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Sunday, July 29, 2007

Reader Mail #2 - Collected Comments

I've received several interesting comments in response to some posts. Also, I didn't fully answer all the questions raised in that car discussion forum on Reader Mail #1.1.

Some people may not go back and reread my posts after the comments were published, so I'll repost my favorite questions and responses here.

I have Google Analytics enabled for my blog. I get the most visits from California, which shouldn't be too surprising. I get scattered visits from almost everywhere. I've had visits from almost every state in the USA. In the past week, I've been getting a lot of visits from Australia. I'm up to 200 Absolute Unique Visitors, and I have something like 30-40 visitors who come back regularly.

Google has my blog in "Supplementary Results". That means that I'm probably not getting many visits from search. According to Google, pages get banished to "Supplementary Results" only if they are duplicate pages or spam pages.

According to Google Analytics, my most popular post, by a wide margin, has been The Voting Scam.

On The Voting Scam, Broadlighter asks:

Are you suggesting that 'We the People' revolt?

Yes, it's time to revolt.

I am not advocating a violent revolt. I am advocating an economic revolt. I am advocating that people develop a private monetary system. I am advocating that people develop a private contract enforcement system. I am advocating that people do productive work and not report it to the government for taxation, confiscation, and regulation. With taxation rates of 50-95%, people will see tremendous productivity gains by working in an alternate economic system. I arrive at a 95% taxation rate by considering not just direct taxes, but also indirect taxes, the inflation tax, the regulation tax, the inefficiencies of large corporations, the lower quality products produced by large corporations ("planned obsolescence", i.e. a car designed to last only 3-5 years so you'll buy a new one), and the profits/rents collected by monopolies and oligopolies.

I think a Social Credit Monetary System is most suited for this purpose. The Social Credit Monetary System does not require a centralized issuing authority in order to work. Several groups of people acting independently can set up a Social Credit system. An alternate monetary system needs to be decentralized, because otherwise the red market would use force to shut it down.

Any red market enforcement action against people participating in an economic revolt would be ridiculous. Is the red market going to start arresting people for working? That might work in other countries, but in the USA the pretense of trial by jury hasn't been completely dropped yet. In the USA, there still is the presumption that anything you do in private is none of the red market's business, provided you stay away from black market activity. Besides, grey market activity can be disguised as white market activity. Someone mowing your lawn, cooking a meal, or fixing an air conditioner is not, by itself, suspicious. Black market activity, such as growing marijuana, is much more risky.

It probably won't be possible to win a direct violent confrontation with the red market until it's obvious that it has been defeated. Currently, the red market's possession of superior resources, weapons, and numbers is too overwhelming. Maximum stealth is necessary for survival. If you operate away from the government's view, and only trade with trustworthy people, there should be very low risk of getting caught.

On The Voting Scam, Broken Ladder says:

Range Voting will solve all the problems with the current election system.

No, it won't. What right does a majority of 51% have to force me to use a corrupt monetary system? What right does a majority of 51% have to impose income taxes on me? Income taxes don't hurt wealthy people. Income taxes hurt productive people. Income taxes mean that a percentage of everything I produce goes to the bad guys. Wealthy people can use trusts and other legal tricks to avoid taxes. Wealthy people can get government perks that are worth more than the income taxes they pay. Corporations pass on their taxation expense as higher prices.

Besides, how do you plan on getting the Range Voting reform passed? I don't see it happening. You aren't going to be able to educate that many people and get them to be strong advocates for voting reform. My solution only requires educating a handful of people. I only need to educate enough people to get an alternate economic system started.

On The Voting Scam, Broken Ladder says:

Under Range Voting, you will be more satisfied with the election results. The alternatives to Range Voting are not tolerable. Third parties advocates are wasting their time until they get Range Voting.

I agree that Range Voting is the best election method I've read about. I disagree that elections are a valid means for choosing a government. There is an alternative to Range Voting reform. It is the idea that government has no legitimacy at all.

Third party advocates are wasting their time, along with major party advocates. Who needs a government at all? Advocating for a specific candidate or voting reform is a waste of time. A grassroots political campaign is like slaves petitioning their masters to be less cruel. The only thing that isn't a waste of time is building a replacement monetary system and political system.

Debating alternate voting systems is like debating how much lubricant a rapist should use. When I suggest that people should not be raped at all, everyone acts like that's a totally bizarre idea.

On The Voting Scam, TZ says:

Direct Democracy, where people vote directly on individual issues, is a workable system.

No it isn't. As above, what right does a majority of 51% have to impose stupid laws on me? A majority of 51% could impose a tax of $1000/post on bloggers.

Suppose you had a magic wand and everyone received a proper education and the media wasn't corrupt. There still would be situations where people rationally in their self-interest pass stupid laws.

On The Voting Scam, Broken Ladder wrote:

Libertarians are cool.

No, Libertarians are fools. Like all other voting advocates, Libertarians are merely slaves petitioning their masters to be less cruel. Pursuing change through the election system is pointless. Libertarians are fed up with big government. However, they haven't reached the conclusion that government itself is the problem. The Libertarian Party is designed to hold out the false hope that elections can be used to curtail excessive government power.

People already conducted an experiment with a government that had carefully limited powers. That didn't turn out so well. Once you have a government, its power only grows over time.

On The Voting Scam, TZ wrote:

The US government stopped following its original charter in 1913, with the creation of the Federal Reserve.

The Federal Reserve Act is more like a surrender treaty than a banking reform bill. The income tax is the other half of the surrender. The income tax sold all US citizens into slavery.

The US government stopped following its original charter several times:
  1. In 1861, Congress didn't have a quorum to continue operating during the Civil War.
  2. In 1913, Congress passed the Federal Reserve. Congress has the right to coin money. It does not have the right to delegate this power to a private corporation.
  3. In 1913, the income tax amendment was passed. Some people say this amendment was fraudulently ratified. Some people say that income, as defined in 1913, did not include wages as income. The legal status of the income tax is unclear; its moral status is obvious. The income tax converts all US citizens into government slaves.
  4. Selection of Senators by state legislatures was usurped by the 17th amendment, which some people say was fraudulently ratified. Originally, the House was supposed to represent the people and the Senate was supposed to represent the states. With a Senate chosen by the state governments, it would be much harder to pass laws that usurp states' rights. There was supposed to be a balanced power struggle between the Federal government and the state governments. The 17th amendment removed this balance. The Senate was supposed to be the primary advocate for states' rights.
  5. In 1933, President Roosevelt declared US bankruptcy. US citizens could not redeem their paper dollars for gold, although foreign central banks still could. Private ownership of gold was outlawed. People had to turn in their gold for worthless paper, which was an illegal seizure of property.
  6. In 1971, President Nixon declared US bankruptcy. All pretense of convertibility between dollars and gold was dropped.
  7. Pretty much every important Constitutional provision has been repealed. The requirement that only gold and silver are money has been repealed. The right of trial by jury has been repealed; defense attorneys may not remind juries of their jury nullification rights. The right of trial by jury has been repealed through biased jury selection methods. The right of habeas corpus has been repealed. The right to own a gun has been repealed, by taxation, regulation, and registration of gun ownership. Protection from illegal searches and seizures has been repealed. The right of free speech has been restricted. The right of free assembly has been restricted; government spies frequently infiltrate citizen advocacy groups. The right of a free press is gone with concentration of newspaper ownership, although the Internet is a noteworthy exception. The right to a speedy trial has been repealed; many trials drag on for years. The ban on cruel and unusual punishment has been repealed. Many of these rights were repealed via Supreme Court decisions. Others were made by executive order or acts of Congress that went unchallenged, or were challenged and upheld by the Supreme Court.

On another forum someone wrote:

Panama has no central bank.

Panama's currency is pegged to the US dollar. This makes the Federal Reserve the central bank for Panama.

Every single country has a corrupt monetary system and taxation system. The current global economic and political system is one of absolute perfect enslavement. I have yet to see an example of a country that does not have a corrupt monetary system and taxation system.

One guy on that car discussion forum mentioned in Reader Mail #1.1 said:

You don't have an MBA or economics degree. No mainstream economics book mentions the Compound Interest Paradox. Therefore, your analysis is wrong.

How do you know I don't have an MBA or economics degree? Can't you judge the validity of my arguments on your own?

An MBA or economics degree is a certificate that says you are skilled at exploiting the current defective economic system. I prefer to work in a fair economic system.

One guy at work asked me:

Suppose there really is a Supreme Leader of Humanity. Suppose you've discovered a plan for defeating him. If there actually is a Supreme Leader of Humanity, he has the capability to trace your postings back to the source and kill you. Isn't this incredibly dangerous?

How do you know that the Supreme Leader of Humanity doesn't secretly approve of my plan for a nonviolent economic revolt?

From many sources:

How could you live without a government? Government prevents someone from breaking into your house and stealing your stuff. Government prevents someone from shooting you randomly on the street.

In the USA, those two services are provided by the local government, out of local taxes. Those services are not provided by the Federal government.

Almost everyone agrees that someone who breaks into your house is committing a crime. Almost everyone agrees that shooting someone randomly on the street is a crime. That is true under any political system that isn't run by complete fools. It is even mostly true under political systems that are run by complete fools, such as the current system.

The problem is the subtle crimes that government encourages. The theft of your savings via inflation is a crime. A massive government subsidy to the financial industry and large corporations is a crime. The theft of your labor via income taxes is a crime.

Further, the government has NO OBLIGATION to protect your property or your safety. If someone breaks into your house, the government will try to catch the thief and recover your property. If the government fails to catch the thief or doesn't try too hard, there is no penalty for the government. If someone assaults you on the street, there is no obligation for the government to try and catch the crook. The government does the best it can to stop obvious crimes, but it is under no obligation to do so. That is one of the reasons why the right to bear arms is important.

Suppose I hired the services of a private police force. If someone robbed me, the private police force would be responsible for tracking down the criminal. A good private police force would replace my stolen property immediately and assume responsibility for collecting from the criminal. If someone assaulted me on the street, the private police force would have an incentive to catch the criminal. Otherwise, it would lose customers.

On many discussion forums:

A return to a gold or silver standard would be a disaster. The international bankers are hoarding all the gold and silver. A gold or silver standard would be a boon for them.

This argument is extremely stupid. Currently, the international bankers control the whole world's wealth without spending an ounce of gold or silver. Instead of controlling the whole world's economy, their influence would be limited to the actual amount of gold or silver in their possession.

Further, many central banks are selling off or leasing their gold and silver reserves. They are manipulating the price of gold and silver downward. Gold and silver prices are considered to be the standard measure of inflation. Central banks manipulate gold and silver prices downward so that people won't realize how bad inflation really is.

Even if the central banks have 99% of the world's gold and silver supply, a return to a gold standard is feasible. Anyone who suddenly appeared with a huge quantity of gold or silver would be viewed with suspicion. It is not sufficient to have gold and silver. You also need someone who is willing to trade with you.

Further, honest fractional reserve banking in a free market would multiply the gold and silver that is not under the central banks' control.

If a gold standard is beneficial for the bad guys, why would they have abandoned it? If a gold standard is beneficial for the bad guys, then why is there so much propaganda saying that a gold standard is bad?

On many discussion forums:

WAAH! Central banks are suppressing the price of gold and silver. That's not fair!

If you believe central banks are suppressing the price of gold and silver, then you should buy gold and silver. If you are unleveraged and take physical delivery, you should profit eventually. Your investment timeframe might need to be 10-20 years or longer. The laws of supply and demand cannot be tricked forever.

Actually, it is reasonable for stock investments to outperform gold and silver, at least until the red market collapses. Large corporations are the recipients of a massive government subsidy, which they partially distribute to shareholders as dividends. Gold and silver just sits there, and you have to pay storage costs or carefully conceal it. Investments in stocks and dollars will be worthless eventually. Gold and silver will have the same purchasing power, or more, after the red market collapses. Personally, I'm thinking of moving 10% of my savings to physical gold and silver, concealed in my residence.

On The Social Credit Monetary System, TZ asks:

How can you have a monetary system without a centralized issuing authority?

That is one of the false ideas that everyone has been taught. A centralized issuing authority is not needed to ensure integrity of money. Multiple competing vendors is superior. For all services currently provided by the red market, multiple competing vendors is a superior model.

The only possibility of a centralized authority would be a credit rating agency. The credit rating agency would keep track of who is trustworthy and who is untrustworthy. Multiple competing vendors is superior to a centralized authority with a monopoly. A credit rating agency could make sure its records are encrypted and distributed, minimizing the risk of an IRS raid.

Historically, any centralized money issuing authority cannot resist the temptation to cheat.

Also remember that people working under a Social Credit system will be doing so voluntarily. There is no way to force them to use the centralized issuing authority.

You are forgetting an important point. The red market has not been defeated yet. Anyone attempting to run a centralized Social Credit authority would be painting a giant bullseye on themselves. I would not trust a centralized Social Credit authority with my records, because the IRS would seize them and come after me. I might trust an authority with a list of who I considered trustworthy and who I considered untrustworthy. Such a list is still dangerous, if seized by the IRS.

Of course, many people participating in a Social Credit system may not use their real names. Anonymity is important, because of the red market threat.

That is the failure of systems such as e-gold. From time to time, the IRS seizes the assets of the e-gold vendors, making them unreliable.

Any centralized issuing authority would be, in the eyes of the IRS, a barter exchange. A centralized authority would be required to issue 1099 forms to the participants. A centralized authority would be required to report all transactions to the IRS. However, if the Social Credit system is implemented by people acting independently, there is no reporting requirement. If there is no centralized authority and the IRS seizes one person's records, it does not place all other users in jeopardy.

On The Social Credit Monetary System, TZ asks:

How would a mortgage work under a Social Credit system?

Trading a house for future wages can be implemented under a Social Credit system. If the price of a house is 30,000 ounces of silver, you would give the seller a credit of 30,000 and the buyer a debit of 30,000. The buyer would be expected to pay off the debt at a rate of 1,000 per year or other specified rate. The seller could charge interest, if desired. With non-fiat money, interest charges should be small; the free market interest rate would probably be 1-2%. If the buyer dies before paying off his debt, then the seller gets first claim to the house, if nobody else is willing to assume responsibility for repaying the debt.

With non-fiat money, housing prices should be stable. The seller would be risking much less in the event of a default.

However, buying or selling a house under the Social Credit system is probably not feasible until after the red market falls. With the Federal Reserve subsidizing interest rates, it makes sense for a home buyer to borrow from the Federal Reserve through a bank. If you anticipate a hyperinflationary crash of the dollar, a fixed-rate mortgage looks very attractive.

Also, with non-fiat money, there would be no substantial difference between renting a house and owning it. Currently, homeowners receive a subsidy from the government. Federal Reserve subsidized mortgage rates are only 6%, which is a negative real interest rate. Homeowners also get a tax writeoff for their interest expense. In a truly free market, the cost of renting a house would not be much higher than the cost of owning a house.


On The Social Credit Monetary System, TZ asks:

1. Who determines what an ounce of silver is worth?
2. Who determines how much silver is needed to trade?
3. The system's effectiveness is proportional to the level of trust. Isn't that a problem?

The value of an ounce of silver is determined by the free market. An ounce of silver is worth whatever you can trade for it. If there is a surplus of silver, prices will rise. If there is a shortage of silver, prices will fall.

There is no obligation to use silver. If you prefer gold or copper coins, you may use gold or copper. If you want to pay me in gold or copper, and I prefer silver, I'll look at the market price for gold/silver or copper/silver to decide what price to quote. Currently, I'd just use the spot prices quoted in fiat money. Later, there will be dealers who specialize in metal exchange.

It does not make sense to talk about "the price of silver" in isolation. You can mention the price of gold/silver, copper/silver, or bread/silver. The "price of silver" only has meaning relative to something else. When you talk about prices in fiat money, such as bread/$, you have a problem because fiat money is inherently worthless; there's a division by zero error.

The free market determines what supply of silver is required. I chose silver rather than gold because the gold market is more heavily manipulated than the silver market. Silver has more industrial uses than gold, guaranteeing a demand.

Under a Social Credit system, I don't even need possession of physical silver to trade. As long as there is some silver available that I can trade for, I can make silver-denominated transactions. If I have a balance of payments, I don't need physical silver. As long as the value of what I sell equals what I buy, it works out fine.

Yes, the system's effectiveness is proportional to the trust level. Untrustworthy people will be banned. A high level of trust is absolutely needed, because you need to be sure your trading partners won't rat you out to the red market. I have zero trust for the current fiat money system, so any alternative is better.

After the red market falls, the rules can be relaxed. Anonymous purchases can be made with physical metal. In a transaction, the seller must prove his trustworthiness and the quality of his product. The buyer must only show his coin. For example, if I eat in a restaurant, I need assurance that I won't get food poisoning. The restaurant owner only needs assurance that my coin isn't forged. In the present, the buyer must also prove his trustworthiness, because the seller needs to have his identity protected from the red market. On the other hand, it pays for buyers to declare their identity to sellers, in case they later want to file a claim that the product or service was defective.

If there is a surplus of silver, prices will be high and interest rates will be low, and people will prefer to hold physical silver or store it in 100% reserve warehouses. In times of uncertainty, people will prefer to hold physical silver. If there is a shortage of silver, interest rates will rise and people will deposit their silver in fractional reserve banks for the interest. If there is a shortage of silver, prices will fall and people will be encouraged to spend. Fractional reserve banks will be required to disclose their balance sheets to depositors. In the event of a bank failure, common law would hold bank management and the owners personally liable for a shortfall. If a fractional reserve bank issues loans with an average duration of 90 days, then depositors should only be allowed to withdraw 1/90 of their balance each day; that clause would only be invoked during a time of economic stress. Fractional reserve banks would advertise their interest rate, reserve ratio, and loan duration, so people could judge risk and reward.

I have thought about this carefully, and I've come to a different conclusion than what I posted elsewhere.

WITHOUT A COERCIVE GOVERNMENT, FRACTIONAL RESERVE BANKING IS NOT EVIL.

In a truly free market, a fractional reserve bank's interest charges would equal payments to depositors plus expenses plus profits. There is no Compound Interest Paradox in a truly free market. A fractional reserve bank can legitimately expand and contract the money supply to match the size of the economy. As long as the bank's loans are based on goods that are actually being produced and properly priced, the system works. The amount of bank-created money matches the size of the economy. It is necessary for there to be people capable of fairly auditing the bank's books.

When a fractional reserve bank expands the money supply, it guarantees that the labor represented by the silver equals the labor represented by the product purchased. As long as all paper promises for silver can be redeemed in silver or equivalent goods, the system works. As long as the banks are sound and openly disclose their books, the system would work.

There would be no legal tender laws forcing people to accept paper at parity with metal. If a bank's solvency was in doubt, its paper would trade at a discount to metal. If a bank was sound, its paper would trade at parity to metal.

The problem is forced taxation, payable in money that is only obtainable from a bank. Banking is not intrinsically evil. It is the conspiracy between banks and government that is evil. When there is forced taxation in money that is only obtainable from a bank, the banks have a monopoly and can impose usurious interest rates.

One problem is the limited liability corporation. This encourages dishonest behavior by bank management and owners if the bank is nearly insolvent. It pays for them to cover up their financial status, in hope of a recovery. If a bank fails with a balance of -$1 or -$1,000,000,000, it makes no difference. In either case, the owners only lose their investment in the bank. Under common law, the management and owners would be held personally liable if depositors are cheated. The limited liability corporation is an artificial creation of a coercive government.

Without the limited liability corporation, there is a natural limit to the size of a business. Otherwise, the owner would be taking undue risk if his employees were dishonest and he didn't notice. A group of small banks that mutually honor each other's paper would be more efficient than a few huge banks. With a group of small banks keeping each other honest, a single bank failure won't disrupt the entire economy.

In the Social Credit Monetary System, everyone is effectively their own bank. It will probably be necessary to operate this way for maximum stealth and safety.

Another problem is bank regulations. The presumption is that the government is auditing the banks, but this is used as an excuse to conceal information from depositors. A depositor should demand full disclosure of a bank's balance sheet. A depositor is a creditor, and creditors have the right to inspect the books of the debtors. Another problem is the "demand deposit". A demand deposit and a fractional reserve bank are incompatible. A fractional reserve bank should only promise to honor a certain % of its deposits on any given day; after that, depositors will have to wait until loan payments come in. Another problem is "bank holidays". When a bank is insolvent, it should be forced to cease operations and liquidate, either until all depositors are paid or depositors stop demanding payment. If a bank hasn't met all the withdrawal requests of depositors, it cannot issue new loans until all its depositors are paid. If depositors demand withdrawal, they would be paid as outstanding loans come due; if the bank's loans are sound, they could be sold to other banks. A government-imposed bank holiday allows a bank to still collect from others, while ignoring its depositors.

Suppose there was a truly free market, but one person happened to be in possession of all the gold. If he only offered the gold under usurious terms, then properly educated people would choose something else as money. However, government-imposed taxation, with payment demanded in gold, forces people to borrow from banks to get gold to pay taxes. If most of the gold is in the hands of a few people, usurious terms can be demanded, knowing people must borrow to pay taxes.

On The Social Credit Monetary System, TZ asks:

What happens if a group of people start improperly colluding? Government is needed to prevent one person from attaining excessive influence.

Are you paying any attention at all? There already is a Supreme Leader of Humanity. The Supreme Leader of Humanity has used government to enslave everyone else, with a corrupt monetary system and taxation system. There already is a small group of people colluding to enslave everyone else. The situation you fear has already occurred.

More accurately, the purpose of government is to prevent anyone from gaining enough influence to challenge the Supreme Leader of Humanity. The red market agents are all really working for the Supreme Leader of Humanity, even though most aren't consciously aware of it.

In the current situation, suppose group A controls the red market and is discriminating against group B. Group B is stuck. It is pointless for group B to appeal to the red market for help, because the red market is controlled by group A. We currently are in the perverse situation where group A is the Supreme Leader of Humanity and group B is everyone else.

Suppose the government has been defeated, and group A was discriminating against group B. Without the government, group B would just say "Forget about group A; let's set up our own economy. Let's trade among ourselves and ignore group A.". Since group A does not have a monopoly on violence, group B should be able to defend itself. If group A was strong enough to impose its will on group B via force, that would mean that group A was now the government. A new red market has been established. If people are stupid enough to set up a new government again after defeating it once, they deserve what happens to them.

If group A started acting like a government, people would start defecting. It would split into multiple competing groups. If group A was too powerful, everyone not in group A would unite in opposition.

I am trying to advocate for group B, where group B is productive workers who are frustrated by the current defective monetary system and taxation system.

On The Social Credit Monetary System, TZ claims:

People have the right to vote with their money.

Under an inflationary fiat money system, people are denied the right to vote with their money. With fiat money, people are pressured into spending their money before it loses its value. Under a pure gold standard, there is another option: not voting at all. You can hold onto your physical gold, knowing that its purchasing power will be preserved. You won't earn interest, but at least you'll hold your purchasing power.

Ironically, inflationary fiat money is the same as the Australian compulsory voting system. You are forced to vote; i.e., you are forced to spend your money before inflation steals its value.

There are no safe investments. All assets go up and down in price, due to inflation and deflation in the money supply. Your purchasing power is probably most preserved with gold and silver, but the fiat money price of gold and silver is subject to fiat money supply volatility. Holding physical gold or silver won't get you the fiat money you need to pay taxes.

On The Social Credit Monetary System, TZ asks:

Have you read C. H. Douglas?

Yes, partially. He correctly observes that productive capacity exceeds purchasing power. He sort of understands The Compound Interest Paradox. However, I think the name "Social Credit Monetary System" confused people. C. H. Douglas defines "social credit" as a direct payment from government to the people, spread equally over all people. He also calls it a "social dividend". This payment is meant to balance out the Compound Interest Paradox. This payment is meant to make sure that the productivity gains of a growing economy are spread evenly.

There are two reasons why productive capacity exceeds purchasing power. The first reason is the Compound Interest Paradox, which guarantees that there isn't enough money in circulation for everyone to pay back their debts. The Compound Interest Paradox guarantees that there always is a shortage of purchasing power. The problem is not a shortage of productive capacity; it's a shortage of purchasing power.

The second reason is that the Federal Reserve fixes interest rates at an artificially low level, compared to the free market interest rate. During the boom phase of the Federal Reserve induced business cycle, businesses are deluded into building factories that aren't economically worth it. Artificially cheap credit encourages wasteful spending. During the bust phase of the artificial business cycle, businesses can't find buyers for their products so they can repay their loans. There isn't enough money to go around. By statistical necessity, some businesses are forced into bankruptcy and banks confiscate their assets. By the time banks get around to selling off the confiscated assets, the economy is in the boom phase again. The banks get a good price when they sell their stolen property.

C. H. Douglas is wrong because he proposes government reform to solve a government created problem. He falls short of the correct conclusion: "Who needs a government at all?"

On The Social Credit Monetary System, TZ asks:

Have you read Louis Even?

Yes. I read his pamphlet "The Money Myth Exploded". I had read about the Compound Interest Paradox on many different websites. This was the simplest explanation I saw, although I think my own explanation is even simpler. I didn't understand the Compound Interest Paradox until I read Louis Even's explanation.

"The Money Myth Exploded" also describes a Social Credit system that is similar to my proposal. The only difference is that I start everyone with a balance of zero. The pamphlet starts everyone at an artificial balance of $200. Starting at zero is the correct approach. You should be willing to trade with people who have slightly negative balances. Also, my implementation of Social Credit does not have a centralized issuing authority.

In "The Money Myth Exploded", the problem was that the issuer of money had a monopoly, and the other workers weren't smart enough to figure out the problem. If the workers had demanded that the total interest they paid the banker equaled the banker's own living expenses, then there would be no Compound Interest Paradox. When the issuer of money has a monopoly, there is no "free market" interest rate. In a free market without government coercion and many competing banks, the free market interest rate would make sure that bank interest income equaled the bank's expenses plus reasonable profits. There is no Compound Interest Paradox in a market that is free from government coercion and has some educated workers.

The Compound Interest Paradox can only occur when the issuer of money has a monopoly backed up by government force.

On The Social Credit Monetary System, TZ asks:

Have you read Bryan Monahan?

Do you mean Bryan Monahan of the Alberta Social Credit Party? I looked at the website briefly after you mentioned it.

Like the Range Voting advocates, C. H. Douglas, and the Libertarian Party, he is a wimp. He is petitioning the government to solve a problem that was caused by government. He has not made the key realization that government itself is the problem. There is zero chance that a government will voluntarily switch to a fair monetary system, just like there is zero chance that a government will voluntarily switch to a Range Voting system. The Supreme Leader of Humanity would never allow that to happen.

Since you brought it up, I'll mention some of the websites I've found interesting.

The Mutualist Blog is pretty interesting. The author has also come to the conclusion that government itself is the true problem. I sometimes take his topics and repost them in simpler form.

Agorism.info has some interesting stuff. Most of it is pretty basic, but some of the links are interesting.

Recently, I've been reading Dr. Antel E. Fekete. His posts are on a gold investment advocacy site. Some of his stories are interesting. I couldn't find any references to "Discount House" or "Acceptance House" elsewhere. His "Discount House" economic model is logically equivalent to the Social Credit model I suggest, except that interest would be credited/charged on all nonzero balances. I don't think that interest should be charged on small balances among frequent trading partners. I liked the story about how the Bank of Portugal got cheated by counterfeiters in the late 1920s; I have an upcoming post on that.

On The Social Credit Monetary System, TZ says:

When you suggest a complete abandonment of the current economic and political system, you are throwing out the baby with the bathwater. It is possible to patch up the current economic and political system.

Are you saying that you see the current economic and political system as a baby who needs a bath? Your vision is really bad. I see an old man who fell and broke his neck while taking a shower. Am I the only one who noticed that everyone else is wasting their time washing a corpse? Even more ridiculous, this corpse has been dead since 1913.

3 comments:

BROKEN LADDER said...

You're taking a lot of things out of context, or just altogether misunderstanding them.

You and I (both anarcho-libretarians, it appears) may not like the idea of taxation, for instance. But with opposed factions, socialist-leaning and libertarian-leaning, neither side is going to get its way. What we can do, however, is at least use a system that maximizes our happiness. This is where game theory comes into play.

Range Voting solves things like the spoiler dilemma, and favorite betrayal. It fixes all the major pathologies of the other voting methods that have been proposed over the years. Will it give you a perfect free market and eliminate taxation? No. But NOTHING you can do will accomplish that (save for moving to another planet). So, we might as well get as much satisfaction as possible from this collectivist species we're part of.

FSK said...

Range voting is the least defective election system.

I say that voting is not a legitimate means for choosing a government. There will be times when people rationally in their self-interest pass stupid laws. Another problem with voting is that not everyone has equal intelligence. It's too easy to manipulate people into voting foolishly.

I say that there is a way to establish a free market. People have to develop their own private financial system and do work without telling the government. That solution only requires a handful of people to get things started.

How do you know that humans are inherently collectivist? How do you know there isn't some malicious force training everyone to think like a collectivist?

Ineffabelle said...

Also, as far as mortgages go, housing prices are artificially inflated right now because of our financial system. Bankers like to lend money for houses because they can take the house if the person defaults. This drives up the price of houses relative to labor or non-resellable assets.

In a free money system, houses would probably never cost more than a person could save up in a reasonable amount of time, so there would be no reason for mortgages.

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