Bitcoin Forum

Let us analyze what happens in commercial banking (from http://omniequivalence.com/fractional-reserve-banking/ (http://omniequivalence.com/fractional-reserve-banking/) and http://omniequivalence.com/representational-monetary-identity/ (http://omniequivalence.com/rmi/)):

The simplest answer is that bitcoin cannot be debased by Fractional Reserve Banking. It is the same in this respect to gold. You cannot have a purely gold-based FRB.

It is however, possible to build a paper system on top, where loans are made in paper, but the banks retain deposited gold or bitcoins. This is how paper money started in England in the 1600s as gold deposit receipts were used in commercial trade as paper money.

However, the only reason to have a paper (or an electronic) system is to facilitate fast, easy payments (gold is heavy and a hassle to trade with). Electronic systems are needed for remote payments which are essential in a modern economy. This is IMHO why gold will always remain at the sidelines of the world economy, because it is useless for remote payments and probably 99% of the world's payments (by value) are remotely transacted.

Bitcoin on the other hand is excellent at both functions, unable to be debased yet available for fast and remote payments. So the FRB system is unnecessary in a bitcoin economy. Questions of FRB about which piece of paper is "original money" disappear. Gold will always have some value in case of a total systemic collapse, where modern civilization is wrecked. This is very unlikely, so in a bitcoin economy gold will become very much viewed as an industrial commodity like silver is today.

This was not the question. The question was how can the money loaned from a bank account be both the same and not the same as the money from which it is a loan.

This is a bitcoin forum so I am pointing out that bitcoin makes FRB obsolete, which makes this question moot.
FRB enables the duplication of currency (within reserve limits which prove to be a mirage because of central banking which is the achilles heel of fiat systems).

If you cannot answer how is the replication of money possible, then how can you know that Bitcoin makes it impossible?

(What you call "duplication" I prefer to call "replication" because the exact multiple depends on the reserve requirements.)

You deposit $1000 and the bank loans out $500 (for example) to make a profit.
If you want to withdraw your full $1000 before the bank has "the same" money, then they have to give you someone else's (not the same) money to cover the other half.
This Fractional Reserve Banking works fine until too many people want their money all at once, then...

http://blog.emergencyoutdoors.com/tala/uploads/2012/06/bank-run-04.gif

In America, you can rest assured your account is covered by the FDIC.   :D

...or until inflation destroys the currency, or until the country defaults.

Yet the question remains unanswered: how is it possible that the money from a deposit becomes a loan that is both the same and not the same as the originally deposited money? I offer an answer to that question at http://omniequivalence.com/fractional-reserve-banking/ (http://omniequivalence.com/fractional-reserve-banking/) and http://omniequivalence.com/representational-monetary-identity/ (http://omniequivalence.com/rmi/).

OK. This question has intrigued me too. As when I first learned about bitcoin I just assumed that FRB would work. The problem for me now is I just can't see any money-multiplier effect possible.

In FRB 90% of a deposit from person X at Bank A can become a loan to person Y at bank A.
Person Y can then deposit his borrowed money at Bank B. So there are now two deposit accounts with the "same" fiat money. With bitcoin, when a loan is made to person Y the bitcoins follow him to Bank B. Bank A no longer has the bitcoins.

Now you might say that Bank A can pretend to still have the bitcoins just as it would "pretend" to still have the fiat in the form a loan account in a fiat system. However, the latter case works as the FRB system is backed by central banks who can print fiat to supply to Bank A if depositor X wants his money back while the loan to person Y is still outstanding.

In a bitcoin system the central bank would not be able to print bitcoin and would have to source it, from tax revenues perhaps. This is the inflexible part of the BTC monetary base.

How can that be?

FRB 'expands' the money supply.
Some things really are simple*, and the question is answered now, imho.

*It isn't "the same money" vs "not that same original money", rather the amount of money has increased and you still own most of it.

Let us analyze what happens if we Google Representational Monetary Identity.
All 4 results lead directly to you.

< No offense, this is just my opinion >
Does the world need a new phrase "Representational Monetary Identity" to help describe a tired old problem, FRB?
IMO, no.

You think we do, and good luck with your project...

When you say that bitcoins cannot replicate because they are an "inflexible" monetary base, you are saying they cannot replicate because they cannot replicate. To understand why they cannot replicate you must first understand why today's money can.

I hope this discussion will improve that.


I'm not offended, although "representational monetary identity" is a concept, not just a phrase---a concept intended to explain fractional-reserve banking, and not only to describe it.


Yes, I think we do. We must understand a problem before we can solve it.

A loan must be the same old money from which it is a loan, otherwise it is no longer a loan.

mirelo, I found this very interesting...

http://dev.economicsofbitcoin.com/mastersthesis/mastersthesis-surda-2012-11-19b.pdf

From the text:


I disagree with Austrian monetary theory: I propose a new theory of exchange value that resembles the Marxian variety despite no longer being Marxian.

It can't be and it isn't.

I mean of course it is the same money and the same money only, thinking about it any other way is an illusion. How can you tell? Well if all demand depositors at a bank came to withdraw their balance all at once the bank couldn't pay them back.

It's no different if you gave me some money to keep safe and I told you I'm going to loan out some of it and give you a share of the interest but because I have many clients like you I can give you back everything should you really need it - unless I can't.

And that's exactly what demand deposit contracts say. Hence why FRB isn't a fraud (something I used to believe it was until I really thought about it). The problem is that because how FRB works today, with FDIC and the FED there to repay the depositors should a bank run happen and a bank can't get enough short term loans from other banks, it leaves people under the illusion that the money they store in a demand deposit account is always in it's entirety available to be spent at any moment and this affects their behavior. They now instead of knowing that they may not have that money available to them and spend accordingly, they spend as if their balance is guaranteed whenever. This is the only reason why all the balances combined that have been created out of the same money can be counted towards an increase in the money supply - purely because people behave like it - and not because an actual increase in money supply happened.

In a market regulated strictly by consumption i.e. in a free market where there is no FDIC and FED, these risk would be much more apparent and people would spend accordingly and this illusion that they have their entire money available to them would get destroyed. Well I don't there would be no increase in the perception of how much money depositors have available but I'm certain it would orders of magnitude less than today and thus booms and buts fueled by an increase in people's illusion of how much money they have available for spending would be significantly smaller and shorter eventually leading to decent stability assuming this system would keep it's form for a long period of time.

There is no central bank.  That's the point, decentralization.  In that aspect, Bitcoin is inflexible I suppose but that is by design.

Think of money as an accounting system. What is an asset on my balance sheet, could be a liability on someone else's, or an asset of a company thats owns my company. Does the asset exist 1, 2 or 3 times? Is it the same? Its a meaningless discussion. Money is fungible, and its just accounting of debt.

I make a deposit of U$ 1.000,00. Then, my (so to speak) bank loans one of your debtors (if any) the U$ 900,00 in excess reserves created by my deposit. Finally, that guy pays you his debt with a bank transfer of the borrowed U$ 900,00. Now imagine a voice telling you that the U$ 900,00 you just received in payment are just an illusion. Is that voice really yours?

Um? the illusion is that you have $1000 available to you in your demand deposit bank account, not that I didn't receive $900.  ::)

Unsurprisingly, I would choose to think precisely the opposite. Then, we would sort it out with a little fight. We are about to see something similar in a global scale.

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

For money to account for debt, it must exist independently of the debt it accounts for. Otherwise, what you have is just debt accounting for itself, which is (now truly) meaningless.

The point is that you regard loaned money to be just an illusion.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.


What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion?

Oh. Absolutely. I was thinking of the existing CBs struggling on in a bitcoin economy.

The irony is that CBs would wind up killing FRB because they would not want to backstop retail banks with real, hard-earned money! So they would raise reserve ratios from 10% to 100% so that banks could only lend out 1BTC for each 1BTC of capital. This is the inflexible ideal for banking.

No its not meaningless, its precisely what money is; a tradeable representation of debt, aka IOU. Money without debt is what has no meaning, and in our system, it cant even exist. Money doesnt represent anything other than someone else's debt.

YES. Because 90% of it was loaned out so you cannot have $1000 anymore. You only "have" $1000 because the bank is willing to take from some other depositor and give it to you.

My U$ 1.000,00 can rather belong to the bank's excess reserves. Or, I can succeed in withdrawing them if I am quicker than you and benefit from the bank's 10% reserves. And even if there are no excess reserves and I am not quick enough so the bank cannot give me my money, my U$ 1.000,00 still belong to me since it was the bank that loaned them, not me: I am not responsible for what my bank does, am I? The point is that the money created by loans must be money just as much as the money originally deposited (and in practice indistinguishable from it), otherwise the system cannot work. If you say deposit money is an illusion, then you are saying that loaned money is an illusion, and conversely.

Are you high?

If the bank loans out your money, even though they owe you that money, you thinking you have access to that money is an illusion, no matter how you slice it, period. The $1000 you deposited are not with the bank anymore and have moved into someone else's pocket (the borrower). What you actually have with the bank is an IOU for $1000 that you hold and the bank is a counterparty to.

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.


And these are the facts, no matter what you think depositing $1000 into a demand deposit account entitles you to.


Under the current system with the FDIC and FED you have the illusion of no responsibility because you are protected by them and can count on always getting your IOU repaid which is the huge problem banking has today. But that doesn't mean you aren't actually holding an IOU when depositing into a demand deposit account and that you aren't personally responsible to pick a bank that will prudently loan out your money and keep a prudent reserve ratio. You are, read your contract with the bank, it tells you are when they tell you that under certain circumstances you wont get your money on demand.

Without money, I cannot owe you anything: the object of debt is exchange value, of which the only expression is money. That is why money cannot itself be debt, except as a result of some confusion, which is precisely what happens in today's monetary system.

I went to my bank yesterday and made a withdrawal of almost all my balance. Was that an illusion, period?

(Of course I know the bank is loaning my money and eventually I will be unable to withdraw it. However, this has not happened so far.)


If the bank loaned my money, then it forgot to subtract any such loan from my balance. If my money has indeed "moved into someone else's pocket," then the bank, for not letting me know about it by subtracting the moved money from my account balance, is defrauding me---which you said not long ago it is not doing, remember?

So it is not true all I have is an IOU. What I have is an IOU that I must take as money (since this is what my account balance is telling me).


It is not my choice to treat this IOU as money: it is the only money around. If I don't treat it as money, then I will have no money to pay for things (at least while Bitcoin does not go mainstream).


What you are failing to understand is that even if I am eventually unable to withdraw my money, I am still entitled to do so, which is precisely why fractional-reserve banking is a flawed monetary system.


One thing is my responsibility for the monetary system society adopts. In this sense, I have the responsibility to fight for a better monetary system, for me and for all. However, in the current monetary system I am not responsible for my bank's loans. This is not a matter of considering myself responsible or not: this is a formal contract between me and my bank. Whatever that contract says, my money remains mine and I can always withdraw it.

I explained it to you that if every demand deposit account holder went and did the same the bank couldn't repay all of their IOUs and would go bust unless bailed out.

If you can't face facts I'm simply going to stop wasting my time explaining them to you.


False. You can use cash + a savings account.


Says who? Certainly not your contract with the bank. Have you read the fine print?

Then stop wasting your time explaning me something I already know.


Don't you know that almost all of our society's money is debt? Since you are so fond of the facts, I expected you to know this one. In our society, debt and money are the same. So far, there is no escape from that, which is precisely what Bitcoin is all about.


No one reads the fine print. This is another fact I expected you to know---the banks certainly know it.

Money is a tradable representation of debt. You have a car, I want to have it. We could barter if I had something you wanted, say a diamond, but as it happens, I dont. So I write you a IOU to give you something in return for the car at a later date. That IOU is money, and it represents nothing else then the debt created when you gave me your car. It seizes to exist the moment I repay my debt. For instance when some time later I give you a diamond  for the car. You hand me back the IOU and I shred it. Paying for something with money is just an exchange of debt.

Now you may not know or trust me or my credit worthiness, so in practice we will use a bank we both trust to issue the IOU. I apply for a loan, bank creates the IOU (money) based on my pledge to repay it, I trade that IOU for your car. Then later you trade that IOU back to me  for the diamond, I give it to the bank to repay my loan and the IOU no longer exists. Its exactly the same principle.

What would be that something you will give me "at a later date"? That something is the money. Otherwise, you would have to have a different "tradable representation of debt" for each transaction, each one referencing the particular commodities involved in its represented transaction.

Money is not an IOU: it is what IOU.

No, the money is what I give you instantly, if Im lacking something of actual value you want to barter for the car. In my example you wanted a diamond ring for the car, that is what you will get at a later date, by trading my IOU (money) either with me or someone else for a diamond. Nobody actually wants money, we want what we can buy with the money, ie, collect the debt it represents. If the money doesnt represent a debt, its quite worthless.


We just agree on a value denominated in something abstract, that used to be gold and now we call it dollar or euro, thereby making debt fungible and the IOUs more versatile than a "good for a x carat diamond" or "good for 10 ounces of gold" note. But fundamentally its still the exact same thing and its definitely a IOU.


IOU
n
a written promise or reminder to pay a debt

In the above example, the debt is what i owe you for the car. The money you get serves as proof of what you are owed by the issuer of the IOU, be it me or a bank. The money itself has no value, other than the debt it represents.

So the money for us must represent a diamond. However, a certain amount of money does not represent a diamond: it represents the exchange value not only of this diamond, but of anything having the same exchange value. If money meant "I owe you a diamond," then it could not buy anything other than a diamond, which means it could not buy anything---since by definition money does not care what it buys, provided it has the same exchange value it has.


We want money because we want to be able to buy things, mostly not yet knowing which ones. Money does not represent what we want to buy: it rather represents its exchange value.

No amount of money makes any decision about what we can buy with it: that is precisely the point of money: the capacity to represent exchange value, giving us absolute freedom about its concrete form.

If I have U$ 100,00 and a pair of shoes worth U$ 200,00 and you have U$ 200,00 and a knife worth U$ 100,00, I can give you my pair of shoes while you give me U$ 100,00 and your knife. In the end, we still own U$ 300,00 each, both in monetary and commodity form, and nobody owes anybody anything.


Here you are close to defining money, except for the word "abstract": money is a generic exchange value denominated in something concrete.


A monetary debt consists in owing not an object, but rather its exchange value. If I owe you U$ 100,00, I can pay you with anything worth U$ 100,00 (although I suspect you will prefer money so you don't have to sell whatever I give you to get what you want). So any monetary debt requires an independent representation of exchange value. If a monetary debt were itself the owed exchange value, then it would become an infinite regression of the form: someone owes the circumstance of someone owing the circumstance of someone owing the circumstance... to someone else.

Mirelo, you really dont understand. Money today is almost universally credit money, its created based on debt, its literally created out of thin air by banks based on your or my pledge to repay it later and money therefore represents a debt itself.  This is true for your bank account which is created by the bank, its true for notes which are created by the central bank, usually based on government bonds (ie debt). Our money  used to represent a debt by the issuer expressed in gold, which made it easier to understand (the money was redeemable for a fixed amount of gold, and therefore a 'good for gold' note, which really is just a tradeable  debt certificate). Now its value is no longer pegged against gold or anything, but it still works the exact same way.


What you completely miss is that these banknotes already are a tradeable form of someone else's debt. We exchange debt all the time and since its fungible, we have no idea who's debt it represents, but money is debt of and by itself.  your "monetary debt" is therefore a bit of an oxymoron, and btw, you can not redeem such debt or any debt by giving me anything of value. You have that backwards. Im not forced to accept any goods as payment of any kind of debt, I am however forced (by law) to accept fiat money to redeem any sort of debt. That money however, is nothing else than a bank or government sanctioned debt of someone else. Fundamentally, our money works no different than if you wrote "good for $100" on a cheque book, or on a piece of toilet paper,  and used that is if it was $100. The only difference is that we use trusted institutions called banks to verify creditworthiness, and guarantee the debt.

Let me just quote myself a few posts ago (https://bitcointalk.org/index.php?topic=144650.msg1538255#msg1538255 (https://bitcointalk.org/index.php?topic=144650.msg1538255#msg1538255)) in answering to hazek:


As you can see, I haven't missed that money "today is almost universally credit money." It is you that are missing that money being debt today is no proof that it has always been or must always be debt (what about Bitcoin?).


What you are describing is the birth of fractional-reserve banking. Try to conceive of money in a different monetary system. This is not as hard as you think: money is much older than fractional-reserve banking.


Again, I am not missing that today's money is debt: it is you that insist in putting all money in a fractional-reserve banking context (what about Bitcoin?).

Try to frame my example with sheer gold acting as money, and you will see there is no longer any place for debt left in it:

If I have an ounce of gold and a pair of shoes worth two ounces of gold and you have two ounces of gold and a knife worth an ounce of gold, I can give you my pair of shoes while you give me an ounce of gold and your knife. In the end, we still own three ounces of gold each, both in monetary (golden) and commodity form, and nobody owes anybody anything.

Fractional reserve banking isn't the primary problem we face.  This back and forth over what is money largely misses the bigger problem. 

The main reason the economy as we know it is in jeopardy is due to the shadow banking system and the use of synthetic credit default swaps and other derivatives.  The shadow banking industry is north of $65 TRILLION.  It's essentially a giant casino where the spiderweb of derivatives is so entangled that they are impossible to unwind.  It's not about debtor and creditor.  It's about debtor, creditor, and 5 other players that have no position in the transaction but are making side bets as to the outcome.  Buffet didn't call derivatives "financial weapons of mass destruction" for no reason.

The primary problem is not necessarily the biggest in size.


So all this has nothing to do with money, right?


Don't get so impressed with these quantities: if you do not understand what money is, then it will make little difference whether you can figure out what a trillion is (I confess I cannot).


Likewise, derivatives are not called this way for no reason: they derive from something. So unless you can figure out what they derive from, which is the process of debt becoming money, you will not have found the "primary problem" (it is a bit funny to look for something primary in something primarily characterized as derivative, don't you think?).

Today, most money is debt, and the primary mechanism for debt becoming money (of which the first "derivative" is called central banking) is this: when a commercial bank makes a loan, it creates new money that, if deposited into another bank account in the same or any other bank, enables the latter bank to loan it again, creating even more money. This continuous creation of debt expands the money supply that we use to buy cars, houses, and cell phones, creating inflation---so this credit money is as much an illusion as the cars, houses, and cell phones it buys, or as the inflation it causes. As some of us know, if everyone were to withdrawal their money from all banks, there would be no money left for most of us to withdrawal. However, this is no longer because there are only 10% reserves, but rather because now less than half of that percentage exists in physical form---a percentage that continues to shrink.

The crux of all this is that each loan replicates the money from which it borrows, so the same loan must be:

• The money from which it borrows to still be a loan from it.
• Brand new money for the money from which it borrows to still belong to its original depositor.

What we must explain is: what makes this ambiguity possible? I propose an answer to this question at http://omniequivalence.com/fractional-reserve-banking/ (http://omniequivalence.com/home/fractional-reserve-banking/) and http://omniequivalence.com/representational-monetary-identity/ (http://omniequivalence.com/rmi/).

That depends on which definition of the word primary you are using.  In your case you are using the definition:


While I am talking about:


Bear Stearns, AIG, and a near systemic financial collapse in 2007-2008 was not caused by fractional reserve banking.  It was caused by a run on the Shadow Banking System.  

You can continue your little quibble but your efforts are misplaced.  To use an analogy, we're both standing on the beach, you're focused on the moon and its effects on tide patterns.  I'm worried about the giant Tsunami right in front of us.

What about both? What about something that is of first rank, importance, or value because it is first in order of time or development, or primitive?

By making these two senses exclusive you are condemning yourself to fight just imminent problems and only recognize immediate causes.


So according to your logic, even if floods are caused by rain, and rain is caused by evaporation, floods are not caused by evaporation. Amazing.


Sorry to interrupt your worrying about that giant Tsunami with my little-quibble monetary theory, but I really don't see how a decent monetary theory can be of no use in avoiding future Tsunamis (the present giant wave is not the first, as you probably know). As for the present monetary Tsunami, do you really think you can avoid it? (And if not, then who's efforts are misplaced?)

So why don't you stop worrying for a moment and try to understand things for a change?

No.  Lets say that flood was caused by a dam breach.  The dam failed due to neglect on the part of its owner.  In this case, I would focus on the owner's negligence which was the primary cause of the flood.  It would be rather stupid to focus on evaporation.

THAT is what I'm saying.

So you think you can have fractional-reserve banking without ever having central banking, right? And that you can have central-banking without sooner or later having the deregulation of banking and the merge between commercial and investment banks, right? And that you can have that merge without the explosion of derivatives, right?

Well, good luck with your dam.

Where did I say any of that? 

Sorry, I forgot you were just talking about the weather.

In this thread, these two opposite views of money showed up:

1) Money can only be an IOU.

2) Money cannot be an IOU.

These are precisely the two possible views of the phenomenon of money becoming debt, taken unilaterally. When a commercial bank makes a loan:

1) The new money created must be different from the money from which it borrowed so it can still belong to its original depositor. By taking this view unilaterally, we conclude: money can only be that loan itself.

2) The new money created must be identical to the money from which it borrowed so it can remain a loan from that original money. By taking this view unilaterally, we conclude: money cannot be that loan itself.

Although both views have a legitimate motivation, they are both wrong:

1) Money can be an IOU as the continuous expansion of our money supply as a debt overwhelmingly shows. The resulting debt-money supply is as much real as the resulting monetary crisis.

2) Money must not be and in itself is not an IOU, as this example shows:

If I have an ounce of gold and a pair of shoes worth two ounces of gold and you have two ounces of gold and a knife worth an ounce of gold, I can give you my pair of shoes while you give me an ounce of gold and your knife. In the end, we still own three ounces of gold each, both in monetary (golden) and commodity form, and nobody owes anybody anything.

I propose an explanation of how can money be an IOU without being in itself an IOU at http://omniequivalence.com/fractional-reserve-banking/ (http://omniequivalence.com/fractional-reserve-banking/).

Your example makes no sense,  all that happens is that goods, gold or IOUs are traded. Its not because I trade one debt claim against another or one debt claim against some gold, that it stops being a debt claim.  Our fiat money is created as a debt, and therefore remains the representation of someone's debt  no matter how often it changes hands, no matter what its traded against, until the debt is repaid and the money destroyed.

Why would that be? Why would it make no sense to trade a pair of shoes for a knife and make up for the difference in price with a gram of gold?


Not in my example, in which we exchange only a pair of shoes, a knife, and a gram of gold.


Are you saying my pair of shoes is a debt claim? Or perhaps it is the knife?


Absolutely correct, provided you are talking about money as created by commercial or central banks, and not about money in general.

What other fiat money is there, besides money created by commercial or central banks?

To find money not created by banks you just have to:

1) Remember that banks have not always existed and that money was once gold and silver (not to mention salt, cattle, etc).

2) Notice the forum you are in, which is about Bitcoin, a form of money created by a peer-to-peer network, rather than by banks.

No that difficult, is it?

No one ever mentioned bitcoin being debt based, thats just a daft argument. And those old notes and gold coins are no longer fiat money. Fact is 100% of our fiat money is now an IOU.

You are a bit confused: I gave you Bitcoin as an example precisely of money that is not debt since you asked me for such an example. Yet even if I didn't, you have just conceded that money can be something other than debt, which is good enough.

The reason why fractional-reserve banking works is not because commercial banks "pretend" still to have the money they already loaned. It works because the representation of that money by different bank accounts remains mistaken for the same deposit money, which hence replicates itself among its different representations by those different bank accounts (or notes, checks, etc), in what I call a representational monetary identity.

Bitcoin prevents that by inherently distinguishing money (a private key) from its representation (a public key).


Fractional-reserve banking predates central banking: it is not necessarily "backed by central banks," although with central banks it will take longer to collapse.


A central bank that does not create money as a public debt is not a central bank.

This is of course not possible.  You are looking at a legalized accounting trick allowing the same thing to be counted as asset and liability at the same time. You bring $100 to the bank – it’s an asset to you and liability to the bank. Bank loans it out – now it’s an asset to the bank and a liability to the borrower. The grand total in circulation had not changed (still $100) but there are now $200 of assets and $200 of liabilities. The bank then proceeds to collect interest from the borrower while maintain the appearance of having your $100 at hand.  Some non-Christian type earns a bonus.

When economy goes wrong (every 5-7 years) the Bank cries foul, gets money from Government (your taxes) AND forecloses on borrower. The Bank is again whole, you lost your taxes, the borrower lost their property, more money was printed and the same non-Muslim type gets rich.

Rinse & repeat. In this process the “money” is nothing but a unit of account, used to quantify how much property can be squeezed from the hapless borrower and what percentage of your productive output (GDP) the bank can claim during bailout. The notion that money is “yours” is but a fiction. In fact the money has been assigned to you to quantify your temporary usefulness during property seizures / bailout negotiations. ("Look, we are too big to fail, there's XXX billion $ deposited in our bank ..."). If the bank believes it can squeeze more from you at a later date – you get more money (credit) and "get richer". When that perception changes – bang – you’re broke. How much you get or is taken from you depends on the "depth of the business cycle"

Last but not least, you can’t comprehend things because the language has been deliberately drained from meaning. It helps a great deal to confuse things. When you cant talk straight - you cant think straight. It's not obvious how wars get started by Department of Defense, schools are closed by Department of Education and oil & gas exploration is banned by Department of Energy. And yes the business cycle has nothing to do with your business. Things would be much clearer if it was named: "the banking cycle".

You do understand that wealth is a claim on labor? The so called "assets" - your car, house, ranch or factory are worthless unless there are people willing to toil on them. Therefore it's impossible for the majority to be wealthy - wealth is a minority thing - not for the average Hindu.

So let us talk straight:

1) If money cannot be a liability, then it cannot be an asset: my bank money can only be an asset to me by becoming a liability to the bank, and it can only be an asset to the bank by becoming a liability to borrowers. This is no "accounting trick": money can only be an asset if mistaken by a liability, as which alone banks can duplicate it in the borrower's account - the original form of this mistake is what I call representational monetary identity (http://omniequivalence.com/representational-monetary-identity/).

2) Wealth is not a claim on labor, despite having a monetary value and being a product of labor. Instead, money (not wealth) is a claim on wealth (not on labor). Wealth is in itself neither money nor labor: it is rather all things we produce because of their utility, without which they could have no monetary value (a piece of wealth taken in its monetary value is, precisely, an asset). The true meaning of "assets" is the one you put between quotes:


While its false meaning is the one you leave unquoted:


Instead of denouncing banks, you are just buying into the very confusion that allows them to make money: the mistaking of money for wealth (for assets).

Hmmm, it:

-argues with just about everything anyone says
-contradicts it's own previous arguments in order to promote further arguments
-agrees with nothing but it's own self-validating statements
-is relentless in pursuit of arguments

My brain can't be working properly today, as I'm sure there's one-word expression for this type of online behaviour. What could it be?

Would it not be "personally-attacking-anyone-whose-actual-points-you-are-unable-to-invalidate"? There indeed should be a single word for that since it is one of the oldest behaviors, both on- and offline.

Just remembering my point at /index.php?topic=144650.msg2860192#msg2860192 (https://bitcointalk.org/index.php?topic=144650.msg2860192#msg2860192), the mistaking of money for wealth (for assets) and of debt for money are the same, and both result from representational monetary identity.

Wealth is claim on labor. Having assets or cash does not automatically make you wealthy (you are merely considered “rich”) – the ability to use these to consistently extract labor - does. Money is not a claim on wealth – far from it. Example: having a profitable business backed by a powerful lobby is wealth. Your money has no claim on such wealth unless it’s for sale. Even then only the “the assets” are sold (factory, office, bank account,etc). What is not sold are the political connections, family ties, ethno-cultural identity etc. These make a big difference in a bailout-driven business model.

There used to be times when wealth was simple to recognize. The claim on labor was direct (slavery, serfdom, etc). This is now replaced with a more indirect system, involving several layers of indirection between the claim and the owner. The results are nevertheless the same - you work for other people more than they do it for you. What you put in is less that what you get. That difference is the wealth.

As for money - you are right in general that both liabilities and assets can be used as money. However not every asset has to be tied to liability (example - a gold coin in your hand is an asset with no liability). The evilness of the banks is that with a stroke of a pen they can create both an asset and a liability and make money on both while maintaining their books perfectly balanced - as long as the paper they create is considered "money"

Wealth is food, clothes, a house, a car. Money is not wealth, but rather a claim on it.


Having assets is to own useful things, not for the sake of their utility, but rather for the sake of their monetary value. Then, it is the same as having money. So you are correct: this does not make you "wealthy" (you have no "wealth"), but only "rich" (you have money or something of monetary value, with which you can buy wealth).

However, being able to "extract labor" makes you a capital owner, not necessarily a wealthy person. Usually capital owners are also wealthy (they usually have good clothes, good cars, good houses, etc), but having capital is to have the means of producing new wealth and control over the workers needed to produce it. It is like having money since both can give you access to wealth that does not yet exist.


Money being a claim on wealth simply means that it can buy useful products of labor (wealth).


Again, that is being a capital owner. People can be wealthy without having capital, by working for money and buying the useful products of their own work and those of the work of other people.


You are confusing between wealth and capital. Wealth is any useful product of labor while capital is a social form of producing wealth (other such forms are servitude, slavery, etc). The "political connections, family ties, ethno-cultural belonging etc" belong to the social form of production - not to the wealth it produces.


Both slavery and capital are claims on the workers themselves, and not on labor (this is one of Marx's mistakes). The difference is that slavery is an absolute, unlimited claim on workers while capital is a relative, limited one (limited in both time and form). Money can be a claim on capital by being a claim on workers along with the means they need for producing new wealth, or it can be just a claim on wealth directly.

Wealth is food, clothes, a house, a car. Money is not wealth, but rather a claim on it.

Yes, money is not wealth on that we agree. However I doubt that owning clothes, car & house truly represents wealth. Say a slave owns his machete & shack - is he wealthier that the one which does not (but has them just the same)? If your boss wants you there 8:00 AM sharp and for that you maintain a house near his factory & have to own a car - are these signs of your wealth? Again, (modern) money aint claim a thing. It used to be claim on gold but not anymore. Most people may volunteer to exchange their goods or services for your money but they don't have to.

However, being able to "extract labor" makes you a capital owner ...  having capital is to have the means of producing new wealth and control over the workers needed to produce it

You are absolutely right that capital is about control over workers. However the wealth is not the material outcome but rather the very process by which part of the output is directed towards certain people's needs. For example the daily output of an armaments factory does not represent wealth. But the process by which your can be consistently made to build bombs for the benefit of a tiny ME country & its supporters is wealth.

Money being a claim on wealth simply means that it can buy useful products of labor (wealth).

Ditto, consumer goods are not wealth. In fact many are waste.

People can be wealthy without having capital

Damn right. the Kennedy's, the Bush's, the Clinton's - they are all wealthy without owning much capital. So are countless top-level state bureaucrats who could direct the effort of millions to their own benefit. Hence they are wealthy.

..., by working for money and buying the useful products of their own work and those of the work of other people.

It's true that everyone works. And this is the genius of the system: I work for 8 hours and make $200. Some political pundit earns the same in 10 min explaining on CNN the brilliancy of certain BofA, whose chairman makes $25K/ day and which acts in the interest of an lobby of the top 2% of the us population. I don't agree but I have to pay my mortgage to that institution just the same (claim on labor). So does the pundit. The BofA chairman also works - he makes bets with our money on all kinds of things. When he's right - he gets a bonus. When he's wrong - he gets a bailout with my taxes. Now I have to work extra hard because the school got de-funded and I need to put my kids in a private one which is expensive. And I learn that the private school principal & the BofA chairman share the same culinary taste - what a coincidence!

You do not simply sell yourself to your boss; you rent yourself to him. During the day of work, when he owns you, you cannot enjoy your wealth without his permission, so it does not belong to you without also belonging to him. After that, or when in vacation, you can freely enjoy your wealth, so it belongs to just you. In other words, your wealth only belongs to just you during the time you do not belong to your boss.


Before 1971, dollars were legally a proxy representation of gold. You can say they were a "claim" on gold as long as you remember that both were money: gold was directly money while dollars were just indirectly so. However, although now money is purely debt, it still is a claim on wealth, just as it was before (when people talk about the collapse of the dollar, they are precisely talking about the day the dollar will no longer be a claim on wealth).


Wealth is a useful product of labor. So the means of production (machines, commodity resources, etc), which are indirectly useful products of labor (they are useful in producing useful things), are also wealth. However, the process of production itself is not wealth: it remains the process by which the means of production become wealth.


A consumer good may be useless to you, but if somebody else regards it as useful (even if you disagree), then it is a useful product of labor, which is the very definition of wealth.


Nobody has to be a Kennedy to be wealthy. Even if I am far less wealthy than the Kennedys were, I am still wealthy.


Now you talk about a "claim on labor" to mean a different thing: a claim on the money you earned with your labor. The fundamental problem with this system - of which the scenario you described is a late consequence - is that the public aspect of money has been long privatized: money has long become debt. For decades now, this has concentrated money (which is ultimately power) in the very few hands of the so-called 1%, and will continue to do so as long as money remains a form of debt.

I concede you may have a point. Looks like I have to re-examine my definitions on wealth & labor

I am glad you came to that view.

However, your conceptions of wealth and labor are not where I see the fundamental problem. The dominant form of money today confuses it with its representation, which indeed corrupts the concepts of wealth and labor, but only after corrupting the general concept of money by turning it into debt and greed. Bitcoin solves that problem because it finally distinguishes money from its representation. I investigated that issue here: http://omniequivalence.com/representational-monetary-identity/.

Money is not debt if you never borrow, gold for example is never created out of debt

Blending credit into the picture will confuse most of the people's logic thus disguise what really happened behind the scene, so far this practice has been successful in fooling majority of people

Credit is actually a very complex concept including several changes in ownership (ownership itself is even a more complicated concept), after several times back and forth changing of ownership, most of the people get lost :D

Sheer gold is only money when it represents that money, so even if we could create the metal (instead of mining it), it would not necessarily be money. For example, gold was not money for the Aztecs decimated by Cortes. Thus, despite money always being a social creation, the object representing it is not: unlike dollars and bitcoins, monetary gold is a form of money of which the representing object itself is not a social creation. Finally, we can borrow money without turning it into debt: for example, I could borrow bitcoins. Money can only become debt when mistaken by its representation.


The confusion between debt and money already happens "behind the scene." However, what confuses people is a form of monetary representation: it makes them confuse itself with money. This is part of what makes the confusion between debt and money possible.


The problem is not credit, but rather its confusion with the money on which it depends, which in turn results from the confusion between that money and its representation (representational monetary identity).

So what is money if not it’s representation in paper or metal? I find the idea that there’s some pure form of money distinct from any material representation a bit superficial.

You are absolutely correct: as no monetary representation can exist without money, conversely money cannot exist without its representation - distinction is not independence.

Consequently, different forms of money are merely different monetary representations.

The money I have in my (physical) wallet consists in paper notes, or bank notes. These notes have a monetary value, which belongs to me. However, the notes themselves do not belong to me (so I have no right to destroy them). They are public: they belong to society. While their monetary value is private: it belongs to me or else to whoever controls its representing notes.

It is precisely this monetary value - of the notes I have in my (physical) wallet - that constitutes money as distinct from its representation. It is just an abstraction - despite a social one - unlike the notes that represent it. Still, without this abstraction, its representing notes would have no monetary value.