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| Ron Peterson |
 Posted: Thu Sep 29, 2005 9:08 am |
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Quirk wrote:
[quote:8e4ab96826]Classic Economics says that Investment is related to Savings, that
income earners "abstain from consumption" thereby freeing productive
factors for Capital formation.
[/quote:8e4ab96826]
I couldn't find anything that direct in Adam Smith. Instead, he
emphasized that economies of scale and worker specialization made
investment possible.
[quote:8e4ab96826]I have a simple question: In a system with fiat currency and fractional
reserve banking, what does "saving" have to do with it?
[/quote:8e4ab96826]
It's good advice to individuals.
[quote:8e4ab96826]Can rents, income and consumption taxes, and wage level depression be
seen as tools of the Financial elite to force involuntary abstinence
from consumption on labour inorder to appropriate the interests that
are created by this abstinence?
[/quote:8e4ab96826]
The financial elite only have the goals of increasing profits for
themselves. If they are too successful in that goal, there won't be
enough resources for the reproduction and training of the workforce.
[quote:8e4ab96826]Is this the real logic of Capitalism?
[/quote:8e4ab96826]
There isn't much to the logic of capitalism (I use lower case because
capitalism isn't an ideology) other than maximizing profits.
--
Ron |
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| Quirk |
| Posted: Thu Sep 29, 2005 2:28 pm |
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Zerge wrote:
[quote:a48242233b]The Fed does not produce money indiscriminately. Indeed, money is
created as debt by the lending of the Feds, but never too much to cause
inflation to rise beyond a certain point. Thus, the limiting variable
you are looking for is INFLATION.
[/quote:a48242233b]
Thanks John Maynard.
Perhaps I can clarify my question; is "abstinence" interest alienable?
When Wages dwindle, or consumptive capicity is otherwise lost to
economic rents and to income/consumption taxes for instance, does this
reduced consumption have the same same Capital formation effect as if
the income was saved. Voluntary abstinence from consumption versus
involuntary.
If it does, this sort of blows a hole in the rational that Interest is
a reward for a productive contrubution, no?
Does this mean that Banks do not need savings, that if they can reduce
consumption by reducing incomes directy, they can turn that involuntary
absinence from consumtion into lending anyway?
Therefore Interest is sometimes the Banks reward for reducing incomes,
reducing the share of consumption of those producing consumables, and
not always the worker's reward for abstaining from qualified
consumption. Right?
So the Interest of the Financial elite is not really to promote
savings, as there are other ways to reduce consumption: Reduce incomes
directly, give the worker's less. Am I missing something?
[quote:a48242233b]Can rents, income and consumption taxes, and wage level depression be
seen as tools of the Financial elite to force involuntary abstinence
from consumption on labour inorder to appropriate the interests that
are created by this abstinence?
Of course. This is standard operating procedure you are describing
here. The Fed raises interest rates, which slows down the growth of the
economy and therefore slows down inflation, which allows bonds to keep
their value. We all work for Wall Street 
[/quote:a48242233b]
And what is it that Wall Street does for us? Anything? |
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| Quirk |
| Posted: Thu Sep 29, 2005 4:01 pm |
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William F Hummel wrote:
[quote:11c250cbcf]On 29 Sep 2005 13:35:33 -0700, "Quirk" <quirk@syntac.net> wrote:
Banks do not lend the money of their depositors. They issue their own
liabilities when they lend.
[/quote:11c250cbcf]
Right, that's what it meant when I said "lending is not funded by
savings."
[quote:11c250cbcf]A bank's lending is limited by the Fed to a multiple of its own
capital (assets minus liabilities).
[/quote:11c250cbcf]
Do you have a reference where this limitation is spelled out? I thought
legal reserve requirments went the way of the dodo?
[quote:11c250cbcf]Thus reducing consumption does
not mean increased lending power for banks.
[/quote:11c250cbcf]
Right, according to classical economics, the reduced consumption
//frees productive factors//. Without available factors, Capital can
not form. Thus without reduced Consumption increased lending only
contributes to the Inflationary Gap, and not Capital formation.
As Banks are net-lenders, they are not generaly keen on Inflation.
[quote:11c250cbcf]Except that it is not the wage earners pocketing the Interest,
but rather the financial elite?
Precisely what do you mean by "financial elite" and what is the
interest earned against?
[/quote:11c250cbcf]
The financial elite are those who are able to engage in fractional
reserve banking on a significantly large scale, the interest is earned
against the loans they issue.
[quote:11c250cbcf]Or am I getting something wrong?
Yes, I think so.
[/quote:11c250cbcf]
Thanks for trying to help me understand.
[quote:11c250cbcf]Doesn't this mean that the Financial system is inherently at odds with
wage levels? Is it wise to systemicaly model Capital formation in such
a way that personal income reduction is more profitable to the
financial elite than personal savings?
Personal income reduction implies reduced personal standard of living,
reduced income for others, and reduced aggregate demand.
[/quote:11c250cbcf]
Exactly like saving, thus the phrase "Abstinence from Consumption." As
noted, classic theory _requires_ demand for consumer goods to be
redirected to free productive factors for the production of Capital.
And just like saving, allowing for Capital formation creates larger
incomes down the road, however unlike savings these Incomes are accrued
by those in a privilged position in the monel supply chain, and not the
wage earners who did the abstaining from consumption bit.
[quote:11c250cbcf]All of these are negative in their effects on the economy as a whole.
That is what I was trying to explain in earlier.
[/quote:11c250cbcf]
Yet, not negative to those who are able to increase their income as a
result; Lenders. |
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| Quirk |
| Posted: Thu Sep 29, 2005 4:20 pm |
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polar bear wrote:
[quote:1e2ef11525]That's all for now. Gotta run!
[/quote:1e2ef11525]
Thanks Polar. I'm already big fan of Liu, his earlier Banking Bunkum
series is great too. His series on Modern Art is also great.
I'll check out those others on your recomendation, as I have mentioned
before, I am a little suspicious of Rothbard.
Thanks again.
Cheers. |
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| William F Hummel |
| Posted: Thu Sep 29, 2005 4:39 pm |
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On 29 Sep 2005 15:01:56 -0700, "Quirk" <quirk@syntac.net> wrote:
[quote:3aae3fd440]William F Hummel wrote:
On 29 Sep 2005 13:35:33 -0700, "Quirk" <quirk@syntac.net> wrote:
Banks do not lend the money of their depositors. They issue their own
liabilities when they lend.
Right, that's what it meant when I said "lending is not funded by
savings."
A bank's lending is limited by the Fed to a multiple of its own
capital (assets minus liabilities).
Do you have a reference where this limitation is spelled out?
[/quote:3aae3fd440]
If you Google on "bank capital requirements", you will find a long
list of references. You might find my summary version of the rules
more accessible. See http://wfhummel.net/capitalrequirements.html
[quote:3aae3fd440]I thought legal reserve requirments went the way of the dodo?
[/quote:3aae3fd440]
Reserve requirements are unrelated to capital requirements. Both
requirements are still in force in the U.S. For reserve requirements,
see http://wfhummel.net/bankreserves.html.
For an explanation of why the reserve requirement is not a constraint
on bank lending, see http://wfhummel.net/banklending.html
[quote:3aae3fd440]
Thus reducing consumption does
not mean increased lending power for banks.
Right, according to classical economics, the reduced consumption
//frees productive factors//. Without available factors, Capital can
not form. Thus without reduced Consumption increased lending only
contributes to the Inflationary Gap, and not Capital formation.
As Banks are net-lenders, they are not generaly keen on Inflation.
Except that it is not the wage earners pocketing the Interest,
but rather the financial elite?
Precisely what do you mean by "financial elite" and what is the
interest earned against?
The financial elite are those who are able to engage in fractional
reserve banking on a significantly large scale, the interest is earned
against the loans they issue.
[/quote:3aae3fd440]
OK, but that applies not just to banks but to rather all lenders.
Bank lending now accounts for only about 20% of total credit market
debt. I gather from your choice of words that you don't think much of
lenders.
[quote:3aae3fd440]
Or am I getting something wrong?
Yes, I think so.
Thanks for trying to help me understand.
Doesn't this mean that the Financial system is inherently at odds with
wage levels? Is it wise to systemicaly model Capital formation in such
a way that personal income reduction is more profitable to the
financial elite than personal savings?
Personal income reduction implies reduced personal standard of living,
reduced income for others, and reduced aggregate demand.
Exactly like saving, thus the phrase "Abstinence from Consumption." As
noted, classic theory _requires_ demand for consumer goods to be
redirected to free productive factors for the production of Capital.
And just like saving, allowing for Capital formation creates larger
incomes down the road, however unlike savings these Incomes are accrued
by those in a privilged position in the monel supply chain, and not the
wage earners who did the abstaining from consumption bit.
[/quote:3aae3fd440]
I don't think this is correct at all. Real capital formation by firms
is financed mainly out of retained earnings, not on borrowing. Firms
need to sell their product for earnings and that means they need a
healthy aggregate demand. Abstaining from consumption is the wrong
prescription to support aggregate demand.
[quote:3aae3fd440]
All of these are negative in their effects on the economy as a whole.
That is what I was trying to explain in earlier.
Yet, not negative to those who are able to increase their income as a
result; Lenders.
[/quote:3aae3fd440]
As noted, I think this is based on false premises. |
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| Rev. Richard Skull |
| Posted: Thu Sep 29, 2005 5:47 pm |
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The idea is to send $30 to "Bob" who puts the money to good use by
investing in Male Entertainment, Alcoholic Beverages, and Skunk Farms.
Oh, and Stang get 1% cut! |
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| Quirk |
| Posted: Thu Sep 29, 2005 6:22 pm |
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William F Hummel wrote:
[quote:eb237f1328]If you Google on "bank capital requirements",
[/quote:eb237f1328]
Thanks for the references.
[quote:eb237f1328]OK, but that applies not just to banks but to rather all lenders.
Bank lending now accounts for only about 20% of total credit market
debt.
[/quote:eb237f1328]
What other forms of organisations are able to lend on significantly
multiplied fractional reserves?
[quote:eb237f1328]And just like saving, allowing for Capital formation creates larger
incomes down the road, however unlike savings these Incomes are accrued
by those in a privilged position in the monel supply chain, and not the
wage earners who did the abstaining from consumption bit.
I don't think this is correct at all. Real capital formation by firms
is financed mainly out of retained earnings, not on borrowing.
[/quote:eb237f1328]
Two questions: With perfect competion, how could a firm "retain
earnings" wouldn't these earnings be lost to competition if there
wasn't some sort of anti-competitive privilege at work? i.e. economic
rents.
Therefore in what way do "retained earnings" not result from a
reduction in consumption? Can't retained earnings be described as
involuntary (and unrewarded) investment in the Firm by the consumer?
Exactly as I have proposed, the one abstaining from consumption is not
the one earning the rewards for this abstinence.
Second, if you disagree with the above, if you believe that "retained
earnings" do not represent a reduction in consumption, then isn't this
a violation of classical theory? From where do the available productive
factors to produce the new Capital come if they have not been diverted
from consumption?
And further, afaik, significant Capital is still formed by way of
lending, and investment from financial firms, the housing market for
instance, and even the largest firms, with the most "retained
earnings," still service a fair bit of debt. Particularly when Interest
is lower than (or close to) inflation.
As Banks lend on fractional reserves, they can sustainable lend at well
bellow the rate of inflation.
[quote:eb237f1328]Firms
need to sell their product for earnings and that means they need a
healthy aggregate demand. Abstaining from consumption is the wrong
prescription to support aggregate demand.
[/quote:eb237f1328]
Funny, many firms do not seem to understand this, as real wage levels
have been falling for decades very much as a result of corporate
practice, and falling wages do threaten aggregate demand. No? Even
Henry Ford seemed to know this.
Also, as I pointed out, the very higher prices that allow for "retained
earnings" are also a perscription for reduced demand, yet another
practice that seems to contradict your premise.
Once again, classical economics tells us that income is distributed
among wages, rents and interest, thus any increase in the later two is
by definition an decrease in the first, and thus lower demand.
[quote:eb237f1328]Yet, not negative to those who are able to increase their income as a
result; Lenders.
As noted, I think this is based on false premises.
[/quote:eb237f1328]
Which false premises? |
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| Quirk |
| Posted: Thu Sep 29, 2005 6:24 pm |
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Rev. Richard Skull wrote:
[quote:7838e45053]The idea is to send $30 to "Bob" who puts the money to good use by
investing in Male Entertainment, Alcoholic Beverages, and Skunk Farms.
[/quote:7838e45053]
An excellent investment, highly recommended. Eternal Salvation or
TRIPLE YOUR MONEY BACK.
[quote:7838e45053]Oh, and Stang get 1% cut!
[/quote:7838e45053]
Well bellow the Federal Funds Rate. What a Deal! |
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| polar bear |
| Posted: Fri Sep 30, 2005 12:38 am |
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In article <1128032448.555885.201970@f14g2000cwb.googlegroups.com>,
"Quirk" <quirk@syntac.net> wrote:
[quote:4f7a0a2b71]polar bear wrote:
That's all for now. Gotta run!
Thanks Polar. I'm already big fan of Liu, his earlier Banking Bunkum
series is great too. His series on Modern Art is also great.
I'll check out those others on your recomendation, as I have mentioned
before, I am a little suspicious of Rothbard.
[/quote:4f7a0a2b71]
All the more reason to read him. Same reason I read you, actually <g>
You have to challenge your basic assumptions now and again. If all we
ever did was read people we agreed with, we might as well stop reading
altogether.
[quote:4f7a0a2b71]
Thanks again.
No prob.[/quote:4f7a0a2b71]
pb |
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| Quirk |
| Posted: Fri Sep 30, 2005 4:09 am |
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polar bear wrote:
[quote:bacbff99a4]All the more reason to read him. Same reason I read you, actually <g
You have to challenge your basic assumptions now and again. If all we
ever did was read people we agreed with, we might as well stop reading
altogether.
[/quote:bacbff99a4]
Yup. Pretty much my view as well, and the main reason I contribute to
usenet, to present my ideas to people with an different point of view,
learn from the intereaction, and follow up on the leads they give me.
Regards. |
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| William F Hummel |
| Posted: Fri Sep 30, 2005 9:40 am |
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On 30 Sep 2005 03:01:53 -0700, "Quirk" <quirk@syntac.net> wrote:
[quote:ee57ee0506]Once again, classical economics tells us that income is distributed
among wages, rents and interest, thus any increase in the later two is
by definition an decrease in the first, and thus lower demand.
Regarding what classical economics tells us, what do you make of this
excerpt from an address by Marshall?
I could not find anything relevant to this discusion in it. Unless you
are trying to avoid my argument by indirectly implying that it is an
"economic dogma."
I am not trying to avoid your argument by quoting Marshall. I offered[/quote:ee57ee0506]
that quote to suggest that classical economics does not deal with many
of today's economic issues.
Your comment above about classical economics applies to a two sector
economy, i.e. no government sector. There is no recognition of the
very significant effect of taxes on the (re)distribution of financial
assets, and thus disposable incomes. I don't mean to imply that a
progressive income tax schedule solves the inequities that do exist,
but one should not ignore their effects in the study of economics. |
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| Zerge |
| Posted: Fri Sep 30, 2005 10:51 am |
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Quirk wrote:
[quote:f6030e0304]Zerge wrote:
The Fed does not produce money indiscriminately. Indeed, money is
created as debt by the lending of the Feds, but never too much to cause
inflation to rise beyond a certain point. Thus, the limiting variable
you are looking for is INFLATION.
Thanks John Maynard.
Perhaps I can clarify my question; is "abstinence" interest alienable?
[/quote:f6030e0304]
Read William's explanation; his is much more terse than mine.
[quote:f6030e0304]Can rents, income and consumption taxes, and wage level depression be
seen as tools of the Financial elite to force involuntary abstinence
from consumption on labour inorder to appropriate the interests that
are created by this abstinence?
Of course. This is standard operating procedure you are describing
here. The Fed raises interest rates, which slows down the growth of the
economy and therefore slows down inflation, which allows bonds to keep
their value. We all work for Wall Street :)
And what is it that Wall Street does for us? Anything?
[/quote:f6030e0304]
Yes. Venture capital firms invest in new enterprises, which causes
economic growth. The VCs invest with one of two things in mind: either
sell their share of the new enterprise to a larger company, or to take
the new enterprise to Wall Street and do an Initial Public Offering,
where the VC makes a lot of money. Without Wall Street there would be
little VC investments and thus few new companies created. Just look at
countries without strong financial markets (also known as "the third
world").
So you can say Wall Street is mostly good, but it has some bad
secondary effects. Kinda like a strong medicine. |
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| Quirk |
| Posted: Fri Sep 30, 2005 2:50 pm |
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William F Hummel wrote:
[quote:3c59c7bbcf]I am not trying to avoid your argument by quoting Marshall. I offered
that quote to suggest that classical economics does not deal with many
of today's economic issues.
[/quote:3c59c7bbcf]
Then you should be able to explain where the theory goes wrong, and
offer an alternative point of view. Otherwise, it is an evasion.
[quote:3c59c7bbcf]Your comment above about classical economics applies to a two sector
economy, i.e. no government sector.
[/quote:3c59c7bbcf]
There is nothing about the questions I am asking, nor the models I am
using to illustrate them, that depends on a two sector economy. Indeed,
income and consumption taxes are among the "tools" I listed that reduce
consumption.
Regards. |
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| Quirk |
| Posted: Fri Sep 30, 2005 3:01 pm |
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Zerge wrote:
[quote:d427b73e00]Read William's explanation; his is much more terse than mine.
[/quote:d427b73e00]
And equally unsatisfactory in the context of the topic being discussed.
[quote:d427b73e00]And what is it that Wall Street does for us? Anything?
Yes. Venture capital firms invest in new enterprises, which causes
economic growth.
[/quote:d427b73e00]
Yes, The question however is that whether the investment they make is
really made possible by way of non-savings based reduced consumption
forced onto wage earners?
Are the ones that collect the Interest on these investments always the
same group as the ones abstaining from comsumption to make the
investment possible?
It appears not.
What is the justification for this Interest then? Has Interest, when it
is alientated from the one who actually abstained from consumption,
become simply another form of economic rent?
It looks that way. |
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| Quirk |
| Posted: Mon Oct 03, 2005 2:04 pm |
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Robert Vienneau wrote:
[quote:1a0f266cc0]On 29 Sep 2005 13:35:33 -0700, "Quirk" <quirk@syntac.net> wrote:
But none of that really gives me my answer, put it this way; does
reducing personal incomes through some means other than increased
savings, thus causing reduced consumption, also allow the Banks to
increase Lending for investment and a result increase their Interest
earnings exactly as if the money where saved from retained personal
incomes?
Quirk's theory is outdated nonsense.
[/quote:1a0f266cc0]
What is "Quirk's Theory?"
I haven't coined a theory here, I am just formulating some questions
based on Classical theory.
[quote:1a0f266cc0]It has been shown to be wrong
decades ago.
[/quote:1a0f266cc0]
What is "it?"
Whatever "It" is that you feel "has been show wrong decades ago" has
nothing at all to do with the question I have asked.
Please _apply_ your arguments and spare us gratuitous
cutting and pasting of irrelevancies. If you think another text has
already answered these questions, a link will suffice, preferably
_without_ the unsubstantiated dismissals that accompanied your
cut-and-paste. If you think the text in question _does_ substantuate
your out-of-hand dissmissals: APPLY THE REASONING DIRECTLY TO WHAT HAS
ACTUALLY BEEN SAID.
I will, once again, try and explain my question.
Given that Capital production does not directly produce consumer goods,
Capital formation requires factors creating consumer goods to abstain
from consuming 100% of their product.
Therefore, the formation of Capital and the resulting Interest earnings
are a consequence of Abstaining from Consumption.
Note: I am not asking what what "value" of aggregate Capital stock is,
I am merely pointing out (from Classical theory) that as Capital goods
producers also must consume, producers of Consumer goods must therefore
Consumer less then their entire product.
This abstinence is the normal justification for "Interest" being a
return to a contribution to production and not a return to some
unearned privilige, i.e. economic Rent.
Supposedely, the producers of Consumer goods "lend" a portion of their
productive output to be consumed by producers of Capital goods, and in
return earn "Interest" for their absitinance.
Note: I am not trying to work out the mechanism for the price of
Interest, only explaining the Classic model of the role of Interest in
the Productive cycle.
Put briefly, Abstaining from consumption creates the potential for
Interest.
Now, further, given that Investment is not directly funded by Savings,
there is no reason that the recipient of Interest needs to be the
actual Consumer good producer that abstained from consuming his entire
product.
Simply reducing wages relative to prices ("the wage level") by any
other means accomplishes the same reduction in consumption. This
involuntary abstinance can be also be Capitalized by simply making the
Investment from retained Profit, fractional reserve lending or even
income/consumption Tax revenue. The relevant difference being is that
the Interest is not earned by the absaining consumer, but by those in
privileged position in the money supply chain.
My questions is, then, is Interest another form of economic Rent? And
if not, where is the productive contribution of the Interest collector
in the above scenario?
(scenario = private interest generating Investment funded from retained
Profit, fractional reserve lending, or income/consumption taxes).
Regards. |
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