Money as Debt

[fergalish]

That's not capitalism.

Please correct me.  I'm not an economist, but the first line of wikipedia's page on capitalism is: "Capitalism is an economic system in which the means of production are privately owned and operated for a private profit."  The keyword being "private profit", not "social profit" or "health profit" or "environmental profit".  Just private profit.

Nope, he was right.  You need to do more research.

Please correct me - because he clearly says that in a FRB system, a bank that issues too much credit (creates too much money) would find it's notes devalued.  However, the current system means that I can take a loan from BigBankA, and deposit it in BigBankB, at a 1:1 ratio, dollar for dollar.  There is no devaluation of BigBankA's dollars even if BigBankA is an irresponsible or reckless lender.  The dollar as a whole *does* devalue a little bit if BigBankA is reckless, but that's *all* dollars, not just those issued by BigBankA.

If you're tired of repeatedly explaining yourself, then by all means link to some (not overly complex, please) websites or pages where my erroneous understanding can be rectified.  Otherwise leave me to wallow in my blissful ignorance!

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[RHorning]

Please correct me - because he clearly says that in a FRB system, a bank that issues too much credit (creates too much money) would find it's notes devalued.  However, the current system means that I can take a loan from BigBankA, and deposit it in BigBankB, at a 1:1 ratio, dollar for dollar.  There is no devaluation of BigBankA's dollars even if BigBankA is an irresponsible or reckless lender.  The dollar as a whole *does* devalue a little bit if BigBankA is reckless, but that's *all* dollars, not just those issued by BigBankA.

If you're tired of repeatedly explaining yourself, then by all means link to some (not overly complex, please) websites or pages where my erroneous understanding can be rectified.  Otherwise leave me to wallow in my blissful ignorance!

The problem with fractional reserve banking is that the ratio isn't 1:1.  Generally it is more 9:1, where the bank has $9 out in loans for every $1 in deposits and investments.  That gets even more bizarre when you think that "BigBankA" makes a loan, it gets deposited into "BigBankB" which in turn gets that 9:1 ratio applied to it for substantially more "growth" where another loan happens with similar fractional requirements and gets multiplied where another loan from "BigBankB" gets depositied back into "BigBankA" for perhaps even more than the original loan.

If this seems confusing, it is.  If the current system maintained a 1:1 ratio between loans and deposits, there would be little need to worry about a bank run or a bank collapsing.  The real issue comes up because of the fractional reserve being loaned out multiple times so it is also in theory possible to completely wipe a bank out by just a few very bad loans.

[MoonShadow]

If you're tired of repeatedly explaining yourself, then by all means link to some (not overly complex, please) websites or pages where my erroneous understanding can be rectified.  Otherwise leave me to wallow in my blissful ignorance!

Read books, not websites.  Start with Whatever Happened to Penny Candy by Rich Mayberry and followed by Economics in One Lesson.  Both should be available at the public library.

In the modern world, Capitalism is a political ideology that is separate from it's economic definition, but the US hasn't really honored the political ideology for at least 40 years.  It's just taken this long for the public to begin to realize that something is amiss.  Capitalism, as an economic principle, is a description of economic reality.  It is this definition that Marx understood, and desired to overcome.  When people are free to exchange without interference, there is capitalism, which existed even in the Soviet Union on it's darkest day.  When the society is intentionally set up to encourage this, it is Capitalism.

[tyler]

Read books, not websites. 

Seriously? Like the information in "books" is any more "real" than "websites" </rant>

[FreeMoney]

Read books, not websites. 

Seriously? Like the information in "books" is any more "real" than "websites" </rant>

+1

google "economics in one lesson" and begin reading in seconds. The whole thing is out there in multiple places. It's much more economical than waiting for the book to arrive.

[grondilu]

As I understand it, whether I got this from books or web or whatever, capitalism is a vision of economy based on the possibility of ownership of means of production.

And beyond that, it's also the idea that this property can be divided into shares.  Those shares can be exchanged as any property, and they are used to divide the power of decision concerning the capital, amongst which is the distribution of profits via dividends.

[Bruce Wagner]

Just to follow-up...   That original email that I sent to the "Money as Debt" producers came back to me today, returned to sender.  Apparently, that email address was no good?

[grondilu]

Basically when a banker makes a loan, he does indeed creates money out of nothing but the promess from the borrower to repay this.

I call it "legalized fraud".

Why ?  The creation of money comes both from the borrower AND from the lender.  It's an association.  The borrower gets the money he asked for, and the lender gets the interest, which is the reward for the paperwork and the risk.

[MoonShadow]

As I understand it, whether I got this from books or web or whatever, capitalism is a vision of economy based on the possibility of ownership of means of production.

And beyond that, it's also the idea that this property can be divided into shares.  Those shares can be exchanged as any property, and they are used to divide the power of decision concerning the capital, amongst which is the distribution of profits via dividends.

You understand incorrectly.  Capitalism (the economic principle) says nothing at all about the actual ownership of the means of production (i.e. capital) as we understand it in the modern world, but the possession of that capital is central.  In the former Soviet Union, the truck drivers didn't own the trucks, but they did hold possession and were often known to make sidetrips to transport things off the books in exchange for cash (or mafia favors, black market items, etc).  That's capitalism because the important distinction is that who keeps the 'fruits of labor', not who owns the capital.  Capitalism, the political ideology, does say much about ownership, property rights and contract laws.

[MoonShadow]

Basically when a banker makes a loan, he does indeed creates money out of nothing but the promess from the borrower to repay this.

I call it "legalized fraud".

Why ?  The creation of money comes both from the borrower AND from the lender.  It's an association.  The borrower gets the money he asked for, and the lender gets the interest, which is the reward for the paperwork and the risk.

It doesn't matter who is participating in the fraud, or who is taking risks, which banks don't as the past two years should have highlighted.

It's legalized fraud because it was fraud before 1913 when it was legalized.  A pretty straight forward logic, really.

[MoonShadow]

Read books, not websites. 

Seriously? Like the information in "books" is any more "real" than "websites" </rant>

Maybe I'm too old, but I don't know many economic websites.

[kiba]

Read books, not websites. 

Seriously? Like the information in "books" is any more "real" than "websites" </rant>

Maybe I'm too old, but I don't know many economic websites.

http://www.mises.org

[fergalish]

Why ?  The creation of money comes both from the borrower AND from the lender.  It's an association.  The borrower gets the money he asked for, and the lender gets the interest, which is the reward for the paperwork and the risk.

Umm, what risk?  No bank, in principle, will give a loan without full collateral.  Admittedly, things went haywire with the credit and housing crises, but even then, the banks didn't bear the losses.

Seriously? Like the information in "books" is any more "real" than "websites" </rant>

On average, yes.  I'm assuming by "real" you mean "correct".

[caveden]

There is nothing fraudulent in fractionate reserves. As long as both parts agree in a contract, there is nothing fraudulent in it.

I've seen some economists, like Walter Block, trying the weirdest arguments in order to frame fractionate reserves as fraud. It looks like those conservatives distorting concepts in order to frame drug commerce as a violation or property rights, or when leftists try to frame prejudice and discrimination as an aggression in order to condemn them. This is just people twisting concepts in order to frame something they don't like.

Is the fractionate reserve system bad? Maybe. It's surely dangerous, at least.
Is it fraudulent or criminal? Not at all.

Of course, do not confuse a fractionate reserve bank in a free market, where it has to pay for the risks it takes, with the current central banking system, where the risks of such dangerous activity are payed by tax victims and currency holders.

[grondilu]

There is nothing fraudulent in fractionate reserves. As long as both parts agree in a contract, there is nothing fraudulent in it.

I've seen some economists, like Walter Block, trying the weirdest arguments in order to frame fractionate reserves as fraud. It looks like those conservatives distorting concepts in order to frame drug commerce as a violation or property rights, or when leftists try to frame prejudice and discrimination as an aggression in order to condemn them. This is just people twisting concepts in order to frame something they don't like.

Is the fractionate reserve system bad? Maybe. It's surely dangerous, at least.
Is it fraudulent or criminal? Not at all.

Of course, do not confuse a fractionate reserve bank in a free market, where it has to pay for the risks it takes, with the current central banking system, where the risks of such dangerous activity are payed by tax victims and currency holders.

+1

[MoonShadow]

There is nothing fraudulent in fractionate reserves. As long as both parts agree in a contract, there is nothing fraudulent in it.

Of course, do not confuse a fractionate reserve bank in a free market, where it has to pay for the risks it takes, with the current central banking system, where the risks of such dangerous activity are payed by tax victims and currency holders.

And that is why fractional reserve banking is fraudulent, because it's never just the two parties involved, it's the public that is forced to use the fiat currency that each of these little events affects without the public consent.  And just because there is a law making it legal, does not equate to consent.

[caveden]

But there you're complaining about a different problem, the currency monopoly. Every libertarian agree with you on this point, there shouldn't be such monopoly.

[grondilu]

But there you're complaining about a different problem, the currency monopoly. Every libertarian agree with you on this point, there shouldn't be such monopoly.

I wrote this already on this thread.  FRB is ok as long as it is not enforced and if other systems are not prohibited.

[MoonShadow]

But there you're complaining about a different problem, the currency monopoly. Every libertarian agree with you on this point, there shouldn't be such monopoly.

That's true, but they are intertwined.

[Bruce Wagner]

Ok...  I got a reply today.  

To refresh your memory, I sent the following email to the creator of the film, "Money As Debt II"...

To: Paul Grignon <pgrignon@island.net>

Hello!

We are discussing your film in the Bitcoin Forum  ( here
http://bitcointalk.org/index.php?topic=1992.0 )

Are you already familiar with Bitcoin?!?!?

If not, please see  http://BitcoinMe.com for a quick introduction to
what it's all about.

Bitcoin is a FOSS (free open source software) project that is making
huge advances very quickly.   The Bitcoin economy is already over
US$1.3 Million in total value.

We already have a "bounty"  ( sort of a contest, to see who can come
up with the best animated video explaining Bitcoin to everyday
people... with the best video winning the prize pot... currently about
$2,520 ).   See http://bitcointalk.org/index.php?topic=697.0;all

I think it would be wonderful if you were to create a film explaining
"What is a Bitcoin?"

Also, I've gotta ask...     Toward the end of "Money As Debt II", you
were describing a digital currency enabled through encryption
technology....   Were you already aware, at that time, that Bitcoin
existed... or was about to be invented?

Bruce Wagner
New York City
http://BitcoinMe.com
646-580-0022

Today, I received his reply...

Hi Bruce

No I did not know about bitcoin when I made Money as Debt II

It sounds like you didn't watch to the end of the credits where I send you to digitalcoin.info

The idea came from the technology being developed at maidsafe.net.

The  inventors, having seen Money as Debt asked me for help explaining their technology. This is the animated movie I made for them (the 12 min. link)

 http://www.paulgrignon.netfirms.com/MoonfireStudio/PAGES/PD/Perpetual_Data_homepageFlash.html

They also asked me for ideas how to use it as a completely liberated money system.

Money as Debt II ends by sending the viewer to digitalcoin.info   which is my answer to their question.

I didn't get paid for any of this by the way.  I am not working FOR them.


I was previously invited to enter this contest and declined.

Making it a contest is, from my viewpoint, highly disrespectful of the work it would take to do a good job.

But if someone does have the time to spare you may get what you want.

I am currently busy completing Money as Debt III, Evolution Beyond Money explaining my alternative economy concepts.

It will hopefully be as educationally useful and well-accepted as the first two movies.

By the way there are no "producers'.  Other than the narration I do everything.


Paul

First, I wanted to let Paul Grignon know that we meant no disrespect by calling it a "bounty" or a "contest".

We all just want to honor those who create great works.  We have a desire to scrape together whatever coins we can, to say "Thank You" to those who create such fantastic works.  In fact, I propose that we stop calling these things "a bounty" or "a contest".   We should call it  "an award".   We have created "a new award"... "an award with a prize attached".   Because that's what it really is.  We can also express that "we are seeking nominations" for the award.   That sounds so much more respectful of all the hard work - blood, sweat, and tears - that software developers, film animators, and any other types of content-creators produce... and contribute for the benefit of us all.  The small "prize" we offer is not a purchase price.  It's simply one token of our appreciation for their hard work.  It's a Thank You.

Next, I want everyone here to look at Paul's ideas.   They're very interesting.   Don't just skim over them.  Study them.  His concept of - what he calls "Digital Coin" - encompasses TWO TYPES of digital currency.  One Type, which he calls the "Perpetual Coin", represents "permanent value" (that one sounds like an exact match to Bitcoin - correct me if I'm wrong?).  The Other Type, which he calls a "Credit Coin", represents a form of a "value voucher" that anyone can issue themselves... and spend into circulation... in effect, giving themselves instant credit.  (For example, if I install Linux for people.  I can issue a "Bruce Wagner Consulting 20 BTC Credit Coin".  That coin would be worth 20 BTC worth of my services/products, as they are priced whenever it is redeemed.)  However, he proposes that the actual value of the Credit Coins I issue would vary... based on real-time trading of these Credit Coins on automated markets (think http://MtGox.com).  If demand for my services/products was low, the value (the relative value, as measured in how many "real" BTC people are willing to buy/sell them for) of the "Bruce Wagner Consulting 20 BTC Credit Coins" I issued would be lower.  If demand for my services/products was high, the value (again, the relative value, as measured in how many "real" BTC people are willing to buy/sell them for) of the "Bruce Wagner Consulting 20 BTC Credit Coins" I issued, would be higher.  However, in any case, that Credit Coin would ultimately always be redeemable by ME (the issuer) at 20 BTC WORTH of my services/products (at MY current "real" BTC prices).   He also proposes that these Credit Coins would have a premium value if used (spent at Bruce Wagner Consulting) within a certain timeline (not immediately), and also that they would have a decreasing value over time... ultimately expiring completely.  Thus, "forcing them" to ultimately be "spent" at Bruce Wagner Consulting, not hoarded.

Anyway...

You MUST WATCH this first.  Don't be deceived by the title.  You need to watch this 7 minute video first:   http://www.digitalcoin.info/The_Essence_of_Money.html

Second,  this video translates the concepts of the first video, into the dual coin "Digital Coin" concept.  You must watch this 8 minute video:  http://www.digitalcoin.info/Digital_Coin_Introduction.html

Finally, read this 4 page article... where Paul describes the concept in detail:   http://www.digitalcoin.info/Digital_Coin_in_Brief_07-17-09.pdf

You must see these videos, and read that article, before any of this will really make sense.

For example, NOW I understand what farmer_boy was saying earlier, when he said...

Another money system is described on http://digitalcoin.info (this is what the Money as Debt 2 movie refers to). As with bitcoins, I see no formal specification of how it is supposed to work, but it seems to me to be a better system than bitcoins if you look at the kind of properties one would want to get out of a money system and those that are actually obtained.

Bitcoins are similar to the permanent digital coins type, but have the downside (or upside depending on your role) of having a purely speculative value. The credit coin has no counterpart in the Bitcoin system and as such doesn't perform all functions one would like to get from a money system.

The author of bitcoins has a technical background, but less of an experience in money history (correct me if I am wrong). The designer of the digitalcoin probably has a less technical background, but a firm understanding of money and its history.

The most important feature that the digital coins have is that you never have the "we won't do this project, because there is no money"-problem, which was what happened in 1929. There were workers, people wanting to eat, and factories, but no money.

Initially, it does seem rather complicated to make these kinds of credit coins contract (see the movie), but if one were to label ever product with a number (which already happens for a lot of products (e.g. a soda)), then it wouldn't really be a problem.  

What are your thoughts on digital coin?

P.S.
Is the guy from OpenTransactions also on this forum? It seems he has the broadest technical view as he has implemented a very wide range of systems and documented these on his website.

The overall idea proposed by Paul is a VERY intriguing concept...   And, from my viewpoint, they seem very much in concert with Bitcoin concepts... just an EXPANSION of the Bitcoin idea... from being only about VALUE... into the world of CREDIT...  Self-created credit.  Automatically-adjusted-value credit.  And Interest-Free credit.   Very interesting.