is that, if debtors are an inescapable necessity in the process of creation of the medum of exchange, why are they penalized with interest charges?

[Capitalism Forever]

The point is that, if debtors are an inescapable necessity in the process of creation of the medum of exchange, why are they penalized with interest charges?

Ask that question yourself. YOU are the one proposing a clearing system with interest charges.

[Trudy Cool]

Ask that question yourself. YOU are the one proposing a clearing system with interest charges.

Well, I do ask it myself -- but rhetorically. If you read carefully what I have previously said, you will see that I have proposed interest charges only in the context of the question of dealing with members who abuse the system, and then only as one of numerous possible alternatives.

The point in my previous post is that the reigning money system is founded on money creation on the backs of debtors as though they are collectively delinquent, while clearing shows that money creation cannot take place without them. They are penalized despite the fact that they perform an essential service.

Ostensibly interest is charged to compensate the lender for loss of the use of his property. If it were simply that, then there would be a flat rate for all borrowers.

It's not the case. Borrowers are classified according to credit rating criteria and obliged to accept collective responsibility for the delinquency of a small minority of the members of their classification -- people they cannot know and cannot influence.

In that sense, the charging of interest on the creation of the medium of exchange is a collectivist control mechanism.

[Capitalism Forever]

OK, enough of this garbage. Closing thread.