Interest and Bitcoin - Impossible?

[myrkul]

no one can exchange time itself so time can not have a value. 

Missed this the first time. Exchanging your time in return for money or other consideration is exactly what you do when you accept hourly pay or salary. Time most definitely has a value. Ever heard the phrase, "Time is money?"

[Impaler]

Ugh, what drivel, that's LABOR that is sold, its value is derived from the necessity to use it as an input to producing a good or service.  The employer doesn't want the workers TIME they want only the product creation process completed and if anything they want it done in as LITTLE time as possible.  The use of time as a convenient measuring unit for labor (typically the menial kind) dose not mean time is what is being exchanged, the existence of contract work in which your paid to 'do the job' and not by the time involved shows this clearly.

When I say you can't exchange time I mean it in the sense that you can't have 9 women produce a baby in 1 month.  I can't buy it as a input to use in the production process even when it's essential to the process, say I am a vintner and someone places an order for wine and wants it delivered in a week, I can not go out and buy grape juice and buy some 'time' and combine them to make 3 year aged fine vintage wine for my customer.  I can get all the time I want but only by waiting, if I buy some vintage wine from someone else I'm buying a good, NOT time.

[myrkul]

Ugh, what drivel, that's LABOR that is sold

Then why do you get paid by the hour, week or year?

Labor might be what's being bought, but it's not what you're giving up in exchange (selling) for the pay. That's time. Time in which you could be doing something more enjoyable, or directly beneficial. That time has a value to you, and they ask you to value it on the application: "What is the minimum amount of pay you would be willing to accept per <hour/yr>?"

If time had no value, then all work would be piecework, where you are paid per unit of labor.

And no, time is not fungible. 9 months from one woman cannot be replaced by 1 month each from 9 women. That doesn't mean it doesn't have value. Waiting doesn't get you time, you're actually spending it. Hopefully to good purpose (if you expect to get a reward at the end of the wait, for instance). Likewise with the vintage wine, you're buying a good made more valuable by the time spent aging.

[Impaler]

enter`name`here:  Risk premium, a well understood concept that is NOT interest and has been recognized for millennium to be distinct, in the Islamic tradition it is explicitly recognized to be legitimate and not usury.  I've ignored it up till now as I'd assumed all the parties involved in the thread knew the basic definition of interest.

myrkul:  Ah looks like your following the standard Austrian playbook and have sheltered behind the last and admittedly best bulwark available.  But it will not hold, first off time preference is on its face tautological, every borrower and lender are by engaging the act are showing a preference for money in the present rather then the future.  The borrower values the present money more then the future money given up, and the lender values the future gained money more then the present money.  Both are undervaluing the future to some degree, and thus time preference is a description of what's happening.

So for this term to have any explanatory power is must actually be describing an innate factor in human psychology which gives rise to interest.  A factor that broad and all encompassing would be described as part of 'human nature'.  We would expect it to be highly resistant to rational thought as it is essentially the lust for immediate gratification, something every society in history has condemned as a moral failing.  This alone would abolish any possible foundation for justifying interest as 'good' or 'right' because both lender and borrower are exercising basic human drives and the lender is profiting not from his own work but from a privileged position in an irrational behavior.  

Why then should money be hard simply to support an irrational behavior?  We know that behavior CAN be modified profoundly by changing the rate of interest in our present monetary system.  Lowering rates promotes consumption, higher rates promote savings.  So a thumb can be put on the scale to change behavior.  If people have an irrational under-valuation of the future then designing a money system that forces up that future valuation will correct the broad undervaluation, demurrage has exactly this effect on the net-present-value of future wealth or income streams.  When the future valuation is corrected we should see interest eliminated as the borrower is willing the receive back 1 for 1 each dollar lent because they defer demurrage costs, the time preferences still exist underneath their decision but is cancelled out.

[myrkul]

When the future valuation is corrected we should see interest eliminated as the borrower is willing the receive back 1 for 1 each dollar lent because they defer demurrage costs, the time preferences still exist underneath their decision but is cancelled out.

Logical error: Assumption of demurrage as accepted practice.

[Impaler]

Are you arguing that the effect of interest elimination will not occur unless demurrage becomes 'accepted practice' as in wide scale implementation?  Or you you simply going headlong into the logical fallacy of saying my argument is wrong because you (or presumably a majority disagree) with it and find it "unacceptable" thus preventing it's implementation?

[myrkul]

Are you arguing that the effect of interest elimination will not occur unless demurrage becomes 'accepted practice' as in wide scale implementation? 

Did you or did you not say:

When the future valuation is corrected we should see interest eliminated as the borrower is willing the receive back 1 for 1 each dollar lent because they defer demurrage costs, the time preferences still exist underneath their decision but is cancelled out.

That statement (with the word "because") requires demurrage in order to eliminate interest. Unless, you're using a non-standard definition of "because"?

[Impaler]

Yes am saying "the future valuation is corrected" BY implementation of demurrage.  The preceding sentence provided all the context necessary to understand this but you seem to have uncanny powers of quote selection to try to extract misinterpretations from what ever I say.

[myrkul]

Yes am saying "the future valuation is corrected" BY implementation of demurrage.

Thus making the logical error of assuming demurrage as accepted practice.

[Impaler]

How much clearer can I make this for you, I am describing the effect that a change in the monetary system will have.

If the monetary system is CHANGED to a one which implements demurrage, THEN in that changed system their future valuations (not our present valuation of the future) will BE CORRECT because demurrage increases future valuations.  The correct future valuation will THEN cancel out interest per your own argument that interest is caused by a low valuation on the future.  Nothing changes for anyone until demurrage is implemented.

[herzmeister]

Risk premium, a well understood concept that is NOT interest and has been recognized for millennium to be distinct, in the Islamic tradition it is explicitly recognized to be legitimate and not usury.

I think the misunderstanding here is that they should not be distinct, most of the the Austrian School explicitly say that. Time preference also derives from that.

You may define "usury" as "socialism for the rich": If they don't have to take on the appropriate risk for their investments, you have to look at how they're doing it. Mostly the construct is political.

[GCInc.]

both lender and borrower are exercising basic human drives and the lender is profiting not from his own work but from a privileged position in an irrational behavior.  

I see. I agree exploiting detrimental human drives, such as the desire for instant gratification, or the will to benefit over greater expense for others,  is not "right" or "good" in the larger scheme of things.

However, there are several points where your claims for the necessity of forcing near future cessation of charging interest (as I understand your intention) fail:

1.) The degradatory issues in charging interest are not separate from the shortcomings in all aspects of business. Business, and life in general, is based on the goal of making personal profit, and unfortunately still at this point in time commonly regardless of the harm caused to others. People put price for everything: health, love, children, basic needs etc. They exploit their privileged position.

2.) You don't approve my attempts to define interest by whatever means making it understandable to you, that charging interest essentially can not be separated from any other activity of charging a price. Fine, let us try ways based on your definition of "good" and "moral".

By prohibiting interest you can not logically let other forms of business continue. Paying interest is an agreement where a more privileged party exploits the counterparty who doesn't have what he needs [money], thus to get what he wants he needs to pay. The same applies when you go to the grocery store, living far away from another one. You pay a price the shopkeeper wants, because you don't have another way to get what you immediately need, such as food. You are being exploited and immediate gratification is encouraged for both parties? Yes.

Like mentioned previously, not having these shortcomings of human nature would require an idealistic-altruistic society where all people realize that contributing towards common good is for the best of themselves. This comes at its own pace, it can not be forced.

3.) Work can not be separated from time, time is required for work. When you sell work, you sell part of your time on earth. It is physics, the law of this universe. Work in physics:

the total work along a path is the time-integral of instantaneous power applied along the trajectory of the point of application.

Regardless if we agree that having money for a period of time is of value and that value can be denominated in the same money then we can express it as a percentage, typically around 5% per year and then try to answer the question of what gives rise to that value.

What are you wanting to say here? 5% per year, what's that?

When the future valuation is corrected we should see interest eliminated as the borrower is willing the receive back 1 for 1 each dollar lent because they defer demurrage costs, the time preferences still exist underneath their decision but is cancelled out.

Currencies based on demurrage are very idealistically appealing. I would like to see them taken into wide acceptance eventually.

Let me fall into hypocrisy: If I had all the power I would as the first thing ban compound interest worldwide. Half of the problem solved, with tolerable compromise to the structural bases of global business. Separate balance for capital and interest, why not. RenegadeMind said it; interest and fractional banking combined is great evil.

Secondly, I would enforce usage of demurraged currencies only. Just to test how things would work out

But I don't have the power, so on my bold moments I seek ways to encourage slow transfer away from compound interest and maybe into demurraged currencies if they prove their worth in improving the goodness of the world (which I think nearly any monetary system different to the current one would do).

Meanwhile, I submit to the allure of personal profit through compound interest.

[enter`name`here]

enter`name`here:  Risk premium, a well understood concept that is NOT interest and has been recognized for millennium to be distinct, in the Islamic tradition it is explicitly recognized to be legitimate and not usury.  I've ignored it up till now as I'd assumed all the parties involved in the thread knew the basic definition of interest.

In practice however 'risk premium' is indistinguishable from the 'usery' part of the interest rate.

So for this term to have any explanatory power is must actually be describing an innate factor in human psychology which gives rise to interest.  A factor that broad and all encompassing would be described as part of 'human nature'.  We would expect it to be highly resistant to rational thought as it is essentially the lust for immediate gratification, something every society in history has condemned as a moral failing.  This alone would abolish any possible foundation for justifying interest as 'good' or 'right' because both lender and borrower are exercising basic human drives and the lender is profiting not from his own work but from a privileged position in an irrational behavior.  

I would argue that the uncertainty of the future is what gave rise the the psychology of 'time preference'.  Human beings have an innate desire to control and understand our surroundings, this stems from our nature of the 'rational animal'. Different people have different tolerances for risk, which would also explain why we have different time preferences.  Perhaps there were once homo sapiens who did not value present consumption more then future consumption, they would have been out competed by us modern humans who, with our psychology of time preference, had better luck controlling our situation and putting our ideas into practice. 

You can argue all you want that people shouldn't value present over future consumption, but so long as they do then present consumption will always command a premium, and loans will always be usurious.

[myrkul]

How much clearer can I make this for you, I am describing the effect that a change in the monetary system will have.

Yes, and thereby assuming that the change will be made. Please keep in mind we are talking about "Interest and Bitcoin," not "Interest and Freicoin."

[nybble41]

Let's put this discussing into terms simple enough that even Impaler can understand them.

I have $1000. I have the choice of buying a capital good for $1000 that will return 5% ROI over the next year, or lending the $1000 to someone for a year. If I choose to make the loan, I'm giving up not just $1000 now, but $1050 a year from now. It would be irrational, all else being equal, to make such a loan for less than 5% interest.

Time preference and the general "risk-free" rate of interest are just the aggregate effects of these sorts of opportunity-cost considerations being made by all the holders of currency in the market. Most of the time the ROI is more subjective than the fixed 5% return in the example, but it is no less real for that. No one is taking advantage of anyone else; lending at interest is nothing more or less than redistributing ready capital and future income to where they are each most valuable, which is fundamentally the basis for any economic activity.

[kjj]

Let's put this discussing into terms simple enough that even Impaler can understand them.

I have $1000. I have the choice of buying a capital good for $1000 that will return 5% ROI over the next year, or lending the $1000 to someone for a year. If I choose to make the loan, I'm giving up not just $1000 now, but $1050 a year from now. It would be irrational, all else being equal, to make such a loan for less than 5% interest.

Time preference and the general "risk-free" rate of interest are just the aggregate effects of these sorts of opportunity-cost considerations being made by all the holders of currency in the market. Most of the time the ROI is more subjective than the fixed 5% return in the example, but it is no less real for that. No one is taking advantage of anyone else; lending at interest is nothing more or less than redistributing ready capital and future income to where they are each most valuable, which is fundamentally the basis for any economic activity.

Ahh, but you are indeed taking advantage of the unfortunate.  Fans of demurrage allege that it is unfair that you have a future time preference while someone else has a now time preference.  Because you are capable of planning for the future, you must be punished with a currency that loses value over time, so that you can be encouraged to be as wasteful as everyone else.

I'm paraphrasing slightly, of course.  But that is the essence of Impaler's argument.

[myrkul]

Ahh, but you are indeed taking advantage of the unfortunate.  Fans of demurrage allege that it is unfair that you have a future time preference while someone else has a now time preference.  Because you are capable of planning for the future, you must be punished with a currency that loses value over time, so that you can be encouraged to be as wasteful as everyone else.

I'm paraphrasing slightly, of course.  But that is the essence of Impaler's argument.

Summed up nicely.

[nybble41]

Fans of demurrage allege that it is unfair that you have a future time preference while someone else has a now time preference.  Because you are capable of planning for the future, you must be punished with a currency that loses value over time, so that you can be encouraged to be as wasteful as everyone else.

While this does seem to be what they have in mind, I really don't see how demurrage changes anything with regards to interest. As I understand the concept, demurrage means that you lose actual currency over time, as opposed to inflation, where the amount of currency remains the same but the value decreases. In my example, however, no one was actually holding currency for any significant length of time. Either I spent it immediately on capital, or I lent it to someone else who would in all likelihood spend it immediately on a different sort of capital. Either way, neither of us is affected by the demurrage.

Demurrage and inflation both have the effect of driving people to get rid of the affected currency as quickly as possible in favor of more stable assets. The advantage of demurrage, to the extent there is one, is that it is neutral with respect to things like interest rates--it doesn't create the same calculation problems as forced inflation. However, Impaler seems to be claiming exactly the opposite. If you want to make people overvalue future goods relative to present goods (i.e. eliminate interest), inflation is a much more effective tool.

As for time preference being "irrational", I would like to see Impaler put off all consumption for a year (or even a week!) and report back on whether future goods are just as valuable as present goods.

[GCInc.]

We should perhaps let Impaler respond, but I feel compelled to comment on this;

you must be punished with a currency that loses value over time, so that you can be encouraged to be as wasteful as everyone else.

I guess that could be put more nicely. The bottom line there likely is not to promote wastefulness, but progress, growth, evolution and all the good stuff.

The idea of accelerating progress through enhancing flow of value is starting to reveal upon me. Saving is stagnation. In nature, saving achieves little as compared to swift exchange of value. Keeping things stationary - whether material or immaterial - is subject to heavy corrosion. In all things, time eventually eats your value through entropy if you don't use it.

As long as a human monetary system obeys the laws of nature, the same would apply there. It's not difficult to imagine how keeping money off circulation (saving) does discourage initiative and achievement => increasing entropy (= what we generally consider the opposite of "good").

I'm not versed enough yet on demurrage to conclude whether that would be the holy grail. The issue of wastefulness as a side effect of quicker value flow is the flip side, but how serious.

[myrkul]

Saving is stagnation. In nature, saving achieves little as compared to swift exchange of value. Keeping things stationary - whether material or immaterial - is subject to heavy corrosion. In all things, time eventually eats your value through entropy if you don't use it.

So, saving to buy a car is less productive than going into debt for that car?