[GJM] Michael Hudson - forwarding efficieincy and also socail and economic justice
Rodney Shakespeare
rodney.shakespeare1 at btinternet.com
Sun Jan 20 06:20:39 MST 2008
Dear Michael,
Thankyou for replying. Your first email went to the GJM list as a whole but your second email went into my spam box -- but this happens to other people as well
The crunch issue in this correspondence gets down to this -- Is there any good reason for the Treasury (national bank) to use interest-free loans for the private sector? Why should not the Treasury have the benefits of interest?
The answer is that there is every reason for interest-free loans to be used IF they result in the development and spreading of productive capacity. Say's Law (its validity or otherwise) has long divided economists -- some (generally, right-wingers) say the economy is always in balance; others (generally left-wingers) say it is in far from balance and there is poverty etc. The disagreement is so large that there has to be something fundamentally mysterious about the debate or something big that is not understood.
The answer lies in something JB Say himself wrote in 1803 -- he observed that Adam Smith was wrong (Smith was doing his thinking before the industrial revolution was really under way) and that "Say's Law" which is actually in Adam Smith (1776) does not, and cannot, work if you see the economy only in terms of human labour doing all the wealth creation. Say understood that capital instruments were producing an increasing percentage of the wealth. Only if capital is spread -- Say said-- will you get the true balance that makes producers and consumers the same people.
This is why I refer to Say's Theorem (a self-evident identity as Keynes said) and not Say's Law which, in the reality, is not a scientific law and does NOT result in balance because in any modern economy producers and consumers are NOT the same people.
All this explains the case for interest-free loans from the Treasury to be used for the development and spreading of productive (and the associated consuming) capacity. Everybody should be enabled to become genuinely productive and receive the income thereof (but that does not mean that they necessarily have to labour in the conventional way). Only by a genuine spreading of the productive (and the associated consuming) capacity can you make Say's Theorem into a practical law which forwards not only efficiency but also social and economic justice.
Thus interest-free loans should be used for:-
a) the Grameen women (who would still have to pay a whacking administration/training cost). There is nothing wrong and everything right in enabling these women to have a little chicken coop or whatever (I have blessed -- I joke not -- about eight square yards of land for one woman for a chicken coop: and I have even seen a woman doing gleaning (biblical sense of picking up grains of rice that the birds had missed) because she had no productive capacity otherwise.
b) for environmental capital projects -- billion of dollars etc are required for these projects but, at the moment interest-bearing money is used. Interest-free halves or more the cost.
c) Public capital projects.
In respect of b) and c) above Dennis Kucinich is the ONLY substantial politician in the world who understands the use of interest-free loans for such projects. It would be marvellous if Dennis extended the interest-free loan principle to ALL sectors of the economy IF thereby the development and spreading of productive (and the associated consuming) capacity is spread.
d) small businesses
e) medium and large businesses IF they use the binary mechanism to extend ownership to more and more individuals
f) student loans. The rationale here is simply that students are important future productive capacity of the society.
It would be wonderful if Dennis could come to see that he could make an intellectual, moral and political sweep of the board (and, moreover, give such leadership to the world) if he is openly seen to uphold:
a) markets -- yes, free markets -- but markets which work for EVERYONE. At the moment, 'free markets' are rip-offs and the disgraceful one hundred Bremer Orders in Iraq are the biggest factor in causing a loss of America's moral leadership
b) truly efficient markets -- which can only happen if everybody owns capital (as well as what they get from jobs etc)
c) quarter/half price public capital projects -- great for employment and the USA's trade unions (you and Dennis know all this)
d) half price big environmental capital projects -- the world badly needs them
e) truly free markets which ensure that everybody owns capital. The point here is that the worker's savings are NOT used. They have nothing to lose from such increased capital ownership and everything to gain.
f) a re-building of America's productive economy including the private sector but a private sector in which everybody has a stake. Today the USA is virtually bankrupt and has smashed the productive real economy which made it the leading world economy.
AND NB a global financial collapse is in the offing. There is no immediate cure but we can stop it happening again and build a more prosperous and secure world if
a) the banking system is gradually stopped (by a gentle rise to 100% banking reserves) from issuing interest-bearing money that is NOT directed at the development and spreading of productive capacity
b) Treasury (national bank) interest-free loans are used to develop and spread productive (and the associated consuming) capacity.
Lastly, Dennis should be bold and beat the opposition at its own game. By promoting a genuine free market working for everybody he cuts the ground from under the feet of this opponents. Moreover, such a policy is the ONLY one capable of correcting the deficiencies leading the world into financial (and environmental) crisis.
Rodney Shakespeare.
----- Original Message -----
From: Michael Hudson
To: Rodney Shakespeare
Sent: Friday, January 18, 2008 3:44 PM
Subject: Re: [GJM] Replying to Peter Challen
Dear Rodney,
Well, you're probably right that we don't have an answer to today's crisis. What answer CAN there be, except that the debts cannot be paid. They therefore will be cancelled one way or another - tearing economies apart if things go slowly, or in a more organized way if done under government regulation so as to wipe out "bad savings" along with bad debts.
The "answer" thus must lie on a restructuring of how financial systems operate. No "pre-saving" for Social Security, for instance. (I have just posted on my website, michael-hudson.com my interview with Acres magazine, whose editors I met at Stephen Zarlenga's AMI conference.) Your comments in (2) below are correct. In the next week I'll be posting Dennis Kucinich's economic platform for this year's presidential race.
Of course any loan financed by a national treasury CAN be interest-free. The "original" charging of interest, in my view, was to enable the Sumerian temples and palaces to recapture what they believed was being made by the merchants to whom they consigned goods for trade, for a five-year period. The idea was that these merchants would repay twice the value of their original merchandise. This must have left enough for them to make money for themselves, too. But in an epoch (c. 2500 BC) when record keeping for trade was non-existent, the only way the temples and palaces could recover their share in the profit was to stipulate a rate of return in advance.
Later, the practice mutated.
But in regard to your question, if the Treasury provides credit for PRIVATE ventures, is there any reason why it should NOT get a return? Ancient contracts were much like Islamic contracts, calling for a split of profits. But they were "mixed," interest and equity contracts. You may look at St. Simonian banking philosophy for a more Europeanized version.
Michael
PS. I received an e-note that my contribution might be spam and so cannot be posted on the EJM list. You may post it (and this reply to your note) if you think it would help.
On 1/18/08 9:28 AM, "Rodney Shakespeare" <rodney.shakespeare1 at btinternet.com> wrote:
Dear Michael,
1. I am delighted to see you intervening on GJM because the gang8 list -- where you normally reside -- has no answer to the unfolding global financial crisis. I have also listened to two of your excellent and very spirited radio broadcasts.
2. As regards your email below, the existing system creates money, adds interest (compounded, and admin cost) and does NOT direct it at the development and spreading of productive (and the associated consuming) capacity (e.g. anything from training Grameen women to spreading ownership in the large corporations). Without doing so you will never get Say's Theorem -- that producers and consumers must be the same people -- implemented. Say's Theorem is a theorem and not a present reality (so as to be a Law).
Yes, the money is created by keyboard strokes.
3. Thankyou for confirming that the ancient demunciations against usury were denunciations against any interest for consumer and agrarian debts.
4. As regards commercial interest-bearing debt bearing interest in ancient times, what is historical is historical but I should like to ask you a key question for modern times:--
Is there any reason why (when admin cost is allowed and collateral taken) there should be interest today on any loan connected with the development and spreading of productive (and the associated consuming) capacity? Can not such loans issue interest-free from the national bank and be administered by the banking system?
Thankyou.
Season's Compliments
Rodney Shakespeare
----- Original Message -----
From: "Michael Hudson" <michael.hudson at earthlink.net <mailto:michael.hudson at earthlink.net> >
To: "Myro Ashenopolitus" <new_economics at yahoo.com <mailto:new_economics at yahoo.com> >; "Rodney Shakespeare" <rodney.shakespeare1 at btinternet.com <mailto:rodney.shakespeare1 at btinternet.com> >; "Discussion Forum for Global Justice" <Discussion at globaljusticemovement.net <mailto:Discussion at globaljusticemovement.net> >
Sent: Friday, January 18, 2008 1:39 PM
Subject: Re: [GJM] Replying to Peter Challen
> Dear Peter,
> The argument may be clarified in two ways.
> Regarding the banking system's ability to create money ex nihilo, it is
> true that it takes two to tango. Banks no longer print banknotes and put
> them into circulation. When they create credit, they need a customer to sign
> an IOU. The bank then credits the customer's account with a loan
> corresponding to the IOU -- less whatever "fees" the bank charges,
> extortionate as these may be. In this sense banks DO need customers. But in
> popular language, the credit is created simply with a few keyboard strokes,
> as they say.
> Re riba and ancient interest, your informant is wrong (hardly
> surprising, given his position). The denunciations against usury in
> antiquity were indeed against charging ANY interest as such (not just "too
> much"). However, what is missed is that the usury that was denounced was
> that associated with consumer loans -- mainly "barley debts" and other
> agrarian personal debts owed to tax collectors and "merchants" (damgar in
> Babylonian).
> It is important to recognize that when Near Eastern rulers "proclaimed
> order" (Babylonian andurarum) and when Lev. 25 calls for the Jubilee Year
> (cognate deror), they referred only to these personal and agrarian debts.
> EXCLUDED from debt cancellations -- and from the Jubilee Year -- were
> commercial "silver" debts among merchants.
> So there always was commercial interest-bearing debt, settled among
> merchants, traders and other businessmen, that were recognized as socially
> helpful. This stems from a time when the Sumerian temples and palaces were
> the first creditors, advancing consignments of handicrafts and even silver
> to long-distance traders, and also leasing or "privatizing" means of
> production, land, workshops etc. to individuals for a stipulated rental
> return.
> In the Middle Ages, the early history of cuneiform law and practice was
> unknown. Hence, writers saw only the biblical strictures against consumer
> debts, owed from the poor to the well-to-do. The commercial sphere of debts
> had been left alone, and has been reconstructed only from private archives
> and royal documents such as the Edict of Ammisaduqa.
> The details can be found in Debt and Economic Renewal in the ancient
> Near East, ed. Michael Hudson and Marc Van De Mieroop (CDL Press, 2000).
> Michael Hudson
>
>
> On 1/17/08 8:57 PM, "Myro Ashenopolitus" <new_economics at yahoo.com <mailto:new_economics at yahoo.com> > wrote:
>
>> Rodney, my replies are inserted below:
>> -------------------------------------------------
>>
>> Dear Ashenopolitus,
>>
>> It is always a pleasure to correspond with educated,
>> open-minded and expert people like your good self.
>>
>> 1. Where is the whopper when I say the banking system
>> creates money out of nothing and you say exactly the
>> same?
>>
>> [Reply: The fact that banks create money out of
>> nothing was not one of your whoppers that I cited. But
>> I do object to the nefarious spin you put on the term.
>> "Out of nothing" derives from the Latinized legal
>> term, "ex nihilo," which means contractual in this
>> context. Modern creditary money is contractual,
>> calling for future performance. When we sit down to
>> write a contract, any contract, we will agree on terms
>> and conditions that did not exist before we sat down.
>> Hence, they were created "out of nothing" in the
>> finalized contract that we will sign.]
>> -
>>
>> Does your education and open-mindedness include being
>> logical? Is Steven Consilio being unfair in
>> implicitly accusing you of Orwellian double-think (the
>> ability to hold two mutually exclusive ideas
>> simultaneously)?
>>
>> 2. Where is the whopper when I say that the banks do
>> not create enough money for the repayment of interest?
>> I am sure that you can explain where in the process
>> the banks create the money for the interest.
>>
>> [Reply: That was explained in my original posting,
>> which I'll be glad to expand upon as much as you like.
>> The banks as a statistical matter create more than
>> enough money to pay interest back to them when they
>> write checks for any purpose whatsoever without
>> correspondingly debiting any bank customer's account.
>> Those checks are deposited into transaction accounts
>> that are liabilities of the banks, as is exactly the
>> case when they extend the principal of loans. This
>> process is not a mystery and is acknowledged by the
>> economics profession.]
>> -
>>
>> 3. Please display your expertise further in
>> explaining your statement that, when interest is
>> repaid, it is cancelled.
>>
>> [Reply: Because when interest is paid to the banks,
>> deposit accounts held by the public are debited,
>> without any corresponding credit to any accounts held
>> by the public. The deposit accounts are liabilities
>> of the banks to the public, which are reduced when
>> payments are made to them for interest or any other
>> purpose. The sum total of bank deposits held by the
>> non-bank public are thereby reduced, reducing the
>> quantity of money as generally defined.]
>> -
>>
>> 4. Please also explain how banks pay their employees
>> etc if the interest the banks receive is cancelled.
>>
>> [Reply: By writing checks, which are their
>> liabilities. When those checks are deposited into
>> bank accounts, the sum total of bank deposits thereby
>> increase, increasing the quantity of money as
>> generally defined. It's all handled by the ordinary
>> rules and conventions of double entry accounting. Let
>> me also comment on another point you made in the
>> program, that two things are paid to the banks in
>> addition to principal: administrative charge plus
>> interest. Actually, the administrative charge is in
>> fact interest, inasmuch as interest is defined, in the
>> standard definition, as the amount paid to the banks
>> in addition to principal, regardless how it is
>> calculated. The three components of interest are a)
>> ordinary business expense, what you call
>> administrative charge; b) what is effect an insurance
>> premium to cover defaulted loans, which varies by
>> credit risk category; and c) profit for the financial
>> services that banks supply. By far the largest amount
>> collected through interest by the banks is the
>> insurance premium, the next largest is business
>> expense, and the smallest is the banks' profit.]
>> -
>>
>> 5. I am fascinated by your comments on riba/interest
>> and the Qu'ran. I have contact with many Islamic
>> scholars and the consensus is undoubtedly that
>> interest is riba and that in ancient usage 'usury'
>> generally refers to riba.
>>
>> [Reply: The "consensus" is from the Islamic
>> fundamentalists you are conferring with. The
>> reformist Muslims are following the path of the
>> Christian reformists of five centuries ago, who are
>> going back to the original scriptures and language,
>> who are finding that in regard to their moral precepts
>> the Islamic scriptures are in close agreement with the
>> Christian scriptures. Distortions in both
>> Christianity and Islam, it appears, were made by
>> closed minded and rather ignorant medieval
>> interpreters, who put their own spin in distorting the
>> word of God. In my earlier post I gave you a citation
>> from one American reformist Muslim Internet site.]
>> -
>>
>> The modern usage of the word 'usury' (meaning
>> 'excessive interest') is another matter.
>>
>> [Reply: It is however more in conformity to the
>> original meaning of the scriptures in both
>> Christianity and Islam.]
>> -
>>
>> 6. I am also completely fascinated by who you are and
>> what interests you are (attempting) to represent.
>>
>> [Reply: I am amused by the conspiracy theories implied
>> by the other posts, from Chris, Steve and others,
>> which failed to address even a single point I made in
>> my original post, as if they didn't matter. The
>> propensity toward conspiracy theory seems to be a
>> characteristic of the "crank" mindset. As to Bill
>> Ryan, I am not Bill Ryan. I am a graduate student. I
>> do know him very well, and see him almost every day,
>> as he is my thesis adviser, as well as being employed
>> by him as a research assistant. My involvement in
>> these discussions is part of my assigned research
>> project.]
>> -
>>
>> Rodney Shakespeare
>> -
>>
>> Sincerely, Myro
>>
>>
>>
>> --- Rodney Shakespeare
>> <rodney.shakespeare1 at btinternet.com <mailto:rodney.shakespeare1 at btinternet.com> > wrote:
>>
>>> Dear Ashenopolitus,
>> [snipped]
>>>
>>>
>>>
>>> ----- Original Message -----
>>> From: "Myro Ashenopolitus" <new_economics at yahoo.com <mailto:new_economics at yahoo.com> >
>>> To: <discussion at globaljusticemovement.net <mailto:discussion at globaljusticemovement.net> >
>>> Sent: Tuesday, January 15, 2008 4:40 PM
>>> Subject: [GJM] Replying to Peter Challen
>>>
>> Unfortunately, Peter, there are some whoppers from
>> both Shakespeare and Yaseen in the first half of the
>> program that will turn off educated and open minded
>> people to the proposed solutions.
>>
>> For example, Shakespeare's assertion that "one of the
>> problems of creating out of nothing is that it creates
>> enough money for the principal of the loan but not
>> enough for the interest."
>>
>> And Yaseen's assertion that "the Quran condemns
>> categorically usury, or interest."
>>
>> First, to address Shakespeare's assertion:
>>
>> We say that banks create money because they credit
>> deposit accounts when they create loans. The ability
>> and propensity to transfer deposit balances from
>> person to person in transactions is what makes deposit
>> accounts effectively money in today's economy. So,
>> when loans are granted, money is being created. And,
>> when loans are repaid, together with interest, money
>> is being canceled.
>>
>> But there is a reciprocal monetary flow from the banks
>> when they make payments for ordinary business
>> expenses, salaries and wages to their employees,
>> dividends to their stockholders, etc., where they also
>> credit deposit account balances, which is additional
>> to loans in the creation of money. This puts money
>> into circulation not deriving from loans that is
>> available to pay interest to the banks in payment for
>> financial services rendered.
>>
>> Now, to Yaseen's assertion:
>>
>> The ancient scriptures originally written in Semitic
>> languages used two words that were erroneously
>> translated or interpreted as "usury."
>>
>> A modern Islamic scholar in the United States writes
>> this:
>>
>>
>> http://www.submission.org/islam/interest-usury.html <http://www.submission.org/islam/interest-usury.html>
>>
>> "The Quran forbids usury, not interest. Quite a few
>> states in USA have laws against usury. Usury is
>> defined as excessive interest. A Dictionary defines
>> usury as 'an excessive or inordinate premium for the
>> use of money borrowed', 'extortionate interest', or
>> 'the practice of taking exorbitant or excessive
>> interest.' The Arabic language also makes distinction
>> between interest (Fa'eda) and usury (Reba). The Quran
>> forbids Reba or usury."
>>
>> Which is perfectly consistent with the modern Jewish
>> and Christian perspectives on the matter:
>>
>> http://eh.net/encyclopedia/article/jones.usury <http://eh.net/encyclopedia/article/jones.usury>
>>
>> "John Calvin's letter on usury of 1545 made it clear
>> that when Christ said 'lend hoping for nothing in
>> return,' He meant that we should help the poor freely.
>> Following the rule of equity, we should judge people
>> by their circumstances, not by legal definitions.
>> Humanist that he was, Calvin knew there were two
>> Hebrew words translated as 'usury.' One, neshek, meant
>> 'to bite'; the other, tarbit, meant 'to take
>> legitimate increase.' Based on these distinctions,
>> Calvin argued that only 'biting' loans were forbidden.
>> Thus, one could lend at interest to business people
>> who would make a profit using the money. To the
>> working poor one could lend without interest, but
>> expect the loan to be repaid. To the impoverished one
>> should give without expecting repayment."
>> -
>>
>> Myro
>>
>>
>> ---------------original message-----------------
>>
>> Date: Thu, 10 Jan 2008 17:23:12 +0000 From: "Peter
>> Challen" <peterchallen at googlemail.com <mailto:peterchallen at googlemail.com> > To:
>> discussion at globaljusticemovement.net <mailto:discussion at globaljusticemovement.net> Subject: Re:
>> [GJM] An excellent programme
>>
>> I've reached the half-way stage of the programme
>> recommended below and use the 'break' to add my
>> recommendation to this sanguine critique of a complex
>> situation - a remarkable bit of broadcasting.
>>
>> Peter
>>
>> On 10/01/2008, Rodney Shakespeare
>> <rodney.shakespeare1 at btinternet.com <mailto:rodney.shakespeare1 at btinternet.com> > wrote:
>>
>> Dear All.
>>
>> Alright, I know I should not say this (because I am
>> one of the speakers with Moeen Yaseen of
>> Globalvision2000) but Global Money Crisis: Just Where
>> Does the Buck Stop? is an excellent programme. Moeen
>> is tremendous!!
>>
>> At last we have managed to put across on television
>> some analysis of what is wrong with the global economy
>> and also put across some idea of the GJM solution.
>>
>>
>> To see the programe:- go to www.Presstv.com <http://www.Presstv.com> then
>> (left-hand side) Programs then The Agenda then Global
>>
>> === message truncated ===
>>
>>
>>
>>
>>
>> ______________________________________________________________________________
>> ______
>> Looking for last minute shopping deals?
>> Find them fast with Yahoo! Search.
>> http://tools.search.yahoo.com/newsearch/category.php?category=shopping <http://tools.search.yahoo.com/newsearch/category.php?category=shopping>
>
>
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