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Message 5292
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| Subject: | Re: [socialcredit] Re: [chdouglas] Public-spirited Banking (was: Re: The Abolition of Interest on Loans) | | Date: | Tuesday, March 18, 2008 08:19:06 (-0700) | | From: | keith wilde <kwilde @...............org>
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OK, thanks. The usual implication when someone invokes the quantity theory is
that an increase of money supply must necessarily increase general price levels.
It's unusual to have the discussion start with the assumption of a fixed money
supply and to then work on the other elements of the relationship.
Peter
Hogwood <p_t_hogwood@yahoo.com> wrote: Keith, the way I understand it, the
quantity theory is
that there is some measurable quantity of money,
that
constitutes the totality of money, such as a mass of
gold or silver coins,
or bank notes, and that the
importation or minting of say, additional gold
or
silver coins, or printing additional banknotes will
affect the general price
level without affecting the
real factors of production. That is to say, any
mass
of money will support any volume of production
and
consumption, in continuous circulation. Inflation
will distort accounting
numbers but will have little
effect on real factors, although the ownership
and
control of the real factors may well change from
person to person because of
the distortion in the
numbers. Historically, the alternative theory was the
"real
bills doctrine" which is more akin to the modern
creditary theory, although the
real bills doctrine
contains errors in respect to modern theory. Today,
most
transactions involve bank deposits created by the
banks, which do not perpetually
"circulate" like
tangible or quasi-tangible coins or bank notes. But
rather, are
issued as "tickets" by firms through
"investment" with accommodation by banks in
the ticket
metaphor, which are redeemed and thereby effectively
canceled at the
point of retail through sales to final
consumers. The flux of investment by firms
and the
reflux through sales parallels the flux and
reflux of
deposits from and to the banks through lending and
amortization,
which accommodate the process through
financial services supplied to firms and
consumers.
Incidentally, the many recent actions of the Federal
Reserve, as for
example with Bear Stearns, indicate
that policy makers at the Fed, when push
comes to
shove, do not believe in the quantity theory, though
they pay lip
service to it during more "normal" times.
Practical lessons learned, I believe,
from the Great
Depression.
I am informed that you are a professional economist.
I would appreciate your further comments.
Peter
--- keith wilde wrote:
> Hi
Peter,
>
> You say below that
> "the theorem that loans create deposits which
>
function as money...is contradictory to the quantity
> theory that there is
inherently a scarcity or
> limited quantity of money."
>
> I find that a very strange statement of the
> quantity theory. Can you
explain or cite an easily
> accessible exposition, please?
>
> Keith Wilde
>
>
Peter Hogwood wrote:
> "Peter, You only left out two components--the time
>
value of money and opportunity for other
> investments..."
>
---------------------------------------------------
>
> Then, I take it, you do
agree with the three
> components that I listed.
>
> The time value of money
theory is related to the
> quantity theory. The concept of opportunity cost to
>
loans advanced is also related to the quantity
> theory.
>
> The more modern
position is expressed by the theorem
> that loans create deposits which function
as money,
> which is contradictory to the quantity theory that
> there is
inherently a scarcity or limited quantity
>
of
> money.
>
> In the more modern view interest is fully explained
> by
> the
three components that I listed, which are
> payments
> for financial services
rendered by banks to the more
> general economy.
>
> I would value your reply.
>
> Peter Hogwood
>
>
>
> --- Claudette Konola wrote:
>
> > Peter,
> > You
only left out two components--the time value
> of
> > money and opportunity for
> > other investments...
> >
> >
> > On Mon, 17 Mar 2008 09:43:13 -0700 (PDT)
>
> Peter Hogwood
> wrote:
> > > There is a significant false premise to your
>
> argument,
> > > Ardeshir.
> > >
> > > "So what would be reasonable in your
view, given
> > that
> > > it takes your people at most an hour to do the
>
> > paperwork, and after that, there's nothing more
> > for
> > > you to do but
collect my monthly payments?"
> > >
> > > The false premise here is that the
>
administrative
> > > expense in granting loans is the only expense
> > incurred
>
> > in granting loans. The components of interest
> are
> > 1)
> > > the
insurance premium to cover loan defaults,
> > which is
> > > by far the largest
component of interest
> received
> > by
> > > the banks; 2) the administrative
expense,
> salaries
> > and
> > > wages paid by banks, etc. and other ordinary
>
> business
> > > expenses; and the final and least component: 3)
> > the
> > >
net profit from banking.
> > >
> > > The default or risk premium varies by
borrower
>
> risk
> > > category. In every risk category the borrowers
> > pay to
> > >
compensate the banks for defaulted loans within
> > the
> > > risk category.
Therefore, higher credit risk
> > > borrowers pay higher interest rates than
lower
> > risk
> > > borrowers.
> > >
> > > Peter Hogwood
> > >
> > >
> > >
>
> >> On Sun, 16 Mar 2008 13:58:25 -0400 Ardeshir
> Mehta
> > > wrote:
> > >>
>
> >>> On 16-Mar-08, at 8:31 AM, Claudette Konola
> > wrote:
> > >>>
> > >>>>
So, if nobody pays interest on loans, what is
> > > going to motivate those who
have money to let
> > > somebody who needs money use it?
> > >>>
> > >>> WHY
WOULD BANKS LEND MONEY TO ANYONE IF
THEY
> > COULD
> > > NOT CHARGE INTEREST?
> > >>>
> > >>> Well, I am not
against banks making a
> reasonable
> > > amount of money for taking the trouble
to issue
> a
> > loan
> > > to us. Call it a "reasonable profit on a
> >
transaction"
> > > , for example. If the bank that lends us $25,000
> > to
> > >
buy a car were to say: "We are willing to lend
> you
> > > this money, but we
would have to make a
> reasonable
> > > amount of profit out of the transaction"
, I'd
> > say:
> > > "Okay, fine. So what would be reasonable in your
> > view,
>
> > given that it takes your people at most an hour
> to
> > do
> > > the
paperwork, and after that, there's nothing
> > more
> > > for you to do but
collect my monthly
payments? A
> > law
> > > firm might charge me, let's say, $500 per hour
> at
>
> the
> > > outside: so, does $500 seem reasonable to you?"
> > >>>
> > >>>
It sure does to me. Does it not to YOU?
> > >>>
> > >>> But does TEN TIMES as
much sound reasonable to
> > you?
> > > WHICH law firm, no matter how
prestigious, will
> > charge
> > > you five GRAND an hour? And yet banks get
away
> > with
> > > this, and more, every day of the week!
> > >>>
> > >>> However,
there's another way banks can make
> > money
> > > on loans: they can look upon
it as an
> investment,
> > and
> > > share in the profits of that investment. If
a
> bank
> > > issues a loan to a company, that company will,
>
of
> > > course, use that money to expand its operations,
> > and
> > > thereby
make profits. The banks can stipulate,
> in
> > the
> > > loan contract, that
they will get a share of the
> > > profits.
> > >>>
> > >>> The same thing can
apply to a mortgage. If you
> > buy
> > > a house today for $200,000, and in
order to buy
> > it,
> > > borrow $100,000 from the bank, and if after a
> >
year,
> > > because of market forces, the value of your
> house
> > > increases
by, say, 3%, the bank can stipulate
> that
> > it
> > > will get a 3% increase on
the next year's
> monthly
> > > payments. That seems fair enough, because it
>
isn't
> > as
> > > if you did something yourself to cause the value
> > of
>
> > the house to rise. It was just your good luck.
> > >>>
> > >>> Of course if
that's the way the bank wants to
> > > structure the loan, then if the value of
the
> house
>
=== message truncated
===
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