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Re: LT: RE: How banks create money out of nothing.

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  • Roy Langston
    ... I ll thank you to keep your speculations about my intentions to yourself. ... No, you did not. What you dealt with later in the post was in the entirely
    Message 1 of 6 , Apr 15, 2008
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      Harry Pollard wrote:

      >You are arguing for the sake of arguing with no
      >intention of discussing the question.

      I'll thank you to keep your speculations about my
      intentions to yourself.

      >This is shown immediately by your reply when I
      >said:
      >However, banks also lend us 'money'. Well, not
      >exactly. They drop a value into our account and we
      >can write purchasing media until this value is gone.

      >You replied:

      >"Oops, you forgot: we can also withdraw the same
      >amount in currency."

      >Well. I hadn't forgotten. I dealt with it later in
      >the post.

      No, you did not. What you dealt with later in the post was
      in the entirely different context of banks not keeping
      enough currency on hand to provide full conversion to
      everyone who DEPOSITS checks, not the full convertibility
      into currency of the checking account balances the BANKS
      CREATE ex nihilo when LENDING. First, you tried to obscure
      the fact that checking account balances are money by
      putting "money" in scare quotes, and pretending that use of
      the money in the account created by lending is confined to
      "writing purchasing media," eliding the fact that it is
      fully convertible into currency on demand. Given that you
      never identified the fact that the checkable account
      balances created by bank lending are fully convertible to
      currency on demand, I can only assume this elision was
      deliberate.

      >But you don't appear to read a post. You read
      >paragraph by paragraph - or sentence by sentence -
      >and throw in your comments and funnies.

      Perhaps that is your way of complaining that I don't let
      any of your false claims, tendentious redefinitions or
      invalid inferences taint the debate, no matter how
      seemingly minor or innocuous they may be when you introduce
      them.

      >One more example. I said

      >We write a check and give it to someone to
      >purchase a new television set. The TV appliance
      >owner takes it to the bank and deposits it into his
      >account. Then he writes a check to buy a new sofa.

      >The furniture company then . . . . . . .

      >All these are book transactions or perhaps electronic
      >blips on a screen. To describe them as money is
      >ridiculous.

      >"No, it is denying that what changes hands in return
      >for the goods is money that is ridiculous -- to put it
      >charitably."

      >They are neither measures of value, nor exchange media.

      >"The amount of the bank balance transferred using the
      >check paid for the new TV set is self-evidently and
      >indisputably both a measure of its value and the medium
      >used for the exchange. To deny this is simply absurd."

      >I was describing the accounting at the bank which, I
      >repeat, I repeat are simply bookkeeping transactions.

      However, repeating false claims does not make them true.
      "Simply bookkeeping transactions" would describe transfers
      of funds between notional accounts of a single entity, such
      as the bank moving funds from its capital account to loan
      reserves. What happens at the bank when a check clears is
      entirely different: one entity's purchasing power is
      reduced, and the purchasing power of another entity is
      increased. That is not "simply a bookeeping transaction."

      >"Using the check" is without doubt using purchasing
      >media.

      No. A check only AUTHORIZES THE TRANSFER of the real
      medium of exchange: the cash balance the check transfers
      out of the buyer's checking account and into the seller's.


      >I never denied that. In fact, I've made the point
      >many times. A check is written in terms of the
      >measure of value, whatever that may be, but it isn't
      >the "yardstick" itself.

      Right. The check is not a store of value, nor is it the
      medium of exchange. It is only a legal instrument whereby
      the real store of value and medium of exchange -- the MONEY
      in the checking account, which the bank has created ex
      nihilo -- is transferred from one party to another. As I
      have pointed out to you before, this is proved by the fact
      that a check not backed by such a money balance is quite
      useless for purposes of exchange, though it will get you a
      free ride in a police car.

      >Thus, the $700 I pay for the television set with my
      >check indicates the exchange value of the TV in terms
      >of the outside measure of value.

      ?? "Outside" measure of value? What might that mean?
      Money is the measure of value. Period.

      >Neither the check, not the bookkeeping change in the
      >bank, is in any way the measure of value.

      ?? The amount of the check is most certainly and
      indisputably the measure of the TV's value, same as if it
      were paid in currency.

      -- Roy Langston


      __________________________________________________________________
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    • Harry Pollard
      Roy, As is usual, it s a matter of definition. I argue that the present defined concepts are inadequate. You support them. The traditional functions of money
      Message 2 of 6 , Apr 15, 2008
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        Roy,

         

        As is usual, it’s a matter of definition. I argue that the present defined concepts are inadequate. You support them.

         

        The traditional functions of money are “a measure of value”, a medium of exchange, and “a store of value”.

         

        I mentioned this in my earlier post and said:

         

        Contrast this with the clutter contained in the modern concept of money. It is a "store of value" (which sensible people should avoid); it is a "measure of value" (that doesn't seem to relate to anything in particular); it is a "medium of exchange" (whose function has overwhelmingly been replaced by other instruments).

         

        You replied piece by piece:

         

        >HP: Contrast this with the clutter contained in the >modern concept of money. It is a "store of value" >(which sensible people should avoid);

        RL: Readers may find it difficult to fathom how the wisdom of providing for one's future by storing value, which dates at least to Old Testament times, could suddenly have become not sensible. I know I do.

         

        HP: Well, you changed the subject, but that is to be expected. This is not about putting “value” away for the future. It is about using “money” as your store of value. If you were not sensible and stored away (say) $100,000 30 years ago, it would have lost about two thirds of its value over the three decades.

         

        As I suggested, this “store of value” is something that sensible people should avoid. You continue:

         

        >HP: it is a "measure of value" (that doesn't seem to

        >relate to anything in particular);

        ?? Because it relates to everything in general that has
        value. Hello?

         

        HP: Ed first pointed out that the dollar bill was backed by nothing in particular. All you will get if you take a $10 bill to the Mint is two $5 dollar bills. The dollar bill fluctuates in value – mostly downward. I wonder what could be built in the US if the yardstick over 30 years diminished in length by two thirds? Well, it doesn’t seem to bother you and so be it. You go on:

         

        >HP: it is a "medium of exchange" (whose function >has overwhelmingly been replaced by other >instruments).

        RL: Try making a check function as a replacement for the account balance it represents, and tell us how that works for you (you might want to secure a "Get Out Of Jail Free" card, first).

         

        HP: Very funny. The check is simply a purchasing medium like the credit card slip and the dollar bill. I will exchange these things for whatever I want to buy. It’s the way I exchange my wealth for someone else’s. It’s the way I buy things – which I think is a good reason for calling these pieces of paper “Purchasing Media”.

         

        So, I do.

         

        Finally:

        >HP: All purchasing media are actually "promises to >pay".

        RL: Again, that is just false. A gold coin is not a promise to pay. It is payment.

         

        HP: Just don’t go into Loblaws to buy groceries and offer the gold coin. (Not that you would do such a stupid thing.) The checker would call the manager,

         

        My golly, do I have to explain barter next?

         

        Harry

         

        ******************************

        Harry Pollard

        Henry George School of Los Angeles

        Box 655

        Tujunga  CA  91042

        (818) 352-4141

        ******************************

         

        From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On Behalf Of Roy Langston
        Sent: Tuesday, April 15, 2008 10:11 AM
        To: LandCafe@yahoogroups.com
        Subject: [LandCafe] Re: LT: RE: How banks create money out of nothing.

         

        Harry Pollard wrote:

        >You are arguing for the sake of arguing with no
        >intention of discussing the question.

        I'll thank you to keep your speculations about my
        intentions to yourself.

        >This is shown immediately by your reply when I
        >said:
        >However, banks also lend us 'money'. Well, not
        >exactly. They drop a value into our account and we
        >can write purchasing media until this value is gone.

        >You replied:

        >"Oops, you forgot: we can also withdraw the same
        >amount in currency."

        >Well. I hadn't forgotten. I dealt with it later in
        >the post.

        No, you did not. What you dealt with later in the post was
        in the entirely different context of banks not keeping
        enough currency on hand to provide full conversion to
        everyone who DEPOSITS checks, not the full convertibility
        into currency of the checking account balances the BANKS
        CREATE ex nihilo when LENDING. First, you tried to obscure
        the fact that checking account balances are money by
        putting "money" in scare quotes, and pretending that use of
        the money in the account created by lending is confined to
        "writing purchasing media," eliding the fact that it is
        fully convertible into currency on demand. Given that you
        never identified the fact that the checkable account
        balances created by bank lending are fully convertible to
        currency on demand, I can only assume this elision was
        deliberate.

        >But you don't appear to read a post. You read
        >paragraph by paragraph - or sentence by sentence -
        >and throw in your comments and funnies.

        Perhaps that is your way of complaining that I don't let
        any of your false claims, tendentious redefinitions or
        invalid inferences taint the debate, no matter how
        seemingly minor or innocuous they may be when you introduce
        them.

        >One more example. I said

        >We write a check and give it to someone to
        >purchase a new television set. The TV appliance
        >owner takes it to the bank and deposits it into his
        >account. Then he writes a check to buy a new sofa.

        >The furniture company then . . . . . . .

        >All these are book transactions or perhaps electronic
        >blips on a screen. To describe them as money is
        >ridiculous.

        >"No, it is denying that what changes hands in return
        >for the goods is money that is ridiculous -- to put it
        >charitably."

        >They are neither measures of value, nor exchange media.

        >"The amount of the bank balance transferred using the
        >check paid for the new TV set is self-evidently and
        >indisputably both a measure of its value and the medium
        >used for the exchange. To deny this is simply absurd."

        >I was describing the accounting at the bank which, I
        >repeat, I repeat are simply bookkeeping transactions.

        However, repeating false claims does not make them true.
        "Simply bookkeeping transactions" would describe transfers
        of funds between notional accounts of a single entity, such
        as the bank moving funds from its capital account to loan
        reserves. What happens at the bank when a check clears is
        entirely different: one entity's purchasing power is
        reduced, and the purchasing power of another entity is
        increased. That is not "simply a bookeeping transaction."

        >"Using the check" is without doubt using purchasing
        >media.

        No. A check only AUTHORIZES THE TRANSFER of the real
        medium of exchange: the cash balance the check transfers
        out of the buyer's checking account and into the seller's.

        >I never denied that. In fact, I've made the point
        >many times. A check is written in terms of the
        >measure of value, whatever that may be, but it isn't
        >the "yardstick" itself.

        Right. The check is not a store of value, nor is it the
        medium of exchange. It is only a legal instrument whereby
        the real store of value and medium of exchange -- the MONEY
        in the checking account, which the bank has created ex
        nihilo -- is transferred from one party to another. As I
        have pointed out to you before, this is proved by the fact
        that a check not backed by such a money balance is quite
        useless for purposes of exchange, though it will get you a
        free ride in a police car.

        >Thus, the $700 I pay for the television set with my
        >check indicates the exchange value of the TV in terms
        >of the outside measure of value.

        ?? "Outside" measure of value? What might that mean?
        Money is the measure of value. Period.

        >Neither the check, not the bookkeeping change in the
        >bank, is in any way the measure of value.

        ?? The amount of the check is most certainly and
        indisputably the measure of the TV's value, same as if it
        were paid in currency.

        -- Roy Langston

        __________________________________________________________
        Ask a question on any topic and get answers from real people. Go to Yahoo! Answers and share what you know at http://ca.answers.yahoo.com

      • Roy Langston
        ... Depends what you mean by the present definitions. Some are adequate, others are not. The definition of money as a broadly accepted medium of exchange,
        Message 3 of 6 , Apr 17, 2008
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          Harry Pollard wrote:

          >As is usual, it's a matter of definition. I argue
          >that the present defined concepts are inadequate.
          >You support them.

          Depends what you mean by "the present" definitions. Some
          are adequate, others are not. The definition of money as a
          broadly accepted medium of exchange, and consequently a
          measure and store of value and unit of account appears to
          be one of the former.

          >HP: Contrast this with the clutter contained in the
          >modern concept of money. It is a "store of value"
          >(which sensible people should avoid);

          >RL: Readers may find it difficult to fathom how the
          >wisdom of providing for one's future by storing value,
          >which dates at least to Old Testament times, could
          >suddenly have become not sensible. I know I do.

          >HP: Well, you changed the subject, but that is to be
          >expected.

          No, I did not. Your false claim that I did was what was
          really to be expected.

          >This is not about putting "value" away for
          >the future. It is about using "money" as your store of
          >value.

          Which sensible people have been doing since before the
          Parable of the Talents, as archaeologists' routine
          discoveries of coin hoards just flat-out PROVE.

          >If you were not sensible and stored away (say)
          >$100,000 30 years ago, it would have lost about two
          >thirds of its value over the three decades.

          >As I suggested, this "store of value" is something
          >that sensible people should avoid.

          Which only shows that our present money does not store
          value as well as some other things -- but not very many
          other things. Some of the qualities that make even our
          present money a good store of value are convenience and
          liquidity, which is why almost everyone who has any value
          to store stores some of it in the form of money. How many
          things can you name that maintain their value more reliably
          than money, but do not involve a greater storage expense,
          illiquidity, volatility, or other inconveniences?

          And just out of curiosity, Harry, how much M1 (currency and
          checking account balances) are you not-very-sensibly using
          to store value right at this moment

          >HP: it is a "measure of value" (that doesn't seem to
          >relate to anything in particular);

          >?? Because it relates to everything in general that has
          >value. Hello?

          >HP: Ed first pointed out that the dollar bill was
          >backed by nothing in particular. All you will get if
          >you take a $10 bill to the Mint is two $5 dollar bills.
          >The dollar bill fluctuates in value - mostly downward.
          >I wonder what could be built in the US if the yardstick
          >over 30 years diminished in length by two thirds?

          You mean, other than everything in the economy that HAS
          been built using our diminishing monetary yardstick?
          Granted, some shaky structures such as the dot.com and
          housing bubbles, Enron, etc. have been built. But
          diminishing money was not the only or even the main reason
          for their shakiness -- and the occasional bridge or
          building collapse is not unknown, despite engineers' use of
          more reliable yardsticks.

          >Well, it doesn't seem to bother you and so be it.

          Just as it doesn't seem to bother you that the diminishing
          value of dollars is fully explained by banks' irresponsible
          creation of additional supplies of them through lending, in
          order to fabricate interest income for themselves out of
          nothing -- in fact, you even go so far as to deny they do
          so!

          >HP: it is a "medium of exchange" (whose function
          >has overwhelmingly been replaced by other
          >instruments) .

          >RL: Try making a check function as a replacement for the
          >account balance it represents, and tell us how that works
          >for you (you might want to secure a "Get Out Of Jail Free"
          >card, first).

          >HP: Very funny. The check is simply a purchasing medium
          >like the credit card slip and the dollar bill.

          Nope. Wrong. I have already explained to you why a dollar
          bill is an exchange medium, but checks and credit card
          slips are merely legal documents that effect transfers of
          or create obligations to transfer exchange media. They are
          not themselves exchange media because they stand for
          something else: the dollar bills, which don't stand for
          anything else.

          >I will exchange these things for whatever I want to buy.

          As I have already proved to you, you CAN'T exchange a check
          for whatever you want to buy unless the check effects a
          transfer of the ACTUAL exchange medium: money in your
          checking account. Likewise, you CAN'T exchange a credit
          card slip for whatever you want unless you somehow arrange
          to reimburse the credit card company for the MONEY it gives
          the vendor in return for the slip.

          >It's the way I exchange my wealth for someone else's.
          >It's the way I buy things - which I think is a good
          >reason for calling these pieces of paper "Purchasing
          >Media".

          But it is a better reason to call them "transfer
          instruments."

          >HP: All purchasing media are actually "promises to
          >pay".

          >RL: Again, that is just false. A gold coin is not a
          >promise to pay. It is payment.

          >HP: Just don't go into Loblaws to buy groceries and
          >offer the gold coin. (Not that you would do such a
          >stupid thing.) The checker would call the manager,

          I would be much safer offering a gold coin (still legal
          tender, btw, however much its bullion or numismatic value
          might exceed its face value) than a check not backed by
          _genuine_ money.

          >My golly, do I have to explain barter next?

          Please, no more "Just So" stories.

          -- Roy Langston


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