The use of the expression “funny money” by Austrians to refer to bank money created by fractional reserve banking is a nothing but a loaded term, a semantic trick with dishonest rhetoric using the appeal to emotion fallacy.Read it at Social Democracy for the 21st Century
The term “funny money” implies that fractional reserve (FR) credit money/bank money is somehow illegal or fraudulent. This is nonsense. Modern FR banking is fully legal in Western nations and their offshoots, and historically has been conducted under the framework of themutuum loan contract (loan for consumption) under European civil/common law systems influenced by Roman law. FR banking goes right back to the ancient Roman Republic.
“Funny Money”: A Loaded Phrase
by "Lord Keynes"
23 comments:
Of course “funny money” is a loaded phrase. Plus, it’s a lot easier to say than “unconstitutional, illegal, immoral, diluted, debauched, depression-inducing, theft-enabling fiat money, produced by people that the founding fathers would have executed.
Bob, we've discussed this before.
There is nothing unconstitutional or illegal about funny money.
If you can prove otherwise, I would be interested. But you can't.
"Immoral, diluted, debauched" are personal interpretations that only have a reality within the confines of your mind, and of those who have minds like yours. You may be correct, but we'll never know because its simply a subjective interpretation and nothing more.
Your "natural law" is nothing of the sort. To understand why, please read a book called "philosophy".
"depression-inducing": Yes, gold-backed money created depressions. Oh, you weren't talking about that? Sorry, my mistake. Read another book, called "Economics", and also another called "Economic History". Both are really worthwhile. You may learn something.
"Theft-enabling". Defining inflation as theft again, I see. So I guess that means that the Californian gold rush was just one big grand act of theft. Every nugget of gold that was dug out of the ground represented another little parcel of pure theft.
"People that the founding fathers would have executed"
Again, we have discussed this before, and you were thoroughly smacked down. Tsk tsk, are you losing your memory? Read the coinage act of 1792 again (properly this time), and you will realise why a) you are ignorant, and b) you are offensive.
Now, instead of wasting time discussing things you don't understand, why don't you go and spend some of your hard-earned funny money on gold. And watch it fall. Then rise, then fall, then rise, then fall. Perhaps it will teach you something about economics, and disabuse you of your mystical and quasi-religious ideas.
There is nothing unconstitutional or illegal about funny money.
I'm perfectly happy if that's the position you guys want to take in the ensuing debate.
Many of the same people who served in the Continental Congress participated in the Federal Convention that drafted the Constitution. And even those members of the Convention who had not served in the Continental Congress knew what that Congress had done. Therefore, when the Convention used the noun “dollar” in Article I, Section 9, Clause 1 of the Constitution, it was with the tacit understanding of the relevant history. The lesson here is clear: The constitutional “dollar” is a fixed weight of fine silver in the form of a coin.
http://www.thefreemanonline.org/columns/what-is-a-dollar/
The Congress under the Articles of Confederation enjoyed a bipartite power “to borrow money, or emit bills on the credit of the united states.” Article IX, paragraph 5. Following this precedent, at the Federal Convention the first draft of the Constitution included a power “To borrow Money, and emit bills on the credit of the United States.” But, by a vote of nine States to two, the Convention deleted the phrase “and emit bills,” so that the power (as ratified) reads: “To borrow Money on the credit of the United States” simpliciter. Article I, § 8, cl. 2. This proves that: (i) the power to borrow money is not the same as the power to emit “bills of credit,” but each must be separately delegated; and (ii) the Founding Fathers specifically considered delegating to Congress a power to emit “bills of credit”—but decided not to do so.
http://edwinvieira.com/edwin190.htm
I'm also fine with you guys taking this ludicrous "fallacy of composition" line. Go for it.
"Of course “funny money” is a loaded phrase. Plus, it’s a lot easier to say than “unconstitutional, illegal, immoral, diluted, debauched, depression-inducing, etc."
LOL.. My post is about private sector money: how private debts are monetized in capitalism, e.g., bills of exchange, promissory notes, private bank notes and cheques - and how there is nothing fraudulent about this: its all free and voluntary private sector transactions at work.
Roddis is pulling a red herring fallacy by switching to the issue of state fiat money.
He's already on the record saying he doesn't care about private sector inflation of the money supply:
"If the depositors aren’t misled and the payees aren’t misled, who cares?"
http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html?showComment=1317650068819#c5701869836754102910
Therefore he is committed to a private sector producing "unconstitutional, illegal, immoral, diluted, debauched, depression-inducing, theft-enabling" money.
Debate with this clown is pointless.
"The Constitution does not define the “dollar,” though, because in the late 1700s everyone knew that the word meant the silver Spanish milled dollar"
I love it. When you don't have an argument you start saying things like "everyone knew they meant the Spanish milled dollar."
Instead of basing your argument on "what everyone (supposedly) knew", try finding something in the relevant documents which actually proves your argument. You won't find it, but try nonetheless.
The US Supreme Court disagrees with Edwin Vieira's interpretation. Case closed.
Fallacy of composition: you are at a football match and realise that you could get a better view by standing up. If everyone has the same idea, you all end up standing up but no one gets a better view. Quite simple really.
For those of you who have missed out on this long-running feud....
LK (and all other Austrian School critics) refuses to understand the concepts of economic calculation and miscalculation. Thus it's pointless to again explain to LK the significant difference between nationwide monopoly fiat money created out of nothing or even national gold backed fractional reserve banking and private brand fractional reserve fiduciary media ostensibly fully redeemable in specie that would impact primarily only those who might voluntarily use it in transactions.
MMTers know there's a BIG difference there, right? You don't like private (or government) gold-backed currencies, but you know that there's a big difference between that and [a] monopoly [b] fiat money, right? In fact, you guys say it everyday, all of the time. I agree.
Just to be clear, I do not think that private fractional reserve currency backed by specie is viable in the market. All I have ever said was that if the private banker, depositor and payee all understand what it is and like it, it's none of my business. Those are two different concepts.
Somehow, LK accuses me of hypocrisy for being against MONOPOLY fiat money while not wanting to round up and jail VOLUNTARY fractional reserve private bankers (about whom I really couldn't care less).
On this "fallacy of composition" meme, if everyone in society decided to quit work, put their money under their mattress and smoke dope all day for ten years, I'll bet that most of the time, the "economy" would suffer. Further, if the government were to dispatch Einsatzgruppen to round up fat people and execute a few as examples and as an incentive to lose weight, I'll bet that most of the survivors would exercise and lose weight.
I don't see how these obvious situations call for or require your "fallacy of composition" explanation.
"difference between nationwide monopoly fiat money created out of nothing or even national gold backed fractional reserve banking and private brand fractional reserve fiduciary media ostensibly fully redeemable in specie that would impact primarily only those who might voluntarily use it in transactions."
The whole point of Hayek's and Mises's ABCT is that the private sector FR banks are capable of creating business cycles. It is a sufficient cause of ABCs
So now you tell us you don't "care" about FR banking, huh?
5 points:
(1) with FRB legal in an anarcho-capitalist society, then inflation of the money supply via fiduciary media will occur, and not even just by private bank notes - also by promissory notes, bills of exchange, and cheques.
The empirical evidence is overwhelming that capitalism develops this kind of financial system time and time again. You say you "do not think that private fractional reserve currency backed by specie is viable in the market" - you have ZERO empirical evidence; in fact, all the empirical evidence shows you're just pushing a cartload of stinking garbage.
(2) under the logic of your ABCT, the anarcho-capitalist society will be hit by perpetual trade cycles, owing to FR banking and its elastic money supply.
(3) the anarcho-capitalist belief that the trade cycle will be eliminated in their system is nonsensical rubbish;
(4) the anarcho-capitalist system just reduces to a free banking system: it faces all the instability and unemployment that a free banking system would face, including asset bubbles, banking sector collapse, and debt deflationary depression.
(5) given the endogenous nature of ABCs as postulated by Hayek and Mises, owing to FR banking, you now have nothing short of an admission that the capitalism favoured by Rothbardian Austrians is an inherently flawed system, producing the internal business cycles that tell us they hate.
QED.
To prove that their ideas are correct, Rothbardians have to dream up imaginary fantasy worlds that never existed nor ever could exist other than in someone's imagination. Then, on the basis of this fantasy, they denounce anyone who deviates from their utopian vision as "corrupt" against "natural law".
Yeah, Adam and Eve were absolutely perfect in the garden of Eden before that evil Mr Snake came along. Mr Snake corrupted them and made them go against Natural Law - nasty Mr Snake. Except that Adam and Eve, the Garden of Eden and Mr Snake NEVER EXISTED, and "natural law" is a FABRICATION.
In the Rothbardian universe, the state is Mr Snake, i.e. the devil.
It's a cult, pure and simple.
For Rothbard-Raelians, "economic calculation" means that which occurs in a pure and uncorrupted Garden of Eden universe, according to "natural law", without any interference by nasty Mr Snake and his evil funny money. Dumb dumb dumb.
In a Rothbardian world, there is a strict prohibition against the initiation of force and fraud because the problems facing mankind are and always have been assault, murder, rape, genocide, theft and pillage, not a lack of "aggregate demand". Right now, that prohibition obtains in most circumstances in the USA. The Rothbardian ideal is simply a proposal for a more strict application of those basic rules derived from the observation that the exceptions to those rules are not necessary. Until the 19th century, the idea that slavery might be abolished was new and unusual. I suppose that was a reason to oppose that change too, eh? The fact that there probably will not be a murder-free Detroit any time soon is no argument against the rule against murder. What a stupid, pathetic argument against the initiation of force.
The name-calling starts because engaging the libertarian and Austrian concepts is apparently impossible for a statist.
"…natural law" is a FABRICATION…"
The laws of arithmetic are fabrications?
The 2nd Law of Thermodynamics is a fabrication?
I didn't realize gravity was subordinate to the Austrian Business Cycle.
Sorry, paul, but formal systems and science are both human (mental) constructs. And every scientific "law" remains tentative wrt to emergent evidence.
In addition, every cultural worldview, which the members of the cultural take as reality, is also a social construct made of many interlaced constructs. The language use of the cultural at any particular time frames the universe of discourse in terms of which logical constructs are elaborated. Indeed, language itself is one of those constructs.
See, for instance, Berger and Luckmann, The Social Construction of Reality (1966).
I should add that the commonsense view of the world, aka the naive view, is that reality is given through sense intuition and that we can know the nature of reality through careful observation and application of reasoning based on "laws of thought" (logic). The modern (post-Kantian) view is that reality is constructed in and through the process of observation (epistemological) and expression (logical).
Tom,
"…And every scientific "law" remains tentative wrt to emergent evidence…"
Point taken and I don't have much disagreement, however I am an engineer not a philosopher. Exceptions to the laws I mentioned have never been observed, so I feel secure in relying on them as irrefutable for the time being.
I think you are giving too much weight to the word tentative in this instance, especially wrt math and systems.
The laws of the universe as currently understood have gotten us to the moon and back and enabled us to explore planets many millions of miles away.
Economics as practiced today is still in the stone ages relatively speaking and emerging evidence will affect it orders of magnitude more than math or science. Economics has enough problems being understood without adding philosophical arguments to it.
Anyway, as far as I am concerned economics is fundamentally an engineering problem and should be approached in that manner. YMMV.
"if everyone in society decided to quit work, put their money under their mattress and smoke dope all day for ten years, I'll bet that most of the time, the "economy" would suffer."
Bob, is it possible to come up with a more ridiculous scenario? If everyone quit work they wouldnt be able to "harvest" the dope. Or "process" it to make it smokeable or "package" it in rolling papers or a pipe to actually smoke it. Its impossible to have a world where humans are living and no "work" is being done . We might no be working to profit someone else but work is being done.
Your getting pathetic
paul, just a reminder that scientists don't subscribe to "natural law" arguments. They are dogmatic and anti-scientific.
I agree that economics to the degree it is scientific is largely an engineering matter. However, to the degree that economics is an applied social science it has normative aspects. That is to say, the criteria not exclusively formal (formulation and transformation rules) or empirical (observables), but involve institutional arrangements (social rules) as well.
Human choice is involved instead of just observation and formalization, and these choices are shaped by subjectively different value and preference sets that have objectively different consequences.
For example, in the broader sense, economics is concerned with allocation of scarce resources. There have to be criteria for allocation, methods of distribution, and so forth that present alternative paths and different outcomes.
Au contraire, Greg. Without a well armed SWAT team to enforce a program of massive dilution of the monopoly fiat funny-money supply and to create massive amounts of unpayable debt, human beings would just shrivel up and die.
Tom,
"…paul, just a reminder that scientists don't subscribe to "natural law" arguments. They are dogmatic and anti-scientific…"
Understood, I hope I don't come across as dogmatic.
Scientists, for the parts of their research that rely on math must accept the natural law argument re math and systems without question or they couldn't move forward. They are fundamental building blocks. They may not explicitly state the laws of math as the basis for their argument but it is implied.
These are the only "natural laws" that I rely on in my arguments.
If there is the possibility that math and the systems based on it are fallible then I fail to see how any argument based on it could be advanced with confidence.
In the economic case the "circuit" (sectoral balance equation) is constrained by the laws of arithmetic and systems (If we assume the SB equation to be true). These things are very fundamental. I only refer to "natural law" to try to get the point across that this isn't my "opinion". My math could be wrong and I encourage others to show me my errors. So far no one has attempted to do so. The longer this goes on the more confident I am that I am on the right track.
As far as the other aspects of economics outside of hard math you mentioned, they can be characterized as excitations to the system, the "signals" that when applied to the circuit create the pressure that moves the flows one way or the other away from equilibrium, but constrained by the circuit. Those things are subordinate to the circuit.
In my arguments I look at everything from this perspective. I don't see how that qualifies as dogma but…someone can always undermine my argument by undermining the math that it is based on or at least my application of the math.
I wasn't talking about the laws of science or mathematics, I was referring to 'natural law', or more specifically the rothbardian cult's interpretation of that concept.
Btw Bob MMTers are against massive unsustainable debt creation by banks and generally in favour of lower taxes.
pual, the issue is not whether math or science is right (or wrong) on any point. It's the use of terms that is important here. "Natural law" arguments are the basis of dogmatic ideologies whether in religion, theology, politics, or philosophy. The development of science was hindered significantly by "natural law" claims, e.g., Aristotelian "science" prior to Bruno and Galileo, Copernicus wisely pretty much kept his mouth shut and didn't make waves.
As a result, "natural law" is heard by those aware of this as the basis of an ideological argument that appeals to dogmatic authority instead of the approach of science that always remains open to counter-evidence.
So be assured that rejection of natural law arguments doesn't question math axioms and rules, or the basis of thermodynamics and electrodynamics. Only counter-evidence can do that in the case of science, and that evidence has to be replicable, i.e., checkable.
The case of math is interesting. It was believed that Euclidian geometry was a "natural' description. Lobaschevskian and Riemannian were developed as mathematical possibilities before it was discovered how they had application in science to macro and micro "worlds." Then it was recognized that these are nets of different size netting that "catches different size fish."
"MMTers are against massive unsustainable debt creation by banks and generally in favour of lower taxes."
MMT'ers, being Minskians, hold that private debt is the issue rather than government debt in the case of currency sovereigns, since private debt is an obligation of currency users that have to obtain revenue to service the debt, such that high debt levels may be unsustainable, especially in debt deflations. Currency sovereigns being currency issuers, the issue of sustainability does not arise.
MMT also holds that issuing money to the degree that it leads to effective demand outpacing the capacity of an economy to expand to meet it results in inflation. They also point out that recently this is much more likely to arise from the creation of credit money in the financial sector than government issuance. The problem with government issuance recently is that it has been insufficient to offset demand leakage, resulting in economic underperformance and rising UE.
MMT holds that the government fiscal balance need to offset demand leakage arising from the non-government fiscal balance, or to dampen effective demand when there is inflation.
MMT also holds that the fiscal balance between taxation and expenditure is a political matter to be decided by those charged with appropriation. Macro (MMT) can show the requirements resulting from aggregates, but how the fiscal balance is distributed wrt needs and desires is a political choice that should be guided by micro analysis within macro contraints.
@Tom
OK. agreed.
It took me a little prodding and poking to figure what you were getting at.
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