Let’s say we have a gold standard. There are 100 ounces of gold in circulation. You have 50 ounces of gold, thus, 50% of the gold stock. Everyone else shares the other half.
I discover a vein of gold and mine 50 ounces of gold and put it into circulation. Now, you and I each have one-third of the gold stock, and everyone else shares the other third.
You haven’t lost an ounce of gold – but now I have as much purchasing power as you do. Have you lost anything? Yes – you have lost total purchasing power, you now have only one-third instead of one-half. But you still have as much gold as you did.
Let’s say you then start to engage in lending – usury. You loan your gold, at interest – compounding interest – to the people who need it, those other people who have one-third of the gold stock.
They engage in labor, and have to pay you back more gold than you lent to them. You haven’t engaged in any work – you haven’t even taken a risk, because if they default, you can claim their collateral.
And the money supply hasn’t grown, either.
You aren’t working for your bread, you are extracting rent on the monetary supply.
Then again, why use gold as money? Why not use copper? Or paper notes?
Now let’s say you open a bank, and everyone stores their gold at your bank, in the safe, so it can’t get stolen. You issue them a ticket for one ounce of gold. Everyone just swaps the paper tickets instead of going to your bank to actually get the gold.
So you get the bright idea – how about you issue more tickets than you have for gold? You know only a handful of people at any one time are actually going to get their gold.
Well, then there is a run on the bank.
So the government steps in and guarantees all bank deposits – the Federal Deposit Insurance Company. You pay a small fee for this insurance.
Now you can print as many tickets as you want, knowing that there is a run on the bank, you’re insured by the government. And there are no more runs on the bank, because everyone knows the government has guaranteed their deposits.
So – I work, because I’m digging gold out of the ground. Everyone else works, making goods and providing services.
But you’re just a parasite, extracting economic rents.
Come to think of it – why gold at all? Instead, I could grow cotton bushes and not just make paper gold tickets, but also t-shirts and bluejeans.
So, then, you have a great idea. You open cotton accounts. Now I can store my cotton at your bank, and instead you issue a paper ticket. Then you realize you can print as many paper tickets as you want …
Banned Hipster 
It was originally bread.
https://www.bbc.com/news/blogs-magazine-monitor-34735855
“From such early forms experts deduce that “lord” derives from “hlaef-weard” – loaf-ward, or “loaf-keeper” – and “lady” from “hlaef-dige”.
The meaning of hlaef-dige is not absolutely certain, but seems to be “loaf-kneader” with the last part being related to “dough”.”
And then we call loot “dough”, so there you go.
It’s why Saturn is such a dick.
It’s the oldest hustle.
LikeLike
When you loan your gold it’s legitimate to demand interest:
i) as recompense for the risk that the collateral might be insufficient
ii) for the opportunity loss of not having that gold at your disposal to invest or spend for the life of the loan.
If I lend you my car, not only do I risk not getting it back, but also I’ve got to catch the bus in the interim.
“Usury” is without meaning. If I lend to someone who I deem to be unreliable, I may well demand a far higher rate than would be the case if the debtor were reliable.
What is illegitimate is being able to create money out of thin air and charge interest on that money. That’s a unique privilege governments accord to themselves and their commercial banks. I suspect the money-changers that infuriated Jesus had, in fact, loaned out money deposited at the Temple for safe-keeping. Fractional-reserve banking, in other words.
And yes, if I find a new gold deposit, the money supply grows and existing gold-holders lose purchasing power. But given the physical difficulty of extracting metal the inflationary impact of mining is negligible. Even the inflation that New World silver mining delivered to Imperial Spain was minimal compared to today’s paper money standards. (I’m tempted to say around 2% p.a at the height of the New World boom, but this is going by memory).
Far better to have no government price-fixing and let the public choose the best currency. Gold, silver, copper, whatever. No price-fixing, no Gresham’s Law, and good currency will drive out bad.
LikeLike
@bob saffon
> When you loan your gold it’s legitimate to demand interest:
That’s a normative statement. You can make it, but it is a moral claim, not a technical claim.
> as recompense for the risk that the collateral might be insufficient
How is it legitimate to loan more gold on insufficient collateral? The point of collateral is to mitigate the risk. In fact, why the “loaning” at all? Why not just trade your gold for the collateral, then if both sides want to reverse the transaction, they can.
You claim it is legitimate – every religion from time immemorial says it is not. In fact, usury has been associated with homosexuality from time immemorial too.
> for the opportunity loss of not having that gold at your disposal to invest or spend for the life of the loan.
No one forced you to make a loan, nor sell your gold.
> But given the physical difficulty of extracting metal the inflationary impact of mining is negligible.
This is just special pleading. “Physical difficulty” has nothing to do with the inflationary impact – inflation is based on the quantity. “Physical difficulty” is relative. 500 years ago they didn’t have mining machines. Now gold mining is a lot less physically difficult. So should we ban mining machines because that tends to lower the difficulty to near printing money out of thin air?
Who owns the gold when it is in the mine? You know how ownership of the copper mines were granted? When I read that story, I practically became a Wobbly. Despite libertarian pretense, it’s all based on state power.
> If I lend you my car, not only do I risk not getting it back, but also I’ve got to catch the bus in the interim.
You can always not lend your car. This argument is on the level of “love is love” so therefore homosexuals are just the same as heterosexual. A car is not money, so you are obscuring the morality of one thing by making a spurious comparison to something else.
> “Usury” is without meaning.
No, it does have a meaning.
> What is illegitimate is being able to create money out of thin air and charge interest on that money.
“What is illegitimate is making the distinction between heterosexual and homosexual marriage.”
How is it any different? “It’s unfair to decrease my share of the monetary stock by mining more gold.”
You are just making moral judgements. Fine. But not everyone agrees with your morality.
> Far better to have no government price-fixing and let the public choose the best currency.
People have already voted with their feet, so to speak: government regulated fiat via bank deposits and electronic POS transactions.
LikeLike
That’s a normative statement. You can make it, but it is a moral claim, not a technical claim.
Bingo. Much of the “leftist” argumentation seen online involves the conflation of normative with positive; “ought” with “is.” It’s not always clear how much of this is driven by simple ignorance/ fuzzy reasoning, and how much is deliberate bad faith.
His seems to be more of an ostensibly anarcho-capitalist/ lolbertarian/ Rosenbaumian perspective, but it’s the same tactic.
Also, the way he phrases this:
What is illegitimate is being able to create money out of thin air and charge interest on that money. That’s a unique privilege governments accord to themselves
seems more than a little disingenuous. Sure, issuing/ backing currency is (or should be) a basic sovereign function of government* — but charging interest is a central bank function under the current system. The government doesn’t have to create debt via a [supposedly] third party/ “private” intermediary in order to issue new currency/ increase the money supply — that’s a function of the way the system is currently constructed, not a law of physics.
*Much of the reason that people believe in the validity/ worth of a particular form of money is that it represents/ is backed by sovereign power. Every government in history has collected taxes, and whatever unit of account/ standard of deferred payment that a government chooses to employ for the assessment of those taxes… IS money, in a very real sense. If the government says you owe 300 empty Coke cans worth of taxes — then empty Coke cans ARE money, and you’d better come up with those Coke cans or you’re going to jail, no matter how much you blabber about “muh markets” and what money “should” be. And if people owe taxes denominated in empty Coke cans, they’ll be willing to accept payment in empty Coke cans. Of course, the response to that will be “Yeah, but REAL anarcho-capitalism has never been tried”…
What was that line from (((Hyman Minsky)))? Something like: “I>Everyone can create money — the problem is to get it accepted.”
LikeLike
Reblogged this on muunyayo .
LikeLike
I’ve been reading your blog for years. You do a tremendous job!
LikeLike
Good write up. I reccomend: https://www.bookfinder.com/book/Real_Money_versus_False_Money_-_Bank_Credits/1410104729/
He was the only one to face Warburg on his lies concerning stupid intrinsic value.
LikeLike
Lending at interest is like a sword in the stone; if you don’t pick it up and start cutting down pretenders, someone else will pick it up and cut your head off instead.
Seignorage is a powersource, a very *kingly* powersource, and no throne goes unoccupied; where a man does not take his seat in it, daemons will in his stead.
LikeLike
The Virginia colony used tobacco receipts due to lack of silver bullion: you delivered your tobacco to a warehouse, got a receipt that was used for money.
LikeLike
The Fed holds 4.5 trillion in US treasuries (2.5 trillion added since COVID). The interest (less expenses) on that debt is remitted back to the Treasury. So Fed/Treas has issued 4.5 trillion in essentially interest free money. The fact that it is called “debt” is of no consequence. It just gets rolled as it matures and there’s no way to force payment. If they did it would be equivalent to retiring greenbacks.
The greenbackers’ dream has been implemented. How has that worked out for the little guy?
LikeLike
@eyeslevel
> How has that worked out for the little guy?
Pretty much the same as it has always worked out for the little guy. There is not real difference to this monetary regime as any other’s. When the US decided to be the world’s reserve currency, this path was set in stone. You can’t have a strong dollar and still be the world’s reserve currency.
I the little guy wants to lose all equity in his home and 401k to allow the necessary deflation – great. But I’m guessing the little guy and the upper middle class guy isn’t ever going to allow that to happen.
So expect more money printing forever. There is literally no other option.
LikeLike
Smart money has, in anticipation of the current waves of runaway inflation in particular, and the collapse of the dollar in general, been parking itself in two main venues presently. One is real-estate, which is traditional. The other is cryptographically signed units of account using blockchain technology, which is unprecedented. (With little to no money going into gold, interestingly enough.)
Use of USD is increasingly becoming intolerable for ordinary life, as powers that supervene over the systems that use USD are increasingly intolerant of ordinary life. This point bears frequent repetition and reiteration; whether by means of accident, by means of instinctual aesthetic tendencies towards or away from certain forms, and by means of conscious invidiousness, the conduct of civilization is being choked to death by intrusive managerialisms, in a million and million different ways, great and small.
We might speak of a certain cognitive blindspot that many people, even many otherwise very thoughtful people, have when it comes to block chain technology; which is thinking of it as a merely speculative object, which could just as easily be lumps of metal, or strips of paper, or tulip bulbs, or any other interchangeable placeholder.
There are many shitcoins that are specifically designed and intended to be speculative placeholders; but blockchain is not shitcoins, blockchains are infrastructure.
Non-player characters, including non-player characters placed into offices of power, are driven by normalcy bias when looking at this issue. They see ‘crypto’ as simply another set of the same sort of pieces, like any other old piece, that people are using to play the same old game. But the telos inherent to use of blockchains is radical, in the technical sense of the term; that ‘the same old game’ as it exists is impoverished (or rather, impoverishing), and so that the more it can be rendered irrelevant, the more value is gained.
It should be emphasized that if you have any value stored in USD (yes, you, reading this), you are losing value, and will lose even more value as time goes on, and it will serve you will to get as much out of it as you can practically into other things. Don’t think in terms like ‘we ive already missed the big opportunities so i might as well stick it out’ or other forms of sunk cost fallacy; any time is a good time to get off a sinking ship.
Contemporary occidental financial administration is punitive to saving, cooperation, and general conduct of valuable behavior. Which creates a vacuum of a need, with cryptographic exchange protocols being one example of things sprouting up to fill that vacuum of need; such need being the value and necessity of doing end runs around systems occupied by people who at the least desire to construe various means of sucking all your capital dry, oft more broadly hate the idea of productive value creation in general (‘build back primitive’), and more particularly hate you and want you to die.
LikeLike
http://doyouneedablockchain.com/
LikeLike
‘Normalcy’ is changing fast, and changing ever faster. Dollar is a losing proposition, incumbent finance is dominated by the evil and insane, and billions, tillions, are being put into crypto even as we speak now. And that’s facts, not fiction.
LikeLike