How money is created

[Bonam]

How many Canadian completely own their house?

How many years will they need to work for their house?

Ownership of a house is not a basic necessity of survival.

[bjre]

Ownership of a house is not a basic necessity of survival.

Rent an accommodation is not cheap as well.

Maybe only shelter is free and many people live by city hall don't like live there even in very cold winter. :-)

Edited March 30, 2010 by bjre

[maple_leafs182]

People look for and dig up gold not because it is considered money (it isn't anymore in many countries) but because it is valuable.

What countries don't consider gold money.

I know when you buy gold or silver here, there is no tax because they are considered money.

Paper money is much, much more civilized than gold.

How so.

Personally, I think paper money is far more flawed.

If it works to have the banks only be able to guarantee some of what they lend out, why force governments to hold their entire currency in gold or precious metals ? It seems archaic, unnecessary and hard to manage

So central banks can't just hit the print button if they want to introduce new money into the system.

When they do this, the value of the currency goes down, so all the people who have savings in that currency are then essentially robbed of their wealth.

Kind of like what is happening world wide, more so in the States. Our dollar is expected to surpass the American dollar soon, the American dollar will continue to fall, it's like the print button got jammed in the on position and they can't turn it off.

I believe no policy of inflation or deflation should be followed by government.

Agreed

Today it's only a measurement of value and it's purchasing power is determined by government regulation or at least it's purchasing power is attempted to be regulated. Government's may be able to do so for short periods only, before they eventually destroy the currency they are attempting to regulate.

That is a scary thing considering the Federal Reserve in the States is a private corporation.

Not only do they control the wealth of the nation, since the Dollar is the world reserve currency they control the wealth of a good chunk of the world. I'm gonna say it again, the Fed is a PRIVATE CORPORATION.

Anybody else see that as a problem?

"Federal reserve policy will continue at an expanding rate, with massive credit expansion, which will make the dollar crisis worse." - Ron Paul, April 26th, 2002.

"During the next decade, the American people will become poorer and less free, while they become more dependant on the government for economic security" - Ron Paul, April 26th, 2002.

[bush_cheney2004]

Kind of like what is happening world wide, more so in the States. Our dollar is expected to surpass the American dollar soon, the American dollar will continue to fall, it's like the print button got jammed in the on position and they can't turn it off.

....and yet the falling American dollar remains the world's largst reserve currency. Canada's dollar is only a regional reserve currency.

That is a scary thing considering the Federal Reserve in the States is a private corporation.

Not only do they control the wealth of the nation, since the Dollar is the world reserve currency they control the wealth of a good chunk of the world. I'm gonna say it again, the Fed is a PRIVATE CORPORATION.

Anybody else see that as a problem?

Nope....you got a better idea?

"Federal reserve policy will continue at an expanding rate, with massive credit expansion, which will make the dollar crisis worse." - Ron Paul, April 26th, 2002.

Ooops..looks like he was wrong!

"During the next decade, the American people will become poorer and less free, while they become more dependant on the government for economic security" - Ron Paul, April 26th, 2002.

You mean like Canada?

[Pliny]

....and yet the falling American dollar remains the world's largst reserve currency. Canada's dollar is only a regional reserve currency.

The US economy is the largest in the world. As of yet there is no threat by government to usurp the wealth of the nation. (I suppose you could say that has already been done)

Other large economies are China and Russia but they could turn totalitarian at any time. Europe is on a precipice so I guess it's America by default.

Nope....you got a better idea?

A better idea is to repeal the Federal Reserve act.

Ooops..looks like he was wrong!

He wasn't. The subprime mortgage bust followed that credit expansion that was greatly accelerated by the Dems in 2006.

You mean like Canada?

I think he means that.

[Michael Hardner]

I'm gonna say it again, the Fed is a PRIVATE CORPORATION.

Anybody else see that as a problem?

It doesn't seem that this is exactly so. It's a system that includes private components. Likewise, in Canada, banking is controlled by the big 5. Of course, large corporations controlling banking may be a concern. For the record, large corporations also control food production, health, education and pretty much every sector of the economy to a degree.

Duty #1. Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

[Michael Hardner]

A better idea is to repeal the Federal Reserve act.

Is that realistic ? Economic systems are built on belief in stability. Something like that would shock the system, so wouldn't you want to gradually reform it instead ?

[Jerry J. Fortin]

I would not be so quick to assume that simply introducing a global standard would address inflation or deflation. Any global standard currency would undergo the same types of changes in value as other currencies, the only difference being that one could not simply exchange their money to a different currency (but they could still purchase a commodity with their currency just as one can now).

I do not assume that such a move will resolve all problems, but I do suggest that a functional solution cannot be found until such a conversion is made. It is merely the next step in the evolution of the system, there will be other problems to resolve at that point, some of which can only be realized once the change has been made. Others simply cannot be calculated or quantified at this point at all. The functional point being that the homogenization of the system would prevent the difference in currencies from being utilized to any specific advantage. It would eliminate exchange rates and remove the cost of conversion from one currency to the next, a definite savings. The function of currencies is to formalize and finalize transactions related to goods and services, that would not change. It would however provide a modernized version of barter that would serve to level the playing field to a very real extent.

I agree on this point. In my view, technological progress trumps all, simply because of the seemingly unstoppable trend of exponentially accelerating growth associated with technological progress.

Technological advancement is the key to economic salvation. The means of automated production is now here in reality and that can and will remove the cost of some human labour. Once that is accomplished the third world advantage of lower labour costs is eliminated.

How have these been dissociated? More precisely, how should they have been associated to begin with? Currency is a means of exchange, and in the simplest sense its value is related to the total value of goods and services in circulation divided by the total amount of currency in circulation.

Let me illustrate this point from personal experience, as well as easily researched fact. The CEO of CN Rail received more than 52 million dollars of personal compensation in a single year. He was not alone amongst his peers as many CEO's were paid similar amounts. These individuals have been raised far above their value to their company, meanwhile some employees were required to take either wage freezes or benefit reductions at the same time. The people that provided actual productive value are at least as deserving of competitive compensation as those involved in the administrative functions of a company. The association between human productivity and monetary compensation for those efforts has a direct bearing on corporate profitability. To differentiate between worker and administrator to the degree we are currently experiencing is creating a class based society where a vast portion of the population are becoming little more than wage slaves. This reality has no relationship to the value of currency at all. nor should it. Yet my comment was intended to question the problem of numerous currencies and the difference in earning power from one nation to another regarding the impact to the individual.

Your assertion that "Currency is a means of exchange, and in the simplest sense its value is related to the total value of goods and services in circulation divided by the total amount of currency in circulation." flys in the face of our modern fractional reserve/central banking system. Fully 90% of the money supply is interest bearing debt not hard currency.

I don't see that there is. Production is still very much related to wealth. One who owns the means of producing something of value has the capability to generate wealth.

Yes production is related to wealth creation, but that was not my point. The difference between the modern ideas of production and wealth and an older version is one of the results of runaway corporatism and the advent of transnational companies. The generated wealth realized through the productive efforts of citizens in one nation are now commonly exported to other nations and other tax bases causing reduced local benefit to citizens.

How is the human removed from the equation? It is still ultimately individuals that make all the decisions that affect economies, production, wealth, value, etc.

The human is removed by means of profit motives of corporate endeavors. There was a time when the workers of factories and the towns they lived in had bearing on the corporate decision making process, they now serve as troublesome opposition to the interests of business. Those interests have little concern for anything other than profit.

Indeed. Value is how much something is worth to someone. How much effort it took you to make it is irrelevant, what matters for determining its worth is how much someone values it. If you can reduce the effort (cost) it takes you to produce something while keeping its value (in the eyes of your customers) constant, you will accumulate more wealth. I don't see anything wrong here.

What is wrong is that care and concern for fair value has been forgotten. Its all about profit!

Leverage is a term relating to using borrowed money to invest. Capitalization is the worth of an enterprise. Using leverage (borrowing money) actually reduces an enterprise's worth. So I don't see why you would consider leverage to be a measure of capitalization.

Most corporate expansions and acquisitions are leveraged with some form of outside funding. There can be many reasons for decisions made by business, sometimes to make money and sometimes to lose money. The use of leveraged transactions fuels the financial sector, its their bread and butter to a certain degree. These actions create a dependence on the industry which produces nothing but costs a great deal.

Money may be an imperfect means of exchange in some sense but I have yet to hear a proposal for a better means of exchange. What would you suggest? I think that some form of money (medium of exchange) will continue to exist until our civilization completely eliminates any scarcity of any sort for any product or service, and I don't think that will happen any time soon.

You have hit the nail on the head. It won't happen soon because to do so eliminates an industry that grows fat on the efforts of others.

Rice (or food of any sort) is simply another commodity to tie money to, not inherently superior as a means of exchange to any other such commodity (for example gold). In fact, I would argue that rice would be quite a poor means of exchange as you would need truly vast quantities of rice to exchange for things that are of much higher value. This is generally true of any modern commodity necessary for basic living - the basic needs of survival are incredibly cheap and plentiful, and enormous quantities of them would be needed to trade in fair exchange for certain things that are not basic needs of survival (luxuries, large industrial goods & machinery, real estate, advanced technological devices, etc).

The concept, not the article id the relevant issue here. A known, yet not fixed cost of human existence, used as a benchmark. This was in contrast to the gold standard. Both were flawed, yet both at least made an attempt to provide a universal standard.

I would suggest that the means of survival are much more than cheap and plentiful. You need air to breath as a first priority, the average human has zero impact or control over the quality of that air as a result of industrial development. Second priority is water which is subject to the same problems. The third requirement is not food but shelter, last time I checked this was no minor expense. Fourth priority is food, which is used as an economic indicator which to me means that it is both expensive and in great demand. All these things are needed in order to survive, yet they seem to be the least of concerns for both governments and business. Do you not see the folly of our development?

I do not think tying money to the basic needs of survival, which are constantly decreasing in value compared to other types of goods and services, makes sense.

I am convinced that you don't see the sense of it at all.

[Pliny]

It doesn't seem that this is exactly so. It's a system that includes private components. Likewise, in Canada, banking is controlled by the big 5. Of course, large corporations controlling banking may be a concern. For the record, large corporations also control food production, health, education and pretty much every sector of the economy to a degree.

Duty #1. Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

The Federal Reserve is privately owned. I have a copy of a New York newspaper article that names the shareholders at it's inception in 1914. I also have a copy of an article naming the shareholders in a New York newspaper in 1985. They are not from tabloids but the financial sections of mainstream newspapers.

The more interesting central Bank is the Bank of Canada. According to it's own website. There is one share in the Bank of Canada and it is held in trust by the Minister of Finance. The implication is that the Government of Canada owns it but note it si hels in trust. Unlike the US, where the Government legally represents the people and criminal court cases start with "The People vs....", Canada's courts start with "The Crown vs....". The Government of Canada has always represented the Crown and not the people, even today. It is not much of a stretch to figure out the ownership of the single share of the Bank of Canada.

Of course, this gets into conspiratorial territory, but like yourself I am not one for conspiracies. What I have said about the Bank of Canada you can take with a grain of salt but my interpretation of what is clearly stated that the Government of Canada represents the Crown is easily established.

It is just as hard to find the individual owners of the five largest corporations in the world as it is the shareholders of central banks. The major portion of Shares are held in trust by layer upon layer of lawyers and Boards of Directors.

Edited March 31, 2010 by Pliny

[Smallc]

The Government of Canada has always represented the Crown and not the people, even today.

Perhaps you should learn what that means. The Crown is the embodiment of the state and the government. The Crown is, in many ways, the people.

[Pliny]

Is that realistic ? Economic systems are built on belief in stability. Something like that would shock the system, so wouldn't you want to gradually reform it instead ?

It won't happen until the economy collapses. But I agree, the consequences of the steps to bring it about should be known and a gradual reform may be necessary. The Treasury of the US could take over the Federal Reserve quite easily and do it's job while it removed monetary and fiscal policies of inflation and price controls.

[Pliny]

Perhaps you should learn what that means. The Crown is the embodiment of the state and the government. The Crown is, in many ways, the people.

OK.

[Smallc]

OK.

Sorry, that should say the executive power of the government.

[Pliny]

For Jerry and Bonam: We did have a global standard at one point, it was gold. Gold was the money and national currencies the "money substitutes".

[Pliny]

Sorry, that should say the executive power of the government.

Ok.

[bush_cheney2004]

The Federal Reserve is privately owned. I have a copy of a New York newspaper article that names the shareholders at it's inception in 1914. I also have a copy of an article naming the shareholders in a New York newspaper in 1985. They are not from tabloids but the financial sections of mainstream newspapers.

No, the US Federal Reserve is not privately or publicly "owned". It is a central banking system comprised of a Board of Governors, twelve privately owned regional banks, other private banks, and several committees.

http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

[Pliny]

What is wrong is that care and concern for fair value has been forgotten. Its all about profit!

Most corporate expansions and acquisitions are leveraged with some form of outside funding. There can be many reasons for decisions made by business, sometimes to make money and sometimes to lose money. The use of leveraged transactions fuels the financial sector, its their bread and butter to a certain degree. These actions create a dependence on the industry which produces nothing but costs a great deal.

I would offer that corporations are the way they are because they run out of their accounting offices. Why that has occurred is mainly the worry about taxation among a few other considerations.

But governments like big corporations. They provide a source for a lot of revenues through employment of the masses and it all trickles down from there. And it is governments that liase for their corporations and make trade deals to help those corporations grow bigger. They also get corporate welfare.

All of these regulations and interventions determine how corporations act. They will always act as any rational person acts and that is to benefit itself. They do not act on greed. They act on opportunity and advantage, and government provides some with that opportunity and advantage, to the detriment of the competition and the economy.

Businessmen all get the same business degrees and accountants all get the same accounting degrees and there isn't much difference in what they are taught or in how they act. Revenue opportunities, cost cutting measures are considered prime whereas service takes a back seat.

As for bloated CEO pays if we were on a money standard instead of a fiat token currency system that kind of "money" would just not be around like the easily fabricated tokens.

[Pliny]

No, the US Federal Reserve is not privately or publicly "owned". It is a central banking system comprised of a Board of Governors, twelve privately owned regional banks, other private banks, and several committees.

http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

Ok.

[August1991]

For Jerry and Bonam: We did have a global standard at one point, it was gold. Gold was the money and national currencies the "money substitutes".

Some countries used silver. Why not platinum? Or technicum?

Why gold? Why not silver?

More broadly, why should the world money supply be decided by the amount of a specific rock some countries have underground? If we used gold as money, what would happen to the world's money supply, and financial system, if South Africa suddenly discovered a new gold mine?

Pliny, are you South African?

[Smallc]

If we used gold as money, what would happen to the world's money supply, and financial system, if South Africa suddenly discovered a new gold mine?

Pliny, are you South African?

August, sometimes you crack me up.

Edited April 4, 2010 by Smallc

[Michael Hardner]

It is just as hard to find the individual owners of the five largest corporations in the world as it is the shareholders of central banks. The major portion of Shares are held in trust by layer upon layer of lawyers and Boards of Directors.

I don't see the value to society of letting that happen. Effectively, the corporation becomes a remote-controlled entity. Anybody could be running it. Since they are afforded to many public allowances to their existence, ownership should be public knowledge.

[Pliny]

I don't see the value to society of letting that happen. Effectively, the corporation becomes a remote-controlled entity. Anybody could be running it. Since they are afforded to many public allowances to their existence, ownership should be public knowledge.

I agree.

What is the reason for such postures of obfuscation? I believe it is mostly tax avoidance with dividends disappearing into tax havens in numbered accounts.

[Michael Hardner]

I agree.

What is the reason for such postures of obfuscation? I believe it is mostly tax avoidance with dividends disappearing into tax havens in numbered accounts.

I find it odd that Von Mises was so critical of monetary practices that are driven by the private-sector, i.e. the banking world by the way. Did he favour a strong government presence in managing such things ?

[Pliny]

Some countries used silver. Why not platinum? Or technicum?

Why gold? Why not silver?

Pliny, are you South African?

Being a child of Voltaire you should be familiar with his prescient statement that; "All paper currencies eventually return to their intrinsic value of zero."

The use of gold and silver was what naturally evolved as "money". Both were used.

It was their properties and their availability that determined them asthe money of choice.

Where did you dig up "technicum"? The works of Stalin.

More broadly, why should the world money supply be decided by the amount of a specific rock some countries have underground? If we used gold as money, what would happen to the world's money supply, and financial system, if South Africa suddenly discovered a new gold mine?

These questions were all irrelevant at the time gold had been the worlds' money. What happened then? Bankers basically warehoused it all; for the benefit of the depositors, of course, and loaned it out on a fractional reserve basis, basically bankrupting themselves and then instituted the banking industry and it's practices and policies in law, eventually eliminating any obligation to return the depositors deposits in money. Using government fiat to declare the currency as being the money. Since there seemed to be little change in the way the currency was used complaints about lost gold and silver deposits were simply given assurances that their government wouldn't leave them out in the cold and business would carry on as usual, after all, the currency was a legal tender by law and as good as gold.

The important question though is am I South African! No, but I have staked a few claims out in the BC wilderness.

[Pliny]

I find it odd that Von Mises was so critical of monetary practices that are driven by the private-sector, i.e. the banking world by the way. Did he favour a strong government presence in managing such things ?

The nature of the Banking business and it's evolution made good management crucial to the health of any bank. The warehousing of other people's wealth was not particularly lucrative and over time banks became lenders guided by fractional reserve banking and other policies. They didn't become lenders without the knowledge of the depositors and paid them a portion of the interest they earned.

The monetary practices evolved over time in the private sector. Bank failures occurred when banks over-extended themselves and became vulnerable to runs. The practices of banks made them very lucrative businesses. Because poorly managed banks were failing and giving the industry a bad name something needed to be done. But the lucrative policies could not be abandoned and a return to simple warehousing was not an option.

Thus the idea of a central bank was created and presented to government. The banking practices needed to be preserved and government regulation along with a strong central bank was the way to preserve it. All was peachy keen.

Mises was critical of the "abuse" of bank practices and government oversight of banking. He did not favour a strong government presence in banking or monetary management. I have read things from adherents of his economic theory that say this but I have not read what his ideas about good banking were. He knew that economics was not a science and some economists had flaws in their theories. Marxist economic theory for example lacked any basis for determining value of production, making it impossible to know what to produce.

The Austrian theory of Economics was developed out of the works of Economists such as Carl Menger and others but some theories demanded government set monetary and fiscal policy. In 1933 Keynes published his General theory basically socializing the monetary system and other economic theory was simply abandoned in favour of government regulation of prices.

Edited March 31, 2010 by Pliny