From: John H
To: Thomas Lee Abshier, ND
Re: Libertarian Position on Banking
Thu, Oct 20, 2011 at 3:12 PM

----- Original Message -----
From: John F.  
To: Thomas Lee Abshier, ND
Sent: Thursday, October 20, 2011 6:59 PM
Subject: What is the Quantity, Measure, and Substance in Fractional Reserve Banking?
 
John F: The comment above (“No special favors by government.  No government printed currency.”) Summarizes the, live and let live - buyer beware, Libertarian position. Even the Constitution aimed to "promote the general welfare".  Which means at least not giving special privilege to one person over another.  

You could let anyone and everyone claim to create money from nothing, but no one would trust it. But, the major mischief comes when people's trust in the government divorces them from trusting God's law requirement for honesty in QMS (quantity, measure, and substance).

Thomas A: Summary: You argue for government providing for the general welfare, against special favors, against government printing money, against men putting faith in the government above God, and for honest money having Quantity, Measure, and Substance.

The center of your argument against fiat money, is that it is impossible to take possession of an actual dollar, and thus impossible to pay a debt denominated in dollars.  (Thus, a debt owed in dollars can never be discharged.  The problem being that the dollar is a fabrication of men, made up, created, fabricated from nothing, which is something that only God can do.  Thus, since man cannot create anything real from nothing, the dollar, which is made from nothing, cannot ever be made real.  It begins as nothing, and it stays as nothing, since man cannot actually create anything that is actually real from nothing.  Thus, while these dollars are spoken into existence by the Fed, since they are made out of nothing, and will never be more than nothing, they cannot ever leave the Fed.  They stay as possessions of the Fed, and never actually leave the Fed.  Thus, no one can ever touch, own, or spend one if these dollars.  These “out of nothing” dollars are kept in the Fed, and all the dollars that are loaned out as electronic, paper, or coins, are simply symbols that represent the number of these “created out of nothing Fed Dollars” that are in the account of a member bank.  Thus, only symbols of the real Fed dollar (which is totally unreal, in that is was spoken out of nothing and is still nothing) are given to the banks, and put in circulation.  The electronic ledger entries, checks, cards, currency, and coins in circulation are representations of the actual dollars that exist only in the Fed.  Thus, any debts discharged by the payment of dollar symbols/tokens are not being actually paid in Fed dollars, but with symbols of dollars.  And, since the Fed dollars have no substance to them, hence cannot have measure, or quantity, they are not real money, and hence cannot discharge debt.

You have defined a “dollar” as a symbol of value created by the Federal Reserve, loaned to the banks, and then loaned to the borrower.  You state that because the dollar is created (out of nothing) and never leaves the Federal Reserve, and only debits and credits for dollars are created in accounts, there is no actual substance to the dollar, and thus it is not a unit of value that reflects honest weights and measures, because it is fundamentally, and of its essence, actually nothing.  

You then continue with this line of reasoning and declare that this form of banking, using a symbol which is of its essence and nature is “nothing”, cannot be blessed by God, and is the source of the economic woes that have befallen America, and the world.  

You declare that actual dollars (which are nothing in their essence) never leave the Fed.  Thus, all the dollar symbols which are issued as cash, check, and electronic ledger entries, and do not have inherent value of themselves are not dollars.  Only the dollars spoken out of nothing, by the Fed, and stay at the fed, are real dollars.

Thus, your indictment against the fiat money system is that you can’t go to the bank and say, “give me a dollar,” and have them give you anything other than a “symbol of a dollar”, since the “real” dollar is still in the Fed, and that dollar is totally imaginary, therefore there is no real substance possible in the system, other than possibly gold dollars which had inherent value outside of the Fed system of creating imaginary money.  

You want a money system where the money you carry around in your pocket “is actually a dollar” when you pull out a coin.  You feel that this is the only way that money can be honest, is for the money that we use to actually “be” a dollar, instead of being a “symbol” of a dollar.

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But, even a system where coined gold and silver are the money in circulation, the value purchased by the dollar is flexible.  Let’s examine a system where there is only gold and silver in circulation.  In this system, a given weight of silver and gold is used to create the dollar coin.  In this case, the coin is both a symbol of a dollar’s worth of value, as well as being a dollar’s worth of gold in terms of its value.  In this case, the gold dollar is worth a dollar, and is also the symbol of a dollar.  

But, consider the situation where gold and silver coins were used as money, and then there was a depression, or a large amount of gold or silver was dumped on the market or bought up.  The economic state of the nation or world would change the value of the gold.  Likewise, gold/silver becoming more or less rare would change their inherent value.

In the case of a glut of gold/silver, the value of the metal would be worth less than a dollar, but the silver or gold coin dollar would still be worth a dollar as a symbol of money.  In other words, it is a special situation for the intrinsic value of the money to exactly equal the symbolic/trade value of the money.

In general, there are two concepts involving the species functioning as money, 1) the intrinsic value of the coin/paper, and 2) the symbolic value of the coin/paper.  In general the two are not identical (intrinsic and symbolic value) for a coin, and the same is true for paper money.  

You have taken the fact that you cannot go to a bank and say, “give me a dollar” and have them give you anything other than a symbol as indication that the money in circulation cannot be used to discharge debt, because the dollar that I owe (because I borrowed it) cannot be repaid because it doesn’t exist.  Your argument, that the dollar does not exist in any location other than the Fed, is further substantiated in your mind by the fact that money is put into circulation by creating a debt, which disappears when the debt is paid off.  This further substantiates your theory that “there is no dollar” that has quantity, measure, and substance.  And, if it has no QMS, then it violates the metaphor in Ezekiel to measure money in shekels of gold (or other valuable and measurable substance).

All of these concepts, while plausible, are incorrect.  Gold and silver are valuable only to the extent of their rarity, as is every other medium that carries intrinsic value that is used for money.  There is the tendency to think that the money supply is solid, and Godly, if I have a tangible valuable substance that has both symbolic value and intrinsic value.  But, I submit that all symbolic money (regulated in terms of its quantity, and associated with the production of value in the economy), has an element of symbolic value (by its connection with the value it was used to create, and the totality of all consumable value in the economic universe).  

The intrinsic value of paper money is very small, but the symbolic value of the money is identical to the dollar unit of value as a coin made of gold.   The fact that the paper dollar has little intrinsic value does not negate the fact that, 1) it has great symbolic value, 2) that that symbolic value is transferable, and 3) that debts can be discharged with a contract to produce and deliver value to the bearer.  Thus, whether the coin/paper has intrinsic value or not, there is a symbolic token that represents a dollar of value, and that amount of value can be traded for other valuable goods and services, and thus can discharge debt.

The fact that the paper dollar symbol will disappear in time is immaterial to the reality of it being able to discharge debt.  As long as that symbol is in circulation, the trading public will accept that paper symbol to satisfy debt.  And rightly so, since the recipient of the note can likewise discharge a debt, or acquire goods and services in trade for ownership of the paper money.

For the purposes of the next argument, I equate printing money and coining money.  I posit that coining/printing of money is a function of government, since “coining” was specifically authorized by the Constitution.  The equivalence of these coining and printing has been affirmed by the Supreme Court (after it reversed itself).

Your stand against government printing money, is to oppose a power that is explicitly given to Congress in the US Constitution:

Article 1: (The Legislative Powers) Section 8: (The Powers of Congress).

You have argued for the principles of “general welfare” as the operative principle regarding coinage.  The general welfare is a vague principle that could be applied to anything, but is subject to debate as what “welfare” is.  Whereas, Article 1, Section 8 is very specific, being listed as an enumerated power.  By arguing against government creating money, you are arguing directly against the wisdom of the original intent of the Founders in a clause with clear reference to their intent to give the government the power of creating money/coinage.

And, I believe this is wise of the Founders to include the power of coinage as one of the enumerated powers of government.  Allowing everyone to print money without proper discipline and regulation does not promote the general welfare.  A multiplicity of currencies, standards, and exchange rates diminishes trust in the money, and hence interferes with the incentive to participate in risk and trade transactions.

The Founders clearly believed that the Federal Government should be responsible for coinage, and included this in the list of the few important functions of the top layer of government.  I believe a Central Bank was not put into the Constitution by the Founders because they wanted to make it difficult for government to print money for its own use.  And, it was concern about this abuse of the power to create money that guided the architects of the 1913 bill to create the Fed as an independent, and semi-private institution.  An autonomous Central Bank keeps “coinage” (i.e. the power to increase the money supply) separate from the direct control of the administration in power.

As a replacement to the Federal Reserve, I propose distributing the power to print money throughout the private banking system. All banks would be authorized to print a small amount of new money, as appropriate to provide the money supply needed to maintain a constant value to the dollar.  The responsible authorities in this decision would be the individual banks, who would receive non-binding guidance from local, regional, and national banking association and government economic research.  The need to increase money supply would be dictated by the analyses of economic indicators.

Again, the prime directive of this policy would be to, “Stabilize the value of the dollar, and support the long term increase in productivity of the economy.”

As a primary tool of maintaining a steady value of the dollar, the banks would voluntarily choose to:

John, your second criticism of government-coined money was by the invocation of God requiring that money have QMS (Quantity, Measure, and Substance), as referenced in Hosea and Ezekiel.  Let us assume that this is a correct interpretation of a scripture that talks about the Temple Shekel and its appropriate weight in gold and silver.  Let us not argue that it is a good policy to use a standard weight and measure of an actual substance as the standard against which money is defined.  I completely agree.  If money is given its value in reference to a generic basket of goods and services, then money does represent value, and the value is based upon Quantity, Measure, and Substance.

Thus, fiat money has a Quantity, Measure, and Substance, both in terms of the physical symbols used to represent value in trade (i.e. the inherent value of the various symbols used to represent the value of a dollar), and the underlying value of the generic basket of goods a dollar represents.  

Thus, your contention against fiat money is not that it has no associated QMS (it has both symbolic and inherent value).  Rather, your problem with fiat money is the lack of commitment by the government to maintaining a constant value of the dollar by appropriately regulating the money supply.  The power to print money (i.e. put more dollars in circulation) has made it easy to generate fiat money out of nothing, using symbols (paper, electrons, base metals) that have very low inherent value.  Thus, if the government wishes to use the power to print money as a tool buy votes, that power is accessible, and printing money can depreciate the value of the dollar.  The value represented by fiat money should be connected to an underlying physical standard of goods and services.  This connection of the commitment to produce goods and services, is what I propose as the solution to sanctify and solidify fiat money.

Currently, fiat money is referenced to the cost of a basket of goods as the Consumer Price Index, and Core Inflation.  And while inflation is generally considered bad, there is no firm commitment in government and Fed policy to maintain the value of the dollar constant.  In fact, the Fed has a commitment to produce 2% inflation as a good policy.  Such financial latitude allows for government to push the limits of  references.  Thus, if we were to simply include gold, silver, oil, and other commodities in the “basket of goods”, and engage in monetary policy committed to a constant value of the dollar, we would be living on a de facto type of Gold Standard.  But, such a gold standard would not tie the rate of economic expansion to the production rate of Gold or the mining industry.

Fractional Reserve Banking does not by itself generate new money that is inherently inflationary.  FRB allows for loaning and spending the same amount of money many times in comparison to how many times it would be spent if the bank had to keep 100% of the money in reserve.  If the loans given to people are skewed toward consumption, and the rate of consumption therefore rises above the rate of production, the value of the dollar will necessarily go down.  

Loans arising from FRB, as in all loans, requires that the borrower must pay back the same value borrowed, plus interest.  Thus, if a borrower takes a loan, and uses it for consumption, he must engage in production somewhere in the economy, and take ownership of the credit for producing that value in the form of money, and then give back a commensurate value to the bank.  Thus, there was a commitment to produce value associated with the new money created by the loan.  

The problem with fiat money is the ease with which government may appropriate dollars and spend them directly, from de novo creation to consumption.  This is what I call government “printing money” (and yes, I realize that money is largely created by electronic debits and credits, but I shall call the process “printing money” as a figure of speech to represent the process of putting new money into circulation without associating it with a contract to produce new goods and services).  I consider “printing money” any method by which new money is introduced into circulation.  The problem arises when new money is used for consumption without any commensurate commitment to produce goods and services.  In other words, this new money truly has no value (i.e. has the appearance of money in all official/superficial ways, but in fact does not represent the right to trade value for symbolic value).  When there has been no contract associated with newly issued money to produce value.  Somewhere in the history of newly issued money it must initiated, that is, given its initial association with the creation of new value.

Giving the Fed the right to print money, that is, to introduce new money into circulation by loaning it to banks (which then loan it to other banks), which then loan it to consumers and producers, is not about giving special privileges. Rather, this is a method for regulating the introduction of money so that all new money introduced into circulation is done only with an associated contract to produce a commensurate level of goods and services.  Regulating the introduction of money in such a way as to maintain stability of the dollar’s value is a policy that “promotes the general welfare”.

A responsible central bank insures that there is “No special privilege” with regard to the giving dollars to anyone.  That is, all who obtain contractual legal possession of new dollars will do so only upon the promise to create new value in return for possession.  Part of giving no group or person “special privilege” is not giving government the right to take the wealth of the people (stored in the dollar) without the consent of the governed.  

In other words, inflating the money supply, spending uninitiated money into the economy without an act of congress overtly authorizing it, is theft, taking wealth from every American without representational authorization.  Government’s sacred trust should be to manage the money supply so that the dollar that represents a stable value.  This insures that all men have the same right to obtain the same money/symbol of value for use in consuming, either by delivering value and then receiving money (wages or manufacturing and then sales), or receiving money and then promising to produce value (loans by the bank).

Neither the central bank, investment banks, nor local banks, should use money created out of nothing to enable consumption without an associated contract to produce equivalent value (i.e. through a contract explicitly to use the loan for enabling productivity, or implicit productivity due to history of productive activity).

When government gives money into the economy for people to consume without giving back, (such as in Social Security, Medicare, Obamacare) that gives people special privileges.  Charity should be done through church, and/or community where there is accountability.  

Note, I consider Social Security to be government mediated charity rather than a savings plan and money “owed” because I “paid into it.”  The money taken from me as a tax, was called a contribution, and there was a pretense of putting it aside in a ‘lock box’.  But in fact there was no set aside, all the money was contributed during the working years was consumed at that time by government spending.  There was no set-aside of current consumption.  Thus, the associated goods and services are consumed by the new money put into circulation, as opposed to being used to contract for new production.

Social Security looks like this, “Because I paid into a system that told me I was investing for the future, but was actually consuming in the present, I deserve to be supported for the rest of my life when I retire.”  No, such a system is about consumption, not about setting aside current consumption to enable the growth of the productive base.  Such a system as Social Security (as a tax and consume system) is entirely about special privilege, and that based on a faulty assumption about the nature of the contract presented and its actual terms.  No other contract would be honored in such a manner.

Thomas A: (I think the application/invocation of God in this matter is a bit too strong.  Of course God wants honest weights and measures.  The question is whether FRB is honest weights and measures.  It is my contention that in FRB it is an honest form of weights and measures for a righteous people.

John F: Both words, Weights & Measures, refer to the same section of QMS, that of measure. We can measure volume, weight, time, and lots of other things, but relative to FRB -- what is the “Substance” that we are measuring?  What measure are we counting in order to come up with the Quantity?
 
Thomas A: The value of the dollar is in question since the dollar is a symbol that was created out of nothing, and then traded for valuable goods and services.  The fact that a worthless piece of paper, coin, or electronic digit was generated out of nothing gives one the impression that the dollar is an imaginary entity.

But, this criticism is flawed because the dollar must go through an initiation process before it becomes a representation of value.  The problem that makes the dollar difficult to understand is that the is a unit of value, and value is subjective.  Thus, various methods will be required to determine the appropriate correspondence between the dollar unit, and the reality of a correspondence of “substance”.  

The unit corresponding to value, “dollar”, and the symbol “dollar” are two different things, but are related by the reality of using the dollar symbol in trade.  Various token can be used to symbolize the dollar, such as metal coins of common or precious metals, electronic ledgers, and/or pieces of denominated paper.  

But the question remains as to what the dollar “is”.  The dollar is a symbol that represents a unit of value.  To compute the actual value one dollar represents it would be necessary to

The dollar symbol is given value initially by its association with a loan that contracts a man to produce goods and services (either directly, or indirectly) in return for receiving those dollars.  Each man works to produce goods and services, and he receives dollars in return for his work.  All other men do the same, and all receive dollars for their efforts.  In general, men have a need for goods and services other than the goods they produce in their work.  Thus, the need for trade.  The generic “value” produced by each man is compensated for in “dollars” (the unit representing “value”, which is a unit determined statistically by the market and its averaging function).  Each man takes his dollars to the market and bargains for goods and services.  He offers a quantity of dollars in exchange for those goods and services, which is either accepted or rejected, and counter offered.  In effect, each man is valuing his work, and considering the amount of pain and benefit associated with his product, he assigns a subjective value to the dollars he receives.  The vendor has likewise done the same.  The vendor has not yet gotten paid, and is looking at the receipt, the payment for the goods and services he is selling, as his wages.  Thus, the vendor will only accept a dollar value commensurate with the value he places on his work and its associated pain and benefit.  When a dollar quantity, as the surrogate marker of the amount of subjective value associated with the proffered dollars, and the asked price for the vendor’s goods and services, is considered equivalent or better on both sides of the trade, then value is exchanged.  The buyer no longer owns the symbols of value, but instead owns the good and services, and the selling no longer owns his object of produced value, but has a generic symbol of value which he can now exchange for needed goods and services.

Another criticism of the banking system is that “Dollars come into existence as a debt, and disappear when the debt is paid.”  This is true.  In the FRB system, the dollars are introduced into the system as a loan, which is debt, and when the loan is paid those dollars, and the contract they represented disappear.  The money system could also be impugned because there is a perpetual obligation to pay a debt which can never be extinguished.  This is in essence slavery, which exactly reflects the essence and nature of life.  We are obligated to work by the sweat of our brow throughout life.  We are not free to just own or have life in perpetuity.  In a way we are working our way to eternal life by serving the King.  By our work/service throughout life, we are proving ourselves worthy of living in the King’s presence for eternity, and being fully supported forever.  In this life we don’t get anything unless we (or someone else) work for it.  Money being transient in its existence, and being introduced as an obligation to serve as a slave for a period of time, reflects our lives.

Another criticism of the FRB system is that the same deposit is re-loaned multiple times, creating the appearance of new money being created.  But in fact, there are no new dollars created by Fractional Reserve Banking (FRB).  Rather, the dollars loaned are merely dollars deposited, loaned, spent, and re-deposited.  The rate at which the dollars are re-loaned, spent, and re-deposited creates the effect of more money in circulation because more is available.  The effect of more circulating money, or increased money supply, arises because of a differential  between, 1) The rate at which money saved by the average depositor would be withdrawn and spent, 2) Compared to the number of times those same dollars were spent by being loaned, spent, re-deposited, loaned, spent, redeposited...

The dollar is declared to be imaginary, unreal, nothing, fiction, and a fraud because in has no QMS, no Quantity, Measure, and Substance.  But, this argument is flawed because it chooses to look only at the metaphysical aspect of the dollar which in fact has no substance.  Thus, in this frame the metaphysical dollar has neither Quantity, Measure, nor Substance, and as such would not qualify as a good holder of value in the physical world for storage (savings) or exchange of value (trading).  

The dollar also has a physical/concrete aspect, which is found in the various dollar tokens.  These physical tokens are not dollars in the metaphysical sense of the word, rather they are dollars in the physical world, and physical symbols representing the metaphysical concept.   Thus, there is a physical/tangible aspect to the dollar found in the various physical symbols used to give tangible reality to the metaphysical concept of the dollar.

Again, the dollar is defined as the complete set of all consumable value, divided by the total worldwide money supply in dollars.  In other words, the dollar is a definable quantity of mixed substance, although that quantity is beyond the capability of accurate human measurement. And, the nature of the substance is ill defined because of its heterogeneous components.  Nevertheless, “all value” has the elements of quantity, measure, and substance.  One thing it is for certain that “all value” is neither “nothing” nor fictional.  The totality of all physical consumable substance is the object upon which men project their subjective judgments of value.  Men then divide up that totality of all value into dollar-sized increments, and use that generic increment to measure against specific goods and services.  Each man has a different standard of value, but the requirement to meet value with value in every trade creates a meeting point that ultimately gives physical definition to the dollar.

QMS (Quantity, Measure, & Substance) are inherent to all physical objects.  But, the entire class of  intangible objects, such as love, beauty, truth, justice, and the dollar are without a definite object association.  Thus, intangibles are by their nature abstract, that is, without unique physical objectification.  Still, all the intangibles can be given specific representation or dramatization (e.g. by specific examples of love, truth, justice, beauty, and the dollar).  

Men have given each member of the class/set of intangibles a surrogate substance by assigning physical objects, or life sequence, to represent them.  Humans strive to bring tangibility to the intangible by various forms of art, books, drama, philosophy, and religion.  The physical objects have a native QMS in this world.  But, the intangibles can also be given a surrogate objectivity with various symbols that either bring to mind the complex drama, or overtly act out a specific drama.  

In the case of the dollar, it is a unit, and the question is asked, “unit of what?”  And, the answer to that question is confronted above; it is a generic unit of value.  The concept of the actual substance associated with the value is more difficult to pin down than most units and their corresponding substance.  The unit of value is dependent both on the individual’s sense of value, and another person’s sense of value.  And to make the concept even more difficult, the concept of generic value must be averaged over the entire population, and its assessment of all goods and services.  Thus, it is impossible to definitively describe the exact substance associated with the dollar, because it is literally universal, but ultimately it acquires its tangible objective substance in the process of an individual, specific trade.  But, the dollar is not limited to the substances associated with  a particular transaction, but instead must be applied to the substances exchanged in all transactions.

Some trades/transactions exchange objects of extremely variable subjective value such as art, literature, music, and drama.  Each man assigns value to the entire spectrum of human expression, such as a word, a tone, a smile, a touch.  Likewise, he applies value to the entire spectrum of intangibles qualities such as beauty, symmetry, grace, poise, harmony, and humor.  Some intangibles are poorly traded in the impersonal marketplace of money-mediated exchange, such as love, friendship, and kindness.  These expressions arise in the heart in response to another man’s being, are given unilaterally, but sustained by reciprocal giving.

The value of a Picasso is in the eye of the beholder, but so it the value of gold, automobiles, and all tangible objects.  The value of all objects (tangible and intangible) is subjective, that is, relative to a specific observer.  The value assigned to an object is based upon each man’s experience of inner satisfaction relative to all possible alternative experiences.  A man’s measure of relative satisfaction is made against his need for utility, happiness, peace, security, or fulfillment.  The valuation of one intangible criteria over another depends upon the particular nervous system/soul/spirit programming and the resultant emotional response to stimuli.  Emotions, in particular the pursuit of pleasure and the avoidance of pain, are the visceral drive, the motive force, upon which value rests.  All other experiences of the qualities of life (happiness, sadness, hatred, greed, lust, fear) are subtle distinctions and mixes of pleasure and pain.  But ultimately, all the emotions, qualities, thoughts, and objects of life are of the substance and nature of spirit.  There is nothing which was not created by God, and all that was created and exists arises from that intangible essence/substance which God created, and with that foundational building block He created all things.

All objects, both tangible and intangible, can be traded for other objects of equivalent value.  (That is, objects of subjective value to me, I will trade for objects of equal subjective value to you.  And, we know that value equality was reached when the trade is agreed to, and exchange is made.)  The criteria for exchange will always be the consideration of at least value parity.  That is, people only exchange an object for an object they consider to have at least equal subjective value.  

But looking at the trade from another perspective, an equal trade is a lot of work, with no net change in satisfaction.  Thus, the actual trade is the exchange of an object considered of lesser value (e.g. money received from work), for an object which they consider of more value (e.g. food, shelter, warmth, entertainment).  The object traded away is valuable to me, but not as valuable as the thing I’m trading for.  In the case of accumulating money from work, we have a lot of money at the end of the wee, but too little of the necessities and pleasures of life.  Thus, while the money is valuable, the objects it can be exchanged for are more valuable.

Cash, currency, and dollars, are all symbols of value.  The dollar is an arbitrary unit of value, given significance by the fact that it can be traded for objects (both tangible and intangible) that satisfy the human psyche.

Even though intangible objects have value, and can be traded.  The QMS of an intangible object is harder to define precisely.  Still, even intangibles meet this criteria of having a Quantity, Measure, and Substance.  But, because their QMS is so imprecise, and their value is so widely variable in subjective evaluation, they are poor mediums and stores of value.  Thus, intangibles are poor mediums as a standard of exchange.  Nevertheless, they still can be traded as valuable objects, and should be included in the pool of all consumable value.  That is, the intangible objects (a smile, drama, beauty, talent) contribute to the imponderable and imprecise de facto calculation of total consumable value.  It is this total value of all consumable objects (tangible and intangible), divided by the totality of the money supply in dollars, that defines the value of the dollar.

It is difficult to define the quantity, measure, and substance of a smile, although it has elements of all these.  In other words we shouldn’t establish a monetary system on smiles, as the medium or store of value.  Intangibles such as a smile may gather a high price in the right context, but they can be only vaguely defined in terms of the quantity value and substance.  Therefore, another medium such as gold, silver, or fiat money should be put in the place as the standard and store of value.

The fiat dollar is simply an arbitrary unit of value/wealth, that is defined by a particular society, at a particular time.  There is sufficient quantity, measure, and substance associated with all objects to be tradeable.  That is, every object could be assigned a subjective (personal/relative) value, and then the process of negotiation between bid and ask proceeds until an agreement is reached to exchange the object (tangible or intangible) for a measure of gold, or a defined number of fiat dollars.  

Once established, simply by definition and usage, the dollar should be regulated to retain its value. The goal is to produce a money supply, which produces a constant value dollar, which allows those who save (defer consumption) to redeem those dollars for an equivalent amount of value in the future.  That is, the goal is a value-constant dollar over time.  Using Gold as a measure against the currency is one possible standard against which to measure value.  But, it is not necessary for the treasury to hold that amount of value in gold to give the fiat dollar value.  Such measures are only required of an immoral government that prints dollars for its own consumption for political gain, or to solve temporary problems.

Next we consider the claim that, “the dollar exists only in the bank that issued it, and it is credited to another bank, but never leaves the issuing bank.”  This issue that must be given proper distinction in regards to the issue of credit, ownership, and existence.  We shall examine this issue later.

[John F:money might retain it's value if quantities are kept constant, but the whole purpose of government/bank collusion is to change the value - otherwise, no advantage to the operation]

Thomas: This statement makes an a fairly definite statement about the motivation of other people.  You might believe this is true, but that doesn’t make it true.  In other words, you have organized your concepts of government, banks, and the monetary system around the assumption that the entire purpose of the monetary system was for government and banks to collude and change the value of money.  You state this as a fact.  You simply cannot know that to be true.  It might be true, but we couldn’t say that for certain.  Such thoughts assume there is conspiratorial cabal that the entire banking-government system operates in.  

I can’t prove that there isn’t a cabal.  Rather, I choose to focus on how to make the system work properly as it is currently configured, rather than tear down the whole machinery and then rebuild it.  This falls under the category of lighting a candle rather than cursing the darkness.  And, dwelling on whatever is good, right, lovely, and good report, and thinking on these things.  Of course it is necessary to note problems, you can’t solve problems unless you are aware that they are there.  The solutions that I have proposed would eliminate whatever benefit that government got from inflation, and eliminate whatever benefit bankers got from deflation.  It doesn’t make  lot of sense that the bankers and government would be in collusion to adjust the value of money in the same direction, because they have opposing interests.

A better working assumption is that people are concerned for their interests.  Every party usually has a slightly different interest, to the point of being in total opposition.  I’m sure that government wants to want to control everything, and inflate the currency since they are a borrowing power.  On the other hand the banks benefit from deflation, because they get paid back in money that is worth more than the money they lent.  Thus, I don’t see the government and bankers being on the same side in terms of wanting to manipulate the value of hte money.

Think how meaningless it would have been after the coinage act of 1792, to ask, "How much is s silver dollar worth?" Maybe it is worth a dollar? It would just be a truism. That was when "dollar" was defined by being a quantity of a specific silver alloy. Now you could have said meaningfully, "How much does the gold coin cost?" and there would have been a coherent answer, in dollars. Later (I was surprised to find out) in the '30's/FDR era, silver costs 40 cents an ounce !? How could that be? Because the US Dollar had been redefined to be a quantity of a measure of gold, in stead of silver. Then it would have been a meaningless truism to ask, "How many dollars is this $20 coin worth?", but it would have been meaningful for silver to be 40 cents an ounce (.31 cents 'worth' of silver in the silver dollar). At that point, silver was actually token coinage, in that the trade value of the coin was whatever the government/banks said the face-value of it was - referenced to gold. If you had purchased silver and copper and started up a stamping mint, you could have cranked out counterfeit silver dollars, and you would have been stealing from people. You would have been inflating the "money supply" because you would be getting 20 gold-dollars for each 20 silver dollars you had manufactured, but they would have "cost" you only $6.00 (plus copper, plus labor and equipment). Now, there is no reference point.

If value is anything and everything, which, at different times in our discussion - you claimed: then it may show you are using it like a Measure-kind-of-thing. Think of a foot (a measurement). How many feet do you want? And it would depend on what we are talking about: dental floss, rope, two-by-four? There must be an object for the measurement to measure. You can't just value 14 feet. Or a 100 feet of feet.

John F: [This is like producing feet. "I have produced 100 feet", or "I made one ton.", we immediately have to ask, "of what"?]

Thomas A: This is of course a misunderstanding of my comment about value.  Value can be placed on anything by a person, which means that value is subjective, it is in the eye, mind, heart, soul of the observer.  Value does not exist separate from the observer, and it does not exist separate from the object.  Value is a quality placed on an object by an observer.  Without the object, and without the observer, value cannot exist.  

“Value” is one of the human experiences that require both object, observer, and another object to compare with the first, to exist.  “Value” is in the class of abstract qualities that require this triangulation type of evaluation where the observer evaluates two other points in comparison.  Examples include, Beauty, Size, Truth, Honor, etc.  Each of these abstract qualities are illuminated only by their comparison with either a “standard” or an “example”.  “Beauty” requires an object and an observer, and a third object, and with all three in place, the quality called beauty can be separated and evaluated in terms of the subjective experiences.  It is the subjective experience of the object, and the object in comparison to another that illuminates the quality.  “Size” also requires an object and observer, plus a third object to place in comparison to the original object.  “Truth” requires a situation, an observer, and a comparison of the circumstance with another view of the same circumstance.  “Honor” requires a situation, an observer, and a another situation to compare with the first.  

I believe your questions about the definitions of the dollar, and value, and how they relate will become clear as we continue to work to bridge this gap.  I appreciate all the work you have put into defending your position.  It has certainly helped me to clarify my position.  I continue to grow in my conviction and clarity as we continue this debate.  I shall let my arguments be their own defense.

Thomas A: As long as people have knowledge of the terms of the contract, then they are not being stolen from.  

John F: What measures of what substance are being counted in the contract? What is it that Party A is promising to Party B, and are falsifiable definitions used in the contract?  How are we going to know if Party B has delivered the QMS promised to Party A?

Thomas A: The terms of the contract refer to work, quality, time, attention, or some other measure of production, which necessarily involves the use of substance.  In economic terms, we place value upon the various types of production, and convert that value in the units of dollars, and then compare the price of one production with another.  Thus, QMS is referred to in all contracts, and there is an agreement about the amount of QMS to be produced.  No doubt that secondary, more tangible markers will be used when contracting to sell beauty, or truth, or honor, but in fact these intangibles will have been given value, then secondary markers that reflect the presence of the intangible will be used as indicators to reflect the delivery of the contracted quantity.  But, be certain to know that the intangible quality is actually the desired substance being purchased.  Thus, we illuminate yet another subtle distinction in the determination of value, “That the contracting parties may use surrogate indicators to validate the delivery of the contract, given the difficulty of measuring the intangible.”  

Thus, the concepts of Quantity, Measure, and Substance can be applied to everything, both tangible and intangible.  But, the intangible will be more subjective in its quantity, measure, and substance.  Nevertheless, regardless of the ease of agreement on the quantity, measure, and substance of an intangible, the intangible has all three.  For example, even a feeling and a thought have a substance to them, but the number and the measure of them are measured differently be different people.  Thus, if a contract is made to produce an intangible substance the contract will specify more readily identifiable, more tangible markers to indicate the presence of the intangible.  But, this in no way invalidates the existence of the intangible.

And returning to the point of this examination, every substance, tangible and intangible, has a quantity, measure, and substance.  And every object, tangible and intangible, can be evaluated by an observer to have a “value” (in comparison to another object).  And, the value placed on an object can be assigned a “price”, measured in “dollars”.  And, dollars, which are the unit of value, can be symbolized by various tokens that are put into circulation such that they are only acquired upon contributing value of some type, or promising to contribute value.  And, the value of the unit of the dollar is established by a de facto, market-determined interaction determined by the act of trading.  There is no universal, a priori, quantity of goods and services that “should be” exchanged for a dollar.

The dollar is a unit that represents an abstract quantity, “value”, which is associated with a tangible substance in reference to its “utility or other aspect of “soul satisfaction”.  Other examples of abstract units that correspond to physical substance are the “meter”, “kilogram” , “second”, and “coulomb”.  Granted, the substance associated with these units is more tangible than “value”, but nevertheless both the dollar and these units all ultimately refer back to some aspect of physicality.  The units, ($, kg, m, sec, C) are all themselves intangible, but they all refer to some aspect of the physical universe.  

There is a prototypical reference standard stored in controlled conditions that serves as a tangible example of the abstract unit of the kg, m, sec, and Coulomb.  But, these reference standards are merely examples of the unit, rather than being the unit themselves.  The $, kg, m, sec, and Coulomb can be used to compare various disparate substances along the axis of that unit.  

The dollar has no universal, unchangeable reference standard by which it is defined.  Nevertheless, at any moment, a de facto standard can be assembled as a “basket of goods and services”, and the dollar could be defined in terms of that basket.  Granted, the basket stays approximately the same in terms of its physicality, and the number of dollars of value it corresponds to varies.  And this change in value of the dollar is dependent upon the money supply (total number of dollars in circulation) in relationship to the total available consumable value.  Nevertheless, the principle of units corresponding to physicality is still valid.

The dollar is defined by the de facto valuation of goods and services, which is a measure of how people value one basket of goods and services in relationship to another basket.  In the case of the dollar, the totality of all goods and services divided by the money supply determines the amount of value associated with one dollar.  The standard of value for the dollar is defined by its alternative uses, its other possible objects of redemption.

The value of the dollar has no eternal stability as people change in their tastes, technology and nature changes and makes some objects common and others rare.  Thus, value is an abstract quality, measured by the dollar, that is defined in the context of the market.  It must be initiated by the first bid, and the first ask, but eventually with enough market participants offering and buying, the market soon determines, by the subjective evaluation of each buyer and seller, the de facto value of the limited numbers of dollars present in the system.  Thus, the dollar cost of a basket of goods, at the end of a day of trading, reflects the average value that the market participants place on that particular set of goods and services.  Thus, the dollar gains its quantity, measure, and substance, from the integration of alternative purchasing possibilities, limited numbers of dollars, and a subjective evaluation of utility and/or satisfaction.

Thomas A: People contract to allow to have their money loaned,

John F: What is the "money" being loaned?

Thomas A: The money loaned is symbolic of the value created by the owner of the dollars.  Again, this money, these dollar symbols, has acquired value by the fact of the effort exerted, and subsequent compensation for the value created, by another person.  The dollar is a symbol of value created, and hence it can be redeemed for other goods and services created by other people who have placed value on the work of their hands.

The money loaned is a symbol of value produced but delayed in redemption.  Dollars are both a unit of value, and a tangible symbol that represents the intangible/abstract quality that we call value.  The tokens, the dollar symbols can either be redeemed for value and consumed, or saved for future consumption.  If delayed, then there is consumable value produced by the saver that is still available in the economy for other people to consume.

Thus, what is being loaned is the right for you to consume something that I produced.  But, since it is a loan, I expect that you will produce something, and that as a result of you producing value later, as a repayment for value consumed now, there will be value available in the market for me to consume later.  

Thomas A: and in turn receive interest for their delayed redemption of goods and services.  The FRB system is not a 'money printing' system, it merely increases the rate of turnover of savings.  

John F: What  is being saved?

Thomas A: See paragraph above.   The right to consume the value produced now is being “saved” for the right to consume later.  By loaning the money (which is symbolic of value produced) out for you to consume something now, the value that I produced now is more likely to be consumed (i.e. a demand placed for the product).  The result is an economy that continues to value my services by trading money (the symbol for the value they produced) for my product.  The result is that I continue to be paid to produce, which enables me to continue to produce goods and services in my area of expertise.  And,, you benefit by being able to consume now because of my delayed consumption (i.e. by saving/not redeeming the societally recognized symbols of value I received for the work I did).

Thomas A: 90% of each deposit loaned and spent.  The loaned money is spent into the economy, and when spent ends up in the bank as savings, where 90% of that savings account is re-loaned, spent, and deposited.  This happens many times, and there ends up being a faster turnover of the money (increased velocity).  

John F: What  does "turnover" mean? What substance is changing hands, or changing ownership?

Thomas A: One cycle of turnover is the sequence of money being “spent, deposited, and loaned”.  This cycle then repeats with another cycle of “:spent, deposited, and loaned”.  This cycle repeats a certain number of times in the period of time that the original saver would have “deposited, withdrawn, and spent” it once.  The number of cycles of “spent, deposited, and loaned” that money goes through in the time an average depositor “deposits, withdraws, and spends” money, is the multiplier, or velocity of money.

“What substance is changing hands or ownership?”  The ownership of the symbol of value is changing hands.  The original depositor has the right to exchange his ownership of the symbol of value for actual consumable at any time.  (Note again: Money is a token that represents value created, and hence gives one the right to exchange a surrogate of the value produced for consumable value.  The substance that is changing hands is the surrogate, the token, the symbol of value.  Money is changing hands which represents the change in ownership of the right to redeem value.)  So, on a concrete/literal level, a token of value, which has substance, is changing hands.  On the intangible, abstract level, the right to take ownership of a substance by redemption of the token has changed hands.  Thus, the potential substance for which the token will be redeemed has changed hands.  Money represents generic goods and services, a kind of potpourri of all possible goods and services, and a dollar represents a unit of value of the amalgam of all goods and services blended together.  The specific nature of the substance redeemed will not be revealed until the time of redemption.  The contract with society insures that my labor will be convertible into goods and services that I find useful, if I accept money as a tradeable token that represents the value I produced.  

(The Contract: You and I both produce valuable goods and services.  We both accept money/symbols/tokens of value in return for our service.  We in turn both agree to accept those tokens in exchange for valuable goods and services we wish to consume.)

The substance of the loan?  The substance is, 1) The money received as a loan.  The token of money is itself a concrete/tangible substance.  2) Money is secondarily a representation of generic value which can be consumed, owned, or transferred.  This secondary value, the power to move men to transfer ownership to you of goods and services is the more valuable substance, and is the actual purpose of the money, which is a token representing the secondary value, or substance.

Thomas A: If the velocity of the money with the saved money had been 1.00 as a reference point, and the money was loaned, spent, then re-saved 10x in the period of time the saver would have spent that money once, then the result is a 10x velocity, and an effective 10x increase in the money supply.  This is not printing money, this is just the mathematics of a 10% reserve requirement.  This is not immoral, it is just depositing and loaning money to other people, and thus increasing the amount of money that is available to spend.  The loan of unused money, sitting in deposit, increases the amount of money that people have available to spend.  The increases the amount that people get paid, which increases the amount available to spend, etc.  

John F: When the 90% is loaned out to others, is it still in the original depositors bank account?  

Thomas A: No, money that has been deposited, and then loaned out, is not in the account of the person who deposited it.   That money has been loaned to someone else to spend, who is obligated to repay it over time.  

John F: Does the depositor’s statement acknowledge the fact that there is no longer anything in his account?  (The original depositor’s money has been loaned out, and now resides in someone else's account.  The new depositor has a bank account that lists the money as being present in their bank account.)

Thomas A: Yes and No.
1) No.  Strictly speaking, the bank account statement does not overtly list the fact that 90% of the money that a man has deposited has been loaned out to someone else.  
2) Yes.  The monthly bank account statement does not list the entirety of the contract with the bank.  The statement is connected by implication, contract, and full disclosure law, to the original  contract that the depositor signed when he deposited the money in the bank.  That contract discloses the fact (either overtly or by implication) that the monies deposited in the bank will be loaned out for a period of time at interest.  The bank statement states the debt obligation of the bank has to the original depositor, which may be redeemed upon demand, within the limits of the contract.  But obviously, if everyone took their money out at the same time, there would not be enough money in the bank to meet that obligation.  This is why the FDIC and central banks were established, to prevent people from losing confidence in banks, withdrawing all the money, and then leaving the bank bankrupt.  But, even if there were not this chain of contract evidence of 90% withdrawal, common sense, history, study of the banking system, and an understanding of the financial system, would inform the depository of the fact that the money he deposited has been loaned out, only a small percentage of the money he has deposited remains in the bank, and that the bank statement reflects the amount that he could potentially withdraw.  This is not scandalous, new information that reveals a dark side of the banking industry, this is common knowledge that every man with good sense and an awareness of business, economy, and finance should know.  And, once a man knows it, he has implicitly agreed to only withdraw his money as needed, recognizing that if everyone withdrew their money at the same time the capitalistic system of finance, borrowing, and production would collapse.

John F: Is the "money" two places at once? If the original borrower withdraws his money that is no longer there in his account (since it was loaned out) where does the bank "get" the money they are giving back to the depositor?

Thomas A: The money is not two places at once, it is merely spent more times than it would have been, and thus is deposited more times, and thus is loaned more times.  The velocity of the money is increased, but not the quantity.  No new money is created, although the effect is to create more money because it is spent, loaned, and deposited more times.  More contracts are created to pay back the money by people who borrow it, and more obligations are generated by the bank to pay back the money to each depositor.  The behavioral statistics of large populations dictate that keeping a reserve of 10% cash on hand is adequate to meet the needs of daily withdrawals.  The fact that only 10% of all deposits need be held in cash, enables the bank to loan out 90% of the deposits many times.  The bank can thereby earn interest on a much larger amount of money than was deposited by the original depositor.  If the borrower is a man of good character and credit history, his loan loan may be secured by only the promise to repay the value borrowed in dollars, plus interest.  But, a larger loan or more questionable enterprise may be secured by physical collateral.

Thomas A: Fractional Reserve Banking (loaning 90%, and leaving 10% in reserve) is not immoral, it is way of effectively increasing the money supply in a controlled way.  The increase of money supply enables the general community, economy, and society to increase their rate of production and consumption by contracting more people to engage in production.  The engine of production is the men who apply work, intelligence, and capital to produce value.  The labor force, assisted by the muscle of machines, is used by the capitalist to forge the actual goods and services that the economy consumes.  Labor is the company of all men who willingly serve the entrepreneur.  They give him their work in return for dollars, which in turn reflects the value they accept as appropriately represents the value they each produce.  

The banking system is the point of accountability for loaning out money, and creating contracts that commit people to repay that dollar value loan, plus interest.  This commitment means that the borrower has committed to produce value somewhere in the economy, and thereby repay the loan.  This system inures that people are continually motivated to produce more value, which increases the amount of value that is available for consumption.  Giving loans to people enables them to make large purchases now, and then pay the loan back over a longer period of time.  This system enables men the means to establish production facilities by giving them the authority to use societal resources.  In effect the bank is the gateway, the point of vetting and accountability, that they will be productive, efficient, and good managers of the public’s resources.  The bank gives loans only under the conditions that the new enterprise will be productive, and thus repay commensurate value for value loaned.    

John F: Why can't I create dollars out of nothing, lend them to people, and then have people repay commensurate value/wealth back to me?

Thomas A:  There are two possibilities to which you refer, 1) Counterfeiting, 2) Issuing your own currency, 3) Becoming a bank and doing Fractional Reserve Banking, 4) Becoming a bank and do 100% time deposit.

2) Regarding issuing your own currency: this was a system that was followed back in the 1800’s.  With a few exceptions where people use gold or silver as legal tender, in general printing your own money has not been part of the economic system since the 1860’s.  In that system, people printed their own money, but in general there was a deposit and loaning system that they used.  The problem is that you are a bank if you accept deposits, and you either make money by storing it, which is a fairly low profit business, or you make money by loaning money, which is higher profit, but has the risk of default.  This works out ok as long as you have sufficient reserves in deposit to cover withdrawals.  Otherwise, if  depositors lose faith, they all withdraw en masse, creating a bank run.  There is no benefit to being a bank other than making the money that comes from the collecting interest and fees.  

If you wished to create a bank, and have people deposit money with the understanding that they could not withdraw it until the loan period had expired, then as long as you judged the risk of the loans well, as a banker, you could create a make a little bit off of the interest on the loans you issued.

But, this wasn’t really the question you were asking.  You were trying to impugn the morality of having a banking system that at some point in its chain (i.e. at the Fed level) “creates money out of nothing” and then loans it to people, and gets to collect the interest for loaning that money out.

How can we justify the Central Bank creating money out of nothing, and getting interest for having done that?  The answer is that they provide a service, if done righteously, of keeping the value of the money stable.  I personally think they have done a poor job of doing that function, but that is a criticism of wisdom, not of the entire concept of fiat currency and creating money out of nothing and introducing it into the system as debt.  The Fed has the job of clearing checks, distributing cash, auditing the health of the member bank, buying and selling bonds to raise or lower the money supply, setting the prime rate, and buying distressed assets, etc.  These are valuable functions, both in terms of facilitating the day to day flow of money in the economy, and regulating the money supply to maintain the stability of prices.  

If you wanted to print money, loan it out, and expect payment back plus interest for having loaned that money out, no one would patronize you, since you don’t provide any real benefit to the society that is unique or larger than just distributing money and taking it back.  This is basically a blue collar, street vendor, leaflet distributor level of skill and value.  Society will find it extremely disruptive to have you giving out authentic FRN’s to people as loans since you will probably be unable to hold people accountable, or judge their project, or their creditworthiness, or provide the support they need in other financial services besides just loaning them money and collecting their payment.  Plus, society will find it likely that you (or someone else in the same line of dollar distribution) will use some of these authentic FRNs for your own benefit, and spend them directly into circulation.  Thus, society will probably prohibit you from such rogue banking operations.  And, the bottom line is, if you, I, or someone else can either make or obtain authentic FRNs to distribute as loans, then the value of the money supply will likely collapse due to the extreme availability of dollars.  Such is the road to hyperinflation.  In other words, we trust the Fed to use proper restraint and regulation in issuing dollars.  Of course, we know that there as been a violation of that trust with the bailouts of European banks, etc. But, this does not negate the concept of a regulating the money supply, and thereby maintaining the value of the fiat currency.

John F: Now, if you tried to bring suit against the Fed for lying to you or stealing from you, the Soldiers and Policemen would threaten you to leave off pursuing it. Look what happened to Qaddafi when he tried to protect his country from the depredations of the World Bankers!

Thomas A: Of course the enforcement agencies would exert force against me, and they would be correct if my suit was without substance.   

John F: Your suit is without substance, in other words, if you were pretending to owe dollars that weren't there, that would be lying -- but if the FRB pretends to owe dollars that aren't there, there is substance with that, because they are authorized to pretend to owe dollars by the US Congress.

Thomas A: In this case this is the case.  The accusation of lying and stealing is untrue, with regards to FRB.  

But, there is an entirely other argument that should be pursued, and is in fact criminal, and that is the management of the economy to produce 2%/yr inflation, purposefully.

John F: So if the FRB and member banks multiply the dollar supply through low interest loans 2-5% under the real inflation rate of 11% so as to keep the inflation rate at 11% (see Shadowstats.com), is this moral and righteous, as long as they are making sure they are only loaning it to people who someone considers "productive" and can pay it back. And if, by accident, the borrow can't/doesn't pay it back, the principle borrowed into existence will not be annihilated by repayment. How do those inflated dollars get "stuffed back into the bottle" so they do not permanently increase worldwide dollar supply? Are other dollars annihilated to make up for what does not get paid back? Where do those dollars come from?

Thomas A: This is institutionalized theft.  This is purposeful stealing of value from those who save and those who lend.  Those who borrow will benefit.  This could be used as a promotional tool to increase lending, or a way to depreciate the government debt.  Either way, the benefits to whomever do not justify the theft of value/wealth that is absolutely, unequivocally, truly an undisputed fact, although not called by its proper name -- theft.  And yes, if God punishes a nation that engages in theft, we are guilty.  But, the problem is not FRB.

FRB does not create any dollars, it merely circulates the dollars deposited faster than they would circulate if held in savings by a man.  The effect is to increase the money supply.

[John F: If FRB does not create new dollars, where does the increase come from?  That is, if it is not the FRB system that increases US dollars in the world, what causes the increase in worldwide dollars in circulation?

Thomas A: There are two methods of increasing dollars, one is by FRB which increases the “effective” number of dollars in circulation by giving it to people who actually spend it, versus the guy who saves it, and just lets it sit.  
 
The FRB method of increasing the money supply is not harmful because every one of the dollars that was loaned out was given to a man who was committed to producing value (either directly with those dollars by enterprise that the dollars enabled, or by activity that was unrelated to the loan).  

Either way, value was promised to be produced, and if trustworthy, he actually repaid value for the value borrowed.  FRB can cause inflation if too many loans are made that allow consumption immediately, and do not result in an increase in productivity.
 
The second method of increasing dollars, government injecting money directly into the economy for consumption from the existing pool of value, is the one that causes the severe problem with inflation.  

When government gives people money, not from taxes, but from printed money, this enables consumption without a promise to produce commensurate value in repayment.  This happens with government welfare programs, which if financed by printing money, that causes inflation.  

Printing money is done as follows:
1) The Treasury sells T bills that are bought by Wall Street Bankers (e.g. Goldman Sachs).  
2) The Fed buys those T bills from the Wall Street Bankers.  
3) The government now has money to meet its budgetary obligations above the amount collected in taxes and T Bill auctions.  The government then distributes that money to various agencies, who give it to employees and the recipients of benefits from the various “entitlement” programs.

(This sequence is explained in more detail in below, from previous email).  ----  This is the method of increasing the money supply that is the problem.  
 
A third, more complex cause of inflation, and hence theft from the consumptive power of the dollar, is government taxation.  When government takes x% from a man, then spends those tax dollars on goods and services that are considered to be of little value to the electorate that hired them to be in charge of making group purchases, it can de-motivate the producing class, and cause them to weary in working so hard.  Thus, productivity could drop, and hence less goods and services could be made available, even if the wages paid did not drop.

John F: [I'm not sure if I have thought of this before, that the more the government taxes, the more $$ they have to bid up prices, and the less $$ the tax-payers have to buy things. This would cause a rise in prices for that productive/taxed group of people. But this is not inflation, this is just rise in prices of a certain class of people. There is still the same amount of dollars in the field.]
 
The second method, government giving money to people, thus enabling them to consume, but without the commitment to produce, is where the blatant theft happens.  FRB is just a method of increasing the velocity of money, and enrolling people in the process of production for society.  
 
John F: [Agree with you, that govt giving money away is theft, but not theft because of the giving, but because of the taking, either by tax or by authorizing the FED system to add dollars to the supply.]

You invalidate the entire line of reasoning by one statement that you repeat over and over.  You declare that there is nothing associated with FRB.  The fact is that everyone cannot withdraw all their money out of all their bank accounts all at once.  That is a fact, it is undisputed, I will not combat you over that statement.  this issue is whether that is significant that the money has been loaned out many times and cannot, IT CANNOT BE ALL WITHDRAWN AT THE SAME TIME – I AGREE WITH YOU...

John F: [Actually, since 1971/1968 I don't think it is possible to withdraw any dollars from any bank whatsoever. Your FRN's in hand are just a means to transfer what one bank owes you to having another bank owes you, and all the people in between who have faith that if they trade you for them, that they can take them to a bank and have that bank owe them dollars in their account.

What if there was just one bank to rule them all one bank to find them one bank to rule them all and in the darkness bind them? Amount of money would be meaningless, because it would not be possible to withdraw money at all. OneBank could give you tokens as they decrement the quantity of units they owe you (units of what?) and then you could bring back the tokens later and they would increase the quantity of units they owe you. But they could never pay you the units of measure, because there is nothing being measured. Right now, there is illusion of reality, because we think we withdraw something from one bank and deposit in another, but in reality, there is just a sayowe that is transferred. We say I paid you a dollar. but in reality I issued my permission for my checking-account-bank to owe you instead of owing me the dollar. If you are in a different bank, the "debt" is swapped through the Regional Federal Reserve Branch(s) where the two banks have respective "accounts". If there was just OneBank, It would just owe us, and changes in how many it owed the various account holders, but there would never be a difference in how many dollars were "in the bank", because dollars can never leave banks.]

The questions is, what is the significance of it not all being all withdrawable?  If you cannot withdraw all your money that you ever made in your entire life, and you cannot spend it all right now, at the same time that everyone else is the world withdraws all their life savings, and spends that entire amount immediately.... you are right, this cannot be done, the productive system would not handle it.

John F: [No one can ever withdraw a dollar from the banking system. The only possible existence of a dollar, is in an account where a bank says they owe someone else a quantity. But, again, there is no possible definition of the question, "Quantity of what?" And think of the other reality. The instant one person "spends" his money, now that money belongs to someone else. If you are thinking of "withdrawing" money, what really happens is that the dollars have to flow up to Fed Central - who actually pays national government to print the Federal Reserve Notes, then those notes come down to be used by you and the banks, while the imaginary dollars sit in the Fed account. When the bills are worn out, they travel back down to Fed Central and the imaginary dollars are traded for the worn-out FRN's which are incinerated, and Fed Central again pays for new ones to be printed up.]

But then again, neither would the gold system.  If everyone took their tangible gold, trillions of dollars worth of it, and all spent in right now, would they be able to redeem it all in valuable goods and services.  No, not anymore than if everyone withdrew all their fiat money and spent it immediately.  In other words, money is only as good as what you can do with it, paper or gold, both are symbols of authorizations to redeem valuable goods and services from the general inventory of production.  People are bound by the context of the world they live in.  In other words, it is impossible for all the money ever made to be spent at one moment.  So what if you can physically handle gold, if you cannot trade it for anything of alternate use, what value is a bucket, barrel or house full of gold when you want crayons, milk, and taxi rides?  The issue is not the symbol, the issue is its redeemability.  Can you get anything for it.  In a gold-based currency economy, you can get goods and services in exchange for a gold coin or gold certificate (with actual gold stored at 1:1 ratio with the number of bills in circulation).  

John F: If I borrow $1,000 to invest in Helium and balloons to sell at a fair, Banks create the money for me to borrow, either on my credit card, or in a business line-of-credit in my checking account, I sell a bunch of balloons, all of which get let loose in the sky, ascend, burst, and land in a farmer's field, I get paid for them, and now go back and pay off my $1,000 loan with interest -- have the bank and I done something immoral because we haven't produced anything, but instead just wasted a bunch of helium, string, and plastic/rubber by spreading all over the landscape. We have just satisfied the perverse, wasteful, consumption of Chinese Manufacture. Is that my fault, the bank's fault, have we stolen, or have we, together done a good, free-enterprise thing?
 
Thomas A: The helium balloons, produced, sold, and released, and burst, was the value produced, consumed, and disposed of.  That was what the people wanted to do with the money, they disposed of their service on balloons, it was a free will trade of one type of value for another.  They got a certain joy out of releasing them, and they were either happy with it, or felt they didn’t get the bang for the buck they wanted, but at the time of the transaction, they chose to make that exchange of value for value (one man’s service for another’s), the contract of exchange, no refund, no return, satisfied or not is a valid contract.  As long as the contract was entered into freely, with full knowledge of the terms, then there was a willful exchange of value/wealth, between parties, and this was no different than opening a furniture company and selling fine couches that graced homes for generations.  Both, types of expenditures are allowed in human commerce.  Was it immoral to let the balloon go, burst, fall in a field for an innocent farmer to to gather?  Yes, it violated the command of do unto others as you would have him do unto you.  But, such a violation has nothing to do with the bank loaning money that was available because of the rules of FRB.

John F: Or let’s say I borrow the $1,000, buy silver coins, and run around badgering people to buy then from me at cost, and after a lot of hard work, and wasted effort, I finally sell them and manage to bring back the $1,000 to pay the bank. Nothing has been "produced", nothing has been "consumed". There is just as much silver in the world. It is owned by people the same way it was before the bank created the $1,000, during the existence of the $1,000, and after the $1,000 disappears again. Yet it would not have happened if the bank hadn't loaned me the money, because I could not have afforded to obtain the silver as a necessary part of offering it for sale. Have we done something evil because nothing was produced? Have we done something good because I have wasted 5 evenings running around burning up gasoline and irritating people, and have no profit to show for it?
 
Thomas A: In this example you have borrowed dollars, and have produced no net profit for yourself.  This would be a foolish business venture.  While you can do this for a while, you cannot continue to do this forever, since you will not be able to support your life and family doing this kind of venture.  This is simply an example of a foolish man engaged in worthless activity, and as Proverbs says, he shall know plenty of poverty.   Is this evil.  I would say yes, it is the foolish servant.  If he wants to make a hobby of this because of the joy he gets from giving people the opportunity to buy/own silver because he thinks this is real money, and he wants to have other people want to have the same security as he, then he is doing a good thing, if in fact this turns out to be a helpful teaching/warning to people.  Is it good, is it bad, depends on the situation, the larger context of the activity.  Does this have anything to do with FRB?  Not really.  The bank made a profit from the transaction, so they were happy.  Some people were educated about silver ownership, so there was some net benefit to those people, and as long as I sustained my life with other value producing activity, then the activity is sustainable, and is essentially just a mission/outreach/service to the community of sorts.
 
John F: What if, instead, I had made double my money by persuading people to pay me more in hope that silver will be $80/oz next year? The $1,000 has still "come and gone", there is still as many "dollars in the bank" as before, it is just that they owe more of it to me, instead of other people (as in the case where I was just selling it for $40/oz). Is that more good? Or is it more evil?
 
Thomas A: You make interesting shifts of frame that confuse the argument.  The wording of this example did not make sense to me, so I can’t comment on it very well.  But, I would call this person a good businessman, in terms of turning a profit.  He was able to pay off his loan, plus interest to the bank, and he was able to keep a margin for himself.  He could do this business full time, it would work.  He may have an ethics problem if he has told people something he doesn’t believe, and persuaded them to buy products that were available elsewhere at similar quality and quantity, and greatly reduced price.  The challenge in this situation would be to make up the value in some sort of way, e.g. by giving them lots of education about the value of owning silver in an inflating economy where government is printing money.  Higher prices are not immoral or evil, lower prices are not moral or good, the question is the truthfulness of the vendor in revealing the known characteristics of the good/service being promoted/sold/pitched.  If the vendor reveals that the going price is 40$, but he wishes to sell it for 80$, then there would have to be some good reason offered for the price differential, some added value that this particular salesman was offering that made the greater price seem of greater value.  Education and relationship, and service, are common value added intangibles that people will pay a premium for.  This is a common method for garnering premium price – beauty, service contract, storage, availability for consultation...  All are intangibles that are given value, and hence are traded for gold or fiat money, regardless of the medium of value representation.  Again, the bank got paid back, money was put into circulation at a faster rate, as long as there wasn’t a bank run, everyone got the use of the money that they wanted, no one felt deprived or cheated of their ability to buy what they wanted today.
  
John F: What if the coin store had just loaned me the silver to go out and sell and no new $$ had come into existence, but the consequences were exactly the same? Would there any difference in the moral consequences?
 
Thomas A: If I made money, and the coin store was happy with the contract to be repaid the amount that I repaid, then this was an acceptable market transaction.  There was nothing good or evil about it.  This was somewhat of a hybrid barter and money mediated transaction.  The coin store received money back for the silver they had in stock, that possibly was not moving because of poor marketing skills by the coin store owner.  The person selling the silver made money by offering good service, or good companionship, or made them feel sorry for him, or they felt frightened and had to have some silver now.  Again, the morality of the transaction is entirely related to the context of the two people, as described above.  There are no FRB implications here, and the situation is as moral or immoral in one as the other, and the immorality/morality of the transaction has to do with the way that the individuals conducted themselves in the sales/purchase education/negotiation phase of the transaction.
 
John A: If it is OK to create $$ for a short while, but not for a long while -- what is the deadline for it to be come "wrong"?
 
Thomas A: Dollars are a representation of a contract.  You can make a contract for a short period of time or a long period of time.  You can trade the contract for a discount or profit over face value.  You can keep the contract and collect the ultimate payout of the contract, or trade it in early before maturation.  This is the principle of bond issuance, and then bond trading on the secondary market after initial offering of the bond.
 
John F: If it is OK to create a little bit, instead of a lot of imaginary money, what is the break-over point where it becomes "wrong"?
 
Thomas A: Either money issued into circulation has a contract to produce value behind it or it doesn’t.  If it has no contract, then it would be counterfeit, even if created by the authority given the trust to make the universal checks that we recognize as money.  So, if you want to call money that has no contract behind it “imaginary”, that would be ok. 

John F: [I think what you are saying here is that if a bunch of silver is produced and simply spent into the economy, that would be imaginary money and would cause inflation, or if a bank imagined money into existence and spent it directly into the economy, that would be inflation (and immoral because of stealing value from dollar-holders). But if the Banks inflate the money supply by loaning money into existence, that is not imaginary, and is not inflationary if it is paid back, (unless "being paid back" doesn't matter, the alternate requirement is that the venture "produces value", whatever that means). The Austrians point out, that even though these loans "roll over" and money is being created and annihilated all over the place simultaneously, that the loaning/increases predominate over the pay-back/annihilations such that the overall money supply increases, inflation happens, savers have the trade-value of their money robbed from them by the process. Then the correction happens in the form of what we call deflation, and that hurts another set of people in a different way (foreclosure, or greater cost of paying down debts since $$ are harder to get.)]

If a batch of money is produced by the mint/treasury/fed, then that is simply spent into the economy, and it does not represent a contract to produce value at any level, that would be imaginary money.  That is what causes inflation.  When money is put into circulation that has not been associated with a contract to produce value, that money is competing for the same pool of goods and services as the money that was received for producing goods and services.  The prices will naturally rise because more people want to/are able to consume with this added “imaginary”/officially counterfeited money.  This is the point it becomes wrong when money is put in circulation that is just given away to spend, but no contract for repayment of value is associated with it.

John F: [I still do not understand the moral or physical difference between "contract to produce value" and contract to be paid back". Would the silver, being traded as money, be counterfeit if it was loaned for a project that didn't produce value, even though it was paid back according to the contract? Why is paying back what was borrowed - separate and different from "producing value"]

John F: All government should be doing is protecting property rights and responding to breach of contracts. If two people want to trade, they need to honestly define what they are trading to the satisfaction of each other, and if one violates the contract and steals, the cumulative responsibility of society is to step in and coerce double restitution.

Thomas A: Such a society would produce good and moral people, as the pain of violation would be too great to justify the short term benefit of possession without honest labor.  God's plan is a good one.

John F: Why bother? Why should be be concerned to punish theft at all? Why not just let people steal from each other, as long as it doesn't bother us?  Because if we let it go, God will bring about the society-wide plunder of us all.  As now.

Thomas A: Amen, full agreement.

John F: This is why we can't stand by and let the banks go on the way they are. They are increasing the pressure constantly of what is going to be a huge blow-up. Look at Greeced-PIIGS Europe. We must stop fraternizing with the crooks. No more deposits. No more loans or credit card credit. No more 'help' with transactions.
 
Thomas A: Agreed.  The printing of money, as the world's reserve currency, and thus debasing it, is criminal on a worldwide scale.  
John F: Why are you still using the verb "printing"? No dollar comes into existence because of printing. I will give you a troy ounce of .999 fine silver if you can demonstrate to me and to the satisfaction of any other Austrian Economist that US dollars come into existence by "Printing". Then I will shut up.
 
Thomas A: Printing, as I have said before, is a metaphor for putting $ into circulation, without associating it with a contract to produce goods and services.  As we have discussed, money has to come into existence somehow.  It appears that the central bank loans money to the Wall Street Bankers, or to the large commercial banks, and the banks then make money on this money by creating debt, by loaning the money to people who will promise to pay it back.  True, the money will eventually come back to the bank, to the secondary market (wall street/investment bankers), and eventually to the Fed, but in the meantime, during the life of the dollar that was put into circulation by electronic credit in an account, or shipment of $ bills, all made out of nothing, the dollar will have been used as a medium of exchange throughout the economy, giving each man a symbol that represents, by the time it came to him, that there has been somewhere, goods and services produced, that he can consume as a reward for the work he did.  
 
Is this good/bad/immoral/moral because ultimately there is nothing behind this dollar bill?  It is neither, it is just a method of accounting for value given and value received, with each exchange agreed upon as acceptable by the parties involved.
 
Thomas A: But, the situation is not the bank's responsibility primarily/directly, nor is it a problem with FRB.  The problem is with the policy of government.  Greece is in dire straits not because of FRB, but because of socialized entitlements.  The government is spending 1/3 more than it takes in, thus the deficit must come from printing, or legitimate borrowing from the delayed wealth consumption of other economies with excess production.  

John F: Why couldn't governments borrow themselves into destructive debt just as easy if we were honest about QMS? Why are the two phenomena necessarily related? Granted, people accept government debt more easily if interest rates are 6% instead of 20% because the banks can afford to charge less interest when there is no time or quantity limitations on being able to loan dollars.
 
Thomas A: I don’t understand this comment very well.  But, debt is a painless way of spending now (current pleasure), and paying later (delayed pain).  People will often be seduced by the promise of pleasure now, hoping the future will not come, or it will be worth it.  Or, the moral hazard problem, of teaching people that they don’t need to worry about the later pain because they will be rescued from it.  
 
The implications of unlimited loaning from the central bank is the problem, because all that loaning is going toward consumption, rather than toward installation of infrastructure and tools of production to increase productivity.  The problem with Greece is that it has a significant consumptive burden as a welfare state.  The loaning of money to solve the problem is all futile since nothing other than investing in productivity will solve the problem permanently.  The interest rate charged for the loan continues to rise because of the perception that the loan will not be repaid.  Obviously it will be a greater burden on a society to pay a very high interest loan for public debt.

Thomas A: Either method is criminal, since it enables the government addicted to deficit spending, and the man addicted to stealing the fruit of his fellow man's labor, to continue in their/his profligate ways.  This is criminal to enable sin/theft, and the nation/person/government who engages in such will suffer the subtle, but sure, slow, and powerful spirit of justice to eventually work circumstances that extract the justice required of divine law.

John F: I agree that for people to use Law to plunder wealth from each other for any purpose other than punishing God's crimes with God's punishments -- is very wrong and destructive, and will be judged by Christ, just as it is wrong to use that taxed wealth to accomplish destructive things (however foolish men might be deceived into thinking the project to be "good"). But this has no necessary relationship to imaginary substance, measure, or quantity. You could still do all this with QMS.
 
Thomas A: Taxes, and FRB are two unrelated concepts.  Fiat money is a QMS.  The underlying value/wealth associated with gold/fiat dollars is abstract.  The value of associated with gold/fiat dollars is negotiable.  The amount of consumable value/wealth associated with x amount of gold, is equivalent to y amount of dollars at a given time, hence the currency value.  Yes you can do trade with a QMS substance that has inherent value, or if you have a society that trusts each other to honor the fiat dollar, and trust the government to not inject dollars not associated with contracts, then you have an equally good system either way.  if you have criminals in the government that issue new money without associating it with work, then the only restrain is a strict qms system.
 
John F: The issue with the Central Banks "printing money" is not an issue, as long as the source is well regulated.  Having a society that operates on a single currency can very much facilitate the "general welfare".  I believe my individual bank being able to create new money at a prescribed rate, agreed upon in a non binding way as a bank consensus, variable per region, etc, would enable the kind of competition that my Libertarian friend advocates, but with the advantage of universal holding of value and ease of trade, and facilitation of trust.

John F: But you have to have a promise and the fulfillment of a promise -- to have trust. With imaginary money, you can neither promise nor fulfill. If it promotes the "general welfare" to have FRBS increase money supply (well-regulated), why not let Everyone increase the money supply? If either FRB or Joe Blow pretends to loan imaginary money for the wrong project -- then "well-regulated" law enforcement cracks down and punished bank or person alike for loaning for the wrong thing.  Otherwise aren't we saying "general welfare" but in reality giving "special welfare" to the FRBS? Why do they get the profit of pretending to loan something that is not there, and I don't, if we both loan it for equally "productive" projects? Seems like it would boost the economy (read "money supply") even better if we got everybody loaning money to each other like the banks are doing now. You could even raise a lot more tax revenue to reduce the national debt, because you could be fining (punishing) a lot more people because they would, no doubt, be making a lot of unproductive loans in their ignorance. Right now, you can't fine the banks for their evil unproductive loans, because they are controlling Law, instead of Law controlling them.
  
Thomas A: As I mentioned, Quantitative Easing is not theft, it is changing the point of accountability for repayment of a loan from a bank, to the government. The problem with QE is that it creates a moral hazard, in that taking distressed assets from a bank, and then giving them the authorization to loan with the excess reserves created, takes away the cost of bad decisions, and creates an atmosphere of unaccountability.  

Money in the Central Banking system is introduced via the Investment Bankers (e.g. Goldman Sachs, or other borrowers who have direct access to the Fed, and can borrow from them.  This again, is not bad, wrong, evil, or unGodly, because the generic symbol of the dollar is given to a borrower, in return for a quantity of productivity corresponding to the current value/wealth associated with the dollars loaned.  

John F: I have never understood the way you reason here. I think you are saying value=dollar & dollar=value, and you are going around in a circle. Is the dollar the symbol of some thing, or are you saying something else symbolizes the dollar? What is the symbol? What is the Dollar?
 
Thomas A: Such association of words/contract/paper symbols of value give the dollar bills/electronic tokens value,and it is a quantity of measurable substance, it is not a specific substance, but it is generally measurable, it has substance, and there is a quantity of it.
  
John F: OK, what is the substance? How is the substance measured? What is being counted?
 
Thomas A: The mind must be able to grasp the abstract nature of mapping a discrete, homogenous substance such as gold into the generic value given a substance by society/economy.  Upon making that map, we can see that there is in fact a meeting of the criteria of QMS in the fiat money system, but it does require the use of abstract to concrete mapping, and an acceptance of the validity of such a concept.  
 
The fiat money system expands the money supply without effort with regard to the actual production of the money specie, as is should be, since the money itself is not necessarily the object of wealth, although it could be (e.g. gold/silver coins).  Rather, the focus of effort is upon the enrollment of human will to commit to the production of value/wealth.

John F: There is no need for the broad population to commit to the production of value/wealth, since the FRB can just create as much of this as we should need.  

Thomas A: Production and consumption of wealth is the real point of a money system.  If there is no consumable value/wealth created, then possession of all the gold and silver in the world will be of little benefit.  Thus, the real issue is how to facilitate the production of human effort to produce goods and services.

John F: And here I would suggest the Bible is glorious in showing us that Family Ownership is the most motivating and productive way forward. This will require being honest about the substance the Family owns, being honest about how we measure that substance, and being honest about how we count those measures.
 
Thomas A: Loaning money, created out of nothing, which at its essence is a contract, and tradable for other goods and services, hence fungible.

John F: Again, you gotta persuade me of the honest and clarity of the "contract". I don't think your contract promises anything, or if it does, it does not tell the truth.

Thomas A: Whereas, the gold/silver system, relies upon the amount of gold/silver that is produced.  

John F: Whereas our fractional-reserve/fiat credit & currency system is not limited by the amount of imaginary money that is produced.

Thomas A: The gold miner become the primary entry point for the introduction of new tradable money.  The loans that are needed to authorize consumption prior to, and to facilitate, production cannot be made until sufficient gold/silver is mined.

John F: "Authorize". Where does this authority come from?
 
Thomas A: This is the most important and productive question you have asked.  Very good.  We must continue to dwell on this one until there is mutual agreement on the answer to this question.
 
The banks, in the central banking system we find ourselves in currently, derive their authority ultimately to Congress, and maybe tangentially to the Constitution, although maybe not.  Let’s assume there is no historical document that we signed onto, re, principles of responsibility, and instead just used the Bible.  So, let’s put the Central Bank as an agent of the King.  The King as authorized the bank to issue currency to banks as a loan, which they were required to pay back with interest in time.  The banks have to make money to be able to stay in business, so they loan that money out at interest to people who are involved in productive enterprise, and hence are able to pay back the loan with money they earned.  And in this system there is no other money other than the fiat dollars, which in essence is owned by the king.  So, all the enterprise and commerce of the nation is ultimately mediated by currency that is created by the word of the king.  
 
In this nation, it is a government of the people, which means that we are the king, and that we have authorized that we will issue currency that will be loaned to banks, which will be loaned to people, and repaid back to lender, who will pay it back to the central bank.  Once the money supply is sufficient, then other mechanisms of increasing the money supply can come into being.  For example the FRB system of banking allows for the velocity of the money to be increased since the loaning, spending, depositing, and re-lending process is faster than the process of spending all of your savings.  
 
Who gave banks the authority to create money?  We did.  We elected officials who set up this system as our representatives.  We can say it was a bad system, and it was done selfishly, and there will be benefits to the bankers, and it will put them in a position of power because they control the flow of so much money.  But, the bottom line is that the Central Bank was and is authorized to create the fiat dollar by you and I.  One of our past Congresses authorized them to do it.  Some wanted them wanted it, others didn’t, but the majority of both the House and Senate on Dec 23rd, 1913, passed a bill that had been in negotiation for 2 years after it was conceived on Jekyll Island.  Was it evil?  It could be used for evil.  Was it good?  It could be used for good.  The answer to that question is dependent upon the moral compass of the men who administer the system.

John F: [These are almost the exact words used by my excommunicating Pastor.]

Thomas A: Does the fact that I have said the same thing, independent of your ex-pastor, give any witness to you of its truth?  Or, does it say to you that both your ex-pastor and myself are both deluded by the same strong lie told by society, bankers, and Satan?

John F: PM Loans do not need to wait until more gold/silver is mined any more than imaginary dollar loans have to wait until the banks pretend more dollars are in someone's checking account. What is wrong or unusual or un-ordinary about loans that happen because the owners (of whatever is being loaned) are motivated by the potential gains of a free-market system to loan their EXISTING possessions to the borrowers? You really need to think about this.
 
Thomas A: Rental-based income and trading/bartering for the use of underutilized property is just one of the ways of increasing productivity from physical capital.  The distinction being addressed here is whether the use of an intermediary symbol of value, money, involved, or if it is simply a straight value for value barter-based transaction.  If it is barter, then we are no longer engaged in a monetary-based trading system.  An argument that “we could trade with the underutilized physical capital if we don’t have enough gold in circulation:” has no effect on my comment that the lack of adequate money supply will hinder trade.  In fact, you have emphasized my point with this illustration.  The fact is, we must go backwards a number of centuries to the days of barter because there is insufficient money in circulation.  

All my considerations stand about a gold-based system.  I don’t want to trade in a world where I have to judge if the use of my lawn mower is worth so many figs.  I prefer to have the market make these valuation decisions.  I consider barter a massive reversion to a more primitive time, and I have no desire to go there.  Converting all goods and services into a common medium of exchange is one of the most brilliant and wonderful of all the advancements of civilization.  And, I don’t believe that God intends that we only trade in gold, and I don’t want to trade in tractors, that idea is absolutely abhorrent to me.

John F: I don't need to sit around on my hands, pining away until more Kubota tractors come into being out of nothing so that I can use one to mow my field. Turns out my neighbor is willing to give up the use of his tractor during the time I use it on my field, but he is happy, partly because my daughter used up her own bales of grass  hay (for which she had to give up the use of some of her possessions in trade) to feed and water his horse, morning and evening for about 6 months. My field is not blocked from getting mowed just because there is no government-approved corporation who can pretend that there are more field-mowing things in the world and says that they owe me one in my Farm&Garden Account. I can borrow my neighbors real, substantial, measurable, countable field-mowing thing -- and nobody has to pretend to create out of nothing, and imaginary field-mowing thing.
 
Thomas A: You have gone outside of the money-based system and transitioned into a barter based system.  I prefer not to live in such a world.

Thomas A:  Thus the growth rate of the economy is dependent upon the amount of purified metal that can be produced.

John F: Nope - the economy has grown without that. There are now more mown-fields in the world (more of that production you are so fond of) because I borrowed a real QMS from someone else that gave up the use of it for a time.
 
Thomas A: All that is true, but very cumbersome.  I’d rather borrow money, buy a tractor, own it, and rent it out for use if there was unused capacity (or vice versa).  My experience with barter has been that it is very unsatisfying.  I find that it is very easy to feel cheated or to cheat another in terms of a precise exchange of value for value.  
 
Thomas A: Thus, those in poverty, who are willing to work, start businesses and industry, will be unable to enter the working force until sufficient additional quantities of gold are mined.  While the coinage is solid, the human cost can be significant in the delays in production and unutilized talent/labor/thought/passion.  
 
The real problem with fiat money and the central bank is its misuse.  As mentioned above, the use by government of selling Treasury bills to buyers, and then the Fed purchasing those T bills on the Secondary Market (since for the Fed to buy directly from the Government is forbidden by law) is a thin disguise for an illegal transaction, it is a letter of the law legality, but a color of law sham.  The problem with the Central Bank is its covert financing of projects (war, entitlements...) by methods that debase the currency.  As long as there is sufficient savings rate, and small enough wages in comparison to productivity, the ruse can continue without significant inflation.  But, when the skim of value by government becomes too great, the poverty becomes noticeable, and/or inflation becomes problematic.

John F: You lose me here, I can't follow your reasoning. Maybe you are "changing frames on me"?

Thomas A: Densely packed concepts, this was a paragraph that the computer ate, and I had to retype/recreate it, bored, just wanted it to be done.  I’ll explain it more if you like.  Very important concepts.  Central to the whole issue of Central banking and how money is introduced, and when it is a problem and when it is not.  

Thomas A: The problem is government, not the Fed.  

Thomas A: The problem is that the Fed facilitates the taking of wealth from the economy at a sufficiently significant rate, such that the ordinary worker lives in conditions far substandard to those if wealth were not diverted away from his consumptive control.
 
The real question we should be asking is how to create prosperity.  I believe the distributed banking system that I have described in previous essays would serve the purpose of expanding the money supply at an adequate rate to meet the needs of those who are committed to increasing productive output of the economy.

John F: I believe you would quickly become the slaves of whoever set the rules about what constituted good loans vs. evil loans.
 
Thomas A: There is no judgment of good or evil loans, only the market’s judgment of the profitability, dependability, security or the bank.  This is totally a market based judgment, not a judgment of a central ruling board.  The point I was making was how to put more money into circulation to expand the money supply if we don’t have the central bank doing it.  Every bank would have the authority (in my system) to issue new currency, as a small percentage of their loans.  The percentage of the loans that would be “new money” issued just because we needed it, would have to evolve and be agreed upon by society and the market.  But, my proposal was a multilayered system, with a center.  Every layer would provide input, and a consensus would form from all these players participating in the data gathering and voting.  Ultimately, each bank would be responsible to its shareholders/depositors for the profitability of the loans, and the security of their deposits.  And yes, everyone should know when they deposit their money that it is being loaned out, and only 10% is kept in reserve, and you can’t expect that everyone will get all their money if they all come for it on the same day.  That’s part of the contract, either you want to bank here, or you can keep it at home, and pay your bills in money orders.
 
 Thomas A: .But, the major issue is not how to introduce money into the economy.  The problem is not the Fed.  The problem is government.  The problem is a government which has become master, not servant.  It is no longer a government of the people, but a government served by the people.  The solution is a return to Godly morality, where people are governed by the internally directed principles of Godliness.  To this end, government should be reorganized down to the levels that were prescribed by the Constitution.  Those who are currently unemployed need to be employed, or they should not eat.

John F: You are asking for slavery. Beware of those who call for "full employment". Instead we should say "Those who are eating other people's bread should not eat it, but should steal no more, working with their hands the thing which is good, so that they might have to share with those who are in need (Eph 4).", and if they don't have enough food, they should trade what they have for it, and if they are unwilling to trade what they have for it (property/labor), and no one else is willing to feed them -- then no one should be punished as criminal (as taxpayer is now) for refusing to feed those who are unwilling to work or trade for the necessaries of life.
 
Thomas A:  Yes, you are right.  If a man cannot work, then it is charitable to give him bread to keep him alive.  And, he should keep/be doing what he can do.   And yes, there are men that cannot work, and such is the place of the church and charity to support the widow and orphan.  But, it should be voluntary, not compulsory, which is what we have with the tax system, and it destroys the initiative of the worker who is forced to give, and it destroys the initiative of the one who takes other people’s bread extracted forcefully from them.
 
Thomas A: New money should be created if it cannot be facilitated in the ordinary borrowing based on excess reserves for all reasonably judged-to-be-productive enterprises.

John F: Again, you are blocking out the possibility of borrowing QMS. That is the ordinary way, but there will have to be a sharing of the risk of the Venture Capital.
 
Thomas A: The actual money supply has to be expanded somehow.  Borrowing from the Fed, to loan out is one way of doing it.  Venture capital is just a way of loaning without the mediation of a bank.  QMS/gold/tractor-borrowing systems are cumbersome.   Banks provide a point of accountability for the repayment of loans.  The bank does not create money, it loans money that is on deposit, or borrows money from other lenders.  It does not create any money on its own, ever.  Bankers have no power to create money on their own, with the flick of a pen.  The central bankers do have that power, but that officially regulated authority should be done with wisdom.  But, since a few men can make a mistake in judgment, even though well intended, I have proposed transferring that power to all banks.  
 

The criticism you level about good and bad loans, etcetera, is not the point of the argument.  All bankers only make what they consider to be good loans, and they should fail or thrive based upon their judgment.  They should be accountable to their depositors as shareholders are essentially the owners of the bank.   Thus, a market where banks live and die by the judgment of the market.  There is no evil/good polarity, it is only wise/unwise, and the level of trust that is engendered by the bank in relationship to their customers.
 
Thomas A: This of course cannot be done without coercion if mediated by the market.  Thus, the market must grow organically to allow freedom and prosperity to coexist.  The limiting factor in market growth is the balance between consumption and production.

John F: You might want to consider whether we should call it "Consumption without production" when a banking system [by increasing the money supply] is actually "consuming" the wealth of the "money-holders" of the world by the inflation effect. They are not adding anything to the Universe, instead they are dividing the wealth of the world by a greater number.
 
Thomas A: This is exactly the point I was making.  I am in complete agreement.
 
Thomas A: Consumption is enabled by wages, and wages are enabled by production.  By reducing the overhead associated with non productive activities (war and entitlements), there will be more consumable wealth available, hence more wages can be paid, hence more money flow, hence more employment.  The limiting factor is production, and the diversion of wealth from the consumer produces poverty.  

John F: Basically, I agree with the idea that we need to increase real production. God's principles like:

Honesty in QMS:  (Fiat currency also has an abstract, negotiable, current time-based qms – it must, otherwise there is no meaning to money.)
The workman is worthy (gets to own/control) of his wage
If any man will not work, neither shall he eat
Do not steal
Treat others like you would want to be treated
Love your neighbor as yourself
If you find something your neighbor lost, try to return it to him
Do not show favoritism to either rich or poor
Do not join with others to do wrong things

....will do the most towards decreasing waste and destruction, and do the most towards producing more goods and services available to our "standard of living"

Thomas A: I agree with your principles as stated, and modified as noted.  They are a good standard to build a society upon.
 
John F: Have you heard about Oath Keepers?
http://www.operationsleepinggiant.com/uscca/