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Author Topic: Freicoin (was Re: Deflation and Bitcoin, the last word on this forum)  (Read 6575 times)
jtimon
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September 26, 2011, 12:00:04 PM
 #21

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

The interest does not only depend on growth and potential profits from investments. There's a minimum yield that can be obtained "from the wares".
The advantage of money over barter make it be able to profit directly from trade, and that's the source of the basic interest/liquidity premium:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

No, no links.  Make your own arguments.

In your own words, what causes the minimum level of interest?

Since you can profit from liquidity by "renting it to the people who need it to trade", you won't lend your money unless the borrower gives you at least that same profit in concept of interest. If the products don't include the basic interest in their selling price, they're not sold, because money demands to be payed for the service it provides (it is a convenient tool for trade). Even without innovations and profits, there would still be capital yields and interest. A wrote an islands story about interest here:
https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389
I can link to my own posts, right?


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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September 26, 2011, 01:04:37 PM
 #22

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

The interest does not only depend on growth and potential profits from investments. There's a minimum yield that can be obtained "from the wares".
The advantage of money over barter make it be able to profit directly from trade, and that's the source of the basic interest/liquidity premium:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

No, no links.  Make your own arguments.

In your own words, what causes the minimum level of interest?

Since you can profit from liquidity by "renting it to the people who need it to trade", you won't lend your money unless the borrower gives you at least that same profit in concept of interest. If the products don't include the basic interest in their selling price, they're not sold, because money demands to be payed for the service it provides (it is a convenient tool for trade). Even without innovations and profits, there would still be capital yields and interest. A wrote an islands story about interest here:
https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389
I can link to my own posts, right?

The last time we had this debate, I got lost reading the books you linked, and forgot to get back to the thread.  I'm trying to prevent a repeat of that.

You are saying that trade and production are competing for the same pool of capital, and that the interest rate in total is higher than it would be for either of them individually.  And because of this, society loses out on production that would have been profitable if not for trade.

Your solution is to change the rules so that borrowing money for trade is no longer profitable, so that loans for construction don't have to compete with trade for capital.

Am I right?  Is that a good summary of your argument?

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jtimon
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September 26, 2011, 02:01:27 PM
 #23

You are saying that trade and production are competing for the same pool of capital, and that the interest rate in total is higher than it would be for either of them individually.  And because of this, society loses out on production that would have been profitable if not for trade.

Your solution is to change the rules so that borrowing money for trade is no longer profitable, so that loans for construction don't have to compete with trade for capital.

Am I right?  Is that a good summary of your argument?

Yes, that's kind of what I'm saying. But trade would still be profitable (the merchant will keep "his wage"), with free-money. What happens is that the costs of commerce in concept of interest are eliminated. Wares have storage costs, perish and are by definition a thing its producer doesn't want to hold. So to be exchanged for money (which is cheap to hold, doesn't perish and is like a wildcard) he must "pay the interest". The merchant can't simply sell the products for the costs of production plus his labor, he pays for the liquidity he needs to move wares around.
The main point is that capital-money (scarce and everlasting) prevents capital yields from dropping to zero.

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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September 26, 2011, 02:23:39 PM
 #24

You are saying that trade and production are competing for the same pool of capital, and that the interest rate in total is higher than it would be for either of them individually.  And because of this, society loses out on production that would have been profitable if not for trade.

Your solution is to change the rules so that borrowing money for trade is no longer profitable, so that loans for construction don't have to compete with trade for capital.

Am I right?  Is that a good summary of your argument?

Yes, that's kind of what I'm saying. But trade would still be profitable (the merchant will keep "his wage"), with free-money. What happens is that the costs of commerce in concept of interest are eliminated. Wares have storage costs, perish and are by definition a thing its producer doesn't want to hold. So to be exchanged for money (which is cheap to hold, doesn't perish and is like a wildcard) he must "pay the interest". The merchant can't simply sell the products for the costs of production plus his labor, he pays for the liquidity he needs to move wares around.
The main point is that capital-money (scarce and everlasting) prevents capital yields from dropping to zero.

But the essential point is that traders should not be competing with producers for capital in a single unbiased market.  Right?

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September 26, 2011, 03:15:06 PM
 #25

Market is a centralized place, do not looking for bitcoin related answer here

jtimon
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September 26, 2011, 03:17:57 PM
 #26

But the essential point is that traders should not be competing with producers for capital in a single unbiased market.  Right?

Not exactly. They will still be competing with producers. But money holders won't have the "insurance for free"/protection against uncertainty/potential profit from uncertainty (or need for trade) privilege they have.
Traders will still need cash. Merchants will be paying demurrage costs instead of interest (hopefully the basic interest will drop to zero despite producers and traders are still competing for funding in the financial market) but the final product they sell will be much cheaper because of what we save in concept of capital yields, that are included in the costs of production.
Traders will have to know in advance (like investors) what they want their money for before lending. There would be far less gambling and speculation (not all the speculation is arbitrage, much of it is based on rumors, misinformation of other investors and the like).
People would think twice before selling their stocks because money wouldn't be a safe heaven.

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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September 26, 2011, 03:52:29 PM
 #27

But the essential point is that traders should not be competing with producers for capital in a single unbiased market.  Right?

Not exactly. They will still be competing with producers. But money holders won't have the "insurance for free"/protection against uncertainty/potential profit from uncertainty (or need for trade) privilege they have.
Traders will still need cash. Merchants will be paying demurrage costs instead of interest (hopefully the basic interest will drop to zero despite producers and traders are still competing for funding in the financial market) but the final product they sell will be much cheaper because of what we save in concept of capital yields, that are included in the costs of production.
Traders will have to know in advance (like investors) what they want their money for before lending. There would be far less gambling and speculation (not all the speculation is arbitrage, much of it is based on rumors, misinformation of other investors and the like).
People would think twice before selling their stocks because money wouldn't be a safe heaven.

Ok, so traders have the advantage that they can ride out a bad market by cashing out and waiting.  They can do this because their ratio of overhead to stock is very low, while producers have a very high ratio of overhead to stock, and really can't.  You want to level the playing field by adding artificial overhead for a trader sitting on the sidelines.

Just as an aside, your comments about gambling are irrelevant.  Regardless of the method used, a trader that doesn't get results will not be able to afford to continue.

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jtimon
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September 26, 2011, 05:41:16 PM
 #28

Ok, so traders have the advantage that they can ride out a bad market by cashing out and waiting.  They can do this because their ratio of overhead to stock is very low, while producers have a very high ratio of overhead to stock, and really can't.  You want to level the playing field by adding artificial overhead for a trader sitting on the sidelines.
Yes, I'm more comfortable with that summary.

Just as an aside, your comments about gambling are irrelevant.  Regardless of the method used, a trader that doesn't get results will not be able to afford to continue.
The difference is that the public won't panic so easily. Before they sell, they must think what are they going to buy after that, because maybe just keeping the "falling assets" is better than cashing and sit on the money or buy other falling assets. I think stock prices would be more stable with demurrage. And of course, that "gambling" is worse with monetary inflation, because you can bet on what prices are going to be hit first.

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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September 26, 2011, 06:30:25 PM
 #29



Ripple can use any denomination that their participants agree to use, for example, hours, carrots or terras (a reference currency defined as a basket of commodities), but the denominations doesn't have to exist as a currency. Ripple doesn't need parallel currencies to work. Like LETS, ripple can perform the medium of exchange function and that's why I call it money (not currency).
If you don't know that you can use ripple (instead of cash) to pay, you're not aware how ripple works. 


Oh, I do.  Ripple isn't comparable to a LETS.  Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

If you try to use an unestablished or uncommon currency over Ripple, you will fail.
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I see.  But if demurrage fees are unavoidable, then you are limiting how the system can encourage users to use the currency.  For example, this reduces the incentive to consolidate multiple transactions into a single transaction.  If the users have a grace peroid, say three months, that security is considered paid for by the transaction fees, then some will make an effort to avoind transactions growing older than three months so long as the cost of consolidating into a new transaction is cheaper than just taking the demurrage hit.  This encourages old transactions to update and also encourages miners into improving security buy participation.  If thedemurrage fee is a flat fee applied to each transaction in the blockchain, then users with many transactions are further encourages to freshen their holdings and reducing the blockchain load.  I really don't think that a ridgid percentage is really demurrage.  Demurrae is a cost of security in real currencies such as gold.  Literally the cost of renting a saftey deposit bos to hold the gold, which still costs the same no matter how much is eing kept.  Percentage fees aren't demurrage.

But with your solution everybody could avoid the demurrage fees and they wouldn't have any effect on interest.


It's not neccessary that users can avoid all fees.  Some level of fees can be unavoidable, but just not all that would equate to demurrage.  Again, it's like paying for the safety deposit box for your gold.  A regular bank box is cheaper than a gold repository box, but has reduced security.  That's what you want to do, get users to consolodate holdings in order to maximize the security model with respect to their costs.  Some people will choose more anominity over security, some costs over anominity and some will pay for the security.

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I called this property of a currency demurrage because it's the most extended term, how should I call it?


I'm not sure what you should call it, perhaps a holding fee?  But it's not demurrage, because it doesn't actually function in the (money) market like demurrage.  Demurrage is the cost of long term security, excluding transaction costs (of security or otherwise).  A fee that was relative to the age of a transaction (perferablely less a grace period that security is already paid for by the transaction processing fees), but not relative to the value of the transaction, would be demurrage.  You want to encourage users to consolodate holdings into fewer transactions, as well as encourage spending.  You don't really need to encourage spending, either.  Bitcoin is already the lesser of alternative currencies in the "bad money chases good money out of the market" catagory.
  And I still question your theory that demurrage can be used to effectively suppress the market interest rate, setablished by third parties in the absence of a central baking authority.
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So would you borrow bitcoins and freicoins at the same interest?
No, but not because of some theoretical 'basic interest' that you are trying to avoid.  Because of arbritrage.  I'm not likely to be lending in freicoin if I never bother to buy any, due to the losses that I can forsee.  Really, you can't see the problem with this plan?

Why you won't accept freicoins as payment? Once you have them, you can spend them or lend them, but there's no point in keeping them.
If you can buy all the things you need to start your business with either bitcoin or freicoin.



But you can't, and you are assuming that you can get there.  I'm saying thta is not ever going to happen, because if the consumer is given a choice etween two comparable currencies, one that rots value while the other does not, consumers are going to forever favor Bitcoin.  Freicoin would never stand a chance on an even open market.

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Why would you borrow bitcoins instead of freicoins? You know you will spend both fast to buy your capital, why are you worried about freicoins losing value if you're going to spend them?
You will prefer to borrow freicoins because of its cheaper interest.

Consumers will borrow in bitcoin because they will be able to spend in bitcoin, and sellers will price in bitcoin because they can get paid in bitcoin.  Neither will happen for freicoin now that bitcoin has the market advantage so long as the value rots, and there is nothing that a user can do to reduce or avoid the fees.
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We're proposing a 4% or 5% demurrage rate. Hoarding is what makes V that unpredictable.

That is a amaturish view on velocity. There is simply too many variables to make such a blanket statement.  I can't een say if this is true or false in general, but I'd guess that it's likely false.

You keep saying to many variables but you don't say what variables. What makes V be volatile in your opinion?



consumer sentiment.
Employment
Government actions
Wars and rumors of wars.
And many more besides.  Velocity is affected by so many things that re both unpredictable and beyond your control.
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Okay, I read your link.  And if this guy is representative of the "Free Money theory of interest" then I'm calling that theory bunk.  I'm not even going to bother to break it down.  If you wish to try to defend that crap, feel free, but otherwise don't refer to this crank as the basis for any more of your ideas.  I'll just lose more respect for your mind than I just did.

That attitude is disappointing. Yes, Gesell was the originator of the free money theory on interest.
If you arguments are just "this is crap" then we shouldn't keep on discussing, because we're not going to learn much.
I guess you're another time preference believer.
Yes, I believe in the time prefereces of money.
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"abstinence theory" in Gesell's words.
I understand why you think the way you do but you can't understand how I can think the way I do. Don't you feel the need to understand where I'm wrong or what am I missing?


I'm pretty sure that I do understand what you think should happen, and I think that you are wrong.  Feel free to prove me wrong.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 26, 2011, 09:54:54 PM
 #30

Quote from: MoonShadow
Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

I think you are oversimplifying a bit. Ripple is both a medium of exchange, and a store of value. The medium of exchange quality is clear. The store of value quality should be apparent if we think that each unit of ripple owned by someone is a debt someone else has to his friends, business partners and immediate family. In case of famine gold or dollars might prove uneatable, but the trust of your social network is an extremely valuable asset - these are exactly the people you would rely on when gold and dollars become worthless. It follows Ripple is a very good store of value.

So the only thing Ripple needs to work as money is the unit of account quality, an external benchmark on which to measure the issued credit. Sure, you could do it by pegging the value to a fully fledged currency, but you don't have to. For example you could express balances in time dollars (not that I like the idea of egalitarian constructions like time dollars, but they are simple to understand). What I'm trying to say is that you don't need the extra complexity of the Ithaca Hours you mention: a central ledger, standardized scrip, and all the things that make Ithaca Hours a currency. You just need the valuation benchmark, one hour of work in my behalf, something the participants can easily measure; the rest is handled by the Ripple system.
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September 27, 2011, 04:32:24 AM
 #31

Quote from: MoonShadow
Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

I think you are oversimplifying a bit. Ripple is both a medium of exchange, and a store of value. The medium of exchange quality is clear. The store of value quality should be apparent if we think that each unit of ripple owned by someone is a debt someone else has to his friends, business partners and immediate family. In case of famine gold or dollars might prove uneatable, but the trust of your social network is an extremely valuable asset - these are exactly the people you would rely on when gold and dollars become worthless. It follows Ripple is a very good store of value.

That doesn't follow at all.  Ripple works by consolodating the many small amounts of credit that people who know you personally are willing to extend to you, and permitting someone that you don't know to trust you because, should you default, all your friends (for which a direct chain of trust can be shown by the Ripple system) are now on the hook for up to whatever amount of credit that they said you were good for.  It's like a distributed version of getting your Dad to cosign a loan for your first car.  If you were to die, or some other lesser event to occur, your credit would fall.  To zero if you died.  There is no storage of value there, for if there was any kind of real asset (beyond a good credit rating, for those who consider a good credit rating a social asset) it would be inheritable by your heirs.  Credit isn't inheritable.
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So the only thing Ripple needs to work as money is the unit of account quality, an external benchmark on which to measure the issued credit. Sure, you could do it by pegging the value to a fully fledged currency, but you don't have to. For example you could express balances in time dollars (not that I like the idea of egalitarian constructions like time dollars, but they are simple to understand). What I'm trying to say is that you don't need the extra complexity of the Ithaca Hours you mention: a central ledger, standardized scrip, and all the things that make Ithaca Hours a currency. You just need the valuation benchmark, one hour of work in my behalf, something the participants can easily measure; the rest is handled by the Ripple system.

That is exactly what I was trying to say.  That Ripple requires an externally valued benchmark, which is usually called a currency, in order to function.  There is no practical way that Ripple, itself, can serve as that valuation.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 27, 2011, 09:40:52 AM
 #32

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If you were to die, or some other lesser event to occur, your credit would fall.  To zero if you died.  There is no storage of value there, for if there was any kind of real asset (beyond a good credit rating, for those who consider a good credit rating a social asset) it would be inheritable by your heirs.  Credit isn't inheritable.

If one of the people that owes you money dies, sure, the credit has vanished. But on the other hand one of the people you owe money to might also die so the net effect cancels out assuming you have a large social circle. Let's not forget large credits are usually backed by some sort of collateral, and the credit relation does not die together with the owner, it follows whoever inherits the asset. If it weren't for those pesky legal tender money that you are forced to accept instead of the collateral in a court of law, a healthy credit network is a pretty good store of value.

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That Ripple requires an externally valued benchmark, which is usually called a currency, in order to function.

That external benchmark might not be a proper currency, or a practical currency, think rai stones. The ripple system enables uses that the asset in itself can't do, so it becomes a currency in the modern sense. There's no practical way to store work hours, and you typically can't use them beyond barter, they can't be called a currency. With Ripple you can store and transact work hours with people you don't know, and with which you don't have a coincidence of wants, besides credit Ripple enables the essential quality of money to work as a medium of exchange.

I do however have my own issues with Ripple. Ripple breaks the fungibility of money. A dollar is a dollar, a bitcoin is a bitcoin, money has no smell they say. Well, Ripple reeks - it's only as good as the person issuing it. You don't have a wallet full or ripple dollars, you have a collection of IOUs of a varying quality.
Suppose I want to sell my car to someone I met on eBay. I need to receive credit from someone that's not very trustworthy, and it can't clear because it's a large amount. Sure, I would prefer to not extend credit to that person, but I have to if I want to make the deal. The person might claim he has credit in his social network, and I might be able to verify that using some ripple tool that says "this guy is owed 10.000 ripple dollars from people in his social hub". However I have no idea how spendable is that credit. I can't assess the quality of his social connections. Maybe when I go tomorrow to buy groceries I find out that the credit he gave is not spendable - the supermarket can't clear on his credit. I end up with worthless "money" in exchange for my car, I've effectively extended credit to a bum. So I either extend credit to strangers or refuse to make the deal - Ripple disrupts trade outside of your social network.
In the normal world I can sell the car for 10.000$ cash and live on that for many months. In the Ripple world I have to either sell it to a friend (at a discount because I have much less friends than eBay has users), or keep the car and live on the charity of my friends by sucking dry the credit lines they issued me.
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September 27, 2011, 09:48:57 AM
 #33

Oh, I do.  Ripple isn't comparable to a LETS.  Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

If you try to use an unestablished or uncommon currency over Ripple, you will fail.

Of course Ripple is comparable to LETS. Ripple is a generalization of LETS. LETS is just a concrete Ripple topology: you can stablish a LETS currency (or a time banking system for that matter) inside of a Ripple network.
LETS with hours (not egalitarian hours, but defined as "an hour of unskilled and not painful work") have proved to work.
I agree Ripple is not a currency, it is many currencies. My hour denominated credit would be one currency, your ounces of silver denominated credit would be another one, my ounces of silver denominated credit would be another one (no, my credit is not equivalent and fungible to yours, even in the same unit), McDonald's big mac denominated credit would be another currency. But those currencies are not universally accepted, you need the "chain exchange" ripple is to be able to pay to someone that doesn't accept directly any of your currencies. With Ripple, everyone can issue his own currency.
If cash were a ripple node (like a LETS organization can be), every other node would accept its credit and it would not accept credit from anyone. Therefore, the initial issued currency would never be redeemed for services (this inanimated node doesn't provide any service). The advantage of having IOUs of this cash node is that those IOUs are the more liquid ones (everybody accepts them) and will always allow you to pay, even to people to whom you're not even indirectly connected with. Credit money (ripple, LETS) is a relationship between two agents, but cash is a relationship between one agent and everybody else. That's what I mean by money is a common.

It's not neccessary that users can avoid all fees. Some level of fees can be unavoidable, but just not all that would equate to demurrage.  Again, it's like paying for the safety deposit box for your gold.  A regular bank box is cheaper than a gold repository box, but has reduced security.  That's what you want to do, get users to consolodate holdings in order to maximize the security model with respect to their costs.  Some people will choose more anominity over security, some costs over anominity and some will pay for the security.

No, that's not what I want to do. I want money holders to pay for the privileged relationship they have with the rest of the money users. If not, money-capital owners (and other capital owners, given that capital-money sustains artificially a minimum yield for all capitals) can get indefinetely from society without giving anything in exchange. Even worse, if they re-lend the interest (compound interest) their capital will grow exponentially without doing nothing, which is obviously unsustainable, by this process you eventually get a credit collapse that is usually called an economic cycle.
I also want to eliminate the short-term thinking that interest imposes on the financial market.

I'm not sure what you should call it, perhaps a holding fee?  But it's not demurrage, because it doesn't actually function in the (money) market like demurrage.  Demurrage is the cost of long term security, excluding transaction costs (of security or otherwise).  A fee that was relative to the age of a transaction (perferablely less a grace period that security is already paid for by the transaction processing fees), but not relative to the value of the transaction, would be demurrage.  You want to encourage users to consolodate holdings into fewer transactions, as well as encourage spending.  You don't really need to encourage spending, either.  Bitcoin is already the lesser of alternative currencies in the "bad money chases good money out of the market" catagory.
  And I still question your theory that demurrage can be used to effectively suppress the market interest rate, setablished by third parties in the absence of a central baking authority.

It is often called liquidity fee, circulation incentive, or circulation protection fee. But I think demurrage is the most common name this currency concepts gets. I know that for other things it has another meaning, that's why the wikipedia has an independent entry for demurrage and demurrage(currency).

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Why you won't accept freicoins as payment? Once you have them, you can spend them or lend them, but there's no point in keeping them.
If you can buy all the things you need to start your business with either bitcoin or freicoin.

But you can't, and you are assuming that you can get there.  I'm saying thta is not ever going to happen, because if the consumer is given a choice etween two comparable currencies, one that rots value while the other does not, consumers are going to forever favor Bitcoin.  Freicoin would never stand a chance on an even open market.

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Why would you borrow bitcoins instead of freicoins? You know you will spend both fast to buy your capital, why are you worried about freicoins losing value if you're going to spend them?
You will prefer to borrow freicoins because of its cheaper interest.

Consumers will borrow in bitcoin because they will be able to spend in bitcoin, and sellers will price in bitcoin because they can get paid in bitcoin.  Neither will happen for freicoin now that bitcoin has the market advantage so long as the value rots, and there is nothing that a user can do to reduce or avoid the fees.

Ok, so you accept that if other people accept it as payment, you as merchant would accept them, as a consumer you would spend them first and as entrepreneur you would prefer to borrow them (at a lower interest rate), you just don't think any merchant would ever accept them.
That's something.
Now I have some questions:

Why the worgl experiment was a success in Austria during the great depression?
Why the central bank felt so threaten by it that it has to exercise his monopoly on money creation and forbid it?
Why there's so many local (most of them private) currencies with demurrage working today?
Why lossing 5% of the nominal value would make freicoins value drop to zero and and losing real value by inflation doesn't destroys national currencies overnight?
If you say because of legal tender laws, why Ven (a private currency based on a basket of national currencies) doesn't get destroyed in the same way?

Quote
You keep saying to many variables but you don't say what variables. What makes V be volatile in your opinion?

consumer sentiment.
Employment
Government actions
Wars and rumors of wars.
And many more besides.  Velocity is affected by so many things that re both unpredictable and beyond your control.

Fair enough. Then I just claim that V would be more stable (and higher) with demurrage than without it, not completely stable.

Yes, I believe in the time prefereces of money.

I understand that, what I don't understand is why you call crap another theory that you know for a few days. And why can't you explain what is wrong with it if you're that confident that is crap.

Quote
"abstinence theory" in Gesell's words.
I understand why you think the way you do but you can't understand how I can think the way I do. Don't you feel the need to understand where I'm wrong or what am I missing?

I'm pretty sure that I do understand what you think should happen, and I think that you are wrong.  Feel free to prove me wrong.

Of course if there's interest the time preference on money applies. But that's obvious, that doesn't explain interest. The theory assumes that what is true for money is also truth for other goods, which is false.
Why would Robinson prefer 500 fish today over 500 fish next week if you're not going to eat anymore today and fish rots?
For the short term thinking that interest imposes on us (no, money is not value neutral, it is the water where we swim and it influences us), here's an example:

Tree Metaphor

Imagine you plant a tree. In ten years, that tree can give you $100 in lamber and in 100 years, $ 1000.
Now from the financial perspective:

With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today. And $1000 in 100 years are equivalent to $ 7.60 today.

If the currency has 5% demurrage, $100 in ten years are equivalent to $ 167.02 today. And $1000 in 100 years are equivalent to $ 168,903.82 today.

With interest, the same stuff in the future is valued less than today. With demurrage, the same stuff in the future is valued more than today.

But with demurrage you could have zero interest rates, so $100 in ten years are equivalent to $100 today and $1000 in 100 years are equivalent to $1000 today.

This proves that the structure of money has an impact in our way to value things over time.

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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September 27, 2011, 06:11:20 PM
 #34

Oh, I do.  Ripple isn't comparable to a LETS.  Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

If you try to use an unestablished or uncommon currency over Ripple, you will fail.

Of course Ripple is comparable to LETS. Ripple is a generalization of LETS. LETS is just a concrete Ripple topology: you can stablish a LETS currency (or a time banking system for that matter) inside of a Ripple network.

<sigh>  No, a LETS system establishes the value by common agreement, usually by pegging it to some ratio against a national fiat currency, thus becoming subject to manipulations of said currency and not really an independent currency itself.  A LETS based upon an agreement concerning the relative value of labor hours, such as the Ithica Hour, is an independent currency as such.  Certainly you can establish a commonly accepted LETS within Ripple, just as you can do the same with gold ounces or a national fiat currency.  Ripple doesn't affect that in any way, it only establishes a web of trust credit system.  If you try to establish a LETS system that is CENTERED around Ripple, and derives it's value only from the Ripple community, it will fail.  There is nothing within Ripple itself that can support such a currency unattached from an external valuation.  Any kind of internal valuation WILL fail.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 27, 2011, 06:39:18 PM
 #35

Ithaca hours are not a LETS, but there are LETS based on hours. Here's an example. Ithaca hours are just worth $10 by their users agreeing on it, as far as I can tell.

I'm not saying establishing the units of account in a ripple credit line as the same of one LETS. I'm saying using ripple to manage an actual LETS community. Here's how you would do it:
The LETS managers start a ripple node that gives and receive credit from all the LETS participant in the same unit of account. Voi lá, you have a LETS community.
You're confusing currency with unit.
If mcdonals or facebook creates a ripple node that only use bigmacs or facebook credits as the unit and people use them for trade, aren't them two different private currencies? If mcdonals also issues dollars denominated ripple IOUs, isn't that a third currency?
I can use ripple issuing IOUs denominated in whatever I produce (say Kilograms of carrots), I don't need dollars, or gold as reference at all. I just need to agree in the exchange rates with my ripple neighbors.
With ripple every person can issue his own currency (more than one if he uses different units), but only his ripple neighbors accept that currency.
Dollars denominated LETS aren't dollars. They're different currencies. One accepted by a local community and the other even by central banks around the world.
LETS credits (like ripple credits) can also be denominated in any unit, the unit doesn't have to be money (say national currencies or gold). The users can decide the unit they find more practical. I think a basket of commodities (terra-like) could be perfectly fine, specially because being a reference you don't need to store anything to back it. Debtors/issuers back them directly with their products.

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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September 27, 2011, 06:43:07 PM
 #36


Consumers will borrow in bitcoin because they will be able to spend in bitcoin, and sellers will price in bitcoin because they can get paid in bitcoin.  Neither will happen for freicoin now that bitcoin has the market advantage so long as the value rots, and there is nothing that a user can do to reduce or avoid the fees.
[/quote]

Ok, so you accept that if other people accept it as payment, you as merchant would accept them, as a consumer you would spend them first and as entrepreneur you would prefer to borrow them (at a lower interest rate), you just don't think any merchant would ever accept them.
That's something.

[/quote]

It's a chicken and egg problem, further complicated by the fact that Bitcoin has already overcome it.

Quote
Now I have some questions:

Why the worgl experiment was a success in Austria during the great depression?


Although Worgl Shillings did have a monthly demurrage of 1%, it was also possible to avoid that devaluation by returning to city hall to have that month's stamp impossed upon the Shillings.  This is exactly what I'm talking about, there must be a way to avoid the devalution, or at least part of it, in order to encourage a particular behavior.  In this case, it encouraged citizens to come to city hall once each month, if they have enough value to justify the trip.  While there, they had to pay any taxes that they owed, if they wished to have their money stamped.  Also, Shillings could be used to pay local taxes, and local government clerks were paid in shillings; two important features that functionally made shillings a local legal tender.  Freicoin cannot have such explicit and official support.  Freicoin might work anyway, if some major company/bank/institution established a backing ratio, publicly announced same, and had enough public trust and resources to be able to support such a backing.

Also, If I recall correctly, shillings were directly useful on the local public transit system without additional transactions.  A tactic used by some local governments in America to get locally unemployed people to show up at city make work projects.   

Quote

Why the central bank felt so threaten by it that it has to exercise his monopoly on money creation and forbid it?


For the same reason that they feel threatened by any alternative legal tender; should there ever be a major monetary crisis in the future, people would shift quickly to the local legal tender, pushing up it's value and velocity while the national fiat crashed in both.

Quote

Why there's so many local (most of them private) currencies with demurrage working today?


Most of them are backed, explicitly by an institution or implictly by community agreement.  Some of them also have alternative methods of avoiding demurrage, by doing something particular that is preferred by the issuing institution; as in the above example.  Again, this isn't presently or realisticly possible for Freicoin or Bitcoin.

Quote

Why lossing 5% of the nominal value would make freicoins value drop to zero


I din't say drop to zero.  I implied that it would never acrue above zero, without backing, in the presence of a functioning and continuingly trusted Bitcoin.

Quote

 and and losing real value by inflation doesn't destroys national currencies overnight?
If you say because of legal tender laws, why Ven (a private currency based on a basket of national currencies) doesn't get destroyed in the same way?

I had to look that one up, but offhand I would guess that it survives due to an implict community backing form the HUb Culture community.

Quote

Quote
You keep saying to many variables but you don't say what variables. What makes V be volatile in your opinion?

consumer sentiment.
Employment
Government actions
Wars and rumors of wars.
And many more besides.  Velocity is affected by so many things that re both unpredictable and beyond your control.

Fair enough. Then I just claim that V would be more stable (and higher) with demurrage than without it, not completely stable.


I have no evidence that your beief is incorrect, nor any to support it.  Yet, I still do not agree that intentional reduction of intrest rates or the intentional support of stablility of velocity are neccessarily befefits.  I have no way to know what is the proper interest rate nor any way to judge teh proper velocity at any given time.

quote]
Yes, I believe in the time prefereces of money.

I understand that, what I don't understand is why you call crap another theory that you know for a few days. And why can't you explain what is wrong with it if you're that confident that is crap.
[/quote]

Sorry, I'm just not interested in going down that rabbit hole.  I don't have that much free time.  If you wish to defend it, I'll listen, but I don't consider myself to be the one with the burden of proof here. 

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 27, 2011, 06:52:30 PM
 #37

Ithaca hours are not a LETS, but there are LETS based on hours. Here's an example. Ithaca hours are just worth $10 by their users agreeing on it, as far as I can tell.

I'm not saying establishing the units of account in a ripple credit line as the same of one LETS. I'm saying using ripple to manage an actual LETS community. Here's how you would do it:


By definition, a LETS system is a mutual credit system, of course you could establish one intended to be used within Ripple.  But it's still not Ripple.  The distiction isn't semantics.

Quote
The LETS managers start a ripple node that gives and receive credit from all the LETS participant in the same unit of account. Voi lá, you have a LETS community.
You're confusing currency with unit.

I'm not confusing currency with unit, because you can't seperate them.  All currencies are, by their very nature, units of measurement (of abstract value).  I can't get them confused because they are one in the same.  Some monetary systems have additional features, but the unit is the currency.

Quote

If mcdonals or facebook creates a ripple node that only use bigmacs or facebook credits as the unit and people use them for trade, aren't them two different private currencies? If mcdonals also issues dollars denominated ripple IOUs, isn't that a third currency?


Yes to all.

Quote
I can use ripple issuing IOUs denominated in whatever I produce (say Kilograms of carrots), I don't need dollars, or gold as reference at all. I just need to agree in the exchange rates with my ripple neighbors.


The difference here is trust.  Do your ripple neighbors trust that you can honor your currency, and not manipulate or devalue it's future value.  McD's has a reputation to uphold, which implictily backs their Bigmacs currency.

Quote

With ripple every person can issue his own currency (more than one if he uses different units), but only his ripple neighbors accept that currency.


That doesn't mean that every person can sustain the trust a currency requires.  That's the magic of Bitcoin, the trust is vested in the blockchain, it's security model, and the accuracy of it's collective ledger system.  There need not be a trust in individuals to that level.  I must be able to trust that vendors I deal with will send my my orders once paid, but if they issue currencies, I have to trust that they will be honored (at near to their present value) into an indefinate future.


"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 27, 2011, 07:23:18 PM
 #38

By definition, a LETS system is a mutual credit system, of course you could establish one intended to be used within Ripple.  But it's still not Ripple.  The distiction isn't semantics.
Ripple is also a mutual credit system. Ripple is a generalization of LETS. LETS is a concrete case of ripple. YOU CAN CREATE YOUR LETS COMMUNITY JUST USING THE RIPPLE SOFTWARE !!

Quote
The LETS managers start a ripple node that gives and receive credit from all the LETS participant in the same unit of account. Voi lá, you have a LETS community.
You're confusing currency with unit.

I'm not confusing currency with unit, because you can't seperate them.  All currencies are, by their very nature, units of measurement (of abstract value).  I can't get them confused because they are one in the same.  Some monetary systems have additional features, but the unit is the currency.
All currencies are units but not all units are currencies.
Two different currencies can use the same unit (like USD, mcDonalds dollars and LETS dollars).

Quote
If mcdonals or facebook creates a ripple node that only use bigmacs or facebook credits as the unit and people use them for trade, aren't them two different private currencies? If mcdonals also issues dollars denominated ripple IOUs, isn't that a third currency?

Yes to all.

Quote
I can use ripple issuing IOUs denominated in whatever I produce (say Kilograms of carrots), I don't need dollars, or gold as reference at all. I just need to agree in the exchange rates with my ripple neighbors.

The difference here is trust.  Do your ripple neighbors trust that you can honor your currency, and not manipulate or devalue it's future value.  McD's has a reputation to uphold, which implictily backs their Bigmacs currency.

If mcdonalds decided to issue its currency within the ripple network, all bigmacs currency users will have to extend credit to mcdonald's node in order to use the currency.
Ripple connections doesn't have to be two-ways. People would extend credit to mcDonalds just because they can redeem the currency for bigmacs. I would extend credit to my baker just because I know I can redeem my baker's currency (in the unit he likes more) just because I know I can redeem it for bread.
The only difference is in the number of connections a reputable company will have compared to a typical individual.   

Quote
With ripple every person can issue his own currency (more than one if he uses different units), but only his ripple neighbors accept that currency.

That doesn't mean that every person can sustain the trust a currency requires.

It can sustain the trust to his ripple neighbors.
Your view of a currency is too narrow. In the end, national currencies are just IOUs from the government/central bank. You can redeem your national currency to pay taxes and don't go to jail (take that as a service).
Maybe this article helps:
http://ripplepay.com/essay/

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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September 27, 2011, 08:36:33 PM
 #39

Quote
Consumers will borrow in bitcoin because they will be able to spend in bitcoin, and sellers will price in bitcoin because they can get paid in bitcoin.  Neither will happen for freicoin now that bitcoin has the market advantage so long as the value rots, and there is nothing that a user can do to reduce or avoid the fees.

Ok, so you accept that if other people accept it as payment, you as merchant would accept them, as a consumer you would spend them first and as entrepreneur you would prefer to borrow them (at a lower interest rate), you just don't think any merchant would ever accept them.
That's something.


It's a chicken and egg problem, further complicated by the fact that Bitcoin has already overcome it.

But why bitcoin did it and freicoin won't?

Quote
Now I have some questions:

Why the worgl experiment was a success in Austria during the great depression?


Although Worgl Shillings stamp script did have a monthly demurrage of 1%,
First of all, Schillings weren't from Worgl nor had demurrage. Schillings were the Austrian national currency. You mean Worgl stamp script.
Again different currencies but one unit.

it was also possible to avoid that devaluation by returning to city hall to have that month's stamp impossed upon the Shillings. 

No. When people went to the city hall to get the monthly stamp was exactly were they pay the demurrage (otherwise the bill was invalid until someone went to the city hall with it) and nobody was willing to do it, they prefer to avoid to pay the demurrage.

This is exactly what I'm talking about, there must be a way to avoid the devalution, or at least part of it, in order to encourage a particular behavior. 
There's only two ways to avoid the demurrage: spend the money or lend it.

In this case, it encouraged citizens to come to city hall once each month, if they have enough value to justify the trip.  While there, they had to pay any taxes that they owed, if they wished to have their money stamped. 
No they were discouraged to go to the city hall to pay, they were encouraged to spend their script. They didn't have to pay the local taxes to have their money stamped, they just had to pay the demurrage for that. The reason why people paid taxes in advance was to avoid paying the demurrage.

Also, Shillings could be used to pay local taxes, and local government clerks were paid in shillings; two important features that functionally made shillings a local legal tender.  Freicoin cannot have such explicit and official support. 

What about Chiemgauers? You can't pay taxes with them and the city won't pay anyone with them.
What about Grok?
There's lots of examples.

Freicoin might work anyway, if some major company/bank/institution established a backing ratio, publicly announced same, and had enough public trust and resources to be able to support such a backing.
How bitcoin could make it without any backing?

Quote
Why the central bank felt so threaten by it that it has to exercise his monopoly on money creation and forbid it?

For the same reason that they feel threatened by any alternative legal tender; should there ever be a major monetary crisis in the future, people would shift quickly to the local legal tender, pushing up it's value and velocity while the national fiat crashed in both.

Note that that the stamp script were backed by a stored reserve of the national currency. Not to give them value (people couldn't redeem them back for the national currency) but to avoid being accused of creating money and inflation. So the further extension of those stamp script currencies couldn't destroy the value of the national currency. Towns need it to issue the local one.
Also why the central bank didn't pay attention to the growing employment?

Quote

Why there's so many local (most of them private) currencies with demurrage working today?


Most of them are backed, explicitly by an institution or implictly by community agreement. 

A community agreement is also what backs the monetary value of gold, just the community is greater and older.
A community agreement is also what backs bitcoin.

Some of them also have alternative methods of avoiding demurrage, by doing something particular that is preferred by the issuing institution; as in the above example.
I don't know any currency with demurrage that have "alternative methods of avoiding demurrage". Can you point me to one?

Quote

Why lossing 5% of the nominal value would make freicoins value drop to zero


I din't say drop to zero. I implied that it would never acrue above zero, without backing, in the presence of a functioning and continuingly trusted Bitcoin.

Your argument is circular: "It won't be ever accepted because it won't be accepted being that bitcoin exists".

Quote
and and losing real value by inflation doesn't destroys national currencies overnight?
If you say because of legal tender laws, why Ven (a private currency based on a basket of national currencies) doesn't get destroyed in the same way?

I had to look that one up, but offhand I would guess that it survives due to an implict community backing form the HUb Culture community.
Don't do it. Nothing special with that currency. The point I wanted to make is that is based on national currencies (therefore suffers inflation), cannot be used to pay taxes and it doesn't collapse overnight.

Quote
Yes, I believe in the time prefereces of money.

I understand that, what I don't understand is why you call crap another theory that you know for a few days. And why can't you explain what is wrong with it if you're that confident that is crap.

Sorry, I'm just not interested in going down that rabbit hole.  I don't have that much free time.  If you wish to defend it, I'll listen, but I don't consider myself to be the one with the burden of proof here. 

Fair enough. I repeat my arguments against the time-preference theory on interest:

Of course if there's interest the time preference on money applies. But that's obvious, that doesn't explain interest. The theory assumes that what is true for money is also truth for other goods, which is false.
Why would Robinson prefer 500 fish today over 500 fish next week if you're not going to eat anymore today and fish rots?
For the short term thinking that interest imposes on us (no, money is not value neutral, it is the water where we swim and it influences us), here's an example:

Tree Metaphor

Imagine you plant a tree. In ten years, that tree can give you $100 in lamber and in 100 years, $ 1000.
Now from the financial perspective:

With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today. And $1000 in 100 years are equivalent to $ 7.60 today.

If the currency has 5% demurrage, $100 in ten years are equivalent to $ 167.02 today. And $1000 in 100 years are equivalent to $ 168,903.82 today.

With interest, the same stuff in the future is valued less than today. With demurrage, the same stuff in the future is valued more than today.

But with demurrage you could have zero interest rates, so $100 in ten years are equivalent to $100 today and $1000 in 100 years are equivalent to $1000 today.

This proves that the structure of money has an impact in our way to value things over time.

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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September 27, 2011, 09:51:11 PM
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Quote
I think business cycles are avoidable because I think their root cause is interest.

I'm sorry to tell you this, but this is wrong.  The business cycle's root cause is malinvestment.  The social aspect is that, during the boom, investors are as upbeat as everyone else and are more likely to investing borderline projects.  Artificially low interest rates, manipulated by central banks, make this pattern of malinvestment worse but are not themselves the cause.  The root cause of the boom is a form of collective sentiment, what Keynes called "animal spirits".  Keynes was not wrong about the role of the mood of the collective in the business cycle, he was wrong in his belief that it could be forced via monetary policy.  The malinvestment of the boom cycle is what then makes the correction inevitable, but there is always a trigger event that draws the attention of the collective towards the developing cracks in the system.  Once the first true crack is identified to the collective, it starts looking for more, and it finds them; and then the mood changes.  And this continues until the correction resolves the cracks, and the recovery begins.  After a time of no cracks, the sentiment slowly turns to a 'feeling' that there are no more cracks to worry about, and the boom starts again.  In the past, both a gold standard and the more local regionality of the credit & productive markets tended to limit the scope of the boom, and thus the severity of the bust.  The boom from 1992 to 2001 was the longest national (worldwide?) boom period in the history of the US, thus we can expect the most severe correction in the history of the US.  But only once those with the power to manipulate monetary and fiscal policies finally resign to allow the correction to occur, or simply fail to continue to prevent it.

I think you just created a new economic school. This is definitely not the Austrian explanation for the business cycle but it definitely makes more sense.
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