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Author Topic: Growth, Interest and Wage Inequality - To the austrian economists here  (Read 5305 times)
jtimon
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July 23, 2011, 05:23:46 PM
 #61

maybe I got it now. in contrast to barter, money is slightly "overvalued" because it is more flexible than say a goat. WIth money I can buy anything, with a goat I can only buy products that are offered by a guy acceting goats. I agree.


This is the service the money owner is getting for free. I just bring it up to legitimate demurrage.

Lets consider the case where I sell one month of work for a certain wage and buy stuff with that money, spending everything. Would you agree, that in this case the "money-premium" is irrelevant?

No. You're paying interest with every item you purchase. Not only on the liquidity needed to market it, but also the capital yields of the factories. One could think that while factories yield any profit, more factories are going to be build, but no. Building a factory takes money, and no one will exchange his money for a factory that yields less than what money can yield as a trade enabler. Not only your purchasing power is reduced, but also your wage, since consumers of wathever you produce have to pay for all this too.

I think the problem you are talking about arises when people are hording money, right? So they need an incentive to spend it (e.g. freigeld).

That's not the main concern.
The fact that the money holder can hoard and save wild cards insted of products (everything at no cost), make him ask interest when uses money for enable trade.

Lets see what happends in a village of ten people with a fixed amount of money:

10 people
different goods, a,b c, fix production!!
using money they agreed upon, say shells
fixed amount of shells: 1000 shells
There is constant demand and supply of a,b and c giving prices p_a, p_b and p_c.
Now I claim the following: If 500 shells are destroyed (and no new shells can be found), all three prices will double. this implies that you have to pay double and that you earn double when selling a good.

It's going to be hard to make my point with 10 people, since they could easily rely on barter when money ask for its tribute, but let's have fixed production and fixed monetary base.

Now consider there is one rich guy who achieved to own 590 shells, but he saves/hordes the money and only uses 90 for his daily business. There is one thing happening that is in my opionion not considered by Gesell: With hording of half the shells (forever) the prices and wages double as in the above example. The richdom of richguy is theoretically double but he does not use it so everyday life of the 10 people is unchanged. Actually the other 9 had a profit "P" because the prices decreased due to richguys savings. Now lets say richguy wants to use the money before he dies and buys more goods than usual. If he spends all his money, the prices will go up depending on how many "productionperiod" he needs to spend everything. In an extreme case, he buys almost all of the  goods but the few that are needed for the other 9 to survive. But independet of the strategy of spending (one period all money vs. 10 periods 10% of the money), he does not get the goods for the halfed price and is in sum always paying a Premium "B". To understand that, keep in mind, that the production is fixed! I claim "P" equals "B". So richguy gets his well-deserved amount of goods that costed 500 shells in the beginning and nothing more.

Good example. P equals B, so the money holders when P takes place are benefited and the holders at B (they don't have to be the same people).
Richguy has valuable information (when those events take place) that can sell. But again, this is not my point against interest.

So I claim, that hording is irrelevant, moneypremium is irrelevant and Gesell is irrelevant Smiley We could of course discuss, what happens on a larger scale, when we also consider that inflation and deflation takes some time to take place.
[...]

I prefer to keep the deflation discussion in its own thread.

Here's my story:

We have many islands each with a Robinson in it.
At first every Robinson captures his own fish and builds his own nets.
But there's different fishes with different flavors and colors and barter emerges.
Since not everybody wants to build a boat, some Robinsons specialize and become merchants. Producers sacrifice part of their production to pay the merchants wages. If merchants wages are too high, more Robinsons will become merchants, if too low, some will quit the profession.
A wants to save but doesn't want his fish to rot. B wants to build his house so borrows the surplus of A, while he's building it. Interest could be zero, because A doesn't want his fish to rot. It will depend on supply and demand of credit, but there's no low limit above the rot rate. If A ask too much, next time B would prefer to save its own fish before his old house is broken to have time the build the new one.  
The utility extracted from "capitals" (the nets, the boats, the houses) just need to be equal to the costs, "capital" yields can drop to zero.
Everything's fine.
Builderguy builds houses. People sometimes give him materials and paid them a wage during construction.
Other times he save enough for the materials and his needs during construction and then rents the house. That was very profitable at first, but when more people began to do it and rents fell, that became just equivalent to build for a wage.
The only difference was when you received the fish. Some people who didn't know how to build houses employed him to build a house and rented it later, not for the profit, but because they had too much fish now and wanted to receive it periodically later. That's what happened to cleverguy when he invented a new net with a stick.
He got high profits at first that wants to preserve. Now that everybody has a net like his, there's no difference with other fishermen, their wage are equivalent again.
Everything's fine.

Then scarce everlasting money appears.
To be fair, every island contains the same amount of gold (say 10oz) and no one invents it, all Robinsons agree to use it at the same time.
With money, they become even more specialized and more complex production projects that needed higher degrees of collaboration are now possible. But their invention, although inanimate, doesn't perform its function for free.
Many Crusoes (like they used to do) save by storing things that doesn't rot and they will always be able and want to consume, let's say salt, wine, etc.
Since money is more useful for merchants than for other inhabitants of the archipelago, they start give their gold to merchants, who are accumulating no other thing than credit.
They know they've make a mistake when some merchants offer low prices to producers that have no money and can't wait to buy certain things.
Workerguy thinks "if they can abuse that way, is because there's a lack of merchants, I will become a merchant, eventually an equilibrium will be reached again".
All he needs is money, that he can get in the financial market just like they used to do when the loans were on fish.
He remembered that there were lower interest rates back then, but he things: "This is because of growth, the factory-ships that money has allowed us to build. The profits on investments are high and thus the demand for money. They will drop when profits do."

But when he enters the commerce market he finds out that the wealthiest merchants weren't the better qualified merchants, those had just a higher wage. The wealthiest merchants were the ones that had and lend more money. The firsts who exploited the liquidity needs of both producers and other merchants.  
The wealthiest guy is Capitalguy, who didn't ever renounce to his first 10 oz, he preferred sell first and and buy later, whenever he saved, he did it in money, he was the first to lend it, he was one of the first merchants that realized that he can charge his customers, not only his services as merchant, but also the "time-value" of the money he's using to move wares from island to island. The difference between the price they pay the producers for the wares and what they charge consumers must be higher now and the increase must be equal to the interest on money lending. It didn't matter if they had borrowed it or not when they do their calculations. Those merchants who didn't understand that went out of business.
Builderguy 2 has noticed that rents have rise, because the no they are no longer build until the the total gains in rents are equivalent to the construction costs. Now they are build only until the annual gains in rents are equivalent to the annual gains in money lending for a given cost of construction. Well the house needs to yield more since, unlike gold, it doesn't last forever.    
Cleverguy 2, who invented the factory-ship thought that you can't profit forever from a good idea, but with this factory-ship is different.
With the nets, nets were made for every fisherman and the profit from owning the nets dropped. But now the profit from owning factory-ships never drops below the interest, since no one would spend his money in an investments that yields less than the interest. Some fishermen don't find a job because there's not enough factory-ships for all them to work. Some of them have to leave the sector like happened when the nets were invented. But with barter more nets are done while the yield of the net is positive. Now production of factory-ships stops when their yield go below the interest.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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