Ed G, I'd love to continue debating this with you, but I'm rapidly getting
beyond my depth, if I ever had any. In a response to Arthur you cite
Boreham and Bodkin, both of whom are far far more expert than I. I would,
however, still contend that, in a large complex economy like Canada's, both
the value and supply of money, whatever shape or form it takes, are
reasonably stable from one period to the next. Through the instruments it
has at its disposal, especially the Bank of Canada but also fiscal policy,
our government can give us reasonable assurance that a dollar we have today
will be worth nearly the same a year from now.
I'd like the briefly comment on something you said in another posting:
"Some time ago, (the 60's Coyne affair) a power struggle was resolved
between the Bof C and the Minister of Finance by the Minister being
ultimately responsible."
I remember some of that quite well, though I'm no longer really sure of what
the issue was. I believe that James Coyne, as Governor of the Bank of
Canada, was keeping interests rates at a higher level than many critics,
including some leading economists of the time, thought he should, thereby
retarding economic growth (or so the argument went). Again, my memory is a
bit fuzzy, but I believe Diefenbaker, who was Prime Minister at the time,
put pressure on his Minister of Finance, Donald Flemming, to straighten
Coyne out. He couldn't do it. Coyne maintained his stance and his
independence. I happened to be in the gallery of the House of Commons when
Dief made a speech, famous or really infamous at the time, in which he
politically assassinated Flemming and made Coyne understand that he was
being shown the door. For those who are not familiar with him, Dief was a
masterful orator, somewhat like an old fashioned Bible thumping preacher.
The speech I heard was powerful, but ever so backstabbingly dirty. Flemming
sat there taking it when he should have got up an punched Dief out, or at
least walked out in a huff.
Ed W.
> Ed W responded to Pete
>
> At 10:44 AM 08/05/2001 -0400, you wrote:
> >
> >Pete:
> >
> >>It's fairly straightforward: imagine a world starting its financial
system
> >> from scratch, with just one bank, and no fiat money. The first person
> >> takes out the first bank loan, which is the first cash in circulation.
> >> As soon as they walk out of the bank, the clock starts ticking. As
> >> they have the only available cash, their loan is now impossible to
> >> pay back after the first minute's interest charge, unless someone
> >> else takes more money out of the bank that can be earned by the
> >> first customer to cover that interest on his loan.
>
> Ed Replied
> >OK, I think I see what you're getting at. But let's imagine another
world,
> >one in which the banking system has existed for a long time, and
population,
> >production, and the standard of living are more or less stable. There
are
> >various forms of income in this world: many people earn it by putting
> >forward labour effort (wages); others by assembling enterprises
(profits);
> >others by allowing people to use assets which they own (rents); and still
> >others by lending out surplus income (interest). A more or less constant
> >amount of money circulating through society in order to allow people to
make
> >such exchanges should be able to provide for all of these needs. I
really
> >don't see a pyramid scheme in any of this.
>
> To Ed W - when credit money is created at fluctuating interest and credit
> money is constantly being created and cancelled, the analogy of "a more or
> less constant money supply" is not apt. Additionally, your analogy does
not
> take into consideration a growing population with a growing amount of
> hggoods available. When the effects of weather on the availability of
> (agrarian) goods is considered, stability is one thing that economies do
> not have.
>
> Pete said
> >>This follows from the first observation. If you take out a loan and just
> >> hold on to the money, and then earn enough to cover the interest with
> >> money from someone else's loan, then pay it back, you haven't
participated
> >> in any debt expansion except for the money that went to pay your
interest.
> >> But if you used your loan to purchase an asset, then you must acquire
> >> all the principle plus interest from other sources, presumably in cash
> >> from other loans taken out by those from whom you earn that money. But
> >this
> >> doesn't quite seem right to me, as unless you purchase your asset from
> >> the bank, the money you've spent goes into circulation, and becomes
part
> >> of the pool from which your earnings come, which go to pay off the
loan.
> >> Thus your earnings required to pay your original loan don't necessarily
> >> directly require someone else taking out a loan to pay you those
earnings.
> >> It looks to me like the increase in debt is equal only to the amount
> >> of interest paid, plus, I guess, an amount equal to the amount of
> >> cash hoarded, and thus unavailable for circulation.
>
> To Ed W
> >IMHO, to repeat, I see interest is as a cost to the borrower and income
to
> >the lender.
>
> Agreed that money is valuable also as a "store of value" As such it can
> legitimatley attact interest. It is when money is created (and lent into
> existsnce by private corporations that are less and less regulated) that
> has not been earned and stored is where the problem lies.
>
> Ed W said:
> >In theory, all of these transfers should balance out and not require any
> >monetary expansion. In fact, however, economies expand and contract,
which
> >means that the supply of money expands and contracts as well.
>
> The pyramid was but an analogy that pointed to part of the problem, not
the
> whole problem.
> Increased populations and increasingly complex economies need an increased
> money supply.
>
> Secondly, the economy contracts as the money supply decreases( velocity of
> money, facillitation of the market) . That money supply decreases when
> less credit money is lent out than is created, by private banks.
>
> Ed W said:
> >But it is true that, historically, economies have come close to being
> >pyramid schemes. During the great crash of 1929, many investors pumped
> >borrowed money into an inflating and ultimately unsustainable stock
market.
> >The South Sea Bubble of the early part of the 18th Century was another
> >example, as was the Dutch Tulip Craze. And pyramid schemes have been a
> >source of political turmoil in Albania recently.
>
> That is what is happening now. The borrowed money that investors pumped
> into the stock market is precisely the same process that is happening now
> with deregulation. Then it was margin buying of stocks that had decreasing
> collateral value. Now it is bank lending (investor borrowing) on the basis
> of decreasing collateral value in the 'dot coms' stocks.
> >
> >> ... Disclaimer: I am not an economist, nor do I play one on TV.
> >
> >Here I can't disclaim. I worked as one for many years, but I'm probably
> >terribly out of date now, so take anything I say with a grain of salt.
>
> >Ed W
>
> Ed, I have discussed this with many and you are probably better informed
> than most economists.
> One thing that economists fail to do is utilise the Tinbergen Principal.
> Tinbergen was a physisist that turned to economics. He said that "in an
> equasion that has more than one variable, the solution must havean equil
> number of virables as the question." Since the "practice" of econiomics
is
> to reduce the number of variables, they inevitably argue against
> themsselves, or at least their proposed solutions.
>
> Kindest regards
> Ed G
>
>
> >
> >
> >
> >
>
>
>
