Printing paper and buying drinks
It's the end of the growing season and farmer Bob has some big debts coming due. As he loads newly reaped grain onto his wagon, he feels his burdens lift with each emptied bushel. Bob is certain that, by the end of the day, his accounts will be cleared and his farm back in black.
Bob finishes loading, climbs onto the wagon, and whips his old mule. The wagon lurches and slowly heads toward the market. With each step, the tired mule increases its pace. The increase is imperceptible to Bob, but he begins to sense a burden lifting from the mule. "Maybe," he thinks, "this old mule is as relieved as I am that the farm will be debt free."
Just inside of town, Bob, thirsty from his long ride, halts his mule before the city tavern. He glances back to view the pride of his year's labor. He stops. Where there once was a packed wagon of grain, a half load remains.
"What." Bob jumps off the wagon and races toward the rear gate. He finds the gate slightly ajar, with a faint trail of grain extending into the distance. Bob crumbles to the ground -- his work for naught and his farm soon to be foreclosed.
As Bob sits in the road, tears falling onto the dust, Ben and Tim take notice from a window of the corner diner. Ben looks at Tim and smiles. They both recognize another hardship case awaiting their help. As they pick up their belongings, Tim flips a crisp twenty onto the table. The two exit the diner and quickly head toward Bob.
Moments later, Tim, looking down at a despondent Bob, asks, "What's the matter, my good man?"
Bob explains his story: the sowing, the reaping, and the loss. Ben says without hesitation, "We can help. You see, Tim and I love to assist those in need. I will buy your half-wagon load and pay you the full-wagon price."
Bob is taken back. "You will? You will buy my half-wagon and pay the full-wagon price? But you will suffer the loss. Won't you?"
"Oh, no," says Ben, "I will simply hold onto your half-wagon of grain until its value returns to the full-wagon price. It really is that easy. And likely, I will profit in the end. Well, it's my backers - the forgotten men and women - who will profit. But there will be money to go around."
Tim continues, "You see, your loss is the result of current market conditions. Once Bob and I clear those conditions, the traders in the market down the street will regain their confidence and your grain will miraculously reappear."
"But the grain is lost on the road. It has no value. It's gone for good," replies Bob.
"No, no, no," explains Tim, "It's not gone. It's simply leaked from the system."
Bob, eyebrows raised, says, "This isn't making sense."
"Oh, I don't know about that," Ben continues, "Tim and I have been working a scheme for years. He gives me an IOU and I print some paper notes in exchange. It's been working this whole time. How else do you think he could buy my lunch everyday, leave some pretty big tips, and never hold a real job? Since this deal has worked so well, I've decided to extend my assistance to others in need. So, now, amongst other things, I'm buying half-wagons to help folks like you."
"But your paper is worthless," a confused Bob replies, "It's backed by a lie."
"Sure, my paper is worthless," answers Ben, "But before anyone notices, the market will improve, and the traders will once again value your wagon as a full load. I'll then quickly exchange your half-wagon, and the other half-wagons I've bought and stored, for all of the paper I've printed. It will unwind nicely. But I won't bore you with the economics of it all."
Tim offers the farmer a hand and the three head toward Ben's printing shop.
Just moments after Ben starts the printing press, his wife enters the shop. "Ben," she shouts over the din, "What are you doing? You're not printing paper notes again? Are you?"
A sheepish Ben hits the stop button, waits until the presses halts, and then stammers, "Yes, but this dear farmer is in need. And if he fails, his creditors fail, the town fails, and we are all out of house and home. I must help."
"But, Ben, you simply cannot keep this up," cries his wife, "My friends are beginning to question your constant printing. They are no longer so trusting of your notes. When the trust ends, then what?"
"Honey, the trust won't end," replies Ben, "I am going to buy back my notes with the wagons of grain. It's so simple, it almost magic."
Ben hits the start button again and the paper notes begin rolling off the back of the printing press.
Cut to a few months later. Bob is struggling to find folks to accept Ben's paper. His creditors are demanding payment in the form of real goods.
And what of Ben and Tim? They are sitting at the bar in the tavern with another man, buying rounds for the town's traders. Ben turns to the third man and asks, "So, Alan, do you really think this plan will work?"
"Certainly. A few more rounds and these folks will be irrationally exuberant once again," Alan replies with a coy smile, "I've done it before."
Alan turns and shouts, "Bartender, another round for these thirsty traders. It's on Ben's tab this time around."
Comments (9)
Ron
Priceless! Beautifully done, Jim.
Published: April 10, 2009 7:46 AM
Deefburger
Thank You Jim.
I've been working on a solution to the problem of Trust accounting. We have never had it because commonly, the trust in an exchange has been inherent in the goods traded. But with the advent of Fiat money, and paper money, the trust portion of the exchange of goods is disjointed and the trust is not inherent in the exchange itself, and so does not follow the value exchanged.
We have systems to account for value only! There is no system to account for Value AND Trust.
In the above scenario, with the addition of a Trust accounting system, The true value worth of Bob and his paper would become apparent
This is what I have so far: http://deefburger.blogspot.com
ITES - Individual Trust Exchange System
It's still a little rough, but I think it works. I just need some critics to help me find the flaws.
Published: April 10, 2009 9:12 AM
Frank V.
It is unfortumate that the author does not make any use of the high powered analysis provided by Smith on pp.260-340 of The Wealth of Nations(1776,Modern (Cannan) Library edition with the foreword by Max Lerner) concerning problems created by the private commercial banking industry supporting the debt leveraging behavior of speculators that Smith stated would lead to the savings deposits of the depositors being wasted and destroyed.Smith's solution is simple and preventative in nature-A private central bank's major goal must be to prevent the private commercial banking industry from making loans to projectors,imprudent risk takers ,and prodigals (these categories are the same as Keynes's specuators and rentiers in the GT.Keynes's analysis in chapters 22-24 of the GT would also have lent great support to the author's position.It is strange that Keynes appears nowhere in the book). Smith's other major policy rule is to maintain fixed rates of interest at low levels a little bit above the equilibrium rate charged to the most creditworthy of borrowers permanently over the long run.The banks can lend using this low rate to the sober people,i.e.,businessmen like the butcher, brewer,baker, blacksmith, barber, brick layer, and beauty salon owner who will use the loans to expand their businesses. This process will create real wealth, as opposed to the paper wealth of stock market manipulation undertaken during the bubbles engineered by the private banking industry.
Published: April 10, 2009 4:04 PM
Bruce Koerber
Money and Ethics
Friday, April 10, 2009
Free Banking System Starting At The Grass Roots!
I wonder if this is the start of a free banking system.
[ http://theplenty.org/ ]
Just like the failed ideas of socialism will end and the ethical ideas of classical liberalism will need to be known about widely (through education) to fill the void (economic and general societal collapse), so too will we benefit from a free banking foundation.
Just like the unConstitutional coup will come apart when the members of the inner circle are forced to flee from the victims of their economic terrorism so too will the fiat banking system (that is nothing but a counterfeiting operation for the ego-driven interventionists) come apart. It will be good to have in place locally respected currencies that can opt for gold-backing as a guarantee of its viability as a medium of exchange.
All of these foundational elements of a classical liberalism society are emerging and coming to the surface (eg. States rights, etc.), while educating people despite all of the half-truth propaganda is the pressing need of the moment.
Living during these tribulations is a challenge but forging the way forward towards a classical liberalism society and civilization is well worth the sacrifice. To lovers of liberty it is not much of a sacrifice since it is our pleasure!!!
Published: April 10, 2009 4:54 PM
Bob Stafford
I have had first hand experience in dealing with the Austrian school and their ilk on this forum. While their axiomatic constructions and deductive logic make it difficult to defeat their prescriptions "on their own terms," it does allow one to gain an understanding of the roundabout logic that they use. I make no disguise of my employment of dialectical reasoning.
To trump their nonese, I think Karl Polanyi's The Great Transformation is one of the better examples of economic anthropology/sociology (social science should not be compartmentalized into "specialties" that really say nothing without respect to the entire social system). Though dated (end of WWII), it provides an elaborate history of "free-market" society (according to Polanyi the market can never be free from cultural phenomenon at the base-level and political institutions at the superficial level). Building on some of Marx's ideas of fictitious capital, he further explores the concepts of what he calls "fictitious commodities" (Land, Labor, Money). His point, made through extensive history and documentation, is that historically the politics of a society created the economic institutions, yet liberal (European meaning) philosophy tried to turn it the other way around economic institutions would create the political institutions. At least that is how the liberal doctrine goes. History, as documented by Polanyi, demonstrates how the liberal bourgeoisie needed to use the political apparatus to "coerce" people to work by amending the Poor Laws.
Published: April 10, 2009 10:04 PM
Jason Gordon
Not having read the work referenced, there seems to be some fundamental definitional issues being thrown around here.
Since land isn't strictly fungible, it's commodity status could be seen as fictitious. The same can rightly be said for labor -- especially as (bourgeois?) sophistication increases.
In contrast, (fiat) money is fungible -- but its value as a commodity is entirely fictitious -- as it status now appears to be reflecting.
I fail to see how the main point of the Austrian "ilk" i.e., that government power is a danger to the people especially when co-opted by business, is contradicted.
Isn't this essentially a polemical take on Weber's The Protestant Ethic?
Published: April 10, 2009 11:47 PM
newson
yeah, polanyi is a hero on this site. we are enraptured by primitivism. (dahomy sounds idyllic).
http://mises.org/daily/1607
interesting comments by roger sandall, author of "the culture cult", in the blog following the article.
Published: April 11, 2009 4:35 AM
newson
to frank v:
it is unfortunate that you have not acquainted yourself with the austrian business cycle theorem, which is inimical to the real bills doctrine so favoured by smith.
apart from popularizing (not discovering) the benefits of division of labour, i can't think of another reason why adam smith should be celebrated on a misesian site. in fact, many of the austrian school are positively hostile to him, by dint of his confused views on value (the labour theory of value, central pillar of the marxian edifice).
Published: April 11, 2009 4:48 AM
Mike Stahl
Bob Stafford,
"I have had first hand experience in dealing with the Austrian school and their ilk on this forum."
Shocking, I had a similar experience the other day at a Laundromat-Washers and driers filled the place...totally unexpected.
In all honesty though, other than plugging a personal philosophical hero, and an attempt to place everyone in your nostril-shade through veiled ad hominem, you really have not said much.
Personally, I don't think a "free-market" has ever existed-nor do I suspect many Austrians do. I also condemn in no uncertain terms attempts by anyone to use coercion in the market at all. I don't see where the disagreement is-unless you simply advocate some form of authoritarian pastoralism-and if you do, why disguise your beliefs? Speak plainly-Hell, I'd have far rather lived in the 12th century than this one. But I don't.
I believe the use of force other than self-defense is wrong, and the only "political", "economic" or other stance, that I find morally acceptable is one that opposes the use of coercive force. I don't believe in unicorns, but that is the basis of my philosophy on life-what is yours?
Published: April 13, 2009 12:17 AM