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Author Topic: Freicoin (was Re: Deflation and Bitcoin, the last word on this forum)  (Read 6569 times)
MoonShadow
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September 27, 2011, 09:53:36 PM
 #41

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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?


Because there was an unfilled niche, for which Bitcoin was well suited; and it still took over 2 years for Bitcoin to overcome it.  I'm not sure that it completely has, but it has a nearly three year head start on all derivitives and the first-to-market advantage over those same derivitives.  Any currency that expects to compete with Bitcoin has to either solve a problem that Bitcoin cannot, or find it's own little niche.  

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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.


Sorry, my error.

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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 factually incorrect.

"He issued numbered 'labour certificates' to the value of 32,000 schillings, in denominations of 1, 5 and 10 schillings, respectively. These became valid only after being stamped at the town hall, and depreciated monthly by 1 per cent of their nominal value.

It was possible for the holders to 'revalue' them by the purchase, before the end of each month, of stamps from the town hall, in the process creating a relief fund.
...

The depreciation not only encouraged rapid circulation, but also the payment of taxes, past, current and upcoming. These taxes were used to provide social and public services.

At the end of each year, it was required that the notes be turned in for new ones. No charge was made for the transaction if the required stamps had been affixed. Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings."

http://www.globalideasbank.org/site/bank/idea.php?ideaId=904
Emphis added.  Although it was not possible to completely avoid all demurrage by monthly stamp seeking trips to city hall, it was possible to avoid some of it, which would have otherwise ecome a kind of end of year transaction fee/fine for anyone who failed to have all twelve stamps on their script.
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date=1317148987]
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.

BINGO!

He can be taught!

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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.


I dont have time to critique every example of a local currency, and compare that to your proposal.  I'm just trying to point out where I think your error resides.  If you still disagree, go ahead an try it.  If you fail, please consider my words.  If you don't fail, I'll eat mine.

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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?


It actually has some implicit community backing, by reason of the fact that it filled a niche that could not reasonablely be filled by fiat currencies over the Inbternet and the large and growing group of people who had taken the time to understand how it worked and came to believe that it could.  Now that niche is filled, and ther is no such advantage for Freicoin.
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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)


Also fctually incorrect...

" Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings.
To facilitate this conversion at any time - and thereby provide a cover for the relief certificates - the trustees deposited at the local Raiffeisen Bank (credit union) an amount in Austrian currency equivalent to the issued local currency.

The money was loaned out to trustworthy wholesalers at 6 per cent interest. Interest thereby flowed back into the town treasury, yet further facilitating transactions with the 'outside' world.

Emphasis added.

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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?

Employment isn't really the mission of a central bank, then or now.  The mission of a central bank is to serve the member banks and protect them from the risks involved in fractional reserve banking.  Employment talk is secondary, at best.
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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.


True, but both those examples fill important niches and both have an existing history that Freicoin does not while attempting to break into the same niche as Bitcoin.
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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?

Yes you do.  In fact you likely know of several, you just don't recognize the demurrage as such.  Gold is, by definition, the original example.  The storage fees for gold is demmurage.  If a national currency is gold backed, then the storage fees are borne by the nation, not the indivicual gold saver.
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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".


Call it circular if you like, but it remains true.  For any currencyto be accepted, there must be a pricipal and common reason why it's a better medium of exchange than what is already available.  This was true with Bitcoin, because there was nothing quite like it online beofre it.  This is not so anymore, so for Freicoin to stand a chance at pulling itself up by it's own bootstraps (without institutional backing of some kind) it would have to either fill a niche that Bitcoin does not do wel or solve a flaw with Bticoin.
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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.


Then it's just a dollar substitute.


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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:

It's not false that money is simply a barter commodiety, and thus has no special rules withregards to time preferences.  You example of 500 fish or 500 moneies is a false choice, because it may not be the only choice for the individual. I don't have the

"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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MoonShadow
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September 27, 2011, 10:00:30 PM
 #42

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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.

No, I didn't.  This is another way to look at the Austrian Economic theory of the business cycle.  Most of the time Keynes is given no credit, however he wasn't just some hack.

"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, 10:16:43 PM
 #43

No, I didn't.  This is another way to look at the Austrian Economic theory of the business cycle.  Most of the time Keynes is given no credit, however he wasn't just some hack.

The Austrian School says the root cause is excess credit expansion, at least according to Wikipedia. According to you, excess credit expansion is not required, the only requirement is humans being humans (that is, stupid). That is in sharp contradiction with the Austrian School which believes the business cycle is preventable with good monetary policy.
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September 27, 2011, 10:23:04 PM
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No, I didn't.  This is another way to look at the Austrian Economic theory of the business cycle.  Most of the time Keynes is given no credit, however he wasn't just some hack.

The Austrian School says the root cause is excess credit expansion, at least according to Wikipedia.

Yes, and even under a gold standard, credit can expand excessively due to the mood of the loan officers and their employers.  The manipulation of the free market interest rate, commonly practiced by central banks today, make this effect worse but are not the cause of it.  The business cycle did, and would still, exist within a sound/hard monetary system.  It just tends to not reach the same level of malinvestment nor persist for as long before the correction phase.  The correction phases prior to the establishment of the Federal Reserve were called "panics" and the booms were called "manias", but usually only in retrospect.  A quick google search and it will become quite obvious that the business cycle exists in every monetary system ever devised, and will continue to do so.  Bitcoin isn't immune either.

"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, 10:48:44 PM
 #45

It was possible for the holders to 'revalue' them by the purchase, before the end of each month, of stamps from the town hall, in the process creating a relief fund.

Exactly, and that's when they paid the demurrage. The bill becomes invalid if you don't stick to it the monthly stamp, and the monthly stamp costs 1% of the face value of the bill !!

At the end of each year, it was required that the notes be turned in for new ones. No charge was made for the transaction if the required stamps had been affixed.
If you don't pay monthly, you can make it valid yearly by turning into a new one and pay for the 12 stamps. The charge for this renewal transaction was exactly the same as stamps you didn't stick before.
But when people accepted a bill with missing stamps they know they will have to pay them, so they will discount the stamps you didn't added.
Trust me, they used the stamped implementation of free-money
0.50 per 5 bill
0.10 per 1 bill

Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings."
My fault, although they were trade like a full Austrian schilling, they were backed to the eyes of the 0.98 schillings. Pretty similar to chiemgauers then.

To facilitate this conversion at any time - and thereby provide a cover for the relief certificates - the trustees deposited at the local Raiffeisen Bank (credit union) an amount in Austrian currency equivalent to the issued local currency.

The money was loaned out to trustworthy wholesalers at 6 per cent interest. Interest thereby flowed back into the town treasury, yet further facilitating transactions with the 'outside' world.

The money holders were effectively lending at zero interest there.

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:

It's not false that money is simply a barter commodiety, and thus has no special rules withregards to time preferences.  You example of 500 fish or 500 moneies is a false choice, because it may not be the only choice for the individual.

You have admitted earlier that money is an agreement from a community. Anyway, the difference with regards to time preferences is that fish perish and money doesn't.
He could have lots of choices, the obvious one (instead of lending at zero interest), is to let the 500 fish slowly rot.
I hope you have time to read a little of this story.

I guess you're ok with the short-term thinking that interest imposes on us too.

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, 11:40:38 PM
 #46

Quote from: MoonShadow link=topic=45171.msg547800#msg547800

It's not false that money is simply a barter commodiety, and thus has no special rules withregards to time preferences.  You example of 500 fish or 500 moneies is a false choice, because it may not be the only choice for the individual.

You have admitted earlier that money is an agreement from a community.


Sorry, I fell into a lack of sematic precision error.  It's a common error, but not one that I should have stumbled into.  Money is the commodity, currency is the standardized unit of valuation.  The two terms are not quite interchangable.  Neither Bitcoin nor Freicoin are money, they are only (somewhat arbitrary) units of valuation, agreed to implicitly by the community that may use them.  Regression theorm is what you need to overcome, that I don't think that you can unless you can establish a backreference to Bitcoin's valuation (perhaps by an explicit bitcoin reserve, much like what that Austrian town did) or by the explicit support of a trusted institution.  These are two bootstrapping techniques that Bitcoin could not utilize.  I don't know how you do it, however.

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 Anyway, the difference with regards to time preferences is that fish perish and money doesn't.



Money is a common commodity that has as many of the features as an ideal money as possible, one of which is that it does not rot.  It's one reason that gold is historically money, and why pork futures are not.

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I guess you're ok with the short-term thinking that interest imposes on us too.


I'm indifferent to it.  It simply is, and I don't think that you can change that perspective even if you are successful in suppressing the market interest rate in freicoin.  If nothing else, the growth of your currency, even if it takes off, will be suppressed at an equal rate as you suppress the market interest rate because those who would lend never bother to invest in your currency to begin with.  Consumers have a short term thinking, and even investors don't have very long term thinking.  Both generally intend to enjoy the fruits of their own labors within their own lifetimes.  Very few people invest on their grandchildrens' behalf, and those that do only do so with excess income.  There really isn't a way to invest into projects that exceed a lifetime in their ROI.

"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, 11:49:06 PM
 #47

To facilitate this conversion at any time - and thereby provide a cover for the relief certificates - the trustees deposited at the local Raiffeisen Bank (credit union) an amount in Austrian currency equivalent to the issued local currency.

The money was loaned out to trustworthy wholesalers at 6 per cent interest. Interest thereby flowed back into the town treasury, yet further facilitating transactions with the 'outside' world.

The money holders were effectively lending at zero interest there.


They were effectively lending out at a negative interest rate, but they were lending out funds that were not their own and for which they did not have to pay anything to utilize.  This had the practical effect of nearly doubling the monetary base, because the Austrian Shillings used to back the local currency were not held in reserve at all, but themselves loaned out into local circulation.  This doubling of the monetary base would reverse itself as soon as the currency was recalled or the loans paid without issuing of new loans.  So the 'miracle' was, in part, a result of a local "stimulas" injection effect, that could be unwound by simply allowing the loans to mature and thus retract the reserve shillings back into the actual reserve fund.  It was a pretty good plan, for what it was, but I wager that the doubling of the monetary base was unintentional.

"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 28, 2011, 10:59:16 AM
 #48

1) About money.

Wait, your definition of money is not what I expected. Why bitcoin is not money? Are USDs money according to your own definition?
According to my definitions...

Forms of money: gold, national currrencies, bitcoin, ripple (and therefore LETS)
Currencies: gold, national currencies, bitcoin, a concrete LETS, a concrete ripple line of credit
Units of accounts for exchange and/or credit: gold grams/ounces, dollars, btc, life hours (a concrete LETS unit), Kgs of carrots...

2) About the emergence of gold as money.

Gold emerged as a form of money far before option markets and futures. If you had say pork meat...well, the extremely fast way in which pork deteriorates (not comparable with 5% a year) invalidates it as money. It is not easy to transport and, most important, it is not fungible.
Imagine that gold had a magic property that makes 5% of it evaporate and return to the river or the mine. It would still have been better than say salt as money because it is more scarce and therefore can store value in a more dense fashion (better for transport). Gold is not only time-resistant, is also resistant to the elements (for example, water or acids).
It has so many qualities that it cannot constitute a proof that time-resistance is a necessary quality of money.

3) About the source of short-term thinking

Interest produces short-term thinking even within the lifetime of an individual. The bigger the interest the faster you want to receive the return on investment. Re-read the tree metaphor.
With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today, with 7% interest, $100 in ten years is equivalent to 51 today. Interest makes us discount from the future, no matter the time interval.

4) About the worgl miracle.

So what you say is that the miracle came from the inflation. You assume that lent fund was also reinvested in the local economy, if it were lend to say, china, worgl wouldn't have felt the "stimulus". In fact, since you think free-money is bad, if the fund would have been just hoarded (the stamp script would just have been a substitute of the same amount of schillings), worgl wouldn't had experienced a miracle but it would have been even worse.
http://www.reinventingmoney.com/worglExperiment.php
An official just reasoned the same way:
"Far more serious, however, is the attitude of the Austrian State Bank, which has opposed the issue of relief money from the beginning. It looks upon the issue of this paper money as an infringement of its privilege and has urged the authorities to suppress it. Thanks to repeated petitions and appeals to the Tyrolese authorities, the parish has succeeded in averting the putting into force of the prohibition. Juridically the State Bank is within its rights if the Wörgl certificates are regarded as money, although no creditor is bound to accept them in payment. Whether it is necessary or advisable to stop this experiment, is another question. A Tyrolese official of high standing, who is theoretically an opponent of the free money theory, doubts this. He describes the depreciating certificates as a kind of parish bonds bearing no interest and which are subject to a disguised 12 % turnover tax. As he has stated the matter in a memorandum to the authorities, he sees in the Wörgl self-help effort a welcome sign of the revival of the collective spirit and recognises its beneficial effects. He only criticises the cover, which he deems insecure. The deposit of 12.000 schillings should, in his opinion, be withdrawn from the Raiffeisen Bank whose assets are already three-fourths frozen, a state of affairs which endangers the deposit and thus the cover. The latter should be deposited in an Innsbruck bank or at the State Bank in a suspense account, where it could not be touched and, of course, would carry no interest. This would prevent a multiplication of the means of payment and exclude all inflation. If Wörgl agreed to this proposal, he could see no good reason for insisting on the suppression of the relief money. In any case, these certificates are decidedly more harmless than the expanded credits of numerous financial institutions which have by no means been so sternly dealt with.
A reason which may account for the unyielding attitude of the State Bank, is perhaps the fear of the experiment spreading. On 1 January the neighbouring parish of Kirchbichel, also an industrial commune of about 3.000 inhabitants, began, on its part, to issue depreciating money to the value of 3.000 schillings. The certificates of the two parishes are valid in both places. Four other Tyrolese communes-Hopfengarten-Markt u. Land, Brixen, and Westendorf, localities totalling about 16.000 inhabitants-have also decided on issuing depreciating money, but are awaiting the outcome of the struggle between Wörgl and the State Bank before taking action."

Why the central bank didn't just demanded to keep the "cover" of these new currencies in a suspense account?

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 28, 2011, 05:18:11 PM
 #49

1) About money.

Wait, your definition of money is not what I expected. Why bitcoin is not money? Are USDs money according to your own definition?


No.

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According to my definitions...

Forms of money: gold, national currrencies, bitcoin, ripple (and therefore LETS)
Currencies: gold, national currencies, bitcoin, a concrete LETS, a concrete ripple line of credit
Units of accounts for exchange and/or credit: gold grams/ounces, dollars, btc, life hours (a concrete LETS unit), Kgs of carrots...


Units of account, by definition, are currencies.  Money is something a bit different.

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2) About the emergence of gold as money.

Gold emerged as a form of money far before option markets and futures. If you had say pork meat...well, the extremely fast way in which pork deteriorates (not comparable with 5% a year) invalidates it as money. It is not easy to transport and, most important, it is not fungible.
Imagine that gold had a magic property that makes 5% of it evaporate and return to the river or the mine. It would still have been better than say salt as money because it is more scarce and therefore can store value in a more dense fashion (better for transport).


It would not have been better than salt, if 5% were to vanish from the monetary base by it's nature.  In such a case, silver would have been the dominate form of money in human history.

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 Gold is not only time-resistant, is also resistant to the elements (for example, water or acids).
It has so many qualities that it cannot constitute a proof that time-resistance is a necessary quality of money.


There is no 'proof' of anything, as such.  But an ideal money is one that holds value, as well as is fungible, divisable, portable and difficult to fake.  That is not to say that a commodity that rots a little can't be a money, since silver corrodes.  But it doesn't corrode quickly, if stored in the proper conditions.


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3) About the source of short-term thinking

Interest produces short-term thinking even within the lifetime of an individual. The bigger the interest the faster you want to receive the return on investment. Re-read the tree metaphor.
With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today, with 7% interest, $100 in ten years is equivalent to 51 today. Interest makes us discount from the future, no matter the time interval.


I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.

Quote
4) About the worgl miracle.

So what you say is that the miracle came from the inflation.


No, I say that the miracle came from a temporary stimulus effect.  And it was doomed to reverse itself whether or not the central bank ended the experiment or not.  Done correctly, the reversal would have taken as long as the terms of the loans.  Probably.  Done wrong and we wouldn't be discussing the miracle, but instead the folly of Worgl.

Quote

You assume that lent fund was also reinvested in the local economy, if it were lend to say, china, worgl wouldn't have felt the "stimulus". In fact, since you think free-money is bad, if the fund would have been just hoarded (the stamp script would just have been a substitute of the same amount of schillings), worgl wouldn't had experienced a miracle but it would have been even worse.


Probably so.


Why the central bank didn't just demanded to keep the "cover" of these new currencies in a suspense account?

[/quote]

Again, because they protect the banks, not the public.  They were simply not interested in competining with an experimental monetary model.

"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 28, 2011, 06:54:21 PM
 #50

Wait, your definition of money is not what I expected. Why bitcoin is not money? Are USDs money according to your own definition?
No.
Let me guess...Your definition of money is the same as Mike Maloney's. A great guy, but what a useless definition, why not just precious metals for the concept he means?
Anyway, let's not waste time on misunderstandings, from now on I'll say medium of exchange (MOE).

Units of account, by definition, are currencies.  Money is something a bit different.
No. Units of account can be hours, seconds, grams, watts, bytes, invitations left, reputation points, books, posts...depending on what are you accounting.
If you can trade with them, they're not currencies.
I can accept that currencies by definition are units of account.

Quote
2) About the emergence of gold as money.

Gold emerged as a form of money far before option markets and futures. If you had say pork meat...well, the extremely fast way in which pork deteriorates (not comparable with 5% a year) invalidates it as money. It is not easy to transport and, most important, it is not fungible.
Imagine that gold had a magic property that makes 5% of it evaporate and return to the river or the mine. It would still have been better than say salt as money because it is more scarce and therefore can store value in a more dense fashion (better for transport).
It would not have been better than salt, if 5% were to vanish from the monetary base by it's nature. In such a case, silver would have been the dominate form of money in human history.
Yes gold would have been still better than salt. How do you transport the value of a house in salt?
I should have said precious metals instead of gold. If silver also evaporated at 5%, according to you copper would have been the best, I guess. How abundant can be until it is useless as cash?

Quote
Gold is not only time-resistant, is also resistant to the elements (for example, water or acids).
It has so many qualities that it cannot constitute a proof that time-resistance is a necessary quality of money.
There is no 'proof' of anything, as such. 
Yes gold is water resistant and immune to most (all?) chemical processes. But anyway...
Gold has so many qualities that it being used as the moe for so long is not a proof that time perfect resistance is a necessary property of moe.

But an ideal money is one that holds value, as well as is fungible, divisable, portable and difficult to fake.

Why the medium of exchange must hold value?

Is it even possible to hold value? Isn't value always relative and depending on collective desires?

Quote
3) About the source of short-term thinking

Interest produces short-term thinking even within the lifetime of an individual. The bigger the interest the faster you want to receive the return on investment. Re-read the tree metaphor.
With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today, with 7% interest, $100 in ten years is equivalent to 51 today. Interest makes us discount from the future, no matter the time interval.

I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.
Many people today, including me, claims that short-term thinking can destroy our society, even make or species disappear.
Anyway, what I claim here is that the medium of exchange should not influence our time preference, it should let us decide. For that interest rates should be zero.
And I also claim that time preference (like interest) is a consequence of the structure of money the medium of exchange and therefore cannot be an explanation of interest.
Time preference and interest are both consequences of the same cause, not one the cause of the other.

Quote
4) About the worgl miracle.

So what you say is that the miracle came from the inflation.
No, I say that the miracle came from a temporary stimulus effect.  And it was doomed to reverse itself whether or not the central bank ended the experiment or not.  Done correctly, the reversal would have taken as long as the terms of the loans.  Probably.  Done wrong and we wouldn't be discussing the miracle, but instead the folly of Worgl.
Quote
You assume that lent fund was also reinvested in the local economy, if it were lend to say, china, worgl wouldn't have felt the "stimulus". In fact, since you think free-money is bad, if the fund would have been just hoarded (the stamp script would just have been a substitute of the same amount of schillings), worgl wouldn't had experienced a miracle but it would have been even worse.
Probably so.
Quote
Why the central bank didn't just demanded to keep the "cover" of these new currencies in a suspense account?
Again, because they protect the banks, not the public.  They were simply not interested in competining with an experimental monetary model.

Good to hear that last part.
So if worgl (or any other city administration today) had decided to store the "cover" national currency instead of lending it, how would have the stamp script destroyed the local economy?
Would it have made people pay taxes in advance and would had it be as good for employment?
Why not?

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 28, 2011, 09:24:01 PM
 #51

Wait, your definition of money is not what I expected. Why bitcoin is not money? Are USDs money according to your own definition?
No.
Let me guess...Your definition of money is the same as Mike Maloney's.


Who?  I don't know, is his definition of money the same as Aristotle's?

"The Greek philosopher Aristotle (384-322 BC) was a student of Plato and teacher of Alexander the Great. He discovered, formulated, and analyzed the problem of "commensurability", or how different things can be measured in the same units. He wondered how ratios for a fair exchange of different things could be set. He searched for a principle that makes it possible to equate what is apparently unequal and non-comparable.

Aristotle found that money, as a common measure of everything, makes things commensurable and makes it possible to equalize them. In the form of money, he says, a substance has a telos, a purpose, and that in creating money individuals have devised a unit of measure on whose basis fair and just exchange can take place. Aristotle thus maintains that everything can be expressed in the universal equivalent of money, and argues that money was introduced to satisfy the requirement that all items exchanged must be comparable in some way.

Within such a frame work, Aristotle defined the characteristics of a good form of money – which must be:

•Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
•Portable: Good money needs to hold a high amount of 'worth' relative to its weight and size;
•Divisible: Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be "fungible", defined as "being freely exchangeable or replaceable, in whole or in part, for another of like nature or kind."
•Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself, starting with rarity."

http://goldnews.bullionvault.com/money_aristotle_050120092

Only commodities can solve the final characteristic requirement to any degree, and neither Bitcoin nor the US $ can do so.  Currencies are standard units, widely agreed upon by either convention or fiat.  So a coin minted from a defined amount of silver, and so stated upon it's face, is both a currency and a money.  A melted lump of an unassayed volume of pure gold is money, but it's not a currency.  I don't like how this particular article explains "intrinsically valuable", because I think that it's flawed.  I don't agree that gold or silver have any value "contained in the money itself" as such.  Value is always subjective, but the value of gold is not rooted in what a person could trade for it, but in what it was useful for (beyond a trade medium), whether or not the person who held it actually intended to do so.

Quote
I can accept that currencies by definition are units of account.

Okay.
Quote
Quote
2) About the emergence of gold as money.

Gold emerged as a form of money far before option markets and futures. If you had say pork meat...well, the extremely fast way in which pork deteriorates (not comparable with 5% a year) invalidates it as money. It is not easy to transport and, most important, it is not fungible.
Imagine that gold had a magic property that makes 5% of it evaporate and return to the river or the mine. It would still have been better than say salt as money because it is more scarce and therefore can store value in a more dense fashion (better for transport).
It would not have been better than salt, if 5% were to vanish from the monetary base by it's nature. In such a case, silver would have been the dominate form of money in human history.
Yes gold would have been still better than salt. How do you transport the value of a house in salt?


Your assumptions are destroyed by actual human history.  In some markets, salt was nearly as valuable as gold by weight, and was oftentimes traded as a medium of exchange independently of gold or silver.  You trade in salt exacltly the same way that you would have traded in gold, by weight.

Quote
I should have said precious metals instead of gold. If silver also evaporated at 5%, according to you copper would have been the best, I guess. How abundant can be until it is useless as cash?


Raity is a secondary issue to the ability of trade.  Rarity contributes to the portability problem, since less weight implies more value, however rarity also contributes to a lack of recognition.  Platinum was considered a usless byproduct of silver mining for hundreds of years, because it was too rare for it to be useful as a medium of exchange.  The Spanish famously made cannons out of platinum in order to protect their gold shipments, because they had no other use for it.
Quote

Quote
Gold is not only time-resistant, is also resistant to the elements (for example, water or acids).
It has so many qualities that it cannot constitute a proof that time-resistance is a necessary quality of money.
There is no 'proof' of anything, as such. 
Yes gold is water resistant and immune to most (all?) chemical processes. But anyway...

I was referring to your expectation that I was trying to prove time preferences.  You jsut lost a little more respect.

Quote
Quote
I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.
Many people today, including me, claims that short-term thinking can destroy our society, even make or species disappear.

That's not een a good dodge.  I ask again, by what reason (logic) to you make such a claim?  Because you think so, because someone you listen to thinks so?  Do you even have a reason, or is it just anouther form of religious belief?
Quote

Anyway, what I claim here is that the medium of exchange should not influence our time preference, it should let us decide. For that interest rates should be zero.


Why?  Why should they be zero?

Why should htey be any particular number?

Quote
And I also claim that time preference (like interest) is a consequence of the structure of money the medium of exchange and therefore cannot be an explanation of interest.
Time preference and interest are both consequences of the same cause, not one the cause of the other.

I don't agree, but it's still illrelevant.  Why is suppressing the interestes rate or the time preference ideal?  Why isn't natrual money ideal?  Why wouldn't establishment of a cryptocurrency that mimics natural money be ideal?  You ahve no support.

Quote

Good to hear that last part.
So if worgl (or any other city administration today) had decided to store the "cover" national currency instead of lending it, how would have the stamp script destroyed the local economy?
Would it have made people pay taxes in advance and would had it be as good for employment?
Why not?


Honestly I don't know.  And neither do you, and that is my point here.  It is a fatal conceit to believe that you can design an economy.  You might just luck into a partial success, but I think that your errors of though are predictable, and will lead to a great many tears.

"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 30, 2011, 12:59:48 PM
 #52

I was referring to your expectation that I was trying to prove time preferences.  You jsut lost a little more respect.
Sorry, I though I had said acid-proof or something and you were rebating that. My fault, I misunderstood you.
But I think I've showed respect, even when I've tried to make you understand ripple in a wider sense and you sighed.
With your gold example you weren't trying to prove time-preference but that durability is a necessary requirement for the medium of exchange.


•Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
If money must, the medium of exchange doesn't have to be time-resistant. I guess you also disagree here.

•Portable: Good money needs to hold a high amount of 'worth' relative to its weight and size;
That has a lot to do with rarity. But more or less we agree that a certain quantity is needed for commodity to become money. If very too rare or too common, doesn't serve.

•Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself, starting with rarity."
I'll assume that you know that value is never intrinsic. Then your requirement to money would be to have value apart from the monetary value gained when the commodity.
I disagree there too.
In my opinion, Gesell proves this here:

So called "value"
Why money can be made of paper

I must say that I disagree with him when he says "The choice is, therefore, either State money or no money", but maybe his concept of "state" is so wide that it includes a LETS and the block chain.
Quote from: Silvio Gesell
Such "agreement" is in itself a State action, for everything upon which we can reach agreement is the material out of which the State is built

He's specially funny here:
Quote from: Silvio Gesell
...money can be made out of paper which, without any kind of promise of conversion, without resting on any particular commodity (gold, for example), bears only the following inscription:
 "One Dollar" (or "Mark", "Shilling", "Franc", etc.)
 or "This Piece of Paper is in itself one Dollar."
 or "This Piece of Paper is in commerce, in State-Treasuries and in Courts of Justice legal tender for 100 Dollars."
 or, to express my meaning, if not more clearly, at least more drastically:

 "He who presents this Piece of Paper for redemption at the Bank of Issue will receive 100 Lashes (negative promise of payment).
 In the markets and shops of the country, however, the holder will receive in goods as much as demand and supply allow him; that is, as much as, by bargaining, he can make his own."

Only commodities can solve the final characteristic requirement to any degree, and neither Bitcoin nor the US $ can do so.  Currencies are standard units, widely agreed upon by either convention or fiat.  So a coin minted from a defined amount of silver, and so stated upon it's face, is both a currency and a money.  A melted lump of an unassayed volume of pure gold is money, but it's not a currency.  I don't like how this particular article explains "intrinsically valuable", because I think that it's flawed.  I don't agree that gold or silver have any value "contained in the money itself" as such.  Value is always subjective, but the value of gold is not rooted in what a person could trade for it, but in what it was useful for (beyond a trade medium), whether or not the person who held it actually intended to do so.
If you don't accept these mediums of exchange as money, you must accept that other things that aren't money can have monetary value, which seems a contradiction to me.
But assuming commodity money is the only money, what I question is that we should use commodity money as the medium of exchange. I'll accept that definition of money for this conversation, but if I accepted it forever I should agree with "resource based economy" advocates when they say we don't need money, and I prefer to disagree with them there.

Quote
I can accept that currencies by definition are units of account.

Okay.
But not the other way around. Anyway this is only important for our ripple discussion.

Quote
Quote
I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.
Many people today, including me, claims that short-term thinking can destroy our society, even make or species disappear.

That's not een a good dodge.  I ask again, by what reason (logic) to you make such a claim?  Because you think so, because someone you listen to thinks so?  Do you even have a reason, or is it just anouther form of religious belief?
I thought that you probably would be opposed to short-term thinking. But you're right, we're entering the morals field here.

Quote
Anyway, what I claim here is that the medium of exchange should not influence our time preference, it should let us decide. For that interest rates should be zero.

Why?  Why should they be zero?
Why should htey be any particular number?
The must be zero to be time-preference neutral.

Quote
And I also claim that time preference (like interest) is a consequence of the structure of money the medium of exchange and therefore cannot be an explanation of interest.
Time preference and interest are both consequences of the same cause, not one the cause of the other.

I don't agree, but it's still illrelevant.  Why is suppressing the interestes rate or the time preference ideal?  Why isn't natrual money ideal?  Why wouldn't establishment of a cryptocurrency that mimics natural money be ideal?  You ahve no support.
You can't suppress the time preference, each person has his own depending on his circumstances. I'm trying to prove that time preference the way austrians think about it is a consequence of interest and cannot be its cause.
If there's moneys mediums of exchange with interest at zero, the time preference for them is not the same as with commodity-money. Therefore, a universal pro short-term time preference for all mediums of exchange cannot be the cause of interest.
 
Also, why commodity-money is more "natural" than so called "virtual" money?
Is not even the first form of money:
http://www.nakedcapitalism.com/2011/08/what-is-debt-–-an-interview-with-economic-anthropologist-david-graeber.html

Quote
Good to hear that last part.
So if worgl (or any other city administration today) had decided to store the "cover" national currency instead of lending it, how would have the stamp script destroyed the local economy?
Would it have made people pay taxes in advance and would had it be as good for employment?
Why not?


Honestly I don't know.  And neither do you, and that is my point here.  It is a fatal conceit to believe that you can design an economy.  You might just luck into a partial success, but I think that your errors of though are predictable, and will lead to a great many tears.

I don't pretend to design an economy, only fix a technology/agreement that I call medium of exchange when talking to you and others commodity-money believers and money when talking to the rest of the people.
What I was asking is how demurrage will cause those many tears.
You say that it won't ever acquire any value, it can't cause any sorrow.
 
But it will have some value even if it is very small. If the maximum base of freicoin is 1 billion, I can put a bid to buy all the supply for 10 btc at a 1 fcn = 1 satoshi.
Now bitcoin miners can sell the freicoins they merge-mine to me. Bit-pay can also accept freicoins and sell them automatically for bitcoins or USDs.
We have merchants accepting them and more people can accept the currency. 1 satoshi will be their minimum price. If bitcoins become too expensive, I will buy them for USDs or EURs at a similar small price until its monetary value starts to rise.

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 30, 2011, 07:57:20 PM
 #53

I was referring to your expectation that I was trying to prove time preferences.  You jsut lost a little more respect.
Sorry, I though I had said acid-proof or something and you were rebating that. My fault, I misunderstood you.
But I think I've showed respect, even when I've tried to make you understand ripple in a wider sense and you sighed.
With your gold example you weren't trying to prove time-preference but that durability is a necessary requirement for the medium of exchange.

I was upset, I apologize.

Quote
•Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
If money must, the medium of exchange doesn't have to be time-resistant. I guess you also disagree here.


Actually I don't.  I think that your belief that you can have a separate store of value and medium of exchange is not only correct, but the default condition under all fiat currencies.  What I object to is the idea that, even if I agreed that you can guess what the proper demurrage rate should be to suppress market interest rates and built a currency around that assumption, the conditions would be different in ways that cannot be predicted in a relatively short period of time.  Said another way, even if your general assumptions are correct, you cannot possiblely know how to arrive at the 'proper' rate.  No one knows this stuff, that is the root of the errors of central banking in general.

Quote
•Portable: Good money needs to hold a high amount of 'worth' relative to its weight and size;
That has a lot to do with rarity. But more or less we agree that a certain quantity is needed for commodity to become money. If very too rare or too common, doesn't serve.


We agree.
Quote
•Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself, starting with rarity."

He's specially funny here:
Quote from: Silvio Gesell
...money can be made out of paper which, without any kind of promise of conversion, without resting on any particular commodity (gold, for example), bears only the following inscription:
 "One Dollar" (or "Mark", "Shilling", "Franc", etc.)
 or "This Piece of Paper is in itself one Dollar."
 or "This Piece of Paper is in commerce, in State-Treasuries and in Courts of Justice legal tender for 100 Dollars."
 or, to express my meaning, if not more clearly, at least more drastically:

 "He who presents this Piece of Paper for redemption at the Bank of Issue will receive 100 Lashes (negative promise of payment).
 In the markets and shops of the country, however, the holder will receive in goods as much as demand and supply allow him; that is, as much as, by bargaining, he can make his own."

He is arguing for the medium of exchange power of a fiat currency, backed by an implicit or explict threat of force.  This is called 'legal tender' law in the US.  It is not about money.

Quote
Only commodities can solve the final characteristic requirement to any degree, and neither Bitcoin nor the US $ can do so.  Currencies are standard units, widely agreed upon by either convention or fiat.  So a coin minted from a defined amount of silver, and so stated upon it's face, is both a currency and a money.  A melted lump of an unassayed volume of pure gold is money, but it's not a currency.  I don't like how this particular article explains "intrinsically valuable", because I think that it's flawed.  I don't agree that gold or silver have any value "contained in the money itself" as such.  Value is always subjective, but the value of gold is not rooted in what a person could trade for it, but in what it was useful for (beyond a trade medium), whether or not the person who held it actually intended to do so.
If you don't accept these mediums of exchange as money, you must accept that other things that aren't money can have monetary value, which seems a contradiction to me.


Why is that a contradiction?  A public transit ticket has monetary value, but isn't money or even currency.

Quote
But assuming commodity money is the only money, what I question is that we should use commodity money as the medium of exchange. I'll accept that definition of money for this conversation, but if I accepted it forever I should agree with "resource based economy" advocates when they say we don't need money, and I prefer to disagree with them there.


It's a provable statement that money isn't necessary, but it's also proven that mediums of exchange are more efficient forms of trade over barter, and thus will always arise in some form.

Quote


Quote
Quote
I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.
Many people today, including me, claims that short-term thinking can destroy our society, even make or species disappear.

That's not een a good dodge.  I ask again, by what reason (logic) to you make such a claim?  Because you think so, because someone you listen to thinks so?  Do you even have a reason, or is it just anouther form of religious belief?
I thought that you probably would be opposed to short-term thinking. But you're right, we're entering the morals field here.

Quote
Anyway, what I claim here is that the medium of exchange should not influence our time preference, it should let us decide. For that interest rates should be zero.

Why?  Why should they be zero?
Why should htey be any particular number?
The must be zero to be time-preference neutral.

Quote
And I also claim that time preference (like interest) is a consequence of the structure of money the medium of exchange and therefore cannot be an explanation of interest.
Time preference and interest are both consequences of the same cause, not one the cause of the other.

I don't agree, but it's still illrelevant.  Why is suppressing the interestes rate or the time preference ideal?  Why isn't natrual money ideal?  Why wouldn't establishment of a cryptocurrency that mimics natural money be ideal?  You ahve no support.
You can't suppress the time preference, each person has his own depending on his circumstances. I'm trying to prove that time preference the way austrians think about it is a consequence of interest and cannot be its cause.

I think of it more of a feedback loop, but I think I see your point.

Quote
I don't pretend to design an economy, only fix a technology/agreement that I call medium of exchange when talking to you and others commodity-money believers and money when talking to the rest of the people.
What I was asking is how demurrage will cause those many tears.
You say that it won't ever acquire any value, it can't cause any sorrow.


Those tears might be yours.

Quote

But it will have some value even if it is very small. If the maximum base of freicoin is 1 billion, I can put a bid to buy all the supply for 10 btc at a 1 fcn = 1 satoshi.
Now bitcoin miners can sell the freicoins they merge-mine to me. Bit-pay can also accept freicoins and sell them automatically for bitcoins or USDs.
We have merchants accepting them and more people can accept the currency. 1 satoshi will be their minimum price. If bitcoins become too expensive, I will buy them for USDs or EURs at a similar small price until its monetary value starts to rise.


By saying that it will never rise about zero value, I mean that it can never rise above a nominal zero.  A condition that Bitcoin suffered under for over two years, and only got up to half a cent due to the large fanbase that was willing to lose all of their investements on a very risky idea.  My point is that you don't have that dedicated fanbase, and I can't see how you can attract it.  I actually might be wiling to mine your freicoin, just to see how it can work out, but I'm not willing to risk any of my own.  I do wish you better luck than Bitcoin has had, though.

"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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October 03, 2011, 07:23:45 AM
 #54

I think that your belief that you can have a separate store of value and medium of exchange is not only correct, but the default condition under all fiat currencies.  What I object to is the idea that, even if I agreed that you can guess what the proper demurrage rate should be to suppress market interest rates and built a currency around that assumption, the conditions would be different in ways that cannot be predicted in a relatively short period of time.  Said another way, even if your general assumptions are correct, you cannot possiblely know how to arrive at the 'proper' rate.  No one knows this stuff, that is the root of the errors of central banking in general.
I think that is not the only source of the errors of central banks. They never tried demurrage, that has different effects than inflation.
But you're right, I don't know the proper demurrage rate. I say that the ideal rate would suppress the basic interest, but I don't know the exact rate for that. We suspect from historical data that it must be between 3% and 5%, but it's an open discussion in the freicoin forum.

He is arguing for the medium of exchange power of a fiat currency, backed by an implicit or explict threat of force.  This is called 'legal tender' law in the US.  It is not about money.
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Yes. He thought that money must be legal tender and I disagree with him there. But bitcoin is the living proof that you can make fiat without legal tender laws.
By fiat here I mean unbacked, not "intrisically valuable". Other people don't think a currency is fiat if it is not enforced by a state.

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Only commodities can solve the final characteristic requirement to any degree, and neither Bitcoin nor the US $ can do so.  Currencies are standard units, widely agreed upon by either convention or fiat.  So a coin minted from a defined amount of silver, and so stated upon it's face, is both a currency and a money.  A melted lump of an unassayed volume of pure gold is money, but it's not a currency.  I don't like how this particular article explains "intrinsically valuable", because I think that it's flawed.  I don't agree that gold or silver have any value "contained in the money itself" as such.  Value is always subjective, but the value of gold is not rooted in what a person could trade for it, but in what it was useful for (beyond a trade medium), whether or not the person who held it actually intended to do so.
If you don't accept these mediums of exchange as money, you must accept that other things that aren't money can have monetary value, which seems a contradiction to me.

Why is that a contradiction?  A public transit ticket has monetary value, but isn't money or even currency.
That's not what I mean by monetary value. I don't mean a price. I mean value that is derived from the fact that the medium of exchange can be used for trade and not other property.
The dollar has monetary value (that comes from the fact that the dollar is a monetary instrument) but it's not money according to your definition.
According to this definition, a public transit ticket (or a bag full of oranges) doesn't have monetary value.

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But assuming commodity money is the only money, what I question is that we should use commodity money as the medium of exchange. I'll accept that definition of money for this conversation, but if I accepted it forever I should agree with "resource based economy" advocates when they say we don't need money, and I prefer to disagree with them there.

It's a provable statement that money isn't necessary, but it's also proven that mediums of exchange are more efficient forms of trade over barter, and thus will always arise in some form.
We agree here too. mediums of exchange are superior to barter, even when they're flawed.

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I don't pretend to design an economy, only fix a technology/agreement that I call medium of exchange when talking to you and others commodity-money believers and money when talking to the rest of the people.
What I was asking is how demurrage will cause those many tears.
You say that it won't ever acquire any value, it can't cause any sorrow.


Those tears might be yours.
I'll take that risk. The potential benefits for the world are worth the try.

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But it will have some value even if it is very small. If the maximum base of freicoin is 1 billion, I can put a bid to buy all the supply for 10 btc at a 1 fcn = 1 satoshi.
Now bitcoin miners can sell the freicoins they merge-mine to me. Bit-pay can also accept freicoins and sell them automatically for bitcoins or USDs.
We have merchants accepting them and more people can accept the currency. 1 satoshi will be their minimum price. If bitcoins become too expensive, I will buy them for USDs or EURs at a similar small price until its monetary value starts to rise.

By saying that it will never rise about zero value, I mean that it can never rise above a nominal zero.  A condition that Bitcoin suffered under for over two years, and only got up to half a cent due to the large fanbase that was willing to lose all of their investements on a very risky idea.  My point is that you don't have that dedicated fanbase, and I can't see how you can attract it.  I actually might be wiling to mine your freicoin, just to see how it can work out, but I'm not willing to risk any of my own.  I do wish you better luck than Bitcoin has had, though.

Yes, the value of the currency depends on its user base that, being voluntary, is not something sure.
My point is that even if its user base is small for some time, if the user base exists, the currency has some value. And some value is the only prerequisite for new users to join.
Like bitcoin, it has a long way to walk, but it's not doomed from start for having demurrage. On the contrary, it will encourage its users to transact.

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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October 03, 2011, 10:44:10 PM
 #55

Since you stated in this thread that there were flaws in the design of bitcoin (what flaw ? I am not sure; personnally I have not found any: when I discovered bitcoin, I just thought it was a beautiful construction of the human mind. Just like the first time I visited the Louvre I thought it was a beautiful building) , I feel compelled to state very forcefully that there is a fundamental flaw in the design of freicoin: it's called demurrage.
Demurrage implies setting a rate.
To determine that rate, you need to build a consensus before the word go.
Worse than that, you need a governing body to harbour the interminable discussion that would need to happen to simply formulate a consensus.
This kind of govenring boby is called a central bank, is it not ?

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October 04, 2011, 09:27:45 AM
 #56

I also think that bitcoin is a beautiful construction of the human mind. The flaw in bitcoin is the same flaw that there is in gold and USDs, which is interest.
We need to have a consensus for freicoin only before it starts, after that, if someone wants a different rate he would have to fork again.
So no, it's not like a central bank. We only dictate our "monetary policy" once, like satoshi did choosing the generation curve and the maximum monetary base. And people is free to not join if they don't like the rate. It's definitely not like a central bank.
If you don't see any problem with capital-money, you probably won't join. Or maybe you accept freicoins but sell them for bitcoins or dollars as soon as you get them.
The monetary reformists have many faces: there are gold standard advocates, people who want the money to be issued directly by the government without debt (like "the money masters" producer), mutual credit advocates (they should all prefer Ripple over LETS, but they still don't know it), just advocates for local currencies (usually related with peak oil circles), advocates for freigeld-like local currencies, bitcoiners, barter advocates, and finally a hybrid between bitcoiners and gesellians (freicoiners).
It is clear for many people that the current monetary system is flawed, but we need to discuss together what are the flaws.
There's certain things that we all identify as flaws, but there's different views about other problems.
I've been reading alternatives for monetary system for years, and I can tell you that the ongoing crises have been very good for these movements since not many people were interested in the subject before 2008. All these movements have good intentions, but we need to make the effort to understand other movements to make our fight more coordinate and effective.
Freicoin is ideologically in the middle of two schools: the austrian and the gesell/Lietaer "school". Some people don't like freicoin because demurrage reminds them to inflationary national currencies. Other people don't like it because it is not local. Other people don't like the fixed supply and are trying to define a model to have a bitcoin-like currency with stable value. I don't think that last thing is possible after I've thought a lot about it. But if they find the solution we can have two freicoins. I've learned a lot of austrian economics during last year and now I don't think that the fixed supply must be a problem for cash-money anymore. Is not a problem if you have demurrage. Otherwise you can have economic cycles and catastrophic deflation.
But again, the main aim of demurrage is suppressing interest, which causes short-term thinking and also prevents us from building all the capital we demand. Capital yields don't follow the normal market dynamics because competition is limited by the money interest rates.

I really think a synthesis of the austrian school/anarcho-capitalist/libertarians and gesellians/transition towns/permaculture movements is needed.

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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October 04, 2011, 01:24:35 PM
 #57

The monetary reformists have many faces: there are gold standard advocates..
Bitcoiners clearly fit in this category: except bitcoins remove the many drawbacks of the gold standard (most notably, central bank issuance and deflationary spiral).
Bitcoin by no means influence interest rates.
You can't prevent lenders from charging interest.
At least, with bitcoin you pull one of their argument out of the way, namely inflation of the monetary base.
The rate of demurrage in freicoin cannot be disconnected from macroeconomics indicators over time: without a governing body to maintain that rate, you run a serious risk that the demurrage rate will drift out of sync with the economy in real terms.
So if the demurrage rate is cast in concrete and cannot be adjusted, who in their right mind would adopt such a monetary system ?

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October 04, 2011, 02:04:28 PM
 #58

I'm going to play the Devil's Advocate a bit here...


The monetary reformists have many faces: there are gold standard advocates..
Bitcoiners clearly fit in this category: except bitcoins remove the many drawbacks of the gold standard (most notably, central bank issuance and deflationary spiral).


Central banking control of the monetary base, yes; deflationary spiral, no.  Assuming that an imaginary construct that is commonly described as a "deflationary spiral" actually exists, that it is a real and significant threat to a major economy, and that it's not simply the aggregate effect of many market players changing their financial stragedies to fit the new economic conditions (and therefore in their own best interests and that of the economy at large); there remains no evidence that Bitcoin, nor it's many derivitives, are immune from such a deflationary spiral.

More specificly, there is no evidence that demurrage would insulate Freicoin from this aggregate effect, either.
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The rate of demurrage in freicoin cannot be disconnected from macroeconomics indicators over time: without a governing body to maintain that rate, you run a serious risk that the demurrage rate will drift out of sync with the economy in real terms.


I have already brought this up, and he quite literally can make an educated guess as the best demurrage rate to set, and let it run.  If it's impossible to change, the currency will either succeed or fail entirely on it's own.

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So if the demurrage rate is cast in concrete and cannot be adjusted, who in their right mind would adopt such a monetary system ?


I tried to argue an internal ruleset that would allow the active saver to partially avoid the demurrage, which would have had similar effects as to what I believe you are arguing for.  However, he is unconvienced of the value of an avoidable demurrage fee.

"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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October 04, 2011, 03:20:46 PM
 #59

The monetary reformists have many faces: there are gold standard advocates..
Bitcoiners clearly fit in this category: except bitcoins remove the many drawbacks of the gold standard (most notably, central bank issuance and deflationary spiral).
I made a difference between them because I think the difference is there. There's people who believe that bitcoin cannot be money (nor the medium of exchange) because it has no "intrinsic value". They share the libertarian root with bitcoiners, but they fail in this common Austrian dogma. I don't like the term deflationary spiral. I prefer "liquidation phase accelerated by deflation". If you accept that economic cycles are a byproduct of interest, then freicoin is supposed to solve this.
If you're worried about "increase in hoarding" (or demand for savings) caused deflation, then freicoin pretty much solves it by discouraging hoarding.
If you're only concerned about growth caused deflation, freicoin can stand a price deflation as high as the demurrage rate (or lower) without favoring money-capital over real capital.
I think you just mean bitcoin solves the divisibility problems of gold.

Bitcoin by no means influence interest rates.
By giving money holders a privilege (the power hold money indefinitely for free), it allows them to charge the basic interest (without providing any service in exchange).

You can't prevent lenders from charging interest.

No, but I can remove the superior position they have when negotiating. My means are totally different from those of Bernanke.

At least, with bitcoin you pull one of their argument out of the way, namely inflation of the monetary base.
This is very important. Not many of the monetary reformists understand this problem like Austrians do. In particular, the debt-free money advocates who want the government to issue money through spending, ignoring completely the problems with inflation as a way of taxation. They like Lincoln and the greenbacks. Yet we share with them the will to end the fed.
But what's even more interesting from bitcoin is the way it solves the inflation problem.
It's the main strength of bitcoin: removing the central authority. Other monetary reformists don't have a tool for really decentralized money (or currency). Both LETS and freigeld-like local currencies need a central authority. Even if its run by people with good intentions now, people is corruptible.
Ripple solves this for LETS (and also its scalability problems) but LETS advocates claim that Ripple doesn't promote local exchange. That is false, because anyone will probably have more liquidity in your local area just for the trust relationships that exists there.
The only way to go for freigeld currencies is the block chain in my opinion.

The rate of demurrage in freicoin cannot be disconnected from macroeconomics indicators over time: without a governing body to maintain that rate, you run a serious risk that the demurrage rate will drift out of sync with the economy in real terms.
So if the demurrage rate is cast in concrete and cannot be adjusted, who in their right mind would adopt such a monetary system ?

If our assumption that the basic interest is almost constant through history is true, we can have a fixed demurrage rate. I still think it is hard to determine it even with lots of statistical and historical data.
Most freicoiners don't complain about a fixed demurrage rate but about a fixed monetary supply. They want something like stablecoin with no central authority but dynamic supply. I just don't think that is feasible.
While I discuss with bitcoiners the problems of deflation and interest, I discuss with freicoiners about the fixed monetary base. Is not something that many gesellians will accept. Gesell promised the stable prices the capital-money central bankers can't have.
I'm afraid most gesellians aren't as libertarian as he was. He needed the government (or a central bank) to issue his freigeld because there really wasn't another alternative back then. He didn't like government intervention much, he just thought that was the only way money could be agreed upon, he didn't knew the block chain.
I must say that Gesell's solution didn't look very well lately for me (in favor of LETS, that I was choosing as the better alternative for central money and interest). Then I discovered bitcoin and (almost at the same time) Ripple. I substituted LETS with Ripple instantly and freicoin really came from the necessary reward for miners in a proposed chain hosting decentralized ripple.
Other gesellians that get know bitcoin automatically think about freicoin (the concept, not that they hear my proposal).
But bitcoin is a complex (and for some people scary) concept that even technical people need time to assimilate.

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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October 04, 2011, 04:02:19 PM
 #60

I've considered this more, and still think that a partially avoidable demurrage fee is ideal for your goals, even if that is more difficult to impliment.  Perhaps there should be a grace period for recently mined Freicoins, but not one dependent upon the velocity, such as a grace period after a transaction like I proposed some months ago.  Say that the freicoin blockchain can identify coins that are less than 6 months old, even after transactions mix and divide them.  I don't even know if this could be done, at the scale that the blockchain would have to track them.  But imagine that a miner gets a standard block reward plus demurrage reward.  The demurrage reward isn't graced, but the standard block reward (as the currency is increasing) gets to avoid demurrage.  Perhaps it would work like this...

The miner either provides two different addresses to keep the two rewards from mixing, or one with the intent of mixing those rewards.  Once mixed with other coins inside of an address, the grace period is 'dilluted'.  There are two ways that this could be done.  One, by reducing the time period of the grace by a ratio directly relative to the percentage of graced coins to old coins within the address.  Two by a similar ratio to the actual percentage of demurrage.  I don't know which method would be easier to impliment, but the results would be similar.  The graced coins would be preferred by savers, but not by those who simply desire to spend.  Thus there would be a method for savers to partially avoid demurrage fees against their savings, by either personally operating a mining cluster or by contract arrangements with miners.  There would likely be a small premium for graced coins on exchanges, and that premium (adjusted for the mixing of coins and their age) must (if I understand the logic correctly) represent the best market metric for "basic interest" that exists, thus informing all market players as to what that "basic interest" actuall is.  Once the transactions of graced coins occur, the mixing of graced and ungraced coins then becomes complicated.  If the addresses can, by default, be considered to send all ungraced coins first; it then becomes possible for address holders to keep graced coins "pure" and benefit from the market "base interest".  I can't imagine how the grace period discount could be implimented in software, but then I'm not either a programmer nor a math expert.

"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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