3 ms·

It is a tax. It actually occurs the moment anyone takes out a loan in a fractional reserve system. The money is created from nothing at that moment. Government

It is a tax. It actually occurs the moment anyone takes out a loan in a fractional reserve system. The money is created from nothing at that moment. Government just tends to borrow huge sums of money through this mechanism.

nazgulnarsil 13y ago
Thinking that loans are evil is where misean ideology really breaks down. If you give me a piece of paper that says you will pay me X dollars a month for Y months, that piece of paper has value depending on how likely you are to honor the obligation.
- jswinghammer 13y ago
  Loans are not evil and I will challenge anyone who suggests that Mises or any other Austrian believes so. That loans under a fractional reserve constitute fraud is something that is debated a bit. I think at this point the consensus is that it does constitute fraud and should be illegal.
- retrogradeorbit 13y ago
  In exchange for that piece of paper (promising money later), you have given me money now. The difference in what you have given me and what will be repaid is interest. It is the price of money and its purchasing power transferred through time, and it is the reward for lending. Now imagine your scenario where you go with your saved money looking for borrowers (people willing to write you that promissory note). But no one is willing to write you that promissory note, because the banking system is willing to lend to them whatever they want with a value of X so low that you find it not worth the risk. In fact the value of X is presently less that the pace of inflation (negative real interest rates). So now all the baby-boomers with their life savings can't earn a penny on it while bankers with printed fiat front run them in the money market. Inflation may be good for those excessively leveraged in debt, but it is equally bad for all those who have saved and are investing their earnings. It perversely rewards the over indebted and punishes the prudent saver. Interest rates ideally should be set by the market. In times of excess capital to invest, rates would be low. In times of capital tightness, rates would rise. In this way rates are a measure of the health and state of the capital and investment markets. Interest rate mechanisms are now so completely corrupted that there is not market mechanism left. Rates are not a measure of the economy any more, they are miss-set centrally and then the entire market distorts around them.
- dpatru 13y ago
  Counterfeiting money is evil not because it hurts the counterfeiter, but because it takes away wealth from everybody else. Whatever the counterfeiter buys that is in limited supply, the rest of the people have to do without. To the extent that debt resembles counterfeiting, it is evil. Here's an example: suppose you want to buy a prime waterfront property which is offered for auction. You've worked hard, saved your money in the bank, and you finally have enough deposited to make a substantial offer. At the auction, you meet Joe. Joe also wants the property. Joe hasn't saved as much money as you have, but he has a line of credit from the bank, a line of credit made possible because the bank is using your on-deposit money as a reserve against which it can loan out new money. Whether or not you win the auction, the price of the real estate is higher than it would otherwise be because of Joe's ability to bid against you. This seems wrong. Why should the fact that you saved money enable a non-saver to drive up your prices? Note that without fractional reserve banking, Joe's line of credit would be backed by money deposited for a term. So the saver's prices should not be affected by the borrower, because the while the borrower is using the money, the saver has agreed not to use it. Under 100% reserve banking, a depositor never has to bid against his own deposits.
  - nazgulnarsil 13y ago
    So the seller of the home deserves to sell for a lower a price because you want to ban certain types of private contracts between the seller, the bank, and joe?
    - gaius 13y ago
      The seller of the house can choose between X dollars, or more dollars that are worth less in purchasing power anyway. The price changes but the value is the same. You can't spend dollars for which there are no goods, nor can you sell goods for which there are no corresponding dollars, so price and value always converge.
      - nazgulnarsil 13y ago
        No, the value that Joe wishes to exchange for the home is higher.

nazgulnarsil 13y ago

Thinking that loans are evil is where misean ideology really breaks down. If you give me a piece of paper that says you will pay me X dollars a month for Y months, that piece of paper has value depending on how likely you are to honor the obligation.

jswinghammer 13y ago
Loans are not evil and I will challenge anyone who suggests that Mises or any other Austrian believes so. That loans under a fractional reserve constitute fraud is something that is debated a bit. I think at this point the consensus is that it does constitute fraud and should be illegal.
retrogradeorbit 13y ago
In exchange for that piece of paper (promising money later), you have given me money now. The difference in what you have given me and what will be repaid is interest. It is the price of money and its purchasing power transferred through time, and it is the reward for lending. Now imagine your scenario where you go with your saved money looking for borrowers (people willing to write you that promissory note). But no one is willing to write you that promissory note, because the banking system is willing to lend to them whatever they want with a value of X so low that you find it not worth the risk. In fact the value of X is presently less that the pace of inflation (negative real interest rates). So now all the baby-boomers with their life savings can't earn a penny on it while bankers with printed fiat front run them in the money market. Inflation may be good for those excessively leveraged in debt, but it is equally bad for all those who have saved and are investing their earnings. It perversely rewards the over indebted and punishes the prudent saver. Interest rates ideally should be set by the market. In times of excess capital to invest, rates would be low. In times of capital tightness, rates would rise. In this way rates are a measure of the health and state of the capital and investment markets. Interest rate mechanisms are now so completely corrupted that there is not market mechanism left. Rates are not a measure of the economy any more, they are miss-set centrally and then the entire market distorts around them.
dpatru 13y ago
Counterfeiting money is evil not because it hurts the counterfeiter, but because it takes away wealth from everybody else. Whatever the counterfeiter buys that is in limited supply, the rest of the people have to do without. To the extent that debt resembles counterfeiting, it is evil. Here's an example: suppose you want to buy a prime waterfront property which is offered for auction. You've worked hard, saved your money in the bank, and you finally have enough deposited to make a substantial offer. At the auction, you meet Joe. Joe also wants the property. Joe hasn't saved as much money as you have, but he has a line of credit from the bank, a line of credit made possible because the bank is using your on-deposit money as a reserve against which it can loan out new money. Whether or not you win the auction, the price of the real estate is higher than it would otherwise be because of Joe's ability to bid against you. This seems wrong. Why should the fact that you saved money enable a non-saver to drive up your prices? Note that without fractional reserve banking, Joe's line of credit would be backed by money deposited for a term. So the saver's prices should not be affected by the borrower, because the while the borrower is using the money, the saver has agreed not to use it. Under 100% reserve banking, a depositor never has to bid against his own deposits.
- nazgulnarsil 13y ago
  So the seller of the home deserves to sell for a lower a price because you want to ban certain types of private contracts between the seller, the bank, and joe?
  - gaius 13y ago
    The seller of the house can choose between X dollars, or more dollars that are worth less in purchasing power anyway. The price changes but the value is the same. You can't spend dollars for which there are no goods, nor can you sell goods for which there are no corresponding dollars, so price and value always converge.
    - nazgulnarsil 13y ago
      No, the value that Joe wishes to exchange for the home is higher.