[GJM] James Robertson.....Multiple Personality Disorder?

Sun Mar 23 15:18:32 MDT 2008

Dear Peter,

Thankyou for informing us about Zack Johnson (your partner in Monroe, 
Louisiana), your good self, and past happy times at the Houston, Texas, Rice 
University Economic Studies Club with Bill Ryan as stimulating faculty 
adviser.

1.  Definition of interest.
You define interest as "anything beyond principal that is paid by the 
borrower to the lender no matter how calculated" and you say that interest 
has three elements -- administration cost, default insurance premium and 
lender's profit.

I wish to dispute the lender's profit because
a) administration cost contains an element of profit
b) when the bank creates the money it is making a huge profit on something 
which is ultimately society's property (and not a private bank's). 
Society's right to a proper use of the money supply has been usurped.
This might not matter if the banks allocate the money efficiently for the 
purposes of a genuine free market, but they do not --  at present, as 
events are proving, the improper allocations are bringing disaster to the 
global economy.
c) the profit is highway robbery.  I gave  examples of  i) the Nigerian loan 
which resulted in a repayment of eight times the original principal; and ii) 
a home loan of, say, repayment of $300,00O on a principal of $100,000.

2.  Distortion of free market mechanisms

Profit is contained within the administration cost and interest is in fact a 
large tax which has the consequence of greatly diminishing the consuming 
power of the borrower (think of the extra $200,000 on the home loan) AND of 
diminishing  the borrower's ability to repay.

Furthermore, the addition of an outrageous element of interest has the 
hugely undesirable consequence that the 'free market' economy always 
requires TWO lots of financing (one for production and one for consumption) 
with the result that there is continual inflation.

Kindly say exactly why there should not be a money supply originating with 
the national bank but administered by the banking system (charging 
administration cost and default premium) on market principles.

In particular, please say why there is any "bureaucratic fiat" in such a 
supply since the bank would be responsible for ensuring that the allocations 
are made on market principles (which include the development and spreading 
of productive (and the associated consuming) capacity for the purposes of 
implementing Say's Theorem).  The criteria for the lending should be i) can 
it pay for itself; and ii) does it further the development and spreading of 
productive capacity.  That is not an interference with market mechanisms but 
rather an implementation of them.  You are under the illusion that the 
present allocations really do serve the purposes of a genuine free market. 
They do not -- and the global crisis is proving that in a big way

3.  Fifty false assumptions of your economics or neoclassical economics

Kindly view the fifty false assumptions as assumptions of the economics 
which you espouse or,  if you like, those of mainstream neoclassical 
economics.  I do not mind which.

But, instead of indulging yourself in a generalised allegation of flawed 
understanding,  kindly say specifically which ones are wrong and why (if you 
can).

Thankyou.

Rodney Shakespeare.

PS  With reference to your previous email. I have not proposed a default 
premium insurance for homes.  It is not necessary if there are no 125% loans 
but, say, 80% ones; proper valuations and declarations of income; and no 
inflationary money supply.  In those circumstances, sufficient collateral is 
the home itself.

----- Original Message ----- 
From: "Peter Hogwood" <p_t_hogwood at yahoo.com>
To: <discussion at globaljusticemovement.net>
Sent: Sunday, March 23, 2008 5:03 PM
Subject: Re: [GJM] James Robertson.....Multiple Personality Disorder?

> Rodney, just to clarify the situation and reply to the
> paranoid rantings of Chris Cook and others.
>
> Zack Johnson is a partner of mine and friend in the
> same accounting firm here in Monroe.  We were students
> together at Rice University, where we were members of
> the Economic Studies Club, of which Bill Ryan was
> faculty adviser.  Ryan led many hours of enjoyable
> discussion, and we continue to correspond with him
> through email, and occasionally see him at
> conferences.  I consider him a great friend.  Most of
> what I know about economics I learned from him.
>
> Now to return to your earlier posting.
>
> "But if the mortgage comes from a bank which has
> created the money out of nothing (i.e., simply by
> making a new computer entry) why should the bank
> charge interest in addition to administration cost?
> That is highway robbery.  You are mixing interest with
> administration cost."
> --------------------------------------------------
>
> [Reply]:  You continue to muddle the definition of
> interest.  Interest is anything beyond principal that
> is paid by the borrower to the lender no matter how
> calculated.  Interest is not in addition to
> administration cost but administration cost is one of
> the three elements of interest, the other two being
> the lender's profit and default insurance premium.
> These are all legitimate payments for the financial
> service called credit.
> -
>
> "Paying for genuine administration cost upholds free
> market principle but paying interest does not -- it
> distorts the basic market mechanisms."
> --------------------------------------------------
>
> [Reply]:  Quite the contrary.  Profit and the
> insurance premium are actual costs for financial
> services together with administration cost.  The
> general principle of the free market is that the
> consumers of services pay the costs of the services
> they receive.  Zero interest would mean that someone
> else is paying for the financial service you are
> receiving.  With zero interest, profit and loss to the
> service provider cannot be the guide to the provider
> of the service in his allocation of resources consumed
> in the process, which means that some bureaucratic
> fiat will substitute for the guidance of the market.
> Bureaucratic fiat is generally less efficient than
> information gained from the market in the allocation
> of resources.
> -
>
> "Yes, administration cost includes salaries and can
> include an element of risk premium."
> --------------------------------------------------
>
> [Reply]:  Again, you continue to muddle the definition
> of interest.  Risk premium is a separate component of
> interest, and is in fact the largest component of
> interest.  In order of size, the smallest is profit,
> the next largest is administrative cost, and the
> largest is the cost for defaults which is factored
> into each risk category as the default premium.
> -
>
> Now to this from your last post:
>
> "I am happy to debate with Peter Hogwood.  He is a
> robust expositor of the conventional finance/economics
> position and as such, at some point, has to
> confronted. Thus, for example,  I intend asking his
> view as to how many of  the fifty false assumptions of
> neoclassical economics at www.binaryeconomics.net are
> not false but true."
> --------------------------------------------------
>
> [Reply]:  Firstly, I am definitely not a proponent of
> conventional or neoclassic economics.  I would
> characterize myself as Post Keynesian with great
> emphasis on the creditary aspect, and greatly
> influenced by Social Credit theory as introduced to me
> by Bill Ryan.
>
> As to the fifty false assumptions, they appear not to
> be assumptions of neoclassic economics, but your
> flawed understanding of neoclassic economics.  There's
> a world of difference.
>
> Peter Hogwood
>
>
> 
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