Currency & Stock (inflation, deflation, the TRUTH!)

[Isaac Feynman]

I had a little insight a few minutes ago...

I think I understand why Tism says printing money is always bad.

I always thought that printing money was necessary in order to allow for enterprising. I thought that people who want to enterprise require an abnormally high amount of money to afford the equipment they need to do the enterprising. But if there were no banks around to lend & increase supply, then the sellers would have no choice to but to sell the really expensive items they have for much cheaper than they would if the banks lent money. So if the banks aren't around to give a bunch of money....then sellers will lower the price of the super expensive stuff they want to sell. And so enterprising can happen without the help of the bank. The result would be deflation!

Enterprising would still happen, and the result would produce way more products more efficiently, and so all the excess goods would naturally be sold cheaper, because of excessive supply.

So yeah, if we didn't increase the money supply, we would just see gradual deflation over the years, which would be the result of goods being produced more efficiently.

[tism]

I had a little insight a few minutes ago...

I think I understand why Tism says printing money is always bad.

I always thought that printing money was necessary in order to allow for enterprising. I thought that people who want to enterprise require an abnormally high amount of money to afford the equipment they need to do the enterprising. But if there were no banks around to lend & increase supply, then the sellers would have no choice to but to sell the really expensive items they have for much cheaper than they would if the banks lent money. So if the banks aren't around to give a bunch of money....then sellers will lower the price of the super expensive stuff they want to sell. And so enterprising can happen without the help of the bank. The result would be deflation!

Enterprising would still happen, and the result would produce way more products more efficiently, and so all the excess goods would naturally be sold cheaper, because of excessive supply.

So yeah, if we didn't increase the money supply, we would just see gradual deflation over the years, which would be the result of goods being produced more efficiently.

Hello Isaac,

Do you agree with what I said about monopoly money having different classes of users, with some being more privileged than others? (those with the power to control the supply and availability of money enjoy a special privileged control over the other users of its money...)

Movement of resources in the market tends to correspond with movement of money. Newly created money is not different from old existing money in its ability to move resources.

A bank which is privileged with the monopoly of power to change the supply and availability of money is able to choose which parts of the market are going to experience growth against others.

It is not bad that people with actual productive ability can express their values in the market (by self-determining how and where their ability is used), with such expression limited by the productive ability that one has. A monopoly bank, on the other hand, may have no productive ability whatsoever but only thrives upon the productive ability of users of its money to express its values.

As you say, your "enterprising" can happen without unproductive money-creation. If an individual or business needs the productive ability of others to help with its "enterprising," then without monopolistic money-creation, the success or failure of that enterprise will depend on the values of other productive people.

But when a bank with a monopoly to create money out of nothing is in the picture, however, enterprising will not be limited by the abilities of actual productive people and their respective values but by the values of the bank. Because of this, productive people will have their values subverted (by not being allowed to express them to the maximum of their productive ability) in order to drive the market along a path that is dictated by the bank (earlier I posted the steps that this dictation arise from).

Then the result is a reduction of one's freedom to self-determine how he works and lives in the market. He is pressured along the course of resource-allocation which is determined by banks. This is robbery.

Do you know the term "bubble" as it applies to the market? Such as: The dot-com bubble, the housing bubble, the energy bubble, etc (sometime, you might like to read: Goldman Sachs: Ruler of the Universe on the Radical Libertarian, which explains this effect in detail). These bubbles created by banks have the effect of squeezing resources into one or more areas of the market, taken from everywhere else, limited only to the extent of the bank's desires and not its actual productive ability unlike everyone else (and I suppose, to the extent that users of money do not care or understand that they are being robbed).

What's the point in letting it happen?

Note that this kind of thing is the same thing as what the government does when it taxes you to fund its programs (or rather more recently, "borrows" money into existence via the privileged bank as above). So I would say, there is also a "war bubble" as well, again sucking away resources and people's freedom of self-determining how their productive ability is used according with their individual values, to instead carry out the values of the unproductive government.

Did I make any sense at all? I hope that you will continue to meditate about the relationships that the monopoly banks and government have with the market and what that implies for our freedom.

See you soon.

edited for minor clarification and typos.

[Isaac Feynman]

I had a little insight a few minutes ago...

I think I understand why Tism says printing money is always bad.

I always thought that printing money was necessary in order to allow for enterprising. I thought that people who want to enterprise require an abnormally high amount of money to afford the equipment they need to do the enterprising. But if there were no banks around to lend & increase supply, then the sellers would have no choice to but to sell the really expensive items they have for much cheaper than they would if the banks lent money. So if the banks aren't around to give a bunch of money....then sellers will lower the price of the super expensive stuff they want to sell. And so enterprising can happen without the help of the bank. The result would be deflation!

Enterprising would still happen, and the result would produce way more products more efficiently, and so all the excess goods would naturally be sold cheaper, because of excessive supply.

So yeah, if we didn't increase the money supply, we would just see gradual deflation over the years, which would be the result of goods being produced more efficiently.

Hello Isaac,

Do you agree with what I said about monopoly money having different classes of users, with some being more privileged than others? (those with the power to control the supply and availability of money enjoy a special privileged control over the other users of its money...)

You know, I honestly never played monopoly as a kid. All I know is it's got colorful fake money.

Movement of resources in the market tends to correspond with movement of money.

That makes sense - input/output. Put money in, and resources come out.

Newly created money is not different from old existing money in its ability to move resources.

That's clear.

However, one thing I realized about new money, is it allows for greater competition/inflation. If we didn't increase money supply, people would have less capacity to engage in bidding war. The strong impression I have at the moment is that prices inflate because people compete for products, and since the seller is aware of this competition, he sets his prices higher than he would if the money supply was lower. Lower money supply means people will have less capacity to outbid the other. Correct me if I'm wrong here, or if I'm missing something more important.

A bank which is privileged with the monopoly of power to change the supply and availability of money is able to choose which parts of the market are going to experience growth against others.

Ah....now that's an interesting point. Although, as soon as you start talking about "a bank with a monopoly" I get confused, and I'm not entirely sure why.

It is not bad that people with actual productive ability can express their values in the market (by self-determining how and where their ability is used),

Well, you know....the common everday man is his own worst enemy in this sense. The common, ordinary person doesn't seem to have values beyond satiating his most basic, animal needs.

A monopoly bank, on the other hand, may have no productive ability whatsoever but only thrives upon the productive ability of users of its money to express its values.

How do the people free them selves from such a bank?

As you say, your "enterprising" can happen without unproductive money-creation.

I know this is what I said, but I still have a hard time imagining it! I mean, right now I live with my parents - I have no debt.....but to actually have a house of my own, and a car....I need banks! What is the right way for me to act?

If an individual or business needs the productive ability of others to help with its "enterprising," then without monopolistic money-creation, the success or failure of that enterprise will depend on the values of other productive people.

You wanna know the values of people? Ownership of luxury. The people who sell the luxury make it so that you need to borrow money. I mean.........take a guy like me. What do I need, really? Not much. Like I said, I live at home, and all my basic needs are met (besides sex, but I don't really have a strong sex drive or need for romance). I would like to have my own house and car, but it's difficult to afford without borrowing. I suppose if I had the capacity to make lots of money, I wouldn't need to borrow. To be honest, I have a hard time working. I can't stand working.

But when a bank with a monopoly to create money out of nothing is in the picture, however, enterprising will not be limited by the abilities of actual productive people and their respective values but by the values of the bank.

You got to admit though.....the only reason the bank is able to fulfill it's values, is because "the people" value the same things as the bank. Their values are almost identical. The bank wants people to borrow and compete. And people want to borrow and compete.

Because of this, productive people will have their values subverted (by not being allowed to express them to the maximum of their productive ability)

This is where I think me and you need to get clear on something. What are the values of the people? It's not an easy question!

[tism]

You know, I honestly never played monopoly as a kid. All I know is it's got colorful fake money.

"Fake money" is a good start to understanding the money monopoly.

Money which is forced upon people (by way of the steps I posted earlier) is as much "fake money" as the money in a board-game, and in a way, perhaps even moreso. In the board-game scenario, it is probably assumed that the people playing the game together accept the game's rules about its money. But, one can at least refuse to deal with the board-game's money entirely by not playing the game. However, that opportunity (refusing the money) is not as easily found when dealing with a "real" bank's money monopoly, making the bank's money even more fake (by not representing the values of those exchanging it) than the board-game money.

Ah....now that's an interesting point. Although, as soon as you start talking about "a bank with a monopoly" I get confused, and I'm not entirely sure why.

Who is allowed to compete with the bank for issuing money? Does the bank (by which I mean the central banking system as a whole, not just a building down the street) have the special privilege of issuing the money that everyone around it uses, and prevents others from doing the same? So that you've NO choice but to accept the bank's money? Then the bank is a monopoly.

It is not bad that people with actual productive ability can express their values in the market (by self-determining how and where their ability is used),

Well, you know....the common everday man is his own worst enemy in this sense. The common, ordinary person doesn't seem to have values beyond satiating his most basic, animal needs.

And you know this because... ???!

Does the monopoly bank, by not being a "common, ordinary person" know what's best for people?

I am afraid that if you really believe so, we will probably never reach an agreement on this topic.

A monopoly bank, on the other hand, may have no productive ability whatsoever but only thrives upon the productive ability of users of its money to express its values.

How do the people free them selves from such a bank?

Ultimately, by refusing to take the bank's money in exchange for products. Unfortunately, that also means meeting resistance from the state (in the way that the state demands use of the bank's money, by court orders and by taxing products in terms of the bank's money).

Like I said before, the ability to refuse a money is necessary for the money (and you) to be free. But if you can't refuse a money (without going broke, or to jail), then you are living in dictatorship.

As you say, your "enterprising" can happen without unproductive money-creation.

I know this is what I said, but I still have a hard time imagining it! I mean, right now I live with my parents - I have no debt.....but to actually have a house of my own, and a car....I need banks! What is the right way for me to act?

I do not know what is the right way for you to act.

If an individual or business needs the productive ability of others to help with its "enterprising," then without monopolistic money-creation, the success or failure of that enterprise will depend on the values of other productive people.

You wanna know the values of people? Ownership of luxury. The people who sell the luxury make it so that you need to borrow money. I mean.........take a guy like me. What do I need, really? Not much. Like I said, I live at home, and all my basic needs are met (besides sex, but I don't really have a strong sex drive or need for romance). I would like to have my own house and car, but it's difficult to afford without borrowing. I suppose if I had the capacity to make lots of money, I wouldn't need to borrow. To be honest, I have a hard time working. I can't stand working.

More accurately, the banks who issue the money which buys luxury make it so that you need to borrow money.

You got to admit though.....the only reason the bank is able to fulfill it's values, is because "the people" value the same things as the bank. Their values are almost identical. The bank wants people to borrow and compete. And people want to borrow and compete.

And again you know this because... ???!

If people universally valued the same thing as the bank (a statistical near impossibility), then it would not be necessary for the state to enforce the bank's money monopoly at all, and the bank would flourish all on its own.

It is a capitalist myth that people and businesses flourish on their own under capitalism, merely for being good. People and businesses might thrive on the availability and direction of flow of credit (money), which is determined to some degree (not-insignificant) by the bank. However, that some people and businesses flourish under bank credit (when there is no other option) is not a sign that the bank's values are the same as those people's and businesses' values.

(edited above paragraph for some clarification)

Because of this, productive people will have their values subverted (by not being allowed to express them to the maximum of their productive ability)

This is where I think me and you need to get clear on something. What are the values of the people? It's not an easy question!

Right. It is not easy. But it is also not a question that needs a determined answer from high above, either.

[tism]

Some recent news from N.Korea is relevant to the issues discussed in this thread.

Economic Measures by North Korea Prompt New Hardships and Unrest
http://www.nytimes.com/2010/02/04/world/asia/04korea.html?ref=world

Prices of basic goods have sharply risen since the government replaced the old bank notes in late November, exchanging them for new bills at a rate of 100 to 1, according to officials here and reports on Seoul-based Web sites that glean information from sources inside the North. North Korea placed a cap on how much old money a citizen could exchange for the new currency, effectively confiscating private stores of wealth. Reports said it also outlawed foreign currency holdings and punished private traders who smuggled goods from China.

But in an effort to reward people who depend on state salaries, like factory workers and members of the military, the government paid the same nominal wages in new currency, theoretically increasing their purchasing power a hundredfold. The underlying idea was to suppress the country’s black markets and reassert the economic model of central planning.

We talked about Zimbabwe re-basing their currency, and here N.Korea is doing the same, and with the twist that only some of the old currency is being honored!

In some parts of North Korea, food prices have more than tripled in the past three weeks, according to Daily NK, another Web site that specializes in North Korean news. The value of dollars on the black market, it said, was soaring as well.

The inflationary surge appears to have two related causes. One is that private sales of goods have become far riskier, pushing up the price of any goods available outside the state distribution system.

The other is that the currency move at least temporarily rewarded the elite and the loyal class of state workers, who received sharp salary increases they could spend at state stores. But the North’s centrally planned economy has long lacked the ability to produce enough food and consumer goods at state-set prices, meaning demand outstripped supply even more than it usually does.

Notice that the main benefit of such re-valued currency goes first to the state workers and the industries which it subsidizes, since they are closer to the source of the new money. The effect being that the state is able to "buy" (steal) more of your work.

[jimmy-stock]

Thanks for sharing such indepth analysis on the topic

[devondad93]

Deflation is very bad news for anyone who owes large amounts of money. That means yet more cash looking for a home. And if companies aren't producing more stuff, to keep up with all that extra money, then consumer prices are likely to rise.

[Hierophant]

Uh, I think you meant "inflation."